CAPITAL CITY BANK GROUP INC (CCBG) Business

Business

About Us

General

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

headquartered in Tallahassee,

Florida. CCBG was

incorporated under Florida law on December 13, 1982, to acquire five national banks

and one state bank that all subsequently

became part of CCBG’s bank subsidiary,

Capital City Bank (“CCB” or the “Bank”). The Bank commenced operations

in 1895. In

this report, the terms “Company,”

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

financial

statements.

CCBG is one of the largest publicly traded financial

holding companies headquartered in Florida and has approximately $4.

4

billion in assets.

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 the

sale of life insurance, risk management and asset protection services. The

Bank has 62 banking offices and 108 ATMs/ITMs

in

Florida, Georgia, and Alabama.

Through Capital City Home Loans, LLC (“CCHL”), we have 28 additional

offices in the

Southeast for our mortgage banking business.

The majority of the revenue, approximately 81%, is derived from our

Florida

market areas while approximately 17% and 2% of the revenue is derived

from our Georgia and other market areas, respectively.

Below is a summary of our financial condition and results of operations for the past three

fiscal years, which we believe is a

sufficient period for understanding our general business development.

Our financial condition and results of operations are more

fully discussed in our Management’s

Discussion and Analysis on page 45 and our consolidated financial

statements on page 70.

Dollars in millions

Year

Ended

December 31,

Assets

Deposits

Shareowners’

Equity

Revenue

(1)

Net Income

2025

$4,385.8

$3,662.3

$552.9

$286.7

$61.6

2024

$4,324.9

$3,672.0

$495.3

$270.6

$52.9

2023

$4,304.5

$3,701.8

$440.6

$252.7

$52.3

(1)

Revenue represents interest income plus noninterest income

Dividends and management fees received from the Bank are CCBG’s

primary source of income. Dividend payments by the Bank

to CCBG depend on the capitalization, earnings and projected growth of

the Bank, and are limited by various regulatory

restrictions, including compliance with a minimum Common Equity

Tier 1 Capital conservation buffer.

See the section entitled

“Regulatory Considerations” in this Item 1 and Note 17 in the Notes to Consolidated

Financial Statements for a discussion of the

restrictions.

Item 6 contains other financial and statistical information about us.

Subsidiaries of CCBG

CCBG’s principal asset is the capital

stock of CCB, our wholly owned banking subsidiary,

which accounted for nearly 100% of

consolidated assets and net income attributable to CCBG at December 31,

2025.

CCBG previously maintained an insurance

subsidiary, Capital City Strategic

Wealth, LLC, which

was sold in August 2025.

CCB has three primary subsidiaries, Capital

City Trust Company and Capital City Banc Investments,

Inc. (or “Capital City Investments”) which are wholly owned, and

CCHL which became wholly owned effective January 1, 2025.

Operating Segment

We have one

reportable segment with two principal services: Banking Services and Wealth

Management Services.

Banking

Services are operated at CCB, and Wealth

Management Services are operated under two divisions (Capital City Trust

Company

and Capital City Investments).

Revenues from these principal services for the year ended 2025

totaled approximately 92.8% and

7.2% of our total revenue, respectively.

In 2024 and 2023, Banking Services (CCB) revenue was approximately 92.6% and

93.5% of our total revenue for each respective year.

6

Capital City Bank

CCB is a Florida-chartered full-service bank engaged in the commercial and

retail banking business. Significant services offered

by CCB include:

●

Business Banking

– We provide banking

services to corporations and other business clients. Credit products are available

for a wide variety of general business purposes, including financing for

commercial business properties, equipment,

inventories and accounts receivable, as well as commercial leasing and

letters of credit. We also provide

treasury

management services, and, through a marketing alliance with Elavon, Inc., merchant

credit card transaction processing

services.

●

Commercial Real Estate Lending

– We provide

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

developers and investors, residential builders and developers, and community

development. Credit products are available

to purchase land and build structures for business use and for investors

who are developing residential or commercial

property.

●

Residential Real Estate Lending

– We provide

an array of loan products through our subsidiary,

CCHL, to help meet the

home financing needs of consumers, including conventional permanent and

construction-to-permanent (fixed, adjustable,

or variable rate) financing arrangements as well as FHA, VA

and USDA rural development loan products.

CCHL also

offers both fixed and adjustable-rate residential mortgage

(ARM) loans.

CCHL offers these products through its network

of locations.

We do not offer subprime

residential real estate loans

●

Retail Credit

– We provide

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

loans,

automobile loans, boat/RV

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

credit card

programs.

●

Institutional Banking –

We provide banking

services to meet the needs of state and local governments, public schools

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

associations including customized checking and savings accounts,

cash management systems, tax-exempt loans, lines of credit, and term

loans.

●

Retail Banking

– We provide a full-range

of consumer banking services, including checking accounts, savings programs,

interactive/automated teller machines (ATMs/ITMs),

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

online banking, and mobile banking.

Capital City Home Loans, LLC

Capital City Home Loans,

LLC, or CCHL, originates, sells and services residential mortgage loans

through its retail origination

channel. CCHL provides an array of the aforementioned loan products to

meet the needs of our consumers within the areas that

we operate. CCHL is an approved Title II, non

-supervised direct endorsement mortgagee with the United States Department

of

Housing and Urban Development (HUD). In addition, CCHL is an approved

issuer with the Government Federal National

Mortgage Association (GNMA), as well as an approved seller and servicer with

the Federal National Mortgage Association

(FNMA) and Federal Home Loan Mortgage Corporation (FHLMC).

Capital City Trust Company

Capital City Trust Company,

or the Trust Company,

provides asset management for individuals through agency,

personal trust,

IRA, and personal investment management accounts. Associations, endowments,

and other nonprofit entities hire the Trust

Company to manage their investment portfolios. Additionally,

a staff of well-trained professionals serves individuals requiring

the

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

The market value of trust assets under discretionary management

exceeded $1.326 billion at December 31, 2025, with total assets under administration

exceeding $1.375 billion.

Capital City Investments

We offer

our customers retail investment products through LPL Financial. LPL offers

a full line of retail securities products,

including U.S. Government bonds, tax-free municipal bonds, stocks, mutual

funds, unit investment trusts, annuities, life

insurance and long-term health care. Non-deposit investment and

insurance products are: (i) not FDIC insured; (ii) not deposits,

obligations, or guarantees by any bank; and (iii) subject to investment risk,

including the possible loss of principal amount

invested. The market value of total asset under administration exceeded

$1.541 billion at December 31, 2025.

7

Capital City Strategic Wealth,

LLC.

Capital City Strategic Wealth,

LLC provides

a multi-disciplinary strategic planning approach that requires examining all facets of

our clients’ financial lives through our business, estate, financial, insurance

and business planning, tax planning, and asset

protection advisory services.

Insurance sales within this division include life, health, disability,

long-term care, and annuity

solutions. This subsidiary was sold in August 2025. Revenues were not

material to the Company’s ongoing

operations or future

financial results.

Lending Activities

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

We

seek loans from within our primary market area,

which is defined as the counties in which our banking offices are

located.

We

will also originate loans within our secondary

market area, defined as counties adjacent to those in which we have banking

offices.

There may also be occasions when we will

have opportunities to make loans that are out of both the primary and

secondary market areas, including participation loans.

These loans are only approved if the underwriting is consistent with our criteria and

generally the project or applicant’s

primary

business is in or near our primary or secondary market areas. Approval of

all loans is subject to our policies and standards

described in more detail below.

We

have adopted comprehensive lending policies, underwriting standards

and loan review procedures. Management and our

Board of Directors reviews and approves these policies and procedures on

a regular basis (at least annually).

Management has also implemented reporting systems designed

to monitor loan originations, loan quality,

concentrations of

credit, loan delinquencies, nonperforming loans, and potential problem

loans. Our management and the Credit Risk Oversight

Committee periodically review our lines of business to monitor asset quality

trends and the appropriateness of credit policies. In

addition, we establish total borrower exposure limits and monitor concentration

risk. As part of this process, the overall

composition of the portfolio is reviewed to gauge diversification of risk,

client concentrations, industry group, loan type,

geographic area, or other relevant classifications of loans.

Specific segments of the portfolio are monitored and reported to our

Board on a quarterly basis, and we have strategic plans in place to supplement

Board approved credit policies governing exposure

limits and underwriting standards.

We

recognize that exceptions to the below-listed policy guidelines may occasionally

occur and

have established procedures for approving exceptions to these policy guidelines.

Residential Real Estate Loans

We originate

1-4 family, owner-occupied

residential real estate loans for sale in the secondary market.

Historically, a vast

majority of residential loan originations are fixed-rate loans which are sold

in the secondary market on a non-recourse basis.

We

will frequently sell loans and retain the servicing rights.

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

Financial Statements provides additional information on our servicing

portfolio.

We also maintain

a portfolio of residential loans held for investment and will periodically

originate new 1-4 family secured

adjustable-rate loans for that portfolio. Residential loans held for

investment are generally underwritten in accordance with

secondary market guidelines in effect at the time of origination,

including loan-to-value, or LTV,

and documentation

requirements.

Residential real estate loans also include home equity lines of credit, or HELOCs, and

home equity loans. Our home equity

portfolio includes revolving open-ended equity loans with interest-only

or minimal monthly principal payments and closed-end

amortizing loans. Open-ended equity loans typically have an interest only

10-year draw period followed by a five-year repayment

period of 0.75% of principal balance monthly and balloon payment at maturity.

As of December 31, 2025, approximately 47% of

our residential home equity loan portfolio consisted of first mortgages.

Interest rates may be fixed or adjustable.

Adjustable-rate

loans are tied to the Prime Rate with a typical margin of 1.0% or more.

Commercial Loans

Our policy sets forth guidelines for debt service coverage ratios, LTV

ratios and documentation standards. Commercial loans are

primarily made based on identified cash flows of the borrower with consideration

given to underlying collateral and personal or

other guarantees.

We

have established debt service coverage ratio limits that require a borrower’s

cash flow to be sufficient to

cover principal and interest payments on all new and existing debt. The

majority of our commercial loans are secured by the

assets being financed or other business assets such as accounts receivable or

inventory.

Many of the loans in the commercial

portfolio have variable interest rates tied to the Prime Rate or U.S. Treasury

indices.

8

Commercial Real Estate Loans

We

have adopted guidelines for debt service coverage ratios, LTV

ratios and documentation standards for commercial real estate

loans. These loans are primarily made based on identified cash flows of

the borrower with consideration given to underlying real

estate collateral and personal guarantees. Our policy establishes a maximum

LTV specific to

property type and minimum debt

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

be sufficient to cover principal and interest payments on all

new and existing debt. Commercial real estate loans may be fixed

or variable-rate loans with interest rates tied to the Prime Rate

or U.S. Treasury indices.

We

require appraisals for loans in excess of $500,000 that are secured by real property

unless we deem

the real property used as security to be a complex property type, in

which case we require appraisals for loans in excess of

$250,000. For loans secured by real property that fall beneath the

applicable thresholds above, we will generally use a third-party

evaluation to assess the value of the real property used as security.

Consumer Loans

Our consumer loan portfolio includes personal installment loans, direct

and indirect automobile financing, and overdraft lines of

credit. The majority of the consumer loan portfolio consists of indirect

and direct automobile loans. The majority of our consumer

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

based on current market interest rates and the financial

strength of the borrower. Our policy

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

guidelines

for verification of applicants’ income and receipt of credit reports.

Expansion of Business

See Item 7.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations under the section captioned

“Business Overview” for discussion related to the expansion of our

Business.

Competition

We face significant

competition in our market areas. We

compete against a wide range of banking and nonbanking institutions

including banks, savings and loan associations, credit unions, money market

funds, mutual fund advisory companies, mortgage

banking companies, investment banking companies, insurance agencies and

companies, securities firms, brokerage firms,

financial technology firms, personal and commercial finance companies

,

peer-to-peer lending businesses and other types of

financial institutions. In addition to traditional competitors, we also face increasing

competition from a rapidly expanding group

of nontraditional financial service providers. These include established and

emerging wealth technology companies

(“wealthtechs”), financial technology companies (“fintechs”), technology

-enabled lenders, digital-only banks, crowdfunding

platforms, and mobile-based payment applications. These firms often

leverage advanced technologies, agile product development

cycles, and streamlined digital interfaces that allow them to deliver certain

financial products and services—such as unsecured

consumer loans, small business working-capital loans, digital wallets, and peer-to-peer

payments—more quickly or conveniently

than traditional banking institutions. Some fintech competitors operate

with lower overhead and, in some cases, are subject to

fewer regulatory requirements than banks and bank holding companies.

This can allow them to offer competitive pricing, faster

decision making or funding, and simplified user experiences. Some

of our competitors are larger financial institutions with greater

resources and, as such, may have higher lending limits and may offer

other services that are not provided by us. Industry

consolidation also intensifies competition in our markets. Mergers

among financial institutions have created larger,

better-capitalized, and more geographically diverse

competitors with expanded digital capabilities and broader product sets. These

institutions may be better positioned to make significant investments in technology,

marketing, and infrastructure, which can

enhance their ability to compete for both clients and talent.

However, we believe that the larger

financial institutions are less

familiar with the markets in which we operate and typically target

a different client base. We

also believe clients who bank at

community banks tend to prefer the relationship style service of community

banks compared to larger banks and financial

services companies.

As a result, we expect to be able to effectively compete in our markets

with larger financial institutions through providing

superior client service and leveraging our knowledge and experience

in providing banking products and services in our market

areas. See Item 1A. Risk Factors under the section captioned “Our future success is dependent

on our ability to compete

effectively in the highly competitive banking and financial

services industry” for further discussion related to the competitive

environment in which we operate.

Our primary market area consists of 21 counties in Florida, six counties in Georgia,

and one county in Alabama. Most of Florida’s

major banking concerns have a presence in Leon County,

where our main office is located.

Our Leon County deposits totaled

$1.195 billion, or 32.6% of our consolidated deposits at December

31, 2025.

9

The table below depicts our market share percentage within each county,

based on commercial bank deposits within the county.

Market Share as of June 30,

(1)

County

2025

2024

2023

Florida

Alachua

4.8%

4.9%

5.1%

Bay

0.4%

0.2%

0.3%

Bradford

37.0%

34.3%

37.1%

Citrus

3.7%

4.3%

4.4%

Clay

2.8%

2.2%

2.4%

Dixie

22.6%

21.5%

17.5%

Gadsden

82.3%

81.8%

81.9%

Gilchrist

41.1%

41.6%

42.2%

Gulf

11.2%

11.2%

12.4%

Hernando

5.2%

5.2%

4.9%

Jefferson

27.2%

24.6%

28.3%

Leon

16.8%

15.5%

16.9%

Levy

24.3%

26.4%

26.4%

Madison

13.3%

13.5%

13.5%

Putnam

22.7%

28.3%

34.4%

St. Johns

0.7%

0.7%

0.8%

Suwannee

6.0%

6.4%

6.6%

Taylor

69.4%

73.7%

75.0%

Wakulla

14.7%

8.4%

8.4%

Walton

0.7%

0.6%

0.3%

Washington

7.0%

7.8%

9.2%

Georgia

Bibb

3.2%

3.1%

2.9%

Cobb

0.1%

0.1%

0.1%

Gwinnett

(2)

0.1%

0.0%

0.0%

Grady

15.0%

14.0%

13.8%

Laurens

6.3%

6.0%

6.7%

Troup

5.2%

5.4%

5.6%

Alabama

Chambers

8.2%

9.0%

8.6%

(1)

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

(2)

Bank office opened in the second quarter of 2023.

Seasonality

We believe our

commercial banking operations are not generally seasonal in nature; however,

public deposits tend to increase

with tax collections in the fourth and first quarters of each year and decline

as a result of governmental spending thereafter.

Human Capital Matters

Our culture distinguishes us from our competitors and is the driving force

behind our continued success. Our leadership is

committed to a culture that values people alongside results.

Our brand promise (“More than your bank. Your

banker.”)

and purpose (“We

empower our clients’ financial wellness and help

them build secure futures”), together with our core values statement (“Do

the Right Thing, Build Relationships & Loyalty,

Embrace Individuality & Value

Others, Promote Career Growth, Be Committed to Community,

and Represent the Star (our bank)

Proudly”), are the foundation on which our culture is built.

10

The bank has grown significantly since its beginnings in 1895. Our commitment

to fostering a culture that values our associates

across our entire footprint remains unwavering. We

have a Chief Culture Officer and a Chief Inclusion Officer

who make it a

priority to ensure our culture is maintained and associates exemplify our values.

We reinforce these

cultural priorities through

ongoing communication, leadership engagement across our markets,

and programs designed to strengthen associate connection,

belonging, and service to our clients and communities.

At December 31, 2025, we had approximately 902 full-time associates and approximately

25 part-time associates. At December

31, 2025, approximately 68% of our workforce was female, 32% was male, and

approximately 22% was ethnic minorities. None

of our associates are represented by a labor union or covered by a collective bargaining

agreement.

All of our associates are hired

on the basis of their individual skills, qualifications, merit,

and in accordance with applicable law.

Our commitment to people and being an employer with integrity and heart has

earned us numerous accolades including: one of

the “Best Companies to Work

for in Florida” by Florida Trend for 14 consecutive

years, a “Best Bank to Work

For” by American

Banker for 13 consecutive years and being named World’s

Best Banks, America’s Best Banks (ranked

#13) and America’s Best-

in-State Banks (Ranked #5 in Florida and Ranked #4 in Georgia)

by Forbes in 2025, a selection made from direct consumer

feedback and online reviews.

The average tenure of our associates is approximately 9.8 years, and

the average tenure of our management team is 24.3 years.

Tenure statistics support

these accolades and further demonstrate that associates enjoy working

for CCBG.

Compensation and Benefits Program

. To attract and retain experienced

associates we offer a competitive compensation and

benefits program, foster a culture where everyone feels included and empowered

to do to their best work, and give associates the

opportunity to give back to their communities and make a social impact.

Our compensation program is designed to attract and reward talented individuals

who possess the skills necessary to support our

business objectives, assist in the achievement of our strategic goals and

create long-term value for our shareowners. We

provide

our associates with compensation packages that include base salary and

annual incentive bonuses, and certain associates can

receive equity awards tied to the Company’s

performance.

Experience has taught us that a compensation program with both

short-

and long-term awards provides fair and competitive

compensation and aligns associate and shareowner interests by incentivizing

business and individual performance. This dual

approach also encourages long-term company performance and integrates compensation

with our business plans.

In addition to cash and equity compensation, we offer associates benefits

including life and health (medical, dental & vision)

insurance, paid time off, an associate stock purchase plan, and a

401(k) plan. Associates hired prior to 2020 are eligible to

participate in a pension plan.

We periodically

evaluate our benefits and total rewards offerings to ensure

they remain competitive

within our industry and responsive to the evolving needs of our workforce.

A core value is providing associates the ability to “grow a career.”

To that end, we support and encourage

associates to develop a

life-long habit of continuous learning that focuses on personal and professional

development through higher education. We

offer

an educational Tuition Assistance Plan to help eligible

associates continue or begin post-high school education, develop skills,

increase knowledge and aid in career development.

We have invested

in tools and capabilities that allow our team members to work remotely as appropriate.

These tools also

support flexible work arrangements, increased collaboration, and the ability

to maintain continuity while meeting the needs of

associates and clients.

Talent

Acquisition, Development, Retention and Culture

. Our culture emphasizes our longstanding dedication to being respectful

to others and having a workforce that is representative of the communities we serve.

We believe in attracting,

retaining and

promoting quality talent. Our success depends on our ability to attract,

retain and develop employees, and our talent acquisition

teams partner with hiring managers in sourcing and presenting a slate of qualified

candidates to strengthen our organization.

Professional development is a key priority,

which is facilitated through our many corporate development initiatives including

extensive training programs, corporate mentoring, leadership programs,

educational reimbursement and professional speaker

series. Our talent acquisition, development and retention focuses on rewarding

merit and achievement while nurturing and

progressing skilled talent across various business segments.

Integral to our culture and values is a commitment to an equal-opportunity

and inclusive work environment whereby respect,

acceptance and belonging are practiced and experienced by all.

Our associates are our most valuable assets, and our differences make

us stronger, produce more creative solutions,

offer better

client service and are vital to attracting and retaining talent. The individual

perspectives, life experiences, capabilities and talents,

which our associates invest in their work, represent a significant part of our

culture, reputation and collective achievements.

11

Health and Safety

. Our business success is fundamentally connected to our associates’ well-being.

We make available to our

associates a voluntary wellness program,

StarFit, that provides associates with resources and good-health opportunities through

exercise, diet and preventive care.

We continue

to evaluate and enhance our well-being programs to support physical, emotional,

and financial wellness across our workforce.

In response to emerging workplace practices, we made changes to our

flex–work program to assist our associates in maintaining a

work/life balance consistent with their professional and personal goals.

We remain committed to

providing tools, support and

flexibility that enable associates to perform their roles effectively

while managing personal commitments.

Social Matters

Community Involvement.

We aim to give back

to the communities where we live and work and believe that this commitment

helps in our efforts to attract and retain associates. Our commitment

to help our community starts with our associates. Community

involvement is a hallmark for our organization, and it comes naturally

to our associates. We encourage

our associates to volunteer

their hours with service organizations and philanthropic groups in

the communities we serve.

We recorded

7,914 community service hours in 2025, and 9,542, and 10,526 hours in 202

4

and 2023, respectively.

Additionally,

the CCBG Foundation donated approximately $0.3 million in 2025,

2024 and 2023 to various non-profit organizations in the

communities we serve.

Since 2015, we have annually supported the United Way

of the Big Bend in analyzing financial information for its annual grant

review process. Many of these grants are provided to low-moderate income

communities in the Big Bend area.

Access, affordability,

and financial inclusion.

Our community commitment to further financial literacy in the markets we service

remains an ongoing focus. In 2025, the CCBG Foundation made grants totaling

$173,000 to Community Reinvestment Act of

1977 (“CRA”) eligible organizations in our market

area. We are committed

to providing educational outreach regarding home

ownership and financial access for minorities. We

are a long-time supporter of Habitat for Humanity,

with our associates

providing volunteer hours on home builds.

Further, we continue to originate loans under the

Habitat for Humanity loan program

and community development loans under various affordable

housing, community service, and revitalization projects.

During tax season, we provide locations for community residents to access Volunteer

Income Tax Assistance (VITA)

services.

VITA is a nationwide

IRS program that offers free tax preparation assistance to people who generally

make $60,000 or less,

persons with disabilities, the elderly,

and limited English-speaking taxpayers who need assistance in preparing their

own tax

returns.

Regulatory Considerations

We

must comply with state and federal banking laws and regulations

that control virtually all aspects of our operations.

These

laws and regulations generally aim to

protect our depositors, not necessarily our shareowners

or our creditors. Any changes in

applicable laws or regulations may materially

affect our business and prospects. Proposed

legislative or regulatory changes may

also affect our operations. The following description summarizes some of the

laws and regulations to which we are

subject.

References to applicable statutes and

regulations are brief summaries,

do not purport to be complete, and are qualified

in their

entirety by reference

to such statutes and regulations.

Capital City Bank Group, Inc.

We are extensively

regulated under federal and state law.

The following is a brief summary that does not purport to be a complete

description of all regulations that affect us or all aspects of those regulations.

This discussion is qualified in its entirety by

reference to the particular statutory and regulatory provisions described below

and is not intended to be an exhaustive description

of the statutes or regulations applicable to the Company’s

and the Bank’s business. In addition, proposals

to change the laws and

regulations governing the banking industry are frequently raised at both

the state and federal levels. The likelihood and timing of

any changes in these laws and regulations, and the impact such changes may

have on us and the Bank, are difficult to predict.

Regulatory agencies may issue enforcement actions, policy statements, interpretive

letters, and similar written guidance

applicable to us or to the Bank. Changes in applicable laws, regulations, or regulatory

guidance, or their interpretation by

regulatory agencies or courts may have a material adverse effect on

our and the Bank’s business, operations,

and earnings.

12

We and the Bank

must undergo regular examinations by the Board of Governors of the Federal

Reserve System (the “Federal

Reserve”), which will examine for adherence to a range of legal and regulatory

compliance responsibilities. A bank regulator

conducting an examination has complete access to the books and records

of the examined institution. The results of the

examination are confidential. Supervision and regulation of banks,

their holding companies, and affiliates is intended primarily

for the protection of depositors and clients, the Deposit Insurance Fund

(“DIF”) of the Federal Deposit Insurance Corporation

(“FDIC”), and the U.S. banking and financial system rather than holders

of our securities.

We are registered

as a bank holding company with the Federal Reserve under the Bank Holding Company

Act (“BHC Act”) and

have elected to be treated as a financial holding company.

As such, we are subject to comprehensive supervision and regulation

by the Federal Reserve and are subject to its regulatory reporting requirements.

Federal law subjects bank holding companies,

such as the Company, to

restrictions on the types of activities in which they may engage, and to a range of supervisory

requirements produce more creative solutions, offer better

client service and are vital to attracting and retaining talent. In addition,

the Florida Office of Financial Regulation (“Florida OFR”) regulates

bank holding companies that own Florida-chartered banks,

such as us, under the bank holding company laws of the State of Florida. Various

federal and state bodies regulate and supervise

our non-bank activities including our brokerage, investment advisory,

and insurance agency activities. These include, but are not

limited to, the Securities and Exchange Commission (“SEC”), the Financial

Industry Regulatory Authority,

federal and state

banking regulators, and various state regulators of insurance and brokerage activities.

Violations of laws and regulations,

or other unsafe and unsound practices, may result in regulatory agencies imposing

fines or

penalties, cease and desist orders, or taking other enforcement actions. Under

certain circumstances, these agencies may enforce

these remedies directly against officers, directors, employees, and

other parties participating in the affairs of a bank or bank

holding company.

Like all bank holding companies, we are regulated extensively under federal and

state law. Under federal and

state laws and regulations pertaining to the safety and soundness of insured depository

institutions, state banking regulators, the

Federal Reserve, and separately the FDIC as the insurer of bank deposits have the

authority to compel or restrict certain actions

on our part if they determine that we have insufficient capital or

other resources, or are otherwise operating in a manner that may

be deemed to be inconsistent with safe and sound banking practices. Under

this authority, our regulators

can require us or our

subsidiaries to enter into informal or formal supervisory agreements, including

board resolutions, memoranda of understanding,

written agreements, and consent or cease and desist orders pursuant to which

we would be required to take identified corrective

actions to address cited concerns and to refrain from taking certain actions.

If we become subject to and are unable to comply with the terms of any regulatory

actions or directives, supervisory agreements

or orders, then we could become subject to additional, heightened supervisory

actions and orders, possibly including prompt

corrective action restrictions and/or other regulatory actions, including

prohibitions on the payment of dividends on our common

stock and preferred stock. If our regulators were to take such supervisory actions,

then we could, among other things, become

subject to significant restrictions on our ability to develop any new business, as well as restrictions

on our existing business, and

we could be required to raise additional capital, dispose of certain assets and liabilities within

a prescribed period of time, or both.

The terms of any such action could have a material negative effect

on our business, reputation, operating flexibility,

financial

condition, and the value of our capital stock.

13

Permitted Activities

As a financial holding company,

we are permitted to engage directly or indirectly in a broader range of activities than

those

permitted for a bank holding company that has not elected to be a financial holding

company. Bank holding companies

are

generally restricted to engaging in the business of banking, managing,

or controlling banks and certain other activities determined

by the Federal Reserve to be closely related to banking. Financial holding companies

may also engage in activities that are

considered to be financial in nature, as well as those incidental or,

if determined by the Federal Reserve, complementary to

financial activities. If the Bank ceases to be “well capitalized” or “well managed”

under applicable regulatory standards, or if the

Bank receives a rating of less than satisfactory under the CRA, the Federal

Reserve may, among other

things, place limitations on

our ability to conduct these broader financial activities or,

if the deficiencies persist, require us to divest the banking subsidiary or

the businesses engaged in activities permissible only for financial holding

companies.

In addition, the Federal Reserve has the power to order a bank holding

company or its subsidiaries to terminate any nonbanking

activity or terminate its ownership or control of any nonbank subsidiary

when it has reasonable cause to believe that continuation

of such activity or such ownership or control constitutes a serious risk to the financial

safety, soundness, or stability of

any bank

subsidiary of that bank holding company.

As further described below, each of

the Company and the Bank is well-capitalized

under applicable regulatory standards as of December 31, 2025,

and the Bank has an overall rating of “Satisfactory” in its most

recent CRA evaluation.

Source of Strength Obligations

A bank holding company,

such as us, is required to act as a source of financial and managerial strength to its subsidiary bank.

The

term “source of financial strength” means the ability of a company,

such as us, that directly or indirectly owns or controls an

insured depository institution, such as the Bank, to provide financial

assistance to such insured depository institution in the event

of financial distress. The appropriate federal banking agency for

the depository institution (in the case of the Bank, this agency is

the Federal Reserve) may require reports from us to assess our ability

to serve as a source of strength and to enforce compliance

with the source of strength requirements by requiring us to provide financial

assistance to the Bank in the event of financial

distress. If we were to enter bankruptcy or become subject to the orderly

liquidation process established by the Dodd-Frank Wall

Street Reform and Consumer Protection Act (“Dodd-Frank Act”),

any commitment by us to a federal bank regulatory agency to

maintain the capital of the Bank would be assumed by the bankruptcy

trustee or the FDIC, as appropriate, and entitled to a

priority of payment. In addition, the FDIC provides that any insured

depository institution generally will be liable for any loss

incurred by the FDIC in connection with the default of, or any assistance provided

by the FDIC to, a commonly controlled insured

depository institution. The Bank is an FDIC-insured depository institution

and thus subject to these requirements.

Acquisitions

The BHC Act permits acquisitions of banks by bank holding companies,

such that we and any other bank holding company,

whether located in Florida or elsewhere, may acquire a bank located in

any other state, subject to certain deposit-percentage, age

of bank charter requirements, and other restrictions. The BHC Act requires that

a bank holding company obtain the prior approval

of the Federal Reserve before (i) acquiring direct or indirect ownership

or control of more than 5% of the voting shares of any

additional bank or bank holding company,

(ii) taking any action that causes an additional bank or bank holding company

to

become a subsidiary of the bank holding company,

or (iii) merging or consolidating with any other bank

holding company. The

Federal Reserve may not approve any such transaction that would result

in a monopoly or would be in furtherance of any

combination or conspiracy to monopolize or attempt to monopolize the business

of banking in any section of the United States, or

the effect of which may be substantially to lessen competition

or to tend to create a monopoly in any section of the country,

or

that in any other manner would be in restraint of trade unless the anticompetitive

effects of the proposed transaction are clearly

outweighed in the public interest by the probable effect of the transaction

in meeting the convenience and needs of the community

to be served. The Federal Reserve is also required to consider: (i) the financial and managerial

resources of the companies

involved, including pro forma capital ratios; (ii) the risk to the stability of

the United States banking or financial system; (iii) the

convenience and needs of the communities to be served, including performance

under the CRA; and (iv) the effectiveness of the

company in combatting money laundering.

Change in Control

Federal law restricts the amount of voting stock of a bank holding company

or a bank that a person may acquire without the prior

approval of banking regulators. Under the Change in Bank Control

Act and the regulations thereunder, a person or group

must

give advance notice to the Federal Reserve before acquiring control

of any bank holding company,

such as the Company, or

before acquiring control of any FDIC-insured bank, such as the Bank.

Upon receipt of such notice, the Federal Reserve may

approve or disapprove the acquisition. The Change in Bank Control Act creates

a rebuttable presumption of control if a person or

group acquires the power to vote 10% or more of our outstanding

common stock.

14

Under Florida law,

a person or entity proposing to directly or indirectly acquire control of a Florida chartered

bank must also

obtain permission from the Florida Office of Financial

Regulation (the “Florida OFR”). The Florida Statutes define “control”

as

either (i) indirectly or directly owning, controlling or having power

to vote 25% or more of the voting securities of a bank; (ii)

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

controlling, or having power to vote 10% or more of the

voting securities as well as directly or indirectly exercising a controlling

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

as determined by the

Florida OFR. These requirements will affect us because the Bank is chartered

under Florida law and

changes in control of the Company are indirect changes in control

of the Bank.

The overall effect of such laws is to make it more difficult

to acquire a bank holding company and a bank by tender offer or

similar means than it might be to acquire control of another type of corporation.

Consequently, shareholders

of the Company may

be less likely to benefit from the rapid increases in stock prices that may result

from tender offers or similar efforts to acquire

control of other companies. Investors should be aware of these requirements

when acquiring shares of our stock.

Incentive Compensation

The Dodd-Frank Act required the federal banking agencies and

the SEC to establish joint rules or guidelines for financial

institutions with more than $1 billion in assets, such as us and the Bank,

which prohibit incentive compensation arrangements that

the agencies determine to encourage inappropriate risks by the institution.

The federal banking agencies issued proposed rules in

2011 and previously issued guidance

on sound incentive compensation policies. In 2016, the federal banking

agencies and the

SEC proposed rules that would, depending upon the assets of the institution, directly

regulate incentive compensation

arrangements and would require enhanced oversight and recordkeeping.

As of December 31, 2025, these rules have not been

implemented, although the SEC did adopt final rules implementing

the clawback provisions of the Dodd-Frank Act in 2022.

We

and the Bank have undertaken efforts to ensure that our

incentive compensation plans do not encourage inappropriate risks,

consistent with three key principles - that incentive compensation arrangements

should appropriately balance risk and financial

rewards, be compatible with effective controls and risk management,

and be supported by strong corporate governance.

Source of Strength Obligations

A bank holding company,

such as us, is required to act as a source of financial and managerial strength to its subsidiary bank.

The

term “source of financial strength” means the ability of a company,

such as us, that directly or indirectly owns or controls an

insured depository institution, such as the Bank, to provide financial

assistance to such insured depository institution in the event

of financial distress. The appropriate federal banking agency for

the depository institution (in the case of the Bank, this agency is

the Federal Reserve) may require reports from us to assess our ability

to serve as a source of strength and to enforce compliance

with the source of strength requirements by requiring us to provide financial

assistance to the Bank in the event of financial

distress. If we were to enter bankruptcy or become subject to the orderly

liquidation process established by the Dodd-Frank Act,

any commitment by us to a federal bank regulatory agency to maintain

the capital of the Bank would be assumed by the

bankruptcy trustee or the FDIC, as appropriate, and entitled to a priority

of payment. In addition, the FDIC provides that any

insured depository institution generally will be liable for any loss incurred

by the FDIC in connection with the default of, or any

assistance provided by the FDIC to, a commonly controlled insured

depository institution. The Bank is an FDIC-insured

depository institution and thus subject to these requirements.

Capital Requirements

We

and the Bank are required under federal law to maintain certain minimum

capital levels based on ratios of capital to total

assets and capital to risk-weighted assets. The required capital ratios are minimums,

and the Federal Reserve may determine that a

banking organization based on its size, complexity,

or risk profile must maintain a higher level of capital in order to operate in a

safe and sound manner.

Risks such as concentration of credit risks and the risk arising from nontraditional activities,

as well as the

institution’s exposure

to a decline in the economic value of its capital due to changes in interest rates, and an

institution’s ability

to manage those risks, are important factors that are to be taken into account

in assessing an institution’s overall

capital adequacy.

The following is a brief description of the relevant provisions of these capital

rules and their potential impact on our capital levels.

We

and the Bank are subject to the following risk-based capital ratios: a CET1 risk-based

capital ratio, a Tier 1 risk-based capital

ratio, which includes CET1 and additional Tier

1 capital, and a total risk-based capital ratio, which includes Tier

1 and Tier 2

capital. CET1 is primarily comprised of the sum of common stock instruments

and related surplus net of treasury stock plus

retained earnings less certain adjustments and deductions, including

with respect to goodwill, intangible assets, mortgage

servicing assets, and deferred tax assets subject to temporary timing differences.

Additional Tier 1 capital is primarily comprised

of noncumulative perpetual preferred stock. Tier

2 capital consists of instruments disqualified from Tier

1 capital, including

qualifying subordinated debt and a limited amount of loan loss reserves up

to a maximum of 1.25% of risk-weighted assets,

subject to certain eligibility criteria. The capital rules also define the

risk-weights assigned to assets and off-balance sheet items to

determine the risk-weighted asset components of the risk-based capital

rules, including, for example, certain “high volatility”

commercial real estate, past due assets, structured securities, and equity

holdings.

15

The leverage capital ratio, which serves as a minimum capital standard,

is the ratio of Tier 1 capital to quarterly average

total

consolidated assets net of goodwill, certain other intangible assets, and certain

required deduction items. The required minimum

leverage ratio for all banks and bank holding companies is 4%.

In addition, effective January 1, 2019, the capital rules required

a capital conservation buffer of 2.5% above each of the minimum

risk-based capital ratio requirements (CET1, Tier

1, and total capital), which is designed to absorb losses during periods of

economic stress. These buffer requirements must be

met for a bank or bank holding company to be able to pay dividends, engage

in share buybacks, or make discretionary bonus payments to executive

management without restriction.

The Federal Deposit Insurance Corporation Improvement Act (“FDICIA”),

among other things, requires the federal bank

regulatory agencies to take “prompt corrective action” regarding depository

institutions that do not meet minimum capital

requirements. FDICIA establishes five regulatory capital tiers: “well capitalized,”

“adequately capitalized,” “undercapitalized,”

“significantly undercapitalized,” and “critically undercapitalized.” A depository

institution’s capital tier will depend

upon how its

capital levels compare to various relevant capital measures and certain

other factors, as established by regulation. FDICIA

generally prohibits a depository institution from making any capital distribution

(including payment of a dividend) or paying any

management fee to its holding company if the depository institution would

thereafter be undercapitalized. The FDICIA imposes

progressively more restrictive restraints on operations, management,

and capital distributions depending on the category in which

an institution is classified. Undercapitalized depository institutions are

subject to restrictions on borrowing from the Federal

Reserve System. In addition, undercapitalized depository institutions

may not accept brokered deposits absent a waiver from the

FDIC, are subject to growth limitations, and are required to submit capital

restoration plans for regulatory approval. A depository

institution's holding company must guarantee any required capital restoration

plan up to an amount equal to the lesser of 5% of

the depository institution's assets at the time it becomes undercapitalized

or the amount of the capital deficiency when the

institution fails to comply with the plan. Federal banking agencies may not

accept a capital plan without determining, among

other things, that the plan is based on realistic assumptions and is likely to

succeed in restoring the depository institution's capital.

If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly

undercapitalized.

To be well-capitalized,

the Bank must maintain at least the following capital ratios:

●

6.5% CET1 to risk-weighted assets;

●

8.0% Tier 1 capital to risk-weighted assets;

●

10.0% Total capital to

risk-weighted assets; and

●

5.0% leverage ratio.

The Federal Reserve has not yet revised the well-capitalized standard

for bank holding companies to reflect the higher capital

requirements imposed under the current capital rules applicable to

banks. For purposes of the Federal Reserve’s

Regulation

Y,

including determining whether a bank holding company meets the requirements

to be a financial holding company,

bank holding

companies, such as the Company,

must maintain a Tier 1 risk-based capital ratio of 6.0%

or greater and a total risk-based capital

ratio of 10.0% or greater to be well-capitalized. Also, the Federal Reserve

may require bank holding companies, including the

Company, to maintain

capital ratios substantially in excess of mandated minimum levels depending

upon general economic

conditions and a bank holding company’s

particular condition, risk profile, and growth plans.

Failure to be well-capitalized or to meet minimum capital requirements

could result in certain mandatory and possible additional

discretionary actions by regulators that, if undertaken, could have an adverse

material effect on our operations or financial

condition. Failure to meet minimum capital requirements could also result

in restrictions on the Company’s

or the Bank’s ability

to pay dividends or otherwise distribute capital or to receive regulatory

approval of applications or other restrictions on its growth.

In 2025, the Company’s and

the Bank’s regulatory capital ratios were above

the applicable well-capitalized standards and met the

capital conservation buffer.

Based on current estimates, we expect the Company and the Bank to exceed

all applicable well-

capitalized regulatory capital requirements and the capital conservation

buffer in 2026.

Payment of Dividends

We

are a legal entity separate and distinct from the Bank and our other subsidiaries.

Under the laws of the State of Florida, we, as

a business corporation, may declare and pay dividends in cash or property

unless the payment or declaration would be contrary to

restrictions contained in our Articles of Incorporation, or unless, after

payment of the dividend, we would not be able to pay our

debts when they become due in the usual course of our business or our

total assets would be less than the sum of our total

liabilities. In addition, we are also subject to federal regulatory capital requirements

that effectively limit the amount of cash

dividends that we may pay.

16

Under a Federal Reserve policy adopted in 2009, the board of directors

of a bank holding company must consider different factors

to ensure that its dividend level is prudent relative to maintaining a strong

financial position and is not based on overly optimistic

earnings scenarios, such as potential events that could affect its ability

to pay, while still maintaining

a strong financial position.

As a general matter, the Federal Reserve has indicated

that the board of directors of a bank holding company should consult with

the Federal Reserve and eliminate, defer,

or significantly reduce the bank holding company’s

dividends if:

●

its net income available to shareholders for the past four quarters, net

of dividends previously paid during that period, is

not sufficient to fully fund the dividends;

●

its prospective rate of earnings retention is not consistent with its capital needs and

overall current and prospective

financial condition; or

●

it will not meet, or is in danger of not meeting, its minimum regulatory capital

adequacy ratios.

The primary sources of funds for our payment of dividends to our shareholders

are cash on hand and dividends from the Bank and

our non-bank subsidiaries. The Bank is subject to legal limitations on

the frequency and amount of dividends that can be paid to

the Company. The

Federal Reserve may restrict the ability of the Bank to pay dividends if such payments would

constitute an

unsafe or unsound banking practice.

In addition, Florida law and Federal regulation place restrictions on the declaration

of dividends from state-chartered banks to

their holding companies. Under the Florida Financial Institutions Code,

the board of directors of a state-chartered bank, after it

charges off bad debts, depreciation and other

worthless assets, if any, and makes provisions

for reasonably anticipated future

losses on loans and other assets, may quarterly,

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

that period combined with the bank’s

retained net profits for the preceding two years. In addition, with the approval of the Florida

OFR and Federal Reserve, the bank’s

board of directors may declare a dividend from retained net profits which

accrued prior to

the preceding two years. Before declaring such dividends, 20% of the net profits for

the preceding period as is covered by the

dividend must be transferred to the surplus fund of the bank until this fund becomes

equal to the amount of the bank’s common

stock then issued and outstanding. However,

a Florida state-chartered bank may not declare any dividend if (i) its net income

(loss) from the current year combined with the retained net income (loss) for

the preceding two years aggregates a loss or (ii) the

payment of such dividend would cause the capital account of the bank

to fall below the minimum amount required by law,

regulation, order or any written agreement with the Florida OFR or a federal

regulatory agency. Under

Federal Reserve

regulations, a state member bank may,

without the prior approval of the Federal Reserve, pay a dividend in an amount that, when

taken together with all dividends declared during the calendar year,

does not exceed the sum of the bank’s net

income during the

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

The Federal Reserve may approve greater

amounts.

In addition, we and the Bank are subject to various general regulatory policies

and requirements relating to the payment of

dividends, including requirements to maintain adequate capital above

regulatory minimums. The Federal Reserve has indicated

that paying dividends that deplete a bank’s

capital base to an inadequate level would be an unsafe and unsound banking

practice.

The Federal Reserve has indicated that depository institutions and their

holding companies should generally pay dividends only

out of current operating earnings.

Safe and Sound Banking Practices

Bank holding companies and their nonbanking subsidiaries are prohibited

from engaging in activities that represent unsafe and

unsound banking practices or that constitute a violation of law or regulations.

Under certain conditions the Federal Reserve may

conclude that some actions of a bank holding company,

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

unsound banking practice. The Federal Reserve also has the authority

to regulate the debt of bank holding companies, including

the authority to impose interest rate ceilings and reserve requirements on

such debt. The Federal Reserve may also require a bank

holding company to file written notice and obtain its approval prior to purchasing

or redeeming its equity securities, unless certain

conditions are met.

Capital City Bank

Capital City Bank is a state-chartered commercial banking institution that is chartered

by and headquartered in the State of Florida

and is subject to supervision and regulation by the Florida OFR. The Florida OFR supervises and

regulates all areas of our

operations including, without limitation, the making of loans, the issuance of

securities, the conduct of our corporate affairs, the

satisfaction of capital adequacy requirements, the payment of dividends,

and the establishment or closing of banking centers. We

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

subject to broad federal regulation and

oversight by the Federal Reserve. In addition, our deposit accounts are insured

by the FDIC up to the maximum extent permitted

by law, and the FDIC has certain

supervisory enforcement powers over us.

17

As a Florida state-chartered bank, we are empowered by statute, subject to

the limitations contained in those statutes, to take and

pay interest on savings and time deposits, to accept demand deposits, to

make loans on residential and other real estate, to make

consumer and commercial loans, to invest (with certain limitations) in equity securities

and in debt obligations of banks and

corporations and to provide various other banking services for the benefit

of our clients. Various

consumer laws and regulations

also affect our operations, including state usury laws, laws relating to

fiduciaries, consumer credit and equal credit opportunity

laws, and fair credit reporting. In addition, FDICIA prohibits insured state-chartered

institutions from conducting activities as

principal that are not permitted for national banks. A bank, however,

may engage in certain otherwise prohibited activity if it

meets its minimum capital requirements and the FDIC determines that the

activity does not present a significant risk to the DIF.

Safety and Soundness Standards / Risk Management

The Federal Deposit Insurance Act requires the federal bank regulatory

agencies to prescribe, by regulation or guideline,

operational and managerial standards for all insured depository institutions

relating to: (i) internal controls; (ii) information

systems and audit systems; (iii) loan documentation; (iv) credit underwriting;

(v) interest rate risk exposure; and (vi) asset quality.

The federal banking agencies have adopted regulations and Interagency

Guidelines Establishing Standards for Safety and

Soundness to implement these required standards. These guidelines set forth

the safety and soundness standards used to identify

and address problems at insured depository institutions before capital

becomes impaired. Under the regulations, if a regulator

determines that a bank fails to meet any standards prescribed by

the guidelines, the regulator may require the bank to submit an

acceptable plan to achieve compliance, consistent with deadlines for

the submission and review of such safety and soundness

compliance plans.

The bank regulatory agencies have increasingly emphasized the importance

of sound risk management processes and strong

internal controls when evaluating the activities of the financial institutions they

supervise. Properly managing risks has been

identified as critical to the conduct of safe and sound banking activities and has

become even more important as new

technologies, product innovation and the size and speed of financial transactions have

changed the nature of banking markets. The

agencies have identified a spectrum of risks facing a banking institution including,

but not limited to, credit, market, liquidity,

operational, legal and reputational risk. A particular area of focus for regulators

has been operational risk, which arises from the

potential that inadequate information systems, operational problems,

breaches in internal controls, fraud or unforeseen

catastrophes will result in unexpected losses. New products and services, third

party risk management and cybersecurity are

critical sources of operational risk that financial institutions are expected

to address in the current environment. The Bank is

expected to have active board and senior management oversight; adequate

policies, procedures and limits; adequate risk

measurement, monitoring and management information systems; and

comprehensive internal controls.

Insurance of Accounts and Other Assessments

The Bank’s deposits are insured

by the FDIC’s DIF up to the limits under

applicable law, which currently

are set at $250,000 per

depositor, per insured bank, for each account

ownership category. The Bank

is subject to FDIC assessments for its deposit

insurance. The FDIC calculates quarterly deposit insurance assessments based

on an institution’s average

total consolidated assets

less its average tangible equity and applies one of four risk categories determined

by reference to its capital levels, supervisory

ratings, and certain other factors. The assessment rate schedule can change

from time to time, at the discretion of the FDIC,

subject to certain limits.

As of June 30, 2020, the DIF reserve ratio fell to 1.30%, below the statutory

minimum of 1.35%. The FDIC, as required under the

Federal Deposit Insurance Act, established a plan on September 15, 2020

to restore the DIF reserve ratio to meet or exceed the

statutory minimum of 1.35% within eight years. On October 18, 2022,

the FDIC adopted an amended restoration plan to increase

the likelihood that the reserve ratio would be restored to at least 1.35% by September

30, 2028. The FDIC's amended restoration

plan increased the initial base deposit insurance assessment rate schedules

uniformly by 2 bps, beginning with the first quarterly

assessment period of 2023. The FDIC could further increase the deposit

insurance assessments for certain insured depository

institutions, including the Bank, if the DIF reserve ratio is not restored as projected.

In November 2023, the FDIC approved a final rule to implement a special assessment to

recover the loss to the DIF associated

with several bank failures that occurred during the first half of 2023. The assessment base

for the special assessment is equal to a

bank's uninsured deposits reported as of December 31, 2022, adjusted

to exclude the first $5 billion, to be collected at an annual

rate of approximately 13.4 bps for an anticipated total of eight quarterly

assessment periods, beginning with the first quarterly

assessment period of 2024. The final rule does not apply to any banking organization

with less than $5 billion in total

consolidated assets and therefore the special assessment did not directly

impact the Bank.

18

Insurance of deposits may be terminated by the FDIC upon a finding that the

institution has engaged in unsafe and unsound

practices, is in an unsafe or unsound condition to continue operations, or has violated

any applicable law, regulation,

rule, order,

or condition imposed by a bank’s federal

regulatory agency. In addition,

the Federal Deposit Insurance Act provides that, in the

event of the liquidation or other resolution of an insured depository institution,

the claims of depositors of the institution,

including the claims of the FDIC as subrogee of insured depositors, and certain

claims for administrative expenses of the FDIC as

a receiver, will have priority over other general

unsecured claims against the institution, including those of the parent bank

holding company.

Transactions with Affiliates and

Insiders

The Bank is subject to restrictions on extensions of credit and certain

other transactions between the Bank and the Company or

any nonbank affiliate. Generally,

these covered transactions with either the Company or any affiliate

are limited to 10% of the

Bank’s capital and surplus, and all such

transactions between the Bank and the Company and all of its nonbank affiliates

combined are limited to 20% of the Bank’s

capital and surplus. Loans and other extensions of credit from the Bank to the

Company or any affiliate generally are required

to be secured by eligible collateral in specified amounts. In addition, any

transaction between the Bank and the Company or any affiliate are

required to be on an arm’s length

basis. Federal banking laws

also place similar restrictions on certain extensions of credit by insured banks,

such as the Bank, to their directors, executive

officers, and principal shareholders.

Anti-Tying Restrictions

In general, a bank may not extend credit, lease, sell property,

or furnish any services or fix or vary the consideration for them on

the condition that (i) the client obtain or provide some additional credit, property,

or services from or to the bank or bank holding

company or their subsidiaries or (ii) the client not obtain some other credit, property,

or services from a competitor, except to the

extent reasonable conditions are imposed to assure the soundness of

the credit extended. A bank may,

however, offer combined-

balance products and may otherwise offer more favorable

terms if a client obtains two or more traditional bank products. The law

also expressly permits banks to engage in other forms of tying and authorizes

the Federal Reserve Board to grant additional

exceptions by regulation or order.

Also, certain foreign transactions are exempt from the general rule.

Community Reinvestment Act

The Bank is subject to the provisions of the CRA, which imposes a continuing and affirmative

obligation, consistent with safe and

sound operation, to help meet the credit needs of entire communities where the

bank accepts deposits, including low- and

moderate-income neighborhoods. The Federal Reserve’s

assessment of the Bank’s CRA record

is made available to the public.

CRA agreements with private parties must be disclosed and annual

CRA reports must be made to the Federal Reserve. A bank

holding company will not be permitted to become or remain a financial

holding company and no new activities authorized under

GLB may be commenced by a holding company or by a bank financial subsidiary

if any of its bank subsidiaries received less than

a “satisfactory” CRA rating in its latest CRA examination. Federal CRA regulations

require, among other things, that evidence of

discrimination against applicants on a prohibited basis and illegal or abusive lending

practices be considered in the CRA

evaluation. The Bank has a rating of “Satisfactory” in its most recent CRA evaluation.

In 2023 the Federal Reserve, OCC, and FDIC issued a final rule to modernize their

respective CRA regulations. The revised rules

would substantially alter the methodology for assessing compliance with

the CRA, with material aspects taking effect January

1,

2026 and revised data reporting requirements taking effect

January 1, 2027. The revised CRA regulations have been subject to an

injunction since March 29, 2024. On July 16, 2025, the Federal Reserve, OCC, and FDIC

issued a joint proposal to rescind the

2023 modernization rule. The agencies continue to apply the CRA rules as they existed

before the 2023 modernization,

considering the injunction and pending finalization of the recission of the modernization

rule.

Commercial Real Estate Concentration Guidelines

The federal banking regulators have implemented guidelines to address

increased concentrations in commercial real estate loans.

These guidelines describe the criteria regulatory agencies will use as indicators

to identify institutions potentially exposed to

commercial real estate concentration risk. An institution that has (i) experienced

rapid growth in commercial real estate lending,

(ii) notable exposure to a specific type of

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

and

other land representing 100% or more of total risk-based capital, or (iv)

total commercial real estate (including construction) loans

representing 300% or more of total risk-based capital and the outstanding

balance of the institutions commercial real estate

portfolio has increased by 50% or more in the prior 36 months, may be identified

for further supervisory analysis of a potential

concentration risk.

19

At December 31, 2025, CCB’s ratio

of construction, land development and other land loans to total tier 1 risk-based

capital was

49%, its ratio of commercial real estate loans to total tier 1 risk-based capital was 119%

and, therefore, CCB was under the 100%

and 300% thresholds, respectively,

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

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

in commercial real estate lending under applicable regulatory guidelines.

Interstate Banking and Branching

The Dodd-Frank Act relaxed interstate branching restrictions by modifying

the federal statute governing de novo interstate

branching by state member banks. Consequently,

a state member bank may open its initial branch in a state outside of the bank’s

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

the laws of that state would be permitted to

open a branch at that location.

Anti-money Laundering

A continued focus of governmental policy relating to financial institutions in recent

years has been combating money laundering

and terrorist financing. The USA PATRIOT

Act broadened the application of anti-money laundering

regulations to apply to

additional types of financial institutions such as broker-dealers, investment advisors,

and insurance companies, and strengthened

the ability of the U.S. government to help prevent, detect, and prosecute

international money laundering and the financing of

terrorism. The principal provisions of Title

III of the USA PATRIOT

Act require that regulated financial institutions, including

state member banks: (i) establish an anti-money laundering program

that includes training and audit components; (ii) comply with

regulations regarding the verification of the identity of any person seeking

to open an account; (iii) take additional required

precautions with non-U.S. owned accounts; and (iv) perform certain

verification and certification of money laundering risk for

their foreign correspondent banking relationships. Failure of a

financial institution to comply with the USA PATRIOT

Act’s

requirements could have serious legal and reputational consequences

for the institution. The Bank has augmented its systems and

procedures to meet the requirements of these regulations and will continue

to revise and update its policies, procedures, and

controls to reflect changes required by law.

FinCEN has adopted rules that require financial institutions to obtain beneficial

ownership information with respect to legal

entities with which such institutions conduct business, subject to certain exclusions

and exemptions. Bank regulators are focusing

their examinations on anti-money laundering compliance, and we continue

to monitor and augment, where necessary,

our anti-

money laundering compliance programs. Banking regulators will consider

compliance with the USA PATRIOT

Act’s money

laundering provisions in acting upon merger and acquisition

proposals. Bank regulators routinely examine institutions for

compliance with these obligations and have been active in imposing

cease and desist and other regulatory orders and civil money

penalties against institutions found to be violating these obligations.

Sanctions for violations of the USA PATRIOT

Act can be

imposed in an amount equal to twice the sum involved in the violating transaction

up to $1 million. The Anti-Money Laundering

Act (“AMLA”), which amends the BSA, was enacted in early 2021. The AMLA

is intended to be a comprehensive reform and

modernization of U.S. bank secrecy and anti-money laundering

laws. In particular, it codifies a risk-based approach

to anti-money

laundering compliance for financial institutions, requires the U.S. Department

of the Treasury to promulgate priorities for anti-

money laundering and countering the financing of terrorism policy,

requires the development of standards for testing technology

and internal processes for BSA compliance, expands enforcement

-

and investigation-related authority (including increasing

available sanctions for certain BSA violations), and expands BSA whistleblower

incentives and protections.

Many AMLA provisions require additional rulemakings, reports,

and other measures, and the impact of the AMLA will depend

on, among other things, rulemaking and implementation

guidance. In June 2021, the Financial Crimes Enforcement Network, a

bureau of the U.S. Department of the Treasury,

issued the priorities for anti-money laundering and countering the financing of

terrorism policy required under the AMLA. The priorities include corruption,

cybercrime, terrorist financing, fraud, transnational

crime, drug trafficking, human trafficking

and proliferation financing.

Economic Sanctions

OFAC is responsible

for helping to ensure that U.S. entities do not engage in transactions with certain

prohibited parties, as

defined by various executive orders and acts of Congress. OFAC

publishes, and routinely updates, lists of names of persons and

organizations suspected of aiding, harboring, or engaging

in terrorist acts, including the Specially Designated Nationals and

Blocked Persons List. If we find a name on any transaction, account, or wire transfer

that is on an OFAC list, we must undertake

certain specified activities, which could include blocking or freezing

the account or transaction requested, and we must notify the

appropriate authorities.

20

Privacy, Credit Reporting, and Data Security

The Gramm-Leach-Bliley Act (“GLB”) generally prohibits disclosure

of non-public consumer information to non-affiliated third

parties unless the consumer has been given the opportunity to object and

has not objected to such disclosure. Financial institutions

are further required to disclose their privacy policies to clients annually.

Financial institutions, however, will be required

to

comply with state law if it is more protective of consumer privacy than the

GLB. The GLB also directed federal regulators to

prescribe standards for the security of consumer information. The

Bank is subject to such standards, as well as standards for

notifying clients in the event of a security breach. The Bank utilizes credit bureau

data in underwriting activities. Use of such data

is regulated under the Fair Credit Reporting Act and Regulation V on

a uniform, nationwide basis, including credit reporting,

prescreening, and sharing of information between affiliates

and the use of credit data. The Fair and Accurate Credit Transactions

Act, which amended the Fair Credit Reporting Act, permits states to enact identity

theft laws that are not inconsistent with the

conduct required by the provisions of that Act. Clients must be notified

when unauthorized disclosure involves sensitive client

information that may be misused. On November 18, 2021, the federal

banking agencies issued a new rule effective in 2022 that

requires banks to notify their primary federal regulator within 36

hours of a “computer-security incident” that rises to the level of

a “notification incident.” In addition, effective in December 2023,

the SEC issued a new rule that generally requires SEC

registrants to disclose on Form 8-K certain information about a material

cybersecurity incident within four business days of

determining it is material, with periodic updates as to the status of the incident in

subsequent filings, as necessary.

The SEC rule

also requires registrants to disclose certain information concerning

cybersecurity risk management, strategy and governance on

Form 10-K.

The federal banking regulators regularly issue guidance regarding

cybersecurity intended to enhance cyber risk management

standards among financial institutions. As a result, financial institutions, like the

Company and the Bank, are expected to establish

multiple lines of defense and to ensure their risk management processes address

the risk posed by potential threats to the

institution. A financial institution’s

management is expected to maintain sufficient processes to effectively

respond and recover

the institution’s operations after

a cyber-attack. A financial institution is also expected to develop

appropriate processes to enable

recovery of data and business operations if a critical service provider

of the institution falls victim to this type of cyber-attack. In

addition, effective in December 2023, the SEC enhanced and standardized

the disclosure obligations related to a registrant's

cybersecurity risk management, strategy,

and governance. Our information security protocols are designed in part to adhere to

the

requirements of bank regulatory guidance and these enhanced SEC disclosure requirements.

See "Part I - Item 1C. Cybersecurity"

of this Report for additional information on cybersecurity.

State regulators have also been increasingly active in implementing privacy

and cybersecurity standards and regulations.

Recently, several states have

adopted regulations requiring certain financial institutions to implement

cybersecurity programs and

providing detailed requirements with respect to these programs, including data

encryption requirements. Many states have also

recently implemented or modified their data breach notification and data

privacy requirements. We

expect this trend of state-level

activity in those areas to continue and are continually monitoring developments in

the states in which our clients are located.

See Item 1A. Risk Factors for a further discussion of risks related to cybersecurity

and Item 1C. Cybersecurity for a further

discussion of risk management strategies and governance processes related to

cybersecurity.

21

Consumer Laws and Regulations

Activities of the Bank are subject to a variety of statutes and regulations designed

to protect consumers. These laws and

regulations include, among numerous other things, provisions that:

●

limit the interest and other charges collected or contracted for by

the Bank, including rules respecting the terms of credit

cards and of debit card overdrafts;

●

govern the Bank’s disclosures of

credit terms to consumer borrowers;

●

require the Bank to provide information to enable the public and public officials

to determine whether it is fulfilling its

obligation to help meet the housing needs of the communities it serves;

●

prohibit the Bank from discriminating on the basis of race, creed, or other prohibited

factors when it makes decisions to

extend credit;

●

govern the manner in which the Bank may collect consumer debts; and

●

prohibit unfair, deceptive, or abusive

acts or practices in the provision of consumer financial products and services.

The Consumer Financial Protection Bureau (“CFPB”) adopted a rule

that implements the ability-to-repay and qualified mortgage

provisions of the Dodd-Frank Act (the “ATR/QM

rule”), which requires lenders to consider,

among other things, income,

employment status, assets, payment amounts, and credit history before

approving a mortgage, and provides a compliance “safe

harbor” for lenders that issue certain “qualified mortgages.” The ATR/QM

rule defines a “qualified mortgage” to have certain

specified characteristics and generally prohibits loans with negative amortization,

interest-only payments, balloon payments, or

terms exceeding 30 years from being qualified mortgages. The

rule also establishes general underwriting criteria for qualified

mortgages, including that monthly payments be calculated based on the highest

payment that will apply in the first five years of

the loan and that the borrower have a total debt-to-income ratio that is less than or

equal to 43%. While “qualified mortgages” will

generally be afforded safe harbor status, a rebuttable presumption

of compliance with the ability-to-repay requirements will attach

to “qualified mortgages” that are “higher priced mortgages” (which are generally

subprime loans). In addition, the securitizer of

asset-backed securities must retain not less than 5% of the credit risk of the assets collateralizing

the asset-backed securities,

unless subject to an exemption for asset-backed securities that are collateralized

exclusively by residential mortgages that qualify

as “qualified residential mortgages.”

The CFPB has also issued rules to implement requirements of the Dodd-Frank

Act pertaining to mortgage loan origination

(including with respect to loan originator compensation and loan originator qualifications)

as well as integrated mortgage

disclosure rules. In addition, the CFPB has issued rules that require servicers

to comply with certain standards and practices with

regard to error correction; information disclosure; force-placement

of insurance; information management policies and

procedures; requiring information about mortgage loss mitigation options be

provided to delinquent borrowers; providing

delinquent borrowers access to servicer personnel with continuity of contact

about the borrower’s mortgage loan account; and

evaluating borrowers’ applications for available loss mitigation options. These

rules also address initial rate adjustment notices for

adjustable-rate mortgages, periodic statements for residential mortgage

loans, and prompt crediting of mortgage payments and

response to requests for payoff amounts.

Future Legislative Developments

Various

bills are from time to time introduced in the U.S. Congress and the Florida legislature.

This legislation may change

banking and tax statutes and the environment in which our banking subsidiary

and we operate in substantial and unpredictable

ways. We cannot

determine the ultimate effect that potential legislation, if enacted, or

implementing regulations with respect

thereto, would have upon our financial condition or results of operations or

that of our banking subsidiary.

Effect of Governmental Monetary Policies

The commercial banking business is affected not only by general

economic conditions, but also by the monetary policies of the

Federal Reserve. Changes in the discount rate on member bank borrowing,

availability of borrowing at the “discount window,”

open market operations, changes in the Fed Funds target

interest rate, changes in interest rates payable on reserve accounts, the

imposition of changes in reserve requirements against member banks’ deposits

and assets of foreign banking centers and the

imposition of and changes in reserve requirements against certain borrowings

by banks and their affiliates are some of the

instruments of monetary policy available to the Federal Reserve. These monetary

policies are used in varying combinations to

influence overall growth and distributions of bank loans, investments and deposits,

which may affect interest rates charged on

loans or paid on deposits. The monetary policies of the Federal Reserve have

had a significant effect on the operating results of

commercial banks and are expected to continue to do so in the future. The

Federal Reserve’s policies are primarily

influenced by

its dual mandate of price stability and full employment, and, to a lesser degree by

short-term and long-term changes in the

international trade balance and in the fiscal policies of the U.S. Government. Future

changes in monetary policy and the effect of

such changes on our business and earnings in the future cannot be predicted.

22

Website Access to Company’s

Reports

Our Internet website is www.ccbg.com.

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

current reports on

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

to section 13(a) or 15(d), and reports filed

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

free of charge through our website as soon as

reasonably practicable after they are electronically filed with, or furnished

to, the SEC.

The information on our website is not

incorporated by reference into this report.