Edgar Filing: CAPITAL CITY BANK GROUP INC

UNITED STATES

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2016

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number: 0-13358

CCB Group logo

(Exact name of registrant as specified in its charter)

Florida		59-2273542
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

217 North Monroe Street, Tallahassee, Florida		32301
(Address of principal executive office)		(Zip Code)

(850) 402-7000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]	Accelerated filer [X]	Non-accelerated filer [ ]	Smaller reporting company [ ]
		(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

At July 31, 2016, 16,803,602 shares of the Registrant's Common Stock, $.01 par value, were outstanding.

CAPITAL CITY BANK GROUP, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED JUNE 30, 2016

TABLE OF CONTENTS

PART I – Financial Information		Page

Item 1.	Consolidated Financial Statements (Unaudited)
	Consolidated Statements of Financial Condition – June 30, 2016 and December 31, 2015		4
	Consolidated Statements of Income – Three and Six Months Ended June 30, 2016 and 2015		5
	Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2016 and 2015		6
	Consolidated Statements of Changes in Shareowners’ Equity – Six Months Ended June 30, 2016 and 2015		7
	Consolidated Statements of Cash Flows – Six Months Ended June 30, 2016 and 2015		8
	Notes to Consolidated Financial Statements		9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		27

Item 3.	Quantitative and Qualitative Disclosure About Market Risk		44

Item 4.	Controls and Procedures		44

PART II – Other Information

Item 1.	Legal Proceedings	44

Item 1A.	Risk Factors	44

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 3.	Defaults Upon Senior Securities	45

Item 4.	Mine Safety Disclosure	45

Item 5.	Other Information	45

Item 6.	Exhibits	45

Signatures		46

INTRODUCTORY NOTE

Caution Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q 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,” “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.

Our ability to achieve our financial objectives could be adversely affected by the factors discussed in detail in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q and the following sections of our Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 Form 10-K”): (a) “Introductory Note” in Part I, Item 1. “Business”; (b) “Risk Factors” in Part I, Item 1A, as updated in our subsequent quarterly reports filed on Form 10-Q; and (c) “Introduction” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Part II, Item 7, as well as:

· our ability to successfully manage interest rate risk, liquidity risk, and other risks inherent to our industry;

· legislative or regulatory changes, including the Dodd-Frank Act, Basel III, and the ability to repay and qualified mortgage standards;

· the effects of security breaches and computer viruses that may affect our computer systems or fraud related to debit card products;

· the accuracy of our financial statement estimates and assumptions, including the estimates used for our loan loss provision and deferred tax asset valuation;

· the frequency and magnitude of foreclosure of our loans;

· the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations;

· the strength of the United States economy in general and the strength of the local economies in which we conduct operations;

· our ability to declare and pay dividends, the payment of which is now subject to our compliance with heightened capital requirements;

· changes in the securities and real estate markets;

· changes in monetary and fiscal policies of the U.S. Government;

· inflation, interest rate, market and monetary fluctuations;

· the effects of harsh weather conditions, including hurricanes, and man-made disasters;

· our ability to comply with the extensive laws and regulations to which we are subject, including the laws for each jurisdiction where we operate;

· the willingness of clients to accept third-party products and services rather than our products and services and vice versa;

· increased competition and its effect on pricing;

· technological changes;

· negative publicity and the impact on our reputation;

· changes in consumer spending and saving habits;

· growth and profitability of our noninterest income;

· changes in accounting principles, policies, practices or guidelines;

· the limited trading activity of our common stock;

· the concentration of ownership of our common stock;

· anti-takeover provisions under federal and state law as well as our Articles of Incorporation and our Bylaws;

· other risks described from time to time in our filings with the Securities and Exchange Commission; and

· our ability to manage the risks involved in the foregoing.

However, other factors besides those listed in Item 1A Risk Factors or discussed in this Form 10-Q 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.

PART I. FINANCIAL INFORMATION
Item 1.

CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

			(Unaudited)
			June 30,		December 31,
(Dollars in Thousands)			2016		2015
ASSETS
Cash and Due From Banks			$	51,766	$	51,288
Federal Funds Sold and Interest Bearing Deposits				220,719		327,617
		Total Cash and Cash Equivalents		272,485		378,905

Investment Securities, Available for Sale, at fair value				485,848		451,028
Investment Securities, Held to Maturity, at amortized cost (fair value of $205,595 and $187,407)				204,474		187,892
		Total Investment Securities		690,322		638,920

Loans Held For Sale				12,046		11,632

Loans, Net of Unearned Income				1,520,474		1,492,275
	Allowance for Loan Losses			(13,677)		(13,953)
		Loans, Net		1,506,797		1,478,322

Premises and Equipment, Net				97,313		98,819
Goodwill				84,811		84,811
Other Real Estate Owned				14,622		19,290
Other Assets				89,240		87,161
		Total Assets	$	2,767,636	$	2,797,860

LIABILITIES
Deposits:
	Noninterest Bearing Deposits		$	798,219	$	758,283
	Interest Bearing Deposits			1,526,587		1,544,566
		Total Deposits		2,324,806		2,302,849

Short-Term Borrowings				9,609		61,058
Subordinated Notes Payable				52,887		62,887
Other Long-Term Borrowings				26,401		28,265
Other Liabilities				79,109		68,449
		Total Liabilities		2,492,812		2,523,508

SHAREOWNERS’ EQUITY
Preferred Stock, $.01 par value; 3,000,000 shares authorized; no shares issued and outstanding				-		-
Common Stock, $.01 par value; 90,000,000 shares authorized; 16,803,599 and 17,156,919 shares
issued and outstanding at June 30, 2016 and December 31, 2015 respectively				168		172
Additional Paid-In Capital				32,855		38,256
Retained Earnings				262,380		258,181
Accumulated Other Comprehensive Loss, Net of Tax				(20,579)		(22,257)
Total Shareowners’ Equity				274,824		274,352
Total Liabilities and Shareowners' Equity			$	2,767,636	$	2,797,860

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

		Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in Thousands, Except Per Share Data)		2016		2015		2016		2015
INTEREST INCOME
Loans, including Fees		$	18,105	$	18,231	$	36,150	$	36,094
Investment Securities:
	Taxable		1,539		1,313		2,959		2,511
	Tax Exempt		212		138		429		234
Federal Funds Sold and Interest Bearing Deposits			318		151		680		340
Total Interest Income			20,174		19,833		40,218		39,179

INTEREST EXPENSE
Deposits			211		259		432		505
Short-Term Borrowings			38		15		48		36
Subordinated Notes Payable			343		338		730		670
Other Long-Term Borrowings			206		237		422		477
Total Interest Expense			798		849		1,632		1,688

NET INTEREST INCOME			19,376		18,984		38,586		37,491
Provision for Loan Losses			(97)		375		355		668
Net Interest Income After Provision For Loan Losses			19,473		18,609		38,231		36,823

NONINTEREST INCOME
Deposit Fees			5,321		5,682		10,721		11,223
Bank Card Fees			2,855		2,844		5,708		5,586
Wealth Management Fees			1,690		1,776		3,482		3,822
Mortgage Banking Fees			1,267		1,203		2,297		2,190
Data Processing Fees			335		364		682		737
Other			3,747		2,925		5,002		4,084
Total Noninterest Income			15,215		14,794		27,892		27,642

NONINTEREST EXPENSE
Compensation			16,051		16,404		32,292		32,928
Occupancy, net			4,584		4,258		9,043		8,654
Other Real Estate Owned, net			1,060		931		2,485		2,428
Other			7,007		6,846		13,812		13,819
Total Noninterest Expense			28,702		28,439		57,632		57,829

INCOME BEFORE INCOME TAXES			5,986		4,964		8,491		6,636
Income Tax Expense			2,056		1,119		2,914		1,805

NET INCOME		$	3,930	$	3,845	$	5,577	$	4,831

BASIC NET INCOME PER SHARE		$	0.22	$	0.22	$	0.32	$	0.28
DILUTED NET INCOME PER SHARE		$	0.22	$	0.22	$	0.32	$	0.28

Average Common Basic Shares Outstanding			17,144		17,296		17,173		17,402
Average Common Diluted Shares Outstanding			17,196		17,358		17,215		17,456

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

				Three Months Ended				Six Months Ended
				June 30,				June 30,
(Dollars in Thousands)				2016		2015		2016		2015
NET INCOME				$	3,930	$	3,845	$	5,577	$	4,831
	Other comprehensive income (loss), before tax:
		Investment Securities:
		Change in net unrealized gain/loss on securities available for sale			908		(117)		2,692		1,029
		Amortization of unrealized losses on securities transferred from
			available for sale to held to maturity		20		19		39		36
		Total Investment Securities			928		(98)		2,731		1,065
	Other comprehensive income (loss), before tax				928		(98)		2,731		1,065
		Deferred tax expense (benefit) related to other comprehensive
			income		358		(37)		1,053		411
	Other comprehensive income (loss), net of tax				570		(61)		1,678		654
TOTAL COMPREHENSIVE INCOME				$	4,500	$	3,784	$	7,255	$	5,485

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
(Unaudited)

								Accumulated
								Other
								Comprehensive
	Shares	Common		Additional		Retained		Loss, Net of
(Dollars In Thousands, Except Share Data)	Outstanding	Stock		Paid-In Capital		Earnings		Taxes		Total
Balance, January 1, 2015	17,447,223	$	174	$	42,569	$	251,306	$	(21,509)	$	272,540
Net Income	-		-		-		4,831		-		4,831
Other Comprehensive Income, Net of Tax	-		-		-		-		654		654
Cash Dividends ($0.0600 per share)	-		-		-		(1,041)		-		(1,041)
Repurchase of Common Stock	(392,981)		(3)		(5,795)		-		-		(5,798)
Stock Based Compensation	-		-		522		-		-		522
Impact of Transactions Under Compensation Plans, net	99,991		1		329		-		-		330
Balance, June 30, 2015	17,154,233	$	172	$	37,625	$	255,096	$	(20,855)	$	272,038

Balance, January 1, 2016	17,156,919	$	172	$	38,256	$	258,181	$	(22,257)	$	274,352
Net Income	-		-		-		5,577		-		5,577
Other Comprehensive Income, Net of Tax	-		-		-		-		1,678		1,678
Cash Dividends ($0.0800 per share)	-		-		-		(1,378)		-		(1,378)
Repurchase of Common Stock	(435,461)		(4)		(6,308)		-		-		(6,312)
Stock Based Compensation	-		-		495		-		-		495
Impact of Transactions Under Compensation Plans, net	82,141		-		412		-		-		412
Balance, June 30, 2016	16,803,599	$	168	$	32,855	$	262,380	$	(20,579)	$	274,824

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Six Months Ended June 30,
(Dollars in Thousands	2016		2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	5,577	$	4,831
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Provision for Loan Losses		355		668
Depreciation		3,435		3,259
Amortization of Premiums, Discounts, and Fees, net		3,037		2,269
Impairment Loss on Security		-		90
Gain on Retirement of Trust Preferred Securities		(2,487)		-
Net Increase in Loans Held-for-Sale		(414)		(303)
Stock Compensation		495		522
Deferred Income Taxes		3,586		2,591
Loss on Sales and Write-Downs of Other Real Estate Owned		1,980		1,309
Loss on Disposal of Premises and Equipment		92		20
Net (Increase) Decrease in Other Assets		(6,679)		1,043
Net Increase in Other Liabilities		10,787		6,768
Net Cash Provided By Operating Activities		19,764		23,067

CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
Purchases		(28,588)		(62,634)
Payments, Maturities, and Calls		11,513		23,782
Securities Available for Sale:
Purchases		(90,322)		(136,542)
Payments, Maturities, and Calls		55,619		43,417
Net Increase in Loans		(31,218)		(48,409)
Proceeds From Sales of Other Real Estate Owned		5,107		6,760
Purchases of Premises and Equipment		(2,021)		(1,641)
Net Cash Used In Investing Activities		(79,910)		(175,267)

CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits		21,957		17,850
Net (Decrease) Increase in Short-Term Borrowings		(51,886)		4,273
Redemption of Subordinated Notes		(7,500)		-
Repayment of Other Long-Term Borrowings		(1,427)		(1,364)
Dividends Paid		(1,378)		(1,041)
Payments to Repurchase Common Stock		(6,312)		(5,798)
Issuance of Common Stock Under Compensation Plans		272		280
Net Cash (Used In) Provided By Financing Activities		(46,274)		14,200

NET DECREASE IN CASH AND CASH EQUIVALENTS		(106,420)		(138,000)

Cash and Cash Equivalents at Beginning of Period		378,905		385,056
Cash and Cash Equivalents at End of Period	$	272,485	$	247,056

Supplemental Cash Flow Disclosures:
Interest Paid	$	1,630	$	1,694
Income Taxes (Refunded) Paid	$	(375)	$	171

Noncash Investing and Financing Activities:
Loans Transferred to Other Real Estate Owned	$	2,419	$	2,830
Transfer of Current Portion of Long-Term Borrowings	$	437	$	-

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CAPITAL CITY BANK GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations. Capital City Bank Group, Inc. (“CCBG” or the “Company”) provides a full range of banking and banking-related services to individual and corporate clients through its subsidiary, Capital City Bank, with banking offices located in Florida, Georgia, and Alabama. The Company is subject to competition from other financial institutions, is subject to regulation by certain government agencies and undergoes periodic examinations by those regulatory authorities.

Basis of Presentation. The consolidated financial statements in this Quarterly Report on Form 10-Q include the accounts of CCBG and its wholly-owned subsidiary, Capital City Bank (“CCB” or the “Bank” and together with the Company). All material inter-company transactions and accounts have been eliminated.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

The consolidated statement of financial condition at December 31, 2015 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2015.

NOTE 2 – INVESTMENT SECURITIES

Investment Portfolio Composition. The amortized cost and related market value of investment securities available-for-sale and
held-to-maturity were as follows:
	June 30, 2016									December 31, 2015
	Amortized		Unrealized		Unrealized		Market		Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value		Cost		Gain		Losses		Value
Available for Sale
U.S. Government Treasury	$	272,847	$	1,672	$	1	$	274,518	$	250,458	$	101	$	213	$	250,346
U.S. Government Agency		112,386		618		86		112,918		101,730		357		263		101,824
States and Political Subdivisions		87,391		498		2		87,887		88,358		103		99		88,362
Mortgage-Backed Securities		1,385		139		-		1,524		1,742		159		-		1,901
Equity Securities⁽¹⁾		9,001		-		-		9,001		8,595		-		-		8,595
Total	$	483,010	$	2,927	$	89	$	485,848	$	450,883	$	720	$	575	$	451,028

Held to Maturity
U.S. Government Treasury	$	144,453	$	890	$	-	$	145,343	$	134,554	$	45	$	160	$	134,439
U.S. Government Agency		8,010		8		-		8,018		10,043		7		5		10,045
States and Political Subdivisions		11,384		110		-		11,494		15,693		38		7		15,724
Mortgage-Backed Securities		40,627		207		94		40,740		27,602		4		407		27,199
Total	$	204,474	$	1,215	$	94	$	205,595	$	187,892	$	94	$	579	$	187,407

Total Investment Securities	$	687,484	$	4,142	$	183	$	691,443	$	638,775	$	814	$	1,154	$	638,435

⁽¹⁾ Includes Federal Home Loan Bank, Federal Reserve Bank, and FNBB, Inc. stock recorded at cost of $3.7 million, $4.8 million, and $0.5 million, respectively, at June 30, 2016 and $3.6 million, $4.8 million, and $0.2 million, respectively, at December 31, 2015.

Securities with an amortized cost of $245.3 million and $370.1 million at June 30, 2016 and December 31, 2015, respectively, were pledged to secure public deposits and for other purposes.

The Bank, as a member of the Federal Home Loan Bank of Atlanta (“FHLB”), is required to own capital stock in the FHLB based generally upon the balances of residential and commercial real estate loans, and FHLB advances. FHLB stock which is included in equity securities is pledged to secure FHLB advances. No ready market exists for this stock, and it has no quoted market value; however, redemption of this stock has historically been at par value.

Maturity Distribution. As of June 30, 2016, the Company's investment securities had the following maturity distribution based on contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations. Mortgage-backed securities and certain amortizing U.S. government agency securities are shown separately because they are not due at a certain maturity date.

	Available for Sale				Held to Maturity
	Amortized		Market		Amortized		Market
(Dollars in Thousands)	Cost		Value		Cost		Value
Due in one year or less	$	107,601	$	107,815	$	82,698	$	82,851
Due after one through five years		283,434		285,559		81,149		82,004
Mortgage-Backed Securities		1,385		1,524		40,627		40,740
U.S. Government Agency		81,589		81,949		-		-
Equity Securities		9,001		9,001		-		-
Total	$	483,010	$	485,848	$	204,474	$	205,595

Unrealized Losses on Investment Securities. The following table summarizes the investment securities with unrealized losses aggregated by major security type and length of time in a continuous unrealized loss position:

	Less Than				Greater Than
	12 Months				12 Months				Total
	Market		Unrealized		Market		Unrealized		Market		Unrealized
(Dollars in Thousands)	Value		Losses		Value		Losses		Value		Losses
June 30, 2016
Available for Sale
U.S. Government Treasury	$	9,955	$	1	$	-	$	-	$	9,955	$	1
U.S. Government Agency		13,815		52		10,505		34		24,320		86
States and Political Subdivisions		3,135		2		302		-		3,437		2
Total		26,905		55		10,807		34		37,712		89

Held to Maturity
Mortgage-Backed Securities		1,189		1		8,006		93		9,195		94
Total	$	1,189	$	1	$	8,006	$	93	$	9,195	$	94

December 31, 2015
Available for Sale
U.S. Government Treasury	$	150,061	$	213	$	-	$	-	$	150,061	$	213
U.S. Government Agency		43,508		200		9,644		63		53,152		263
States and Political Subdivisions		39,608		86		5,066		13		44,674		99
Total		233,177		499		14,710		76		247,887		575

Held to Maturity
U.S. Government Treasury		92,339		160		-		-		92,339		160
U.S. Government Agency		5,006		5		-		-		5,006		5
States and Political Subdivisions		3,791		7		-		-		3,791		7
Mortgage-Backed Securities		13,267		185		11,889		222		22,156		407
Total	$	114,403	$	357	$	11,889	$	222	$	126,292	$	579

Management evaluates securities for other than temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation. Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, the Company considers, (i) whether it has decided to sell the security, (ii) whether it is more likely than not that the Company will have to sell the security before its market value recovers, and (iii) whether the present value of expected cash flows is sufficient to recover the entire amortized cost basis. When assessing a security’s expected cash flows, the Company considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost and (ii) the financial condition and near-term prospects of the issuer. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by rating agencies have occurred, regulatory issues, and analysts’ reports.

At June 30, 2016, there were 79 positions (combined Available-for-Sale and Held-to-Maturity) with unrealized losses totaling $0.2 million. Of the 79 positions, 66 were Ginnie Mae mortgage-backed securities (GNMA), U.S. Treasuries, or SBA securities, all of which carry the full faith and credit guarantee of the U.S. Government. SBA securities float monthly or quarterly to the prime rate and are uncapped. Of these 66 positions, there were 21 GNMA positions and 26 SBA positions in an unrealized loss position for longer than 12 months. There were 13 municipal bonds in an unrealized loss position that were pre-refunded, or rated “AA-“ or better. These debt securities are in a loss position because they were acquired when the general level of interest rates was lower than that on June 30, 2016. The Company believes that the unrealized losses in these debt securities are temporary in nature and that the full principal will be collected as anticipated. Because the declines in the market value of these investments are attributable to changes in interest rates and not credit quality and because the Company has the present ability and intent to hold these investments until there is a recovery in fair value, which may be at maturity, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2016.

NOTE 3 – LOANS, NET

Loan Portfolio Composition. The composition of the loan portfolio was as follows:

(Dollars in Thousands)		June 30, 2016		December 31, 2015
Commercial, Financial and Agricultural		$	207,105	$	179,816
Real Estate – Construction			46,930		46,484
Real Estate – Commercial Mortgage			485,329		499,813
Real Estate – Residential⁽¹⁾			291,192		290,585
Real Estate – Home Equity			235,394		233,901
Consumer			254,524		241,676
	Loans, Net of Unearned Income	$	1,520,474	$	1,492,275

⁽¹⁾ Includes loans in process with outstanding balances of $11.6 million and $8.5 million at June 30, 2016 and December 31, 2015, respectively.

Net deferred costs included in loans were $0.2 million at June 30, 2016 and net deferred fees included in loans were $0.5 million at December 31, 2015.

The Company has pledged a blanket floating lien on all 1-4 family residential mortgage loans, commercial real estate mortgage loans, and home equity loans to support available borrowing capacity at the FHLB of Atlanta and has pledged a blanket floating lien on all consumer loans, commercial loans, and construction loans to support available borrowing capacity at the Federal Reserve Bank of Atlanta.

Nonaccrual Loans. Loans are generally placed on nonaccrual status if principal or interest payments become 90 days past due and/or management deems the collectability of the principal and/or interest to be doubtful. Loans are returned to accrual status when the principal and interest amounts contractually due are brought current or when future payments are reasonably assured.

The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days and still on accrual by class of loans.

	June 30, 2016				December 31, 2015
(Dollars in Thousands)	Nonaccrual		90 + Days		Nonaccrual		90 + Days
Commercial, Financial and Agricultural	$	163	$	-	$	96	$	-
Real Estate – Construction		123		-		97		-
Real Estate – Commercial Mortgage		4,308		-		4,191		-
Real Estate – Residential		2,701		-		4,739		-
Real Estate – Home Equity		864		-		1,017		-
Consumer		55		-		165		-
Total Nonaccrual Loans	$	8,214	$	-	$	10,305	$	-

Loan Portfolio Aging. A loan is defined as a past due loan when one full payment is past due or a contractual maturity is over 30 days past due (“DPD”).

The following table presents the aging of the recorded investment in past due loans by class of loans.

	30-59		60-89		90 +		Total		Total		Total
(Dollars in Thousands)	DPD		DPD		DPD		Past Due		Current		Loans
June 30, 2016
Commercial, Financial and Agricultural	$	99	$	197	$	-	$	296	$	206,646	$	207,105
Real Estate – Construction		-		-		-		-		46,807		46,930
Real Estate – Commercial Mortgage		679		161		-		840		480,181		485,329
Real Estate – Residential		565		438		-		1,003		287,488		291,192
Real Estate – Home Equity		424		46		-		470		234,060		235,394
Consumer		997		266		-		1,263		253,206		254,524
Total Past Due Loans	$	2,764	$	1,108	$	-	$	3,872	$	1,508,388	$	1,520,474

December 31, 2015
Commercial, Financial and Agricultural	$	153	$	18	$	-	$	171	$	179,549	$	179,816
Real Estate – Construction		690		-		-		690		45,697		46,484
Real Estate – Commercial Mortgage		754		1,229		-		1,983		493,639		499,813
Real Estate – Residential		567