# Capital City Bank Group Inc: Form 10-Q/A for the period ended Jun 30, 2023

- Company: [Capital City Bank Group Inc](/companies/ccbg.md) (CIK 726601)
- Form: 10-Q/A
- Filed: 2023-12-22
- Accepted by EDGAR: Dec 22, 2023, 12:56 ET
- Period: 2023-06-30
- Accession: 0000726601-23-000051
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/726601/000072660123000051/ccbg-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/726601/000072660123000051/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $5.1m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-01-01 to 2023-06-30 | $8.6m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $3.4m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $7.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $14.2m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | $27.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.83 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | $1.64 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.83 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | $1.64 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 17,035,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 17,040,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $25.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $3.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2023-01-01 to 2023-06-30 | $6.1m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 6 months, 2023-01-01 to 2023-06-30 | $2.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Total assets | at 2023-06-30 | $4.39bn | us-gaap:Assets |
| Total liabilities | at 2023-06-30 | $3.97bn | us-gaap:Liabilities |
| Short-term borrowings | at 2023-06-30 | $50.7m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2023-06-30 | $412.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 1,357 characters.

#### Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table contains information about all purchases made by, or on behalf of, us and any affiliated purchaser (as defined 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

### Average

### Total number of shares

### Maximum Number of shares

### of shares

### price paid

### purchased under our

### remaining for purchase under

### Period

### purchased

### per share

### share repurchase program

### (1)

### our share repurchase program

April 1, 2023 to

April 30, 2023

4,000

$30.49

4,000

543,807

May 1, 2023 to

May 31, 2023

36,495

29.70

36,495

507,312

June 1, 2023 to

June 30, 2023

507,312

Total

40,495

$29.78

40,495

507,312

(1)

This amount represents the number of shares that were repurchased during the second 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.

## Market risk

As filed, 355 characters.

See “Market Risk and Interest Rate Sensitivity” in Management’s Discussion and Analysis of Financial Condition and Results of

Operations, above, which is incorporated herein by reference. Management has determined that no additional disclosures are

necessary to assess changes in information about market risk that have occurred since December 31, 2022.

## Controls and procedures

As filed, 4,756 characters.

### Evaluation of Disclosure Controls and Procedures

At June 30, 2023, the end of the period covered by this Form 10-Q, our management, including our Chief Executive Officer and Chief

Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the

Securities Exchange Act of 1934). Based upon that evaluation, at the time the Original Form 10-Q was filed, our Chief Executive

Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report these disclosure controls and

procedures were effective. Subsequent to that evaluation, management conducted a reevaluation, concluding that our disclosure

controls and procedures were ineffective as of June 30, 2023 due to the identification of the material weakness discussed below.

### Previously Reported Material Weakness in Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining effective internal control over financial reporting, as such term is

defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. As reported in our 2022 Form 10-K/A, we did not maintain

effective internal control as of December 31, 2022 as a result of a material weakness in our internal control over financial reporting for

the review of certain inter-company mortgage sales and servicing. A material weakness is a deficiency, or a combination of

deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the

Company’s annual interim financial statements will not be prevented or detected on a timely basis. Refer to our 2022 Form 10-K/A for

a description of our material weakness.

#### Ongoing Remediation Efforts to Address Material Weakness

Our material weakness was not remediated as of the filing of this Form 10-Q/A. Since identifying the material weakness described

above, management, with oversight from the Audit Committee and input from the Board of Directors, has devoted substantial

resources to the ongoing implementation of remediation efforts. These remediation efforts, summarized below, which either have

already been implemented or are continuing to be implemented, are intended to address both the identified material weakness and to

enhance the Company’s overall internal control over financial reporting and disclosure controls and procedures.

Certain internal control and procedural enhancements and remedial actions are in the process of completion, including:

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

in consolidation;

Enhance the procedures for identifying new inter-company accounts and activities subject to elimination in consolidation;

Increase the granularity of general ledger mapping for inter-company accounts subject to elimination in consolidation; and

Enhance financial close checklist and pre-close meeting agenda to ensure proper and timely identification of inter-company

activities subject to elimination.

Management believes the foregoing effects will effectively remediate the material weakness described above. As the Company

continues to evaluate and improve its internal control over financial reporting and disclosure controls and procedures, management

may determine to take additional measures to improve controls and determine to modify the remediation plan described above. The

Company is working to remediate the material weakness as efficiently and effectively as possible. Procedures to implement the

remediation plan have required significant amounts of time, allocation of internal resources and external costs, and remaining

remediation efforts will continue to place significant demands on financial and operational resources until this plan is completed.

The material weakness described above cannot be considered remediated until the applicable controls have operated for a sufficient

period of time and management has concluded, through testing, that these controls are designed and operating effectively.

Accordingly, management will continue to monitor and evaluate the effectiveness of our internal control over financial reporting in

the activities affected by the material weakness described above.

### Changes in Internal Control

Except as identified above with respect to remediation of the material weakness, during the quarter ended on June 30, 2023, there were

no significant changes in our internal control over financial reporting during our most recently completed fiscal quarter that materially

affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 67,099 characters.

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

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

However, other factors besides those listed in our Quarterly Report or in our Annual Report also could adversely affect our results,

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

statements made by us or on our behalf speak only as of the date they are made. We do not undertake to update any forward-looking

statement, except as required by applicable law.

### BUSINESS OVERVIEW

We are a financial holding company headquartered in Tallahassee, Florida, and we are the parent of our wholly owned subsidiary,

Capital City Bank (the “Bank” or “CCB”). We offer a broad array of products and services through a total of 62 full-service offices

located in Florida, Georgia, and Alabama. We provide a full range of banking services, including traditional deposit and credit

services, mortgage banking, asset management, trust, merchant services, bankcards, securities brokerage services and financial

advisory services, including life insurance products, risk management and asset protection services.

Our profitability, like most financial institutions, is dependent to a large extent upon net interest income, which is the difference

between the interest and fees received on interest earning assets, such as loans and securities, and the interest paid on interest-bearing

liabilities, principally deposits and borrowings. Results of operations are also affected by the provision for credit losses, operating

expenses such as salaries and employee benefits, occupancy and other operating expenses including income taxes, and noninterest

income such as mortgage banking revenues, wealth management fees, deposit fees, and bank card fees.

We have included a detailed discussion of the economic conditions in our markets and our long-term strategic objectives as part of the

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

### NON-GAAP FINANCIAL MEASURES (UNAUDITED)

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

goodwill and other intangibles that resulted from merger and acquisition activity. We believe these measures are useful to investors

because it allows investors to more easily compare our capital adequacy to other companies in the industry. The generally accepted

accounting principles (“GAAP”) to non-GAAP reconciliation for each quarter presented is provided below.

### (As Restated)

### (As Restated)

### 2023

### 2022

#### (Dollars in Thousands, except per share data)

Second

First

Fourth

Third

Second

Shareowners' Equity (GAAP)

412,422

403,260

387,281

368,485

368,705

Less: Goodwill and Other Intangibles (GAAP)

93,013

93,053

93,093

93,133

93,173

Tangible Shareowners' Equity (non-GAAP)

A

319,409

310,207

294,188

275,352

275,532

Total Assets (GAAP)

4,391,206

4,401,762

4,519,223

4,327,991

4,351,327

Less: Goodwill and Other Intangibles (GAAP)

93,013

93,053

93,093

93,133

93,173

Tangible Assets (non-GAAP)

B

4,298,193

4,308,709

4,426,130

4,234,858

4,258,154

### Tangible Common Equity Ratio (non-GAAP)

### A/B

### 7.43%

### 7.20%

### 6.65%

### 6.50%

### 6.47%

Actual Diluted Shares Outstanding (GAAP)

C

17,025,023

17,049,913

17,039,401

16,998,177

16,981,614

### Tangible Book Value per Diluted Share (non-GAAP)

### A/C

### 18.76

### 18.19

### 17.27

### 16.20

### 16.23

### SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

### (As Restated)

### (As Restated)

### 2023

### 2022

#### (Dollars in Thousands, Except Per Share Data)

Second

First

Fourth

Third

Second

### Summary of Operations

Interest Income

45,205

43,926

41,218

35,442

29,516

Interest Expense

5,068

3,526

3,122

2,037

987

Net Interest Income

40,137

40,400

38,096

33,405

28,529

Provision for Credit Losses

2,197

3,099

3,616

2,154

1,692

Net Interest Income After

Provision for Credit Losses

37,940

37,301

34,480

31,251

26,837

Noninterest Income

19,967

17,758

15,296

18,509

20,564

Noninterest Expense

40,285

37,675

39,262

37,699

38,150

Income Before Income Taxes

17,622

17,384

10,514

12,061

9,251

Income Tax Expense

3,417

3,710

1,900

2,493

1,685

(Income) Loss Attributable to NCI

(31)

35

995

37

(306)

Net Income Attributable to CCBG

14,174

13,709

9,609

9,605

7,260

Net Interest Income (FTE)

(1)

40,224

40,500

38,185

33,488

28,604

### Per Common Share

Net Income Basic

0.83

0.81

0.56

0.57

0.43

Net Income Diluted

0.83

0.80

0.56

0.57

0.43

Cash Dividends Declared

0.18

0.18

0.17

0.17

0.16

Diluted Book Value

24.21

23.65

22.73

21.68

21.71

Diluted Tangible Book Value

(2)

18.76

18.19

17.27

16.20

16.23

Market Price:

High

34.16

36.86

36.23

33.93

28.55

Low

28.03

28.18

31.14

27.41

24.43

Close

30.64

29.31

32.50

31.11

27.89

### Selected Average Balances

Investment Securities

1,043,858

1,064,212

1,081,092

1,120,728

1,144,757

Loans Held for Investment

2,657,693

2,582,395

2,439,379

2,264,075

2,084,679

Earning Assets

3,974,803

4,062,688

4,032,733

4,009,951

3,974,221

Total Assets

4,320,601

4,411,865

4,381,825

4,357,678

4,321,388

Deposits

3,719,564

3,817,314

3,803,042

3,769,864

3,765,329

Shareowners’ Equity

418,757

404,067

380,570

379,305

373,365

Common Equivalent Average Shares:

Basic

17,002

17,016

16,963

16,960

16,949

Diluted

17,035

17,045

17,016

16,996

16,971

### Performance Ratios:

Return on Average Assets (annualized)

1.32

1.26

0.87

0.87

0.67

Return on Average Equity (annualized)

13.58

13.76

10.02

10.05

7.80

Net Interest Margin (FTE)

4.06

4.04

3.76

3.32

2.89

Noninterest Income as % of Operating Revenue

33.22

30.53

28.65

35.65

41.89

Efficiency Ratio

66.93

64.67

73.41

72.51

77.59

### Asset Quality:

Allowance for Credit Losses (“ACL”)

28,243

26,808

25,068

22,747

21,463

Nonperforming Assets (“NPAs”)

6,624

4,602

2,728

2,422

3,231

ACL to Loans HFI

1.05

1.01

0.98

0.96

0.96

NPAs to Total Assets

0.15

0.10

0.06

0.06

0.07

NPAs to Loans HFI plus OREO

0.25

0.17

0.11

0.10

0.14

ACL to Non-Performing Loans

426.44

584.18

1,091.33

944.36

683.35

Net Charge-Offs to Average Loans HFI

0.07

0.24

0.21

0.12

0.22

### Capital Ratios:

Tier 1 Capital

14.56

14.23

14.27

14.59

14.97

Total Capital

15.68

15.29

15.30

15.58

15.95

Common Equity Tier 1

12.73

12.40

12.38

12.62

12.91

Leverage

9.54

9.09

8.91

8.80

8.70

Tangible Common Equity

(2)

7.43

7.20

6.65

6.50

6.47

(1)

#### Fully Tax Equivalent

(2)

#### Non-GAAP financial measure. See non-GAAP reconciliation on page 51.

### FINANCIAL OVERVIEW

### Results of Operations

#### Performance Summary.

Net income attributable to common shareowners of $14.2 million, or $0.83 per diluted share, for the second

quarter of 2023 compared to $13.7 million, or $0.80 per diluted share, for the first quarter of 2023, and $7.3 million, or $0.43 per

diluted share, for the second quarter of 2022.

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

$27.9 million, or $1.64 per diluted share, compared to net income of $14.2 million, or $0.84 per diluted share, for the same period of

2022.

#### Net Interest Income.

Tax-equivalent net interest income for the second quarter of 2023 totaled $40.2 million, compared to $40.5

million for the first quarter of 2023, and $28.6 million for the second quarter of 2022. Compared to the first quarter of 2023, the

decrease reflected higher deposit interest expense and a lower level of interest income from overnight funds, partially offset by higher

loan interest due to loan growth and higher interest rates. For the first six months of 2023, tax-equivalent net interest income totaled

$80.7 million compared to $53.7 million for the same period of 2022. The increases over both prior year periods were driven by

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

#### Provision and Allowance for Credit Losses.

We recorded a provision for credit losses of $2.2 million for the second quarter of 2023

compared to $3.1 million for the first quarter of 2023 and $1.7 million for the second quarter of 2022. The decrease in the provision

compared to the first quarter of 2023 was primarily attributable to a lower level of loan growth and a decrease in net loan charge-offs.

For the first six months of 2023, we recorded a provision for credit losses of $5.3 million compared to $1.7 million for the same period

of 2022. The release of reserves held for pandemic-related losses favorably impacted our provision in 2022. At June 30, 2023, the

allowance represented 1.05% of HFI loans compared to 1.01% at March 31, 2023, and 0.98% at December 31, 2022.

#### Noninterest Income.

Noninterest income for the second quarter of 2023 totaled $20.0 million compared to $17.8 million for the first

quarter of 2023 and $20.6 million for the second quarter of 2022. The $2.2 million increase over the first quarter of 2023 reflected an

increase in other income of $1.3 million, mortgage banking revenues of $0.5 million, wealth management fees of $0.2 million, deposit

fees of $0.1 million, and bankcard fees of $0.1 million. The increase in other income was attributable to a $1.4 million gain from the

sale of mortgage servicing rights. The decrease in mortgage banking revenues was attributable to a lower gain on sale margin. For the

first six months of 2023, noninterest income totaled $37.7 million compared to $41.4 million for the same period of 2022 with the $3.7

million decrease primarily attributable to lower mortgage banking revenues of $2.7 million and wealth management fees of $2.4

million, partially offset by a $1.8 million increase in other income. The decrease in mortgage banking revenues was attributable to a

lower gain on sale margin. The decrease in wealth management fees was driven by a decrease in insurance commissions due to the

sale of large policies in 2022. The increase in other income reflected the previously mentioned sale of mortgage servicing rights. We

discuss noninterest income in further detail below.

#### Noninterest Expense.

Noninterest expense for the second quarter of 2023 totaled $40.3 million compared to $37.7 million for the first

quarter of 2023 and $38.2 million for the second quarter of 2022. Compared to the first quarter of 2023, the $2.6 million increase was

primarily due to an increase in other expense of $2.6 million that was partially offset by a $0.1 million decrease in compensation

expense. The unfavorable variance in other expense reflected a $1.8 million gain from the sale of a banking office in the first quarter

of 2023. Further, the second quarter of 2023 includes a non-routine consulting expense of $0.8 million related to our core processing

system outsourcing contract negotiation. For the first six months of 2023, noninterest expense totaled $78.0 million compared to

$74.7 million for the same period of 2022 with the $3.3 million increase attributable to an increase in compensation expense of $1.5

million, occupancy expense of $1.4 million, and other expense of $0.4 million. The increase in compensation expense was primarily

due to an increase in realized loan cost (credit offset to salary expense) driven by increased loan growth in 2022. The increase in

occupancy expense reflected the addition of banking offices since mid/late 2022. The variance in other expense was primarily due to

the previously mentioned consulting payment and increases in pension plan expense (non-service-related component) and FDIC

insurance fees, partially offset by the previously mentioned gain on the sale of a banking office. We discuss noninterest expense in

further detail below.

### Financial Condition

#### Earning Assets.

Average earning assets totaled $3.975 billion for the second quarter of 2023, a decrease of $87.9 million, or 2.2%,

from the first quarter of 2023, and a decrease of $57.9 million, or 1.4%, from the fourth quarter of 2022. The decrease from both prior

periods was attributable to lower deposit balances. The mix of earning assets continues to improve as overnight funds are being

utilized to fund loan growth.

#### Loans.

Average loans HFI increased $75.3 million, or 2.9%, over the first quarter of 2023 and $218.3 million, or 9.0%, over the

fourth quarter of 2022. Period end loans increased $26.4 million, or 1.0%, over the first quarter of 2023 and $135.8 million, or 5.3%,

over the fourth quarter of 2022. Compared to both prior periods, the growth was primarily in the residential real estate and commercial

real estate categories and was partially offset by lower indirect auto and home equity loan balances.

#### Credit Quality

. Credit quality metrics remained strong for the quarter. Nonperforming assets (nonaccrual loans and other real estate)

totaled $6.6 million at June 30, 2023, compared to $4.6 million at March 31, 2023 and $2.7 million at December 31, 2022. At June

30, 2023, nonperforming assets as a percent of total assets equaled 0.15%, compared to 0.10% at March 31, 2023 and 0.06% at

December 31, 2022. Nonaccrual loans totaled $6.6 million at June 30, 2023, a $2.0 million increase over March 31, 2023 and a $4.3

million increase over December 31, 2022. The increase was primarily due to the addition of one large residential loan ($1.1 million)

to nonaccrual status which was adequately secured and reserved for. Further, classified loans totaled $15.0 million at June 30, 2023, a

$2.8 million increase over March 31, 2023 and a $4.4 million decrease from December 31, 2022.

#### Deposits

. Average total deposits were $3.720 billion for the second quarter of 2023, a decrease of $97.8 million, or 2.6%, from the

first quarter of 2023 and a decrease of $83.5 million, or 2.2%, from the fourth quarter of 2022. Compared to both prior periods, the

decreases were primarily attributable to lower noninterest bearing and savings balances, primarily offset by higher money market

balances. Compared to the first quarter of 2023, the decrease in NOW account balances reflected the seasonal decline in our public

funds balances. Compared to the fourth quarter of 2022, the increase in NOW accounts reflected higher average public funds balances

which began to build in December 2022 and affect the average comparison.

#### Capital

. At June 30, 2023, we were well-capitalized with a total risk-based capital ratio of 15.68% and a tangible common equity

ratio (a non-GAAP financial measure) of 7.43% compared to 15.29% and 7.20%, respectively, at March 31, 2023 and 15.30% and

6.65%, respectively, at December 31, 2022. At June 30, 2023, all of our regulatory capital ratios exceeded the threshold to be well-

capitalized under the Basel III capital standards.

### RESULTS OF OPERATIONS

The following table provides a condensed summary of our results of operations - a discussion of the various components are discussed

in further detail below.

### (As Restated)

### (As Restated)

### Three Months Ended

### Six Months Ended

### June 30,

### March 31,

### June 30,

### June 30,

### June 30,

#### (Dollars in Thousands, except per share data)

### 2023

### 2023

### 2022

### 2023

### 2022

Interest Income

45,205

43,926

29,516

89,131

55,250

Taxable Equivalent Adjustments

87

100

76

188

155

Total Interest Income (FTE)

45,292

44,026

29,592

89,319

55,405

Interest Expense

5,068

3,526

987

8,594

1,729

Net Interest Income (FTE)

40,224

40,500

28,605

80,725

53,676

Provision for Credit Losses

2,197

3,099

1,692

5,296

1,724

Taxable Equivalent Adjustments

87

100

76

188

155

Net Interest Income After Provision for Credit Losses

37,940

37,301

26,837

75,241

51,797

Noninterest Income

19,967

17,758

20,564

37,725

41,376

Noninterest Expense

40,285

37,675

38,150

77,961

74,673

Income Before Income Taxes

17,622

17,384

9,251

35,005

18,500

Income Tax Expense

3,417

3,710

1,685

7,126

3,405

Pre-Tax (Income) Loss Attributable to Noncontrolling Interest

(31)

35

(306)

4

(897)

Net Income Attributable to Common Shareowners

14,174

13,709

7,260

27,883

14,198

Basic Net Income Per Share

0.83

0.81

0.43

1.64

0.84

Diluted Net Income Per Share

0.83

0.80

0.43

1.64

0.84

### Net Interest Income

Net interest income represents our single largest source of earnings and is equal to interest income and fees generated by earning

assets less interest expense paid on interest bearing liabilities. This information is provided on a “taxable equivalent” basis to reflect

the tax-exempt status of income earned on certain loans and state and local government debt obligations. We provide an analysis of

our net interest income including average yields and rates in Table I on page 65.

Tax-equivalent net interest income for the second quarter of 2023 totaled $40.2 million, compared to $40.5 million for the first quarter

of 2023, and $28.6 million for the second quarter of 2022. Compared to the first quarter of 2023, the decrease reflected higher deposit

interest expense and a lower level of interest income from overnight funds, partially offset by higher loan interest due to loan growth

and higher interest rates. For the first six months of 2023, tax-equivalent net interest income totaled $80.7 million compared to $53.7

million for the same period of 2022. The increases over both prior year periods were driven by strong loan growth and higher interest

rates across a majority of our earning assets.

Our net interest margin for the second quarter of 2023 was 4.06%, an increase of two basis points over the first quarter of 2023 and an

increase of 117 basis points over the second quarter of 2022. For the month of June 2023, our net interest margin was 4.10%. For the

first six months of 2023, our net interest margin was 4.05%, an increase of 131 basis points over the same period of 2022. The

increase compared to all prior periods reflected a combination of higher interest rates and loan growth, partially offset by a higher cost

of deposits. For the second quarter of 2023, our cost of funds was 51 basis points, an increase of 16 basis points over the first quarter

of 2023 and 41 basis points over the second quarter of 2022. Our total cost of deposits (including noninterest bearing accounts) was

43 basis points, 26 basis points, and 3 basis points, respectively, for the same periods.

### Provision for Credit Losses

We recorded a provision for credit losses of $2.2 million for the second quarter of 2023 compared to $3.1 million for the first quarter

of 2023 and $1.7 million for the second quarter of 2022. The decrease in the provision compared to the first quarter of 2023 was

primarily attributable to a lower level of loan growth and a decrease in net loan charge-offs. For the first six months of 2023, we

recorded a provision for credit losses of $5.3 million compared to $1.7 million for the same period of 2022. The release of reserves

held for pandemic-related losses favorably impacted our provision in 2022. We discuss the allowance for credit losses further

below. For more information on charge-offs and recoveries, see Note 3 – Loans Held for Investment and Allowance for Credit Losses.

### Noninterest Income

Noninterest income for the second quarter of 2023 totaled $20.0 million compared to $17.8 million for the first quarter of 2023 and

$20.6 million for the second quarter of 2022. The $2.2 million increase over the first quarter of 2023 reflected an increase in other

income of $1.3 million, mortgage banking revenues of $0.5 million, wealth management fees of $0.2 million, deposit fees of $0.1

million, and bankcard fees of $0.1 million. The increase in other income was attributable to a $1.4 million gain from the sale of

mortgage servicing rights. The increase in mortgage banking revenues was attributable to a higher gain on sale margin. For the first

six months of 2023, noninterest income totaled $37.7 million compared to $41.4 million for the same period of 2022 with the $3.7

million decrease primarily attributable to lower mortgage banking revenues of $2.7 million and wealth management fees of $2.4

million, partially offset by a $1.8 million increase in other income. The decrease in mortgage banking revenues was attributable to

lower rate lock volume and gain on sale margin. The decrease in wealth management fees was driven by a decrease in insurance

commissions due to the sale of large policies in 2022. The increase in other income reflected the previously mentioned sale of

mortgage servicing rights.

Noninterest income represented 33.22% of operating revenues (net interest income plus noninterest income) in the second quarter of

2023 compared to 30.53% in the first quarter of 2023 and 41.89% in the second quarter of 2022. For the first six months of 2023,

noninterest income represented 31.90% of operating revenues compared to 43.60% for the same period of 2022.

The table below reflects the major components of noninterest income.

### (As Restated)

### (As Restated)

### Three Months Ended

### Six Months Ended

### June 30,

### March 31,

### June 30,

### June 30,

### June 30,

#### (Dollars in Thousands)

### 2023

### 2023

### 2022

### 2023

### 2022

Deposit Fees

5,326

5,239

5,447

10,565

10,638

Bank Card Fees

3,795

3,726

4,034

7,521

7,797

Wealth Management Fees

4,149

3,928

4,403

8,077

10,473

Mortgage Banking Revenues

3,363

2,871

4,857

6,234

8,912

Other

3,334

1,994

1,823

5,328

3,556

### Total Noninterest Income

19,967

17,758

20,564

37,725

41,376

Significant components of noninterest income are discussed in more detail below.

#### Deposit Fees

. Deposit fees for the second quarter of 2023 totaled $5.3 million, an increase of $0.1 million, or 1.7%, over the first

quarter of 2023, and a decrease of $0.1 million, or 2.2%, from the second quarter of 2022. For the first six months of 2023, deposit

fees totaled $10.6 million, a decrease of $0.1 million, or 0.7%, from the same period of 2022. Compared to the first quarter of 2023,

the increase reflected higher overdraft fees. The decrease from both prior year periods was attributable to lower service charge and

ATM fees.

#### Bank Card Fees

. Bank card fees for the second quarter of 2023 totaled $3.8 million, an increase of $0.1 million, or 1.8%, over the

first quarter of 2023, and a decrease of $0.2 million, or 5.9%, from the second quarter of 2022. For the first six months of 2023, bank

card fees totaled $7.5 million, a decrease of $0.3 million, or 3.5%, from the same period of 2022. Compared to the first quarter of

2023, the increase reflected one more day of processing. Compared to both prior periods, the decline reflected lower debit card usage

related to lower consumer spending.

#### Wealth Management Fees

. Wealth management fees include trust fees through Capital City Trust (i.e., managed accounts and

trusts/estates), retail brokerage fees through Capital City Investments (i.e., investment, insurance products, and retirement accounts),

and financial advisory fees through Capital City Strategic Wealth (i.e., including the sale of life insurance, risk management and asset

protection services). Wealth management fees for the second quarter of 2023 totaled $4.1 million, an increase of $0. 2 million, or

5.6%, over the first quarter of 2023, and a decrease of $0.3 million, or 5.8%, from the second quarter of 2022. For the first six months

of 2023, wealth management fees totaled $8.1 million, a decrease of $2.4 million, or 22.9%, from the same period of 2022. The

decrease reflected lower insurance commission revenues due to the sale of large policies in 2022.

#### Mortgage Banking Revenues.

Mortgage banking revenues totaled $3.4 million for the second quarter of 2023, compared to $2.9

million for the first quarter of 2023 and $4.9 million for the second quarter of 2022. For the first six months of 2023, revenues totaled

$6.2 million compared to $8.9 million for the same period of 2022. The increase compared to the first quarter of 2023 was attributable

to higher gain on sale margin. The decrease in mortgage banking revenues compared to the second quarter of 2022 was attributable to

lower rate lock volume and gain on sale margin. We provide a detailed overview of our mortgage banking operation, including a

detailed break-down of mortgage banking revenues, mortgage servicing activity, and warehouse funding within Note 4 – Mortgage

Banking Activities in the Notes to Consolidated Financial Statements.

#### Other.

Other income totaled $3.3 million for the second quarter of 2023 compared to $2.0 million for the first quarter of 2023 and

$1.8 million for the second quarter of 2022. For the first six months of 2023, other income totaled $5.3 million compared to $3.6

million for the same period of 2022. The increase over all prior periods was primarily due to a $1.4 million gain from the sale of

mortgage servicing rights. Higher miscellaneous income of $0.4 million also contributed to the increase for the six-month period.

### Noninterest Expense

Noninterest expense for the second quarter of 2023 totaled $40.3 million compared to $37.7 million for the first quarter of 2023 and

$38.2 million for the second quarter of 2022. Compared to the first quarter of 2023, the $2.6 million increase was primarily due to an

increase in other expense of $2.6 million that was partially offset by a $0.1 million decrease in compensation expense. The

unfavorable variance in other expense reflected a $1.8 million gain from the sale of a banking office in the first quarter of 2023.

Further, the second quarter of 2023 included a $0.8 million expense related to a consulting engagement to assist in negotiating a multi-

year contract for the outsourcing of our core processing system, a higher expense for advertising and travel/entertainment totaling $0.3

million, and a $0.2 million expense related to our VISA (class B shares) swap. Partially offsetting these increases was a $0.3 million

gain related to our SERP. The decrease in compensation expense reflected a $0.5 million increase in salary expense (lower realized

loan cost offset to salary expense) that was partially offset by lower associate benefit expense of $0.6 million (primarily stock-based

compensation).

Compared to the second quarter of 2022, the $2.1 million increase in noninterest expense reflected increases in other expense of $1.2

million, occupancy expense of $0.7 million, and compensation expense of $0.2 million. For the first six months of 2023, noninterest

expense totaled $78.0 million compared to $74.7 million for the same period of 2022 with the $3.3 million increase attributable to an

increase in compensation expense of $1.5 million, occupancy expense of $1.4 million, and other expense of $0.4 million. The increase

in compensation expense was primarily due to an increase in realized loan cost (credit offset to salary expense) driven by increased

loan growth in 2022. The increase in occupancy expense reflected the addition of banking offices since mid/late 2022. The variance

in other expense was primarily due to the previously mentioned consulting payment and increases in pension plan expense (non-

service-related component) and FDIC insurance fees, partially offset by the previously mentioned gain on the sale of a banking office .

The table below reflects the major components of noninterest expense.

### (As Restated)

### (As Restated)

### Three Months Ended

### Six Months Ended

### June 30,

### March 31,

### June 30,

### June 30,

### June 30,

#### (Dollars in Thousands)

### 2023

### 2023

### 2022

### 2023

### 2022

Salaries

20,044

19,517

19,300

39,561

37,406

Associate Benefits

3,394

4,007

3,922

7,401

8,114

Total Compensation

23,438

23,524

23,222

46,962

45,520

Premises

3,170

3,245

2,734

6,414

5,493

Equipment

3,650

3,517

3,341

7,168

6,675

Total Occupancy

6,820

6,762

6,075

13,582

12,168

Legal Fees

419

362

316

781

665

Professional Fees

2,039

1,324

1,406

3,363

2,738

Processing Services

1,872

1,742

1,752

3,614

3,389

Advertising

959

874

980

1,833

1,753

Telephone

679

706

703

1,385

1,431

Insurance – Other

872

831

593

1,703

1,103

Other Real Estate Owned, net

(28)

(1,827)

(29)

(1,855)

(4)

Pension - Other

6

7

(761)

13

(1,522)

Pension Settlement (Gain) Charge

(291)

169

(291)

378

Miscellaneous

3,500

3,370

3,724

6,871

7,054

Total Other

10,027

7,389

8,853

17,417

16,985

### Total Noninterest Expense

40,285

37,675

38,150

77,961

74,673

Significant components of noninterest expense are discussed in more detail below.

#### Compensation.

Compensation expense totaled $23.4 million for the second quarter of 2023 compared to $23.5 million for the first

quarter of 2023 and $23.2 million for the second quarter of 2022. The $0.1 million decrease from the first quarter of 2023 reflected a

$0.5 million increase in salary expense and a $0.6 million decrease in associate benefit expense. The increase in salary expense was

primarily due to a $0.5 million decrease in realized loan cost (credit offset to salary expense) that was partially offset by lower income

taxes of $0.3 million. The decrease in associate benefit expense was attributable to a decrease in stock-based compensation expense.

Compared to the second quarter of 2022, the $0.2 million increase reflected a $0.7 million increase in salary expense that was partially

offset by a $0.5 million decrease in associate benefit expense. The increase in salary expense was primarily due to a $1.0 million

decrease in realized loan cost and higher base salaries of $0.8 million, partially offset by lower incentives of $1.3 million. The

decrease in associate benefit expense was due to lower pension plan expense (service cost) of $0.7 million that was partially offset by

a $0.2 million increase in associate insurance expense. The decline in pension plan expense (service cost) was generally due to a

lower benefit obligation which reflected an increased level of retirements in 2022. The increase in associate insurance expense

reflected higher premiums at our annual renewal.

For the first six months of 2023, compensation expense totaled $47.0 million

compared to $45.5 million for the same period of 2022 with the $1.5 million increase attributable to an increase in salary expense of

$2.2 million (primarily the addition of staffing in our new markets) that was partially offset by a $0.7 million decrease in associate

benefit expense, primarily pension plan expense (service cost) due to an increased level of retirements in 2022.

#### Occupancy

. Occupancy expense totaled $6.8 million for the second quarter of 2023 compared to $6.8 million for the first quarter of

2023 and $6.1 million for the second quarter of 2022. For the first six months of 2023, occupancy expense totaled $13.6 million

compared to $12.2 million for the same period of 2022. The addition of four new banking offices since mid/late 2022 and higher

property/equipment insurance premiums drove the increase in occupancy expense for both prior year comparisons.

#### Other.

Other expense totaled $10.0 million for the second quarter of 2023 compared to $7.4 million for the first quarter of 2023 and

$8.9 million for the second quarter of 2022. Compared to the first quarter of 2023, the $2.6 million decrease reflected a $1.8 million

gain from the sale of a banking office in the first quarter of 2023. Further, the second quarter of 2023 included a $0.8 million expense

related to a consulting engagement to assist in negotiating a multi-year contract for the outsourcing of our core processing system, a

higher expense for advertising and travel/entertainment totaling $0.3 million, and a $0.2 million expense related to our VISA (class B

shares) swap. Partially offsetting these increases was a $0.3 million gain related to our SERP. The increase in other expense over

both prior year periods was primarily related to the previously mentioned consulting payment of $0.8 million made in the second

quarter of 2023 and increases in pension plan expense (non-service-related component), and FDIC insurance fees. The previously

mentioned gain from the sale of a banking office in the first quarter of 2023 partially offset these increases for the six-month period

comparison.

Our operating efficiency ratio (expressed as noninterest expense as a percentage of the sum of taxable-equivalent net interest income

plus noninterest income) was 66.93% for the second quarter of 2023 compared to 64.67% for the first quarter of 2023 and 77.59% for

the second quarter of 2022. For the first six months of 2023, this ratio was 65.82% compared to 78.56% for the same period of 2022.

### Income Taxes

We realized income tax expense of $3.4 million (effective rate of 19.39%) for the second quarter of 2023 compared to $3.7 million

(effective rate of 21.34%) for the first quarter of 2023 and $1.7 million (effective rate of 18.21%) for the second quarter of 2022. For

the first six months of 2023, we realized income tax expense of $7.1 million (effective rate of 20.36%) compared to $3.4 million

(effective rate of 18.41%) for the same period of 2022. The decrease in our effective tax rate for the second quarter of 2023 reflected

tax benefit accrued from an investment in a solar tax credit equity fund. Absent discrete items, we expect our annual effective tax rate

to approximate 20-21% for 2023.

### FINANCIAL CONDITION

Average earning assets totaled $3.975 billion for the second quarter of 2023, a decrease of $87.9 million, or 2.2%, from the first

quarter of 2023, and a decrease of $57.9 million, or 1.4%, from the fourth quarter of 2022. The decrease from both prior periods was

attributable to lower deposit balances (see below –

#### Deposits

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

being utilized to fund loan growth.

### Investment Securities

Average investments decreased $20.4 million, or 1.9%, from the first quarter of 2023 and decreased $37.2 million, or 3.4%, from the

fourth quarter of 2022. Our investment portfolio represented 26.3% of our average earning assets for the second quarter of 2023

compared to 26.2% for the first quarter of 2023 and 26.8% for the fourth quarter of 2022. For the remainder of 2023, we will continue

to monitor our overall liquidity position and allow cash flow from the investment portfolio to run-off to overnight funds.

The investment portfolio is a significant component of our operations and, as such, it functions as a key element of liquidity and

asset/liability management. Two types of classifications are approved for investment securities which are Available -for-Sale (“AFS”)

and Held-to-Maturity (“HTM”). At June 30, 2023, $386.2 million, or 37.5%, of our investment portfolio was classified as AFS, and

$641.4 million, or 62.3%, classified as HTM. The average maturity of our total portfolio at June 30, 2023 was 3.07 years compared to

3.34 years at March 31, 2023 and 3.57 years at December 31, 2022. The duration of our investment portfolio at June 30, 2023 was

2.76 years. Additional information on unrealized gains/losses in the AFS and HTM portfolios is provided in Note 2 – Investment

Securities.

We determine the classification of a security at the time of acquisition based on how the purchase will affect our asset/liability strategy

and future business plans and opportunities. We consider multiple factors in determining classification, including regulatory capital

requirements, volatility in earnings or other comprehensive income, and liquidity needs. Securities in the AFS portfolio are recorded

at fair value with unrealized gains and losses associated with these securities recorded net of tax, in the accumulated other

comprehensive income component of shareowners’ equity. HTM securities are acquired or owned with the intent of holding them to

maturity. HTM investments are measured at amortized cost. We do not trade, nor do we presently intend to begin trading investment

securities for the purpose of recognizing gains and therefore we do not maintain a trading portfolio.

At June 30, 2023, there were 917 positions (combined AFS and HTM) with unrealized losses totaling $84.2 million. 86 of these

positions are U.S. Treasuries and carry the full faith and credit of the U.S. Government. 705 were U.S. government agency securities

issued by U.S. government sponsored entities. The remaining 126 positions (municipal securities and corporate bonds) have a credit

component. At June 30, 2023, corporate debt securities had an allowance for credit losses of $19,000 and municipal securities had an

allowance of $5,000. At June 30, 2023, all CMO, MBS, SBA, U.S. Agency, and U.S. Treasury bonds held were AAA rated.

### Loans HFI

Average loans HFI increased $75.3 million, or 2.9%, over the first quarter of 2023 and $218.3 million, or 9.0%, over the fourth quarter

of 2022. Period end loans increased $26.4 million, or 1.0%, over the first quarter of 2023 and $135.8 million, or 5.3%, over the fourth

quarter of 2022. Compared to both prior periods, the growth was primarily in the residential real estate and commercial real estate

categories and was partially offset by lower indirect auto and home equity loan balances.

Without compromising our credit standards , changing our underwriting standards, or taking on inordinate interest rate risk, we

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

### Credit Quality

Credit quality metrics remained strong for the quarter. Nonperforming assets (nonaccrual loans and other real estate) totaled $6.6

million at June 30, 2023 compared to $4.6 million at March 31, 2023 and $2.7 million at December 31, 2022. At June 30, 2023,

nonperforming assets as a percent of total assets equaled 0.15%, compared to 0.10% at March 31, 2023 and 0.06% at December 31,

2022\. Nonaccrual loans totaled $6.6 million at June 30, 2023, a $2.0 million increase over March 31, 2023 and a $4.3 million increase

over December 31, 2022. The increase was primarily due to the addition of one large residential loan ($1.1 million) to nonaccrual

status which was adequately secured and reserved for. Further, classified loans totaled $15.0 million at June 30, 2023, a $2.8 million

increase over March 31, 2023 and a $4.4 million decrease from 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 as a separate liability included in other liabilities.

Management estimates the allowance balance using relevant available information, from internal and external sources relating to past

events, current conditions, and reasonable and supportable forecasts. Historical loan default and loss experience provides the basis for

the estimation of expected credit losses. Adjustments to historical loss information incorporate management’s view of current

conditions and forecasts.

At June 30, 2023, the allowance for credit losses for HFI loans totaled $28.2 million compared to $26.8 million at March 31, 2023 and

$25.1 million at December 31, 2022. Activity within the allowance is provided in Note 3 to the consolidated financial statements .

The increase in the allowance in 2023 has primarily been driven by loan growth. At June 30, 2023, net charge-offs totaled $0.5

million, a decrease of $1.0 million from the first quarter of 2023, and $0.8 million from the fourth quarter of 2022. At June 30, 2023,

the allowance represented 1.05% of HFI loans compared to 1.01% at March 31, 2023, and 0.98% at December 31, 2022.

At June 30, 2023, the allowance for credit losses for unfunded commitments totaled $3.1 million compared to $2.8 million at March

31, 2023 and $3.0 million at December 31, 2022. The allowance for unfunded commitments is recorded in other liabilities.

### Deposits

Average total deposits were $3.720 billion for the second quarter of 2023, a decrease of $97.8 million, or 2.6%, from the first quarter

of 2023 and a decrease of $83.5 million, or 2.2%, from the fourth quarter of 2022. Compared to both prior periods, the decreases were

primarily attributable to lower noninterest bearing and savings balances, primarily offset by higher money market balances.

Compared to the first quarter of 2023, the decrease in NOW account balances reflected the seasonal decline in our public funds

balances. Compared to the fourth quarter of 2022, the increase in NOW accounts reflected higher average public funds balances

which began to build in December 2022 and affect the average comparison.

At June 30, 2023, total deposits were $3.789 billion, a decrease of $35.1 million, or 0.9%, from March 31, 2023 and $150.5 million, or

3.8%, from December 31, 2022. The June 30, 2023 deposit balance included a $103 million short-term deposit (in the NOW

category) made late in June by a municipal client. Compared to both prior periods, the decreases were primarily attributable to lower

noninterest bearing balances, savings balances, and NOW balances (primarily public funds, excluding the previously mentioned large

municipal client deposit), primarily offset by higher money market balances.

For comparison to the prior periods, both the average and period-end balance variances in noninterest bearing and savings balances

generally reflected annual tax payments made by clients in April, continued client spend of stimulus savings, the migration (re-mix) of

balances to an interest-bearing product type (primarily money market accounts), and clients seeking higher yielding investment

products outside of the Bank, including the migration of $13 million in the second quarter of 2023 and $43 million for the first six

months of 2023 to our wealth management division.

Repurchase agreement balances averaged $17.9 million for the second quarter of 2023, an increase of $8.5 million over the first

quarter of 2023 and $9.4 million over the fourth quarter of 2022. At June 30, 2023, repurchase agreement balances were $22.6 million

compared to $4.4 million at March 31, 2023 and $6.6 million at December 31, 2022. These balances consist of client operating

deposit accounts that we have secured by various securities we own and are reflected in our balance sheet under short-term

borrowings.

We continue to closely monitor our cost of deposits and deposit mix as we manage through the current rising rate environment.

### MARKET RISK AND INTEREST RATE SENSITIVITY

### Market Risk and Interest Rate Sensitivity

#### Overview.

Market risk arises from changes in interest rates, exchange rates, commodity prices, and equity prices. We have risk

management policies designed to monitor and limit exposure to market risk and we do not participate in activities that give rise to

significant market risk involving exchange rates, commodity prices, or equity prices. In asset and liability management activities, our

policies are designed to minimize structural interest rate risk.

#### Interest Rate Risk Management.

Our net income is largely dependent on net interest income. Net interest income is susceptible to

interest rate risk to the degree that interest-bearing liabilities mature or reprice on a different basis than interest-earning assets. When

interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a given period, a significant increase in

market rates of interest could adversely affect net interest income. Similarly, when interest-earning assets mature or reprice more

quickly than interest-bearing liabilities, falling market interest rates could result in a decrease in net interest income. Net interest

income is also affected by changes in the portion of interest-earning assets that are funded by interest-bearing liabilities rather than by

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

We have established what we believe to be a comprehensive interest rate risk management policy, which is administered by

management’s Asset Liability Management Committee (“ALCO”). The policy establishes limits of risk, which are quantitative

measures of the percentage change in net interest income (a measure of net interest income at risk) and the fair value of equity capital

(a measure of economic value of equity (“EVE”) at risk) resulting from a hypothetical change in interest rates for maturities from one

day to 30 years. We measure the potential adverse impacts that changing interest rates may have on our short-term earnings, long-

term value, and liquidity by employing simulation analysis through the use of computer modeling. The simulation model captures

optionality factors such as call features and interest rate caps and floors imbedded in investment and loan portfolio contracts. As with

any method of gauging interest rate risk, there are certain shortcomings inherent in the interest rate modeling methodology used by

us. When interest rates change, actual movements in different categories of interest-earning assets and interest-bearing liabilities, loan

prepayments, and withdrawals of time and other deposits, may deviate significantly from assumptions used in the model. Finally, the

methodology does not measure or reflect the impact that higher rates may have on adjustable-rate loan clients’ ability to service their

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

The statement of financial condition is subject to testing for interest rate shock possibilities to indicate the inherent interest rate risk.

We prepare a current base case and several alternative interest rate simulations (-400, -300, -200, -100, +100, +200, +300, and +400

basis points (bp)), at least once per quarter, and report the analysis to ALCO, our Market Risk Oversight Committee (“MROC”), our

Enterprise Risk Oversight Committee (“EROC”) and the Board of Directors. We augment our interest rate shock analysis with

alternative interest rate scenarios on a quarterly basis that may include ramps, parallel shifts, and a flattening or steepening of the yield

curve (non-parallel shift). In addition, more frequent forecasts may be produced when interest rates are particularly uncertain or when

other business conditions so dictate.

Our goal is to structure the statement of financial condition so that net interest earnings at risk over 12-month and 24-month periods

and the economic value of equity at risk do not exceed policy guidelines at the various interest rate shock levels. We attempt to

achieve this goal by balancing, within policy limits, the volume of floating-rate liabilities with a similar volume of floating-rate assets,

by keeping the average maturity of fixed-rate asset and liability contracts reasonably matched, by managing the mix of our core

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

#### Analysis.

Measures of net interest income at risk produced by simulation analysis are indicators of an institution’s short-term

performance in alternative rate environments. These measures are typically based upon a relatively brief period, and do not

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

### ESTIMATED CHANGES IN NET INTEREST INCOME

### (1)

### Percentage Change (12-month shock)

### +400 bp

### +300 bp

### +200 bp

### +100 bp

### -100 bp

### -200 bp

### -300 bp

### -400 bp

Policy Limit

-15.0%

-12.5%

-10.0%

-7.5%

-7.5%

-10.0%

-12.5%

-15.0%

June 30, 2023

4.1%

3.0%

1.9%

1.0%

-1.5%

-4.4%

-9.6%

-15.3%

March 31, 2023

7.1%

5.2%

3.4%

1.8%

-3.3%

-8.8%

-15.5%

-21.2%

### 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%

-10.0%

-12.5%

-15.0%

-17.5%

June 30, 2023

28.4%

23.5%

18.4%

13.9%

3.4%

-4.4%

-15.1%

-25.6%

March 31, 2023

28.0%

22.7%

17.2%

12.2%

-0.5%

-10.9%

-22.5%

-31.2%

The Net Interest Income (“NII”) at Risk position indicates that in the short-term, all rising rate environments will positively impact the

net interest margin of the Company, while declining rate environments will have a negative impact on the net interest margin.

Compared to the first quarter of 2023, these metrics became less favorable in the rising rate scenarios primarily due to loan growth,

which reduced our level of overnight funds and made us slightly less asset sensitive. The converse is applicable in the down rate

scenarios where the metrics became more favorable due to loan growth which increased asset duration and therefore protection against

falling rates. The percent change over the 12-month shock is outside of policy in the down 400 bps scenario, and the percent change

over the 24-month shock is outside of policy in the rates down 300 bps and 400 bps scenarios due to our limited ability to lower our

deposit rates relative to the decline in market rate.

The measures of equity value at risk indicate our ongoing economic value by considering the effects of changes in interest rates on all

of our cash flows by discounting the cash flows to estimate the present value of assets and liabilities. The difference between these

discounted values of the assets and liabilities is the economic value of equity, which in theory approximates the fair value of our net

assets.

### ESTIMATED CHANGES IN ECONOMIC VALUE OF EQUITY

### (1)

### Changes in Interest Rates

### +400 bp

### +300 bp

### +200 bp

### +100 bp

### -100 bp

### -200 bp

### -300 bp

### -400 bp

Policy Limit

-30.0%

-25.0%

-20.0%

-15.0%

-15.0%

-20.0%

-25.0%

-30.0%

June 30, 2023

10.7%

9.1%

6.7%

3.9%

-7.1%

-18.0%

-30.2%

-32.6%

March 31, 2023

11.6%

9.6%

7.0%

4.0%

-7.1%

-17.9%

-31.3%

-35.7%

EVE Ratio (policy minimum 5.0%)

18.8%

18.2%

17.4%

16.6%

14.3%

12.4%

10.4%

9.9%

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

At June 30, 2023, the economic value of equity was favorable in all rising rate environments and unfavorable in the falling rate

environments. Compared to the first quarter of 2023, EVE metrics were slightly more favorable in the rising and declining rate

environments. EVE is currently in compliance with policy in all rate scenarios as the EVE ratio in each rate scenario exceeds 5.0%.

As the interest rate environment and the dynamics of the economy continue to change, additional simulations will be analyzed to

address not only the changing rate environment, but also the change in mix of our financial assets and liabilities, measured over

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

### LIQUIDITY AND CAPITAL RESOURCES

### Liquidity

In general terms, liquidity is a measurement of our ability to meet our cash needs. Our objective in managing our liquidity is to

maintain our ability to meet loan commitments, purchase securities or repay deposits and other liabilities in accordance with their

terms, without an adverse impact on our current or future earnings. Our liquidity strategy is guided by policies that are formulated and

monitored by our ALCO and senior management, which take into account the marketability of assets, the sources and stability of

funding and the level of unfunded commitments. We regularly evaluate all of our various funding sources with an emphasis on

accessibility, stability, reliability and cost-effectiveness. Our principal source of funding has been our client deposits, supplemented

by our short-term and long-term borrowings, primarily from securities sold under repurchase agreements, federal funds purchased and

FHLB borrowings. We believe that the cash generated from operations, our borrowing capacity and our access to capital resources are

sufficient to meet our future operating capital and funding requirements.

At June 30, 2023, we had the ability to generate approximately $1.506 billion (excludes overnight funds position of $285 million) in

additional liquidity through various sources including various federal funds purchased lines, Federal Home Loan Bank borrowings, the

Federal Reserve Discount Window, and through brokered deposits. We recognize the importance of maintaining liquidity and have

developed a Contingent Liquidity Plan, which addresses various liquidity stress levels and our response and action based on the level

of severity. We periodically test our credit facilities for access to the funds, but also understand that as the severity of the liquidity

level increases that certain credit facilities may no longer be available. We conduct a liquidity stress test on a quarterly basis based on

events that could potentially occur at the Bank and report results to ALCO, our Market Risk Oversight Committee, Risk Oversight

Committee, and the Board of Directors. At June 30, 2023, we believe the liquidity available to us was sufficient to meet our on-going

needs and execute our business strategy.

We also view our investment portfolio as a liquidity source and have the option to pledge securities in our portfolio as collateral for

borrowings or deposits, and/or to sell selected securities. Additional information on our investment portfolio is provided within Note

2 –

#### Investment Securities

The Bank maintained an average net overnight funds (deposits with banks plus FED funds sold less FED funds purchased) sold

position of $218.9 million in the second quarter of 2023 compared to $361.0 million in the first quarter of 2023 and $469.4 million in

the fourth quarter of 2022. The declining overnight funds position reflected growth in average loans and lower average deposit

balances.

We expect our capital expenditures will be approximately $8.0 million over the next 12 months, which will primarily consist of

construction of new offices, office remodeling, office equipment/furniture, and technology purchases. Management expects that these

capital expenditures will be funded with existing resources without impairing our ability to meet our on-going obligations.

### Borrowings

Average short -term borrowings totaled $35.7 million for the second quarter of 2023 compared to $47.1 million for the first quarter of

2023 and $50.8 million for the fourth quarter of 2022. The variance compared to both prior periods was primarily attributable to an

increase in repurchase agreement balances (discussed under

#### Deposits

) and fluctuation in warehouse line borrowings that support our

mortgage banking operations. Additional detail on these warehouse borrowings is provided in Note 4 – Mortgage Banking Activities

in the Consolidated Financial Statements.

We have issued two junior subordinated deferrable interest notes to our wholly owned Delaware statutory trusts. The first note for

$30.9 million was issued to CCBG Capital Trust I in November 2004, of which $10 million was retired in April 2016. The second

note for $32.0 million was issued to CCBG Capital Trust II in May 2005. The interest payment for the CCBG Capital Trust I

borrowing is due quarterly and adjusts quarterly to a variable rate of three-month CME Term SOFR (secured overnight financing rate)

plus a margin of 1.90%. This note matures on December 31, 2034. The interest payment for the CCBG Capital Trust II borrowing 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.

During the second quarter of 2020, we entered into a derivative cash flow hedge of our interest rate risk related to our subordinated

debt. The notional amount of the derivative is $30 million ($10 million of the CCBG Capital Trust I borrowing and $20 million of the

CCBG Capital Trust II borrowing). The interest rate swap agreement requires CCBG to pay fixed and receive variable (three-month

CME Term SOFR plus spread) and has an average all-in fixed rate of 2.50% for 10 years. Additional detail on the interest rate swap

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

### Capital

Our capital ratios are presented in the Selected Quarterly Financial Data table on page 52. At June 30, 2023, our regulatory capital

ratios exceeded the threshold to be designated as “well-capitalized” under the Basel III capital standards.

Shareowners’ equity was $412.4 million at June 30, 2023 compared to $403.3 million at March 31, 2023 and $387.3 million at

December 31, 2022. For the first six months of 2023, shareowners’ equity was positively impacted by net income attributable to

common shareowners of $27.9 million, a $4.2 million decrease in the unrealized loss on investment securities, the issuance of stock of

$2.1 million, and stock compensation accretion of $0.5 million. Shareowners’ equity was reduced by common stock dividends of $6.1

million ($0.36 per share), the repurchase of stock of $2.0 million (65,736 shares), net adjustments totaling $1.3 million related to

transactions under our stock compensation plans, and a $0.2 million decrease in the fair value of the interest rate swap related to

subordinated debt.

At June 30, 2023, our total risk-based capital ratio was 15.68% compared to 15.29% at March 31, 2023 and 15.30% at December 31,

2022\. Our common equity tier 1 capital ratio was 12.73%, 12.40%, and 12.38%, respectively, on these dates. Our leverage ratio was

9.54%, 9.09%, and 8.91%, respectively, on these dates. At June 30, 2023, all our regulatory capital ratios exceeded the threshold to be

designated as “well-capitalized” under the Basel III capital standards. Further, our tangible common equity ratio was 7.43% at June

30, 2023 compared to 7.20% and 6.65% at March 31, 2023 and December 31, 2022, respectively. If our unrealized HTM securities

losses of $30.0 million (after-tax) were recognized in accumulated other comprehensive loss, our adjusted tangible capital ratio would

be 6.73%.

Our tangible capital ratio is also impacted by the recording of our unfunded pension liability through other comprehensive income in

accordance with ASC Topic 715. At June 30, 2023, the net pension liability reflected in other comprehensive loss was $4.7 million

compared to $4.5 million at March 31, 2023 and $4.5 million at December 31, 2022. This liability is re-measured annually on

December 31

st

based on an actuarial calculation of our pension liability. Significant assumptions used in calculating the liability

include the weighted average discount rate used to measure the present value of the pension liability, the weighted average expected

long-term rate of return on pension plan assets, and the assumed rate of annual compensation increases, all of which will vary when

re-measured. The discount rate assumption used to calculate the pension liability is subject to long -term corporate bond rates at

December 31

st

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

Estimates”.

### OFF-BALANCE SHEET ARRANGEMENTS

We are a party to financial instruments with off-balance sheet risks in the normal course of business to meet the financing needs of our

clients.

At June 30, 2023, we had $775.1 million in commitments to extend credit and $6.3 million in standby letters of credit. Commitments

to extend credit are agreements to lend to a client so long as there is no violation of any condition established in the contract.

Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the

commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future

cash requirements. Standby letters of credit are conditional commitments issued by us to guarantee the performance of a client to a

third party. We use the same credit policies in establishing commitments and issuing letters of credit as we do for on-balance sheet

instruments.

If commitments arising from these financial instruments continue to require funding at historical levels, management does not

anticipate that such funding will adversely impact our ability to meet our on-going obligations. In the event these commitments

require funding in excess of historical levels, management believes current liquidity, advances available from the FHLB and the

Federal Reserve, and investment security maturities provide a sufficient source of funds to meet these commitments.

Certain agreements provide that the commitments are unconditionally cancellable by the bank and for those agreements no allowance

for credit losses has been recorded. We have recorded an allowance for credit losses on loan commitments that are not

unconditionally cancellable by the bank, which is included in other liabilities on the consolidated statements of financial condition and

totaled $3.1 million at June 30, 2023.

### CRITICAL ACCOUNTING POLICIES

Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements included in our 2022 Form 10-

K/A. The preparation of our Consolidated Financial Statements in accordance with GAAP and reporting practices applicable to the

banking industry requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and

expenses, and to disclose contingent assets and liabilities. Actual results could differ from those estimates.

We have identified accounting for (i) the allowance for credit losses, (ii) goodwill, (iii) pension assumptions, and (iv) income taxes as

our most critical accounting policies and estimates in that they are important to the portrayal of our financial condition and results, and

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

inherently uncertain. These accounting policies, including the nature of the estimates and types of assumptions used, are described

throughout this Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Part II, Item 7,

Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2022 Form 10-K/A.

### TABLE I

### AVERAGE BALANCES & INTEREST RATES (UNAUDITED)

### (As Restated)

### (As Restated)

### Three Months Ended June 30,

### Six Months Ended June 30,

### 2023

### 2022

### 2023

### 2022

Average

Average

Average

Average

Average

Average

Average

Average

(Dollars in Thousands)

Balances

Interest

Rate

Balances

Interest

Rate

Balances

Interest

Rate

Balances

Interest

Rate

Assets:

Loans Held for Sale

54,350

800

5.90

52,860

711

5.39

54,728

1,445

5.32

47,959

1,108

4.66

Loans Held for Investment

(1)(2)

2,657,693

36,890

5.55

2,084,679

23,628

4.55

2,620,252

71,232

5.48

2,024,463

45,737

4.56

Taxable Securities

1,041,202

4,803

1.84

1,142,269

3,834

1.34

1,051,232

9,716

1.85

1,099,739

6,723

1.22

Tax-Exempt Securities

(2)

2,656

17

2.47

2,488

10

1.73

2,747

33

2.41

2,449

20

1.67

Funds Sold

218,902

2,782

5.10

691,925

1,408

0.82

289,543

6,893

4.80

782,011

1,817

0.47

Total Earning Assets

3,974,803

45,292

4.57

3,974,221

29,591

2.99

4,018,502

89,319

4.48

3,956,621

55,405

2.82

Cash & Due From Banks

75,854

79,730

75,250

77,007

Allowance For Credit Losses

(27,893)

(20,984)

(26,771)

(21,318)

Other Assets

297,837

288,421

298,999

281,922

TOTAL ASSETS

4,320,601

4,321,388

4,365,980

4,294,232

Liabilities:

Noninterest Bearing Deposits

1,539,877

1,722,325

1,570,642

1,687,524

NOW Accounts

1,200,400

3,038

1.01

1,033,190

120

0.05

1,214,585

5,190

0.86

1,056,419

206

0.04

Money Market Accounts

288,466

748

1.04

286,210

36

0.05

278,077

955

0.69

285,810

69

0.05

Savings Accounts

602,848

120

0.08

628,472

77

0.05

616,045

196

0.06

613,996

149

0.05

Other Time Deposits

87,973

103

0.47

95,132

33

0.14

88,819

155

0.35

96,088

66

0.14

Total Interest Bearing Deposits

2,179,687

4,008

0.74

2,043,004

266

0.05

2,197,526

6,496

0.60

2,052,313

490

0.05

Total Deposits

3,719,564

4,008

0.43

3,765,328

266

0.03

3,768,168

6,496

0.35

3,739,837

490

0.03

Repurchase Agreements

17,888

115

2.58

5,064

0.03

13,639

124

1.83

6,093

1

0.03

Other Short-Term Borrowings

17,834

336

7.54

26,718

343

5.15

27,745

788

5.73

25,973

534

4.14

Subordinated Notes Payable

52,887

604

4.52

52,887

370

2.76

52,887

1,175

4.42

52,887

687

2.58

Other Long-Term Borrowings

431

5

4.80

722

8

4.54

455

11

4.80

777

17

4.51

Total Interest Bearing Liabilities

2,268,727

5,068

0.90

2,128,395

987

0.19

2,292,252

8,594

0.76

2,138,043

1,729

0.16

Other Liabilities

84,305

87,207

82,765

79,728

TOTAL LIABILITIES

3,892,909

3,937,927

3,945,659

3,905,295

Temporary Equity

8,935

10,096

8,869

10,306

TOTAL SHAREOWNERS’ EQUITY

418,757

373,365

411,452

378,631

TOTAL LIABILITIES, TEMPORARY

AND SHAREOWNERS’ EQUITY

4,320,601

4,321,388

4,365,980

4,294,232

Interest Rate Spread

3.67

2.80

3.73

2.66

Net Interest Income

40,224

28,604

80,725

53,676

Net Interest Margin

(3)

4.06

2.89

4.05

2.74

(1)

Average Balances include net loan fees, discounts and premiums and nonaccrual loans. Interest income includes loans fees of $0.1 million and $0.4 million for the three month periods ended June 30, 2023 and

2022, respectively, and $0.2 million and $0.3 million for the six month periods ended June 30, 2023 and 2022, respectively.

(2)

Interest income includes the effects of taxable equivalent adjustments using a 21% Federal tax rate.

(3)

Taxable equivalent net interest income divided by average earning assets.

Filed Dec 22, 2023.
Source: SEC EDGAR, the filing index for accession 0000726601-23-000051. Last ingested by Listed: Nov 3, 2026, 20:56 ET. No prices; not investment advice.