# Capital City Bank Group Inc: Form 10-Q for the period ended Sep 30, 2024 - Company: [Capital City Bank Group Inc](/companies/ccbg.md) (CIK 726601) - Form: 10-Q - Filed: 2024-11-04 - Accepted by EDGAR: Nov 4, 2024, 17:07 ET - Period: 2024-09-30 - Accession: 0000726601-24-000040 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/726601/000072660124000040/ccbg-20240930.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/726601/000072660124000040/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2024-09-30. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Income tax | 3 months, 2024-07-01 to 2024-09-30 | $3.0m | us-gaap:IncomeTaxExpenseBenefit | | Income tax | 9 months, 2024-01-01 to 2024-09-30 | $9.7m | us-gaap:IncomeTaxExpenseBenefit | | Net income | 3 months, 2024-07-01 to 2024-09-30 | $13.1m | us-gaap:NetIncomeLoss | | Net income | 9 months, 2024-01-01 to 2024-09-30 | $39.8m | us-gaap:NetIncomeLoss | | Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.77 | us-gaap:EarningsPerShareDiluted | | Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $2.35 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.77 | us-gaap:EarningsPerShareBasic | | Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $2.35 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 16,979,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 16,966,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $52.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $6.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Dividends paid | 9 months, 2024-01-01 to 2024-09-30 | $11.0m | us-gaap:PaymentsOfDividendsCommonStock | | Share repurchases | 9 months, 2024-01-01 to 2024-09-30 | $2.3m | us-gaap:PaymentsForRepurchaseOfCommonStock | | Total assets | at 2024-09-30 | $4.23bn | us-gaap:Assets | | Total liabilities | at 2024-09-30 | $3.74bn | us-gaap:Liabilities | | Short-term borrowings | at 2024-09-30 | $37.3m | us-gaap:ShortTermBorrowings | | Shareholders' equity | at 2024-09-30 | $476.5m | us-gaap:StockholdersEquity | ## Management's discussion and analysis As filed, 1,819 characters. ### MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF ### OPERATIONS Management’s discussion and analysis (“MD&A”) provides supplemental information, which sets forth the major factors that have affected our financial condition and results of operations and should be read in conjunction with the Consolidated Financial Statements and related notes. The following information should provide a better understanding of the major factors and trends that affect our earnings performance and financial condition, and how our performance during the third quarter of 2024 compares with prior periods. Throughout this section, Capital City Bank Group, Inc., and subsidiaries, collectively, is referred to as “CCBG,” “Company,” “we,” “us,” or “our.” ### CAUTION CONCERNING FORWARD -LOOKING STATEMENTS This Quarterly Report on Form 10-Q, including this MD&A section, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “vision,” “goal,” and similar expressions are intended to identify forward-looking statements. All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking statements. Please see the Introductory Note of this quarterly report on Form 10-Q as well as the Introductory Note and ## Market risk As filed, 355 characters. See “Market Risk and Interest Rate Sensitivity” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, above, which is incorporated herein by reference. Management has determined that no additional disclosures are necessary to assess changes in information about market risk that have occurred since December 31, 2023. ## Controls and procedures As filed, 5,415 characters. ### Evaluation of Disclosure Controls and Procedures At September 30, 2024, the end of the period covered by this Form 10-Q, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report our disclosure controls and procedures were ineffective due to the identification of the material weakness discussed below. ### Previously Reported Material Weakness in Internal Control Over Financial Reporting A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual interim financial statements will not be prevented or detected on a timely basis. As reported in our 2023 Form 10-K, as amended, we did not maintain effective internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) as of December 31, 2023 as a result of a material weakness in our internal control over financial reporting for the review of significant inter-company mortgage loan sales and servicing transactions was not designed effectively. Specifically, management’s review control over the completeness and accuracy of elimination entries in the consolidation process was not designed effectively, as the review was not sufficiently precise to identify all the necessary elimination entries between CCB and its subsidiary, CCHL. The Company determined inter- company transactions related to the sale of residential mortgage loans were not properly eliminated and net loan fees were not properly recorded. Further, financial information obtained from CCHL for certain construction/permanent loan activity was not in sufficient detail to appropriately classify this activity within the Statement of Cash Flows. Specifically, management’s review control over the completeness, accuracy and review of financial information provided from CCHL related to the Statement of Cash Flows was not designed effectively as the review was not sufficiently precise to identify all errors in financial reporting. Refer to our 2023 Form 10-K, as amended, for further information on the material weakness. #### Remediation Plan Since identifying the material weakness described above, management, with oversight from the Audit Committee and input from the Board of Directors, has devoted substantial resources to the ongoing implementation of remediation efforts. These remediation efforts, summarized below are intended to address both the identified material weakness and to enhance the Company’s overall internal control over financial reporting and disclosure controls and procedures. Based on additional procedures and post-closing review, management concluded that the consolidated financial statements included in this report present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented, in conformity with GAAP. The internal control and procedural enhancements and remedial actions that have been implemented include: 1. Enhance the precision level review of activity within existing accounts that are subject to elimination during consolidation, to ensure appropriate elimination; 2. Enhance review procedures to identify new inter-company accounts and activities subject to elimination during consolidation; 3. Increase the granularity of general ledger mapping for inter-company accounts subject to elimination during consolidation; 4. Enhance financial close checklist and pre-close meeting agenda to assist the reviewer identifying and assessing inter- company activities that are subject to elimination in a timely manner; and 5. Enhance the detail of review procedures of financial information obtained from a subsidiary to identify, assess and validate appropriate classification when preparing the consolidated financial statements, including when reviewing items in the operating, investing or financing activity sections within the Statement of Cash Flow. To remediate the material weakness, the Company implemented the internal control and procedural enhancements noted above in items 1-4 during the fourth quarter of 2023 and implemented the enhancement noted above in item 5 during the first quarter of 2024. The material weakness cannot be considered remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are designed and operating effectively. Accordingly, management will continue to monitor and evaluate the effectiveness of our internal control over financial reporting and the disclosure controls and procedures. ### Change in Internal Control Except as identified above with respect to remediation of the material weakness , there have been no significant changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ## Risk factors As filed, 71,811 characters. of our 2023 Form 10-K, as amended, as updated in our subsequent quarterly reports filed on Form 10-Q, and in our other filings made from time to time with the SEC after the date of this report. However, other factors besides those listed in our Quarterly Report or in our Annual Report also could adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by us or on our behalf speak only as of the date they are made. We do not undertake to update any forward-looking statement, except as required by applicable law. ### BUSINESS OVERVIEW We are a financial holding company headquartered in Tallahassee, Florida, and we are the parent of our wholly owned subsidiary, Capital City Bank (the “Bank” or “CCB”). We offer a broad array of products and services through a total of 63 full-service offices and 105 ATMs/ITMs located in Florida, Georgia, and Alabama. Through Capital City Home Loans, LLC (“CCHL”), we have 29 additional offices in the Southeast for our mortgage banking business. We provide a full range of banking services, including traditional deposit and credit services, mortgage banking, asset management, trust, merchant services, bankcards, securities brokerage services and financial advisory services, including life insurance products , risk management and asset protection services. Our profitability, like most financial institutions, is dependent to a large extent upon net interest income, which is the difference between the interest and fees received on interest earning assets, such as loans and securities, and the interest paid on interest-bearing liabilities, principally deposits and borrowings. Results of operations are also affected by the provision for credit losses, operating expenses such as salaries and employee benefits, occupancy and other operating expenses including income taxes, and noninterest income such as mortgage banking revenues, wealth management fees, deposit fees, and bank card fees. We have included a detailed discussion of our long-term strategic objectives as part of the MD&A section of our 2023 Form 10-K, as amended. ### NON-GAAP FINANCIAL MEASURES (UNAUDITED) We present a tangible common equity ratio and a tangible book value per diluted share that, in each case, removes the effect of goodwill and other intangibles that resulted from merger and acquisition activity. We believe these measures are useful to investors because it allows investors to more easily compare our capital adequacy to other companies in the industry. The generally accepted accounting principles (“GAAP”) to non-GAAP reconciliation for each quarter presented is provided below. ### 2024 ### 2023 #### (Dollars in Thousands, except per share data) Third Second First Fourth Third Shareowners' Equity (GAAP) 476,499 460,999 448,314 440,625 419,706 Less: Goodwill and Other Intangibles (GAAP) 92,813 92,853 92,893 92,933 92,973 Tangible Shareowners' Equity (non-GAAP) A 383,686 368,146 355,421 347,692 326,733 Total Assets (GAAP) 4,225,316 4,225,695 4,259,922 4,304,477 4,138,287 Less: Goodwill and Other Intangibles (GAAP) 92,813 92,853 92,893 92,933 92,973 Tangible Assets (non-GAAP) B 4,132,503 4,132,842 4,167,029 4,211,544 4,045,314 ### Tangible Common Equity Ratio (non-GAAP) ### A/B ### 9.28% ### 8.91% ### 8.53% ### 8.26% ### 8.08% Actual Diluted Shares Outstanding (GAAP) C 16,980,686 16,970,228 16,947,204 17,000,758 16,997,886 ### Tangible Book Value per Diluted Share (non-GAAP) ### A/C ### 22.60 ### 21.69 ### 20.97 ### 20.45 ### 19.22 ### SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) ### 2024 ### 2023 #### (Dollars in Thousands, Except Per Share Data) Third Second First Fourth Third ### Summary of Operations Interest Income 49,328 48,766 46,820 46,184 45,753 Interest Expense 9,117 9,497 8,465 7,013 6,473 Net Interest Income 40,211 39,269 38,355 39,171 39,280 Provision for Credit Losses 1,206 1,204 920 2,025 2,393 Net Interest Income After Provision for Credit Losses 39,005 38,065 37,435 37,146 36,887 Noninterest Income 19,513 19,606 18,097 17,157 16,728 Noninterest Expense 42,921 40,441 40,171 39,958 39,105 Income Before Income Taxes 15,597 17,230 15,361 14,345 14,510 Income Tax Expense 2,980 3,189 3,536 2,909 3,004 Loss Attributable to NCI 501 109 732 284 1,149 Net Income Attributable to CCBG 13,118 14,150 12,557 11,720 12,655 Net Interest Income (FTE) (1) 40,260 39,334 38,435 39,264 39,367 ### Per Common Share Net Income Basic 0.77 0.84 0.74 0.69 0.75 Net Income Diluted 0.77 0.83 0.74 0.70 0.74 Cash Dividends Declared 0.23 0.21 0.21 0.20 0.20 Diluted Book Value 28.06 27.17 26.45 25.92 24.69 Diluted Tangible Book Value (2) 22.60 21.69 20.97 20.45 19.22 Market Price: High 36.67 28.58 31.34 32.56 33.44 Low 26.72 25.45 26.59 26.12 28.64 Close 35.29 28.44 27.70 29.43 29.83 ### Selected Average Balances Investment Securities 908,456 919,832 953,184 963,184 1,005,003 Loans Held for Investment 2,693,533 2,726,748 2,728,629 2,711,243 2,672,653 Earning Assets 3,883,414 3,935,280 3,849,615 3,823,980 3,876,980 Total Assets 4,215,862 4,272,188 4,190,623 4,166,777 4,218,855 Deposits 3,572,034 3,641,028 3,576,513 3,548,506 3,596,816 Shareowners’ Equity 480,137 465,297 456,014 435,116 427,580 Common Equivalent Average Shares: Basic 16,943 16,931 16,951 16,947 16,985 Diluted 16,979 16,960 16,969 16,997 17,025 ### Performance Ratios: Return on Average Assets (annualized) 1.24 1.33 1.21 1.12 1.19 Return on Average Equity (annualized) 10.87 12.23 11.07 10.69 11.74 Net Interest Margin (FTE) 4.12 4.02 4.01 4.07 4.03 Noninterest Income as % of Operating Revenue 32.67 33.30 32.06 30.46 29.87 Efficiency Ratio 71.81 68.61 71.06 70.82 69.88 ### Asset Quality: Allowance for Credit Losses (“ACL”) 29,836 29,219 29,329 29,941 29,083 Nonperforming Assets (“NPAs”) 7,242 6,165 6,799 6,243 4,695 ACL to Loans HFI 1.11 1.09 1.07 1.10 1.08 NPAs to Total Assets 0.17 0.15 0.16 0.15 0.11 NPAs to Loans HFI plus OREO 0.27 0.23 0.25 0.23 0.17 ACL to Non-Performing Loans 452.64 529.79 431.46 479.70 619.58 Net Charge-Offs to Average Loans HFI 0.19 0.18 0.22 0.23 0.17 ### Capital Ratios: Tier 1 Capital 16.77 16.31 15.67 15.37 15.11 Total Capital 17.97 17.50 16.84 16.57 16.30 Common Equity Tier 1 14.88 14.44 13.82 13.52 13.26 Leverage 10.89 10.51 10.45 10.30 9.98 Tangible Common Equity (2) 9.28 8.91 8.53 8.26 8.08 (1) #### Fully Tax Equivalent (2) #### Non-GAAP financial measure. See non-GAAP reconciliation on page 33. ### FINANCIAL OVERVIEW ### Results of Operations #### Performance Summary. Net income attributable to common shareowners totaled $13.1 million, or $0.77 per diluted share, for the third quarter of 2024 compared to $14.2 million, or $0.83 per diluted share, for the second quarter of 2024, and $12.7 million, or $0.74 per diluted share, for the third quarter of 2023. For the first nine months of 2024, net income attributable to common shareowners totaled $39.8 million, or $2.35 per diluted share, compared to net income of $40.5 million, or $2.38 per diluted share, for the same period of 2023. #### Net Interest Income. Tax-equivalent net interest income for the third quarter of 2024 totaled $40.2 million, compared to $39.3 million for the second quarter of 2024, and $39.4 million for the third quarter of 2023. Compared to the second quarter of 2024, the increase was primarily due to increases in loan and investment interest income and a decrease in deposit interest expense, partially offset by a decrease in overnight funds interest income. One additional calendar day also contributed to the increase. Favorable repricing of existing adjustable/fixed rate loans at higher rates drove the increase in loan interest income. Compared to the third quarter of 2023, the $0.9 million increase was primarily driven by an increase in loan interest income and to a lesser extent overnight funds interest income, partially offset by an increase in deposit interest expense. For the first nine months of 2024, tax-equivalent net interest income totaled $118.0 million compared to $120.1 million for the same period of 2023 with the decrease primarily attributable to an increase in deposit interest expense and a decrease in investment interest income, partially offset by an increase in loan interest income. Our net interest margin for the third quarter of 2024 was 4.12%, an increase of 10 basis points over the second quarter of 2024 and an increase of nine basis points over the third quarter of 2023. #### Provision and Allowance for Credit Losses. We recorded a provision expense for credit losses of $1.2 million for the third quarter of 2024, comparable to the second quarter of 2024 and a $1.2 million decrease from the third quarter of 2023. Compared to the second quarter of 2024, the provision reflected a $0.7 million increase in the provision expense for loans held for investment (“HFI”), a $0.6 million provision benefit for unfunded loan commitments, and a $0.1 million provision benefit for debt securities. For the first nine months of 2024, we recorded a provision expense for credit losses of $3.3 million compared to $7.7 million for the same period of 2023\. The decrease reflected a $3.2 million decrease in the provision expense for loans HFI and a $1.2 million decrease in the provision for unfunded loan commitments. The decrease in the provision for loans HFI was primarily due to lower new loan volume in 2024 and lower loan balances. The decrease in the provision for unfunded loan commitments reflected a lower level of loan commitments. At September 30, 2024, the allowance represented 1.11% of loans HFI compared to 1.09% at June 30, 2024, and 1.10% at December 31, 2023. #### Noninterest Income . Noninterest income for the third quarter of 2024 totaled $19.5 million compared to $19.6 million for the second quarter of 2024 and $16.7 million for the third quarter of 2023. The slight decrease from the second quarter of 2024 reflected a $0.4 million decrease in mortgage banking revenues partially offset by a $0.3 million increase in wealth management fees. Compared to the third quarter of 2023, the $2.8 million increase was primarily attributable to a $2.1 million increase in mortgage banking revenues driven by a higher gain on sale margin, and a $0.8 million increase in wealth management fees. For the first nine months of 2024, noninterest income totaled $57.2 million compared to $54.5 million for the same period of 2023, primarily attributable to a $3.2 million increase in mortgage banking revenues and a $1.8 million increase in wealth management fees, partially offset by a $2.1 million decrease in other income. #### Noninterest Expense. Noninterest expense for the third quarter of 2024 totaled $42.9 million compared to $40.4 million for the second quarter of 2024 and $39.1 million for the third quarter of 2023. The $2.5 million increase over the second quarter of 2024 was primarily due to a $1.4 million increase in compensation and a $1.0 million increase in other expense. Compared to the third quarter of 2023, the $3.8 million increase was primarily attributable to a $2.8 million increase in compensation expense and a $0.9 million increase in other expense. For the first nine months of 2024, noninterest expense totaled $123.5 million compared to $117.1 million for the same period of 2023 with the $6.4 million increase primarily attributable to increases in compensation expense of $4.6 million, occupancy expense of $0.5 million, and other expense of $1.3 million. ### Financial Condition #### Earning Assets. Average earning assets totaled $3.883 billion for the third quarter of 2024, a decrease of $51.9 million, or 1.3%, from the second quarter of 2024, and an increase of $59.4 million, or 1.6%, over the fourth quarter of 2023. The change for both prior periods was driven by variances in deposit balances. Compared to the second quarter of 2024, the change in the earning asset mix reflected a $33.2 million decrease in loans HFI, a $11.4 million decline in investment securities, and a $5.6 million decrease in overnight funds sold. Compared to the fourth quarter of 2023, the change in the earning asset mix reflected a $157.1 million increase in overnight funds that was partially offset by a $17.7 million decrease in loans HFI, a $54.7 million decrease in investment securities and a $25.2 million decline in loans held for sale. #### Loans. Average loans HFI decreased $33.2 million, or 1.2%, from the second quarter of 2024 and decreased $17.7 million, or 0.7%, from the fourth quarter of 2023. Period end loans HFI decreased $7.1 million, or 0.3%, from the second quarter of 2024 and decreased $50.8 million, or 1.9%, from the fourth quarter of 2023. #### Credit Quality . Nonperforming assets (nonaccrual loans and other real estate) totaled $7.2 million at September 30, 2024 compared to $6.2 million at June 30, 2024 and $6.2 million at December 31, 2023. At September 30, 2024, nonperforming assets as a percent of total assets equaled 0.17%, compared to 0.15% at June 30, 2024 and 0.15% at December 31, 2023. Nonaccrual loans totaled $6.6 million at September 30, 2024, a $1.1 million increase over June 30, 2024 and a $0.3 million increase over December 31, 2023. Further, classified loans totaled $25.5 million at September 30, 2024, a $0.1 million decrease from June 30, 2024 and a $3.3 million increase over December 31, 2023. #### Deposits . Average total deposits were $3.572 billion for the third quarter of 2024, a decrease of $69.0 million, or 1.9%, from the second quarter of 2024 and an increase of $23.5 million, or 0.7%, over the fourth quarter of 2023. At September 30, 2024, total deposits were $3.579 billion, a decrease of $29.5 million, or 0.8%, from June 30, 2024, and a decrease of $122.7 million, or 3.3%, from December 31, 2023. #### Capital . At September 30, 2024, we were “well-capitalized” with a total risk-based capital ratio of 17.97% and a tangible common equity ratio (a non-GAAP financial measure) of 9.28% compared to 17.50% and 8.91%, respectively, at June 30, 2024 and 16.57% and 8.26%, respectively, at December 31, 2023. At September 30, 2024, all of our regulatory capital ratios exceeded the threshold to be “well-capitalized” under the Basel III capital standards. ### RESULTS OF OPERATIONS The following table provides a condensed summary of our results of operations - a discussion of the various components are discussed in further detail below. ### Three Months Ended ### Nine Months Ended ### September 30, ### June 30, ### September 30, ### September 30, ### September 30, #### (Dollars in Thousands, except per share data) ### 2024 ### 2024 ### 2023 ### 2024 ### 2023 Interest Income 49,328 48,766 45,753 144,914 134,886 Taxable Equivalent Adjustments 49 65 87 194 274 Total Interest Income (FTE) 49,377 48,831 45,840 145,108 135,160 Interest Expense 9,117 9,497 6,473 27,079 15,067 Net Interest Income (FTE) 40,260 39,334 39,367 118,029 120,093 Provision for Credit Losses 1,206 1,204 2,393 3,330 7,689 Taxable Equivalent Adjustments 49 65 87 194 274 Net Interest Income After Provision for Credit Losses 39,005 38,065 36,887 114,505 112,130 Noninterest Income 19,513 19,606 16,728 57,216 54,452 Noninterest Expense 42,921 40,441 39,105 123,533 117,066 Income Before Income Taxes 15,597 17,230 14,510 48,188 49,516 Income Tax Expense 2,980 3,189 3,004 9,705 10,130 Pre-Tax Loss Attributable to Noncontrolling Interest 501 109 1,149 1,342 1,153 Net Income Attributable to Common Shareowners 13,118 14,150 12,655 39,825 40,539 Basic Net Income Per Share 0.77 0.84 0.75 2.35 2.38 Diluted Net Income Per Share 0.77 0.83 0.74 2.35 2.38 ### Net Interest Income Net interest income represents our single largest source of earnings and is equal to interest income and fees generated by earning assets less interest expense paid on interest bearing liabilities. This information is provided on a “taxable equivalent” basis to reflect the tax- exempt status of income earned on certain loans and state and local government debt obligations. We provide an analysis of our net interest income including average yields and rates in Table I, “Average Balances & Interest Rates,” on page 48. Tax-equivalent net interest income for the third quarter of 2024 totaled $40.2 million, compared to $39.3 million for the second quarter of 2024, and $39.4 million for the third quarter of 2023. Compared to the second quarter of 2024, the increase was primarily due to increases in loan and investment interest income and a decrease in deposit interest expense, partially offset by a decrease in overnight funds interest income. One additional calendar day also contributed to the increase. Favorable repricing of existing adjustable/fixed rate loans at higher rates drove the increase in loan interest income. The increase in investment interest income was due to the reinvestment of maturing securities at higher rates. The decrease in deposit interest expense was attributable to lower average NOW account balances and average rate, in addition to lower rates on promotional deposit products. Compared to the third quarter of 2023, the $0.9 million increase was primarily driven by an increase in loan interest income and to a lesser extent overnight funds interest income, partially offset by an increase in deposit interest expense. For the first nine months of 2024, tax-equivalent net interest income totaled $118.0 million compared to $120.1 million for the same period of 2023 with the decrease primarily attributable to an increase in deposit interest expense and a decrease in investment interest income, partially offset by an increase in loan interest income. Our net interest margin for the third quarter of 2024 was 4.12%, an increase of 10 basis points over the second quarter of 2024 and an increase of nine basis points over the third quarter of 2023. For the month of September 2024, our net interest margin was 4.16%. For the first nine months of 2024, our net interest margin was 4.05% compared to 4.04% for the same period of 2023. The increase over the second quarter of 2024 reflected favorable loan and investment repricing, partially offset by a lower overnight funds rate. The increase over both prior year periods reflected higher loan rates partially offset by a higher cost of deposits. For the third quarter of 2024, our cost of funds was 93 basis points, a decrease of four basis points from the second quarter of 2024 and an increase of 27 basis points over the third quarter of 2023. Our cost of deposits (including noninterest bearing accounts) was 92 basis points, 95 basis points, and 58 basis points, respectively, for the same periods. ### Provision for Credit Losses We recorded a provision expense for credit losses of $1.2 million for the third quarter of 2024, comparable to the second quarter of 2024 and a $1.2 million decrease from the third quarter of 2023. Compared to the second quarter of 2024, the provision reflected a $0.7 million increase in the provision expense for loans HFI, a $0.6 million provision benefit for unfunded loan commitments, and a $0.1 million provision benefit for debt securities. The increase in the provision for loans HFI was primarily due to loan grade migration and slightly higher loss rates partially offset by lower loan balances. A lower level of commitments drove the provision benefit for unfunded loan commitments. For the first nine months of 2024, we recorded a provision expense for credit losses of $3.3 million compared to $7.7 million for the same period of 2023. The decrease reflected a $3.2 million decrease in the provision expense for loans HFI and a $1.2 million decrease in the provision for unfunded loan commitments. The decrease in the provision for loans HFI was primarily due to lower new loan volume in 2024 and lower loan balance s. The decrease in the provision for unfunded loan commitments reflected a lower level of loan commitments. We discuss the allowance for credit losses further below. ### Noninterest Income Noninterest income for the third quarter of 2024 totaled $19.5 million compared to $19.6 million for the second quarter of 2024 and $16.7 million for the third quarter of 2023. The slight decrease from the second quarter of 2024 reflected a $0.4 million decrease in mortgage banking revenues partially offset by a $0.3 million increase in wealth management fees. Compared to the third quarter of 2023, the $2.8 million increase was primarily attributable to a $2.1 million increase in mortgage banking revenues driven by a higher gain on sale margin, and a $0.8 million increase in wealth management fees. For the first nine months of 2024, noninterest income totaled $57.2 million compared to $54.5 million for the same period of 2023, primarily attributable to a $3.2 million increase in mortgage banking revenues and a $1.8 million increase in wealth management fees, partially offset by a $2.1 million decrease in other income. The increase in mortgage banking revenues was due to a higher gain on sale margin. The increase in wealth management fees was primarily driven by higher retail brokerage fees and to a lesser extent trust fees, primarily attributable to both new account growth and higher account values driven by higher market returns. The decrease in other income was primarily attributable to a $1.4 million gain from the sale of mortgage servicing rights in the second quarter of 2023, and to a lesser extent a decrease in vendor bonus income and miscellaneous income. Noninterest income represented 32.7% of operating revenues (net interest income plus noninterest income) in the third quarter of 2024 compared to 33.3% in the second quarter of 2024 and 29.9% in the third quarter of 2023. For the first nine months of 2024, noninterest income represented 32.7% of operating revenues compared to 31.2% for the same period of 2023. The table below reflects the major components of noninterest income. ### Three Months Ended ### Nine Months Ended ### September 30, ### June 30, ### September 30, ### September 30, ### September 30, #### (Dollars in Thousands) ### 2024 ### 2024 ### 2023 ### 2024 ### 2023 Deposit Fees 5,512 5,377 5,456 16,139 16,021 Bank Card Fees 3,624 3,766 3,684 11,010 11,205 Wealth Management Fees 4,770 4,439 3,984 13,891 12,061 Mortgage Banking Revenues 3,966 4,381 1,839 11,225 8,072 Other 1,641 1,643 1,765 4,951 7,093 ### Total Noninterest Income 19,513 19,606 16,728 57,216 54,452 Significant components of noninterest income are discussed in more detail below. #### Deposit Fees . Deposit fees for the third quarter of 2024 totaled $5.5 million, an increase of $0.1 million, or 2.5%, over the second quarter of 2024, and an increase of $0.1 million, or 1.0%, over the third quarter of 2023. For the first nine months of 2024, deposit fees totaled $16.1 million, an increase an increase of $0.1 million, or 0.7%, over the same period of 2023. Compared to the second quarter of 2024, the increase was driven by higher overdraft fees. The increase over both prior year periods was primarily due to higher commercial account analysis fee income. #### Bank Card Fees . Bank card fees for the third quarter of 2024 totaled $3.6 million, a decrease of $0.1 million, or 3.8%, from the second quarter of 2024, and a decrease of $0.1 million, or 1.6% from the third quarter of 2023. For the first nine months of 2024, bank card fees totaled $11.0 million, a decrease of $0.2 million, or 1.7%, from the same period of 2023. The slight change in fees between all periods reflected variance in debit card utilization as consumer spending patterns normalize. #### Wealth Management Fees . Wealth management fees include trust fees through Capital City Trust (i.e., managed accounts and trusts/estates), retail brokerage fees through Capital City Investments (i.e., investment, insurance products, and retirement accounts), and financial advisory fees through Capital City Strategic Wealth (i.e., including the sale of life insurance, risk management and asset protection services). Wealth management fees for the third quarter of 2024 totaled $4.8 million, an increase of $0.3 million, or 7.5%, over the second quarter of 2024, and an increase of $0.8 million, or 19.7%, over the third quarter of 2023. For the first nine months of 2024, wealth management fees totaled $13.9 million, an increase of $1.8 million, or 15.2%, over the same period of 2023, and reflected an $1.4 million increase in retail brokerage fees and a $0. 6 million increase in trust fees that was partially offset by a $0.2 million decrease in insurance commission revenue. The increase in retail brokerage assets was driven by increased fixed income and annuity product sales and the increase in trust fees reflected both new account growth and higher account values/returns reflective of the improved market returns. At September 30, 2024, total assets under management were approximately $2.950 billion compared to $2.770 billion at June 30, 2024 and $2.588 billion at December 31, 2023. #### Mortgage Banking Revenues. Mortgage banking revenues totaled $4.0 million for the third quarter of 2024, a decrease of $0.4 million, or 9.5%, from the second quarter of 2024 and an increase of $2.1 million, or 115 .7%, over the third quarter of 2023. For the first nine months of 2024, mortgage banking revenues totaled $11.2 million compared to $8.1 million for the same period of 2023. The decrease compared to the second quarter of 2024 was attributable to slightly lower loan sale volume. Compared to the prior year periods, the increase was attributable to a higher gain on sale margin which reflected a higher percentage of secondary market/mandatory delivery loan sales. We provide a detailed overview of our mortgage banking operation, including a detailed break- down of mortgage banking revenues, mortgage servicing activity, and warehouse funding within Note 4 – Mortgage Banking Activities in the Notes to Consolidated Financial Statements. #### Other . Other income totaled $1.6 million for the third quarter of 2024, comparable to the second quarter of 2024 and a decrease of $0.1 million, or 7.0%, from the third quarter of 2023. For the first nine months of 2024, other income totaled $5.0 million compared to $7.1 million for the same period of 2023. The decrease from 2023 was primarily attributable to a $1.4 million gain from the sale of mortgage servicing rights realized in the second quarter of 2023, and to a lesser extent a decrease in vendor bonus income and miscellaneous income. ### Noninterest Expense Noninterest expense for the third quarter of 2024 totaled $42.9 million compared to $40.4 million for the second quarter of 2024 and $39.1 million for the third quarter of 2023. The $2.5 million increase over the second quarter of 2024 was primarily due to a $1.4 million increase in compensation and a $1.0 million increase in other expense. The increase in compensation reflected a $0.9 million increase in salary expense and a $0.5 million increase in associate benefit expense. The increase in salary expense was driven by annual merit adjustments, and the increase in other associate benefit expense was primarily attributable to higher health insurance cost, and to a lesser extent higher stock-based compensation expense. The increase in other expense was primarily due to a $0.5 million increase in professional fees, a $0.3 million increase in processing fees, and higher miscellaneous expense, which included a $0.5 million payment to the counterparty for our VISA Class B share swap due to revision to the share conversion rate related to additional funding by VISA of the merchant litigation reserve. Compared to the third quarter of 2023, the $3.8 million increase was primarily attributable to a $2.8 million increase in compensation expense and a $0.9 million increase in other expense. The unfavorable variance in compensation expense reflected a $2.2 million increase in salary expense and a $0.6 million increase in associate benefit expense, with the salary variance driven by merit adjustments and the associate benefit expense variance reflective of higher health insurance cost. Further, salary expense was unfavorably impacted by a $1.0 million decrease in realized loan cost (credit offset to salary expense) which reflected lower loan volume in 2024. The increase in other expense was attributable to a $0.6 million increase in professional fees and higher miscellaneous expense due to the aforementioned $0.5 million share swap payment in the third quarter of 2024. For the first nine months of 2024, noninterest expense totaled $123.5 million compared to $117.1 million for the same period of 2023 with the $6.4 million increase primarily attributable to increases in compensation expense of $4.6 million, occupancy expense of $0.5 million, and other expense of $1.3 million. The increase in compensation expense reflected a $3.9 million increase in salary expense and a $0.7 million increase in associate benefit expense. The increase in salary expense was primarily due to a $2.9 million decrease in realized loan cost (credit offset to salary expense and lower new loan volume) and a $1.9 million increase in base salary expense (primarily annual merit raises), partially offset by a decrease in commission expense of $1.3 million (lower residential mortgage volume). The increase in occupancy was primarily attributable to an increase in maintenance agreement expense (security upgrades and addition of interactive teller machines). The increase in other expense was primarily due to a $1.8 million gain from the sale of a banking office in the first quarter of 2023 and higher miscellaneous expense due to the aforementioned $0.5 million share swap payment in 2024, which was partially offset by a $1.0 million decrease in pension plan expense (service cost). The table below reflects the major components of noninterest expense. ### Three Months Ended ### Nine Months Ended ### September 30, ### June 30, ### September 30, ### September 30, ### September 30, #### (Dollars in Thousands) ### 2024 ### 2024 ### 2023 ### 2024 ### 2023 Salaries 21,637 20,754 19,459 62,995 59,020 Associate Benefits 4,163 3,652 3,544 11,618 10,945 Total Compensation 25,800 24,406 23,003 74,613 69,965 Premises 3,245 3,043 3,217 9,461 9,632 Equipment 3,853 3,954 3,763 11,628 10,930 Total Occupancy 7,098 6,997 6,980 21,089 20,562 Legal Fees 407 430 366 1,272 1,147 Professional Fees 1,869 1,340 1,254 4,467 4,617 Processing Services 2,260 1,938 1,874 6,030 5,488 Advertising 654 851 756 2,320 2,590 Telephone 692 718 658 2,119 2,044 Insurance – Other 737 749 703 2,401 2,406 Other Real Estate Owned, net 46 19 9 83 (1,846) Pension - Other (419) (419) 32 (1,256) 45 Pension Settlement Gain (291) Miscellaneous 3,777 3,412 3,470 10,395 10,339 Total Other 10,023 9,038 9,122 27,831 26,539 ### Total Noninterest Expense 42,921 40,441 39,105 123,533 117,066 Significant components of noninterest expense are discussed in more detail below. #### Compensation. Compensation expense totaled $25.8 million for the third quarter of 2024, a $1.4 million, or 5.7%, increase over the second quarter of 2024 and a $2.8 million, or 12.2%, increase over the third quarter of 2023. The increase over the second quarter of 2024 reflected a $0.9 million increase in salary expense and a $0.5 million increase in associate benefit expense. The increase in salary expense was driven by annual merit adjustments, and the increase in other associate benefit expense was primarily attributable to higher health insurance cost, and to a lesser extent higher stock-based compensation expense. Compared to the third quarter of 2023, the unfavorable variance was attributable to a $2.2 million increase in salary expense and a $0.6 million increase in associate benefit expense, with the salary variance driven by merit adjustments and the associate benefit expense variance reflective of higher health insurance cost. Further, salary expense was unfavorably impacted by a $1.0 decrease in realized loan cost (credit offset to salary expense) which reflected lower loan volume in 2024. For the first nine months of 2024, compensation expense totaled $74.6 million compared to $70.0 million for the same period of 2023 with the $4.6 million increase attributable to a $3.9 million increase in salary expense and a $0.7 million increase in associate benefit expense. The increase in salary expense was primarily due to a $2.9 million decrease in realized loan cost (credit offset to salary expense) (lower new loan volume) and a $1.9 million increase in base salary expense (primarily annual merit raises), partially offset by a $1.3 million decrease in commission expense (lower residential mortgage volume). Higher health care cost drove the increase in associate benefit expense. #### Occupancy . Occupancy expense totaled $7.1 million for the third quarter of 2024, a $0.1 million increase over both the second quarter of 2024 and the third quarter of 2023. For the first nine months of 2024, occupancy expense totaled $21.1 million compared to $20.6 million for the same period of 2023. Compared to both prior year periods, the increase in occupancy expense was primarily due to higher expense for maintenance agreements (security upgrades and interactive teller machines). #### Other . Other expense totaled $10.0 million for the third quarter of 2024 compared to $9.0 million for the second quarter of 2024 and $9.1 million for the third quarter of 2023. For the first nine months of 2024, other expense totaled $27.8 million compared to $26.5 million for the same period of 2023. Compared to the second quarter of 2024, the $1.0 million increase was primarily due to a $0.5 million increase in professional fees, a $0.3 million increase in processing fees, and higher miscellaneous expense, which included a $0.5 million payment to the counterparty for our VISA Class B share swap due to revision to the share conversion rate related to additional funding by VISA of the merchant litigation reserve. The $0.9 million increase over the third quarter of 2023 was driven by a $0.6 million increase in professional fees and higher miscellaneous expense due to the aforementioned $0.5 million share swap payment in the third quarter of 2024. For the nine-month period, the $1.3 million increase was primarily due to a $1.8 million gain from the sale of a banking office in the first quarter of 2023 and higher miscellaneous expense in 2024 due to the aforementioned $0.5 million share swap payment, which was partially offset by a $1.0 million decrease in pension plan expense (service cost). Our operating efficiency ratio (expressed as noninterest expense as a percentage of the sum of taxable-equivalent net interest income plus noninterest income) was 71.81% for the third quarter of 2024 compared to 68.61% for the second quarter of 2024 and 69.88% for the third quarter of 2023. For the first nine months of 2024, this ratio was 70.49% compared to 67.07% for the same period of 2023. ### Income Taxes We realized income tax expense of $3.0 million (effective rate of 19.1%) for the third quarter of 2024 compared to $3.2 million (effective rate of 18.5%) for the second quarter of 2024 and $3.0 million (effective rate of 20.7%) for the third quarter of 2023. For the first nine months of 2024, we realized income tax expense of $9.7 million (effective rate of 20.1%) compared to $10.1 million (effective rate of 20.5%) for the same period of 2023. The decrease in our effective tax rate from both prior year periods was primarily due to a higher level of tax benefit accrued from investments in solar tax credit equity funds. Absent discrete items, we expect our annual effective tax rate to approximate 20-21% for 2024. ### FINANCIAL CONDITION Average earning assets totaled $3.883 billion for the third quarter of 2024, a decrease of $51.9 million, or 1.3%, from the second quarter of 2024, and an increase of $59.4 million, or 1.6%, over the fourth quarter of 2023. The change for both prior periods was driven by variances in deposit balances (see below – #### Deposits ). Compared to the second quarter of 2024, the change in the earning asset mix reflected a $33.2 million decrease in loans HFI, a $11.4 million decline in investment securities, and a $5.6 million decrease in overnight funds sold. Compared to the fourth quarter of 2023, the change in the earning asset mix reflected a $157.1 million increase in overnight funds that was partially offset by a $17.7 million decrease in loans HFI, a $54.7 million decrease in investment securities and a $25.2 million decline in loans held for sale. ### Investment Securities Average investments decreased $11.4 million, or 1.2%, from the second quarter of 2024 and $54.7 million, or 5.7%, from the fourth quarter of 2023. Our investment portfolio represented 23.4% of our average earning assets for each of the second and the third quarters of 2024 compared to 25.2% for the fourth quarter of 2023. For the remainder of 2024, we will continue to monitor our overall liquidity position and market conditions to determine if cash flow from the investment portfolio should be reinvested or allowed to run-off into overnight funds. The investment portfolio is a significant component of our operations and, as such, it functions as a key element of liquidity and asset/liability management. Two types of classifications are approved for investment securities which are Available -for-Sale (“AFS”) and Held-to-Maturity (“HTM”). At September 30, 2024, $561.5 million, or 62.5%, of the investment portfolio was classified as HTM and $336.2 million, or 37.5%, was classified as AFS. The average maturity of our total portfolio at September 30, 2024 was 2.51 compared to 2.67 years at June 30, 2024 and 2.91 years at December 31, 2023. The duration of our investment portfolio at September 30, 2024 was 2.17 years compared to 2.16 years at June 30, 2024 and 2.91 years at December 31, 2023. Additional information on unrealized gains/losses in the AFS and HTM portfolios is provided in Note 2 – Investment Securities. We determine the classification of a security at the time of acquisition based on how the purchase will affect our asset/liability strategy and future business plans and opportunities. We consider multiple factors in determining classification, including regulatory capital requirements, volatility in earnings or other comprehensive income, and liquidity needs. Securities in the AFS portfolio are recorded at fair value with unrealized gains and losses associated with these securities recorded net of tax, in the accumulated other comprehensive income component of shareowners’ equity. HTM securities are acquired or owned with the intent of holding them to maturity. HTM investments are measured at amortized cost. We do not trade, nor do we presently intend to begin trading investment securities for the purpose of recognizing gains and therefore we do not maintain a trading portfolio. At September 30, 2024, there were 818 positions (combined AFS and HTM) with unrealized losses totaling $40.3 million. 73 of these positions are U.S. Treasuries and carry the full faith and credit of the U.S. Government. 651 were U.S. government agency securities issued by U.S. government sponsored entities. The remaining 94 positions (municipal securities and corporate bonds) have a credit component. At September 30, 2024, corporate debt securities had an allowance for credit losses of $79,000 and municipal securities had an allowance of $4,000. At September 30, 2024, all collateralized mortgage obligation securities, mortgage-backed securities, Small Business Administration securities, U.S. Agency, and U.S. Treasury bonds held were AAA rated. ### Loans HFI Average loans HFI decreased $33.2 million, or 1.2%, from the second quarter of 2024 and decreased $17.7 million, or 0.7%, from the fourth quarter of 2023. Compared to the second quarter of 2024, the decrease was driven by a $19.4 million decrease in consumer loans (primarily indirect auto), a $13.2 million decrease in commercial loans, and a $7.7 million decrease in commercial real estate loans, partially offset by a $7.4 million increase in residential real estate loans. Compared to the fourth quarter of 2023, the decrease was primarily attributable to a $54.5 million decrease in consumer loans (primarily indirect auto) and a $24.2 million decrease in commercial loans (primarily tax-exempt loans) that were partially offset by a $59.2 million increase in residential real estate loans. Period end loans HFI decreased $7.1 million, or 0.3%, from the second quarter of 2024 and decreased $50.8 million, or 1.9%, from the fourth quarter of 2023. Compared to the second quarter of 2024, the decline reflected a $20.9 million decrease in consumer loans (primarily indirect auto), a $10.4 million decrease in commercial loans, and a $3.2 million decline in commercial real estate loans, partially offset by a $10.9 million increase in residential real estate loans and a $18.1 million increase in construction loans. The decrease from the fourth quarter of 2023 was primarily attributable to a $57.7 million decrease in consumer loans (primarily indirect auto), a $30.6 million decline in commercial loans, and a $5.5 million decrease in commercial real estate loans, partially offset by a $22.2 million increase in residential real estate loans and a $22.8 million increase in construction real estate loans. Without compromising our credit standards , changing our underwriting standards, or taking on inordinate interest rate risk, we continue to closely monitor our markets and make minor adjustments as necessary. ### Credit Quality Nonperforming assets (nonaccrual loans and other real estate) totaled $7.2 million at September 30, 2024 compared to $6.2 million at June 30, 2024 and $6.2 million at December 31, 2023. At September 30, 2024, nonperforming assets as a percent of total assets equaled 0.17%, compared to 0.15% at June 30, 2024 and 0.15% at December 31, 2023. Nonaccrual loans totaled $6.6 million at September 30, 2024, a $1.1 million increase over June 30, 2024 and a $0.3 million increase over December 31, 2023. Further, classified loans totaled $25.5 million at September 30, 2024, a $0.1 million decrease from June 30, 2024 and a $3.3 million increase over December 31, 2023. ### Allowance for Credit Losses The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. The allowance for credit losses is adjusted by a credit loss provision which is reported in earnings and reduced by the charge-off of loan amounts (net of recoveries). Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged -off. Expected credit loss inherent in non-cancellable off-balance sheet credit exposures is provided through the credit loss provision but recorded as a separate liability included in other liabilities. Management estimates the allowance balance using relevant available information, from internal and external sources relating to past events, current conditions, and reasonable and supportable forecasts. Historical loan default and loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information incorporate management’s view of current conditions and forecasts. At September 30, 2024, the allowance for credit losses for loans HFI totaled $29.8 million compared to $29.2 million at June 30, 2024 and $29.9 million at December 31, 2023. Activity within the allowance is provided in Note 3 – Loans Held for Investment and Allowance for Credit Losses in the Notes to Consolidated Financial Statements. The increase in the allowance over June 30, 2024 was primarily attributable to a slightly higher credit loss provision driven by a higher forecasted unemployment rate utilized in calculating loan loss rates and loan grade migration (see above – Provision for Credit Losses). The change in the allowance from December 31, 2023 reflected lower loan balances offset by higher loss rates and loan grade migration. At September 30, 2024, the allowance represented 1.11% of loans HFI compared to 1.09% at June 30, 2024, and 1.10% at December 31, 2023. At September 30, 2024, the allowance for credit losses for unfunded commitments totaled $2.5 million compared to $3.1 million and $3.2 million at June 30, 2024 and December 31, 2023, respectively. The decline in the allowance from June 30, 2024 and December 31, 2023 reflected a lower level of unfunded loan commitments. The allowance for unfunded commitments is recorded in other liabilities. ### Deposits Average total deposits were $3.572 billion for the third quarter of 2024, a decrease of $69.0 million, or 1.9%, from the second quarter of 2024 and an increase of $23.5 million, or 0.7%, over the fourth quarter of 2023. Compared to the second quarter of 2024, the decrease was primarily attributable to lower NOW account balances primarily due to the seasonal decline in our public fund balances. The increase over the fourth quarter of 2023 reflected growth in both money market and certificate of deposit balances which, reflected a combination of balances migrating from savings and noninterest bearing accounts, in addition to receiving new deposits from existing and new clients via various deposit strategies. At September 30, 2024, total deposits were $3.579 billion, a decrease of $29.5 million, or 0.8%, from June 30, 2024, and a decrease of $122.7 million, or 3.3%, from December 31, 2023. The decrease from June 30, 2024 was primarily due to lower noninterest bearing, money market, and savings account balances. The decrease from December 31, 2023 was primarily due to lower NOW account balances, primarily due to the seasonal decline in our public funds, partially offset by higher money market and certificate of deposit balances from both new and existing clients. Total public funds balances were $516.2 million at September 30, 2024, $575.0 million at June 30, 2024, and $709.8 million at December 31, 2023. Business deposit transaction accounts classified as repurchase agreements averaged $27.1 million for the third quarter of 2024, an increase of $0.1 million over the second quarter of 2024 and an increase of $0.3 million over the fourth quarter of 2023. At September 30, 2024, repurchase agreement balances were $29.3 million compared to $22.5 million at June 30, 2024 and $27.0 million at December 31, 2023. We continue to closely monitor our cost of deposits and deposit mix as we manage through the current rate environment. ### MARKET RISK AND INTEREST RATE SENSITIVITY ### Market Risk and Interest Rate Sensitivity #### Overview. Market risk arises from changes in interest rates, exchange rates, commodity prices, and equity prices. We have risk management policies designed to monitor and limit exposure to market risk and we do not participate in activities that give rise to significant market risk involving exchange rates, commodity prices, or equity prices. In asset and liability management activities, our policies are designed to minimize structural interest rate risk. #### Interest Rate Risk Management. Our net income is largely dependent on net interest income. Net interest income is susceptible to interest rate risk to the degree that interest-bearing liabilities mature or reprice on a different basis than interest-earning assets. When interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a given period, a significant increase in market rates of interest could adversely affect net interest income. Similarly, when interest-earning assets mature or reprice more quickly than interest-bearing liabilities, falling market interest rates could result in a decrease in net interest income. Net interest income is also affected by changes in the portion of interest-earning assets that are funded by interest-bearing liabilities rather than by other sources of funds, such as noninterest-bearing deposits and shareowners’ equity. We have established what we believe to be a comprehensive interest rate risk management policy, which is administered by management’s Asset Liability Management Committee (“ALCO”). The policy establishes limits of risk, which are quantitative measures of the percentage change in net interest income (a measure of net interest income at risk) and the fair value of equity capital (a measure of economic value of equity (“EVE”) at risk) resulting from a hypothetical change in interest rates for maturities from one day to 30 years. We measure the potential adverse impacts that changing interest rates may have on our short-term earnings, long- term value, and liquidity by employing simulation analysis through the use of computer modeling. The simulation model captures optionality factors such as call features and interest rate caps and floors imbedded in investment and loan portfolio contracts. As with any method of gauging interest rate risk, there are certain shortcomings inherent in the interest rate modeling methodology used by us. When interest rates change, actual movements in different categories of interest-earning assets and interest-bearing liabilities, loan prepayments, and withdrawals of time and other deposits, may deviate significantly from assumptions used in the model. Finally, the methodology does not measure or reflect the impact that higher rates may have on adjustable-rate loan clients’ ability to service their debts, or the impact of rate changes on demand for loan and deposit products. The statement of financial condition is subject to testing for interest rate shock possibilities to indicate the inherent interest rate risk. We apply instantaneous, parallel rate shocks to the base case in 100 basis point (bp) increments ranging from down 400bp to up 400bps at least once per quarter, with the analysis reported to ALCO, our Market Risk Oversight Committee (“MROC”), our Enterprise Risk Oversight Committee (“EROC”) and the Board of Directors. We augment our interest rate shock analysis with alternative interest rate scenarios on a quarterly basis that may include ramps, and a flattening or steepening of the yield curve (non- parallel shift). In addition, more frequent forecasts may be produced when interest rates are particularly uncertain or when other business conditions so dictate. Our goal is to structure the statement of financial condition so that net interest earnings at risk over 12-month and 24-month periods and the economic value of equity at risk do not exceed policy guidelines at the various interest rate shock levels. We attempt to achieve this goal by balancing, within policy limits, the volume of floating-rate liabilities with a similar volume of floating-rate assets, by keeping the average maturity of fixed-rate asset and liability contracts reasonably matched, by managing the mix of our core deposits, and by adjusting our rates to market conditions on a continuing basis. #### Analysis. Measures of net interest income at risk produced by simulation analysis are indicators of an institution’s short-term performance in alternative rate environments. These measures are typically based upon a relatively brief period, and do not necessarily indicate the long-term prospects or economic value of the institution. ### ESTIMATED CHANGES IN NET INTEREST INCOME ### (1) ### Percentage Change (12-month shock) ### +400 bp ### +300 bp ### +200 bp ### +100 bp ### -100 bp ### -200 bp ### -300 bp ### -400 bp Policy Limit -15.0% -12.5% -10.0% -7.5% -7.5% -10.0% -12.5% -15.0% September 30, 2024 13.8% 10.3% 6.8% 3.5% -3.8% -8.2% -12.9% -18.0% June 30, 2024 15.0% 11.2% 7.3% 3.8% -4.1% -8.5% -13.4% -18.3% ### Percentage Change (24-month shock) ### +400 bp ### +300 bp ### +200 bp ### +100 bp ### -100 bp ### -200 bp ### -300 bp ### -400 bp Policy Limit -17.5% -15.0% -12.5% -10.0% -10.0% -12.5% -15.0% -17.5% September 30, 2024 40.9% 33.1% 25.2% 17.8% 1.3% -8.4% -19.1% -29.2% June 30, 2024 41.8% 33.9% 26.0% 18.6% 2.2% -7.4% -18.1% -28.6% The Net Interest Income (“NII”) at Risk position of an instantaneous, parallel rate shock indicates that in the short-term (over the next 12 months), all rising rate environments will positively impact the net interest margin of the Company, while declining rate environments will have a negative impact on the net interest margin. Compared to the second quarter of 2024, these metrics generally became less favorable in the rising rate scenarios and more favorable in the falling rate scenarios. This was attributable to slightly lower new volume asset rates, in addition to $50 million in investment purchases which provide a benefit in a falling rate environment, with a negative effect in rising rate scenarios. The instantaneous, parallel rate shock results over the next 12-month and 24-month periods are outside of policy in the rates down 300 bps and 400 bps scenario largely due to the limited ability to decrease deposit rates the full extent of this rate change. The measures of equity value at risk indicate our ongoing economic value by considering the effects of changes in interest rates on all of our cash flows by discounting the cash flows to estimate the present value of assets and liabilities. The difference between these discounted values of the assets and liabilities is the economic value of equity, which in theory approximates the fair value of our net assets. ### ESTIMATED CHANGES IN ECONOMIC VALUE OF EQUITY ### (1) ### Changes in Interest Rates ### +400 bp ### +300 bp ### +200 bp ### +100 bp ### -100 bp ### -200 bp ### -300 bp ### -400 bp Policy Limit -30.0% -25.0% -20.0% -15.0% -15.0% -20.0% -25.0% -30.0% September 30, 2024 30.6% 24.5% 17.4% 9.6% -11.4% -21.7% -31.3% -31.7% June 30, 2024 20.2% 16.5% 11.7% 6.1% -9.5% -19.0% -26.1% -28.8% EVE Ratio (policy minimum 5.0%) 25.2% 23.6% 21.9% 20.1% 15.7% 13.6% 11.8% 11.7% At September 30, 2024, the economic value of equity was favorable in all rising rate environments and unfavorable in the falling rate environments. Compared to the second quarter of 2024, EVE metrics were more favorable in the rising rate environment and less favorable in falling rate environments as slower decay rates were assumed for our nonmaturity deposit portfolio, resulting in longer assumed average lives. EVE is currently in compliance with policy in all rate scenarios as the EVE ratio exceeds the policy minimum of 5.0% in each shock scenario. As the interest rate environment and the dynamics of the economy continue to change, additional simulations will be analyzed to address not only the changing rate environment, but also the change in mix of our financial assets and liabilities, measured over multiple years, to help assess the risk to the Company. ### LIQUIDITY AND CAPITAL RESOURCES ### Liquidity In general terms, liquidity is a measurement of our ability to meet our cash needs. Our objective in managing our liquidity is to maintain our ability to meet loan commitments, purchase securities or repay deposits and other liabilities in accordance with their terms, without an adverse impact on our current or future earnings. Our liquidity strategy is guided by policies that are formulated and monitored by our ALCO and senior management, which take into account the marketability of assets, the sources and stability of funding and the level of unfunded commitments. We regularly evaluate all of our various funding sources with an emphasis on accessibility, stability, reliability and cost-effectiveness. Our principal source of funding has been our client deposits, supplemented by our short-term and long-term borrowings, primarily from securities sold under repurchase agreements, federal funds purchased and FHLB borrowings. We believe that the cash generated from operations, our borrowing capacity and our access to capital resources are sufficient to meet our future operating capital and funding requirements. At September 30, 2024, we had the ability to generate approximately $1.522 billion (excludes overnight funds position of $262 million) in additional liquidity through various sources including various federal funds purchased lines, Federal Home Loan Bank borrowings, the Federal Reserve Discount Window, and brokered deposits. We recognize the importance of maintaining liquidity and have developed a Contingent Liquidity Plan, which addresses various liquidity stress levels and our response and action based on the level of severity. We periodically test our credit facilities for access to the funds, but also understand that as the severity of the liquidity level increases that certain credit facilities may no longer be available. We conduct a liquidity stress test on a quarterly basis based on events that could potentially occur at the Bank and report results to our ALCO, MROC, EROC, and Board of Directors. We believe the liquidity available to us at September 30, 2024 was sufficient to meet our on-going needs and execute our business strategy. We also view our investment portfolio as a liquidity source and have the option to pledge securities in our portfolio as collateral for borrowings or deposits, and/or to sell selected securities. Additional information on our investment portfolio is provided within Note 2 – Investment Securities. The Bank maintained an average net overnight funds (i.e., deposits with banks plus FED funds sold less FED funds purchased) sold position of $256.9 million in the third quarter of 2024 compared to $262.4 million in the second quarter of 2024 and $99.8 million in the fourth quarter of 2023. Compared to the second quarter of 2024, the decrease reflected lower average deposits (primarily seasonal public funds) that was substantially offset by a decline in average loans. Compared to the fourth quarter of 2023, the increase was primarily driven by higher average deposits and lower average investments. We expect our capital expenditures will be approximately $12.0 million over the next 12 months, which will primarily consist of construction of new offices, office remodeling, office equipment/furniture, and technology purchases. Management expects that these capital expenditures will be funded with existing resources without impairing our ability to meet our on-going obligations. ### Borrowings Average short -term borrowings totaled $29.8 million for the third quarter of 2024 compared to $33.6 million for the second quarter of 2024 and $43.8 million for the fourth quarter of 2023. The decrease from both prior periods reflected a lower balance maintained on CCHL’s warehouse line. Additional detail on warehouse borrowings is provided in Note 4 – Mortgage Banking Activities in the Consolidated Financial Statements. We have issued two junior subordinated deferrable interest notes to our wholly owned Delaware statutory trusts. The first note for $30.9 million was issued to CCBG Capital Trust I in November 2004, of which $10 million was retired in April 2016. The second note for $32.0 million was issued to CCBG Capital Trust II in May 2005. The interest payment for the CCBG Capital Trust I borrowing is due quarterly and adjusts quarterly to a variable rate of three-month CME Term SOFR (secured overnight financing rate) plus a margin of 1.90%. This note matures on December 31, 2034. The interest payment for the CCBG Capital Trust II borrowing is due quarterly and adjusts quarterly to a variable interest rate based on three-month CME Term SOFR plus a margin of 1.80%. This note matures on June 15, 2035. The proceeds from these borrowings were used to partially fund acquisitions. Under the terms of each junior subordinated deferrable interest note, in the event of default or if we elect to defer interest on the note, we may not, with certain exceptions, declare or pay dividends or make distributions on our capital stock or purchase or acquire any of our capital stock. During the second quarter of 2020, we entered into a derivative cash flow hedge of our interest rate risk related to our subordinated debt. The notional amount of the derivative is $30 million ($10 million of the CCBG Capital Trust I borrowing and $20 million of the CCBG Capital Trust II borrowing). The interest rate swap agreement requires CCBG to pay fixed and receive variable (three-month CME Term SOFR plus spread) and has an average all-in fixed rate of 2.50% for 10 years. Additional detail on the interest rate swap agreement is provided in Note 5 – Derivatives in the Consolidated Financial Statements. ### Capital Our capital ratios are presented in the Selected Quarterly Financial Data table on page 34. At September 30, 2024, our regulatory capital ratios exceeded the threshold to be designated as “well-capitalized” under the Basel III capital standards. Shareowners’ equity was $476.5 million at September 30, 2024 compared to $461.0 million at June 30, 2024 and $440.6 million at December 31, 2023. For the first nine months of 2024, shareowners’ equity was positively impacted by net income attributable to shareowners of $39.8 million, a $8.7 million decrease in the net unrealized loss on available for sale securities, net adjustments totaling $0.9 million related to transactions under our stock compensation plans, and stock compensation accretion of $1.1 million. Shareowners’ equity was reduced by a common stock dividend of $11.0 million ($0.65 per share), the repurchase of common stock of $2.3 million (82,540 shares), a $0.6 million increase in the fair value of the interest rate swap related to subordinated debt, and a $0.7 million reclassification to temporary equity. At September 30, 2024, our total risk-based capital ratio was 17.97% compared to 17.50% at June 30, 2024 and 16.57% at December 31, 2023. Our common equity tier 1 capital ratio was 14.88%, 14.44%, and 13.52%, respectively, on these dates. Our leverage ratio was 10.89%, 10.51%, and 10.30%, respectively, on these dates. At September 30, 2024, all our regulatory capital ratios exceeded the thresholds to be designated as “well-capitalized” under the Basel III capital standards. Further, our tangible common equity ratio (non-GAAP financial measure) was 9.28% at September 30, 2024 compared to 8.91% and 8.26% at June 30, 2024 and December 31, 2023, respectively. If our unrealized held-to-maturity securities losses of $12.9 million (after-tax) were recognized in accumulated other comprehensive loss, our adjusted tangible capital ratio would be 9.00%. Our tangible capital ratio is also impacted by the recording of our unfunded pension liability through other comprehensive income in accordance with Accounting Standards Codification Topic 715. At September 30, 2024, the net pension liability reflected in other comprehensive loss was $0.4 million compared to $0.4 million at June 30, 2024 and December 31, 2023. This liability is re-measured annually on December 31 st based on an actuarial calculation of our pension liability. Significant assumptions used in calculating the liability include the weighted average discount rate used to measure the present value of the pension liability, the weighted average expected long-term rate of return on pension plan assets, and the assumed rate of annual compensation increases, all of which will vary when re-measured. The discount rate assumption used to calculate the pension liability is subject to long-term corporate bond rates at December 31 st . These assumptions and sensitivities are discussed in the section entitled “Critical Accounting Policies and Estimates” in Part II, Item7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our 2023 Form 10-K, as amended. ### OFF-BALANCE SHEET ARRANGEMENTS We are a party to financial instruments with off-balance sheet risks in the normal course of business to meet the financing needs of our clients. At September 30, 2024, we had $714.2 million in commitments to extend credit and $6.1 million in standby letters of credit. Commitments to extend credit are agreements to lend to a client so long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued by us to guarantee the performance of a client to a third party. We use the same credit policies in establishing commitments and issuing letters of credit as we do for on- balance sheet instruments. If commitments arising from these financial instruments continue to require funding at historical levels, management does not anticipate that such funding will adversely impact our ability to meet our on-going obligations. In the event these commitments require funding in excess of historical levels, management believes current liquidity, advances available from the FHLB and the Federal Reserve, and investment security maturities provide a sufficient source of funds to meet these commitments. Certain agreements provide that the commitments are unconditionally cancellable by the bank and for those agreements no allowance for credit losses has been recorded. We have recorded an allowance for credit losses on loan commitments that are not unconditionally cancellable by the Bank, which is included in other liabilities on the Consolidated Statements of Financial Condition and totaled $2.5 million at September 30, 2024. ### CRITICAL ACCOUNTING POLICIES Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements included in our 2023 Form 10-K, as amended. The preparation of our Consolidated Financial Statements in accordance with GAAP and reporting practices applicable to the banking industry requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and to disclose contingent assets and liabilities. Actual results could differ from those estimates. We have identified accounting for (i) the allowance for credit losses, (ii) goodwill, (iii) pension assumptions, and (iv) income taxes as our most critical accounting policies and estimates in that they are important to the portrayal of our financial condition and results, and they require our subjective and complex judgment as a result of the need to make estimates about the effects of matters that are inherently uncertain. These accounting policies, including the nature of the estimates and types of assumptions used, are described throughout this Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2023 Form 10-K, as amended. ### TABLE I ### AVERAGE BALANCES & INTEREST RATES (UNAUDITED) ### Three Months Ended September 30, ### Nine Months Ended September 30, ### 2024 ### 2023 ### 2024 ### 2023 Average Average Average Average Average Average Average Average (Dollars in Thousands) Balances Interest Rate Balances Interest Rate Balances Interest Rate Balances Interest Rate Assets: Loans Held for Sale 24,570 720 7.49 62,768 971 6.14 26,050 1,800 6.22 57,438 2,416 5.62 Loans Held for Investment (1)(2) 2,693,533 40,985 6.09 2,672,653 38,455 5.71 2,716,220 121,864 6.02 2,637,911 109,688 5.56 Taxable Securities 907,610 4,148 1.82 1,002,547 4,549 1.80 926,241 12,385 1.78 1,034,825 14,265 1.84 Tax-Exempt Securities (2) 846 10 4.33 2,456 17 2.66 848 28 4.34 2,649 50 2.49 Federal Funds Sold and Interest Bearing Deposits 256,855 3,514 5.44 136,556 1,848 5.37 220,056 9,031 5.48 237,987 8,741 4.91 Total Earning Assets 3,883,414 49,377 5.06 3,876,980 45,840 4.69 3,889,415 145,108 4.98 3,970,810 135,160 4.55 Cash & Due From Banks 70,994 75,941 73,843 75,483 Allowance For Credit Losses (29,905) (29,172) (29,833) (27,581) Other Assets 291,359 295,106 292,762 297,688 TOTAL ASSETS 4,215,862 4,218,855 4,226,187 4,316,400 Liabilities: Noninterest Bearing Deposits 1,332,305 1,474,574 1,340,981 1,538,268 NOW Accounts 1,145,544 4,087 1.42 1,125,171 3,489 1.23 1,184,596 13,009 1.47 1,184,453 8,679 0.98 Money Market Accounts 418,625 2,694 2.56 322,623 1,294 1.59 393,294 7,431 2.52 293,089 2,249 1.03 Savings Accounts 512,098 180 0.14 579,245 200 0.14 523,573 544 0.14 603,643 396 0.09 Other Time Deposits 163,462 1,262 3.07 95,203 231 0.96 153,991 3,412 2.96 90,970 386 0.57 Total Interest Bearing Deposits 2,239,729 8,223 1.46 2,122,242 5,214 0.97 2,255,454 24,396 1.44 2,172,155 11,710 0.72 Total Deposits 3,572,034 8,223 0.92 3,596,816 5,214 0.58 3,596,435 24,396 0.91 3,710,423 11,710 0.42 Repurchase Agreements 27,126 221 3.24 25,356 190 2.98 26,619 639 3.21 17,588 314 2.39 Other Short-Term Borrowings 2,673 52 7.63 24,306 440 7.17 4,334 159 4.88 26,586 1,228 6.17 Subordinated Notes Payable 52,887 610 4.52 52,887 625 4.62 52,887 1,868 4.64 52,887 1,800 4.49 Other Long-Term Borrowings 795 11 5.55 387 4 4.73 447 17 5.16 433 15 4.78 Total Interest Bearing Liabilities 2,323,210 9,117 1.56 2,225,178 6,473 1.15 2,339,741 27,079 1.55 2,269,649 15,067 0.89 Other Liabilities 73,767 83,099 71,574 82,877 TOTAL LIABILITIES 3,729,282 3,782,851 3,752,296 3,890,794 Temporary Equity 6,443 8,424 6,694 8,719 TOTAL SHAREOWNERS’ EQUITY 480,137 427,580 467,197 416,887 TOTAL LIABILITIES, TEMPORARY AND SHAREOWNERS’ EQUITY 4,215,862 4,218,855 4,226,187 4,316,400 Interest Rate Spread 3.49 3.54 3.43 3.66 Net Interest Income 40,260 39,367 118,029 120,093 Net Interest Margin (3) 4.12 4.03 4.05 4.04 (1) Average Balances include net loan fees, discounts and premiums and nonaccrual loans. Interest income includes loan costs of $0.2 million and $0.5 million for the three and nine months ended September 30, 2024, and net loan fees of $0.1 million for the three and nine month periods ended September 30, 2023. (2) Interest income includes the effects of taxable equivalent adjustments using a 21% Federal tax rate. (3) Taxable equivalent net interest income divided by average earning assets. Filed Nov 4, 2024. Source: SEC EDGAR, the filing index for accession 0000726601-24-000040. Last ingested by Listed: Oct 31, 2026, 16:24 ET. No prices; not investment advice.