Capital City Bank Group - 10-K annual report 2020

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,

20549

___________________________________

FORM

10-K

☒

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

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended

December 31, 2020

☐

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

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Capital City Bank Group, Inc.

(Exact name of Registrant as specified in its charter)

Florida

0-13358

59-2273542

(State of Incorporation)

(Commission File Number)

(IRS Employer Identification No.)

217 North Monroe Street

Tallahassee

Florida

32301

(Address of principal executive offices)

(Zip Code)

(

850

)

402-7821

(Registrant’s telephone number, including area code)

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

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, $0.01 par value

CCBG

The

Nasdaq Stock Market

LLC

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

None

Indicate

by check

mark if

the registrant

is a well-known

seasoned

issuer,

as defined

in Rule

405 of

the Securities

Act. Yes

☐

☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes

☐

☒

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

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

such filing requirements for the past 90 days. Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,

every Interactive Data File

required to be submitted and posted 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 and post such files). Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,

a non-accelerated filer, a smaller reporting company,

or an emerging growth company.

See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting

company,” and “emerging

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

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging

growth company, indicate

by check mark

if the registrant has

elected not to use

the extended transition period

for complying with

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

☐

Indicate

by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its

internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting

firm that prepared or issued its audit report.

☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2

of the Exchange Act). Yes

☐

☒

The aggregate market value of the registrant’s common stock, $0.01 par value per share, held by non-affiliates of the registrant on June 30, 2020,

the last business day of the registrant’s most recently completed second fiscal quarter,

was approximately $

277,245,803

(based on the closing sales

price of the registrant’s common stock on that date). Shares of the registrant’s

common stock held by each officer and director and each person

known to the registrant to own 10% or more of the outstanding voting power of the registrant have been excluded in that such

persons may be

deemed to be affiliates. This determination of affiliate status is not a determination for other purposes.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class

Outstanding at February 25, 2021

Common Stock, $0.01 par value per share

16,840,267

DOCUMENTS INCORPORATED BY REFERENCE

Portions of our Proxy Statement for the Annual Meeting of Shareowners to be held on April 27, 2021, are incorporated by reference in Part III.

CAPITAL CITY BANK

GROUP,

INC.

ANNUAL REPORT FOR 2020

ON FORM 10-K

TABLE OF CONTENTS

PART

PAGE

Item 1.

Business

Item 1A.

Risk Factors

Item 1B.

Unresolved Staff Comments

Item 2.

Properties

Item 3.

Legal Proceedings

Item 4.

Mine Safety Disclosure

PART

Item 5.

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

Equity Securities

Item 6.

Selected Financial Data

Item 7.

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

Item 7A.

Quantitative and Qualitative Disclosure About Market Risk

Item 8.

Financial Statements and Supplementary Data

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

117

Item 9A.

Controls and Procedures

117

Item 9B.

Other Information

117

PART

III

Item 10.

Directors, Executive Officers, and Corporate Governance

119

Item 11.

Executive Compensation

119

Item 12.

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

119

Item 13.

Certain Relationships and Related Transactions, and Director Independence

119

Item 14.

Principal Accountant Fees and Services

119

PART

Item 15.

Exhibits and Financial Statement Schedules

120

Item 16.

Form 10-K Summary

121

Signatures

122

INTRODUCTORY NOTE

This Annual Report on Form 10-K contains “forward-looking

statements” within the meaning of the Private Securities Litigation

Reform Act of 1995. These forward-looking statements include,

among others, statements about our beliefs, plans, objectives,

goals,

expectations, estimates and intentions that are subject to significant

risks and uncertainties and are subject to change based

on various factors, many of which are beyond our control.

The words “may,”

“could,” “should,” “would,” “believe,”

“anticipate,”

“estimate,” “expect,” “intend,” “plan,” “target,” “vision,”

“goal,” and similar expressions are intended to identify

forward-looking statements.

All forward-looking statements, by their nature, are subject

to risks and uncertainties.

Our actual future results may differ

materially

from those set forth in our forward-looking statements.

In addition to those risks discussed in this Annual Report

under Item 1A Risk Factors, factors that could cause our actual results

to differ materially from those in the forward

-looking statements, include, without limitation:

●

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;

●

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 com

puter 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 loan loss reserve,

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 Annual Report also could adversely affect

our results, and you should not consider any such

list of factors to be a complete set of all potential risks or

uncertainties.

Any

forward-looking statements made by us or on our behalf

speak only as of the date they are made.

We do not undertake

to update

any forward-looking statement, except as required by applicable

law.

PART

Item 1.

Business

About Us

General

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

holding company headquartered in Tallahassee,

Florida. CCBG was

incorporated under Florida law on December 13, 1982,

to acquire five national banks and one state bank that all subsequently

became part of CCBG’s bank

subsidiary, Capital City

Bank (“CCB” or the “Bank”). The Bank commenced

operations in 1895. In

this report, the terms “Company,”

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

in our consolidated financial

statements.

We provide

traditional deposit and credit services, mortgage banking, asset management,

trust, merchant services, bank cards,

data processing, and securities brokerage services through

57 banking offices in Florida, Georgia, and

Alabama operated by CCB.

Through Capital City Home Loans, LLC, a Georgia

limited liability company (“CCHL”), we have 29 additional offices

for our

mortgage banking business in the Southeast.

The majority of the revenue from Core CCBG (excludes CCHL),

approximately

88%, is derived from our Florida market areas while approximately

11%

and 1% of the revenue is derived from our Georgia

and

other market areas, respectively.

Approximately 61% of the revenue from CCHL is derived from

our Georgia market areas while

approximately 32% and 7% is derived from our Florida

and other market areas, respectively.

Below is a summary of our financial condition and results of operations

for the past three years, which we believe is a sufficient

period for understanding our general business development.

Our financial condition and results of operations are more

fully

discussed in our Management’s

Discussion and Analysis on page 33 and our consolidated

financial statements on page 67.

Dollars in millions

Year

Ended

December 31,

Assets

Deposits

Shareowners’

Equity

Revenue

(1)

Net Income

2020

$3,798.1

$3,217.6

$320.8

$217.4

$31.6

2019

$3,089.0

$2,645.5

$327.0

$165.9

$30.8

2018

$2,959.2

$2,531.9

$302.6

$151.0

$26.2

(1)

Revenue represents interest income plus noninterest income

Dividends and management fees received from the

Bank are CCBG’s primary source

of income. Dividend payments by the Bank

to CCBG depend on the capitalization, earnings and

projected growth of the Bank, and are limited by various regulatory

restrictions, including compliance with a minimum Common

Equity Tier 1 Capital conservation buffer.

See the section entitled

“Regulatory Considerations”

in this

Item 1

and Note 17 in the Notes to Consolidated Financial Statements for

a discussion of the

restrictions.

Item 6 contains other financial and statistical information

about us.

Subsidiaries of CCBG

CCBG’s principal asset is the capital

stock of CCB, our wholly owned banking subsidiary,

which accounted for nearly 100% of

consolidated assets and net income attributable to CCBG at December

31, 2020.

In addition to our banking subsidiary,

CCB has

two primary subsidiaries, which are wholly owned, Capital

City Trust Company and Capital City Investments,

Inc.

We also

maintain a 51% membership interest in a consolidated

subsidiary, CCHL, which we

acquired on March 1, 2020.

Refer to Note 1

– Significant Accounting Policies/Business Combination

in our Consolidated Financial Statements for additional information

this strategic alliance.

The nature of these subsidiaries is provided below.

Operating Segment

We have one

reportable segment with three principal services: Banking Services (CCB), Trust

and Asset Management Services

(Capital City Trust Company), and

Brokerage Services (Capital City Investments, Inc.).

Revenues from each of these principal

services for the year ended 2020 totaled approximately

94.7%, 2.7%, and 2.41% of our total revenue, respectively.

In 2019 and

2018, Banking Services (CCB) revenue was approximately

95.3% and 95.6% of our total revenue for each respective

year.

Capital City Bank

CCB is a Florida-chartered full-service bank engaged

in the commercial and retail banking business. Significant services

offered

by CCB include:

●

Business Banking

– We provide banking

services to corporations and other business clients. Credit products

are available

for a wide variety of general business purposes, including

financing for commercial business properties, equipment,

inventories and accounts receivable, as well as commercial

leasing and letters of credit. We

also provide treasury

management services, and, through a marketing alliance

with Elavon, Inc., merchant credit card transaction processing

services.

●

Commercial Real Estate Lending

– We provide

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

developers and investors, residential builders and developers,

and community development. Credit products are available

to purchase land and build structures for business use and

for investors who are developing residential or commercial

property.

●

Residential Real Estate Lending

– We provide

products through our strategic alliance with CCHL and its existing

network of locations to help meet the home financing

needs of consumers, including conventional permanent and

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

financing arrangements, and FHA/VA

/GNMA loan products.

We offer

both fixed and adjustable

rate residential mortgage (ARM) loans.

We offer

these products through our existing

network of CCHL locations.

We do not

originate subprime residential real estate loans.

●

Retail Credit

– We provide

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

including personal loans,

automobile loans, boat/RV

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

we offer credit card

programs.

●

Institutional Banking –

We provide

banking services to meet the needs of state and local governments,

public schools

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

associations including customized checking and savings accounts,

cash management systems, tax-exempt loans, lines of

credit, and term loans.

●

Retail Banking

– We provide

a full-range of consumer banking services, including checking

accounts, savings programs,

interactive/automated teller machines (ITMs/ATMs),

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

online banking, and mobile banking.

Capital City Trust Company

Capital City Trust Company,

or the Trust Company,

provides asset management for individuals through agency,

personal trust,

IRA, and personal investment management accounts.

Associations, endowments, and other nonprofit entities hire the

Trust

Company to manage their investment portfolios.

Additionally, a staff

of well-trained professionals serves individuals requiring

the

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

The market value of trust assets under discretionary

management

exceeded $985.6 million at December 31, 2020

with total assets under administration exceeding $999.5 million.

Capital City Investments, Inc.

We offer

our customers access to retail investment products through

LPL Financial pursuant to which retail investment products

would be offered through LPL. LPL offers

a full line of retail securities products, including U.S. Government

bonds, tax-free

municipal bonds, stocks, mutual funds, unit investment

trusts, annuities, life insurance and long-term health care. Non-deposit

investment and insurance products are: (i) not FDIC

insured; (ii) not deposits, obligations, or guarantees by

any bank; and (iii)

subject to investment risk, including the possible loss of

principal amount invested.

Lending Activities

One of our core goals is to support the communities in which

we operate. We

seek loans from within our primary market area,

which is defined as the counties in which our banking

offices are located.

We will also originate

loans within our secondary

market area, defined as counties adjacent to those in

which we have banking offices.

There may also be occasions when we will

have opportunities to make loans that are out of both

the primary and secondary market areas, including participation

loans.

These loans are generally only approved if the applicant is known

to us, underwriting is consistent with our criteria, and the

applicant’s primary business is

in or near our primary or secondary market area.

Approval of all loans is subject to our policies

and standards described in more detail below.

We have adopted

comprehensive lending policies, underwriting standards

and loan review procedures. Management and our

Board of Directors reviews and approves these policies and

procedures on a regular basis (at least annually).

Management has also implemented reporting systems

designed to monitor loan originations, loan quality,

concentrations of

credit, loan delinquencies, nonperforming loans, and potential

problem loans. Our management and the Credit Risk Oversight

Committee periodically review our lines of business to

monitor asset quality trends and the appropriateness of

credit policies. In

addition, total borrower exposure limits are established and

concentration risk is monitored. As part of this process,

the overall

composition of the portfolio is reviewed to gauge

diversification of risk, client concentrations, industry group,

loan type,

geographic area, or other relevant classifications of loans.

Specific segments of the portfolio are monitored and reported

to our

Board on a quarterly basis and we have strategic plans

in place to supplement Board approved credit policies governing

exposure

limits and underwriting standards. We

recognize that exceptions to the below-listed policy guidelines

may occasionally occur and

have established procedures for approving exceptions to

these policy guidelines.

Residential Real Estate Loans

We originate

1-4 family, owner-occupied

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

A vast majority

of residential loan originations are fixed-rate loans

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

We will

frequently sell loans and retain the servicing rights.

Note 4 – Mortgage Banking Activities in the Notes to Our Consolidated

Financial Statements provides additional information

on our servicing portfolio.

CCB also maintains a portfolio of residential loans held

for investment and will periodically purchase newly originated

1-4

family secured adjustable rate loans from CCHL for

that portfolio.

Residential loans held for investment are generally

underwritten in accordance with secondary market

guidelines in effect at the time of origination, including

loan-to-value, or LTV,

and documentation requirements.

Residential real estate loans also include home equity

lines of credit, or HELOCs, and home equity loans. Our home

equity

portfolio includes revolving open-ended equity loans

with interest-only or minimal monthly principal payments and

closed-end

amortizing loans. Open-ended equity loans typically

have an interest only 10-year draw period followed by a five-year

repayment

period of 0.75% of principal balance monthly and balloon

payment at maturity.

As of December 31, 2020,

approximately 68%

our residential home equity loan portfolio consisted of

first mortgages.

Interest rates may be fixed or adjustable.

Adjustable-rate

loans are tied to the Prime Rate with a typical margin

of 1.0% or more.

Commercial Loans

Our policy sets forth guidelines for debt service coverage

ratios, LTV

ratios and documentation standards. Commercial loans are

primarily made based on identified cash flows of

the borrower with consideration given to underlying collateral

and personal or

other guarantees. We

have established debt service coverage ratio limits that require

a borrower’s cash flow to be sufficient to

cover principal and interest payments on all new

and existing debt. The majority of our commercial loans are secured

by the

assets being financed or other business assets such as accounts receivable

or inventory.

Many of the loans in the commercial

portfolio have variable interest rates tied to the Prime

Rate or U.S. Treasury indices.

Commercial Real Estate Loans

We have adopted

guidelines for debt service coverage ratios, LTV

ratios and documentation standards for commercial real estate

loans. These loans are primarily made based on identified

cash flows of the borrower with consideration given to underlying

real

estate collateral and personal guarantees. Our policy

establishes a maximum LTV

specific to property type and minimum debt

service coverage ratio limits that require a borrower’s

cash flow to be sufficient to cover principal and

interest payments on all

new and existing debt. Commercial real

estate loans may be fixed or variable-rate loans with interest rates

tied to the Prime Rate

or U.S. Treasury indices. We

require appraisals for loans in excess of $250,000 that

are secured by real property.

Consumer Loans

Our consumer loan portfolio includes personal installment loans,

direct and indirect automobile financing, and overdraft lines of

credit. The majority of the consumer loan portfolio consists of

indirect and direct automobile loans. The majority of our

consumer

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

are priced based on current market interest rates and the financial

strength of the borrower.

Our policy establishes maximum debt-to-income ratios,

minimum credit scores, and includes guidelines

for verification of applicants’ income and receipt

of credit reports.

Lending Limits and Extensions of Additional Credit

We have established

an internal lending limit of $10 million for the total aggregate

amount of credit that will be extended to a

client and any related entities within our Board approved

policies. This compares to our legal lending limit of approximately

$76

million.

Loan Modification and Restructuring

In the normal course of business, we receive requests from

our clients to renew,

extend, refinance, or otherwise modify their

current loan obligations. In most cases, this may be the result of

a balloon maturity that is common in most commercial loan

agreements, a request to refinance to obtain current market

rates of interest, competitive reasons, or the conversion of

construction loan to a permanent financing structure

at the completion or stabilization of the property.

In these cases, the request

is held to the normal underwriting standards and pricing

strategies as any other loan request, whether new or renewal.

In other cases, we may modify a loan because of a

reduction in debt service capacity experienced by the client

(i.e., a potentially

troubled loan whereby the client may be experiencing

financial difficulties). To

maximize the collection of loan balances, we

evaluate troubled loans on a case-by-case basis to determine

if a loan modification would be appropriate. We

pursue loan

modifications when there is a reasonable chance that an

appropriate modification would allow our client to continue servicing

the

debt.

The CARES Act permitted banks to suspend

requirements under GAAP for loan

modifications to borrowers affected by COVID-

19 that would otherwise be characterized

as Troubled Debt Restructurings

and suspend any determination related

thereto if (i) the

loan modification was made between March

1, 2020 and the earlier of December

31, 2020 or 60 days after the end of

the COVID-

19 emergency declaration, and (ii) the applicable

loan was not more than 30 days past

due as of December 31, 2019.

The federal

banking agencies also issued guidance

to encourage banks to make loan

modifications for borrowers affected

by COVID-19 and to

assure banks that they would not

be criticized by examiners for

doing so.

We applied this guidance to qualifying loan

modifications.

Expansion of Business

See MD&A (Business Overview) for disclosures regarding

the expansion of our Business.

Competition

We operate

in a highly competitive environment, especially with respect to

services and pricing, that has undergone significant

changes since the recent financial crisis. Since January

1, 2009, over 500 financial institutions have failed in the

U.S., including

85 in Georgia and 70 in Florida. Nearly all

of the failed banks were community banks. The assets and deposits

of many of these

failed community banks were acquired mostly by larger

financial institutions. The banking industry has also experienced

significant consolidation through mergers and

acquisition, which we expect will continue during 2021. However,

we believe that

the larger financial institutions acquiring banks

in our market areas are less familiar with the markets in

which we operate and

typically target a different client base.

We also believe

clients who bank at community banks tend to prefer the relationship

style

service of community banks compared to larger

banks.

As a result, we expect to be able to effectively

compete in our markets with larger financial institutions through

providing

superior client service and leveraging our knowledge

and experience in providing banking products and services in

our market

areas. Thus, a further reduction of the number of community

banks could continue

to enhance our competitive position and

opportunities in many of our markets. However,

larger financial institutions can benefit from economies of

scale. Therefore, these

larger institutions may be able to offer

banking products and services at more competitive prices than

us. Additionally, these

larger financial institutions may offer

financial products that we do not offer.

We may also

begin to see competition from new banks that are being

formed. In late 2016, the first

de novo

bank charter since the

downturn was approved for a Florida-based bank and one

new Florida charter was approved in 2019. While the

number of new

bank formations has not returned to pre-downturn

levels, increased

de novo

bank applications could signal additional competition

from new community banks.

Our primary market area consists of 20 counties in Florida,

four counties in Georgia, and one county in Alabama.

In these

markets, we compete against a wide range of banking

and nonbanking institutions including banks, savings and

loan associations,

credit unions, money market funds, mutual fund advisory

companies, mortgage banking companies, investment banking

companies, finance companies and other types of

financial institutions. Most of Florida’s

major banking concerns have a presence

in Leon County,

where our main office is located.

Our Leon County deposits totaled $1.232 billion, or 38% of

our consolidated

deposits at December 31, 2020.

The table below depicts our market share percentage within

each county,

based on commercial bank deposits within the county.

Market Share as of June 30,

(1)

County

2020

2019

2018

Florida

Alachua

4.5%

4.7%

Bay

0.0%

N/A

Bradford

30.6%

40.2%

41.9%

Citrus

3.6%

3.4%

Clay

2.0%

2.1%

Dixie

18.7%

19.4%

20.8%

Gadsden

80.8%

81.6%

79.6%

Gilchrist

38.7%

39.7%

46.3%

Gulf

12.8%

12.6%

14.8%

Hernando

3.5%

2.9%

2.5%

Jefferson

23.0%

21.9%

19.7%

Leon

13.3%

13.1%

12.8%

Levy

24.2%

25.0%

26.8%

Madison

14.0%

13.7%

13.6%

Putnam

20.7%

20.8%

22.0%

St. Johns

0.6%

0.8%

Suwannee

7.1%

6.7%

7.4%

Taylor

72.4%

23.0%

23.5%

Wakulla

8.3%

9.3%

8.9%

Washington

11.0%

13.1%

12.0%

Georgia

Bibb

3.2%

2.7%

2.9%

Grady

14.0%

13.0%

14.2%

Laurens

8.4%

8.3%

8.6%

Troup

6.5%

6.3%

5.5%

Alabama

Chambers

9.6%

8.7%

9.2%

(1)

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

Seasonality

We believe our

commercial banking operations are not generally seasonal in

nature; however, public deposits tend

to increase

with tax collections in the fourth and first quarters of

each year and decline as a result of governmental spending

thereafter.

Human Capital

We are dedicated

to creating personal relationships with our customers and

implementing solutions that are right for them. Our

associates (our employees) are critical to achieving this mission,

and it is crucial that we continue to attract and retain experienced

associates. As part of these efforts, we strive

to offer a competitive compensation and benefits program,

foster a community

where everyone feels included and empowered to do to

their best work, and give associates the opportunity to

give back to their

communities and make a social impact.

At February 9, 2021, we had approximately 773 associates,

which included approximately 727 full-time associates and

approximately 46 part-time associates.

None of our associates are represented by a labor

union or covered by a collective

bargaining agreement.

At February 9, 2021, approximately 74% of our current

workforce was female while 26% was male, and

the average tenure of our associates was approximately 11

years.

Compensation and Benefits Program

. Our compensation program is designed to attract and reward

talented individuals who

possess the skills necessary to support our business objectives,

assist in the achievement of our strategic goals and create

long-

term value for our shareowners. We

provide our associates with compensation packages

that include base salary, annual

incentive

bonuses, and equity awards tied to the value of our stock

price. We believe

that a compensation program with both short-term and

long-term awards provides fair and competitive

compensation and aligns associate and shareowner interests,

including by

incentivizing business and individual performance (pay

for performance), motivating based on long-term company

performance

and integrating compensation with our business plans. In

addition to cash and equity compensation, we also offer

associates

benefits such as life and health (medical, dental &

vision) insurance, paid time off, paid parental leave,

a 401(k) plan, and a

pension plan.

Diversity and Inclusion

. We believe that

an equitable and inclusive environment with diverse teams produces

more creative

solutions, results in better services and is crucial to our

efforts to attract and retain key talent. We

strive to promote inclusion

through our corporate values of integrity,

advocacy, partnership, relationships,

community, and exceptional

service. We are

focused on building an inclusive culture through

a variety of diversity and inclusion initiatives, including related to

internal

promotions and hiring practices. Our associate resource groups

also help to build an inclusive culture through company

events,

participation in our recruitment efforts,

and input into our hiring strategies.

Community Involvement

. We aim to give

back to the communities where we live and work, and

believe that this commitment

helps in our efforts to attract and retain associates.

Community involvement is a hallmark for our organization,

and it comes

naturally to our associates. We

encourage our associates to volunteer their hours with

service organizations and philanthropic

groups in the communities we serve.

Health and Safety

. The success of our business is fundamentally connected

to the well-being of our people. Accordingly,

we are

committed to the health, safety and wellness of our associates.

We provide

our associates and their families with access to a

variety of flexible and convenient health and welfare

programs, including benefits that support their physical and mental

health by

providing tools and resources to help them improve

or maintain their health status; and that offer choice

where possible so they

can customize their benefits to meet their needs and the

needs of their families. In response to the COVID-19 pandemic,

implemented significant operating environment

changes that we determined were in the best interest of our associates,

as well as

the communities in which we operate, and which comply

with government regulations. This includes having the majority

of our

associates work from home, while implementing additional

safety measures for associates continuing critical on-site work.

Regulatory Considerations

We must comply

with state and federal banking laws and regulations

that control virtually all aspects of our

operations. These

laws and regulations generally aim

to protect our depositors, not necessarily

our shareowners or our creditors.

Any changes in

applicable laws or regulations may

materially affect our business and prospects.

Proposed legislative or regulatory

changes may

also affect our operations. The following description

summarizes some of the laws and regulations

to which we are subject.

References to applicable statutes and

regulations are brief summaries,

do not purport to be complete, and are

qualified in their

entirety by reference

to such statutes and regulations.

Capital City Bank Group, Inc.

We are registered

with the Board of Governors of the Federal Reserve as a financial

holding company under the Bank Holding

Company Act of 1956. As a result, we are subject to

supervisory regulation and examination by the Federal Reserve.

The Gramm-

Leach-Bliley Act, the Bank Holding Company Act, or BHC Act,

and other federal laws subject financial holding companies to

particular restrictions on the types of activities in which

they may engage, and to a range of supervisory requirements and

activities, including regulatory enforcement actions

for violations of laws and regulations.

Permitted Activities

The Gramm-Leach-Bliley Act modernized the U.S.

banking system by: (i) allowing bank holding companies

that qualify as

“financial holding companies,” such as CCBG, to engage

in a broad range of financial and related activities; (ii) allowing insurers

and other financial service companies to acquire banks; (iii)

removing restrictions that applied to bank holding company

ownership of securities firms and mutual fund advisory

companies; and (iv) establishing the overall regulatory scheme applicable

to bank holding companies that also engage in insurance

and securities operations. The general effect of the law

was to establish a

comprehensive framework to permit affiliations

among commercial banks, insurance companies, securities firms, and

other

financial service providers. Activities that are financial

in nature are broadly defined to include not only banking,

insurance, and

securities activities, but also merchant banking and additional

activities that the Federal Reserve, in consultation with

the

Secretary of the Treasury,

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

or complementary activities

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

of depository institutions or the financial system generally.

In contrast to financial holding companies, bank holding

companies are limited to managing or controlling banks, furnishing

services to or performing services for its subsidiaries, and

engaging in other activities that the Federal Reserve determines by

regulation or order to be so closely related to banking

or managing or controlling banks as to be a proper incident thereto.

determining whether a particular activity is permissible, the

Federal Reserve must consider whether the performance of

such an

activity reasonably can be expected to produce benefits

to the public that outweigh possible adverse effects.

Possible benefits

include greater convenience, increased competition,

and gains in efficiency.

Possible adverse effects include undue concentration

of resources, decreased or unfair competition, conflicts of

interest, and unsound banking practices. Despite prior approval, the

Federal Reserve may order a bank holding company or its subsidiaries

to terminate any activity or to terminate ownership or

control of any subsidiary when the Federal Reserve

has reasonable cause to believe that a serious risk to the financial

safety,

soundness or stability of any bank subsidiary of that

bank holding company may result from such an activity.

Changes in Control

Subject to certain exceptions, the BHC Act and the Change

in Bank Control Act, or CBCA, together with the applicable

regulations, require Federal Reserve approval (or,

depending on the circumstances, no notice of disapproval)

prior to any

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

Under the BHC Act, a company (a broadly defined

term that

includes partnerships among other things) that acquires

the power, directly or indirectly,

to direct the management or policies of

an insured depository institution or to vote 25% or more

of any class of voting securities of any insured depository

institution is

deemed to control the institution and to be a bank holding

company. A company

that acquires less than 5% of any class of voting

security (and that does not exhibit the other control

factors) is presumed not to have control. For ownership levels

between the 5%

and 25% thresholds, the Federal Reserve has developed an

extensive body of law on the circumstances in which control may

may not exist.

Further, on January 30, 2020, the

Federal Reserve finalized a rule that simplifies and increases the

transparency of

its rules for determining when one company controls another

company for purposes of the BHC Act.

The rule became effective

September 30, 2020. The rule has and will likely continue

to have a meaningful impact on control determinations related

investments in banks and bank holding companies and

investments by bank holding companies in nonbank companies.

Under the CBCA, if an individual or a company that

acquires 10% or more of any class of voting securities of an

insured

depository institution or its holding company and

either that institution or company has registered securities under

Section 12 of

the Exchange Act, or no other person will own a

greater percentage of that class of voting securities immediately

after the

acquisition, then that investor is presumed to have control

and may be required to file a change in bank control notice

with the

institution’s or the holding

company’s primary federal

regulator. Our common

stock is registered under Section 12 of the

Exchange Act.

As a financial holding company,

we are required to obtain prior approval from the Federal

Reserve before (i) acquiring all or

substantially all of the assets of a bank or bank holding

company, (ii) acquiring direct

or indirect ownership or control of more

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

bank holding company (unless we own a majority of

such bank’s voting

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

with any other bank or bank holding company.

In determining whether to

approve a proposed bank acquisition, federal bank

regulators will consider, among other factors,

the effect of the acquisition on

competition, the public benefits expected to be received

from the acquisition, the projected capital ratios and levels on a post-

acquisition basis, and the companies’ records of addressing

the credit needs of the communities they serve, including

the needs of

low and moderate income neighborhoods, consistent with

the safe and sound operation of the bank, under the Community

Reinvestment Act of 1977.

Under Florida law,

a person or entity proposing to directly or indirectly acquire control

of a Florida bank must also obtain

permission from the Florida Office of Financial

Regulation. Florida statutes define “control” as either (i) indirectly or

directly

owning, controlling or having power to vote 25% or more

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

majority of directors of a bank; (iii) owning, controlling,

or having power to vote 10% or more of the voting securities

as well as

directly or indirectly exercising a controlling influence

over management or policies of a bank; or (iv) as

determined by the

Florida Office of Financial Regulation. These requirements

will affect us because the Bank is chartered

under Florida law and

changes in control of CCBG are indirect

changes in control of CCB.

Prohibitions Against Tying Arrangements

Banks are subject to the prohibitions of 12 U.S.C. Section

1972 on certain tying arrangements.

We are prohibited,

subject to

some exceptions, from extending credit to or offering

any other service, or fixing or varying the consideration for such

extension

of credit or service, on the condition that the customer

obtain some additional service from the institution or its affiliates

or not

obtain services of a competitor of the institution.

Capital; Dividends; Source of Strength

The Federal Reserve imposes certain capital requirements

on financial holding companies under the BHC Act, including

minimum leverage ratio and a minimum ratio

of “qualifying” capital to risk-weighted assets. These requirements

are described

below under “Capital Regulations.” Subject to its capita

requirements and certain other restrictions, we are generally

able to

borrow money to make a capital contribution to CCB, and

such loans may be repaid from dividends paid from CCB to us.

We are

also able to raise capital for contributions to CCB by issuing

securities without having to receive regulatory approval,

subject to

compliance with federal and state securities laws.

It is the Federal Reserve’s policy

that bank holding companies should generally pay dividends

on common stock only out of

income available over the past year,

and only if prospective earnings retention is consistent with the

organization’s

expected

future needs and financial condition. It is also the Federal

Reserve’s policy that bank holding

companies should not maintain

dividend levels that undermine their ability to be a source

of strength to its banking subsidiaries. Additionally,

the Federal

Reserve has indicated that bank holding companies

should carefully review their dividend policies and has discouraged

payment

ratios that are at maximum allowable levels unless both

asset quality and capital are very strong. The Federal Reserve

possesses

enforcement powers over bank holding companies and their

non-bank subsidiaries to prevent or remedy actions that

represent

unsafe or unsound practices or violations of applicable

statutes and regulations. Among these powers is the ability to proscribe

the

payment of dividends by banks and bank holding companies.

Bank holding companies are expected to consult with the

Federal Reserve before redeeming any equity or other capital instrument

included in Tier 1 or Tier

2 capital prior to stated maturity,

if such redemption could have a material effect on

the level or

composition of the organization’s

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

shares equal to 10% or

more of its net worth if it would not be well-capitalized (as

defined by the Federal Reserve) after giving effect

to such repurchase.

Bank holding companies experiencing financial weaknesses,

or that are at significant risk of developing financial

weaknesses,

must consult with the Federal Reserve before redeeming

or repurchasing common stock or other regulatory capital instruments.

In accordance with Federal Reserve policy,

which has been codified by the Dodd-Frank Act, we are expected to

act as a source of

financial strength to CCB and to commit resources to support

CCB in circumstances in which we might not otherwise do

so. In

furtherance of this policy,

the Federal Reserve may require a financial holding company to

terminate any activity or relinquish

control of a nonbank subsidiary (other than a nonbank

subsidiary of a bank) upon the Federal Reserve’s

determination that such

activity or control constitutes a serious risk to the financial

soundness or stability of any subsidiary depository institution

of the

financial holding company.

Further, federal bank regulatory authorities

have additional discretion to require a financial holding

company to divest itself of any bank or nonbank subsidiary

if the agency determines that divestiture may aid the depository

institution’s financial condition.

Safe and Sound Banking Practices

Bank holding companies and their nonbanking subsidiaries

are prohibited from engaging in activities that represent unsafe and

unsound banking practices or that constitute a violation of

law or regulations. Under certain conditions the Federal Reserve may

conclude that some actions of a bank holding company,

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

unsafe and

unsound banking practice. The Federal Reserve also has

the authority to regulate the debt of bank holding companies,

including

the authority to impose interest rate ceilings and reserve

requirements on such debt. The Federal Reserve may also require a bank

holding company to file written notice and obtain its approval

prior to purchasing or redeeming its equity securities,

unless certain

conditions are met.

Capital City Bank

Capital City Bank is a state-chartered commercial banking

institution that is chartered by and headquartered in the State of

Florida, and is subject to supervision and regulation by

the Florida Office of Financial Regulation. The Florida

Office of Financial

Regulation supervises and regulates all areas of our

operations including, without limitation, the making of loans,

the issuance of

securities, the conduct of our corporate affairs,

the satisfaction of capital adequacy requirements, the payment

of dividends, and

the establishment or closing of banking centers. We

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

our

operations subject to broad federal regulation and oversight

by the Federal Reserve. In addition, our deposit accounts

are insured

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

and the FDIC has certain supervisory enforcement powers

over us.

As a state-chartered bank in the State of Florida, we

are empowered by statute, subject to the limitations contained

in those

statutes, to take and pay interest on, savings and time deposits,

to accept demand deposits, to make loans on residential and

other

real estate, to make consumer and commercial loans,

to invest, with certain limitations, in equity securities and

in debt obligations

of banks and corporations and to provide various other banking

services for the benefit of our clients. Various

consumer laws and

regulations also affect our operations, including

state usury laws, laws relating to fiduciaries, consumer credit and

equal credit

opportunity laws, and fair credit reporting. In addition,

the Federal Deposit Insurance Corporation Improvement

Act of 1991, or

FDICIA, prohibits insured state chartered institutions from

conducting activities as principal that are not permitted for national

banks. A bank, however, may

engage in an otherwise prohibited activity if it meets its minimum

capital requirements and the

FDIC determines that the activity does not present a

significant risk to the Deposit Insurance Fund.

Safety and Soundness Standards / Risk Management

The federal banking agencies have adopted guidelines

establishing operational and managerial standards to promote

the safety

and soundness of federally insured depository institutions. The

guidelines set forth standards for internal controls, information

systems, internal audit systems, loan documentation, credit

underwriting, interest rate exposure, asset growth, compensation,

fees

and benefits, asset quality and earnings.

In general, the safety and soundness guidelines prescribe

the goals to be achieved in each area, and each institution is responsible

for establishing its own procedures to achieve those goals.

If an institution fails to comply with any of the standards set forth

the guidelines, the financial institution’s

primary federal regulator may require the institution to

submit a plan for achieving and

maintaining compliance. If a financial institution fails to

submit an acceptable compliance plan, or fails in any mater

ial respect to

implement a compliance plan that has been accepted by its primary

federal regulator, the regulator is required

to issue an order

directing the institution to cure the deficiency.

Until the deficiency cited in the regulator’s order

is cured, the regulator may

restrict the financial institution’s

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

restrict the rates the

institution pays on deposits or require the institution to

take any action the regulator deems appropriate under

the circumstances.

Noncompliance with the standards established by the

safety and soundness guidelines may also constitute grounds for

other

enforcement action by the federal bank regulatory agencies,

including cease and desist orders and civil money

penalty

assessments.

During the past decade, the bank regulatory agencies have

increasingly emphasized the importance of sound risk management

processes and strong internal controls when evaluating

the activities of the financial institutions they supervise. Properly

managing risks has been identified as critical to the conduct

of safe and sound banking activities and has become even

important as new technologies, product innovation and

the size and speed of financial transactions have changed the nature

banking markets. The agencies have identified a spectrum

of risks facing a banking institution including, but not limited

to, credit,

market, liquidity,

operational, legal and reputational risk. In particular,

recent regulatory pronouncements have focused on

operational risk, which arises from the potential that inadequate

information systems, operational problems, breaches in internal

controls, fraud or unforeseen catastrophes will result in

unexpected losses. New products and services, third party

risk

management and cybersecurity are critical sources of operational

risk that financial institutions are expected to address in the

current environment. The Bank is expected to have active board

and senior management oversight; adequate policies, procedures

and limits; adequate risk measurement, monitoring and

management information systems; and comprehensive

internal controls.

Reserves

The Federal Reserve requires all depository institutions

to maintain reserves against transaction accounts (noninterest bearing

and

NOW checking accounts). The balances maintained

to meet the reserve requirements imposed by the Federal Reserve may be

used to satisfy liquidity requirements. An institution may

borrow from the Federal Reserve Bank “discount window”

as a

secondary source of funds, provided that the institution

meets the Federal Reserve Bank’s

credit standards.

Dividends

CCB is subject to legal limitations on the frequency

and amount of dividends that can be paid to CCBG. The Federal

Reserve may

restrict the ability of CCB to pay dividends if such

payments would constitute an unsafe or unsound banking

practice.

Additionally, as

of January 1, 2019, financial institutions are required to

maintain a capital conservation buffer of at least 2.5%

risk-weighted assets in order to avoid restrictions on

capital distributions and other payments. If a financial institution’s

capital

conservation buffer falls below the minimum

requirement, its maximum payout amount for capital distributions

and discretionary

payments declines to a set percentage of eligible retained

income based on the size of the buffer.

See “Capital Regulations,”

below for additional details on this new capital requirement.

In addition, Florida law and Federal regulation place

restrictions on the declaration of dividends from state chartered

banks to

their holding companies. Pursuant to the Florida Financial

Institutions Code, the board of directors of state-chartered banks,

after

charging off bad debts, depreciation and

other worthless assets, if any,

and making provisions for reasonably anticipated future

losses on loans and other assets, may quarterly,

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

net profits of

that period combined with the bank’s

retained net profits for the preceding two years and, with the approval

of the Florida Office

of Financial Regulation and Federal Reserve, declare

a dividend from retained net profits which accrued prior to the

preceding

two years. Before declaring such dividends, 20% of the

net profits for the preceding period as is covered by the

dividend must be

transferred to the surplus fund of the bank until this fund

becomes equal to the amount of the bank’s

common stock then issued

and outstanding. A state-chartered bank may not

declare any dividend if (i) its net income (loss) from the

current year combined

with the retained net income (loss) for the preceding

two years aggregates a loss or (ii) the payment of such

dividend would cause

the capital account of the bank to fall below the minimum amount

required by law, regulation

order or any written agreement

with the Florida Office of Financial Regulation

or a federal regulatory agency.

Under Federal Reserve regulations, a state member

bank may, without

the prior approval of the Federal Reserve, pay a dividend in

an amount that, when taken together with all

dividends declared during the calendar year,

does not exceed the sum of the bank’s

net income during the current calendar year

and the retained net income of the prior two calendar years.

The Federal Reserve may approve greater amounts.

Insurance of Accounts and Other Assessments

Deposits at U.S. domiciled banks are insured by the FDIC, subject

to limits and conditions of applicable laws and regulations.

Our deposit accounts are insured by the Deposit Insurance

Fund, or DIF,

generally up to a maximum of $250,000 per separately

insured depositor. In order

to fund the DIF, all

insured depository institutions are required to pay quarterly

assessments to the

FDIC that are based on an institutions assignment to one

of four risk categories based on supervisory evaluations,

regulatory

capital levels and certain other factors.

The FDIC has the discretion to adjust an institution’s

risk rating and may terminate its

insurance of deposits upon a finding that the institution

engaged or is engaging in unsafe and unsound practices, is in an

unsafe or

unsound condition to continue operations, or violated

any applicable law, regulation,

rule, order or condition imposed by the

FDIC or written agreement entered into with the FDIC. The

FDIC may also prohibit any FDIC-insured institution from

engaging

in any activity it determines to pose a serious risk to

the DIF.

Transactions With Affiliates

and Insiders

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

Act and Regulation W,

the authority of CCB to engage in transactions

with related parties or “affiliates” or to make

loans to insiders is limited. Loan transactions with an affiliate

generally must be

collateralized and certain transactions between CCB and its affiliates,

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

provision of services, must be on terms and conditions that

are substantially the same, or at least as favorable to CCB, as those

prevailing for comparable nonaffiliated transactions.

In addition, CCB generally may not purchase securities issued or

underwritten by affiliates.

Loans to executive officers and directors of an

insured depository institution or any of its affiliates or to

any person who directly

or indirectly, or

acting through or in concert with one or more persons, owns, controls

or has the power to vote more than 10% of

any class of voting securities of a bank, which we refer

to as “10% Shareowners,” or to any political or campaign

committee the

funds or services of which will benefit those executive

officers, directors, or 10% Shareowners or which is controlled

by those

executive officers, directors or 10% Shareowners,

are subject to Sections 22(g) and 22(h) of the Federal Reserve

Act and the

corresponding regulations (Regulation O) and Section

13(k) of the Exchange Act relating to the prohibition on

personal loans to

executives (which exempts financial institutions in compliance

with the insider lending restrictions of Section 22(h) of

the Federal

Reserve Act). Among other things, these loans must be

made on terms substantially the same as those prevailing on transactions

made to unaffiliated

individuals and certain extensions of credit to those persons must

first be approved in advance by a

disinterested majority of the entire board of directors.

Section 22(h) of the Federal Reserve Act prohibits loans to

any of those

individuals where the aggregate amount exceeds an

amount equal to 15% of an institution’s

unimpaired capital and surplus plus

an additional 10% of unimpaired capital and surplus in

the case of loans that are fully secured by readily marketable

collateral, or

when the aggregate amount on all of the extensions of

credit outstanding to all of these persons would exceed our unimpaired

capital and unimpaired surplus. Section 22(g) identifies

limited circumstances in which we are permitted to extend

credit to

executive officers.

Community Reinvestment Act

The Community Reinvestment Act and its corresponding

regulations are intended to encourage banks to help meet

the credit

needs of the communities they serve, including low and

moderate income neighborhoods, consistent with safe and sound

banking

practices. These regulations provide for regulatory assessment

of a bank’s record in meeting

the credit needs of its market area.

Federal banking agencies are required to publicly disclose

each bank’s rating

under the Community Reinvestment Act. The

Federal Reserve considers a bank’s

Community Reinvestment Act rating when the bank submits an

application to establish bank

branches, merge with another bank, or

acquire the assets and assume the liabilities of another bank. In

the case of a financial

holding company,

the Community Reinvestment Act performance record of all banks involved

in a merger or acquisition are

reviewed in connection with the application to acquire

ownership or control of shares or assets of a bank or to

merge with another

bank or bank holding company.

An unsatisfactory record can substantially delay or block the transaction.

We received a

satisfactory rating on our most recent Community Reinvestment

Act assessment.

Capital Regulations

The federal banking regulators have adopted risk-based,

capital adequacy guidelines for financial holding companies

and their

subsidiary banks based on the Basel III standards. Under

these guidelines, assets and off-balance sheet items are assigned

specific risk categories each with designated risk weightings. The

new risk-based capital guidelines are designed to make

regulatory capital requirements more sensitive to diffe

rences in risk profiles among banks and bank holding companies,

account for off-balance sheet exposure, to minimize

disincentives for holding liquid assets, and to achieve

greater consistency in

evaluating the capital adequacy of major banks throughout

the world. The resulting capital ratios represent capital as a

percentage

of total risk-weighted assets and off-balance

sheet items. Final rules implementing the capital adequacy guidelines

became

effective, with various phase-in periods, on

January 1, 2015 for community banks. All of the rules were fully

phased in as of

January 1, 2019. These final rules represent a significant

change to the prior general risk-based capital rules and are designed

substantially conform to the Basel III international

standards.

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

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

and 150%. In addition, certain off-balance

sheet items are given similar credit conversion factors to convert

them to asset

equivalent amounts to which an appropriate risk-weight will

apply. Most loans

will be assigned to the 100% risk category,

except

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

family and certain multi-family residential property,

which carry a

50% risk rating. Most investment securities (including,

primarily, general obligation

claims on states or other political

subdivisions of the United States) will be assigned to the

20% category, except

for municipal or state revenue bonds, which have

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

or obligations backed by the full faith and credit of the

U.S.

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

sheet items, direct credit substitutes, including general

guarantees and standby letters of credit backing financial

obligations, are given a 100% conversion factor.

Transaction-related

contingencies such as bid bonds, standby letters of credit

backing nonfinancial obligations, and undrawn commitments

(including

commercial credit lines with an initial maturity of more

than one year) have a 50% conversion factor.

Short-term commercial

letters of credit are converted at 20% and certain short

-term unconditionally cancelable commitments have a 0% factor.

Under the final rules, minimum requirements increased

for both the quality and quantity of capital held by banking organizations.

In this respect, the final rules implement strict eligibility criteria

for regulatory capital instruments and improve the methodology

for

calculating risk-weighted assets to enhance risk sensitivity.

Consistent with the international Basel III framework, the rules

include a new minimum ratio of Common Equity Tier

1 Capital to Risk-Weighted

Assets of 4.5%. The rules also create a

Common Equity Tier 1 Capital conservation

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

is added to each of the three risk-

based capital ratios to determine whether an institution

has established the buffer.

The rules raise the minimum ratio of Tier 1

Capital to Risk-Weighted

Assets from 4% to 6% and include a minimum leverage

ratio of 4% for all banking organizations. If a

financial institution’s capital

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

Common Equity Tier 1 Capital to

Risk-Weighted Assets

is less than 7.0%) then capital distributions and discretionary

payments will be limited or prohibited based

on the size of the institution’s

buffer. The

types of payments subject to this limitation include dividends, share

buybacks,

discretionary payments on Tier 1 instruments,

and discretionary bonus payments.

The capital regulations may also impact

the treatment of accumulated other comprehensive income,

or AOCI, for regulatory

capital purposes. Under the recently implemented rules,

AOCI generally flows through to regulatory capital, however,

community

banks and their holding companies may make a

one-time irrevocable opt-out election to continue to treat AOCI

the same as under

the old regulations for regulatory capital purposes. This

election was required to be made on the first call report

or bank holding

company annual report (on form FR Y-9C)

filed after January 1, 2015. We

made the opt-out election. Additionally,

the new rules

also permit community banks with less than $15 billion in

total assets to continue to count certain non-qualifying

capital

instruments issued prior to May 19, 2010 as Tier

1 capital, including trust preferred securities and cumulative

perpetual preferred

stock (subject to a limit of 25% of Tier

1 capital). However, non-qualifying capital

instruments issued on or after May 19, 2010

do not qualify for Tier 1 capital treatment.

In February 2019, the federal bank regulatory agencies issued

a final rule (the “2019 CECL Rule”) that revised certain

capital

regulations to account for changes to credit loss accounting

under accounting principles generally accepted in the

United States

("GAAP").

The 2019 CECL Rule included a transition option that

allows banking organizations to phase in, over

a three-year

period, the day-one adverse effects of adopting

the new accounting standard related to the measurement of current

expected credit

losses (“CECL”) on their regulatory capital ratios (three-year

transition option).

In March 2020, the federal bank regulatory

agencies issued an interim final rule that maintains

the three-year transition option of the 2019 CECL Rule and also

provides

banking organizations that were required under

GAAP to implement CECL before the end of 2020 the option

to delay for two

years an estimate of the effect of CECL on regulatory

capital, relative to the incurred loss methodology’s

effect on regulatory

capital, followed by a three-year transition period (five-year

transition option). We

adopted CECL on January 1, 2020 and have

elected to utilize the three-year transition option.

Commercial Real Estate Concentration Guidelines

The federal banking regulators have implemented guidelines to

address increased concentrations in commercial real estate loans.

These

guidelines describe the criteria regulatory agencies will use as indicators

to identify institutions potentially exposed to

commercial real estate concentration risk. An institution

that has (i) experienced rapid growth in commercial real estate lending,

(ii) notable exposure to a specific type of

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

land development, and

other land representing 100% or more of total risk-based

capital, or (iv) total commercial real estate (including construction)

loans

representing 300% or more of total risk-based capital

and the outstanding balance of the institutions commercial real

estate

portfolio has increased by 50% or more in the prior 36

months, may be identified for further supervisory analysis of

a potential

concentration risk.

At December 31, 2020, CCB’s ratio

of construction, land development and other land loans to

total risk-based capital was 65%,

its ratio of total commercial real estate loans to total risk-based

capital was 196% and, therefore, CCB was under the 100% and

300% thresholds, respectively,

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

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

commercial real estate lending under applicable regulatory

guidelines.

Prompt Corrective Action

Federal law and regulations

establish a capital-based regulatory scheme designed

to promote early intervention for troubled banks

and require the FDIC to choose the least expensive resolution

of bank failures. The capital-based regulatory framework

contains

five categories of compliance with regulatory capital requirements,

including “well capitalized,” “adequately capitalized,”

“undercapitalized,” “significantly undercapitalized,” and

“critically undercapitalized.” To

qualify as a “well-capitalized”

institution under the rules in effect as of

January 1, 2015, a bank must have a leverage ratio of not less than

5%, a Tier 1 Common

Equity ratio of not less than 6.5%, a Tier

1 Capital ratio of not less than 8%, and a total risk-based capital

ratio of not less than

10%, and the bank must not be under any order or

directive from the appropriate regulatory agency to meet

and maintain a

specific capital level.

Under the regulations, the applicable agency can treat

an institution as if it were in the next lower category if the

agency

determines (after notice and an opportunity for hearing)

that the institution is in an unsafe or unsound condition or is engaging

an unsafe or unsound practice. The degree of regulatory

scrutiny of a financial institution will increase, and the permissible

activities of the institution will decrease, as it moves downward

through the capital categories.

Immediately upon becoming undercapitalized, a depository

institution becomes subject to the provisions of Section 38

of the

Federal Deposit Insurance Act which: (i) restrict payment

of capital distributions and management fees; (ii) require that

the

appropriate federal banking agency monitor the condition

of the institution and its efforts to restore its capital; (iii)

require

submission of a capital restoration plan; (iv) restrict the

growth of the institution’s assets; and

(v) require prior approval of certain

expansion proposals. The appropriate federal banking

agency for an undercapitalized institution also may take any number of

discretionary supervisory actions if the agency determines

that any of these actions is necessary to resolve the problems of

the

institution at the least possible long-term cost to the

deposit insurance fund, subject in certain cases to specified procedures.

These

discretionary supervisory actions include: (i) requiring

the institution to raise additional capital; (ii) restricting transactions

with

affiliates; (iii) requiring divestiture of the institution

or the sale of the institution to a willing purchaser; and (iv)

any other

supervisory action that the agency deems appropriate. These

and additional mandatory and permissive supervisory

actions may be

taken with respect to significantly undercapitalized

and critically undercapitalized institutions.

In 2019, the federal banking regulators published final

rules implementing a simplified measure of capital adequacy for

certain

banking organizations that have less than $10

billion in total consolidated assets. Under the final rules,

which went into effect on

January 1, 2020, depository institutions and depository institution

holding companies that have less than $10 billion in total

consolidated assets and meet other qualifying criteria, including

a leverage ratio of greater than 9%, off-balance-sheet

exposures

of 25% or less of total consolidated assets and trading

assets plus trading liabilities of 5% or less of total consolidated

assets, are

deemed “qualifying community banking organizations”

and are eligible to opt into the “community bank leverage

ratio

framework.” A qualifying community banking organizati

on that elects to use the community bank leverage ratio framework

and

that maintains a leverage ratio of greater than 9% is considered

to have satisfied the generally applicable risk-based and

leverage

capital requirements under the Basel III capital rules and,

if applicable, is considered to have met the “well capitalized” ratio

requirements for purposes of its primary federal regulator’s

prompt corrective action rules, discussed above. The

final rules

include a two-quarter grace period during which a qualifying community

banking organization that temporarily fails to meet

any

of the qualifying criteria, including the greater-than-9%

leverage capital ratio requirement, is generally still deemed “well

capitalized” so long as the banking organization

maintains

a leverage capital ratio greater than 8%. A banking organization

that

fails to maintain a leverage capital ratio greater than 8%

is not permitted to use the grace period and must comply with

the

generally applicable requirements under the Basel III capital

rules and file the appropriate regulatory reports.

Pursuant to the Coronavirus Aid, Relief, and Economic

Security Act, or CARES Act, the federal banking agencies authorities

adopted a final rule, effective November

9, 2020, that (i) reduced the minimum community bank leverage

ratio to be deemed

“well capitalized” from 9% to 8% through calendar year 2020,

(ii) set the ratio at 8.5% for calendar year 2021, (iii) sets the ratio

back at 9% for 2022 and thereafter,

and (ii) gave community banks two-quarter grace period to

satisfy the ratio if the ratio falls

out of compliance by no more than 1%. We

have not elected to comply with the community bank leverage

ratio framework and

will remain subject to the Basel III capital requirements.

At December 31, 2020, we exceeded the requirements contained

in the applicable regulations, policies and directives pertaining

capital adequacy to be classified as “well capitalized” and

are unaware of any material violation or alleged violation of

these

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

growth, poor loan portfolio performance, or poor earnings

performance, or a combination of these factors, could

change our capital position in a relatively short period of

time, making

additional capital infusions necessary.

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

Consolidated Financial

Statements.

Interstate Banking and Branching

The Dodd-Frank Act relaxed interstate branching restrictions by

modifying the federal statute governing de novo interstate

branching by state member banks. Consequently,

a state member bank may open its initial branch in a state

outside of the bank’s

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

bank chartered under the laws of that state would be permitted

open a branch at that location.

Anti-money Laundering

The USA PATRIOT

Act, provides the federal government with additional

powers to address terrorist threats through enhanced

domestic security measures, expanded surveillance

powers, increased information sharing and broadened anti-money

laundering

requirements. By way of amendments to the Bank Secrecy

Act, or BSA, the USA PATRIOT

Act puts in place measures intended

to encourage information sharing among bank regulatory

and law enforcement agencies. In addition, certain provisions

of the

USA PATRIOT

Act impose affirmative obligations on a broad range

of financial institutions.

The USA PATRIOT

Act and the related Federal Reserve regulations require

banks to establish anti-money laundering programs

that include, at a minimum:

●

internal policies, procedures and controls designed

to implement and maintain the savings association’s

compliance with

all of the requirements of the USA PATRIOT

Act, the BSA and related laws and regulations;

●

systems and procedures for monitoring and reporting of suspicious

transactions and activities;

●

a designated compliance officer;

●

employee training;

●

an independent audit function to test the anti-money laundering

program;

●

procedures to verify the identity of each client upon the

opening of accounts; and

●

heightened due diligence policies, procedures and

controls applicable to certain foreign accounts and relationships.

Additionally, the

USA PATRIOT

Act requires each financial institution to develop a client identification

program, or CIP as part

of its anti-money laundering program. The key components

of the CIP are identification, verification, government

list

comparison, notice and record retention. The purpose

of the CIP is to enable the financial institution to determine

the true identity

and anticipated account activity of each client. To

make this determination, among other things, the financial institution

must

collect certain information from clients at the time they

enter into the client relationship with the financial institution.

This

information must be verified within a reasonable

time. Furthermore, all clients must be screened against any

CIP-related

government lists of known or suspected terrorists. In 2018,

the U.S. Treasury’s

Financial Crimes Enforcement Network issued a

final rule under the BSA requiring banks to identify and verify

the identity of the natural persons behind their clients that are legal

entities – the beneficial owners. We

and our affiliates have adopted policies, procedures

and controls designed to comply with the

BSA and the USA PATRIOT

Act.

Regulatory Enforcement Authority

Federal and state banking laws grant substantial regulatory

authority and enforcement powers to federal and state banking

regulators. This authority permits bank regulatory

agencies to assess civil money penalties, to issue cease and desist or

removal

orders, and to initiate injunctive actions against banking

organizations and institution-affiliated parties.

In general, these

enforcement actions may be initiated for either violations

of laws or regulations or for unsafe or unsound practices.

Other actions

or inactions may provide the basis for enforcement action,

including misleading or untimely reports filed with regulatory

authorities.

Privacy

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

safeguarding, sharing and use of customer information, and

require that financial institutions have policies regarding information

privacy and security. The

Gramm-Leach-Bliley Act and

related regulations require banks and their affiliated

companies to adopt and disclose privacy policies, including

policies

regarding the sharing of personal information with

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

of state

residents and require adequate security of such data,

and certain state laws may, in

some circumstances, require us to notify

affected individuals of security breaches

of computer databases that contain their personal information.

These laws may also

require us to notify law enforcement, regulators or consumer

reporting agencies in the event of a data breach, as well as

businesses and governmental agencies that own data.

Overdraft Fee Regulation

The Electronic Fund Transfer Act prohibits

financial institutions from charging consumers fees for

paying overdrafts on

automated teller machines, or ATM,

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

or opts in, to the overdraft

service for those type of transactions.

If a consumer does not opt in, any ATM

transaction or debit that overdraws the consumer’s

account will be denied.

Overdrafts on the payment of checks and regular electronic bill

payments are not covered by this new

rule.

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

the financial institution’s overdraft

services,

including the fees associated with the service, and the

consumer’s choices.

Financial institutions must provide consumers who do

not opt in with the same account terms,

conditions and features (including pricing) that they provide

to consumers who do opt in.

Consumer Laws and Regulations

CCB is also subject to other federal and state consumer

laws and regulations that are designed to protect consumers in

transactions with banks. While the list set forth below

is not

exhaustive, these laws and regulations include the Truth

in Lending

Act, the Truth in Savings Act, the Electronic

Fund Transfer Act, the Expedited Funds Availability

Act, the Check Clearing for the

21st Century Act, the Fair Credit Reporting Act, the

Fair Debt Collection Practices Act, the Equal Credit Opportunity Act,

the

Fair Housing Act, the Home Mortgage Disclosure

Act, the Fair and Accurate Credit Transactions Act,

the Mortgage Disclosure

Improvement Act, and the Real Estate Settlement Procedures

Act, among others. These laws and regulations mandate

certain

disclosure requirements and regulate the manner

in which financial institutions must deal with clients when taking

deposits or

making loans to such clients. CCB must comply with the

applicable provisions of these consumer protection laws and

regulations

as part of its ongoing client relations.

In addition, the Consumer Financial Protection Bureau

issues regulations and standards under these federal consumer protection

laws that affect our consumer businesses. These include

regulations setting “ability to repay” standards for residential

mortgage

loans and mortgage loan servicing and originator compensation

standards, which generally require creditors to make a reasonable,

good faith determination of a consumer’s

ability to repay any consumer credit transaction secured by a dwelling

(excluding an

open-end credit plan, timeshare plan, reverse mortgage,

or temporary loan) and establishes certain protections from

liability under

this requirement for loans that meet the requirements of the

“qualified mortgage” safe harbor.

Also, in, 2015, the new TILA-

RESPA Integrated

Disclosure, or TRID, rules for mortgage closings took

effect for new loan applications. The new TRID rules

were further amended in 2017. These new rules, including

the new required loan forms, generally increased the time

it takes to

approve mortgage loans.

Future Legislative Developments

Various

bills are from time to time introduced in Congress and the

Florida legislature. This legislation may change banking and

tax statutes and the environment in which our banking

subsidiary and we operate in substantial and unpredictable ways. We

cannot determine the ultimate effect that

potential legislation, if enacted, or implementing regulations with

respect thereto, would

have upon our financial condition or results of operations

or that of our banking subsidiary.

COVID-19 and the Coronavirus Aid, Relief, and

Economic Security Act

In response to the COVID-19 pandemic,

the CARES Act was signed into law

on March 27, 2020 to provide national

emergency

economic relief measures. Many of the

CARES Act’s programs are dependent upon the direct

involvement of U.S. financial

institutions, such as the Company

and the Bank, and have been implemented

through rules and guidance adopted

by federal

departments and agencies, including

the U.S. Department of Treasury,

the Federal Reserve and other federal

banking agencies,

including those with direct supervisory

jurisdiction over the Company and

the Bank. Furthermore, as the on-going

COVID-19

pandemic evolves, federal regulatory

authorities continue to issue additional

guidance with respect to the implementation,

lifecycle,

and eligibility requirements for

the various CARES Act programs as well

as industry-specific recovery

procedures for COVID-19.

In addition, it is likely that

Congress will enact supplementary

COVID-19 response legislation,

including amendments to the

CARES Act or new bills comparable

in scope to the CARES Act. The Company

continues to assess the impact

of the CARES Act

and other statues, regulations and

supervisory guidance related to

the COVID-19 pandemic.

Paycheck Protection Program

. The CARES Act amended the SBA’s loan program, in which the Bank participates, to create

guaranteed, unsecured loan program, the

PPP, to fund operational costs of eligible businesses, organizations

and self-employed

persons during COVID-19. In June 2020,

the Paycheck Protection Program

Flexibility Act was enacted, which

among other things,

gave borrowers additional time and

flexibility to use PPP loan proceeds.

On June 5, 2020, the Paycheck Protection

Program

Flexibility Act (the “Flexibility

Act”) was signed into law, and made significant changes

to the PPP to provide additional relief

for

small businesses. The Flexibility

Act increased flexibility for small

businesses that have been unable to

rehire employees due to

lack of employee availability, or have been unable to

operate as normal due to COVID-19

related restrictions, extended the

period

that businesses have to use PPP

funds to qualify for loan forgiveness

to 24 weeks, up from 8 weeks under

the original rules, and

relaxed the requirements that loan

recipients must adhere to in order

to qualify for loan forgiveness. In

addition, the Flexibility Act

extended the payment deferral period

for PPP loans until the date when

the amount of loan forgiveness is

determined and remitted

to the lender.

For PPP recipients who do not apply

for forgiveness, the loan deferral

period is 10 months after the applicable

forgiveness period ends. On July 4,

2020, Congress enacted a new law

to extend the deadline for applying

for a PPP loan to August

8, 2020. The program was re-opened

on January 11, 2021 with updated guidance outlining

program changes to enhance its

effectiveness and accessibility. This round of the PPP will

serve new borrowers, as well

as allow certain existing PPP

borrowers to

apply for a second draw PPP Loan

and make a request to modify their

first draw PPP loan. As a participating

lender in the PPP, the

Bank continues to monitor legislative,

regulatory, and supervisory developments related thereto.

Troubled Debt Restructuring and Loan Modifications for Affected Borrower

s. The CARES Act permitted banks

to suspend

requirements under GAAP for loan modifications

to borrowers affected by COVID-19 that would

otherwise be characterized as

TDRs and suspend any determination related

thereto if (i) the loan modification

was made between March 1, 2020

and the earlier

of December 31, 2020 or 60 days

after the end of the COVID-19 emergency

declaration, and (ii) the applicable

loan was not more

than 30 days past due as of December

31, 2019. The federal banking agencies

also issued guidance to encourage

banks to make

loan modifications for borrowers

affected by COVID-19 and to assure banks

that they would not be criticized

by examiners for

doing so. We applied this guidance to qualifying loan modifications.

Main Street Lending Program.

The CARES Act encouraged the Federal

Reserve, in coordination with

the Secretary of the

Treasury, to establish or implement various programs to help

midsize businesses, nonprofits,

and municipalities. On April 9, 2020,

the Federal Reserve proposed the creation

of the Main Street Lending Program

(“MSLP”) to implement certain of these

recommendations. The MSLP supports lending

to small and medium-sized businesses

that were in sound financial condition

before

the onset of the COVID-19 pandemic. The

MSLP operates through five facilities:

the Main Street New Loan Facility, the Main

Street Priority Loan Facility, the Main Street Expanded

Loan Facility, the Nonprofit Organization New Loan Facility, and the

Nonprofit Organization Expanded Loan Facility. The Bank continues

to monitor developments related thereto.

urrent Expected Credit Loss Accounting

Standard

In 2016, the Financial Accounting Standards Board, or

FASB, issued a new current

expected credit loss rule, or CECL, which

required

banks to record, at the time of origination, credit losses expected

throughout the life of loans held for investment and

held-to-maturity securities, compared to the current practice

of recording

losses when it is probable that a loss event has occurred.

The update also amended the accounting for credit

losses on available-for-sale debt securities and financial

assets purchased with

credit deterioration.

We adopted this accounting

standard effective January 1, 2020.

See Note 1 – Significant Accounting

Policies/Adoption of New Accounting Standard for additional

information on this standard and its impact on our financial

statements.

Effect of Governmental Monetary Policies

The commercial banking business is affected not

only by general economic conditions, but also by the monetary policies

of the

Federal Reserve. Changes in the discount rate on member

bank borrowing, availability of borrowing at the “discount

window,”

open market operations, changes in the Fed Funds target

interest rate, changes in interest rates payable on reserve

accounts, the

imposition of changes in reserve requirements against member

banks’ deposits and assets of foreign banking centers and

the

imposition of and changes in reserve requirements against certain

borrowings by banks and their affiliates are some

of the

instruments of monetary policy available to the Federal

Reserve. These monetary policies are used in varying combinations

influence overall growth and distributions of bank loans,

investments and deposits, which may affect interest

rates charged on

loans or paid on deposits. The monetary policies of

the Federal Reserve have had a significant effect on the

operating results of

commercial banks and are expected to continue to

do so in the future. The Federal Reserve’s

policies are primarily influenced by

its dual mandate of price stability and full employment,

and to a lesser degree by short-term and long-term changes in the

international trade balance and in the fiscal policies of the

U.S. Government. Future changes in monetary policy and

the effect of

such changes on our business and earnings in the future cannot

be predicted.

London Inter-Bank Offered Rate (LIBOR)

We have contracts,

including loan agreements, which are currently indexed

to LIBOR. The use of LIBOR as a reference rate in

the banking industry is beginning to decline. In 2014,

a committee of private-market derivative participants and their

regulators,

the Alternative Reference Rate Committee, or ARRC, was convened

by the Federal Reserve to identify an alternative reference

interest rate to replace LIBOR.

In June 2017, the ARRC announced the Secured Overnight Funding

Rate, or SOFR, a broad

measure of the cost of borrowing cash overnight collateralized

by Treasury securities, as its preferred

alternative to LIBOR.

July 2017, the Chief Executive of the United Kingdom

Financial Conduct Authority,

which regulates LIBOR, announced its

intention to stop persuading or compelling banks to submit

rates for the calculation of LIBOR to the administrator of LIBOR after

2021.

In April 2018, the Federal Reserve Bank of New York

began to publish SOFR rates on a daily basis.

The International

Swaps and Derivatives Association, Inc. provided guidance

on fallback contract language related to derivative transactions

in late

2019.

The administrator of LIBOR has proposed to extend publication

of the most commonly used U.S. Dollar LIBOR settings to

June 30, 2023, and to cease publishing other LIBOR settings on

December 31, 2021.

The U.S. federal banking agencies have

issued guidance strongly encouraging banking organizations

to cease using U.S. dollar LIBOR as a reference rate

in new

contracts as soon as practicable and in any event by December

31, 2021.

It is not possible to know whether LIBOR will continue

to be viewed as an acceptable market benchmark, what

rate or rates may become accepted alternatives to LIBOR or what the

effect of any such changes in views or alternatives

may have on the financial markets for LIBOR-linked financial

instruments.

We are working

to ensure that our technology systems are prepared for the

transition, our loan documents that reference LIBOR-

based rates have been appropriately amended to reference

other methods of interest rate determination, and internal and

external

stakeholders are apprised of the transition.

Website Access to Company’s

Reports

Our Internet website is www.ccbg.com.

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

10-Q, current reports on

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

or furnished pursuant to section 13(a) or 15(d), and

reports filed

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

Act are available free of charge through our website

as soon as

reasonably practicable after they are electronically filed

with, or furnished to, the Securities and Exchange Commission.

The

information on our website is not incorporated by referenc

into this report.

Item 1A.

Risk Factors

An investment in our common stock contains a high

degree of risk. You

should consider carefully the following

risk factors before

deciding whether to invest in our common stock.

Our business, including our operating results and

financial condition, could be

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

currently known to us or that we currently

deem to be

immaterial also may materially and adversely affect our

business. The trading price of our common stock could decline

due to

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

In assessing these risks, you should also refer

to the other

information contained in our filings with the SEC, including

our financial statements and related

notes.

Macroeconomic Risks

The impact of the COVID-19 pandemic on our customers, associates

and business operations has had, and will likely

continue to have, a significant adverse effect

on our business, results of operations and financial condition.

The COVID-19 pandemic created a global public

-health crisis that resulted in challenging economic conditions for

households

and businesses.

The economic impact of the COVID-19 pandemic impacted

a broad range of industries.

There is increasing

concern about the longer lasting impact on local business resulting

from the COVID-19 pandemic.

The Federal Reserve returned to a zero-interest rate policy

in March 2020 and the U.S. government enacted several fiscal stimulus

measures to counteract the economic disruption caused

by the COVID-19 pandemic and provide economic

assistance to

businesses and households. The dramatic lowering of

market interest rates in a short period of time had an adverse

effect on the

Company's asset yields.

The majority of the fiscal assistance provided

by the federal government to businesses and households

tapered off by December 31, 2020, which could

adversely impact the ability of borrowers to repay their loans. The

Company's

financial performance is dependent upon the ability of

borrowers to repay their loans.

The COVID-19 pandemic resulted in changes to our business operations

during the current year and could continue to result in

changes to operations in future periods.

Depending on the severity and length of the COVID-19 pandemic, which

is impossible to

predict, we could experience significant disruptions in our

business operations if key personnel or a significant number of

employees were to become unavailable due to the effects

of, and restrictions resulting from, the COVID-19 pandemic,

as well as

decreased demand for our products and services.

There is pervasive uncertainty surrounding the future

economic conditions that will emerge in the months and

years following the

start of the COVID-19 pandemic.

As a result, management is confronted with a significant degree

of uncertainty in estimating the

impact of the pandemic on credit quality,

revenues and asset values.

Asset quality may deteriorate and the amount of our

allowance for loan losses may not be sufficient

for future loan losses we may experience.

This could require us to increase our

reserves and recognize more expense in future periods.

The changes in market rates of interest and the impact

that has on our

ability to price our products may reduce our net interest income

in the future or negatively impact the demand for our products.

There is some risk that operational costs could further increase as we

maintain existing facilities in accordance with health

guidelines as well as have associates continue to work

remotely.

The extent to which the COVID-19 pandemic impacts our

business, results of operations and financial condition, as well as

our

regulatory capital and liquidity ratios, will depend on future developments,

which are highly uncertain and cannot be predicted,

including the scope and duration of the COVID-19 pandemic

and actions taken by governmental authorities and other

third

parties in response to the pandemic.

We may incur losses if we are

unable to successfully manage interest rate

risk.

Our profitability depends to a large extent

on Capital City Bank’s net

interest income, which is the difference between

income on

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

and expense on interest-bearing liabilities such as deposits and

borrowings. We

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

affected by many factors beyond our control,

including inflation, recession, unemployment, federal funds

target rate, money supply,

domestic and international events and

changes in the United States and other financial markets.

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

assets than interest-bearing liabilities reprice or mature

during a time when interest rates are declining or (ii) more

interest-bearing

liabilities than interest-earning assets reprice or mature

during a time when interest rates are rising.

Changes in the difference between short

-term and long-term interest rates may also harm our

business. We generally

use short-

term deposits to fund longer-term assets. When

interest rates change, assets and liabilities with shorter terms

reprice more quickly

than those with longer terms, which could have

a material adverse effect on our net interest margin.

If market interest rates rise

rapidly, interest rate

adjustment caps may also limit increases in the interest rates on

adjustable rate loans, which could further

reduce our net interest income. Additionally,

we believe that due to the recent historical low interest rate environment,

the effects

of the repeal of Regulation Q, which previously had prohibited

the payment of interest on demand deposits by member

banks of

the Federal Reserve System, have not been realized. The

increased price competition for deposits that may result upon

the return

to a historically normal interest rate environment could

adversely affect net interest margins of community

banks.

Although we continuously monitor interest rates and

have a number of tools to manage our interest rate risk

exposure, changes in

market assumptions regarding future interest rates could

significantly impact our interest rate risk strategy,

our financial position

and results of operations. If we do not properly monitor

our interest rate risk management strategies, these activities may not

effectively mitigate our interest rate sensitivity or

have the desired impact on our results of operations or financial

condition.

Interest rates and economic conditions affect

consumer demand for housing and can create volatility in the mortgage

industry.

These risk can have a material impact on the volume of mortgage

originations and refinancings, adversely affecting

our mortgage

banking revenues and the profitability of our mortgage

banking business.

We may be adversely

affected by changes in the method of determining LIBOR, or

the replacement of LIBOR with an

alternative reference rate.

Our business relies upon loans and other financial instruments that

are directly or indirectly dependent on LIBOR to establish

their interest rate and/or value. The administrator of LIBOR has

proposed to extend publication of the most commonly

used U.S.

Dollar LIBOR settings to June 30, 2023 and to cease

publishing other LIBOR settings on December 31, 2021.

The U.S. federal

banking agencies have issued guidance strongly encouraging

banking organizations to cease using U.S. dollar

LIBOR as a

reference rate in new contracts as soon as practicable

and in any event by December 31, 2021. We

do not know whether LIBOR

will continue to be viewed as an acceptable market benchmark,

what rate or rates may become accepted alternatives to LIBOR, or

what the effect of any such changes in views

or alternatives may have on the financial markets for LIBOR-linked

financial

instruments. The transition from LIBOR may cause us to

incur increased costs and face additional risks. Uncertainty

as to the

nature of alternative reference rates and as to potential

changes in or other reforms to LIBOR may adversely affect

LIBOR rates

and the value of LIBOR-based loans originated prior

to 2021. If LIBOR rates are no longer available, any successor or

replacement interest rates may perform differently,

which may affect our net interest income, change

our market risk profile and

require changes to our strategies. Any failure to adequately

manage this transition could adversely impact our

reputation.

Risks Related to Lending Activities

Our loan portfolio includes loans with a higher risk of

loss which could lead to higher loan losses and nonperforming

assets.

We originate

commercial real estate loans, commercial loans, construction loans,

vacant land loans, consumer loans, and

residential mortgage loans primarily within our market

area. Commercial real estate, commercial, construction, vacant

land, and

consumer loans may expose a lender to greater credit risk

than traditional fixed-rate fully amortizing loans secured

by single-

family residential real estate because the collateral securin

these loans may not be sold as easily as single-family residential real

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

loan balances to a single borrower or groups of related borrowers and

are more susceptible to a risk of loss during a downturn

in the business cycle. These loans also have historically had

greater credit

risk than other loans for the following reasons:

●

Commercial Real Estate Loans

. Repayment is dependent on income being generated

in amounts sufficient to cover

operating expenses and debt service. These loans also involve

greater risk because they are generally not fully amortizing

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

at maturity. A borrower’s

ability to make a balloon payment

typically will depend on the borrower’s ability

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

December 31, 2020,

commercial mortgage loans comprised approximately 32.3% of

our total loan portfolio.

●

Commercial Loans

. Repayment is generally dependent upon the successful

operation of the borrower’s business. In

addition, the collateral securing the loans may depreciate

over time, be difficult to appraise, be illiquid,

or fluctuate in

value based on the success of the business. At December

31, 2020, commercial loans comprised approximately 19.6% of

our total loan portfolio.

●

Construction Loans

. The risk of loss is largely dependent

on our initial estimate of whether the property’s

value at

completion equals or exceeds the cost of property construction

and the availability of take-out financing. During the

construction phase, a number of factors can result in delays or

cost overruns. If our estimate is inaccurate or if actual

construction costs exceed estimates, the value of the property

securing our loan may be insufficient to ensure

full

repayment when completed through a permanent

loan, sale of the property,

or by seizure of collateral.

At December 31,

2020 construction loans comprised approximately 6.8% of

our total loan portfolio.

●

Vacant

Land Loans

. Because vacant or unimproved land is generally

held by the borrower for investment purposes or

future use, payments on loans secured by vacant or unimproved

land will typically rank lower in priority to the borrower

than a loan the borrower may have on their primary

residence or business. These loans are susceptible to adverse

conditions in the real estate market and local economy.

At December 31, 2020,

vacant land loans comprised

approximately 2.7% of our total loan portfolio.

●

HELOCs

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

draw period followed by a five-year repayment

period of 0.75% of the principal balance monthly and a

balloon payment at maturity.

Upon the commencement of the

repayment period, the monthly payment can increase significantly,

thus, there is a heightened risk that the borrower will

be unable to pay the increased payment. Further,

these loans also involve greater risk because they are generally

not fully

amortizing over the loan period, but rather have a balloon

payment due at maturity.

A borrower’s ability to make a

balloon payment may depend on the borrower’s

ability to either refinance the loan or timely sell the underlying

property.

At December 31, 2020 HELOCs comprised approximately

10.2%

of our total loan portfolio.

●

Consumer Loans

. Consumer loans (such as automobile loans and

personal lines of credit) are collateralized, if at all,

with assets that may not provide an adequate source of

payment of the loan due to depreciation, damage, or

loss. At

December 31, 2020,

consumer loans comprised approximately 13.5%

of our total loan portfolio, with indirect auto loans

making up a majority of this portfolio at approximately

90.4% of the total balance.

The increased risks associated with these types of

loans result in a correspondingly higher probability of

default on such loans (as

compared to fixed-rate fully amortizing single-family

real estate loans). Loan defaults would likely increase our loan

losses and

nonperforming assets and could adversely affect

our allowance for loan losses and our results of operations

Our loan portfolio is heavily concentrated in mortgage

loans secured by properties in Florida and Georgia

which causes

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

geographically diversified portfolio.

Our interest-earning assets are heavily concentrated in mortgage

loans secured by real estate, particularly real estate located in

Florida and Georgia.

At December 31, 2020, approximately 67%

of our loans included real estate as a primary,

secondary, or

tertiary component of collateral. The real estate collateral

in each case provides an alternate source of repayment in

the event of

default by the borrower; however,

the value of the collateral may decline during the time the credit

is extended. If we are required

to liquidate the collateral securing a loan during

a period of reduced real estate values to satisfy the debt, our earnings

and capital

could be adversely affected.

Additionally, at

December 31, 2020, substantially all of our loans secured by real

estate are secured by commercial and residential

properties located in Northern Florida and Middle Georgia.

The concentration of our loans in these areas subjects us to

risk that a

downturn in the economy or recession in these areas could

result in a decrease in loan originations and increases in delinquencies

and foreclosures, which would more greatly affect

us than if our lending were more geographically diversified.

In addition, since

a large portion of our portfolio is secured by

properties located in Florida and Georgia, the

occurrence of a natural disaster, such

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

a decline in loan originations, a decline in the value or destruction

mortgaged properties and an increase in the risk of delinquencies,

foreclosures or loss on loans originated by us. We

may suffer

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

underlying our mortgage loans, which would have an adverse

impact on our results of operations and financial condition.

Our concentration in loans secured by real

estate may increase our credit losses, which

would negatively affect our

financial results.

Due to the lack of diversified industry within the markets

served by CCB and the relatively close proximity of our geographic

markets, we have both geographic concentrations as well as concentrations

in the types of loans funded. Specifically,

due to the

nature of our markets, a significant portion of the portfolio

has historically been secured with real estate. At December

31, 2020,

approximately 32%

and 28% of our $2.006 billion loan portfolio was secured by commercial

real estate and residential real estate,

respectively. As of

this same date, approximately 7% was secured by property under

construction.

In the event we are required to foreclose on a property securing

one of our mortgage loans or otherwise pursue our remedies in

order to protect our investment, we may be unable

to recover funds in an amount equal to our projected return

on our investment

or in an amount sufficient to prevent a loss to

us due to prevailing economic conditions, real estate values and

other factors

associated with the ownership of real property.

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

underlying our

loans may not, at any given time, be sufficient

to satisfy the outstanding principal amount of the loans, and consequently,

would sustain loan losses.

An inadequate allowance for credit losses would

reduce our earnings.

We are exposed

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

according to their terms and that any collateral

securing the payment of their loans may not be sufficient

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

inherent in the lending business. We

evaluate the collectability of our loan portfolio

and provide an allowance for credit losses

that we believe is adequate based upon such factors as:

●

the risk characteristics of various classifications of loans;

●

previous loan loss experience;

●

specific loans that have loss potential;

●

delinquency trends;

●

estimated fair market value of the collateral;

●

current and future economic conditions; and

●

geographic and industry loan concentrations.

At December 31, 2020, our allowance for credit losses was $23.8

million, which represented approximately 1.19%

of our total

loans held for investment.

We had $5.9

million in nonaccruing loans at December 31, 2020.

The allowance is based on

management’s reasonable

estimate and may not prove sufficient to cover future

loan losses.

Although management uses the best

information available to make determinations with respect

to the allowance for credit losses, future adjustments may be

necessary

if economic conditions differ substantially from

the assumptions used or adverse developments arise with respect to our

nonperforming or performing loans.

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

examination process, periodically

review our estimated losses on loans.

Our regulators may require us to recognize additional losses based

on their judgments about

information available to them at the time of their examination.

Accordingly, the allowance

for credit losses may not be adequate

to cover all future loan losses and significant increases to

the allowance may be required in the future if, for

example, economic

conditions worsen.

A material increase in our allowance for credit losses would adversely

impact our net income and capital in

future periods, while having the effect

of overstating our current period earnings.

Liquidity risk could impair our ability to fund operations and

jeopardize our financial condition.

Effective liquidity management is essential for the

operation of our business. We

require sufficient liquidity to meet client loan

requests, client deposit maturities and withdrawals, payments

on our debt obligations as they come due and other cash

commitments under both normal operating conditions and

other unpredictable circumstances causing industry or

general financial

market stress. If we are unable to raise funds through

deposits, borrowings, earnings and other sources,

it could have a substantial

negative effect on our liquidity.

In particular, a majority of our liabilities

during 2020 were checking accounts and other liquid

deposits, which are generally payable on demand

or upon short notice. By comparison, a substantial majority

of our assets were

loans, which cannot generally be called or sold in the

same time frame. Although we have historically been able to replace

maturing deposits and advances as necessary,

we might not be able to replace such funds in the future,

especially if a large

number of our depositors seek to withdraw their accounts

at the same time, regardless of the reason. Our access to funding

sources in amounts adequate to finance our activities on

terms that are acceptable to us could be impaired by factors that

affect us

specifically or the financial services industry or economy

in general. Factors that could negatively impact our access

to liquidity

sources include a decrease in the level of our business activity

as a result of a downturn in the markets in which our loans

are

concentrated, adverse regulatory action against us, or

our inability to attract and retain deposits. Our ability to borrow

could also

be impaired by factors that are not specific to us, such

as a disruption in the financial markets or negative views and

expectations

about the prospects for the financial services industry.

If we are unable to maintain adequate liquidity,

it could materially and

adversely affect our business, results of operations

or financial condition.

We may incur significant

costs associated with the ownership of real property

as a result of foreclosures, which could

reduce our net income.

Since we originate loans secured by real estate, we may

have to foreclose on the collateral property to protect our investment

and

may thereafter own and operate such property,

in which case we would be exposed to the risks inherent

in the ownership of real

estate.

The amount that we, as a mortgagee, may realize after

a foreclosure is dependent upon factors outside

of our control, including,

but not limited to:

●

general or local economic conditions;

●

environmental cleanup liability;

●

neighborhood values;

●

interest rates;

●

real estate tax rates;

●

operating expenses of the mortgaged properties;

●

supply of and demand for rental units or properties;

●

ability to obtain and maintain adequate occupancy of the

properties;

●

zoning laws;

●

governmental rules, regulations and fiscal policies; and

●

acts of God.

Certain expenditures associated with the ownership

of real estate, including real estate taxes, insurance and maintenance

costs,

may adversely affect the income from the real

estate. Furthermore, we may need to advance funds to continue

to operate or to

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

real property assets may exceed the rental income earned

from such

properties or we may be required to dispose of the real property

at a loss.

Cybersecurity and Technology

Risks

We process, maintain,

and transmit confidential client information through

our information technology systems, such as

our online banking service.

Cybersecurity issues, such as security breaches and computer

viruses, affecting our

information technology systems or fraud related

to our debit card products could disrupt our business, result

in the

unintended disclosure or misuse of confidential or

proprietary information, damage our reputation,

increase our costs,

and cause losses.

We collect and

store sensitive data, including our proprietary business information

and that of our clients, and personally

identifiable information of our clients and employees, in

our

information technology systems

We also provide

our clients the

ability to bank online.

The secure processing, maintenance, and transmission of

this information is critical to our operations.

Our

network, or those of our clients, could be vulnerable to

unauthorized access, computer viruses, phishing schemes and

other

security problems.

Financial institutions and companies engaged in data processing

have increasingly reported breaches in the

security of their websites or other systems, some of which

have involved sophisticated and targeted attacks intended

to obtain

unauthorized access to confidential information, destroy

data, disrupt or degrade service, sabotage systems or cause

other damage.

We may be

required to spend significant capital and other resources to

protect against the threat of security breaches and

computer viruses or to alleviate problems caused by

security breaches or viruses.

Security breaches and viruses could expose us to

claims, litigation and other possible liabilities. Any inability

to prevent security breaches or computer viruses could

also cause

existing clients to lose confidence in our systems and

could adversely affect our reputation and our ability

to generate deposits.

Additionally, fraud

losses related to debit and credit cards have risen in recent years due

in large part to growing and evolving

schemes to illegally use cards or steal consumer credit card

information despite risk management practices employed

by the debit

and credit card industries. Many issuers of debit and

credit cards have suffered significant losses in recent years due

to the theft of

cardholder data that has been illegally exploited for

personal gain.

The potential for debit and credit card fraud against us or

our clients and our third-party service providers is a serious

issue. Debit

and credit card fraud is pervasive and the risks of

cybercrime are complex and continue to evolve. In view

of the recent high-

profile retail data breaches involving client personal and

financial information, the potential impact on us and any exposure

consumer losses and the cost of technology investments

to improve security could cause losses to us or our clients,

damage to our

brand, and an increase in our costs.

Investment Risks

The fair value of our investments could decline which would cause

a reduction in shareowners’ equity.

A large portion of our investment securities portfolio

at December 31, 2020 has been designated as available-for-sale

pursuant to

U.S. generally accepted accounting principles relating

to accounting for investments. Such principles require that

unrealized gains

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

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

item in

shareowners’ equity (net of tax) as accumulated

other comprehensive income/losses. Shareowners’ equity will

continue to reflect

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

The fair value of our investment portfolio may decline, causing

corresponding decline in shareowners’ equity.

Management believes that several factors will affect

the fair values of our investment portfolio. These include, but are

not limited

to, changes in interest rates or expectations of changes

in interest rates, the degree of volatility in the securities markets,

inflation

rates or expectations of inflation and the slope of the

interest rate yield curve (the yield curve refers to the differences

between

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

curve means short-term rates are lower than long-term rates).

These and other factors may impact specific categories

of the portfolio differently,

and we cannot predict the effect these factors

may have on any specific category.

Regulatory and Legislative Risks

We are subject to

extensive regulation, which could restrict

our activities and impose financial requirements

or limitations

on the conduct of our business.

We are subject

to extensive regulation, supervision and examination

by our regulators, including the Florida Office

of Financial

Regulation, the Federal Reserve, and the FDIC. Our

compliance with these industry regulations is costly and restricts

certain of

our activities, including payment of dividends, mergers

and acquisitions, investments, lending and interest rates charged

on loans,

interest rates paid on deposits, access to capital and brokered

deposits and locations of banking offices. If

we are unable to meet

these regulatory requirements, our financial condition,

liquidity and results of operations would be materially and adversely

affected.

Our activities are also regulated under consumer protection

laws applicable to our lending, deposit and other activities. Many

these regulations are intended primarily for the

protection of our depositors and the Deposit Insurance

Fund and not for the

benefit of our shareowners. In addition to the regulations

of the bank regulatory agencies, as a member of the Federal

Home Loan

Bank, we must also comply with applicable regulations

of the Federal Housing Finance Agency and the Federal Home Loan

Bank.

Our failure to comply with these laws and regulations

could subject us to restrictions on our business activities, fines and

other

penalties, any of which could adversely affect

our results of operations, capital base and the price of our

securities. Further, any

new laws, rules and regulations could make compliance

more difficult or expensive or otherwise adversely

affect our business and

financial condition. Please refer to the Section entitled “Business

– Regulatory Considerations” on page 9.

U.S. federal banking agencies may require

us to increase our regulatory capital,

long-term debt or liquidity requirements,

which could result in the need to issue additional qualifying

securities or to take other actions, such as to sell company

assets.

We are subject

to U.S. regulatory capital and liquidity rules. These rules,

among other things, establish minimum requirements to

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

its status as well capitalized under the applicable regulatory

capital rules, the Federal Reserve will require us to agree

to bring the bank back to well-capitalized status. For the duration

such an agreement, the Federal Reserve may impose restrictions

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

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

such agreement, the Federal Reserve may impose more severe restrictions

on our activities, including requiring us to cease and

desist activities permitted under the Bank Holding Company

Act of 1956.

Capital and liquidity requirements are frequently introduced

and amended. It is possible that regulators may increase

regulatory

capital requirements, change how regulatory capital is calculated

or increase liquidity requirements.

In 2013, the Federal Reserve Board released its final rules

which implement in the United States the Basel III regulatory

capital

reforms from the Basel Committee on Banking Supervision

and certain changes required by the Dodd-Frank Act. Under

the final

rule, minimum requirements increased for both the quality

and quantity of capital held by banking organizations.

Consistent with

the international Basel framework, the rule includes a new

minimum ratio of Common Equity Tier

1 Capital, or CET1, to Risk-

Weighted Assets, or

RWA,

of 4.5% and a CET1 conservation buffer

of 2.5% of RWA

(which was fully phased-in in 2019) that

apply to all supervised financial institutions.

The CET1 conservation buffer requirement

requires us to hold additional CET1

capital in excess of the minimum required to meet the CET1 to

RWA

ratio requirement. The rule also, among other

things, raised

the minimum ratio of Tier 1 Capital to

RWA

from 4% to 6% and included a minimum leverage ratio

of 4% for all banking

organizations. The impact of the new capital

rules requires us to maintain higher levels of capital, which

we expect will lower our

return on equity.

Additionally, if our CET1

to RWA

ratio does not exceed the minimum required plus the additional

CET1

conservation buffer,

we may be restricted in our ability to pay dividends or make other

distributions of capital to our shareowners.

Further changes to and compliance with the regulatory

capital and liquidity requirements may impact our operations

by requiring

us to liquidate assets, increase borrowings, issue additional

equity or other securities, cease or alter certain operations, sell

company assets or hold highly liquid assets, which may

adversely affect our results of operations. We

may be prohibited from

taking capital actions such as paying or increasing dividends

or repurchasing securities.

Changes in accounting standards or assumptions in applying

accounting policies could adversely affect us.

Our accounting policies and methods are fundamental to

how we record and report our financial condition and results of

operations. Some of these policies require use of estimates and

assumptions that may affect the reported value of

our assets or

liabilities and results of operations and are critical because

they require management to make difficult, subjective

and complex

judgments about matters that are inherently uncertain.

If those assumptions, estimates or judgments were incorrectly

made, we

could be required to correct and restate prior-period financial

statements. Accounting standard-setters and those who

interpret the

accounting standards, the SEC, banking regulators and our

independent registered public accounting firm may also amend or

even

reverse their previous interpretations or positions on how

various standards should be applied. These changes may be difficult

predict and could impact how we prepare and report

our financial statements. In some cases, we could be

required to apply a new

or revised standard retrospectively,

resulting in us revising prior-period financial statements.

Florida financial institutions, such as CCB, face a

higher risk of noncompliance and enforcement actions with

the Bank

Secrecy Act and other anti-money laundering

statutes and regulations.

Since September 11, 2001, banking

regulators have intensified their focus on anti-money laundering

and Bank Secrecy Act

compliance requirements, particularly the anti-money laundering

provisions of the USA PATRIOT

Act. There is also increased

scrutiny of compliance with the rules enforced by the

Office of Foreign Assets Control, or OFAC.

Since 2004, federal banking

regulators and examiners have been extremely aggressive

in their supervision and examination of financial institutions located

the State of Florida with respect to the institution’s

Bank Secrecy Act/anti-money laundering compliance. Consequently,

numerous formal enforcement actions have been instituted

against financial institutions. If CCB’s po

licies, procedures and

systems are deemed deficient or the policies, procedures

and systems of the financial institutions that it has already

acquired or

may acquire in the future are deficient, CCB would be subject

to liability, including

fines and regulatory actions such as

restrictions on its ability to pay dividends and the necessity

to obtain regulatory approvals to proceed with certain

aspects of its

business plan, including its acquisition plans.

Structural and Organizational Risks

Our directors, executive officers, and principal

shareowners, if acting together,

have substantial control over all matters

requiring shareowner approval,

including changes of control. Because Mr.

William G. Smith, Jr.

is a principal

shareowner and our Chairman, President,

and Chief Executive Officer and Chairman of CCB, he

has substantial control

over all matters on a day to day basis.

Our directors, executive officers, and principal

shareowners beneficially owned approximately 20.1% of the

outstanding shares of

our common stock at December 31, 2020.

William G. Smith, Jr.,

our Chairman, President and Chief Executive Officer

beneficially owned 17.1% of our shares as of that date.

Accordingly, these directors,

executive officers, and principal

shareowners, if acting together,

may be able to influence or control matters requiring approval

by our shareowners, including the

election of directors and the approval of mergers,

acquisitions or other extraordinary transactions. Moreover,

because William G.

Smith, Jr. is the Chairman,

President, and Chief Executive Officer of CCBG and Chairman

of CCB, he has substantial control

over all matters on a day-to-day basis, including the

nomination and election of directors.

These directors, executive officers, and

principal shareowners may also have interests that differ

from yours and may vote in a

way with which you disagree and which may be adverse

to your interests. The concentration of ownership may have the effect

delaying, preventing or deterring a change of control

of our company, could deprive

our shareowners of an opportunity to receive

a premium for their common stock as part of a sale of

our Company and might ultimately affect the

market price of our common

stock. You

may also have difficulty changing management, the composition

of the Board of Directors, or the general direction of

our Company.

Our Articles of Incorporation, Bylaws, and certain laws and

regulations may prevent or delay

transactions you might

favor,

including a sale or merger of CCBG.

CCBG is registered with the Federal Reserve as a financial

holding company under the Bank Holding Company Act, or

BHC Act.

As a result, we are subject to supervisory regulation

and examination by the Federal Reserve. The Gramm-Leach-Bliley Act,

the

BHC Act, and other federal laws subject financial holding

companies to particular restrictions on the types of activities in

which

they may engage, and to a range of supervisory requirements and

activities, including regulatory enforcement actions for

violations of laws and regulations.

Provisions of our Articles of Incorporation, Bylaws, certain

laws and regulations and various other factors may make

it more

difficult and expensive for companies or persons

to acquire control of us without the consent of our Board of

Directors. It is

possible, however, that you would

want a takeover attempt to succeed because, for example, a potential

buyer could offer a

premium over the then prevailing price of our common

stock.

For example, our Articles of Incorporation permit our

Board of Directors to issue preferred stock without shareowner

action. The

ability to issue preferred stock could discourage a company

from attempting to obtain control of us by means of a tender

offer,

merger, proxy contest or

otherwise. Additionally, although

there is a proposal to declassify our Board of Directors that

is to be

voted upon and potentially implemented at our 2021 annual

meeting of shareowners, our Articles of Incorporation

and Bylaws

currently divide our Board of Directors into three classes, as nearly

equal in size as possible, with staggered three-year terms. One

class is elected each year.

The classification of our Board of Directors could make it more

difficult for a company to acquire

control of us. We

are also subject to certain provisions of the Florida Business Corporation

Act and our Articles of Incorporation

that relate to business combinations with interested shareowners.

Other provisions in our Articles of Incorporation or

Bylaws that

may discourage takeover attempts or make them more

difficult include:

●

Supermajority voting requirements to remove a director from office;

●

Provisions regarding the timing and content of shareowner

proposals and nominations;

●

Supermajority voting requirements to amend Articles of Incorporation

unless approval is received by a majority of

“disinterested directors”;

●

Absence of cumulative voting; and

●

Inability for shareowners to take action by written consent.

General Risks

Risk of Pandemic.

In recent years the outbreak of a number of diseases including

COVID-19, Avian

Bird Flu, H1N1, and various other "super bugs"

have increased the risk of a pandemic. As seen with the

ongoing COVID-19 pandemic and prior pandemics, global

events like

these could impact interest rates, energy

prices, the value of financial assets and ultimately economic

activity in our markets.

The

adverse effect of these events may include narrowing

of the spread between interest income and expense, a

reduction in fee

income, an increase in credit losses, and a decrease in

demand for loans and other products and services.

We may be unable to

pay dividends in the future.

In 2020, our Board of Directors declared four quarterly

cash dividends. Declarations of any future dividends will be contingent

our ability to earn sufficient profits and

to remain well capitalized, including our ability to hold and generate

sufficient capital to

comply with the CET1 conservation buffer

requirement. In addition, due to our contractual obligations

with the holders of our

trust preferred securities, if we defer the payment of accrued

interest owed to the holders of our trust preferred securities,

we may

not make dividend payments to our shareowners.

Further, under applicable statutes and

regulations, CCB’s board

of directors, after charging-off bad debts,

depreciation and other

worthless assets, if any,

and making provisions for reasonably anticipated future losses on

loans and other assets, may quarterly,

semi-annually,

or annually declare and pay dividends to CCBG of up

to the aggregate net income of that period combined with

the CCB’s retained net

income for the preceding two years and, with the approval

of the Florida Office of Financial Regulation

and Federal Reserve, declare a dividend from retained net

income which accrued prior to the preceding

two years.

Additional

state laws generally applicable to Florida corporations may

also limit our ability to declare and pay dividends. Thus, our ability to

fund future dividends may be restricted by state and

federal laws and regulations.

Our future success is dependent on our ability

to compete effectively in the highly competitive banking

industry.

We face vigorous

competition for deposits, loans and other financial services in

our market area from other banks and financial

institutions, including savings and loan associations, savings

banks, finance companies and credit unions. A number

of our

competitors

are significantly larger than we are and have greater access

to capital and other resources. Many of our competitors

also have higher lending limits, more expansive branch

networks, and offer a wider array of financial

products and services. To

lesser extent, we also compete with other providers of

financial services, such as money market mutual funds, brokerage

firms,

consumer finance companies, insurance companies and

governmental organizations, which may offer

financial products and

services on more favorable terms than we are able

to. Many of our non-bank competitors are not subject to the same extensive

regulations that govern our activities. As a result, these non

-bank competitors have advantages over us in providing certain

services. The effect of this competition may

reduce or limit our margins or our market share and

may adversely affect our results

of operations and financial condition.

Limited trading activity for shares of our common

stock may contribute to price volatility.

While our common stock is listed and traded on the

Nasdaq Global Select Market, there has historically been limited

trading

activity in our common stock.

The average daily trading volume of our common stock

over the 12-month period ending

December 31, 2020 was approximately 35,125 shares. Due

to the limited trading activity of our common stock, relativity small

trades may have a significant impact on the price of

our common stock.

Securities analysts may not initiate coverage or continue to

cover our common stock, and this may have a negative impact

on its market price.

The trading market for our common stock will depend

in part on the research and reports that securities analysts publish

about us

and our business. We

do not have any control over securities analysts and

they may not initiate coverage or continue to cover our

common stock. If securities analysts do not cover our

common stock, the lack of research coverage may adversely

affect its

market price. If we are covered by securities analysts, and

our common stock is the subject of an unfavorable report, our stock

price would likely decline. If one or more of these

analysts ceases to cover our Company or fails to publish regular reports on

us,

we could lose visibility in the financial markets,

which may cause our stock price or trading volume to decline.

Shares of our common stock are not

an insured deposit and may lose value.

The shares of our common stock are not a bank deposit and

will not be insured or guaranteed by the FDIC or any

other

government agency.

Your

investment will be subject to investment risk, and you must be capable

of affording the loss of your

entire investment.

Item 1B.

Unresolved Staff Comments

None.

Item 2.

Properties

We are headquartered

in Tallahassee, Florida.

Our executive office is in the Capital City Bank building

located on the corner of

Tennessee and

Monroe Streets in downtown Tallahassee.

The building is owned by CCB, but is located on land

leased under a

long-term agreement.

At December 31, 2020,

Capital City Bank had 57 banking offices.

Of the 57 locations, we lease the land, buildings, or both

at six

locations and own the land and buildings at the remaining

51.

In addition, CCHL had 29 loan production offices,

all of which

were leased.

Item 3.

Legal Proceedings

We are party

to lawsuits and claims arising out of the normal course of

business. In management’s opinion,

there are no known

pending claims or litigation, the outcome of which

would, individually or in the aggregate, have a material effect

on our

consolidated results of operations, financial position, or

cash flows.

Item 4

Mine Safety Disclosure

Not applicable.

PART

Item 5.

Market for the Registrant's Common Equity,

Related Shareowner Matters, and Issuer Purchases of

Equity

Securities

Common Stock Market Prices and Dividends

Our common stock trades on the Nasdaq Global Select

Market under the symbol “CCBG.”

We had a

total of 1,201 shareowners

of record at February 25, 2021.

The following table presents the range of high and low

closing sales prices reported on the Nasdaq Global Select Market and

cash

dividends declared for each quarter during the past two

years.

2020

2019

Fourth

Quarter

Third

Quarter

Second

Quarter

First

Quarter

Fourth

Quarter

Third

Quarter

Second

Quarter

First

Quarter

Common stock price:

High

26.35

21.71

23.99

30.62

30.95

28.00

25.00

25.87

Low

18.14

17.55

16.16

15.61

25.75

23.70

21.57

21.04

24.58

18.79

20.95

20.12

30.50

27.45

24.85

21.78

Cash dividends per share

0.15

0.14

0.13

0.11

Florida law and Federal regulations impose restrictions on

our ability to pay dividends and limitations on the amount

of dividends

that the Bank can pay annually to us.

See Item 1. “Capital; Dividends; Sources of Strength” and “Dividends”

in the Business

section on page 11 and 12, Item 1A.

“Investment Risks” in the Risk Factors section on page 24,

Item 7. “Liquidity and Capital

Resources – Dividends” – in Management's Discussion and Analysis

of Financial Condition and Operating Results on page

and Note 17 in the Notes to Consolidated Financial Statements.

Performance Graph

This performance graph compares the cumulative

total shareowner return on our common stock with the cumulative

total

shareholder return of the Nasdaq Composite Index

and the SNL Financial LC $1B-$5B Bank Index for the past five

years.

The

graph assumes that $100 was invested on December

31, 2015 in our common stock and each of the above indices,

and that all

dividends were reinvested.

The shareowner return shown below represents past performance

and should not be considered

indicative of future performance.

Period Ending

Index

12/31/15

12/31/16

12/31/17

12/31/18

12/31/19

12/31/20

Capital City Bank Group, Inc.

100.00

134.86

152.76

156.54

209.68

173.24

Nasdaq Composite

100.00

108.87

141.13

137.12

187.44

271.64

SNL $1B-$5B Bank Index

100.00

143.87

153.37

134.37

163.35

138.81

Item 6.

Selected Financial Data

(Dollars in Thousands, Except Per Share Data)

2020

2019

2018

2017

2016

Interest Income

106,197

112,836

99,395

86,930

81,154

Net Interest Income

101,326

103,343

92,504

82,982

77,965

Provision for Credit Losses

9,645

2,027

2,921

2,215

819

Noninterest Income

(1)

111,165

53,053

51,565

51,746

53,681

Noninterest Expense

149,962

113,609

111,503

109,447

113,213

Income Attributable to Noncontrolling Interests

(2)

(11,078)

Net Income Attributable to CCBG

(3)

31,576

30,807

26,224

10,863

11,746

Per Common Share:

Basic Net Income

1.88

1.84

1.54

0.64

0.69

Diluted Net Income

1.88

1.83

1.54

0.64

0.69

Cash Dividends Declared

0.57

0.48

0.32

0.24

0.17

Diluted Book Value

19.05

19.40

18.00

16.65

16.23

Diluted Tangible Book Value

(4)

13.76

14.37

12.96

11.68

11.23

Performance Ratios:

Return on Average Assets

0.93

1.03

0.92

0.39

0.43

Return on Average Equity

9.36

9.72

8.89

3.83

4.22

Net Interest Margin (FTE)

3.30

3.85

3.64

3.37

3.25

Noninterest Income as % of Operating Revenues

52.32

33.92

35.79

38.41

40.78

Efficiency Ratio

70.43

72.40

77.05

80.50

85.34

Asset Quality:

Allowance for Credit Losses ("ACL")

23,816

13,905

14,210

13,307

13,431

ACL to Loans Held for Investment ("HFI")

1.19

0.75

0.80

0.86

Nonperforming Assets ("NPAs")

6,679

5,425

9,101

11,100

19,171

NPAs to Total

Assets

0.18

0.31

0.38

0.67

NPAs to Loans HFI plus OREO

0.33

0.29

0.51

0.67

1.21

ACL to Non-Performing Loans

405.66

310.99

206.79

185.87

157.40

Net Charge-Offs to Average

Loans HFI

0.12

0.13

0.12

0.14

0.09

Capital Ratios:

Tier 1 Capital

16.19

17.16

16.36

16.33

15.51

Total Capital

17.30

17.90

17.13

17.10

16.28

Common Equity Tier 1 Capital

13.71

14.47

13.58

13.42

12.61

Tangible Common Equity

(4)

6.25

8.06

7.58

7.09

6.90

Leverage

9.33

11.25

10.89

10.47

10.23

Equity to Assets

8.45

10.59

10.23

9.80

9.67

Dividend Pay-Out

30.32

26.23

20.78

37.50

24.64

Averages for the Year:

Loans Held for Investment

1,957,576

1,811,738

1,711,635

1,610,127

1,530,260

Earning Assets

3,083,675

2,697,098

2,561,884

2,502,231

2,432,392

Total Assets

3,391,071

2,987,056

2,857,148

2,816,096

2,752,309

Deposits

2,844,347

2,537,489

2,422,973

2,371,871

2,282,785

Shareowners’ Equity

337,313

317,072

294,864

283,404

278,335

Year-End

Balances:

Loans Held for Investment

2,006,427

1,835,929

1,774,225

1,653,492

1,561,289

Earning Assets

3,475,904

2,806,913

2,658,539

2,582,922

2,520,053

Total Assets

3,798,071

3,088,953

2,959,183

2,898,794

2,845,197

Deposits

3,217,560

2,645,454

2,531,856

2,469,877

2,412,286

Shareowners’ Equity

320,837

327,016

302,587

284,210

275,168

Other Data:

Basic Average Shares Outstanding

16,784,711

16,769,507

17,029,420

16,951,663

16,988,747

Diluted Average Shares Outstanding

16,821,950

16,827,413

17,072,329

17,012,637

17,061,186

Shareowners of Record

(5)

1,201

1,243

1,312

1,389

1,489

Banking Locations

(5)

Full-Time Equivalent Associates

(5)(6)

954

796

801

789

820

(1)

Includes $2.5 million gain from sale of trust preferred securities in 2016.

(2)

Acquired 51% membership interest in Brand Mortgage Group, LLC , re-named as Capital City Home Loans, on March 1, 2020 - fully consolidated

(3)

For 2017, includes $4.1 million, or $0.24 per diluted share, income tax expense

adjustment related to the Tax

Cuts and Jobs Act of 2017.

For 2018, includes $3.3 million, or $0.19 per diluted share, income tax benefit for

2017 plan year pension contributions made in 2018.

(4)

Diluted tangible book value and tangible common equity ratio are non-GAAP financial measures. For additional

information, including a reconciliation

to GAAP, refer

to page 32

(5)

As of February 25th of the following year.

(6)

Reflects 756 full-time equivalent associates at Core CCBG and 198 full-time

equivalent associates at CCHL.

NON-GAAP FINANCIAL MEASURES

We present a

tangible common equity ratio and a tangible book value per

diluted share that, in each case, removes the effect of

goodwill that resulted from merger and acquisition

activity. We

believe these measures

are useful to investors because it allows

investors to more easily compare our capital adequacy

to other companies in the industry.

The GAAP to non-GAAP

reconciliation for selected year-to-date

financial data and quarterly financial data is provided below.

Non-GAAP Reconciliation - Selected Financial Data

(Dollars in Thousands, except per share data)

2020

2019

2018

2017

2016

Shareowners' Equity (GAAP)

320,837

327,016

302,587

284,210

275,168

Less: Goodwill (GAAP)

89,095

84,811

Tangible Shareowners' Equity (non-GAAP)

231,742

242,205

217,776

199,399

190,357

Total Assets (GAAP)

3,798,071

3,088,953

2,959,183

2,898,794

2,845,197

Less: Goodwill (GAAP)

89,095

84,811

Tangible Assets (non-GAAP)

3,708,976

3,004,142

2,874,372

2,813,983

2,760,386

Tangible Common Equity Ratio (non-GAAP)

A/B

6.25%

8.06%

7.58%

7.09%

6.90%

Actual Diluted Shares Outstanding (GAAP)

16,844,997

16,855,161

16,808,542

17,071,107

16,949,359

Tangible Book Value

per Diluted Share

(non-GAAP)

A/C

13.76

14.37

12.96

11.68

11.23

Non-GAAP Reconciliation - Quarterly Financial Data

(Dollars in Thousands, except

per share data)

2020

2019

Fourth

Third

Second

First

Fourth

Third

Second

First

Shareowners' Equity (GAAP)

320,837

339,425

335,057

328,507

327,016

321,562

314,595

308,986

Less: Goodwill (GAAP)

89,095

89,275

84,811

Tangible Shareowners' Equity

(non-GAAP)

231,742

250,330

245,962

239,232

242,205

236,751

229,784

224,175

Total Assets (GAAP)

3,798,071

3,587,041

3,499,524

3,086,523

3,088,953

2,934,513

3,017,654

3,052,051

Less: Goodwill (GAAP)

89,095

89,275

84,811

Tangible Assets (non-GAAP)

3,708,976

3,497,946

3,410,429

2,997,248

3,004,142

2,849,702

2,932,843

2,967,240

Tangible Common Equity

Ratio (non-GAAP)

A/B

6.25%

7.16%

7.21%

7.98%

8.06%

8.31%

7.83%

7.56%

Actual Diluted Shares

Outstanding (GAAP)

16,844,997

16,800,563

16,821,743

16,845,462

16,855,161

16,797,241

16,773,449

16,840,496

Tangible Book Value per

Diluted Share (non-GAAP)

A/C

13.76

14.90

14.62

14.20

14.37

14.09

13.70

13.31

Item 7.

Management's Discussion and Analysis of Financial Condition

and Results of Operations

Management’s discussion

and analysis (“MD&A”) provides supplemental information,

which sets forth the major factors that

have affected our financial condition and results

of operations and should be read in conjunction with the

Consolidated Financial

Statements and related notes included in the Annual Report

on Form 10-K.

The MD&A is divided into subsections entitled

“Business Overview,” “Executive

Overview,” “Results of

Operations,” “Financial Condition,” “Liquidity and Capital Resources,”

“Off-Balance Sheet Arrangements,” “Fourth

Quarter, 2020 Financial Results,” and “Accounting

Policies.”

The following

information should provide a better understanding

of the major factors and trends that affect our earnings

performance and

financial condition, and how our performance during

2020 compares with prior years.

Throughout this section, Capital City Bank

Group, Inc., and its subsidiaries, collectively,

are referred to as “CCBG,” “Company,”

“we,” “us,” or “our.”

CAUTION CONCERNING FORWARD

-LOOKING STATEMENTS

This Annual Report on Form 10-K, including this MD&A section,

contains “forward-looking statements” within the meaning

the Private Securities Litigation Reform Act of 1995.

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

our beliefs, plans, objectives, goals, expectations, estimates

and intentions that are subject to significant risks and

uncertainties

and are subject to

change based on various factors, many of which are beyond

our control. The words “may,”

“could,” “should,”

“would,” “believe,” “anticipate,” “estimate,” “expect,”

“intend,” “plan,” “target,” “vision,” “goal,” and similar

expressions are

intended to identify forward-looking statements.

All forward-looking statements, by their nature, are subject

to risks and uncertainties.

Our actual future results may differ

materially from those set forth in our forward-looking

statements.

Please see the Introductory Note and

Item 1A Risk Factors

this Annual Report for a discussion of factors that

could cause our actual results to differ materially from

those in the forward-

looking statements.

However, other factors besides those

listed in

Item 1A Risk Factors

or discussed in this Annual Report also could adversely affect

our results, and you should not consider any such

list of factors to be a complete set of all potential risks or

uncertainties.

Any

forward-looking statements made by us or on our behalf

speak only as of the date they are made.

We do not undertake

to update

any forward-looking statement, except as required by applicable

law.

BUSINESS OVERVIEW

Our Business

We are a financial

holding company headquartered in Tallahassee,

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

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

We offer

a broad array of products and services, including commercial

and retail

banking services, trust and asset management, and retail securities

brokerage through a total of 57 banking offices

and 86

ATMs/ITMs

located in Florida, Georgia, and Alabama.

Please see the section captioned “About Us” beginning

on page 4 for

more detailed information about our business.

Our profitability,

like most financial institutions, is dependent to a large

extent upon net interest income, which is the difference

between the interest and fees received on interest earning

assets, such as loans and securities, and the interest paid on

interest-

bearing liabilities, principally deposits and borrowings.

Results of operations are also affected by the provision

for credit losses,

operating expenses such as salaries and employee benefits,

occupancy and other operating expenses including income taxes,

and

noninterest income such as mortgage banking revenues,

wealth management fees, deposit fees, and bank card fees.

Strategic Review

Operating Philosophy

Our philosophy is to build long-term client relationships based

on quality service, high ethical standards,

and safe and sound banking practices.

We maintain a

locally oriented, community-based focus, which is augmented

experienced, centralized support in select specialized areas.

Our local market orientation is reflected in our network of

banking

office locations, experienced community executives

with a dedicated President for each market, and community

boards which

support our focus on responding to local banking needs.

We strive to offer

a broad array of sophisticated products and to provide

quality service by empowering associates to make decisions

in their local markets.

Strategic Initiatives

In 2020, we celebrated

our 125

anniversary and reflected on our past history and what has fostered

our

longevity – client relationships, community service,

and our people have allowed us to evolve, change,

and thrive over time.

2020, we completed a five year strategic plan “Vision

2020” and initiated a new five year strategic plan “2025 In

Focus” that will

guide us in the areas of client experience, channel optimization,

market expansion, and culture.

As part of 2025 In Focus, we will

aim to take our brand of relationship banking to the

next level, further deepen relationships within our communities,

expand into

new higher growth markets, diversify our revenue

sources, invest in new technology that will support the expansion

of client

relationships and scale within our lines of business and

drive higher profitability.

Markets

We maintain a

blend of large and small markets in Florida

and Georgia all in close proximity to major interstate

thoroughfares such as Interstates I-10 and I-75.

Our larger markets include Tallahassee

(Leon County, Florida),

Gainesville

(Alachua County,

Florida), Macon (Bibb County,

Georgia),

and Seacoast (Hernando/Pasco/Citrus, Florida).

The larger

employers in these markets are state and local governments,

healthcare providers, educational institutions, and small

businesses,

providing stability and good growth dynamics that have

historically grown in excess of the national average.

We serve an

additional fifteen smaller, less competitive,

rural markets located on the outskirts of and centered between

our larger markets

where we are positioned as a market leader.

In 12 of 18 markets in Florida and two of four Georgia

markets, we frequently rank

within the top four banks in terms of deposit market

share.

Furthermore, in the counties in which we operate, we maintain

8.3%

deposit market share in the Florida counties and 2.4%

in the Georgia counties.

Our markets provide for a strong core

deposit funding base, a key differentiator

and driver of our profitability and franchise value.

Acquisitions/Expansion Focus

Prior to 2005, we were an active acquirer of banks which

is reflected in the strong core deposit

franchise we enjoy today.

During the Great Recession, we navigated this historical period

in our industry focused on protecting

shareowner value and resolved our problem assets without

raising capital.

We also pivoted to

an intense focus on organic growth

and operational improvements.

While we have not completed a whole bank transaction since 2005,

we have completed a total of

nine whole bank acquisitions and this component

of our strategy is still in place.

The focus of potential acquisition opportunities

(including management lift-outs) will be in Florida, Georgia,

and Alabama with a particular focus on financial institutions

located

in markets on the outskirts of larger,

metropolitan areas, including Alachua, Marion, Hernando/Pasco counties

in Florida, the

western panhandle of Florida, Bibb and surrounding

counties in central Georgia and the northern arc of

Atlanta, leveraging the

presence of our recent strategic alliance with CCHL.

Our focus on some of these markets may change as we

continue to evaluate

our strategy and the economic conditions and demographics

of any individual market.

We will also continue

to evaluate de novo

banking office expansion opportunities in attractive

new markets where acquisition opportunities are not feasible

and expansion

opportunities in asset management, insurance, mortgage

banking, and other financial businesses that are closely aligned with

the

business of banking.

Embedded in our acquisition and expansion strategy is our desire

to partner with institutions that are

culturally similar, have experienced

management and possess either established market presence

or have potential for improved

profitability through growth, economies of scale, or

expanded services.

Generally, these potential target

institutions will range in

asset size from

$100 million to $600 million.

Recent Acquisition/Expansion Activity

In 2020 we began our expansion into the western panhandle

area of Florida by opening a

full-service banking office in Bay County,

Florida and a loan production office in Walton

County with plans to open a full-service

banking office in Walton

County in late 2021.

Further, we will expand our presence and

commitment to our Gainesville market,

opening a third full-service banking office in late

2021 to early 2022.

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”) – Refer to Note 1 – Significant Accounting Policies/Business

Combination for additional information on this transaction.

The primary reasons for the strategic alliance with Brand

were to

scale our mortgage banking business, gain access to an expanded

residential mortgage product line-up and investor base

(including mandatory delivery channel for loan sales),

to hedge our net interest income business and to generate

other operational

synergies and cost savings.

We realized

significant benefits from this transaction in 2020.

The strategic alliance with CCHL and

its strong presence and leadership within the Northern Arc

area (Gwinnett and Cobb counties) of Atlanta positions us to

further

evaluate expansion of our traditional banking services to

this area via de-novo banking office expansion

whole bank acquisition,

or the recruitment/hiring of banking teams

in the area as opportunities arise.

EXECUTIVE OVERVIEW

For 2020, we realized net income of $31.6 million,

or $1.88 per diluted share, compared to $30.8 million, or $1.83

per diluted

share for 2019.

The increase in net income for 2020 was attributable

to higher noninterest income of $58.1 million, partially

offset by higher

noninterest expense of $36.4 million, a $7.6 million

increase in the provision for credit losses, lower net interest income

of $2.0

million, and higher income taxes of $0.2 million.

For reporting purposes, CCHL is fully consolidated in CCBG’s

financial

statements and, for the full year 2020,

net income included an $11.1 million deduction

to record the 49% non-controlling interest

in the earnings of CCHL.

Below are summary highlights that impacted our performance

for the year:

●

Operating revenues (excluding mortgage

fees) held firm as unfavorable asset re-pricing

was offset by SBA PPP loan fees

and higher other fee revenues

●

Loan balances buoyed by SBA PPP

loan originations which totaled $190 million

Core loan balances (excluding SBA

PPP) held firm due to stronger loan production

in the fourth quarter

●

Reserve build of $6.6 million (loan HFI provision

of $9.0 million less net charge-offs of $2.4 million)

in response to potential

credit losses related

to the pandemic

Allowance coverage ratio (excluding SBA PPP) was 1.30%

at year-end

●

Deposits grew $572 million (period-end)

and $307 million (average) and reflected

stimulus inflows as well as strong core

deposit growth

●

Acquired 51% ownership in Brand

Mortgage, LLC on March 1, 2020 (renamed

CCHL) – contributed $0.52 per share

In 2020,

despite pressure from the economic effects of the

COVID-19 pandemic and a 150 basis point emergency

Federal Open

Market Committee rate reduction in March, our earnings

held firm and came in slightly above 2019.

Our strategic alliance with

CCHL was timely and those earnings provided a hedge

against our net interest income.

Period-end loans grew $170 million, or 9.3%, in 2020 aided

by our involvement in the SBA PPP loan program as we

generated

$190 million in loans ($178 million balance at December

31, 2020) to support our clients during this unprecedented

time.

Core

loan balances held firm despite the stressed economy buoyed

by our relationship with CCHL and the larger

pool of loan purchase

opportunities that strategic alliance provides us.

We also generated

a total of $5.0 million in net SBA PPP loan fees of which $1.8

million was recognized in 2020.

Our deposit balances saw unprecedented growth in

2020 as average balances grew $307 million, or 12% driven

by the stimulus

provided by various government programs throughout

the year as well as core deposit growth as our clients

sought a flight to

safety.

2020 continued our seventh consecutive year of deposit growth

which has averaged 4.1% per year.

Noninterest income was very strong in 2020 driven by higher

mortgage banking revenues attributable to the strategic alliance

with CCHL, and a very robust mortgage market.

Other fee revenues held firm despite pressure on our deposit

fees attributable to

the pandemic.

Wealth management

fees and bank card fees grew 4.5%

and 8.3%, respectively in 2020.

Expenses at our core bank (excluding CCHL) declined

by $3.6 million in 2020,

primarily attributable to lower pension plan

expense.

We continued

our ongoing commitment to expense management as a component

of improving our efficiency ratio and

elevated our commitment in 2020 by allocating dedicated

resources focused on identifying opportunities to reduce

the cost of our

banking office network and occupancy costs.

In 2020, we continued our multi-year investment in ITM/SATM

technology and

enhancements to our electronic banking platform which

greatly benefited our ability to improve service quality

for our clients

during the pandemic.

The pandemic provided significant challenges on the credit

front in 2020.

We supported

our clients, providing short-term loan

extensions for loan balances totaling $333 million, of

which $324 million had returned to normal scheduled payments by year-

end.

Despite the stressed environment for our borrowers, our credit quality

metrics remained very stable throughout the year with

minimal defaults and credit losses of 12 basis points of

average loans held for investment (“HFI”).

In response to the great

uncertainty regarding potential loan defaults related to the

stressed economy, we built

significant credit loss reserves in response

during 2020,

and continued to carry those reserves through year-end.

Key components of our 2020 financial performance are

summarized below:

Results of Operations

Net Interest Income.

For 2020, tax-equivalent net interest income totaled $101.8

million,

a $2.1 million, or 2.0%, decrease from

2019 driven primarily by lower rates for most of the

year, which negatively impacted

our variable and adjustable rate earning

assets. Partially offsetting this decline was a lower

cost of funds.

Provision and Allowance for Credit

Losses.

For 2020, our provision for credit losses was $9.6

million compared to $2.0 million

for 2019.

The higher provision in 2020 reflected expected potential losses due

to deterioration in economic conditions related to

the COVID-19 pandemic.

Net loan losses for 2020 totaled $2.4 million, or 0.12% of average loans

held for investment compared

to $2.3 million, or 0.13%, in 2019.

At December 31, 2020, excluding SBA PPP loans (100% government

guaranteed),

the

allowance represented 1.30% of loans held for investment.

Noninterest Income and Noninterest

Expense

The consolidation of CCHL’s

mortgage banking operations on March 1, 2020

impacted our noninterest income and noninterest expense

comparisons for 2020 versus 2019.

To better understand the

impact, we

provide an analysis of Noninterest Income and Noninterest

Expense for CCBG excluding CCHL (“Core CCBG”) and

CCHL

under those respective headings below (Pages 39 and

41).

CCHL operations contributed $8.7 million, or $0.52 per

diluted share,

to our earnings for 2020 driven by robust mortgage production

and efficiencies gained with the strategic alliance

At Core CCBG, deposit fees declined $1.7 million

in 2020 primarily due to the impact of government stimulus in

the second

quarter related to the COVID-19 pandemic, but increased

for the second half of the year as the economy and consumer

spending

improved.

Strong debit card fee growth

of $1.0 million and a $0.6 million increase in wealth management

fees substantially

offset the aforementioned decline in deposit fees.

Core CCBG noninterest expense decreased $3.6 million and

reflected lower

compensation expense of $2.5 million, ORE expense

of $0.4 million, and other expense of $2.2 million, partially

offset by higher

occupancy expense of $1.5 million.

Financial Condition

Earning Assets

Average earning

assets were $3.391 billion for 2020, an increase of $404.0 million,

or 13.5%, over 2019.

The

increase was primarily driven by higher deposit balances

and reflected strong core deposit growth and funding retained

at the

bank from SBA PPP loans and various other government

stimulus programs.

Loans

In 2020, average loans HFI totaled $1.993 billion, an increase

of $159.4 million, or 8.0% over 2019 and reflected growth

in all loan categories except institutional loans, home

equity loans, and consumer loans.

During 2020, we originated SBA PPP

loans which averaged $128 million in 2020 and totaled

$178 million at December 31, 2020.

SBA PPP loan fees totaled

approximately $1.8 million in 2020.

At December 31, 2020 we had $3.2 million (net) in deferred

SBA PPP loan fees.

Credit Quality

Nonaccrual loans totaled $5.9 million (0.29% of HFI loans)

at December 31, 2020 compared to $4.5 million

(0.24% of HFI loans) at December 31, 2019.

Classified loans totaled $17.6 million and $20.8 million at the

same respective

periods.

We continue to

closely monitor borrowers and loan portfolio segments impacted

by the pandemic.

Of the $333 million

in loans extended in 2020, approximately $9 million was

still on extension at December 31, 2020, none of which were

classified.

Of the $324 million in loans extended in 2020, that have

resumed payments, loan balances totaling $3.5 million

were over 30

days delinquent and an additional $0.4 million was on

nonaccrual status at December 31, 2020.

Deposits

Average total

deposits for 2020 were $2.844 billion, an increase of $306.9

million, or 12.1%, over 2019.

We realized

increases in all

deposit types except certificates of deposit, with the largest

increases occurring in noninterest bearing and savings

accounts.

The strong deposit growth that

occurred during the year reflected inflows from various government

stimulus programs

as well as strong core deposit growth.

Capital

At December 31, 2020, we were well-capitalized with a total risk-based

capital ratio of 17.30% and a tangible common

equity ratio (a non-GAAP financial measure) of 6.25

compared to 17.90% and 8.06%, respectively,

at December 31, 2019.

December 31, 2020, all of our regulatory capital ratios

exceeded the threshold to be well-capitalized under the Basel III

capital

standards.

Our tangible common equity ratio was unfavorably impacted

at December 31, 2020 by the annual adjustment to the

other comprehensive loss for our pension plan, which

was negatively impacted due to the lower discount rate used to

calculate the

present value of the pension obligation.

The lower discount rate reflected the significant decline in long-term

interest rates in

2020.

The pension plan, on an actuarial basis, continues to be sufficiently

funded in accordance with IRS regulation.

RESULTS

OF OPERATIONS

A condensed earnings summary for the last three

years is presented in Table

1 below:

Table 1

CONDENSED SUMMARY OF EARNINGS

(Dollars in Thousands, Except Per Share

Data)

2020

2019

2018

Interest Income

106,197

112,836

99,395

Taxable Equivalent

Adjustments

430

526

654

Total Interest Income

(FTE)

106,627

113,362

100,049

Interest Expense

4,871

9,493

6,891

Net Interest Income (FTE)

101,756

103,869

93,158

Provision for Credit Losses

9,645

2,027

2,921

Taxable Equivalent

Adjustments

430

526

654

Net Interest Income After Provision for Credit Losses

91,681

101,316

89,583

Noninterest Income

111,165

53,053

51,565

Noninterest Expense

149,962

113,609

111,503

Income Before Income Taxes

52,884

40,760

29,645

Income Tax Expense

10,230

9,953

3,421

Pre-Tax Income

Attributable to Noncontrolling Interests

(11,078)

Net Income Attributable to Common Shareowners

31,576

30,807

26,224

Basic Net Income Per Share

1.88

1.84

1.54

Diluted Net Income Per Share

1.88

1.83

1.54

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.

We provide

an analysis of our net interest income, including

average yields and rates in Tables

2 and 3 below.

We provide this

information on a "taxable equivalent" basis to reflect the

tax-

exempt status of income earned on certain loans and

investments.

For 2020, our taxable equivalent net interest income

decreased $2.1 million, or 2.0%. This follows an increase of $10.7

million, or

11.5%

in 2019.

The decrease in 2020 was driven primarily by lower rates for most of

the year, which negatively impacted our

variable and adjustable rate earning assets.

Partially offsetting this decline was a lower

cost of funds.

The increase in 2019 was

due to generally higher rates which continued to

migrate through the earning asset portfolios.

For 2020, taxable equivalent interest income decreased

$6.7 million, or 5.9%, from 2019.

For 2019, taxable equivalent interest

income increased $13.3 million, or 13.3%, over 2018.

The decline in 2020 was primarily due to lower rates on earning

assets.

The increase for 2019 was primarily due to higher

loan balances coupled with higher interest rates.

For 2020, interest expense decreased $4.6 million, or

48.7%, from 2019.

For 2019, interest expense increased $2.6 million, or

37.8%, over 2018.

The decline in 2020 was primarily due to lower rates on our negotiated

rate deposits which are tied to an

adjustable rate index, whereas the increase for 2019 primarily

reflected increases to our negotiated rate deposits.

Our cost of

funds decreased 19 basis points to 16 basis points in 2020,

and increased eight basis points to 35 basis points in 2019.

The

decrease in 2020 was primarily due to lower interest

rates paid on our negotiated rate products.

The increase in 2019 was

primarily due to higher interest rates paid on our

negotiated rate products due to the average increase in interest rates

over the

period.

Our interest rate spread (defined as the taxable-equivalent

yield on average earning assets less the average rate

paid on interest

bearing liabilities) decreased 43 basis points in 2020 and

increased 15 basis points in 2019.

Our net interest margin (defined as

taxable-equivalent interest income less interest expense divided

by average earning assets) of 3.30%

in 2020 was a 55 basis point

decrease from 2019.

The net interest margin of 3.85%

in 2019 was a 21 basis point increase over 2018.

The decline in the

interest rate spread and net interest margin

in 2020 was primarily due to lower yielding earning assets due

to lower rates, in

addition to strong growth in lower yielding overnight funds.

The increase in the interest rate spread and net interest margin

2019 was attributable to rising rates and an improving

mix of earning assets driven by loan growth.

The Federal Open Market Committee (FOMC) decreased the

federal funds target rate 150 basis points in March

2020 to a target

rate in the range of 0.00%-0.25%, resulting in lower yields

as our variable and adjustable rate earning assets reprice.

As we

continue to closely monitor and manage our net interest

margin,

we review and implement various loan strategies that align with

our overall risk appetite to enhance our performance

on an ongoing basis.

We continue

to maintain relatively short duration

portfolios on both sides of the balance sheet and

believe we are well positioned to respond to changing market

conditions.

Table 2

AVERAGE

BALANCES AND INTEREST RATES

2020

2019

2018

(Taxable Equivalent Basis - Dollars

in Thousands)

Average

Balance

Interest

Average

Rate

Average

Balance

Interest

Average

Rate

Average

Balance

Interest

Average

Rate

ASSETS

Loans Held for Sale

(1)(2)

81,125

2,895

3.57

10,349

471

4.55

6,713

350

5.21

Loans Held for Investment

(1)(2)

1,957,576

92,261

4.71

1,811,738

94,191

5.20

1,711,635

84,200

4.92

Taxable Investment Securities

574,199

10,176

1.77

612,541

13,123

2.14

641,120

12,083

1.88

Tax-Exempt Investment Securities

(2)

5,123

124

2.42

24,471

390

1.60

67,037

1,006

1.50

Funds Sold

465,652

1,171

0.25

237,999

5,187

2.18

135,379

2,410

1.78

Total Earning Assets

3,083,675

106,627

3.46

2,697,098

113,362

4.20

2,561,884

100,049

3.91

Cash & Due From Banks

68,386

52,453

51,222

Allowance for Credit Losses

(20,690)

(14,622)

(13,993)

Other Assets

259,700

252,127

258,035

TOTAL ASSETS

3,391,071

2,987,056

2,857,148

LIABILITIES

NOW Accounts

826,280

930

0.11

805,134

5,502

0.68

781,026

3,152

0.40

Money Market Accounts

235,931

223

0.09

235,845

946

0.40

251,175

675

0.27

Savings Accounts

423,529

207

0.05

370,430

182

0.05

351,341

172

0.05

Time Deposits

104,393

188

0.18

113,499

210

0.19

131,860

244

0.18

Total Interest Bearing Deposits

1,590,133

1,548

0.10

1,524,908

6,840

0.45

1,515,402

4,243

0.29

Short-Term Borrowings

69,119

1,690

2.44

9,275

109

1.19

10,992

110

0.99

Subordinated Notes Payable

52,887

1,472

2.74

52,887

2,287

4.26

52,887

2,167

4.04

Other Long-Term Borrowings

5,304

161

3.03

7,393

257

3.48

12,387

371

3.00

Total Interest Bearing Liabilities

1,717,443

4,871

0.28

1,594,463

9,493

0.60

1,591,668

6,891

0.45

Noninterest Bearing Deposits

1,254,214

1,012,581

907,571

Other Liabilities

72,400

62,940

63,045

TOTAL LIABILITIES

3,044,057

2,669,984

2,562,284

Temporary Equity

9,701

TOTAL SHAREOWNERS’

EQUITY

337,313

317,072

294,864

TOTAL LIABILITIES,

TEMPORARY EQUITY AND

SHAREOWNERS' EQUITY

3,391,071

2,987,056

2,857,148

Interest Rate Spread

3.18

3.61

3.46

Net Interest Income

101,756

103,869

93,158

Net Interest Margin

(3)

3.30

3.85

3.64

(1)

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

Interest income includes loan fees of $2.6 million for 2020,

$0.9 million for 2019, and $1.0 million for 2018.

(2)

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

(3)

Taxable equivalent net interest income divided by average earning assets.

Table 3

RATE/VOLUME

ANALYSIS

(1)

2020 vs. 2019

2019 vs. 2018

(Taxable

Equivalent Basis -

Dollars in Thousands)

Increase (Decrease) Due to Change In

Total

Calendar

(3)

Volume

Rate

Total

Volume

Rate

Earnings Assets:

Loans Held for Sale

(2)

2,452

3,222

(771)

121

190

(69)

Loans Held for Investment

(2)

(1,958)

258

7,773

(9,989)

9,991

4,914

5,077

Taxable

(2,947)

(857)

(2,126)

1,040

(539)

1,579

Tax-Exempt

(2)

(266)

(309)

(616)

(641)

Funds Sold

(4,016)

4,948

(8,978)

2,777

1,827

950

Total

(6,735)

310

14,777

(21,822)

13,313

5,751

7,562

Interest Bearing Liabilities:

NOW Accounts

(4,572)

130

(4,717)

2,350

2,253

Money Market Accounts

(723)

(726)

271

(41)

312

Savings Accounts

Time Deposits

(22)

(18)

(5)

(34)

(40)

Short-Term

Borrowings

1,581

716

864

(1)

(19)

Subordinated Notes Payable

(815)

(821)

120

Other Long-Term

Borrowings

(96)

(73)

(24)

(114)

(150)

Total

(4,622)

779

(5,429)

2,602

(143)

2,745

Changes in Net Interest Income

(2,113)

282

13,998

(16,393)

10,711

5,894

4,817

(1)

This table shows the change in taxable equivalent net interest

income for comparative periods based on either changes in

average volume or changes in average rates for interest

earning assets and interest bearing liabilities.

Changes which are

not solely due to volume changes or solely due to rate changes

have been attributed to rate changes.

(2)

Interest income includes the effects of taxable

equivalent adjustments using a 21% tax rate to adjust on tax

-exempt loans

and securities to a taxable equivalent basis.

(3)

Reflects one extra calendar day in 2020.

Provision for Credit Losses

The provision for credit losses for 2020 was $9.6 million

($9.0 million for loans HFI and $0.6 million for unfunded loan

commitments) compared to $2.0 million for 2019 and

$2.9 million for 2018.

Prior to 2020,

the provision for unfunded loan

commitments was recorded in other expense.

The higher provision in 2020 reflected expected losses due to deterioration

economic conditions related to the COVID-19 pandemic

We further

discuss the various factors that have impacted our provision

expense for 2020 below under the heading Allowance

for Credit Losses.

Noninterest Income

For 2020, noninterest income totaled $111.2

million, a $58.1 million increase over 2019 primarily attributable

to higher mortgage

banking revenues of $58.0 million added through the

strategic alliance with CCHL.

Deposit fees declined $1.7 million primarily

due to the impact of government stimulus in the second

quarter related to the COVID-19 pandemic,

but improved for the second

half of the year due to higher utilization of our overdraft

product.

Strong debit card fee growth of $1.0 million and a $0.6 million

increase in wealth management fees significantly offset

the aforementioned decline in deposit fees.

For 2019, noninterest income totaled $53.1 million, a $1.5

million, or 2.9%, increase over 2018, and reflected higher

wealth

management fees of $1.8 million, mortgage banking

revenues of $0.6 million, and bank card fees of $0.6 million,

partially offset

by lower deposit fees of $0.6 million and other income

of $0.9 million.

Noninterest income as a percent of total operating revenues

(net interest income plus noninterest income) was 52.32

in 2020,

33.92%

in 2019, and 35.79% in 2018.

The addition of CCHL mortgage banking revenues drove

the improvement in this metric in

2020.

The decline in this metric in 2019 was attributable to growth

in net interest income as a component of operating revenues.

CCHL’s

mortgage banking operations impacted our

noninterest income for 2020 and thus, the year over year comparisons

reflect

the impact of the CCHL consolidation, which occurred

on March 1, 2020.

The table below reflects the major components of

noninterest income for Core CCBG and CCHL to help

facilitate a better understanding of the 2020 versus 2019

comparison.

2020

2019

2018

(Dollars in Thousands)

Core CCBG

CCHL

CCBG

Deposit Fees

17,800

19,472

20,093

Bank Card Fees

13,044

11,994

11,378

Wealth Management

Fees

11,035

10,480

8,711

Mortgage Banking Revenues

1,889

61,455

5,321

4,735

Other

4,992

950

5,786

6,648

Total Noninterest

Income

48,760

62,405

53,053

51,565

Significant components of noninterest income are

discussed in more detail below.

Deposit Fees

For 2020, deposit fees (service charge fees,

insufficient fund/overdraft fees (“NSF/OD”), and business account

analysis fees) totaled $17.8 million compared to $19.5 million

in 2019 and $20.1 million in 2018.

The $1.7 million, or 8.6%,

decrease in 2020 was attributable to lower NSF/OD fees and reflected

the impact of significant government stimulus in the second

quarter related to the COVID-19 pandemic.

For the second quarter of 2020, fees were down $1.3 million

compared to the first

quarter of 2020 and reflected lower utilization of our overdraft

product as consumer and business demand for this service

was

reduced by the impact of the significant cash stimulus provided

by the economic impact payments (EIP) and small business loans

(SBA PPP).

The decline in fees realized in the second quarter reversed

in the third and fourth quarters of 2020 as employment

conditions and economic activity began to recover resulting

in higher utilization of our overdraft product.

The $0.6 million, or

3.1%, decrease in 2019 reflected lower NSF/OD fees and

higher overdraft losses that were partially offset

by higher service

charge fees.

Bank Card Fees

Bank card fees totaled $13.0 million in 2020 compared

to $12.0 million in 2019 and $11.4

million in 2018.

Bank card fees in 2020 benefited from the effects

of the pandemic and increased on-line spending by our

clients.

An account

acquisition initiative that began in early 2019 and various

debit and credit card promotions contributed to the increases in both

2019 and 2020.

Wealth

Management Fees

Wealth management

fees including both trust fees (i.e., managed accounts and

trusts/estates) and

retail brokerage fees (i.e., investment, insurance products,

and retirement accounts) totaled $11.0 million in 2020 compared

$10.5 million in 2019 and $8.7 million in 2018.

The increase in fees for 2020 was attributable to a $0.3 million

increase in retail

brokerage fees and a $0.2 million increase in trust fees.

The growth in fees for 2019 reflected a $1.3 million

increase in retail

brokerage fees and $0.5 million increase in trust fees.

Higher transactions volumes and the addition of new investment

advisors

drove the increase in retail brokerage fees in 2019 and

2020.

Growth in assets under management contributed to the

growth in

trust fees in 2019 and 2020.

At December 31, 2020,

total assets under management were approximately $1.979 billion

compared

to $1.774 billion at December 31, 2019 and $1.500 billion

at December 31, 2018.

Mortgage Banking Revenues

Mortgage banking revenues totaled $63.3 million in 2020

compared to $5.3 million in 2019 and

$4.7 million in 2018.

The increase in 2020 reflected revenues added from the strategic

alliance with CCHL and the favorable

impact that the lower residential mortgage rate environment

had on home purchase,

construction, and refinancing activity in our

combined markets.

The increase in 2019 was attributable to higher production sold

into the secondary market at our legacy

residential mortgage operation versus loans retained

and held in the bank’s loan portfolio

We provide

a detailed overview of our

mortgage banking operation, including a detailed break-down

of mortgage banking revenues, mortgage servicing activity,

and

warehouse funding within Note 4 in the Notes to Consolidated

Financial Statements.

To date, the strategic

alliance has

significantly exceeded our pro forma expectations and served

as a hedge to the pressure on our net interest income

in 2020.

Refinancing activity represented 40% of loan production

at CCHL in 2020.

Other

Other noninterest income totaled $5.9 million in 2020 compared

to $5.8 million in 2019

and $6.6

million in 2018.

The

$0.1 million favorable variance in 2020 reflected higher

loan servicing fees added by CCHL substantially offset

by lower loan

related activity based fees.

The $0.9 million, or 13.0%, decrease in 2019 was primarily

due to a miscellaneous recovery in 2018

and lower miscellaneous loan fees.

Noninterest Expense

For 2020, noninterest expense totaled $150.0 million,

an increase of $36.4 million over 2019 primarily attributable to the addition

of expenses at CCHL, including compensation expense of

$32.4 million, occupancy expense of $2.8 million, and other

expense of

$4.8 million.

Core CCBG noninterest expense decreased $3.6 million and

reflected lower compensation expense of $2.5 million,

ORE expense of $0.4 million, and other expense of $2.2 million,

partially offset by higher occupancy expense of

$1.5 million.

The decrease in compensation expense was primarily

attributable to lower commission expense of $2.2 million related

to the

transfer of our legacy mortgage production division

to CCHL and, to a lesser extent, higher realized loan cost of $0.4 million

related to the aforementioned increase in SBA PPP loan originations.

A $1.0 million gain from the sale of a banking office

in the

first quarter of 2020 drove the reduction in ORE expense.

The decline in other expense was primarily attributable to lower

service cost expense for our pension plan.

Higher expense for FF&E depreciation and maintenance agreements

(related to

technology investment and upgrades), higher than normal

premises maintenance, and pandemic related cleaning/supply

costs

drove the increase in occupancy.

For 2019, noninterest expense totaled $113.6

million, an increase of $2.1 million, or 1.9%, over 2018 attributable

to higher

compensation expense of $2.4 million that was partially

offset by a $0.3 million decrease in other expense.

The increase in

compensation expense was attributable to salary

expense (primarily merit raises) and commission expense (related

to residential

mortgage originations and retail brokerage transactions).

The decrease in other expense was primarily due to lower

professional

fees and insurance-other expense (primarily FDIC premiums)

that was partially offset by higher expense

for other real estate

(“OREO”) properties.

The increase in OREO was due to lower net gains from property sales in

2019.

Our operating efficiency ratio (expressed

as noninterest expense as a percent of taxable equivalent net

interest income plus

noninterest income) was 70.43%, 72.40%

and 77.05%

in 2020, 2019 and 2018, respectively.

The improvement in this metric was

primarily attributable to higher noninterest income driven

by our strategic alliance with CCHL.

Improved operating leverage

primarily attributable to growth in net interest income was the primary

driver of improvement in 2019.

Expense management is an important part of our culture

and strategic focus.

We will continue

to review and evaluate

opportunities to optimize our delivery operations

and invest in technology that provides

favorable returns/scale and/or mitigates

risk.

CCHL’s

mortgage banking operations impacted our

noninterest expense for 2020 and thus, the year over year comparisons

reflect

the impact of the CCHL consolidation, which occurred

on March 1, 2020.

The table below reflects the major components of

noninterest expense for Core CCBG and CCHL to help facilitate

a better understanding of the 2020 versus 2019 comparison.

2020

2019

2018

(Dollars in Thousands)

Core CCBG

CCHL

CCBG

Salaries

49,072

31,774

50,688

48,087

Associate Benefits

14,789

645

15,664

15,834

Total Compensation

63,861

32,419

66,352

63,921

Premises

9,194

1,318

8,734

8,913

Equipment

10,701

1,446

9,702

9,590

Total Occupancy

19,895

2,764

18,436

18,503

Legal Fees

1,600

(30)

1,722

2,055

Professional Fees

4,261

602

4,345

5,003

Processing Services

5,832

5,779

5,978

Advertising

1,970

1,028

2,056

1,611

Travel and Entertainment

580

275

1,045

974

Telephone

2,510

359

2,645

2,224

Insurance – Other

1,607

1,007

1,625

Other Real Estate, Net

122

(18)

546

(442)

Miscellaneous

7,743

2,582

9,676

10,051

Total Other Expense

26,225

4,798

28,821

29,079

Total Noninterest

Expense

109,981

39,981

113,609

111,503

Significant components of noninterest expense are

discussed in more detail below.

Compensation

Compensation expense totaled $96.3 million in 2020,

$66.4 million in 2019, and $63.9 million in 2018.

For

2020, the $29.9 million, or 45.1%, increase in consolidated

compensation expense reflected the addition of $32.4 million

compensation expense from CCHL.

Core CCBG compensation expense declined by $2.5

million,

primarily attributable to lower

commission expense of $2.2 million (transfer of residential

mortgage operations to CCHL), higher realized loan cost

(credit offset

to salary expense) of $0.4

million and lower associate benefit expense

of $0.9 million (primarily stock compensation and to a

lesser extent associate insurance), partially offset

by higher cash incentives of $0.2 million, base salaries of $0.3

million, and

contractual employment of $0.3 million (tax advisory services for

CCHL transaction).

For 2019, the $2.4 million, or 3.8%, increase over 2018

was attributable to higher salary expense of $2.6 million, partially offset

by lower associate benefit expense of $0.2 million.

Higher base salary expense and commission expense drove

the increase.

The

increase in base salaries primarily reflected merit raises and

the increase in commissions was related to the residential mortgage

and retail securities brokerage businesses.

Occupancy

Occupancy expense (including premises and equipment) totaled

$22.7 million for 2020, $18.4 million for 2019, and

$18.5 million for 2018.

For 2020, the $4.3 million, or 23.4%, increase in consolidated

occupancy expense reflected the addition

of $2.8 million in occupancy expense from CCHL.

Core CCBG occupancy expense increased $1.5 million

primarily due to

higher FF&E depreciation and maintenance agreement

expense (related to technology investment and upgrades), maintenance

for

premises, and pandemic related cleaning/supply costs.

Pandemic related costs reflected in occupancy expense for 2020

at Core

CCBG totaled approximately $0.3 million and will phase

out over a period of time as the pandemic subsides.

For 2019, the $0.1 million, or 0.4%, decrease from

2018 generally reflected the closing of two offices

in 2019.

Other

Other noninterest expense totaled $31.0 million in 2020

$28.8 million in 2019, and $29.1 million in 2018.

For 2020,

the

$2.2 million, or 7.6%, increase in consolidated

other expense reflected the addition of $4.8 million in expenses

from CCHL

partially offset by a $2.6 million decrease

in other expenses at Core CCBG.

Lower pension plan expense of $1.9 million (higher

unrealized gain amortization due to a lower discount

rate for pension liability),

ORE expense of $0.4 million (primarily due to a

$1.0 million gain from the sale of a banking office)

and travel/entertainment expense of $0.4 million (partially due

to lower travel

during pandemic) drove the decrease in other expenses

at Core CCBG.

For 2019, the $0.3 million, or 0.9%, decrease was primarily

attributable to lower professional fees of $0.7 million and

insurance-

other expense of $0.6 million,

partially offset by higher OREO expense of

$1.0 million.

The reduction in professional fees

reflected the completion of several consulting projects in

the second half of 2018.

Lower FDIC insurance premiums drove the

reduction in insurance-other expense as we used the bulk

of our premium credits in the third and fourth quarters of

2019.

The

increase in OREO expense was due to a lower

level of net gains from the sale of properties in 2019.

Income Taxes

For 2020, we realized income tax expense of $10.2

million (effective rate of 19%) compared to

$9.9 million (effective rate of

24%) for 2019 and $3.4 million (effective

rate of 12%) for 2018.

The decrease in our effective tax rate in 2020

reflected the

impact of converting CCHL to a partnership for tax purposes in

the second quarter of 2020.

In addition, 2020 income taxes

reflected net discrete tax expense items totaling $0.3 million.

Excluding discrete items, our effective tax rate was 19%

for 2020,

23% for 2019 and 24% for 2018.

Absent discrete items, we expect our annual effective

tax rate to approximate 18% to 19% in

2021.

In September 2019, Florida enacted a corporate tax

rate reduction from 5.5% to 4.5% retroactive to January 1,

2019.

As a result,

our deferred tax accounts were re-measured resulting in

a discrete tax expense of $0.4 million.

Further, our 2019 state tax rate

was adjusted to reflect the one percentage point reduction

which will be in effect through the end of 2021 at which

time it will

revert back to 5.5%.

On December 22, 2017, the Tax

Act was signed into law.

Among other things, the Tax

Act reduced our corporate federal tax rate

from 35% to 21% effective January 1, 2018.

During 2018, income tax expense included four discrete tax

benefit items totaling

$3.6 million resulting from the effect of the Tax

Act.

Three discrete items totaling $3.3 million related to pension

plan

contributions made in 2018 for the plan year 2017.

In addition, we realized a discrete tax item for $0.3 million related

to a tax

accounting method change for a cost segregation and depreciation

analysis for various properties we own which was filed with

the extended 2017 tax return.

FINANCIAL CONDITION

Average assets totaled

approximately $3.391 billion for 2020, an increase

of $404.0 million, or 13.5%, over 2019.

Average

earning assets were approximately $3.084 billion for 2020

an increase of $386.6 million, or 14.3%, over 2019.

Compared to

2019, average overnight funds increased $227.7 million,

while investment securities decreased $57.7 million and average

loans

were higher by $145.8 million.

We discuss these variances

in more detail below.

Table 2 provides

information on average balances and rates, Table

3 provides an analysis of rate and volume variances and Table

4 highlights the changing mix of our interest earning assets over

the last three years.

Loans

In 2020,

average loans HFI increased $145.8 million, or 8.1%, compared to

an increase of $100.1 million, or 5.8%, in 2019.

Compared to 2019, we realized average growth in all categories

except institutional loans, home equity loans, and consumer

loans.

During 2020, we originated PPP loans which averaged $128

million for the year.

In 2020, average loans held for sale (“HFS”) increased $70.8

million over 2019 due to the addition of loans from our

strategic

alliance with CCHL and the robust residential mortgage

market in 2020.

Loans HFI and HFS as a percentage of average earning

assets decreased to 66.1% in 2020 compared to 67.6% in

2019 and 67.1%

in 2018, primarily attributable to higher levels of overnight

funds due to growth in deposits.

We continue

to make minor modifications on some of our lending

programs to try and mitigate the impact that consumer

and

business deleveraging has had on our portfolio.

These programs, coupled with economic improvements in our

anchor markets

and loan purchases, have helped to increase overall loan growth.

We will periodically

purchase newly originated 1-4 family real estate secured adjustable

rate loans from CCHL.

Loan purchases

totaled $48.4 million and $25.2 million for the years ended

December 31, 2020 and December 31, 2019, respectively.

The

strategic alliance with CCHL provides us a larger

pool of loan purchase opportunities, including participation

loans for

construction/perm product.

Table 4

SOURCES OF EARNING ASSET GROWTH

2019 to

Percentage

Components of

2020

Total

Average

Earning Assets

(Average Balances –

Dollars In Thousands)

Change

2020

2019

2018

Loans:

Loans HFS

70,776

18.3

2.6

0.4

0.3

Loans HFI:

Commercial, Financial, and Agricultural

106,870

27.6

11.7

9.4

8.7

Real Estate – Construction

25,552

6.6

4.0

3.7

3.3

Real Estate – Commercial Mortgage

37,962

9.8

21.1

22.7

22.1

Real Estate – Residential

(3,284)

(0.8)

11.5

13.2

12.9

Real Estate – Home Equity

(5,258)

(1.4)

6.4

7.5

8.5

Consumer

(16,004)

(4.1)

8.8

10.7

11.3

Total Loans HFS and

HFI

216,614

56.0

66.1

67.6

67.1

Investment Securities:

Taxable

(38,342)

(9.9)

18.6

22.7

25.0

Tax-Exempt

(19,348)

(5.0)

0.2

0.9

2.6

Total Securities

(57,690)

(14.9)

18.8

23.6

27.6

Funds Sold

227,653

58.9

15.1

8.8

5.3

Total Earning Assets

386,577

100.0

Our average total loans (HFS and HFI)-to-deposit

ratio was 71.7% in 2020, 71.8% in 2019, and 70.9% in

2018.

The composition of our HFI loan portfolio at December

for each of the past five years is shown in Table

Table 6 arrays

our HFI loan portfolio at December 31, 2020,

by maturity period.

As a percentage of the HFI loan portfolio, loans with fixed

interest rates represented 42.4% at December 31, 2020

compared to 38.2% at December 31, 2019.

Stronger growth occurred in

our fixed rate loans, primarily due to the addition of

the PPP loans, which are short-term in nature.

Table 5

LOANS HFI BY CATEGORY

(Dollars in Thousands)

2020

2019

2018

2017

2016

Commercial, Financial and Agricultural

393,930

255,365

233,689

218,166

216,404

Real Estate – Construction

135,831

115,018

89,527

77,966

58,444

Real Estate – Commercial Mortgage

648,393

625,556

602,061

535,707

503,978

Real Estate – Residential

352,543

361,450

342,215

311,906

281,508

Real Estate – Home Equity

205,479

197,360

210,111

229,513

236,512

Consumer

270,250

281,180

296,622

280,234

264,443

Total Loans HFI

, Net of Unearned Income

2,006,426

1,835,929

1,774,225

1,653,492

1,561,289

Table 6

LOANS HFI MATURITIES

Maturity Periods

(Dollars in Thousands)

One Year

or Less

Over One

Through Five

Years

(2)

Over

Five Years

Total

Commercial, Financial and Agricultural

38,500

309,124

46,306

393,930

Real Estate – Construction

75,009

33,506

27,316

135,831

Real Estate – Commercial Mortgage

39,333

89,138

519,922

648,393

Real Estate – Residential

20,153

62,853

269,537

352,543

Real Estate – Home Equity

5,165

26,925

173,389

205,479

Consumer

(1)

5,709

217,848

46,693

270,250

Total

183,869

739,394

1,083,163

2,006,426

Total Loans HFI

with Fixed Rates

106,087

562,810

180,969

849,866

Total Loans HFI

with Floating or Adjustable Rates

77,782

176,584

902,194

1,156,560

Total

183,869

739,394

1,083,163

2,006,426

(1)

Demand loans and overdrafts are

reported in the category of one

year or less.

(2)

Includes $178 million in fixed rate SBA PPP Loans

(commercial)

Risk Element Assets

Risk element assets consist of nonaccrual loans, OREO, troubled

debt restructurings (“TDRs”), past due loans, potential problem

loans, and loan concentrations.

Table 7 depicts certain

categories of our risk element assets as of December 31

for each of the

last five years.

Nonperforming assets (nonaccrual loans and OREO) totaled

$6.7 million at December 31, 2020 compared to

$5.4 million at

December 31, 2019.

Nonaccrual loans totaled $5.9 million at December 31, 2020,

a $1.4 million increase over December 31,

2019.

The balance of OREO totaled $0.8 million at December 31,

2020, a decrease of $0.1 million decrease from December

31,

2019.

Nonperforming assets represented 0.18%

of total assets at December 31, 2020 and December 31, 2019

Table 7

RISK ELEMENT ASSETS

(Dollars in Thousands)

2020

2019

2018

2017

2016

Nonaccruing Loans:

Commercial, Financial and Agricultural

161

446

267

629

468

Real Estate – Construction

179

722

298

311

Real Estate – Commercial Mortgage

1,412

1,434

2,860

2,370

3,410

Real Estate – Residential

3,130

1,392

2,119

1,938

2,330

Real Estate – Home Equity

695

797

584

1,748

1,774

Consumer

294

403

320

176

240

Total Nonaccruing

Loans (“NALs”)

(1)

5,871

4,472

6,872

7,159

8,533

Other Real Estate Owned

808

953

2,229

3,941

10,638

Total Nonperforming

Assets (“NPAs”)

6,679

5,425

9,101

11,100

19,171

Past Due Loans 30 – 89 Days

4,594

4,871

4,757

4,543

6,438

Past Due Loans 90 Days or More (accruing)

Performing Troubled Debt Restructurings

13,887

16,888

22,084

32,164

38,233

Classified Loans

17,631

20,847

22,888

31,002

41,507

Nonaccruing Loans/Loans

0.29

0.24

0.39

0.43

0.54

Nonperforming Assets/Total

Assets

0.18

0.31

0.38

0.67

Nonperforming Assets/Loans Plus OREO

0.33

0.29

0.51

0.67

1.21

Allowance/Nonaccruing Loans

405.66

310.99

206.79

185.87

157.40

(1)

Nonaccruing TDRs totaling $0.5 million, $0.7 million,

and $2.6 million are included in

NALs at December 31, 2020,

December 31, 2019 and December 31, 2018, respectively.

Nonaccrual Loans

Nonaccrual loans totaled $5.9 million at December 31, 2020

an increase of $1.4 million over December 31,

2019.

Gross additions to nonaccrual status during 2020 totaled $11.4

million compared to $9.2 million in 2019.

Generally, loans

are placed on nonaccrual status if principal or interest payments

become 90 days past due or management deems

the collectability of the principal and interest to be doubtful.

Once a loan is placed in nonaccrual status, all previously

accrued

and uncollected interest is reversed against interest income.

Interest income on nonaccrual loans is recognized when

the ultimate

collectability is no longer considered doubtful.

Loans are returned to accrual status when the principal

and interest amounts

contractually due are brought current or when future

payments are reasonably assured.

If interest on our loans classified as

nonaccrual during 2020 had been recognized on a fully

accruing basis, we would have recorded an additional $0.4 million

interest income for the year ended December 31, 2020.

Other Real Estate Owned

OREO represents property acquired as the result of

borrower defaults on loans or by receiving a deed

in lieu of foreclosure.

OREO is recorded at the lower of cost or estimated fair value,

less estimated selling costs, at the time of

foreclosure.

Write-downs occurring at foreclosure

are charged against the allowance for loan losses.

On an ongoing basis,

properties are either revalued internally or by a third

party appraiser as required by applicable regulations.

Subsequent declines in

value are reflected as other noninterest expense.

Carrying costs related to maintaining the OREO properties are expensed

incurred and are also reflected as other noninterest expense.

OREO totaled $0.8 million at December 31, 2020

versus $1.0 million at December 31, 2019.

During 2020,

we added properties

totaling $2.3 million, sold properties totaling $1.7 million,

and recorded valuation adjustments totaling $0.8 million.

For 2019,

we added properties totaling $1.3 million, sold properties

totaling $2.3 million, and recorded valuation adjustments totaling

$0.3

million.

The composition of our OREO portfolio as of December

31 is provided in the table below.

Table 8

OTHER REAL ESTATE

COMPOSITION

(Dollars in Thousands)

2020

2019

Lots/Land

Residential 1-4

383

Commercial Building

707

123

Other

360

Total OREO

808

953

Troubled

Debt Restructurings.

TDRs are loans on which, due to the deterioration in the

borrower’s financial condition, the

original terms have been modified and deemed

a concession to the borrower.

From time to time we will modify a loan as a

workout alternative.

Most of these instances involve an extension of the loan term, an

interest rate reduction, or a principal

moratorium.

A TDR classification can be removed if the borrower’s

financial condition improves such that the borrower is no

longer in financial difficulty,

the loan has not had any forgiveness of principal

or interest, and the loan is subsequently refinanced

or restructured at market terms and qualifies as a new

loan in calendar years after the year in which the restructuring took

place.

Loans classified as TDRs at December 31, 2020 totaled $14.3

million compared to $17.6 million at December 31,

2019.

Accruing TDRs made up approximately $13.9 million of our

TDR portfolio at December 31, 2020 of which $0.7 million

was over

30 days past due.

The weighted average rate for the loans within the accruing

TDR portfolio was 5.21%.

During 2020, we

modified three loan contracts totaling approximately $0.2

million.

Our TDR default rate (default balance as a percentage

average TDRs) in 2020 and 2019 was 2.9% and 3.0%,

respectively.

COVID Loan Extensions

To assist our clients

during the COVID-19 pandemic, beginning in March

2020, we began allowing

short term 60 to 90 day loan extensions for affected

borrowers.

We have extended

loans totaling $333 million of which

approximately 75% were for commercial borrowers

and 25% were for consumer borrowers.

Approximately $324 million, or 97%

of the loan balances associated with these borrowers

have resumed making regularly scheduled payments.

Of the $9 million in

loans that remain on extension, no loans were classified at December

31, 2020.

Of the $324 million in loans where the borrowers

have resumed payments, loan balances totaling $3.5

million were over 30 days delinquent and an additional $0.4 million

was on

nonaccrual status at December 31, 2020.

Under the applicable regulatory guidance, none of these loans were

considered

restructured at December 31, 2020.

We continue

to analyze our loan portfolio for segments that have been affected

by the stressed economic and business conditions

caused by the pandemic.

Certain at-risk segments total 8% of our loan balances at December 31,

2020, including hotel (3%),

restaurant (1%), retail and shopping centers (3%),

and other (1%).

The other segment includes churches, non-profits, education,

and recreational.

The composition of our TDR portfolio as of December 31 is provided

in the table below.

2020

2019

(Dollars in Thousands)

Accruing

Nonaccruing

(1)

Accruing

Nonaccruing

(1)

Commercial, Financial and Agricultural

320

495

Real Estate – Commercial Mortgage

7,021

7,787

176

Real Estate – Residential

5,360

369

7,083

379

Real Estate – Home Equity

1,169

1,452

105

Consumer

Total TDRs

13,887

455

16,888

715

(1)

Nonaccruing TDRs are included in

NAL totals and NAL/NPA

ratio calculations.

Activity within our TDR portfolio is provided in the table

below.

(Dollars in Thousands)

2020

2019

TDR Beginning Balance:

17,603

24,724

Additions

188

494

Charge-Offs

(322)

(364)

Paid Off/Payments

(2,463)

(5,162)

Removal Due to Change in TDR Status

(369)

(1,644)

Transferred to OREO

(295)

(445)

TDR Ending Balance

14,342

17,603

Past Due Loans

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

due or a contractual maturity is over 30 days

past due.

Past due loans at December 31, 2020 totaled $4.6 million compared

to $4.9

million at December 31, 2019.

Potential Problem Loans

Potential problem loans are defined as those loans which are now current

but where management has

doubt as to the borrower’s ability to comply

with present loan repayment terms.

At December 31, 2020,

we had $2.3

million in

loans of this type which were not included in either of

the nonaccrual, TDR or 90 day past due loan categories compared

to $2.5

million at December 31, 2019.

Management monitors these loans closely and reviews their

performance on a regular basis.

Loan Concentrations

Loan concentrations exist when there are amounts loaned

to multiple borrowers engaged in similar

activities which cause them to be similarly impacted by

economic or other conditions and such amount exceeds

10% of total

loans.

Due to the lack of diversified industry within our markets and

the relatively close proximity of the markets, we have both

geographic concentrations as well as concentrations in

the types of loans funded.

Specifically, due to the

nature of our markets, a

significant portion of our HFI loan portfolio has historically

been secured with real estate, approximately 67

at December 31,

2020 and 71% at December 31, 2019.

This percentage declined in 2020 due to the higher allocation

in the commercial loan

category which reflected $178 million in SBA PPP loans at December

31, 2020.

The primary types of real estate collateral are

commercial properties and 1-4 family residential properties.

The following table summarizes our real estate loan

portfolio as segregated by the type of property.

Property type concentrations

are stated as a percentage of December 31

total real estate loans.

2020

2019

Investor

Real Estate

Owner

Occupied

Real Estate

Investor

Real Estate

Owner

Occupied

Real Estate

Vacant

Land, Construction, and Land Development

14.7

13.1

Improved Property

28.5

56.8

25.8

61.1

Total Real Estate Loans

43.2

56.8

38.9

61.1

A major portion of our real estate loan portfolio is centered

in the owner occupied category which carries a lower risk of

non-

collection than certain segments of the investor category.

Approximately 35%

of the investor real estate category was secured by

residential real estate at 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.

Detailed information regarding the methodology for

estimating the amount reported in the allowance for credit

losses is provided

in Note 1 – Significant Accounting Policies/Allowance for

Credit Losses in the Consolidated Financial Statements.

Table 9 analyzes

the activity in the allowance over the past five years.

For 2020, our net loan charge-offs

totaled $2.4 million, or 0.12%, of average HFI loans, compared

to $2.3 million, or 0.13%, for

2019, and $2.0 million, or 0.12%, for 2018.

At December 31, 2020, the allowance represented 1.19% of

HFI loans and provided

coverage of 406% of nonperforming loans compared to

0.75% and 311%, respectively,

at December 31, 2019 and 0.80% and

207%, respectively,

at December 31, 2018.

At December 31, 2020, excluding SBA PPP loans (100% government

guaranteed),

the allowance represented 1.30% of loans held for investment.

Table 10 provides

an allocation of the allowance for loan losses to specific loan

types for each of the past five years.

At December 31, 2020, the allowance for credit losses totaled

$23.8 million compared to $13.9 million at December

31, 2019 and

$14.2 million at December 31, 2018.

The adoption of ASC 326 (“CECL”) on January 1, 2020 had an

impact of $4.0 million ($3.3

million increase in the allowance for credit losses and

$0.7 million increase in the allowance for unfunded loan commitments

(other liability account)).

The $6.6 million build (provision of $9.0 million less net

charge-offs of $2.4 million) in the allowance

for credit losses in 2020 was attributable to stressed economic

conditions related to the COVID-19 pandemic and

its potential

effect on rates of default.

For 2019, the slight decrease generally reflected improvement

in overall credit quality metrics.

Table 9

ANALYSIS OF

ALLOWANCE

FOR CREDIT LOSSES

(Dollars in Thousands)

2020

2019

2018

2017

2016

Balance at Beginning of Year

13,905

14,210

13,307

13,431

13,953

Impact of Adopting ASC 326 (CECL)

3,269

Charge-Offs:

Commercial, Financial and Agricultural

789

768

644

1,357

861

Real Estate – Construction

281

Real Estate – Commercial

214

315

685

349

Real Estate – Residential

150

400

780

411

899

Real Estate – Home Equity

151

430

533

190

450

Consumer

2,785

2,878

2,395

2,193

2,127

Overdrafts

(1)

2,257

Total Charge

-Offs

6,160

4,971

4,674

4,836

4,686

Recoveries:

Commercial, Financial and Agricultural

252

345

459

313

337

Real Estate – Construction

Real Estate – Commercial

318

578

373

174

408

Real Estate – Residential

279

429

643

616

1,231

Real Estate – Home Equity

178

175

191

219

409

Consumer

1,219

1,112

964

1,125

960

Overdrafts

(1)

1,471

Total Recoveries

3,767

2,639

2,656

2,497

3,345

Net Charge-Offs

2,393

2,332

2,018

2,339

1,341

Provision for Credit Losses - HFI

9,035

2,027

2,921

2,215

819

Balance at End of Year

- HFI

(2)

23,816

13,905

14,210

13,307

13,431

Net Charge-Offs to Average

Loans HFI

0.12

0.13

0.12

0.14

0.09

Allowance for Credit Losses as a Percent of

Loans HFI at End of Year

1.19

0.75

0.80

0.86

Allowance for Credit Losses as a Multiple of

Net Charge-Offs

9.95

5.96

7.04

5.69

10.02

(1)

Prior to 2020, overdraft losses were

reflected in noninterest

income (deposit fees)

(2)

Provision of $0.6 million in 2020

for unfunded loan commitments - balance of $1.6 million recorded

in other liabilities

at 12/31/20

Table 10

ALLOCATION OF

ALLOWANCE

FOR CREDIT LOSSES

2020

2019

2018

2017

2016

(Dollars in Thousands)

ACL

Amount

Percent

of Loans

to Total

Loans

ACL

Amount

Percent

of Loans

to Total

Loans

ACL

Amount

Percent

of Loans

to Total

Loans

ACL

Amount

Percent

of Loans

to Total

Loans

ACL

Amount

Percent

of Loans

to Total

Loans

Commercial, Financial

and Agricultural

2,204

19.6

1,675

13.9

1,434

13.1

1,191

13.2

1,198

13.8

Real Estate:

Construction

2,479

6.8

370

6.2

280

5.0

122

4.7

168

3.7

Commercial

7,029

32.3

3,416

33.9

4,181

33.8

4,346

32.3

4,315

32.1

Residential

5,440

17.6

3,128

20.1

3,400

19.6

3,206

19.1

3,445

18.6

Home Equity

3,111

10.2

2,224

10.7

2,301

11.8

2,506

13.8

2,297

15.0

Consumer

3,553

13.5

3,092

15.2

2,614

16.7

1,936

16.9

2,008

16.8

Total

23,816

100.0

13,905

100.0

14,210

100.0

13,307

100.0

13,431

100.0

Investment Securities

Our average investment portfolio balance decreased

$57.7 million, or 9.1%, in 2020 and decreased $71.1 million,

or 10.1%, in

2019.

As a percentage of average earning assets, our investment portfolio

represented 18.8% in 2020, compared to 23.8% in

2019.

In 2020,

the reduction in the investment portfolio was primarily attributable

to the inability to find compelling investments.

We currently

believe a relatively short duration investment portfolio offers

the flexibility to provide additional liquidity from

maturing bonds, if necessary.

In addition, we continue to review various investment

strategies to prudently deploy at least a

portion of our excess overnight funds.

In 2020, average taxable

investments decreased $38.3 million, or 6.3%, while tax-exempt

investments decreased $19.3 million, or

79.1%.

Taxable bonds declined

as part of our overall investment strategy,

and non-taxable investments decreased as the tax-

equivalent yield was generally unattractive throughout

2020 compared to taxable investments. At December 31, 2020,

municipal

securities (taxable and non-taxable) comprised 0.7%

of the portfolio.

We may consider

the purchase of municipal issues if the

yields become more attractive compared to taxable

securities, or if they are CRA-eligible investments.

Our investment portfolio is a significant component of

our operations and, as such, it functions as a key element

of liquidity and

asset/liability management.

Two types of classifications

are approved for investment securities which are Available

-for-Sale

(“AFS”) and Held-for-Maturity (“HTM”).

In 2019 and 2020, we purchased securities under both

the AFS and HTM designations.

At December 31, 2020, $324.9 million, or 65.7% of

our investment portfolio was classified as AFS, with the remaining

$169.9

million, or 34.3%, classified as HTM. At December 31,

2019, the AFS and HTM portfolio comprised 62.8%

and 37.2%,

respectively.

Table 11

provides the composition of our investment securities portfolio.

Table 11

INVESTMENT SECURITES COMPOSITION

2020

2019

2018

(Dollars in Thousands)

Carrying

Amount

Percent

Carrying

Amount

Percent

Carrying

Amount

Percent

Available for

Sale

U.S. Government Treasury

104,519

21.1

232,778

36.2

261,849

39.5

U.S. Government Agency

208,531

42.2

156,078

24.3

133,206

20.1

States and Political Subdivisions

3,632

0.7

6,319

1.0

42,365

6.4

Mortgage-Backed Securities

515

0.1

773

0.1

943

0.1

Equity Securities

7,673

1.6

7,653

1.2

7,794

1.2

Total

324,870

65.7

403,601

62.8

446,157

67.2

Held to Maturity

U.S. Government Treasury

5,001

1.0

20,036

3.1

35,088

5.3

States and Political Subdivisions

1,376

0.2

6,512

1.0

Mortgage-Backed Securities

164,938

33.3

218,127

33.9

175,720

26.5

Total

169,939

34.3

239,539

37.2

217,320

32.8

Total Investment

Securities

494,809

100

643,140

100

663,477

100

The classification of a security is determined upon acquisition

based on how the purchase will affect our asset/liability

strategy

and future business plans and opportunities.

Classification determinations will also factor in regulatory capital requiremen

ts,

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 (loss) component of shareowners’

equity.

Securities designated as HTM are those acquired or owned with

the intent of holding them to maturity (final payment date).

HTM investments are measured at amortized cost.

It is neither

management’s current

intent nor practice to participate in the trading of investment securities for

the purpose of recognizing gains

and therefore we do not maintain a trading portfolio.

At December 31, 2020, there were 47 positions (combined

AFS and HTM) with unrealized losses totaling $0.2

million.

GNMA

mortgage-backed securities, U.S. Treasuries,

and SBA securities carry the full faith and credit guarantee

of the U.S. Government,

and are 0% risk-weighted assets.

SBA securities float monthly or quarterly with the prime

rate and are uncapped. None of these

positions with unrealized losses are considered credit impaired,

and all are expected to mature at par.

The table below provides a

break-down of our unrealized losses by security type.

Less Than 12 months

12 months or Longer

Total

Market

Unrealized

Market

Unrealized

Market

Unrealized

(Dollars in Thousands)

Count

Value

Losses

Count

Value

Losses

Count

Value

Losses

SBA

28,266

156

4,670

32,936

184

Total

28,266

156

4,670

32,936

184

The average maturity of our investment portfolio at

December 31, 2020 was 2.09 years compared to 2.11

years at December 31,

2019.

Balances of U.S. Treasuries,

GNMA securities, and municipal bonds declined compared

to the prior year, and were

partially offset by increases in SBA securities.

The average life of our investment portfolio declined

slightly as the balance of the

overall portfolio declined, with the existing portfolio rolling

down the curve. See Table

12 for a break-down of maturities by

investment type.

The weighted average taxable equivalent yield of our

investment portfolio at December 31, 2020 was 1.78% versus

2.23% in

2019.

This decrease in yield reflected lower reinvestment rates during

most of 2020. Our bond portfolio contained no investments

in obligations, other than U.S. Governments, of any state,

municipality, political

subdivision or any other issuer that exceeded

10% of our shareowners’ equity at December 31, 2020.

Table 12 and

Note 2 in the Notes to Consolidated Financial Statements present a detailed

analysis of our investment securities as

to type, maturity and yield at December 31.

Table 12

MATURITY DISTRIBUTION

OF INVESTMENT SECURITIES

Within 1 year

1 - 5 years

5 - 10 years

After 10 years

Total

(Dollars in

Thousands)

Amount

WAY

(3)

Amount

WAY

(3)

Amount

WAY

(3)

Amount

WAY

(3)

Amount

WAY

(3)

Available for Sale

U.S. Government

Treasury

99,408

2.20

5,111

1.70

104,519

2.19

U.S. Government

Agency

8,802

0.52

195,183

1.49

4,546

1.16

208,531

1.45

States and Political

Subdivisions

1,833

3.01

1,799

3.11

3,632

3.06

Mortgage-Backed

Securities

(1)

0.61

406

4.96

3.46

515

4.24

Other Securities

(2)

7,673

5.24

7,673

5.24

Total

110,116

2.09

202,499

1.52

4,582

1.18

7,673

5.24

324,870

1.78

Held to Maturity

U.S. Government

Treasury

5,001

1.90

5,001

1.90

Mortgage-Backed

Securities

(1)

4,754

(0.39)

154,558

1.81

5,626

2.92

164,938

1.79

Total

9,755

0.78

154,558

1.81

5,626

2.92

169,939

1.79

Total Investment

Securities

119,871

1.99

357,057

1.65

10,208

2.14

7,673

5.24

494,809

1.78

(1)

Based on weighted-average maturity.

(2)

Federal Home Loan Bank Stock and Federal Reserve Bank Stock

are included in this category for weighted average yield, but do not have stated maturities.

(3)

Weighted average yield calculated based on current amortized cost balances – not presented on a tax equivalent basis.

Deposits and Short Term

Borrowings

Average total

deposits for 2020 were $2.844 billion, an increase of $306.9

million, or 12.1%, over 2019.

Average deposits

increased $114.5 million, or 4.7%, from

2018 to 2019.

The increase in 2020 occurred in all deposit types except

certificates of

deposit, with the largest increases occurring

in noninterest bearing and savings accounts.

The increase in 2019 occurred in

noninterest bearing deposits, negotiated NOW accounts,

and savings accounts, partially offset by declines

in money market

accounts and certificates of deposit.

Strong deposit growth occurred during the year reflecting

federal stimulus inflows as well as strong core deposit growth.

addition, the seasonal growth of public funds occurred

in the fourth quarter of 2020 and is expected to continue into

the first

quarter of 2021. Deposit levels remain strong as we continue to

see growth in our non-maturity deposits. Our mix of deposits

continues to improve as certificates of deposit are

replaced with noninterest bearing demand accounts.

We continue

to closely monitor several metrics such as the sensitivity of our

deposit rates, our overall liquidity position, and

competitor rates when pricing deposits. This strategy is consistent

with previous rate cycles, and allows us to manage

the mix of

our deposits rather than compete on rate. We

believe this enabled us to maintain a low cost of funds of

16 basis points for 2020

and 35 basis points for 2019.

Table 2 provides

an analysis of our average deposits, by category,

and average rates paid thereon for each of the last three years.

Table 13 reflects the

shift in our deposit mix over the last year and Table

14 provides a maturity distribution of time deposits in

denominations of $100,000 and over at December

31, 2020.

Average short

-term borrowings increased $59.8 million in 2020 due to the addition

of warehouse line borrowings of CCHL that

are used to support our held for sale loan portfolio.

See Note 11 in the Notes to Consolidated

Financial Statements for additional

information on short-term borrowings.

We continue

to focus on the value of our deposit franchise, which produces

a strong base of core deposits with minimal reliance

on wholesale funding.

Table 13

SOURCES OF DEPOSIT GROWTH

2019 to

Percentage

Components of

2020

of Total

Total

Deposits

(Average Balances - Dollars

in Thousands)

Change

2020

2019

2018

Noninterest Bearing Deposits

241,633

78.8

44.1

39.9

37.5

NOW Accounts

21,146

6.9

29.0

31.7

32.2

Money Market Accounts

8.3

9.3

10.4

Savings

53,099

17.3

14.9

14.6

14.5

Time Deposits

(9,106)

(3.0)

3.7

4.5

5.4

Total Deposits

306,858

100.0

Table 14

MATURITY DISTRIBUTION

OF CERTIFICATES

OF DEPOSIT $100,000 AND OVER

2020

(Dollars in Thousands)

Time Certificates

of Deposit

Percent

Three months or less

7,403

25.4

Over three through six months

7,449

25.6

Over six through twelve months

10,557

36.2

Over twelve months

3,741

12.8

Total

29,150

100.0

Market Risk and Interest Rate Sensitivity

Overview.

Market risk arises from changes in interest rates, exchange

rates, commodity prices, and equity prices.

We have risk

management policies designed to monitor and limit exposure

to market risk and we do not participate in activities that give rise

significant market risk involving exchange rates, commodity

prices, or equity prices.

In asset and liability management activities,

our policies are designed to minimize structural intere

st rate risk.

Interest Rate Risk Management.

Our net income is largely dependent on net interest

income.

Net interest income is susceptible to

interest rate risk to the degree that interest-bearing

liabilities mature or reprice on a different basis than interest-earning

assets.

When interest-bearing liabilities mature or reprice

more quickly than interest-earning assets in a given period, a

significant

increase in market rates of interest could adversely affect

net interest income.

Similarly, when interest

-earning assets mature or

reprice more quickly than interest-bearing liabilities, falling

market interest rates could result in a decrease in

net interest

income.

Net interest income is also affected by changes in the portion

of interest-earning assets that are funded by interest-

bearing liabilities rather than by other sources of

funds, such as noninterest-bearing deposits and shareowners’

equity.

We have established

what we believe to be a comprehensive interest rate risk

management policy,

which is administered by

management’s Asset Liability

Management Committee (“ALCO”).

The policy establishes limits of risk, which are quantitative

measures of the percentage change in net interest income

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

of equity

capital (a measure of economic value of equity (“EVE”)

at risk) resulting from a hypothetical change in interest rates for

maturities from one day to 30 years.

We measure the

potential adverse impacts that changing interest rates may have on

our

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

employing simulation analysis through the use of computer

modeling.

The

simulation model captures optionality factors such

as call features and interest rate caps and floors imbedded in investment

and

loan portfolio contracts.

As with any method of gauging interest rate risk, there are

certain shortcomings inherent in the interest

rate modeling methodology used by us.

When interest rates change, actual movements in different

categories of interest-earning

assets and interest-bearing liabilities, loan prepayments,

and withdrawals of time and other deposits, may deviate

significantly

from assumptions used in the model.

Finally, the methodology

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

on adjustable-rate loan clients’ ability to service their debts,

or the impact of rate changes on demand for loan and

deposit

products.

The balance sheet is subject to testing for interest rate

shock possibilities to indicate the inherent interest rate risk.

We prepare a

current base case and several alternative interest rate simulations

(-100,+100, +200, +300, and +400 basis points (bp)), at least

once per quarter, and report the analysis

to ALCO, our Market Risk Oversight Committee (“MROC”), our

Enterprise Risk

Oversight Committee (“EROC”) and the Board of Directors.

(The -200bp rate scenario was not modeled starting in the second

half of 2019 due to the low interest rate environment below

2.00%). We

augment our interest rate shock analysis with alternative

interest rate scenarios on a quarterly basis that may include

ramps, parallel shifts, and a flattening or steepening of

the yield curve

(non-parallel shift).

In addition, more frequent forecasts may be produced when

interest rates are particularly uncertain or when

other business conditions so dictate.

Our goal is to structure the 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

attempt to achieve

this goal by balancing, within policy limits, the volume

of floating-rate liabilities with a similar volume of floating-rate assets, by

keeping the average maturity of fixed-rate asset and liability contracts

reasonably matched, by managing the mix of our core

deposits, and by adjusting our rates to market conditions

on a continuing basis. At December 31, 2019, the instantaneous rate

shock of down 100 bp over 24-months was slightly outside

of desired parameters due to limited repricing of deposits relative

the decline in rates.

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

December 31, 2020

39.0

28.7

18.7

9.0

-3.0

December 31, 2019

13.8

10.3

6.8

3.4

-6.2

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

December 31, 2020

54.2

38.3

22.6

7.6

-10.9

December 31, 2019

35.5

26.4

17.2

8.2

-13.4

The Net Interest Income (“NII”) at Risk position was more

favorable at December 31, 2020 compared to December

31, 2019 for

the 12-month shock for all rate scenarios. The year-over-year

favorable changes were primarily driven by growth in our

noninterest bearing deposits, which have a positive impact

on our NII. The model indicates that in the short-term,

all rising rate

environments will positively impact the net interest margin

of the Company,

while a declining rate environment of 100 bp will

have a negative impact on the net interest margin.

All measures of Net Interest Income at Risk are within

our prescribed policy limits over both the 12-month and 24-month periods,

with the exception of rates down 100 bp over 24-months.

We are slightly out

of compliance in this rates down 100 bp scenario as

we have a limited ability to lower our deposit rates the

full 100 bp relative to the decline in market rate.

In addition, this analysis

incorporates an instantaneous, parallel shock and assumes

we move with market rates and do not lag our deposit rates.

The measures of equity value at risk indicate our ongoing

economic value by considering the effects of changes

in interest rates

on all of our cash flows by discounting the cash flows

to estimate the present value of assets and liabilities. The difference

between these discounted values of the assets and liabilities is

the economic value of equity,

which in theory approximates the fair

value of our net assets.

ESTIMATED CHANGES

IN ECONOMIC VALUE

OF EQUITY

(1)

Changes in Interest Rates

+400 bp

+300 bp

+200 bp

+100 bp

-100 bp

Policy Limit

-30.0

-25.0

-20.0

-15.0

December 31, 2020 (Base Scenario)

(2)

160.9

127.5

89.9

48.4

-90.4

December 31, 2019 (Base Scenario)

37.5

30.2

21.7

12.2

-22.0

December 31, 2020 (Alternate Scenario)

(2)

50.0

31.4

10.6

-3.9

-0.6

At December 31, 2020,

the economic value of equity was more favorable in all up-rate scenarios

and is within prescribed

tolerance levels, but is less favorable and out of policy

in the down 100 basis point EVE scenario.

The year-over-year favorable

changes were primarily driven by growth in our

noninterest bearing deposits compared to the prior year.

EVE became less

favorable in rates down 100bp compared to the

prior year as we have limited ability to lower our deposit

rates relative to the

decline in market rates.

EVE output is extreme given the historically low rate environment,

in conjunction with the high

overnight funds sold balance when compared to December

31, 2019.

Given the current interest rate environment and the

historically high levels of liquidity,

management is monitoring the EVE analysis in light of the economic

recovery, but has chosen

not to institute immediate balance sheet changes to address

the down 100 basis point scenario.

In an alternate EVE scenario

where the value of our nonmaturity deposits are capped

at their book value, we are within policy guidelines.

As the interest rate environment and the dynamics of the

economy continue to change, additional simulations will be analyzed

address not only the changing rate environment, but also

the changing balance sheet mix, measured over multiple

years, to help

assess the risk to the Company.

(1)

Down 200, 300 and 400 bp rate scenarios have been excluded

due to the current interest

rate environment.

(2)

For the rates down 100 bp scenario, the high negative

percentage change is due to a negative value

assigned to our

nonmaturity deposits.

Since we believe our nonmaturity deposits are

highly valued core franchise deposits,

we run an

alternate EVE calculation which caps the projected

value of our nonmaturity deposits at their book value.

LIQUIDITY AND CAPITAL

RESOURCES

Liquidity

In general terms, liquidity is a measurement of our ability

to meet our cash needs.

Our objective in managing our liquidity is to

maintain our ability to fund loan commitments, purchase

securities, accommodate deposit withdrawals or repay other liabilities in

accordance with their terms, without an adverse impact

on our current or future earnings.

Our liquidity strategy is guided by

policies that are formulated and monitored by our

ALCO and senior management, and which take into account

the marketability

of assets, the sources and stability of funding and the level

of unfunded commitments.

We regularly evaluate

all of our various

funding sources with an emphasis on accessibility,

stability, reliability

and cost-effectiveness.

For 2020 and 2019, our principal

source of funding was client deposits, supplemented

by our short-term and long-term borrowings, primarily from our trust-

preferred securities, securities sold under repurchase agreements,

federal funds purchased and FHLB borrowings.

We believe that

the cash generated from operations, our borrowing capacity

and our access to capital resources are sufficient

to meet our future

operating capital and funding requirements.

At December 31, 2020, we had the ability to generate

approximately $1.198 billion in additional liquidity through all of

our

available resources beyond our overnight funds sold

position.

In addition to the primary borrowing outlets mentioned above,

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 certain credit facilities may

longer be available.

We conduct quarterly

liquidity stress tests and the results are reported to ALCO, MROC, EROC and

the

Board of Directors.

We believe the

liquidity available to us is sufficient to meet our

ongoing needs.

We also view our

investment portfolio as a liquidity source and have the option

to pledge securities in our portfolio as collateral

for borrowings or deposits, and/or sell selected securities.

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

U.S.

governmental agencies, and municipal governments.

The weighted-average maturity of our portfolio was 2.09

years at December

31, 2020 and had a net unrealized pre-tax gain of $3.7

million in the AFS portfolio.

Our average net overnight funds sold position (defined

as funds sold plus interest-bearing deposits with other banks less funds

purchased) was $465.7 million in 2020 compared to

an average net overnight funds sold position of $238.0 million

in 2019.

The

increase in this position in 2020 reflected strong deposit

growth, primarily related to government stimulus program

inflows

(primarily noninterest bearing deposits)

and runoff from the investment portfolio,

partially offset by higher growth in the loan

portfolio.

We expect

capital expenditures over the next 12 months to be approximately

$7.0 million, which will consist primarily of

technology purchases for banking offices,

business applications, and information technology security

needs as well as furniture

and fixtures and banking office remodels.

We expect that these capital

expenditures will be funded with existing resources

without impairing our ability to meet our ongoing obligations.

Long-Term

Borrowings

At December 31, 2020,

total advances from the FHLB consisted of $2.2 million

in outstanding debt comprised of seven notes.

2020,

the Bank made FHLB advance payments totaling $3.2 million.

One advance matured, and one was paid off, with no

new

fixed rate advances obtained in 2020. 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 wholly

owned Delaware statutory

trusts.

The first note for

$30.9 million was issued to CCBG Capital Trust

I in November 2004.

The second note for $32.0 million was issued to CCBG

Capital Trust II in May 2005.

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.

See Note 12 in the Notes to Consolidated Financial Statements for

additional information on long-term borrowings.

Table 15

CONTRACTUAL CASH OBLIGATIONS

Table 15 sets forth

certain information about contractual cash obligations

at December 31, 2020.

Payments Due By Period

(Dollars in Thousands)

< 1 Yr

> 1 – 3 Yrs

> 3 – 5 Yrs

> 5 Yrs

Total

Warehouse

Lines

(1)

74,782

Federal Home Loan Bank Advances

733

1,131

314

2,178

Note Payable

296

592

900

Subordinated Notes Payable

52,887

Operating Lease Obligations

1,707

2,353

1,685

11,129

16,874

Time Deposit Maturities

83,989

14,094

3,511

101,594

Total Contractual

Cash Obligations

86,725

18,170

5,522

64,016

174,433

(1)

Used to fund HFS loan portfolio at CCHL

Capital

Shareowners’ equity was $320.8 million at December

31, 2020 compared to $327.0 million at December 31, 2019.

During 2020,

shareowners’ equity was positively impacted by net

income of $31.6 million, a $1.8 million increase in the unrealized

gain on

investment securities, net adjustments totaling $1.4

million related to transactions under our stock compensation

plans, stock

compensation accretion of $0.9 million, and a $0.4 million

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

debt.

Shareowners’ equity was reduced by an $18.2 million increase in the

accumulated other comprehensive loss for our pension

plan, common stock dividends of $9.6 million ($0.57 per

share), a $3.1 million (net of tax) adjustment to retained earnings for

the

adoption of CECL, reclassification of $9.4 million to

temporary equity to increase the redemption value of the non-controlling

interest in CCHL, and share repurchases of $2.0 million

(99,952 shares).

Shareowners' equity as of December 31, for each of

the last three years is presented below:

(Dollars in Thousands)

2020

2019

2018

Common Stock

168

167

Additional Paid-in Capital

32,283

32,092

31,058

Retained Earnings

332,528

322,937

300,177

Subtotal

364,979

355,197

331,402

Accumulated Other Comprehensive Loss, Net of Tax

(44,142)

(28,181)

(28,815)

Total Shareowners’

Equity

320,837

327,016

302,587

We continue

to maintain a strong capital position.

The ratio of shareowners' equity to total assets at year-end was 8.45

%, 10.59%,

and 10.23%, in 2019, 2018, and 2018, respectively.

Further, our tangible common equity,

was 6.25% at December 31, 2020

compared to 8.06% at December 31, 2019, respectively.

The reduction in ratios in 2020 primarily reflected the significant growth

in assets during the year.

We are subject

to regulatory risk-based capital requirements that measure

capital relative to risk-weighted assets and off-balance

sheet financial instruments.

At December 31, 2020, our total risk-based capital ratio

was 17.30% compared to 17.90% at

December 31, 2019.

Our common equity tier 1 capital ratio was 13.71% and 14.47%,

respectively, on these dates.

Our leverage

ratio was 9.33% and 11.25%, respectively,

on these dates.

For a detailed discussion of our regulatory capital requirements,

refer

to the “Regulatory Considerations – Capital Regulations”

section on page 14.

See Note 17 in the Notes to Consolidated Financial

Statements for additional information as to our capital

adequacy.

At December 31, 2020,

our common stock had a book value of $19.05 per diluted share

compared to $19.40 at December 31,

2019.

Book value is impacted by the net unrealized gains and losses on

investment securities.

At December 31, 2020,

the net

unrealized gain was $2.7 million compared to $0.9

million at December 31, 2019.

Book value is also impacted by the recording

of our unfunded pension liability through other comprehensive

income in accordance with Accounting Standards Codification

Topic 715.

At December 31, 2020,

the net pension liability reflected in accumulated other comprehensive

loss was $47.3 million

compared to $29.0 million at December 31, 2019.

The unfavorable adjustment to our unfunded pension

liability was attributable

to the lower discount rate used to calculate the present

value of the pension obligation.

The lower discount rate reflected the

significant decline in long-term interest rates in 2020.

This adjustment also unfavorably impacted our tangible capital ratio.

Further, book value is impacted by

the periodic adjustment made to record temporary equity at redemption

value.

At December

31, 2020, $9.4 million had been reclassified from retained

earnings to temporary equity during 2020 to increase the redemption

value of the non-controlling interest in CCHL.

In February 2014, our Board of Directors authorized the

repurchase of up to 1,500,000 shares of our outstanding

common stock

over a five-year period.

Repurchases may be made in the open market or in privately

negotiated transactions; however,

we are

not obligated to repurchase any specified number of shares.

In January, 2019, the

2014 plan was terminated and our Board of

Directors approved a new share repurchase plan that

authorizes the repurchase of up to 750,000 shares of our outstanding

common stock over a five-year period.

Terms of this plan

are substantially similar to the 2014 plan.

99,952 shares were

repurchased in 2020 at an average price of $20.39 and 77,000

shares were repurchased in 2019 at an average price of $23.40.

Since 2014, a total of 1,361,682 shares of our outstanding

common stock have been repurchased at an average price of

$17.93

under our stock repurchase plans.

Dividends

Adequate capital and financial strength is paramount

to our stability and the stability of our subsidiary bank.

Cash dividends

declared and paid should not place unnecessary strain

on our capital levels.

When determining the level of dividends the

following factors are considered:

●

Compliance with state and federal laws and regulations;

●

Our capital position and our ability to meet our financial obligations;

●

Projected earnings and asset levels; and

●

The ability of the Bank and us to fund dividends.

Inflation

The impact of inflation on the banking industry differs

significantly from that of other industries in which a large

portion of total

resources are invested in fixed assets such as property,

plant and equipment.

Assets and liabilities of financial institutions are

virtually all monetary in nature, and therefore are primarily

impacted by interest rates rather than changing prices.

While the

general level of inflation underlies most interest rates, interest rates

react more to changes in the expected rate of inflation

and to

changes in monetary and fiscal policy.

Net interest income and the interest rate spread are good measures

of our ability to react to

changing interest rates and are discussed in further detail

in the section entitled “Results of Operations.”

OFF-BALANCE SHEET ARRANGEMENTS

We are a party

to financial instruments with off-balance sheet risks in the

normal course of business to meet the financing needs

of our clients.

See Note 19 in the Notes to Consolidated Financial Statements.

At December 31, 2020,

we had $756.9 million in commitments to extend credit and $6.5 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 may expire without being

drawn upon, the total commitment amounts do not necessarily

represent future cash requirements.

The increase in commitments to extend credit in 2020 reflected

the addition of interest rate

lock commitments for CCHL which are funded through

warehouse lines of credit.

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 on-going obligations.

In the event these commitments

require funding in excess of historical levels, management

believes current liquidity,

investment security maturities, available

advances from the FHLB and Federal Reserve Bank, and

warehouse lines of credit provide a sufficient source

of funds to meet

these commitments.

In conjunction with the sale and securitization of loans

held for sale and their related servicing rights, we may be

exposed to

liability resulting from recourse, repurchase and

make-whole agreements.

If it is determined subsequent to our sale of a loan or

its related servicing rights that a breach of the representatio

ns or warranties made in the applicable sale agreement

has occurred,

which may include guarantees that prepayments will not

occur within a specified and customary time frame, we

may have an

obligation to either (a) repurchase the loan for the unpaid

principal balance, accrued interest and related advances,

(b) indemnify

the purchaser against any loss it suffers or

loan and its related

servicing rights.

Our repurchase, indemnification and make-whole obligations vary

based upon the terms of the applicable agreements, the nature

of the asserted breach and the status of the mortgage

loan at the time a claim is made. We

establish reserves for estimated losses

of this nature inherent in the origination of mortgage loans by

estimating the losses inherent in the population of all loans sold

based on trends in claims and actual loss severities experienced.

The reserve will include accruals for probable contingent losses

in addition to those identified in the pipeline of claims received.

The estimation process is designed to include amounts based on

actual losses experienced from actual activity.

FOURTH QUARTER,

2020 FINANCIAL RESULTS

Results of Operations

We realized net

income of $7.7 million, or $0.46 per diluted share for the fourth

quarter of 2020 compared to $10.4 million, or

$0.62 per diluted share for the third quarter of 2020.

The decrease in earnings reflected a $4.5 million decrease in

noninterest

income, a $1.0 million increase in noninterest expense,

and a $0.1 million

decrease in net interest income, partially offset by a

$2.6

million decrease in the non-controlling interest in earnings

from CCHL, and lower income taxes of $0.3 million.

Tax-equivalent

net interest income for the fourth quarter of 2020 was $25.1

million compared to $25.2 million for the third quarter

of 2020.

The decrease reflected lower rates earned on investment securities and

variable/adjustable rate loans.

Our net interest

margin for the fourth quarter of 2020 was 3.00%,

a decrease of 12 basis points from the third quarter of 2020.

Our net interest margin for the fourth quarter

of 2020 was 3.00%, a decrease of 12 basis points from

the third quarter of 2020

driven by a higher level of overnight funds reflective of

seasonal public fund inflows and continued growth in core deposits.

Our

net interest margin for the fourth quarter of 2020,

excluding the impact of overnight funds in excess of $200 million,

was 3.50%.

The provision for credit losses was $1.3 million

for both the third and fourth quarters of 2020.

The provision for the fourth

quarter reflected a slight build in additional reserves held

for COVID-19 exposure.

Noninterest income for the fourth quarter of 2020

totaled $30.5 million compared to $35.0 million for the third quarter

of 2020

with the decrease attributable to lower mortgage

banking revenues of $5.3 million, partially offset by

higher deposit activity fees

of $0.5 million and wealth management fees of $0.3

million.

The decline in mortgage banking revenues reflected a seasonal

slowdown in loan production and a lower gain on sale margin.

Noninterest expense for the fourth quarter of 2020

totaled $41.3 million compared to $40.3 million for the third quarter

of 2020

with the increase primarily attributable to higher compensation

expense of $0.6 million and other real estate expense of $0.3

million.

The increase in compensation reflected higher commission expense

of $0.2 million, salary expense of $0.2 million, and

cash incentive expense of $0.2 million.

Valuation

adjustments totaling $0.5 million for two properties drove the increase

in other

real estate expense.

In addition, we recognized $0.4 million in expenses during

the fourth quarter of 2020 related to additional

funding of our foundation and consulting/legal costs for

a strategic initiative.

We realized income

tax expense of $2.8 million (effective rate of 22%)

for the fourth quarter of 2020 compared to $3.2 million

(effective rate of 17%) for the third quarter

of 2020.

Tax expense for

the fourth quarter of 2020 was unfavorably impacted by a

$0.3 million discrete tax expense.

Discussion of Financial Condition

Average earning

assets were $3.337 billion for the fourth quarter of 2020, an

increase of $113.6 million, or 3.5%, over the third

quarter of 2020 attributable to a higher level of

deposits primarily seasonal public fund inflows and growth

in core deposits.

Average loans

HFI decreased $11.7 million, or 0.6%, from

the third quarter of 2020,

partially due to SBA PPP loan pay-offs.

Period-end HFI loans increased $8.3 million, or 0.4%, over

the third quarter of 2020 and reflected higher home equity,

construction, and residential loan balances.

At December 31, 2020, SBA PPP loans of $150,000 or less totaled

$69 million.

SBA

PPP loan fees totaled approximately $0.8 million for the

fourth quarter of 2020 and $0.6 million for the third

quarter of 2020.

December 31, 2020 we had $3.2 million (net) in deferred

SBA PPP loan fees.

Nonperforming assets (nonaccrual loans and OREO) totaled

$6.7 million at December 31, 2020, comparable

to September 30,

2020.

Nonaccrual loans totaled $5.9 million at December 31, 2020, a

$0.4 million increase over September 30, 2020.

The

balance of OREO totaled $0.8 million at December

31, 2020, a decrease of $0.4 million from September 30,

2020.

We continue

to analyze our loan portfolio for segments that have been affected

by the stressed economic and business conditions

caused by the pandemic.

To assist our clients, in

mid-March of 2020, we began allowing short term 60 to 90

day loan extensions

for affected borrowers.

We have extended

loans totaling $333 million of which 75% were for commercial borrowers

and 25%

were for consumer borrowers.

At December 31, 2020, approximately $324 million,

or 97% of the loan balances associated with

these borrowers have resumed making regularly scheduled

payments compared to $285 million, or 88% of the loan

balances at

September 30, 2020.

Average total

deposits were $3.066 billion for the fourth quarter of 2020, an

increase of $94.9 million, or 3.2%, over the third

quarter of 2020 and reflected growth in core deposits of

$64.9 million and higher public fund balances of $30 million.

ACCOUNTING POLICIES

Critical Accounting Policies

The consolidated financial statements and accompanying

Notes to Consolidated Financial Statements are prepared in

accordance

with accounting principles generally accepted in the

United States of America, which require us to make various estimates and

assumptions (see Note 1 in the Notes to Consolidated

Financial Statements).

We believe that,

of our significant accounting

policies, the following may involve a higher degree of

judgment and complexity.

Allowance for Credit Losses

The amount of the allowance for credit losses represents

management's best estimate of current

expected credit losses considering available information,

from internal and external sources, relevant to assessing exposure

credit loss over the contractual term of the instrument.

Relevant available information includes historical credit

loss experience,

current conditions,

and reasonable and supportable forecasts.

While historical credit loss experience

provides

the basis for the

estimation of expected credit losses, adjustments to historical

loss information may be made for changes in loan risk

grades, loss

experience trends, loan prepayment trends, differences

in current portfolio-specific risk characteristics, environmental

conditions,

future expectations, or other relevant factors.

While management utilizes its best judgment and information available,

the

ultimate adequacy of our allowance accounts is dependent

upon a variety of factors beyond our control, including the

performance of our portfolios, the economy,

changes in interest rates and the view of the regulatory authorities toward

classification of assets.

Goodwill

Goodwill represents the excess of the cost of acquired businesses over

the fair market value of their identifiable net

assets.

We perform

an impairment review on an annual basis or more frequently

if events or changes in circumstances indicate

that the carrying value may not be recoverable.

Adverse changes in the economic environment, declining operations,

or other

factors could result in a decline in the estimated implied

fair value of goodwill.

If the estimated implied fair value of goodwill is

less than the carrying amount, a loss would be recognized

to reduce the carrying amount to the estimated implied fair

value.

We evaluate

goodwill for impairment on an annual basis and in 2017

adopted ASU 2017-04, Intangibles – Goodwill and Other

(Topic 350):

Simplifying Accounting for Goodwill Impairment which allows for

a qualitative assessment of goodwill impairment

indicators.

If the assessment indicates that impairment has more than likely

occurred, the Company must compare the estimated

fair value of the reporting unit to its carrying amount.

If the carrying amount of the reporting unit exceeds its estimated fair

value,

an impairment charge is recorded equal to

the excess.

During the fourth quarter, we

performed our annual impairment testing.

We proceeded

with qualitative assessment by evaluating

impairment indicators and concluded there were none

that indicated that goodwill impairment had occurred.

Pension Assumptions

We have a defined

benefit pension plan for the benefit of substantially all of our associates.

Our funding

policy with respect to the pension plan is to contribute,

at a minimum, amounts sufficient to meet minimum

funding requirements

as set by law.

Pension expense is determined by an external actuarial valuation

based on assumptions that are evaluated annually

as of December 31, the measurement date for the pension

obligation.

The service cost component of pension expense is reflected

as “Compensation Expense” in the Consolidated Statements

of Income.

All other components of pension expense are reflected as

“Other Expense”.

The Consolidated Statements of Financial Condition

reflect an accrued pension benefit cost due to funding levels

and

unrecognized actuarial amounts.

The most significant assumptions used in calculating

the pension obligation are the weighted-

average discount rate used to determine the present value

of the pension obligation, the weighted-average expected

long-term rate

of return on plan assets, and the assumed rate of

annual compensation increases.

These assumptions are re-evaluated annually

with the external actuaries, taking into consideration both

current market conditions and anticipated long-term market conditions.

The discount rate is determined by matching the anticipated

defined pension plan cash flows to the spot rates of

a corporate Aa-

rated bond index/yield curve and solving for the single

equivalent discount rate which would produce the same present

value.

This methodology is applied consistently from year-to-year.

The discount rate utilized in 2020 was 3.53%.

The estimated impact

to 2020 pension expense of a 25 basis point increase or

decrease in the discount rate would have been a decrease and increase of

approximately $934,000 and $907,000,

respectively.

We anticipate using

a 2.88%

discount rate in 2021.

Based on the balances at the December 31, 2020

measurement date, the estimated impact in accumulated other

comprehensive

income of a 25 basis point increase or decrease in

the discount rate is a decrease or increase of approximately $6.6

million (after-

tax).

The weighted-average expected long-term rate of return

on plan assets is determined based on the current

and anticipated future

mix of assets in the plan.

The assets currently consist of equity securities, U.S. Government

and Government agency debt

securities, and other securities (typically temporary liquid

funds awaiting investment).

The weighted-average expected long-term

rate of return on plan assets utilized for 2020 was 7.00%.

The estimated impact to 2020 pension expense of a 25 basis point

increase or decrease in the rate of return would have been

an approximate $393,000 increase or decrease, respectively.

anticipate using a rate of return on plan assets of 6.75% for

2021.

The assumed rate of annual compensation increases of

4.00%

in 2020 reflected expected trends in salaries and the

employee

base.

We anticipate using

a compensation increase of 4.00% for 2021 reflecting current

market trends.

Detailed information on the pension plan, the actuarially

determined disclosures, and the assumptions used are

provided in Note

13 of the Notes to Consolidated Financial Statements.

Income Taxes

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

or refundable and the change in deferred tax

assets and liabilities.

Deferred tax assets and liabilities are the expected future

tax amounts for the temporary differences between

carrying amounts and tax bases of assets and liabilities, computed

using enacted tax rates.

A valuation allowance, if needed,

reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is “more

likely than not” that the tax position would be sustained in a

tax

examination, with a tax examination being presumed

to occur.

The amount recognized is the largest amount of

tax benefit that is

greater than 50% likely of being realized on examination.

For tax positions not meeting the “more likely than not” test,

no tax

benefit is recorded.

We recognize

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

expenses.

ITEM 7A.

QUANTITATIVE

AND QUALITATIVE

DISCLOSURE ABOUT MARKET RISK

See “Financial Condition - Market Risk and Interest Rate

Sensitivity” in Management’s

Discussion and Analysis of Financial

Condition and Results of Operations, above, which

is incorporated herein by reference.

Item 8.

Financial Statements and Supplementary Data

Table 16

QUARTERLY

FINANCIAL DATA

(Unaudited)

2020

2019

(Dollars in Thousands, Except

Per Share Data)

Fourth

Third

Second

First

Fourth

Third

Second

First

Summary of Operations:

Interest Income

26,154

26,166

26,512

27,365

28,008

28,441

28,665

27,722

Interest Expense

1,181

1,044

1,054

1,592

1,754

2,244

2,681

2,814

Net Interest Income

24,973

25,122

25,458

25,773

26,254

26,197

25,984

24,908

Provision for Credit Losses

1,342

1,308

2,005

4,990

(162)

776

646

767

Net Interest Income After

Provision for Credit Losses

23,631

23,814

23,453

20,783

26,416

25,421

25,338

24,141

Noninterest Income

30,523

34,965

30,199

15,478

13,828

13,903

12,770

12,552

Noninterest Expense

41,348

40,342

37,303

30,969

29,142

27,873

28,396

28,198

Income Before Income Taxes

12,806

18,437

16,349

5,292

11,102

11,451

9,712

8,495

Income Tax Expense

2,833

3,165

2,950

1,282

2,537

2,970

2,387

2,059

(Income) Loss Attributable to NCI

(1)

(2,227)

(4,875)

(4,253)

277

Net Income Attributable to CCBG

7,746

10,397

9,146

4,287

8,565

8,481

7,325

6,436

Net Interest Income (Tax Equivalent)

25,082

25,233

25,564

25,877

26,378

26,333

26,116

25,042

Per Common Share:

Basic Net Income

0.46

0.62

0.55

0.25

0.51

0.44

0.38

Diluted Net Income

0.46

0.62

0.55

0.25

0.51

0.50

0.44

0.38

Cash Dividends Declared

0.15

0.14

0.13

0.11

Diluted Book Value

19.05

20.20

19.92

19.50

19.40

19.14

18.76

18.35

Diluted Tangible Book Value

(2)

13.76

14.90

14.62

14.20

14.37

14.09

13.70

13.31

Market Price:

High

26.35

21.71

23.99

30.62

30.95

28.00

25.00

25.87

Low

18.14

17.55

16.16

15.61

25.75

23.70

21.57

21.04

24.58

18.79

20.95

20.12

30.50

27.45

24.85

21.78

Selected Average Balances:

Loans Held for Investment

1,993,470

2,005,178

1,982,960

1,847,780

1,834,085

1,824,685

1,814,401

1,772,967

Earning Assets

3,337,409

3,223,838

3,016,772

2,751,880

2,694,700

2,670,081

2,719,217

2,704,802

Total Assets

3,652,436

3,539,332

3,329,226

3,038,788

2,982,204

2,959,310

3,010,662

2,996,511

Deposits

3,066,136

2,971,277

2,783,453

2,552,690

2,524,951

2,495,755

2,565,431

2,564,715

Shareowners’ Equity

343,674

340,073

333,515

331,891

326,904

320,273

313,599

307,262

Common Equivalent Average Shares:

Basic

16,763

16,771

16,797

16,808

16,750

16,747

16,791

Diluted

16,817

16,810

16,839

16,842

16,834

16,795

16,818

16,819

Performance Ratios:

Return on Average Assets

0.84

1.17

1.10

0.57

1.14

0.98

0.87

Return on Average Equity

8.97

12.16

11.03

5.20

10.39

10.51

9.37

8.49

Net Interest Margin (FTE)

3.00

3.12

3.41

3.78

3.89

3.92

3.85

3.75

Noninterest Income as % of Operating Revenue

55.00

58.19

54.26

37.52

34.50

34.67

32.95

33.51

Efficiency

Ratio

74.36

67.01

66.90

74.89

72.48

69.27

73.02

75.01

Asset Quality:

Allowance for Credit Losses

23,816

23,137

22,457

21,083

13,905

14,319

14,593

14,120

Allowance for Credit Losses

to Loans HFI

1.19

1.16

1.11

1.13

0.75

0.78

0.79

0.78

Nonperforming Assets ("NPA's")

6,679

6,732

8,025

6,337

5,425

5,454

6,632

6,949

NPA’s

to Total Assets

0.18

0.19

0.23

0.21

0.18

0.19

0.22

0.23

NPA’s

to Loans plus ORE

0.33

0.34

0.40

0.34

0.29

0.30

0.36

0.39

Allowance to Non-Performing Loans HFI

405.66

420.30

322.37

432.61

310.99

290.55

259.55

279.77

Net Charge-Offs to Average

Loans HFI

0.09

0.11

0.05

0.23

0.05

0.23

0.04

0.20

Capital Ratios:

Tier 1 Capital

16.19

16.77

16.59

16.12

17.16

16.83

16.36

16.34

Total Capital

17.30

17.88

17.60

17.19

17.90

17.59

17.13

17.09

Common Equity Tier 1 Capital

13.71

14.20

14.01

13.55

14.47

14.13

13.67

13.62

Leverage

9.33

9.64

10.12

10.81

11.25

11.09

10.64

10.53

Tangible Common Equity

(2)

6.25

7.16

7.21

7.98

8.06

8.31

7.83

7.56

(1)

Acquired 51% membership interest

in Brand Mortgage Group, LLC

re-named Capital City Home Loans on March

1, 2020 - fully consolidated

(1)

Diluted tangible book value and tangible common equity ratio are

non-GAAP financial measures. For additional information,

including a reconciliation to GAAP,

refer to page 32.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED FINANCIAL

STATEMENTS

PAGE

Report of Independent Registered Public Accounting

Firm

Consolidated Statements of Financial Condition

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Consolidated Statements of Changes in Shareowners’

Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting

Firm

To the Shareowners

and the Board of Directors of Capital City Bank Group,

Inc.

Opinion on the Financial Statements

We have

audited the accompanying

consolidated balance sheets of

Capital City Bank Group,

Inc. (the Company) as

of December

31, 2020

and 2019, the

related consolidated

statements of income,

comprehensive income,

shareholders’ equity,

and cash flows

for each

of the three

years in

the period

ended December

31, 2020,

and the

related notes

(collectively referred

to as

the

“consolidated financial

statements”). In our

opinion, the consolidated

financial statements present

fairly, in

all material respects,

the financial position of the Company

at December 31, 2020 and 2019, and

the results of its operations and its cash

flows for each

of the three years in the period ended December 31, 2020,

in conformity with U.S. generally accepted accounting principles.

We also

have audited,

in accordance

with the

standards of

the Public

Company Accounting

Oversight Board

(United States)

(PCAOB), the Company’s

internal control

over financial

reporting as

of December

31, 2020,

based on

criteria established

Internal Control

-Integrated Framework

issued by

the Committee

of Sponsoring

Organizations of

the Treadway

Commission

(2013 framework) and our report dated March 1, 2021

expressed an unqualified opinion thereon.

Adoption of New Accounting Standard

As discussed in Note

to the consolidated financial

statements, the Company

changed its method for

accounting for credit losses

in 2020.

As explained

below, auditin

the Company’s

allowance for

credit losses,

including adoption

of the

new accounting

guidance related to the estimate of allowance for credit losses,

was a critical audit matter.

Basis for Opinion

These financial statements are the responsibility of

the Company’s management.

Our responsibility is to express an opinion on the

Company’s financial

statements based

on our

audits. We

are a

public accounting

firm registered

with the

PCAOB and

are

required to

be independent

with respect

to the

Company in accordance

with the

U.S. federal securities

laws and

the applicable

rules and regulations of the Securities and Exchange Commission

and the PCAOB.

We conducted

our audits in

accordance with the

standards of the

PCAOB. Those standards

require that we

plan and perform

the

audit to obtain reasonable assurance about

whether the financial statements are free of material

misstatement, whether due to error

or fraud.

Our audits

included performing

procedures to

assess the

risks of

material misstatement

of the

financial statements

whether due to

error or fraud,

and performing procedures

that respond to

those risks. Such

procedures included examining,

on a

test basis,

evidence regarding

the amounts

and disclosures

in the

financial statements.

Our audits

also included

evaluating the

accounting principles

used and significant

estimates made

by management,

as well as

evaluating the

overall presentation

of the

financial statements. We

believe that our audits provide a reasonable basis for

our opinion.

Critical Audit Matters

The critical audit

matters communicated

below are matters

arising from

the current

period audit of

the financial

statements that

were communicated or

required to be communicated

to the audit committee

and that: (1) relate

to accounts or disclosures

that are

material to

the financial

statements and

(2) involved

especially challenging,

subjective or

complex judgments.

The

communication of critical

audit matters does not

alter in any way

our opinion on

the consolidated financial

statements, taken as a

whole, and

we are

not, by

communicating the

critical audit

matters below,

providing a

separate opinion

on the

critical audit

matters or on the accounts or disclosures to which they

relate.

Allowance for Credit Losses

Description of

the Matter

The Company’s

loans held

for investment

portfolio totaled

$2.0 billion

as of

December 31,

2020, and the associated

ACL was $23.8 million.

As discussed above and

in Note 1 and Note

to the

consolidated financial

statements, the

Company adopted

ASU No.

2016-13, Financial

Instruments-

Credit Losses,

also known

as Current

Expected Credit

Losses (“CECL”).

Upon

adoption, the

Company recorded

a pre

-tax cumulative

-effect transition

adjustment increasing

the allowance

for credit

losses (ACL)

on loans

by $3.3

million.

The ACL

is an

amount,

established through

the use

of forecast

models, which

represents management’s

estimate of

current expected credit losses over

the contractual life of the loans. The

ACL is estimated based

on historical and expected

credit loss patterns including the

reasonable and supportable forecast

periods. Management applies judgment in the assignment

of probabilities to economic scenarios

included within

the modeled forecast

periods, including the

selection of macroeconomic

variables (MEV),

the length

of the forecast

and reversion

period, as well

as the application

qualitative adjustments to the model calculation deemed

necessary to estimate the ACL.

Auditing management’s

estimate of the

ACL involved a

high degree of

subjectivity due

to the

judgment involved

in management’s

determination of

the probabilities

assigned to

the

economic scenarios

utilized within

the reasonable

and supportable

forecast peri

ods and

the

application of

qualitative adjustments to

the modeled calculations.

Management’s judgment

the future economic

conditions and qualitative

adjustments to the model

calculation could have

a significant impact on the ACL.

How We

Addressed the

Matter in Our

Audit

Our considerations

and procedures

performed included

evaluation of

the process

utilized by

management to challenge

the model results and

resulting estimate of the

ACL as of the balance

sheet date. We

obtained an understanding

of the Company’s

process for establishing

the ACL,

including management’s

determination of

the probabilities assigned

to the economic

scenarios

utilized within the

reasonable and

supportable forecast

periods and the

qualitative adjustments

applied to the ACL model calculation.

We evaluated

the design and tested the operating

effectiveness of

the controls

associated with

the ACL

process, including

controls around

the

reliability and accuracy

of data used

in the model,

management’s review

and approval of

both

the selection of

and probabilities assigned

to the economic

scenarios utilized within

the

reasonable and supportable

forecast periods and

the qualitative adjustments to

the model

calculation, the

governance of

the credit

loss methodology,

and management’s

review and

approval of the ACL.

To test

the ACL estimate,

our audit procedures

included testing the

completeness and accuracy

of data

used by

the Company

within the

model to

estimate the

ACL as

well as

testing the

economic scenarios utilized within

the model for the reasonable

and supportable forecast

periods by

evaluating the

probabilities assigned,

model results,

qualitative model

adjustments

applied to the model

calculation, and comparing

loss history and industry

data to actual results.

We involved

an internal specialist

to assist in

assessing the expected

credit loss methodology,

evaluating support

for key

quantitative modeling

assumptions such

as the

MEV,

probabilities

assigned to

the economic

scenarios and

forecasting period,

and testing

the appropriateness

qualitative adjustments

to the

model calculation.

Within the

testing performed,

considerations

were given to

the assumptions included

within each economic

scenario and probabilities

assigned and

how those

assumptions and

probabilities compared

to key

economic variables

available through

external sources.

Alternative sources

and scenarios

were also considered.

addition, we evaluated

the Company’s

estimate of the

ACL giving consideration

to the

Company’s borrowers,

loan portfolio,

and macroeconomic

trends, independen

tly obtained and

compared such information to comparable

financial institutions, and considered whether

new or

contrary information existed.

Pension Benefit Obligation

Description of

the Matter

The Company’s

pension benefit obligation

totaled $226 million

as of December

31, 2020, and

the fair

value of

plan assets

at year

-end was

$171.8 million,

resulting in

an unfunded

defined

benefit pension

obligation (PBO) of

$54.2 million.

As discussed in

Note 1 and

Note 15 to

the

consolidated financial

statements, the

Pension Benefit

Obligation (PBO)

is an

amount which

represents management’s

best estimate

of future

pension benefit

liabilities in

excess of

the

projected return

of fund

assets based

on actuarial

assumptions. The

Company recognizes

the

unfunded pension liability through other comprehensive

income in accordance with ASC 715.

Auditing the

PBO is complex

and required

the involvement

of actuarial

specialists due

to the

highly judgmental nature of the actuarial assumptions

(e.g. discount rate, expected rate of

return

on assets,

mortality rate,

inflation rate,

and future

compensation levels)

used in

the

measurement process. These assumptions have a significant

effect on the PBO.

How We

Addressed the

Matter in Our

Audit

We obtained

an understanding

of the

Company’s process

for establishing

the pension

benefit

obligation, including valuation

of plan assets. We

evaluated the design

and tested the operating

effectiveness of

the controls

and governance

over the

appropriateness of

the estimate

and

significant assumptions,

including but

not limited to

discount rates,

expected rate

of return on

assets, mortality rate, inflation rate, and future compensation levels.

To test

the pension

benefit obligation,

our audit

procedures included

evaluating the

methodology used, assessing

the qualifications of

management’s actuarial

specialists, and

reviewing the

significant actuarial

assumptions discussed

above and

the underlying

data used

by the

Company. We

compared the

actuarial assump

tions used

by management

to historical

trends and evaluated

the change in

the PBO from

prior year due

to the change

in service cost,

interest cost, actuarial

gains and losses,

benefit payments, contributions

and other activities.

addition, we

involved an

actuarial specialist

to assist

with our

procedures. For

example, we

evaluated management’s

methodology for

determining the

discount rate

that reflects the

maturity and duration

of the benefit

payments and is

used to measure

the PBO. As

part of this

assessment, we compared

the projected cash

flows to prior

year and compared

the current year

benefits paid to the

prior year projected cash

flows. To

evaluate future compensation levels,

the

mortality rate

and the

inflation rate,

we assessed

whether the

information is

consistent with

publicly available

information, and

whether any

market data

adjusted for

the entity

-specific

adjustments were applied.

To evaluate

the expected return

on plan assets,

we assessed whether

management’s assumption

is consistent

with a

range of

returns for

a portfolio

of comparative

investments. We

tested the valuation

of the pension

plan assets as

of the balance

sheet date by

comparing asset fair values to an

independent pricing source based on tolerable

variances set by

level of estimation uncertainty.

We also

tested the completeness and

accuracy of the underlying

data, including

the participant

data provided

to management’s

actuarial specialists.

Lastly, we

performed procedures

relating to

the application

of ASC

715, including

review of

entries

proposed by management’s

actuarial specialist, and footnote supporting detail.

/s/ Ernst & Young

LLP

We have served

as the Company’s auditor since

2007.

Tallahassee, Florida

March 1, 2021

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF FINANCIAL CONDITION

As of December 31,

(Dollars in Thousands)

2020

2019

ASSETS

Cash and Due From Banks

67,919

60,087

Federal Funds Sold and Interest Bearing Deposits

860,630

318,336

Total Cash and Cash

Equivalents

928,549

378,423

Investment Securities, Available

for Sale, at fair value

324,870

403,601

Investment Securities, Held to Maturity (fair value of $

175,175

and $

241,429

)

169,939

239,539

Total Investment

Securities

494,809

643,140

Loans Held For Sale, at fair value

114,039

9,509

Loans, Held for Investment

2,006,426

1,835,929

Allowance for Credit Losses

(23,816)

(13,905)

Loans Held for Investment, Net

1,982,610

1,822,024

Premises and Equipment, Net

86,791

84,543

Goodwill

89,095

84,811

Other Real Estate Owned

808

953

Other Assets

101,370

65,550

Total Assets

3,798,071

3,088,953

LIABILITIES

Deposits:

Noninterest Bearing Deposits

1,328,809

1,044,699

Interest Bearing Deposits

1,888,751

1,600,755

Total Deposits

3,217,560

2,645,454

Short-Term

Borrowings

79,654

6,404

Subordinated Notes Payable

52,887

Other Long-Term

Borrowings

3,057

6,514

Other Liabilities

102,076

50,678

Total Liabilities

3,455,234

2,761,937

Temporary Equity

22,000

SHAREOWNERS’ EQUITY

Preferred Stock, $

.01

par value;

3,000,000

shares authorized; no shares issued and outstanding

Common Stock, $

.01

par value;

90,000,000

shares authorized;

16,790,573

and

16,771,544

shares issued and outstanding at December 31, 2020 and

December 31, 2019, respectively

168

Additional Paid-In Capital

32,283

32,092

Retained Earnings

332,528

322,937

Accumulated Other Comprehensive Loss, Net of Tax

(44,142)

(28,181)

Total Shareowners’

Equity

320,837

327,016

Total Liabilities, Temporary

Equity, and Shareowners’

Equity

3,798,071

3,088,953

The accompanying Notes to Consolidated Financial

Statements are an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF INCOME

For the Years

Ended December 31,

(Dollars in Thousands, Except Per Share

Data)

2020

2019

2018

INTEREST INCOME

Loans, including Fees

94,752

94,215

84,117

Investment Securities:

Taxable

10,176

13,122

12,081

Tax Exempt

312

787

Funds Sold

1,171

5,187

2,410

Total Interest Income

106,197

112,836

99,395

INTEREST EXPENSE

Deposits

1,548

6,840

4,243

Short-Term

Borrowings

1,690

109

110

Subordinated Notes Payable

1,472

2,287

2,167

Other Long-Term

Borrowings

161

257

371

Total Interest Expense

4,871

9,493

6,891

NET INTEREST INCOME

101,326

103,343

92,504

Provision for Credit Losses

9,645

2,027

2,921

Net Interest Income After Provision for Credit Losses

91,681

101,316

89,583

NONINTEREST INCOME

Deposit Fees

17,800

19,472

20,093

Bank Card Fees

13,044

11,994

11,378

Wealth Management

Fees

11,035

10,480

8,711

Mortgage Banking Revenues

63,344

5,321

4,735

Other

5,942

5,786

6,648

Total Noninterest

Income

111,165

53,053

51,565

NONINTEREST EXPENSE

Compensation

96,280

66,352

63,921

Occupancy, Net

22,659

18,436

18,503

Other Real Estate Owned, Net

104

546

(442)

Other

30,919

28,275

29,521

Total Noninterest

Expense

149,962

113,609

111,503

INCOME BEFORE INCOME TAXES

52,884

40,760

29,645

Income Tax Expense

10,230

9,953

3,421

NET INCOME

42,654

30,807

26,224

Pre-Tax Income

Attributable to Noncontrolling Interests

(11,078)

NET INCOME ATTRIBUTABLE

TO COMMON SHAREOWNERS

31,576

30,807

26,224

BASIC NET INCOME PER SHARE

1.88

1.84

1.54

DILUTED NET INCOME PER SHARE

1.88

1.83

1.54

Average Basic Common

Shares Outstanding

16,785

16,770

17,029

Average Diluted

Common Shares Outstanding

16,822

16,827

17,072

The accompanying Notes to Consolidated Financial

Statements are an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME

For the Years

Ended December 31,

(Dollars in Thousands)

2020

2019

2018

NET INCOME

31,576

30,807

26,224

Other comprehensive income (loss), before

tax:

Investment Securities:

Change in net unrealized gain (loss) on securities available

for sale

2,437

3,790

(409)

Amortization of unrealized losses on securities transferred

from

available for sale to held to maturity

Total Investment

Securities

2,473

3,833

(354)

Derivative:

Change in net unrealized gain (loss) on effective

cash flow derivative

574

Benefit Plans:

Reclassification adjustment for amortization of prior service

cost

(880)

199

Reclassification adjustment for amortization of net loss

4,391

4,623

5,299

Current year actuarial loss

(27,924)

(7,642)

(815)

Total Benefit Plans

(24,413)

(3,004)

4,683

Other comprehensive (loss) income, before

tax:

(21,366)

829

4,329

Deferred tax benefit (expense) related to other comprehensive

income

5,405

(195)

(1,100)

Other comprehensive (loss) income, net of tax

(15,961)

634

3,229

TOTAL COMPREHENSIVE

INCOME

15,615

31,441

29,453

The accompanying Notes to Consolidated Financial

Statements are an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF CHANGES IN SHAREOWNERS' EQUITY

Accumulated

Other

Comprehensive

(Loss) Income,

Net of Taxes

(Dollars in Thousands, Except

Per Share Data)

Outstanding

Common

Stock

Additional

Paid-In

Capital

Retained

Earnings

Total

Balance, January 1, 2018

16,988,951

170

36,674

279,410

(32,044)

284,210

Net Income

26,224

Other Comprehensive Loss, Net of Tax

3,229

Cash Dividends ($

0.32

per share)

(5,457)

Stock Based Compensation

1,421

Stock Compensation Plan Transactions, net

83,061

990

Repurchase of Common Stock

(324,441)

(3)

(8,027)

(8,030)

Balance, December 31, 2018

16,747,571

167

31,058

300,177

(28,815)

302,587

Net Income

30,807

Other Comprehensive Income, Net of Tax

634

Cash Dividends ($

0.48

per share)

(8,047)

Stock Based Compensation

1,569

Stock Compensation Plan Transactions, net

100,973

1,270

1,271

Repurchase of Common Stock

(77,000)

(1,805)

Balance, December 31, 2019

16,771,544

168

32,092

322,937

(28,181)

327,016

Impact of Adopting ASC 326 (CECL)

(3,095)

Net Income

31,576

Reclassification to Temporary Equity

(1)

(9,323)

Other Comprehensive Income, Net of Tax

(15,961)

Cash Dividends ($

0.57

per share)

(9,567)

Stock Based Compensation

892

Stock Compensation Plan Transactions, net

118,981

1,340

1,341

Repurchase of Common Stock

(99,952)

(1)

(2,041)

(2,042)

Balance, December 31, 2020

16,790,573

168

32,283

332,528

(44,142)

320,837

(1)

Adjustments to redemption value for non-controlling interest in CCHL

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

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF CASH FLOWS

For the Years

Ended December 31,

(Dollars in Thousands)

2020

2019

2018

CASH FLOWS FROM OPERATING

ACTIVITIES

Net Income

31,576

30,807

26,224

Adjustments to Reconcile Net Income to Cash From Operating

Activities:

Provision for Credit Losses

9,645

2,027

2,921

Depreciation

7,230

6,253

6,453

Amortization of Premiums, Discounts, and Fees, net

7,533

5,206

6,698

Originations of Loans Held-for-Sale

(606,337)

(232,259)

(177,742)

Proceeds From Sales of Loans Held-for-Sale

565,151

234,940

180,425

Net Gain From Sales of Loans Held-for-Sale

(63,344)

(5,321)

(4,735)

Net Additions for Capitalized Mortgage Servicing Rights

(2,792)

Change in Valuation

Provision for Mortgage Servicing Rights

250

Stock Compensation

892

1,569

1,421

Net Tax Benefit from

Stock Compensation

(84)

(14)

(41)

Deferred Income Taxes

(53)

1,225

4,837

Net Change in Operating Leases

(156)

Net Loss (Gain) on Sales and Write-Downs

of Other Real Estate Owned

(393)

214

(935)

Impairment Loss on Premises (Hurricane Damage)

(1,213)

Proceeds From Insurance Claim for Operating Loss

268

Loss on Disposal of Premises and Equipment

Net (Increase) Decrease in Other Assets

(38,353)

9,830

7,168

Net Increase (Decrease) in Other Liabilities

40,624

(1,176)

(16,942)

Net Cash (Used In) Provided By Operating Activities

(48,611)

53,689

34,626

CASH FLOWS FROM INVESTING ACTIVITIES

Securities Held to Maturity:

Purchases

(32,250)

(92,186)

(102,428)

Payments, Maturities, and Calls

99,251

68,185

100,131

Securities Available

for Sale:

Purchases

(108,728)

(119,685)

(132,895)

Payments, Maturities, and Calls

186,499

162,260

161,332

Purchase of Loans Held for Investment

(43,804)

(25,256)

(26,070)

Net Increase in Loans

(130,020)

(39,608)

(98,068)

Net Cash Paid for Brand Acquisition

(2,405)

Proceeds From Insurance Claims on Premises

814

663

Proceeds From Sales of Other Real Estate Owned

2,835

2,360

4,774

Purchases of Premises and Equipment, net

(9,738)

(3,759)

(1,458)

Noncontrolling Interest Contributions

5,766

Net Cash Used In Investing Activities

(32,594)

(46,875)

(94,019)

CASH FLOWS FROM FINANCING ACTIVITIES

Net Increase in Deposits

572,106

113,598

61,979

Net Increase (Decrease) in Short-Term

Borrowings

73,156

(7,497)

2,551

Repayment of Other Long-Term

Borrowings

(3,363)

(1,694)

(1,889)

Dividends Paid

(9,567)

(8,047)

(5,457)

Payments to Repurchase Common Stock

(2,042)

(1,805)

(8,030)

Issuance of Common Stock Under Compensation Plans

1,041

1,054

797

Net Cash Provided By Financing Activities

631,331

95,609

49,951

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

550,126

102,423

(9,442)

Cash and Cash Equivalents at Beginning of Year

378,423

276,000

285,442

Cash and Cash Equivalents at End of Year

928,549

378,423

276,000

Supplemental Cash Flow Disclosures:

Interest Paid

4,841

9,521

6,879

Income Taxes Paid

9,171

6,255

157

Noncash Investing and Financing Activities:

Loans and Premises Transferred to Other Real Estate

Owned

2,297

1,298

2,140

The accompanying Notes to Consolidated Financial

Statements are an integral part of these statements.

Notes to Consolidated Financial Statements

Note 1

SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Capital City Bank Group, Inc. (“CCBG”) provides

a full range of banking and banking-related services to individual

and

corporate clients through its 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 include the

accounts of CCBG and its wholly owned subsidiary,

Capital City Bank (“CCB”

or the “Bank” and together with CCBG, the “Company

”).

All material inter-company transactions and accounts have

been

eliminated in consolidation.

The Company, which

operates a single reportable business segment that is comprised

of commercial banking within the states of

Florida, Georgia, and Alabama, follows accounting

principles generally accepted in the United States of America and

reporting

practices applicable to the banking industry.

The principles which materially affect the financial position,

results of operations

and cash flows are summarized below.

The Company determines whether it has a controlling

financial interest in an entity by first evaluating whether the entity is a

voting interest entity or a variable interest entity under

accounting principles generally accepted in the United States of

America.

Voting

interest entities are entities in which the total equity investment

at risk is sufficient to enable the entity to finance

itself

independently and provide the equity holders with the

obligation to absorb losses, the right to receive residual

returns and the

right to make decisions about the entity’s

activities.

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

or at

least a majority of, the voting interest.

As defined in applicable accounting standards, variable interest

entities (“VIE’s”) are

entities that lack one or more of the characteristics of a voting

interest entity.

A controlling financial interest in an entity is

present when an enterprise has a variable interest,

or a combination of variable interests, that will absorb a majority

of the entity’s

expected losses, receive a majority of the entity’s

expected residual returns, or both.

The enterprise with a controlling financial

interest, known as the primary beneficiary,

consolidates the VIE.

Two of CCBG's wholly

owned subsidiaries, CCBG Capital

Trust I (established November 1, 2004)

and CCBG Capital Trust II (established

May 24, 2005) are VIEs for which the Company

is not the primary beneficiary.

Accordingly, the

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

consolidated

financial statements.

Certain previously reported amounts have been reclassified to

conform to the current year’s presentation.

The Company has

evaluated subsequent events for potential recognition

and/or disclosure through the date the consolidated financial

statements

included in this Annual Report on Form 10-K were filed

with the United States Securities and Exchange Commission.

Use of Estimates

The preparation of financial statements in conformity

with accounting principles generally accepted in the United States of

America requires management to make estimates and

assumptions that affect the reported amounts of assets and

liabilities, the

disclosure of contingent assets and liabilities at the date

of financial statements and the reported amounts of revenues and

expenses during the reporting period.

Actual results could vary from these estimates.

Material estimates that are particularly

susceptible to significant changes in the near-term

relate to the determination of the allowance for loan losses, pension

expense,

income taxes, loss contingencies, valuation of other real

estate owned, and valuation of goodwill and their respective

analysis of

impairment.

Business Combination

On March 1, 2020, CCB completed its acquisition of

% membership interest in

Brand Mortgage Group, LLC

(“Brand”),

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

CCHL was consolidated into CCBG’s financial

statements

effective March 1, 2020.

Assets acquired totaled $

million (consisting primarily of loans held for sale)

and liabilities assumed

totaled $

million (consisting primarily of warehouse line borrowings).

The primary reasons for the acquisition and strategic

alliance with Brand was to gain access to an expanded residential

mortgage product line-up and investor base (including

mandatory delivery channel for loan sales), to hedge

our net interest income business and to generate other

operational synergies

and cost savings.

CCB made a $

7.1

million cash payment for its

% membership interest and entered into a buyout agreement

for the remaining

% noncontrolling interest resulting in temporary equity with a fair

value of $

7.4

million.

Goodwill totaling

4.3

million was recorded in connection with this acquisition.

Factors that contributed to the purchase price resulting in goodwill

include Brand’s strong

management team and expertise in the mortgage industry,

historical record of earnings, and operational

synergies created as part of the strategic alliance.

At December 31, 2020, $

9.3

million was reclassified from permanent equity to

temporary equity which reflects the increase in the

redemption value of the

% noncontrolling interest under the terms of the

buyout agreement.

Adoption of New Accounting Standard

On January 1, 2020, the Company adopted ASU 2016

-13

Financial Instruments – Credit Losses (Topic

326): Measurement of

Credit Losses on Financial Instruments

, which replaces the incurred loss methodology

with an expected loss methodology that is

referred to as the current expected credit loss (“CECL”) methodology.

The measurement of expected credit losses under the

CECL methodology is applicable to financial assets measured

at amortized cost, including loan receivables and held-to-maturity

debt securities.

It also applies to off-balance sheet credit exposures not

accounted for as insurance (loan commitments, standby

letters of credit, financial guarantees, and other similar

instruments).

In addition, ASC 326-30 provides a new credit loss model

for available-for-sale debt securities.

The most significant change requires credit losses to be presented

as an allowance rather

than as a write-down on available-for-sale debt

securities that management does not intend to sell or believes

that it is not more

likely than not they will be required to sell.

The Company adopted ASC 326 using the modified retrospective

method for all

financial assets measured at amortized cost and off

-balance sheet credit exposures.

Our accounting policies changed significantly with the

adoption of CECL on January 1, 2020.

Prior to January 1, 2020,

allowances were based on incurred credit losses in accordance

with accounting policies disclosed in Note 1 of the Consolidated

Financial Statements included in the 2019 Form 10-K.

The adoption of ASC 326 (“CECL”) had an impact of $

4.0

million ($

3.3

million increase in the allowance for credit losses and

0.7

million increase in the allowance for unfunded loan commitments

(liability account)) that was offset by a corresponding

decrease in retained earnings of $

3.1

million and $

0.9

million increase in

deferred tax assets.

The increase in the allowance for credit losses required

under the ASC 326 generally reflected the impact of

reserves calculated over the life of loan, and more specifically

higher reserves required for longer duration loan portfolios,

and the

utilization of a longer historical look-back period

in the calculation of loan loss rates (loss given default).

Upon analyzing the

debt security portfolios, the Company determined that

no allowance was required as these debt securities are government

guaranteed treasuries or government agency-backed

securities for which the risk of loss was deemed minimal.

Further, certain

municipal debt securities held by the Company have been

pre-refunded and secured by government guaranteed treasuries.

The following table illustrates the impact of adopting

ASC 326 on January 1, 2020.

As Reported

Impact of

Under

Pre-ASC 326

ASC 326

(Dollars in Thousands)

ASC 326

Adoption

Loans:

Commercial, Financial and Agricultural

2,163

1,675

488

Real Estate - Construction

672

370

302

Real Estate - Commercial Mortgage

4,874

3,416

1,458

Real Estate - Residential

4,371

3,128

1,243

Real Estate - Home Equity

2,598

2,224

374

Consumer, Other Loans and

Overdrafts

2,496

3,092

(596)

Allowance for Credit Losses on Loans

17,174

13,905

3,269

Other Liabilities:

Allowance for Credit Losses on Off-Balance Sheet

Credit Exposures

815

157

658

Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks,

interest-bearing deposits in other banks, and federal

funds

sold. Generally,

federal funds are purchased and sold for one-day periods and

all other cash equivalents have a maturity of 90

days or less.

The Company is required to maintain average reserve balances

with the Federal Reserve Bank based upon a

percentage of deposits.

On March 26, 2020, the Federal Reserve reduced the amount

of the required reserve balance to

zero

The

average amount of the required reserve balance for

the year ended December 31, 2019 was $

29.7

million.

The Company maintains certain cash balances that are

restricted under warehouse lines of credit and master

repurchase

agreements.

The restricted cash balance at December 31, 2020 was $

0.6

million.

Investment Securities

Investment securities are classified as held-to-maturity

and carried at amortized cost when the Company has the positive

intent

and ability to hold them until maturity.

Investment securities not classified as held-to-maturity or trading securities

are classified

as available-for-sale and carried at fair value.

The Company determines the appropriate classification of securities

at the time of

purchase.

For reporting and risk management purposes, we further

segment investment securities by the issuer of the security

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

U.S. government agency,

state and political subdivisions, and

mortgage-backed securities.

Certain equity securities with limited marketability,

such as stock in the Federal Reserve Bank and

the Federal Home Loan Bank, are classified as available

-for-sale and carried at cost.

Interest income includes amortization and accretion

of purchase premiums and discounts.

Realized gains and losses are derived

from the amortized cost of the security sold.

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

trade date and are

determined using the specific identification method.

Securities transferred from available-for-sale to

held-to-maturity are

recorded at amortized cost plus or minus any unrealized

gain or loss at the time of transfer.

Any existing unrecognized gain or

loss continues to be reported in accumulated other

comprehensive income (net of tax) and amortized as an adjustment

to interest

income over the remaining life of the security.

Any existing allowance for credit loss is reversed at the time

of transfer.

Subsequent to transfer, the

allowance for credit losses on the transferred security is evaluated in

accordance with the accounting

policy for held-to-maturity securities.

Additionally, any

allowance amounts reversed or established as part of the transfer

are

presented on a gross basis in the consolidated statement

of income.

The accrual of interest is generally suspended on securities

more than 90 days past due with respect to principal

or interest.

When

a security is placed on nonaccrual status, all previously

accrued and uncollected interest is reversed against current income and

thus not included in the estimate of credit losses.

Credit losses and changes thereto, are established as an

allowance for credit loss through a provision for credit loss expense.

Losses are charged against the allowance

when management believes the uncollectability of an available

-for-sale security is

confirmed or when either of the criteria regarding

intent or requirement to sell is met.

Certain debt securities in the Company’s

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

and are either

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

The Company considers the long history of no credit losses on

these

securities indicates that the expectation of nonpayment

of the amortized cost basis is zero, even if the U.S. government

were to

technically default.

Further, certain municipal securities held

by the Company have been pre-refunded and secured

government

guaranteed treasuries.

Therefore, for the aforementioned securities, the Company

does not assess or record expected

credit losses due to the zero loss assumption.

Impairment - Available-for-Sale

Securities

Unrealized gains on available-for-sale securities are

excluded from earnings and reported, net of tax, in other

comprehensive

income (“OCI”).

For available-for-sale securities that are in an unrealized loss position,

the Company first assesses whether it

intends to sell, or whether it is more likely than not it will

be required to sell the security before recovery of its amortized

cost

basis.

If either of the criteria regarding intent or requirement to

sell is met, the security’s amortized

cost basis is written down to

fair value through income.

For available-for-sale securities that do not meet

the aforementioned criteria or have a zero loss

assumption, the Company evaluates whether the decline

in fair value has resulted from credit losses or other factors.

In making

this assessment, management considers the extent

to which fair value is less than amortized cost, any changes

to the rating of the

security by a rating agency,

and adverse conditions specifically related to the security,

among other factors.

If the assessment

indicates that a credit loss exists, the present value

of cash flows to be collected from the security are compared

to the amortized

cost basis of the security.

If the present value of cash flows expected to be collected

is less than the amortized cost basis, a credit

loss exists and an allowance for credit losses is recorded through

a provision for credit loss expense, limited by the amount that

fair value is less than the amortized cost basis.

Any impairment that has not been recorded through an

allowance for credit losses

is recognized in other comprehensive income.

Allowance for Credit Losses - Held-to-Maturity

Securities.

Management measures expected credit losses on each

individual held-to-maturity debt security that has not been deemed to

have

a zero assumption.

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

measured based on net realizable

value, or the difference between the discounted

value of the expected cash flows, based on the original effective

rate, and the

recorded amortized basis of the security.

To the extent a shortfall is related

to credit loss, an allowance for credit loss is recorded

through a provision for credit loss expense.

Loans Held for Investment

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

includes the principal amount outstanding, net premiums

and discounts, and net deferred loan fees and costs.

Accrued interest receivable on loans is reported in other assets and

is not

included in the amortized cost basis of loans.

Interest income is accrued on the effective yield method

based on outstanding

principal balances and includes loan late fees.

Fees charged to originate loans and direct loan origination

costs are deferred and

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

The Company defines loans as past due when one

full payment is past due or a contractual maturity is over 30

days late.

The

accrual of interest is generally suspended on loans more

than 90 days past due with respect to principal or interest.

When a loan is

placed on nonaccrual status, all previously accrued

and uncollected interest is reversed against current income and thus

a policy

election has been made to not include in the estimate of

credit losses.

Interest income on nonaccrual loans is recognized when

the

ultimate collectability is no longer considered doubtful.

Loans are returned to accrual status when the principal and interest

amounts contractually due are brought current or when

future payments are reasonably assured.

Loan charge-offs on commercial and

investor real estate loans are recorded when the facts and circumstances

of the individual

loan confirm the loan is not fully collectible and the

loss is reasonably quantifiable.

Factors considered in making these

determinations are the borrower’s and any

guarantor’s ability and willingness to pay,

the status of the account in bankruptcy court

(if applicable), and collateral value.

Charge-off decisions for consumer loans

are dictated by the Federal Financial Institutions

Examination Council’s (FFIEC)

Uniform Retail Credit Classification and Account Management

Policy which establishes

standards for the classification and treatment of consumer

loans, which generally require charge-off after

120 days of

delinquency.

The Company has adopted comprehensive lending policies,

underwriting standards and loan review procedures designed

maximize loan income within an acceptable level

of risk.

Reporting systems are used to monitor loan originations,

loan ratings,

concentrations, loan delinquencies, nonperforming

and potential problem loans, and other credit quality metrics.

The ongoing

review of loan portfolio quality and trends by Management

and the Credit Risk Oversight Committee support the

process for

estimating the allowance for credit losses.

Allowance for Credit Losses

The allowance for credit losses is a valuation account that

is deducted from the loans’ amortized cost basis to present

the net

amount expected to be collected on the loans.

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

which is

reported in earnings, and reduced by the charge

-off of loan amounts, net of recoveries.

Loans are charged off against the

allowance when management believes the uncollectability

of a loan balance is confirmed.

Expected recoveries do not exceed the

aggregate of amounts previously charged

-off and expected to be charged-off.

Expected credit loss inherent in non-cancellable

off-balance sheet credit exposures is accounted

for 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

starting basis for the estimation of expected credit losses.

Adjustments to historical loss information incorporate

management’s

view of current conditions and forecasts.

The methodology for estimating the amount of credit losses reported

in the allowance for credit losses has two basic components:

first, an asset-specific component involving loans that

do not share risk characteristics and the measurement of expected

credit

losses for such individual loans; and second, a pooled

component for expected credit losses for pools of loans that

share similar

risk characteristics.

Loans That Do Not Share Risk Characteristics

(Individually Analyzed)

Loans that do not share similar risk characteristics are evaluated

on an individual basis.

Loans deemed to be collateral dependent

have differing risk characteristics and are individually

analyzed to estimate the expected credit loss.

A loan is collateral

dependent when the borrower is experiencing financial

difficulty and repayment of the loan is dependent

on the liquidation and

sale of the underlying collateral.

For collateral dependent loans where foreclosure is probable, the

expected credit loss is

measured based on the difference

between the fair value of the collateral (less selling cost) and

the amortized cost basis of the

asset.

For collateral dependent loans where foreclosure is not probable,

the Company has elected the practical expedient allowed

by ASC 326-20 to measure the expected credit loss under

the same approach as those loans where foreclosure is probable.

For

loans with balances greater than $

250,000

the fair value of the collateral is obtained through independent appraisal

of the

underlying collateral.

For loans with balances less than $

250,000

, the Company has made a policy election to measure expected

loss for these individual loans utilizing loss rates for similar

loan types.

The aforementioned measurement criteria are applied for

collateral dependent troubled debt restructurings.

Loans That Share Similar Risk Characteristics

(Pooled Loans)

The general steps in determining expected credit losses for

the pooled loan component of the allowance are as follows:

●

Segment loans into pools according to similar risk characteristics

●

Develop historical loss rates for each loan pool segment

●

Incorporate the impact of forecasts

●

Incorporate the impact of other qualitative factors

●

Calculate and review pool specific allowance for credit loss estimate

Methodology –

A discounted cash flow (“DCF”) methodology is utilized

to calculate expected cash flows for the life of each individual

loan.

The discounted present value of expected cash flow

is then compared to the loan’s amortized

cost basis to determine the credit

loss estimate.

Individual loan results are aggregated at the pool level

in determining total reserves for each loan pool.

The primary inputs used to calculate expected cash

flows include historical loss rates which reflect probabil

ity of default (“PD”)

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

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

of the PD

rate and is based on management’s

assessment of current and forecasted conditions and

may vary by loan pool.

Loans subject to

the Company’s risk rating

process are further sub-segmented by risk rating in the

calculation of PD rates.

LGD rates generally

reflect the historical average net loss rate by loan

pool.

Expected cash flows are further adjusted to incorporate the

impact of loan

prepayments which will vary by loan segment and interest

rate conditions.

In general, prepayment rates are based on observed

prepayment rates occurring in the loan portfolio and

consideration of forecasted interest rates.

Forecast Factors –

In developing loss rates, adjustments are made to

incorporate the impact of forecasted conditions.

Certain assumptions are also

applied, including the length of the forecast and reversion

periods.

The forecast period is the period within which management is

able to make a reasonable and supportable assessment of

future conditions.

The reversion period is the period beyond which

management believes it can develop a reasonable and

supportable forecast, and bridges the gap between the forecast period

and

the use of historical default and loss rates.

The remainder period reflects the remaining life of

the loan.

The length of the forecast

and reversion periods are periodically evaluated and

based on management’s assessment

of current and forecasted conditions and

may vary by loan pool.

For purposes of developing a reasonable and supportable

assessment of future conditions, management

utilizes established industry and economic data

points and sources, including the Federal Open Market

Committee forecast, with

the forecasted unemployment rate being a significant

factor.

PD rates for the forecast period will be adjusted accordingly based

on management’s assessment

of future conditions.

PD rates for the remainder period will reflect the historical mean

PD rate.

Reversion period PD rates reflect the difference

between forecast and remainder period PD rates calculated using

a straight-line

adjustment over the reversion period.

Qualitative Factors –

Loss rates are further adjusted to account for other risk factors

that impact loan defaults and losses.

These adjustments are based

on management’s assessment

of trends and conditions that impact credit risk and resulting

loan losses, more specifically internal

and external factors that are independent of and not reflected

in the quantitative loss rate calculations.

Risk factors management

considers in this assessment include trends in underwriting

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

loan review systems, collateral valuations, concentrations,

legal/regulatory/political conditions, and the unforeseen impact of

natural disasters.

Allowance for Credit Losses on Off-Balance

Sheet Credit Exposures

The Company estimates expected credit losses over

the contractual period in which it is exposed to credit risk through

contractual obligation to extend credit, unless that obligation

is unconditionally cancellable by the Company.

The allowance for

credit losses on off-balance sheet credit exposures

is adjusted as a provision for credit loss expense and is recorded

in other

liabilities.

The estimate includes consideration of the likelihood

that funding will occur and an estimate of expected credit losses

on commitments expected to be funded over its estimated life

and applies the same estimated loss rate as determined

for current

outstanding loan balances by segment.

Off-balance sheet credit exposures are identified and classified

in the same categories as

the allowance for credit losses with similar risk characteristics

that have been previously mentioned.

Mortgage Banking Activities

Mortgage Loans Held for Sale and Revenue Recognition

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

value under the fair value option with changes in fair value

recorded in

gain on sale of mortgage loans held for sale on the consolidated

statements of income. The fair value of mortgage loans held

for

sale committed to investors is calculated using observable

market information such as the investor commitment, assignment of

trade (AOT) or other mandatory delivery commitment prices.

The Company bases loans committed to Agency

investors based on

the Agency’s quoted

mortgage backed

security (MBS) prices. The fair value of mortgage loans held for sale

not committed to

investors is based on quoted best execution secondary

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

using quoted prices for a similar asset or assets, such as MBS prices,

adjusted for the specific attributes of that loan, which would

be used by other market participants.

Gains and losses from the sale of mortgage loans held

for sale are recognized based upon the difference

between the sales

proceeds and carrying value of the related loans upon

sale and are recorded in mortgage banking revenues on the consolidated

statements of income. Sales proceeds reflect the cash

received from investors through the sale of the loan and servicing

release

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

the MSR addition is recorded in mortgage banking revenues on

the consolidated statements of income.

Mortgage banking revenues also includes the unrealized gains

and losses associated with

the changes in the fair value of mortgage loans held

for sale, and the realized and unrealized gains and losses from

derivative

instruments.

Mortgage loans held for sale are considered sold when

the Company surrenders control over the financial assets. Control is

considered to have been surrendered when the transferred

assets have been isolated from the Company,

beyond the reach of the

Company and its creditors; the purchaser obtains the

right (free of conditions that constrain it from taking advantage of

that right)

to pledge or exchange the transferred assets; and the

Company does not maintain effective control over

the transferred assets

through either an agreement that both entitles and

obligates the Company to repurchase or redeem the

transferred assets before

their maturity or the ability to unilaterally cause the holder

to return specific assets. The Company typically considers the above

criteria to have been met upon acceptance and receipt

of sales proceeds from the purchaser.

Government National Mortgage Association (GNMA) optional

repurchase programs allow financial institutions to buy back

individual delinquent mortgage loans that meet certain

criteria from the securitized loan pool for which the institution

provides

servicing.

At the servicer’s option and without GNMA’s

prior authorization, the servicer may repurchase such

a delinquent loan

for an amount equal to 100 percent of the remaining

principal balance of the loan.

Under FASB ASC Topic

860, “Transfers and

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

option until the delinquency criteria are met, at which

time the option

becomes unconditional.

When the Company is deemed to have regained effective

control over these loans under the

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

reported as sold and must be brought back onto the balance sheet,

regardless of whether there is intent

to exercise the buy-back option.

These loans are reported in other assets with the offsetting

liability being reported in other liabilities.

Derivative Instruments (IRLC/Forward Commitments)

The Company holds and issues derivative financial

instruments such as interest rate lock commitments (IRLCs) and other

forward

sale commitments. IRLCs are subject to price risk primarily

related to fluctuations in market interest rates. To

hedge the interest

rate risk on certain IRLCs, the Company uses forward

sale commitments, such as to-be-announced securities (TBAs) or

mandatory delivery commitments with investors. Management

expects these forward sale commitments to experience changes

fair value opposite to the changes in fair value of

the IRLCs thereby reducing earnings volatility.

Forward sale commitments are

also used to hedge the interest rate risk on mortgage loans

held for sale that are not committed to investors and still subject to

price risk. If the mandatory delivery commitments are not

fulfilled, the Company pays a pair-off

fee. Best effort forward sale

commitments are also executed with investors, whereby

certain loans are locked with a borrower and simultaneously

committed

to an investor at a fixed price. If the best effort

IRLC does not fund, there is no obligation to fulfill the investor

commitment.

The Company considers various factors and strategies in

determining what portion of the IRLCs and uncommitted mortgage

loans

held for sale to economically hedge.

All derivative instruments are recognized as other assets or other

liabilities on the

consolidated statements of financial condition at their

fair value. Changes in the fair value of the derivative instruments

are

recognized in gain on sale of mortgage loans held for

sale on the consolidated statements of income in the period in

which they

occur. Gains and losses resulting

from the pairing-out of forward sale commitments are recognized

in gain on sale of mortgage

loans held for sale on the consolidated statements of income. The

Company accounts for all derivative instruments as free-

standing derivative instruments and does not designate

any for hedge accounting.

Mortgage Servicing Rights (“MSRs”) and Revenue Recognition

The Company sells residential mortgage loans in the secondary

market and may retain the right to service the loans sold.

Upon

sale, an MSR asset is capitalized, which represents the

then current fair value of future net cash flows expected to be

realized for

performing servicing activities.

As the Company has not elected to subsequently measure

any class of servicing assets under the

fair value measurement method, the Company follows the

amortization method.

MSRs are amortized to noninterest income

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

net servicing income, and assessed for impairment at each

reporting date.

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

of accumulated amortization, or estimated fair

value, and included in other assets, net, on the consolidated

statements of financial condition.

The Company periodically evaluates its MSRs asset for impairment.

Impairment is assessed based on fair value at each reporting

date using estimated prepayment speeds of the underlying

mortgage loans serviced and stratifications based on the risk

characteristics of the underlying loans (predominantly

loan type and note interest rate).

As mortgage interest rates fall,

prepayment speeds are usually faster and the value

of the MSRs asset generally decreases, requiring additional valuation

reserve.

Conversely, as mortgage

interest rates rise, prepayment speeds are usually slower and

the value of the MSRs asset generally

increases, requiring less valuation reserve.

A valuation allowance is established, through a charge

to earnings, to the extent the

amortized cost of the MSRs exceeds the estimated fair

value by stratification.

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

temporary impairment no longer exists for a stratification,

the valuation is reduced through a recovery to earnings.

An other-than-

temporary impairment (i.e., recoverability is considered

remote when considering interest rates and loan pay off

activity) is

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

valuation allowance (to the extent a valuation allowance

available) and then against earnings.

A direct write-down permanently reduces the carrying value

of the MSRs asset and

valuation allowance, precluding subsequent recoveries.

Derivative/Hedging Activities

At the inception of a derivative contract, the Company designates

the derivative as one of three types based on the Company's

intentions and belief as to the likely effectiveness

as a hedge. These three types are (1) a hedge of the fair

value of a recognized

asset or liability or of an unrecognized firm commitment

("fair value hedge"), (2) a hedge of a forecasted transaction

or the

variability of cash flows to be received or paid related

to a recognized asset or liability ("cash flow hedge"), or (3) an

instrument

with no hedging designation ("standalone derivative").

For a fair value hedge, the gain or loss on the derivative, as well as the

offsetting loss or gain on the hedged item,

are recognized in current earnings as fair values change. For a cash flow

hedge, the

gain or loss on the derivative is reported in other comprehensive

income and is reclassified into earnings in the same periods

during which the hedged transaction affects earnings.

For both types of hedges, changes in the fair value of derivative

that are

not highly effective in hedging the changes in

fair value or expected cash flows of the hedged item are recognized

immediately in

current earnings. Net cash settlements on derivatives that

qualify for hedge accounting are recorded in interest income

or interest

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

derivatives that do not qualify for hedge accounting are

reported in non-interest income. Cash flows on hedges are

classified in the cash flow statement the same as the cash flows of

the

items being hedged.

The Company formally documents the relationship between

derivatives and hedged items, as well as the risk-management

objective and the strategy for undertaking hedge

transactions at the inception of the hedging relationship. This documentation

includes linking fair value or cash flow hedges to specific

assets and liabilities on the balance sheet or to specific firm

commitments or forecasted transactions. The Company

also formally assesses, both at the hedge's inception and on

an ongoing

basis, whether the derivative instruments that are used

are highly effective in offsetting changes in

fair values or cash flows of the

hedged items. The Company discontinues hedge

accounting when it determines that the derivative is no longer

effective in

offsetting changes in the fair value or cash

flows of the hedged item, the derivative is settled or terminates, a

hedged forecasted

transaction is no longer probable, a hedged firm commitment

is no longer firm, or treatment of the derivative as a hedge is no

longer appropriate

or intended. When hedge accounting is discontinued, subsequent

changes in fair value of the derivative are

recorded as non-interest income. When a fair value hedge

is discontinued, the hedged asset or liability is no longer adjusted for

changes in fair value and the existing basis adjustment

is amortized or accreted over the remaining life of the

asset or liability.

When a cash flow hedge is discontinued but the hedged

cash flows or forecasted transactions are still expected to occur,

gains or

losses that were accumulated in other comprehensive

income are amortized into earnings over the same periods, in which the

hedged transactions will affect earnings.

Long-Lived Assets

Premises and equipment is stated at cost less accumulated

depreciation, computed on the straight-line method over

the estimated

useful lives for each type of asset with premises being depreciated

over a range of

years, and equipment being

depreciated over a range of

years.

Additions, renovations and leasehold improvements to premises are

capitalized and

depreciated over the lesser of the useful life or the remaining

lease term.

Repairs and maintenance are charged to noninterest

expense as incurred.

Long-lived assets are evaluated for impairment

if circumstances suggest that their carrying value may not be recoverable,

comparing the carrying value to estimated undiscounted

cash flows.

If the asset is deemed impaired, an impairment charge

recorded equal to the carrying value less the fair value.

Leases

The Company has entered into various operating

leases, primarily for banking offices.

Generally, these leases have

initial lease

terms from one to ten years.

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

The exercise of lease renewal options is

at the Company’s sole discretion.

The Company does not consider exercise of any lease renewal options

reasonably certain.

Certain of the lease contain early termination options.

No renewal options or early termination options have been

included in the

calculation of the operating right-of-use assets or operating

lease liabilities.

Certain of the lease agreements provide for periodic

adjustments to rental payments for inflation.

At the commencement date of the lease, the Company recognizes

a lease liability at

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

using the discount rate for the lease or the Company’s

incremental borrowing rate.

As the majority of the Company's leases do not provide

an implicit rate, the Company uses its

incremental borrowing rate at the commencement date

in determining the present value of lease payments.

The incremental

borrowing rate is based on the term of the lease.

Incremental borrowing rates on January 1, 2019 were used

for operating leases

that commenced prior to that date.

At the commencement date, the company also recognizes a right

-of-use asset measured at (i)

the initial measurement of the lease liability; (ii) any lease

payments made to the lessor at or before the commencement

date less

any lease incentives received; and (iii) any initial direct

costs incurred by the lessee.

Leases with an initial term of 12 months or

less are not recorded on the balance sheet.

For these short-term leases, lease expense is recognized

on a straight-line basis over

the lease term.

At December 31, 2020,

the Company had no leases classified as finance leases.

See Note 7 – Leases for

additional information.

Bank Owned Life Insurance (BOLI)

The Company, through

its subsidiary bank, has purchased life insurance policies on

certain key officers.

Bank owned life

insurance is recorded at the amount that can be

realized under the insurance contract at the balance sheet date, which

is the cash

surrender value adjusted for other charges or

other amounts due that are probable at settlement.

Goodwill

Goodwill represents the excess of the cost of businesses acquired

over the fair value of the net assets acquired.

In accordance

with FASB ASC Topic

350, the Company determined it has one goodwill reporting

unit.

Goodwill is tested for impairment

annually during the fourth quarter or on an interim

basis if an event occurs or circumstances change that would more

likely than

not reduce the fair value of the reporting unit below

its carrying value.

See Note 8 – Goodwill for additional information

Other Real Estate Owned

Assets acquired through, or in lieu of, loan foreclosure

are held for sale and are initially recorded at the lower of cost

or fair value

less estimated selling costs, establishing a new cost basis.

Subsequent to foreclosure, valuations are periodically performed

management and the assets are carried at the lower of carrying

amount or fair value less cost to sell.

The valuation of foreclosed

assets is subjective in nature and may be adjusted in the

future because of changes in economic conditions.

Revenue and

expenses from operations and changes in value are

included in noninterest expense.

Loss Contingencies

Loss contingencies, including claims and legal actions

arising in the ordinary course of business are recorded as liabilities when

the likelihood of loss is probable and an amount or range of

loss can be reasonably estimated.

Noncontrolling Interest

To the extent

the Company’s interest in a consolidated

entity represents less than 100% of the entity’s

equity, the Company

recognizes noncontrolling interests in subsidiaries.

In the case of the CCHL acquisition (previously noted

under Business

Combination), the noncontrolling interest represents

equity which is redeemable or convertible for cash at the

option of the equity

holder and is classified within temporary equity in the

mezzanine section of the Consolidated Statements of Financial

Condition.

The call/put option is redeemable at the option of either

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

after

January 1, 2025, and therefore, not entirely within CCBG’s

control.

The subsidiary's net income or loss and related dividends are

allocated to CCBG and the noncontrolling interest holder

based on their relative ownership percentages.

The noncontrolling

interest carrying value is adjusted on a quarterly basis to the

higher of the carrying value or current redemption value,

at the

balance sheet date, through a corresponding adjustment

to retained earnings.

The redemption value is calculated quarterly and is

based on the higher of a predetermined book value or pre-tax earnings

multiple.

To the extent the redemption

value exceeds the

fair value of the noncontrolling interest, the Company’s

earnings per share attributable to common shareowners

is adjusted by that

amount.

The Company uses an independent valuation expert to assist in estimating

the fair value of the noncontrolling interest

using: 1) the discounted cash flow methodology under

the income approach, and (2) the guideline public company

methodology

under the market approach.

The estimated fair value is derived from equally weighting the result of

each of the two

methodologies.

The estimation of the fair value includes significant assumptions

concerning: (1) projected loan volumes; (2)

projected pre-tax profit margins; (3) tax

rates and (4) discount rates.

Income Taxes

Income tax expense is the total of the current year

income tax due or refundable and the change in deferred tax

assets and

liabilities (excluding deferred tax assets and liabilities related

to business combinations or components of other comprehensive

income).

Deferred tax assets and liabilities are the expected future tax amounts

for the temporary differences between carrying

amounts and tax bases of assets and liabilities, computed

using enacted tax rates.

A valuation allowance, if needed, reduces

deferred tax assets to the expected amount most likely

to be realized.

Realization of deferred tax assets is dependent upon the

generation of a sufficient level of future taxable

income and recoverable taxes paid in prior years.

The income tax effects related

to settlements of share-based payment awards are reported

in earnings as an increase or decrease in income tax expense.

The Company files a consolidated federal income tax

return and each subsidiary files a separate state income tax return.

Earnings Per Common Share

Basic earnings per common share is based on net income

divided by the weighted-average number of common shares

outstanding

during the period excluding non-vested stock.

Diluted earnings per common share include the dilutive effect

of stock options and

non-vested stock awards granted using the treasury stock

method.

A reconciliation of the weighted-average shares used in

calculating basic earnings per common share and the

weighted average common shares used in calculating diluted

earnings per

common share for the reported periods is provided in

Note 14 — Earnings Per Share.

Comprehensive Income

Comprehensive income includes all changes in shareowners’

equity during a period, except those resulting from transactions

with

shareowners.

Besides net income, other components of the Company’s

comprehensive income include the after tax effect of

changes in the net unrealized gain/loss on securities available

for sale and changes in the funded status of defined benefit and

supplemental executive retirement plans.

Comprehensive income is reported in the accompanying Consolidated

Statements of

Comprehensive Income and Changes in Shareowners’ Equity.

Stock Based Compensation

Compensation cost is recognized for share-based

awards issued to employees, based on the fair value of these awards

at the date

of grant.

Compensation cost is recognized over the requisite service period,

generally defined as the vesting period.

The market

price of the Company’s

common stock at the date of the grant is used for

restricted stock awards.

For stock purchase plan awards,

a Black-Scholes model is utilized to estimate the fair

value of the award.

The impact of forfeitures of share-based awards on

compensation expense is recognized as forfeitures occur.

Revenue Recognition

Accounting Standards Codification ("ASC") 606, Revenue

from Contracts with Customers ("ASC 606"), establishes principles

for reporting information about the nature, amount,

timing and uncertainty of revenue and cash flows arising from

the entity's

contracts to provide goods or services to customers. The

core principle requires an entity to recognize revenue to depict the

transfer of goods or services to customers in an amount

that reflects the consideration that it expects to be entitled to receive

exchange for those goods or services recognized as performance

obligations are satisfied.

The majority of the Company’s revenue

-generating transactions are not subject to ASC 606, including

revenue generated from

financial instruments, such as our loans, letters of credit,

and investment securities, and revenue related to the sale of residential

mortgages in the secondary market, as these activities are

subject to other GAAP discussed elsewhere within our disclosures.

The

Company recognizes revenue from these activities as it is earned

based on contractual terms, as transactions occur,

or as services

are provided and collectability is reasonably assured.

Descriptions of the major revenue-generating activities that are

within the

scope of ASC 606, which are presented in the accompanying

statements of income as components of non-interest income are

follows:

Deposit Fees - these represent general service fees

for monthly account maintenance and activity- or transaction

-based fees and

consist of transaction-based revenue, time-based revenue

(service period), item-based revenue or some other individual

attribute-

based revenue.

Revenue is recognized when the Company’s

performance obligation is completed which is generally

monthly for

account maintenance services or when a transaction has

been completed.

Payment for such performance obligations are generally

received at the time the performance obligations are

satisfied.

Wealth Management

- trust fees and retail brokerage fees – trust fees represent

monthly fees due from wealth management clients

as consideration for managing the client’s

assets. Trust services include custody of

assets, investment management, fees for trust

services and similar fiduciary activities. Revenue is recognized

when the Company’s performance

obligation is completed each

month or quarter, which is the time that

payment is received. Also, retail brokerage fees are received

from a third party broker-

dealer, for which the Company acts

as an agent, as part of a revenue-sharing agreement

for fees earned from customers that are

referred to the third party.

These fees are for transactional and advisory services and are paid by

the third party on a monthly

basis and recognized ratably throughout the quarter as the

Company’s performance obligation

is satisfied.

Bank Card Fees – bank card related fees primarily

includes interchange income from client use of consumer and business debit

cards.

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

bank through the interchange network.

Interchange fees are set by the credit card associations and

are based on cardholder purchase volumes.

The Company records

interchange income as transactions occur.

Gains and Losses from the Sale of Bank Owned Property

– the performance obligation in the sale of other real estate owned

typically will be the delivery of control over the property

to the buyer.

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

the transaction price is typically identified in the purchase

and sale agreement.

However, if the Company provides seller

financing, the Company must determine a transaction price,

depending on if the sale contract is at market terms and

taking into

account the credit risk inherent in the arrangement.

Other non-interest income primarily includes items such

as mortgage banking fees (gains from the sale of residential mortgage

loans held for sale), bank-owned life insurance, and

safe deposit box fees none of which are subject to the requirements of

ASC

606.

The Company has made no significant judgments in applying

the revenue guidance prescribed in ASC 606 that affects

the

determination of the amount and timing of revenue from the

above-described contracts with clients.

Accounting Standard Updates

ASU 2019-12,

"Income Taxes

(Topic

740): Simplifying the Accounting for Income Taxes.

ASU 2019-12 simplifies the accounting

for income taxes by eliminating certain exceptions to the

guidance in ASC 740 related to the approach for intra-period

tax

allocation when there is a loss from continuing operations

or a gain from other items and the general methodology for calculating

income taxes in an interim period when a year-to-date

loss exceeds the anticipated loss for the year.

ASU 2019-12 also

simplifies aspects of the accounting for franchise taxes and

enacted changes in tax laws or rates and clarifies the accounting

for

transactions that result in a step-up in the tax basis of

goodwill.

ASU 2019-12 is effective for the Company

on January 1, 2021

and is not expected to have a material impact on

the Company’s consolidated financial

statements.

ASU 2020-01, "Investments - Equity Securities (Topic

321), Investments - Equity Method and Joint Ventures

(Topic

323), and

Derivatives and Hedging (Topic

815).

ASU 2020-01 clarifies the interaction of the accounting for equity

securities under Topic

321 and investments accounted for under the equity method

of accounting in Topic

323 and the accounting for certain forward

contracts and purchased options accounted for under

Topic 815.

ASU 2020-01 is effective for the Company on

January 1, 2021

and is not expected to have a material impact on

the Company’s consolidated financial

statements.

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.

ASU 2020-08, “Codification Improvements

to Subtopic 310-20, Receivables - Nonrefundable

Fees and Other Costs.”

ASU 2020-

08 clarifies the accounting for the amortization

of purchase premiums for callable debt securities with multiple

call dates. ASU

2020-8 will be effective for the Company

on January 1, 2021 and is not expected to have a significant impact

on Company’s

consolidated financial statements.

ASU 2020-09, “Debt (Topic

470): Amendments to SEC Paragraphs Pursuant to SEC Release No.

33-10762.”

ASU 2020-9

amends the ASC to reflect the issuance of an SEC rule

related to financial disclosure requirements for subsidiary issuers and

guarantors of registered debt securities and affiliates

whose securities are pledged as collateral for registered

securities.

ASU 2020-09 will be effective for the Company

on January 4, 2021, concurrent with the effective date

of the SEC release, and is

not expected to have a significant impact on Company’s

consolidated financial statements.

On March 27, 2020, the Coronavirus Aid, Relief, and

Economic Security Act (“CARES Act”) was signed into law.

Section 4013

of the CARES Act, “Temporary

Relief From Troubled Debt Restructurings,”

provides banks the option to temporarily suspend

certain requirements under U.S. GAAP related to troubled

debt restructurings (“TDR”) for a limited period of time

to account for

the effects of COVID-19.

To qualify for

Section 4013 of the CARES Act, borrowers must have been current

at December 31,

2019.

All modifications are eligible as long as they are executed between

March 1, 2020 and the earlier of (i) December 31,

2020, or (ii) the 60th day after the end of the COVID-19

national emergency declared by the President of

the U.S.

Multiple

modifications of the same credits are allowed and

there is no cap on the duration of the modification. See MD&A (Credit

Quality/COVID-19 Exposure) for disclosure of the impact

to date.

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.

2020

2019

Amortize

Unrealize

Market

Amortize

Unrealize

Market

(Dollars in Thousands)

Cost

Gains

Losses

Value

Cost

Gain

Losses

Value

Available for

Sale

U.S. Government Treasury

103,547

972

104,519

231,996

849

232,778

U.S. Government Agency

205,972

2,743

184

208,531

155,706

697

325

156,078

States and Political Subdivisions

3,543

3,632

6,310

6,319

Mortgage-Backed Securities

456

515

693

773

Equity Securities

(1)

7,673

7,653

Total

321,191

3,863

184

324,870

402,358

1,635

392

403,601

Held to Maturity

U.S. Government Treasury

5,001

5,014

20,036

20,042

States and Political Subdivisions

1,376

Mortgage-Backed Securities

164,938

5,223

170,161

218,127

2,064

180

220,011

Total

169,939

5,236

175,175

239,539

2,079

189

241,429

Total Investment

Securities

491,130

9,099

184

500,045

641,897

3,714

581

645,030

(1)

Includes Federal Home Loan Bank and Federal Reserve Bank

recorded at

cost of $

2.9

million and $

4.8

million, respectively,

December 31, 2020 and December 31, 2019.

Securities with an amortized cost of $

308.2

million and $

353.8

million at December 31, 2020 and December 31, 2019,

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 other 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.

Investment Sales

. There were no sales of investment securities for each of the

last three years.

Maturity Distribution

At December 31, 2020, 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 since they are not due at a certain maturity

date.

Available for

Sale

Held to Maturity

Amortized

Market

Amortized

Market

(Dollars in Thousands)

Cost

Value

Cost

Value

Due in one year or less

104,382

105,245

5,001

5,014

Due after one through five years

28,057

28,269

Mortgage-Backed Securities

456

515

164,938

170,161

U.S. Government Agency

180,623

183,168

Equity Securities

7,673

Total

321,191

324,870

169,939

175,175

Unrealized Losses

. The following table summarizes the investment securities

with unrealized losses at December 31, aggregated

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

loss position:

Less Than 12 Months

Greater Than 12 Months

Total

Market

Unrealized

Market

Unrealized

Market

Unrealized

(Dollars in Thousands)

Value

Losses

Value

Losses

Value

Losses

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

December 31, 2019

Available for

Sale

U.S. Government Treasury

9,955

93,310

103,265

U.S. Government Agency

36,361

244

17,364

53,725

325

States and Political Subdivisions

578

Mortgage-Backed Securities

Total

46,902

244

110,674

148

157,576

392

Held to Maturity

U.S. Government Treasury

15,022

States and Political Subdivisions

1,033

Mortgage-Backed Securities

22,581

16,027

138

38,608

180

Total

23,614

31,049

147

54,663

189

At December 31, 2020, there were

available-for-sale (“AFS”) securities with unrealized

losses totaling $

0.2

million.

All of

these positions were U.S. government agency securities

guaranteed by U.S. government sponsored entities.

Because the declines

in the market value of these securities are attributable

to changes in interest rates and not credit quality and because the

Company

has the present ability and intent to hold these investments

until there is a recovery in fair value, which may be at maturity,

the

Company did not record any allowance for credit losses on

any investment securities at December 31, 2020.

Additionally, none

of the AFS or held-to-maturity securities held by the

Company were past due or in nonaccrual status at December 31,

2020.

Credit Quality Indicators

The Company monitors the credit quality of its investment

securities through various risk management procedures, including

the

monitoring of credit ratings.

A majority of the debt securities in the Company’s

investment portfolio were issued by a U.S.

government entity or agency and are either explicitly

or implicitly guaranteed by the U.S. government.

The Company believes

the long history of no credit losses on these securities indicates

that the expectation of nonpayment of the amortized

cost basis is

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

Further, certain municipal securities held

by the Company have

been pre-refunded and secured by government guaranteed

treasuries.

Therefore, for the aforementioned securities, the Company

does not assess or record expected credit losses due to

the zero loss assumption.

The Company monitors the credit quality of its

municipal securities portfolio via credit ratings which are

updated on a quarterly basis.

On a quarterly basis, municipal securities

in an unrealized loss position are evaluated to determine

if the loss is attributable to credit related factors and if an

allowance for

credit loss is needed.

Note 3

LOANS HELD FOR INVESTMENT AND ALLOWANCE

FOR CREDIT LOSSES

Loan Portfolio Composition

The composition of the HFI loan portfolio at December

31 was as follows:

(Dollars in Thousands)

2020

2019

Commercial, Financial and Agricultural

393,930

255,365

Real Estate – Construction

135,831

115,018

Real Estate – Commercial Mortgage

648,393

625,556

Real Estate – Residential

(1)

352,543

361,450

Real Estate – Home Equity

205,479

197,360

Consumer

(2)

270,250

281,180

Loans Held for Investment, Net of Unearned Income

2,006,426

1,835,929

(1)

Includes loans in process with outstanding

balances of $

10.9

million and $

8.3

million for 2020 and 2019, respectively.

(2)

Includes overdraft balances of $

0.7

million and $

1.6

million for December 31, 2020 and 2019, respectively.

Net deferred fees, which include premiums on purchased

loans, included in loans were $

0.1

million at December 31, 2020 and net

deferred costs were $

1.8

million at December 31, 2019.

Net deferred fees at December 31, 2020 included $

3.2

million in net fees

for SBA PPP loans.

Accrued interest receivable on loans which is excluded

from amortized cost totaled $

6.9

million at December 31, 2020 and $

5.5

million at December 31, 2019, and is reported separately

in Other Assets.

The Company has pledged a blanket floating lien on all 1-4

family residential mortgage loans, commercial real estate mortgage

loans, and home equity loans to support available borrowing

capacity at the FHLB of Atlanta and has pledged a blanket

floating

lien on all consumer loans, commercial loans, and construction

loans to support available borrowing capacity at the Federal

Reserve Bank of Atlanta.

Loan Purchases

The Company will periodically purchase newly originated 1-4

family real estate secured adjustable rate loans

from CCHL, a related party effective on

March 1, 2020 (see Note 1 – Significant Accounting Policies).

Loan purchases totaled

48.4

million and $

25.2

million for the years ended December 31, 2020 and December

31, 2019, respectively,

and were not credit

impaired.

Allowance for Loan Losses

The methodology for estimating the amount of credit

losses reported in the allowance for credit

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

component involving loans that do not share risk characteristics

and the measurement of expected credit losses for

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

credit

losses for pools of loans that share similar risk characteristics.

This methodology is discussed further in Note 1 – Significant

Accounting Policies.

The following table details the activity in the allowance

for credit losses by portfolio segment for the year

ended December 31.

Allocation of a portion of the allowance to one category

of loans does not preclude its availability to absorb

losses in other

categories.

Commercial

Real Estate

Financial,

Real Estate

Commercial

Real Estate

(Dollars in Thousands)

Agricultural

Construction

Mortgage

Residential

Home Equity

Consumer

Total

2020

Beginning Balance

1,675

370

3,416

3,128

2,224

3,092

13,905

Impact of Adopting ASC

326

488

302

1,458

1,243

374

(596)

3,269

Provision for Credit Losses

578

1,757

1,865

940

486

3,409

9,035

Charge-Offs

(789)

(28)

(150)

(151)

(5,042)

(6,160)

Recoveries

252

318

279

178

2,690

3,767

Net Charge-Offs

(537)

290

129

(2,352)

(2,393)

Ending Balance

2,204

2,479

7,029

5,440

3,111

3,553

23,816

2019

Beginning Balance

1,434

280

4,181

3,400

2,301

2,614

14,210

Provision for Credit Losses

664

371

(1,129)

(301)

178

2,244

2,027

Charge-Offs

(768)

(281)

(214)

(400)

(430)

(2,878)

(4,971)

Recoveries

345

578

429

175

1,112

2,639

Net Charge-Offs

(423)

(281)

364

(255)

(1,766)

(2,332)

Ending Balance

1,675

370

3,416

3,128

2,224

3,092

13,905

2018

Beginning Balance

1,191

122

4,346

3,206

2,506

1,936

13,307

Provision for Credit Losses

428

139

(223)

331

137

2,109

2,921

Charge-Offs

(644)

(7)

(315)

(780)

(533)

(2,395)

(4,674)

Recoveries

459

373

643

191

964

2,656

Net Charge-Offs

(185)

(137)

(342)

(1,431)

(2,018)

Ending Balance

1,434

280

4,181

3,400

2,301

2,614

14,210

On January 1, 2020, we adopted ASC 326 and recorded

a pre-tax cumulative effect transition adjustment of $

3.3

million.

The

adoption of ASC 326 is discussed further in Note 1

– Significant Accounting Policies/Adoption of New Accounting

Standards.

For the year ended December 31, 2020, the provision

for credit losses totaled $

9.0

million for held for investment loans and net

loan charge-offs totaled $

2.4

million.

See Note 21 – Commitments and Contingencies for information

on the provision for credit

losses related to off-balance sheet commitments.

The $

6.6

million build (provision of $9.0 million less net charge-offs

of $2.4

million) in the allowance for credit losses for 2020 was attributable

to a deterioration in economic conditions, primarily a high

rate of unemployment due to the COVID-19 pandemic

and its potential effect on rates of default.

Three unemployment rate

forecast scenarios were utilized to estimate probability

of default and were weighted based on management’s

estimate of

probability.

The mitigating impact of the unprecedented fiscal stimulus, including

direct payments to individuals, increased

unemployment benefits, as well as various government

sponsored loan programs, was also considered.

Loan Portfolio Aging.

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

due or a contractual maturity is over 30

days past due (“DPD”).

The following table presents the aging of the amortized cost

basis in accruing past due loans by class of loans at December

31,

30-59

60-89

90 +

Total

Nonaccrual

Total

(Dollars in Thousands)

DPD

Past Due

Current

Loans

2020

Commercial, Financial and Agricultural

194

124

318

393,451

161

393,930

Real Estate – Construction

717

134,935

179

135,831

Real Estate – Commercial Mortgage

293

646,688

1,412

648,393

Real Estate – Residential

375

530

905

348,508

3,130

352,543

Real Estate – Home Equity

325

138

463

204,321

695

205,479

Consumer

1,556

342

1,898

268,058

294

270,250

Total Past Due Loans

2,743

1,851

4,594

1,995,961

5,871

2,006,426

2019

Commercial, Financial and Agricultural

489

191

680

254,239

446

255,365

Real Estate – Construction

300

310

114,708

115,018

Real Estate – Commercial Mortgage

148

232

623,890

1,434

625,556

Real Estate – Residential

629

196

825

359,233

1,392

361,450

Real Estate – Home Equity

155

175

196,388

797

197,360

Consumer

2,000

649

2,649

278,128

403

281,180

Total Past Due Loans

3,721

1,150

4,871

1,826,586

4,472

1,835,929

Nonaccrual Loans

Loans are generally placed on nonaccrual status if principal or

interest payments become 90 days past due

and/or management deems the collectability of the

principal and/or interest to be doubtful.

Loans are returned to accrual status

when the principal and interest amounts contractually due

are brought current or when future payments are reasonably

assured.

The following table presents the amortized cost basis of loans in

nonaccrual status and loans past due over 90 days and

still on

accrual by class of loans.

2020

2019

Nonaccrual

90 + Days

Nonaccrual

90 + Days

With No

With

Still

With No

With

Still

(Dollars in Thousands)

ACL

Accruing

ACL

Accruing

Commercial, Financial and Agricultural

161

446

Real Estate – Construction

179

Real Estate – Commercial Mortgage

1,075

337

958

476

Real Estate – Residential

1,513

1,617

227

1,165

Real Estate – Home Equity

695

797

Consumer

294

403

Total Nonaccrual

Loans

2,588

3,283

1,185

3,287

The Company recognized $

52,000

and $

35,000

of interest income on nonaccrual loans for the years ended

December 31, 2020

and December 31, 2019, respectively.

Collateral Dependent Loans

The following table presents the amortized cost basis of collateral

dependent loans at December 31:

2020

Real Estate

Non Real Estate

(Dollars in Thousands)

Secured

Real Estate – Commercial Mortgage

3,900

Real Estate – Residential

3,022

Real Estate – Home Equity

219

Consumer

Total

7,141

A loan is collateral dependent when the borrower is experiencing

financial difficulty and repayment of the loan

is dependent on

the sale or operation of the underlying collateral.

The Bank’s collateral dependent

loan portfolio is comprised primarily of real estate secured loans,

collateralized by either

residential or commercial collateral types.

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

by either

independent appraisals or internal evaluations, adjusted for

selling costs or other amounts to be deducted when estimating

expected net sales proceeds.

Residential Real Estate Loans In Process

of Foreclosure

At December 31, 2020 and December 31, 2019, the Company

had $

1.6

million and $

1.2

million, respectively,

in 1-4 family residential real estate loans for which formal

foreclosure proceedings were in

process.

Troubled

Debt Restructurings (“TDRs”)

TDRs are loans in which the borrower is experiencing

financial difficulty and the

Company has granted an economic concession to the borrower

that it would not otherwise consider.

In these instances, as part of

a work-out alternative, the Company will make concessions

including the extension of the loan term, a principal moratorium,

reduction in the interest rate, or a combination thereof.

The impact of the TDR modifications and defaults are factored

into the

allowance for credit losses on a loan-by-loan basis.

Thus, specific reserves are established based upon the results of

either a

discounted cash flow analysis or the underlying collateral

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

A TDR

classification can be removed if the borrower’s

financial condition improves such that the borrower is no longer

in financial

difficulty,

the loan has not had any forgiveness of principal or interest,

and the loan is subsequently refinanced or restructured at

market terms and qualifies as a new loan.

At December 31, 2020, the Company had $

14.3

million in TDRs, of which $

13.9

million were performing in accordance with the

modified terms.

At December 31, 2019 the Company had $

17.6

million in TDRs, of which $

16.9

million were performing in

accordance with modified terms.

For TDRs, the Company estimated $

0.6

million and $

1.5

million of credit loss reserves at

December 31, 2020 and December 31, 2019, respectively.

The modifications made to TDRs involved either an

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

rate, or a combination thereof.

For the year ended December 31, 2020, there were

three

loans modified with a recorded

investment of $

0.2

million.

For the year ended December 31, 2019, there were

seven

loans modified with a recorded investment

of $

0.5

million.

For the year ended December 31, 2018, there were

six

loans modified with a recorded investment of $

0.7

million.

The financial impact of these modifications was not material.

For the years ended December 31, 2020 and December

31, 2019, there were

loans classified as TDRs, for which there was a

payment default and the loans were modified within

the 12 months prior to default.

Credit Risk Management

The Company has adopted comprehensive lending policies, underwriting

standards and loan review

procedures designed to maximize loan income within

an acceptable level of risk.

Management and the Board of Directors review

and approve these policies and procedures on a regular

basis (at least annually).

Reporting systems are used to monitor loan originations,

loan quality, concentrations

of credit, loan delinquencies and

nonperforming loans and potential problem loans.

Management and the Credit Risk Oversight Committee periodically

review

our lines of business to monitor asset quality trends

and the appropriateness of credit policies.

In addition, total borrower

exposure limits are established and concentration risk

is monitored.

As part of this process, the overall composition of the

portfolio is reviewed to gauge diversification of risk,

client concentrations, industry group, loan type, geographic

area, or other

relevant classifications of loans.

Specific segments of the loan portfolio are monitored

and reported to the Board on a quarterly

basis and have strategic plans in place to supplement

Board approved credit policies governing exposure limits and

underwriting

standards.

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

loan portfolio and risk characteristics unique to each.

Commercial, Financial, and Agricultural – Loans in

this category are primarily made based on identified cash flows of the

borrower with consideration given to underlying collateral

and personal or other guarantees.

Lending policy establishes debt

service coverage ratio limits that require a borrower’s

cash flow to be sufficient to cover principal and

interest payments on all

new and existing debt.

The majority of these loans are secured by the assets being

financed or other business assets such as

accounts receivable, inventory,

or equipment.

Collateral values are determined based upon third party appraisals and

evaluations.

Loan to value ratios at origination are governed by established

policy guidelines.

Real Estate Construction – Loans in this category

consist of short-term construction loans, revolving and non-revolving credit

lines and construction/permanent loans made to individuals and

investors to finance the acquisition, development, construction or

rehabilitation of real property.

These loans are primarily made based on identified cash

flows of the borrower or project and

generally secured by the property being financed, including

1-4 family residential properties and commercial properties

that are

either owner-occupied or investment in nature.

These properties may include either vacant or improved property.

Construction

loans are generally based upon estimates of costs and value

associated with the completed project.

Collateral values are

determined based upon third party appraisals and evaluations.

Loan to value ratios at origination are governed by established

policy guidelines.

The disbursement of funds for construction loans is made

in relation to the progress of the project and as such

these loans are closely monitored by on-site inspections.

Real Estate Commercial Mortgage – Loans in this category

consists of commercial mortgage loans secured by property

that is

either owner-occupied or investment in nature.

These loans are primarily made based on identified cash

flows of the borrower or

project with consideration given to underlying real

estate collateral and personal guarantees.

Lending policy establishes debt

service coverage ratios and loan to value ratios specific to

the property type.

Collateral values are determined based upon third

party appraisals and evaluations.

Real Estate Residential – Residential mortgage loans held

in the Company’s loan portfolio

are made to borrowers that

demonstrate the ability to make scheduled payments

with full consideration to underwriting factors such as current

income,

employment status, current assets, and other financial resources,

credit history,

and the value of the collateral.

Collateral consists

of mortgage liens on 1-4 family residential properties.

Collateral values are determined based upon third party

appraisals and

evaluations.

The Company does not originate sub-prime loans.

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

to qualified individuals for legitimate purposes generally

secured by senior or junior mortgage liens on owner-occupied

1-4 family homes or vacation homes.

Borrower qualifications

include favorable credit history combined with supportive

income and debt ratio requirements and combined loan to value ratios

within established policy guidelines.

Collateral values are determined based upon third party appraisals and

evaluations.

Consumer Loans – This loan portfolio includes personal

installment loans, direct and indirect automobile financing, and

overdraft

lines of credit.

The majority of the consumer loan portfolio consists of indirect

and direct automobile loans.

Lending policy

establishes maximum debt to income ratios, minimum

credit scores, and includes guidelines for verification of applicants’ income

and receipt of credit reports.

Credit Quality Indicators

As part of the ongoing monitoring of the Company’s

loan portfolio quality,

management categorizes

loans into risk categories based on relevant information

about the ability of borrowers to service their debt such

as: current

financial information, historical payment performance,

credit documentation, and current economic and market trends,

among

other factors.

Risk ratings are assigned to each loan and revised as needed

through established monitoring procedures for

individual loan relationships over a predetermined

amount and review of smaller balance homogenous loan pools.

The Company

uses the definitions noted below for categorizing

and managing its criticized loans.

Loans categorized as “Pass” do not meet the

criteria set forth below and are not considered criticized.

Special Mention – Loans in this category are presently

protected from loss, but weaknesses are apparent which, if

not corrected,

could cause future problems.

Loans in this category may not meet required underwriting

criteria and have no mitigating

factors.

More than the ordinary amount of attention is warranted for these

loans.

Substandard – Loans in this category exhibit well-defined

weaknesses that would typically bring normal repayment into

jeopardy.

These loans are no longer adequately protected due

to well-defined weaknesses that affect the repayment

capacity of the

borrower.

The possibility of loss is much more evident and above average

supervision is required for these loans.

Doubtful – Loans in this category have all the weaknesses inherent

in a loan categorized as Substandard, with the characteristic

that the weaknesses make collection or liquidation in full,

on the basis of currently existing facts, conditions, and

values, highly

questionable and improbable.

Performing/Nonperforming – Loans within certain

homogenous loan pools (home equity and consumer) are not

individually

reviewed, but are monitored for credit quality via the aging

status of the loan and by payment activity.

The performing or

nonperforming status is updated on an on-going basis dependent

upon improvement and deterioration in credit quality.

The following table summarizes gross loans held for

investment at December 31, 2020 by years of origination and

internally

assigned credit risk ratings (refer to Credit Risk Management

section for detail on risk rating system).

Term Loans by Origination Year

Revolving

(Dollars in Thousands)

2020

2019

2018

2017

2016

Prior

Loans

Total

Commercial, Financial,

Agricultural:

Pass

231,805

45,651

35,866

15,212

13,321

10,051

41,214

393,120

Special Mention

Substandard

195

289

145

720

Total

231,817

45,850

36,183

15,357

13,371

10,129

41,223

393,930

Real Estate -

Construction:

Pass

71,173

51,634

7,369

1,592

2,635

134,403

Substandard

1,428

Total

71,173

53,062

7,369

1,592

2,635

135,831

Real Estate - Commercial

Mortgage:

Pass

156,011

93,424

131,180

78,474

45,507

88,397

19,933

612,926

Special Mention

4,165

8,932

9,249

244

379

6,172

397

29,538

Substandard

570

130

137

2,687

1,883

494

5,929

Total

160,746

102,486

140,566

81,405

45,914

96,452

20,824

648,393

Real Estate - Residential:

Pass

100,704

66,893

42,884

40,205

19,231

66,119

6,706

342,742

Special Mention

141

126

175

236

446

1,148

Substandard

1,257

1,800

1,377

837

890

2,492

8,653

Total

102,102

68,717

44,387

41,217

20,357

69,057

6,706

352,543

Real Estate - Home

Equity:

Performing

1,385

313

244

830

183

2,238

199,591

204,784

Nonperforming

695

Total

1,385

313

244

830

183

2,238

200,286

205,479

Consumer:

Performing

105,551

69,941

51,513

24,613

10,639

2,472

5,227

269,956

Nonperforming

109

294

Total

105,612

70,050

51,562

24,613

10,647

2,539

5,227

270,250

Note 4

MORTGAGE BANKING ACTIVITIES

Pursuant to the Brand acquisition on March 1, 2020,

the Company’s mortgage banking

activities at its subsidiary Capital City

Homes Loans have expanded to include mandatory

delivery loan sales, forward sales contracts used to manage

residential loan

pipeline price risk, utilization of warehouse lines to fund

secondary market residential loan closings, and residential mortgage

servicing.

Information provided below reflects CCHL activities post acquisition for

the period March 1, 2020 to December 31,

2020 and CCB legacy residential real estate activities for the

period January 1, 2020 to March 1, 2020.

Residential Mortgage Loan Production

The Company originates, markets, and services conventional

and government-sponsored residential mortgage

loans.

Generally,

conforming fixed rate residential mortgage loans are held

for sale in the secondary market and non-conforming and

adjustable-

rate residential mortgage loans may be held for investment.

The volume of residential mortgage loans originated

for sale and

secondary market prices are the primary drivers of origination

revenue.

Residential mortgage loan commitments are generally outstanding

for 30 to 90 days, which represents the typical period from

commitment to originate a residential mortgage loan to

when the closed loan is sold to an investor.

Residential mortgage loan

commitments are subject to both credit and price risk.

Credit risk is managed through underwriting policies and

procedures,

including collateral requirements, which are generally

accepted by the secondary loan markets.

Price risk is primarily related to

interest rate fluctuations and is partially managed through

forward sales of residential mortgage-backed securities (primarily

to-be

announced securities, or TBAs) or mandatory delivery commitments

with investors.

The unpaid principal balance of residential mortgage loans

held for sale, notional amounts of derivative contracts

related to

residential mortgage loan commitments and forward contract sales and

their related fair values are set forth below.

December 31, 2020

Unpaid Principal

(Dollars in Thousands)

Balance/Notional

Fair Value

Residential Mortgage Loans Held for Sale

109,831

114,039

Residential Mortgage Loan Commitments ("IRLCs")

(1)

147,494

4,825

Forward Sales Contracts

(2)

158,500

(907)

117,957

(1)

Recorded in other assets at fair value

(2)

Recorded in other liabilities at fair value

Residential mortgage loans held for sale that were

90 days or more outstanding or on nonaccrual totaled $

0.6

million at December

31, 2020.

Mortgage banking revenues for the year ended December

31, was as follows:

(Dollars in Thousands)

2020

Net realized gains on sales of mortgage loans

59,709

Net change in unrealized gain on mortgage loans held

for sale

2,926

Net change in the fair value of mortgage loan commitments

(IRLCs)

2,625

Net change in the fair value of forward sales contracts

284

Pair-Offs on net settlement of forward

sales contracts

(9,602)

Mortgage servicing rights additions

3,448

Net origination fees

3,954

Total mortgage

banking revenues

63,344

Residential Mortgage Servicing

The Company may retain the right to service residential

mortgage loans sold.

The unpaid principal balance of loans serviced for

others is the primary driver of servicing revenue.

The following represents a summary of mortgage

servicing rights.

(Dollars in Thousands)

2020

Number of residential mortgage loans serviced for others

1,796

Outstanding principal balance of residential mortgage

loans serviced for others

456,135

Weighted average

interest rate

3.64%

Remaining contractual term (in months)

321

Conforming conventional loans serviced by the Company

are sold to FNMA on a non-recourse basis, whereby foreclosure

losses

are generally the responsibility of FNMA and not the

Company.

The government loans serviced by the Company are secured

through GNMA, whereby the Company is insured

against loss by the Federal Housing Administration or partially guaranteed

against loss by the Veterans

Administration.

At December 31, 2020, the servicing portfolio balance consisted

of the following

loan types: FNMA (

%), GNMA (

%), and private investor (

%).

FNMA and private investor loans are structured as

actual/actual payment remittance.

At December 31, 2020, delinquent residential mortgage

loans currently in GNMA pools serviced by the Company totaled $

4.9

million.

The right to repurchase these loans and the corresponding liability

has been recorded in other assets and other liabilities,

respectively, in

the Consolidated Statements of Financial Condition.

Activity in the capitalized mortgage servicing rights for the

year ended December 31, was as follows:

(Dollars in Thousands)

2020

Beginning balance

910

Additions due to loans sold with servicing retained

3,448

Deletions and amortization

(656)

Valuation

Provision (temporary impairment)

(250)

Ending balance

3,452

The Company had

permanent impairment losses on its mortgage servicing

rights for the year ended December 31, 2020.

At December 31, 2020, the key unobservable inputs used

in determining the fair value of the Company’s

mortgage servicing

rights were as follows:

Minimum

Maximum

Discount rates

11.00%

15.00%

Annual prepayment speeds

13.08%

23.64%

Cost of servicing (basis points)

110

Changes in residential mortgage interest rates directly

affect the prepayment speeds used in valuing the Company’s

mortgage

servicing rights.

A separate third party model is used to estimate prepayment speeds

based on interest rates, housing turnover

rates, estimated loan curtailment, anticipated defaults, and

other relevant factors.

The weighted average annual prepayment speed

was

17.10

% at December 31, 2020.

Warehouse

Line Borrowings

The Company has the following warehouse lines of

credit and master repurchase agreements with various financial institutions

December 31, 2020.

Amounts

(Dollars in Thousands)

Outstanding

million warehouse line of credit agreement expiring

October 2021

Interest is at LIBOR plus

2.25%

, with a

floor rate of

3.50%

A cash pledge deposit of $

0.1

million is required by the lender.

11,256

million master repurchase agreement without defined expiration.

Interest is at the LIBOR plus

2.24%

3.00%

, with a floor rate of

3.25%

A cash pledge deposit of $

0.5

million is required by the lender.

39,985

million warehouse line of credit agreement expiring in

September 2021

Interest is at the LIBOR plus

2.75%

23,541

74,782

Warehouse

line borrowings are classified as short-term borrowings.

At December 31, 2020, the Company had mortgage loans

held for sale pledged as collateral under the above

warehouse lines of credit and master repurchase agreements.

The above

agreements also contain covenants which include

certain financial requirements, including maintenance of minimum

tangible net

worth, minimum liquid assets, maximum debt to

net worth ratio and positive net income, as defined in the agreements.

The

Company was in compliance with all significant debt

covenants at December 31, 2020.

The Company intends to renew the warehouse lines of

credit and master repurchase agreements when they mature

The Company has extended a $

million warehouse line of credit to CCHL, a

% owned subsidiary entity.

Balances and

transactions under this line of credit are eliminated

in the Company’s consolidated

financial statements and thus not included in

the total short term borrowings noted on the consolidated

statement of financial condition.

The balance of this line of credit at

December 31, 2020 was $

30.0

million.

Note 5

DERIVATIVES

The Company enters into derivative financial instruments to manage

exposures that arise from business activities that result in the

receipt or payment of future known and uncertain cash

amounts, the value of which are determined by interest rates.

The

Company’s derivative

financial instruments are used to manage differences

in the amount, timing, and duration of the Company’s

known or expected cash receipts and its known

or expected cash payments principally related to the Company’s

subordinated

debt.

Cash Flow Hedges of Interest Rate Risk

Interest rate swaps with notional amounts totaling

million at December 31, 2020 were designed as a cash

flow hedge for

subordinated debt.

Under the swap arrangement, the Company will pay a

fixed interest rate of

2.50

% and receive a variable

interest rate based on three-month LIBOR plus a weighted

average margin of

1.83

For derivatives designated and that qualify as cash

flow hedges of interest rate risk, the gain or loss on the

derivative is recorded

in accumulated other comprehensive income (“AOCI”)

and subsequently reclassified into interest expense in the same

period(s)

during which the hedged transaction affects earnings.

Amounts reported in accumulated other comprehensive income

related to

derivatives will be reclassified to interest expense as

interest payments are made on the Company’s

variable-rate subordinated

debt.

The following table reflects the cash flow hedges included

in the consolidated statements of financial condition at

December 31,

2020.

Notional

Fair

Balance Sheet

Weighted Ave

rage

(Dollars in Thousands)

Amount

Value

Location

Maturity (Years)

Interest rate swaps related to subordinated debt

30,000

574

Other Assets

9.5

The following table presents the net gains (losses) recorded

in accumulated other comprehensive income and the

consolidated

statements of income related to the cash flow derivative

instruments (interest rate swaps related to subordinated debt) for the

year

ended December 31, 2020.

Amount of Gain

(Loss) Recognized

(Loss) Reclassified

(Dollars in Thousands)

in AOCI

Capital City Bank Group - 10-K annual report 2020

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