CAPITAL CITY BANK GROUP INC (CCBG)

Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS

OF

OPERATIONS

Management’s discussion

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

the major factors that have

affected our financial condition and results of operations

and should be read in conjunction with the Consolidated Financial

Statements and related notes.

The following information should provide a better understanding of

the major factors and trends that

affect our earnings performance and financial condition,

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

prior periods.

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

is referred to as “CCBG,”

“Company,”

“we,” “us,” or “our.”

CAUTION CONCERNING FORWARD

-LOOKING STATEMENTS

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

contains “forward-looking statements”

within the meaning of the

Private Securities Litigation Reform Act of 1995.

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

our

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

subject to significant risks and uncertainties and are

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

our control.

The words “may,”

“could,” “should,” “would,”

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

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

“continue,” “further,” and similar expressions

are intended to identify forward-looking statements.

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

Our actual future results may differ materially

from those set forth in our forward-looking statements.

Please see the Introductory Note of this quarterly report on Form 10-Q as well

as the Introductory Note and

Item 1A. Risk Factors

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

on

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

of this report.

However, other factors besides those listed in our

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

results,

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

uncertainties.

Any forward-looking

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

We do not undertake to

update any forward-looking

statement, except as required by applicable law.

BUSINESS OVERVIEW

We are a financial

holding company headquartered in Tallahassee,

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

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

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.

38

NON-GAAP FINANCIAL MEASURES (UNAUDITED)

We present a tangible

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

effect of

goodwill and other intangibles that resulted from merger

and acquisition activity. We

believe these measures are useful to investors

because they allow investors to more easily compare our capital adequacy

to other companies in the industry.

Non-GAAP financial

measures should not be considered alternatives to generally accepted

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

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

or similar measures differently.

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

below.

2026

2025

(Dollars in Thousands, except per share data)

Second

First

Fourth

Third

Second

Shareowners' Equity (GAAP)

$

570,095

$

559,912

$

552,851

$

540,635

$

526,423

Less: Goodwill and Other Intangibles (GAAP)

89,095

89,095

89,095

89,095

92,693

Tangible Shareowners' Equity (non-GAAP)

A

481,000

470,817

463,756

451,540

433,730

Total Assets (GAAP)

4,450,483

4,453,734

4,385,765

4,323,774

4,391,753

Less: Goodwill and Other Intangibles (GAAP)

89,095

89,095

89,095

89,095

92,693

Tangible Assets (non-GAAP)

B

$

4,361,388

$

4,364,639

$

4,296,670

$

4,234,679

$

4,299,060

Tangible Common Equity Ratio (non-GAAP)

A/B

11.03%

10.79%

10.79%

10.66%

10.09%

Actual Diluted Shares Outstanding (GAAP)

C

17,135,824

17,114,954

17,154,586

17,115,336

17,097,986

Tangible Book Value

per Diluted Share (non-GAAP)

A/C

28.07

27.51

27.03

26.38

25.37

39

SELECTED QUARTERLY

FINANCIAL DATA

(UNAUDITED)

2026

2025

(Dollars in Thousands, Except Per Share Data)

Second

First

Fourth

Third

Second

Summary of Operations

:

Interest Income

$

51,838

$

51,020

$

51,715

$

51,431

$

51,459

Interest Expense

7,640

8,203

8,355

7,874

8,275

Net Interest Income

44,198

42,817

43,360

43,557

43,184

Provision for Credit Losses

919

712

1,995

1,881

620

Net Interest Income After

Provision for Credit Losses

43,279

42,105

41,365

41,676

42,564

Noninterest Income

20,599

19,933

20,103

22,331

20,014

Noninterest Expense

42,640

41,373

42,867

42,916

42,538

Income Before Income Taxes

21,238

20,665

18,601

21,091

20,040

Income Tax Expense

4,961

4,848

4,896

5,141

4,996

Net Income Attributable to CCBG

16,277

15,817

13,705

15,950

15,044

Net Interest Income (FTE)

(1)

44,241

42,857

43,404

43,602

43,228

Per Common Share

:

Net Income Basic

$

0.95

$

0.92

$

0.80

$

0.93

$

0.88

Net Income Diluted

0.95

0.92

0.80

0.93

0.88

Cash Dividends Declared

0.27

0.27

0.26

0.26

0.24

Diluted Book Value

33.27

32.71

32.23

31.59

30.79

Diluted Tangible Book Value

(2)

28.07

27.51

27.03

26.38

25.37

Market Price:

High

51.04

46.83

45.63

44.69

39.82

Low

42.79

39.26

38.27

38.00

32.38

Close

49.42

43.46

42.57

41.79

39.35

Selected Average Balances

:

Investment Securities

$

1,167,321

$

1,119,125

$

1,006,040

$

993,880

$

1,007,981

Loans Held for Investment

2,505,875

2,538,318

2,568,073

2,606,213

2,652,572

Earning Assets

4,068,827

4,089,838

4,035,910

3,981,530

4,032,008

Total Assets

4,407,371

4,418,904

4,367,036

4,317,951

4,370,261

Deposits

3,678,776

3,691,016

3,647,510

3,612,331

3,680,707

Shareowners’ Equity

573,839

567,663

556,100

542,216

527,583

Common Equivalent Average Shares:

Basic

17,101

17,129

17,070

17,068

17,056

Diluted

17,126

17,146

17,140

17,114

17,088

Performance Ratios:

Return on Average Assets (annualized)

1.48

%

1.45

%

1.25

%

1.47

%

1.38

%

Return on Average Equity (annualized)

11.38

11.30

9.78

11.67

11.44

Net Interest Margin (FTE)

4.35

4.24

4.26

4.34

4.30

Noninterest Income as % of Operating Revenue

31.79

31.77

31.68

33.89

31.67

Efficiency Ratio

65.76

65.89

67.50

65.09

67.26

Asset Quality:

Allowance for Credit Losses (“ACL”)

$

31,007

$

30,999

$

31,001

$

30,202

$

29,862

Nonperforming Assets (“NPAs”)

13,435

12,965

10,531

10,026

6,581

ACL to Loans HFI

1.24

%

1.23

%

1.22

%

1.17

%

1.13

%

NPAs to Total

Assets

0.30

0.29

0.24

0.23

0.15

NPAs to Loans HFI plus OREO

0.54

0.51

0.41

0.39

0.25

ACL to Non-Performing Loans

309.72

278.19

360.69

368.54

463.01

Net Charge-Offs to Average Loans HFI

0.14

0.10

0.18

0.18

0.09

Capital Ratios:

Tier 1 Capital

21.10

%

20.37

%

20.20

%

19.33

%

18.38

%

Total Capital

22.35

21.62

21.45

20.59

19.60

Common Equity Tier 1

19.80

19.08

18.56

17.73

16.81

Leverage

11.96

11.65

11.77

11.64

11.14

Tangible Common Equity

(2)

11.03

10.79

10.79

10.66

10.09

(1)

Fully Tax Equivalent.

(2)

Non-GAAP financial measure.

See non-GAAP reconciliation on page 38.

40

FINANCIAL OVERVIEW

Results of Operations

Performance Summary.

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

2026 compared to $15.8

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

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

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

per diluted share, compared to net income of $31.9

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

Net Interest Income.

Tax-equivalent net

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

to $42.9

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

Compared to the first quarter of 2026, the

increase was attributable to higher investment securities income and lower

deposit interest expense, partially offset by lower loan

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

The increase over the second quarter of 2025 was also

driven by the same aforementioned factors. One additional calendar

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

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

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

of 2025, primarily attributable to higher investment securities income and

lower deposit interest expense, partially offset by lower

loan

interest income and overnight funds income.

Provision and Allowance for Credit

Losses.

We recorded

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

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

second quarter of 2025. For the first six months of

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

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

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

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

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

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

discuss the various

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

Allowance for Credit Losses.

Noninterest Income

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

a $0.7 million, or 3.3%, increase over

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

of 2025. The increase over the first quarter of

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

million and bank card fees of $0.2 million. The

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

of $0.7 million, mortgage banking revenues of $0.5

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

by a decrease in wealth manageme

[Excerpt truncated for page length; source filing is linked above.]

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 c

[Excerpt truncated for page length; the complete text is on the linked full-MD&A page.]