Capital City Bank Group Inc: Form 10-K/A for the period ended Dec 31, 2023

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 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. 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.

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 s 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 3 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 2 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

59

2.68

2,668

54

2.03

3,772

91

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

14

0.17

5,762

2

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

20

4.77

665

31

4.62

1,887

63

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

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)

5

(10)

15

(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

31

2,474

Money Market Accounts

3,467

12

3,455

69

2

67

Savings Accounts

289

(18)

307

46

45

1

Time Deposits

806

4

802

(15)

(11)

(4)

Short-Term Borrowings

290

156

134

401

(331)

732

Subordinated Notes Payable

775

775

424

424

Other Long-Term Borrowings

(11)

(12)

1

(32)

(41)

9

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 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). 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

76

(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 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.

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

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

0.1

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

100

100

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 7. 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 to

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

41

90

Real Estate – Construction

322

17

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

1

431

17

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, a

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, of

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, at

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

10

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

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

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

2.6

3

Total Deposits

(93,724)

100

100

100

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. 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.

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

-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

-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

-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.

A

$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. We

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.

We

recognize interest and/or penalties related to income tax matters in other expenses.

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.

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.

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.

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

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.

Evaluation of Disclosure Controls and Procedures for 2023.

At December 31, 2023, the end of the period covered by this

Annual Report on Form 10-K/A, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated

the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of

1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that our disclosure

controls and procedures were ineffective as of December 31, 2023 due to the identification of the material weakness discussed in

“Existence of Material Weakness as of December 31, 2023” below.

Evaluation of Disclosure Controls and Procedures for 2022.

As discussed in Part III, Item 9A, of the Company’s Annual Report

on Form 10-K/A for the year ended December 31, 2022 filed with the SEC on December 22, 2023 (the “2022 Form 10-K/A”), our

management, including our Chief Executive Officer and Chief Financial Officer, after re-assessing the effectiveness of our

disclosure controls and procedures, concluded that our disclosure controls and procedures were ineffective as of December 31,

2022 due to the identification of the material weakness discussed in “Existence of Material Weakness as of December 31, 2023”

below.

Evaluation of Disclosure Controls and Procedures for 2021.

At December 31, 2021, the end of the period covered by the

Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 1, 2022 (the “2021

Form 10-K”), our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of

our disclosure controls and procedures. Based upon that evaluation, at the time the 2021 Form 10-K was filed, our Chief

Executive Officer and Chief Financial Officer each concluded that at December 31, 2021, we maintained effective disclosure

controls and procedures. Subsequent to that evaluation, management conducted a reevaluation, concluding that our disclosure

controls and procedures were ineffective as of December 31, 2021 due to the identification of the material weakness discussed in

“Existence of Material Weakness as of December 31, 2023” below.

Management’s Report on Internal Control Over Financial Reporting.

Our management is responsible for establishing and

maintaining effective internal control over financial reporting. Internal control over financial reporting is a process designed to

provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for

external purposes in accordance with U.S. generally accepted accounting principles.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of

its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is

subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be

circumvented by collusion or improper management override. Because of such limitations, there is a risk that material

misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these

inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process

safeguards to reduce, though not eliminate, this risk.

Management is also responsible for the preparation and fair presentation of the consolidated financial statements and other

financial information contained in this report. The accompanying consolidated financial statements were prepared in conformity

with U.S. generally accepted accounting principles and include, as necessary, best estimates and judgments by management.

Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial

Officer, we conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in

Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission

(2013 framework) (the COSO criteria). Based on this evaluation under the framework in Internal Control - Integrated

Framework, our management has concluded that our internal control over financial reporting, as such term is defined in Exchange

Act Rule 13a-15(f), was ineffective as of December 31, 2023 due to the identification of the material weakness discussed below.

As discussed in Part III, Item 9A, of the 2022 Form 10-K/A, management conducted a reevaluation under the framework in

Internal Control - Integrated Framework as of December 31, 2022 and concluded that our internal control over financial reporting

was ineffective as of December 31, 2022 due to the identification of the material weakness discussed in “Existence of Material

Weakness as of December 31, 2023” below. At the time the 2021 Form 10-K was filed, under the framework in Internal Control -

Integrated Framework, our management concluded that we maintained effective internal control over financial reporting as of

December 31, 2021. Subsequent to that evaluation, management conducted a reevaluation, concluding that our internal control

over financial reporting was ineffective as of December 31, 2021 due to the identification of the material weakness discussed in

“Existence of Material Weakness as of December 31, 2023” below.

Existence of Material Weakness as of December 31, 2023

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 or interim financial statements will not be

prevented or detected on a timely basis. As a result of the material weakness noted below, management has concluded that our

internal control over financial reporting was not effective as of December 31, 2023. Based on management’s assessment

described above, the Company's control over the review of significant inter-company mortgage loan sales and servicing

transactions was not designed effectively. Specifically, management’s review control over the completeness and accuracy of

elimination entries in the consolidation process was not designed effectively, as the review was not sufficiently precise to identify

all the necessary elimination entries between CCB and its subsidiary, CCHL. The Company determined inter-company

transactions related to the sale of residential mortgage loans were not properly eliminated and net loan fees were not properly

recorded. Further, financial information obtained from CCHL for certain construction/permanent loan activity was not in

sufficient detail to appropriately classify this activity within the Statement of Cash Flows. Specifically, management’s review

control over the completeness, accuracy and review of financial information provided from CCHL related to the Statement of

Cash Flows was not designed effectively as the review was not sufficiently precise to identify all errors in financial reporting. The

material weakness has resulted in the restatement of the Company’s consolidated financial statements as of and for the year ended

December 31, 2023, December 31, 2022 and the restatement of the Company’s Consolidated Statement of Cash Flows for the

year ended December 31, 2021.

Remediation Plan

Since identifying the material weakness described above, management, with oversight from the Audit Committee and input from

the Board of Directors, has devoted substantial resources to the ongoing implementation of remediation efforts. These

remediation efforts, summarized below are intended to address both the identified material weakness and to enhance the

Company’s overall internal control over financial reporting and disclosure controls and procedures. Based on additional

procedures and post-closing review, management concluded that the consolidated financial statements included in this report

present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented, in

conformity with GAAP.

The internal control and procedural enhancements and remedial actions that have been implemented include:

Enhance the precision level review of activity within existing accounts that are subject to elimination during

consolidation, to ensure appropriate elimination;

Enhance review procedures to identify new inter-company accounts and activities subject to elimination during

consolidation;

Increase the granularity of general ledger mapping for inter-company accounts subject to elimination during

consolidation;

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

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

Enhance the detail of review procedures of financial information obtained from a subsidiary to identify, assess and

validate appropriate classification when preparing the consolidated financial statements, including when reviewing items

in the operating, investing or financing activity sections within the Statement of Cash Flows.

To remediate the material weakness, the Company implemented the internal control and procedural enhancements noted above in

items 1-4 during the fourth quarter of 2023 and implemented the enhancement noted above in item 5 during the first quarter of

2024. The material weakness cannot be considered remediated until the applicable controls have operated for a sufficient period

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

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

disclosure controls and procedures.

Forvis Mazars, LLP, an independent registered public accounting firm, has audited our consolidated financial statements as of and

for the year ended December 31, 2023, and adversely opined as to the effectiveness of internal control over financial reporting at

December 31, 2023, as stated in its report, which is included herein on page 145.

Change in Internal Control.

Except as identified above with respect to remediation of the material weakness, there have been no

changes in our internal control during our most recently completed fiscal quarter that materially affected, or are likely to

materially affect, our internal control over financial reporting.

Report of Independent Registered Public Accounting Firm

To the Shareowners, Board of Directors and Audit Committee

Tallahassee, Florida

Opinion on the Internal Control over Financial Reporting

We have audited Capital City Bank Group, Inc.’s (the “Company”) 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 (COSO).

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 or interim financial statements will not be

prevented or detected on a timely basis. The following material weakness has been identified and included in management’s

assessment.

The Company's control over the review of significant inter-company mortgage loan sales and servicing transactions was

not designed effectively. Specifically, the Company’s management review control over the completeness and accuracy of

elimination entries in the consolidation process was not designed effectively, as the review was not sufficiently precise to

identify all of the necessary elimination entries between Capital City Bank and its subsidiary, Capital City Home Loans.

The Company determined inter-company transactions related to the sale of residential mortgage loans were not properly

eliminated and net loan fees were not properly recorded. Further, financial information obtained from Capital City Home

Loans for certain construction/permanent loan activity was not in sufficient detail to appropriately classify this activity

within the Statement of Cash Flows. Specifically, the Company’s management review control over the completeness

and accuracy and review of financial information provided from Capital City Home Loans related to the Statement of

Cash Flows was not designed effectively as the review was not sufficiently precise to identify all errors in financial

reporting.

This material weakness was considered in determining the nature, timing, and extent of auditing procedures applied in our audit

of the Company’s consolidated financial statements, and this report does not affect our report dated March 13, 2024 (except for

the restatement described in Note 1 to the consolidated financial statements, as to which the date is July 12, 2024), on those

consolidated financial statements.

In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control

criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2023, based on

criteria established in Internal Control – Integrated Framework: (2013) issued by the COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)

(“PCAOB”) the consolidated financial statements of the Company as of December 31, 2023 and 2022, and for each of the years in

the three-year period ended December 31, 2023, and our report dated March 13, 2024 (except for the restatement described in

Note 1 to the consolidated financial statements, as to which the date is July 12, 2024), expressed an unqualified opinion on those

consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its

assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report

on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over

financial reporting based on our audit.

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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the

audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all

material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk

that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the

assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We

believe that our audit provides a reasonable basis for our opinion.

Definitions and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the

reliability of financial reporting and the preparation of reliable financial statements for external purposes in accordance with

generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and

procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions

and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to

permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and

expenditures of the company are being made only in accordance with authorizations of management and directors of the

company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or

disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,

projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate

because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Forvis Mazars, LLP

Little Rock, Arkansas

March 13, 2024 (except for the material weakness, as to which the date is July 12, 2024)