ccbg-20260630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,

D.C.

20549

FORM

10-Q

☒

QUARTERLY REPORT

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

For the Quarterly Period Ended

June 30, 2026

☐

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

For the transition period from ____________ to ____________

Commission File Number:

0-13358

Capital City Bank Group, Inc.

(Exact name of Registrant as specified in its charter)

Florida

59-2273542

(State or other jurisdiction of incorporation or organization)

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

217 North Monroe Street

Tallahassee

Florida

32301

(Address of principal executive office)

(Zip Code)

(

850

)

402-7821

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, Par value $0.01

CCBG

Nasdaq Stock Market

, LLC

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

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

filing requirements for the past 90 days.

Yes

[X]

No [

]

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

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

such files).

Yes

[X]

No [

]

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

an emerging growth company.

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

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

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

☐

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

] No

[X]

At July 27, 2026,

17,113,297

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

CAPITAL CITY BANK

GROUP,

INC.

QUARTERLY

REPORT ON FORM 10-Q

FOR THE PERIOD ENDED JUNE 30, 2026

TABLE OF CONTENTS

PART I –

Financial Information

Page

Item 1.

Consolidated Financial Statements (Unaudited)

Consolidated Statements of Financial Condition – June 30, 2026 and December 31, 2025

Consolidated Statements of Income – Three and Six Months Ended June 30, 2026 and 2025

Consolidated Statements of Comprehensive Income (Loss) – Three and Six Months Ended June 30, 2026 and 2025

Consolidated Statements of Changes in Shareowners’ Equity – Three and Six Months Ended June 30, 2026 and 2025

Consolidated Statements of Cash Flows – Six Months Ended June 30, 2026 and 2025

Notes to Consolidated Financial Statements

Item 2.

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

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

Item 4.

Controls and Procedures

PART II –

Other Information

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosure

Item 5.

Other Information

Item 6.

Exhibits

Signatures

INTRODUCTORY NOTE

Special Cautionary Notice Regarding Forward-Looking Statements

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

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

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

which are beyond our control.

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

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

“target,” “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.

Forward-looking statements are based on current

assumptions and expectations that are subject to change and may prove to be inaccurate.

Our actual future results may differ materially from

those set forth in our forward-looking statements.

Our

ability

achieve

our

financial

objectives

could

adversely

affected

the

factors

discussed

detail

Part

II,

Item

1A.

“Risk

Factors” in this Quarterly Report on Form 10-Q and in Part I, Item 1A. “Risk Factors” in our Annual Report on

Form 10-K for the year ended

December 31,

2025

(the “2025

Form 10-K”),

as updated

in our

subsequent

quarterly reports

filed on

Form 10-Q,

as well

as,

among other

factors:

●

Changes in trade, monetary, and fiscal policies and laws, including

actual changes in interest rates and the Fed Funds rate and

changes in international trade policies, tariffs and treaties affecting imports and exports, and their related impacts on

macroeconomic conditions, customer behavior, funding costs and loan and securities portfolios;

●

Inflation, interest rate, market and monetary fluctuations;

●

Local, regional, national, and international economic conditions (including the value of the U.S. Dollar in relation to the

currencies of other advanced and emerging market countries and the performance of both domestic and international equity

and debt markets and valuation of securities traded on recognized domestic and international exchanges), and the impact they

may have on us and our clients and our assessment of that impact;

●

Supply-demand imbalances and general economic conditions affecting local real estate prices and a general deterioration in

commercial real estate market fundamentals;

●

The costs and effects of legal and regulatory developments, the outcomes of legal proceedings or regulatory or other

governmental inquiries, the results of regulatory examinations or reviews and the ability to obtain required regulatory

approvals;

●

The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, and

insurance) and their application with which we and our subsidiaries must comply;

●

The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as other

accounting standard setters;

●

The accuracy of our financial statement estimates and assumptions;

●

Changes in the creditworthiness, financial performance and/or condition of our borrowers;

●

Changes in the mix of loan geographies, sectors and types or the level of non-performing assets and charge-offs;

●

Changes in estimates of future credit loss reserve requirements based upon the periodic review thereof under relevant

regulatory and accounting requirements;

●

Changes in our liquidity position;

●

Changes in our capital levels, capital requirements or our ability to maintain adequate regulatory capital ratios;

●

The timely development and acceptance of new products and services as well as risks (including reputational and litigation)

attendant thereto, and perceived overall value of these products and services by users;

●

Changes in consumer spending, borrowing, and saving habits;

●

Changes in deposit levels, deposit mix, pricing, or the availability and cost of other funding sources;

●

Greater than expected costs or difficulties related to the integration of new products and lines of business;

●

Increased competition and its effect on deposit fees;

●

Technological changes;

●

Risks associated with the development and use of artificial intelligence;

●

The cost and effects of cyber incidents or other failures, interruptions, or security breaches of our systems or those of our

customers or third-party providers;

●

Fraud or misconduct by internal or external parties which we may not be able to prevent, detect or mitigate;

●

Dispositions, acquisitions and integration of acquired businesses;

●

Impairment of our goodwill or other intangible assets;

●

Changes in the reliability of our vendors, internal control systems, or information systems;

●

Our ability to increase market share and control expenses;

●

Our ability to attract and retain qualified employees;

●

Changes in our organization, compensation, and benefit plans;

●

The soundness of other financial institutions;

●

Volatility

and disruption in national and international financial and commodity markets;

●

Changes in the competitive environment in our markets and among banking organizations and other financial service

providers;

●

Action or inaction by the federal government, including as a result of any prolonged government shutdown or government

intervention in the U.S. financial system;

●

A deterioration of the credit rating for U.S. long-term sovereign debt, actions that the U.S. government may take to avoid

exceeding the debt ceiling, and uncertainties surrounding the federal budget and economic policy;

●

The effects of natural disasters (including hurricanes), widespread health emergencies (including pandemics), military conflict

(including impacts related to the conflicts in the Middle East and resulting disruptions to energy and other commodities

markets and supply chains),

terrorism, civil unrest, climate change or other geopolitical events;

●

Our ability to declare and pay dividends;

●

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

●

Any inability to implement and maintain effective internal control over financial reporting and/or disclosure control;

●

Potential claims, damages, penalties, fines, costs and reputational damage resulting from pending or future litigation,

regulatory proceedings and enforcement actions;

●

Negative publicity and the impact on our reputation; including the speed and scale at which information can spread through

social media or digital channels, which could amplify adverse market or customer reactions; and

●

The limited trading activity and concentration of ownership of our common stock.

However, other factors besides those listed in

Item 1A Risk Factors

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

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

Any forward-looking

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

We do not undertake to update any forward-looking

statement, except as required by applicable law.

PART

FINANCIAL INFORMATION

Item 1.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF FINANCIAL CONDITION

(Unaudited)

June 30,

December 31,

(Dollars in Thousands, Except Par Value)

2026

2025

ASSETS

Cash and Due From Banks

67,124

62,189

Federal Funds Sold and Interest Bearing Deposits

412,609

467,782

Total Cash and Cash Equivalents

479,733

529,971

Investment Securities, Available

for Sale, at fair value (amortized cost of $

872,397

and $

656,546

)

853,608

643,922

Investment Securities, Held to Maturity (fair value of $

294,070

and $

369,320

)

304,460

377,446

Equity Securities

2,068

2,069

Total Investment

Securities

1,160,136

1,023,437

Loans Held For Sale, at fair value

34,278

21,695

Loans Held for Investment

2,499,871

2,546,118

Allowance for Credit Losses

(31,007)

(31,001)

Loans Held for Investment, Net

2,468,864

2,515,117

Premises and Equipment, Net

81,148

79,457

Goodwill

89,095

Other Real Estate Owned

3,424

1,936

Other Assets

133,805

125,057

Total Assets

4,450,483

4,385,765

LIABILITIES

Deposits:

Noninterest Bearing Deposits

1,344,694

1,251,886

Interest Bearing Deposits

2,376,315

2,410,426

Total Deposits

3,721,009

3,662,312

Short-Term

Borrowings

46,907

50,092

Subordinated Notes Payable

33,303

42,582

Other Long-Term

Borrowings

567

680

Other Liabilities

78,602

77,248

Total Liabilities

3,880,388

3,832,914

SHAREOWNERS’ EQUITY

Preferred Stock, $

0.01

par value;

3,000,000

shares authorized;

shares issued and outstanding

Common Stock, $

0.01

par value;

90,000,000

shares authorized;

17,111,077

and

17,084,386

shares issued and outstanding at June 30, 2026 and December 31, 2025, respectively

171

Additional Paid-In Capital

40,821

41,650

Retained Earnings

531,291

508,443

Accumulated Other Comprehensive (Loss) Income, net of tax

(2,188)

2,587

Total Shareowners’

Equity

570,095

552,851

Total Liabilities and Shareowners’

Equity

4,450,483

4,385,765

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF INCOME

(Unaudited)

Three Months Ended

June 30,

Six Months Ended

June 30,

(Dollars in Thousands, Except Per Share

Data)

2026

2025

2026

2025

INTEREST INCOME

Loans, including Fees

38,212

40,872

76,466

81,350

Investment Securities:

Taxable

10,249

6,666

19,291

12,469

Tax Exempt

Funds Sold and Interest Bearing Deposits

3,366

3,909

7,077

7,405

Total Interest Income

51,838

51,459

102,858

101,241

INTEREST EXPENSE

Deposits

6,933

7,405

14,328

14,788

Short-Term

Borrowings

410

335

810

616

Subordinated Notes Payable

288

530

686

1,090

Other Long-Term

Borrowings

Total Interest Expense

7,640

8,275

15,843

16,510

NET INTEREST INCOME

44,198

43,184

87,015

84,731

Provision for Credit Losses

919

620

1,631

1,388

Net Interest Income After Provision For Credit Losses

43,279

42,564

85,384

83,343

NONINTEREST INCOME

Deposit Fees

5,656

5,320

11,254

10,381

Bank Card Fees

3,858

3,774

7,488

7,288

Wealth Management

Fees

4,185

5,206

8,236

10,969

Mortgage Banking Revenues

4,660

4,190

8,912

8,010

Other

2,240

1,524

4,642

3,273

Total Noninterest

Income

20,599

20,014

40,532

39,921

NONINTEREST EXPENSE

Compensation

25,836

26,490

51,539

52,738

Occupancy, Net

7,319

7,071

14,402

13,864

Other

9,485

8,977

18,072

14,637

Total Noninterest

Expense

42,640

42,538

84,013

81,239

INCOME BEFORE INCOME TAXES

21,238

20,040

41,903

42,025

Income Tax Expense

4,961

4,996

9,809

10,123

NET INCOME

16,277

15,044

32,094

31,902

BASIC NET INCOME PER SHARE

0.95

0.88

1.88

1.87

DILUTED NET INCOME PER SHARE

0.95

0.88

1.87

Average Common

Basic Shares Outstanding

17,101

17,056

17,115

17,042

Average Common

Diluted Shares Outstanding

17,126

17,088

17,133

17,067

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

(Dollars in Thousands)

2026

2025

2026

2025

NET INCOME

16,277

15,044

32,094

31,902

Other comprehensive income, before

tax:

Investment Securities:

Change in net unrealized loss on securities available for sale

(3,130)

2,737

(6,163)

7,744

Amortization of unrealized losses on securities transferred from

available for sale to held to maturity

344

164

842

Derivative:

Change in net unrealized gain on effective cash flow

derivative

(485)

(1,189)

Amortization of terminated cash flow derivative gain

(200)

(398)

Other comprehensive (loss) income, before

tax

(3,274)

2,596

(6,397)

7,397

Deferred tax (benefit) expense related to other comprehensive (loss) income

(831)

649

(1,622)

1,851

Other comprehensive (loss) income, net of tax

(2,443)

1,947

(4,775)

5,546

TOTAL COMPREHENSIVE

INCOME

13,834

16,991

27,319

37,448

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF CHANGES IN SHAREOWNERS’ EQUITY

(Unaudited)

Accumulated

Other

Additional

Comprehensive

Common

Paid-In

Retained

Income (Loss),

(Dollars In Thousands, Except Share Data)

Outstanding

Stock

Capital

Earnings

Net of Taxes

Total

Balance, April 1, 2026

17,097,636

171

39,854

519,632

255

559,912

Net Income

16,277

Other Comprehensive Loss, net of tax

(2,443)

Cash Dividends ($

0.2700

per share)

(4,618)

Stock Based Compensation

415

Stock Compensation Plan Transactions, net

13,441

552

Balance, June 30, 2026

17,111,077

171

40,821

531,291

(2,188)

570,095

Balance, April 1, 2025

17,054,787

171

38,576

476,715

(2,887)

512,575

Net Income

15,044

Other Comprehensive Income, net of tax

1,947

Cash Dividends ($

0.2400

per share)

(4,094)

Stock Based Compensation

526

Stock Compensation Plan Transactions, net

11,608

425

Balance, June 30, 2025

17,066,395

171

39,527

487,665

(940)

526,423

Balance, January 1, 2026

17,084,386

171

41,650

508,443

2,587

552,851

Net Income

32,094

Other Comprehensive Loss, net of tax

(4,775)

Cash Dividends ($

0.5400

per share)

(9,246)

Repurchase of Common Stock

(63,088)

(2,639)

Stock Based Compensation

916

Stock Compensation Plan Transactions, net

89,779

894

Balance, June 30, 2026

17,111,077

171

40,821

531,291

(2,188)

570,095

Balance, January 1, 2025

16,974,513

170

37,684

463,949

(6,486)

495,317

Net Income

31,902

Other Comprehensive Income, net of tax

5,546

Cash Dividends ($

0.4800

per share)

(8,186)

Stock Based Compensation

925

Stock Compensation Plan Transactions, net

91,882

918

919

Balance, June 30, 2025

17,066,395

171

39,527

487,665

(940)

526,423

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF CASH FLOWS

(Unaudited)

Six Months Ended June 30,

(Dollars in Thousands)

2026

2025

CASH FLOWS FROM OPERATING

ACTIVITIES

Net Income

32,094

31,902

Adjustments to Reconcile Net Income to

Cash Provided by Operating Activities:

Provision for Credit Losses

1,631

1,388

Depreciation

3,649

3,676

Amortization of Premiums, Discounts and Fees, net

1,503

2,272

Amortization of Intangible Asset

Originations of Loans Held-for-Sale

(222,589)

(218,167)

Proceeds From Sales of Loans Held-for-Sale

221,097

232,204

Mortgage Banking Revenues

(8,912)

(8,010)

Net (Additions) Deletions for Capitalized Mortgage Servicing Rights

(3)

Stock Based Compensation

916

925

Net Tax Benefit from

Stock Based Compensation

(132)

(154)

Deferred Income Taxes

1,109

1,391

Net Change in Operating Leases

(10)

(33)

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

(334)

(4,514)

Gain from Insurance Claim on Premises

(453)

Net (Increase) Decrease in Other Assets

(2,334)

5,124

Net Increase in Other Liabilities

1,468

6,363

Net Cash Provided By Operating Activities

28,700

54,491

CASH FLOWS FROM INVESTING ACTIVITIES

Securities Held to Maturity:

Purchases

(79,337)

(47,841)

Proceeds from Payments, Maturities, and Calls

152,205

152,124

Securities Available for

Sale:

Purchases

(271,711)

(155,436)

Proceeds from Payments, Maturities, and Calls

56,081

32,471

Equity Securities:

Purchases

(110)

(60)

Net Decrease in Equity Securities

111

Purchases of Loans Held for Investment

(269)

(304)

Proceeds from Sales of Loans

34,982

25,696

Net Decrease (Increase) in Loans Held for Investment

4,086

(4,047)

Purchase of Bank Owned Life Insurance

(6,000)

Proceeds from Insurance Claims on Premises

453

Proceeds From Sales of Other Real Estate Owned

2,226

7,341

Purchases of Premises and Equipment

(6,590)

(4,222)

Net Cash (Used In) Provided By Investing Activities

(113,873)

5,816

CASH FLOWS FROM FINANCING ACTIVITIES

Net Increase in Deposits

58,697

32,876

Net (Decrease) Increase in Short-Term

Borrowings

(3,185)

6,237

Principal Payments of Subordinated Notes

(9,279)

(10,305)

Dividends Paid

(9,246)

(8,186)

Payments to Repurchase Common Stock

(2,639)

Proceeds from Issuance of Common Stock Under Purchase Plans

587

619

Net Cash Provided By Financing Activities

34,935

21,241

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

(50,238)

81,548

Cash and Cash Equivalents at Beginning of Period

529,971

391,854

Cash and Cash Equivalents at End of Period

479,733

473,402

Supplemental Cash Flow Disclosures:

Interest Paid

16,397

16,543

Federal Income Taxes

Paid

5,250

2,600

State and Local Income Taxes Paid:

Florida

1,585

395

All Other

112

225

Supplemental Noncash Items:

Loans and Premises Transferred to Other Real Estate Owned

3,380

2,592

Loans Transferred from Held for Investment

to Held for Sale, net

37,161

22,232

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

NOTE 1 –

BUSINESS AND BASIS OF PRESENTATION

Nature of Operations

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

banking and banking-

related services to individual and corporate clients through its wholly owned

subsidiary, Capital City Bank (“CCB” or the

“Bank”),

with banking offices located in Florida, Georgia,

and Alabama.

The Company is subject to competition from other financial

institutions, is subject to regulation by certain government agencies and undergoes

periodic examinations by those regulatory

authorities.

Basis of Presentation

The consolidated financial statements in this Quarterly Report on Form

10-Q include the accounts of CCBG

and CCB.

All material inter-company transactions and accounts have

been eliminated.

Certain previously reported amounts have

been reclassified to conform to the current year’s presentation.

The accompanying unaudited consolidated financial statements have

been prepared in accordance with generally accepted accounting

principles for interim financial information and with the instructions to Form

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

Accordingly,

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

accounting principles for complete financial

statements.

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

recurring accruals) considered necessary for a fair

presentation have been included.

The Consolidated Statement of Financial Condition at December

31, 2025 has been derived from the audited consolidated financial

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

required by generally accepted accounting principles for

complete financial statements.

For further information, refer to the consolidated financial statements and notes

thereto included in the

Company’s 2025 Form

10-K.

Accounting Standards Updates

Proposed Accounting Standards

ASU No. 2023-06, “Disclosure Improvements:

Codification Amendments in Response to the SEC’s

Disclosure Update and Simplification Initiative.”

Accounting Standards Update

(“ASU”) 2023-06 is intended to clarify or improve

disclosure and presentation requirements of a variety of topics, which will allow users to

more easily compare entities subject to the

SEC’s existing disclosures with those

entities that were not previously subject to the requirements and align the requirements

in the

FASB accounting

standard codification with the SEC’s

regulations. ASU 2023-06 is to be applied prospectively,

and early adoption is

prohibited. For reporting entities subject to the SEC’s

existing disclosure requirements, the effective

dates of ASU 2023-06 will be the

date on which the SEC’s removal of

that related disclosure requirement from Regulation S-X or Regulation

S-K becomes effective. If

by June 30, 2027, the SEC has not removed the applicable requirement from

Regulation S-X or Regulation S-K, the pending content

of the related amendment will not become effective for

any entities. The Company is currently evaluating the provisions of the

amendments and the impact on its future consolidated statements.

ASU No. 2024-03, “Income Statement — Reporting Comprehensive

Income — Expense Disaggregation

Disclosures (Subtopic 220-

40): Disaggregation of Income Statement

Expenses.”

ASU 2024-03 introduces new requirements to disclose additional information

about certain types of expenses, including employee compensation, depreciation,

intangible asset amortization, and selling expenses.

ASU 2024-03 is effective for the Company as of January 1, 2027. The

Company is currently evaluating the impact of the incremental

disclosures that will be required under the standard.

ASU 2025-06, “Intangibles - Goodwill and Other -Internal-Use Software

(Subtopic 350-40): Targeted

Improvements to the

Accounting for Internal-Use Software.”

The ASU updates accounting for internal-use software by shifting

from a stage-based model

to a principles-based approach aligned with modern development. Key

provisions include new capitalization criteria based on

authorization, funding commitment, and probable completion, removal

of development stages, integrated website guidance, and

enhanced disclosures. ASU 2025-06 is effective for the Company

as of January 1, 2027. The Company is currently evaluating the

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

and disclosures.

ASU 2025-08, “Financial Instruments—Credit Losses

(Topic

326): Purchased Loans.”

The ASU updates the accounting for

purchased loans under ASC 326. The amendments expand the population of

loans subject to the “gross-up” accounting model by

eliminating the former distinction between purchased credit

-deteriorated (“PCD”) and non-PCD loans. Under the new guidance,

entities will apply a single model for purchased loans by recognizing an allowance

for credit losses and adjusting the amortized cost

basis for the associated noncredit discount at acquisition. ASU 2025 -08

is effective for the Company as of January 1, 2027. The

Company is currently evaluating the provisions of the amendments and

the impact on its future consolidated statements and

disclosures.

ASU 2025-11,

“Interim Reporting (Topic

270): Narrow-Scope Improvements.”

The ASU aims to clarify and enhance interim financial

reporting by defining its scope, consolidating GAAP disclosures in Topic

270, adding a principle for material post-year-end event

disclosure, and refining statement format guidance to improve consistency

for all preparers. These changes do not alter the

fundamental requirements of interim reporting but seek to streamline and

standardize the process. ASU 2025-11 is effective for

interim reporting periods beginning after December 15, 2027. The Company

is currently evaluating the provisions of the amendments

and the impact on its future consolidated statements.

ASU 2025-12, “Codification Improvements

.”

The ASU was issued to make technical corrections, clarify ambiguous

guidance and

generally streamline the Accounting Standards Codification across various

topics, affecting most reporting entities, with key changes

including clarifications for diluted EPS during losses, lease receivable disclosures,

beneficial interest calculations, and treasury stock

accounting, aiming for better usability without significantly altering

core accounting outcomes. ASU 2025-12 is effective for the

Company as of January 1, 2027. The Company is currently evaluating

the provisions of the amendments and the impact on its future

consolidated statements.

NOTE 2 –

INVESTMENT SECURITIES

Investment Portfolio Composition

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

securities available-for-sale (“AFS”) and securities held-to-maturity (“HTM”)

and the corresponding amounts of gross

unrealized gains and losses.

Available for

Sale

Amortized

Unrealized

Allowance for

Fair

(Dollars in Thousands)

Cost

Gains

Losses

Credit Losses

Value

June 30, 2026

U.S. Government Treasury

554,416

3,884

550,602

U.S. Government Agency

180,039

2,781

177,294

States and Political Subdivisions

36,230

2,047

34,212

Mortgage-Backed Securities

(1)

56,624

8,000

48,624

Corporate Debt Securities

36,933

2,169

(44)

34,721

Other Securities

(2)

8,155

Total

872,397

136

18,881

(44)

853,608

December 31, 2025

U.S. Government Treasury

331,495

1,940

171

333,264

U.S. Government Agency

174,527

2,484

172,114

States and Political Subdivisions

36,918

2,045

34,911

Mortgage-Backed Securities

(1)

59,699

7,697

52,004

Corporate Debt Securities

45,810

2,236

(42)

43,532

Other Securities

(2)

8,097

Total

656,546

2,051

14,633

(42)

643,922

Held to Maturity

Amortized

Unrealized

Fair

(Dollars in Thousands)

Cost

Gains

Losses

Value

June 30, 2026

U.S. Government Treasury

8,587

8,579

Mortgage-Backed Securities

(1)

295,873

146

10,528

285,491

Total

304,460

146

10,536

294,070

December 31, 2025

U.S. Government Treasury

129,782

514

129,268

Mortgage-Backed Securities

(1)

247,664

930

8,542

240,052

Total

377,446

930

9,056

369,320

(1)

Comprised of residential mortgage-backed

securities.

(2)

Includes Federal Home Loan Bank stock recorded

at cost of $

3.1

million and $

3.0

million at June 30, 2026 and December 31,

2025, respectively,

and Federal Reserve Bank stock recorded

at cost of $

5.1

million at June 30, 2026 and December 31, 2025.

At June 30, 2026 and December 31, 2025, the investment portfolio had $

2.1

million in equity securities. These securities do not have a

readily determinable fair value and were not credit impaired.

Securities with an amortized cost of $

563.0

million and $

461.3

million at June 30, 2026 and December 31, 2025, 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. The Bank’s investment

in FHLB

stock, which is included in other securities,

is pledged to secure FHLB advances.

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

quoted fair value; however, redemption

of this stock has historically been at par value.

As a member of the Federal Reserve Bank of

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

based on a specified ratio relative to the Bank’s

capital.

Federal Reserve Bank stock is carried at cost.

Investment Sales.

There were

sales of investment securities for the three and six months ended June 30, 2026

and 2025.

Maturity Distribution

At June 30, 2026, 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, certain amortizing U.S. government agency

securities and other securities are shown

separately because they are not due at a certain maturity date.

Available for

Sale

Held to Maturity

(Dollars in Thousands)

Amortized Cost

Fair Value

Amortized Cost

Fair Value

Due in one year or less

164,396

163,918

8,587

8,579

Due after one year through five years

490,095

482,562

Due after five year through ten years

3,220

2,852

Mortgage-Backed Securities

56,624

48,624

295,873

285,491

U.S. Government Agency

149,907

147,497

Other Securities

8,155

Total

872,397

853,608

304,460

294,070

Unrealized Losses on Investment Securities.

The following table summarizes the available for sale and held to maturity

investment

securities with unrealized losses aggregated by major security type and length

of time in a continuous unrealized loss position:

Less Than

Greater Than

12 Months

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

(Dollars in Thousands)

Value

Losses

Value

Losses

Value

Losses

June 30, 2026

Available for

Sale

U.S. Government Treasury

455,403

3,841

5,968

461,371

3,884

U.S. Government Agency

73,602

597

92,621

2,184

166,223

2,781

States and Political Subdivisions

965

32,331

2,033

33,296

2,047

Mortgage-Backed Securities

48,562

8,000

48,614

8,000

Corporate Debt Securities

33,889

2,169

33,889

2,169

Total

530,022

4,452

213,371

14,429

743,393

18,881

Held to Maturity

U.S. Government Treasury

8,578

Mortgage-Backed Securities

156,316

1,640

90,125

8,888

246,441

10,528

Total

156,316

1,640

98,703

8,896

255,019

10,536

December 31, 2025

Available for

Sale

U.S. Government Treasury

31,319

8,902

149

40,221

171

U.S. Government Agency

62,809

182

91,760

2,302

154,569

2,484

States and Political Subdivisions

3,030

124

30,705

1,921

33,735

2,045

Mortgage-Backed Securities

51,932

7,697

51,932

7,697

Corporate Debt Securities

42,333

2,236

42,333

2,236

Total

97,158

328

225,632

14,305

322,790

14,633

Held to Maturity

U.S. Government Treasury

129,268

514

129,268

514

Mortgage-Backed Securities

33,589

106,262

8,444

139,851

8,542

Total

33,589

235,530

8,958

269,119

9,056

At June 30, 2026, there were

816

positions (combined AFS and HTM) with unrealized pre-tax losses totaling $

29.4

million.

these positions are U.S. Treasury bonds

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

675

are U.S. government agency

securities issued by U.S. government sponsored entities.

We believe

the long history of no credit losses on government securities

indicates that the expectation of nonpayment of the amortized cost basis is effectively

zero.

At June 30, 2026, all collateralized

mortgage obligation securities, mortgage-backed securities, Small Business

Administration securities, U.S. Agency,

and U.S. Treasury

bonds held were AAA rated.

The remaining

positions (municipal securities and corporate bonds) have a credit component.

June 30, 2026, corporate debt securities had an allowance for credit

losses of $

44,000

ne of the securities held by the Company

were past due or in nonaccrual status at June 30, 2026.

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

effectively 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

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

The Company monitors the credit quality of its

municipal and corporate securities portfolio via credit ratings

which are updated on a quarterly basis.

On a quarterly basis, municipal

and corporate securities in an unrealized loss position are evaluated to determine

if the loss is attributable to credit related factors and

if an allowance for credit loss is needed.

NOTE 3 – LOANS HELD FOR INVESTMENT AND ALLOWANCE

FOR CREDIT LOSSES

Loan Portfolio Composition

The composition of the held for investment (“HFI”) loan portfolio was as follows:

(Dollars in Thousands)

June 30, 2026

December 31, 2025

Commercial, Financial and Agricultural

172,536

180,341

Real Estate – Construction

149,127

146,920

Real Estate – Commercial Mortgage

750,637

768,731

Real Estate – Residential

(1)

1,000,813

1,025,690

Real Estate – Home Equity

244,462

240,897

Consumer

(2)

182,296

183,539

Loans Held For Investment, Net of Unearned Income

2,499,871

2,546,118

(1)

Includes loans in process balances of $

3.1

million and $

5.6

million at June 30, 2026 and December 31, 2025, respectively.

(2)

Includes overdraft balances of $

1.4

million and $

1.2

million at June 30, 2026 and December 31, 2025, respectively.

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

included in loans were $

8.6

million at June 30, 2026 and

December 31, 2025.

Accrued interest receivable on loans which is excluded from amortized

cost, totaled $

9.5

million at June 30, 2026 and $

9.8

million at

December 31, 2025, 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.

Allowance for Credit 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 allowance methodology is discussed further in Note 1 – Significant

Accounting

Policies in the Company’s 2025

Form 10-K.

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

portfolio segment.

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

Three Months Ended

June 30, 2026

Beginning Balance

1,662

1,383

6,579

16,064

2,373

2,938

30,999

Provision for Credit Losses

678

(101)

954

(1,176)

459

904

Charge-Offs

(577)

(38)

(1,137)

(1,752)

Recoveries

753

856

Net (Charge-Offs) Recoveries

(512)

(11)

(384)

(896)

Ending Balance

1,828

1,282

7,540

14,877

2,467

3,013

31,007

Six Months Ended

June 30, 2026

Beginning Balance

1,751

1,681

6,859

15,317

2,368

3,025

31,001

Provision for Credit Losses

815

(399)

590

(506)

941

1,539

Charge-Offs

(877)

(38)

(13)

(2,620)

(3,548)

Recoveries

139

104

1,667

2,015

Net (Charge-Offs) Recoveries

(738)

(953)

(1,533)

Ending Balance

1,828

1,282

7,540

14,877

2,467

3,013

31,007

Three Months Ended

June 30, 2025

Beginning Balance

1,468

2,233

6,061

14,885

2,029

3,058

29,734

Provision for Credit Losses

(86)

(422)

189

363

(33)

707

718

Charge-Offs

(74)

(49)

(24)

(1,351)

(1,498)

Recoveries

117

678

908

Net (Charge-Offs) Recoveries

(673)

(590)

Ending Balance

1,425

1,811

6,256

15,264

2,014

3,092

29,862

Six Months Ended

June 30, 2025

Beginning Balance

1,514

2,384

5,867

14,568

1,952

2,966

29,251

Provision for Credit Losses

(39)

(573)

380

569

1,429

1,801

Charge-Offs

(242)

(57)

(24)

(2,786)

(3,109)

Recoveries

192

184

1,483

1,919

Net (Charge-Offs) Recoveries

(50)

127

(1,303)

(1,190)

Ending Balance

1,425

1,811

6,256

15,264

2,014

3,092

29,862

At June 30, 2026, the allowance for credit losses for loans HFI totaled $

31.0

million comparable to December 31, 2025 and $

29.9

million at June 30, 2025. Activity within the allowance for the six-month

period ended June 30, 2026, reflected a provision expense of

1.5

million and net loan charge-offs of $

1.5

million. The June 30, 2026 allowance reflected utilization of a higher forecasted

unemployment rate in forecasting loan loss rates that was partially offset

by lower loan balances, as compared to the December 31,

2025 allowance. At June 30, 2025, the allowance for loans HFI totaled $

29.9

million, a $

0.6

million increase over December 31, 2024.

Activity within the allowance for the six-month period ended June

30, 2025, reflected a provision expense of $

1.8

million and net loan

charge-offs of $

1.2

million. The net increase in the allowance was primarily attributable

to qualitative factor adjustments that were

partially offset by lower loan balances. Four unemployment

forecast scenarios were utilized to estimate probability of default and are

weighted based on management’s

estimate of their respective probabilities, which at June 30, 2026, were weighted

more heavily

towards an adverse economic outcome given ongoing uncertainty

in growth and inflation.

See Note 8 – Commitments and

Contingencies for information on the allowance for off-balance

sheet credit commitments.

Loan Portfolio Aging.

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

is over 30 days

past due (“DPD”).

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

past due loans by class of loans.

30-59

60-89

90 +

Total

Nonaccrual

Total

(Dollars in Thousands)

DPD

Past Due

Current

Loans

June 30, 2026

Commercial, Financial and Agricultural

197

270

171,139

1,127

172,536

Real Estate – Construction

148,748

379

149,127

Real Estate – Commercial Mortgage

747,553

3,060

750,637

Real Estate – Residential

368

630

998

996,385

3,430

1,000,813

Real Estate – Home Equity

287

242,985

1,190

244,462

Consumer

1,029

1,101

180,370

825

182,296

Total

1,905

775

2,680

2,487,180

10,011

2,499,871

December 31, 2025

Commercial, Financial and Agricultural

537

172

709

178,354

1,278

180,341

Real Estate – Construction

295

146,625

146,920

Real Estate – Commercial Mortgage

1,386

764,785

2,560

768,731

Real Estate – Residential

807

1,930

2,737

1,020,810

2,143

1,025,690

Real Estate – Home Equity

239,061

1,769

240,897

Consumer

1,561

262

1,823

180,871

845

183,539

Total

4,653

2,364

7,017

2,530,506

8,595

2,546,118

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.

June 30, 2026

December 31, 2025

Nonaccrual

With No

With

90 + Days

With No

With

90 + Days

(Dollars in Thousands)

ACL

Still Accruing

ACL

Still Accruing

Commercial, Financial and Agricultural

1,016

111

1,038

240

Real Estate – Construction

379

Real Estate – Commercial Mortgage

1,038

2,022

753

1,807

Real Estate – Residential

1,399

2,031

1,275

868

Real Estate – Home Equity

666

524

1,382

387

Consumer

825

845

Total Nonaccrual

Loans

4,498

5,513

4,448

4,147

Collateral Dependent Loans.

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

loans.

June 30, 2026

December 31, 2025

Real Estate

Non Real Estate

Real Estate

Non Real Estate

(Dollars in Thousands)

Secured

Commercial, Financial and Agricultural

1,165

1,087

Real Estate – Construction

379

Real Estate – Commercial Mortgage

12,164

2,450

Real Estate – Residential

2,142

1,275

Real Estate – Home Equity

803

1,561

Consumer

Total Collateral Dependent

Loans

15,488

1,165

5,286

1,087

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 June 30, 2026, the Company had $

0.4

million of 1-4 family residential

real estate loans for which formal foreclosure proceedings were in process, compared

to $

0.2

million at December 31, 2025.

Modifications to Borrowers Experiencing

Financial Difficulty.

Occasionally, the Company may

modify loans to borrowers who are

experiencing financial difficulty.

Loan modifications to borrowers in financial difficulty are loans in

which the Company has granted

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

In these instances, as part of a work-out alternative, the

Company will make concessions including the extension of the loan

term, a principal moratorium, a reduction in the interest rate, or a

combination thereof.

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

losses on a loan-by-loan

basis.

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

discounted cash flow analysis or the underlying

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

A modified loan classification can be removed if the borrower’s

financial condition improves such that the borrower is no longer in financial difficulty,

the loan has not had any forgiveness of

principal or interest, and the loan is subsequently refinanced or restructured

at market terms and qualifies as a new loan.

During the six months ended June 30, 2026 and 2025, the Company did

t modify any loans to borrowers experiencing financial

difficulty.

The Company closely monitors the performance of loans modified for borrowers

experiencing financial difficulty to evaluate the

effectiveness of its modification strategies. At June 30, 2026,

the amortized cost basis of loans modified during the preceding twelve

months was $

3.4

million, of which $

2.0

million were current and $

1.4

million were 120+ days past due, compared to $

0.3

million at

June 30, 2025.

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 the Company’s 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,

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 category consists of direct and indirect 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 ongoing basis dependent upon improvement and

deterioration in credit quality.

The following tables summarize gross loans held for investment at June

30, 2026 and December 31, 2025 and current period gross

writeoffs for the six months ended June 30, 2026 and 12 months

ended December 31, 2025

by years of origination and internally

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

on risk rating system).

(Dollars in Thousands)

Term

Loans by Origination Year

Revolving

As of June 30, 2026

2026

2025

2024

2023

2022

Prior

Loans

Total

Commercial, Financial,

Agriculture:

Pass

22,502

31,522

18,553

15,458

17,724

15,347

46,644

167,750

Special Mention

2,539

770

3,350

Substandard

110

1,132

1,436

Total

22,574

31,522

18,704

18,050

17,788

15,352

48,546

172,536

Current-Period Gross

Writeoffs

216

165

326

877

Real Estate - Construction:

Pass

28,895

90,468

9,848

2,342

9,973

6,554

148,133

Special Mention

615

Substandard

379

Total

28,895

90,468

9,848

2,721

10,588

6,554

149,127

Real Estate - Commercial

Mortgage:

Pass

49,678

81,993

66,431

92,599

150,330

221,684

22,532

685,247

Special Mention

755

7,799

3,458

22,818

7,688

1,307

43,825

Substandard

6,580

3,595

6,891

2,778

146

20,135

Doubtful

1,402

1,430

Total

50,481

96,372

71,428

96,154

180,039

232,178

23,985

750,637

Real Estate - Residential:

Pass

74,161

119,673

111,221

242,512

300,311

135,148

9,248

992,274

Special Mention

354

114

1,164

1,632

Substandard

130

627

1,103

1,446

3,563

6,907

Total

74,553

119,803

111,848

243,615

301,871

139,875

9,248

1,000,813

Current-Period Gross

Writeoffs

Real Estate - Home Equity:

Performing

195

272

310

642

241,901

243,344

Nonperforming

1,118

Total

195

272

310

642

243,019

244,462

Current-Period Gross

Writeoffs

Consumer:

Performing

40,451

51,488

17,057

21,109

22,674

16,189

12,502

181,470

Nonperforming

100

231

115

187

137

826

Total

40,551

51,719

17,113

21,224

22,861

16,326

12,502

182,296

Current-Period Gross

Writeoffs

1,175

353

179

329

286

210

2,620

(Dollars in Thousands)

Term

Loans by Origination Year

Revolving

As of December 31, 2025

2025

2024

2023

2022

2021

Prior

Loans

Total

Commercial, Financial,

Agriculture:

Pass

37,680

23,425

22,907

23,068

10,922

8,740

48,354

175,096

Special Mention

322

121

2,740

180

163

3,593

Substandard

146

245

1,114

1,652

Total

38,002

23,692

25,742

23,376

10,942

8,956

49,631

180,341

Current-Period Gross

Writeoffs

209

114

344

782

Real Estate - Construction:

Pass

76,850

39,024

3,298

14,996

187

9,295

143,703

Special Mention

372

2,127

2,499

Substandard

718

Total

76,850

39,024

4,388

17,123

187

9,295

146,920

Real Estate - Commercial

Mortgage:

Pass

93,723

76,348

101,262

174,959

92,388

152,307

22,555

713,542

Special Mention

9,830

4,477

5,725

20,547

3,922

4,074

720

49,295

Substandard

750

1,402

418

1,229

1,847

150

5,894

Total

104,303

82,227

107,085

195,924

97,539

158,228

23,425

768,731

Current-Period Gross

Writeoffs

Real Estate - Residential:

Pass

142,278

130,895

269,844

316,402

59,950

87,545

10,521

1,017,435

Special Mention

116

954

807

378

2,255

Substandard

558

429

1,201

1,310

2,341

161

6,000

Total

142,278

131,453

270,273

317,719

62,214

90,693

11,060

1,025,690

Current-Period Gross

Writeoffs

136

Real Estate - Home Equity:

Performing

391

411

106

587

237,678

239,201

Nonperforming

1,696

Total

391

411

106

587

239,374

240,897

Current-Period Gross

Writeoffs

Consumer:

Performing

63,443

21,866

27,919

31,464

21,524

5,164

11,315

182,695

Nonperforming

186

191

149

215

844

Total

63,629

22,057

28,068

31,679

21,596

5,195

11,315

183,539

Current-Period Gross

Writeoffs

2,789

376

1,003

1,036

454

144

152

5,954

NOTE 4 – MORTGAGE BANKING ACTIVITIES

The Company’s mortgage

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

to manage residential

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

market residential loan closings, and residential mortgage

servicing.

Residential Mortgage Loan Production

The Company originates, markets, and services conventional and

government-sponsored residential mortgage loans.

Generally,

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

secondary market and non-conforming and adjustable-rate

residential mortgage loans may be held for investment.

The volume of residential mortgage loans originated for sale and secondary

market prices are the primary drivers of origination revenue.

Residential mortgage loan commitments are generally outstanding for 30

to 90 days, which represents the typical period from

commitment to originate a residential mortgage loan to when the

closed loan is sold to an investor.

Residential mortgage loan

commitments are subject to both credit and price risk.

Credit risk is managed through underwriting policies and procedures, including

collateral requirements, which are generally accepted by the secondary

loan markets.

Price risk is primarily related to interest rate

fluctuations and is partially managed through forward sales of residential

mortgage-backed securities (primarily 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,

such as interest rate lock commitments (“IRLCs”) and forward contract

sales and their related fair values

are set forth below.

June 30, 2026

December 31, 2025

Unpaid Principal

(Dollars in Thousands)

Balance/Notional

Fair Value

Balance/Notional

Fair Value

Residential Mortgage Loans Held for Sale

33,214

34,278

20,944

21,695

Residential Mortgage Loan Commitments ("IRLCs")

(1)

28,726

626

20,699

464

Forward Sales Contracts

(2)

30,000

25,500

(1)

Recorded in other assets at fair value.

(2)

Recorded in other liabilities at fair value.

At June 30, 2026 and December 31, 2025, the Company had

residential mortgage loans held for sale 30-89 days past due or on

nonaccrual status.

Mortgage banking revenue was as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in Thousands)

2026

2025

2026

2025

Net realized gains on sales of mortgage loans

3,529

3,605

6,479

6,485

Net change in unrealized gain (loss) on mortgage loans held for

sale

370

(62)

329

171

Net change in the fair value of IRLCs

(111)

(91)

162

405

Net change in the fair value of forward sales contracts

(179)

(109)

(285)

Pair-Offs on net settlement of forward

sales contracts

116

192

(169)

Mortgage servicing rights additions

Net origination fees

865

807

1,624

1,359

Total mortgage banking

revenues

4,660

4,190

8,912

8,010

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)

June 30, 2026

December 31, 2025

Number of residential mortgage loans serviced for others

464

456

Outstanding principal balance of residential mortgage loans serviced

for others

124,200

118,429

Weighted average

interest rate

5.71%

5.69%

Remaining contractual term (in months)

354

Conforming conventional loans serviced by the Company are sold to Federal

National Mortgage Association (“FNMA”) on a non-

recourse basis, whereby foreclosure losses are generally the responsibility

of FNMA and not the Company.

The government loans

serviced by the Company are secured through the Government National

Mortgage Association (“GNMA”), whereby the Company is

insured against loss by the Federal Housing Administration or partially

guaranteed against loss by the Veterans

Administration.

June 30, 2026, the servicing portfolio balance consisted of the

following loan types: FNMA (

61.9

%), GNMA (

4.3

%), and private

investor (

33.8

%).

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

At June 30, 2026 and December 31, 2025, the Company did

t have delinquent residential mortgage loans in GNMA pools serviced

by the Company.

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.

The Company had

repurchases for the three months

ended June 30, 2026 and 2025, and

repurchases and $

0.3

million repurchases in the six months ended June 30, 2026 and June 30,

2025, respectively, of

GNMA delinquent or defaulted mortgage loans with the intention to modify

their terms and include the loans in

new GNMA pools.

Activity in the capitalized mortgage servicing rights was as follows:

Three Months Ended

June 30,

Six Months Ended

June 30,

(Dollars in Thousands)

2026

2025

2026

2025

Beginning balance

903

908

924

933

Additions due to loans sold with servicing retained

Deletions and amortization

(46)

(43)

(93)

(88)

Ending balance

927

889

927

889

The Company did

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

three or six months ended June 30,

2026

or 2025.

The key unobservable inputs used in determining the fair value of

the Company’s mortgage servicing rights were

as follows:

June 30, 2026

December 31, 2025

Minimum

Maximum

Minimum

Maximum

Discount rates

9.50%

12.00%

9.50%

12.00%

Annual prepayment speeds

8.85%

19.13%

8.50%

18.73%

Cost of servicing (per loan)

Changes in residential mortgage interest rates directly affect

the prepayment speeds used in valuing the Company’s

mortgage

servicing rights.

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

turnover rates,

estimated loan curtailment, anticipated defaults, and other relevant factors.

The weighted average annual prepayment speed was

13.10

% at June 30, 2026 and

13.05

% at December 31, 2025.

Warehouse

Line Borrowings

The Company has the following warehouse lines of credit and master

repurchase agreements with various financial institutions at June

30, 2026:

Amounts

(Dollars in Thousands)

Outstanding

million master repurchase agreement without defined expiration.

Interest is at the secured overnight

financing rate (SOFR) rate plus

2.25%

3.25%

, with a floor rate of

3.25%

4.25%

A cash pledge deposit of

0.1

million is required by the lender.

21,950

million warehouse line of credit agreement expiring in

September 2026

Interest is at the SOFR rate plus

2.50%

3.00%

, with a floor rate of

3.00%

3.50%

17,537

Total Warehouse

Borrowings

39,487

Warehouse

line borrowings are classified as short-term borrowings.

At December 31, 2025, warehouse line borrowings totaled $

28.1

million. At June 30, 2026, the Company had residential 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, and maximum debt to net worth ratio, as

defined in the agreements. The Company was in compliance with all significant

debt covenants at June 30, 2026.

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

The Company previously maintained interest rate swaps with notional amounts

totaling $

million designated as a cash flow hedge

for subordinated debt. Under the swap arrangement, the Company paid

a fixed interest rate of

2.50

% and received a variable interest

rate based on three-month CME Term

SOFR. In October 2025, the Company terminated the swaps and derecognized

the derivative

assets. The unrealized gain of $

2.7

million is deferred in accumulated other comprehensive income and will be amortized

on a

straight-line basis into interest expense through the remaining term of the

original cash flow hedge. The Company estimates there will

be approximately $

0.8

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

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 AOCI 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 presents the change in net gains (losses) recorded in AOCI and

the consolidated statements of income related to

the cash flow derivative instruments (interest rate swaps related to subordinated

debt).

Change in Gain

Amount of Gain

(Loss) Recognized

(Loss) Reclassified

(Dollars in Thousands)

Category

in AOCI

from AOCI to Income

Three months ended June 30, 2026

Interest expense

200

Three months ended June 30, 2025

Interest expense

(363)

299

Six months ended June 30, 2026

Interest expense

398

Six months ended June 30, 2025

Interest expense

(888)

596

NOTE 6 – LEASES

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

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

liabilities, included in other assets and liabilities, respectively,

on its Consolidated Statements of Financial Condition.

The Company’s operating

leases primarily relate to banking offices with remaining lease

terms from less than

one

years.

The

Company’s leases are not complex

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

significant assumptions

or judgments made in applying the requirements of Topic

842.

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

recorded on the Consolidated Statements of Financial Condition and the related lease expense is recognized on a straight-line basis

over the lease term.

At June 30, 2026, the operating lease ROU assets and liabilities were $

25.7

million and $

26.4

million,

respectively. At December

31, 2025, ROU assets and liabilities were $

26.3

million and $

26.9

million, respectively. The Company

does not have any finance leases.

The table below summarizes our lease expense and other information related

to the Company’s operating leases.

Three Months Ended

Six Months Ended

June 30,

(Dollars in Thousands)

2026

2025

2026

2025

Operating lease expense

909

897

1,824

1,761

Short-term lease expense

181

240

328

551

Total lease expense

1,090

1,137

2,152

2,312

Other information:

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

Operating cash flows from operating leases

925

882

1,845

1,794

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

715

1,117

816

3,997

Weighted average

remaining lease term — operating leases (in years)

15.4

15.8

15.4

15.8

Weighted average

discount rate — operating leases

3.7%

The table below summarizes the maturity of remaining lease liabilities:

(Dollars in Thousands)

June 30, 2026

2026

1,853

2027

3,534

2028

3,271

2029

2,986

2030

2,939

2031 and thereafter

18,792

Total

33,375

Less: Interest

(7,004)

Present Value

of Lease liability

26,371

A related party is the lessor in a land lease with the Company.

The payments under the lease agreement provide for annual lease

payments of approximately $

0.1

million annually through December 2033, and thereafter,

increase by

% every

years until 2053 at

which time the rent amount will adjust based on reappraisal of the parcel rental

value.

The Company then has

four

successive options

to extend the lease for

five years

each with rental increases of

% at each extension.

The aggregate remaining obligation of the lease

totaled $

2.0

million at June 30, 2026.

Further, in accordance with the lease agreement, the Company

made a $

0.2

million payment in

July 2025 to the lessor as reimbursement for a portion of the costs related to the development

of subject property to support the

construction of a new banking office by the Company.

NOTE 7 - EMPLOYEE BENEFIT PLANS

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

and eligible part-time associates and a

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

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

executive officers.

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

for new associates hired after

December 31, 2019.

The SERP II was adopted by the Company’s

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

were not covered by the SERP.

The components of the net periodic benefit cost for the Company’s

qualified benefit pension plan were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in Thousands)

2026

2025

2026

2025

Service Cost

832

860

1,665

1,720

Interest Cost

1,532

1,676

3,063

3,353

Expected Return on Plan Assets

(2,218)

(2,264)

(4,435)

(4,529)

Net Loss Amortization

(473)

(414)

(947)

(827)

Net Periodic Benefit Cost

(327)

(142)

(654)

(283)

Discount Rate

5.67%

5.82%

5.67%

5.82%

Long-term Rate of Return on Assets

6.50%

6.75%

6.50%

6.75%

The components of the net periodic benefit cost for the Company’s

SERP and SERP II were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(Dollars in Thousands)

2026

2025

2026

2025

Service Cost

Interest Cost

150

131

300

264

Prior Service Cost Amortization

Net Loss Amortization

238

(29)

475

(58)

Net Periodic Benefit Cost

432

140

864

280

Discount Rate

5.24%

5.57%

5.24%

5.57%

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

compensation expense in the accompanying statements of

income.

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

expense category in the

Consolidated Statements of Income.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

Lending Commitments

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

sheet risks in the normal course of business

to meet the financing needs of its clients.

These financial instruments consist of commitments to extend credit and standby

letters of

credit.

The Company’s maximum exposure

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

the contractual amount of those instruments.

The Company uses the same credit policies in establishing commitments

and issuing

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

The amounts associated with the Company’s

off-balance sheet

obligations were as follows:

June 30, 2026

December 31, 2025

(Dollars in Thousands)

Fixed

Variable

Total

Fixed

Variable

Total

Commitments to Extend Credit

(1)

187,192

450,348

637,540

188,834

456,328

645,162

Standby Letters of Credit

7,298

7,828

Total

194,490

450,348

644,838

196,662

456,328

652,990

(1)

Commitments include unfunded loans, revolving

lines of credit, and off-balance sheet residential

loan commitments.

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

of any condition established in the

contract.

Commitments generally have fixed expiration dates or other termination

clauses and may require payment of a fee.

Since

many of the commitments are expected to expire without being drawn

upon, the total commitment amounts do not necessarily

represent future cash requirements.

Standby letters of credit are conditional commitments issued by

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

party.

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

in extending loan facilities. In

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

of participating in these types of transactions.

However, any

potential losses arising from such transactions are reserved for in the

same manner as management reserves for its other credit

facilities.

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

requires collateral to support such instruments when it is

deemed necessary.

The Company evaluates each client’s

creditworthiness on a case-by-case basis.

The amount of collateral

obtained upon extension of credit is based on management’s

credit evaluation of the counterparty.

Collateral held varies, but may

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

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

property, plant and

equipment; and inventory.

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

that are not unconditionally cancellable by the bank is

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

The following table shows the activity in the

allowance.

Three Months Ended June

30,

Six Months Ended June 30,

(Dollars in Thousands)

2026

2025

2026

2025

Beginning Balance

2,189

1,832

2,107

2,155

Provision for Credit Losses

(94)

(417)

Ending Balance

2,197

1,738

2,197

1,738

Other Commitments.

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

which are classified as operating

leases. See Note 6 – Leases for additional information on the maturity of the

Company’s operating lease commitments.

The Company has an outstanding commitment of up to $

1.0

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

funding technology solutions for community banks and a commitment

of up to $

10.0

million in a solar tax credit equity fund.

At June

30, 2026, the amount remaining to be funded for the bank tech venture capital

and solar tax credit equity investment fund

commitments was $

0.2

million and $

10.0

million, respectively.

Contingencies

The Company is a party to lawsuits and claims arising out of the normal course of business.

In management's opinion,

there are

known pending claims or litigation, the outcome of which would, individually or in

the aggregate, have a material effect

on the consolidated results of operations, financial position, or cash flows

of the Company.

Indemnification Obligation

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

Visa U.S.A member banks are

required to

indemnify the Visa U.S.A.

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

that relates to several

antitrust lawsuits challenging the practices of Visa

and MasterCard International.

In 2008, the Company, as a member

of the Visa

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

Inc. upon its initial public offering.

Since its initial public offering, Visa,

Inc. has

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

in the Class B shares held by the Company.

In 2011, the

Company sold its remaining Class B shares.

Associated with this sale, the Company entered into a swap contract with the purchaser

of the shares that requires a payment to the counterparty in the event that Visa,

Inc. makes subsequent revisions to the conversion

ratio.

Conversion ratio payments and ongoing fixed quarterly charges are reflected

in earnings in the period incurred.

Fixed charges

included in the swap liability are payable quarterly until the litigation reserve

is fully liquidated and at which time the aforementioned

swap contract will be terminated.

Quarterly fixed payments are approximately $

0.1

million.

There was a $

0.1

million counterparty

payment accrued and payable at June 30, 2026

due to a revision to the share conversion rate related to additional funding by VISA of

the merchant litigation reserve.

NOTE 9 – FAIR VALUE

MEASUREMENTS

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

to transfer that liability in an orderly

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

the absence of a principal market) for such asset or

liability.

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

the market approach, the income

approach and/or the cost approach.

Such valuation techniques are consistently applied.

Inputs to valuation techniques include the

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

Accounting Standards Codification Topic

820

establishes a fair value hierarchy for valuation inputs that gives the highest priority

to quoted prices in active markets for identical

assets or liabilities and the lowest priority to unobservable inputs.

The fair value hierarchy is as follows:

●

Level 1 Inputs -

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

entity has the

ability to access at the measurement date

●

Level 2 Inputs -

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

either directly

or indirectly. These might

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

for identical

or similar assets or liabilities in markets that are not active, inputs other

than quoted prices that are observable for the asset or

liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.)

or inputs that are derived principally from, or

corroborated, by market data by correlation or other means

●

Level 3 Inputs -

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

an entity’s own

assumptions about the assumptions that market participants would

use in pricing the assets or liabilities.

Assets and Liabilities Measured at Fair Value

on a Recurring Basis

Securities Available for Sale.

U.S. Treasury securities are reported at fair value

utilizing Level 1 inputs.

Other securities classified as

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

For these securities, the Company obtains fair value measurements

from an independent pricing service.

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

market

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

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

terms

and conditions, among other things.

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

The Company’s entire portfolio consists

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

obligations, federal agency bullet or mortgage pass-through

securities, or

general obligation or revenue-based municipal bonds.

Pricing for such instruments is easily obtained.

At least annually, the Company

will validate prices supplied by the independent pricing service by compari

ng them to prices obtained from an independent third-party

source.

Equity Securities.

Investment securities classified as equity securities are carried at cost and

the share of earnings or losses is reported

through net income as an adjustment to the investment balance. These securities are not

readily marketable and therefore are classified

as a Level 3 input within the fair value hierarchy.

Loans Held for Sale

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

when possible,

using either quoted secondary-market prices or investor commitments.

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

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

that loan, which would be used by other market

participants.

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

Mortgage Banking Derivative Instruments.

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

models incorporating market pricing for instruments with similar characteristics,

commonly referred to as best execution pricing, or

investor commitment prices for best effort IRLCs which have

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

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

the loans, and the pull-through rate,

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

The fair value of forward sale commitments is based on

observable market pricing for similar instruments and are therefore

classified as Level 2 within the fair value hierarchy.

Interest Rate Swap.

The Company’s derivative positions

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

using

models generally accepted in the financial services industry and

that use actively quoted or observable market input values from

external market data providers.

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

Fair Value

Swap

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

its Visa Class B shares.

The

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

the revised share conversion rate, if any,

during the

period. The Company’s

derivative positions are classified as Level 2 within the fair value hierarchy and use

actively quoted or

observable market input values from external market data providers.

There was a $

0.1

million and $

0.2

million counterparty payment

accrued and payable at June 30, 2026 and December 31, 2025, respectively

A summary of fair values for assets and liabilities recorded at fair

value on a recurring basis consisted of the following:

Level 1

Level 2

Level 3

Total

Fair

(Dollars in Thousands)

Inputs

Value

June 30, 2026

ASSETS:

Securities Available for

Sale:

U.S. Government Treasury

550,602

U.S. Government Agency

177,294

States and Political Subdivisions

34,212

Mortgage-Backed Securities

48,624

Corporate Debt Securities

34,721

Equity Securities

2,068

Loans Held for Sale

34,278

Residential Mortgage Loan Commitments ("IRLCs")

626

LIABILITIES:

Forward Sales Contracts

December 31, 2025

ASSETS:

Securities Available for

Sale:

U.S. Government Treasury

333,264

U.S. Government Agency

172,114

States and Political Subdivisions

34,911

Mortgage-Backed Securities

52,004

Corporate Debt Securities

43,532

Equity Securities

2,069

Loans Held for Sale

21,695

Residential Mortgage Loan Commitments ("IRLCs")

464

LIABILITIES:

Forward Sales Contracts

Mortgage Banking Activities

The Company had Level 3 issuances and transfers related to mortgage banking

activities of $

4.4

million

and $

8.5

million, respectively, for the

six months ended June 30, 2026, and $

4.3

million and $

8.4

million, respectively,

for the six

months ended June 30, 2025.

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

mortgage loan from inception

of the IRLC to the Consolidated Statement of Financial Condition date,

adjusted for pull-through rates and costs to originate.

IRLCs

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

to mortgage loans held for sale, at fair value.

Assets Measured at Fair Value

on a Non-Recurring Basis

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

assets are not measured at fair value on an ongoing basis

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

An example would be assets exhibiting evidence of impairment.

The following is a description of valuation methodologies used for assets measured

on a non-recurring basis.

Collateral Dependent Loans

Impairment for collateral dependent loans is measured using the fair

value of the collateral less selling

costs.

The fair value of collateral is determined by an independent valuation

or professional appraisal in conformance with banking

regulations.

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

and the judgment and

estimation involved in the real estate appraisal process.

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

basis for additional impairment and adjusted accordingly.

Valuation

techniques are consistent with those techniques applied in prior

periods.

Collateral-dependent loans had a carrying value of $

16.7

million with valuation allowance of $

1.1

million at June 30, 2026

and a carrying value of $

6.4

million and a $

0.1

million valuation allowance at December 31, 2025.

Other Real Estate Owned

During the first six months of 2026, certain foreclosed assets, upon initial recognition,

were measured and

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

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

estimated cost to sell.

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

professional appraisal in

conformance with banking regulations.

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

adjustments as necessary.

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

and estimation

involved in the real estate valuation process.

Mortgage Servicing Rights

Residential mortgage loan servicing rights are evaluated for impairment

at each reporting period based

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

Fair value is determined by a third party valuation model using

estimated prepayment speeds of the underlying mortgage loans serviced and

stratifications based on the risk characteristics of the

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

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

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

servicing.

Further detail on the key inputs utilized are

provided in Note 4 – Mortgage Banking Activities.

At each of June 30, 2026 and December 31, 2025, there was

valuation

allowance for loan servicing rights.

Assets and Liabilities Disclosed at Fair Value

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

both assets and liabilities, for which it is

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

methodologies used for those assets and liabilities.

Cash and Short-Term

Investments.

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

fair value, given

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

credit concerns.

Securities Held to Maturity

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

noted in the

caption “Assets and Liabilities Measured at Fair Value

on a Recurring Basis – Securities Available

for Sale.”

Other Equity Securities.

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

323) and recorded at cost.

These

securities are not readily marketable securities and are reflected in Other

Assets on the Statement of Financial Condition.

Loans.

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

using present value

techniques based upon projected cash flows and estimated discount

rates.

The values reported reflect the incorporation of a liquidity

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

Deposits.

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

Accounts and Savings Accounts are the

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

certificates of deposit is estimated using present

value techniques and rates currently offered for deposits of

similar remaining maturities.

Subordinated Notes Payable.

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

based upon projected cash

flows and estimated discount rates as well as rates being offered

for similar obligations.

Short-Term

and Long-Term

Borrowings.

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

based upon

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

for similar debt.

A summary of estimated fair values of significant financial instruments not

recorded at fair value consisted of the following:

June 30, 2026

Carrying

Level 1

Level 2

Level 3

(Dollars in Thousands)

Value

Inputs

ASSETS:

Cash

67,124

Fed Funds Sold and Interest Bearing Deposits

412,609

Investment Securities, Held to Maturity

304,460

8,579

285,491

Other Equity Securities

2,848

Mortgage Servicing Rights

927

1,464

Loans, Net of Allowance for Credit Losses

2,468,864

2,360,728

LIABILITIES:

Deposits

3,721,009

3,720,435

Short-Term

Borrowings

46,907

Subordinated Notes Payable

33,303

32,693

Long-Term Borrowings

567

December 31, 2025

Carrying

Level 1

Level 2

Level 3

(Dollars in Thousands)

Value

Inputs

ASSETS:

Cash

62,189

Fed Funds Sold and Interest Bearing Deposits

467,782

Investment Securities, Held to Maturity

377,446

129,268

240,052

Other Equity Securities

2,848

Mortgage Servicing Rights

924

1,359

Loans, Net of Allowance for Credit Losses

2,515,117

2,416,937

LIABILITIES:

Deposits

3,662,312

3,662,466

Short-Term

Borrowings

50,092

Subordinated Notes Payable

42,582

40,116

Long-Term Borrowings

680

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

The disclosures also do not include goodwill.

Accordingly, the

aggregate fair value amounts presented do not represent the underlying

value of the Company.

NOTE 10 – ACCUMULATED

OTHER COMPREHENSIVE INCOME (LOSS)

The amounts allocated to accumulated other comprehensive income

(loss) are presented in the table below.

Accumulated

Securities

Other

Available

Interest Rate

Retirement

Comprehensive

(Dollars in Thousands)

for Sale

Swap

Plans

Income (Loss)

Balance as of January 1, 2026

(9,530)

2,676

9,441

2,587

Other comprehensive loss during the period

(4,478)

(297)

(4,775)

Balance as of June 30, 2026

(14,008)

2,379

9,441

(2,188)

Balance as of January 1, 2025

(20,179)

3,971

9,722

(6,486)

Other comprehensive income (loss) during the period

6,434

(888)

5,546

Balance as of June 30, 2025

(13,745)

3,083

9,722

(940)

NOTE 11 - SEGMENT REPORTING

The Company operates a single reportable business segment that is comprised

of commercial banking within the states of Florida,

Georgia, and Alabama.

The Company’s chief executive

officer is deemed the Chief Operating Decision Maker (“CODM”). The

CODM evaluates the financial performance of the Company by evaluating

revenue streams, significant expenses, and budget to actual

results in assessing the Company’s

single reporting segment and in the determination of allocating resources. The

CODM uses

consolidated net income to benchmark the Company against peers and to evaluate

performance and allocate resources.

Significant

revenue and expense categories evaluated by the CODM are consistent with the presentation

of the Consolidated Statement of Income

and components of other noninterest expense.

Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS

OPERATIONS

Management’s discussion

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

the major factors that have

affected our financial condition and results of operations

and should be read in conjunction with the Consolidated Financial

Statements and related notes.

The following information should provide a better understanding of

the major factors and trends that

affect our earnings performance and financial condition,

and how our performance during the second quarter of 2026 compares with

prior periods.

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

is referred to as “CCBG,”

“Company,”

“we,” “us,” or “our.”

CAUTION CONCERNING FORWARD

-LOOKING STATEMENTS

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

contains “forward-looking statements”

within the meaning of the

Private Securities Litigation Reform Act of 1995.

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

our

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

subject to significant risks and uncertainties and are

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

our control.

The words “may,”

“could,” “should,” “would,”

“believe,” “anticipate,” “contemplate,” “estimate,” “expect,” “intend,”

“plan,” “point to,” “project,” “target,” “vision,” “goal,”

“continue,” “further,” 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 of this quarterly report on Form 10-Q as well

as the Introductory Note and

Item 1A. Risk Factors

of our 2025 Form 10-K, as updated in our subsequent quarterly reports filed

Form 10-Q, and in our other filings made from time to time with the SEC after the date

of this report.

However, other factors besides those listed in our

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

results,

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

uncertainties.

Any forward-looking

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

We do not undertake to

update any forward-looking

statement, except as required by applicable law.

BUSINESS OVERVIEW

We are a financial

holding company headquartered in Tallahassee,

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

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

We offer

a broad array of products and services through a total of 62 full-service offices

and 107 ATMs/ITMs

located in Florida, Georgia, and Alabama.

Through Capital City Home Loans, LLC (“CCHL”), we have 27

additional offices in the Southeast for our mortgage banking business.

We provide

a full range of banking services, including

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

trust, merchant services, bankcards, securities brokerage

services and financial advisory services, including life insurance products

risk management and asset protection services.

Our profitability, like

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

interest income, which is the difference

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

securities, and the interest paid on interest-bearing

liabilities, principally deposits and borrowings.

Results of operations are also affected by the provision for credit losses, operating

expenses such as salaries and employee benefits, occupancy and other

operating expenses including income taxes, and noninterest

income such as mortgage banking revenues, wealth management fees,

deposit fees, and bank card fees.

We have included

a detailed discussion of our long-term strategic objectives as part of the MD&A section

of our 2025 Form 10-K.

NON-GAAP FINANCIAL MEASURES (UNAUDITED)

We present a tangible

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

effect of

goodwill and other intangibles that resulted from merger

and acquisition activity. We

believe these measures are useful to investors

because they allow investors to more easily compare our capital adequacy

to other companies in the industry.

Non-GAAP financial

measures should not be considered alternatives to generally accepted

accounting principles (“GAAP”)-basis financial statements and

other bank holding companies may define or calculate these non-GAAP measures

or similar measures differently.

The GAAP to non-GAAP reconciliation for each quarter presented is provided

below.

2026

2025

(Dollars in Thousands, except per share data)

Second

First

Fourth

Third

Second

Shareowners' Equity (GAAP)

570,095

559,912

552,851

540,635

526,423

Less: Goodwill and Other Intangibles (GAAP)

89,095

92,693

Tangible Shareowners' Equity (non-GAAP)

481,000

470,817

463,756

451,540

433,730

Total Assets (GAAP)

4,450,483

4,453,734

4,385,765

4,323,774

4,391,753

Less: Goodwill and Other Intangibles (GAAP)

89,095

92,693

Tangible Assets (non-GAAP)

4,361,388

4,364,639

4,296,670

4,234,679

4,299,060

Tangible Common Equity Ratio (non-GAAP)

A/B

11.03%

10.79%

10.66%

10.09%

Actual Diluted Shares Outstanding (GAAP)

17,135,824

17,114,954

17,154,586

17,115,336

17,097,986

Tangible Book Value

per Diluted Share (non-GAAP)

A/C

28.07

27.51

27.03

26.38

25.37

SELECTED QUARTERLY

FINANCIAL DATA

(UNAUDITED)

2026

2025

(Dollars in Thousands, Except Per Share Data)

Second

First

Fourth

Third

Second

Summary of Operations

Interest Income

51,838

51,020

51,715

51,431

51,459

Interest Expense

7,640

8,203

8,355

7,874

8,275

Net Interest Income

44,198

42,817

43,360

43,557

43,184

Provision for Credit Losses

919

712

1,995

1,881

620

Net Interest Income After

Provision for Credit Losses

43,279

42,105

41,365

41,676

42,564

Noninterest Income

20,599

19,933

20,103

22,331

20,014

Noninterest Expense

42,640

41,373

42,867

42,916

42,538

Income Before Income Taxes

21,238

20,665

18,601

21,091

20,040

Income Tax Expense

4,961

4,848

4,896

5,141

4,996

Net Income Attributable to CCBG

16,277

15,817

13,705

15,950

15,044

Net Interest Income (FTE)

(1)

44,241

42,857

43,404

43,602

43,228

Per Common Share

Net Income Basic

0.95

0.92

0.80

0.93

0.88

Net Income Diluted

0.95

0.92

0.80

0.93

0.88

Cash Dividends Declared

0.27

0.26

0.24

Diluted Book Value

33.27

32.71

32.23

31.59

30.79

Diluted Tangible Book Value

(2)

28.07

27.51

27.03

26.38

25.37

Market Price:

High

51.04

46.83

45.63

44.69

39.82

Low

42.79

39.26

38.27

38.00

32.38

49.42

43.46

42.57

41.79

39.35

Selected Average Balances

Investment Securities

1,167,321

1,119,125

1,006,040

993,880

1,007,981

Loans Held for Investment

2,505,875

2,538,318

2,568,073

2,606,213

2,652,572

Earning Assets

4,068,827

4,089,838

4,035,910

3,981,530

4,032,008

Total Assets

4,407,371

4,418,904

4,367,036

4,317,951

4,370,261

Deposits

3,678,776

3,691,016

3,647,510

3,612,331

3,680,707

Shareowners’ Equity

573,839

567,663

556,100

542,216

527,583

Common Equivalent Average Shares:

Basic

17,101

17,129

17,070

17,068

17,056

Diluted

17,126

17,146

17,140

17,114

17,088

Performance Ratios:

Return on Average Assets (annualized)

1.48

1.45

1.25

1.47

1.38

Return on Average Equity (annualized)

11.38

11.30

9.78

11.67

11.44

Net Interest Margin (FTE)

4.35

4.24

4.26

4.34

4.30

Noninterest Income as % of Operating Revenue

31.79

31.77

31.68

33.89

31.67

Efficiency Ratio

65.76

65.89

67.50

65.09

67.26

Asset Quality:

Allowance for Credit Losses (“ACL”)

31,007

30,999

31,001

30,202

29,862

Nonperforming Assets (“NPAs”)

13,435

12,965

10,531

10,026

6,581

ACL to Loans HFI

1.24

1.23

1.22

1.17

1.13

NPAs to Total

Assets

0.30

0.29

0.24

0.23

0.15

NPAs to Loans HFI plus OREO

0.54

0.51

0.41

0.39

0.25

ACL to Non-Performing Loans

309.72

278.19

360.69

368.54

463.01

Net Charge-Offs to Average Loans HFI

0.14

0.10

0.18

0.09

Capital Ratios:

Tier 1 Capital

21.10

20.37

20.20

19.33

18.38

Total Capital

22.35

21.62

21.45

20.59

19.60

Common Equity Tier 1

19.80

19.08

18.56

17.73

16.81

Leverage

11.96

11.65

11.77

11.64

11.14

Tangible Common Equity

(2)

11.03

10.79

10.66

10.09

(1)

Fully Tax Equivalent.

(2)

Non-GAAP financial measure.

See non-GAAP reconciliation on page 38.

FINANCIAL OVERVIEW

Results of Operations

Performance Summary.

Net income of $16.3 million, or $0.95 per diluted share, for the second quarter of

2026 compared to $15.8

million, or $0.92 per diluted share, for the first quarter of 2026, and $15.0 million,

or $0.88 per diluted share, for the second quarter of

2025. For the first six months of 2026, net income totaled $32.1 million, or $1.87

per diluted share, compared to net income of $31.9

million, or $1.87 per diluted share, for the same period of 2025.

Net Interest Income.

Tax-equivalent net

interest income for the second quarter of 2026 totaled $44.2 million, compared

to $42.9

million for the first quarter of 2026, and $43.2 million for the second quarter of 2025.

Compared to the first quarter of 2026, the

increase was attributable to higher investment securities income and lower

deposit interest expense, partially offset by lower loan

interest income and overnight funds income due to lower average balances.

The increase over the second quarter of 2025 was also

driven by the same aforementioned factors. One additional calendar

day also contributed to the increase over the first quarter of 2026.

For the first six months of 2026, tax-equivalent net interest income totaled

$87.1 million compared to $84.8 million for the same period

of 2025, primarily attributable to higher investment securities income and

lower deposit interest expense, partially offset by lower

loan

interest income and overnight funds income.

Provision and Allowance for Credit

Losses.

We recorded

a provision expense for credit losses of $0.9 million for the second quarter of

2026, compared to $0.7 million for the first quarter of 2026 and $0.6 million for the

second quarter of 2025. For the first six months of

2026, we recorded a provision expense for credit losses of $1.6 million

compared to $1.4 million for the first six months of 2025. At

June 30, 2026, the allowance for credit losses for loans HFI totaled $31.0

million (1.24% of loans HFI) compared to $31.0 million

(1.23% of loans HFI) at March 31, 2026

and $31.0 million at December 31, 2025 (1.22% of loans HFI). We

discuss the various

factors that impacted our provision expense in further detail below under the heading

Allowance for Credit Losses.

Noninterest Income

. Noninterest income for the second quarter of 2026 totaled $20.6 million,

a $0.7 million, or 3.3%, increase over

the first quarter of 2026 and a $0.6 million, or 2.9%, increase over the second quarter

of 2025. The increase over the first quarter of

2026 was primarily attributable to increases in mortgage banking revenues of $0.4

million and bank card fees of $0.2 million. The

increase over the second quarter of 2025 was driven by increases in other income

of $0.7 million, mortgage banking revenues of $0.5

million, and deposit fees of $0.3 million that were partially offset

by a decrease in wealth management fees of $1.0 million. For

the

first six months of 2026, noninterest income totaled $40.5 million, a $0.6

million, or 1.5%, increase over the same period of 2025

primarily attributable to increases in other income of $1.4 million, mortgage

banking revenues of $0.9 million, and deposit fees of

$0.9 million, that were partially offset by a decrease in wealth

management fees of $2.7 million.

Noninterest Expense.

Noninterest expense for the second quarter of 2026 totaled $42.6 million,

a $1.3 million, or 3.1%, increase over

the first quarter of 2026 and a $0.1 million, or 0.2%, increase over the second quarter

of 2025. The increase over the first quarter of

2026 was primarily attributable to increases in other expense of $0.9 million increase

and occupancy expense of $0.3 million. The

increase over the second quarter of 2025 reflected increases in other

expense of $0.5 million and occupancy expense of $0.2 million

that was partially offset by a $0.6 million decrease in compensation

expense.

For the first six months of 2026, noninterest expense

totaled $84.0 million, a $2.8 million, or 3.4%, increase over the same period

of 2025 and reflected increases in other expense of $3.4

million and occupancy expense of $0.6 million that was partially offset

by a

$1.2 million decrease in compensation expense. The

increase in other expense was primarily due to a $4.2 million increase in ORE expense

which reflected a lower level of gains from the

sale of properties, namely a large gain realized from the

sale of our operations center building in the first quarter of 2025.

Financial Condition

Earning Assets.

Average earning

assets totaled $4.069 billion for the second quarter of 2026, a decrease of $21.0

million, or 0.5%

from the first quarter of 2026, and an increase of $32.9 million, or 0.8% over

the fourth quarter of 2025. Compared to the first quarter

of 2026, the change in earning asset mix reflected a $42.6 million decrease

in overnight funds and a $32.4 million decrease in loans

held for investment, partially offset by a $48.2 million

increase in investment securities and a $5.8 million increase in loans held for

sale (“HFS”). Compared to the fourth quarter of 2025, the change reflected

a $161.3 million increase in investment securities and a

$6.2 million increase in loans HFS, partially offset by a $72.4

million decrease in overnight funds and a $62.2 million decrease in

loans held for investment.

Loans.

Average loans HFI decreased

by $32.4 million, or 1.3%, from the first quarter of 2026, and decreased by $62.2

million, or

2.4%, from the fourth quarter of 2025. Loans HFI at June 30, 2026, decreased

by $18.5 million, or 0.7%, from March 31, 2026, and

decreased by $46.2 million, or 1.8%, from December 31, 2025.

Credit Quality

Nonperforming assets (nonaccrual loans and other real estate) totaled $13.4

million at June 30, 2026 compared to

$13.0 million at March 31, 2026 and $10.5 million at December 31, 2025. At June

30, 2026, nonperforming assets as a percentage of

total assets was 0.30%, compared to 0.29% at March 31, 2026 and 0.24%

at December 31, 2025. Nonaccrual loans totaled $10.0

million at June 30, 2026, a $1.1 million decrease from March 31, 202

and a $1.4 million increase over December 31, 2025. Other real

estate totaled $3.4 million at June 30, 2026, a $1.6 million increase over

March 31, 2026, and a $1.5 million increase over December

31, 2025. Further, classified loans totaled

$29.8 million at June 30, 2026, a $15.3 million increase over

March 31, 2026, and a $15.5

million increase over December 31, 2025. The increase over both

prior periods reflected the downgrade of four commercial real estate

relationships (two private schools totaling $9.8 million ($6.4 million and

$3.4 million), hotel $2.0 million, funeral home $5.0 million).

Deposits

Average total

deposits were $3.679 billion for the second quarter of 2026, a decrease of $12.2

million, or 0.3%, from the

first quarter of 2026 and an increase of $31.3 million, or 0.9%, over the fourth

quarter of 2025. At June 30, 2026, total deposits were

$3.721 billion, a decrease of $30.6 million, or 0.8%, from March 31, 2026,

and an increase of $58.7 million, or 1.6%, from December

31, 2025. Total

public funds balances were $561.5 million at June 30, 2026, $629.9 million at

March 31, 2026, and $654.7 million at

December 31, 2025.

Capital

At June 30, 2026, we were “well-capitalized”

with a total risk-based capital ratio of 22.35% and a tangible common

equity

ratio (a non-GAAP financial measure) of 11.03

compared to 21.62% and 10.79%, respectively,

at March 31, 2026, and 21.45% and

10.79%, respectively,

at December 31, 2025. At June 30, 2026, all of our regulatory capital ratios exceeded

the threshold to be “well-

capitalized”

under the Basel III capital standards.

RESULTS

OF OPERATIONS

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

- a discussion of the various components are discussed

in further detail below.

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

(Dollars in Thousands, except per share data)

2026

2025

2026

2025

Interest Income

51,838

51,020

51,459

102,858

101,241

Taxable Equivalent Adjustments

Total Interest Income (FTE)

51,881

51,060

51,503

102,941

101,329

Interest Expense

7,640

8,203

8,275

15,843

16,510

Net Interest Income (FTE)

44,241

42,857

43,228

87,098

84,819

Provision for Credit Losses

919

712

620

1,631

1,388

Taxable Equivalent Adjustments

Net Interest Income After Provision for Credit Losses

43,279

42,105

42,564

85,384

83,343

Noninterest Income

20,599

19,933

20,014

40,532

39,921

Noninterest Expense

42,640

41,373

42,538

84,013

81,239

Income Before Income Taxes

21,238

20,665

20,040

41,903

42,025

Income Tax Expense

4,961

4,848

4,996

9,809

10,123

Net Income Attributable to Common Shareowners

16,277

15,817

15,044

32,094

31,902

Basic Net Income Per Share

0.95

0.92

0.88

1.88

1.87

Diluted Net Income Per Share

0.95

0.92

0.88

1.87

Net Interest Income

Net interest income represents our single largest source of earnings

and is equal to interest income and fees generated by earning assets

less interest expense paid on interest bearing liabilities.

This information is provided on a “taxable equivalent” basis to reflect the tax-

exempt status of income earned on certain loans and state and local government

debt obligations.

We provide an

analysis of our net

interest income including average yields and rates in Table

I, “Average Balances &

Interest Rates,” on page 47.

Tax-equivalent net

interest income for the second quarter of 2026 totaled $44.2 million, compared

to $42.9 million for the first quarter

of 2026, and $43.2 million for the second quarter of 2025. Compared

to the first quarter of 2026, the increase was attributable to higher

investment securities income and lower deposit interest expense, partially

offset by lower loan interest income and overnight

funds

income due to lower average balances. The increase in investment securities income

reflected new investment purchases at higher rates

and higher balances as we deploy additional liquidity into the investment security

portfolio. The increase over the second quarter of

2025 was also driven by the same aforementioned factors. One additional

calendar day also contributed to the increase over the first

quarter of 2026.

For the first six months of 2026, tax-equivalent net interest income totaled

$87.1 million compared to $84.8 million for the same period

of 2025, primarily attributable to higher investment securities income and

lower deposit interest expense, partially offset by lower

loan

interest income and overnight funds income. New investment purchases

at higher yields and higher balances drove the increase in

investment securities income. The decrease in deposit interest expense reflected

lower public funds deposit balances and lower rates

across our product lines. Lower average loan balances contributed to

the decrease in loan interest income, while the decrease in

overnight funds income reflected the deployment of more liquidity into the

investment portfolio.

Our net interest margin for the second quarter of 2026 was 4.35%,

an increase of 11 basis points over the first quarter of 2026

and an

increase of five basis points over the second quarter of 2025. For the first six

months of 2026, our net interest margin increased by four

basis points to 4.30% compared to the same period of 2025. The increase in

net interest margin over all prior periods was largely

attributable to a higher investment security yield driven by new purchases

at higher rates and lower deposit costs. For the second

quarter of 2026, our cost of funds was 75 basis points, a decrease of six basis points

from the first quarter of 2026, and a decrease of

seven basis points from the second quarter of 2025. Our cost of deposits (including

noninterest bearing accounts) was 76 basis points,

81 basis points, and 81 basis points, respectively,

for the same time periods.

Provision for Credit Losses

We recorded

a provision expense for credit losses of $0.9 million for the second quarter of 2026, compared

to $0.7 million for the first

quarter of 2026 and $0.6 million for the second quarter of 2025. For the first

six months of 2026, we recorded a provision expense for

credit losses of $1.6 million compared to $1.4 million for the first six months of 2025.

For the first six months of 2026, the provision

reflected a $1.5 million expense for loans HFI and a $0.1 million expense for

unfunded loan commitments compared to a $1.8 million

expense for loans HFI and a $0.4 million benefit for unfunded loan commitments

for the first six months of 2025. We

discuss the

various factors that impacted our provision expense in further detail

below under the heading Allowance for Credit Losses.

Noninterest Income

Noninterest income for the second quarter of 2026 totaled $20.6 million, a $0.7

million, or 3.3%, increase over the first quarter of

2026 and a $0.6 million, or 2.9%, increase over the second quarter of 2025. The

increase over the first quarter of 2026 was primarily

attributable to increases in mortgage banking revenues of $0.4 million and bank

card fees of $0.2 million. The increase in mortgage

banking revenues was primarily due to higher production volume and the increase

in bank card fees reflected higher

card volume.

The increase over the second quarter of 2025 was driven by increases in other

income of $0.7 million, mortgage banking revenues of

$0.5 million, and deposit fees of $0.3 million that were partially offset

by a decrease in wealth management fees of $1.0 million.

The

increase in other income was primarily due to a higher level of other fees/commissions,

bank owned life insurance income, and

miscellaneous income. The increase in mortgage banking revenues was due

to a higher gain on sale margin. The decrease in wealth

management fees was attributable to lower retail brokerage fees, which

reflects a decline in assets under management (discussed in

more detail below under

Wealth Management

Fees

For the first six months of 2026, noninterest income totaled $40.5 million,

a $0.6 million, or 1.5%, increase over the same period of

2025 primarily attributable to increases in other income of $1.4 million, mortgage

banking revenues of $0.9 million, and deposit fees

of $0.9 million, that were partially offset by a decrease in wealth management

fees of $2.7 million. The increase in other income was

primarily attributable to a $0.5 million miscellaneous recovery and increases

in other fees/commissions of $0.3 million, miscellaneous

income of $0.2 million, and bank owned life insurance income of $0.1 million.

The increase in mortgage banking revenues reflected a

higher gain on sale margin. Higher service charge

fees and commercial account analysis fees drove the increase in deposit fees.

expect deposit fee income to decline beginning in the third quarter of 2026 due to updates

of our deposit product offerings.

The

decrease in wealth management fees was attributable to the aforementioned

decrease in retail brokerage assets under management and

lower insurance commissions.

Noninterest income represented 31.8% of operating revenues (net

interest income plus noninterest income) in the second quarter of

2026

compared to 31.8% in the first quarter of 2026 and 31.7% in the second quarter of

2025. For the first six months of 2026,

noninterest income represented 31.8% of operating revenues compared

to 32.0% for the same period of 2025.

The table below reflects the major components of noninterest income.

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

(Dollars in Thousands)

2026

2025

2026

2025

Deposit Fees

5,656

5,598

5,320

11,254

10,381

Bank Card Fees

3,858

3,630

3,774

7,488

7,288

Wealth Management

Fees

4,185

4,051

5,206

8,236

10,969

Mortgage Banking Revenues

4,660

4,252

4,190

8,912

8,010

Other

2,240

2,402

1,524

4,642

3,273

Total

Noninterest Income

20,599

19,933

20,014

40,532

39,921

Significant components of noninterest income are discussed in more

detail below.

Deposit Fees

Deposit fees for the second quarter of 2026

totaled $5.7

million, an increase of $0.1 million, or 1.0%, over the first

quarter of 2026, and an increase of $0.3

million, or 6.3%, over the second quarter of 2025. For the first six months of

2026, deposit

fees totaled $11.3 million, a $0.9 million, or 8.4%,

increase over the same period of 2025. Compared to all prior periods

the increases

were primarily due to higher service charge fees and commercial

account analysis fees. We

are currently in the process of reviewing

and updating our deposit product offerings against peer and

industry best practices and we expect modifications will reduce related

fee

revenues beginning in the third quarter of 2026.

Bank Card Fees

Bank card fees for the second quarter of 2026 totaled $3.9

million, an increase of $0.3 million over the first quarter

of 2026, and an increase of $0.1 million, or 2.2%, over the second quarter

of 2025. For the first six months of 2026, bank card fees

totaled $7.5 million, a $0.2 million, or 2.7% increase over the same period

of 2025. The increase over all prior periods reflected higher

card volume.

Wealth

Management Fees

Wealth management fees

include trust fees through Capital City Trust (i.e., managed

accounts and

trusts/estates), and retail brokerage fees through Capital City Investments (i.e.,

investment, insurance products, and retirement

accounts).

Wealth management fees

for the second quarter of 2026 totaled $4.2 million, an increase of $0.1

million, or 3.3%, over the

first quarter of 2026 and a $1.0 million, or 19.6%, decrease from

the second quarter of 2025. For the first six months of 2026, wealth

management fees totaled $8.2 million, a decrease of $2.7 million,

or 24.9%, from the same period of 2025. The decrease compared to

all prior periods was primarily attributable to a decrease in retail brokerage

assets under management.

Further, to a lesser extent, lower

insurance commissions contributed to the decrease for the

six month period comparison and reflected the sale of our insurance

subsidiary in the third quarter of 2025. At June 30, 2026, total assets under management

were approximately $2.839 billion compared

to $2.691 billion at March 31, 2026 and $3.192 billion at June 30, 2025.

The increase over March 31, 2026 reflected higher account

valuations.

Compared to June 30, 2025, the decline was due to lower retail brokerage assets partially attributable

to the sale of our

insurance subsidiary in the third quarter of 2025.

Mortgage Banking Revenues.

Mortgage banking revenues totaled $4.7 million for the second quarter

of 2026, an increase of $0.4

million, or 9.6%, over the first quarter of 2026 and an increase of $0.5

million, or 11.2%, over the second quarter of 2025.

For the first

six months of 2026, mortgage banking revenues totaled $8.9

million, an increase of $0.9 million, or 11.3%

over the same period of

2025. The increase compared to the first quarter of 2026 was primarily due

to higher production volume. The increase compared to the

second quarter of 2025 and the first six months of 2025 was attributable

to a higher gain on sale margin for loan sales. We

provide a

detailed overview of our mortgage banking operation, including

a detailed break-down of mortgage banking revenues, mortgage

servicing activity,

and warehouse funding within Note 4 – Mortgage Banking Activities in the Notes

to Consolidated Financial

Statements.

Other

Other income totaled $2.2 million for the second quarter of 2026,

a decrease of $0.2 million, or 6.7%, from the first quarter of

2026, and an increase of $0.7 million, or 47.0%, over the second

quarter of 2025. For the first six months of 2026, other income

totaled $4.6 million, a $1.4

million, or 41.8%, increase over the same period of 2025. The decrease compared

to the first quarter of

2026 was primarily attributable to a $0.5 million miscellaneous recovery

in the first quarter of 2026. The increase compared to the

second quarter of 2025 was primarily due to a higher level of other fees/commissions,

bank owned life insurance income, and other

miscellaneous income. The increase compared to the first six months of 2025

was primarily attributable to the aforementioned $0.5

million miscellaneous recovery and increases in other fees/commissions of

$0.3 million, miscellaneous income of $0.2 million, and

bank owned life insurance income of $0.1 million.

Noninterest Expense

Noninterest expense for the second quarter of 2026 totaled $42.6 million,

a $1.3 million, or 3.1%, increase over the first quarter of

2026 and a $0.1 million, or 0.2%, increase over the second quarter of 2025. The

increase over the first quarter of 2026 was primarily

attributable to increases in other expense of $0.9 million and occupancy expense

of $0.2

million. Increases in other real estate (ORE)

expense of $0.4 million, travel/entertainment expense of $0.2 million,

professional fees of $0.1 million, and miscellaneous expenses of

$0.1 million drove the increase in other expense. The increase in occupancy

expense was primarily attributable to higher FF&E

maintenance agreement expense. The increase over the second quarter

of 2025 reflected increases in other expense of $0.5 million and

occupancy expense of $0.2 million that was partially offset by a

$0.6 million decrease in compensation expense, including a $0.3

million decline in salary expense and $0.3 million decrease in associate benefits.

For the first six months of 2026, noninterest expense totaled $84.0 million,

a $2.8 million, or 3.4%, increase over the same period of

2025 and reflected increases in other expense of $3.4 million and occupancy

expense of $0.6 million that was partially offset by a

$1.2 million decrease in compensation expense. The increase in other

expense was primarily due to a $4.2 million increase in ORE

expense which reflected a lower level of gains from the sale of properties, namely

a large gain realized from the sale of our operations

center building in the first quarter of 2025. Higher expense for charitable

contributions of $0.6 million was partially offsetting. The

increase in occupancy expense reflected higher expense for FF&E maintenance

agreements and software licenses. The decrease in

compensation expense reflected lower salary expense of $0.9 million and

associate benefit expense of $0.3 million. Lower

commission expense drove the decline in salary expense and the decrease

in associate benefit expense was attributable to lower stock

based compensation.

The table below reflects the major components of noninterest expense.

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

(Dollars in Thousands)

2026

2025

2026

2025

Salaries

21,668

21,372

22,013

43,040

43,896

Associate Benefits

4,168

4,331

4,477

8,499

8,842

Total Compensation

25,836

25,703

26,490

51,539

52,738

Premises

3,096

3,179

3,272

6,275

6,444

Equipment

4,223

3,904

3,799

8,127

7,420

Total Occupancy

7,319

7,083

7,071

14,402

13,864

Legal Fees

537

500

480

1,037

984

Professional Fees

1,400

1,305

1,518

2,705

3,140

Processing Services

2,440

2,433

2,491

4,873

4,960

Advertising

854

870

801

1,724

1,639

Telephone

845

820

714

1,665

1,433

Insurance – Other

738

732

757

1,470

1,489

Other Real Estate Owned, net

117

(321)

(204)

(4,449)

Pension - Other

(744)

(745)

(872)

(1,489)

(1,745)

Miscellaneous

3,298

2,993

3,067

6,291

7,186

Total Other

9,485

8,587

8,977

18,072

14,637

Total

Noninterest Expense

42,640

41,373

42,538

84,013

81,239

Significant components of noninterest expense are discussed in more detail

below.

Compensation.

Compensation expense totaled $25.8

million for the second quarter of 2026, an increase of $0.1 million, or 0.5%, over

the first quarter of 2026

and a decrease of $0.7 million, or 2.5%, from the second quarter of 2025. Compared

to the first quarter of

2026, the increase reflected a $0.3 million increase in salary expense (incentive

compensation) and $0.2 million decrease in associate

benefit expense (stock-based compensation).

Compared to the second quarter of 2025, the decrease was driven by a $0.4

million

decrease in salary expense (primarily commissions), and lower associate benefit

expense of $0.3 million (stock-based compensation).

For the first six months of 2026, compensation expense totaled $51.5

million compared to $52.7 million for the same period of 2025

with the $1.2 million decrease reflective of a $0.9 million decrease in salary

expense (commissions in the wealth division) and a $0.3

million decrease in associate benefit expense (stock-based compensation).

Occupancy

. Occupancy expense totaled $7.3 million for the second quarter of 2026, a $0.

million, or 3.3%, increase over the first

quarter of 2026 and a $0.2

million, or 3.5%, increase over the second quarter of 2025. For the first six months of 2026,

occupancy

expense totaled $14.4 million, a $0.5 million, or 3.9%, increase over

the same period of 2025. The increase compared to all prior

periods was primarily attributable to higher FF&E maintenance agreement

expense.

Other

. Other expense totaled $9.5 million for the second quarter of 202

compared to $8.6 million for the first quarter of 2026

and

$9.0 million for the second quarter of 2025. For the first six months

of 2026, other expense totaled $18.1 million compared to $14.6

million for the same period of 2025. Compared to the first quarter of 2026, the $0.9

million, or 10.5%, increase was primarily

attributable to increases in other real estate (ORE) expense of $0.4 million,

travel/entertainment expense of $0.2 million, professional

fees of $0.1 million, and miscellaneous expenses of $0.1 million. Higher

miscellaneous expenses drove the $0.5 million, or 5.6%,

increase over the second quarter of 2025. The $3.4 million, or 23.4%,

increase for the six month period was primarily due to a $4.2

million increase in ORE expense which reflected a lower level of gains from the sale of

properties, namely a large gain realized from

the sale of our operations center building in the first quarter of 2025. Higher

expense for charitable contributions of $0.6 million was

partially offsetting.

Our operating efficiency ratio (expressed as noninterest

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

plus noninterest income) was 65.76% for the second quarter of 2026

compared to 65.89% for the first quarter of 2026

and 67.26% for

the second quarter of 2025. For the first six months of 2026, this ratio was 65.83%

compared to 65.13% for the same period of 2025.

Income Taxes

We realized income

tax expense of $5.0 million (effective rate of 23.4%) for the second

quarter of 2026, compared to $4.8 million

(effective rate of 23.5%) for the first quarter of 2026 and $5.0

million (effective rate of 24.9%) for the second quarter of 2025.

For the

first six months of 2026, we realized income tax expense of $9.8 million (effective

rate of 23.4%) compared to $10.1 million

(effective rate of 24.1%) for the same period of 2025. The

effective rate for the second quarter of 2026 reflected a tax benefit related

an investment in a solar tax equity fund during the quarter and the effective

rate for the first quarter of 2026 included a discrete item

related to stock-based compensation. Absent discrete items or new tax

credit investments, we expect our annual effective tax rate to

approximate 23.5% for 2026.

FINANCIAL CONDITION

Average earning

assets totaled $4.069 billion for the second quarter of 2026, a decrease of $21.0 million, or

0.5% from the first

quarter of 2026, and an increase of $32.9 million, or 0.8% over the fourth

quarter of 2025. Compared to the first quarter of 2026, the

change in earning asset mix reflected a $42.6 million decrease in overnight funds

and a $32.4 million decrease in loans held for

investment, partially offset by a $48.2 million increase in

investment securities and a $5.8 million increase in loans held for sale

(“HFS”). Compared to the fourth quarter of 2025, the change reflected a $161.3 million

increase in investment securities and a $6.2

million increase in loans HFS, partially offset by a $72.4 million decrease

in overnight funds and a $62.2 million decrease in loans

held for investment.

Investment Securities

Average investments

totaled $1.167 billion in the second quarter of 2026, a $48.2 million, or 4.31%,

increase over the first quarter of

2026

and a $161.3 million, or 16.0%

increase over the fourth quarter of 2026. Our investment portfolio represented 28.7% of

our

average earning assets for the second quarter of 2026 compared

to 27.4% for the first quarter of 2026 and 24.9% for the fourth quarter

of 2025.

For the remainder of 2026, we will continue to monitor our overall liquidity

position and market conditions to determine if

cash flow from the investment portfolio should be reinvested or utilized

to support loan growth.

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

it functions as a key element of liquidity and

asset/liability management.

Two types of classifications are approved

for investment securities which are Available

-for-Sale (“AFS”)

and Held-to-Maturity (“HTM”).

At June 30, 2026, $853.6 million, or 73.6%, of the investment portfolio was classified as AFS and

$304.5

million, or 26.3%, was classified as HTM. The average maturity of our total portfolio at June

30, 2026 was 2.95 years

compared to 2.98 years at March 31, 2026

and 2.57 years at December 31, 2025.

The duration of our investment portfolio at June 30,

2026

was 2.60 years compared to 2.64 years at March 31, 2026 and 2.12 years at December 31,

2025.

Additional information on

unrealized gains/losses in the AFS and HTM portfolios is provided

in Note 2 – Investment Securities.

determine the classification of a security at the time of acquisition based

on how the purchase will affect our asset/liability strategy

and future business plans and opportunities.

consider multiple factors in determining classification, including

regulatory capital

requirements, volatility in earnings or other comprehensive income,

and liquidity needs. Securities in the AFS portfolio are recorded at

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

net of tax, in the accumulated other

comprehensive income component of shareowners’ equity.

HTM securities are acquired or owned with the intent of holding

them to

maturity.

HTM investments are measured at amortized cost.

do not trade, nor do we presently intend to begin trading investment

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

maintain a trading portfolio.

At June 30, 2026, there were 816 positions (combined AFS and HTM)

with unrealized pre-tax losses totaling $29.4 million. 69 of

these positions are U.S. Treasury bonds

and carry the full faith and credit of the U.S. Government. 675 are U.S. government agency

securities issued by U.S. government sponsored entities.

We believe

the long history of no credit losses on government securities

indicates that the expectation of nonpayment of the amortized cost basis is effectively

zero.

At June 30, 2026, all collateralized

mortgage obligation securities, mortgage-backed securities, Small Business

Administration securities, U.S. Agency,

and U.S. Treasury

bonds held were rated AA+ or higher.

The remaining 72 positions (municipal securities and corporate bonds) have

a credit

component.

At June 30, 2026, municipal securities and corporate debt securities had an

immaterial allowance for credit losses.

None

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

30, 2026.

Loans HFI

Average loans

HFI decreased by $32.4 million, or 1.3% from the first quarter of 2026, and decreased by $62.2

million, or 2.4% from

the fourth quarter of 2025. Compared to the first quarter of 2026, the decline

was primarily attributable to decreases in residential real

estate loans of $14.4 million, commercial real estate loans of $14.4 million, and

commercial loans of $5.2 million, partially offset by

increases in home equity loans of $1.9 million. Compared to the fourth quarter

of 2025, the decline was primarily attributable to

decreases in residential real estate loans of $30.6 million, commercial real

estate loans of $24.5 million, commercial loans of $6.6

million, construction loans of $4.1 million, consumer loans (primarily indirect

auto) of $2.9 million, partially offset by an increase in

home equity loans of $5.9 million.

Loans HFI at June 30, 2026, decreased by $18.5 million, or 0.7% from March

31, 2026, and decreased by $46.2 million, or 1.8%,

from December 31, 2025. Compared to March 31, 2026, the decline was primarily

due to decreases in other loans of $9.7 million,

construction loans of $7.5 million, and commercial real estate loans of

$5.2 million, partially offset by increases in commercial loans

of $2.3 million, and consumer loans (primarily indirect auto) of $1.3

million. Compared to December 31, 2025, the decline was

primarily attributable to decreases in residential real estate loans of $22.8 million,

commercial real estate loans of $18.1 million,

commercial loans of $7.8 million, other loans of $2.1 million, consumer loans

(primarily indirect auto) of $1.5 million, partially offset

by increases in home equity loans of $3.6 million, and construction loans of $2.2

million.

Without compromising our credit standards

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

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

Credit Quality

Nonperforming assets (nonaccrual loans and other real estate) totaled $13.4

million at June 30, 2026 compared to $13.0 million at

March 31, 2026 and $10.5 million at December 31, 2025. At June 30, 2026, nonperforming

assets as a percentage of total assets was

0.30%, compared to 0.29% at March 31, 2026 and 0.24% at December 31, 2025.

Nonaccrual loans totaled $10.0 million at June 30,

2026, a $1.1 million decrease from March 31, 2026 and a $1.4 million increase over

December 31, 2025. Other real estate totaled $3.4

million at June 30, 2026, a $1.6 million increase over March 31, 2026 and $1.5 million

increase over December 31, 2025. Further,

classified loans totaled $29.8 million at June 30, 2026, a $15.3 million increase

over March 31, 2026 and a $15.5 million increase over

December 31, 2025. The increase over both prior periods reflected the

downgrade of four commercial real estate relationships (two

private schools $9.8 million ($6.4 million and $3.4 million), hotel $2.0

million, funeral home $5.0 million).

Allowance for Credit Losses

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

the loans’ amortized cost basis to present the net amount

expected to be collected on the loans.

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

earnings and reduced by the charge-off

of loan amounts (net of recoveries).

Loans are charged off against the allowance when

management believes the uncollectability of a loan balance is confirmed.

Expected recoveries do not exceed the aggregate of amounts

previously charged-off and expected to be charged

-off.

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

exposures is provided through the credit loss provision but recorded

as a separate liability included in other liabilities.

Management estimates the allowance balance using relevant available

information, from internal and external sources relating to past

events, current conditions, and reasonable and supportable forecasts.

Historical loan default and loss experience provides the basis for

the estimation of expected credit losses.

Adjustments to historical loss information incorporate management’s

view of current

conditions and forecasts.

At June 30, 2026, the allowance for credit losses for loans HFI totaled $31.0

million comparable to March 31, 2026 and December 31,

2025. Activity within the allowance is provided in Note 3 – Loans Held

for Investment and Allowance for Credit Losses in the Notes

to Consolidated Financial Statements. Net loan charge

-offs were 14 basis points of average loans for the second quarter of 2026 versus

10 basis points for the first quarter of 2026 and 18 basis points for the fourth

quarter of 2025. At June 30, 2026, the allowance

represented 1.24% of loans HFI compared to 1.23% at March 31, 2026,

and 1.22% at December 31, 2025.

At June 30, 2026, the allowance for credit losses for unfunded commitments

totaled $2.2

million compared to $2.2 million and $2.1

million at March 31, 2026 and December 31, 2025, respectively.

The slight change in the allowance for unfunded commitments from

December 31, 2025 reflected a variance in the level of unfunded loan commitments.

The allowance for unfunded commitments is

recorded in other liabilities.

Deposits

Average total

deposits were $3.679 billion for the second quarter of 2026, a decrease of $12.2 million, or 0.3%

from the first quarter

of 2026, and an increase of $31.3 million, or 0.9%, over the fourth quarter

of 2025. Compared to the first quarter of 2026, the decrease

was primarily attributable to lower public funds balances of $43.5

million (primarily NOW account balances) as those balances begin

to seasonally decline in the second quarter, partially

offset by higher core account balances of $31.3 million (primarily MMA and

noninterest bearing checking). The increase over the fourth quarter of 2025

was primarily due to higher public funds balances of $56.1

million, partially offset by lower core deposit balances

of $24.8 million.

At June 30, 2026, total deposits were $3.721 billion, a decrease of $30.6

million, or 0.8% from March 31, 2026, and an increase of

$58.7 million, or 1.6% over December 31, 2025. The decrease from March

31, 2026, was driven by lower public funds balances of

$68.4 million (primarily NOW accounts), partially offset by an

increase in core deposit balances of $37.8 million (primarily

noninterest bearing accounts). The increase over December 31,

2025, was primarily due to core deposit growth of $151.9 million,

partially offset by lower public funds balances of $93.2 million.

Total public funds balances were

$561.5 million at June 30, 2026,

$629.9 million at March 31, 2026, and $654.7 million at December 31,

2025, respectively.

Business deposit transaction accounts classified as repurchase agreements

averaged $10.9 million for the second quarter of 2026, a

decrease of $4.9 million from the first quarter of 2026

and a decrease of $9.8 million from the fourth quarter of 2025. At June 30,

2026, repurchase agreement balances were $7.4 million compared

to $4.6 million at March 31, 2026 and $22.0 million at December

31, 2025.

We continue

to closely monitor our cost of deposits and deposit mix as we manage through the current rate

environment.

MARKET RISK AND INTEREST RATE

SENSITIVITY

Market Risk and Interest Rate Sensitivity

Overview.

Market risk arises from changes in interest rates, exchange rates,

commodity prices, and equity prices.

We have risk

management policies designed to monitor and limit exposure to market

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

significant market risk involving exchange rates, commodity prices, or

equity prices.

In asset and liability management activities, our

policies are designed to minimize structural interest rate risk.

Interest Rate Risk Management.

Our net income is largely dependent on net interest income.

Net interest income is susceptible to

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

or reprice on a different basis than interest-earning assets.

When

interest-bearing liabilities mature or reprice more quickly

than interest-earning assets in a given period, a significant increase in

market rates of interest could adversely affect net interest

income.

Similarly, when interest-earning

assets mature or reprice more

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

result in a decrease in net interest income.

Net interest

income is also affected by changes in the portion of interest-earning

assets that are funded by interest-bearing liabilities rather than by

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

equity.

We have established

what we believe to be a comprehensive interest rate risk management policy,

which is administered by

management’s Asset Liability Management

Committee (“ALCO”).

The policy establishes limits of risk, which are quantitative

measures of the percentage change in net interest income (a measure of net

interest income at risk) and the fair value of equity capital

(a measure of economic value of equity (“EVE”) at risk) resulting from a hypothetical change

in interest rates for maturities from one

day to 30 years.

We measure the potential

adverse impacts that changing interest rates may have on our short-term

earnings, long-

term value, and liquidity by employing simulation analysis through the use of

computer modeling.

The simulation model captures

optionality factors such as call features and interest rate caps and floors

embedded in investment and loan portfolio contracts.

As with

any method of gauging interest rate risk, there are certain shortcomings

inherent in the interest rate modeling methodology used by

us.

When interest rates change, actual movements in different categories

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

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

from assumptions used in the model.

Finally, the

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

on adjustable-rate loan clients’ ability to service their

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

The statement of financial condition is subject to testing for both parallel and

upward and downward shifts in interest rates (assuming

no balance sheet growth) to indicate the inherent interest rate risk. We

prepare a base case (assumes a static rate environment) and

several alternative interest rate simulations for various ranges of upward and downward

interest rate changes. This analysis is prepared

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

Risk Oversight Committee (“ROC”) and the

Board of Directors. We

will periodically augment our interest rate simulations with alternative interest

rate scenarios that may include

various non-parallel shifts in interest rates, including a flattening or steepening

of the yield curve.

Our goal is to structure the statement of financial condition so that net interest earnings at risk over

12-month and 24-month periods

and the economic value of equity at risk do not exceed policy guidelines

at the various interest rate shock levels. We

attempt to

achieve this goal by balancing, within policy limits, the volume of floating-rate

liabilities with a similar volume of floating-rate assets,

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

reasonably matched, by managing the mix of our core

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

basis.

Analysis.

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

indicators of an institution’s short-term

performance in alternative rate environments.

These measures are typically based upon a relatively brief period, and do not

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

The following table presents our net interest income

simulation results for gradual 12-month and 24-month “ramp” scenarios

applied to the base scenario. The “ramp” scenario is a parallel

shift applied gradually over a 12-month period for the projected 12-month

and 24-month period on a pro rata basis.

ESTIMATED CHANGES

IN NET INTEREST INCOME

As of June 30, 2026

% Change in NII

Change in Interest Rates

12 Months

24 Months

+200 bp Ramp

4.8%

18.0%

+100 bp Ramp

2.4%

11.0%

-100 bp Ramp

-2.3%

-3.6%

-200 bp Ramp

-4.8%

-11.5%

As of March 31, 2026

% Change in NII

Change in Interest Rates

12 Months

24 Months

+200 bp Ramp

5.0%

17.7%

+100 bp Ramp

2.5%

10.7%

-100 bp Ramp

-2.5%

-4.2%

-200 bp Ramp

-5.1%

-12.3%

The Net Interest Income (“NII”) at Risk position of an instantaneous,

parallel rate shock indicates that in the short-term (over the next

12 months), all rising rate environments will positively impact the net

interest margin of the Company,

while declining rate

environments

will have a negative impact on the net interest margin.

Compared to the first quarter of 2026, these metrics became

more favorable in the declining rate scenarios due to the deployment of variable

rate overnight funds into the investment securities

portfolio.

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

% Change in EVE

EVE Ratio

Changes in Interest

Rates

June 30, 2026

March 31, 2026

June 30, 2026

March 31, 2026

+200 bp Shock

10.6%

9.5%

27.2%

26.5%

+100 bp Shock

7.0%

6.2%

25.9%

25.3%

-100 bp Shock

-9.0%

-9.5%

21.4%

20.9%

-200 bp Shock

-20.7%

-20.8%

18.3%

18.0%

At June 30, 2026, the economic value of equity was favorable in

all rising rate environments and unfavorable in the falling rate

environments.

EVE was within prescribed tolerance levels as the EVE ratio (EVE/EVA)

in all rate scenarios is greater than 5.0%.

Factors that can impact EVE values include the absolute level of rates, the overall

structure of the balance sheet (including liquidity

levels), pre-payment speeds, loan floors, and the change of model assumptions.

As the interest rate environment and the dynamics of the economy continue to change,

additional simulations will be analyzed to

address not only the changing rate environment, but also the change

in mix of our financial assets and liabilities measured over

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

LIQUIDITY AND CAPITAL

RESOURCES

Liquidity

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

cash needs.

Our objective in managing our liquidity is to

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

other liabilities in accordance with their

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

Our liquidity strategy is guided by policies that are formulated and

monitored by our ALCO and senior management, which take into

account the marketability of assets, the sources and stability of

funding and the level of unfunded commitments.

We regularly evaluate

all of our various funding sources with an emphasis on

accessibility, stability,

reliability and cost-effectiveness.

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

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

repurchase agreements, federal funds purchased and

FHLB borrowings.

We believe that the cash

generated from operations, our borrowing capacity and our access to

capital resources are

sufficient to meet our future operating capital and funding requirements.

At June 30, 2026, we had the ability to generate approximately $1.721

billion (excludes overnight funds position of $413 million) in

additional liquidity through various sources including various federal funds

purchased lines, Federal Home Loan Bank borrowings, the

Federal Reserve Discount Window,

and brokered deposits. We

recognize the importance of maintaining liquidity and have developed

a Contingent Liquidity Plan, which addresses various liquidity stress levels and

our response and action based on the level of severity.

We periodically

test our credit facilities for access to the funds but also understand that as the severity

of the liquidity level increases

certain credit facilities may no longer be available.

We conduct a liquidity

stress test on a quarterly basis based on events that could

potentially occur at the Bank and report results to our ALCO, MROC, EROC, and

Board of Directors.

We believe the

liquidity

available to us at June 30, 2026

was sufficient to meet our ongoing needs and execute our business strategy.

We also view our

investment portfolio as a liquidity source and have the option to pledge securities in our

portfolio as collateral for

borrowings or deposits, and/or to sell selected securities. Our portfolio consists of

debt issued by the U.S. Treasury,

U.S. governmental

agencies, municipal governments, and corporate entities. Additional

information on our investment portfolio is provided within Note 2

– Investment Securities.

The Bank maintained an average net overnight funds (i.e., deposits with banks

plus FED funds sold, less FED funds purchased) sold

position of $365.1 million in the second quarter of 2026

compared to $407.7 million in the first quarter of 2026 and $437.5

million in

the fourth quarter of 2025. Compared to the first quarter of 2026, the variance

reflected lower average deposits and the deployment of

excess liquidity into the investment security portfolio. Compared to the fourth

quarter of 2025, the variance was driven by the

deployment of excess liquidity into the investment security portfolio.

During the first six months of 2026, excess liquidity was

partially deployed into investment securities as loan demand remained selective

and management continued its disciplined

underwriting approach. Management believes the repositioning enhances

earnings while maintaining appropriate liquidity levels.

We expect our

capital expenditures will be approximately $10.0 million over the next 12 months,

which will primarily consist of

construction of a new office, office remodeling,

office equipment/furniture, and technology purchases.

Management expects that

these capital expenditures will be funded with existing resources without impairing

our ability to meet our ongoing obligations.

Borrowings

Average short

-term borrowings totaled $44.5 million for the second quarter of 2026 compared

to $43.6 million for the first quarter of

2026

and $41.6 million for the fourth quarter of 2025.

The increase from both prior periods reflected higher mortgage warehouse

borrowing activity,

partially offset by lower repurchase agreement balances

Additional detail on warehouse borrowings is provided

in Note 4 – Mortgage Banking Activities in the Consolidated Financial Statements.

We have issued two

junior subordinated deferrable interest notes to our wholly owned

Delaware statutory trusts.

The first note for

$30.9 million was issued to CCBG Capital Trust I in

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

We made

principal payments on this note of $4.1 million and $5.1 million in the first quarter

of 2026 and the second quarter of 2025,

respectively.

The second note for $32.0 million was issued to CCBG Capital Trust

II in May 2005. We

made principal payments on

this note of $5.1 million each in the first quarter of 2026 and the second quarter

of 2025. The interest payment for the CCBG Capital

Trust I borrowing is due quarterly and adjusts quarterly

to a variable rate of three-month CME Term

SOFR (secured overnight

financing rate) plus a margin of 1.90%. This note

matures on December 31, 2034. The interest payment for the CCBG Capital Trust

borrowing is due quarterly and adjusts quarterly to a variable interest rate based

on three-month CME Term

SOFR plus a margin of

1.80%.

This note matures on June 15, 2035.

The proceeds from these borrowings were used to partially fund acquisitions.

Under the

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

if we elect to defer interest on the note, we may

not, with certain exceptions, declare or pay dividends or make distributions on our

capital stock or purchase or acquire any of our

capital stock.

The Company previously maintained 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).

In October 2025, the interest rate swaps were terminated.

Additional detail on the interest rate swap

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

Statements.

Capital

Our capital ratios are presented in the Selected Quarterly Financial

Data table on page 39.

At June 30, 2026, our regulatory capital

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

under the Basel III capital standards.

Shareowners’ equity was $570.1 million at June 30, 2026 compared

to $559.9 million at March 31, 2026 and $552.9 million at

December 31, 2025. For the first six months of 2026, shareowners’

equity was positively impacted by net income attributable to

shareowners of $32.1 million, the issuance of stock of $3.4 million, and

stock compensation accretion of $0.9

million. Shareowners’

equity was reduced by a common stock dividends

of $9.2 million ($0.54 per share), repurchases of our common stock of

$2.6 million

(63,088 shares), net adjustments totaling $2.6 million related to transactions

under our stock-based compensation plans, and an

unfavorable net change of $4.8 million in accumulated other comprehensive

loss due to an unfavorable fair value mark on the

investment securities portfolio driven by higher bond rates in the second

quarter of 2026.

At June 30, 2026, our total risk-based capital ratio was 22.35% compared to

21.62% at March 31, 2026 and 21.45% at December 31,

2025. Our common equity tier 1 capital ratio was 19.80%, 19.08%, and 18.56%,

respectively, on

these dates. Our leverage ratio was

11.96%, 11.

65%, and 11.77%, respectively,

on these dates. At June 30, 2026, all our regulatory capital ratios exceeded the thresholds

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

Further, our tangible common equity ratio (non-GAAP

financial measure) was 11.03% at June 30,

2026, compared to 10.79% at both March 31, 2026, and December 31, 2025. If

our

unrealized held-to-maturity securities loss of $7.8

million (after-tax) were recognized in accumulated

other comprehensive loss, our

adjusted tangible capital ratio would be 10.85%.

Our tangible capital ratio is also impacted by the recording of our unfunded pension

liability through other comprehensive income in

accordance with Accounting Standards Codification

Topic 715. At June 30, 2026,

March 31, 2026 and December 31, 2025, the net

pension asset reflected in other comprehensive income was $9.4

million. This liability is re-measured annually on December 31

based on an actuarial calculation of our pension liability.

Significant assumptions used in calculating the liability include the

weighted

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

the weighted average expected long-term rate of return

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

all of which will vary when re-measured. The discount

rate assumption used to calculate the pension liability is subject to long-term corporate bond

rates at December 31

. These

assumptions and sensitivities are discussed in the section entitled “Critical Accounting

Policies and Estimates” in Part II, Item7.

Management’s Discussion and Analysis

of Financial Condition and Results of Operations, of our 2025

Form 10-K.

OFF-BALANCE SHEET ARRANGEMENTS

We are a party

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

course of business to meet the financing needs of our

clients.

At June 30, 2026, we had $637.5 million in commitments to extend credit

and $7.3 million in standby letters of credit.

Commitments

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

condition established in the contract.

Commitments generally have fixed expiration dates or other termination

clauses and may require payment of a fee.

Since many of the

commitments are expected to expire without being drawn upon,

the total commitment amounts do not necessarily represent future

cash requirements.

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

the performance of a client to a

third party.

We use the same credit policies

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

sheet

instruments.

If commitments arising from these financial instruments continue to require

funding at historical levels, management does not

anticipate that such funding will adversely impact our ability to meet our ongoing

obligations.

In the event these commitments require

funding in excess of historical levels, management believes current liquidity,

advances available from the FHLB and the Federal

Reserve, and investment security maturities provide a sufficient

source of funds to meet these commitments.

Certain agreements provide that the commitments are unconditionally

cancellable by the bank and for those agreements no allowance

for credit losses has been recorded.

have recorded an allowance for credit losses on loan commitments that are not

unconditionally cancellable by the Bank, which is included in other

liabilities on the Consolidated Statements of Financial Condition

and totaled $2.2 million at June 30, 2026.

CRITICAL ACCOUNTING POLICIES

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

Financial Statements included in our 2025 Form 10-K.

The preparation of our Consolidated Financial Statements

in accordance with GAAP and reporting practices applicable to the banking

industry requires us to make estimates and assumptions that affect

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

and to disclose contingent assets and liabilities.

Actual results could differ from those estimates.

We have identified

accounting for (i) the allowance for credit losses, (ii) goodwill,

(iii) pension assumptions, and (iv) income taxes as

our most critical accounting policies and estimates in that they are important

to the portrayal of our financial condition and results, and

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

the effects of matters that are

inherently uncertain.

These accounting policies, including the nature of the estimates and types of

assumptions used, are described

throughout this Item 2, Management’s

Discussion and Analysis of Financial Condition and Results of Operations, and

Part II, Item 7,

Management’s Discussion and Analysis

of Financial Condition and Results of Operations included

in our 2025 Form 10-K.

TABLE I

AVERAGE BALANCES & INTEREST RATES (UNAUDITED)

Three Months Ended June 30,

Six Months Ended June 30,

2026

2025

2026

2025

Average

(Dollars in Thousands)

Balances

Interest

Rate

Balances

Interest

Rate

Balances

Interest

Rate

Balances

Interest

Rate

Assets:

Loans Held for Sale

30,505

500

6.57

22,668

475

8.40

27,626

904

6.60

23,692

965

8.21

Loans Held for Investment

(1)(2)

2,505,875

37,751

6.04

2,652,572

40,436

6.11

2,522,007

75,637

6.05

2,659,204

80,465

6.10

Taxable Securities

1,165,965

10,249

3.52

1,006,514

6,666

2.65

1,141,869

19,291

3.39

994,068

12,468

2.52

Tax-Exempt Securities

(2)

1,356

4.41

1,467

4.50

1,487

4.32

1,158

4.43

Federal Funds Sold and Interest Bearing

Deposits

365,126

3,366

3.70

348,787

3,909

4.49

386,285

7,077

3.69

334,944

7,405

4.46

Total Earning Assets

4,068,827

51,881

5.11

4,032,008

51,503

5.12

4,079,274

102,941

5.08

4,013,066

101,329

5.09

Cash & Due From Banks

64,337

65,761

63,712

69,593

Allowance For Credit Losses

(31,602)

(30,492)

(31,574)

(30,251)

Other Assets

305,809

302,984

301,694

300,336

TOTAL ASSETS

4,407,371

4,370,261

4,413,106

4,352,744

Liabilities:

Noninterest Bearing Deposits

1,308,276

1,342,304

1,295,703

1,329,933

NOW Accounts

1,263,616

3,938

1.25

1,225,697

3,750

1.23

1,283,146

8,159

1.28

1,237,759

7,604

1.24

Money Market Accounts

419,983

1,857

1.77

431,774

2,340

2.17

411,708

3,609

1.77

425,949

4,527

2.14

Savings Accounts

513,815

100

0.08

507,950

174

0.14

511,595

232

0.09

507,813

350

0.14

Other Time Deposits

173,086

1,038

2.41

172,982

1,141

2.65

182,711

2,328

2.57

171,682

2,307

2.71

Total Interest Bearing Deposits

2,370,500

6,933

1.17

2,338,403

7,405

1.27

2,389,160

14,328

1.21

2,343,203

14,788

1.27

Total Deposits

3,678,776

6,933

0.76

3,680,707

7,405

0.81

3,684,863

14,328

0.78

3,673,136

14,788

0.81

Repurchase Agreements

10,917

2.24

22,557

156

2.78

13,340

134

2.03

26,169

320

2.47

Other Short-Term Borrowings

33,545

349

4.17

10,503

179

6.82

30,706

676

4.44

8,978

296

6.64

Subordinated Notes Payable

33,303

288

3.42

51,981

530

4.03

37,438

686

3.64

52,432

1,090

4.13

Other Long-Term Borrowings

660

5.78

792

2.41

670

5.73

793

4.04

Total Interest Bearing Liabilities

2,448,925

7,640

1.25

2,424,236

8,275

1.37

2,471,314

15,843

1.29

2,431,575

16,510

1.37

Other Liabilities

76,331

76,138

75,321

70,705

TOTAL LIABILITIES

3,833,532

3,842,678

3,842,338

3,832,213

TOTAL SHAREOWNERS’ EQUITY

573,839

527,583

570,768

520,531

TOTAL LIABILITIES, TEMPORARY

AND SHAREOWNERS’ EQUITY

4,407,371

4,370,261

4,413,106

4,352,744

Interest Rate Spread

3.86

3.75

3.79

3.72

Net Interest Income

44,241

43,228

87,098

84,819

Net Interest Margin

(3)

4.35

4.30

4.26

(1)

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

Interest income includes loan costs of $0.5 million and

$0.9 million for the three and six months ended June

30, 2026,

and loan cost of $0.3 and $0.7 million for the three and six

month periods ended June 30, 2025.

(2)

Interest income includes the effects of taxable equivalent adjustments

using a 21% Federal tax rate.

(3)

Taxable equivalent net interest income divided by average earning assets.

Item 3.

QUANTITATIVE

AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

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

Discussion and Analysis of Financial Condition and Results of

Operations, above, which is incorporated herein by reference.

Management has determined that no additional disclosures are

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

since December 31, 2025.

Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

At June 30, 2026, the end of the period covered by this Form 10-Q, our management,

including our Chief Executive Officer and Chief

Financial Officer, evaluated

the effectiveness of our disclosure controls and procedures (as

defined in Rule 13a-15(e) under the

Securities Exchange Act of 1934).

Based upon that evaluation, our Chief Executive Officer and Chief

Financial Officer concluded

that, as of the end of the period covered by this report,

our disclosure controls and procedures were effective.

Our management, including our Chief Executive Officer

and Chief Financial Officer, has reviewed

our internal control over financial

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

Act of 1934). During the quarter ended June 30, 2026, there

have been no significant changes in our internal control over financial reporting

during our most recently completed fiscal quarter that

have materially affected, or are reasonably likely to

materially affect, our internal control over financial reporting.

PART

II.

OTHER INFORMATION

Item 1.

Legal Proceedings

We are party

to lawsuits arising out of the normal course of business.

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

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

on our consolidated results of operations,

financial position, or cash flows.

Item 1A.

Risk Factors

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

the factors discussed in Part I,

Item 1A. “Risk Factors” in our 2025 Form 10-K, as updated in our subsequent

quarterly reports. The risks described in our 2025 Form

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

Additional risks and uncertainties not currently known to

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

affect our business, financial condition and/or operating

results.

Item 2.

Unregistered Sales of Equity Securities and Use of

Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosure

Not Applicable.

Item 5.

Other Information

During the three months ended June 30, 2026, none of our directors or

officers (as defined in Rule 16a-1(f) under the Exchange Act)

adopted

, modified or

terminated

any contract, instruction or written plan for the purchase or sale of our securities that was intended

satisfy the affirmative defense conditions of Rule 10b5-1(c)

under the Exchange Act or any “

non-Rule

10b5-1

trading arrangement” as

defined in Item 408(c) of Regulation S-K.

Item 6.

Exhibits

(A)

Exhibits

3.1

Amended and Restated Articles of Incorporation - incorporated herein by reference to Exhibit 3.1 of

the Registrant’s

Form 8-K (filed 5/3/21) (No. 000-13358).

3.2

Amended and Restated Bylaws - incorporated herein by reference to Exhibit 3.1 of the Registrant’s

Form 8-K (filed

12/20/2024) (No. 000-13358).

31.1

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

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

31.2

Certification of Jeptha E. Larkin, Executive Vice President and Chief Financial Officer of Capital City Bank Group, Inc.,

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

32.1

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

to 18 U.S.C. Section 1350.

32.2

Certification of Jeptha E. Larkin, Executive Vice President and Chief Financial Officer of Capital City Bank Group, Inc.,

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

101.SCH

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104

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SIGNATURES

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

duly caused this Report to be signed on its

behalf by the undersigned Chief Financial Officer hereunto duly

authorized.

CAPITAL CITY

BANK GROUP,

INC.

(Registrant)

/s/ Jeptha E. Larkin

Jeptha E. Larkin

Executive Vice President

and Chief Financial Officer

(Mr. Larkin is the Principal Financial

Officer and has

been duly authorized to sign on behalf of the Registrant)

Date: July 29, 2026