CAPITAL CITY BANK GROUP INC (CCBG) stock intrinsic value fair value estimate & owner earnings analysis

Capital City Bank Group is a 130-year-old community bank holding company headquartered in Tallahassee, Florida, with 62 banking offices in Florida, Georgia and Alabama and a mortgage company, Capital City Home Loans, with 28 more offices across the Southeast. The bank has about $4.3 billion of assets, roughly $2.5 billion of loans and $3.7 billion of deposits, and about 36% of its deposits cost nothing because they are non-interest-bearing. Net interest income, the spread between what it earns on loans and bonds and what it pays on deposits, was $171.8 million in 2025, about two-thirds of revenue. Mortgage banking is the swing piece: its revenue was about $63 million in 2020, fell to $10.4 million in 2023 and was $17.0 million in 2025. Since the company bought out its joint-venture partner's 49% stake on January 1, 2025, all of that cyclicality belongs to shareholders. The founding chairman and CEO William G. Smith, Jr. owns about 17% of the shares. Results for 2022 were restated in December 2023, which cut that year's mortgage revenue; the later filings show no continuing reporting problem. How we measured earnings. We start from cash flow from operations and remove the swings in mortgage loans waiting to be sold and in other assets and liabilities, then subtract stock compensation and the capital spending needed to keep the branches and systems running (about $5 to $8 million a year). Two judgements matter for a bank. First, we treat the provision for loan losses and the amortization of premiums paid on bonds as real, recurring costs rather than adding them back as non-cash items, because a lender always bears credit losses and a bank that keeps buying bonds keeps paying premiums. Second, we remove one-time gains, which in 2025 were a $0.8 million gain on a subsidiary sale, a $1.6 million pension settlement gain and $4.5 million of gains on foreclosed real estate. On this basis owner earnings were $0.90 per share in 2016, $1.23 in 2017, $2.01 in 2018, $2.08 in 2019, $1.80 in 2020, $1.95 in 2021, $1.93 in 2022, $3.04 in 2023, $2.98 in 2024 and $3.31 in 2025. (Reported earnings per share were $3.07, $3.12 and $3.60 for 2023 to 2025.) The 2017 figure is held down by a non-cash write-down of tax assets after the federal rate cut. We anchor on $3.04, the median of 2023 to 2025: those are the years under today's interest-rate structure, with the deposit base and the mortgage company's ownership largely as they are now. Earlier years describe a bank earning a margin of 2.8% to 3.9% in a very different rate setting. The first half of 2026 supports the level without moving it: net income was $32.1 million ($1.87 per share) and the margin was 4.30%, 4.35% in the second quarter. Owner earnings grew 11% in 2025 ($2.98 to $3.31); the base case assumes no growth in year one from the $3.04 anchor, which is below that trailing rate and about 8% below 2025's actual. Base case, $48 per share. Owner earnings stay at $3.04 for three years, then $2.85 for good. The step down reflects credit costs moving toward a through-cycle average: net charge-offs have run 0.14% to 0.21% of loans in 2023 to 2025, but were 0.53% in 2014, 0.35% in 2015 and, in the 2009 to 2011 Florida real-estate downturn, 1.66%, 1.77% and 1.39%. Roughly doubling today's loss rate on $2.5 billion of loans costs about $0.19 per share. No growth is credited. Loans actually fell from $2.73 billion in 2021 to about $2.50 billion in the second quarter of 2026, deposits are flat, and the branch network is not expanding, so there is no steady, proven expansion to count; share gains, higher margins and mortgage recovery beyond current levels are left out. What persists after year 10 is the franchise itself: 130 years of local deposit-gathering, a large base of free deposits and no debt of significance at the holding company (subordinated notes of $10.3 million were repaid in 2025), so earnings continue at the same level. Interest is already deducted in these earnings and borrowing is a bank's raw material, so no debt is subtracted. Bear case, $28 per share. This case contains one full downturn of the kind this bank has actually had. In years one and two rates fall and the margin slips from 4.28% to 3.6% (it was 3.85% in 2019 and 2.83% in 2021); each 0.10 point of margin on about $4.0 billion of earning assets is about $4 million before tax, or $0.18 per share. Starting in year three a credit cycle like 2009 to 2011 follows: net charge-offs of about 1.6% a year for three years, about $40 million a year on $2.5 billion of loans, against the bank's own record of 1.66%, 1.77% and 1.39% when its earnings per share went from $0.89 in 2008 to losses in 2009 and 2010 and $0.29 in 2011. Owner earnings per share run $2.75, $1.50, $0.45, $0.35 and $0.75 in years one to five, then recover slowly to $1.20, $1.50, $1.80, $1.90 and $1.90 and stay there. Capital does not run out: tier 1 capital is 21.1% of risk-weighted assets and tangible equity is about $480 million against cumulative loan losses of roughly $120 million, so no emergency share issue is needed, though earnings and dividends would be badly hurt for three years. The bear value is about equal to tangible book value of $28.07 per share, not above it: the franchise is worth its capital because, after the cycle, its low-cost deposits still earn about $1.90 per share, but that is offset by three lost years of profit. Bull case, $56 per share. The margin holds near 4.3% as it has for six straight quarters of improvement, credit stays at the current 0.14% to 0.21% loss rate, and mortgage banking holds at 2025 levels with the company now owning all of it: owner earnings of $3.55 per share (first-half 2026 net income of $32.1 million annualizes to about $64 million) for ten years, then $3.20 as credit costs return toward a through-cycle level. Growth in loans, deposits or buybacks is not credited because none has been demonstrated in recent years. What could make this wrong. The largest sensitivity is the margin: if it settles at 3.85% rather than 4.3%, earnings fall about $0.80 per share and the base value falls to the mid-$30s. Non-interest-bearing deposits have slipped from 41.1% of average deposits in 2023 to 37.2% in 2024 and 36.1% in 2025, which raises funding costs. Management said it is revising deposit fee offerings, which it expects to reduce fee revenue beginning in the third quarter of 2026; the amount was not disclosed and is not in the cases. In the second quarter of 2026 four commercial real estate relationships totaling $20.2 million were downgraded (two private schools, a hotel and a funeral home), classified loans rose $15.3 million and nonperforming assets were $13.4 million (0.30% of assets), up from $6.7 million at the end of 2024. The loan book is concentrated in Florida and Georgia, where hurricanes are a recurring risk. Change since the previous analysis. Our earlier values ($20, $49 and $71) were built on a different basis and are not comparable. In the business itself, the margin rose again to 4.35%, tangible book value per share rose to $28.07 from $27.03 at the end of 2025, and capital strengthened, while credit quality softened modestly and the deposit-fee change is new. How we arrive at the margin-of-safety price. We are fairly sure of the earnings level: three years between $2.98 and $3.31 per share, confirmed by two more quarters in 2026. But it rests on interest rates, since net interest income is about two-thirds of revenue, and the margin has been unusually good. The worst plausible outcome is a Florida real-estate-led credit downturn at the same time as falling rates, as in 2008 to 2011; this bank would survive it with capital to spare, little holding-company debt and loans of only about 67% of deposits, but shareholders would lose roughly three years of earnings and the dividend would be at risk. If we are wrong about the margin (it settles at 3.85%), shares are worth the mid-$30s; if we are wrong about credit (through-cycle losses of 0.6% rather than about 0.4%), they are worth roughly $3 per share less; the deposit-fee change is an unquantified further subtraction. The price assumes a holding period of three to four years, over which the shares pay $1.08 a year in dividends ($0.27 a quarter) and the company repurchases a modest number of shares. The margin-of-safety price is $26 per share: below the $28.07 of tangible equity behind each share, about 8.5 times the $3.04 earnings level, and a dividend yield above 4%. From that price, a bank that merely holds its current earnings power for four years, paying about $4.50 in dividends, implies roughly 20% a year, and the bear case implies a value close to that price plus the dividends paid.