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

September 30, 2024

☐

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 October 30, 2024,

16,944,467

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

CAPITAL CITY BANK

GROUP,

INC.

QUARTERLY

REPORT ON FORM 10-Q

FOR THE PERIOD ENDED SEPTEMBER 30, 2024

TABLE OF CONTENTS

PART I –

Financial Information

Page

Item 1.

Consolidated Financial Statements (Unaudited)

Consolidated Statements of Financial Condition – September 30, 2024 and December 31, 2023

Consolidated Statements of Income – Three and Nine Months Ended September 30, 2024 and 2023

Consolidated Statements of Comprehensive Income (Loss) – Three and Nine Months Ended September 30, 2024 and 2023

Consolidated Statements of Changes in Shareowners’ Equity – Three and Nine Months Ended September 30, 2024 and 2023

Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2024 and 2023

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,” “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.

Our

ability

achieve

our

financial

objectives

could

adversely

affected

the

factors

discussed

detail

Part

II,

Item

1A.

“Risk

Factors” in this Quarterly Report on Form 10-Q and in Part I, Item 1A. “Risk Factors” in our Annual Report on

Form 10-K for the year ended

December 31,

2023,

amended (the

“2023 Form

10-K”), as

updated

in our

subsequent quarterly

reports

filed

on Form

10-Q,

well as,

among other factors:

●

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

●

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;

●

legislative or regulatory changes;

●

adverse developments in the financial services industry generally;

●

inflation, interest rate, market and monetary fluctuations;

●

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

loans;

●

interest rate risk and price risk resulting from retaining mortgage servicing rights and the effects of higher interest rates on our loan

origination volumes;

●

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

●

the cost and effects of cybersecurity incidents or other failures, interruptions, or security breaches of our systems or those of our customers

or third-party providers;

●

the effects of fraud related to debit card products;

●

the accuracy of our financial statement estimates and assumptions;

●

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;

●

the strength of the local economies in which we operate;

●

our ability to declare and pay dividends;

●

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

●

our ability to retain key personnel;

●

the effects of natural disasters (including hurricanes), widespread health emergencies (including pandemics), military conflict, terrorism,

civil unrest or other geopolitical events;

●

our ability to comply with the extensive laws and regulations to which we are subject;

●

the impact of the restatement of our previously issued consolidated statements of cash flows;

●

any deficiencies in the processes undertaken to effect these restatements and to identify and correct all errors in our historical financial

statements that may require restatement;

●

any inability to implement and maintain effective internal control over financial reporting and/or disclosure control or inability to

remediate our existing material weaknesses in our internal controls deemed ineffective;

●

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

●

technological changes;

●

the outcomes of litigation or regulatory proceedings;

●

negative publicity and the impact on our reputation;

●

changes in consumer spending and saving habits;

●

growth and profitability of our noninterest income;

●

the limited trading activity of our common stock;

●

the concentration of ownership of our common stock;

●

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

●

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

●

our ability to manage the risks involved in the foregoing.

However, other factors besides those listed in

Item 1A Risk Factors

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

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

Any forward-looking

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

We do not undertake to update any forward-looking

statement, except as required by applicable law.

PART

FINANCIAL INFORMATION

Item 1.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF FINANCIAL CONDITION

(Unaudited)

September 30,

December 31,

(Dollars in Thousands, Except Par Value)

2024

2023

ASSETS

Cash and Due From Banks

83,431

83,118

Federal Funds Sold and Interest Bearing Deposits

261,779

228,949

Total Cash and Cash Equivalents

345,210

312,067

Investment Securities, Available

for Sale, at fair value (amortized cost of $

356,994

and $

367,747

)

336,187

337,902

Investment Securities, Held to Maturity (fair value of $

542,328

and $

591,751

)

561,480

625,022

Equity Securities

6,976

3,450

Total Investment

Securities

904,643

966,374

Loans Held For Sale, at fair value

31,251

28,211

Loans Held for Investment

2,683,096

2,733,918

Allowance for Credit Losses

(29,836)

(29,941)

Loans Held for Investment, Net

2,653,260

2,703,977

Premises and Equipment, Net

81,876

81,266

Goodwill and Other Intangibles

92,813

92,933

Other Real Estate Owned

650

Other Assets

115,613

119,648

Total Assets

4,225,316

4,304,477

LIABILITIES

Deposits:

Noninterest Bearing Deposits

1,330,715

1,377,934

Interest Bearing Deposits

2,248,362

2,323,888

Total Deposits

3,579,077

3,701,822

Short-Term

Borrowings

37,268

35,341

Subordinated Notes Payable

52,887

Other Long-Term

Borrowings

794

315

Other Liabilities

71,974

66,080

Total Liabilities

3,742,000

3,856,445

Temporary Equity

6,817

7,407

SHAREOWNERS’ EQUITY

Preferred Stock, $

0.01

par value;

3,000,000

shares authorized;

shares issued and outstanding

Common Stock, $

0.01

par value;

90,000,000

shares authorized;

16,944,370

and

16,950,222

shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively

169

170

Additional Paid-In Capital

36,070

36,326

Retained Earnings

454,342

426,275

Accumulated Other Comprehensive Loss, net of tax

(14,082)

(22,146)

Total Shareowners’

Equity

476,499

440,625

Total Liabilities, Temporary

Equity, and Shareowners’ Equity

4,225,316

4,304,477

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF INCOME

(Unaudited)

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in Thousands, Except Per Share

Data)

2024

2023

2024

2023

INTEREST INCOME

Loans, including Fees

41,659

39,344

123,480

111,845

Investment Securities:

Taxable

4,149

4,550

12,385

14,265

Tax Exempt

Funds Sold and Interest Bearing Deposits

3,514

1,848

9,031

8,741

Total Interest Income

49,328

45,753

144,914

134,886

INTEREST EXPENSE

Deposits

8,223

5,214

24,396

11,710

Short-Term

Borrowings

273

630

798

1,542

Subordinated Notes Payable

610

625

1,868

1,800

Other Long-Term

Borrowings

Total Interest Expense

9,117

6,473

27,079

15,067

NET INTEREST INCOME

40,211

39,280

117,835

119,819

Provision for Credit Losses

1,206

2,393

3,330

7,689

Net Interest Income After Provision For Credit Losses

39,005

36,887

114,505

112,130

NONINTEREST INCOME

Deposit Fees

5,512

5,456

16,139

16,021

Bank Card Fees

3,624

3,684

11,010

11,205

Wealth Management

Fees

4,770

3,984

13,891

12,061

Mortgage Banking Revenues

3,966

1,839

11,225

8,072

Other

1,641

1,765

4,951

7,093

Total Noninterest

Income

19,513

16,728

57,216

54,452

NONINTEREST EXPENSE

Compensation

25,800

23,003

74,613

69,965

Occupancy, Net

7,098

6,980

21,089

20,562

Other

10,023

9,122

27,831

26,539

Total Noninterest

Expense

42,921

39,105

123,533

117,066

INCOME BEFORE INCOME TAXES

15,597

14,510

48,188

49,516

Income Tax Expense

2,980

3,004

9,705

10,130

NET INCOME

12,617

11,506

38,483

39,386

Loss Attributable to Noncontrolling Interests

501

1,149

1,342

1,153

NET INCOME ATTRIBUTABLE

TO COMMON SHAREOWNERS

13,118

12,655

39,825

40,539

BASIC NET INCOME PER SHARE

0.77

0.75

2.35

2.38

DILUTED NET INCOME PER SHARE

0.77

0.74

2.35

2.38

Average Common

Basic Shares Outstanding

16,943

16,985

16,942

17,001

Average Common

Diluted Shares Outstanding

16,979

17,025

16,966

17,031

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

(Dollars in Thousands)

2024

2023

2024

2023

NET INCOME ATTRIBUTABLE

TO COMMON SHAREOWNERS

13,118

12,655

39,825

40,539

Other comprehensive income (loss), before

tax:

Investment Securities:

Change in net unrealized loss on securities available for sale

9,505

(3,405)

9,099

516

Amortization of unrealized losses on securities transferred from

available for sale to held to maturity

785

887

2,521

2,628

Derivative:

Change in net unrealized gain on effective cash flow

derivative

(1,261)

770

(873)

553

Benefit Plans:

Pension plan settlement

(217)

Total Benefit Plans

(217)

Other comprehensive income (loss), before

tax

9,029

(1,748)

10,747

3,480

Deferred tax expense (benefit) related to other comprehensive income

2,435

(444)

2,683

927

Other comprehensive income (loss), net of tax

6,594

(1,304)

8,064

2,553

TOTAL COMPREHENSIVE

INCOME

19,712

11,351

47,889

43,092

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF CHANGES IN SHAREOWNERS’ EQUITY

(Unaudited)

Accumulated

Other

Additional

Comprehensive

Common

Paid-In

Retained

(Loss) Income,

(Dollars In Thousands, Except Share Data)

Outstanding

Stock

Capital

Earnings

Net of Taxes

Total

Balance, July 1, 2024

16,941,553

169

35,547

445,959

(20,676)

460,999

Net Income Attributable to Common Shareowners

13,118

Reclassification to Temporary Equity

(1)

(838)

Other Comprehensive Income, net of tax

6,594

Cash Dividends ($

0.2300

per share)

(3,897)

Stock Based Compensation

425

Stock Compensation Plan Transactions, net

2,817

Balance, September 30, 2024

16,944,370

169

36,070

454,342

(14,082)

476,499

Balance, July 1, 2023

16,991,634

170

36,853

408,771

(33,372)

412,422

Net Income Attributable to Common Shareowners

12,655

Other Comprehensive Loss, net of tax

(1,304)

Cash Dividends ($

0.1800

per share)

(3,396)

Repurchase of Common Stock

(36,411)

(1,099)

Stock Based Compensation

346

Stock Compensation Plan Transactions, net

2,530

Balance, September 30, 2023

16,957,753

170

36,182

418,030

(34,676)

419,706

Balance, January 1, 2024

16,950,222

170

36,326

426,275

(22,146)

440,625

Net Income Attributable to Common Shareowners

39,825

Reclassification to Temporary Equity

(1)

(751)

Other Comprehensive Income, net of tax

8,064

Cash Dividends ($

0.6500

per share)

(11,007)

Repurchase of Common Stock

(82,540)

(2,330)

Stock Based Compensation

1,139

Stock Compensation Plan Transactions, net

76,688

(1)

935

934

Balance, September 30, 2024

16,944,370

169

36,070

454,342

(14,082)

476,499

Balance, January 1, 2023

16,986,785

170

37,331

387,009

(37,229)

387,281

Net Income Attributable to Common Shareowners

40,539

Other Comprehensive Income, net of tax

2,553

Cash Dividends ($

0.3600

per share)

(9,518)

Repurchase of Common Stock

(102,147)

(3,121)

Stock Based Compensation

1,110

Stock Compensation Plan Transactions, net

73,115

862

Balance, September 30, 2023

16,957,753

170

36,182

418,030

(34,676)

419,706

(1)

Adjustments to redemption value for non-controlling

interest in Capital City Home Loans, LLC ("CCHL")

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF CASH FLOWS

(Unaudited)

Nine Months Ended September 30,

(Dollars in Thousands)

2024

2023

CASH FLOWS FROM OPERATING

ACTIVITIES

Net Income Attributable to Common Shareowners

39,825

40,539

Adjustments to Reconcile Net Income to

Cash Provided by Operating Activities:

Provision for Credit Losses

3,330

7,689

Depreciation

5,798

5,920

Amortization of Premiums, Discounts and Fees, net

3,130

3,216

Amortization of Intangible Asset

120

Pension Plan Settlement Gain

(291)

Originations of Loans Held-for-Sale

(366,700)

(308,263)

Proceeds From Sales of Loans Held-for-Sale

369,063

303,731

Mortgage Banking Revenues

(11,225)

(8,072)

Net Additions for Capitalized Mortgage Servicing Rights

(138)

(392)

Stock Compensation

1,139

1,110

Deferred Income Taxes (Benefit)

1,400

(2,464)

Net Change in Operating Leases

208

(12)

Net Loss (Gain) on Sales and Write-Downs of Other Real Estate

Owned

(1,915)

Net Decrease in Other Assets

1,738

8,207

Net Increase in Other Liabilities

4,645

1,069

Net Cash Provided By Operating Activities

52,334

50,192

CASH FLOWS FROM INVESTING ACTIVITIES

Securities Held to Maturity:

Purchases

(20,287)

Proceeds from Payments, Maturities, and Calls

83,657

28,159

Securities Available for

Sale:

Purchases

(49,436)

(9,399)

Proceeds from Sale of Securities

30,420

Proceeds from Payments, Maturities, and Calls

55,229

53,045

Equity Securities:

Net Decrease in Equity Securities

158

Purchases of Loans Held for Investment

(302)

(2,249)

Proceeds from Sales of Loans

31,462

39,125

Net Decrease (Increase) in Loans Held for Investment

19,779

(194,631)

Proceeds From Sales of Other Real Estate Owned

3,840

Purchases of Premises and Equipment

(6,442)

(5,459)

Net Cash Provided by (Used In) Investing Activities

113,851

(57,149)

CASH FLOWS FROM FINANCING ACTIVITIES

Net Decrease in Deposits

(122,745)

(398,872)

Net Increase (Decrease) in Short-Term

Borrowings

1,729

(15,097)

Net Increase (Decrease) in Other Long-Term

Borrowings

677

(149)

Dividends Paid

(11,007)

(9,518)

Payments to Repurchase Common Stock

(2,330)

(3,121)

Proceeds from Issuance of Common Stock Under Purchase Plans

634

562

Net Cash Used In by Financing Activities

(133,042)

(426,195)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

33,143

(433,152)

Cash and Cash Equivalents at Beginning of Period

312,067

600,650

Cash and Cash Equivalents at End of Period

345,210

167,498

Supplemental Cash Flow Disclosures:

Interest Paid

26,143

15,026

Income Taxes Paid

5,741

7,395

Noncash Investing Activities:

Loans and Premises Transferred to Other Real Estate Owned

683

1,495

Loans Transferred from Held for Investment

to Held for Sale, net

25,640

33,625

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 wholly owned

subsidiary, Capital City Bank (“CCB” or the

“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 CCB.

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, 2023 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 2023 Form

10-K, as amended.

Accounting Standards Updates

Proposed Accounting Standards

ASU 2023-01, “Leases (Topic

842)

Common Control Arrangements.” Accounting Standards

Update (“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. The standard is effective

for the Company on January 1, 2024. As the Company does not have any such

common control leases, adoption of this standard did not have any immediate

impact on its consolidated financial statements and

related disclosures.

ASU 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. The standard was effective for the

Company on January 1, 2024. As the Company does not have any such investments

in tax credit structures that are accounted for

using the proportional amortization method, adoption of this standard did not have

any immediate impact on its consolidated financial

statements or disclosures.

ASU 2023-06, “Disclosure Improvements:

Codification Amendments in Response to the SEC’s

Disclosure Update and Simplification

Initiative.”

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

requirements of a variety of topics, which will

allow users to more easily compare entities subject to the SEC's existing disclosures

with those entities that were not previously

subject to the requirements and align the requirements in the FASB

accounting standard codification with the SEC's regulations. The

Company is currently evaluating the provisions of the amendments and

the impact on its future consolidated statements.

ASU 2023-07, “Improvements to Reportable

Segment Disclosures.”

ASU 2023-07 requires disclosure of significant segment expenses

and other segment items on an interim and annual basis. The standard is effective

for fiscal years beginning after December 15, 2023,

and for interim periods beginning after December 15, 2024. The Company

is currently evaluating the provisions of the amendments

and the impact on its future consolidated statements.

ASU 2023-09, ”Income Taxes

(Topic

740) – Improvements to Income Tax

Disclosures.”

ASU 2023-09 is intended to increase

transparency about income tax information by requiring consistent categories

and greater disaggregation of information in the rate

reconciliation and income taxes paid, disaggregated by jurisdiction. This

guidance will be effective for annual periods beginning after

December 15, 2024. The Company is currently evaluating the provisions

of the amendments and the impact on its future consolidated

statements.

NOTE 2 –

INVESTMENT SECURITIES

Investment Portfolio Composition

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

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

and the corresponding amounts of gross

unrealized gains and losses.

Available for

Sale

Amortized

Unrealized

Allowance for

Fair

(Dollars in Thousands)

Cost

Gains

Losses

Credit Losses

Value

September 30, 2024

U.S. Government Treasury

51,082

222

658

50,646

U.S. Government Agency

130,176

4,909

125,330

States and Political Subdivisions

43,258

3,239

(4)

40,017

Mortgage-Backed Securities

(1)

68,054

8,274

59,781

Corporate Debt Securities

56,328

3,932

(79)

52,317

Other Securities

(2)

8,096

Total

356,994

288

21,012

(83)

336,187

December 31, 2023

U.S. Government Treasury

25,947

1,269

24,679

U.S. Government Agency

152,983

104

8,053

145,034

States and Political Subdivisions

43,951

4,861

(8)

39,083

Mortgage-Backed Securities

(1)

73,015

9,714

63,303

Corporate Debt Securities

63,600

6,031

(17)

57,552

Other Securities

(2)

8,251

Total

367,747

108

29,928

(25)

337,902

Held to Maturity

Amortized

Unrealized

Fair

(Dollars in Thousands)

Cost

Gains

Losses

Value

September 30, 2024

U.S. Government Treasury

397,977

7,424

390,553

Mortgage-Backed Securities

(1)

163,503

156

11,884

151,775

Total

561,480

156

19,308

542,328

December 31, 2023

U.S. Government Treasury

457,681

16,492

441,189

Mortgage-Backed Securities

(1)

167,341

16,792

150,562

Total

625,022

33,284

591,751

(1)

Comprised of residential mortgage-backed

securities.

(2)

Includes Federal Home Loan Bank and Federal Reserve Bank stock, recorded

at cost of $

3.0

million and $

5.1

million,

respectively,

at September 30, 2024 and $

3.2

million and $

5.1

million, respectively,

at December 31, 2023.

At September 30, 2024 and December 31, 2023, the investment portfolio

had $

7.0

million and $

3.5

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 $

413.6

million and $

578.5

million at September 30, 2024 and December 31, 2023, 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.

The Bank’s investment in FHLB

stock is a restricted investment carried at par value ($

100

per share), which approximates its fair value.

No ready market exists for the

FHLB stock, and it has no quoted market value; however,

the Bank may request redemption at par value of any stock in excess of the

amount the Bank is required to hold.

Stock redemptions are made at the discretion of the FHLB.

Investment Sales.

There were

sales of investment securities for the three and nine months ended September 30,

2024 and $

30.4

million in sales for the three and nine months ended September 30, 2023.

Maturity Distribution

At September 30, 2024, the Company’s

investment securities had the following maturity distribution based on

contractual maturity.

Expected maturities may differ from contractual maturities because borrowers

may have the right to call or

prepay obligations.

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

agency securities are shown

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

Available for

Sale

Held to Maturity

(Dollars in Thousands)

Amortized Cost

Fair Value

Amortized Cost

Fair Value

Due in one year or less

32,570

31,822

227,491

224,457

Due after one year through five years

152,256

145,849

170,486

166,096

Due after five year through ten years

26,898

23,813

Mortgage-Backed Securities

68,054

59,781

163,503

151,775

U.S. Government Agency

69,120

66,826

Other Securities

8,096

Total

356,994

336,187

561,480

542,328

Unrealized Losses on Investment Securities.

The following table summarizes the available for sale and held to maturity investment

securities with unrealized losses aggregated by major security type and length

of time in a continuous unrealized loss position:

Less Than

Greater Than

12 Months

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

(Dollars in Thousands)

Value

Losses

Value

Losses

Value

Losses

September 30, 2024

Available for

Sale

U.S. Government Treasury

17,490

658

17,490

658

U.S. Government Agency

10,677

106,912

4,877

117,589

4,909

States and Political Subdivisions

1,904

140

37,262

3,099

39,166

3,239

Mortgage-Backed Securities

59,709

8,274

59,709

8,274

Corporate Debt Securities

979

112

51,417

3,820

52,396

3,932

Total

13,560

284

272,790

20,728

286,350

21,012

Held to Maturity

U.S. Government Treasury

117,561

1,063

272,992

6,361

390,553

7,424

Mortgage-Backed Securities

2,954

130,035

11,880

132,989

11,884

Total

120,515

1,067

403,027

18,241

523,542

19,308

December 31, 2023

Available for

Sale

U.S. Government Treasury

19,751

1,269

19,751

1,269

U.S. Government Agency

12,890

121,220

7,979

134,110

8,053

States and Political Subdivisions

1,149

37,785

4,830

38,934

4,861

Mortgage-Backed Securities

63,195

9,714

63,218

9,714

Corporate Debt Securities

57,568

6,031

57,568

6,031

Total

14,062

105

299,519

29,823

313,581

29,928

Held to Maturity

U.S. Government Treasury

153,880

3,178

287,310

13,314

441,190

16,492

Mortgage-Backed Securities

786

148,282

16,778

149,068

16,792

Total

154,666

3,192

435,592

30,092

590,258

33,284

At September 30, 2024, there were

818

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

40.3

million.

of these

positions are U.S. Treasury bonds and

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

651

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.

At September 30, 2024, all collateralized

mortgage obligation securities, mortgage-backed securities, Small Business

Administration securities, U.S. Agency,

and U.S. Treasury

bonds held were AAA rated.

The remaining

positions (municipal securities and corporate bonds) have a credit component.

September 30, 2024, corporate debt securities had an allowance for credit

losses of $

79,000

and municipal securities had an allowance

of $

4,000

Credit Quality Indicators

The Company monitors the credit quality of its investment securities through

various risk management procedures, including the

monitoring of credit ratings.

A majority of the debt securities in the Company’s

investment portfolio were issued by a U.S.

government entity or agency and are either explicitly or implicitly guaranteed

by the U.S. government.

The Company believes the

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

of nonpayment of the amortized cost basis is

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

to technically default.

Further, certain municipal securities held by the Company

have been pre-refunded and secured by government guaranteed

treasuries.

Therefore, for the aforementioned securities, the Company

does

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

The Company monitors the credit quality of its

municipal and corporate securities portfolio via credit ratings

which are updated on a quarterly basis.

On a quarterly basis, municipal

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

if the loss is attributable to credit related factors and

if an allowance for credit loss is needed.

NOTE 3 – LOANS HELD FOR INVESTMENT AND ALLOWANCE

FOR CREDIT LOSSES

Loan Portfolio Composition

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

(Dollars in Thousands)

September 30, 2024

December 31, 2023

Commercial, Financial and Agricultural

194,625

225,190

Real Estate – Construction

218,899

196,091

Real Estate – Commercial Mortgage

819,955

825,456

Real Estate – Residential

(1)

1,023,946

1,004,219

Real Estate – Home Equity

210,988

210,920

Consumer

(2)

214,683

272,042

Loans Held For Investment, Net of Unearned Income

2,683,096

2,733,918

(1)

Includes loans in process balances of $

2.7

million and $

3.2

million at September 30, 2024 and December 31, 2023, respectively.

(2)

Includes overdraft balances of $

1.4

million and $

1.0

million at September 30, 2024 and December 31, 2023, respectively.

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

included in loans were $

7.9

million at September 30, 2024 and

7.8

million at December 31, 2023.

Accrued interest receivable on loans which is excluded from amortized

cost totaled $

10.6

million at September 30, 2024 and $

10.1

million at December 31, 2023, 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 CCHL, a related party.

Residential loan purchases from CCHL totaled $

111.1

million and $

293.1

million for the nine

months ended September 30, 2024 and September 30, 2023, 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 2023 Form

10-K, as amended.

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

portfolio segment.

Allocation of a portion of the

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

absorb losses in other categories.

Commercial,

Real Estate

Financial,

Real Estate

Commercial

Real Estate

(Dollars in Thousands)

Agricultural

Construction

Mortgage

Residential

Home Equity

Consumer

Total

Three Months Ended

September 30, 2024

Beginning Balance

1,575

1,751

6,076

14,788

1,865

3,164

29,219

Provision for Credit Losses

134

442

547

(240)

(49)

1,045

1,879

Charge-Offs

(331)

(3)

(23)

(1,926)

(2,283)

Recoveries

176

693

1,021

Net (Charge-Offs) Recoveries

(155)

(1,233)

(1,262)

Ending Balance

1,554

2,193

6,625

14,636

1,852

2,976

29,836

Nine Months Ended

September 30, 2024

Beginning Balance

1,482

2,502

5,782

15,056

1,818

3,301

29,941

Provision for Credit Losses

809

(309)

618

(551)

3,310

3,890

Charge-Offs

(1,013)

(3)

(17)

(99)

(5,746)

(6,878)

Recoveries

276

228

148

120

2,111

2,883

Net (Charge-Offs) Recoveries

(737)

225

131

(3,635)

(3,995)

Ending Balance

1,554

2,193

6,625

14,636

1,852

2,976

29,836

Three Months Ended

September 30, 2023

Beginning Balance

1,446

2,848

5,453

13,388

1,783

3,325

28,243

Provision for Credit Losses

(59)

(536)

1,356

(71)

1,219

1,993

Charge-Offs

(76)

(1,999)

(2,075)

Recoveries

794

922

Net Charge-Offs

(48)

(1,205)

(1,153)

Ending Balance

1,339

2,312

5,554

14,774

1,765

3,339

29,083

Nine Months Ended

September 30, 2023

Beginning Balance

1,506

2,654

4,815

10,741

1,864

3,488

25,068

Provision for Credit Losses

(67)

(344)

823

3,814

(269)

3,218

7,175

Charge-Offs

(294)

(120)

(39)

(6,252)

(6,705)

Recoveries

194

219

209

2,885

3,545

Net Charge-Offs

(100)

(84)

219

170

(3,367)

(3,160)

Ending Balance

1,339

2,312

5,554

14,774

1,765

3,339

29,083

For the nine months ended September 30, 2024, the allowance for

loans HFI decreased by $

0.1

million and reflected a provision

expense of $

3.9

million and net loan charge-offs of $

4.0

million.

The decrease in the allowance was primarily due to lower loan

balances offset by higher loss rates and loan grade migration

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

HFI increased by $

4.0

million and reflected a provision expense of $

7.2

million and net loan charge-offs of $

3.2

million.

The increase

was primarily driven by incremental reserves needed for loan growth and

a higher loss rate for the residential real estate portfolio due

to slower prepayment speeds.

Unemployment forecast scenarios were utilized to estimate probability

of default and are weighted

based on management’s estimate

of probability.

See Note 8 – Commitments and Contingencies for information on the allowance for

off-balance sheet credit commitments.

Loan Portfolio Aging.

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

is over 30 days

past due (“DPD”).

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

past due loans by class of loans.

30-59

60-89

90 +

Total

Nonaccrual

Total

(Dollars in Thousands)

DPD

Past Due

Current

Loans

September 30, 2024

Commercial, Financial and Agricultural

669

679

193,816

130

194,625

Real Estate – Construction

2,025

216,552

322

218,899

Real Estate – Commercial Mortgage

703

818,870

382

819,955

Real Estate – Residential

1,070

389

1,459

1,018,892

3,595

1,023,946

Real Estate – Home Equity

629

209,478

881

210,988

Consumer

3,697

196

3,893

209,508

1,282

214,683

Total

8,793

595

9,388

2,667,116

6,592

2,683,096

December 31, 2023

Commercial, Financial and Agricultural

311

105

416

224,463

311

225,190

Real Estate – Construction

206

195,563

322

196,091

Real Estate – Commercial Mortgage

794

823,753

909

825,456

Real Estate – Residential

670

704

1,000,525

2,990

1,004,219

Real Estate – Home Equity

268

209,653

999

210,920

Consumer

3,693

774

4,467

266,864

711

272,042

Total

5,942

913

6,855

2,720,821

6,242

2,733,918

Nonaccrual Loans

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

become 90 days past due and/or

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

be doubtful.

Loans are returned to accrual status when the

principal and interest amounts contractually due are brought current

or when future payments are reasonably assured.

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

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

by class of loans.

September 30, 2024

December 31, 2023

Nonaccrual

With No

With

90 + Days

With No

With

90 + Days

(Dollars in Thousands)

ACL

Still Accruing

ACL

Still Accruing

Commercial, Financial and Agricultural

130

311

Real Estate – Construction

275

322

Real Estate – Commercial Mortgage

229

153

781

128

Real Estate – Residential

2,293

1,302

1,705

1,285

Real Estate – Home Equity

881

999

Consumer

1,282

711

Total Nonaccrual

Loans

2,797

3,795

2,486

3,756

Collateral Dependent Loans.

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

loans.

September 30, 2024

December 31, 2023

Real Estate

Non Real Estate

Real Estate

Non Real Estate

(Dollars in Thousands)

Secured

Commercial, Financial and Agricultural

101

Real Estate – Construction

275

Real Estate – Commercial Mortgage

229

1,296

Real Estate – Residential

2,999

1,706

Real Estate – Home Equity

Consumer

Total Collateral Dependent

Loans

3,503

101

3,277

A loan is collateral dependent when the borrower is experiencing financial

difficulty and repayment of the loan is dependent on

the

sale or operation of the underlying collateral.

The Bank’s collateral dependent

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

by either residential

or commercial collateral types.

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

either independent appraisals

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

when estimating expected net sales proceeds.

Residential Real Estate Loans In Process of Foreclosure

At September 30, 2024 and December 31, 2023, the Company had $

0.7

million and $

0.5

million, respectively, in

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

process.

Modifications to Borrowers Experiencing

Financial Difficulty.

Occasionally, the Company may

modify loans to borrowers who are

experiencing financial difficulty.

Loan modifications to borrowers in financial difficulty are loans in

which the Company has granted

an economic concession to the borrower that it would not otherwise consider.

In these instances, as part of a work-out alternative, the

Company will make concessions including the extension of the loan

term, a principal moratorium, a reduction in the interest rate, or a

combination thereof.

The impact of the modifications and defaults are factored into the allowance for credit

losses on a loan-by-loan

basis.

Thus, specific reserves are established based upon the results of either a

discounted cash flow analysis or the underlying

collateral value, if the loan is deemed to be collateral dependent.

A modified loan classification can be removed if the borrower’s

financial condition improves such that the borrower is no longer in financial difficulty,

the loan has not had any forgiveness of

principal or interest, and the loan is subsequently refinanced or restructured

at market terms and qualifies as a new loan.

At September 30, 2024, and December 31, 2023, the Company did

t have any modified loans made to borrowers due to the

borrower 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 tables summarize gross loans held for investment at September

30, 2024 and December 31, 2023 and current period

gross write-offs for the nine months ended September 30, 2024

and twelve months ended December 31, 2023 by years of origination

and internally assigned credit risk ratings (refer to Credit Risk Management

section for detail on risk rating system).

(Dollars in Thousands)

Term

Loans by Origination Year

Revolving

As of September 30, 2024

2024

2023

2022

2021

2020

Prior

Loans

Total

Commercial, Financial,

Agriculture:

Pass

28,841

45,675

41,999

20,867

6,012

10,488

39,124

193,006

Special Mention

200

309

393

1,001

Substandard

221

100

618

Total

29,041

46,009

42,613

20,973

6,114

10,574

39,301

194,625

Current-Period Gross

Writeoffs

248

392

124

155

1,013

Real Estate - Construction:

Pass

72,961

101,277

34,631

4,129

185

667

213,850

Special Mention

3,472

1,255

4,727

Substandard

275

322

Total

76,433

101,277

35,933

4,404

185

667

218,899

Real Estate - Commercial

Mortgage:

Pass

60,755

117,689

234,557

124,203

90,813

128,123

23,897

780,037

Special Mention

173

2,947

14,385

518

5,349

647

24,019

Substandard

5,162

2,330

3,477

755

2,526

1,649

15,899

Total

66,090

122,966

252,419

124,958

93,857

135,121

24,544

819,955

Current-Period Gross

Writeoffs

Real Estate - Residential:

Pass

117,374

330,178

367,873

72,716

31,994

80,541

11,118

1,011,794

Special Mention

266

1,176

611

554

2,607

Substandard

117

2,091

2,568

1,173

3,596

9,545

Total

117,374

330,561

369,964

76,460

33,778

84,691

11,118

1,023,946

Current-Period Gross

Writeoffs

Real Estate - Home Equity:

Performing

493

527

123

840

208,073

210,107

Nonperforming

881

Total

493

527

123

840

208,954

210,988

Current-Period Gross

Writeoffs

Consumer:

Performing

24,067

49,898

63,085

48,338

13,116

5,851

9,045

213,400

Nonperforming

180

376

351

241

110

1,283

Total

24,247

50,274

63,436

48,579

13,226

5,863

9,058

214,683

Current-Period Gross

Writeoffs

1,871

1,142

1,690

684

144

143

5,746

(Dollars in Thousands)

Term

Loans by Origination Year

Revolving

As of December 31, 2023

2023

2022

2021

2020

2019

Prior

Loans

Total

Commercial, Financial,

Agriculture:

Pass

57,320

66,671

28,933

10,610

7,758

7,502

44,350

223,144

Special Mention

168

608

356

1,227

Substandard

164

177

122

161

819

Total

57,652

67,456

29,387

10,697

7,787

7,624

44,587

225,190

Current-Period Gross

Writeoffs

252

511

Real Estate - Construction:

Pass

101,684

68,265

18,181

188

4,617

192,935

Special Mention

631

500

539

212

1,882

Substandard

576

651

1,274

Total

102,315

68,812

19,296

863

188

4,617

196,091

Real Estate - Commercial

Mortgage:

Pass

117,840

275,079

135,663

101,210

43,878

109,878

18,367

801,915

Special Mention

3,266

5,684

229

1,358

573

11,110

Substandard

1,226

6,695

1,637

605

1,574

694

12,431

Total

121,106

281,989

142,358

103,076

45,841

112,025

19,061

825,456

Current-Period Gross

Writeoffs

120

Real Estate - Residential:

Pass

372,394

400,437

83,108

35,879

24,848

68,685

8,252

993,603

Special Mention

268

502

313

1,255

Substandard

570

1,110

1,906

1,626

1,007

3,142

9,361

Total

373,232

401,636

85,097

38,007

25,855

72,140

8,252

1,004,219

Current-Period Gross

Writeoffs

Real Estate - Home Equity:

Performing

890

127

386

950

207,509

209,921

Nonperforming

999

Total

890

127

386

950

208,508

210,920

Current-Period Gross

Writeoffs

Consumer:

Performing

68,496

90,031

70,882

21,314

10,210

4,258

5,431

270,622

Nonperforming

293

355

710

1,420

Total

68,789

90,386

70,940

21,318

10,210

4,258

6,141

272,042

Current-Period Gross

Writeoffs

3,137

3,224

1,362

329

230

162

8,543

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,

such as interest rate lock commitments (“IRLC’s”)

and forward contract sales and their related fair

values are set- forth below.

September 30, 2024

December 31, 2023

Unpaid Principal

(Dollars in Thousands)

Balance/Notional

Fair Value

Balance/Notional

Fair Value

Residential Mortgage Loans Held for Sale

30,186

31,251

27,944

28,211

Residential Mortgage Loan Commitments ("IRLCs")

(1)

29,734

556

23,545

523

Forward Sales Contracts

(2)

31,500

24,500

209

(1)

Recorded in other assets at fair value

(2)

Recorded in other assets and other liabilities at

fair value, respectively

At September 30, 2024, the Company had

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

0.7

million of loans

were on nonaccrual status. At December 31, 2023, the Company had

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

and $

0.7

million of loans were on nonaccrual status.

Mortgage banking revenue was as follows:

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in Thousands)

2024

2023

2024

2023

Net realized gains on sales of mortgage loans

3,664

1,350

8,499

4,843

Net change in unrealized gain on mortgage loans held for sale

143

(1,223)

312

(1,700)

Net change in the fair value of IRLC's

(135)

(412)

Net change in the fair value of forward sales contracts

(52)

212

(5)

Pair-Offs on net settlement of forward sales contracts

(383)

359

(173)

454

Mortgage servicing rights additions

184

292

471

Net origination fees

679

1,501

2,051

3,970

Total mortgage banking

revenues

3,966

1,839

11,225

8,072

Residential Mortgage Servicing

The Company may retain the right to service residential mortgage loans

sold.

The unpaid principal balance of loans serviced for

others is the primary driver of servicing revenue.

The following represents a summary of mortgage servicing rights.

(Dollars in Thousands)

September 30, 2024

December 31, 2023

Number of residential mortgage loans serviced for others

483

450

Outstanding principal balance of residential mortgage loans serviced

for others

130,292

108,897

Weighted average

interest rate

5.74%

5.37%

Remaining contractual term (in months)

350

309

Conforming conventional loans serviced by the Company are sold to Federal

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

recourse basis, whereby foreclosure losses are generally the responsibility

of FNMA and not the Company.

The government loans

serviced by the Company are secured through the Government National

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

insured against loss by the Federal Housing Administration or partially

guaranteed against loss by the Veterans

Administration.

September 30, 2024, the servicing portfolio balance consisted of

the following loan types: FNMA (

%), GNMA (

%), and private

investor (

%).

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

The Company had

delinquent residential mortgage loans in GNMA pools serviced by the Company

at September 30, 2024 and

December 31, 2023, respectively.

The Company had

repurchases for the three and nine months ended September 30, 2024, and

0.8

million and $

2.2

million for the three and nine months ended September 30, 2023, in delinquent

residential loans from the

GNMA pools.

When delinquent residential loans are repurchased, the Company

has the intention to modify their terms and include the

loans in new GNMA pools.

Activity in the capitalized mortgage servicing rights was as follows:

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in Thousands)

2024

2023

2024

2023

Beginning balance

965

565

831

2,599

Additions due to loans sold with servicing retained

184

292

471

Deletions and amortization

(46)

(45)

(154)

(79)

Sale of servicing rights

(2,287)

Ending balance

969

704

969

704

The Company did

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

three months ended September 30,

2024 or 2023.

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

mortgage servicing rights were as follows:

September 30, 2024

December 31, 2023

Minimum

Maximum

Minimum

Maximum

Discount rates

9.50%

12.00%

9.50%

12.00%

Annual prepayment speeds

9.79%

20.51%

11.23%

17.79%

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

14.16

% at September 30, 2024 and

14.22

% at December 31, 2023.

Warehouse

Line Borrowings

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

agreements with various financial institutions at

September 30, 2024.

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%

4.25%

A cash pledge deposit of $

0.1

million is required by the lender.

1,954

million warehouse line of credit agreement expiring in

December 2024

Interest is at the SOFR plus

2.75%

3.25%

5,810

Total Warehouse

Borrowings

7,764

Warehouse

line borrowings are classified as short-term borrowings.

At December 31, 2023, warehouse line borrowings totaled $

8.4

million. At September 30, 2024, the Company had residential mortgage

loans held for sale pledged as collateral under the above

warehouse lines of credit and master repurchase agreements.

The above agreements also contain covenants which include certain

financial requirements, including maintenance of minimum tangible

net worth, minimum liquid assets, and maximum debt to net

worth ratio, as defined in the agreements.

The Company was in compliance with all significant debt covenants at September 30,

2024.

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 was $

35.9

million and $

31.4

million at September 30, 2024 and December 31, 2023, respectively.

NOTE 5 – DERIVATIVES

The Company enters into derivative financial instruments to manage exposures

that arise from business activities that result in the

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

which are determined by interest rates.

The Company’s

derivative financial instruments are used to manage differences in

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

known or

expected cash receipts and its known or expected cash payments principally

related to the Company’s subordinated

debt.

Cash Flow Hedges of Interest Rate Risk

Interest rate swaps with notional amounts totaling $

million at September 30, 2024 were designed as a cash flow hedge for

subordinated debt.

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

2.50

% and receive a variable interest

rate based on three-month CME Term

SOFR (secured overnight financing rate).

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

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

accumulated other comprehensive income (“AOCI”) and subsequently

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

which the hedged transaction affects earnings. Amounts reported

in accumulated other comprehensive income related to derivatives

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

Company’s variable-rate subordinated

debt.

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

statements of financial condition

Statement of Financial

Notional

Fair

Weighted Average

(Dollars in Thousands)

Condition Location

Amount

Value

Maturity (Years)

September 30, 2024

Interest rate swaps related to subordinated debt

Other Assets

30,000

4,444

5.8

December 31, 2023

Interest rate swaps related to subordinated debt

Other Assets

30,000

5,317

6.5

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

in AOCI and the consolidated statements of income related to

the cash flow derivative instruments (interest rate swaps related to subordinated

debt) for the three and nine months ended September

30, 2024.

Change in Gain

Amount of Gain

(Loss) Recognized

(Loss) Reclassified

(Dollars in Thousands)

Category

in AOCI

from AOCI to Income

Three months ended September 30, 2024

Interest expense

(941)

377

Three months ended September 30, 2023

Interest expense

574

375

Nine months ended September 30, 2024

Interest expense

(652)

1,128

Nine months ended September 30, 2023

Interest expense

413

1,016

The Company estimates there will be approximately $

1.0

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

months.

The Company had a collateral liability of $

4.4

million and $

5.5

million at September 30, 2024 and December 31, 2023, 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 one to

years.

The Company’s

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

lease payments, or significant assumptions or judgments

made in applying the requirements of Topic

842.

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

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

At September 30, 2024, the operating lease ROU assets and liabilities were $

25.2

million and $

25.8

million, respectively. At

December 31, 2023, ROU assets and liabilities were $

27.0

million and $

27.4

million, respectively.

The Company does not have any

finance leases and has recognized $

0.5

million of income for a short-term operating lease agreement in which the

Company is a lessor.

The table below summarizes our lease expense and other information related

to the Company’s operating leases.

Three Months Ended

Nine Months Ended

September 30,

(Dollars in Thousands)

2024

2023

2024

2023

Operating lease expense

841

710

2,509

2,114

Short-term lease expense

229

167

618

438

Total lease expense

1,070

877

3,127

2,552

Other information:

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

Operating cash flows from operating leases

1,095

720

2,315

2,131

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

3,048

Weighted average

remaining lease term — operating leases (in years)

16.7

18.4

16.7

18.4

Weighted average

discount rate — operating leases

3.5%

3.3%

3.5%

3.3%

The table below summarizes the maturity of remaining lease liabilities:

(Dollars in Thousands)

September 30, 2024

2024

1,098

2025

3,093

2026

2,957

2027

2,888

2028

2,633

2029 and thereafter

20,690

Total

33,359

Less: Interest

(7,541)

Present Value

of Lease liability

25,818

At September 30, 2024, the Company had

one

additional operating lease obligation for a banking office (to be constructed)

that has

not yet commenced.

The lease has payments totaling $

3.8

million based on an initial contract term of

years.

Payments for the

banking office are expected to commence after the construction

period ends, which is expected to occur during the fourth quarter of

2024.

A related party is the lessor in a land lease with the Company.

The payments under the lease agreement provide for annual lease

payments of approximately $

0.1

million annually through December 2033, and thereafter,

increase by

% every

years until 2053 at

which time the rent amount will adjust based on reappraisal of the parcel rental

value.

The Company then has

four

successive options

to extend the lease for

five years

each with rental increases of 5% at each extension.

The aggregate remaining obligation of the lease

totaled $

2.2

million at September 30, 2024.

NOTE 7 - EMPLOYEE BENEFIT PLANS

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

and eligible part-time associates and a

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

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

executive officers.

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

for new associates hired after

December 31, 2019.

The SERP II was adopted by the Company’s

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

were not covered by the SERP.

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

qualified benefit pension plan were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in Thousands)

2024

2023

2024

2023

Service Cost

929

872

2,786

2,616

Interest Cost

1,524

1,458

4,572

4,374

Expected Return on Plan Assets

(2,029)

(1,701)

(6,087)

(5,104)

Prior Service Cost Amortization

Net Loss Amortization

234

123

701

Net Periodic Benefit Cost

465

864

1,394

2,591

Discount Rate

5.29%

5.63%

5.29%

5.63%

Long-term Rate of Return on Assets

6.75%

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

SERP and SERP II were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in Thousands)

2024

2023

2024

2023

Service Cost

Interest Cost

114

120

341

381

Prior Service Cost Amortization

114

Net Loss Amortization

(71)

(111)

(210)

(420)

Pension Settlement Gain

(291)

Net Periodic Benefit Cost

158

(203)

Discount Rate

5.11%

5.33%

5.11%

5.41%

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

settlement accounting and remeasurement of the

plan at June 30, 2023.

In accordance with applicable accounting guidance for retirement benefit plans, the

Company recorded a

settlement gain of $

0.3

million in June 2023.

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

compensation expense in the accompanying statements of

income.

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

expense category in the statements

of income.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

Lending Commitments

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

sheet risks in the normal course of business

to meet the financing needs of its clients.

These financial instruments consist of commitments to extend credit and standby

letters of

credit.

The Company’s maximum exposure

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

the contractual amount of those instruments.

The Company uses the same credit policies in establishing commitments

and issuing

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

The amounts associated with the Company’s

off-balance sheet

obligations were as follows:

September 30, 2024

December 31, 2023

(Dollars in Thousands)

Fixed

Variable

Total

Fixed

Variable

Total

Commitments to Extend Credit

(1)

214,353

499,853

714,206

207,605

534,745

742,350

Standby Letters of Credit

6,126

6,094

Total

220,479

499,853

720,332

213,699

534,745

748,444

(1)

Commitments include unfunded loans, revolving

lines of credit, and off-balance sheet residential

loan commitments.

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

any condition established in the

contract.

Commitments generally have fixed expiration dates or other termination

clauses and may require payment of a fee.

Since

many of the commitments are expected to expire without being drawn

upon, the total commitment amounts do not necessarily

represent future cash requirements.

Standby letters of credit are conditional commitments issued by

the Company to guarantee the performance of a client to a third

party.

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

in extending loan facilities. In

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

of participating in these types of transactions.

However, any

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

as management reserves for its other credit

facilities.

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

requires collateral to support such instruments when it is

deemed necessary.

The Company evaluates each client’s

creditworthiness on a case-by-case basis.

The amount of collateral

obtained upon extension of credit is based on management’s

credit evaluation of the counterparty.

Collateral held varies, but may

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

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

property, plant and

equipment; and inventory.

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

that are not unconditionally cancellable by the bank is

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

The following table shows the activity in the

allowance.

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in Thousands)

2024

2023

2024

2023

Beginning Balance

3,139

3,120

3,191

2,989

Provision for Credit Losses

(617)

382

(669)

513

Ending Balance

2,522

3,502

2,522

3,502

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.

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 commitments

of up to $

8.9

million for a solar tax credit equity fund

investment.

At September 30, 2024, the amount remaining to be funded for the bank tech venture

capital and solar tax credit equity

investment fund commitments was $

0.4

million and $

1.2

million, respectively.

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 $

0.2

million.

There was a $

0.5

million counterparty payment accrued and payable at September 30, 2024

due to a revision to the share

conversion rate related to additional funding by VISA of the merchant

litigation reserve.

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.

Accounting Standards Codification Topic

820

establishes a fair value hierarchy for valuation inputs that gives the highest priority

to quoted prices in active markets for identical

assets or liabilities and the lowest priority to unobservable inputs.

The fair value hierarchy is as follows:

●

Level 1 Inputs -

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

entity has the

ability to access at the measurement date

●

Level 2 Inputs -

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

either directly

or indirectly. These might

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

for identical

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

than quoted prices that are observable for the asset or

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

or inputs that are derived principally from, or

corroborated, by market data by correlation or other means

●

Level 3 Inputs -

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

an entity’s own

assumptions about the assumptions that market participants would

use in pricing the assets or liabilities.

Assets and Liabilities Measured at Fair Value

on a Recurring Basis

Securities Available for Sale.

U.S. Treasury securities are reported at fair value

utilizing Level 1 inputs.

Other securities classified as

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

For these securities, the Company obtains fair value measurements

from an independent pricing service.

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

market

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

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

terms

and conditions, among other things.

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

The Company’s entire portfolio consists of

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

obligations, federal agency bullet or mortgage pass-through

securities, or

general obligation or revenue-based municipal bonds.

Pricing for such instruments is easily obtained.

At least annually, the Company

will validate prices supplied by the independent pricing service by compari

ng them to prices obtained from an independent third-party

source.

Equity Securities.

Investment securities classified as equity securities are carried at cost and

the share of earnings or losses is reported

through net income as an adjustment to the investment balance. These securities are not

readily marketable and therefore are classified

as a Level 3 input within the fair value hierarchy.

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. There was $

0.5

million counterparty payment accrued and payable at September 30, 2024,

and

amounts payable at

December 31, 2023.

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

value on a recurring basis consisted of the following:

Level 1

Level 2

Level 3

Total

Fair

(Dollars in Thousands)

Inputs

Value

September 30, 2024

ASSETS:

Securities Available for

Sale:

U.S. Government Treasury

50,646

U.S. Government Agency

125,330

States and Political Subdivisions

40,017

Mortgage-Backed Securities

59,781

Corporate Debt Securities

52,317

Equity Securities

6,976

Loans Held for Sale

31,251

Residential Mortgage Loan Commitments ("IRLCs")

556

Interest Rate Swap Derivative

4,444

Forward Sales Contracts

LIABILITIES:

Fair Value

Swap

548

December 31, 2023

ASSETS:

Securities Available for

Sale:

U.S. Government Treasury

24,679

U.S. Government Agency

145,034

States and Political Subdivisions

39,083

Mortgage-Backed Securities

63,303

Corporate Debt Securities

57,552

Equity Securities

3,450

Loans Held for Sale

28,211

Residential Mortgage Loan Commitments ("IRLCs")

523

Interest Rate Swap Derivative

5,317

LIABILITIES:

Forward Sales Contracts

209

Mortgage Banking Activities

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

activities of $

5.9

million

and $

11.0

million, respectively, for the

nine months ended September 30, 2024, and $

11.1

million and $

16.3

million, respectively,

for

the nine months ended September 30, 2023.

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 $

3.6

million with a valuation allowance of $

0.1

million at September 30,

2024 and a carrying value of $

3.3

million and a $

0.1

million valuation allowance at December 31, 2023.

Other Real Estate Owned

During the first nine months of 2024, certain foreclosed assets, upon initial recognition,

were measured and

reported at fair value through a charge-off

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

estimated cost to sell.

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

professional appraisal in

conformance with banking regulations.

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

adjustments as necessary.

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

and estimation

involved in the real estate valuation process.

Mortgage Servicing Rights

Residential mortgage loan servicing rights are evaluated for impairment

at each reporting period based

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

Fair value is determined by a third party valuation model using

estimated prepayment speeds of the underlying mortgage loans serviced and

stratifications based on the risk characteristics of the

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

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

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

servicing.

Further detail on the key inputs utilized are

provided in Note 4 – Mortgage Banking Activities.

At each of September 30, 2024 and December 31, 2023, 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.”

Other Equity Securities.

Other equity securities are accounted for under the equity method (Topic

323) and recorded at cost.

These

securities are not readily marketable securities and are reflected in Other

Assets on the Statement of Financial Condition.

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.

The values reported reflect the incorporation of a liquidity

discount to meet the objective of “exit price” valuation.

Deposits.

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

Accounts and Savings Accounts are the

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

certificates of deposit is estimated using present

value techniques and rates currently offered for deposits of

similar remaining maturities.

Subordinated Notes Payable.

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

based upon projected cash

flows and estimated discount rates as well as rates being offered

for similar obligations.

Short-Term

and Long-Term

Borrowings.

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

based upon

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

for similar debt.

A summary of estimated fair values of significant financial instruments not

recorded at fair value consisted of the following:

September 30, 2024

Carrying

Level 1

Level 2

Level 3

(Dollars in Thousands)

Value

Inputs

ASSETS:

Cash

83,431

Fed Funds Sold and Interest Bearing Deposits

261,779

Investment Securities, Held to Maturity

561,480

390,553

151,775

Other Equity Securities

2,848

Mortgage Servicing Rights

969

1,484

Loans, Net of Allowance for Credit Losses

2,653,260

2,529,755

LIABILITIES:

Deposits

3,579,077

3,140,058

Short-Term

Borrowings

37,268

Subordinated Notes Payable

52,887

42,259

Long-Term Borrowings

794

December 31, 2023

Carrying

Level 1

Level 2

Level 3

(Dollars in Thousands)

Value

Inputs

ASSETS:

Cash

83,118

Fed Funds Sold and Interest Bearing Deposits

228,949

Investment Securities, Held to Maturity

625,022

441,189

150,562

Other Equity Securities

2,848

Mortgage Servicing Rights

831

1,280

Loans, Net of Allowance for Credit Losses

2,703,977

2,510,529

LIABILITIES:

Deposits

3,701,822

3,243,896

Short-Term

Borrowings

35,341

Subordinated Notes Payable

52,887

44,323

Long-Term Borrowings

315

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, 2024

(25,691)

3,970

(425)

(22,146)

Other comprehensive income (loss) during the period

8,716

(652)

8,064

Balance as of September 30, 2024

(16,975)

3,318

(425)

(14,082)

Balance as of January 1, 2023

(37,349)

4,625

(4,505)

(37,229)

Other comprehensive income (loss) during the period

2,357

413

(217)

2,553

Balance as of September 30, 2023

(34,992)

5,038

(4,722)

(34,676)

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 the third quarter of 2024 compares with

prior periods.

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 2023 Form 10-K, as amended, 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 63 full-service offices

and 105 ATMs/ITMs

located in Florida, Georgia, and Alabama.

Through Capital City Home Loans, LLC (“CCHL”), we have 29

additional offices in the Southeast for our mortgage banking business.

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 our long-term strategic objectives as part of the MD&A section

of our 2023 Form 10-K, as

amended.

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.

2024

2023

(Dollars in Thousands, except per share data)

Third

Second

First

Fourth

Third

Shareowners' Equity (GAAP)

476,499

460,999

448,314

440,625

419,706

Less: Goodwill and Other Intangibles (GAAP)

92,813

92,853

92,893

92,933

92,973

Tangible Shareowners' Equity (non-GAAP)

383,686

368,146

355,421

347,692

326,733

Total Assets (GAAP)

4,225,316

4,225,695

4,259,922

4,304,477

4,138,287

Less: Goodwill and Other Intangibles (GAAP)

92,813

92,853

92,893

92,933

92,973

Tangible Assets (non-GAAP)

4,132,503

4,132,842

4,167,029

4,211,544

4,045,314

Tangible Common Equity Ratio (non-GAAP)

A/B

9.28%

8.91%

8.53%

8.26%

8.08%

Actual Diluted Shares Outstanding (GAAP)

16,980,686

16,970,228

16,947,204

17,000,758

16,997,886

Tangible Book Value

per Diluted Share (non-GAAP)

A/C

22.60

21.69

20.97

20.45

19.22

SELECTED QUARTERLY

FINANCIAL DATA

(UNAUDITED)

2024

2023

(Dollars in Thousands, Except Per Share Data)

Third

Second

First

Fourth

Third

Summary of Operations

Interest Income

49,328

48,766

46,820

46,184

45,753

Interest Expense

9,117

9,497

8,465

7,013

6,473

Net Interest Income

40,211

39,269

38,355

39,171

39,280

Provision for Credit Losses

1,206

1,204

920

2,025

2,393

Net Interest Income After

Provision for Credit Losses

39,005

38,065

37,435

37,146

36,887

Noninterest Income

19,513

19,606

18,097

17,157

16,728

Noninterest Expense

42,921

40,441

40,171

39,958

39,105

Income Before Income Taxes

15,597

17,230

15,361

14,345

14,510

Income Tax Expense

2,980

3,189

3,536

2,909

3,004

Loss Attributable to NCI

501

109

732

284

1,149

Net Income Attributable to CCBG

13,118

14,150

12,557

11,720

12,655

Net Interest Income (FTE)

(1)

40,260

39,334

38,435

39,264

39,367

Per Common Share

Net Income Basic

0.77

0.84

0.74

0.69

0.75

Net Income Diluted

0.77

0.83

0.74

0.70

0.74

Cash Dividends Declared

0.23

0.21

0.20

Diluted Book Value

28.06

27.17

26.45

25.92

24.69

Diluted Tangible Book Value

(2)

22.60

21.69

20.97

20.45

19.22

Market Price:

High

36.67

28.58

31.34

32.56

33.44

Low

26.72

25.45

26.59

26.12

28.64

35.29

28.44

27.70

29.43

29.83

Selected Average Balances

Investment Securities

908,456

919,832

953,184

963,184

1,005,003

Loans Held for Investment

2,693,533

2,726,748

2,728,629

2,711,243

2,672,653

Earning Assets

3,883,414

3,935,280

3,849,615

3,823,980

3,876,980

Total Assets

4,215,862

4,272,188

4,190,623

4,166,777

4,218,855

Deposits

3,572,034

3,641,028

3,576,513

3,548,506

3,596,816

Shareowners’ Equity

480,137

465,297

456,014

435,116

427,580

Common Equivalent Average Shares:

Basic

16,943

16,931

16,951

16,947

16,985

Diluted

16,979

16,960

16,969

16,997

17,025

Performance Ratios:

Return on Average Assets (annualized)

1.24

1.33

1.21

1.12

1.19

Return on Average Equity (annualized)

10.87

12.23

11.07

10.69

11.74

Net Interest Margin (FTE)

4.12

4.02

4.01

4.07

4.03

Noninterest Income as % of Operating Revenue

32.67

33.30

32.06

30.46

29.87

Efficiency Ratio

71.81

68.61

71.06

70.82

69.88

Asset Quality:

Allowance for Credit Losses (“ACL”)

29,836

29,219

29,329

29,941

29,083

Nonperforming Assets (“NPAs”)

7,242

6,165

6,799

6,243

4,695

ACL to Loans HFI

1.11

1.09

1.07

1.10

1.08

NPAs to Total

Assets

0.17

0.15

0.16

0.15

0.11

NPAs to Loans HFI plus OREO

0.27

0.23

0.25

0.23

0.17

ACL to Non-Performing Loans

452.64

529.79

431.46

479.70

619.58

Net Charge-Offs to Average Loans HFI

0.19

0.18

0.22

0.23

0.17

Capital Ratios:

Tier 1 Capital

16.77

16.31

15.67

15.37

15.11

Total Capital

17.97

17.50

16.84

16.57

16.30

Common Equity Tier 1

14.88

14.44

13.82

13.52

13.26

Leverage

10.89

10.51

10.45

10.30

9.98

Tangible Common Equity

(2)

9.28

8.91

8.53

8.26

8.08

(1)

Fully Tax Equivalent

(2)

Non-GAAP financial measure.

See non-GAAP reconciliation on page 33.

FINANCIAL OVERVIEW

Results of Operations

Performance Summary.

Net income attributable to common shareowners totaled $13.1

million, or $0.77 per diluted share, for the

third quarter of 2024 compared to $14.2 million, or $0.83 per diluted

share, for the second quarter of 2024, and $12.7 million, or $0.74

per diluted share, for the third quarter of 2023.

For the first nine months of 2024, net income attributable to common shareowners

totaled $39.8 million, or $2.35 per diluted share, compared to net income of $40.5

million, or $2.38 per diluted share, for the same

period of 2023.

Net Interest Income.

Tax-equivalent net

interest income for the third quarter of 2024 totaled $40.2 million, compared

to $39.3 million

for the second quarter of 2024, and $39.4 million for the third quarter of 2023.

Compared to the second quarter of 2024, the increase

was primarily due to increases in loan and investment interest income

and a decrease in deposit interest expense, partially offset by

decrease in overnight funds interest income.

One additional calendar day also contributed to the increase.

Favorable repricing of

existing adjustable/fixed rate loans at higher rates drove the increase in loan

interest income.

Compared to the third quarter of 2023,

the $0.9 million increase was primarily driven by an increase in loan interest income

and to a lesser extent overnight funds interest

income, partially offset by an increase in deposit interest expense.

For the first nine months of 2024, tax-equivalent net interest

income totaled $118.0 million compared

to $120.1 million for the same period of 2023 with the decrease primarily attributable

to an

increase in deposit interest expense and a decrease in investment interest income,

partially offset by an increase in loan interest

income.

Our net interest margin for the third quarter of 2024 was 4.12%, an increase of 10 basis points

over the second quarter of

2024 and an increase of nine basis points over the third quarter of 2023.

Provision and Allowance for Credit

Losses.

We recorded

a provision expense for credit losses of $1.2 million for the third quarter of

2024, comparable to the second quarter of 2024 and a $1.2 million decrease

from the third quarter of 2023.

Compared to the second

quarter of 2024, the provision reflected a $0.7 million increase in the provision

expense for loans held for investment (“HFI”), a $0.6

million provision benefit for unfunded loan commitments, and a $0.1

million provision benefit for debt securities.

For the first nine

months of 2024, we recorded a provision expense for credit losses of $3.3

million compared to $7.7 million for the same period of

The decrease reflected a $3.2 million decrease in the provision

expense for loans HFI and a $1.2 million decrease in the

provision for unfunded loan commitments. The decrease in the provision

for loans HFI was primarily due to lower new loan volume in

2024 and lower loan balances.

The decrease in the provision for unfunded loan commitments reflected a lower

level of loan

commitments.

At September 30, 2024, the allowance represented 1.11%

of loans HFI compared to 1.09% at June 30, 2024, and

1.10%

at December 31, 2023.

Noninterest Income

Noninterest income for the third quarter of 2024 totaled $19.5 million compared

to $19.6 million for the second

quarter of 2024 and $16.7 million for the third quarter of 2023.

The slight decrease from the second quarter of 2024 reflected a $0.4

million decrease in mortgage banking revenues partially offset by

a $0.3 million increase in wealth management fees.

Compared to

the third quarter of 2023, the $2.8 million increase was primarily attributable

to a $2.1 million increase in mortgage banking revenues

driven by a higher gain on sale margin, and a $0.8 million

increase in wealth management fees.

For the first nine months of 2024,

noninterest income totaled $57.2 million compared to $54.5 million for the same

period of 2023, primarily attributable to a $3.2

million increase in mortgage banking revenues and a $1.8 million increase in

wealth management fees, partially offset by a $2.1

million decrease in other income.

Noninterest Expense.

Noninterest expense for the third quarter of 2024 totaled $42.9 million compared

to $40.4 million for the second

quarter of 2024 and $39.1 million for the third quarter of 2023.

The $2.5 million increase over the second quarter of 2024 was

primarily due to a $1.4 million increase in compensation and a $1.0 million increase

in other expense.

Compared to the third quarter

of 2023, the $3.8 million increase was primarily attributable to a $2.8 million

increase in compensation expense and a $0.9 million

increase in other expense.

For the first nine months of 2024, noninterest expense totaled $123.5 million

compared to $117.1 million

for the same period of 2023 with the $6.4 million increase primarily attributable

to increases in compensation expense of $4.6 million,

occupancy expense of $0.5 million, and other expense of $1.3 million.

Financial Condition

Earning Assets.

Average earning

assets totaled $3.883 billion for the third quarter of 2024, a decrease of $51.9 million, or 1.3%,

from

the second quarter of 2024, and an increase of $59.4 million, or 1.6%, over the

fourth quarter of 2023.

The change for both prior

periods was driven by variances in deposit balances.

Compared to the second quarter of 2024, the change in the earning asset mix

reflected a $33.2 million decrease in loans HFI, a $11.4

million decline in investment securities, and a $5.6 million decrease in

overnight funds sold.

Compared to the fourth quarter of 2023, the change in the earning asset mix reflected a $157.1 million

increase

in overnight funds that was partially offset by a $17.7 million decrease

in loans HFI, a $54.7 million decrease in investment securities

and a $25.2 million decline in loans held for sale.

Loans.

Average loans HFI decreased

$33.2 million, or 1.2%, from the second quarter of 2024 and decreased $17.7

million, or 0.7%,

from the fourth quarter of 2023.

Period end loans HFI decreased $7.1 million, or 0.3%, from the second quarter of 2024

and

decreased $50.8 million, or 1.9%, from the fourth quarter of 2023.

Credit Quality

Nonperforming assets (nonaccrual loans and other real estate) totaled $7.2 million

at September 30, 2024 compared to

$6.2 million at June 30, 2024 and $6.2 million at December 31, 2023.

At September 30, 2024, nonperforming assets as a percent of

total assets equaled 0.17%, compared to 0.15% at June 30, 2024 and 0.15%

at December 31, 2023.

Nonaccrual loans totaled $6.6

million at September 30, 2024, a $1.1 million increase over June 30, 2024

and a $0.3 million increase over December 31, 2023.

Further, classified loans totaled $25.5 million at September

30, 2024, a $0.1 million decrease from June 30, 2024 and a $3.3

million

increase over December 31, 2023.

Deposits

Average total

deposits were $3.572 billion for the third quarter of 2024, a decrease of $69.0 million, or 1.9%,

from the

second quarter of 2024 and an increase of $23.5 million, or 0.7%, over the

fourth quarter of 2023.

At September 30, 2024, total

deposits were $3.579 billion, a decrease of $29.5 million, or 0.8%, from

June 30, 2024, and a decrease of $122.7 million, or 3.3%,

from December 31, 2023.

Capital

At September 30, 2024, we were “well-capitalized”

with a total risk-based capital ratio of 17.97% and a tangible common

equity ratio (a non-GAAP financial measure) of 9.28% compared to

17.50% and 8.91%, respectively,

at June 30, 2024 and 16.57%

and 8.26%, respectively,

at December 31, 2023.

At September 30, 2024, all of our regulatory capital ratios exceeded the threshold

be “well-capitalized”

under the Basel III capital standards.

RESULTS

OF OPERATIONS

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

a discussion of the various components are discussed

in further detail below.

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

(Dollars in Thousands, except per share data)

2024

2023

2024

2023

Interest Income

49,328

48,766

45,753

144,914

134,886

Taxable Equivalent Adjustments

194

274

Total Interest Income (FTE)

49,377

48,831

45,840

145,108

135,160

Interest Expense

9,117

9,497

6,473

27,079

15,067

Net Interest Income (FTE)

40,260

39,334

39,367

118,029

120,093

Provision for Credit Losses

1,206

1,204

2,393

3,330

7,689

Taxable Equivalent Adjustments

194

274

Net Interest Income After Provision for Credit Losses

39,005

38,065

36,887

114,505

112,130

Noninterest Income

19,513

19,606

16,728

57,216

54,452

Noninterest Expense

42,921

40,441

39,105

123,533

117,066

Income Before Income Taxes

15,597

17,230

14,510

48,188

49,516

Income Tax Expense

2,980

3,189

3,004

9,705

10,130

Pre-Tax Loss Attributable to Noncontrolling Interest

501

109

1,149

1,342

1,153

Net Income Attributable to Common Shareowners

13,118

14,150

12,655

39,825

40,539

Basic Net Income Per Share

0.77

0.84

0.75

2.35

2.38

Diluted Net Income Per Share

0.77

0.83

0.74

2.35

2.38

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, “Average Balances &

Interest Rates,” on page 48.

Tax-equivalent net

interest income for the third quarter of 2024 totaled $40.2 million, compared to $39.3

million for the second quarter

of 2024, and $39.4

million for the third quarter of 2023.

Compared to the second quarter of 2024, the increase was primarily due to

increases in loan and investment interest income and a decrease in deposit interest expense,

partially offset by a decrease in overnight

funds interest income.

One additional calendar day also contributed to the increase.

Favorable repricing of existing adjustable/fixed

rate loans at higher rates drove the increase in loan interest income.

The increase in investment interest income was due to the

reinvestment of maturing securities at higher rates.

The decrease in deposit interest expense was attributable to lower average

NOW

account balances and average rate, in addition to lower rates on promotional

deposit products.

Compared to the third quarter of 2023, the $0.9 million increase was primarily driven

by an increase in loan interest income and to a

lesser extent overnight funds interest income, partially offset by an

increase in deposit interest expense.

For the first nine months of

2024, tax-equivalent net interest income totaled $118.0

million compared to $120.1 million for the same period of 2023 with the

decrease primarily attributable to an increase in deposit interest expense and

a decrease in investment interest income, partially offset

by an increase in loan interest income.

Our net interest margin for the third quarter of 2024 was 4.12%, an increase

of 10 basis points over the second quarter of 2024 and an

increase of nine basis points over the third quarter of 2023.

For the month of September 2024, our net interest margin was 4.16%.

For

the first nine months of 2024, our net interest margin was 4.05%

compared to 4.04% for the same period of 2023.

The increase over

the second quarter of 2024 reflected favorable loan and investment repricing,

partially offset by a lower overnight funds rate.

The

increase over both prior year periods reflected higher loan rates partially

offset by a higher cost of deposits.

For the third quarter of

2024, our cost of funds was 93 basis points, a decrease of four basis points from

the second quarter of 2024 and an increase of 27 basis

points over the third quarter of 2023.

Our cost of deposits (including noninterest bearing accounts) was 92 basis points, 95

basis

points, and 58 basis points, respectively,

for the same periods.

Provision for Credit Losses

We recorded

a provision expense for credit losses of $1.2 million for the third quarter of 2024, comparable

to the second quarter of

2024 and a $1.2 million decrease from the third quarter of 2023.

Compared to the second quarter of 2024, the provision reflected a

$0.7 million increase in the provision expense for loans HFI, a $0.6

million provision benefit for unfunded loan commitments, and a

$0.1 million provision benefit for debt securities. The increase in the provision

for loans HFI was primarily due to loan grade

migration and slightly higher loss rates partially offset by

lower loan balances. A lower level of commitments drove the provision

benefit for unfunded loan commitments. For the first nine months of 2024,

we recorded a provision expense for credit losses of $3.3

million compared to $7.7 million for the same period of 2023. The decrease

reflected a $3.2 million decrease in the provision expense

for loans HFI and a $1.2 million decrease in the provision for unfunded

loan commitments. The decrease in the provision for loans

HFI was primarily due to lower new loan volume in 2024 and lower loan balance

s. The decrease in the provision for unfunded loan

commitments reflected a lower level of loan commitments. We

discuss the allowance for credit losses further below.

Noninterest Income

Noninterest income for the third quarter of 2024 totaled $19.5 million compared

to $19.6 million for the second quarter of 2024 and

$16.7 million for the third quarter of 2023.

The slight decrease from the second quarter of 2024 reflected a $0.4 million decrease in

mortgage banking revenues partially offset by

a $0.3 million increase in wealth management fees.

Compared to the third quarter of

2023, the $2.8 million increase was primarily attributable to a $2.1 million increase

in mortgage banking revenues driven by a higher

gain on sale margin, and a $0.8 million increase in wealth management

fees.

For the first nine months of 2024, noninterest income totaled $57.2 million

compared to $54.5 million for the same period of 2023,

primarily attributable to a $3.2 million increase in mortgage banking revenues

and a $1.8 million increase in wealth management fees,

partially offset by a $2.1 million decrease in other income.

The increase in mortgage banking revenues was due to a higher gain

sale margin.

The increase in wealth management fees was primarily driven by higher retail brokerage

fees and to a lesser extent trust

fees, primarily attributable to both new account growth and higher

account values driven by higher market returns.

The decrease in

other income was primarily attributable to a $1.4 million gain from the

sale of mortgage servicing rights in the second quarter of 2023,

and to a lesser extent a decrease in vendor bonus income and miscellaneous income.

Noninterest income represented 32.7% of operating revenues (net

interest income plus noninterest income) in the third quarter of 2024

compared to 33.3% in the second quarter of 2024 and 29.9% in the third quarter

of 2023.

For the first nine months of 2024,

noninterest income represented 32.7% of operating revenues compared

to 31.2% for the same period of 2023.

The table below reflects the major components of noninterest income.

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

(Dollars in Thousands)

2024

2023

2024

2023

Deposit Fees

5,512

5,377

5,456

16,139

16,021

Bank Card Fees

3,624

3,766

3,684

11,010

11,205

Wealth Management

Fees

4,770

4,439

3,984

13,891

12,061

Mortgage Banking Revenues

3,966

4,381

1,839

11,225

8,072

Other

1,641

1,643

1,765

4,951

7,093

Total

Noninterest Income

19,513

19,606

16,728

57,216

54,452

Significant components of noninterest income are discussed in more

detail below.

Deposit Fees

Deposit fees for the third quarter of 2024

totaled $5.5

million, an increase of $0.1

million, or 2.5%, over the second

quarter of 2024, and an increase of $0.1

million, or 1.0%, over the third quarter of 2023.

For the first nine months of 2024, deposit

fees totaled $16.1 million, an increase an increase of $0.1 million, or 0.7%,

over the same period of 2023.

Compared to the second

quarter of 2024, the increase was driven by higher overdraft fees.

The increase over both prior year periods was primarily due to

higher commercial account analysis fee income.

Bank Card Fees

Bank card fees for the third quarter of 2024 totaled $3.6 million, a decrease of $0.1 million, or

3.8%, from the

second quarter of 2024, and a decrease of $0.1 million, or 1.6% from

the third quarter of 2023.

For the first nine months of 2024,

bank card fees totaled $11.0 million, a decrease

of $0.2

million, or 1.7%, from the same period of 2023.

The slight change in fees

between all periods reflected variance in debit card utilization as consumer

spending patterns normalize.

Wealth

Management Fees

Wealth management fees

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

accounts and

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

investment, insurance products, and retirement accounts),

and financial advisory fees through Capital City Strategic Wealth

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

protection services).

Wealth management

fees for the third quarter of 2024 totaled $4.8 million, an increase

of $0.3 million, or 7.5%,

over the second quarter of 2024, and an increase of $0.8 million,

or 19.7%, over the third quarter of 2023.

For the first nine months of

2024, wealth management fees totaled $13.9 million, an increase of $1.8

million, or 15.2%, over the same period of 2023, and

reflected an $1.4 million increase in retail brokerage fees and a $0.

million increase in trust fees that was partially offset by a $0.2

million decrease in insurance commission revenue.

The increase in retail brokerage assets was driven by increased fixed income and

annuity product sales and the increase in trust fees reflected both

new account growth and higher account values/returns reflective of

the improved market returns.

At September 30, 2024, total assets under management were approximately

$2.950 billion compared to

$2.770 billion at June 30, 2024 and $2.588 billion at December 31, 2023.

Mortgage Banking Revenues.

Mortgage banking revenues totaled $4.0 million for the third quarter of

2024, a decrease of $0.4 million,

or 9.5%, from the second quarter of 2024 and an increase of $2.1 million, or 115

.7%, over the third quarter of 2023.

For the first nine

months of 2024, mortgage banking revenues totaled $11.2

million compared to $8.1 million for the same period of 2023.

The

decrease compared to the second quarter of 2024 was attributable to slightly

lower loan sale volume. Compared to the prior year

periods, the increase was attributable to a higher gain on sale margin

which reflected a higher percentage of secondary

market/mandatory delivery loan sales.

We provide

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

break-

down of mortgage banking revenues, mortgage servicing activity,

and warehouse funding within Note 4 – Mortgage Banking

Activities in the Notes to Consolidated Financial Statements.

Other

Other income totaled $1.6 million for the third quarter of 2024, comparable

to the second quarter of 2024 and a decrease of

$0.1 million, or 7.0%, from the third quarter of 2023.

For the first nine months of 2024, other income totaled $5.0 million compared

to $7.1 million for the same period of 2023.

The decrease from 2023 was primarily attributable to a $1.4 million gain from the

sale of

mortgage servicing rights realized in the second quarter of 2023,

and to a lesser extent a decrease in vendor bonus income and

miscellaneous income.

Noninterest Expense

Noninterest expense for the third quarter of 2024 totaled $42.9 million compared

to $40.4 million for the second quarter of 2024 and

$39.1 million for the third quarter of 2023.

The $2.5 million increase over the second quarter of 2024 was primarily due to

a $1.4

million increase in compensation and a $1.0 million increase in other expense.

The increase in compensation reflected a $0.9 million

increase in salary expense and a $0.5 million increase in associate benefit

expense.

The increase in salary expense was driven by

annual merit adjustments, and the increase in other associate benefit

expense was primarily attributable to higher health insurance cost,

and to a lesser extent higher stock-based compensation expense.

The increase in other expense was primarily due to a $0.5 million

increase in professional fees, a $0.3 million increase in processing fees, and

higher miscellaneous expense, which included a $0.5

million payment to the counterparty for our VISA Class B share swap due to revision

to the share conversion rate related to additional

funding by VISA of the merchant litigation reserve.

Compared to the third quarter of 2023, the $3.8 million increase was primarily

attributable to a $2.8 million increase in compensation expense and a $0.9 million

increase in other expense.

The unfavorable

variance in compensation expense reflected a $2.2 million increase in salary expense

and a $0.6 million increase in associate benefit

expense, with the salary variance driven by merit adjustments and the associate

benefit expense variance reflective of higher health

insurance cost.

Further, salary expense was unfavorably impacted

by a $1.0 million decrease in realized loan cost (credit offset to

salary expense) which reflected lower loan volume in 2024.

The increase in other expense was attributable to a $0.6 million increase

in professional fees and higher miscellaneous expense due to the aforementioned

$0.5 million share swap payment in the third quarter

of 2024.

For the first nine months of 2024, noninterest expense totaled $123.5

million compared to $117.1 million for the same period

of 2023

with the $6.4 million increase primarily attributable to increases in compensation

expense of $4.6 million, occupancy expense of $0.5

million, and other expense of $1.3 million.

The increase in compensation expense reflected a $3.9 million increase in salary

expense

and a $0.7 million increase in associate benefit expense.

The increase in salary expense was primarily due to a $2.9 million decrease

in realized loan cost (credit offset to salary expense and lower new loan

volume) and a $1.9 million increase in base salary expense

(primarily annual merit raises), partially offset by a decrease in commission

expense of $1.3 million (lower residential mortgage

volume).

The increase in occupancy was primarily attributable to an increase in maintenance

agreement expense (security upgrades

and addition of interactive teller machines).

The increase in other expense was primarily due to a $1.8 million gain from the sale of

banking office in the first quarter of 2023 and higher miscellaneous

expense due to the aforementioned $0.5 million share swap

payment in 2024, which was partially offset by a $1.0 million decrease

in pension plan expense (service cost).

The table below reflects the major components of noninterest expense.

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

(Dollars in Thousands)

2024

2023

2024

2023

Salaries

21,637

20,754

19,459

62,995

59,020

Associate Benefits

4,163

3,652

3,544

11,618

10,945

Total Compensation

25,800

24,406

23,003

74,613

69,965

Premises

3,245

3,043

3,217

9,461

9,632

Equipment

3,853

3,954

3,763

11,628

10,930

Total Occupancy

7,098

6,997

6,980

21,089

20,562

Legal Fees

407

430

366

1,272

1,147

Professional Fees

1,869

1,340

1,254

4,467

4,617

Processing Services

2,260

1,938

1,874

6,030

5,488

Advertising

654

851

756

2,320

2,590

Telephone

692

718

658

2,119

2,044

Insurance – Other

737

749

703

2,401

2,406

Other Real Estate Owned, net

(1,846)

Pension - Other

(419)

(1,256)

Pension Settlement Gain

(291)

Miscellaneous

3,777

3,412

3,470

10,395

10,339

Total Other

10,023

9,038

9,122

27,831

26,539

Total

Noninterest Expense

42,921

40,441

39,105

123,533

117,066

Significant components of noninterest expense are discussed in more detail

below.

Compensation.

Compensation expense totaled $25.8 million for the third quarter of 2024, a $1.4 million,

or 5.7%, increase over the

second quarter of 2024 and a $2.8 million, or 12.2%, increase over the third

quarter of 2023.

The increase over the second quarter of

2024 reflected a $0.9 million increase in salary expense and a $0.5 million

increase in associate benefit expense.

The increase in

salary expense was driven by annual merit adjustments, and the increase in

other associate benefit expense was primarily attributable

to higher health insurance cost, and to a lesser extent higher stock-based compensation

expense.

Compared to the third quarter of

2023, the unfavorable variance was attributable to a $2.2 million increase in

salary expense and a $0.6 million increase in associate

benefit expense, with the salary variance driven by merit adjustments and the

associate benefit expense variance reflective of higher

health insurance cost.

Further, salary expense was unfavorably impacted

by a $1.0 decrease in realized loan cost (credit offset to

salary expense) which reflected lower loan volume in 2024.

For the first nine months of 2024, compensation expense totaled $74.6

million compared to $70.0 million for the same period of 2023 with the $4.6

million increase attributable to a $3.9 million increase in

salary expense and a $0.7 million increase in associate benefit expense.

The increase in salary expense was primarily due to a $2.9

million decrease in realized loan cost (credit offset to salary expense)

(lower new loan volume) and a $1.9 million increase in base

salary expense (primarily annual merit raises), partially offset by

a $1.3 million decrease in commission expense (lower residential

mortgage volume).

Higher health care cost drove the increase in associate benefit expense.

Occupancy

Occupancy expense totaled $7.1 million for the third quarter of 2024, a $0.1 million

increase over both the second

quarter of 2024 and the third quarter of 2023.

For the first nine months of 2024, occupancy expense totaled $21.1 million compared

$20.6 million for the same period of 2023.

Compared to both prior year periods,

the increase in occupancy expense was primarily due

to higher expense for maintenance agreements (security upgrades and

interactive teller machines).

Other

Other expense totaled $10.0 million for the third quarter of 2024 compared

to $9.0 million for the second quarter of 2024 and

$9.1 million for the third quarter of 2023.

For the first nine months of 2024, other expense totaled $27.8 million compared

to $26.5

million for the same period of 2023.

Compared to the second quarter of 2024, the $1.0 million increase was primarily due to

a $0.5

million increase in professional fees, a $0.3 million increase in processing

fees, and higher miscellaneous expense, which included a

$0.5 million payment to the counterparty for our VISA Class B share swap due to

revision to the share conversion rate related to

additional funding by VISA of the merchant litigation reserve.

The $0.9 million increase over the third quarter of 2023 was driven

a $0.6 million increase in professional fees and higher miscellaneous expense

due to the aforementioned $0.5 million share swap

payment in the third quarter of 2024.

For the nine-month period, the $1.3 million increase was primarily due to a $1.8

million gain

from the sale of a banking office in the first quarter of 2023 and

higher miscellaneous expense in 2024 due to the aforementioned $0.5

million share swap payment, which was partially offset by a $1.0

million decrease in pension plan expense (service cost).

Our operating efficiency ratio (expressed as noninterest

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

plus noninterest income) was 71.81% for the third quarter of 2024 compared

to 68.61% for the second quarter of 2024

and 69.88% for

the third quarter of 2023.

For the first nine months of 2024, this ratio was 70.49% compared to 67.07%

for the same period of 2023.

Income Taxes

We realized income

tax expense of $3.0 million (effective rate of 19.1%) for the third quarter of

2024 compared to $3.2 million

(effective rate of 18.5%) for the second quarter of 2024

and $3.0 million (effective rate of 20.7%) for the third quarter of 2023.

For

the first nine months of 2024, we realized income tax expense of $9.7

million (effective rate of 20.1%) compared to $10.1 million

(effective rate of 20.5%) for the same period of 2023.

The decrease in our effective tax rate from both prior year periods was

primarily due to a higher level of tax benefit accrued from investments in solar tax

credit equity funds.

Absent discrete items, we

expect our annual effective tax rate to approximate 20-21%

for 2024.

FINANCIAL CONDITION

Average earning

assets totaled $3.883 billion for the third quarter of 2024, a decrease of $51.9 million, or

1.3%, from the second

quarter of 2024, and an increase of $59.4 million, or 1.6%, over the

fourth quarter of 2023.

The change for both prior periods was

driven by variances in deposit balances (see below –

Deposits

Compared to the second quarter of 2024, the change in the earning

asset mix reflected a $33.2 million decrease in loans HFI, a $11.4

million decline in investment securities, and a $5.6 million decrease

in overnight funds sold.

Compared to the fourth quarter of 2023, the change in the earning asset mix reflected a

$157.1 million

increase in overnight funds that was partially offset by

a $17.7 million decrease in loans HFI, a $54.7 million decrease in investment

securities and a $25.2 million decline in loans held for sale.

Investment Securities

Average investments

decreased $11.4 million, or 1.2%, from the second

quarter of 2024

and $54.7 million, or 5.7%, from the fourth

quarter of 2023. Our investment portfolio represented 23.4% of our average

earning assets for each of the second and the third

quarters

of 2024 compared to 25.2% for the fourth quarter of 2023.

For the remainder of 2024, we will continue to monitor our

overall liquidity position and market conditions to determine if cash flow

from the investment portfolio should be reinvested or

allowed to run-off into overnight funds.

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

it functions as a key element of liquidity and

asset/liability management.

Two types of classifications are approved

for investment securities which are Available

-for-Sale (“AFS”)

and Held-to-Maturity (“HTM”).

At September 30, 2024, $561.5 million, or 62.5%, of the investment portfolio was classified

as HTM

and $336.2 million, or 37.5%, was classified as AFS. The average

maturity of our total portfolio at September 30, 2024 was 2.51

compared to 2.67 years at June 30, 2024 and 2.91 years at December 31, 2023.

The duration of our investment portfolio at September

30, 2024 was 2.17 years compared to 2.16 years at June 30, 2024 and 2.91

years at December 31, 2023.

Additional information on

unrealized gains/losses in the AFS and HTM portfolios is provided

in Note 2 – Investment Securities.

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.

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.

do not trade, nor do we presently intend to begin trading investment

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

maintain a trading portfolio.

At September 30, 2024, there were 818 positions (combined AFS and HTM)

with unrealized losses totaling $40.3 million. 73 of these

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

and credit of the U.S. Government.

651 were U.S. government agency securities

issued by U.S. government sponsored entities. The remaining 94 positions

(municipal securities and corporate bonds) have a credit

component.

At September 30, 2024, corporate debt securities had an allowance for credit losses of $79,000

and municipal securities

had an allowance of $4,000.

At September 30, 2024, all collateralized mortgage obligation securities,

mortgage-backed securities,

Small Business Administration securities,

U.S. Agency, and U.S. Treasury

bonds held were AAA rated.

Loans HFI

Average loans

HFI decreased $33.2 million, or 1.2%, from the second quarter of 2024 and decreased

$17.7 million, or 0.7%, from the

fourth quarter of 2023.

Compared to the second quarter of 2024, the decrease was driven by a $19.4

million decrease in consumer

loans (primarily indirect auto), a $13.2 million decrease in commercial

loans, and a $7.7 million decrease in commercial real estate

loans, partially offset by a $7.4 million increase in residential

real estate loans.

Compared to the fourth quarter of 2023, the decrease

was primarily attributable to a $54.5 million decrease in consumer loans (primarily

indirect auto) and a $24.2 million decrease in

commercial loans (primarily tax-exempt loans) that were partially offset

by a $59.2 million increase in residential real estate loans.

Period end loans HFI decreased $7.1 million, or 0.3%, from the second quarter of

2024 and decreased $50.8 million, or 1.9%, from the

fourth quarter of 2023.

Compared to the second quarter of 2024, the decline reflected a $20.9 million decrease

in consumer loans

(primarily indirect auto), a $10.4 million decrease in commercial loans, and

a $3.2 million decline in commercial real estate loans,

partially offset by a $10.9 million increase in residential real estate loans and

a $18.1 million increase in construction loans.

The

decrease from the fourth quarter of 2023 was primarily attributable to

a $57.7 million decrease in consumer loans (primarily indirect

auto), a $30.6 million decline in commercial loans, and a $5.5 million

decrease in commercial real estate loans, partially offset by

$22.2 million increase in residential real estate loans and a $22.8 million increase

in construction real estate 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

Nonperforming assets (nonaccrual loans and other real estate) totaled $7.2

million at September 30, 2024 compared to $6.2 million at

June 30, 2024 and $6.2 million at December 31, 2023.

At September 30, 2024, nonperforming assets as a percent of total assets

equaled 0.17%, compared to 0.15% at June 30, 2024 and 0.15% at December

31, 2023.

Nonaccrual loans totaled $6.6 million at

September 30, 2024, a $1.1 million increase over June 30, 2024 and a $0.3 million increase over

December 31, 2023.

Further,

classified loans totaled $25.5 million at September 30, 2024, a $0.1 million

decrease from June 30, 2024 and a $3.3 million increase

over December 31, 2023.

Allowance for Credit Losses

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

the loans’ amortized cost basis to present the net amount

expected to be collected on the loans.

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

earnings and reduced by the charge-off

of loan amounts (net of recoveries).

Loans are charged off against the allowance when

management believes the uncollectability of a loan balance is confirmed.

Expected recoveries do not exceed the aggregate of amounts

previously charged-off and expected to be charged

-off.

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

exposures is provided through the credit loss provision but recorded

as a separate liability included in other liabilities.

Management estimates the allowance balance using relevant available

information, from internal and external sources relating to past

events, current conditions, and reasonable and supportable forecasts.

Historical loan default and loss experience provides the basis for

the estimation of expected credit losses.

Adjustments to historical loss information incorporate management’s

view of current

conditions and forecasts.

At September 30, 2024, the allowance for credit losses for loans HFI totaled

$29.8 million compared to $29.2 million at June 30, 2024

and $29.9 million at December 31, 2023. Activity within the allowance

is provided in Note 3 – Loans Held for Investment and

Allowance for Credit Losses in the Notes to Consolidated Financial Statements.

The increase in the allowance over June 30, 2024 was

primarily attributable to a slightly higher credit loss provision driven by a higher

forecasted unemployment rate utilized in calculating

loan loss rates and loan grade migration (see above – Provision for Credit Losses).

The change in the allowance from December 31,

2023 reflected lower loan balances offset by higher

loss rates and loan grade migration.

At September 30, 2024, the allowance

represented 1.11% of loans HFI compared to

1.09% at June 30, 2024, and 1.10% at December 31, 2023.

At September 30, 2024, the allowance for credit losses for unfunded

commitments totaled $2.5 million compared to $3.1

million and

$3.2

million at June 30, 2024 and December 31, 2023, respectively.

The decline in the allowance from June 30, 2024 and December

31, 2023 reflected a lower level of unfunded loan commitments. The

allowance for unfunded commitments is recorded in other

liabilities.

Deposits

Average total

deposits were $3.572 billion for the third quarter of 2024, a decrease of $69.0 million,

or 1.9%, from the second quarter

of 2024 and an increase of $23.5 million, or 0.7%, over the fourth quarter

of 2023.

Compared to the second quarter of 2024, the

decrease was primarily attributable to lower NOW account balances primarily

due to the seasonal decline in our public fund balances.

The increase over the fourth quarter of 2023 reflected growth in both money

market and certificate of deposit balances which,

reflected a combination of balances migrating from savings and noninterest

bearing accounts, in addition to receiving new deposits

from existing and new clients via various deposit strategies.

At September 30, 2024, total deposits were $3.579 billion, a decrease of $29.5

million, or 0.8%, from June 30, 2024, and a decrease of

$122.7 million, or 3.3%, from December 31, 2023.

The decrease from June 30, 2024 was primarily due to lower noninterest bearing,

money market, and savings account balances.

The decrease from December 31, 2023 was primarily due to lower NOW account

balances, primarily due to the seasonal decline in our public funds, partially

offset by higher money market and certificate of deposit

balances from both new and existing clients.

Total public funds balances

were $516.2 million at September 30, 2024, $575.0 million

at June 30, 2024, and $709.8 million at December 31, 2023.

Business deposit transaction accounts classified as repurchase agreements

averaged $27.1 million for the third quarter of 2024, an

increase of $0.1 million over the second quarter of 2024 and an increase of $0.3

million over the fourth quarter of 2023. At September

30, 2024, repurchase agreement balances were $29.3 million compared

to $22.5 million at June 30, 2024 and $27.0 million at

December 31, 2023.

We continue

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

parallel rate shocks to the base case in 100 basis point (bp) increments ranging from down

400bp to up

400bps at least once per quarter, with the

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

our

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

We augment our interest rate

shock analysis with

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

and a flattening or steepening of the yield curve (non-

parallel shift).

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

uncertain or when other

business conditions so dictate.

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

12-month and 24-month periods

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

at the various interest rate shock levels. We

attempt to

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

liabilities with a similar volume of floating-rate assets,

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

reasonably matched, by managing the mix of our core

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

basis.

Analysis.

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

indicators of an institution’s short-term

performance in alternative rate environments.

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

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

ESTIMATED CHANGES

IN NET INTEREST INCOME

(1)

Percentage Change (12-month shock)

+400 bp

+300 bp

+200 bp

+100 bp

-100 bp

-200 bp

-300 bp

-400 bp

Policy Limit

-15.0%

-12.5%

-10.0%

-7.5%

-10.0%

-12.5%

-15.0%

September 30, 2024

13.8%

10.3%

6.8%

3.5%

-3.8%

-8.2%

-12.9%

-18.0%

June 30, 2024

15.0%

11.2%

7.3%

3.8%

-4.1%

-8.5%

-13.4%

-18.3%

Percentage Change (24-month shock)

+400 bp

+300 bp

+200 bp

+100 bp

-100 bp

-200 bp

-300 bp

-400 bp

Policy Limit

-17.5%

-15.0%

-12.5%

-10.0%

-12.5%

-15.0%

-17.5%

September 30, 2024

40.9%

33.1%

25.2%

17.8%

1.3%

-8.4%

-19.1%

-29.2%

June 30, 2024

41.8%

33.9%

26.0%

18.6%

2.2%

-7.4%

-18.1%

-28.6%

The Net Interest Income (“NII”) at Risk position of an instantaneous,

parallel rate shock indicates that in the short-term (over the next

12 months), all rising rate environments will positively impact the net interest

margin of the Company,

while declining rate

environments

will have a negative impact on the net interest margin. Compared

to the second quarter of 2024, these metrics generally

became less favorable in the rising rate scenarios and more favorable

in the falling rate scenarios.

This was attributable to slightly

lower new volume asset rates, in addition to $50 million in investment purchases which

provide a benefit in a falling rate environment,

with a negative effect in rising rate scenarios.

The instantaneous,

parallel rate shock results over the next 12-month and 24-month

periods are outside of policy in the rates down 300 bps and 400 bps scenario

largely due to the limited ability to decrease deposit rates

the full extent of this rate change.

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

by considering the effects of changes in interest rates on all

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

assets and liabilities. The difference between these

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

which in theory approximates the fair value of our net

assets.

ESTIMATED CHANGES

IN ECONOMIC VALUE

OF EQUITY

(1)

Changes in Interest Rates

+400 bp

+300 bp

+200 bp

+100 bp

-100 bp

-200 bp

-300 bp

-400 bp

Policy Limit

-30.0%

-25.0%

-20.0%

-15.0%

-20.0%

-25.0%

-30.0%

September 30, 2024

30.6%

24.5%

17.4%

9.6%

-11.4%

-21.7%

-31.3%

-31.7%

June 30, 2024

20.2%

16.5%

11.7%

6.1%

-9.5%

-19.0%

-26.1%

-28.8%

EVE Ratio (policy minimum 5.0%)

25.2%

23.6%

21.9%

20.1%

15.7%

13.6%

11.8%

11.7%

At September 30, 2024, the economic value of equity was favorable

in all rising rate environments and unfavorable in the falling rate

environments. Compared to the second quarter of 2024, EVE metrics were

more favorable in the rising rate environment and less

favorable in falling rate environments as slower decay rates were assumed for

our nonmaturity deposit portfolio, resulting in longer

assumed average lives. EVE is currently in compliance with policy in

all rate scenarios as the EVE ratio exceeds the policy minimum

of 5.0% in each shock scenario.

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

additional simulations will be analyzed to

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

in mix of our financial assets and liabilities, measured over

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

LIQUIDITY AND CAPITAL

RESOURCES

Liquidity

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

cash needs.

Our objective in managing our liquidity is to

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

other liabilities in accordance with their

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

Our liquidity strategy is guided by policies that are formulated and

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

the marketability of assets, the sources and stability of

funding and the level of unfunded commitments.

We regularly evaluate

all of our various funding sources with an emphasis on

accessibility, stability,

reliability and cost-effectiveness.

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

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

repurchase agreements, federal funds purchased and

FHLB borrowings.

We believe that the cash

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

are

sufficient to meet our future operating capital and funding requirements.

At September 30, 2024, we had the ability to generate approximately $1.522

billion (excludes overnight funds position of $262

million) in additional liquidity through various sources including

various federal funds purchased lines, Federal Home Loan Bank

borrowings, the Federal Reserve Discount Window,

and brokered deposits.

We recognize the

importance of maintaining liquidity and

have developed a Contingent Liquidity Plan, which addresses various liquidity

stress levels and our response and action based on the

level of severity.

We periodically test our

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

the

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

We conduct a liquidity

stress test on a quarterly basis

based on events that could potentially occur at the Bank and report results to

our ALCO, MROC,

EROC, and Board of Directors.

believe the liquidity available to us at September 30, 2024 was sufficient

to meet our on-going needs and execute our business

strategy.

We also view our

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

portfolio as collateral for

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

Additional information on our investment portfolio is provided within

Note

2 – Investment Securities.

The Bank maintained an average net overnight funds (i.e., deposits with banks plus

FED funds sold less FED funds purchased) sold

position of $256.9 million in the third quarter of 2024 compared to $262.4

million in the second quarter of 2024 and $99.8 million in

the fourth quarter of 2023.

Compared to the second quarter of 2024, the decrease reflected lower average deposits (primarily

seasonal

public funds) that was substantially offset by a decline in average loans.

Compared to the fourth quarter of 2023, the increase was

primarily driven by higher average deposits and lower average investments.

We expect our

capital expenditures will be approximately $12.0 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 $29.8 million for the third quarter of 2024 compared to

$33.6 million for the second quarter of

2024

and $43.8 million for the fourth quarter of 2023.

The decrease from both prior periods reflected a lower balance maintained on

CCHL’s

warehouse line. Additional detail on warehouse borrowings

is provided in Note 4 – Mortgage Banking Activities in the

Consolidated Financial Statements.

We have issued two

junior subordinated deferrable interest notes to our wholly owned

Delaware statutory trusts.

The first note for

$30.9 million was issued to CCBG Capital Trust I in

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

The second

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

in May 2005.

The interest payment for the CCBG Capital Trust I

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

CME Term SOFR (secured overnight

financing rate)

plus a margin of 1.90%.

This note matures on December 31, 2034.

The interest payment for the CCBG Capital Trust II borrowing

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

CME Term SOFR plus a margin

of 1.80%.

This

note matures on June 15, 2035.

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

Under the terms of each

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

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

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

stock or purchase or acquire any of our capital stock.

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

flow hedge of our interest rate risk related to our subordinated

debt.

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

I borrowing and $20 million of the

CCBG Capital Trust II borrowing).

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

CME Term SOFR plus spread)

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

Additional detail on the interest rate swap

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

Statements.

Capital

Our capital ratios are presented in the Selected Quarterly Financial Data

table on page 34.

At September 30, 2024, our regulatory

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

under the Basel III capital standards.

Shareowners’ equity was $476.5 million at September 30, 2024

compared to $461.0 million at June 30, 2024 and $440.6 million at

December 31, 2023.

For the first nine months of 2024, shareowners’ equity was positively impacted by net

income attributable to

shareowners of $39.8 million, a $8.7 million decrease in the net unrealized

loss on available for sale securities, net adjustments

totaling $0.9 million related to transactions under our stock compensation

plans, and stock compensation accretion of $1.1 million.

Shareowners’ equity was reduced by a common stock dividend

of $11.0 million ($0.65 per share), the repurchase of

common stock of

$2.3 million (82,540 shares), a $0.6 million increase in the fair value of the interest

rate swap related to subordinated debt, and a $0.7

million reclassification to temporary equity.

At September 30, 2024, our total risk-based capital ratio was 17.97% compared

to 17.50% at June 30, 2024 and 16.57% at December

31, 2023.

Our common equity tier 1 capital ratio was 14.88%, 14.44%, and 13.52%, respectively,

on these dates.

Our leverage ratio

was 10.89%, 10.51%, and 10.30%, respectively,

on these dates.

At September 30, 2024, all our regulatory capital ratios exceeded

the

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

standards.

Further, our tangible common equity ratio

(non-GAAP financial measure) was 9.28% at September 30, 2024 compared to 8.91%

and 8.26% at June 30, 2024 and December 31,

2023, respectively.

If our unrealized held-to-maturity securities losses of $12.9 million (after-tax)

were recognized in accumulated

other comprehensive loss, our adjusted tangible capital ratio would be 9.00%.

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

liability through other comprehensive income in

accordance with Accounting Standards Codification

Topic 715. At September 30, 2024,

the net pension liability reflected in other

comprehensive loss was $0.4 million compared to $0.4 million

at June 30, 2024 and December 31, 2023. This liability is re-measured

annually on December 31

based on an actuarial calculation of our pension liability.

Significant assumptions used in calculating the

liability include the weighted average discount rate used to measure the present

value of the pension liability,

the weighted average

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

annual compensation increases, all of which will

vary when re-measured. The discount rate assumption used to calculate

the pension liability is subject to long-term corporate bond

rates at December 31

. These assumptions and sensitivities are discussed in the section entitled “Critical Accounting

Policies and

Estimates” in Part II, Item7. Management’s

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

our 2023

Form 10-K, as amended.

OFF-BALANCE SHEET ARRANGEMENTS

We are a party

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

course of business to meet the financing needs of our

clients.

At September 30, 2024, we had $714.2 million in commitments to extend

credit and $6.1 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.

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 $2.5 million at September 30, 2024.

CRITICAL ACCOUNTING POLICIES

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

Financial Statements included in our 2023 Form 10-K,

as amended.

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 2023 Form 10-K, as

amended.

TABLE I

AVERAGE BALANCES & INTEREST RATES (UNAUDITED)

Three Months Ended September 30,

Nine Months Ended September 30,

2024

2023

2024

2023

Average

(Dollars in Thousands)

Balances

Interest

Rate

Balances

Interest

Rate

Balances

Interest

Rate

Balances

Interest

Rate

Assets:

Loans Held for Sale

24,570

720

7.49

62,768

971

6.14

26,050

1,800

6.22

57,438

2,416

5.62

Loans Held for Investment

(1)(2)

2,693,533

40,985

6.09

2,672,653

38,455

5.71

2,716,220

121,864

6.02

2,637,911

109,688

5.56

Taxable Securities

907,610

4,148

1.82

1,002,547

4,549

1.80

926,241

12,385

1.78

1,034,825

14,265

1.84

Tax-Exempt Securities

(2)

846

4.33

2,456

2.66

848

4.34

2,649

2.49

Federal Funds Sold and Interest Bearing

Deposits

256,855

3,514

5.44

136,556

1,848

5.37

220,056

9,031

5.48

237,987

8,741

4.91

Total Earning Assets

3,883,414

49,377

5.06

3,876,980

45,840

4.69

3,889,415

145,108

4.98

3,970,810

135,160

4.55

Cash & Due From Banks

70,994

75,941

73,843

75,483

Allowance For Credit Losses

(29,905)

(29,172)

(29,833)

(27,581)

Other Assets

291,359

295,106

292,762

297,688

TOTAL ASSETS

4,215,862

4,218,855

4,226,187

4,316,400

Liabilities:

Noninterest Bearing Deposits

1,332,305

1,474,574

1,340,981

1,538,268

NOW Accounts

1,145,544

4,087

1.42

1,125,171

3,489

1.23

1,184,596

13,009

1.47

1,184,453

8,679

0.98

Money Market Accounts

418,625

2,694

2.56

322,623

1,294

1.59

393,294

7,431

2.52

293,089

2,249

1.03

Savings Accounts

512,098

180

0.14

579,245

200

0.14

523,573

544

0.14

603,643

396

0.09

Other Time Deposits

163,462

1,262

3.07

95,203

231

0.96

153,991

3,412

2.96

90,970

386

0.57

Total Interest Bearing Deposits

2,239,729

8,223

1.46

2,122,242

5,214

0.97

2,255,454

24,396

1.44

2,172,155

11,710

0.72

Total Deposits

3,572,034

8,223

0.92

3,596,816

5,214

0.58

3,596,435

24,396

0.91

3,710,423

11,710

0.42

Repurchase Agreements

27,126

221

3.24

25,356

190

2.98

26,619

639

3.21

17,588

314

2.39

Other Short-Term Borrowings

2,673

7.63

24,306

440

7.17

4,334

159

4.88

26,586

1,228

6.17

Subordinated Notes Payable

52,887

610

4.52

52,887

625

4.62

52,887

1,868

4.64

52,887

1,800

4.49

Other Long-Term Borrowings

795

5.55

387

4.73

447

5.16

433

4.78

Total Interest Bearing Liabilities

2,323,210

9,117

1.56

2,225,178

6,473

1.15

2,339,741

27,079

1.55

2,269,649

15,067

0.89

Other Liabilities

73,767

83,099

71,574

82,877

TOTAL LIABILITIES

3,729,282

3,782,851

3,752,296

3,890,794

Temporary Equity

6,443

8,424

6,694

8,719

TOTAL SHAREOWNERS’ EQUITY

480,137

427,580

467,197

416,887

TOTAL LIABILITIES, TEMPORARY

AND SHAREOWNERS’ EQUITY

4,215,862

4,218,855

4,226,187

4,316,400

Interest Rate Spread

3.49

3.54

3.43

3.66

Net Interest Income

40,260

39,367

118,029

120,093

Net Interest Margin

(3)

4.12

4.03

4.05

4.04

(1)

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

Interest income includes loan costs of $0.2 million

and $0.5 million for the three and nine months ended September

30, 2024,

and net loan fees of $0.1 million for the three and nine

month periods ended September 30, 2023.

(2)

Interest income includes the effects of taxable equivalent adjustments

using a 21% Federal tax rate.

(3)

Taxable equivalent net interest income divided by average earning assets.

Item 3.

QUANTITATIVE

AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

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

Discussion and Analysis of Financial Condition and Results of

Operations, above, which is incorporated herein by reference.

Management has determined that no additional disclosures are

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

since December 31, 2023.

Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

At September 30, 2024, the end of the period covered by this Form 10-Q, our management,

including our Chief Executive Officer and

Chief Financial Officer, evaluated

the effectiveness of our disclosure controls and procedures (as defined

in Rule 13a-15(e) under the

Securities Exchange Act of 1934).

Based upon that evaluation, our Chief Executive Officer and Chief

Financial Officer concluded

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

were ineffective due to the identification

of the material weakness discussed below.

Previously Reported Material Weakness

in Internal Control Over Financial Reporting

A material weakness is a deficiency,

or a combination of deficiencies, in internal control over financial reporting such

that there is a

reasonable possibility that a material misstatement of the Company’s

annual interim financial statements will not be prevented or

detected on a timely basis.

As reported in our 2023 Form 10-K, as amended, we did not maintain effective

internal control over

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

Act of 1934) as of December 31, 2023 as

a result of a material weakness in our internal control over financial reporting

for the review of significant inter-company mortgage

loan sales and servicing transactions was not designed effectively.

Specifically, management’s

review control over the completeness

and accuracy of elimination entries in the consolidation process was not designed

effectively, as the

review was not sufficiently

precise to identify all the necessary elimination entries between CCB and its subsidiary,

CCHL. The Company determined inter-

company transactions related to the sale of residential mortgage loans were

not properly eliminated and net loan fees were not

properly recorded. Further, financial information

obtained from CCHL for certain construction/permanent loan activity was not in

sufficient detail to appropriately classify this activity within the

Statement of Cash Flows.

Specifically, management’s

review control

over the completeness, accuracy and review of financial information provided

from CCHL related to the Statement of Cash Flows was

not designed effectively as the review was not sufficiently

precise to identify all errors in financial reporting. Refer to our 2023 Form

10-K, as amended, for further information on the material weakness.

Remediation Plan

Since identifying the material weakness described above, management,

with oversight from the Audit Committee and input from the

Board of Directors, has devoted substantial resources to the ongoing

implementation of remediation efforts. These remediation

efforts,

summarized below are intended to address both the identified material weakness

and to enhance the Company’s overall

internal

control over financial reporting and disclosure controls and procedures.

Based on additional procedures and post-closing review,

management concluded that the consolidated financial statements

included in this report present fairly,

in all material respects, our

financial position, results of operations, and cash flows for the periods presented,

in conformity with GAAP.

The internal control and procedural enhancements and remedial actions that

have been implemented include:

Enhance the precision level review of activity within existing accounts that are

subject to elimination during consolidation, to

ensure appropriate elimination;

Enhance review procedures to identify new inter-company

accounts and activities subject to elimination during

consolidation;

Increase the granularity of general ledger mapping for inter-company

accounts subject to elimination during consolidation;

Enhance financial close checklist and pre-close meeting agenda to assist the reviewer

identifying and assessing inter-

company activities that are subject to elimination in a timely manner; and

Enhance the detail of review procedures of financial information obtained

from a subsidiary

to identify, assess and validate

appropriate classification when preparing the consolidated financial statements,

including when reviewing items in the

operating, investing or financing activity sections within the Statement of

Cash Flow.

To remediate

the material weakness, the Company implemented the internal control and procedural enhancements

noted above in

items 1-4 during the fourth quarter of 2023 and implemented the enhancement

noted above in item 5 during the first quarter of 2024.

The material weakness cannot be considered remediated until the applicable

controls have operated for a sufficient period of time and

management has concluded, through testing, that these controls are designed

and operating effectively.

Accordingly, management

will

continue to monitor and evaluate the effectiveness of our

internal control over financial reporting and the disclosure controls and

procedures.

Change in Internal Control

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

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 2023 Form 10-K, as amended,

as updated in our subsequent quarterly reports. The risks described in

our 2023 Form 10-K, as amended, 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

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosure

Not Applicable.

Item 5.

Other Information

During the three months ended September 30, 2024, none

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

Exchange

Act)

adopted

terminated

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

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

under the Exchange Act or any “

non-Rule

10b5-1

trading arrangement” as

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

Item 6.

Exhibits

(A)

Exhibits

31.1

Certification of William G Smith, Jr., Chairman, President and Chief Executive Officer of Capital City Bank Group, Inc.,

Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

31.2

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

Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

32.1

Certification of William G. Smith, Jr., Chairman, President and Chief Executive Officer of Capital City Bank Group, Inc.,

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

32.2

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

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

101.SCH

XBRL Taxonomy

Extension Schema Document

101.CAL

XBRL Taxonomy

Extension Calculation Linkbase Document

101.LAB

XBRL Taxonomy

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101.PRE

XBRL Taxonomy

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101.DEF

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Extension Definition Linkbase Document

104

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

SIGNATURES

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

duly caused this Report to be signed on its

behalf by the undersigned Chief Financial Officer hereunto duly

authorized.

CAPITAL CITY

BANK GROUP,

INC.

(Registrant)

/s/ Jeptha E. Larkin

Jeptha E. Larkin

Executive Vice President

and Chief Financial Officer

(Mr. Larkin is the Principal Financial

Officer and has

been duly authorized to sign on behalf of the Registrant)

Date: November 4, 2024

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: November 4, 2024

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: November 4, 2024

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 September

30, 2024, 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: November 4, 2024

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 September

30, 2024, 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: November 4, 2024

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.