10-Q - CCBG - Equibles

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

March 31, 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 [

] 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 April 28, 2023,

17,021,748

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 THREE MONTHS ENDED MARCH 31, 2023

TABLE OF CONTENTS

PART I –

Financial Information

Page

Item 1.

Consolidated Financial Statements (Unaudited)

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

Consolidated Statements of Income – Three Months Ended March 31, 2023 and 2022

Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2023 and 2022

Consolidated Statements of Changes in Shareowners’ Equity – Three Months Ended March 31, 2023 and 2022

Consolidated Statements of Cash Flows – Three Months Ended March 31, 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 on

Form 10-Q and

the following sections

of our Annual

Report on Form

10-K for the

year ended December

31, 2022

(the “2022 Form

10-K”):

(a) “Introductory

Note” in

Part I,

Item 1.

“Business”; (b)

“Risk Factors”

in Part

I, Item

1A, as

updated in

our subsequent

quarterly reports

filed on Form 10-Q; and (c)

“Introduction” in “Management’s

Discussion and Analysis of Financial Condition

and Results of Operations,” in

Part II, Item 7, as well as:

●

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 the recent 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;

●

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;

●

inflation, interest rate, market and monetary fluctuations;

●

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;

●

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 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, 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 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)

March 31,

December 31,

(Dollars in Thousands, Except Par Value)

2023

2022

ASSETS

Cash and Due From Banks

84,549

72,114

Federal Funds Sold and Interest Bearing Deposits

303,403

528,536

Total Cash and Cash Equivalents

387,952

600,650

Investment Securities, Available

for Sale, at fair value (amortized cost of $

438,068

and $

455,232

)

402,943

413,294

Investment Securities, Held to Maturity (fair value of $

612,200

and $

612,701

)

651,755

660,744

Equity Securities

1,883

Total Investment

Securities

1,056,581

1,074,048

Loans Held For Sale, at fair value

55,118

54,635

Loans Held for Investment

2,636,884

2,525,180

Allowance for Credit Losses

(26,507)

(24,736)

Loans Held for Investment, Net

2,610,377

2,500,444

Premises and Equipment, Net

82,055

82,138

Goodwill and Other Intangibles

93,053

93,093

Other Real Estate Owned

431

Other Assets

124,593

120,519

Total Assets

4,409,742

4,525,958

LIABILITIES

Deposits:

Noninterest Bearing Deposits

1,601,388

1,653,620

Interest Bearing Deposits

2,222,532

2,285,697

Total Deposits

3,823,920

3,939,317

Short-Term

Borrowings

26,632

56,793

Subordinated Notes Payable

52,887

Other Long-Term

Borrowings

463

513

Other Liabilities

85,878

73,675

Total Liabilities

3,989,780

4,123,185

Temporary Equity

8,722

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;

17,021,748

and

16,986,785

shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

170

Additional Paid-In Capital

37,512

37,331

Retained Earnings

405,634

393,744

Accumulated Other Comprehensive Loss, net of tax

(32,076)

(37,229)

Total Shareowners’

Equity

411,240

394,016

Total Liabilities, Temporary

Equity, and Shareowners’ Equity

4,409,742

4,525,958

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 March 31,

(Dollars in Thousands, Except Per Share

Data)

2023

2022

INTEREST INCOME

Loans, including Fees

34,880

22,133

Investment Securities:

Taxable Securities

4,912

2,890

Tax Exempt Securities

Federal Funds Sold and Interest Bearing Deposits

4,111

409

Total Interest Income

43,915

25,438

INTEREST EXPENSE

Deposits

2,488

224

Short-Term

Borrowings

461

192

Subordinated Notes Payable

571

317

Other Long-Term

Borrowings

Total Interest Expense

3,526

742

NET INTEREST INCOME

40,389

24,696

Provision for Credit Losses

3,130

Net Interest Income After Provision for Credit Losses

37,259

24,696

NONINTEREST INCOME

Deposit Fees

5,239

5,191

Bank Card Fees

3,726

3,763

Wealth Management

Fees

3,928

6,070

Mortgage Banking Revenues

6,995

8,946

Other

2,360

1,848

Total Noninterest

Income

22,248

25,818

NONINTEREST EXPENSE

Compensation

25,636

24,856

Occupancy, Net

6,762

6,093

Other

8,057

8,284

Total Noninterest

Expense

40,455

39,233

INCOME BEFORE INCOME TAXES

19,052

11,281

Income Tax Expense

4,133

2,235

NET INCOME

14,919

9,046

Loss (Income) Attributable to Noncontrolling Interests

(591)

NET INCOME ATTRIBUTABLE

TO COMMON SHAREOWNERS

14,954

8,455

BASIC NET INCOME PER SHARE

0.88

0.50

DILUTED NET INCOME PER SHARE

0.88

0.50

Average Basic Shares

Outstanding

17,016

16,931

Average Diluted

Shares Outstanding

17,045

16,946

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended

March 31,

(Dollars in Thousands)

2023

2022

NET INCOME ATTRIBUTABLE

TO COMMON SHAREOWNERS

14,954

8,455

Other comprehensive income (loss), before

tax:

Investment Securities:

Change in net unrealized gain (loss) on securities available for sale

6,808

(25,448)

Amortization of unrealized losses on securities transferred from available

for sale to held to maturity

865

Derivative:

Change in net unrealized (loss) gain on effective cash flow

derivative

(801)

1,836

Benefit Plans:

Pension Settlement

209

Total Benefit Plans

209

Other comprehensive income (loss), before

tax

6,872

(23,400)

Deferred tax expense (benefit) related to other comprehensive income

1,719

(5,871)

Other comprehensive income (loss), net of tax

5,153

(17,529)

TOTAL COMPREHENSIVE

INCOME (LOSS)

20,107

(9,074)

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, January 1, 2023

16,986,785

170

37,331

393,744

(37,229)

394,016

Net Income Attributable to Common Shareowners

14,954

Other Comprehensive Income, net of tax

5,153

Cash Dividends ($

0.1800

per share)

(3,064)

Repurchase of Common Stock

(25,241)

(819)

Stock Based Compensation

536

Stock Compensation Plan Transactions, net

60,204

464

Balance, March 31, 2023

17,021,748

170

37,512

405,634

(32,076)

411,240

Balance, January 1, 2022

16,892,060

169

34,423

364,788

(16,214)

383,166

Net Income Attributable to Common Shareowners

8,455

Other Comprehensive Loss, net of tax

(17,529)

Cash Dividends ($

0.1600

per share)

(2,712)

Stock Based Compensation

245

Stock Compensation Plan Transactions, net

55,542

520

Balance, March 31, 2022

16,947,602

169

35,188

370,531

(33,743)

372,145

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)

Three Months Ended March 31,

(Dollars in Thousands)

2023

2022

CASH FLOWS FROM OPERATING

ACTIVITIES

Net Income Attributable to Common Shareowners

14,954

8,455

Adjustments to Reconcile Net Income to

Cash Provided by Operating Activities:

Provision for Credit Losses

3,130

Depreciation

1,969

1,907

Amortization of Premiums, Discounts and Fees, net

1,080

2,907

Amortization of Intangible Asset

Pension Plan Settlement Charge

209

Originations of Loans Held-for-Sale

(212,085)

(246,887)

Proceeds From Sales of Loans Held-for-Sale

218,597

257,550

Mortgage Banking Revenues

(6,995)

(8,946)

Net Additions for Capitalized Mortgage Servicing Rights

(633)

227

Stock Compensation

536

245

Net Tax Benefit From Stock-Based

Compensation

(19)

Deferred Income Taxes

(747)

(6,167)

Net Change in Operating Leases

(3)

(27)

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

(1,858)

Net Decrease (Increase) in Other Assets

(4,349)

1,441

Net Increase in Other Liabilities

12,471

7,036

Net Cash Provided By Operating Activities

26,107

17,971

CASH FLOWS FROM INVESTING ACTIVITIES

Securities Held to Maturity:

Purchases

(194,448)

Proceeds from Payments, Maturities, and Calls

8,820

14,441

Securities Available for

Sale:

Purchases

(2,017)

(25,139)

Proceeds from Sale of Securities

3,365

Proceeds from Payments, Maturities, and Calls

16,559

24,824

Purchases of Loans Held for Investment

(121,029)

(26,713)

Net Decrease (Increase) in Loans Held for Investment

7,376

(28,405)

Proceeds From Sales of Other Real Estate Owned

2,699

Purchases of Premises and Equipment

(1,886)

(1,013)

Noncontrolling Interest Contributions

1,838

Net Cash Used In Investing Activities

(89,478)

(231,250)

CASH FLOWS FROM FINANCING ACTIVITIES

Net (Decrease) Increase in Deposits

(115,397)

52,645

Net Decrease in Short-Term

Borrowings

(30,161)

(3,692)

Repayment of Other Long-Term

Borrowings

(50)

(78)

Dividends Paid

(3,064)

(2,712)

Payments to Repurchase Common Stock

(819)

Proceeds from Issuance of Common Stock Under Purchase Plans

164

190

Net Cash (Used In) Provided by Financing Activities

(149,327)

46,353

NET DECREASE IN CASH AND CASH EQUIVALENTS

(212,698)

(166,926)

Cash and Cash Equivalents at Beginning of Period

600,650

1,035,354

Cash and Cash Equivalents at End of Period

387,952

868,428

Supplemental Cash Flow Disclosures:

Interest Paid

3,723

715

Income Taxes Paid

7,466

Noncash Investing and Financing Activities:

Loans Transferred to Other Real Estate Owned

423

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.

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 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 us 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 us

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.

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

March 31, 2023

U.S. Government Treasury

23,984

1,611

22,373

U.S. Government Agency

184,294

127

10,131

174,290

States and Political Subdivisions

47,143

5,663

(8)

41,479

Mortgage-Backed Securities

(1)

79,148

10,137

69,014

Corporate Debt Securities

96,144

7,718

(28)

88,432

Other Securities

(2)

7,355

Total

438,068

171

35,260

(36)

402,943

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

March 31, 2023

U.S. Government Treasury

457,446

20,272

437,174

Mortgage-Backed Securities

(1)

194,309

19,302

175,026

Total

651,755

39,574

612,200

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 $

2.3

million and $

5.1

million,

respectively,

at March 31, 2023 and $

2.1

million and $

5.1

million, respectively,

at December 31, 2022.

At March 31, 2023 and December 31, 2022, the investment portfolio had $

1.9

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 $

660.1

million and $

656.1

million at March 31, 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 balance sheet at March

31, 2023 totaled $

7.1

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 no significant sales of investment securities for the three months ended

March 31, 2023 and $

3.4

million

in sales of investment securities for the three months ended March 31, 2022.

Maturity Distribution

At March 31, 2023, the Company’s

investment securities had the following maturity distribution based

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

36,233

35,696

Due after one year through five years

159,994

147,344

457,446

437,174

Due after five year through ten years

50,961

42,970

Mortgage-Backed Securities

79,148

69,014

194,309

175,026

U.S. Government Agency

104,377

100,564

Other Securities

7,355

Total

438,068

402,943

651,755

612,200

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

March 31, 2023

Available for

Sale

U.S. Government Treasury

994

19,481

1,611

20,475

1,611

U.S. Government Agency

29,035

354

133,057

9,777

162,092

10,131

States and Political Subdivisions

39,905

5,663

39,905

5,663

Mortgage-Backed Securities

68,892

10,137

68,892

10,137

Corporate Debt Securities

10,009

215

74,472

7,503

84,481

7,718

Total

40,038

569

335,807

34,691

375,845

35,260

Held to Maturity

U.S. Government Treasury

4,827

106

432,346

20,166

437,173

20,272

Mortgage-Backed Securities

9,360

297

164,217

19,005

173,577

19,302

Total

14,187

403

596,563

39,171

610,750

39,574

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 March 31, 2023, there were

896

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

74.8

million.

of these

positions are U.S. Treasury bonds and carry

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

684

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

125

positions (municipal

securities and corporate bonds) have a credit component.

At March 31, 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.

March 31, 2023, corporate debt securities had an allowance for credit losses of

28,000

and municipal securities had an allowance of

8,000

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)

March 31, 2023

December 31, 2022

Commercial, Financial and Agricultural

236,263

247,362

Real Estate – Construction

253,903

234,519

Real Estate – Commercial Mortgage

798,438

782,557

Real Estate – Residential

(1)

834,784

727,105

Real Estate – Home Equity

207,241

208,120

Consumer

(2)

306,255

325,517

Loans Held For Investment, Net of Unearned Income

2,636,884

2,525,180

(1)

Includes loans in process balances of $

8.5

million and $

6.1

million at March 31, 2023 and December 31,

2022, respectively.

(2)

Includes overdraft balances of $

0.9

million and $

1.1

million at March 31, 2023 and December 31, 2022,

respectively.

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

included in loans were $

12.5

million at March 31, 2023 and

10.8

million at December 31, 2022.

Accrued interest receivable on loans which is excluded from amortized

cost totaled $

8.6

million at March 31, 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 $

120.1

million and

26.3

million for the three months ended March 31, 2023 and March 31, 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.

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

March 31, 2023

Beginning Balance

1,506

2,654

4,815

10,409

1,864

3,488

24,736

Provision for Credit Losses

704

1,183

(10)

1,329

3,291

Charge-Offs

(164)

(120)

(2,366)

(2,650)

Recoveries

944

1,130

Net (Charge-Offs) Recoveries

(69)

(112)

(1,422)

(1,520)

Ending Balance

1,515

3,359

4,710

11,649

1,879

3,395

26,507

Three Months Ended

March 31, 2022

Beginning Balance

2,191

3,302

5,810

4,129

2,296

3,878

21,606

Provision for Credit Losses

(161)

(714)

(181)

314

(405)

1,068

(79)

Charge-Offs

(73)

(266)

(33)

(1,402)

(1,774)

Recoveries

165

716

1,003

Net (Charge-Offs) Recoveries

(237)

(686)

(771)

Ending Balance

2,122

2,596

5,392

4,470

1,916

4,260

20,756

For the three months ended March 31, 2023, the allowance for HFI loans

increased by $

1.8

million and reflected a provision expense

of $

3.3

million and net loan charge-offs of $

1.5

million.

The increase was primarily driven by incremental reserves needed for loan

growth.

For the three months ended March 31, 2022, the allowance decreased by $

0.9

million and reflected a provision benefit of

0.1

million and net loan charge-offs of $

0.8

million.

The decrease reflected improvement in the forecasted level of unemployment

and its potential effect on rates of default.

Four 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

March 31, 2023

Commercial, Financial and Agricultural

248

252

235,999

236,263

Real Estate – Construction

1,137

252,766

253,903

Real Estate – Commercial Mortgage

130

795,747

2,561

798,438

Real Estate – Residential

(1)

1,040

832,978

766

834,784

Real Estate – Home Equity

206,505

682

207,241

Consumer

2,175

273

2,448

303,239

568

306,255

Total

4,718

343

5,061

2,627,234

4,589

2,636,884

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

725,491

239

727,105

Real Estate – Home Equity

207,314

771

208,120

Consumer

3,666

1,852

5,518

319,415

584

325,517

Total

5,137

2,692

7,829

2,515,054

2,297

2,525,180

(1)

Includes $

0.3

million of Loans Held for Sale in nonaccrual status as of March 31, 2023.

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.

March 31, 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

Real Estate – Commercial Mortgage

2,438

123

389

256

Real Estate – Residential

766

239

Real Estate – Home Equity

682

771

Consumer

568

584

Total Nonaccrual

Loans

2,438

2,151

389

1,908

Collateral Dependent Loans.

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

loans.

March 31, 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

Real Estate – Commercial Mortgage

2,207

389

Real Estate – Residential

160

Real Estate – Home Equity

231

130

Consumer

Total Collateral Dependent

Loans

2,438

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 March 31, 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 in process.

For the three-month period ended March 31, 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 and

current period gross write-offs at March 31, 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

9,753

86,415

40,206

17,534

12,291

15,965

49,582

231,746

Special Mention

1,200

748

2,322

4,390

Substandard

127

Total

10,953

86,495

40,954

17,605

12,297

16,055

51,904

236,263

Current-Period Gross

Writeoffs

105

164

Real Estate -

Construction:

Pass

34,114

149,982

52,697

7,275

397

123

6,881

251,469

Special Mention

859

453

1,337

Substandard

1,097

Total

34,114

149,982

53,556

8,397

850

123

6,881

253,903

Real Estate -

Commercial Mortgage:

Pass

34,848

245,205

159,795

131,444

51,973

137,449

26,056

786,770

Special Mention

995

339

992

240

1,402

2,819

300

7,087

Substandard

822

966

753

642

763

635

4,581

Total

35,843

246,366

161,753

132,437

54,017

141,031

26,991

798,438

Current-Period Gross

Writeoffs

120

Real Estate - Residential:

Pass

133,468

436,089

92,988

44,541

28,365

80,711

9,109

825,271

Special Mention

356

525

632

1,606

Substandard

1,042

1,133

1,725

953

3,054

7,907

Total

133,468

437,224

94,477

46,791

29,318

84,397

9,109

834,784

Real Estate - Home

Equity:

Performing

133

387

1,192

204,784

206,559

Nonperforming

592

682

Total

133

401

1,268

205,376

207,241

Consumer:

Performing

15,735

122,092

100,617

32,203

17,726

12,242

5,072

305,687

Nonperforming

269

170

568

Total

15,735

122,361

100,787

32,222

17,810

12,268

5,072

306,255

Current-Period Gross

Writeoffs

646

915

488

110

113

2,366

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.

March 31, 2023

December 31, 2022

Unpaid Principal

(Dollars in Thousands)

Balance/Notional

Fair Value

Balance/Notional

Fair Value

Residential Mortgage Loans Held for Sale

54,442

55,118

54,488

54,635

Residential Mortgage Loan Commitments ("IRLCs")

(1)

51,984

1,346

36,535

819

Forward Sales Contracts

(2)

34,000

(216)

15,500

187

56,248

55,641

(1)

Recorded in other assets at fair value

(2)

Recorded in other liabilities and other assets at fair value

at March 31, 2023 and December 31, 2022, respectively

At March 31, 2023, the Company had $

0.3

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

0.3

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 March 31,

(Dollars in Thousands)

2023

2022

Net realized gains on sales of mortgage loans

3,192

5,136

Net change in unrealized gain on mortgage loans held for sale

529

(975)

Net change in the fair value of mortgage loan commitments

(IRLCs)

527

(141)

Net change in the fair value of forward sales contracts

(402)

857

Pair-Offs on net settlement of forward sales contracts

(1)

2,255

Mortgage servicing rights additions

1,034

632

Net origination fees

2,116

1,182

Total mortgage banking

revenues

6,995

8,946

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)

March 31, 2023

December 31, 2022

Number of residential mortgage loans serviced for others

3,232

2,975

Outstanding principal balance of residential mortgage loans serviced

for others

1,011,366

895,145

Weighted average

interest rate

4.33%

4.19%

Remaining contractual term (in months)

339

345

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.

March 31, 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 March 31, 2023 and $

0.3

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 months ended March 31, 2023

and March 31, 2022, the Company repurchased $

0.9

million and $

0.4

million 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 March 31,

(Dollars in Thousands)

2023

2022

Beginning balance

6,067

3,774

Additions due to loans sold with servicing retained

1,135

632

Deletions and amortization

(401)

(405)

Ending balance

6,801

4,001

At March 31, 2023, we recorded the sale of $

334

million (unpaid principal balance) in FNMA mortgage servicing rights that

pending FNMA approval.

The book value of the mortgage servicing rights of $

2.3

million and the pending gain on sale of $

1.38

million were recorded as a secured borrowing in Other Liabilities within the Consolidated

Financial Statement of Condition.

Subsequent to March 31, 2023, FNMA approval was obtained.

The Company did

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

three months ended March 31,

2023 or 2022.

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

mortgage servicing rights were as follows:

March 31, 2023

December 31, 2022

Minimum

Maximum

Minimum

Maximum

Discount rates

9.51%

12.00%

9.50%

12.00%

Annual prepayment speeds

7.12%

19.55%

12.33%

20.45%

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

21.20

% at March 31, 2023 and

17.22

% 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

March 31, 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.

8,309

million warehouse line of credit agreement expiring in

December 2023

Interest is at the SOFR plus

2.25%

3.25%

13,864

Total Warehouse

Borrowings

22,173

Warehouse

line borrowings are classified as short-term borrowings.

At December 31, 2022, warehouse line borrowings totaled $

50.2

million. At March 31, 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 March 31, 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 March

31, 2023 and December 31, 2022 was $

32.8

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 March 31, 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 LIBOR plus a weighted average margin of

1.83

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)

March 31, 2023

Interest rate swaps related to subordinated debt

Other Assets

30,000

5,394

7.3

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 months ended March 31, 2023.

Amount of (Loss)

Amount of Gain

Gain Recognized

(Loss) Reclassified

(Dollars in Thousands)

Category

in AOCI

from AOCI to Income

Three months ended March 31, 2023

Interest expense

(598)

309

Three months ended March 31, 2022

Interest expense

1,370

(28)

The Company estimates there will be approximately $

1.2

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

months.

The Company had a collateral liability of $

5.4

million and $

5.8

million at March 31, 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 March 31, 2023, the operating lease ROU assets and liabilities were $

24.7

million and $

25.1

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

March 31,

(Dollars in Thousands)

2023

2022

Operating lease expense

700

384

Short-term lease expense

139

179

Total lease expense

839

563

Other information:

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

Operating cash flows from operating leases

706

429

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

2,906

592

Weighted average

remaining lease term — operating leases (in years)

18.6

24.9

Weighted average

discount rate — operating leases

3.3%

2.0%

The table below summarizes the maturity of remaining lease liabilities:

(Dollars in Thousands)

March 31, 2023

2023

2,354

2024

2,666

2025

2,438

2026

2,320

2027

2,245

2028 and thereafter

21,045

Total

33,068

Less: Interest

(8,002)

Present Value

of Lease liability

25,066

At March 31, 2023, the Company had

additional operating lease obligations for banking offices

that have not yet commenced.

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

The Company’s minimum payment

is $

0.2

million annually

through 2052, for an aggregate remaining obligation of $

2.4

million at March 31, 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 March 31,

(Dollars in Thousands)

2023

2022

Service Cost

872

1,572

Interest Cost

1,458

1,166

Expected Return on Plan Assets

(1,701)

(2,675)

Prior Service Cost Amortization

Net Loss Amortization

234

428

Pension Settlement

209

Net Periodic Benefit Cost

864

704

Discount Rate Used for Benefit Cost

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 plans were as follows:

Three Months Ended March 31,

(Dollars in Thousands)

2023

2022

Service Cost

Interest Cost

130

Prior Service Cost Amortization

Net Loss Amortization

(155)

180

Net Periodic Benefit Cost

336

Discount Rate Used for Benefit Cost

5.45%

2.80%

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:

March 31, 2023

December 31, 2022

(Dollars in Thousands)

Fixed

Variable

Total

Fixed

Variable

Total

Commitments to Extend Credit

(1)

248,660

577,180

825,840

243,614

531,873

775,487

Standby Letters of Credit

5,677

5,619

Total

254,337

577,180

831,517

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 March 31,

(Dollars in Thousands)

2023

2022

Beginning Balance

2,989

2,897

Provision for Credit Losses

(156)

Ending Balance

2,833

2,976

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 an outstanding 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 a commitment of up to $

7.0

million in a solar tax credit equity fund.

At March 31,

2023, the Company had contributed $

0.3

million of the bank tech commitment and $

2.8

million of the solar fund commitment.

December 31, 2022, the Company had contributed $

0.2

million of the bank tech commitment and $

1.0

million of the solar fund

commitment.

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.

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 March 31, 2023, there were

amounts payable 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

March 31, 2023

ASSETS:

Securities Available for

Sale:

U.S. Government Treasury

22,373

U.S. Government Agency

174,290

States and Political Subdivisions

41,479

Mortgage-Backed Securities

69,014

Corporate Debt Securities

88,432

Loans Held for Sale

55,118

Interest Rate Swap Derivative

5,394

Mortgage Banking IRLC Derivative

1,346

LIABILITIES:

Mortgage Banking Hedge Derivative

216

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

54,635

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 $

4.3

million

and $

6.7

million, respectively, for the three

months ended March 31, 2023, and $

4.3

million and $

13.6

million, respectively, for the

three months ended March 31, 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 $

2.4

million with

valuation allowance at March 31, 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 three 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 March 31, 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.

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:

March 31, 2023

Carrying

Level 1

Level 2

Level 3

(Dollars in Thousands)

Value

Inputs

ASSETS:

Cash

84,549

Short-Term Investments

303,403

Investment Securities, Held to Maturity

651,755

437,174

175,026

Equity Securities

(1)

1,883

Other Equity Securities

(2)

2,848

Mortgage Servicing Rights

6,801

9,541

Loans, Net of Allowance for Credit Losses

2,610,377

2,464,688

LIABILITIES:

Deposits

3,823,920

3,284,249

Short-Term

Borrowings

26,632

Subordinated Notes Payable

52,887

45,365

Long-Term Borrowings

463

464

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

6,067

8,503

Loans, Net of Allowance for Credit Losses

2,500,444

2,357,533

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 - reflected

in other assets.

(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

5,751

(598)

5,153

Balance as of March 31, 2023

(31,598)

4,027

(4,505)

(32,076)

Balance as of January 1, 2022

(4,588)

1,530

(13,156)

(16,214)

Other comprehensive (loss) income during the period

(19,055)

1,370

156

(17,529)

Balance as of March 31, 2022

(23,643)

2,900

(13,000)

(33,743)

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 Report on Form 10-K, as updated in our subsequent quarterly reports

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

the date of this report.

However, other factors besides those listed in our

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

results,

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

uncertainties.

Any forward-looking

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

We do not undertake to

update any forward-looking

statement, except as required by applicable law.

BUSINESS OVERVIEW

We are a financial

holding company headquartered in Tallahassee,

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

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

We offer

a broad array of products and services through a total of 60 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.

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)

First

Fourth

Third

Second

First

Shareowners' Equity (GAAP)

411,240

394,016

373,165

371,675

372,145

Less: Goodwill and Other Intangibles (GAAP)

93,053

93,093

93,133

93,173

93,213

Tangible Shareowners' Equity (non-GAAP)

318,187

300,923

280,032

278,502

278,932

Total Assets (GAAP)

4,409,742

4,525,958

4,332,671

4,354,297

4,310,045

Less: Goodwill and Other Intangibles (GAAP)

93,053

93,093

93,133

93,173

93,213

Tangible Assets (non-GAAP)

4,316,689

4,432,865

4,239,538

4,261,124

4,216,832

Tangible Common Equity Ratio (non-GAAP)

A/B

7.37%

6.79%

6.61%

6.54%

6.61%

Actual Diluted Shares Outstanding (GAAP)

17,049,913

17,039,401

16,998,177

16,981,614

16,962,362

Tangible Book Value

per Diluted Share (non-GAAP)

A/C

18.66

17.66

16.47

16.40

16.44

SELECTED QUARTERLY

FINANCIAL DATA

(UNAUDITED)

2023

2022

(Dollars in Thousands, Except Per Share Data)

First

Fourth

Third

Second

First

Summary of Operations

Interest Income

43,915

41,226

35,364

29,320

25,438

Interest Expense

3,526

3,122

2,037

987

742

Net Interest Income

40,389

38,104

33,327

28,333

24,696

Provision for Credit Losses

3,130

3,521

2,099

1,542

Net Interest Income After

Provision for Credit Losses

37,259

34,583

31,228

26,791

24,696

Noninterest Income

22,248

20,972

22,934

24,903

25,818

Noninterest Expense

40,455

42,287

39,810

40,498

39,233

Income Before Income Taxes

19,052

13,268

14,352

11,196

11,281

Income Tax Expense

4,133

2,599

3,074

2,177

2,235

Income Attributable to NCI

995

(306)

(591)

Net Income Attributable to CCBG

14,954

11,664

11,315

8,713

8,455

Net Interest Income (FTE)

(1)

40,489

38,192

33,410

28,409

24,774

Per Common Share

Net Income Basic

0.88

0.69

0.67

0.51

0.50

Net Income Diluted

0.88

0.68

0.67

0.51

0.50

Cash Dividends Declared

0.18

0.17

0.16

Diluted Book Value

24.12

23.12

21.95

21.89

21.94

Diluted Tangible Book Value

(2)

18.66

17.66

16.47

16.40

16.44

Market Price:

High

36.86

36.23

33.93

28.55

28.88

Low

28.18

31.14

27.41

24.43

25.96

29.31

32.50

31.11

27.89

26.36

Selected Average Balances

Investment Securities

1,064,212

1,081,092

1,120,728

1,144,757

1,059,145

Loans Held for Investment

2,582,395

2,439,379

2,264,075

2,084,679

1,963,578

Earning Assets

4,062,688

4,032,733

4,009,951

3,974,221

3,938,824

Total Assets

4,411,865

4,381,825

4,357,678

4,321,388

4,266,775

Deposits

3,817,314

3,803,042

3,769,864

3,765,329

3,714,062

Shareowners’ Equity

404,067

380,570

379,305

373,365

383,956

Common Equivalent Average Shares:

Basic

17,016

16,963

16,960

16,949

16,931

Diluted

17,045

17,016

16,996

16,971

16,946

Performance Ratios:

Return on Average Assets

1.37

1.06

1.03

0.81

0.80

Return on Average Equity

15.01

12.16

11.83

9.36

8.93

Net Interest Margin (FTE)

4.04

3.76

3.31

2.87

2.55

Noninterest Income as % of Operating Revenue

35.52

35.50

40.76

46.78

51.11

Efficiency Ratio

64.48

71.47

70.66

75.96

77.55

Asset Quality:

Allowance for Credit Losses (“ACL”)

26,507

24,736

22,510

21,281

20,756

Nonperforming Assets (“NPAs”)

4,602

2,728

2,422

3,231

2,745

ACL to Loans HFI

1.01

0.98

0.96

1.05

NPAs to Total

Assets

0.10

0.06

0.07

0.06

NPAs to Loans HFI plus OREO

0.17

0.11

0.10

0.15

0.14

ACL to Non-Performing Loans

577.63

1,076.89

934.53

677.57

760.83

Net Charge-Offs to Average Loans HFI

0.24

0.21

0.12

0.22

0.16

Capital Ratios:

Tier 1 Capital

14.51

14.53

14.80

15.13

15.98

Total Capital

15.53

15.52

15.75

16.07

16.98

Common Equity Tier 1

12.68

12.64

12.83

13.07

13.77

Leverage

9.28

9.06

8.91

8.77

8.78

Tangible Common Equity

(2)

7.37

6.79

6.61

6.54

6.61

(1)

Fully Tax Equivalent

(2)

Non-GAAP financial measure.

See non-GAAP reconciliation on page 31.

FINANCIAL OVERVIEW

Results of Operations

Performance Summary

Net income attributable to common shareowners of $15.0 million, or $0.88 per

diluted share, for the first

quarter of 2023 compared to $11.7 million,

or $0.68 per diluted share, for the fourth quarter of 2022, and $8.5 million,

or $0.50

per

diluted share, for the first quarter of 2022.

Net Interest Income

Tax-equivalent net

interest income for the first quarter of 2023

totaled $40.5 million, compared to $38.2 million

for the fourth quarter of 2022, and $24.8 million for the first quarter of

2022.

Compared to both prior periods, the increase reflected

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

earning assets, partially offset by higher deposit costs.

Provision and Allowance for Credit

Losses.

We recorded

a provision for credit losses of $3.1 million for the first quarter of 2023

compared to $3.5 million for the fourth quarter of 2022 and no provision

for the first quarter of 2022.

Compared to the fourth quarter

of 2022, the decrease reflected a lower level of loan growth.

The lack of provision for the first quarter of 2022 reflected lower

required reserves needed post-pandemic.

Noninterest Income

Noninterest income for the first quarter of 2023 totaled $22.2 million, an increase

of $1.2 million, or 6.1%, over

the fourth quarter of 2022 and a decrease of $3.6 million, or 13.8%, from

the first quarter of 2022.

The increase over the fourth

quarter of 2022 was primarily due to higher mortgage banking revenues

(higher rate locks and gain on sale margin) partially offset

lower deposit fees (two less processing days).

The decrease from the first quarter 2022 was driven by lower wealth management fees

due to lower insurance commissions - the first quarter of 2022 was higher

than normal due to closing of several large insurance

policies.

Lower mortgage revenues (lower rate locks and gain on sale margin)

also contributed to the decrease, but was partially offset

by an increase in other income (loan servicing fees).

Noninterest Expense

Noninterest expense for the first quarter of 2023 totaled $40.5 million compared to $42.3

million for the fourth

quarter of 2022 and $39.2 million for the first quarter of 2022.

Compared to the fourth quarter of 2022, the $1.8 million decrease was

primarily attributable to a $2.4 million decrease in other expense due

to a decrease in other real estate expense of $1.6 million due to a

gain from the sale of a banking office.

Further, pension expense (non-service-related

component) for the first quarter of 2023 totaled

$0.2 million compared to $1.1 million for the fourth quarter of 2022 which included

a $1.8 million pension settlement charge.

Compared to the first quarter of 2022, the $1.3 million increase reflected increases in

compensation expense of $0.8 million and

occupancy expense of $0.7 million that were partially off by a decrease

in other expense of $0.2 million.

The addition of banking

offices and staffing in new markets drove the variance

in salary and occupancy expenses.

Further, compensation expense reflected

$0.7 million decrease in pension service cost that was partially offset

by an increase in stock-based compensation expense of $0.4

million.

Financial Condition

Earning Assets.

Average earning assets totaled

$4.063 billion for the first quarter of 2023, an increase of $30.0 million,

or 0.7%, over

the fourth quarter of 2022, and an increase of $123.9 million, or 3.1%, over the

first quarter of 2022.

The increase over both prior

periods was primarily driven by higher deposit balances.

The mix of earning assets continues to improve driven by strong loan

growth.

Loans.

Average loans held for investment

(“HFI”) increased $143.0 million, or 5.9%, over the fourth quarter of 202

and increased

$618.8 million, or 31.5%, over the first quarter of 2022.

Period end loans increased $111.7

million, or 4.4%, over the fourth quarter of

2022 and $651.4 million, or 32.8%, over the first quarter of 2022.

Compared to the fourth quarter of 2022, a majority of the increase

was realized in the residential real estate category,

and to a lesser extent, the construction and commercial real estate mortgage

categories.

Compared to the first quarter of 2022, loan growth was broad based, with increases realized in

all categories except

consumer loans.

The slowdown in the secondary market residential loan sales has allowed us to book

a steady flow of CCHL’s

adjustable-rate production in our loan portfolio throughout 2022

and the first quarter of 2023.

Credit Quality

Overall credit quality remains stable.

Nonperforming assets (nonaccrual loans and other real estate) totaled $4.6

million at March 31, 2023 compared to $2.7 million at December 31, 2022, and

$2.7 million at March 31, 2022.

At March 31, 2023,

nonperforming assets as a percent of total assets totaled 0.10% compared

to 0.06% at December 31, 2022 and 0.06% at March 31,

2022.

Nonaccrual loans totaled $4.6 million at March 31, 2023, a $2.3 million increase

over December 31, 2022, and a $1.9 million

increase over March 31, 2022. At March 31, 2023, the increase was primarily

due to the addition of one large business loan

relationship totaling $1.8 million to nonaccrual status – it is in the process of

collection and is adequately secured and reserved for.

Deposits

Average total

deposits were $3.817 billion for the first quarter of 2023, an increase of $14.3 million,

or 0.4%, over the

fourth quarter of 2022 and $103.3 million, or 2.8%, over the first quarter

of 2022.

Growth over

the fourth quarter of 2022 was

primarily attributable to an increase in NOW account balances, primarily

due to a seasonal increase in our public fund deposits that

occurred late in the fourth quarter.

Compared to the first quarter of 2022, we had strong growth in our NOW accounts

and, to a lesser

extent, our savings account balances.

Capital

At March 31, 2023, we were well-capitalized with a total risk-based capital ratio

of 15.53% and a tangible common equity

ratio (a non-GAAP financial measure) of 7.37% compared to 15.52%

and 6.79%, respectively at December 31, 2022 and 16.98% and

6.61%, respectively, at March

31, 2022.

At March 31, 2023, all of our regulatory capital ratios exceeded the threshold to 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

(Dollars in Thousands, except per share data)

March 31, 2023

December 31, 2022

March 31, 2022

Interest Income

43,915

41,226

25,438

Taxable Equivalent Adjustments

100

Total Interest Income (FTE)

44,015

41,314

25,516

Interest Expense

3,526

3,122

742

Net Interest Income (FTE)

40,489

38,192

24,774

Provision for Credit Losses

3,130

3,521

Taxable Equivalent Adjustments

100

Net Interest Income After Provision for Credit Losses

37,259

34,583

24,696

Noninterest Income

22,248

20,972

25,818

Noninterest Expense

40,455

42,287

39,233

Income Before Income Taxes

19,052

13,268

11,281

Income Tax Expense

4,133

2,599

2,235

Income Attributable to Noncontrolling Interests

995

(591)

Net Income Attributable to Common Shareowners

14,954

11,664

8,455

Basic Net Income Per Share

0.88

0.69

0.50

Diluted Net Income Per Share

0.88

0.68

0.50

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 44.

Tax-equivalent net

interest income for the first quarter of 2023

totaled $40.5 million, compared to $38.2 million for the fourth quarter

of 2022, and $24.8 million for the first quarter of 2022.

Compared to both prior periods, the increase reflected strong loan growth and

higher rates across a majority of our earning assets, partially offset

by higher deposit costs.

Our net interest margin for the first quarter of 2023 was 4.04%, an increase

of 28 basis points over the fourth quarter of 2022 and 149

basis points over the first quarter of 2022, both driven by higher interest rates and

an overall improved earning asset mix.

For the

month of March 2023, our net interest margin was 4.07%.

For the first quarter of 2023, our cost of funds was 35 basis points, an

increase of four basis points over the fourth quarter of 2022 and 27 basis points

over the first quarter of 2022.

Our cost of interest-

bearing deposits was 46 basis points, 35 basis points, and 4 basis points, respectively,

for the same periods.

Our total cost

of deposits

(including noninterest bearing accounts) was 26 basis points, 20 basis points,

and 2 basis points, respectively,

for the same periods.

Provision for Credit Losses

We recorded

a provision for credit losses of $3.1 million for the first quarter of 2023 compared to $3.5 million for

the fourth quarter of

2022 and no provision for the first quarter of 2022.

The decrease in the provision compared to the fourth quarter of 2022 was

primarily attributable to a lower level of loan growth.

The credit loss provision for the first quarter of 2022 generally reflected

lower

required reserves needed post-pandemic.

We discuss the allowance

for credit losses further below.

Noninterest Income

Noninterest income for the first quarter of 2023 totaled $22.2 million compared

to $21.0 million for the fourth quarter of 2022 and

$25.8 million for the first quarter of 2022.

The $1.2 million increase over the fourth quarter of 2022 was primarily attributable

higher mortgage banking revenues at CCHL of $1.5 million partially offset

by lower deposit fees $0.3 million.

The increase in

mortgage banking revenues reflected a higher level of rate locks and

gain on sale margin.

The decrease in deposit fees was partially

attributable to two less processing days in the first quarter.

Compared to the first quarter of 2022, the $3.6 million decrease reflected

lower wealth management fees of $2.1 million and mortgage banking revenues

of $1.9 million, partially offset by higher other income

of $0.5 million.

The decrease in wealth management fees was due to lower insurance commission revenues

which reflected higher

than normal revenues in the first quarter of 2022 related to the closing of several large

insurance policies.

The decline in mortgage

banking revenues was attributable to a lower level of rate locks and gain on sale margin.

The increase in other income was primarily

due to higher loan servicing income and miscellaneous income.

Noninterest income represented 35.52% of operating revenues (net interest

income plus noninterest income) for the first quarter of

2023 compared to 35.50% for the fourth quarter of 2022 and 51.11%

for the first quarter of 2022.

The table below reflects the major components of noninterest income.

Three Months Ended

(Dollars in Thousands)

March 31, 2023

December 31, 2022

March 31, 2022

Deposit Fees

5,239

5,536

5,191

Bank Card Fees

3,726

3,744

3,763

Wealth Management

Fees

3,928

3,649

6,070

Mortgage Banking Revenues

6,995

5,497

8,946

Other

2,360

2,546

1,848

Total

Noninterest Income

22,248

20,972

25,818

Significant components of noninterest income are discussed in more

detail below.

Deposit Fees

Deposit fees for the first quarter of 2023 totaled $5.2 million, a decrease of $0.3

million, or 5.4%, from the fourth

quarter of 2022 and comparable to the first quarter of 2022.

The decline from the fourth quarter of 2022 reflected two less days of

processing.

Bank Card Fees

Bank card fees for the first quarter of 2023 totaled $3.7 million, comparable to the

fourth quarter of 2022 and a

decrease of $0.1 million, or 1.0%, from the first quarter of 2022.

The decline from the first quarter of 2022 was primarily attributable

to lower debit card usage and reflected lower consumer spending.

Wealth

Management Fees

Wealth management fees,

which include both trust fees (i.e., managed accounts and trusts/estates), retail

brokerage fees (i.e., investment,

insurance products, and retirement accounts), and insurance commission

revenues,

totaled $3.9

million for the first quarter of 2023, an increase of $0.3 million, or 7.7%, over the

fourth quarter of 2022 and a decrease of $2.1

million, or 35.3%, from the first quarter of 2022.

The increase over the fourth quarter of 2022 was primarily attributable to higher

retail brokerage fees.

The decrease from the first quarter of 2022 was due to lower insurance commission

revenues which reflected

higher than normal revenues in the first quarter of 2022 related to the closing of

several large insurance policies.

At March 31, 2023,

total assets under management were approximately $2.330 billion

compared to $2.273 billion at December 31, 2022 and $2.329

billion at March 31, 2022.

Mortgage Banking Revenues

Mortgage banking revenues totaled $7.0 million for the first quarter of

2023, an increase of $1.5

million, or 27.3%, over the fourth quarter of 2022 and a decrease of $1.9

million, or 21.8% from the first quarter of 2022.

Compared

to the fourth quarter of 2022, the increase reflected a higher level of rate locks and

gain on sale margin.

The decrease from the first

quarter of 2022 was attributable to lower rate lock volume and gain on sale margin.

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 $2.4 million for the first quarter of 2023, a decrease of $0.2

million, or 7.3%, from the fourth quarter of

2022 and an increase of $0.5 million, or 27.7%, over the first quarter of 2022.

Compared to the first quarter of 2022, the increase was

primarily attributable to higher loan servicing income and miscellaneous income.

Noninterest Expense

Noninterest expense for the first quarter of 2023 totaled $40.5 million compared

to $42.3 million for the fourth quarter of 2022 and

$39.2 million for the first quarter of 2022.

Compared to the fourth quarter of 2022, the $1.8 million decrease reflected

a decrease in

other expense of $2.4 million that was partially offset by an increase

in occupancy expense of $0.5 million and compensation expense

of $0.1 million.

The decrease in other expense was primarily attributable to lower other real estate expense

of $1.6 million due to a

gain on the sale of a banking office.

Compared to the first quarter of 2022, the $1.3 million increase reflected an increase of $0.8

million in compensation expense and $0.7 million in occupancy expense that were

partially off by a decrease of $0.2 million in other

expense.

The addition of three banking offices and staffing in new markets

drove the variance in compensation and occupancy

expenses.

The table below reflects the major components of noninterest expense.

Three Months Ended

(Dollars in Thousands)

March 31, 2023

December 31, 2022

March 31, 2022

Salaries

21,629

21,113

20,664

Associate Benefits

4,007

4,452

4,192

Total Compensation

25,636

25,565

24,856

Premises

3,245

2,907

2,759

Equipment

3,517

3,346

3,334

Total Occupancy

6,762

6,253

6,093

Legal Fees

362

390

349

Professional Fees

1,324

1,441

1,332

Processing Services

1,742

1,368

1,637

Advertising

874

729

773

Telephone

706

690

728

Insurance - Other

831

649

510

Other Real Estate Owned, net

(1,827)

(241)

Pension - Other

(761)

Pension Settlement

1,841

209

Miscellaneous

4,038

4,363

3,482

Total Other

8,057

10,469

8,284

Total

Noninterest Expense

40,455

42,287

39,233

Significant components of noninterest expense are discussed in

more detail below.

Compensation

Compensation expense totaled $25.6 million for the first quarter of 2023, an increase

of $0.1 million, or 0.3%, over

the fourth quarter of 2022 and an increase of $0.8 million, or 3.1%, over

the first quarter of 2022.

Compared to the fourth quarter of

2022, the $0.1 million increase in compensation expense reflected an increase

in salary expense of $0.5 million that was partially

offset by a decrease in associate benefits expense of $0.4

million.

The increase in salary expense was primarily attributable to an

increase in payroll tax expense which reflected the annual re-set of this tax as well as payroll

taxes related to a high level of cash/stock

incentives paid in the first quarter.

The decrease in associate benefit expense reflected a decrease of $0.7 million

in pension service

cost that was partially offset by increases in stock compensation (higher

expected pay-out for long-term incentive plan), associate

insurance, and other associate benefit expense (annual sales/service awards event).

Compared to the first quarter of 2022, the increase

reflected higher salary expense of $1.0 million partially offset

by lower associate benefit expense of $0.2

million.

The increase in

salary expense was due to the addition of banking offices

and staffing in new markets.

The decrease in associate benefit expense was

primarily due to a decrease in pension service cost of $0.7 million that was partially

offset by an increase in stock-based compensation

expense of $0.4 million.

Occupancy.

Occupancy expense (including premises and equipment) totaled $6.8

million for the first quarter of 2023, an increase of

$0.5

million, or 8.1% over the fourth quarter of 2022 and an increase of $0.7 million,

or 11.0%, over the first quarter of 2022.

The

increase over both prior periods was primarily attributable

to the three recently opened full-service offices and the re-location of one

office.

Other

Other noninterest expense totaled $8.1 million for the first quarter of

2023, a decrease of $2.4 million, or 23.0%, from the

fourth quarter of 2022 and a decrease of $0.2 million, or 2.7%, from

the first quarter of 2022.

The decrease from the fourth quarter of

2022

was primarily attributable a decrease in other real estate expense of $1.6 million due to a gain

from the sale of a banking office

and lower pension settlement expense of $1.8 million, partially offset

by higher pension expense (non-service-related component) of

$0.8 million.

Compared to the first quarter of 2022, the decrease was primarily driven by lower other real

estate expense of $1.8

million due to a gain in other real estate from the sale of a banking office

that was partially offset by higher pension expense (non-

service-related component) of $0.8

million and higher FDIC assessments of $0.3 million.

Our operating efficiency ratio (expressed as noninterest

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

noninterest income) was 64.48% for the first quarter of 2023 compared

to 71.47% for the fourth quarter of 2022 and 77.55% for the

first quarter of 2022.

The improvement over both prior periods reflected higher net interest income.

Income Taxes

We realized income

tax expense of $4.1 million (effective rate of 21.7%) for the first quarter of

2023 compared to $2.6 million

(effective rate of 19.6%) for the fourth quarter of 2022 and $2.2

million (effective rate of 19.8%) for the first quarter of 2022.

discrete tax item of $0.4 million related our SERP plan favorably impacted

the effective tax rate for the fourth quarter of 2022.

Absent discrete items, we expect our annual effective tax rate to approximate

21%-22% in 2023.

The increase in the effective tax rate

for 2023 reflects a lower level of pre-tax income from CCHL in relation

to our consolidated income as the non-controlling interest

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

FINANCIAL CONDITION

Average earning

assets totaled $4.063 billion for the first quarter of 2023, an increase of $30.0 million, or 0.7%, over

the fourth

quarter of 2022, and an increase of $123.9 million, or 3.1%, over

the first quarter of 2022.

The increase over both prior periods was

primarily driven by higher deposit balances (see below –

Deposits

The mix of earning assets continues to improve driven by strong

loan growth.

Investment Securities

Average investment

decreased $16.9 million, or 1.6%, from the fourth quarter of 2022 and increased

$5.1 million, or 0.5%, over the

first quarter of 2022.

Our investment portfolio represented 26.2% of our average earning assets for the

first quarter of 2023 compared

to 26.8% for the fourth quarter of 2022 and 26.9% for the first 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 March 31, 2023, $402.9 million, or 38.1%, of our investment portfolio

was classified as AFS,

and $651.8 million, or 61.8%, classified as HTM.

The average maturity of our total portfolio at March 31, 2023

was 3.34 years

compared to 3.57 years at December 31, 2022 and 3.63 years at March

31, 2022.

The duration of our investment portfolio at March

31, 2023 was 2.99 years.

In the third quarter of 2022, to mitigate risk to accumulated other comprehensive income due

to higher

interest rates, we reclassified 33 U.S. Treasury obligations

totaling $168.4 million with unrealized losses of $9.4 million from AFS to

HTM.

At March 31, 2023, $7.1 million was remaining in unrealized losses relating to

these 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 to

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 March 31, 2023, there were 896 positions (combined AFS and HTM) with

pre-tax unrealized losses totaling $74.8 million (see

Note 2 – Investment Securities in the Notes to Consolidated Financial Statements for

detail by category).

87 of these positions are

U.S. Treasury bonds and carry the full faith and credit of

the U.S. Government.

684 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 125 positions (Municipal securities and

corporate bonds) have a credit component.

At March 31, 2023, corporate debt securities had an allowance for credit losses of

$28,000

and municipal securities had an allowance of $8,000.

At March 31, 2023, all CMO, MBS, SBA, U.S. Agency,

and U.S. Treasury

bonds held were AAA rated.

Loans HFI

Average loans

held for investment (“HFI”) increased $143.0 million, or 5.9%, over the fourth quarter of 2022

and $618.8 million, or

31.5%, over the first quarter of 2022.

Period end loans increased $111.7

million, or 4.4%, over the fourth quarter of 2022 and $651.4

million, or 32.8%, over the first quarter of 2022.

Compared to the fourth quarter of 2022, a majority of the increase was realized in

the

residential real estate category,

and to a lesser extent, the construction and commercial real estate mortgage

categories.

Compared to

the first quarter of 2022, loan growth was broad based, with increases realized in all categories

except consumer loans.

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

Overall credit quality remains stable.

Nonperforming assets (nonaccrual loans and other real estate) totaled $4.6

million at March 31,

2023 compared to $2.7 million at December 31, 2022 and $2.7 million

at March 31, 2022.

At March 31, 2023, the increase was

primarily due to the addition of one large business loan relationship

totaling $1.8 million to nonaccrual status is in the process of

collection and is adequately secured and reserved for.

At March 31, 2023, nonperforming assets as a percentage of total assets totaled

0.10% compared to 0.06% at December 31, 2022 and 0.06% at March 31, 202

Nonaccrual loans totaled $4.6 million at March 31,

2023, a $2.3 million increase over December 31, 2022 and a $1.9 million increase

over March 31, 2022.

Further, classified loans

totaled $12.2 million at March 31, 2023, a $7.2 million decrease from December

31, 2022 and a $10.2 million decrease from March

31, 2022.

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 March 31, 2023, the allowance for credit losses for HFI loans totaled

$26.5 million compared to $24.7 million at December 31,

2022 and $20.8 million at March 31, 2022.

Activity within the allowance is provided in Note 3 to the consolidated financial

statements.

The increase in the allowance over the prior periods was primarily driven by

loan growth.

At March 31, 2023, net charge-

offs totaled $1.5 million, an increase of $0.2 million over

the fourth quarter of 2022, and $0.7 million over the first quarter of 2022.

At March 31, 2023, the allowance represented 1.01% of

HFI loans and provided coverage of 578% of nonperforming loans compared

to 0.98% and 1,077%, respectively,

at December 31, 2022, and 1.05% and 761%, respectively,

at March 31, 2022.

At March 31, 2023, the allowance for credit losses for unfunded commitments

totaled $2.8 million compared to $3.0 million at

December 31, 2022 and $3.0 million at March 31, 2022. The allowance

for unfunded commitments is recorded in other liabilities.

Deposits

Average total

deposits were $3.817 billion for the first quarter of 2023, an increase of $14.3 million,

or 0.4%, over the fourth quarter

of 2022 and $103.3 million, or 2.8%, over the first quarter of 2022.

Compared to the fourth quarter of 2022, the increase reflected

higher NOW account balances, primarily due to a seasonal increase in our

public fund deposits that occurred late in the fourth quarter.

Compared to the first quarter of 2022, we experienced strong growth in our

NOW accounts, and to a lesser degree, our savings

accounts.

Period end total deposits declined $115.4 million

from the fourth quarter of 2022, and reflected lower balances in

noninterest bearing accounts, NOW accounts, and savings accounts, partially

offset by slight growth in money market accounts and

certificates of deposit

Noninterest bearing accounts decreased $52.2 million from the fourth quarter

of 2022, largely due to the

migration of two commercial clients into interest bearing NOW accounts, in addition

to clients seeking a higher yielding investment

account at Capital City Investments (approximately $30 million,

which is predominantly attributable to clients with higher balances).

Interest bearing deposits decreased $63.2 million from the fourth quarter

of 2022, including a $47.8 million decline in the NOW

account balance that was largely driven by an anticipated seasonal

decline in public fund balances of $66 million, partially offset

the previously mentioned migration of two clients from noninterest bearing

accounts.

Savings account balances decreased $20.1

million from the fourth quarter of 2022, primarily attributable to clients

seeking higher yielding investment products outside of the

Bank.

Money market account balances increased $4.5 million over the fourth quarter

of 2022 (also due to some migration from

noninterest bearing accounts), in addition to growth in our new markets which

offered a promotional rate.

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.

The -400bp rate scenario was reintroduced into the

model beginning in the fourth quarter of 2022 due to the higher interest

rate environment. 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%

March 31, 2023

7.1%

5.2%

3.4%

1.8%

-3.3%

-8.8%

-15.5%

-21.2%

December 31, 2022

11.3%

8.4%

5.5%

2.8%

-5.0%

-12.3%

-20.0%

-27.1%

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%

March 31, 2023

28.0%

22.7%

17.2%

12.2%

-0.5%

-10.9%

-22.5%

-31.2%

December 31, 2022

31.3%

25.2%

19.0%

13.1%

-2.0%

-13.8%

-25.7%

-36.3%

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

that in the short-term, 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 fourth quarter of 2022, 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 is applicable 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 both a 12-month and 24-month shock are outside of policy

in the rates down 300 bps and 400

bps scenarios

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%

March 31, 2023

11.6%

9.6%

7.0%

4.0%

-7.1%

-17.9%

-31.3%

-35.7%

December 31, 2022

11.0%

9.0%

6.4%

3.6%

-7.4%

-18.8%

-30.9%

-40.1%

EVE Ratio (policy minimum 5.0%)

20.6%

19.9%

19.0%

18.2%

15.6%

13.5%

11.2%

10.3%

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

At March 31, 2023, the economic value of equity was favorable in

all rising rate environments and unfavorable in the falling rate

environments. Compared to the fourth quarter of 2022, EVE metrics became

slightly more favorable in all rate environments except

the down 300 environment, primarily due to a change in the shape and position

of the yield curve, along with seasonal outflows of

some rate sensitive funding sources (public funds).

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 March 31, 2023, we had the ability to generate $1.428 billion in additional

liquidity through all of our available resources (this

excludes $303.4 million in overnight funds sold).

In addition to the primary borrowing outlets mentioned above, we also have

the

ability to generate liquidity by borrowing from the Federal Reserve Discount

Window and through brokered deposits.

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 March 31, 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.

Our portfolio consists of debt issued by the U.S. Treasury,

U.S.

governmental agencies, municipal governments, and corporate entities.

At March 31, 2023, the weighted-average life and duration of

our portfolio were 3.34 years and 2.99 years, respectively,

and the available-for-sale portfolio had a net unrealized pre-tax loss of

$35.0 million.

We maintained

an average net overnight funds (interest deposits with banks plus FED funds sold less FED funds

purchased) sold

position of $361.0 million in the first quarter of 2023

compared to $469.4 million in the fourth quarter of 2022 and $873.1 million in

the first quarter of 2022.

The declining overnight funds position reflects growth in average loans.

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 $47.1 million for the first quarter of 2023 compared to $50.8

million for the fourth quarter of

2022 and $32.4 million for the first 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 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

LIBOR plus a margin of 1.90%.

This note matures

on December 31, 2034.

The interest payment for the CCBG Capital Trust II borrowing is due

quarterly and adjusts quarterly to a

variable rate of three-month LIBOR plus a margin of 1.80%.

This note matures on June 15, 2035.

Effective June 30, 2023, in

accordance with the trust agreements

and the Adjustable Interest Rate (LIBOR) Act of 2021, LIBOR will be replaced

with 3-month

CME Term SOFR (secured

overnight financing rate) as the interest rate index.

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 (Libor

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 32.

At March 31, 2023, our regulatory capital

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

under the Basel III capital standards.

Shareowners’ equity was $411.2 million

at March 31, 2023 compared to $394.0 million at December 31, 2022 and $372.1 million

March 31, 2022.

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

income attributable to

common shareowners of $15.0 million, a $5.8

million decrease in the unrealized loss on investment securities, the issuance of stock of

$1.8 million, and stock compensation accretion of $0.5 million.

Shareowners’ equity was reduced by common stock dividends of $3.1

million ($0.18 per share), the repurchase of stock of $0.8 million (25,241

shares), net adjustments totaling $1.4

million related to

transactions under our stock compensation plans, and a $0.6 million decrease

in the fair value of the interest rate swap related to

subordinated debt.

At March 31, 2023, our total risk-based capital ratio was 15.53% compared

to 15.52% at December 31, 2022 and 16.98% at March 31,

2022.

Our common equity tier 1 capital ratio was 12.68%, 12.64%, and 13.77%, respectively,

on those dates.

Our leverage ratio was

9.28%, 9.06%, and 8.78%, respectively,

on those dates.

At March 31, 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 7.37%

March 31, 2023 compared to 6.79% and 6.61% at December 31, 2022 and March

31, 2022, respectively.

If our unrealized HTM

securities losses of $29.5 million (after-tax) were recognized in accumulated

other comprehensive loss, our adjusted tangible capital

ratio would be 6.69%.

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 March 31, 2023, the net pension liability reflected in other comprehensive loss was $4.5

million

compared to $4.5 million at December 31, 2022 and $13.0 million at March

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 are sensitivities are discussed in our 2022 Form 10-K “Critical Accounting

Policies”.

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 March 31, 2023, we had $825.8 million in commitments to extend credit

and $5.7 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 $2.8 million at March 31, 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.

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.

TABLE I

AVERAGE

BALANCES & INTEREST RATES

Three Months Ended

March 31, 2023

December 31, 2022

March 31, 2022

Average

(Dollars in Thousands)

Balances

Interest

Rate

Balances

Interest

Rate

Balances

Interest

Rate

Assets:

Loans Held for Sale

55,110

644

4.74

42,910

581

5.38

43,004

397

3.19

Loans Held for Investment

(1)(2)

2,582,395

34,331

5.39

2,439,379

31,418

5.11

1,963,578

21,811

4.52

Taxable Securities

1,061,372

4,912

1.86

1,078,265

4,835

1.78

1,056,736

2,889

1.10

Tax-Exempt Securities

(2)

2,840

2.36

2,827

2.36

2,409

1.60

Federal Funds Sold and Interest Bearing

Deposits

360,971

4,111

4.62

469,352

4,463

3.77

873,097

409

0.19

Total Earning Assets

4,062,688

44,015

4.39

4,032,733

41,314

4.07

3,938,824

25,516

2.63

Cash & Due From Banks

74,639

74,178

74,253

Allowance For Credit Losses

(25,637)

(22,596)

(21,655)

Other Assets

300,175

297,510

275,353

TOTAL ASSETS

4,411,865

4,381,825

4,266,775

Liabilities:

NOW Accounts

1,228,928

2,152

0.71

1,133,733

1,725

0.60

1,079,906

0.03

Money Market Accounts

267,573

208

0.31

273,328

0.09

285,406

0.05

Savings Accounts

629,388

0.05

641,153

0.05

599,359

0.05

Other Time Deposits

89,675

0.24

92,385

0.15

97,054

0.14

Total Interest Bearing Deposits

2,215,564

2,488

0.46

2,140,599

1,902

0.35

2,061,725

224

0.04

Short-Term Borrowings

47,109

461

3.97

50,844

690

5.38

32,353

192

2.40

Subordinated Notes Payable

52,887

571

4.32

52,887

522

3.86

52,887

317

2.40

Other Long-Term Borrowings

480

4.80

530

4.80

833

4.49

Total Interest Bearing Liabilities

2,316,040

3,526

0.62

2,244,860

3,122

0.55

2,147,798

742

0.14

Noninterest Bearing Deposits

1,601,750

1,662,443

1,652,337

Other Liabilities

81,206

84,585

72,166

TOTAL LIABILITIES

3,998,996

3,991,888

3,872,301

Temporary Equity

8,802

9,367

10,518

TOTAL SHAREOWNERS’ EQUITY

404,067

380,570

383,956

TOTAL LIABILITIES, TEMPORARY

AND SHAREOWNERS’ EQUITY

4,411,865

4,381,825

4,266,775

Interest Rate Spread

3.77

3.52

2.49

Net Interest Income

40,489

38,192

24,774

Net Interest Margin

(3)

4.04

3.76

2.55

(1)

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

Interest income includes loan fees of $0.3 million, $0.3

million and $0.2 million for

the three months ended March 31, 2023, December 31,

2022 and March 31, 2022, respectively.

(2)

Interest income includes the effects of taxable equivalent adjustments

using a 21% tax rate.

(3)

Taxable equivalent net interest income divided by average earnings 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

At March 31, 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 effective.

Our management, including our Chief Executive Officer

and Chief Financial Officer, has reviewed

our internal control over financial

reporting (as defined in Rule 13a-15(f) under the Securities Exchange

Act of 1934).

During the quarter ended on March 31, 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, as updated in our subsequent

quarterly reports. The risks described in our 2022 Form

10-K 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

January 1, 2023 to

January 31, 2023

25,000

$32.39

25,000

548,048

February 1, 2023 to

February 28, 2023

548,048

March 1, 2023 to

March 31, 2023

241

32.65

241

547,807

Total

25,241

$32.39

25,241

547,807

(1)

This amount represents the number of shares that were repurchased during

the first 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

None.

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

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101.LAB

XBRL Taxonomy

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101.PRE

XBRL Taxonomy

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101.DEF

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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 Principa

Financial Officer and has

been duly authorized to sign on behalf of the Registrant)

Date: May 1, 2023

exhibit311

Exhibit 31.1

Certification of CEO Pursuant to Securities Exchange Act

Rule 13a-14(a) / 15d-14(a) as Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, William G. Smith, Jr.,

certify that:

I have reviewed this quarterly report on Form 10-Q of Capital City Bank Group,

Inc.;

Based on my knowledge, this report does not contain any untrue statement of

a material fact or omit to state a material fact

necessary to make the statements made, in light of the circumstances under

which such statements were made, not misleading

with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information

included in this report, fairly present in all

material respects the financial condition, results of operations and cash flows

of the registrant as of, and for, the periods

presented in this report;

The registrant’s other certifying

officer and I are responsible for establishing and maintaining

disclosure controls and

procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))

and internal control over financial reporting (as

defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure

controls and procedures to be designed

under our supervision, to ensure that material information relating to the

registrant, including its consolidated

subsidiaries, is made known to us by others within those entities, particularly

during the period in which this report

is being prepared;

(b)

Designed such internal control over financial reporting, or caused such

internal control over financial reporting to be

designed under our supervision, to provide reasonable assurance regarding

the reliability of financial reporting and

the preparation of financial statements for external purposes in accordance with

generally accepted accounting

principles;

(c)

Evaluated the effectiveness of the registrant’s

disclosure controls and procedures and presented in this report our

conclusions about the effectiveness of the disclosure controls and

procedures, as of the end of the period covered by

this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s

internal control over financial reporting that occurred during

the registrant’s most recent fiscal quarter

that has materially affected, or is reasonably likely to materially

affect, the

registrant’s internal control

over financial reporting; and

The registrant’s other certifying

officer and I have disclosed, based on our most recent evaluation

of internal control over

financial reporting, to the registrant’s auditors

and the audit committee of the registrant’s

board of directors (or persons

performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation

of internal control over financial

reporting which are reasonably likely to adversely affect the registrant’s

ability to record, process, summarize and

report financial information; and

(b)

Any fraud, whether or not material, that involves management or other

employees who have a significant role in the

registrant’s internal control

over financial reporting.

/s/ William G. Smith, Jr.

William G. Smith, Jr.

Chairman, President and

Chief Executive Officer

Date: May 1, 2023

exhibit312

Exhibit 31.2

Certification of CFO Pursuant to Securities Exchange Act

Rule 13a-14(a) / 15d-14(a) as Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Jeptha E. Larkin, certify that:

I have reviewed this quarterly report on Form 10-Q of Capital City Bank Group,

Inc.;

Based on my knowledge, this report does not contain any untrue statement of

a material fact or omit to state a material fact

necessary to make the statements made, in light of the circumstances under

which such statements were made, not misleading

with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information

included in this report, fairly present in all

material respects the financial condition, results of operations and cash flows

of the registrant as of, and for, the periods

presented in this report;

The registrant’s other certifying

officer and I are responsible for establishing and maintaining

disclosure controls and

procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal

control over financial reporting (as

defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls

and procedures to be designed

under our supervision, to ensure that material information relating to the

registrant, including its consolidated

subsidiaries, is made known to us by others within those entities, particularly

during the period in which this report

is being prepared;

(b)

Designed such internal control over financial reporting, or caused

such internal control over financial reporting to be

designed under our supervision, to provide reasonable assurance regarding

the reliability of financial reporting and

the preparation of financial statements for external purposes in accordance

with generally accepted accounting

principles;

(c)

Evaluated the effectiveness of the registrant’s

disclosure controls and procedures and presented in this report our

conclusions about the effectiveness of the disclosure controls and procedures,

as of the end of the period covered by

this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s

internal control over financial reporting that occurred during

the registrant’s most recent fiscal quarter

that has materially affected, or is reasonably likely to materially

affect, the

registrant’s internal control

over financial reporting; and

The registrant’s other certifying

officer and I have disclosed, based on our most recent evaluation

of internal control over

financial reporting, to the registrant’s auditors

and the audit committee of the registrant’s

board of directors (or persons

performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of

internal control over financial

reporting which are reasonably likely to adversely affect the registrant’s

ability to record, process, summarize and

report financial information; and

(b)

Any fraud, whether or not material, that involves management or other

employees who have a significant role in the

registrant’s internal control

over financial reporting.

/s/ Jeptha E. Larkin

Jeptha E. Larkin

Executive Vice President

and

Chief Financial Officer

Date: May 1, 2023

exhibit321

Exhibit 32.1

Certification of CEO Pursuant to 18 U.S.C. Section 1350

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of

the Sarbanes-Oxley Act of 2002, I, William G. Smith

Jr.,

Chairman, President, and Chief Executive Officer

of Capital City Bank Group, Inc., hereby certify that to my knowledge (1) this

Quarterly Report of the Company on Form 10-Q for the period ended March

31, 2023, as filed with the Securities and Exchange

Commission on the date hereof (this "Report"), fully complies with the requirements

of Section 13(a) of the Securities Exchange Act

of 1934, as amended, and (2) the information contained in this Report fairly

presents, in all material respects, the financial condition

of the Company and its results of operations as of and for the periods covered

therein.

/s/ William G. Smith, Jr.

William G. Smith, Jr.

Chairman, President, and

Chief Executive Officer

Date: May 1, 2023

A signed original of this written statement required by Section 906, or other document

authenticating, acknowledging or otherwise

adopting the signature that appears in typed form within the electronic version

of this written statement required by Section 906, has

been provided to the Company and will be retained by the Company and

furnished to the Securities and Exchange Commission or its

staff upon request.

exhibit322

Exhibit 32.2

Certification of CFO Pursuant to 18 U.S.C. Section 1350

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of

the Sarbanes-Oxley Act of 2002, I, Jeptha E. Larkin,

Executive Vice President

and Chief Financial Officer of Capital City Bank Group, Inc., hereby certify

that to my knowledge (1) this

Quarterly Report of the Company on Form 10-Q for the period ended March

31, 2023, as filed with the Securities and Exchange

Commission on the date hereof (this "Report"), fully complies with the requirements

of Section 13(a) of the Securities Exchange Act

of 1934, as amended, and (2) the information contained in this Report fairly presents,

in all material respects, the financial condition

of the Company and its results of operations as of and for the periods covered

therein.

/s/ Jeptha E. Larkin

Jeptha E. Larkin

Executive Vice President

and

Chief Financial Officer

Date: May 1, 2023

A signed original of this written statement required by Section 906, or other document

authenticating, acknowledging or otherwise

adopting the signature that appears in typed form within the electronic version

of this written statement required by Section 906, has

been provided to the Company and will be retained by the Company and

furnished to the Securities and Exchange Commission or its

staff upon request.