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, 2017

[ ] 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) 402-7821

(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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of The Exchange Act. [ ]

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

At July 31, 2017, 16,964,015 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, 2017

TABLE OF CONTENTS

PART I – Financial Information			Page

Item 1.	Consolidated Financial Statements (Unaudited)
	Consolidated Statements of Financial Condition – June 30, 2017 and December 31, 2016			4
	Consolidated Statements of Changes in Shareowners’ Equity – Six Months Ended June 30, 2017 and 2016			7
	Consolidated Statements of Cash Flows – Six Months Ended June 30, 2017 and 2016			8
	Notes to Consolidated Financial Statements			9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations			29

Item 3.	Quantitative and Qualitative Disclosure About Market Risk			45

Item 4.	Controls and Procedures			45

PART II – Other Information

Item 1.		Legal Proceedings		45

Item 1A.		Risk Factors		45

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		45

Item 3.		Defaults Upon Senior Securities		45

Item 4.		Mine Safety Disclosure		45

Item 5.		Other Information		45

Item 6.		Exhibits		45

Signatures				47

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, 2016 (the “2016 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, deferred tax asset valuation and pension plan;

· 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)			2017		2016
ASSETS
Cash and Due From Banks			$	72,801	$	48,268
Federal Funds Sold and Interest Bearing Deposits				162,377		247,779
		Total Cash and Cash Equivalents		235,178		296,047

Investment Securities, Available for Sale, at fair value				529,686		522,734
Investment Securities, Held to Maturity, at amortized cost (fair value of $156,510 and $176,746)				157,074		177,365
		Total Investment Securities		686,760		700,099

Loans Held For Sale				8,213		10,886

Loans, Net of Unearned Income				1,621,196		1,561,289
	Allowance for Loan Losses			(13,242)		(13,431)
		Loans, Net		1,607,954		1,547,858

Premises and Equipment, net				92,495		95,476
Goodwill				84,811		84,811
Other Real Estate Owned				7,968		10,638
Other Assets				91,464		99,382
		Total Assets	$	2,814,843	$	2,845,197

LIABILITIES
Deposits:
	Noninterest Bearing Deposits		$	842,314	$	791,182
	Interest Bearing Deposits			1,529,619		1,621,104
		Total Deposits		2,371,933		2,412,286

Short-Term Borrowings				6,105		12,749
Subordinated Notes Payable				52,887		52,887
Other Long-Term Borrowings				15,631		14,881
Other Liabilities				86,774		77,226
		Total Liabilities		2,533,330		2,570,029

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; 16,964,015 and 16,844,698 shares
issued and outstanding at June 30, 2017 and December 31, 2016, respectively				170		168
Additional Paid-In Capital				35,522		34,188
Retained Earnings				271,646		267,037
Accumulated Other Comprehensive Loss, net of tax				(25,825)		(26,225)
Total Shareowners’ Equity				281,513		275,168
Total Liabilities and Shareowners' Equity			$	2,814,843	$	2,845,197

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)		2017		2016		2017		2016
INTEREST INCOME
Loans, including Fees		$	18,720	$	18,105	$	36,725	$	36,150
Investment Securities:
	Taxable		1,899		1,539		3,682		2,959
	Tax Exempt		270		212		529		429
Federal Funds Sold and Interest Bearing Deposits			533		318		1,026		680
Total Interest Income			21,422		20,174		41,962		40,218

INTEREST EXPENSE
Deposits			388		211		669		432
Short-Term Borrowings			17		38		62		48
Subordinated Notes Payable			404		343		783		730
Other Long-Term Borrowings			117		206		216		422
Total Interest Expense			926		798		1,730		1,632

NET INTEREST INCOME			20,496		19,376		40,232		38,586
Provision for Loan Losses			589		(97)		899		355
Net Interest Income After Provision For Loan Losses			19,907		19,473		39,333		38,231

NONINTEREST INCOME
Deposit Fees			5,052		5,321		10,142		10,721
Bank Card Fees			2,870		2,855		5,673		5,708
Wealth Management Fees			2,073		1,690		3,915		3,482
Mortgage Banking Fees			1,556		1,267		2,864		2,297
Other			1,584		4,082		3,259		5,684
Total Noninterest Income			13,135		15,215		25,853		27,892

NONINTEREST EXPENSE
Compensation			16,292		16,051		32,788		32,292
Occupancy, net			4,555		4,584		8,936		9,043
Other Real Estate Owned, net			315		1,060		898		2,485
Other			6,759		7,007		13,221		13,812
Total Noninterest Expense			27,921		28,702		55,843		57,632

INCOME BEFORE INCOME TAXES			5,121		5,986		9,343		8,491
Income Tax Expense			1,560		2,056		3,038		2,914

NET INCOME		$	3,561	$	3,930	$	6,305	$	5,577

BASIC NET INCOME PER SHARE		$	0.21	$	0.22	$	0.37	$	0.32
DILUTED NET INCOME PER SHARE		$	0.21	$	0.22	$	0.37	$	0.32

Average Common Basic Shares Outstanding			16,955		17,144		16,937		17,173
Average Common Diluted Shares Outstanding			17,016		17,196		16,993		17,215

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)				2017		2016		2017		2016
NET INCOME				$	3,561	$	3,930	$	6,305	$	5,577
	Other comprehensive income, before tax:
		Change in net unrealized gain/loss on securities available for sale			110		908		615		2,692
		Amortization of unrealized losses on securities transferred from
			available for sale to held to maturity		18		20		38		39
		Total Investment Securities			128		928		653		2,731
	Other comprehensive income, before tax				128		928		653		2,731
		Deferred tax expense related to other comprehensive income			49		358		253		1,053
	Other comprehensive income, net of tax				79		570		400		1,678
TOTAL COMPREHENSIVE INCOME				$	3,640	$	4,500	$	6,705	$	7,255

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, 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

Balance, January 1, 2017	16,844,698	$	168	$	34,188	$	267,037	$	(26,225)	$	275,168
Net Income	-		-		-		6,305		-		6,305
Other Comprehensive Income, net of tax	-		-		-		-		400		400
Cash Dividends ($0.1000 per share)	-		-		-		(1,696)		-		(1,696)
Stock Based Compensation	-		-		869		-		-		869
Impact of Transactions Under Compensation Plans, net	119,317		2		465		-		-		467
Balance, June 30, 2017	16,964,015	$	170	$	35,522	$	271,646	$	(25,825)	$	281,513

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	2017		2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	6,305	$	5,577
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Provision for Loan Losses		899		355
Depreciation		3,352		3,435
Amortization of Premiums, Discounts, and Fees, net		3,279		3,037
Gain on Partial Retirement of Trust Preferred Securities		-		(2,487)
Net Decrease (Increase) in Loans Held-for-Sale		2,673		(414)
Stock Compensation		869		495
Net Tax Benefit From Stock-Based Compensation		(223)		-
Deferred Income Taxes		944		3,586
Loss on Sales and Write-Downs of Other Real Estate Owned		695		1,980
Loss on Disposal of Premises and Equipment		260		92
Net Decrease (Increase) in Other Assets		7,026		(6,679)
Net Increase in Other Liabilities		9,948		10,787
Net Cash Provided By Operating Activities		36,027		19,764

CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
Purchases		(28,298)		(28,588)
Payments, Maturities, and Calls		48,096		11,513
Securities Available for Sale:
Purchases		(87,273)		(90,322)
Payments, Maturities, and Calls		77,973		55,619
Purchases of Loans Held for Investment		(35,499)		-
Net Increase in Loans		(26,101)		(31,218)
Proceeds From Sales of Other Real Estate Owned		3,393		5,107
Purchases of Premises and Equipment		(1,534)		(2,021)
Net Cash Used In Investing Activities		(49,243)		(79,910)

CASH FLOWS FROM FINANCING ACTIVITIES
Net (Decrease) Increase in Deposits		(40,353)		21,957
Net Decrease in Short-Term Borrowings		(3,644)		(51,886)
Redemption of Subordinated Notes		-		(7,500)
Repayment of Other Long-Term Borrowings		(2,250)		(1,427)
Dividends Paid		(1,696)		(1,378)
Payments to Repurchase Common Stock		-		(6,312)
Issuance of Common Stock Under Compensation Plans		290		272
Net Cash Used In Financing Activities		(47,653)		(46,274)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(60,869)		(106,420)

Cash and Cash Equivalents at Beginning of Period		296,047		378,905
Cash and Cash Equivalents at End of Period	$	235,178	$	272,485

Supplemental Cash Flow Disclosures:
Interest Paid	$	1,748	$	1,630
Income Taxes Paid (Refunded)	$	4,024	$	(375)

Noncash Investing and Financing Activities:
Loans and Premises Transferred to Other Real Estate Owned	$	1,685	$	2,419
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. Certain previously reported amounts have been reclassified to conform to the current year’s presentation.

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, 2016 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, 2016.

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, 2017									December 31, 2016
	Amortized		Unrealized		Unrealized		Market		Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value		Cost		Gain		Losses		Value
Available for Sale
U.S. Government Treasury	$	277,718	$	55	$	808	$	276,965	$	286,867	$	262	$	851	$	286,278
U.S. Government Agency		142,400		774		280		142,894		131,489		495		344		131,640
States and Political Subdivisions		99,899		155		76		99,978		95,197		23		381		94,839
Mortgage-Backed Securities		1,246		116		-		1,362		1,312		118		-		1,430
Equity Securities⁽¹⁾		8,487		-		-		8,487		8,547		-		-		8,547
Total	$	529,750	$	1,100	$	1,164	$	529,686	$	523,412	$	898	$	1,576	$	522,734

Held to Maturity
U.S. Government Treasury	$	83,246	$	1	$	166	$	83,081	$	119,131	$	107	$	81	$	119,157
States and Political Subdivisions		7,351		25		2		7,374		8,175		1		38		8,138
Mortgage-Backed Securities		66,477		71		493		66,055		50,059		29		637		49,451
Total	$	157,074	$	97	$	661	$	156,510	$	177,365	$	137	$	756	$	176,746

Total Investment Securities	$	686,824	$	1,197	$	1,825	$	686,196	$	700,777	$	1,035	$	2,332	$	699,480

⁽¹⁾ Includes Federal Home Loan Bank, Federal Reserve Bank, and FNBB, Inc. stock recorded at cost of $3.2 million, $4.8 million, and $0.5 million, respectively, at June 30, 2017 and $3.3 million, $4.8 million, and $0.5 million, respectively, at December 31, 2016.

Securities with an amortized cost of $249.4 million and $332.7 million at June 30, 2017 and December 31, 2016, 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.

As a member of the Federal Reserve Bank of Atlanta, the Bank is required to maintain stock in the Federal Reserve Bank of Atlanta based on a specified ratio relative to the Bank’s capital. Federal Reserve Bank stock is carried at cost and may be sold back to the Federal Reserve Bank at its carrying value.

Maturity Distribution. At June 30, 2017, 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
(Dollars in Thousands)	Amortized Cost		Market Value		Amortized Cost		Market Value
Due in one year or less	$	164,458	$	164,400	$	48,640	$	48,584
Due after one through five years		252,755		251,947		41,957		41,871
Mortgage-Backed Securities		1,246		1,362		66,477		66,055
U.S. Government Agency		102,804		103,490		-		-
Equity Securities		8,487		8,487		-		-
Total	$	529,750	$	529,686	$	157,074	$	156,510

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, 2017
Available for Sale
U.S. Government Treasury	$	221,874	$	808	$	-	$	-	$	221,874	$	808
U.S. Government Agency		46,260		201		9,608		79		55,868		280
States and Political Subdivisions		37,984		69		1,063		7		39,047		76
Mortgage-Backed Securities		-		-		3		-		3		-
Total		306,118		1,078		10,674		86		316,792		1,164

Held to Maturity
U.S. Government Treasury		78,091		166		-		-		78,091		166
States and Political Subdivisions		1,065		2		-		-		1,065		2
Mortgage-Backed Securities		34,840		441		4,067		52		38,907		493
Total	$	113,996	$	609	$	4,067	$	52	$	118,063	$	661

December 31, 2016
Available for Sale
U.S. Government Treasury	$	116,704	$	851	$	-	$	-	$	116,704	$	851
U.S. Government Agency		48,520		310		6,699		34		55,219		344
States and Political Subdivisions		81,521		380		294		1		81,815		381
Mortgage-Backed Securities		3		-		-		-		3		-
Total		246,748		1,541		6,993		35		253,741		1,576

Held to Maturity
U.S. Government Treasury		35,210		81		-		-		35,210		81
States and Political Subdivisions		7,491		38		-		-		7,491		38
Mortgage-Backed Securities		36,710		599		4,010		38		40,720		637
Total	$	79,411	$	718	$	4,010	$	38	$	83,421	$	756

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, 2017, there were 281 positions (combined Available-for-Sale and Held-to-Maturity) with an unrealized loss totaling $1.8 million. Included were 142 positions comprised of Ginnie Mae mortgage-backed securities (54), U.S. Treasuries (61), and SBA securities (27) with an unrealized loss totaling $1.5 million. Each of these positions carries 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 142 positions, there were 13 GNMA positions and six SBA positions in an unrealized loss position for longer than 12 months, with unrealized losses of $52,000 and $15,000, respectively. There were 25 agency positions with an unrealized loss of $0.2 million. Two of these 25 positions were in an unrealized loss position for longer than 12 months, and have unrealized losses of $64,000. The remaining 114 positions in an unrealized loss position were municipal bonds that were pre-refunded, or rated “AA-“or better, with unrealized losses of $78,000. Of these 114 positions, three were in an unrealized loss position greater than 12 months, with an unrealized loss of $7,000. 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, 2017.

NOTE 3 – LOANS, NET

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

(Dollars in Thousands)		June 30, 2017		December 31, 2016
Commercial, Financial and Agricultural		$	213,544	$	216,404
Real Estate – Construction			67,331		58,443
Real Estate – Commercial Mortgage			519,140		503,978
Real Estate – Residential⁽¹⁾			319,129		281,509
Real Estate – Home Equity			230,995		236,512
Consumer			271,057		264,443
	Loans, Net of Unearned Income	$	1,621,196	$	1,561,289

⁽¹⁾ Includes loans in process with outstanding balances of $18.6 million and $9.6 million at June 30, 2017 and December 31, 2016, respectively.

Net deferred costs included in loans were $0.7 million at June 30, 2017 and $0.5 million at December 31, 2016.

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, 2017				December 31, 2016
(Dollars in Thousands)	Nonaccrual		90 + Days		Nonaccrual		90 + Days
Commercial, Financial and Agricultural	$	455	$	-	$	468	$	-
Real Estate – Construction		363		-		311		-
Real Estate – Commercial Mortgage		2,984		-		3,410		-
Real Estate – Residential		2,485		-		2,330		-
Real Estate – Home Equity		1,496		-		1,774		-
Consumer		183		-		240		-
Total Nonaccrual Loans	$	7,966	$	-	$	8,533	$	-

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⁽¹⁾
June 30, 2017
Commercial, Financial and Agricultural	$	54	$	51	$	-	$	105	$	212,984	$	213,544
Real Estate – Construction		435		-		-		435		66,533		67,331
Real Estate – Commercial Mortgage		262		28		-		290		515,866		519,140
Real Estate – Residential		262		585		-		847		315,797		319,129
Real Estate – Home Equity		757		40		-		797		228,702		230,995
Consumer		1,002		313		-		1,315		269,559		271,057
Total Past Due Loans	$	2,772	$	1,017	$	-	$	3,789	$	1,609,441	$	1,621,196

December 31, 2016
Commercial, Financial and Agricultural	$	209	$	48	$	-	$	257	$	215,679	$	216,404
Real Estate – Construction		949		282		-		1,231		56,901		58,443
Real Estate – Commercial Mortgage		835		1		-		836		499,732		503,978
Real Estate – Residential		1,199		490		-		1,689		277,490		281,509
Real Estate – Home Equity		577		51		-		628		234,110