2 0 1 2 A n n u Al R e p o R t
BUILDING
COMMUNITIES
vISION
Colony Bank strives to
be a high performance
community bank, providing
shareholders with a fair
return on their investment
while improving the quality
of life in the communities
we serve.
MISSION
Our mission can best be
accomplished by applying
sound banking principles
in corporate decision-
making and by providing
our customers a degree
of highly personalized,
professional service that is
unmatched in the market.
• Service
• Stability
• Success
Build
your future
with us
In 2012 the economic and financial
landscape continued a trajectory of
change. At the time of this writing,
interest rates remain historically
low. Industry regulation may be
nearing a historical high. And
this “new normal” presents both
challenges and opportunities for
We are dedicated to
employing the best and
brightest bankers who
know our communities
and are eager to share
their experience to benefit
our customers. Our staff
has a deep commitment to the
consumers, businesses, farms and
people and the communities
families.
that we serve. Visit our
Market Highlights pages to
At Colony Bank we clearly
read about the extent to which
understand that whatever the
our employees give their
current environment, our
time and energy to numerous
success is closely aligned with
community organizations
the success of the communities
during the year.
we serve, and strengthening that
alignment drives the way we do
business every day. We focus
on supporting families and
locally owned businesses
because we know they are
the backbone of a healthy
community. We focus on fair
pricing and rates because we
believe that is what responsible
companies do.
This report provides the
detail of how in 2012 we
worked to build strong
communities and prosperous
businesses, families and
individuals who enjoy
quality services as well as
opportunity for growth and
enhanced financial success.
Welcome
On May 14, 2012, Colony
Bank welcomed its new
President and CEO,
Edward P. Loomis, Jr.
A seasoned executive with
over 30 years’ experience
in the financial industry.
Ed’s leadership experience
and demonstrated record in
business development, strategic
planning, team building, and
vision development will all be
significant assets in guiding
Colony Bank into the future.
TABlE Of COnTEnTs
Introduction ................................1
letter to the shareholders ........... 2
financial summary ..................... 3
Board of Directors ....................... 4
Directors Emeritus ..................... 5
Colony Bank Market Areas
and Management ................... 6-16
Consolidated financial
statements ................................ 17
Dear
Shareholders,
2012 was a very interesting year for Colony Bank.
While the banking industry faced another year
of adversity, the economy began to show signs of
improvement. Unemployment, while still at a historically
high level, seemed to peak and some improvement was
achieved. Bank closures peaked and only a few were
closed in the last half of the year. Bank balance sheets
have been bolstered by the resolution of and/or disposal
of problem assets, and many banks are returning
historical levels of profitability.
Dan Minix served as Interim President and CEO until the
arrival of Ed loomis in May, 2012. We want to thank Dan
for his service to the company and for the time he spent
introducing Ed to the many people who comprise the
Colony family.
Arriving at Colony Bank as industry trends were
improving provided considerable opportunity to a new
CEO. After three to four years of addressing loan quality
issues, we can begin to see a more normal period of
prosperity returning to the markets we serve. Certainly
we still have to be vigilant of all credit-related issues and
insure we are prepared for a more aggressive compliance
world. However, for the first time in several years,
we experienced growth in our loan portfolio. loans
increased 4.27% from $716 million to $746 million. Real
estate values seem to have stabilized, and in some cases,
farm crops have set records in both yield and price. no
one is expecting a vibrant, robust recovery, but a
stable economy with gradually improving trends
is quite an improvement from the economy of
the last four years.
national and international trends both reflect a “steady
as we go” strategy. Excessive debt and operating deficits
threaten the economic stability of several countries.
Hopefully, steady improvement will continue as prudent
long-term solutions are developed and implemented.
At Colony Bank, we state our vision as follows:
“Colony Bank strives to be a high performance community
bank, providing shareholders with a fair return on
their investment, while improving the quality of life
in the communities we serve.” This vision states
quite clearly that as an organization we
are committed to our communities. from
Columbus to savannah and from Valdosta
to middle Georgia, we strive to support our
citizens, local leaders, local businesses and
local business interests. In this annual report you
will see the faces of Colony Bank in the communities we
serve and some of the projects in which we have been
fortunate enough to participate.
As we begin 2013, we are aware of the challenges
and the opportunities afforded us by improvements
in technology. While we intend to embrace new
technologies to enhance our customer experience,
the cornerstone of Colony Bank’s strategy is the
commitment to a partnership with our customers. To
achieve this partnership, we must empower our market
leaders with the tools to compete and the time to
interact personally with the customers they serve. The
human touch is critical in a real partnership, and at
Colony Bank we look for ways to provide that touch
every day.
On behalf of our board of directors, officers and staff,
we want to thank you for your support over the past
year. We look forward to 2013 with great anticipation!
Edward P. Loomis, Jr.
President and
Chief Executive Officer
B. Gene Waldron
Chairman of the Board
fInAnCIAl sUMMARy
2012 KEy PErformanCE IndICators
years Ended December 31, 2012 and 2011
Dollar amounts in thousands
except per share data
2012
2011
Percent
Change
Total Assets
Total Deposits
loans (net of Unearned Income)
net Income
Per share Data:
Basic Earnings
Common Book Value/share
$1,139,397
$1,195,376
(4.68)%
$979,685
$746,816
$1,206
$999,985
(2.03)%
$716,264
$1,133
4.27%
6.44%
$0.14
$8.05
$0.13
$8.17
7.69%
(1.47)%
2011
$1,133
2010
2009
$(926)
$(20,549)
2008
$2,029
1.20%
(0.98)%
(19.45)%
2.40%
$0.13
$(0.11)
$(2.85)
$0.28
Key Trends
A Historical Comparative
years Ending
net Income
(in thousands)
Return on Average
shareholders’ Equity
Diluted Earnings
Per share
2012
$1,206
1.25%
$0.14
RETURn On
AVERAGE AssETs
2012
0.11%
2011
0.09%
nET InTEREsT
MARGIn
2012
3.41%
2011
3.11%
Page 3
BOARD Of DIRECTORs
Edward P. Loomis, Jr.
President and CEO
Colony Bankcorp, Inc.
fitzgerald, Georgia
B. Gene Waldron
Chairman
Colony Bankcorp, Inc.
President and CEO
Waldron Enterprises, Inc.
Douglas, Georgia
Edward J. Harrell
Vice Chairman
Colony Bankcorp, Inc.
Attorney, Managing Partner
Martin snow, llP
Macon, Georgia
mark H. massee
President
Massee Builders, Inc.
Mayor of City of Fitzgerald
fitzgerald, Georgia
Jonathan W. r. ross
President
Ross Construction Co., Inc.
Tifton, Georgia
terry L. Hester
EVP, CFO
Colony Bankcorp, Inc.
fitzgerald, Georgia
davis W. King, Jr.
Chairman/President
King Enterprise &
Associates, Inc.
Albany, Georgia
Page 4
scott L. downing
President
sDI Investments
fitzgerald, Georgia
michael frederick
(freddie) dwozan, Jr.
President/CEO/Owner
Medical Center
Prescription shop
Eastman, Georgia
DIRECTORs EMERITUs
L. morris downing, Jr.
Harold Kimball
Ben B. mills
marion H. massee, IIII
ralph d. roberts, md
Joe K. shiver
WEsT MARKET
Highlights
Cordele
sylvester
Albany/leesburg
Columbus
Thomaston
Moultrie
Warner Robins/
Centerville
Tifton
Ashburn
Page 6
West Market Community Presidents (left to right)
front Row: John Gandy, Walter Patten, Tony Chiri,
Bob Evans, Phil franklin, Ricky freeman, Back Row:
Bill Marsh, Kirk scott and John Roberts (top stairs).
Eddie Hoyle,
EVP, Regional Executive Officer
I’m pleased to be associated with a great
“
team of bank leaders who are dedicated
to their respective markets and realizing
the growth strategies that the company
has adopted. We want to build solid
relationships with our friends and
neighbors and provide the best financial
products and services available. We have
embedded our values in the communities
we serve and want to help build and foster
“
healthier financial lives.
– eddie Hoyle
Eddie Hoyle joined the Colony Bank team in 2011. A native of
northeast Georgia, he brings 34 years of banking experience
to the management of the Western Division. Eddie is
responsible to lead and direct the Market leaders in the
West Division as they grow their consumer, commercial, and
deposit portfolios as well as manage their overall banking
operations. Eddie brings a high level of communication skills
and expertise in financial performance which he leverages
with each of his respective community bank locations.
Eddie provides support and assistance for the West Market
to reach goals and successfully execute community activities.
He enjoys the challenges associated with execution of the
Colony Business Plan as it relates to increasing profitability
and market share in his division.
MARKET HIGHlIGHTs: AlBAny/CHEHAW/lEEsBURG
Corporate Citizenship
A community bank has many responsibilities, and
one of the most important is to actively support the
communities they serve.
The Albany, Chehaw and leesburg market Colony Bank offices are
involved in fundraisers throughout the year, including:
March
March of
Dimes
April
Relay for
life held
at Darton
College
October
leukemia and
lymphoma
Walk held at
Chehaw Park
november
Alzheimer’s
Walk held at
Riverfront Park
December
Toys for Tots
held at Albany
MClB
During the month of April, the Albany staff pays $5.00 each friday
to wear jeans and help raise funds for Relay for life. The team also
holds periodic bake sales and raffles to raise monies for civic and
charitable endeavors.
Heather Dozier and Katie leckrone
helping collect items for Toys for Tots.
MARKET HIGHlIGHTs:
AsHBURn
MARKET HIGHlIGHTs:
COlUMBUs
Enhancing Business,
Improving lives
Each year the Colony Bank
Ashburn team hosts a
community event to raise
money for Relay for life.
In 2012 the Ashburn Office hosted a
“Breakfast with santa” with pictures
taken and fee given to Relay for life.
The bank has also initiated a Relay
for life Pageant that is intended to be
an annual event in the community.
Colony Bank was also able to assist with
the improvement to the property for
Carroll’s sausage, a great business and
asset for the community.
The bank team actively supports
the city’s annual Trick or Treat, the
annual Ashburn Christmas Parade, the
Chamber of Commerce, and the Rotary
Club.
Top: The Colony
Bank Ashburn team.
Bottom: Barbara
Keen and Jessica
James (staff).
Market President
Ricky freeman and
customer Hugh Hardy.
Caring in Action
John roberts, Colony Bank Market
President, is an active member of Kiwanis,
a civic group that has adopted Johnson
Elementary school as part of the citywide
Adopt-A-school program. Visiting the
school and reading to the students is one
of the ways members of Kiwanis give
back to the community. The group also
sponsors an annual golf tournament with
the proceeds going to the top academic
middle school students (as voted by the
schools) in the Columbus area.
michael Welch, senior commercial
lender, gives by serving on the board of
directors of the United Way and Easter
seals.
Lance Hemmings, senior commercial
lender, is the chairman of Clubview
Elementary school Governing Board.
Clubview is a charter and international
baccalaureate school. He also is a member
of Richards Middle school local school
council. lance is a board member of
Columbus land Bank Authority and a
board member of
River City youth
football. He also
coaches youth
football and baseball.
Colony Bank
Columbus has been
making monetary,
clothing and food
donations to the
House of Mercy since
the opening of the
branch in 2006. The
House of Mercy is a
non-profit homeless
shelter.
Pictured directly
below from left to
right are Elder Bobby
Harris (Director)
Johannie Harris, his
wife; George luttrell
and stephanie
Wade of Colony
Bank. George and
stephanie presented
a check to the couple
for the benefit of the
House of Mercy on
12/10/12.
Page 8
MARKET HIGHlIGHTs:
CORDElE
The Power of Partnership
Through community involvement, Colony Bank Cordele develops relationships
with both potential and current customers. This exposure helps reaffirm the bank’s
brand by emphasizing industrial, business and community development. The bank is
represented in the following organizations and endeavors:
Downtown Business Organization/
Mainstreet
Cordele-Crisp Industrial
Development Authority
Kiwanis Club
lions Club
Rotary
leadership Crisp graduates
Georgia Academy for Economic
Development graduate
GA Banking school participant
Habitat for Humanity
Higher Education Committee
southwest GA Empowerment Zone
Crisp Area Arts Alliance
United Industrial Development
City of Cordele Revolving
loan fund
Agri-Industrial Board
food Drive
Thanksgiving and Christmas
needy family food drive
young Professionals network in
Cordele
Cordele-Crisp Chamber of
Commerce Ambassadors
Retired Teachers Recognition
Breakfast
Red Cross Blood Drive
Teacher of the year Judging
Relay for life
United Way
Adopt an Angel
Watermelon Days festival
Red Ribbon Week
Atlanta legislative fish fry
financial literacy program –
Crisp Co High school
4-H
Bethel CME historical church
renovation
Chinese government officials
hosting
Colony Bank recently helped
finance a multi-million dollar
construction loan for the
Cordele Higher Education
Center which will be the home
for Darton state College.
MARKET HIGHlIGHTs: THOMAsTOn
Clubs, Kids, Commitment
Colony Bank Thomaston is regularly well-represented in the
civic events that impact Thomaston. Members of the bank team
have membership in the local Rotary Club, sertoma, and the
Chamber of Commerce, as well as the Thomaston Upson Business
Association that holds an annual Easter Egg Hunt for local
children and the annual Thomaston Christmas Parade. At the
annual smoke on the Water event, the Kids Zone is sponsored by
the bank. And, in 2012, Colony Bank contributed 6 computers and
enlisted other businesses for an additional 29 computers to be
sent to missionary schools in the Philippines and Jamaica.
In addition, the bank supports the local Relay for
life event and a group called sUPPORT that gives
encouragement and monetary assistance to Upson
County residents that are dealing with the effects
of cancer.
MARKET
HIGHlIGHTs:
TIfTOn
(Above left)
The Colony
Bank Tifton
team at work –
and having fun
supporting great
causes and a great
community.
Page 10
Helping Build a Better
future for Tift County
The Colony Bank Tifton team from
second street and Tifton Village
locations has a simple approach to
corporate citizenship; if it’s a cause
that’s important to the community,
it’s a cause that’s important to the
bank. In 2012 the bank’s partnership
outreach included Tift County sports,
yMCA Adopt a Child, suitcase for
Kids, ABAC student Orientation, and
TCHs Teacher Appreciation.
The bank consistently sponsors
sunset Tifton, which targets new and
existing businesses in Tifton, the
American Cancer Association and the
March of Dimes. Market President,
Bill Marsh, is a member of the
Chamber of Commerce Board; susan
Warren and sheila Davis are Chamber
Ambassadors.
A major philanthropic effort in 2012
was supporting and participating in
the Breast Cancer Awareness Walk.
MARKET HIGHlIGHTs: MOUlTRIE
The Hometown Team
Colony Bank Moultrie is dedicated to customer and community service.
since opening its facility in 2000, the bank has continued to expand its
efforts to support worthy and worthwhile causes.
Making a difference. In 2012 the bank made substantial contributions
to United Way, The Boys & Girls Club of Moultrie, the Packer Touchdown
Club and War of the Borders. The bank also supports the efforts of fighting
muscular dystrophy and cancer. The Colony Bank Moultrie Team Members
also gave back to the community by supporting the Moultrie yMCA
“Building Better lives” Campaign and Habitat for Humanity.
The Georgia sheriffs’ youth Homes Boys Ranch was another major priority.
focusing on providing quality child care for Georgia’s children who, through
no fault of their own, may be products of abuse, neglect and dysfunctional
families. The program provides opportunities for boys and girls to resolve
their personal conflicts, find their identities, and learn proper values as
they work toward a lawful, productive and secure future.
The bank also has an ongoing commitment to support civic organizations
like Kiwanis, and hallmark charitable events including Relay for life.
The Colony Bank
Moultrie team
welcomes you!
MARKET HIGHlIGHTs:
sylVEsTER
Our focus, Their future
Providing responsive banking services and responsible
support to local schools and their students are high
priorities at Colony Bank sylvester.
At the beginning of each school term, the bank provides academic calendars
to all teachers in the Worth County school system. In addition, the bank
team visits local schools throughout the school year to meet with and read
books to the younger children. students from the Worth County school
system visit the bank to tour and learn about banking and, annually,
members of the bank team participate in the high school’s career fair to talk
to students about banking and establishing checking and savings accounts.
The bank is a member of the sylvester-Worth County Chamber of
Commerce, several local civic clubs including Kiwanis and the lions Club,
and the bank team provides meals to local firefighters.
longtime commercial client, Chris shipp,
with Colony Bank lender, Johnny sumner.
Chris, owner of mowing, irrigation repair and
landscaping firm “ship shape,” is active in the
sylvester-Worth community, serving on the
executive board of the Chamber of Commerce,
advisory board of Albany Tech, and is active in
new Bethel Baptist Church in sumner, Georgia.
MARKET HIGHlIGHTs:
WARnER ROBIns/CEnTERVIllE
A Profile of service
Colony Bank’s Warner Robins and Centerville locations place great emphasis on being good
bankers – and good neighbors. In 2012 the following organizations benefitted from the
Colony Bank partnership:
sPOnsORsHIPs
Cherished Children – Golf Tournament
DOnATIOns
It Takes A Village foundation
Crimestoppers (Macon Regional)
luncheon sponsor
feed The City – food for the community
during holidays
Georgia Girls – softball Team
Golden Eagle Award Dinner –
honoring Dr. Dan Callahan
Heart of Georgia Hospice 27th Anniversary
Celebration
Houston County High school –
Dugout Club
Houston County Meals on Wheels
Methodist Home for Children and youth
Perry Junior league – All stars Baseball
Perry High school – softball
Warner Robins High school
Waterford Golf Club – ladies Association
Westfield school – Ball field
Miller Elementary Title One school
Project Giving – Adopted a family for Christmas
CHAMBER EVEnT ATTEnDAnCE
Eggs & Issues
Business After Hours
Business Play Day
lEADERsHIP
Colony Bank Market President, Kirk scott,
President of Centerville Rotary Club
Earl spivey, Heart of Georgia Board –
Rotary Club of Byron – Warner Robins Civitan
Jackie White, Co-Chair Relay for life, Church:
Women’s Ministry Team – finance Committee
Wanda Kelley, Co-Chair Relay for life,
Chamber Ambassador
Market President, Kirk scott
and Misty Marney showing
the result of efforts to help
families in need at Christmas.
EAsT MARKET
Highlights
Douglas/Broxton
savannah
Eastman/Chester/
soperton
Rochelle/Pitts
fitzgerald
Valdosta
Quitman
East Market Community Presidents (left to right):
Mark Turner, Edward G. smith, III, Chip Carroll,
Tommy Hester, nic Worthy, and scott Miller (top stairs).
Page 12
lee A. northcutt,
EVP, Regional Executive Officer
“
Colony Bank prides itself in offering
financial solutions for every stage of
life and helping friends and neighbors
maximize their endless possibilities.
We are privileged to support the
families and locally owned businesses
“
of the communities we serve.
– lee a. northcutt
lee northcutt has been a member of the Colony Bank
team since 2009. He is a native of Valdosta, Georgia
and brings 33 years of banking experience to his
position. His responsibilities include oversight of the
East Division’s performance, including its consumer,
commercial, mortgage and deposit portfolios and overall
banking operations.
lee is pleased to be associated with a dynamic team of
bankers that are dedicated to their respective markets
and the growth strategies the company has adopted. He
looks forward to continuing to help his team build the
strong community and client relationships that have
defined Colony Bank’s priority and strong financial
performance.
MARKET HIGHlIGHTs: fITZGERAlD
superior service to Customers – and Community
Colony Bank’s team members from the Main and
southside offices are involved in nearly every
community organization from the Chamber of
Commerce to civic clubs.
Every year the bank supports the Communities in schools annual
fundraiser, Chamber of Commerce events, Relay for life, Wiregrass
Technical College events, Wild Chicken festival, Downtown Easter egg
hunt, July 4th events, Downtown Halloween Blast and school events.
The bank’s community partnership included participating in the
July 4th event, where Colony Business Association proceeds raised that
day went to the Colony Business Association Benevolence fund to assist
local citizens in need with major medical expenses.
The bank also helped raise funds for communities and schools and
collected toys and raised money to support Toys for Tots. The bank
provided nearly 2,000 toys to over 530 children in Ben Hill County. The
Colony office also sponsored a needy family in December and provided
clothes and toys for Christmas.
MARKET
HIGHlIGHTs:
QUITMAn
leading the Way
Impacting the children of our
community positively has been a
major accomplishment for Colony
Bank Quitman.
This is accomplished through service
commitments with Brooks County school
Board, Kiwanis Club, fERsT foundation,
Boys & Girls Club, Junior Board donations to
needy families, and annually participating
in the Christmas Parade. for 13 years the
bank team has been involved in teaching
community service to Junior Board
members.
specific events supported annually include:
The Camellia flower show, Relay for life,
Christmas Parade, Business After Hours,
skillet festival, Hope and Dreams Riding
facility, Brooks County school Academic,
sports, and Band; Hog show, Boys & Girls
Club, and the Chamber of Commerce.
Page 14
MARKET HIGHlIGHTs:
ROCHEllE/PITTs
The strength to serve
Customer support for Colony Bank
Wilcox County continued to be strong
in 2012, resulting in deep current client
relationships and the growth of new
customers as well.
Wilcox County is one of those caring
counties where “everybody knows your
name.” A helping hand is always there no
matter what the need may be, and Colony
Bank is proud to be one of those helping
hands.
Whether it is helping out at the
homecoming game, collecting toys for
the needy, participating in Relay for
life, coaching a team at the recreation
department, supporting and helping at all
grade levels in the schools, or just saying
thank you to our customers for all that
they do and for all that they mean to us,
the team consistently helps give back to
worthy causes and events.
The staff in Wilcox County always put
forth an extra effort to make sure that
the bank is making a positive difference
in the community and in the lives of the
customers we serve.
MARKET HIGHlIGHTs:
sAVAnnAH
Giving Back is Always a Priority
Colony Bank savannah is continuously looking for
opportunities to help our communities.
The Hodgson Memorial and Ogeechee Richmond Hill Colony Bank
offices are involved in fundraisers throughout the year, including:
Colony Bank
savannah
had 100%
employee
participation
in raising over
$2,000 to
help the local
community.
Employees
participated in the
American Cancer
society’s Relay for
life walk held at
Benedictine Military
school. The event
raised over $2,000
for the American
Cancer society.
Colony Bank was a
sponsor of the Great
Ogeechee seafood
festival, an event
that draws thousands
of people from in
and out of state that
was sponsored by
the Richmond Hill
Chamber.
At the end of 2012
the bank participated
with Home Instead
senior Care and the
Be a santa to a senior
program to help
bring holiday cheer
to local citizens.
In addition to participating in these events, bank officers and employees currently
serve our community by their memberships in the following organizations:
savannah Chamber of Commerce, The Richmond Hill Bryan County Chamber,
savannah Economic Development Authority, World Trade Center savannah,
savannah Downtown Business Association, Home Builders Association of Bryan
County, Jaycees, lions Club, The newland family foundation, The Telfair Museum
and Wesley Monumental Church.
Colony Bank savannah Gives
A lending Hand
In 2012 Colony Bank was very proactive in
lending a helping hand with a significant
building project to one of the oldest and
largest Baptist Churches in the region.
Colony was fortunate to provide immediate
and long-term financing to assist one of the
outstanding Christian organizations in the
savannah Market.
MARKET HIGHlIGHTs:
DOUGlAs/BROxTOn/PAlMs
Making a Difference
Colony Bank’s Coffee County offices in Douglas at Ward street and
the Palms office, and in Broxton, consistently focus on seizing
opportunities to support the bank’s brand and the bank’s customers
in the community.
Team members participate in civic organizations, including the local
lions Club, Douglas/Coffee County Exchange Club and the Chamber
of Commerce, and there is always a bank representative at grand
openings and ribbon cuttings.
In 2012 the bank participated in: Relay for life which supports The
American Cancer society, Passionately Pink Day which supports the
susan G. Komen society, the Annual Big Buck Contest sponsored by
the Douglas/Coffee County lions Club (Camp for the Blind), Adopt A
Child at Christmas providing assistance to less fortunate kids within
the community, and Bell Ringing for the salvation Army.
from using lobby space to
raising cancer awareness
to sponsoring and staffing
public service events,
Colony Bank shares the
priorities of its community.
MARKET HIGHlIGHTs:
EAsTMAn/CHEsTER/sOPERTOn
Kids, Causes and Community
If there’s a civic event, a service organization or a worthy
cause to support, it’s almost a certainty that Colony Bank in
Eastman, soperton and Chester will be part of it. In 2012 the
team gave back by:
sponsoring:
serving:
• A little league
• loan Officer, Eric
Baseball Team for the
soperton/Treutlen
Recreation Department
• A recreation basketball
team for the youth of
Treutlen County
• The “toss-out”
program for home
football games at
Treutlen High school
Kight, served as lions
Club president
• Office Manager,
samantha Kight,
served as a member of
the financial advisory
committee for Treutlen
4-H
The team also collected toys for the underprivileged children toy
drive at Christmas, and collected “box tops for education” for our
local elementary school. In addition, the bank donated school
supplies to Concerned Citizens of Treutlen County for a Back to
school drive for needy families.
The Eastman team follows suit, supporting Relay for life, the
lions Club Empty stocking fund, and Georgia Peanut Week. They
participate in the Accelerated Reader program at Dodge County
Elementary school, the youth league at Eastman-Dodge Recreation
Department and the Dodge County Middle school sports awards.
They also support the Character Counts program and “Banking Is”
at Dodge County High school.
MARKET HIGHlIGHTs: VAlDOsTA
Investing in the future
The team at Colony Bank’s two Valdosta locations at north Ashley street and Camelot, combine
professional banking with personal service to enhance the lives of the people they serve.
In 2012 the Valdosta offices spent approximately $10,625 in 2012 for special events, causes and
organizations in the Valdosta community:
sports & Education
• D.A.R.E. Program
• VsU fellowship of Christian
Athletes
• Pine Grove Middle school
Athletes
• Moulton Branch Elementary
school (CPIE)
• Valdosta Boys & Girls Club
• Children’s Advocacy Center
• Georgia Christian school
• War of the Borders All-star Game
• lowndes High Touchdown Club
• Valwood school
Civic
• 4-H Clubs
Health & Charitable
• shrine Club
• Habitat for Humanity
• lowndes High Georgia
• Parks & Recreation All-
star Teams
• Valdosta/lowndes County
Chamber of Commerce
• lake Park Chamber of
Commerce
Bridgemen
• Alzheimer’s Association
• Hospice of south Georgia
• south Georgia Rivers
sams (Childhood Cancer
Research)
• leadership lowndes
• Paws for a Cause
• Homebuilders Association
• Jacobs ladder
• MlK Jr. Commemoration
• Dance Arts, nutcracker
Association
• Quota Club Taste of Valdosta
Robin McCormick, Becky
Briggs, Melody samples, bank
customer Mike Gammons,
Amy smith and Eddie smith,
attending a community banquet.
Rhonda Walker and
Michael Oppel supporting
Toys for Tots.
Page 16
The bank also
consistently supports the
following organizations
by participating in events
and providing financial
resources:
shriners
Rotary Club
CPIE
Kiwanis Club
Toys for Tots
Quota International
leadership lowndes
VsU Alumni Association
Relay for life
Home Instead
(Adopt a senior)
In the Game Awards
Dinner
Market President, Eddie smith
and Offensive Player of the year
Malkom Parrish, Brooks County at
the sports Banquet for In the Game
Magazine.
MCNAIR, MCLEMORE, MIDDLEBROOKS & CO., LLC
CERTIFIED PUBLIC ACCOUNTANTS
389 Mulberry Street • Post Office Box One • Macon, GA 31202
Telephone (478) 746-6277 • Facsimile (478) 743-6858
www.mmmcpa.com
March 12, 2013
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Colony Bankcorp, Inc.
We have audited the accompanying consolidated balance sheets of Colony Bankcorp, Inc. and
Subsidiary as of December 31, 2012 and 2011 and the related consolidated statements of operations,
comprehensive income (loss), changes in stockholders’ equity and cash flows for each of the years in the
three-year period ended December 31, 2012. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Colony Bankcorp, Inc. and Subsidiary as of December 31, 2012 and
2011, and the results of their operations and their cash flows for each of the years in the three-year period
ended December 31, 2012 in conformity with accounting principles generally accepted in the United
States of America.
We were not engaged to examine management’s assessment of the effectiveness of Colony Bankcorp,
Inc.’s internal control over financial reporting as of December 31, 2012 included under Item 9A, Controls
and Procedures, in Colony Bankcorp, Inc.’s Annual Report on Form 10-K and, accordingly, we do not
express an opinion thereon.
McNAIR, McLEMORE, MIDDLEBROOKS & CO., LLC
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
ASSETS
Cash and Cash Equivalents
Cash and Due from Banks
Federal Funds Sold
2012
2011
$ 29,243,927
20,001,906
$ 28,380,368
54,991,474
49,245,833
83,371,842
Interest-Bearing Deposits
21,795,341
28,957,310
Investment Securities
Available for Sale, at Fair Value
Held to Maturity, at Cost (Fair Value of $41,909 and
$45,635 as of December 31, 2012 and 2011, Respectively)
268,300,411
303,890,847
41,467
46,111
268,341,878
303,936,958
Federal Home Loan Bank Stock, at Cost
3,364,300
5,398,200
Loans
Allowance for Loan Losses
Unearned Interest and Fees
747,050,011
(12,736,921)
(233,927)
716,321,321
(15,649,594)
(57,646)
734,079,163
700,614,081
Premises and Equipment
24,916,106
25,750,235
Other Real Estate (Net of Allowance of $4,561,099
and $2,373,511 in 2012 and 2011, Respectively)
Other Intangible Assets
Other Assets
Total Assets
15,940,693
20,445,085
223,510
259,258
21,489,957
26,643,467
$1,139,396,781
$1,195,376,436
See accompanying notes which are an integral part of these financial statements.
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Noninterest-Bearing
Interest-Bearing
Borrowed Money
Subordinated Debentures
Other Borrowed Money
Other Liabilities
Commitments and Contingencies
2012
2011
$ 123,966,542
855,718,349
$ 94,268,911
905,716,361
979,684,891
999,985,272
24,229,000
35,000,000
24,229,000
71,000,000
59,229,000
95,229,000
4,723,723
3,549,354
Stockholders’ Equity
Preferred Stock, Stated Value $1,000; Authorized
10,000,000 Shares, Issued 28,000 Shares
Common Stock, Par Value $1; Authorized
20,000,000 Shares, Issued 8,439,258 and 8,439,258
Shares as of December 31, 2012 and 2011, Respectively
Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss), Net of Tax
27,827,053
27,662,476
8,439,258
29,145,094
30,497,576
(149,814)
8,439,258
29,145,094
29,456,240
1,909,742
95,759,167
96,612,810
Total Liabilities and Stockholders’ Equity
$1,139,396,781
$1,195,376,436
See accompanying notes which are an integral part of these financial statements.
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
Interest Income
Loans, Including Fees
Federal Funds Sold and Securities Purchased Under Agreements to Resell
Deposits with Other Banks
Investment Securities
U. S. Government Agencies
State, County and Municipal
Corporate Obligations
Dividends on Other Investments
Interest Expense
Deposits
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
Borrowed Money
Net Interest Income
Provision for Loan Losses
2012
2011
2010
$41,963,113
99,273
42,903
$44,460,149
114,794
45,646
$ 51,728,665
95,428
38,085
4,824,423
206,483
76,029
77,203
6,873,296
160,892
91,034
47,001
6,613,030
103,133
137,831
21,547
47,289,427
51,792,812
58,737,719
8,737,281
-
2,279,469
12,950,229
337,711
3,517,633
17,212,312
721,044
3,589,847
11,016,750
16,805,573
21,523,203
36,272,677
34,987,239
37,214,516
6,784,767
8,250,000
13,350,000
Net Interest Income After Provision for Loan Losses
29,487,910
26,737,239
23,864,516
Noninterest Income
Service Charges on Deposits
Other Service Charges, Commissions and Fees
Mortgage Fee Income
Securities Gains
Gain on Sale of SBA Loans
Other
Noninterest Expenses
Salaries and Employee Benefits
Occupancy and Equipment
Directors’ Fees
Legal and Professional Fees
Foreclosed Property
FDIC Assessment
Advertising
Software
Telephone
Other
3,572,897
1,514,898
400,009
2,837,464
305,924
1,102,077
3,244,536
1,311,758
265,636
2,923,601
946,732
1,258,813
3,597,416
1,139,935
313,005
2,617,062
1,004,585
1,334,846
9,733,269
9,951,076
10,006,849
15,564,893
3,878,268
465,220
1,085,881
5,613,316
1,497,974
422,718
789,226
744,930
5,316,604
14,632,693
3,997,667
466,075
1,186,884
4,045,245
1,828,799
508,329
660,120
735,758
4,989,267
14,096,698
4,422,152
495,950
1,369,864
4,943,530
1,866,956
743,278
630,543
703,786
4,583,606
35,379,030
33,050,837
33,856,363
Income Before Income Taxes (Benefits)
3,842,149
3,637,478
15,002
Income Taxes (Benefits)
Net Income
Preferred Stock Dividends
1,200,851
1,103,883
(459,214)
2,641,298
1,435,385
2,533,595
1,400,000
474,216
1,400,000
Net Income (Loss) Available to Common Stockholders
$ 1,205,913
$ 1,133,595
$ (925,784)
Net Income (Loss) Per Share of Common Stock
Basic
Diluted
$ 0.14
$ 0.13
$ (0.11)
$ 0.14
$ 0.13
$ (0.11)
Cash Dividends Declared Per Share of Common Stock
$ 0.00
$ 0.00
$ 0.00
Weighted Average Shares Outstanding
8,439,258
8,439,258
8,149,217
See accompanying notes which are an integral part of these financial statements.
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31
2012
2011
2010
Net Income
$ 2,641,298
$ 2,533,595
$ 474,216
Other Comprehensive Income, Net of Tax
Gains (Losses) on Securities
Arising During the Year
Reclassification Adjustment
Change in Net Unrealized Gains (Losses) on
Securities Available for Sale, Net of
Reclassification Adjustment and Tax Effects
(186,830)
(1,872,726)
4,439,108
(1,929,577)
1,227,281
(1,727,261)
(2,059,556)
2,509,531
(499,980)
Comprehensive Income (Loss)
$ 581,742
$ 5,043,126
$ (25,764)
See accompanying notes which are an integral part of these financial statements.
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
Preferred
Stock
Shares
Issued
Common
Stock
Paid-In
Capital
Retained
Earnings
Restricted
Stock -
Unearned
Compensation
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance, December 31, 2009
$27,356,964
7,229,163
$7,229,163
$25,392,913
$29,553,941
$(158,548)
$ (99,809)
$89,274,624
Issuance of Common Stock
Forfeiture of Restricted Stock
Tax Loss on Restricted Stock
Amortization of Unearned Compensation
Change in Net Unrealized Gains (Losses) on
Securities Available for Sale, Net of
Reclassification Adjustment and Tax Effects
Accretion of Fair Value of Warrant
Dividends on Preferred Shares
Net Income
1,216,545
(2,750)
1,216,545
(2,750)
3,861,710
(27,570)
(55,966)
148,946
(148,946)
(1,400,000)
474,216
30,320
87,434
(499,980)
5,078,255
-
(55,966)
87,434
(499,980)
-
(1,400,000)
474,216
Balance, December 31, 2010
27,505,910
8,442,958
8,442,958
29,171,087
28,479,211
(40,794)
(599,789)
92,958,583
Forfeiture of Restricted Stock
Amortization of Unearned Compensation
Change in Net Unrealized Gains (Losses) on
Securities Available for Sale, Net of
Reclassification Adjustment and Tax Effects
Accretion of Fair Value of Warrant
Dividends on Preferred Shares
Net Income
156,566
(3,700)
(3,700)
(25,993)
29,693
11,101
(156,566)
(1,400,000)
2,533,595
2,509,531
-
11,101
2,509,531
-
(1,400,000)
2,533,595
Balance, December 31, 2011
27,662,476
8,439,258
8,439,258
29,145,094
29,456,240
-
1,909,742
96,612,810
Change in Net Unrealized Gains (Losses) on
Securities Available for Sale, Net of
Reclassification Adjustment and Tax Effects
Accretion of Fair Value of Warrant
Dividends on Preferred Shares
Net Income
164,577
(164,577)
(1,435,385)
2,641,298
(2,059,556)
(2,059,556)
-
(1,435,385)
2,641,298
Balance, December 31, 2012
$27,827,053
8,439,258
$8,439,258
$29,145,094
$30,497,576
$ -
$ (149,814)
$95,759,167
See accompanying notes which are an integral part of these financial statements.
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
Cash Flows from Operating Activities
Net Income
Adjustments to Reconcile Net Income to Net
Cash Provided from Operating Activities
Depreciation
Amortization and Accretion
Provision for Loan Losses
Deferred Income Taxes
Securities Gains
Loss on Sale of Premises and Equipment
Loss on Sale of Other Real Estate and Repossessions
Provision for Losses on Other Real Estate
Increase in Cash Surrender Value of Life Insurance
Change In
Interest Receivable
Prepaid Expenses
Interest Payable
Accrued Expenses and Accounts Payable
Other
Cash Flows from Investing Activities
Interest-Bearing Deposits in Other Banks
Purchase of Investment Securities
Available for Sale
Proceeds from Sale of Investment Securities
Available for Sale
Proceeds from Maturities, Calls and Paydowns
of Investment Securities
Available for Sale
Held to Maturity
Proceeds from Sale of Premises and Equipment
Net Loans to Customers
Purchase of Premises and Equipment
Proceeds from Sale of Other Real Estate and Repossessions
Proceeds from Sale of Federal Home Loan Bank Stock
Cash Flows from Financing Activities
Interest-Bearing Customer Deposits
Noninterest-Bearing Customer Deposits
Proceeds from Other Borrowed Money
Principal Payments on Other Borrowed Money
Dividends Paid on Preferred Stock
Issuance of Common Stock
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
2012
2011
2010
$ 2,641,298
$ 2,533,595
$ 474,216
1,676,820
4,180,158
6,784,767
1,204,439
(2,837,464)
1,148
1,839,196
2,702,709
(185,341)
250,755
1,741,834
74,637
(95,972)
2,827,648
1,790,041
3,487,124
8,250,000
867,006
(2,923,601)
3,668
1,106,479
1,411,061
(174,289)
739,423
1,861,810
(398,903)
(405,612)
(2,987,906)
2,140,735
4,043,795
13,350,000
639,607
(2,617,062)
28,146
1,827,704
1,293,174
(56,024)
1,325,068
2,006,032
(452,764)
(148,591)
3,500,575
22,806,632
15,159,896
27,354,611
7,161,969
21,769,424
(44,247,933)
(250,445,594)
(381,284,748)
(380,490,982)
227,690,806
342,672,937
286,387,727
54,006,594
14,019
1,500
(50,126,252)
(845,338)
9,876,136
2,033,900
41,978,769
12,565
1,605
63,267,200
(397,825)
9,991,792
665,300
55,648,274
14,001
-
88,105,734
(490,256)
9,866,063
281,900
(632,260)
98,677,019
15,074,528
(49,998,012)
29,697,631
5,000,000
(41,000,000)
-
-
-
(50,448,220)
(8,690,512)
-
(4,076,010)
(1,400,000)
-
(20,000,000)
(17,183,061)
18,720,584
23,076,010
(39,000,000)
(1,400,000)
5,078,255
(20,000,000)
(56,300,381)
(84,614,742)
(30,708,212)
Net Increase (Decrease) in Cash and Cash Equivalents
(34,126,009)
29,222,173
11,720,927
Cash and Cash Equivalents, Beginning
83,371,842
54,149,669
42,428,742
Cash and Cash Equivalents, Ending
$ 49,245,833
$ 83,371,842
$ 54,149,669
See accompanying notes which are an integral part of these financial statements.
COLONY BANKCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Principles of Consolidation
Colony Bankcorp, Inc. (the Company) is a bank holding company located in Fitzgerald, Georgia. The
consolidated financial statements include the accounts of Colony Bankcorp, Inc. and its wholly-owned
subsidiary, Colony Bank, Fitzgerald, Georgia. All significant intercompany accounts have been eliminated in
consolidation. The accounting and reporting policies of Colony Bankcorp, Inc. conform to generally accepted
accounting principles and practices utilized in the commercial banking industry.
Nature of Operations
The Company provides a full range of retail and commercial banking services for consumers and small- to
medium-size businesses located primarily in central, south and coastal Georgia. Colony Bank is headquartered
in Fitzgerald, Georgia with banking offices in Albany, Ashburn, Broxton, Centerville, Chester, Columbus,
Cordele, Douglas, Eastman, Fitzgerald, Leesburg, Moultrie, Pitts, Quitman, Rochelle, Savannah, Soperton,
Sylvester, Thomaston, Tifton, Valdosta and Warner Robins. Lending and investing activities are funded
primarily by deposits gathered through its retail banking office network.
Use of Estimates
In preparing the financial statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the
period. Actual results could differ significantly from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to the determination of the allowance for loan losses,
the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans and the
valuation of deferred tax assets.
Reclassifications
In certain instances, amounts reported in prior years’ consolidated financial statements and note disclosures
have been reclassified to conform to statement presentations selected for 2012. Such reclassifications had no
effect on previously reported stockholders’ equity or net income.
(1) Summary of Significant Accounting Policies (Continued)
Concentrations of Credit Risk
Concentrations of credit risk can exist in relation to individual borrowers or groups of borrowers, certain
types of collateral, certain types of industries or certain geographic regions. The Company has a
concentration in real estate loans as well as a geographic concentration that could pose an adverse credit
risk, particularly with the current economic downturn in the real estate market. At December 31, 2012,
approximately 87 percent of the Company’s loan portfolio was concentrated in loans secured by real
estate. A substantial portion of borrowers’ ability to honor their contractual obligations is dependent upon
the viability of the real estate economic sector. The downturn of the housing and real estate market that
began in 2007 resulted in an increase of problem loans secured by real estate, of which most are centered
in the Company’s larger MSA markets. Declining collateral real estate values that secure land
development, construction and speculative real estate loans in the Company’s larger MSA markets have
resulted in high loan loss provisions in recent years. In addition, a large portion of the Company’s
foreclosed assets are also located in these same geographic markets, making the recovery of the carrying
amount of foreclosed assets susceptible to changes in market conditions. Management continues to
monitor these concentrations and has considered these concentrations in its allowance for loan loss
analysis.
The success of the Company is dependent, to a certain extent, upon the economic conditions in the
geographic markets it serves. Adverse changes in the economic conditions in these geographic markets
would likely have a material adverse effect on the Company’s results of operations and financial
condition. The operating results of the Company depend primarily on its net interest income.
Accordingly, operations are subject to risks and uncertainties surrounding the exposure to changes in the
interest rate environment.
At times, the Company may have cash and cash equivalents at financial institutions in excess of federal
deposit insurance limits. The Company places its cash and cash equivalents with high credit quality
financial institutions whose credit rating is monitored by management to minimize credit risk.
Investment Securities
The Company classifies its investment securities as trading, available for sale or held to maturity.
Securities that are held principally for resale in the near term are classified as trading. Trading securities
are carried at fair value, with realized and unrealized gains and losses included in noninterest income.
Currently, no securities are classified as trading. Securities acquired with both the intent and ability to be
held to maturity are classified as held to maturity and reported at amortized cost. All securities not
classified as trading or held to maturity are considered available for sale. Securities available for sale are
reported at estimated fair value. Unrealized gains and losses on securities available for sale are excluded
from earnings and are reported, net of deferred taxes, in accumulated other comprehensive income (loss),
a component of stockholders’ equity. Gains and losses from sales of securities available for sale are
computed using the specific identification method. Securities available for sale includes securities, which
may be sold to meet liquidity needs arising from unanticipated deposit and loan fluctuations, changes in
regulatory capital requirements, or unforeseen changes in market conditions.
(1) Summary of Significant Accounting Policies (Continued)
Investment Securities (Continued)
The Company evaluates each held to maturity and available for sale security in a loss position for other-
than-temporary impairment (OTTI). In estimating other-than-temporary impairment losses, management
considers such factors as the length of time and the extent to which the market value has been below cost,
the financial condition of the issuer and the Company’s intent to sell and whether it is more likely than not
that the Company will be required to sell the security before anticipated recovery of the amortized cost
basis. If the Company intends to sell or if it is more likely than not that the Company will be required to
sell the security before recovery, the OTTI write-down is recognized in earnings. If the Company does
not intend to sell the security or it is not more likely than not that it will be required to sell the security
before recovery, the OTTI write-down is separated into an amount representing credit loss, which is
recognized in earnings, and an amount related to all other factors, which is recognized in other
comprehensive income (loss).
Federal Home Loan Bank Stock
Investment in stock of a Federal Home Loan Bank (FHLB) is required for every federally insured
institution that utilizes its services. FHLB stock is considered restricted, as defined in the accounting
standards. The FHLB stock is reported in the consolidated financial statements at cost. Dividend income
is recognized when earned.
Loans
Loans that the Company has the ability and intent to hold for the foreseeable future or until maturity are
recorded at their principal amount outstanding, net of unearned interest and fees. Loan origination fees,
net of certain direct origination costs, are deferred and amortized over the estimated terms of the loans
using the straight-line method. Interest income on loans is recognized using the effective interest method.
A loan is considered to be delinquent when payments have not been made according to contractual terms,
typically evidenced by nonpayment of a monthly installment by the due date.
When management believes there is sufficient doubt as to the collectibility of principal or interest on any
loan or generally when loans are 90 days or more past due, the accrual of applicable interest is
discontinued and the loan is designated as nonaccrual, unless the loan is well secured and in the process of
collection. Interest payments received on nonaccrual loans are either applied against principal or reported
as income, according to management’s judgment as to the collectibility of principal. Loans are returned
to an accrual status when factors indicating doubtful collectibility on a timely basis no longer exist.
Loans Modified in a Troubled Debt Restructuring (TDR)
Loans are considered to have been modified in a TDR when, due to a borrower’s financial difficulty, the
Company makes certain concessions to the borrower that it would not otherwise consider for new debt
with similar risk characteristics. Modifications may include interest rate reductions, principal or interest
forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure
or repossession of the collateral. Generally, a nonaccrual loan that has been modified in a TDR remains
on nonaccrual status for a period of six months to demonstrate that the borrower is able to meet the terms
of the modified loan. However, performance prior to the modification, or significant events that coincide
with the modification, are included in assessing whether the borrower can meet the new terms and may
result in the loan being returned to accrual status at the time of loan modification or after a shorter
performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan
remains on nonaccrual status. Once a loan is modified in a troubled debt restructuring, it is accounted for
as an impaired loan, regardless of its accrual status, until the loan is paid in full, sold or charged off.
(1) Summary of Significant Accounting Policies (Continued)
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision
for loan losses charged to earnings. Loan losses are charged against the allowance when management
believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to
the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon
management’s periodic review of the collectibility of the loans in light of historical experience, the nature
and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay,
estimated value of any underlying collateral and prevailing economic conditions. This evaluation is
inherently subjective, as it requires estimates that are susceptible to significant revisions as more
information becomes available.
The allowance consists of specific, historical and general components. The specific component relates to
loans that are classified as either doubtful, substandard or special mention. For such loans that are also
classified as impaired, an allowance is established when the discounted cash flows (or collateral value or
observable market price) of the impaired loan is lower than the carrying value of that loan. The historical
component covers nonclassified loans and is based on historical loss experience adjusted for qualitative
factors. A general component is maintained to cover uncertainties that could affect management’s
estimate of probable losses. The general component of the allowance reflects the margin of imprecision
inherent in the underlying assumptions used in the methodologies for estimating specific and historical
losses in the portfolio. General valuation allowances are based on internal and external qualitative risk
factors such as (1) changes in the composition of the loan portfolio, (2) the extent of loan concentrations
within the portfolio, (3) the effectiveness of the Company’s lending policies, procedures and internal
controls, (4) the experience, ability and effectiveness of the Company’s lending management and staff,
and (5) national and local economics and business conditions.
Loans identified as losses by management, internal loan review and/or Bank examiners are charged off.
A loan is considered impaired when, based on current information and events, it is probable that the
Company will be unable to collect the scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. Factors considered by management in determining
impairment include payment status, collateral value and the probability of collecting scheduled principal
and interest payments when due. Loans that experience insignificant payment delays and payment
shortfalls generally are not classified as impaired. Management determines the significance of payment
delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the
borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest
owed. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash
flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of
the collateral if the loan is collateral dependent.
(1) Summary of Significant Accounting Policies (Continued)
Allowance for Loan Losses (Continued)
A significant portion of the Company’s impaired loans are deemed to be collateral dependent.
Management therefore measures impairment on these loans based on the fair value of the collateral.
Collateral values are determined based on appraisals performed by qualified licensed appraisers hired by
the Company or by senior members of the Company’s credit administration staff. The decision whether
or not to obtain an external third-party appraisal usually depends on the type of property being evaluated.
External appraisals are usually obtained on more complex, income producing properties such as hotels,
shopping centers and businesses. Less complex properties such as residential lots, farm land and single
family houses may be evaluated internally by senior credit administration staff. When the Company does
obtain appraisals from external third-parties, the values utilized in the impairment calculation are “as is”
or current market values. The appraisals, whether prepared internally or externally, may utilize a single
valuation approach or a combination of approaches including the comparable sales, income and cost
approach. Appraised amounts used in the impairment calculation are typically discounted 10 percent to
account for selling and marketing costs, if the repayment of the loan is to come from the sale of the
collateral. Although appraisals are not obtained each year on all impaired loans, the collateral values used
in the impairment calculations are evaluated quarterly by management. Based on management’s
knowledge of the collateral and the current real estate market conditions, appraised values may be further
discounted to reflect facts and circumstances known to management since the initial appraisal was
performed.
Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences
between the comparable sales and income data available. Such adjustments are typically significant and
result in a level 3 classification of the inputs for determining fair value. Because of the high degree of
judgment required in estimating the fair value of collateral underlying impaired loans and because of the
relationship between fair value and general economic conditions, we consider the fair value of impaired
loans to be highly sensitive to changes in market conditions.
Premises and Equipment
Premises and equipment are recorded at acquisition cost net of accumulated depreciation.
Depreciation is charged to operations over the estimated useful lives of the assets. The estimated useful
lives and methods of depreciation are as follows:
Description
Life in Years
Method
Banking Premises
Furniture and Equipment
15-40
5-10
Straight-Line and Accelerated
Straight-Line and Accelerated
Expenditures for major renewals and betterments are capitalized. Maintenance and repairs are charged to
operations as incurred. When property and equipment are retired or sold, the cost and accumulated
depreciation are removed from the respective accounts and any gain or loss is reflected in other income or
expense.
Intangible Assets
Intangible assets consist of core deposit intangibles acquired in connection with a business combination.
The core deposit intangible is initially recognized based on an independent valuation performed as of the
consummation date. The core deposit intangible is amortized by the straight-line method over the average
remaining life of the acquired customer deposits.
(1) Summary of Significant Accounting Policies (Continued)
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered.
Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from
the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not
maintain effective control over the transferred assets through an agreement to repurchase them before
their maturity.
Statement of Cash Flows
For reporting cash flows, cash and cash equivalents include cash on hand, noninterest-bearing amounts
due from banks, federal funds sold and securities purchased under agreement to resell. Cash flows from
demand deposits, NOW accounts, savings accounts, loans and certificates of deposit are reported net.
Securities Purchased Under Agreement to Resell and Securities Sold Under Agreements to
Repurchase
The Company purchases certain securities under agreements to resell. The amounts advanced under these
agreements represent short-term loans and are reflected as assets in the consolidated balance sheets.
The Company sells securities under agreements to repurchase. These repurchase agreements are treated
as borrowings. The obligations to repurchase securities sold are reflected as a liability and the securities
underlying the agreements are reflected as assets in the consolidated balance sheets.
Advertising Costs
The Company expenses the cost of advertising in the periods in which those costs are incurred.
Income Taxes
The provision for income taxes is based upon income for financial statement purposes, adjusted for
nontaxable income and nondeductible expenses. Deferred income taxes have been provided when
different accounting methods have been used in determining income for income tax purposes and for
financial reporting purposes.
Deferred tax assets and liabilities are recognized based on future tax consequences attributable to
differences arising from the financial statement carrying values of assets and liabilities and their tax bases.
The differences relate primarily to depreciable assets (use of different depreciation methods for financial
statement and income tax purposes) and allowance for loan losses (use of the allowance method for
financial statement purposes and the direct write-off method for tax purposes). In the event of changes in
the tax laws, deferred tax assets and liabilities are adjusted in the period of the enactment of those
changes, with effects included in the income tax provision. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The Company and its subsidiary file a consolidated federal
income tax return. The subsidiary pays its proportional share of federal income taxes to the Company
based on its taxable income.
The Company’s federal and state income tax returns for tax years 2012, 2011, 2010 and 2009 are subject
to examination by the Internal Revenue Service (IRS) and the Georgia Department of Revenue, generally
for three years after filing.
(1) Summary of Significant Accounting Policies (Continued)
Income Taxes (Continued)
Positions taken in the Company’s tax returns may be subject to challenge by the taxing authorities upon
examination. Uncertain tax positions are initially recognized in the consolidated financial statements
when it is more likely than not the position will be sustained upon examination by the tax authorities.
Such tax positions are both initially and subsequently measured as the largest amount of tax benefit that is
greater than 50 percent likely of being realized upon settlement with the tax authority, assuming full
knowledge of the position and all relevant facts. The Company provides for interest and, in some cases,
penalties on tax positions that may be challenged by the taxing authorities. Interest expense is recognized
beginning in the first period that such interest would begin accruing. Penalties are recognized in the
period that the Company claims the position in the tax return. Interest and penalties on income tax
uncertainties are classified within income tax expense in the consolidated statements of operations.
Other Real Estate
Other real estate generally represents real estate acquired through foreclosure and is initially recorded at
estimated fair value at the date of acquisition less the cost of disposal. Losses from the acquisition of
property in full or partial satisfaction of debt are recorded as loan losses. Properties are evaluated
regularly to ensure the recorded amounts are supported by current fair values, and valuation allowances
are recorded as necessary to reduce the carrying amount to fair value less estimated cost of disposal.
Routine holding costs and gains or losses upon disposition are included in foreclosed property expense.
Comprehensive Income
Accounting principles generally require that recognized revenue, expenses, gains and losses be included
in net income. Certain changes in assets and liabilities, such as unrealized gains and losses on securities
available for sale, represent equity changes from economic events of the period other than transactions
with owners. Such items are considered components of other comprehensive income (loss). Accounting
standards codification requires the presentation in the consolidated financial statements of net income and
all items of other comprehensive income (loss) as total comprehensive income (loss).
Off-Balance Sheet Credit Related Financial Instruments
In the ordinary course of business, the Company has entered into commitments to extend credit,
commercial letters of credit and standby letters of credit. Such financial instruments are recorded on the
balance sheet when they are funded.
Changes in Accounting Principles and Effects of New Accounting Pronouncements
Adoption of New Accounting Standards
ASU No. 2011-03, “Transfers and Servicing (Topic 860) - Reconsideration of Effective Control for
Repurchase Agreements.” ASU 2011-03 is intended to improve financial reporting of repurchase
agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem
financial assets before their maturity. ASU 2011-03 removes from the assessment of effective control (i)
the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on
substantially the agreed terms, even in the event of default by the transferee, and (ii) the collateral
maintenance guidance related to that criterion. ASU 2011-03 became effective for the Company on
January 1, 2012 and did not have a significant impact on the Company’s consolidated financial
statements.
(1) Summary of Significant Accounting Policies (Continued)
Changes in Accounting Principles and Effects of New Accounting Pronouncements (Continued)
Adoption of New Accounting Standards (Continued)
ASU 2011-04, “Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value
Measurements and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU 2011-04 amends Topic
820, “Fair Value Measurements and Disclosures,” to converge the fair value measurement guidance in
U.S. generally accepted accounting principles and International Financial Reporting Standards. ASU
2011-04 clarifies the application of existing fair value measurement requirements, changes certain
principles in Topic 820 and requires additional fair value disclosures. ASU 2011-04 became effective for
the Company on January 1, 2012 and, aside from new disclosures included in Note 20 - Fair Value of
Financial Instruments and Fair Value Measurements, did not have a significant impact on the Company’s
consolidated financial statements.
ASU 2011-05, “Comprehensive Income (Topic 220) - Presentation of Comprehensive Income.” ASU
2011-05 amends Topic 220, “Comprehensive Income,” to require that all nonowner changes in
stockholders’ equity be presented in either a single continuous statement of comprehensive income or in
two separate but consecutive statements. Additionally, ASU 2011-05 requires entities to present, on the
face of the financial statements, reclassification adjustments for items that are reclassified from other
comprehensive income to net income in the statement or statements where the components of net income
and the components of other comprehensive income are presented. The option to present components of
other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated.
ASU 2011-05 became effective for the Company on January 1, 2012; however, certain provisions related
to the presentation of reclassification adjustments have been deferred by ASU 2011-12 “Comprehensive
Income (Topic 220) - Deferral of the Effective Date for Amendments to the Presentation of
Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards
Update No. 2011-05,” as further discussed below.
ASU 2011-12, “Comprehensive Income (Topic 220) - Deferral of the Effective Date for Amendments to
the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in
Accounting Standards Update No. 2011-05.” ASU 2011-12 defers changes in ASU No. 2011-05 that
relate to the presentation of reclassification adjustments to allow the FASB time to redeliberate whether to
require presentation of such adjustments on the face of the financial statements to show the effects of
reclassifications out of accumulated other comprehensive income on the components of net income and
other comprehensive income. ASU 2011-12 allows entities to continue to report reclassifications out of
accumulated other comprehensive income consistent with the presentation requirements in effect before
ASU No. 2011-05. All other requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12.
ASU 2011-12 became effective for the Company on January 1, 2012 and did not have a significant impact
on the Company’s consolidated financial statements.
Recently Issued But Not Yet Effective Accounting Standards
ASU 2011-11, “Balance Sheet (Topic 210) - “Disclosures about Offsetting Assets and Liabilities.” ASU
2011-11 amends Topic 210, “Balance Sheet,” to require an entity to disclose both gross and net
information about financial instruments, such as sales and repurchase agreements and reverse sale and
repurchase agreements and securities borrowing/lending arrangements, and derivative instruments that are
eligible for offset in the consolidated balance sheet and/or subject to a master netting arrangement or
similar agreement. ASU No. 2013-01, “Balance Sheet (Topic 210) - Clarifying the Scope of Disclosures
about Offsetting Assets and Liabilities,” clarifies that ordinary trade receivables are not within the scope
of ASU 2011-11. ASU 2011-11 is effective for annual and interim periods beginning on January 1, 2013,
and is not expected to have a significant impact on the Company’s consolidated financial statements.
(2) Cash and Balances Due from Banks
Components of cash and balances due from banks are as follows as of December 31:
Cash on Hand and Cash Items
Noninterest-Bearing Deposits with Other Banks
2012
2011
$ 9,063,437
20,180,490
$ 9,271,705
19,108,663
$29,243,927
$28,380,368
The Company is required to maintain reserve balances in cash or on deposit with the Federal Reserve
Bank based on a percentage of deposits. Reserve balances totaled approximately $6,065,000 and
$4,183,000 at December 31, 2012 and 2011, respectively.
(3) Investment Securities
Investment securities as of December 31, 2012 are summarized as follows:
Securities Available for Sale
U.S. Government Agencies
Mortgage-Backed
State, County and Municipal
Corporate Obligations
Asset-Backed Securities
Securities Held to Maturity
State, County and Municipal
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$263,186,852
3,973,926
1,000,000
366,623
$833,920
34,670
104,900
-
$ (961,698)
(4,586)
-
(234,196)
$263,059,074
4,004,010
1,104,900
132,427
$268,527,401
$973,490
$(1,200,480)
$268,300,411
$ 41,467
$ 442
$ -
$ 41,909
The amortized cost and fair value of investment securities as of December 31, 2012, by contractual
maturity, are shown hereafter. Expected maturities may differ from contractual maturities for certain
investments because issuers may have the right to call or prepay obligations with or without call or
prepayment penalties. This is often the case with mortgage-backed securities, which are disclosed
separately in the table below.
Securities
Available for Sale
Amortized
Cost
Fair
Value
Held to Maturity
Fair
Value
Amortized
Cost
Due in One Year or Less
Due After One Year Through Five Years
Due After Five Years Through Ten Years
Due After Ten Years
$ 125,000
2,758,034
1,882,647
574,868
$ 125,665
2,892,955
1,882,228
340,489
$ -
41,467
-
-
Mortgage-Backed Securities
5,340,549
263,186,852
5,241,337
263,059,074
41,467
-
$ -
41,909
-
-
41,909
-
$268,527,401
$268,300,411
$41,467
$41,909
(3) Investment Securities (Continued)
Investment securities as of December 31, 2011 are summarized as follows:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Securities Available for Sale
U.S. Government Agencies
Mortgage-Backed
State, County and Municipal
Corporate Obligations
Asset-Backed Securities
Securities Held to Maturity
State, County and Municipal
$291,096,606
7,474,500
2,000,000
426,191
$3,152,095
132,226
123,930
-
$(187,902)
(23,035)
(10,000)
(293,764)
$294,060,799
7,583,691
2,113,930
132,427
$300,997,297
$3,408,251
$(514,701)
$303,890,847
$ 46,111
$ -
$ (476)
$ 45,635
Proceeds from sales of investments available for sale were $227,690,806 in 2012, $342,672,937 in 2011
and $286,387,727 in 2010. Gross realized gains totaled $3,084,666 in 2012, $2,978,193 in 2011 and
$2,617,062 in 2010. Gross realized losses totaled $247,202 in 2012, $54,592 in 2011 and $0 in 2010.
Nonaccrual securities are securities for which principal and interest are doubtful of collection in
accordance with original terms and for which accruals of interest have been discontinued due to payment
delinquency. Fair value of securities on nonaccrual status totaled $132,427 as of December 31, 2012 and
2011.
Investment securities having a carrying value totaling $117,450,817 and $136,838,456 as of
December 31, 2012 and 2011, respectively, were pledged to secure public deposits and for other purposes.
Information pertaining to securities with gross unrealized losses at December 31, 2012 and 2011
aggregated by investment category and length of time that individual securities have been in a continuous
loss position, follows:
December 31, 2012
U.S. Government Agencies
Mortgage-Backed
State, County and Municipal
Asset-Backed Securities
December 31, 2011
U.S. Government Agencies
Mortgage-Backed
State, County and Municipal
Corporate Obligations
Asset-Backed Securities
Less Than 12 Months
Gross
Unrealized
Losses
Fair
Value
12 Months or Greater
Gross
Unrealized
Losses
Fair
Value
Total
Fair
Value
Gross
Unrealized
Losses
$142,103,991
1,430,512
-
$(961,698)
(4,586)
-
$ -
-
132,427
$ -
-
(234,196)
$142,103,991
1,430,512
132,427
$ (961,698)
(4,586)
(234,196)
$143,534,503
$(966,284)
$132,427
$(234,196)
$143,666,930
$(1,200,480)
$ 26,439,317
1,224,119
-
-
$(187,902)
(21,704)
-
-
$ -
73,193
990,000
132,427
$ -
(1,807)
(10,000)
(293,764)
$ 26,439,317
1,297,312
990,000
132,427
$ (187,902)
(23,511)
(10,000)
(293,764)
$ 27,663,436
$(209,606)
$1,195,620
$(305,571)
$ 28,859,056
$ (515,177)
(3) Investment Securities (Continued)
Management evaluates securities for other than temporary impairment at least on a quarterly basis, and
more frequently when economic or market concerns warrant such evaluation. Consideration is given to
(1) the length of time and the extent to which the fair value has been less than cost, (2) the financial
condition and near-term prospects of the issuer and (3) the intent and ability of the Company to retain its
investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
At December 31, 2012, the debt securities with unrealized losses have depreciated 0.84 percent from the
Company’s amortized cost basis. These securities are guaranteed by either the U.S. Government, other
governments or U.S. corporations, except for asset-backed securities. In analyzing an issuer’s financial
condition, management considers whether the securities are issued by the federal government or its
agencies, whether downgrades by bond rating agencies have occurred and the results of reviews of the
issuer’s financial condition. The unrealized losses are largely due to increases in market interest rates
over the yields available at the time the underlying securities were purchased. As management has the
ability to hold debt securities until maturity, or for the foreseeable future if classified as available-for-sale,
no declines are deemed to be other than temporary. However, the Company did own one asset-backed
security at December 31, 2012 which has been in a continuous unrealized loss position for more than 12
months. This investment is comprised of one issuance of a trust preferred security, has a book value of
$366,623 and an unrealized loss of $234,196. Management evaluates this investment on a quarterly basis
utilizing a third-party valuation model. The results of this model revealed other-than-temporary
impairment and as a result, $59,568, $53,058 and $520,751 were written off during the years ended
December 31, 2012, 2011 and 2009, respectively. The Company does not intend to sell this investment,
nor does the Company consider it likely that it will be required to sell the investment prior to recovery of
the remaining fair value.
(4) Loans
The following table presents the composition of loans, segregated by class of loans, as of December 31:
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
Total Loans
2012
2011
$ 55,684,492
6,210,953
$ 48,986,102
8,421,884
53,808,056
5,852,238
334,386,177
203,844,522
49,056,861
58,545,820
3,530,502
315,280,748
193,637,817
48,225,406
29,777,776
8,428,936
30,449,303
9,243,739
$747,050,011
$716,321,321
(4) Loans (Continued)
Commercial and agricultural loans are extended to a diverse group of businesses within the Company’s
market area. These loans are often underwritten based on the borrower’s ability to service the debt from
income from the business. Real estate construction loans often require loan funds to be advanced prior to
completion of the project. Due to uncertainties inherent in estimating construction costs, changes in
interest rates and other economic conditions, these loans often pose a higher risk than other types of loans.
Consumer loans are originated at the bank level. These loans are generally smaller loan amounts spread
across many individual borrowers to help minimize risk.
Credit Quality Indicators. As part of the ongoing monitoring of the credit quality of the loan portfolio,
management tracks certain credit quality indicators including trends related to (1) the risk grade assigned
to commercial and consumer loans, (2) the level of classified commercial loans, (3) net charge-offs, (4)
nonperforming loans, and (5) the general economic conditions in the Company’s geographic markets.
The Company uses a risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a
scale of 1 to 8. A description of the general characteristics of the grades is as follows:
Grades 1 and 2 - Borrowers with these assigned grades range in risk from virtual absence of risk to
minimal risk. Such loans may be secured by Company-issued and controlled certificates of
deposit or properly margined equity securities or bonds. Other loans comprising these grades are
made to companies that have been in existence for a long period of time with many years of
consecutive profits and strong equity, good liquidity, excellent debt service ability and
unblemished past performance, or to exceptionally strong individuals with collateral of
unquestioned value that fully secures the loans. Loans in this category fall into the “pass”
classification.
Grades 3 and 4 - Loans assigned these “pass” risk grades are made to borrowers with acceptable
credit quality and risk. The risk ranges from loans with no significant weaknesses in repayment
capacity and collateral protection to acceptable loans with one or more risk factors considered to
be more than average.
Grade 5 - This grade includes “special mention” loans on management’s watch list and is intended
to be used on a temporary basis for pass grade loans where risk-modifying action is intended in the
short-term.
Grade 6 - This grade includes “substandard” loans in accordance with regulatory guidelines. This
category includes borrowers with well-defined weaknesses that jeopardize the payment of the debt
in accordance with the agreed terms. Loans considered to be impaired are assigned this grade, and
these loans often have assigned loss allocations as part of the allowance for loan and lease losses.
Generally, loans on which interest accrual has been stopped would be included in this grade.
Grades 7 and 8 - These grades correspond to regulatory classification definitions of “doubtful” and
“loss,” respectively. In practice, any loan with these grades would be for a very short period of
time, and generally the Company has no loans with these assigned grades. Management manages
the Company’s problem loans in such a way that uncollectible loans or uncollectible portions of
loans are charged off immediately with any residual, collectible amounts assigned a risk grade
of 6.
(4) Loans (Continued)
The following tables present the loan portfolio by credit quality indicator (risk grade) as of December 31.
Those loans with a risk grade of 1, 2, 3 or 4 have been combined in the pass column for presentation
purposes.
2012
Pass
Special Mention
Substandard
Total Loans
Commercial and Agricultural
Commercial
Agricultural
$ 49,947,552
6,155,864
$ 1,417,735
-
$ 4,319,205
55,089
$ 55,684,492
6,210,953
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
37,256,301
5,748,829
298,222,139
183,222,020
45,495,038
1,663,588
103,409
9,759,473
11,412,973
913,487
14,888,167
-
26,404,565
9,209,529
2,648,336
53,808,056
5,852,238
334,386,177
203,844,522
49,056,861
28,839,058
8,350,772
293,467
8,907
645,251
69,257
29,777,776
8,428,936
Total Loans
$663,237,573
$25,573,039
$58,239,399
$747,050,011
2011
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
$ 42,586,230
8,153,224
$ 1,480,726
-
$ 4,919,146
268,660
$ 48,986,102
8,421,884
28,745,596
3,227,392
272,062,206
175,099,480
43,664,126
2,814,113
303,110
14,789,290
8,343,336
1,413,476
26,986,111
-
28,429,252
10,195,001
3,147,804
58,545,820
3,530,502
315,280,748
193,637,817
48,225,406
29,372,493
9,028,428
361,714
99,418
715,096
115,893
30,449,303
9,243,739
Total Loans
$611,939,175
$29,605,183
$74,776,963
$716,321,321
A loan’s risk grade is assigned at the inception of the loan and is based on the financial strength of the
borrower and the type of collateral. Loan risk grades are subject to reassessment at various times
throughout the year as part of the Company’s ongoing loan review process. Loans with an assigned risk
grade of 6 or below and an outstanding balance of $50,000 or more are reassessed on a quarterly basis.
During this reassessment process individual reserves may be identified and placed against certain loans
which are not considered impaired.
In assessing the overall economic condition of the markets in which it operates, the Company monitors
the unemployment rates for its major service areas. The unemployment rates are reviewed on a quarterly
basis as part of the allowance for loan loss determination.
(4) Loans (Continued)
Loans are considered past due if the required principal and interest payments have not been received as of
the date such payments were due. Generally, loans are placed on nonaccrual status if principal or interest
payments become 90 days past due or when, in management’s opinion, the borrower may be unable to
meet payment obligations as they become due, as well as when required by regulatory provision. Loans
may be placed on nonaccrual status regardless of whether or not such loans are considered past due.
Nonaccrual loans totaled $29,850,735 and $38,821,632 as of December 31, 2012 and 2011, respectively,
and total recorded investment in loans past due 90 days or more and still accruing interest totaled $4,355
and $15,160, respectively. During its review of impaired loans, the Company determined the majority of
its exposures on these loans were known losses. As a result, the exposures were charged off, reducing the
specific allowances on impaired loans.
The following table represents an age analysis of past due loans and nonaccrual loans, segregated by class
of loans, as of December 31:
2012
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
Accruing Loans
90 Days
or More
Past Due
30-89 Days
Past Due
Total Accruing
Loans Past Due
Nonaccrual
Loans
Current
Loans
Total Loans
$ 797,612
28,228
$ -
-
$ 797,612
28,228
$ 1,033,371
39,213
$ 53,853,509
6,143,512
$ 55,684,492
6,210,953
1,309,618
-
3,771,106
8,223,174
140,095
-
-
-
-
-
1,309,618
-
3,771,106
8,223,174
140,095
14,032,580
-
6,629,789
5,429,971
2,413,104
38,465,858
5,852,238
323,985,282
190,191,377
46,503,662
53,808,056
5,852,238
334,386,177
203,844,522
49,056,861
636,888
4,557
4,355
-
641,243
4,557
255,216
17,491
28,881,317
8,406,888
29,777,776
8,428,936
Total Loans
$14,911,278 $ 4,355
$14,915,633
$29,850,735
$702,283,643
$747,050,011
2011
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
$ 644,899 $ -
-
-
$ 644,899
-
$ 2,102,522
85,670
$ 46,238,681
8,336,214
$ 48,986,102
8,421,884
513,905
33,541
2,930,743
2,251,009
376,426
-
-
-
15,160
-
513,905
33,541
2,930,743
2,266,169
376,426
23,578,263
-
9,193,650
3,110,032
486,683
34,453,652
3,496,961
303,156,355
188,261,616
47,362,297
58,545,820
3,530,502
315,280,748
193,637,817
48,225,406
410,041
-
-
-
410,041
-
221,360
43,452
29,817,902
9,200,287
30,449,303
9,243,739
Total Loans
$ 7,160,564 $15,160
$ 7,175,724
$38,821,632
$670,323,965
$716,321,321
(4) Loans (Continued)
Had nonaccrual loans performed in accordance with their original contractual terms, the Company would
have recognized additional interest income of approximately $1,634,600, $1,639,800 and $1,621,700 for
the years ended December 31, 2012, 2011 and 2010, respectively.
The following table details impaired loan data as of December 31, 2012:
Unpaid
Contractual
Principal
Balance
Impaired
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
Interest
Income
Collected
With No Related Allowance Recorded
Commercial
Agricultural
Commercial Construction
Commercial Real Estate
Residential Real Estate
Farmland
Consumer
Other
$ 1,508,236
39,213
10,624,917
16,565,971
4,450,128
2,828,539
297,356
17,491
$ 1,041,938
39,213
6,414,986
15,505,907
4,131,707
2,413,103
255,216
17,491
$ -
-
-
-
-
-
-
-
$ 1,052,916 $ 27,407 $ 28,410
-
51,820
420,549
123,101
55,258
12,920
1,291
58,056
9,194,360
26,482,274
3,096,151
2,326,180
228,181
24,414
-
27,377
430,339
89,139
42,588
10,441
1,191
With An Allowance Recorded
Commercial
Agricultural
Commercial Construction
Commercial Real Estate
Residential Real Estate
Farmland
Consumer
Other
Total
Commercial
Agricultural
Commercial Construction
Commercial Real Estate
Residential Real Estate
Farmland
Consumer
Other
36,331,851
29,819,561
-
42,462,532
628,482
693,349
1,493,432
-
8,266,649
12,758,884
5,514,994
-
-
-
1,493,432
-
7,617,594
12,745,422
4,421,809
-
-
-
462,555
-
1,732,534
1,236,526
840,492
-
-
-
942,673
-
10,533,468
6,398,364
4,288,062
64,862
-
-
91,888
-
-
383,356
144,661
-
-
-
87,611
-
-
366,423
117,266
-
-
-
28,033,959
26,278,257
4,272,107
22,227,429
619,905
571,300
3,001,668
39,213
18,891,566
29,324,855
9,965,122
2,828,539
297,356
17,491
2,535,370
39,213
14,032,580
28,251,329
8,553,516
2,413,103
255,216
17,491
462,555
-
1,732,534
1,236,526
840,492
-
-
-
1,995,589
58,056
19,727,828
32,880,638
7,384,213
2,391,042
228,181
24,414
119,295
-
27,377
813,695
233,800
42,588
10,441
1,191
116,021
-
51,820
786,972
240,367
55,258
12,920
1,291
$64,365,810
$56,097,818
$4,272,107
$64,689,961 $1,248,387 $1,264,649
(4) Loans (Continued)
The following table details impaired loan data as of December 31, 2011:
Unpaid
Contractual
Principal
Balance
Impaired
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
Interest
Income
Collected
With No Related Allowance Recorded
Commercial
Agricultural
Commercial Construction
Commercial Real Estate
Residential Real Estate
Farmland
Consumer
Other
$ 1,742,961
85,670
17,699,542
34,686,574
2,600,919
277,656
228,688
51,666
$ 1,580,140
85,670
12,799,454
29,384,623
1,933,669
227,233
215,956
43,452
$ -
-
-
-
-
-
-
-
$ 946,466 $ 60,078 $ 65,346
-
143,443
834,161
80,334
66,273
12,203
1,606
208,162
13,309,517
27,027,403
3,176,244
342,280
184,372
39,621
(4,024)
116,077
832,590
88,419
66,273
10,732
1,107
With An Allowance Recorded
Commercial
Agricultural
Commercial Construction
Commercial Real Estate
Residential Real Estate
Farmland
Consumer
Other
Total
Commercial
Agricultural
Commercial Construction
Commercial Real Estate
Residential Real Estate
Farmland
Consumer
Other
57,373,676
46,270,197
-
45,234,065
1,171,252
1,203,366
775,506
-
14,035,742
6,429,874
4,771,867
298,893
5,404
-
775,506
-
11,489,233
6,429,874
4,041,950
259,450
5,404
-
308,211
-
2,693,571
2,060,815
674,998
11,878
1,632
-
213,898
-
10,470,491
6,556,769
3,858,609
64,862
3,987
19,566
15,086
-
13,759
181,799
97,383
(17,958)
607
-
19,171
-
61,012
197,132
96,534
-
724
-
26,317,286
23,001,417
5,751,105
21,188,182
290,676
374,573
2,518,467
85,670
31,735,284
41,116,448
7,372,786
576,549
234,092
51,666
2,355,646
85,670
24,288,687
35,814,497
5,975,619
486,683
221,360
43,452
308,211
-
2,693,571
2,060,815
674,998
11,878
1,632
-
1,160,364
208,162
23,780,008
33,584,172
7,034,853
407,142
188,359
59,187
75,164
(4,024)
129,836
1,014,389
185,802
48,315
11,339
1,107
84,517
-
204,455
1,031,293
176,868
66,273
12,927
1,606
$83,690,962
$69,271,614
$5,751,105
$66,422,247 $1,461,928 $1,577,939
At December 31, 2010, the average recorded investment in impaired loans was $28,700,626 and the
interest income recognized and collected on impaired loans was $484,984 and $694,764, respectively.
(4) Loans (Continued)
Troubled Debt Restructurings (TDRs) are troubled loans on which the original terms of the loan have
been modified in favor of the borrower due to deterioration in the borrower’s financial condition. Each
potential loan modification is reviewed individually and the terms of the loan are modified to meet the
borrower’s specific circumstances at a point in time. Not all loan modifications are TDRs. Loan
modifications are reviewed and approved by the Company’s senior lending staff, who then determine
whether the loan meets the criteria for a TDR. Generally, the types of concessions granted to borrowers
that are evaluated in determining whether a loan is classified as a TDR include:
Interest rate reductions - Occur when the stated interest rate is reduced to a nonmarket rate or a
rate the borrower would not be able to obtain elsewhere under similar circumstances.
Amortization or maturity date changes - Result when the amortization period of the loan is
extended beyond what is considered a normal amortization period for loans of similar type with
similar collateral.
Principal reductions - These are often the result of commercial real estate loan workouts where
two new notes are created. The primary note is underwritten based upon our normal underwriting
standards and is structured so that the projected cash flows are sufficient to repay the contractual
principal and interest of the newly restructured note. The terms of the secondary note vary by
situation and often involve that note being charged off, or the principal and interest payments
being deferred until after the primary note has been repaid. In situations where a portion of the
note is charged off during modification, there is often no specific reserve allocated to those loans.
This is due to the fact that the amount of the charge-off usually represents the excess of the
original loan balance over the collateral value and the Company has determined there is no
additional exposure on those loans.
As discussed in Note 1, Summary of Significant Accounting Policies, once a loan is identified as a TDR,
it is accounted for as an impaired loan. The Company had no unfunded commitments to lend to a
customer that has a troubled debt restructured loan as of December 31, 2012. The following tables
present the number of loan contracts restructured during the 12 months ended December 31, 2012 and the
pre- and post-modification recorded investment as well as the number of contracts and the recorded
investment for those TDRs modified during the previous 12 months which subsequently defaulted during
the period. Loans modified in a troubled debt restructuring are considered to be in default once the loan
becomes 90 days past due.
Troubled Debt Restructurings
2012
# of Contracts Pre-Modification Post-Modification
Commercial
Commercial Real Estate
Residential Real Estate
Total Loans
1
1
5
7
$ 107,749
56,835
1,082,585
$ 107,749
56,835
1,079,614
$1,247,169
$1,244,198
(4) Loans (Continued)
Troubled Debt Restructurings
2011
# of Contracts Pre-Modification Post-Modification
Commercial
Commercial Construction
Commercial Real Estate
Residential Real Estate
Total Loans
3
3
9
8
23
$ 3,240,469
1,430,147
20,827,349
1,505,356
$ 1,541,882
1,430,101
15,906,547
1,456,878
$27,003,321
$20,335,408
Troubled debt restructurings that subsequently defaulted as of December 31 are as follows:
2012
Residential Real Estate
Commercial Real Estate
Total Loans
2011
Commercial
Commercial Construction
Commercial Real Estate
Total Loans
# of Contracts
1
1
2
1
3
3
7
Recorded
Investment
$ 10,000
203,291
$ 213,291
$ 1,175,922
4,475,473
2,322,361
$ 7,973,756
At December 31, 2012 and 2011, all restructured loans were performing as agreed. However, three
restructured loans totaling $999,133, $51,998 and $10,000 at December 31, 2011 failed to continue to
perform as agreed and, as a result, the loans were charged off in March 2011, December 2011 and January
2012, respectively.
(5) Allowance for Loan Losses
Changes in the allowance for loan losses for the years ended December 31 are as follows:
2012
December 31
2011
2010
Balance, Beginning of Year
$ 15,649,594
$ 28,280,077
$ 31,400,641
Provision for Loan Losses
Loans Charged Off
Recoveries of Loans Previously Charged Off
6,784,767
(10,454,175)
756,735
8,250,000
(22,850,673)
1,970,190
13,350,000
(17,622,454)
1,151,890
Balance, End of Year
$ 12,736,921
$ 15,649,594
$ 28,280,077
(5) Allowance for Loan Losses (Continued)
The following tables detail activity in the allowance for loan losses, segregated by class of loan, for the
years ended December 31. Allocation of a portion of the allowance to one category of loans does not
preclude its availability to absorb losses in other loan categories and periodically may result in
reallocation within the provision categories.
2012
Beginning
Balance
Charge-Offs
Recoveries
Provision
Ending
Balance
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
2011
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
$ 1,070,560 $ (653,389) $ 139,802
-
297,168
(3,028)
$ 424,048
2,035
$ 981,021
296,175
3,122,594
138,092
6,448,064
3,695,357
364,663
(4,106,124)
-
(4,325,642)
(960,620)
(224,725)
209,352
-
232,880
47,690
4,716
2,664,378
-
2,807,537
623,520
145,872
1,890,200
138,092
5,162,839
3,405,947
290,526
205,154
307,942
(169,249)
(11,398)
81,956
40,339
109,913
7,464
227,774
344,347
$15,649,594 $(10,454,175) $ 756,735 $6,784,767
$12,736,921
$ 4,414,817 $ (841,887) $ 127,490
454,453
(455,165)
698,637
$(2,629,860) $ 1,070,560
297,168
(400,757)
4,126,043
519,766
8,029,525
5,941,696
944,323
(6,957,181)
(481)
(12,492,097)
(1,704,887)
(60,447)
557,168
-
527,996
149,173
411
5,396,564
(381,193)
10,382,640
(690,625)
(519,624)
3,122,594
138,092
6,448,064
3,695,357
364,663
3,074,220
531,050
(222,878)
(115,650)
145,279
8,220
(2,791,467)
(115,678)
205,154
307,942
$28,280,077 $(22,850,673) $1,970,190
$ 8,250,000 $15,649,594
(5) Allowance for Loan Losses (Continued)
2010
Beginning
Balance
Charge-Offs
Recoveries
Provision
Ending
Balance
Commercial and Agricultural
Commercial
Agricultural
$ 3,930,760
779,337
$ (469,214)
(255,627)
$ 80,181
1,377
$ 873,090 $ 4,414,817
698,637
173,550
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
7,402,484
447,676
8,790,443
5,025,839
942,019
(4,648,124)
-
(7,459,619)
(2,929,668)
(271,750)
184,868
-
141,931
439,940
7,639
1,186,815
72,090
6,556,770
3,405,585
266,415
4,126,043
519,766
8,029,525
5,941,696
944,323
2,826,058
1,256,025
(548,834)
(1,039,618)
245,641
50,313
551,355
264,330
3,074,220
531,050
$31,400,641
$(17,622,454) $1,151,890
$13,350,000 $28,280,077
In 2012, the Company refined its methodology used in estimating the amount of the Allowance for Loan
and Lease Losses (ALLL). Management has been proactive in identifying problem loans, assessing
exposure and providing sufficient reserves to cover the exposures. The ALLL was increased in
anticipation of identified exposures resulting in confirmed losses. When losses were confirmed, they
were promptly charged off. As a result, losses for the years 2009, 2010 and 2011 were very high. During
this period and in 2012, newer loans granted were made subject to higher underwriting standards and
more conservative appraisals. Because of the prompt recognition of losses that drove the excessive
charge-off history, management now believes the remaining losses incurred in the current portfolio,
including newer loans made, will be less than unadjusted loss history factors will suggest. Considering
the major losses taken, along with organizational and staffing changes, the validity of qualitative factors
in determining adjustments of loss history needed to be reviewed. Recognizing the importance of credit
administration and the role of personnel involved in granting, approving, administering, monitoring and
collecting loans, management concluded that greater weight should be placed on factors associated with
those activities. Additionally, during the year ended December 31, 2012, management reviewed the
appropriateness of continuing to use a one-year annual loss rate to determine losses incurred in the loan
portfolio segments of loans collectively reviewed for impairment. Consideration was given to the trends
in losses incurred over prior quarters and economic indicators impacting the Company. Management
concluded that the one-year charge-off history should be expanded to include quarters from the current
year. Thus, the annualized loss rates used for the December 31, 2012 allowance for loan loss calculation
were based on an expanded period that includes all four quarters of 2011 and the first three quarters of
2012. The effect of these changes on the ALLL resulted in a reduction in the ALLL estimate of
$2,154,639. Management believes the adjustments made will result in a better estimation of losses
incurred in the portfolio.
(5) Allowance for Loan Losses (Continued)
The Company determines its individual loan reserves during its quarterly review of substandard loans.
This process involves reviewing all loans with a risk grade of 6 or greater and an outstanding relationship
balance of $50,000 or more, regardless of the loan’s impairment classification. Since not all loans in the
substandard category are considered impaired, this quarterly review process may result in the
identification of specific reserves on nonimpaired loans. Management considers those loans graded
substandard, but not classified as impaired, to be higher risk loans and will make specific allocations of
the allowance to those loans if warranted. Since these loans are not considered impaired, they are
included in the “Collectively Evaluated for Impairment” column of the following tables. At
December 31, 2012 and 2011, substandard loans, not classified as impaired, for which a specific
allocation was made totaled $10,795,911 and $16,746,384, respectively. The specific allocation
associated with these loans for December 31, 2012 and 2011 was $898,773 and $1,926,438. At
December 31, 2012, 2011 and 2010, impaired loans totaling $1,026,624, $995,168 and $976,971,
respectively, were below the $50,000 review threshold and were not individually reviewed for
impairment. Those loans were subject to the bank’s general loan loss reserve methodology and are
included in the “Collectively Evaluated for Impairment” column of the following tables. The following
tables present breakdowns of the allowance for loan losses, segregated by impairment methodology for
December 31, 2012 and 2011:
2012
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
Individually
Evaluated for
Impairment
Ending Allowance Balance
Collectively
Evaluated for
Impairment
Total
Individually
Evaluated for
Impairment
Ending Loan Balance
Collectively
Evaluated for
Impairment
Total
$ 462,555
-
$ 518,466
296,175
$ 981,021
296,175
$ 2,512,133
-
$ 53,172,359
6,210,953
$ 55,684,492
6,210,953
1,732,534
-
1,236,526
840,492
-
157,666
138,092
3,926,313
2,565,455
290,526
1,890,200
138,092
5,162,839
3,405,947
290,526
13,892,135
-
28,205,405
8,022,249
2,393,775
39,915,921
5,852,238
306,180,772
195,822,273
46,663,086
53,808,056
5,852,238
334,386,177
203,844,522
49,056,861
-
-
227,774
344,347
227,774
344,347
28,007
17,491
29,749,769
8,411,445
29,777,776
8,428,936
Total End of Year Balance
$4,272,107
$8,464,814
$12,736,921
$55,071,195
$691,978,816
$747,050,011
(5) Allowance for Loan Losses (Continued)
2011
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
Individually
Evaluated for
Impairment
Ending Allowance Balance
Collectively
Evaluated for
Impairment
Total
Individually
Evaluated for
Impairment
Ending Loan Balance
Collectively
Evaluated for
Impairment
Total
$ 308,211
-
$ 762,349
297,168
$ 1,070,560
297,168
$ 2,237,878 $ 46,748,224
8,421,884
-
$ 48,986,102
8,421,884
2,693,571
-
2,060,815
674,998
11,878
429,023
138,092
4,387,249
3,020,359
352,785
3,122,594
138,092
6,448,064
3,695,357
364,663
24,212,519
-
35,715,026
5,614,744
486,683
34,333,301
3,530,502
279,565,722
188,023,073
47,738,723
58,545,820
3,530,502
315,280,748
193,637,817
48,225,406
1,632
-
203,522
307,942
205,154
307,942
9,596
-
30,439,707
9,243,739
30,449,303
9,243,739
Total End of Year Balance
$ 5,751,105
$ 9,898,489
$15,649,594
$ 68,276,446 $648,044,875
$716,321,321
2010
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
Individually
Evaluated for
Impairment
Ending Allowance Balance
Collectively
Evaluated for
Impairment
Total
Individually
Evaluated for
Impairment
Ending Loan Balance
Collectively
Evaluated for
Impairment
Total
$ 336,011
-
$ 4,078,806
698,637
$ 4,414,817
698,637
$ 2,131,375 $ 51,088,966
10,277,112
274,679
$ 53,220,341
10,551,791
3,501,117
-
7,539,533
1,561,952
-
624,926
519,766
489,992
4,379,744
944,323
4,126,043
519,766
8,029,525
5,941,696
944,323
28,392,107
194,881
58,562,946
13,645,907
1,416,538
43,917,124
4,178,130
304,315,619
193,825,906
51,361,851
72,309,231
4,373,011
362,878,565
207,471,813
52,778,389
3,033
-
3,071,187
531,050
3,074,220
531,050
76,420
113,002
33,487,443
15,990,667
33,563,863
16,103,669
Total End of Year Balance
$12,941,646
$15,338,431
$28,280,077
$104,807,855 $708,442,818
$813,250,673
(6) Premises and Equipment
Premises and equipment are comprised of the following as of December 31:
Land
Building
Furniture, Fixtures and Equipment
Leasehold Improvements
Construction in Progress
Accumulated Depreciation
2012
2011
$ 7,780,167
23,758,761
12,923,699
948,260
-
$ 7,780,167
23,662,849
12,982,160
994,637
77,366
45,410,887
(20,494,781)
45,497,179
(19,746,944)
$ 24,916,106
$ 25,750,235
Depreciation charged to operations totaled $1,676,820 in 2012, $1,790,041 in 2011 and $2,140,735 in
2010.
Certain Company facilities and equipment are leased under various operating leases. Rental expense
approximated $447,000 for 2012, $376,000 for 2011 and $377,000 for 2010.
Future minimum rental payments as of December 31, 2012 are as follows:
Year Ending December 31
2013
2014
2015
2016 and After
Amount
$131,978
52,138
42,000
84,000
$310,116
(7) Other Real Estate Owned
The aggregate carrying amount of Other Real Estate Owned (OREO) at December 31, 2012, 2011 and
2010 was $15,940,693, $20,445,805 and $20,207,806, respectively. All of the Company’s other real
estate owned represents properties acquired through foreclosure or deed in lieu of foreclosure. The
following table details the change in OREO during 2012, 2011 and 2010.
2012
December 31
2011
2010
Balance, Beginning of Year
$20,445,085
$20,207,806
$19,705,044
Additions
Sales of OREO
Loss on Sale
Provision for Losses
Balance, End of Year
9,729,174
(9,711,890)
(1,818,967)
(2,702,709)
12,555,622
(9,804,669)
(1,102,613)
(1,411,061)
13,159,402
(9,531,210)
(1,832,256)
(1,293,174)
$15,940,693
$20,445,085
$20,207,806
(8) Intangible Assets
The following is an analysis of the core deposit intangible activity for the years ended December 31:
Core
Deposit
Intangible
Accumulated
Amortization
Net Core
Deposit
Intangible
Core Deposit Intangible
Balance, December 31, 2010
$1,056,693
$(761,686)
$295,007
Amortization Expense
-
(35,749)
(35,749)
Balance, December 31, 2011
1,056,693
(797,435)
259,258
Amortization Expense
-
(35,748)
(35,748)
Balance, December 31, 2012
$1,056,693
$(833,183)
$223,510
Amortization expense related to the core deposit intangible was $35,748, $35,749 and $35,749 for the
years ended December 31, 2012, 2011 and 2010. Amortizations expense will continue at an annual rate
of approximately $35,749 through the first quarter of 2019, at which point the core deposit will be fully
amortized.
(9) Income Taxes
The components of income tax (benefit) expense for the years ended December 31 are as follows:
2012
2011
2010
Current Federal (Benefit) Expense
Deferred Federal (Benefit) Expense
$ (3,588)
1,204,439
$ 311,174
867,006
$(1,037,717)
639,607
Federal Income Tax (Benefit) Expense
Current State Income Tax (Benefit) Expense
1,198,325
2,526
1,178,180
(74,297)
(398,110)
(61,104)
$1,200,851
$1,103,883
$ (459,214)
The federal income tax (benefit) expense of $1,200,851 in 2012, $1,178,180 in 2011 and $(398,110) in
2010 is different than the income taxes computed by applying the federal statutory rates to income before
income taxes. The reasons for the differences are as follows:
Statutory Federal Income Taxes
Tax-Exempt Interest
Interest Expense Disallowance
Premiums on Officers’ Life Insurance
Meal and Entertainment Disallowance
Other
2012
2011
2010
$1,306,331
(94,891)
4,908
(59,603)
25,567
16,013
$1,228,538
(126,468)
8,751
(52,431)
20,693
99,097
$ 5,101
(117,586)
8,400
(134,106)
24,972
(184,891)
Actual Federal Income Taxes
$1,198,325
$1,178,180
$(398,110)
(9) Income Taxes (Continued)
Deferred taxes in the accompanying consolidated balance sheets as of December 31 include the following:
Deferred Tax Assets
Allowance for Loan Losses
Other Real Estate
Deferred Compensation
Restricted Stock
Goodwill
Net Operating Loss Carryforward
Other
Deferred Tax Liabilities
Premises and Equipment
Vested Restricted Stock
Other
Deferred Tax Assets (Liabilities) on
Unrealized Securities Gains (Losses)
Net Deferred Tax Assets
2012
2011
$ 4,330,553
1,668,653
342,547
-
345,762
2,310,708
529,706
$ 5,320,862
1,012,326
386,225
508,547
392,124
2,992,777
559,836
9,527,929
11,172,697
(1,232,905)
-
(4,185)
(1,195,334)
(476,540)
(4,185)
(1,237,090)
(1,676,059)
77,177
(983,807)
$ 8,368,016
$ 8,512,831
As discussed in Note 1, certain positions taken in the Company’s tax returns may be subject to challenge
by the taxing authorities. An analysis of activity related to unrecognized taxes follows as of
December 31, 2012 and 2011.
Balance, Beginning
2012
2011
$ 33,368
$ 78,121
Positions Taken During the Current Year
Reductions Resulting from Lapse of Statutes of Limitation
11,794
(6,486)
14,275
(59,028)
Balance, Ending
$ 38,676
$ 33,368
The net increase (decrease) of $5,308 and $(44,753) is included in income tax expense for the years ended
December 31, 2012 and 2011, respectively.
The Company has cumulative federal net operation loss carryforwards of $4,299,505 at December 31,
2012 that expire beginning in 2021.
The Company considers the determination of the deferred tax asset amount and the need for any valuation
reserve to be a critical accounting policy that requires significant judgment. The Company has, in its
judgment, made reasonable assumptions and considered both positive and negative evidence relating to
the ultimate realization of deferred tax assets. Based upon this evaluation, the Company determined that a
valuation allowance on its deferred tax asset was not required as of December 31, 2012.
(10) Deposits
The aggregate amount of overdrawn deposit accounts reclassified as loan balances totaled $389,331 and
$147,398 as of December 31, 2012 and 2011, respectively.
Components of interest-bearing deposits as of December 31 are as follows:
Interest-Bearing Demand
Savings
Time, $100,000 and Over
Other Time
2012
2011
$314,030,843 $284,870,972
48,777,743
41,230,662
211,244,750 247,589,188
281,665,013 332,025,539
$855,718,349 $905,716,361
At December 31, 2012 and 2011, the Company had brokered deposits of $28,229,608 and $28,157,961,
respectively. Of the brokered deposits at December 31, 2012 and 2011, $28,229,608 and $28,157,961
represented Certificate of Deposits Account Registry Service (CDARS) reciprocal deposits in which
customers placed core deposits into the CDARS program for FDIC insurance coverage and the Company
received reciprocal brokered deposits in a like amount. Thus, brokered deposits less the reciprocal
deposits totaled $0 at December 31, 2012 and 2011. The aggregate amount of short-term jumbo
certificates of deposit, each with a minimum denomination of $100,000, was approximately $161,530,500
and $190,876,500 as of December 31, 2012 and 2011, respectively.
As of December 31, 2012, the scheduled maturities of certificates of deposit are as follows:
Year
2013
2014
2015
2016
2017 and Thereafter
Amount
$388,484,260
59,082,678
28,380,949
8,169,838
8,792,038
$492,909,763
(11) Other Borrowed Money
Other borrowed money at December 31 is summarized as follows:
2012
2011
Federal Home Loan Bank Advances
$35,000,000
$71,000,000
Advances from the Federal Home Loan Bank (FHLB) have maturities ranging from 2017 to 2019 and
interest rates ranging from 0.56 percent to 4.75 percent. As collateral on the outstanding FHLB advances,
the Company has provided a blanket lien on its portfolio of qualifying residential first mortgage loans and
commercial loans. At December 31, 2012, the book value of those loans pledged approximated
$76,000,000. At December 31, 2012, the Company had remaining credit availability from the FHLB of
approximately $129,190,000. The Company may be required to pledge additional qualifying collateral in
order to utilize the full amount of the remaining credit line.
(11) Other Borrowed Money (Continued)
Other borrowed money of $9,000,000 matures in 2017, with the remainder of $26,000,000 maturing in
2018 and thereafter.
The Company also has available federal funds lines of credit with various financial institutions totaling
$43,000,000, of which there were none outstanding at December 31, 2012.
The Company has the ability to borrow funds from the Federal Reserve Bank (FRB) of Atlanta utilizing
the discount window. The discount window is an instrument of monetary policy that allows eligible
institutions to borrow money from the FRB on a short-term basis to meet temporary liquidity shortages
caused by internal or external disruptions. At December 31, 2012, the Company had borrowing capacity
available under this arrangement, with no outstanding balances. The Company would be required to
pledge certain available-for-sale investment securities as collateral under this agreement.
In addition, at December 31, 2012, the Company had an available repurchase agreement line of credit
with a third party totaling $50,000,000. Use of this credit facility is subject to the underwriting and risk
management policies of the third party in effect at the time of the request. Such policies may take into
consideration current market conditions, the current financial condition of the Company and the ability of
the Company to provide adequate securities as collateral for the transaction, among other factors.
(12) Subordinated Debentures (Trust Preferred Securities)
Description
Date
Added
3-Month
Amount Libor Rate Points
(In Thousands)
Total
Interest
5-Year
Rate Maturity Call Option
Colony Bankcorp Statutory Trust III
Colony Bankcorp Capital Trust I
Colony Bankcorp Capital Trust II
Colony Bankcorp Capital Trust III
6/17/2004
4/13/2006
3/12/2007
9/14/2007
$4,500
5,000
9,000
5,000
0.30800
0.31100
0.31100
0.31325
2.68
1.50
1.65
1.40
2.98800
1.81100
1.96100
1.71325
6/14/2034
4/13/2036
3/12/2037
9/14/2037
6/17/2009
4/13/2011
3/12/2012
9/14/2012
The Trust Preferred Securities are recorded as subordinated debentures on the consolidated balance
sheets, but subject to certain limitations, qualify as Tier 1 Capital for regulatory capital purposes. The
proceeds from the offering were used to fund the cash portion of the Quitman acquisition, pay off holding
Company debt, and inject capital into bank subsidiaries.
On February 13, 2012, the Company announced the suspension of the quarterly interest payments on the
Trust Preferred Securities. Under the terms of the trust documents, the Company may defer payments of
interest for up to 20 consecutive quarterly periods without default or penalty. The regularly scheduled
interest payments will continue to be accrued for payment in the future and reported as an expense in the
current period. At December 31, 2012, accrued but unpaid interest expense totaled $553,127.
(13) Preferred Stock
On January 9, 2009, the Company issued to the United States Department of the Treasury (Treasury), in
exchange for aggregate consideration of $28.0 million, (i) 28,000 shares of the Company’s Fixed Rate
Cumulative Perpetual Preferred Stock, Series A, (the Preferred Stock), and (ii) a warrant (the Warrant) to
purchase up to 500,000 shares (the Warrant Common Stock) of the Company’s common stock.
The Preferred Stock qualifies as Tier 1 capital and pays cumulative cash dividends quarterly at a rate of 5
percent per annum for the first five years, and 9 percent per annum thereafter. The Preferred Stock is
nonvoting, other than class voting rights on certain matters that could adversely affect the Preferred Stock.
The Preferred Stock may be redeemed by the Company at the liquidation preference of $1,000 per share
plus any accrued and unpaid dividends. Accrued and unpaid dividends on the Preferred Stock must be
declared and set aside for the benefit of the holders of the Preferred Stock before any dividend may be
declared on common stock.
On February 13, 2012, the Company announced the suspension of dividends on the Preferred Stock. At
December 31, 2012, there were accumulated dividends in arrears of $1.61 million, approximately $57 per
share, including related accrued interest. The Company may defer dividend payments for up to an
aggregate of six dividend periods, whether consecutive or not, without default or penalty under the terms
of the agreement. Failure to pay dividends for six periods would trigger board appointment rights for the
holder of the Preferred Stock.
Upon receipt of the aggregate consideration from the Treasury on January 9, 2009, the Company allocated
the $28,000,000 proceeds on a pro rata basis to the Preferred Stock and the Warrant based on relative fair
values. As a result, the Company allocated $27,220,000 of the aggregate proceeds to the Preferred Stock,
and $780,000 was allocated to the Warrant. The discount recorded on the Preferred Stock that resulted
from allocating a portion of the proceeds to the Warrant is being accreted directly to retained earnings
over a 5-year period applying a level yield.
The Warrant may be exercised on or before January 9, 2019 at an exercise price of $8.40 per share. The
Treasury may not exercise voting power with respect to any shares of Warrant Common Stock until the
Warrant has been exercised.
As discussed in Note 24, Subsequent Event, the Preferred Stock was sold by the Treasury at public
auction on January 29, 2013.
(14) Restricted Stock - Unearned Compensation
In April 2004, the stockholders of Colony Bankcorp, Inc. adopted a restricted stock grant plan which
awards certain executive officers common shares of the Company. The maximum number of shares
which may be subject to restricted stock awards (split-adjusted) is 143,500. To date, 53,256 shares have
been issued under this plan and 17,798 shares have been forfeited; thus, remaining shares which may be
issued are 108,042 at December 31, 2012. During 2012, there were no shares of restricted stock issued or
forfeited. The shares are recorded at fair market value (on the date granted) as a separate component of
stockholders’ equity. The cost of these shares is being amortized against earnings using the straight-line
method over three years (the restriction period).
(15) Profit Sharing Plan
The Company has a profit sharing plan that covers substantially all employees who meet certain age and
service requirements. It is the Company’s policy to make contributions to the plan as approved annually
by the board of directors. The Company has not made any provisions for contributions to the plan for
2012, 2011 and 2010.
(16) Commitments and Contingencies
Credit-Related Financial Instruments. The Company is a party to credit-related financial instruments
with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, standby letters of credit and
commercial letters of credit. Such commitments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the consolidated balance sheets.
The Company’s exposure to credit loss is represented by the contractual amount of these commitments.
The Company follows the same credit policies in making commitments as it does for on-balance sheet
instruments.
At December 31, 2012 and 2011, the following financial instruments were outstanding whose contract
amounts represent credit risk:
Commitments to Extend Credit
Standby Letters of Credit
Contract Amount
2012
2011
$64,147,000
1,141,000
$39,966,000
1,327,000
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. The commitments for equity lines of credit may
expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent
future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is
based on management’s credit evaluation of the customer.
Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection
agreements are commitments for possible future extensions of credit to existing customers. These lines of
credit are uncollateralized and usually do not contain a specified maturity date and may not be drawn
upon to the total extent to which the Company is committed.
Standby and performance letters of credit are conditional lending commitments issued by the Company to
guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to
support public and private borrowing arrangements. Essentially all letters of credit issued have expiration
dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
Legal Contingencies. In the ordinary course of business, there are various legal proceedings pending
against Colony and its subsidiary. The aggregate liabilities, if any, arising from such proceedings would
not, in the opinion of management, have a material adverse effect on Colony’s consolidated financial
position.
(17) Deferred Compensation Plan
Colony Bank, the wholly-owned subsidiary, has deferred compensation plans covering certain former
directors and certain officers choosing to participate through individual deferred compensation contracts.
In accordance with terms of the contracts, the Bank is committed to pay the participant’s deferred
compensation over a specified number of years, beginning at age 65. In the event of a participant’s death
before age 65, payments are made to the participant’s named beneficiary over a specified number of
years, beginning on the first day of the month following the death of the participant.
Liabilities accrued under the plans totaled $1,007,490 and $1,135,956 as of December 31, 2012 and 2011,
respectively. Benefit payments under the contracts were $203,904 in 2012 and $196,501 in 2011.
Provisions charged to operations totaled $82,250 in 2012, $98,901 in 2011 and $154,553 in 2010.
Fee income recognized with deferred compensation plans totaled $175,302 in 2012, $154,210 in 2011 and
$182,685 in 2010.
(18) Supplemental Cash Flow Information
Cash payments for the following were made during the years ended December 31:
Interest Expense
Income Taxes
2012
2011
2010
$10,942,113
$17,204,476
$21,975,968
$ -
$ 390,152
$ 275,000
Noncash financing and investing activities for the years ended December 31 are as follows:
2012
2011
2010
Acquisitions of Real Estate
Through Loan Foreclosures
$9,729,174
$12,555,622
$13,159,402
Unrealized (Gain) Loss on Investment Securities
$3,120,540
$ (3,802,320)
$ 757,545
(19) Related Party Transactions
The aggregate balance of direct and indirect loans to directors, executive officers or principal holders of
equity securities of the Company was $4,776,492 as of December 31, 2012 and $5,504,230 as of
December 31, 2011. All such loans were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with other persons and do not
involve more than a normal risk of collectibility. A summary of activity of related party loans is shown
below:
Balance, Beginning
New Loans
Repayments
Transactions Due to Changes in Directors
Balance, Ending
2012
2011
$ 5,504,230
$ 9,797,492
8,075,835
(10,510,517)
1,706,944
15,455,299
(17,871,362)
(1,877,199)
$ 4,776,492
$ 5,504,230
(20) Fair Value of Financial Instruments and Fair Value Measurements
Generally accepted accounting standards in the U.S. require disclosure of fair value information about
financial instruments, whether or not recognized on the face of the balance sheet, for which it is
practicable to estimate that value. The assumptions used in the estimation of the fair value of Colony
Bankcorp, Inc. and Subsidiary’s financial instruments are detailed hereafter. Where quoted prices are not
available, fair values are based on estimates using discounted cash flows and other valuation techniques.
The use of discounted cash flows can be significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. The following disclosures should not be considered a
surrogate of the liquidation value of the Company, but rather a good-faith estimate of the increase or
decrease in value of financial instruments held by the Company since purchase, origination or issuance.
Cash and Short-Term Investments - For cash, due from banks, bank-owned deposits and federal
funds sold, the carrying amount is a reasonable estimate of fair value and is classified level 1.
Investment Securities - Fair values for investment securities are based on quoted market prices where
available. If quoted market prices are not available, estimated fair values are based on quoted market
prices of comparable instruments. If a comparable is not available, the investment securities are
classified as level 3.
Federal Home Loan Bank Stock - The fair value of Federal Home Loan Bank stock approximates
carrying value.
Loans - The fair value of fixed rate loans is estimated by discounting the future cash flows using the
current rates at which similar loans would be made to borrowers with similar credit ratings. For
variable rate loans, the carrying amount is a reasonable estimate of fair value.
Deposit Liabilities - The fair value of demand deposits, savings accounts and certain money market
deposits is the amount payable on demand at the reporting date and is classified as level 1. The fair
value of fixed maturity certificates of deposit is estimated by discounting the future cash flows using
the rates currently offered for deposits of similar remaining maturities and is classified as level 2.
Subordinated Debentures - Fair value approximates carrying value due to the variable interest rates
of the subordinated debentures.
Other Borrowed Money - The fair value of other borrowed money is calculated by discounting
contractual cash flows using an estimated interest rate based on current rates available to the Company
for debt of similar remaining maturities and collateral terms. Other borrowed money is classified as
level 2 due to their expected maturities.
Disclosures of the fair value of financial assets and financial liabilities, including those of financial assets
and financial liabilities that are not measured and reported at fair value on a recurring basis or
nonrecurring basis, are required in the financial statements.
(20) Fair Value of Financial Instruments and Fair Value Measurements (Continued)
The carrying amount and estimated fair values of the Company’s financial instruments as of December 31
are as follows:
Carrying
Amount
Estimated
Fair Value
2012
1
Level
2
(in Thousands)
2011
Carrying
Amount
Estimated
Fair Value
3
Assets
Cash and Short-Term Investments
Investment Securities Available for Sale
Investment Securities Held to Maturity
Federal Home Loan Bank Stock
Loans, Net
$ 71,041
268,300
41
3,364
734,079
$ 71,041
268,300
42
3,364
735,115
$ 71,041 $ -
267,162
42
-
713,109
-
-
3,364
-
$ -
1,138
-
-
22,006
$112,329
303,891
46
5,398
700,614
$ 112,329
303,891
46
5,398
702,438
Liabilities
Deposits
Subordinated Debentures
Other Borrowed Money
979,685
24,229
35,000
982,215
24,229
38,424
486,775
24,229
-
495,440
-
38,424
-
-
-
999,985
24,229
71,000
1,003,648
24,229
74,720
Fair value estimates are made at a specific point in time, based on relevant market information and
information about the financial instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company’s entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the Company’s financial instruments,
fair value estimates are based on many judgments. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet financial instruments without
attempting to estimate the value of anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Significant assets and liabilities that are not considered financial
instruments include deferred income taxes and premises and equipment. In addition, the tax ramifications
related to the realization of the unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in the estimates.
Fair Value Measurements
Generally accepted accounting principles related to Fair Value Measurements define fair value, establish
a framework for measuring fair value, establish a three-level valuation hierarchy for disclosure of fair
value measurement and enhance disclosure requirements for fair value measurements. The valuation
hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the
measurement date. The three levels are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or
liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities
in active markets, and inputs that are observable for the asset or liability, either directly or
indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to the valuation methodology are unobservable and represent the Company’s own
assumptions about the assumptions that market participants would use in pricing the assets or
liabilities.
(20) Fair Value of Financial Instruments and Fair Value Measurements (Continued)
Fair Value Measurements (Continued)
Following is a description of the valuation methodologies used for instruments measured at fair value, as well
as the general classification of such instruments pursuant to the valuation hierarchy:
Assets
Securities - Where quoted prices are available in an active market, securities are classified within level 1
of the valuation hierarchy. Level 1 inputs include securities that have quoted prices in active markets for
identical assets. If quoted market prices are not available, then fair values are estimated by using pricing
models, quoted prices of securities with similar characteristics, or discounted cash flow. Examples of
such instruments, which would generally be classified within level 2 of the valuation hierarchy, include
certain collateralized mortgage and debt obligations and certain high-yield debt securities. In certain
cases where there is limited activity or less transparency around inputs to the valuation, securities are
classified within level 3 of the valuation hierarchy. When measuring fair value, the valuation techniques
available under the market approach, income approach and/or cost approach are used. The Company’s
evaluations are based on market data and the Company employs combinations of these approaches for its
valuation methods depending on the asset class.
Impaired loans - Impaired loans are those that are not accounted for under ASC Subtopic 310-40,
Troubled Debt Restructurings by Creditors, in which the Company has measured impairment generally
based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent
third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds.
These assets are included as level 3 fair values, based upon the lowest level of input that is significant to
the fair value measurements.
Other Real Estate - Other real estate owned assets are adjusted to fair value less estimated selling costs
upon transfer of the loans to other real estate owned. Typically, an external, third-party appraisal is
performed on the collateral upon transfer into the other real estate owned account to determine the asset’s
fair value. Subsequent adjustments to the collateral’s value may be based upon either updated third-party
appraisals or management’s knowledge of the collateral and the current real estate market conditions.
Appraised amounts used in determining the asset’s fair value, whether internally or externally prepared,
are discounted 10 percent to account for selling and marketing costs. Adjustments are routinely made in
the appraisal process by the appraisers to adjust for differences between the comparable sales and income
data available. Such adjustments are typically significant and result in a level 3 classification of the inputs
for determining fair value. Because of the high degree of judgment required in estimating the fair value
of other real estate owned assets and because of the relationship between fair value and general economic
conditions, we consider the fair value of other real estate owned assets to be highly sensitive to changes in
market conditions.
(20) Fair Value of Financial Instruments and Fair Value Measurements (Continued)
Fair Value Measurements (Continued)
Assets (Continued)
Assets and Liabilities Measured at Fair Value on a Recurring Basis - The following table presents the
recorded amount of the Company’s assets measured at fair value on a recurring and nonrecurring basis as
of December 31, 2012 and 2011, aggregated by the level in the fair value hierarchy within which those
measurements fall. The table below includes only impaired loans with a specific reserve and only other
real estate properties with a valuation allowance at December 31, 2012. Those impaired loans and other
real estate properties are shown net of the related specific reserves and valuation allowances.
2012
Total Fair
Value
Fair Value Measurements at Reporting Date Using
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Recurring
Securities Available for Sale
U.S. Government Agencies
Mortgage-Backed
State, County and Municipal
Corporate Obligations
Asset-Backed Securities
Nonrecurring
Impaired Loans
$263,059,074
4,004,010
1,104,900
132,427
$ -
-
-
-
$263,059,074
2,998,199
1,104,900
-
$ -
1,005,811
-
132,427
$268,300,411
$ -
$267,162,173
$ 1,138,238
$ 22,006,150
$ -
$ -
$22,006,150
Other Real Estate
$ 8,817,204
$ -
$ -
$ 8,817,204
2011
Recurring
Securities Available for Sale
U.S. Government Agencies
Mortgage-Backed
State, County and Municipal
Corporate Obligations
Asset-Backed Securities
Nonrecurring
Impaired Loans
$294,060,799
7,583,691
2,113,930
132,427
$ -
-
-
-
$294,060,799
7,583,691
1,123,930
-
$ -
-
990,000
132,427
$303,890,847
$ -
$302,768,420
$ 1,122,427
$ 17,250,312
$ -
$ -
$17,250,312
Other Real Estate
$ 5,094,081
$ -
$ -
$ 5,094,081
Liabilities
The Company did not identify any liabilities that are required to be presented at fair value.
(20) Fair Value of Financial Instruments and Fair Value Measurements (Continued)
Fair Value Measurements (Continued)
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
The following table presents quantitative information about the significant unobservable inputs used in
the fair value measurements for assets in level 3 of the fair value hierarchy measured on a nonrecurring
basis at December 31, 2012. This table is comprised primarily of collateral dependent impaired loans and
other real estate owned:
December 31,
2012
Valuation
Techniques
Unobservable
Inputs
Range
(Weighted Avg)
Impaired Loans
Commercial
$ 1,030,877
Sales Comparison
Adjustment for Differences
Between the Comparable Sales
(45.00%)-80.00%
(17.50%)
Management Adjustments for
Age of Appraisals and/or Current
Market Conditions
0.00%-80.00%
(40.00%)
Income Approach
Capitalization Rate
8.50%
Real Estate
Commercial Construction
5,885,060
Sales Comparison
Adjustment for Differences
Between the Comparable Sales
0.00%-45.00%
(22.50%)
Management Adjustments for
Age of Appraisals and/or Current
Market Conditions
0.00%-40.00%
(20.00%)
Income Approach
Discount Rate
7.94%
Residential Real Estate
3,581,317
Sales Comparison
Adjustment for Differences
Between the Comparable Sales
0.00%-24.00%
(12.00%)
Management Adjustments for
Age of Appraisals and/or Current
Market Conditions
0.00%-40.00%
(20.00%)
Income Approach
Capitalization Rate
8.90%
Commercial Real Estate
11,508,896
Sales Comparison
Adjustment for Differences
Between the Comparable Sales
(7.40%)-73.70%
(32.95%)
Management Adjustments for
Age of Appraisals and/or Current
Market Conditions
0.00%-40.00%
(20.00%)
Income Approach
Capitalization Rate
Discount Rate
9.50%
5.13%
Other Real Estate Owned
8,817,204
Sales Comparison
Adjustment for Differences
Between the Comparable Sales
(35.00%)-129.50%
(47.25%)
Management Adjustments for
Age of Appraisals and/or Current
Market Conditions
3.10%-61.32%
(32.33%)
Income Approach
Discount Rate
3.00%
(20) Fair Value of Financial Instruments and Fair Value Measurements (Continued)
Fair Value Measurements (Continued)
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (Continued)
The following table presents a reconciliation and statement of income classification of gains and losses
for all assets measured at fair value on a recurring basis using significant unobservable inputs (level 3) for
the years ended December 31, 2012, 2011 and 2010.
Available for Sale Securities
2011
2012
2010
Balance, Beginning
Total Realized/Unrealized Gains (Losses) Included In
Purchases, Sales, Issuances and Settlements
Transfers into Level 3
Securities Purchased During the Year
Securities Called During the Year
Unrealized Gains Included in Other
Comprehensive Income
Loss on OTTI Impairment Included
in Noninterest Income
$ 1,122,427
$ 1,016,997
$ 982,427
788,933
208,245
(1,000,000)
-
-
-
-
-
-
78,201
158,488
34,570
(59,568)
(53,058)
-
Balance, Ending
$ 1,138,238
$ 1,122,427
$ 1,016,997
The Company’s policy is to recognize transfers in and transfers out of levels 1, 2 and 3 as of the end of a
reporting period. During the year ended December 31, 2012, the Company transferred certain state,
county and municipal securities out of level 2 and into level 3. The transfers into level 3 were the result
of decreased market activity for these types of securities, as well as a lack of current credit ratings on
these securities. There were no gains or losses recognized as a result of the transfers. There were no
transfers of securities between level 1 and level 2 for the years ended December 31, 2012, 2011 or 2010.
The following table presents quantitative information about recurring level 3 fair value measurements as
of December 31, 2012.
Fair Value
Valuation
Techniques
Unobservable
Inputs
Range
(Weighted Avg)
Asset-Back Securities
$ 132,427 Discounted Cash Flow Discount Rate
2.95%-3.42%
(3.19%)
State, County and Municipal
1,005,811 Discounted Cash Flow Discount Rate
N/A*
or Yield
* The Company relies on a third-party pricing service to value its municipal securities. The details of the unobservable
inputs and other adjustments used by the third-party pricing service were not readily available to the Company.
(21) Regulatory Capital Matters
The amount of dividends payable to the parent company from the subsidiary bank is limited by various
banking regulatory agencies. Upon approval by regulatory authorities, the Bank may pay cash dividends
to the parent company in excess of regulatory limitations. Additionally, the Company suspended the
payment of dividends to its stockholders in the third quarter of 2009. At December 31, 2012, the
Company is subject to certain regulatory restrictions that preclude the declaration of or payment of any
dividends to its common stockholders, without prior approval from the Federal Reserve Bank.
The Company is subject to various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory and, possibly,
additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the
Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company must meet specific capital guidelines that involve
quantitative measures of the Company’s assets, liabilities and certain off-balance sheet items as calculated
under regulatory accounting practices. The Company’s capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company to
maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets, and of Tier I
capital to average assets. The amounts and ratios as defined in regulations are presented hereafter.
Management believes, as of December 31, 2012, the Company meets all capital adequacy requirements to
which it is subject under the regulatory framework for prompt corrective action. In the opinion of
management, there are no conditions or events since prior notification of capital adequacy from the
regulators that have changed the institution’s category.
(21) Regulatory Capital Matters (Continued)
The following table summarizes regulatory capital information as of December 31, 2012 and 2011 on a
consolidated basis and for its wholly-owned subsidiary, as defined.
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Ratio
Amount
(In Thousands)
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Ratio
Amount
$122,630
123,463
16.47%
16.61
$59,548
59,474
8.00%
8.00
N/A
$74,342
N/A
10.00%
113,283
114,128
15.22
15.35
29,774
29,737
4.00
4.00
N/A
44,605
113,283
114,128
10.22
10.31
44,343
44,282
4.00
4.00
N/A
55,352
N/A
6.00
N/A
5.00
$118,913
117,243
16.50%
16.29
$57,658
57,584
8.00%
8.00
N/A
$71,980
N/A
10.00%
109,822
108,163
15.24
15.03
28,829
28,792
4.00
4.00
N/A
43,188
109,822
108,163
9.51
9.38
46,185
46,117
4.00
4.00
N/A
57,646
N/A
6.00
N/A
5.00
As of December 31, 2012
Total Capital
to Risk-Weighted Assets
Consolidated
Colony Bank
Tier I Capital
to Risk-Weighted Assets
Consolidated
Colony Bank
Tier I Capital
to Average Assets
Consolidated
Colony Bank
As of December 31, 2011
Total Capital
to Risk-Weighted Assets
Consolidated
Colony Bank
Tier I Capital
to Risk-Weighted Assets
Consolidated
Colony Bank
Tier I Capital
to Average Assets
Consolidated
Colony Bank
The Bank is currently subject to a memorandum of understanding (MOU) which requires, among other
things, that the Bank maintain minimum capital ratios at specified levels higher than those otherwise
required by applicable regulations as follows: Tier 1 capital to total average assets of 8 percent and total
risk-based capital to total risk-weighted assets of 10 percent during the life of the MOU. The MOU also
requires that, prior to declaring or paying any cash dividend to the Company, the Bank must obtain
written consent of its regulators. Additional requirements of the MOU are discussed in Part 1, Item 1 of
the Company’s December 31, 2012 Form 10-K filed with the Securities Exchange Commission on
March 12, 2013. Failure to comply with the terms of the MOU could have an adverse impact on the
Company’s consolidated financial condition.
(22) Financial Information of Colony Bankcorp, Inc. (Parent Only)
The parent company’s balance sheets as of December 31, 2012 and 2011 and the related statements of
operations and comprehensive income (loss) and cash flows for each of the years in the three-year period
then ended are as follows:
COLONY BANKCORP, INC. (PARENT ONLY)
BALANCE SHEETS
DECEMBER 31
ASSETS
Cash
Premises and Equipment, Net
Investment in Subsidiary, at Equity
Other
Total Assets
2012
2011
$ 494,432
1,284,968
119,646,209
821,145
$ 1,051,904
1,378,395
118,289,024
437,414
$122,246,754
$121,156,737
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Dividends Payable
Other
Subordinated Debt
Stockholders’ Equity
Preferred Stock, Stated Value $1,000; Authorized
10,000,000 Shares, Issued 28,000 Shares
Common Stock, Par Value $1; Authorized
20,000,000 Shares, Issued 8,439,258
Shares as of December 31, 2012 and 2011
Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Income, Net of Tax
$1,610,385
648,202
$ 175,000
139,927
2,258,587
314,927
24,229,000
24,229,000
27,827,053
27,662,476
8,439,258
29,145,094
30,497,576
(149,814)
8,439,258
29,145,094
29,456,240
1,909,742
95,759,167
96,612,810
Total Liabilities and Stockholders’ Equity
$122,246,754
$121,156,737
(22) Financial Information of Colony Bankcorp, Inc. (Parent Only) (Continued)
COLONY BANKCORP, INC. (PARENT ONLY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
Income
Dividends from Subsidiary
Management Fees
Other
Expenses
Interest
Amortization
Salaries and Employee Benefits
Other
2012
2011
2010
$ 17,372
590,422
101,397
$ 15,265
505,414
98,180
$ 15,536
455,241
119,776
709,191
618,859
590,553
554,004
2,250
735,919
558,151
508,081
2,250
734,104
656,914
516,170
2,250
761,873
807,209
1,850,324
1,901,349
2,087,502
Loss Before Taxes and Equity in
Undistributed Earnings of Subsidiary
(1,141,133)
(1,282,490)
(1,496,949)
Income Tax Benefits
365,691
425,605
532,823
Loss Before Equity in Undistributed
Earnings of Subsidiary
(775,442)
(856,885)
(964,126)
Equity in Undistributed
Earnings of Subsidiary
Net Income
Preferred Stock Dividends
3,416,740
3,390,480
1,438,342
2,641,298
1,435,385
2,533,595
1,400,000
474,216
1,400,000
Net Income (Loss)
Available to Common Stockholders
$ 1,205,913
$ 1,133,595
$ (925,784)
(22) Financial Information of Colony Bankcorp, Inc. (Parent Only) (Continued)
COLONY BANKCORP, INC. (PARENT ONLY)
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31
2012
2011
2010
Net Income
$ 2,641,298
$ 2,533,595
$ 474,216
Other Comprehensive Income, Net of Tax
Gains (Losses) on Securities
Arising During the Year
Reclassification Adjustment
Change in Net Unrealized Gains (Losses)
on Securities Available for Sale, Net of
Reclassification Adjustment and Tax Effects
(186,830)
(1,872,726)
4,439,108
(1,929,577)
1,227,281
(1,727,261)
(2,059,556)
2,509,531
(499,980)
Comprehensive Income (Loss)
$ 581,742
$ 5,043,126
$ (25,764)
(22) Financial Information of Colony Bankcorp, Inc. (Parent Only) (Continued)
COLONY BANKCORP, INC. (PARENT ONLY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
Cash Flows from Operating Activities
Net Income
Adjustments to Reconcile Net Income to
Net Cash Used by Operating Activities
Depreciation and Amortization
Equity in Undistributed
Earnings of Subsidiary
Other
Cash Flows from Investing Activities
Purchases of Premises and Equipment
Cash Flows from Financing Activities
Dividends Paid on Preferred Stock
Proceeds from Issuance of Common Stock
2012
2011
2010
$ 2,641,298
$ 2,533,595
$ 474,216
93,427
112,651
194,918
(3,416,740)
124,543
(3,390,480)
24,977
(1,438,342)
(260,318)
(557,472)
(719,257)
(1,029,526)
-
(1,900)
(31,877)
-
-
-
(1,400,000)
-
(1,400,000)
5,078,255
(1,400,000)
3,678,255
Increase (Decrease) in Cash
(557,472)
(2,121,157)
2,616,852
Cash, Beginning
Cash, Ending
1,051,904
3,173,061
556,209
$ 494,432
$ 1,051,904
$ 3,173,061
(23) Earnings Per Share
Basic earnings per share is computed by dividing net income (loss) available to common stockholders by
the weighted average number of common shares outstanding during each period. Diluted earnings per
share reflects the potential dilution of restricted stock and common stock warrants. Net income available
to common stockholders represents net income (loss) after preferred stock dividends. The following table
presents earnings per share for the years ended December 31, 2012, 2011 and 2010:
2012
2011
2010
Numerator
Net Income (Loss) Available to Common Stockholders
$1,205,913
$1,133,595
$ (925,784)
Denominator
Weighted Average Number of Common Shares
Outstanding for Basic Earnings Per Common Share
Dilutive Effect of Potential Common Stock
Restricted Stock
Stock Warrants
Weighted-Average Number of Shares Outstanding for
Diluted Earnings Per Common Share
8,439,258
8,439,258
8,149,217
-
-
-
-
-
-
8,439,258
8,439,258
8,149,217
Earnings (Loss) Per Share - Basic
$ 0.14
$ 0.13
$ (0.11)
Earnings (Loss) Per Share - Diluted
$ 0.14
$ 0.13
$ (0.11)
For the years ended December 31, 2012 and 2011, respectively, the Company has excluded 500,000 and
501,855 common stock equivalents with strike prices that would cause them to be antidilutive.
Additionally, due to the net loss reported for the year ended December 31, 2010, the Company has
excluded 505,283 shares of common stock equivalents because these would also have been antidilutive.
(24) Subsequent Event
On January 29, 2013, the Company’s 28,000 shares of Cumulative Perpetual Preferred Stock, Series A
(the Preferred Stock) was sold by the Treasury to the public through a modified dutch auction. This
auction is part of the Treasury’s ongoing efforts to wind down its remaining TARP bank investments.
The sale of the Preferred Stock to new investors did not result in any accounting entries and does not
change the Company’s capital position. The Treasury continues to hold the Warrant for 500,000 shares of
common stock; however, the Company has notified the Treasury of its intentions to repurchase the
warrant, although no price for the repurchase has been set.
Cumulative dividends on the Preferred Shares will continue to accrue at a rate of 5 percent per annum for
the first five years from initial issuance and at a rate of 9 percent per annum thereafter. The Preferred
Stock continues to have no maturity date and ranks senior to the Company’s Common Stock. The
Preferred Stock continues to be redeemable at the option of the Company at 100 percent of their
liquidation preference, plus any accrued and unpaid dividends.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements and Factors that Could Affect Future Results
Certain statements contained in this Annual Report that are not statements of historical fact constitute
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995
(the Act), notwithstanding that such statements are not specifically identified. In addition, certain
statements may be contained in the Company’s future filings with the SEC, in press releases, and in oral
and written statements made by or with the approval of the Company that are not statements of historical
fact and constitute forward-looking statements within the meaning of the Act. Examples of forward-
looking statements include, but are not limited to: (i) projections of revenues, income or loss, earnings or
loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii)
statements of plans and objectives of Colony Bankcorp, Inc. or its management or Board of Directors,
including those relating to products or services; (iii) statements of future economic performance; and (iv)
statements of assumptions underlying such statements. Words such as “believes,” “anticipates,”
“expects,” “intends,” “targeted” and similar expressions are intended to identify forward-looking
statements but are not the exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties that may cause actual results to differ
materially from those in such statements. Factors that could cause actual results to differ from those
discussed in the forward-looking statements include, but are not limited to:
Local and regional economic conditions and the impact they may have on the Company and its
customers and the Company’s assessment of that impact.
Changes in estimates of future reserve requirements based upon the periodic review thereof under
relevant regulatory and accounting requirements.
The effects of and changes in trade, monetary and fiscal policies and laws, including interest rate
policies of the Federal Reserve Board.
Inflation, interest rate, market and monetary fluctuations.
Political instability.
Acts of war or terrorism.
The timely development and acceptance of new products and services and perceived overall value
of these products and services by users.
Changes in consumer spending, borrowings and savings habits.
Technological changes.
Acquisitions and integration of acquired businesses.
The ability to increase market share and control expenses.
The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking,
securities and insurance) with which the Company and its subsidiaries must comply.
The effect of changes in accounting policies and practices, as may be adopted by the regulatory
agencies, as well as the Financial Accounting Standards Board and other accounting standard
setters.
Changes in the Company’s organization, compensation and benefit plans.
The costs and effects of litigation and of unexpected or adverse outcomes in such litigation.
Greater than expected costs or difficulties related to the integration of new lines of business.
The Company’s success at managing the risks involved in the foregoing items.
Restrictions or conditions imposed by our regulators on our operations, including the terms of our
Memorandum of Understanding.
Forward-looking statements speak only as of the date on which such statements are made. The Company
undertakes no obligation to update any forward-looking statement to reflect events or circumstances after
the date on which such statement is made, or to reflect the occurrence of unanticipated events.
The Company
Colony Bankcorp, Inc. (Colony) is a bank holding company headquartered in Fitzgerald, Georgia that
provides, through its wholly-owned subsidiary (collectively referred to as the Company), a broad array of
products and services throughout central, south and coastal Georgia markets. The Company offers
commercial, consumer and mortgage banking services.
Application of Critical Accounting Policies and Accounting Estimates
The accounting and reporting policies of the Company are in accordance with accounting principles
generally accepted in the United States of America and conform to general practices within the banking
industry. The Company’s financial position and results of operations are affected by management’s
application of accounting policies, including judgments made to arrive at the carrying value of assets and
liabilities and amounts reported for revenues, expenses and related disclosures. Different assumptions in
the application of these policies could result in material changes in the Company’s financial position
and/or results of operations. Critical accounting policies are those policies that management believes are
the most important to the portrayal of the Company’s financial condition and results of operations, and
they require management to make estimates that are difficult and subjective or complete.
Allowance for Loan Losses - The allowance for loan losses provides coverage for probable losses
inherent in the Company’s loan portfolio. Management evaluates the adequacy of the allowance for loan
losses quarterly based on changes, if any, in underwriting activities, the loan portfolio composition
(including product mix and geographic, industry or customer-specific concentrations), trends in loan
performance, regulatory guidance and economic factors. This evaluation is inherently subjective, as it
requires the use of significant management estimates. Many factors can affect management’s estimates of
specific and expected losses, including volatility of default probabilities, collateral values, rating
migrations, loss severity and economic and political conditions. The allowance is increased through
provisions charged to operating earnings and reduced by net charge-offs.
The Company determines the amount of the allowance based on relative risk characteristics of the loan
portfolio. The allowance recorded for loans is based on reviews of individual credit relationships and
historical loss experience. The allowance for losses relating to impaired loans is based on the loan’s
observable market price, the discounted cash flows using the loan’s effective interest rate, or the value of
collateral for collateral dependent loans.
Regardless of the extent of the Company’s analysis of customer performance, portfolio trends or risk
management processes, certain inherent but undetected losses are probable within the loan portfolio. This
is due to several factors, including inherent delays in obtaining information regarding a customer’s
financial condition or changes in their unique business conditions, the judgmental nature of individual
loan evaluations, collateral assessments and the interpretation of economic trends. Volatility of economic
or customer-specific conditions affecting the identification and estimation of losses for larger
nonhomogeneous credits and the sensitivity of assumptions utilized to establish allowances for
homogeneous groups of loans are among other factors. The Company estimates a range of inherent losses
related to the existence of these exposures. The estimates are based upon the Company’s evaluation of
risk associated with the commercial and consumer levels and the estimated impact of the current
economic environment.
Other Real Estate Owned and Foreclosed Assets
Other real estate owned or other foreclosed assets acquired through loan foreclosure are initially recorded
at fair value less costs to sell when acquired, establishing a new cost basis. The adjustment at the time of
foreclosure is recorded through the allowance for loan losses. Due to the subjective nature of establishing
the fair value when the asset is acquired, the actual fair value of the other real estate owned or foreclosed
asset could differ from the original estimate. If it is determined that fair value declines subsequent to
foreclosure, the valuation allowance is adjusted through a charge to noninterest expense. Operating costs
associated with the assets after acquisition are also recorded as noninterest expense. Gains and losses on
the disposition of other real estate owned and foreclosed assets are netted and recognized in noninterest
expense. Management obtains appraisals performed by certified, third-parties within one year of placing
a property into OREO. The fair value of the property is then evaluated by management annually going
forward, or more often if necessary. Annual evaluations may be performed by certified third parties, or
internally by management comparing recent sales of similar properties within the Company’s OREO
portfolio.
Overview
The following discussion and analysis presents the more significant factors affecting the Company’s
financial condition as of December 31, 2012 and 2011, and results of operations for each of the years in
the three-year period ended December 31, 2012. This discussion and analysis should be read in
conjunction with the Company’s consolidated financial statements, notes thereto and other financial
information appearing elsewhere in this report.
Taxable-equivalent adjustments are the result of increasing income from tax-free loans and investments
by an amount equal to the taxes that would be paid if the income were fully taxable based on a 34 percent
federal tax rate, thus making tax-exempt yields comparable to taxable asset yields.
Dollar amounts in tables are stated in thousands, except for per share amounts.
Results of Operations
The Company’s results of operations are determined by its ability to effectively manage interest income
and expense, to minimize loan and investment losses, to generate noninterest income and to control
noninterest expense. Since market forces and economic conditions beyond the control of the Company
determine interest rates, the ability to generate net interest income is dependent upon the Company’s
ability to obtain an adequate spread between the rate earned on earning assets and the rate paid on
interest-bearing liabilities. Thus, the key performance for net interest income is the interest margin or net
yield, which is taxable-equivalent net interest income divided by average earning assets. Net income
(loss) available to common shareholders totaled $1.21 million, or $0.14 per diluted common share in 2012
compared to $1.13 million, or $0.13 per diluted common share in 2011 compared to $(0.93) million, or
$(0.11) diluted per common share in 2010.
Selected income statement data, returns on average assets and average equity and dividends per share for
the comparable periods were as follows:
2012
2011
2010
Taxable-Equivalent Net Interest Income
Taxable-Equivalent Adjustment
$
36,417
144
$
35,178
191
$
37,393
178
Net Interest Income
Provision for Loan Losses
Noninterest Income
Noninterest Expense
Income Before Income Taxes
Income Taxes (Benefits)
36,273
6,785
9,733
35,379
3,842
1,201
34,987
8,250
9,951
33,051
3,637
1,104
37,215
13,350
10,007
33,857
15
(459)
Net Income
$
2,641
$
2,533
$
474
Preferred Stock Dividends
Net Income (Loss) Available to
Common Stockholders
Basic per Common Share:
Net Income (Loss)
Diluted per Common Share:
Net Income (Loss)
Return on Average Assets:
Net Income (Loss)
Return on Average Equity:
Net Income (Loss)
1,435
1,400
1,400
$
1,206
$
1,133
$
(926)
$
0.14
$
0.13
$
(0.11)
$
0.14
$
0.13
$
(0.11)
0.11%
0.09%
(0.07)%
1.25% 1.20%
(0.98)%
Net income available to common shareholders for 2012 increased $73 thousand, or 6.44 percent,
compared to 2011. The increase was primarily the result of a $1.47 million decrease in provision for loan
losses and an increase of $1.29 million in net interest income. The impact of these items was partly offset
by a $218 thousand decrease in noninterest income, an increase of $2.33 million in noninterest expense
and an increase of $97 thousand in income tax expense.
Net income available to common shareholders for 2011 increased $2.06 million, or 222.35 percent,
compared to 2010. The increase was primarily the result of a $5.1 million decrease in provision for loan
losses and a decrease of $805 thousand in noninterest expense. The impact of these items was partly
offset by a $2.23 million decrease in net interest income, a decrease of $55 thousand in noninterest
income and an increase of $1.56 million in income tax expense.
Details of the changes in the various components of net income are further discussed below.
Net Interest Income
Net interest income is the difference between interest income on earning assets, such as loans and
securities, and interest expense on liabilities, such as deposits and borrowings, which are used to fund
those assets. Net interest income is the Company’s largest source of revenue, representing 78.84 percent
of total revenue during 2012 and 77.86 percent during 2011.
Net interest margin is the taxable-equivalent net interest income as a percentage of average earning assets
for the period. The level of interest rates and the volume and mix of earning assets and interest-bearing
liabilities impact net interest income and net interest margin.
The Federal Reserve Board influences the general market rates of interest, including the deposit and loan
rates offered by many financial institutions. The Company’s loan portfolio is significantly affected by
changes in the prime interest rate. The prime interest rate, which is the rate offered on loans to borrowers
with strong credit is currently 3.25 percent and has been for the past four years. The federal funds rate
moved similar to prime rate with interest rates currently at 0.25 percent and has been for the past four
years. We anticipate the Federal Reserve maintaining its current interest rate policy in 2013, which
should benefit Colony’s net interest margin.
The following table presents the changes in taxable-equivalent net interest income and identifies the
changes due to differences in the average volume of earning assets and interest-bearing liabilities and the
changes due to changes in the average interest rate on those assets and liabilities. The changes in net
interest income due to changes in both average volume and average interest rate have been allocated to
the average volume change or the average interest rate change in proportion to the absolute amounts of
the change in each. The Company’s consolidated average balance sheets along with an analysis of
taxable-equivalent net interest earnings are presented in the Quantitative and Qualitative Disclosures
About Market Risk included elsewhere in this report.
Rate/Volume Analysis
The rate/volume analysis presented hereafter illustrates the change from year to year for each component
of the taxable equivalent net interest income separated into the amount generated through volume changes
and the amount generated by changes in the yields/rates.
Interest Income
Loans, Net-Taxable
Investment Securities
Taxable
Tax-Exempt
Total Investment Securities
Interest-Bearing Deposits in
Other Banks
Federal Funds Sold
Other Interest - Earning Assets
Total Interest Income
Interest Expense
Interest-Bearing Demand and
Savings Deposits
Time Deposits
Total Interest Expense
On Deposits
Other Interest-Bearing Liabilities
Federal Funds Purchased and
Repurchase Agreements
Subordinated Debentures
Other Debt
Changes From
2011 to 2012 (a)
Changes From
2010 to 2011 (a)
Volume
Rate
Total
Volume
Rate
Total
$
(2,406)
$
(133)
$
(2,539)
$
(6,117)
$
(1,149)
$
(7,266)
(377)
(2)
(379)
(4)
(15)
(12)
(2,816)
(1,630)
(14)
(1,644)
34
(1)
9
(1,735)
(2,007)
(16)
(2,023)
30
(16)
(3)
(4,551)
831
46
(581)
(15)
877 (596)
250
31
281
(3)
15
(3)
(5,231)
28
5
11
(1,701)
25
20
8
(6,932)
253
(1,762)
(227)
(2,477)
26
(4,239)
145
(1,499)
(549)
(2,359)
(404)
(3,858)
(1,509)
(2,704)
(4,213)
(1,354)
(2,908)
(4,262)
(338)
-
(1,175)
-
46
(110)
(338)
46
(1,285)
(449)
-
(508)
385
(8)
125
(64)
(8)
(383)
Total Interest Expense
Net Interest Income (Loss)
(3,022)
206
$
(2,768)
1,033
$
(5,790)
1,239
$
(2,311)
(2,920)
$
(2,406) (4,717)
(2,215)
$
$
705
(a) Changes in net interest income for the periods, based on either changes in average balances or
changes in average rates for interest-earning assets and interest-bearing liabilities, are shown on this
table. During each year there are numerous and simultaneous balance and rate changes; therefore, it
is not possible to precisely allocate the changes between balances and rates. For the purpose of this
table, changes that are not exclusively due to balance changes or rate changes have been attributed to
rates.
Our financial performance is impacted by, among other factors, interest rate risk and credit risk. We do
not utilize derivatives to mitigate our credit risk, relying instead on an extensive loan review process and
our allowance for loan losses.
Interest rate risk is the change in value due to changes in interest rates. The Company is exposed only to
U.S. dollar interest rate changes and, accordingly, the Company manages exposure by considering the
possible changes in the net interest margin. The Company does not have any trading instruments nor does
it classify any portion of its investment portfolio as held for trading. The Company does not engage in any
hedging activity or utilize any derivatives. The Company has no exposure to foreign currency exchange
rate risk, commodity price risk and other market risks. Interest rate risk is addressed by our Asset &
Liability Management Committee (ALCO) which includes senior management representatives. The
ALCO monitors interest rate risk by analyzing the potential impact to the net portfolio of equity value and
net interest income from potential changes to interest rates and considers the impact of alternative
strategies or changes in balance sheet structure.
Interest rates play a major part in the net interest income of financial institutions. The repricing of interest
earnings assets and interest-bearing liabilities can influence the changes in net interest income. The
timing of repriced assets and liabilities is Gap management and our Company has established its policy to
maintain a Gap ratio in the one-year time horizon of .80 to 1.20.
Our exposure to interest rate risk is reviewed at least quarterly by our Board of Directors and the ALCO.
Interest rate risk exposure is measured using interest rate sensitivity analysis to determine our change in
net portfolio value in the event of assumed changes in interest rates. In order to reduce the exposure to
interest rate fluctuations, we have implemented strategies to more closely match our balance sheet
composition. The Company has engaged FTN Financial to run a quarterly asset/liability model for interest
rate risk analysis. We are generally focusing our investment activities on securities with terms or average
lives in the 2-5 year range.
The Company maintains about 16.8 percent of its loan portfolio in adjustable rate loans that reprice with
prime rate changes, while the bulk of its other loans mature within 3 years. The liabilities to fund assets
are primarily in short term certificates of deposit that mature within one year. This balance sheet
composition allowed the Company to be relatively constant with its net interest margin until 2008.
During 2007, interest rates decreased 100 basis points and this decrease by the Federal Reserve in 2007
followed by 400 basis point decrease in 2008 resulted in significant pressure in net interest margins.
While the Federal Reserve rates have remained unchanged since 2008, we have seen the net interest
margin increase to 3.41 percent for 2012 compared to 3.11 percent for 2011 and to 3.12 percent for 2010.
Given the Federal Reserve’s aggressive posture during 2008 that ended the year with a range of 0 - 0.25
percent federal funds target rate and remained the same for all of 2012, we have seen our net interest
margin reach a low of 3.23 percent for first quarter 2012 to a high of 3.56 percent for third quarter 2012.
Taxable-equivalent net interest income for 2012 increased by $1.24 million, or 3.52 percent, compared to
2011 while taxable-equivalent net interest income for 2011 decreased by $2.21 million, or 5.92 percent,
compared to 2010. The average volume of earning assets during 2012 decreased $66.19 million
compared to 2011 while over the same period the net interest margin increased to 3.41 from 3.11 percent.
Improvement in the net interest margin in 2012 was primarily driven by reduction in the cost of funds and
maintaining longer term investments. Similarly, the average volume of earning assets during 2011
decreased $66.69 million compared to 2010 while over the same period the net interest margin decreased
to 3.11 from 3.12 percent. The decline in average earning assets in 2012 affected each category of assets,
while the significant decrease was primarily in average loans and investment securities. Growth in
average earning assets during 2011 and 2010 was primarily in fed funds sold and investment securities,
while average loans outstanding decreased significantly. The slight reduction in the net interest margin in
2011 was primarily the result of the decrease in average earning assets and maintenance of a higher
liquidity level.
The average volume of loans decreased $41.20 million in 2012 compared to 2011 and decreased $102.12
million in 2011 compared to 2010. The average yield on loans decreased 1 basis point in 2012 compared
to 2011 and decreased 15 basis points in 2011 compared to 2010. The average volume of deposits
decreased $31.03 million while other borrowings decreased $37.83 million in 2012 compared to 2011.
The average volume of other borrowings decreased $30.42 million in 2011 compared to 2010 while
average deposits decreased $33.54 million in 2011 compared to 2010. Interest-bearing deposits made up
125.76 percent of the decrease in average deposits in 2012 and 135.02 percent of the decrease in average
deposits in 2011. Accordingly, the ratio of average interest-bearing deposits to total average deposits was
89.5 percent in 2012, 90.6 percent in 2011 and 92.1 percent in 2010. This deposit mix, combined with a
general decrease in interest rates, had the effect of (i) decreasing the average cost of total deposits by 39
basis points in 2012 compared to 2011 and decreasing the average cost of total deposits by 37 basis points
in 2011 compared to 2010, and (ii) mitigating a portion of the impact of decreasing yields on earning
assets on the Company’s net interest income.
The Company’s net interest spread, which represents the difference between the average rate earned on
earning assets and the average rate paid on interest-bearing liabilities, was 3.27 percent in 2012 compared
to 2.93 percent in 2011 and 2.94 percent in 2010. The net interest spread, as well as the net interest
margin, will be impacted by future changes in short-term and long-term interest rate levels, as well as the
impact from the competitive environment. A discussion of the effects of changing interest rates on net
interest income is set forth in Quantitative and Qualitative Disclosures About Interest Rate Sensitivity
included elsewhere in this report.
Provision for Loan Losses
The provision for loan losses is determined by management as the amount to be added to the allowance
for loan losses after net charge-offs have been deducted to bring the allowance to a level which, in
management’s best estimate, is necessary to absorb probable losses within the existing loan portfolio. The
provision for loan losses totaled $6.79 million in 2012 compared to $8.25 million in 2011 and $13.35
million in 2010. See the section captioned “Allowance for Loan Losses” elsewhere in this discussion for
further analysis of the provision for loan losses.
Noninterest Income
The components of noninterest income were as follows:
Service Charges on Deposit Accounts
Other Charges, Commissions and Fees
Other
Mortgage Fee Income
Securities Gains
SBA Premiums
2012
2011
2010
$
3,573
1,515
1,102
400
2,837
306
$
3,244
1,312
1,259
265
2,924
947
$
3,597
1,140
1,335
313
2,617
1,005
$
9,733
$
9,951
$
10,007
Total noninterest income for 2012 decreased $218 thousand, or 2.19 percent, compared to 2011 while
total noninterest income for 2011 decreased $56 thousand, or 0.56 percent, compared to 2010. The
decrease in 2012 noninterest income compared to 2011 was primarily in SBA premiums while the
decrease in 2011 noninterest income compared to 2010 was primarily in mortgage fee income, SBA
premiums, and service charges on deposit accounts. Changes in these items and the other components of
noninterest income are discussed in more detail below.
Service Charges on Deposit Accounts. Service charges on deposit accounts for 2012 increased $329
thousand, or 10.14 percent, compared to 2011. Service charges on deposit accounts for 2011 decreased
$353 thousand, or 9.81 percent, compared to 2010. The increase in 2012 was primarily due to an increase
in volume of consumer and business account overdraft fees.
Mortgage Fee Income. Mortgage fee income for 2012 increased $135 thousand, or 50.94 percent,
compared to 2011 while mortgage fee income for 2011 decreased $48 thousand, or 15.34 percent,
compared to 2010. The increase in 2012 was due to increased mortgage loan activity due to an initiative
to increase mortgage lending opportunities given the low interest rate environment. The decrease in 2011
was primarily due to decreased mortgage loan activity with the housing and real estate downturn.
Security Gains. The Company realized gains from the sale of securities of $2.83 million for 2012
compared to $2.92 million for 2011 and $2.62 million in 2010.
All Other Noninterest Income. Other charges, commissions and fees, other income and SBA premiums
for 2012 decreased $595 thousand, or 16.91 percent, compared to 2011. The decrease was primarily
attributable to the decline in SBA premiums. In 2011 other charges, commissions and fees, other income
and SBA premiums for 2011 increased $38 thousand, or 1.09 percent, compared to 2010. The increase
was primarily attributable to increased ATM and bank debit card interchange fees for 2011 compared to
2010.
Noninterest Expense
The components of noninterest expense were as follows:
Salaries and Employee Benefits
Occupancy and Equipment
Other
2012
2011
2010
$
15,565
3,878
15,936
$
14,633
3,998
14,420
$
14,098
4,422
15,337
$
35,379
$
33,051
$
33,857
Total noninterest expense for 2012 increased $2.33 million, or 7.04 percent compared to 2011 while total
noninterest expense decreased $806 thousand, or 2.38 percent compared to 2010. Growth in noninterest
expense in 2012 was primarily in salaries and employee benefits and noninterest expense while the
Company had a slight decrease in occupancy and equipment. Reduction in noninterest expense in 2011
was primarily in occupancy and equipment and other noninterest expense while the Company had a slight
increase in salaries and employee benefits.
Salaries and Employee Benefits. Salaries and employee benefits expense for 2012 increased $932
thousand, or 6.37 percent, compared to 2011. This increase is primarily attributable to an increase in
headcount related to increased regulatory compliance demands. Salaries and employee benefits expense
for 2011 increased $535 thousand, or 3.80 percent, compared to 2010.
Occupancy and Equipment. Net occupancy expense for 2012 decreased $120 thousand compared to
2011, or a decrease of 3.00 percent. Net occupancy expense for 2011 decreased $424 thousand compared
to 2010, or a decrease of 9.59 percent. The decrease in occupancy expense in 2011 is primarily due to a
reduction in depreciation expense of $351 thousand from 2010.
All Other Noninterest Expense. All other noninterest expense for 2012 increased $1.52 million, or 10.51
percent. Significant changes in noninterest expense were: FDIC insurance assessment fees decreased to
$1.50 million for 2012 compared to $1.83 million for 2011, or a decrease of $331 thousand, legal and
professional fees decreased to $1.1 million for 2012 in comparison to $1.2 million for 2011, or a decrease
of $101 thousand, foreclosed property and repossession expense increased to $5.6 million in 2012
compared to $4.0 million in 2011, or an increase of $1.57 million, and advertising decreased to $423
thousand in 2012 compared to $508 thousand in 2011, or a decrease of $86 thousand. All other
noninterest expense for 2011 decreased $917 thousand, or 5.98 percent. Significant changes in
noninterest expense were: FDIC insurance assessment fees decreased to $1.83 million for 2011 compared
to $1.87 million for 2010, or a decrease of $38 thousand; foreclosed property and repossession expense
decreased to $4.0 million for 2011 compared to $4.9 million for 2010, or a decrease of $898 thousand,
legal and professional fees decreased to $1.2 million for 2011 in comparison to $1.4 million for 2010, or a
decrease of $183 thousand, and advertising decreased to $568 thousand in 2011 compared to $743
thousand, or 4.59 percent.
Sources and Uses of Funds
The following table illustrates, during the years presented, the mix of the Company’s funding sources and
the assets in which those funds are invested as a percentage of the Company’s average total assets for the
period indicated. Average assets totaled $1.14 billion in 2012 compared to 1.21 billion in 2011 and $1.27
billion in 2010.
Sources of Funds:
Deposits:
Noninterest-Bearing
Interest-Bearing
Federal Funds Purchased
and Repurchase Agreements
Subordinated Debentures
and Other Borrowed Money
Other Noninterest-Bearing
Liabilities
Equity Capital
2012
2011
2010
$
101,896
867,794
8.9%
76.1
$
93,903
906,816
7.8%
75.2
$
82,160
952,095
6.5%
75.0
-
67,974
5,609
96,541
-
6.0
0.5
8.5
9,851
0.8
26,070
2.0
95,949
8.0
110,149
8.7
4,635
94,737
0.4
7.8
4,681
94,452
0.4
7.4
Total
$
1,139,814
100.0%
$
1,205,891
100.0%
$
1,269,607
100.0%
Uses of Funds:
Loans
Investment Securities
Federal Funds Sold
Interest-Bearing Deposits
Other Interest-Earning Assets
Other Noninterest-Earning Assets
$
706,091
284,261
38,877
17,046
4,277
89,262
62.0%
24.9
3.4
1.5
0.4
7.8
$
742,482
300,293
44,667
18,715
5,781
93,953
61.6%
24.9
3.7
1.5
0.5
7.8
$
834,739
267,015
38,809
21,911
6,297
100,836
65.8%
21.0
3.1
1.7
0.5
7.9
Total
$
1,139,814
100.0%
$
1,205,891
100.0%
$
1,269,607
100.0%
Deposits continue to be the Company’s primary source of funding. Over the comparable periods, the
relative mix of deposits continues to be high in interest-bearing deposits. Interest-bearing deposits totaled
89.5 percent of total average deposits in 2012 compared to 90.62 percent in 2011 and 92.06 percent in
2010.
The Company primarily invests funds in loans and securities. Loans continue to be the largest component
of the Company’s mix of invested assets. Loan demand increased in 2012 as total loans were $747.1
million at December 31, 2012, up 4.3 percent, compared to loans of $716.3 million at December 31, 2011,
while total loans at December 31, 2011 were down 11.9 percent, compared to loans of $813.3 million at
December 31, 2010. See additional discussion regarding the Company’s loan portfolio in the section
captioned “Loans” included below. The majority of funds provided by deposits have been invested in
loans.
Loans
The following table presents the composition of the Company’s loan portfolio as of December 31 for the
past five years.
Commercial, Financial and Agricultural
Real Estate
Construction
Mortgage, Farmland
Mortgage, Other
Consumer
Other
2012
2011
2010
2009
2008
$
61,895
$
57,408
$
63,772
$
80,984
$
86,379
59,660
49,057
538,231
29,778
8,429
747,050
62,076
48,225
508,919
30,449
9,244
716,321
76,682
52,778
570,350
33,564
16,104
813,250
113,117
54,965
626,993
38,383
16,950
931,392
160,374
54,159
600,653
44,163
15,308
961,036
Unearned Interest and Fees
Allowance for Loan Losses
(234)
(12,737)
(57)
(15,650)
(61)
(28,280)
(140)
(31,401)
(179)
(17,016)
Loans
$
734,079
$
700,614
$
784,909
$
899,851
$
943,841
The following table presents total loans as of December 31, 2012 according to maturity distribution
and/or repricing opportunity on adjustable rate loans.
Maturity and Repricing Opportunity
One Year or Less
After One Year through Three Years
After Three Years through Five Years
Over Five Years
$ 362,748
297,333
44,758
42,211
$ 747,050
Overview. Loans totaled $747.1 million at December 31, 2012, up 4.3 percent from December 31, 2011
loans of $716.3 million. The majority of the Company’s loan portfolio is comprised of the real estate
loans-mortgage other, real estate construction and commercial financial and agricultural loans. Real
estate-other, which is primarily 1-4 family residential properties and nonfarm nonresidential properties,
made up 72.05 percent and 71.04 percent of total loans, real estate construction made up 7.99 percent and
8.67 percent while commercial financial and agricultural loans made up 8.29 percent and 8.01 percent of
total loans at December 31, 2012 and December 31, 2011, respectively. Real estate loans-mortgage other
include both commercial and consumer balances.
Loan Origination/Risk Management. In accordance with the Company’s decentralized banking model,
loan decisions are made at the local bank level. The Company utilizes an Executive Loan Committee to
assist lenders with the decision making and underwriting process of larger loan requests. Due to the
diverse economic markets served by the Company, evaluation and underwriting criterion may vary
slightly by market. Overall, loans are extended after a review of the borrower’s repayment ability,
collateral adequacy, and overall credit worthiness.
Commercial purpose, commercial real estate, and industrial loans are underwritten similar to other loans
throughout the company. The properties securing the Company’s commercial real estate portfolio are
diverse in terms of type and geographic location. This diversity helps reduce the company’s exposure to
adverse economic events that affect any single market or industry. Management monitors and evaluates
commercial real estate loans based on collateral, geography, and risk grade criteria. The Company also
utilizes information provided by third-party agencies to provide additional insight and guidance about
economic conditions and trends affecting the markets it serves.
The Company extends loans to builders and developers that are secured by non-owner occupied
properties. In such cases, the Company reviews the overall economic conditions and trends for each
market to determine the desirability of loans to be extended for residential construction and development.
Sources of repayment for these types of loans may be pre-committed permanent loans from approved
long-term lenders, sales of developed property or an interim mini-perm loan commitment from the
Company until permanent financing is obtained. In some cases, loans are extended for residential loan
construction for speculative purposes and are based on the perceived present and future demand for
housing in a particular market served by the Company. These loans are monitored by on-site inspections
and are considered to have higher risks than other real estate loans due to their ultimate repayment being
sensitive to interest rate changes, general economic conditions and trends, the demand for the properties,
and the availability of long-term financing.
The Company originates consumer loans at the bank level. Due to the diverse economic markets served
by the Company, underwriting criterion may vary slightly by market. The Company is committed to
serving the borrowing needs of all markets served and, in some cases, adjusts certain evaluation methods
to meet the overall credit demographics of each market. Consumer loans represent relatively small loan
amounts that are spread across many individual borrowers to help minimize risk. Additionally, consumer
trends and outlook reports are reviewed by management on a regular basis.
The Company utilizes an independent third party company for loan review and validation of the credit
risk program on an ongoing quarterly basis. Results of these reviews are presented to management and
the audit committee. The loan review process complements and reinforces the risk identification and
assessment decisions made by lenders and credit personnel, as well as the Company’s policies and
procedures.
Commercial, Financial and Agricultural. Commercial, financial and agricultural loans at December 31,
2012 increased 7.82 percent from December 31, 2011 to $61.90 million. The Company’s commercial and
industrial loans are a diverse group of loans to small, medium and large businesses. The purpose of these
loans varies from supporting seasonal working capital needs to term financing of equipment. While some
short-term loans may be made on an unsecured basis, most are secured by the assets being financed with
collateral margins that are consistent with the Company’s loan policy guidelines.
Industry Concentrations. As of December 31, 2012 and December 31, 2011, there were no concentrations
of loans within any single industry in excess of 10 percent of total loans, as segregated by Standard
Industrial Classification code (“SIC code”). The SIC code is a federally designed standard industrial
numbering system used by the Company to categorize loans by the borrower’s type of business.
Collateral Concentrations. Concentrations of credit risk can exist in relation to individual borrowers or
groups of borrowers, certain types of collateral, certain types of industries, or certain geographic regions.
The Company has a concentration in real estate loans as well as a geographic concentration that could
pose an adverse credit risk, particularly with the current economic downturn in the real estate market. At
December 31, 2012, approximately 86.60 percent of the Company’s loan portfolio was concentrated in
loans secured by real estate. A substantial portion of borrowers’ ability to honor their contractual
obligations is dependent upon the viability of the real estate economic sector. The downturn of the
housing and real estate market that began in 2007 resulted in an increase of problem loans secured by real
estate. These loans are centered primarily in the Company’s larger MSA markets. Declining collateral
real estate values that secure land development, construction and speculative real estate loans in the
Company’s larger MSA markets have resulted in high loan loss provisions in the last several years. In
addition, a large portion of the Company’s foreclosed assets are also located in these same geographic
markets, making the recovery of the carrying amount of foreclosed assets susceptible to changes in market
conditions. Management continues to monitor these concentrations and has considered these
concentrations in its allowance for loan loss analysis.
Large Credit Relationships. The Company is currently in eighteen counties in central, south and coastal
Georgia and includes metropolitan markets in Dougherty, Lowndes, Houston, Chatham and Muscogee
counties. As a result, the Company originates and maintains large credit relationships with several
commercial customers in the ordinary course of business. The Company considers large credit
relationships to be those with commitments equal to or in excess of $5.0 million prior to any portion being
sold. Large relationships also include loan participations purchased if the credit relationship with the
agent is equal to or in excess of $5.0 million. In addition to the Company’s normal policies and
procedures related to the origination of large credits, the Company’s Executive Loan Committee and
Director Loan Committee must approve all new and renewed credit facilities which are part of large credit
relationships. The following table provides additional information on the Company’s large credit
relationships outstanding at December 31, 2012 and December 31, 2011.
December 31, 2012
Period End Balances
December 31, 2011
Period End Balances
Number of
Number of
Relationships Committed Outstanding Relationships Committed Outstanding
Large Credit Relationships:
$10 million and greater
$5 million to $9.9 million
1
13
$10,276
88,248
$10,276
72,179
1
5
$11,811
31,363
$11,811
31,363
Maturities and Sensitivities of Loans to Changes in Interest Rates. The following table presents the
maturity distribution of the Company’s loans at December 31, 2012. The table also presents the portion of
loans that have fixed interest rates or variable interest rates that fluctuate over the life of the loans in
accordance with changes in an interest rate index such as the prime rate.
Due in One
Year or Less
After One,
but Within
Three Years
After Three,
but Within
Five Years
After Five
Years
Total
Loans with fixed interest rates
Loans with floating interest rates
$244,450
118,298
$295,346
1,987
$42,668
2,090
$39,413
2,798
$621,877
125,173
Total
$362,748
$297,333
$44,758
$42,211
$747,050
The Company may renew loans at maturity when requested by a customer whose financial strength
appears to support such renewal or when such renewal appears to be in the Company’s best interest. In
such instances, the Company generally requires payment of accrued interest and may adjust the rate of
interest, require a principal reduction or modify other terms of the loan at the time of renewal.
Nonperforming Assets and Potential Problem Loans
Year-end nonperforming assets and accruing past due loans were as follows:
2012
2011
2010
2009
2008
Loans Accounted for on Nonaccrual
Loans Past Due 90 Days or More
Other Real Estate Foreclosed
Securities Accounted for on Nonaccrual
$29,851
4
15,941
366
$38,822
15
20,445
426
$28,902
19
20,208
132
$33,535
31
19,705
132
$35,124
250
12,812
---
Total Nonperforming Assets
$46,162
$59,708
$49,261
$53,403
$48,186
Nonperforming Assets as a Percentage of:
Total Loans and Foreclosed Assets
Total Assets
Supplemental Data:
Trouble Debt Restructured Loans
In Compliance with Modified Terms
Trouble Debt Restructured Loans
Past Due 30-89 Days
Accruing Past Due Loans:
30-89 Days Past Due
90 or More Days Past Due
6.05%
4.05%
8.10%
4.99%
5.91%
3.86%
5.62%
4.09%
4.95%
3.85%
$24,870
$29,839
$26,556
$9,269
$ ---
1,377
611
1,048
459
---
14,911
4
7,161
15
19,740
19
25,547
31
18,675
250
Total Accruing Past Due Loans
$14,915
$ 7,176
$19,759
$25,578
$18,925
Nonperforming assets include nonaccrual loans, loans past due 90 days or more, foreclosed real estate and
nonaccrual securities. Nonperforming assets at December 31, 2012 decreased 22.69 percent from
December 31, 2011.
Generally, loans are placed on nonaccrual status if principal or interest payments become 90 days past due
and/or management deems the collectibility of the principal and/or interest to be in question, as well as
when required by regulatory requirements. Loans to a customer whose financial condition has deteriorated
are considered for nonaccrual status whether or not the loan is 90 days or more past due. For consumer
loans, collectibility and loss are generally determined before the loan reaches 90 days past due.
Accordingly, losses on consumer loans are recorded at the time they are determined. Consumer loans that
are 90 days or more past due are generally either in liquidation/payment status or bankruptcy awaiting
confirmation of a plan. Once interest accruals are discontinued, accrued but uncollected interest is charged
to current year operations. Subsequent receipts on nonaccrual loans are recorded as a reduction of
principal, and interest income is recorded only after principal recovery is reasonably assured.
Classification of a loan as nonaccrual does not preclude the ultimate collection of loan principal or
interest.
Troubled debt restructured loans are loans on which, due to deterioration in the borrower’s financial
condition, the original terms have been modified in favor of the borrower or either principal or interest has
been forgiven.
Foreclosed assets represent property acquired as the result of borrower defaults on loans. Foreclosed
assets are recorded at estimated fair value, less estimated selling costs, at the time of foreclosure. Write-
downs occurring at foreclosure are charged against the allowance for possible loan losses. On an ongoing
basis, properties are appraised as required by market indications and applicable regulations. Write-downs
are provided for subsequent declines in value and are included in other non-interest expense along with
other expenses related to maintaining the properties.
Allowance for Loan Losses
The allowance for loan losses is a reserve established through a provision for loan losses charged to
expense, which represents management’s best estimate of probable losses that have been incurred within
the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for
estimated loan losses and risks inherent in the loan portfolio. The allowance for loan losses includes
allowance allocations calculated in accordance with current U.S. accounting standards. The level of the
allowance reflects management’s continuing evaluation of industry concentrations, specific credit risks,
loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions
and unidentified losses inherent in the current loan portfolio. Portions of the allowance may be allocated
for specific credits; however, the entire allowance is available for any credit that, in management’s
judgment, should be charged off. While management utilizes its best judgment and information available,
the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Company’s
control, including the performance of the Company’s loan portfolio, the economy, changes in interest
rates and the view of the regulatory authorities toward loan classifications.
The Company’s allowance for loan losses consists of specific valuation allowances established for
probable losses on specific loans and historical valuation allowances, adjusted for qualitative factors, for
other loans with similar risk characteristics.
The allowances established for probable losses on specific loans are based on a regular analysis and
evaluation of classified loans. Loans are classified based on an internal credit risk grading process that
evaluates, among other things: (i) the obligor’s ability to repay; (ii) the underlying collateral, if any; and
(iii) the economic environment and industry in which the borrower operates. This analysis is performed
at the subsidiary bank level and is reviewed at the parent Company level. Once a loan is classified, it is
reviewed to determine whether the loan is impaired and, if impaired, a portion of the allowance for
possible loan losses is specifically allocated to the loan. Specific valuation allowances are determined
after considering the borrower’s financial condition, collateral deficiencies, and economic conditions
affecting the borrower’s industry, among other things.
Historical valuation allowances are calculated from loss factors applied to loans with similar risk
characteristics. The loss factors are based on loss ratios for groups of loans with similar risk
characteristics. The loss ratios are derived from the proportional relationship between actual loan losses
and the total population of loans in the risk category. The historical loss ratios are periodically updated
based on actual charge-off experience. The Company’s groups of similar loans include similarly risk-
graded groups of loans not reviewed for individual impairment. In addition, the Company has also
segmented its’ real estate portfolio into thirteen separate categories and captured loan loss experience for
each category. Most of the Company’s charge-offs the past two years have been real estate dependent
loans and we believe this segmentation provides more accuracy in determining allowance for loan loss
adequacy. During first quarter 2012, management refined the Company’s methodology used in
estimating the amount of the Allowance for Loan and Lease Losses (ALLL) which is defined in the notes
to the financial statements. The effect of these changes on the ALLL resulted in a reduction in the ALLL
estimate of $2,154,639. Management believes the adjustments made will result in a better estimation of
losses incurred in the portfolio.
Management evaluates the adequacy of the allowance for each of these components on a quarterly basis.
Peer comparisons, industry comparisons, and regulatory guidelines are also used in the determination of
the general valuation allowance.
Loans identified as losses by management, internal loan review, and/or bank examiners are charged-off.
An allocation for loan losses has been made according to the respective amounts deemed necessary to
provide for the possibility of incurred losses within the various loan categories. The allocation is based
primarily on previous charge-off experience adjusted for changes in experience among each category.
Additional amounts are allocated by evaluating the loss potential of individual loans that management has
considered impaired. The reserve for loan loss allocation is subjective since it is based on judgment and
estimates, and therefore is not necessarily indicative of the specific amounts or loan categories in which
the charge-offs may ultimately occur. The following table shows a comparison of the allocation of the
reserve for loan losses for the periods indicated.
2012
2011
2010
2009
2008
Reserve
%* Reserve
%* Reserve
%* Reserve
%* Reserve
%*
Commercial, Financial
and Agricultural
Real Estate - Construction
Real Estate - Farmland
Real Estate - Other
Loans to Individuals
All other loans
$ 1,277
2,028
291
8,569
228
344
8% $ 1,368
8% $ 5,113
8% $ 4,710
9% $ 4,254
9%
8
7
72
4
1
3,261 9
365 7
10,143 71
205 4
308 1
4,646 9
944 7
13,972 70
3,074 4
531 2
7,850 12
942 6
13,816 67
2,826 4
1,257 2
2,808 17
681 6
5,955 62
2,467 4
851 2
Total
$12,737
100% $15,650 100% $28,280 100% $31,401 100% $17,016 100%
* Loan balance in each category expressed as a percentage of total end of period loans.
Activity in the allowance for loan losses is presented in the following table. There were no charge-offs or
recoveries related to foreign loans during any of the periods presented.
The following table presents an analysis of the Company’s loan loss experience for the periods indicated.
2012
2011
2010
2009
2008
Allowance for Loan Losses at Beginning of Year
$15,650
$28,280
$31,401
$17,016
$15,513
Charge-Offs
Commercial, Financial and Agricultural
Real Estate
Consumer
All Other
Recoveries
Commercial, Financial and Agricultural
Real Estate
Consumer
All Other
Net Charge-Offs
Provision for Loans Losses
656
9,618
169
11
1,297
21,215
223
115
725
15,309
549
1,040
768
27,545
908
272
1,680
9,190
994
103
10,454
22,850
17,623
29,493
11,967
140
494
82
40
756
9,698
6,785
582
1,235
145
8
1,970
82
774
246
50
1,152
73
156
191
13
433
73
285
155
19
532
20,880
16,471
29,060
11,435
8,250
13,350
43,445
12,938
Allowance for Loan Losses at End of Year
$12,737
$15,650
$28,280
$31,401
$17,016
Ratio of Net Charge-Offs to Average Loans
1.34%
2.74%
1.90%
3.02%
1.19%
The allowance for loan losses is maintained at a level considered appropriate by management, based on
estimated probable losses within the existing loan portfolio. The allowance, in the judgment of
management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The
provision for loan losses reflects loan quality trends, including the level of net charge-offs or recoveries,
among other factors. The provision for loan losses decreased $1.47 million from $8.25 million in 2011 to
$6.79 million in 2012. The provision for loan losses charged to earnings was based upon management’s
judgment of the amount necessary to maintain the allowance at an adequate level to absorb losses inherent
in the loan portfolio at year end. The amount each period is dependent upon many factors, including
changes in the risk ratings of the loan portfolio, net charge-offs, past due ratios, the value of collateral,
and other environmental factors that include portfolio loan quality indicators; portfolio growth and
composition of commercial real estate and concentrations; portfolio policies, procedures, underwriting
standards, loss recognition, collection and recovery practices; local economic business conditions; and the
experience, ability, and depth of lending management and staff. Of significance to changes in the
allowance during 2012 was the reduction in the net charge-offs in 2012 to $9.70 million from $20.88
million in 2011. The Company believes that collection efforts have reduced impaired loans and the
reduction in net charge-offs runs parallel with the improvement in the substandard assets. As we begin to
see stabilization in the economy and the housing and real estate market, we expect continued
improvement in our substandard assets, including net charge-offs.
The remainder of the charge-offs were made up of several small loans, most of which were real estate
dependent loans and commercial loans.
Provisions continue to be higher than normal primarily due to the elevated risk of residential real estate
and land development loans that began during 2007 with the housing and real estate downturn.
Nonperforming assets as a percentage of total loans and foreclosed assets decreased to 6.05 percent at
December 31, 2012 compared to 8.10 percent at December 31, 2011. Total nonperforming assets at
December 31, 2012 were $46.2 million, of which $23.9 million were construction, land development and
other land loans; $2.4 million were farmland properties; $7.2 million were 1-4 family residential
properties; $0.6 million were multifamily properties; $10.4 million were nonfarm nonresidential
properties; and the remainder of nonperforming assets totaling $1.7 million were commercial and
consumer loans. Total nonperforming assets at December 31, 2011 were $59.7 million, of which $35.5
million were construction, land development and other land loans; $4.6 million were 1-4 family
residential properties; $0.7 million were multifamily properties; $15.3 million were nonfarm
nonresidential properties; $0.7 million were farmland properties; and the remainder of nonperforming
assets totaling $2.9 million were commercial and consumer loans. All of the classified loans greater than
$50 thousand, including the nonperforming loans, are reviewed each quarter for impairment. The
allowance for loan losses of $12.7 million at December 31, 2012 was 1.70 percent of total loans which
compares to $15.6 million at December 31, 2011, or 2.18 percent of total loans and to $28.3 million at
December 31, 2010, or 3.48 percent. Unusually high levels of loan loss provision have been required
over the past few years as Company management addresses asset quality deterioration. While the
nonperforming loans as a percentage of total loans was 4.00 percent, 5.42 percent, and 3.56 percent,
respectively as of December 31, 2012, December 31, 2011 and December 31, 2010, the Company’s
allowance for loan losses as a percentage of nonperforming loans was 42.66 percent, 40.29 percent, and
97.78 percent, respectively as of December 31, 2012, December 31, 2011 and December 31, 2010. We
continue to identify new problem loans, though at a slower pace than the previous year.
While the allowance for loan losses decreased from $15.65 million, or 2.18 percent of total loans at
December 31, 2011 to $12.74 million, or 1.71 percent of total loans at December 31, 2012, the Company
also reflected a decrease in nonperforming loans from $38.84 million at December 31, 2011 to $29.86
million at December 31, 2012. When a loan is performing, it is accounted for under the Company’s
general loan loss reserve methodology. Once the loan becomes impaired, it is removed from the pool of
loans covered by the general reserve and reviewed individually for exposure. In cases where the
individual review reveals no exposure, no reserve is recorded for that loan. If, however, the individual
review of the loan does indicate some exposure, management often charges off this exposure, rather than
recording a specific reserve. In these instances, a loan which becomes nonperforming could actually
reduce the allowance for loan losses. The allowance for loan losses is inherently judgmental, nevertheless
the Company’s methodology is consistently applied based on standards for current accounting by
creditors for impairment of a loan and allowance allocations determined in accordance with accounting
for contingencies. Loans individually selected for impairment review consist of all loans classified
substandard that are $50 thousand and over. The remaining portfolio is analyzed based on historical loss
data. Loans selected for individual review where no individual impairment amount is identified do not
receive a contribution to the allowance for loan losses based on historical data. Historical loss rates are
updated annually to provide the annual loss rate which is applied to the appropriate portfolio grades. In
addition, the Company has also segmented its real estate portfolio into thirteen separate categories and
captured loan loss experience for each category. Most of the Company’s charge-offs during the past four
years have been real estate dependent loans and we believe this segmentation provides more accuracy in
determining allowance for loan loss adequacy.
In addition, environmental factors as discussed earlier are evaluated for any adjustments needed to the
allowance for loan losses determination produced by individual loan impairment analysis and remaining
portfolio segmentation analysis. The allowance for loan losses determination is based on individual loan
reviews throughout the year and an environmental analysis at quarter end.
As part of our monitoring and evaluation of collateral values for nonperforming and problem loans in
determining adequate allowance for loan losses, regional credit officers along with lending officers submit
monthly problem loan reports for loans greater than $50 thousand in which impairment is identified. This
process typically determines collateral shortfall based upon local market real estate value estimates should
the collateral be liquidated. Once the loan is deemed uncollectible, it is transferred to our problem loan
department for workout, foreclosure and/or liquidation. The problem loan department gets a current
appraisal on the property in order to record a fair market value (less selling expenses) when the property is
foreclosed on and moved into other real estate. Trends the past several quarters reflect a decrease in
collateral values from two to three years ago on improved properties of fifteen to twenty five percent and
on land development and land loans of thirty to fifty percent. The significant reduction in collateral
values on nonperforming assets has resulted in charge-offs particularly during 2012.
The allowance for loan losses is $2.91 million less than the prior year end, after factoring in net-charge
offs, additional provisions, and the normal determination for an adequate funding level. Restructuring of
some substandard and non-performing loans during 2012 has resulted in significant charge-offs, but a
strategy deemed prudent in bringing resolution with these credits and a return to performing status in the
future. Management believes the level of the allowance for loan losses was adequate as of December 31,
2012. Should any of the factors considered by management in evaluating the adequacy of the allowance
for loan losses change, the Company’s estimate of probable loan losses could also change, which could
affect the level of future provisions for loan losses.
Investment Portfolio
The following table presents carrying values of investment securities held by the Company as of
December 31, 2012, 2011 and 2010.
2012
2011
2010
Obligations of States and Political Subdivisions
Corporate Obligations
Asset-Backed Securities
$ 4,046
1,105
132
$ 7,630
2,114
132
$ 3,305
1,986
132
Investment Securities
5,283
9,876
5,423
Mortgage-Backed Securities
Total Investment Securities and
Mortgage-Backed Securities
263,059
294,061
298,463
$268,342
$303,937
$303,886
The following table represents expected maturities and weighted-average yields of investment securities
held by the Company as of December 31, 2012. (Mortgage-backed securities are based on the average
life at the projected speed, while State and Political Subdivisions and Corporate Obligations reflect
anticipated calls being exercised.)
Within 1 Year
Amount
Yield
After 1 Year But
Within 5 Years
Amount
Yield
After 5 Years But
Within 10 Years
Amount
Yield
After 10 Years
Amount
Yield
Mortgage-Backed Securities
Obligations of State and
Political Subdivisions
Corporate Obligations
Asset-Backed Securities
Total Investment Portfolio
$
35,639
(0.97)%
$
112,374
1.39%
$
73,161
1.64%
$
41,885
1.89%
827
-
-
36,466
$
3.69
-
-
(0.87)%
$
1,788
1,105
-
115,267
2.71
4.48
-
1.44%
1,431
-
-
74,592
$
3.71
-
-
1.68%
-
-
132
42,017
$
-
-
-
1.87%
Securities are classified as held to maturity and carried at amortized cost when management has the
positive intent and ability to hold them to maturity. Securities are classified as available for sale when
they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized
holding gains and losses reported in other comprehensive income. The Company has 99.9 percent of its
portfolio classified as available for sale.
At December 31, 2012, there were no holdings of any one issuer, other than the U.S. government and its
agencies, in an amount greater than 10 percent of the Company’s shareholders’ equity.
The average yield of the securities portfolio was 1.82 percent in 2012 compared to 2.39 percent in 2011
and 2.59 percent in 2010. The decrease in the average yield from 2011 to 2012 and from 2010 to 2011
primarily resulted from the turnover of the securities portfolio resulting in the investment of new funds at
lower rates.
Deposits
The following table presents the average amount outstanding and the average rate paid on deposits by the
Company for the years 2012, 2011 and 2010.
Noninterest-Bearing
Demand Deposits
Interest-Bearing
Demand and Savings
Time Deposits
2012
2011
2010
Average
Amount
Average
Rate
Average
Amount
Average
Rate
Average
Amount
Average
Rate
$101,896
$ 93,903
$ 82,160
329,984
537,810
0.38% 273,783
1.39% 633,033
0.45% 251,537
1.85% 700,558
0.65%
2.22%
Total Deposits
$969,690
0.90% $1,000,719
1.29% $1,034,255
1.66%
The following table presents the maturities of the Company’s other time deposits as of December 31,
2012.
Months to Maturity
3 or Less
Over 3 through 12
Over 12 Months
Other Time
Deposits
$100,000
or Greater
Other Time
Deposits
Less Than
$100,000
Total
$ 50,559
110,971
49,715
$ 80,838
146,116
54,711
$131,397
257,087
104,426
$211,245
$281,665
$492,910
Average deposits decreased $31.03 million in 2012 compared to 2011 and decreased $33.54 million in
2011 compared to 2010. The decrease in 2012 included $95.22 million, or 15.04 percent in time deposits
while, at the same time, noninterest bearing deposits increased $7.99 million, or 8.51 percent and interest-
bearing demand and savings deposits increased $56.20 million, or 20.53 percent. The decrease in 2011
included $67.53 million, or 9.6 percent in time deposits while, at the same time, noninterest bearing
deposits increased $11.74 million, or 14.29 percent and interest-bearing demand and savings deposits
increased $22.25 million, or 8.84 percent. Accordingly, the ratio of average noninterest-bearing deposits
to total average deposits was 10.51 in 2012, 9.4 percent in 2011 and 7.9 percent in 2010. The general
decrease in market rates in 2012 had the effect of (i) decreasing the average cost of interest-bearing
deposits by 42 basis points in 2012 compared to 2011 and (ii) mitigating a portion of the impact of
decreasing yields on earning assets in the Company’s net interest income in 2012. The general decrease
in market rates in 2011 had the effect of (i) decreasing the average cost of interest-bearing deposits by 38
basis points in 2011 compared to 2010 and (ii) mitigating a portion of the impact of decreasing yields on
earning assets in the Company’s net interest income in 2011.
Total average interest-bearing deposits decreased $39.0 million, or 4.3 percent in 2012 compared to 2011
and decreased $45.3 million, or 4.8 percent in 2011 compared to 2010. The decrease in average deposits
in 2012 compared to 2011 was time deposit accounts.
The Company supplements deposit sources with brokered deposits. As of December 31, 2012, the
Company had $28.2 million, or 2.88 percent of total deposits, in brokered certificates of deposit attracted
by external third parties. Additional information is provided in the Footnote for Deposits.
Off-Balance-Sheet Arrangements, Commitments, Guarantees, and Contractual Obligations
The following table summarizes the Company’s contractual obligations and other commitments to make
future payments as of December 31, 2012. Payments for borrowings do not include interest. Payments
related to leases are based on actual payments specified in the underlying contracts. Loan commitments
and standby letters of credit are presented at contractual amounts; however, since many of these
commitments are expected to expire unused or only partially used, the total amounts of these
commitments do not necessarily reflect future cash requirements.
Contractual Obligations:
Subordinated Debentures
Federal Home Loan Bank Advances
Operating Leases
Deposits with Stated Maturity Dates
Other Commitments:
Loan Commitments
Standby Letters of Credit
Payments Due by Period
More than 1
Year but
Less Than
3 Years
3 Years or
More but
Less Than 5
Years
$ -
-
94
87,464
$ -
9,000
84
16,931
1 Year or
Less
$ -
-
132
388,484
5 Years
or More
$24,229
26,000
-
31
Total
$24,229
35,000
310
492,910
388,616
87,558
26,015
50,260
552,449
64,147
1,141
65,288
-
-
-
-
-
-
-
-
64,147
1,141
-
65,288
Total Contractual Obligations and
Other Commitments
$453,904
$87,558
$26,015
$50,260
$617,737
In the ordinary course of business, the Company has entered into off-balance sheet financial instruments
which are not reflected in the consolidated financial statements. These instruments include commitments
to extend credit, standby letters of credit, performance letters of credit, guarantees and liability for assets
held in trust.
Such financial instruments are recorded in the financial statements when funds are disbursed or the
instruments become payable. The Company uses the same credit policies for these off-balance sheet
financial instruments as they do for instruments that are recorded in the consolidated financial statements.
Loan Commitments. The Company enters into contractual commitments to extend credit, normally with
fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all
of the Company’s commitments to extend credit are contingent upon customers maintaining specific
credit standards at the time of loan funding. The Company minimizes its exposure to loss under these
commitments by subjecting them to credit approval and monitoring procedures. Management assesses the
credit risk associated with certain commitments to extend credit in determining the level of the allowance
for possible loan losses.
Loan commitments outstanding at December 31, 2012 are included in the preceding table.
Standby Letters of Credit. Letters of credit are written conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. In the event the customer does not perform in
accordance with the terms of the agreement with the third party, the Company would be required to fund
the commitment. The maximum potential amount of future payments the Company could be required to
make is represented by the contractual amount of the commitment. If the commitment is funded, the
Company would be entitled to seek recovery from the customer. The Company’s policies generally
require that standby letters of credit arrangements contain security and debt covenants similar to those
contained in loan agreements. Standby letters of credit outstanding at December 31, 2012 are included in
the preceding table.
Capital and Liquidity
At December 31, 2012, shareholders’ equity totaled $95.8 million compared to $96.6 million at
December 31, 2011. In addition to net income of $2.6 million, other significant changes in shareholders’
equity during 2012 included $1.4 million of dividends declared on preferred stock. The accumulated other
comprehensive income component of shareholders’ equity totaled $(150) thousand at December 31, 2012
compared to $1.9 million at December 31, 2011. This fluctuation was mostly related to the after-tax effect
of changes in the fair value of securities available for sale. Under regulatory requirements, the unrealized
gain or loss on securities available for sale does not increase or reduce regulatory capital and is not
included in the calculation of risk-based capital and leverage ratios. Regulatory agencies for banks and
bank holding companies utilize capital guidelines designed to measure Tier 1 and total capital and take
into consideration the risk inherent in both on-balance sheet and off-balance sheet items. Tier 1 capital
consists of common stock and qualifying preferred stockholders’ equity less goodwill and disallowed
deferred tax assets. Tier 2 capital consists of certain convertible, subordinated and other qualifying debt
and the allowance for loan losses up to 1.25 percent of risk-weighted assets. The Company has no Tier 2
capital other than the allowance for loan losses.
Using the capital requirements presently in effect, the Tier 1 ratio as of December 31, 2012 was 15.22
percent and total Tier 1 and 2 risk-based capital was 16.47 percent. Both of these measures compare
favorably with the regulatory minimum of 4 percent for Tier 1 and 8 percent for total risk-based capital.
The Company’s Tier 1 leverage ratio as of December 31, 2012 was 10.22 percent, which exceeds the
required ratio standard of 4 percent.
For 2012, average capital was $96.5 million, representing 8.47 percent of average assets for the year.
This compares to 7.86 percent for 2011.
The Company did not pay any common stock dividends in 2012 or 2011. The Company suspended
dividend payments beginning in the third quarter of 2009.
The Company declared dividends of $1,435 and $1,400 on preferred stock during 2012 and 2011,
respectively. The Company deferred all dividend payments declared in 2012 on its preferred stock, as
well as all interest payments on its TRUPS in order to preserve cash at the holding company level. The
Company had no preferred stock until January 2009 when shares were issued to U.S. Treasury.
The Company, primarily through the actions of its subsidiary bank, engages in liquidity management to
ensure adequate cash flow for deposit withdrawals, credit commitments and repayments of borrowed
funds. Needs are met through loan repayments, net interest and fee income and the sale or maturity of
existing assets. In addition, liquidity is continuously provided through the acquisition of new deposits,
the renewal of maturing deposits and external borrowings.
Management monitors deposit flow and evaluates alternate pricing structures to retain and grow deposits.
To the extent needed to fund loan demand, traditional local deposit funding sources are supplemented by
the use of FHLB borrowings, brokered deposits and other wholesale deposit sources outside the
immediate market area. Internal policies have been updated to monitor the use of various core and non-
core funding sources, and to balance ready access with risk and cost. Through various asset/liability
management strategies, a balance is maintained among goals of liquidity, safety and earnings potential.
Internal policies that are consistent with regulatory liquidity guidelines are monitored and enforced by the
Bank.
The investment portfolio provides a ready means to raise cash if liquidity needs arise. As of
December 31, 2012, the available for sale bond portfolio totaled $268.3 million. At December 31, 2011,
the Company held $303.9 million in bonds (excluding FHLB stock), at current market value in the
available for sale portfolio. Only marketable investment grade bonds are purchased. Although most of
the Banks’ bond portfolios are encumbered as pledges to secure various public funds deposits, repurchase
agreements, and for other purposes, management can restructure and free up investment securities for a
sale if required to meet liquidity needs.
Management continually monitors the relationship of loans to deposits as it primarily determines the
Company’s liquidity posture. Colony had ratios of loans to deposits of 76.3 percent as of December 31,
2012 and 71.6 percent at December 31, 2011. Management employs alternative funding sources when
deposit balances will not meet loan demands. The ratios of loans to all funding sources (excluding
Subordinated Debentures) at December 31, 2012 and December 31, 2011 were 73.6 percent and 66.9
percent, respectively. Management continues to emphasize programs to generate local core deposits as
our Company’s primary funding sources. The stability of the Banks’ core deposit base is an important
factor in Colony’s liquidity position. A heavy percentage of the deposit base is comprised of accounts of
individuals and small businesses with comprehensive banking relationships and limited volatility. At
December 31, 2012 and December 31, 2011, the Bank had $211 million and $248 million, respectively, in
certificates of deposit of $100,000 or more. These larger deposits represented 21.6 percent and 24.8
percent of respective total deposits. Management seeks to monitor and control the use of these larger
certificates, which tend to be more volatile in nature, to ensure an adequate supply of funds as needed.
Relative interest costs to attract local core relationships are compared to market rates of interest on
various external deposit sources to help minimize the Company’s overall cost of funds.
The Company supplemented deposit sources with brokered deposits. As of December 31, 2012, the
Company had $28.2 million, or 2.88 percent of total deposits, in brokered certificates of deposit attracted
by external third parties. Additionally, the bank uses external wholesale or Internet services to obtain out-
of-market certificates of deposit at competitive interest rates when funding is needed. As of
December 31, 2012, the Company had $33.6 million, or 3.43 percent of total deposits, in external
wholesale or internet network deposits.
To plan for contingent sources of funding not satisfied by both local and out-of-market deposit balances,
Colony and its subsidiary have established multiple borrowing sources to augment their funds
management. The Company has borrowing capacity through membership of the Federal Home Loan
Bank program. The bank has also established overnight borrowing for Federal Funds Purchased through
various correspondent banks. Management believes the various funding sources discussed above are
adequate to meet the Company’s liquidity needs in the future without any material adverse impact on
operating results.
Liquidity measures the ability to meet current and future cash flow needs as they become due. The
liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible
outflows in deposits and to take advantage of interest rate market opportunities. The ability of a financial
institution to meet its current financial obligations is a function of balance sheet structure, the ability to
liquidate assets, and the availability of alternative sources of funds. The Company seeks to ensure its
funding needs are met by maintaining a level of liquid funds through asset/liability management.
Asset liquidity is provided by liquid assets which are readily marketable or pledgeable or which will
mature in the near future. Liquid assets include cash, interest-bearing deposits in banks, securities
available for sale, maturities and cash flow from securities held to maturity, and federal funds sold and
securities purchased under resale agreements.
Liability liquidity is provided by access to funding sources which include core deposits. Should the need
arise, the Company also maintains relationships with the Federal Home Loan Bank, Federal Reserve
Bank, two correspondent banks and repurchase agreement lines that can provide funds on short notice.
Since Colony is a bank holding Company and does not conduct operations, its primary sources of
liquidity are dividends up streamed from the subsidiary bank and borrowings from outside sources.
The liquidity position of the Company is continuously monitored and adjustments are made to the balance
between sources and uses of funds as deemed appropriate. Management is not aware of any events that
are reasonably likely to have a material adverse effect on the Company’s liquidity, capital resources or
operations. In addition, management is not aware of any regulatory recommendations regarding liquidity,
which if implemented, would have a material adverse effect on the Company.
Impact of Inflation and Changing Prices
The Company’s financial statements included herein have been prepared in accordance with accounting
principles generally accepted in the United States (GAAP). GAAP presently requires the Company to
measure financial position and operating results primarily in terms of historic dollars. Changes in the
relative value of money due to inflation or recession are generally not considered. The primary effect of
inflation on the operations of the Company is reflected in increased operating costs. In management’s
opinion, changes in interest rates affect the financial condition of a financial institution to a far greater
degree than changes in the inflation rate. While interest rates are greatly influenced by changes in the
inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation
rate. Interest rates are highly sensitive to many factors that are beyond the control of the Company,
including changes in the expected rate of inflation, the influence of general and local economic conditions
and the monetary and fiscal policies of the United States government, its agencies and various other
governmental regulatory authorities, among other things, as further discussed in the next section.
Regulatory and Economic Policies
The Company’s business and earnings are affected by general and local economic conditions and by the
monetary and fiscal policies of the United States government, its agencies and various other governmental
regulatory authorities, among other things. The Federal Reserve Board regulates the supply of money in
order to influence general economic conditions. Among the instruments of monetary policy available to
the Federal Reserve Board are (i) conducting open market operations in United States government
obligations, (ii) changing the discount rate on financial institution borrowings, (iii) imposing or changing
reserve requirements against financial institution deposits, and (iv) restricting certain borrowings and
imposing or changing reserve requirements against certain borrowing by financial institutions and their
affiliates. These methods are used in varying degrees and combinations to affect directly the availability
of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. For that
reason alone, the policies of the Federal Reserve Board have a material effect on the earnings of the
Company.
Governmental policies have had a significant effect on the operating results of commercial banks in the
past and are expected to continue to do so in the future; however, the Company cannot accurately predict
the nature, timing or extent of any effect such policies may have on its future business and earnings.
Recently Issued Accounting Pronouncements
See Note 1 - Summary of Significant Accounting Policies under the section headed Changes in
Accounting Principles and Effects of New Accounting Pronouncements included in the Notes to
Consolidated Financial Statements.
Quantitative and Qualitative Disclosures About Market Risk
AVERAGE BALANCE SHEETS
2012
2011
2010
Average
Income/
Yields/
Average
Income/
Yields/
Balances
Expense
Rates
Balances
Expense
Rates
Average
Balances
Income/ Yields/
Expense
Rates
$
721,872
$
42,054
5.83%
$
763,067
$
44,593
5.84%
$
865,184
$
51,859
5.99%
280,959
3,302
284,261
17,046
38,877
4,277
5,005
155
5,160
77
99
43
1,066,333
47,433
1.78
4.69
1.82
0.45
0.25
1.01
4.45
296,948
3,345
300,293
18,715
44,667
5,781
7,012
171
7,183
47
115
46
1,132,523
51,984
2.36
5.11
2.39
0.25
0.26
0.80
4.59
264,494
2,521
267,015
21,911
38,809
6,297
6,762
140
6,902
22
95
38
1,199,216
58,916
2.56
5.55
2.59
0.10
0.25
0.60
4.92
18,474
(15,781)
70,788
73,481
1,139,814
$
19,057
(20,585)
74,896
73,368
1,205,891
$
19,347
(30,445)
81,489
70,391
1,269,607
$
Assets
Interest-Earning Assets
Loans, Net of Unearned Income (1)
Investment Securities
Taxable
Tax-Exempt (2)
Total Investment Securities
Interest-Bearing Deposits
Federal Funds Sold
Other Interest-Earning Assets
Total Interest-Earning Assets
Noninterest-Earning Assets
Cash
Allowance for Loan Losses
Other Assets
Total Noninterest-Earning Assets
Total Assets
Liabilities and Stockholders' Equity
Interest-Bearing Liabilities
Interest-Bearing Demand and Savings
$
329,984
$
1,258
0.38%
$
273,783
$
1,232
0.45%
$
251,537
$
1,636
0.65%
Other Time
Total Interest-Bearing Deposits
Other Interest-Bearing Liabilities
Other Borrowed Money
Subordinated Debentures
Federal Funds Purchased and
Repurchase Agreements
Total Other Interest-Bearing
Liabilities
Total Interest-Bearing Liabilities
Noninterest-Bearing Liabilities and
Stockholders' Equity
Demand Deposits
Other Liabilities
Stockholders' Equity
Total Noninterest-Bearing
Liabilities and Stockholders' Equity
Total Liabilities and
Stockholders' Equity
Interest Rate Spread
Net Interest Income
Net Interest Margin
537,810
867,794
43,745
24,229
7,479
8,737
1,725
554
1.39
1.01
3.94
2.29
633,033
906,816
11,718
12,950
71,720
24,229
3,010
508
1.85
1.43
4.20
2.10
700,558
952,095
15,576
17,212
85,920
24,229
3,074
516
2.22
1.81
3.58
2.13
-
-
-
9,851
338
3.43
26,070
721
2.77
67,974
935,768
2,279
11,016
3.35
1.18
105,800
1,012,616
3,856
16,806
3.64
1.66
136,219
4,311
1,088,314
21,523
3.17
1.98
101,896
5,609
96,541
204,046
93,903
4,635
94,737
193,275
82,160
4,681
94,452
181,293
$
1,139,814
$
1,205,891
$
1,269,607
$
36,417
3.27%
3.41%
$
35,178
2.93%
3.11%
$
37,393
2.94%
3.12%
(1) The average balance of loans includes the average balance of nonaccrual loans. Income on such loans is recognized and
recorded on the cash basis. Taxable equivalent adjustments totaling $91, $133 and $130 for 2012, 2011 and 2010
respectively, are included in interest on loans. The adjustments are based on a federal tax rate of 34 percent.
(2) Taxable-equivalent adjustments totaling $53, $58 and $48 for 2012, 2011 and 2010 respectively, are included in tax-
exempt interest on investment securities. The adjustments are based on a federal tax rate of 34 percent with appropriate
reductions for the effect of disallowed interest expense incurred in carrying tax-exempt obligations.
Colony Bankcorp, Inc. and Subsidiaries
Interest Rate Sensitivity
The following table is an analysis of the Company’s interest rate-sensitivity position at December 31,
2012. The interest-bearing rate-sensitivity gap, which is the difference between interest-earning assets
and interest-bearing liabilities by repricing period, is based upon maturity or first repricing opportunity,
along with a cumulative interest rate-sensitivity gap. It is important to note that the table indicates a
position at a specific point in time and may not be reflective of positions at other times during the year or
in subsequent periods. Major changes in the gap position can be, and are, made promptly as market
outlooks change.
Assets and Liabilities Repricing Within
3 Months
or Less
4 to 12
Months
1 Year
1 to 5
Years
Over 5
Years
Total
EARNING ASSETS:
Interest-Bearing Deposits
Federal Funds Sold
Investment Securities
Loans, Net of Unearned Income
Other Interest- Earning Assets
$ 21,795
20,002
126
219,181
3,364
$ -
-
-
143,450
-
$ 21,795
20,002
126
362,631
3,364
$ -
-
132,553
341,974
-
$ -
-
135,663
42,211
-
$21,795
20,002
268,342
746,816
3,364
Total Interest-Earning Assets
264,468
143,450
407,918
474,527
177,874
1,060,319
INTEREST-BEARING LIABILITIES:
Interest-Bearing Demand Deposits (1)
Savings (1)
Time Deposits
Other Borrowings (2)
Subordinated Debentures
314,031
48,778
131,397
-
24,229
-
-
257,087
-
-
314,031
48,778
388,484
-
24,229
-
-
104,395
9,000
-
-
-
31
26,000
-
314,031
48,778
492,910
35,000
24,229
Total Interest-Bearing Liabilities
518,435
257,087
775,522
113,395
26,031
914,948
Interest Rate-Sensitivity Gap
(253,967)
(113,637)
(367,604)
361,132
151,843
$145,371
Cumulative Interest-Sensitivity Gap
$(253,967)
$(367,604)
$(367,604)
$ (6,472) $145,371
Interest Rate-Sensitivity Gap as a
Percentage of Interest-Earning Assets
Cumulative Interest Rate-Sensitivity
as a Percentage of Interest-Earning
Assets
(23.95)%
(10.72)%
(34.67)%
34.06%
14.32%
(23.95)%
(34.67)%
(34.67)%
(0.61)%
13.71%
(1) Interest-bearing Demand and Savings Accounts for repricing purposes are considered to reprice within 3 months or less.
(2) Short-term borrowings for repricing purposes are considered to reprice within 3 months or less.
The foregoing table indicates that we had a one year negative gap of $368 million, or 34.67 percent of
total interest-earning assets at December 31, 2012. In theory, this would indicate that at December 31,
2012, $368 million more in liabilities than assets would reprice if there were a change in interest rates
over the next 365 days. Thus, if interest rates were to decline, the gap would indicate a resulting increase
in net interest margin. However, changes in the mix of earning assets or supporting liabilities can either
increase or decrease the net interest margin without affecting interest rate sensitivity. In addition, the
interest rate spread between an asset and our supporting liability can vary significantly while the timing of
repricing of both the assets and our supporting liability can remain the same, thus impacting net interest
income. This characteristic is referred to as a basis risk and, generally, relates to the repricing
characteristics of short-term funding sources such as certificates of deposits.
Gap analysis has certain limitations. Measuring the volume of repricing or maturing assets and liabilities
does not always measure the full impact on the portfolio value of equity or net interest income. Gap
analysis does not account for rate caps on products; dynamic changes such as increasing prepay speeds as
interest rates decrease, basis risk, or the benefit of non-rate funding sources. The majority of our loan
portfolio reprices quickly and completely following changes in market rates, while non-term deposit rates
in general move slowly and usually incorporate only a fraction of the change in rates. Products
categorized as nonrate sensitive, such as our noninterest-bearing demand deposits, in the gap analysis
behave like long term fixed rate funding sources. Both of these factors tend to make our actual behavior
more asset sensitive than is indicated in the gap analysis. In fact, we experience higher net interest
income when rates rise, opposite what is indicated by the gap analysis. Therefore, management uses gap
analysis, net interest margin analysis and market value of portfolio equity as our primary interest rate risk
management tools.
The Company utilizes FTN Financial Asset/Liability Management Analysis for a more dynamic analysis
of balance sheet structure. The Company has established earnings at risk for net interest income in a +/-
200 basis point rate shock to be no more than a fifteen percent percentage change. The most recent
analysis as of December 31, 2012 indicates that net interest income would deteriorate 21 percent with a
200 basis point decrease and would improve 3.6 percent with a 200 basis point increase. Though slightly
outside policy, the increased exposure to declining rates is mitigated by the low likelihood of a further
decline of 200 basis points from the current rate levels. The Company has established equity at risk in a
+/- 200 basis point rate shock to be no more than a twenty percent percentage change. The most recent
analysis as of December 31, 2012 indicates that net economic value of equity percentage change would
decrease 9 percent with a 200 basis point increase and would decrease 6 percent with a 200 basis point
decrease. The Company has established its one year gap to be 80 percent to 120 percent. The most recent
analysis as of December 31, 2012 indicates a one year gap of 71 percent. The analysis reflects net interest
margin compression in a declining interest rate environment. Given that interest rates have basically
“bottomed-out” with the recent Federal Reserve action, the Company is anticipating interest rates to
increase in the future though we believe that interest rates will remain flat most of 2013. The Company is
focusing on areas to minimize margin compression in the future by minimizing longer term fixed rate
loans, shortening on the yield curve with investments, securing longer term FHLB advances, securing
certificates of deposit for longer terms and focusing on reduction of nonperforming assets.
Return on Assets and Stockholder’s Equity
The following table presents selected financial ratios for each of the periods indicated.
Return on Average Assets(1)
Return on Average Equity(1)
Equity to Assets
Dividends Declared
Years Ended December 31
2011
2012
2010
0.11%
1.25%
8.40%
0.09%
(0.07)%
1.20%
(0.98)%
8.08%
7.29%
$0.00
$0.00
$0.00
(1) Computed using net income available to common shareholders.
Future Outlook
During the past four years, the financial services industry experienced tremendous adversities as a result
of the collapse of the real estate markets across the country. Colony, like most banking companies, has
been affected by these economic challenges that started with a rapid stall of real estate sales and
development throughout the country. Focus during 2012 and again in 2013 will be directed toward
addressing and bringing resolution to problem assets.
In response to the elevated risk of residential real estate and land development loans, management has
extensively reviewed our loan portfolio with a particular emphasis on our residential and land
development real estate exposure. Senior management with experience in problem loan workouts have
been identified and assigned responsibility to oversee the workout and resolution of problem loans. The
Company will continue to closely monitor our real estate dependent loans throughout the Company and
focus on asset quality during this economic downturn.
Revenue enhancement initiatives to improve core non-interest income should be realized during 2013.
These initiatives include formalized overdraft privilege program and new product lines and services.
Business
Regulatory Action
On October 21, 2010, the Board of Directors of the Company’s subsidiary bank, Colony Bank (the
“Bank”), received notification from its primary regulators, the Georgia Department of Banking and
Finance (“the Georgia Department”) and the FDIC that the Bank’s latest examination results require a
program of corrective action as outlined in a proposed Memorandum of Understanding (“MOU”). An
MOU is characterized by the supervising authorities as an informal action that is neither published nor
made publically available by the supervising authorities and is used when circumstances do not warrant
formal supervisory action. An MOU is not a “written agreement” for purposes of Section 8 of the Federal
Deposit Insurance Act. The Board of Directors entered into the MOU at its regularly scheduled monthly
meeting on November 16, 2010 with the effective date of the MOU being November 23, 2010.
The MOU requires the Bank to develop, implement, and maintain various processes to improve the
Bank’s risk management of its loan portfolio, reduce adversely classified assets in accordance with certain
timeframes, limit the extension of additional credit to borrowers with adversely classified loans subject to
certain exceptions, adopt a written plan to properly monitor and reduce the Bank’s commercial real estate
concentration, continue to maintain the Bank’s loan loss provision and review its adequacy at least
quarterly, and formulate and implement a written plan to improve and maintain earnings to be forwarded
for review by the Georgia Department and FDIC. The Bank is also required to obtain approval before any
cash dividends can be paid.
The Bank has also agreed to have and maintain minimum capital ratios at specified levels higher than
those otherwise required by applicable regulations as follows: Tier 1 leverage capital to total assets of 8%
and total risk-based capital to total risk-weighted assets of 10%. At December 31, 2012, the Bank’s
capital ratios were 10.31% and 16.61%, respectively.
Market Makers For Colony Bankcorp, Inc.
Common Stock
Sterne, Agee & Leach, Inc.
Sam Haskell, Vice President
Birmingham, Alabama
866-378-3763
Raymond James/Morgan Keegan & Co.
Steve Hollister, Media Relations
Tampa, Florida
727-567-2824
Fig-Partners, LLC
Eric Lawless, Vice President
Atlanta, Georgia
866-344-2657
Colony Bankcorp, Inc. common stock is
quoted on the NASDAQ Global Market under
the symbol “CBAN.”
CoLoNy BANKCoRP, INC.
SHAREHoLDER INFoRMATIoN
CoRPoRATE HEADQuARTERS:
Colony Bankcorp, Inc.
P.o. Box 989
115 South Grant Street
Fitzgerald, Georgia 31750
229-426-6000
AnnuAl Meeting
Tuesday, May 28, 2013 at 2:00 p.m.
Colony Bankcorp, Inc.
115 South Grant Street
Fitzgerald, Georgia 31750
INDEPENDENT AuDIToRS:
McNair, McLemore, Middlebrooks & Co., LLC
P.o. Box one
Macon, Georgia 31202
SHAREHoLDER SERVICES:
Shareholders who want to change the name,
address or ownership of stock; to report
lost, stolen or destroyed certificates; or to
consolidate accounts should contact:
American Stock Transfer & Trust Company
Shareholder Services
59 Maiden Lane, Plaza Level
New york, New york 10038
800-937-5449
Member FDIC
Colony Bankcorp, Inc.
P.o. Box 989
115 S. Grant St.
Fitzgerald, GA 31750
229-426-6000
www.colonybank.com