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 September 30, 2019

[ ] 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

(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) Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, Par value $0.01	CCBG	Nasdaq Stock Market, LLC

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 [ ]
			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 October 31, 2019, 16,748,858 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 SEPTEMBER 30, 2019

TABLE OF CONTENTS

PART I – Financial Information			Page

Item 1.	Consolidated Financial Statements (Unaudited)
	Consolidated Statements of Financial Condition – September 30, 2019 and December 31, 2018			4
	Consolidated Statements of Income – Three and Nine Months Ended September 30, 2019 and 2018			5
	Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2019 and 2018			6
	Consolidated Statements of Changes in Shareowners’ Equity – Three and Nine Months Ended September 30, 2019 and 2018			7
	Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2019 and 2018			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			46

Item 4.	Controls and Procedures			46

PART II – Other Information

Item 1.		Legal Proceedings		46

Item 1A.		Risk Factors		46

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		46

Item 3.		Defaults Upon Senior Securities		46

Item 4.		Mine Safety Disclosure		46

Item 5.		Other Information		46

Item 6.		Exhibits		47

Signatures				48

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, 2018 (the “2018 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;

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

· inflation, interest rate, market and monetary fluctuations;

· 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 reserve, deferred tax asset valuation and pension plan;

· changes in accounting principles, policies, practices or guidelines, including the effects of forthcoming Current Expected Credit Losses (“CECL”) accounting implementation;

· 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 subject to our capital requirements;

· changes in the securities and real estate markets;

· 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;

· 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)
			September 30,		December 31,
(Dollars in Thousands)			2019		2018
ASSETS
Cash and Due From Banks			$	61,151	$	62,032
Federal Funds Sold and Interest Bearing Deposits				177,389		213,968
		Total Cash and Cash Equivalents		238,540		276,000

Investment Securities, Available for Sale, at fair value				376,981		446,157
Investment Securities, Held to Maturity, at amortized cost (fair value of $241,887 and $214,413)				240,303		217,320
		Total Investment Securities		617,284		663,477

Loans Held For Sale				13,075		6,869

Loans, Net of Unearned Income				1,827,753		1,774,225
	Allowance for Loan Losses			(14,319)		(14,210)
		Loans, Net		1,813,434		1,760,015

Premises and Equipment, net				85,810		87,190
Goodwill				84,811		84,811
Other Real Estate Owned				526		2,229
Other Assets				81,033		78,592
		Total Assets	$	2,934,513	$	2,959,183

LIABILITIES
Deposits:
	Noninterest Bearing Deposits		$	1,022,774	$	947,858
	Interest Bearing Deposits			1,450,233		1,583,998
		Total Deposits		2,473,007		2,531,856

Short-Term Borrowings				10,622		13,541
Subordinated Notes Payable				52,887		52,887
Other Long-Term Borrowings				6,963		8,568
Other Liabilities				69,472		49,744
		Total Liabilities		2,612,951		2,656,596

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; 16,748,858 and 16,747,571 shares
issued and outstanding at September 30, 2019 and December 31, 2018, respectively				167		167
Additional Paid-In Capital				31,075		31,058
Retained Earnings				316,551		300,177
Accumulated Other Comprehensive Loss, net of tax				(26,231)		(28,815)
Total Shareowners’ Equity				321,562		302,587
Total Liabilities and Shareowners' Equity			$	2,934,513	$	2,959,183

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 September 30,				Nine Months Ended September 30,
(Dollars in Thousands, Except Per Share Data)		2019		2018		2019		2018
INTEREST INCOME
Loans, including Fees		$	23,992	$	21,618	$	70,373	$	61,686
Investment Securities:
	Taxable		3,249		3,290		9,937		8,757
	Tax Exempt		58		182		276		633
Federal Funds Sold and Interest Bearing Deposits			1,142		302		4,242		1,949
Total Interest Income			28,441		25,392		84,828		73,025

INTEREST EXPENSE
Deposits			1,596		1,068		5,683		2,931
Short-Term Borrowings			27		41		93		57
Subordinated Notes Payable			558		568		1,762		1,595
Other Long-Term Borrowings			63		92		201		286
Total Interest Expense			2,244		1,769		7,739		4,869

NET INTEREST INCOME			26,197		23,623		77,089		68,156
Provision for Loan Losses			776		904		2,189		2,464
Net Interest Income After Provision For Loan Losses			25,421		22,719		74,900		65,692

NONINTEREST INCOME
Deposit Fees			4,961		5,207		14,492		14,921
Bank Card Fees			2,972		2,828		8,863		8,548
Wealth Management Fees			2,992		2,181		7,719		6,391
Mortgage Banking Fees			1,587		1,343		3,779		3,606
Other			1,391		1,749		4,372		4,861
Total Noninterest Income			13,903		13,308		39,225		38,327

NONINTEREST EXPENSE
Compensation			16,203		15,891		48,989		47,599
Occupancy, net			4,710		4,645		13,756		13,699
Other Real Estate Owned, net			6		347		444		1,221
Other			6,954		7,816		21,278		22,479
Total Noninterest Expense			27,873		28,699		84,467		84,998

INCOME BEFORE INCOME TAXES			11,451		7,328		29,658		19,021
Income Tax Expense			2,970		1,338		7,416		1,255

NET INCOME		$	8,481	$	5,990	$	22,242	$	17,766

BASIC NET INCOME PER SHARE		$	0.51	$	0.35	$	1.33	$	1.04
DILUTED NET INCOME PER SHARE		$	0.50	$	0.35	$	1.32	$	1.04

Average Common Basic Shares Outstanding			16,747		17,056		16,776		17,043
Average Common Diluted Shares Outstanding			16,795		17,125		16,810		17,102

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				Nine Months Ended
	September 30,				September 30,
(Dollars in Thousands)	2019		2018		2019		2018
NET INCOME	$	8,481	$	5,990	$	22,242	$	17,766
Other comprehensive income, before tax:
Change in net unrealized gain (loss) on securities available for sale		443		(553)		3,427		(2,306)
Amortization of unrealized losses on securities transferred from
available for sale to held to maturity		11		13		33		42
Total Investment Securities		454		(540)		3,460		(2,264)
Other comprehensive income (loss), before tax		454		(540)		3,460		(2,264)
Deferred tax expense (benefit) related to other comprehensive income		115		(137)		876		(574)
Other comprehensive income (loss), net of tax		339		(403)		2,584		(1,690)
TOTAL COMPREHENSIVE INCOME	$	8,820	$	5,587	$	24,826	$	16,076

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
					Additional			Comprehensive
(Dollars In Thousands,	Shares	Common			Paid-In	Retained		(Loss) Income,
Except Share Data)	Outstanding	Stock			Capital	Earnings		Net of Taxes		Total
Three Months Ended:
Balance, July 1, 2019	16,745,866	$	167	$	30,751	$	310,247	$	(26,570)	$	314,595
Net Income	-		-		-		8,481		-		8,481
Other Comprehensive Income, net of tax	-		-		-		-		339		339
Cash Dividends ($0.1300 per share)	-		-		-		(2,177)		-		(2,177)
Stock Based Compensation	-		-		249		-		-		249
Impact of Transactions Under Compensation Plans, net	2,992		-		75		-		-		75
Balance, September 30, 2019	16,748,858	$	167	$	31,075	$	316,551	$	(26,231)	$	321,562

Balance, July 1, 2018	17,055,664	$	171	$	37,932	$	288,800	$	(33,332)	$	293,571
Net Income	-		-		-		5,990		-		5,990
Other Comprehensive Loss, net of tax	-		-		-		-		(402)		(402)
Cash Dividends ($0.0900 per share)	-		-		-		(1,536)		-		(1,536)
Stock Based Compensation	-		-		323		-		-		323
Impact of Transactions Under Compensation Plans, net	2,857		-		70		-		-		70
Balance, September 30, 2018	17,058,521	$	171	$	38,325	$	293,254	$	(33,734)	$	298,016

								Accumulated
								Other
					Additional			Comprehensive
(Dollars In Thousands,	Shares	Common			Paid-In	Retained		(Loss) Income,
Except Share Data)	Outstanding	Stock			Capital	Earnings		Net of Taxes		Total
Nine Months Ended:
Balance, January 1, 2019	16,747,571	$	167	$	31,058	$	300,177	$	(28,815)	$	302,587
Net Income	-		-		-		22,242		-		22,242
Other Comprehensive Income, net of tax	-		-		-		-		2,584		2,584
Cash Dividends ($0.3500 per share)	-		-		-		(5,868)		-		(5,868)
Repurchase of Common Stock	(77,000)		(1)		(1,805)		-		-		(1,806)
Stock Based Compensation	-		-		1,134		-		-		1,134
Impact of Transactions Under Compensation Plans, net	78,287		1		688		-		-		689
Balance, September 30, 2019	16,748,858	$	167	$	31,075	$	316,551	$	(26,231)	$	321,562

Balance, January 1, 2018	16,988,951	$	170	$	36,674	$	279,410	$	(32,044)	$	284,210
Net Income	-		-		-		17,766		-		17,766
Other Comprehensive Loss, net of tax	-		-		-		-		(1,690)		(1,690)
Cash Dividends ($0.2300 per share)	-		-		-		(3,922)		-		(3,922)
Stock Based Compensation	-		-		978		-		-		978
Impact of Transactions Under Compensation Plans, net	69,570		1		673		-		-		674
Balance, September 30, 2018	17,058,521	$	171	$	38,325	$	293,254	$	(33,734)	$	298,016

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)

	Nine Months Ended September 30,
(Dollars in Thousands)	2019		2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	22,242	$	17,766
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Provision for Loan Losses		2,189		2,464
Depreciation		4,693		4,845
Amortization of Premiums, Discounts and Fees, net		3,826		5,253
Originations of Loans Held-for-Sale		(160,720)		(136,492)
Proceeds From Sales of Loans Held-for-Sale		158,293		136,618
Net Gain From Sales of Loans Held-for-Sale		(3,779)		(3,606)
Stock Compensation		1,134		978
Net Tax Benefit From Stock-Based Compensation		(14)		(41)
Deferred Income Taxes		1,131		1,847
Net Change in Operating Leases		68		-
Net Loss on Sales and Write-Downs of Other Real Estate Owned		165		941
Proceeds From Insurance Claim for Operating Loss		268		-
Loss on Disposal of Premises and Equipment		39		57
Net (Increase) Decrease in Other Assets		(5,483)		3,040
Net Increase (Decrease) in Other Liabilities		19,876		(12,208)
Net Cash Provided By Operating Activities		43,928		21,462

CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
Purchases		(69,347)		(102,428)
Payments, Maturities, and Calls		45,146		89,932
Securities Available for Sale:
Purchases		(56,450)		(129,502)
Payments, Maturities, and Calls		126,171		119,092
Purchases of Loans Held for Investment		(21,537)		(25,048)
Net Increase in Loans		(34,589)		(98,007)
Proceeds from Insurance Claims on Premises		814		-
Proceeds From Sales of Other Real Estate Owned		2,330		1,540
Purchases of Premises and Equipment		(3,352)		(2,771)
Net Cash Used In Investing Activities		(10,814)		(147,192)

CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Deposits		(58,849)		(88,661)
Net (Decrease) Increase in Short-Term Borrowings		(3,279)		9,164
Repayment of Other Long-Term Borrowings		(1,245)		(1,511)
Dividends Paid		(5,868)		(3,922)
Payments to Repurchase Common Stock		(1,806)		-
Issuance of Common Stock Under Compensation Plans		473		480
Net Cash Used In Financing Activities		(70,574)		(84,450)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(37,460)		(210,180)

Cash and Cash Equivalents at Beginning of Period		276,000		285,442
Cash and Cash Equivalents at End of Period	$	238,540	$	75,262

Supplemental Cash Flow Disclosures:
Interest Paid	$	7,761	$	4,837
Income Taxes Paid	$	4,496	$	151

Noncash Investing and Financing Activities:
Loans Transferred to Other Real Estate Owned	$	792	$	1,260
Right-of-Use Assets Obtained in Exchange for Operating Lease Liabilities⁽¹⁾	$	1,992	$	-

⁽¹⁾Initial amount recorded upon implementation on January 1, 2019.

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”). 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, 2018 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, 2018.

Accounting Changes

Leases. Accounting Standards Update ("ASU") 2016-02 requires that lessees and lessors recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. ASU 2016-02 was effective for the Company on January 1, 2019. ASU 2016-02 provides for a modified retrospective transition approach requiring lessees to recognize and measure leases on the balance sheet at the beginning of either the earliest period presented or as of the beginning of the period of adoption with the option to elect certain practical expedients. The Company elected to apply the modified retrospective transition approach as of the beginning of the period of adoption and has not restated comparative periods. The Company also adopted the package of practical expedients provided under ASU 2016-02, which provided for the Company not to reassess: (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases, and (iii) initial and direct costs of any existing leases. The Company elected not to apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by the accounting guidance).

The Company’s operating leases related primarily to banking office locations. As a result of implementing ASU 2016-02, the Company recognized operating lease right-of-use (“ROU”) assets of $2.0 million and operating lease liabilities of $2.8 million on January 1, 2019, with no significant impact on its consolidated statement of income or consolidated statement of cash flows compared to the prior lease accounting model. The difference between the lease assets and the lease liabilities of $0.8 million was prepaid rent, which was reclassified to lease assets. The ROU asset and lease liability are recorded in other assets and other liabilities, respectively, in the consolidated statement of financial condition. See Note 5 – Leases for additional information.

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:
	September 30, 2019									December 31, 2018
	Amortized		Unrealized		Unrealized		Market		Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value		Cost		Gain		Losses		Value
Available for Sale
U.S. Government Treasury	$	216,707	$	858	$	300	$	217,265	$	264,298	$	167	$	2,616	$	261,849
U.S. Government Agency		137,798		572		332		138,038		133,201		520		515		133,206
States and Political Subdivisions		13,041		6		3		13,044		42,509		-		144		42,365
Mortgage-Backed Securities		708		79		-		787		903		40		-		943
Equity Securities⁽¹⁾		7,847		-		-		7,847		7,794		-		-		7,794
Total	$	376,101	$	1,515	$	635	$	376,981	$	448,705	$	727	$	3,275	$	446,157

Held to Maturity
U.S. Government Treasury	$	25,050	$	10	$	46	$	25,014	$	35,088	$	-	$	477	$	34,611
States and Political Subdivisions		3,356		-		1		3,355		6,512		-		26		6,486
Mortgage-Backed Securities		211,897		1,856		235		213,518		175,720		220		2,624		173,316
Total	$	240,303	$	1,866	$	282	$	241,887	$	217,320	$	220	$	3,127	$	214,413

Total Investment Securities	$	616,404	$	3,381	$	917	$	618,868	$	666,025	$	947	$	6,402	$	660,570

⁽¹⁾ Includes Federal Home Loan Bank and Federal Reserve Bank stock, recorded at cost of $3.1 million, $4.8 million, respectively, at September 30, 2019 and includes Federal Home Loan Bank and Federal Reserve Bank stock recorded at cost of $3.0 million and $4.8 million, respectively, at December 31, 2018.

Securities with an amortized cost of $262.8 million and $319.6 million at September 30, 2019 and December 31, 2018, 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.

Maturity Distribution. At September 30, 2019, 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	$	141,609	$	141,370	$	13,354	$	13,331
Due after one year through five years		90,139		90,937		15,052		15,038
Mortgage-Backed Securities		708		787		211,897		213,518
U.S. Government Agency		135,798		136,040		-		-
Equity Securities		7,847		7,847		-		-
Total	$	376,101	$	376,981	$	240,303	$	241,887

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
September 30, 2019
Available for Sale
U.S. Government Treasury	$	4,973	$	8	$	128,152	$	292	$	133,125	$	300
U.S. Government Agency		29,698		179		28,524		153		58,222		332
States and Political Subdivisions		5,428		3		-		-		5,428		3
Total		40,099		190		156,676		445		196,775		635

Held to Maturity
U.S. Government Treasury		-		-		19,996		46		19,996		46
States and Political Subdivisions		1,794		1		500		-		2,294		1
Mortgage-Backed Securities		29,466		78		16,318		157		45,784		235
Total	$	31,260	$	79	$	36,814	$	203	$	68,074	$	282

December 31, 2018
Available for Sale
U.S. Government Treasury	$	28,420	$	80	$	193,501	$	2,536	$	221,921	$	2,616
U.S. Government Agency		53,237		271		28,735		244		81,972		515
States and Political Subdivisions		8,243		12		31,417		132		39,660		144
Mortgage-Backed Securities		10		-		-		-		10		-
Total		89,910		363		253,653		2,912		343,563		3,275

Held to Maturity
U.S. Government Treasury		-		-		34,612		477		34,612		477
States and Political Subdivisions		204		-		6,281		26		6,485		26
Mortgage-Backed Securities		51,327		389		84,705		2,235		136,032		2,624
Total	$	51,531	$	389	$	125,598	$	2,738	$	177,129	$	3,127

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 available-for-sale (“AFS”) and held-to-maturity (“HTM”) 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 September 30, 2019, there were 242 positions (combined AFS and HTM) with unrealized losses totaling $0.9 million. 31 of these positions were U.S. government treasury securities guaranteed by the U.S. government. 187 of these positions were U.S. government agency and mortgage-backed securities issued by U.S. government sponsored entities. The remaining 24 positions were municipal securities. Because the declines in the market value of these securities were attributable to changes in interest rates and not credit quality, and because the Company had the ability and intent to hold these investments until there is a recovery in fair value, which may be at maturity, the Company did not consider these investments to be other-than-temporarily impaired at September 30, 2019.

NOTE 3 – LOANS, NET

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

(Dollars in Thousands)	September 30, 2019		December 31, 2018
Commercial, Financial and Agricultural	$	259,870	$	233,689
Real Estate – Construction		111,358		89,527
Real Estate – Commercial Mortgage		610,726		602,061
Real Estate – Residential⁽¹⁾		368,793		342,215
Real Estate – Home Equity		197,326		210,111
Consumer⁽²⁾		279,680