Executive Summary / Key Takeaways

• Capital City Bank Group (CCBG) demonstrates robust financial performance, with Q3 2025 net income attributable to common shareowners reaching $16 million, or $0.93 per diluted share, driven by a strong net interest margin of 4.34%.
• The company's strategic focus on optimizing its investment portfolio and managing deposit costs has significantly enhanced net interest income and overall profitability.
• CCBG maintains a well-capitalized position, with all regulatory capital ratios exceeding Basel III thresholds and a tangible common equity ratio of 10.66% at September 30, 2025, providing a strong buffer against market fluctuations.
• Despite a shrinking loan and deposit base, CCBG has effectively managed risks through increased investment securities and a prudent loan quality focus, while investing in digital banking and a bank tech venture capital fund to enhance its regional footprint and service offerings.
• The company's outlook for 2025 includes an expected annual effective tax rate of approximately 24% and continued monitoring of liquidity and market conditions, with analysts projecting strong EPS growth.

Setting the Scene: A Regional Banking Powerhouse with a Modern Edge

Capital City Bank Group, Inc. (NASDAQ:CCBG), founded in 1895 and headquartered in Tallahassee, Florida, has cultivated a deep-rooted presence as a regional financial institution across Florida, Georgia, and Alabama. The company operates through its wholly-owned subsidiary, Capital City Bank, offering a comprehensive suite of banking and banking-related services to individual and corporate clients. This extensive network includes 62 full-service offices and 108 ATMs/ITMs, complemented by 28 additional offices in the Southeast dedicated to its mortgage banking business through Capital City Home Loans, LLC.

CCBG's overarching strategy centers on leveraging its community-focused model to deliver personalized services while adapting to the evolving financial landscape through targeted technological enhancements. The company has invested in digital banking platforms to support online and mobile access, aiming to enhance convenience and accessibility for its diverse customer base. This commitment to innovation is further underscored by an outstanding commitment of up to $1 million in a bank tech venture capital fund, specifically focused on identifying and funding technology solutions tailored for community banks. At September 30, 2025, $0.30 million remained to be funded for this initiative, signaling a proactive approach to future-proofing its operations. The outsourcing of its core processing system in mid-2024 also reflects an operational streamlining effort to enhance efficiency and service delivery.

In the competitive landscape of the Southeastern U.S. banking sector, CCBG operates alongside larger regional players such as Regions Financial Corporation (RF), Synovus Financial Corporation (SNV), and Truist Financial Corporation (TFC). While these larger institutions benefit from greater scale and broader technological investment capabilities, CCBG differentiates itself through its strong local brand, extensive regional network, and a focus on personalized service. Its specialized institutional banking services for local governments, public schools, and non-profit associations provide a unique value proposition in niche segments where larger competitors may offer less tailored approaches. This community-centric model fosters strong customer loyalty and can lead to more efficient operational execution within its established territories.

However, CCBG's regional focus presents a vulnerability to localized economic risks and potential lags in advanced technology adoption compared to its larger, more resource-rich counterparts. For instance, while CCBG invests in digital banking, a major competitor like Truist, with its extensive resources, may lead in developing advanced AI-driven digital platforms, potentially offering faster processing and broader accessibility. The broader industry trend towards AI-driven digital banking and the increasing energy demands for data centers could indirectly raise costs for banking infrastructure, potentially positioning CCBG less favorably than more tech-savvy competitors who can absorb such investments more readily.

Financial Performance: A Story of Margin Expansion and Disciplined Management

CCBG's recent financial performance highlights a compelling narrative of margin expansion and disciplined operational management, particularly in the face of dynamic interest rate environments. For the third quarter of 2025, net income attributable to common shareowners rose to $16 million, or $0.93 per diluted share, an increase from $15 million, or $0.88 per diluted share, in the second quarter of 2025, and $13.10 million, or $0.77 per diluted share, in the third quarter of 2024. This upward trend is even more pronounced over the nine-month period, with net income reaching $47.90 million, or $2.80 per diluted share, compared to $39.80 million, or $2.35 per diluted share, for the same period in 2024.

A key driver of this performance is the company's robust net interest income and margin. Tax-equivalent net interest income for Q3 2025 totaled $43.60 million, up from $43.20 million in Q2 2025 and $40.30 million in Q3 2024. This improvement was primarily fueled by a $0.50 million increase in investment securities income and a $0.40 million decrease in interest expense, alongside a $0.10 million increase in overnight funds income. The strategic acquisition of new investments at higher yields and a gradual decrease in deposit rates were instrumental in boosting investment securities income and lowering deposit interest expense. Consequently, the net interest margin for Q3 2025 expanded to 4.34%, a four-basis-point increase over Q2 2025 and a 22-basis-point increase over Q3 2024.

Noninterest income also contributed positively, totaling $22.30 million in Q3 2025, an increase from $20 million in Q2 2025 and $19.50 million in Q3 2024. This growth was largely attributable to a $0.70 million gain from the sale of its insurance subsidiary, Capital City Strategic Wealth, in Q3 2025, and higher mortgage banking revenues driven by increased production volume and gain on sale margin. Wealth management fees also saw a significant increase of $2.20 million for the first nine months of 2025, reflecting new business, higher account valuations, and a fee increase implemented in early 2025.

Operating efficiency has also seen notable improvement, with the efficiency ratio improving to 65.09% for Q3 2025, down from 67.26% in Q2 2025 and 71.81% in Q3 2024. This indicates effective cost management, despite a $4.20 million increase in compensation expense for the first nine months of 2025, primarily due to higher incentive plan expenses, merit-based salary increases, and commissions. The company also realized a $4.50 million decrease in other real estate expense due to gains from the sale of banking facilities.

Liquidity and Capital Strength: A Foundation for Growth

CCBG maintains a robust liquidity position and strong capital ratios, essential for supporting its operations and strategic initiatives. At September 30, 2025, the company had the capacity to generate approximately $1.62 billion in additional liquidity through various sources, including federal funds purchased lines, Federal Home Loan Bank borrowings, the Federal Reserve Discount Window, and brokered deposits. This substantial liquidity, coupled with a Contingent Liquidity Plan and regular stress testing, ensures the company's ability to meet its financial obligations and loan commitments without adverse impact on earnings.

The company's capital strength is equally impressive. At September 30, 2025, all regulatory capital ratios exceeded the thresholds to be designated as well-capitalized under Basel III capital standards. The total risk-based capital ratio stood at 20.59%, with a common equity tier 1 capital ratio of 17.73%. Furthermore, the tangible common equity ratio, a non-GAAP financial measure closely watched by investors, improved to 10.66% at September 30, 2025, up from 9.51% at December 31, 2024. This strong capital base provides a significant competitive advantage, allowing CCBG to pursue growth opportunities and withstand potential economic headwinds.

Loan Quality and Portfolio Management

While CCBG has demonstrated strong financial performance, its loan portfolio has experienced some shifts. Average loans held for investment (HFI) decreased by $46.40 million, or 1.8%, from the second quarter of 2025, and by $71.20 million, or 2.7%, from the fourth quarter of 2024. This decline was observed across construction loans, consumer loans (primarily indirect auto), commercial real estate loans, and residential real estate loans, partially offset by an increase in home equity loans.

Nonperforming assets (nonaccrual loans and other real estate) increased to $10 million at September 30, 2025, from $6.60 million at June 30, 2025, and $6.70 million at December 31, 2024. Nonaccrual loans specifically totaled $8.20 million, with the increase primarily attributed to two home equity loans totaling $1.80 million. Classified loans also saw an increase to $26.50 million, mainly due to the downgrade of residential and commercial real estate loans. Despite these increases, the allowance for credit losses for loans HFI totaled $30.20 million, representing 1.17% of loans HFI, an increase primarily due to qualitative factor adjustments. The company's prudent loan quality focus and strong capital ratios are crucial in mitigating these risks.

Outlook and Key Risks

Looking ahead, CCBG anticipates an annual effective tax rate of approximately 24% for 2025, absent discrete items or new tax credit investments. Management will continue to closely monitor its liquidity position and market conditions to determine the optimal allocation of cash flow from its investment portfolio. Analysts are optimistic about CCBG's earnings trajectory, with the Zacks Consensus Estimate for 2025 projecting $3.43 per share, a 9.9% increase from the prior year. This positive outlook is supported by the company's consistent ability to surpass consensus EPS estimates.

However, investors should be mindful of several key risks. Interest rate sensitivity remains a significant factor, as net interest income is susceptible to fluctuations when interest-bearing liabilities and assets reprice at different rates. While rising rates have historically benefited net interest margin, a sustained decline in rates could negatively impact profitability, particularly given the limited ability to decrease deposit rates to the full extent of a significant rate change. The company's asset sensitivity, with slightly more exposure to falling rates, warrants close monitoring. Furthermore, local and regional economic conditions, changes in consumer spending habits, and the competitive environment among financial service providers could all impact CCBG's financial performance. The increase in nonperforming assets and classified loans also bears watching, though management's proactive credit risk management policies aim to mitigate these concerns.

Conclusion

Capital City Bank Group presents a compelling investment narrative rooted in its enduring regional strength, disciplined financial management, and strategic embrace of technology. The company's consistent profitability, driven by a robust net interest margin and effective cost controls, underscores its operational effectiveness. CCBG's strong capital position provides a solid foundation, enabling it to navigate market dynamics and pursue growth initiatives. While facing challenges such as a fluctuating loan and deposit base and inherent interest rate risks, the company's proactive approach to liquidity management, credit quality, and targeted technological investments positions it favorably. CCBG's commitment to enhancing its digital offerings and exploring new community bank technology solutions, coupled with its strong workplace culture, reinforces its competitive standing and long-term growth potential in the dynamic Southeastern banking market.