MOVI NG FORWARD,
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accomplished by applying sound ban~ingprinciples in
performance community bank, pt•oviding shareholders
corporate decision-making and by providing our customers
with a fair return on their investment whIle improving
a degree of highly personalized, professional service that is
the quality of life in the communities we serve.
unmatched in the luarket.
Service I Stability I Success
G~J ~~ I Our mission can best be
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MOVING FORWARD,
As the economy continues to strengthen, and both businesses and
consumers become more optimistic, Colony Bank is focused on
improving the way we serve our customers. We built the foundation
by significantly improving earnings and asset quality throughout
2oiq,; and with that accomplished, our focus can now turn forward
with enhanced customer focus.
We understand that consumers and companies have redefined the
concept of convenience, and we are on the forefront of delivering to
that new vision. Our customers can now send and receive payments
electronicallyvia aperson-to-person payments service called
Popmoney .This service provides a secure channel to transfer funds
between individuals without sharing personal financial information.
We also introduced Linklive, a customer chat service for our online
banking users, to provide real-time assistance and help ensure an
efficient online customer elcperience.
Managing risk to protect our customers, shareholders and
employees continues to be a key requirement for Colony Bank. The
onset of digital financial channels, threats from cyber criminals and
increased regulatory requirements have led to a higher and broader
level of attention to enterprise risk management. We have improved
our debit card fraud monitoring capability, implemented new
technology to protect online banking channels and enhanced our
technology security infrastructure to combat cyber-attacks. We have
also increased our document imaging efforts to protect our critical
documents and to improve efficiency through workflows and the
elimination of paper.
Helping our customers flourish also means having banking products
that are relevant to their needs and that are easy to use. To that end
we have added an adjustable rate financing option for our business
customers who want longer financing options with payment
flexibility potential. We have also successfizlly launched
pre-paid debit cards for customers who do not
have checking accounts or for those who
prefer to have the security of managing
their spending limits. As we continue
our mission of financial and service
excellence, we deeply understand
that it is not just moving forward that
propels us; it is moving forward with
the individuals, families, farmers
and businesses who have honored us
with their patronage that makes the
journey worthwhile.
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2oi4 was anotheryear of marked success for
Colony Bankcorp, Inc., and the company's financial
condition has improved substantially during the year. The
economy of South and Central Georgia was once again stable to
gradually improving. The interest rate environment remained
locked in a historic low range although most economists
projected rates would begin to rise in 2014. The projection for
rising rates is now late 2015 although increases are projected.
to be modest. Economic and interest rate stability provide a
our problem loans have been reduced to a manageable level,
and we are current on all our debt instruments.
_ _.
The capital markets have been relatively stable during 2oiq,;
however, at times, as with interest rates, the overall future
direction was uncertain. Fortunately, with our improved
profitability and reduction in criticized assets we have capital
options available. The board and management continue
to assess these options and the markets in developing the
good environment for banking so the board and management
Company's strategic plan.
of Colony Bankcorp, Inc. enter 2015 with confidence that our
financial progress will continue.
Accomplishments during 2014 exceed those of 2013 in three
primary areas. First, net income available to Colony Bankcorp,
Inc. shareholders improved again from $3,120.000 or
$.37 per share in 2013 to $4,843,000 or $.57 per share in 2014,
a 55.22% increase. "I`his increase in profitability was achieved
in spite of the cost of our $28.000,000 in TARP Preferred Stock
increasing from 5.00% to 9.OU% in January 2014. Second, the
substandard assets to tier one capital plus loan loss allowance
(criticized asset coverage) ratio of Colony Bank improved from
38.18% on December 31, 2013 to 32.39% on December 31, 2014.
This improvement in our criticized asset coverage ratio was
achieved even while a $12,000,000 transfer was made from the
The regulatory environment in which banks exist continues
to evolve. The Dodd FrankAct has been implemented for
over a year now and remains an issue in the news to this day.
Has the Act created the desired result oi• has it made credit
less available to those consumers who need credit the most?
The debate continues. Higher capital standards, interest rate
risk, cyber security, margin compression, as well as credit
quality are the hot topics of the day, and each has the keen
focus of banking regulators. On a larger scale, the regulators
continue to evaluate "too big to tail" systemic risk while also
questioning if their volume of regulations has also created
a "too small to survive' scenario. Hopefully, the regulatory
aiithoritieswillachieve abalance where the risk o#'super-
size can be contained while enabling the community banking
capital account of the bank to Colony Bankcorp, Inc. These funds
system to not j ust survive, but thrive.
were used to accomplish our third primary goal of 2014. From
2012 until November of 214 Colony Bankcorp, Inc. had, in
accordance with the terms of the related financial instruments,
accrued, but not paid the cost of our Trust Preferred and TARP
securities. $y obtaining approval from the Georgia Department
of Banking and Finance and the Federal Deposit Insurance
Corporation to transfer $12,000,000 from Colony Bank to
Colony Bankcorp, Inc., we were able to pay all accrued yet unpaid
preferred securities eaTpense and be positioned to continue
payment going into 2015. These three achievements represent
a milestone in the life of this company. We survived the great
recsssion, we are operating at a healthy degree of profitability,
As always, the board of directors, officers and
staff thank you foryour continued support
through the past year and going forward. A,s the
theme of this year's annual report states "Moving Forward,
'Together' is our goal; and with your support, we fully expect
to achieve that goal in 2015.
~—!
Edward P. Loomis, Jr.
Presidertt and
Chief E.terutire pjjicer
~~W~if~~
B. Gene Waldron
Chair~rinri of the. Board
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X014 Key
Years Ended December ~i, 2014 ~d 201
P~pRMANCE INDICgTORS
Tota] Deposits
~1.I4G.898
$9.'9,303
Loans (Net of Unearned Income) $ ~ 45, 733
Net Incomr~
Basic Eat•tiinus
Common Book Value/Sl~ai•e
u4,843
$Q.5?
$8.42
$1,148,551
$)8.'.529
$750,$57
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X0.83)%
(0.G8)Q/0~
$3,120
.ri5.l2°'n
$0.37
54.05%
$ ~..3`~
14.71 °/n
KEY TRENDS
A Historical Comparative
i-
Netlncuine
(i n t$ousands)
Return on Average
Shareholders' Equity
Diluted Earnings
Per Share
$4,843
$3.1'LU
$1,206
$1,133
x(926)
5. ] l%
3.34%
I.'L5'%u
1.20%
(0.98)°.0
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$0.14
X0.13
x(0.11)
RF..TUR.NON
AVERAGE ASSETS
2014
0.43%
2013
U.28`%
NET INTEREST
MARGIN
2014
13.60°iii
2013
3.61 /0
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Award P. Loomis, Jr.
President and
C{iref Executive Officer
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B. Gene Waldron
Chairman o(the Board
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Edward P. Loomis, Jr
President/CEO
Colony Bankcorp, Inc.
Fitzgerald, Georgia
B. Gene Waldron
Chainn.an
Colony Bankcorp, Inc.
President/CEO
Waldron Enterprises, Inc.
Douglas, Georgia
-.`~`~,
Mark H. Massee
Vice Ch,a.irman
Colony Bankcorp,Inc.
President
Massee Builders. Inc.
Mayorof Cityof Fi.txgerald
Fitzgerald,. Georgia
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Davis W. King, Jr.
Chairman/President
King Enterprise
Associates, Inc.
Albany, Georgia
Jonathan W. R. Ross
Pr•esid.ent
Ross Construction Co.. Inc.
Tifton, Georgia
Portraits bySi~,mn,ture Photography. Brandon Musgrove.
Scott L. Downing
President
SDI Investments
Fitzgerald, Georgia
Michael Frederick (Freddie)
Dwozan, Jr.
President/CEO/Owner
Medical Center Prescription Shop
Eastman, Georgia
Terry L. Hester
EVP/CFO
Colony Bankcorp. Inc.
Fitzgerald, Georgia
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~~In the west Market our team is acutely aware o f the
role we play in serving as an economic engine for
this region. Durgoal is to stimulate and support
fiscally sound growth, whLch leads to stronger
companies, stronger communities, and financially
secure families,, EDDIE HOYLE
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~`In the East Market our team is constantly working
to perfect the balance of delivering our services via
leading-edge technology and providing real -time,
face-to face personal attention. ~e understand
that to be relevant to the people we serve, we must be
relentlesslrinnovative and service-oriented,,
LEE A. NORTHCUTT
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s `In a metro market such as Savannah which is served by z~ or so banks
represented by over ~ oo branches, it is critical for a community bank such
as ours to establish and maintain a distinctive identity which sets it apart
from its competition. At Colony Savannah we're becoming increasingly
known for our quality staff delivering outstanding service to Savannah's
business community. It's not a complicated concept, but it's working~~
TOMMY HESTER, COLONY BANK SAVANNAH
~~~/e are working with our customers and community leaders to provide
economic and educational opportunities that will provide jobs and grow
the tax-base which will improve the quality of life for our local citizens„
BOB EVANS, COLONY BANK CORDELE
.~~.~-~._„--
~` I believe thatgood priorities are rooted in good leadership;
~` Our future will be determined by our
willingness to go above and beyond for
our customers. We strive to strengthen
and build our customer relationships
br providing the financial services
they need, coupled with a deliberated
personal approach to banking~~
SCOTT MILLER,
DOUGLAS/BROXTON OFFICES
therefore, I believe that a defining characteristic of leadership
involves having a vision for making things better than they are,
and a plan fortransform,ingthis vision into reality. Effective
leaders place the needs of others above their own, demonstrate
the highest level of integrity in all situations, and are truly
passionate about the causes to which they have committed
themselves. Forthe past ~2 years, I have enjoyed the privilege of
serving the citizens of Rochelle. I genuinely love this community
and I am passionate about helping the good people of Rochelle to
continue to find solutions to their banking and financial needs,,
NIC WORTHY, ROCHELLE MARKET
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~~We treat our customers like valued guests. They're the reason we come to work. Each day
we strive to provide solutions, service and an experience they can't find anywhere else,,
fi:.
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EDDIE SMITH, VALDOSTA OFFICE
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 10, 2015
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, 2014 and 2013 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, 2014. 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, 2014 and 2013, and the
results of its operations and cash flows for each of the years in the three-year period ended December 31,
2014 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, 2014 included under Item 9A, Controls and
Procedures, in Colony Bankcorp, Inc.’s Annual Report on Form 10-K and, accordingly, we do not express
an opinion thereon.
McNAIR, McLEMORE, MIDDLEBROOKS & CO., LLC
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
ASSETS
Cash and Cash Equivalents
Cash and Due from Banks
Federal Funds Sold
2014
2013
$ 24,472,870
20,132,062
$ 25,691,605
20,495,060
44,604,932
46,186,665
Interest-Bearing Deposits
21,206,039
21,960,291
Investment Securities
Available for Sale, at Fair Value
Held to Maturity, at Cost (Fair Value of $29,923 and
$37,309 as of December 31, 2014 and 2013, Respectively)
274,594,586
263,257,890
29,796
37,062
274,624,382
263,294,952
Federal Home Loan Bank Stock, at Cost
2,830,800
3,163,900
Loans
Allowance for Loan Losses
Unearned Interest and Fees
746,093,809
(8,802,316)
(361,374)
751,218,462
(11,805,986)
(360,522)
736,930,119
739,051,954
Premises and Equipment
24,960,445
24,876,469
Other Real Estate (Net of Allowance of $3,319,644
and $3,985,920 in 2014 and 2013, Respectively)
Other Intangible Assets
Other Assets
Total Assets
10,401,832
15,502,462
152,012
187,761
31,187,420
34,326,432
$1,146,897,981
$1,148,550,886
See accompanying notes which are an integral part of these financial statements.
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Noninterest-Bearing
Interest-Bearing
Borrowed Money
Subordinated Debentures
Other Borrowed Money
Other Liabilities
Commitments and Contingencies
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, 2014 and 2013
Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss, Net of Tax
2014
2013
$ 128,339,763
850,963,711
$ 115,260,701
872,268,779
979,303,474
987,529,480
24,229,000
40,000,000
24,229,000
40,000,000
64,229,000
64,229,000
4,338,195
6,838,167
28,000,000
28,000,000
8,439,258
29,145,094
38,287,934
(4,844,974)
8,439,258
29,145,094
33,444,913
(9,075,026)
99,027,312
89,954,239
Total Liabilities and Stockholders’ Equity
$1,146,897,981
$1,148,550,886
See accompanying notes which are an integral part of these financial statements.
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
Interest Income
Loans, Including Fees
Federal Funds Sold
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
Borrowed Money
Net Interest Income
Provision for Loan Losses
2014
2013
2012
$39,735,615
32,100
41,639
4,737,878
99,736
-
115,134
$41,350,195
39,199
26,704
3,516,978
123,972
47,275
81,398
$41,963,113
99,273
42,903
4,824,423
206,483
76,029
77,203
44,762,102
45,185,721
47,289,427
5,113,024
19
1,685,744
5,821,366
116
1,675,164
8,737,281
-
2,279,469
6,798,787
7,496,646
11,016,750
37,963,315
37,689,075
36,272,677
1,308,000
4,485,000
6,784,767
Net Interest Income After Provision for Loan Losses
36,655,315
33,204,075
29,487,910
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
4,567,716
2,468,881
419,963
23,735
-
1,644,294
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
9,124,589
8,377,283
9,733,269
17,507,926
4,062,844
392,132
785,683
2,701,436
965,898
652,374
925,489
735,735
865,519
5,384,956
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
34,979,992
34,617,449
35,379,030
10,799,912
6,963,909
3,842,149
3,268,287
2,334,864
1,200,851
7,531,625
2,688,604
4,629,045
1,508,761
2,641,298
1,435,385
Net Income Available to Common Stockholders
$ 4,843,021
$ 3,120,284
$ 1,205,913
Net Income Per Share of Common Stock, Basic and Diluted
$ 0.57
$ 0.37
$ 0.14
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.
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31
2014
2013
2012
Net Income
$ 7,531,625
$ 4,629,045
$ 2,641,298
Other Comprehensive Income (Loss)
Gains (Losses) on Securities Arising During the Year
Tax Effect
6,432,906
(2,187,189)
(13,886,854)
4,721,531
(283,076)
96,246
Realized Gains (Losses) on Sale of AFS Securities
Tax Effect
(23,735)
8,070
(2,819)
959
(2,897,032)
984,991
Impairment Loss on Securities
Tax Effect
-
-
366,623
(124,652)
59,568
(20,253)
Change in Unrealized Gains (Losses) on Securities
Available for Sale, Net of Reclassification Adjustment
and Tax Effects
4,230,052
(8,925,212)
(2,059,556)
Comprehensive Income (Loss)
$11,761,677
$(4,296,167)
$ 581,742
See accompanying notes which are an integral part of these financial statements.
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
Preferred
Stock
Shares
Issued
Common
Stock
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
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
Change in Net Unrealized Gains (Losses) on
Securities Available for Sale, Net of
Reclassification Adjustment and Tax Effects
Dividends on Preferred Shares
Net Income
(2,688,604)
7,531,625
4,230,052
4,230,052
(2,688,604)
7,531,625
Balance, December 31, 2014
$28,000,000
8,439,258
$8,439,258
$29,145,094
$38,287,934
$(4,844,974)
$99,027,312
See accompanying notes which are an integral part of these financial statements.
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
Cash Flows from Operating Activities
Net Income
Adjustments to Reconcile Net Income to Net
Cash Provided from Operating Activities
Depreciation
Amortization and Accretion
Provision for Loan Losses
Deferred Income Taxes
Securities (Gains) 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
2014
2013
2012
$ 7,531,625
$ 4,629,045 $ 2,641,298
1,595,253
1,312,857
1,308,000
1,932,950
(23,735)
(12,489)
828,411
1,006,827
(590,674)
55,786
(64,633)
(1,099,756)
197,195
788,958
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
14,766,575
18,870,455
22,806,632
754,252
(164,950)
7,161,969
(56,201,891)
(132,419,073)
(250,445,594)
13,620,956
72,672,795
227,690,806
36,440,646
12,968
14,376
(3,156,342)
(1,681,115)
7,233,497
333,100
-
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
-
(2,629,553)
(34,774,212)
(632,260)
(21,305,068)
13,079,062
-
-
(5,492,749)
16,550,430
(8,705,841)
21,500,000
(16,500,000)
-
(49,998,012)
29,697,631
5,000,000
(41,000,000)
-
(13,718,755)
12,844,589
(56,300,381)
Net Increase (Decrease) in Cash and Cash Equivalents
(1,581,733)
(3,059,168)
(34,126,009)
Cash and Cash Equivalents, Beginning
46,186,665
49,245,833
83,371,842
Cash and Cash Equivalents, Ending
$ 44,604,932
$ 46,186,665 $ 49,245,833
See accompanying notes which are an integral part of these financial statements.
COLONY BANKCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Principles of Consolidation
Colony Bankcorp, Inc. (the Company) is a bank holding company located in Fitzgerald, Georgia. The
consolidated financial statements include the accounts of Colony Bankcorp, Inc. and its wholly-owned
subsidiary, Colony Bank, Fitzgerald, Georgia. All significant intercompany accounts have been eliminated
in consolidation. The accounting and reporting policies of Colony Bankcorp, Inc. conform to generally
accepted accounting principles and practices utilized in the commercial banking industry.
Nature of Operations
The Company provides a full range of retail and commercial banking services for consumers and small- to
medium-size businesses located primarily in central, south and coastal Georgia. Colony Bank is
headquartered in Fitzgerald, Georgia with banking offices in Albany, Ashburn, Broxton, Centerville,
Chester, Columbus, Cordele, Douglas, Eastman, Fitzgerald, Leesburg, Moultrie, Pitts, Quitman, Rochelle,
Savannah, Soperton, Sylvester, Thomaston, Tifton, Valdosta and Warner Robins. Lending and investing
activities are funded primarily by deposits gathered through its retail banking office network.
Use of Estimates
In preparing the financial statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the
period. Actual results could differ significantly from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to the determination of the allowance for loan losses
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 2014. Such reclassifications had no
effect on previously reported stockholders’ equity or net income.
(1) Summary of Significant Accounting Policies (Continued)
Concentrations of Credit Risk
Concentrations of credit risk can exist in relation to individual borrowers or groups of borrowers, certain
types of collateral, certain types of industries or certain geographic regions. The Company has a
concentration in real estate loans as well as a geographic concentration that could pose an adverse credit risk,
particularly with the current economic downturn in the real estate market. At December 31, 2014,
approximately 87 percent of the Company’s loan portfolio was concentrated in loans secured by real estate.
A substantial portion of borrowers’ ability to honor their contractual obligations is dependent upon the
viability of the real estate economic sector. The downturn of the housing and real estate market that began in
2007 resulted in an increase of problem loans secured by real estate, of which most are centered in the
Company’s larger MSA markets. Declining collateral real estate values that secure land development,
construction and speculative real estate loans in the Company’s larger MSA markets have resulted in high
loan loss provisions in recent years. In addition, a large portion of the Company’s foreclosed assets are also
located in these same geographic markets, making the recovery of the carrying amount of foreclosed assets
susceptible to changes in market conditions. Management continues to monitor these concentrations and has
considered these concentrations in its allowance for loan loss analysis.
The success of the Company is dependent, to a certain extent, upon the economic conditions in the
geographic markets it serves. Adverse changes in the economic conditions in these geographic markets
would likely have a material adverse effect on the Company’s results of operations and financial condition.
The operating results of the Company depend primarily on its net interest income. Accordingly, operations
are subject to risks and uncertainties surrounding the exposure to changes in the interest rate environment.
At times, the Company may have cash and cash equivalents at financial institutions in excess of federal
deposit insurance limits. The Company places its cash and cash equivalents with high credit quality financial
institutions whose credit rating is monitored by management to minimize credit risk.
Investment Securities
The Company classifies its investment securities as trading, available for sale or held to maturity. Securities
that are held principally for resale in the near term are classified as trading. Trading securities are carried at
fair value, with realized and unrealized gains and losses included in noninterest income. Currently, no
securities are classified as trading. Securities acquired with both the intent and ability to be held to maturity
are classified as held to maturity and reported at amortized cost. All securities not classified as trading or
held to maturity are considered available for sale. Securities available for sale are reported at estimated fair
value. Unrealized gains and losses on securities available for sale are excluded from earnings and are
reported, net of deferred taxes, in accumulated other comprehensive income (loss), a component of
stockholders’ equity. Gains and losses from sales of securities available for sale are computed using the
specific identification method. Securities available for sale includes securities, which may be sold to meet
liquidity needs arising from unanticipated deposit and loan fluctuations, changes in regulatory capital
requirements, or unforeseen changes in market conditions.
(1) Summary of Significant Accounting Policies (Continued)
Investment Securities (Continued)
The Company evaluates each held to maturity and available for sale security in a loss position for other-than-
temporary impairment (OTTI). In estimating other-than-temporary impairment losses, management
considers such factors as the length of time and the extent to which the market value has been below cost, the
financial condition of the issuer and the Company’s intent to sell and whether it is more likely than not that
the Company will be required to sell the security before anticipated recovery of the amortized cost basis. If
the Company intends to sell or if it is more likely than not that the Company will be required to sell the
security before recovery, the OTTI write-down is recognized in earnings. If the Company does not intend to
sell the security or it is not more likely than not that it will be required to sell the security before recovery,
the OTTI write-down is separated into an amount representing credit loss, which is recognized in earnings,
and an amount related to all other factors, which is recognized in other comprehensive income (loss).
Federal Home Loan Bank Stock
Investment in stock of a Federal Home Loan Bank (FHLB) is required for every federally insured institution
that utilizes its services. FHLB stock is considered restricted, as defined in the accounting standards. The
FHLB stock is reported in the consolidated financial statements at cost. Dividend income is recognized
when earned.
Loans
Loans that the Company has the ability and intent to hold for the foreseeable future or until maturity are
recorded at their principal amount outstanding, net of unearned interest and fees. Loan origination fees, net
of certain direct origination costs, are deferred and amortized over the estimated terms of the loans using the
straight-line method. Interest income on loans is recognized using the effective interest method.
A loan is considered to be delinquent when payments have not been made according to contractual terms,
typically evidenced by nonpayment of a monthly installment by the due date.
When management believes there is sufficient doubt as to the collectibility of principal or interest on any
loan or generally when loans are 90 days or more past due, the accrual of applicable interest is discontinued
and the loan is designated as nonaccrual, unless the loan is well secured and in the process of collection.
Interest payments received on nonaccrual loans are either applied against principal or reported as income,
according to management’s judgment as to the collectibility of principal. Loans are returned to an accrual
status when factors indicating doubtful collectibility on a timely basis no longer exist.
Loans Modified in a Troubled Debt Restructuring (TDR)
Loans are considered to have been modified in a TDR when, due to a borrower’s financial difficulty, the
Company makes certain concessions to the borrower that it would not otherwise consider for new debt with
similar risk characteristics. Modifications may include interest rate reductions, principal or interest
forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or
repossession of the collateral. Generally, a nonaccrual loan that has been modified in a TDR remains on
nonaccrual status for a period of six months to demonstrate that the borrower is able to meet the terms of the
modified loan. However, performance prior to the modification, or significant events that coincide with the
modification, are included in assessing whether the borrower can meet the new terms and may result in the
loan being returned to accrual status at the time of loan modification or after a shorter performance period. If
the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on nonaccrual
status. Once a loan is modified in a troubled debt restructuring, it is accounted for as an impaired loan,
regardless of its accrual status, until the loan is paid in full, sold or charged off.
(1) Summary of Significant Accounting Policies (Continued)
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for
loan losses charged to earnings. Loan losses are charged against the allowance when management believes
the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the
allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon
management’s periodic review of the collectibility of the loans in light of historical experience, the nature
and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated
value of any underlying collateral and prevailing economic conditions. This evaluation is inherently
subjective, as it requires estimates that are susceptible to significant revisions as more information becomes
available.
The allowance consists of specific, historical and general components. The specific component relates to
loans that are classified as either doubtful, substandard or special mention. For such loans that are also
classified as impaired, an allowance is established when the discounted cash flows (or collateral value or
observable market price) of the impaired loan is lower than the carrying value of that loan. The historical
component covers nonclassified loans and is based on historical loss experience adjusted for qualitative
factors. A general component is maintained to cover uncertainties that could affect management’s estimate
of probable losses. The general component of the allowance reflects the margin of imprecision inherent in
the underlying assumptions used in the methodologies for estimating specific and historical losses in the
portfolio. General valuation allowances are based on internal and external qualitative risk factors such as (1)
changes in the composition of the loan portfolio, (2) the extent of loan concentrations within the portfolio,
(3) the effectiveness of the Company’s lending policies, procedures and internal controls, (4) the experience,
ability and effectiveness of the Company’s lending management and staff, and (5) national and local
economics and business conditions.
Loans identified as losses by management, internal loan review and/or Bank examiners are charged off.
A loan is considered impaired when, based on current information and events, it is probable that the
Company will be unable to collect the scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Factors considered by management in determining impairment
include payment status, collateral value and the probability of collecting scheduled principal and interest
payments when due. Loans that experience insignificant payment delays and payment shortfalls generally
are not classified as impaired. Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and
the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment
record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured
on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s
effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is
collateral dependent.
(1) Summary of Significant Accounting Policies (Continued)
Allowance for Loan Losses (Continued)
A significant portion of the Company’s impaired loans are deemed to be collateral dependent. Management
therefore measures impairment on these loans based on the fair value of the collateral. Collateral values are
determined based on appraisals performed by qualified licensed appraisers hired by the Company or by
senior members of the Company’s credit administration staff. The decision whether 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.
(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 2014, 2013, 2012 and 2011 are subject to
examination by the Internal Revenue Service (IRS) and the Georgia Department of Revenue, generally for
three years after filing.
(1) Summary of Significant Accounting Policies (Continued)
Income Taxes (Continued)
Positions taken in the Company’s tax returns may be subject to challenge by the taxing authorities upon
examination. Uncertain tax positions are initially recognized in the consolidated financial statements when it
is more likely than not the position will be sustained upon examination by the tax authorities. Such tax
positions are both initially and subsequently measured as the largest amount of tax benefit that is greater than
50 percent likely of being realized upon settlement with the tax authority, assuming full knowledge of the
position and all relevant facts. The Company provides for interest and, in some cases, penalties on tax
positions that may be challenged by the taxing authorities. Interest expense is recognized beginning in the
first period that such interest would begin accruing. Penalties are recognized in the period that the Company
claims the position in the tax return. Interest and penalties on income tax uncertainties are classified within
income tax expense in the consolidated statements of operations.
Other Real Estate
Other real estate generally represents real estate acquired through foreclosure and is initially recorded at
estimated fair value at the date of acquisition less the cost of disposal. Losses from the acquisition of
property in full or partial satisfaction of debt are recorded as loan losses. Properties are evaluated regularly
to ensure the recorded amounts are supported by current fair values, and valuation allowances are recorded
as necessary to reduce the carrying amount to fair value less estimated cost of disposal. Routine holding
costs and gains or losses upon disposition are included in foreclosed property expense.
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 $14,530,851 and $13,940,176 as
of December 31, 2014 and 2013, 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.
(1) Summary of Significant Accounting Policies (Continued)
Changes in Accounting Principles and Effects of New Accounting Pronouncements
ASU 2014-01, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in
Qualified Affordable Housing Projects. ASU 2014-01 permits reporting entities to make an accounting
policy election to account for their investments in qualified affordable housing projects using the
proportional amortization method if certain conditions are met. Under the proportional amortization
method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax
benefits received and recognizes the net investment performance in the income statement as a component of
income tax expense (benefit). For those investments in qualified affordable housing projects not accounted
for using the proportional amortization method, the investment should be accounted for as an equity method
investment or a cost method investment in accordance with ASC 970-323. ASU 2014-01 is effective for
annual periods, and interim periods within those annual periods, beginning after December 15, 2014, and
will be applied retrospectively to all periods presented. The adoption of this guidance is not expected to
have a material effect on the Company’s consolidated financial statements.
ASU No. 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40):
Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The
objective of this guidance is to clarify when an in-substance repossession or foreclosure occurs; that is, when
a creditor should be considered to have received physical possession of residential real estate property
collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real
estate property recognized. ASU No. 2014-04 states that an in-substance repossession or foreclosure occurs,
and a creditor is considered to have received physical possession of residential real estate property
collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential
real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the
residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of
foreclosure or through a similar legal agreement. Additionally, ASU No. 2014-04 requires interim and
annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and
(2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that
are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU No.
2014-04 is effective for interim and annual reporting periods beginning after December 15, 2014. The
adoption of ASU No. 2014-04 is not expected to have a material impact on the Company’s consolidated
financial statements.
ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 implements a common
revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is
that an entity should recognize revenue to depict the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the entity expects to be entitled in exchange for those
goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the
contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the
transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v)
recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 is effective for
the Company on January 1, 2017. The Company is still evaluating the potential impact on the Company’s
consolidated financial statements.
ASU 2014-11, Transfers and Servicing (Topic 860). ASU 2014-11 requires that repurchase-to-maturity
transactions be accounted for as secured borrowings consistent with the accounting for other repurchase
agreements. In addition, ASU 2014-11 requires separate accounting for repurchase financings, which entails
the transfer of a financial asset executed contemporaneously with a repurchase agreement with the same
counterparty. ASU 2014-11 requires entities to disclose certain information about transfers accounted for as
sales in transactions that are economically similar to repurchase agreements. In addition, ASU 2014-11
(1) Summary of Significant Accounting Policies (Continued)
Changes in Accounting Principles and Effects of New Accounting Pronouncements (Continued)
requires disclosures related to collateral, remaining contractual tenor and of the potential risks associated
with repurchase agreements, securities lending transactions and repurchase-to-maturity transactions. ASU
2014-11 is effective for the Company on January 1, 2015 and is not expected to have a significant impact on
the Company’s consolidated financial statements.
ASU 2014-14, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification
of Certain Government-Guaranteed Mortgage Loans upon Foreclosure. The amendments require a
mortgage loan to be derecognized and a separate receivable to be recognized upon foreclosure if the loan has
a government guarantee that is nonseparable from the loan before foreclosure, the creditor has the ability and
intent to convey the real estate property to the guarantor, and any amount of the claim that is determined on
the basis of the fair value of the real estate is fixed. Additionally, the separate other receivable should be
measured based on the amount of the loan balance (principal and interest) expected to be recovered from the
guarantor upon foreclosure. The amendments are effective for annual periods and interim periods within
those annual periods beginning after December 15, 2014. Management does not believe the amendments will
have a material impact to the Company’s consolidated financial statements.
ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of
Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 explicitly requires
management to evaluate, at each annual or interim reporting period, whether there are conditions or events
that exist which raise substantial doubt about an entity’s ability to continue as a going concern and to provide
related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and
annual and interim periods thereafter, with early adoption permitted. The adoption of ASU 2014-15 is not
expected to have a material effect on the Company’s consolidated financial statements or disclosures.
(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
2014
2013
$ 9,974,663
14,498,207
$10,531,340
15,160,265
$24,472,870
$25,691,605
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 $1,278,000 and $1,252,000 at
December 31, 2014 and 2013, respectively.
(3) Investment Securities
Investment securities as of December 31, 2014 are summarized as follows:
Securities Available for Sale
U.S. Government Agencies
Mortgage-Backed
State, County and Municipal
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$278,419,055
3,516,400
$155,902
27,181
$(7,511,288)
(12,664)
$271,063,669
3,530,917
$281,935,455
$183,083
$(7,523,952)
$274,594,586
Securities Held to Maturity
State, County and Municipal
$ 29,796
$ 127
$ -
$ 29,923
The amortized cost and fair value of investment securities as of December 31, 2014, 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
$ 715,764
718,836
1,158,938
922,862
$ 717,138
730,598
1,157,251
925,930
$29,796
-
-
-
$29,923
-
-
-
3,516,400
3,530,917
29,796
29,923
Mortgage-Backed Securities
278,419,055
271,063,669
-
-
$281,935,455
$274,594,586
$29,796
$29,923
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
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
Securities Held to Maturity
State, County and Municipal
$ 37,062
$ 247
$ -
$ 37,309
(3) Investment Securities (Continued)
Proceeds from sales of investments available for sale were $13,620,956 in 2014, $72,672,795 in 2013 and
$227,690,806 in 2012. Gross realized gains totaled $67,601 in 2014, $442,124 in 2013 and $3,084,666 in
2012. Gross realized gains of $1,800 in 2014 was due to a gain on a call for a held to maturity investment.
Gross realized losses totaled $45,666 in 2014, $805,928 in 2013 and $247,202 in 2012.
Investment securities having a carrying value totaling $135,531,563 and $112,912,815 as of December 31,
2014 and 2013, respectively, were pledged to secure public deposits and for other purposes.
Information pertaining to securities with gross unrealized losses at December 31, 2014 and 2013 aggregated
by investment category and length of time that individual securities have been in a continuous loss position,
follows:
December 31, 2014
U.S. Government Agencies
Mortgage-Backed
State, County and Municipal
December 31, 2013
U.S. Government Agencies
Mortgage-Backed
State, County and Municipal
Less Than 12 Months
Gross
Unrealized
Losses
Fair
Value
12 Months or Greater
Gross
Unrealized
Losses
Fair
Value
Total
Fair
Value
Gross
Unrealized
Losses
$66,609,319
-
$ (396,896) $183,645,552
1,379,547
-
$(7,114,392) $250,254,871
1,379,547
(12,664)
$(7,511,288)
(12,664)
$66,609,319
$ (396,896) $185,025,099 $(7,127,056) $251,634,418
$(7,523,952)
$190,063,827 $(9,440,663)
(83,988)
1,647,043
$63,193,601
-
$(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)
Management evaluates securities for other than temporary impairment at least on a quarterly basis, and more
frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the
length of time and the extent to which the fair value has been less than cost, (2) the financial condition and
near-term prospects of the issuer and (3) the intent and ability of the Company to retain its investment in the
issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
At December 31, 2014, the debt securities with unrealized losses have depreciated 2.90 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, 2014 which was completely
written off during prior years. 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 and $59,568 were written off during the years ended December 31, 2013 and 2012, 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
2014
2013
$ 50,960,265
16,689,444
$ 48,107,448
10,665,938
51,258,970
11,220,683
332,230,847
203,752,620
49,950,984
52,738,783
6,549,260
341,783,538
206,257,927
47,034,426
22,820,314
7,209,682
25,675,560
12,405,582
$746,093,809
$751,218,462
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.
(4) Loans (Continued)
The Company uses a risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a
scale of 1 to 8. A description of the general characteristics of the grades is as follows:
Grades 1 and 2 - Borrowers with these assigned grades range in risk from virtual absence of risk to
minimal risk. Such loans may be secured by Company-issued and controlled certificates of deposit
or properly margined equity securities or bonds. Other loans comprising these grades are made to
companies that have been in existence for a long period of time with many years of consecutive
profits and strong equity, good liquidity, excellent debt service ability and unblemished past
performance, or to exceptionally strong individuals with collateral of unquestioned value that fully
secures the loans. Loans in this category fall into the “pass” classification.
Grades 3 and 4 - Loans assigned these “pass” risk grades are made to borrowers with acceptable
credit quality and risk. The risk ranges from loans with no significant weaknesses in repayment
capacity and collateral protection to acceptable loans with one or more risk factors considered to be
more than average.
Grade 5 - This grade includes “special mention” loans on management’s watch list and is intended to
be used on a temporary basis for pass grade loans where risk-modifying action is intended in the
short-term.
Grade 6 - This grade includes “substandard” loans in accordance with regulatory guidelines. This
category includes borrowers with well-defined weaknesses that jeopardize the payment of the debt in
accordance with the agreed terms. Loans considered to be impaired are assigned this grade, and these
loans often have assigned loss allocations as part of the allowance for loan and lease losses.
Generally, loans on which interest accrual has been stopped would be included in this grade.
Grades 7 and 8 - These grades correspond to regulatory classification definitions of “doubtful” and
“loss,” respectively. In practice, any loan with these grades would be for a very short period of time,
and generally the Company has no loans with these assigned grades. Management manages the
Company’s problem loans in such a way that uncollectible loans or uncollectible portions of loans are
charged off immediately with any residual, collectible amounts assigned a risk grade of 6.
(4) Loans (Continued)
The following tables present the loan portfolio by credit quality indicator (risk grade) as of December 31.
Those loans with a risk grade of 1, 2, 3 or 4 have been combined in the pass column for presentation
purposes.
2014
Pass
Special Mention
Substandard
Total Loans
Commercial and Agricultural
Commercial
Agricultural
$ 46,230,110
16,504,404
$ 2,905,361
27,101
$ 1,824,794
157,939
$ 50,960,265
16,689,444
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
45,063,306
11,220,683
309,828,039
180,549,640
47,548,106
1,740,488
-
11,220,166
10,582,704
414,521
4,455,176
-
11,182,642
12,620,276
1,988,357
51,258,970
11,220,683
332,230,847
203,752,620
49,950,984
22,114,932
7,012,405
248,997
-
456,385
197,277
22,820,314
7,209,682
Total Loans
$686,071,625
$27,139,338
$32,882,846
$746,093,809
2013
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
$ 41,759,281
10,637,705
$ 2,770,284
16,830
$ 3,577,883
11,403
$48,107,448
10,665,938
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
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.
(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 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:
2014
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
Accruing Loans
30-89 Days
Past Due
90 Days
or More
Past Due
Total Accruing
Loans Past Due
Nonaccrual
Loans
Current
Loans
Total Loans
$ 872,321
-
$ -
-
$ 872,321
-
$ 405,398
44,605
$ 49,682,546 $ 50,960,265
16,644,839 $ 16,689,444
141,850
-
2,309,114
5,782,701
281,967
-
-
-
-
-
141,850
-
2,309,114
5,782,701
281,967
3,251,290
-
5,325,047
7,461,507
1,449,226
47,865,830 $ 51,258,970
11,220,683 $ 11,220,683
324,596,686 $332,230,847
190,508,412 $203,752,620
48,219,791 $ 49,950,984
313,424
-
6,642
-
320,066
-
201,695
195,497
22,298,553 $ 22,820,314
7,014,185 $ 7,209,682
Total Loans
$9,701,377
$6,642
$9,708,019
$18,334,265
$718,051,525 $746,093,809
2013
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
$ 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
(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 $591,900, $968,700 and
$1,634,600 for the years ended December 31, 2014, 2013 and 2012, respectively.
The following table details impaired loan data as of December 31, 2014:
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
$ 310,447
50,163
9,573,141
17,129,876
9,136,987
1,450,759
201,695
206,894
$ 308,817
44,605
3,463,502
16,227,379
7,600,073
1,449,226
201,695
195,497
$ -
-
-
-
-
-
-
-
$ 679,267
50,959
3,376,033
18,350,015
5,690,573
949,003
211,775
197,519
$ 9,248
(6,029)
13,111
462,355
312,024
(8,518)
14,455
5,874
$ 17,973
3,000
12,833
474,936
306,859
17,273
15,495
10,677
38,059,962
29,490,794
-
29,505,144
802,520
859,046
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
96,580
-
207,308
6,135,238
2,072,919
396,048
-
-
96,580
-
136,369
6,135,238
2,065,158
396,048
-
-
96,580
-
53,947
456,941
414,684
28,962
-
-
419,464
-
1,528,817
6,415,086
1,829,102
529,555
-
-
(299)
-
375
60,629
84,177
13,077
-
-
-
-
375
50,468
86,472
12,210
-
-
8,908,093
8,829,393
1,051,114
10,722,024
157,959
149,525
407,027
50,163
9,780,449
23,265,114
11,209,906
1,846,807
201,695
206,894
405,397
44,605
3,599,871
22,362,617
9,665,231
1,845,274
201,695
195,497
96,580
-
53,947
456,941
414,684
28,962
-
-
1,098,731
50,959
4,904,850
24,765,101
7,519,675
1,478,558
211,775
197,519
8,949
(6,029)
13,486
522,984
396,201
4,559
14,455
5,874
17,973
3,000
13,208
525,404
393,331
29,483
15,495
10,677
$46,968,055
$38,320,187
$1,051,114
$40,227,168
$960,479
$1,008,571
(4) Loans (Continued)
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
(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.
(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, 2014. The following tables present the number of
loan contracts restructured during the 12 months ended December 31, 2014 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
2014
# of Contracts
Pre-Modification Post-Modification
Farmland
Commercial Construction
Commercial Real Estate
Residential Real Estate
Total Loans
2013
Commercial
Commercial Construction
Commercial Real Estate
Residential Real Estate
Total Loans
2012
Commercial
Commercial Real Estate
Residential Real Estate
Total Loans
1
1
1
1
4
1
2
1
4
8
1
1
5
7
$ 400,778
349,976
1,771,395
49,194
$ 400,778
349,976
1,775,407
49,194
$2,571,343
$2,575,355
$ 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
(4) Loans (Continued)
Troubled debt restructurings that subsequently defaulted as of December 31 are as follows:
2014
2013
2012
# of
Contracts
Recorded
Investment
# of
Contracts
Recorded
Investment
# of
Contracts
Recorded
Investment
Commercial
Commercial Real Estate
Residential Real Estate
Total Loans
-
-
-
-
$ -
-
-
$ -
1
-
-
1
$ 81,277
-
-
$ 81,277
-
1
1
2
$ -
203,291
10,000
$ 213,291
At December 31, 2014, all restructured loans were performing as agreed. During 2013 and 2012,
restructured loans totaling $81,277 and $10,000 failed to continue to perform as agreed and were charged off
in August 2013 and January 2012, respectively.
(5) Allowance for Loan Losses
Changes in the allowance for loan losses for the years ended December 31 are as follows:
2014
2013
2012
Balance, Beginning of Year
$ 11,805,986
$ 12,736,921
$ 15,649,594
Provision for Loan Losses
Loans Charged Off
Recoveries of Loans Previously Charged Off
1,308,000
(5,104,491)
792,821
4,485,000
(6,227,716)
811,781
6,784,767
(10,454,175)
756,735
Balance, End of Year
$ 8,802,316
$ 11,805,986
$ 12,736,921
(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.
2014
Beginning
Balance
Charge-Offs
Recoveries
Provision
Ending
Balance
Commercial and Agricultural
Commercial
Agricultural
$ 1,017,073
293,886
$ (624,944)
-
$ 76,002
2,700
$ 29,430
7,586
$ 497,561
304,172
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
2013
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
1,782,179
138,092
4,379,276
3,278,269
311,494
(1,543,099)
-
(1,326,825)
(1,033,966)
(233,580)
485,005
-
90,042
31,127
20,000
498,610
-
522,284
149,897
5,886
1,222,695
138,092
3,664,777
2,425,327
103,800
243,253
362,464
(342,077)
-
72,477
15,468
93,261
1,046
66,914
378,978
$11,805,986
$(5,104,491)
$792,821
$1,308,000
$8,802,316
$ 981,021
296,175
$ (120,690)
(34,502)
$ 55,829
6,200
$ 100,913
26,013
$ 1,017,073
293,886
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
(5) Allowance for Loan Losses (Continued)
2012
Beginning
Balance
Charge-Offs
Recoveries
Provision
Ending
Balance
Commercial and Agricultural
Commercial
Agricultural
$ 1,070,560
297,168
$ (653,389)
(3,028)
$ 139,802
-
$ 424,048
2,035
$ 981,021
296,175
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
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
The loss history period used at December 31, 2014 and 2013 was based on the loss rate from the eight
quarters ended September 30, 2014 and 2013, respectively. 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. 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.
During 2014 management changed its methodology for calculating the allowance for loan losses to better
reflect the estimated losses inherent in the portfolio. Specific changes included:
Reducing the historical loss ratios by including loan loss recoveries in the calculation. Previously,
management only included the loan charge-off amount and did not consider the effect of subsequent
recoveries.
Reducing the balance of those loans which are guaranteed by government agencies, such as SBA
loans. Previously, the entire balance of such loans was considered in the calculation of the general
reserves; however, beginning in 2014, only the non-guaranteed portion of these loans is subject to the
loss calculation.
Management feels these changes better align the calculation of the allowance for loan losses with the
direction of the loan portfolio. These changes did not result in a significant change to the recorded allowance
for loan loss balance.
During the third quarter of 2013, 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
(5) Allowance for Loan Losses (Continued)
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.
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 $9,356,253 and
$6,664,935 as of December 31, 2014 and 2013, respectively. Specific allowance allocations were made for
these loans totaling $747,982 and $260,742 as of December 31, 2014 and 2013, 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, 2014, impaired loans totaling $3,885,411 were below the $250,000 review threshold and
were not individually reviewed for impairment. Those loans were subject to the Bank’s general loan loss
reserve methodology and are included in the “Collectively Evaluated for Impairment” column of the
following tables. Likewise, at December 31, 2013 and 2012, impaired loans totaling $2,821,199 and
$1,026,624, respectively, were below the $250,000 and $50,000 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.
2014
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
Ending Loan Balance
Individually
Evaluated for
Impairment
Collectively
Evaluated for
Impairment
Total
$ 96,580
-
$ 400,981
304,172
$ 497,561
304,172
$ 96,580 $ 50,863,685
16,689,444
-
$ 50,960,265
16,689,444
53,947
-
456,941
414,684
28,962
1,168,748
138,092
3,207,836
2,010,643
74,838
1,222,695
138,092
3,664,777
2,425,327
103,800
3,384,377
-
21,693,061
7,559,965
1,700,793
47,874,593
11,220,683
310,537,786
196,192,655
48,250,191
51,258,970
11,220,683
332,230,847
203,752,620
49,950,984
-
-
66,914
378,978
66,914
378,978
-
-
22,820,314
7,209,682
22,820,314
7,209,682
Total End of Year Balance
$1,051,114
$7,751,202
$8,802,316
$34,434,776
$711,659,033
$746,093,809
(5) Allowance for Loan Losses (Continued)
2013
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
Ending Allowance Balance
Collectively
Evaluated for
Impairment
Individually
Evaluated for
Impairment
Total
Ending Loan Balance
Individually
Evaluated for
Impairment
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
2012
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
$ 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
(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
2014
2013
$ 8,270,678
23,894,943
12,243,988
990,626
14,090
$ 7,790,167
23,832,454
13,846,579
970,346
236,591
45,414,325
(20,453,880)
46,676,137
(21,799,668)
$ 24,960,445
$ 24,876,469
Depreciation charged to operations totaled $1,595,253 in 2014, $1,527,392 in 2013 and $1,676,820 in 2012.
Certain Company facilities and equipment are leased under various operating leases. Rental expense
approximated $613,000 for 2014, $490,000 for 2013 and $447,000 for 2012.
Future minimum rental payments as of December 31, 2014 are as follows:
Year Ending December 31
2015
2016
2017
Amount
$129,457
73,883
38,500
$241,840
(7) Other Real Estate Owned
The aggregate carrying amount of Other Real Estate Owned (OREO) at December 31, 2014, 2013 and 2012
was $10,401,832, $15,502,462 and $15,940,693, 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 2014, 2013 and 2012 as of December 31:
2014
2013
2012
Balance, Beginning of Year
$15,502,462
$15,940,693
$20,445,085
Additions
Sales of OREO
Loss on Sale
Provision for Losses
Balance, End of Year
3,852,848
(7,102,136)
(844,515)
(1,006,827)
10,251,006
(7,804,080)
(1,563,739)
(1,321,418)
9,729,174
(9,711,890)
(1,818,967)
(2,702,709)
$10,401,832
$15,502,462
$15,940,693
(8) Other 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, 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
-
(35,749)
(35,749)
Balance, December 31, 2014
$1,056,693
$ (904,681)
$ 152,012
Amortization expense related to the core deposit intangible was $35,749, $35,749 and $35,748 for the years
ended December 31, 2014, 2013 and 2012. 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 Expense
Federal Income Tax Expense
Current State Income Tax Expense
2014
2013
2012
$1,335,337
1,932,950
3,268,287
-
$ 156,642
2,178,222
$ (6,114)
1,204,439
2,334,864
-
1,198,325
2,526
Federal and State Income Tax Expense
$3,268,287
$2,334,864
$1,200,851
The federal income tax (benefit) expense of $3,268,287 in 2014, $2,334,864 in 2013 and $1,198,325 in 2012
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
Premiums on Officers’ Life Insurance
Meal and Entertainment Disallowance
Other
2014
2013
2012
$3,671,971
(74,138)
(186,712)
14,044
(156,878)
$2,367,729
(104,307)
(111,749)
15,319
167,872
$1,306,331
(89,983)
(59,603)
14,574
27,006
Actual Federal Income Taxes
$3,268,287
$2,334,864
$1,198,325
(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
2014
2013
$2,992,787
1,178,278
287,365
340,000
256,714
-
427,924
$ 4,014,035
1,404,812
303,380
340,000
301,238
730,484
343,919
5,483,068
7,437,868
(1,299,216)
(4,185)
(1,322,377)
(2,874)
(1,303,401)
(1,325,251)
2,495,896
4,550,362
$6,675,563
$10,662,979
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.
2014
2013
2012
Balance, Beginning
$ 42,327
$ 38,676
$ 33,368
Positions Taken During the Current Year
Reductions Resulting from Lapse of
Statutes of Limitation
-
7,247
11,794
42,327
(3,596)
(6,486)
Balance, Ending
$ -
$ 42,327
$ 38,676
The net decrease of $42,327 is included in income tax expense for the year ended December 31, 2014, while
the net increase of $3,651 is included in income tax expense for the year ended December 31, 2013.
(10) Deposits
The aggregate amount of overdrawn deposit accounts reclassified as loan balances totaled $511,387 and
$400,552 as of December 31, 2014 and 2013, respectively.
Components of interest-bearing deposits as of December 31 are as follows:
Interest-Bearing Demand
Savings
Time, $100,000 and Over
Other Time
2014
2013
$363,501,727
59,215,257
210,502,901
217,743,826
$357,290,975
54,094,617
220,672,794
240,210,393
$850,963,711 $872,268,779
At December 31, 2014 and December 31, 2013, the Company had brokered deposits of $26,298,267 and
$26,579,934, respectively. All of these brokered deposits represent Certificate of Deposit Account Registry
Service (CDARS) reciprocal deposits. The CDARS deposits are ones in which customers placed core
deposits into the CDARS program for FDIC insurance coverage and the Company receives reciprocal
brokered deposits in a like amount. The aggregate amount of short-term jumbo certificates of deposit, each
with a minimum denomination of $100,000 was $140,832,026 and $148,388,694 as of December 31, 2014
and December 31, 2013, respectively.
As of December 31, 2014, the scheduled maturities of certificates of deposit are as follows:
Year
2015
2016
2017
2018
2019 and Thereafter
Amount
$302,584,884
72,869,687
25,349,468
19,773,611
7,669,077
$428,246,727
(11) Other Borrowed Money
Other borrowed money at December 31 is summarized as follows:
2014
2013
Federal Home Loan Bank Advances
$ 40,000,000 $ 40,000,000
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, 2014, the book value of those loans pledged $101,128,937. At
December 31, 2014, the Company had remaining credit availability from the FHLB of $126,620,000. The
Company may be required to pledge additional qualifying collateral in order to utilize the full amount of the
remaining credit line.
(11) Other Borrowed Money (Continued)
The aggregate stated maturities of other borrowed money at December 31, 2014 are as follows:
Year
Amount
2015
2016
2017
2018
2019 and Thereafter
$ -
-
9,000,000
20,500,000
10,500,000
$40,000,000
At December 31, 2014, $35,000,000 of FHLB advances are subject to fixed rates of interest, while the
remaining $5,000,000 are subject to floating interest rates which will convert to fixed rates of interests next
year.
The Company also has available federal funds lines of credit with various financial institutions totaling
$43,500,000, of which there were none outstanding at December 31, 2014.
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, 2014, 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, 2014, 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
0.24260
0.25510
0.25660
0.23260
2.68
1.50
1.65
1.40
2.92260
1.75510
1.90660
1.63260
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.
(12) Subordinated Debentures (Trust Preferred Securities) (Continued)
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. On November 17, 2014, the
Company reinstated interest payments on the Trust Preferred Securities and paid $1,069,695 to bring to
current status.
(13) Preferred Stock
At December 31, 2014, the Company had 28,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock,
Series A (the Preferred Stock) issued and outstanding with private investors. The Company also had a
warrant (the Warrant) to purchase up to 500,000 shares of the Company’s common stock outstanding with
private investors. Both the Preferred Stock and the Warrant originated in 2009 through transactions with the
United States Department of the Treasury and were subsequently sold to the public through an auction
process during 2013.
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.
The Preferred Stock requires a cumulative cash dividend be paid quarterly at a rate of 9 percent per annum.
Prior to January 9, 2014 the annual dividend rate for the Preferred Stock was 5 percent. Unpaid dividends on
the Preferred Stock must be declared and set aside for the benefit of the holders of the Preferred Stock before
any dividend may be declared on common stock. On February 13, 2012, the Company announced the
suspension of dividends on Preferred Stock. On November 17, 2014, the Company reinstated dividend
payments on the Preferred Stock and paid $5,492,749 of accumulated dividends in arrears to the holders of
the Preferred Stock.
(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, 2014. During 2014, 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
(15) Employee Benefit Plan (Continued)
Company contributions after six years of service. In 2014, the Company made a total contribution of
$401,497 to the Plan. The Company made no discretionary contributions in 2013 or 2012.
(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, 2014 and 2013, the following financial instruments were outstanding whose contract
amounts represent credit risk:
Commitments to Extend Credit
Standby Letters of Credit
Contract Amount
2014
2013
$68,742,000
1,762,000
$65,688,000
1,411,000
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. The commitments for equity lines of credit may
expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent
future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is
based on management’s credit evaluation of the customer.
Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection
agreements are commitments for possible future extensions of credit to existing customers. These lines of
credit are uncollateralized and usually do not contain a specified maturity date and may not be drawn upon to
the total extent to which the Company is committed.
Standby and performance letters of credit are conditional lending commitments issued by the Company to
guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to
support public and private borrowing arrangements. Essentially all letters of credit issued have expiration
dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
Legal Contingencies. In the ordinary course of business, there are various legal proceedings pending against
Colony and its subsidiary. The aggregate liabilities, if any, arising from such proceedings would not, in the
opinion of management, have a material adverse effect on Colony’s consolidated financial position.
(17) Deferred Compensation Plan
Colony Bank, the wholly-owned subsidiary, has deferred compensation plans covering certain former
directors and certain officers choosing to participate through individual deferred compensation contracts. In
accordance with terms of the contracts, the Bank is committed to pay the participant’s deferred compensation
over a specified number of years, beginning at age 65. In the event of a participant’s death before age 65,
payments are made to the participant’s named beneficiary over a specified number of years, beginning on the
first day of the month following the death of the participant.
Liabilities accrued under the plans totaled $845,192 and $892,294 as of December 31, 2014 and 2013,
respectively. Benefit payments under the contracts were $112,605 in 2014 and $188,240 in 2013.
Provisions charged to operations totaled $69,653 in 2014, $75,777 in 2013 and $82,250 in 2012.
The Company has purchased life insurance policies on the plans’ participants and uses the cash flow from
these policies to partially fund the plan. Fee income recognized with these plans totaled $167,911 in 2014,
$164,073 in 2013 and $175,302 in 2012.
(18) Supplemental Cash Flow Information
Cash payments for the following were made during the years ended December 31:
Interest Expense
Income Taxes
2014
2013
2012
$7,898,543
$ 7,111,361
$10,942,113
$ 113,000
$ 173,883
$ -
Noncash financing and investing activities for the years ended December 31 are as follows:
Acquisitions of Real Estate
Through Loan Foreclosures
2014
2013
2012
$3,852,848
$ 10,251,006
$ 9,729,174
Change In Unrealized Gain (Loss) on AFS Investment
Securities
$6,409,171
$(13,523,050)
$ (3,120,540)
(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
Balance, Ending
2014
2013
$ 4,064,588
$ 4,776,492
6,406,713
(7,237,352)
7,610,259
(8,322,163)
$ 3,233,949
$ 4,064,588
(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 and classified as Level 1. If quoted market prices are not available, estimated fair values are
based on quoted market prices of comparable instruments and classified as Level 2. 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 and is classified as Level 1.
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. Most loans are classified as Level 2,
but impaired loans with a related allowance are classified as Level 3.
Bank-Owned Life Insurance - The carrying value of bank-owned life insurance policies approximates
fair value and is classified as Level 1.
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. Subordinated Debentures are classified as Level 1.
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.
(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:
2014
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
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
Carrying
Amount
Estimated
Fair Value
1
Level
2
3
(in Thousands)
$ 65,811
274,595
30
2,831
736,930
14,531
$ 65,811
274,595
30
2,831
738,948
14,531
$ 65,811
-
-
2,831
-
14,531
$ -
273,647
30
-
731,170
-
$ -
948
-
-
7,778
-
979,303
24,229
40,000
980,874
24,229
41,962
551,057
24,229
-
429,817
-
41,962
-
-
-
$ 68,147
263,258
37
3,164
739,052
10,165
$ 68,147
263,258
37
3,164
741,112
10,165
$ 68,147
-
-
3,164
-
10,165
$ -
262,317
37
-
729,436
-
$ -
941
-
-
11,676
-
987,529
24,229
40,000
989,101
24,229
42,074
526,646
24,229
-
462,455
-
42,074
-
-
-
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.
(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.
(20) Fair Value of Financial Instruments and Fair Value Measurements (Continued)
Fair Value Measurements (Continued)
Assets (Continued)
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.
(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, 2014 and 2013, 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.
2014
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
$271,063,669
3,530,917
$ -
-
$271,063,669
2,582,527
$ -
948,390
$274,594,586
$ -
$273,646,196
$ 948,390
$ 7,778,279
$ -
$ -
$ 7,778,279
Other Real Estate
$ 6,128,365
$ -
$ -
$ 6,128,365
2013
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
Liabilities
The Company did not identify any liabilities that are required to be presented at fair value.
(20) Fair Value of Financial Instruments and Fair Value Measurements (Continued)
Fair Value Measurements (Continued)
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
The following 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, 2014 and 2013. These tables are comprised primarily of collateral dependent impaired loans
and other real estate owned:
December 31,
2014
Valuation
Techniques
Unobservable
Inputs
Range
(Weighted Avg)
Real Estate
Commercial Construction
$ 82,422 Sales Comparison
Residential Real Estate
1,650,474 Sales Comparison
Adjustment for Differences
Between the Comparable Sales
(22.00)% - 38.10%
(8.05%)
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
0.00% - 10.00%
(5.00%)
Adjustment for Differences
Between the Comparable Sales
(2.30)% - 191.70%
(94.70%)
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
0.00% - 10.00%
(5.00%)
Income Approach
Capitalization Rate
13.75%
Commercial Real Estate
5,678,297 Sales Comparison
Adjustment for Differences
Between the Comparable Sales
0.00% - 0.00%
(0.00%)
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
0.00% - 90.00%
(45.00%)
Income Approach
Capitalization Rate
11.00%
Farmland
367,086 Sales Comparison
Other Real Estate Owned
6,128,365 Sales Comparison
Adjustment for Differences
Between the Comparable Sales
(8.30)% - 252.50%
(122.10%)
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
10.00% - 50.00%
(30.00%)
Adjustment for Differences
Between the Comparable Sales
(40.00)% - 45.00%
(2.50%)
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
0.33% - 69.36%
(31.88%)
Income Approach
Discount Rate
Capitalization Rate
9.00%
10.00%
(20) Fair Value of Financial Instruments and Fair Value Measurements (Continued)
Fair Value Measurements (Continued)
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (Continued)
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%)
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
10.00%-50.00%
(30.00%)
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
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
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
0.00%-46.00%
(23.00%)
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%
(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, 2014, 2013 and 2012:
Available for Sale Securities
2013
2014
2012
Balance, Beginning
$ 941,265
$ 1,138,238
$ 1,122,427
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)
7,125
211,558
78,201
Balance, Ending
$ 948,390
$ 941,265
$ 1,138,238
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,
2014, 2013 or 2012.
The following table presents quantitative information about recurring level 3 fair value measurements as of
December 31, 2014 and 2013:
December 31, 2014
Fair Value Valuation Techniques
Unobservable
Inputs
Range
(Weighted Avg)
State, County and Municipal
$ 948,390
Discounted Cash Flow Discount Rate
N/A*
or Yield
December 31, 2013
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.
(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.
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, 2014, the Company meets all capital adequacy requirements to which it is
subject under the regulatory framework for prompt corrective action. In the opinion of management, there
are no conditions or events since prior notification of capital adequacy from the regulators that have changed
the institution’s category.
(21) Regulatory Capital Matters (Continued)
The following table summarizes regulatory capital information as of December 31, 2014 and 2013 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
$136,022
127,833
17.95%
16.89
$ 60,639
60,542
8.00%
8.00
N/A
$75,678
N/A
10.00%
127,220
119,031
16.78
15.73
30,320
30,271
4.00
4.00
N/A
45,407
127,220
119,031
11.18
10.50
45,509
45,364
4.00
4.00
N/A
56,705
N/A
6.00
N/A
5.00
$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
As of December 31, 2014
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, 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
Effective October 22, 2014, the Board Resolution (BR) the bank had been operating under was lifted. The
BR required that, prior to declaring or paying any cash dividend to the Company, the Bank must obtain
written consent of its regulators. In November 2014, the Bank paid a $12,000,000 dividend to the Company.
This dividend was utilized to bring the interest payments of the Trust Preferred Securities and the dividend
payments of the Preferred Stock to a current status and to fund holding company operations for the coming
year.
(22) Financial Information of Colony Bankcorp, Inc. (Parent Only)
The parent company’s balance sheets as of December 31, 2014 and 2013 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
2014
2013
$ 5,750,652
1,199,639
115,066,948
1,708,380
$ 1,422,289
1,272,965
114,559,866
1,221,285
$123,725,619
$118,476,405
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, 2014 and 2013
Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss, Net of Tax
$ 315,000
154,307
$ 3,119,146
1,174,020
469,307
4,293,166
24,229,000
24,229,000
28,000,000
28,000,000
8,439,258
29,145,094
38,287,934
(4,844,974)
8,439,258
29,145,094
33,444,913
(9,075,026)
99,027,312
89,954,239
Total Liabilities and Stockholders’ Equity
$123,725,619
$118,476,405
(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
2014
2013
2012
$12,015,572
581,334
100,269
$ 1,515,549
581,334
96,953
$ 17,372
590,422
101,397
$12,697,175
2,193,836
709,191
517,381
938
782,152
538,847
516,641
2,250
748,149
543,139
554,004
2,250
735,919
558,151
1,839,318
1,810,179
1,850,324
Income (Loss) Before Taxes and Equity in
Undistributed Earnings of Subsidiary
10,857,857
383,657
(1,141,133)
Income Tax Benefits
396,738
406,518
365,691
Income (Loss) Before Equity in
Undistributed Earnings of Subsidiary
11,254,595
790,175
(775,442)
Equity in Undistributed
Earnings of Subsidiary
Net Income
Preferred Stock Dividends
Net Income Available
to Common Stockholders
(3,722,970)
3,838,870
3,416,740
7,531,625
2,688,604
4,629,045
1,508,761
2,641,298
1,435,385
$4,843,021
$ 3,120,284
$ 1,205,913
(22) Financial Information of Colony Bankcorp, Inc. (Parent Only) (Continued)
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31
2014
2013
2012
Net Income
$ 7,531,625
$ 4,629,045
$ 2,641,298
Other Comprehensive Income (Loss)
Gains (Losses) on Securities Arising During the Year
Tax Effect
6,432,906
(2,187,189)
(13,886,854)
4,721,531
(283,076)
96,246
Realized Gains (Losses) on Sale of AFS Securities
Tax Effect
(23,735)
8,070
(2,819)
959
(2,897,032)
984,991
Impairment Loss on Securities
Tax Effect
-
-
366,623
(124,652)
59,568
(20,253)
Change in Unrealized Gains (Losses) on Securities
Available for Sale, Net of Reclassification Adjustment
and Tax Effects
4,230,052
(8,925,212)
(2,059,556)
Comprehensive Income (Loss)
$11,761,677
$(4,296,167)
$ 581,742
(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
Change in Interest Payable
Other
Cash Flows from Investing Activities
Purchases of Premises and Equipment
Cash Flows from Financing Activities
Dividends Paid on Preferred Stock
2014
2013
2012
$ 7,531,625
$ 4,629,045
$ 2,641,298
75,347
80,711
93,427
3,722,970
(1,069,695)
(437,115)
(3,838,870)
516,641
(390,962)
(3,416,740)
529,922
(405,379)
9,823,132
996,565
(557,472)
(2,020)
(68,708)
(5,492,749)
-
-
-
Increase (Decrease) in Cash
4,328,363
927,857
(557,472)
Cash, Beginning
Cash, Ending
1,422,289
494,432
1,051,904
$ 5,750,652
$ 1,422,289
$ 494,432
(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, 2014, 2013 and 2012:
2014
2013
2012
Numerator
Net Income (Loss) Available to Common Stockholders
$ 4,843,021
$ 3,120,284
$ 1,205,913
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
$ 0.57
$ 0.37 $ 0.14
Earnings (Loss) Per Share - Diluted
$ 0.57
$ 0.37 $ 0.14
For the years ended December 31, 2014, 2013 and 2012, respectively, the Company has excluded 500,000
shares of common stock equivalents because the strike price of the common stock equivalents would cause
them to have an anti-dilutive effect.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements and Factors that Could Affect Future Results
Certain statements contained in this Annual Report that are not statements of historical fact constitute
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the
Act), notwithstanding that such statements are not specifically identified. In addition, certain statements may
be contained in the Company’s future filings with the SEC, in press releases, and in oral and written
statements made by or with the approval of the Company that are not statements of historical fact and
constitute forward-looking statements within the meaning of the Act. Examples of forward-looking
statements include, but are not limited to: (i) projections of revenues, income or loss, earnings or loss per
share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of
plans and objectives of Colony Bankcorp, Inc. or its management or Board of Directors, including those
relating to products or services; (iii) statements of future economic performance; and (iv) statements of
assumptions underlying such statements. Words such as “believes,” “anticipates,” “expects,” “intends,”
“targeted” and similar expressions are intended to identify forward-looking statements but are not the
exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially
from those in such statements. Factors that could cause actual results to differ from those discussed in the
forward-looking statements include, but are not limited to:
Local and regional economic conditions and the impact they may have on the Company and its
customers and the Company’s assessment of that impact.
Changes in estimates of future reserve requirements based upon the periodic review thereof under
relevant regulatory and accounting requirements.
The effects of and changes in trade, monetary and fiscal policies and laws, including interest rate
policies of the Federal Reserve Board.
Inflation, interest rate, market and monetary fluctuations.
Political instability.
Acts of war or terrorism.
The timely development and acceptance of new products and services and perceived overall value of
these products and services by users.
Changes in consumer spending, borrowings and savings habits.
Technological changes.
Acquisitions and integration of acquired businesses.
The ability to increase market share and control expenses.
The effect of changes in laws and regulations (including laws and regulations concerning taxes,
banking, securities and insurance) with which the Company and its subsidiaries must comply.
The effect of changes in accounting policies and practices, as may be adopted by the regulatory
agencies, as well as the Financial Accounting Standards Board and other accounting standard setters.
Changes in the Company’s organization, compensation and benefit plans.
The costs and effects of litigation and of unexpected or adverse outcomes in such litigation.
Greater than expected costs or difficulties related to the integration of new lines of business.
The Company’s success at managing the risks involved in the foregoing items.
Forward-looking statements speak only as of the date on which such statements are made. The Company
undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the
date on which such statement is made, or to reflect the occurrence of unanticipated events.
The Company
Colony Bankcorp, Inc. (Colony) is a bank holding company headquartered in Fitzgerald, Georgia that
provides, through its wholly-owned subsidiary (collectively referred to as the Company), a broad array of
products and services throughout central, south and coastal Georgia markets. The Company offers
commercial, consumer and mortgage banking services.
Application of Critical Accounting Policies and Accounting Estimates
The accounting and reporting policies of the Company are in accordance with accounting principles
generally accepted in the United States of America and conform to general practices within the banking
industry. The Company’s financial position and results of operations are affected by management’s
application of accounting policies, including judgments made to arrive at the carrying value of assets and
liabilities and amounts reported for revenues, expenses and related disclosures. Different assumptions in the
application of these policies could result in material changes in the Company’s financial position and/or
results of operations. Critical accounting policies are those policies that management believes are the most
important to the portrayal of the Company’s financial condition and results of operations, and they require
management to make estimates that are difficult and subjective or complete.
Allowance for Loan Losses - The allowance for loan losses provides coverage for probable losses inherent
in the Company’s loan portfolio. Management evaluates the adequacy of the allowance for loan losses
quarterly based on changes, if any, in underwriting activities, the loan portfolio composition (including
product mix and geographic, industry or customer-specific concentrations), trends in loan performance,
regulatory guidance and economic factors. This evaluation is inherently subjective, as it requires the use of
significant management estimates. Many factors can affect management’s estimates of specific and expected
losses, including volatility of default probabilities, collateral values, rating migrations, loss severity and
economic and political conditions. The allowance is increased through provisions charged to operating
earnings and reduced by net charge-offs.
The Company determines the amount of the allowance based on relative risk characteristics of the loan
portfolio. The allowance recorded for loans is based on reviews of individual credit relationships and
historical loss experience. The allowance for losses relating to impaired loans is based on the loan’s
observable market price, the discounted cash flows using the loan’s effective interest rate, or the value of
collateral for collateral dependent loans.
Regardless of the extent of the Company’s analysis of customer performance, portfolio trends or risk
management processes, certain inherent but undetected losses are probable within the loan portfolio. This is
due to several factors, including inherent delays in obtaining information regarding a customer’s financial
condition or changes in their unique business conditions, the judgmental nature of individual loan
evaluations, collateral assessments and the interpretation of economic trends. Volatility of economic or
customer-specific conditions affecting the identification and estimation of losses for larger nonhomogeneous
credits and the sensitivity of assumptions utilized to establish allowances for homogeneous groups of loans
are among other factors. The Company estimates a range of inherent losses related to the existence of these
exposures. The estimates are based upon the Company’s evaluation of risk associated with the commercial
and consumer levels and the estimated impact of the current economic environment.
Other Real Estate Owned and Foreclosed Assets
Other real estate owned (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, 2014 and 2013, and results of operations for each of the years in the
three-year period ended December 31, 2014. This discussion and analysis should be read in conjunction with
the Company’s consolidated financial statements, notes thereto and other financial information appearing
elsewhere in this report.
Taxable-equivalent adjustments are the result of increasing income from tax-free loans and investments by
an amount equal to the taxes that would be paid if the income were fully taxable based on a 34 percent
federal tax rate, thus making tax-exempt yields comparable to taxable asset yields.
Dollar amounts in tables are stated in thousands, except for per share amounts.
Results of Operations
The Company’s results of operations are determined by its ability to effectively manage interest income and
expense, to minimize loan and investment losses, to generate noninterest income and to control noninterest
expense. Since market forces and economic conditions beyond the control of the Company determine
interest rates, the ability to generate net interest income is dependent upon the Company’s ability to obtain an
adequate spread between the rate earned on earning assets and the rate paid on interest-bearing liabilities.
Thus, the key performance for net interest income is the interest margin or net yield, which is taxable-
equivalent net interest income divided by average earning assets. Net income (loss) available to common
shareholders totaled $4.84 million, or $0.57 per diluted common share in 2014, compared to $3.12 million,
or $0.37 per diluted common share in 2013, and to $1.21 million, or $0.14 per diluted common share in
2012.
Selected income statement data, returns on average assets and average equity and dividends per share for the
comparable periods were as follows:
2014
2013
Variance Variance
2013
2012
Variance
Variance
$
%
$
%
Taxable-equivalent net interest income
Taxable-equivalent adjustment
$
38,080
$
37,859
$
221
0.58%
$
37,859
$
36,417
$
1,442
3.96%
117
170
(53)
(31.18)
170
144
26
18.06
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
37,963
1,308
9,125
34,980
37,689
4,485
8,377
34,617
274
0.73
37,689
36,273
1,416
3.90
(3,177)
(70.84)
748
363
8.93
1.05
4,485
8,377
6,785
9,733
(2,300)
(33.90)
(1,356)
(13.93)
34,617
35,379
(762)
(2.15)
Income before income taxes
Income Taxes
$
10,800
$
6,964
$
3,836
55.08
$
6,964
$
3,842
$
3,122
81.26
3,268
2,335
933
39.96
2,335
1,201
1,134
94.42
Net income
$
7,532
$
4,629
$
2,903
62.71%
$
4,629
$
2,641
$
1,988
75.27%
Preferred stock dividends
$
2,689
$
1,509
$
1,180
78.20%
$
1,509
$
1,435
$
74
5.16%
Net income available to
common shareholders
$
4,843
$
3,120
$
1,723
55.22%
$
3,120
$
1,206
$
1,914
158.71%
Net income available to
common shareholders:
Basic
Diluted
Return on average assets (1)
0.43% 0.28% 0.15% 53.57% 0.28% 0.11% 0.17%
Return on average common equity (1) 5.11% 3.34% 1.77% 52.99% 3.34% 1.25% 2.09%
54.05% $ 0.37
54.05% $ 0.37
$ 0.57
$ 0.57
$ 0.20
$ 0.20
$ 0.23
$ 0.23
$ 0.37
$ 0.37
$ 0.14
$ 0.14
164.29%
164.29%
154.55%
167.20%
(1) Computed using net income available to common shareholders.
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 80.62 percent of total revenue
during 2014 and 81.82 percent during 2013.
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
moves similar to prime rate with interest rates currently at 0.25 percent and has been for the past four years.
We anticipate the Federal Reserves interest rate to remain flat the first part of 2015 with a potential increase
the latter part of 2015.
The following table presents the changes in taxable-equivalent net interest income and identifies the changes
due to differences in the average volume of earning assets and interest-bearing liabilities and the changes due
to changes in the average interest rate on those assets and liabilities. The changes in net interest income due
to changes in both average volume and average interest rate have been allocated to the average volume
change or the average interest rate change in proportion to the absolute amounts of the change in each. The
Company’s consolidated average balance sheets along with an analysis of taxable-equivalent net interest
earnings are presented in the Quantitative and Qualitative Disclosures About Market Risk included
elsewhere in this report.
Rate/Volume Analysis
The rate/volume analysis presented hereafter illustrates the change from year to year for each component of
the taxable equivalent net interest income separated into the amount generated through volume changes and
the amount generated by changes in the yields/rates.
Interest Income
Loans, Net-Taxable
Investment Securities
Taxable
Tax-Exempt
Total Investment Securities
Interest-Bearing Deposits in
Other Banks
Federal Funds Sold
Other Interest - Earning Assets
Total Interest Income
Interest Expense
Interest-Bearing Demand and
Savings Deposits
Time Deposits
Total Interest Expense
On Deposits
Other Interest-Bearing Liabilities
Federal Funds Purchased and
Repurchase Agreements
Subordinated Debentures
Other Debt
Changes From
2013 to 2014 (a)
Changes From
2012 to 2013 (a)
Volume
Rate
Total
Volume
Rate
Total
$
(175)
$
(1,484)
$
(1,659)
$
1,327
$
(1,908)
$
(581)
122
(22)
100
18
(6)
(9)
(72)
1,044
(4)
1,040
(3)
(1)
43
(405)
1,166
(26)
1,140
15
(7)
34
(477)
(145)
(20)
(165)
(19)
(60)
(18)
1,065
(1,263)
4
(1,259)
3
-
22
(3,142)
(1,408)
(16)
(1,424)
(16)
(60)
4
(2,077)
100
(263)
(37)
(508)
63
(771)
141
(892)
(64)
(2,101)
77
(2,993)
(163)
(545)
(708)
(751)
(2,165)
(2,916)
-
-
(9)
-
1
18
-
1
9
(136)
-
-
(430)
(37)
-
(566)
(37)
-
Total Interest Expense
Net Interest Income (Loss)
(9)
100
$
19
121
$
10
221
$
(887)
1,952
$
(2,632)
(510)
$
(3,519)
1,442
$
(a) Changes in net interest income for the periods, based on either changes in average balances or changes
in average rates for interest-earning assets and interest-bearing liabilities, are shown on this table.
During each year there are numerous and simultaneous balance and rate changes; therefore, it is not
possible to precisely allocate the changes between balances and rates. For the purpose of this table,
changes that are not exclusively due to balance changes or rate changes have been attributed to rates.
Our financial performance is impacted by, among other factors, interest rate risk and credit risk. We do not
utilize derivatives to mitigate our credit risk, relying instead on an extensive loan review process and our
allowance for loan losses.
Interest rate risk is the change in value due to changes in interest rates. The Company is exposed only to
U.S. dollar interest rate changes and, accordingly, the Company manages exposure by considering the
possible changes in the net interest margin. The Company does not have any trading instruments nor does it
classify any portion of its investment portfolio as held for trading. The Company does not engage in any
hedging activity or utilize any derivatives. The Company has no exposure to foreign currency exchange rate
risk, commodity price risk and other market risks. Interest rate risk is addressed by our Asset & Liability
Management Committee (ALCO) which includes senior management representatives. The ALCO monitors
interest rate risk by analyzing the potential impact to the net portfolio of equity value and net interest income
from potential changes to interest rates and considers the impact of alternative strategies or changes in
balance sheet structure.
Interest rates play a major part in the net interest income of financial institutions. The repricing of interest
earnings assets and interest-bearing liabilities can influence the changes in net interest income. The timing
of repriced assets and liabilities is Gap management and our Company has established its policy to maintain
a Gap ratio in the one-year time horizon of .80 to 1.20.
Our exposure to interest rate risk is reviewed at least quarterly by our Board of Directors and the ALCO.
Interest rate risk exposure is measured using interest rate sensitivity analysis to determine our change in net
portfolio value in the event of assumed changes in interest rates. In order to reduce the exposure to interest
rate fluctuations, we have implemented strategies to more closely match our balance sheet composition. The
Company has engaged FTN Financial to run a quarterly asset/liability model for interest rate risk analysis.
We are generally focusing our investment activities on securities with terms or average lives in the 2-5 year
range.
The Company maintains about 15.6 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. While the Federal Reserve rates
have remained unchanged since 2008, we have seen the net interest margin change to 3.60 percent for 2014,
compared to 3.61 percent for 2013 and to 3.41 percent for 2012. We have seen our net interest margin reach
a low of 3.47 percent for first quarter 2014 to a high of 3.73 percent for third quarter 2014.
Taxable-equivalent net interest income for 2014 increased by $221 thousand, or 0.58 percent, compared to
2013 while taxable-equivalent net interest income for 2013 increased by $1.44 million, or 3.96 percent,
compared to 2012. The average volume of earning assets during 2014 increased $9.42 million compared to
2013 while over the same period the net interest margin dropped to 3.60 percent from 3.61 percent. 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 percent from 3.41 percent. The change in the net
interest margin in 2014 and 2013 was primarily driven by reduction in the cost of funds. The increase in
average earning assets in 2014 was in securities and interest-bearing deposits. 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.
The average volume of loans decreased $3.14 million in 2014 compared to 2013, and increased $22.76
million in 2013 compared to 2012. The average yield on loans decreased 20 basis points in 2014 compared
to 2013 and decreased 26 basis points in 2013 compared to 2012. The average volume of deposits increased
$5.7 million while other borrowings decreased $331 thousand in 2014 compared to 2013. The average
volume of deposits decreased $16.38 million while other borrowings decreased $3.41 million in 2013
compared to 2012. Demand deposits made up $5.8 million of the increase in average deposits in 2014 and
interest-bearing deposits made up $27.1 million of the decrease in average deposits in 2013.
Accordingly, the ratio of average interest-bearing deposits to total average deposits was 87.6 in 2014, 88.2
percent in 2013 and 89.5 percent in 2012. This deposit mix, combined with a general decrease in interest
rates, had the effect of (i) decreasing the average cost of total deposits by 8 basis points in 2014 compared to
2013 and decreasing the average cost of total deposits by 29 basis points in 2013 compared to 2012, 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 3.49 percent in 2014 compared to
3.50 percent in 2013 and 3.27 percent in 2012. 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 $1.31 million in 2014 compared to $4.49 million in 2013 and $6.79 million
in 2012. See the section captioned “Allowance for Loan Losses” elsewhere in this discussion for further
analysis of the provision for loan losses.
Noninterest Income
The components of noninterest income were as follows:
$
%
$
%
2014
2013
Variance Variance
2013
2012
Variance Variance
Service Charges on Deposit Accounts
Other Charges, Commissions and Fees
Mortgage Fee Income
Securities Gains (Losses)
Gain on Sale of SBA Loans
Other
$
4,568
2,469
420
24
-
1,644
$
4,691
1,725
484
(364)
635
1,206
$
(123)
744
(64)
388
(635)
438
$
(2.62)% 4,691
1,725
43.13
484
(13.22)
(364)
(106.59)
635
(100.00)
1,206
36.32
$
3,573
1,515
400
2,837
306
1,102
$
1,118
210
84
(3,201)
329
104
31.29%
13.86
21.00
(112.83)
107.52
9.44
Total
$
9,125
$
8,377
$
748
8.93%
$
8,377
$
9,733
$
(1,356)
(13.93)%
Mortgage Fee Income. The volume of mortgage loans has been sluggish in 2014 compared to the same
period in 2013 which contributed to a slight decrease in mortgage fee income. The increase in 2013
compared to 2012 was due to increased mortgage loan activity due to an initiative to increase mortgage
lending opportunities given the low interest rate environment.
Other Charges, Commissions and Fees. Significant amounts impacting the comparable periods was
primarily attributed to ATM and debit card interchange fees which increased $701 thousand in 2014
compared to 2013.
Other. Significant amounts impacting the comparable periods was primarily attributed to the income for
bank owned life insurance which increased $217 thousand in 2014 compared to 2013.
Noninterest Expense
The components of noninterest expense were as follows:
2014
2013
Variance Variance
2013
2012
Variance Variance
$
%
$
%
Salaries and Employee Benefits
Occupancy and Equipment
Directors' Fees
Legal and Professional Fees
Foreclosed Property
FDIC Assessment
Advertising
Software
Telephone
ATM/Card Processing
Other
$
17,508
4,063
392
786
2,701
966
652
925
736
866
5,385
$
16,692
3,795
417
721
3,918
1,322
508
853
778
641
4,972
$
816
268
(25)
65
(1,217)
(356)
144
72
(42)
225
413
$
4.89% 16,692
3,795
7.06
417
(6.00)
721
9.02
3,918
(31.06)
1,322
(26.93)
508
28.35
853
8.44
778
(5.40)
641
35.10
4,972
8.31
$
15,565
3,878
465
1,086
5,613
1,498
423
789
745
511
4,806
$
1,127
(83)
(48)
(365)
(1,695)
(176)
85
64
33
130
166
7.24%
(2.14)
(10.32)
(33.61)
(30.20)
(11.75)
20.09
8.11
4.43
25.44
3.45
Total
$
34,980
$
34,617
$
363
4.05% 34,617
$
$
35,379
$
(762)
(2.15)%
Salaries and Employee Benefits. The increase in 2014 is primarily attributable to the Company reinstating
their contribution to the profit sharing plan in the amount of $401,497 and the remainder of the increase is
due to merit pay increases.
Foreclosed Property. The decrease in foreclosed property and repossession expense for 2014 is primarily
attributable to the decrease in the volume of OREO.
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 $1.13 billion in 2014 compared to $1.12 billion in 2013 and $1.14 billion in
2012.
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
2014
2013
2012
$
118,452
840,608
10.5%
74.5%
$
112,667
840,646
10.1%
75.2%
$
101,896
867,794
8.9%
76.1%
2
- %
34
- %
-
- %
64,229
5.7%
64,528
5.8%
67,974
6.0%
10,010
94,751
0.9%
8.4%
6,838
93,358
0.6%
8.3%
5,609
96,541
0.5%
8.5%
Total
$
1,128,052
100.0%
$
1,118,071
100.0%
$
1,139,814
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
$
730,643
284,474
12,551
16,193
2,906
81,285
64.8%
25.2%
1.1%
1.4%
0.3%
7.2%
$
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%
Total
$
1,128,052
100.0%
$
1,118,071
100.0%
$
1,139,814
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 87.6
percent of total average deposits in 2014 compared to 88.2 percent 2013 and 89.5 percent in 2012.
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 decreased in 2014 as total loans were $746.1 million at
December 31, 2014, down 0.68 percent, compared to loans of $751.2 million at December 31, 2013, while
total loans at December 31, 2013, up 0.6 percent, compared to loans of $747.1 million at December 31, 2012.
See additional discussion regarding the Company’s loan portfolio in the section captioned “Loans” on the
following page. The majority of funds provided by deposits have been invested in loans.
Loans
The following table presents the composition of the Company’s loan portfolio as of December 31 for the past
five years.
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
2014
2013
2012
2011
2010
$
50,960
$
48,107
$
55,684
$
48,986
$
53,220
16,689
10,666
6,211
8,422
10,552
51,259
11,221
332,231
203,753
49,951
22,820
7,210
746,094
52,739
6,549
341,783
206,258
47,034
25,676
12,406
751,218
53,808
5,852
334,386
203,845
49,057
29,778
8,429
747,050
58,546
3,530
315,281
193,638
48,225
30,449
9,244
716,321
72,309
4,373
362,878
207,472
52,778
33,564
16,104
813,250
Unearned Interest and Fees
Allowances for Loan Losses
(362)
(8,802)
(360)
(11,806)
(234)
(12,737)
(57)
(61)
(15,650)
(28,280)
Loans
$
736,930
$
739,052
$
734,079
$
700,614
$
784,909
The following table presents total loans as of December 31, 2014 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
$ 338,824
225,710
127,257
54,303
$ 746,094
Overview. Loans totaled $746.1 million at December 31, 2014, down 0.68 percent from December 31, 2013
loans of $751.2 million. The majority of the Company’s loan portfolio is comprised of the real estate loans.
Commercial and residential real estate which is primarily 1-4 family residential properties and nonfarm
nonresidential properties, made up 71.84 percent and 72.95 percent of total loans, real estate construction
loans made up 8.37 percent and 7.89 percent while commercial and agricultural loans made up 9.07 percent
and 7.82 percent of total loans at December 31, 2014 and December 31, 2013, respectively.
Loan Origination/Risk Management. In accordance with the Company’s decentralized banking model, loan
decisions are made at the local bank level. The Company utilizes an Executive Loan Committee to assist
lenders with the decision making and underwriting process of larger loan requests. Due to the diverse
economic markets served by the Company, evaluation and underwriting criterion may vary slightly by
market. Overall, loans are extended after a review of the borrower’s repayment ability, collateral adequacy,
and overall credit worthiness.
Commercial purpose, commercial real estate, and agricultural 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 and Agricultural. Commercial and agricultural loans at December 31, 2014 increased 15.1
percent to $67.6 million from December 31, 2013 at $58.8 million. The Company’s commercial and
agricultural 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, 2014 and December 31, 2013, there were no concentrations of
loans within any single industry in excess of 10 percent of total loans, as segregated by Standard Industrial
Classification code (“SIC code”). The SIC code is a federally designed standard industrial numbering system
used by the Company to categorize loans by the borrower’s type of business.
Collateral Concentrations. Concentrations of credit risk can exist in relation to individual borrowers or
groups of borrowers, certain types of collateral, certain types of industries, or certain geographic regions.
The Company has a concentration in real estate loans as well as a geographic concentration that could pose
an adverse credit risk, particularly with the current economic downturn in the real estate market. At
December 31, 2014, 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. 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,
2014 and December 31, 2013.
December 31, 2014
Period End Balances
December 31, 2013
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
-
14
$ -
93,931
$ -
86,305
1
11
$10,023
76,306
$10,023
69,672
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, 2014. 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
$ 257,277
81,547
$ 210,273
15,437
$ 110,129
17,128
$ 52,347
1,956
$ 630,026
116,068
Total
$ 338,824
$ 225,710
$ 127,257
$ 54,303
$ 746,094
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:
Loans Accounted for on Nonaccrual
Loans Accruing Past Due 90 Days or More
Other Real Estate Foreclosed
Securities Accounted for on Nonaccrual
Total Nonperforming Assets
Nonperforming Assets by Segment
Construction and Land Development
1-4 Family Residential
Multifamily Residential
Nonfarm Residential
Farmland
Commercial and Consumer
Total Nonperforming Assets
Nonperforming Assets as a Percentage of:
Total Loans and Foreclosed Assets
Total Assets
Nonperforming Loans as a Percentage of:
Total Loans
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
Total Accruing Past Due Loans
2014
2013
2012
2011
2010
$18,334
7
10,402
-
$28,743
9,655
8,237
173
8,375
1,449
854
$28,743
$24,114
4
15,502
-
$39,620
$29,851
4
15,941
366
$46,162
$38,822
15
20,445
426
$59,708
17,323
5,926
335
12,441
1,629
1,966
$39,620
23,832
7,153
627
10,421
2,413
1,716
$46,162
35,467
4,589
744
15,353
676
2,879
$59,708
$28,902
19
20,208
132
$49,261
21,962
4,966
325
18,884
2,051
1,073
$49,261
3.80%
2.51%
5.17%
3.45%
6.05%
4.05%
8.10%
4.99%
5.91%
3.86%
2.46%
3.21%
4.00%
5.42%
3.56%
$19,229
$20,715
$24,870
$29,839
$26,556
757
435
1,377
611
1,048
9,701
7
$ 9,708
9,366
4
$ 9,370
14,911
4
$14,915
7,161
15
$ 7,176
19,740
19
$19,759
Allowance for Loan Losses
ALLL as a Percentage of:
Total Loans
Nonperforming Loans
$ 8,802
$11,806
$12,737
$15,650
$28,280
1.18%
47.99%
1.57%
48.95%
1.70%
42.66%
2.18%
40.30%
3.48%
97.78%
Nonperforming assets include nonaccrual loans, loans past due 90 days or more, foreclosed real estate and
nonaccrual securities. Nonperforming assets at December 31, 2014 decreased 27.45 percent from December
31, 2013.
Generally, loans are placed on nonaccrual status if principal or interest payments become 90 days past due
and/or management deems the collectibility of the principal and/or interest to be in question, as well as when
required by regulatory requirements. Loans to a customer whose financial condition has deteriorated are
considered for nonaccrual status whether or not the loan is 90 days or more past due. For consumer loans,
collectibility and loss are generally determined before the loan reaches 90 days past due. Accordingly, losses
on consumer loans are recorded at the time they are determined. Consumer loans that are 90 days or more
past due are generally either in liquidation/payment status or bankruptcy awaiting confirmation of a plan.
Once interest accruals are discontinued, accrued but uncollected interest is charged to current year
operations. Subsequent receipts on nonaccrual loans are recorded as a reduction of principal, and interest
income is recorded only after principal recovery is reasonably assured. Classification of a loan as nonaccrual
does not preclude the ultimate collection of loan principal or interest.
Troubled debt restructured loans are loans on which, due to deterioration in the borrower’s financial
condition, the original terms have been modified in favor of the borrower or either principal or interest has
been forgiven.
Foreclosed assets represent property acquired as the result of borrower defaults on loans. Foreclosed assets
are recorded at estimated fair value, less estimated selling costs, at the time of foreclosure. Write-downs
occurring at foreclosure are charged against the allowance for 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 represents management’s best estimate of probable losses that have been
incurred within the existing portfolio of loans. 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. Management utilizes its best judgment and information available in
determining the allowance for loan losses; however, the determination of this estimate is inherently
judgmental. The ultimate adequacy of the allowance may be affected by a variety of factors beyond the
Company’s control, including the performance of the Company’s loan portfolio, the economy, changes in
interest rates, changes in collateral values and the view of the regulatory authorities toward loan
classifications.
The Company’s methodology for determining the 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 the result of management’s quarterly
review of substandard loans with an outstanding balance of $250,000 or more. This review process usually
involves regional credit officers along with local lending officers reviewing the loan for impairment.
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. In the case of
collateral dependent loans, collateral shortfall is most often based upon local market real estate value
estimates. This review process is performed at the subsidiary bank level and is reviewed at the parent
Company level.
Once the loan becomes impaired, it is removed from the pool of loans covered by the general reserve and
reviewed individually for exposure as described above. 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. Those loans deemed uncollectible, are
transferred to our problem loan department for workout, foreclosure and/or liquidation. The problem loan
department obtains a current appraisal on the property in order to record the fair market value (less selling
expenses) when the property is foreclosed on and moved into other real estate.
The allowances established for the remainder of the loan portfolio are based on historical loss factors,
adjusted for certain qualitative factors, which are applied to groups of loans with similar risk characteristics.
Real estate loans are segregated into thirteen separate groups with the remainder of loans grouped according
to risk grade. Most of the Company’s charge-offs during the past two years have been real estate dependent
loans and we believe the segmentation of real estate loans into these thirteen groups provides more accuracy
in determining the allowance for loan losses. The historical loss ratios applied to these groups of loans are
updated quarterly based on actual charge-off experience. The historical loss ratios are further adjusted by
qualitative factors including the following: changes in the risk ratings of the loan portfolio, level of net
charge-offs of, past due loan ratios, the value of collateral, portfolio loan quality indicators; portfolio growth
rates, level of commercial real estate loans, loan concentrations; portfolio policies and procedures,
underwriting standards, effectiveness of our loss recognition processes, collection and recovery practices;
local economic business conditions; and the experience, ability, and depth of lending management and staff.
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. Additional information about the Company’s allowance for loan losses is
provided in the Notes to the Consolidated Financial Statements for Allowance for Loan Losses.
The following table sets forth the breakdown of the allowance for loan losses by loan category for the
periods indicated. The allocation of the allowance to each category is subjective and is not necessarily
indicative of future losses and does not restrict the use of the allowance to absorb losses in any other
category.
2014
2013
2012
2011
2010
Reserve
%* Reserve
%* Reserve
%* Reserve
%* Reserve
%*
Commercial and Agricultural
Commercial
Agricultural
$
497
304
7%
2%
1,017
294
6%
2%
981
296
7%
1%
1,071
297
7%
1%
4,415
698
7%
1%
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
1,223
138
3,665
2,425
104
7%
1%
45%
27%
7%
1,782
138
4,380
3,278
312
7%
1%
46%
27%
6%
1,890
138
5,163
3,406
291
7%
1%
45%
27%
7%
3,123
138
6,448
3,695
365
8%
1%
44%
27%
7%
4,126
520
8,030
5,942
944
8%
1%
45%
25%
7%
67
379
8,802
$
3%
1%
243
362
$
100% 11,806
3%
2%
100%
228
344
12,737
$
4%
1%
100%
205
308
15,650
$
4%
1%
100%
3,074
531
28,280
$
4%
2%
100%
* Percentage represents the loan balance in each category expressed as a percentage of total end of period loans.
The following table presents an analysis of the Company’s loan loss experience for the periods indicated.
2014
2013
2012
2011
2010
Allowance for Loan Losses at Beginning of Year
$ 11,806
$12,737
$15,650
$28,280
$31,401
Charge-Offs
Commercial
Agricultural
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer
Other
Recoveries
Commercial
Agricultural
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer
Other
Net Charge-Offs
Provision for Loans Losses
625
-
1,543
-
1,327
1,034
233
342
-
5,104
76
3
485
-
90
31
20
72
15
792
121
34
2,071
-
2,873
706
21
398
4
6,228
56
6
253
-
298
65
22
94
18
812
653
3
4,106
-
4,326
961
225
169
11
842
455
6,957
1
12,492
1,705
60
223
115
469
256
4,648
-
7,459
2,930
272
549
1,040
10,454
22,850
17,623
140
-
209
-
233
47
5
82
40
756
128
454
557
-
528
149
1
145
8
80
2
185
-
142
440
7
246
50
1,970
1,152
4,312
1,308
5,416
4,485
9,698
20,880
16,471
6,785
8,250
13,350
Allowance for Loan Losses at End of Year
$ 8,802
$11,806
$12,737
$15,650
$28,280
Ratio of Net Charge-Offs to Average Loans
0.58%
0.73%
1.34%
2.74%
1.90%
The allowance for loan losses decreased from $11.81 million, or 1.57 percent of total loans at December 31,
2013 to $8.80 million, or 1.18 percent of total loans at December 31, 2014. This decrease is consistent with
the decrease in the Company’s level of nonperforming loans from $24.11 million at December 31, 2013 to
$18.34 million at December 31, 2014. The provision for loan losses reflects loan quality trends, including
the level of net charge-offs or recoveries, among other factors. Significant changes in the allowance during
2014 was the reduction in the provision for loan losses in 2014 to $1.31 million from $4.49 million in 2013,
or a reduction of $3.18 million. Significant 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. There were
no charge-offs or recoveries related to foreign loans during any of the periods presented.
Investment Portfolio
The following table presents carrying values of investment securities held by the Company as of December
31, 2014, 2013 and 2012.
2014
2013
2012
Obligations of States and Political Subdivisions
Corporate Obligations
Asset-Backed Securities
$ 3,560
-
-
$ 3,947
-
-
$ 4,046
1,105
132
Investment Securities
3,560
3,947
5,283
Mortgage-Backed Securities
Total Investment Securities and
Mortgage-Backed Securities
271,064
259,348
263,059
$274,624
$263,295
$268,342
The following table represents expected maturities and weighted-average yields of investment securities held
by the Company as of December 31, 2014. (Mortgage-backed securities are based on the average life at the
projected speed, while State and Political Subdivisions 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
$
1,957
0.28%
$
180,678
1.65%
$
83,916
1.75%
$
4,513
2.71%
747
2.39%
1,388
3.42%
1,425
2.47%
-
- %
Mortgage-Backed Securities
Obligations of State and
Political Subdivisions
Total Investment Portfolio
$
2,704
0.86%
$
182,066
1.66%
$
85,341
1.76%
$
4,513
2.71%
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, 2014, 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 stockholders’ equity.
The average yield of the securities portfolio was 1.71 percent in 2014 compared to 1.36 percent in 2013 and
1.82 percent in 2012. The increase in the average yield from 2013 to 2014 was primarily attributed to the
adjustment in amortization resulting from the deceleration of prepayment speeds. The decrease in the
average yield from 2012 to 2013 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 2014, 2013 and 2012.
2014
2013
2012
Average
Amount
Average
Rate
Average
Amount
Average
Rate
Average
Amount
Average
Rate
$
118,452
$
112,667
$
101,896
394,615
445,993
0.35%
0.83%
366,974
473,672
0.36%
0.95%
329,984
537,810
0.38%
1.39%
Noninterest-Bearing
Demand Deposits
Interest-Bearing
Demand and Savings
Time Deposits
Total Deposits
$
959,060
0.53%
$
953,313
0.61%
$
969,690
0.90%
The following table presents the maturities of the Company’s time deposits as of December 31, 2014.
Months to Maturity
3 or Less
Over 3 through 6
Over 6 through 12
Over 12 Months
Time
Deposits
$100,000
or Greater
Time
Deposits
Less Than
$100,000
Total
$ 39,442
32,458
68,932
69,671
$ 52,207
38,813
70,733
55,991
$ 91,649
71,271
139,665
125,662
$ 210,503
$ 217,744
$428,247
Average deposits increased $5.75 million in 2014 compared to 2013 and decreased $16.38 million in 2013
compared to 2012. The increase in 2014 included $27.64 million, or 7.53 percent in interest-bearing demand
and savings deposits while, at the same time, noninterest bearing deposits increased $5.79 million, or 5.13
percent and time deposits decreased $27.68 million, or 5.84 percent. 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. Accordingly, the ratio of average noninterest-bearing deposits to total average deposits
was 12.35 in 2014, 11.82 percent in 2013 and 10.51 percent in 2012. The general decrease in market rates in
2014 had the effect of (i) decreasing the average cost of interest-bearing deposits by 8 basis points in 2014
compared to 2013 and (ii) mitigating a portion of the impact of decreasing yields on earning assets in the
Company’s net interest income in 2014. 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.
Total average interest-bearing deposits decreased $38 thousand, or 0.01 percent in 2014 compared to 2013
and decreased $27.1 million, or 3.1 percent in 2013 compared to 2012. This decrease was primarily
attributed to the decrease in time deposit accounts.
The Company supplements deposit sources with brokered deposits. As of December 31, 2014, the Company
had $26.3 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.
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, 2014. 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
5 Years
or More
Total
$ -
9,000
113
98,219
$ -
28,500
-
27,317
$ 24,229
2,500
-
126
$ 24,229
40,000
242
428,247
1 Year or
Less
$ -
-
129
302,585
302,714
107,332
55,817
26,855
492,718
68,742
1,762
70,504
-
-
-
-
-
-
-
-
-
68,742
1,762
70,504
Total Contractual Obligations and
Other Commitments
$ 373,218
$ 107,332
$ 55,817
$ 26,855
$ 563,222
In the ordinary course of business, the Company has entered into off-balance sheet financial instruments
which are not reflected in the consolidated financial statements. These instruments include commitments to
extend credit, standby letters of credit, performance letters of credit, guarantees and liability for assets held in
trust.
Such financial instruments are recorded in the financial statements when funds are disbursed or the
instruments become payable. The Company uses the same credit policies for these off-balance sheet
financial instruments as they do for instruments that are recorded in the consolidated financial statements.
Loan Commitments. The Company enters into contractual commitments to extend credit, normally with fixed
expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of the
Company’s commitments to extend credit are contingent upon customers maintaining specific credit
standards at the time of loan funding. The Company minimizes its exposure to loss under these commitments
by subjecting them to credit approval and monitoring procedures. Management assesses the credit risk
associated with certain commitments to extend credit in determining the level of the allowance for loan
losses. Loan commitments outstanding at December 31, 2014 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, 2014 are included in the preceding table.
Capital and Liquidity
At December 31, 2014, shareholders’ equity totaled $99.0 million compared to $90.0 million at December
31, 2013. In addition to net income of $7.5 million, other significant changes in shareholders’ equity during
2014 included $2.69 million of dividends declared on preferred stock. The accumulated other comprehensive
loss component of stockholders’ equity totaled $(4.8) million at December 31, 2014 compared to $(9.1)
million at December 31, 2013. 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, 2014 was 16.78
percent and total Tier 1 and 2 risk-based capital was 17.95 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, 2014 was 11.18 percent, which exceeds the required
ratio standard of 4 percent.
For 2014, average capital was $94.8 million, representing 8.40 percent of average assets for the year. This
compares to 8.35 percent for 2013.
The Company did not pay any common stock dividends in 2014 or 2013. The Company suspended dividend
payments beginning in the third quarter of 2009.
The Company declared dividends of $2,689 and $1,509 on preferred stock during 2014 and 2013,
respectively. On November 17, 2014 the Company reinstated dividend payments on the Preferred Stock and
paid $5.5 million of accumulated dividends in arrears to the holders of the Preferred Stock. Additional
information is provided in the Notes to the Consolidated Financial Statements for Preferred Stock.
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, 2014, the available for sale bond portfolio totaled $274.6 million. At December 31, 2013, the
available for sale bond portfolio totaled $263.3 million. 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 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 76.2 percent as of December 31,
2014 and 76.1 percent as of December 31, 2013. 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, 2014 and December 31, 2013 were 73.2 percent and 73.1
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,
2014 and December 31, 2013, the Bank had $211 million and $221 million, respectively, in certificates of
deposit of $100,000 or more. These larger deposits represented 21.5 percent and 22.3 percent of respective
total deposits. Management seeks to monitor and control the use of these larger certificates, which tend to be
more volatile in nature, to ensure an adequate supply of funds as needed. Relative interest costs to attract
local core relationships are compared to market rates of interest on various external deposit sources to help
minimize the Company’s overall cost of funds.
The Company supplemented deposit sources with brokered deposits. As of December 31, 2014, the
Company had $26.3 million, or 2.69 percent of total deposits, in CDARS. Additional information is
provided in the Notes to the Consolidated Financial Statements regarding these brokered deposits.
Additionally, the Company uses external deposit listing services to obtain out-of-market certificates of
deposit at competitive interest rates when funding is needed. The deposits obtained from listing services are
often referred to as wholesale or Internet CDs. As of December 31, 2014, the Company had $21.4 million,
or 2.2 percent of total deposits, in internet certificates of deposit obtained through deposit listing services.
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
and federal funds sold and securities purchased under resale agreements.
Liability liquidity is provided by access to funding sources which include core deposits. Should the need
arise, the Company also maintains relationships with the Federal Home Loan Bank, Federal Reserve Bank,
two correspondent banks and repurchase agreement lines that can provide funds on short notice.
Since Colony is a bank holding Company and does not conduct operations, its primary sources of liquidity
are dividends up streamed from the subsidiary bank and borrowings from outside sources.
The liquidity position of the Company is continuously monitored and adjustments are made to the balance
between sources and uses of funds as deemed appropriate. Management is not aware of any events that are
reasonably likely to have a material adverse effect on the Company’s liquidity, capital resources or
operations. In addition, management is not aware of any regulatory recommendations regarding liquidity,
which if implemented, would have a material adverse effect on the Company.
Impact of Inflation and Changing Prices
The Company’s financial statements included herein have been prepared in accordance with accounting
principles generally accepted in the United States (GAAP). GAAP presently requires the Company to
measure financial position and operating results primarily in terms of historic dollars. Changes in the relative
value of money due to inflation or recession are generally not considered. The primary effect of inflation on
the operations of the Company is reflected in increased operating costs. In management’s opinion, changes in
interest rates affect the financial condition of a financial institution to a far greater degree than changes in the
inflation rate. While interest rates are greatly influenced by changes in the inflation rate, they do not
necessarily change at the same rate or in the same magnitude as the inflation rate. Interest rates are highly
sensitive to many factors that are beyond the control of the Company, including changes in the expected rate
of inflation, the influence of general and local economic conditions and the monetary and fiscal policies of
the United States government, its agencies and various other governmental regulatory authorities, among
other things, as further discussed in the next section.
Regulatory and Economic Policies
The Company’s business and earnings are affected by general and local economic conditions and by the
monetary and fiscal policies of the United States government, its agencies and various other governmental
regulatory authorities, among other things. The Federal Reserve Board regulates the supply of money in
order to influence general economic conditions. Among the instruments of monetary policy available to the
Federal Reserve Board are (i) conducting open market operations in United States government obligations,
(ii) changing the discount rate on financial institution borrowings, (iii) imposing or changing reserve
requirements against financial institution deposits, and (iv) restricting certain borrowings and imposing or
changing reserve requirements against certain borrowings by financial institutions and their affiliates. These
methods are used in varying degrees and combinations to affect directly the availability of bank loans and
deposits, as well as the interest rates charged on loans and paid on deposits. For that reason alone, the
policies of the Federal Reserve Board have a material effect on the earnings of the Company.
Governmental policies have had a significant effect on the operating results of commercial banks in the past
and are expected to continue to do so in the future; however, the Company cannot accurately predict the
nature, timing or extent of any effect such policies may have on its future business and earnings.
Recently Issued Accounting Pronouncements
See Note 1 - Summary of Significant Accounting Policies under the section headed Changes in Accounting
Principles and Effects of New Accounting Pronouncements included in the Notes to Consolidated Financial
Statements.
Quantitative and Qualitative Disclosures About Market Risk
AVERAGE BALANCE SHEETS
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
Average
Balances
2014
Income/
Expense
2013
2012
Yields/
Rates
Average
Balances
Income/
Yields/
Expense
Rates
Average
Balances
Income/ Yields/
Expense
Rates
$
741,484
$
39,814
5.37%
$
744,627
$
41,473
5.57%
$
721,872
$
42,054
5.83%
282,056
2,418
284,474
16,193
12,551
2,906
4,763
113
4,876
42
32
115
1,057,608
44,879
1.69
4.67
1.71
0.26
0.25
3.96
4.24
272,818
2,871
275,689
9,625
14,969
3,275
3,597
139
3,736
27
39
81
1,048,185
45,356
1.32
4.84
1.36
0.28
0.26
2.47
4.33
280,959
3,302
284,261
17,046
38,877
4,277
5,005
155
5,160
43
99
77
1,066,333
47,433
1.78
4.69
1.82
0.25
0.25
1.80
4.45
9,698
(10,841)
71,587
70,444
19,401
(13,347)
63,832
69,886
18,474
(15,781)
70,788
73,481
Total Assets
$
1,128,052
$
1,118,071
$
1,139,814
Liabilities and Stockholders' Equity
Interest-Bearing Liabilities
Interest-Bearing Demand and Savings
$
394,615
$
1,398
0.35%
$
366,974
$
1,335
0.36%
$
329,984
$
1,258
0.38%
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
445,993
840,608
40,000
24,229
3,715
5,113
1,168
518
0.83
0.61
2.92
2.14
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
2
-
-
34
-
-
-
-
-
64,231
904,839
1,686
6,799
2.62
0.75
64,562
905,208
1,676
7,497
2.6
0.83
67,974
935,768
2,279
11,016
3.35
1.18
118,452
10,010
94,751
223,213
112,667
6,838
93,358
212,863
101,896
5,609
96,541
204,046
Stockholders' Equity
$
1,128,052
$
1,118,071
$
1,139,814
Interest Rate Spread
Net Interest Income
Net Interest Margin
$
38,080
3.49%
3.60%
$
37,859
3.50%
3.61%
$
36,417
3.27%
3.41%
(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 $79, $123 and $91 for 2014, 2013 and 2012, respectively,
are included in interest on loans. The adjustments are based on a federal tax rate of 34 percent.
(2) Taxable-equivalent adjustments totaling $38, $47 and $53 for 2014, 2013 and 2012 respectively, are included in tax-exempt
interest on investment securities. The adjustments are based on a federal tax rate of 34 percent with appropriate reductions for
the effect of disallowed interest expense incurred in carrying tax-exempt obligations.
Colony Bankcorp, Inc. and Subsidiaries
Interest Rate Sensitivity
The following table is an analysis of the Company’s interest rate-sensitivity position at December 31, 2014.
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
$ 21,206
20,132
501
172,464
2,830
$ -
-
2,203
166,179
-
$ 21,206
20,132
2,704
338,643
2,830
$ -
-
176,052
352,787
-
$ -
-
95,868
54,303
-
$ 21,206
20,132
274,624
745,733
2,830
Total Interest-Earning Assets
217,133
168,382
385,515
528,839
150,171
1,064,525
INTEREST-BEARING LIABILITIES:
Interest-Bearing Demand Deposits (1)
Savings (1)
Time Deposits
Other Borrowings (2)
Subordinated Debentures
363,502
59,215
91,649
5,000
24,229
-
-
210,936
-
-
363,502
59,215
302,585
5,000
24,229
-
-
125,536
35,000
-
-
-
126
-
-
363,502
59,215
428,247
40,000
24,229
Total Interest-Bearing Liabilities
543,595
210,936
754,531
160,536
126
915,193
Interest Rate-Sensitivity Gap
(326,462)
(42,554)
(369,016)
368,303
150,045
$ 149,332
Cumulative Interest-Sensitivity Gap
$(326,462)
$(369,016)
$(369,016)
$ (713) $149,332
Interest Rate-Sensitivity Gap as a
Percentage of Interest-Earning Assets
Cumulative Interest Rate-Sensitivity
as a Percentage of Interest-Earning
Assets
(30.67)%
(3.99)%
(34.66)%
34.59%
14.10%
(30.67)%
(34.66)%
(34.66)%
(0.07)%
14.03%
(1) Interest-bearing Demand and Savings Accounts for repricing purposes are considered to reprice within 3 months or less.
(2) Other borrowings such as FHLB advances consider the conversion date for repricing purposes and are considered to reprice
within 3 months or less.
The foregoing table indicates that we had a one year negative gap of $369 million, or 34.66 percent of total
interest-earning assets at December 31, 2014. In theory, this would indicate that at December 31, 2014, $369
million more in liabilities than assets would reprice if there were a change in interest rates over the next 365
days. Thus, if interest rates were to decline, the gap would indicate a resulting increase in net interest
margin. However, changes in the mix of earning assets or supporting liabilities can either increase or
decrease the net interest margin without affecting interest rate sensitivity. In addition, the interest rate spread
between an asset and our supporting liability can vary significantly while the timing of repricing of both the
assets and our supporting liability can remain the same, thus impacting net interest income. This
characteristic is referred to as a basis risk and, generally, relates to the repricing characteristics of short-term
funding sources such as certificates of deposits.
Gap analysis has certain limitations. Measuring the volume of repricing or maturing assets and liabilities
does not always measure the full impact on the portfolio value of equity or net interest income. Gap analysis
does not account for rate caps on products; dynamic changes such as increasing prepay speeds as interest
rates decrease, basis risk, or the benefit of non-rate funding sources. The majority of our loan portfolio
reprices quickly and completely following changes in market rates, while non-term deposit rates in general
move slowly and usually incorporate only a fraction of the change in rates. Products categorized as nonrate
sensitive, such as our noninterest-bearing demand deposits, in the gap analysis behave like long term fixed
rate funding sources. Both of these factors tend to make our actual behavior more asset sensitive than is
indicated in the gap analysis. In fact, we experience higher net interest income when rates rise, opposite
what is indicated by the gap analysis. Therefore, management uses gap analysis, net interest margin analysis
and market value of portfolio equity as our primary interest rate risk management tools.
The Company utilizes FTN Financial Asset/Liability Management Analysis for a more dynamic analysis of
balance sheet structure. The Company has established policies for rate shock per basis point (bp) for
earnings at risk for net interest income and for equity at risk. The following table shows the policy limits
with the rate shock for earnings at risk and equity at risk as of December 31, 2014.
Net Interest Income –
Earnings at Risk
Equity at Risk
Rate Shock
+/- 100 bp
+/- 200 bp
+/- 300 bp
+/- 400 bp
+/- 100 bp
+/- 200 bp
+/- 300 bp
+/- 400 bp
Policy
Limit
+/- 10%
+/- 15%
+/- 20%
+/- 25%
+/- 10%
+/- 20%
+/- 30%
+/- 40%
Immediate Shock
(-) decrease bp
Immediate Shock
(+) increase bp
- 1.57%
-7.20%
-9.17%
-9.74%
-5.96%
-21.60%
-30.68%
-30.90%
-0.29%
-0.98%
-1.68%
-2.46%
6.21%
10.50%
13.29%
21.12%
The Company has established its one year gap to be 80 percent to 120 percent. The most recent analysis as
of December 31, 2014 indicates a one year gap of 0.96 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 2015. The
Company is focusing on areas to minimize margin compression in the future by minimizing longer term
fixed rate loans, shortening on the yield curve with investments, securing longer term FHLB advances,
securing certificates of deposit for longer terms and focusing on reduction of nonperforming assets.
Return on Assets and Stockholder’s Equity
The following table presents selected financial ratios for each of the periods indicated.
Return on Average Assets(1)
Return on Average Equity(1)
Equity to Assets
Years Ended December 31
2013
2014
2012
0.43%
5.11%
8.63%
0.28%
3.34%
7.83%
0.11%
1.25%
8.40%
Common Stock Dividends Declared
$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 2015 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 2015. These
initiatives include new product lines and services.
Business
Regulatory Action
The Bank operated under a Memorandum of Understanding (“MOU”) from November 23, 2010 until
October 1, 2013 when the MOU was lifted by regulatory agencies and replaced with a Board Resolution
(BR) to ensure that the Bank’s overall condition remains satisfactory. The BR was lifted by regulatory
agencies effective October 22, 2014 and there are currently no agreements in place with regulatory agencies.
Prior to October 22, 2014, the BR required 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 was also required to obtain approval before any
cash dividends can be paid.
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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
Fig-Partners, L.LC
Eric Lawless, Vice Fresident
Atlanta, Georgia
866-344-2652
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
,_
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i Tuesday, May 26, 2015 at 2:00 p.m.
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Colony Bankcorp, Inc.
115 South Grant Street
Fitzgerald, Georgia 31750
INDEPENDENTAUDITORS:
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
Operations Center
62oi i5thAvenue
Brooklyn, NY 11219
800-937-5449
www.amstock.com
Member FDIC E
NDER
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Colony Bankcorp,Inc.
P.O. Box 989 • 115 S. Grant St.
Fitzgerald, GA 31250
229-426-6000 • www.colonybank.com