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UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON,
D.C.
20549
FORM
10-Q
☒
QUARTERLY
REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly Period Ended
September 30, 2026
OR
☐
TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number:
0-13358
Capital City Bank Group, Inc.
(Exact name
of Registrant as
specified in its charter)
Florida
59-2273542
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
217 North Monroe Street
,
Tallahassee
,
Florida
32301
(Address of principal executive office)
(Zip Code)
(
850
)
402-7821
(Registrant’s
telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
Title of each
class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, Par value $0.01
CCBG
Nasdaq Stock Market
, LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes
[X]
No [
]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
Yes
[X]
No [
]
Indicate by check
mark whether the registrant
is a large accelerated
filer, an accelerated
filer, a non-accelerated
filer, a smaller
reporting company, or
an emerging growth company.
See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated
filer
☐
Accelerated filer
☒
Non-accelerated
filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [
] No
[X]
At October 29, 2026,
17,115,671
shares of the Registrant’s Common Stock, $0.01 par value, were outstanding.
2
CAPITAL CITY
BANK GROUP,
INC.
QUARTERLY
REPORT ON FORM
10-Q
FOR THE PERIOD
ENDED SEPTEMBER
30, 2026
TABLE OF CONTENTS
PART I – Financial Information
Page
Item 1.
Consolidated Financial Statements (Unaudited)
Consolidated Statements of Financial Condition – September 30, 2026 and December 31, 2025
5
Consolidated Statements of Income – Three and Nine Months Ended September 30, 2026 and 2025
6
Consolidated Statements of Comprehensive Income (Loss) – Three and Nine Months Ended September 30, 2026 and 2025
7
Consolidated Statements of Changes in Shareowners’ Equity – Three and Nine Months Ended September 30, 2026 and 2025
8
Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2026 and 2025
9
Notes to Consolidated Financial Statements
11
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
36
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
52
Item 4.
Controls and Procedures
52
PART II – Other Information
Item 1.
Legal Proceedings
52
Item 1A.
Risk Factors
52
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
52
Item 3.
Defaults Upon Senior Securities
52
Item 4.
Mine Safety Disclosure
52
Item 5.
Other Information
52
Item 6.
Exhibits
53
Signatures
54
3
INTRODUCTORY NOTE
Special Cautionary Notice Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q
contains “forward-looking
statements” within
the meaning of the Private Securities Litigation Reform
Act of 1995. These forward-looking
statements include,
among others, statements about our beliefs, plans, objectives,
goals, expectations,
estimates and intentions that are subject
to significant risks
and uncertainties and are subject to
change based
on various factors,
many
of
which are beyond our control.
The words “may,” “could,” “should,”
“would,” “believe,” “anticipate,”
“estimate,” “expect,”
“intend,” “plan,”
“target,” “vision,” “goal,” “will,”
“project,” “continue,” “outlook,”
“approximate,” “seasonal,”
“future,” and similar expressions
are intended
to identify forward
-looking statements.
All forward-looking statements,
by their nature, are subject
to risks and uncertainties.
Forward-looking statements
are based
on current
assumptions and expectations that are subject
to change and may
prove to be inaccurate.
Our actual future results may
differ materially from
those set forth
in our forward-looking statements.
Our ability to
achieve
our financial
objectives could
be adversely affected
by the factors
discussed in detail in Part II,
Item
1A. “Risk
Factors” in this Quarterly Report on Form
10-Q and in
Part I, Item 1A. “Risk Factors” in
our Annual Report on Form
10-K for the year ended
December 31, 2025 (the “2025 Form
10-K”), as updated in our subsequent
quarterly reports filed on
Form 10-Q, as well as, among other
factors
:
●
Changes in trade, monetary, and fiscal
policies and laws, including
actual changes in
interest rates and the Fed Funds rate and
changes in international
trade policies, tariffs
and treaties
affecting
imports and
exports, and
their related impacts
on
macroeconomic
conditions, customer
behavior, funding
costs and
loan and
securities portfolios;
●
Inflation,
interest rate, market
and monetary
fluctuations;
●
Local, regional, national,
and international
economic conditions
(including the value of
the U.S. Dollar in relation to the
currencies of other advanced and emerging
market countries and the performance of both domestic and
international
equity
and debt markets and valuation of
securities traded on recognized
domestic and international
exchanges), and the impact they
may have
on us and
our clients and our assessment
of that
impact;
●
Supply-demand imbalances and general
economic conditions affecting local real estate prices and
a general deterioration
in
commercial real estate
market fundamentals;
●
The costs and
effects of
legal and regulatory
developments,
the outcomes
of legal proceedings or regulatory or other
governmental
inquiries, the results of regulatory examinations
or reviews and the ability to
obtain required
regulatory
approvals;
●
The effect
of changes
in laws and regulations (including laws and
regulations concerning taxes,
banking, securities, and
insurance) and
their application
with which we and our subsidiaries must
comply;
●
The effect of changes in accounting policies and practices,
as may
be adopted
by the regulatory
agencies, as well as other
accounting
standard
setters;
●
The accuracy
of our financial
statement
estimates and
assumptions;
●
Changes in the creditworthiness,
financial performance
and/or condition
of our borrowers;
●
Changes in the mix
of loan geographies,
sectors and types
or the level of non-performing
assets and
charge-offs;
●
Changes in estimates
of future credit
loss reserve requirements based
upon the periodic
review thereof under relevant
regulatory and
accounting
requirements;
●
Changes in our liquidity position;
●
Changes in our capital
levels, capital requirements
or our ability to maintain
adequate
regulatory capital
ratios;
●
The timely development and acceptance
of new products and services as
well as risks (including reputational and
litigation)
attendant
thereto, and
perceived overall value
of these products
and services by users;
●
Changes in consumer
spending, borrowing, and saving
habits;
●
Changes in deposit
levels, deposit mix, pricing, or the availability and
cost of other
funding sources;
●
Greater than
expected costs
or difficulties related to the
integration of new products
and lines of business;
●
Increased
competition and
its effect on
pricing (including deposit fees), spending, third-party
relationships and
revenues;
●
Technological changes;
●
Risks associated
with the development
and use of
artificial intelligence;
●
The cost and effects
of cyber incidents or other
failures, interruptions, or security breaches
of our systems
or those of our
customers or third-party
providers;
●
Fraud or misconduct
by internal or external
parties which we may
not be able
to prevent, detect
or mitigate;
●
Dispositions, acquisitions and
integration of acquired
businesses;
●
Impairment
of our goodwill or other intangible assets;
●
Changes in the reliability of our
vendors, internal control
systems, or information
systems;
●
Our ability to increase market
share and
control expenses;
●
Our ability to attract
and retain
qualified employees;
●
Changes in our organization,
compensation,
and benefit
plans;
●
The soundness
of other financial
institutions;
●
Volatility and
disruption in national
and international
financial and
commodity
markets;
4
●
Changes in the competitive
environment
in our markets and
among banking
organizations
and other
financial service
providers;
●
Action or inaction by the federal government,
including as a result of any
prolonged government
shutdown or government
intervention in the U.S. financial
system;
●
A deterioration of the credit rating for U.S. long-term sovereign debt, actions
that the
U.S. government may
take to
avoid
exceeding the debt
ceiling, and uncertainties surrounding
the federal budget
and economic
policy;
●
The effects of natural disasters (including
hurricanes), widespread health
emergencies (including pandemics),
military conflict
(including impacts related
to the conflicts
in the Middle East and
resulting disruptions to energy and
other commodities
markets and
supply chains)
,
terrorism, civil unrest, climate change or other
geopolitical events;
●
Our ability to declare and
pay dividends;
●
Structural changes
in the markets
for origination, sale and
servicing of residential mortgages;
●
Any inability to implement
and maintain
effective internal
control over financial
reporting and/or disclosure
control;
●
Potential claims, damages,
penalties, fines, costs and
reputational
damage
resulting from pending or future
litigation,
regulatory proceedings and
enforcement
actions;
●
Negative publicity and the impact on our
reputation,
including the speed and scale at which information
can spread
through
social media or digital channels,
which could amplify
adverse market
or customer reactions;
and
●
The limited trading activity
and concentration
of ownership of our
common
stock.
However, other factors besides those listed
in
Item 1A Risk Factors
or discussed in this Form 10-Q also could adversely
affect
our results,
and you
should not consider
any such
list of factors to
be a complete
set of all potential
risks or uncertainties.
Any forward-looking
statements made by us or on our behalf
speak only
as of the
date they
are made.
We do not undertake
to update
any forward
-looking
statement,
except as
required by applicable
law.
5
PART
I.
FINANCIAL INFORMATION
Item 1.
CAPITAL CITY
BANK GROUP,
INC.
CONSOLIDATED
STATEMENTS
OF FINANCIAL
CONDITION
(Unaudited)
September 30,
December 31,
(Dollars in Thousands,
Except Par Value)
2026
2025
ASSETS
Cash and
Due From Banks
$
71,617
$
62,189
Federal Funds Sold and
Interest Bearing Deposits
340,015
467,782
Total Cash
and Cash
Equivalents
411,632
529,971
Investment
Securities, Available for
Sale, at fair value
(amortized cost of $
893,054
and $
656,546
)
862,097
643,922
Investment
Securities, Held to Maturity (fair
value of $
293,832
and $
369,320
)
315,142
377,446
Equity Securities
3,203
2,069
Total Investment
Securities
1,180,442
1,023,437
Loans Held For Sale,
at fair value
23,455
21,695
Loans Held for
Investment
2,489,724
2,546,118
Allowance for Credit
Losses
(30,369)
(31,001)
Loans Held for
Investment,
Net
2,459,355
2,515,117
Premises and
Equipment, Net
83,257
79,457
Goodwill
89,095
89,095
Other Real Estate
Owned
2,353
1,936
Other Assets
147,163
125,057
Total Assets
$
4,396,752
$
4,385,765
LIABILITIES
Deposits:
Noninterest Bearing
Deposits
$
1,331,669
$
1,251,886
Interest Bearing Deposits
2,334,899
2,410,426
Total Deposits
3,666,568
3,662,312
Short-Term Borrowings
38,881
50,092
Subordinated
Notes Payable
33,303
42,582
Other Long-Term
Borrowings
567
680
Other Liabilities
83,571
77,248
Total Liabilities
3,822,890
3,832,914
SHAREOWNERS’
EQUITY
Preferred Stock, $
0.01
par value;
3,000,000
shares authorized;
no
shares issued and
outstanding
-
-
Common
Stock, $
0.01
par value;
90,000,000
shares authorized;
17,113,297
and
17,084,386
shares issued and
outstanding
at September
30, 2026 and
December 31, 2025,
respectively
171
171
Additional Paid-In Capital
41,516
41,650
Retained Earnings
543,611
508,443
Accumulated
Other Comprehensive
(Loss) Income, net
of tax
(11,436)
2,587
Total Shareowners’
Equity
573,862
552,851
Total Liabilities
and Shareowners’
Equity
$
4,396,752
$
4,385,765
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
6
CAPITAL CITY
BANK GROUP,
INC.
CONSOLIDATED
STATEMENTS
OF INCOME
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
(Dollars in Thousands,
Except Per Share
Data)
2026
2025
2026
2025
INTEREST INCOME
Loans, including Fees
$
38,652
$
40,279
$
115,118
$
121,629
Investment
Securities:
Taxable
10,629
7,175
29,920
19,644
Tax Exempt
11
13
35
30
Funds Sold and
Interest Bearing Deposits
3,194
3,964
10,271
11,369
Total Interest
Income
52,486
51,431
155,344
152,672
INTEREST EXPENSE
Deposits
6,780
7,265
21,108
22,053
Short-Term Borrowings
395
216
1,205
832
Subordinated
Notes Payable
293
383
979
1,473
Other Long-Term
Borrowings
8
10
27
26
Total Interest
Expense
7,476
7,874
23,319
24,384
NET INTEREST
INCOME
45,010
43,557
132,025
128,288
Provision for Credit
Losses
(80)
1,881
1,551
3,269
Net Interest
Income
After Provision For Credit Losses
45,090
41,676
130,474
125,019
NONINTEREST INCOME
Deposit Fees
5,168
5,877
16,422
16,258
Bank Card
Fees
3,830
3,733
11,318
11,021
Wealth Management
Fees
4,640
5,173
12,876
16,142
Mortgage Banking
Revenues
3,673
4,794
12,585
12,804
Other
2,073
2,754
6,715
6,027
Total Noninterest
Income
19,384
22,331
59,916
62,252
NONINTEREST EXPENSE
Compensation
25,620
26,056
77,159
78,794
Occupancy,
Net
7,294
7,037
21,696
20,901
Other
9,381
9,823
27,453
24,460
Total Noninterest
Expense
42,295
42,916
126,308
124,155
INCOME BEFORE
INCOME TAXES
22,179
21,091
64,082
63,116
Income
Tax Expense
5,239
5,141
15,048
15,264
NET INCOME
$
16,940
$
15,950
$
49,034
$
47,852
BASIC NET INCOME
PER SHARE
$
0.99
$
0.93
$
2.87
$
2.81
DILUTED NET INCOME
PER SHARE
$
0.99
$
0.93
$
2.86
$
2.80
Average
Common
Basic Shares Outstanding
17,113
17,068
17,114
17,050
Average
Common
Diluted Shares Outstanding
17,152
17,114
17,141
17,083
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
7
CAPITAL CITY
BANK GROUP,
INC.
CONSOLIDATED
STATEMENTS
OF COMPREHENSIVE
INCOME (LOSS)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in Thousands)
2026
2025
2026
2025
NET INCOME
$
16,940
$
15,950
$
49,034
$
47,852
Other comprehensive
income, before tax:
Investment
Securities:
Change in net unrealized
loss on securities available
for sale
(12,163)
2,932
(18,326)
10,676
Amortization of
unrealized losses on securities
transferred from
available
for sale to held to
maturity
-
202
164
1,044
Derivative:
Change in net unrealized
gain on effective
cash flow derivative
-
(253)
-
(1,442)
Amortization of
terminated
cash flow derivative
gain
(202)
-
(600)
-
Other comprehensive
(loss) income, before
tax
(12,365)
2,881
(18,762)
10,278
Deferred tax (benefit)
expense related
to other comprehensive
(loss) income
(3,117)
720
(4,739)
2,571
Other comprehensive
(loss) income, net of
tax
(9,248)
2,161
(14,023)
7,707
TOTAL COMPREHENSIVE
INCOME
$
7,692
$
18,111
$
35,011
$
55,559
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
8
CAPITAL CITY
BANK GROUP,
INC.
CONSOLIDATED
STATEMENTS
OF CHANGES IN SHAREOWNERS’
EQUITY
(Unaudited)
Accumulated
Other
Additional
Comprehensive
Shares
Common
Paid-In
Retained
(Loss) Income,
(Dollars In Thousands,
Except Share
Data)
Outstanding
Stock
Capital
Earnings
Net of Taxes
Total
Balance, July 1, 2026
17,111,077
$
171
$
40,821
$
531,291
$
(2,188)
$
570,095
Net Income
-
-
-
16,940
-
16,940
Other Comprehensive
Loss, net of tax
-
-
-
-
(9,248)
(9,248)
Cash Dividends ($
0.2700
per share)
-
-
-
(4,620)
-
(4,620)
Stock Based
Compensation
-
-
133
-
-
133
Stock Compensation
Plan Transactions,
net
2,220
-
562
-
-
562
Balance, September 30, 2026
17,113,297
$
171
$
41,516
$
543,611
$
(11,436)
$
573,862
Balance, July 1, 2025
17,066,395
$
171
$
39,527
$
487,665
$
(940)
$
526,423
Net Income
-
-
-
15,950
-
15,950
Other Comprehensive
Income, net
of tax
-
-
-
-
2,161
2,161
Cash Dividends ($
0.2600
per share)
-
-
-
(4,439)
-
(4,439)
Stock Based
Compensation
-
-
448
-
-
448
Stock Compensation
Plan Transactions,
net
2,255
-
92
-
-
92
Balance, September 30, 2025
17,068,650
$
171
$
40,067
$
499,176
$
1,221
$
540,635
Balance, January
1, 2026
17,084,386
$
171
$
41,650
$
508,443
$
2,587
$
552,851
Net Income
-
-
-
49,034
-
49,034
Other Comprehensive
Loss, net of tax
-
-
-
-
(14,023)
(14,023)
Cash Dividends ($
0.8100
per share)
-
-
-
(13,866)
-
(13,866)
Repurchase
of Common
Stock
(63,088)
-
(2,639)
-
-
(2,639)
Stock Based
Compensation
-
-
1,478
-
-
1,478
Stock Compensation
Plan Transactions,
net
91,999
-
1,027
-
-
1,027
Balance, September 30, 2026
17,113,297
$
171
$
41,516
$
543,611
$
(11,436)
$
573,862
Balance, January
1, 2025
16,974,513
$
170
$
37,684
$
463,949
$
(6,486)
$
495,317
Net Income
-
-
-
47,852
-
47,852
Other Comprehensive
Income, net
of tax
-
-
-
-
7,707
7,707
Cash Dividends ($
0.7400
per share)
-
-
-
(12,625)
-
(12,625)
Stock Based
Compensation
-
-
1,373
-
-
1,373
Stock Compensation
Plan Transactions,
net
94,137
1
1,010
-
-
1,011
Balance, September 30, 2025
17,068,650
$
171
$
40,067
$
499,176
$
1,221
$
540,635
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
9
CAPITAL CITY
BANK GROUP,
INC.
CONSOLIDATED
STATEMENTS
OF CASH FLOWS
(Unaudited)
Nine Months Ended September
30,
(Dollars in Thousands)
2026
2025
CASH FLOWS FROM
OPERATING
ACTIVITIES
Net Income
$
49,034
$
47,852
Adjustments
to Reconcile Net Income
to
Cash Provided by
Operating Activities:
Provision for Credit
Losses
1,551
3,269
Depreciation
5,521
5,548
Amortization of
Premiums, Discounts and
Fees, net
2,280
3,403
Amortization of
Intangible Asset
-
107
Gain on Sale of Subsidiary
-
(773)
Originations of
Loans Held-for-Sale
(315,284)
(332,760)
Proceeds From Sales
of Loans
Held-for-Sale
328,332
350,882
Mortgage Banking
Revenues
(12,585)
(12,804)
Net Deletions for Capitalized
Mortgage Servicing Rights
16
48
Stock Based
Compensation
1,478
1,373
Net Tax
Benefit from
Stock Based
Compensation
(132)
(154)
Deferred Income
Taxes
(2,532)
2,429
Net Change
in Operating Leases
(18)
14
Net Gain on Sales and
Write-Downs of Other Real
Estate Owned
(796)
(4,514)
Gain from Insurance
Claim on Premises
(453)
-
Net (Increase)
Decrease in Other Assets
(1,000)
3,770
Net Increase
in Other Liabilities
6,425
8,364
Net Cash
Provided By Operating Activities
61,837
76,054
CASH FLOWS FROM
INVESTING ACTIVITIES
Securities Held to Maturity:
Purchases
(113,266)
(66,697)
Proceeds from Payments,
Maturities, and
Calls
175,326
228,784
Securities Available
for Sale:
Purchases
(360,296)
(225,039)
Proceeds from Payments,
Maturities, and
Calls
116,071
60,899
Equity Securities:
Purchases
(1,219)
(60)
Net Decrease in
Equity Securities
85
1,191
Purchases of
Loans Held for
Investment
(7,013)
(958)
Proceeds from Sales of
Loans
53,229
39,802
Net Decrease in
Loans Held for
Investment
1,147
23,666
Purchase of
Bank Owned Life Insurance
(6,000)
-
Net Cash
Received for Divestitures
-
2,375
Proceeds from Insurance
Claims on Premises
453
-
Proceeds From Sales
of Other Real Estate
Owned
3,921
7,340
Purchases of
Premises and
Equipment
(10,571)
(5,967)
Net Cash
(Used In) Provided By Investing
Activities
(148,133)
65,336
CASH FLOWS FROM
FINANCING ACTIVITIES
Net Increase
(Decrease) in Deposits
4,256
(57,065)
Net (Decrease) Increase
in Short-Term Borrowings
(11,211)
11,940
Principal Payments
of Subordinated
Notes
(9,279)
(10,305)
Dividends Paid
(13,866)
(12,625)
Payments
to Repurchase
Common
Stock
(2,639)
-
Proceeds from Issuance
of Common
Stock Under Purchase
Plans
696
710
Net Cash
Used In Financing Activities
(32,043)
(67,345)
NET (DECREASE)
INCREASE IN CASH AND
CASH EQUIVALENTS
(118,339)
74,045
Cash and
Cash Equivalents
at Beginning of Period
529,971
391,854
Cash and
Cash Equivalents
at End of
Period
$
411,632
$
465,899
10
Supplemental Cash
Flow Disclosures:
Interest Paid
$
23,949
$
24,148
Federal Income
Taxes Paid
$
10,975
$
7,700
State and
Local Income
Taxes Paid:
Florida
$
1,975
$
775
All Other
$
112
$
225
Supplemental Noncash
Items:
Loans and
Premises Transferred to
Other Real Estate
Owned
$
3,542
$
4,290
Loans Transferred
from Held for Investment
to Held for Sale, net
$
55,452
$
40,652
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
11
CAPITAL CITY
BANK GROUP,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 –
BUSINESS AND BASIS
OF PRESENTATION
Nature of Operations
.
Capital City Bank
Group, Inc. (“CCBG” or the “Company”)
provides a full range of
banking and
banking-
related services to
individual and
corporate
clients through its wholly owned
subsidiary, Capital
City Bank
(“CCB” or the “Bank”),
with banking offices
located in Florida, Georgia,
and Alabama.
The Company
is subject to competition
from other financial
institutions, is subject
to regulation by certain
government agencies
and undergoes
periodic examinations
by those regulatory
authorities.
Basis of Presentation
.
The consolidated
financial statements
in this Quarterly Report on Form
10-Q include the accounts
of CCBG
and CCB.
All material inter
-company
transactions
and accounts
have been
eliminated.
Certain previously reported
amounts
have
been reclassified
to conform
to the current year’s
presentation.
The accompanying
unaudited consolidated
financial statements have
been prepared in accordance
with generally accepted
accounting
principles for interim
financial information
and with the instructions
to Form 10-Q and
Article 10 of Regulation S-X.
Accordingly,
they do not
include all of the information
and notes
required by generally accepted
accounting
principles for complete financial
statements.
In the opinion
of management,
all adjustments
(consisting of normal recurring accruals)
considered necessary
for a fair
presentation
have been
included.
The Consolidated
Statement
of Financial Condition
at December
31, 2025 has
been derived from
the audited
consolidated
financial
statements
at that
date,
but does not
include all of the information
and notes
required by generally accepted
accounting
principles for
complete financial statements.
For further information,
refer to the consolidated
financial statements
and notes
thereto included
in the
Company’s
2025 Form 10-K.
Accounting Standards
Updates
Proposed Accounting Standards
,
ASU No. 2023-06, “Disclosure
Improvements: Codification
Amendments in Response
to the SEC’s
Disclosure Update
and Simplification
Initiative.”
Accounting Standards
Update
(“ASU”) 2023-06 is intended to
clarify or improve
disclosure and
presentation
requirements of
a variety of
topics, which will allow users to more easily compare
entities subject
to the
SEC’s existing
disclosures with those
entities that were not
previously subject
to the requirements
and align the requirements
in the
FASB accounting
standard
codification with the
SEC’s regulations. ASU 2023-06 is to be applied
prospectively, and
early adoption
is
prohibited. For reporting
entities subject to
the SEC’s existing
disclosure requirements,
the effective
dates of
ASU 2023-06 will be the
date on
which the SEC’s removal
of that
related disclosure requirement
from Regulation
S-X or Regulation S-K becomes
effective. If
by June 30, 2027,
the SEC has not
removed the
applicable requirement
from Regulation
S-X or Regulation S-K, the pending content
of the related
amendment
will not become effective
for any entities. The
Company
is currently evaluating the
provisions of the
amendments
and the
impact on
its future consolidated
statements.
ASU No. 2024-03,
“Income Statement
— Reporting
Comprehensive
Income — Expense Disaggregation
Disclosures (Subtopic
220-
40): Disaggregation
of Income Statement
Expenses.”
ASU 2024-03 introduces new requirements
to disclose additional
information
about
certain types
of expenses, including employee
compensation,
depreciation, intangible
asset amortization,
and selling expenses.
ASU 2024-03 is effective
for the Company
as of January 1, 2027. The
Company
is currently evaluating the
impact of
the incremental
disclosures that
will be required under the standard.
ASU 2025-06, “Intangibles
- Goodwill and
Other -Internal-Use Software
(Subtopic
350-40): Targeted
Improvements to the
Accounting
for Internal-Use Software.”
The ASU updates accounting
for internal-use software
by shifting from a
stage-based
model
to a principles-based
approach
aligned with modern development.
Key provisions include new capitalization
criteria based on
authorization,
funding commitment,
and probable
completion, removal
of development
stages, integrated website guidance,
and
enhanced
disclosures. ASU 2025-06 is effective
for the Company
as of January
1, 2028. The Company
is currently evaluating the
provisions of the
amendments
and the
impact on
its future consolidated
statements
and disclosures.
ASU 2025-08, “Financial
Instruments—Credit
Losses (Topic 326):
Purchased Loans.”
The ASU updates the
accounting
for
purchased
loans under ASC 326.
The amendments
expand
the population
of loans subject
to the “gross-up” accounting
model by
eliminating the former
distinction between purchased
credit-deteriorated
(“PCD”) and non-PCD loans. Under
the new guidance,
entities will apply
a single model for purchased
loans by recognizing an
allowance for credit
losses and adjusting
the amorti
zed cost
basis for the associated
noncredit discount
at acquisition.
ASU 2025-08 is effective for
the Company
as of January
1, 2027. The
Company
is currently evaluating the
provisions of the amendments
and the
impact on
its future consolidated
statements
and
disclosures.
12
ASU 2025-11, “Interim
Reporting (Topic
270): Narrow-Scope
Improvements.”
The ASU aims to clarify
and enhance
interim financial
reporting by defining
its scope, consolidating
GAAP disclosures in
Topic 270, adding
a principle for material
post-year
-end event
disclosure, and
refining statement
format
guidance to improve
consistency for
all preparers. These changes
do not alter
the
fundamental
requirements of
interim reporting but seek to
streamline and
standardize
the process. ASU 2025-11 is effective
for the
Company
in interim reporting periods beginning as
of January
1, 2028.
The Company
is currently evaluating the
provisions of the
amendments
and the
impact on
its future consolidated
statements.
ASU 2025-12, “Codification
Improvements.”
The ASU was issued to make
technical corrections, clarify
ambiguous
guidance and
generally streamline
the Accounting Standards
Codification
across various
topics, affecting
most reporting entities, with key
changes
including clarifications
for diluted EPS during losses,
lease receivable disclosures,
beneficial interest
calculations, and
treasury stock
accounting, aiming
for better usability
without significantly
altering core accounting
outcomes.
ASU 2025-12 is effective for
the
Company
as of January
1, 2027. The Company
is currently evaluating the
provisions of the amendments
and the
impact on
its future
consolidated
statements.
13
NOTE 2 –
INVESTMENT SECURITIES
Investment Portfolio
Composition
. The following table summarizes
the amortized
cost and
related fair value
of investment
securities available
-for-sale (“AFS”) and
securities held-to-maturity
(“HTM”) and the
corresponding amounts
of gross
unrealized gains and
losses.
Available
for Sale
Amortized
Unrealized
Unrealized
Allowance for
Fair
(Dollars in Thousands)
Cost
Gains
Losses
Credit Losses
Value
September 30, 2026
U.S. Government
Treasury
$
605,514
$
-
$
11,171
$
-
$
594,343
U.S. Government
Agency
164,330
76
4,095
-
160,311
States and
Political Subdivisions
35,004
-
2,429
-
32,575
Mortgage-Backed
Securities
(1)
55,044
-
10,715
-
44,329
Corporate
Debt Securities
33,162
-
2,574
(49)
30,539
Total
$
893,054
$
76
$
30,984
$
(49)
$
862,097
December 31, 2025
U.S. Government
Treasury
$
331,495
$
1,940
$
171
$
-
$
333,264
U.S. Government
Agency
174,527
71
2,484
-
172,114
States and
Political Subdivisions
36,918
38
2,045
-
34,911
Mortgage-Backed
Securities
(1)
59,699
2
7,697
-
52,004
Corporate
Debt Securities
45,810
-
2,236
(42)
43,532
Other Securities
(2)
8,097
-
-
-
8,097
Total
$
656,546
$
2,051
$
14,633
$
(42)
$
643,922
Held to Maturity
Amortized
Unrealized
Unrealized
Fair
(Dollars in Thousands)
Cost
Gains
Losses
Value
September 30, 2026
Mortgage-Backed
Securities
(1)
315,142
-
21,310
293,832
Total
$
315,142
$
-
$
21,310
$
293,832
December 31, 2025
U.S. Government
Treasury
$
129,782
$
-
$
514
$
129,268
Mortgage-Backed
Securities
(1)
247,664
930
8,542
240,052
Total
$
377,446
$
930
$
9,056
$
369,320
(1)
Comprised of residential mortgage-backed securities.
(2)
Includes Federal
Home Loan Bank stock
and Federal
Reserve Bank stock
recorded
at cost of $
3.0
million and
$
5.1
million at
December 31, 2025,
respectively.
These securities are
presented
in Other Assets beginning
September 30, 2026.
At September
30, 2026 and
December 31, 2025,
the investment
portfolio had
$
3.2
million and $
2.1
million, respectively, in equity
securities. These securities
do not have
a readily determinable
fair value and
were not credit impaired.
Securities with an
amortized
cost of $
605.5
million and $
461.3
million at September
30, 2026 and
December 31, 2025,
respectively,
were pledged to
secure public deposits
and for other
purposes.
Investment Sales.
There were
no
sales of investment
securities for the three and
nine months
ended September
30, 2026 and
2025.
Maturity Distribution
.
At September 30, 2026
,
the Company
’s investment
securities had the following maturity
distribution based
on
contractual
maturity.
Expected maturities
may differ
from contractual
maturities because
borrowers may have
the right to call or
prepay obligations.
Mortgage-backed
securities, certain amortizing U.S.
government agency
securities and other
securities are shown
separately
because they
are not due
at a certain
maturity
date.
14
Available
for Sale
Held to Maturity
(Dollars in Thousands)
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Due in one year
or less
$
159,015
$
158,279
$
-
$
-
Due after
one year through
five years
532,658
516,640
-
-
Mortgage-Backed
Securities
55,044
44,329
315,142
293,832
U.S. Government
Agency
146,337
142,849
-
-
Total
$
893,054
$
862,097
$
315,142
$
293,832
15
Unrealized Losses
on Investment Securities.
The following table summarizes
the available
for sale and
held to maturity
investment
securities with unrealized
losses aggregated by
major security
type and
length of time in a continuous
unrealized loss position:
Less Than
Greater Than
12 Months
12 Months
Total
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
(Dollars in Thousands)
Value
Losses
Value
Losses
Value
Losses
September 30, 2026
Available
for Sale
U.S. Government
Treasury
$
591,355
$
11,156
$
2,988
$
15
$
594,343
$
11,171
U.S. Government
Agency
54,953
1,648
74,492
2,447
129,445
4,095
States and
Political Subdivisions
1,842
21
28,453
2,408
30,295
2,429
Mortgage-Backed
Securities
47
1
44,274
10,714
44,321
10,715
Corporate
Debt Securities
657
-
28,782
2,574
29,439
2,574
Total
$
648,854
$
12,826
$
178,989
$
18,158
$
827,843
$
30,984
Held to Maturity
Mortgage-Backed
Securities
201,991
9,348
91,838
11,962
293,829
21,310
Total
$
201,991
$
9,348
$
91,838
$
11,962
$
293,829
$
21,310
December 31, 2025
Available
for Sale
U.S. Government
Treasury
$
31,319
$
22
$
8,902
$
149
$
40,221
$
171
U.S. Government
Agency
62,809
182
91,760
2,302
154,569
2,484
States and
Political Subdivisions
3,030
124
30,705
1,921
33,735
2,045
Mortgage-Backed
Securities
-
-
51,932
7,697
51,932
7,697
Corporate
Debt Securities
-
-
42,333
2,236
42,333
2,236
Total
$
97,158
$
328
$
225,632
$
14,305
$
322,790
$
14,633
Held to Maturity
U.S. Government
Treasury
-
-
129,268
514
129,268
514
Mortgage-Backed
Securities
33,589
98
106,262
8,444
139,851
8,542
Total
$
33,589
$
98
$
235,530
$
8,958
$
269,119
$
9,056
At September
30, 2026, there
were
848
positions (combined
AFS and HTM) with unrealized
pre-tax losses totaling
$
52.3
million.
91
of these positions
are U.S. Treasury
bonds and carry
the full faith and
credit of the U.S. Government.
688
are U.S. government agency
securities issued by
U.S. government
sponsored entities.
We believe
the long history of
no credit losses on government
securities
indicates that
the expectation
of nonpayment
of the amortized
cost basis is effectively
zero.
At September 30, 2026,
all collateralized
mortgage obligation
securities, mortgage
-backed
securities, Small Business Administration
securities, U.S. Agency,
and U.S. Treasury
bonds held were AAA
rated.
The remaining
69
positions (municipal securities
and corporate
bonds) have
a credit component.
At
September 30,
2026, corporate
debt securities had
an
allowance for
credit losses of $
49,000
.
No
ne of the securities held by
the
Company
were past due or in nonaccrual
status
at
September 30,
2026.
Credit Quality Indicators
The Company
monitors the credit quality
of its investment
securities through various risk management
procedures, including the
monitoring of
credit ratings.
A majority
of the debt
securities in the Company’s
investment
portfolio were issued by a
U.S.
government entity
or agency and
are either explicitly or implicitly guaranteed
by the U.S. government.
The Company
believes the
long history of no
credit losses on these
securities indicates
that the
expectation
of nonpayment
of the amortized
cost basis is
effectively zero, even
if the U.S. government
were to technically default.
Further, certain municipal
securities held by the
Company
have been pre-refunded
and secured by
government guaranteed
treasuries.
Therefore, for the aforementioned
securities, the Company
does
no
t assess or record expected
credit losses due to the
zero loss assumption.
The Company
monitors the credit quality
of its
municipal and
corporate
securities portfolio via credit rating
s
which are updated
on a quarterly
basis.
On a quarterly
basis, municipal
and corporate
securities in an unrealized loss position
are evaluated
to determine
if the loss is attributable
to credit related factors
and
if an allowance
for credit loss is needed.
16
NOTE 3 – LOANS HELD
FOR INVESTMENT
AND ALLOWANCE
FOR CREDIT LOSSES
Loan Portfolio
Composition
.
The composition
of the held for
investment
(“HFI”) loan portfolio
was as follows:
(Dollars in Thousands)
September 30, 2026
December 31, 2025
Commercial, Financial
and Agricultural
$
168,144
$
180,341
Real Estate
– Construction
149,335
146,920
Real Estate
– Commercial
Mortgage
736,380
768,731
Real Estate
– Residential
(1)
1,004,438
1,025,690
Real Estate
– Home Equity
246,120
240,897
Consumer
(2)
185,307
183,539
Loans Held For Investment,
Net of Unearned
Income
$
2,489,724
$
2,546,118
(1)
Includes loans
in process balances
of $
0.5
million and
$
5.6
million at September
30, 2026 and
December 31, 2025, respectively.
(2)
Includes overdraft
balances of
$
1.3
million and
$
1.2
million at September
30, 2026 and
December 31, 2025, respectively.
Net deferred loan
costs, which include premiums
on purchased
loans, included in loans
were $
8.8
million at September
30, 2026 and
$
8.6
million at December
31, 2025.
Accrued interest receivable
on loans which is
excluded from
amortized
cost, totaled
$
9.4
million at September
30, 2026 and
$
9.8
million at December
31, 2025, and
is reported separately
in Other Assets.
The Company
has pledged a
blanket floating
lien on all 1-4 family residential
mortgage loans,
commercial real estate
mortgage loans,
and home
equity loans to
support available
borrowing capacity
at the FHLB
of Atlanta
and has
pledged a blanket
floating lien on all
consumer loans,
commercial loans,
and construction
loans to support
available
borrowing capacity
at the Federal
Reserve Bank
of
Atlanta.
Loan Purchase
s.
The Company
will periodically purchase commercial
real estate loans
for its portfolio.
Commercial loan
purchases
totaled $
6.7
million for the three and
nine months
ended September
30, 2026, and
were not credit impaired.
No
ne were purchased
during the comparable
2025 periods.
17
Allowance for Credit Losses
.
The methodology
for estimating the
amount
of credit losses reported in the
allowance for credit
losses
(“ACL”) has
two basic components:
first, an asset-specific component
involving loans that
do not share
risk characteristics and
the
measurement
of expected
credit losses for such individual loans;
and second,
a pooled component
for expected
credit losses for pools
of loans that
share similar risk characteristics.
This allowance
methodology
is discussed further in Note 1 – Significant
Accounting
Policies in the Company’s
2025
Form 10-K.
The following table
details the activity
in the allowance
for credit losses by portfolio segment.
Allocation of
a portion of
the
allowance to
one category
of loans does
not preclude its availability
to absorb
losses in other categories.
Commercial,
Real Estate
Financial,
Real Estate
Commercial
Real Estate
Real Estate
(Dollars in Thousands)
Agricultural
Construction
Mortgage
Residential
Home Equity
Consumer
Total
Three Months Ended
September 30, 2026
Beginning Balance
$
1,828
$
1,282
$
7,540
$
14,877
$
2,467
$
3,013
$
31,007
Provision for Credit Losses
(25)
179
(241)
(837)
(52)
847
(129)
Charge-Offs
(251)
-
-
(9)
7
(1,883)
(2,136)
Recoveries
282
-
7
163
4
1,171
1,627
Net Recoveries (Charge-Offs)
31
-
7
154
11
(712)
(509)
Ending Balance
$
1,834
$
1,461
$
7,306
$
14,194
$
2,426
$
3,148
$
30,369
Nine Months Ended
September 30, 2026
Beginning Balance
$
1,751
$
1,681
$
6,859
$
15,317
$
2,368
$
3,025
$
31,001
Provision for Credit Losses
790
(220)
349
(1,343)
46
1,788
1,410
Charge-Offs
(1,128)
-
-
(47)
(6)
(4,503)
(5,684)
Recoveries
421
-
98
267
18
2,838
3,642
Net (Charge-Offs) Recoveries
(707)
-
98
220
12
(1,665)
(2,042)
Ending Balance
$
1,834
$
1,461
$
7,306
$
14,194
$
2,426
$
3,148
$
30,369
Three Months Ended
September 30, 2025
Beginning Balance
$
1,425
$
1,811
$
6,256
$
15,264
$
2,014
$
3,092
$
29,862
Provision for Credit Losses
370
(352)
268
164
200
900
1,550
Charge-Offs
(373)
-
-
(12)
(10)
(1,573)
(1,968)
Recoveries
95
-
8
13
10
632
758
Net (Charge-Offs) Recoveries
(278)
-
8
1
-
(941)
(1,210)
Ending Balance
$
1,517
$
1,459
$
6,532
$
15,429
$
2,214
$
3,051
$
30,202
Nine Months Ended
September 30, 2025
Beginning Balance
$
1,514
$
2,384
$
5,867
$
14,568
$
1,952
$
2,966
$
29,251
Provision for Credit Losses
331
(925)
648
733
235
2,329
3,351
Charge-Offs
(615)
-
-
(69)
(34)
(4,359)
(5,077)
Recoveries
287
-
17
197
61
2,115
2,677
Net (Charge-Offs) Recoveries
(328)
-
17
128
27
(2,244)
(2,400)
Ending Balance
$
1,517
$
1,459
$
6,532
$
15,429
$
2,214
$
3,051
$
30,202
18
At September 30, 2026,
the allowance
for credit losses for loans
HFI totaled $
30.4
million compared
to $
31.0
million
at
December 31,
2025 and
$
30.2
million
at
September 30,
2025. Activity within the allowance
for the nine month
period ended September
30, 2026,
reflected a provision
expense of $
1.4
million and net
loan charge-
offs
of $
2.0
million. The September
30, 2026 allowance reflected
the
utilization of a
lower forecasted
unemployment
rate in forecasting
loan loss rates and
lower loan balances,
as
compared
to the
December 31, 2025
allowance. At September
30, 2025, the
allowance for
loans HFI totaled
$
30.2
million, a $
1.0
million increase over
December 31, 2024. Activity
within the allowance for
the nine-month period
ended September 30, 2025,
reflected a provision
expense
of $
3.4
million and net
loan charge-
offs
of $
2.4
million. The net increase in the allowance
was primarily attributable
to qualitative
factor adjustments
that were partially
offset by
lower loan balances.
Four unemployment
forecast scenarios
were utilized to estimate
probability of default
and are weighted based
on management’s
estimate of probabilit
y.
See Note 8 – Commitments
and Contingencies
for information
on the allowance
for off-balance
sheet credit commitments.
19
Loan Portfolio
Aging.
A loan is defined as a
past due loan when
one full payment
is past due or a contractual
maturity
is over 30 days
past due
(“DPD”).
The following table
presents the aging of
the amortized
cost basis in accruing past
due loans by
class of loans.
30-59
60-89
90 +
Total
Total
Nonaccrual
Total
(Dollars in Thousands)
DPD
DPD
DPD
Past Due
Current
Loans
Loans
September 30, 2026
Commercial, Financial
and Agricultural
$
246
$
-
$
-
$
246
$
167,780
$
118
$
168,144
Real Estate
– Construction
-
634
-
634
148,322
379
149,335
Real Estate
– Commercial
Mortgage
1,829
-
-
1,829
732,478
2,073
736,380
Real Estate
– Residential
235
151
-
386
1,000,227
3,825
1,004,438
Real Estate
– Home Equity
122
-
-
122
245,734
264
246,120
Consumer
933
37
-
970
183,641
696
185,307
Total
$
3,365
$
822
$
-
$
4,187
$
2,478,182
$
7,355
$
2,489,724
December 31, 2025
Commercial, Financial
and Agricultural
$
537
$
172
$
-
$
709
$
178,354
$
1,278
$
180,341
Real Estate
– Construction
295
-
-
295
146,625
-
146,920
Real Estate
– Commercial
Mortgage
1,386
-
-
1,386
764,785
2,560
768,731
Real Estate
– Residential
807
1,930
-
2,737
1,020,810
2,143
1,025,690
Real Estate
– Home Equity
67
-
-
67
239,061
1,769
240,897
Consumer
1,561
262
-
1,823
180,871
845
183,539
Total
$
4,653
$
2,364
$
-
$
7,017
$
2,530,506
$
8,595
$
2,546,118
Nonaccrual Loans
.
Loans are generally placed
on nonaccrual status
if principal or interest payments
become 90
days past
due and/or
management
deems
the collectability of
the principal and/or
interest to be doubtful.
Loans are
returned to accrual
status when
the
principal and
interest amounts
contractually
due are brought
current or when future
payments
are reasonably
assured.
The following table
presents the amortized
cost basis of loans
in nonaccrual
status and loans past
due over 90 days
and still on accrual
by class of loans.
September 30, 2026
December 31, 2025
Nonaccrual
Nonaccrual
Nonaccrual
Nonaccrual
With No
With
90 + Days
With No
With
90 + Days
(Dollars in Thousands)
ACL
ACL
Still Accruing
ACL
ACL
Still Accruing
Commercial, Financial
and Agricultural
$
-
$
118
$
-
$
1,038
$
240
$
-
Real Estate
– Construction
-
379
-
-
-
-
Real Estate
– Commercial
Mortgage
668
1,405
-
753
1,807
-
Real Estate
– Residential
1,810
2,015
-
1,275
868
-
Real Estate
– Home Equity
-
264
-
1,382
387
-
Consumer
-
696
-
-
845
-
Total Nonaccrual
Loans
$
2,478
$
4,877
$
-
$
4,448
$
4,147
$
-
20
Collateral
Dependent Loans.
The following table presents the
amortized
cost basis of collateral
-dependent
loans.
September 30, 2026
December 31, 2025
Real Estate
Non Real Estate
Real Estate
Non Real Estate
(Dollars in Thousands)
Secured
Secured
Secured
Secured
Commercial, Financial
and Agricultural
$
-
$
46
$
-
$
1,087
Real Estate
– Construction
379
-
-
-
Real Estate
– Commercial
Mortgage
11,697
-
2,450
-
Real Estate
– Residential
2,168
-
1,275
-
Real Estate
– Home Equity
391
-
1,561
-
Consumer
-
-
-
-
Total Collateral
Dependent Loans
$
14,635
$
46
$
5,286
$
1,087
A loan is collateral
dependent
when the borrower is experiencing financial
difficulty and
repayment
of the loan
is dependent on
the
sale or operation
of the underlying collateral.
The Bank’s
collateral dependent
loan portfolio is comprised
primarily of real estate
secured loans, collateralized
by either residential
or commercial collateral
types.
The loans are carried at
fair value based on
current values determined
by either independent
appraisals
or internal evaluations,
adjusted
for selling costs or other amounts
to be deducted
when estimating expected
net sales proceeds.
Residential Real Estate Loans In Process of Foreclosure
.
At September 30, 2026,
the Company
had $
0.4
million of 1-4 family
residential real estate
loans for which formal
foreclosure proceedings were
in process, compared
to $
0.2
million at December 31,
2025.
Modifications to Borrowers Experiencing Financial Difficulty.
Occasionally, the
Company
may modify
loans to borrowers who are
experiencing financial
difficulty.
Loan modifications
to borrowers in financial difficulty
are loans in which the
Company
has granted
an economic
concession to the
borrower that it would not
otherwise consider.
In these instances,
as part of
a work-out alternative,
the
Company
will make concessions including the extension
of the loan
term, a principal moratorium,
a reduction in the
interest rate, or a
combination
thereof.
The impact of
the modifications
and defaults
are factored
into the allowance
for credit losses on a loan
-by-loan
basis.
Thus, specific reserves
are established
based upon
the results of either a
discounted cash
flow analysis or the underlying
collateral value,
if the loan is deemed
to be collateral dependent.
A modified loan classification
can be removed
if the borrower’s
financial condition
improves such that
the borrower is no longer in financial
difficulty, the
loan has
not had
any forgiveness
of
principal or interest,
and the
loan is subsequently
refinanced
or restructured at
market terms
and qualifies
as a new loan.
During the nine months
ended September
30, 2026, the
Company
did
no
t modify any
loans to borrowers experiencing financial
difficulty.
During the nine months
ended September
30, 2025,
one
commercial mortgage
loan for $
2.5
million was provided a
6
-
month interest
only extension in exchange
for additional
collateral.
The Company
closely monitors the performance
of loans modified
for borrowers experiencing financial
difficulty to evaluate
the
effectiveness
of its modification
strategies. At September 30,
2026, there were
no
outstanding
balances
of loans modified
during the
preceding twelve months
.
At September 30, 202
5, the amortized
cost basis of loans
modified during the preceding
twelve months
was
$
2.8
million, of which $
2.5
million were current and
$
0.3
million were 30 -59 days
past due.
Credit Risk Management
.
The Company
has adopted
comprehensive
lending policies, underwriting standards and
loan review
procedures designed
to maximize loan income
within
an
acceptable
level of risk.
Management
and the
Board of
Directors review and
approve
these policies and procedures
on a regular basis (at
least annually).
Reporting systems are
used to monitor loan
originations, loan quality,
concentrations
of credit, loan delinquencies
and nonperforming
loans and
potential problem
loans.
Management
and the
Credit Risk Oversight Committee
periodically review the Company’s
lines
of business to monitor
asset quality
trends and
the appropriateness
of credit policies.
In addition,
total borrower exposure
limits are
established and
concentration
risk is monitored.
As part of this process, the
overall composition
of the portfolio
is reviewed to gauge
diversification of
risk, client concentrations,
industry group, loan
type, geographic area,
or other relevant
classifications of
loans.
Specific segments of the
loan portfolio
are monitored
and reported
to the Board
on a quarterly
basis and
have strategic
plans in place
to supplement
Board approved
credit policies governing exposure limits and
underwriting standards.
Detailed below are the types
of
loans within the
Company’s
loan portfolio
and risk characteristics
unique to each.
21
Commercial, Financial,
and Agricultural – Loans
in this category are primarily
made
based on
identified cash
flows of the borrower
with consideration
given to underlying collateral
and personal
or other guarantees.
Lending policy establishes debt
service coverage
ratio limits that
require a borrower’s cash
flow to be sufficient
to cover principal and
interest payments
on all new and
existing debt.
The majority of these
loans are secured by
the assets being financed
or other business assets such
as
account
s
receivable, inventory,
or
equipment.
Collateral values
are determined based
upon third party appraisals
and evaluations.
Loan to value ratios
at
origination are
governed by established
policy guidelines.
Real Estate
Construction
– Loans in this category
consists
of short-term construction
loans, revolving and
non-revolving credit lines
and construction/permanent
loans made
to individuals and
investors to finance
the acquisition, development,
construction or
rehabilitation of real
property.
These loans are
primarily made
based on identified cash
flows of the borrower or
project and
generally
secured by the
property being financed,
including 1-4 family residential
properties and
commercial properties
that are
either owner-
occupied or investment
in nature.
These properties
may
include either vacant
or improved property.
Construction
loans are generally
based upon
estimates of
costs and
value associated
with the completed
project.
Collateral values
are determined
based upon
third
party appraisals
and evaluations.
Loan to
value ratios
at
origination are governed
by established
policy guidelines.
The disbursement
of funds
for construction
loans is made
in relation to the progress of
the project and
as
such these loans
are closely monitored
by on-
site inspections.
Real Estate
Commercial Mortgage
– Loans in this category
consists of commercial
mortgage loans
secured by property
that is either
owner-occupied or
investment
in nature.
These loans are
primarily made
based on
identified cash
flows of the borrower or project
with consideration
given to underlying real estate
collateral and
personal guarantees.
Lending policy establishes debt
service
coverage ratios
and loan
to value ratios
specific to the property
type.
Collateral values
are determined
based upon
third party
appraisals
and evaluations.
Real Estate Residential
– Residential mortgage
loans held in the Company’s
loan portfolio are made
to borrowers that demonstrate
the
ability to make
scheduled payments
with full consideration to underwriting
factors such
as
current income, employment
status, current
assets, and
other financial
resources, credit history, and
the value of
the collateral.
Collateral consists of
mortgage liens on 1-4 family
residential properties.
Collateral values
are determined
based upon
third party appraisals
and evaluati
ons.
The Company
does not
originate sub-prime loans.
Real Estate
Home Equity
– Home equity
loans and
lines are made
to qualified individuals
for legitimate purposes
generally secured
by senior or junior mortgage
liens on owner-occupied
1-4 family
homes or vacation
homes.
Borrower qualifications
include
favorable
credit history combined
with supportive income
and debt
ratio requirements
and combined
loan to value
ratios within
established policy guidelines.
Collateral values
are determined
based upon
third party appraisals
and evaluations.
Consumer Loans
– This loan portfolio
includes personal installment
loans, direct and
indirect automobile
financing, and
overdraft
lines of credit.
The majority
of the consumer
loan category
consists of direct and
indirect automobile
loans.
Lending policy
establishes maximum
debt to income ratios, minimum
credit scores, and includes
guidelines for verification
of applicants’ income and
receipt of credit reports.
Credit Quality
Indicators
.
As part of the ongoing
monitoring of the
Company’s
loan portfolio
quality, management
categorizes loans
into risk categories
based on
relevant information
about
the ability of borrowers to
service their debt such as:
current financial
information,
historical payment
performance,
credit documentation,
and current
economic and
market
trends, among
other
factors.
Risk ratings are assigned
to each loan
and revised
as
needed through
established monitoring
procedures for individual
loan
relationships over
a predetermined amount
and review of smaller balance
homogenous
loan pools.
The Company
uses the definitions
noted below for categorizing
and managing
its criticized loans.
Loans categorized
as
“Pass” do not
meet the criteria set
forth below
and are
not considered
criticized.
Special Mention – Loans
in this category are presently
protected from
loss, but weaknesses are
apparent
which, if not corrected, could
cause future
problems.
Loans in this category
may
not meet
required underwriting criteria and have
no mitigating factors.
More than
the ordinary amount
of attention
is warranted for these
loans.
Substandard
– Loans in this category
exhibit well-defined weaknesses
that would typically
bring normal repayment
into jeopardy.
These loans are
no longer adequately
protected due
to well-defined weaknesses
that affect
the repayment
capacity
of the
borrower.
The possibility of
loss is much more
evident and
above
average supervision
is required for these loans.
22
Doubtful – Loans
in this category have
all the weaknesses
inherent in a loan
categorized
as
Substandard,
with the characteristic
that
the weaknesses
make collection
or liquidation in full, on the
basis of currently existing
facts, conditions,
and values,
highly
questionable
and improbable.
Performing/Nonperforming
– Loans within certain
homogenous loan
pools (home equity and
consumer) are
not individually reviewed,
but are monitored for
credit quality via
the aging status
of the loan
and by
payment
activity.
The performing or nonperforming
status
is updated
on
an
ongoing basis dependent
upon improvement
and deterioration
in credit quality.
The following table
s
summarize
gross loans held for investment
at September
30, 2026
and December
31, 2025
and current
period
gross writeoffs for
the nine months
ended September
30, 2026
and 12
months ended
December 31, 202
5
by years of
origination and
internally assigned
credit risk ratings (refer
to Credit Risk
Management
section for detail on
risk rating system).
23
(Dollars in Thousands)
Term Loans
by Origination
Year
Revolving
As of September 30, 2026
2026
2025
2024
2023
2022
Prior
Loans
Total
Commercial, Financial,
Agriculture:
Pass
$
34,032
$
28,937
$
16,563
$
13,119
$
13,790
$
13,510
$
43,485
$
163,436
Special Mention
-
61
37
2,340
1,090
-
768
4,296
Substandard
114
-
105
49
67
3
74
412
Total
$
34,146
$
28,998
$
16,705
$
15,508
$
14,947
$
13,513
$
44,327
$
168,144
Current-Period Gross
Writeoffs
$
26
$
82
$
110
$
279
$
184
$
12
$
435
$
1,128
Real Estate
- Construction:
Pass
$
56,034
$
70,866
$
2,433
$
2,212
$
9,694
$
53
$
6,545
$
147,837
Special Mention
-
-
-
-
485
-
-
485
Substandard
-
-
634
379
-
-
-
1,013
Total
$
56,034
$
70,866
$
3,067
$
2,591
$
10,179
$
53
$
6,545
$
149,335
Real Estate
- Commercial
Mortgage:
Pass
$
73,556
$
81,383
$
63,168
$
83,575
$
146,789
$
203,907
$
20,802
$
673,180
Special Mention
3,993
4,780
267
3,431
27,590
8,159
1,250
49,470
Substandard
-
4,202
3,559
96
1,857
2,470
144
12,328
Doubtful
-
-
1,402
-
-
-
-
1,402
Total
$
77,549
$
90,365
$
68,396
$
87,102
$
176,236
$
214,536
$
22,196
$
736,380
Real Estate
- Residential:
Pass
$
110,864
$
115,191
$
105,477
$
231,979
$
292,824
$
129,618
$
10,575
$
996,528
Special Mention
337
-
-
-
113
1,172
-
1,622
Substandard
457
286
555
946
792
3,252
-
6,288
Total
$
111,658
$
115,477
$
106,032
$
232,925
$
293,729
$
134,042
$
10,575
$
1,004,438
Current-Period Gross
Writeoffs
$
-
$
-
$
-
$
-
$
-
$
17
$
30
$
47
Real Estate - Home Equity:
Performing
$
600
$
269
$
-
$
219
$
16
$
406
$
244,418
$
245,928
Nonperforming
-
-
-
-
-
-
192
192
Total
$
600
$
269
$
-
$
219
$
16
$
406
$
244,610
$
246,120
Current-Period Gross
Writeoffs
$
-
$
-
$
-
$
-
$
-
$
(33)
$
39
$
6
Consumer:
Performing
$
61,018
$
46,514
$
14,991
$
17,655
$
18,508
$
12,339
$
13,586
$
184,611
Nonperforming
113
176
69
76
171
91
-
696
Total
$
61,131
$
46,690
$
15,060
$
17,731
$
18,679
$
12,430
$
13,586
$
185,307
Current-Period Gross
Writeoffs
$
2,364
$
613
$
200
$
454
$
487
$
257
$
128
$
4,503
24
(Dollars in Thousands)
Term Loans
by Origination
Year
Revolving
As of December
31, 2025
2025
2024
2023
2022
2021
Prior
Loans
Total
Commercial, Financial,
Agriculture:
Pass
$
37,680
$
23,425
$
22,907
$
23,068
$
10,922
$
8,740
$
48,354
$
175,096
Special Mention
322
121
2,740
63
4
180
163
3,593
Substandard
-
146
95
245
16
36
1,114
1,652
Total
$
38,002
$
23,692
$
25,742
$
23,376
$
10,942
$
8,956
$
49,631
$
180,341
Current-Period Gross
Writeoffs
$
-
$
209
$
114
$
344
$
70
$
1
$
44
$
782
Real Estate
- Construction:
Pass
$
76,850
$
39,024
$
3,298
$
14,996
$
53
$
187
$
9,295
$
143,703
Special Mention
-
-
372
2,127
-
-
-
2,499
Substandard
-
-
718
-
-
-
-
718
Total
$
76,850
$
39,024
$
4,388
$
17,123
$
53
$
187
$
9,295
$
146,920
Real Estate
- Commercial
Mortgage:
Pass
$
93,723
$
76,348
$
101,262
$
174,959
$
92,388
$
152,307
$
22,555
$
713,542
Special Mention
9,830
4,477
5,725
20,547
3,922
4,074
720
49,295
Substandard
750
1,402
98
418
1,229
1,847
150
5,894
Total
$
104,303
$
82,227
$
107,085
$
195,924
$
97,539
$
158,228
$
23,425
$
768,731
Current-Period Gross
Writeoffs
$
-
$
-
$
-
$
-
$
-
$
4
$
-
$
4
Real Estate
- Residential:
Pass
$
142,278
$
130,895
$
269,844
$
316,402
$
59,950
$
87,545
$
10,521
$
1,017,435
Special Mention
-
-
-
116
954
807
378
2,255
Substandard
-
558
429
1,201
1,310
2,341
161
6,000
Total
$
142,278
$
131,453
$
270,273
$
317,719
$
62,214
$
90,693
$
11,060
$
1,025,690
Current-Period Gross
Writeoffs
$
-
$
27
$
59
$
32
$
-
$
18
$
-
$
136
Real Estate - Home Equity:
Performing
$
391
$
9
$
411
$
19
$
106
$
587
$
237,678
$
239,201
Nonperforming
-
-
-
-
-
-
1,696
1,696
Total
$
391
$
9
$
411
$
19
$
106
$
587
$
239,374
$
240,897
Current-Period Gross
Writeoffs
$
-
$
-
$
-
$
-
$
-
$
9
$
35
$
44
Consumer:
Performing
$
63,443
$
21,866
$
27,919
$
31,464
$
21,524
$
5,164
$
11,315
$
182,695
Nonperforming
186
191
149
215
72
31
-
844
Total
$
63,629
$
22,057
$
28,068
$
31,679
$
21,596
$
5,195
$
11,315
$
183,539
Current-Period Gross
Writeoffs
$
2,789
$
376
$
1,003
$
1,036
$
454
$
144
$
152
$
5,954
25
NOTE 4 – MORTGAGE
BANKING ACTIVITIES
The Company’s
mortgage banki
ng activities include mandatory
delivery loan sales, forward sales
contracts used
to manage
residential
loan pipeline price
risk, utilization of
warehouse lines to fund
secondary
market
residential loan closings, and
residential mortgage
servicing.
Residential Mortgage Loan Production
The Company
originates, markets,
and services conventional
and government
-sponsored residential mortgage
loans.
Generally,
conforming fixed
rate residential mortgage
loans are held for
sale in the secondary
market
and non-conforming
and adjustable
-rate
residential mortgage
loans
may
be held for investment.
The volume of
residential mortgage loans
originated for sale and
secondary
market
prices are the primary
drivers of origination revenue.
Residential mortgage
loan commitments
are generally outstanding
for 30 to 90
days, which represents
the typical period
from
commitment
to originate a residential
mortgage loan
to when the closed
loan is sold to
an
investor.
Residential mortgage
loan
commitments
are subject
to both credit and
price risk.
Credit risk is managed
through underwriting policies and
procedures, including
collateral requirements,
which are generally
accepted
by the secondary
loan markets.
Price risk is primarily related to interest rate
fluctuations
and is partially managed
through forward
sales of residential mortgage
-backed
securities (primarily to-be announced
securities, or TBAs)
or mandatory
delivery commitments
with investors.
The unpaid principal balance
of residential mortgage
loans held for sale,
notional amounts
of derivative contracts
related to residential
mortgage loan commitments
,
such
as
interest rate lock commitments
(“IRLCs”) and forward contract
sales and their related fair values
are set forth
below.
September 30, 2026
December 31, 2025
Unpaid Principal
Unpaid Principal
(Dollars in Thousands)
Balance/Notional
Fair Value
Balance/Notional
Fair Value
Residential Mortgage
Loans Held for
Sale
$
22,937
$
23,455
$
20,944
$
21,695
Residential Mortgage
Loan Commitments
("IRLCs")
(1)
29,368
474
20,699
464
Forward Sales Contracts
(2)
20,500
397
25,500
84
(1)
Recorded in other assets at fair value.
(2)
Recorded in other assets and other liabilities at fair value at
September 30, 2026 and December 31, 2025, respectively.
At September 30, 2026
and December
31, 2025, the
Company
had
no
residential mortgage loans
held for sale 30-89
days past
due or
on nonaccrual
status.
Mortgage banking
revenue was
as
follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(Dollars in Thousands)
2026
2025
2026
2025
Net realized gains
on sales of mortgage
loans
$
2,991
$
3,871
$
9,470
$
10,356
Net change
in unrealized (loss) gain on
mortgage loans
held for
sale
(595)
130
(266)
302
Net change
in the fair value
of IRLCs
(152)
(45)
10
359
Net change
in the fair value
of forward sales
contracts
452
199
482
(85)
Pair-Offs on
net settlement
of forward sales
contracts
84
(234)
276
(404)
Mortgage servicing rights
additions
29
40
125
84
Net origination fees
864
833
2,488
2,192
Total mortgage
banking revenues
$
3,673
$
4,794
$
12,585
$
12,804
26
Residential Mortgage Servicing
The Company
may
retain the right to service residential mortgage
loans sold.
The unpaid
principal balance
of loans serviced
for
others is the primary
driver of servicing revenue.
The following represents
a summary
of mortgage
servicing rights.
(Dollars in Thousands)
September 30, 2026
December 31, 2025
Number of residential
mortgage loans
serviced for others
456
456
Outstanding principal
balance
of residential mortgage
loans serviced for others
$
119,277
$
118,429
Weighted average
interest rate
5.78%
5.69%
Remaining contractual
term (in months)
353
354
Conforming conventional
loans serviced by the
Company
are sold to Federal National
Mortgage Association
(“FNMA”) on a non-
recourse basis, whereby
foreclosure losses
are generally the responsibility
of FNMA and
not the Company.
The government
loans
serviced by the
Company
are secured through
the Government
National Mortgage
Association (“GNMA”),
whereby the Company
is
insured against
loss by the Federal Housing
Administration or
partially guaranteed
against loss by the
United States Department
of
Veterans
Affairs.
At September 30, 2026,
the servicing portfolio balance
consisted of the
following loan types: FNMA (
62.5
%),
GNMA (
4.6
%), and private
investor (
32.9
%).
FNMA and
private investor loans
are structured
as
actual
/actual
payment
remittance
.
At September
30, 2026 and
December 31, 2025,
the Company
did
no
t have delinquent
residential mortgage loans
in GNMA pools
serviced by the
Company.
The right to repurchase
these loans and
the corresponding liability has
been recorded in other
assets and
other liabilities, respectively,
in the Consolidated
Statements
of Financial Condition.
The Company
had
no
repurchases for
the three
months ended
September 30,
2026 and
2025, and
no
repurchases and
$
0.3
million repurchases in the nine
months ended
September
30, 2026 and
2025, respectively,
of GNMA delinquent or defaulted
mortgage loans
with the intention to
modify their terms
and
include the loans
in new GNMA pools.
Activity in the
capitalized mortgage
servicing rights was
as
follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(Dollars in Thousands)
2026
2025
2026
2025
Beginning balance
$
927
$
889
$
924
$
933
Additions due to
loans sold with servicing
retained
28
40
124
84
Deletions and
amortization
(47)
(44)
(140)
(132)
Ending balance
$
908
$
885
$
908
$
885
The Company
did
no
t record any
permanent
impairment
losses on mortgage servicing rights for the three
or nine months
ended
September 30,
2026 or 2025.
The key unobservable
inputs used in determining the
fair value of
the Company’s
mortgage servicing rights were
as
follows:
September 30, 2026
December 31, 2025
Minimum
Maximum
Minimum
Maximum
Discount rates
9.50%
12.00%
9.50%
12.00%
Annual prepayment
speeds
8.78%
17.99%
8.50%
18.73%
Cost of servicing (per
loan)
$
85
$
95
$
85
$
95
Changes in residential
mortgage interest rates
directly affect
the prepayment
speeds used in valuing the
Company’s
mortgage
servicing rights.
A separate
third party model
is used to estimate
prepayment
speeds based
on interest rates, housing
turnover rates,
estimated
loan curtailment,
anticipated
defaults, and
other relevant
factors.
The weighted average
annual
prepayment
speed was
11.75
% at September
30, 2026 and
13.05
%
at
December 31, 2025.
27
Warehouse
Line Borrowings
The Company
has the following warehouse
lines of credit and master
repurchase agreements
with various financial
institutions
at
September 30,
2026:
Amounts
(Dollars in Thousands)
Outstanding
$
30
million master repurchase
agreement without
defined expiration.
Interest is at the
secured overnight
financing rate
(SOFR) rate plus
2.25%
to
3.25%
, with a floor rate of
3.25%
to
4.25%
.
A cash pledge deposit of
$
0.1
million is required
by the lender.
$
13,528
$
25
million warehouse line of
credit agreement
expiring in
September 2027
.
Interest is at the
SOFR rate plus
2.50%
to
6.00%
, with a floor rate
of
3.00%
to
6.50%
.
18,166
Total Warehouse
Borrowings
$
31,694
Warehouse
line borrowings are
classified as short-term
borrowings.
At December 31, 2025,
warehouse line borrowings
totaled $
28.1
million. At September
30, 2026, the Company
had residential
mortgage loans
held for sale pledged as
collateral under the
above
warehouse lines of
credit and master
repurchase agreements.
The above
agreements also
contain covenants
which include certain
financial requirements,
including maintenance
of minimum
tangible net worth, minimum
liquid assets, and
maximum
debt to net
worth ratio, as defined
in the agreements.
The Company
was in compliance with all significant
debt covenants
at September
30, 2026.
NOTE 5 – DERIVATIVES
The Company
enters into derivative
financial instruments
to manage
exposures that
arise from business activities
that result in the
receipt or payment
of future known and uncertain
cash amounts,
the value of
which are determined
by interest rates.
The Company’s
derivative financial
instruments are
used to manage
differences in the
amount,
timing, and duration
of the Company’s
known or
expected cash
receipts and its known
or expected cash
payments
principally related to the
Company’s
subordinated
debt.
Cash Flow Hedges of
Interest Rate
Risk
The Company
previously maintained
interest rate swaps
with notional amounts
totaling $
30
million designated as a
cash flow hedge
for subordinated
debt. Under the swap
arrangement,
the Company
paid a fixed
interest rate of
2.50
% and received
a variable
interest
rate based
on three-month
CME Term SOFR. In October
2025, the
Company
terminated
the swaps and
derecognized the derivative
assets. The unrealized
gain of $
2.7
million was deferred in
accumulated
other comprehensive
income and
will be amortized on a
straight-line basis into
interest expense through
the remaining term
of the original cash
flow hedge. The Company
estimates there
will
be approximately
$
0.8
million reclassified as a decrease
to interest expense
within the next 12 months.
For derivatives designated
and that
qualify as
cash flow hedges of
interest rate risk, the gain or loss on
the derivative is recorded
in
accumulated
other comprehensive
income (“AOCI”) and
subsequently
reclassified into interest expense
in the same period(s) during
which the hedged
transaction
affects
earnings. Amounts reported
in AOCI related to derivatives
will be reclassified to interest expense
as interest payments
are made
on the Company’s
variable-rate
subordinated
debt.
The following table
presents the change
in net gains (losses) recorded in
AOCI and
the consolidated
statements
of income related
to
the cash flow derivative
instruments (interest rate
swaps related to
subordinated
debt).
Change in Gain
Amount of Gain
(Loss) Recognized
Reclassified
(Dollars in Thousands)
Category
in AOCI
from AOCI to Income
Three months
ended September
30, 2026
Interest expense
$
-
$
202
Three months
ended September
30, 2025
Interest expense
(189)
303
Nine months
ended September
30, 2026
Interest expense
$
-
$
600
Nine months
ended September
30, 2025
Interest expense
(1,076)
899
28
NOTE 6 – LEASES
Operating leases in
which the Company
is the lessee are recorded as
operating lease right of use
(“ROU”) assets and operating
liabilities, included
in other assets and
liabilities, respectively, on
its Consolidated Statements
of Financial Condition.
The Company’s
operating leases primarily
relate to banking
offices with remaining lease
terms from less than
one to
39
years.
The
Company’s
leases are not
complex and
do not contain
residual value guarantees,
variable lease payments,
or significant assumptions
or judgments made
in applying the requirements
of Topic 842.
Operating leases with an initial term of 12 months or less are not
recorded on the Consolidated Statements of Financial Condition and the related lease expense is recognized on a straight-line basis
over the lease term.
At September
30, 2026, the
operating lease ROU assets
and liabilities were $
24.8
million and $
25.5
million,
respectively. At
December 31, 2025,
ROU assets and
liabilities were $
26.3
million and $
26.9
million, respectively. The
Company
does not have
any finance
leases.
The table below summarizes
our lease expense
and other
information
related to the
Company’s
operating leases.
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in Thousands)
2026
2025
2026
2025
Operating lease expense
$
922
$
928
$
2,746
$
2,689
Short-term lease expense
139
171
467
722
Total lease
expense
$
1,061
$
1,099
$
3,213
$
3,411
Other information:
Cash paid
for amounts
included in the measurement
of lease liabilities:
Operating cash
flows from operating
leases
$
929
$
882
$
2,775
$
2,676
Right-of-use assets
obtained
in exchange for
new operating lease liabilities
50
44
866
4,041
Weighted average
remaining lease term
— operating leases (in years)
15.4
15.7
15.4
15.7
Weighted average
discount rate
— operating leases
3.7%
3.7%
3.7%
3.7%
The table below summarizes
the maturity
of remaining lease
liabilities:
(Dollars in Thousands)
September 30, 2026
2026
$
915
2027
3,478
2028
3,201
2029
2,911
2030
2,919
2031 and
thereafter
18,790
Total
$
32,214
Less: Interest
(6,757)
Present Value
of Lease liability
$
25,457
A related party
is the lessor in a land lease
with the Company.
The payments
under the lease
agreement provide
for annual
lease
payments
of approximately $
0.1
million annually through December
2033, and thereafter,
increase by
5
% every
10
years until 2053
at
which time the rent
amount
will adjust based on reappraisal
of the parcel rental value.
The Company
then has
four
successive options
to extend
the lease for
five years
each with rental
increases of
5
% at each
extension.
The aggregate remaining
obligation of the
lease
totaled $
1.9
million at September
30, 2026.
Further, in accordance
with the lease agreement,
the Company
made a
$
0.2
million
payment
in July 2025 to the
lessor as reimbursement
for a portion
of the costs related
to the development
of subject
property to
support the construction
of a new banking
office by the
Company.
29
NOTE 7 - EMPLOYEE
BENEFIT PLANS
The Company
has a defined
benefit pension
plan covering substantially
all full-time and eligible part-time associates
and a
Supplemental
Executive Retirement
Plan (“SERP”) and a
Supplemental
Executive Retirement
Plan II (“SERP II”)
covering its
executive officers.
The defined benefit
plan was amended
in December 2019
to remove plan
eligibility
for new associates
hired after
December 31, 2019.
The SERP II was
adopted
by the Company’s
Board on
May 21, 2020
and covers
certain executive
officers that
were not covered
by the SERP.
The components
of the net periodic
benefit cost for
the Company’s
qualified benefit
pension plan
were as follows:
Three Months Ended
September 30,
Nine Months Ended September
30,
(Dollars in Thousands)
2026
2025
2026
2025
Service Cost
$
833
$
861
$
2,498
$
2,581
Interest Cost
1,531
1,676
4,594
5,029
Expected Return
on Plan Assets
(2,218)
(2,265)
(6,653)
(6,794)
Net Loss Amortization
(474)
(413)
(1,421)
(1,240)
Net Periodic Benefit
Cost
$
(328)
$
(141)
$
(982)
$
(424)
Discount Rate
5.67%
5.82%
5.67%
5.82%
Long-term Rate
of Return on
Assets
6.50%
6.75%
6.50%
6.75%
The components
of the net periodic
benefit cost for
the Company’s
SERP and SERP II were as
follows:
Three Months Ended
September 30,
Nine Months Ended September
30,
(Dollars in Thousands)
2026
2025
2026
2025
Service Cost
$
19
$
11
$
57
$
34
Interest Cost
150
131
450
395
Prior Service Cost Amortization
25
25
76
76
Net Loss Amortization
238
(30)
713
(88)
Net Periodic Benefit
Cost
$
432
$
137
$
1,296
$
417
Discount Rate
5.24%
5.57%
5.24%
5.57%
The service cost component
of net periodic benefit
cost is reflected in compensation
expense in the accompanying
statements
of
income.
The other components
of net periodic cost
are included in “other”
within the noninterest expense
category in the
Consolidated
Statements
of Income.
NOTE 8 - COMMITMENTS
AND CONTINGENCIES
Lending Commitments
.
The Company
is a party to
financial instruments
with off-balance
sheet risks in the normal course
of business
to meet the
financing needs
of its clients.
These financial
instruments consist
of commitments
to extend
credit and standby
letters of
credit.
The Company’s
maximum exposure
to credit loss under standby
letters of credit and
commitments
to extend
credit is represented by
the contractual
amount
of those instruments.
The Company
uses the same
credit policies in establishing commitments
and issuing
letters of credit as
it does for on-balance
sheet instruments.
The amounts
associated
with the Company’s
off-balance
sheet
obligations were as
follows:
September 30, 2026
December 31, 2025
(Dollars in Thousands)
Fixed
Variable
Total
Fixed
Variable
Total
Commitments
to Extend Credit
(1)
$
187,468
$
441,355
$
628,823
$
188,834
$
456,328
$
645,162
Standby
Letters of Credit
7,287
-
7,287
7,828
-
7,828
Total
$
194,755
$
441,355
$
636,110
$
196,662
$
456,328
$
652,990
(1)
Commitments include
unfunded
loans, revolving
lines of credit,
and off-balance
sheet residential
loan commitments.
30
Commitments
to extend
credit are agreements
to lend to a
client so long
as
there is no violation of
any condition
established in the
contract.
Commitments
generally have fixed
expiration dates
or other termination
clauses and
may
require payment
of a fee.
Since
many
of the commitments
are expected
to expire without being drawn
upon, the total
commitment
amounts
do not necessarily
represent future
cash requirements.
Standby
letters of credit are conditional
commitments
issued by the Company
to guarantee
the performance
of a client to a
third
party.
The credit risk involved
in issuing letters of credit
is essentially the
same
as
that involved
in extending loan facilities. In
general, management
does not anticipate any
material losses
as
a result of participating
in these types of
transactions.
However, any
potential losses arising
from such transactions
are reserved for in the
same manner
as
management
reserves for its other credit
facilities.
For both on-
and off-balance
sheet financial
instruments, the
Company
requires collateral to support
such instruments
when it is
deemed necessary.
The Company
evaluates
each client’s creditworthiness
on a case
-by-case basis.
The amount
of collateral
obtained
upon extension
of credit is based on
management’s
credit evaluation
of the counterparty.
Collateral held varies, but
may
include deposits
held in financial
institutions; U.S. Treasury
securities; other marketable
securities; real estate;
accounts
receivable;
property, plant
and equipment;
and inventory.
The
al
lowance for credit losses
for off-balance
sheet credit commitments
that are
not unconditionally
cancellable by
the bank
is
adjusted
as
a provision for credit loss expense
and is recorded in other
liabilities.
The following table
shows the activity
in the
allowance.
Three Months Ended
September
30,
Nine Months Ended September
30,
(Dollars in Thousands)
2026
2025
2026
2025
Beginning Balance
$
2,197
$
1,738
$
2,107
$
2,155
Provision for Credit
Losses
44
357
134
(60)
Ending Balance
$
2,241
$
2,095
$
2,241
$
2,095
Other Commitments.
In the normal
course of business, the
Company
enters into lease commitments
which are classified as operating
leases. See Note 6 – Leases
for additional
information
on the maturity
of the Company’s
operating lease commitments.
The Company
has an
outstanding
commitment
of up to $
1.0
million in a bank tech
venture capital
fund focused
on finding and
funding technology
solutions for community
banks
and a
commitment
of up to $
10.0
million in a solar tax credit equity
fund.
At
September 30, 202
6, the amount remaining
to be funded
for the bank
tech venture
capital and
solar tax credit equity
investment
fund
commitments
was $
0.2
million and $
8.9
million, respectively.
Contingencies
.
The Company
is a party to lawsuits and
claims arising out of the normal
course of business.
In management's
opinion,
there are
no
known pending claims
or litigation, the outcome
of which would, individually or in the
aggregate, have
a material
effect
on the consolidated
results of operations,
financial position,
or cash flows of the
Company.
Indemnification
Obligation
.
The Company
is a member of
the Visa U.S.A. network.
Visa U.S.A member banks
are required to
indemnify the
Visa U.S.A. network
for potential future settlement
of certain litigation (the “Covered
Litigation”) that relates
to several
antitrust lawsuits challenging
the practices of
Visa and
MasterCard
International.
In 2008, the
Company,
as a member
of the Visa
U.S.A. network, obtained
Class B shares of
Visa, Inc. upon
its initial public offering.
Since its initial
public offering, Visa,
Inc. has
funded a
litigation reserve for the Covered
Litigation resulting in a reduction
in the Class B shares held
by the Company.
In 2011,
the
Company
sold its remaining Class B shares
.
Associated with this sale,
the Company
entered into a
swap contract
with the purchaser
of the shares
that requires a
payment
to the counterparty
in the event that
Visa, Inc. makes
subsequent
revisions to the conversion
ratio.
Conversion ratio
payments
and ongoing fixed
quarterly charges
are reflected in earnings in the
period incurred.
Fixed charges
included in the swap
liability are payable
quarterly until the litigation reserve is
fully liquidated
and at
which time the aforementioned
swap contract
will be terminated.
Quarterly fixed payments
are approximately
$
0.1
million.
There was a $
0.1
million counterparty
payment
accrued and
payable
at September
30, 2026
due to a revision to
the share conversion
rate related to
additional
funding by
VISA of the merchant
litigation reserve.
31
NOTE 9 – FAIR
VALUE
MEASUREMENTS
The fair value
of an asset
or liability is the price that would be
received to sell that
asset or paid
to transfer
that liability in an
orderly
transaction
occurring in the principal market
(or most advantageous
market in the
absence of
a principal market)
for such asset
or
liability.
In estimating fair value, the
Company
utilizes valuation techniques
that are consistent
with the market
approach,
the income
approach
and/or the
cost approach.
Such valuation
techniques are
consistently applied.
Inputs to
valuation
techniques include the
assumptions
that market
participants
would use in pricing an asset or liability.
Accounting Standards
Codification
Topic 820
establishes a fair
value hierarchy
for valuation
inputs that
gives the highest priority to quoted
prices in active markets
for identical
assets or liabilities
and the
lowest priority to unobservable
inputs.
The fair value
hierarchy is as follows:
●
Level 1 Inputs -
Unadjusted
quoted prices in active
markets for
identical assets or liabilities that
the reporting entity has
the
ability to access
at the measurement
date
.
●
Level 2 Inputs -
Inputs other than
quoted prices included
in Level 1 that are
observable for
the asset or liability, either directly
or indirectly. These
might include quoted
prices for similar assets
or liabilities in active markets,
quoted prices for
identical
or similar assets or
liabilities in markets that
are not active, inputs other
than quoted
prices that are observable
for the asset
or
liability (such as
interest rates, volatilities,
prepayment
speeds, credit risks, etc.) or inputs that
are derived principally
from, or
corroborated,
by market
data
by correlation or other
means
.
●
Level 3 Inputs -
Unobservable inputs
for determining the fair
values of
assets or liabilities that
reflect an entity’s
own
assumptions
about
the assumptions
that market
participants
would use in pricing the assets or liabilities.
Assets and Liabilities
Measured at Fair Value
on a Recurring
Basis
Securities Available for Sale.
U.S. Treasury securities are reported
at fair value
utilizing Level 1 inputs.
Other securities
classified as
available for sale are
reported at fair value
utilizing Level 2 inputs.
For these securities,
the Company
obtains fair value measurements
from an
independent
pricing service.
The fair value
measurements
consider observable
data
that may
include dealer quotes,
market
spreads, cash
flows, the U.S. Treasury
yield curve, live trading levels,
trade execution
data,
credit information
and the
bond’s terms
and conditions,
among other
things.
In general, the Company
does not purchase
securities that have
a complicated
structure.
The Company’s
entire portfolio consists
of
traditional investments,
nearly all of which are
U.S. Treasury obligations,
federal agency
bullet or mortgage pass
-through securities, or
general obligation or revenue
-based municipal bonds.
Pricing for such
instruments is easily obtained.
At least annually,
the Company
will validate prices
supplied by the independent
pricing service by compari
ng them to prices obtained
from an independent
third-party
source.
Loans Held for Sale
.
The fair value
of residential mortgage
loans held for sale
based on
Level 2 inputs is determined,
when possible,
using either quoted
secondary
-market prices or investor
commitments.
If no such
quoted price exists, the
fair value is determined
using quoted
prices for a similar asset
or assets, adjusted
for the specific attributes
of that
loan, which would be used
by other market
participants.
The Company
has elected the
fair value option
accounting
for its held for sale loans.
Mortgage Banking
Derivative Instruments.
The fair values
of interest rate
lock commitments
(“IRLCs”) are derived by
valuation
models incorporating
market pricing for
instruments with similar characteristics,
commonly
referred to as best
execution pricing, or
investor commitment
prices for best effort
IRLCs which have
unobservable
inputs, such as an
estimate of
the fair value
of the
servicing rights expected
to be recorded upon
sale of the loans,
net estimated
costs to originate the
loans, and
the pull-through rate,
and are
therefore classified as
Level 3 within the fair value
hierarchy.
The fair value
of forward sale
commitments
is based on
observable market
pricing for similar instruments and
are therefore
classified
as
Level 2 within the fair value
hierarchy.
Interest Rate Swap.
The Company’s
derivative positions
are classified
as
Level 2 within the fair value
hierarchy and
are valued
using
models generally
accepted
in the financial
services industry and
that use
actively quoted
or observable market
input values from
external market
data
providers.
The fair value
derivatives are
determined using discounted
cash flow models.
Fair Value
Swap
.
The Company
entered into a
stand-alone
derivative contract
with the purchaser
of its Visa Class B shares.
The
valuation
represents the amount
due and
payable
to the counterparty
based upon
the revised share conversion
rate, if any,
during the
period. The Company’s
derivative positions
are classified
as
Level 2 within the fair value
hierarchy and
use actively quoted
or
observable market
input values from external
market data
providers.
There was a $
0.1
million and $
0.2
million counterparty
payment
accrued and
payable
at
September 30,
2026 and
December 31, 202
5, respectively.
32
A summary
of fair values
for assets and
liabilities recorded at fair value
on a recurring basis consisted
of the following:
Level 1
Level 2
Level 3
Total Fair
(Dollars in Thousands)
Inputs
Inputs
Inputs
Value
September 30, 2026
ASSETS:
Securities Available
for Sale:
U.S. Government
Treasury
$
594,343
$
-
$
-
$
594,343
U.S. Government
Agency
-
160,311
-
160,311
States and
Political Subdivisions
-
32,575
-
32,575
Mortgage-Backed
Securities
-
44,329
-
44,329
Corporate
Debt Securities
-
30,539
-
30,539
Loans Held for
Sale
-
23,455
-
23,455
Forward Sales Contracts
-
397
-
397
Residential Mortgage
Loan Commitments
("IRLCs")
-
-
474
474
December 31, 2025
ASSETS:
Securities Available
for Sale:
U.S. Government
Treasury
$
333,264
$
-
$
-
$
333,264
U.S. Government
Agency
-
172,114
-
172,114
States and
Political Subdivisions
-
34,911
-
34,911
Mortgage-Backed
Securities
-
52,004
-
52,004
Corporate
Debt Securities
-
43,532
-
43,532
Equity Securities
-
-
2,069
2,069
Loans Held for
Sale
-
21,695
-
21,695
Residential Mortgage
Loan Commitments
("IRLCs")
-
-
464
464
LIABILITIES:
Forward Sales Contracts
-
84
-
84
Mortgage Banking Activities
.
The Company
had Level 3 issuances and
transfers related to
mortgage banking
activities of $
5.9
million
and $
12.1
million, respectively, for the
nine months
ended September
30, 2026, and
$
6.1
million and $
13.0
million, respectively, for
the nine months
ended September
30, 2025.
Issuances
are valued
based on
the change
in fair value of
the underlying mortgage
loan
from inception
of the IRLC
to the Consolidated
Statement
of Financial Condition
date,
adjusted
for pull-through rates
and costs
to
originate.
IRLCs transferred
out of Level 3 represent
IRLCs that
were funded and
moved to
mortgage loans
held for sale, at fair
value.
Assets Measured at
Fair Value on
a Non-Recurring
Basis
Certain assets
are measured
at fair value
on a non
-recurring basis (i.e., the assets are not measured
at fair value
on an ongoing basis
but are subject
to fair value
adjustments
in certain circumstances).
An example would
be assets exhibiting evidence
of impairment.
The following is
a description of
valuation
methodologies used
for assets measured
on a non
-recurring basis.
Collateral Dependent Loans
.
Impairment
for collateral dependent
loans is measured
using the fair value
of the collateral
less selling
costs.
The fair value
of collateral is determined
by an independent
valuation
or professional appraisal
in conformance
with banking
regulations.
Collateral values
are estimated
using Level 3 inputs due to the
volatility in the real estate
market, and
the judgment
and
estimation involved
in the real estate
appraisal
process.
Collateral dependent
loans are reviewed and
evaluated
on at least
a quarterly
basis for additional
impairment
and adjusted
accordingly.
Valuation
techniques are
consistent with those
techniques applied
in prior
periods.
Collateral-dependent
loans had
a carrying value
of $
14.7
million with valuation allowance
of $
1.0
million at September
30,
2026 and
a carrying value
of $
6.4
million and a $
0.1
million valuation allowance
at December
31, 2025.
33
Other Real Estate Owned
.
During the first nine
months of 2026, certain
foreclosed assets, upon
initial recognition, were measured
and
reported at
fair value through
a charge-off
to the allowance
for credit losses based
on the fair value
of the foreclosed
asset less
estimated
cost to sell.
The fair value
of the foreclosed
asset is determined
by an independent
valuation
or professional appraisal
in
conformance
with banking regulations.
On an ongoing basis, we obtain
updated
appraisals
on foreclosed assets
and realize valuation
adjustments
as necessary.
The fair value
of foreclosed assets
is estimated using Level 3 inputs
due to the judgment
and estimation
involved in the
real estate valuation
process.
Mortgage Servicing Rights
.
Residential mortgage
loan servicing rights are evaluated
for impairment
at each
reporting period based
upon the fair
value of the
rights as compared
to the carrying amount.
Fair value is determined
by a third party
valuation
model using
estimated
prepayment
speeds of the
underlying mortgage loans
serviced and stratifications
based on
the risk characteristics of
the
underlying loans
(predominantly
loan type
and note
interest rate).
The fair value
is estimated using Level 3 inputs,
including
a
discount rate,
weighted average prepayment
speed, and
the cost of loan
servicing.
Further detail on the
key inputs utilized are
provided in Note 4
– Mortgage Banking
Activities.
At each
of September
30, 2026 and
December 31, 2025,
there was
no
valuation
allowance for loan
servicing rights.
Assets and Liabilities
Disclosed at Fair Value
The Company
is required to disclose the estimated
fair value of
financial instruments,
both assets
and liabilities, for which it is
practical to estimate
fair value and
the following is a description of valuation
methodologies used
for those assets
and liabilities.
Cash and Short-Term
Investments.
The carrying amount
of cash and
short-term investments
is used to approximate
fair value, given
the short time frame
to maturity
and as
such assets do
not present unanticipated
credit concerns.
Securities Held to Maturity
.
Securities held to maturity
are valued
in accordance
with the methodology
previously noted
in the
caption “Assets and
Liabilities Measured at
Fair Value on
a Recurring Basis – Securities Available
for Sale.”
Loans.
The loan portfolio
is segregated into categories
and the
fair value of
each loan
category is calculated
using present value
techniques based
upon projected
cash flows and
estimated
discount rates.
The values reported
reflect the incorporation
of a liquidity
discount to meet
the objective
of “exit price” valuation.
Deposits.
The fair value
of Noninterest Bearing Deposits,
NOW Accounts, Money
Market Accounts
and Savings Accounts
are the
amounts
payable
on demand
at the reporting date.
The fair value
of fixed maturity
certificates of deposit
is estimated using present
value techniques
and rates
currently offered
for deposits of similar remaining
maturities.
Subordinated Notes Payable.
The fair value
of each
note is calculated
using present value techniques,
based upon
projected cash
flows and
estimated
discount rates
as well as rates being offered
for similar obligations.
Short-Term
and Long-Term
Borrowings.
The fair value
of each
note is calculated
using present value techniques,
based upon
projected cash
flows and estimated
discount rates
as well as rates being offered
for similar debt.
A summary
of estimated
fair values of
significant financial
instruments not
recorded at fair
value consisted
of the following:
September 30, 2026
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
71,617
$
71,617
$
-
$
-
Fed Funds Sold and
Interest Bearing Deposits
340,015
340,015
-
-
Investment
Securities, Held to Maturity
315,142
-
293,832
-
Mortgage Servicing
Rights
908
-
-
1,534
Loans, Net of Allowance
for Credit Losses
2,459,355
-
-
2,321,370
LIABILITIES:
Deposits
$
3,666,568
$
-
$
3,665,513
$
-
Short-Term Borrowings
38,881
-
38,881
-
Subordinated
Notes Payable
33,303
-
31,339
-
Long-Term
Borrowings
567
-
567
-
34
December 31, 2025
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
62,189
$
62,189
$
-
$
-
Fed Funds Sold and
Interest Bearing Deposits
467,782
467,782
-
-
Investment
Securities, Held to Maturity
377,446
129,268
240,052
-
Other Equity Securities
2,848
-
2,848
-
Mortgage Servicing
Rights
924
-
-
1,359
Loans, Net of Allowance
for Credit Losses
2,515,117
-
-
2,416,937
LIABILITIES:
Deposits
$
3,662,312
$
-
$
3,662,466
$
-
Short-Term Borrowings
50,092
-
50,092
-
Subordinated
Notes Payable
42,582
-
40,116
-
Long-Term
Borrowings
680
-
680
-
All non-financial
instruments are
excluded from
the above
table.
The disclosures also do not
include goodwill.
Accordingly, the
aggregate fair value
amounts
presented do
not represent the
underlying value of
the Company.
35
NOTE 10 – ACCUMULATED
OTHER COMPREHENSIVE
INCOME (LOSS)
The amounts
allocated
to accumulated
other comprehensive
income (loss) are presented
in the table below.
Accumulated
Securities
Other
Available
Interest Rate
Retirement
Comprehensive
(Dollars in Thousands)
for Sale
Swap
Plans
Income (Loss)
Balance as of
January 1, 2026
$
(9,530)
$
2,676
$
9,441
$
2,587
Other comprehensive
loss during the period
(13,575)
(448)
-
(14,023)
Balance as of
September 30, 2026
$
(23,105)
$
2,228
$
9,441
$
(11,436)
Balance as of
January 1, 2025
$
(20,179)
$
3,971
$
9,722
$
(6,486)
Other comprehensive
income (loss) during the
period
8,783
(1,076)
-
7,707
Balance as of
September 30, 2025
$
(11,396)
$
2,895
$
9,722
$
1,221
NOTE 11 -
SEGMENT REPORTING
The Company
operates a
single reportable business segment
that is comprised
of commercial
banking within the states
of Florida,
Georgia, and
Alabama.
The Company’s
chief executive
officer is deemed
the Chief Operating Decision Maker
(“CODM”). The
CODM evaluates
the financial performance
of the Company
by evaluating revenue streams,
significant expenses, and
budget to actual
results in assessing
the Company’s
single reporting segment and
in the determination
of allocating resources.
The CODM uses
consolidated
net income to
benchmark
the Company
against peers and
to evaluate
performance
and allocate
resources.
Significant
revenue and expense
categories evaluated
by the CODM are consistent with the
presentation of the
Consolidated Statement
of Income
and components
of other noninterest
expense.
36
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 third 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.
37
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)
Third
Second
First
Fourth
Third
Shareowners' Equity (GAAP)
$
573,862
$
570,095
$
559,912
$
552,851
$
540,635
Less: Goodwill and Other Intangibles (GAAP)
89,095
89,095
89,095
89,095
89,095
Tangible Shareowners' Equity (non-GAAP)
A
484,767
481,000
470,817
463,756
451,540
Total Assets (GAAP)
4,396,752
4,450,483
4,453,734
4,385,765
4,323,774
Less: Goodwill and Other Intangibles (GAAP)
89,095
89,095
89,095
89,095
89,095
Tangible Assets (non-GAAP)
B
$
4,307,657
$
4,361,388
$
4,364,639
$
4,296,670
$
4,234,679
Tangible Common Equity Ratio (non-GAAP)
A/B
11.25%
11.03%
10.79%
10.79%
10.66%
Actual Diluted Shares Outstanding (GAAP)
C
17,152,603
17,135,824
17,114,954
17,154,586
17,115,336
Tangible Book Value per Diluted Share (non-GAAP)
A/C
28.26
28.07
27.51
27.03
26.38
38
SELECTED QUARTERLY
FINANCIAL DATA
(UNAUDITED)
2026
2025
(Dollars in Thousands, Except Per Share Data)
Third
Second
First
Fourth
Third
Summary of Operations
:
Interest Income
$
52,486
$
51,838
$
51,020
$
51,715
$
51,431
Interest Expense
7,476
7,640
8,203
8,355
7,874
Net Interest Income
45,010
44,198
42,817
43,360
43,557
Provision for Credit Losses
(80)
919
712
1,995
1,881
Net Interest Income After
Provision for Credit Losses
45,090
43,279
42,105
41,365
41,676
Noninterest Income
19,384
20,599
19,933
20,103
22,331
Noninterest Expense
42,295
42,640
41,373
42,867
42,916
Income Before Income Taxes
22,179
21,238
20,665
18,601
21,091
Income Tax Expense
5,239
4,961
4,848
4,896
5,141
Net Income
16,940
16,277
15,817
13,705
15,950
Net Interest Income (FTE)
(1)
45,059
44,241
42,857
43,404
43,602
Per Common Share
:
Net Income Basic
$
0.99
$
0.95
$
0.92
$
0.80
$
0.93
Net Income Diluted
0.99
0.95
0.92
0.80
0.93
Cash Dividends Declared
0.27
0.27
0.27
0.26
0.26
Diluted Book Value
33.46
33.27
32.71
32.23
31.59
Diluted Tangible Book Value
(2)
28.26
28.07
27.51
27.03
26.38
Market Price:
High
53.60
51.04
46.83
45.63
44.69
Low
47.63
42.79
39.26
38.27
38.00
Close
48.33
49.42
43.46
42.57
41.79
Selected Average Balances
:
Investment Securities
$
1,177,883
$
1,167,321
$
1,119,125
$
1,006,040
$
993,880
Loans Held for Investment
2,495,535
2,505,875
2,538,318
2,568,073
2,606,213
Earning Assets
4,038,273
4,068,827
4,089,838
4,035,910
3,981,530
Total Assets
4,386,496
4,407,371
4,418,904
4,367,036
4,317,951
Deposits
3,647,526
3,678,776
3,691,016
3,647,510
3,612,331
Shareowners’ Equity
575,766
573,839
567,663
556,100
542,216
Common Equivalent Average Shares:
Basic
17,113
17,101
17,129
17,070
17,068
Diluted
17,152
17,126
17,146
17,140
17,114
Performance Ratios:
Return on Average Assets (annualized)
1.53
%
1.48
%
1.45
%
1.25
%
1.47
%
Return on Average Equity (annualized)
11.67
11.38
11.30
9.78
11.67
Net Interest Margin (FTE)
4.42
4.35
4.24
4.26
4.34
Noninterest Income as % of Operating Revenue
30.10
31.79
31.77
31.68
33.89
Efficiency Ratio
65.63
65.76
65.89
67.50
65.09
Asset Quality:
Allowance for Credit Losses (“ACL”)
$
30,369
$
31,007
$
30,999
$
31,001
$
30,202
Nonperforming Assets (“NPAs”)
9,708
13,435
12,965
10,531
10,026
ACL to Loans HFI
1.22
%
1.24
%
1.23
%
1.22
%
1.17
%
NPAs to Total Assets
0.22
0.30
0.29
0.24
0.23
NPAs to Loans HFI plus OREO
0.39
0.54
0.51
0.41
0.39
ACL to Non-Performing Loans
412.92
309.72
278.19
360.69
368.54
Net Charge-Offs to Average Loans HFI
0.08
0.14
0.10
0.18
0.18
Capital Ratios:
Tier 1 Capital
21.74
%
21.10
%
20.37
%
20.20
%
19.33
%
Total Capital
22.99
22.35
21.62
21.45
20.59
Common Equity Tier 1
20.43
19.80
19.08
18.56
17.73
Leverage
12.31
11.96
11.65
11.77
11.64
Tangible Common Equity
(2)
11.25
11.03
10.79
10.79
10.66
(1)
Fully Tax
Equivalent.
(2)
Non-GAAP financial measure.
See non-GAAP reconciliation on page 37.
39
FINANCIAL OVERVIEW
Results of Operations
Performance Summary.
Net income of
$16.9
million, or $0.99
per diluted share, for the
third quarter of
2026 compared
to $16.3
million, or $0.
95 per diluted share, for the
second quarter
of 2026, and
$16.0 million, or $0.93 per diluted share,
for the third quarter
of
2025. For the first
nine months
of 2026, net
income totaled
$49.0 million, or $2.86 per diluted
share, compared
to net income
of $47.9
million, or $2.80
per diluted share, for the
same period of
2025.
Net Interest Income.
Tax
-equivalent net
interest income for
the third quarter
of 2026
totaled $45.1
million, compared to
$44.2 million
for the second
quarter of
2026, and
$43.6 million for the third quarter
of 2025. Compared
to the second
quarter of
2026, the increase
was primarily attributable
to higher income from
investment
securities and loan
interest, in addition to
lower deposit interest expense,
partially offset
by lower overnight funds
income due to
lower average balances.
The increase over the
third quarter of
2025 was also
driven by the same
aforementioned
factors. One additional
calendar
day also
contributed to
the increase over
the second quarter
of
2026.
For the first nine months
of 2026, tax
-equivalent net
interest income totaled
$132.2
million compared
to $128.4 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 benefit for
credit losses of $0.1 million for the
third quarter of
2026, compared
to a provision expense
of $0.9 million for the second
quarter of
2026 and
$1.9 million for the third quarter
of 2025.
For the first nine
months of
2026, we recorded a
provision expense for
credit losses of $1.6 million compared
to $3.3 million for the
same period of
2025. At September
30, 2026, the
allowance for credit
losses for loans HFI totaled
$30.4 million (1.22% of
loans HFI)
compared
to $31.0 million (1.24% of
loans HFI) at
June 30, 2026
and $31.0
million at December 31, 202
5
(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 third quarter
of 2026
totaled $19.4
million, a $1.2 million, or 5.9%, decrease from
the
second quarter of 2026
and a $2.9 million,
or 13.2%, decrease
from the third quarter of 2025.
The decrease from
the second quarter
of
2026 was primarily attributable
to decreases in mortgage
banking revenues
of $1.0 million, deposit fees
of $0.5 million and
other
income of $0.2
million partially offset
by a $0.5
million increase in wealth management
fees. The decrease
from the third quarter
of
2025 was driven
by decreases
in mortgage banking
revenues of $1.1
million, deposit fees of $0.7
million, other income of $0.7
million
and wealth management
fees of $0.5 million, partially offset
by an increase
in bank card
fees of $0.1
million. For the first nine months
of 2026, noninterest
income totaled
$59.9 million, a $2.3 million, or 3.8%, decrease
from the same
period of 2025,
primarily
attributable
to decreases in wealth
management
fees of $3.3
million,
partially offset
by increases in other income
of $0.7 million and
bank card
fees of $0.3
million.
Noninterest Expense.
Noninterest expense
for the third quarter
of 2026
totaled $42.3
million, a $0.3 million, or 0.8%, decrease from
the second quarter of
2026 and a
$0.6 million, or 1.4%, decrease from
the third quarter
of 2025. The
decrease from
the second
quarter
of 2026
was primarily attributable
to decreases in compensation
expense of
$0.2 million and other
expense of
$0.1 million. The
decrease from the third
quarter of 2025 reflected
decreases in compensation
expense of
$0.4 million and other
expense of
$0.4 million
offset by
a $0.3
million increase in occupancy
expense. For the first nine months
of 2026, noninterest
expense totaled
$126.3 million,
a $2.2 million, or
1.7%, increase over the
same period of 2025
and reflected
increases in other expense
of $3.0 million and
occupancy
expense of
$0.8 million partially offset
by a decrease
in compensation
expense of
$1.6 million. The increase in other
expense was
primarily due to
a $3.9 million increase in
ORE expense,
reflecting lower gains on
property sales compared
to the prior year period,
which included a
significant gain from
the sale of our
operations center
building in the first quarter
of 2025.
Financial Condition
Earning Assets.
Average
earning assets totaled
$4.038 billion for the third quarter
of 2026, a
decrease of
$30.6 million, or 0.8%, from
the second quarter
of 2026, and
an increase of
$2.4 million, or 0.1% over the fourth
quarter of
2025. Compared
to the second
quarter
of 2026, the
change in earning asset
mix reflected a
$27.2 million decrease
in overnight funds
,
a $
10.3 million decrease in loans
held
for investment
,
and a
$3.5 million decrease in loans
held for sale (“HFS”),
partially offset
by a $10.5
million increase in investment
securities. Compared
to the fourth
quarter of
2025, the change
reflected a $171.8
million increase in investment
securities and a $2.7
million increase in
loans HFS, partially offset
by a $99.7
million decrease in overnight funds
and a
$72.5 million decrease
in loans
held for investment.
Loans.
Average
loans HFI decreased
by $10.3 million, or 0.4%, from
the second quarter
of 2026, and
decreased by
$72.5 million, or
2.8%, from the
fourth quarter
of 2025. Loans
HFI at September
30, 2026, decreased
by $10.1 million, or 0.4%, from
June 30, 2026,
and decreased
by $56.4 million, or 2.2%, from
December 31, 2025.
40
Credit Quality
. Nonperforming assets
(nonaccrual loans
and other real estate) totaled
$9.7 million at September
30, 2026 compared
to
$13.4 million at June
30, 2026
and $10.5 million
at December 31, 2025.
At September 30, 2026,
nonperforming assets
as a percentage
of total assets
was 0.22%, compared
to 0.30% at
June 30, 2026
and 0.24%
at December
31, 2025. Nonaccrual
loans totaled
$7.4
million at September
30, 2026, a
$2.7 million decrease from
June 30, 2026
and a
$1.2 million decrease from
December 31, 2025.
Other real estate
totaled $2.4
million at September
30, 2026,
a $1.1
million decrease from
June 30, 2026,
and a
$0.4 million increase
over December 31, 2025.
Further, classified loans
totaled $20.8
million at September
30, 2026, a
$9.0 million decrease from
June 30,
2026, and
a $6.5 million increase over
December 31, 2025.
Deposits
. Average total
deposits were $3.648 billion for the
third quarter of
2026, a decrease
of $31.2 million, or 0.9%, from
the
second quarter
of 2026, and
comparable
to the fourth
quarter of
2025. At September
30, 2026, total
deposits were $3.667
billion, a
decrease of
$54.4 million, or 1.5%, from
June 30, 2026, and
an increase
of $4.3 million, or 0.1%, over December
31, 2025. Total
public funds
balances
were $503.2 million at September
30, 2026, $561.5
million at June 30, 202
6, and $654.7
million at December
31, 2025.
Capital
. At September 30, 2026,
we were “well-capitalized”
with a total
risk-based capital
ratio of 22.99%
and a
tangible common
equity ratio (a non-GAAP
financial measure) of
11.25% compared
to 22.35%
and 11.03%,
respectively,
at
June 30, 2026,
and 21.45
%
and 10.79
%, respectively,
at
December 31, 2025.
At September 30, 2026,
all of our regulatory capital
ratios exceeded
the threshold to
be “well-capitalized”
under the Basel
III capital
standards.
RESULTS
OF OPERATIONS
The following table
provides a condensed
summary of our results
of operations -
a discussion of the various
components
are discussed
in further detail
below.
Three Months Ended
Nine Months Ended
September 30,
June 30,
September 30,
September 30,
September 30,
(Dollars in Thousands,
except per share
data)
2026
2026
2025
2026
2025
Interest Income
$
52,486
$
51,838
$
51,431
$
155,344
$
152,672
Taxable
Equivalent Adjustments
49
43
45
132
133
Total Interest
Income
(FTE)
52,535
51,881
51,476
155,476
152,805
Interest Expense
7,476
7,640
7,874
23,319
24,384
Net Interest Income
(FTE)
45,059
44,241
43,602
132,157
128,421
Provision for Credit Losses
(80)
919
1,881
1,551
3,269
Taxable
Equivalent Adjustments
49
43
45
132
133
Net Interest Income
After Provision for Credit Losses
45,090
43,279
41,676
130,474
125,019
Noninterest Income
19,384
20,599
22,331
59,916
62,252
Noninterest Expense
42,295
42,640
42,916
126,308
124,155
Income
Before Income
Taxes
22,179
21,238
21,091
64,082
63,116
Income
Tax Expense
5,239
4,961
5,141
15,048
15,264
Net Income
Attributable to Common
Shareowners
$
16,940
$
16,277
$
15,950
$
49,034
$
47,852
Basic Net Income
Per Share
$
0.99
$
0.95
$
0.93
$
2.87
$
2.81
Diluted Net Income Per Share
$
0.99
$
0.95
$
0.93
$
2.86
$
2.80
41
Net Interest Income
Net interest income
represents our single
largest source of earnings
and is equal to interest
income and fees
generated by
earning assets
less interest expense
paid on interest bearing
liabilities.
This information
is provided on a “taxable
equivalent”
basis to reflect the
tax-
exempt status
of income earned
on certain loans
and state
and local government
debt obligations.
We provide an
analysis of
our net
interest income
including average
yields and rates
in Table I, “Average
Balances
& Interest Rates,”
on page 51.
Tax
-equivalent net interest income
for the third quarter of
2026 totaled $45.1
million, compared to
$44.2 million for the second
quarter
of 2026, and
$43.6 million for the third quarter
of 2025. Compared
to the second
quarter of
2026, the increase
was primarily
attributable
to higher income from
investment
securities and loan
interest income, in addition
to lower deposit interest expense,
partially offset
by lower overnight funds
income due to
lower average balances.
The increase in investment
securities income reflected
new investment
purchases at
higher rates and
higher balances as
we deploy additional
liquidity into the investment
security portfolio.
The decrease in deposit
interest expense was
primarily driven by lower
average balances
on seasonal
public funds accounts
and
lower
rates on time deposits.
One additional calendar
day also
contributed to
the increase over
the second quarter
of 2026. The
increase over
the third quarter
of 2025
was also driven by the
same aforementioned
factors.
For the first nine
months of
2026, tax
-equivalent net
interest income totaled
$132.2 million compared
to $128.4 million for the
same
period of 2025.
The increase was primarily attributable
to higher investment
securities income and
lower deposit interest expense,
partially offset
by lower loan interest income
and overnight
funds income.
New investment purchases
at higher yields and higher
balances
drove the increase
in investment securities income.
The decrease in deposit
interest expense was
primarily attributable
to
lower rates across
several product
lines. Lower average loan
balances
contributed to
the decrease
in loan interest income,
while the
decrease in overnight funds
income reflected
the deployment
of more liquidity into the
investment
portfolio as well as a lower average
overnight funds
rate.
Our net interest margin
for the third quarter
of 2026
was 4.42%, an
increase of seven
basis points over the
second quarter
of 2026
and
an increase of
eight basis points over the
third quarter of
2025. For the first nine months
of 2026, our
net interest margin
increased by
six basis points to
4.34% compared
to the same
period of 2025.
The increase in net interest
margin over all prior periods was
largely
attributable
to higher investment
security yield driven by new purchases
at higher rates and
lower deposit costs. For the
third quarter of
2026, our cost
of funds
was 73 basis points,
a decrease
of two basis points
from the second
quarter of
2026 and
five basis points
from
the third quarter
of 2025. Our cost
of deposits (including noninterest
bearing accounts)
was 74 basis points,
76 basis points,
and 80
basis points, respectively,
for the same
periods.
Provision for
Credit Losses
We recorded
a provision benefit for
credit losses of $0.1
million for the third
quarter of 2026, compared
to a provision expense
of $0.9
million for the second
quarter of
2026 and
$1.9 million for the third quarter
of 2025. For the
first nine months of
2026, we recorded
a
provision expense
for credit losses of $1.
6
million compared
to $3.3 million for the same
period of 2025.
For the first nine months
of
2026, the provision
reflected a $1.4
million expense for loans
HFI and
a $0.1
million expense for unfunded
loan commitments
compared
to a $3.4
million expense for loans
HFI and
a
$0.1 million benefit for unfunded
loan commitments
for the same
period
of
2025. We discuss
the various factors
that impacted
our provision expense
in further detail below under
the heading Allowance
for
Credit Losses.
Noninterest Income
Noninterest income
for the third quarter
of 2026
totaled $19.4
million, a $1.2 million, or 5.9%, decrease from
the second quarter
of
2026 and
a $2.9 million, or 13.2%, decrease
from the third quarter
of 2025. The
decrease from
the second quarter
of 2026
was
attributable
to decreases in mortgage
banking revenues
of $1.0 million, deposit fees
of $0.5 million and
other income of
$0.2 million
partially offset
by a $0.5
million increase in wealth management
fees. The decrease
in mortgage banking
revenues was primarily
due
to lower production
volume and
the decrease
in deposit fees reflected
lower overdraft fees
attributable
to processing changes
that
better align with industry
practices. The increase
in wealth management
fees was primarily due
to higher retail brokerage fee
s.
The decrease from
the third quarter
of 2025
was driven by decreases
in mortgage banking
revenues of $1.1
million, deposit fees of
$0.7 million, other
income of $0.7
million and wealth management
fees of $0.5
million, partially offset
by an increase
in bank
card
fees of $0.1
million. The decrease in mortgage
banking revenues
was due to lower production
volume and
gain on sale margin. The
decrease in deposit
fees reflected lower overdraft
fees. The decrease
in other income reflected
a $0.7 million gain from
the sale of
our
insurance subsidiary
in the third quarter of
2025 – the
advisors at
this subsidiary also serviced retail brokerage
clients which drove the
decline in wealth
management
fees.
42
For the first nine
months of
2026, noninterest
income totaled
$59.9 million, a $2.3 million, or 3.8%, decrease
from the same
period of
2025, attributable
to decreases in wealth
management
fees of $3.3
million partially offset
by increases in other income
of $0.7
million
and bank card
fees of $0.3 million. The decrease
in wealth management
fees was attributable
to decreases in retail brokerage
fees (due
to lower assets under
management)
and lower insurance
commissions (attributable
to the aforementioned
sale of our insurance
subsidiary). The increase
in other income
was primarily attributable
to increases in other fees/commissions
of $0.3 million and
bank
owned life insurance
income of $0.2
million. The increase in bank
card fees reflected
higher card volume.
Noninterest income
represented 30.1%
of operating revenues
(net interest income plus
noninterest income)
for the third quarter
of
2026 compared
to 31.8% for the
second quarter
of 2026
and 33.9%
for the third quarter
of 2025. For the
first nine months
of 2026,
noninterest income
represented 31.2%
of operating revenues
compared
to 32.7%
for the same
period of 2025.
The table below reflects
the major
components
of noninterest
income.
Three Months
Ended
Nine Months Ended
September 30,
June 30,
September 30,
September 30,
September 30,
(Dollars in Thousands)
2026
2026
2025
2026
2025
Deposit Fees
$
5,168
$
5,656
$
5,877
$
16,422
$
16,258
Bank Card
Fees
3,830
3,858
3,733
11,318
11,021
Wealth Management
Fees
4,640
4,185
5,173
12,876
16,142
Mortgage Banking
Revenues
3,673
4,660
4,794
12,585
12,804
Other
2,073
2,240
2,754
6,715
6,027
Total Noninterest
Income
$
19,384
$
20,599
$
22,331
$
59,916
$
62,252
Significant components
of noninterest
income are discussed
in more detail below.
Deposit Fees
. Deposit fees for
the third quarter
of 2026
totaled $5.
2
million, a decrease of
$0.5 million, or 8.6%, from the second
quarter of
2026, and
a decrease
of $0.7 million,
or 12.1%, from the
third quarter of
2025. For the first nine months
of 2026, deposit
fees totaled $16.4
million, a $0.2 million,
or 1.0%, increase over
the same period of 202
5. Compared to the second
quarter of 2026 and
third quarter
of 2025, the
decreases reflected
lower overdraft fees
attributable
to processing changes
that better
align with industry
practices. Compared
to the first nine months
of 2025, the
increase was primarily due
to higher service charge fees and
commercial
account
analysis fees.
Bank Card Fees
. Bank card fees for the third
quarter of 202
6
totaled $3.8
million,
a
decrease of
$0.1 million,
or 0.7%, from the
second
quarter of
2026, and
an increase of
$0.1 million, or 2.6%, over the third quarter
of 2025. For the first nine
months of
2026, bank
card
fees totaled
$11.3 million, a $0.
3
million, or 2.7% increase
over the same
period of 2025. The
increase over the
first nine months of
2025 reflected
higher card volume.
Wealth
Management
Fees
. Wealth management
fees include trust fees
through Capital
City Trust (i.e., managed
accounts
and
trusts/estates),
and retail brokerage
fees through Capital
City Investments
(i.e., investment, insurance
products, and
retirement
accounts)
.
Wealth management
fees for the third
quarter of
2026
totaled $4.6
million, an increase of $0.
5
million, or 10.9%, over the
second quarter of 202
6
and a $0.5 million,
or 10.3%, decrease from
the third quarter of 2025.
For the first nine months
of 2026, wealth
management
fees totaled $12.9 million, a
decrease of $3.3 million,
or 20.2%, from the
same period of 2025. The
increase compared
to
the second quarter
of 2026
was driven by higher retail brokerage
fees. The decrease
compared
to the prior year periods
was primarily
attributable
to a decrease
in retail brokerage assets
under management.
Further, to a lesser extent,
lower insurance commissions
contributed to
the decrease
s
and reflected
the sale of our
insurance subsidiary
in the third quarter of
2025. At September
30, 2026,
total assets
under management
were approximately
$2.892 billion compared
to $2.839
billion at June 30, 2026
and $3.
244 billion at
September 30,
2025. The increase
over June 30, 2026
reflected higher account
valuations
.
Compared
to September
30, 2025, the
decline was due
to lower retail brokerage
assets partially
attributable
to the sale of
our insurance subsidiary
in the third quarter
of
2025.
Mortgage Banking Revenues.
Mortgage banking revenues
totaled $3.7 million
for the third quarter
of 2026, a
decrease
of
$1.0 million,
or 21.2%, from
the second quarter
of 2026
and a
decrease
of
$1.1 million, or 23.4%, from the
third quarter of
2025. For the first nine
months of 2026,
mortgage banking
revenues totaled
$12.6 million,
a decrease
of $0.2 million, or 1.7%, from the
same period of
2025.
Compared
to the second
quarter of
2026, the decrease
was attributable
to lower production volume.
The decrease compared
to the
prior year periods was
due to lower production
volume and
gain on sale margin.
We provide a
detailed overview of
our mortgage
banking operation,
including a detailed break
-down of mortgage
banking revenues,
mortgage servicing activity,
and warehouse
funding within Note
4 – Mortgage Banking
Activities in the Notes to
Consolidated
Financial Statements.
43
Other
. Other income totaled
$2.1 million for the third quarter
of 2026, a
decrease
of
$0.2 million, or 7.5%, from the second
quarter of
2026, and a decrease
of $0.7 million, or 24.7%, from
the third quarter of
2025. For the first nine months
of 2026, other
income totaled
$6.7 million,
an increase of $0.7
million, or 11.4
%, over the same period
of 2025. Compared
to the third quarter
of 2025,
the decrease
was due to the
aforementioned
$0.7 million gain from the
sale of our insurance
subsidiary in the third quarter
of 2025.
The increase
over the first nine
months of
2025 was primarily
attributable
to increases in other fees/commissions
of $0.3 million and
bank owned
life insurance income
of $0.2 million.
Noninterest Expense
Noninterest expense
for the third quarter
of 2026
totaled $42.3
million, a $0.3 million, or 0.8%, decrease from
the second quarter
of
2026 and a $0.6
million, or 1.4%, decrease
from the third quarter of
2025. The decrease
from the second quarter
of 2026 was primarily
attributable
to decreases in compensation
expense of
$0.2 million (commission expense)
and other
expense of
$0.1 million. A $0.5
million decrease
in other real estate
expense that
was partially offset
by a $0.3
million increase in telephone expense
drove the
variance
in other expense. The
decrease from
the third quarter
of 2025
was also driven by the
same aforementioned
factors.
For the first nine
months of 2026, noninterest
expense totaled
$126.3 million, a $2.2
million, or 1.7%, increase over
the same
period of
2025 and
reflected increases in other
expense of
$3.0 million and occupancy
expense of
$0.8 million partially offset
by a $1.6
million
decrease in compensation
expense. The increase
in other expense
was primarily due to a
$3.9 million increase in ORE expense,
reflecting lower gains
on property sales
compared
to the prior year period, which included
a significant gain from
the sale of
our
operations center
building in the first quarter
of 2025. Lower charitable
contribution expense
of $0.6 million and
professional
fee
expense of
$0.6 million partially offset
the increase. The increase
in occupancy
expense reflected
higher expense for FF&E
maintenance
agreements and
software licenses. The decrease
in compensation
expense reflected
lower salary expense
of $1.1 million
and associate
benefit expense
of $0.5 million. Lower commission expense
drove the decline in salary
expense and
the decrease
in
associate
benefit expense
was primarily attributable
to lower stock based
compensation.
The table below reflects
the major
components
of noninterest
expense.
Three Months
Ended
Nine Months Ended
September 30,
June 30,
September 30,
September 30,
September 30,
(Dollars in Thousands)
2026
2026
2025
2026
2025
Salaries
$
21,502
$
21,668
$
21,740
$
64,542
$
65,636
Associate Benefits
4,118
4,168
4,316
12,617
13,158
Total Compensation
25,620
25,836
26,056
77,159
78,794
Premises
3,132
3,096
3,176
9,407
9,620
Equipment
4,162
4,223
3,861
12,289
11,281
Total Occupancy
7,294
7,319
7,037
21,696
20,901
Legal Fees
492
537
491
1,529
1,474
Professional Fees
1,460
1,400
1,621
4,165
4,761
Processing Services
2,513
2,440
2,475
7,386
7,434
Advertising
787
854
711
2,511
2,350
Telephone
1,148
845
762
2,813
2,195
Insurance
– Other
735
738
750
2,205
2,239
Other Real Estate
Owned, net
(352)
117
18
(556)
(4,431)
Pension - Other
(747)
(744)
(871)
(2,236)
(2,616)
Miscellaneous
3,345
3,298
3,866
9,636
11,054
Total Other
9,381
9,485
9,823
27,453
24,460
Total Noninterest
Expense
$
42,295
$
42,640
$
42,916
$
126,308
$
124,155
Significant components
of noninterest
expense are
discussed in more detail below.
Compensation.
Compensation
expense totaled
$25.6
million for the third quarter
of 2026, a
decrease of
$0.2 million, or 0.8%, from
the second quarter of
2026 and a decrease
of $0.4
million, or 1.7%, from the third quarter
of 2025. Compared
to the second
quarter of
2026, the decrease
reflected a $0.2
million decrease in salary expense
(primarily commission expense
). Compared
to the third quarter
of 2025, the
decrease reflected
lower salary
expense of
$0.2 million (primarily commission expense)
and lower associate
benefits of
$0.2 million (primarily
lower health
insurance costs).
44
For the first nine
months of 2026, compensation
expense totaled
$77.2 million compared
to $78.8 million for the
same period of
2025
with the $1.6 million
decrease reflective
of lower salary
expense of
$1.1 million and associate
benefit expense
of $0.5 million. Lower
commission expense
drove the decline in salary
expense and
the decrease
in associate benefit
expense was primarily
attributable
to
lower health
care insurance
costs.
Occupancy
. Occupancy
expense totaled
$7.3 million for the third quarter
of 2026, comparable
to the second
quarter of
2026 and
a
$0.3 million, or 3.7%,
increase over the
third quarter of
2025. For the first nine months
of 2026, occupancy
expense totaled
$21.7
million,
a $0.8 million,
or 3.8%, increase
over the same
period of 2025. The
increase compared
to all prior periods was primarily
attributable
to higher FF&E maintenance
agreements and
software license expense.
Other
. Other expense totaled
$9.4 million for the third quarter
of 2026, a
$0.1 million, or 1.1% decrease
from the second
quarter of
2026 and
a $0.4 million, or 4.5%, decrease
from the third
quarter of
2025. For the first nine months
of 2026, other
expense totaled
$27.5 million,
a $3.0 million, or 12.2%,
increase over the
same period of
2025. Compared
to the second
quarter of
2026
and the
third
quarter of
2025,
the decrease
was primarily attributable
to
a
decrease in other
real estate expense
(ORE) that was partially
offset by
higher telephone
expense. The increase
over the first nine months
of 2025
was primarily due to a
$3.9 million increase in ORE
expense, which reflected
a lower level of gains
from the sale of properties,
namely a large gain
realized from the
sale of our operations
center building in the
first quarter
of 2025. Lower expense
for charitable
contributions of
$0.6 million and professional
fees of $0.6
million were partially
offsetting.
Our operating efficiency
ratio (expressed as
noninterest expense
as a percentage
of the sum
of taxable
-equivalent net
interest income
plus noninterest income)
was 65.63% for
the third quarter of 2026 compared
to 65.76% for the second quarter
of 2026
and 65.09
%
for
the third quarter
of
2025. For the first nine months
of 2026, this ratio
was 65.76% compared
to 65.11%
for the same
period of 2025.
Income Taxes
We realized income
tax expense
of $5.2 million (effective
rate of 23.6%)
for the third quarter
of 2026, compared
to $5.0 million
(effective rate of 23.4%)
for the second quarter
of 2026 and $5.1 million
(effective rate of 24.4%)
for the third quarter
of 2025.
For the
first nine months
of 2026, we realized income
tax expense
of $15.0 million (effective
rate of 23.5%)
compared
to $15.3 million
(effective rate
of 24.2%) for the
same period of
2025. Tax
benefits accrued
from a solar
tax credit investment
in 2026 drove
the
decrease in our effective
tax rate
compared
to the prior year periods. Absent
discrete items or new tax
credit investments, we
expect
our annual
effective tax
rate to approximate
23-24% for 2026.
FINANCIAL CONDITION
Average
earning assets totaled
$4.038 billion for the third quarter
of 2026, a
decrease of
$30.6 million, or 0.8%,
from the second
quarter of 2026, and
an increase of $2.4 million,
or 0.1% over the fourth
quarter of 2025. Compared
to the second quarter
of 2026,
the
change in earning asset
mix reflected a
$27.2 million decrease
in overnight funds, a
$10.3 million decrease
in loans held for
investment, and
a $3.5 million decrease
in loans held for sale (“HFS”), partially
offset by
a $10.5
million increase in investment
securities. Compared
to the fourth
quarter of
2025, the change
reflected a $171.8
million increase in investment
securities and a
$2.7
million increase in
loans HFS, partially offset
by a $99.7
million decrease in overnight funds
and a
$72.5 million decrease
in loans
held for investment.
Investment Securities
Average
investments
totaled $1.178
billion for the third quarter of
2026, a $10.6
million, or 0.9%,
increase over the
second quarter
of
2026 and
a
$171.8 million,
or 17.1%, increase over
the fourth quarter of
2025. Average
investments
represented 29.2%
of our average
earning assets for
the third quarter
of 2026
compared
to 28.7%
for the second
quarter of
2026
and 24.9%
for the fourth
quarter of
2025. For the remainder
of 2026, we will continue
to monitor our
overall liquidity position and
market conditions
to determine if cash
flow from the
investment
portfolio should be
reinvested or utilized to support
loan growth.
The investment
portfolio is a significant component
of our operations
and, as such,
it functions as
a key element
of liquidity and
asset/liability management.
Two types of
classifications are
approved
for investment
securities which are Available
-for-Sale (“AFS”)
and Held-to-Maturity
(“HTM”). At September 30,
2026, $862.1
million, or 73.0%, of the investment
portfolio was classified as
AFS
and $315.1
million, or 26.7%, was classified as
HTM.
The average
maturity
of our total
investment
portfolio
at
September 30,
2026
was 2.98 years
compared
to 2.95 years
at
June 30, 2026
and 2.57
years
at
December 31, 2025.
The duration
of our total
investment
portfolio
at
September 30,
2026 was 2.63
years compared
to 2.60 years
at
June 30, 2026
and 2.12
years
at
December 31, 2025.
Additional information
on unrealized gains/
losses in the AFS and HTM
investment
portfolios is provided in Note 2 –
Investment
Securities.
45
We determine
the classification of a
security
at
the time of acquisition
based on how the purchase
will affect our asset/liability
strategy
and future
business plans and
opportunities. We
consider multiple factors
in determining classification,
including regulatory capital
requirements, volatility
in earnings or other comprehensive
income, and
liquidity needs. Securities in the
AFS portfolio are recorded
at
fair value with unrealized
gains and losses associated
with these securities recorded
net of tax,
in the accumulated
other
comprehensive
loss component
of shareowners’ equity.
HTM securities are acquired
or owned with the intent
of holding them
to
maturity.
HTM investments
are measured
at
amortized
cost. We do not
trade, nor do
we presently intend to
begin trading investment
securities for the
purpose of recognizing
gains and therefore
we do not maintain
a trading portfolio.
At September
30, 2026, there
were 848 positions (combined
AFS and HTM) with unrealized
pre-tax losses totaling $52.3
million. 91
of these positions
are U.S. Treasury
bonds and carry
the full faith and
credit of the U.S. Government.
688 are U.S. government
agency
securities issued by
U.S. government
sponsored entities. We
believe the long history
of no credit losses on
government securities
indicates that
the expectation
of nonpayment
of the amortized
cost basis is effectively
zero. At September
30, 2026, all collateralized
mortgage obligation
securities, mortgage
-backed
securities, Small Business Administration
securities, U.S. Agency,
and U.S. Treasury
bonds held were rated
AA+ or higher. The remaining
69 positions (municipal
securities and
corporate
bonds) have
a credit
component.
At September 30, 2026,
municipal securities and
corporate
debt securities had
an
immaterial allowance
for credit losses.
None of these securities
were past due
or in nonaccrual
status
at
September 30,
2026.
Loans HFI
Average
loans HFI decreased
by $10.3 million, or 0.4%,
from the second
quarter of
2026, and
decreased by
$72.5 million, or 2.8%,
from the fourth
quarter of
2025. Compared
to the second
quarter of
2026, the decline was
primarily attributable
to decreases
in
commercial real estate
loans of $8.4
million, residential real estate loans
of $4.5 million, and
construction loans
of $3.7 million,
partially offset
by increases in consumer
loans (primarily indirect auto)
of $2.2 million, home
equity loans of
$2.0 million, and
commercial loans
of $1.5 million. Compared
to the fourth
quarter of
2025, the decline was
primarily attributable
to decreases
in
residential real estate
loans of $35.2
million, commercial real estate
loans of $33.0
million, construction loans
of $7.8 million,
commercial loans
of $5.1 million, and
consumer loans
(primarily indirect auto) of
$0.7 million, partially offset
by increases in home
equity loans of
$7.9 million.
Loans HFI
at September
30, 2026, decreased
$10.1 million, or 0.4%,
from June 30,
2026, and
decreased $56.4
million, or 2.2%,
from
December 31, 2025. Compared
to June 30, 2026, the
decline was primarily attributable
to decreases in commercial
real estate loans
of
$14.3 million, commercial
loans of $4.4
million, and other loans
of $2.3 million, partially offset
by increases in residential
real estate
loans of $5.9
million, consumer loans
(primarily indirect auto)
of $3.2 million, home
equity loans of
$1.7 million, and construction
loans of $0.2
million. Compared
to December 31, 2025,
the decline was primarily attributable
to decreases in commercial
real estate
loans of $32.4
million, residential real estate
loans of $16.9
million, commercial loans of
$12.2 million, and other
loans of
$4.4
million, partially offset
by increases in home
equity loans of
$5.2 million, construction loans
of $2.4 million, and
consumer
loans
(primarily indirect auto)
of $1.7 million.
Without compromising
our credit standards
,
changing our underwriting standards,
or taking on inordinate
interest rate risk,
we
continue to closely monitor
our markets
and make
minor adjustments
as necessary.
Credit Quality
Nonperforming assets
(nonaccrual
loans and
other real estate)
totaled $9.7
million at September
30, 2026, compared
to $13.4 million
at June 30, 2026 and
$10.5 million at December
31, 2025. At September
30, 2026, nonperforming
assets as a percentage
of total assets
was 0.22%, compared
to 0.30% at
June 30, 2026
and 0.24%
at December
31, 2025. Nonaccrual
loans totaled
$7.4 million at
September 30, 2026,
a $2.7 million decrease
from June 30,
2026 and
a $1.2 million decrease
from December
31, 2025. Other real
estate totaled
$2.4 million at September
30, 2026, a
$1.1 million decrease from
June 30, 2026
and a
$0.4 million increase over
December 31, 2025.
Further, classified loans
totaled $20.8
million at September
30, 2026, a
$9.0 million decrease from
June 30, 2026
and a
$6.5 million increase over December
31, 2025.
Allowance for
Credit Losses
The allowance
for credit losses is a valuation
account
that is deducted
from the loans’
amortized
cost basis to present
the net amount
expected to
be collected on the
loans.
The allowance
for credit losses is adjusted
by a credit loss provision which is reported
in
earnings and
reduced by the
charge-off
of loan amounts
(net of recoveries).
Loans are
charged off
against the
allowance when
management
believes the uncollectability of
a loan balance is confirmed.
Expected recoveries
do not exceed the aggregate
of amounts
previously charged
-off and
expected to
be charged-
off.
Expected credit loss inherent
in non-cancellable
off-balance
sheet credit
exposures is provided
through the credit loss
provision but
recorded
as
a separate
liability included in other liabilities.
46
Management
estimates the allowance balance
using relevant available
information,
from internal and
external sources
relating to past
events, current conditions,
and reasonable
and supportable
forecasts. Historical
loan default
and loss experience
provides the basis
for
the estimation
of expected
credit losses. Adjustments
to historical loss information
incorporate management’s
view of current
conditions and
forecasts.
At September 30, 2026,
the allowance for credit
losses for loans
HFI totaled $30.4
million compared
to $31.0 million
at
June 30, 2026
and $31.0
million
at
December 31, 2025.
Activity within the allowance
is provided in Note 3 – Loans
Held for Investment
and
Allowance for Credit
Losses in the Notes to
Consolidated
Financial Statements.
Compared
to June 30, 2026,
the decline in the
allowance reflected
improved credit quality
metrics and a
lower level of net loan charge-
offs
of 8 basis points
of average
loans for the
third quarter
of 2026
versus 14 basis points
for the second
quarter of
2026 and
18 basis points for
the third quarter
of 2025. Net loan
charge-
offs
for the nine months
ended September
30, 2026 were 11
basis points compared
to 12 basis points
for the same
period of
2025. Compared
to December 31, 2025,
the decline in the allowance
was primarily attributable
to a decline in loan
balances.
At
September 30, 2026,
the allowance represented
1.22% of loans HFI compared
to 1.24%
at
June 30, 2026,
and 1.22%
at
December 31,
2025.
At September
30, 2026, the
allowance for
credit losses for unfunded
commitments
totaled $2.2
million compared to
$2.2 million and
$2.1 million
at
June 30, 2026
and December
31, 2025, respectively.
The slight change in the allowance
for unfunded
commitments
from December 31, 2025
reflected a variance
in the level of unfunded
loan commitments.
The allowance
for unfunded
commitments
is recorded in other
liabilities.
Deposits
Average
total deposits
were $3.648 billion for the
third quarter of
2026, a decrease
of $31.2 million, or 0.9%, from
the second quarter
of 2026, and
comparable
to the fourth
quarter of
2025. Compared
to the second
quarter of
2026, the decrease
was primarily due to
lower public funds
balances
of $63.8 million (primarily NOW accounts)
due to the seasonal
reduction in those balances,
partially
offset by
higher core deposit balances
of $32.6 million (primarily MMA
and noninterest
bearing checking).
At September
30, 2026, total
deposits were $3.667 billion, a decrease
of $54.4 million, or 1.5%,
from June 30,
2026, and
an increase
of $4.3 million, or
0.1%,
over December 31, 2025.
The decrease from
June 30, 2026,
was driven by lower public funds
balances
of
$58.3 million (primarily
NOW accounts),
partially offset
by an increase
in core deposit balances
of $3.9 million (primarily NOW
accounts).
The increase over December
31, 2025, was primarily
due to core deposit
growth of $155.8
million, partially offset
by lower
public funds
balances
of $151.5
million. Total public funds
balances
were $503.2 million at September
30, 2026, $561.5
million at
June 30, 2026,
and $654.7
million at December 31, 2025,
respectively.
Business deposit
transaction
accounts
classified as repurchase
agreements averaged
$14.2 million for the
third quarter of
2026, an
increase of $3.2 million
over the second quarter
of 2026
and a decrease
of $6.5 million from
the fourth
quarter of
2025. At September
30, 2026, repurchase
agreement balances
were $7.2 million compared
to $7.4 million at June
30, 2026
and $22.0
million at December
31, 2025.
We continue
to closely monitor our cost
of deposits and
deposit mix as we manage
through the current
rate environment.
MARKET RISK AND
INTEREST RATE
SENSITIVITY
Market Risk and Interest
Rate Sensitivity
Overview.
Market risk arises from
changes in interest rates,
exchange
rates, commodity
prices, and equity
prices.
We have
risk
management
policies designed to monitor and
limit exposure to market
risk and we do not
participate
in activities that
give rise to
significant market
risk involving exchange
rates, commodity
prices, or equity prices.
In asset and
liability management
activities, our
policies are designed
to minimize structural
interest rate risk.
Interest Rate Risk Management.
Our net income
is largely dependent
on net interest income.
Net interest income is susceptible to
interest rate
risk to the degree that
interest-bearing liabilities mature
or reprice on a different
basis than
interest-earning assets.
When
interest-bearing liabilities
mature or reprice more
quickly than
interest-earning assets in a
given period, a significant
increase in
market rates
of interest could adversely
affect
net interest income.
Similarly, when interest-earning assets
mature or reprice more
quickly than
interest-bearing liabilities, falling
market interest
rates could result in a decrease
in net interest income.
Net interest
income is also affected
by changes in the
portion of interest-earning
assets that
are funded
by interest-bearing liabilities rather than
by
other sources of
funds, such as
noninterest-bearing deposits
and shareowners’
equity.
47
We have
established what
we believe to be a comprehensive
interest rate risk management
policy, which is administered by
management’s
Asset Liability Management
Committee
(“ALCO”).
The policy establishes limits of
risk, which are quantitative
measures of the percentage
change in net interest
income (a measure
of net interest income
at risk) and the
fair value of
equity capital
(a measure
of economic
value of equity
(“EVE”) at risk) resulting from a hypothetical
change in interest rates
for maturities
from one
day to 30
years.
We measure
the potential
adverse impacts
that changing
interest rates may
have on
our short-term earnings, long-
term value, and
liquidity by employing simulation
analysis through
the use of computer
modeling.
The simulation model
captures
optionality factors
such as call features
and interest rate caps and
floors embedded
in investment and
loan portfolio contracts.
As with
any method
of gauging interest rate risk, there are
certain shortcomings
inherent in the interest rate
modeling methodology
used by
us.
When interest rates change,
actual
movements
in different categories
of interest-earning assets
and interest-bearing
liabilities, loan
prepayments,
and withdrawals
of time and
other deposits, may
deviate significantly
from assumptions
used in the model.
Finally, the
methodology
does not measure
or reflect the impact
that higher rates
may have
on adjustable
-rate loan clients’ ability to
service their
debts, or the impact
of rate changes
on demand
for loan and
deposit products.
The statement
of financial
condition is subject to
testing for both parallel
and upward
and downward
shifts in interest rates
(assuming
no balance
sheet growth) to indicate
the inherent interest rate
risk. We prepare a base
case (assumes
a static rate
environment)
and
several alternative
interest rate simulations
for various ranges of
upward and downward
interest rate changes.
This analysis is prepared
quarterly and
reported to ALCO, our Market
Risk Oversight Committee
(“MROC”), our Risk Oversight
Committee
(“ROC”) and
the
Board of
Directors. We will periodically
augment our interest
rate simulations
with alternative interest
rate scenarios that
may include
various non-parallel
shifts in interest rates, including
a flattening
or steepening of the
yield curve.
Our goal is to structure
the statement
of financial
condition so that
net interest earnings at
risk over 12-month and
24-month
periods
and the
economic value
of equity at
risk do not exceed
policy guidelines at the various
interest rate shock
levels. We attempt
to
achieve this goal by
balancing, within policy
limits, the volume
of floating
-rate liabilities with a similar volume
of floating
-rate assets,
by keeping the average
maturity
of fixed-rate asset
and liability contracts
reasonably
matched,
by managing
the mix of our
core
deposits, and
by adjusting
our rates to market
conditions on a
continuing basis.
Analysis.
Measures of
net interest income
at risk produced
by simulation analysis
are indicators of
an institution’s
short-term
performance
in alternative rate
environments.
These measures
are typically based
upon a
relatively brief period, and
do not
necessarily indicate
the long-term prospects
or economic value
of the institution.
The following table presents our
net interest income
simulation results
for gradual 12-month
and 24-month “ramp”
scenarios applied to the base
scenario. The “ramp”
scenario is a parallel
shift applied gradually
over a 12-month
period for the projected
12-month
and 24-month
period on a pro
rata basis.
ESTIMATED
CHANGES IN
NET INTEREST INCOME
As of September 30, 2026
% Change in NII
Change in Interest
Rates
12 Months
24 Months
+200 bp Ramp
3.9%
17.5%
+100 bp Ramp
2.0%
11.1%
-100 bp Ramp
-2.0%
-1.9%
-200 bp Ramp
-4.0%
-8.9%
As of June 30, 2026
% Change in NII
Change in Interest
Rates
12 Months
24 Months
+200 bp Ramp
4.8%
18.0%
+100 bp Ramp
2.4%
11.0%
-100 bp Ramp
-2.3%
-3.6%
-200 bp Ramp
-4.8%
-11.5%
The Net Interest Income
(“NII”) at Risk position
of an instantaneous
,
parallel rate shock
indicates that
in the short-term (over the
next
12 months),
all rising rate environments
will positively impact
the net interest margin
of the Company,
while declining rate
environment
s
will have a
negative impact
on the net interest
margin.
Compared
to the second
quarter of
2026, these metrics became
more favorable
in the declining rate scenarios
due to the deployment
of variable
rate overnight funds
into the investment
securities
portfolio.
The measures
of equity value
at risk indicate our ongoing
economic value
by considering the effects
of changes
in interest rates on
all
of our cash
flows by discounting the cash
flows to estimate
the present value
of assets and
liabilities. The difference between
these
discounted values
of the assets
and liabilities is the economic value
of equity,
which in theory approximates
the fair value
of our net
assets.
48
ESTIMATED
CHANGES IN
ECONOMIC VALUE
OF EQUITY
% Change in EVE
EVE Ratio
Changes in Interest
Rates
September 30, 2026
June 30, 2026
September 30, 2026
June 30, 2026
+200 bp Shock
4.6%
10.6%
29.9%
27.2%
+100 bp Shock
3.2%
7.0%
29.0%
25.9%
-100 bp Shock
-6.1%
-9.0%
25.5%
21.4%
-200 bp Shock
-14.9%
-20.7%
22.7%
18.3%
At September
30, 2026, the economic
value of equity
was favorable
in all rising rate environments and
unfavorable
in the falling rate
environment
s.
EVE was within prescribed
tolerance levels as
the EVE ratio (EVE/EVA)
in all rate scenarios
is greater than
5.0%.
Factors that
can impact
EVE values include the absolute
level of rates, the overall
structure of the
balance
sheet (including liquidity
levels), pre-payment
speeds, loan floors, and
the change
of model assumptions.
As the interest rate
environment
and the
dynamics
of the economy
continue to change,
additional
simulations will be analyzed
to
address not
only the changing rate
environment,
but also the
change in mix of
our financial
assets and
liabilities measured over
multiple years, to
help assess the risk to
the Company.
LIQUIDITY AND CAPITAL
RESOURCES
Liquidity
In general terms, liquidity
is a measurement
of our ability to meet
our cash needs.
Our objective in managing
our liquidity is to
maintain
our ability to meet
loan commitments,
purchase securities or repay
deposits and
other liabilities in accordance
with their
terms, without an adverse
impact on
our current or future
earnings.
Our liquidity strategy
is guided by policies that
are formulated
and
monitored by
our ALCO and
senior management,
which take into account
the marketability
of assets, the
sources and
stability of
funding and
the level of unfunded
commitments.
We regularly evaluate
all of our various funding
sources with an emphasis
on
accessibility,
stability, reliability and
cost-effectiveness.
Our principal source of
funding has
been our client deposits, supplemented
by our short-term and
long-term borrowings, primarily
from securities sold under
repurchase agreements,
federal funds purchased
and
FHLB borrowings.
We believe
that the cash generated
from operations,
our borrowing capacity
and our access to capital resources
are
sufficient to meet
our future operating
capital and
funding requirements.
At September
30, 2026,
we had the ability
to generate approximately
$1.745 billion (excludes overnight
funds position
of $340
million) in additional
liquidity through various sources
including various
federal funds
purchased
lines, Federal Home Loan
Bank
borrowings, the Federal
Reserve Discount
Window,
and brokered
deposits. We recognize
the importance
of maintaining
liquidity and
have developed
a Contingent
Liquidity Plan, which addresses various
liquidity stress levels and
our response and
action based
on the
level of severity.
We periodically
test our credit facilities
for access to
the funds
but also understand
that as
the severity of the
liquidity level increases
certain credit facilities
may no
longer be available.
We conduct
a liquidity stress test on a
quarterly basis
based on
events that
could potentially
occur at the
Bank and
report results to our ALCO, MROC, ROC, and Board
of Directors.
We
believe the liquidity
available to us at September
30, 2026
was sufficient to meet
our ongoing needs and
execute our business
strategy.
We also view
our investment
portfolio as a
liquidity source and have
the option to
pledge securities in our portfolio as collateral
for
borrowings or deposits,
and/or to
sell selected securities. Our portfolio
consists of debt
issued by the U.S. Treasury,
U.S. governmental
agencies, municipal governments,
and corporate
entities. Additional information
on our investment
portfolio is provided within Note 2
– Investment
Securities.
The Bank
maintained
an average
net overnight funds
(i.e., deposits with banks plus FED funds sold,
less FED funds purchased)
sold
position of $337.9
million in the third
quarter of 2026 compared
to $365.1
million in the second quarter
of 2026
and $437.5
million in
the fourth quarter
of 2025. Compared
to the second quarter of
2026, the variance
reflected lower average
deposits and
the deployment
of excess liquidity into
the investment
security portfolio. Compared
to the fourth
quarter of
2025, the variance
was driven by the
deployment
of excess liquidity into the
investment
security portfolio. During the
first nine months
of 2026, excess
liquidity was
partially deployed
into investment
securities as loan demand
remained selective and
management
continued its disciplined
underwriting approach.
Management
believes the repositioning enhances
earnings while maintaining appropriate
liquidity levels.
We expect
our capital expenditures
will be approximately
$10.0 million over the next
12 months,
which will primarily consist of
construction of
a new office, office
remodeling, office equipment/furniture,
and technology
purchases.
Management
expects that
these capital
expenditures will be funded
with existing resources without
impairing our ability
to meet our ongoing
obligations.
49
Borrowings
Average
short-term borrowings
totaled $45.7 million for
the third quarter
of 2026
compared
to $44.5 million for the
second quarter
of
2026 and
$41.6 million for the fourth
quarter of
2025.
The increase over the
second quarter
of 2026
reflected higher repurchase
agreement balances
.
The increase over the
fourth quarter
of 2025
was attributable
to higher mortgage warehouse
line borrowings.
Additional detail on
warehouse borrowings
is provided in Note 4 –
Mortgage Banking
Activities in the Consolidated
Financial
Statements.
We have
issued two junior subordinated
deferrable interest notes
to our wholly owned Delaware
statutory
trusts.
The first note for
$30.9 million was issued
to CCBG Capital
Trust I in November
2004, of which $10
million was retired in April 2016.
We made
principal payments
on this note of
$4.1 million and $5.1
million in the first quarter of 2026
and the
second quarter
of 2025,
respectively.
The second note
for $32.0 million was issued
to CCBG Capital
Trust II in May
2005. We
made principal
payments
on
this note of
$5.1 million each in the
first quarter of
2026 and
the second quarter
of 2025.
The interest payment
for the CCBG Capital
Trust I borrowing
is due quarterly
and adjusts
quarterly to a
variable rate
of three-month
CME Term SOFR (secured overnight
financing rate) plus
a margin of 1.90%.
This note matures on
December 31, 2034. The
interest payment
for the CCBG Capital
Trust II
borrowing is due quarterly
and adjusts
quarterly to a
variable interest rate
based on
three-month
CME Term SOFR plus a margin
of
1.80%. This note
matures on
June 15, 2035.
The proceeds from
these borrowings were used to partially
fund acquisitions.
Under the
terms of each
junior subordinated
deferrable interest note,
in the event of
default or if we elect to
defer interest on
the note, we may
not, with certain
exceptions, declare
or pay dividends
or make distributions
on our capital
stock or purchase
or acquire any
of our
capital stock.
The Company
previously maintained
a derivative
cash flow hedge of
our interest rate risk related
to our subordinated
debt. The
notional amount
of the derivative
is $30 million ($10 million of the CCBG Capital
Trust I borrowing and
$20 million of the CCBG
Capital Trust
II borrowing). In October
2025, the interest
rate swaps were terminated.
Additional detail on
the interest rate swap
agreement is provided
in Note 5 – Derivatives
in the Consolidated
Financial Statements.
Capital
Our capital ratios
are presented
in the Selected Quarterly Financial
Data table
on page 38.
At September 30, 202
6, our regulatory
capital ratios
exceeded the
threshold to be designated
as “well-capitalized”
under the Basel
III capital
standards.
Shareowners’ equity
was $573.9
million at September
30, 2026 compared
to $570.1
million at June 30, 202
6
and $552.9
million at
December 31, 2025.
For the first nine months
of 2026, shareowners’
equity was positively impacted
by net income
of $49.0
million,
the issuance of
stock of $3.5
million, and stock compensation
accretion of
$1.5 million. Shareowners’ equity
was reduced by
a
common
stock dividends
of $13.9 million ($0.81
per share), repurchases
of our common
stock of $2.6
million (63,088 shares), net
adjustments
totaling $2.5
million related to transactions
under our stock-based compensation
plans, and
an unfavorable
net change
of
$14.0 million in accumulated
other comprehensive
loss due to an unfavorable
fair value mark
on investment
securities driven by
higher bond rates
.
At September 30, 2026,
our total risk-based
capital ratio was 22.99%
compared
to 22.35% at
June 30, 2026
and 21.45
%
at December
31, 2025. Our common
equity tier 1 capital
ratio was 20.43
%, 19.80%, and
18.56%, respectively,
on these dates.
Our leverage ratio
was 12.31%, 11.96
%, and 11.
77%, respectively, on
these dates.
At September 30,
2026, all our regulatory
capital ratios
exceeded the
thresholds to be designated
as “well-capitalized”
under the Basel III capital
standards. Further,
our tangible common
equity ratio (non-
GAAP financial
measure) was 11.25%
at September
30, 2026,
compared
to 11.03%
at June 30,
2026, and
10.79% at
December 31,
2025. If our
unrealized held-to-maturity
securities loss of $16.0 million (after
-tax) were recognized in accumulated
other
comprehensive
loss, our adjusted
tangible capital
ratio would be 10.88%.
Our tangible capital
ratio is also impacted
by the recording of our
unfunded
pension liability through other
comprehensive
income in
accordance
with Accounting Standards
Codification
Topic 715. At September
30, 2026, June
30, 2026 and
December 31, 2025,
the
net pension asset
reflected in other comprehensive
income was $9.
4
million. This liability is re-measured
annually
on December 31
st
based on
an actuarial
calculation
of our pension liability. Significant
assumptions
used in calculating the
liability include the weighted
average discount rate
used to measure the
present value of the pension
liability, the weighted
average expected
long-term rate of return
on pension plan assets,
and the assumed
rate of annual compensation
increases, all of which will vary when re-measured.
The discount
rate assumption
used to calculate
the pension liability is subject to
long-term corporate
bond rates
at December
31
st
. These
assumptions
and sensitivities are discussed
in the section entitled “Critical
Accounting Policies
and Estimates”
in Part II, Item
7.
Management’s
Discussion and Analysis of
Financial Condition
and Results of
Operations, of
our 2025
Form 10-K.
50
OFF-BALANCE
SHEET ARRANGEMENTS
We are a party
to financial instruments
with off-balance
sheet risks in the normal course of business
to meet the financing needs
of our
clients.
At September
30, 2026,
we had $628.8
million in commitments
to extend
credit and $7.3
million in standby letters of
credit.
Commitments
to extend
credit are agreements
to lend to a client so
long as there is no violation
of any
condition established
in the
contract.
Commitments
generally have fixed
expiration dates
or other termination
clauses and
may require payment
of a fee.
Since
many
of the commitments
are expected
to expire without being drawn
upon, the total
commitment
amounts
do not necessarily
represent future
cash requirements.
Standby
letters of credit are conditional
commitments
issued by us to guarantee
the performance
of a client to a
third party.
We use the same
credit policies in establishing commitments
and issuing letters of credit as
we do for on-
balance
sheet instruments.
If commitments
arising from these financial
instruments continue
to require funding at
historical levels, management
does not
anticipate that
such funding will adversely
impact our ability to
meet our ongoing obligations.
In the event these commitments
require
funding in excess
of historical levels, management
believes current liquidity, advances
available
from the FHLB
and the
Federal
Reserve, and
investment
security maturities provide
a sufficient
source of funds
to meet these
commitments.
Certain agreements
provide that the commitments
are unconditionally cancellable
by the bank
and for those
agreements no
allowance
for credit losses has
been recorded.
We have
recorded
an
allowance for
credit losses on loan commitments
that are
not
unconditionally
cancellable by
the Bank,
which is included in other liabilities on the
Consolidated
Statements
of Financial Condition
and totaled
$2.2 million
at
September 30,
2026.
CRITICAL ACCOUNTING
POLICIES
Our significant accounting
policies are described in Note 1 to
the Consolidated
Financial Statements
included in our 2025
Form 10-K.
The preparation
of our Consolidated Financial
Statement
s
in accordance
with GAAP and reporting practices applicable
to the banking
industry requires us
to make
estimates and
assumptions
that affect
the reported amounts
of assets, liabilities, revenues and
expenses,
and to disclose contingent
assets and
liabilities.
Actual results could
differ from those
estimates.
We have
identified accounting
for (i) the allowance for
credit losses, (ii) goodwill,
(iii) pension assumptions,
and (iv) income taxes
as
our most critical accounting
policies and estimates
in that they are important
to the portrayal of our
financial condition and
results, and
they require our
subjective and
complex judgment
as a result of
the need to
make estimates
about
the effects
of matters
that
are
inherently uncertain.
These accounting
policies, including the nature
of the estimates
and types
of assumptions
used, are described
throughout
this Item 2, Management’s
Discussion and Analysis of
Financial Condition
and Results of
Operations, and
Part II, Item
7,
Management’s
Discussion and Analysis of
Financial Condition
and Results of
Operations included
in our 2025 Form
10-K.
51
TABLE I
AVERAGE BALANCES & INTEREST RATES (UNAUDITED)
Three Months Ended September 30,
Nine Months Ended September 30,
2026
2025
2026
2025
Average
Average
Average
Average
Average
Average
Average
Average
(Dollars in
Thousands)
Balances
Interest
Rate
Balances
Interest
Rate
Balances
Interest
Rate
Balances
Interest
Rate
Assets:
Loans Held for Sale
$
26,993
$
420
6.17
%
$
25,276
$
425
6.68
%
$
27,413
$
1,324
6.46
%
$
24,226
$
1,390
7.67
%
Loans Held for Investment
(1)(2)
2,495,535
38,277
6.09
2,606,213
39,894
6.07
2,513,086
113,914
6.06
2,641,346
120,359
6.09
Taxable Securities
1,176,534
10,629
3.60
992,260
7,175
2.88
1,153,550
29,920
3.46
993,460
19,644
2.64
Tax-Exempt
Securities
(2)
1,349
15
4.39
1,620
18
4.44
1,441
47
4.35
1,313
43
4.43
Federal Funds Sold and Interest Bearing
Deposits
337,862
3,194
3.75
356,161
3,964
4.42
369,967
10,271
3.71
342,094
11,369
4.44
Total Earning
Assets
4,038,273
52,535
5.15
%
3,981,530
51,476
5.12
%
4,065,457
155,476
5.11
%
4,002,439
152,805
5.10
%
Cash & Due
From Banks
70,540
65,085
66,013
68,074
Allowance For Credit
Losses
(31,607)
(30,342)
(31,585)
(30,282)
Other Assets
309,290
301,678
304,254
300,788
TOTAL ASSETS
$
4,386,496
$
4,317,951
$
4,404,139
$
4,341,019
Liabilities:
Noninterest
Bearing Deposits
1,316,425
1,314,560
1,302,686
1,324,753
NOW Accounts
$
1,224,587
$
3,804
1.23
%
$
1,198,124
$
3,782
1.25
%
$
1,263,412
$
11,963
1.27
%
$
1,224,402
$
11,386
1.24
%
Money Market Accounts
433,430
1,964
1.80
416,656
2,090
1.99
419,028
5,573
1.78
422,817
6,617
2.09
Savings Accounts
511,313
102
0.08
503,189
159
0.13
511,500
334
0.09
506,255
509
0.13
Other Time Deposits
161,771
910
2.23
179,802
1,234
2.72
175,655
3,238
2.46
174,418
3,541
2.71
Total Interest
Bearing Deposits
2,331,101
6,780
1.15
2,297,771
7,265
1.25
2,369,595
21,108
1.19
2,327,892
22,053
1.27
Total Deposits
3,647,526
6,780
0.74
3,612,331
7,265
0.80
3,672,281
21,108
0.77
3,652,645
22,053
0.81
Repurchase
Agreements
14,160
79
2.20
21,966
158
2.86
13,616
213
2.09
24,752
478
2.58
Other Short-Term
Borrowings
31,532
316
3.98
12,753
58
1.82
30,984
992
4.28
10,251
354
4.62
Subordinated
Notes Payable
33,303
293
3.45
42,582
383
3.52
36,045
979
3.58
49,113
1,473
3.95
Other Long-Term
Borrowings
567
8
5.55
681
10
5.55
635
27
5.68
755
26
4.50
Total Interest
Bearing Liabilities
2,410,663
7,476
1.23
%
2,375,753
7,874
1.32
%
2,450,875
23,319
1.27
%
2,412,763
24,384
1.35
%
Other Liabilities
83,642
85,422
78,126
75,664
TOTAL LIABILITIES
3,810,730
3,775,735
3,831,687
3,813,180
TOTAL SHAREOWNERS’ EQUITY
575,766
542,216
572,452
527,839
TOTAL LIABILITIES
AND
SHAREOWNERS’ EQUITY
$
4,386,496
$
4,317,951
$
4,404,139
$
4,341,019
Interest Rate Spread
3.92
%
3.81
%
3.83
%
3.75
%
Net Interest Income
$
45,059
$
43,602
$
132,157
$
128,421
Net Interest Margin
(3)
4.42
%
4.34
%
4.34
%
4.28
%
(1)
Average Balances
include net
loan fees,
discounts
and premiums.
Interest income
includes loan
costs of
$0.5 million
and $1.5
million for
the three and
nine months
ended September
30, 2026,
and loan costs of $0.4 million and $1.1 million for the
three and nine month periods ended September 30, 2025.
(2)
Interest income
includes the
effects of
taxable equivalent
adjustments
using a 21%
Federal tax rate.
(3)
Taxable equivalent
net interest
income divided
by average earning
assets.
52
Item 3.
QUANTITATIVE
AND QUALITATIVE
DISCLOSURES
ABOUT MARKET
RISK
See “Market
Risk and Interest
Rate Sensitivity” in Management’s
Discussion and Analysis of
Financial Condition
and Results of
Operations, above,
which is incorporated
herein by reference.
Management
has determined
that no
additional
disclosures are
necessary to
assess changes
in information
about
market risk that
have occurred
since December 31, 2025.
Item 4.
CONTROLS AND PROCEDURES
Evaluation of
Disclosure Controls
and Procedures
At September 30, 2026
,
the end of
the period covered
by this Form 10-Q, our management,
including our Chief Executive
Officer and
Chief Financial Officer,
evaluated
the effectiveness
of our disclosure controls and
procedures (as defined
in Rule 13a-15(e) under the
Securities Exchange
Act of 1934).
Based upon
that evaluation,
our Chief Executive
Officer and Chief
Financial Officer concluded
that, as
of the end
of the period covered
by this report,
our disclosure controls and
procedures were effective.
Our management,
including our Chief Executive
Officer and Chief
Financial Officer, has
reviewed our internal control over
financial
reporting (as defined
in Rule 13a-15(f) under
the Securities Exchange
Act of 1934). During the
quarter ended
September 30, 2026,
there have
been no significant
changes in our internal
control over financial
reporting during our most recently
completed fiscal
quarter that
have materially
affected,
or are reasonably
likely to materially affect,
our internal control over
financial reporting.
PART
II.
OTHER INFORMATION
Item 1.
Legal Proceedings
We are party
to lawsuits arising out of
the normal
course of business.
In management's
opinion, there is no known
pending litigation,
the outcome
of which would, individually or
in the aggregate, have
a material
effect on
our consolidated
results of operations,
financial position,
or cash flows.
Item 1A.
Risk Factors
In addition
to the other information
set forth in this Quarterly Report,
you should carefully
consider the factors
discussed in Part I,
Item 1A. “Risk Factors”
in our 2025
Form 10-K, as updated
in our subsequent
quarterly reports. The
risks described in our 2025 Form
10-K, and
our subsequent
quarterly reports are
not the only risks facing
us. Additional risks and uncertainties
not currently known
to
us or that
we currently deem to be
immaterial also
may materially
adversely affect
our business, financial
condition and/or
operating
results.
There have not been
any material changes
to the risk factors
disclosed in Item 1A. of Part
I of the Company’s
Annual Report
on Form
10-K for the year
ended December
31, 2025, previously
filed with the SEC.
Item 2.
Unregistered Sales
of Equity Securities
and Use of Proceeds
None.
Item 3.
Defaults Upon Senior
Securities
None.
Item 4.
Mine Safety Disclosure
Not Applicable.
Item 5.
Other Information
(c) Rule 10b5
-1 Trading Plans
During the three months
ended September
30, 2026,
none of our
directors or officers (as defined
in Rule 16a-1(f) under the
Exchange
Act)
adopted
, modified or
terminated
any contract,
instruction or written plan for
the purchase
or sale of our securities that
was
intended to satisfy
the affirmative
defense conditions
of Rule 10b5-1(c)
under the Exchange
Act or any “
non-Rule
10b5-1
trading
arrangement”
as defined
in Item 408(c) of
Regulation S-K.
54
SIGNATURES
Pursuant to
the requirements
of the Securities Exchange
Act of 1934, the
Registrant has
duly caused
this Report to be signed
on its
behalf by
the undersigned Chief
Financial Officer hereunto
duly authorized.
CAPITAL
CITY BANK GROUP,
INC.
(Registrant)
/s/ Jeptha
E. Larkin
Jeptha E. Larkin
Executive Vice
President and
Chief Financial Officer
(Mr. Larkin is
the Principal Financial
Officer and has
been duly authorized
to sign on behalf
of the Registrant)
Date: October 30,
2026