CAPITAL CITY BANK GROUP INC - Quarter Report: 2021 September (Form 10-Q)

ccbg-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,

D.C.

20549

FORM

10-Q

☒

QUARTERLY REPORT

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

For the Quarterly Period Ended

September 30, 2021

☐

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

For the transition period from ____________ to ____________

Commission File Number:

0-13358

Capital City Bank Group, Inc.

(Exact name of Registrant as specified in its charter)

Florida

59-2273542

(State or other jurisdiction of incorporation or organization)

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

217 North Monroe Street

Tallahassee

Florida

32301

(Address of principal executive office)

(Zip Code)

(

850

)

402-7821

(Registrant's telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, Par value $0.01

CCBG

Nasdaq Stock Market

, LLC

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

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

filing requirements for the past 90 days.

Yes

[X] No [

]

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

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

such files).

Yes [

] No [

]

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

an emerging growth company.

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

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

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

☐

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

]

[X]

At October 28, 2021,

16,878,303

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

CAPITAL CITY BANK

GROUP,

INC.

QUARTERLY

REPORT ON FORM 10-Q

FOR THE PERIOD ENDED SEPTEMBER 30, 2021

TABLE OF CONTENTS

PART I –

Financial Information

Page

Item 1.

Consolidated Financial Statements (Unaudited)

Consolidated Statements of Financial Condition – September 30, 2021 and December 31, 2020

Consolidated Statements of Income – Three and Nine Months Ended September 30, 2021 and 2020

Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2021 and 2020

Consolidated Statements of Changes in Shareowners’ Equity – Three and Nine Months Ended September 30, 2021 and 2020

Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2021 and 2020

Notes to Consolidated Financial Statements

Item 2.

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

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

Item 4.

Controls and Procedures

PART II –

Other Information

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosure

Item 5.

Other Information

Item 6.

Exhibits

Signatures

INTRODUCTORY NOTE

Caution Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform

Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations,

estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of

which are beyond our control.

The words “may,” “could,” “should,” “would,” “believe,”

“anticipate,” “estimate,” “expect,” “intend,” “plan,”

“target,” “goal,” and similar expressions are intended to identify forward-looking statements.

All forward-looking statements, by their nature, are subject to risks and uncertainties.

Our actual future results may differ materially from

those set forth in our forward-looking statements.

Our ability to

achieve our financial objectives

could be adversely affected

by the factors discussed

in detail in Part

I, Item 2. “Management’s

Discussion and

Analysis of Financial

Condition and

Results of Operations”

and Part II,

Item 1A. “Risk

Factors” in this

Quarterly Report on

Form 10-Q and

the following sections

of our Annual

Report on Form

10-K for the

year ended December

31, 2020

(the “2020 Form

10-K”):

(a) “Introductory

Note” in

Part I,

Item 1.

“Business” (b)

“Risk Factors”

in Part

I, Item

1A, as

updated in

our subsequent

quarterly reports

filed on Form 10-Q; and (c)

“Introduction” in “Management’s

Discussion and Analysis of Financial Condition

and Results of Operations,” in

Part II, Item 7, as well as:

●

the magnitude and duration of the ongoing COVID-19 pandemic and its impact on the global and local economies and financial market

conditions and our business, results of operations and financial condition, including the impact of our participation in government

programs related to COVID-19;

●

potential attrition due to the recent

U.S. presidential directive to OSHA that requires employers with 100 or more employees to ensure

that their employees are fully vaccinated against COVID-19 or are tested weekly;

●

our ability to successfully manage credit risk, interest rate risk, liquidity risk, and other risks inherent to our industry;

●

legislative or regulatory changes;

●

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

●

inflation, interest rate, market and monetary fluctuations;

●

the effects of security breaches and computer viruses that may affect our computer systems or fraud related to

debit card products;

●

the accuracy of our financial statement estimates and assumptions, including the estimates used for our allowance for credit losses,

deferred tax asset valuation and pension plan;

●

changes in accounting principles, policies, practices or guidelines;

●

the frequency and magnitude of foreclosure of our loans;

●

the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations;

●

the strength of the United States economy in general and the strength of the local economies in which we conduct operations;

●

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

●

changes in the securities and real estate markets;

●

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

●

uncertainty in the pricing of residential mortgage loans that we sell, as well as competition for the mortgage servicing rights related to

these loans and related interest rate risk or price risk resulting from retaining mortgage servicing rights and the potential effects of

higher interest rates on our loan origination volumes;

●

the effect of corporate restructuring, acquisitions or dispositions, including the actual restructuring and other related charges

and the

failure to achieve the expected gains, revenue growth or expense savings from such corporate restructuring, acquisitions or dispositions;

●

the effects of natural disasters, harsh weather conditions (including hurricanes), widespread health emergencies,

military conflict,

terrorism, civil unrest or other geopolitical events;

●

our ability to comply with the extensive laws and regulations to which we are subject, including the laws for each jurisdiction where

we operate;

●

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

●

increased competition and its effect on pricing;

●

technological changes;

●

negative publicity and the impact on our reputation;

●

changes in consumer spending and saving habits;

●

growth and profitability of our noninterest income;

●

the limited trading activity of our common stock;

●

the concentration of ownership of our common stock;

●

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

●

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

●

our ability to manage the risks involved in the foregoing.

However, other factors besides those listed in

Item 1A Risk Factors

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

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

Any forward-looking

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

We do not undertake to update any forward-looking

statement, except as required by applicable law.

PART

FINANCIAL INFORMATION

Item 1.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF FINANCIAL CONDITION

(Unaudited)

September 30,

December 31,

(Dollars in Thousands, Except Par Value)

2021

2020

ASSETS

Cash and Due From Banks

73,132

67,919

Funds Sold

708,988

860,630

Total Cash and Cash Equivalents

782,120

928,549

Investment Securities, Available

for Sale, at fair value

645,844

324,870

Investment Securities, Held to Maturity (fair value of $

344,285

and $

175,175

)

341,228

169,939

Total Investment

Securities

987,072

494,809

Loans Held For Sale, at fair value

77,036

114,039

Loans Held for Investment

1,941,425

2,006,426

Allowance for Credit Losses

(21,500)

(23,816)

Loans Held for Investment, Net

1,919,925

1,982,610

Premises and Equipment, Net

84,750

86,791

Goodwill and Other Intangibles

93,293

89,095

Other Real Estate Owned

192

808

Other Assets

104,345

101,370

Total Assets

4,048,733

3,798,071

LIABILITIES

Deposits:

Noninterest Bearing Deposits

1,592,345

1,328,809

Interest Bearing Deposits

1,873,617

1,888,751

Total Deposits

3,465,962

3,217,560

Short-Term

Borrowings

51,410

79,654

Subordinated Notes Payable

52,887

Other Long-Term

Borrowings

1,610

3,057

Other Liabilities

113,720

102,076

Total Liabilities

3,685,589

3,455,234

Temporary Equity

14,276

22,000

SHAREOWNERS’ EQUITY

Preferred Stock, $

0.01

par value;

3,000,000

shares authorized;

shares issued and outstanding

Common Stock, $

0.01

par value;

90,000,000

shares authorized;

16,878,303

and

16,790,573

shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

169

168

Additional Paid-In Capital

33,876

32,283

Retained Earnings

359,550

332,528

Accumulated Other Comprehensive Loss, net of tax

(44,727)

(44,142)

Total Shareowners’

Equity

348,868

320,837

Total Liabilities, Temporary

Equity, and Shareowners' Equity

4,048,733

3,798,071

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF INCOME

(Unaudited)

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in Thousands, Except Per Share

Data)

2021

2020

2021

2020

INTEREST INCOME

Loans, including Fees

25,885

23,594

73,817

70,874

Investment Securities:

Taxable

2,332

2,400

6,231

8,105

Tax Exempt

Funds Sold

285

146

698

991

Total Interest Income

28,520

26,166

80,802

80,043

INTEREST EXPENSE

Deposits

210

190

626

1,347

Short-Term

Borrowings

317

498

1,053

1,051

Subordinated Notes Payable

307

316

922

1,161

Other Long-Term

Borrowings

131

Total Interest Expense

848

1,044

2,652

3,690

NET INTEREST INCOME

27,672

25,122

78,150

76,353

Provision for Credit Losses

1,308

(1,553)

8,303

Net Interest Income After Provision For Credit Losses

27,672

23,814

79,703

68,050

NONINTEREST INCOME

Deposit Fees

5,075

4,316

13,582

13,087

Bank Card Fees

3,786

3,389

11,402

9,582

Wealth Management

Fees

3,623

2,808

9,987

7,966

Mortgage Banking Revenues

12,283

22,983

42,625

45,633

Other

1,807

1,469

5,277

4,374

Total Noninterest

Income

26,574

34,965

82,873

80,642

NONINTEREST EXPENSE

Compensation

25,245

26,164

76,687

69,558

Occupancy, Net

6,032

5,906

17,972

16,683

Other Real Estate Owned, Net

(1,126)

219

(1,514)

(463)

Pension Settlement

500

2,500

Other

9,051

8,053

26,656

22,836

Total Noninterest

Expense

39,702

40,342

122,301

108,614

INCOME BEFORE INCOME TAXES

14,544

18,437

40,275

40,078

Income Tax Expense

2,949

3,165

7,795

7,397

NET INCOME

11,595

15,272

32,480

32,681

Pre-Tax Income

Attributable to Noncontrolling Interests

(1,504)

(4,875)

(5,456)

(8,851)

NET INCOME ATTRIBUTABLE

TO COMMON SHAREOWNERS

10,091

10,397

27,024

23,830

BASIC NET INCOME PER SHARE

0.60

0.62

1.60

1.42

DILUTED NET INCOME PER SHARE

0.60

0.62

1.60

1.42

Average Common

Basic Shares Outstanding

16,875

16,771

16,857

16,792

Average Common

Diluted Shares Outstanding

16,909

16,810

16,886

16,823

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

(Dollars in Thousands)

2021

2020

2021

2020

NET INCOME

10,091

10,397

27,024

23,830

Other comprehensive income, before

tax:

Investment Securities:

Change in net unrealized gain/loss on securities available for sale

(1,935)

(763)

(4,361)

3,217

Derivative:

Change in net unrealized gain on effective cash flow

derivative

172

157

1,378

Benefit Plans:

Reclassification adjustment for service cost

Actuarial gain

166

Defined benefit plan settlement

2,000

Total Benefit Plans

2,190

Other comprehensive (loss) income, before

tax

(1,763)

(606)

(793)

3,269

Deferred tax (benefit) expense related to other comprehensive income

(459)

(149)

(208)

801

Other comprehensive (loss) income, net of tax

(1,304)

(457)

(585)

2,468

TOTAL COMPREHENSIVE

INCOME

8,787

9,940

26,439

26,298

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF CHANGES IN SHAREOWNERS' EQUITY

(Unaudited)

Accumulated

Other

Additional

Comprehensive

Common

Paid-In

Retained

(Loss) Income,

(Dollars In Thousands, Except Share Data)

Outstanding

Stock

Capital

Earnings

Net of Taxes

Total

Balance, July 1, 2021

16,874,279

169

33,560

345,574

(43,423)

335,880

Net Income

10,091

Reclassification to Temporary

Equity

(1)

6,585

Other Comprehensive Loss, net of tax

(1,304)

Cash Dividends ($

0.1600

per share)

(2,700)

Stock Based Compensation

219

Stock Compensation Plan Transactions, net

4,024

Balance, September 30, 2021

16,878,303

169

33,876

359,550

(44,727)

348,868

Balance, July 1, 2020

16,780,276

168

31,575

328,570

(25,256)

335,057

Net Income

10,397

Reclassification to Temporary

Equity

(1)

(3,075)

Other Comprehensive Loss, net of tax

(457)

Cash Dividends ($

0.1400

per share)

(2,347)

Repurchase of Common Stock

(23,000)

(472)

Stock Based Compensation

242

Stock Compensation Plan Transactions, net

4,188

Balance, September 30, 2020

16,761,464

168

31,425

333,545

(25,713)

339,425

Balance, January 1, 2021

16,790,573

168

32,283

332,528

(44,142)

320,837

Net Income

27,024

Reclassification to Temporary

Equity

(1)

7,756

Other Comprehensive Loss, net of tax

(585)

Cash Dividends ($

0.4600

per share)

(7,758)

Stock Based Compensation

657

Stock Compensation Plan Transactions, net

87,730

936

937

Balance, September 30, 2021

16,878,303

169

33,876

359,550

(44,727)

348,868

Balance, January 1, 2020

16,771,544

168

32,092

322,937

(28,181)

327,016

Adoption of ASC 326

(3,095)

Net Income

23,830

Reclassification to Temporary

Equity

(1)

(3,075)

Other Comprehensive Income, net of tax

2,468

Cash Dividends ($

0.4200

per share)

(7,052)

Repurchase of Common Stock

(99,952)

(1)

(2,042)

(2,043)

Stock Based Compensation

610

Stock Compensation Plan Transactions, net

89,872

765

766

Balance, September 30, 2020

16,761,464

168

31,425

333,545

(25,713)

339,425

(1)

Adjustment to redemption value for non-controlling

interest in Capital City Home Loans.

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF CASH FLOWS

(Unaudited)

Nine Months Ended September 30,

(Dollars in Thousands)

2021

2020

CASH FLOWS FROM OPERATING

ACTIVITIES

Net Income

27,024

23,830

Adjustments to Reconcile Net Income to

Cash Provided by Operating Activities:

Provision for Credit Losses

(1,553)

8,303

Depreciation

5,666

5,174

Amortization of Premiums, Discounts and Fees, net

11,401

5,256

Amortization of Intangible Asset

Pension Plan Settlement Charges

2,500

Originations of Loans Held-for-Sale

(1,247,119)

(561,609)

Proceeds From Sales of Loans Held-for-Sale

1,326,747

500,190

Net Gain From Sales of Loans Held-for-Sale

(42,625)

(45,633)

Net Additions for Capitalized Mortgage Servicing Rights

138

Change in Valuation

Provision for Mortgage Servicing Rights

(250)

Stock Compensation

657

610

Net Tax Benefit From Stock-Based

Compensation

(4)

(84)

Deferred Income Taxes

(3,085)

(1,127)

Net Change in Operating Leases

(122)

811

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

(1,640)

(876)

Net Decrease (Increase) in Other Assets

(23,482)

Net Increase in Other Liabilities

8,283

32,808

Net Cash Provided By (Used In) Operating Activities

86,168

(55,829)

CASH FLOWS FROM INVESTING ACTIVITIES

Securities Held to Maturity:

Purchases

(235,356)

(32,250)

Payments, Maturities, and Calls

61,673

67,245

Securities Available for

Sale:

Purchases

(478,000)

(77,775)

Payments, Maturities, and Calls

148,968

153,702

Purchases of Loans Held for Investment

(92,336)

(29,538)

Net Decrease (Increase) in Loans Held for Investment

150,590

(134,416)

Net Cash Paid for Acquisitions

(4,482)

(2,405)

Proceeds From Sales of Other Real Estate Owned

3,892

2,558

Purchases of Premises and Equipment

(4,590)

(7,842)

Noncontrolling Interest Contributions

5,424

2,091

Net Cash Used In Investing Activities

(444,217)

(58,630)

CASH FLOWS FROM FINANCING ACTIVITIES

Net Increase in Deposits

248,402

363,992

Net (Decrease) Increase in Short-Term

Borrowings

(28,458)

84,438

Repayment of Other Long-Term

Borrowings

(1,233)

(1,152)

Dividends Paid

(7,758)

(7,052)

Payments to Repurchase Common Stock

(2,043)

Issuance of Common Stock Under Purchase Plans

667

466

Net Cash Provided By Financing Activities

211,620

438,649

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

(146,429)

324,190

Cash and Cash Equivalents at Beginning of Period

928,549

378,423

Cash and Cash Equivalents at End of Period

782,120

702,613

Supplemental Cash Flow Disclosures:

Interest Paid

2,679

3,673

Income Taxes Paid

12,759

6,991

Noncash Investing and Financing Activities:

Loans Transferred to Other Real Estate Owned

1,636

1,956

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

NOTE 1 –

BUSINESS AND BASIS OF PRESENTATION

Nature of Operations

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

banking and banking-

related services to individual and corporate clients through its subsidiary,

Capital City Bank, with banking offices located in Florida,

Georgia, and Alabama.

The Company is subject to competition from other financial institutions, is subject to

regulation by certain

government agencies and undergoes periodic examinations

by those regulatory authorities.

Basis of Presentation

The consolidated financial statements in this Quarterly Report on Form

10-Q include the accounts of CCBG

and its wholly owned subsidiary,

Capital City Bank (“CCB” or the “Bank”).

All material inter-company transactions and accounts

have been eliminated.

Certain previously reported amounts have been reclassified to conform to the current year’s

presentation.

The accompanying unaudited consolidated financial statements have

been prepared in accordance with generally accepted accounting

principles for interim financial information and with the instructions to Form

10-Q and Article 10 of Regulation S-X.

Accordingly,

they do not include all of the information and footnotes required by generally accepted

accounting principles for complete financial

statements.

In the opinion of management, all adjustments (consisting of normal

recurring accruals) considered necessary for a fair

presentation have been included.

The consolidated statement of financial condition at December 31,

2020 has been derived from the audited consolidated financial

statements at that date, but does not include all of the information and footnotes

required by generally accepted accounting principles

for complete financial statements.

For further information, refer to the consolidated financial statements and

footnotes thereto

included in the Company’s annual

report on Form 10-K for the year ended December 31, 2020.

Acquisition.

April 30, 2021

, a newly formed subsidiary of CCBG, Capital City Strategic Wealth,

LLC (“CCSW”) acquired

substantially all of the assets of Strategic Wealth

Group, LLC and certain related businesses (“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

4.4

million in cash consideration and recorded goodwill of $

2.8

million and a customer relationship intangible asset of $

1.6

million.

Accounting Standards Updates

ASU 2020-04, "Reference Rate Reform (Topic

848).

ASU 2020-04 provides optional expedients and exceptions for applying GAAP

to loan and lease agreements, derivative contracts, and other transactions

affected by the anticipated transition away from LIBOR

toward new interest rate benchmarks. For transactions that

are modified because of reference rate reform and that meet certain scope

guidance (i) modifications of loan agreements should be accounted

for by prospectively adjusting the effective interest rate and

the

modification will be considered "minor" so that any existing unamortized

origination fees/costs would carry forward and continue to

be amortized and (ii) modifications of lease agreements should be accounted

for as a continuation of the existing agreement with no

reassessments of the lease classification and the discount rate or re-measurements

of lease payments

that otherwise would be required

for modifications not accounted for as separate contracts. ASU 2020

-04 also provides numerous optional expedients for derivative

accounting.

ASU 2020-04 is effective March 12, 2020 through December

31, 2022.

An entity may elect to apply ASU 2020-04 for

contract modifications as of January 1, 2020, or prospectively from a

date within an interim period that includes or is subsequent to

March 12, 2020, up to the date that the financial statements are available to

be issued.

Once elected for a Topic or

an Industry

Subtopic within the Codification, the amendments in this ASU must be applied

prospectively for all eligible contract modifications for

that Topic or Industry

Subtopic.

It is anticipated this ASU will simplify any modifications executed between the

selected start date

(yet to be determined) and December 31, 2022 that are directly related to

LIBOR transition by allowing prospective recognition of the

continuation of the contract, rather than extinguishment of the old contract

resulting in writing off unamortized fees/costs.

Further,

ASU 2021-01, “Reference Rate Reform (Topic

848): Scope,”

clarifies that certain optional expedients and exceptions in ASC 848 for

contract modifications and hedge accounting apply to derivatives that are

affected by the discounting transition. ASU 2021-01

also

amends the expedients and exceptions in ASC 848 to capture the incremental

consequences of the scope clarification and to tailor the

existing guidance to derivative instruments.

The Company is evaluating the impact of this ASU and has not yet determined

if this

ASU will have material effects on the Company’s

business operations and consolidated financial statements.

NOTE 2 –

INVESTMENT SECURITIES

Investment Portfolio Composition

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

securities available-for-sale and securities held-to-maturity and the corresponding

amounts of gross unrealized gains and losses.

September 30, 2021

December 31, 2020

Amortized

Unrealized

Market

Amortized

Unrealized

Market

(Dollars in Thousands)

Cost

Gains

Losses

Value

Cost

Gain

Losses

Value

Available for

Sale

U.S. Government Treasury

164,806

849

164,047

103,547

972

104,519

U.S. Government Agency

249,649

1,793

970

250,472

205,972

2,743

184

208,531

States and Political Subdivisions

43,834

357

43,546

3,543

3,632

Mortgage-Backed Securities

(1)

97,131

240

164

97,207

456

515

Corporate Debt Securities

84,331

567

83,777

Equity Securities

(2)

6,795

7,673

Total

646,546

2,205

2,907

645,844

321,191

3,863

184

324,870

Held to Maturity

U.S. Government Treasury

115,903

348

115,555

5,001

5,014

Mortgage-Backed Securities

225,325

3,941

536

228,730

164,938

5,223

170,161

Total

341,228

3,941

884

344,285

169,939

5,236

175,175

Total Investment

Securities

987,774

6,146

3,791

990,129

491,130

9,099

184

500,045

(1)

Comprised of residential mortgage-backed

securities

(2)

Includes Federal Home Loan Bank and Federal Reserve Bank stock, recorded

at cost of $

2.0

million and $

4.8

million,

respectively,

at September 30, 2021 and includes Federal Home Loan Bank and

Federal Reserve Bank stock recorded

at cost of

2.9

million and $

4.8

million, respectively,

at December 31, 2020.

Securities with an amortized cost of $

312.3

million and $

308.2

million at September 30, 2021 and December 31, 2020, respectively,

were pledged to secure public deposits and for other purposes.

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

to own capital stock in the FHLB based

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

FHLB advances.

FHLB stock, which is included in

equity securities,

is pledged to secure FHLB advances.

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

Maturity Distribution

At September 30, 2021, the Company's investment securities had the following

maturity distribution based on

contractual maturity.

Expected maturities may differ from contractual maturities because borrowers

may have the right to call or

prepay obligations.

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

agency securities are shown separately

because they are not due at a certain maturity date.

Available for

Sale

Held to Maturity

(Dollars in Thousands)

Amortized Cost

Market Value

Amortized Cost

Market Value

Due in one year or less

39,614

39,423

Due after one year through five years

264,747

263,661

115,903

115,555

Due after five year through ten years

66,347

65,614

Mortgage-Backed Securities

97,131

97,207

225,325

228,730

U.S. Government Agency

171,912

173,144

Equity Securities

6,795

Total

646,546

645,844

341,228

344,285

Unrealized Losses on Investment Securities.

The following table summarizes the available for sale investment securities with

unrealized losses aggregated by major security type and length of time in a continuous

unrealized loss position:

Less Than

Greater Than

12 Months

Total

Market

Unrealized

Market

Unrealized

Market

Unrealized

(Dollars in Thousands)

Value

Losses

Value

Losses

Value

Losses

September 30, 2021

Available for

Sale

U.S. Government Treasury

143,394

849

143,394

849

U.S. Government Agency

118,969

859

12,168

111

131,137

970

States and Political Subdivisions

27,355

357

27,355

357

Mortgage-Backed Securities

40,012

164

40,012

164

Corporate Debt Securities

57,304

567

57,304

567

Total

387,034

2,796

12,168

111

399,202

2,907

Held to Maturity

U.S. Government Treasury

115,555

348

115,555

348

Mortgage-Backed Securities

93,023

536

93,023

536

Total

208,578

884

208,578

884

December 31, 2020

Available for

Sale

U.S. Government Agency

28,266

156

4,670

32,936

184

Total

28,266

156

4,670

32,936

184

At September 30, 2021, there were

288

positions (combined Available-for-Sale

and Held-to-Maturity) with unrealized losses totaling

3.8

million.

206

of these positions were U.S. government agency securities issued by U.S. government

Category

from AOCI to Income

Three months ended September 30, 2021

128

Interest Expense

(41)

Three months ended September 30, 2020

129

Interest Expense

(28)

Nine months ended September 30, 2021

1,029

Interest Expense

(111)

Nine months ended September 30, 2020

Interest Expense

(31)

The Company estimates there will be approximately $

0.2

million reclassified as an increase to interest expense within the next 12

months.

The Company had a collateral liability of $

2.0

million and $

0.5

million at September 30, 2021 and December 31, 2020, respectively.

NOTE 6 – LEASES

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

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

liabilities, included in other assets and liabilities, respectively,

on its consolidated statement of financial condition.

The Company’s operating

leases primarily relate to banking offices with remaining lease terms

from

years.

The Company’s

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

lease payments, or significant assumptions or judgments

made in applying the requirements of Topic

842.

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

balance sheet and the related lease expense is recognized on a straight-line basis over the lease term.

At September 30, 2021, the

operating lease ROU assets and liabilities were $

11.9

million and $

12.5

million, respectively.

The Company does not have any

finance leases or any significant lessor agreements.

The table below summarizes our lease expense and other information related

to the Company’s operating leases.

Three Months Ended

Nine Months Ended

September 30,

(Dollars in Thousands)

2021

2020

2021

2020

Operating lease expense

369

273

1,075

695

Short-term lease expense

181

145

490

378

Total

lease expense

550

418

1,565

1,073

Other information:

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

Operating cash flows from operating leases

410

271

1,197

695

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

269

784

5,206

Weighted average

remaining lease term — operating leases (in years)

25.0

15.4

25.0

15.4

Weighted average

discount rate — operating leases

2.0%

2.3%

2.0%

2.3%

The table below summarizes the maturity of remaining lease liabilities:

(Dollars in Thousands)

September 30, 2021

2021

413

2022

1,499

2023

1,129

2024

1,088

2025

911

2026 and thereafter

11,199

Total

16,239

Less: Interest

(3,720)

Present Value

of Lease liability

12,519

At September 30, 2021, the Company had additional operating lease payments

for

two

banking offices that have not yet commenced

totaling $

4.8

million based on the initial contract term of

15 years

Payments for the banking offices are expected to commence after

the construction period ends, which is expected to occur during the second quarter of 2022 and the third quarter of 2022.

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

The Company’s minimum payment

is $

0.2

million annually

through 2024, for an aggregate remaining obligation of $

0.6

million at September 30, 2021.

NOTE 7 - EMPLOYEE BENEFIT PLANS

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

and eligible part-time associates and a

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

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

executive officers.

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

for new associates hired after

December 31, 2019.

The SERP II was adopted by the Company’s

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

were not covered by the SERP.

The components of the net periodic benefit cost for the Company's qualified

benefit pension plan were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in Thousands)

2021

2020

2021

2020

Service Cost

1,743

1,457

5,229

4,371

Interest Cost

1,221

1,400

3,664

4,212

Expected Return on Plan Assets

(2,787)

(2,748)

(8,361)

(8,245)

Prior Service Cost Amortization

Net Loss Amortization

1,691

974

5,073

2,959

Settlement Loss

500

2,500

Special Termination

Charge

Net Periodic Benefit Cost

2,372

1,087

8,116

3,369

Discount Rate

2.88%

3.53%

2.88%

3.53%

Long-term Rate of Return on Assets

6.75%

7.00%

6.75%

7.00%

In the second quarter of 2021, lump sum payments made under the Company’s

defined benefit pension plan triggered settlement

accounting.

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

recorded a settlement

losses of $

2.0

million in the second quarter of 2021 and $

0.5

million in the third quarter of 2021.

The components of the net periodic benefit cost for the Company's SERP and SERP II

were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in Thousands)

2021

2020

2021

2020

Service Cost

Interest Cost

183

238

Prior Service Cost Amortization

109

157

218

Net Loss Amortization

243

683

410

Net Periodic Benefit Cost

382

295

1,050

887

Discount Rate

2.38%

3.16%

2.38%

3.16%

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

compensation expense in the accompanying statements of

income.

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

expense category in the statements

of income.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

Lending Commitments

The Company is a party to financial instruments with off

-balance sheet risks in the normal course of business

to meet the financing needs of its clients.

These financial instruments consist of commitments to extend credit and standby

letters of

credit.

The Company’s maximum exposure

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

the contractual amount of those instruments.

The Company uses the same credit policies in establishing commitments

and issuing

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

The amounts associated with the Company’s

off-balance sheet

obligations were as follows:

September 30, 2021

December 31, 2020

(Dollars in Thousands)

Fixed

Variable

Total

Fixed

Variable

Total

Commitments to Extend Credit

(1)

214,666

535,695

750,361

160,372

596,572

756,944

Standby Letters of Credit

5,652

6,550

Total

220,318

535,695

756,013

166,922

596,572

763,494

(1)

Commitments include unfunded loans, revolving

lines of credit, and off-balance sheet residential

loan commitments.

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

any condition established in the

contract.

Commitments generally have fixed expiration dates or other termination

clauses and may require payment of a fee.

Since

many of the commitments are expected to expire without being drawn

upon, the total commitment amounts do not necessarily

represent future cash requirements.

Standby letters of credit are conditional commitments issued by

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

party.

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

in extending loan facilities. In

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

of participating in these types of transactions.

However, any

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

as management reserves for its other credit

facilities.

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

requires collateral to support such instruments when it is

deemed necessary.

The Company evaluates each client’s

creditworthiness on a case-by-case basis.

The amount of collateral

obtained upon extension of credit is based on management’s

credit evaluation of the counterparty.

Collateral held varies, but may

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

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

property, plant and

equipment; and inventory.

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

that are not unconditionally cancellable by the bank is

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

The following table shows the activity in the

allowance.

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in Thousands)

2021

2020

2021

2020

Beginning Balance

2,587

1,033

1,644

157

Impact of Adoption of ASC 326

876

Provision for Credit Losses

530

434

1,473

434

Ending Balance

3,117

1,467

3,117

1,467

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 member banks are

required to

indemnify the Visa U.S.A.

network for potential future settlement of certain litigation (the “Covered Litigation”)

that relates to several

antitrust lawsuits challenging the practices of Visa

and MasterCard International.

In 2008, the Company, as a member

of the Visa

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

Inc. upon its initial public offering.

Since its initial public offering, Visa,

Inc. has

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

in the Class B shares held by the Company.

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.

Quarterly fixed payments approximate $

206,000

Conversion ratio payments and

ongoing fixed quarterly charges are reflected in earnings

in the period incurred.

NOTE 9 – FAIR VALUE

MEASUREMENTS

The fair value of an asset or liability is the price that would be received to sell that asset or paid

to transfer that liability in an orderly

transaction occurring in the principal market (or most advantageous market in

the absence of a principal market) for such asset or

liability.

In estimating fair value, the Company utilizes valuation techniques that are consistent with

the market approach, the income

approach and/or the cost approach.

Such valuation techniques are consistently applied.

Inputs to valuation techniques include the

assumptions that market participants would use in pricing an asset or liability.

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

available for sale are reported at fair value utilizing Level 2 inputs.

For these securities, the Company obtains fair value measurements

from an independent pricing service.

The fair value measurements consider observable data that may include dealer quotes,

market

spreads, cash flows, the U.S. Treasury yield curve,

live trading levels, trade execution data, credit information and the bond’s

terms

and conditions, among other things.

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

The Company’s entire portfolio consists

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

obligations, federal agency bullet or mortgage pass-through

securities, or

general obligation or revenue-based municipal bonds.

Pricing for such instruments is easily obtained.

At least annually, the Company

will validate prices supplied by the independent pricing service by compari

ng them to prices obtained from an independent third-party

source.

Loans Held for Sale

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

when possible,

using either quoted secondary-market prices or investor commitments.

If no such quoted price exists, the fair value is determined

using quoted prices for a similar asset or assets, adjusted for the specific attributes of

that loan, which would be used by other market

participants.

The Company has elected the fair value option accounting for its held for sale loans.

Mortgage Banking Derivative Instruments.

The fair values of interest rate lock commitments (“IRLCs”) are derived by valuation

models incorporating market pricing for instruments with similar characteristics,

commonly referred to as best execution pricing, or

investor commitment prices for best effort IRLCs which have

unobservable inputs, such as an estimate of the fair value of the

servicing rights expected to be recorded upon sale of the loans, net estimated costs to originate

the loans, and the pull-through rate,

and are therefore classified as Level 3 within the fair value hierarchy.

The fair value of forward sale commitments is based on

observable market pricing for similar instruments and are therefore

classified as Level 2 within the fair value hierarchy.

Interest Rate Swap.

The Company’s derivative positions

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

using

models generally accepted in the financial services industry and

that use actively quoted or observable market input values from

external market data providers.

The fair value derivatives are determined using discounted cash flow models.

Fair Value

Swap

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

its Visa Class B shares.

The

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

the revised share conversion rate, if any,

during the

period.

A summary of fair values for assets and liabilities consisted of the following:

Level 1

Level 2

Level 3

Total

Fair

(Dollars in Thousands)

Inputs

Value

September 30, 2021

ASSETS:

Securities Available for

Sale:

U.S. Government Treasury

164,047

U.S. Government Agency

250,472

States and Political Subdivisions

43,546

Mortgage-Backed Securities

97,207

Corporate Debt Securities

83,777

Equity Securities

(1)

6,795

Loans Held for Sale

77,036

Interest Rate Swap Derivative

1,952

Mortgage Banking Hedge Derivative

451

Mortgage Banking IRLC Derivative

1,717

Mortgage Servicing Rights

3,830

December 31, 2020

ASSETS:

Securities Available for

Sale:

U.S. Government Treasury

104,519

U.S. Government Agency

208,531

States and Political Subdivisions

3,632

Mortgage-Backed Securities

515

Equity Securities

(1)

7,673

Loans Held for Sale

114,039

Interest Rate Swap Derivative

574

Mortgage Banking IRLC Derivative

4,825

LIABILITIES:

Mortgage Banking Hedge Derivative

907

(1)

Not readily marketable securities - reflected

in other assets.

Mortgage Banking Activities

The Company had Level 3 issuances and transfers related to mortgage

banking activities of $

26.2

million and $

38.6

million, respectively,

for the nine month period ending September 30, 2021 and $

34.0

million and $

40.3

million,

respectively, for the

period March 1, 2020 to September 30, 2020.

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

underlying mortgage loan from inception of the IRLC to the balance

sheet date, adjusted for pull-through rates and costs to originate.

IRLCs transferred out of Level 3 represent IRLCs that were funded and moved

to mortgage loans held for sale, at fair value.

Assets Measured at Fair Value

on a Non-Recurring Basis

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

assets are not measured at fair value on an ongoing basis

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

An example would be assets exhibiting evidence of impairment.

The following is a description of valuation methodologies used for

assets measured on a non-recurring basis.

Collateral Dependent Loans

Impairment for collateral dependent loans is measured using the fair

value of the collateral less selling

costs.

The fair value of collateral is determined by an independent valuation

or professional appraisal in conformance with banking

regulations.

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

and the judgment and

estimation involved in the real estate appraisal process.

Collateral dependent loans are reviewed and evaluated on at least a quarterly

basis for additional impairment and adjusted accordingly.

Valuation

techniques are consistent with those techniques applied in prior

periods.

Collateral-dependent loans had a carrying value of $

2.6

million with a valuation allowance of $

0.1

million at September 30,

2021 and $

7.1

million and $

0.1

million, respectively,

at December 31, 2020.

Other Real Estate Owned

During the first nine months of 2021, certain foreclosed assets, upon initial recognition,

were measured and

reported at fair value through a charge-off to the allowance

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

estimated cost to sell.

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

or professional appraisal in

conformance with banking regulations.

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

adjustments as necessary.

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

and estimation

involved in the real estate valuation process.

Mortgage Servicing Rights

Residential mortgage loan servicing rights are evaluated for impairment

at each reporting period based

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

Fair value is determined by a third party valuation model using

estimated prepayment speeds of the underlying mortgage loans serviced and

stratifications based on the risk characteristics of the

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

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

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

servicing.

Further detail on the key inputs utilized are

provided in Note 4 – Mortgage Banking Activities.

At September 30, 2021, there was

valuation allowance for loan servicing

rights.

Assets and Liabilities Disclosed at Fair Value

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

both assets and liabilities, for which it is

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

methodologies used for those assets and liabilities.

A summary of estimated fair values of significant financial instruments consisted

of the following:

September 30, 2021

Carrying

Level 1

Level 2

Level 3

(Dollars in Thousands)

Value

Inputs

ASSETS:

Cash

73,132

Short-Term Investments

708,988

Investment Securities, Available

for Sale

645,844

164,047

481,797

Investment Securities, Held to Maturity

341,228

115,555

228,730

Equity Securities

(1)

3,588

Loans Held for Sale

77,036

Interest Rate Swap Derivative

1,952

Mortgage Banking Hedge Derivative

451

Mortgage Banking IRLC Derivative

1,717

Mortgage Servicing Rights

3,564

3,830

Loans, Net of Allowance for Credit Losses

1,919,925

1,919,442

LIABILITIES:

Deposits

3,465,962

3,327,728

Short-Term

Borrowings

51,410

Subordinated Notes Payable

52,887

42,359

Long-Term Borrowings

1,610

1,681

December 31, 2020

Carrying

Level 1

Level 2

Level 3

(Dollars in Thousands)

Value

Inputs

ASSETS:

Cash

67,919

Short-Term Investments

860,630

Investment Securities, Available

for Sale

324,870

104,519

220,351

Investment Securities, Held to Maturity

169,939

5,014

170,161

Loans Held for Sale

114,039

Equity Securities

(1)

3,589

Interest Rate Swap Derivative

574

Mortgage Banking IRLC Derivative

4,825

Mortgage Servicing Rights

3,452

3,451

Loans, Net of Allowance for Credit Losses

1,982,610

1,990,740

LIABILITIES:

Deposits

3,217,560

3,217,615

Short-Term

Borrowings

79,654

Subordinated Notes Payable

52,887

43,449

Long-Term Borrowings

3,057

3,174

Mortgage Banking Hedge Derivative

907

(1)

Not readily marketable securities - reflected

in other assets.

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

The disclosures also do not include goodwill.

Accordingly, the

aggregate fair value amounts presented do not represent the underlying

value of the Company.

NOTE 10 – ACCUMULATED

OTHER COMPREHENSIVE INCOME (LOSS)

The amounts allocated to accumulated other comprehensive income

(loss) are presented in the table below.

Accumulated

Securities

Other

Available

Interest Rate

Retirement

Comprehensive

(Dollars in Thousands)

for Sale

Swap

Plans

Loss

Balance as of January 1, 2021

2,700

428

(47,270)

(44,142)

Other comprehensive (loss) income during the period

(3,249)

1,029

1,635

(585)

Balance as of September 30, 2021

(549)

1,457

(45,635)

(44,727)

Balance as of January 1, 2020

864

(29,045)

(28,181)

Other comprehensive income during the period

2,429

2,468

Balance as of September 30, 2020

3,293

(29,045)

(25,713)

Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS

OPERATIONS

Management’s discussion

and analysis ("MD&A") provides supplemental information, which sets forth

the major factors that have

affected our financial condition and results of operations

and should be read in conjunction with the Consolidated Financial

Statements and related notes.

The following information should provide a better understanding of

the major factors and trends that

affect our earnings performance and financial condition,

and how our performance during 2021 compares with prior years.

Throughout this section, Capital City Bank Group, Inc., and subsidiaries, collectively,

is referred to as "CCBG," "Company,"

"we,"

"us," or "our."

CAUTION CONCERNING FORWARD

-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including this MD&A section, contains

"forward-looking statements" within the meaning of the

Private Securities Litigation Reform Act of 1995.

These forward-looking statements include, among others, statements about

our

beliefs, plans, objectives, goals, expectations, estimates and intentions that are

subject to significant risks and uncertainties and are

subject to change based on various factors, many of which are beyond

our control.

The words "may," "could,"

"should," "would,"

"believe," "anticipate," "estimate," "expect," "intend," "plan," "target,"

"goal," and similar expressions are intended to identify

forward-looking statements.

All forward-looking statements, by their nature, are subject to risks and uncertainties.

Our actual future results may differ materially

from those set forth in our forward-looking statements.

Please see the Introductory Note and

Item 1A. Risk Factors

of our 2020

Report on Form 10-K, as updated in our subsequent quarterly reports filed on Form

10-Q, and in our other filings made from time to

time with the SEC after the date of this report.

However, other factors besides those listed in

our Quarterly Report or in our Annual Report also could adversely affect

our results,

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

uncertainties.

Any forward-looking

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

We do not undertake to

update any forward-looking

statement, except as required by applicable law.

BUSINESS OVERVIEW

We are a financial

holding company headquartered in Tallahassee,

Florida, and we are the parent of our wholly owned subsidiary,

Capital City Bank (the "Bank" or "CCB").

The Bank offers a broad array of products and services through

a total of 57 full-service

offices located in Florida, Georgia, and Alabama.

The Bank offers commercial and retail banking services, as well

as trust and asset

management, retail securities brokerage,

and life insurance.

We offer

residential mortgage banking services through Capital City

Home Loans.

Our profitability, like

most financial institutions, is dependent to a large extent upon net

interest income, which is the difference

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

and the interest paid on interest-bearing

liabilities, principally deposits and borrowings.

Results of operations are also affected by the provision for credit

losses, noninterest

income such as deposit fees, wealth management fees, mortgage banking fees

and bank card fees, and operating expenses such as

salaries and employee benefits, occupancy,

and other operating expenses, including income taxes.

A detailed discussion regarding the economic conditions in our markets and

our long-term strategic objectives is included as part of

the MD&A section of our 2020 Form 10-K.

Acquisitions

On March 1, 2020, CCB completed its acquisition of a 51% membership

interest in Brand Mortgage Group, LLC (“Brand”) which is

now operated as a Capital City Home Loans (“CCHL”).

CCHL was consolidated into CCBG’s financial

statements effective March

1, 2020.

See Note 1 – Business Combination in the 2020 Form 10-K in the Consolidated Financial Statements.

On April 30, 2021, a newly formed subsidiary of CCBG, Capital City Strategic

Wealth, LLC

(“CCSW”), completed its acquisition of

substantially all of the assets of Strategic Wealth

Group, LLC and certain related businesses (“SWG”).

CCSW was consolidated into

CCBG’s financial statements

effective May 1, 2021.

See Note 1 – Business and Basis of Presentation.

RESPONSE TO COVID-19 PANDEMIC

At this time, all of our banking offices have returned to normal banking

hours and lobby services and some back-office associates

work remotely while others have returned to an office.

Although the ongoing global and local responses to the COVID-19 pandemic

continue to impact our clients and associates as they adjust to the changing conditions

presented by the pandemic, we continue to

closely monitor COVID-19 and adjust our operations, as needed.

In addition, we have set a date (November 22, 2021) to comply with

a recent U.S. presidential directive to OSHA to have associates vaccinated

against COVID-19 or be tested weekly.

NON-GAAP FINANCIAL MEASURES

We present a tangible

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

reduces shareowners’ equity

and total assets by the amount of goodwill and other identifiable intangi

ble assets resulting from merger and acquisition activity.

believe these measures

are useful to investors because it allows investors to more easily compare

our capital adequacy to other

companies in the industry,

although the manner in which we calculate non-GAAP financial measures may

differ from that of other

companies reporting non-GAAP measures with similar names.

The GAAP to non-GAAP reconciliation for each quarter presented on

page 31 is provided below.

2021

2020

2019

(Dollars in Thousands, except per share data)

Third

Second

First

Fourth

Third

Second

First

Fourth

Shareowners' Equity (GAAP)

348,868

335,880

324,426

320,837

339,425

335,057

328,507

327,016

Less: Goodwill and Other Intangibles (GAAP)

93,293

93,333

89,095

89,275

84,811

Tangible Shareowners' Equity (non-GAAP)

255,575

242,547

235,331

231,742

250,330

245,962

239,232

242,205

Total Assets (GAAP)

4,048,733

4,011,459

3,929,884

3,798,071

3,587,041

3,499,524

3,086,523

3,088,953

Less: Goodwill and Other Intangibles (GAAP)

93,293

93,333

89,095

89,275

84,811

Tangible Assets (non-GAAP)

3,955,440

3,918,126

3,840,789

3,708,976

3,497,946

3,410,429

2,997,248

3,004,142

Tangible Common

Equity Ratio (non-GAAP)

A/B

6.46%

6.19%

6.13%

6.25%

7.16%

7.21%

7.98%

8.06%

Actual Diluted Shares Outstanding (GAAP)

16,911,715

16,901,375

16,875,719

16,844,997

16,800,563

16,821,743

16,845,462

16,855,161

Diluted Tangible Book Value

(non-GAAP)

A/C

15.11

14.35

13.94

13.76

14.90

14.62

14.20

14.37

SELECTED QUARTERLY

FINANCIAL DATA

(UNAUDITED)

(Dollars in Thousands, Except

2021

2020

2019

Per Share Data)

Third

Second

First

Fourth

Third

Second

First

Fourth

Summary of Operations

Interest Income

28,520

26,836

25,446

26,154

26,166

26,512

27,365

28,008

Interest Expense

848

856

948

1,181

1,044

1,054

1,592

1,754

Net Interest Income

27,672

25,980

24,498

24,973

25,122

25,458

25,773

26,254

Provision for Credit Losses

(571)

(982)

1,342

1,308

2,005

4,990

(162)

Net Interest Income After

Provision for Credit Losses

27,672

26,551

25,480

23,631

23,814

23,453

20,783

26,416

Noninterest Income

26,574

26,473

29,826

30,523

34,965

30,199

15,478

13,828

Noninterest Expense

(1)

39,702

42,123

40,476

41,348

40,342

37,303

30,969

29,142

Income

Before

Income Taxes

14,544

10,901

14,830

12,806

18,437

16,349

5,292

11,102

Income Tax Expense

2,949

2,059

2,787

2,833

3,165

2,950

1,282

2,537

(Income) Loss Attributable to NCI

(1,504)

(1,415)

(2,537)

(2,227)

(4,875)

(4,253)

277

Net Income Attributable to CCBG

10,091

7,427

9,506

7,746

10,397

9,146

4,287

8,565

Net Interest Income (FTE)

27,750

26,064

24,607

25,082

25,233

25,564

25,877

26,378

Per Common Share

Net Income Basic

0.60

0.44

0.56

0.46

0.62

0.55

0.25

0.51

Net Income Diluted

0.60

0.44

0.56

0.46

0.62

0.55

0.25

0.51

Cash Dividends Declared

0.16

0.15

0.14

0.13

Diluted Book Value

20.63

19.87

19.22

19.05

20.20

19.92

19.50

19.40

Diluted Tangible Book Value

(2)

15.11

14.35

13.94

13.76

14.90

14.62

14.20

14.37

Market Price:

High

26.10

27.39

28.98

26.35

21.71

23.99

30.62

30.95

Low

22.02

24.55

21.42

18.14

17.55

16.16

15.61

25.75

24.74

25.79

26.02

24.58

18.79

20.95

20.12

30.50

Selected Average Balances

Loans Held for Investment

1,974,132

2,036,781

2,044,363

1,993,470

2,005,178

1,982,960

1,847,780

1,834,085

Earning Assets

3,693,123

3,623,910

3,497,929

3,337,409

3,223,838

3,016,772

2,751,880

2,694,700

Total Assets

4,026,613

3,956,349

3,821,521

3,652,436

3,539,332

3,329,226

3,038,788

2,982,204

Deposits

3,447,688

3,387,352

3,239,508

3,066,136

2,971,277

2,783,453

2,552,690

2,524,951

Shareowners’ Equity

341,460

329,040

326,330

343,674

340,073

333,515

331,891

326,904

Common Equivalent Average Shares:

Basic

16,875

16,858

16,838

16,763

16,771

16,797

16,808

16,750

Diluted

16,909

16,885

16,862

16,817

16,810

16,839

16,842

16,834

Performance Ratios:

Return on Average Assets

0.99

0.75

1.01

0.84

1.17

1.10

0.57

1.14

Return on Average Equity

11.72

9.05

11.81

8.97

12.16

11.03

5.20

10.39

Net Interest Margin (FTE)

2.98

2.89

2.85

3.00

3.12

3.41

3.78

3.89

Noninterest Income as % of

Operating Revenue

48.99

50.47

54.90

55.00

58.19

54.26

37.52

34.50

Efficiency Ratio

73.09

80.18

74.36

67.01

66.90

74.89

72.48

Asset Quality:

Allowance for Credit Losses ("ACL")

21,500

22,175

22,026

23,816

23,137

22,457

21,083

13,905

ACL to Loans HFI

1.11

1.10

1.07

1.19

1.16

1.11

1.13

0.75

Nonperforming Assets (“NPAs”)

3,218

6,302

5,472

6,679

6,732

8,025

6,337

5,425

NPAs to Total

Assets

0.08

0.16

0.14

0.18

0.19

0.23

0.21

0.18

NPAs to Loans HFI plus OREO

0.17

0.31

0.27

0.33

0.34

0.40

0.34

0.29

ACL to Non-Performing Loans

710.39

433.93

410.78

405.66

420.30

322.37

432.61

310.99

Net Charge-Offs to Average

Loans HFI

0.03

(0.07)

(0.10)

0.09

0.11

0.05

0.23

0.05

Capital Ratios:

Tier 1 Capital

15.69

15.44

16.08

16.19

16.77

16.59

16.12

17.16

Total Capital

16.70

16.48

17.20

17.30

17.88

17.60

17.19

17.90

Common Equity Tier 1

13.45

13.14

13.63

13.71

14.20

14.01

13.55

14.47

Leverage

9.05

8.84

8.97

9.33

9.64

10.12

10.81

11.25

Tangible Common Equity

(2)

6.46

6.19

6.13

6.25

7.16

7.21

7.98

8.06

(1)

Includes partial pension settlement charges of

$0.5 million, or $0.02/share, for the third

quarter of 2021 and $2.0 million (pre-tax), or

$0.10/share (after-tax) for the second quarter

of 2021.

(2)

Non-GAAP financial measure.

See non-GAAP reconciliation on page 30.

FINANCIAL OVERVIEW

Results of Operations

Performance Summary.

Net income of $10.1 million, or $0.60 per diluted share, for the third quarter of 2021

compared to net income

of $7.4 million, or $0.44 per diluted share, for the second quarter of 202

1, and $10.4 million, or $0.62 per diluted share, for the third

quarter of 2020.

For the first nine months of 2021, net income totaled $27.0 million, or $1.60 per

diluted share, compared to net

income of $23.8 million, or $1.42 per diluted share, for the same period of 2020.

Net income for 2021 included partial pre-tax pension

settlement charges totaling $2.5 million (3Q - $0.5 million

and 2Q - $2.0 million), or $0.12 per diluted share (after tax).

Net Interest Income.

Tax-equivalent net

interest income for the third quarter of 2021

was $27.7 million compared to $26.1 million for

the second quarter of 2021 and $25.2 million for the third quarter of 2020.

For the first nine months of 2021, tax-equivalent net

interest income totaled $78.4 million compared to $76.7 million for the

same period of 2020.

Higher SBA PPP fees/interest and a

better earning asset mix drove the improvement over the second quarter

of 2021.

For the nine month period, the increase generally

reflected higher SBA PPP loan fees/interest and lower interest expense, partially

offset by lower rates earned on investment securities

and variable/adjustable rate loans.

Provision and Allowance for Credit

Losses.

A provision for credit losses was not recorded for the third quarter of 2021.

This

compares to a negative provision of $0.6 million for the second quarter of 2021

and provision expense of $1.3 million for the third

quarter of 2020.

For the first nine months of 2021, we recorded a negative provision of $1.6 million

compared

to provision expense of

$8.3 million for the same period of 2020.

The negative provision for the first nine months of 2021 generally reflected improving

economic conditions,

favorable loan migration and strong net loan recoveries totaling $0.7 million.

Noninterest Income.

Noninterest income for the third quarter of 2021 totaled $26.6 million compared

to $26.5 million for the second

quarter of 2021 and $35.0 million for the third quarter of 2020.

The slight increase over the second quarter of 2021 was primarily due

to higher deposit fees of $0.8 million and wealth management fees of

$0.3 million, partially offset by lower mortgage banking

revenues of $0.9 million.

For the first nine months of 2021, noninterest income totaled $82.9 million

compared to $80.6 million for

the same period of 2020 with the increase driven by higher wealth management

fees of $2.0 million, bank card fees of $1.8 million,

deposit fees of $0.5 million, and other income of $0.9 million (primarily

loan servicing income at CCHL), partially offset by lower

mortgage banking revenues of $3.0 million.

Noninterest Expense.

Noninterest expense for the third quarter of 2021 totaled $39.7 million compared

to $42.1 million for the second

quarter of 2021 and $40.3 million for the third quarter of 2020.

The $2.4 million decrease from the second quarter of 2021 reflected a

pension settlement charge of $2.0 million in the second quarter of

2021 versus $0.5 million in the third quarter of 2021.

In addition,

OREO expense declined by $0.9 million due to a gain on the sale of a banking

office in the third quarter of 2021.

For the first nine

months of 2021, noninterest expense totaled $122.3 million compared

to $108.6 million for the same period of 2020.

The $13.7

million increase was attributable to the addition of expenses at CCHL (acquired

March 1, 2020) of $6.7 million as well as higher

expenses at the core bank totaling $7.0 million driven primarily by

partial pension settlement charges of $2.5 million, annual merit

raises, debit card processing costs (volume related),

and professional fees, and FDIC insurance.

Financial Condition

Earning Assets.

Average earning assets were

$3.693 billion for the third quarter of 2021, an increase of $69.2 million,

or 1.9%, over

the second quarter of 2021, and an increase of $355.7 million, or 10.7% over

the fourth quarter of 2020.

The increase over both prior

periods was primarily driven by higher deposit balances, which funded growth

in the investment portfolio.

Deposit balances increased

as a result of strong core deposit growth, in addition to funding retained

at the bank from SBA PPP loans, and various other stimulus

programs.

Loans

Average loans held for investment

(“HFI”) decreased $62.6 million, or 3.1%, from the second quarter of

2021 and $19.3

million, or 1.0%, from the fourth quarter of 2020.

Excluding SBA PPP loans, average loans increased $34.9 million and $125.2

million and period end loans increased $5.1 million and $102.8

million, respectively, over the

prior periods. Compared to the second

quarter of 2021, the increase in period end loans reflected growth in construction

and indirect loans, partially offset by a decline in

commercial real estate.

Compared to the fourth quarter of 2020, we realized growth in construction, residential,

commercial real

estate and indirect loans.

Credit Quality

Nonaccrual loans totaled $3.0 million (0.16% of HFI loans) at September 30, 2021

compared to $5.1 million (0.25%

of HFI loans) at June 30, 2021 and $5.9 million (0.29% of HFI loans) at

December 31, 2020.

Classified loans totaled $16.3 million,

$19.4 million, and $17.6

million at the same respective periods.

Deposits

Average total

deposits increased $60.3 million, or 1.8%, over the second quarter of 2021,

and

$381.6 million, or 12.4%,

over the fourth quarter of 2020.

Over the past 12 months, multiple government stimulus programs have

been implemented, including

the CARES Act and the American Rescue Plan Act, which are responsible

for a large portion of this growth.

Capital

At September 30, 2021, we were well-capitalized with a total risk-based capital ratio

of 16.70% and a tangible common

equity ratio (a non-GAAP financial measure) of 6.46% compared to

16.48% and 6.19%, respectively,

at June 30, 2021 and 17.30%

and 6.25%, respectively,

at December 31, 2020.

At September 30, 2021, all of our regulatory capital ratios exceeded the threshold

be well-capitalized under the Basel III capital standards.

RESULTS

OF OPERATIONS

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

- a discussion of the various components are discussed

in further detail below.

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

(Dollars in Thousands, except per share data)

2021

2020

2021

2020

Interest Income

28,520

26,836

26,166

80,802

80,043

Taxable Equivalent Adjustments

111

270

321

Total Interest Income (FTE)

28,598

26,920

26,277

81,072

80,364

Interest Expense

848

856

1,044

2,652

3,690

Net Interest Income (FTE)

27,750

26,064

25,233

78,420

76,674

Provision for Credit Losses

(571)

1,308

(1,553)

8,303

Taxable Equivalent Adjustments

111

270

321

Net Interest Income After Provision for Credit Losses

27,672

26,551

23,814

79,703

68,050

Noninterest Income

26,574

26,473

34,965

82,873

80,642

Noninterest Expense

39,702

42,123

40,342

122,301

108,614

Income Before Income Taxes

14,544

10,901

18,437

40,275

40,078

Income Tax Expense

2,949

2,059

3,165

7,795

7,397

Pre-Tax Income Attributable to Noncontrolling

Interest

(1,504)

(1,415)

(4,875)

(5,456)

(8,851)

Net Income Attributable to Common Shareowners

10,091

7,427

10,397

27,024

23,830

Basic Net Income Per Share

0.60

0.44

0.62

1.60

1.42

Diluted Net Income Per Share

0.60

0.44

0.62

1.60

1.42

Net Interest Income

Net interest income represents our single largest source of earnings

and is equal to interest income and fees generated by earning

assets less interest expense paid on interest bearing liabilities.

This information is provided on a "taxable equivalent" basis to reflect

the tax-exempt status of income earned on certain loans and state and local

government debt obligations.

We provide an analysis of

our net interest income including average yields and rates in Table

I on page 43.

Tax-equivalent net

interest income for the third quarter of 2021 totaled $27.7 million compared

to $26.1 million for the second quarter

of 2021 and $25.2 million for the third quarter of 2020.

Compared to the second quarter of 2021, the increase reflected higher

loan

fees of $1.3 million (SBA PPP loan fees increased $1.0 million) and

higher investment securities income of $0.3 million, which

reflected deployment of excess overnight funds into the investment portfolio.

Also, as compared to the second quarter of 2021, lower

loan interest income from SBA PPP loans was offset by loan interest

income from growth in non-SBA PPP loans.

Compared to the

third quarter of 2020, the increase was primarily attributable to higher SBA PPP loan fees

of $2.5

million.

For the first nine months of

2021, tax-equivalent net interest income totaled $78.4 million compared

to $76.7 million for the same period of 2020.

The increase

generally reflected higher SBA PPP loan fees/interest and lower interest expense,

partially offset by lower rates earned on investment

securities and variable/adjustable rate loans.

Our net interest margin for the third quarter of 2021 was 2.98%, an increase

of nine basis points over the second quarter of 2021 and a

decrease of 14 basis points from the third quarter of 2020.

Compared to the second quarter of 2021, the increase was primarily driven

by higher SBA PPP loan fees/interest.

Compared to the third quarter of 2020, the decrease was primarily attributable

to growth in

earning assets (driven by deposit inflows), which negatively impacted our

margin percentage.

For the first nine months of 2021, the

net interest margin decreased 51 basis points to 2.91%,

which generally reflected growth in earning assets.

Our net interest margin for

the third quarter of 2021, excluding the impact of overnight funds in excess of $200

million, was 3.50%.

Due to highly competitive fixed-rate loan pricing in our markets, we continue

to review our loan pricing and make adjustments where

we believe appropriate and prudent.

Provision for Credit Losses

We did not

record a provision for credit losses for the third quarter of 2021.

This compares to a negative provision of $0.6 million for

the second quarter of 2021 and provision expense of $1.3 million for the third

quarter of 2020.

For the first nine months of 2021, we

recorded a negative provision of $1.6 million compared to provision

expense of $8.3 million for the same period of 2020.

The negative provision for the first nine months of 2021 generally reflected

improving economic conditions and strong net loan

recoveries totaling $0.7

million.

We discuss the allowance

for credit losses further below.

For more information on charge-offs and

recoveries, see Note 3 – Loans Held for Investment and Allowance for

Credit Losses.

Noninterest Income

Noninterest income for the third quarter of 2021 totaled $26.6 million compared

to $26.5 million for the second quarter of 2021 and

$35.0 million for the third quarter of 2020.

The slight increase over the second quarter of 2021 was primarily due to higher deposit

fees of $0.8 million and wealth management fees of $0.3 million, partially

offset by lower mortgage banking revenues of $0.9 million.

The $8.4 million decrease from the third quarter of 2020 was primarily

attributable to lower mortgage banking revenues at CCHL of

$10.7 million, partially offset by higher deposit fees

of $0.8 million, wealth management fees of $0.8 million, and bank card

fees of

$0.4 million.

For the first nine months of 2021, noninterest income totaled $82.9 million

compared to $80.6 million for the same

period of 2020 with the increase driven by higher wealth management

fees of $2.0 million, bank card fees of $1.8 million, deposit fees

of $0.5 million, and other income of $0.9 million (primarily loan servicing

income at CCHL), partially offset by lower mortgage

banking revenues of $3.0 million.

Noninterest income represented 49.0% of operating revenues (net

interest income plus noninterest income) in the third quarter of 2021

compared to 50.5% in the second quarter of 2021 and 58.2% in the third quarter

of 2020.

For the first nine months of 2021,

noninterest income represented 51.5% of operating revenues compared

to 51.4% for the same period of 2020.

The table below reflects the major components of noninterest income.

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

(Dollars in Thousands)

2021

2020

2021

2020

Deposit Fees

5,075

4,236

4,316

13,582

13,087

Bank Card Fees

3,786

3,998

3,389

11,402

9,582

Wealth Management

Fees

3,623

3,274

2,808

9,987

7,966

Mortgage Banking Revenues

12,283

13,217

22,983

42,625

45,633

Other

1,807

1,748

1,469

5,277

4,374

Total

Noninterest Income

26,574

26,473

34,965

82,873

80,642

Significant components of noninterest income are discussed in more

detail below.

Mortgage Banking Revenues.

Mortgage banking revenues totaled $12.3 million for the third quarter of 2021

compared to $13.2

million for the second quarter of 2021 and $23.0 million for the third

quarter of 2020.

For the nine months of 2021, revenues totaled

$42.6 million compared to $45.6 million for the same period of 2020.

Compared to the second quarter of 2021 and third quarter of

2020, the decrease was attributable to lower production volume and a

lower gain on sale margin.

The decrease from the nine month

period of 2020 was primarily attributable to a lower gain on sale margin.

Additional information on our mortgage banking subsidiary,

CCHL, is provided on page 36.

Deposit Fees

. Deposit fees for the third quarter of 2021 totaled $5.1 million, an increase

of $0.8 million, or 19.8%, over the second

quarter of 2021, and an increase of $0.8 million, or 17.6%, over the

third quarter of 2020.

For the first nine months of 2021, deposit

fees totaled $13.6 million, an increase of $0.5 million, or 3.8%, over the same period

of 2020.

Compared to all prior periods, the

increase was primarily attributable to higher monthly service charge

fees which reflected the conversion of the remaining free

checking accounts to a monthly maintenance fee account type.

Bank Card Fees

Bank card fees for the third quarter of 2021 totaled $3.8 million, a $0.2 million, or 5.3%,

decrease from the second

quarter of 2021, and a $0.4 million, or 11.7

%, increase over the third quarter of 2020.

For the first nine months of 2021, bank card

fees totaled $11.4 million, an increase of $1.8

million, or 19.0%, over the same period of 2020.

The increase over the prior year

periods generally reflected an increase in card-not-present debit card

transactions as well increased consumer spending.

Wealth

Management Fees

Wealth management fees,

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

retail brokerage fees (i.e., investment,

insurance products, and retirement accounts)

totaled $3.6 million for the third quarter of 2021, a

$0.3

million, or 10.7%, increase over the second quarter of 2021 and a $0.8 million, or 29.0%, increase

over the third quarter of 2020.

For the first nine months of 2021, wealth management fees totaled

$10.0 million, an increase of $2.0 million, or 25.4%, over the same

period of 2020.

The favorable variances versus all prior periods reflected higher assets under

management and increased trading

activity by our retail brokerage clients.

At September 30, 2021, total assets under management were approximately

$2.24 billion

compared to $1.979 billion at December 31, 2020 and $1.823 billion

at September 30, 2020.

Other.

Other income for the third quarter of 2021 totaled $1.8 million, a $0.1 million, or

3.4%, increase over the second quarter of

2021, and $0.3 million, or 23.0%, over the third quarter of 2020.

For the first nine months of 2021, other income totaled $5.3 million,

an increase of $0.9

million, or 20.6%, over the same period of 2020.

The increase over both prior year periods was primarily

attributable to higher loan servicing fees at CCHL.

Noninterest Expense

Noninterest expense for the third quarter of 2021 totaled $39.7 million

compared to $42.1 million for the second quarter of 2021 and

$40.3 million for the third quarter of 2020.

The $2.4 million decrease from the second quarter of 2021 reflected a pension settlement

charge of $2.0 million in the second quarter of 2021 versus $0.5

million in the third quarter of 2021.

In addition, OREO expense

declined by $0.9 million due to a gain on the sale of a banking office

in the third quarter of 2021.

Compared to the third quarter of

2020, the $0.6 million decrease was primarily attributable to lower compensation

expense of $0.9 million (primarily incentive

compensation at CCHL) and OREO expense of $1.3 million, partially

offset by higher other expense of $1.0 million and a pension

settlement charge of $0.5 million.

For the first nine months of 2021, noninterest expense totaled $122.3 million

compared to $108.6

million for the same period of 2020.

The $13.7 million increase was attributable to the addition of expenses at CCHL of $6.7

million

as well as higher expenses at the core bank totaling $7.0 million.

The increase in expenses at the core bank were primarily due to

higher compensation expense of $1.5 million (primarily merit raises), processing

fees of $0.6 million (debit card volume), professional

fees of $0.5 million, occupancy expense of $0.4 million, and FDIC insurance of

$0.4 million (higher asset size), partially offset by

lower OREO expense of $1.1 million (gains from the sale of two banking offices).

In addition, we have realized pension settlement

charges totaling $2.5 million so far in 2021 and other expense

increased $1.5 million which reflected higher expense for our

base

pension plan attributable to the utilization of a lower discount rate for plan

liabilities.

The table below reflects the major components of noninterest expense.

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

(Dollars in Thousands)

2021

2020

2021

2020

Salaries

21,060

21,117

22,356

64,625

58,063

Associate Benefits

4,185

4,261

3,808

12,062

11,495

Total Compensation

25,245

25,378

26,164

76,687

69,558

Premises

2,736

2,714

2,763

8,209

7,775

Equipment

3,296

3,259

3,143

9,763

8,908

Total Occupancy

6,032

5,973

5,906

17,972

16,683

Legal Fees

251

321

343

1,130

1,224

Professional Fees

1,459

1,406

1,175

4,195

3,630

Processing Services

1,775

1,794

1,529

5,114

4,533

Advertising

645

631

825

2,025

2,208

Telephone

731

754

683

2,239

2,120

Insurance - Other

509

545

434

1,555

1,150

Other Real Estate Owned, net

(1,126)

(270)

219

(1,514)

(463)

Pension Settlement

500

2,000

2,500

Miscellaneous

3,681

3,591

3,064

10,398

7,971

Total Other

8,425

10,772

8,272

27,642

22,373

Total

Noninterest Expense

39,702

42,123

40,342

122,301

108,614

Significant components of noninterest expense are discussed in more detail

below.

Compensation

Compensation expense totaled $25.2 million for the third quarter of 2021 compared

to $25.4 million for the second

quarter of 2021 and $26.2 million for the third quarter of 2020.

For the first nine months of 2021, compensation expense totaled $76.7

million compared to $69.6 million for the same period of 2020.

Compared to the third quarter of 2020, the $1.0 million decrease is

primarily due to lower incentive compensation at CCHL.

The $7.1 million increase for the nine month period was attributable to

compensation expense added through the CCHL acquisition on March

1, 2020.

Core CCBG compensation expense increased $1.5

million primarily due to merit raises.

Occupancy

Occupancy expense totaled $6.0 million for the third quarter of 2021, which was compar

able to the second quarter of

2021 and $5.9 million for the third quarter of 2020.

For the first nine months of 2021, occupancy expense totaled $18.0 million

compared to $16.7 million for the same period of 2020.

The increase for the nine month period was primarily due to the addition of

CCHL occupancy expense through the CCHL acquisition as well as higher

expense at core CCBG reflective of increased FF&E

depreciation related to an increase in technology investment.

Other

Other noninterest expense totaled $8.4 million for the third quarter of 2021

compared to $10.8 million for the second quarter

of 2021 and $8.3 million for the third quarter of 2020.

For the first nine months of 2021, other noninterest expense totaled $27.6

million compared to $22.4 million for the same period of 2020.

Compared to the second quarter of 2021, the $2.3 million decrease

was primarily attributable to lower pension plan settlement charge

of $1.5 million and lower OREO expense of $0.9 million due to

the sale of a banking office.

The $5.3 million increase for the nine month period was primarily due to the addition

of CCHL expenses

beginning in March 1, 2020, and to a lesser extent,

higher expenses at core CCBG, including processing fees of $0.6 million

(debit

card volume), professional fees of $0.5 million, and FDIC insurance

of $0.4 million (higher asset size), partially offset by lower

OREO expense of $1.1 million (gains from the sale of two banking offices).

In addition, we have realized pension settlement charges

totaling $2.5 million so far in 2021 and pension expense for our

base pension plan increased $1.5 million attributable to the utilization

of a lower discount rate for plan liabilities.

We anticipate additional

pension settlement expense in the fourth quarter of 2021.

Our operating efficiency ratio (expressed as noninterest

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

plus noninterest income) was 73.09% for the third quarter of 2021 compared

to 80.18% for the second quarter of 2021 and 67.01% for

the third quarter of 2020.

For the first nine months of 2021, this ratio was 75.83%

compared to 69.04% for the same period of 2020.

Additional detail on CCHL’s

operations and key performance metrics is provided below.

Three Months Ended

Nine Months Ended

(Dollars in thousands)

Sep 30, 2021

Jun 30, 2021

Sep 30, 2020

Sep 30, 2021

Sep 30, 2020

Net Interest Income

(30)

(165)

142

Mortgage Banking Fees

12,293

13,116

22,775

42,255

44,046

Other

455

425

287

1,306

587

Total Noninterest

Income

12,748

13,541

23,062

43,561

44,633

Salaries

7,600

8,538

10,753

26,414

21,376

Other Associate Benefits

215

210

192

646

446

Total Compensation

7,815

8,748

10,945

27,060

21,822

Occupancy, Net

849

854

845

2,564

1,844

Other

1,292

1,359

1,342

3,751

3,048

Total Noninterest

Expense

9,956

10,961

13,132

33,375

26,714

Operating Profit

2,762

2,599

9,947

10,021

18,061

Key Performance Metrics:

Total Loans Closed

360,167

406,859

526,252

1,230,151

1,139,681

Total Loans Closed -

Mix

Purchase

71%

76%

60%

69%

59%

Refinance

29%

24%

40%

31%

41%

Income Taxes

We realized income

tax expense of $2.9 million (effective rate of 20%) for the third quarter

of 2021 compared to $2.1

million

(effective rate of 19%) for the second quarter of 2021

and $3.2 million (effective rate of 17%) for the third quarter of 2020.

For the

first nine months of 2021, we realized income tax expense of $7.8 million (effective

rate of 19%) compared to $7.4 million (effective

rate of 18%) for the same period of 2020.

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

approximate 18%-19% for

the remainder of 2021.

FINANCIAL CONDITION

Average earning

assets totaled $3.693 billion for the third quarter of 2021, an increase of $69.2

million, or 1.9%, over the second

quarter of 2021, and an increase of $355.7 million, or 10.7%, over

the fourth quarter of 2020.

The increase over both prior periods

was primarily driven by higher deposit balances, which funded growth in the

investment portfolio.

Deposit balances increased as a

result of strong core deposit growth, SBA PPP loan proceeds deposited

in client accounts, and various other stimulus programs.

Investment Securities

In the third quarter of 2021, our average investment portfolio increased

$217.9 million, or 31.5%, over the second quarter of 2021 and

increased $391.5 million, or 75.6%, over the fourth quarter of 2020.

Our investment portfolio represented 24.6% of our average

earning assets for the third quarter of 2021 compared to 15.5% for the fourth quarter

of 2020, and 17.3% for the third quarter of 2020.

During the second quarter of 2021, we initiated a buy program to add to our

investment portfolio as part of our overall balance sheet

management,

which was completed by the end of the third quarter 2021.

For the remainder of 2021, we will continue to monitor our

overall liquidity position and look for opportunities to purchase additional

investment securities that align with our overall investment

strategy.

The investment portfolio is a significant component of our operations and, as such,

it functions as a key element of liquidity and

asset/liability management.

Two types of classifications are approved

for investment securities which are Available

-for-Sale (“AFS”)

and Held-to-Maturity (“HTM”).

During the third quarter of 2021, we purchased securities under both

the AFS and HTM designations.

At September 30, 2021, $645.8 million, or 65.4%, of our investment portfolio

was classified as AFS, and $341.2 million, or 34.6%,

classified as HTM.

The average maturity of our total portfolio at September 30, 2021 was 3.73

years compared to 3.34 years and 2.09

years at June 30, 2021 and December 31, 2020, respectively.

We determine

the classification of a security at the time of acquisition based on how the purchase will affect

our asset/liability strategy

and future business plans and opportunities.

We consider multiple

factors in determining classification, including regulatory

capital

requirements, volatility in earnings or other comprehensive income,

and liquidity needs.

Securities in the AFS portfolio are recorded

at fair value with unrealized gains and losses associated with these securities recorded

net of tax, in the accumulated other

comprehensive income component of shareowners’ equity.

HTM securities are acquired or owned with the intent of holding

them to

maturity.

HTM investments are measured at amortized cost.

We do not

trade, nor do we presently intend to begin trading investment

securities for the purpose of recognizing gains and therefore we do not maintain

a trading portfolio.

At September 30, 2021, there were 288 positions (combined AFS and HTM)

with unrealized losses totaling $3.8 million at September

30, 2021.

Of these 288 positions, 178 are U.S. government agency securities issued by

U.S. government sponsored entities which

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

are 0% risk-weighted assets for regulatory purposes. There were

28 U.S. government agency positions that carry the implicit guarantee

of the U.S. Government. We

believe the long history of no

credit losses on government securities indicates that the expectation of

nonpayment of the amortized cost basis is zero.

Four positions

are asset backed securities that carry a AAA rating.

The remaining 78 positions are corporate or municipal bonds that carry a

minimum credit rating of “A-“.

Corporate debt securities had allowance for credit losses totaling $16,000

at September 30, 2021.

Loans HFI

Average loans

held for investment (HFI) decreased $62.6 million, or 3.1%, from the second quarter of

2021 and $19.3 million, or

1.0%, from the fourth quarter of 2020.

Excluding SBA PPP loans, average loans increased $34.9 million and $125.2 million

and

period end loans increased $5.1 million and $102.8 million, respectively,

over the prior periods. Compared to the second quarter of

2021, the increase in period end loans reflected growth in construction

and indirect loans, partially offset by a decline in commercial

real estate.

Compared to the fourth quarter of 2020, we realized growth in construction,

residential, commercial real estate and

indirect loans.

At September 30, 2021, SBA PPP loan balances totaled $7.5 million and remaining deferred

SBA PPP net loan fees

totaled $0.3 million.

SBA PPP loan forgiveness applications are expected to be completed in the fourth

quarter 2021.

Without compromising our credit standards

changing our underwriting standards, or taking on inordinate interest rate risk,

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

Credit Quality

Nonperforming assets (nonaccrual loans and OREO, “NPAs”

)

totaled $3.2 million at September 30, 2021, a $3.1 million decrease

from June 30, 2021, and a $3.5 million decrease from December 31, 2020.

Nonaccrual loans totaled $3.0 million (0.16% of HFI

loans) at September 30, 2021

compared to $5.1 million (0.25% of HFI loans) at June 30, 2021 and $5.9

million (0.29% of HFI loans)

at December 31, 2020.

For additional metrics on NPAs

see the Asset Quality section of the Selected Quarterly Financial Data table.

For more information on nonaccrual loans see Note 3 – Loans Held for

Investment and Allowance for Credit Losses.

The balance of

OREO totaled $0.2 million at September 30, 2021, a decrease of $1.0

million from June 30, 2021

and $0.6

million from December 31,

2020.

Allowance for Credit Losses

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

the loans’ amortized cost basis to present the net amount

expected to be collected on the loans.

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

earnings, and reduced by the charge-off

of loan amounts (net of recoveries).

Loans are charged off against the allowance when

management believes the uncollectability of a loan balance is confirmed.

Expected recoveries do not exceed the aggregate of amounts

previously charged-off and expected to

be charged-off.

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

exposures is provided through the credit loss provision, but recorded

as a separate liability included in other liabilities.

Management estimates the allowance balance using relevant available

information, from internal and external sources relating to past

events, current conditions, and reasonable and supportable

forecasts.

Historical loan default and loss experience provides the basis for

the estimation of expected credit losses.

Adjustments to historical loss information incorporate management’s

view of current

conditions and forecasts.

At September 30, 2021, the allowance for credit losses for loans HFI totaled

$21.5 million compared to $22.2 million at June 30, 2021

and $23.8 million at December 31, 2020.

Activity within the allowance is detailed in Note 3 to the consolidated financial statements.

For the first nine months of 2021, the $2.3 million net decrease in the

allowance reflected net loan recoveries of $0.7

million,

favorable problem loan migration, and lower expected losses related to

COVID-19, partially offset by core loan growth (excluding

SBA PPP loans).

At September 30, 2021, the allowance represented 1.11%

of loans HFI and provided coverage of 710% of

nonperforming loans compared to 1.19% and 406%, respectively,

at December 31, 2020.

At September 30, 2021, the allowance for credit losses for unfunded

commitments totaled $3.1 million compared to $2.6 million at

June 30, 2021 and $1.6 million at December 31, 2020.

The allowance for unfunded commitments is recorded in other liabilities.

Deposits

Average total

deposits were $3.448 billion for the third quarter of 2021, an increase of $60.3 million, or

1.8%, over the second quarter

of 2021 and $381.6 million, or 12.4%, over the fourth quarter of 2020.

The strongest growth over both comparable periods occurred

in our noninterest bearing deposits and savings account balances. Average

public deposits in the third quarter 2021 decreased slightly

compared to the second quarter of 2021, but increased compared to the fourth

quarter of 2020.

Over the past 12 months, multiple

government stimulus programs have been implemented, including

those under the CARES Act and the American Rescue Plan Act,

which are responsible for a large part of the growth in average deposits.

Given these increases, the potential exists for our deposit

levels to be volatile for the remainder of 2021 and into 2022 due to the uncertain timing

of the outflows of the stimulus related

balances and the economic recovery.

It is anticipated that current liquidity levels will remain robust due to our strong overnight

funds

sold position.

The Bank continues to strategically consider ways to safely deploy a portion of

this liquidity.

We monitor

deposit rates on an ongoing basis and adjust if necessary,

as a prudent pricing discipline remains the key to managing our

mix of deposits.

MARKET RISK AND INTEREST RATE

SENSITIVITY

Market Risk and Interest Rate Sensitivity

Overview.

Market risk management arises from changes in interest rates, exchange

rates, commodity prices, and equity prices.

have risk management policies to monitor and limit exposure to interest rate risk

and do not participate in activities that give rise to

significant market risk involving exchange rates, commodity prices, or

equity prices. Our risk management policies are primarily

designed to minimize structural interest rate risk.

Interest Rate Risk Management.

Our net income is largely dependent on net interest income.

Net interest income is susceptible to

interest rate risk to the degree that interest-bearing liabilities mature

or re-price on a different basis than interest-earning assets.

When

interest-bearing liabilities mature or re-price more quickly than interest-earning

assets in a given period, a significant increase in

market rates of interest could adversely affect net interest

income.

Similarly, when interest-earning

assets mature or re-price more

quickly than interest-bearing liabilities, falling interest rates could result

in a decrease in net interest income.

Net interest income is

also affected by changes in the portion of interest-earning assets that are

funded by interest-bearing liabilities rather than by other

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

equity.

We have established

a comprehensive interest rate risk management policy,

which is administered by management’s

Asset/Liability

Management Committee (“ALCO”).

The policy establishes risk limits, which are quantitative measures of the percentage

change in

net interest income (a measure of net interest income at risk) and the fair value

of equity capital (a measure of economic value of

equity (“EVE”) at risk) resulting from a hypothetical change in interest rates for

maturities from one day to 30 years.

We measure

the

potential adverse impacts that changing interest rates may have on our

short-term earnings, long-term value, and liquidity by

employing simulation analysis through the use of computer modeling.

The simulation model is designed to capture optionality factors

such as call features and interest rate caps and floors imbedded in investment and loan portfolio

contracts.

As with any method of

analyzing interest rate risk, there are certain shortcomings inherent

in the interest rate modeling methodology that we use.

When

interest rates change, actual movements in different

categories of interest-earning assets and interest-bearing liabilities, loan

prepayments, and withdrawals of time and other deposits, may deviate significantly

from the assumptions that we use in our modeling.

Finally, the methodology

does not measure or reflect the impact that higher rates may have on variable and

adjustable-rate loan

clients’ ability to service their debts, or the impact of rate changes on demand

for loan and deposit products.

We prepare

a current base case and several alternative simulations at least once per quarter and

present the analysis to ALCO, with the

risk metrics also reported to the Board of Directors.

In addition, more frequent forecasts may be produced when interest rates are

particularly uncertain or when other business conditions so dictate.

Our interest rate risk management goal is to maintain expected changes

in our net interest income and capital levels due to fluctuations

in market interest rates within acceptable limits.

Management attempts to achieve this goal by balancing, within policy limits, the

volume of variable-rate liabilities with a similar volume of variable-rate

assets, by keeping the average maturity of fixed-rate asset and

liability contracts reasonably matched, by maintaining our core deposits as a significant

component of our total funding sources and by

adjusting rates to market conditions on a continuing basis.

We test our balance

sheet using varying interest rate shock scenarios to analyze our interest rate risk. Average

interest rates are

shocked by plus or minus 100, 200, 300,

and 400 basis points (“bp”), although we may elect not to use particular scenarios that we

determined are impractical in a current rate environment.

It is management’s goal to structure the

balance sheet so that net interest

earnings at risk over 12-month and 24-month periods, and the economic

value of equity at risk, do not exceed policy guidelines at the

various interest rate shock levels.

We augment

our interest rate shock analysis with alternative external interest rate scenarios

on a quarterly basis.

These alternative

interest rate scenarios may include non-parallel rate ramps.

Analysis

Measures of net interest income at risk produced by simulation analysis are

indicators of an institution’s short-term

performance in alternative rate environments.

These measures are typically based upon a relatively brief period and

do not necessarily

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

ESTIMATED CHANGES

IN NET INTEREST INCOME

(1)

Percentage Change (12-month shock)

+400 bp

+300 bp

+200 bp

+100 bp

-100 bp

Policy Limit

-15.0%

-12.5%

-10.0%

-7.5%

September 30, 2021

30.6%

22.7%

14.8%

7.1%

-5.7%

June 30,2021

33.1%

24.4%

15.8%

7.6%

-4.7%

Percentage Change (24-month shock)

+400 bp

+300 bp

+200 bp

+100 bp

-100 bp

Policy Limit

-17.5%

-15.0%

-12.5%

-10.0%

September 30, 2021

48.0%

35.0%

22.2%

10.0%

-9.9%

June 30,2021

46.0%

32.5%

19.1%

6.5%

-12.4%

The Net Interest Income at Risk positions indicate that, in the short-term,

all rising rate environments will positively impact the net

interest income of the Company,

while a declining rate environment of 100 bp will have a negative impact on

the net interest income.

Compared to the prior quarter-end, the 12-month

Net Interest Income at Risk position became less favorable in all rate scenarios

primarily due to lower levels of SBA PPP fee recognition coupled

with asset extension,

partially offset by higher rates.

Compared to

the prior quarter-end, the projected 24-month Net Interest

Income at Risk levels improved in rising rate scenarios due to higher

assumed replacement rates.

The down 100 bp scenario improved due to longer duration assets purchased over the

last two quarters.

All measures of Net Interest Income at Risk in rising rate and declining environments

are within our prescribed policy limits over the

next 12-month and 24-month periods.

The measures of equity value at risk indicate our ongoing economic value

by considering the effects of changes in interest rates on all

of our cash flows, and discounting the cash flows to estimate the present value of

assets and liabilities.

The difference between the

aggregated discounted values of the assets and liabilities is the economic

value of equity, which, in

theory, approximates the fair value

of our net assets.

ESTIMATED CHANGES

IN ECONOMIC VALUE

OF EQUITY

(1)

Changes in Interest Rates

+400 bp

+300 bp

+200 bp

+100 bp

-100 bp

Policy Limit

-30.0%

-25.0%

-20.0%

-15.0%

September 30, 2021

28.8%

22.3%

14.6%

7.9%

-16.5%

June 30,2021

47.9%

38.4%

27.5%

15.2%

-35.2%

(1) Down 200, 300, and 400 bp scenarios have been excluded due

to the low interest rate environment.

At September 30, 2021, the economic value of equity results are favorable

in all rising rate environments and are within prescribed

tolerance levels.

Although the EVE in rates down 100 bp is slightly outside of our policy

range, to be out of compliance, both the

EVE percentage and EVE ratio (EVE/EVA)

must be out of their desired range. Since the EVE ratio was 9.1% in a down 100 bp

scenario, which is above the policy minimum of 5.0%, we are considered

to be within Board policy at September 30, 2021.

The change in EVE in all scenarios reflects longer duration assets purchased

over the last two quarters, primarily due to investment

purchases in the bond portfolio. Given our asset sensitivity,

these longer duration assets resulted in a less favorable EVE in rising rate

scenarios, and more favorable EVE in falling rate scenarios.

LIQUIDITY AND CAPITAL

RESOURCES

Liquidity

In general terms, liquidity is a measurement of our ability to meet our

cash needs.

Our objective in managing our liquidity is to

maintain our ability to meet loan commitments, purchase securities or repay deposits and

other liabilities in accordance with their

terms, without an adverse impact on our current or future earnings.

Our liquidity strategy is guided by policies that are formulated and

monitored by our ALCO and senior management, which take into account

the marketability of assets, the sources and stability of

funding and the level of unfunded commitments.

We regularly evaluate

all of our various funding sources with an emphasis on

accessibility, stability,

reliability and cost-effectiveness.

Our principal source of funding has been our client deposits, supplemented

by our short-term and long-term borrowings, primarily from securities sold under

repurchase agreements, federal funds purchased and

FHLB borrowings.

We believe that the cash

generated from operations, our borrowing capacity and our access to

capital resources are

sufficient to meet our future operating capital and funding requirements.

At September 30, 2021, we had the ability to generate $1.456 billion

in additional liquidity through all of our available resources (this

excludes $709 million in overnight funds sold).

In addition to the primary borrowing outlets mentioned above, we also have

the

ability to generate liquidity by borrowing from the Federal Reserve Discount

Window and through brokered deposits.

We recognize

the importance of maintaining liquidity and have developed a Contingent

Liquidity Plan, which addresses various liquidity stress

levels and our response and action based on the level of severity.

We periodically

test our credit facilities for access to the funds, but

also understand that as the severity of the liquidity level increases that certain credit facilities may

no longer be available.

We conduct

a liquidity stress test on a quarterly basis based on events that could potentially occur

at the Bank and report results to ALCO, our

Market Risk Oversight Committee, Risk Oversight Committee,

and the Board of Directors.

At September 30, 2021, we believe the

liquidity available to us was sufficient to meet our on-going needs

and execute our business strategy.

We view our

investment portfolio primarily as a source of liquidity and have the option to pledge the portfolio

as collateral for

borrowings or deposits, and/or sell selected securities.

The portfolio primarily consists of debt issued by the U.S. Treasury,

U.S.

governmental and federal agencies, municipal governments,

corporate bonds, and asset-backed securities.

The weighted average life

of the portfolio was approximately 3.73 years at September 30, 2021, and

the available for sale portfolio had a net unrealized pre-tax

loss of $0.7 million.

Our average overnight funds position (defined deposits with banks plus

Fed funds sold less Fed funds purchased) was $741.9 million

in the third quarter of 2021 compared to an average net overnight funds

sold position of $818.6 million in the second quarter of 2021

and $705.1 million in the fourth quarter of 2020.

The decrease compared to the second quarter of 2021 was primarily due to

growth in

the investment portfolio.

The increase compared to the fourth quarter 2020 was driven by strong core

deposit growth, in addition to

pandemic related stimulus programs.

We expect our

capital expenditures will be approximately $7.0 million over the next 12 months, which

will primarily consist of office

remodeling, office equipment/furniture, and technology

purchases.

Management expects that these capital expenditures will be

funded with existing resources without impairing our ability to meet our

on-going obligations.

Borrowings

At September 30, 2021, average short term borrowings totaled $49.8

million compared to $51.2 million at June 30, 2021 and $95.3

million at December 31, 2020. The variance over both prior periods

was attributable to the fluctuation of residential mortgage

warehouse borrowings at CCHL.

Additional detail on these borrowings is provided in Note 4 – Mortgage Banking

Activities in the

Consolidated Financial Statements.

At September 30, 2021, fixed rate credit advances from the FHLB totaled $1.7

million in outstanding debt consisting of five notes.

During the first nine months of 2021, the Bank made FHLB advance payments

totaling approximately $0.5 million, which included

one advance that paid off, and another that matured. We

did not obtain any new FHLB advances during this period. The FHLB notes

are collateralized by a blanket floating lien on all of our 1-4 family residential mortgage

loans, commercial real estate mortgage loans,

and home equity mortgage loans.

We have issued two

junior subordinated deferrable interest notes to our wholly owned

Delaware statutory trusts.

The first note for

$30.9 million was issued to CCBG Capital Trust I in

November 2004, of which $10 million was retired in April 2016.

The second

note for $32.0 million was issued to CCBG Capital Trust II in

May 2005.

The interest payment for the CCBG Capital Trust I

borrowing is due quarterly and adjusts quarterly to a variable rate of three-month

LIBOR plus a margin of 1.90%.

This note matures

on December 31, 2034.

The interest payment for the CCBG Capital Trust II borrowing is due

quarterly and adjusts quarterly to a

variable rate of three-month LIBOR plus a margin of 1.80%.

This note matures on June 15, 2035.

The proceeds from these

borrowings were used to partially fund acquisitions.

Under the terms of each junior subordinated deferrable interest note, in the event

of default or if we elect to defer interest on the note, we may not, with certain exceptions,

declare or pay dividends or make

distributions on our capital stock or purchase or acquire any of our capital

stock.

We continue to evaluate

the impact of the expected

discontinuation of LIBOR on our two junior subordinated deferrable

interest notes.

During the second quarter of 2020, we entered into a derivative cash

flow hedge of our interest rate risk related to our subordinated

debt.

The notional amount of the derivative is $30 million ($10 million of the CCBG Capital Trust

I borrowing and $20 million of the

CCBG Capital Trust II borrowing).

The interest rate swap agreement requires CCBG to pay fixed and receive variable (Libor

plus

spread) and has an average all-in fixed rate of 2.50% for 10 years.

Additional detail on the interest rate swap agreement is provided in

Note 5 – Derivatives in the Consolidated Financial Statements.

Capital

Our capital ratios are presented in the Selected Quarterly Financial Data table

on page 31.

At September 30, 2021, our regulatory

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

under the Basel III capital standards.

Shareowners’ equity was $348.9 million at September 30, 2021

compared to $335.9 million at June 30, 2021 and $320.8 million at

December 31, 2020.

For the first nine months of 2021, shareowners’ equity was positively impacted by

net income of $27.0 million, a

$1.0 million increase in fair value of the interest rate swap related to subordinated

debt, net adjustments totaling $2.2 million related to

transactions under our stock compensation plans, and reclassification of

$7.8 million from temporary equity to decrease the

redemption value of the non-controlling interest in CCHL.

In addition, $1.6 million was reclassified from accumulated other

comprehensive loss to pension expense in conjunction with the partial

pension settlement charge reflected in earnings, therefore,

the

charge had no net effect on equity.

Shareowners’ equity was reduced by common stock dividends of $7.8 million

($0.46 per share), a

$3.2 million decrease in the unrealized gain on investment securities, and

stock compensation of $0.5 million.

At September 30, 2021, our common stock had a book value of $20.63

per diluted share compared to $19.87 at June 30, 2021

and

$19.05 at December 31, 2020.

Book value is impacted by the net after-tax unrealized gains and

losses on AFS investment securities.

At September 30, 2021, the net loss was $0.5 million compared to a $0.9 million

net gain at June 30, 2021 and a $2.7 million net gain

at December 31, 2020.

Book value is also impacted by the recording of our unfunded pension liability

through other comprehensive

income in accordance with Accounting Standards Codification Topic

715.

At September 30, 2021, the net pension liability reflected

in other comprehensive loss was $45.6 million compared to $45.6 million

at June 30, 2021 and $47.2 million at December 31, 2020.

This liability is re-measured annually on December 31

based on an actuarial calculation of our pension liability.

Significant

assumptions used in calculating the liability are discussed in our 2020 Form

10-K “Critical Accounting Policies” and include the

weighted average discount rate used to measure the present value of the pension

liability, the weighted

average expected long-term

rate of return on pension plan assets, and the assumed rate of annual compensation

increases, all of which will vary when re-measured.

The discount rate assumption used to calculate the pension liability is subject to

long-term corporate bond rates at December 31

The

estimated impact to the pension liability based on a 25-basis point increase

or decrease in long-term corporate bond rates used to

discount the pension obligation would decrease or increase the pension

liability by approximately $6.6 million (after-tax) using the

balances from the December 31, 2020 measurement date.

OFF-BALANCE SHEET ARRANGEMENTS

We are a party

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

course of business to meet the financing needs of our

clients.

At September 30, 2021, we had $750.4 million in commitments to extend

credit and $5.7 million in standby letters of credit.

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

any condition established in the

contract.

Commitments generally have fixed expiration dates or other termination

clauses and may require payment of a fee.

Since

many of the commitments are expected to expire without being drawn upon,

the total commitment amounts do not necessarily

represent future cash requirements.

Standby letters of credit are conditional commitments issued by us to guarantee

the performance

of a client to a third party.

We use the same credit

policies in establishing commitments and issuing letters of credit as we do for on-

balance

sheet instruments.

If commitments arising from these financial instruments continue to require

funding at historical levels, management does not

anticipate that such funding will adversely impact our ability to meet our on-going

obligations.

In the event these commitments

require funding in excess of historical levels, management believes current

liquidity, advances available from the

FHLB and the

Federal Reserve, and investment security maturities provide a sufficient

source of funds to meet these commitments.

Certain agreements provide that the commitments

are unconditionally cancellable by the bank and for those agreements no allowance

for credit losses has been recorded.

We have recorded

an allowance for credit losses on loan commitments that are not

unconditionally cancellable by the bank, which is included in other

liabilities on the consolidated statements of financial condition and

totaled $3.1 million at September 30, 2021.

CRITICAL ACCOUNTING POLICIES

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

Financial Statements included in our 2020 Form 10-K.

The preparation of our Consolidated Financial Statements

in accordance with GAAP and reporting practices applicable to the banking

industry requires us to make estimates and assumptions that affect

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

and to disclose contingent assets and liabilities.

Actual results could differ from those estimates.

We have identified

accounting for (i) the allowance for credit losses, (ii) valuation of goodwill and other

identifiable intangible assets,

(iii) pension benefits, and (iv) income taxes as our most critical accounting

policies and estimates in that they are important to the

portrayal of our financial condition and results, and they require our subjective

and complex judgment as a result of the need to make

estimates about the effects of matters that are inherently

uncertain.

These accounting policies, including the nature of the estimates

and types of assumptions used, are described throughout this Item 2, Management’s

Discussion and Analysis of Financial Condition

and Results of Operations, and Part II, Item 7, Management’s

Discussion and Analysis of Financial Condition and Results of

Operations included in our 2020 Form 10-K.

TABLE I

AVERAGE BALANCES & INTEREST RATES

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

Average

(Dollars in Thousands)

Balances

Interest

Rate

Balances

Interest

Rate

Balances

Interest

Rate

Balances

Interest

Rate

Assets:

Loans Held for Sale

67,753

497

2.91

92,522

671

3.64

83,558

2,033

3.24

67,719

1,577

3.50

Loans Held for Investment

(1)(2)

1,974,132

25,458

5.12

2,005,178

23,027

4.53

2,018,168

72,036

4.76

1,945,524

69,598

4.77

Taxable Securities

904,962

2,333

1.03

553,395

2,401

1.73

708,606

6,232

1.17

594,654

8,104

1.82

Tax-Exempt Securities

(2)

4,332

2.31

4,860

2.66

3,904

2.49

5,338

2.34

Funds Sold

741,944

285

0.15

567,883

146

0.10

791,466

698

0.12

385,245

991

0.34

Total Earning Assets

3,693,123

28,598

3.07

3,223,838

26,277

3.25

3,605,702

81,072

3.01

2,998,480

80,364

3.58

Cash & Due From Banks

72,773

69,893

71,956

66,512

Allowance For Credit Losses

(22,817)

(22,948)

(23,241)

(19,672)

Other Assets

283,534

268,549

281,162

257,993

TOTAL ASSETS

4,026,613

3,539,332

3,935,579

3,303,313

Liabilities:

NOW Accounts

945,788

0.03

826,776

0.03

965,839

222

0.03

808,389

864

0.14

Money Market Accounts

282,860

0.05

247,185

0.05

274,990

100

0.05

227,331

189

0.11

Savings Accounts

551,383

0.05

438,762

0.05

524,710

192

0.05

409,230

150

0.05

Other Time Deposits

102,765

0.14

104,522

0.16

102,619

112

0.15

104,925

144

0.18

Total Interest Bearing Deposits

1,882,796

210

0.04

1,617,245

190

0.05

1,868,158

626

0.04

1,549,875

1,347

0.12

Short-Term Borrowings

49,773

317

2.53

74,557

498

2.66

55,923

1,053

2.52

60,335

1,051

2.33

Subordinated Notes Payable

52,887

307

2.27

52,887

316

2.34

52,887

922

2.30

52,887

1,161

2.89

Other Long-Term Borrowings

1,652

3.37

5,453

2.91

2,046

3.29

5,842

131

3.00

Total Interest Bearing Liabilities

1,987,108

848

0.17

1,750,142

1,044

0.24

1,979,014

2,652

0.18

1,668,939

3,690

0.30

Noninterest Bearing Deposits

1,564,892

1,354,032

1,490,787

1,220,002

Other Liabilities

112,707

83,192

110,526

71,661

TOTAL LIABILITIES

3,664,707

3,187,366

3,580,327

2,960,602

Temporary Equity

20,446

11,893

22,920

7,534

TOTAL SHAREOWNERS’ EQUITY

341,460

340,073

332,332

335,177

TOTAL LIABILITIES, TEMPORARY

AND SHAREOWNERS’ EQUITY

4,026,613

3,539,332

3,935,579

3,303,313

Interest Rate Spread

2.91

3.01

2.83

3.29

Net Interest Income

27,750

25,233

78,420

76,674

Net Interest Margin

(3)

2.98

3.12

2.91

3.42

(1)

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

Interest income includes loans fees of $3.2 million

and $0.7 million for the three month periods ended September

30, 2021 and

2020, respectively, and $6.3 million and $1.5 million for the nine month periods ended September

30, 2021 and 2020, respectively.

(2)

Interest income includes the effects of taxable equivalent adjustments

using a 21% Federal tax rate.

(3)

Taxable equivalent net interest income divided by average earning assets.

Item 3.

QUANTITATIVE

AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

See “Market Risk and Interest Rate Sensitivity” in Management’s

Discussion and Analysis of Financial Condition and Results of

Operations, above, which is incorporated herein by reference.

Management has determined that no additional disclosures are

necessary to assess changes in information about market risk that have occurred

since December 31, 2020.

Item 4.

CONTROLS AND PROCEDURES

At September 30, 2021, the end of the period covered by this Form 10-Q, our management,

including our Chief Executive Officer and

Chief Financial Officer, evaluated

the effectiveness of our disclosure controls and procedures (as defined

in Rule 13a-15(e) under the

Securities Exchange Act of 1934).

Based upon that evaluation, the Chief Executive Officer and Chief Financial

Officer concluded

that, as of the end of the period covered by this report these disclosure controls and procedures

were effective.

Our management, including our Chief Executive Officer

and Chief Financial Officer, has reviewed

our internal control over financial

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

Act of 1934).

During the quarter ended on September 30, 2021,

other than the above, there have been no significant changes in our internal

control over financial reporting during our most recently

completed fiscal quarter that have materially affected,

or are reasonably likely to materially affect, our internal control over

financial

reporting.

PART

II.

OTHER INFORMATION

Item 1.

Legal Proceedings

We are party

to lawsuits arising out of the normal course of business.

In management's opinion, there is no known pending litigation,

the outcome of which would, individually or in the aggregate, have a material effect

on our consolidated results of operations,

financial position, or cash flows.

Item 1A.

Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider

the factors discussed in Part I,

Item 1A. “Risk Factors” in our 2020 Form 10-K, as updated in our subsequent

quarterly reports. The risks described in our 2020 Form

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

and uncertainties not currently known to us

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

our business, financial condition and/or operating

results.

U.S. presidential directives concerning mandatory

COVID-19 vaccination could have a material adverse impact on our

business and results of operations.

On September 9, 2021, President Biden announced two actions that require

certain companies to ensure their employees are

vaccinated against COVID-19. One order applies to U.S. Government

contractors and the other directive applies to companies with

100 or more employees.

In the second directive, he required the Occupational Safety and Health Administration

(OSHA) to develop

an Emergency Temporary

Standard (ETS) mandating either that employees are fully vaccination against

COVID-19 or are tested

weekly. OSHA has not yet

issued the ETS nor provided any additional information on its contents or requirements.

Although we are not a U.S. Government contractor,

we do have more than 100 employees and will likely be subject to the ETS.

As a

result, we have set November 22, 2021 as the date that all of our associates will need to

comply with the U.S. presidential directive to

OSHA by being vaccinated against COVID-19 or tested weekly.

It is currently not possible to predict with certainty the impact the

OSHA ETS or any similar directives will have on our workforce.

Our implementation of these type of directives may result in

attrition, including attrition of our employees and difficulty

securing future labor needs, which could have a material adverse effect

our business, financial condition, and results of operations.

Item 2.

Unregistered Sales of Equity Securities and Use of

Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosure

Not Applicable.

Item 5.

Other Information

None.

Item 6.

Exhibits

(A)

Exhibits

31.1

Certification of William G. Smith, Jr., Chairman, President and Chief Executive Officer of Capital City Bank Group, Inc.,

Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

31.2

Certification of J. Kimbrough Davis, Executive Vice President and Chief Financial Officer of Capital City Bank Group,

Inc., Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

32.1

Certification of William G. Smith, Jr., Chairman, President and Chief Executive Officer of Capital City Bank Group, Inc.,

Pursuant to 18 U.S.C. Section 1350.

32.2

Certification of J. Kimbrough Davis, Executive Vice President and Chief Financial Officer of Capital City Bank Group,

Inc., Pursuant to 18 U.S.C. Section 1350.

101.SCH

XBRL Taxonomy

Extension Schema Document

101.CAL

XBRL Taxonomy

Extension Calculation Linkbase Document

101.LAB

XBRL Taxonomy

Extension Label Linkbase Document

101.PRE

XBRL Taxonomy

Extension Presentation Linkbase Document

101.DEF

XBRL Taxonomy

Extension Definition Linkbase Document

SIGNATURES

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

has duly caused this Report to be signed on its

behalf by the undersigned Chief Financial Officer hereunto duly

authorized.

CAPITAL

CITY BANK GROUP,

INC.

(Registrant)

/s/ J. Kimbrough Davis

J. Kimbrough Davis

Executive Vice President

and Chief Financial Officer

(Mr. Davis is the Principal Financial

Officer and has

been duly authorized to sign on behalf of the Registrant)

Date: October 29, 2021