ccbg-20260331

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

March 31, 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 April 27, 2026,

17,101,409

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 THREE MONTHS ENDED MARCH 31, 2026

TABLE OF CONTENTS

PART I –

Financial Information

Page

Item 1.

Consolidated Financial Statements (Unaudited)

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

Consolidated Statements of Income – Three Months Ended March 31, 2026 and 2025

Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2026 and 2025

Consolidated Statements of Changes in Shareowners’ Equity – Three Months Ended March 31, 2026 and 2025

Consolidated Statements of Cash Flows – Three Months Ended March 31, 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;

●

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 conflict 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)

March 31,

December 31,

(Dollars in Thousands, Except Par Value)

2026

2025

ASSETS

Cash and Due From Banks

64,214

62,189

Federal Funds Sold and Interest Bearing Deposits

424,756

467,782

Total Cash and Cash Equivalents

488,970

529,971

Investment Securities, Available

for Sale, at fair value (amortized cost of $

816,203

and $

656,546

)

800,550

643,922

Investment Securities, Held to Maturity (fair value of $

343,591

and $

369,320

)

353,296

377,446

Equity Securities

2,083

2,069

Total Investment

Securities

1,155,929

1,023,437

Loans Held For Sale, at fair value

25,088

21,695

Loans Held for Investment

2,518,404

2,546,118

Allowance for Credit Losses

(30,999)

(31,001)

Loans Held for Investment, Net

2,487,405

2,515,117

Premises and Equipment, Net

77,670

79,457

Goodwill

89,095

Other Real Estate Owned

1,822

1,936

Other Assets

127,755

125,057

Total Assets

4,453,734

4,385,765

LIABILITIES

Deposits:

Noninterest Bearing Deposits

1,299,933

1,251,886

Interest Bearing Deposits

2,451,684

2,410,426

Total Deposits

3,751,617

3,662,312

Short-Term

Borrowings

33,276

50,092

Subordinated Notes Payable

33,303

42,582

Other Long-Term

Borrowings

680

Other Liabilities

74,946

77,248

Total Liabilities

3,893,822

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;

17,097,636

and

17,084,386

shares issued and outstanding at March 31, 2026 and December 31, 2025, respectively

171

Additional Paid-In Capital

39,854

41,650

Retained Earnings

519,632

508,443

Accumulated Other Comprehensive Income (Loss), net of tax

255

2,587

Total Shareowners’

Equity

559,912

552,851

Total Liabilities and Shareowners’

Equity

4,453,734

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 March 31,

(Dollars in Thousands, Except Per Share

Data)

2026

2025

INTEREST INCOME

Loans, including Fees

38,254

40,478

Investment Securities:

Taxable Securities

9,042

5,802

Tax Exempt Securities

Federal Funds Sold and Interest Bearing Deposits

3,711

3,496

Total Interest Income

51,020

49,782

INTEREST EXPENSE

Deposits

7,395

7,383

Short-Term

Borrowings

400

281

Subordinated Notes Payable

398

560

Other Long-Term

Borrowings

Total Interest Expense

8,203

8,235

NET INTEREST INCOME

42,817

41,547

Provision for Credit Losses

712

768

Net Interest Income After Provision for Credit Losses

42,105

40,779

NONINTEREST INCOME

Deposit Fees

5,598

5,061

Bank Card Fees

3,630

3,514

Wealth Management

Fees

4,051

5,763

Mortgage Banking Revenues

4,252

3,820

Other

2,402

1,749

Total Noninterest

Income

19,933

19,907

NONINTEREST EXPENSE

Compensation

25,703

26,248

Occupancy, Net

7,083

6,793

Other

8,587

5,660

Total Noninterest

Expense

41,373

38,701

INCOME BEFORE INCOME TAXES

20,665

21,985

Income Tax Expense

4,848

5,127

NET INCOME

15,817

16,858

BASIC NET INCOME PER SHARE

0.92

0.99

DILUTED NET INCOME PER SHARE

0.92

0.99

Average Basic Shares

Outstanding

17,129

17,027

Average Diluted

Shares Outstanding

17,146

17,044

The accompanying Notes to Consolidated Financial Statements are

an integral part of these statements.

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended

March 31,

(Dollars in Thousands)

2026

2025

NET INCOME

15,817

16,858

Other comprehensive (loss) income, before

tax:

Investment Securities:

Change in net unrealized (loss) gain on securities available for sale

(3,033)

5,007

Amortization of unrealized losses on securities transferred from available

for sale to held to maturity

108

498

Derivative:

Change in net unrealized (loss) gain on effective cash flow

derivative

(704)

Amortization of terminated cash flow derivative gain

(198)

Other comprehensive (loss) income, before

tax

(3,123)

4,801

Deferred tax (benefit) expense related to other comprehensive income

(791)

1,202

Other comprehensive (loss) income, net of tax

(2,332)

3,599

TOTAL COMPREHENSIVE

INCOME

13,485

20,457

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, January 1, 2026

17,084,386

171

41,650

508,443

2,587

552,851

Net Income

15,817

Other Comprehensive Loss, net of tax

(2,332)

Cash Dividends ($

0.2700

per share)

(4,628)

Repurchase of Common Stock

(63,088)

(2,639)

Stock Based Compensation

501

Stock Compensation Plan Transactions, net

76,338

342

Balance, March 31, 2026

17,097,636

171

39,854

519,632

255

559,912

Balance, January 1, 2025

16,974,513

170

37,684

463,949

(6,486)

495,317

Net Income

16,858

Other Comprehensive Income, net of tax

3,599

Cash Dividends ($

0.2400

per share)

(4,092)

Stock Based Compensation

399

Stock Compensation Plan Transactions, net

80,274

493

494

Balance, March 31, 2025

17,054,787

171

38,576

476,715

(2,887)

512,575

CAPITAL CITY BANK

GROUP,

INC.

CONSOLIDATED STATEMENTS

OF CASH FLOWS

(Unaudited)

Three Months Ended March 31,

(Dollars in Thousands)

2026

2025

CASH FLOWS FROM OPERATING

ACTIVITIES

Net Income Attributable to Common Shareowners

15,817

16,858

Adjustments to Reconcile Net Income to

Cash Provided by Operating Activities:

Provision for Credit Losses

712

768

Depreciation

1,816

1,810

Amortization of Premiums, Discounts and Fees, net

792

1,144

Amortization of Intangible Asset

Originations of Loans Held-for-Sale

(95,869)

(96,737)

Proceeds From Sales of Loans Held-for-Sale

100,722

105,196

Mortgage Banking Revenues

(4,252)

(3,820)

Net Additions for Capitalized Mortgage Servicing Rights

Stock Based Compensation

501

399

Net Tax Benefit from

Stock Based Compensation

(132)

(154)

Deferred Income Taxes (Benefit)

593

(121)

Net Change in Operating Leases

(6)

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

(334)

(4,508)

Loss on Disposal of Premises and Equipment

Net (Increase) Decrease in Other Assets

(2,480)

2,388

Net Increase in Other Liabilities

(1,966)

(1,516)

Net Cash Provided By Operating Activities

15,935

21,867

CASH FLOWS FROM INVESTING ACTIVITIES

Securities Held to Maturity:

Purchases

(61,632)

(20,438)

Proceeds from Payments, Maturities, and Calls

85,722

70,308

Securities Available for

Sale:

Purchases

(192,707)

(64,870)

Proceeds from Payments, Maturities, and Calls

33,102

11,683

Equity Securities:

Purchases

(60)

Net Decrease in Equity Securities

Purchases of Loans Held for Investment

(269)

(304)

Proceeds from Sales of Loans

12,254

13,641

Net Decrease (Increase) in Loans Held for Investment

9,793

(21,101)

Proceeds From Sales of Other Real Estate Owned

2,139

7,309

Purchases of Premises and Equipment

(1,279)

(2,382)

Net Cash Used In Investing Activities

(112,891)

(6,070)

CASH FLOWS FROM FINANCING ACTIVITIES

Net Increase in Deposits

89,305

111,913

Net (Decrease) Increase in Short-Term

Borrowings

(16,816)

8,896

Principal Payments of Subordinated Notes

(9,279)

Dividends Paid

(4,628)

(4,092)

Payments to Repurchase Common Stock

(2,639)

Proceeds from Issuance of Common Stock Under Purchase Plans

195

Net Cash Provided By Financing Activities

55,955

116,912

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

(41,001)

132,709

Cash and Cash Equivalents at Beginning of Period

529,971

391,854

Cash and Cash Equivalents at End of Period

488,970

524,563

Supplemental Cash Flow Disclosures:

Interest Paid

8,443

8,356

Income Taxes Paid

Supplemental Noncash Items:

Loans and Premises Transferred to Other Real Estate Owned

1,691

2,566

Loans Transferred from Held for Investment

to Held for Sale, net

16,248

11,049

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. 2023-03, “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. The Company is currently evaluating

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

statements. 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

March 31, 2026

U.S. Government Treasury

488,048

619

1,681

486,986

U.S. Government Agency

184,208

2,433

181,849

States and Political Subdivisions

36,717

2,014

34,731

Mortgage-Backed Securities

(1)

58,307

7,920

50,387

Corporate Debt Securities

40,768

2,289

(37)

38,442

Other Securities

(2)

8,155

Total

816,203

721

16,337

(37)

800,550

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

March 31, 2026

U.S. Government Treasury

58,580

127

58,453

Mortgage-Backed Securities

(1)

294,716

295

9,873

285,138

Total

353,296

295

10,000

343,591

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 March 31, 2026 and December 31,

2025, respectively,

and Federal Reserve Bank stock recorded

at cost of $

5.1

million at March 31, 2026 and at December 31,

2025.

At March 31, 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 $

395.9

million and $

461.3

million at March 31, 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 months ended March 31, 2026 and 2025.

Maturity Distribution

At March 31, 2026, the Company’s

investment securities had the following maturity distribution based

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

121,530

121,174

58,580

58,453

Due after one year through five years

467,465

462,738

Due after five year through ten years

6,658

5,926

Mortgage-Backed Securities

58,307

50,387

294,716

285,138

U.S. Government Agency

154,088

152,170

Other Securities

8,155

Total

816,203

800,550

353,296

343,591

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

March 31, 2026

Available for

Sale

U.S. Government Treasury

269,603

1,583

8,932

278,535

1,681

U.S. Government Agency

62,428

294

81,269

2,139

143,697

2,433

States and Political Subdivisions

1,909

31,659

1,939

33,568

2,014

Mortgage-Backed Securities

50,320

7,920

50,337

7,920

Corporate Debt Securities

37,432

2,289

37,432

2,289

Total

333,957

1,952

209,612

14,385

543,569

16,337

Held to Maturity

U.S. Government Treasury

58,453

127

58,453

127

Mortgage-Backed Securities

134,957

1,204

96,232

8,669

231,189

9,873

Total

134,957

1,204

154,685

8,796

289,642

10,000

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 March 31, 2026, there were

790

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

26.3

million.

these positions are U.S. Treasury bonds

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

663

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 March 31, 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.

March 31, 2026, corporate debt securities had an allowance for

credit losses of $

37,000

ne of the securities held by the Company

were past due or in nonaccrual status at March 31, 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)

March 31, 2026

December 31, 2025

Commercial, Financial and Agricultural

170,268

180,341

Real Estate – Construction

156,630

146,920

Real Estate – Commercial Mortgage

755,800

768,731

Real Estate – Residential

(1)

1,011,067

1,025,690

Real Estate – Home Equity

243,932

240,897

Consumer

(2)

180,707

183,539

Loans Held For Investment, Net of Unearned Income

2,518,404

2,546,118

(1)

Includes loans in process balances of $

14.0

million and $

5.6

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

respectively.

(2)

Includes overdraft balances of $

1.2

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

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

included in loans were $

8.5

million at March 31, 2026 and $

8.6

million at December 31, 2025.

Accrued interest receivable on loans which is excluded from amortized

cost, totaled $

9.5

million at March 31, 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

March 31, 2026

Beginning Balance

1,751

1,681

6,859

15,317

2,368

3,025

31,001

Provision for Credit Losses

137

(298)

(364)

670

482

635

Charge-Offs

(300)

(13)

(1,483)

(1,796)

Recoveries

914

1,159

Net (Charge-Offs) Recoveries

(226)

(3)

(569)

(637)

Ending Balance

1,662

1,383

6,579

16,064

2,373

2,938

30,999

Three Months Ended

March 31, 2025

Beginning Balance

1,514

2,384

5,867

14,568

1,952

2,966

29,251

Provision for Credit Losses

(151)

191

206

722

1,083

Charge-Offs

(168)

(8)

(1,435)

(1,611)

Recoveries

119

805

1,011

Net (Charge-Offs) Recoveries

(93)

111

(630)

(600)

Ending Balance

1,468

2,233

6,061

14,885

2,029

3,058

29,734

At March 31, 2026, the allowance for credit losses for loans HFI totaled $

31.0

million comparable to $

31.0

million and $

29.7

million

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

For the three months ended March 31, 2026, the allowance for loans HFI

reflected a provision expense of $

0.6

million and net loan charge-offs of $

0.6

million.

For the three months ended March 31, 2025,

the allowance for loans HFI increased by $

0.5

million and reflected a provision expense of $

1.1

million and net loan charge-offs of

0.6

million.

The slight increase in the allowance over March 31, 2025 was primarily attributable to

utilization of a higher forecasted

unemployment rate in calculating loan loss rates.

Four unemployment forecast scenarios were utilized to estimate probability

default and are weighted based on management’s

estimate of probability.

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

March 31, 2026

Commercial, Financial and Agricultural

846

908

167,900

1,460

170,268

Real Estate – Construction

156,630

Real Estate – Commercial Mortgage

1,294

751,235

3,271

755,800

Real Estate – Residential

3,269

3,281

1,004,126

3,660

1,011,067

Real Estate – Home Equity

461

241,602

1,869

243,932

Consumer

686

699

179,125

883

180,707

Total

6,556

6,643

2,500,618

11,143

2,518,404

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.

March 31, 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

1,026

434

1,038

240

Real Estate – Construction

Real Estate – Commercial Mortgage

1,674

1,597

753

1,807

Real Estate – Residential

2,605

1,055

1,275

868

Real Estate – Home Equity

1,357

512

1,382

387

Consumer

883

845

Total Nonaccrual

Loans

6,662

4,481

4,448

4,147

Collateral Dependent Loans.

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

loans.

March 31, 2026

December 31, 2025

Real Estate

Non Real Estate

Real Estate

Non Real Estate

(Dollars in Thousands)

Secured

Commercial, Financial and Agricultural

1,074

1,087

Real Estate – Construction

Real Estate – Commercial Mortgage

3,073

2,450

Real Estate – Residential

2,628

1,275

Real Estate – Home Equity

1,361

1,561

Consumer

Total Collateral Dependent

Loans

7,062

1,074

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 March 31, 2026, the Company had $

0.5

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 three months ended March 31, 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 March 31, 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 30–59 days past due, compared to $

at March 31,

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 on-going basis dependent upon improvement

and deterioration in credit quality.

The following tables summarize gross loans held for investment at March

31, 2026

and December 31, 2025 and current period gross

write-offs for the three months ended March 31, 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 March 31, 2026

2026

2025

2024

2023

2022

Prior

Loans

Total

Commercial, Financial,

Agriculture:

Pass

9,380

34,767

20,654

18,368

20,251

18,188

43,764

165,372

Special Mention

302

116

2,661

3,323

Substandard

152

155

1,147

1,573

Total

9,458

35,221

20,802

21,095

20,433

18,302

44,957

170,268

Current-Period Gross

Writeoffs

300

Real Estate - Construction:

Pass

10,663

96,033

27,370

3,503

10,490

239

6,445

154,743

Special Mention

372

1,515

1,887

Total

10,663

96,033

27,370

3,875

12,005

239

6,445

156,630

Real Estate - Commercial

Mortgage:

Pass

21,212

87,220

65,642

95,144

166,153

232,070

31,811

699,252

Special Mention

9,744

3,012

4,252

24,648

7,760

762

50,178

Substandard

733

411

3,578

149

4,968

Doubtful

1,402

Total

21,212

97,697

70,056

99,493

191,212

243,408

32,722

755,800

Real Estate - Residential:

Pass

38,849

126,831

121,881

256,201

307,977

140,699

9,407

1,001,845

Special Mention

365

815

115

1,733

3,028

Substandard

557

426

1,200

3,858

115

6,194

Total

39,252

126,831

123,253

256,627

309,292

146,290

9,522

1,011,067

Real Estate - Home Equity:

Performing

279

351

297

516

238,971

240,440

Nonperforming

3,492

Total

279

351

297

516

242,463

243,932

Current-Period Gross

Writeoffs

Consumer:

Performing

19,800

57,351

19,718

24,448

26,716

20,732

11,060

179,825

Nonperforming

314

111

205

167

882

Total

19,800

57,665

19,803

24,559

26,921

20,899

11,060

180,707

Current-Period Gross

Writeoffs

632

114

121

216

198

142

1,483

(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 (“IRLC’s”)

and forward contract sales and their related fair

values are set forth below.

March 31, 2026

December 31, 2025

Unpaid Principal

(Dollars in Thousands)

Balance/Notional

Fair Value

Balance/Notional

Fair Value

Residential Mortgage Loans Held for Sale

24,429

25,088

20,944

21,695

Residential Mortgage Loan Commitments ("IRLCs")

(1)

36,415

737

20,699

464

Forward Sales Contracts

(2)

26,000

124

25,500

(84)

(1)

Recorded in other assets at fair value.

(2)

Recorded in other assets and other liabilities at

fair value, respectively.

At March 31, 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 March 31,

(Dollars in Thousands)

2026

2025

Net realized gains on sales of mortgage loans

2,950

2,880

Net change in unrealized gain on mortgage loans held for sale

(41)

234

Net change in the fair value of IRLC's

273

495

Net change in the fair value of forward sales contracts

209

(175)

Pair-Offs on net settlement of forward sales contracts

(186)

Mortgage servicing rights additions

Net origination fees

759

552

Total mortgage banking

revenues

4,252

3,820

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)

March 31, 2026

December 31, 2025

Number of residential mortgage loans serviced for others

461

456

Outstanding principal balance of residential mortgage loans serviced

for others

121,396

118,429

Weighted average

interest rate

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.

March 31, 2026, the servicing portfolio balance consisted of the following

loan types: FNMA (

60.3

%), GNMA (

4.3

%), and private

investor (

35.4

%).

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

At March 31, 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 and $

0.3

million repurchased

for the three months ended March 31, 2026 and 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

March 31,

(Dollars in Thousands)

2026

2025

Beginning balance

924

933

Additions due to loans sold with servicing retained

Deletions and amortization

(47)

(45)

Ending balance

903

908

The Company did

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

three months ended March 31,

2026

or 2025.

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

mortgage servicing rights were as follows:

March 31, 2026

December 31, 2025

Minimum

Maximum

Minimum

Maximum

Discount rates

9.50%

12.00%

9.50%

12.00%

Annual prepayment speeds

9.11%

18.33%

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

12.40

% at March 31, 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

March 31, 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.

17,662

million warehouse line of credit agreement expiring in

June 2026

Interest is at the SOFR rate plus

2.50%

3.00%

, with a floor rate of

3.00%

3.50%

11,053

Total Warehouse

Borrowings

28,715

Warehouse

line borrowings are classified as short-term borrowings.

At December 31, 2025, warehouse line borrowings totaled $

28.1

million. At March 31, 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 March 31, 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 March 31, 2026

Interest expense

198

Three months ended March 31, 2025

Interest expense

326

375

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 March 31, 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

March 31,

(Dollars in Thousands)

2026

2025

Operating lease expense

915

864

Short-term lease expense

147

311

Total lease expense

1,062

1,175

Other information:

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

Operating cash flows from operating leases

920

912

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

101

2,880

Weighted average

remaining lease term — operating leases (in years)

15.6

16.2

Weighted average

discount rate — operating leases

3.7%

The table below summarizes the maturity of remaining lease liabilities:

(Dollars in Thousands)

March 31, 2026

2026

2,714

2027

3,433

2028

3,147

2029

2,881

2030

2,848

2031 and thereafter

18,445

Total

33,468

Less: Interest

(7,112)

Present Value

of Lease liability

26,356

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 March 31, 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 March 31,

(Dollars in Thousands)

2026

2025

Service Cost

833

860

Interest Cost

1,531

1,677

Expected Return on Plan Assets

(2,217)

(2,265)

Net Gain Amortization

(474)

(413)

Net Periodic Benefit Cost

(327)

(141)

Discount Rate Used for Benefit Cost

5.67%

5.82%

Long-term Rate of Return on Assets

6.50%

6.75%

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

plans were as follows:

Three Months Ended March 31,

(Dollars in Thousands)

2026

2025

Service Cost

Interest Cost

150

131

Prior Service Cost Amortization

Net Loss Amortization

237

(29)

Net Periodic Benefit Cost

432

139

Discount Rate Used for Benefit Cost

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:

March 31, 2026

December 31, 2025

(Dollars in Thousands)

Fixed

Variable

Total

Fixed

Variable

Total

Commitments to Extend Credit

(1)

206,366

463,365

669,731

188,834

456,328

645,162

Standby Letters of Credit

7,523

7,828

Total

213,889

463,365

677,254

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 March 31,

(Dollars in Thousands)

2026

2025

Beginning Balance

2,107

2,155

Provision for Credit Losses

(323)

Ending Balance

2,189

1,832

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.

At March 31, 2026, the amount remaining to be funded for the bank tech venture

capital commitment was $

0.2

million.

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

amount payable at March

31, 2026.

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

counterparty payment accrued and payable at

March 31, 2026 and $

0.2

million payable at December 31, 2025.

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

March 31, 2026

ASSETS:

Securities Available for

Sale:

U.S. Government Treasury

486,986

U.S. Government Agency

181,849

States and Political Subdivisions

34,731

Mortgage-Backed Securities

50,387

Corporate Debt Securities

38,442

Equity Securities

2,083

Loans Held for Sale

25,088

Forward Sales Contracts

124

Residential Mortgage Loan Commitments ("IRLCs")

737

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 $

2.1

million

and $

4.1

million, respectively, for the three

months ended March 31, 2026, and $

2.2

million and $

4.4

million, respectively, for the

three months ended March 31, 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 $

8.1

million with valuation allowance of $

0.9

million at March 31, 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 three 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 March 31, 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:

March 31, 2026

Carrying

Level 1

Level 2

Level 3

(Dollars in Thousands)

Value

Inputs

ASSETS:

Cash

64,214

Fed Funds Sold and Interest Bearing Deposits

424,756

Investment Securities, Held to Maturity

353,296

58,453

285,138

Other Equity Securities

(1)

2,848

Mortgage Servicing Rights

903

1,446

Loans, Net of Allowance for Credit Losses

2,487,405

2,386,137

LIABILITIES:

Deposits

3,751,617

3,751,373

Short-Term

Borrowings

33,276

Subordinated Notes Payable

33,303

32,067

Long-Term Borrowings

680

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

(1)

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

(2,184)

(148)

(2,332)

Balance as of March 31, 2026

(11,714)

2,528

9,441

255

Balance as of January 1, 2025

(20,179)

3,971

9,722

(6,486)

Other comprehensive income (loss) during the period

4,124

(525)

3,599

Balance as of March 31, 2025

(16,055)

3,446

9,722

(2,887)

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 first 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)

First

Fourth

Third

Second

First

Shareowners' Equity (GAAP)

559,912

552,851

540,635

526,423

512,575

Less: Goodwill and Other Intangibles (GAAP)

89,095

92,693

92,733

Tangible Shareowners' Equity (non-GAAP)

470,817

463,756

451,540

433,730

419,842

Total Assets (GAAP)

4,453,734

4,385,765

4,323,774

4,391,753

4,461,233

Less: Goodwill and Other Intangibles (GAAP)

89,095

92,693

92,733

Tangible Assets (non-GAAP)

4,364,639

4,296,670

4,234,679

4,299,060

4,368,500

Tangible Common Equity Ratio (non-GAAP)

A/B

10.79%

10.66%

10.09%

9.61%

Actual Diluted Shares Outstanding (GAAP)

17,114,954

17,154,586

17,115,336

17,097,986

17,072,330

Tangible Book Value

per Diluted Share (non-GAAP)

A/C

27.51

27.03

26.38

25.37

24.59

SELECTED QUARTERLY

FINANCIAL DATA

(UNAUDITED)

2026

2025

(Dollars in Thousands, Except Per Share Data)

First

Fourth

Third

Second

First

Summary of Operations

Interest Income

51,020

51,715

51,431

51,459

49,782

Interest Expense

8,203

8,355

7,874

8,275

8,235

Net Interest Income

42,817

43,360

43,557

43,184

41,547

Provision for Credit Losses

712

1,995

1,881

620

768

Net Interest Income After

Provision for Credit Losses

42,105

41,365

41,676

42,564

40,779

Noninterest Income

19,933

20,103

22,331

20,014

19,907

Noninterest Expense

41,373

42,867

42,916

42,538

38,701

Income Before Income Taxes

20,665

18,601

21,091

20,040

21,985

Income Tax Expense

4,848

4,896

5,141

4,996

5,127

Net Income Attributable to CCBG

15,817

13,705

15,950

15,044

16,858

Net Interest Income (FTE)

(1)

42,857

43,404

43,602

43,228

41,591

Per Common Share

Net Income Basic

0.92

0.80

0.93

0.88

0.99

Net Income Diluted

0.92

0.80

0.93

0.88

0.99

Cash Dividends Declared

0.27

0.26

0.24

Diluted Book Value

32.71

32.23

31.59

30.79

30.02

Diluted Tangible Book Value

(2)

27.51

27.03

26.38

25.37

24.59

Market Price:

High

46.83

45.63

44.69

39.82

38.27

Low

39.26

38.27

38.00

32.38

33.00

43.46

42.57

41.79

39.35

35.96

Selected Average Balances

Investment Securities

1,119,125

1,006,040

993,880

1,007,981

982,330

Loans Held for Investment

2,538,318

2,568,073

2,606,213

2,652,572

2,665,910

Earning Assets

4,089,838

4,035,910

3,981,530

4,032,008

3,993,914

Total Assets

4,418,904

4,367,036

4,317,951

4,370,261

4,335,033

Deposits

3,691,016

3,647,510

3,612,331

3,680,707

3,665,482

Shareowners’ Equity

567,663

556,100

542,216

527,583

513,401

Common Equivalent Average Shares:

Basic

17,129

17,070

17,068

17,056

17,027

Diluted

17,146

17,140

17,114

17,088

17,044

Performance Ratios:

Return on Average Assets (annualized)

1.45

1.25

1.47

1.38

1.58

Return on Average Equity (annualized)

11.30

9.78

11.67

11.44

13.32

Net Interest Margin (FTE)

4.24

4.26

4.34

4.30

4.22

Noninterest Income as % of Operating Revenue

31.77

31.68

33.89

31.67

32.39

Efficiency Ratio

65.89

67.50

65.09

67.26

62.93

Asset Quality:

Allowance for Credit Losses (“ACL”)

30,999

31,001

30,202

29,862

29,734

Nonperforming Assets (“NPAs”)

12,965

10,531

10,026

6,581

4,428

ACL to Loans HFI

1.23

1.22

1.17

1.13

1.12

NPAs to Total

Assets

0.29

0.24

0.23

0.15

0.10

NPAs to Loans HFI plus OREO

0.51

0.41

0.39

0.25

0.17

ACL to Non-Performing Loans

278.19

360.69

368.54

463.01

692.10

Net Charge-Offs to Average Loans HFI

0.10

0.18

0.09

Capital Ratios:

Tier 1 Capital

20.37

20.20

19.33

18.38

18.01

Total Capital

21.62

21.45

20.59

19.60

19.20

Common Equity Tier 1

19.08

18.56

17.73

16.81

16.08

Leverage

11.65

11.77

11.64

11.14

11.17

Tangible Common Equity

(2)

10.79

10.66

10.09

9.61

(1)

Fully Tax Equivalent.

(2)

Non-GAAP financial measure.

See non-GAAP reconciliation on page 35.

FINANCIAL OVERVIEW

Results of Operations

Performance Summary

Net income attributable to common shareowners of $15.8 million, or $0.92 per diluted

share, for the first

quarter of 2026 compared to $13.7 million, or $0.80 per diluted share, for

the fourth quarter of 2025, and $16.9 million, or $0.99 per

diluted share, for the first quarter of 2025.

Net Interest Income

Tax-equivalent net

interest income for the first quarter of 2026 totaled $42.9 million, compared to $43.4

million

for the fourth quarter of 2025, and $41.6 million for the first quarter of

2025. Compared to the fourth quarter of 2025, the decrease was

primarily driven by lower loan interest income due to lower average

loan balances and lower overnight funds income, partially offset

by higher investment securities income due to new investment purchases at higher

yields and lower deposit interest expense. Two

less

calendar days contributed to the decline compared to the fourth quarter

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

was primarily attributable to higher investment securities income due to new

investment purchases at higher yields and higher

overnight funds income due to higher average balances that outpaced a decrease

in loan interest income due to lower average

balances. Our net interest margin for the first quarter of 2026 was 4.24%,

a decrease of two basis points from the fourth quarter of

2025 and an increase of two basis points over the first quarter of 2025.

Provision and Allowance for Credit

Losses.

For the first quarter of 2026, we recorded a provision expense for credit

losses of $0.7

million compared to $2.0 million for the fourth quarter of 2025 and $0.8

million for the first quarter of 2025. Net loan charge-offs

were 10 basis points of average loans for the first quarter of 2026 versus 18 basis points for the

fourth quarter of 2025 and 9 basis

points for the first quarter of 2025. At March 31, 2026, the allowance for credit losses for

loans held for investment (“HFI”) totaled

$31.0 million compared to $31.0 million at December 31, 2025

and $29.7 million at March 31, 2025.

Noninterest Income

Noninterest income for the first quarter of 2026 totaled $19.9 million, a $0.2 million, or

0.8%, decrease from the

fourth quarter of 2025 and similar to the first quarter of 2025. The decrease from

the fourth quarter of 2025 reflected a $0.5 million

decrease in wealth management fees and a $0.2 million decrease in deposit fees, partially

offset by a $0.5 million increase in other

income. Compared to the first quarter of 2025, a $1.7 million decrease in wealth

management fees was offset by a $0.7 million

increase in other income, a $0.5

million increase in deposit related fees, and a $0.4 million increase in mortgage

banking revenues.

Noninterest Expense

Noninterest expense for the first quarter of 2026 totaled $41.4 million, a $1.5 million, or 3.5%, decrease

from

the fourth quarter of 2025 and a $2.7 million, or 6.9%, increase over the first quarter

of 2025. The decrease from the fourth quarter of

2025 reflected a $2.7 million decrease in compensation expense (primarily

performance-based incentives), partially offset by

a $1.2

million increase in other expense (pension settlement gain in the fourth quarter

of 2025).

Compared to the first quarter of 2025, the

increase reflected a $2.9 million increase in other expense ($4.0

million gain from the sale of bank owned property in the first quarter

of 2025) and a $0.3 million increase in occupancy expense, which was partially

offset by a $0.5 million decrease in compensation

expense.

Financial Condition

Earning Assets.

Average earning assets totaled

$4.090 billion for the first quarter of 2026, an increase of $53.9 million,

or 1.3%,

over

the fourth quarter of 2025, and an increase of $95.9 million, or 2.4%, over the

first quarter of 2025. Compared to the fourth quarter of

2025, the change in earning asset mix reflected a $113.1

million increase in investment securities and a $0.5 million increase in loans

held for sale (“HFS”), partially offset by a $29.9 million decrease in

overnight funds sold and a $29.8 million decrease in loans held

for investment. Compared to the first quarter of 2025, the increase was primarily attributable

to a $136.8 million increase in

investment securities and an $86.7 million increase in overnight funds sold,

partially offset by a $127.6 million decrease in loans held

for investment.

Loans.

Average loans HFI decreased

by $29.8 million, or 1.16%, from the fourth quarter of 2025, and decreased by $127.6

million, or

4.8%,

from the first quarter of 2025. Loans HFI at March 31, 2026, decreased by $27.7 million,

or 1.1%, from December 31, 2025,

and decreased by $142.4 million, or 5.4%, from March 31, 2025.

Credit Quality

Nonperforming assets (nonaccrual loans and other real estate) totaled $13.0

million at March 31, 2026 compared to

$10.5 million at December 31, 2025 and $4.4 million at March 31, 2025.

At March 31, 2026, nonperforming assets as a percentage of

total assets was 0.29%, compared to 0.24% at December 31, 2025 and 0.10%

at March 31, 2025. Nonaccrual loans totaled $11.1

million at March 31, 2026, a $2.5 million increase over December 31, 2025

and a $6.8 million increase over March 31, 2025. Other

real estate totaled $1.8 million at March 31, 2026 and reflected the addition of a banking

office property for $1.2 million during the

quarter. Further,

classified loans totaled $14.5 million at March 31, 2026, a $0.2 million increase over

December 31, 2025, and a $4.6

million decrease from March 31, 2025.

Deposits

Average total

deposits were $3.691 billion for the first quarter of 2026, an increase of $43.5 million,

or 1.2%, over the

fourth quarter of 2025 and an increase of $25.5 million, or 0.7%, over the first quarter

of 2025. At March 31, 2026, total deposits were

$3.752 billion, an increase of $89.3 million, or 2.4%, over December 31,

2025, and a decrease of $32.3 million, or 0.9%, from March

31, 2025. Total

public funds balances were $629.9 million at March 31, 2026, $654.7 million

at December 31, 2025, and $648.0

million at March 31, 2025.

Capital

At March 31, 2026, we were “well-capitalized”

with a total risk-based capital ratio of 21.62% and a tangible common

equity

ratio (a non-GAAP financial measure) of 10.79% compared to

21.45% and 10.79%, respectively,

at December 31, 2025, and 19.20%

and 9.61%, respectively,

at March 31, 2025.

At March 31, 2026, all of our regulatory capital ratios exceeded the threshold to

“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

(Dollars in Thousands, except per share data)

March 31, 2026

December 31, 2025

March 31, 2025

Interest Income

51,020

51,715

49,782

Taxable Equivalent Adjustments

Total Interest Income (FTE)

51,060

51,759

49,826

Interest Expense

8,203

8,355

8,235

Net Interest Income (FTE)

42,857

43,404

41,591

Provision for Credit Losses

712

1,995

768

Taxable Equivalent Adjustments

Net Interest Income After Provision for Credit Losses

42,105

41,365

40,779

Noninterest Income

19,933

20,103

19,907

Noninterest Expense

41,373

42,867

38,701

Income Before Income Taxes

20,665

18,601

21,985

Income Tax Expense

4,848

4,896

5,127

Net Income Attributable to Common Shareowners

15,817

13,705

16,858

Basic Net Income Per Share

0.92

0.80

0.99

Diluted Net Income Per Share

0.92

0.80

0.99

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 first quarter of 2026 totaled $42.9 million, compared to $43.4 million

for the fourth quarter

of 2025, and $41.6 million for the first quarter of 2025. Compared to

the fourth quarter of 2025, the decrease was primarily driven by

lower loan interest income due to lower average loan balances and lower

overnight funds income, partially offset by higher investment

securities income due to new investment purchases at higher yields and lower deposit

interest expense. Two

less calendar days

contributed to the decline compared to the fourth quarter of 2025.

Compared to the first quarter of 2025, the increase was primarily

attributable to higher investment securities income due to new investment

purchases at higher yields and higher overnight funds

income due to higher average balances that outpaced a decrease in loan interest

income due to lower average balances.

Our net interest margin for the first quarter of 2026 was 4.24%, a decrease

of two basis points from the fourth quarter of 2025 and an

increase of two basis points over the first quarter of 2025. Compared to the fourth

quarter of 2025 the decrease was primarily

attributable to a lower overnight funds rate and lower average loan balances.

Compared to the first quarter of 2025, the increase

reflected favorable investment securities repricing partially offset by

a lower overnight funds rate and lower average loan balances. For

the first quarter of 2026, our cost of funds was 81 basis points, a decrease of one

basis point from the fourth quarter of 2025 and a

decrease of three basis points from the first quarter of 2025. Our cost of deposits (including

noninterest bearing accounts) was 81 basis

points, 82 basis points, and 82 basis points, respectively,

for the same periods.

Provision for Credit Losses

We recorded

a provision expense for credit losses of $0.7 million for the first quarter of 2026,

compared to $2.0 million for the fourth

quarter of 2025 and $0.8 million for the first quarter of 2025.

For the first quarter of 2026, we recorded a provision expense of $0.6

million for loans HFI and a provision expense of $0.1

million for unfunded loan commitments.

See “Allowance for Credit Losses”

below for a discussion of the various factors that impacted our provision

expense.

Noninterest Income

Noninterest income for the first quarter of 2026 totaled $19.9 million, a $0.2 million,

or 0.8%, decrease from the fourth quarter of

2025 and similar to the first quarter of 2025. The decrease from the fourth

quarter of 2025 reflected a $0.5 million decrease in wealth

management fees and a $0.2 million decrease in deposit fees, partially offset

by a $0.5 million increase in other income. The decline in

wealth management fees was primarily due to a decrease in retail brokerage

fees. The increase in other income was due to a $0.5

million miscellaneous recovery.

Compared to the first quarter of 2025, a $1.7 million decrease in wealth management

fees was offset

by a $0.7 million increase in other income, a $0.5 million increase in deposit related

fees, and a $0.4 million increase in mortgage

banking revenues. The decline in wealth management fees was attributable to

a decrease in retail brokerage assets under management

and lower insurance commission revenue due to the sale of our insurance subsidiary

in 2025. The increase in other income reflected

the aforementioned miscellaneous recovery of $0.5 million.

Noninterest income represented 28.1% of operating revenues (net

interest income plus noninterest income) in the first quarter of 2026

compared to 28.0% in the fourth quarter of 2025 and 32.9% in the first quarter

of 2025.

The table below reflects the major components of noninterest income.

Three Months Ended

(Dollars in Thousands)

March 31, 2026

December 31, 2025

March 31, 2025

Deposit Fees

5,598

5,811

5,061

Bank Card Fees

3,630

3,684

3,514

Wealth Management

Fees

4,051

4,525

5,763

Mortgage Banking Revenues

4,252

4,155

3,820

Other

2,402

1,928

1,749

Total

Noninterest Income

19,933

20,103

19,907

Significant components of noninterest income are discussed in more

detail below.

Deposit Fees

Deposit fees for the first quarter of 2026 totaled $5.6 million, a decrease of $0.2

million, or 3.7%, from the fourth

quarter of 2025 and an increase of $0.5 million, or 10.6%, over the first quarter of

2025. Compared to the fourth quarter of 2025, the

$0.2

million decrease was attributable to lower overdraft fees.

Compared to the first quarter of 2025, the increase reflected a $0.4

million increase in account service charges and $0.1 million increase

in overdraft fees.

Bank Card Fees

Bank card fees for the first quarter of 2026 totaled $3.6 million, a $0.1 million, or 1.5%,

decrease from the fourth

quarter of 2025 and a $0.1 million, or 3.3%, increase over the first quarter of

2025. The change across both periods primarily reflected

normal fluctuations in debit card usage, consistent with underlying consumer

spending trends.

Wealth

Management Fees

Wealth management fees

totaled $4.1 million for the first quarter of 2026, a decrease of $0.5 million, or

10.5%, from the fourth quarter of 2025 and a decrease of $1.7 million,

or 29.7%, from the first quarter of 2025. The decrease from the

fourth quarter of 2025

reflected lower retail brokerage fees of $0.3 million, trust fees of $0.1 million and insurance

commissions of

$0.1 million. The decrease from the first quarter of 2025 reflected lower

retail brokerage fees of $1.2 million and insurance

commission revenue of $0.7 million, partially offset by higher

trust fees of $0.2

million. The decline in insurance commission revenue

from both prior periods was due to the sale of our insurance subsidiary in

2025. At March 31, 2026, total assets under management

were approximately $2.691 billion compared to $2.867 billion

at December 31, 2025

and $3.068 billion at March 31, 2025. Compared

to both prior periods, the decline was due to lower retail brokerage assets partially attributable

to the sale of our insurance subsidiary

in 2025.

Mortgage Banking Revenues

Mortgage banking revenues totaled $4.3 million for the first quarter of

2026, an increase of $0.1

million, or 2.3%, over the fourth quarter of 2025 and an increase of $0.4

million, or 11.3%, over the first quarter of 2025. Compared

first quarter of 2025, the increase was driven by a higher level of interest rate

locks and gain on sale margin.

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 $2.4 million for the first quarter of 2026, an increase of

$0.5 million, or 24.6%, over the fourth quarter of

2025 and an increase of $0.7 million, or 37.3%, over the first quarter

of 2025. The increase across both periods is primarily due to a

$0.5 million miscellaneous recovery in the first quarter of 2026.

Noninterest Expense

Noninterest expense for the first quarter of 2026 totaled $41.4 million, a $1.5 million,

or 3.5%, decrease from the fourth quarter of

2025 and a $2.7 million, or 6.9%, increase over the first quarter of 2025. The decrease

from the fourth quarter of 2025 reflected a $2.7

million decrease in compensation expense, partially offset by a $1.2

million increase in other expense. The decrease in compensation

expense was primarily due to higher performance-based incentive pay of

$2.6 million in the fourth quarter of 2025. The increase in

other expense reflected a $1.5 million pension plan settlement gain

recorded in the fourth quarter of 2025. Compared to the first

quarter of 2025, the increase reflected a $2.9 million increase in other

expense and a $0.3 million increase in occupancy expense,

which was partially offset by a $0.5 million decrease in compensation

expense. The increase in other expense was primarily

attributable to a $4.1 million increase in other real estate expense that reflected

a gain from the sale of our operations center building

in the first quarter of 2025, partially offset by decreases in charitable contributions,

professional fees, and other miscellaneous

expenses. The increase in occupancy expense was primarily attributable to

higher expense for maintenance agreements and software.

The decrease in compensation expense reflected a decrease in commission

expense related to the sale of our insurance subsidiary.

The table below reflects the major components of noninterest expense.

Three Months Ended

(Dollars in Thousands)

March 31, 2026

December 31, 2025

March 31, 2025

Salaries

21,372

23,054

21,883

Associate Benefits

4,331

5,330

4,365

Total Compensation

25,703

28,384

26,248

Premises

3,179

3,074

3,172

Equipment

3,904

3,978

3,621

Total Occupancy

7,083

7,052

6,793

Legal Fees

500

393

504

Professional Fees

1,305

1,055

1,622

Processing Services

2,433

2,145

2,469

Advertising

870

841

838

Telephone

820

835

719

Insurance - Other

732

751

732

Other Real Estate Owned, net

(321)

123

(4,470)

Pension - Other

(745)

(873)

Pension Settlement

(1,552)

Miscellaneous

2,993

3,713

4,119

Total Other

8,587

7,431

5,660

Total

Noninterest Expense

41,373

42,867

38,701

Significant components of noninterest expense are discussed in more detail

below.

Compensation

Compensation expense totaled $25.7 million for the first quarter of 2026, a decrease

of $2.7 million, or 9.4%, from the

fourth quarter of 2025 and a decrease of $0.5 million, or 2.1%, from

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

the decrease reflected a $1.7 million decrease in salary expense and $1.0

million decrease in associate benefit expense, both primarily

due to higher performance-based incentive pay in the fourth quarter

of 2025.

Compared to the first quarter of 2025, the decrease was

driven by a $0.5 million decrease in salary expense due to lower commission

expense related to the sale of our insurance subsidiary in

2025.

Occupancy.

Occupancy expense (including premises and equipment) totaled $7.1

million for the first quarter of 2026, similar to the

fourth quarter of 2025 and an increase of $0.3 million, or 4.3%, over the first

quarter of 2025.

The increase over the first quarter 2025

was primarily attributable to higher expense for maintenance agreement

of $0.2 million and software licenses of $0.1 million.

Other

Other noninterest expense totaled $8.6 million for the first quarter of

2026, an increase of $1.2 million, or 15.6%, over the

fourth quarter of 2025 and an increase of $2.9 million, or 51.7% over

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

the variance reflected a $1.5 million pension plan settlement gain

recorded in the fourth quarter of 2025. Compared to the first quarter

of 2025, the increase was primarily attributable to a $4.1 million increase in other

real estate expense that reflected a gain from the

sale of our operations center building in the first quarter of 2025, partially

offset by decreases in charitable contributions

of $0.6

million, professional fees of $0.3 million, and other miscellaneous expenses

of $0.5 million.

Our operating efficiency ratio (expressed as noninterest

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

noninterest income) was 65.89% for the first quarter of 2026 compared

to 67.50% for the fourth quarter of 2025 and 62.93% for the

first quarter of 2025. Compared to the fourth quarter of 2025, the ratio was favorably

impacted by lower noninterest expense,

primarily performance-based compensation.

Compared to the first quarter of 2025, the variance was unfavorably impacted due

lower noninterest expense in the first quarter of 2025, which included

a $4.4 million gain from the sale of our operations center

building.

Income Taxes

We realized income

tax expense of $4.8 million (effective rate of 23.5%) for the first quarter of

2026 compared to $4.9 million

(effective rate of 26.3%) for the fourth quarter of 2025 and $5.1

million (effective rate of 23.3%) for the first quarter of 2025.

Compared to the fourth quarter of 2025, the variance in the effective

tax rate reflected discrete items for both quarters, including a

benefit in the first quarter of 2026 related to stock-based compensation

and an expense in the fourth quarter of 2025 related to an

Internal Revenue Code (“IRC”) Section 162(m) limitation for executive compensation.

Absent discrete items or new tax credit

investments, we expect our annual effective tax rate to

approximate 24% for 2026.

FINANCIAL CONDITION

Average earning

assets totaled $4.090 billion for the first quarter of 2026, an increase of $53.9 million,

or 1.3%,

over the fourth

quarter of 2025, and an increase of $95.9 million, or 2.4%,

over the first quarter of 2025. Compared to the fourth quarter of 2025, the

change in earning asset mix reflected a $113.1 million

increase in investment securities and a $0.5 million increase in loans held for

sale (“HFS”), partially offset by a $29.9 million decrease in overnight

funds sold and a $29.8 million decrease in loans HFI. Compared

to the first quarter of 2025, the increase was primarily attributable to a $136.8

million increase in investment securities and an $86.7

million increase in overnight funds sold, partially offset by a $127.6

million decrease in loans HFI.

Investment Securities

Average investments

totaled $1,119.1 million in the first quarter of 2026, a

$113.1 million, or 11.2

%, increase over the fourth quarter

of 2025 and a $136.8 million, or 13.9% increase over the first quarter of

2025. Our investment portfolio represented 27.4% of our

average earning assets for the first quarter of 2026 compared to 24.9% for

the fourth quarter of 2025 and 24.6% for the first 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 March 31, 2026, $800.6

million, or 69.3%, of the investment portfolio was classified as AFS and

$353.3 million, or 30.6%, was classified as HTM. The average maturity of our

total portfolio at March 31, 2026 was 2.98 years

compared to 2.57 years at December 31, 2025 and 2.64 years at March

31, 2025.

The duration of our investment portfolio at March

31, 2026 was 2.64 years compared to 2.12 years at December 31, 2025 and

2.10 years at March 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 March 31, 2026, there were 790 positions (combined AFS and HTM)

with unrealized pre-tax losses totaling $26.3 million.

50 of

these positions are U.S. Treasury bonds

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

663 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 March 31, 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 77 positions (municipal securities and corporate bonds) have

a credit

component.

At March 31, 2026, 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 March 31, 2026.

Loans HFI

Average loans

HFI decreased by $29.8 million, or 1.16%, from the fourth quarter of 2025, and

decreased by $127.6 million, or 4.7%,

from the first quarter of 2025. Compared to the fourth quarter of 2025, the

decline was primarily attributable to decreases in residential

real estate loans of $16.3 million, commercial real estate loans of $10.2 million,

construction loans of $4.2 million consumer loans

(primarily indirect auto) or $2.3 million, and commercial loans of $1.5

million, partially offset by an increase in home equity loans of

$4.0 million. Compared to the first quarter of 2025, the decline was primarily

attributable to declines in construction loans of $56.8

million, commercial real estate loans of $32.6 million, consumer loans (primarily

indirect auto) of $23.4 million, residential real estate

loans of $21.8 million, and commercial loans of $11.3

million, partially offset by an increase in home equity loans of $19.1 million.

Loans HFI at March 31, 2026, decreased by $27.7 million, or 1.1%, from December

31, 2025, and decreased by $142.4 million, or

5.4%, from March 31, 2025. Compared to December 31, 2025,

the decline was primarily due to decreases in residential real estate

loans of $22.2 million, commercial real estate loans of $12.9 million, commercial

loans of $10.1 million, other loans of $7.6 million

and consumer loans (primarily indirect auto) of $2.8 million, partially

offset by increases in construction loans of $9.7 million and

home equity loans of $3.0 million. Compared to the first quarter of 2025, the decrease

was primarily attributable to declines in

commercial real estate loans of $51.1 million, residential real estate loans of $41.9

million, construction loans of $35.7 million,

consumer loans (primarily indirect auto) of $26.7 million, and commercial

loans of $14.1 million, partially offset by an increase in

home equity loans of $17.9 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 $13.0

million at March 31, 2026 compared to $10.5 million at

December 31, 2025 and $4.4 million at March 31, 2025. At March 31, 2026, nonperforming

assets as a percentage of total assets was

0.29%, compared to 0.24% at December 31, 2025 and 0.10% at March 31, 2025.

Nonaccrual loans totaled $11.1 million at March 31,

2026, a $2.5 million increase over December 31, 2025 and a $6.8 million increase

over March 31, 2025. The increase over December

31, 2025 was primarily attributable to the addition of four residential 1-4 family

real estate loans totaling $1.9 million. Other real

estate totaled $1.8 million at March 31, 2026 and reflected the addition of a banking

office property for $1.2 million during the first

quarter of 2026. Further, classified loans totaled

$14.5 million at March 31, 2026, a $0.2 million increase over December 31, 2025

and

a $4.6 million decrease from March 31, 2025.

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 March 31, 2026, the allowance for credit losses for loans HFI totaled $31.0

million comparable to $31.0 million and $29.7 million

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

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.

The slight increase in the allowance

over March 31, 2025 was primarily attributable to utilization of

a higher forecasted unemployment rate in calculating loan loss rates.

Net loan charge-offs were 10 basis points

of average loans for the first quarter of 2026 versus 18 basis points for

the fourth quarter of

2025 and 9 basis points for the first quarter of 2025. At March 31, 2026, the

allowance represented 1.23% of loans HFI compared to

1.22% at December 31, 2025, and 1.12% at March 31, 2025.

At March 31, 2026, the allowance for credit losses for unfunded commitments

totaled $2.2 million compared to $2.1 million and $1.8

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

The change in the allowance for unfunded commitments from both

prior periods reflected variances in the level of unfunded loan commitments.

The allowance for unfunded commitments is recorded in

other liabilities.

Deposits

Average total

deposits were $3.691 billion for the first quarter of 2026, an increase of $43.5 million,

or 1.2%, over the fourth quarter

of 2025 and an increase of $25.5 million, or 0.7%, over the first quarter

of 2025. Compared to the fourth quarter of 2025, the increase

was primarily attributable to higher public funds balances of $99 million, driven

by seasonal inflows from municipal clients as they

receive their tax receipts beginning in late November,

partially offset by declines in core deposits of $64 million (noninterest

bearing

and interest bearing DDAs). The increase over the first quarter of 2025 was due to growth

in both core deposit balances, and public

funds.

At March 31, 2026, total deposits were $3.752 billion, an increase of $89.3 million,

or 2.4%, over December 31, 2025, and a decrease

of $32.3 million, or 0.9%, from March 31, 2025. The increase over December 31,

2025, was driven by higher core deposit balances of

$103 million (primarily noninterest bearing and NOW accounts), partially

offset by a decrease in public funds balances of $25 million

(primarily NOW accounts). The decrease from March 31, 2025, was primarily

due to lower public funds balances (noninterest bearing

accounts). Total public

funds balances were $629.9 million at March 31, 2026, $654.7 million at December

31, 2025, and $648.0

million at March 31, 2025.

Business deposit transaction accounts classified as repurchase agreements

averaged $15.8 million for the first quarter of 2026, a

decrease of $4.9 million from the fourth quarter of 2025 and a decrease

of $14.0 million from the first quarter of 2025. At March 31,

2026, repurchase agreement balances were $4.6 million compared

to $22.0 million at December 31, 2025 and $22.8 million at March

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 March 31, 2026

% Change in NII

Policy Limit

Change in Interest Rates

12 Months

24 Months

12 Months

24 Months

+200 bp Ramp

5.0%

17.7%

-10.0%

-12.5%

+100 bp Ramp

2.5%

10.7%

-7.5%

-10.0%

-100 bp Ramp

-2.5%

-4.2%

-7.5%

-10.0%

-200 bp Ramp

-5.1%

-12.3%

-10.0%

-12.5%

As of December 31, 2025

% Change in NII

Policy Limit

Change in Interest Rates

12 Months

24 Months

12 Months

24 Months

+200 bp Ramp

5.3%

18.5%

-10.0%

-12.5%

+100 bp Ramp

2.0%

10.8%

-7.5%

-10.0%

-100 bp Ramp

-2.7%

-4.9%

-7.5%

-10.0%

-200 bp Ramp

-5.5%

-13.3%

-10.0%

-12.5%

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 fourth quarter of 2025, 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 instantaneous parallel rate shock results over the next 12-month

and 24-month periods are within our prescribed policy

limits for all rate scenarios.

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

March 31, 2026

December 31, 2025

Policy

Limit

March 31, 2026

December 31, 2025

Policy

Minimum

+200 bp Shock

9.5%

10.4%

-20.0%

26.5%

25.4%

5.0%

+100 bp Shock

6.2%

7.0%

-15.0%

25.3%

24.2%

5.0%

-100 bp Shock

-9.5%

-9.7%

-15.0%

20.9%

19.8%

5.0%

-200 bp Shock

-20.8%

-21.0%

-20.0%

18.0%

17.1%

5.0%

At March 31, 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 March 31, 2026, we had the ability to generate approximately $1.6

51 billion (excludes overnight funds position of $425 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 March 31, 2026 was sufficient to meet our on-going

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 $407.7 million in the first quarter of 2026

compared to $437.5 million in the fourth quarter of 2026 and $320.9 million in

the first quarter of 2025. Compared to both prior periods, the variance

reflected higher average deposits and lower average loans and

the deployment of excess liquidity into the investment security portfolio.

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 on-going obligations.

Borrowings

Average short

-term borrowings totaled $43.6 million for the first quarter of 2026 compared to $41.6

million for the fourth quarter of

2025 and $37.3 million for the first quarter of 2025.

The variances compared to both prior periods were primarily due to mortgage

warehouse borrowing activity.

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 36.

At March 31, 2026, our regulatory capital

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

under the Basel III capital standards.

Shareowners’ equity was $559.9 million at March 31, 2026 compared to $552.9

million at December 31, 2025 and $512.6 million at

March 31, 2025. For the first three months of 2026, shareowners’ equity

was positively impacted by net income attributable to

shareowners of $15.8 million, the issuance of stock of $2.8 million, and

stock compensation accretion of $0.5 million. Shareowners’

equity was reduced by a common stock dividend of $4.6 million ($0.27 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 a net $2.3

million decrease in the accumulated other comprehensive gain. The

net unfavorable change in accumulated other comprehensive gain

was primarily due to a $2.2 million increase in the investment securities loss.

At March 31, 2026, our total risk-based capital ratio was 21.62% compared

to 21.45% at December 31, 2025 and 19.20% at March 31,

2025. Our common equity tier 1 capital ratio was 19.08%, 18.56%, and 16.08%,

respectively, on

these dates. Our leverage ratio was

11.65%, 11.77%,

and 11.17%, respectively,

on these dates. At March 31, 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 10.79% at March 31, 2026 and December 31, 2025,

compared to 9.61% at March 31, 2025. If our

unrealized held-to-maturity securities loss of $7.2 million (after-tax)

were recognized in accumulated other comprehensive loss, our

adjusted tangible capital ratio would be 10.62%.

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 March 31, 2026

and December 31, 2025, the net pension asset

reflected in other comprehensive income was $9.4 million compared

to $9.7 million at March 31, 2025. 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 March 31, 2026, we had $669.7 million in commitments to extend credit

and $7.5 million in standby letters of credit.

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

any condition established in the

contract.

Commitments generally have fixed expiration dates or other termination

clauses and may require payment of a fee.

Since

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

the total commitment amounts do not necessarily

represent future cash requirements.

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

the performance

of a client to a third party.

We use the same credit

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

balance sheet instruments.

If commitments arising from these financial instruments continue to require

funding at historical levels, management does not

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

obligations.

In the event these commitments

require funding in excess of historical levels, management believes current

liquidity, advances available from the

FHLB and the

Federal Reserve, and investment security maturities provide a sufficient

source of funds to meet these commitments.

Certain agreements provide that the commitments are unconditionally

cancellable by the bank and for those agreements no allowance

for credit losses has been recorded.

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 March 31, 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

Three Months Ended

March 31, 2026

December 31, 2025

March 31, 2025

Average

(Dollars in Thousands)

Balances

Interest

Rate

Balances

Interest

Rate

Balances

Interest

Rate

Assets:

Loans Held for Sale

24,716

404

6.63

24,261

374

6.11

24,726

490

8.04

Loans Held for Investment

(1)(2)

2,538,318

37,886

6.05

2,568,073

39,230

6.06

2,665,910

40,029

6.09

Taxable Securities

1,117,505

9,042

3.26

1,004,420

7,756

3.07

981,485

5,802

2.38

Tax-Exempt Securities

(2)

1,620

4.25

1,620

4.30

845

4.32

Interest Bearing Deposits

407,679

3,711

3.69

437,536

4,382

3.97

320,948

3,496

4.42

Total Earning Assets

4,089,838

51,060

5.06

4,035,910

51,759

5.08

3,993,914

49,826

5.06

Cash & Due From Banks

63,079

67,291

73,467

Allowance For Credit Losses

(31,545)

(30,922)

(30,008)

Other Assets

297,532

294,757

297,660

TOTAL ASSETS

4,418,904

4,367,036

4,335,033

Liabilities:

Noninterest Bearing Deposits

1,282,988

1,303,266

1,317,425

NOW Accounts

1,302,894

4,221

1.31

1,235,961

4,055

1.30

1,249,955

3,854

1.25

Money Market Accounts

403,340

1,752

1.76

415,577

1,977

1.89

420,059

2,187

2.11

Savings Accounts

509,351

132

0.10

501,080

157

0.12

507,676

176

0.14

Other Time Deposits

192,443

1,290

2.72

191,626

1,355

2.80

170,367

1,166

2.78

Total Interest Bearing Deposits

2,408,028

7,395

1.25

2,344,244

7,544

1.28

2,348,057

7,383

1.28

Total Deposits

3,691,016

7,395

0.81

3,647,510

7,544

0.82

3,665,482

7,383

0.82

Repurchase Agreements

15,789

1.88

20,690

134

2.57

29,821

164

2.23

Short-Term Borrowings

27,836

327

4.76

20,954

217

4.09

7,437

117

6.39

Subordinated Notes Payable

41,620

398

3.83

42,582

451

4.15

52,887

560

4.23

Other Long-Term Borrowings

680

5.68

680

5.55

794

5.68

Total Interest Bearing Liabilities

2,493,953

8,203

1.33

2,429,150

8,355

1.36

2,438,996

8,235

1.37

Other Liabilities

74,300

78,520

65,211

TOTAL LIABILITIES

3,851,241

3,810,936

3,821,632

TOTAL SHAREOWNERS’ EQUITY

567,663

556,100

513,401

TOTAL LIABILITIES, TEMPORARY

AND SHAREOWNERS’ EQUITY

4,418,904

4,367,036

4,335,033

Interest Rate Spread

3.72

3.69

Net Interest Income

42,857

43,404

41,591

Net Interest Margin

(3)

4.24

4.26

4.22

(1)

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

Interest income includes net loan costs of $0.4 million for

the three months ended

March 31, 2026, December 31, 2025, and March 31, 2025.

(2)

Interest income includes the effects of taxable equivalent adjustments

using a 21% tax rate.

(3)

Taxable equivalent net interest income divided by average earning assets.

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 March 31, 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 March 31, 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

Purchases of Equity Securities by the Issuer and

Affiliated Purchasers

The following table contains information about all purchases made by,

or on behalf of, us and any affiliated purchaser (as defined

Rule 10b-18(a)(3) under the Exchange Act) of shares or other units of any class of

our equity securities that is registered pursuant to

Section 12 of the Exchange Act.

Total

number

Average

Total

number of shares

Maximum Number of shares

of shares

price paid

purchased under our

remaining for purchase under

Period

purchased

per share

share repurchase program

(1)

our share repurchase program

January 1, 2026 to

January 31, 2026

676,561

February 1, 2026 to

February 28, 2026

7,713

41.83

7,713

668,848

March 1, 2026 to

March 31, 2026

55,375

41.84

55,375

613,473

Total

63,088

$41.84

63,088

613,473

(1)

The information reported in this row relates to shares that were repurchased

during the first quarter of 2026 through the Capital

City Bank Group, Inc. Share Repurchase Program (“the Program”),

effective February 1, 2024, that was publicly announced on

February 2, 2024 and that expires on February 1, 2029, under which

we were authorized to repurchase up to 750,000 shares of

our common stock.

Under the Program, shares may be repurchased by the Company from time to time in the open

market or

through private transactions, as market conditions warrant.

The program does not obligate the Company to repurchase any

specified number of shares of its common stock.

No shares are repurchased outside of the Program.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosure

Not Applicable.

Item 5.

Other Information

During the three months ended March 31, 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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101.CAL

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101.LAB

XBRL Taxonomy

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101.PRE

XBRL Taxonomy

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101.DEF

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104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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: April 28, 2026