CCBG — Q2 2026 Financial Report Analysis

Capital City Bank Group, the Tallahassee-based community bank operating across Florida, Georgia and Alabama, earned $16.3 million, or $0.95 per diluted share, in Q2 2026, up from $15.0 million ($0.88) a year earlier. The gain came from a wider net interest margin rather than growth: average loans held for investment fell 5.5% year on year, but the bank moved spare cash into higher-yielding bonds and paid less on deposits. Two things pull the other way: classified (troubled) loans doubled during the quarter, and management says deposit fees will start falling from Q3.

At a glance

• Net interest margin of 4.35%, up 5 basis points from a year ago and 11 from Q1. A basis point is one-hundredth of a percentage point. The margin is the gap between what the bank earns on loans and bonds and what it pays depositors, measured against its earning assets; 4.35% is high for a US bank.
• Classified loans of $29.8 million, up $15.3 million in one quarter, after four commercial real estate relationships were downgraded. Charge-offs are still low (0.14% annualized), but this is the figure that will shape provisions in coming quarters.
• Common equity tier 1 (CET1) ratio of 19.80%. CET1 is the core capital regulators measure against risk-weighted assets, and 19.80% is more than double the 6.5% "well-capitalized" threshold. The bank has a lot of capital and is putting little of it to work: it bought back only $2.6 million of stock in the first half.

Q2 2026 results

The net interest margin and efficiency ratio are the company's own figures, calculated on a fully tax-equivalent (FTE) basis. FTE grosses up tax-exempt interest so it can be compared with taxable interest, and the adjustment here is only about $43 thousand per quarter. The efficiency ratio is noninterest expense as a share of revenue, so lower is better: 65.76% means the bank spent about 66 cents to earn each dollar of revenue. The 10-Q compares period-end loans and deposits with December 31, 2025, not June 2025, so the table follows that.

Margin up, loan book down

The bank lent less money but earned more on it. Average loans held for investment were $2.506 billion, down from $2.653 billion a year earlier, and their yield edged down from 6.11% to 6.04%. Loan interest income therefore fell to $37.8 million from $40.4 million. The 10-Q says loan demand "remained selective and management continued its disciplined underwriting approach". In plain terms, the bank is choosing not to chase loans.

The money that wasn't lent went into bonds. Average taxable securities rose to $1.166 billion from $1.007 billion, and their yield jumped from 2.65% to 3.52% because older, low-coupon bonds were replaced by "new investment purchases at higher rates". Securities interest income rose to $10.2 million from $6.7 million, more than replacing the lost loan income.

Funding also got cheaper. Cost of deposits (including accounts that pay no interest) fell to 76 basis points from 81 a year earlier. Management credits "lower public funds deposit balances and lower rates across our product lines." Public funds are deposits from local governments and agencies, which usually pay higher rates. They fell to $561.5 million at June 30 from $654.7 million at year-end. Interest expense dropped to $7.6 million from $8.3 million.

Taken together, earnings now rest less on loan growth and more on a well-timed move into the bond portfolio. That works while bond yields stay where they are. It also means future revenue growth depends on loan demand coming back, because the bank can only reinvest its excess cash once.

Fee income: mortgage up, wealth down, deposit fees about to fall

Noninterest income rose 2.9% to $20.6 million, but the parts moved in different directions:

• Mortgage banking rose to $4.7 million from $4.2 million (+11.2%), helped by a "higher gain on sale margin" on the loans it sells.
• Wealth management fell to $4.2 million from $5.2 million (-19.6%). Retail brokerage assets under management declined, and the bank sold its insurance subsidiary in Q3 2025. Total assets under management were $2.839 billion versus $3.192 billion a year earlier.
• Deposit fees rose 6.3% to $5.7 million. Management, however, says it is "reviewing and updating our deposit product offerings against peer and industry best practices and we expect modifications will reduce related fee revenues beginning in the third quarter of 2026." Deposit fees bring in roughly $22-23 million a year, so even a modest cut would wipe out most of the fee growth seen this year.
• Other income rose to $2.2 million from $1.5 million on higher fees and commissions and bank-owned life insurance income.

Credit: the number to watch

Losses are still small. Net charge-offs, meaning loans written off as uncollectable net of recoveries, were 0.14% of average loans annualized. The quarter's provision for credit losses (money set aside for expected future losses) was $0.9 million. Earlier warning signs are rising, though:

• Classified loans, which the bank considers at meaningful risk of loss, rose to $29.8 million from $14.5 million at March 31. The filing names the cause: "the downgrade of four commercial real estate relationships (two private schools totaling $9.8 million ($6.4 million and $3.4 million), hotel $2.0 million, funeral home $5.0 million)."
• Nonperforming assets (loans no longer paying plus repossessed property) were $13.4 million, or 0.30% of total assets, up from $6.6 million (0.15%) a year earlier. Repossessed real estate rose $1.6 million in the quarter, to $3.4 million.
• Reserve coverage has thinned. The allowance for credit losses was 309.7% of nonperforming loans, down from 463.0% a year ago, though still 1.24% of total loans.

These figures are low by industry standards, and four named borrowers are not a pattern. Still, a $15 million jump in classified loans in one quarter is the largest single change on the balance sheet, at a bank with only $31 million of reserves.

Takeaway: Capital City's 8% EPS growth came from managing the balance sheet, not from growing the business: average loans shrank 5.5% while bond yields and lower deposit costs widened the margin. That source of growth runs out as the bond portfolio finishes repricing, and planned deposit-fee cuts plus a doubling of classified loans are headwinds the Q2 numbers don't yet show.

What the headline numbers hide

• Part of the EPS gain came from a lower tax rate. Pre-tax income rose 6.0% (to $21.2 million from $20.0 million), while net income rose 8.2%. The effective tax rate fell to 23.4% from 24.9%, helped by "a tax benefit related to an investment in a solar tax equity fund during the quarter." Management expects a rate of about 23.5% for 2026 "absent discrete items or new tax credit investments." Roughly a quarter of this year's EPS growth is a tax effect, not operating improvement.
• Buybacks didn't help. Diluted shares edged up to 17.126 million from 17.088 million. The $2.6 million of first-half repurchases (63,088 shares) did not offset shares issued under stock plans.
• The first half is flat because of a 2025 one-off. Six-month EPS was $1.87 in both 2025 and 2026. Q1 2025 included "a large gain realized from the sale of our operations center building," booked as a credit to other real estate expense ($4.4 million net credit in H1 2025 vs $0.2 million in H1 2026). Without that gain, the first-half comparison would look better than flat. The Q2-on-Q2 comparison is not distorted by it.
• Cash conversion. First-half operating cash flow was $28.7 million against $32.1 million of net income, down from $54.5 million a year earlier. For a bank with a mortgage arm, this figure swings mainly with loans held for sale (originated to be sold), which rose to $34.3 million from $21.7 million at year-end. It is a timing effect, not a sign of poor earnings quality.
• No GAAP vs. adjusted gap. The company reports GAAP earnings only. Its non-GAAP measures are limited to tangible book value and the tangible common equity ratio.
• The bond strategy has a cost on paper. Higher bond rates in Q2 caused a $4.8 million unfavorable change in accumulated other comprehensive loss in the first half. If unrealized losses on held-to-maturity securities ($7.8 million after tax) were counted, the tangible common equity ratio would be 10.85% instead of the reported 11.03%. That is a small gap.

Outlook

Management doesn't give earnings guidance. The 10-Q points to three things for the second half of 2026:

1. Deposit fees will decline from Q3 as product changes take effect. Management hasn't given a size.
2. Effective tax rate around 23.5% for the year, before any new tax-credit investments.
3. About $10.0 million of capital spending over the next 12 months, mainly a new office, remodels and technology, funded from existing resources.

Our read: the margin should hold in the mid-4.3% range for another quarter or two, because the bank still had $365 million of average overnight funds earning 3.70% that can move into bonds. With loans still shrinking (down $18.5 million in Q2 alone), revenue growth is likely to stay in low single digits, and the fee change will weigh on noninterest income. The biggest open question is credit. If the four downgraded commercial real estate loans lead to charge-offs or higher reserves, provisions well above this quarter's $0.9 million would take a visible bite out of earnings. The bank also has far more capital than it needs (CET1 19.80%, leverage ratio 11.96%), so a larger buyback or a step-up in lending would be the obvious ways to lift returns. Return on average equity was 11.38% this quarter.