UNITED STATES
SECURITIES AND EXCHANGECOMMISSION
WASHINGTON,D.C.20549
FORM
10-Q
☒
QUARTERLYREPORT PURSUANT TO SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934
For the Quarterly Period Ended
September 30, 2026
OR
☐
TRANSITION REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934
For the transition period from ____________ to ____________
Commission File Number:
0-13358
Capital City Bank Group, Inc.
(Exact nameof Registrant asspecified 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’stelephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
Title of eachclass
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 checkmark whether the registrantis a large acceleratedfiler, an acceleratedfiler, a non-acceleratedfiler, a smallerreporting 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 acceleratedfiler
☐
Accelerated filer
☒
Non-acceleratedfiler
☐
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 CITYBANK GROUP,INC.
QUARTERLYREPORT ON FORM10-Q
FOR THE PERIODENDED SEPTEMBER30, 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-Qcontains “forward-lookingstatements” withinthe meaning of the Private Securities Litigation Reform
Act of 1995. These forward-lookingstatements include,among others, statements about our beliefs, plans, objectives,goals, expectations,
estimates and intentions that are subjectto significant risksand uncertainties and are subject tochange basedon various factors,manyof
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 expressionsare intended
to identify forward-looking statements.
All forward-looking statements,by their nature, are subjectto risks and uncertainties.Forward-looking statementsare basedon current
assumptions and expectations that are subjectto change and mayprove to be inaccurate.Our actual future results maydiffer materially from
those set forthin our forward-looking statements.
Our ability toachieveour financialobjectives couldbe adversely affectedby the factorsdiscussed in detail in Part II,Item1A. “Risk
Factors” in this Quarterly Report on Form10-Q and inPart I, Item 1A. “Risk Factors” inour Annual Report on Form10-K for the year ended
December 31, 2025 (the “2025 Form10-K”), as updated in our subsequentquarterly reports filed onForm 10-Q, as well as, among other
factors:
●
Changes in trade, monetary, and fiscalpolicies and laws, includingactual changes ininterest rates and the Fed Funds rate and
changes in internationaltrade policies, tariffsand treatiesaffectingimports andexports, andtheir related impactson
macroeconomicconditions, customerbehavior, fundingcosts andloan andsecurities portfolios;
●
Inflation,interest rate, marketand monetaryfluctuations;
●
Local, regional, national,and internationaleconomic conditions(including the value ofthe U.S. Dollar in relation to the
currencies of other advanced and emergingmarket countries and the performance of both domestic andinternationalequity
and debt markets and valuation ofsecurities traded on recognizeddomestic and internationalexchanges), and the impact they
may haveon us andour clients and our assessmentof thatimpact;
●
Supply-demand imbalances and generaleconomic conditions affecting local real estate prices anda general deteriorationin
commercial real estatemarket fundamentals;
●
The costs andeffects oflegal and regulatorydevelopments,the outcomesof legal proceedings or regulatory or other
governmentalinquiries, the results of regulatory examinationsor reviews and the ability toobtain requiredregulatory
approvals;
●
The effectof changesin laws and regulations (including laws andregulations concerning taxes,banking, securities, and
insurance) andtheir applicationwith which we and our subsidiaries mustcomply;
●
The effect of changes in accounting policies and practices,as maybe adoptedby the regulatoryagencies, as well as other
accountingstandardsetters;
●
The accuracyof our financialstatementestimates andassumptions;
●
Changes in the creditworthiness,financial performanceand/or conditionof our borrowers;
●
Changes in the mixof loan geographies,sectors and typesor the level of non-performingassets andcharge-offs;
●
Changes in estimatesof future creditloss reserve requirements basedupon the periodicreview thereof under relevant
regulatory andaccountingrequirements;
●
Changes in our liquidity position;
●
Changes in our capitallevels, capital requirementsor our ability to maintainadequateregulatory capitalratios;
●
The timely development and acceptanceof new products and services aswell as risks (including reputational andlitigation)
attendantthereto, andperceived overall valueof these productsand services by users;
●
Changes in consumerspending, borrowing, and savinghabits;
●
Changes in depositlevels, deposit mix, pricing, or the availability andcost of otherfunding sources;
●
Greater thanexpected costsor difficulties related to theintegration of new productsand lines of business;
●
Increasedcompetition andits effect onpricing (including deposit fees), spending, third-partyrelationships andrevenues;
●
Technological changes;
●
Risks associatedwith the developmentand use ofartificial intelligence;
●
The cost and effectsof cyber incidents or otherfailures, interruptions, or security breachesof our systemsor those of our
customers or third-partyproviders;
●
Fraud or misconductby internal or externalparties which we maynot be ableto prevent, detector mitigate;
●
Dispositions, acquisitions andintegration of acquiredbusinesses;
●
Impairmentof our goodwill or other intangible assets;
●
Changes in the reliability of ourvendors, internal controlsystems, or informationsystems;
●
Our ability to increase marketshare andcontrol expenses;
●
Our ability to attractand retainqualified employees;
●
Changes in our organization,compensation,and benefitplans;
●
The soundnessof other financialinstitutions;
●
Volatility anddisruption in nationaland internationalfinancial andcommoditymarkets;
4
●
Changes in the competitiveenvironmentin our markets andamong bankingorganizationsand otherfinancial service
providers;
●
Action or inaction by the federal government,including as a result of anyprolonged governmentshutdown or government
intervention in the U.S. financialsystem;
●
A deterioration of the credit rating for U.S. long-term sovereign debt, actionsthat theU.S. government maytake toavoid
exceeding the debtceiling, and uncertainties surroundingthe federal budgetand economicpolicy;
●
The effects of natural disasters (includinghurricanes), widespread healthemergencies (including pandemics),military conflict
(including impacts relatedto the conflictsin the Middle East andresulting disruptions to energy andother commodities
markets andsupply chains),terrorism, civil unrest, climate change or othergeopolitical events;
●
Our ability to declare andpay dividends;
●
Structural changesin the marketsfor origination, sale andservicing of residential mortgages;
●
Any inability to implementand maintaineffective internalcontrol over financialreporting and/or disclosurecontrol;
●
Potential claims, damages,penalties, fines, costs andreputationaldamageresulting from pending or futurelitigation,
regulatory proceedings andenforcementactions;
●
Negative publicity and the impact on ourreputation,including the speed and scale at which informationcan spreadthrough
social media or digital channels,which could amplifyadverse marketor customer reactions;and
●
The limited trading activityand concentrationof ownership of ourcommonstock.
However, other factors besides those listedin
Item 1A Risk Factors
or discussed in this Form 10-Q also could adverselyaffectour results,
and youshould not considerany suchlist of factors tobe a completeset of all potentialrisks or uncertainties.Any forward-looking
statements made by us or on our behalfspeak onlyas of thedate theyare made.We do not undertaketo updateany forward-looking
statement,except asrequired by applicablelaw.
5
PARTI.
FINANCIAL INFORMATION
Item 1.
CAPITAL CITYBANK GROUP,INC.
CONSOLIDATEDSTATEMENTSOF FINANCIALCONDITION
(Unaudited)
September 30,
December 31,
(Dollars in Thousands,Except Par Value)
2026
2025
ASSETS
Cash andDue From Banks
$
71,617
$
62,189
Federal Funds Sold andInterest Bearing Deposits
340,015
467,782
Total Cashand CashEquivalents
411,632
529,971
InvestmentSecurities, Available forSale, at fair value(amortized cost of $
893,054
and $
656,546
)
862,097
643,922
InvestmentSecurities, Held to Maturity (fairvalue of $
293,832
and $
369,320
)
315,142
377,446
Equity Securities
3,203
2,069
Total InvestmentSecurities
1,180,442
1,023,437
Loans Held For Sale,at fair value
23,455
21,695
Loans Held forInvestment
2,489,724
2,546,118
Allowance for CreditLosses
(30,369)
(31,001)
Loans Held forInvestment,Net
2,459,355
2,515,117
Premises andEquipment, Net
83,257
79,457
Goodwill
89,095
89,095
Other Real EstateOwned
2,353
1,936
Other Assets
147,163
125,057
Total Assets
$
4,396,752
$
4,385,765
LIABILITIES
Deposits:
Noninterest BearingDeposits
$
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
SubordinatedNotes Payable
33,303
42,582
Other Long-TermBorrowings
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 andoutstanding
-
-
CommonStock, $
0.01
par value;
90,000,000
shares authorized;
17,113,297
and
17,084,386
shares issued andoutstandingat September30, 2026 andDecember 31, 2025,respectively
171
171
Additional Paid-In Capital
41,516
41,650
Retained Earnings
543,611
508,443
AccumulatedOther Comprehensive(Loss) Income, netof tax
(11,436)
2,587
Total Shareowners’
Equity
573,862
552,851
Total Liabilitiesand Shareowners’Equity
$
4,396,752
$
4,385,765
The accompanying Notes to Consolidated Financial Statements are an integral partof these statements.
6
CAPITAL CITYBANK GROUP,INC.
CONSOLIDATEDSTATEMENTSOF INCOME
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
(Dollars in Thousands,Except Per ShareData)
2026
2025
2026
2025
INTEREST INCOME
Loans, including Fees
$
38,652
$
40,279
$
115,118
$
121,629
InvestmentSecurities:
Taxable
10,629
7,175
29,920
19,644
Tax Exempt
11
13
35
30
Funds Sold andInterest Bearing Deposits
3,194
3,964
10,271
11,369
Total InterestIncome
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
SubordinatedNotes Payable
293
383
979
1,473
Other Long-TermBorrowings
8
10
27
26
Total InterestExpense
7,476
7,874
23,319
24,384
NET INTERESTINCOME
45,010
43,557
132,025
128,288
Provision for CreditLosses
(80)
1,881
1,551
3,269
Net InterestIncomeAfter 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 CardFees
3,830
3,733
11,318
11,021
Wealth ManagementFees
4,640
5,173
12,876
16,142
Mortgage BankingRevenues
3,673
4,794
12,585
12,804
Other
2,073
2,754
6,715
6,027
Total NoninterestIncome
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 NoninterestExpense
42,295
42,916
126,308
124,155
INCOME BEFOREINCOME TAXES
22,179
21,091
64,082
63,116
IncomeTax Expense
5,239
5,141
15,048
15,264
NET INCOME
$
16,940
$
15,950
$
49,034
$
47,852
BASIC NET INCOMEPER SHARE
$
0.99
$
0.93
$
2.87
$
2.81
DILUTED NET INCOMEPER SHARE
$
0.99
$
0.93
$
2.86
$
2.80
AverageCommonBasic Shares Outstanding
17,113
17,068
17,114
17,050
AverageCommonDiluted Shares Outstanding
17,152
17,114
17,141
17,083
The accompanying Notes to Consolidated Financial Statements are an integral partof these statements.
7
CAPITAL CITYBANK GROUP,INC.
CONSOLIDATEDSTATEMENTSOF COMPREHENSIVEINCOME (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 comprehensiveincome, before tax:
InvestmentSecurities:
Change in net unrealizedloss on securities availablefor sale
(12,163)
2,932
(18,326)
10,676
Amortization ofunrealized losses on securitiestransferred from
availablefor sale to held tomaturity
-
202
164
1,044
Derivative:
Change in net unrealizedgain on effectivecash flow derivative
-
(253)
-
(1,442)
Amortization ofterminatedcash flow derivativegain
(202)
-
(600)
-
Other comprehensive(loss) income, beforetax
(12,365)
2,881
(18,762)
10,278
Deferred tax (benefit)expense relatedto other comprehensive(loss) income
(3,117)
720
(4,739)
2,571
Other comprehensive(loss) income, net oftax
(9,248)
2,161
(14,023)
7,707
TOTAL COMPREHENSIVEINCOME
$
7,692
$
18,111
$
35,011
$
55,559
The accompanying Notes to Consolidated Financial Statements are an integral partof these statements.
8
CAPITAL CITYBANK GROUP,INC.
CONSOLIDATEDSTATEMENTSOF CHANGES IN SHAREOWNERS’EQUITY
(Unaudited)
Accumulated
Other
Additional
Comprehensive
Shares
Common
Paid-In
Retained
(Loss) Income,
(Dollars In Thousands,Except ShareData)
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 ComprehensiveLoss, net of tax
-
-
-
-
(9,248)
(9,248)
Cash Dividends ($
0.2700
per share)
-
-
-
(4,620)
-
(4,620)
Stock BasedCompensation
-
-
133
-
-
133
Stock CompensationPlan 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 ComprehensiveIncome, netof tax
-
-
-
-
2,161
2,161
Cash Dividends ($
0.2600
per share)
-
-
-
(4,439)
-
(4,439)
Stock BasedCompensation
-
-
448
-
-
448
Stock CompensationPlan Transactions,net
2,255
-
92
-
-
92
Balance, September 30, 2025
17,068,650
$
171
$
40,067
$
499,176
$
1,221
$
540,635
Balance, January1, 2026
17,084,386
$
171
$
41,650
$
508,443
$
2,587
$
552,851
Net Income
-
-
-
49,034
-
49,034
Other ComprehensiveLoss, net of tax
-
-
-
-
(14,023)
(14,023)
Cash Dividends ($
0.8100
per share)
-
-
-
(13,866)
-
(13,866)
Repurchaseof CommonStock
(63,088)
-
(2,639)
-
-
(2,639)
Stock BasedCompensation
-
-
1,478
-
-
1,478
Stock CompensationPlan 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, January1, 2025
16,974,513
$
170
$
37,684
$
463,949
$
(6,486)
$
495,317
Net Income
-
-
-
47,852
-
47,852
Other ComprehensiveIncome, netof tax
-
-
-
-
7,707
7,707
Cash Dividends ($
0.7400
per share)
-
-
-
(12,625)
-
(12,625)
Stock BasedCompensation
-
-
1,373
-
-
1,373
Stock CompensationPlan 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 partof these statements.
9
CAPITAL CITYBANK GROUP,INC.
CONSOLIDATEDSTATEMENTSOF CASH FLOWS
(Unaudited)
Nine Months Ended September30,
(Dollars in Thousands)
2026
2025
CASH FLOWS FROMOPERATINGACTIVITIES
Net Income
$
49,034
$
47,852
Adjustmentsto Reconcile Net Incometo
Cash Provided byOperating Activities:
Provision for CreditLosses
1,551
3,269
Depreciation
5,521
5,548
Amortization ofPremiums, Discounts andFees, net
2,280
3,403
Amortization ofIntangible Asset
-
107
Gain on Sale of Subsidiary
-
(773)
Originations ofLoans Held-for-Sale
(315,284)
(332,760)
Proceeds From Salesof LoansHeld-for-Sale
328,332
350,882
Mortgage BankingRevenues
(12,585)
(12,804)
Net Deletions for CapitalizedMortgage Servicing Rights
16
48
Stock BasedCompensation
1,478
1,373
Net TaxBenefit fromStock BasedCompensation
(132)
(154)
Deferred IncomeTaxes
(2,532)
2,429
Net Changein Operating Leases
(18)
14
Net Gain on Sales andWrite-Downs of Other RealEstate Owned
(796)
(4,514)
Gain from InsuranceClaim on Premises
(453)
-
Net (Increase)Decrease in Other Assets
(1,000)
3,770
Net Increasein Other Liabilities
6,425
8,364
Net CashProvided By Operating Activities
61,837
76,054
CASH FLOWS FROMINVESTING ACTIVITIES
Securities Held to Maturity:
Purchases
(113,266)
(66,697)
Proceeds from Payments,Maturities, andCalls
175,326
228,784
Securities Availablefor Sale:
Purchases
(360,296)
(225,039)
Proceeds from Payments,Maturities, andCalls
116,071
60,899
Equity Securities:
Purchases
(1,219)
(60)
Net Decrease inEquity Securities
85
1,191
Purchases ofLoans Held forInvestment
(7,013)
(958)
Proceeds from Sales ofLoans
53,229
39,802
Net Decrease inLoans Held forInvestment
1,147
23,666
Purchase ofBank Owned Life Insurance
(6,000)
-
Net CashReceived for Divestitures
-
2,375
Proceeds from InsuranceClaims on Premises
453
-
Proceeds From Salesof Other Real EstateOwned
3,921
7,340
Purchases ofPremises andEquipment
(10,571)
(5,967)
Net Cash(Used In) Provided By InvestingActivities
(148,133)
65,336
CASH FLOWS FROMFINANCING ACTIVITIES
Net Increase(Decrease) in Deposits
4,256
(57,065)
Net (Decrease) Increasein Short-Term Borrowings
(11,211)
11,940
Principal Paymentsof SubordinatedNotes
(9,279)
(10,305)
Dividends Paid
(13,866)
(12,625)
Paymentsto RepurchaseCommonStock
(2,639)
-
Proceeds from Issuanceof CommonStock Under PurchasePlans
696
710
Net CashUsed In Financing Activities
(32,043)
(67,345)
NET (DECREASE)INCREASE IN CASH ANDCASH EQUIVALENTS
(118,339)
74,045
Cash andCash Equivalentsat Beginning of Period
529,971
391,854
Cash andCash Equivalentsat End ofPeriod
$
411,632
$
465,899
10
Supplemental CashFlow Disclosures:
Interest Paid
$
23,949
$
24,148
Federal IncomeTaxes Paid
$
10,975
$
7,700
State andLocal IncomeTaxes Paid:
Florida
$
1,975
$
775
All Other
$
112
$
225
Supplemental NoncashItems:
Loans andPremises Transferred toOther Real EstateOwned
$
3,542
$
4,290
Loans Transferredfrom Held for Investmentto Held for Sale, net
$
55,452
$
40,652
The accompanying Notes to Consolidated Financial Statements are an integral partof these statements.
11
CAPITAL CITYBANK GROUP,INC.
NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS
NOTE 1 –
BUSINESS AND BASISOF PRESENTATION
Nature of Operations
.Capital City BankGroup, Inc. (“CCBG” or the “Company”)provides a full range ofbanking andbanking-
related services toindividual andcorporateclients through its wholly ownedsubsidiary, CapitalCity Bank(“CCB” or the “Bank”),
with banking officeslocated in Florida, Georgia,and Alabama.The Companyis subject to competitionfrom other financial
institutions, is subjectto regulation by certaingovernment agenciesand undergoesperiodic examinationsby those regulatory
authorities.
Basis of Presentation
.The consolidatedfinancial statementsin this Quarterly Report on Form10-Q include the accountsof CCBG
and CCB.All material inter-companytransactionsand accountshave beeneliminated.Certain previously reportedamountshave
been reclassifiedto conformto the current year’spresentation.
The accompanyingunaudited consolidatedfinancial statements havebeen prepared in accordancewith generally acceptedaccounting
principles for interimfinancial informationand with the instructionsto Form 10-Q andArticle 10 of Regulation S-X.Accordingly,
they do notinclude all of the informationand notesrequired by generally acceptedaccountingprinciples for complete financial
statements.In the opinionof management,all adjustments(consisting of normal recurring accruals)considered necessaryfor a fair
presentationhave beenincluded.
The ConsolidatedStatementof Financial Conditionat December31, 2025 hasbeen derived fromthe auditedconsolidatedfinancial
statementsat thatdate,but does notinclude all of the informationand notesrequired by generally acceptedaccountingprinciples for
complete financial statements.For further information,refer to the consolidatedfinancial statementsand notesthereto includedin the
Company’s2025 Form 10-K.
Accounting StandardsUpdates
Proposed Accounting Standards
,
ASU No. 2023-06, “DisclosureImprovements: CodificationAmendments in Responseto the SEC’s
Disclosure Updateand SimplificationInitiative.”
Accounting StandardsUpdate
(“ASU”) 2023-06 is intended toclarify or improve
disclosure andpresentationrequirements ofa variety oftopics, which will allow users to more easily compareentities subjectto the
SEC’s existingdisclosures with thoseentities that were notpreviously subjectto the requirementsand align the requirementsin the
FASB accountingstandardcodification with theSEC’s regulations. ASU 2023-06 is to be appliedprospectively, andearly adoptionis
prohibited. For reportingentities subject tothe SEC’s existingdisclosure requirements,the effectivedates ofASU 2023-06 will be the
date onwhich the SEC’s removalof thatrelated disclosure requirementfrom RegulationS-X or Regulation S-K becomeseffective. If
by June 30, 2027,the SEC has notremoved theapplicable requirementfrom RegulationS-X or Regulation S-K, the pending content
of the relatedamendmentwill not become effectivefor any entities. TheCompanyis currently evaluating theprovisions of the
amendmentsand theimpact onits future consolidatedstatements.
ASU No. 2024-03,“Income Statement— ReportingComprehensiveIncome — Expense DisaggregationDisclosures (Subtopic220-
40): Disaggregationof Income StatementExpenses.”
ASU 2024-03 introduces new requirementsto disclose additionalinformation
aboutcertain typesof expenses, including employeecompensation,depreciation, intangibleasset amortization,and selling expenses.
ASU 2024-03 is effectivefor the Companyas of January 1, 2027. TheCompanyis currently evaluating theimpact ofthe incremental
disclosures thatwill be required under the standard.
ASU 2025-06, “Intangibles- Goodwill andOther -Internal-Use Software(Subtopic350-40): TargetedImprovements to the
Accountingfor Internal-Use Software.”
The ASU updates accountingfor internal-use softwareby shifting from astage-basedmodel
to a principles-basedapproachaligned with modern development.Key provisions include new capitalizationcriteria based on
authorization,funding commitment,and probablecompletion, removalof developmentstages, integrated website guidance,and
enhanceddisclosures. ASU 2025-06 is effectivefor the Companyas of January1, 2028. The Companyis currently evaluating the
provisions of theamendmentsand theimpact onits future consolidatedstatementsand disclosures.
ASU 2025-08, “FinancialInstruments—CreditLosses (Topic 326):Purchased Loans.”
The ASU updates theaccountingfor
purchasedloans under ASC 326.The amendmentsexpandthe populationof loans subjectto the “gross-up” accountingmodel by
eliminating the formerdistinction between purchasedcredit-deteriorated(“PCD”) and non-PCD loans. Underthe new guidance,
entities will applya single model for purchasedloans by recognizing anallowance for creditlosses and adjustingthe amortized cost
basis for the associatednoncredit discountat acquisition.ASU 2025-08 is effective forthe Companyas of January1, 2027. The
Companyis currently evaluating theprovisions of the amendmentsand theimpact onits future consolidatedstatementsand
disclosures.
12
ASU 2025-11, “InterimReporting (Topic270): Narrow-ScopeImprovements.”
The ASU aims to clarifyand enhanceinterim financial
reporting by definingits scope, consolidatingGAAP disclosures inTopic 270, addinga principle for materialpost-year-end event
disclosure, andrefining statementformatguidance to improveconsistency forall preparers. These changesdo not alterthe
fundamentalrequirements ofinterim reporting but seek tostreamline andstandardizethe process. ASU 2025-11 is effectivefor the
Companyin interim reporting periods beginning asof January1, 2028.The Companyis currently evaluating theprovisions of the
amendmentsand theimpact onits future consolidatedstatements.
ASU 2025-12, “CodificationImprovements.”
The ASU was issued to maketechnical corrections, clarifyambiguousguidance and
generally streamlinethe Accounting StandardsCodificationacross varioustopics, affectingmost reporting entities, with keychanges
including clarificationsfor diluted EPS during losses,lease receivable disclosures,beneficial interestcalculations, andtreasury stock
accounting, aimingfor better usabilitywithout significantlyaltering core accountingoutcomes.ASU 2025-12 is effective forthe
Companyas of January1, 2027. The Companyis currently evaluating theprovisions of the amendmentsand theimpact onits future
consolidatedstatements.
13
NOTE 2 –
INVESTMENT SECURITIES
Investment PortfolioComposition
. The following table summarizesthe amortizedcost andrelated fair valueof investment
securities available-for-sale (“AFS”) andsecurities held-to-maturity(“HTM”) and thecorresponding amountsof gross
unrealized gains andlosses.
Availablefor Sale
Amortized
Unrealized
Unrealized
Allowance for
Fair
(Dollars in Thousands)
Cost
Gains
Losses
Credit Losses
Value
September 30, 2026
U.S. GovernmentTreasury
$
605,514
$
-
$
11,171
$
-
$
594,343
U.S. GovernmentAgency
164,330
76
4,095
-
160,311
States andPolitical Subdivisions
35,004
-
2,429
-
32,575
Mortgage-BackedSecurities
(1)
55,044
-
10,715
-
44,329
CorporateDebt Securities
33,162
-
2,574
(49)
30,539
Total
$
893,054
$
76
$
30,984
$
(49)
$
862,097
December 31, 2025
U.S. GovernmentTreasury
$
331,495
$
1,940
$
171
$
-
$
333,264
U.S. GovernmentAgency
174,527
71
2,484
-
172,114
States andPolitical Subdivisions
36,918
38
2,045
-
34,911
Mortgage-BackedSecurities
(1)
59,699
2
7,697
-
52,004
CorporateDebt 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-BackedSecurities
(1)
315,142
-
21,310
293,832
Total
$
315,142
$
-
$
21,310
$
293,832
December 31, 2025
U.S. GovernmentTreasury
$
129,782
$
-
$
514
$
129,268
Mortgage-BackedSecurities
(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 FederalHome Loan Bank stockand FederalReserve Bank stockrecordedat cost of $
3.0
million and$
5.1
million at
December 31, 2025,respectively.These securities arepresentedin Other Assets beginningSeptember 30, 2026.
At September30, 2026 andDecember 31, 2025,the investmentportfolio had$
3.2
million and $
2.1
million, respectively, in equity
securities. These securitiesdo not havea readily determinablefair value andwere not credit impaired.
Securities with anamortizedcost of $
605.5
million and $
461.3
million at September30, 2026 andDecember 31, 2025,respectively,
were pledged tosecure public depositsand for otherpurposes.
Investment Sales.
There were
no
sales of investmentsecurities for the three andnine monthsended September30, 2026 and2025.
Maturity Distribution
.At September 30, 2026,the Company’s investmentsecurities had the following maturitydistribution basedon
contractualmaturity.Expected maturitiesmay differfrom contractualmaturities becauseborrowers may havethe right to call or
prepay obligations.Mortgage-backedsecurities, certain amortizing U.S.government agencysecurities and othersecurities are shown
separatelybecause theyare not dueat a certainmaturitydate.
14
Availablefor Sale
Held to Maturity
(Dollars in Thousands)
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Due in one yearor less
$
159,015
$
158,279
$
-
$
-
Due afterone year throughfive years
532,658
516,640
-
-
Mortgage-BackedSecurities
55,044
44,329
315,142
293,832
U.S. GovernmentAgency
146,337
142,849
-
-
Total
$
893,054
$
862,097
$
315,142
$
293,832
15
Unrealized Losseson Investment Securities.
The following table summarizesthe availablefor sale andheld to maturityinvestment
securities with unrealizedlosses aggregated bymajor securitytype andlength of time in a continuousunrealized 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
Availablefor Sale
U.S. GovernmentTreasury
$
591,355
$
11,156
$
2,988
$
15
$
594,343
$
11,171
U.S. GovernmentAgency
54,953
1,648
74,492
2,447
129,445
4,095
States andPolitical Subdivisions
1,842
21
28,453
2,408
30,295
2,429
Mortgage-BackedSecurities
47
1
44,274
10,714
44,321
10,715
CorporateDebt 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-BackedSecurities
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
Availablefor Sale
U.S. GovernmentTreasury
$
31,319
$
22
$
8,902
$
149
$
40,221
$
171
U.S. GovernmentAgency
62,809
182
91,760
2,302
154,569
2,484
States andPolitical Subdivisions
3,030
124
30,705
1,921
33,735
2,045
Mortgage-BackedSecurities
-
-
51,932
7,697
51,932
7,697
CorporateDebt 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. GovernmentTreasury
-
-
129,268
514
129,268
514
Mortgage-BackedSecurities
33,589
98
106,262
8,444
139,851
8,542
Total
$
33,589
$
98
$
235,530
$
8,958
$
269,119
$
9,056
At September30, 2026, therewere
848
positions (combinedAFS and HTM) with unrealizedpre-tax losses totaling$
52.3
million.
91
of these positionsare U.S. Treasurybonds and carrythe full faith andcredit of the U.S. Government.
688
are U.S. government agency
securities issued byU.S. governmentsponsored entities.We believethe long history ofno credit losses on governmentsecurities
indicates thatthe expectationof nonpaymentof the amortizedcost basis is effectivelyzero.At September 30, 2026,all collateralized
mortgage obligationsecurities, mortgage-backedsecurities, Small Business Administrationsecurities, U.S. Agency,and U.S. Treasury
bonds held were AAArated.The remaining
69
positions (municipal securitiesand corporatebonds) havea credit component.At
September 30,2026, corporatedebt securities had
an
allowance forcredit losses of $
49,000
.
No
ne of the securities held bythe
Companywere past due or in nonaccrualstatus
at
September 30,2026.
Credit Quality Indicators
The Companymonitors the credit qualityof its investmentsecurities through various risk managementprocedures, including the
monitoring ofcredit ratings.A majorityof the debtsecurities in the Company’sinvestmentportfolio were issued by aU.S.
government entityor agency andare either explicitly or implicitly guaranteedby the U.S. government.The Companybelieves the
long history of nocredit losses on thesesecurities indicatesthat theexpectationof nonpaymentof the amortizedcost basis is
effectively zero, evenif the U.S. governmentwere to technically default.Further, certain municipalsecurities held by theCompany
have been pre-refundedand secured bygovernment guaranteedtreasuries.Therefore, for the aforementionedsecurities, the Company
does
no
t assess or record expectedcredit losses due to thezero loss assumption.The Companymonitors the credit qualityof its
municipal andcorporatesecurities portfolio via credit ratingswhich are updatedon a quarterlybasis.On a quarterlybasis, municipal
and corporatesecurities in an unrealized loss positionare evaluatedto determineif the loss is attributableto credit related factorsand
if an allowancefor credit loss is needed.
16
NOTE 3 – LOANS HELDFOR INVESTMENTAND ALLOWANCEFOR CREDIT LOSSES
Loan PortfolioComposition
.The compositionof the held forinvestment(“HFI”) loan portfoliowas as follows:
(Dollars in Thousands)
September 30, 2026
December 31, 2025
Commercial, Financialand Agricultural
$
168,144
$
180,341
Real Estate– Construction
149,335
146,920
Real Estate– CommercialMortgage
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 UnearnedIncome
$
2,489,724
$
2,546,118
(1)
Includes loansin process balancesof $
0.5
million and$
5.6
million at September30, 2026 andDecember 31, 2025, respectively.
(2)
Includes overdraftbalances of$
1.3
million and$
1.2
million at September30, 2026 andDecember 31, 2025, respectively.
Net deferred loancosts, which include premiumson purchasedloans, included in loanswere $
8.8
million at September30, 2026 and
$
8.6
million at December31, 2025.
Accrued interest receivableon loans which isexcluded fromamortizedcost, totaled$
9.4
million at September30, 2026 and$
9.8
million at December31, 2025, andis reported separatelyin Other Assets.
The Companyhas pledged ablanket floatinglien on all 1-4 family residentialmortgage loans,commercial real estatemortgage loans,
and homeequity loans tosupport availableborrowing capacityat the FHLBof Atlantaand haspledged a blanketfloating lien on all
consumer loans,commercial loans,and constructionloans to supportavailableborrowing capacityat the FederalReserve Bank
of
Atlanta.
Loan Purchases.
The Companywill periodically purchase commercialreal estate loansfor its portfolio.Commercial loanpurchases
totaled $
6.7
million for the three andnine monthsended September30, 2026, andwere not credit impaired.
No
ne were purchased
during the comparable2025 periods.
17
Allowance for Credit Losses
.The methodologyfor estimating theamountof credit losses reported in theallowance for creditlosses
(“ACL”) hastwo basic components:first, an asset-specific componentinvolving loans thatdo not sharerisk characteristics andthe
measurementof expectedcredit losses for such individual loans;and second,a pooled componentfor expectedcredit losses for pools
of loans thatshare similar risk characteristics.This allowancemethodologyis discussed further in Note 1 – SignificantAccounting
Policies in the Company’s2025Form 10-K.
The following tabledetails the activityin the allowancefor credit losses by portfolio segment.Allocation ofa portion ofthe
allowance toone categoryof loans doesnot preclude its availabilityto absorblosses 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 allowancefor credit losses for loansHFI totaled $
30.4
million comparedto $
31.0
million
at
December 31,
2025 and$
30.2
million
at
September 30,2025. Activity within the allowancefor the nine monthperiod ended September30, 2026,
reflected a provisionexpense of $
1.4
million and netloan charge-
offs
of $
2.0
million. The September30, 2026 allowance reflectedthe
utilization of alower forecastedunemploymentrate in forecastingloan loss rates andlower loan balances,
as
comparedto the
December 31, 2025allowance. At September30, 2025, theallowance forloans HFI totaled$
30.2
million, a $
1.0
million increase over
December 31, 2024. Activitywithin the allowance forthe nine-month periodended September 30, 2025,reflected a provisionexpense
of $
3.4
million and netloan charge-
offs
of $
2.4
million. The net increase in the allowancewas primarily attributableto qualitative
factor adjustmentsthat were partiallyoffset bylower loan balances.Four unemploymentforecast scenarioswere utilized to estimate
probability of defaultand are weighted basedon management’sestimate of probabilit
y.
See Note 8 – Commitmentsand Contingencies
for informationon the allowancefor off-balancesheet credit commitments.
19
Loan PortfolioAging.
A loan is defined as apast due loan whenone full paymentis past due or a contractualmaturityis over 30 days
past due(“DPD”).
The following tablepresents the aging ofthe amortizedcost basis in accruing pastdue loans byclass 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, Financialand Agricultural
$
246
$
-
$
-
$
246
$
167,780
$
118
$
168,144
Real Estate– Construction
-
634
-
634
148,322
379
149,335
Real Estate– CommercialMortgage
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, Financialand Agricultural
$
537
$
172
$
-
$
709
$
178,354
$
1,278
$
180,341
Real Estate– Construction
295
-
-
295
146,625
-
146,920
Real Estate– CommercialMortgage
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 placedon nonaccrual statusif principal or interest paymentsbecome 90days pastdue and/or
managementdeemsthe collectability ofthe principal and/orinterest to be doubtful.Loans arereturned to accrualstatus whenthe
principal andinterest amountscontractuallydue are broughtcurrent or when futurepaymentsare reasonablyassured.
The following tablepresents the amortizedcost basis of loansin nonaccrualstatus and loans pastdue over 90 daysand 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, Financialand Agricultural
$
-
$
118
$
-
$
1,038
$
240
$
-
Real Estate– Construction
-
379
-
-
-
-
Real Estate– CommercialMortgage
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 NonaccrualLoans
$
2,478
$
4,877
$
-
$
4,448
$
4,147
$
-
20
CollateralDependent Loans.
The following table presents theamortizedcost basis of collateral-dependentloans.
September 30, 2026
December 31, 2025
Real Estate
Non Real Estate
Real Estate
Non Real Estate
(Dollars in Thousands)
Secured
Secured
Secured
Secured
Commercial, Financialand Agricultural
$
-
$
46
$
-
$
1,087
Real Estate– Construction
379
-
-
-
Real Estate– CommercialMortgage
11,697
-
2,450
-
Real Estate– Residential
2,168
-
1,275
-
Real Estate– Home Equity
391
-
1,561
-
Consumer
-
-
-
-
Total CollateralDependent Loans
$
14,635
$
46
$
5,286
$
1,087
A loan is collateraldependentwhen the borrower is experiencing financialdifficulty andrepaymentof the loanis dependent onthe
sale or operationof the underlying collateral.
The Bank’scollateral dependentloan portfolio is comprisedprimarily of real estatesecured loans, collateralizedby either residential
or commercial collateraltypes.The loans are carried atfair value based oncurrent values determinedby either independentappraisals
or internal evaluations,adjustedfor selling costs or other amountsto be deductedwhen estimating expectednet sales proceeds.
Residential Real Estate Loans In Process of Foreclosure
.At September 30, 2026,the Companyhad $
0.4
million of 1-4 family
residential real estateloans for which formalforeclosure proceedings werein process, comparedto $
0.2
million at December 31,
2025.
Modifications to Borrowers Experiencing Financial Difficulty.
Occasionally, theCompanymay modifyloans to borrowers who are
experiencing financialdifficulty.Loan modificationsto borrowers in financial difficultyare loans in which theCompanyhas granted
an economicconcession to theborrower that it would nototherwise consider.In these instances,as part ofa work-out alternative,the
Companywill make concessions including the extensionof the loanterm, a principal moratorium,a reduction in theinterest rate, or a
combinationthereof.The impact ofthe modificationsand defaultsare factoredinto the allowancefor credit losses on a loan-by-loan
basis.Thus, specific reservesare establishedbased uponthe results of either adiscounted cashflow analysis or the underlying
collateral value,if the loan is deemedto be collateral dependent.A modified loan classificationcan be removedif the borrower’s
financial conditionimproves such thatthe borrower is no longer in financialdifficulty, theloan hasnot hadany forgivenessof
principal or interest,and theloan is subsequentlyrefinancedor restructured atmarket termsand qualifiesas a new loan.
During the nine monthsended September30, 2026, theCompanydid
no
t modify anyloans to borrowers experiencing financial
difficulty.During the nine monthsended September30, 2025,
one
commercial mortgageloan for $
2.5
million was provided a
6
-
month interestonly extension in exchangefor additionalcollateral.
The Companyclosely monitors the performanceof loans modifiedfor borrowers experiencing financialdifficulty to evaluatethe
effectivenessof its modificationstrategies. At September 30,2026, there were
no
outstandingbalancesof loans modifiedduring the
preceding twelve months.At September 30, 2025, the amortizedcost basis of loansmodified during the precedingtwelve monthswas
$
2.8
million, of which $
2.5
million were current and$
0.3
million were 30 -59 dayspast due.
Credit Risk Management
.The Companyhas adoptedcomprehensivelending policies, underwriting standards andloan review
procedures designedto maximize loan incomewithin
an
acceptablelevel of risk.Managementand theBoard ofDirectors review and
approvethese policies and procedureson a regular basis (atleast annually).
Reporting systems areused to monitor loanoriginations, loan quality,concentrationsof credit, loan delinquenciesand nonperforming
loans andpotential problemloans.Managementand theCredit Risk Oversight Committeeperiodically review the Company’slines
of business to monitorasset qualitytrends andthe appropriatenessof credit policies.In addition,total borrower exposurelimits are
established andconcentrationrisk is monitored.As part of this process, theoverall compositionof the portfoliois reviewed to gauge
diversification ofrisk, client concentrations,industry group, loantype, geographic area,or other relevantclassifications ofloans.
Specific segments of theloan portfolioare monitoredand reportedto the Boardon a quarterlybasis andhave strategicplans in place
to supplementBoard approvedcredit policies governing exposure limits andunderwriting standards.Detailed below are the typesof
loans within theCompany’sloan portfolioand risk characteristicsunique to each.
21
Commercial, Financial,and Agricultural – Loansin this category are primarilymadebased onidentified cashflows of the borrower
with considerationgiven to underlying collateraland personalor other guarantees.Lending policy establishes debtservice coverage
ratio limits thatrequire a borrower’s cashflow to be sufficientto cover principal andinterest paymentson all new andexisting debt.
The majority of theseloans are secured bythe assets being financedor other business assets such
as
accountsreceivable, inventory,or
equipment.Collateral valuesare determined basedupon third party appraisalsand evaluations.Loan to value ratios
at
origination are
governed by establishedpolicy guidelines.
Real EstateConstruction– Loans in this categoryconsistsof short-term constructionloans, revolving andnon-revolving credit lines
and construction/permanentloans madeto individuals andinvestors to financethe acquisition, development,construction or
rehabilitation of realproperty.These loans areprimarily madebased on identified cashflows of the borrower orproject andgenerally
secured by theproperty being financed,including 1-4 family residentialproperties andcommercial propertiesthat areeither owner-
occupied or investmentin nature.These properties
may
include either vacantor improved property.Constructionloans are generally
based uponestimates ofcosts andvalue associatedwith the completedproject.Collateral valuesare determinedbased uponthird
party appraisalsand evaluations.Loan tovalue ratios
at
origination are governedby establishedpolicy guidelines.The disbursement
of fundsfor constructionloans is madein relation to the progress ofthe project and
as
such these loansare closely monitoredby on-
site inspections.
Real EstateCommercial Mortgage– Loans in this categoryconsists of commercialmortgage loanssecured by propertythat is either
owner-occupied orinvestmentin nature.These loans areprimarily madebased onidentified cashflows of the borrower or project
with considerationgiven to underlying real estatecollateral andpersonal guarantees.Lending policy establishes debtservice
coverage ratiosand loanto value ratiosspecific to the propertytype.Collateral valuesare determinedbased uponthird party
appraisalsand evaluations.
Real Estate Residential– Residential mortgageloans held in the Company’sloan portfolio are madeto borrowers that demonstratethe
ability to makescheduled paymentswith full consideration to underwritingfactors such
as
current income, employmentstatus, current
assets, andother financialresources, credit history, andthe value ofthe collateral.Collateral consists ofmortgage liens on 1-4 family
residential properties.Collateral valuesare determinedbased uponthird party appraisalsand evaluations.The Companydoes not
originate sub-prime loans.
Real EstateHome Equity– Home equityloans andlines are madeto qualified individualsfor legitimate purposesgenerally secured
by senior or junior mortgageliens on owner-occupied1-4 familyhomes or vacationhomes.Borrower qualificationsinclude
favorablecredit history combinedwith supportive incomeand debtratio requirementsand combinedloan to valueratios within
established policy guidelines.Collateral valuesare determinedbased uponthird party appraisalsand evaluations.
Consumer Loans– This loan portfolioincludes personal installmentloans, direct andindirect automobilefinancing, andoverdraft
lines of credit.The majorityof the consumerloan categoryconsists of direct andindirect automobileloans.Lending policy
establishes maximumdebt to income ratios, minimumcredit scores, and includesguidelines for verificationof applicants’ income and
receipt of credit reports.
Credit QualityIndicators
.As part of the ongoingmonitoring of theCompany’sloan portfolioquality, managementcategorizes loans
into risk categoriesbased onrelevant informationaboutthe ability of borrowers toservice their debt such as:current financial
information,historical paymentperformance,credit documentation,and currenteconomic andmarkettrends, amongother
factors.Risk ratings are assignedto each loanand revised
as
needed throughestablished monitoringprocedures for individualloan
relationships overa predetermined amountand review of smaller balancehomogenousloan pools.The Companyuses the definitions
noted below for categorizingand managingits criticized loans.Loans categorized
as
“Pass” do notmeet the criteria setforth below
and arenot consideredcriticized.
Special Mention – Loansin this category are presentlyprotected fromloss, but weaknesses areapparentwhich, if not corrected, could
cause futureproblems.Loans in this category
may
not meetrequired underwriting criteria and haveno mitigating factors.More than
the ordinary amountof attentionis warranted for theseloans.
Substandard– Loans in this categoryexhibit well-defined weaknessesthat would typicallybring normal repaymentinto jeopardy.
These loans areno longer adequatelyprotected dueto well-defined weaknessesthat affectthe repaymentcapacityof the
borrower.The possibility ofloss is much moreevident andaboveaverage supervisionis required for these loans.
22
Doubtful – Loansin this category haveall the weaknessesinherent in a loancategorized
as
Substandard,with the characteristicthat
the weaknessesmake collectionor liquidation in full, on thebasis of currently existingfacts, conditions,and values,highly
questionableand improbable.
Performing/Nonperforming– Loans within certainhomogenous loanpools (home equity andconsumer) arenot individually reviewed,
but are monitored forcredit quality viathe aging statusof the loanand bypaymentactivity.The performing or nonperformingstatus
is updatedon
an
ongoing basis dependentupon improvementand deteriorationin credit quality.
The following tablessummarizegross loans held for investmentat September30, 2026and December31, 2025and currentperiod
gross writeoffs forthe nine monthsended September30, 2026and 12months endedDecember 31, 2025by years oforigination and
internally assignedcredit risk ratings (referto Credit RiskManagementsection for detail onrisk rating system).
23
(Dollars in Thousands)
Term Loansby OriginationYear
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 Loansby OriginationYear
Revolving
As of December31, 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 – MORTGAGEBANKING ACTIVITIES
The Company’smortgage banking activities include mandatorydelivery loan sales, forward salescontracts usedto manageresidential
loan pipeline pricerisk, utilization ofwarehouse lines to fundsecondarymarketresidential loan closings, andresidential mortgage
servicing.
Residential Mortgage Loan Production
The Companyoriginates, markets,and services conventionaland government-sponsored residential mortgageloans.Generally,
conforming fixedrate residential mortgageloans are held forsale in the secondarymarketand non-conformingand adjustable-rate
residential mortgageloans
may
be held for investment.The volume ofresidential mortgage loansoriginated for sale andsecondary
marketprices are the primarydrivers of origination revenue.
Residential mortgageloan commitmentsare generally outstandingfor 30 to 90days, which representsthe typical periodfrom
commitmentto originate a residentialmortgage loanto when the closedloan is sold to
an
investor.Residential mortgageloan
commitmentsare subjectto both credit andprice risk.Credit risk is managedthrough underwriting policies andprocedures, including
collateral requirements,which are generallyacceptedby the secondaryloan markets.Price risk is primarily related to interest rate
fluctuationsand is partially managedthrough forwardsales of residential mortgage-backedsecurities (primarily to-be announced
securities, or TBAs)or mandatorydelivery commitmentswith investors.
The unpaid principal balanceof residential mortgageloans held for sale,notional amountsof derivative contractsrelated to residential
mortgage loan commitments,such
as
interest rate lock commitments(“IRLCs”) and forward contractsales and their related fair values
are set forthbelow.
September 30, 2026
December 31, 2025
Unpaid Principal
Unpaid Principal
(Dollars in Thousands)
Balance/Notional
Fair Value
Balance/Notional
Fair Value
Residential MortgageLoans Held forSale
$
22,937
$
23,455
$
20,944
$
21,695
Residential MortgageLoan 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 atSeptember 30, 2026 and December 31, 2025, respectively.
At September 30, 2026and December31, 2025, theCompanyhad
no
residential mortgage loansheld for sale 30-89days pastdue or
on nonaccrualstatus.
Mortgage bankingrevenue was
as
follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
(Dollars in Thousands)
2026
2025
2026
2025
Net realized gainson sales of mortgageloans
$
2,991
$
3,871
$
9,470
$
10,356
Net changein unrealized (loss) gain onmortgage loansheld for
sale
(595)
130
(266)
302
Net changein the fair valueof IRLCs
(152)
(45)
10
359
Net changein the fair valueof forward salescontracts
452
199
482
(85)
Pair-Offs onnet settlementof forward salescontracts
84
(234)
276
(404)
Mortgage servicing rightsadditions
29
40
125
84
Net origination fees
864
833
2,488
2,192
Total mortgagebanking revenues
$
3,673
$
4,794
$
12,585
$
12,804
26
Residential Mortgage Servicing
The Company
may
retain the right to service residential mortgageloans sold.The unpaidprincipal balanceof loans servicedfor
others is the primarydriver of servicing revenue.
The following representsa summaryof mortgageservicing rights.
(Dollars in Thousands)
September 30, 2026
December 31, 2025
Number of residentialmortgage loansserviced for others
456
456
Outstanding principalbalanceof residential mortgageloans serviced for others
$
119,277
$
118,429
Weighted averageinterest rate
5.78%
5.69%
Remaining contractualterm (in months)
353
354
Conforming conventionalloans serviced by theCompanyare sold to Federal NationalMortgage Association(“FNMA”) on a non-
recourse basis, wherebyforeclosure lossesare generally the responsibilityof FNMA andnot the Company.The governmentloans
serviced by theCompanyare secured throughthe GovernmentNational MortgageAssociation (“GNMA”),whereby the Companyis
insured againstloss by the Federal HousingAdministration orpartially guaranteedagainst loss by theUnited States Departmentof
VeteransAffairs.At September 30, 2026,the servicing portfolio balanceconsisted of thefollowing loan types: FNMA (
62.5
%),
GNMA (
4.6
%), and privateinvestor (
32.9
%).FNMA andprivate investor loansare structured
as
actual/actualpaymentremittance.
At September30, 2026 andDecember 31, 2025,the Companydid
no
t have delinquentresidential mortgage loansin GNMA pools
serviced by theCompany.The right to repurchasethese loans andthe corresponding liability hasbeen recorded in otherassets and
other liabilities, respectively,in the ConsolidatedStatementsof Financial Condition.The Companyhad
no
repurchases forthe three
months endedSeptember 30,2026 and2025, and
no
repurchases and$
0.3
million repurchases in the ninemonths endedSeptember
30, 2026 and2025, respectively,of GNMA delinquent or defaultedmortgage loanswith the intention tomodify their termsand
include the loansin new GNMA pools.
Activity in thecapitalized mortgageservicing 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 toloans sold with servicingretained
28
40
124
84
Deletions andamortization
(47)
(44)
(140)
(132)
Ending balance
$
908
$
885
$
908
$
885
The Companydid
no
t record anypermanentimpairmentlosses on mortgage servicing rights for the threeor nine monthsended
September 30,2026 or 2025.
The key unobservableinputs used in determining thefair value ofthe Company’smortgage 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 prepaymentspeeds
8.78%
17.99%
8.50%
18.73%
Cost of servicing (perloan)
$
85
$
95
$
85
$
95
Changes in residentialmortgage interest ratesdirectly affectthe prepaymentspeeds used in valuing theCompany’smortgage
servicing rights.A separatethird party modelis used to estimateprepaymentspeeds basedon interest rates, housingturnover rates,
estimatedloan curtailment,anticipateddefaults, andother relevantfactors.The weighted averageannualprepaymentspeed was
11.75
% at September30, 2026 and
13.05
%
at
December 31, 2025.
27
WarehouseLine Borrowings
The Companyhas the following warehouselines of credit and masterrepurchase agreementswith various financialinstitutions
at
September 30,2026:
Amounts
(Dollars in Thousands)
Outstanding
$
30
million master repurchaseagreement withoutdefined expiration.Interest is at thesecured 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 requiredby the lender.
$
13,528
$
25
million warehouse line ofcredit agreementexpiring in
September 2027
.Interest is at theSOFR rate plus
2.50%
to
6.00%
, with a floor rateof
3.00%
to
6.50%
.
18,166
Total WarehouseBorrowings
$
31,694
Warehouseline borrowings areclassified as short-termborrowings.At December 31, 2025,warehouse line borrowingstotaled $
28.1
million. At September30, 2026, the Companyhad residentialmortgage loansheld for sale pledged ascollateral under theabove
warehouse lines ofcredit and masterrepurchase agreements.The aboveagreements alsocontain covenantswhich include certain
financial requirements,including maintenanceof minimumtangible net worth, minimumliquid assets, andmaximumdebt to net
worth ratio, as definedin the agreements.The Companywas in compliance with all significantdebt covenantsat September30, 2026.
NOTE 5 – DERIVATIVES
The Companyenters into derivativefinancial instrumentsto manageexposures thatarise from business activitiesthat result in the
receipt or paymentof future known and uncertaincash amounts,the value ofwhich are determinedby interest rates.The Company’s
derivative financialinstruments areused to managedifferences in theamount,timing, and durationof the Company’sknown or
expected cashreceipts and its knownor expected cashpaymentsprincipally related to theCompany’ssubordinateddebt.
Cash Flow Hedges ofInterest RateRisk
The Companypreviously maintainedinterest rate swapswith notional amountstotaling $
30
million designated as acash flow hedge
for subordinateddebt. Under the swaparrangement,the Companypaid a fixedinterest rate of
2.50
% and receiveda variableinterest
rate basedon three-monthCME Term SOFR. In October2025, theCompanyterminatedthe swaps andderecognized the derivative
assets. The unrealizedgain of $
2.7
million was deferred inaccumulatedother comprehensiveincome andwill be amortized on a
straight-line basis intointerest expense throughthe remaining termof the original cashflow hedge. The Companyestimates therewill
be approximately$
0.8
million reclassified as a decreaseto interest expensewithin the next 12 months.
For derivatives designatedand thatqualify ascash flow hedges ofinterest rate risk, the gain or loss onthe derivative is recordedin
accumulatedother comprehensiveincome (“AOCI”) andsubsequentlyreclassified into interest expensein the same period(s) during
which the hedgedtransactionaffectsearnings. Amounts reportedin AOCI related to derivativeswill be reclassified to interest expense
as interest paymentsare madeon the Company’svariable-ratesubordinateddebt.
The following tablepresents the changein net gains (losses) recorded inAOCI andthe consolidatedstatementsof income relatedto
the cash flow derivativeinstruments (interest rateswaps related tosubordinateddebt).
Change in Gain
Amount of Gain
(Loss) Recognized
Reclassified
(Dollars in Thousands)
Category
in AOCI
from AOCI to Income
Three monthsended September30, 2026
Interest expense
$
-
$
202
Three monthsended September30, 2025
Interest expense
(189)
303
Nine monthsended September30, 2026
Interest expense
$
-
$
600
Nine monthsended September30, 2025
Interest expense
(1,076)
899
28
NOTE 6 – LEASES
Operating leases inwhich the Companyis the lessee are recorded asoperating lease right of use(“ROU”) assets and operating
liabilities, includedin other assets andliabilities, respectively, onits Consolidated Statementsof Financial Condition.
The Company’soperating leases primarilyrelate to bankingoffices with remaining leaseterms from less thanone to
39
years.The
Company’sleases are notcomplex anddo not containresidual value guarantees,variable lease payments,or significant assumptions
or judgments madein applying the requirementsof 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 September30, 2026, theoperating lease ROU assetsand liabilities were $
24.8
million and $
25.5
million,
respectively. AtDecember 31, 2025,ROU assets andliabilities were $
26.3
million and $
26.9
million, respectively. TheCompany
does not haveany financeleases.
The table below summarizesour lease expenseand otherinformationrelated to theCompany’soperating 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 leaseexpense
$
1,061
$
1,099
$
3,213
$
3,411
Other information:
Cash paidfor amountsincluded in the measurementof lease liabilities:
Operating cashflows from operatingleases
$
929
$
882
$
2,775
$
2,676
Right-of-use assetsobtainedin exchange fornew operating lease liabilities
50
44
866
4,041
Weighted averageremaining lease term— operating leases (in years)
15.4
15.7
15.4
15.7
Weighted averagediscount rate— operating leases
3.7%
3.7%
3.7%
3.7%
The table below summarizesthe maturityof remaining leaseliabilities:
(Dollars in Thousands)
September 30, 2026
2026
$
915
2027
3,478
2028
3,201
2029
2,911
2030
2,919
2031 andthereafter
18,790
Total
$
32,214
Less: Interest
(6,757)
Present Valueof Lease liability
$
25,457
A related partyis the lessor in a land leasewith the Company.The paymentsunder the leaseagreement providefor annuallease
paymentsof approximately $
0.1
million annually through December2033, and thereafter,increase by
5
% every
10
years until 2053at
which time the rentamountwill adjust based on reappraisalof the parcel rental value.The Companythen has
four
successive options
to extendthe lease for
five years
each with rentalincreases of
5
% at eachextension.The aggregate remainingobligation of thelease
totaled $
1.9
million at September30, 2026.Further, in accordancewith the lease agreement,the Companymade a$
0.2
million
paymentin July 2025 to thelessor as reimbursementfor a portionof the costs relatedto the developmentof subjectproperty to
support the constructionof a new bankingoffice by theCompany.
29
NOTE 7 - EMPLOYEEBENEFIT PLANS
The Companyhas a definedbenefit pensionplan covering substantiallyall full-time and eligible part-time associatesand a
SupplementalExecutive RetirementPlan (“SERP”) and aSupplementalExecutive RetirementPlan II (“SERP II”)covering its
executive officers.The defined benefitplan was amendedin December 2019to remove planeligibilityfor new associateshired after
December 31, 2019.The SERP II wasadoptedby the Company’sBoard onMay 21, 2020and coverscertain executiveofficers that
were not coveredby the SERP.
The componentsof the net periodicbenefit cost forthe Company’squalified benefitpension planwere as follows:
Three Months EndedSeptember 30,
Nine Months Ended September30,
(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 Returnon Plan Assets
(2,218)
(2,265)
(6,653)
(6,794)
Net Loss Amortization
(474)
(413)
(1,421)
(1,240)
Net Periodic BenefitCost
$
(328)
$
(141)
$
(982)
$
(424)
Discount Rate
5.67%
5.82%
5.67%
5.82%
Long-term Rateof Return onAssets
6.50%
6.75%
6.50%
6.75%
The componentsof the net periodicbenefit cost forthe Company’sSERP and SERP II were asfollows:
Three Months EndedSeptember 30,
Nine Months Ended September30,
(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 BenefitCost
$
432
$
137
$
1,296
$
417
Discount Rate
5.24%
5.57%
5.24%
5.57%
The service cost componentof net periodic benefitcost is reflected in compensationexpense in the accompanyingstatementsof
income.The other componentsof net periodic costare included in “other”within the noninterest expensecategory in the
ConsolidatedStatementsof Income.
NOTE 8 - COMMITMENTSAND CONTINGENCIES
Lending Commitments
.The Companyis a party tofinancial instrumentswith off-balancesheet risks in the normal courseof business
to meet thefinancing needsof its clients.These financialinstruments consistof commitmentsto extendcredit and standbyletters of
credit.
The Company’smaximum exposureto credit loss under standbyletters of credit andcommitmentsto extendcredit is represented by
the contractualamountof those instruments.The Companyuses the samecredit policies in establishing commitmentsand issuing
letters of credit asit does for on-balancesheet instruments.The amountsassociatedwith the Company’soff-balancesheet
obligations were asfollows:
September 30, 2026
December 31, 2025
(Dollars in Thousands)
Fixed
Variable
Total
Fixed
Variable
Total
Commitmentsto Extend Credit
(1)
$
187,468
$
441,355
$
628,823
$
188,834
$
456,328
$
645,162
StandbyLetters 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 includeunfundedloans, revolvinglines of credit,and off-balancesheet residentialloan commitments.
30
Commitmentsto extendcredit are agreementsto lend to aclient so long
as
there is no violation ofany conditionestablished in the
contract.Commitmentsgenerally have fixedexpiration datesor other terminationclauses and
may
require paymentof a fee.Since
manyof the commitmentsare expectedto expire without being drawnupon, the totalcommitmentamountsdo not necessarily
represent futurecash requirements.
Standbyletters of credit are conditionalcommitmentsissued by the Companyto guaranteethe performanceof a client to athird
party.The credit risk involvedin issuing letters of creditis essentially thesame
as
that involvedin extending loan facilities. In
general, managementdoes not anticipate anymaterial losses
as
a result of participatingin these types oftransactions.However, any
potential losses arisingfrom such transactionsare reserved for in thesame manner
as
managementreserves for its other credit
facilities.
For both on-and off-balancesheet financialinstruments, theCompanyrequires collateral to supportsuch instrumentswhen it is
deemed necessary.The Companyevaluateseach client’s creditworthinesson a case-by-case basis.The amountof collateral
obtainedupon extensionof credit is based onmanagement’scredit evaluationof the counterparty.Collateral held varies, but
may
include depositsheld in financialinstitutions; U.S. Treasurysecurities; other marketablesecurities; real estate;accountsreceivable;
property, plantand equipment;and inventory.
The
al
lowance for credit lossesfor off-balancesheet credit commitmentsthat arenot unconditionallycancellable bythe bankis
adjusted
as
a provision for credit loss expenseand is recorded in otherliabilities.The following tableshows the activityin the
allowance.
Three Months EndedSeptember30,
Nine Months Ended September30,
(Dollars in Thousands)
2026
2025
2026
2025
Beginning Balance
$
2,197
$
1,738
$
2,107
$
2,155
Provision for CreditLosses
44
357
134
(60)
Ending Balance
$
2,241
$
2,095
$
2,241
$
2,095
Other Commitments.
In the normalcourse of business, theCompanyenters into lease commitmentswhich are classified as operating
leases. See Note 6 – Leasesfor additionalinformationon the maturityof the Company’soperating lease commitments.
The Companyhas anoutstandingcommitmentof up to $
1.0
million in a bank techventure capitalfund focusedon finding and
funding technologysolutions for communitybanksand acommitmentof up to $
10.0
million in a solar tax credit equityfund.At
September 30, 2026, the amount remainingto be fundedfor the banktech venturecapital andsolar tax credit equityinvestmentfund
commitmentswas $
0.2
million and $
8.9
million, respectively.
Contingencies
.The Companyis a party to lawsuits andclaims arising out of the normalcourse of business.In management'sopinion,
there are
no
known pending claimsor litigation, the outcomeof which would, individually or in theaggregate, havea materialeffect
on the consolidatedresults of operations,financial position,or cash flows of theCompany.
IndemnificationObligation
.The Companyis a member ofthe Visa U.S.A. network.Visa U.S.A member banksare required to
indemnify theVisa U.S.A. networkfor potential future settlementof certain litigation (the “CoveredLitigation”) that relatesto several
antitrust lawsuits challengingthe practices ofVisa andMasterCardInternational.In 2008, theCompany,as a memberof the Visa
U.S.A. network, obtainedClass B shares ofVisa, Inc. uponits initial public offering.Since its initialpublic offering, Visa,Inc. has
funded alitigation reserve for the CoveredLitigation resulting in a reductionin the Class B shares heldby the Company.In 2011,the
Companysold its remaining Class B shares.Associated with this sale,the Companyentered into aswap contractwith the purchaser
of the sharesthat requires apaymentto the counterpartyin the event thatVisa, Inc. makessubsequentrevisions to the conversion
ratio.Conversion ratiopaymentsand ongoing fixedquarterly chargesare reflected in earnings in theperiod incurred.Fixed charges
included in the swapliability are payablequarterly until the litigation reserve isfully liquidatedand atwhich time the aforementioned
swap contractwill be terminated.Quarterly fixed paymentsare approximately$
0.1
million.There was a $
0.1
million counterparty
paymentaccrued andpayableat September30, 2026due to a revision tothe share conversionrate related toadditionalfunding by
VISA of the merchantlitigation reserve.
31
NOTE 9 – FAIRVALUEMEASUREMENTS
The fair valueof an assetor liability is the price that would bereceived to sell thatasset or paidto transferthat liability in anorderly
transactionoccurring in the principal market(or most advantageousmarket in theabsence ofa principal market)for such assetor
liability.In estimating fair value, theCompanyutilizes valuation techniquesthat are consistentwith the marketapproach,the income
approachand/or thecost approach.Such valuationtechniques areconsistently applied.Inputs tovaluationtechniques include the
assumptionsthat marketparticipantswould use in pricing an asset or liability.Accounting StandardsCodificationTopic 820
establishes a fairvalue hierarchyfor valuationinputs thatgives the highest priority to quotedprices in active marketsfor identical
assets or liabilitiesand thelowest priority to unobservableinputs.The fair valuehierarchy is as follows:
●
Level 1 Inputs -
Unadjustedquoted prices in activemarkets foridentical assets or liabilities thatthe reporting entity hasthe
ability to accessat the measurementdate
.
●
Level 2 Inputs -
Inputs other thanquoted prices includedin Level 1 that areobservable forthe asset or liability, either directly
or indirectly. Thesemight include quotedprices for similar assetsor liabilities in active markets,quoted prices foridentical
or similar assets orliabilities in markets thatare not active, inputs otherthan quotedprices that are observablefor the assetor
liability (such asinterest rates, volatilities,prepaymentspeeds, credit risks, etc.) or inputs thatare derived principallyfrom, or
corroborated,by marketdataby correlation or othermeans
.
●
Level 3 Inputs -
Unobservable inputsfor determining the fairvalues ofassets or liabilities thatreflect an entity’sown
assumptionsaboutthe assumptionsthat marketparticipantswould use in pricing the assets or liabilities.
Assets and LiabilitiesMeasured at Fair Valueon a RecurringBasis
Securities Available for Sale.
U.S. Treasury securities are reportedat fair valueutilizing Level 1 inputs.Other securitiesclassified as
available for sale arereported at fair valueutilizing Level 2 inputs.For these securities,the Companyobtains fair value measurements
from anindependentpricing service.The fair valuemeasurementsconsider observabledatathat mayinclude dealer quotes,market
spreads, cashflows, the U.S. Treasuryyield curve, live trading levels,trade executiondata,credit informationand thebond’s terms
and conditions,among otherthings.
In general, the Companydoes not purchasesecurities that havea complicatedstructure.The Company’sentire portfolio consistsof
traditional investments,nearly all of which areU.S. Treasury obligations,federal agencybullet or mortgage pass-through securities, or
general obligation or revenue-based municipal bonds.Pricing for suchinstruments is easily obtained.At least annually,the Company
will validate pricessupplied by the independentpricing service by comparing them to prices obtainedfrom an independentthird-party
source.
Loans Held for Sale
.The fair valueof residential mortgageloans held for salebased onLevel 2 inputs is determined,when possible,
using either quotedsecondary-market prices or investorcommitments.If no suchquoted price exists, thefair value is determined
using quotedprices for a similar assetor assets, adjustedfor the specific attributesof thatloan, which would be usedby other market
participants.The Companyhas elected thefair value optionaccountingfor its held for sale loans.
Mortgage BankingDerivative Instruments.
The fair valuesof interest ratelock commitments(“IRLCs”) are derived byvaluation
models incorporatingmarket pricing forinstruments with similar characteristics,commonlyreferred to as bestexecution pricing, or
investor commitmentprices for best effortIRLCs which haveunobservableinputs, such as anestimate ofthe fair valueof the
servicing rights expectedto be recorded uponsale of the loans,net estimatedcosts to originate theloans, andthe pull-through rate,
and aretherefore classified asLevel 3 within the fair valuehierarchy.The fair valueof forward salecommitmentsis based on
observable marketpricing for similar instruments andare thereforeclassified
as
Level 2 within the fair valuehierarchy.
Interest Rate Swap.
The Company’sderivative positionsare classified
as
Level 2 within the fair valuehierarchy andare valuedusing
models generallyacceptedin the financialservices industry andthat useactively quotedor observable marketinput values from
external marketdataproviders.The fair valuederivatives aredetermined using discountedcash flow models.
Fair ValueSwap
.The Companyentered into astand-alonederivative contractwith the purchaserof its Visa Class B shares.The
valuationrepresents the amountdue andpayableto the counterpartybased uponthe revised share conversionrate, if any,during the
period. The Company’sderivative positionsare classified
as
Level 2 within the fair valuehierarchy anduse actively quotedor
observable marketinput values from externalmarket dataproviders.There was a $
0.1
million and $
0.2
million counterpartypayment
accrued andpayable
at
September 30,2026 andDecember 31, 2025, respectively.
32
A summaryof fair valuesfor assets andliabilities recorded at fair valueon a recurring basis consistedof the following:
Level 1
Level 2
Level 3
Total Fair
(Dollars in Thousands)
Inputs
Inputs
Inputs
Value
September 30, 2026
ASSETS:
Securities Availablefor Sale:
U.S. GovernmentTreasury
$
594,343
$
-
$
-
$
594,343
U.S. GovernmentAgency
-
160,311
-
160,311
States andPolitical Subdivisions
-
32,575
-
32,575
Mortgage-BackedSecurities
-
44,329
-
44,329
CorporateDebt Securities
-
30,539
-
30,539
Loans Held forSale
-
23,455
-
23,455
Forward Sales Contracts
-
397
-
397
Residential MortgageLoan Commitments("IRLCs")
-
-
474
474
December 31, 2025
ASSETS:
Securities Availablefor Sale:
U.S. GovernmentTreasury
$
333,264
$
-
$
-
$
333,264
U.S. GovernmentAgency
-
172,114
-
172,114
States andPolitical Subdivisions
-
34,911
-
34,911
Mortgage-BackedSecurities
-
52,004
-
52,004
CorporateDebt Securities
-
43,532
-
43,532
Equity Securities
-
-
2,069
2,069
Loans Held forSale
-
21,695
-
21,695
Residential MortgageLoan Commitments("IRLCs")
-
-
464
464
LIABILITIES:
Forward Sales Contracts
-
84
-
84
Mortgage Banking Activities
.The Companyhad Level 3 issuances andtransfers related tomortgage bankingactivities of $
5.9
million
and $
12.1
million, respectively, for thenine monthsended September30, 2026, and$
6.1
million and $
13.0
million, respectively, for
the nine monthsended September30, 2025.Issuancesare valuedbased onthe changein fair value ofthe underlying mortgageloan
from inceptionof the IRLCto the ConsolidatedStatementof Financial Conditiondate,adjustedfor pull-through ratesand coststo
originate.IRLCs transferredout of Level 3 representIRLCs thatwere funded andmoved tomortgage loansheld for sale, at fair
value.
Assets Measured atFair Value ona Non-RecurringBasis
Certain assetsare measuredat fair valueon a non-recurring basis (i.e., the assets are not measuredat fair valueon an ongoing basis
but are subjectto fair valueadjustmentsin certain circumstances).An example wouldbe assets exhibiting evidenceof impairment.
The following isa description ofvaluationmethodologies usedfor assets measuredon a non-recurring basis.
Collateral Dependent Loans
.Impairmentfor collateral dependentloans is measuredusing the fair valueof the collateralless selling
costs.The fair valueof collateral is determinedby an independentvaluationor professional appraisalin conformancewith banking
regulations.Collateral valuesare estimatedusing Level 3 inputs due to thevolatility in the real estatemarket, andthe judgmentand
estimation involvedin the real estateappraisalprocess.Collateral dependentloans are reviewed andevaluatedon at leasta quarterly
basis for additionalimpairmentand adjustedaccordingly.Valuationtechniques areconsistent with thosetechniques appliedin prior
periods.Collateral-dependentloans hada carrying valueof $
14.7
million with valuation allowanceof $
1.0
million at September30,
2026 anda carrying valueof $
6.4
million and a $
0.1
million valuation allowanceat December31, 2025.
33
Other Real Estate Owned
.During the first ninemonths of 2026, certainforeclosed assets, uponinitial recognition, were measuredand
reported atfair value througha charge-offto the allowancefor credit losses basedon the fair valueof the foreclosedasset less
estimatedcost to sell.The fair valueof the foreclosedasset is determinedby an independentvaluationor professional appraisalin
conformancewith banking regulations.On an ongoing basis, we obtainupdatedappraisalson foreclosed assetsand realize valuation
adjustmentsas necessary.The fair valueof foreclosed assetsis estimated using Level 3 inputsdue to the judgmentand estimation
involved in thereal estate valuationprocess.
Mortgage Servicing Rights
.Residential mortgageloan servicing rights are evaluatedfor impairmentat eachreporting period based
upon the fairvalue of therights as comparedto the carrying amount.Fair value is determinedby a third partyvaluationmodel using
estimatedprepaymentspeeds of theunderlying mortgage loansserviced and stratificationsbased onthe risk characteristics ofthe
underlying loans(predominantlyloan typeand noteinterest rate).The fair valueis estimated using Level 3 inputs,including
a
discount rate,weighted average prepaymentspeed, andthe cost of loanservicing.Further detail on thekey inputs utilized are
provided in Note 4– Mortgage BankingActivities.At eachof September30, 2026 andDecember 31, 2025,there was
no
valuation
allowance for loanservicing rights.
Assets and LiabilitiesDisclosed at Fair Value
The Companyis required to disclose the estimatedfair value offinancial instruments,both assetsand liabilities, for which it is
practical to estimatefair value andthe following is a description of valuationmethodologies usedfor those assetsand liabilities.
Cash and Short-TermInvestments.
The carrying amountof cash andshort-term investmentsis used to approximatefair value, given
the short time frameto maturityand assuch assets donot present unanticipatedcredit concerns.
Securities Held to Maturity
.Securities held to maturityare valuedin accordancewith the methodologypreviously notedin the
caption “Assets andLiabilities Measured atFair Value ona Recurring Basis – Securities Availablefor Sale.”
Loans.
The loan portfoliois segregated into categoriesand thefair value ofeach loancategory is calculatedusing present value
techniques basedupon projectedcash flows andestimateddiscount rates.The values reportedreflect the incorporationof a liquidity
discount to meetthe objectiveof “exit price” valuation.
Deposits.
The fair valueof Noninterest Bearing Deposits,NOW Accounts, MoneyMarket Accountsand Savings Accountsare the
amountspayableon demandat the reporting date.The fair valueof fixed maturitycertificates of depositis estimated using present
value techniquesand ratescurrently offeredfor deposits of similar remainingmaturities.
Subordinated Notes Payable.
The fair valueof eachnote is calculatedusing present value techniques,based uponprojected cash
flows andestimateddiscount ratesas well as rates being offeredfor similar obligations.
Short-Termand Long-TermBorrowings.
The fair valueof eachnote is calculatedusing present value techniques,based upon
projected cashflows and estimateddiscount ratesas well as rates being offeredfor similar debt.
A summaryof estimatedfair values ofsignificant financialinstruments notrecorded at fairvalue consistedof 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 andInterest Bearing Deposits
340,015
340,015
-
-
InvestmentSecurities, Held to Maturity
315,142
-
293,832
-
Mortgage ServicingRights
908
-
-
1,534
Loans, Net of Allowancefor Credit Losses
2,459,355
-
-
2,321,370
LIABILITIES:
Deposits
$
3,666,568
$
-
$
3,665,513
$
-
Short-Term Borrowings
38,881
-
38,881
-
SubordinatedNotes Payable
33,303
-
31,339
-
Long-TermBorrowings
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 andInterest Bearing Deposits
467,782
467,782
-
-
InvestmentSecurities, Held to Maturity
377,446
129,268
240,052
-
Other Equity Securities
2,848
-
2,848
-
Mortgage ServicingRights
924
-
-
1,359
Loans, Net of Allowancefor Credit Losses
2,515,117
-
-
2,416,937
LIABILITIES:
Deposits
$
3,662,312
$
-
$
3,662,466
$
-
Short-Term Borrowings
50,092
-
50,092
-
SubordinatedNotes Payable
42,582
-
40,116
-
Long-TermBorrowings
680
-
680
-
All non-financialinstruments areexcluded fromthe abovetable.The disclosures also do notinclude goodwill.Accordingly, the
aggregate fair valueamountspresented donot represent theunderlying value ofthe Company.
35
NOTE 10 – ACCUMULATEDOTHER COMPREHENSIVEINCOME (LOSS)
The amountsallocatedto accumulatedother comprehensiveincome (loss) are presentedin the table below.
Accumulated
Securities
Other
Available
Interest Rate
Retirement
Comprehensive
(Dollars in Thousands)
for Sale
Swap
Plans
Income (Loss)
Balance as ofJanuary 1, 2026
$
(9,530)
$
2,676
$
9,441
$
2,587
Other comprehensiveloss during the period
(13,575)
(448)
-
(14,023)
Balance as ofSeptember 30, 2026
$
(23,105)
$
2,228
$
9,441
$
(11,436)
Balance as ofJanuary 1, 2025
$
(20,179)
$
3,971
$
9,722
$
(6,486)
Other comprehensiveincome (loss) during theperiod
8,783
(1,076)
-
7,707
Balance as ofSeptember 30, 2025
$
(11,396)
$
2,895
$
9,722
$
1,221
NOTE 11 -SEGMENT REPORTING
The Companyoperates asingle reportable business segmentthat is comprisedof commercialbanking within the statesof Florida,
Georgia, andAlabama.The Company’schief executiveofficer is deemedthe Chief Operating Decision Maker(“CODM”). The
CODM evaluatesthe financial performanceof the Companyby evaluating revenue streams,significant expenses, andbudget to actual
results in assessingthe Company’ssingle reporting segment andin the determinationof allocating resources.The CODM uses
consolidatednet income tobenchmarkthe Companyagainst peers andto evaluateperformanceand allocateresources.Significant
revenue and expensecategories evaluatedby the CODM are consistent with thepresentation of theConsolidated Statementof Income
and componentsof other noninterestexpense.
36
Item 2.
MANAGEMENT'SDISCUSSION ANDANALYSISOF FINANCIALCONDITION ANDRESULTSOF
OPERATIONS
Management’sdiscussion and analysis(“MD&A”) provides supplementalinformation,which sets forth the majorfactors thathave
affectedour financialcondition andresults of operationsand shouldbe read in conjunctionwith the ConsolidatedFinancial
Statementsand relatednotes.The following informationshould provide abetter understandingof the majorfactors andtrends that
affectour earnings performanceand financialcondition, andhow our performanceduring the third quarterof 2026compareswith
prior periods.Throughout this section,Capital City BankGroup, Inc., andsubsidiaries, collectively, is referredto as “CCBG,”
“Company,”“we,” “us,” or “our.”
CAUTION CONCERNINGFORWARD-LOOKINGSTATEMENTS
This Quarterly Reporton Form 10-Q, includingthis MD&A section,contains “forward-looking statements”within the meaning ofthe
Private Securities LitigationReform Act of1995.These forward-looking statementsinclude, among others,statementsaboutour
beliefs, plans, objectives,goals, expectations,estimates andintentions thatare subjectto significant risks anduncertaintiesand are
subject to changebased onvarious factors,manyof which are beyondour control.The words “may,”“could,” “should,” “would,”
“believe,” “anticipate,”“contemplate,”“estimate,” “expect,”“intend,” “plan,”“point to,” “project,”“target,” “vision,” “goal,”
“continue,” “further,”and similar expressionsare intendedto identify forward-looking statements.
All forward-looking statements,by their nature,are subjectto risks and uncertainties.Our actual futureresults may differmaterially
from thoseset forth in our forward-looking statements.Please see the IntroductoryNote of this quarterlyreport on Form 10-Q as well
as the IntroductoryNote and
Item 1A. Risk Factors
of our 2025Form 10-K, as updatedin our subsequentquarterly reports filed on
Form 10-Q, andin our other filings madefrom time totime with the SEC afterthe dateof this report.
However, otherfactors besidesthose listed in our QuarterlyReport or in our AnnualReport also couldadversely affectour results,
and youshould not considerany suchlist of factors tobe a completeset of all potentialrisks or uncertainties.Any forward-looking
statementsmade by us or on our behalfspeak only as of thedate theyare made.We do not undertaketo updateany forward-looking
statement,except asrequired by applicablelaw.
BUSINESS OVERVIEW
We are afinancial holding companyheadquarteredin Tallahassee,Florida, and we are theparent ofour wholly owned subsidiary,
Capital City Bank(the “Bank”or “CCB”).We offer abroad arrayof productsand services througha totalof 62 full-service offices
and 107ATMs/ITMslocated in Florida, Georgia,and Alabama.Through CapitalCity Home Loans,LLC (“CCHL”), we have 27
additionaloffices in the Southeastfor our mortgagebanking business.We provide afull range of bankingservices, including
traditional depositand credit services, mortgagebanking, assetmanagement,trust, merchantservices, bankcards,securities brokerage
services andfinancial advisoryservices, including life insuranceproducts,risk managementand assetprotection services.
Our profitability,like mostfinancial institutions,is dependent toa large extentupon net interestincome, which is the difference
between the interestand feesreceived on interest earningassets, such asloans andsecurities, and the interestpaid on interest-bearing
liabilities, principally depositsand borrowings.Results of operationsare also affectedby the provision forcredit losses, operating
expenses suchas salaries andemployee benefits,occupancyand otheroperating expensesincluding income taxes,and noninterest
income such asmortgage bankingrevenues,wealth managementfees, deposit fees, andbank cardfees.
We haveincluded a detaileddiscussion
of
our long-term strategic objectivesas part ofthe MD&A section of our 2025Form 10-K.
37
NON-GAAP FINANCIALMEASURES (UNAUDITED)
We presenta tangible commonequity ratio anda tangible bookvalue per diluted sharethat, in eachcase, removesthe effect
of
goodwill andother intangibles thatresulted from merger andacquisition activity.We believe these measuresare useful to investors
becausethey allow investors tomore easily compareour capital adequacyto other companiesin the industry.Non-GAAP financial
measures shouldnot be consideredalternativesto generally acceptedaccountingprinciples (“GAAP”)-basis financial statementsand
other bankholding companiesmay defineor calculate thesenon-GAAP measures or similar measuresdifferently.
The GAAP to non-GAAP reconciliation for eachquarter presentedis 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 QUARTERLYFINANCIAL 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 TaxEquivalent.
(2)
Non-GAAP financial measure.See non-GAAP reconciliation on page 37.
39
FINANCIAL OVERVIEW
Results of Operations
Performance Summary.
Net income of$16.9million, or $0.99per diluted share, for thethird quarter of2026 comparedto $16.3
million, or $0.95 per diluted share, for thesecond quarterof 2026, and$16.0 million, or $0.93 per diluted share,for the third quarterof
2025. For the firstnine monthsof 2026, netincome totaled$49.0 million, or $2.86 per dilutedshare, comparedto net incomeof $47.9
million, or $2.80per diluted share, for thesame period of2025.
Net Interest Income.
Tax
-equivalent netinterest income forthe third quarterof 2026totaled $45.1million, compared to$44.2 million
for the secondquarter of2026, and$43.6 million for the third quarterof 2025. Comparedto the secondquarter of2026, the increase
was primarily attributableto higher income frominvestmentsecurities and loaninterest, in addition tolower deposit interest expense,
partially offsetby lower overnight fundsincome due tolower average balances.The increase over thethird quarter of2025 was also
driven by the sameaforementionedfactors. One additionalcalendarday alsocontributed tothe increase overthe second quarterof
2026.For the first nine monthsof 2026, tax-equivalent netinterest income totaled$132.2million comparedto $128.4 million for the
same period of2025,primarily attributableto higher investmentsecurities income andlower deposit interest expense, partiallyoffset
by lower loan interestincome andovernight fundsincome.
Provision and Allowance for Credit Losses.
We recorded aprovision benefit forcredit losses of $0.1 million for thethird quarter of
2026, comparedto a provision expenseof $0.9 million for the secondquarter of2026 and$1.9 million for the third quarterof 2025.
For the first ninemonths of2026, we recorded aprovision expense forcredit losses of $1.6 million comparedto $3.3 million for the
same period of2025. At September30, 2026, theallowance for creditlosses for loans HFI totaled$30.4 million (1.22% ofloans HFI)
comparedto $31.0 million (1.24% ofloans HFI) atJune 30, 2026and $31.0million at December 31, 2025(1.22% of loansHFI).We
discuss the various factorsthat impactedour provision expensein further detail below underthe headingAllowance for Credit Losses.
NoninterestIncome
. Noninterest income forthe third quarterof 2026totaled $19.4million, a $1.2 million, or 5.9%, decrease fromthe
second quarter of 2026and a $2.9 million,or 13.2%, decreasefrom the third quarter of 2025.The decrease fromthe second quarterof
2026 was primarily attributableto decreases in mortgagebanking revenuesof $1.0 million, deposit feesof $0.5 million andother
income of $0.2million partially offsetby a $0.5million increase in wealth managementfees. The decreasefrom the third quarterof
2025 was drivenby decreasesin mortgage bankingrevenues of $1.1million, deposit fees of $0.7million, other income of $0.7million
and wealth managementfees of $0.5 million, partially offsetby an increasein bank cardfees of $0.1million. For the first nine months
of 2026, noninterestincome totaled$59.9 million, a $2.3 million, or 3.8%, decreasefrom the sameperiod of 2025,primarily
attributableto decreases in wealthmanagementfees of $3.3million,partially offsetby increases in other incomeof $0.7 million and
bank cardfees of $0.3million.
Noninterest Expense.
Noninterest expensefor the third quarterof 2026totaled $42.3million, a $0.3 million, or 0.8%, decrease from
the second quarter of2026 and a$0.6 million, or 1.4%, decrease fromthe third quarterof 2025. Thedecrease fromthe secondquarter
of 2026was primarily attributableto decreases in compensationexpense of$0.2 million and otherexpense of$0.1 million. The
decrease from the thirdquarter of 2025 reflecteddecreases in compensationexpense of$0.4 million and otherexpense of$0.4 million
offset bya $0.3million increase in occupancyexpense. For the first nine monthsof 2026, noninterestexpense totaled$126.3 million,
a $2.2 million, or1.7%, increase over thesame period of 2025and reflectedincreases in other expenseof $3.0 million andoccupancy
expense of$0.8 million partially offsetby a decreasein compensationexpense of$1.6 million. The increase in otherexpense was
primarily due toa $3.9 million increase inORE expense,reflecting lower gains onproperty sales comparedto the prior year period,
which included asignificant gain fromthe sale of ouroperations centerbuilding in the first quarterof 2025.
Financial Condition
Earning Assets.
Averageearning assets totaled$4.038 billion for the third quarterof 2026, adecrease of$30.6 million, or 0.8%, from
the second quarterof 2026, andan increase of$2.4 million, or 0.1% over the fourthquarter of2025. Comparedto the secondquarter
of 2026, thechange in earning assetmix reflected a$27.2 million decreasein overnight funds,
a $
10.3 million decrease in loansheld
for investment,and a$3.5 million decrease in loansheld for sale (“HFS”),partially offsetby a $10.5million increase in investment
securities. Comparedto the fourthquarter of2025, the changereflected a $171.8million increase in investmentsecurities and a $2.7
million increase inloans HFS, partially offsetby a $99.7million decrease in overnight fundsand a$72.5 million decreasein loans
held for investment.
Loans.
Averageloans HFI decreasedby $10.3 million, or 0.4%, fromthe second quarterof 2026, anddecreased by$72.5 million, or
2.8%, from thefourth quarterof 2025. LoansHFI at September30, 2026, decreasedby $10.1 million, or 0.4%, fromJune 30, 2026,
and decreasedby $56.4 million, or 2.2%, fromDecember 31, 2025.
40
Credit Quality
. Nonperforming assets(nonaccrual loansand other real estate) totaled$9.7 million at September30, 2026 comparedto
$13.4 million at June30, 2026and $10.5 millionat December 31, 2025.At September 30, 2026,nonperforming assetsas a percentage
of total assetswas 0.22%, comparedto 0.30% atJune 30, 2026and 0.24%at December31, 2025. Nonaccrualloans totaled$7.4
million at September30, 2026, a$2.7 million decrease fromJune 30, 2026and a$1.2 million decrease fromDecember 31, 2025.
Other real estatetotaled $2.4million at September30, 2026,a $1.1million decrease fromJune 30, 2026,and a$0.4 million increase
over December 31, 2025.Further, classified loanstotaled $20.8million at September30, 2026, a$9.0 million decrease fromJune 30,
2026, anda $6.5 million increase overDecember 31, 2025.
Deposits
. Average totaldeposits were $3.648 billion for thethird quarter of2026, a decreaseof $31.2 million, or 0.9%, fromthe
second quarterof 2026, andcomparableto the fourthquarter of2025. At September30, 2026, totaldeposits were $3.667billion, a
decrease of$54.4 million, or 1.5%, fromJune 30, 2026, andan increaseof $4.3 million, or 0.1%, over December31, 2025. Total
public fundsbalanceswere $503.2 million at September30, 2026, $561.5million at June 30, 2026, and $654.7million at December
31, 2025.
Capital
. At September 30, 2026,we were “well-capitalized”with a totalrisk-based capitalratio of 22.99%and atangible common
equity ratio (a non-GAAPfinancial measure) of11.25% comparedto 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 capitalratios exceededthe threshold to
be “well-capitalized”under the BaselIII capitalstandards.
RESULTSOF OPERATIONS
The following tableprovides a condensedsummary of our resultsof operations -a discussion of the variouscomponentsare discussed
in further detailbelow.
Three Months Ended
Nine Months Ended
September 30,
June 30,
September 30,
September 30,
September 30,
(Dollars in Thousands,except per sharedata)
2026
2026
2025
2026
2025
Interest Income
$
52,486
$
51,838
$
51,431
$
155,344
$
152,672
TaxableEquivalent Adjustments
49
43
45
132
133
Total InterestIncome(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
TaxableEquivalent Adjustments
49
43
45
132
133
Net Interest IncomeAfter 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
IncomeBefore IncomeTaxes
22,179
21,238
21,091
64,082
63,116
IncomeTax Expense
5,239
4,961
5,141
15,048
15,264
Net IncomeAttributable to CommonShareowners
$
16,940
$
16,277
$
15,950
$
49,034
$
47,852
Basic Net IncomePer 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 incomerepresents our singlelargest source of earningsand is equal to interestincome and feesgenerated byearning assets
less interest expensepaid on interest bearingliabilities.This informationis provided on a “taxableequivalent”basis to reflect thetax-
exempt statusof income earnedon certain loansand stateand local governmentdebt obligations.We provide ananalysis ofour net
interest incomeincluding averageyields and ratesin Table I, “AverageBalances& Interest Rates,”on page 51.
Tax
-equivalent net interest incomefor the third quarter of2026 totaled $45.1million, compared to$44.2 million for the secondquarter
of 2026, and$43.6 million for the third quarterof 2025. Comparedto the secondquarter of2026, the increasewas primarily
attributableto higher income frominvestmentsecurities and loaninterest income, in additionto lower deposit interest expense,
partially offsetby lower overnight fundsincome due tolower average balances.The increase in investmentsecurities income reflected
new investmentpurchases athigher rates andhigher balances aswe deploy additionalliquidity into the investmentsecurity portfolio.
The decrease in depositinterest expense wasprimarily driven by loweraverage balanceson seasonalpublic funds accountsandlower
rates on time deposits.One additional calendarday alsocontributed tothe increase overthe second quarterof 2026. Theincrease over
the third quarterof 2025was also driven by thesame aforementionedfactors.
For the first ninemonths of2026, tax-equivalent netinterest income totaled$132.2 million comparedto $128.4 million for thesame
period of 2025.The increase was primarily attributableto higher investmentsecurities income andlower deposit interest expense,
partially offsetby lower loan interest incomeand overnightfunds income.New investment purchasesat higher yields and higher
balancesdrove the increasein investment securities income.The decrease in depositinterest expense wasprimarily attributableto
lower rates acrossseveral productlines. Lower average loanbalancescontributed tothe decreasein loan interest income,while the
decrease in overnight fundsincome reflectedthe deploymentof more liquidity into theinvestmentportfolio as well as a lower average
overnight fundsrate.
Our net interest marginfor the third quarterof 2026was 4.42%, anincrease of sevenbasis points over thesecond quarterof 2026and
an increase ofeight basis points over thethird quarter of2025. For the first nine monthsof 2026, ournet interest marginincreased by
six basis points to4.34% comparedto the sameperiod of 2025.The increase in net interestmargin over all prior periods waslargely
attributableto higher investmentsecurity yield driven by new purchasesat higher rates andlower deposit costs. For thethird quarter of
2026, our costof fundswas 73 basis points,a decreaseof two basis pointsfrom the secondquarter of2026 andfive basis pointsfrom
the third quarterof 2025. Our costof deposits (including noninterestbearing accounts)was 74 basis points,76 basis points,and 80
basis points, respectively,for the sameperiods.
Provision forCredit Losses
We recordeda provision benefit forcredit losses of $0.1million for the thirdquarter of 2026, comparedto a provision expenseof $0.9
million for the secondquarter of2026 and$1.9 million for the third quarterof 2025. For thefirst nine months of2026, we recordeda
provision expensefor credit losses of $1.6million comparedto $3.3 million for the sameperiod of 2025.For the first nine monthsof
2026, the provisionreflected a $1.4million expense for loansHFI anda $0.1million expense for unfundedloan commitments
comparedto a $3.4million expense for loansHFI and
a
$0.1 million benefit for unfundedloan commitmentsfor the sameperiod
of
2025. We discussthe various factorsthat impactedour provision expensein further detail below underthe heading Allowancefor
Credit Losses.
Noninterest Income
Noninterest incomefor the third quarterof 2026totaled $19.4million, a $1.2 million, or 5.9%, decrease fromthe second quarterof
2026 anda $2.9 million, or 13.2%, decreasefrom the third quarterof 2025. Thedecrease fromthe second quarterof 2026was
attributableto decreases in mortgagebanking revenuesof $1.0 million, deposit feesof $0.5 million andother income of$0.2 million
partially offsetby a $0.5million increase in wealth managementfees. The decreasein mortgage bankingrevenues was primarilydue
to lower productionvolume andthe decreasein deposit fees reflectedlower overdraft feesattributableto processing changesthat
better align with industrypractices. The increasein wealth managementfees was primarily dueto higher retail brokerage fees.
The decrease fromthe third quarterof 2025was driven by decreasesin mortgage bankingrevenues of $1.1million, deposit fees of
$0.7 million, otherincome of $0.7million and wealth managementfees of $0.5million, partially offsetby an increasein bankcard
fees of $0.1million. The decrease in mortgagebanking revenueswas due to lower productionvolume andgain on sale margin. The
decrease in depositfees reflected lower overdraftfees. The decreasein other income reflecteda $0.7 million gain fromthe sale ofour
insurance subsidiaryin the third quarter of2025 – theadvisors atthis subsidiary also serviced retail brokerageclients which drove the
decline in wealthmanagementfees.
42
For the first ninemonths of2026, noninterestincome totaled$59.9 million, a $2.3 million, or 3.8%, decreasefrom the sameperiod of
2025, attributableto decreases in wealthmanagementfees of $3.3million partially offsetby increases in other incomeof $0.7million
and bank cardfees of $0.3 million. The decreasein wealth managementfees was attributableto decreases in retail brokeragefees (due
to lower assets undermanagement)and lower insurancecommissions (attributableto the aforementionedsale of our insurance
subsidiary). The increasein other incomewas primarily attributableto increases in other fees/commissionsof $0.3 million andbank
owned life insuranceincome of $0.2million. The increase in bankcard fees reflectedhigher card volume.
Noninterest incomerepresented 30.1%of operating revenues(net interest income plusnoninterest income)for the third quarterof
2026 comparedto 31.8% for thesecond quarterof 2026and 33.9%for the third quarterof 2025. For thefirst nine monthsof 2026,
noninterest incomerepresented 31.2%of operating revenuescomparedto 32.7%for the sameperiod of 2025.
The table below reflectsthe majorcomponentsof noninterestincome.
Three MonthsEnded
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 CardFees
3,830
3,858
3,733
11,318
11,021
Wealth ManagementFees
4,640
4,185
5,173
12,876
16,142
Mortgage BankingRevenues
3,673
4,660
4,794
12,585
12,804
Other
2,073
2,240
2,754
6,715
6,027
Total NoninterestIncome
$
19,384
$
20,599
$
22,331
$
59,916
$
62,252
Significant componentsof noninterestincome are discussedin more detail below.
Deposit Fees
. Deposit fees forthe third quarterof 2026totaled $5.2million, a decrease of$0.5 million, or 8.6%, from the second
quarter of2026, anda decreaseof $0.7 million,or 12.1%, from thethird quarter of2025. For the first nine monthsof 2026, deposit
fees totaled $16.4million, a $0.2 million,or 1.0%, increase overthe same period of 2025. Compared to the secondquarter of 2026 and
third quarterof 2025, thedecreases reflectedlower overdraft feesattributableto processing changesthat betteralign with industry
practices. Comparedto the first nine monthsof 2025, theincrease was primarily dueto higher service charge fees andcommercial
accountanalysis fees.
Bank Card Fees
. Bank card fees for the thirdquarter of 2026totaled $3.8million,
a
decrease of$0.1 million,or 0.7%, from thesecond
quarter of2026, andan increase of$0.1 million, or 2.6%, over the third quarterof 2025. For the first ninemonths of2026, bankcard
fees totaled$11.3 million, a $0.3million, or 2.7% increaseover the sameperiod of 2025. Theincrease over thefirst nine months of
2025 reflectedhigher card volume.
WealthManagementFees
. Wealth managementfees include trust feesthrough CapitalCity Trust (i.e., managedaccountsand
trusts/estates),and retail brokeragefees through CapitalCity Investments(i.e., investment, insuranceproducts, andretirement
accounts).Wealth managementfees for the thirdquarter of2026totaled $4.6million, an increase of $0.5million, or 10.9%, over the
second quarter of 2026and a $0.5 million,or 10.3%, decrease fromthe third quarter of 2025.For the first nine monthsof 2026, wealth
managementfees totaled $12.9 million, adecrease of $3.3 million,or 20.2%, from thesame period of 2025. Theincrease comparedto
the second quarterof 2026was driven by higher retail brokeragefees. The decreasecomparedto the prior year periodswas primarily
attributableto a decreasein retail brokerage assetsunder management.Further, to a lesser extent,lower insurance commissions
contributed tothe decreasesand reflectedthe sale of ourinsurance subsidiaryin the third quarter of2025. At September30, 2026,
total assetsunder managementwere approximately$2.892 billion comparedto $2.839billion at June 30, 2026and $3.244 billion at
September 30,2025. The increaseover June 30, 2026reflected higher accountvaluations.Comparedto September30, 2025, the
decline was dueto lower retail brokerageassets partiallyattributableto the sale ofour insurance subsidiaryin the third quarterof
2025.
Mortgage Banking Revenues.
Mortgage banking revenuestotaled $3.7 millionfor the third quarterof 2026, adecrease
of
$1.0 million,
or 21.2%, fromthe second quarterof 2026and adecrease
of
$1.1 million, or 23.4%, from thethird quarter of2025. For the first nine
months of 2026,mortgage bankingrevenues totaled$12.6 million,a decreaseof $0.2 million, or 1.7%, from thesame period of2025.
Comparedto the secondquarter of2026, the decreasewas attributableto lower production volume.The decrease comparedto the
prior year periods wasdue to lower productionvolume andgain on sale margin.We provide adetailed overview ofour mortgage
banking operation,including a detailed break-down of mortgagebanking revenues,mortgage servicing activity,and warehouse
funding within Note4 – Mortgage BankingActivities in the Notes toConsolidatedFinancial Statements.
43
Other
. Other income totaled$2.1 million for the third quarterof 2026, adecrease
of
$0.2 million, or 7.5%, from the secondquarter of
2026, and a decreaseof $0.7 million, or 24.7%, fromthe third quarter of2025. For the first nine monthsof 2026, otherincome totaled
$6.7 million,an increase of $0.7million, or 11.4%, over the same periodof 2025. Comparedto the third quarterof 2025,the decrease
was due to theaforementioned$0.7 million gain from thesale of our insurancesubsidiary in the third quarterof 2025.The increase
over the first ninemonths of2025 was primarilyattributableto increases in other fees/commissionsof $0.3 million andbank owned
life insurance incomeof $0.2 million.
Noninterest Expense
Noninterest expensefor the third quarterof 2026totaled $42.3million, a $0.3 million, or 0.8%, decrease fromthe second quarterof
2026 and a $0.6million, or 1.4%, decreasefrom the third quarter of2025. The decreasefrom the second quarterof 2026 was primarily
attributableto decreases in compensationexpense of$0.2 million (commission expense)and otherexpense of$0.1 million. A $0.5
million decreasein other real estateexpense thatwas partially offsetby a $0.3million increase in telephone expensedrove the
variancein other expense. Thedecrease fromthe third quarterof 2025was also driven by thesame aforementionedfactors.
For the first ninemonths of 2026, noninterestexpense totaled$126.3 million, a $2.2million, or 1.7%, increase overthe sameperiod of
2025 andreflected increases in otherexpense of$3.0 million and occupancyexpense of$0.8 million partially offsetby a $1.6million
decrease in compensationexpense. The increasein other expensewas primarily due to a$3.9 million increase in ORE expense,
reflecting lower gainson property salescomparedto the prior year period, which includeda significant gain fromthe sale ofour
operations centerbuilding in the first quarterof 2025. Lower charitablecontribution expenseof $0.6 million andprofessionalfee
expense of$0.6 million partially offsetthe increase. The increasein occupancyexpense reflectedhigher expense for FF&E
maintenanceagreements andsoftware licenses. The decreasein compensationexpense reflectedlower salary expenseof $1.1 million
and associatebenefit expenseof $0.5 million. Lower commission expensedrove the decline in salaryexpense andthe decreasein
associatebenefit expensewas primarily attributableto lower stock basedcompensation.
The table below reflectsthe majorcomponentsof noninterestexpense.
Three MonthsEnded
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 EstateOwned, 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 NoninterestExpense
$
42,295
$
42,640
$
42,916
$
126,308
$
124,155
Significant componentsof noninterestexpense arediscussed in more detail below.
Compensation.
Compensationexpense totaled$25.6million for the third quarterof 2026, adecrease of$0.2 million, or 0.8%, from
the second quarter of2026 and a decreaseof $0.4million, or 1.7%, from the third quarterof 2025. Comparedto the secondquarter of
2026, the decreasereflected a $0.2million decrease in salary expense(primarily commission expense). Comparedto the third quarter
of 2025, thedecrease reflectedlower salaryexpense of$0.2 million (primarily commission expense)and lower associatebenefits of
$0.2 million (primarilylower healthinsurance costs).
44
For the first ninemonths of 2026, compensationexpense totaled$77.2 million comparedto $78.8 million for thesame period of2025
with the $1.6 milliondecrease reflectiveof lower salaryexpense of$1.1 million and associatebenefit expenseof $0.5 million. Lower
commission expensedrove the decline in salaryexpense andthe decreasein associate benefitexpense was primarilyattributableto
lower healthcare insurancecosts.
Occupancy
. Occupancyexpense totaled$7.3 million for the third quarterof 2026, comparableto the secondquarter of2026 and
a
$0.3 million, or 3.7%,increase over thethird quarter of2025. For the first nine monthsof 2026, occupancyexpense totaled$21.7
million,a $0.8 million,or 3.8%, increaseover the sameperiod of 2025. Theincrease comparedto all prior periods was primarily
attributableto higher FF&E maintenanceagreements andsoftware license expense.
Other
. Other expense totaled$9.4 million for the third quarterof 2026, a$0.1 million, or 1.1% decreasefrom the secondquarter of
2026 anda $0.4 million, or 4.5%, decreasefrom the thirdquarter of2025. For the first nine monthsof 2026, otherexpense totaled
$27.5 million,a $3.0 million, or 12.2%,increase over thesame period of2025. Comparedto the secondquarter of2026and thethird
quarter of2025,the decreasewas primarily attributableto
a
decrease in otherreal estate expense(ORE) that was partiallyoffset by
higher telephoneexpense. The increaseover the first nine monthsof 2025was primarily due to a$3.9 million increase in ORE
expense, which reflecteda lower level of gainsfrom the sale of properties,namely a large gainrealized from thesale of our operations
center building in thefirst quarterof 2025. Lower expensefor charitablecontributions of$0.6 million and professionalfees of $0.6
million were partiallyoffsetting.
Our operating efficiencyratio (expressed asnoninterest expenseas a percentageof the sumof taxable-equivalent netinterest income
plus noninterest income)was 65.63% forthe third quarter of 2026 comparedto 65.76% for the second quarterof 2026and 65.09%for
the third quarter
of
2025. For the first nine monthsof 2026, this ratiowas 65.76% comparedto 65.11%for the sameperiod of 2025.
Income Taxes
We realized incometax expenseof $5.2 million (effectiverate of 23.6%)for the third quarterof 2026, comparedto $5.0 million
(effective rate of 23.4%)for the second quarterof 2026 and $5.1 million(effective rate of 24.4%)for the third quarterof 2025.For the
first nine monthsof 2026, we realized incometax expenseof $15.0 million (effectiverate of 23.5%)comparedto $15.3 million
(effective rateof 24.2%) for thesame period of2025. Taxbenefits accruedfrom a solartax credit investmentin 2026 drovethe
decrease in our effectivetax ratecomparedto the prior year periods. Absentdiscrete items or new taxcredit investments, weexpect
our annualeffective taxrate to approximate23-24% for 2026.
FINANCIAL CONDITION
Averageearning assets totaled$4.038 billion for the third quarterof 2026, adecrease of$30.6 million, or 0.8%,from the second
quarter of 2026, andan increase of $2.4 million,or 0.1% over the fourthquarter of 2025. Comparedto the second quarterof 2026,the
change in earning assetmix reflected a$27.2 million decreasein overnight funds, a$10.3 million decreasein loans held for
investment, anda $3.5 million decreasein loans held for sale (“HFS”), partiallyoffset bya $10.5million increase in investment
securities. Comparedto the fourthquarter of2025, the changereflected a $171.8million increase in investmentsecurities and a$2.7
million increase inloans HFS, partially offsetby a $99.7million decrease in overnight fundsand a$72.5 million decreasein loans
held for investment.
Investment Securities
Averageinvestmentstotaled $1.178billion for the third quarter of2026, a $10.6million, or 0.9%,increase over thesecond quarterof
2026 and
a
$171.8 million,or 17.1%, increase overthe fourth quarter of2025. Averageinvestmentsrepresented 29.2%of our average
earning assets forthe third quarterof 2026comparedto 28.7%for the secondquarter of2026and 24.9%for the fourthquarter of
2025. For the remainderof 2026, we will continueto monitor ouroverall liquidity position andmarket conditionsto determine if cash
flow from theinvestmentportfolio should bereinvested or utilized to supportloan growth.
The investmentportfolio is a significant componentof our operationsand, as such,it functions asa key elementof liquidity and
asset/liability management.Two types ofclassifications areapprovedfor investmentsecurities which are Available-for-Sale (“AFS”)
and Held-to-Maturity(“HTM”). At September 30,2026, $862.1million, or 73.0%, of the investmentportfolio was classified asAFS
and $315.1million, or 26.7%, was classified asHTM.The averagematurityof our totalinvestmentportfolio
at
September 30,2026
was 2.98 yearscomparedto 2.95 years
at
June 30, 2026and 2.57years
at
December 31, 2025.The durationof our totalinvestment
portfolio
at
September 30,2026 was 2.63years comparedto 2.60 years
at
June 30, 2026and 2.12years
at
December 31, 2025.
Additional informationon unrealized gains/losses in the AFS and HTMinvestmentportfolios is provided in Note 2 –Investment
Securities.
45
We determinethe classification of asecurity
at
the time of acquisitionbased on how the purchasewill affect our asset/liabilitystrategy
and futurebusiness plans andopportunities. Weconsider multiple factorsin determining classification,including regulatory capital
requirements, volatilityin earnings or other comprehensiveincome, andliquidity needs. Securities in theAFS portfolio are recordedat
fair value with unrealizedgains and losses associatedwith these securities recordednet of tax,in the accumulatedother
comprehensiveloss componentof shareowners’ equity.HTM securities are acquiredor owned with the intentof holding themto
maturity.HTM investmentsare measured
at
amortizedcost. We do nottrade, nor dowe presently intend tobegin trading investment
securities for thepurpose of recognizinggains and thereforewe do not maintaina trading portfolio.
At September30, 2026, therewere 848 positions (combinedAFS and HTM) with unrealizedpre-tax losses totaling $52.3million. 91
of these positionsare U.S. Treasurybonds and carrythe full faith andcredit of the U.S. Government.688 are U.S. governmentagency
securities issued byU.S. governmentsponsored entities. Webelieve the long historyof no credit losses ongovernment securities
indicates thatthe expectationof nonpaymentof the amortizedcost basis is effectivelyzero. At September30, 2026, all collateralized
mortgage obligationsecurities, mortgage-backedsecurities, Small Business Administrationsecurities, U.S. Agency,and U.S. Treasury
bonds held were ratedAA+ or higher. The remaining69 positions (municipalsecurities andcorporatebonds) havea credit
component.At September 30, 2026,municipal securities andcorporatedebt securities had
an
immaterial allowancefor credit losses.
None of these securitieswere past dueor in nonaccrualstatus
at
September 30,2026.
Loans HFI
Averageloans HFI decreasedby $10.3 million, or 0.4%,from the secondquarter of2026, anddecreased by$72.5 million, or 2.8%,
from the fourthquarter of2025. Comparedto the secondquarter of2026, the decline wasprimarily attributableto decreasesin
commercial real estateloans of $8.4million, residential real estate loansof $4.5 million, andconstruction loansof $3.7 million,
partially offsetby increases in consumerloans (primarily indirect auto)of $2.2 million, homeequity loans of$2.0 million, and
commercial loansof $1.5 million. Comparedto the fourthquarter of2025, the decline wasprimarily attributableto decreasesin
residential real estateloans of $35.2million, commercial real estateloans of $33.0million, construction loansof $7.8 million,
commercial loansof $5.1 million, andconsumer loans(primarily indirect auto) of$0.7 million, partially offsetby increases in home
equity loans of$7.9 million.
Loans HFIat September30, 2026, decreased$10.1 million, or 0.4%,from June 30,2026, anddecreased $56.4million, or 2.2%,from
December 31, 2025. Comparedto June 30, 2026, thedecline was primarily attributableto decreases in commercialreal estate loansof
$14.3 million, commercialloans of $4.4million, and other loansof $2.3 million, partially offsetby increases in residentialreal estate
loans of $5.9million, consumer loans(primarily indirect auto)of $3.2 million, homeequity loans of$1.7 million, and construction
loans of $0.2million. Comparedto December 31, 2025,the decline was primarily attributableto decreases in commercialreal estate
loans of $32.4million, residential real estateloans of $16.9million, commercial loans of$12.2 million, and otherloans of$4.4
million, partially offsetby increases in homeequity loans of$5.2 million, construction loansof $2.4 million, andconsumerloans
(primarily indirect auto)of $1.7 million.
Without compromisingour credit standards,changing our underwriting standards,or taking on inordinateinterest rate risk,we
continue to closely monitorour marketsand makeminor adjustmentsas necessary.
Credit Quality
Nonperforming assets(nonaccrualloans andother real estate)totaled $9.7million at September30, 2026, comparedto $13.4 million
at June 30, 2026 and$10.5 million at December31, 2025. At September30, 2026, nonperformingassets as a percentageof total assets
was 0.22%, comparedto 0.30% atJune 30, 2026and 0.24%at December31, 2025. Nonaccrualloans totaled$7.4 million at
September 30, 2026,a $2.7 million decreasefrom June 30,2026 anda $1.2 million decreasefrom December31, 2025. Other real
estate totaled$2.4 million at September30, 2026, a$1.1 million decrease fromJune 30, 2026and a$0.4 million increase over
December 31, 2025.Further, classified loanstotaled $20.8million at September30, 2026, a$9.0 million decrease fromJune 30, 2026
and a$6.5 million increase over December31, 2025.
Allowance forCredit Losses
The allowancefor credit losses is a valuationaccountthat is deductedfrom the loans’amortizedcost basis to presentthe net amount
expected tobe collected on theloans.The allowancefor credit losses is adjustedby a credit loss provision which is reportedin
earnings andreduced by thecharge-offof loan amounts(net of recoveries).Loans arecharged offagainst theallowance when
managementbelieves the uncollectability ofa loan balance is confirmed.Expected recoveriesdo not exceed the aggregateof amounts
previously charged-off andexpected tobe charged-
off.
Expected credit loss inherentin non-cancellableoff-balancesheet credit
exposures is providedthrough the credit lossprovision butrecorded
as
a separateliability included in other liabilities.
46
Managementestimates the allowance balanceusing relevant availableinformation,from internal andexternal sourcesrelating to past
events, current conditions,and reasonableand supportableforecasts. Historicalloan defaultand loss experienceprovides the basisfor
the estimationof expectedcredit losses. Adjustmentsto historical loss informationincorporate management’sview of current
conditions andforecasts.
At September 30, 2026,the allowance for creditlosses for loansHFI totaled $30.4million comparedto $31.0 million
at
June 30, 2026
and $31.0million
at
December 31, 2025.Activity within the allowanceis provided in Note 3 – LoansHeld for Investmentand
Allowance for CreditLosses in the Notes toConsolidatedFinancial Statements.Comparedto June 30, 2026,the decline in the
allowance reflectedimproved credit qualitymetrics and alower level of net loan charge-
offs
of 8 basis pointsof averageloans for the
third quarterof 2026versus 14 basis pointsfor the secondquarter of2026 and18 basis points forthe third quarterof 2025. Net loan
charge-
offs
for the nine monthsended September30, 2026 were 11basis points comparedto 12 basis pointsfor the sameperiod of
2025. Comparedto December 31, 2025,the decline in the allowancewas primarily attributableto a decline in loanbalances.At
September 30, 2026,the allowance represented1.22% of loans HFI comparedto 1.24%
at
June 30, 2026,and 1.22%
at
December 31,
2025.
At September30, 2026, theallowance forcredit losses for unfundedcommitmentstotaled $2.2million compared to$2.2 million and
$2.1 million
at
June 30, 2026and December31, 2025, respectively.The slight change in the allowancefor unfundedcommitments
from December 31, 2025reflected a variancein the level of unfundedloan commitments.The allowancefor unfundedcommitments
is recorded in otherliabilities.
Deposits
Averagetotal depositswere $3.648 billion for thethird quarter of2026, a decreaseof $31.2 million, or 0.9%, fromthe second quarter
of 2026, andcomparableto the fourthquarter of2025. Comparedto the secondquarter of2026, the decreasewas primarily due to
lower public fundsbalancesof $63.8 million (primarily NOW accounts)due to the seasonalreduction in those balances,partially
offset byhigher core deposit balancesof $32.6 million (primarily MMAand noninterestbearing checking).
At September30, 2026, totaldeposits were $3.667 billion, a decreaseof $54.4 million, or 1.5%,from June 30,2026, andan increase
of $4.3 million, or0.1%,over December 31, 2025.The decrease fromJune 30, 2026,was driven by lower public fundsbalancesof
$58.3 million (primarilyNOW accounts),partially offsetby an increasein core deposit balancesof $3.9 million (primarily NOW
accounts).The increase over December31, 2025, was primarilydue to core depositgrowth of $155.8million, partially offsetby lower
public fundsbalancesof $151.5million. Total public fundsbalanceswere $503.2 million at September30, 2026, $561.5million at
June 30, 2026,and $654.7million at December 31, 2025,respectively.
Business deposittransactionaccountsclassified as repurchaseagreements averaged$14.2 million for thethird quarter of2026, an
increase of $3.2 millionover the second quarterof 2026and a decreaseof $6.5 million fromthe fourthquarter of2025. At September
30, 2026, repurchaseagreement balanceswere $7.2 million comparedto $7.4 million at June30, 2026and $22.0million at December
31, 2025.
We continueto closely monitor our costof deposits anddeposit mix as we managethrough the currentrate environment.
MARKET RISK ANDINTEREST RATESENSITIVITY
Market Risk and InterestRate Sensitivity
Overview.
Market risk arises fromchanges in interest rates,exchangerates, commodityprices, and equityprices.We haverisk
managementpolicies designed to monitor andlimit exposure to marketrisk and we do notparticipatein activities thatgive rise to
significant marketrisk involving exchangerates, commodityprices, or equity prices.In asset andliability managementactivities, our
policies are designedto minimize structuralinterest rate risk.
Interest Rate Risk Management.
Our net incomeis largely dependenton net interest income.Net interest income is susceptible to
interest raterisk to the degree thatinterest-bearing liabilities matureor reprice on a differentbasis thaninterest-earning assets.When
interest-bearing liabilitiesmature or reprice morequickly thaninterest-earning assets in agiven period, a significantincrease in
market ratesof interest could adverselyaffectnet interest income.Similarly, when interest-earning assetsmature or reprice more
quickly thaninterest-bearing liabilities, fallingmarket interestrates could result in a decreasein net interest income.Net interest
income is also affectedby changes in theportion of interest-earningassets thatare fundedby interest-bearing liabilities rather thanby
other sources offunds, such asnoninterest-bearing depositsand shareowners’equity.
47
We haveestablished whatwe believe to be a comprehensiveinterest rate risk managementpolicy, which is administered by
management’sAsset Liability ManagementCommittee(“ALCO”).The policy establishes limits ofrisk, which are quantitative
measures of the percentagechange in net interestincome (a measureof net interest incomeat risk) and thefair value ofequity capital
(a measureof economicvalue of equity(“EVE”) at risk) resulting from a hypotheticalchange in interest ratesfor maturitiesfrom one
day to 30years.We measurethe potentialadverse impactsthat changinginterest rates mayhave onour short-term earnings, long-
term value, andliquidity by employing simulationanalysis throughthe use of computermodeling.The simulation modelcaptures
optionality factorssuch as call featuresand interest rate caps andfloors embeddedin investment andloan portfolio contracts.As with
any methodof gauging interest rate risk, there arecertain shortcomingsinherent in the interest ratemodeling methodologyused by
us.When interest rates change,actualmovementsin different categoriesof interest-earning assetsand interest-bearingliabilities, loan
prepayments,and withdrawalsof time andother deposits, maydeviate significantlyfrom assumptionsused in the model.Finally, the
methodologydoes not measureor reflect the impactthat higher ratesmay haveon adjustable-rate loan clients’ ability toservice their
debts, or the impactof rate changeson demandfor loan anddeposit products.
The statementof financialcondition is subject totesting for both paralleland upwardand downwardshifts in interest rates(assuming
no balancesheet growth) to indicatethe inherent interest raterisk. We prepare a basecase (assumesa static rateenvironment)and
several alternativeinterest rate simulationsfor various ranges ofupward and downwardinterest rate changes.This analysis is prepared
quarterly andreported to ALCO, our MarketRisk Oversight Committee(“MROC”), our Risk OversightCommittee(“ROC”) andthe
Board ofDirectors. We will periodicallyaugment our interestrate simulationswith alternative interestrate scenarios thatmay include
various non-parallelshifts in interest rates, includinga flatteningor steepening of theyield curve.
Our goal is to structurethe statementof financialcondition so thatnet interest earnings atrisk over 12-month and24-monthperiods
and theeconomic valueof equity atrisk do not exceedpolicy guidelines at the variousinterest rate shocklevels. We attemptto
achieve this goal bybalancing, within policylimits, the volumeof floating-rate liabilities with a similar volumeof floating-rate assets,
by keeping the averagematurityof fixed-rate assetand liability contractsreasonablymatched,by managingthe mix of ourcore
deposits, andby adjustingour rates to marketconditions on acontinuing basis.
Analysis.
Measures ofnet interest incomeat risk producedby simulation analysisare indicators ofan institution’sshort-term
performancein alternative rateenvironments.These measuresare typically basedupon arelatively brief period, anddo not
necessarily indicatethe long-term prospectsor economic valueof the institution.The following table presents ournet interest income
simulation resultsfor gradual 12-monthand 24-month “ramp”scenarios applied to the basescenario. The “ramp”scenario is a parallel
shift applied graduallyover a 12-monthperiod for the projected12-monthand 24-monthperiod on a prorata basis.
ESTIMATEDCHANGES INNET INTEREST INCOME
As of September 30, 2026
% Change in NII
Change in InterestRates
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 InterestRates
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 positionof an instantaneous,parallel rate shockindicates thatin the short-term (over thenext
12 months),all rising rate environmentswill positively impactthe net interest marginof the Company,while declining rate
environmentswill have anegative impacton the net interestmargin.Comparedto the secondquarter of2026, these metrics became
more favorablein the declining rate scenariosdue to the deploymentof variablerate overnight fundsinto the investmentsecurities
portfolio.
The measuresof equity valueat risk indicate our ongoingeconomic valueby considering the effectsof changesin interest rates onall
of our cashflows by discounting the cashflows to estimatethe present valueof assets andliabilities. The difference betweenthese
discounted valuesof the assetsand liabilities is the economic valueof equity,which in theory approximatesthe fair valueof our net
assets.
48
ESTIMATEDCHANGES INECONOMIC VALUEOF 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 September30, 2026, the economicvalue of equitywas favorablein all rising rate environments andunfavorablein the falling rate
environments.EVE was within prescribedtolerance levels asthe EVE ratio (EVE/EVA)in all rate scenariosis greater than5.0%.
Factors thatcan impactEVE values include the absolutelevel of rates, the overallstructure of thebalancesheet (including liquidity
levels), pre-paymentspeeds, loan floors, andthe changeof model assumptions.
As the interest rateenvironmentand thedynamicsof the economycontinue to change,additionalsimulations will be analyzedto
address notonly the changing rateenvironment,but also thechange in mix ofour financialassets andliabilities measured over
multiple years, tohelp assess the risk tothe Company.
LIQUIDITY AND CAPITALRESOURCES
Liquidity
In general terms, liquidityis a measurementof our ability to meetour cash needs.Our objective in managingour liquidity is to
maintainour ability to meetloan commitments,purchase securities or repaydeposits andother liabilities in accordancewith their
terms, without an adverseimpact onour current or futureearnings.Our liquidity strategyis guided by policies thatare formulatedand
monitored byour ALCO andsenior management,which take into accountthe marketabilityof assets, thesources andstability of
funding andthe level of unfundedcommitments.We regularly evaluateall of our various fundingsources with an emphasison
accessibility,stability, reliability andcost-effectiveness.Our principal source offunding hasbeen our client deposits, supplemented
by our short-term andlong-term borrowings, primarilyfrom securities sold underrepurchase agreements,federal funds purchasedand
FHLB borrowings.We believethat the cash generatedfrom operations,our borrowing capacityand our access to capital resourcesare
sufficient to meetour future operatingcapital andfunding requirements.
At September30, 2026,we had the abilityto generate approximately$1.745 billion (excludes overnightfunds positionof $340
million) in additionalliquidity through various sourcesincluding variousfederal fundspurchasedlines, Federal Home LoanBank
borrowings, the FederalReserve DiscountWindow,and brokereddeposits. We recognizethe importanceof maintainingliquidity and
have developeda ContingentLiquidity Plan, which addresses variousliquidity stress levels andour response andaction basedon the
level of severity.We periodicallytest our credit facilitiesfor access tothe fundsbut also understandthat asthe severity of the
liquidity level increasescertain credit facilitiesmay nolonger be available.We conducta liquidity stress test on aquarterly basis
based onevents thatcould potentiallyoccur at theBank andreport results to our ALCO, MROC, ROC, and Boardof Directors.We
believe the liquidityavailable to us at September30, 2026was sufficient to meetour ongoing needs andexecute our businessstrategy.
We also viewour investmentportfolio as aliquidity source and havethe option topledge securities in our portfolio as collateralfor
borrowings or deposits,and/or tosell selected securities. Our portfolioconsists of debtissued by the U.S. Treasury,U.S. governmental
agencies, municipal governments,and corporateentities. Additional informationon our investmentportfolio is provided within Note 2
– InvestmentSecurities.
The Bankmaintainedan averagenet overnight funds(i.e., deposits with banks plus FED funds sold,less FED funds purchased)sold
position of $337.9million in the thirdquarter of 2026 comparedto $365.1million in the second quarterof 2026and $437.5million in
the fourth quarterof 2025. Comparedto the second quarter of2026, the variancereflected lower averagedeposits andthe deployment
of excess liquidity intothe investmentsecurity portfolio. Comparedto the fourthquarter of2025, the variancewas driven by the
deploymentof excess liquidity into theinvestmentsecurity portfolio. During thefirst nine monthsof 2026, excessliquidity was
partially deployedinto investmentsecurities as loan demandremained selective andmanagementcontinued its disciplined
underwriting approach.Managementbelieves the repositioning enhancesearnings while maintaining appropriateliquidity levels.
We expectour capital expenditureswill be approximately$10.0 million over the next12 months,which will primarily consist of
construction ofa new office, officeremodeling, office equipment/furniture,and technologypurchases.Managementexpects that
these capitalexpenditures will be fundedwith existing resources withoutimpairing our abilityto meet our ongoingobligations.
49
Borrowings
Averageshort-term borrowingstotaled $45.7 million forthe third quarterof 2026comparedto $44.5 million for thesecond quarterof
2026 and$41.6 million for the fourthquarter of2025.The increase over thesecond quarterof 2026reflected higher repurchase
agreement balances.The increase over thefourth quarterof 2025was attributableto higher mortgage warehouseline borrowings.
Additional detail onwarehouse borrowingsis provided in Note 4 –Mortgage BankingActivities in the ConsolidatedFinancial
Statements.
We haveissued two junior subordinateddeferrable interest notesto our wholly owned Delawarestatutorytrusts.The first note for
$30.9 million was issuedto CCBG CapitalTrust I in November2004, of which $10million was retired in April 2016.We made
principal paymentson this note of$4.1 million and $5.1million in the first quarter of 2026and thesecond quarterof 2025,
respectively.The second notefor $32.0 million was issuedto CCBG CapitalTrust II in May2005. Wemade principalpaymentson
this note of$5.1 million each in thefirst quarter of2026 andthe second quarterof 2025.The interest paymentfor the CCBG Capital
Trust I borrowingis due quarterlyand adjustsquarterly to avariable rateof three-monthCME Term SOFR (secured overnight
financing rate) plusa margin of 1.90%.This note matures onDecember 31, 2034. Theinterest paymentfor the CCBG CapitalTrust II
borrowing is due quarterlyand adjustsquarterly to avariable interest ratebased onthree-monthCME Term SOFR plus a marginof
1.80%. This notematures onJune 15, 2035.The proceeds fromthese borrowings were used to partiallyfund acquisitions.Under the
terms of eachjunior subordinateddeferrable interest note,in the event ofdefault or if we elect todefer interest onthe note, we may
not, with certainexceptions, declareor pay dividendsor make distributionson our capitalstock or purchaseor acquire anyof our
capital stock.
The Companypreviously maintaineda derivativecash flow hedge ofour interest rate risk relatedto our subordinateddebt. The
notional amountof the derivativeis $30 million ($10 million of the CCBG CapitalTrust I borrowing and$20 million of the CCBG
Capital TrustII borrowing). In October2025, the interestrate swaps were terminated.Additional detail onthe interest rate swap
agreement is providedin Note 5 – Derivativesin the ConsolidatedFinancial Statements.
Capital
Our capital ratiosare presentedin the Selected Quarterly FinancialData tableon page 38.At September 30, 2026, our regulatory
capital ratiosexceeded thethreshold to be designatedas “well-capitalized”under the BaselIII capitalstandards.
Shareowners’ equitywas $573.9million at September30, 2026 comparedto $570.1million at June 30, 2026and $552.9million at
December 31, 2025.For the first nine monthsof 2026, shareowners’equity was positively impactedby net incomeof $49.0million,
the issuance ofstock of $3.5million, and stock compensationaccretion of$1.5 million. Shareowners’ equitywas reduced bya
commonstock dividendsof $13.9 million ($0.81per share), repurchasesof our commonstock of $2.6million (63,088 shares), net
adjustmentstotaling $2.5million related to transactionsunder our stock-based compensationplans, andan unfavorablenet changeof
$14.0 million in accumulatedother comprehensiveloss due to an unfavorablefair value markon investmentsecurities driven by
higher bond rates.
At September 30, 2026,our total risk-basedcapital ratio was 22.99%comparedto 22.35% atJune 30, 2026and 21.45%at December
31, 2025. Our commonequity tier 1 capitalratio was 20.43%, 19.80%, and18.56%, respectively,on these dates.Our leverage ratio
was 12.31%, 11.96%, and 11.77%, respectively, onthese dates.At September 30,2026, all our regulatorycapital ratiosexceeded the
thresholds to be designatedas “well-capitalized”under the Basel III capitalstandards. Further,our tangible commonequity ratio (non-
GAAP financialmeasure) was 11.25%at September30, 2026,comparedto 11.03%at June 30,2026, and10.79% atDecember 31,
2025. If ourunrealized held-to-maturitysecurities loss of $16.0 million (after-tax) were recognized in accumulatedother
comprehensiveloss, our adjustedtangible capitalratio would be 10.88%.
Our tangible capitalratio is also impactedby the recording of ourunfundedpension liability through othercomprehensiveincome in
accordancewith Accounting StandardsCodificationTopic 715. At September30, 2026, June30, 2026 andDecember 31, 2025,the
net pension assetreflected in other comprehensiveincome was $9.4million. This liability is re-measuredannuallyon December 31
st
based onan actuarialcalculationof our pension liability. Significantassumptionsused in calculating theliability include the weighted
average discount rateused to measure thepresent value of the pensionliability, the weightedaverage expectedlong-term rate of return
on pension plan assets,and the assumedrate of annual compensationincreases, all of which will vary when re-measured.The discount
rate assumptionused to calculatethe pension liability is subject tolong-term corporatebond ratesat December31
st
. These
assumptionsand sensitivities are discussedin the section entitled “CriticalAccounting Policiesand Estimates”in Part II, Item7.
Management’sDiscussion and Analysis ofFinancial Conditionand Results ofOperations, ofour 2025Form 10-K.
50
OFF-BALANCESHEET ARRANGEMENTS
We are a partyto financial instrumentswith off-balancesheet risks in the normal course of businessto meet the financing needsof our
clients.
At September30, 2026,we had $628.8million in commitmentsto extendcredit and $7.3million in standby letters ofcredit.
Commitmentsto extendcredit are agreementsto lend to a client solong as there is no violationof anycondition establishedin the
contract.Commitmentsgenerally have fixedexpiration datesor other terminationclauses andmay require paymentof a fee.Since
manyof the commitmentsare expectedto expire without being drawnupon, the totalcommitmentamountsdo not necessarily
represent futurecash requirements.Standbyletters of credit are conditionalcommitmentsissued by us to guaranteethe performance
of a client to athird party.We use the samecredit policies in establishing commitmentsand issuing letters of credit aswe do for on-
balancesheet instruments.
If commitmentsarising from these financialinstruments continueto require funding athistorical levels, managementdoes not
anticipate thatsuch funding will adverselyimpact our ability tomeet our ongoing obligations.In the event these commitmentsrequire
funding in excessof historical levels, managementbelieves current liquidity, advancesavailablefrom the FHLBand theFederal
Reserve, andinvestmentsecurity maturities providea sufficientsource of fundsto meet thesecommitments.
Certain agreementsprovide that the commitmentsare unconditionally cancellableby the bankand for thoseagreements noallowance
for credit losses hasbeen recorded.We haverecorded
an
allowance forcredit losses on loan commitmentsthat arenot
unconditionallycancellable bythe Bank,which is included in other liabilities on theConsolidatedStatementsof Financial Condition
and totaled$2.2 million
at
September 30,2026.
CRITICAL ACCOUNTINGPOLICIES
Our significant accountingpolicies are described in Note 1 tothe ConsolidatedFinancial Statementsincluded in our 2025Form 10-K.
The preparationof our Consolidated FinancialStatementsin accordancewith GAAP and reporting practices applicableto the banking
industry requires usto makeestimates andassumptionsthat affectthe reported amountsof assets, liabilities, revenues andexpenses,
and to disclose contingentassets andliabilities.Actual results coulddiffer from thoseestimates.
We haveidentified accountingfor (i) the allowance forcredit losses, (ii) goodwill,(iii) pension assumptions,and (iv) income taxesas
our most critical accountingpolicies and estimatesin that they are importantto the portrayal of ourfinancial condition andresults, and
they require oursubjective andcomplex judgmentas a result ofthe need tomake estimatesaboutthe effectsof mattersthatare
inherently uncertain.These accountingpolicies, including the natureof the estimatesand typesof assumptionsused, are described
throughoutthis Item 2, Management’sDiscussion and Analysis ofFinancial Conditionand Results ofOperations, andPart II, Item7,
Management’sDiscussion and Analysis ofFinancial Conditionand Results ofOperations includedin our 2025 Form10-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 inThousands)
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-ExemptSecurities
(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 EarningAssets
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 & DueFrom Banks
70,540
65,085
66,013
68,074
Allowance For CreditLosses
(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:
NoninterestBearing 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 InterestBearing 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
RepurchaseAgreements
14,160
79
2.20
21,966
158
2.86
13,616
213
2.09
24,752
478
2.58
Other Short-TermBorrowings
31,532
316
3.98
12,753
58
1.82
30,984
992
4.28
10,251
354
4.62
SubordinatedNotes Payable
33,303
293
3.45
42,582
383
3.52
36,045
979
3.58
49,113
1,473
3.95
Other Long-TermBorrowings
567
8
5.55
681
10
5.55
635
27
5.68
755
26
4.50
Total InterestBearing 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 LIABILITIESAND
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 Balancesinclude netloan fees,discountsand premiums.Interest incomeincludes loancosts of$0.5 millionand $1.5million forthe three andnine monthsended September30, 2026,
and loan costs of $0.4 million and $1.1 million for thethree and nine month periods ended September 30, 2025.
(2)
Interest incomeincludes theeffects oftaxable equivalentadjustmentsusing a 21%Federal tax rate.
(3)
Taxable equivalentnet interestincome dividedby average earningassets.
52
Item 3.QUANTITATIVEAND QUALITATIVEDISCLOSURESABOUT MARKETRISK
See “MarketRisk and InterestRate Sensitivity” in Management’sDiscussion and Analysis ofFinancial Conditionand Results of
Operations, above,which is incorporatedherein by reference.Managementhas determinedthat noadditionaldisclosures are
necessary toassess changesin informationaboutmarket risk thathave occurredsince December 31, 2025.
Item 4.CONTROLS AND PROCEDURES
Evaluation ofDisclosure Controlsand Procedures
At September 30, 2026,the end ofthe period coveredby this Form 10-Q, our management,including our Chief ExecutiveOfficer and
Chief Financial Officer,evaluatedthe effectivenessof our disclosure controls andprocedures (as definedin Rule 13a-15(e) under the
Securities ExchangeAct of 1934).Based uponthat evaluation,our Chief ExecutiveOfficer and ChiefFinancial Officer concluded
that, asof the endof the period coveredby this report,our disclosure controls andprocedures were effective.
Our management,including our Chief ExecutiveOfficer and ChiefFinancial Officer, hasreviewed our internal control overfinancial
reporting (as definedin Rule 13a-15(f) underthe Securities ExchangeAct of 1934). During thequarter endedSeptember 30, 2026,
there havebeen no significantchanges in our internalcontrol over financialreporting during our most recentlycompleted fiscal
quarter thathave materiallyaffected,or are reasonablylikely to materially affect,our internal control overfinancial reporting.
PARTII.OTHER INFORMATION
Item 1.Legal Proceedings
We are partyto lawsuits arising out ofthe normalcourse of business.In management'sopinion, there is no knownpending litigation,
the outcomeof which would, individually orin the aggregate, havea materialeffect onour consolidatedresults of operations,
financial position,or cash flows.
Item 1A.Risk Factors
In additionto the other informationset forth in this Quarterly Report,you should carefullyconsider the factorsdiscussed in Part I,
Item 1A. “Risk Factors”in our 2025Form 10-K, as updatedin our subsequentquarterly reports. Therisks described in our 2025 Form
10-K, andour subsequentquarterly reports arenot the only risks facingus. Additional risks and uncertaintiesnot currently knownto
us or thatwe currently deem to beimmaterial alsomay materiallyadversely affectour business, financialcondition and/oroperating
results.
There have not beenany material changesto the risk factorsdisclosed in Item 1A. of PartI of the Company’sAnnual Reporton Form
10-K for the yearended December31, 2025, previouslyfiled with the SEC.
Item 2.Unregistered Salesof Equity Securitiesand Use of Proceeds
None.
Item 3.Defaults Upon SeniorSecurities
None.
Item 4.Mine Safety Disclosure
Not Applicable.
Item 5.Other Information
(c) Rule 10b5-1 Trading Plans
During the three monthsended September30, 2026,none of ourdirectors or officers (as definedin Rule 16a-1(f) under theExchange
Act)
adopted
, modified or
terminated
any contract,instruction or written plan forthe purchaseor sale of our securities thatwas
intended to satisfythe affirmativedefense conditionsof Rule 10b5-1(c)under the ExchangeAct or any “
non-Rule
10b5-1
trading
arrangement”as definedin Item 408(c) ofRegulation S-K.
54
SIGNATURES
Pursuant tothe requirementsof the Securities ExchangeAct of 1934, theRegistrant hasduly causedthis Report to be signedon its
behalf bythe undersigned ChiefFinancial Officer hereuntoduly authorized.
CAPITALCITY BANK GROUP,INC.
(Registrant)
/s/ JepthaE. Larkin
Jeptha E. Larkin
Executive VicePresident andChief Financial Officer
(Mr. Larkin isthe Principal FinancialOfficer and has
been duly authorizedto sign on behalfof the Registrant)
Date: October 30,2026