10-K/A - CCBG - Equibles

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,

20549

___________________________________

FORM

10-K/A

(Amendment No. 1)

☒

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended

December 31, 2023

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Capital City Bank Group, Inc.

(Exact name of Registrant as specified in its charter)

Florida

0-13358

59-2273542

(State of Incorporation)

(Commission File Number)

(IRS Employer Identification No.)

217 North Monroe Street

Tallahassee

Florida

32301

(Address of principal executive offices)

(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, $0.01 par value

CCBG

The

Nasdaq Stock Market

LLC

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if

the registrant is a well-known

seasoned issuer, as defined in

Rule 405 of the Securities

Act. Yes

☐

☒

Indicate by check mark if the registrant is not required to file

reports pursuant to Section 13 or Section 15(d) of

the Exchange Act. Yes

☐

☒

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

☐

☒

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

☒

☐

Indicate by check mark whether the registrant is a large accelerated

filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging

growth company.

See definition 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 provided pursuant to Section 13(a)

of the Exchange Act.

☐

Indicate by check mark whether the registrant has filed a

report on and attestation to its management’s assessment of the effectiveness of its internal control

over

financial reporting under Section 404(b) of the Sarbanes-Oxley

Act (15 U.S.C. 7262(b)) by the registered public accounting

firm that prepared or issued its audit

report.

☒

If securities are registered pursuant to Section 12(b) of the Act,

indicate by check mark whether the financial statements

of the registrant included in the filing reflect

the correction of an error to previously issued financial statements

☒

Indicate by check mark whether any of those error corrections

are restatements that required a recovery analysis of

incentive-based compensation received by any of

the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).

☒

Indicate by check mark whether the registrant is a shell company

(as defined in Rule 12b-2 of the Exchange Act). Yes

☐

☒

The aggregate market value of the registrant’s common stock, $0.01 par value per

share, held by non-affiliates of the registrant on June 30,

2023, the last business day

of the registrant’s most recently completed second fiscal quarter, was approximately $

400,209,385

(based on the closing sales price of the registrant’s common stock

on that date). Shares of the registrant’s common stock held by each officer and director

and each person known to the registrant to own 10% or more of

the

outstanding voting power of the registrant have been excluded

in that such persons may be deemed to be affiliates. This

determination of affiliate status is not a

determination for other purposes.

Indicate the number of shares outstanding of each of the

issuer’s classes of common stock, as of the latest practicable date.

Class

Outstanding at June 28, 2024

Common Stock, $0.01 par value per share

16,941,553

DOCUMENTS INCORPORATED BY REFERENCE

Portions of our Proxy Statement for the Annual Meeting of Shareowners held on April 23, 2024, are incorporated by reference in Part III.

CAPITAL CITY BANK

GROUP,

INC.

ANNUAL REPORT FOR 2023 ON FORM 10-K/A

TABLE OF CONTENTS

PART

PAGE

Item 1.

Business

Item 1A.

Risk Factors

Item 1B.

Unresolved Staff Comments

Item 1C.

Cybersecurity

Item 2.

Properties

Item 3.

Legal Proceedings

Item 4.

Mine Safety Disclosure

PART

Item 5.

Market for the Registrant’s Common Equity, Related Shareowner Matters, and Issuer Purchases of

Equity Securities

Item 6.

Selected Financial Data

Item 7.

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

Item 7A.

Quantitative and Qualitative Disclosure About Market Risk

Item 8.

Financial Statements and Supplementary Data

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

141

Item 9A.

Controls and Procedures

141

Item 9B.

Other Information

145

PART

III

Item 10.

Directors, Executive Officers, and Corporate Governance

146

Item 11.

Executive Compensation

146

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Shareowner Matters

146

Item 13.

Certain Relationships and Related Transactions, and Director Independence

146

Item 14.

Principal Accountant Fees and Services

146

PART

Item 15.

Exhibits and Financial Statement Schedules

147

Item 16.

Form 10-K/A Summary

148

Signatures

149

EXPLANATORY NOTE

Capital City Bank Group, Inc. (the “Company”) is filing this Amendment No. 1 on Form 10-K/A (the “Amendment” or “Form

10-K/A”) to amend and restate certain items in its Annual Report on Form 10-K for the fiscal year ended December 31, 2023,

originally filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 13, 2024 (the “Original Form 10-K”).

Except as described below, no other information included in the Original Form 10-K is being amended or updated by this

Amendment and this Amendment does not purport to reflect any information or events subsequent to the filing of the Original

Form 10-K.

Restatement Background

As previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on May 13, 2024, in preparation of its

financial statements for the first quarter of 2024, the Company identified changes needed in preparing its consolidated financial

statements, specifically its Consolidated Statement of Cash Flows related to certain construction/permanent loan sales. As a

result, as further discussed below, the Company’s Consolidated Statements of Cash Flows for the following periods (collectively,

the “Impacted Statements of Cash Flows”) should no longer be relied upon: (1) years ended December 31, 2023, 2022, and 2021,

(2) the three-month periods ended March 31, 2023 and 2022, (3) the six-month periods ended June 30, 2023 and 2022, and (4) the

nine-month periods ended September 30, 2023 and 2022.

Company management, after consultation and discussion with the Audit Committee of the Board of Directors of the Company

and the Company’s independent registered public accounting firm, Forvis Mazars, LLP, determined that the Impacted Statements

of Cash Flows should no longer be relied upon. The Company has not filed and does not intend to file amendments to the

Company’s previously filed Quarterly Reports on Form 10-Q containing any of the Impacted Statements of Cash Flow or the

Company’s Annual Reports on Form 10-K for the years ended December 31, 2022 and 2021. This Form 10-K/A contains

restatements of the Impacted Statements of Cash Flows. Accordingly, investors and others should rely on the financial

information and other disclosures regarding the affected period as disclosed in this Form 10-K/A and in the Company’s future

filings with the SEC (as applicable). For additional information, see “Part II – Item 8. Financial Statements and Supplementary –

Note 1 – Restatement of Previously Issued Consolidated Financial Statements” in this Form 10-K/A.

This Form 10-K/A also amends and restates the following items included in the Original Form 10-K as appropriate to reflect the

restatement and revision of the relevant items: Cover Page; Item 8. Financial Statements and Supplementary Data; Item 9A.

Controls and Procedures: Part III, Items 10 through 14; and Item 15. Exhibits and Financial Statement Schedules. In accordance

with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company is also including

with this Form 10-K/A currently dated certifications of the Company’s Chief Executive Officer and Chief Financial Officer

(attached as Exhibits 31.1, 31.2, 32.1, and 32.2). This Form 10-K/A also contains a modified report from Forvis Mazars on the

consolidated financial statements for years ended December 31, 2023, 2022 and 2021, a modified Forvis Mazars opinion on the

effectiveness of the Company’s internal control over financial reporting as of December 31, 2023, 2022 and 2021, and a new

consent of Forvis Mazars (attached as Exhibit 23.1).

The Company is also filing this Amendment to check the box on the cover page of this Amendment following “Indicate by check

mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation

received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).” The

Company has conducted such analysis and has determined that the previously mentioned changes affecting the Impacted

Statements of Cash Flows does not impact related performance metrics used for executive management’s compensation, and

therefore that no recovery of incentive-based compensation was required. For additional information, see “Part III – Item 11.

Executive Compensation” in this Form 10-K/A.

Except as discussed above and as further described herein, the Company has not modified or updated the disclosures presented in

the Original Form 10-K. Accordingly, this Form 10-K/A does not reflect events occurring after the filing of the Original Form

10-K or modify or update those disclosures affected by any such subsequent events. Information not affected by the restatements

reflects disclosures made at the time of the filing of the Original Form 10-K. Forward-looking statements included in this Form

10-K/A represent management’s views as of the date of the Original Form 10-K and should not be assumed to be accurate as of

any date thereafter. This Form 10-K/A should be read in conjunction with the Company’s filings made with the SEC subsequent

to the filing of the Original Form 10-K, including any amendment to those filings.

INTRODUCTORY NOTE

This Annual Report on Form 10-K/A 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.

In addition to those risks discussed in this Annual Report under Item 1A Risk Factors, factors

that could cause our actual results

to differ materially from those in the forward-looking

statements, include, without limitation:

●

our ability to successfully manage credit risk, interest rate risk, liquidity risk,

and other risks inherent to our industry;

●

legislative or regulatory changes;

●

adverse developments in the financial services industry generally,

such as bank failures and any related impact on depositor

behavior;

●

the effects of changes in the level of checking or savings account

deposits and the competition for deposits on our funding

costs, net interest margin and ability to replace maturing deposits and

advances, as necessary;

●

inflation, interest rate, market and monetary fluctuations;

●

uncertainty in the pricing of residential mortgage loans that we sell, as well as competition

for the mortgage servicing

rights related to these loans and related interest rate risk or price risk resulting

from retaining mortgage servicing rights and

the potential effects of higher interest rates on our loan origination

volumes;

●

the effects of actions taken by governmental agencies to stabilize the

recent volatility in the financial system and the

effectiveness of such actions;

●

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

●

the effects of security breaches and computer viruses that may

affect our computer systems or fraud related to debit card

products;

●

the accuracy of our financial statement estimates and assumptions,

including the estimates used for our allowance for credit

losses, deferred tax asset valuation and pension plan;

●

changes in our liquidity position;

●

changes in accounting principles, policies, practices or guidelines;

●

the frequency and magnitude of foreclosure of our loans;

●

the effects of our lack of a diversified loan portfolio, including

the risks of loan segments, geographic and industry

concentrations;

●

the strength of the United States economy in general and the strength of the local economies in

which we conduct

operations;

●

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

●

changes in the securities and real estate markets;

●

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

mortgages;

●

the effect of corporate restructuring, acquisitions or dispositions,

including the actual restructuring and other related

charges and the failure to achieve the expected gains, revenue growth

or expense savings from such corporate

restructuring, acquisitions or dispositions;

●

the effects of natural disasters, harsh weather conditions

(including hurricanes), widespread health emergencies (including

pandemics, such as the COVID-19 pandemic), military conflict, terrorism, civil

unrest or other geopolitical events;

●

our ability to comply with the extensive laws and regulations to which

we are subject, including the laws for each

jurisdiction where we operate;

●

the impact of the restatement of the Impacted Statements of Cash Flows;

●

any inability to implement and maintain effective internal

control over financial reporting and/or disclosure control or

inability to remediate our existing material weaknesses in our internal

controls deemed ineffective;

●

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

products and services and vice versa;

●

increased competition and its effect on pricing;

●

technological changes;

●

The cost and effects of cybersecurity incidents or other failures, interruptions,

or security breaches of our systems or those

of our customers or third-party providers;

●

the outcomes of litigation or regulatory proceedings;

●

negative publicity and the impact on our reputation;

●

changes in consumer spending and saving habits;

●

growth and profitability of our noninterest income;

●

the limited trading activity of our common stock;

●

the concentration of ownership of our common stock;

●

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

and our Bylaws;

●

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

Commission; and

●

our ability to manage the risks involved in the foregoing.

However, other factors besides those listed in

Item 1A Risk Factors or discussed in this 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.

PART

Item 1.

Business

About Us

General

Capital City Bank Group, Inc. (“CCBG”) is a financial holding company

headquartered in Tallahassee,

Florida. CCBG was

incorporated under Florida law on December 13, 1982, to acquire five national banks

and one state bank that all subsequently

became part of CCBG’s bank subsidiary,

Capital City Bank (“CCB” or the “Bank”). The Bank commenced operations

in 1895. In

this report, the terms “Company,”

“we,” “us,” or “our” mean CCBG and all subsidiaries included in our consolidated financial

statements.

CCBG is one of the largest publicly traded financial holding

companies headquartered in Florida and has approximately $4.3

billion in assets. 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 the

sale of life insurance, risk management and asset protection services. The

Bank has 63 banking offices and 103 ATMs/ITMs

Florida, Georgia, and Alabama.

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

in the

Southeast for our mortgage banking business.

The majority of the revenue (excluding CCHL), approximately 85%, is derived

from our Florida market areas while approximately 14% and 1% of the

revenue is derived from our Georgia and other market

areas, respectively.

Approximately 48% of the revenue from CCHL is derived from our Georgia

market areas while

approximately 38% and 14% is derived from our Florida and other

market areas, respectively.

Below is a summary of our financial condition and results of operations for the past three

fiscal years, which we believe is a

sufficient period for understanding our general business development.

Our financial condition and results of operations are more

fully discussed in our Management’s

Discussion and Analysis on page 43 and our consolidated financial statements on

page 72.

Dollars in millions

Year

Ended

December 31,

Assets

Deposits

Shareowners’

Equity

Revenue

(1)

Net Income

2023

$4,304.5

$3,701.8

$440.6

$252.7

$52.3

2022

$4,519.2

$3,939.3

$387.3

$207.1

$33.4

2021

$4,263.8

$3,712.9

$383.2

$213.9

$33.4

(1)

Revenue represents interest income plus noninterest income

Dividends and management fees received from the Bank are CCBG’s

primary source of income. Dividend payments by the Bank

to CCBG depend on the capitalization, earnings and projected growth of

the Bank, and are limited by various regulatory

restrictions, including compliance with a minimum Common Equity

Tier 1 Capital conservation buffer.

See the section entitled

“Regulatory Considerations” in this Item 1 and Note 17 in the Notes to Consolidated

Financial Statements for a discussion of the

restrictions.

Item 6 contains other financial and statistical information about us.

Subsidiaries of CCBG

CCBG’s principal asset is the capital

stock of CCB, our wholly owned banking subsidiary,

which accounted for nearly 100% of

consolidated assets and net income attributable to CCBG at December 31,

2023.

CCBG also maintains an insurance subsidiary,

Capital City Strategic Wealth,

LLC.

CCB has two primary subsidiaries, which are wholly owned, Capital City Trust

Company

and Capital City Investments.

CCB also maintains

a 51% membership interest in a consolidated subsidiary,

CCHL, which we

acquired on March 1, 2020.

The nature of these subsidiaries is provided below.

Operating Segment

We have one

reportable segment with two principal services: Banking Services and Wealth

Management Services.

Banking

Services are operated at CCB, and Wealth

Management Services are operated under three separate subsidiaries (Capital City

Trust Company,

Capital City Investments, and Capital City Strategic Wealth,

LLC).

Revenues from these principal services for

the year ended 2023

totaled approximately 93.5% and 6.5% of our total revenue, respectively.

In 2022

and 2021, Banking

Services (CCB) revenue was approximately 90.3% and 93.2% of our total revenue

for each respective year.

Capital City Bank

CCB is a Florida-chartered full-service bank engaged in the commercial and

retail banking business. Significant services offered

by CCB include:

●

Business Banking

– We provide banking

services to corporations and other business clients. Credit products are available

for a wide variety of general business purposes, including financing for

commercial business properties, equipment,

inventories and accounts receivable, as well as commercial leasing and

letters of credit. We also provide

treasury

management services, and, through a marketing alliance with Elavon, Inc., merchant

credit card transaction processing

services.

●

Commercial Real Estate Lending

– We provide

a wide range of products to meet the financing needs of commercial

developers and investors, residential builders and developers, and community

development. Credit products are available

to purchase land and build structures for business use and for investors

who are developing residential or commercial

property.

●

Residential Real Estate Lending

– We provide products

through our strategic alliance with CCHL and its existing

network of locations to help meet the home financing needs of consumers,

including conventional permanent and

construction/ permanent (fixed, adjustable, or variable rate) financing

arrangements, and FHA/VA/Government

National

Mortgage Association (“GNMA”) loan products.

We offer

both fixed and adjustable-rate residential mortgage (ARM)

loans.

We offer

these products through our existing network of CCHL locations.

We do not originate

subprime

residential real estate loans.

●

Retail Credit

– We provide

a full-range of loan products to meet the needs of consumers, including personal

loans,

automobile loans, boat/RV

loans, home equity loans, and through a marketing alliance with ELAN, we offer

credit card

programs.

●

Institutional Banking –

We provide banking

services to meet the needs of state and local governments, public schools

and colleges, charities, membership and not-for-profit

associations including customized checking and savings accounts,

cash management systems, tax-exempt loans, lines of credit, and term

loans.

●

Retail Banking

– We provide a full-range

of consumer banking services, including checking accounts, savings programs,

interactive/automated teller machines (ATMs/ITMs),

debit/credit cards, night deposit services, safe deposit facilities,

online banking, and mobile banking.

Capital City Trust Company

Capital City Trust Company,

or the Trust Company,

provides asset management for individuals through agency,

personal trust,

IRA, and personal investment management accounts. Associations, endowments,

and other nonprofit entities hire the Trust

Company to manage their investment portfolios. Additionally,

a staff of well-trained professionals serves individuals requiring

the

services of a trustee, personal representative, or a guardian.

The market value of trust assets under discretionary management

exceeded $1.121 billion at December 31, 2023, with total assets under administration

exceeding $1.136 billion.

Capital City Investments

We offer

our customers access to retail investment products through LPL Financial pursuant to

which retail investment products

would be offered through LPL. LPL offers a full line

of retail securities products, including U.S. Government bonds, tax-free

municipal bonds, stocks, mutual funds, unit investment trusts, annuities, life insurance

and long-term health care. Non-deposit

investment and insurance products are: (i) not FDIC insured; (ii) not deposits,

obligations, or guarantees by any bank; and (iii)

subject to investment risk, including the possible loss of principal amount

invested.

Capital City Strategic Wealth,

LLC.

We provide

a multi-disciplinary strategic planning approach that requires examining all facets of our

clients’ financial lives

through our business, estate, financial, insurance and business planning,

tax planning, and asset protection advisory services.

Insurance sales within this division include life, health, disability,

long-term care, and annuity solutions.

Lending Activities

One of our core goals is to support the communities in which we operate. We

seek loans from within our primary market area,

which is defined as the counties in which our banking offices are located.

We will also originate

loans within our secondary

market area, defined as counties adjacent to those in which we have banking offices.

There may also be occasions when we will

have opportunities to make loans that are out of both the primary and secondary

market areas, including participation loans.

These loans are only approved if the underwriting is consistent with our criteria and generally

the project or applicant’s primary

business is in or near our primary or secondary market areas. Approval of all loans is subject to

our policies and standards

described in more detail below.

We have adopted

comprehensive lending policies, underwriting standards and loan review procedures.

Management and our

Board of Directors reviews and approves these policies and procedures on a regular

basis (at least annually).

Management has also implemented reporting systems designed to

monitor loan originations, loan quality,

concentrations of

credit, loan delinquencies, nonperforming loans, and potential problem

loans. Our management and the Credit Risk Oversight

Committee periodically review our lines of business to monitor asset quality

trends and the appropriateness of credit policies. In

addition, we establish total borrower exposure limits and monitor concentration

risk. 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 portfolio are monitored and reported to our

Board on a quarterly basis, and we have strategic plans in place to supplement

Board approved credit policies governing exposure

limits and underwriting standards. We

recognize that exceptions to the below-listed policy guidelines may

occasionally occur and

have established procedures for approving exceptions to these policy guidelines.

Residential Real Estate Loans

We originate

1-4 family, owner-occupied

residential real estate loans at CCHL for sale in the secondary market.

Historically, a

vast majority of residential loan originations are fixed-rate loans which

are sold in the secondary market on a non-recourse basis.

We will frequently

sell loans and retain the servicing rights.

Note 4 – Mortgage Banking Activities in the Notes to Our

Consolidated Financial Statements provides additional information on our

servicing portfolio.

CCB also maintains a portfolio of residential loans held for investment and

will periodically purchase newly originated 1-4

family secured adjustable-rate loans from CCHL for that portfolio.

Residential loans held for investment are generally

underwritten in accordance with secondary market guidelines in effect

at the time of origination, including loan-to-value, or LTV,

and documentation requirements.

Residential real estate loans also include home equity lines of credit, or HELOCs, and

home equity loans. Our home equity

portfolio includes revolving open-ended equity loans with interest-only

or minimal monthly principal payments and closed-end

amortizing loans. Open-ended equity loans typically have an interest only

10-year draw period followed by a five-year repayment

period of 0.75% of principal balance monthly and balloon payment at maturity.

As of December 31, 2023, approximately 53% of

our residential home equity loan portfolio consisted of first mortgages.

Interest rates may be fixed or adjustable.

Adjustable-rate

loans are tied to the Prime Rate with a typical margin of 1.0% or more.

Commercial Loans

Our policy sets forth guidelines for debt service coverage ratios, LTV

ratios and documentation standards. Commercial loans are

primarily made based on identified cash flows of the borrower with consideration

given to underlying collateral and personal or

other guarantees. We

have established 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 our commercial loans are secured by the

assets being financed or other business assets such as accounts receivable or inventory.

Many of the loans in the commercial

portfolio have variable interest rates tied to the Prime Rate or U.S. Treasury

indices.

Commercial Real Estate Loans

We have adopted

guidelines for debt service coverage ratios, LTV

ratios and documentation standards for commercial real estate

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

borrower with consideration given to underlying real

estate collateral and personal guarantees. Our policy establishes a maximum

LTV specific to

property type and minimum 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. Commercial real estate loans may be fixed

or variable-rate loans with interest rates tied to the Prime Rate

or U.S. Treasury indices. We

require appraisals for loans in excess of $500,000 that are secured by real property

unless we deem

the real property used as security to be a complex property type, in which case we require

appraisals for loans in excess of

$250,000. For loans secured by real property that fall beneath the applicable

thresholds above, we will generally use a third-party

evaluation to assess the value of the real property used as security.

Consumer Loans

Our consumer loan portfolio includes personal installment loans, direct

and indirect automobile financing, and overdraft lines of

credit. The majority of the consumer loan portfolio consists of indirect

and direct automobile loans. The majority of our consumer

loans are short-term and have fixed rates of interest that are priced based on

current market interest rates and the financial

strength of the borrower. Our policy

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

guidelines

for verification of applicants’ income and receipt of credit reports.

Expansion of Business

See Item 7.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations under the section captioned

“Business Overview” for discussion related to the expansion of our

Business.

Competition

There is significant competition among commercial banks in our market

areas. We compete

against a wide range of banking and

nonbanking institutions including banks, savings and loan associations, credit

unions, money market funds, mutual fund advisory

companies, mortgage banking companies, investment banking companies,

insurance agencies and companies, securities firms,

brokerage firms, finance companies and other types of financial institutions.

Some of our competitors are larger financial

institutions with greater resources and, as such, may have higher lending

limits and may offer other services that are not provided

by us. However, we believe that the larger

financial institutions are less familiar with the markets in which we operate and

typically target a different client base. We

also believe clients who bank at community banks tend to prefer the relationship

style

service of community banks compared to larger banks.

As a result, we expect to be able to effectively compete in our markets

with larger financial institutions through providing

superior client service and leveraging our knowledge and experience

in providing banking products and services in our market

areas. See Item 1A. Risk Factors under the section captioned “Our future success is dependent

on our ability to compete

effectively in the highly competitive banking industry” for further discussion

related to the competitive environment in which we

operate.

Our primary market area consists of 21 counties in Florida, six counties in Georgia,

and one county in Alabama. Most of Florida’s

major banking concerns have a presence in Leon County,

where our main office is located.

Our Leon County deposits totaled

$1.272 billion, or 34.4% of our consolidated deposits at December 31, 2023.

The table below depicts our market share percentage within each county,

based on commercial bank deposits within the county.

Market Share as of June 30,

(1)

County

2023

2022

2021

Florida

Alachua

5.1%

4.9%

4.6%

Bay

0.3%

0.2%

Bradford

37.1%

34.9%

32.4%

Citrus

4.4%

4.7%

4.1%

Clay

2.4%

2.3%

2.8%

Dixie

17.5%

19.8%

18.9%

Gadsden

81.9%

82.1%

81.1%

Gilchrist

42.2%

41.2%

39.6%

Gulf

12.4%

14.8%

14.6%

Hernando

4.9%

5.0%

3.9%

Jefferson

28.3%

24.8%

24.4%

Leon

16.9%

15.4%

11.9%

Levy

26.4%

25.4%

26.4%

Madison

13.5%

14.0%

14.5%

Putnam

34.4%

26.4%

23.2%

St. Johns

0.8%

0.7%

Suwannee

6.6%

7.0%

6.8%

Taylor

75.0%

73.8%

73.2%

Wakulla

8.4%

10.0%

10.5%

Walton

0.3%

Washington

9.2%

11.2%

Georgia

Bibb

2.9%

3.2%

3.3%

Cobb

0.1%

0.0%

Gwinnett

(2)

0.0%

Grady

13.8%

16.3%

14.8%

Laurens

6.7%

7.8%

7.9%

Troup

5.6%

6.4%

6.1%

Alabama

Chambers

8.6%

9.3%

(1)

Obtained from the FDIC Summary of Deposits Report for the year indicated.

(2)

Bank office opened in the second quarter of 2023.

Seasonality

We believe our

commercial banking operations are not generally seasonal in nature; however,

public deposits tend to increase

with tax collections in the fourth and first quarters of each year and decline

as a result of governmental spending thereafter.

Human Capital Matters

Our culture distinguishes us from our competitors and is the driving force

behind our continued success. Our leadership is

committed to a culture that values people alongside results.

Our brand promise (“More than your bank. Your

banker.”)

and purpose (“We

empower our clients’ financial wellness and help

them build secure futures”), together with our core values statement (“Do

the Right Thing, Build Relationships & Loyalty,

Embrace Individuality & Value

Others, Promote Career Growth, Be Committed to Community,

and Represent the Star (our bank)

Proudly”), are the foundation on which our culture is built.

The bank has grown significantly since its beginnings in 1895. Our commitment

to fostering a culture that values our associates

across our entire footprint remains unwavering. We

have a Chief Culture Officer and a Chief Diversity Officer

who make it a

priority to ensure our culture is maintained and associates exemplify our values.

Diversity and Inclusion

. Integral to our culture and values is a commitment to an equitable, diverse, and inclusive work

environment whereby respect, acceptance and belonging are practiced

and experienced by all.

Our associates are our most valuable assets, and our differences make

us stronger. The individual perspectives,

life experiences,

capabilities and talents, which our associates invest in their work, represent a

significant part of our culture, reputation and

collective achievements.

The Chief Diversity Officer and the Diversity,

Equity, and Inclusion (DE&I) Council,

which comprises diverse associates from

various levels and offices throughout our organization,

connect the company’s diversity and inclusion

initiatives with our broader

business strategies. A diverse team produces more creative solutions, offers

better client service and is vital to attracting and

retaining talent—key factors that contribute to our success. We

continue to build an inclusive culture through a variety of DE&I

initiatives for internal promotions and hiring practices.

At February 8, 2024, we had approximately 811

associates, which included approximately 784 full-time associates and

approximately 27 part-time associates. At February 8, 2024, approximately

70% of our workforce was female, 30% was male,

and approximately 22% was ethnic minorities. None of our associates are represented

by a labor union or covered by a collective

bargaining agreement.

Our commitment to people and being an employer with integrity and heart has

earned us numerous accolades including:

one of

the “Best Companies to Work

for in Florida” by Florida Trend for 12 consecutive

years, a “Best Bank to Work

For” by American

Bankers Association for 11 consecutive years

and being named by Forbes in 2023 as one of “America’s

Best-in-State Banks, a

selection made from direct consumer feedback and online reviews.

The average tenure of our associates is approximately 9.6 years, and the

average tenure of our management team is 28 years.

Tenure statistics support

these accolades and further demonstrate that associates enjoy working

for CCB.

Compensation and Benefits Program

. To attract and retain experienced

associates we offer a competitive compensation and

benefits program, foster a culture where everyone feels included and empowered

to do to their best work, and give associates the

opportunity to give back to their communities and make a social impact.

Our compensation program is designed to attract and reward talented individuals

who possess the skills necessary to support our

business objectives, assist in the achievement of our strategic goals and

create long-term value for our shareowners. We

provide

our associates with compensation packages that include base salary and

annual incentive bonuses, and certain associates can

receive equity awards tied to the Company’s

performance.

Experience has taught us that a compensation program with both

short-

and long-term awards provides fair and competitive

compensation and aligns associate and shareowner interests by incentivizing

business and individual performance. This dual

approach also encourages long-term company performance and integrates compensation

with our business plans.

In addition to cash and equity compensation, we offer associates benefits

including life and health (medical, dental & vision)

insurance, paid time off, an associate stock purchase plan, and a

401(k) plan. Associates hired prior to 2020 are eligible to

participate in a pension plan.

A core value is providing associates the ability to “grow a career.”

To that end, we support and encourages

associates to develop a

life-long habit of continuous learning that focuses on personal and professional

development through higher education. We

offer

an educational Tuition Assistance Plan to help eligible

associates continue or begin post-high school education, develop skills,

increase knowledge and aid in career development.

We have invested

in tools and capabilities that allow our team members to work remotely as appropriate.

Health and Safety

. Our business success is fundamentally connected to our associates’ well-being.

We make available to our

associates a voluntary wellness program,

StarFit that provides associates with resources and good-health opportunities through

exercise, diet and preventive care.

In response to emerging workplace practices, we made changes to our

flex–work program to assist our associates in maintaining a

work/life balance consistent with their professional and personal goals.

We continue

to follow local and federal guidance, including guidance prescribed by the Centers for

Disease Control and

Prevention (“CDC”), regarding COVID-19 precautions and health measures.

Social Matters

Community Involvement

. We aim to give back

to the communities where we live and work and believe that this commitment

helps in our efforts to attract and retain associates. Our commitment

to help our community starts with our associates. Community

involvement is a hallmark for our organization, and it comes naturally

to our associates. We

encourage our associates to volunteer

their hours with service organizations and philanthropic groups in

the communities we serve.

We recorded

10,526 community service hours in 2023, and 9,508, and 8,697 hours in

2022 and 2021, respectively. Furthermore,

the CCBG Foundation donated $0.3 million in 2023 to various non-profit organizations

in the communities we serve and $0.3

million and $0.2 million in 2022, and 2021, respectively.

Since 2015, we have annually supported the United Way

of the Big Bend in analyzing financial information for its annual grant

review process. Many of these grants are provided to low-moderate income

communities in the Big Bend area.

Access, affordability,

and financial inclusion.

Our community commitment to further financial literacy in the markets we service

remains an ongoing focus. In 2023, the CCBG Foundation made grants totaling

$143,000 to Community Reinvestment Act of

1977 (“CRA”) eligible organizations in our market

area. We are committed

to providing educational outreach regarding home

ownership and financial access for minorities. We

are a long-time supporter of Habitat for Humanity,

with our associates

providing volunteer hours on home builds.

During 2020 to 2023, we partnered with Habitat for Humanity and Warrick

Dunn

Charities to build and furnish four homes.

During tax season, we provide locations for community residents to access Volunteer

Income Tax Assistance (VITA)

services.

VITA is a nationwide

IRS program that offers free tax preparation assistance to people who generally

make $60,000 or less,

persons with disabilities, the elderly,

and limited English-speaking taxpayers who need assistance in preparing their

own tax

returns.

Environmental Matters

We recognize

the value of environmental stewardship and seek opportunities to reduce our carbon

footprint and incorporate

energy efficiency products into business operations.

We have implemented

company-wide recycling programs and have

converted exterior lighting to LED at 64 offices. Further reducing

our environmental impact, our office model design is reduced

from an average 5,500 square feet to 3,300 square feet. As we renovate or build

new facilities, we employ energy efficient

equipment such as HVAC

systems and lighting controls in offices.

In 2022, we made a commitment for a $7 million investment in SOLCAP 2022-1,

LLC and, in 2023, we made a commitment for

a $7 million investment in SOLCAP 2023-1, LLC. Each of these funds were formed

to make solar tax equity investments in

renewable solar energy projects that will provide us with

tax credits and other tax benefits. These projects will produce

approximately 20,186,357 kw hours of clean power each year.

The clean power produced is equivalent to removing

approximately 14,306 metric tons of greenhouse gas emissions. We

plan to continue to review these kinds of investment

opportunities as they arise.

We work to ensure

lending activities do not encourage business activities that could cause irreparable

damage to our reputation or

the environment. In general, we evaluate each credit or transaction

on its individual merits, with larger deals receiving more

attention and deeper analysis, including a review of environmental matters

related to certain real estate loans, which is overseen

by our Credit Risk Oversight Committee.

To prepare for any climate-related

occurrences, we have a business continuity plan that addresses how to maintain

business

operations in the event of a disastrous event. We

also offer disaster assistance to our associates, which includes

accommodation/shelter reimbursement in case of evacuations or sustained

power outages.

Regulatory Considerations

We must comply

with state and federal banking laws and regulations

that control virtually all aspects of our operations.

These

laws and regulations generally aim to protect

our depositors, not necessarily our shareowners or our creditors.

Any changes in

applicable laws or regulations may materially affect

our business and prospects. Proposed

legislative or regulatory changes may

also affect our operations. The following description summarizes some of the laws and

regulations to which we are

subject.

References to applicable statutes and regulations

are brief summaries, do not purport to be complete, and

are qualified in their

entirety by reference

to such statutes and regulations.

Capital City Bank Group, Inc.

We are registered

with the Board of Governors of the Federal Reserve as a bank holding company under

the Bank Holding

Company Act of 1956 (“BHC Act”) and have also elected to be a financial

holding company. As a result,

we are subject to

supervisory regulation and examination by the Federal Reserve. The BHC Act, the Dodd

-Frank Wall Street Reform

and

Consumer Protection Act (the “Dodd-Frank Act”), the Gramm-Leach-Bliley Financial

Modernization Act (the “GLBA”), and

other federal laws subject financial holding companies to restrictions on the types of

activities in which they may engage, and to a

range of supervisory requirements and activities, including regulatory

enforcement actions for violations of laws and regulations.

Permitted Activities

The GLBA reformed the U.S. banking system by: (i) allowing bank holding companies

(“BHCs”) that qualify as “financial

holding companies,” such as CCBG, to engage in a broad range of financial

and related activities; (ii) allowing insurers and other

financial service companies to acquire banks; (iii) removing restrictions that applied

to bank holding company ownership of

securities firms and mutual fund advisory companies; and (iv) establishing the

overall regulatory scheme applicable to bank

holding companies that also engage in insurance and securities operations.

The general effect of the law was to establish a

comprehensive framework to permit affiliations among

commercial banks, insurance companies, securities firms, and other

financial service providers. Activities that are financial in nature are broadly

defined to include not only banking, insurance, and

securities activities, but also merchant banking and additional activities that the Federal

Reserve, in consultation with the

Secretary of the Treasury,

determines to be financial in nature, incidental to such financial activities, or complementary

activities

that do not pose a substantial risk to the safety and soundness of depository institutions

or the financial system generally.

In contrast to financial holding companies, bank holding companies are

limited to managing or controlling banks, furnishing

services to or performing services for its subsidiaries, and engaging

in other activities that the Federal Reserve determines by

regulation or order to be so closely related to banking or managing or controlling

banks as to be a proper incident thereto. In

determining whether a particular activity is permissible, the Federal Reserve must

consider whether the performance of such an

activity reasonably can be expected to produce benefits to the public that outweigh

possible adverse effects. Possible benefits

include greater convenience, increased competition, and gains in efficiency.

Possible adverse effects include undue concentration

of resources, decreased or unfair competition, conflicts of interest, and unsound

banking practices. Despite prior approval, the

Federal Reserve may order a bank holding company or its subsidiaries to terminate

any activity or to terminate ownership or

control of any subsidiary when the Federal Reserve has reasonable cause

to believe that a serious risk to the financial safety,

soundness or stability of any bank subsidiary of that bank holding company

may result from such an activity.

Changes in Control

Subject to certain exceptions, the BHC Act and the Change in Bank Control Act

(“CBCA”), together with the applicable

regulations, require Federal Reserve approval (or,

depending on the circumstances, no notice of disapproval) prior to any

acquisition of “control” of a bank or bank holding company.

Under the BHC Act, a company (a broadly defined term that includes

partnerships among other things) that acquires the power,

directly or indirectly, to direct

the management or policies of an insured

depository institution or to vote 25% or more of any class of voting securities of

any insured depository institution is deemed to

control the institution and to be a bank holding company.

A company that acquires less than 5% of any class of voting security

(and that does not exhibit the other control factors) is presumed not to have control.

For ownership levels between the 5% and

25% thresholds, the Federal Reserve has developed an extensive body of

law on the circumstances in which control may or may

not exist.

Further, on January 30, 2020, the Federal Reserve finalized

a rule that simplifies and increases the transparency of its

rules for determining when one company controls another company for

purposes of the BHC Act.

The rule became effective

September 30, 2020. It has and will likely continue to have a meaningful impact on

control determinations related to investments

in banks and bank holding companies and investments by bank holding

companies in nonbank companies.

Under the CBCA, if an individual or a company that acquires 10% or more of any

class of voting securities of an insured

depository institution or its holding company and either that institution or

company has registered securities under Section 12 of

the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or no

other person will own a greater percentage of that

class of voting securities immediately after the acquisition, then that investor is presumed

to have control and may be required to

file a change in bank control notice with the institution’s

or the holding company’s primary

federal regulator. Our common

stock

is registered under Section 12 of the Exchange Act so we are subject to these rules.

As a financial holding company,

we are required to obtain prior approval from the Federal Reserve before (i) acquiring

all or

substantially all of the assets of a bank or bank holding company,

(ii) acquiring direct or indirect ownership or control of more

than 5% of the outstanding voting stock of any bank or bank holding company

(unless we own a majority of such bank’s voting

shares), or (iii) acquiring, merging or consolidating with

any other bank or bank holding company.

In determining whether to

approve a proposed bank acquisition, federal bank regulators will consider,

among other factors, the effect of the acquisition on

competition, the public benefits expected to be received from the acquisition,

the projected capital ratios and levels on a post-

acquisition basis, and the companies’ records of addressing the credit needs of

the communities they serve, including the needs of

low and moderate income neighborhoods, consistent with the safe and sound

operation of the bank, under the CRA.

Under Florida law,

a person or entity proposing to directly or indirectly acquire control of a Florida bank must

also obtain

permission from the Florida Office of Financial Regulation. The

Florida Statutes define “control” as either (i) indirectly or

directly owning, controlling or having power to vote 25% or more of the voting

securities of a bank; (ii) controlling the election of

a majority of directors of a bank; (iii) owning, controlling, or having power to vote 10%

or more of the voting securities as well as

directly or indirectly exercising a controlling influence over management

or policies of a bank; or (iv) as determined by the

Florida Office of Financial Regulation. These requirements

will affect us because the Bank is chartered under Florida law and

changes in control of CCBG are indirect changes in control of CCB.

Prohibitions Against Tying Arrangements

Banks are subject to the prohibitions on certain tying arrangements.

We are prohibited,

subject to some exceptions, from

extending credit to or offering any other service, or fixing or varying

the consideration for such extension of credit or service, on

the condition that the customer obtain some additional service from the institution

or its affiliates or not obtain services of a

competitor of the institution.

Capital; Dividends; Source of Strength

The Federal Reserve imposes certain capital requirements on financial

holding companies under the BHC Act, including a

minimum leverage ratio and a minimum ratio of “qualifying” capital to risk-weighted

assets. These requirements are described

below under “Capital Regulations.” Subject to these capital requirements

and certain other restrictions, we are generally able to

borrow money to make a capital contribution to CCB, and such loans may

be repaid from dividends paid from CCB to us. We

are

also able to raise capital for contributions to CCB by issuing securities without having

to receive regulatory approval, subject to

compliance with federal and state securities laws.

It is the Federal Reserve’s policy

that bank holding companies should generally pay dividends on common

stock only out of

income available over the past year,

and only if prospective earnings retention is consistent with the organization’s

expected

future needs and financial condition. It is also the Federal Reserve’s

policy that bank holding companies should not maintain

dividend levels that undermine their ability to be a source of strength to their banking

subsidiaries. Additionally,

the Federal

Reserve has indicated that bank holding companies should carefully review

their dividend policies and has discouraged payment

ratios that are at maximum allowable levels unless both asset quality and capital are

very strong. The Federal Reserve possesses

enforcement powers over bank holding companies and their non-bank subsidiaries

to prevent or remedy actions that represent

unsafe or unsound practices or violations of applicable statutes and regulations. Among

these powers is the ability to proscribe the

payment of dividends by banks and bank holding companies.

Bank holding companies are expected to consult with the Federal Reserve before

redeeming any equity or other capital instrument

included in Tier 1 or Tier

2 capital prior to stated maturity,

if such redemption could have a material effect on the level or

composition of the organization’s

capital base. In addition, a bank holding company may not repurchase shares equal

to 10% or

more of its net worth if it would not be well-capitalized (as defined by the Federal Reserve)

after giving effect to such repurchase.

Bank holding companies experiencing financial weaknesses, or that

are at significant risk of developing financial weaknesses,

must consult with the Federal Reserve before redeeming or repurchasing common

stock or other regulatory capital instruments.

In accordance with Federal Reserve policy,

which has been codified by the Dodd-Frank Act, we are expected to act as a source of

financial strength to CCB and to commit resources to support CCB in circumstances in

which we might not otherwise do so. In

furtherance of this policy,

the Federal Reserve may require a financial holding company to terminate any activity or

relinquish

control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon

the Federal Reserve’s determination

that such

activity or control constitutes a serious risk to the financial soundness or stability of

any subsidiary depository institution of the

financial holding company.

Further, federal bank regulatory authorities have

additional discretion to require a financial holding

company to divest itself of any bank or nonbank subsidiary if the agency determines

that divestiture may aid the depository

institution’s financial condition.

Safe and Sound Banking Practices

Bank holding companies and their nonbanking subsidiaries are prohibited

from engaging in activities that represent unsafe and

unsound banking practices or that constitute a violation of law or regulations.

Under certain conditions the Federal Reserve may

conclude that some actions of a bank holding company,

such as a payment of a cash dividend, would constitute an unsafe and

unsound banking practice. The Federal Reserve also has the authority

to regulate the debt of bank holding companies, including

the authority to impose interest rate ceilings and reserve requirements on such debt.

The Federal Reserve may also require a bank

holding company to file written notice and obtain its approval prior to purchasing

or redeeming its equity securities, unless certain

conditions are met.

Capital City Bank

Capital City Bank is a state-chartered commercial banking institution that is chartered

by and headquartered in the State of Florida

and is subject to supervision and regulation by the Florida Office of

Financial Regulation. The Florida Office of Financial

Regulation supervises and regulates all areas of our operations including,

without limitation, the making of loans, the issuance of

securities, the conduct of our corporate affairs, the satisfaction

of capital adequacy requirements, the payment of dividends, and

the establishment or closing of banking centers. We

are also a member bank of the Federal Reserve System, which makes our

operations subject to broad federal regulation and oversight by the Federal

Reserve. In addition, our deposit accounts are insured

by the FDIC up to the maximum extent permitted by law,

and the FDIC has certain supervisory enforcement powers over us.

As a Florida state-chartered bank, we are empowered by statute, subject to

the limitations contained in those statutes, to take and

pay interest on savings and time deposits, to accept demand deposits, to

make loans on residential and other real estate, to make

consumer and commercial loans, to invest (with certain limitations) in equity securities

and in debt obligations of banks and

corporations and to provide various other banking services for the benefit

of our clients. Various

consumer laws and regulations

also affect our operations, including state usury laws, laws relating to

fiduciaries, consumer credit and equal credit opportunity

laws, and fair credit reporting. In addition, the Federal Deposit Insurance Corporation

Improvement Act of 1991, or FDICIA,

prohibits insured state-chartered institutions from conducting activities as principal

that are not permitted for national banks. A

bank, however, may engage in certain otherwise

prohibited activity if it meets its minimum capital requirements and the FDIC

determines that the activity does not present a significant risk to the Deposit Insurance

Fund (“DIF”).

Safety and Soundness Standards / Risk Management

The federal banking agencies have adopted guidelines establishing

operational and managerial standards to promote the safety

and soundness of federally insured depository institutions. The guidelines

set forth standards for internal controls, information

systems, internal audit systems, loan documentation, credit underwriting,

interest rate exposure, asset growth, compensation, fees

and benefits, asset quality and earnings.

In general, the safety and soundness guidelines prescribe the goals to be achieved

in each area, and each institution is responsible

for establishing its own procedures to achieve those goals. If an institution fails to

comply with any of the standards set forth in

the guidelines, the financial institution’s

primary federal regulator may require the institution to submit a plan for

achieving and

maintaining compliance. If a financial institution fails to submit an acceptable

compliance plan or fails in any material respect to

implement a compliance plan that has been accepted by its primary federal

regulator, the regulator is required to issue an order

directing the institution to cure the deficiency.

Until the deficiency cited in the regulator’s order is cured, the regulator

may

restrict the financial institution’s

rate of growth, require the financial institution to increase its capital, restrict the

rates the

institution pays on deposits or require the institution to take any action

the regulator deems appropriate under the circumstances.

Noncompliance with the standards established by the safety and soundness guidelines

may also constitute grounds for other

enforcement action by the federal bank regulatory agencies, including

cease and desist orders and civil money penalty

assessments.

The bank regulatory agencies have increasingly emphasized the importance

of sound risk management processes and strong

internal controls when evaluating the activities of the financial institutions they

supervise. Properly managing risks has been

identified as critical to the conduct of safe and sound banking activities and has

become even more important as new

technologies, product innovation and the size and speed of financial transactions have

changed the nature of banking markets. The

agencies have identified a spectrum of risks facing a banking institution including,

but not limited to, credit, market, liquidity,

operational, legal and reputational risk. In particular,

recent regulatory pronouncements have focused on operational risk, which

arises from the potential that inadequate information systems, operational problems,

breaches in internal controls, fraud or

unforeseen catastrophes will result in unexpected losses. New products and services,

third party risk management and

cybersecurity are critical sources of operational risk that financial institutions are expected

to address in the current environment.

The Bank is expected to have active board and senior management oversight; adequate

policies, procedures and limits; adequate

risk measurement, monitoring and management information systems; and

comprehensive internal controls.

Reserves

The Federal Reserve requires all depository institutions to maintain reserves

against transaction accounts (noninterest bearing and

NOW checking accounts). The balances maintained to meet the reserve requirements

imposed by the Federal Reserve may be

used to satisfy liquidity requirements. An institution may borrow from

the Federal Reserve Bank “discount window” as a

secondary source of funds, provided that the institution meets the Federal Reserve

Bank’s credit standards.

Dividends

CCB is subject to legal limitations on the frequency and amount of dividends

that can be paid to CCBG. The Federal Reserve may

restrict the ability of CCB to pay dividends if such payments would constitute an

unsafe or unsound banking practice.

Additionally, financial

institutions are now required to maintain a capital conservation buffer

of at least 2.5% of risk-weighted

assets in order to avoid restrictions on capital distributions and other payments.

If a financial institution’s capital conservation

buffer falls below the minimum requirement, its maximum payout

amount for capital distributions and discretionary payments

declines to a set percentage of eligible retained income based on the size of the

buffer. See “Capital Regulations” below

for

additional details on this capital requirement.

In addition, Florida law and Federal regulation place restrictions on the declaration

of dividends from state-chartered banks to

their holding companies. Under the Florida Financial Institutions Code,

the board of directors of a state-chartered bank, after it

charges off bad debts, depreciation and other

worthless assets, if any, and makes provisions

for reasonably anticipated future

losses on loans and other assets, may quarterly,

semi-annually or annually declare a dividend of up to the aggregate net profits of

that period combined with the bank’s

retained net profits for the preceding two years. In addition, with the approval of the Florida

Office of Financial Regulation and Federal Reserve,

the bank’s board of directors may declare a

dividend from retained net

profits which accrued prior to the preceding two years. Before declaring such dividends,

20% of the net profits for the preceding

period as is covered by the dividend must be transferred to the surplus fund of the

bank until this fund becomes equal to the

amount of the bank’s common stock

then issued and outstanding. However, a Florida

state-chartered bank may not declare any

dividend if (i) its net income (loss) from the current year combined with the retained net

income (loss) for the preceding two years

aggregates a loss or (ii) the payment of such dividend would cause the capital account

of the bank to fall below the minimum

amount required by law, regulation,

order or any written agreement with the Florida Office of Financial

Regulation or a federal

regulatory agency.

Under Federal Reserve regulations, a state member bank may,

without the prior approval of the Federal

Reserve, pay a dividend in an amount that, when taken together with all dividends

declared during the calendar year, does not

exceed the sum of the bank’s net income

during the current calendar year and the retained net income of the prior

two calendar

years. The Federal Reserve may approve greater amounts.

Insurance of Accounts and Other Assessments

Deposits at U.S. domiciled banks are insured by the FDIC, subject to limits and conditions of

applicable laws and regulations.

Our deposit accounts are insured by the DIF generally up to a maximum of

$250,000 per separately insured depositor.

In order to

fund the DIF,

all insured depository institutions are required to pay quarterly assessments to

the FDIC that are based on an

institutions assignment to one of four risk categories based on supervisory

evaluations, regulatory capital levels and certain other

factors. The FDIC has the discretion to adjust an institution’s

risk rating and may terminate its insurance of deposits upon a

finding that the institution engaged or is engaging in unsafe and unsound practices,

is in an unsafe or unsound condition to

continue operations, or violated any applicable law,

regulation, rule, order or condition imposed by the FDIC or written

agreement entered into with the FDIC. The FDIC may also prohibit any FDIC-insured

institution from engaging in any activity it

determines to pose a serious risk to the DIF.

In October 2022, the FDIC finalized a rule to increase the initial base deposit insurance

assessment rate schedules uniformly by 2

basis points beginning with the first quarterly assessment period of 2023. The increased

assessment is intended to improve the

likelihood that the DIF reserve ratio would reach the statutory minimum of 1.35%

by the statutory deadline of September 30,

2028 prescribed under the FDIC’s amended

restoration plan. In November 2023, the FDIC adopted a final rule with respect to a

special assessment to recover the costs associated with protecting uninsured

depositors following the closures of Silicon Valley

Bank and Signature Bank. The final rule does not apply to any banking organization

with less than $5 billion in total consolidated

assets and therefore the special assessment is not expected to impact the Company.

Transactions with Affiliates and

Insiders

Pursuant to Sections 23A and 23B of the Federal Reserve Act and Regulation

W, the authority

of CCB to engage in transactions

with related parties or “affiliates” or to make loans to insiders is limited. Loan

transactions with an affiliate generally must be

collateralized and certain transactions between CCB and its affiliates,

including the sale of assets, the payment of money or the

provision of services, must be on terms and conditions that are substantially the same,

or at least as favorable to CCB, as those

prevailing for comparable nonaffiliated transactions. In

addition, CCB generally may not purchase securities issued or

underwritten by affiliates.

Loans to executive officers and directors of an insured depository institution

or any of its affiliates or to any person who directly

or indirectly, or acting

through or in concert with one or more persons, owns, controls or has the power

to vote more than 10% of

any class of voting securities of a bank, which we refer to as “10% Shareowners,”

or to any political or campaign committee the

funds or services of which will benefit those executive officers, directors,

or 10% Shareowners or which is controlled by those

executive officers, directors or 10% Shareowners, are subject to Sections

22(g) and 22(h) of the Federal Reserve Act and the

corresponding regulations (Regulation O) and Section 13(k) of the

Exchange Act relating to the prohibition on personal loans to

executives (which exempts financial institutions in compliance with the insider

lending restrictions of Section 22(h) of the Federal

Reserve Act). Among other things, these loans must be made on terms substantially

the same as those prevailing on transactions

made to unaffiliated individuals and certain extensions of

credit to those persons must first be approved in advance by a

disinterested majority of the entire board of directors. Section 22(h) of the Federal

Reserve Act prohibits loans to any of those

individuals where the aggregate amount exceeds an amount equal to

15% of an institution’s unimpaired

capital and surplus plus

an additional 10% of unimpaired capital and surplus in the case of loans that are fully

secured by readily marketable collateral, or

when the aggregate amount on all of the extensions of credit outstanding

to all of these persons would exceed our unimpaired

capital and unimpaired surplus. Section 22(g) identifies limited circumstances

in which we are permitted to extend credit to

executive officers.

Community Reinvestment Act

The CRA and its corresponding regulations are intended to encourage banks to

help meet the credit needs of the communities

they serve, including low- and moderate-income (“LMI”) neighborhoods,

consistent with safe and sound banking practices. These

regulations provide for regulatory assessment of a bank’s

record in meeting the credit needs of its market area. Federal banking

agencies are required to publicly disclose each bank’s

rating under the CRA. The Federal Reserve considers a bank’s

CRA rating

when the bank submits an application to establish bank branches, merge

with another bank, or acquire the assets and assume the

liabilities of another bank. In the case of a financial holding company,

the CRA performance record of all banks involved in a

merger or acquisition are reviewed in connection with

the application to acquire ownership or control of shares or assets of a bank

or to merge with another bank or bank holding company.

An unsatisfactory record can substantially delay or block the

transaction. We

received a satisfactory rating on our most recent CRA assessment.

In October 2023, the Federal Reserve, along with the FDIC and OCC, issued a joint final

rule that made significant amendments

to the regulations implementing the CRA to “strengthen and modernize”

those regulations, including by creating rigorous data-

driven performance tests and growing the geographic areas in which

a bank’s CRA performance may be

evaluated. The final rules

are intended to achieve the following key goals, among others: strengthen

the achievement of the core purpose of the CRA;

encourage banks to expand access to credit, investment, and banking services

in LMI communities; adapt to changes in the

banking industry, including

internet and mobile banking; provide greater clarity and consistency in the application

of the CR

regulations; and tailor CRA evaluations and data collection to bank size and

type. Although the effective date of the final rule is

April 1, 2024, the compliance date for the majority of the rule’s

provisions is January 1, 2026. The remaining requirements,

including the data reporting requirements, will be applicable on January 1, 2027.

We are planning for

compliance with the final

rules and continue to evaluate the impact of the final rules to our financial condition,

results of operations, and liquidity,

which

cannot be predicted at this time.

Capital Regulations

The federal banking regulators have adopted rules implementing

risk-based, capital adequacy guidelines for financial holding

companies and their subsidiary banks based on the Basel III standards. Under these

guidelines, assets and off-balance sheet items

are assigned to specific risk categories each with designated risk weightings.

These risk-based capital guidelines were designed to

make regulatory capital requirements more sensitive to differences

in risk profiles among banks and bank holding companies, to

account for off-balance sheet exposure, to minimize disincentives

for holding liquid assets, and to achieve greater consistency in

evaluating the capital adequacy of major banks throughout the world.

The resulting capital ratios represent capital as a percentage

of total risk-weighted assets and off-balance sheet items.

In computing total risk-weighted assets, bank and bank holding company

assets are given risk-weights of 0%, 20%, 50%, 100%

and 150%. In addition, certain off-balance sheet items are given similar

credit conversion factors to convert them to asset

equivalent amounts to which an appropriate risk-weight will apply.

Most loans will be assigned to the 100% risk category,

except

for performing first mortgage loans fully secured by 1-to-4 family and

certain multi-family residential property,

which carry a

50% risk rating. Most investment securities (including, primarily,

general obligation claims on states or other political

subdivisions of the United States) will be assigned to the 20% category,

except for municipal or state revenue bonds, which have

a 50% risk-weight, and direct obligations of the U.S. Treasury

or obligations backed by the full faith and credit of the U.S.

Government, which have a 0% risk-weight. In covering off

-balance sheet items, direct credit substitutes, including general

guarantees and standby letters of credit backing financial obligations, are

given a 100% conversion factor. Transaction

-related

contingencies such as bid bonds, standby letters of credit backing nonfinancial

obligations, and undrawn commitments (including

commercial credit lines with an initial maturity of more than one year) have a

50% conversion factor. Short-term

commercial

letters of credit are converted at 20% and certain short-term unconditionally

cancelable commitments have a 0% factor.

The rules implement strict eligibility criteria for regulatory capital instruments

and improve the methodology for calculating risk-

weighted assets to enhance risk sensitivity.

Consistent with the international Basel III framework, the rules include

a minimum

ratio of Common Equity Tier 1 Capital to Risk-Weighted

Assets of 4.5%. The rules provide for a Common Equity Tier

1 Capital

conservation buffer of 2.5% of risk-weighted assets. This buffer

is added to each of the three risk-based capital ratios to determine

whether an institution has established the buffer.

The rules provide for a minimum ratio of Tier 1 Capital to Risk-Weighted

Assets

of 6% and include a minimum leverage ratio of 4% for all banking organizations.

If a financial institution’s capital conservation

buffer falls below 2.5% (e.g., if the institution’s

Common Equity Tier 1 Capital to Risk-Weighted

Assets is less than 7.0%), then

capital distributions and discretionary payments will be limited or prohibited

based on the size of the institution’s buffer.

The

types of payments subject to this limitation include dividends, share buybacks,

discretionary payments on Tier 1 instruments,

and

discretionary bonus payments.

The capital regulations may also impact the treatment of accumulated

other comprehensive income (“AOCI”) for regulatory

capital purposes. AOCI generally flows through to regulatory capital; however,

community banks and their holding companies

were allowed a one-time irrevocable opt-out election to continue

to treat AOCI the same as under the old regulations for

regulatory capital purposes. This election was required to be made on the first call

report or bank holding company annual report

(on form FR Y-9C)

filed after January 1, 2015. We

made the opt-out election. Additionally,

the rules also permitted community

banks with less than $15 billion in total assets to continue to count certain non

-qualifying capital instruments issued prior to May

19, 2010, as Tier 1 capital, including trust preferred

securities and cumulative perpetual preferred stock (subject to a limit of 25%

of Tier 1 capital). However,

non-qualifying capital instruments issued on or after May 19, 2010, would not

qualify for Tier 1

capital treatment.

Commercial Real Estate Concentration Guidelines

The federal banking regulators have implemented guidelines to address increased

concentrations in commercial real estate loans.

These guidelines describe the criteria regulatory agencies will use as indicators to

identify institutions potentially exposed to

commercial real estate concentration risk. An institution that has (i) experienced

rapid growth in commercial real estate lending,

(ii) notable exposure to a specific type of

commercial real estate, (iii) total reported loans for construction, land development,

and

other land representing 100% or more of total risk-based capital, or (iv)

total commercial real estate (including construction) loans

representing 300% or more of total risk-based capital and the outstanding

balance of the institutions commercial real estate

portfolio has increased by 50% or more in the prior 36 months, may be identified for

further supervisory analysis of a potential

concentration risk.

At December 31, 2023, CCB’s ratio of

construction, land development and other land loans to total risk-based

capital was 77%,

its ratio of total commercial real estate loans to total risk-based capital was 235%

and, therefore, CCB was under the 100% and

300% thresholds, respectively,

set forth in clauses (iii) and (iv) above.

As a result, we are not deemed to have a concentration in

commercial real estate lending under applicable regulatory guidelines.

Prompt Corrective Action

The federal banking agencies are required to take “prompt corrective

action” with respect to financial institutions that do not meet

minimum capital requirements. The law establishes five categories for

this purpose: “well-capitalized,” “adequately capitalized,”

“undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.”

To be considered “well-capitalized,”

insured depository institution must maintain minimum capital ratios and

must not be subject to any order or written directive to

meet and maintain a specific capital level for any capital measure. An institution

that fails to remain well-capitalized becomes

subject to a series of restrictions that increase in severity as its capital condition weakens. Such

restrictions may include a

prohibition on capital distributions, restrictions on asset growth or restrictions

on the ability to receive regulatory approval of

applications. The regulations apply only to banks and not to BHCs. However,

the Federal Reserve is authorized to take

appropriate action at the holding company level based on the undercapitalized

status of the holding company’s subsidiary

banking

institutions. In certain instances relating to an undercapitalized banking

institution, the BHC would be required to guarantee the

performance of the undercapitalized subsidiary’s

capital restoration plan and could be liable for civil money damages for failure

to fulfill those guarantee commitments.

In addition, failure to meet capital requirements may cause an institution to

be directed to raise additional capital. Federal law

further mandates that the agencies adopt safety and soundness standards generally

relating to operations and management, asset

quality and executive compensation, and authorizes administrative action

against an institution that fails to meet such standards.

Failure to meet capital guidelines may subject a banking organization

to a variety of other enforcement remedies, including

additional substantial restrictions on its operations and activities, termination of

deposit insurance by the FDIC and, under certain

conditions, the appointment of a conservator or receiver.

At December 31, 2023, we exceeded the requirements contained in the applicable

regulations, policies and directives pertaining to

capital adequacy to be classified as “well capitalized” and are unaware

of any material violation or alleged violation of these

regulations, policies or directives (see table below). Rapid growth, poor loan

portfolio performance, or poor earnings

performance, or a combination of these factors, could change our capital position

in a relatively short period of time, making

additional capital infusions necessary.

Our capital ratios can be found in Note 17 to the Notes to our Consolidated Financial

Statements.

Interstate Banking and Branching

The Dodd-Frank Act relaxed interstate branching restrictions by modifying

the federal statute governing de novo interstate

branching by state member banks. Consequently,

a state member bank may open its initial branch in a state outside of the bank’s

home state by way of an interstate bank branch, so long as a bank chartered under the

laws of that state would be permitted to

open a branch at that location.

Anti-money Laundering

The Uniting and Strengthening America by Providing Appropriate Tools

Required to Intercept and Obstruct Terrorism

Act of

2001 (the “USA Patriot Act”), provides the federal government with additional

powers to address terrorist threats through

enhanced domestic security measures, expanded surveillance powers,

increased information sharing and broadened anti-money

laundering requirements. By way of amendments to the Bank Secrecy

Act (the “BSA”), the USA Patriot Act puts in place

measures intended to encourage information sharing among bank regulatory

and law enforcement agencies. In addition, certain

provisions of the USA Patriot Act impose affirmative obligations

on a broad range of financial institutions.

The USA Patriot Act, BSA, and the related federal regulations require banks

to establish anti-money laundering programs that

include policies, procedures and controls to detect, prevent and report

money laundering and terrorist financing and to verify the

identity of their customers and of beneficial owners of their legal entity customers.

The Anti-Money Laundering Act (“AMLA”), which amends the BSA, was enacted in

early 2021. The AMLA is intended to be a

comprehensive reform and modernization of U.S. bank

secrecy and anti-money laundering laws. In particular,

it codifies a risk-

based approach to anti-money laundering compliance for financial institutions,

requires the U.S. Department of the Treasury to

promulgate priorities for anti-money laundering and countering the

financing of terrorism policy,

requires the development of

standards for testing technology and internal processes for BSA compliance,

expands enforcement-

and investigation-related

authority (including increasing available sanctions for certain BSA violations),

and expands BSA whistleblower incentives and

protections.

Many AMLA provisions require additional rulemakings, reports, and

other measures, and the impact of the AMLA will depend

on, among other things, rulemaking and implementation guidance.

In June 2021, the Financial Crimes Enforcement Network, a

bureau of the U.S. Department of the Treasury,

issued the priorities for anti-money laundering and countering the financing of

terrorism policy required under the AMLA. The priorities include corruption,

cybercrime, terrorist financing, fraud, transnational

crime, drug trafficking, human trafficking

and proliferation financing.

There is also increased scrutiny of compliance with the sanctions programs

and rules administered and enforced by the Office of

Foreign Assets Control of the U.S. Department of Treasury,

or “OFAC.” OFAC

administers and enforces economic and trade

sanctions against targeted foreign countries and regimes, terrorists, international

narcotics traffickers, those engaged in activities

related to the proliferation of weapons of mass destruction, and other threats to

the national security, foreign

policy or economy of

the United States, based on U.S. foreign policy and national security goals.

OFAC issues regulations

that restrict transactions by

U.S. persons or entities (including banks), located in the U.S. or abroad,

with certain foreign countries, their nationals or

“specially designated nationals.” OFAC

regularly publishes listings of foreign countries and designated

nationals that are

prohibited from conducting business with any U.S. entity or individual. While OFAC

is responsible for promulgating, developing

and administering these controls and sanctions, all of the bank regulatory

agencies are responsible for ensuring that financial

institutions comply with these regulations.

Privacy

A variety of federal and state privacy laws govern the collection, safeguarding, sharing

and use of customer information, and

require that financial institutions have policies regarding information privacy

and security. The GLBA and related

regulations

require banks and their affiliated companies to adopt and disclose

privacy policies, including policies regarding the sharing of

personal information with third parties. Some state laws also protect the privacy of

information of state residents and require

adequate security of such data, and certain state laws may require us to notify

affected individuals of security breaches of

computer databases that contain their personal information. These laws may

also require us to notify law enforcement, regulators

or consumer reporting agencies in the event of a data breach, as well as businesses and

governmental agencies that own data.

Cybersecurity

The federal banking regulators regularly issue new guidance and standards,

and update existing guidance and standards, regarding

cybersecurity intended to enhance cyber risk management among financial

institutions. Financial institutions are expected to

comply with such guidance and standards and to accordingly develop appropriate

security controls and risk management

processes. If we fail to observe such regulatory guidance or standards, we

could be subject to various regulatory sanctions,

including financial penalties. In 2023, the SEC issued a final rule that requires

disclosure of material cybersecurity incidents, as

well as cybersecurity risk management, strategy and governance. Under

this rule, banking organizations that are SEC registrants

must generally disclose information about a material cybersecurity incident

within four business days of determining it is material

with periodic updates as to the status of the incident in subsequent filings,

as necessary.

Under a final rule adopted by federal banking agencies in 2021, banking organizations

are required to notify their primary

banking regulator within 36 hours of determining that a “computer-security

incident” has materially disrupted or degraded, or is

reasonably likely to materially disrupt or degrade, the banking organization’s

ability to carry out banking operations or deliver

banking products and services to a material portion of its customer base,

its businesses and operations that would result in

material loss, or its operations that would impact the stability of the United States.

State regulators have also been increasingly active in implementing privacy

and cybersecurity standards and regulations.

Recently, several states have

adopted regulations requiring certain financial institutions to implement

cybersecurity programs and

many states have also recently implemented or modified their data breach

notification, information security and data privacy

requirements. We

expect this trend of state-level activity in those areas to continue and are continually

monitoring developments

in the states in which our customers are located.

Risks and exposures related to cybersecurity attacks, including litigation

and enforcement risks, are expected to be elevated for

the foreseeable future due to the rapidly evolving nature and sophistication of

these threats, as well as due to the expanding use of

internet banking, mobile banking, and other technology-based products

and services by us and our customers.

See Item 1A. Risk Factors for a further discussion of risks related to cybersecurity

and Item 1C. Cybersecurity for a further

discussion of risk management strategies and governance processes related to

cybersecurity.

Overdraft Fee Regulation

The Electronic Fund Transfer Act prohibits

financial institutions from charging consumers fees for paying overdrafts

automated teller machines, or ATM,

and one-time debit card transactions, unless a consumer consents, or opts

in, to the overdraft

service for those type of transactions.

If a consumer does not opt in, any ATM

transaction or debit that overdraws the consumer’s

account will be denied.

Overdrafts on the payment of checks and regular electronic bill payments are not covered

by this rule.

Before opting in, the consumer must be provided a notice that explains the financial

institution’s overdraft services,

including the

fees associated with the service, and the consumer’s choices.

Financial institutions must provide consumers who do not opt in

with the same account terms, conditions and features (including pricing)

that they provide to consumers who do opt in.

Consumer Laws and Regulations

CCB is also subject to other federal and state consumer laws and regulations that

are designed to protect consumers in

transactions with banks. While the list set forth below is not exhaustive,

these laws and regulations include the Truth in Lending

Act, the Truth in Savings Act, the Electronic Fund

Transfer Act, the Expedited Funds Availability

Act, the Check Clearing for the

21st Century Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the

Equal Credit Opportunity Act, the

Fair Housing Act, the Home Mortgage Disclosure Act, the Fair and

Accurate Credit Transactions Act, the Mortgage Disclosure

Improvement Act, and the Real Estate Settlement Procedures Act, among

others. These laws and regulations mandate certain

disclosures and regulate the manner in which financial institutions must deal

with clients when taking deposits or making loans to

clients. CCB must comply with these consumer protection laws and regulations as part

of its ongoing client relations.

In addition, the Consumer Financial Protection Bureau (“CFPB”) issues regulations

and standards under these federal consumer

protection laws that affect our consumer businesses. These

include regulations setting “ability to repay” standards for residential

mortgage loans and mortgage loan servicing and originator compensation

standards, which generally require creditors to make a

reasonable, good faith determination of a consumer’s ability

to repay any consumer credit transaction secured by a dwelling

(excluding an open-end credit plan, timeshare plan, reverse mortgage,

or temporary loan) and establishes certain protections from

liability under this requirement for loans that meet the requirements of the “qualified

mortgage” safe harbor. Also, the more

recent

TILA-RESPA

Integrated Disclosure, or TRID, rules for mortgage closings have

impacted our loan applications. These rules,

including the required loan forms, generally increased the time it takes to approve

mortgage loans.

Future Legislative Developments

Various

bills are from time to time introduced in the U.S. Congress and the Florida legislature.

This legislation may change

banking and tax statutes and the environment in which our banking subsidiary

and we operate in substantial and unpredictable

ways. We cannot

determine the ultimate effect that potential legislation, if enacted, or

implementing regulations with respect

thereto, would have upon our financial condition or results of operations or

that of our banking subsidiary.

Legislative and Regulatory Responses to the COVID-19 Pandemic

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, which came

into law in 2020, was a $2.2 trillion

economic stimulus bill that was intended to provide relief in response to the

COVID-19 pandemic. The CARES Act, among other

things, amended the SBA’s

loan program, in which the Bank participates, to create a guaranteed,

unsecured loan program (the

“PPP”) to fund operational costs of eligible businesses, organizations

and self-employed persons during COVID-19. The PPP

authorized financial institutions to make federally guaranteed loans to

qualifying small businesses and non-profit organizations.

These loans carry an interest rate of 1% per annum and a maturity of two years for loans

originated prior to June 5, 2020 and five

years for loans originated on or after June 5, 2020. The PPP provides that

such loans may be forgiven if the borrowers meet

certain requirements with respect to maintaining employee headcount

and payroll and the use of the loan proceeds after the loan is

originated. Although the PPP ended in accordance with its terms on May 31,

2021, outstanding PPP loans continue to go through

the process of either obtaining forgiveness from the SBA or pursuing

claims under the SBA guaranty.

There have also been a number of regulatory actions intended to help mitigate the adverse economic

impact of the COVID-19

pandemic on borrowers, including several mandates from the bank regulatory

agencies, requiring financial institutions to work

constructively with borrowers affected by the COVID-19

pandemic.

While these programs have generally expired, governmental

authorities may take additional actions in the future to limit the adverse impacts of

COVID-19 that may affect the Bank and its

clients.

Effect of Governmental Monetary Policies

The commercial banking business is affected not only by general

economic conditions, but also by the monetary policies of the

Federal Reserve. Changes in the discount rate on member bank borrowing,

availability of borrowing at the “discount window,”

open market operations, changes in the Fed Funds target

interest rate, changes in interest rates payable on reserve accounts, the

imposition of changes in reserve requirements against member banks’ deposits

and assets of foreign banking centers and the

imposition of and changes in reserve requirements against certain borrowings

by banks and their affiliates are some of the

instruments of monetary policy available to the Federal Reserve. These monetary

policies are used in varying combinations to

influence overall growth and distributions of bank loans, investments and deposits,

which may affect interest rates charged on

loans or paid on deposits. The monetary policies of the Federal Reserve have

had a significant effect on the operating results of

commercial banks and are expected to continue to do so in the future. The

Federal Reserve’s policies are primarily

influenced by

its dual mandate of price stability and full employment, and, to a lesser degree by

short-term and long-term changes in the

international trade balance and in the fiscal policies of the U.S. Government. Future

changes in monetary policy and the effect of

such changes on our business and earnings in the future cannot be predicted.

Website Access to Company’s

Reports

Our Internet website is www.ccbg.com.

Our annual reports on Form 10-K, quarterly reports on Form 10-Q,

current reports on

Form 8-K, including any amendments to those reports filed or furnished pursuant

to section 13(a) or 15(d), and reports filed

pursuant to Section 16, 13(d), and 13(g) of the Exchange Act are available

free of charge through our website as soon as

reasonably practicable after they are electronically filed with, or furnished

to, the Securities and Exchange Commission.

The

information on our website is not incorporated by reference into this report.

Item 1A.

Risk Factors

An investment in our common stock contains a high degree

of risk. You should

consider carefully the following risk factors before

deciding whether to invest in our common stock. Our business, including our operating

results and financial condition, could be

harmed by any of these risks. Additional risks and uncertainties not currently

known to us or that we currently deem to be

immaterial also may materially and adversely affect our business. The trading

price of our common stock could decline due to

any of these risks, and you may lose all or part of your investment. In assessing these risks, you

should also refer to the other

information contained in our filings with the SEC, including our financial

statements and related notes.

Market Risks

We may incur losses if we are

unable to successfully manage interest rate risk.

Our profitability depends to a large extent on Capital City Bank’s

net interest income, which is the difference between income on

interest-earning assets, such as loans and investment securities, and

expense on interest-bearing liabilities such as deposits and

borrowings. We

are unable to predict changes in market interest rates, which are affected

by many factors beyond our control,

including inflation, recession, unemployment, federal funds target

rate, money supply, domestic and

international events and

changes in the United States and other financial markets. Our net interest income

may be reduced if: (i) more interest-earning

assets than interest-bearing liabilities reprice or mature during a time when

interest rates are declining or (ii) more interest-bearing

liabilities than interest-earning assets reprice or mature during a time when

interest rates are rising.

Changes in the difference between short-term

and long-term interest rates may also harm our business. We

generally use short-

term deposits to fund longer-term assets. When interest rates change,

assets and liabilities with shorter terms reprice more quickly

than those with longer terms, which could have a material adverse effect

on our net interest margin. During 2022 and 2023, the

Federal Reserve raised the federal funds rate 11

times for a cumulative increase of 5.25% and there is no guarantee that it will

reduce the federal funds rate in the near-term.

Prior to 2022, the Federal Reserve had not raised the federal funds rate since

December 2018. The increase in the federal funds rate could have an

adverse effect on our net interest income and profitability.

market interest rates start rising again, interest rate adjustment caps may also limit

increases in the interest rates on adjustable-rate

loans, which could further reduce our net interest income. Further,

increased price competition for deposits resulting from the

return to a historically normal interest rate environment could adversely

affect our net interest margin.

Although we continuously monitor interest rates and have a number

of tools to manage our interest rate risk exposure, changes in

market assumptions regarding future interest rates could significantly impact our

interest rate risk strategy, our financial

position

and results of operations. If we do not properly monitor our interest rate risk management

strategies, these activities may not

effectively mitigate our interest rate sensitivity or have the desired

impact on our results of operations or financial condition.

Interest rates and economic conditions affect consumer

demand for housing and can create volatility in the mortgage industry.

These risks can have a material impact on the volume of mortgage originations

and refinancings, adversely affecting mortgage

banking revenues and the profitability of our mortgage banking business.

See Item 7.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations under the section captioned

“Net Interest Income” and “Market Risk and Interest Rate Sensitivity” elsewhere

in this report for further discussion related to

interest rate sensitivity and our management of interest rate risk.

The fair value of our investments could decline which would cause a reduction

in shareowners’ equity.

A portion of our investment securities portfolio (35.1%) at December

31, 2023 has been designated as available-for-sale pursuant

to U.S. generally accepted accounting principles relating to accounting for

investments. Such principles require that unrealized

gains and losses in the estimated value of the available-for-sale

portfolio be “marked to market” and reflected as a separate item in

shareowners’ equity (net of tax) as accumulated other comprehensive

income/losses. Shareowners’ equity will continue to reflect

the unrealized gains and losses (net of tax) of these investments. The fair value

of our investment portfolio may decline, causing a

corresponding decline in shareowners’ equity.

Management believes that several factors will affect the

fair values of our investment portfolio. These include, but are not limited

to, changes in interest rates or expectations of changes in interest rates, the degree

of volatility in the securities markets, inflation

rates or expectations of inflation and the slope of the interest rate yield curve

(the yield curve refers to the differences between

short-term and long-term interest rates; a positively sloped yield curve means short

-term rates are lower than long-term rates).

These and other factors may impact specific categories of the portfolio differently,

and we cannot predict the effect these factors

may have on any specific category.

Inflationary pressures and rising prices may

affect our results of operations and financial condition.

Inflation rose sharply at the end of 2021 and continued rising in 2022 at levels not

seen for over 40 years. Inflationary pressures

eased but remained elevated throughout 2023. Small to medium-sized

businesses may be impacted more during periods of high

inflation as they are not able to leverage economies of scale to mitigate cost pressures compared

to larger businesses.

Consequently, the

ability of our business customers to repay their loans may deteriorate, and in some cases this deterioration

may

occur quickly,

which would adversely impact our results of operations and financial condition. Furthermore,

a prolonged period

of inflation could cause wages and other costs to further increase which could

adversely affect our results of operations and

financial condition. Sustained higher interest rates by the Federal Reserve may

be needed to tame persistent inflationary price

pressures, which could push down asset prices and weaken economic

activity. A deterioration in economic

conditions in the

United States and our markets could result in an increase in loan delinquencies

and non-performing assets, decreases in loan

collateral values and a decrease in demand for our products and services, all of

which, in turn, would adversely affect our

business, financial condition and results of operations.

The impact of interest rates on our mortgage banking business can

have a significant impact on revenues.

Changes in interest rates can impact our mortgage-related revenues and net revenues

associated with our mortgage activities.

decline in mortgage rates generally increases the demand for mortgage loans

as borrowers refinance, but also generally leads to

accelerated payoffs. Conversely,

in a constant or increasing rate environment, we would expect fewer loans to be refinanced

and a

decline in payoffs. Although we use models to assess the impact

of interest rates on mortgage-related revenues, the estimates of

revenues produced by these models are dependent on estimates and assumptions

of future loan demand, prepayment speeds and

other factors which may differ from actual subsequent

experience.

Our profitability depends significantly on economic

conditions in the States of Florida and Georgia.

Our profitability and the success of our business depends substantially on the general

economic conditions of the States of Florida

and, to a lesser extent, Georgia, as well as the specific local markets in

which we operate. Unlike larger national or other regional

banks that are more geographically diversified, we provide banking

and financial services primarily to customers across northern

Florida and Georgia. The local economic conditions in

these areas have a significant impact on the demand for our products and

services as well as the ability of our customers to repay loans, the value of the

collateral securing loans and the stability of our

deposit funding sources. As a result, a significant decline in general economic

conditions in Florida or Georgia, whether caused

by recession, inflation, unemployment, in-flows and out-flows of residents,

shifts in political landscape, changes in securities

markets, acts of terrorism, pandemics, natural disasters, climate change,

outbreak of hostilities or other occurrences or other

factors could have a material adverse effect on our business, financial

condition and results of operations.

Shares of our common stock are not an insured

deposit and may lose value.

The shares of our common stock are not a bank deposit and will not be insured or

guaranteed by the FDIC or any other

government agency.

Your

investment will be subject to investment risk, and you must be capable of affording the

loss of your

entire investment.

Limited trading activity for shares of our common stock may

contribute to price volatility.

While our common stock is listed and traded on the Nasdaq Global Select Market,

there has historically been limited trading

activity in our common stock.

The average daily trading volume of our common stock over the 12-month

period ending

December 31, 2023 was approximately 33,775 shares. Due to the limited

trading activity of our common stock, relativity small

trades may have a significant impact on the price of our common stock.

Similarly, significant sales of our common

stock, or the

expectation of these sales, could cause our stock prices to fall.

Securities analysts may not initiate coverage or continue to cover our common

stock, and this may have a negative impact

on its market price.

The trading market for our common stock will depend in part on the research

and reports that securities analysts publish about us

and our business. We do

not have any control over securities analysts, and they may not initiate coverage

or continue to cover our

common stock. If securities analysts do not cover our common stock, the lack

of research coverage may adversely affect its

market price. If we are covered by securities analysts, and our common stock is the subject of

an unfavorable report, our stock

price would likely decline. If one or more of these analysts ceases to cover our Company

or fails to publish regular reports on us,

we could lose visibility in the financial markets, which may cause our

stock price or trading volume to decline.

Credit Risks

Our loan portfolio includes loans with a higher risk of loss which could lead to higher loan

losses and nonperforming

assets.

We originate

commercial real estate loans, commercial loans, construction loans, vacant land

loans, consumer loans, and

residential mortgage loans primarily within our market area. Commercial

real estate, commercial, construction, vacant land, and

consumer loans may expose a lender to greater credit risk than traditional

fixed-rate fully amortizing loans secured by single-

family residential real estate because the collateral securing these loans may

not be sold as easily as single-family residential real

estate. In addition, these loan types tend to involve larger loan balances

to a single borrower or groups of related borrowers and

are more susceptible to a risk of loss during a downturn in the business cycle. These

loans also have historically had greater credit

risk than other loans for the following reasons:

●

Commercial Real Estate Loans

. Repayment is dependent on income being generated in amounts sufficient

to cover

operating expenses and debt service. These loans also involve greater risk because

they are generally not fully amortizing

over the loan period, but rather have a balloon payment due at maturity.

A borrower’s ability to make a balloon payment

typically will depend on the borrower’s ability to either refinance

the loan or timely sell the underlying property.

December 31, 2023, commercial mortgage loans comprised approximately

30.2% of our total loan portfolio.

●

Commercial Loans

. Repayment is generally dependent upon the successful operation of the borrower’s

business. In

addition, the collateral securing the loans may depreciate over time, be

difficult to appraise, be illiquid, or fluctuate in

value based on the success of the business. At December 31, 2023, commercial

loans comprised approximately 8.2% of

our total loan portfolio.

●

Construction Loans

. The risk of loss is largely dependent on our initial estimate of whether

the property’s value at

completion equals or exceeds the cost of property construction and the availability

of take-out financing. During the

construction phase, a number of factors can result in delays or cost overruns. If

our estimate is inaccurate or if actual

construction costs exceed estimates, the value of the property securing our

loan may be insufficient to ensure full

repayment when completed through a permanent loan, sale of the property,

or by seizure of collateral.

At December 31,

2023, construction loans comprised approximately 7.2% of our total loan

portfolio.

●

Vacant

Land Loans

. Because vacant or unimproved land is generally held by the borrower

for investment purposes or

future use, payments on loans secured by vacant or unimproved land will typically

rank lower in priority to the borrower

than a loan the borrower may have on their primary residence or business. These loans

are susceptible to adverse

conditions in the real estate market and local economy.

At December 31, 2023, vacant land loans comprised

approximately 3.5% of our total loan portfolio.

●

HELOCs

. Our open-ended home equity loans have an interest-only draw period

followed by a five-year repayment

period of 0.75% of the principal balance monthly and a balloon payment

at maturity. Upon the commencement

of the

repayment period, the monthly payment can increase significantly,

thus, there is a heightened risk that the borrower will

be unable to pay the increased payment. Further,

these loans also involve greater risk because they are generally not fully

amortizing over the loan period, but rather have a balloon payment due

at maturity.

A borrower’s ability to make a

balloon payment may depend on the borrower’s ability

to either refinance the loan or timely sell the underlying property.

At December 31, 2023, HELOCs comprised approximately 7.7% of

our total loan portfolio.

●

Consumer Loans

. Consumer loans (such as automobile loans and personal lines of

credit) are collateralized, if at all,

with assets that may not provide an adequate source of payment of the loan due

to depreciation, damage, or loss. At

December 31, 2023, consumer loans comprised approximately 9.9%

of our total loan portfolio, with indirect auto loans

making up a majority of this portfolio at approximately 91.2% of the total

balance.

The increased risks associated with these types of loans result in a correspondingly

higher probability of default on such loans (as

compared to fixed-rate fully amortizing single-family real estate loans). Loan

defaults would likely increase our loan losses and

nonperforming assets and could adversely affect our allowance

for credit losses and our results of operations.

Our loan portfolio is heavily concentrated in mortgage loans secured

by properties in Florida and Georgia which causes

our risk of loss to be higher than if we had a more geographically diversified

portfolio.

Our interest-earning assets are heavily concentrated in mortgage loans secured

by real estate, particularly real estate located in

Florida and Georgia.

At December 31, 2023, approximately 81.8% of our loans included real estate as a primary,

secondary, or

tertiary component of collateral. The real estate collateral in each case provides

an alternate source of repayment in the event of

default by the borrower; however, the value

of the collateral may decline during the time the credit is extended. If we are required

to liquidate the collateral securing a loan during a period of reduced real estate values

to satisfy the debt, our earnings and capital

could be adversely affected.

Additionally, at December

31, 2023, a significant number of our loans secured by real estate are secured by commercial and

residential properties located in Florida and Georgia. The

concentration of our loans in these areas subjects us to risk that a

downturn in the economy or recession in these areas could result in a decrease in

loan originations and increases in delinquencies

and foreclosures, which would more greatly affect us than

if our lending were more geographically diversified. In addition, since

a large portion of our portfolio is secured by properties located

in Florida and Georgia, the occurrence of a natural disaster,

such

as a hurricane, or a man-made disaster could result in a decline in loan originations,

a decline in the value or destruction of

mortgaged properties and an increase in the risk of delinquencies, foreclosures

or loss on loans originated by us. We

may suffer

further losses due to the decline in the value of the properties underlying our

mortgage loans, which would have an adverse

impact on our results of operations and financial condition.

Our concentration in loans secured by real estate

may increase our credit losses, which would negatively

affect our

financial results.

Due to the lack of diversified industry within some of the markets served by CCB and the

relatively close proximity of our

geographic markets, we have both geographic concentrations as well as concentrations

in the types of loans funded. Specifically,

due to the nature of our markets, a significant portion of the portfolio has historically

been secured with real estate. At December

31, 2023, approximately 30.2% and 44.4% of our $2.7 billion

loan portfolio was secured by commercial real estate and residential

real estate, respectively.

As of this same date, approximately 7.2% was secured by property under construction.

In the event we are required to foreclose on a property securing one of our mortgage

loans or otherwise pursue our remedies in

order to protect our investment, we may be unable to recover funds in an amount

equal to our projected return on our investment

or in an amount sufficient to prevent a loss to us due to prevailing economic

conditions, real estate values and other factors

associated with the ownership of real property.

As a result, the market value of the real estate or other collateral underlying our

loans may not, at any given time, be sufficient to satisfy the outstanding

principal amount of the loans, and consequently,

would sustain loan losses.

An inadequate allowance for credit losses would reduce our

earnings.

We are exposed

to the risk that our clients may be unable to repay their loans according to their terms

and that any collateral

securing the payment of their loans may not be sufficient

to assure full repayment. This could result in credit losses that are

inherent in the lending business. We

evaluate the collectability of our loan portfolio and provide an allowance

for credit losses

that we believe is adequate based upon such factors as:

●

the risk characteristics of various classifications of loans;

●

previous loan loss experience;

●

specific loans that have loss potential;

●

delinquency trends;

●

estimated fair market value of the collateral;

●

current and future economic conditions; and

●

geographic and industry loan concentrations.

At December 31, 2023, our allowance for credit losses for loans held for investment

was $29.9 million, which represented

approximately 1.10% of our total loans held for investment.

We had $6.2

million in nonaccruing loans at December 31, 2023.

The allowance is based on management’s

reasonable estimate and may not prove sufficient to cover future loan

losses.

Although

management uses the best information available to make determinations

with respect to the allowance for credit losses, future

adjustments may be necessary if economic conditions differ substantially

from the assumptions used or adverse developments

arise with respect to our nonperforming or performing loans.

In addition, regulatory agencies, as an integral part of their

examination process, periodically review our estimated losses on loans.

Our regulators may require us to recognize additional

losses based on their judgments about information available to them at the time of

their examination.

Accordingly, the allowance

for credit losses may not be adequate to cover all future loan losses and significant increases

to the allowance may be required in

the future if, for example, economic conditions worsen.

A material increase in our allowance for credit losses would adversely

impact our net income and capital in future periods, while having the effect

of overstating our current period earnings.

We may incur significant costs associated

with the ownership of real property as a

result of foreclosures, which could

reduce our net income.

Since we originate loans secured by real estate, we may have to foreclose on the

collateral property to protect our investment and

may thereafter own and operate such property,

in which case we would be exposed to the risks inherent in the ownership of real

estate.

The amount that we, as a mortgagee, may realize after a foreclosure is dependent

upon factors outside of our control, including,

but not limited to:

●

general or local economic conditions;

●

environmental cleanup liability;

●

neighborhood values;

●

interest rates;

●

real estate tax rates;

●

operating expenses of the mortgaged properties;

●

supply of and demand for rental units or properties;

●

ability to obtain and maintain adequate occupancy of the properties;

●

zoning laws;

●

governmental rules, regulations and fiscal policies; and

●

acts of God.

Certain expenditures associated with the ownership of real estate, including

real estate taxes, insurance and maintenance costs,

may adversely affect the income from the real estate. Furthermore,

we may need to advance funds to continue to operate or to

protect these assets. As a result, the cost of operating real property

assets may exceed the rental income earned from such

properties or we may be required to dispose of the real property at a loss.

Reliance on inaccurate or misleading financial statements, credit

reports, or other financial information could have a

material adverse impact on our business, financial condition,

and results of operations.

In deciding whether to extend credit or enter into other transactions, we rely

on information furnished by or on behalf of

customers and counterparties, including financial statements, credit

reports, and other financial information. We

also rely on

representations of those customers, counterparties, or other third parties, such

as independent auditors, as to the accuracy and

completeness of that information. Reliance on inaccurate or misleading

financial statements, credit reports, or other financial

information could have a material adverse impact on our business, financial condition,

and results of operations.

Liquidity and Capital Risks

Liquidity risk could impair our ability to fund operations and jeopardize our financial

condition.

Effective liquidity management is essential for the operation of

our business. We require

sufficient liquidity to meet client loan

requests, client deposit maturities and withdrawals, payments on our debt obligations

as they come due and other cash

commitments under both normal operating conditions and other unpredictable

circumstances causing industry or general financial

market stress. If we are unable to raise funds through deposits, borrowings,

earnings and other sources, it could have a substantial

negative effect on our liquidity.

In particular, a majority of our liabilities during 2023

were checking accounts and other liquid

deposits, which are generally payable on demand or upon short notice.

By comparison, a substantial majority of our assets were

loans, which cannot generally be called or sold in the same time frame. Although

we have historically been able to replace

maturing deposits and advances as necessary,

we might not be able to replace such funds in the future, especially if a large

number of our depositors seek to withdraw their accounts at the same time, regardless

of the reason. Our access to funding

sources in amounts adequate to finance our activities on terms that are acceptable

to us could be impaired by factors that affect us

specifically or the financial services industry or economy in general.

Factors that could negatively impact our access to liquidity

sources include a decrease in the level of our business activity as a result of a downturn

in the markets in which our loans are

concentrated, adverse regulatory action against us, or our inability to attract and

retain deposits. Our access to deposits may be

negatively impacted by,

among other factors, periods of low interest rates or high interest rates.

Periods of high interest rates

could promote increased competition for deposits, including from new

financial technology competitors, or provide customers

with alternative investment options.

Our ability to borrow could also be impaired by factors that are not specific to us, such

as a

disruption in the financial markets or negative views and expectations about

the prospects for the financial services industry.

If we

are unable to maintain adequate liquidity,

it could materially and adversely affect our business, results of operations

or financial

condition.

significant

decrease

our

public

fund

deposit

balances

result

increased

competition

the

current

higher

interest-rate environment and seasonal nature

of these deposits could materially and adversely affect our liquidity.

The Company has many long-standing relationships with municipal entities

throughout its markets and the deposits held by these

customers have provided a relatively attractive and stable (although seasonal)

funding source for the Company over an extended

period of time. Public fund deposits from local government entities such as universities,

counties, school districts, and other

municipalities generally have higher average balances and historically been

more volatile than nonpublic deposits because they

are heavily impacted by the seasonality of tax collection, changes in competitive

and market forces, and fiscal spending patterns,

as well as the longer-term financial position of local government entities, which

can change from year to year. Such public

fund

deposits are often subject to competitive bidding and in many cases must be secured

by pledging a portion of our investment

securities.

The Company’s inability to

retain public fund deposit balances due to increased competition in the current higher

interest-rate environment and seasonal nature of these deposits could materially

and adversely affect our liquidity or result in the

use of higher-cost funding sources, which, in turn, could

materially and adversely affect our business, results of operations or

financial condition.

Unrealized losses in our securities portfolio could materially

and adversely affect our liquidity.

As market interest rates have increased, we have experienced significant

unrealized losses on our available-for-sale securities

portfolio. Unrealized losses related to available-for-sale securities are reflected

in accumulated other comprehensive income in

our consolidated statements of financial condition and reduce the level of our book

capital and tangible common equity.

However,

such unrealized losses do not affect our regulatory capital ratios. We

actively monitor our available-for-sale securities portfolio

and we do not currently anticipate the need to realize material losses from the sale of securities for

liquidity purposes.

Furthermore, we believe it is unlikely that we would be required to sell any such securities

before recovery of their amortized cost

bases, which may be at maturity.

Nonetheless, our access to liquidity sources could be affected by unrealized

losses if securities

must be sold at a loss, tangible capital ratios decline from an increase in unrealized

losses or realized credit losses, the Federal

Home Loan Bank of Atlanta (“FHLB”) or other funding sources reduce

capacity, or bank regulators impose

restrictions on us that

impact the level of interest rates we may pay on deposits or our ability to access federal

funds lines or brokered deposits.

Additionally, significant

unrealized losses could negatively impact market and customer perceptions

of the Company, which

could lead to a loss of depositor confidence and an increase in deposit withdrawals,

particularly among those with uninsured

deposits.

We may need to raise additional capital

in the future, and such capital may not be available on acceptable terms or at all.

may

need

raise

additional

capital

the

future

provide

with

sufficient

capital

resources

and

liquidity

meet

our

commitments and business

needs, particularly if our

asset quality or earnings

were to deteriorate significantly.

Our ability to raise

additional capital,

if needed, will

depend on, among

other things, conditions

in the capital

markets at that

time, which are

outside

of our

control, and

our financial

condition. Economic

conditions and

the loss of

confidence in

financial institutions

may increase

our

cost

funding

and

limit

access

certain

customary

sources

capital,

including

inter-bank

borrowings,

repurchase

agreements and borrowings from the discount window of the Federal Reserve.

Further, as a result of our failure to timely file our

Quarterly Report on Form 10-Q for the three-month period ended September

30, 2023, we are currently ineligible to file new short form registration statements on

Form S-3 and, absent a waiver of the Form

S-3 eligibility requirements, we are not currently permitted to use our existing

registration statement on Form S-3D. If we seek to

access the capital markets through a registered offering during the

period of time that we are unable to use Form S-3, we may be

required to publicly disclose the proposed offering and the material

terms thereof before the offering commences and we will be

required to use a registration statement on Form S-1 to register securities with

the SEC, which would hinder our ability to act

quickly in raising capital to take advantage of market conditions in our capital

raising activities and would increase our cost of

raising capital.

As a result, we may be unable to raise capital on terms favorable to us, in a timely manner

or at all, which could materially and

adversely affect our liquidity,

business, results of operations, or financial condition. Moreover,

if we need to raise capital in the

future, we may have to do so when many other financial institutions are also seeking

to raise capital and would have to compete

with those institutions for investors.

We may be unable to pay dividends in the future.

In 2023, our Board of Directors declared four quarterly cash dividends.

Declarations of any future dividends will be contingent on

our ability to earn sufficient profits and to remain well capitalized, including

our ability to hold and generate sufficient capital to

comply with the Common Equity Tier 1 (“CET1”)

Capital conservation buffer requirement. In addition,

due to our contractual

obligations with the holders of our trust preferred securities, if we defer the payment of accrued

interest owed to the holders of our

trust preferred securities, we may not make dividend payments to our

shareowners.

Further, under applicable statutes and regulations,

CCB’s board of directors,

after charging-off bad debts, depreciation and other

worthless assets, if any,

and making provisions for reasonably anticipated future losses on loans and other assets, may

quarterly,

semi-annually, or

annually declare and pay dividends to CCBG of up to the aggregate net income

of that period combined with

the CCB’s retained net income for

the preceding two years and, with the approval of the Florida Office of Financial

Regulation

and Federal Reserve, declare a dividend from retained net income which accrued

prior to the preceding two years.

Additional

state laws generally applicable to Florida corporations may also limit our ability

to declare and pay dividends. Thus, our ability to

fund future dividends may be restricted by state and federal laws and regulations.

Regulatory and Compliance Risks

We are subject to

extensive regulation, which could restrict our activities

and impose financial requirements or limitations

on the conduct of our business.

We are subject to

extensive regulation, supervision and examination by our regulators, including

the Florida Office of Financial

Regulation, the Federal Reserve, and the FDIC. Our compliance with

these industry regulations is costly and restricts certain of

our activities, including payment of dividends, mergers

and acquisitions, investments, lending and interest rates charged on

loans,

interest rates paid on deposits, access to capital and brokered deposits and locations

of banking offices. If we are unable to meet

these regulatory requirements, our financial condition, liquidity and results of

operations would be materially and adversely

affected.

Our activities are also regulated under consumer protection laws applicable to

our lending, deposit, and other activities. Many of

these regulations are intended primarily for the protection of our

depositors, the DIF,

and the banking system as a whole, and not

for the benefit of our shareowners. In addition to the regulations of the bank regulatory

agencies, as a member of the FHLB of

Atlanta, we must also comply with applicable regulations of the Federal

Housing Finance Agency and the Federal Home Loan

Bank.

Our failure to comply with these laws and regulations could subject us to the loss of

FDIC insurance, reputational damage, the

revocation of our banking charter,

enforcement actions, sanctions, or other legal actions by regulatory agencies, restrictions

on our

business activities, fines, and other penalties, any of which could adversely

affect our results of operations, capital base, and the

price of our securities. Further, any new laws, rules,

regulations, policies, and supervisory guidance or changes in existing

laws,

rules, regulations, policies, and supervisory guidance (including changes

in interpretation and implementation) could make

compliance more difficult or expensive or otherwise adversely

affect our business and financial condition.

Government authorities, including the bank regulatory agencies, are pursuing

aggressive enforcement actions with respect to

compliance and other legal matters involving financial activities, which heightens

the risks associated with actual and perceived

compliance failures. Directives issued to enforce such actions may be

confidential and thus, in some instances, we are not

permitted to publicly disclose these actions. Any of the foregoing could have

a material adverse effect on our business, financial

condition, and results of operations.

In addition, we anticipate increased regulatory scrutiny,

in the course of routine examinations and otherwise, and new regulations

in response to recent negative developments in the banking industry,

which may increase our cost of doing business and reduce

our profitability.

Among other things, there may be increased focus by both regulators and investors on deposit

composition, the

level of uninsured deposits, brokered deposits, unrealized losses in securities portfolios,

liquidity, commercial real estate loan

composition and concentrations, and capital as well as general oversight

and control of the foregoing. We

could face increased

scrutiny or be viewed as higher risk by regulators and the investor community,

which could have a material adverse effect on our

business, financial condition, and results of operations.

Please refer to the Section entitled “Business – Regulatory Considerations”

on page 12.

U.S. federal banking agencies may require us to increase

our regulatory capital, long-term debt or liquidity

requirements,

which could result in the need to issue additional qualifying securities or to

take other actions, such as to sell company

assets.

We are subject to

U.S. regulatory capital and liquidity rules. These rules, among other things, establish minimum

requirements to

qualify as a well-capitalized institution. If CCB fails to maintain its status as well capitalized

under the applicable regulatory

capital rules, the Federal Reserve will require us to agree to bring the bank back to

well-capitalized status. For the duration of

such an agreement, the Federal Reserve may impose restrictions on our

activities. If we were to fail to enter into or comply with

such an agreement or fail to comply with the terms of such agreement, the Federal

Reserve may impose more severe restrictions

on our activities, including requiring us to cease and desist activities permitted

under the Bank Holding Company Act of 1956.

Additionally, if our

CET1 to Risk Weighted Assets ratio

does not exceed the minimum required plus the additional CET1

conservation buffer,

we may be restricted in our ability to pay dividends or make other distributions of capital to our shareowners.

Capital and liquidity requirements are frequently introduced and amended.

It is possible that regulators may increase regulatory

capital requirements, change how regulatory capital is calculated or increase liquidity

requirements. Requirements to maintain

higher levels of capital may lower our return on equity.

Further changes to and compliance with the regulatory capital and liquidity requirements

may impact our operations by requiring

us to liquidate assets, increase borrowings, issue additional equity or other securities,

cease or alter certain operations, sell

company assets or hold highly liquid assets, which may adversely affect

our results of operations. We

may be prohibited from

taking capital actions such as paying or increasing dividends or repurchasing

securities.

Changes in accounting standards or assumptions in applying accounting policies

could adversely affect us.

Our accounting policies and methods are fundamental to how we record and report

our financial condition and results of

operations. Some of these policies require use of estimates and assumptions that

may affect the reported value of our assets or

liabilities and results of operations and are critical because they require management

to make difficult, subjective and complex

judgments about matters that are inherently uncertain. If those assumptions, estimates or

judgments were incorrectly made, we

could be required to correct and restate prior-period financial statements. Accounting

standard-setters and those who interpret the

accounting standards, the SEC, banking regulators and our independent registered

public accounting firm may also amend or even

reverse their previous interpretations or positions on how various standards

should be applied. These changes may be difficult to

predict and could impact how we prepare and report our financial statements. In

some cases, we could be required to apply a new

or revised standard retrospectively,

resulting in us revising prior-period financial statements.

Florida financial institutions, such as CCB, face a higher risk of noncompliance

and enforcement actions with the Bank

Secrecy Act and other anti-money laundering statutes and regulations.

Since September 11, 2001, banking regulators

have intensified their focus on anti-money laundering and BSA compliance

requirements, particularly the anti-money laundering provisions of

the USA PATRIOT

Act. There is also increased scrutiny of

compliance with the rules enforced by the Office of Foreign Assets

Control, or OFAC.

Since 2004, federal banking regulators and

examiners have been extremely aggressive in their supervision and examination

of financial institutions located in the State of

Florida with respect to the institution’s

BSA/anti-money laundering compliance. Consequently,

numerous formal enforcement

actions have been instituted against financial institutions. If CCB’s

policies, procedures and systems are deemed deficient or

the

policies, procedures and systems of the financial institutions that it has already

acquired or may acquire in the future are deficient,

CCB would be subject to liability,

including fines and regulatory actions such as restrictions on its ability to pay

dividends and the

necessity to obtain regulatory approvals to proceed with certain aspects of its business plan,

including its acquisition plans.

We are subject to

government regulation and oversight relating to

data and privacy protection.

Our business requires the collection and retention of large

volumes of customer data, including personally identifiable information

in various information systems that we maintain and in those maintained

by third parties with whom we contract. We

also

maintain important internal company data such as personally identifiable information

about our associates and information

relating to our operations. The integrity and protection of that customer and company

data is important to us.

We are subject to

complex and evolving laws and regulations relating to the privacy of the information

of our customers,

associates and others, and any failure to comply with these laws and regulations,

or any misuse or mismanagement of such

information, could expose us to liability and reputational damage, which could

adversely affect our financial condition and results

of operations. As new privacy-related laws and regulations are implemented,

the time and resources needed for us to comply with

such laws and regulations, as well as our potential liability for non-compliance

and reporting obligations in the case of data

breaches, may significantly increase. It is possible that these laws may be interpreted

and applied by various jurisdictions in a

manner inconsistent with our current or future practices, or that is inconsistent

with one another.

Fee revenues from overdraft protection

programs constitute a significant portion of our noninterest income

and may be

subject to increased supervisory scrutiny.

Revenues derived from transaction fees associated with overdraft protection

programs offered to consumers represent a

significant portion of our noninterest income. In 2023, the Company

collected approximately $9.6 million in net consumer

overdraft transaction fees.

In 2022, certain members of Congress and the leadership of the CFPB have expressed

a heightened interest in bank consumer

overdraft protection programs. In 2022, the CFPB piloted a supervision

effort to collect key metrics from some supervised

institutions regarding the consumer impact of their overdraft and

non-sufficient fund practices, with the intent of using this

information to identify institutions for further examination and review.

The CFPB has indicated that it intends to pursue

enforcement actions against banking organizations,

and their executives, that oversee overdraft practices that are deemed to be

unlawful, and indeed took action against a large bank for charging

“surprise” overdraft fees known as authorized positive fee. In

October of 2022, the CFPB issued guidance to help banks avoid charging

illegal surprise overdraft fees. In addition, the

Comptroller of the Currency has identified potential options for reform of

national bank overdraft protection practices, including

providing a grace period before the imposition of a fee, refraining

from charging multiple fees in a single day and eliminating fees

altogether.

In response to this increased congressional and regulatory scrutiny,

and in anticipation of enhanced supervision and enforcement

of overdraft protection practices in the future, certain banking organizations

have begun to modify their overdraft protection

programs, including by discontinuing the imposition of overdraft transaction

fees and amending their payment priority policies

and procedures. These competitive pressures from our peers, as well as any adoption

by our regulators of new rules or supervisory

guidance or more aggressive examination and enforcement policies in respect

of banks’ overdraft protection practices, could

cause us to modify our program and practices in ways that may have a negative impact

on our revenue and earnings, which, in

turn, could have an adverse effect on our financial condition and

results of operations.

Operational Risks

Many types of operational risks can affect our earnings negatively.

We regularly

assess and monitor operational risk in our businesses. Despite our efforts to

assess and monitor operational risk, our

risk management framework may not be effective in all cases.

Factors that can impact operations and expose us to risks varying

size, scale and scope include:

●

failures of technological systems or breaches of security measures, including, but not

limited to, those resulting from

computer viruses or cyber-attacks;

●

unsuccessful or difficult implementation of computer

systems upgrades;

●

human errors or omissions, including failures to comply with applicable

laws or corporate policies and procedures;

●

theft, fraud or misappropriation of assets, whether arising from the intentional

actions of internal personnel or external

third parties;

●

breakdowns in processes, breakdowns in internal controls or failures of

the systems and facilities that support our

operations;

●

deficiencies in services or service delivery;

●

negative developments in relationships with key counterparties, third-party

vendors, or associates in our day-to-day

operations; and

●

external events that are wholly or partially beyond our control, such as pandemics,

geopolitical events, political unrest,

natural disasters or acts of terrorism.

While we have in place many controls and business continuity plans designed

to address these factors and others, these plans may

not operate successfully to mitigate these risks effectively.

If our controls and business continuity plans do not mitigate the

associated risks successfully,

such factors may have a negative impact on our business, financial condition or results

operations. In addition, an important aspect of managing our operational

risk is creating a risk culture in which all associates fully

understand that there is risk in every aspect of our business and the importance of

managing risk as it relates to their job functions.

We continue

to enhance our risk management program to support our risk culture.

Nonetheless, if we fail to provide the

appropriate environment that sensitizes all of our associates to managing

risk, our business could be impacted adversely.

We are subject to

certain operational risks, including, but not limited to

risk arising from failure or circumvention

of our

controls and procedures.

Our internal controls, including fraud detection and controls, disclosure controls

and procedures, and corporate governance

procedures are based in part on certain assumptions and can provide only reasonable,

not absolute, assurances that the objectives

of the controls and procedures are met. Notwithstanding the proliferation of

technology and technology-based risk and control

systems, we rely on the ability of our associates and systems to process a high number

of transactions, and we are subject to the

risk that our associates may make mistakes or engage in violations of applicable

policies, laws, rules, or procedures that in the

past have not, and in the future may not, always be prevented by our technological

processes or by our controls and other

procedures intended to prevent and detect such errors or violations. Any

failure or circumvention of our controls and procedures,

failure to comply with regulations related to controls and procedures, failure to comply

with our corporate governance procedures,

fraud by associates or persons outside our Company,

the execution of unauthorized transactions by associates, or errors relating to

transaction processing and technology could have a material adverse effect

on our reputation, business, financial condition and

results of operations, including subjecting us to litigation, customer attrition,

regulatory fines, penalties, or other sanctions.

Insurance coverage may not be available for losses relating to such event,

or where available, such losses may exceed insurance

limits.

We are subject to

credit and/or settlement risk arising from

the soundness of other financial institutions and

counterparties which may have a material adverse effect on our business, financial condition,

and results of operations.

Financial services institutions are interrelated as a result of trading,

clearing, counterparty, or other

relationships. We

have

exposure to many different industries and counterparties,

and routinely execute transactions with counterparties in the financial

services industry, including

commercial banks, brokers and dealers, investment banks, other institutional clients,

and certain

vendors. Many of these transactions expose us to credit or settlement risk in the

event of a default or other failure to adhere to

contractual obligations by a counterparty or client. In addition, our credit or

settlement risk may be exacerbated when any

collateral held by us cannot be realized upon or is liquidated at prices not sufficient

to recover the full amount of the credit or

derivative exposure due to us. Increased interconnectivity amongst

financial institutions also increases the risk of cyber-attacks

and information system failures for financial institutions. Any such losses could

have a material adverse effect on our business,

financial condition, and results of operations.

The Company recently

identified a material

weakness in its

internal control over

financial reporting.

If we are

not able to

remediate this

material weakness,

or if we

experience additional

material weaknesses

or other

deficiencies in our

internal

control

over

financial

reporting

the

future

otherwise

fail

maintain

effective

system

internal

control

over

financial

reporting,

may

not

able

accurately

report

our

financial

results,

prevent

fraud,

file

our

periodic

reports in

a timely

manner,

which may

cause investors

to lose

confidence in

our reported

financial information

and may

lead to a decline in our stock price.

As a public

company,

we are required

to maintain internal

control over financial

reporting and to

report any material

weaknesses

in such internal control.

Section 404 of the Sarbanes

-Oxley Act requires that

we furnish a report

by management on, among

other

things,

the

effectiveness

our

internal

control

over

financial

reporting.

This

assessment

requires

disclosure

any

material

weaknesses

identified

our

management

our

internal

control

over

financial

reporting.

Our

independent

registered

public

accounting firm

also needs

to attest to

the effectiveness

of our

internal control

over financial

reporting. Effective

internal control

over financial reporting is necessary for us to provide reliable financial

reports and, together with adequate disclosure controls and

procedures, is designed

to prevent fraud.

Any failure to

maintain or implement

required new or

improved controls,

or difficulties

encountered in implementation could cause us to fail to meet our reporting obligations.

In the fourth

quarter of 2023, management

identified a material weakness

in its internal control

over financial reporting

related to

certain

inter-company

transactions.

discussed

Item

9A.

Controls

and

Procedures,

the

Company's

management

has

re-

evaluated its assessment of

the effectiveness of

internal control over financial

reporting and its disclosure controls

and procedures

and concluded that they were

not effective as of December

31, 2023. Management has implemented

controls in accordance with a

remediation plan to

address the material

weakness. For additional

information related to

the material weakness

in internal control

over financial reporting and the related remedial measures, see Item 9A.

Controls and Procedures.

There can

be no

assurance as

to when

the material

weakness will

be remediated

or that

additional material

weaknesses will

not

arise in

the future.

If the

Company is

unable to

maintain effective

internal control

over financial

reporting, its

ability to

record,

process and

report financial

information timely

and accurately

could be

adversely affected,

which could

subject the

Company to

litigation,

investigations,

breach

contract

claims,

require

management

resources,

increase

costs,

negatively

affect

investor

confidence, and adversely impact its stock price.

We face risks related

to the restatement of our Impacted Statements of Cash Flows.

As discussed in the Explanatory Note,

we determined to restate the Impacted

Statements of Cash Flows. These restatements

are in

addition

to the

restatements

contained in

our Form

10-K/A for

December 31,

2022 and

our

Form 10-Q/A

filings for

March

31,

2023

and

June

30,

2023,

each

which

were

filed

with

the

SEC

December

22,

2023.

result,

have

incurred

unanticipated costs for

accounting and legal

fees in connection

with the restatements

and become subject

to some additional risks

and uncertainties,

which could

affect investor

confidence in

the accuracy

of our

financial disclosures

and may

cause reputational

harm to

our business.

may face

potential for

litigation or

other disputes,

which may

include, among

others, claims

invoking

the federal

and state

securities laws.

In addition,

the processes

undertaken to

effect the

restatements may

not have

been adequate

to identify

and correct

all errors

in our

historical financial

statements. If

one or

more of

the foregoing

risks persist,

our business,

operations and financial condition could be materially and adversely

affected.

Cybersecurity

incidents,

including

security

breaches

and

failures

our

information

systems

could

significantly

disrupt

our

business,

result

the

unintended

disclosure

misuse

confidential

proprietary

information,

damage

our

reputation, increase our costs, and cause losses.

In the ordinary course of business, we rely on electronic communications

and information systems to conduct our operations and

to store sensitive data

, including our proprietary business information and that of our clients, and personally

identifiable

information of our clients and associates. The secure processing, maintenance,

and transmission of this information is critical to

our operations.

Our systems, or those of our clients, could be vulnerable to cybersecurity-related incidents, which

include

breaches of information systems, attempts to access information, including

customer and company information, malicious code,

computer viruses and denial of service attacks that could result in unauthorized

access, theft, misuse, loss, release, or destruction

of data (including confidential customer information), account takeovers, unavailability

of service, or other events. These types of

threats may derive from human error, fraud, or

malice on the part of external or internal parties or may result from accidental

technological failure. Any failure, interruption, or breach in security of these

systems could result in significant disruption to our

operations.

Financial institutions and companies engaged in data processing have

increasingly reported breaches in the security of their

websites or other systems, some of which have involved sophisticated and

targeted attacks intended to obtain unauthorized access

to confidential information, destroy data, disrupt or degrade service, sabotage

systems, or cause other damage. Our technologies,

systems, networks, and software have been and continue to be subject to cybersecurity

threats and attacks, which range from

uncoordinated individual attempts to sophisticated and targeted

measures directed at us. Our customers, associates, and third

parties that we do business with have been, and will likely continue to be,

targeted in cybersecurity-related incidents by parties

using fraudulent e-mails, artificial intelligence, and other communications

in attempts to misappropriate passwords, bank account

information, or other personal information or to introduce viruses or other

malware programs to our information systems, the

information systems of our third-party service providers and our customers’

personal devices, which are beyond our security

control systems. Though we endeavor to mitigate these threats through product

improvements, use of encryption and

authentication technology and customer and employee education, such cyber-attacks

against us, our third-party service providers

and our customers remain a serious issue and have been successful in the past.

We may be required

to spend significant capital and other resources to protect against the threat of

cybersecurity-related incidents

or to alleviate problems caused by such incidents. Any failures related to upgrades

and maintenance of our technology and

information systems could increase our information and system security

risk. Our increased use of cloud and other technologies,

such as remote work technologies, also increases our risk of being subject to a cyber-related

incident. The risk of a cybersecurity-

related incident has increased as the number,

intensity, and sophistication of

attempted attacks and intrusions from around the

world have increased. A cybersecurity-related incident or other significant

disruption of our information systems or those of our

customers or third-party vendors could (i) disrupt the proper functioning

of our networks and systems and therefore our

operations and those of our customers; (ii) result in the unauthorized access to,

and destruction, loss, theft, misappropriation, or

release of confidential, sensitive, or otherwise valuable information

of ours or our customers; (iii) result in a violation of

applicable privacy,

data protection, and other laws, subjecting us to additional regulatory scrutiny and

exposing us to civil

litigation, enforcement actions, governmental fines, and possible financial

liability; (iv) require significant management attention

and resources to remedy the damages that result; or (v) harm our reputation or

cause a decrease in the number of customers that

choose to do business with us, damaging our ability to generate deposits. The occurrence

of any of the foregoing could have a

material adverse effect on our business, financial condition,

and results of operations. Furthermore, in the event of a cyber-related

incident, we may be delayed in identifying or responding to the incident,

which could increase the negative impact of the incident

on our business, financial condition, and results of operations. While we maintain

“cyber” insurance coverage, which would apply

in the event of certain cyber-related incidents, the amount of coverage

may not be adequate depending on the magnitude of the

incident. Furthermore, because cyber-related incidents are inherently difficult

to predict and can take many forms, some incidents

may not be covered under our cyber insurance coverage.

Increased fraudulent activity may cause losses to us or our clients, damage

to our brand, and increases in our costs, in

turn, materially and adversely affecting our business, financial condition,

and results of operations.

Additionally, fraud

losses have risen in recent years due in large part to growing and evolving schemes.

Fraudulent activity has

taken many forms, ranging from wire fraud, debit card fraud, credit card fraud,

check fraud, mechanical devices attached to

ATMs,

social engineering, and phishing attacks to obtain personal information, business

email compromise, or impersonation of

clients through the use of falsified or stolen credentials. Many financial

institutions have suffered significant losses in recent years

due to the theft of cardholder data that has been illegally exploited for personal gain.

The potential for debit and credit card fraud,

as well as check fraud, against us or our clients and our third-party

service providers is a serious issue. Debit and credit card fraud

and check fraud are pervasive, and the risks of cybercrime are complex

and continue to evolve. While we have policies and

procedures, as well as fraud detection tools, designed to prevent fraud losses, such

policies, procedures, and tools may be

insufficient to accurately detect and prevent fraud. A significant increase

in fraudulent activities could lead us to take additional

steps to reduce fraud risk, which could increase our costs. Fraud losses

could cause losses to us or our clients, damage to our

brand, and an increase in our costs, in turn, materially and adversely affecting

our business, financial condition, and results of

operations.

We may not be able to attract and

retain skilled people, which may have a negative impact on

our business and

operations.

Our success depends, in large part, on our ability to attract and retain

key people. Competition for the best people in many

activities engaged in by us is intense, including with respect to compensation

and emerging workplace practices and

accommodations, and, as a result, we may not be able to sufficiently

hire or to retain key people. We

do not currently have

employment agreements or non-competition agreements with any of our senior officers.

The unexpected loss of service of key

personnel could have a material adverse impact on our business, financial

condition, and results of operations because of their

customer relationships, skills, knowledge of our market, years of industry

experience, and the difficulty of promptly finding

qualified replacement personnel. In addition, the scope and content of U.S. banking

regulators’ policies on incentive

compensation, as well as changes to these policies, could adversely affect

our ability to hire, retain, and motivate our key

associates.

Issues we encounter with respect to external vendors upon which we rely

could have a material adverse effect on our

business and, in turn, our financial condition and results of operations.

We rely on

certain external vendors to provide products and services necessary to maintain our day-to-day

operations. These

third-party vendors are sources of operational and informational security

risk to us, including risks associated with operational

errors, information system failures, interruptions or breaches, and

unauthorized disclosures of sensitive or confidential client or

customer information. If we encounter any of these issues in connection

with our external vendors, or if we have difficulty

communicating with these vendors, we could be exposed to disruption

of operations, loss of service, or connectivity to customers,

reputational damage, and litigation risk that could have a material adverse effect

on our business and, in turn, our financial

condition and results of operations.

In addition, our operations are exposed to risk that these vendors will not perform in

accordance with the contracted arrangements

under service level agreements. Although we have selected these external vendors

carefully, we do not control their actions.

The

failure of an external vendor to perform in accordance with the contracted

arrangements under service level agreements could be

disruptive to our operations, which could have a material adverse effect

on our business and, in turn, our financial condition and

results of operations. Replacing these external vendors could also entail

significant delay and expense.

Pandemics, severe weather,

natural disasters, global climate change, acts of terrorism and global

conflicts may have a

negative impact on our business and operations.

Pandemics (such as the COVID-19 pandemic), severe weather,

natural disasters, global climate change, acts of terrorism, global

conflicts, or other similar events have in the past, and may in the future have, a negative

impact on our business and operations.

These events impact us negatively to the extent that they result in reduced capital

markets activity, lower asset price

levels, or

disruptions in general economic activity in the United States or abroad, or

in financial market settlement functions. In addition,

such events could affect the stability of our deposit base, impair the

ability of borrowers to repay outstanding loans, impair the

value of collateral securing loans, cause significant property damage, result

in loss of revenue, cause us to incur additional

expenses, and impact economic growth negatively.

If any of these risks materialized, they could have an adverse effect on our

business and operations and may have other adverse effects on

us in ways that we are unable to predict.

Litigation may adversely affect our results.

We are subject to

litigation in the ordinary course of business. Claims and legal actions, including

claims pertaining to our

performance of our fiduciary responsibilities as well as supervisory actions

by our regulators, could involve large monetary

claims and significant defense costs. The outcome of litigation and regulatory

matters as well as the timing of ultimate resolution

are inherently difficult to predict.

Actual legal and other costs of resolving claims may be greater than our

legal reserves. The ultimate resolution of a pending legal

proceeding, depending on the remedy sought and granted, could

materially adversely affect our results of operations and financial

condition.

In addition, governmental authorities have, at times, sought criminal penalties

against companies in the financial services sector

for violations, and, at times, have required an admission of wrongdoing from

financial institutions in connection with resolving

such matters. Criminal convictions or admissions of wrongdoing in a settlement with

the government can lead to greater exposure

in civil litigation and reputational harm.

Substantial legal liability or significant regulatory action against us could have material

adverse financial effects or cause

significant reputational harm, which adversely impact our business prospects. Further,

we may be exposed to substantial

uninsured liabilities, which could adversely affect

our results of operations and financial condition.

Strategic Risks

Our future success is dependent on our ability to compete effectively

in the highly competitive banking industry.

We face vigorous

competition for deposits, loans and other financial services in our market area

from other banks and financial

institutions, including savings and loan associations, savings banks,

finance companies and credit unions. A number of our

competitors are significantly larger than we are and have greater access to

capital and other resources. Many of our competitors

also have higher lending limits, more expansive branch networks, and offer

a wider array of financial products and services. To

lesser extent, we also compete with other providers of financial services, such as money

market mutual funds, brokerage firms,

consumer finance companies, insurance companies and governmental

organizations, which may offer financial products and

services on more favorable terms than we are able to. Many of our non-bank

competitors are not subject to the same extensive

regulations that govern our activities. As a result, these non-bank competitors have advantages over

us in providing certain

services. The effect of this competition may reduce or limit our

margins or our market share and may adversely affect our

results

of operations and financial condition.

Our inability to adapt our business strategies, products, and services could

harm our business.

We rely on

a diversified mix of financial products and services through multiple distribution channels.

Our success depends on

our and our third-party providers’ of products and services abilities to adapt our

business strategies, products, and services and

their respective features in a timely manner,

including available payment processing services and technology to rapidly

evolving

industry standards and consumer preferences.

The widespread adoption and rapid evolution of emerging

technologies, including artificial intelligence, analytic capabilities, self-

service digital trading platforms and automated trading markets, internet

services, and digital assets, such as central bank digital

currencies, cryptocurrencies (including stablecoins), tokens, and other cryptoassets

that utilize distributed ledger technology

(DLT),

as well as DLT in

payment, clearing, and settlement processes creates additional risks, could

negatively impact our ability

to compete, and require substantial expenditures to the extent we were to modify

or adapt our existing products and services. As

such new technologies evolve and mature, our businesses and results of operations

could be adversely impacted, including as a

result of the introduction of new competitors to the payment ecosystem and increased

volatility in deposits and significant long-

term reduction in deposits. In addition, cloud technologies are also critical

to the operation of our systems, and our reliance on

cloud technologies is growing. Failure to successfully keep pace with technological

change affecting the financial services

industry could have a material adverse effect on our business,

financial condition, and results of operations.

Also, we may not be timely or successful in developing or introducing new products and

services, integrating new products or

services into our existing offerings, responding, managing,

or adapting to changes in consumer behavior, preferences,

spending,

investing and saving habits, achieving market acceptance of our

products and services, or reducing costs in response to pressures

to deliver products and services at lower prices. There are substantial risks and uncertainties

associated with these efforts,

particularly in instances where the markets are not fully developed.

In developing and marketing new products and services, we

invest significant time and resources. Initial timetables for the introduction

and development of new products or services may not

be achieved, and price and profitability targets may not prove feasible.

External factors, such as compliance with regulations,

competitive alternatives, and shifting market preferences, may also impact

the successful implementation of new products or

services. The Company’s, or

its third-party providers’, inability or resistance to timely innovate or adapt its operations, products,

and services to evolving industry standards and consumer preferences could result

in service disruptions and harm our business

and adversely affect our results of operations and reputation.

Furthermore, any new products, services, or technology could have

a significant impact on the effectiveness of our system of

internal controls. Failure to successfully manage these risks in the development

and implementation of new products or services

could have a material adverse effect on our business, financial condition,

and results of operations.

Our directors, executive officers, and principal shareowners,

if acting together,

have substantial control over all matters

requiring shareowner approval,

including changes of control. Because Mr.

William G. Smith, Jr.

is a principal

shareowner and our Chairman, President, and Chief Executive

Officer and Chairman of CCB, he has substantial control

over all matters on a day-to-day basis.

Our directors, executive officers, and principal shareowners beneficially

owned approximately 19.2% of the outstanding shares of

our common stock at December 31, 2023.

William G. Smith, Jr.,

our Chairman, President and Chief Executive Officer

beneficially owned 17.2% of our shares as of that date.

Accordingly, these directors, executive

officers, and principal

shareowners, if acting together, may be

able to influence or control matters requiring approval by our shareowners, including

the

election of directors and the approval of mergers, acquisitions or

other extraordinary transactions. Moreover,

because William G.

Smith, Jr. is the Chairman, President,

and Chief Executive Officer of CCBG and Chairman of CCB, he has substantial

control

over all matters on a day-to-day basis, including the nomination and election

of directors.

These directors, executive officers, and principal shareowners may

also have interests that differ from yours and may vote in a

way with which you disagree, and which may be adverse to your interests. The concentration

of ownership may have the effect of

delaying, preventing or deterring a change of control of our Company,

could deprive our shareowners of an opportunity to receive

a premium for their common stock as part of a sale of our Company and might ultimately

affect the market price of our common

stock. You

may also have difficulty changing management, the composition of

the Board of Directors, or the general direction of

our Company.

Our Articles of Incorporation, Bylaws, and certain laws and regulations

may prevent or delay transactions you might

favor,

including a sale or merger of CCBG.

CCBG is registered with the Federal Reserve as a financial holding

company under the Bank Holding Company Act, or BHC Act.

As a result, we are subject to supervisory regulation and examination by the

Federal Reserve. The GLBA, the BHC Act, and other

federal laws subject financial holding companies to restrictions on

the types of activities in which they may engage, and to a range

of supervisory requirements and activities, including regulatory

enforcement actions for violations of laws and regulations.

Provisions of our Articles of Incorporation, Bylaws, certain laws and regulations

and various other factors may make it more

difficult and expensive for companies or persons to acquire control

of us without the consent of our Board of Directors. It is

possible, however, that you would want a

takeover attempt to succeed because, for example, a potential buyer could offer

premium over the then prevailing price of our common stock.

For example, our Articles of Incorporation permit our Board of Directors

to issue preferred stock without shareowner action. The

ability to issue preferred stock could discourage a company from attempting

to obtain control of us by means of a tender offer,

merger, proxy contest or

otherwise. We are also subject to

certain provisions of the Florida Business Corporation Act and our

Articles of Incorporation that relate to business combinations with interested

shareowners. Other provisions in our Articles of

Incorporation or Bylaws that may discourage takeover attempts or make them

more difficult include:

●

Supermajority voting requirements to remove a director from office;

●

Provisions regarding the timing and content of shareowner proposals

and nominations;

●

Supermajority voting requirements to amend Articles of Incorporation

unless approval is received by a majority of

“disinterested directors”;

●

Absence of cumulative voting; and

●

Inability for shareowners to take action by written consent.

Reputational Risks

Damage to our reputation could harm our businesses, including our

competitive position and business prospects.

Reputation risk, or the risk to our earnings, liquidity,

and capital from negative public opinion, is inherent in our business.

Negative public opinion could adversely affect our ability to attract

and retain customers, clients, investors and associates and

expose us to adverse legal and regulatory consequences. Negative public

opinion could result from our actual or alleged conduct

and can arise from various sources, including (a) officer,

director or associate fraud, misconduct, and unethical behavior; (b)

security breaches; (c) litigation or regulatory outcomes; (d) compensation

practices; (e) lending practices; (f) branching strategy;

(g) the suitability or reasonableness of recommending particular trading or

investment strategies, including the reliability of our

research and models; (h) prohibiting clients from engaging in certain transactions;

(h) associate sales practices; (i) failure to

deliver products and services; (j) subpar standards of service and quality expected

by our customers, clients, and the community;

(k) compliance failures; (l) mergers and acquisitions; (m) the inability

to manage technology change or maintain effective data

management; (n) cyber incidents; (o) internal and external fraud (including

check fraud and debit card and credit card fraud); (p)

inadequacy of responsiveness to internal controls; (q) unintended

disclosure of personal, proprietary or confidential information;

(r) failure (or perceived failure) to identify and manage actual and potential conflicts

of interest; (s) breach of fiduciary

obligations; (t) the handling of health emergencies or pandemics, (u)

the activities of our clients, customers, counterparties, and

third parties, including vendors; (v) our environmental, social, and

governance practices and disclosures, including practices and

disclosures related to climate change; (w) our response (or lack of response)

to social and sustainability concerns; and (x) actions

by the financial services industry generally or by certain members or individuals

in the industry. In addition, adverse publicity

negative information posted on social media by associates, the media or otherwise,

whether or not factually correct, may

adversely impact our reputation. Harm to our reputation may adversely

and materially affect our competitive position, business

prospects, and financial results.

Item 1B.

Unresolved Staff Comments

None.

Item 1C.

Cybersecurity

Risk Management and Strategy

Our enterprise risk management program is designed to identify,

assess, and mitigate risks across various aspects of our

Company, including

financial, operational, market, regulatory,

technology, legal, and reputational.

Cybersecurity risk is a critical

component of our technology risk management program, specifically our

information security program given the increasing

reliance on technology and potential of cyber risk threats.

Our Chief Information Security Officer (“CISO”) is primarily

responsible for coordinating the various aspects of the information security

program with cross-functional support teams.

The

Chief Operating Officer (“COO”), management risk committees,

and the Board of Directors provide oversight of the program and

its activities.

Our objective for managing cybersecurity risk is to avoid or minimize the impacts

of external threat events or other efforts to

penetrate, disrupt or misuse systems or information.

Our cybersecurity risk management infrastructure is designed around

regulatory guidance, other industry standards and the National Institute of

Standards and Technology

(“NIST”) Cybersecurity

Framework, although this does not imply that we meet all technical standards,

specification, or requirements under the NIST.

Our

CISO and Information Security Officer (“ISO”) along

with key members of their respective teams, regularly collaborate with peer

banks, industry groups, and policymakers to discuss cybersecurity trends and

issues and identify best practices.

Our information

security program and cyber risk management policies and procedures are periodically

reviewed by the CISO and ISO with the

goal of addressing changing threats and conditions.

The parts of our information security program relating to cybersecurity are built

on a multi-layered and integrated defense model

and include the following processes:

◾

Risk-based controls for information systems and information

on our networks:

We maintain risk

management

processes designed to identify,

assess, and manage cybersecurity risks associated with external service

providers and the

services we provide to our clients. We

leverage people, processes, and technology as part of our efforts

to manage and

maintain cybersecurity controls. We

also employ a variety of preventative and detective tools designed

to monitor, block,

and provide alerts regarding suspicious activity,

as well as to report on suspected advanced persistent threats. We

seek to

maintain a risk management infrastructure that implements physical, administrative

and technical controls that are

designed, based on risk, to protect our information systems and the information

stored on our networks, including personal

information, intellectual property and proprietary information of our

Company and our clients.

◾

Incident response program:

We have an

incident response program and dedicated teams to respond to cybersecurity,

physical and administrative incidents. When a cybersecurity incident occurs,

we have cross-functional teams that are

responsible for leading the initial assessment of priority and severity and

communicating material cybersecurity incidents

to the appropriate members of management and the Board of Directors.

◾

Training and testing:

We have

established processes and systems designed to mitigate cybersecurity risk, including

regular and on-going education and training for associates, preparedness simulations

and tabletop exercises, and recovery

and resilience tests. We

also actively monitor our email gateways for malicious phishing

email campaigns and monitor

remote connections.

◾

Internal and external risk assessments:

We engage

in regular assessments of our infrastructure, software systems, and

network architecture using internal experts and third-party specialists.

Our internal auditor and other independent external

partners will periodically review our processes, systems, and controls, including

with respect to our information security

program, to assess their design and operating effectiveness and

make recommendations to strengthen our risk management

processes.

Notwithstanding our defensive measures and processes, the threat posed

by cyber-attacks is severe.

Our internal systems,

processes, and controls are designed to mitigate loss from cyber-attacks

and, while we have experienced cybersecurity incidents

in the past, to date, risks from cybersecurity threats have not materially affected

our Company.

For further discussion of risks

from cybersecurity threats, see Item 1A. Risk Factors under the section captioned

“Cybersecurity incidents, including security

breaches and failures of our information systems could significantly disrupt our

business, result in the unintended disclosure or

misuse of confidential or proprietary information, damage our reputation,

increase our costs, and cause losses.”

Governance

Our CISO is responsible for managing our Corporate Security Department

and overseeing our information security program,

including cybersecurity risks.

The CISO reports the day-to-day status of the program to the COO who in turn

reports to our Bank

President.

On a quarterly basis, and as needed, the CISO reports the status of the program, notable

threats or incidents, and other

developments related to information security and cybersecurity risks to our Operations

Risk Oversight Committee (“OROC”) and

to our Enterprise Risk Oversight Committee (“ROC”). The CISO also provides

reports to our Board of Directors at least annually

on the status of the information security program and risks, notable threats and

incidents, and other developments related to

cybersecurity. In

addition, the CISO provides more frequent reports to the Audit Committee on the

aforementioned activities,

including remediation efforts and the status of incident

response, as needed.

Item 2.

Properties

We are headquartered

in Tallahassee, Florida.

Our executive office is in the Capital City Bank building located

on the corner of

Tennessee and Monroe

Streets in downtown Tallahassee.

The building is owned by CCB, but is located on land leased under a

long-term agreement.

At December 31, 2023, Capital City Bank had 63 banking offices.

Of these locations, we lease the land, buildings, or both at 13

locations and own the land and buildings at the remaining 50. CCHL had

30 loan production offices, 29 of which were leased.

Capital City Strategic Wealth,

LLC. maintained five offices, all of which were leased.

Item 3.

Legal Proceedings

We are party

to lawsuits and claims arising out of the normal course of business. In management’s

opinion, there are no known

pending claims or 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 4

Mine Safety Disclosure

Not applicable.

PART

Item 5.

Market for the Registrant’s

Common Equity, Related Shareowner Matters,

and Issuer Purchases of Equity

Securities

Common Stock Market Prices and Dividends

Our common stock trades on the Nasdaq Global Select Market under

the symbol “CCBG.”

We had a

total of 1,080 shareowners

of record at January 31, 2024.

The following table presents the range of high and low closing sales prices reported

on the Nasdaq Global Select Market and cash

dividends declared for each quarter during the past two years.

2023

2022

Fourth

Quarter

Third

Quarter

Second

Quarter

First

Quarter

Fourth

Quarter

Third

Quarter

Second

Quarter

First

Quarter

Common stock price:

High

32.56

33.44

34.16

36.86

36.23

33.93

28.55

28.88

Low

26.12

28.64

28.03

28.18

31.14

27.41

24.43

25.96

29.43

29.83

30.64

29.31

32.50

31.11

27.89

26.36

Cash dividends per share

0.20

0.18

0.17

0.16

Florida law and Federal regulations impose restrictions on our ability to

pay dividends and limitations on the amount of dividends

that the Bank can pay annually to us.

See Item 1. “Capital; Dividends; Sources of Strength” and “Dividends” in the Business

section on page 14 and 16, Item 1A. “Market Risks” in the Risk Factors section on

page 22, Item 7. “Liquidity and Capital

Resources – Dividends” – in Management’s

Discussion and Analysis of Financial Condition and Operating Results on page

and Note 17 in the Notes to Consolidated Financial Statements.

ccbg-20231231p39i0

Performance Graph

This performance graph compares the cumulative total shareowner

return on our common stock with the cumulative total

shareowner return of the Nasdaq Composite Index and the S&P U.S. Small Cap Banks Index

for the past five years.

The graph

assumes that $100 was invested on December 31, 2018 in our common stock and each of

the above indices, and that all dividends

were reinvested.

The shareowner return shown below represents past performance and should not

be considered indicative of

future performance.

Period Ending

Index

12/31/18

12/31/19

12/31/20

12/31/21

12/31/22

12/31/23

Capital City Bank Group, Inc.

100.00

133.95

110.72

121.82

153.27

142.32

Nasdaq Composite

100.00

136.69

198.10

242.03

163.28

236.17

SNL $1B-$5B Bank Index

100.00

125.46

113.94

158.62

139.85

140.55

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table contains information about all purchases made during

the fourth quarter of 2023 by, or on behalf

of, us and

any affiliated purchaser (as defined in Rule 10b-18(a)(3)

under the Exchange Act) of shares or other units of any class of our

equity securities that is registered pursuant to Section 12 of the Exchange

Act.

Total

number of

Maximum Number of

Total

number

Average

shares purchased as

shares that may yet be

of shares

price paid

part of our share

purchased under our share

Period

purchased

per share

repurchase program

(1)

repurchase program

October 1, 2023 to

October 31, 2023

4,000

$28.05

4,000

466,901

November 1, 2023 to

November 30, 2023

16,391

$29.07

16,391

450,510

December 1, 2023 to

December 31, 2023

450,510

Total

20,391

$30.24

20,391

450,510

(1)

This balance represents the number of shares that were repurchased during

the fourth quarter of 2023 through the Capital City

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

was approved on January 31, 2019 for a five year

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

our common stock.

The Program is flexible

and shares are acquired from the public markets and other sources using

free cash flow.

No shares are repurchased outside of

the Program.

Item 6.

Selected Financial Data

(Dollars in Thousands, Except Per Share Data)

2023

2022

2021

Interest Income

181,068

131,910

106,351

Net Interest Income

158,988

125,022

102,861

Provision for Credit Losses

9,714

7,494

(1,553)

Noninterest Income

71,610

75,181

107,545

Noninterest Expense

(1)

157,023

151,634

162,508

Pre-Tax Loss (Income) Attributable to Noncontrolling Interests

(2)

1,437

135

(6,220)

Net Income Attributable to Common Shareowners

52,258

33,412

33,396

Per Common Share:

Basic Net Income

3.08

1.97

1.98

Diluted Net Income

3.07

1.97

1.98

Cash Dividends Declared

0.76

0.66

0.62

Diluted Book Value

25.92

22.73

22.63

Diluted Tangible Book Value

(3)

20.45

17.27

17.12

Performance Ratios:

Return on Average Assets

1.22

0.77

0.84

Return on Average Equity

12.40

8.81

9.92

Net Interest Margin (FTE)

4.05

3.14

2.83

Noninterest Income as % of Operating Revenues

31.05

37.55

51.11

Efficiency Ratio

67.99

75.62

77.11

Asset Quality:

Allowance for Credit Losses ("ACL")

29,941

25,068

21,606

ACL to Loans Held for Investment ("HFI")

1.10

0.98

1.12

Nonperforming Assets ("NPAs")

6,243

2,728

4,339

NPAs to Total

Assets

0.15

0.06

0.10

NPAs to Loans HFI plus OREO

0.23

0.11

0.22

ACL to Non-Performing Loans

479.70

1091.33

499.93

Net Charge-Offs to Average Loans HFI

0.18

-0.03

Capital Ratios:

Tier 1 Capital

15.37

14.27

16.14

Total Capital

16.57

15.30

17.15

Common Equity Tier 1 Capital

13.52

12.38

13.86

Tangible Common Equity

(3)

8.26

6.65

6.95

Leverage

10.30

8.91

8.95

Equity to Assets

10.24

8.57

8.99

Dividend Pay-Out

24.76

33.50

31.31

Averages for the Year:

Loans Held for Investment

2,656,394

2,189,440

2,000,563

Earning Assets

3,933,800

3,989,248

3,652,486

Total Assets

4,278,686

4,332,302

3,984,064

Deposits

3,669,612

3,763,336

3,406,886

Shareowners’ Equity

421,482

379,290

336,821

Year

-End Balances:

Loans Held for Investment

2,733,918

2,547,685

1,931,465

Earning Assets

3,957,452

4,177,177

3,949,111

Total Assets

4,304,477

4,519,223

4,263,849

Deposits

3,701,822

3,939,317

3,712,862

Shareowners’ Equity

440,625

387,281

383,166

Other Data:

Basic Average Shares Outstanding

16,987,167

16,950,810

16,862,932

Diluted Average Shares Outstanding

17,022,922

16,984,740

16,892,947

Shareowners of Record

(4)

1,080

1,124

1,157

Banking Locations

(4)

Full-Time Equivalent Associates

(4)(5)

970

992

954

(1)

For 2023, 2022 and 2021, includes pension settlement

gain of $0.3 million, charge of $2.3 million and $3.1 million, respectively.

(2)

Acquired 51% membership interest in Brand Mortgage Group, LLC, re-named as Capital City Home Loans,

LLC, on March 1, 2020 - fully consolidated.

(3)

Diluted tangible book value and tangible common equity

ratio are non-GAAP financial measures. For additional information, including a reconciliation

to GAAP, refer

to page 42.

(4)

As of January 31st of the following year.

(5)

Reflects 970 full-time equivalent associates that

includes 178 full-time equivalent associates at CCHL.

NON-GAAP FINANCIAL MEASURES

We present a tangible

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

removes the effect of

goodwill 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 selected year-to-date

financial data is provided below.

Non-GAAP Reconciliation - Selected Financial Data

(Dollars in Thousands, except per share data)

2023

2022

2021

Shareowners' Equity (GAAP)

440,625

387,281

383,166

Less: Goodwill and Other Intangibles (GAAP)

92,933

93,093

93,253

Tangible Shareowners' Equity (non-GAAP)

347,692

294,188

289,913

Total Assets (GAAP)

4,304,477

4,519,223

4,263,849

Less: Goodwill and Other Intangibles (GAAP)

92,933

93,093

93,253

Tangible Assets (non-GAAP)

4,211,544

4,426,130

4,170,596

Tangible Common Equity Ratio (non-GAAP)

A/B

8.26%

6.65%

6.95%

Actual Diluted Shares Outstanding (GAAP)

17,000,758

17,039,401

16,935,389

Tangible Book Value

per Diluted Share (non-GAAP)

A/C

20.45

17.27

17.12

Item 7.

Management’s

Discussion and Analysis of Financial Condition and Results of 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 included in the Annual Report on Form 10-K/A.

The MD&A is divided into subsections entitled

“Business Overview,” “Executive

Overview,” “Results of Operations,”

“Financial Condition,” “Liquidity and Capital Resources,”

“Off-Balance Sheet Arrangements,” and “Accounting Policies.”

The following information should provide a better understanding

of the major factors and trends that affect our earnings performance

and financial condition, and how our performance during

2023 compares with prior years.

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

collectively, are

referred to as “CCBG,” “Company,”

“we,” “us,” or “our.”

CAUTION CONCERNING FORWARD

-LOOKING STATEMENTS

This Annual Report on Form 10-K/A, 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 and

Item 1A Risk Factors

this Annual Report for a discussion of factors that could cause our actual results to differ

materially from those in the forward-

looking statements.

However, other factors besides those listed in

Item 1A Risk Factors

or discussed in this 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

Our Business

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 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 the sale of life insurance, risk management, and

asset protection services. The Bank has 63 banking

offices and 103 ATMs/ITMs

in Florida, Georgia and Alabama.

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

additional offices in the Southeast for our mortgage banking business.

Please see the section captioned “About Us” beginning on

page 6 for more detailed information about our business.

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.

Strategic Review

Operating Philosophy

Our philosophy is to build long-term client relationships based on quality

service, high ethical standards,

and safe and sound banking practices.

We maintain a locally

oriented, community-based focus, which is augmented by

experienced, centralized support in select specialized areas.

Our local market orientation is reflected in our network of banking

office locations, experienced community executives with

a dedicated President for each market, and community boards which

support our focus on responding to local banking needs.

We strive to offer

a broad array of sophisticated products and to provide

quality service by empowering associates to make decisions in their local

markets.

Strategic Initiatives

In 2021, we initiated a new five-year strategic plan “2025 In Focus” that guide

us in the areas of client

experience, channel optimization, market expansion, and culture.

As part of 2025 In Focus, we aim to take our brand of

relationship banking to the next level, further deepen relationships within

our communities, expand into new higher growth

markets, diversify our revenue sources, invest in new technology that

will support the expansion of client relationships, scale

within our lines of business, and drive higher profitability.

We have implemented

initiatives in support of the strategic plan,

including the implementation of an integrated marketing software aimed at deepening

client relationships, continued our

comprehensive review of our banking office network, continued

expansion into new markets and further diversification of

revenues by expanding our residential mortgage banking and wealth businesses

Markets

We maintain a blend

of large and small markets in Florida and Georgia,

all in close proximity to major interstate

thoroughfares such as Interstates 10 and 75.

Our larger markets include Tallahassee

(Leon County, Florida),

Gainesville

(Alachua County, Florida),

Macon (Bibb County,

Georgia), and Suncoast (Hernando/Pasco/Citrus Counties, Florida).

The larger

employers in these markets are state and local governments, healthcare

providers, educational institutions, and small businesses,

providing stability and good growth dynamics that have historically grown

in excess of the national average.

We serve an

additional fourteen smaller, less competitive,

rural markets located on the outskirts of, and centered between, our larger markets

where we are positioned as a market leader.

In 7 of 11 markets in Florida and two of four Georgia

markets (excluding Northern

Arc of Atlanta markets entered into in 2022 and 2023),

we frequently rank within the top four banks in terms of deposit market

share.

Furthermore, in the counties in which we operate, we maintain an 7.7% deposit

market share in the Florida counties and

5.5% in the Georgia counties (excluding Northern Arc of Atlanta).

Our markets provide for a strong core deposit funding base, a

key differentiator and driver of our profitability and franchise

value.

Recent Acquisition/Expansion Activity

We have continued

our expansion into the Northern Arc of Atlanta, Georgia by opening

full-service offices in Marietta (Cobb County) in the fourth

quarter of 2022 and Duluth (Gwinnett County) in the second quarter

of 2023.

Additionally, we expanded

our presence in the Florida Panhandle by opening a full-service office

in Watersound,

Florida in the first quarter of 2023 and Panama City,

Florida (Lynn Haven) in the first quarter of

2024 and we plan to open

another full-service office in Panama City,

Florida (West Bay)

in the second half of 2024.

To expand our presence

and

commitment to our Gainesville market, we opened a third full-service banking

office in the area in early 2023.

During 2022 and

2023,

we hired leadership and banking teams in the Northern Arc and Walton

County office markets, including commercial

bankers, retail delivery support, private banking, wealth advisors, and

treasury professionals.

Further, CCHL loan originators will

reside in the Northern Arc and Walton

County offices.

On March 1, 2020, CCB acquired a 51% membership interest in Brand Mortgage

Group, LLC (“Brand”) which is now operated

as CCHL, a consolidated entity in the Company’s

financial statements. The terms of the transaction included a buyout call/put

option for CCB to purchase the remaining 49% of the membership interests in CCHL (“the

49% Interest”) that are held by

BMGBMG, LLC (“BMG”). The option requires 12 months advance notice

to the other party, and under the

terms of the option,

January 1, 2025 is the earliest date the transfer of the 49% Interest may be completed.

On December 20, 2023, BMG notified

CCB that BMG will exercise its put option and the transfer of the 49% Interest will become

effective on January 1, 2025.

EXECUTIVE OVERVIEW

For 2023, net income attributable to common shareowners totaled $52.3 million,

or $3.07 per diluted share, compared to net

income of $33.4 million, or $1.97 per diluted share, for 2022, and $33.4

million, or $1.98 per diluted share, for 2021.

The increase in net income attributable to common shareowners for 202

reflected higher net interest income of $34.0 million that

was partially offset by higher noninterest expense of $5.4 million,

higher income taxes of $5.2 million, lower noninterest income

of $3.6 million, and a $2.2 million increase in the provision for credit losses.

Net income attributable to common shareowners

included a $1.3 million increase in the deduction to record the 49% non-controlling

interest in the earnings of CCHL.

The increase in net income attributable to common shareowners for 202

was attributable to higher net interest income of $22.2

million, lower noninterest expense of $10.9 million, and lower income

taxes of $1.9 million, partially offset by a $9.0 million

increase in the provision for credit losses and lower noninterest income of $32.4

million.

Net income attributable to common

shareowners included a $6.4 million increase in the deduction to record the

49% non-controlling interest in the earnings of CCHL.

Below are

Summary Highlights

of our 2023 financial performance:

◾

Tax-equivalent

net interest income totaled $159.4 million

for 2023 compared to $125.3 million for 2022 driven

by strong

loan growth and higher interest

rates, partially offset by higher deposit cost which was well controlled

at 48 basis points for

the year – net interest margin

was 4.05% for 2023 compared to 3.14% for 2022

◾

Credit quality metrics remained

strong throughout

the year – allowance coverage ratio increased from

0.98% to 1.10% -

net loan charge-offs were 18

basis points of average loans for both periods

◾

Noninterest income decreased

$3.6 million, or 4.8%, driven by lower wealth management fees reflective

of lower insurance

commissions (large policy sales in 2022) and

mortgage banking revenues (lower residential

loan originations attributable

to the higher interest rate environment)

◾

Noninterest expense increased

$5.4 million, or 3.6%, primarily due to higher compensation and occupancy expense

reflective of the addition of staffing and banking

offices in our new markets

◾

Loan balances grew $467.0 million, or 21.3% (average),

and $186.2 million, or 7.3% (end of period)

◾

Deposit balances (including repurchase

agreements) declined by $81.9 million, or 2.2% (average),

and decreased $217.1

million, or 5.5% (end of period)

◾

Tangible

book value per share increased $3.18,

or 18.4%, driven by strong earnings and favorable investment

security and

pension plan accumulated other comprehensive

loss adjustments

For more detailed information, refer to the following additional sections of the

MD&A “Results of Operations” and “Financial

Condition”.

RESULTS

OF OPERATIONS

A condensed earnings summary for the last three fiscal years is presented

in Table 1 below:

Table 1

CONDENSED SUMMARY OF EARNINGS

(Dollars in Thousands, Except Per Share

Data)

2023

2022

2021

Interest Income

181,068

131,910

106,351

Taxable Equivalent

Adjustments

367

325

349

Total Interest Income

(FTE)

181,435

132,235

106,700

Interest Expense

22,080

6,888

3,490

Net Interest Income (FTE)

159,355

125,347

103,210

Provision for Credit Losses

9,714

7,494

(1,553)

Taxable Equivalent

Adjustments

367

325

349

Net Interest Income After Provision for Credit Losses

149,274

117,528

104,414

Noninterest Income

71,610

75,181

107,545

Noninterest Expense

157,023

151,634

162,508

Income Before Income Taxes

63,861

41,075

49,451

Income Tax Expense

13,040

7,798

9,835

Pre-Tax Income

Attributable to Noncontrolling Interests

1,437

135

(6,220)

Net Income Attributable to Common Shareowners

52,258

33,412

33,396

Basic Net Income Per Share

3.08

1.97

1.98

Diluted Net Income Per Share

3.07

1.97

1.98

Net Interest Income and Margin

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.

We provide

an analysis of our net interest income, including

average yields and rates in Tables

2 and 3 below.

We provide this information

on a “taxable equivalent” basis to reflect the tax-

exempt status of income earned on certain loans and investments.

For 2023, our taxable equivalent net interest income totaled $159.4

million compared to $125.3 million in 2022 and $103.2

million in 2021.

The $34.1 million, or 27.2%, increase in 2023 reflected loan growth and higher

interest rates across a majority of

our earning assets, partially offset by higher deposit interest expense.

The $22.1 million, or 21.4%, increase in 2022 was

primarily due to strong loan growth, higher interest rates, and growth in the

investment portfolio.

For 2023, our taxable equivalent interest income totaled $181.4

million compared to $132.2 million in 2022 and $106.7 million in

2021.

The $49.2 million, or 37.2%, increase in 2023

and the $25.5 million, or 23.9%, increase in 2022 reflected an overall

improved earning asset mix and higher interest rates on earning assets.

For 2023, interest expense totaled $22.1 million compared to $6.9 million in 2022

and $3.5 million in 2021.

The $15.2 million, or

220.3%, increase in 2023 was primarily attributable to a $9.6 million increase

in NOW account interest expense and $3.5 million

increase in money market account expense.

The increase in NOW account expense reflected an increase in expense for our

commercial accounts that have a managed rate that was increased during

the year reflective of higher interest rates.

The shift in

balances from noninterest bearing to the NOW product also contributed

to the increase.

The increase in the expense for money

market accounts reflected adjustment to our board and managed rates for this product

also reflective of higher interest rates.

For

2022, the $3.4 million, or 97.4%, increase was primarily attributable

to higher NOW account expense related to our negotiated

rate commercial accounts that were tied to an index until mid-2022

and then migrated to a managed rate product.

To a lesser

extent, higher interest expense for our variable rate short-term borrowings

(warehouse line of credit for mortgage banking) and

subordinated notes contributed to the increase in 2022.

Our cost of interest bearing deposits was 81 basis points in 2023, 17 basis points

in 2022, and 4 basis points in 2021.

Our total

cost of deposits (including noninterest bearing accounts) was 48 basis points

in 2023, 9 basis points in 2022, and 2 basis points in

2021.

Our total cost of funds (interest expense/average earning assets) was 56 basis points in 2023,

17 basis points in 2022, and

10 basis points in 2021.

Our interest rate spread (defined as the taxable-equivalent yield on

average earning assets less the average rate paid on interest

bearing liabilities) was 3.63% in 2023, 3.00% in 2022, and 2.75% in 2021.

Our net interest margin (defined as taxable-equivalent

interest income less interest expense divided by average earning assets) was 4.05%

in 2023, 3.14% in 2022, and 2.83% in 2021.

The increase in the interest rate spread and net interest margin

in 2023 and 2022 reflected an improved earning asset mix, higher

yields across a majority of our earning assets due to the rapid increase in interest rates,

and good control of our deposit cost.

During 2023, the Federal Open Market Committee (“FOMC”) raised interest

rates 100 basis points, putting the federal funds

target rate at a range of 5.25%-5.50%, compared to a range of

4.25%-4.50% at the end of 2022.

Our asset sensitive position, with

strong core deposit funding and ample liquidity provided

benefits as interest rates increased.

Table 2

AVERAGE

BALANCES AND INTEREST RATES

2023

2022

2021

(Taxable Equivalent Basis - Dollars

in Thousands)

Average

Balance

Interest

Average

Rate

Average

Balance

Interest

Average

Rate

Average

Balance

Interest

Average

Rate

ASSETS

Loans Held for Sale

(1)(2)

55,510

3,232

5.82

48,502

2,175

4.49

78,328

2,555

3.24

Loans Held for Investment

(1)(2)

2,656,394

149,366

5.62

2,189,440

104,578

4.78

2,000,563

94,332

4.76

Investment Securities

Taxable Investment Securities

1,016,550

18,652

1.83

1,098,876

15,917

1.45

778,953

8,724

1.12

Tax-Exempt Investment Securities

(2)

2,199

2.68

2,668

2.03

3,772

2.39

Total Investment Securities

1,018,749

18,711

1.83

1,101,544

15,971

1.45

782,725

8,815

1.12

Fed Funds Sold & Int Bearing Dep

203,147

10,126

4.98

649,762

9,511

1.46

790,870

998

0.13

Total Earning Assets

3,933,800

181,435

4.61

3,989,248

132,235

3.32

3,652,486

106,700

2.92

Cash & Due From Banks

75,786

76,929

72,409

Allowance for Credit Losses

(28,190)

(21,688)

(22,960)

Other Assets

297,290

287,813

282,129

TOTAL ASSETS

4,278,686

4,332,302

3,984,064

LIABILITIES

Noninterest Bearing Deposits

1,507,657

1,691,132

1,523,717

NOW Accounts

1,172,861

12,375

1.06

1,065,838

2,799

0.26

965,320

294

0.03

Money Market Accounts

299,581

3,670

1.22

283,407

203

0.07

278,606

134

0.05

Savings Accounts

592,033

598

0.10

628,313

309

0.05

537,023

263

0.05

Time Deposits

97,480

939

0.96

94,646

133

0.14

102,220

148

0.14

Total Interest Bearing Deposits

2,161,955

17,582

0.81

2,072,204

3,444

0.17

1,883,169

839

0.04

Total Deposits

3,669,612

17,582

0.48

3,763,336

3,444

0.09

3,406,886

839

0.02

Repurchase Agreements

19,917

513

2.57

8,095

0.17

5,762

0.03

Short-Term Borrowings

24,146

1,538

6.37

32,388

1,747

5.40

47,749

1,360

2.54

Subordinated Notes Payable

52,887

2,427

4.53

52,887

1,652

3.08

52,887

1,228

2.29

Other Long-Term Borrowings

408

4.77

665

4.62

1,887

3.33

Total Interest Bearing Liabilities

2,259,313

22,080

0.98

2,166,239

6,888

0.32

1,991,454

3,490

0.18

Other Liabilities

81,842

85,684

111,567

TOTAL LIABILITIES

3,848,812

3,943,055

3,626,738

Temporary Equity

8,392

9,957

20,505

TOTAL SHAREOWNERS’

EQUITY

421,482

379,290

336,821

TOTAL LIABILITIES,

TEMPORARY EQUITY AND

SHAREOWNERS’ EQUITY

4,278,686

4,332,302

3,984,064

Interest Rate Spread

3.63

3.00

2.75

Net Interest Income

159,355

125,347

103,210

Net Interest Margin

(3)

4.05

3.14

2.83

(1)

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

Interest income includes loan fees of $0.05 million for 2023,

$0.5 million for 2022, and $6.6 million for 2021.

(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.

Table 3

RATE/VOLUME

ANALYSIS

(1)

2023 vs. 2022

2022 vs. 2021

(Taxable Equivalent Basis -

Dollars in Thousands)

Increase (Decrease) Due to Change In

Total

Volume

Rate

Total

Calendar

Volume

Rate

Earnings Assets:

Loans Held for Sale

(2)

1,057

315

742

(380)

(967)

587

Loans Held for Investment

(2)

44,788

22,304

22,484

10,247

8,982

1,265

Taxable Investment Securities

2,735

(1,192)

3,927

7,193

3,583

3,610

Tax-Exempt Investment Securities

(2)

(10)

(37)

(27)

(10)

Funds Sold

615

(6,537)

7,152

8,513

(178)

8,691

Total

49,200

14,880

34,320

25,536

11,393

14,143

Interest Bearing Liabilities:

NOW Accounts

9,576

281

9,295

2,505

2,474

Money Market Accounts

3,467

3,455

Savings Accounts

289

(18)

307

Time Deposits

806

802

(15)

(11)

(4)

Short-Term Borrowings

290

156

134

401

(331)

732

Subordinated Notes Payable

775

424

Other Long-Term Borrowings

(11)

(12)

(32)

(41)

Total

15,192

423

14,769

3,398

(305)

3,703

Changes in Net Interest Income

34,008

14,457

19,551

22,138

11,698

10,440

(1)

This table shows the change in taxable equivalent net interest income for comparative periods based on either changes in average

volume or changes in average rates for interest earning assets and interest bearing liabilities. Changes which are not solely

due to volume changes or solely due to rate changes have been attributed to rate changes.

(2)

Interest income includes the effects of taxable equivalent adjustments using a 21% tax rate to adjust on tax-exempt loans and securities

and securities to a taxable equivalent basis.

Provision for Credit Losses

For 2023, we recorded a provision for credit loss expense of $9.7 million ($9.5

million expense for loans held for investment

(“HFI”) and $0.2 million expense for unfunded loan commitments) compared

to a provision expense of $7.5 million for 2022

($7.4 million benefit for loans HFI and $0.1 million expense for unfunded

loan commitments), and a provision benefit of $1.6

million for 2021

($2.8 million benefit for loans HFI and $1.2 million expense for unfunded loan commitments

The higher loan

loss provision in 2023 was driven by loan growth.

The higher level of provision in 2022 was primarily attributable to strong loan

growth and weaker projected economic conditions, primarily a higher

rate of unemployment.

The credit loss provision in 2021

was favorably impacted by strong loan recoveries.

We discuss the various

factors that have impacted our provision expense in

more detail under the heading Allowance for Credit Losses.

Noninterest Income

For 2023, noninterest income totaled $71.6 million, a $3.6 million decrease

from 2022 and reflected decreases in wealth

management fees of $1.7 million, mortgage banking revenues of $1.5

million, deposit fees of $0.8 million, and bank card fees of

$0.5 million, partially offset by a $0.9 million increase in other

income.

The decrease in wealth management fees reflected lower

insurance commissions of $2.7 million due to the sale of large policies

in 2022 and was partially offset by higher trust fees of $0.5

million and retail brokerage fees of $0.5 million.

The decrease in mortgage banking revenues was primarily driven by lower

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

lower market driven gain on sale margins.

Steady

best efforts adjustable-rate production by CCHL during

2023 contributed to the Bank’s loan growth

and earnings.

The decline in

deposit fees reflected lower commercial account analysis fees and account

service charge fees, and the reduction in bank card fees

was generally due to lower card volume reflective of slower consumer spending.

The increase in other income was primarily due

to a $1.4 million gain from the sale of mortgage servicing rights that was partially offset

by lower loan servicing income.

For 2022, noninterest income totaled $75.2 million, a $32.4 million decrease

from 2021 due to lower mortgage banking revenues

of $40.5 million, partially offset by higher wealth management

fees of $4.4 million, deposit fees of $3.2 million, other income of

$0.4 million, and bank card fees of $0.1 million.

Lower mortgage banking revenues at CCHL in 2022 generally reflected

reduction in refinancing activity and, to a lesser degree, lower purchase mortgage

originations primarily driven by higher interest

rates.

In addition, gain on sale margins were pressured due to a lower level of

governmental loan originations and mandatory

delivery loan sales (both of which provide a higher gain on sale percentage).

Strong best efforts adjustable-rate production by

CCHL during 2022 contributed to the Bank’s

loan growth and earnings.

Noninterest income as a percent of total operating revenues (net interest income plus

noninterest income) was 31.05% in 2023,

37.55% in 2022, and 51.11% in 2021.

The variance in both 2023 and 2022 reflected strong growth in net interest income and

lower mortgage banking revenues.

The table below reflects the major components of noninterest income.

Table 4

NONINTEREST INCOME

(Dollars in Thousands)

2023

2022

2021

Deposit Fees

21,325

22,121

18,882

Bank Card Fees

14,918

15,401

15,274

Wealth Management

Fees

16,337

18,059

13,693

Mortgage Banking Revenues

10,400

11,909

52,425

Other

8,630

7,691

7,271

Total Noninterest

Income

71,610

75,181

107,545

Significant components of noninterest income are discussed in more

detail below.

Deposit Fees

For 2023, deposit fees (service charge fees, insufficient

fund/overdraft fees, and business account analysis fees)

totaled $21.3 million compared to $22.1 million in 2022

and $18.9 million in 2021.

The $0.8 million, or 3.6%, decrease in 2023

was attributable to lower commercial account analysis fees of $0.5 million

and account service charge fees of $0.3

million.

The

reduction in commercial account analysis fees reflected a higher earnings

credit rate for commercial deposit accounts.

The

decrease in account service charge fees was attributable

to higher debit card utilization which allows the client to forego the

service charge fee if a certain number of debit card transactions

is achieved.

The $3.2 million, or 17.2%, increase in 2022

reflected higher account service charge fees and overdraft

fees.

The conversion,

in the third quarter of 2021, of our remaining

free checking accounts to a monthly maintenance fee account type

drove the increase in account service charge fees.

The increase

in overdraft fees was driven by higher utilization of our overdraft service

which is closely correlated (inversely) with the

consumer savings rate which has declined noticeably since it substantially increased

in 2021 due to the high level of governmental

stimulus related to the COVID-19 pandemic.

Bank Card Fees

Bank card fees totaled $14.9 million in 2023 compared to $15.4 million in 2022

and $15.3 million in 2021.

The

decrease in 2023 was generally due to lower card volume reflective of overall

slower consumer spending.

The slight increase in

2022 reflected incremental revenues from growth in new checking accounts that

was partially offset by lower transaction volume

which reflected a slowdown in consumer spending.

Wealth

Management Fees

Wealth management fees

including both trust fees (i.e., managed accounts and trusts/estates) and

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

accounts) totaled $16.3 million in 2023

compared to

$18.1 million in 2022 and $13.7 million in 2021.

The decrease in 2023 reflected lower insurance revenues of $2.7 million that

was partially offset by a $0.5 million decrease in trust fees and $0.5

million decrease in retail brokerage fees.

The sale of large

policies in 2022 drove the decline in insurance revenues.

The increase in 2022 was primarily due to higher insurance revenues of

$3.7 million and retail brokerage fees of $0.6 million.

The higher level of insurance revenues reflected the acquisition of CCSW

in 2021.

At December 31, 2023, total assets under management (“AUM”) were approximately

$2.588 billion compared to $2.273

billion at December 31, 2022 and $2.324 billion at December 31, 2021.

The increase in AUM in 2023 was primarily attributable

to growth in assets at Capital City Investments, our retail brokerage subsidiary,

reflecting increases

in investments

in fixed

income and annuity products,

and higher account values/returns reflective of the improved market returns

in 2023.

The decrease

in AUM in 2022 generally reflected lower account values/returns

reflective of volatile market conditions during the year partially

offset by new account growth.

Mortgage Banking Revenues

Mortgage banking revenues totaled $10.4 million in 2023 compared

to $11.9 million in 2022 and

$52.4 million in 2021.

The decrease in 2023 was primarily driven by lower production volume

reflective of the rapid increase in

interest rates and lower market driven gain on sale margins which

continued to be under pressure in 2023.

2022 revenues

reflected a reduction in refinancing activity,

and, to a lesser degree, lower purchase mortgage originations primarily driven by

higher interest rates.

In addition, gain on sale margins were pressured due to a lower level of

governmental loan originations and

mandatory delivery loan sales (both of which provide a higher gain on sale percentage).

Throughout 2023 and 2022, best efforts

origination volume allowed us to book a steady flow of adjustable-rate residential

loans in our portfolio which contributed to loan

growth and earnings.

In addition, continued stability in our construction/permanent loan program partially offset

the slowdown in

secondary market originations.

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 noninterest income totaled $8.6 million in 2023 compared to $7.7 million

in 2022 and $7.3 million in 2021.

The

$0.9 million increase in 2023 was due to a $1.4 million gain from the sale of

mortgage servicing rights that was partially offset by

lower loan servicing income which reflected the aforementioned sale.

The $0.4 million increase in 2022

was primarily

attributable to a $0.4 million increase in miscellaneous income, primarily

from a $0.2 million gain on the termination of a lease.

Noninterest Expense

For 2023, noninterest expense totaled $157.0 million compared to $151.6

million for 2022 and reflected increases in occupancy

expense of $3.1 million and compensation expense of $2.3 million.

The increase in occupancy expense was primarily driven by

the addition of four new banking offices in mid-to-late 2022 and

early 2023, and, to a lesser extent, higher expense for property

insurance (increased premiums) and maintenance agreements (network

and security upgrades).

The increase in compensation

expense reflected a $4.7 million increase in salary expense that was partially offset

by a $2.4 million decrease in associate benefit

expense.

The increase in salary expense was primarily due to a $3.6 million increase in base salaries (primarily

the addition of

staffing in new markets and annual merit), a $3.0 million

decrease in realized cost (credit offset to salary expense - lower new

residential loan originations in 2023), and higher incentive expense of $1.2

million that was partially offset by lower commission

expense of $3.3 million (lower residential loan originations and

insurance policy sales in 2023).

The decrease in associate benefit

expense reflected a $2.9 million decrease in pension plan service cost expense that was partially

offset by a $0.5 million increase

in associate insurance expense (higher premiums).

The net variance in other expense was primarily due to lower expenses for

OREO of $1.6 million (gain from the sale of a banking office)

and miscellaneous expense of $1.2 million (mortgage servicing

asset amortization of $1.0 million - mid-2023 sale of servicing rights).

Further, there was no pension settlement expense in 2023

whereas we realized $2.3 million in total pension settlement expense

in 2022.

These favorable variances were partially offset by

increases in pension – other expense (non-service component) of $3.0

million, professional fees of $0.8 million (one-time

consulting expense related to our core processor outsourcing contract negotiation)

insurance – other (FDIC insurance fees) of

$0.7 million, processing fees of $0.5

million, and legal fees of $0.3 million.

For comparison purposes, the service cost component

of our pension plan expense is reflected in associate benefit expense and the non-service

component and any settlement expenses

are reflected in other expense.

For 2023, our total pension expense was $3.3 million compared to

$5.7 million in 2022 which

included $2.3 million in pension settlement expense due to a higher

level of retirements.

For 2022, noninterest expense totaled $151.6 million, a $10.9 million

decrease from 2021, due to a decrease in compensation

expense of $10.0 million and other expense of $1.6 million, partially

offset by an increase in occupancy expense of $0.6 million.

The decrease in compensation expense was primarily due to a decrease in salary

expense of $10.6 million that was partially offset

by an increase in associate benefit expense of $0.6 million. The variance in salary

expense was primarily due to higher realized

loan cost of $7.7 million and lower variable/performance-based compensation

of $4.5 million, partially offset by higher base

salary expense of $1.8 million (merit and new market staffing additions).

The increase in associate benefit expense was primarily

attributable to an increase in associate insurance expense (utilized self-insurance

reserves in 2021) of $0.4 million and stock

compensation expense of $0.7 million, partially offset by

lower pension service cost expense of $0.6 million.

The decrease in

other expense was primarily due to lower pension plan related costs, including a decrease

of $4.9 million for the non-service cost

component of our pension plan (reflected in pension – other) attributable

to the utilization of a lower discount rate for plan

liabilities and a decrease of $0.8 million for pension plan settlement expense.

These favorable variances were partially offset by

an increase in other real estate expense of $1.2 million, travel/entertainment and advertising

costs of $1.3 million (return to pre-

pandemic levels and market expansion), miscellaneous expense of

$1.5 million (other losses of $0.9 million (primarily debit card

and check fraud) and VISA share swap conversion ratio payments of $0.4 million),

and insurance – other of $0.3 million (FDIC

insurance fees). Gains from the sale of two banking offices

in 2021 drove the increase in other real estate expense.

The increase

in occupancy expense is related to lease expense for four new banking offices

added in 2022 and various software purchases,

including network security and end of life upgrades.

For 2021, our total pension expense was $12.0 million and reflected the

utilization of a lower discount rate for plan liabilities reflective of the low

rate environment at that time.

Our operating efficiency ratio (expressed as noninterest

expense as a percent of taxable equivalent net interest income plus

noninterest income) was 67.99%, 75.62% and 77.11%

in 2023, 2022 and 2021, respectively.

The decrease in this metric for 2023

and 2022 was primarily driven by higher taxable equivalent net interest income

(refer to caption headed Net Interest Income and

Margin).

For 2022, lower noninterest expense also contributed to the decrease.

Expense management is an important part of our culture and strategic focus.

We will continue

to review and evaluate

opportunities to optimize our delivery operations and invest in

technology that provides

favorable returns/scale and/or mitigates

risk.

The table below reflects the major components of noninterest expense.

Table 5

NONINTEREST EXPENSE

(Dollars in Thousands)

2023

2022

2021

Salaries

79,278

74,590

85,211

Associate Benefits

14,509

16,929

16,259

Total Compensation

93,787

91,519

101,470

Premises

13,033

11,184

10,879

Equipment

14,627

13,390

13,053

Total Occupancy,

net

27,660

24,574

23,932

Legal Fees

1,721

1,413

1,411

Professional Fees

6,245

5,437

5,633

Processing Services

6,984

6,534

6,569

Advertising

3,349

3,208

2,683

Travel and Entertainment

1,896

1,815

1,063

Telephone

2,729

2,851

2,975

Insurance – Other

3,120

2,409

2,096

Pension - Other

(3,043)

1,913

Pension Settlement (Gain) Charge

(291)

2,321

3,072

Other Real Estate, Net

(1,969)

(337)

(1,488)

Miscellaneous

11,716

12,933

11,179

Total Other Expense

35,576

35,541

37,106

Total Noninterest

Expense

157,023

151,634

162,508

Significant components of noninterest expense are discussed in more detail

below.

Compensation

Compensation expense totaled $93.8 million in 2023 compared to $91.5 million

in 2022, and $101.5 million in

2021.

For 2023, the $2.3 million, or 2.5%, net increase reflected an increase

in salary expense of $4.7 million that was partially

offset by a decrease in associate benefit expense of $2.4

million.

The increase in salary expense was primarily due to a $3.6

million increase in base salaries (primarily the addition of staffing

in new markets and annual merit), a $3.0 million reduction in

realized cost (credit offset to salary expense - lower new

residential loan originations in 2023) and higher incentive expense of

$1.2 million that was partially offset by lower commission

expense of $3.3 million (lower residential loan originations and

insurance policy sales in 2023).

The decrease in associate benefit expense reflected a $2.9 million decrease in pension

plan

service cost expense that was partially offset by a $0.5 million increase

in associate insurance expense (higher premiums).

For 2022, the $10.0 million, or 9.8%, net decrease reflected a decrease in salary

expense of $10.6 million that was partially offset

by an increase in associate benefit expense of $0.6 million.

The variance in salary expense was primarily due to higher realized

loan cost (credit offset to salary expense) of $7.7 million and lower variable/performance

-based compensation of $4.5 million

($6.7 million decrease at CCHL (lower loan volume) partially offset

by a $2.2 million increase at the Bank (primarily related to

higher insurance revenues).

These decreases were partially offset by higher base salary expense of

$1.8 million at the Bank

(merit and new market staffing additions).

The increase in associate benefit expense was primarily attributable to an increase

associate insurance expense (utilized self-insurance reserves in 2021)

of $0.4 million and stock compensation expense of $0.7

million, partially offset by lower pension service cost expense of

$0.6 million.

Occupancy

Occupancy expense (including premises and equipment) totaled $27.7 million for

2023

compared to $24.5 million

for 2022, and $23.9 million for 2021.

For 2023, the $3.1 million, or 12.6%, increase was a primarily driven by the addition of

four new banking offices in mid-to-late 2022 and early

2023, and, to a lesser extent higher expense for property insurance

(increased premiums) and maintenance agreements (network and security upgrades).

For 2022, the $0.6 million, or 2.7%, increase was attributable to increases in

software license expense of $0.5 million and banking

office lease expense of $0.3 million, partially offset

by a decrease in maintenance and repairs expense of $0.1 million.

The

increase in software license expense reflected software upgrades for personal

computers and network servers, and additional

investment in network security monitoring software.

Other

Other noninterest expense totaled $35.6 million in 2023 compared

to $35.5 million in 2022 and $37.1 million in 2021.

For 2023, $0.1 million variance in other expense was primarily due to lower

expenses for OREO of $1.6 million (gain from the

sale of a banking office in 2023) and miscellaneous expense

of $1.2 million (mortgage servicing asset amortization of $1.0

million - mid-2023 sale of servicing rights).

Further, there was no pension settlement expense in 2023

whereas we realized $2.3

million in total pension settlement expense in 2022.

These favorable variances were partially offset by increases in pension

–

other expense (non-service component) of $2.8 million, professional fees of $0.8

million (one-time consulting expense related to

our core processor outsourcing contract negotiation), insurance

– other (FDIC insurance fees) of $0.7 million, processing fees of

$0.5 million, and legal fees of $0.3 million.

For 2022, the $1.6 million, or 4.2%, decrease was due to lower pension

related costs, including a decrease of $4.9 million for the

non-service cost component of our pension plan (reflected in pension –

other) attributable to the utilization of a lower discount

rate for plan liabilities and a decrease of $0.8 million for pension plan

settlement expense. These favorable variances were

partially offset by an increase in other real estate expense of

$1.2 million, travel/entertainment and advertising costs of $1.3

million (return to pre-pandemic levels and market expansion), and miscellaneous

expense of $1.5 million (other losses of $0.9

million (primarily debit card and check fraud) and VISA share swap conversion

ratio payments of $0.4 million), and insurance –

other of $0.3 million (FDIC insurance fees). Gains from the sale of two banking

offices in 2021 drove the increase in other real

estate expense.

Income Taxes

For 2023, we realized income tax expense of $13.0 million (effective

rate of 20.4%) compared to $7.8 million (effective rate of

19.0%) for 2022 and $9.8 million (effective rate of 19.9%)

in 2021.

The increase in our effective tax rate for 2023 was

attributable to a higher level of consolidated income.

The effective rate was further increased due to a lower level of pre

-tax

income from CCHL, in relation to our consolidated income as the non-controlling interest adjustment

for CCHL is accounted for

as a permanent tax adjustment.

However, these increases were offset

by additional solar tax credits earned in 2023.

2022 income

tax expense was favorably impacted by discrete tax items totaling $0.7 million related to

a favorable deferred tax adjustment for

our SERP and a State of Florida corporate tax refund.

In September 2021, Florida enacted a corporate tax rate reduction from 4.5% to 3.535%

retroactive to January 1, 2021, with an

expiration date of December 31, 2021, therefore, there was no material

impact to our deferred tax accounts.

Our 2021 state tax

rate was adjusted to reflect the two percentage point reduction.

The Florida tax rate reverted to 5.5% effective January 1, 2022.

Absent discrete items or new tax credit investments,

we expect our annual effective tax rate to approximate 23-24% in 2024.

FINANCIAL CONDITION

Average assets totaled

approximately $4.279 billion for 2023, a decrease of $53.6

million, or 1.2%, from 2022.

Average earning

assets were approximately $3.934 billion for 2023, a decrease of $55.5 million, or 1.4%, from

2022.

Compared to 2022, the

average decrease was primarily attributable to a $446.6 million decrease

in overnight funds and a $82.8 million decrease in

investment securities that was partially offset by a $467.0 million increase

in loans HFI.

We discuss these variances

in more

detail below.

Table 2 provides

information on average balances and rates, Table

3 provides an analysis of rate and volume variances and Table

6 highlights the changing mix of our interest earning assets over the last three fiscal

years.

Loans

In 2023, average loans HFI increased $467.0 million, or 21.3%, compared

to an increase of $188.9 million, or 9.4%, in 2022.

Compared to 2022, the growth in average loans was broad based with increases

realized in most loan categories, more

significantly in the residential real estate and commercial real estate categories

which increased by $391.3 million and $110.0

million, respectively.

Declines were experienced in our consumer (primarily indirect auto) and commercial

loan segments of

$49.0 million and $9.1 million, respectively.

Total loans HFI at December 31,

2023

totaled $2.734 billion, a $186.2 million

increase over December 31, 2022 and primarily reflected higher balances

in residential real estate of $254.7 million and

commercial real estate of $42.9 million, partially offset

by declines in our consumer loans of $53.5 million and construction loans

of $38.4 million.

At December 31, 2023, our consumer loan balance reflected direct loans of

$23.0 million and indirect auto

loans of $248.0 million.

During 2023, indirect auto balances declined gradually as we focused on

reducing exposure to this loan

segment which totaled $302.8 million at December 31, 2022.

As part of our overall strategy,

we will purchase newly originated 1-4 family real estate secured adjustable-rate

loans from CCHL.

The strategic alliance with CCHL provides us a larger pool

of loan purchase opportunities, which in large part drove

the

aforementioned increases in residential real estate loans.

These purchases can vary according to the direction of residential

mortgage interest rates, and we expect that these purchases might slow in 2024

compared to the 2023 level of purchases.

Expansion into new markets in the Northern Arc of Atlanta, Georgia

(Cobb and Gwinnett Counties) and Walton

County, Florida

drove incremental loan growth of approximately $43 million in 2023

as we added to those banking teams throughout 2023.

In 2023, average loans held for sale (“HFS”) increased $7.0 million, or 14.

5%, from 2022.

Loans HFI and HFS as a percentage of

average earning assets increased to 68.9% in 2023 compared to 56.1%

in 2022, primarily attributable to strong loan growth during

the year.

Table 6

SOURCES OF EARNING ASSET GROWTH

2022 to

Percentage

Components of

2023

of Total

Average

Earning Assets

(Average Balances – Dollars In Thousands)

Change

2023

2022

2021

Loans:

Loans HFS

7,008

12.6

1.4

1.2

2.1

Loans HFI:

Commercial, Financial, and Agricultural

(9,134)

(16.5)

5.9

6.0

8.5

Real Estate – Construction

14,458

26.1

5.8

5.4

4.3

Real Estate – Commercial Mortgage

110,013

198.4

20.7

17.6

18.6

Real Estate – Residential

391,287

705.7

22.5

12.3

10.0

Real Estate – Home Equity

9,284

16.7

5.2

4.9

5.3

Consumer

(48,954)

(88.3)

7.6

8.7

8.0

Total HFI Loans

466,954

842.1

67.7

54.9

54.7

Total Loans HFS and

HFI

473,962

854.7

69.1

56.1

56.8

Investment Securities:

Taxable

(82,326)

(148.5)

25.8

27.5

21.3

Tax-Exempt

(469)

(0.8)

0.1

Total Securities

(82,795)

(149.3)

25.9

27.6

21.4

Federal Funds Sold and Interest Bearing Deposits

(446,615)

(805.4)

5.0

16.3

21.8

Total Earning Assets

(55,448)

100

Our average total loans (HFS and HFI)-to-deposit ratio was 73.9%

in 2023, 59.5% in 2022, and 61.0% in 2021.

The composition of our HFI loan portfolio at December 31 for each of

the past three years is shown in Table

Table 8 arrays

our HFI loan portfolio at December 31, 2023, by maturity period.

As a percentage of the HFI loan portfolio, loans with fixed

interest rates represented 29.1% at December 31, 2023 compared to 33.3% at December

31, 2022. 1-4 family real estate secured

adjustable-rate loan production in 2023 drove the decrease in the percentage.

Table 7

LOANS HFI BY CATEGORY

(Dollars in Thousands)

2023

2022

2021

Commercial, Financial and Agricultural

225,190

247,362

223,086

Real Estate – Construction

196,091

234,519

174,394

Real Estate – Commercial Mortgage

825,456

782,557

663,550

Real Estate – Residential

1,004,219

749,513

360,021

Real Estate – Home Equity

210,920

208,217

187,821

Consumer

272,042

325,517

322,593

Total Loans HFI, Net

of Unearned Income

2,733,918

2,547,685

1,931,465

Table 8

LOANS HFI MATURITIES

Maturity Periods

(Dollars in Thousands)

One Year

or Less

Over One

Through

Five Years

Five

Through

Fifteen

Years

Over

Fifteen

Years

Total

Commercial, Financial and Agricultural

37,692

144,978

39,563

2,957

225,190

Real Estate – Construction

119,397

48,295

1,751

26,648

196,091

Real Estate – Commercial Mortgage

58,142

136,164

330,093

301,057

825,456

Real Estate – Residential

15,579

18,619

132,848

837,173

1,004,219

Real Estate – Home Equity

2,208

9,698

60,668

138,346

210,920

Consumer

(1)

6,382

170,698

94,672

290

272,042

Total

239,400

528,452

659,595

1,306,471

2,733,918

Total Loans HFI with

Fixed Rates

96,749

407,059

248,494

43,529

795,831

Total Loans HFI with

Floating or Adjustable-Rates

142,651

121,393

411,101

1,262,942

1,938,087

Total

239,400

528,452

659,595

1,306,471

2,733,918

(1)

Demand loans and overdrafts are

reported in the category of one year or less.

Credit Quality

Table 9 provides

the components of nonperforming assets and various other credit quality and risk metrics

at December 31 for the

last three fiscal years.

Information regarding our accounting policies related to nonaccruals, past due

loans, and financial

difficulty modifications is provided in Note 3 – Loans

Held for Investment and Allowance for Credit Losses.

Nonperforming assets (nonaccrual loans and other real estate) totaled $6.2

million at December 31, 2023 compared to $2.7

million at December 31, 2022.

At December 31, 2023, nonperforming assets as a percent of total assets was 0.15%, compared

0.06% at December 31, 2022.

Nonaccrual loans totaled $6.2 million at December 31, 2023, a $3.9 million

increase over

December 31, 2022.

Further, classified loans totaled $22.2 million at December

31, 2023, a $2.9 million increase over December

31, 2022.

Table 9

CREDIT QUALITY

(Dollars in Thousands)

2023

2022

2021

Nonaccruing Loans:

Commercial, Financial and Agricultural

311

Real Estate – Construction

322

Real Estate – Commercial Mortgage

909

645

604

Real Estate – Residential

2,990

239

2,097

Real Estate – Home Equity

999

771

1,319

Consumer

711

584

212

Total Nonaccruing

Loans

6,242

2,297

4,322

Other Real Estate Owned

431

Total Nonperforming

Assets

6,243

2,728

4,339

Past Due Loans 30 – 89 Days

6,855

7,829

3,600

Classified Loans

22,203

19,342

17,912

Nonaccruing Loans/Loans

0.23

0.09

0.22

Nonperforming Assets/Total

Assets

0.15

0.06

0.10

Nonperforming Assets/Loans Plus OREO

0.23

0.11

0.22

Allowance/Nonaccruing Loans

479.70

1091.33

499.93

Nonaccrual Loans

Nonaccrual loans totaled $6.2 million at December 31, 2023, a $3.9 million increase

over December 31,

2022.

Generally, loans are placed

on nonaccrual status if principal or interest payments become 90 days past due or management

deems the collectability of the principal and interest to be doubtful.

Once a loan is placed in nonaccrual status, all previously

accrued and uncollected interest is reversed against interest income.

Interest income on nonaccrual loans is recognized when the

ultimate collectability is no longer considered 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.

If interest on our loans classified

as nonaccrual during 2023 had been recognized on a fully accruing basis,

we would have recorded an additional $0.2 million of

interest income for the year ended December 31, 2023.

Other Real Estate Owned

OREO represents property acquired as the result of borrower defaults on

loans or by receiving a deed

in lieu of foreclosure.

OREO is recorded at the lower of cost or estimated fair value, less estimated selling costs, at the

time of

foreclosure.

Write-downs occurring at foreclosure are

charged against the allowance for credit losses.

On an ongoing basis,

properties are either revalued internally or by a third-party appraiser

as required by applicable regulations.

Subsequent declines in

value are reflected as other noninterest expense.

Carrying costs related to maintaining the OREO properties are expensed as

incurred and are also reflected as other noninterest expense.

OREO totaled $1,000 at December 31, 2023 versus $0.4 million at December 31,

2022.

During 2023, we added properties

totaling $1.5 million and sold properties totaling $1.9 million.

For 2022, we added properties totaling $2.4 million and sold

properties totaling $2.0 million.

Modifications to Borrowers Experiencing

Financial Difficulty

Occasionally, we will modify

loans to borrowers who are

experiencing financial difficulty.

Loan modifications to borrowers in financial difficulty are loans in

which we will grant an

economic concession to the borrower that we would not otherwise consider.

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

we will make concessions including the extension of the loan term, a principal

moratorium, a reduction in the interest rate, or a

combination thereof.

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 December 31, 2023, we did not maintain

any loans made to borrowers modified due to the borrower experiencing

financial difficulty.

Past Due Loans

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.

Past due loans at December 31, 2023 totaled $6.9 million compared to $7.8 million

at December 31, 2022.

Indirect

auto loans represented a large portion of the past due balances representing

76% and 73%, respectively,

of the total dollars past

due at December 31, 2023 and December 31, 2022, respectively.

Potential Problem Loans

Potential problem loans are defined as those loans which are now current but where management

has

doubt as to the borrower’s ability to comply with present

loan repayment terms.

At December 31, 2023, we had $3.4 million in

loans of this type which were not included in either of the nonaccrual or

90 days past due loan categories compared to $2.8

million at December 31, 2022.

Management monitors these loans closely and reviews their performance

on a regular basis.

Loan Concentrations

Loan concentrations exist when there are amounts loaned to multiple borrowers engaged

in similar

activities which cause them to be similarly impacted by economic or other conditions

and such amount exceeds 10% of total

loans.

Due to the lack of diversified industry within our markets and the relatively close proximity

of the markets, we have both

geographic concentrations as well as concentrations in the types of loans funded.

Specifically, due to the nature of our markets,

significant portion of our HFI loan portfolio has historically been

secured with real estate, approximately 82% at December 31,

2023 and 78% at December 31, 2022 with the increase driven by a higher volume

of 1-4 family residential real estate loans

originated in 2023 in comparison to other loan types.

The primary types of real estate collateral are commercial properties and 1-

4 family residential properties.

We review our

loan portfolio segments and concentration limits on an ongoing basis and will make

adjustments as needed to

mitigate/reduce risk to segments that reflect decline or stress.

We have established

an internal lending limit of $10 million for the total aggregate amount of credit

that will be extended to a

client and any related entities within our Board approved policies.

This compares to our legal lending limit of approximately $96

million.

The following table summarizes our real estate loan category as segregated

by the type of property.

Property type concentrations

are stated as a percentage of total real estate loans at December 31.

Table 10

REAL ESTATE

LOANS BY PROPERTY TYPE

2023

2022

Investor

Real Estate

Owner

Occupied

Real Estate

Investor

Real Estate

Owner

Occupied

Real Estate

Vacant

Land, Construction, and Land Development

13.3

14.8

Improved Property

27.2

59.5

27.4

57.8

Total Real Estate Loans

40.5

59.5

42.2

57.8

A major portion of our real estate loan category is centered in the owner occupied

category which carries a lower risk of non-

collection than certain segments of the investor category.

Approximately 41% of the investor real estate category was secured by

residential real estate at December 31, 2023 compared to 42% at December 31,

2022.

Allowance for Credit Losses

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

loans’ amortized cost basis to present the net

amount expected to be collected on the loans.

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

reported in earnings and reduced by the charge-off

of loan amounts, net of recoveries.

Loans are charged off against the

allowance when management believes the uncollectability of a loan balance

is confirmed.

Expected recoveries do not exceed the

aggregate of amounts previously charged-off

and expected to be charged-off.

Expected credit loss inherent in non-cancellable

off-balance sheet credit exposures is provided through the credit loss provision,

but recorded separately 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.

Detailed information regarding the methodology for estimating the

amount reported in the allowance for credit losses is provided

in Note 1 – Significant Accounting Policies/Allowance for Credit Losses in

the Consolidated Financial Statements.

Note 3 – Loans Held for Investment and Allowance for Credit Losses in the

Consolidated Financial Statements provides the

activity in the allowance and the allocation by loan type for each of

the past three fiscal years.

At December 31, 2023, the allowance for credit losses for HFI loans totaled $29.9

million compared to $25.1 million at December

31, 2022 and $21.6 million at December 31, 2021.

The $4.8 million increase in the allowance in 2023 reflected a credit loss

provision of $9.6 million and net loan charge-offs

of $4.7 million.

The $3.5 million increase in the allowance in 2022 reflected a

credit loss provision of $7.4 million and net loan charge

-offs of $3.9 million.

The increases in the allowance for both 2023 and

2022 were primarily attributable to incremental allowance related to loan growth,

primarily residential real estate, and slower

prepayment speeds (due to higher interest rates).

For 2022, a higher projected rate of unemployment and its effect

on rates of

default was also a contributing factor.

For 2023, we realized net loan charge-offs

of $4.7 million, or 0.18% of average HFI loans, compared to net loan charge

-offs of

$3.9 million, or 0.18%, for 2022, and net loan recoveries of $0.6

million, or 0.03%, for 2021.

A majority of the increase in 2023

and 2022 reflected higher consumer loan (indirect auto) net loan charge

-offs which represented 76% and 43%, respectively,

total net loan charge-offs.

Further, indirect auto net loan charge

-offs represented approximately 1.31% of average indirect auto

loans in 2023 and 0.53% in 2022.

Beginning in 2022 we began reducing our exposure to this loan segment in

advance of

potential economic slowing.

At December 31, 2023, the allowance for credit losses represented 1.10%

of HFI loans and provided coverage of 480% of

nonperforming loans compared to 0.98% and 1,091%, respectively,

at December 31, 2022

and 1.12% and 500%, respectively,

December 31, 2021.

Table 11

ALLOCATION OF

ALLOWANCE

FOR CREDIT LOSSES

2023

2022

2021

(Dollars in Thousands)

ACL

Amount

Percent of

Loans to

Total Loans

ACL

Amount

Percent of

Loans to

Total Loans

ACL

Amount

Percent of

Loans to

Total Loans

Commercial, Financial and Agricultural

1,482

8.2

1,506

9.7

2,191

11.6

Real Estate:

Construction

2,502

7.2

2,654

9.2

3,302

9.0

Commercial

5,782

30.2

4,815

30.7

5,810

34.4

Residential

15,056

36.7

10,741

29.4

4,129

18.6

Home Equity

1,818

7.7

1,864

8.2

2,296

9.7

Consumer

3,301

10.0

3,488

12.8

3,878

16.7

Total

29,941

100

25,068

100

21,606

100

Investment Securities

Through December 31, our average investment portfolio balance

was $1.019 billion in 2023, $1.102 billion in 2022, and $783

million in 2021.

As a percentage of average earning assets, our investment portfolio represented 25.9%

in 2023, compared to

27.6%

in 2022, and 21.4% in 2021.

For 2023, the decline in the investment portfolio was attributable to

the majority of our

investment cash flow not being reinvested in investment securities and to

a lesser extent the sale of $30.4 million of our floating

rate securities at a slight net gain, both of which were designed to support loan growth.

As we continue to monitor our overall

liquidity levels in 2024, cash flow from the investment portfolio should

continue to run-off, but we will review various investment

strategies,

as appropriate given loan demand and other liquidity management

strategies.

For 2023, average taxable investments decreased $82.3 million, or 7.5%,

while tax-exempt investments decreased $0.5 million, or

17.6%.

Both taxable and non-taxable bonds decreased as part of our overall investment

strategy to allow a majority of our

investments to run off in order to fund loan growth.

At December 31, 2023, municipal securities (taxable and non-taxable)

comprised 4.0% of the portfolio.

Our 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”).

For 2023

and 2022, we maintained securities under both the AFS and HTM

designations.

At December 31, 2023, $337.9 million, or 35.1%, of our investment portfolio was classified as AFS,

with $625.0

million, or 64.7%, classified as HTM and $3.5 million, or 0.2%, classified as equity securities.

At December 31, 2022, the AFS

and HTM portfolio comprised 38.5%

and 61.5%, respectively.

In the third quarter of 2022, U.S. Treasury obligations

totaling

$168.4 million with unrealized losses of $9.4 million were transferred from

AFS to HTM.

At December 31, 2023, $4.5 million

was remaining in unrealized losses for these securities.

Table 12 provides

the composition of our investment securities portfolio at December 31 for each of

the last three fiscal years.

Table 12

INVESTMENT SECURITIES COMPOSITION

2023

2022

2021

(Dollars in Thousands)

Carrying

Amount

Percent

Carrying

Amount

Percent

Carrying

Amount

Percent

Available for

Sale

U.S. Government Treasury

24,679

2.6

22,050

2.1

187,868

18.9

U.S. Government Agency

145,034

15.0

186,052

17.3

237,578

23.9

States and Political Subdivisions

39,083

4.0

40,329

3.8

46,980

4.7

Mortgage-Backed Securities

63,303

6.6

69,405

6.5

88,869

8.9

Corporate Debt Securities

57,552

6.0

88,236

8.2

86,222

8.7

Other Securities

8,251

0.9

7,222

0.6

7,094

0.7

Total

337,902

35.1

413,294

38.5

654,611

65.8

Held to Maturity

U.S. Government Treasury

457,681

47.4

457,374

42.6

115,499

11.6

Mortgage-Backed Securities

167,341

17.3

203,370

18.9

224,102

22.5

Total

625,022

64.7

660,744

61.5

339,601

34.1

Other Equity Securities

3,450

0.2

861

0.1

Total Investment

Securities

966,374

100

1,074,048

100

995,073

100

The classification of a security is determined upon acquisition based

on how the purchase will affect our asset/liability strategy

and future business plans and opportunities.

Classification determinations will also factor in 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 loss component of shareowners’ equity.

Securities designated as HTM are those acquired or owned with the

intent of holding them to maturity (final payment date).

HTM investments are measured at amortized cost.

It is neither

management’s current

intent nor practice to participate in the trading of investment securities for the purpose of recognizing

gains

and therefore we do not maintain a trading portfolio.

At December 31, 2023, there were 878 positions (combined AFS and HTM)

with pre-tax unrealized losses totaling $63.2 million.

The GNMA mortgage-backed securities, U.S. Treasuries,

and SBA securities held carry the full faith and credit guarantee of

the

U.S. Government and are deemed to be 0% risk-weighted assets.

Other mortgage-backed securities held (Federal National

Mortgage Association and Federal Home Loan Mortgage Corporation)

are issued by U.S. Government sponsored entities.

Direct

obligations of U.S. Government agencies (Federal Farm Credit Bank and

Federal Home Loan Bank of Atlanta) are also owned.

We believe the

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

of nonpayment of the

amortized cost basis is zero.

A large portion of the SBA securities float monthly or quarterly with

the prime rate and are

uncapped.

The remaining positions owned are municipal and corporate bonds.

At December 31, 2023, 14 corporate bond

positions had a total allowance for credit loss of $17,000 and 17

municipal bond positions had a total allowance for credit loss of

$8,000.

All of these positions maintain an overall rating of at least “A-”, and all are expected to mature at par.

The average maturity and duration of our investment portfolio was 2.91

and 2.53 years at December 31, 2023, respectively,

and

3.57 and 3.20 years at December 31, 2022, respectively.

The average life of our investment portfolio decreased primarily due to

the natural aging of the portfolio in conjunction with a majority of the

cash flow from the investment portfolio not being

reinvested in order to fund loan growth.

The weighted average taxable equivalent yield of our investment portfolio

at December 31, 2023 was 2.02% versus 2.03% in

2022.

This relatively unchanged yield reflected a minimal reinvestment of investment

securities.

Our bond portfolio contained

no investments in obligations, other than U.S. Governments, of any state, municipality,

political subdivision, or any other issuer

that exceeded 10% of our shareowners’ equity at December 31, 2023.

Table 13 and Note 2

in the Notes to Consolidated Financial Statements present a detailed analysis of our

investment securities as

to type, maturity, unrealized

losses, and yield at December 31.

Table 13

MATURITY DISTRIBUTION

OF INVESTMENT SECURITIES

Within 1 year

1 - 5 years

5 - 10 years

After 10 years

Total

(Dollars in

Thousands)

Amount

WAY

(3)

Amount

WAY

(3)

Amount

WAY

(3)

Amount

WAY

(3)

Amount

WAY

(3)

Available for Sale

U.S. Government

Treasury

10,557

1.97

14,122

0.79

24,679

1.54

U.S. Government

Agency

14,054

0.92

130,980

2.93

145,034

2.74

States and Political

Subdivisions

219

0.85

23,003

1.39

15,861

1.93

39,083

1.61

Mortgage-Backed

Securities

(1)

12,869

1.66

50,434

2.48

63,303

2.32

Corporate Debt

Securities

3,715

1.36

36,288

2.05

17,549

1.89

57,552

1.96

Other Securities

(2)

8,251

6.48

8,251

6.48

Total

28,545

1.60

217,262

2.47

83,844

2.25

8,251

6.48

337,902

2.40

Held to Maturity

U.S. Government

Treasury

89,799

1.87

367,882

1.72

457,681

1.75

Mortgage-Backed

Securities

(1)

3,201

2.86

151,466

1.83

12,674

2.93

167,341

1.93

Total

93,000

1.90

519,348

1.75

12,674

2.93

625,022

1.80

Equity Securities

3,450

1.93

3,450

1.93

Total Investment

Securities

121,545

1.83

736,610

1.96

96,518

2.34

11,701

6.48

966,374

2.02

(1)

Based on weighted-average maturity.

(2)

Federal Home Loan Bank Stock and Federal Reserve

Bank Stock are included in this category for weighted average yield, but

do not have stated maturities.

(3)

Weighted average yield ("WAY")

calculated based on current amortized cost balances – not presented on a tax equivalent basis.

Deposits

Average total

deposits for 2023 were $3.670 billion, a decrease of $93.7 million, or 2.5%, from

2022.

Average deposits increased

$356.5 million, or 10.5%, in 2022.

For 2023, the decline was experienced in noninterest bearing deposits and savings accounts,

partially offset by increases in NOW,

money market accounts and certificates of deposit.

Our public funds balances have

historically realized

growth in the fourth quarter of the year when municipalities collect tax receipts and

will be at a seasonal low

in the third quarter.

At December 31, 2023, public funds balances totaled $709.8 million and at December 31, 2022,

totaled

$720.7 million.

For 2022, the increase occurred in all deposit types except certificates of deposit, with

the largest increases

occurring in noninterest bearing accounts,

NOW accounts, and savings accounts.

The FOMC increased their benchmark rate by 100 basis points in 2023 to end the year

at a range of 5.25% to 5.50% and follows

an aggressive 425 basis point increase during 2022.

These rate increases have resulted in a shift in mix out of noninterest bearing

accounts into interest bearing accounts that we began experiencing in

the fourth quarter of 2022.

This shift occurred primarily in

NOW accounts, and, to a lesser degree, money market accounts and certificates

of deposit.

We have several

strategies in place to

protect core deposits and mitigate deposit run-off, and

we will continue to closely monitor several metrics such as the sensitivity

of our clients to our deposit rates, our overall liquidity position, and competitor

rates when pricing deposits.

This strategy is

consistent with previous rate cycles and allows us to manage the mix of our deposits as well

as the overall client relationship

rather than competing solely on rate.

Table 2 provides

an analysis of our average deposits, by category,

and average rates paid thereon for each of the last three fiscal

years. Table 14 reflects

the shift in our deposit mix over the last year and Table

15 provides a maturity distribution of time

deposits in denominations of $250,000 and over at December 31, 2023.

For 2023, noninterest bearing deposits represented 41.1%

of total average deposits.

This compares to 44.9% in 2022 and 44.7% in 2021.

Table 14

SOURCES OF DEPOSIT GROWTH

2022 to

Percentage

Components of

2023

of Total

Total

Deposits

(Average Balances - Dollars in

Thousands)

Change

2023

2022

2021

Noninterest Bearing Deposits

(183,475)

195.8

41.1

44.9

44.7

NOW Accounts

107,023

(114.2)

32.0

28.3

Money Market Accounts

16,174

(17.3)

8.2

7.5

8.2

Savings Accounts

(36,280)

38.7

16.1

16.7

15.8

Time Deposits

2,834

(3.0)

2.6

Total Deposits

(93,724)

100

Table 15

MATURITY DISTRIBUTION

OF CERTIFICATES

OF DEPOSITS GREATER

THAN $250,000

2023

(Dollars in Thousands)

Certificates

of Deposit

Percent

Three months or less

3,717

18.2

Over three through six months

9,272

45.5

Over six through twelve months

3,607

17.7

Over twelve months

3,795

18.6

Total

20,391

100

Market Risk and Interest Rate Sensitivity

Overview.

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

commodity prices, and equity prices.

We have risk

management policies designed to monitor and limit exposure to market

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

significant market risk involving exchange rates, commodity prices, or

equity prices.

In asset and liability management activities,

our policies are designed to minimize structural interest rate risk.

Interest Rate Risk Management.

Our net income is largely dependent on net interest income.

Net interest income is susceptible to

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

or reprice on a different basis than interest-earning

assets.

When interest-bearing liabilities mature or reprice more quickly than interest-earning

assets in a given period, a significant

increase in market rates of interest could adversely affect net interest income.

Similarly, when interest-earning

assets mature or

reprice more quickly than interest-bearing liabilities, falling market interest

rates could result in a decrease in net interest

income.

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

assets that are funded by interest-

bearing liabilities rather than by other sources of funds, such as noninterest

-bearing deposits and shareowners’ equity.

We have established

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

which is administered by

management’s Asset Liability Management

Committee (“ALCO”).

The policy establishes limits of risk, which are quantitative

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

interest income at risk) and the fair value of equity

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

a hypothetical change in interest rates for

maturities from one day to 30 years.

We measure the

potential adverse impacts that changing interest rates may have on our

short-term earnings, long-term value, and liquidity by employing

simulation analysis through the use of computer modeling.

The

simulation model captures optionality factors such as call features and

interest rate caps and floors imbedded in investment and

loan portfolio contracts.

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

in the interest

rate modeling methodology used by us.

When interest rates change, actual movements in different categories

of interest-earning

assets and interest-bearing liabilities, loan prepayments, and withdrawals

of time and other deposits, may deviate significantly

from assumptions used in the model.

Finally, the methodology does not

measure or reflect the impact that higher rates may have

on adjustable-rate loan clients’ ability to service their debts, or the impact of

rate changes on demand for loan and deposit

products.

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

possibilities to indicate the inherent interest rate

risk.

We prepare

a current base case and several alternative interest rate simulations (+/- 100, 200, 300, and

400 basis points

(bp)), at least once per quarter, and report the analysis

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

Oversight Committee (“ROC”) and the Board of Directors.

We augment

our interest rate shock analysis with alternative interest

rate scenarios on a quarterly basis that may include ramps, parallel shifts, and a flattening

or steepening of the yield curve (non-

parallel shift).

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

uncertain or when other

business conditions so dictate.

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

12-month and 24-month

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

at the various interest rate shock levels.

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.

Table 16

ESTIMATED CHANGES

IN NET INTEREST INCOME

(1)

Percentage Change (12-month shock)

+400 bp

+300 bp

+200 bp

+100 bp

-100 bp

-200 bp

-300 bp

-400 bp

Policy Limit

-15.0

-12.5

-10.0

-7.5

-10.0

-12.5

-15.0

December 31, 2023

3.0

2.1

1.3

0.7

-1.2

-3.6

-7.5

-12.8

December 31, 2022

11.3

8.4

5.5

2.8

-5.0

-12.3

-20.0

-27.1

Percentage Change (24-month shock)

+400 bp

+300 bp

+200 bp

+100 bp

-100 bp

-200 bp

-300 bp

-400 bp

Policy Limit

-17.5

-15.0

-12.5

-10.0

-12.5

-15.0

-17.5

December 31, 2023

29.5

24.4

19.3

14.8

4.1

-3.5

-12.9

-23.6

December 31, 2022

31.3

25.2

19.0

13.1

-2.0

-13.8

-25.7

-36.3

The Net Interest Income at risk position was generally less favorable

at December 31, 2023 compared to December 31, 2022 for

the 12-month and 24-month shocks for the rising rate scenarios and more

favorable in the falling rate environments.

The

exception to this is the rates +100 bps and +200 bps scenarios over a 24-month

shock which became slightly more favorable

primarily due to the higher asset yields in the intermediate part of the inverted yield

curve compared to the prior year.

Strong loan

growth and a reduction in our overnight funds balance in 2023 resulted

in less asset sensitivity, which is less favorable

in rising

rate environments, and more favorable in a falling rate environment.

Net Interest Income at risk is within our prescribed policy limits over both

the 12-month and 24-month periods for all rising rate

scenarios with the exception of the down 400 bps scenario over the 24-month

period primarily due to our limited ability to lower

our deposit rates relative to the decline in market rate for that scenario.

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.

Table 17

ESTIMATED CHANGES

IN ECONOMIC VALUE

OF EQUITY

(1)

Changes in Interest Rates

+400 bp

+300 bp

+200 bp

+100 bp

-100 bp

-200 bp

-300 bp

-400 bp

Policy Limit

-30.0

-25.0

-20.0

-15.0

-20.0

-25.0

-30.0

December 31, 2023

12.9

10.7

7.8

4.4

-6.4

-14.0

-23.6

-27.8

December 31, 2022

11.0

9.0

6.4

3.6

-7.4

-18.8

-30.9

-40.1

EVE Ratio (policy minimum 5.0%)

18.9

18.2

17.3

16.5

14.2

12.8

11.2

10.4

(1)

Down 200, 300 and 400 bp rate scenarios have been added due to the current

interest rate environment.

At December 31, 2023, the economic value of equity was favorable in all rising

rate scenarios and unfavorable in the falling rate

scenarios.

EVE was within prescribed tolerance levels in all rate scenarios.

Factors that can impact EVE values include the

absolute level of rates, the overall structure of the balance sheet (including

liquidity levels), pre-payment speeds, loan floors, and

the change of model assumptions.

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 changing

statement of financial condition mix, 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 fund loan commitments, purchase securities, accommodate

deposit withdrawals or repay 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,

and 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.

For 2023 and 2022, our principal

source of funding was client deposits, supplemented by our short-term

and long-term borrowings, primarily from our trust-

preferred securities, 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 December 31, 2023, we had the ability to generate approximately $1.488

billion (excludes overnight funds position of $229

million) in additional liquidity through various sources including

various Federal Home Loan Bank borrowings, the Federal

Reserve Discount Window,

federal funds purchased lines, 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 certain credit facilities may no longer

be available.

We conduct quarterly

liquidity

stress tests and the results are reported to ALCO, MROC, ROC and the Board of Directors.

We believe the

liquidity available to

us is sufficient to meet our ongoing needs.

We also view our

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

portfolio as collateral

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

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

U.S.

governmental agencies, municipal governments, and corporate entities.

At December 31, 2023, the weighted-average maturity

and duration of our portfolio were 2.91 years and 2.53, respectively,

and the AFS portfolio had a net unrealized tax-effected loss

of $22.3 million.

Our average net overnight funds sold position (defined as funds sold plus interest-bearing

deposits with other banks less funds

purchased) was $203.1 million in 2023 compared to an average net overnight

funds sold position of $649.8 million in 2022.

The

decline in our overnight funds position in 2023 reflected strong growth in

average loans and lower average deposit balances.

We expect capital

expenditures over the next 12 months to be approximately $12.0 million, which

will consist primarily of

technology purchases for banking offices, office

leasehold improvements, business applications, and information technology

security needs as well as furniture and fixtures and banking office

remodels.

We expect that these capital

expenditures will be

funded with existing resources without impairing our ability to meet our

ongoing obligations.

Borrowings

Average short

-term borrowings increased $3.6 million compared to 2022 as higher repurchase agreement

balances (business

deposit accounts classified as repurchase agreements) of $11.8

million were partially offset by a $8.2 million decrease in

warehouse line of credit borrowings which reflected lower utilization of our

warehouse lines of credit to support loans held for

sale.

Additional detail on these warehouse borrowings is provided in Note 4

– Mortgage Banking Activities in the Consolidated

Financial Statements.

At December 31, 2023, total advances from the FHLB consisted of

$0.3 million in outstanding debt comprised of one note.

$20 million FHLB Daily Rate Credit advance was obtained for six days in

November 2023 for general liquidity purposes.

FHLB

advances are collateralized by a floating lien on certain 1-4 family residential

mortgage loans, commercial real estate mortgage

loans, and home equity mortgage loans.

We have issued two

junior subordinated deferrable interest notes to wholly owned Delaware statutory

trusts.

The first note for

$30.9 million was issued to CCBG Capital Trust I in

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

The

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

II in May 2005.

The interest payment for the CCBG Capital

Trust I borrowing is due quarterly and adjusts quarterly

to a variable rate of three-month CME Term

SOFR (secured overnight

financing rate) plus a margin of 1.90%.

This note matures on December 31, 2034.

The interest payment for the CCBG Capital

Trust II borrowing 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).

Under the swap arrangement, CCBG will

pay a fixed interest rate of 2.50% and receive a variable interest rate based on three-month

CME Term SOFR.

Additional detail

on the interest rate swap agreement is provided in Note 5 – Derivatives in the Consolidated

Financial Statements.

See Note 11 – Short Term

Borrowings and Note 12 – Long Term

Borrowings in the Notes to Consolidated Financial Statements

for additional information on borrowings.

In the ordinary course of business, we have entered into contractual obligations

and have made other commitments to make future

payments. Refer to the accompanying notes to consolidated financial

statements elsewhere in this report for the expected timing

of such payments as of December 31, 2023. These include payments related

to (i) long-term borrowings (Note 12 – Long-Term

Borrowings), (ii) short-term borrowings (Note 11

– Short-Term Borrowings),

(iii) operating leases (Note 7 – Leases), (iv) time

deposits with stated maturities (Note 10 – Deposits), and (v) commitments

to extend credit and standby letters of credit (Note 21 –

Commitments and Contingencies).

Capital Resources

Shareowners’ equity was $440.6 million at December 31, 2023

compared to $387.3 million at December 31, 2022.

For 2023,

shareowners’ equity was positively impacted by net income attributable

to common shareowners of $52.3 million, a $4.1 million

decrease in the accumulated other comprehensive loss for our pension plan,

a $11.7 million decrease in the unrealized loss on

investment securities, the issuance of stock of $2.5 million, and stock compensation

accretion of $1.3 million.

Shareowners’

equity was reduced by common stock dividends of $12.9 million ($0.76 per

share), the repurchase of stock of $3.7 million

(122,538 shares), net adjustments totaling $1.3 million related to transactions

under our stock compensation plans,

and a $0.7

million decrease in the fair value of the interest rate swap related to subordinated debt.

Additional historical information on capital changes is provided in

the Consolidated Statements of Changes in Shareowners’

Equity in the Consolidated Financial Statements.

We continue

to maintain a strong capital position.

The ratio of shareowners' equity to total assets at December 31, 2023 was

10.24% compared to 8.57% at December 31, 2022.

Further, our tangible common equity ratio was 8.26%

(non-GAAP financial

measure) at December 31, 2023 compared to 6.65% at December 31, 2022.

If our unrealized HTM securities losses of $21.5

million (after-tax) were recognized in accumulated other comprehensive

loss, our adjusted tangible capital ratio would be 7.74%.

The improvement in the ratios in 2023

was primarily attributable to strong earnings and a decrease in the unrealized loss on

AFS

securities which is recognized in accumulated other comprehensive loss.

We are subject to

regulatory risk-based capital requirements that measure capital relative

to risk-weighted assets and off-balance

sheet financial instruments.

At December 31, 2023, our total risk-based capital ratio was 16.57% compared to

15.30% at

December 31, 2022.

Our common equity tier 1 capital ratio was 13.52% and 12.38%, respectively,

on these dates.

Our leverage

ratio was 10.30% and 8.91%, respectively,

on these dates.

For a detailed discussion of our regulatory capital requirements, refer

to the “Regulatory Considerations – Capital Regulations” section

on page 17.

See Note 17 in the Notes to Consolidated Financial

Statements for additional information as to our capital adequacy.

At December 31, 2023, our common stock had a book value of $25.92 per diluted

share compared to $22.73 at December 31,

2022.

Book value is impacted by the net unrealized gains and losses on investment

securities.

At December 31, 2023, the net

unrealized loss was $25.7 million compared to an unrealized loss of $37.3

million at December 31, 2022.

Book value is also

impacted by the recording of our unfunded pension liability through

other comprehensive income in accordance with Accounting

Standards Codification Topic

715.

At December 31, 2023, the net pension liability reflected in accumulated other comprehensive

loss was $0.4 million compared to $4.5 million at December 31, 2022.

The favorable adjustment to our unfunded pension

liability was primarily attributable to a higher than estimated return

on plan assets.

These adjustments

also favorably impacted

our tangible capital ratio.

Further, book value is impacted by the periodic adjustment

made to record temporary equity at

redemption value which totaled $0.1 million at December 31, 2023.

There no adjustments made during 2022.

In January 2019, our Board of Directors authorized the repurchase of up to

750,000 shares of our outstanding common stock over

a five-year period.

Repurchases could be made in the open market or in privately negotiated transactions;

however, we were not

obligated to repurchase any specified number of shares.

122,538 shares were repurchased in 2023 at an average price of $30.24

per share.

No shares were repurchased in 2022

or 2021.

99,952 shares were repurchased in 2020 at an average price of $20.39

and 77,000 shares were repurchased in 2019 at an average price of $23.40.

As of December 31, 2023, a total of 299,490 shares of

our outstanding common stock have been repurchased at an average

price of $25.19 under our 2019 stock repurchase plan.

Dividends

Adequate capital and financial strength are paramount to our stability

and the stability of CCB.

Cash dividends declared and paid

should not place unnecessary strain on our capital levels.

When determining the level of dividends,

the following factors are

considered:

●

Compliance with state and federal laws and regulations;

●

Our capital position and our ability to meet our financial obligations;

●

Projected earnings and asset levels; and

●

The ability of the Bank and us to fund dividends.

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.

See Note 21 in the Notes to Consolidated Financial Statements.

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 on-going

obligations.

In the event these commitments

require funding in excess of historical levels, management believes current

liquidity, investment security

maturities, available

advances from the FHLB and Federal Reserve Bank, and warehouse

lines of credit provide a sufficient source of funds to meet

these commitments.

In conjunction with the sale and securitization of loans held for sale and their related

servicing rights, we may be exposed to

liability resulting from recourse, repurchase,

and make-whole agreements.

If it is determined subsequent to our sale of a loan or

its related servicing rights that a breach of the representations or warranties

made in the applicable sale agreement has occurred,

which may include guarantees that prepayments will not occur within a specified

and customary time frame, we may have an

obligation to either (a) repurchase the loan for the unpaid principal balance,

accrued interest, and related advances; (b) indemnify

the purchaser against any loss it suffers;

or (c) make the purchaser whole for the economic benefits of the

loan and its related

servicing rights.

Our repurchase, indemnification and make-whole obligations vary based upon

the terms of the applicable agreements, the nature

of the asserted breach, and the status of the mortgage loan at the time a claim is made.

We establish reserves for

estimated losses

of this nature inherent in the origination of mortgage loans by estimating the losses inherent

in the population of all loans sold

based on trends in claims and actual loss severities experienced. The reserve

will include accruals for probable contingent losses

in addition to those identified in the pipeline of claims received. The estimation

process is designed to include amounts based on

actual losses experienced from actual activity.

ACCOUNTING POLICIES

Critical Accounting Policies and Estimates

The consolidated financial statements and accompanying Notes to Consolidated

Financial Statements are prepared in accordance

with accounting principles generally accepted in the United States of America,

which require us to make various estimates and

assumptions (see Note 1 in the Notes to Consolidated Financial Statements).

We believe that,

of our significant accounting

policies, the following may involve a higher degree of judgment and

complexity.

Allowance for Credit Losses

The amount of the allowance for credit losses represents management’s

best estimate of current

expected credit losses considering available information, from internal

and external sources, relevant to assessing exposure to

credit loss over the contractual term of the instrument.

Relevant available information includes historical credit loss experience,

current conditions,

and reasonable and supportable forecasts.

While historical credit loss experience provides

the basis for the

estimation of expected credit losses, adjustments to historical loss information

may be made for changes in loan risk grades, loss

experience trends, loan prepayment trends, differences

in current portfolio-specific risk characteristics, environmental conditions,

future expectations, or other relevant factors.

While management utilizes its best judgment and information available, the

ultimate adequacy of our allowance accounts is dependent upon

a variety of factors beyond our control, including the

performance of our portfolios, the economy,

changes in interest rates, and the view of the regulatory authorities toward

classification of assets. Detailed information on the Allowance

for Credit Losses valuation, and the assumptions used are provided

in Note 1 – Significant Accounting Policies of the Notes to Consolidated

Financial Statements.

Goodwill

Goodwill represents the excess of the cost of acquired businesses over the fair value

of their identifiable net

assets.

We perform

an impairment review on an annual basis or more frequently if events or changes in circumstances

indicate

that the carrying value may not be recoverable.

Adverse changes in the economic environment, declining operations, or other

factors could result in a decline in the estimated implied fair value of goodwill.

If the estimated implied fair value of goodwill is

less than the carrying amount, a loss would be recognized to reduce the

carrying amount to the estimated implied fair value.

We evaluate goodwill

for impairment on an annual basis.

Accounting Standards Update 2017-04, Intangibles – Goodwill and

Other (Topic 350):

Simplifying Accounting for Goodwill Impairment allows for a qualitative assessment of

goodwill impairment

indicators.

If the assessment indicates that impairment has more than likely occurred, the Company

must compare the estimated

fair value of the reporting unit to its carrying amount.

If the carrying amount of the reporting unit exceeds its estimated fair value,

an impairment charge is recorded equal to the excess.

During the fourth quarter of 2023, we performed our annual impairment

testing.

We proceeded with qualitative

assessment by

evaluating impairment indicators and concluded there were none that

indicated that goodwill impairment had occurred.

Pension Assumptions

We have a defined benefit

pension plan for the benefit of a portion of our associates.

On December 30,

2019, the plan was amended to remove plan eligibility for new associates hired after

December 31, 2019.

Our funding policy

with respect to the pension plan is to contribute, at a minimum, amounts sufficient

to meet minimum funding requirements as set

by law.

Pension expense is determined by an external actuarial valuation based on assumptions that are

evaluated annually as of

December 31, the measurement date for the pension obligation.

The service cost component of pension expense is reflected as

“Compensation Expense” in the Consolidated Statements of Income.

All other components of pension expense are reflected as

“Other Expense”.

The Consolidated Statements of Financial Condition reflect an accrued

pension benefit cost due to funding levels and

unrecognized actuarial amounts.

The most significant assumptions used in calculating the pension

obligation are the weighted-

average discount rate used to determine the present value of the pension obligation,

the weighted-average expected long-term rate

of return on plan assets, and the assumed rate of annual compensation increases.

These assumptions are re-evaluated annually

with the external actuaries, taking into consideration both current market

conditions and anticipated long-term market conditions.

The discount rate is determined by matching the anticipated defined pension

plan cash flows to the spot rates of a corporate AA-

rated bond index/yield curve and solving for the single equivalent discount

rate which would produce the same present value.

This methodology is applied consistently from year to year.

The discount rate utilized in 2023 was 5.63%.

The estimated impact

to 2023 pension expense of a 25 basis point increase or decrease in the discount

rate would have been an approximate $0.6

million decrease or increase, respectively.

We anticipate using

a 5.29% discount rate in 2024.

Based on the balances at the December 31, 2023 measurement date, the

estimated impact on accumulated other comprehensive

loss of a 25 basis point increase or decrease in the discount rate would have been a

decrease or increase of approximately $3.2

million (after-tax).

The estimated impact on accumulated other comprehensive loss of a 1% favorable/unfavorable

variance in the

actual rate of return on plan assets versus the assumed rate of return

on plan assets of 6.75% would have been an approximate

$0.8 million (after-tax) decrease/increase,

respectively.

The weighted-average expected long-term rate of return on plan assets is determined

based on the current and anticipated future

mix of assets in the plan.

The assets currently consist of equity securities, U.S. Government and Government

agency debt

securities, and other securities (typically temporary liquid funds awaiting investment).

The weighted-average expected long-term

rate of return on plan assets utilized for 2023 was 6.75%.

The estimated impact to 2023 pension expense of a 25 basis point

increase or decrease in the rate of return would have been an approximate

$0.3 million decrease or increase, respectively.

anticipate using a rate of return on plan assets of 6.75% for 2024.

The assumed rate of annual compensation increases of 5.10% for 2023 was based on

an experience study performed for the plan

during 2022. It is anticipated that this compensation increase assumption

will remain unchanged for the next several years, until

the next experience study is performed.

Detailed information on the pension plan, the actuarially determined

disclosures, and the assumptions used are provided in Note

15 of the Notes to Consolidated Financial Statements.

Income Taxes

Income tax expense is the total of the current year income tax due or refundable and the change in deferred

tax

assets and liabilities.

Deferred tax assets and liabilities are the expected future tax amounts for the

temporary differences between

carrying amounts and tax bases of assets and liabilities, computed using enacted

tax rates.

A valuation allowance, if needed,

reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax

position would be sustained in a tax

examination, with a tax examination being presumed to occur.

The amount recognized is the largest amount of tax benefit that is

greater than 50% likely of being realized on examination.

For tax positions not meeting the “more likely than not” test, no tax

benefit is recorded.

recognize interest and/or penalties related to income tax matters in other

expenses.

ITEM 7A.

QUANTITATIVE

AND QUALITATIVE

DISCLOSURE ABOUT MARKET RISK

See “Financial Condition - 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.

Item 8.

Financial Statements and Supplementary Data

2023 Report of Independent Registered Public Accounting Firm (PCAOB ID

686

)

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED FINANCIAL

STATEMENTS

PAGE

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Financial Condition

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Consolidated Statements of Changes in Shareowners’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

To the Shareowners,

Board of Directors and Audit Committee

Capital City Bank Group, Inc.

Tallahassee, Florida

Opinion on the Consolidated Financial Statements

We have audited

the accompanying consolidated statements of financial condition of Capital City Bank

Group, Inc. (Company) as

of December 31, 2023 and 2022, the related consolidated statements of

income, comprehensive income, changes in shareowners’

equity, and cash flows

for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively

referred to as the “financial statements”). In our opinion, the financial statements

referred to above present fairly,

in all material

respects, the financial position of the Company as of December 2023 and 2022,

and the results of its operations and its cash flows

for each of the years in the three-year period ended December 31, 2023, in

conformity with accounting principles generally

accepted in the United States of America.

We also have audited,

in accordance with the standards of the Public Company Accounting Oversight Board (United

States)

(PCAOB), the Company’s

internal control over financial reporting as of December 31, 2023, based on criteria

established in

Internal Control – Integrated Framework: (2013), issued by the Committee of

Sponsoring Organizations of the Treadway

Commission, and our report dated March 13, 2024 (except as to the effects

of the material weakness described in Management’s

Annual Report on Internal Control over Financial Reporting (as revised), as to which

the date is July 12, 2024), expressed an

adverse opinion on the effectiveness of the Company’s

internal control over financial reporting because of a material weakness

described in Management’s

Annual Report on Internal Control over Financial Reporting.

Restatement of Previously Issued Financial Statements

As discussed in Note 1 to the consolidated financial statements, the 2023,

2022, and 2021 consolidated statements of cash flows

have been restated to correct a misstatement.

Basis for Opinion

These financial statements are the responsibility of the Company’s

management. Our responsibility is to express an opinion on the

Company’s financial statements based

on our audits.

We are a public

accounting firm registered with the PCAOB and are required to be independent with

respect to the Company in

accordance with the U.S. federal securities laws and the applicable rules and

regulations of the Securities and Exchange

Commission and the PCAOB.

We conducted

our audits in accordance with the standards of the PCAOB. Those standards require

that we plan and perform the

audits to obtain reasonable assurance about whether the financial statements are

free of material misstatement, whether due to

error or fraud.

Our audits included performing procedures to assess the risks of material misstatement

of the financial statements, whether due to

error or fraud, and performing procedures that respond to those risks. Such

procedures include examining, on a test basis,

evidence regarding the amounts and disclosures in the financial statements. Our audits

also included evaluating the accounting

principles used and significant estimates made by management, as well as evaluating

the overall presentation of the financial

statements. We believe

that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below arises from the current-period

audit of the financial statements that were

communicated or required to be communicated to the audit committee

and that: 1) relate to accounts or disclosures that are

material to the financial statements and 2) involved our especially challenging,

subjective, or complex judgments. The

communication of critical audit matters does not alter in any way our opinion on the

financial statements, taken as a whole, and

we are not, by communicating the critical audit matter below,

providing separate opinions on the critical audit matter or on the

accounts or disclosures to which it relates.

Allowance for Credit Losses

The Company’s

loans held

for investment

portfolio totaled

$2.73 billion

as of

December 31,

2023, and

the allowance

for credit

losses on

loans held

for investment

was $29.9

million. The Company’s

unfunded loan

commitments totaled

$748.4 million,

with

an allowance for credit loss

on unfunded loan commitments of

$3.2 million. The Company’s

held-to-maturity securities portfolios

totaled

$625.0

million

December

31,

2023,

and

there

was

allowance

for

credit

losses

held-to-maturity

securities.

Together,

these allowance amounts represent the allowance for credit losses (ACL).

As more fully described in Notes 1, 2, 3 and 21 to the Company’s

consolidated financial statements, the Company estimates its

exposure to expected credit losses as of the statement of financial condition date

for existing financial instruments held at

amortized cost and off-balance sheet exposures, such as unfunded

loan commitments, lines of credit and other unused

commitments that are not unconditionally cancelable by the Company.

The determination of the ACL requires management to exercise significant judgment

and consider numerous subjective factors,

including determining qualitative factors utilized to adjust historical loss rates, loan

credit risk grading and identifying loans

requiring individual evaluation among others. As disclosed by management,

different assumptions and conditions could result in

materially different amount for the estimate of the ACL.

We identified

the ACL at December 31, 2023 as a critical audit matter.

Auditing the ACL involved a high degree of subjectivity

in evaluating management’s

estimates, such as evaluating management’s

identification of credit quality indicators, grouping of

loans determined to be similar into pools, estimating the remaining life of loans

in a pool, assessment of economic conditions and

other environmental factors, evaluating the adequacy of specific allowances associated

with individually evaluated loans and

assessing the appropriateness of loan credit risk grades.

The primary procedures we performed as of December 31, 2023 to address

this critical audit matter included:

●

Obtained

understanding

the

Company’s

process

for

establishing

the

ACL,

including

the

qualitative

factor

adjustments of the ACL.

●

Tested

the

design

and

operating

effectiveness

controls,

including

those

technology,

over

the

ACL,

including:

loan data completeness and accuracy

reconciliation of loan balances accounted for at amortized cost and underlying detail

classifications of loans by loan pool

historical charge-off data

evaluation of appraisals

the establishment of qualitative adjustments

back testing and stress testing

loan credit risk ratings

establishment of specific ACL on individually evaluated loan

management’s review and disclosure

controls over the ACL

●

Tested

the

completeness

and

accuracy

the

information

utilized

the

ACL,

including

evaluating

the

relevance

and

reliability of such information.

●

Tested the ACL model’s

computational accuracy.

●

Evaluated

the qualitative

adjustments to

the ACL,

including assessing

the basis

for adjustments

and the

reasonableness

of the significant assumptions.

●

Tested the loan review

functions and evaluated the reasonableness of loan credit risk ratings.

●

Evaluated the reasonableness of specific allowances on individually

evaluated loans.

●

Evaluated

the

overall

reasonableness

assumptions

used

management

considering

trends

identified

within

peer

groups.

●

Evaluated

the

accuracy

and

completeness

Accounting

Standards

Codification

Topic

326,

Financial

Instruments

–

Credit Losses

, disclosures in the consolidated financial statements.

●

Evaluated credit quality trends in delinquencies, non-accruals, charge

-offs and loan risk ratings.

●

Tested estimated utilization

rate of unfunded loan commitments.

●

Evaluated

documentation

prepared

assess

the

methodology

utilized

the

ACL

calculation

for

securities

for

reasonableness.

Forvis Mazars, LLP

We have served

as the Company’s auditor since 2021.

Little Rock, Arkansas

March 13, 2024 (except as to the effects of the restatement

discussed in Note 1, as to which the date is July 12, 2024)

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF FINANCIAL CONDITION

As of December 31,

(Dollars in Thousands)

2023

2022

ASSETS

Cash and Due From Banks

83,118

72,114

Federal Funds Sold and Interest Bearing Deposits

228,949

528,536

Total Cash and Cash Equivalents

312,067

600,650

Investment Securities, Available

for Sale, at fair value (amortized cost of $

367,747

and $

455,232

)

337,902

413,294

Investment Securities, Held to Maturity (fair value of $

591,751

and $

612,701

)

625,022

660,744

Equity Securities

3,450

Total Investment

Securities

966,374

1,074,048

Loans Held For Sale, at fair value

28,211

26,909

Loans, Held for Investment

2,733,918

2,547,685

Allowance for Credit Losses

(29,941)

(25,068)

Loans Held for Investment, Net

2,703,977

2,522,617

Premises and Equipment, Net

81,266

82,138

Goodwill and Other Intangibles

92,933

93,093

Other Real Estate Owned

431

Other Assets

119,648

119,337

Total Assets

4,304,477

4,519,223

LIABILITIES

Deposits:

Noninterest Bearing Deposits

1,377,934

1,653,620

Interest Bearing Deposits

2,323,888

2,285,697

Total Deposits

3,701,822

3,939,317

Short-Term

Borrowings

35,341

56,793

Subordinated Notes Payable

52,887

Other Long-Term

Borrowings

315

513

Other Liabilities

66,080

73,675

Total Liabilities

3,856,445

4,123,185

Temporary Equity

7,407

8,757

SHAREOWNERS’ EQUITY

Preferred Stock, $

0.01

par value;

3,000,000

shares authorized;

shares issued and outstanding

Common Stock, $

0.01

par value;

90,000,000

shares authorized;

16,950,222

and

16,986,785

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

170

Additional Paid-In Capital

36,326

37,331

Retained Earnings

426,275

387,009

Accumulated Other Comprehensive Loss, Net of Tax

(22,146)

(37,229)

Total Shareowners’

Equity

440,625

387,281

Total Liabilities, Temporary

Equity, and Shareowners’ Equity

4,304,477

4,519,223

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF INCOME

For the Years

Ended December 31,

(Dollars in Thousands, Except Per Share

Data)

2023

2022

2021

INTEREST INCOME

Loans, including Fees

152,250

106,444

96,561

Investment Securities:

Taxable

18,652

15,917

8,724

Tax Exempt

Federal Funds Sold and Interest Bearing Deposits

10,126

9,511

998

Total Interest Income

181,068

131,910

106,351

INTEREST EXPENSE

Deposits

17,582

3,444

839

Short-Term

Borrowings

2,051

1,761

1,360

Subordinated Notes Payable

2,427

1,652

1,228

Other Long-Term

Borrowings

Total Interest Expense

22,080

6,888

3,490

NET INTEREST INCOME

158,988

125,022

102,861

Provision for Credit Losses

9,714

7,494

(1,553)

Net Interest Income After Provision for Credit Losses

149,274

117,528

104,414

NONINTEREST INCOME

Deposit Fees

21,325

22,121

18,882

Bank Card Fees

14,918

15,401

15,274

Wealth Management

Fees

16,337

18,059

13,693

Mortgage Banking Revenues

10,400

11,909

52,425

Other

8,630

7,691

7,271

Total Noninterest

Income

71,610

75,181

107,545

NONINTEREST EXPENSE

Compensation

93,787

91,519

101,470

Occupancy, Net

27,660

24,574

23,932

Other

35,576

35,541

37,106

Total Noninterest

Expense

157,023

151,634

162,508

INCOME BEFORE INCOME TAXES

63,861

41,075

49,451

Income Tax Expense

13,040

7,798

9,835

NET INCOME

50,821

33,277

39,616

Loss (Income) Attributable to Noncontrolling Interests

1,437

135

(6,220)

NET INCOME ATTRIBUTABLE

TO COMMON SHAREOWNERS

52,258

33,412

33,396

BASIC NET INCOME PER SHARE

3.08

1.97

1.98

DILUTED NET INCOME PER SHARE

3.07

1.97

1.98

Average Basic Common

Shares Outstanding

16,987

16,951

16,863

Average Diluted

Common Shares Outstanding

17,023

16,985

16,893

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME

For the Years

Ended December 31,

(Dollars in Thousands)

2023

2022

2021

NET INCOME ATTRIBUTABLE

TO COMMON SHAREOWNERS

52,258

33,412

33,396

Other comprehensive income (loss), before

tax:

Investment Securities:

Net unrealized (loss) gain on securities available-for-sale

12,076

(35,814)

(9,673)

Unrealized losses on securities transferred from available-for-sale

held-to-maturity

(9,384)

Amortization of unrealized losses on securities transferred from

available-for-sale to held-to-maturity

3,479

1,469

Derivative:

Change in net unrealized gain on effective cash flow derivative

(878)

4,146

1,476

Benefit Plans:

Reclassification adjustment for amortization of prior service cost

156

292

234

Reclassification adjustment for amortization of net loss

112

4,752

10,806

Defined benefit plan settlement (gain) charge

(291)

2,321

3,072

Current year actuarial gain

4,905

4,223

31,339

Total Benefit Plans

4,882

11,588

45,451

Other comprehensive income (loss), before

tax:

19,559

(27,995)

37,280

Deferred tax (expense) benefit related to other comprehensive income

(4,476)

6,980

(9,352)

Other comprehensive income (loss), net of tax

15,083

(21,015)

27,928

TOTAL COMPREHENSIVE

INCOME

67,341

12,397

61,324

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

Accumulated

Other

Comprehensive

Loss,

Net of Taxes

(Dollars in Thousands, Except Share Data)

Outstanding

Common

Stock

Additional

Paid-In

Capital

Retained

Earnings

Total

Balance, January 1, 2021

16,790,573

168

32,283

332,528

(44,142)

320,837

Net Income Attributable to Common Shareowners

33,396

Reclassification to Temporary Equity

(1)

9,323

Other Comprehensive Income, Net of Tax

27,928

Cash Dividends ($

0.62

per share)

(10,459)

Stock Based Compensation

843

Stock Compensation Plan Transactions, net

101,487

1,297

1,298

Balance, December 31, 2021

16,892,060

169

34,423

364,788

(16,214)

383,166

Net Income Attributable to Common Shareowners

33,412

Other Comprehensive Loss, Net of Tax

(21,015)

Cash Dividends ($

0.66

per share)

(11,191)

Stock Based Compensation

1,630

Stock Compensation Plan Transactions, net

94,725

1,278

1,279

Balance, December 31, 2022

16,986,785

170

37,331

387,009

(37,229)

387,281

Net Income Attributable to Common Shareowners

52,258

Reclassification to Temporary Equity

(1)

(87)

Other Comprehensive Income, Net of Tax

15,083

Cash Dividends ($

0.76

per share)

(12,905)

Stock Based Compensation

1,237

Stock Compensation Plan Transactions, net

85,975

1,468

Repurchase of Common Stock

(122,538)

(3,710)

Balance, December 31, 2023

16,950,222

170

36,326

426,275

(22,146)

440,625

(1)

Adjustments to redemption value for non-controlling interest in 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

For the Years Ended

December 31,

(As Restated)

(Dollars in Thousands)

2023

2022

2021

CASH FLOWS FROM OPERATING ACTIVITIES

Net Income Attributable to Common Shareowners

52,258

33,412

33,396

Adjustments to Reconcile Net Income to Cash From Operating Activities:

Provision for Credit Losses

9,714

7,494

(1,553)

Depreciation

7,918

7,596

7,607

Amortization of Premiums, Discounts, and Fees, net

4,221

7,772

14,072

Amortization of Intangible Assets

160

107

Gain on Securities Transactions

Pension Settlement (Gain) Charges

(291)

2,321

3,072

Originations of Loans Held for Sale

(406,803)

(390,191)

(1,228,946)

Proceeds From Sales of Loans Held for Sale

404,332

437,907

1,349,124

Mortgage Banking Revenues

(10,400)

(11,909)

(52,425)

Net Additions for Capitalized Mortgage Servicing Rights

419

726

Change in Valuation Provision for Mortgage Servicing Rights

(250)

Stock Compensation

1,237

1,630

843

Net Tax Benefit from Stock Compensation

(48)

(27)

(4)

Deferred Income Taxes

(483)

(3,870)

(4,157)

Net Change in Operating Leases

(108)

(165)

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

(2,053)

(422)

(1,662)

Net (Increase) Decrease in Other Assets

(1,029)

(8,636)

10,885

Net (Decrease) Increase in Other Liabilities

(4,452)

8,837

(7,846)

Net Cash Provided By Operating Activities

54,782

92,692

122,170

CASH FLOWS FROM INVESTING ACTIVITIES

Securities Held to Maturity:

Purchases

(1,483)

(219,865)

(251,525)

Payments, Maturities, and Calls

36,600

55,314

78,544

Securities Available for Sale:

Purchases

(8,379)

(52,238)

(523,961)

Proceeds from the Sale of Securities

30,420

3,365

495

Payments, Maturities, and Calls

62,861

81,596

178,425

Equity Securities:

Purchases

(13,566)

Net Decrease in Equity Securities

10,127

Purchases of Loans Held for Investment

(2,488)

(16,753)

(20,209)

Proceeds from Sales of Loans

47,314

104,475

92,360

Net Increase in Loans Held for Investment

(226,896)

(720,670)

(10,061)

Net Cash Paid for Acquisitions

(4,482)

Proceeds From Sales of Other Real Estate Owned

3,995

2,406

4,502

Purchases of Premises and Equipment, net

(7,046)

(6,322)

(5,193)

Noncontrolling Interest Contributions

2,867

7,139

Net Cash Used In Investing Activities

(68,541)

(765,825)

(453,966)

CASH FLOWS FROM FINANCING ACTIVITIES

Net (Decrease) Increase in Deposits

(237,495)

226,455

495,302

Net (Decrease) Increase in Short-Term Borrowings

(21,452)

22,114

(45,938)

Repayment of Other Long-Term Borrowings

(199)

(249)

(1,332)

Dividends Paid

(12,905)

(11,191)

(10,459)

Payments to Repurchase Common Stock

(3,710)

Issuance of Common Stock Under Compensation Plans

937

1,300

1,028

Net Cash (Used in) Provided By Financing Activities

(274,824)

238,429

438,601

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

(288,583)

(434,704)

106,805

Cash and Cash Equivalents at Beginning of Year

600,650

1,035,354

928,549

Cash and Cash Equivalents at End of Year

312,067

600,650

1,035,354

Supplemental Cash Flow Disclosures:

Interest Paid

21,775

6,586

3,547

Income Taxes Paid

9,118

7,466

16,339

Supplemental Noncash Items:

Loans Transferred from Held for Investment to Held for Sale, net

35,745

108,798

98,081

Loans and Premises Transferred to Other Real Estate Owned

1,512

2,398

1,717

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Notes to Consolidated Financial Statements

Note 1

SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Capital City Bank Group, Inc. (“CCBG”) 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” and together with CCBG, the

“Company”), 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 include the accounts of CCBG

and CCB.

CCBG also maintains an insurance subsidiary,

Capital City Strategic Wealth,

LLC.

CCB has two primary subsidiaries, which are wholly owned, Capital City Trust

Company

and Capital City Investments. On March 1, 2020, CCB acquired a

% membership interest in Brand Mortgage Group, LLC

(“Brand”) which is now operated as Capital City Home Loans, LLC (“CCHL”), a consolidated

entity in the Company’s financial

statements. The terms of the transaction included a buyout call/put option

for CCB to purchase the remaining

% of the

membership interests in CCHL (“the

% Interest”) that are held by BMGBMG, LLC (“BMG”). The option requires 12 months

advance notice to the other party,

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

of the

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

its put option and the transfer of

the

% Interest will become effective on January 1, 2025.

The Company, which operates

a single reportable business segment that is comprised of commercial banking

within the states of

Florida, Georgia, and Alabama, follows accounting principles generally

accepted in the United States of America and reporting

practices applicable to the banking industry.

The principles which materially affect the financial position, results of

operations

and cash flows are summarized below.

The Company determines whether it has a controlling financial interest in an

entity by first evaluating whether the entity is a

voting interest entity or a variable interest entity under accounting principles

generally accepted in the United States of America.

Voting

interest entities are entities in which the total equity investment at risk is sufficient

to enable the entity to finance itself

independently and provide the equity holders with the obligation to absorb losses, the

right to receive residual returns and the

right to make decisions about the entity’s

activities.

The Company consolidates voting interest entities in which it has all, or at

least a majority of, the voting interest.

As defined in applicable accounting standards, variable interest entities (“VIE’s”)

are

entities that lack one or more of the characteristics of a voting interest entity.

A controlling financial interest in an entity is

present when an enterprise has a variable interest, or a combination of variable

interests, that will absorb a majority of the entity’s

expected losses, receive a majority of the entity’s

expected residual returns, or both.

The enterprise with a controlling financial

interest, known as the primary beneficiary,

consolidates the VIE.

Two of CCBG’s

wholly owned subsidiaries, CCBG Capital

Trust I (established November 1, 2004) and

CCBG Capital Trust II (established May 24, 2005) are VIEs for

which the Company

is not the primary beneficiary.

Accordingly, the

accounts of these entities are not included in the Company’s

consolidated

financial statements.

Certain previously reported amounts have been reclassified to conform

to the current year’s presentation. All material inter-

company transactions and accounts have been eliminated in consolidation.

The Company has evaluated subsequent events for

potential recognition and/or disclosure through the date the consolidated

financial statements included in this Annual Report on

Form 10-K/A were filed with the United States Securities and Exchange

Commission.

Use of Estimates

The preparation of financial statements in conformity with accounting

principles generally accepted in the United States of

America requires management to make estimates and assumptions that affect

the reported amounts of assets and liabilities, the

disclosure of contingent assets and liabilities at the date of financial statements and

the reported amounts of revenues and

expenses during the reporting period.

Actual results could vary from these estimates.

Material estimates that are particularly

susceptible to significant changes in the near-term

relate to the determination of the allowance for credit losses, pension expense,

income taxes, loss contingencies, valuation of other real estate owned, and

valuation of goodwill and their respective analysis of

impairment.

Restatement of Previously Issued Consolidated Financial

Statements

Restated herein are the Company’s

Impacted Statements of Cash Flows for the years ended December 31, 202

3, December 31,

2022 and December 31, 2021 and for each of the three month periods ended

March 31, 2023 and 2022, six month periods ended

June 30, 2023 and 2022 and nine month periods ended September 30, 2023

and 2022.

Prior Restatement Background

On December 22, 2023, the Company filed a Form 10-K/A for the year

ended December 31, 2022 to amend and restate certain

items related to inter-company transactions between

its subsidiaries, CCHL and CCB, involving residential mortgage loan

purchases that were not properly recorded. The material impact to Consolidated

Statements of Income, Consolidated Statements

of Financial Condition and various key performance indicators resulted in a

restatement of the Company’s financial

statements for

the year ended December 31, 2022, and the three, six and nine months ended

March 31, 2022 and 2023, June 30, 2022 and 2023,

and September 30, 2022, respectively (collectively,

the “Original Restated Financial Statements”). As part of the Company’s

assessment of the misstatements noted in the Form 10-K/A filed December

22, 2023, it was concluded that the impact of the inter-

company loan sale and participation transactions was immaterial to the consolidated

financial statements for the year ended

December 31, 2021.

In connection with the preparation of the Company’s

consolidated financial statements for the year ended December 31, 2023, the

Company concluded that it had not appropriately eliminated intercompany

loan sale and participations transactions from the

Consolidated Statements of Cash Flows for the years ended December

31, 2022 and 2021 in the Original Restated Financial

Statements.

On March 13, 2024, the Company filed its Form 10-K for the year ended December

31, 2023 including restatements

of the Consolidated Statements of Cash Flows for the years ended

December 31, 2022 and 2021 (“collectively,

the “Subsequently

Restated Financial Statements”).

The Subsequently Restated Financial Statements had no impact on

the Company’s Consolidated

Statements of Financial Condition, Consolidated Statements of

Income, Consolidated Statements of Comprehensive Income,

Consolidated Statements in Changes in Shareowners’ Equity or the Notes to

the Consolidated Financial Statements.

Description of Current Misstatements

In connection with the preparation of the Company’s

financial statements for the first quarter of 2024, the Company identified

changes needed in preparing its consolidated financial statements, specifically,

its Consolidated Statement of Cash Flows, related

to certain construction/permanent loan sales.

These changes require restatements

of the Impacted Statements of Cash Flows in

both the Original Restated Financial Statements and Subsequently Restated Financial

Statements to correct misstatements of the

following line items within the Impacted Statements of Cash Flows:

Within the Cash Flows from Operating Activities

section:

●

An understatement of $

100.1

million, overstatement of $

47.6

million and overstatement $

33.8

million for Originations of

Loans Held for Sale for the years ended December 31, 2023, 2022 and 2021,

respectively.

●

An understatement of $

88.5

million, overstatement of $

37.5

million and overstatement of $

27.6

million for Proceeds

from Sales of Loans Held for Sale for the years ended December 31, 2023, 2022

and 2021, respectively.

●

An overstatement of $

11.6

million, understatement of $

10.2

million and understatement of $

6.2

million for Net Cash

Provided by Operating Activities for the years ended December 31, 2023,

2022 and 2021, respectively.

Within the Cash Flows from Investing Activities

section:

●

An understatement of $

35.7

million, understatement of $

114.7

million, and overstatement of $

98.6

million for Net

(Increase) Decrease in Loans Held for Investment for the years ended

December 31, 2023, 2022 and 2021, respectively.

●

An understatement of $

47.3

million, $

104.5

million, and $

92.4

million for Proceeds From Sales of Loans for the years

ended December 31, 2023, 2022 and 2021, respectively.

●

An overstatement of $

11.6

million, understatement of $

10.2

million and understatement $

6.2

million for Net Cash Used

in Investing Activities for the years ended December 31, 2023, 2022

and 2021, respectively.

Within the Supplemental Noncash Items section:

●

Disclosure of noncash activity related to Loans Transferred

from Loans Held for Investment to Loans Held for Sale, net

for the years ended December, 31, 2023, 2022

and 2021 which totaled $

35.7

million, $

108.8

million, and $

98.1

million,

respectively.

The impacts of the restatement for the years ended December 31, 2023,

2022 and 2021 as described above are reflected in the

Impacted Statements of Cash Flows and had no impact on the Consolidated

Statements of Financial Condition, Consolidated

Statements of Income, Consolidated Statements of Comprehensive Income,

Consolidated Statements in Changes in Shareowners’

Equity or the Notes to the Consolidated Financial Statements. The impacts of the restatement

for each of the interim periods are

presented in Note 24, Restated Interim Consolidated

Statements of Cash Flows (Unaudited).

Description of Current Restatement Tables

The following tables present the amounts previously reported and a reconciliation

of the restatement amounts reported on the

restated Consolidated Statement of Cash Flows for the years ended

December 31, 2023, December 31, 2022 and December 31,

The amounts previously reported were derived from the Company’s

Annual Report on Form 10-K for the year ended

December 31, 2023 filed with the SEC on March 13, 2024.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENT

OF CASH FLOWS

For the Year

Ended December 31, 2023

(Dollars in Thousands)

As Previously

Reported

Restatement

Impact

As Restated

CASH FLOWS FROM OPERATING

ACTIVITIES

Net Income Attributable to Common Shareowners

52,258

Adjustments to Reconcile Net Income to

Provision for Credit Losses

9,714

Depreciation

7,918

Amortization of Premiums, Discounts, and Fees, net

4,221

Amortization of Intangible Assets

160

Gain on Securities Transactions

Pension Settlement Gain

(291)

Originations of Loans Held-for-Sale

(306,714)

(100,089)

(406,803)

Proceeds From Sales of Loans Held-for-Sale

315,812

88,520

404,332

Mortgage Banking Revenues

(10,400)

Net Additions for Capitalized Mortgage Servicing Rights

419

Stock Compensation

1,237

Net Tax Benefit From Stock-Based

Compensation

(48)

Deferred Income Taxes Benefit

(483)

Net Change in Operating Leases

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

(2,053)

Net Increase in Other Assets

(1,029)

Net Decrease in Other Liabilities

(4,452)

Net Cash Provided By Operating Activities

66,351

(11,569)

54,782

CASH FLOWS FROM INVESTING ACTIVITIES

Securities Held to Maturity:

Purchases

(1,483)

Payments, Maturities, and Calls

36,600

Securities Available for

Sale:

Purchases

(8,379)

Proceeds from Sale of Securities

30,420

Payments, Maturities, and Calls

62,861

Equity Securities

Purchases

(13,566)

Net Decrease in Equity Securities

10,127

Purchase of loans held for investment

(2,488)

Net Increase in Loans Held for Investment

(191,151)

(35,745)

(226,896)

Proceeds from Sales of Loans

47,314

Proceeds From Sales of Other Real Estate Owned

3,995

Purchases of Premises and Equipment, net

(7,046)

Net Cash Used In Investing Activities

(80,110)

11,569

(68,541)

CASH FLOWS FROM FINANCING ACTIVITIES

Net Decrease in Deposits

(237,495)

Net Decrease in Other Short-Term

Borrowings

(21,452)

Repayment of Other Long-Term

Borrowings

(199)

Dividends Paid

(12,905)

Payments to Repurchase Common Stock

(3,710)

Issuance of Common Stock Under Compensation Plans

937

Net Cash Provided By Financing Activities

(274,824)

NET DECREASE IN CASH AND CASH EQUIVALENTS

(288,583)

Cash and Cash Equivalents at Beginning of Period

600,650

Cash and Cash Equivalents at End of Period

312,067

Supplemental Cash Flow Disclosures:

Interest Paid

21,775

Income Taxes Paid

9,118

Supplemental Noncash Items

Loans Transferred from Held for Investment to Held for Sale, net

35,745

Loans and Premises Transferred to Other Real Estate Owned

1,512

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENT

OF CASH FLOWS

For the Year

Ended December 31, 2022

(Dollars in Thousands)

As Previously

Reported

Restatement

Impact

As Restated

CASH FLOWS FROM OPERATING

ACTIVITIES

Net Income Attributable to Common Shareowners

33,412

Adjustments to Reconcile Net Income to

Provision for Credit Losses

7,494

Depreciation

7,596

Amortization of Premiums, Discounts, and Fees, net

7,772

Amortization of Intangible Assets

160

Pension Settlement Charge

2,321

Originations of Loans Held-for-Sale

(437,827)

47,636

(390,191)

Proceeds From Sales of Loans Held-for-Sale

475,359

(37,452)

437,907

Mortgage Banking Revenues

(11,909)

Net Additions for Capitalized Mortgage Servicing Rights

726

Stock Compensation

1,630

Net Tax Benefit From Stock-Based

Compensation

(27)

Deferred Income Taxes Benefit

(3,870)

Net Change in Operating Leases

(108)

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

(422)

Net Increase in Other Assets

(8,636)

Net Decrease in Other Liabilities

8,837

Net Cash Provided By Operating Activities

82,508

10,184

92,692

CASH FLOWS FROM INVESTING ACTIVITIES

Securities Held to Maturity:

Purchases

(219,865)

Payments, Maturities, and Calls

55,314

Securities Available for

Sale:

Purchases

(52,238)

Proceeds from Sale of Securities

3,365

Payments, Maturities, and Calls

81,596

Purchase of loans held for investment

(16,753)

Net Increase in Loans Held for Investment

(606,011)

(114,659)

(720,670)

Proceeds From Sales of Loans

104,475

Proceeds From Sales of Other Real Estate Owned

2,406

Purchases of Premises and Equipment, net

(6,322)

Noncontrolling interest contributions received

2,867

Net Cash Used In Investing Activities

(755,641)

(10,184)

(765,825)

CASH FLOWS FROM FINANCING ACTIVITIES

Net Increase in Deposits

226,455

Net Increase in Other Short-Term

Borrowings

22,114

Repayment of Other Long-Term

Borrowings

(249)

Dividends Paid

(11,191)

Issuance of Common Stock Under Compensation Plans

1,300

Net Cash Provided By Financing Activities

238,429

NET DECREASE IN CASH AND CASH EQUIVALENTS

(434,704)

Cash and Cash Equivalents at Beginning of Period

1,035,354

Cash and Cash Equivalents at End of Period

600,650

Supplemental Cash Flow Disclosures:

Interest Paid

6,586

Income Taxes Paid

7,466

Supplemental Noncash Items

Loans Transferred from Held for Investment to Held for Sale, net

108,798

Loans and Premises Transferred to Other Real Estate Owned

2,398

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENT

OF CASH FLOWS

For the Year

Ended December 31, 2021

(Dollars in Thousands)

As Previously

Reported

Restatement

Impact

As Restated

CASH FLOWS FROM OPERATING

ACTIVITIES

Net Income Attributable to Common Shareowners

33,396

Adjustments to Reconcile Net Income to

Provision for Credit Losses

(1,553)

Depreciation

7,607

Amortization of Premiums, Discounts, and Fees, net

14,072

Amortization of Intangible Assets

107

Pension Settlement Charge

3,072

Originations of Loans Held-for-Sale

(1,262,746)

33,800

(1,228,946)

Proceeds From Sales of Loans Held-for-Sale

1,376,678

(27,554)

1,349,124

Mortgage Banking Revenues

(52,425)

Net Additions for Capitalized Mortgage Servicing Rights

Change in Valuation

Provision for Mortgage Servicing Rights

(250)

Stock Compensation

843

Net Tax Benefit From Stock-Based

Compensation

(4)

Deferred Income Taxes Benefit

(4,157)

Net Change in Operating Leases

(165)

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

(1,662)

Net Decrease in Other Assets

10,885

Net Decrease in Other Liabilities

(7,846)

Net Cash Provided By Operating Activities

115,924

6,246

122,170

CASH FLOWS FROM INVESTING ACTIVITIES

Securities Held to Maturity:

Purchases

(251,525)

Payments, Maturities, and Calls

78,544

Securities Available for

Sale:

Purchases

(523,961)

Proceeds from Sale of Securities

495

Payments, Maturities, and Calls

178,425

Purchase of loans held for investment

(20,209)

Net Decrease (Increase) in Loans Held for Investment

88,545

(98,606)

(10,061)

Proceeds from Sales of Loans

92,360

Net Cash Paid for Acquisitions

(4,482)

Proceeds From Sales of Other Real Estate Owned

4,502

Purchases of Premises and Equipment, net

(5,193)

Noncontrolling interest contributions received

7,139

Net Cash Used In Investing Activities

(447,720)

(6,246)

(453,966)

CASH FLOWS FROM FINANCING ACTIVITIES

Net Increase in Deposits

495,302

Net Decrease

in Other Short-Term

Borrowings

(45,938)

Repayment of Other Long-Term

Borrowings

(1,332)

Dividends Paid

(10,459)

Issuance of Common Stock Under Compensation Plans

1,028

Net Cash Provided By Financing Activities

438,601

NET DECREASE IN CASH AND CASH EQUIVALENTS

106,805

Cash and Cash Equivalents at Beginning of Period

928,549

Cash and Cash Equivalents at End of Period

1,035,354

Supplemental Cash Flow Disclosures:

Interest Paid

3,547

Income Taxes Paid

16,339

Supplemental Noncash Items:

Loans Transferred from Held for Investment to Held for Sale, net

98,081

Loans and Premises Transferred to Other Real Estate Owned

1,717

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

Significant Accounting Principles

Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks, interest-bearing

deposits in other banks, and federal funds

sold. Generally,

federal funds are purchased and sold for one-day periods and all other cash equivalents

have a maturity of 90

days or less.

The Company is required to maintain average reserve balances with the Federal Reserve Bank

based upon a

percentage of deposits.

On March 26, 2020, the Federal Reserve reduced the amount of the required reserve balance

zero

The Company maintains certain cash balances that are restricted under warehouse

lines of credit and master repurchase

agreements.

The restricted cash balance at December 31, 2023 was $

0.1

million.

Investment Securities

Investment securities are classified as held-to-maturity (“HTM”) and

carried at amortized cost when the Company has the positive

intent and ability to hold them until maturity.

Investment securities not classified as HTM are classified as available-for-sale

(“AFS”) and carried at fair value.

The Company does not have trading investment securities. Investment securities classified

equity securities that do not have readily determinable fair values, are

measured at cost and remeasured to fair value when

impaired or upon observable transaction prices.

The Company determines the appropriate classification of securities at the time

of purchase.

For reporting and risk management purposes, the Company further

segments

investment securities by the issuer of

the security which correlates to its risk profile: U.S. government treasury,

U.S. government agency, state and

political

subdivisions, mortgage-backed securities,

and corporate debt securities.

Certain equity securities with limited marketability,

such

as stock in the Federal Reserve Bank and the Federal Home Loan Bank, are classified

as AFS and carried at cost.

Interest income includes amortization and accretion of purchase premiums

and discounts.

Realized gains and losses are derived

from the amortized cost of the security sold.

Gains and losses on the sale of securities are recorded on the trade date and are

determined using the specific identification method.

Securities transferred from AFS to HTM are recorded at amortized cost plus

or minus any unrealized gain or loss at the time of transfer.

Any existing unrecognized gain or loss continues to be reported

accumulated other comprehensive loss (net of tax) and amortized as an adjustment

to interest income over the remaining life of

the security.

Any existing allowance for credit loss is reversed at the time of transfer.

Subsequent to transfer, the allowance for

credit losses on the transferred security is evaluated in accordance with the accounting

policy for HTM securities.

Additionally,

any allowance amounts reversed or established as part of the transfer

are presented on a gross basis in the Consolidated Statement

of Income.

The accrual of interest is generally suspended on securities more than 90 days

past due with respect to principal or interest.

When

a security is placed on nonaccrual status, all previously accrued and uncollected interest

is reversed against current income and

thus not included in the estimate of credit losses.

Credit losses and changes thereto, are established as an allowance for credit loss through

a provision for credit loss expense.

Losses are charged against the allowance when management

believes the uncollectability of a security is confirmed or when

either of the criteria regarding intent or requirement to sell is met.

Certain 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 considers the long history of no credit losses on these

securities indicates that the expectation of nonpayment of the amortized

cost basis is 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 not

assess or record expected

credit losses due to the zero loss assumption.

Impairment - Available

-for-Sale Securities

Unrealized gains on AFS securities are excluded from earnings and reported,

net of tax, in other comprehensive income.

For AFS

securities that are in an unrealized loss position, the Company first assesses whether it intends

to sell, or whether it is more likely

than not it will be required to sell the security before recovery of its amortized

cost basis.

If either of the criteria regarding intent

or requirement to sell is met, the security’s

amortized cost basis is written down to fair value through income.

For AFS securities

that do not meet the aforementioned criteria or have a zero loss assumption,

the Company evaluates whether the decline in fair

value has resulted from credit losses or other factors.

In making this assessment, management considers the extent to which

fair

value is less than amortized cost, any changes to the rating of the security by a

rating agency, and adverse

conditions specifically

related to the security, among

other factors.

If the assessment indicates that a credit loss exists, the present value of cash flows to

be collected from the security are compared to the amortized cost basis of the security.

If the present value of cash flows

expected to be collected is less than the amortized cost basis, a credit loss exists and

an allowance for credit losses is recorded

through a provision for credit loss expense, limited by the amount that fair value is less than

the amortized cost basis.

Any

impairment that is not credit related is recognized in other comprehensive

income.

Allowance for Credit Losses - Held-to-Maturity Securities.

Management measures expected credit losses on each individual HTM

debt security that has not been deemed to have a zero

assumption.

Each security that is not deemed to have zero credit losses is individually measured

based on net realizable value, or

the difference between the discounted value of the expected

cash flows, based on the original effective rate, and the recorded

amortized basis of the security.

To the extent a shortfall is related

to credit loss, an allowance for credit loss is recorded through a

provision for credit loss expense.

Loans Held for Investment

Loans held for investment (“HFI”) are stated at amortized cost which includes the

principal amount outstanding, net premiums

and discounts, and net deferred loan fees and costs.

Accrued interest receivable on loans is reported in other assets and is not

included in the amortized cost basis of loans.

Interest income is accrued on the effective yield method based on outstanding

principal balances and includes loan late fees.

Fees charged to originate loans and direct loan origination

costs are deferred and

amortized over the life of the loan as a yield adjustment.

The Company defines loans as past due when one full payment is past due or a contractual maturity

is over 30 days late.

The

accrual of interest is generally suspended on loans more than 90 days past due

with respect to principal or interest.

When a loan is

placed on nonaccrual status, all previously accrued and uncollected interest

is reversed against current income and thus a policy

election has been made to not include accrued interest in the estimate of credit

losses.

Interest income on nonaccrual loans is

recognized when the ultimate collectability is no longer considered 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.

Loan charge-offs on commercial and investor

real estate loans are recorded when the facts and circumstances of the individual

loan confirm the loan is not fully collectible and the loss is reasonably quantifiable.

Factors considered in making these

determinations are the borrower’s and any guarantor’s

ability and willingness to pay,

the status of the account in bankruptcy court

(if applicable), and collateral value.

Charge-off decisions for consumer loans are dictated by

the Federal Financial Institutions

Examination Council’s Uniform

Retail Credit Classification and Account Management Policy which establishes standards

for the

classification and treatment of consumer loans, which generally require

charge-off after 120 days of delinquency.

The Company has adopted comprehensive lending policies, underwriting

standards and loan review procedures designed to

maximize loan income within an acceptable level of risk.

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

concentrations, loan delinquencies, nonperforming and potential problem

loans, and other credit quality metrics.

The ongoing

review of loan portfolio quality and trends by Management and the Credit Risk Oversight

Committee support the process for

estimating the allowance for credit losses.

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 for through the credit

loss provision, but recorded separately 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.

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

allowance for credit losses 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.

Loans That Do Not Share Risk Characteristics (Individually

Analyzed)

Loans that do not share similar risk characteristics are evaluated on an individual

basis.

Loans deemed to be collateral dependent

have differing risk characteristics and are individually analyzed to

estimate the expected credit loss.

A loan is collateral

dependent when the borrower is experiencing financial difficulty

and repayment of the loan is dependent on the liquidation and

sale of the underlying collateral.

For collateral dependent loans where foreclosure is probable, the expected credit loss is

measured based on the difference between the fair

value of the collateral (less selling cost) and the amortized cost basis of the

asset.

For collateral dependent loans where foreclosure is not probable, the

Company has elected the practical expedient allowed

by Financial Accounting Standards Board (“FASB”)

Accounting Standards Codification (“ASC”) Topic

326-20 to measure the

expected credit loss under the same approach as those loans where foreclosure

is probable.

For loans with balances greater than

$250,000,

the fair value of the collateral is obtained through independent appraisal of the underlying

collateral.

For loans with

balances less than $250,000, the Company has made a policy election to measure expected

loss for these individual loans utilizing

loss rates for similar loan types.

Loans That Share Similar Risk Characteristics (Pooled

Loans)

The general steps in determining expected credit losses for the pooled loan component

of the allowance are as follows:

●

Segment loans into pools according to similar risk characteristics

●

Develop historical loss rates for each loan pool segment

●

Incorporate the impact of forecasts

●

Incorporate the impact of other qualitative factors

●

Calculate and review pool specific allowance for credit loss estimate

A discounted cash flow methodology is utilized to calculate expected

cash flows for the life of each individual loan.

The

discounted present value of expected cash flow is then compared to

the loan’s amortized cost basis to determine

the credit loss

estimate.

Individual loan results are aggregated at the pool level in determining total

reserves for each loan pool.

The primary inputs used to calculate expected cash flows include historical

loss rates which reflect probability of default (“PD”)

and loss given default (“LGD”), and prepayment rates.

The historical look-back period is a key factor in the calculation of the PD

rate and is based on management’s assessment

of current and forecasted conditions and may vary by loan pool.

Loans subject to

the Company’s risk rating process are

further sub-segmented by risk rating in the calculation of PD rates.

LGD rates generally

reflect the historical average net loss rate by loan pool.

Expected cash flows are further adjusted to incorporate the impact of loan

prepayments which will vary by loan segment and interest rate conditions.

In general, prepayment rates are based on observed

prepayment rates occurring in the loan portfolio and consideration of forecasted

interest rates.

In developing loss rates, adjustments are made to incorporate the impact of forecasted

conditions.

Certain assumptions are also

applied, including the length of the forecast and reversion periods.

The forecast period is the period within which management is

able to make a reasonable and supportable assessment of future conditions.

The reversion period is the period beyond which

management believes it can develop a reasonable and supportable forecast,

and bridges the gap between the forecast period and

the use of historical default and loss rates.

The remainder period reflects the remaining life of the loan.

The length of the forecast

and reversion periods are periodically evaluated and based on management’s

assessment of current and forecasted conditions and

may vary by loan pool.

For purposes of developing a reasonable and supportable assessment

of future conditions, management

utilizes established industry and economic data points and sources,

including the Federal Open Market Committee forecast, with

the forecasted unemployment rate being a significant factor.

PD rates for the forecast period will be adjusted accordingly based

on management’s assessment of

future conditions.

PD rates for the remainder period will reflect the historical mean PD rate.

Reversion period PD rates reflect the difference between forecast

and remainder period PD rates calculated using a straight-line

adjustment over the reversion period.

Loss rates are further adjusted to account for other risk factors that impact loan defaults

and losses.

These adjustments are based

on management’s assessment of

trends and conditions that impact credit risk and resulting credit losses, more

specifically internal

and external factors that are independent of and not reflected in the quantitative

loss rate calculations.

Risk factors management

considers in this assessment include trends in underwriting standards,

nature/volume/terms of loan originations, past due loans,

loan review systems, collateral valuations, concentrations, legal/regulatory/political

conditions, and the unforeseen impact of

natural disasters.

Allowance for Credit Losses on Off-Balance

Sheet Credit Exposures

The Company estimates expected credit losses over the contractual period

in which it is exposed to credit risk through a

contractual obligation to extend credit, unless that obligation is unconditionally

cancellable by the Company.

The allowance for

credit losses on off-balance sheet credit exposures is adjusted as a provision

for credit loss expense and is recorded in other

liabilities.

The estimate includes consideration of the likelihood that funding will occur

and an estimate of expected credit losses

on commitments expected to be funded over its estimated life and applies the same

estimated loss rate as determined for current

outstanding loan balances by segment.

Off-balance sheet credit exposures are identified and classified in the same categories as

the allowance for credit losses with similar risk characteristics that have been previously

mentioned.

Mortgage Banking Activities

Mortgage Loans Held for Sale and Revenue Recognition

Mortgage loans held for sale (“HFS”) are carried at fair value under the fair value

option with changes in fair value recorded in

mortgage banking revenues on the Consolidated Statements of

Income. The fair value of mortgage loans held for sale committed

to investors is calculated using observable market information such

as the investor commitment, assignment of trade or other

mandatory delivery commitment prices. The Company bases loans committed

to Federal National Mortgage Association

(“FNMA”), Government National Mortgage Association (“GNMA”), and

Federal Home Loan Mortgage Corporation

(“FHLMC”) (“Agency”) investors based on the Agency’s

quoted mortgage backed security (“MBS”) prices. The fair value of

mortgage loans held for sale not committed to investors is based on quoted best execution

secondary market prices. If no such

quoted price exists, the fair value is determined using quoted prices for

a similar asset or assets, such as MBS prices, adjusted for

the specific attributes of that loan, which would be used by other market

participants.

Gains and losses from the sale of mortgage loans held for sale are recognized based upon

the difference between the sales

proceeds and carrying value of the related loans upon sale and are recorded

in mortgage banking revenues on the Consolidated

Statements of Income. Sales proceeds reflect the cash received from investors

through the sale of the loan and servicing release

premium. If the related mortgage loan is sold with servicing retained, the

MSR addition is recorded in mortgage banking revenues

on the Consolidated Statements of Income.

Mortgage banking revenues also includes the unrealized gains and losses associated

with the changes in the fair value of mortgage loans held for sale, and the realized and

unrealized gains and losses from derivative

instruments.

Mortgage loans held for sale are considered sold when the Company surrenders

control over the financial assets. Control is

considered to have been surrendered when the transferred assets have been

isolated from the Company, beyond

the reach of the

Company and its creditors; the purchaser obtains the right (free of conditions that

constrain it from taking advantage of that right)

to pledge or exchange the transferred assets; and the Company does not

maintain effective control over the transferred assets

through either an agreement that both entitles and obligates the Company

to repurchase or redeem the transferred assets before

their maturity or the ability to unilaterally cause the holder to return specific

assets. The Company typically considers the above

criteria to have been met upon acceptance and receipt of sales proceeds

from the purchaser.

Government National Mortgage Association (“GNMA”) optional

repurchase programs allow financial institutions to buy back

individual delinquent mortgage loans that meet certain criteria from

the securitized loan pool for which the institution provides

servicing.

At the servicer’s option and without GNMA’s

prior authorization, the servicer may repurchase such a delinquent loan

for an amount equal to 100 percent of the remaining principal balance of

the loan.

Under FASB ASC Topic

860, “Transfers and

Servicing,” this buy-back option is considered a conditional option until

the delinquency criteria are met, at which time the option

becomes unconditional.

When the Company is deemed to have regained effective control over

these loans under the

unconditional buy-back option, the loans can no longer be reported

as sold and must be brought back onto the Consolidated

Statement of Financial Condition, regardless of whether there is intent to exercise

the buy-back option.

These loans are reported

in other assets with the offsetting liability being reported

in other liabilities.

Derivative Instruments (IRLC/Forward Commitments)

The Company holds and issues derivative financial instruments such as interest rate

lock commitments (“IRLCs”) and other

forward sale commitments. IRLCs are subject to price risk primarily related

to fluctuations in market interest rates. To

hedge the

interest rate risk on certain IRLCs, the Company uses forward sale commitments,

such as to-be-announced securities (“TBAs”) or

mandatory delivery commitments with investors. Management expects

these forward sale commitments to experience changes in

fair value opposite to the changes in fair value of the IRLCs thereby reducing

earnings volatility. Forward

sale commitments are

also used to hedge the interest rate risk on mortgage loans held for sale that are not

committed to investors and still subject to

price risk. If the mandatory delivery commitments are not fulfilled, the Company

pays a pair-off fee. Best effort

forward sale

commitments are also executed with investors, whereby certain loans

are locked with a borrower and simultaneously committed

to an investor at a fixed price. If the best effort IRLC does not fund,

there is no obligation to fulfill the investor commitment.

The Company considers various factors and strategies in determining

what portion of the IRLCs and uncommitted mortgage loans

held for sale to economically hedge.

All derivative instruments are recognized as other assets or other liabilities on

the

Consolidated Statements of Financial Condition at their fair value.

Changes in the fair value of the derivative instruments are

recognized in mortgage banking revenues on the Consolidated Statements

of Income in the period in which they occur.

Gains and

losses resulting from the pairing-out of forward sale commitments are recognized

in mortgage banking revenues on the

Consolidated Statements of Income. The Company accounts for all derivative

instruments as free-standing derivative instruments

and does not designate any for hedge accounting.

Mortgage Servicing Rights (“MSRs”) and Revenue Recognition

The Company sells residential mortgage loans in the secondary market and may

retain the right to service the loans sold. Upon

sale, an MSR asset is capitalized, which represents the then current fair value of

future net cash flows expected to be realized for

performing servicing activities.

As the Company has not elected to subsequently measure any class of servicing

assets under the

fair value measurement method, the Company follows the amortization method.

MSRs are amortized to noninterest income

(other income) in proportion to and over the period of estimated net servicing

income, and are assessed for impairment at each

reporting date.

MSRs are carried at the lower of the initial capitalized amount, net of accumulated amortization,

or estimated fair

value, and included in other assets, net, on the Consolidated Statements of

Financial Condition.

The Company periodically evaluates its MSRs asset for impairment.

Impairment is assessed based on fair value at each reporting

date 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).

As mortgage interest rates fall,

prepayment speeds are usually faster and the value of the MSRs asset generally

decreases, requiring additional valuation reserve.

Conversely, as mortgage

interest rates rise, prepayment speeds are usually slower and the value of the MSRs asset generally

increases, requiring less valuation reserve.

A valuation allowance is established, through a charge to earnings, to

the extent the

amortized cost of the MSRs exceeds the estimated fair value by stratification.

If it is later determined that all or a portion of the

temporary impairment no longer exists for a stratification, the valuation

is reduced through a recovery to earnings.

An other-than-

temporary impairment (i.e., recoverability is considered remote when

considering interest rates and loan pay off activity) is

recognized as a write-down of the MSRs asset and the related valuation allowance

(to the extent a valuation allowance is

available) and then against earnings.

A direct write-down permanently reduces the carrying value of the MSRs asset and

valuation allowance, precluding subsequent recoveries.

Derivative/Hedging Activities

At the inception of a derivative contract, the Company designates the derivative

as one of three types based on the Company’s

intentions and belief as to the likely effectiveness as a hedge. These three

types are (1) a hedge of the fair value of a recognized

asset or liability or of an unrecognized firm commitment (“fair value

hedge”), (2) a hedge of a forecasted transaction or the

variability of cash flows to be received or paid related to a recognized

asset or liability (“cash flow hedge”), or (3) an instrument

with no hedging designation (“standalone derivative”). For a fair value hedge,

the gain or loss on the derivative, as well as the

offsetting loss or gain on the hedged item, are recognized

in current earnings as fair values change. For a cash flow hedge, the

gain or loss on the derivative is reported in other comprehensive income and is reclassified

into earnings in the same periods

during which the hedged transaction affects earnings. For

both types of hedges, changes in the fair value of derivatives that are

not highly effective in hedging the changes in fair value or expected

cash flows of the hedged item are recognized immediately in

current earnings. Net cash settlements on derivatives that qualify for hedge

accounting are recorded in interest income or interest

expense, based on the item being hedged. Net cash settlements on derivatives

that do not qualify for hedge accounting are

reported in non-interest income. Cash flows on hedges are classified in the cash flow

statement the same as the cash flows of the

items being hedged.

The Company formally documents the relationship between derivatives

and hedged items, as well as the risk-management

objective and the strategy for undertaking hedge transactions at the inception

of the hedging relationship. This documentation

includes linking fair value or cash flow hedges to specific assets and liabilities on the

Consolidated Statement of Financial

Condition or to specific firm commitments or forecasted transactions. The Company

also formally assesses, both at the hedge’s

inception and on an ongoing basis, whether the derivative instruments that are used

are highly effective in offsetting changes in

fair values or cash flows of the hedged items. The Company discontinues hedge

accounting when it determines that the derivative

is no longer effective in offsetting changes in the

fair value or cash flows of the hedged item, the derivative is settled or

terminates, a hedged forecasted transaction is no longer probable, a hedged

firm commitment is no longer firm, or treatment of the

derivative as a hedge is no longer appropriate or intended. When hedge accounting

is discontinued, subsequent changes in fair

value of the derivative are recorded as non-interest income. When a fair

value hedge is discontinued, the hedged asset or liability

is no longer adjusted for changes in fair value and the existing basis adjustment is amortized

or accreted over the remaining life of

the asset or liability. When

a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are

still

expected to occur, gains or losses that were accumulated

in other comprehensive income are amortized into earnings over the

same periods, in which the hedged transactions will affect earnings.

Long-Lived Assets

Premises and equipment is stated at cost less accumulated depreciation,

computed on the straight-line method over the estimated

useful lives for each type of asset with premises being depreciated over

a range of

years, and equipment being

depreciated over a range of

years.

Additions, renovations and leasehold improvements to premises are capitalized and

depreciated over the lesser of the useful life or the remaining lease term.

Repairs and maintenance are charged to noninterest

expense as incurred.

Long-lived assets are evaluated for impairment if circumstances suggest that their

carrying value may not be recoverable, by

comparing the carrying value to estimated undiscounted cash flows.

If the asset is deemed impaired, an impairment charge is

recorded equal to the carrying value less the fair value. See Note 6 – Premises and

Equipment for additional information.

Leases

The Company has entered into various operating leases, primarily for

banking offices.

Generally, these leases have initial

lease

terms from one to ten years.

Many of the leases have one or more lease renewal options.

The exercise of lease renewal options is

at the Company’s sole discretion.

The Company does not consider exercise of any lease renewal options reasonably

certain.

Certain leases contain early termination options.

No renewal options or early termination options have been included in the

calculation of the operating right-of-use assets or operating lease liabilities.

Certain lease agreements provide for periodic

adjustments to rental payments for inflation.

At the commencement date of the lease, the Company recognizes a lease liability at

the present value of the lease payments not yet paid, discounted using

the discount rate for the lease or the Company’s

incremental borrowing rate.

As the majority of the Company’s

leases do not provide an implicit rate, the Company uses its

incremental borrowing rate at the commencement date in determining

the present value of lease payments.

The incremental

borrowing rate is based on the term of the lease.

At the commencement date, the Company also recognizes a right-of-use asset

measured at (i) the initial measurement of the lease liability; (ii) any lease payments made

to the lessor at or before the

commencement date less any lease incentives received; and (iii) any initial direct

costs incurred by the lessee.

Leases with an

initial term of 12 months or less are not recorded on the Consolidated Statement

of Financial Condition.

For these short-term

leases, lease expense is recognized on a straight-line basis over the lease term.

The Company has no leases classified as finance

leases.

See Note 7 – Leases for additional information.

Bank Owned Life Insurance

The Company, through

its subsidiary bank, has purchased life insurance policies on certain key officers.

Bank owned life

insurance is recorded at the amount that can be realized under the insurance contract

at the statement of financial condition date,

which is the cash surrender value adjusted for other charges or

other amounts due that are probable at settlement.

Goodwill and Other Intangibles

Goodwill represents the excess of the cost of businesses acquired over the fair

value of the net assets acquired.

In accordance

with FASB ASC Topic

350, the Company determined it has one goodwill reporting unit.

Goodwill is tested for impairment

annually during the fourth quarter or on an interim basis if an event occurs

or circumstances change that would more likely than

not reduce the fair value of the reporting unit below its carrying value.

Other intangible assets relate to customer intangibles

purchased as part of a business acquisition.

Intangible assets are tested for impairment at least annually or whenever changes in

circumstances indicate the carrying amount of the assets may not

be recoverable from future undiscounted cash flows.

See Note 8

– Goodwill and Other Intangibles for additional information

Other Real Estate Owned

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are

initially recorded at the lower of cost or fair value

less estimated selling costs, establishing a new cost basis.

Subsequent to foreclosure, valuations are periodically performed by

management and the assets are carried at the lower of carrying amount or fair value

less cost to sell.

The valuation of foreclosed

assets is subjective in nature and may be adjusted in the future because of changes in economic

conditions.

Revenue and

expenses from operations and changes in value are included in noninterest

expense.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary

course of business are recorded as liabilities when

the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.

See Note 21 – Commitments and

Contingencies for additional information.

Noncontrolling Interest

To the extent

the Company’s interest in a consolidated

entity represents less than 100% of the entity’s

equity, the Company

recognizes noncontrolling interests in subsidiaries.

In the case of the CCHL acquisition, the noncontrolling interest represents

equity which is redeemable or convertible for cash at the option of the equity holder

and is classified within temporary equity in

the mezzanine section of the Consolidated Statements of Financial

Condition.

The call/put option is redeemable at the option of

either CCBG (call) or the noncontrolling interest holder (put) on or

after January 1, 2025, and therefore, not entirely within

CCBG’s control.

The subsidiary’s net income or loss and

related dividends are allocated to CCBG and the noncontrolling interest

holder based on their relative ownership percentages.

The noncontrolling interest carrying value is adjusted on a quarterly basis

to the higher of the carrying value or current redemption value, at the Statement

of Financial Condition date, through a

corresponding adjustment to retained earnings.

The redemption value is calculated quarterly and is based on the higher of a

predetermined book value or pre-tax earnings multiple.

To the extent the redemption

value exceeds the fair value of the

noncontrolling interest, the Company’s

earnings per share attributable to common shareowners is adjusted by that

amount.

The

Company uses an independent valuation expert to assist in estimating the fair value

of the noncontrolling interest using: 1) the

discounted cash flow methodology under the income approach, and (2)

the guideline public company methodology under the

market approach.

The estimated fair value is derived from equally weighting the result of each of the two methodologies.

The

estimation of the fair value includes significant assumptions concerning:

(1) projected loan volumes; (2) projected pre-tax profit

margins; (3) tax rates and (4) discount rates.

Income Taxes

Income tax expense is the total of the current year income tax due or refundable

and the change in deferred tax assets and

liabilities (excluding deferred tax assets and liabilities related to business

combinations or components of other comprehensive

income).

Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences

between carrying

amounts and tax bases of assets and liabilities, computed using enacted tax

rates.

A valuation allowance, if needed, reduces

deferred tax assets to the expected amount most likely to be realized.

Realization of deferred tax assets is dependent upon the

generation of a sufficient level of future taxable income and recoverable

taxes paid in prior years.

The income tax effects related

to settlements of share-based payment awards are reported in earnings as an

increase or decrease in income tax expense.

The Company files a consolidated federal income tax return and a separate

federal tax return for CCHL. Each subsidiary files a

separate state income tax return.

Earnings Per Common Share

Basic earnings per common share is based on net income divided by the weighted

-average number of common shares outstanding

during the period excluding non-vested stock.

Diluted earnings per common share include the dilutive effect of

stock options and

non-vested stock awards granted using the treasury stock method.

A reconciliation of the weighted-average shares used in

calculating basic earnings per common share and the weighted average

common shares used in calculating diluted earnings per

common share for the reported periods is provided in Note 16 — Earnings

Per Share.

Comprehensive Income

Comprehensive income includes all changes in shareowners’ equity

during a period, except those resulting from transactions with

shareowners.

Besides net income, other components of the Company’s

comprehensive income include the after tax effect of

changes in the net unrealized gain/loss on securities AFS, unrealized gain/loss

on cash flow derivatives, and changes in the funded

status of defined benefit and supplemental executive retirement plans.

Comprehensive income is reported in the accompanying

Consolidated Statements of Comprehensive Income and Changes in Shareowners’

Equity.

Stock Based Compensation

Compensation cost is recognized for share-based awards issued to employees,

based on the fair value of these awards at the date

of grant.

Compensation cost is recognized over the requisite service period, generally

defined as the vesting period.

The market

price of the Company’s common

stock at the date of the grant is used for restricted stock awards.

For stock purchase plan awards,

a Black-Scholes model is utilized to estimate the fair value of the award.

The impact of forfeitures of share-based awards on

compensation expense is recognized as forfeitures occur.

Revenue Recognition

FASB ASC Topic

606, Revenue from Contracts with Customers (“ASC 606”), establishes principles

for reporting information

about the nature, amount, timing and uncertainty of revenue and cash flows

arising from the entity’s contracts to provide goods

services to customers. The core principle requires an entity to recognize revenue

to depict the transfer of goods or services to

customers in an amount that reflects the consideration that it expects to be entitled

to receive in exchange for those goods or

services recognized as performance obligations are satisfied.

The majority of the Company’s revenue

-generating transactions are not subject to ASC 606, including revenue generated

from

financial instruments, such as our loans, letters of credit, and investment securities,

and revenue related to the sale of residential

mortgages in the secondary market, as these activities are subject to other

GAAP discussed elsewhere within our disclosures.

The

Company recognizes revenue from these activities as it is earned based on

contractual terms, as transactions occur, or as services

are provided and collectability is reasonably assured.

Descriptions of the major revenue-generating activities that are within the

scope of ASC 606, which are presented in the accompanying Consolidated

Statements of Income as components of non-interest

income are as follows:

Deposit Fees - these represent general service fees for monthly account maintenance

and activity- or transaction-based fees and

consist of transaction-based revenue, time-based revenue (service period),

item-based revenue or some other individual attribute-

based revenue.

Revenue is recognized when the Company’s performance

obligation is completed which is generally monthly for

account maintenance services or when a transaction has been completed.

Payment for such performance obligations are generally

received at the time the performance obligations are satisfied.

Wealth Management

trust fees and retail brokerage fees – trust fees represent monthly fees due from wealth

management clients

as consideration for managing the client’s

assets. Trust services include custody of assets, investment

management, fees for trust

services and similar fiduciary activities. Revenue is recognized when the Company’s

performance obligation is completed each

month or quarter, which is the time that payment is received.

Also, retail brokerage fees are received from a third-party broker-

dealer, for which the Company acts as an agent,

as part of a revenue-sharing agreement for fees earned from

customers that are

referred to the third party.

These fees are for transactional and advisory services and are paid by the third party on a monthly

basis and recognized ratably throughout the quarter as the Company’s

performance obligation is satisfied.

Bank Card Fees – bank card related fees primarily includes interchange

income from client use of consumer and business debit

cards.

Interchange income is a fee paid by a merchant bank to the card-issuing bank through

the interchange network.

Interchange fees are set by the credit card associations and are based on cardholder purchase volumes.

The Company records

interchange income as transactions occur.

Gains and Losses from the Sale of Bank Owned Property – the performance

obligation in the sale of other real estate owned

typically will be the delivery of control over the property to the buyer.

If the Company is not providing the financing of the sale,

the transaction price is typically identified in the purchase and sale agreement.

However, if the Company provides seller

financing, the Company must determine a transaction price, depending

on if the sale contract is at market terms and taking into

account the credit risk inherent in the arrangement.

Insurance Commissions – insurance commissions recorded by the

Company are received from various insurance carriers based on

contractual agreements to sell policies to customers on behalf of the carriers.

The performance obligation for the Company is to

sell life and health insurance policies to customers.

This performance obligation is met when a new policy is sold (effective

date)

or when an existing policy renews. New policies and renewals generally have

a one-year term. In the agreements with the

insurance carriers, a commission rate is agreed upon. The commission is recognized

at the time of the sale of the policy (effective

date) or when a policy renews.

Insurance commissions are recorded within other noninterest income.

Other non-interest income primarily includes items such as mortgage

banking fees (gains from the sale of residential mortgage

loans held for sale), bank-owned life insurance, and safe deposit box fees,

none of which are subject to the requirements of ASC

606.

The Company has made no significant judgments in applying the revenue guidance

prescribed in ASC 606 that affects the

determination of the amount and timing of revenue from the above-described

contracts with clients.

Recently Adopted Accounting Pronouncements

Accounting Standards Update (“ASU”)

2022-02, “Financial Instruments – Credit Losses

(Topic

326): Troubled

Debt

Restructurings and Vintage

Disclosures”.

The amendments eliminate the accounting guidance for troubled debt restructurings

creditors that have adopted the CECL model and enhance the disclosure requirements

for loan modifications and restructurings

made with borrowers experiencing financial difficulty.

In addition, the amendments require disclosure of current-period gross

write-offs for financing receivables and net investment

in leases by year of origination in the vintage disclosures.

The

amendments in this update are for fiscal years beginning after December

15, 2022, including interim periods within those fiscal

years.

The Company adopted ASU 2022-02 using the prospective approach and the adoption of the standard

did not have a

material impact on its consolidated financial statements.

Issued But Not Yet

Effective Accounting Standards

ASU No.

2023-01, “Leases (Topic

842):

Common Control Arrangements.” ASU 2023-01 requires entities to amortize leasehold

improvements associated with common control leases over the useful life

to the common control group. ASU 2023-01 also

provides certain practical expedients applicable to private companies and not

-for-profit organizations. ASU 2023-01 will be

effective for the Company on January 1, 2024, though early adoption

is permitted. The Company is evaluating the effect that ASU

2023-02 will have on its consolidated financial statements and related disclosures.

ASU No.

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

(Topic

323): Accounting for Investments in Tax

Credit

Structures Using the Proportional

Amortization Method.”

ASU 2023-02 is intended to improve the accounting and disclosures

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

for qualifying tax equity investments

using the proportional amortization method, regardless of the program giving

rise to the related income tax credits. Previously,

this method was only available for qualifying tax equity investments in low-income

housing tax credit structures. ASU 2023-02

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

early adoption is permitted. The Company is evaluating the effect

that ASU 2023-02 will have on its consolidated financial statements and related disclosures.

ASU No. 2023-06, “Disclosure Improvements:

Codification Amendments in Response to the SEC’s

Disclosure Update and

Simplification Initiative.”

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

requirements of a variety of

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

existing disclosures with those entities that

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

FASB accounting standard

codification with the

SEC’s regulations. 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 be removed from the Codification and 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 will be effective for the company

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

income taxes information that will be

required to be disclosed as well as the impact to Note 13- Income Taxes.

Note 2

INVESTMENT SECURITIES

Investment Portfolio Composition

The following tables summarize the amortized cost and related fair value of investment

securities AFS and securities HTM, the corresponding amounts of

gross unrealized gains and losses, and allowance for credit

losses.

Available for

Sale

Amortized

Unrealized

Allowance for

Carrying

(Dollars in Thousands)

Cost

Gains

Losses

Credit Losses

Value

December 31, 2023

U.S. Government Treasury

25,947

1,269

24,679

U.S. Government Agency

152,983

104

8,053

145,034

States and Political Subdivisions

43,951

4,861

(8)

39,083

Mortgage-Backed Securities

(1)

73,015

9,714

63,303

Corporate Debt Securities

63,600

6,031

(17)

57,552

Other Securities

(2)

8,251

Total

367,747

108

29,928

(25)

337,902

December 31, 2022

U.S. Government Treasury

23,977

1,928

22,050

U.S. Government Agency

198,888

12,863

186,052

States and Political Subdivisions

47,197

6,855

(13)

40,329

Mortgage-Backed Securities

(1)

80,829

11,426

69,405

Corporate Debt Securities

97,119

8,874

(28)

88,236

Other Securities

(2)

7,222

Total

455,232

41,946

(41)

413,294

Held to Maturity

Amortized

Unrealized

Fair

(Dollars in Thousands)

Cost

Gains

Losses

Value

December 31, 2023

U.S. Government Treasury

457,681

16,492

441,189

Mortgage-Backed Securities

167,341

16,792

150,562

Total

625,022

33,284

591,751

December 31, 2022

U.S. Government Treasury

457,374

25,641

431,733

Mortgage-Backed Securities

203,370

22,410

180,968

Total

660,744

48,051

612,701

(1)

Comprised of residential mortgage-backed

securities.

(2)

Includes Federal Home Loan Bank and Federal Reserve Bank recorded

at cost of $

3.2

million and $

5.1

million, respectively,

December 31, 2023 and of $

2.1

million and $

5.1

million, respectively,

at December 31, 2022.

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

3.5

million and $

0.01

million, respectively, in equity

securities.

These securities do not have a readily determinable fair value and were not

credit impaired.

Securities with an amortized cost of $

578.5

million and $

656.1

million at December 31, 2023 and 2022, respectively,

were

pledged to secure public deposits and for other purposes.

At December 31, 2023 and 2022, there were

holdings of securities of any one issuer, other than

the U.S. Government and its

agencies, in an amount greater than 10% of shareowners’ equity.

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

to own capital stock in the FHLB based

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

FHLB advances.

FHLB stock which is included

in other securities is pledged to secure FHLB advances.

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

however, redemption of this stock has historically

been at par value.

As a member of the Federal Reserve Bank of Atlanta, the

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

on a specified ratio relative to the Bank’s capital.

Federal Reserve Bank stock is carried at cost.

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

the AFS to HTM classification.

Transfers are

made at fair value on the date of the transfer.

The

securities had an amortized cost basis and fair value of $

168.4

million and

159.0

million, respectively at the time of the transfer.

The net unamortized, unrealized loss on the transferred securities included

in accumulated other comprehensive loss in the accompanying Consolidated

Statement of Financial Condition totaled $

4.5

million and $

7.9

million at December 31, 2023 and 2022, respectively.

This amount will be amortized out of accumulated other

comprehensive loss over the remaining life of the underlying securities as an adjustment

of the yield on those securities.

Investment Sales

. During 2023, the Company sold $

30.4

million of investment securities. There were no significant sales of

investment securities during 2022 and 2021.

Maturity Distribution

The following table shows the Company’s

AFS and HTM investment securities maturity distribution

based on contractual maturity at December 31, 2023.

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 since they are not due at a certain maturity

date.

Equity securities do not have a

contractual maturity date.

Available for

Sale

Held to Maturity

Amortized

Fair

Amortized

Fair

(Dollars in Thousands)

Cost

Value

Cost

Value

Due in one year or less

28,545

27,854

90,119

88,588

Due after one through five years

138,299

127,843

367,562

352,601

Due after five through ten years

39,090

33,420

Mortgage-Backed Securities

73,015

63,303

167,341

150,562

U.S. Government Agency

80,547

77,231

Other Securities

8,251

Total

367,747

337,902

625,022

591,751

Unrealized Losses

. The following table summarizes the investment securities with unrealized

losses at December 31, aggregated

by major security type and length of time in a continuous unrealized loss position:

Less Than 12 Months

Greater Than 12 Months

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

(Dollars in Thousands)

Value

Losses

Value

Losses

Value

Losses

December 31, 2023

Available for

Sale

U.S. Government Treasury

19,751

1,269

19,751

1,269

U.S. Government Agency

12,890

121,220

7,979

134,110

8,053

States and Political Subdivisions

1,149

37,785

4,830

38,934

4,861

Mortgage-Backed Securities

63,195

9,714

63,218

9,714

Corporate Debt Securities

57,568

6,031

57,568

6,031

Total

14,062

105

299,519

29,823

313,581

29,928

Held to Maturity

U.S. Government Treasury

153,880

3,178

287,310

13,314

441,190

16,492

Mortgage-Backed Securities

786

148,282

16,778

149,068

16,792

Total

154,666

3,192

435,592

30,092

590,258

33,284

December 31, 2022

Available for

Sale

U.S. Government Treasury

983

19,189

1,928

20,172

1,928

U.S. Government Agency

63,112

2,572

113,004

10,291

176,116

12,863

States and Political Subdivisions

1,425

38,760

6,853

40,185

6,855

Mortgage-Backed Securities

6,594

959

60,458

10,467

67,052

11,426

Equity Securities

26,959

878

58,601

7,996

85,560

8,874

Total

99,073

4,411

290,012

37,535

389,085

41,946

Held to Maturity

U.S. Government Treasury

177,552

11,018

254,181

14,623

431,733

25,641

Mortgage-Backed Securities

88,723

6,814

91,462

15,596

180,185

22,410

Total

266,275

17,832

345,643

30,219

611,918

48,051

At December 31, 2023, there were

878

positions (combined AFS and HTM securities) with pre-tax unrealized

losses totaling

63.2

million.

At December 31, 2022 there were

928

positions (combined AFS and HTM securities) with pre-tax unrealized

losses totaling $

90.0

million.

For 2023,

of these of these positions were U.S. Treasury bonds

and carry the full faith and credit

of the U.S. Government.

691

of these positions were U.S. government agency and mortgage-backed

securities issued by U.S.

government sponsored entities.

We believe the

long history of

credit losses on government securities indicates that the

expectation of nonpayment of the amortized cost basis is

zero

The remaining

101

positions (municipal securities and corporate

bonds) have a credit component.

At December 31, 2023, all collateralized mortgage obligation securities (“CMO”), MBS,

Small

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

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

At December 31,

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

17,000

and municipal securities had an allowance $

8,000

ne of the securities held by the Company were past due or in nonaccrual status at December

31, 2023.

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 large portion 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

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 HFI loan portfolio at December 31 was as follows:

(Dollars in Thousands)

2023

2022

Commercial, Financial and Agricultural

225,190

247,362

Real Estate – Construction

196,091

234,519

Real Estate – Commercial Mortgage

825,456

782,557

Real Estate – Residential

(1)

1,004,219

749,513

Real Estate – Home Equity

210,920

208,217

Consumer

(2)

272,042

325,517

Loans Held for Investment, Net of Unearned Income

2,733,918

2,547,685

(1)

Includes loans in process with outstanding balances

of $

3.2

million and $

6.1

million for 2023 and 2022, respectively.

(2)

Includes overdraft balances of $

.0 million and $

1.1

million for December 31, 2023 and 2022, respectively.

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

in loans were $

7.8

million at December 31, 2023 and

5.1

million at December 31, 2022.

Accrued interest receivable on loans which is excluded from amortized

cost totaled $

10.1

million at December 31, 2023 and $

8.0

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

The Company has pledged a floating lien on certain 1-4 family residential

mortgage loans, commercial real estate mortgage loans,

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

has pledged a blanket floating lien on all

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

borrowing capacity at the Federal Reserve Bank of

Atlanta.

Loan Purchases and Sales

The Company will purchase newly originated 1-4 family real estate secured

adjustable-rate loans

from CCHL, a related party effective on March 1, 2020 (see Note 1

– Significant Accounting Policies). These loan purchases

totaled $

364.8

million and $

421.7

million for the years ended December 31, 2023 and 2022, respectively,

and were not credit

impaired.

In addition, the Company purchased commercial real estate loans that

were not credit impaired from a third party

totaling $

15.0

million for the year ended December 31, 2022.

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 methodology is discussed further in Note 1 – Significant

Accounting Policies.

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

segment for the years ended December 31.

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

2023

Beginning Balance

1,506

2,654

4,815

10,741

1,864

3,488

25,068

Provision for Credit Losses

210

(154)

1,035

4,141

(233)

4,596

9,595

Charge-Offs

(511)

(120)

(79)

(39)

(8,543)

(9,292)

Recoveries

277

253

226

3,760

4,570

Net (Charge-Offs) Recoveries

(234)

(68)

174

187

(4,783)

(4,722)

Ending Balance

1,482

2,502

5,782

15,056

1,818

3,301

29,941

2022

Beginning Balance

2,191

3,302

5,810

4,129

2,296

3,878

21,606

Provision for Credit Losses

316

(658)

(746)

6,328

(422)

2,579

7,397

Charge-Offs

(1,308)

(355)

(193)

(6,050)

(7,906)

Recoveries

307

106

284

183

3,081

3,971

Net (Charge-Offs) Recoveries

(1,001)

(249)

284

(10)

(2,969)

(3,935)

Ending Balance

1,506

2,654

4,815

10,741

1,864

3,488

25,068

2021

Beginning Balance

2,204

2,479

7,029

5,440

3,111

3,553

23,816

Provision for Credit Losses

(227)

813

(1,679)

(1,956)

(1,125)

1,332

(2,842)

Charge-Offs

(239)

(405)

(108)

(103)

(3,972)

(4,827)

Recoveries

453

865

753

413

2,965

5,459

Net (Charge-Offs) Recoveries

214

460

645

310

(1,007)

632

Ending Balance

2,191

3,302

5,810

4,129

2,296

3,878

21,606

The $

4.9

million increase in the allowance for credit losses in 2023 reflected a credit loss provision

of $

9.6

million and net loan

charge-offs of $

4.7

million.

The $

3.5

million increase in the allowance in 2022 reflected a credit loss provision of $

7.4

million

and net loan charge-offs of $

3.9

million.

The increases in the allowance for both 2023 and 2022 were primarily attributable to

incremental allowance related to loan growth, primarily residential real

estate, and slower prepayment speeds (due to higher

interest rates).

For 2022, a higher projected rate of unemployment and its effect on

rates of default was also a contributing factor.

Four unemployment rate forecast scenarios continue to be utilized to estimate

probability of default and are weighted based on

management’s estimate of probability.

See Note 1 – Significant accounting policies for more on the calculation of

the provision

for credit losses.

See Note 21 – Commitments and Contingencies for information on the provision

for credit losses related to off-

balance sheet 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 at December 31,

30-59

60-89

90 +

Total

Nonaccrual

Total

(Dollars in Thousands)

DPD

Past Due

Current

Loans

2023

Commercial, Financial and Agricultural

311

105

416

224,463

311

225,190

Real Estate – Construction

206

195,563

322

196,091

Real Estate – Commercial Mortgage

794

823,753

909

825,456

Real Estate – Residential

670

704

1,000,525

2,990

1,004,219

Real Estate – Home Equity

268

209,653

999

210,920

Consumer

3,693

774

4,467

266,864

711

272,042

Total

5,942

913

6,855

2,720,821

6,242

2,733,918

2022

Commercial, Financial and Agricultural

109

126

235

247,086

247,362

Real Estate – Construction

359

234,143

234,519

Real Estate – Commercial Mortgage

158

149

307

781,605

645

782,557

Real Estate – Residential

845

530

1,375

747,899

239

749,513

Real Estate – Home Equity

207,411

771

208,217

Consumer

3,666

1,852

5,518

319,415

584

325,517

Total

5,137

2,692

7,829

2,537,559

2,297

2,547,685

Nonaccrual Loans

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

become 90 days past due

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

interest to be doubtful.

Loans are returned to accrual status

when the principal and interest amounts contractually due are brought current or

when future payments are reasonably assured.

The Company did not recognize a significant amount of interest income on nonaccrual

loans for the years ended December 31,

2023 and 2022.

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.

2023

2022

Nonaccrual

90 + Days

Nonaccrual

90 + Days

With No

With

Still

With No

With

Still

(Dollars in Thousands)

ACL

Accruing

ACL

Accruing

Commercial, Financial and Agricultural

311

Real Estate – Construction

322

Real Estate – Commercial Mortgage

781

128

389

256

Real Estate – Residential

1,705

1,285

239

Real Estate – Home Equity

999

771

Consumer

711

584

Total

Nonaccrual Loans

2,486

3,756

389

1,908

100

Collateral Dependent Loans

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

at December 31:

2023

2022

Real Estate

Non Real Estate

Real Estate

Non Real Estate

(Dollars in Thousands)

Secured

Commercial, Financial and Agricultural

Real Estate – Construction

275

Real Estate – Commercial Mortgage

1,296

389

Real Estate – Residential

1,706

160

Real Estate – Home Equity

130

Consumer

Total

3,277

700

A loan is collateral dependent when the borrower is experiencing financial

difficulty and repayment of the loan is dependent on

the sale or operation of the underlying collateral.

The Bank’s collateral dependent

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

by either

residential or commercial collateral types.

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

independent appraisals or internal evaluations, adjusted for selling costs or other

amounts to be deducted when estimating

expected net sales proceeds.

Residential Real Estate Loans In Process of Foreclosure

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

0.5

million and

0.6

million, respectively, in 1-4 family

residential real estate loans for which formal foreclosure proceedings were

in process.

Modifications to Borrowers Experiencing

Financial Difficulty

Occasionally, the Company may

modify loans to borrowers who

are experiencing financial difficulty.

Loan modifications to borrowers in financial difficulty are

loans in which the Company has

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

In these instances, as part of a work-out

alternative, the Company will make concessions including the extension

of the loan term, a principal moratorium, a reduction in

the interest rate, or a combination thereof.

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

credit

losses on a loan-by-loan basis.

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

cash flow

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

A modified loan classification can be

removed if the borrower’s financial condition improves

such that the borrower is no longer in financial difficulty,

the loan has not

had any forgiveness of principal or interest, and the loan is subsequently

refinanced or restructured at market terms and qualifies

as a new loan.

At December 31, 2023, the Company did

maintain any loans made to borrowers due to the borrower experiencing

financial

difficulty.

Credit Risk Management

The Company has adopted comprehensive lending policies, underwriting standards and

loan review

procedures designed to maximize loan income within an acceptable level

of risk.

Management and the Board of Directors of the

Company (the “Board”) review and approve these policies and procedures

on a regular basis (at least annually).

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

concentrations of credit, loan delinquencies and

nonperforming loans and potential problem loans.

Management and the Credit Risk Oversight Committee periodically review

our lines of business to monitor asset quality trends and the appropriateness of

credit policies.

In addition, total borrower

exposure limits are established and concentration risk is monitored.

As part of this process, the overall composition of the loan

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,

or equipment.

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

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

101

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 consist 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

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, 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 category includes personal installment loans,

direct and indirect automobile financing, and overdraft

lines of credit.

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

102

The following table summarizes gross loans held for investment at December

31, 2023

by years of origination and internally

assigned credit risk ratings (refer to Credit Risk Management section for detail

on risk rating system).

Term Loans by Origination Year

Revolving

(Dollars in Thousands)

2023

2022

2021

2020

2019

Prior

Loans

Total

Commercial, Financial,

Agricultural:

Pass

57,320

66,671

28,933

10,610

7,758

7,502

44,350

223,144

Special Mention

168

608

356

1,227

Substandard

164

177

122

161

819

Total

57,652

67,456

29,387

10,697

7,787

7,624

44,587

225,190

Current-Period Gross

Writeoffs

252

511

Real Estate -

Construction:

Pass

101,684

68,265

18,181

188

4,617

192,935

Special Mention

631

500

539

212

1,882

Substandard

576

651

1,274

Total

102,315

68,812

19,296

863

188

4,617

196,091

Current-Period Gross

Writeoffs

Real Estate - Commercial

Mortgage:

Pass

117,840

275,079

135,663

101,210

43,878

109,878

18,367

801,915

Special Mention

3,266

5,684

229

1,358

573

11,110

Substandard

1,226

6,695

1,637

605

1,574

694

12,431

Total

121,106

281,989

142,358

103,076

45,841

112,025

19,061

825,456

Current-Period Gross

Writeoffs

120

Real Estate - Residential:

Pass

372,394

400,437

83,108

35,879

24,848

68,685

8,252

993,603

Special Mention

268

502

313

1,255

Substandard

570

1,110

1,906

1,626

1,007

3,142

9,361

Total

373,232

401,636

85,097

38,007

25,855

72,140

8,252

1,004,219

Current-Period Gross

Writeoffs

Real Estate - Home

Equity:

Performing

890

127

386

950

207,509

209,921

Nonperforming

999

Total

890

127

386

950

208,508

210,920

Current-Period Gross

Writeoffs

Consumer:

Performing

68,496

90,031

70,882

21,314

10,210

4,258

5,431

270,622

Nonperforming

293

355

710

1,420

Total

68,789

90,386

70,940

21,318

10,210

4,258

6,141

272,042

Current-Period Gross

Writeoffs

3,137

3,224

1,362

329

230

162

8,543

103

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

TBAs) or mandatory delivery commitments with investors.

The unpaid principal balance of residential mortgage loans held for sale, notional

amounts of derivative contracts related to

residential mortgage loan commitments and forward contract sales and their related

fair values are set forth below.

December 31, 2023

December 31, 2022

Unpaid Principal

(Dollars in Thousands)

Balance/Notional

Fair Value

Balance/Notional

Fair Value

Residential Mortgage Loans Held for Sale

27,944

28,211

26,274

26,909

Residential Mortgage Loan Commitments

(1)

23,545

523

36,535

819

Forward Sales Contracts

(2)

24,500

209

15,500

187

28,943

27,915

(1)

Recorded in other assets at fair value

(2)

Recorded in other assets and (other liabilities)

at fair value

At December 31, 2023, the Company had

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

0.7

million of

loans were on nonaccrual status.

At December 31, 2022, the Company had $

0.6

million residential mortgage loans held for sale

30-89 days past due and $

0.1

million of loans were on nonaccrual status.

Mortgage banking revenues for the year ended December 31, was as follows:

(Dollars in Thousands)

2023

2022

2021

Net realized gain on sales of mortgage loans

5,297

5,565

49,355

Net change in unrealized gain on mortgage loans held for sale

(252)

(1,164)

(2,410)

Net change in the fair value of mortgage loan commitments

(296)

(439)

(3,567)

Net change in the fair value of forward sales contracts

(395)

192

900

Pair-Offs on net settlement of forward

sales contracts

367

4,956

2,956

Mortgage servicing rights additions

651

565

1,416

Net origination fees

5,028

2,234

3,775

Total mortgage banking

revenues

10,400

11,909

52,425

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.

104

The following represents a summary of mortgage servicing rights.

(Dollars in Thousands)

2023

2022

Number of residential mortgage loans serviced for others

450

1,769

Outstanding principal balance of residential mortgage loans serviced

for others

108,897

410,470

Weighted average

interest rate

5.37%

3.62%

Remaining contractual term (in months)

309

298

Conforming conventional loans serviced by the Company are sold to the

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 GNMA, whereby

the Company is insured against loss by the Federal

Housing Administration or partially guaranteed against loss by

the Veterans

Administration.

At December 31, 2023, the

servicing portfolio balance consisted of the following loan types: FNMA

(

53.3

%), GNMA (

4.7

%), and private investor (

42.0

%).

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

At December 31, 2023 the Company did

t have delinquent residential mortgage loans currently in GNMA pools serviced

by the

Company and had $

0.3

million at December 31, 2022.

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.

During the

years ended December 31, 2023 and 2022, respectively,

the Company repurchased $

0.3

million and $

1.7

million of GNMA

delinquent or 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 for the year ended

December 31, was as follows:

(Dollars in Thousands)

2023

2022

2021

Beginning balance

2,599

3,774

3,452

Additions due to loans sold with servicing retained

651

565

1,416

Deletions and amortization

(232)

(1,291)

(1,344)

Valuation

Allowance reversal

250

Sale of Servicing Rights

(1)

(2,187)

(449)

Ending balance

831

2,599

3,774

(1)

In 2023, the Company sold an MSR portfolio with an unpaid principal balance of

334

million for a sales price of $

4.0

million,

recognizing a $

1.38

million gain on sale, recorded

in other noninterest income on the Consolidated Statement

of Income.

In 2022, the Company sold an MSR portfolio with an unpaid principal balance

of $

million for a sales price of $

0.6

million,

recognizing a $

0.2

million gain on sale, recorded

in other noninterest income on the Consolidated Statement

of Income.

The Company did

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

years ended December 31,

2023

and 2022.

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

mortgage servicing rights at December 31, was

as follows:

2023

2022

Minimum

Maximum

Minimum

Maximum

Discount rates

9.50%

12.00%

9.50%

12.00%

Annual prepayment speeds

11.23%

17.79%

12.33%

20.23%

Cost of servicing (per loan)

105

Changes in residential mortgage interest rates directly affect

the prepayment speeds used in valuing the Company’s

mortgage

servicing rights.

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

turnover

rates, estimated loan curtailment, anticipated defaults, and other relevant

factors.

The weighted average annual prepayment speed

was

14.22

% at December 31, 2023 and

13.42

% at December 31, 2022.

Warehouse

Line Borrowings

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

agreements with various financial institutions at

December 31, 2023.

Amounts

(Dollars in Thousands)

Outstanding

million master repurchase agreement without defined expiration.

Interest is at the SOFR rate plus

2.00%

plus

3.00%

, with a floor rate of

3.25%

4.25%

A cash pledge deposit of $

0.1

million is required by the

lender.

192

million warehouse line of credit agreement expiring in

December 2024

Interest is at the SOFR plus

2.75%

3.25%

8,192

8,384

Warehouse

line borrowings are classified as short-term borrowings.

At December 31, 2022, warehouse line borrowings totaled

50.2

million.

At December 31, 2023, the Company had mortgage loans held for sale and construction

permanent loans 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 December 31, 2023.

The Company intends to renew the warehouse lines of credit and master repurchase

agreements when they mature.

The Company has extended a $

million warehouse line of credit to CCHL.

Balances and transactions under this line of credit

are eliminated in the Company’s consolidated

financial statements and thus not included in the total short-term borrowings noted

on the Consolidated Statement of Financial Condition.

The balance of this line of credit at December 31, 2023 and December 31,

2022 was $

31.4

million and $

22.9

million, respectively.

Note 5

DERIVATIVES

The Company enters into derivative financial instruments to manage exposures

that arise from business activities that result in the

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

which are determined by interest rates.

The

Company’s derivative financial

instruments are used to manage differences in the amount, timing,

and duration of the Company’s

known or expected cash receipts and its known or expected cash payments

principally related to the Company’s

subordinated

debt.

Cash Flow Hedges of Interest Rate Risk

Interest rate swaps with notional amounts totaling $

million at December 31, 2023 and 2022 were designated 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 loss (“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 loss related to

derivatives will be reclassified to interest expense as interest payments are

made on the Company’s variable-rate

subordinated

debt.

106

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)

Interest rate swaps related to subordinated debt:

December 31, 2023

Other Assets

30,000

5,317

6.5

December 31, 2022

Other Assets

30,000

6,195

7.5

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

the Consolidated Statement of Income related to the

cash flow derivative instruments (interest rate swaps related to subordinated debt).

Amount of Gain

(Loss) Recognized

(Loss) Reclassified

(Dollars in Thousands)