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CAPITAL CITY BANK GROUP INC

For the period ended Dec 31, 2023. Filed Mar 13, 2024.

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A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.

FY2023 · Filed Mar 13, 2024

CCBG$51.35+2.1%Stored close · as of Nov 9, 2026

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Item 8. Financial Statements and Supplementary Data

2023 Report of Independent Registered Public Accounting Firm (PCAOB ID

)

GROUP,

INC.

CONSOLIDATED FINANCIAL

STATEMENTS

PAGE

Consolidated Statements of Changes in Shareowners’ Equity

To the Shareowners,

Board of Directors and Audit Committee

Tallahassee, Florida

Opinion on the Consolidated Financial Statements

We have audited

the accompanying consolidated statements of financial condition of Capital City Bank

Group, Inc. (the

“Company”) as of December 31, 2023 and 2022, the related consolidated

statements of income, comprehensive income, changes

in shareowners’ equity,

and cash flows for each of the years in the three-year period ended December 31, 2023, and the related

notes (collectively referred to as the “financial statements”). In our opinion,

the consolidated financial statements referred to

above present fairly, in

all material respects, the financial position of the Company as of December 31,

2023 and 2022, and the

results of its operations and its cash flows for each of the years in the three-year period

ended December 31, 2023, in conformity

with accounting principles generally accepted in the United States of America.

We also have audited,

in accordance with the standards of the Public Company Accounting Oversight Board (United

States)

(“PCAOB”), the Company’s

internal control over financial reporting as of December 31, 2023, based on criteria

established in

Internal Control – Integrated Framework: (2013) issued by the Committee of

Sponsoring Organizations of the Treadway

Commission and our report dated March 13, 2024, expressed an adverse

opinion on the effectiveness of the Company’s

control over financial reporting because of a material weakness described in

Management’s Annual Report on Internal

Control

over Financial Reporting.

Restatement of Previously Issued Financial Statements

As discussed

in

Note 1

to the

consolidated

financial statements,

the 2022

and 2021

consolidated financial

statements have

been

restated to correct a misstatement.

Basis for Opinion

These financial statements are the responsibility of the Company’s

management. Our responsibility is to express an opinion on the

Company’s financial statements based

on our audits.

We are a public

accounting firm registered with the PCAOB and are required to be independent with

respect to the Company in

accordance with the U.S. federal securities laws and the applicable rules and

regulations of the Securities and Exchange

Commission and the PCAOB.

We conducted

our audits in accordance with the standards of the PCAOB. Those standards require

that we plan and perform the

audits to obtain reasonable assurance about whether the financial statements are

free of material misstatement, whether due to

error or fraud.

Our audits included performing procedures to assess the risks of material misstatement

of the financial statements, whether due to

error or fraud, and performing procedures that respond to those risks. Such

procedures include examining, on a test basis,

evidence regarding the amounts and disclosures in the financial statements. Our audits

also included evaluating the accounting

principles used and significant estimates made by management, as well as evaluating

the overall presentation of the financial

statements. We believe

that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below arises from the current-period

audit of the financial statements that was

communicated or required to be communicated to the audit committee

and that: (1) relate to accounts or disclosures that are

material to the financial statements and (2) involved our especially challenging,

subjective or complex judgments.

The

communication of critical audit matters does not alter in any way our opinion on the

financial statements, taken as a whole, and

we are not, by communicating the critical audit matters below,

providing separate opinions on the critical audit matters or on the

accounts or disclosures to which it relates.

The Company’s

loans held

for investment

portfolio totaled

$2.73 billion

as of

2023, and

the allowance

for credit

losses on

loans held

for investment

was $29.9

million. The Company’s

unfunded loan

commitments totaled

$748.4 million,

with

an allowance for credit loss

on unfunded loan commitments of

$3.2 million. The Company’s

held-to-maturity securities portfolios

totaled

$625.0

million

as

of

December

31,

2023,

and

there

was

no

allowance

for

credit

losses

on

held-to-maturity

Together,

these allowance amounts represent the allowance for credit losses (ACL).

As more

fully described

in

Notes 1

,

,

and

to the

Company’s

consolidated financial

statements, the

Company estimates

its

exposure

to

expected

credit

losses

as

of

the

statement

of

condition

date

for

existing

instruments

held

at

amortized

cost

and

off-balance

sheet

exposures,

such

as

unfunded

loan

commitments,

lines

of

credit

and

other

unused

commitments that are not unconditionally cancelable by the Company.

The determination

of the

ACL requires

management to

exercise significant

judgment

and consider

numerous subjective

factors,

determining

qualitative

factors

to

adjust

historical

loss

rates,

loan

credit

risk

grading

and

identifying

loans

requiring individual evaluation among others. As disclosed by

management, different assumptions and conditions

could result in a

materially different amount for the estimate of the ACL.

We

identified the

ACL at

2023 as

a critical audit

matter.

Auditing the

ACL involved

a high degree

of subjectivity

in

management’s

estimates,

such

as

management’s

identification

of

credit

quality

indicators,

grouping

of

loans determined to

be similar into pools,

estimating the remaining

life of loans in

a pool, assessment of

economic conditions and

other

environmental

factors,

the

adequacy

of

specific

allowances

associated

with

individually

evaluated

loans

and

assessing the appropriateness of loan credit risk grades.

The primary procedures we performed as of December 31, 2023 to address

this critical audit matter included:

Obtained

an

understanding

of

the

Company’s

process

for

establishing

the

ACL,

the

qualitative

factor

adjustments of the ACL.

Tested

the

design

and

operating

effectiveness

of

controls,

those

related

to

technology,

over

the

ACL,

including:

o

loan data completeness and accuracy

o

reconciliation of loan balances accounted for at amortized cost and underlying detail

o

classifications of loans by loan pool

o

historical charge-off data

o

evaluation of appraisals

o

the establishment of qualitative adjustments

o

back testing and stress testing

o

loan credit risk ratings

o

establishment of specific ACL on individually evaluated loan

o

management’s review and disclosure

controls over the ACL

Tested

the

completeness

and

of

the

in

the

ACL,

the

relevance

and

reliability of such information.

Tested the ACL model’s

computational accuracy.

the qualitative

adjustments to

the ACL,

including assessing

the basis

for adjustments

and the

reasonableness

of the significant assumptions.

Tested the loan review

functions and evaluated the reasonableness of loan credit risk ratings.

Evaluated the reasonableness of specific allowances on individually

evaluated loans.

the

overall

reasonableness

of

assumptions

used

by

considering

trends

identified

within

peer

groups.

the

and

completeness

of

Accounting

Standards

Codification

Topic

326,

Financial

Instruments

–

Credit Losses

, disclosures in the consolidated financial statements.

Evaluated credit quality trends in delinquencies, non-accruals, charge

-offs and loan risk ratings.

Tested estimated utilization

rate of unfunded loan commitments.

documentation

prepared

to

assess

the

methodology

in

the

ACL

calculation

for

securities

for

reasonableness.

FORVIS, LLP

We have served

as the Company’s auditor since 2021.

Little Rock, Arkansas

March 13, 2024

GROUP,

INC.

OF FINANCIAL CONDITION

As of December 31,

ASSETS

Cash and Due From Banks

$

83,118

$

72,114

228,949

528,536

Total Cash and Cash Equivalents

312,067

600,650

Investment Securities, Available

for Sale, at fair value (amortized cost of $

367,747

and $

455,232

)

337,902

413,294

Investment Securities, Held to Maturity (fair value of $

591,751

and $

612,701

)

625,022

660,744

3,450

966,374

1,074,048

Loans Held For Sale, at fair value

28,211

26,909

Loans, Held for Investment

(29,941)

(25,068)

Loans Held for Investment, Net

2,703,977

2,522,617

Premises and Equipment, Net

81,266

82,138

92,933

93,093

119,648

119,337

$

$

Deposits:

$

1,377,934

$

1,653,620

Interest Bearing Deposits

2,323,888

2,285,697

35,341

56,793

52,887

52,887

Other Long-Term

66,080

73,675

Total Liabilities

3,856,445

4,123,185

Temporary Equity

7,407

8,757

Preferred Stock, $

0.01

3,000,000

no

shares issued and outstanding

Common Stock, $

0.01

90,000,000

and

shares issued and outstanding at December 31, 2023 and 2022, respectively

Additional Paid-In Capital

36,326

37,331

Retained Earnings

426,275

387,009

Accumulated Other Comprehensive Loss, Net of Tax

Total Shareowners’

Equity

440,625

387,281

Total Liabilities, Temporary

Equity, and Shareowners’ Equity

$

$

GROUP,

INC.

OF INCOME

For the Years

Ended December 31,

Data)

INTEREST INCOME

Loans, including Fees

$

152,250

$

106,444

$

96,561

Taxable

18,652

15,917

8,724

Tax Exempt

10,126

9,511

Total Interest Income

181,068

131,910

106,351

INTEREST EXPENSE

17,582

3,444

2,051

1,761

1,360

2,427

1,652

1,228

Other Long-Term

Total Interest Expense

22,080

6,888

3,490

NET INTEREST INCOME

158,988

125,022

102,861

9,714

7,494

(1,553)

Net Interest Income After Provision for Credit Losses

149,274

117,528

104,414

NONINTEREST INCOME

21,325

22,121

18,882

14,918

15,401

15,274

Fees

16,337

18,059

13,693

10,400

11,909

52,425

Other

8,630

7,691

7,271

Income

71,610

75,181

107,545

NONINTEREST EXPENSE

93,787

91,519

101,470

Occupancy, Net

27,660

24,574

23,932

Other

35,576

35,541

37,106

Expense

157,023

151,634

162,508

INCOME BEFORE INCOME TAXES

63,861

41,075

49,451

Income Tax Expense

13,040

7,798

9,835

NET INCOME

$

50,821

$

33,277

$

39,616

Loss (Income) Attributable to Noncontrolling Interests

1,437

(6,220)

NET INCOME ATTRIBUTABLE

TO COMMON SHAREOWNERS

$

52,258

$

33,412

$

33,396

BASIC NET INCOME PER SHARE

$

3.08

$

1.97

$

1.98

DILUTED NET INCOME PER SHARE

$

3.07

$

1.97

$

1.98

Average Basic Common

Shares Outstanding

16,987

16,951

16,863

Average Diluted

Common Shares Outstanding

17,023

16,985

16,893

GROUP,

INC.

OF COMPREHENSIVE INCOME

For the Years

Ended December 31,

NET INCOME ATTRIBUTABLE

TO COMMON SHAREOWNERS

$

52,258

$

33,412

$

33,396

Other comprehensive income (loss), before

tax:

Net unrealized (loss) gain on securities available-for-sale

12,076

(35,814)

(9,673)

Unrealized losses on securities transferred from available-for-sale

to

held-to-maturity

(9,384)

Amortization of unrealized losses on securities transferred from

available-for-sale to held-to-maturity

3,479

1,469

Derivative:

Change in net unrealized gain on effective cash flow derivative

(878)

4,146

1,476

Benefit Plans:

Reclassification adjustment for amortization of prior service cost

Reclassification adjustment for amortization of net loss

4,752

10,806

Defined benefit plan settlement (gain) charge

(291)

2,321

3,072

Current year actuarial gain

4,905

4,223

31,339

Total Benefit Plans

4,882

11,588

45,451

Other comprehensive income (loss), before

tax:

19,559

(27,995)

37,280

Deferred tax (expense) benefit related to other comprehensive income

(4,476)

6,980

(9,352)

Other comprehensive income (loss), net of tax

15,083

27,928

TOTAL COMPREHENSIVE

INCOME

$

67,341

$

12,397

$

61,324

GROUP,

INC.

OF CHANGES IN SHAREOWNERS' EQUITY

Accumulated

Other

Comprehensive

Loss,

Net of Taxes

(Dollars in Thousands, Except Share Data)

Shares

Outstanding

Common

Stock

Additional

Paid-In

Capital

Retained

Earnings

Total

Balance, January 1, 2021

16,790,573

$

$

32,283

$

332,528

$

(44,142)

$

320,837

33,396

33,396

Reclassification to Temporary Equity

(1)

9,323

9,323

Other Comprehensive Income, Net of Tax

27,928

27,928

0.62

101,487

1,297

1,298

Balance, December 31, 2021

16,892,060

34,423

364,788

383,166

33,412

33,412

Other Comprehensive Loss, Net of Tax

0.66

1,630

1,630

94,725

1,278

1,279

Balance, December 31, 2022

37,331

387,009

387,281

52,258

52,258

Reclassification to Temporary Equity

(1)

(87)

(87)

Other Comprehensive Income, Net of Tax

15,083

15,083

0.76

1,237

1,237

85,975

1,468

1,468

Repurchase of Common Stock

(122,538)

(3,710)

(3,710)

Balance, December 31, 2023

$

$

36,326

$

426,275

$

$

440,625

(1)

Adjustments to redemption value for non-controlling interest in CCHL

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CAPITAL CITY BANK GROUP,

INC.

For the Years Ended

(As Restated)

(As Restated)

CASH FLOWS FROM OPERATING ACTIVITIES

$

52,258

$

33,412

$

33,396

Adjustments to Reconcile Net Income to Cash From Operating Activities:

9,714

7,494

(1,553)

7,918

7,596

7,607

4,221

7,772

14,072

Gain on Securities Transactions

Pension Settlement (Gain) Charges

(291)

2,321

3,072

(306,714)

(437,827)

(1,262,746)

315,812

475,359

1,376,678

(10,400)

Change in Valuation Provision for Mortgage Servicing Rights

(250)

1,237

1,630

Net Tax Benefit from Stock Compensation

(48)

(27)

(4)

Deferred Income Taxes

(483)

(3,870)

(4,157)

(108)

(165)

(2,053)

(422)

(1,662)

Net (Increase) Decrease in Other Assets

(1,029)

(8,636)

10,885

Net (Decrease) Increase in Other Liabilities

(4,452)

8,837

(7,846)

Net Cash Provided By (Used In) Operating Activities

66,351

82,508

115,924

(1,483)

36,600

55,314

78,544

Securities Available for Sale:

(8,379)

30,420

3,365

62,861

81,596

178,425

Equity Securities:

(13,566)

Net Decrease in Equity Securities

10,127

(2,488)

(16,753)

(20,209)

Net (Increase) Decrease

in Loans

(191,151)

(606,011)

88,545

Net Cash Paid for Acquisitions

(4,482)

3,995

2,406

4,502

(7,046)

(6,322)

(5,193)

2,867

7,139

(80,110)

Net (Decrease) Increase in Deposits

(237,495)

226,455

495,302

Net (Decrease) Increase in Short-Term Borrowings

(21,452)

22,114

Repayment of Other Long-Term Borrowings

(199)

(249)

(1,332)

(3,710)

1,300

1,028

Net Cash (Used in) Provided By Financing Activities

(274,824)

238,429

438,601

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

(288,583)

106,805

Cash and Cash Equivalents at Beginning of Year

600,650

928,549

Cash and Cash Equivalents at End of Year

$

312,067

$

600,650

$

$

21,775

$

6,586

$

3,547

$

9,118

$

7,466

$

16,339

$

1,512

$

2,398

$

1,717

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Note 1

SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Capital City Bank Group, Inc. (“CCBG”) provides a full range of banking

and banking-related services to individual and

corporate clients through its wholly-owned subsidiary,

Capital City Bank (“CCB” or the “Bank” and together with CCBG, the

“Company”), with banking offices located in Florida,

Georgia, and Alabama.

The Company is subject to competition from other

financial institutions, is subject to regulation by certain government agencies

and undergoes periodic examinations by those

regulatory authorities.

Basis of Presentation

The consolidated financial statements include the accounts of CCBG

and CCB.

CCBG also maintains an insurance subsidiary,

LLC.

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

Company

and Capital City Investments. On March 1, 2020, CCB acquired a

% membership interest in Brand Mortgage Group, LLC

(“Brand”) which is now operated as Capital City Home Loans, LLC (“CCHL”), a consolidated

entity in the Company’s financial

statements. The terms of the transaction included a buyout call/put option

for CCB to purchase the remaining

% of the

membership interests in CCHL (“the

% Interest”) that are held by BMGBMG, LLC (“BMG”). The option requires 12 months

advance notice to the other party,

and under the terms of the option, January 1, 2025 is the earliest date the transfer

of the

%

Interest may be completed. On December 20, 2023, BMG notified CCB that BMG will exercise

its put option and the transfer of

the

% Interest will become effective on January 1, 2025.

The Company, which operates

a single reportable business segment that is comprised of commercial banking

within the states of

Florida, Georgia, and Alabama, follows accounting principles generally

accepted in the United States of America and reporting

practices applicable to the banking industry.

The principles which materially affect the financial position, results of

operations

and cash flows are summarized below.

The Company determines whether it has a controlling financial interest in an

entity by first evaluating whether the entity is a

voting interest entity or a variable interest entity under accounting principles

generally accepted in the United States of America.

Voting

interest entities are entities in which the total equity investment at risk is sufficient

to enable the entity to finance itself

independently and provide the equity holders with the obligation to absorb losses, the

right to receive residual returns and the

right to make decisions about the entity’s

activities.

The Company consolidates voting interest entities in which it has all, or at

least a majority of, the voting interest.

As defined in applicable accounting standards, variable interest entities (“VIE’s”)

are

entities that lack one or more of the characteristics of a voting interest entity.

A controlling financial interest in an entity is

present when an enterprise has a variable interest, or a combination of variable

interests, that will absorb a majority of the entity’s

expected losses, receive a majority of the entity’s

expected residual returns, or both.

The enterprise with a controlling financial

interest, known as the primary beneficiary,

consolidates the VIE.

Two of CCBG’s

wholly owned subsidiaries, CCBG Capital

Trust I (established November 1, 2004) and

CCBG Capital Trust II (established May 24, 2005) are VIEs for

which the Company

is not the primary beneficiary.

Accordingly, the

accounts of these entities are not included in the Company’s

consolidated

financial statements.

Certain previously reported amounts have been reclassified to conform

to the current year’s presentation. All material inter-

company transactions and accounts have been eliminated in consolidation.

The Company has evaluated subsequent events for

potential recognition and/or disclosure through the date the consolidated

financial statements included in this Annual Report on

Form 10-K were filed with the United States Securities and Exchange

Commission.

Use of Estimates

The preparation of financial statements in conformity with accounting

principles generally accepted in the United States of

America requires management to make estimates and assumptions that affect

the reported amounts of assets and liabilities, the

disclosure of contingent assets and liabilities at the date of financial statements and

the reported amounts of revenues and

expenses during the reporting period.

Actual results could vary from these estimates.

Material estimates that are particularly

susceptible to significant changes in the near-term

relate to the determination of the allowance for credit losses, pension expense,

income taxes, loss contingencies, valuation of other real estate owned, and

valuation of goodwill and their respective analysis of

impairment.

Restatement of Previously Issued Consolidated Financial

Statements

We have restated

herein the Company’s Impacted Statements

of Cash Flows for the years ended December 31, 2021 and

December 31, 2022 and for each of the three month periods ended March

31, 2022 and 2023, six month periods ended June 30,

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

Prior Restatement Background

On December 22, 2023, the Company filed a Form 10-K/A to amend and

restate certain items in the 10K for the year ended

December 31, 2022 related to inter-company transactions

between its subsidiaries, CCHL and CCB, involving residential

mortgage loan purchases that were not properly recorded. The material impact

to Consolidated Statements of Income,

Consolidated Statements of Financial Condition and various key performance

indicators resulted in a restatement of the

Company’s financial statements for

the year ended December 31, 2022, and the three, six and nine months ended March 31,

and 2023, June 30, 2022 and 2023, and September 30, 2022, respectively (collectively,

the “Previously Restated Financial

Statements”). As part of the Company’s

assessment of the misstatements noted in the Form 10-K/A filed December 22, 2023,

it

was concluded that the impact of the inter-company

loan sale and participation transactions was immaterial to the consolidated

financial statements for the year ended December 31, 2021.

Description of Current Misstatements

In connection with the preparation of the Company’s

Company concluded that it had not appropriately eliminated intercompany

loan sale and participations transactions from the

Consolidated Statements of Cash Flows for the years ended December

31, 2022 and 2021 in its Previously Restated Financial

Statements. These errors led to misstatements of the following line items within

the Consolidated Statements of Cash Flows:

Within the Cash Flows from Operating Activities

section:

An overstatement of Originations of Loans Held for Sale of $

million for the years ended December

31, 2022 and 2021, respectively.

An overstatement of Proceeds from Sales of Loans Held for Sale of $

December 31, 2022 and 2021, respectively.

As these misstatements offset one another within the Cash Flows from

Operating Activities section of the Consolidated Statement

of Cash Flows, there was no impact to the Net Cash Provided By Operating Activities

line item.

Within the Cash Flows from Investing Activities

section:

An overstatement of Purchases of Loans Held for Investment of $

December 31, 2022 and 2021, respectively.

An understatement of Net (Increase) Decrease in Loans of $

million for the years ended December

31, 2022 and 2021, respectively.

As these misstatements offset one another within the Cash Flows Used In

Investing section of the Consolidated Statement of Cash

Flows, there was no impact to the Net Cash Used In Investing Activities line item.

The impacts of the restatement for the years ended December 31, 2022 and 2021

as described above are reflected in the

Consolidated Statements of Cash Flows and had no impact on the Consolidated

Statements of Financial Condition, Consolidated

Statements of Income, Consolidated Statements of Comprehensive Income,

Consolidated Statements in Changes in Shareowners’

Equity or the Notes to the Consolidated Financial Statements. The impacts of the restatement

for each of the quarterly periods are

presented in Note 24, Restated Quarterly Consolidated Statements of

Cash Flows (Unaudited).

Description of Current Restatement Tables

The following tables present the amounts previously reported and a reconciliation

of the restatement amounts reported on the

restated Consolidated Statement of Cash Flows for the years ended

December 31, 2022 and December 31, 2021. The amounts

previously reported were derived from the Company’s

Amended Annual Report on Form 10-K/A for the year ended December

31, 2022 and 2021, filed with the SEC on December 22, 2023.

GROUP,

INC.

For the Year

Ended December 31, 2022

Impact

$

33,412

$

$

33,412

7,494

7,494

7,596

7,596

7,772

7,772

2,321

2,321

(996,312)

558,485

(437,827)

1,033,844

(558,485)

475,359

1,630

1,630

(27)

(27)

(3,870)

(3,870)

(108)

(108)

(422)

(422)

Net Increase in Other Assets

(8,636)

(8,636)

Net Decrease in Other Liabilities

8,837

8,837

Net Cash Provided (Used In) By Operating Activities

82,508

82,508

55,314

55,314

Sale:

3,365

3,365

81,596

81,596

(438,415)

421,662

(16,753)

(184,349)

(421,662)

(606,011)

2,406

2,406

(6,322)

(6,322)

2,867

2,867

226,455

226,455

22,114

22,114

(249)

(249)

1,300

1,300

238,429

238,429

$

600,650

$

$

600,650

$

6,586

$

$

6,586

$

7,466

$

$

7,466

$

2,398

$

$

2,398

GROUP,

INC.

For the Year

Ended December 31, 2021

Impact

$

33,396

$

$

33,396

(1,553)

(1,553)

7,607

7,607

14,072

14,072

3,072

3,072

(1,541,356)

278,610

(1,262,746)

1,655,288

(278,610)

1,376,678

Provision for Mortgage Servicing Rights

(250)

(250)

(4)

(4)

(4,157)

(4,157)

(165)

(165)

(1,662)

(1,662)

10,885

10,885

Net Decrease in Other Liabilities

(7,846)

(7,846)

115,924

115,924

78,544

78,544

Sale:

178,425

178,425

(114,913)

94,704

(20,209)

Net Decrease in Loans Held for Investment

183,249

(94,704)

88,545

Net Cash Paid for Acquisitions

(4,482)

(4,482)

4,502

4,502

(5,193)

(5,193)

7,139

7,139

495,302

495,302

Net Decrease

in Other Short-Term

(1,332)

(1,332)

1,028

1,028

438,601

438,601

106,805

106,805

928,549

928,549

$

$

$

$

3,547

$

$

3,547

$

16,339

$

$

16,339

$

1,717

$

$

1,717

Significant Accounting Principles

Cash and cash equivalents include cash and due from banks, interest-bearing

deposits in other banks, and federal funds

sold. Generally,

federal funds are purchased and sold for one-day periods and all other cash equivalents

have a maturity of 90

days or less.

The Company is required to maintain average reserve balances with the Federal Reserve Bank

based upon a

percentage of deposits.

On March 26, 2020, the Federal Reserve reduced the amount of the required reserve balance

to

zero

.

The Company maintains certain cash balances that are restricted under warehouse

lines of credit and master repurchase

agreements.

The restricted cash balance at December 31, 2023 was $

0.1

Investment securities are classified as held-to-maturity (“HTM”) and

carried at amortized cost when the Company has the positive

intent and ability to hold them until maturity.

Investment securities not classified as HTM are classified as available-for-sale

(“AFS”) and carried at fair value.

The Company does not have trading investment securities. Investment securities classified

as

equity securities that do not have readily determinable fair values, are

measured at cost and remeasured to fair value when

impaired or upon observable transaction prices.

The Company determines the appropriate classification of securities at the time

of purchase.

For reporting and risk management purposes, the Company further

segments

investment securities by the issuer of

the security which correlates to its risk profile: U.S. government treasury,

U.S. government agency, state and

political

subdivisions, mortgage-backed securities,

and corporate debt securities.

Certain equity securities with limited marketability,

such

as stock in the Federal Reserve Bank and the Federal Home Loan Bank, are classified

as AFS and carried at cost.

Interest income includes amortization and accretion of purchase premiums

and discounts.

Realized gains and losses are derived

from the amortized cost of the security sold.

Gains and losses on the sale of securities are recorded on the trade date and are

determined using the specific identification method.

Securities transferred from AFS to HTM are recorded at amortized cost plus

or minus any unrealized gain or loss at the time of transfer.

Any existing unrecognized gain or loss continues to be reported

in

accumulated other comprehensive loss (net of tax) and amortized as an adjustment

to interest income over the remaining life of

the security.

Any existing allowance for credit loss is reversed at the time of transfer.

Subsequent to transfer, the allowance for

credit losses on the transferred security is evaluated in accordance with the accounting

policy for HTM securities.

Additionally,

any allowance amounts reversed or established as part of the transfer

are presented on a gross basis in the Consolidated Statement

The accrual of interest is generally suspended on securities more than 90 days

past due with respect to principal or interest.

When

a security is placed on nonaccrual status, all previously accrued and uncollected interest

is reversed against current income and

thus not included in the estimate of credit losses.

Credit losses and changes thereto, are established as an allowance for credit loss through

a provision for credit loss expense.

Losses are charged against the allowance when management

believes the uncollectability of a security is confirmed or when

either of the criteria regarding intent or requirement to sell is met.

Certain debt securities in the Company’s

investment portfolio were issued by a U.S. government entity or agency and are either

explicitly or implicitly guaranteed by the U.S. government.

The Company considers the long history of no credit losses on these

securities indicates that the expectation of nonpayment of the amortized

cost basis is zero, even if the U.S. government were to

technically default.

Further, certain municipal securities held by the Company

have been pre-refunded and secured by

government guaranteed treasuries.

Therefore, for the aforementioned securities, the Company does not

assess or record expected

credit losses due to the zero loss assumption.

Impairment - Available

-for-Sale Securities

.

Unrealized gains on AFS securities are excluded from earnings and reported,

net of tax, in other comprehensive income.

For AFS

securities that are in an unrealized loss position, the Company first assesses whether it intends

to sell, or whether it is more likely

than not it will be required to sell the security before recovery of its amortized

cost basis.

If either of the criteria regarding intent

or requirement to sell is met, the security’s

amortized cost basis is written down to fair value through income.

For AFS securities

that do not meet the aforementioned criteria or have a zero loss assumption,

the Company evaluates whether the decline in fair

value has resulted from credit losses or other factors.

In making this assessment, management considers the extent to which

fair

value is less than amortized cost, any changes to the rating of the security by a

rating agency, and adverse

conditions specifically

related to the security, among

other factors.

If the assessment indicates that a credit loss exists, the present value of cash flows to

be collected from the security are compared to the amortized cost basis of the security.

If the present value of cash flows

expected to be collected is less than the amortized cost basis, a credit loss exists and

an allowance for credit losses is recorded

through a provision for credit loss expense, limited by the amount that fair value is less than

the amortized cost basis.

Any

impairment that is not credit related is recognized in other comprehensive

income.

Allowance for Credit Losses - Held-to-Maturity Securities.

Management measures expected credit losses on each individual HTM

debt security that has not been deemed to have a zero

assumption.

Each security that is not deemed to have zero credit losses is individually measured

based on net realizable value, or

the difference between the discounted value of the expected

cash flows, based on the original effective rate, and the recorded

amortized basis of the security.

To the extent a shortfall is related

to credit loss, an allowance for credit loss is recorded through a

provision for credit loss expense.

Loans held for investment (“HFI”) are stated at amortized cost which includes the

principal amount outstanding, net premiums

and discounts, and net deferred loan fees and costs.

Accrued interest receivable on loans is reported in other assets and is not

included in the amortized cost basis of loans.

Interest income is accrued on the effective yield method based on outstanding

principal balances and includes loan late fees.

Fees charged to originate loans and direct loan origination

costs are deferred and

amortized over the life of the loan as a yield adjustment.

The Company defines loans as past due when one full payment is past due or a contractual maturity

is over 30 days late.

The

accrual of interest is generally suspended on loans more than 90 days past due

with respect to principal or interest.

When a loan is

placed on nonaccrual status, all previously accrued and uncollected interest

is reversed against current income and thus a policy

election has been made to not include accrued interest in the estimate of credit

losses.

Interest income on nonaccrual loans is

recognized when the ultimate collectability is no longer considered doubtful.

Loans are returned to accrual status when the

principal and interest amounts contractually due are brought current

or when future payments are reasonably assured.

Loan charge-offs on commercial and investor

real estate loans are recorded when the facts and circumstances of the individual

loan confirm the loan is not fully collectible and the loss is reasonably quantifiable.

Factors considered in making these

determinations are the borrower’s and any guarantor’s

ability and willingness to pay,

the status of the account in bankruptcy court

(if applicable), and collateral value.

Charge-off decisions for consumer loans are dictated by

the Federal Financial Institutions

Examination Council’s Uniform

Retail Credit Classification and Account Management Policy which establishes standards

for the

classification and treatment of consumer loans, which generally require

charge-off after 120 days of delinquency.

The Company has adopted comprehensive lending policies, underwriting

standards and loan review procedures designed to

maximize loan income within an acceptable level of risk.

Reporting systems are used to monitor loan originations, loan ratings,

concentrations, loan delinquencies, nonperforming and potential problem

loans, and other credit quality metrics.

The ongoing

review of loan portfolio quality and trends by Management and the Credit Risk Oversight

Committee support the process for

estimating the allowance for credit losses.

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

loans’ amortized cost basis to present the net

amount expected to be collected on the loans.

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

reported in earnings, and reduced by the charge-off

of loan amounts, net of recoveries.

Loans are charged off against the

allowance when management believes the uncollectability of a loan balance

is confirmed.

Expected recoveries do not exceed the

aggregate of amounts previously charged-off

and expected to be charged-off.

Expected credit loss inherent in non-cancellable

off-balance sheet credit exposures is provided for through the credit

loss provision, but recorded separately in other liabilities.

Management estimates the allowance balance using relevant available information,

from internal and external sources, relating to

past events, current conditions, and reasonable and supportable forecasts.

Historical loan default and loss experience provides the

basis for the estimation of expected credit losses.

Adjustments to historical loss information incorporate management’s

view of

current conditions and forecasts.

The methodology for estimating the amount of credit losses reported in the

allowance for credit losses has two basic components:

first, an asset-specific component involving loans that do not share risk characteristics

and the measurement of expected credit

losses for such individual loans; and second, a pooled component for expected

credit losses for pools of loans that share similar

risk characteristics.

Loans That Do Not Share Risk Characteristics (Individually

Analyzed)

Loans that do not share similar risk characteristics are evaluated on an individual

basis.

Loans deemed to be collateral dependent

have differing risk characteristics and are individually analyzed to

estimate the expected credit loss.

A loan is collateral

dependent when the borrower is experiencing financial difficulty

and repayment of the loan is dependent on the liquidation and

sale of the underlying collateral.

For collateral dependent loans where foreclosure is probable, the expected credit loss is

measured based on the difference between the fair

value of the collateral (less selling cost) and the amortized cost basis of the

asset.

For collateral dependent loans where foreclosure is not probable, the

Company has elected the practical expedient allowed

by Financial Accounting Standards Board (“FASB”)

Accounting Standards Codification (“ASC”) Topic

326-20 to measure the

expected credit loss under the same approach as those loans where foreclosure

is probable.

For loans with balances greater than

$250,000,

the fair value of the collateral is obtained through independent appraisal of the underlying

collateral.

For loans with

balances less than $250,000, the Company has made a policy election to measure expected

loss for these individual loans utilizing

loss rates for similar loan types.

Loans That Share Similar Risk Characteristics (Pooled

Loans)

The general steps in determining expected credit losses for the pooled loan component

of the allowance are as follows:

Segment loans into pools according to similar risk characteristics

Develop historical loss rates for each loan pool segment

Incorporate the impact of forecasts

Incorporate the impact of other qualitative factors

Calculate and review pool specific allowance for credit loss estimate

A discounted cash flow methodology is utilized to calculate expected

cash flows for the life of each individual loan.

The

discounted present value of expected cash flow is then compared to

the loan’s amortized cost basis to determine

the credit loss

estimate.

Individual loan results are aggregated at the pool level in determining total

reserves for each loan pool.

The primary inputs used to calculate expected cash flows include historical

loss rates which reflect probability of default (“PD”)

and loss given default (“LGD”), and prepayment rates.

The historical look-back period is a key factor in the calculation of the PD

rate and is based on management’s assessment

of current and forecasted conditions and may vary by loan pool.

Loans subject to

the Company’s risk rating process are

further sub-segmented by risk rating in the calculation of PD rates.

LGD rates generally

reflect the historical average net loss rate by loan pool.

Expected cash flows are further adjusted to incorporate the impact of loan

prepayments which will vary by loan segment and interest rate conditions.

In general, prepayment rates are based on observed

prepayment rates occurring in the loan portfolio and consideration of forecasted

interest rates.

In developing loss rates, adjustments are made to incorporate the impact of forecasted

conditions.

Certain assumptions are also

applied, including the length of the forecast and reversion periods.

The forecast period is the period within which management is

able to make a reasonable and supportable assessment of future conditions.

The reversion period is the period beyond which

management believes it can develop a reasonable and supportable forecast,

and bridges the gap between the forecast period and

the use of historical default and loss rates.

The remainder period reflects the remaining life of the loan.

The length of the forecast

and reversion periods are periodically evaluated and based on management’s

assessment of current and forecasted conditions and

may vary by loan pool.

For purposes of developing a reasonable and supportable assessment

of future conditions, management

utilizes established industry and economic data points and sources,

including the Federal Open Market Committee forecast, with

the forecasted unemployment rate being a significant factor.

PD rates for the forecast period will be adjusted accordingly based

on management’s assessment of

future conditions.

PD rates for the remainder period will reflect the historical mean PD rate.

Reversion period PD rates reflect the difference between forecast

and remainder period PD rates calculated using a straight-line

adjustment over the reversion period.

Loss rates are further adjusted to account for other risk factors that impact loan defaults

and losses.

These adjustments are based

on management’s assessment of

trends and conditions that impact credit risk and resulting credit losses, more

specifically internal

and external factors that are independent of and not reflected in the quantitative

loss rate calculations.

Risk factors management

considers in this assessment include trends in underwriting standards,

nature/volume/terms of loan originations, past due loans,

loan review systems, collateral valuations, concentrations, legal/regulatory/political

conditions, and the unforeseen impact of

natural disasters.

Allowance for Credit Losses on Off-Balance

Sheet Credit Exposures

The Company estimates expected credit losses over the contractual period

in which it is exposed to credit risk through a

contractual obligation to extend credit, unless that obligation is unconditionally

cancellable by the Company.

The allowance for

credit losses on off-balance sheet credit exposures is adjusted as a provision

for credit loss expense and is recorded in other

liabilities.

The estimate includes consideration of the likelihood that funding will occur

and an estimate of expected credit losses

on commitments expected to be funded over its estimated life and applies the same

estimated loss rate as determined for current

outstanding loan balances by segment.

Off-balance sheet credit exposures are identified and classified in the same categories as

the allowance for credit losses with similar risk characteristics that have been previously

mentioned.

Mortgage Banking Activities

Mortgage Loans Held for Sale and Revenue Recognition

Mortgage loans held for sale (“HFS”) are carried at fair value under the fair value

option with changes in fair value recorded in

mortgage banking revenues on the Consolidated Statements of

Income. The fair value of mortgage loans held for sale committed

to investors is calculated using observable market information such

as the investor commitment, assignment of trade or other

mandatory delivery commitment prices. The Company bases loans committed

to Federal National Mortgage Association

(“FNMA”), Government National Mortgage Association (“GNMA”), and

Federal Home Loan Mortgage Corporation

(“FHLMC”) (“Agency”) investors based on the Agency’s

quoted mortgage backed security (“MBS”) prices. The fair value of

mortgage loans held for sale not committed to investors is based on quoted best execution

secondary market prices. If no such

quoted price exists, the fair value is determined using quoted prices for

a similar asset or assets, such as MBS prices, adjusted for

the specific attributes of that loan, which would be used by other market

participants.

Gains and losses from the sale of mortgage loans held for sale are recognized based upon

the difference between the sales

proceeds and carrying value of the related loans upon sale and are recorded

in mortgage banking revenues on the Consolidated

Statements of Income. Sales proceeds reflect the cash received from investors

through the sale of the loan and servicing release

premium. If the related mortgage loan is sold with servicing retained, the

MSR addition is recorded in mortgage banking revenues

on the Consolidated Statements of Income.

Mortgage banking revenues also includes the unrealized gains and losses associated

with the changes in the fair value of mortgage loans held for sale, and the realized and

unrealized gains and losses from derivative

instruments.

Mortgage loans held for sale are considered sold when the Company surrenders

control over the financial assets. Control is

considered to have been surrendered when the transferred assets have been

isolated from the Company, beyond

the reach of the

Company and its creditors; the purchaser obtains the right (free of conditions that

constrain it from taking advantage of that right)

to pledge or exchange the transferred assets; and the Company does not

maintain effective control over the transferred assets

through either an agreement that both entitles and obligates the Company

to repurchase or redeem the transferred assets before

their maturity or the ability to unilaterally cause the holder to return specific

assets. The Company typically considers the above

criteria to have been met upon acceptance and receipt of sales proceeds

from the purchaser.

Government National Mortgage Association (“GNMA”) optional

repurchase programs allow financial institutions to buy back

individual delinquent mortgage loans that meet certain criteria from

the securitized loan pool for which the institution provides

servicing.

At the servicer’s option and without GNMA’s

prior authorization, the servicer may repurchase such a delinquent loan

for an amount equal to 100 percent of the remaining principal balance of

the loan.

Under FASB ASC Topic

860, “Transfers and

Servicing,” this buy-back option is considered a conditional option until

the delinquency criteria are met, at which time the option

becomes unconditional.

When the Company is deemed to have regained effective control over

these loans under the

unconditional buy-back option, the loans can no longer be reported

as sold and must be brought back onto the Consolidated

Statement of Financial Condition, regardless of whether there is intent to exercise

the buy-back option.

These loans are reported

in other assets with the offsetting liability being reported

in other liabilities.

Derivative Instruments (IRLC/Forward Commitments)

The Company holds and issues derivative financial instruments such as interest rate

lock commitments (“IRLCs”) and other

forward sale commitments. IRLCs are subject to price risk primarily related

to fluctuations in market interest rates. To

hedge the

interest rate risk on certain IRLCs, the Company uses forward sale commitments,

such as to-be-announced securities (“TBAs”) or

mandatory delivery commitments with investors. Management expects

these forward sale commitments to experience changes in

fair value opposite to the changes in fair value of the IRLCs thereby reducing

earnings volatility. Forward

sale commitments are

also used to hedge the interest rate risk on mortgage loans held for sale that are not

committed to investors and still subject to

price risk. If the mandatory delivery commitments are not fulfilled, the Company

pays a pair-off fee. Best effort

forward sale

commitments are also executed with investors, whereby certain loans

are locked with a borrower and simultaneously committed

to an investor at a fixed price. If the best effort IRLC does not fund,

there is no obligation to fulfill the investor commitment.

The Company considers various factors and strategies in determining

what portion of the IRLCs and uncommitted mortgage loans

held for sale to economically hedge.

All derivative instruments are recognized as other assets or other liabilities

on the

Consolidated Statements of Financial Condition at their fair value.

Changes in the fair value of the derivative instruments are

recognized in mortgage banking revenues on the Consolidated Statements

of Income in the period in which they occur.

Gains and

losses resulting from the pairing-out of forward sale commitments are recognized

in mortgage banking revenues on the

Consolidated Statements of Income. The Company accounts for all derivative

instruments as free-standing derivative instruments

and does not designate any for hedge accounting.

Mortgage Servicing Rights (“MSRs”) and Revenue Recognition

The Company sells residential mortgage loans in the secondary market and may

retain the right to service the loans sold. Upon

sale, an MSR asset is capitalized, which represents the then current fair value of

future net cash flows expected to be realized for

performing servicing activities.

As the Company has not elected to subsequently measure any class of servicing

assets under the

fair value measurement method, the Company follows the amortization method.

MSRs are amortized to noninterest income

(other income) in proportion to and over the period of estimated net servicing

income, and are assessed for impairment at each

reporting date.

MSRs are carried at the lower of the initial capitalized amount, net of accumulated amortization,

or estimated fair

value, and included in other assets, net, on the Consolidated Statements of

Financial Condition.

The Company periodically evaluates its MSRs asset for impairment.

Impairment is assessed based on fair value at each reporting

date using estimated prepayment speeds of the underlying mortgage

loans serviced and stratifications based on the risk

characteristics of the underlying loans (predominantly loan type and note

interest rate).

As mortgage interest rates fall,

prepayment speeds are usually faster and the value of the MSRs asset generally

decreases, requiring additional valuation reserve.

Conversely, as mortgage

interest rates rise, prepayment speeds are usually slower and the value of the MSRs asset generally

increases, requiring less valuation reserve.

A valuation allowance is established, through a charge to earnings, to

the extent the

amortized cost of the MSRs exceeds the estimated fair value by stratification.

If it is later determined that all or a portion of the

temporary impairment no longer exists for a stratification, the valuation

is reduced through a recovery to earnings.

An other-than-

temporary impairment (i.e., recoverability is considered remote when

considering interest rates and loan pay off activity) is

recognized as a write-down of the MSRs asset and the related valuation allowance

(to the extent a valuation allowance is

available) and then against earnings.

A direct write-down permanently reduces the carrying value of the MSRs asset and

valuation allowance, precluding subsequent recoveries.

Derivative/Hedging Activities

At the inception of a derivative contract, the Company designates the derivative

as one of three types based on the Company’s

intentions and belief as to the likely effectiveness as a hedge. These three

types are (1) a hedge of the fair value of a recognized

asset or liability or of an unrecognized firm commitment (“fair value

hedge”), (2) a hedge of a forecasted transaction or the

variability of cash flows to be received or paid related to a recognized

asset or liability (“cash flow hedge”), or (3) an instrument

with no hedging designation (“standalone derivative”). For a fair value hedge,

the gain or loss on the derivative, as well as the

offsetting loss or gain on the hedged item, are recognized

in current earnings as fair values change. For a cash flow hedge, the

gain or loss on the derivative is reported in other comprehensive income and is reclassified

into earnings in the same periods

during which the hedged transaction affects earnings. For

both types of hedges, changes in the fair value of derivatives that are

not highly effective in hedging the changes in fair value or expected

cash flows of the hedged item are recognized immediately in

current earnings. Net cash settlements on derivatives that qualify for hedge

accounting are recorded in interest income or interest

expense, based on the item being hedged. Net cash settlements on derivatives

that do not qualify for hedge accounting are

reported in non-interest income. Cash flows on hedges are classified in the cash flow

statement the same as the cash flows of the

items being hedged.

The Company formally documents the relationship between derivatives

and hedged items, as well as the risk-management

objective and the strategy for undertaking hedge transactions at the inception

of the hedging relationship. This documentation

includes linking fair value or cash flow hedges to specific assets and liabilities on the

Consolidated Statement of Financial

Condition or to specific firm commitments or forecasted transactions. The Company

also formally assesses, both at the hedge’s

inception and on an ongoing basis, whether the derivative instruments that are used

are highly effective in offsetting changes in

fair values or cash flows of the hedged items. The Company discontinues hedge

accounting when it determines that the derivative

is no longer effective in offsetting changes in the

fair value or cash flows of the hedged item, the derivative is settled or

terminates, a hedged forecasted transaction is no longer probable, a hedged

firm commitment is no longer firm, or treatment of the

derivative as a hedge is no longer appropriate or intended. When hedge accounting

is discontinued, subsequent changes in fair

value of the derivative are recorded as non-interest income. When a fair

value hedge is discontinued, the hedged asset or liability

is no longer adjusted for changes in fair value and the existing basis adjustment is amortized

or accreted over the remaining life of

the asset or liability. When

a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are

still

expected to occur, gains or losses that were accumulated

in other comprehensive income are amortized into earnings over the

same periods, in which the hedged transactions will affect earnings.

Long-Lived Assets

Premises and equipment is stated at cost less accumulated depreciation,

computed on the straight-line method over the estimated

useful lives for each type of asset with premises being depreciated over

a range of

to

years, and equipment being

depreciated over a range of

to

years.

Additions, renovations and leasehold improvements to premises are capitalized and

depreciated over the lesser of the useful life or the remaining lease term.

Repairs and maintenance are charged to noninterest

expense as incurred.

Long-lived assets are evaluated for impairment if circumstances suggest that their

carrying value may not be recoverable, by

comparing the carrying value to estimated undiscounted cash flows.

If the asset is deemed impaired, an impairment charge is

recorded equal to the carrying value less the fair value. See Note 6 – Premises and

Equipment for additional information.

Leases

The Company has entered into various operating leases, primarily for

banking offices.

Generally, these leases have initial

lease

terms from one to ten years.

Many of the leases have one or more lease renewal options.

The exercise of lease renewal options is

at the Company’s sole discretion.

The Company does not consider exercise of any lease renewal options reasonably

certain.

Certain leases contain early termination options.

No renewal options or early termination options have been included in the

calculation of the operating right-of-use assets or operating lease liabilities.

Certain lease agreements provide for periodic

adjustments to rental payments for inflation.

At the commencement date of the lease, the Company recognizes a lease liability at

the present value of the lease payments not yet paid, discounted using

the discount rate for the lease or the Company’s

incremental borrowing rate.

As the majority of the Company’s

leases do not provide an implicit rate, the Company uses its

incremental borrowing rate at the commencement date in determining

the present value of lease payments.

The incremental

borrowing rate is based on the term of the lease.

At the commencement date, the Company also recognizes a right-of-use asset

measured at (i) the initial measurement of the lease liability; (ii) any lease payments made

to the lessor at or before the

commencement date less any lease incentives received; and (iii) any initial direct

costs incurred by the lessee.

Leases with an

initial term of 12 months or less are not recorded on the Consolidated Statement

of Financial Condition.

For these short-term

leases, lease expense is recognized on a straight-line basis over the lease term.

The Company has no leases classified as finance

leases.

See Note 7 – Leases for additional information.

Bank Owned Life Insurance

The Company, through

its subsidiary bank, has purchased life insurance policies on certain key officers.

Bank owned life

insurance is recorded at the amount that can be realized under the insurance contract

at the statement of financial condition date,

which is the cash surrender value adjusted for other charges or

other amounts due that are probable at settlement.

Goodwill represents the excess of the cost of businesses acquired over the fair

value of the net assets acquired.

In accordance

with FASB ASC Topic

350, the Company determined it has one goodwill reporting unit.

Goodwill is tested for impairment

annually during the fourth quarter or on an interim basis if an event occurs

or circumstances change that would more likely than

not reduce the fair value of the reporting unit below its carrying value.

Other intangible assets relate to customer intangibles

purchased as part of a business acquisition.

Intangible assets are tested for impairment at least annually or whenever changes in

circumstances indicate the carrying amount of the assets may not

be recoverable from future undiscounted cash flows.

See Note 8

– Goodwill and Other Intangibles for additional information

.

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are

initially recorded at the lower of cost or fair value

less estimated selling costs, establishing a new cost basis.

Subsequent to foreclosure, valuations are periodically performed by

management and the assets are carried at the lower of carrying amount or fair value

less cost to sell.

The valuation of foreclosed

assets is subjective in nature and may be adjusted in the future because of changes in economic

conditions.

Revenue and

expenses from operations and changes in value are included in noninterest

expense.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary

course of business are recorded as liabilities when

the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.

See Note 21 – Commitments and

Contingencies for additional information.

Noncontrolling Interest

To the extent

the Company’s interest in a consolidated

entity represents less than 100% of the entity’s

equity, the Company

recognizes noncontrolling interests in subsidiaries.

In the case of the CCHL acquisition, the noncontrolling interest represents

equity which is redeemable or convertible for cash at the option of the equity holder

and is classified within temporary equity in

the mezzanine section of the Consolidated Statements of Financial

Condition.

The call/put option is redeemable at the option of

either CCBG (call) or the noncontrolling interest holder (put) on or

after January 1, 2025, and therefore, not entirely within

CCBG’s control.

The subsidiary’s net income or loss and

related dividends are allocated to CCBG and the noncontrolling interest

holder based on their relative ownership percentages.

The noncontrolling interest carrying value is adjusted on a quarterly basis

to the higher of the carrying value or current redemption value, at the Statement

of Financial Condition date, through a

corresponding adjustment to retained earnings.

The redemption value is calculated quarterly and is based on the higher of a

predetermined book value or pre-tax earnings multiple.

To the extent the redemption

value exceeds the fair value of the

noncontrolling interest, the Company’s

earnings per share attributable to common shareowners is adjusted by that

amount.

The

Company uses an independent valuation expert to assist in estimating the fair value

of the noncontrolling interest using: 1) the

discounted cash flow methodology under the income approach, and (2)

the guideline public company methodology under the

market approach.

The estimated fair value is derived from equally weighting the result of each of the two methodologies.

The

estimation of the fair value includes significant assumptions concerning:

(1) projected loan volumes; (2) projected pre-tax profit

margins; (3) tax rates and (4) discount rates.

Income tax expense is the total of the current year income tax due or refundable

and the change in deferred tax assets and

liabilities (excluding deferred tax assets and liabilities related to business

combinations or components of other comprehensive

income).

Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences

between carrying

amounts and tax bases of assets and liabilities, computed using enacted tax

rates.

A valuation allowance, if needed, reduces

deferred tax assets to the expected amount most likely to be realized.

Realization of deferred tax assets is dependent upon the

generation of a sufficient level of future taxable income and recoverable

taxes paid in prior years.

The income tax effects related

to settlements of share-based payment awards are reported in earnings as an

increase or decrease in income tax expense.

The Company files a consolidated federal income tax return and a separate

federal tax return for CCHL. Each subsidiary files a

separate state income tax return.

Earnings Per Common Share

Basic earnings per common share is based on net income divided by the weighted

-average number of common shares outstanding

during the period excluding non-vested stock.

Diluted earnings per common share include the dilutive effect of

stock options and

non-vested stock awards granted using the treasury stock method.

A reconciliation of the weighted-average shares used in

calculating basic earnings per common share and the weighted average

common shares used in calculating diluted earnings per

common share for the reported periods is provided in Note 16 — Earnings

Per Share.

Comprehensive Income

Comprehensive income includes all changes in shareowners’ equity

during a period, except those resulting from transactions with

Besides net income, other components of the Company’s

comprehensive income include the after tax effect of

changes in the net unrealized gain/loss on securities AFS, unrealized gain/loss

on cash flow derivatives, and changes in the funded

status of defined benefit and supplemental executive retirement plans.

Comprehensive income is reported in the accompanying

Consolidated Statements of Comprehensive Income and Changes in Shareowners’

Equity.

Compensation cost is recognized for share-based awards issued to employees,

based on the fair value of these awards at the date

of grant.

Compensation cost is recognized over the requisite service period, generally

defined as the vesting period.

The market

price of the Company’s common

stock at the date of the grant is used for restricted stock awards.

For stock purchase plan awards,

a Black-Scholes model is utilized to estimate the fair value of the award.

The impact of forfeitures of share-based awards on

compensation expense is recognized as forfeitures occur.

Revenue Recognition

FASB ASC Topic

606, Revenue from Contracts with Customers (“ASC 606”), establishes principles

for reporting information

about the nature, amount, timing and uncertainty of revenue and cash flows

arising from the entity’s contracts to provide goods

or

services to customers. The core principle requires an entity to recognize revenue

to depict the transfer of goods or services to

customers in an amount that reflects the consideration that it expects to be entitled

to receive in exchange for those goods or

services recognized as performance obligations are satisfied.

The majority of the Company’s revenue

-generating transactions are not subject to ASC 606, including revenue generated

from

financial instruments, such as our loans, letters of credit, and investment securities,

and revenue related to the sale of residential

mortgages in the secondary market, as these activities are subject to other

GAAP discussed elsewhere within our disclosures.

The

Company recognizes revenue from these activities as it is earned based on

contractual terms, as transactions occur, or as services

are provided and collectability is reasonably assured.

Descriptions of the major revenue-generating activities that are within the

scope of ASC 606, which are presented in the accompanying Consolidated

Statements of Income as components of non-interest

income are as follows:

Deposit Fees - these represent general service fees for monthly account maintenance

and activity- or transaction-based fees and

consist of transaction-based revenue, time-based revenue (service period),

item-based revenue or some other individual attribute-

based revenue.

Revenue is recognized when the Company’s performance

obligation is completed which is generally monthly for

account maintenance services or when a transaction has been completed.

Payment for such performance obligations are generally

received at the time the performance obligations are satisfied.

  • trust fees and retail brokerage fees – trust fees represent monthly fees due from wealth

management clients

as consideration for managing the client’s

assets. Trust services include custody of assets, investment

management, fees for trust

services and similar fiduciary activities. Revenue is recognized when the Company’s

performance obligation is completed each

month or quarter, which is the time that payment is received.

Also, retail brokerage fees are received from a third-party broker-

dealer, for which the Company acts as an agent,

as part of a revenue-sharing agreement for fees earned from

customers that are

referred to the third party.

These fees are for transactional and advisory services and are paid by the third party on a monthly

basis and recognized ratably throughout the quarter as the Company’s

performance obligation is satisfied.

Bank Card Fees – bank card related fees primarily includes interchange

income from client use of consumer and business debit

cards.

Interchange income is a fee paid by a merchant bank to the card-issuing bank through

the interchange network.

Interchange fees are set by the credit card associations and are based on cardholder purchase volumes.

The Company records

interchange income as transactions occur.

Gains and Losses from the Sale of Bank Owned Property – the performance

obligation in the sale of other real estate owned

typically will be the delivery of control over the property to the buyer.

If the Company is not providing the financing of the sale,

the transaction price is typically identified in the purchase and sale agreement.

However, if the Company provides seller

financing, the Company must determine a transaction price, depending

on if the sale contract is at market terms and taking into

account the credit risk inherent in the arrangement.

Insurance Commissions – insurance commissions recorded by the

Company are received from various insurance carriers based on

contractual agreements to sell policies to customers on behalf of the carriers.

The performance obligation for the Company is to

sell life and health insurance policies to customers.

This performance obligation is met when a new policy is sold (effective

date)

or when an existing policy renews. New policies and renewals generally have

a one-year term. In the agreements with the

insurance carriers, a commission rate is agreed upon. The commission is recognized

at the time of the sale of the policy (effective

date) or when a policy renews.

Insurance commissions are recorded within other noninterest income.

Other non-interest income primarily includes items such as mortgage

banking fees (gains from the sale of residential mortgage

loans held for sale), bank-owned life insurance, and safe deposit box fees,

none of which are subject to the requirements of ASC

The Company has made no significant judgments in applying the revenue guidance

prescribed in ASC 606 that affects the

determination of the amount and timing of revenue from the above-described

contracts with clients.

Recently Adopted Accounting Pronouncements

Accounting Standards Update (“ASU”)

2022-02, “Financial Instruments – Credit Losses

(Topic

326): Troubled

Debt

Restructurings and Vintage

Disclosures”.

The amendments eliminate the accounting guidance for troubled debt restructurings

by

creditors that have adopted the CECL model and enhance the disclosure requirements

for loan modifications and restructurings

made with borrowers experiencing financial difficulty.

In addition, the amendments require disclosure of current-period gross

write-offs for financing receivables and net investment

in leases by year of origination in the vintage disclosures.

The

amendments in this update are for fiscal years beginning after December

15, 2022, including interim periods within those fiscal

years.

The Company adopted ASU 2022-02 using the prospective approach and the adoption of the standard

did not have a

material impact on its consolidated financial statements.

Issued But Not Yet

Effective Accounting Standards

ASU No.

2023-01, “Leases (Topic

842):

Common Control Arrangements.” ASU 2023-01 requires entities to amortize leasehold

improvements associated with common control leases over the useful life

to the common control group. ASU 2023-01 also

provides certain practical expedients applicable to private companies and not

-for-profit organizations. ASU 2023-01 will be

effective for the Company on January 1, 2024, though early adoption

is permitted. The Company is evaluating the effect that ASU

2023-02 will have on its consolidated financial statements and related disclosures.

ASU No.

2023-02, “Investments—Equity Method and Joint Ventures

(Topic

323): Accounting for Investments in Tax

Credit

Structures Using the Proportional

Amortization Method.”

ASU 2023-02 is intended to improve the accounting and disclosures

for investments in tax credit structures. ASU 2023-02 allows entities to elect to account

for qualifying tax equity investments

using the proportional amortization method, regardless of the program giving

rise to the related income tax credits. Previously,

this method was only available for qualifying tax equity investments in low-income

housing tax credit structures. ASU 2023-02

will be effective for the Company on January 1, 2024, though

early adoption is permitted. The Company is evaluating the effect

that ASU 2023-02 will have on its consolidated financial statements and related disclosures.

ASU No. 2023-06, “Disclosure Improvements:

Codification Amendments in Response to the SEC’s

Disclosure Update and

Simplification Initiative.”

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

requirements of a variety of

topics, which will allow users to more easily compare entities subject to the SEC’s

existing disclosures with those entities that

were not previously subject to the requirements and align the requirements in the

FASB accounting standard

codification with the

SEC’s regulations. ASU 2023-06

is to be applied prospectively,

and early adoption is prohibited. For reporting entities subject to

the SEC’s existing disclosure requirements,

the effective dates of ASU 2023-06 will be the date on which the SEC’s

removal of

that related disclosure requirement from Regulation S-X or Regulation S-K

becomes effective. If by June 30, 2027, the SEC has

not removed the applicable requirement from Regulation S-X or Regulation

S-K, the pending content of the related amendment

will be removed from the Codification and will not become effective

for any entities. The Company is currently evaluating the

provisions of the amendments and the impact on its future consolidated statements

.

ASU No. 2023-09, “Income Taxes

(Topic

740): Improvements to Income Tax

Disclosures.”

ASU 2023-09 is intended to enhance

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

investor requests for more transparency about

income tax information through improvements to income tax disclosures,

primarily related to the rate reconciliation and income

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

ASU 2023-09 will be effective for the company

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

income taxes information that will be

required to be disclosed as well as the impact to Note 13- Income Taxes.

Note 2

INVESTMENT SECURITIES

Investment Portfolio Composition

.

The following tables summarize the amortized cost and related fair value of investment

securities AFS and securities HTM, the corresponding amounts of

gross unrealized gains and losses, and allowance for credit

losses.

Sale

Allowance for

Cost

Gains

Losses

Credit Losses

Value

$

25,947

$

$

1,269

$

$

24,679

152,983

8,053

145,034

43,951

4,861

(8)

39,083

(1)

73,015

9,714

63,303

63,600

6,031

(17)

57,552

(2)

8,251

8,251

Total

$

367,747

$

$

29,928

$

(25)

$

337,902

$

23,977

$

$

1,928

$

$

22,050

198,888

12,863

186,052

47,197

6,855

(13)

40,329

(1)

80,829

11,426

69,405

97,119

8,874

(28)

88,236

(2)

7,222

7,222

Total

$

455,232

$

$

41,946

$

(41)

$

413,294

Fair

Cost

Gains

Losses

Value

$

457,681

$

$

16,492

$

441,189

167,341

16,792

150,562

Total

$

625,022

$

$

33,284

$

591,751

$

457,374

$

$

25,641

$

431,733

203,370

22,410

180,968

Total

$

660,744

$

$

48,051

$

612,701

(1)

Comprised of residential mortgage-backed

(2)

Includes Federal Home Loan Bank and Federal Reserve Bank recorded

at cost of $

3.2

5.1

at

December 31, 2023 and of $

2.1

5.1

at December 31, 2022.

At December 31, 2023, and 2022, the investment portfolio had $

3.5

0.01

million, respectively, in equity

These securities do not have a readily determinable fair value and were not

credit impaired.

Securities with an amortized cost of $

578.5

656.1

million at December 31, 2023 and 2022, respectively,

were

pledged to secure public deposits and for other purposes.

At December 31, 2023 and 2022, there were

no

holdings of securities of any one issuer, other than

the U.S. Government and its

agencies, in an amount greater than 10% of shareowners’ equity.

The Bank, as a member of the Federal Home Loan Bank of Atlanta (“FHLB”), is required

to own capital stock in the FHLB based

generally upon the balances of residential and commercial real estate loans, and

FHLB advances.

FHLB stock which is included

in other securities is pledged to secure FHLB advances.

No ready market exists for this stock, and it has no quoted fair value;

however, redemption of this stock has historically

been at par value.

As a member of the Federal Reserve Bank of Atlanta, the

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

on a specified ratio relative to the Bank’s capital.

Federal Reserve Bank stock is carried at cost.

During the third quarter of 2022, the Company transferred certain securities from

the AFS to HTM classification.

Transfers are

made at fair value on the date of the transfer.

The

securities had an amortized cost basis and fair value of $

168.4

million and

$

159.0

million, respectively at the time of the transfer.

The net unamortized, unrealized loss on the transferred securities included

in accumulated other comprehensive loss in the accompanying Consolidated

Statement of Financial Condition totaled $

4.5

7.9

million at December 31, 2023 and 2022, respectively.

This amount will be amortized out of accumulated other

comprehensive loss over the remaining life of the underlying securities as an adjustment

of the yield on those securities.

Investment Sales

. During 2023, the Company sold $

30.4

million of investment securities. There were no significant sales of

investment securities during 2022 and 2021.

Maturity Distribution

.

The following table shows the Company’s

AFS and HTM investment securities maturity distribution

based on contractual maturity at December 31, 2023.

Expected maturities may differ from contractual maturities because

borrowers may have the right to call or prepay obligations.

Mortgage-backed securities and certain amortizing U.S. government

agency securities are shown separately since they are not due at a certain maturity

date.

Equity securities do not have a

contractual maturity date.

Sale

Fair

Fair

Cost

Value

Cost

Value

Due in one year or less

$

28,545

$

27,854

$

90,119

$

88,588

Due after one through five years

138,299

127,843

367,562

352,601

Due after five through ten years

39,090

33,420

73,015

63,303

167,341

150,562

80,547

77,231

8,251

8,251

Total

$

367,747

$

337,902

$

625,022

$

591,751

Unrealized Losses

. The following table summarizes the investment securities with unrealized

losses at December 31, aggregated

by major security type and length of time in a continuous unrealized loss position:

Less Than 12 Months

Greater Than 12 Months

Total

Fair

Fair

Fair

Value

Losses

Value

Losses

Value

Losses

Sale

$

$

$

19,751

$

1,269

$

19,751

$

1,269

12,890

121,220

7,979

134,110

8,053

1,149

37,785

4,830

38,934

4,861

63,195

9,714

63,218

9,714

57,568

6,031

57,568

6,031

Total

14,062

299,519

29,823

313,581

29,928

153,880

3,178

287,310

13,314

441,190

16,492

148,282

16,778

149,068

16,792

Total

$

154,666

$

3,192

$

435,592

$

30,092

$

590,258

$

33,284

Sale

$

$

$

19,189

$

1,928

$

20,172

$

1,928

63,112

2,572

113,004

10,291

176,116

12,863

1,425

38,760

6,853

40,185

6,855

6,594

60,458

10,467

67,052

11,426

26,959

58,601

7,996

85,560

8,874

Total

99,073

4,411

290,012

37,535

389,085

41,946

177,552

11,018

254,181

14,623

431,733

25,641

88,723

6,814

91,462

15,596

180,185

22,410

Total

$

266,275

$

17,832

$

345,643

$

30,219

$

611,918

$

48,051

At December 31, 2023, there were

positions (combined AFS and HTM securities) with pre-tax unrealized

losses totaling

$

63.2

At December 31, 2022 there were

positions (combined AFS and HTM securities) with pre-tax unrealized

losses totaling $

90.0

For 2023,

of these of these positions were U.S. Treasury bonds

and carry the full faith and credit

of the U.S. Government.

of these positions were U.S. government agency and mortgage-backed

securities issued by U.S.

government sponsored entities.

long history of

no

credit losses on government securities indicates that the

expectation of nonpayment of the amortized cost basis is

zero

.

The remaining

positions (municipal securities and corporate

bonds) have a credit component.

At December 31, 2023, all collateralized mortgage obligation securities (“CMO”), MBS,

Small

Business Administration securities (“SBA”), U.S. Agency,

and U.S. Treasury bonds held were AAA rated.

2023, corporate debt securities had an allowance for credit losses of $

17,000

and municipal securities had an allowance $

8,000

.

No

ne of the securities held by the Company were past due or in nonaccrual status at December

31, 2023.

Credit Quality Indicators

The Company monitors the credit quality of its investment securities through

various risk management procedures, including the

monitoring of credit ratings.

A large portion of the debt securities in the Company’s

investment portfolio were issued by a U.S.

government entity or agency and are either explicitly or implicitly guaranteed

by the U.S. government.

The Company believes

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

of nonpayment of the amortized cost basis is

zero, even if the U.S. government were to technically default.

Further, certain municipal securities held by

the Company have

been pre-refunded and secured by government guaranteed treasuries.

Therefore, for the aforementioned securities, the Company

does

no

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

The Company monitors the credit quality of its

municipal and corporate securities portfolio via credit ratings which

are updated on a quarterly basis.

On a quarterly basis,

municipal and corporate securities in an unrealized loss position are

evaluated to determine if the loss is attributable to credit

related factors and if an allowance for credit loss is needed.

Note 3

LOANS HELD FOR INVESTMENT AND ALLOWANCE

FOR CREDIT LOSSES

Loan Portfolio Composition

.

The composition of the HFI loan portfolio at December 31 was as follows:

$

225,190

$

247,362

196,091

234,519

825,456

782,557

(1)

749,513

210,920

208,217

(2)

272,042

325,517

Loans Held for Investment, Net of Unearned Income

$

$

(1)

Includes loans in process with outstanding balances

of $

3.2

6.1

million for 2023 and 2022, respectively.

(2)

Includes overdraft balances of $

.0 million and $

1.1

million for December 31, 2023 and 2022, respectively.

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

in loans were $

7.8

million at December 31, 2023 and

$

5.1

Accrued interest receivable on loans which is excluded from amortized

cost totaled $

10.1

million at December 31, 2023 and $

8.0

million at December 31, 2022, and is reported separately in Other Assets.

The Company has pledged a floating lien on certain 1-4 family residential

mortgage loans, commercial real estate mortgage loans,

and home equity loans to support available borrowing capacity at the FHLB and

has pledged a blanket floating lien on all

consumer loans, commercial loans, and construction loans to support available

borrowing capacity at the Federal Reserve Bank of

Atlanta.

Loan Purchases and Sales

.

The Company will purchase newly originated 1-4 family real estate secured

adjustable-rate loans

from CCHL, a related party effective on March 1, 2020 (see Note 1

– Significant Accounting Policies). These loan purchases

364.8

421.7

million for the years ended December 31, 2023 and 2022, respectively,

and were not credit

impaired.

In addition, the Company purchased commercial real estate loans that

were not credit impaired from a third party

totaling $

15.0

million for the year ended December 31, 2022.

.

The methodology for estimating the amount of credit losses reported in the

allowance for credit

losses (“ACL”) has two basic components: first, an asset-specific component

involving loans that do not share risk characteristics

and the measurement of expected credit losses for such individual loans; and

second, a pooled component for expected credit

losses for pools of loans that share similar risk characteristics.

This methodology is discussed further in Note 1 – Significant

Accounting Policies.

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

segment for the years ended December 31.

Allocation of a portion of the allowance to one category of loans does not preclude

its availability to absorb losses in other

categories.

Commercial,

Financial,

Commercial

Agricultural

Mortgage

Residential

Home Equity

Total

$

1,506

$

2,654

$

4,815

$

10,741

$

1,864

$

3,488

$

25,068

(154)

1,035

4,141

(233)

4,596

9,595

(511)

(120)

(79)

(39)

(8,543)

(9,292)

3,760

4,570

(234)

(68)

(4,783)

(4,722)

$

1,482

$

2,502

$

5,782

$

15,056

$

1,818

$

3,301

$

29,941

$

2,191

$

3,302

$

5,810

$

4,129

$

2,296

$

3,878

$

21,606

(658)

(746)

6,328

(422)

2,579

7,397

(1,308)

(355)

(193)

(6,050)

(7,906)

3,081

3,971

(1,001)

(249)

(10)

(2,969)

(3,935)

$

1,506

$

2,654

$

4,815

$

10,741

$

1,864

$

3,488

$

25,068

$

2,204

$

2,479

$

7,029

$

5,440

$

3,111

$

3,553

$

23,816

(227)

(1,679)

(1,956)

(1,125)

1,332

(2,842)

(239)

(405)

(108)

(103)

(3,972)

(4,827)

2,965

5,459

(1,007)

$

2,191

$

3,302

$

5,810

$

4,129

$

2,296

$

3,878

$

21,606

The $

4.9

million increase in the allowance for credit losses in 2023 reflected a credit loss provision

of $

9.6

million and net loan

charge-offs of $

4.7

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

The increases in the allowance for both 2023 and 2022 were primarily attributable to

incremental allowance related to loan growth, primarily residential real

estate, and slower prepayment speeds (due to higher

interest rates).

For 2022, a higher projected rate of unemployment and its effect on

rates of default was also a contributing factor.

Four unemployment rate forecast scenarios continue to be utilized to estimate

probability of default and are weighted based on

management’s estimate of probability.

See Note 1 – Significant accounting policies for more on the calculation of

the provision

for credit losses.

See Note 21 – Commitments and Contingencies for information on the provision

for credit losses related to off-

balance sheet commitments.

Loan Portfolio Aging.

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

is over 30

days past due (“DPD”).

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

past due loans by class of loans at December 31,

30-59

60-89

90 +

Total

Total

Total

DPD

DPD

DPD

Past Due

Current

Loans

Loans

$

$

$

$

$

224,463

$

$

225,190

195,563

196,091

823,753

825,456

1,000,525

2,990

209,653

210,920

3,693

4,467

266,864

272,042

Total

$

5,942

$

$

$

6,855

$

2,720,821

$

6,242

$

$

$

$

$

$

247,086

$

$

247,362

234,143

234,519

781,605

782,557

1,375

747,899

749,513

207,411

208,217

3,666

1,852

5,518

319,415

325,517

Total

$

5,137

$

2,692

$

$

7,829

$

2,537,559

$

2,297

$

.

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

become 90 days past due

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

interest to be doubtful.

Loans are returned to accrual status

when the principal and interest amounts contractually due are brought current or

when future payments are reasonably assured.

The Company did not recognize a significant amount of interest income on nonaccrual

loans for the years ended December 31,

2023 and 2022.

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

loans past due over 90 days and still on

accrual by class of loans.

90 + Days

90 + Days

With No

With

Still

With No

With

Still

ACL

ACL

Accruing

ACL

ACL

Accruing

$

$

$

$

$

$

1,705

1,285

Total

$

2,486

$

3,756

$

$

$

1,908

$

Collateral Dependent Loans

.

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

at December 31:

Non Real Estate

Non Real Estate

Secured

Secured

Secured

Secured

$

$

$

$

1,296

1,706

Total

$

3,277

$

$

$

A loan is collateral dependent when the borrower is experiencing financial

difficulty and repayment of the loan is dependent on

the sale or operation of the underlying collateral.

The Bank’s collateral dependent

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

by either

residential or commercial collateral types.

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

independent appraisals or internal evaluations, adjusted for selling costs or other

amounts to be deducted when estimating

expected net sales proceeds.

Residential Real Estate Loans In Process of Foreclosure

.

At December 31, 2023 and 2022, the Company had $

0.5

million and

$

0.6

million, respectively, in 1-4 family

residential real estate loans for which formal foreclosure proceedings were

in process.

Modifications to Borrowers Experiencing

Financial Difficulty

.

Occasionally, the Company may

modify loans to borrowers who

are experiencing financial difficulty.

Loan modifications to borrowers in financial difficulty are

loans in which the Company has

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

In these instances, as part of a work-out

alternative, the Company will make concessions including the extension

of the loan term, a principal moratorium, a reduction in

the interest rate, or a combination thereof.

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

credit

losses on a loan-by-loan basis.

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

cash flow

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

A modified loan classification can be

removed if the borrower’s financial condition improves

such that the borrower is no longer in financial difficulty,

the loan has not

had any forgiveness of principal or interest, and the loan is subsequently

refinanced or restructured at market terms and qualifies

as a new loan.

At December 31, 2023, the Company did

no

t

maintain any loans made to borrowers due to the borrower experiencing

difficulty.

Credit Risk Management

.

The Company has adopted comprehensive lending policies, underwriting standards and

loan review

procedures designed to maximize loan income within an acceptable level

of risk.

Management and the Board of Directors of the

Company (the “Board”) review and approve these policies and procedures

on a regular basis (at least annually).

Reporting systems are used to monitor loan originations, loan quality,

concentrations of credit, loan delinquencies and

nonperforming loans and potential problem loans.

Management and the Credit Risk Oversight Committee periodically review

our lines of business to monitor asset quality trends and the appropriateness of

credit policies.

In addition, total borrower

exposure limits are established and concentration risk is monitored.

As part of this process, the overall composition of the loan

portfolio is reviewed to gauge diversification of risk, client concentrations,

industry group, loan type, geographic area, or other

relevant classifications of loans.

Specific segments of the loan portfolio are monitored and reported to the

Board on a quarterly

basis and have strategic plans in place to supplement Board-approved

credit policies governing exposure limits and underwriting

standards.

Detailed below are the types of loans within the Company’s

loan portfolio and risk characteristics unique to each.

Commercial, Financial, and Agricultural – Loans in this category

are primarily made based on identified cash flows of the

borrower with consideration given to underlying collateral and personal

or other guarantees.

Lending policy establishes debt

service coverage ratio limits that require a borrower’s cash flow to be

sufficient to cover principal and interest payments on all

new and existing debt.

The majority of these loans are secured by the assets being financed or other

business assets such as

accounts receivable, inventory,

or equipment.

Collateral values are determined based upon third-party appraisals and evaluations.

Loan to value ratios at origination are governed by established policy guidelines.

Real Estate Construction – Loans in this category consist of short-term

construction loans, revolving and non-revolving credit

lines and construction/permanent loans made to individuals and investors

to finance the acquisition, development, construction or

rehabilitation of real property.

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

or project and

generally secured by the property being financed, including 1-4

family residential properties and commercial properties that are

either owner-occupied or investment in nature.

These properties may include either vacant or improved property.

loans are generally based upon estimates of costs and value associated with the

completed project.

Collateral values are

determined based upon third-party appraisals and evaluations.

Loan to value ratios at origination are governed by established

policy guidelines.

The disbursement of funds for construction loans is made in relation to the progress

of the project and as such

these loans are closely monitored by on-site inspections.

Real Estate Commercial Mortgage – Loans in this category consist of commercial

mortgage loans secured by property that is

either owner-occupied or investment in nature.

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

or

project with consideration given to underlying real estate collateral and

personal guarantees.

Lending policy establishes debt

service coverage ratios and loan to value ratios specific to the property type.

Collateral values are determined based upon third-

party appraisals and evaluations.

Real Estate Residential – Residential mortgage loans held in the Company’s

loan portfolio are made to borrowers that

demonstrate the ability to make scheduled payments with full consideration

to underwriting factors such as current income,

employment status, current assets, other financial resources, credit history,

and the value of the collateral.

Collateral consists of

mortgage liens on 1-4 family residential properties.

Collateral values are determined based upon third party appraisals and

evaluations.

The Company does not originate sub-prime loans.

Real Estate Home Equity – Home equity loans and lines are made to qualified

individuals for legitimate purposes generally

secured by senior or junior mortgage liens on owner-occupied 1-4

family homes or vacation homes.

Borrower qualifications

include favorable credit history combined with supportive income and debt

ratio requirements and combined loan to value ratios

within established policy guidelines.

Collateral values are determined based upon third-party appraisals and evaluations.

Consumer Loans – This loan category includes personal installment loans,

direct and indirect automobile financing, and overdraft

lines of credit.

The majority of the consumer loan category consists of indirect and direct automobile

loans.

Lending policy

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

guidelines for verification of applicants’ income

and receipt of credit reports.

Credit Quality Indicators

.

As part of the ongoing monitoring of the Company’s

loan portfolio quality, management

categorizes

loans into risk categories based on relevant information about the ability

of borrowers to service their debt such as: current

financial information, historical payment performance, credit documentation,

and current economic and market trends, among

other factors.

Risk ratings are assigned to each loan and revised as needed through established monitoring

procedures for

individual loan relationships over a predetermined amount and review

of smaller balance homogenous loan pools.

The Company

uses the definitions noted below for categorizing and managing its criticized loans.

Loans categorized as “Pass” do not meet the

criteria set forth below and are not considered criticized.

Special Mention – Loans in this category are presently protected from loss, but

weaknesses are apparent which, if not corrected,

could cause future problems.

Loans in this category may not meet required underwriting criteria and

have no mitigating

factors.

More than the ordinary amount of attention is warranted for these loans.

Substandard – Loans in this category exhibit well-defined weaknesses that would

typically bring normal repayment into jeopardy.

These loans are no longer adequately protected due to well-defined

weaknesses that affect the repayment capacity of the

borrower.

The possibility of loss is much more evident and above average supervision is required for

these loans.

Doubtful – Loans in this category have all the weaknesses inherent in a loan categorized

as Substandard, with the characteristic

that the weaknesses make collection or liquidation in full, on the basis of currently

existing facts, conditions, and values, highly

questionable and improbable.

Performing/Nonperforming – Loans within certain homogenous

loan pools (home equity and consumer) are not individually

reviewed, but are monitored for credit quality via the aging status of the loan and by payment

activity.

The performing or

nonperforming status is updated on an on-going basis dependent upon improvement

and deterioration in credit quality.

The following table summarizes gross loans held for investment at December

31, 2023

by years of origination and internally

assigned credit risk ratings (refer to Credit Risk Management section for detail

on risk rating system).

Term Loans by Origination Year

Revolving

Prior

Loans

Total

Commercial, Financial,

Agricultural:

Pass

$

57,320

$

66,671

$

28,933

$

10,610

$

7,758

$

7,502

$

44,350

$

223,144

1,227

Total

$

57,652

$

67,456

$

29,387

$

10,697

$

7,787

$

7,624

$

44,587

$

225,190

$

$

$

$

$

$

$

$

Real Estate -

Construction:

Pass

$

101,684

$

68,265

$

18,181

$

$

$

$

4,617

$

192,935

1,882

1,274

Total

$

102,315

$

68,812

$

19,296

$

$

$

$

4,617

$

196,091

$

$

$

$

$

$

$

$

Real Estate - Commercial

Mortgage:

Pass

$

117,840

$

275,079

$

135,663

$

101,210

$

43,878

$

109,878

$

18,367

$

801,915

3,266

5,684

1,358

11,110

1,226

6,695

1,637

1,574

12,431

Total

$

121,106

$

281,989

$

142,358

$

103,076

$

45,841

$

112,025

$

19,061

$

825,456

$

$

$

$

$

$

$

$

Real Estate - Residential:

Pass

$

372,394

$

400,437

$

83,108

$

35,879

$

24,848

$

68,685

$

8,252

$

993,603

1,255

1,110

1,906

1,626

1,007

3,142

9,361

Total

$

373,232

$

401,636

$

85,097

$

38,007

$

25,855

$

72,140

$

8,252

$

$

$

$

$

$

$

$

$

Real Estate - Home

Equity:

Performing

$

$

$

$

$

$

$

207,509

$

209,921

Nonperforming

Total

$

208,508

210,920

$

$

$

$

$

$

$

$

Consumer:

Performing

$

68,496

$

90,031

$

70,882

$

21,314

$

10,210

$

4,258

$

5,431

$

270,622

Nonperforming

1,420

Total

$

68,789

$

90,386

$

70,940

$

21,318

$

10,210

$

4,258

$

6,141

$

272,042

$

3,137

$

3,224

$

1,362

$

$

$

$

$

8,543

Note 4

MORTGAGE BANKING ACTIVITIES

The Company’s mortgage

banking activities include mandatory delivery loan sales, forward sales contracts used to

manage

residential loan pipeline price risk, utilization of warehouse lines to fund

secondary market residential loan closings, and

residential mortgage servicing.

Residential Mortgage Loan Production

The Company originates, markets, and services conventional and government

-sponsored residential mortgage loans.

Generally,

conforming fixed rate residential mortgage loans are held for sale in the secondary

market and non-conforming and adjustable-

rate residential mortgage loans may be held for investment.

The volume of residential mortgage loans originated for sale and

secondary market prices are the primary drivers of origination revenue.

Residential mortgage loan commitments are generally outstanding for 30

to 90 days, which represents the typical period from

commitment to originate a residential mortgage loan to when the closed

loan is sold to an investor.

Residential mortgage loan

commitments are subject to both credit and price risk.

Credit risk is managed through underwriting policies and procedures,

including collateral requirements, which are generally accepted by

the secondary loan markets.

Price risk is primarily related to

interest rate fluctuations and is partially managed through forward sales of residential

mortgage-backed securities (primarily

TBAs) or mandatory delivery commitments with investors.

The unpaid principal balance of residential mortgage loans held for sale,

notional amounts of derivative contracts related to

residential mortgage loan commitments and forward contract sales and their related

fair values are set forth below.

Unpaid Principal

Unpaid Principal

Balance/Notional

Balance/Notional

Residential Mortgage Loans Held for Sale

$

27,944

$

28,211

$

26,274

$

26,909

Residential Mortgage Loan Commitments

(1)

23,545

36,535

Forward Sales Contracts

(2)

24,500

15,500

$

28,943

$

27,915

(1)

Recorded in other assets at fair value

(2)

Recorded in other assets and (other liabilities)

at fair value

At December 31, 2023, the Company had

no

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

0.7

million of

loans were on nonaccrual status.

At December 31, 2022, the Company had $

0.6

million residential mortgage loans held for sale

30-89 days past due and $

0.1

million of loans were on nonaccrual status.

Mortgage banking revenues for the year ended December 31, was as follows:

Net realized gain on sales of mortgage loans

$

5,297

$

5,565

$

49,355

Net change in unrealized gain on mortgage loans held for sale

(252)

(1,164)

(2,410)

Net change in the fair value of mortgage loan commitments

(296)

(439)

(3,567)

Net change in the fair value of forward sales contracts

(395)

Pair-Offs on net settlement of forward

sales contracts

4,956

2,956

Mortgage servicing rights additions

1,416

Net origination fees

5,028

2,234

3,775

Total mortgage banking

revenues

$

10,400

$

11,909

$

52,425

Residential Mortgage Servicing

The Company may retain the right to service residential mortgage loans

sold.

The unpaid principal balance of loans serviced for

others is the primary driver of servicing revenue.

The following represents a summary of mortgage servicing rights.

Number of residential mortgage loans serviced for others

1,769

Outstanding principal balance of residential mortgage loans serviced

for others

$

108,897

$

410,470

Weighted average

interest rate

5.37%

3.62%

Remaining contractual term (in months)

Conforming conventional loans serviced by the Company are sold to the

Federal National Mortgage Association (“FNMA”) on a

non-recourse basis, whereby foreclosure losses are generally the responsibility

of FNMA and not the Company.

The government

loans serviced by the Company are secured through the GNMA, whereby

the Company is insured against loss by the Federal

Housing Administration or partially guaranteed against loss by

the Veterans

Administration.

At December 31, 2023, the

servicing portfolio balance consisted of the following loan types: FNMA

(

53.3

%), GNMA (

4.7

%), and private investor (

42.0

%).

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

.

At December 31, 2023 the Company did

no

t have delinquent residential mortgage loans currently in GNMA pools serviced

by the

Company and had $

0.3

The right to repurchase these loans and the corresponding liability has

been recorded in other assets and other liabilities, respectively,

in the Consolidated Statements of Financial Condition.

During the

years ended December 31, 2023 and 2022, respectively,

the Company repurchased $

0.3

1.7

million of GNMA

delinquent or defaulted mortgage loans with the intention to modify their

terms and include the loans in new GNMA pools.

Activity in the capitalized mortgage servicing rights for the year ended

December 31, was as follows:

Beginning balance

$

2,599

$

3,774

$

3,452

Additions due to loans sold with servicing retained

1,416

Deletions and amortization

(232)

(1,291)

(1,344)

Allowance reversal

Sale of Servicing Rights

(1)

(2,187)

(449)

Ending balance

$

$

2,599

$

3,774

(1)

In 2023, the Company sold an MSR portfolio with an unpaid principal balance of

$

million for a sales price of $

4.0

recognizing a $

1.38

million gain on sale, recorded

in other noninterest income on the Consolidated Statement

In 2022, the Company sold an MSR portfolio with an unpaid principal balance

of $

million for a sales price of $

0.6

recognizing a $

0.2

million gain on sale, recorded

in other noninterest income on the Consolidated Statement

The Company did

no

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

years ended December 31,

and 2022.

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

mortgage servicing rights at December 31, was

as follows:

Minimum

Maximum

Minimum

Maximum

Discount rates

9.50%

12.00%

9.50%

12.00%

Annual prepayment speeds

11.23%

17.79%

12.33%

20.23%

Cost of servicing (per loan)

$

$

Changes in residential mortgage interest rates directly affect

the prepayment speeds used in valuing the Company’s

mortgage

servicing rights.

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

turnover

rates, estimated loan curtailment, anticipated defaults, and other relevant

factors.

The weighted average annual prepayment speed

was

14.22

% at December 31, 2023 and

13.42

% at December 31, 2022.

Warehouse

Line Borrowings

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

agreements with various financial institutions at

December 31, 2023.

Amounts

Outstanding

$

million master repurchase agreement without defined expiration.

Interest is at the SOFR rate plus

2.00%

to

plus

3.00%

, with a floor rate of

3.25%

to

4.25%

.

A cash pledge deposit of $

0.1

million is required by the

lender.

$

$

million warehouse line of credit agreement expiring in

December 2024

.

Interest is at the SOFR plus

2.75%

to

3.25%

.

8,192

$

8,384

Warehouse

line borrowings are classified as short-term borrowings.

At December 31, 2022, warehouse line borrowings totaled

$

50.2

At December 31, 2023, the Company had mortgage loans held for sale and construction

permanent loans pledged

as collateral under the above warehouse lines of credit and master repurchase agreements.

The above agreements also contain

covenants which include certain financial requirements, including

maintenance of minimum tangible net worth, minimum liquid

assets and maximum debt to net worth ratio, as defined in the agreements.

The Company was in compliance with all significant

debt covenants at December 31, 2023.

The Company intends to renew the warehouse lines of credit and master

repurchase agreements when they mature.

The Company has extended a $

million warehouse line of credit to CCHL.

Balances and transactions under this line of credit

are eliminated in the Company’s consolidated

financial statements and thus not included in the total short-term borrowings noted

on the Consolidated Statement of Financial Condition.

The balance of this line of credit at December 31, 2023 and December 31,

2022 was $

31.4

22.9

Note 5

DERIVATIVES

The Company enters into derivative financial instruments to manage exposures

that arise from business activities that result in the

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

which are determined by interest rates.

The

Company’s derivative financial

instruments are used to manage differences in the amount, timing,

and duration of the Company’s

known or expected cash receipts and its known or expected cash payments

principally related to the Company’s

subordinated

debt.

Cash Flow Hedges of Interest Rate Risk

Interest rate swaps with notional amounts totaling $

million at December 31, 2023 and 2022 were designated as a cash flow

hedge for subordinated debt.

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

2.50

% and receive a

variable interest rate based on three-month CME Term

SOFR (secured overnight financing rate).

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

risk, the gain or loss on the derivative is recorded

in accumulated other comprehensive loss (“AOCI”) and subsequently

reclassified into interest expense in the same period(s)

during which the hedged transaction affects earnings. Amounts

reported in accumulated other comprehensive loss related to

derivatives will be reclassified to interest expense as interest payments are

made on the Company’s variable-rate

subordinated

debt.

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

Statement of Financial

Notional

Fair

Weighted Average

Condition Location

Amount

Value

Maturity (Years)

Interest rate swaps related to subordinated debt:

$

30,000

$

5,317

6.5

$

30,000

$

6,195

7.5

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

the Consolidated Statement of Income related to the

cash flow derivative instruments (interest rate swaps related to subordinated debt).

Amount of Gain

Amount of Gain

(Loss) Recognized

(Loss) Reclassified

Category

in AOCI

from AOCI to Income

$

3,969

$

1,395

$

4,625

$

December 31, 2021

$

1,530

$

(151)

The Company estimates there will be approximately $

1.3

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

months.

At December 31, 2023 and 2022, the Company had a collateral liability of

$

5.5

5.8

Note 6

PREMISES AND EQUIPMENT

The composition of the Company’s

premises and equipment at December 31 was as follows:

Land

$

22,393

$

22,847

Buildings

110,472

109,849

Fixtures and Equipment

61,051

59,627

Total Premises and Equipment

193,916

192,323

Accumulated Depreciation

(112,650)

(110,185)

Premises and Equipment, Net

$

81,266

$

82,138

Depreciation expense for the above premises and equipment was approximately

$

7.9

. million, $

7.6

7.6

million in

2023, 2022, and 2021, respectively

.

Note 7

LEASES

Operating leases in which the Company is the lessee are recorded as operating

lease right of use (“ROU”) assets and operating

liabilities, included in

other assets

and

liabilities

, respectively,

on its Consolidated Statement of Financial Condition.

Operating lease ROU assets represent the Company’s

right to use an underlying asset during the lease term and operating lease

liabilities represent the Company’s

obligation to make lease payments arising from the lease.

ROU assets and operating lease

liabilities are recognized at lease commencement based on the present value of

the remaining lease payments using a discount rate

that represents the Company’s incremental

borrowing rate at the lease commencement date.

Operating lease expense, which is

comprised of amortization of the ROU asset and the implicit interest accreted

on the operating lease liability,

is recognized on a

straight-line basis over the lease term, and is recorded in occupancy expense in

the Consolidated Statement of Income.

The Company’s operating

leases primarily relate to banking offices with remaining lease terms

from

one

to

forty-two years

.

The

Company’s leases are not complex

and do not contain residual value guarantees, variable lease payments, or

significant

assumptions or judgments made in applying the requirements of ASC Topic

Operating leases with an initial term of 12

months or less are not recorded on the Consolidated Statement of Financial Condition

and the related lease expense is recognized

on a straight-line basis over the lease term.

At December 31, 2023, ROU assets and liabilities were $

27.0

27.4

At December 31, 2022, the operating lease ROU assets and liabilities were $

22.3

22.7

The Company does not have any finance leases or any significant lessor agreements.

The table below summarizes our lease expense and other information at

December 31, related to the Company’s

operating leases:

Operating lease expense

$

2,919

$

1,719

$

1,445

Short-term lease expense

Total lease expense

$

3,541

$

2,377

$

2,108

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

Operating cash flows from operating leases

$

2,847

$

1,937

$

1,609

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

6,748

12,475

Weighted-average

remaining lease term — operating leases (in years)

16.9

19.5

25.3

Weighted-average

discount rate — operating leases

3.5

%

3.1

%

2.0

%

The table below summarizes the maturity of remaining lease liabilities:

$

3,127

3,105

2,966

2,888

2,611

2028 and thereafter

20,670

Total

$

35,367

Less: Interest

(7,976)

Present Value

of Lease Liability

$

27,391

A related party is the lessor in an operating lease with the Company.

The terms of this lease agreement are further described in

Note 19 – Related Party Transactions.

Note 8

GOODWILL AND OTHER INTANGIBLES

At December 31, 2023 and 2022, the Company had goodwill of $

91.8

Goodwill is tested for impairment on an annual

basis, or more often if impairment indicators exist.

Testing 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.

On April 30, 2021, CCSW acquired substantially all of the assets of Strategic Wealth

Group, LLC (“SWG”), including advisory,

service, and insurance carrier agreements, and the assignment of all related revenues

thereof. Under the terms of the purchase

agreement, SWG principles became officers of CCSW and will

continue the operation of their

five

offices in South Georgia

offering wealth management services and comprehensive

risk management and asset protection services for individuals and

businesses.

CCBG paid $

4.5

million in cash consideration and recorded goodwill of $

2.8

million and a customer relationship

intangible asset (

10 year

life) of $

1.6

Amortization expense related to the customer relationship intangible

0.2

million in each of 2023 and 2022.

The intangible asset balance as of December 31, 2023 and December 31, 2022 was $

1.2

1.3

million, respectively. The

estimated amortization expense for each of the eight succeeding fiscal years is $

0.2

million per year.

During the fourth quarter of 2023, the Company performed its annual goodwill

impairment testing and determined that

no

goodwill impairment existed at December 31, 2023 and

no

goodwill impairment existed at December 31, 2022.

The Company

will continue to evaluate goodwill for impairment as defined by ASC Topic

Note 9

OTHER REAL ESTATE

OWNED

The following table presents other real estate owned activity at December 31,

$

$

$

Additions

1,512

2,398

1,717

Write-Downs

(16)

(11)

(31)

Sales

(1,926)

(1,973)

(2,809)

Other

$

$

$

Net expenses applicable to other real estate owned for the three years ended December

31, was as follows:

Gains from the Sale of Properties

$

(2,072)

$

(480)

$

(1,711)

Losses from the Sale of Properties

Rental Income from Properties

(21)

Property Carrying Costs

Total

$

(1,969)

$

(337)

$

(1,488)

Note 10

DEPOSITS

The composition of the Company’s

interest bearing deposits at December 31 was as follows:

$

1,327,420

$

1,290,494

319,319

267,383

Savings Deposits

547,634

637,374

129,515

90,446

Total Interest Bearing

$

2,323,888

$

2,285,697

At December 31, 2023 and 2022, $

1.0

1.1

million in overdrawn deposit accounts were reclassified as loans,

The amount of time deposits that meet or exceed the FDIC insurance limit of $250,000

14.7

11.1

million at

December 31, 2023 and 2022, respectively.

At December 31, the scheduled maturities of time deposits were as follows:

$

112,448

7,349

3,554

4,211

1,953

Total

$

129,515

Interest expense on deposits for the three years ended December 31, was as follows:

$

12,375

$

2,800

$

3,670

Savings Deposits

Time Deposits < $250,000

Time Deposits > $250,000

Total Interest Expense

$

17,582

$

3,444

$

Note 11

SHORT-TERM BORROWINGS

Short-term borrowings included the following:

Federal Funds

Purchased

Sold Under

Repurchase

Agreements

(1)

Other

(2)

$

$

26,957

$

8,384

32,426

42,345

19,917

24,134

7.03

%

2.57

%

6.37

%

%

2.81

%

9.51

%

$

$

6,582

$

50,211

9,452

50,211

8,095

32,386

3.39

%

0.17

%

5.40

%

%

0.40

%

7.61

%

$

$

4,955

$

29,602

6,755

58,309

5,762

47,748

2.39

%

0.04

%

2.84

%

%

0.04

%

2.36

%

(1)

Balances are fully collateralized by government treasury or agency securities held in the Company's investment portfolio.

(2)

Comprised of warehouse lines of credit totaling $

8.4

million at December 31, 2023.

Note 12

LONG-TERM BORROWINGS

Federal Home Loan Bank Advances.

The Company had one FHLB long-term advance totaling $

0.3

million at December 31,

The advance matures in 2025 and has a rate of 4.80%. The Company had one FHLB long-term advance totaling $0.5

million at December 31, 2022 with a weighted-average rate of 4.80%.

The 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.

on the FHLB advances is paid on a monthly basis.

Scheduled minimum future principal payments on our other long-term

borrowings at December 31 were as follows:

$

Total

$

Junior Subordinated Deferrable Interest

Notes.

The Company has 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.

The second note

for $

32.0

million was issued to CCBG Capital Trust II. The

two

trusts are considered variable interest entities for which the

Company is not the primary beneficiary.

Accordingly, the accounts of

the trusts are not included in the Company’s consolidated

financial statements. See Note 1 - Significant Accounting Policies for additional

information about the Company’s consolidation

policy.

Details of the Company’s transaction with

the two trusts are provided below.

In November 2004, CCBG Capital Trust I

issued $

30.0

million of trust preferred securities which represent interest in the assets

of the trust.

The interest payments are due quarterly and adjust quarterly to a variable rate of

3-month CME Term SOFR

plus a

margin of

1.90

%.

The trust preferred securities will mature on

December 31, 2034

, and are redeemable upon approval of the

Federal Reserve in whole or in part at the option of the Company at any

time after December 31, 2009 and in whole at any time

upon occurrence of certain events affecting their tax or regulatory

capital treatment. Distributions on the trust preferred securities

are payable quarterly on March 31, June 30, September 30, and December 31 of

each year.

CCBG Capital Trust I also issued

$

0.9

million of common equity securities to CCBG.

The proceeds of the offering of trust preferred securities and

common equity

securities were used to purchase a $

30.9

million junior subordinated deferrable interest note issued by the Company,

which has

terms similar to the trust preferred securities.

On April 12, 2016, the Company retired $

million in face value of trust preferred

securities that were auctioned as part of a liquidation of a pooled collateralized

debt obligation fund.

The trust preferred securities

were originally issued through CCBG Capital Trust I.

In May 2005, CCBG Capital Trust II issued

$

31.0

million of trust preferred securities which represent interest in the assets of the

trust.

The interest payments are due quarterly and adjust quarterly to a variable rate of

3-month CME Term SOFR

plus a margin

of

1.80

%.

The trust preferred securities will mature on

June 15, 2035

, and are redeemable upon approval of the Federal

Reserve in whole or in part at the option of the Company and in whole at any time upon

occurrence of certain events affecting

their tax or regulatory capital treatment.

Distributions on the trust preferred securities are payable quarterly on March 15,

June

15, September 15, and December 15 of each year.

CCBG Capital Trust II also issued $

0.9

million of common equity securities to

CCBG.

The proceeds of the offering of trust preferred securities and common

equity securities were used to purchase a $

32.0

million junior subordinated deferrable interest note issued by the Company,

which has terms substantially similar to the trust

preferred securities.

The Company has the right to defer payments of interest on the two notes at any time

or from time to time for a period of up to

twenty consecutive quarterly interest payment periods.

Under the terms of each note, in the event that under certain

circumstances there is an event of default under the note or the Company has elected

to defer interest on the note, the Company

may not, with certain exceptions, declare or pay any dividends or distributions

on its capital stock or purchase or acquire any of

its capital stock.

At December 31, 2023, the Company has paid all interest payments

in full.

The Company has entered into agreements to guarantee the payments of distributions

on the trust preferred securities and

payments of redemption of the trust preferred securities.

Under these agreements, the Company also agrees, on a subordinated

basis, to pay expenses and liabilities of the two trusts other than those arising under the

trust preferred securities.

The obligations

of the Company under the two junior subordinated notes, the trust agreements establishing

the two trusts, the guarantee and

agreement as to expenses and liabilities, in aggregate, constitute a full and unconditional

guarantee by the Company of the two

trusts’ obligations under the two trust preferred security issuances.

Despite the fact that the accounts of CCBG Capital Trust

I and CCBG Capital Trust II are not included

in the Company’s

consolidated financial statements, the $

20.0

31.0

million, respectively, in

trust preferred securities issued by these

subsidiary trusts are included in the Tier 1 Capital of

Capital City Bank Group, Inc. as allowed by Federal Reserve guidelines.

Note 13

INCOME TAXES

The provision for income taxes reflected in the Consolidated Statements of Comprehensive

Income is comprised of the following

components:

Current:

Federal

$

11,630

$

10,646

$

12,039

State

1,893

1,022

1,044

13,523

11,668

13,083

Deferred:

Federal

(391)

(2,994)

(3,246)

State

(351)

(899)

(10)

(483)

(3,870)

(3,248)

Total:

Federal

11,239

7,652

8,793

State

1,542

1,034

Total

$

13,040

$

7,798

$

9,835

Income taxes provided were different than the tax expense

computed by applying the statutory federal income tax rate of

% to

pre-tax income as a result of the following:

Tax Expense at Federal

Statutory Rate

$

13,411

$

8,625

$

10,385

Increases (Decreases) Resulting From:

Tax-Exempt Interest

Income

(259)

(248)

(271)

State Taxes, Net of Federal

Benefit

1,218

Other

(1,695)

(546)

Tax-Exempt Cash Surrender

Value

Life Insurance Benefit

(187)

(175)

(173)

Noncontrolling Interest

(1,308)

Actual Tax Expense

$

13,040

$

7,798

$

9,835

Deferred income tax liabilities and assets result from differences between

assets and liabilities measured for financial reporting

purposes and for income tax return purposes.

These assets and liabilities are measured using the enacted tax rates and laws that

are currently in effect.

The net deferred tax asset and the temporary differences comprising

that balance at December 31, 2023 and 2022 are as follows:

Deferred Tax Assets Attributable

to:

$

7,236

$

6,042

Accrued Pension/SERP

1,530

State Net Operating Loss and Tax

Credit Carry-Forwards

2,069

1,920

Accrued SERP Liability

2,594

3,246

Lease Liability

5,911

4,547

Net Unrealized Losses on Investment Securities

8,601

12,499

Other

2,665

3,043

Investment in Partnership

3,241

1,544

Total Deferred

Tax Assets

$

33,348

$

35,288

Deferred Tax Liabilities

Attributable to:

Depreciation on Premises and Equipment

$

3,733

$

3,382

Deferred Loan Fees and Costs

2,614

2,372

Intangible Assets

3,344

3,310

Accrued Pension Liability

1,688

1,043

Right of Use Asset

5,829

4,474

Investments

Other

1,851

2,099

Total Deferred

Tax Liabilities

19,528

17,149

1,930

1,671

Net Deferred Tax

Asset

$

11,890

$

16,468

In the opinion of management, it is more likely than not that all of the deferred tax

assets, with the exception of certain state net

operating loss carry-forwards and certain state tax credit carry-forwards

expected to expire prior to utilization, will be realized.

Accordingly, a valuation

allowance of $

1.9

1.7

million is recorded at December 31, 2023 and December 31, 2022,

At December 31, 2023, the Company had state loss and tax credit carry-forwards of

approximately $

2.1

which expire at various dates from

through

.

The following table presents a reconciliation of the beginning and ending amount

of unrecognized tax benefits:.

Balance at January 1,

$

$

$

Additions Based on Tax

Positions Related to Current Year

$

$

$

Of this total, $

0.2

million represents the amount of unrecognized tax benefits that, if recognized, would favorably

affect the

effective tax rate in future periods. The Company does not

expect the total amount of unrecognized tax benefits to significantly

increase or decrease in the next twelve months.

It is the Company’s policy to recognize

interest and penalties accrued relative to unrecognized tax benefits in their respective

federal or state income taxes accounts.

There were

no

penalties and interest related to income taxes recorded in the Consolidated

Statements of Income for the years ended December 31, 2023, 2022,

and 2021.

There were

no

amounts accrued in the

Consolidated Statements of Financial Condition for penalties and interest

as of December 31, 2023 and 2022.

The Company files a consolidated U.S. federal income tax return and a separate

U.S. federal income tax return for CCHL. Each

subsidiary files various returns in states where its banking offices are

located.

The Company is no longer subject to U.S. federal

or state tax examinations for years before 2020.

Note 14

STOCK-BASED COMPENSATION

At December 31, 2023, the Company had three stock-based compensation

plans, consisting of the 2021 Associate Incentive Plan

(“AIP”), the 2021 Associate Stock Purchase Plan (“ASPP”), and

the 2021 Director Stock Purchase Plan (“DSPP”).

These plans,

which were approved by the shareowners in April 2021, replaced substantially

similar plans approved by the shareowners in

Total compensation

expense associated with these plans for 2021 through 2023 was $

1.6

2.3

2.1

AIP.

The AIP allows key associates and directors to earn various forms of equity-based

incentive compensation.

Under the AIP,

700,000

shares reserved for issuance.

On an annual basis, the Company, pursuant

to the terms and conditions of the

AIP,

will create an annual incentive plan (“Plan”), under which all participants are

eligible to earn performance shares.

Awards

to

associates under the 2021 Plan were tied to internally established goals.

At base level targets, the grant-date fair value of the

shares eligible to be awarded in 2023 was approximately $

1.1

For 2023, a total of

27,577

shares were eligible for

issuance, but additional shares could be earned if performance exceeded

established goals.

26,614

shares were earned

for 2023 that were issued in January 2024.

For the years ended December 31, 2023 and 2022, Directors earned

8,840

and

11,847

shares, respectively,

under the Plan. The Company recognized expense of $

1.1

1.9

1.2

million for the

years ended December 31, 2023, 2022 and 2021, respectively,

related to the AIP.

Executive Long-Term

Incentive Plan (“LTIP”)

.

The Company has established a Performance Share Unit Plan under the

provisions of the AIP that allows William G. Smith, Jr.,

the Chairman, President, and Chief Executive Officer of CCBG, Inc.

and

Thomas A. Barron, the President of CCB to earn shares based on the compound

annual growth rate in diluted earnings per share

over a three-year period.

The Company recognized expense of $

0.9

0.2

0.2

December 31, 2023, 2022 and 2021, respectively.

Shares issued under the plan were

4,909

,

6,849

, and

27,915

for the years ended

December 31, 2023, 2022 and 2021, respectively.

17,334

shares were earned in 2023 that were issued in January 2024.

After deducting the shares earned, but not issued, in 2023 under the AIP and

LTIP,

492,247

shares remain eligible for issuance

under the 2021 AIP.

DSPP.

The Company’s DSPP allows the directors

to purchase the Company’s common

stock at a price equal to

% of the

closing price on the date of purchase.

Stock purchases under the DSPP are limited to the amount of the directors’ annual retainer

and meeting fees.

Under the DSPP,

300,000

shares reserved for issuance.

The Company recognized $

0.1

million in

expense under the DSPP for each of the years ended December 31, 2023,

and 2021.

The Company issued shares under the

DSPP totaling

13,090

,

14,977

and

19,362

for the years ended December 31, 2023, 2022 and 2021, respectively.

2023, there were

252,571

shares eligible for issuance under the DSPP.

ASPP.

Under the Company’s ASPP,

substantially all associates may purchase the Company’s

common stock through payroll

deductions at a price equal to

% of the lower of the fair market value at the beginning or end of each six-month offering

period.

Stock purchases under the ASPP are limited to

% of an associate’s eligible compensation,

up to a maximum of $

25,000

(fair market value on each enrollment date) in any plan year.

Under the ASPP,

400,000

shares of common stock

reserved for issuance.

The Company recognized $

0.1

million in expense under the ASPP for each of the years ended December

31, 2023, 2022 and 2021, respectively.

The Company issued shares under the ASPP totaling

17,651

,

31,101

and

22,126

for the

years ended December 31, 2023, 2022 and 2021, respectively.

At December 31, 2023,

329,122

shares remained eligible for

issuance under the ASPP.

Based on the Black-Scholes option pricing model, the weighted average

estimated fair value of each of the purchase rights

granted under the ASPP was $

5.32

for 2023.

For 2022 and 2021, the weighted average fair value purchase right granted was

$

4.03

and $

3.96

, respectively.

In calculating compensation, the fair value of each stock purchase right was estimated

on the date

of grant using the following weighted average assumptions:

Dividend yield

2.3

%

2.4

%

2.5

%

Expected volatility

22.5

%

17.6

%

21.8

%

Risk-free interest rate

5.1

%

1.4

%

0.1

%

Expected life (in years)

0.5

0.5

0.5

Note 15

EMPLOYEE BENEFIT PLANS

Pension Plan

The Company sponsors a noncontributory pension plan covering

a portion of its associates.

On December 30, 2019, the plan was

amended to remove plan eligibility for new associates hired after December 31,

  1. There were no amendments to the Plan in

2020 or 2021. The Plan was also amended in December 2022, effective

January 1, 2020, increasing the required minimum

distribution age to

, per the SECURE Act 1.0. Benefits under this plan generally are based on the associate’s

total years of

service and average of the

five

highest years of compensation during the

ten years

immediately preceding their departure.

The

Company’s general funding

policy is to contribute amounts sufficient to meet minimum funding requirements

as set by law and to

ensure deductibility for federal income tax purposes.

The following table details on a consolidated basis the changes in benefit

obligation, changes in plan assets, the funded status of

the plan, components of pension expense, amounts recognized in the

Company’s Consolidated Statements of

Financial Condition,

and major assumptions used to determine these amounts.

Change in Projected Benefit Obligation:

Benefit Obligation at Beginning of Year

$

108,151

$

172,508

$

212,566

3,488

6,289

6,971

5,831

4,665

4,885

Actuarial Loss (Gain)

6,936

(39,962)

(14,934)

Benefits Paid

(3,843)

(2,139)

(2,087)

Expenses Paid

(276)

(416)

(259)

Settlements

(32,794)

(34,634)

Projected Benefit Obligation at End of Year

$

120,287

$

108,151

$

172,508

Change in Plan Assets:

of Plan Assets at Beginning of Year

$

104,276

$

165,274

$

171,775

Actual Return on Plan Assets

19,138

(25,649)

30,479

Employer Contributions

6,000

Benefits Paid

(3,843)

(2,139)

(2,087)

Expenses Paid

(276)

(416)

(259)

Settlements

(32,794)

(34,634)

of Plan Assets at End of Year

$

125,295

$

104,276

$

165,274

Funded Status of Plan and Accrued Liability Recognized at End of Year:

Other (Assets) Liabilities

$

(5,008)

$

3,875

$

7,234

Accumulated Benefit Obligation at End of Year

$

102,642

$

91,770

$

149,569

Components of Net Periodic Benefit Costs:

$

3,488

$

6,289

$

6,971

5,831

4,665

4,885

Expected Return on Plan Assets

(6,805)

(10,701)

(11,147)

Amortization of Prior Service Costs

Net Loss Amortization

1,713

6,764

Net Loss Settlements

2,321

3,072

Net Periodic Benefit Cost

$

3,453

$

4,302

$

10,560

Assumptions Used to Determine Benefit Obligation:

5.29%

5.63%

3.11%

(1)

5.10%

5.10%

4.40%

Measurement Date

Assumptions Used to Determine Benefit Cost:

5.63%

3.11%

2.88%

Expected Return on Plan Assets

6.75%

6.75%

6.75%

(1)

5.10%

4.40%

4.00%

Amortization Amounts from Accumulated Other Comprehensive Loss:

Net Actuarial Loss (Gain)

$

(5,397)

$

(3,612)

$

(34,265)

(5)

(15)

(15)

Net Loss

(934)

(4,034)

(9,836)

Deferred Tax Expense

1,606

1,942

11,183

Other Comprehensive Gain, net of tax

$

(4,730)

$

(5,719)

$

(32,933)

Amounts Recognized in Accumulated Other Comprehensive Loss:

Net Actuarial Losses

$

1,322

$

7,653

$

15,300

Deferred Tax Benefit

(335)

(1,941)

(3,884)

Accumulated Other Comprehensive Loss, net of tax

$

$

5,717

$

11,436

(1)

The Company utilized an age-graded approach that varies the rate based

on the age of the participants.

During 2022 and 2021, lump sum payments made under the Company’s

defined benefit pension plan triggered settlement

accounting.

In accordance with applicable accounting guidance for defined benefit plans, the Company recorded

no

settlement

losses during 2023 and $

2.3

3.1

million during 2022 and 2021, respectively.

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

expense in the accompanying Consolidated

Statements of Income.

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

expense category

in the Consolidated Statements of Income.

See Note 1 – Significant Accounting Policies for additional information.

The Company expects to recognize $

0.2

million of the net actuarial loss reflected in accumulated other comprehensive

loss at

December 31, 2023 as a component of net periodic benefit cost during 2024.

Plan Assets.

The Company’s pension

plan asset allocation at December 31, 2023 and 2022, and the target

asset allocation for

2023 are as follows:

Target

Percentage of Plan

Allocation

Assets at December 31

(1)

%

%

%

Debt Securities

%

%

%

%

%

%

Total

%

%

%

(1)

Represents asset allocation at December 31 which

may differ from the average target

allocation for the year due to the year-

end cash contribution to the plan.

The Company’s pension plan assets are overseen

by the CCBG Retirement Committee.

Capital City Trust Company acts as the

investment manager for the plan.

The investment strategy is to maximize return on investments while minimizing risk.

The

Company believes the best way to accomplish this goal is to take a conservative

approach to its investment strategy by investing

in mutual funds that include various high-grade equity securities and investment

-grade debt issuances with varying investment

strategies.

The target asset allocation will periodically be adjusted based

on market conditions and will operate within the

following investment policy statement allocation ranges: equity securities ranging

from

% and

%, debt securities ranging

from

% and

%, and cash and cash equivalents ranging from

% and

%.

The overall expected long-term rate of return on

assets is a weighted-average expectation for the return on plan assets.

The Company considers historical performance data and

economic/financial data to arrive at expected long-term rates of return for each asset category.

The major categories of assets in the Company’s

pension plan at December 31 are presented in the following table.

Assets are

segregated by the level of the valuation inputs within the fair value hierarchy

established by ASC Topic 820

utilized to measure

fair value (see Note 22 – Fair Value

Measurements).

Level 1:

U.S. Treasury Securities

$

16,126

$

17,264

Mutual Funds

92,991

81,231

15,717

5,327

Level 2:

Corporate Notes/Bonds

Total Fair Value

of Plan Assets

$

125,295

$

104,276

Expected Benefit Payments.

At December 31, expected benefit payments related to the defined benefit pension

plan were as

follows:

$

10,105

11,119

10,496

10,042

8,983

2029 through 2033

45,942

Total

$

96,687

Contributions.

The following table details the amounts contributed to the pension plan in 2023

and 2022, and the expected

amount to be contributed in 2024.

Expected

Contribution

(1)

Actual Contributions

$

$

6,000

$

5,000

(1)

For 2023, the Company will have the option to make a cash contribution

to the plan or utilize pre-funding balances.

Supplemental Executive Retirement Plan

The Company has a Supplemental Executive Retirement Plan (“SERP”) and

a Supplemental Executive Retirement Plan II

(“SERP II”) covering selected executive officers.

Benefits under this plan generally are based on the same service and

compensation as used for the pension plan, except the benefits are calculated without

regard to the limits set by the Internal

Revenue Code on compensation and benefits.

The net benefit payable from the SERP is the difference between

this gross benefit

and the benefit payable by the pension plan.

The SERP II was adopted by the Company’s Board

on May 21, 2020 and covers

certain executive officers that were not covered by

the SERP.

The following table details on a consolidated basis the changes in benefit

obligation, the funded status of the plan, components of

pension expense, amounts recognized in the Company’s

Consolidated Statements of Financial Condition, and major assumptions

used to determine these amounts.

Change in Projected Benefit Obligation:

Benefit Obligation at Beginning of Year

$

10,948

$

13,534

$

13,402

Actuarial (Gain) Loss

(2,932)

(146)

Net Settlements

(2,464)

Projected Benefit Obligation at End of Year

$

9,204

$

10,948

$

13,534

Funded Status of Plan and Accrued Liability Recognized at End of Year:

$

9,204

$

10,948

$

13,534

Accumulated Benefit Obligation at End of Year

$

8,943

$

10,887

$

12,803

Components of Net Periodic Benefit Costs:

$

$

$

Amortization of Prior Service Cost

Net Loss Amortization

(531)

Net Gain Settlements

(291)

Net Periodic Benefit Cost

$

(152)

$

1,341

$

1,525

Assumptions Used to Determine Benefit Obligation:

5.11%

5.45%

2.80%

(1)

5.10%

5.10%

4.40%

Measurement Date

Assumptions Used to Determine Benefit Cost:

5.45%

2.80%

2.38%

(1)

5.10%

4.40%

4.00%

Amortization Amounts from Accumulated Other Comprehensive Loss:

Net Actuarial Loss (Gain)

$

$

(2,932)

$

(146)

Prior Service (Benefit) Cost

(151)

(277)

(219)

Net Gain (Loss)

(718)

(970)

Settlement Gain

Deferred Tax (Benefit)

Expense

(222)

Other Comprehensive (Gain) Loss, net of tax

$

$

(2,932)

$

(1,181)

Amounts Recognized in Accumulated Other Comprehensive Loss:

Net Actuarial (Loss) Gain

$

(753)

$

(1,775)

$

1,875

Deferred Tax Benefit

(Expense)

(584)

Accumulated Other Comprehensive (Loss) Gain, net of tax

$

(562)

$

(1,212)

$

1,720

(1)

The Company utilized an age-graded approach that varies the rate based

on the age of the participants.

The Company expects to recognize approximately $

0.3

million of the net actuarial gain reflected in accumulated other

comprehensive loss at December 31, 2023 as a component of net periodic

benefit cost during 2024.

In June 2023, lump sum retirement distributions to two plan participants

required the application of settlement accounting.

The

amount of the settlement gain was $

0.3

Expected Benefit Payments

. As of December 31, expected benefit payments related to the SERP were as follows:

$

8,800

2029 through 2033

Total

$

9,724

401(k) Plan

The Company has a 401(k) Plan which enables CCB and CCBG associates to defer

a portion of their salary on a pre-tax

basis.

The plan covers substantially all associates of the Company who meet

minimum age requirements.

The plan is designed to

enable participants to contribute any amount, up to the maximum annual limit allowed

by the IRS, of their compensation withheld

in any plan year placed in the 401(k) Plan trust account.

Matching contributions of

% from the Company are made for up to

% of the participant’s compensation for

eligible associates.

Further, in addition to the

% match, all associates hired after

December 31, 2019 will receive annually a contribution by the Company

equal to

% of their compensation.

For 2023, the

Company made annual matching contributions of $

1.7

For 2022 and 2021, the Company made annual matching

contributions of $

1.4

1.0

The participant may choose to invest their contributions into thirty-

four investment options available to 401(k) participants, including the Company’s

common stock.

50,000

shares of

CCBG common stock have been reserved for issuance.

Shares issued to participants have historically been purchased in the open

market.

CCHL has a 401(k) Plan available to all CCHL associates who are

employed.

The plan allows participants to contribute any

amount, up to the maximum annual limit allowed by the IRS, of their compensation

withheld in any plan year placed in the

401(k) Plan trust account.

A discretionary matching contribution is determined annually by CCHL.

For 2023, 2022, and 2021,

matching contributions were made by CCHL up to

% of eligible participant’s

compensation totaling $

0.4

0.4

and $

0.7

Other Plans

The Company has a Dividend Reinvestment and Optional Stock Purchase

Plan.

250,000

shares have been reserved for

issuance.

In recent years, shares for the Dividend Reinvestment and Optional Stock Purchase Plan have

been acquired in the open

market and, thus, the Company did

no

t issue any new shares under this plan in 2023, 2022 and 2021.

Note 16

EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings

per share:

(Dollars and Per Share Data in Thousands)

Numerator:

$

52,258

$

33,412

$

33,396

Denominator:

Denominator for Basic Earnings Per Share Weighted

-Average Shares

16,987

16,951

16,863

Effects of Dilutive Securities Stock Compensation

Plans

Denominator for Diluted Earnings Per Share Adjusted Weighted

-Average

Shares and Assumed Conversions

17,023

16,985

16,893

Basic Earnings Per Share

$

3.08

$

1.97

$

1.98

Diluted Earnings Per Share

$

3.07

$

1.97

$

1.98

Note 17

REGULATORY

MATTERS

Regulatory Capital Requirements

.

The Company (on a consolidated basis) and the Bank are subject to various regulatory

capital

requirements administered by the federal banking agencies.

Failure to meet minimum capital requirements can initiate certain

mandatory and possible additional discretionary actions by regulators that,

if undertaken, could have a direct material effect on

the Company and Bank’s financial statements.

Under

capital

adequacy guidelines

and the

regulatory framework

for

prompt

corrective action

,

the Company and the Bank must meet specific capital guidelines that involve quantitative

measures of their

assets, liabilities and certain off-balance sheet items as calculated under

regulatory accounting practices.

The capital amounts and

classification are also subject to qualitative judgments by the regulators about

components, risk weightings, and other factors.

Prompt corrective action provisions are not applicable to bank holding

companies.

A detailed description of these regulatory

capital requirements is provided in the section captioned “Regulatory

Considerations – Capital Regulations” section on page 15.

Management believes, at December 31, 2023 and 2022, that the Company

and the Bank meet all capital adequacy requirements to

which they are subject.

At December 31, 2023, the most recent notification from the Federal Deposit Insurance

Corporation

categorized the Bank as well capitalized under the regulatory framework for prompt

corrective action.

To be categorized as well

capitalized, an institution must maintain minimum common equity

Tier 1, total risk-based, Tier

1 risk based and Tier 1 leverage

ratios as set forth in the following tables.

There are not conditions or events since the notification that management believes have

changed the Bank’s category.

The Company and Bank’s actual capital

amounts and ratios at December 31, 2023 and 2022 are

presented in the following table.

To Be Well

Capitalized Under

Required

Prompt

For Capital

Corrective

Actual

Adequacy Purposes

Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

Common Equity Tier 1:

CCBG

$

373,206

13.52%

$

124,192

4.50%

CCB

383,211

13.89%

124,158

4.50%

$

179,340

6.50%

Tier 1 Capital:

CCBG

424,206

15.37%

165,589

6.00%

CCB

383,211

13.89%

165,545

6.00%

220,726

8.00%

Total Capital:

CCBG

457,339

16.57%

220,785

8.00%

CCB

416,343

15.09%

220,726

8.00%

275,908

10.00%

Tier 1 Leverage:

CCBG

424,206

10.30%

164,691

4.00%

CCB

383,211

9.31%

164,680

4.00%

205,850

5.00%

Common Equity Tier 1:

CCBG

$

335,512

12.38%

$

121,918

4.50%

CCB

358,882

13.25%

121,913

4.50%

$

176,096

6.50%

Tier 1 Capital:

CCBG

386,512

14.27%

162,557

6.00%

CCB

358,882

13.25%

162,550

6.00%

216,733

8.00%

Total Capital:

CCBG

414,569

15.30%

216,743

8.00%

CCB

386,067

14.25%

216,733

8.00%

270,917

10.00%

Tier 1 Leverage:

CCBG

386,512

8.91%

173,546

4.00%

CCB

358,882

8.27%

173,505

4.00%

216,881

5.00%

Not applicable to bank holding companies.

Dividend Restrictions

.

In the ordinary course of business, the Company is dependent upon dividends

from its banking subsidiary

to provide funds for the payment of dividends to shareowners and to provide

for other cash requirements.

Banking regulations

may limit the amount of dividends that may be paid.

Approval by regulatory authorities is required if the effect of dividends

declared would cause the regulatory capital of the Company’s

banking subsidiary to fall below specified minimum levels.

Approval is also required if dividends declared exceed the net profits of

the banking subsidiary for that year combined with the

retained net profits for proceeding two years.

In 2024, the bank subsidiary may declare dividends without regulatory approval

of

$

44.4

million plus an additional amount equal to net profits of the Company’s

subsidiary bank for 2024 up to the date of any such

dividend declaration.

Note 18

ACCUMULATED OTHER

COMPREHENSIVE LOSS

FASB Topic

ASC 220, “Comprehensive Income” requires that certain transactions

and other economic events that bypass the

Consolidated Statements of Income be displayed as other comprehensive

income.

Total comprehensive income

is reported in

the Consolidated

Statements of Comprehensive Income (net of tax) and Changes in Shareowners’

Equity (net of tax).

The following table shows the amounts allocated to accumulated other

comprehensive loss.

Accumulated

Other

Available

Interest Rate

Retirement

Comprehensive

for Sale

Swap

Plans

Loss

Balance as of January 1, 2023

$

(37,349)

$

4,625

$

(4,505)

$

Other comprehensive income (loss) during the period

11,658

(655)

4,080

15,083

Balance as of December 31, 2023

$

(25,691)

$

3,970

$

(425)

$

Balance as of January 1, 2022

$

(4,588)

$

1,530

$

(13,156)

$

Other comprehensive (loss) income during the period

(32,761)

3,095

8,651

Balance as of December 31, 2022

$

(37,349)

$

4,625

$

(4,505)

$

Balance as of January 1, 2021

$

2,700

$

$

(47,270)

$

(44,142)

Other comprehensive (loss) income during the period

(7,288)

1,102

34,114

27,928

Balance as of December 31, 2021

$

(4,588)

$

1,530

$

(13,156)

$

Note 19

RELATED PARTY

TRANSACTIONS

At December 31, 2023 and 2022, certain officers and directors were indebted

to the Bank in the aggregate amount of $

6.3

million

and $

7.3

During 2023 and 2022, $

1.7

8.5

million in new loans were made and repayments

2.7

5.0

These loans were all current at December 31, 2023 and 2022.

Deposits from certain directors, executive officers, and

their related interests totaled $

36.9

66.3

million at December

31, 2023 and 2022, respectively.

The Company leases land from a partnership (Smith Interests General

Partnership L.L.P.)

in which William G. Smith, Jr.

has an

interest.

The Company made lease payments totaling $

0.2

million in 2023 and in December 2023 the lease payments adjusted to

$

0.1

million annually due to a reduction in the size of the parcel leased by the Company.

The payments under the lease

agreement provide for annual lease payments of approximately $

0.1

million annually through December 2033, and thereafter,

increase by

% every

years until 2053 at which time the rent amount will adjust based on reappraisal of the parcel

rental value.

The Company then has

four

successive options to extend the lease for

five years

each with rental increases of

% at each

extension.

William G. Smith, III, the son of our Chairman,

President and Chief Executive Officer,

William G. Smith, Jr.,

is employed as

President, North Florida Region at Capital City Bank.

In 2023, William G. Smith, III’s

total compensation (consisting of annual

base salary, annual bonus,

and stock-based compensation) was determined in accordance with the Company’s

standard

employment and compensation practices applicable to associates with similar responsibilities

and positions.

Note 20

OTHER NONINTEREST EXPENSE

Components of other noninterest expense in excess of

% of the sum of total interest income and noninterest income, which are

not disclosed separately elsewhere, are presented below for each of

the respective years.

$

1,721

$

1,413

$

1,411

6,245

5,437

5,633

Telephone

2,729

2,851

2,975

3,349

3,208

2,683

Processing Services

6,984

6,534

6,569

Insurance – Other

3,120

2,409

2,096

Pension – Other

(3,043)

1,913

Pension – Settlement

(291)

2,321

3,072

Other

11,643

14,411

10,754

Total

$

35,576

35,541

37,106

Note 21

COMMITMENTS AND CONTINGENCIES

Lending Commitments

.

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

sheet risks in the normal course of

business to meet the financing needs of its clients.

These financial instruments consist of commitments to extend credit and

standby letters of credit.

The Company’s maximum exposure

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

represented by the contractual amount of those instruments.

The Company uses the same credit policies in establishing

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

At December 31, the amounts associated

with the Company’s off-balance

sheet obligations were as follows:

Fixed

Variable

Total

Fixed

Variable

Total

Commitments to Extend Credit

(1)

$

207,605

$

534,745

$

742,350

$

243,614

$

531,873

$

775,487

Standby Letters of Credit

6,094

6,094

5,619

5,619

Total

$

213,699

$

534,745

$

748,444

$

249,233

$

531,873

$

781,106

(1)

Commitments include unfunded loans, revolving lines of credit, and off-balance sheet residential loan commitments.

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

violation of any condition established in

the contract. Commitments generally have fixed expiration dates or other

termination clauses and may require payment of a fee.

Since many of the commitments are expected to expire without being drawn

upon, the total commitment amounts do not

necessarily represent future cash requirements.

Standby letters of credit are conditional commitments issued by the

Company to guarantee the performance of a client to a third

party.

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

in extending loan facilities. In

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

participating in these types of transactions.

However,

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

as management reserves for its other

credit facilities.

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

requires collateral to support such instruments when it is

deemed necessary.

The Company evaluates each client’s

creditworthiness on a case-by-case basis.

The amount of collateral

obtained upon extension of credit is based on management’s

credit evaluation of the counterparty.

Collateral held varies, but

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

securities; other marketable securities; real estate; accounts

receivable; property,

plant and equipment; and inventory.

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

that are not unconditionally cancellable by the Bank is

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

The following table shows the activity in the

allowance.

$

2,989

$

2,897

$

1,644

1,253

$

3,191

$

2,989

$

2,897

Other Commitments

.

In the normal course of business, the Company enters into lease commitments

which are classified as

operating leases.

See Note 7 – Leases for additional information on the maturity of the Company’s

operating lease commitments.

The Company has an outstanding commitment of up to $

1.0

million in a bank tech venture capital fund focused on finding and

funding technology solutions for community banks. During 2022

and 2023, the Company contributed $

0.1

0.4

million, respectively to the bank tech venture capital fund. At December

31, 2023, the Company had a remaining outstanding

commitment of $

0.5

million to the bank tech capital venture fund.

The Company, in 2022,

committed $

7.2

million to a solar tax equity investment of which $

1.0

million was paid in 2022 and $

6.2

million was paid in 2023.

After utilization of the related tax credits, the balance of this investment at December

31, 2023 was

$

0.4

Further, in 2023, the Company committed $

7.0

million to a second solar tax equity investment of which $

7.0

was

paid in 2023.

After utilization of the related tax credits, the balance of this investment at December

31, 2023 was $

1.7

Contingencies

.

The Company is a 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 the consolidated results of operations,

financial position, or cash flows of the Company.

Indemnification Obligation

.

The Company is a member of the Visa U.S.A. network.

Visa U.S.A believes that its member

banks

are required to indemnify it for potential future settlement of certain litigation

(the “Covered Litigation”) that relates to several

antitrust lawsuits challenging the practices of Visa

and MasterCard International.

In 2008, the Company, as a member

of the Visa

U.S.A. network, obtained Class B shares of Visa,

Inc. upon its initial public offering.

Since its initial public offering, Visa,

Inc.

has funded a litigation reserve for the Covered Litigation resulting in a reduction in the

Class B shares held by the Company.

During the first quarter of 2011, the Company

sold its remaining Class B shares.

Associated with this sale, the Company entered

into a swap contract with the purchaser of the shares that requires a payment to the

counterparty in the event that Visa, Inc. makes

subsequent revisions to the conversion ratio for its Class B shares.

Fixed charges included in the swap liability are payable

quarterly until the litigation reserve is fully liquidated and at which time the

aforementioned swap contract will be terminated.

Conversion ratio payments and ongoing fixed quarterly charges

are reflected in earnings in the period incurred.

Payments during

2023 totaled $

0.8

Payments totaled $

0.9

0.8

million for the years 2022 and 2021, respectively.

At

December 31, 2023, there was

no

amount payable.

There was $

0.1

million payable December 31, 2022 and 2021.

Note 22

FAIR VALUE

MEASUREMENTS

The fair value of an asset or liability is the exchange price that would be received

were the Bank to sell that asset or paid to

transfer that liability (exit price) in an orderly transaction occurring in the principal

market (or most advantageous market in the

absence of a principal market) for such asset or liability.

In estimating fair value, the Company utilizes valuation techniques that

are consistent with the market approach, the income approach and/or

the cost approach.

Such valuation techniques are

consistently applied.

Inputs to valuation techniques include the assumptions that market participants would

use in pricing an asset

or liability.

ASC Topic 820 establishes a fair value

hierarchy for valuation inputs that gives the highest priority to quoted prices

in active markets for identical assets or liabilities and the lowest priority to unobservable

inputs.

The fair value hierarchy is as

follows:

Level 1 Inputs -

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

entity has

the ability to access at the measurement date

.

Level 2 Inputs -

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

either

directly or indirectly.

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

for identical or similar assets or liabilities in markets that are not active,

inputs other than quoted prices that are

observable for the asset or liability (such as interest rates, volatilities, prepayment

speeds, credit risks, etc.) or inputs that

are derived principally from, or corroborated, by market data by correlation

or other means

.

Level 3 Inputs -

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

entity’s own

assumptions about the assumptions that market participants would

use in pricing the assets or liabilities.

Assets and Liabilities Measured at Fair Value

on a Recurring Basis

Securities Available for Sale.

U.S. Treasury securities are reported at fair value

utilizing Level 1 inputs.

Other securities

classified as AFS are reported at fair value utilizing Level 2 inputs.

For these securities, the Company obtains fair value

measurements from an independent pricing service.

The fair value measurements consider observable data that may include

dealer quotes, market spreads, cash flows, the U.S. Treasury

yield curve, live trading levels, trade execution data, credit

information and the bond’s

terms and conditions, among other things.

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

The Company’s entire portfolio consists

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

obligations, federal agency bullet or mortgage pass-through

securities, or general obligation or revenue based municipal bonds.

Pricing for such instruments is easily obtained.

At least

annually, the Company

will validate prices supplied by the independent pricing service by comparing them

to prices obtained

from an independent third-party source.

Equity Securities.

Investments securities classified as equity securities are carried at cost and the share of

earnings or losses is

reported through net income as an adjustment to the investment balance.

These securities are not readily marketable and therefore

are classified as a Level 3 input within the fair value hierarchy.

. The fair value of residential mortgage loans held for sale based on Level 2 inputs is determined,

when

possible, using either quoted secondary-market prices or investor commitments.

If no such quoted price exists, the fair value is

determined using quoted prices for a similar asset or assets, adjusted for

the specific attributes of that loan, which would be used

by other market participants. The Company has elected the fair value option

accounting for its held for sale loans.

Mortgage Banking Derivative Instruments.

The fair values of IRLCs are derived by valuation models incorporating

market

pricing for instruments with similar characteristics, commonly referred

to as best execution pricing, or investor commitment

prices for best effort IRLCs which have unobservable inputs, such as an

estimate of the fair value of the servicing rights expected

to be recorded upon sale of the loans, net estimated costs to originate the loans, and the pull-through

rate, and are therefore

classified as Level 3 within the fair value hierarchy.

The fair value of forward sale commitments is based on observable market

pricing for similar instruments and are therefore classified as Level 2 within

the fair value hierarchy.

Interest Rate Swap.

The Company’s derivative positions are

classified as Level 2 within the fair value hierarchy and are valued

using models generally accepted in the financial services industry and

that use actively quoted or observable market input values

from external market data providers. The fair value derivatives are determined

using discounted cash flow models.

Swap

.

The Company entered into a stand-alone derivative contract with the purchaser of

its Visa Class B shares.

The

valuation represents the amount due and payable to the counterparty based upon

the revised share conversion rate, if any,

during

the period.

At December 31, 2023, there was

no

amount payable and at December 31, 2022, there was $

0.1

million payable.

A summary of fair values for assets and liabilities at December 31 consisted

of the following:

Level 1

Level 2

Level 3

Total

Fair

Inputs

Inputs

Inputs

Value

ASSETS:

Securities Available

for Sale:

$

24,679

$

$

$

24,679

145,034

145,034

39,083

39,083

63,303

63,303

57,552

57,552

3,450

3,450

28,211

28,211

Interest Rate Swap Derivative

5,317

5,317

Residential Mortgage Loan Commitments ("IRLC")

Forward Sales Contracts ("Hedge Derivative")

ASSETS:

Sale:

$

22,050

$

$

$

22,050

186,052

186,052

State and Political Subdivisions

40,329

40,329

69,405

69,405

88,236

88,236

26,909

26,909

Interest Rate Swap Derivative

6,195

6,195

Forward Sales Contracts ("Hedge Derivative")

Residential Mortgage Loan Commitments ("IRLC")

Mortgage Banking Activities.

The Company had Level 3 issuances and transfers related to mortgage

banking activities of $

13.2

11.6

for the year ended December 31, 2023.

The Company had Level 3 issuances and

transfers related to mortgage banking activities of $

15.4

28.5

million, respectively, for the year

ended December 31,

Issuances are valued based on the change in fair value of the underlying mortgage

loan from inception of the IRLC to the

statement of financial condition date, adjusted for pull-through rates and

costs to originate.

IRLCs transferred out of Level 3

represent IRLCs that were funded and moved to mortgage loans held for sale, at fair

value.

Assets Measured at Fair Value

on a Non-Recurring Basis

Certain assets are measured at fair value on a non-recurring basis (i.e., the

assets are not measured at fair value on an ongoing

basis but are subject to fair value adjustments in certain circumstances).

An example would be assets exhibiting evidence of

impairment.

The following is a description of valuation methodologies used for assets measured on a non-recurring

basis.

Collateral Dependent Loans

.

Impairment for collateral dependent loans is measured using the fair

value of the collateral less

selling costs.

The fair value of collateral is determined by an independent valuation

or professional appraisal in conformance with

banking regulations.

Collateral values are estimated using Level 3 inputs due to the volatility in the real

estate market, and the

judgment and estimation involved in the real estate appraisal process.

Collateral dependent loans are reviewed and evaluated on

at least a quarterly basis for additional impairment and adjusted accordingly.

techniques are consistent with those

techniques applied in prior periods.

Collateral dependent loans had a carrying value of $

3.3

million with a valuation allowance of

$

0.1

million at December 31, 2023.

Collateral dependent loans had a carrying value of $

0.7

million with a valuation allowance of

$

0.1

.

During 2023 and 2022, certain foreclosed assets, upon initial recognition, were measured

and reported

at fair value through a charge-off to the allowance

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

cost to sell.

At December 31, 2023 and 2022, these assets were recorded at fair value, which

is determined by an independent

valuation or professional appraisal in conformance with banking regulations.

On an ongoing basis, we obtain updated appraisals

on foreclosed assets and record valuation adjustments as necessary.

The fair value of foreclosed assets is estimated using Level 3

inputs due to the judgment and estimation involved in the real estate valuation process.

. Residential mortgage loan servicing rights are evaluated for impairment

at each reporting period

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

Fair value is determined by a third-party valuation

model using estimated prepayment speeds of the underlying mortgage loans

serviced and stratifications based on the risk

characteristics of the underlying loans (predominantly loan type and note

interest rate).

The fair value is estimated using Level 3

inputs, including a discount rate, weighted average prepayment speed,

and the cost of loan servicing.

Further detail on the key

inputs utilized are provided in Note 4 – Mortgage Banking Activities.

At December 31, 2023 and 2022, there was

no

valuation

allowance for mortgage servicing rights.

Other Fair Value

Disclosures

The Company is required to disclose the estimated fair value of financial instruments,

both assets and liabilities, for which it is

practical to estimate fair value and the following is a description of valuation

methodologies used for those assets and liabilities.

Cash and Short-Term

Investments.

The carrying amount of cash and short-term investments is used to approximate

fair value,

given the short time frame to maturity and as such assets do not present unanticipated

credit concerns.

Securities Held to Maturity

.

Securities held to maturity are valued in accordance with the methodology previously

noted in the

caption “Assets and Liabilities Measured at Fair Value

on a Recurring Basis – Securities Available

for Sale”.

Other Equity Securities.

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

  1. and recorded at cost.

These securities are not readily marketable securities and are reflected in

Other Assets on the Statement of Financial Condition.

Loans.

The loan portfolio is segregated into categories and the fair value of each loan category is calculated

using present value

techniques based upon projected cash flows and estimated discount

rates.

Pursuant to the adoption of ASU 2016-01,

Recognition

and Measurement of Financial Assets and Financial

Liabilities

, the values reported reflect the incorporation of a liquidity

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

Deposits.

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

Accounts and Savings Accounts are

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

maturity certificates of deposit is estimated using

present value techniques and rates currently offered for deposits of similar remaining

maturities.

Subordinated Notes Payable.

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

based upon projected cash

flows and estimated discount rates as well as rates being offered

for similar obligations.

and Long-Term

Borrowings.

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

based upon

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

for similar debt.

A summary of estimated fair values of significant financial instruments at

December 31 consisted of the following:

Level 1

Level 2

Level 3

Value

Inputs

Inputs

Inputs

ASSETS:

Cash

$

83,118

$

83,118

$

$

Fed Funds Sold and Interest Bearing Deposits

228,949

228,949

Investment Securities, Held to Maturity

625,022

441,189

150,562

(1)

2,848

2,848

1,280

Loans, Net of Allowance for Credit Losses

2,703,977

2,510,529

$

$

$

3,243,896

$

35,341

35,341

52,887

44,323

Long-Term Borrowings

Level 1

Level 2

Level 3

Value

Inputs

Inputs

Inputs

ASSETS:

Cash

$

72,114

$

72,114

$

$

Short-Term Investments

528,536

528,536

Investment Securities, Held to Maturity

660,774

431,733

180,968

(1)

2,848

2,848

2,599

4,491

Loans, Net of Allowance for Credit Losses

2,522,617

2,377,229

$

$

$

3,310,383

$

56,793

56,793

52,887

45,763

Long-Term Borrowings

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

The disclosures also do not include goodwill.

Accordingly, the

aggregate fair value amounts presented do not represent the underlying

value of the Company.

The following tables present quantitative information about Level 3

fair value measurements for financial instruments measured

at fair value on a non-recurring basis at December 31, 2023 and December

31, 2022.

Note 23

PARENT COMPANY

FINANCIAL INFORMATION

The following are condensed statements of financial condition of the parent company

at December 31:

Parent Company Statements of Financial Condition

Data)

ASSETS

Cash and Due From Subsidiary Bank

$

54,004

$

42,737

Investment in Subsidiary Bank

445,441

404,892

3,838

3,998

10,758

11,297

$

514,610

$

463,123

$

52,887

$

52,887

21,098

22,955

Total Liabilities

73,985

75,842

Common Stock, $

0.01

90,000,000

and

shares issued and outstanding at December 31, 2023 and 2022, respectively

Additional Paid-In Capital

36,326

37,331

Retained Earnings

426,275

387,009

Accumulated Other Comprehensive Loss, Net of Tax

Total Shareowners’

Equity

440,625

387,281

Total Liabilities and Shareowners’

Equity

$

514,610

$

463,123

The operating results of the parent company for the three years ended December

31 are shown below:

Parent Company Statements of Operations

OPERATING INCOME

Income Received from Subsidiary Bank:

Administrative Fees

$

6,367

$

5,396

$

5,516

30,000

23,000

10,000

Other Income

Total Operating

Income

36,820

28,649

15,690

OPERATING EXPENSE

Salaries and Associate Benefits

4,257

5,034

3,558

Interest on Subordinated Notes Payable

2,427

1,652

1,233

1,113

Other

1,670

2,186

2,087

Total Operating

Expense

10,110

10,090

8,714

Earnings Before Income Taxes

and Equity in Undistributed

Earnings of Subsidiary Bank

26,710

18,559

6,976

Income Tax Benefit

(650)

(661)

(717)

Earnings Before Equity in Undistributed Earnings of Subsidiary Bank

27,360

19,220

7,693

Equity in Undistributed Earnings of Subsidiary Bank

24,898

14,192

25,703

$

52,258

$

33,412

$

33,396

The cash flows for the parent company for the three years ended December 31 were

as follows:

Parent Company Statements of Cash Flows

ACTIVITIES:

$

52,258

$

33,412

$

33,396

Adjustments to Reconcile Net Income to Net Cash Provided By

Operating Activities:

Equity in Undistributed Earnings of Subsidiary Bank

(24,898)

(14,192)

(25,703)

1,468

1,278

Amortization of Intangible Asset

Increase in Other Assets

(117)

(336)

(21)

Increase in Other Liabilities

(1,557)

5,847

3,131

$

27,314

$

26,169

$

11,753

CASH FROM INVESTING ACTIVITIES:

Purchase of Equity Securities

$

(369)

$

(79)

$

(120)

Net Cash Paid for Acquisition

(4,482)

Decrease (Increase) in Investment in Subsidiaries

(10,770)

Net Cash Provided by (Used in) Investing Activities

$

(369)

$

$

(15,372)

CASH FROM FINANCING ACTIVITIES:

Repayment of Long-Term

(900)

1,300

1,028

(3,710)

Net Cash Used In Financing Activities

$

(15,678)

$

(9,891)

$

(10,331)

Net Increase (Decrease) in Cash and Due from Subsidiary Bank

11,267

16,969

(13,950)

Cash and Due from Subsidiary Bank at Beginning of Year

42,737

25,768

39,718

Cash and Due from Subsidiary Bank at End of Year

$

54,004

$

42,737

$

25,768

Note 24

RESTATED

QUARTERLY

OF CASH FLOWS (UNAUDITED)

As further described in Note 1, the Impacted Statements of Cash Flows for each of

the three month periods ended March 31, 2022

and 2023, six month periods ended June 30, 2022 and 2023, and nine month periods

ended September 30, 2022 and 2023 have

been restated and are reflected in the tables that follow.

See “Restatement of Previously Issued Consolidated Financial

Statements” in Note 1. The unaudited interim Consolidated Statements of Cash Flows reflect

all adjustments that are, in the

opinion of management, necessary for a fair statement of the cash flows for the interim

periods presented. Restated amounts are

computed independently for each quarter presented; therefore, the sum of the quarterly

amounts may not equal the total amount

for the respective year due to rounding.

GROUP,

INC.

For Three

Months

Ended

Mar 31, 2022

For Six

Months

Ended

Jun 30, 2022

For Nine

Months

Ended

Sept 30, 2022

$

6,938

$

14,198

$

23,803

1,724

3,878

1,907

3,802

5,689

2,610

5,053

6,618

(177,933)

(316,372)

(399,041)

188,264

352,830

440,219

(4,055)

(8,912)

(19)

(19)

(19)

(6,682)

(9,887)

(27)

(72)

(83)

(26)

(136)

1,897

3,516

3,696

7,036

22,040

12,839

20,826

69,182

74,876

14,441

28,111

40,096

Sale:

3,365

3,365

3,365

24,824

47,413

64,301

(381)

(15,985)

(16,324)

(57,592)

(289,707)

(426,273)

1,683

(1,013)

(3,322)

(4,013)

1,838

2,573

2,867

52,645

73,396

46,516

Net (Decrease) Increase in Other Short-Term

(3,692)

4,784

17,592

(78)

(150)

(200)

(2,712)

(5,424)

(8,307)

46,353

73,102

56,178

$

868,428

$

694,524

$

570,365

$

$

1,617

$

3,588

$

$

3,765

$

6,410

$

$

$

1,543

GROUP,

INC.

For Three

Months

Ended

Mar 31, 2023

For Six

Months

Ended

Jun 30, 2023

For Nine

Months

Ended

Sept 30, 2023

$

13,709

$

27,883

$

40,539

3,099

5,296

7,689

1,969

3,927

5,920

1,067

2,117

3,216

(291)

(291)

(62,745)

(164,173)

(246,198)

64,050

152,657

247,166

(2,871)

(6,234)

(8,072)

(91)

(253)

(392)

1,110

(1,170)

(2,849)

(2,464)

(3)

(3)

(12)

(1,858)

(1,900)

(1,915)

Net (Increase) Decrease in Other Assets

(4,349)

4,593

8,207

12,471

3,815

1,069

23,854

25,429

55,692

8,820

18,992

28,159

Sale:

(2,017)

(4,634)

(9,399)

30,420

16,559

32,490

53,045

(923)

(1,463)

(2,249)

(110,477)

(138,244)

(161,006)

2,699

3,772

3,840

(1,886)

(3,851)

(5,459)

(6,120)

(50)

(99)

(149)

(3,064)

(6,121)

(9,518)

(819)

(2,022)

(3,121)

600,650

600,650

600,650

$

387,952

$

368,808

$

167,498

$

3,723

$

8,720

$

15,026

$

7,466

$

3,860

$

7,395

$

$

1,442

$

1,495

GROUP,

INC.

For the Three Months Ended March 31, 2022

Impact

$

6,938

$

$

6,938

1,907

1,907

2,610

2,610

Pension Settlement Charges

(242,253)

64,320

(177,933)

252,584

(64,320)

188,264

(4,055)

(4,055)

(19)

(19)

(6,682)

(6,682)

(27)

(27)

1,897

1,897

7,036

7,036

20,826

20,826

14,441

14,441

Sale:

3,365

3,365

24,824

24,824

(26,713)

26,332

(381)

Net Decrease in Loans Held for Investment

(31,260)

(26,332)

(57,592)

(1,013)

(1,013)

1,838

1,838

52,645

52,645

(3,692)

(3,692)

(78)

(78)

(2,712)

(2,712)

46,353

46,353

$

868,428

$

$

868,428

$

$

$

$

$

$

GROUP,

INC.

For the Six Months Ended June 30, 2022

Impact

$

14,198

$

$

14,198

1,724

1,724

3,802

3,802

5,053

5,053

Pension Settlement Charges

(549,018)

232,646

(316,372)

585,476

(232,646)

352,830

(8,912)

(8,912)

(19)

(19)

(9,887)

(9,887)

(72)

(72)

(26)

(26)

3,516

3,516

22,040

22,040

69,182

69,182

28,111

28,111

Securities Available

for Sale:

3,365

3,365

47,413

47,413

(174,779)

158,794

(15,985)

(130,913)

(158,794)

(289,707)

(3,322)

(3,322)

2,573

2,573

73,396

73,396

4,784

4,784

(150)

(150)

(5,424)

(5,424)

73,102

73,102

$

694,524

$

$

694,524

$

1,617

$

$

1,617

$

3,765

$

$

3,765

$

$

$

GROUP,

INC.

For the Nine Months Ended September 30, 2022

Impact

$

23,803

$

$

23,803

3,878

3,878

5,689

5,689

6,618

6,618

(772,089)

373,048

(399,041)

813,267

(373,048)

440,219

(19)

(19)

(83)

(83)

(136)

(136)

3,696

3,696

12,839

12,839

74,876

74,876

40,096

40,096

Sale:

3,365

3,365

64,301

64,301

(329,481)

313,157

(16,324)

(113,116)

(313,157)

(426,273)

1,683

1,683

(4,013)

(4,013)

2,867

2,867

46,516

46,516

17,592

17,592

(200)

(200)

(8,307)

(8,307)

56,178

56,178

$

570,365

$

$

570,365

$

3,588

$

$

3,588

$

6,410

$

$

6,410

$

1,543

$

$

1,543

GROUP,

INC.

For the Three Months Ended March 31, 2023

Impact

$

13,709

$

$

13,709

3,099

3,099

1,969

1,969

1,067

1,067

(213,240)

150,495

(62,745)

214,545

(150,495)

64,050

(2,871)

(2,871)

(91)

(91)

(1,170)

(1,170)

(3)

(3)

(1,858)

(1,858)

Net Increase in Other Assets

(4,349)

(4,349)

12,471

12,471

23,854

23,854

8,820

8,820

Sale:

(2,017)

(2,017)

16,559

16,559

(121,029)

120,106

(923)

9,629

(120,106)

(110,477)

2,699

2,699

(1,886)

(1,886)

(50)

(50)

(3,064)

(3,064)

(819)

(819)

600,650

600,650

$

387,952

$

$

387,952

$

3,723

$

$

3,723

$

7,466

$

$

7,466

$

$

$

GROUP,

INC.

For the Six Months Ended June 30, 2023

Impact

$

27,883

$

$

27,883

5,296

5,296

3,927

3,927

2,117

2,117

Pension Settlement Gain

(291)

(291)

(214,364)

50,191

(164,173)

202,848

(50,191)

152,657

(6,234)

(6,234)

(253)

(253)

(2,849)

(2,849)

(3)

(3)

(1,900)

(1,900)

4,593

4,593

3,815

3,815

25,429

25,429

18,992

18,992

Sale:

(4,634)

(4,634)

32,490

32,490

(201,000)

199,537

(1,463)

61,293

(199,537)

(138,244)

3,772

3,772

(3,851)

(3,851)

(6,120)

(6,120)

(99)

(99)

(6,121)

(6,121)

(2,022)

(2,022)

600,650

600,650

$

368,808

$

$

368,808

$

8,720

$

$

8,720

$

3,860

$

$

3,860

$

1,442

$

$

1,442

GROUP,

INC.

For the Nine Months Ended September 30, 2023

Impact

$

40,539

$

$

40,539

7,689

7,689

5,920

5,920

3,216

3,216

Pension Settlement Gain

(291)

(291)

(222,575)

(23,623)

(246,198)

223,543

23,623

247,166

(8,072)

(8,072)

(392)

(392)

1,110

1,110

(2,464)

(2,464)

(12)

(12)

(1,915)

(1,915)

8,207

8,207

1,069

1,069

55,692

55,692

28,159

28,159

Sale:

(9,399)

(9,399)

30,420

30,420

53,045

53,045

(295,360)

293,111

(2,249)

132,105

(293,111)

(161,006)

3,840

3,840

(5,459)

(5,459)

(149)

(149)

(9,518)

(9,518)

(3,121)

(3,121)

600,650

600,650

$

167,498

$

$

167,498

$

15,026

$

$

15,026

$

7,395

$

$

7,395

$

1,495

$

$

1,495

ContentsView on SEC.gov

The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.