Where Dedication
Meets Innovation
Colony Bank | 2013 Annual Report
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
Photos above are actual
clips from our recent
commercial.
Dedication
Meets Innovation
To achieve long-term success, every
quality products quickly and easily.
company must achieve optimum
Our work illustrates the difference
balance between efficiency and
local service makes to our customers
effectiveness, growth and excellence,
and their companies.
results and relationships. With today’s
unprecedented velocity of change, that
We work hard to provide and deliver
can be a tall order. Colony Bank has
a complete line of business products
accepted and embraced this challenge
including commercial loans, business
with technology, responsiveness,
online banking, business bill pay,
choices and dedication.
remote deposit capture, ACH manager
and wire manager. We work hard at
In 2013 we developed and brought
Colony to deliver the capacity and
to market a Mobile Banking App, a
expertise of a large bank with the
Tablet App, eAlerts, Person-to-Person
personal touch that only a community
Payments (Popmoney®), Check
bank can offer.
Cashing Services and the Colony One
account, designed for those needing a
second chance.
As the business wheels turn for our
commercial customers, we shifted
into high gear to ensure we deliver
Dedication Meets Innovation
As a customer, you deserve both.
And as your bank, we’ll deliver them.
TABLE
F
O
COnTEnTS
Introduction ............................... 1
Board of Directors ................... 4-5
Letter to the Shareholders ........... 2
Directors Emeritus ..................... 5
Financial Summary ..................... 3
West and East Markets ............. 6-7
How Colony Bank Puts
Innovation to Work ..................... 8
Consolidated Financial
Statements ................................. 9
DEAR SHAREHOLDERS
2013 was a year of significant
accomplishment for Colony Bank.
South and Central Georgia showed
improving trends in business activity,
real estate values; and, once again, a
healthy agribusiness environment.
I would love to say growth in our
markets was robust, but that would
be a bit much. Stable and gradually
improving is more appropriate and
while not robust, 2013 was much
improved over the economies of
2008-2012.
Colony Bank’s accomplishments are
evident in four critical areas. First,
net income available to shareholders
increased 158% from $1,206,000
or $.14 per diluted share in 2012 to
$3,120,000 or $.37 per share in 2013.
Second, our substandard assets to tier
one capital plus loan loss allowance
ratio (coverage ratio) improved from
55.60% on December 31, 2012 to
38.18% on December 31, 2013. Third,
our commitment to technology and
product development is improving
our service delivery and making the
operation more efficient. During the
past year we committed to initiatives
that will enhance communications,
processing capacity, and customer
service. We have installed a VoIP
telephone system, committed to a new
main frame computer, and replaced/
upgraded over 75% of our ATMs.
In addition, we created a mobile
banking and tablet application and
enhanced our small business online
banking service. Other new products
and services include LifeLock®,
eAlerts, Popmoney® payments,
“not on us” check cashing, and the
Colony One account designed for
electronic payments only. When fully
implemented, the savings generated
through these investments will lower
our related operating expense ratio
and the new products and services will
increase non-interest income. Last,
but not least, the improvement in
earnings and credit quality mentioned
previously were the primary factors
responsible for the removal of our
memorandums of understanding with
the Georgia Department of Banking
and Finance and the Federal Deposit
Insurance Corporation.
The banking industry in Georgia has
endured a very difficult recession
during the last five years. Over 80
banks in the state failed during that
time. Colony Bank was aided by the
TARP program with a $28 million
capital injection in 2009. This capital
enabled Colony Bank to be a survivor
of this recession and we remain
focused on returning the earnings
and credit quality of the company to
acceptable standards. During 2014
the board is committed to surveying
the capital options available to the
company. Fortunately, we now have a
variety of options.
Undoubtedly, 2014 will be a historic
year on a variety of fronts. For banking
the implementation of the Dodd
Frank Act has created a focus on
compliance and mortgage lending
that is both complex and expensive.
We have made every effort to be
prepared in this regard. next, the
implementation of the Affordable
Care Act is having an impact on many
of our customers and the long-term
cost and impact is uncertain. The
domestic economic forecast seems to
be continued stability with sporadic
growth. Internationally, economies
continue to be in recovery, but with
occasional political disruptions
that cause concern. Hopefully,
capable leadership will result in
improved peace and prosperity both
domestically and abroad.
The theme for the 2013 annual
report is “Dedication to Innovation.”
Colony Bank remains dedicated to
the customers and communities we
serve; dedicated to being a positive
influence in the lives of individuals
that chose Colony Bank as a customer
or employee. Colony Bank continues
to staff our offices as a community
bank and equip our staff with the tools
and technology to compete in today’s
marketplace.
As always the board of directors,
officers and staff thank you for your
continued support through the past
year and going forward. We believe
the momentum created during 2013
will be evident in the results of 2014!
Edward P. Loomis, Jr.
President and
Chief Executive Officer
B. Gene Waldron
Chairman of the Board
FInAnCIAL
SUMMARYF
O
R
COLOnY BAnk
2013 Key PerformAnCe IndICAtors
Years Ended December 31, 2013 and 2012
Dollar amounts in thousands
except per share data
2013
2012
Percent
Change
Total Assets
Total Deposits
$1,148,551
$1,139,397
0.80%
$987,529
$979,685
0.80%
Loans (net of Unearned Income)
$750,857
$746,816
0.54%
net Income
Per Share Data:
Basic Earnings
Common Book Value/Share
Key Trends
A Historical Comparative
Years Ending
net Income
(in thousands)
Return on Average
Shareholders’ Equity
Diluted Earnings
Per Share
$3,120
$1,206
158.71%
$0.37
$7.34
$0.14
164.29%
$8.05
(8.82)%
2013
2012
2011
2010
2009
$3,120
$1,206
$1,133
$(926)
$(20,549)
3.34%
1.25%
1.20%
(0.98)%
(19.45)%
$0.37
$0.14
$0.13
$(0.11)
$(2.85)
RETURn On
AVERAGE ASSETS
2013
0.28%
2012
0.11%
nET InTEREST
MARGIn
2013
3.61%
2012
3.41%
Edward P. Loomis, Jr.
President and
Chief Executive Officer
B. Gene Waldron
Chairman of the Board
Page 3
Edward P.
Loomis, Jr.
B. Gene Waldron
Mark H. Massee
Scott L. Downing
Michael Frederick
(Freddie) Dwozan, Jr.
Edward J. Harrell
Terry L. Hester
Davis W. King, Jr.
Jonathan
W. R. Ross
Page 4
Photos by Signature Photography, Brandon Musgrove.
BOARD
DIRECTORS
O
F
edward P. Loomis, Jr.
President /CEO
Colony Bankcorp, Inc.
Fitzgerald, Georgia
B. Gene Waldron
Chairman
Colony Bankcorp, Inc.
President/CEO
Waldron Enterprises, Inc.
Douglas, Georgia
mark H. massee
Vice Chairman
Colony Bankcorp, Inc.
President
Massee Builders, Inc.
Mayor of City of Fitzgerald
Fitzgerald, Georgia
scott L. downing
President
SDI Investments
Fitzgerald, Georgia
michael frederick
(freddie) dwozan, Jr.
President/CEO/Owner
Medical Center
Prescription Shop
Eastman, Georgia
edward J. Harrell
Attorney, Managing Partner
Martin Snow, LLP
Macon, Georgia
terry L. Hester
EVP/CFO
Colony Bankcorp, Inc.
Fitzgerald, Georgia
davis W. King, Jr.
Chairman/President
king Enterprise &
Associates, Inc.
Albany, Georgia
Jonathan W. r. ross
President
Ross Construction Co., Inc.
Tifton, Georgia
DIRECTORS
EMERITUSF
O
R
COLOnY BAnk
Left to Right: Marion H. Massee, III, Harold kimball,
Ben B. Mills, and Joe k. Shiver
Not pictured: L. Morris Downing, Jr. and Ralph D. Roberts, MD
eddie Hoyle,
eVP regional
executive officer
MARkETWest
Cordele
Moultrie
Sylvester
Warner Robins/
Centerville
Albany/Leesburg
Columbus
Thomaston
Tifton
Ashburn
Second row:
Market Presidents
Ricky Freeman, Ashburn
John Gandy, Moultrie
Jeffery Alton, Thomaston
Walter Patton, Sylvester
Third row:
kirk Scott, Warner Robins
Bob Evans, Cordele
John Roberts, Columbus
Phil Franklin, Albany
Bill Marsh, Tifton
Page 6
Our dedicated, experienced West Market team is
focused on growth in market share, in relationship depth
with current customers, and in our commitment to
support the communities and companies in the
Colony Bank West Market footprint.
“
EDDIE HOYLE
”
Colony Bank East Market team combined
professional banking expertise and products with personal
service to enhance the lives of the people we serve. That dual
emphasis serves to successfully differentiate our bank
from both traditional and non-traditional competitors and
deliver significant market advantage.
“
LEE A. nORTHCUTT
”
East
Douglas/Broxton
Eastman/Chester/
Soperton
Valdosta
Quitman
Savannah
Rochelle/Pitts
Fitzgerald
MARkET
Second row from left to right:
Market Presidents
Eddie Smith, Valdosta
Scott Miller, Douglas
Andy Johnson, Eastman
nic Worthy, Rochelle
Chip Carroll, Quitman
Mark Turner, Fitzgerald
Tommy Hester, Savannah
Lee A. northcutt,
eVP regional
executive officer
How Colony Bank
Puts Innovation to Work
When Vice President of
Information Technology
Greg Judy and his staff at Colony
Bank evaluated the latest in unified
communications and collaboration
technologies, they saw a range of
potential benefits. A Voice over IP
(VoIP) phone system and standard
UC services such as four-digit speed
dialing, centralized management
of extensions and calling queues,
instant messaging (IM) and video
conferencing would not only reduce
costs, but also could improve internal
business processes and enhance
customer service.
Armed with a clear analysis of these
benefits, Judy’s department received
a formal commitment from Senior
Vice President, Technology Officer
Jim Jowers, who played a key role
in selecting a Cisco Systems-based
solution for Colony Bank’s Fitzgerald,
Ga., headquarters and a handful
of branches this year. Remaining
facilities across Georgia are scheduled
for upgrades in 2014.
Following is an excerpt from the
4th Quarter 2013 issue of BizTech
Magazine, which featured Colony
Bank’s information technology
initiative to improve internal
business processes, enhance
operating efficiency and reduce
operational costs.
This initiative exemplifies
Colony’s proactive commitment
to optimizing productivity and
customer responsiveness.
Greg Judy
Vice President of Information Technology
Page 8
Building a solid business case
for UC rests on two main
pillars: eliminating the costs and
complexities of traditional phone
systems and launching a host of new
communications and collaboration
services enabled by modern platforms.
Experts like Judy and others agree
that the following core benefits can
help win commitments from senior
managers.
Reduced Management
Complexity
Each of Colony Bank’s 30 facilities
have relied on separate phone systems
under individual contracts with local
providers. That’s 30 separate systems to
pay for; and when it’s necessary to add
or move an extension, a Colony
Bank staffer must schedule a service
call, at about $115 an hour.
With UC in place, new four-digit
phone extensions now let bank
staff quickly connect with peers at
any location. IT administrators can
centrally manage one phone system
that serves all 30 locations and lets
them add extensions and perform
other routine duties remotely. “I’m
looking forward to being able to
manage and control everything
ourselves,” says David Sheffield,
network administrator at Colony Bank.
Article and photo from
Best Practices: Unified
Communications, by Alan Joch
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 14, 2014
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, 2013 and 2012 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, 2013. 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 consolidated financial statements are free from material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall consolidated 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, 2013 and
2012, and the results of its operations and cash flows for each of the years in the three-year period ended
December 31, 2013 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, 2013 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
9
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
ASSETS
Cash and Cash Equivalents
Cash and Due from Banks
Federal Funds Sold
2013
2012
$ 25,691,605
20,495,060
$ 29,243,927
20,001,906
46,186,665
49,245,833
Interest-Bearing Deposits
21,960,291
21,795,341
Investment Securities
Available for Sale, at Fair Value
Held to Maturity, at Cost (Fair Value of $37,309 and
$41,909 as of December 31, 2013 and 2012, Respectively)
263,257,890
268,300,411
37,062
41,467
263,294,952
268,341,878
Federal Home Loan Bank Stock, at Cost
3,163,900
3,364,300
Loans
Allowance for Loan Losses
Unearned Interest and Fees
751,218,462
(11,805,986)
(360,522)
747,050,011
(12,736,921)
(233,927)
739,051,954
734,079,163
Premises and Equipment
24,876,469
24,916,106
Other Real Estate (Net of Allowance of $3,985,920
and $4,561,099 in 2013 and 2012, Respectively)
Other Intangible Assets
Other Assets
Total Assets
15,502,462
15,940,693
187,761
223,510
34,326,432
21,489,957
$1,148,550,886
$1,139,396,781
See accompanying notes which are an integral part of these financial statements.
10
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
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, 2013 and 2012
Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss, Net of Tax
2013
2012
$ 115,260,701
872,268,779
$ 123,966,542
855,718,349
987,529,480
979,684,891
24,229,000
40,000,000
24,229,000
35,000,000
64,229,000
59,229,000
6,838,167
4,723,723
28,000,000
27,827,053
8,439,258
29,145,094
33,444,913
(9,075,026)
8,439,258
29,145,094
30,497,576
(149,814)
89,954,239
95,759,167
Total Liabilities and Stockholders’ Equity
$1,148,550,886
$1,139,396,781
See accompanying notes which are an integral part of these financial statements.
11
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
2013
2012
2011
$41,350,195
39,199
26,704
$41,963,113
99,273
42,903
$44,460,149
114,794
45,646
3,516,978
123,972
47,275
81,398
4,824,423
206,483
76,029
77,203
6,873,296
160,892
91,034
47,001
45,185,721
47,289,427
51,792,812
5,821,366
116
1,675,164
8,737,281
-
2,279,469
12,950,229
337,711
3,517,633
7,496,646
11,016,750
16,805,573
37,689,075
36,272,677
34,987,239
4,485,000
6,784,767
8,250,000
Net Interest Income After Provision for Loan Losses
33,204,075
29,487,910
26,737,239
Noninterest Income
Service Charges on Deposits
Other Service Charges, Commissions and Fees
Mortgage Fee Income
Securities Gains (Losses)
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
ATM/Card Processing
Other
Income Before Income Taxes
Income Taxes
Net Income
Preferred Stock Dividends
4,690,599
1,725,271
484,396
(363,804)
635,190
1,205,631
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
8,377,283
9,733,269
9,951,076
16,691,972
3,794,524
416,972
721,322
3,918,128
1,321,981
508,292
852,475
778,151
641,228
4,972,404
15,564,893
3,878,268
465,220
1,085,881
5,613,316
1,497,974
422,718
789,226
744,930
511,186
4,805,418
14,632,693
3,997,667
466,075
1,186,884
4,045,245
1,828,799
508,329
660,120
735,758
348,221
4,641,046
34,617,449
35,379,030
33,050,837
6,963,909
2,334,864
4,629,045
1,508,761
3,842,149
3,637,478
1,200,851
1,103,883
2,641,298
1,435,385
2,533,595
1,400,000
Net Income Available to Common Stockholders
$ 3,120,284
$ 1,205,913
$ 1,133,595
Net Income Per Share of Common Stock, Basic and Diluted
$ 0.37
$ 0.14
$ 0.13
Cash Dividends Declared Per Share of Common Stock
$ 0.00
$ 0.00
$ 0.00
Weighted Average Shares Outstanding, Basic and Diluted
8,439,258
8,439,258
8,439,258
See accompanying notes which are an integral part of these financial statements.
12
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31
Net Income
$ 4,629,045
$ 2,641,298
$ 2,533,595
2013
2012
2011
Other Comprehensive Income (Loss), Net of Tax
Gains (Losses) on Securities Arising During
the Year, Net of Tax Effect of $(4,597,836),
$(1,060,984) and $1,292,789, Respectively
Impairment Loss on Securities, Net of Tax
Effect of $(124,652), $(20,253) and
$(18,040), Respectively
Realized Gains (Losses) on Sale of AFS
Securities, Net of Tax Effect of $959,
$984,991 and $1,012,064, Respectively
Change in Net Unrealized Gains (Losses)
on Securities Available for Sale, Net of
Reclassification Adjustment and Tax Effects
(9,165,323)
(186,830)
4,439,108
241,971
39,315
35,018
(1,860)
(1,912,041)
(1,964,595)
(8,925,212)
(2,059,556)
2,509,531
Comprehensive Income (Loss)
$(4,296,167)
$ 581,742
$ 5,043,126
See accompanying notes which are an integral part of these financial statements.
13
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011
Preferred
Stock
Shares
Issued
Common
Stock
Paid-In
Capital
Retained
Earnings
Restricted
Stock -
Unearned
Compensation
Accumulated
Other
Comprehensive
Income (Loss)
Total
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
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
172,947
(172,947)
(1,508,761)
4,629,045
(8,925,212)
(8,925,212)
-
(1,508,761)
4,629,045
Balance, December 31, 2013
$28,000,000
8,439,258
$8,439,258
$29,145,094
$33,444,913
$ -
$ (9,075,026)
$89,954,239
See accompanying notes which are an integral part of these financial statements.
14
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) Losses
(Gain) 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
Purchase of Bank-Owned Life Insurance
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
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase
2013
2012
2011
$ 4,629,045
$ 2,641,298 $ 2,533,595
1,527,392
2,667,404
4,485,000
2,178,222
363,804
(677)
1,565,091
1,321,418
(338,712)
285,033
(168,060)
385,285
213,753
(243,543)
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)
18,870,455
22,806,632
15,159,896
(164,950)
7,161,969
21,769,424
(132,419,073)
(250,445,594)
(381,284,748)
72,672,795
227,690,806
342,672,937
48,330,382
11,623
2,500
(19,959,948)
(1,489,579)
8,041,638
200,400
(10,000,000)
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
-
(34,774,212)
(632,260)
98,677,019
16,550,430
(8,705,841)
21,500,000
(16,500,000)
-
-
(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)
12,844,589
(56,300,381)
(84,614,742)
Net Increase (Decrease) in Cash and Cash Equivalents
(3,059,168)
(34,126,009)
29,222,173
Cash and Cash Equivalents, Beginning
49,245,833
83,371,842
54,149,669
Cash and Cash Equivalents, Ending
$ 46,186,665
$ 49,245,833
$ 83,371,842
See accompanying notes which are an integral part of these financial statements.
15
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 and the valuation of real estate acquired in connection with foreclosures or in satisfaction
of loans.
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 2013. Such
reclassifications had no effect on previously reported stockholders’ equity or net income.
16
(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, 2013,
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.
17
(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.
18
(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.
19
(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 may not be 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.
20
(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, interest-bearing checking 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 2013, 2012, 2011 and 2010 are subject
to examination by the Internal Revenue Service (IRS) and the Georgia Department of Revenue, generally
for three years after filing.
21
(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.
Bank-Owned Life Insurance
The Company has purchased life insurance on the lives of certain key members of management and
directors. The life insurance policies are recorded at the amount that can be realized under the insurance
contract at the balance sheet date, which is the cash surrender value adjusted for other charges or amounts
due that are probable at settlement, if applicable. Increases in the cash surrender value are recorded as
other income in the consolidated statements of income. The cash surrender value of the insurance
contracts is recorded in other assets on the consolidated balance sheets in the amount of $13,940,176 and
$3,601,464 as of December 31, 2013 and 2012, respectively.
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.
22
(1) Summary of Significant Accounting Policies (Continued)
Changes in Accounting Principles and Effects of New Accounting Pronouncements
Adoption of New Accounting Standards
ASU 2013-02, Comprehensive Income (Topic 220) - Reporting of Amounts Reclassified Out of
Accumulated Other Comprehensive Income. ASU 2013-02 amends recent guidance related to the
reporting of comprehensive income to enhance the reporting of reclassifications out of accumulated other
comprehensive income. ASU 2013-02 became effective for the Company on January 1, 2013 and did not
have a significant impact on the Company’s consolidated financial statements.
ASU 2012-02, Intangibles - Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets
for Impairment. ASU 2012-02 gives entities the option to first assess qualitative factors to determine
whether the existence of events or circumstances leads to a determination that it is more likely than not
that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events or
circumstances, an entity determines it is more likely than not that an indefinite-lived intangible asset is
impaired, then the entity must perform the quantitative impairment test. If, under the quantitative
impairment test, the carrying amount of the intangible asset exceeds its fair value, an entity should
recognize an impairment loss in the amount of that excess. Permitting an entity to assess qualitative
factors when testing indefinite-lived intangible assets for impairment results in guidance that is similar to
the goodwill impairment testing guidance in ASU 2011-08. ASU 2012-02 became effective for the
Company on January 1, 2013 and did not have a significant impact on the Company’s consolidated
financial statements.
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 became effective for the Company on January 1, 2013 and did not 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
2013
2012
$10,531,340
15,160,265
$ 9,063,437
20,180,490
$25,691,605
$29,243,927
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 $1,252,000 and
$6,065,000 at December 31, 2013 and 2012, respectively.
23
(3) Investment Securities
Investment securities as of December 31, 2013 are summarized as follows:
Securities Available for Sale
U.S. Government Agencies
Mortgage-Backed
State, County and Municipal
Securities Held to Maturity
State, County and Municipal
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$273,029,073
3,978,857
$ 118,843
14,963
$(13,799,858)
(83,988)
$259,348,058
3,909,832
$277,007,930
$ 133,806
$ (13,883,846)
$263,257,890
$ 37,062
$ 247
$ -
$ 37,309
The amortized cost and fair value of investment securities as of December 31, 2013, 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
$ 272,219
1,755,607
1,298,122
652,909
$ 274,166
1,768,121
1,265,127
602,418
$ -
37,062
-
-
Mortgage-Backed Securities
3,978,857
273,029,073
3,909,832
259,348,058
37,062
-
$ -
37,309
-
-
37,309
-
$277,007,930
$263,257,890
$37,062
$37,309
Investment securities as of December 31, 2012 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
$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
24
(3) Investment Securities (Continued)
Proceeds from sales of investments available for sale were $72,672,795 in 2013, $227,690,806 in 2012
and $342,672,937 in 2011. Gross realized gains totaled $442,124 in 2013, $3,084,666 in 2012 and
$2,978,193 in 2011. Gross realized losses totaled $805,928 in 2013, $247,202 in 2012 and $54,592 in
2011.
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 $0 and $132,427 as of December 31,
2013 and 2012, respectively.
Investment securities having a carrying value totaling $112,912,815 and $117,450,817 as of
December 31, 2013 and 2012, respectively, were pledged to secure public deposits and for other purposes.
Information pertaining to securities with gross unrealized losses at December 31, 2013 and 2012
aggregated by investment category and length of time that individual securities have been in a continuous
loss position, follows:
Less Than 12 Months
Gross
Unrealized
Losses
Fair
Value
12 Months or Greater
Gross
Unrealized
Losses
Fair
Value
Total
Fair
Value
Gross
Unrealized
Losses
December 31, 2013
U.S. Government Agencies
Mortgage-Backed
State, County and Municipal
December 31, 2012
U.S. Government Agencies
Mortgage-Backed
State, County and Municipal
Asset-Backed Securities
$190,063,827 $(9,440,663) $63,193,601
-
1,647,043
(83,988)
$(4,359,195)
-
$253,257,428 $(13,799,858)
(83,988)
1,647,043
$191,710,870 $(9,524,651) $63,193,601
$(4,359,195)
$254,904,471 $(13,883,846)
$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)
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.
25
(3) Investment Securities (Continued)
At December 31, 2013, the debt securities with unrealized losses have depreciated 5.17 percent from the
Company’s amortized cost basis. These securities are guaranteed by either the U.S. Government, other
governments or U.S. corporations. 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, 2013
which has been completely written off. This investment is comprised of one issuance of a trust preferred
security and has a book value of $0. 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, $366,623, $59,568 and $53,058 were written off during the years ended December 31, 2013,
2012 and 2011, respectively.
(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
2013
2012
$ 48,107,448
10,665,938
$ 55,684,492
6,210,953
52,738,783
6,549,260
341,783,538
206,257,927
47,034,426
53,808,056
5,852,238
334,386,177
203,844,522
49,056,861
25,675,560
12,405,582
29,777,776
8,428,936
$751,218,462
$747,050,011
26
(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.
27
(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.
2013
Pass
Special Mention
Substandard
Total Loans
Commercial and Agricultural
Commercial
Agricultural
$ 41,759,281
10,637,705
$ 2,770,284
16,830
$ 3,577,883
11,403
$48,107,448
10,665,938
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
42,668,320
6,341,530
317,567,749
182,977,361
44,776,355
1,512,301
207,730
10,759,954
13,523,478
507,122
8,558,162
-
13,455,835
9,757,088
1,750,949
52,738,783
6,549,260
341,783,538
206,257,927
47,034,426
24,608,175
12,356,116
320,473
711
746,912
48,755
25,675,560
12,405,582
Total Loans
$683,692,592
$29,618,883
$37,906,987
$751,218,462
2012
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
$ 49,947,552
6,155,864
$ 1,417,735
-
$ 4,319,205
55,089
$ 55,684,492
6,210,953
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
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 $250,000 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.
28
(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.
The following table represents an age analysis of past due loans and nonaccrual loans, segregated by class
of loans, as of December 31:
2013
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
$ 581,281
81,036
$ -
-
$ 581,281
81,036
$ 1,646,418
-
$ 45,879,749
10,584,902
$ 48,107,448
10,665,938
139,826
-
2,287,341
5,273,586
350,718
-
-
-
-
-
139,826
-
2,287,341
5,273,586
350,718
8,221,745
-
7,366,703
4,933,420
1,629,611
44,377,212
6,549,260
332,129,494
196,050,921
45,054,097
52,738,783
6,549,260
341,783,538
206,257,927
47,034,426
453,580
198,451
3,991
-
457,571
198,451
307,456
9,146
24,910,533
12,197,985
25,675,560
12,405,582
Total Loans
$9,365,819 $ 3,991
$9,369,810
$24,114,499
$717,734,153
$751,218,462
2012
Commercial and Agricultural
Commercial
Agricultural
$ 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
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
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
29
(4) Loans (Continued)
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. Had nonaccrual loans performed in accordance with their original contractual terms, the
Company would have recognized additional interest income of approximately $968,700, $1,634,600 and
$1,639,800 for the years ended December 31, 2013, 2012 and 2011, respectively.
The following table details impaired loan data as of December 31, 2013:
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
$ 305,272
-
7,856,411
20,120,403
7,836,718
302,629
313,194
9,146
$ 305,272
-
4,750,157
19,252,946
6,361,592
302,629
307,456
9,146
$ -
-
-
-
-
-
-
-
$ 216,057
9,803
4,105,370
13,198,988
4,564,666
1,858,654
252,944
2,287
$ 24,494
-
34,908
493,940
224,439
803
18,469
556
$ 25,193
-
41,164
503,392
209,330
869
21,109
575
36,743,773
31,289,198
-
24,208,769
797,609
801,632
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
1,452,798
-
5,922,674
5,874,473
1,949,301
1,326,982
-
-
1,452,798
-
3,471,587
5,874,473
1,849,301
1,326,982
-
-
433,714
-
830,546
423,685
526,005
85,500
-
-
1,689,125
-
5,025,176
11,072,314
3,661,706
663,903
-
-
14,845
-
(159)
157,536
25,739
44,638
-
-
20,748
-
-
148,495
24,414
46,930
-
-
16,526,228
13,975,141
2,299,450
22,112,224
242,599
240,587
1,758,070
-
13,779,085
25,994,876
9,786,019
1,629,611
313,194
9,146
1,758,070
-
8,221,744
25,127,419
8,210,893
1,629,611
307,456
9,146
433,714
-
830,546
423,685
526,005
85,500
-
-
1,905,182
9,803
9,130,546
24,271,302
8,226,372
2,522,557
252,944
2,287
39,339
-
34,749
651,476
250,178
45,441
18,469
556
45,941
-
41,164
651,887
233,744
47,799
21,109
575
$53,270,001
$45,264,339
$2,299,450
$46,320,993 $1,040,208 $1,042,219
30
(4) Loans (Continued)
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
31
(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.
32
(4) Loans (Continued)
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, 2013. The following tables
present the number of loan contracts restructured during the 12 months ended December 31, 2013 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
2013
# of Contracts Pre-Modification Post-Modification
Commercial
Commercial Construction
Commercial Real Estate
Residential Real Estate
Total Loans
2012
Commercial
Commercial Real Estate
Residential Real Estate
Total Loans
2011
Commercial
Commercial Construction
Commercial Real Estate
Residential Real Estate
1
2
1
4
8
1
1
5
7
3
3
9
8
$ 83,748
228,633
225,852
1,885,700
$ 81,277
225,959
225,852
1,764,399
$2,423,933
$2,297,487
$ 107,749
56,835
1,082,585
$ 107,749
56,835
1,079,614
$ 1,247,169
$ 1,244,198
$ 3,240,469
1,430,147
20,827,349
1,505,356
$ 1,541,882
1,430,101
15,906,547
1,456,878
Total Loans
23
$27,003,321
$20,335,408
33
(4) Loans (Continued)
Troubled debt restructurings that subsequently defaulted as of December 31 are as follows:
2013
2012
2011
# of
Contracts
Recorded
Investment
# of
Contracts
Recorded
Investment
# of
Contracts
Recorded
Investment
Commercial
Commercial Construction
Commercial Real Estate
Residential Real Estate
Total Loans
1
-
-
-
1
$ 81,277
-
-
-
$ 81,277
-
-
1
1
2
$ -
-
203,291
10,000
$ 213,291
1
3
3
-
7
$ 1,175,922
4,475,473
2,322,361
-
$7,973,756
At December 31, 2013, 2012 and 2011, all restructured loans were performing as agreed. However, two
restructured loans totaling $81,277 and $10,000 at December 31, 2013 and 2012 failed to continue to
perform as agreed and, as a result, the loans were charged off in August 2013 and January 2012,
respectively. At December 31, 2011, two restructured loans totaling $999,133 and $51,998 failed to
continue to perform as agreed and, as a result, the loans were charged off in March 2011 and December
2011, respectively.
(5) Allowance for Loan Losses
Changes in the allowance for loan losses for the years ended December 31 are as follows:
2013
2012
2011
Balance, Beginning of Year
$ 12,736,921
$ 15,649,594
$ 28,280,077
Provision for Loan Losses
Loans Charged Off
Recoveries of Loans Previously Charged Off
4,485,000
(6,227,716)
811,781
6,784,767
(10,454,175)
756,735
8,250,000
(22,850,673)
1,970,190
Balance, End of Year
$ 11,805,986
$ 12,736,921
$ 15,649,594
34
(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.
2013
Beginning
Balance
Charge-Offs
Recoveries
Provision
Ending
Balance
Commercial and Agricultural
Commercial
Agricultural
$ 981,021
296,175
$ (120,690)
(34,502)
$ 55,829
6,200
$ 100,913
26,013
$ 1,017,073
293,886
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
2012
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
1,890,200
138,092
5,162,839
3,405,947
290,526
(2,071,162)
-
(2,872,408)
(706,242)
(20,977)
253,459
-
297,984
64,583
21,762
1,709,682
-
1,790,861
513,981
20,183
1,782,179
138,092
4,379,276
3,278,269
311,494
227,774
344,347
(397,822)
(3,913)
93,520
18,444
319,781
3,586
243,253
362,464
$12,736,921
$(6,227,716)
$811,781
$4,485,000
$11,805,986
$ 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
35
(5) Allowance for Loan Losses (Continued)
2011
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
$ 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
During 2012, the Company changed its loss history period used in calculating the ALLL from a one-year
average to a rolling eight-quarter average. Although at December 31, 2012 the loss history period used
was based on the annual loss rate from calendar year 2011 and the first three quarters of 2012, whereas
the loss history period used at December 31, 2013 was based on the loss rate from the eight quarters
ended September 30, 2013.
During the third quarter, management implemented a change to its methodology for calculating the
allowance for loan losses. This change was intended to better reflect the current position of the loan
portfolio. Prior to the third quarter, the allowance for loan loss calculation incorporated a qualitative
factor related to improvements in credit administration. These improvements, which began in 2008,
included organizational changes to credit administration, specifically related to managing past due loans,
grading of loans, recognition of losses and underwriting of new loans. Primary among the organizational
changes was the appointment of experienced lending officers to oversee the lending function, as well as
the appointment of a chief credit officer. Management feels these organizational changes are now fully
implemented, as evidenced by a lower charge-off rate, and therefore, the qualitative factor is no longer
relevant. The removal of this qualitative factor did not result in a significant adjustment to the recorded
allowance for loan loss balance.
The Company determines its individual 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 balance of
$250,000 or more, regardless of the loans impairment classification. Effective March 31, 2013,
management increased the dollar threshold of this review process from $50,000 to $250,000. The
threshold change resulted in loans totaling $4.1 million at December 31, 2013 being removed from the
individual impairment review process and being placed in the collective review process. These loans are
now subject to general reserves.
36
(5) Allowance for Loan Losses (Continued)
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, therefore, makes specific
allocations to the allowance for those loans if warranted. The total of such loans is $6.7 million and $10.8
million as of December 31, 2013 and 2012, respectively. Specific allowance allocations were made for
these loans totaling $261 thousand and $899 thousand as of December 31, 2013 and 2012, respectively.
Since these loans are not considered impaired, both the loan balance and related specific allocation are
included in the “Collectively Evaluated for Impairment” column of the following tables.
At December 31, 2013, impaired loans totaling $2.82 million were below the $250 thousand 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. Likewise, at December 31, 2012 and 2011, impaired loans totaling $1.03
million and $995 thousand, respectively, were below the $50 thousand review threshold and 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.
2013
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
$ 433,714
-
$ 583,359
293,886
$ 1,017,073
293,886
$ 1,542,058
-
$ 46,565,390
10,665,938
$ 48,107,448
10,665,938
830,546
-
423,685
526,005
85,500
951,633
138,092
3,955,591
2,752,264
225,994
1,782,179
138,092
4,379,276
3,278,269
311,494
7,971,298
-
24,757,942
6,545,490
1,617,206
44,767,485
6,549,260
317,025,596
199,712,437
45,417,220
52,738,783
6,549,260
341,783,538
206,257,927
47,034,426
-
-
243,253
362,464
243,253
362,464
-
9,146
25,675,560
12,396,436
25,675,560
12,405,582
Total End of Year Balance
$2,299,450
$9,506,536
$11,805,986
$42,443,140
$708,775,322
$751,218,462
37
(5) Allowance for Loan Losses (Continued)
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
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
38
(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
2013
2012
$ 7,790,167
23,832,454
13,846,579
970,346
236,591
$ 7,780,167
23,758,761
12,923,699
948,260
-
46,676,137
(21,799,668)
45,410,887
(20,494,781)
$ 24,876,469
$ 24,916,106
Depreciation charged to operations totaled $1,527,392 in 2013, $1,676,820 in 2012 and $1,790,041 in
2011.
Certain Company facilities and equipment are leased under various operating leases. Rental expense
approximated $490,000 for 2013, $447,000 for 2012 and $376,000 for 2011.
Future minimum rental payments as of December 31, 2013 are as follows:
Year Ending December 31
2014
2015
2016
2017
Amount
$ 53,458
42,000
42,000
38,500
$175,958
(7) Other Real Estate Owned
The aggregate carrying amount of Other Real Estate Owned (OREO) at December 31, 2013, 2012 and
2011 was $15,502,462, $15,940,693 and $20,445,805, 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 2013, 2012 and 2011 as of December 31:
Balance, Beginning of Year
$15,940,693
$20,445,085 $20,207,806
2013
2012
2011
Additions
Sales of OREO
Loss on Sale
Provision for Losses
Balance, End of Year
10,251,006
(7,804,080)
(1,563,739)
(1,321,418)
9,729,174
(9,711,890)
(1,818,967)
(2,702,709)
12,555,622
(9,804,669)
(1,102,613)
(1,411,061)
$15,502,462
$15,940,693 $20,445,085
39
(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, 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
-
(35,749)
(35,749)
Balance, December 31, 2013
$1,056,693
$(868,932)
$ 187,761
Amortization expense related to the core deposit intangible was $35,749, $35,748 and $35,749 for the
years ended December 31, 2013, 2012 and 2011. 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:
Current Federal (Benefit) Expense
Deferred Federal (Benefit) Expense
Federal Income Tax (Benefit) Expense
Current State Income Tax (Benefit) Expense
2013
2012
2011
$ 156,642
2,178,222
2,334,864
-
$ (6,114)
1,204,439
$ 311,174
867,006
1,198,325
2,526
1,178,180
(74,297)
$2,334,864
$1,200,851
$1,103,883
The federal income tax (benefit) expense of $2,334,864 in 2013, $1,198,325 in 2012 and $1,178,180 in
2011 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
2013
2012
2011
$2,367,729
(110,752)
6,445
(111,749)
26,549
156,642
$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
Actual Federal Income Taxes
$2,334,864
$1,198,325
$1,178,180
40
(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
Investments
Goodwill
Net Operating Loss Carryforward
Other
Deferred Tax Liabilities
Premises and Equipment
Other
Deferred Tax Assets (Liabilities) on
Unrealized Securities Gains (Losses)
Net Deferred Tax Assets
2013
2012
$ 4,014,035
1,404,812
303,380
340,000
301,238
730,484
343,919
$ 4,330,553
1,668,653
342,547
-
345,762
2,310,708
529,706
7,437,868
9,527,929
(1,322,377)
(2,874)
(1,232,905)
(4,185)
(1,325,251)
(1,237,090)
4,550,362
77,177
$10,662,979
$ 8,368,016
The deferred tax assets are included in Other Assets in the consolidated balance sheets. 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 as of December 31 follows.
2013
2012
2011
Balance, Beginning
$ 38,676
$ 33,368
$ 78,121
Positions Taken During the Current Year
Reductions Resulting from Lapse of
Statutes of Limitation
7,247
11,794
14,275
(3,596)
(6,486)
(59,028)
Balance, Ending
$ 42,327
$ 38,676
$ 33,368
The net increase of $3,651 and $5,308 is included in income tax expense for the years ended
December 31, 2013 and 2012, respectively.
The Company has cumulative federal net operating loss carryforwards of $2,148,335 at December 31,
2013 that expire beginning in 2022.
41
(10) Deposits
The aggregate amount of overdrawn deposit accounts reclassified as loan balances totaled $400,552 and
$389,331 as of December 31, 2013 and 2012, respectively.
Components of interest-bearing deposits as of December 31 are as follows:
Interest-Bearing Demand
Savings
Time, $100,000 and Over
Other Time
2013
2012
$357,290,975 $314,030,843
48,777,743
211,244,750
281,665,013
54,094,617
220,672,794
240,210,393
$872,268,779 $855,718,349
At December 31, 2013 and 2012, the Company had brokered deposits of $26,579,934 and $28,229,608,
respectively. Of the brokered deposits at December 31, 2013 and 2012, $26,579,934 and $28,229,608
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, 2013 and 2012. The aggregate amount of short-term jumbo
certificates of deposit, each with a minimum denomination of $100,000, was approximately $143,388,694
and $161,530,500 as of December 31, 2013 and 2012, respectively.
As of December 31, 2013, the scheduled maturities of certificates of deposit are as follows:
Year
2014
2015
2016
2017
2018 and Thereafter
Amount
$322,971,106
69,000,752
37,944,799
12,974,997
17,991,533
$460,883,187
(11) Other Borrowed Money
Other borrowed money at December 31 is summarized as follows:
2013
2012
Federal Home Loan Bank Advances
$ 40,000,000 $ 35,000,000
Advances from the Federal Home Loan Bank (FHLB) have maturities ranging from 2017 to 2020 and
interest rates ranging from 0.49 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, 2013, the book value of those loans pledged approximated
$90,000,000. At December 31, 2013, the Company had remaining credit availability from the FHLB of
approximately $126,490,000. The Company may be required to pledge additional qualifying collateral in
order to utilize the full amount of the remaining credit line.
42
(11) Other Borrowed Money (Continued)
Other borrowed money of $9,000,000 matures in 2017, with the remainder of $31,000,000 maturing in
2018 and thereafter. At December 31, 2013, $30,000,000 of FHLB advances are subject to fixed rates of
interest, while the remaining $10,000,000 are subject to floating interest rates which will convert to fixed
rates of interests after two years.
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, 2013.
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, 2013, 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, 2013, 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
$4,640
5,155
9,279
5,155
0.24385
0.24660
0.24685
0.23585
2.68
1.50
1.65
1.40
2.92385
1.74660
1.89685
1.63585
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 these offerings were used to fund certain acquisitions, pay off holding Company debt and
inject capital into the bank subsidiary.
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, 2013, accrued but unpaid interest expense totaled $1,069,769.
43
(13) Preferred Stock
On January 9, 2009 the Company received $28.0 million of equity capital by issuing to the United States
Department of the Treasury (Treasury) 28,000 shares of the Company’s Fixed Rate Cumulative Perpetual
Preferred Stock, Series A (the Preferred Stock) and a warrant (the Warrant) to purchase up to 500,000
shares of the Company’s common stock. The Preferred stock qualifies as Tier 1 capital and 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. The Warrant may be exercised on or before January 9, 2019 at an
exercise price of $8.40 per share. No voting rights may be exercised with respect to the shares of the
Warrant until the Warrant has been exercised.
On January 29, 2013, the Company’s 28,000 shares of Preferred Stock was sold by the Treasury to the
public through an auction. On June 5, 2013, the Company’s Warrant for 500,000 shares of common stock
was also sold by the Treasury to the public through an auction. Neither the sale of the Preferred Stock nor
the sale of the Warrant to new investors resulted in any accounting entries and neither transaction had an
impact on the Company’s capital position.
The Preferred Stock requires a cumulative cash dividend be paid quarterly at a rate of 5 percent per
annum for the first five years and at 9 percent per annum thereafter. On February 13, 2012, the Company
announced the suspension of dividends on Preferred Stock. 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. At December 31, 2013 there were accumulated dividends in arrears
of $3.12 million, approximately $111 per share, including accrued interest. Beginning January 9, 2014,
cumulated dividends on the Preferred Shares will continue to accrue at a rate of 9 percent per annum.
(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, the remaining shares which may
be issued are 108,042 at December 31, 2013. During 2013, 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 the shares, when issued, is amortized against earnings using the
straight-line method over the restriction period, typically three years.
(15) Employee Benefit Plan
The Company offers a defined contribution 401(k) Profit Sharing Plan (the Plan) which covers
substantially all employees who meet certain age and service requirements. The Plan allows employees to
make voluntary pre-tax salary deferrals to the Plan. The Company, at its discretion, may elect to make an
annual contribution to the Plan equal to a percentage of each participating employee’s salary. Such
discretionary contributions must be approved by the Company’s board of directors. Employees are fully
vested in the Company contributions after six years of service. The Company made no discretionary
contributions in 2013, 2012 or 2011.
44
(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, 2013 and 2012, the following financial instruments were outstanding whose contract
amounts represent credit risk:
Commitments to Extend Credit
Standby Letters of Credit
Contract Amount
2013
2012
$65,688,000
1,411,000
$64,147,000
1,141,000
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.
45
(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 $892,294 and $1,007,490 as of December 31, 2013 and 2012,
respectively. Benefit payments under the contracts were $188,240 in 2013 and $203,904 in 2012.
Provisions charged to operations totaled $75,777 in 2013, $82,250 in 2012 and $98,901 in 2011.
Fee income recognized with deferred compensation plans totaled $164,073 in 2013, $175,302 in 2012 and
$154,210 in 2011.
(18) Supplemental Cash Flow Information
Cash payments for the following were made during the years ended December 31:
Interest Expense
Income Taxes
2013
2012
2011
$ 7,111,361
$10,942,113
$17,204,476
$ -
$ -
$ 390,152
Noncash financing and investing activities for the years ended December 31 are as follows:
Acquisitions of Real Estate
Through Loan Foreclosures
2013
2012
2011
$10,251,006
$ 9,729,174
$12,555,622
Unrealized (Gain) Loss on Investment Securities
$13,523,049
$ 3,120,540
$ (3,802,320)
(19) Related Party Transactions
The following table reflects the activity and aggregate balance of direct and indirect loans to directors,
executive officers or principal holders of equity securities of the Company. 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
2013
2012
$ 4,776,492
$ 5,504,230
7,610,259
(8,322,163)
-
8,075,835
(10,510,517)
1,706,944
$ 4,064,588
$ 4,776,492
46
(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.
Bank-Owned Life Insurance - The carrying value of bank-owned life insurance policies
approximates 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.
47
(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:
2013
Assets
Cash and Short-Term Investments
Investment Securities Available for Sale
Investment Securities Held to Maturity
Federal Home Loan Bank Stock
Loans, Net
Bank-Owned Life Insurance
Liabilities
Deposits
Subordinated Debentures
Other Borrowed Money
2012
Carrying
Amount
Estimated
Fair Value
1
Level
2
3
(in Thousands)
$ 68,147
263,258
37
3,164
739,052
10,165
$ 68,147 $ 68,147 $ -
263,258
37
3,164
741,112
10,165
-
-
3,164
-
10,165
-
729,436
-
262,317
37
$ -
941
-
-
11,676
-
987,529
24,229
40,000
989,101
24,229
42,074
526,646
24,229
-
462,455
-
42,074
-
-
-
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 $ 71,041 $ - $ -
1,138
268,300
-
42
-
3,364
22,006
735,115
-
-
3,364
-
-
713,109
267,162
42
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
-
-
-
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.
48
(20) Fair Value of Financial Instruments and Fair Value Measurements (Continued)
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.
Following is a description of the valuation methodologies used for instruments measured at fair value on a
recurring and nonrecurring basis, 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.
49
(20) Fair Value of Financial Instruments and Fair Value Measurements (Continued)
Fair Value Measurements
Impaired Loans - Impaired loans are those loans 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.
50
(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 and Nonrecurring 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, 2013 and 2012, 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, 2013. Those
impaired loans and other real estate properties are shown net of the related specific reserves and valuation
allowances.
2013
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
Nonrecurring
Impaired Loans
$259,348,058
3,909,832
$ -
-
$259,348,058
2,968,567
$ -
941,265
$263,257,890
$ -
$262,316,625
941,265
$ 11,675,691
$ -
$ -
$ 11,675,691
Other Real Estate
$ 7,019,799
$ -
$ -
$ 7,019,799
2012
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
Liabilities
The Company did not identify any liabilities that are required to be presented at fair value.
51
(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 tables present 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, 2013 and 2012. These tables are comprised primarily of collateral dependent
impaired loans and other real estate owned:
December 31,
2013
Valuation
Techniques
Unobservable
Inputs
Range
(Weighted Avg)
Impaired Loans
Commercial
$ 1,019,084 Sales Comparison
Adjustment for Differences
Between the Comparable Sales
0.00%-15.00%
(7.50%)
Real Estate
Commercial Construction
2,641,041 Sales Comparison
Adjustment for Differences
Between the Comparable Sales
(16.00)%-28.00%
(6.00%)
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
10.00%-50.00%
(30.00%)
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
0.00%-10.00%
(5.00%)
Income Approach
Capitalization Rate
8.50%
Residential Real Estate
1,323,296 Sales Comparison
Commercial Real Estate
5,450,788 Sales Comparison
Adjustment for Differences
Between the Comparable Sales
0.00%-46.00%
(23.00%)
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
0.00%-25.00%
(12.50%)
Adjustment for Differences
Between the Comparable Sales
(27.20%)-216.80%
(94.80%)
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
25.00%-90.00%
(57.50%)
Income Approach
Capitalization Rate
11.00%
Farmland
1,241,482
Sales Comparison
Other Real Estate Owned
7,019,799
Sales Comparison
Adjustment for Differences
Between the Comparable Sales
(55.00%)-388.00%
(166.50)
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
10.00%-35.00%
(22.50%)
Adjustment for Differences
Between the Comparable Sales
(10.00%)-319.10%
(154.55%)
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
0.36%-87.81%
(29.99%)
Income Approach
Discount Rate
10.00%
52
(20) Fair Value of Financial Instruments and Fair Value Measurements (Continued)
Fair Value Measurements (Continued)
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%
53
(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, 2013, 2012 and 2011.
Available for Sale Securities
2012
2013
2011
Balance, Beginning
$ 1,138,238
$ 1,122,427
$ 1,016,997
Transfers into Level 3
Transfers out of Level 3
Securities Purchased During the Year
Securities Called During the Year
Loss on OTTI Impairment Included
in Noninterest Income
Unrealized Gains Included in Other
Comprehensive Income
-
(41,908)
-
-
788,933
-
-
(1,000,000)
-
-
-
-
(366,623)
(59,568)
(53,058)
211,558
78,201
158,488
Balance, Ending
$ 941,265
$ 1,138,238
$ 1,122,427
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, 2013, the Company had transfers out of level 3
and into level 2. The transfers out of level 3 were the result of increased market activity for these types of
securities, as well as more current credit ratings on these securities. 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, 2013, 2012 or 2011.
The following table presents quantitative information about recurring level 3 fair value measurements as
of December 31, 2013.
Fair Value
Valuation
Techniques
Unobservable
Inputs
Range
(Weighted Avg)
State, County and Municipal
$ 941,265 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.
54
(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, 2013, 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, 2013, 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.
55
(21) Regulatory Capital Matters (Continued)
The following table summarizes regulatory capital information as of December 31, 2013 and 2012 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
$129,569
131,024
17.06%
17.29
$60,791
60,638
8.00%
8.00
N/A
$75,797
N/A
10.00%
120,048
121,521
15.81
16.03
30,396
30,319
4.00
4.00
N/A
45,478
120,048
121,521
10.57
10.72
45,419
45,333
4.00
4.00
N/A
56,666
N/A
6.00
N/A
5.00
$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
As of December 31, 2013
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, 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
Effective October 1, 2013, the Memorandum of Understanding (MOU) the Bank had been operating
under was lifted; however, the Bank remains subject to a Board Resolution (BR) 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 BR. The BR 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 BR are discussed in Part 1, Item 1 of the
Company’s December 31, 2013 Form 10-K filed with the Securities Exchange Commission on March 14,
2014. Failure to comply with the terms of the BR could have an adverse impact on the Company’s
consolidated financial condition.
56
(22) Financial Information of Colony Bankcorp, Inc. (Parent Only)
The parent company’s balance sheets as of December 31, 2013 and 2012 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
2013
2012
$ 1,422,289
1,272,965
114,559,866
1,221,285
$ 494,432
1,284,968
119,646,209
821,145
$118,476,405
$122,246,754
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, 2013 and 2012
Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss, Net of Tax
$ 3,119,146
1,174,020
$ 1,610,385
648,202
4,293,166
2,258,587
24,229,000
24,229,000
28,000,000
27,827,053
8,439,258
29,145,094
33,444,913
(9,075,026)
8,439,258
29,145,094
30,497,576
(149,814)
89,954,239
95,759,167
Total Liabilities and Stockholders’ Equity
$118,476,405
$122,246,754
57
(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
2013
2012
2011
$ 1,515,549
581,334
96,953
$ 17,372
590,422
101,397
$ 15,265
505,414
98,180
2,193,836
709,191
618,859
516,641
2,250
748,149
543,139
554,004
2,250
735,919
558,151
508,081
2,250
734,104
656,914
1,810,179
1,850,324
1,901,349
Income (Loss) Before Taxes and Equity in
Undistributed Earnings of Subsidiary
383,657
(1,141,133)
(1,282,490)
Income Tax Benefits
406,518
365,691
425,605
Income (Loss) Before Equity in
Undistributed Earnings of Subsidiary
790,175
(775,442)
(856,885)
Equity in Undistributed
Earnings of Subsidiary
Net Income
Preferred Stock Dividends
Net Income Available
to Common Stockholders
3,838,870
3,416,740
3,390,480
4,629,045
1,508,761
2,641,298
1,435,385
2,533,595
1,400,000
$ 3,120,284
$ 1,205,913
$ 1,133,595
58
(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
Net Income
$4,629,045
$ 2,641,298
$ 2,533,595
2013
2012
2011
Other Comprehensive Income (Loss), Net of Tax
Gains (Losses) on Securities Arising During
the Year, Net of Tax Effect of $(4,597,836),
$(1,060,984) and $1,292,789, Respectively
Impairment Loss on Securities, Net of Tax
Effect of $(124,652), $(20,253) and
$(18,040), Respectively
Realized Gains (Losses) on Sale of AFS
Securities, Net of Tax Effect of $959,
$984,991 and $1,012,064, Respectively
Change in Net Unrealized Gains (Losses)
on Securities Available for Sale, Net of
Reclassification Adjustment and Tax Effects
(9,165,323)
(186,830)
4,439,108
241,971
39,315
35,018
(1,860)
(1,912,041)
(1,964,595)
(8,925,212)
(2,059,556)
2,509,531
Comprehensive Income (Loss)
$(4,296,167)
$ 581,742
$ 5,043,126
59
(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 Provided (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
2013
2012
2011
$ 4,629,045
$ 2,641,298
$ 2,533,595
80,711
93,427
112,651
(3,838,870)
125,679
(3,416,740)
124,543
(3,390,480)
24,977
996,565
(557,472)
(719,257)
(68,708)
-
(1,900)
-
-
(1,400,000)
Increase (Decrease) in Cash
927,857
(557,472)
(2,121,157)
Cash, Beginning
Cash, Ending
494,432
1,051,904
3,173,061
$ 1,422,289
$ 494,432
$ 1,051,904
60
(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, 2013, 2012 and 2011:
2013
2012
2011
Numerator
Net Income (Loss) Available to Common Stockholders
$ 3,120,284
$ 1,205,913
$ 1,133,595
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
8,439,258
-
-
-
-
-
-
8,439,258
8,439,258
8,439,258
Earnings (Loss) Per Share - Basic
$ 0.37 $ 0.14
$ 0.13
Earnings (Loss) Per Share - Diluted
$ 0.37 $ 0.14
$ 0.13
For the years ended December 31, 2013, 2012 and 2011, respectively, the Company has excluded
500,000, 500,000 and 501,855 common stock equivalents with strike prices that would cause them to be
antidilutive.
61
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.
62
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
Board Resolution.
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.
63
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 (OREO) 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, 2013 and 2012, and results of operations for each of the years in
the three-year period ended December 31, 2013. 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.
64
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 $3.12 million, or $0.37 per diluted common share in
2013, compared to $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.
Selected income statement data, returns on average assets and average equity and dividends per share for
the comparable periods were as follows:
2013
2012
2011
Taxable-Equivalent Net Interest Income
Taxable-Equivalent Adjustment
$
37,859
170
$
36,417
144
$
35,178
191
Net Interest Income
Provision for Loan Losses
Noninterest Income
Noninterest Expense
Income Before Income Taxes
Income Taxes
37,689
4,485
8,377
34,617
6,964
2,335
36,273
6,785
9,733
35,379
3,842
1,201
34,987
8,250
9,951
33,051
3,637
1,104
Net Income
$
4,629
$
2,641
$
2,533
Preferred Stock Dividends
Net Income Available to
Common Stockholders
Basic per Common Share:
Net Income
Diluted per Common Share:
Net Income
Return on Average Assets (1)
Return on Average Equity (1)
1,509
1,435
1,400
$
3,120
$
1,206
$
1,133
$
0.37
$
0.14
$
0.13
$
0.37
0.28%
3.34%
$
0.14
0.11%
1.25%
$
0.13
0.09%
1.20%
(1) Computed using net income available to common shareholders.
65
Net income available to common shareholders for 2013 increased $1.91 million, or 158.71 percent,
compared to 2012. The increase was primarily the result of an increase of $1.42 million in net interest
income, a decrease of $2.3 million in provision for loan losses and a decrease of $762 thousand in
noninterest expense. The impact of these items was partly offset by a decrease of $1.36 million in
noninterest income and an increase of $1.13 million in income tax expense.
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.
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 81.82 percent
of total revenue during 2013 and 78.84 percent during 2012.
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 2014, which
should result in Colony’s net interest margin remaining stable.
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.
66
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
2012 to 2013 (a)
Changes From
2011 to 2012 (a)
Volume
Rate
Total
Volume
Rate
Total
$
1,327
$
(1,908)
$
(581)
$
(2,406)
$
(133)
$
(2,539)
(145)
(20)
(165)
(33)
(60)
(10)
1,059
(1,263)
4
(1,259)
37
-
(6)
(3,136)
(1,408)
(16)
(1,424)
4
(60)
(16)
(2,077)
(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)
141
(892)
(64)
(2,101)
77
(2,993)
253
(1,762)
(227)
(2,477)
26
(4,239)
(751)
(2,165)
(2,916)
(1,509)
(2,704)
(4,213)
(136)
-
-
(430)
(37)
-
(566)
(37)
-
(338)
-
(1,175)
-
46
(110)
(338)
46
(1,285)
Total Interest Expense
Net Interest Income (Loss)
(887)
1,946
$
(2,632)
(504)
$
(3,519)
1,442
$
(3,022)
206
$
(2,768)
1,033
$
(5,790)
1,239
$
(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.
67
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 14.7 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 3.61 percent for 2013, compared to 3.41 percent for 2012 and to 3.11 percent for 2011.
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 2013, we have seen our net interest
margin reach a low of 3.45 percent for first quarter 2013 to a high of 3.68 percent for fourth quarter 2013.
68
Taxable-equivalent net interest income for 2013 increased by $1.44 million, or 3.96 percent, compared to
2012 while taxable-equivalent net interest income for 2012 increased by $1.24 million, or 3.52 percent,
compared to 2011. The average volume of earning assets during 2013 decreased $18.15 million
compared to 2012 while over the same period the net interest margin increased to 3.61 from 3.41 percent.
Improvement in the net interest margin in 2013 was primarily driven by reduction in the cost of funds and
maintaining longer term investments. Similarly, 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. The decline in average earning assets in 2013 affected each category of assets
except loans, while the significant decrease was primarily in average investment securities. Reduction in
average earning assets during 2012 and 2011 was primarily in loans and investment securities, even
though each category declined. The increase in the net interest margin in 2012 was primarily the result of
the reduction in the cost of funds and maintaining longer term investments.
The average volume of loans increased $22.76 million in 2013 compared to 2012, and decreased $41.20
million in 2012 compared to 2011. The average yield on loans decreased 26 basis points in 2013
compared to 2012 and decreased 1 basis point in 2012 compared to 2011. The average volume of deposits
decreased $16.38 million while other borrowings decreased $3.41 million in 2013 compared to 2012. The
average volume of other borrowings decreased $37.83 million in 2012 compared to 2011 while average
deposits decreased $31.03 million in 2012 compared to 2011. Interest-bearing deposits made up 165.77
percent of the decrease in average deposits in 2013 and 125.76 percent of the decrease in average deposits
in 2012. Accordingly, the ratio of average interest-bearing deposits to total average deposits was 88.2
percent in 2013, 89.5 percent in 2012 and 90.6 percent in 2011. This deposit mix, combined with a
general decrease in interest rates, had the effect of (i) decreasing the average cost of total deposits by 29
basis points in 2013 compared to 2012 and decreasing the average cost of total deposits by 39 basis points
in 2012 compared to 2011, 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 3.50 percent in 2013 compared
to 3.27 percent in 2012 and 2.93 percent in 2011. 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 $4.49 million in 2013 compared to $6.79 million in 2012 and $8.25
million in 2011. See the section captioned “Allowance for Loan Losses” elsewhere in this discussion for
further analysis of the provision for loan losses.
69
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 (Losses)
Gain on Sale of SBA Loans
2013
2012
2011
$
4,691
1,725
1,206
484
(364)
635
$
3,573
1,515
1,102
400
2,837
306
$
3,244
1,312
1,259
265
2,924
947
$
8,377
$
9,733
$
9,951
Total noninterest income for 2013 decreased $1.36 million, or 13.93 percent, compared to 2012 while
total noninterest income for 2012 decreased $218 thousand, or 2.19 percent, compared to 2011. The
decrease in 2013 noninterest income compared to 2012 was primarily in securities gains while the
decrease in 2012 noninterest income compared to 2011 was primarily in gain on sale of SBA loans.
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 2013 increased $1.12
million, or 31.29 percent, compared to 2012. Service charges on deposit accounts for 2012 increased
$329 thousand, or 10.14 percent, compared to 2011. The increase in 2013 was primarily due to an
increase in volume of consumer and business account overdraft fees.
Mortgage Fee Income. Mortgage fee income for 2013 increased $84 thousand, or 21.00 percent,
compared to 2012 while mortgage fee income for 2012 increased $135 thousand, or 50.94 percent,
compared to 2011. The increase in 2013 and 2012 was due to increased mortgage loan activity due to an
initiative to increase mortgage lending opportunities given the low interest rate environment.
Security Gains. The Company realized losses from the sale of securities of $364 thousand for 2013,
which included approximately $360 thousand for other-than-temporary impairment (OTTI) on one
investment, compared to gains of $2.83 million for 2012 and $2.92 million in 2011.
All Other Noninterest Income. Other charges, commissions and fees, other income and gain on sale of
SBA loans for 2013 increased $643 thousand, or 22.00 percent, compared to 2012. The increase was
primarily attributable to the rise in the gain on sale of SBA loans. In 2012 other charges, commissions
and fees, other income and gain on sale of SBA loans for 2012 decreased $595 thousand, or 16.91
percent, compared to 2011. The decrease was primarily attributable to the decline in gain on sale of SBA
loans for 2012 compared to 2011.
70
Noninterest Expense
The components of noninterest expense were as follows:
Salaries and Employee Benefits
Occupancy and Equipment
Other
2013
2012
2011
$
16,692
3,795
14,130
$
15,565
3,878
15,936
$
14,633
3,998
14,420
$
34,617
$
35,379
$
33,051
Total noninterest expense for 2013 decreased $762 thousand, or 2.15 percent compared to 2012 while
total noninterest expense increased $2.33 million, or 7.04 percent compared to 2011. Reduction in
noninterest expense in 2013 was primarily in all other noninterest expense and occupancy and equipment
while the Company had a slight increase in salaries and employee benefits. Growth in noninterest
expense in 2012 was primarily in salaries and employee benefits and other noninterest expense while the
Company had a slight decrease in occupancy and equipment.
Salaries and Employee Benefits. Salaries and employee benefits expense for 2013 increased $1.13
million, or 7.24 percent, compared to 2012. This increase is primarily attributable to an increase in
headcount related to increased regulatory compliance demands. Salaries and employee benefits expense
for 2012 increased $932 thousand, or 6.37 percent, compared to 2011.
Occupancy and Equipment. Occupancy expense for 2013 decreased $83 thousand compared to 2012, or a
decrease of 2.14 percent. Occupancy expense for 2012 decreased $120 thousand compared to 2011, or a
decrease of 3.00 percent. The decrease in occupancy expense in 2012 is primarily due to a reduction in
depreciation expense of $113 thousand from 2011.
All Other Noninterest Expense. All other noninterest expense for 2013 decreased $1.81 million, or 11.33
percent. Significant changes in noninterest expense were: FDIC insurance assessment fees decreased to
$1.32 million for 2013 compared to $1.50 million for 2012, or a decrease of $176 thousand, legal and
professional fees decreased to $721 thousand for 2013 in comparison to $1.1 million for 2012, or a
decrease of $365 thousand, foreclosed property and repossession expense decreased to $3.9 million in
2013 compared to $5.6 million in 2012, or a decrease of $1.70 million, and advertising increased to $508
thousand in 2013 compared to $423 thousand in 2012, or an increase of $86 thousand. 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; foreclosed property and repossession expense
increased to $5.6 million for 2012 compared to $4.0 million for 2011, or an increase of $1.57 million,
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, and advertising decreased to $423 thousand in 2012 compared to $508
thousand, or 16.84 percent.
71
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 $1.12 billion in 2013 compared to $1.14 billion in 2012 and
$1.21 billion in 2011.
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
2013
2012
2011
$
112,667
840,646
10.1%
75.2%
$
101,896
867,794
8.9%
76.1%
$
93,903
906,816
7.8%
75.2%
34
0.0%
-
- %
9,851
0.8%
64,528
5.8%
67,974
6.0%
95,949
8.0%
6,838
93,358
0.6%
8.3%
5,609
96,541
0.5%
8.5%
4,635
94,737
0.4%
7.8%
Total
$
1,118,071
100.0%
$
1,139,814
100.0%
$
1,205,891
100.0%
Uses of Funds:
Loans (Net of Allowance)
Investment Securities
Federal Funds Sold
Interest-Bearing Deposits
Other Interest-Earning Assets
Other Noninterest-Earning Assets
$
731,280
275,689
14,969
9,625
3,275
83,233
65.4%
24.7%
1.3%
0.9%
0.3%
7.4%
$
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%
Total
$
1,118,071
100.0%
$
1,139,814
100.0%
$
1,205,891
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
88.2 percent of total average deposits in 2013 compared to 89.5 percent in 2012 and 90.62 percent in
2011.
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 2013 as total loans were $751.2
million at December 31, 2013, up 0.6 percent, compared to loans of $747.1 million at December 31, 2012,
while total loans at December 31, 2012 were up 4.3 percent, compared to loans of $716.3 million at
December 31, 2011. 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.
72
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
2013
2012
2011
2010
2009
$
58,773
$
61,895
$
57,408
$
63,772
$
80,984
59,288
47,034
548,041
25,676
12,406
751,218
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
Unearned Interest and Fees
Allowance for Loan Losses
(360)
(11,806)
(234)
(12,737)
(57)
(15,650)
(61)
(28,280)
(140)
(31,401)
Loans
$
739,052
$
734,079
$
700,614
$
784,909
$
899,851
The following table presents total loans as of December 31, 2013 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
$ 320,603
292,003
71,745
66,867
$ 751,218
Overview. Loans totaled $751.2 million at December 31, 2013, up 0.6 percent from December 31, 2012
loans of $747.1 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 72.95 percent and 72.05 percent of total loans, real estate construction made up 7.89 percent and
7.99 percent while commercial financial and agricultural loans made up 7.82 percent and 8.29 percent of
total loans at December 31, 2013 and December 31, 2012, 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.
73
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,
2013 decreased 5.0 percent from December 31, 2012 to $58.8 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, 2013 and December 31, 2012, 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.
74
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, 2013, approximately 87.11 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 Metropolitan Statistical Area (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, 2013 and December 31, 2012.
December 31, 2013
Period End Balances
December 31, 2012
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
11
$10,023
76,306
$10,023
69,672
1
13
$10,276
88,248
$10,276
72,179
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, 2013. 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
$ 218,867
101,736
$ 284,788
7,215
$ 71,472
273
$ 65,538
1,329
$ 640,665
110,553
Total
$ 320,603
$ 292,003
$ 71,745
$ 66,867
$ 751,218
75
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:
2013
2012
2011
2010
2009
Loans Accounted for on Nonaccrual
Loans Past Due 90 Days or More
Other Real Estate Foreclosed
Securities Accounted for on Nonaccrual
$24,114
4
15,502
-
$29,851
4
15,941
366
$38,822
15
20,445
426
$28,902
19
20,208
132
$33,535
31
19,705
132
Total Nonperforming Assets
$39,620
$46,162
$59,708
$49,261
$53,403
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
5.17%
3.45%
6.05%
4.05%
8.10%
4.99%
5.91%
3.86%
5.62%
4.09%
$20,715
$24,870
$29,839
$26,556
$9,269
435
1,377
611
1,048
459
9,366
4
14,911
4
7,161
15
19,740
19
25,547
31
Total Accruing Past Due Loans
$ 9,370
$14,915
$ 7,176
$19,759
$25,578
Nonperforming assets include nonaccrual loans, loans past due 90 days or more, foreclosed real estate and
nonaccrual securities. Nonperforming assets at December 31, 2013 decreased 14.2 percent from
December 31, 2012.
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.
76
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.
77
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 during 2012 resulted in a reduction
in the ALLL estimate of $2,154,639 for December 31, 2012 compared to December 31, 2011.
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.
2013
2012
2011
2010
2009
Reserve
%* Reserve
%* Reserve
%* Reserve
%* Reserve
%*
Commercial, Financial
and Agricultural
Real Estate - Construction
Real Estate - Farmland
Real Estate - Other
Loans to Individuals
All Other Loans
$ 1,311
1,920
312
8% $ 1,277 8% $ 1,368
8
6
2,028
291
8,569
228
344
8
7
72
4
1
8% $ 5,113
8% $ 4,710
9%
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
7,658 73
243
362
3
2
Total
$ 11,806 100% $12,737 100% $15,650 100% $28,280 100% $31,401 100%
* Percentage represents the 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.
78
The following table presents an analysis of the Company’s loan loss experience for the periods indicated.
2013
2012
2011
2010
2009
Allowance for Loan Losses at Beginning of Year
$12,737
$15,650
$28,280
$31,401
$17,016
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
155
5,671
398
4
6,228
62
638
94
18
812
5,416
4,485
656
9,618
169
11
1,297
21,215
223
115
725
15,309
549
1,040
768
27,545
908
272
10,454
22,850
17,623
29,493
140
494
82
40
756
582
1,235
145
8
1,970
82
774
246
50
1,152
73
156
191
13
433
9,698
20,880
16,471
29,060
6,785
8,250
13,350
43,445
Allowance for Loan Losses at End of Year
$11,806
$12,737
$15,650
$28,280
$31,401
Ratio of Net Charge-Offs to Average Loans
0.73%
1.34%
2.74%
1.90%
3.02%
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 $2.30 million from $6.79 million in 2012 to
$4.49 million in 2013. 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 2013 was the reduction in the net charge-offs in 2013 to $5.42 million from $9.70
million in 2012. 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.
79
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 5.17 percent at
December 31, 2013 compared to 6.05 percent at December 31, 2012. Total nonperforming assets at
December 31, 2013 were $39.6 million, of which $17.3 million were construction, land development and
other land loans; $1.6 million were farmland properties; $5.9 million were 1-4 family residential
properties; $0.3 million were multifamily properties; $12.5 million were nonfarm nonresidential
properties; and the remainder of nonperforming assets totaling $2.0 million were commercial and
consumer loans. Total nonperforming assets at December 31, 2012 were $46.2 million, of which $23.9
million were construction, land development and other land loans; $7.2 million were 1-4 family
residential properties; $0.6 million were multifamily properties; $10.4 million were nonfarm
nonresidential properties; $2.4 million were farmland properties; and the remainder of nonperforming
assets totaling $1.7 million were commercial and consumer loans. All of the classified loans greater than
$250 thousand, including the nonperforming loans, are reviewed each quarter for impairment. The
allowance for loan losses of $11.8 million at December 31, 2013 was 1.57 percent of total loans which
compares to $12.7 million at December 31, 2012, or 1.70 percent of total loans and to $15.6 million at
December 31, 2011, or 2.18 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 3.21 percent, 4.00 percent, and 5.42 percent,
respectively, as of December 31, 2013, December 31, 2012 and December 31, 2011, the Company’s
allowance for loan losses as a percentage of nonperforming loans was 48.96 percent, 42.66 percent, and
40.29 percent, respectively as of December 31, 2013, December 31, 2012 and December 31, 2011. We
continue to identify new problem loans, even though we have less problem loans than the previous year.
While the allowance for loan losses decreased from $12.74 million, or 1.70 percent of total loans at
December 31, 2012 to $11.81 million, or 1.57 percent of total loans at December 31, 2013, the Company
also reflected a decrease in nonperforming loans from $29.86 million at December 31, 2012 to $24.11
million at December 31, 2013. 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, either through an individual
reserve or through a general reserve. 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 $250 thousand and over.
The remaining portfolio is analyzed based on historical loss 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.
80
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 $250 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 allowance for loan losses is $931 thousand 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 2013 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,
2013. 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, 2013, 2012 and 2011.
2013
2012
2011
Obligations of States and Political Subdivisions
Corporate Obligations
Asset-Backed Securities
$ 3,947
-
-
$ 4,046
1,105
132
$ 7,630
2,114
132
Investment Securities
3,947
5,283
9,876
Mortgage-Backed Securities
Total Investment Securities and
Mortgage-Backed Securities
259,348
263,059
294,061
$263,295
$268,342
$303,937
81
The following table represents expected maturities and weighted-average yields of investment securities
held by the Company as of December 31, 2013. (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
$
-
- %
$
66,241
1.39%
$
181,452
1.73%
$
11,655
2.41%
790
3.75%
1,711
3.04%
1,446
2.06%
-
- %
Total Investment Portfolio
$
790
3.75%
$
67,952
1.43%
$
182,898
1.73%
$
11,655
2.41%
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, 2013, 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 1.36 percent in 2013 compared to 1.82 percent in 2012
and 2.39 percent in 2011. The decrease in the average yield from 2013 to 2012 and from 2011 to 2012
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 2013, 2012 and 2011.
2013
2012
2011
Average
Amount
Average
Rate
Average
Amount
Average
Rate
Average
Amount
Average
Rate
$
112,667
$
101,896
$
93,903
366,974
473,672
0.36%
0.95%
329,984
537,810
0.38%
1.39%
273,783
633,033
0.45%
1.85%
Noninterest-Bearing
Demand Deposits
Interest-Bearing
Demand and Savings
Time Deposits
Total Deposits
$
953,313
0.61%
$
969,690
0.90%
$
1,000,719
1.29%
82
The following table presents the maturities of the Company’s other time deposits as of December 31,
2013.
Months to Maturity
3 or Less
Over 3 through 6
Over 6 through 12
Over 12 Months
Other Time
Deposits
$100,000
or Greater
Other Time
Deposits
Less Than
$100,000
$ 35,549
33,331
74,509
77,284
$ 53,181
40,562
85,839
60,628
Total
$ 88,730
73,893
160,348
137,912
$220,673
$240,210
$460,883
Average deposits decreased $16.38 million in 2013 compared to 2012 and decreased $31.03 million in
2012 compared to 2011. The decrease in 2013 included $64.14 million, or 11.93 percent in time deposits
while, at the same time, noninterest bearing deposits increased $10.77 million, or 10.57 percent and
interest-bearing demand and savings deposits increased $36.99 million, or 11.21 percent. The decrease in
2012 included $95.22 million, or 15.04 percent in time deposits while, at the same time, noninterest
bearing deposits increased $10.77 million, or 10.57 percent and interest-bearing demand and savings
deposits increased $56.20 million, or 11.21 percent. Accordingly, the ratio of average noninterest-bearing
deposits to total average deposits was 11.82 in 2013, 10.51 percent in 2012 and 9.4 percent in 2011. The
general decrease in market rates in 2013 had the effect of (i) decreasing the average cost of interest-
bearing deposits by 32 basis points in 2013 compared to 2012 and (ii) mitigating a portion of the impact
of decreasing yields on earning assets in the Company’s net interest income in 2013. 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.
Total average interest-bearing deposits decreased $27.1 million, or 3.1 percent in 2013 compared to 2012
and decreased $39.0 million, or 4.3 percent in 2012 compared to 2011. The decrease in average deposits
in 2013 compared to 2012 was time deposit accounts.
The Company supplements deposit sources with brokered deposits. As of December 31, 2013, the
Company had $26.6 million, or 2.69 percent of total deposits, in brokered certificates of deposit attracted
by external third parties. Additional information is provided in the Notes to Consolidated Financial
Statements for Deposits.
83
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, 2013. 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
$ -
-
84
106,946
$ -
9,000
39
30,660
1 Year or
Less
$ -
-
53
322,971
5 Years
or More
$ 24,229
31,000
-
306
Total
$ 24,229
40,000
176
460,883
323,024
107,030
39,699
55,535
525,288
65,688
1,411
67,099
-
-
-
-
-
-
-
-
-
65,688
1,411
67,099
Total Contractual Obligations and
Other Commitments
$390,123
$107,030
$39,699
$ 55,535
$592,387
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.
84
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, 2013 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, 2013 are included in
the preceding table.
Capital and Liquidity
At December 31, 2013, shareholders’ equity totaled $90.0 million compared to $95.8 million at
December 31, 2012. In addition to net income of $4.6 million, other significant changes in shareholders’
equity during 2013 included $1.5 million of dividends declared on preferred stock. The accumulated other
comprehensive loss component of shareholders’ equity totaled $(9.1) million at December 31, 2013
compared to $(150) thousand at December 31, 2012. 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, 2013 was 15.81
percent and total Tier 1 and 2 risk-based capital was 17.06 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, 2013 was 10.57 percent, which exceeds the
required ratio standard of 4 percent.
For 2013, average capital was $93.4 million, representing 8.35 percent of average assets for the year.
This compares to 8.47 percent for 2012.
85
The Company did not pay any common stock dividends in 2013 or 2012. The Company suspended
dividend payments beginning in the third quarter of 2009.
The Company declared dividends of $1,509 and $1,435 on preferred stock during 2013 and 2012,
respectively. The Company deferred all dividend payments declared in 2013 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, 2013, the available for sale bond portfolio totaled $263.3 million. At December 31, 2012,
the Company held $268.3 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 76.1 percent as of December 31,
2013 and 76.3 percent as of December 31, 2012. 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, 2013 and December 31, 2012 were 73.1 percent and 73.6
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, 2013 and December 31, 2012, the Bank had $221 million and $211 million, respectively, in
certificates of deposit of $100,000 or more. These larger deposits represented 22.3 percent and 21.6
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.
86
The Company supplemented deposit sources with brokered deposits. As of December 31, 2013, the
Company had $26.6 million, or 2.7 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, 2013, the Company had $24.1 million, or 2.4 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.
87
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.
88
Quantitative and Qualitative Disclosures About Market Risk
AVERAGE BALANCE SHEETS
2013
2012
2011
Average
Income/
Yields/
Average
Income/
Yields/
Balances
Expense
Rates
Balances
Expense
Rates
Average
Balances
Income/ Yields/
Expense
Rates
$
744,627
$
41,473
5.57%
$
721,872
$
42,054
5.83%
$
763,067
$
44,593
5.84%
272,818
2,871
275,689
9,625
14,969
3,275
3,597
139
3,736
81
39
27
1,048,185
45,356
1.32
4.84
1.36
0.84
0.26
0.82
4.33
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
19,401
(13,347)
63,832
69,886
1,118,071
$
18,474
(15,781)
70,788
73,481
1,139,814
$
19,057
(20,585)
74,896
73,368
1,205,891
$
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
$
366,974
$
1,335
0.36%
$
329,984
$
1,258
0.38%
$
273,783
$
1,232
0.45%
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
473,672
840,646
40,299
24,229
4,486
5,821
1,159
517
0.95
0.69
2.88
2.13
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
34
-
-
-
-
-
9,851
338
3.43
64,562
905,208
1,676
7,497
2.6
0.83
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
112,667
6,838
93,358
212,863
101,896
5,609
96,541
204,046
93,903
4,635
94,737
193,275
$
1,118,071
$
1,139,814
$
1,205,891
$
37,859
3.50%
3.61%
$
36,417
3.27%
3.41%
$
35,178
2.93%
3.11%
(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 $123, $91 and $133 for 2013, 2012 and 2011
respectively, are included in interest on loans. The adjustments are based on a federal tax rate of 34 percent.
(2) Taxable-equivalent adjustments totaling $47, $53 and $58 for 2013, 2012 and 2011 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.
89
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,
2013. 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
$ 21,960
20,495
-
185,440
3,164
$ -
-
274
134,983
-
$ 21,960
20,495
274
320,423
3,164
$ -
-
62,135
363,568
-
$ -
-
200,886
66,867
-
$ 21,960
20,495
263,295
750,858
3,164
Total Interest-Earning Assets
231,059
135,257
366,316
425,703
267,753
1,059,772
INTEREST-BEARING LIABILITIES:
Interest-Bearing Demand Deposits (1)
Savings (1)
Time Deposits
Other Borrowings (2)
Subordinated Debentures
357,291
54,095
88,730
-
24,229
-
-
234,241
-
-
357,291
54,095
322,971
-
24,229
-
-
137,606
9,000
-
-
-
306
31,000
-
357,291
54,095
460,883
40,000
24,229
Total Interest-Bearing Liabilities
524,345
234,241
758,586
146,606
31,306
936,498
Interest Rate-Sensitivity Gap
(293,286)
(98,984)
(392,270)
279,097
236,447
$123,274
Cumulative Interest-Sensitivity Gap
$(293,286)
$(392,270)
$(392,270) $(113,173) $123,274
Interest Rate-Sensitivity Gap as a
Percentage of Interest-Earning Assets
Cumulative Interest Rate-Sensitivity
as a Percentage of Interest-Earning
Assets
(27.67)%
(9.34)%
(37.01)%
26.34%
22.31%
(27.67)%
(37.01)%
(37.01)% (10.68)%
11.63%
(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.
90
The foregoing table indicates that we had a one year negative gap of $392 thousand, or 37.01 percent of
total interest-earning assets at December 31, 2013. In theory, this would indicate that at December 31,
2013, $392 thousand 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, 2013 indicates that net interest income would deteriorate 4.99 percent with a
200 basis point decrease and would deteriorate 2.73 percent with a 200 basis point increase. The
Company has established equity at risk in a +/- 200 basis point rate shock to be no more than a 20 percent
percentage change. The most recent analysis as of December 31, 2013 indicates that net economic value
of equity percentage change would increase 6.22 percent with a 200 basis point increase and would
decrease 12.55 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, 2013 indicates a one year gap
of 0.83 percent. The analysis reflects slight net interest margin compression in both a declining and
increasing 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 2014. 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.
91
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
2012
2013
2011
0.28%
3.34%
7.83%
0.11%
1.25%
8.40%
0.09%
1.20%
8.08%
$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 2013 and again in 2014 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 2014.
These initiatives include 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.
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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, 2013, the Bank’s
capital ratios were 10.72% and 17.29%, respectively.
The MOU was lifted by regulatory agencies effective October 1, 2013 and replaced with a Board
Resolution to ensure that the Bank’s overall condition remains satisfactory.
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Market Makers For Colony Bankcorp, inc.
Common Stock
Sterne, Agee & Leach, inc.
Sam Haskell, vice President
Birmingham, Alabama
866-378-3763
Raymond James & Associates, inc.
Jeff Snower, vice President
Chicago, illinois
312-655-2990
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 27, 2014 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
Photos above are actual clips
from our recent commercial.
Member FDIC
Colony Bankcorp, inc.
P.O. Box 989 • 115 S. Grant St.
Fitzgerald, GA 31750
229-426-6000 • www.colonybank.com