10-Q - CCBG - Equibles

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,

D.C.

20549

FORM

10-Q

☒

QUARTERLY REPORT

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

For the Quarterly Period Ended

March 31, 2025

☐

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

For the transition period from ____________ to ____________

Commission File Number:

0-13358

Capital City Bank Group, Inc.

(Exact name of Registrant as specified in its charter)

Florida

59-2273542

(State or other jurisdiction of incorporation or organization)

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

217 North Monroe Street

Tallahassee

Florida

32301

(Address of principal executive office)

(Zip Code)

(

850

)

402-7821

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, Par value $0.01

CCBG

Nasdaq Stock Market

, LLC

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

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

filing requirements for the past 90 days.

Yes

[X] No [

]

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

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

such files).

Yes [

] No [

]

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

an emerging growth company.

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

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

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

☐

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

]

[X]

At April 28, 2025,

17,054,945

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

CAPITAL CITY BANK

GROUP,

INC.

QUARTERLY

REPORT ON FORM 10-Q

FOR THE THREE MONTHS ENDED MARCH 31, 2025

TABLE OF CONTENTS

PART I –

Financial Information

Page

Item 1.

Consolidated Financial Statements (Unaudited)

Consolidated Statements of Financial Condition – March 31, 2025 and December 31, 2024

Consolidated Statements of Income – Three Months Ended March 31, 2025 and 2024

Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2025 and 2024

Consolidated Statements of Changes in Shareowners’ Equity – Three Months Ended March 31, 2025 and 2024

Consolidated Statements of Cash Flows – Three Months Ended March 31, 2025 and 2024

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,

2024

(the “2024

Form 10-K”),

as updated

in our

subsequent

quarterly reports

filed on

Form 10-Q,

as well

as,

among other

factors:

●

The effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal

Reserve Board;

●

Inflation, interest rate, market and monetary fluctuations;

●

Local, regional, national, and international economic conditions and the impact they may have on us and our clients and our

assessment of that impact;

●

The costs and effects of legal and regulatory developments, the outcomes of legal proceedings or regulatory or other

governmental inquiries, the results of regulatory examinations or reviews and the ability to obtain required regulatory

approvals;

●

The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, and

insurance) and their application with which we and our subsidiaries must comply;

●

The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as other

accounting standard setters;

●

The accuracy of our financial statement estimates and assumptions;

●

Changes in the financial performance and/or condition of our borrowers;

●

Changes in the mix of loan geographies, sectors and types or the level of non-performing assets and charge-offs;

●

Changes in estimates of future credit loss reserve requirements based upon the periodic review thereof under relevant

regulatory and accounting requirements;

●

Changes in our liquidity position;

●

The timely development and acceptance of new products and services and perceived overall value of these products and

services by users;

●

Changes in consumer spending, borrowing, and saving habits;

●

Greater than expected costs or difficulties related to the integration of new products and lines of business;

●

Technological changes;

●

The cost and effects of cyber incidents or other failures, interruptions, or security breaches of our systems or those of our

customers or third-party providers;

●

Acquisitions and integration of acquired businesses;

●

Impairment of our goodwill or other intangible assets;

●

Changes in the reliability of our vendors, internal control systems, or information systems;

●

Our ability to increase market share and control expenses;

●

Our ability to attract and retain qualified employees;

●

Changes in our organization, compensation, and benefit plans;

●

The soundness of other financial institutions;

●

Volatility

and disruption in national and international financial and commodity markets;

●

Changes in the competitive environment in our markets and among banking organizations and other financial service

providers;

●

Government intervention in the U.S. financial system;

●

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

terrorism, civil unrest, climate change or other geopolitical events;

●

Our ability to declare and pay dividends;

●

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

●

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

●

Negative publicity and the impact on our reputation; and

●

The limited trading activity and concentration of ownership of our common stock.

However, other factors besides those listed in

Item 1A Risk Factors

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

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

Any forward-looking

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

We do not undertake to update any forward-looking

statement, except as required by applicable law.

PART

FINANCIAL INFORMATION

Item 1.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF FINANCIAL CONDITION

(Unaudited)

March 31,

December 31,

(Dollars in Thousands, Except Par Value)

2025

2024

ASSETS

Cash and Due From Banks

78,521

70,543

Federal Funds Sold and Interest Bearing Deposits

446,042

321,311

Total Cash and Cash Equivalents

524,563

391,854

Investment Securities, Available

for Sale, at fair value (amortized cost of $

481,913

and $

429,033

)

461,224

403,345

Investment Securities, Held to Maturity (fair value of $

500,201

and $

544,460

)

517,176

567,155

Equity Securities

2,315

2,399

Total Investment

Securities

980,715

972,899

Loans Held For Sale, at fair value

21,441

28,672

Loans Held for Investment

2,660,770

2,651,550

Allowance for Credit Losses

(29,734)

(29,251)

Loans Held for Investment, Net

2,631,036

2,622,299

Premises and Equipment, Net

80,043

81,952

Goodwill and Other Intangibles

92,733

92,773

Other Real Estate Owned

132

367

Other Assets

130,570

134,116

Total Assets

4,461,233

4,324,932

LIABILITIES

Deposits:

Noninterest Bearing Deposits

1,363,739

1,306,254

Interest Bearing Deposits

2,420,151

2,365,723

Total Deposits

3,783,890

3,671,977

Short-Term

Borrowings

37,200

28,304

Subordinated Notes Payable

52,887

Other Long-Term

Borrowings

794

Other Liabilities

73,887

75,653

Total Liabilities

3,948,658

3,829,615

SHAREOWNERS’ EQUITY

Preferred Stock, $

0.01

par value;

3,000,000

shares authorized;

shares issued and outstanding

Common Stock, $

0.01

par value;

90,000,000

shares authorized;

17,054,787

and

16,974,513

shares issued and outstanding at March 31, 2025 and December 31, 2024, respectively

171

170

Additional Paid-In Capital

38,576

37,684

Retained Earnings

476,715

463,949

Accumulated Other Comprehensive Loss, net of tax

(2,887)

(6,486)

Total Shareowners’

Equity

512,575

495,317

Total Liabilities and Shareowners’

Equity

4,461,233

4,324,932

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF INCOME

(Unaudited)

Three Months Ended March 31,

(Dollars in Thousands, Except Per Share

Data)

2025

2024

INTEREST INCOME

Loans, including Fees

40,478

40,683

Investment Securities:

Taxable Securities

5,802

4,238

Tax Exempt Securities

Federal Funds Sold and Interest Bearing Deposits

3,496

1,893

Total Interest Income

49,782

46,820

INTEREST EXPENSE

Deposits

7,383

7,594

Short-Term

Borrowings

281

240

Subordinated Notes Payable

560

628

Other Long-Term

Borrowings

Total Interest Expense

8,235

8,465

NET INTEREST INCOME

41,547

38,355

Provision for Credit Losses

768

920

Net Interest Income After Provision for Credit Losses

40,779

37,435

NONINTEREST INCOME

Deposit Fees

5,061

5,250

Bank Card Fees

3,514

3,620

Wealth Management

Fees

5,763

4,682

Mortgage Banking Revenues

3,820

2,878

Other

1,749

1,667

Total Noninterest

Income

19,907

18,097

NONINTEREST EXPENSE

Compensation

26,248

24,407

Occupancy, Net

6,793

6,994

Other

5,660

8,770

Total Noninterest

Expense

38,701

40,171

INCOME BEFORE INCOME TAXES

21,985

15,361

Income Tax Expense

5,127

3,536

NET INCOME

16,858

11,825

Loss Attributable to Noncontrolling Interests

732

NET INCOME ATTRIBUTABLE

TO COMMON SHAREOWNERS

16,858

12,557

BASIC NET INCOME PER SHARE

0.99

0.74

DILUTED NET INCOME PER SHARE

0.99

0.74

Average Basic Shares

Outstanding

17,027

16,951

Average Diluted

Shares Outstanding

17,044

16,969

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended

March 31,

(Dollars in Thousands)

2025

2024

NET INCOME ATTRIBUTABLE

TO COMMON SHAREOWNERS

16,858

12,557

Other comprehensive income, before

tax:

Investment Securities:

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

5,007

(1,175)

Amortization of unrealized losses on securities transferred from available

for sale to held to maturity

498

891

Derivative:

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

derivative

(704)

437

Other comprehensive income, before

tax

4,801

153

Deferred tax expense related to other comprehensive income

1,202

Other comprehensive income, net of tax

3,599

TOTAL COMPREHENSIVE

INCOME

20,457

12,623

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF CHANGES IN SHAREOWNERS’ EQUITY

(Unaudited)

Accumulated

Other

Additional

Comprehensive

Common

Paid-In

Retained

(Loss) Income,

(Dollars In Thousands, Except Share Data)

Outstanding

Stock

Capital

Earnings

Net of Taxes

Total

Balance, January 1, 2025

16,974,513

170

37,684

463,949

(6,486)

495,317

Net Income Attributable to Common Shareowners

16,858

Other Comprehensive Income, net of tax

3,599

Cash Dividends ($

0.2400

per share)

(4,092)

Stock Based Compensation

399

Stock Compensation Plan Transactions, net

80,274

493

494

Balance, March 31, 2025

17,054,787

171

38,576

476,715

(2,887)

512,575

Balance, January 1, 2024

16,950,222

170

36,326

426,275

(22,146)

440,625

Net Income Attributable to Common Shareowners

12,557

Reclassification to Temporary Equity

(1)

Other Comprehensive Income, net of tax

Cash Dividends ($

0.2100

per share)

(3,555)

Repurchase of Common Stock

(82,540)

(1)

(2,329)

(2,330)

Stock Based Compensation

392

Stock Compensation Plan Transactions, net

60,825

472

Balance, March 31, 2024

16,928,507

169

34,861

435,364

(22,080)

448,314

(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)

Three Months Ended March 31,

(Dollars in Thousands)

2025

2024

CASH FLOWS FROM OPERATING

ACTIVITIES

Net Income Attributable to Common Shareowners

16,858

12,557

Adjustments to Reconcile Net Income to

Cash Provided by Operating Activities:

Provision for Credit Losses

768

920

Depreciation

1,810

2,051

Amortization of Premiums, Discounts and Fees, net

1,144

953

Amortization of Intangible Asset

Originations of Loans Held-for-Sale

(96,737)

(105,717)

Proceeds From Sales of Loans Held-for-Sale

105,196

106,941

Mortgage Banking Revenues

(3,820)

(2,878)

Net (Deletions) Additions for Capitalized Mortgage Servicing Rights

(88)

Stock Compensation

399

392

Net Tax Benefit from

Stock-Based Compensation

(154)

(5)

Deferred Income Tax Benefit

(121)

(1,799)

Net Change in Operating Leases

166

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

(4,508)

Loss on Disposal of Premises and Equipment

Net Decrease in Other Assets

2,388

2,598

Net Decrease in Other Liabilities

(1,516)

(1,497)

Net Cash Provided By Operating Activities

21,867

14,647

CASH FLOWS FROM INVESTING ACTIVITIES

Securities Held to Maturity:

Purchases

(20,438)

(1,277)

Proceeds from Payments, Maturities, and Calls

70,308

22,827

Securities Available for

Sale:

Purchases

(64,870)

(1,100)

Proceeds from Payments, Maturities, and Calls

11,683

10,012

Equity Securities:

Net Decrease in Equity Securities

Purchases of Loans Held for Investment

(304)

(302)

Proceeds from Sales of Loans

13,641

13,116

Net Increase in Loans Held for Investment

(21,101)

(6,830)

Proceeds From Sales of Other Real Estate Owned

7,309

Purchases of Premises and Equipment

(2,382)

(2,237)

Net Cash (Used In) Provided by Investing Activities

(6,070)

34,214

CASH FLOWS FROM FINANCING ACTIVITIES

Net Increase (Decrease) in Deposits

111,913

(47,021)

Net Increase (Decrease) in Short-Term

Borrowings

8,896

(3,455)

Repayments of Other Long-Term

Borrowings

(50)

Dividends Paid

(4,092)

(3,555)

Payments to Repurchase Common Stock

(2,330)

Proceeds from Issuance of Common Stock Under Purchase Plans

195

172

Net Cash Provided By (Used In) Financing Activities

116,912

(56,239)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

132,709

(7,378)

Cash and Cash Equivalents at Beginning of Period

391,854

312,067

Cash and Cash Equivalents at End of Period

524,563

304,689

Supplemental Cash Flow Disclosures:

Interest Paid

8,356

7,875

Supplemental Noncash Items:

Loans and Premises Transferred to Other Real Estate Owned

2,566

Loans Transferred from Held for Investment

to Held for Sale, net

11,049

7,956

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, 2024 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 2024 Form

10-K.

Accounting Standards Updates

Proposed Accounting Standards

ASU No. 2023-06, “Disclosure Improvements:

Codification Amendments in Response to the SEC’s

Disclosure Update and Simplification Initiative.”

Accounting Standards Update

(“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. ASU 2023-06 is to be applied prospectively,

and early adoption is

prohibited. For reporting entities subject to the SEC’s

existing disclosure requirements, the effective

dates of ASU 2023-06 will be the

date on which the SEC’s removal of

that related disclosure requirement from Regulation S-X or Regulation

S-K becomes effective. If

by June 30, 2027, the SEC has not removed the applicable requirement from

Regulation S-X or Regulation S-K, the pending content

of the related amendment will not become effective for

any entities. The Company is currently evaluating the provisions of the

amendments and the impact on its future consolidated statements.

ASU No. 2023-09, “Income Taxes

(Topic

740): Improvements to Income Tax

Disclosures.”

ASU 2023-09 is intended to enhance

transparency and decision usefulness of income tax disclosures. The ASU addresses

investor requests for more transparency about

income tax information through improvements to income tax disclosures,

primarily related to the rate reconciliation and income taxes

paid information. Retrospective application in all prior periods is permitted.

ASU 2023-09 is effective for the Company as of January

1, 2025. The Company is currently evaluating the impact of the incremental

income taxes information that will be required to be

disclosed within its Annual Report on Form 10-K for the year ended December

31, 2025 and subsequent annual reports.

NOTE 2 –

INVESTMENT SECURITIES

Investment Portfolio Composition

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

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

and the corresponding amounts of gross

unrealized gains and losses.

Available for

Sale

Amortized

Unrealized

Allowance for

Fair

(Dollars in Thousands)

Cost

Gains

Losses

Credit Losses

Value

March 31, 2025

U.S. Government Treasury

158,473

556

469

158,560

U.S. Government Agency

153,326

4,250

149,109

States and Political Subdivisions

41,885

3,152

(2)

38,731

Mortgage-Backed Securities

(1)

64,583

9,634

54,949

Corporate Debt Securities

55,549

3,698

(73)

51,778

Other Securities

(2)

8,097

Total

481,913

589

21,203

(75)

461,224

December 31, 2024

U.S. Government Treasury

106,710

934

105,801

U.S. Government Agency

148,666

5,578

143,127

States and Political Subdivisions

43,212

3,827

(3)

39,382

Mortgage-Backed Securities

(1)

66,379

10,902

55,477

Corporate Debt Securities

55,970

4,444

(64)

51,462

Other Securities

(2)

8,096

Total

429,033

25,685

(67)

403,345

Held to Maturity

Amortized

Unrealized

Fair

(Dollars in Thousands)

Cost

Gains

Losses

Value

March 31, 2025

U.S. Government Treasury

306,419

4,245

302,174

Mortgage-Backed Securities

(1)

210,757

12,820

198,027

Total

517,176

17,065

500,201

December 31, 2024

U.S. Government Treasury

368,005

6,476

361,529

Mortgage-Backed Securities

(1)

199,150

16,235

182,931

Total

567,155

22,711

544,460

(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 March 31, 2025 and at December 31, 2024.

At March 31, 2025 and December 31, 2024, the investment portfolio had $

2.3

million and $

2.4

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 $

456.1

million and $

489.5

million at March 31, 2025 and December 31, 2024, 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, which is included in other securities is pledged to secure FHLB advances.

No ready market exists for this stock, and it has no

quoted fair value; however, redemption

of this stock has historically been at par value.

As a member of the Federal Reserve Bank of

Atlanta, the Bank is required to maintain stock in the Federal Reserve Bank of Atlanta

based on a specified ratio relative to the Bank’s

capital.

Federal Reserve Bank stock is carried at cost.

Investment Sales.

There were

sales of investment securities for the three months ended March 31, 2025 and 2024.

Maturity Distribution

At March 31, 2025, the Company’s

investment securities had the following maturity distribution based

contractual maturity.

Expected maturities may differ from contractual maturities because borrowers

may have the right to call or

prepay obligations.

Mortgage-backed securities 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

59,318

58,196

248,348

245,163

Due after one year through five years

252,607

245,032

58,071

57,011

Mortgage-Backed Securities

64,583

54,949

210,757

198,027

U.S. Government Agency

97,308

94,950

Other Securities

8,097

Total

481,913

461,224

517,176

500,201

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

March 31, 2025

Available for

Sale

U.S. Government Treasury

15,895

14,648

461

30,543

469

U.S. Government Agency

47,557

149

97,046

4,101

144,603

4,250

States and Political Subdivisions

844

37,887

3,149

38,731

3,152

Mortgage-Backed Securities

54,884

9,634

54,935

9,634

Corporate Debt Securities

2,159

49,619

3,607

51,778

3,698

Total

66,506

251

254,084

20,952

320,590

21,203

Held to Maturity

U.S. Government Treasury

302,174

4,245

302,174

4,245

Mortgage-Backed Securities

57,699

342

115,401

12,478

173,100

12,820

Total

57,699

342

417,575

16,723

475,274

17,065

December 31, 2024

Available for

Sale

U.S. Government Treasury

81,363

318

14,510

616

95,873

934

U.S. Government Agency

33,155

184

100,844

5,394

133,999

5,578

States and Political Subdivisions

2,728

164

36,654

3,663

39,382

3,827

Mortgage-Backed Securities

55,409

10,902

55,463

10,902

Corporate Debt Securities

3,093

249

48,369

4,195

51,462

4,444

Total

120,393

915

255,786

24,770

376,179

25,685

Held to Maturity

U.S. Government Treasury

361,529

6,476

361,529

6,476

Mortgage-Backed Securities

58,230

1,000

119,353

15,235

177,583

16,235

Total

58,230

1,000

480,882

21,711

539,112

22,711

At March 31, 2025, there were

829

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

38.3

million.

of these

positions are U.S. Treasury bonds and

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

674

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 March 31, 2025, 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.

March 31, 2025, corporate debt securities had an allowance for

credit losses of $

73,000

and municipal securities had an allowance of

2,000

. None of the securities held by the Company were past due or in nonaccrual status at March

31, 2025.

Credit Quality Indicators

The Company monitors the credit quality of its investment securities through

various risk management procedures, including the

monitoring of credit ratings.

A majority of the debt securities in the Company’s

investment portfolio were issued by a U.S.

government entity or agency and are either explicitly or implicitly guaranteed

by the U.S. government.

The Company believes the

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

of nonpayment of the amortized cost basis is

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

to technically default.

Further, certain municipal securities held by the Company

have been pre-refunded and secured by government guaranteed

treasuries.

Therefore, for the aforementioned securities, the Company

does

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

The Company monitors the credit quality of its

municipal and corporate securities portfolio via credit ratings

which are updated on a quarterly basis.

On a quarterly basis, municipal

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

if the loss is attributable to credit related factors and

if an allowance for credit loss is needed.

NOTE 3 – LOANS HELD FOR INVESTMENT AND ALLOWANCE

FOR CREDIT LOSSES

Loan Portfolio Composition

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

(Dollars in Thousands)

March 31, 2025

December 31, 2024

Commercial, Financial and Agricultural

184,393

189,208

Real Estate – Construction

192,282

219,994

Real Estate – Commercial Mortgage

806,942

779,095

Real Estate – Residential

(1)

1,043,821

1,042,504

Real Estate – Home Equity

225,987

220,064

Consumer

(2)

207,345

200,685

Loans Held For Investment, Net of Unearned Income

2,660,770

2,651,550

(1)

Includes loans in process balances of $

3.4

million and $

13.6

million at March 31, 2025 and December 31, 2024,

respectively.

(2)

Includes overdraft balances of $

1.2

million at March 31, 2025 and December 31, 2024.

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

included in loans were $

8.4

million at March 31, 2025 and $

8.3

million at December 31, 2024.

Accrued interest receivable on loans which is excluded from amortized

cost totaled $

10.4

million at March 31, 2025 and $

10.3

million

at December 31, 2024, 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.

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 2024 Form

10-K.

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

portfolio segment.

Allocation of a portion of the

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

absorb losses in other categories.

Commercial,

Real Estate

Financial,

Real Estate

Commercial

Real Estate

(Dollars in Thousands)

Agricultural

Construction

Mortgage

Residential

Home Equity

Consumer

Total

Three Months Ended

March 31, 2025

Beginning Balance

1,514

2,384

5,867

14,568

1,952

2,966

29,251

Provision for Credit Losses

(151)

191

206

722

1,083

Charge-Offs

(168)

(8)

(1,435)

(1,611)

Recoveries

119

805

1,011

Net (Charge-Offs) Recoveries

(93)

111

(630)

(600)

Ending Balance

1,468

2,233

6,061

14,885

2,029

3,058

29,734

Three Months Ended

March 31, 2024

Beginning Balance

1,482

2,502

5,782

15,056

1,818

3,301

29,941

Provision for Credit Losses

284

(633)

(39)

(248)

130

1,388

882

Charge-Offs

(282)

(17)

(76)

(2,188)

(2,563)

Recoveries

204

763

1,069

Net (Charge-Offs) Recoveries

(241)

204

(52)

(1,425)

(1,494)

Ending Balance

1,525

1,869

5,947

14,828

1,896

3,264

29,329

For the three months ended March 31, 2025, the allowance for loans

HFI increased by $

0.5

million and reflected a provision expense

of $

1.1

million and net loan charge-offs of $

0.6

million.

The increase was primarily due to higher loan balances and higher loan loss

rates.

For the three months ended March 31, 2024, the allowance for loans HFI decreased

by $

0.6

million and reflected a provision

expense of $

0.9

million and net loan charge-offs of $

1.5

million.

The decrease was attributable to favorable loan grade migration,

lower loss rates, and a combination of lower loan balances and shift in mix within

the portfolio.

Four unemployment forecast

scenarios were utilized to estimate probability of default and are weighted

based on management’s estimate of

probability.

See Note 8

– Commitments and Contingencies for information on the allowance for off-balance

sheet credit commitments.

Loan Portfolio Aging.

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

is over 30 days

past due (“DPD”).

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

past due loans by class of loans.

30-59

60-89

90 +

Total

Nonaccrual

Total

(Dollars in Thousands)

DPD

Past Due

Current

Loans

March 31, 2025

Commercial, Financial and Agricultural

129

184,147

117

184,393

Real Estate – Construction

192,282

Real Estate – Commercial Mortgage

498

806,025

419

806,942

Real Estate – Residential

970

1,042

1,041,262

1,517

1,043,821

Real Estate – Home Equity

224,380

1,550

225,987

Consumer

1,807

202

2,009

204,643

693

207,345

Total

3,461

274

3,735

2,652,739

4,296

2,660,770

December 31, 2024

Commercial, Financial and Agricultural

340

390

188,781

189,208

Real Estate – Construction

219,994

Real Estate – Commercial Mortgage

719

100

819

777,710

566

779,095

Real Estate – Residential

185

498

683

1,038,694

3,127

1,042,504

Real Estate – Home Equity

122

218,160

1,782

220,064

Consumer

2,154

143

2,297

197,598

790

200,685

Total

3,520

791

4,311

2,640,937

6,302

2,651,550

Nonaccrual Loans

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

become 90 days past due and/or

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

be doubtful.

Loans are returned to accrual status when the

principal and interest amounts contractually due are brought current

or when future payments are reasonably assured.

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

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

by class of loans.

March 31, 2025

December 31, 2024

Nonaccrual

With No

With

90 + Days

With No

With

90 + Days

(Dollars in Thousands)

ACL

Still Accruing

ACL

Still Accruing

Commercial, Financial and Agricultural

117

Real Estate – Construction

Real Estate – Commercial Mortgage

419

427

139

Real Estate – Residential

233

1,284

2,046

1,081

Real Estate – Home Equity

876

674

509

1,273

Consumer

693

790

Total Nonaccrual

Loans

1,919

2,377

2,982

3,320

Collateral Dependent Loans.

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

loans.

March 31, 2025

December 31, 2024

Real Estate

Non Real Estate

Real Estate

Non Real Estate

(Dollars in Thousands)

Secured

Commercial, Financial and Agricultural

1,210

Real Estate – Construction

Real Estate – Commercial Mortgage

798

427

Real Estate – Residential

1,343

2,476

Real Estate – Home Equity

1,066

651

Consumer

Total Collateral Dependent

Loans

3,207

1,263

3,554

A loan is collateral dependent when the borrower is experiencing financial

difficulty and repayment of the loan is dependent on

the

sale or operation of the underlying collateral.

The Bank’s collateral dependent

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

by either residential

or commercial collateral types.

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

either independent appraisals

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

when estimating expected net sales proceeds.

Residential Real Estate Loans In Process of Foreclosure

At March 31, 2025, the Company had

1-4 family residential real estate

loans for which formal foreclosure proceedings were in process, compared

to $

0.5

million at December 31, 2024.

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 March 31, 2025 and December 31, 2024, the Company maintained

one

modified commercial mortgage loan due to a borrower

experiencing financial difficulty.

The Company reduced the interest rate on the loan by

% in addition to extending the term of the

loan from

years.

The balance of the nonaccrual loan at March 31, 2025 and December 31, 2024 was $

0.3

million and did not

have a payment delay.

new modifications to borrowers experiencing financial difficulty

were made during the three months ended

March 31, 2025 and 2024.

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 the Company’s 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 March

31, 2025 and December 31, 2024 and current period gross

write-offs for the three months ended March 31, 2025

and 12 months ended December 31, 2024 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 March 31, 2025

2025

2024

2023

2022

2021

Prior

Loans

Total

Commercial, Financial,

Agriculture:

Pass

11,393

32,913

32,235

32,129

16,688

12,860

40,665

178,883

Special Mention

406

3,321

142

3,944

Substandard

117

110

1,275

1,566

Total

11,393

33,319

35,673

32,335

16,688

12,970

42,015

184,393

Current-Period Gross

Writeoffs

146

168

Real Estate - Construction:

Pass

9,257

110,350

37,419

19,453

11,276

187,808

Special Mention

1,735

1,698

1,041

4,474

Total

9,257

112,085

39,117

20,494

11,276

192,282

Real Estate - Commercial

Mortgage:

Pass

9,874

93,831

116,893

206,672

105,667

202,456

31,364

766,757

Special Mention

3,264

168

2,878

18,479

1,129

5,401

31,319

Substandard

402

240

3,693

863

3,099

569

8,866

Total

13,540

93,999

120,011

228,844

107,659

210,956

31,933

806,942

Real Estate - Residential:

Pass

47,248

147,708

308,378

349,357

66,735

104,458

10,623

1,034,507

Special Mention

292

1,084

324

479

2,179

Substandard

420

1,936

1,606

3,004

169

7,135

Total

47,248

147,708

309,090

351,293

69,425

107,786

11,271

1,043,821

Current-Period Gross

Writeoffs

Real Estate - Home Equity:

Performing

1,103

508

119

632

222,035

224,437

Nonperforming

1,550

Total

1,103

508

119

632

223,585

225,987

Consumer:

Performing

29,040

31,122

40,601

48,672

36,122

11,677

9,418

206,652

Nonperforming

211

271

128

693

Total

29,040

31,158

40,812

48,943

36,250

11,724

9,418

207,345

Current-Period Gross

Writeoffs

570

281

413

121

1,435

(Dollars in Thousands)

Term

Loans by Origination Year

Revolving

As of December 31, 2024

2024

2023

2022

2021

2020

Prior

Loans

Total

Commercial, Financial,

Agriculture:

Pass

35,596

36,435

37,506

18,433

4,610

9,743

41,720

184,043

Special Mention

435

3,979

261

4,760

Substandard

193

405

Total

36,031

40,414

37,960

18,454

4,668

9,814

41,867

189,208

Current-Period Gross

Writeoffs

548

500

111

160

183

1,512

Real Estate - Construction:

Pass

105,148

73,615

29,821

185

8,288

217,110

Special Mention

1,555

1,329

2,884

Total

106,703

73,615

31,150

185

8,288

219,994

Current-Period Gross

Writeoffs

Real Estate - Commercial

Mortgage:

Pass

77,561

110,183

207,574

109,863

87,369

122,272

26,324

741,146

Special Mention

171

2,913

17,031

2,253

4,402

530

27,300

Substandard

2,463

3,403

869

2,508

1,305

101

10,649

Total

77,732

115,559

228,008

110,732

92,130

127,979

26,955

779,095

Current-Period Gross

Writeoffs

Real Estate - Residential:

Pass

165,050

316,521

358,851

71,423

31,169

76,921

11,872

1,031,807

Special Mention

265

1,104

468

534

521

2,892

Substandard

528

1,450

1,446

1,295

2,918

168

7,805

Total

165,050

317,314

360,301

73,973

32,932

80,373

12,561

1,042,504

Current-Period Gross

Writeoffs

Real Estate - Home Equity:

Performing

801

521

119

821

215,981

218,282

Nonperforming

1,782

Total

801

521

119

821

217,763

220,064

Current-Period Gross

Writeoffs

132

Consumer:

Performing

32,293

44,995

55,942

42,002

10,899

4,116

9,648

199,895

Nonperforming

174

321

156

790

Total

32,303

45,169

56,263

42,158

10,957

4,187

9,648

200,685

Current-Period Gross

Writeoffs

2,562

1,605

2,088

897

237

162

7,627

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.

March 31, 2025

December 31, 2024

Unpaid Principal

(Dollars in Thousands)

Balance/Notional

Fair Value

Balance/Notional

Fair Value

Residential Mortgage Loans Held for Sale

20,525

21,441

28,117

28,672

Residential Mortgage Loan Commitments ("IRLCs")

(1)

32,664

743

15,000

248

Forward Sales Contracts

(2)

32,500

16,000

(1)

Recorded in other assets at fair value

(2)

Recorded in other liabilities and other assets at fair value,

respectively

At March 31, 2025, the Company had

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

status. At

December 31, 2024, the Company had

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

status.

Mortgage banking revenue was as follows:

Three Months Ended March 31,

(Dollars in Thousands)

2025

2024

Net realized gains on sales of mortgage loans

2,880

1,676

Net change in unrealized gain on mortgage loans held for sale

234

Net change in the fair value of IRLC's

495

204

Net change in the fair value of forward sales contracts

(175)

132

Pair-Offs on net settlement of forward sales contracts

(186)

Mortgage servicing rights additions

150

Net origination fees

552

565

Total mortgage banking

revenues

3,820

2,878

Residential Mortgage Servicing

The Company may retain the right to service residential mortgage loans

sold.

The unpaid principal balance of loans serviced for

others is the primary driver of servicing revenue.

The following represents a summary of mortgage servicing rights.

(Dollars in Thousands)

March 31, 2025

December 31, 2024

Number of residential mortgage loans serviced for others

510

504

Outstanding principal balance of residential mortgage loans serviced

for others

133,497

135,416

Weighted average

interest rate

5.89%

5.86%

Remaining contractual term (in months)

349

348

Conforming conventional loans serviced by the Company are sold to Federal

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

recourse basis, whereby foreclosure losses are generally the responsibility

of FNMA and not the Company.

The government loans

serviced by the Company are secured through the Government National

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

insured against loss by the Federal Housing Administration or partially

guaranteed against loss by the Veterans

Administration.

March 31, 2025, the servicing portfolio balance consisted of the following

loan types: FNMA (

53.7

%), GNMA (

3.7

%), and private

investor (

42.6

%).

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

At March 31, 2025 and December 31, 2024, the Company did

t have delinquent residential mortgage loans in GNMA pools

serviced by the Company.

The right to repurchase these loans and the corresponding liability has been recorded in other assets and

other liabilities, respectively,

in the Consolidated Statements of Financial Condition.

The Company had $

0.3

million repurchased for

the three months ended March 31, 2025 and

repurchases for the three months ended March 31, 2024, of GNMA delinquent

defaulted mortgage loans with the intention to modify their terms and include

the loans in new GNMA pools.

Activity in the capitalized mortgage servicing rights was as follows:

Three Months Ended

March 31,

(Dollars in Thousands)

2025

2024

Beginning balance

933

831

Additions due to loans sold with servicing retained

150

Deletions and amortization

(45)

(62)

Ending balance

908

919

The Company did

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

three months ended March 31,

2025 or 2024.

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

mortgage servicing rights were as follows:

March 31, 2025

December 31, 2024

Minimum

Maximum

Minimum

Maximum

Discount rates

9.50%

12.00%

9.50%

12.00%

Annual prepayment speeds

9.69%

19.32%

9.14%

18.88%

Cost of servicing (per loan)

Changes in residential mortgage interest rates directly affect

the prepayment speeds used in valuing the Company’s

mortgage

servicing rights.

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

turnover rates,

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

The weighted average annual prepayment speed was

13.82

% at March 31, 2025 and

13.44

% at December 31, 2024.

Warehouse

Line Borrowings

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

agreements with various financial institutions at

March 31, 2025.

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.

13,582

million warehouse line of credit agreement expiring in

May 2025

Interest is at the SOFR plus

2.75%

3.25%

753

Total Warehouse

Borrowings

14,335

Warehouse

line borrowings are classified as short-term borrowings.

At December 31, 2024, warehouse line borrowings totaled $

1.9

million. At March 31, 2025, 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 March 31, 2025.

NOTE 5 – DERIVATIVES

The Company enters into derivative financial instruments to manage exposures

that arise from business activities that result in the

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

which are determined by interest rates.

The Company’s

derivative financial instruments are used to manage differences in

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

known or

expected cash receipts and its known or expected cash payments principally

related to the Company’s subordinated

debt.

Cash Flow Hedges of Interest Rate Risk

Interest rate swaps with notional amounts totaling $

million at March 31, 2025 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)

March 31, 2025

Interest rate swaps related to subordinated debt

Other Assets

30,000

4,616

5.3

December 31, 2024

Interest rate swaps related to subordinated debt

Other Assets

30,000

5,319

5.5

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).

Change in Gain

Amount of Gain

(Loss) Recognized

(Loss) Reclassified

(Dollars in Thousands)

Category

in AOCI

from AOCI to Income

Three months ended March 31, 2025

Interest expense

(525)

297

Three months ended March 31, 2024

Interest expense

326

375

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 $

5.0

million and $

5.5

million at March 31, 2025 and December 31, 2024, 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

years.

The Company’s

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

lease payments, or significant assumptions or judgments

made in applying the requirements of Topic

842.

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

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

At March 31, 2025, the operating lease ROU assets and liabilities were $

27.2

million and $

27.7

million, respectively. At December

31, 2024, ROU assets and liabilities were $

24.9

million and $

25.5

million, respectively.

The Company recognized $

0.1

million of

rental income during the three months ended March 31, 2025 for a lease that terminated

in February 2025. The Company does not

have any finance leases.

The table below summarizes our lease expense and other information related

to the Company’s operating leases.

Three Months Ended

March 31,

(Dollars in Thousands)

2025

2024

Operating lease expense

864

841

Short-term lease expense

311

194

Total lease expense

1,175

1,035

Other information:

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

Operating cash flows from operating leases

912

677

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

2,880

Weighted average

remaining lease term — operating leases (in years)

16.2

16.8

Weighted average

discount rate — operating leases

3.7%

3.5%

The table below summarizes the maturity of remaining lease liabilities:

(Dollars in Thousands)

March 31, 2025

2025

3,520

2026

3,306

2027

3,127

2028

2,822

2029

2,741

2030 and thereafter

20,171

Total

35,687

Less: Interest

(7,938)

Present Value

of Lease liability

27,749

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 $

2.1

million at March 31, 2025.

NOTE 7 - EMPLOYEE BENEFIT PLANS

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

and eligible part-time associates and a

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

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

executive officers.

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

for new associates hired after

December 31, 2019.

The SERP II was adopted by the Company’s

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

were not covered by the SERP.

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

qualified benefit pension plan were as follows:

Three Months Ended March 31,

(Dollars in Thousands)

2025

2024

Service Cost

860

929

Interest Cost

1,677

1,524

Expected Return on Plan Assets

(2,265)

(2,029)

Net Loss Amortization

(413)

Net Periodic Benefit Cost

(141)

465

Discount Rate Used for Benefit Cost

5.82%

5.29%

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 plans were as follows:

Three Months Ended March 31,

(Dollars in Thousands)

2025

2024

Service Cost

Interest Cost

131

114

Prior Service Cost Amortization

Net Loss Amortization

(29)

(70)

Net Periodic Benefit Cost

139

Discount Rate Used for Benefit Cost

5.57%

5.11%

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

compensation expense in the accompanying statements of

income.

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

expense category in the statements

of income.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

Lending Commitments

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

sheet risks in the normal course of business

to meet the financing needs of its clients.

These financial instruments consist of commitments to extend credit and standby

letters of

credit.

The Company’s maximum exposure

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

the contractual amount of those instruments.

The Company uses the same credit policies in establishing commitments

and issuing

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

The amounts associated with the Company’s

off-balance sheet

obligations were as follows:

March 31, 2025

December 31, 2024

(Dollars in Thousands)

Fixed

Variable

Total

Fixed

Variable

Total

Commitments to Extend Credit

(1)

176,366

479,624

655,990

184,223

479,191

663,414

Standby Letters of Credit

7,260

7,287

Total

183,626

479,624

663,250

191,510

479,191

670,701

(1)

Commitments include unfunded loans, revolving

lines of credit, and off-balance sheet residential

loan commitments.

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

any condition established in the

contract.

Commitments generally have fixed expiration dates or other termination

clauses and may require payment of a fee.

Since

many of the commitments are expected to expire without being drawn

upon, the total commitment amounts do not necessarily

represent future cash requirements.

Standby letters of credit are conditional commitments issued by

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

party.

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

in extending loan facilities. In

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

of participating in these types of transactions.

However, any

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

as management reserves for its other credit

facilities.

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

requires collateral to support such instruments when it is

deemed necessary.

The Company evaluates each client’s

creditworthiness on a case-by-case basis.

The amount of collateral

obtained upon extension of credit is based on management’s

credit evaluation of the counterparty.

Collateral held varies, but may

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

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

property, plant and

equipment; and inventory.

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

that are not unconditionally cancellable by the bank is

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

The following table shows the activity in the

allowance.

Three Months Ended March 31,

(Dollars in Thousands)

2025

2024

Beginning Balance

2,155

3,191

Provision for Credit Losses

(323)

(70)

Ending Balance

1,832

3,121

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.

At March 31, 2025, the amount remaining to be funded for the bank tech venture

capital commitment was $

0.4

million.

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.

In 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.

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 $

0.1

million counterparty payment

accrued and payable at March 31, 2025 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

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. The Company’s

derivative positions are classified as Level 2 within the fair value hierarchy and use

actively quoted or

observable market input values from external market data providers

There was $

0.1

million counterparty payment accrued and

payable at March 31, 2025, and

amounts payable at December 31, 2024.

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

value on a recurring basis consisted of the following:

Level 1

Level 2

Level 3

Total

Fair

(Dollars in Thousands)

Inputs

Value

March 31, 2025

ASSETS:

Securities Available for

Sale:

U.S. Government Treasury

158,560

U.S. Government Agency

149,109

States and Political Subdivisions

38,731

Mortgage-Backed Securities

54,949

Corporate Debt Securities

51,778

Equity Securities

2,315

Loans Held for Sale

21,441

Residential Mortgage Loan Commitments ("IRLCs")

743

Interest Rate Swap Derivative

4,616

LIABILITIES:

Fair Value

Swap

135

Forward Sales Contracts

December 31, 2024

ASSETS:

Securities Available for

Sale:

U.S. Government Treasury

105,801

U.S. Government Agency

143,127

States and Political Subdivisions

39,382

Mortgage-Backed Securities

55,477

Corporate Debt Securities

51,462

Equity Securities

2,399

Loans Held for Sale

28,672

Interest Rate Swap Derivative

5,319

Forward Sales Contracts

Residential Mortgage Loan Commitments ("IRLCs")

248

Mortgage Banking Activities

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

activities of $

2.2

million

and $

4.4

million, respectively, for the three

months ended March 31, 2025, and $

2.1

million and $

2.8

million, respectively, for the

three months ended March 31, 2024.

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 $

4.5

million with a valuation allowance of $

0.1

million at March 31, 2025

and a carrying value of $

3.6

million and a $

0.1

million valuation allowance at December 31, 2024.

Other Real Estate Owned

During the first three months of 2025, certain foreclosed assets, upon initial recognition,

were measured

and reported at fair value through a charge-off

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

estimated cost to sell.

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

professional appraisal in

conformance with banking regulations.

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

adjustments as necessary.

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

and estimation

involved in the real estate valuation process.

Mortgage Servicing Rights

Residential mortgage loan servicing rights are evaluated for impairment

at each reporting period based

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

Fair value is determined by a third party valuation model using

estimated prepayment speeds of the underlying mortgage loans serviced and

stratifications based on the risk characteristics of the

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

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

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

servicing.

Further detail on the key inputs utilized are

provided in Note 4 – Mortgage Banking Activities.

At each of March 31, 2025 and December 31, 2024, 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:

March 31, 2025

Carrying

Level 1

Level 2

Level 3

(Dollars in Thousands)

Value

Inputs

ASSETS:

Cash

78,521

Fed Funds Sold and Interest Bearing Deposits

446,042

Investment Securities, Held to Maturity

517,176

302,174

198,027

Other Equity Securities

(1)

2,315

Mortgage Servicing Rights

908

1,554

Loans, Net of Allowance for Credit Losses

2,631,036

2,480,374

LIABILITIES:

Deposits

3,783,890

3,154,125

Short-Term

Borrowings

37,200

Subordinated Notes Payable

52,887

42,166

Long-Term Borrowings

794

December 31, 2024

Carrying

Level 1

Level 2

Level 3

(Dollars in Thousands)

Value

Inputs

ASSETS:

Cash

70,543

Fed Funds Sold and Interest Bearing Deposits

321,311

Investment Securities, Held to Maturity

567,155

361,529

182,931

Other Equity Securities

(1)

2,848

Mortgage Servicing Rights

933

1,616

Loans, Net of Allowance for Credit Losses

2,622,299

2,457,883

LIABILITIES:

Deposits

3,671,977

3,046,926

Short-Term

Borrowings

28,304

Subordinated Notes Payable

52,887

42,530

Long-Term Borrowings

794

(1)

Accounted for under the equity method – not readily

marketable securities – reflected in other assets.

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

The disclosures also do not include goodwill.

Accordingly, the

aggregate fair value amounts presented do not represent the underlying

value of the Company.

NOTE 10 – ACCUMULATED

OTHER COMPREHENSIVE INCOME (LOSS)

The amounts allocated to accumulated other comprehensive income

(loss) are presented in the table below.

Accumulated

Securities

Other

Available

Interest Rate

Retirement

Comprehensive

(Dollars in Thousands)

for Sale

Swap

Plans

(Loss) Income

Balance as of January 1, 2025

(20,179)

3,971

9,722

(6,486)

Other comprehensive income (loss) during the period

4,124

(525)

3,599

Balance as of March 31, 2025

(16,055)

3,446

9,722

(2,887)

Balance as of January 1, 2024

(25,691)

3,970

(425)

(22,146)

Other comprehensive income (loss) during the period

(260)

326

Balance as of March 31, 2024

(25,951)

4,296

(425)

(22,080)

Note 11 - SEGMENT REPORTING

The Company operates a single reportable business segment that is comprised

of commercial banking within the states of Florida,

Georgia, and Alabama.

The Company’s chief executive

officer is deemed the Chief Operating Decision Maker (“CODM”). The

CODM evaluates the financial performance of the Company by evaluating

revenue streams, significant expenses, and budget to actual

results in assessing the Company’s

single reporting segment and in the determination of allocating resources. The

CODM uses

consolidated net income to benchmark the Company against peers and to evaluate

performance and allocate resources.

Significant

revenue and expense categories evaluated by the CODM are consistent with the presentation

of the Consolidated Statement of Income

and components of other noninterest expense.

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 first quarter of 2025 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 2024 Form 10-K, as updated in our subsequent quarterly reports filed

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 62 full-service offices

and 105 ATMs/ITMs

located in Florida, Georgia, and Alabama.

Through Capital City Home Loans, LLC (“CCHL”), we have 27

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 2024 Form 10-K.

NON-GAAP FINANCIAL MEASURES (UNAUDITED)

We present a tangible

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

effect of

goodwill and other intangibles that resulted from merger

and acquisition activity. We

believe these measures are useful to investors

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

other companies in the industry.

The generally accepted

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

each quarter presented is provided below.

2025

2024

(Dollars in Thousands, except per share data)

First

Fourth

Third

Second

First

Shareowners' Equity (GAAP)

512,575

495,317

476,499

460,999

448,314

Less: Goodwill and Other Intangibles (GAAP)

92,733

92,773

92,813

92,853

92,893

Tangible Shareowners' Equity (non-GAAP)

419,842

402,544

383,686

368,146

355,421

Total Assets (GAAP)

4,461,233

4,324,932

4,225,316

4,225,695

4,259,922

Less: Goodwill and Other Intangibles (GAAP)

92,733

92,773

92,813

92,853

92,893

Tangible Assets (non-GAAP)

4,368,500

4,232,159

4,132,503

4,132,842

4,167,029

Tangible Common Equity Ratio (non-GAAP)

9.61%

9.51%

9.28%

8.91%

8.53%

Actual Diluted Shares Outstanding (GAAP)

17,072,330

17,018,122

16,980,686

16,970,228

16,947,204

Tangible Book Value

per Diluted Share (non-GAAP)

24.59

23.65

22.60

21.69

20.97

SELECTED QUARTERLY

FINANCIAL DATA

(UNAUDITED)

2025

2024

(Dollars in Thousands, Except Per Share Data)

First

Fourth

Third

Second

First

Summary of Operations

Interest Income

49,782

49,743

49,328

48,766

46,820

Interest Expense

8,235

8,640

9,117

9,497

8,465

Net Interest Income

41,547

41,103

40,211

39,269

38,355

Provision for Credit Losses

768

701

1,206

1,204

920

Net Interest Income After

Provision for Credit Losses

40,779

40,402

39,005

38,065

37,435

Noninterest Income

19,907

18,760

19,513

19,606

18,097

Noninterest Expense

38,701

41,782

42,921

40,441

40,171

Income Before Income Taxes

21,985

17,380

15,597

17,230

15,361

Income Tax Expense

5,127

4,219

2,980

3,189

3,536

(Income) Loss Attributable to NCI

(71)

501

109

732

Net Income Attributable to CCBG

16,858

13,090

13,118

14,150

12,557

Net Interest Income (FTE)

(1)

41,591

41,150

40,260

39,334

38,435

Per Common Share

Net Income Basic

0.99

0.77

0.84

0.74

Net Income Diluted

0.99

0.77

0.83

0.74

Cash Dividends Declared

0.24

0.23

0.21

Diluted Book Value

30.02

29.11

28.06

27.17

26.45

Diluted Tangible Book Value

(2)

24.59

23.65

22.60

21.69

20.97

Market Price:

High

38.27

40.86

36.67

28.58

31.34

Low

33.00

26.72

25.45

26.59

35.96

36.65

35.29

28.44

27.70

Selected Average Balances

Investment Securities

982,330

915,202

908,456

919,832

953,184

Loans Held for Investment

2,665,910

2,677,396

2,693,533

2,726,748

2,728,629

Earning Assets

3,993,914

3,921,900

3,883,414

3,935,280

3,849,615

Total Assets

4,335,033

4,259,669

4,215,862

4,272,188

4,190,623

Deposits

3,665,482

3,600,424

3,572,034

3,641,028

3,576,513

Shareowners’ Equity

513,401

491,143

480,137

465,297

456,014

Common Equivalent Average Shares:

Basic

17,027

16,946

16,943

16,931

16,951

Diluted

17,044

16,990

16,979

16,960

16,969

Performance Ratios:

Return on Average Assets (annualized)

1.58

1.22

1.24

1.33

1.21

Return on Average Equity (annualized)

13.32

10.60

10.87

12.23

11.07

Net Interest Margin (FTE)

4.22

4.17

4.12

4.02

4.01

Noninterest Income as % of Operating Revenue

32.39

31.34

32.67

33.30

32.06

Efficiency Ratio

62.93

69.74

71.81

68.61

71.06

Asset Quality:

Allowance for Credit Losses (“ACL”)

29,734

29,251

29,836

29,219

29,329

Nonperforming Assets (“NPAs”)

4,428

6,669

7,242

6,165

6,799

ACL to Loans HFI

1.12

1.10

1.11

1.09

1.07

NPAs to Total

Assets

0.10

0.15

0.17

0.15

0.16

NPAs to Loans HFI plus OREO

0.17

0.25

0.27

0.23

0.25

ACL to Non-Performing Loans

692.10

464.14

452.64

529.79

431.46

Net Charge-Offs to Average Loans HFI

0.09

0.25

0.19

0.18

0.22

Capital Ratios:

Tier 1 Capital

18.01

17.46

16.77

16.31

15.67

Total Capital

19.20

18.64

17.97

17.50

16.84

Common Equity Tier 1

16.08

15.54

14.88

14.44

13.82

Leverage

11.17

11.05

10.89

10.51

10.45

Tangible Common Equity

(2)

9.61

9.51

9.28

8.91

8.53

(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 $16.9

million, or $0.99 per diluted share, for the first

quarter of 2025 compared to $13.1 million, or $0.77 per diluted share, for

the fourth quarter of 2024, and $12.6 million, or $0.74 per

diluted share, for the first quarter of 2024.

Net Interest Income

Tax-equivalent net

interest income for the first quarter of 2025 totaled $41.6 million, compared to $41.2

million

for the fourth quarter of 2024, and $38.4 million for the first quarter of

2024.

Compared to both prior periods, the increase was driven

by higher investment securities interest due to new investment purchases at higher

yields, in addition to lower deposit interest expense,

partially offset by lower loan interest due to lower average loan balances

and interest rates.

Two less calendar days also contributed

the decline in loan interest compared to the fourth quarter of 2024.

Higher overnight funds interest also contributed to the increase

over the first quarter of 2024, reflective of a higher level of average earning

assets.

Our net interest margin for the first quarter of

2025 was 4.22%, an increase of five basis points over the fourth quarter of 2024

and an increase of 21 basis points over the first

quarter of 2024.

Provision and Allowance for Credit

Losses.

For the first quarter of 2025, we recorded a provision expense for credit

losses of $0.8

million compared to $0.7 million for the fourth quarter of 2024 and $0.9

million for the first quarter of 2024. Net loan charge-offs

were nine basis points of average loans for the first quarter of 2025 versus 25 basis points

for the fourth quarter of 2024 and 22 basis

points for the first quarter of 2024. At March 31, 2025, the allowance for credit losses for

loans held for investment (“HFI”) totaled

$29.7 million compared to $29.3 million at December 31, 2024 and March 31, 2024.

Noninterest Income

Noninterest income for the first quarter of 2025 totaled $19.9 million compared to

$18.8 million for the fourth

quarter of 2024 and $18.1 million for the first quarter of 2024. The $1.1 million,

or 6.1%, increase over the fourth quarter of 2024 was

due to a $0.7 million increase in mortgage banking revenues and a $0.5

million increase in wealth management fees, partially offset

a $0.1 million decrease in deposits fees. Compared to the first quarter of 2024,

the $1.8 million, or 10.0%, increase was driven by a

$1.1 million increase in wealth management fees and a $0.9 million increase in

mortgage banking revenues, partially offset by a $0.2

million decrease in deposit fees.

Noninterest Expense

Noninterest expense for the first quarter of 2025 totaled $38.7 million compared to $41.8

million for the fourth

quarter of 2024 and $40.2 million for the first quarter of 2024. The $3.1 million,

or 7.4%, decrease from the fourth quarter of 2024,

reflected a $3.1 million decrease in other expense, a $0.1 million decrease

in occupancy expense, and a $0.1 million increase in

compensation expense. Compared to the first quarter of 2024, the

$1.5 million decrease reflected a $1.8 million increase in

compensation expense offset by a $3.1 million decrease

in other expense and a $0.2 million decrease in net occupancy expense.

Compared to both prior periods, the decrease in other expense reflected

lower other real estate expense, primarily due to a $4.4 million

gain from the sale of our operations center building in the first quarter of 2025.

Financial Condition

Earning Assets.

Average earning assets totaled

$3.994 billion for the first quarter of 2025, an increase of $72.0 million, or 1.8%,

over

the fourth quarter of 2024, and an increase of $144.3 million, or 3.7%, over the first

quarter of 2024.

The increase over both prior

periods was driven by higher deposit balances.

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

$67.1 million increase in investment securities and a $22.7 million increase

in overnight funds sold partially offset by a $11.5

million

decrease in loans HFI and a $6.3 million decrease in loans held for sale (“HFS”).

Compared to the first quarter of 2024, the change in

the earning asset mix reflected a $180.5 million increase in overnight funds and

a $29.1 million increase in investment securities that

was partially offset by a $62.7 million decrease in loans HFI and

a $2.6 million decrease in loans HFS.

Loans.

Average loans HFI decreased

$11.5 million, or 0.4%, from the fourth quarter

of 2024 and decreased $62.7 million, or 2.3%,

from the first quarter of 2024.

Loans HFI at March 31, 2025 increased $9.2 million, or 0.3%, over December

31, 2024 and decreased

$70.4 million, or 2.6%, from March 31, 2024.

Credit Quality

Nonperforming assets (nonaccrual loans and other real estate) totaled $4.4 million

at March 31, 2025 compared to

$6.7 million at December 31, 2024 and $6.8 million at March 31, 2024.

At March 31, 2025, nonperforming assets as a percent of total

assets was 0.10%, compared to 0.15% at December 31, 2024 and 0.16%

at March 31, 2024.

Nonaccrual loans totaled $4.3 million at

March 31, 2025, a $2.0 million decrease from December 31, 2024 and a $2.5 million decrease

from March 31, 2024.

Further,

classified loans totaled $19.2 million at March 31, 2025, a $0.7 million decrease

from December 31, 2024 and a $3.1 million decrease

from March 31, 2024.

Deposits

Average total

deposits were $3.665 billion for the first quarter of 2025, an increase of $65.1 million,

or 1.8%, over the

fourth quarter of 2024 and an increase of $89.0 million, or 2.5%, over the first quarter

of 2024.

At March 31, 2025, total deposits

were $3.784 billion, an increase of $111.9

million, or 3.0%, over December 31, 2024, and an increase of $129.1 million,

or 3.5%, over

March 31, 2024. Total

public funds balances were $648.0 million at March 31, 2025, $660.9 million at

December 31, 2024, and

$615.0 million at March 31, 2024.

Capital

At March 31, 2025, we were “well-capitalized”

with a total risk-based capital ratio of 19.20% and a tangible common

equity

ratio (a non-GAAP financial measure) of 9.61% compared to 18.64%

and 9.51%, respectively,

at December 31, 2024 and 16.84% and

8.53%, respectively,

at March 31, 2024.

At March 31, 2025, all of our regulatory capital ratios exceeded the threshold to be “well-

capitalized”

under the Basel III capital standards.

RESULTS

OF OPERATIONS

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

a discussion of the various components are discussed

in further detail below.

Three Months Ended

(Dollars in Thousands, except per share data)

March 31, 2025

December 31, 2024

March 31, 2024

Interest Income

49,782

49,743

46,820

Taxable Equivalent Adjustments

Total Interest Income (FTE)

49,826

49,790

46,900

Interest Expense

8,235

8,640

8,465

Net Interest Income (FTE)

41,591

41,150

38,435

Provision for Credit Losses

768

701

920

Taxable Equivalent Adjustments

Net Interest Income After Provision for Credit Losses

40,779

40,402

37,435

Noninterest Income

19,907

18,760

18,097

Noninterest Expense

38,701

41,782

40,171

Income Before Income Taxes

21,985

17,380

15,361

Income Tax Expense

5,127

4,219

3,536

(Income) Loss Attributable to Noncontrolling Interests

(71)

732

Net Income Attributable to Common Shareowners

16,858

13,090

12,557

Basic Net Income Per Share

0.99

0.77

0.74

Diluted Net Income Per Share

0.99

0.77

0.74

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 47.

Tax-equivalent net

interest income for the first quarter of 2025 totaled $41.6 million, compared to $41.2 million

for the fourth quarter

of 2024, and $38.4 million for the first quarter of 2024.

Compared to both prior periods, the increase was driven by higher investment

securities interest due to new investment purchases at higher yields, in addition

to lower deposit interest expense, partially offset by

lower loan interest due to lower average loan balances and interest rates.

Two less calendar days

in the first quarter of 2025 also

contributed to the decline in loan interest compared to the fourth quarter

of 2024.

Higher overnight funds interest in the first quarter of

2025 also contributed to the increase over the first quarter of 2024,

reflective of a higher level of average earning assets.

Our net interest margin for the first quarter of 2025 was 4.22%, an increase

of five basis points over the fourth quarter of 2024 and an

increase of 21 basis points over the first quarter of 2024.

For the month of March 2025, our net interest margin was 4.22%.

The

increase in net interest margin over the fourth quarter of 2024 reflected

a higher yield in the investment portfolio driven by new

purchases during the quarter and a lower cost of deposits, partially offset

by a lower overnight funds rate. The increase over the first

quarter of 2024 reflected favorable investment repricing

and a lower cost of deposits, partially offset by lower average loan balances

for both prior periods.

For the first quarter of 2025, our cost of funds was 84 basis points, a decrease of four basis points

from the

fourth quarter of 2024 and the first quarter of 2024.

Our cost of deposits (including noninterest bearing accounts) was 82 basis points,

86 basis points, and 85 basis points, respectively,

for the same periods.

Provision for Credit Losses

We recorded

a provision expense for credit losses of $0.8 million for the first quarter of 2025 compared

to $0.7 million for the fourth

quarter of 2024 and $0.9 million for the first quarter of 2024.

For the first quarter of 2025, we recorded a provision expense of $1.1

million for loans HFI and a provision benefit of $0.3 million for unfunded loan

commitments, which was comparable to the fourth

quarter of 2024.

See “Allowance for Credit Losses” below for a discussion of the various factors

that impacted our provision expense.

Noninterest Income

Noninterest income for the first quarter of 2025 totaled $19.9 million compared

to $18.8 million for the fourth quarter of 2024 and

$18.1 million for the first quarter of 2024.

The $1.1 million, or 6.1%, increase over the fourth quarter of 2024 was primarily

due to a

$0.7 million increase in mortgage banking revenues and a $0.5 million increase

in wealth management fees, partially offset by a $0.1

million decrease in deposits fees.

The increase in mortgage revenues was driven by an increase in rate locks and a higher gain

on sale

margin.

The increase in wealth management fees was attributable to a $0.5 million increase in insurance

commission revenue.

Compared to the first quarter of 2024, the $1.8 million, or 10.0%, increase was driven

by a $1.1 million increase in wealth

management fees and a $0.9 million increase in mortgage banking revenues,

partially offset by a $0.2 million decrease in deposit fees.

The increase in wealth management fees reflected higher retail brokerage fees

of $0.6 million, insurance commission revenue of $0.3

million, and trust fees of $0.2 million.

The increase in mortgage revenues was driven by an increase in loan fundings

and a higher

gain on sale margin.

Noninterest income represented 32.39% of operating revenues (net interest

income plus noninterest income) for the first quarter of

2025

compared to 31.34% for the fourth quarter of 2024 and 32.06% for the first quarter of 202

The table below reflects the major components of noninterest income.

Three Months Ended

(Dollars in Thousands)

March 31, 2025

December 31, 2024

March 31, 2024

Deposit Fees

5,061

5,207

5,250

Bank Card Fees

3,514

3,697

3,620

Wealth Management

Fees

5,763

5,222

4,682

Mortgage Banking Revenues

3,820

3,118

2,878

Other

1,749

1,516

1,667

Total

Noninterest Income

19,907

18,760

18,097

Significant components of noninterest income are discussed in more

detail below.

Deposit Fees

Deposit fees for the first quarter of 2025 totaled $5.1 million, a decrease of $0.1

million, or 2.8%,

from the fourth

quarter of 2024 and a decrease of $0.2 million, or 3.6%,

from the first quarter of 2024. Compared to the fourth quarter of 2024, the

$0.1 million decrease was attributable to a decrease in overdraft fees.

Compared to the first quarter of 2024, the decrease reflected a

$0.1 million decrease in overdraft fees and a $0.1 million decrease in commercial

account analysis fees.

Bank Card Fees

Bank card fees for the first quarter of 2025 totaled $3.5 million, a $0.2 million, or 4.9%

decrease from the fourth

quarter of 2024 and a $0.1 million, or 2.9%,

decrease from the first quarter of 2024. The decrease from both prior periods reflected

lower debit card usage related to slower consumer spending.

Wealth

Management Fees

Wealth management fees,

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

brokerage fees (i.e., investment, insurance products, and retirement accounts),

and insurance commission revenues,

totaled $5.8

million for the first quarter of 2025, an increase of $0.5 million, or 10.4%, over the

fourth quarter of 2024 and an increase of $1.1

million, or 23.1%, over the first quarter of 2024. The increase over the fourth

quarter of 2024

was due to a $0.5 million increase in

insurance commission revenues.

The increase over the first quarter of 2024 reflected higher retail brokerage

fees of $0.6 million,

insurance commission revenue of $0.3 million, and trust fees of $0.2 million.

At March 31, 2025, total assets under management were

approximately $3.068 billion compared to $3.049 billion

at December 31, 2024 and $2.686 billion at March 31, 2024. Compared to

the prior year, the growth in assets under management

was primarily due to new retail brokerage accounts and to a lesser extent

new

managed trust accounts.

Mortgage Banking Revenues

Mortgage banking revenues totaled $3.8 million for the first quarter of

2025, an increase of $0.7

million, or 22.5%, over the fourth quarter of 2024 and an increase of $0.9 million,

or 32.7%, over the first quarter of 2024. Compared

to the fourth quarter of 2024, the increase was driven by an increase in rate locks

and a higher gain on sale margin. Compared to the

first quarter of 2024, the increase was primarily due to an increase in loan

fundings and a higher gain on sale margin. We

provide a

detailed overview of our mortgage banking operation, including

a detailed break-down of mortgage banking revenues, mortgage

servicing activity,

and warehouse funding within Note 4 - Mortgage Banking Activities in the Notes to

Consolidated Financial

Statements.

Other

Other income totaled $1.7 million for the first quarter of 2025, an increase of $0.2 million,

or 15.4%, over the fourth quarter of

2024 and an increase of $0.1 million, or 4.9%, over the first quarter of

Compared to the fourth quarter of 2024, the increase was

primarily attributable to higher miscellaneous income. Compared

to the first quarter of 2024, the increase was primarily attributable to

higher loan servicing income.

Noninterest Expense

Noninterest expense for the first quarter of 2025 totaled $38.7 million compared

to $41.8 million for the fourth quarter of 2024 and

$40.2 million for the first quarter of 2024.

The $3.1 million, or 7.4%, decrease from the fourth quarter of 2024 reflected a

$3.1 million

decrease in other expense, a $0.1 million decrease in occupancy expense,

and a $0.1 million increase in compensation expense.

The

decrease in other expense was driven by a $3.5 million decrease in other real estate

expense, which reflected higher gains from the

sale of banking facilities, primarily the sale of our operations center building

in the first quarter of 2025, partially offset by a $0.5

million increase in charitable contribution expense.

The slight decrease in occupancy expense was due to lower maintenance/repairs

for buildings and furniture, fixtures and equipment (“FF&E”).

The slight net increase in compensation expense reflected a $0.2

million increase in salary expense offset by a $0.1 million decrease in associate

benefit expense.

Compared to the first quarter of

2024, the $1.5 million, or 3.7%, decrease reflected a $3.1 million decrease in

other expense and a $0.2 million decrease in occupancy

expense that was partially offset by a $1.8 million increase

in compensation expense.

The decrease in other expense was primarily

attributable to a $4.4 million decrease in other real estate expense, which

reflected higher gains from the sale of banking offices,

primarily the aforementioned gain from the sale of our operations center building

in the first quarter of 2025, partially offset by

increases in processing expense of $0.6 million and charitable contribution

expense of $0.6 million.

The slight decrease in occupancy

expense was due to lower FF&E depreciation expense and maintenance/repair

expense.

The increase in compensation expense

reflected a $1.3 million increase in salary expense and a $0.5 million increase

in associate benefit expense.

The increase in salary

expense was primarily attributable to increases in base salaries of $0.5 million,

commission expense of $0.5 million, and cash

incentive plan expense of $0.3 million.

Higher associate insurance costs drove the increase in associate benefit expense.

The table below reflects the major components of noninterest expense.

Three Months Ended

(Dollars in Thousands)

March 31, 2025

December 31, 2024

March 31, 2024

Salaries

21,883

21,645

20,604

Associate Benefits

4,365

4,463

3,803

Total Compensation

26,248

26,108

24,407

Premises

3,172

3,132

3,173

Equipment

3,621

3,761

3,821

Total Occupancy

6,793

6,893

6,994

Legal Fees

504

452

435

Professional Fees

1,622

1,844

1,258

Processing Services

2,469

2,381

1,833

Advertising

838

791

815

Telephone

719

738

709

Insurance - Other

732

736

915

Other Real Estate Owned, net

(4,470)

(951)

Pension - Other

(873)

(419)

Miscellaneous

4,119

3,209

3,206

Total Other

5,660

8,781

8,770

Total

Noninterest Expense

38,701

41,782

40,171

Significant components of noninterest expense are discussed in

more detail below.

Compensation

Compensation expense totaled $26.2 million for the first quarter of 2025, an increase

of $0.1 million, or 1.0%, over

the fourth quarter of 2024 and an increase of $1.8 million, or 7.5%, over

the first quarter of 2024. Compared to the fourth quarter of

2024, the slight net increase reflected a $0.2 million increase in salary expense

offset by a $0.1 million decrease in associate benefit

expense. The increase in salary expense was primarily attributable to an

increase in payroll tax expense,

which reflected the annual re-

set of this tax as well as payroll taxes related to a high level of cash/stock incentives

paid in the first quarter. The decrease in associate

benefit expense reflected a slight decrease in the pension plan service cost expense.

Compared to the first quarter of 2024, the increase

was driven by higher salary expense of $1.3 million and associate benefit

expense of $0.5 million. The increase in salary expense was

primarily due to increases in base salaries of $0.5 million (annual merit),

commission expense of $0.5 million, and cash incentive plan

expense of $0.3

million. Higher associate insurance costs drove the increase in associate benefit expense.

Occupancy.

Occupancy expense (including premises and equipment) totaled $6.8

million for the first quarter of 2025, a decrease of

$0.1

million, or 1.5% from the fourth quarter of 2024 and a decrease of $0.2 million, or 2.9%, from

the first quarter of 2024. The

decrease from the fourth quarter of 2024 was primarily due to lower

maintenance and repairs for buildings and FF&E. The decrease

from the first quarter of 2024

reflected lower FF&E depreciation and maintenance agreement expense.

Other

Other noninterest expense totaled $5.7 million for the first quarter of

2025, a decrease of $3.1 million, or 35.5%, from the

fourth quarter of 2024 and the first quarter of 2024. The decrease from

the fourth quarter of 2024 was driven by a $3.5 million

decrease in other real estate expense, which reflected higher gains from

the sale of banking facilities, primarily the sale of our

operations center building in the first quarter of 2025, partially offset

by a $0.5 million increase in charitable contribution expense.

Compared to the first quarter of 2024, the decrease was primarily attributable

to a $4.5 million decrease in other real estate expense,

which reflected higher gains from the sale of banking offices,

primarily the aforementioned gain from the sale of our operations center

building in the first quarter of 2025, partially offset by increases in processing

expense of $0.6 million, and charitable contribution

expense of $0.6 million.

Our operating efficiency ratio (expressed as noninterest

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

noninterest income) was 62.93% for the first quarter of 2025 compared

to 69.74% for the fourth quarter of 2024 and 71.06% for the

first quarter of 2024. The improvement in this metric compared to both prior

periods was primarily attributable to lower noninterest

expense in the first quarter of 2025,

which included a $4.4 million gain from the sale of our operations center building.

Higher

revenues (net interest income and noninterest income) also contributed,

but to a lesser extent.

Income Taxes

We realized income

tax expense of $5.1 million (effective rate of 23.3%) for the first quarter of

2025 compared to $4.2 million

(effective rate of 24.3%) for the fourth quarter of 2024 and $3.5

million (effective rate of 23.0%) for the first quarter of 2024.

Compared to the fourth quarter of 2024, the decrease in our effective

tax rate was primarily due to a discrete item in the first quarter of

2025 related to an excess tax benefit for stock compensation.

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

approximate 24% for 2025.

FINANCIAL CONDITION

Average earning

assets totaled $3.994 billion for the first quarter of 2025, an increase of $72.0 million, or 1.8%, over

the fourth

quarter of 2024, and an increase of $144.3 million, or 3.7%, over

the first quarter of 2024.

The increase over both prior periods was

driven by higher deposit balances (see below –

Deposits

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

reflected a $67.1 million increase in investment securities and a $22.7

million increase in overnight funds sold, partially offset by

$11.5 million decrease in loans HFI and a $6.3

million decrease in loans HFS.

Compared to the first quarter of 2024, the change in

the earning asset mix reflected a $180.5 million increase in overnight funds and

a $29.1 million increase in investment securities that

was partially offset by a $62.7 million decrease in loans HFI and

a $2.6 million decrease in loans HFS.

Investment Securities

Average investments

totaled $982.3 million, a $67.1 million, or 7.3%, increase over the fourth quarter

of 2024 and $29.1 million, or

3.1%, increase over the first quarter of 2024. Our investment portfolio represented

24.6% of our average earning assets for the first

quarter of 2025 compared to 23.3% for the fourth quarter of 2024

and 24.8% for the first quarter of 2024. For the remainder of 2025,

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 March 31, 2025, $517.2 million, or 52.7%, of the investment portfolio was classified as HTM

and

$461.2 million, or 47.0%, was classified as AFS. The average maturity

of our total portfolio at March 31, 2025 was 2.64 years

compared to 2.54 years at December 31, 2024 and 2.76 years at March

31, 2024. The duration of our investment portfolio at March

31, 2025 was 2.10 years compared to 2.19 years at December 31, 2024 and

2.39 years at March 31, 2024. 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 March 31, 2025, there were 829 positions (combined AFS and HTM)

with unrealized pre-tax losses totaling $38.3 million. 59 of

these positions are U.S. Treasuries and

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

674 were U.S. government agency

securities issued by U.S. government sponsored entities. The remaining

96 positions (municipal securities and corporate bonds) have a

credit component.

At March 31, 2025, corporate debt securities had an allowance for credit losses of $73,000

and municipal securities

had an allowance of $2,000. At March 31, 2025, 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 $11.5 million, or 0.4%, from the fourth

quarter of 2024 and decreased $62.7 million, or 2.3%, from the

first quarter of 2024. Compared to the fourth quarter of 2024, the decrease was primarily

attributable to declines in construction loans

of $8.6 million, commercial loans of $5.7 million, and consumer loans of $2.1 million,

partially offset by a $6.6 million increase in

home equity loans. Compared to the first quarter of 2024, the decline was driven

by decreases in consumer loans (primarily indirect

auto) of $58.8 million, commercial loans of $32.9 million, and commercial real

estate mortgage loans of $23.1 million, partially offset

by increases in residential real estate loans of $28.9 million, construction

loans of $11.5 million, and home equity loans of $10.4

million.

Loans HFI at March 31, 2025 increased $9.2 million, or 0.3%, over December 31,

2024 and decreased $70.4 million, or 2.6%, from

March 31, 2024. Compared to December 31, 2024, the increase was primarily

attributable to increases in commercial real estate

mortgage loans of $27.8 million and residential real estate loans of $12.1 million,

consumer loans (primarily indirect auto) of $6.7

million, and home equity loans of $5.9 million, partially offset by

decreases in construction loans of $27.7 million, commercial loans

of $4.8 million, and other loans of $10.8 million. Compared to the first quarter of 2024,

the decline was driven by decreases in

consumer loans (primarily indirect auto) of $48.0 million, commercial

loans of $33.9 million, commercial real estate mortgage loans

of $16.7 million, and construction loans of $10.4 million, partially offset

by increases in residential real estate loans of $27.8 million

and home equity loans of $11.4 million.

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 $4.4

million at March 31, 2025 compared to $6.7 million at

December 31, 2024 and $6.8 million at March 31, 2024.

At March 31, 2025, nonperforming assets as a percent of total assets was

0.10%, compared to 0.15% at December 31, 2024 and 0.16% at March 31, 2024.

Nonaccrual loans totaled $4.3 million at March 31,

2025, a $2.0 million decrease from December 31, 2024 and a $2.5 million

decrease from March 31, 2024.

Further, classified loans

totaled $19.2 million at March 31, 2025, a $0.7 million decrease from December

31, 2024 and a $3.1 million decrease from March 31,

2024.

Allowance for Credit Losses

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

the loans’ amortized cost basis to present the net amount

expected to be collected on the loans.

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

earnings and reduced by the charge-off

of loan amounts (net of recoveries).

Loans are charged off against the allowance when

management believes the uncollectability of a loan balance is confirmed.

Expected recoveries do not exceed the aggregate of amounts

previously charged-off and expected to be charged

-off.

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

exposures is provided through the credit loss provision but recorded

as a separate liability included in other liabilities.

Management estimates the allowance balance using relevant available

information, from internal and external sources relating to past

events, current conditions, and reasonable and supportable forecasts.

Historical loan default and loss experience provides the basis for

the estimation of expected credit losses.

Adjustments to historical loss information incorporate management’s

view of current

conditions and forecasts.

At March 31, 2025, the allowance for credit losses for loans HFI totaled $29.7

million compared to $29.3 million at December 31,

2024 and March 31, 2024. 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 December 31, 2024 reflected higher

loan balances and higher loan loss rates, partially offset by

a lower level of net loan charge-offs.

The increase in the allowance over

March 31, 2024 was primarily due to higher loss rates. Net loan charge

-offs were nine basis points of average loans for the first

quarter of 2025 versus 25 basis points for the fourth quarter of 2024

and 22 basis points for the first quarter of 2024.

At March 31,

2025, the allowance represented 1.12% of loans HFI compared to

1.10% at December 31, 2024, and 1.07% at March 31, 2024.

At March 31, 2025, the allowance for credit losses for unfunded commitments

totaled $1.8 million compared to $2.2 million and $3.1

million at December 31, 2024 and March 31, 2024, respectively.

The decline in the allowance for unfunded commitments from

December 31, 2024 and March 31, 2024 reflected a lower level of unfunded

loan commitments. The allowance for unfunded

commitments is recorded in other liabilities.

Deposits

Average total

deposits were $3.665 billion for the first quarter of 2025, an increase of $65.1 million,

or 1.8%, over the fourth quarter

of 2024 and an increase of $89.0 million, or 2.5%, over the first quarter

of 2024.

Compared to the fourth quarter of 2024, the increase

was primarily attributable to higher NOW account balances largely

due to the seasonal increase in our public fund balances.

The

increase over the first quarter of 2024 reflected growth in NOW,

money market and certificate of deposit account balances which

was

mainly due to 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 March 31, 2025, total deposits were $3.784 billion, an increase of $111.9

million, or 3.0%, over December 31, 2024, and an

increase of $129.1 million, or 3.5%, over March 31, 2024.

The increase over December 31, 2024 was due to higher balances in all

deposit categories. The increase over March 31, 2024 was primarily due to

higher NOW account balances (primarily business

accounts), and to a lesser extent increases in money market and certificates of deposit,

partially offset by lower savings account

balances. Total public

funds balances were $648.0 million at March 31, 2025, $660.9 million at December

31, 2024, and $615.0

million at March 31, 2024.

Business deposit transaction accounts classified as repurchase agreements

averaged $29.8 million for the first quarter of 2025, an

increase of $1.8 million over the fourth quarter of 2024 and an increase of $4.1

million over the first quarter of 2024. At March 31,

2025,

repurchase agreement balances were $22.8 million compared to $26.2

million at December 31, 2024 and $23.5 million at March

31, 2024.

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

Percentage Change (12-month shock)

+400 bp

+300 bp

+200 bp

+100 bp

-100 bp

-200 bp

-300 bp

-400 bp

Policy Limit

-15.0%

-12.5%

-10.0%

-7.5%

-10.0%

-12.5%

-15.0%

March 31, 2025

17.3%

13.0%

8.7%

4.5%

-4.7%

-9.8%

-15.3%

-20.9%

December 31, 2024

15.4%

11.5%

7.6%

3.9%

-4.3%

-9.0%

-14.3%

-19.9%

Percentage Change (24-month shock)

+400 bp

+300 bp

+200 bp

+100 bp

-100 bp

-200 bp

-300 bp

-400 bp

Policy Limit

-17.5%

-15.0%

-12.5%

-10.0%

-12.5%

-15.0%

-17.5%

March 31, 2025

39.1%

31.1%

23.0%

15.2%

-1.9%

-11.7%

-22.5%

-32.8%

December 31, 2024

40.8%

32.9%

24.8%

17.1%

0.1%

-9.8%

-20.9%

-31.6%

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 fourth quarter of 2024, these metrics generally

became more favorable in the rising rate scenarios and less favorable

in the falling rate scenarios.

This was primarily attributable to

the $125 million increase in variable rate overnight funds at March 31,

2025, which increases our asset sensitivity to falling rates. 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

Changes in Interest Rates

+400 bp

+300 bp

+200 bp

+100 bp

-100 bp

-200 bp

-300 bp

-400 bp

Policy Limit

-30.0%

-25.0%

-20.0%

-15.0%

-20.0%

-25.0%

-30.0%

March 31, 2025

29.0%

23.7%

17.1%

9.3%

-11.2%

-23.1%

-33.7%

-40.3%

December 31, 2024

30.7%

24.4%

17.0%

9.0%

-17.2%

-23.7%

-35.1%

-42.2%

EVE Ratio (policy minimum 5.0%)

30.4%

28.6%

26.6%

24.4%

19.2%

16.4%

13.9%

12.4%

At March 31, 2025, the economic value of equity was favorable in

all rising rate environments and unfavorable in the falling rate

environments. Compared to December 31, 2024, EVE metrics were generally

more favorable in most rate scenarios. 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 March 31, 2025, we had the ability to generate approximately $1.540

billion (excludes overnight funds position of $446 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.

We believe the liquidity

available to us at March 31, 2025 was sufficient to meet our on-going

needs and execute our business strategy.

We also view our

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

portfolio as collateral for

borrowings or deposits, and/or to sell selected securities. Our portfolio consists of

debt issued by the U.S. Treasury,

U.S. governmental

agencies, municipal governments, and corporate entities. 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 $320.9 million in the first quarter of 2025 compared to $298.3 million

in the fourth quarter of 2024 and $140.5 million in

the first quarter of 2024.

Compared to both prior periods, the increase reflected higher average deposits and

lower average loans.

We expect our

capital expenditures will be approximately $10.0 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 $37.3 million for the first quarter of 2025 compared to $34.5

million for the fourth quarter of

2024

and $29.5 million for the first quarter of 2024. The increase over both prior periods reflected growth

in repurchase agreement

balances and an increase in mortgage warehouse borrowings. 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

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,

The interest payment for the CCBG Capital Trust

II borrowing is

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.

In 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 March 31, 2025, our regulatory capital

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

under the Basel III capital standards.

Shareowners’ equity was $512.6 million at March 31, 2025 compared to $495.3

million at December 31, 2024 and $448.3 million at

March 31, 2024.

For the first three months of 2025, shareowners’ equity was positively impacted by net

income attributable to

shareowners of $16.9 million, a net $3.6 million decrease in the accumulated

other comprehensive loss, the issuance of stock of $2.4

million, and stock compensation accretion of $0.4 million.

The net favorable change in accumulated other comprehensive loss

reflected a $4.1 million decrease in the investment securities loss that was partially offset

by a $0.5 million decrease in the fair value

of the interest rate swap related to subordinated debt. Shareowners’ equity

was reduced by a common stock dividend of $4.1 million

($0.24 per share) and net adjustments totaling $1.9 million related to transactions

under our stock compensation plans.

At March 31, 2025, our total risk-based capital ratio was 19.20% compared

to 18.64% at December 31, 2024 and 16.84% at March 31,

2024.

Our common equity tier 1 capital ratio was 16.08%, 15.54%, and 13.82%, respectively,

on these dates.

Our leverage ratio was

11.17%, 11.05%,

and 10.45%, respectively, on these

dates.

At March 31, 2025, 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 9.61% at March 31, 2025 compared to 9.51% and 8.53%

at December 31, 2024 and March 31,

2024, respectively.

If our unrealized HTM securities losses of $12.1 million (after-tax)

were recognized in accumulated other

comprehensive loss, our adjusted tangible capital ratio would be 9.33%.

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 March 31, 2025,

the net pension asset reflected in other

comprehensive loss was $9.7 million compared to $9.7 million

at December 31, 2024 and $0.4 million at March 31, 2024. The

favorable adjustment for the pension plan compared to March 31, 2024

was primarily attributable to a higher than estimated return on

plan assets in 2024 and a higher discount rate used to determine the plan liability at

December 31, 2024. 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 2024

Form 10-K.

OFF-BALANCE SHEET ARRANGEMENTS

We are a party

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

course of business to meet the financing needs of our

clients.

At March 31, 2025, we had $656.0 million in commitments to extend credit

and $7.3 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 $1.8 million at March 31, 2025.

CRITICAL ACCOUNTING POLICIES

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

Financial Statements included in our 2024 Form 10-K.

The preparation of our Consolidated Financial Statements

in accordance with GAAP and reporting practices applicable to the banking

industry requires us to make estimates and assumptions that affect

the reported amounts of assets, liabilities, revenues and expenses,

and to disclose contingent assets and liabilities.

Actual results could differ from those estimates.

We have identified

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

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

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

to the portrayal of our financial condition and results, and

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

the effects of matters that are

inherently uncertain.

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

used, are described

throughout this Item 2, Management’s

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

Part II, Item 7,

Management’s Discussion and Analysis

of Financial Condition and Results of Operations included

in our 2024 Form 10-K.

TABLE I

AVERAGE

BALANCES & INTEREST RATES

Three Months Ended

March 31, 2025

December 31, 2024

March 31, 2024

Average

(Dollars in Thousands)

Balances

Interest

Rate

Balances

Interest

Rate

Balances

Interest

Rate

Assets:

Loans Held for Sale

24,726

490

8.04

31,047

976

7.89

27,314

563

5.99

Loans Held for Investment

(1)(2)

2,665,910

40,029

6.09

2,677,396

40,521

6.07

2,728,629

40,196

5.95

Taxable Securities

981,485

5,802

2.38

914,353

4,688

2.04

952,328

4,238

1.78

Tax-Exempt Securities

(2)

845

4.32

849

4.31

856

4.34

Interest Bearing Deposits

320,948

3,496

4.42

298,255

3,596

4.80

140,488

1,893

5.42

Total Earning Assets

3,993,914

49,826

5.06

3,921,900

49,790

5.05

3,849,615

46,900

4.90

Cash & Due From Banks

73,467

73,992

75,763

Allowance For Credit Losses

(30,008)

(30,107)

(30,030)

Other Assets

297,660

293,884

295,275

TOTAL ASSETS

4,335,033

4,259,669

4,190,623

Liabilities:

Noninterest Bearing Deposits

1,317,425

1,323,556

1,344,188

NOW Accounts

1,249,955

3,854

1.25

1,182,073

3,826

1.29

1,201,032

4,497

1.51

Money Market Accounts

420,059

2,187

2.11

422,615

2,526

2.38

353,591

1,985

2.26

Savings Accounts

507,676

176

0.14

504,859

179

0.14

539,374

188

0.14

Other Time Deposits

170,367

1,166

2.78

167,321

1,235

2.94

138,328

924

2.69

Total Interest Bearing Deposits

2,348,057

7,383

1.28

2,276,868

7,766

1.36

2,232,325

7,594

1.37

Total Deposits

3,665,482

7,383

0.82

3,600,424

7,766

0.86

3,576,513

7,594

0.85

Repurchase Agreements

29,821

164

2.23

28,018

199

2.82

25,725

201

3.14

Short-Term Borrowings

7,437

117

6.39

6,510

5.06

3,758

4.16

Subordinated Notes Payable

52,887

560

4.23

52,887

581

4.30

52,887

628

4.70

Other Long-Term Borrowings

794

5.68

794

5.57

281

4.80

Total Interest Bearing Liabilities

2,438,996

8,235

1.37

2,365,077

8,640

1.45

2,314,976

8,465

1.47

Other Liabilities

65,211

73,130

68,295

TOTAL LIABILITIES

3,821,632

3,761,763

3,727,459

Temporary Equity

6,763

7,150

TOTAL SHAREOWNERS’ EQUITY

513,401

491,143

456,014

TOTAL LIABILITIES, TEMPORARY

AND SHAREOWNERS’ EQUITY

4,335,033

4,259,669

4,190,623

Interest Rate Spread

3.69

3.59

3.43

Net Interest Income

41,591

41,150

38,435

Net Interest Margin

(3)

4.22

4.17

4.01

(1)

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

Interest income includes net loan costs of $0.4 million for

the three months ended

March 31, 2025, $0.2 million for the three months ended

December 31, 2024, and net loan fees of $0.1 million for

the three months ended March 31, 2024.

(2)

Interest income includes the effects of taxable equivalent adjustments

using a 21% 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, 2024.

Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

At March 31, 2025, 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 effective.

Our management, including our Chief Executive Officer

and Chief Financial Officer, has reviewed

our internal control over financial

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

Act of 1934). During the quarter ended March 31, 2025, 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 2024 Form 10-K, as updated in our subsequent

quarterly reports. The risks described in our 2024 Form

10-K, and our subsequent quarterly reports are not the only risks facing us.

Additional risks and uncertainties not currently known to

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

our business, financial condition and/or operating

results.

Item 2.

Unregistered Sales of Equity Securities and Use of

Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosure

Not Applicable.

Item 5.

Other Information

During the three months ended March 31, 2025, 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

to 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

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XBRL Taxonomy

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101.PRE

XBRL Taxonomy

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104

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

SIGNATURES

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

has duly caused this Report to be signed on its

behalf by the undersigned Chief Financial Officer hereunto duly

authorized.

CAPITAL CITY

BANK GROUP,

INC.

(Registrant)

/s/ Jeptha E. Larkin

Jeptha E. Larkin

Executive Vice President

and Chief Financial Officer

(Mr. Larkin is the Principal Financial

Officer and has

been duly authorized to sign on behalf of the Registrant)

Date: April 30, 2025

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: April 30, 2025

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: April 30, 2025

exhibit321

Exhibit 32.1

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

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

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

Jr.,

Chairman, President, and Chief Executive Officer of Capital City Bank

Group, Inc., hereby certify that to my knowledge (1) this

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

31, 2025, 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: April 30, 2025

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

authenticating, acknowledging or otherwise

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

of this written statement required by Section 906, has

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

furnished to the Securities and Exchange Commission or its

staff upon request.

exhibit322

Exhibit 32.2

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

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

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

Executive Vice President

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

to my knowledge (1) this

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

31, 2025, 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: April 30, 2025

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.