You belong here.
2016 Annual Report
Member FDIC
229-426-6000 • www.colonybank.com
Colony Bankcorp, Inc.
P.O. Box 989 • 115 S. Grant St.
Fitzgerald, GA 31750
Vision
Colony Bank strives to be a high
performance community bank,
providing shareholders with a fair
return on their investment while
improving the quality of life in the
communities we serve.
Mission
Our mission can best be
accomplished by applying
sound banking principles in
corporate decision-making and
by providing our customers a
degree of highly personalized,
professional service that is
unmatched in the market.
SERVICE | STABILITY | SUCCESS
Colony Bankcorp, Inc. common stock is
quoted on the NASDAQ Global Market
under the symbol “CBAN.”
COLONY BANKCORP, INC.
SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS:
Colony Bankcorp, Inc.
P.O. Box 989
115 South Grant Street
Fitzgerald, Georgia 31750
229-426-6000
ANNUAL MEETING
Tuesday, May 23, 2017 at 2:00 p.m.
Colony Bankcorp, Inc.
115 South Grant Street
Fitzgerald, Georgia 31750
INDEPENDENT AUDITORS:
McNair, McLemore, Middlebrooks & Co., LLC
P.O. Box One
Macon, Georgia 31202
SHAREHOLDER SERVICES:
Shareholders who want to change the name,
address or ownership of stock; to report
lost, stolen or destroyed certifi cates; or to
consolidate accounts should contact:
American Stock Transfer & Trust Company
Operations Center
6201 15th Avenue
Brooklyn, NY 11219
800-937-5449
www.amstock.com
Table of
contents
Table of Contents .................................1
Letter to the Shareholders ................... 2
Financial Summary ............................. 3
Board of Directors ............................... 4
Executive Officers ............................... 5
Consolidated Financial Statements ........7
Dear Shareholders,
2016 was a year of significant accomplishment for Colony
Bankcorp, Inc. Improvement in profitability, reduction in
non-performing assets, repayment of TARP preferred securities, and
an upgrade in facilities were the highlights of the year. Details of these
highlights are summarized below:
Profitability:
• Consolidated income of $8,673,210 compared to $8,372,697 in 2015, a
3.59% increase.
• Income available to shareholders of $7,179,900 compared to
$5,997,687 in 2015, a 19.71% increase.
Non-Performing Assets:
• Non-Performing assets decreased from $23.3 million on 12/31/15 to
$18.8 million, a 19.2% reduction.
• Foreclosed real estate (OREO) decreased from $8.8 million on 12/31/15
to $6.4 million, a 27.3% reduction.
• Net charge offs were $742,612 or .10% of total loans compared to
$1,063,911 or .14% of total loans in 2015.
• Loss on sale of foreclosed real estate (OREO) was $648,138 compared to
$1,044,219 in 2015, a reduction of 37.93%.
• Past due loans of 30 days or more were 1.59% of total loans compared to
2.62% on 12/31/15.
• Criticized assets to capital and reserves was 25.67%, down from 31.36%
at year end 2015.
TARP Preferred Securities:
• Outstanding TARP preferred securities were reduced from $18,021,000
to $9,360,000 during 2016.
• TARP preferred dividend expense declined from $2,375,010 in 2015 to
$1,493,310 in 2016, a 37.12% reduction.
Facilities:
• A loan production office was opened on the town square in Statesboro.
• A full service office was opened on Drayton Street in historic
downtown Savannah.
• A full service office was opened in historic downtown Tifton.
• Two Tifton offices and offices in Chester and Pitts were closed during the
year to achieve strategic efficiency.
Continuing these trends into 2017 and beyond is our strategic plan. As we
look forward to the next year, we anticipate challenges and uncertainty.
The election results of November, 2016 have created the potential for
significant changes in the economy. Healthcare, immigration, interest
rates, inflation, regulation, tax reform and trade policy are all in line for
change, and no one is certain of the direction or outcome. Any one of these
hot button issues can have a significant impact on our marketplace and/
or our industry. We are confident that Colony is prepared for whatever
changes occur, and that regardless, we can achieve our strategic objectives.
Confidence can be a marvelous motivator and is an indicator of what
people expect, without any guarantee of certainty. Fortunately, as we enter
2017, both the University of Georgia Selig Center for Economic Growth
(SCEG) and the Bureau of Business Research and Economic Development
(BBRED) at Georgia Southern University indicate that confidence is
surging. The SCEG states “Many of the same forces that contributed specifically
to Georgia’s growth in the past two years will be even stronger in 2017,” Ayers
said. “First, Georgia has even more projects in its economic development pipeline.
Second, Georgia’s economy will get more leverage from the housing recovery than
the national economy. Third, Georgia’s manufacturers will continue to do better
than U.S. manufacturers. Fourth, Georgia will see faster population growth.”
The BBRED reports “In the fourth quarter of 2016, participants were feeling
positive about current business conditions in Georgia. Looking forward to the first
quarter of 2017, participants are very optimistic that future business conditions
will improve in Georgia. This is a major shift from the previous survey where
the respondents felt only slightly positive about business conditions.” “Many
participants have an optimistic view going into 2017. Generally, participants
are hoping that certainty is returning to the business world,” said Ben McKay,
research specialist at BBRED.
Confidence is a wonderful feeling to have! Hopefully we will look back on
2017 and see that the current level of confidence was well founded.
We want to thank B. Gene Waldron for serving as the Chairman of the
Board of Colony Bankcorp, Inc. from 2012 until 2016. Mr. Waldron led the
company during a very difficult period and we thank him for his service.
Mark H. Massee became Chairman of the Board at the annual Shareholders
meeting in May, 2016. Mr. Massee has been a Board member of Colony
Bankcorp, Inc. for many years, most recently serving as Vice Chairman.
During January, 2017, the Board of Directors declared a cash dividend to
shareholders of $.025 per share payable March 31, 2017 to shareholders
of record March 1, 2017. This dividend is the first paid by Colony
Bankcorp, Inc. to its common shareholders since 2009 and is indicative of
the confidence of the Board that we have survived the great recession and
are poised for better days.
As always the board, management, and employees of Colony appreciate
your support during 2016 and look forward to serving you during the
coming year.
Edward P. Loomis, Jr.
President and
Chief Executive Officer
Mark H. Massee
Chairman of the Board
2016 KEy PERFoRMANCE INdICAToRS
Years Ended December 31, 2016 and 2015
Dollar amounts in thousands
except per share data
2016
2015
Percent
Change
Total Assets
Total Deposits
$1,210,442
$1,174,149
3.09%
$1,044,357
$1,011,554
3.24%
Loans (net of unearned Income)
$753,922
$758,279
(0.57)%
$7,180
$5,998
19.71%
$0.85
$9.96
$0.71
19.72%
$9.18
8.50%
net Income
Per Share Data:
Basic Earnings
Common Book value/Share
KEy TRENdS
A Historical Comparative
Years Ending
net Income
(in thousands)
2016
2015
2014
2013
2012
$5,998$ $7,180
$5,998
$4,843
$3,120
$1,206
Return on Average
Shareholders’ Equity
Diluted Earnings
Per Share
7.17%
$0.84
5.90%
$0.71
5.11%
3.34%
1.25%
$0.57
$0.37
$0.14
RETuRn On
AvERAgE ASSETS
nET InTEREST
MARgIn
2016
0.62%
2015
0.52%
2016
3.51%
2015
3.52%
Financial
Summary
Page 3
board of
directors
Mark H. Massee
Chairman
Colony Bankcorp, Inc.
President
Massee Builders, Inc.
Mayor of City of Fitzgerald
Fitzgerald, georgia
B. Gene Waldron
Vice Chairman
Colony Bankcorp, Inc.
President/CEO
Waldron Enterprises, Inc.
Douglas, georgia
Edward P. Loomis, Jr.
President/CEO
Colony Bankcorp, Inc.
Fitzgerald, georgia
Terry L. Hester
EVP/Chief Financial Officer
Colony Bankcorp, Inc.
Fitzgerald, georgia
Jonathan W.R. Ross
President
Ross Construction Co., Inc.
Tifton, georgia
Scott L. downing
President
SDI Investments
Fitzgerald, georgia
Michael Frederick
(Freddie) dwozan, Jr.
President/CEO/Owner
Medical Center
Prescription Shop
Eastman, georgia
Executive
Officers
Edward P. Loomis, Jr
President/CEO
Terry L. Hester
EVP/Chief Financial Officer
J. Stan Cook
EVP/Chief Operations Officer
Edward L. Bagwell, III
SVP/Chief Credit Officer
Lee A. Northcutt
EVP/Regional Executive Officer
M. Edward Hoyle, Jr.
EVP/Regional Executive Officer
market
presidents
Jeffery Alton
Market President
Thomaston
Jon Butler
Market President
Eastman/Soperton
Chip Carroll
Market President
Quitman
Bob Evans
Market President
Cordele
Bill Marsh
Market President
Tifton
Scott Miller
Market President
Douglas/Broxton
Walter Patten
Market President
Sylvester
John Roberts
Market President
Columbus
Phil Franklin
Market President
Albany/Leesburg/Chehaw
Kirk Scott
Market President
Warner Robins/Centerville
John Gandy
Market President
Moultrie
drew Hulsey
Market President
Savannah/Statesboro
Andy Johnson
Market President
Ashburn
Eddie Smith
Market President
valdosta
Mark Turner
Market President
Fitzgerald
Nic Worthy
Market President
Rochelle
Page 5
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
mmmcpa.com
March 10, 2017
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, 2016 and 2015 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, 2016. 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, 2016 and
2015, and the results of its operations and cash flows for each of the years in the three-year period ended
December 31, 2016 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, 2016 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
7
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
ASSETS
Cash and Cash Equivalents
Cash and Due from Banks
Interest-Bearing Deposits
Investment Securities
Available for Sale, at Fair Value
2016
2015
28,822,104
$ 22,256,646
46,344,859
38,615,299
323,657,870
296,149,299
Federal Home Loan Bank Stock, at Cost
3,010,000
2,730,500
Loans
Allowance for Loan Losses
Unearned Interest and Fees
Premises and Equipment
Other Real Estate (Net of Allowance of $1,878,127
and $1,582,101 in 2016 and 2015, Respectively)
Other Intangible Assets
Other Assets
Total Assets
754,283,563
(8,923,293)
(361,042)
758,635,595
(8,603,905)
(356,798)
744,999,228
749,674,892
27,969,260
26,453,530
6,439,226
8,839,103
80,515
116,264
29,118,555
29,313,894
1,210,441,617
$1,174,149,427
See accompanying notes which are an integral part of these financial statements.
8
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
2016
2015
$ 159,058,633
885,297,895
$ 133,886,271
877,667,965
1,044,356,528
1,011,554,236
24,229,000
46,000,000
24,229,000
40,000,000
70,229,000
64,229,000
2,468,356
2,909,569
Stockholders’ Equity
Preferred Stock, Stated Value $1,000; 10,000,000 Shares
Authorized, 9,360 and 18,021 Shares Issued and Outstanding
as of December 31, 2016 and 2015
Common Stock, Par Value $1; 20,000,000 Shares Authorized,
8,439,258 Shares Issued and Outstanding as of
December 31, 2016 and 2015
Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss, Net of Tax
9,360,000
18,021,000
8,439,258
29,145,094
51,465,521
(5,022,140)
8,439,258
29,145,094
44,285,621
(4,434,351)
93,387,733
95,456,622
Total Liabilities and Stockholders’ Equity
$1,210,441,617
$1,174,149,427
See accompanying notes which are an integral part of these financial statements.
9
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
Dividends on Other Investments
Interest Expense
Deposits
Federal Funds Purchased
Borrowed Money
Net Interest Income
Provision for Loan Losses
2016
2015
2014
$38,942,503
-
124,459
5,263,741
127,379
131,007
$39,716,269
14,561
79,735
4,235,207
107,638
122,070
$39,735,615
32,100
41,639
4,737,878
99,736
115,134
44,589,089
44,275,480
44,762,102
4,781,228
581
1,701,522
4,856,673
26
1,712,548
5,113,024
19
1,685,744
6,483,331
6,569,247
6,798,787
38,105,758
37,706,233
37,963,315
1,062,000
865,500
1,308,000
Net Interest Income After Provision for Loan Losses
37,043,758
36,840,733
36,655,315
Noninterest Income
Service Charges on Deposits
Other Service Charges, Commissions and Fees
Mortgage Fee Income
Securities Gains (Losses)
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
4,307,214
2,802,651
681,806
385,223
1,376,860
4,268,438
2,627,157
527,187
(11,466)
1,633,205
4,649,008
2,387,589
419,963
23,735
1,644,294
9,553,754
9,044,521
9,124,589
18,482,693
3,970,244
348,755
791,563
1,143,518
603,654
609,892
1,112,065
737,063
1,136,122
5,137,400
17,589,631
3,989,347
358,291
737,731
1,682,783
899,302
624,844
992,593
710,038
1,061,262
5,078,932
17,507,926
4,062,844
392,132
785,683
2,701,436
965,898
652,374
925,489
735,735
905,732
5,344,743
34,072,969
33,724,754
34,979,992
12,524,543
12,160,500
10,799,912
3,851,333
8,673,210
1,493,310
3,787,803
3,268,287
8,372,697
2,375,010
7,531,625
2,688,604
Net Income Available to Common Stockholders
$ 7,179,900
$ 5,997,687
$ 4,843,021
Net Income Per Share of Common Stock
Basic
Diluted
Cash Dividends Declared Per Share of Common Stock
Weighted Average Shares Outstanding, Basic
Weighted Average Shares Outstanding, Diluted
$ 0.85
$ 0.84
$ 0.00
8,439,258
8,513,295
$ 0.71
$ 0.71
$ 0.00
8,439,258
8,458,461
$ 0.57
$ 0.57
$ 0.00
8,439,258
8,439,258
See accompanying notes which are an integral part of these financial statements.
10
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31
Net Income
$ 8,673,210
$ 8,372,697
$ 7,531,625
2016
2015
2014
Other Comprehensive Income (Loss)
Gains (Losses) on Securities Arising During the Year
Tax Effect
Realized (Gains) Losses on Sale of AFS Securities
Tax Effect
Impairment Loss on Securities
Tax Effect
Change in Unrealized Gains (Losses) on Securities
Available for Sale, Net of Reclassification
Adjustment and Tax Effects
(505,367)
171,825
(385,223)
130,976
-
-
610,689
(207,634)
6,432,906
(2,187,189)
11,466
(3,898)
(23,735)
8,070
-
-
-
-
(587,789)
410,623
4,230,052
Comprehensive Income
$ 8,085,421
$ 8,783,320
$11,761,677
See accompanying notes which are an integral part of these financial statements.
11
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S
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 Federal Home Loan Bank Stock
Cash Flows from Financing Activities
Interest-Bearing Customer Deposits
Noninterest-Bearing Customer Deposits
Proceeds from Other Borrowed Money
Principal Payments on Other Borrowed Money
Dividends Paid on Preferred Stock
Redemption of Preferred Stock
2016
2015
2014
8,673,210
$ 8,372,697
$ 7,531,625
1,574,249
1,609,339
1,062,000
222,120
(385,223)
80,329
160,682
501,736
(589,408)
176,766
(372,380)
(46,284)
(252,617)
973,972
1,657,229
1,797,152
865,500
625,436
11,466
11,047
600,663
453,148
(299,010)
(354,274)
278,637
32,253
(202,343)
217,686
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
13,388,491
14,067,287
14,766,575
(7,729,560)
(17,409,260)
754,252
(109,634,793)
(102,336,227)
(56,201,891)
25,209,851
28,273,634
13,620,956
54,868,726
-
89,551
(2,167,126)
(3,259,859)
7,529,131
-
(279,500)
51,423,541
9,734
28,608
(21,255,018)
(3,189,969)
8,154,596
100,300
-
36,440,646
12,968
14,376
(3,156,342)
(1,681,115)
7,233,497
333,100
-
(35,373,579)
(56,200,061)
(2,629,553)
7,629,930
25,172,362
10,000,000
(4,000,000)
(1,590,746)
(8,661,000)
26,704,254
5,546,508
27,000,000
(27,000,000)
(2,487,274)
(9,979,000)
(21,305,068)
13,079,062
-
-
(5,492,749)
-
28,550,546
19,784,488
(13,718,755)
Net Increase (Decrease) in Cash and Cash Equivalents
6,565,458
(22,348,286)
(1,581,733)
Cash and Cash Equivalents, Beginning
22,256,646
44,604,932
46,186,665
Cash and Cash Equivalents, Ending
$28,822,104
$ 22,256,646
$ 44,604,932
See accompanying notes which are an integral part of these financial statements.
13
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,
Columbus, Cordele, Douglas, Eastman, Fitzgerald, Leesburg, Moultrie, Quitman, Rochelle, Savannah,
Soperton, Statesboro, 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 2016. Such reclassifications had no
effect on previously reported stockholders’ equity or net income.
14
(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, 2016,
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. 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
in accumulated other comprehensive income (loss), a component of
reported, net of deferred taxes,
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.
15
(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.
16
(1) Summary of Significant Accounting Policies (Continued)
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.
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 are 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 lending policies and procedures, including changes in underwriting standards and collections,
charge offs, and recovery practices, (2) changes in international, national, regional, and local conditions, (3)
changes in the nature and volume of the portfolio and terms of loans, (4) changes in the experience, depth,
and ability of lending management, (5) changes in the volume and severity of past due loans and other
similar conditions, (6) changes in the quality of the organization's loan review system, (7) changes in the
value of underlying collateral for collateral dependent loans, (8) the existence and effect of any
concentrations of credit and changes in the levels of such concentrations, and (9) the effect of other external
factors (i.e. competition, legal and regulatory requirements) on the level of estimated credit losses.
17
(1) Summary of Significant Accounting Policies (Continued)
Allowance for Loan Losses (Continued)
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.
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.
18
(1) Summary of Significant Accounting Policies (Continued)
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.
Other 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.
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.
Advertising Costs
The Company expenses the cost of advertising in the periods in which those costs are incurred.
19
(1) Summary of Significant Accounting Policies (Continued)
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 basis. 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 2016, 2015, 2014 and 2013 are subject to
examination by the Internal Revenue Service (IRS) and the Georgia Department of Revenue, generally for
three years after filing.
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.
20
(1) Summary of Significant Accounting Policies (Continued)
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 $15,419,269 and $14,829,861 as
of December 31, 2016 and 2015, 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 consolidated
balance sheets when they are funded.
21
(1) Summary of Significant Accounting Policies (Continued)
Changes in Accounting Principles and Effects of New Accounting Pronouncements
ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of ASU 2014-09 is
to recognize revenues when promised goods or services are transferred to customers in an amount that
reflects the consideration to which an entity is expected to be entitled for those goods or services. ASU 2014-
09 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and
estimates may be required within the revenue recognition process than required under existing U.S. GAAP,
including identifying performance obligations in the contract, estimating the amount of variable
consideration to include in the transaction price and allocating the transaction price to each performance
obligation. ASU 2014-09, as deferred one year by ASU 2015-14, is effective for the Company in the first
quarter of fiscal year 2018. The Company is currently evaluating the impact of the pending adoption of ASU
2014-09 on the consolidated financial statements.
ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of
Financial Assets and Financial Liabilities. ASU 2016-01, among other things, (i) requires equity
investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net
income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair
values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for
public business entities to disclose the methods and significant assumptions used to estimate the fair value
that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv)
requires public business entities to use the exit price notion when measuring the fair value of financial
instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive
income the portion of the total change in the fair value of a liability resulting from a change in the
instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance
with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and
financial liabilities by measurement category and form of financial asset on the balance sheet or the
accompanying notes to the financial statements and (viii) clarifies that an entity should evaluate the need for
a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-01 will be effective for
the Company on January 1, 2018. The Company is currently evaluating the impact of the pending adoption
of ASU 2016-01 on the consolidated financial statements.
ASU 2016-02, Leases (Topic 842). This ASU requires lessees to put most leases on their balance sheets but
recognize expenses in the income statement in a manner similar to current accounting treatment. This ASU
changes the guidance on sale-leaseback transactions, initial direct costs and lease execution costs, and, for
lessors, modifies the classification criteria and the accounting for sales-type and direct financing leases. For
public business entities, this ASU is effective for annual periods beginning after December 15, 2018, and
interim periods therein. Entities are required to use a modified retrospective approach for leases that exist or
are entered into after the beginning of the earliest comparative period in the financial statements. The
Company is evaluating the impact of this ASU on its financial statements and disclosures.
ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting. This ASU simplifies several aspects of the accounting for employee share-based
payment transactions, including the income tax consequences, classification of awards as either equity or
liabilities, and classification on the statement of cash flows. For public business entities, this ASU is effective
for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods
therein. The Company is evaluating the impact of this ASU on its financial statements and disclosures.
22
(1) Summary of Significant Accounting Policies (Continued)
Changes in Accounting Principles and Effects of New Accounting Pronouncements (Continued)
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). This ASU sets forth a “current expected
credit loss” (CECL) model which requires the Company to measure all expected credit losses for financial
instruments held at the reporting date based on historical experience, current conditions and reasonable
supported forecasts. This replaces the existing incurred loss model and is applicable to the measurement of
credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit
exposures. This ASU is effective for fiscal years beginning after December 15, 2019, including interim
periods within those fiscal years. The Company is currently assessing the impact of the adoption of this ASU
on its consolidated financial statements.
ASU 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash
Payments. ASU 2016-15 provides guidance related to certain cash flow issues in order to reduce the current
and potential future diversity in practice. ASU 2016-15 will be effective for us on January 1, 2018 and is not
expected to have a significant impact on our financial statements.
(2) Cash and Balances Due from Banks
Components of cash and balances due from banks are as follows as of December 31:
Cash on Hand and Cash Items
Noninterest-Bearing Deposits with Other Banks
2016
2015
$ 8,509,530
20,312,574
$ 9,061,678
13,194,968
$28,822,104
$22,256,646
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 $1,417,000 and $1,275,000 at
December 31, 2016 and 2015, respectively.
23
(3) Investment Securities
Investment securities as of December 31, 2016 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
$ 326,694,417
4,572,756
$
75,743
18,350
$ (7,672,786)
(30,610)
$ 319,097,374
4,560,496
$ 331,267,173
$ 94,093
$ (7,703,396)
$ 323,657,870
The amortized cost and fair value of investment securities as of December 31, 2016, 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.
Due in One Year or Less
Due After One Year Through Five Years
Due After Five Years Through Ten Years
Due After Ten Years
Securities
Available for Sale
Amortized
Cost
$ 360,471
1,618,395
1,106,315
1,487,575
4,572,756
Fair
Value
$ 362,760
1,610,940
1,107,718
1,479,078
4,560,496
Mortgage-Backed Securities
326,694,417
319,097,374
$331,267,173
$323,657,870
Investment securities as of December 31, 2015 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
$297,778,875
5,089,137
$62,815
30,542
$(6,791,837)
(20,233)
$291,049,853
5,099,446
$302,868,012
$93,357
$(6,812,070)
$296,149,299
24
(3) Investment Securities (Continued)
Proceeds from sales of investments available for sale were $25,209,851 in 2016, $28,273,634 in 2015, and
13,620,956 in 2014. Gross realized gains totaled $391,976 in 2016, $207,896 in 2015, and $67,601 in 2014.
Gross realized losses totaled $6,753 in 2016, $196,316 in 2015, and $45,666 in 2014. Gross realized losses
of $23,046 in 2015 was due to a loss on a maturity for a held-to-maturity investment and gross realized gains
of $1,800 in 2014 was due to a gain on a call for a held-to-maturity investment.
Investment securities having a carrying value totaling $144,853,885 and $133,754,087 as of December 31,
2016 and 2015, respectively, were pledged to secure public deposits and for other purposes.
Information pertaining to securities with gross unrealized losses at December 31, 2016 and 2015 aggregated
by investment category and length of time that individual securities have been in a continuous loss position,
follows:
Less Than 12 Months
Gross
Unrealized
Losses
Fair
Value
12 Months or Greater
Gross
Unrealized
Losses
Fair
Value
Total
Gross
Unrealized
Losses
Fair
Value
December 31, 2016
U.S. Government Agencies
Mortgage-Backed
State, County and Municipal
$174,200,881
3,487,647
$(3,459,564)
(30,610)
$107,481,698 $(4,213,222)
-
-
$281,682,579
3,487,647
$(7,672,786)
(30,610)
$177,688,528
$(3,490,174)
$107,481,698 $(4,213,222)
$285,170,226
$(7,703,396)
December 31, 2015
U.S. Government Agencies
Mortgage-Backed
State, County and Municipal
$139,765,025
1,034,613
$ (1,270,011) $139,720,125 $(5,521,826)
(20,233)
-
-
$279,485,150
1,034,613
$(6,791,837)
(20,233)
$140,799,638
$ (1,290,244)
$139,720,125 $(5,521,826)
$280,519,763
$(6,812,070)
Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more
frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the
length of time and the extent to which the fair value has been less than cost, (2) the financial condition and
near-term prospects of the issuer and (3) the intent and ability of the Company to retain its investment in the
issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
25
(3) Investment Securities (Continued)
At December 31, 2016, 108 securities have unrealized losses which have depreciated 2.63 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, 2016 which was completely
written off during prior years. This investment is comprised of one issuance of a trust preferred security and
has no book value.
(4) Loans
The following table presents the composition of loans, segregated by class of loans, as of December 31:
2016
2015
$ 47,024,878
17,079,579
$ 47,781,689
19,193,497
30,358,362
11,830,447
349,090,031
195,579,967
66,877,197
40,106,633
9,413,263
346,262,033
197,002,419
61,779,859
19,695,241
16,747,861
20,605,465
16,490,737
$754,283,563
$758,635,595
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
Total Loans
26
(4) Loans (Continued)
Commercial and agricultural loans are extended to a diverse group of businesses within the Company’s
market area. These loans are often underwritten based on the borrower’s ability to service the debt from
income from the business. Real estate construction loans often require loan funds to be advanced prior to
completion of the project. Due to uncertainties inherent in estimating construction costs, changes in interest
rates and other economic conditions, these loans often pose a higher risk than other types of loans.
Consumer loans are originated at the bank level. These loans are generally smaller loan amounts spread
across many individual borrowers to help minimize risk.
Credit Quality Indicators. As part of the ongoing monitoring of the credit quality of the loan portfolio,
management tracks certain credit quality indicators including trends related to (1) the risk grade assigned to
commercial and consumer loans, (2) the level of classified commercial loans, (3) net charge-offs, (4)
nonperforming loans, and (5) the general economic conditions in the Company’s geographic markets.
The Company uses a risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a
scale of 1 to 8. A description of the general characteristics of the grades is as follows:
• Grades 1 and 2 - Borrowers with these assigned grades range in risk from virtual absence of risk to
minimal risk. Such loans may be secured by Company-issued and controlled certificates of deposit or
properly margined equity securities or bonds. Other loans comprising these grades are made to
companies that have been in existence for a long period of time with many years of consecutive
profits and strong equity, good liquidity, excellent debt service ability and unblemished past
performance, or to exceptionally strong individuals with collateral of unquestioned value that fully
secures the loans. Loans in this category fall into the “pass” classification.
• Grades 3 and 4 - Loans assigned these “pass” risk grades are made to borrowers with acceptable
credit quality and risk. The risk ranges from loans with no significant weaknesses in repayment
capacity and collateral protection to acceptable loans with one or more risk factors considered to be
more than average.
• Grade 5 - This grade includes “special mention” loans on management’s watch list and is intended to
be used on a temporary basis for pass grade loans where risk-modifying action is intended in the
short-term.
• Grade 6 - This grade includes “substandard” loans in accordance with regulatory guidelines. This
category includes borrowers with well-defined weaknesses that jeopardize the payment of the debt in
accordance with the agreed terms. Loans considered to be impaired are assigned this grade, and these
loans often have assigned loss allocations as part of the allowance for loan and lease losses.
Generally, loans on which interest accrual has been stopped would be included in this grade.
• Grades 7 and 8 - These grades correspond to regulatory classification definitions of “doubtful” and
“loss,” respectively. In practice, any loan with these grades would be for a very short period of time,
and generally the Company has no loans with these assigned grades. Management manages the
Company’s problem loans in such a way that uncollectible loans or uncollectible portions of loans are
charged off immediately with any residual, collectible amounts assigned a risk grade of 6.
27
(4) Loans (Continued)
The following tables present the loan portfolio by credit quality indicator (risk grade) as of December 31.
Those loans with a risk grade of 1, 2, 3 or 4 have been combined in the pass column for presentation
purposes.
2016
Pass
Special Mention
Substandard
Total Loans
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
$ 44,249,874
16,585,646
$ 1,861,757
192,445
$ 913,247
301,488
$ 47,024,878
17,079,579
28,425,373
11,630,165
327,561,169
178,618,510
65,074,715
1,349,447
-
9,403,077
5,658,526
839,362
583,542
200,282
12,125,785
11,302,931
963,120
30,358,362
11,830,447
349,090,031
195,579,967
66,877,197
19,071,739
16,747,861
225,959
-
397,543
-
19,695,241
16,747,861
Total Loans
$707,965,052
$19,530,573
$26,787,938
$754,283,563
2015
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
$ 44,273,407
18,970,328
$ 1,927,198
17,843
$ 1,581,084
205,326
$ 47,781,689
19,193,497
36,516,165
9,413,263
320,566,237
177,054,188
56,798,365
912,295
-
13,652,416
8,545,942
929,814
2,678,173
-
12,043,380
11,402,289
4,051,680
40,106,633
9,413,263
346,262,033
197,002,419
61,779,859
20,037,996
16,465,593
156,739
636
410,730
24,508
20,605,465
16,490,737
Total Loans
$700,095,542
$26,142,883
$ 32,397,170
$758,635,595
A loan’s risk grade is assigned at the inception of the loan and is based on the financial strength of the
borrower and the type of collateral. Loan risk grades are subject to reassessment at various times throughout
the year as part of the Company’s ongoing loan review process. Loans with an assigned risk grade of 6 or
below and an outstanding balance of $250,000 or more are reassessed on a quarterly basis. During this
reassessment process individual reserves may be identified and placed against certain loans which are not
considered impaired. In assessing the overall economic condition of the markets in which it operates, the
Company monitors the unemployment rates for its major service areas. The unemployment rates are
reviewed on a quarterly basis as part of the allowance for loan loss determination.
28
(4) Loans (Continued)
Loans are considered past due if the required principal and interest payments have not been received as of the
date such payments were due. Generally, loans are placed on nonaccrual status if principal or interest
payments become 90 days past due or when, in management’s opinion, the borrower may be unable to meet
payment obligations as they become due, as well as when required by regulatory provision. Loans may be
placed on nonaccrual status regardless of whether 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:
Accruing Loans
30-89 Days
Past Due
90 Days
or More
Past Due
Total Accruing
Loans Past Due
Nonaccrual
Loans
Current
Loans
Total Loans
2016
Commercial and Agricultural
Commercial
Agricultural
Real Estate
$ 419,969
33,046
$
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
54,001
-
491,468
3,178,833
95,309
-
-
-
-
-
-
-
$ 419,969
33,046
$ 634,955
208,522
$ 45,969,954
16,838,011
$ 47,024,878
17,079,579
54,001
-
491,468
3,178,833
95,309
190,494
-
6,360,176
3,944,337
799,556
30,113,867
11,830,447
342,238,387
188,456,797
65,982,332
30,358,362
11,830,447
349,090,031
195,579,967
66,877,197
Consumer and Other
Consumer
Other
196,242
-
122
-
196,364
-
212,026
-
19,286,851
16,747,861
19,695,241
16,747,861
Total Loans
$4,468,868
$ 122
$4,468,990
$12,350,066
$737,464,507
$754,283,563
2015
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
Total Loans
$ 490,727
71,416
$ -
-
$ 490,727
71,416
$ 576,940
178,021
$ 46,714,022 $ 47,781,689
19,193,497
18,944,060
90,163
-
6,031,257
3,682,509
122,696
-
-
-
-
-
90,163
-
6,031,257
3,682,509
122,696
1,642,666
-
7,564,691
3,163,571
1,103,354
38,373,804
9,413,263
332,666,085
190,156,339
60,553,809
40,106,633
9,413,263
346,262,033
197,002,419
61,779,859
469,839
636
7,799
-
477,638
636
178,336
100
19,949,491
16,490,001
20,605,465
16,490,737
$10,959,243
$7,799
$ 10,967,042
$14,407,679
$733,260,874 $758,635,595
29
(4) Loans (Continued)
Had nonaccrual loans performed in accordance with their original contractual terms, the Company would
have recognized additional interest income of approximately $387,300, $418,400, and $591,900 for the years
ended December 31, 2016, 2015 and 2014, respectively.
The following table details impaired loan data as of December 31, 2016:
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
$
$ 634,955
229,182
190,494
14,357,601
4,261,558
920,666
212,376
$ 634,955
208,522
190,494
14,276,688
3,952,139
799,556
212,026
-
-
-
-
-
-
-
$ 539,099
210,372
697,893
14,274,719
4,553,322
1,016,395
213,309
$ 24,563
8,794
6,630
567,349
73,099
21,526
9,599
$ 27,142
12,412
7,127
560,354
190,373
26,012
12,036
$20,806,832
$ 20,274,380
$
-
$ 21,505,109
$ 711,560
$ 835,456
With An Allowance Recorded
Commercial
Agricultural
Commercial Construction
Commercial Real Estate
Residential Real Estate
Farmland
Consumer
Total
Commercial
Agricultural
Commercial Construction
Commercial Real Estate
Residential Real Estate
Farmland
Consumer
-
-
72,296
8,557,582
1,475,594
379,851
-
-
-
72,296
8,467,135
1,467,833
379,851
-
-
-
21,135
3,021,943
362,521
29,173
-
30,270
-
74,098
8,339,666
1,042,750
384,056
-
-
-
1,532
238,684
27,759
21,098
-
-
-
1,416
235,749
32,260
21,310
-
$10,485,323
$ 10,387,115
$ 3,434,772
$ 9,870,840
$ 289,073
$ 290,735
$ 634,955
229,182
262,790
22,915,183
5,737,152
1,300,517
212,376
$ 634,955
208,522
262,790
22,743,823
5,419,972
1,179,407
212,026
$
-
-
21,135
3,021,943
362,521
29,173
-
$ 569,369
210,372
771,991
22,614,385
5,596,072
1,400,451
213,309
$ 24,563
8,794
8,162
806,033
100,858
42,624
9,599
$ 27,142
12,412
8,543
796,103
222,633
47,322
12,036
$31,292,155
$ 30,661,495
$ 3,434,772
$ 31,375,949 $ 1,000,633
$1,126,191
30
(4) Loans (Continued)
The following table details impaired loan data as of December 31, 2015:
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
$ 454,423
195,654
6,887,522
15,569,340
5,429,121
1,104,887
179,908
-
$ 454,013
178,021
1,896,938
15,122,486
4,575,547
1,103,353
178,435
-
$29,820,855
$23,508,793
-
-
-
-
-
-
-
-
-
$ 534,814
163,078
2,867,061
15,430,252
4,715,162
1,339,863
190,566
48,438
$ 17,259
(9,957)
25,788
529,376
175,484
583
13,745
-
$ 21,253
10,334
27,007
530,699
159,148
2,076
14,907
-
$ 25,289,234
$ 752,278
$ 765,424
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
$ 122,928
$ 122,928
$ 94,538
$ 99,749
$ 2,275
$ 2,438
-
76,644
8,969,329
1,083,127
387,968
-
-
-
76,644
8,955,503
1,075,367
387,969
-
-
-
25,344
1,607,962
308,188
37,386
-
-
-
92,200
6,673,087
1,088,380
391,060
-
-
-
375
213,693
16,380
20,880
-
-
-
375
208,657
15,873
20,954
-
-
$10,639,996
$10,618,411
$ 2,073,418
$ 8,344,476
$ 253,603
$ 248,297
$ 577,351
195,654
6,964,166
24,538,669
6,512,248
1,492,855
179,908
-
$ 576,941
178,021
1,973,582
24,077,989
5,650,914
1,491,322
178,435
-
$ 94,538
-
25,344
1,607,962
308,188
37,386
-
-
$ 634,563
163,078
2,959,261
22,103,339
5,803,542
1,730,923
190,566
48,438
$ 19,534
(9,957)
26,163
743,069
191,864
21,463
13,745
-
$ 23,691
10,334
27,382
739,356
175,021
23,030
14,907
-
$40,460,851
$34,127,204
$2,073,418
$33,633,710
$1,005,881
$1,013,721
31
(4) Loans (Continued)
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
38,059,962
29,490,794
-
-
-
-
-
-
-
-
-
$ 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
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
32
(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 the Company’s 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.
33
(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, 2016. The following tables present the number of
loan contracts restructured during the 12 months ended December 31, 2016, 2015 and 2014. It shows 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. A TDR may cease being classified as impaired if the loan is subsequently
modified at market terms, has performed according to the modified terms for at least six months, and has not
had any prior principal forgiveness on a cumulative basis.
Troubled Debt Restructurings
2016
# of Contracts
Pre-Modification Post-Modification
1
1
2
1
2
3
1
1
1
1
4
$ 91,280
354,784
$ 91,097
354,784
$ 446,064
$ 445,881
$ 513,868
1,106,345
$ 505,978
1,035,590
$1,620,213
$1,541,568
$ 400,778
349,976
1,771,395
49,194
$ 400,778
349,976
1,775,407
49,194
$2,571,343
$2,575,355
Commercial Real Estate
Residential Real Estate
Total Loans
2015
Commercial Real Estate
Residential Real Estate
Total Loans
2014
Farmland
Commercial Construction
Commercial Real Estate
Residential Real Estate
Total Loans
34
(4) Loans (Continued)
Troubled debt restructurings that subsequently defaulted as of December 31 are as follows:
2016
2015
2014
# of
Contracts
Recorded
Investment
# of
Contracts
Recorded
Investment
# of
Contracts
Recorded
Investment
Residential Real Estate
Total Loans
1
1
$ 89,297
$ 89,297
-
-
$
-
$ -
-
-
$
$
-
-
During 2016, a restructured loan totaling $89,297 failed to continue to perform as agreed and was charged
off in June 2016. At December 31, 2015 and 2014, all restructured loans were performing as agreed.
(5) Allowance for Loan Losses
Changes in the allowance for loan losses for the years ended December 31 are as follows:
2016
2015
2014
Balance, Beginning of Year
$8,603,905
$8,802,316
$ 11,805,986
Provision for Loan Losses
Loans Charged Off
Recoveries of Loans Previously Charged Off
1,062,000
(2,087,850)
1,345,238
865,500
(2,083,347)
1,019,436
1,308,000
(5,104,491)
792,821
Balance, End of Year
$8,923,293
$8,603,905
$ 8,802,316
35
(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.
2016
Beginning
Balance
Charge-Offs Recoveries
Provision
Ending
Balance
Commercial and Agricultural
Commercial
Agricultural
Real Estate
$ 855,364
203,091
$ (304,918)
(19,258)
$ 66,738 $ (160,987)
(20,291)
4,150
$ 456,197
167,692
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
690,766
19,890
3,850,527
1,990,355
911,692
(25,318)
-
(992,067)
(361,630)
(119,576)
814,586
-
206,154
49,660
145,000
(1,157,309)
(6,399)
2,686,384
(282,286)
(214,785)
322,725
13,491
5,750,998
1,396,099
722,331
Consumer and Other
Consumer
Other
2015
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
63,377
18,843
(265,083)
-
52,629
6,321
229,342
(11,669)
80,265
13,495
$ 8,603,905
$ (2,087,850)
$1,345,238 $ 1,062,000
$ 8,923,293
$ 497,561
304,172
$ (454,971)
(5,000)
$ 52,111
3,600
$760,663
(99,681)
$ 855,364
203,091
1,222,695
138,092
3,664,777
2,425,327
103,800
(97,698)
-
(275,297)
(929,668)
(40,000)
485,834
-
270,003
109,626
20,000
(920,065)
(118,202)
191,044
385,070
827,892
690,766
19,890
3,850,527
1,990,355
911,692
66,914
378,978
(255,062)
(25,651)
61,976
16,286
189,549
(350,770)
63,377
18,843
$8,802,316
$(2,083,347)
$1,019,436
$865,500
$8,603,905
36
(5) Allowance for Loan Losses (Continued)
2014
Beginning
Balance
Charge-Offs Recoveries
Provision
Ending
Balance
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
$ 1,017,073
293,886
$ (624,944)
-
$ 76,002
2,700
$ 29,430
7,586
$ 497,561
304,172
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
The Company’s allowance for loan losses consists of specific valuation allowances established for probable
losses on specific loans and historical valuation allowances for other loans with similar risk characteristics.
During the first quarter of 2016 Company management implemented a change to its allowance for loan loss
methodology by expanding the historical loss period from a rolling 8 quarters to 16 quarters. Management
believes the longer historical loss period better reflects the current and expected loss behavior of the loan
portfolio within the current credit cycle. The transition to a rolling 16 quarter loss period will be complete in
the first quarter of 2017. As of December 31, 2016, this change in the historical loss period resulted in an
increase to the allowance for loan losses of $804,000. The loss history period used at December 31, 2015
and 2014 was based on the loss rate from the eight quarters ended September 30, 2015 and 2014,
respectively.
Effective with the quarter ended June 30, 2015, the calculation of the amount needed in the Allowance for
Loan Losses changed. Management determined that the segmentation method for the ASC 450-20 portion of
the loan portfolio should be changed to bank call report categories. Prior to this change, the ASC 450-20
segmentation categorized loans by various non-owner occupied commercial real estate loan types and risk
grades for the remainder of the ASC 450-20 portion of the portfolio. On the date of change, June 30, 2015,
the change in methodology resulted in an increase to the calculated allowance for loan loss reserve of
$1,621,424.
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 included only 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 nonguaranteed portion of these loans is subject to the
loss calculation.
37
(5) Allowance for Loan Losses (Continued)
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.
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.
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 $10,786,699 and
$11,155,813 as of December 31, 2016 and 2015, respectively. Specific allowance allocations were made for
these loans totaling $632,706 and $276,731 as of December 31, 2016 and 2015, 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, 2016, there were 160 impaired loans totaling $4,204,156 below the $250,000 review
threshold which 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, 2015 and 2014, impaired loans totaling
$3,744,733 and $3,885,411, respectively, were below the $250,000 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.
2016
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
Individually
Evaluated for
Impairment
Ending Allowance Balance
Collectively
Evaluated for
Impairment
Total
Individually
Evaluated for
Impairment
Ending Loan Balance
Collectively
Evaluated for
Impairment
Total
$ -
-
$ 456,197
167,692
$ 456,197
167,692
$ 6,671
-
$ 47,018,207
17,079,579
$ 47,024,878
17,079,579
21,135
-
3,021,943
362,522
29,172
301,590
13,491
2,729,055
1,033,577
693,159
322,725
13,491
5,750,998
1,396,099
722,331
72,296
-
22,422,451
2,911,874
1,044,047
30,286,066
11,830,447
326,667,580
192,668,093
65,833,150
30,358,362
11,830,447
349,090,031
195,579,967
66,877,197
-
-
80,265
13,495
80,265
13,495
-
-
19,695,241
16,747,861
19,695,241
16,747,861
Total End of Year Balance
$3,434,772
$5,488,521
$8,923,293
$26,457,339
$727,826,224
$754,283,563
38
(5) Allowance for Loan Losses (Continued)
2015
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
Individually
Evaluated for
Impairment
Ending Loan Balance
Collectively
Evaluated for
Impairment
Total
$ 94,538
-
$ 760,826
203,091
$ 855,364
203,091
$ 122,928
8,445
$ 47,658,761
19,185,052
$ 47,781,689
19,193,497
25,344
-
1,607,962
308,188
37,386
665,422
19,890
2,242,565
1,682,167
874,306
690,766
19,890
3,850,527
1,990,355
911,692
1,622,560
-
23,628,213
3,597,386
1,402,939
38,484,073
9,413,263
322,633,820
193,405,033
60,376,920
40,106,633
9,413,263
346,262,033
197,002,419
61,779,859
-
-
63,377
18,843
63,377
18,843
-
-
20,605,465
16,490,737
20,605,465
16,490,737
Total End of Year Balance
$2,073,418
$6,530,487
$8,603,905
$30,382,471
$728,253,124
$758,635,595
2014
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
$ 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
39
(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
2016
2015
$ 9,668,722
25,239,165
12,461,043
653,939
1,530,359
$ 9,696,723
23,927,467
12,154,375
993,618
1,170,050
49,553,228
(21,583,968)
47,942,233
(21,488,703)
$27,969,260
$ 26,453,530
Depreciation charged to operations totaled $1,574,249 in 2016, $1,657,229 in 2015, and $1,595,253 in 2014.
Certain Company facilities and equipment are leased under various operating leases. Rental expense
approximated $437,000 for 2016, $560,000 for 2015, and $613,000 for 2014.
Future minimum rental payments as of December 31, 2016 are as follows:
Year Ending December 31
2017
Amount
$39,820
$39,820
(7) Other Real Estate Owned
The aggregate carrying amount of Other Real Estate Owned (OREO) at December 31, 2016, 2015 and 2014
was $6,439,226, $8,839,103, and $10,401,832, 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 2016, 2015 and 2014 as of December 31:
Balance, Beginning of Year
$ 8,839,103
$10,401,832
$15,502,462
2016
2015
2014
Additions
Sales of OREO
Loss on Sale
Provision for Losses
Balance, End of Year
5,664,554
(7,416,293)
(146,402)
(501,736)
7,536,165
(8,054,675)
(591,071)
(453,148)
3,852,848
(7,102,136)
(844,515)
(1,006,827)
$ 6,439,226
$ 8,839,103
$10,401,832
At December 31, 2016, the Company held $431,194 of residential real estate property as foreclosed property.
Also at December 31, 2016, $204,403 of consumer mortgage loans collateralized by residential real estate
property was in the process of foreclosure according to local requirements of the applicable jurisdictions.
40
(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, 2014
$1,056,693
(904,681)
152,012
Amortization Expense
-
(35,748)
(35,748)
Balance, December 31, 2015
$1,056,693
$(940,429)
$116,264
Amortization Expense
-
(35,749)
(35,749)
Balance, December 31, 2016
$1,056,693
$(976,178)
$ 80,515
Amortization expense related to the core deposit intangible was $35,749, $35,748, and $35,749 for the years
ended December 31, 2016, 2015 and 2014. 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 expense for the years ended December 31 are as follows:
Current Federal Expense
Deferred Federal Expense
Federal Income Tax Expense
Current State Income Tax Expense
2016
2015
2014
$3,629,213
222,120
$3,162,367
625,436
$1,335,337
1,932,950
3,851,333
3,787,803
3,268,287
-
-
-
Federal and State Income Tax Expense
$3,851,333
$3,787,803
$3,268,287
The federal income tax expense of $3,851,333 in 2016, $3,787,803 in 2015, and $3,268,287 in 2014 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
2016
2015
2014
$4,283,394
(109,759)
(182,532)
16,813
(156,583)
$4,134,570
(83,903)
(232,988)
21,600
(51,476)
$3,671,971
(74,138)
(186,712)
14,044
(156,878)
Actual Federal Income Taxes
$3,851,333
$3,787,803
$3,268,287
41
(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
Other
Deferred Tax Liabilities
Premises and Equipment
Other
Deferred Tax Assets (Liabilities) on
Unrealized Securities Gains (Losses)
Net Deferred Tax Assets
2016
2015
$3,033,920
688,162
280,704
340,000
167,666
379,304
$2,925,328
537,914
308,128
340,000
212,190
418,165
4,889,756
4,741,725
(1,553,460)
(4,185)
(1,183,309)
(4,185)
(1,557,645)
(1,187,494)
2,587,163
2,284,362
$5,919,274
$5,838,593
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.
Balance, Beginning
Positions Taken During the Current Year
Reductions Resulting from Lapse of
Statutes of Limitation
Balance, Ending
2016
2015
2014
$
$
-
-
-
-
$
$
-
-
-
-
$ 42,327
-
42,327
$
-
The net decrease of $42,327 is included in income tax expense for the year ended December 31, 2014.
42
(10) Deposits
The aggregate amount of overdrawn deposit accounts reclassified as loan balances totaled $413,563 and
$272,110 as of December 31, 2016 and 2015, respectively.
Components of interest-bearing deposits as of December 31 are as follows:
Interest-Bearing Demand
Savings
Time, $100,000 and Over
Other Time
2016
2015
$448,003,985
70,066,140
183,610,778
183,616,992
$412,959,430
64,976,174
202,800,899
196,931,462
$885,297,895
$877,667,965
At December 31, 2016 and December 31, 2015, the Company had brokered deposits of $49,303,139 and
$25,576,524, 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 $123,612,962 and $141,900,102 as of December 31, 2016
and December 31, 2015, respectively. The aggregate amount of jumbo certificates of deposit, each with a
minimum denomination of $250,000 was $32,168,191 and $31,755,483 as of December 31, 2016 and
December 31, 2015, respectively.
As of December 31, 2016, the scheduled maturities of certificates of deposit are as follows:
Year
2017
2018
2019
2020
2021 and Thereafter
Amount
$256,886,186
63,055,100
22,738,969
15,858,433
8,689,082
$367,227,770
(11) Other Borrowed Money
Other borrowed money at December 31 is summarized as follows:
Federal Home Loan Bank Advances
$ 46,000,000
$ 40,000,000
Advances from the Federal Home Loan Bank (FHLB) have maturities ranging from 2018 to 2026 and
interest rates ranging from 0.98 percent to 3.51 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, 2016, the book value of those loans pledged is $104,769,821. At
2016
2015
43
(11) Other Borrowed Money (Continued)
December 31, 2016, the Company had remaining credit availability from the FHLB of $241,746,000. The
Company may be required to pledge additional qualifying collateral in order to utilize the full amount of the
remaining credit line.
The aggregate stated maturities of other borrowed money at December 31, 2016 are as follows:
Year
2018
2019
2020
2021
2022 and Thereafter
Amount
$ 2,500,000
5,000,000
2,500,000
-
36,000,000
$46,000,000
At December 31, 2016, $13,000,000 of FHLB advances are subject to fixed rates of interest, while the
remaining $33,000,000 is subject to floating interest rates which will convert to fixed rates of interests in the
next few years.
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, 2016.
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, 2016, 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.
(12) Subordinated Debentures (Trust Preferred Securities)
Description
Date
3-Month
Amount Libor Rate
Added
Points
(In Thousands)
Total
Interest
Rate
5-Year
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
0.99317
0.99789
0.99817
0.88733
2.68
1.50
1.65
1.40
3.67317
2.49789
2.64817
2.28733
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,
and 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.
The Trust Preferred Securities pay interest quarterly.
44
(12) Subordinated Debentures (Trust Preferred Securities) (Continued)
Quarterly interest payments on the Trust Preferred Securities were suspended from February 13, 2012 until
November 17, 2014, at which time the Company reinstated the interest payments and paid $1,069,695 of
interest payments in arrears.
(13) Preferred Stock
The Company had 9,360 shares and 18,021 shares of Fixed Rate Cumulative Perpetual Preferred Stock,
Series A (the Preferred Stock) issued and outstanding with private investors as of December 31, 2016 and
2015, respectively. The Company redeemed 8,661 shares of Preferred Stock at $1,000 per share during
2016. 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) Employee Benefit Plan
The Company offers a defined contribution 401(k) Profit Sharing Plan (the Plan) which covers substantially
all employees who meet certain age and service requirements. The Plan allows employees to make voluntary
pre-tax salary deferrals to the Plan. The Company, at its discretion, may elect to make an annual contribution
to the Plan equal to a percentage of each participating employee’s salary. Such discretionary contributions
must be approved by the Company’s board of directors. Employees are fully vested in the Company
contributions after six years of service. In 2016, 2015 and 2014, the Company made total contributions of
$408,303, $385,453 and $401,497 to the Plan.
(15) 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.
45
(15) Commitments and Contingencies (Continued)
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, 2016 and 2015, the following financial instruments were outstanding whose contract
amounts represent credit risk:
Commitments to Extend Credit
Standby Letters of Credit
Contract Amount
2016
2015
$71,359,000
1,551,000
$67,889,000
1,588,212
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.
(16) 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 $825,599 and $906,259 as of December 31, 2016 and 2015,
respectively. Benefit payments under the contracts were $135,885 in 2016 and $131,652 in 2015.
46
(16) Deferred Compensation Plan (Continued)
Provisions charged to operations totaled $57,125 in 2016, $196,869 in 2015 and $69,653 in 2014.
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 $165,128 in 2016,
$174,675 in 2015 and $167,911 in 2014. In addition death benefits recognized as income totaled $137,058 in
2015.
(17) Supplemental Cash Flow Information
Cash payments for the following were made during the years ended December 31:
Interest Expense
Income Taxes
2016
2015
2014
$ 6,529,615
$ 6,536,994
$7,898,543
$ 3,365,000
$ 4,738,000
$ 113,000
Noncash financing and investing activities for the years ended December 31 are as follows:
Acquisitions of Real Estate
Through Loan Foreclosures
2016
2015
2014
$ 5,664,554
$ 7,536,165
$ 3,852,848
Change in Unrealized Gain (Loss) on AFS Investment
Securities
$ (890,590)
$ 622,155
$ 6,409,171
(18) Related Party Transactions
The following table reflects the activity and aggregate balance of direct and indirect loans to directors,
executive officers or principal holders of equity securities of the Company. All such loans were made on
substantially the same terms, including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and do not involve more than a normal risk of collectibility. A
summary of activity of related party loans is shown below:
Balance, Beginning
New Loans
Repayments
Transactions Due to Changes in Directors
Balance, Ending
2016
2015
$ 1,816,609
$ 3,233,949
2,379,026
(3,170,092)
-
4,900,932
(6,065,098)
(253,174)
$ 1,025,543
$ 1,816,609
47
(19) 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.
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.
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.
48
(19) Fair Value of Financial Instruments and Fair Value Measurements (Continued)
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 – The fair value of subordinated debentures is estimated by discounting the
future cash flows using the current rates at which similar advances would be obtained. Subordinated
debentures are classified as Level 2.
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.
The carrying amount and estimated fair values of the Company’s financial instruments as of December 31
are as follows:
2016
Assets
Cash and Short-Term Investments
Investment Securities Available for Sale
Federal Home Loan Bank Stock
Loans, Net
Bank-Owned Life Insurance
Liabilities
Deposits
Subordinated Debentures
Other Borrowed Money
2015
Assets
Cash and Short-Term Investments
Investment Securities Available for Sale
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)
$ 75,167
323,658
3,010
744,999
15,419
$ 75,167
323,658
3,010
745,240
15,419
$ 75,167
-
3,010
-
15,419
-
$
323,082
-
738,288
-
$
-
576
-
6,952
-
1,044,357
24,229
46,000
1,045,726
24,229
46,232
677,129
-
-
368,597
24,229
46,232
-
-
-
$ 60,872
296,149
2,731
749,675
14,830
$ 60,872
296,149
2,731
750,412
14,830
$ 60,872
-
2,731
-
14,830
$
-
295,219
-
741,867
-
$
-
930
-
8,545
-
1,011,554
24,229
40,000
1,013,111
24,229
40,421
611,822
-
-
401,289
24,229
40,421
-
-
-
49
(19) Fair Value of Financial Instruments and Fair Value Measurements (Continued)
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
judgment and therefore cannot be determined with precision.
uncertainties and matters of significant
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
Significant assets and liabilities that are not considered financial
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.
instruments.
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.
50
(19) Fair Value of Financial Instruments and 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.
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, 2016 and 2015, 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, 2016 and 2015. Those impaired loans and
other real estate properties are shown net of the related specific reserves and valuation allowances.
51
(19) Fair Value of Financial Instruments and Fair Value Measurements (Continued)
Assets (Continued)
2016
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
Other Real Estate
2015
Recurring
Securities Available for Sale
U.S. Government Agencies
Mortgage-Backed
State, County and Municipal
Nonrecurring
Impaired Loans
Other Real Estate
Liabilities
$319,097,374
4,560,496
$323,657,870
$ 6,952,343
$ 2,505,188
$291,049,853
5,099,446
$296,149,299
$ 8,544,993
$ 2,535,884
$
$
$
$
$
$
$
$
-
-
-
-
-
-
-
-
-
-
$319,097,374
3,984,112
$
-
576,384
$323,081,486
$ 576,384
$
$
-
-
$ 6,952,343
$ 2,505,188
$291,049,853
4,169,135
$
-
930,311
$295,218,988
$ 930,311
$
$
-
-
$ 8,544,993
$ 2,535,884
The Company did not identify any liabilities that are required to be presented at fair value.
52
(19) Fair Value of Financial Instruments and 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, 2016 and 2015. These tables are comprised primarily of collateral dependent impaired loans
and other real estate owned:
December 31,
2016
Valuation
Techniques
Unobservable
Inputs
Range
Weighted Avg
Real Estate
Commercial Construction
$ 51,161
Sales Comparison
Residential Real Estate
1,105,312
Sales Comparison
Commercial Real Estate
5,445,192
Sales Comparison
Adjustment for Differences
Between the Comparable Sales
(5.00)% - 99.00%
47.00%
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
0.00% - 10.00%
5.00%
Adjustment for Differences
Between the Comparable Sales
(22.00)% - 0.00%
(11.00)%
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
0.00% - 40.00%
20.00%
Adjustment for Differences
Between the Comparable Sales
(14.08)% - 24.62%
5.27%
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
0.00% - 100.00%
50.00%
Income Approach
Capitalization Rate
10.67%
Farmland
350,678
Sales Comparison
Other Real Estate Owned
2,505,188
Sales Comparison
Adjustment for Differences
Between the Comparable Sales
(27.00)% - 15.00%
(6.00)%
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
10.00% - 75.00%
42.50%
Adjustment for Differences
Between the Comparable Sales
(50.80)% - 316.00%
132.60%
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
6.25% - 76.92%
36.31%
Income Approach
Discount Rate
12.50%
53
(19) Fair Value of Financial Instruments and Fair Value Measurements (Continued)
Fair Value Measurements using Significant Unobservable Inputs (Level 3) (Continued)
December 31,
2015
Valuation
Techniques
Unobservable
Inputs
Range
Weighted Avg
Commercial
$ 28,390
Sales Comparison
Adjustment for Differences
Between the Comparable Sales
(31.77)% - 34.00%
1.12%
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
0.00% - 10.00%
5.00%
Income Approach
Capitalization Rate
11.00%
Real Estate
Commercial Construction
51,300
Sales Comparison
Residential Real Estate
767,179
Sales Comparison
Commercial Real Estate
7,347,541
Sales Comparison
Adjustment for Differences
Between the Comparable Sales
(5.00)% - 99.00%
47.00%
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
0.00% - 10.00%
5.00%
Adjustment for Differences
Between the Comparable Sales
(22.00)% - 10.80%
(5.60)%
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
0.00% - 25.00%
12.50%
Adjustment for Differences
Between the Comparable Sales
(31.77)% - 34.00%
1.12%
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
0.00% - 10.00%
5.00%
Income Approach
Capitalization Rate
10.25%
Farmland
350,583
Sales Comparison
Other Real Estate Owned
2,535,884
Sales Comparison
Adjustment for Differences
Between the Comparable Sales
(27.00)% - 15.00%
(6.00)%
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
10.00% - 75.00%
42.50%
Adjustment for Differences
Between the Comparable Sales
(50.80)% - 142.90%
46.05%
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
15.53% - 72.75%
43.37%
Income Approach
Discount Rate
12.50%
54
(19) Fair Value of Financial Instruments and 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, 2016, 2015 and 2014:
Available for Sale Securities
2015
2016
2014
Balance, Beginning
$ 930,311
$ 948,390
$ 941,265
Transfers into Level 3
Transfers out of Level 3
Securities Purchased During the Year
Securities Matured During the Year
Loss on OTTI Impairment Included
in Noninterest Income
Unrealized Gains(Losses) Included in Other
Comprehensive Income
(330,000)
-
-
-
-
-
-
-
-
-
-
(23,927)
(18,079)
7,125
Balance, Ending
$ 576,384
$ 930,311
$ 948,390
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. There were no transfers of securities between level 1 and level 2 or level 3 for the years
ended December 31, 2016, 2015 or 2014.
The following table presents quantitative information about recurring level 3 fair value measurements as of
December 31, 2016 and 2015:
December 31, 2016
Fair Value
Valuation Techniques
Unobservable
Inputs
Range
(Weighted Avg)
State, County and Municipal
$ 576,384
Discounted Cash Flow Discount Rate
N/A*
or Yield
December 31, 2015
State, County and Municipal
$ 930,311
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.
55
(20) 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. As of December 31, 2016, the interim final Basel III rules (Basel III) require the Company to
also maintain minimum amounts and ratios of common equity Tier 1 capital to risk weighted assets. These
amounts and ratios as defined in regulations are presented hereafter. Management believes, as of December
31, 2016, the Company meets all capital adequacy requirements to which it is subject under the regulatory
In the opinion of management, there are no conditions or events
framework for prompt corrective action.
since prior notification of capital adequacy from the regulators that have changed the institution’s category.
The Basel III rules also require the implementation of a new capital conservation buffer comprised of
common equity Tier 1 capital. The capital conservation buffer will be phased in beginning January 1, 2016
at 0.625% of risk-weighted assets and increase each subsequent year by 0.625% until reaching its final level
of 2.5% on January 1, 2019.
The following table summarizes regulatory capital information as of December 31, 2016 and December 31,
2015 on a consolidated basis and for the subsidiary, as defined. Regulatory capital ratios for December 31,
2016 and 2015 were calculated in accordance with the Basel III rules.
56
(20) Regulatory Capital Matters (Continued)
The following table summarizes regulatory capital information as of December 31, 2016 and 2015 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
$130,785
127,646
16.64% $ 62,880
62,796
16.26
8.00%
8.00
N/A
$78,495
N/A
10.00%
121,862
118,723
15.50
15.12
47,160
47,097
Common Equity Tier 1 Capital
to Risk-Weighted Assets
Consolidated
Colony Bank
89,002
118,723
11.32
15.12
35,370
35,323
6.00
6.00
4.50
4.50
N/A
62,796
N/A
51,022
121,862
118,723
10.29
10.04
47,368
47,290
4.00
4.00
N/A
59,113
N/A
8.00
N/A
6.50
N/A
5.00
As of December 31, 2016
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, 2015
Total Capital
to Risk-Weighted Assets
Consolidated
Colony Bank
Tier I Capital
to Risk-Weighted Assets
Consolidated
Colony Bank
Common Equity Tier 1 Capital
to Risk-Weighted Assets
Consolidated
Colony Bank
Tier I Capital
to Average Assets
Consolidated
Colony Bank
$131,948
126,939
16.60% $63,602
63,500
15.99
8.00%
8.00
N/A
$79,375
N/A
10.00%
123,344
118,335
15.51
14.91
47,702
47,625
81,823
118,335
10.29
14.91
35,776
35,719
6.00
6.00
4.50
4.50
N/A
63,500
N/A
51,594
123,344
118,335
10.69
10.27
46,149
46,074
4.00
4.00
N/A
57,592
N/A
8.00
N/A
6.50
N/A
5.00
57
(20) Regulatory Capital Matters (Continued)
In 2016, the Bank obtained approval of its regulators and paid a $9,100,000 dividend to the Company. The
dividend was utilized to redeem 8,661 shares of Preferred Stock. In 2015, the Bank obtained approval of its
regulators and paid a $10,000,000 dividend to the Company. The dividend was utilized to redeem 9,979
shares of Preferred Stock.
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.
58
(21) Financial Information of Colony Bankcorp, Inc. (Parent Only)
The parent company’s balance sheets as of December 31, 2016 and 2015 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
2016
2015
$ 2,307,008
1,074,884
114,478,277
20,990
$ 4,100,860
1,134,524
114,677,455
170,801
$117,881,159
$120,083,640
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Dividends Payable
Other
Subordinated Debt
Stockholders’ Equity
Preferred Stock, Stated Value $1,000; 10,000,000 Shares
Authorized, 9,360 and 18,021 Shares Issued and Outstanding
as of December 31, 2016 and 2015
Common Stock, Par Value $1; 20,000,000 Shares Authorized,
8,439,258 Shares Issued and Outstanding as of
December 31, 2016 and 2015
Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss, Net of Tax
$ 105,300
159,126
$ 202,736
195,282
$ 264,426
398,018
24,229,000
24,229,000
9,360,000
18,021,000
8,439,258
29,145,094
51,465,521
(5,022,140)
8,439,258
29,145,094
44,285,621
(4,434,351)
93,387,733
95,456,622
Total Liabilities and Stockholders’ Equity
$117,881,159
$120,083,640
59
(21) 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
2016
2015
2014
$ 9,118,104
601,080
103,612
$10,015,147
581,334
112,876
$12,015,572
581,334
100,269
$ 9,822,796
$10,709,357
$12,697,175
601,567
-
840,130
554,434
503,286
-
811,150
666,872
517,381
938
782,152
538,847
1,996,131
1,981,308
1,839,318
Income Before Taxes and Equity in
Undistributed Earnings of Subsidiary
7,826,665
8,728,049
10,857,857
Income Tax Benefits
457,934
444,764
396,738
Income Before Equity in
Undistributed Earnings of Subsidiary
Dividends Received in Excess of
Earnings of Subsidiary
Equity in Undistributed
Earnings of Subsidiary
Net Income
Preferred Stock Dividends
Net Income Available
to Common Stockholders
8,284,599
9,172,813
11,254,595
-
(800,116)
(3,722,970)
388,611
8,673,210
1,493,310
-
-
8,372,697
2,375,010
7,531,625
2,688,604
$ 7,179,900
$ 5,997,687
$4,843,021
60
(21) Financial Information of Colony Bankcorp, Inc. (Parent Only) (Continued)
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31
Net Income
$8,673,210
$8,372,697
$ 7,531,625
2016
2015
2014
Other Comprehensive Income (Loss)
Gains (Losses) on Securities Arising During the Year
Tax Effect
Realized (Gains) Losses on Sale of AFS Securities
Tax Effect
Impairment Loss on Securities
Tax Effect
Change in Unrealized Gains (Losses) on Securities
Available for Sale, Net of Reclassification
Adjustment and Tax Effects
(505,367)
171,825
(385,223)
130,976
-
-
610,689
(207,634)
6,432,906
(2,187,189)
11,466
(3,898)
(23,735)
8,070
-
-
-
-
(587,789)
410,623
4,230,052
Comprehensive Income
$8,085,421
$8,783,320
$11,761,677
61
(21) 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 by Operating Activities
Depreciation and Amortization
Equity in Undistributed
Earnings of Subsidiary
Dividends Received in Excess of
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
Redemption of Preferred Stock
2016
2015
2014
$ 8,673,210
$ 8,372,697
$ 7,531,625
66,476
73,999
75,347
(388,611)
-
-
-
5,367
108,288
800,116
23,072
1,555,482
3,722,970
(1,069,695)
(437,115)
8,464,730
10,825,366
9,823,132
(6,836)
(8,884)
(2,020)
(1,590,746)
(8,661,000)
(2,487,274)
(9,979,000)
(5,492,749)
-
(10,251,746)
(12,466,274)
(5,492,749)
Increase (Decrease) in Cash
(1,793,852)
(1,649,792)
4,328,363
Cash, Beginning
Cash, Ending
4,100,860
5,750,652
1,422,289
$ 2,307,008
$ 4,100,860
$ 5,750,652
62
(22) Earnings Per Share
Basic earnings per share is computed by dividing net income 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 common stock warrants. Net income available to common stockholders
represents net income after preferred stock dividends. The following table presents earnings per share for the
years ended December 31, 2016, 2015 and 2014:
2016
2015
2014
Numerator
Net Income Available to Common Stockholders
$ 7,179,900
$ 5,997,687
$ 4,843,021
Denominator
Weighted Average Number of Common Shares
Outstanding for Basic Earnings Per Common Share
8,439,258
8,439,258
8,439,258
Dilutive Effect of Potential Common Stock
Stock Warrants
Weighted-Average Number of Shares Outstanding for
Diluted Earnings Per Common Share
74,037
19,203
-
8,513,295
8,458,461
8,439,258
Earnings Per Share - Basic
$ 0.85
$ 0.71
$
0.57
Earnings Per Share - Diluted
$ 0.84
$ 0.71
$ 0.57
For the year ended December 31, 2014, 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.
(23) Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) for unrealized gains and losses securities
available for sale for the years ended December 31, 2016, 2015 and 2014 are as follows:
Years Ended December 31,
2015
2014
2016
Beginning Balance
$
(4,434,351)
$
(4,844,974)
$
(9,075,026)
Other Comprehensive Income
Before Reclassification
Amounts Reclassified from Accumulated
Other Comprehensive Income
Net Current Period Other Comprehensive Income
(333,542)
403,055
4,245,717
(254,247)
(587,789)
7,568
(15,665)
410,623
4,230,052
Ending Balance
$
(5,022,140)
$
(4,434,351)
$
(4,844,974)
63
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;
64
• 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;
and
• 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.
Future Outlook
During the recent financial crisis, the financial 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
developments throughout the county. While much has been accomplished in addressing problem
assets the past several years, there is still work to be done in bringing our problem assets to an
acceptable level. A focus in 2017 will be directed toward further reduction of problem assets.
As we look forward to 2017 we are committed to improving earnings, reducing problem assets and
redeeming TARP preferred stock. We plan to seek approval from the Federal Reserve and the
Department of Finance to completely eliminate the Preferred Stock during 2017. Given the improved
condition of the company we are also considering product and market expansion. In 2016 we opened
new offices in Tifton and Statesboro, while closing four offices in smaller rural markets. In January
2017, the Company opened its third office in Savannah.
While the Company has improved earnings, reduced problem assets and maintained strong capital
levels, we have reinstated dividend payments beginning first quarter 2017. The Company’s board of
directors suspended the payment of dividends in the third quarter of 2009.
We continue to explore opportunities to improve core non-interest income. Revenue enhancement
initiatives to accomplish this include new product lines and services. The Company will also invest in
new technology with implementation of a new loan platform which will offer much efficiency with our
“back-office” operations.
In addition, we continue to make efforts to attract and retain top talent to improve business operations.
To that end, the Company entered into Retention Agreements with members of management in the first
quarter of 2015. The Company expects that these agreements will facilitate the retention of key
individuals responsible for maintaining current operations and spearheading future product and market
expansion.
65
Non-GAAP Financial Measures
Our accounting and reporting policies conform to generally accepted accounting principles (GAAP) in
the United States and prevailing practices in the banking industry. However, certain non-GAAP
measures are used by management to supplement the evaluation of our performance. These include the
fully-taxable equivalent measures: tax-equivalent net interest income, tax-equivalent net interest
margin, and tax-equivalent net interest spread, which include the effects of taxable-equivalent
adjustments using a federal income tax rate of 34% to increase tax-exempt interest income to a tax-
equivalent basis. Tax-equivalent adjustments are reported in Notes 1 and 2 to the Average Balances
with Average Yields and Rates table under Rate/Volume Analysis. Tangible book value per common
share is also a non-GAAP measure used in the selected Financial Data Section.
Tax-equivalent net interest income, net interest margin and net interest spread. Net interest income on
a tax-equivalent basis is a non-GAAP measure that adjusts for the tax-favored status of net interest
income from loans and investments. We believe this measure to be the preferred industry measurement
of net interest income and it enhances comparability of net interest income arising from taxable and
tax-exempt sources. The most directly comparable financial measure calculated in accordance with
GAAP is our net interest income. Net interest margin on a tax-equivalent basis is net interest income
on a tax-equivalent basis divided by average interest-earning assets on a tax-equivalent basis. The most
directly comparable financial measure calculated in accordance with GAAP is our net interest margin.
Net interest spread on a tax-equivalent basis is the difference in the average yield on average interest-
earning assets on a tax equivalent basis and the average rate paid on average interest-bearing liabilities.
The most directly comparable financial measure calculated in accordance with GAAP is our net
interest spread.
These non-GAAP financial measures should not be considered alternatives to GAAP-basis financial
statements, and other bank holding companies may define or calculate these non-GAAP measures or
similar measures differently.
66
A reconciliation of these performance measures to GAAP performance measures is included in the
tables below.
Non-GAAP Performance Measures Reconciliation
2016
Years Ended December 31,
2013
2014
2015
(Dollars in Thousands, except per share data)
2012
Interest Income Reconciliation
Interest Income – Taxable Equivalent
Tax Equivalent Adjustment
Interest Income (GAAP)
Net Interest Income Reconciliation
Net Interest Income – Taxable Equivalent
Tax Equivalent Adjustment
Net Interest Income (GAAP)
Net Interest Margin Reconciliation
Net Interest Margin – Taxable Equivalent
Tax Equivalent Adjustment
Net Interest Margin (GAAP)
Interest Rate Spread Reconciliation
Interest Rate Spread – Taxable Equivalent
Tax Equivalent Adjustment
Interest Rate Spread (GAAP)
Selected Financial Data
Tangible Book Value Per Common Share
Effect of Other Intangible Assets
Book Value Per Common Share (GAAP)
$
44,762
173
$ 44,589
$
44,879
117
$ 44,275 $ 44,762
$ 44,407
132
$ 45,356
170
$ 45,186
$ 47,433
144
$ 47,289
$
38,279
173
$ 38,106
$ 37,838
132
$
38,080
117
$ 37,706 $ 37,963
$ 37,859
170
$ 37,689
$ 36,417
144
$ 36,273
3.51%
.02
3.49%
3.40%
.02
3.38%
3.52%
.01
3.51%
3.60%
.01
3.59%
3.61%
.02
3.59%
3.42%
.01
3.41%
3.41%
.01
3.40%
3.49%
.01
3.48%
3.50%
.02
3.48%
3.27%
.01
3.26%
$ 9.95
0.01
$ 9.96
$ 9.16
0.02
$ 9.18
$ 8.40
0.02
$ 8.42
$ 7.32
0.02
$ 7.34
$ 8.02
0.03
$ 8.05
67
The Company
Colony Bankcorp, Inc. (“Colony” or the “Company”) is a bank holding company headquartered in
Fitzgerald, Georgia that provides, through its wholly-owned subsidiary Colony Bank (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.
Overview
The following discussion and analysis presents the more significant factors affecting the Company’s
financial condition as of December 31, 2016 and 2015, and results of operations for each of the years
in the three-year period ended December 31, 2016. 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.
68
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 interest-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
interest-earning assets. Net income available to common shareholders totaled $7.18 million, or $0.84
per diluted common share in 2016, compared to $6.00 million, or $0.71 per diluted common share in
2015 and compared to $4.84 million, or $0.57 per diluted common share in 2014.
Selected income statement data, returns on average assets and average equity and dividends per share
for the comparable periods were as follows:
2016
2015
Variance Variance
2015
2014
Variance Variance
$
%
$
%
Taxable-equivalent net interest income
Taxable-equivalent adjustment
$
38,279
173
$
37,838
132
$
441
41
1.17%
31.06
$
37,838
132
$
38,080
117
$
(242)
15
(0.64)%
12.82
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
Income before income taxes
Income Taxes
Net income
Preferred stock dividends
Net income available to
common shareholders
Net income available to
common shareholders:
Basic
Diluted
Return on average assets (1)
Return on average common equity (1)
38,106
1,062
9,553
34,073
12,524
3,851
8,673
1,493
$
$
$
37,706
866
9,045
33,724
12,161
3,788
8,373
2,375
$
$
$
400
196
508
349
1.06
22.63
5.62
1.03
363
63
2.98%
1.66
300
3.58%
(882)
(37.14)%
37,706
866
9,045
33,724
12,161
3,788
8,373
2,375
$
$
$
$
$
$
37,963
1,308
9,125
34,980
10,800
3,268
7,532
2,689
$
$
$
(257)
(442)
(80)
(1,256)
(0.68)
(33.79)
(0.88)
(3.59)
$
$
$
1,361
520
12.60%
15.91
841
11.17%
(314)
(11.68)%
$
7,180
$
5,998
$
1,182
19.71%
$
5,998
$
4,843
$
1,155
23.85%
$ 0.71
$ 0.71
24.56%
19.72% $ 0.71
$ 0.85
24.56%
18.31% $ 0.71
$ 0.84
0.62% 0.52% 0.10% 19.23% 0.52% 0.43% 0.09% 20.93%
7.17% 5.90% 1.27% 21.53% 5.90% 5.11% 0.79% 15.46%
$ 0.57
$ 0.57
$ 0.14
$ 0.14
$ 0.14
$ 0.13
(1) Computed using net income available to common shareholders.
69
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 79.96
percent of total revenue during 2016, 80.65 percent of total revenue during 2015 and 80.62 percent
during 2014.
Net interest margin is the taxable-equivalent net interest income as a percentage of average interest-
earning assets for the period. The level of interest rates and the volume and mix of interest-earning
assets and interest-bearing liabilities impact net interest income and net interest margin.
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 3.75
percent. The Federal Reserve Board sets general market rates of interest, including the deposit and loan
rates offered by many financial institutions. For the first time in several years, the prime interest rate
increased by 25 basis points in the fourth quarter of 2015, followed by a similar 25-point increase in
the fourth quarter of 2016. We anticipate that the prime interest rate will again rise in 2017. Given that
the federal funds rate moves in accordance with the movement of the prime interest rate, we anticipate
that the federal funds rate will also increase from its current 0.75 percent.
The following table presents the changes in taxable-equivalent net interest income and identifies the
changes due to differences in the average volume of interest-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 Rate/Volume Analysis.
70
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
Subordinated Debentures
Other Debt
Federal Funds Purchased
Total Interest Expense
Net Interest Income (Loss)
Changes From
2015 to 2016 (a)
Changes From
2014 to 2015 (a)
Volume
Rate
Total
Volume
Rate
Total
$
221
$
(951)
$
(730)
$
831
$
(831)
$
-
381
12
393
(18)
(15)
4
585
137
(271)
(134)
-
74
-
(60)
645
$
669
(15)
654
62
-
5
(230)
62
(4)
58
98
(183)
1
(26)
(204)
$
$
1,050
(3)
1,047
44
(15)
9
355
199
(275)
(76)
98
(109)
1
(86)
441
(89)
(12)
(101)
35
(16)
(6)
743
(396)
(3)
(399)
3
(1)
13
(1,215)
(485)
(15)
(500)
38
(17)
7
(472)
126
(240)
(29)
(113)
97
(353)
(114)
(142)
(256)
-
-
-
(114)
857
$
(15)
41
-
(116)
(1,099)
$
(15)
41
-
(230)
(242)
$
(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.
71
The Company maintains about 21.2 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 non-maturing core deposits and short term certificates of deposit that mature
within one year. The Federal Reserve rates have remained flat since 2008 until the 25 basis point
increase in the fourth quarter of 2015 followed by the 25 basis point increase in the fourth quarter of
2016. We have seen the net interest margin change to 3.51 percent for 2016, compared to 3.52 percent
for 2015 and 3.60 percent for 2014. We have seen our net interest margin reach a low of 3.39 percent
in fourth quarter 2016 to a high of 3.59 percent in second quarter 2016.
Taxable-equivalent net interest income for 2016 increased by $441 thousand, or 1.17 percent,
compared to 2015 while taxable-equivalent net interest income for 2015 decreased by $242 thousand,
or 0.64 percent compared to 2014. The average volume of interest-earning assets during 2016
increased $16.41 million compared to 2015 while over the same period the net interest margin dropped
to 3.51 percent from 3.52 percent. The average volume of interest-earning assets during 2015
increased $16.95 million compared to 2014 while over the same period the net interest margin dropped
to 3.52 percent from 3.60 percent. The change in the net interest margin in 2016 and 2015 was
primarily driven by reduction in the cost of funds and a higher level of low yielding assets. The
increase in average interest-earning assets in 2016 was in loans, investments and other interest-earning
assets. The increase in average interest-earning assets in 2015 was in loans and interest-bearing
deposits.
The average volume of loans increased $4.20 million in 2016 compared to 2015, and increased $15.47
million in 2015 compared to 2014. The average yield on loans decreased 13 basis points in 2016
compared to 2015 and decreased 11 basis points in 2015 compared to 2014. The average volume of
deposits increased $17.35 million in 2016 compared to 2015. The average volume of deposits
increased $17.29 million in 2015 compared to 2014. Demand deposits made up $11.80 million of the
increase in average deposits in 2016 compared to $10.09 million of the increase in average deposits in
2015.
Accordingly, the ratio of average interest-bearing deposits to total average deposits was 85.9 percent in
2016, 86.8 percent in 2015 and 87.6 percent in 2014. This deposit mix, combined with a general
decrease in interest rates, had the effect of (i) decreasing the average cost of total deposits by 2 basis
points in 2016 compared to 2015 and decreasing the average cost of total deposits by 3 basis points in
2015 compared to 2014, and (ii) mitigating a portion of the impact of decreasing yields on interest-
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
interest-earning assets and the average rate paid on interest-bearing liabilities, was 3.40 percent in 2016
compared to 3.41 percent in 2015 and 3.49 percent in 2014. 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 Market Risk and Interest Rate Sensitivity included elsewhere
in this report.
72
Rate/Volume Analysis (Continued)
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
2016
Income/
Expense
2015
2014
Yields/
Rates
Average
Balances
Income/
Yields/
Expense
Rates
Average
Balances
Income/ Yields/
Expense
Rates
$
761,149
$
39,084
5.13%
$
756,953
$
39,814
5.26%
$
741,484
$
39,814
5.37%
301,357
2,440
303,797
23,167
-
2,854
5,328
95
5,423
124
-
131
1,090,967
44,762
1.77
3.89
1.79
0.54
-
4.59
4.10
276,807
2,171
278,978
29,815
6,056
2,754
4,278
98
4,376
80
15
122
1,074,556
44,407
1.55
4.51
1.57
0.27
0.25
4.43
4.13
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
19,208
(9,372)
63,060
72,896
19,049
(8,587)
61,966
72,428
9,698
(10,841)
71,587
70,444
Total Assets
$
1,163,863
$
1,146,984
$
1,128,052
Liabilities and Stockholders' Equity
Interest-Bearing Liabilities
Interest-Bearing Demand and Savings
$
469,740
$
1,694
0.36%
$
430,731
$
1,495
0.35%
$
394,615
$
1,398
0.35%
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
383,628
853,368
42,470
24,229
3,087
4,781
1,100
601
0.80
0.56
2.59
2.48
417,080
847,811
40,000
24,229
3,362
4,857
1,209
503
0.81
0.57
3.02
2.08
445,993
840,608
40,000
24,229
3,715
5,113
1,168
518
0.83
0.61
2.92
2.14
35
1
2.86
3
-
-
2
-
-
66,734
920,102
1,702
6,483
2.55
0.70
64,232
912,043
1,712
6,569
2.67
0.72
64,231
904,839
1,686
6,799
2.62
0.75
140,338
3,309
100,114
243,761
128,541
4,690
101,710
234,941
118,452
10,010
94,751
223,213
Stockholders' Equity
$
1,163,863
$
1,146,984
$
1,128,052
Interest Rate Spread
Net Interest Income
Net Interest Margin
$
38,279
3.40%
3.51%
$
37,838
3.41%
3.52%
$
38,080
3.49%
3.60%
(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 $141, $99 and $79 for 2016, 2015 and 2014, respectively, are included in
interest on loans. The adjustments are based on a federal tax rate of 34 percent.
(2) Taxable-equivalent adjustments totaling $32, $33 and $38 for 2016, 2015 and 2014, 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.
73
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 $1.06 million in 2016 compared to $866 thousand in 2015 and
$1.31 million in 2014. 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:
2016
2015
Variance Variance
2015
2014
Variance
Variance
$
%
$
%
Service Charges on Deposit Accounts
$
4,307
$
4,269
$
38
0.89%
$
4,269
$
4,649
$
(380)
(8.17)%
Other Charges, Commissions and Fees
2,803
2,627
Mortgage Fee Income
Securities Gains (Losses)
682
385
527
(11)
176
155
396
6.70
29.41
3,600.00
2,627
2,388
527
(11)
420
24
1,377
1,633
(256)
(15.68)
1,633
1,644
239
107
(35)
(11)
10.01
25.48
(145.83)
(0.67)
$
9,554
$
9,045
$
509
5.63%
$
9,045
$
9,125
$
(80)
(0.88)%
Other
Total
Other Charges, Commissions and Fees. Significant amounts impacting the comparable periods was
primarily attributed to ATM and debit card interchange fees which increased $184 thousand in 2016
compared to 2015 and $251 thousand in 2015 compared to 2014.
Mortgage Fee Income. The increase in mortgage fee income in 2016 compared to the same period in
2015 is due to an increase in the volume of mortgage loans.
Securities Gains (Losses). The increase in 2016 is attributable to the gain on sale of securities
compared to 2015 with a loss on sale of securities.
Other. Significant amounts impacting the comparable periods was primarily attributed to having
income from the sale of a tax credit of $66 thousand and life insurance benefits of $137 that did not
occur in 2016. The Bank did not have any significant changes for 2015 compared to 2014.
74
Noninterest Expense
The components of noninterest expense were as follows:
2016
2015
Variance Variance
2015
2014
Variance Variance
$
%
$
%
Salaries and Employee Benefits
$
18,483
$
17,590
$
893
5.08%
$
17,590
$
17,508
$
82
0.47%
Occupancy and Equipment
Directors' Fees
Legal and Professional Fees
Foreclosed Property
FDIC Assessment
Advertising
Software
Telephone
ATM/Card Processing
Other
Total
3,970
349
792
1,143
604
610
1,112
737
1,136
5,137
3,989
358
738
1,683
899
625
993
710
1,061
5,078
(19)
(0.48)
(9)
(2.51)
54
7.32
(540)
(32.09)
(295)
(32.81)
(15)
(2.40)
119
11.98
27
75
59
3.80
7.07
1.16
3,989
358
738
1,683
899
625
993
710
1,061
5,078
4,063
392
786
(74)
(34)
(48)
(1.82)
(8.67)
(6.11)
2,701
(1,018)
(37.69)
966
652
925
736
906
(67)
(27)
(6.94)
(4.14)
68
7.35
(26)
(3.53)
155
17.11
5,345
(267)
(5.00)
$
34,073
$
33,724
$
349
1.03%
$
33,724
$
34,980
$
(1,256)
(3.59)%
Salaries and Employee Benefits. The increase in salary and employee benefits for 2016 is due to merit
pay increases. Salary and employee benefits remained flat in 2015 compared to 2014.
Foreclosed Property. The decrease in foreclosed property and repossession expense for 2016 and
2015 is primarily attributable to the decrease in the volume of OREO.
75
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 $1.16 billion in 2016 compared to $1.15 billion in 2015
and $1.13 billion in 2014.
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
2016
2015
2014
$
140,338
853,368
12.1%
73.3%
$
128,541
847,811
11.2%
73.9%
$
118,452
840,608
10.5%
74.5%
35
- %
3
- %
2
- %
66,699
5.7%
64,229
5.6%
64,229
5.7%
3,309
100,114
0.3%
8.6%
4,690
101,710
0.4%
8.9%
10,010
94,751
0.9%
8.4%
Total
$
1,163,863
100.0%
$
1,146,984
100.0%
$
1,128,052
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
$
751,777
303,797
-
23,167
2,854
82,268
64.6%
26.1%
- %
2.0%
0.2%
7.1%
$
748,366
278,978
6,056
29,815
2,754
81,015
65.3%
24.3%
0.5%
2.6%
0.2%
7.1%
$
730,643
284,474
12,551
16,193
2,906
81,285
64.8%
25.2%
1.1%
1.4%
0.3%
7.2%
Total
$
1,163,863
100.0%
$
1,146,984
100.0%
$
1,128,052
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 85.9 percent of total average deposits in 2016 compared to 86.8 percent in 2015 and 87.6
percent in 2014.
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 2016 as total loans
were $754.3 million at December 31, 2016, down 0.57 percent, compared to loans of $758.6 million at
December 31, 2015, which went up 1.68 percent, compared to loans of $746.1 million at December 31,
2014. 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 and securities.
76
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
Unearned Interest and Fees
Allowances for Loan Losses
2016
2015
2014
2013
2012
$
47,025
17,080
$
47,782
19,193
$
50,960
16,689
$
48,107
10,666
$
55,684
6,211
30,358
11,830
349,090
195,580
66,877
19,695
16,748
754,283
(361)
(8,923)
40,107
9,413
346,262
197,002
61,780
20,605
16,492
758,636
(357)
(8,604)
51,259
11,221
332,231
203,753
49,951
22,820
7,210
746,094
(362)
(8,802)
52,739
6,549
341,783
206,258
47,034
25,676
12,406
751,218
(360)
(11,806)
53,808
5,852
334,386
203,845
49,057
29,778
8,429
747,050
(234)
(12,737)
Loans
$
744,999
$
749,675
$
736,930
$
739,052
$
734,079
The following table presents total loans as of December 31, 2016 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
$ 264,807
287,713
149,866
51,897
$ 754,283
Overview. Loans totaled $754.3 million at December 31, 2016, down 0.57 percent from $758.6
million at December 31, 2015. 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 72.21 percent and 71.61 percent of total
loans, real estate construction loans made up 5.59 percent and 6.53 percent while commercial and
agricultural loans made up 8.50 percent and 8.83 percent of total loans at December 31, 2016 and
December 31, 2015, respectively.
77
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 both an Executive Loan
Committee and a Director 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 similarly to how
other loans are underwritten throughout the Company. The properties securing the Company’s
commercial real estate portfolio are diverse in terms of type and geographic location. In addition, the
Company restricts total loans to $10 million per borrower, subject to exception and approval by the
Director Loan Committee. 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 monthly 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, 2016 decreased 4.3
percent to $64.1 million from December 31, 2015 at $67.0 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.
78
Real Estate. Commercial and residential construction loans decreased by $7.3 million, or 14.8 percent,
at December 31, 2016 to $42.2 million from $49.52 million at December 31, 2015. This decrease is
partially due to completion of construction and the new loans transferring to the commercial real estate
category. Therefore, commercial real estate increased $2.8 million or 0.8 percent at December 31,
2016 to $349.09 million from $346.26 million at December 31, 2015.
Other. Other loans at December 31, 2016 increased 1.5 percent to $16.75 million from $16.49 million
in December 31, 2015.
Industry Concentrations. As of December 31, 2016 and December 31, 2015,
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. The Company has established industry-specific guidelines with respect to maximum loans
permitted for each industry with which the Company does 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, 2016, 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, 2016 and December 31, 2015.
December 31, 2016
Period End Balances
December 31, 2015
Period End Balances
Number of
Relationships Committed Outstanding
Number of
Relationships
Committed Outstanding
Large Credit Relationships:
$5 million to $9.9 million
14
$ 96,807
$ 86,712
16
$ 108,432
$ 99,126
79
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, 2016. 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
$ 181,178
83,629
$ 263,748
23,965
$ 98,267
51,599
$ 51,151
746
$ 594,344
159,939
Total
$ 264,807
$ 287,713
$ 149,866
$ 51,897
$ 754,283
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.
80
Nonperforming Assets and Potential Problem Loans
Year-end nonperforming assets and accruing past due loans were as follows:
2016
2015
2014
2013
2012
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
$ 12,350
-
6,439
-
$ 18,789
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
3,376
4,375
-
9,182
800
1,056
$ 18,789
2.47%
1.55%
1.64%
$ 14,408
8
8,839
-
$ 23,255
7,106
4,197
-
9,908
1,103
941
$ 23,255
$18,334
7
10,402
-
$28,743
$24,114
4
15,502
-
$39,620
$29,851
4
15,941
366
$46,162
9,655
8,237
173
8,375
1,449
854
$28,743
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
3.03%
1.98%
3.80%
2.51%
5.17%
3.45%
6.05%
4.05%
1.90%
2.46%
3.21%
4.00%
In Compliance with Modified Terms
$ 17,992
$ 19,375
$19,229
$20,715
$24,870
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
Allowance for Loan Losses
ALLL as a Percentage of:
Total Loans
Nonperforming Loans
319
344
757
435
1,377
4,469
-
$ 4,469
10,959
8
$ 10,967
9,701
7
$9,708
9,366
4
$ 9,370
14,911
4
$ 14,915
$ 8,923
$ 8,604
$
8,802
$ 11,806
$ 12,737
1.18%
72.25%
1.13%
59.68%
1.18%
47.99%
1.57%
48.95%
1.70%
42.66%
Nonperforming assets include nonaccrual loans, loans past due 90 days or more, foreclosed real estate
and nonaccrual securities. Nonperforming assets at December 31, 2016 decreased 19.20 percent from
December 31, 2015.
81
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 is a reserve established through a provision for loan losses charged to
expense, which represents management’s best estimate of probable losses that have been incurred
within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to
reserve for estimated loan losses and risks inherent in the loan portfolio. The allowance for loan losses
includes allowance allocations calculated in accordance with current U.S. accounting standards. The
level of the allowance reflects management’s continuing evaluation of industry concentrations, specific
credit risks, loan loss experience, current loan portfolio quality, present economic, political and
regulatory conditions and unidentified losses inherent in the current loan portfolio. Portions of the
allowance may be allocated for specific credits; however, the entire allowance is available for any
credit that, in management’s judgment, should be charged off. While management utilizes its best
judgment and information available, the ultimate adequacy of the allowance is dependent upon a
variety of factors beyond the Company’s control, including the performance of the Company’s loan
portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan
classifications.
82
The Company’s allowance for loan losses consists of specific valuation allowances established for
probable losses on specific loans and historical valuation allowances for other loans with similar risk
characteristics. During the first quarter of 2016 Company management implemented a change to its
allowance for loan loss methodology by expanding the historical loss period from a rolling 8 quarters
to 16 quarters. Management believes the longer historical loss period better reflects the current and
expected loss behavior of the loan portfolio within the current credit cycle. The transition to a rolling
16 quarter loss period will be complete in the first quarter of 2017. As of December 31, 2016, this
change in the historical loss period resulted in an increase to the allowance for loan losses of $804,000.
The loss history period used at December 31, 2015 and 2014 was based on the loss rate from the eight
quarters ended September 30, 2015 and 2014, respectively.
Effective with the quarter ended June 30, 2015, the calculation of the amount needed in the Allowance
for Loan Losses changed. Management determined that the segmentation method for the ASC 450-20
portion of the loan portfolio should be changed to bank call report categories. Prior to this change, the
ASC 450-20 segmentation categorized loans by various non-owner occupied commercial real estate
loan types and risk grades for the remainder of the ASC 450-20 portion of the portfolio. On the date of
change, June 30, 2015, the change in methodology resulted in an increase to the calculated allowance
for loan loss reserve of $1,621,424.
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 loans
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. Loans are segregated into fifteen separate groups based on call codes. Most of the
Company’s charge-offs during the past two years have been real estate dependent loans. 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.
83
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.
2016
2015
2014
2013
2012
Reserve
%* Reserve
%* Reserve
%* Reserve
%* Reserve
%*
Commercial and Agricultural
Commercial
$
Agricultural
456
168
6%
2%
$
855
203
6%
3%
$
497
304
7%
2%
1,017
294
6%
2%
981
296
7%
1%
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
323
13
5,751
1,396
722
4%
2%
46%
26%
9%
691
20
3,851
1,990
912
5%
1%
46%
26%
8%
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%
80
14
8,923
$
3%
2%
100%
63
19
8,604
$
3%
2%
100%
67
379
8,802
$
3%
1%
100%
243
362
11,806
$
3%
2%
100%
228
344
12,737
$
4%
1%
100%
* Percentage represents the loan balance in each category expressed as a percentage of total end of period loans.
84
The following table presents an analysis of the Company’s loan loss experience for the periods
indicated.
Allowance for Loan Losses at
Beginning of Year
2016
2015
2014
2013
2012
$ 8,604
$ 8,802
$ 11,806
$12,737
$15,650
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
305
19
25
-
992
362
120
265
-
455
5
98
-
275
930
40
255
25
2,088
2,083
67
4
814
-
206
50
145
53
6
1,345
743
1,062
52
3
486
-
270
110
20
62
16
1,019
1,064
866
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
10,454
140
-
209
-
233
47
5
82
40
756
4,312
1,308
5,416
4,485
9,698
6,785
Allowance for Loan Losses at End of Year
$ 8,923
$ 8,604
$ 8,802
$11,806
$12,737
Ratio of Net Charge-Offs to Average Loans
0.10%
0.14%
0.58%
0.73%
1.34%
The allowance for loan losses increased from $8.60 million, or 1.13 percent of total loans at December
31, 2015 to $8.92 million, or 1.18 percent at December 31, 2016. 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 2016 was the reduction in the net charge-offs in 2016 to
$743 thousand from $1.06 million in 2015, or a reduction of $321 thousand. Significant changes in the
allowance during 2015 was the reduction in the net charge-offs in 2015 to $1.06 million from $4.31
million in 2014. 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.
85
Investment Portfolio
The following table presents carrying values of investment securities held by the Company as of
December 31, 2016, 2015 and 2014.
State, County and Municipal
Mortgage-Backed Securities
Total Investment Securities and
Mortgage-Backed Securities
2016
2015
2014
$ 4,561
319,097
$ 5,099
291,050
$ 3,560
271,064
$323,658
$296,149
$274,624
The following table represents expected maturities and weighted-average yields of investment
securities held by the Company as of December 31, 2016. (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
$
32,166
$
1.54% 191,290
$
1.57% 73,706
$
2.40% 21,935
2.33%
363
3.72
2,570 2.15
1,391
2.94
237
4.03
Mortgage-Backed Securities
Obligations of State and
Political Subdivisions
Total Investment Portfolio
$
32,529
$
1.56% 193,860
$
1.58% 75,097
$
2.41% 22,172
2.35%
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 100
percent of its portfolio classified as available for sale.
At December 31, 2016, 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 1.79 percent in 2016 compared to 1.57 percent in
2015 and 1.71 percent in 2014. The increase in the average yield from 2015 to 2016 was primarily
attributed to the adjustment in amortization resulting from the deceleration of prepayment speeds. The
decrease in the average yield from 2014 to 2015 was primarily attributed to the adjustment in
amortization resulting from the acceleration of prepayment speeds.
86
Deposits
The following table presents the average amount outstanding and the average rate paid on deposits by
the Company for the years 2016, 2015 and 2014.
2016
2015
2014
Average
Amount
Average
Rate
Average
Amount
Average
Rate
Average
Amount
Average
Rate
$
140,338
$
128,541
$
118,452
469,740
383,628
0.36%
0.80%
430,731
417,080
0.35%
0.81%
394,615
445,993
0.35%
0.83%
Noninterest-Bearing
Demand Deposits
Interest-Bearing
Demand and Savings
Time Deposits
Total Deposits
$
993,706
0.48%
$
976,352
0.50%
$
959,060
0.53%
The following table presents the maturities of the Company’s time deposits as of December 31, 2016.
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
$ 31,113
30,844
61,656
59,998
$ 43,150
33,443
56,680
50,344
Total
$ 74,263
64,287
118,336
110,342
$ 183,611
$ 183,617
$ 367,228
Average deposits increased $17.35 million in 2016 compared to 2015 and increased $17.29 million in
2015 compared to 2014. The increase in 2016 included $39.01 million, or 9.06 percent in interest-
bearing demand and savings deposits while, at the same time noninterest bearing deposits increased
$11.80 million, or 9.18 percent and time deposits decreased $33.45 million, or 8.02 percent. The
increase in 2015 included $36.12 million, or 9.15 percent in interest-bearing demand and savings
deposits while, at the same time noninterest bearing deposits increased $10.09 million, or 8.52 percent
and time deposits decreased $28.91 million, or 6.48 percent. Accordingly, the ratio of average
noninterest-bearing deposits to total average deposits was 14.12 percent in 2016, 13.17 percent in 2015
and 12.35 percent in 2014. The general decrease in market rates in 2016 had the effect of (i)
decreasing the average cost of interest-bearing deposits by 2 basis points in 2016 compared to 2015
and (ii) mitigating a portion of the impact of decreasing yields on interest-earning assets in the
Company’s net interest income in 2016. The general decrease in market rates in 2015 had the effect of
(i) decreasing the average cost of interest-bearing deposits by 3 basis points in 2015 compared to 2014
and (ii) mitigating a portion of the impact of decreasing yields on interest-earning assets in the
Company’s net interest income in 2015.
87
Total average interest-bearing deposits increased $5.56 million, or 0.66 percent in 2016 compared to
2015 and increased $7.20 million, or 0.86 percent in 2015 compared to 2014. This increase was
primarily attributable to the increase in interest-bearing demand and savings accounts in 2016 and in
2015 as well.
The Company supplements deposit sources with brokered deposits. As of December 31, 2016, the
Company had $49.30 million, or 4.72 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, 2016. 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. The off-balance-sheet arrangements
for loan commitments consist of approximately $10 million in 1-4 residential home equity and
construction loans, $4 million in commercial real estate construction loans, $19 million in
commercial/industrial loans and $38 million in the overdraft privilege program.
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
$
-
7,500
-
85,794
$
-
2,500
-
15,859
1 Year or
Less
$
-
-
40
256,886
5 Years
or More
$ 24,229
36,000
-
8,689
Total
$ 24,229
46,000
40
367,228
$256,926
93,294
18,359
68,918
$437,497
71,359
1,551
72,910
-
-
-
-
-
-
-
-
-
71,359
1,551
72,910
Total Contractual Obligations and
Other Commitments
$329,836
$ 93,294
$ 18,359
$ 68,918
$510,407
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.
88
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.
in
Management assesses the credit risk associated with certain commitments to extend credit
determining the level of the allowance for loan losses. Loan commitments outstanding at December
31, 2016 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, 2016 are included in the preceding table.
Capital and Liquidity
At December 31, 2016, shareholders’ equity totaled $93.39 million compared to $95.46 million at
December 31, 2015. In addition to net income of $8.67 million, other significant changes in
shareholders’ equity during 2016 included $1.49 million of dividends declared on preferred stock and
$8.66 million redemption of preferred stock. The accumulated other comprehensive loss component of
stockholders’ equity totaled $(5.02) million at December 31, 2016 compared to $(4.43) million at
December 31, 2015. 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, 2016 was 15.50
percent and total Tier 1 and 2 risk-based capital was 16.64 percent. Both of these measures compare
favorably with the regulatory minimum of 6 percent for Tier 1 and 8 percent for total risk-based
capital. The Company’s common equity Tier 1 ratio as of December 31, 2016 was 11.32, which
exceeds the regulatory minimum of 4.50 percent. The Company’s Tier 1 leverage ratio as of
December 31, 2016 was 10.29 percent, which exceeds the required ratio standard of 4 percent.
89
For 2016, average capital was $100.11 million, representing 8.60 percent of average assets for the year.
This compares to 8.87 percent for 2015.
For 2016, the Company did not have any material commitments for capital expenditures.
The Company did not pay any common stock dividends in 2016 or 2015. The Company suspended
common stock dividend payments beginning in the third quarter of 2009 for capital retention purposes.
The Company declared dividends of $1,493 and $2,375 on preferred stock during 2016 and 2015,
respectively. On November 17, 2014 the Company reinstated dividend payments after being on
deferral since February 12, 2012, 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, 2016, the available for sale bond portfolio totaled $323.7 million. At December 31,
2015, the available for sale bond portfolio totaled $296.2 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 72.2 percent as of December
31, 2016 and 75.0 percent as of December 31, 2015. 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, 2016 and December 31, 2015 were 69.2 percent
and 72.1 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, 2016 and December 31, 2015, the Bank had $184 million and
$203 million, respectively, in certificates of deposit of $100,000 or more. These larger deposits
represented 17.6 percent and 20.1 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
90
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, 2016, the
Company had $49.3 million or 4.7 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, 2016, the Company
had $15.6 million, or 1.5 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.
91
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,
though given recent economic conditions, the Company has not experienced any material effects of
inflation during the last three fiscal years. 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
institution
United States government obligations, (ii) changing the discount rate on financial
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.
92
Market Risk and Interest Rate Sensitivity
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 3 ½ - 5 ½ year range.
Market risk reflects the risk of economic loss resulting from adverse changes in market prices and
interest rates. This risk of loss can be reflected in either reduced current market values or reduced
current and potential net income. Colony’s most significant market risk is interest rate risk. This risk
arises primarily from Colony’s extension of loans and acceptance of deposits.
Managing interest rate risk is a primary goal of the asset liability management function. Colony
attempts to achieve stability in net interest income while limiting volatility arising from changes in
interest rates. Colony seeks to achieve this goal by balancing the maturity and repricing characteristics
of assets and liabilities. Colony manages its exposure to fluctuations in interest rates through policies
established by ALCO and approved by the Board of Directors. ALCO meets at least quarterly and has
responsibility for developing asset liability management policies, reviewing the interest rate sensitivity
of Colony, and developing and implementing strategies to improve balance sheet structure and interest
rate risk positioning.
93
Colony measures the sensitivity of net interest income to changes in market interest rates through the
utilization of Asset/Liability simulation modeling. On at least a quarterly basis, the following twenty-
four month time period is simulated to determine a baseline net interest income forecast and the
sensitivity of this forecast to changes in interest rates. These simulations include all of Colony’s
earning assets and liabilities. Forecasted balance sheet changes, primarily reflecting loan and deposit
growth and forecasts, are included in the periods modeled. Projected rates for loans and deposits are
based on management’s outlook and local market conditions.
The magnitude and velocity of rate changes among the various asset and liability groups exhibit
different characteristics for each possible interest rate scenario; additionally, customer loan and deposit
preferences can vary in response to changing interest rates. Simulation modeling enables Colony to
capture the expected effect of these differences. Assumptions utilized in the model are updated on an
ongoing basis and are reviewed and approved by the ALCO Committee of the Board of Directors.
Colony has modeled its baseline net interest income forecast assuming a flat interest rate environment
with the federal funds rate at the Federal Reserve's current targeted range of 0.50% to 0.25% and the
current prime rate of 3.75%. Colony has modeled the impact of a gradual increase in short-term rates
of 100 and 200 basis points and a decline of 100 basis points to determine the sensitivity of net interest
income for the next twelve months. As illustrated in the table below, the net interest income sensitivity
model indicates that, compared with a net interest income forecast assuming stable rates, net interest
income is projected to increase by 1.88% and increase by 3.35% if interest rates increased by 100 and
200 basis points, respectively. Net interest income is projected to decline by 3.67% if interest rates
decreased by 100 basis points. These changes were within Colony’s policy limit of a maximum 15%
negative change.
Twelve Month Net Interest Income Sensitivity
Change in Short-term Interest Rates (in basis points)
+200
+100
Flat
-100
Estimated Change in Net Interest Income
As of December 31,
2016
3.35%
1.88%
- %
-3.67%
2015
-0.32%
0.13%
- %
-1.16%
The measured interest rate sensitivity indicates an asset sensitive position over the next year, which
could serve to improve net interest income in a rising interest rate environment. The actual realized
change in net interest income would depend on several factors, some of which could serve to reduce or
eliminate the asset sensitivity noted above. These factors include a higher than projected level of
deposit customer migration to higher cost deposits, such as certificates of deposit, which would
increase total interest expense and serve to reduce the realized level of asset sensitivity. Another factor
which could impact the realized interest rate sensitivity in a rising rate environment is the repricing
behavior of interest bearing non-maturity deposits. Assumptions for repricing are expressed as a beta
relative to the change in the prime rate. For instance, a 25% beta would correspond to a deposit rate
that would increase 0.25% for every 1% increase in the prime rate. Projected betas for interest bearing
non-maturity deposit repricing are a key component of determining the Company's interest rate risk
position. Should realized betas be higher than projected betas, the expected benefit from higher
interest rates would be reduced.
94
The net interest income simulation model is the primary tool utilized to evaluate potential interest rate
risks over a shorter term time horizon. Colony also evaluates potential longer term interest rate risk
through modeling and evaluation of economic value of equity (EVE). This EVE modeling allows
Colony to capture longer-term repricing risk and options risk embedded in the balance sheet.
Simulation modeling is utilized to measure the economic value of equity and its sensitivity to
immediate changes in interest rates. These simulations value only the current balance sheet and do not
incorporate growth assumptions used in the net interest income simulation. The economic value of
equity is the net fair value of assets and liabilities derived from the present value of future cash flows
discounted at current market interest rates. From this baseline valuation, Colony evaluates changes in
the value of each of these items in various interest rate scenarios to determine the net impact on the
economic value of equity. Key assumptions utilized in the model, namely loan prepayments, deposit
pricing betas, and non-maturity deposit durations have a significant impact on the results of the EVE
simulations.
As illustrated in the table below, the economic value of equity model indicates that, compared with a
valuation assuming stable rates, EVE is projected to increase by 9.59% and 16.27%, assuming an
immediate and sustained increase in interest rates of 100 and 200 basis points, respectively. The
primary reason for the increase in asset sensitivity from the prior year is a more aggressive assumption
regarding non-maturity deposit durations. Assuming an immediate 100 basis point decline in rates,
EVE is projected to decrease by 12.44%. These changes were within Colony’s policy except in the -
100 basis point change, which limits the maximum negative change in EVE to 10% of the base EVE.
We believe this projection outside of policy is mitigated by the unlikely reduction in interest rates due
to the current rate environment.
Economic Value of Equity Sensitivity
Immediate Change in Interest Rates
(in basis points)
+200
+100
-100
Estimated Change in EVE
As of December 31,
2016
16.27%
9.59%
-12.44%
2015
13.43%
8.62%
-7.74%
Colony is also subject to market risk in certain of its fee income business lines. Financial management
services revenues, which include trust, brokerage, and asset management fees, can be affected by risk
in the securities markets, primarily the equity securities market. A significant portion of the fees in
this unit are determined based upon a percentage of asset values. Weaker securities markets and lower
equity values have an adverse impact on the fees generated by these operations. Trading account
assets, maintained to facilitate brokerage customer activity, are also subject to market risk. This risk is
not considered significant, as trading activities are limited and subject to risk policy limits. Mortgage
banking income is also subject to market risk. Mortgage loan originations are sensitive to levels of
mortgage interest rates and therefore, mortgage banking income could be negatively impacted during a
period of rising interest rates. The extension of commitments to customers to fund mortgage loans also
subjects Colony to market risk. This risk is primarily created by the time period between making the
commitment and closing and delivering the loan. Colony seeks to minimize this exposure by utilizing
various risk management tools, the primary of which are forward sales commitments and best efforts
commitments.
95
The following table is an analysis of the Company’s interest rate-sensitivity position at December 31,
2016. 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
INTEREST-EARNING ASSETS:
Interest-Bearing Deposits
Investment Securities
Loans, Net of Unearned Income
Other Interest- Earning Assets
$ 46,345
3,298
133,589
3,010
$ -
4,494
131,037
-
$ 46,345
7,792
264,626
3,010
$ -
198,173
437,399
-
$ -
117,693
51,897
-
$ 46,345
323,658
753,922
3,010
Total Interest-Earning Assets
186,242
135,531
$321,773
635,572
169,590
$1,126,935
INTEREST-BEARING LIABILITIES:
Interest-Bearing Demand Deposits (1)
Savings (1)
Time Deposits
Other Borrowings
Subordinated Debentures
448,004
70,066
74,263
-
24,229
-
-
182,623
-
-
448,004
70,066
256,886
-
24,229
-
-
101,653
10,000
-
-
-
8,689
36,000
-
448,004
70,066
367,228
46,000
24,229
Total Interest-Bearing Liabilities
616,562
182,623
799,185
111,653
44,689
955,527
Interest Rate-Sensitivity Gap
(430,320)
(47,092)
(477,412)
523,919
124,901 $ 171,408
Cumulative Interest-Sensitivity Gap
$(430,320)
$(477,412)
$(477,412)
$ 46,507
$171,408
Interest Rate-Sensitivity Gap as a
Percentage of Interest-Earning Assets
Cumulative Interest Rate-Sensitivity
as a Percentage of Interest-Earning
Assets
(38.18)%
(4.18)% (42.36)% 46.49% 11.08%
(38.18)% (42.36)% (42.36)% 4.13% 15.21%
Interest-bearing Demand and Savings Accounts for repricing purposes are considered to reprice within 3 months or
(1)
less.
The foregoing table indicates that we had a one year negative gap of $477.4 million, or 42.36 percent
of total interest-earning assets at December 31, 2016. In theory, this would indicate that at December
31, 2016, $477.4 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 interest-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,
96
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 has established its one year gap to be 80
percent to 120 percent. The most recent analysis as of December 31, 2016 indicates a one year gap of
122 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 2016. 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.
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, 2016.
Net Interest Income –
Earnings at Risk
Equity at Risk
Rate
Shock
Policy
Limit
Immediate
Shock
(-) decrease bp
Immediate Shock
(+) increase bp
+/- 100 bp
+/- 200 bp
+/- 300 bp
+/- 400 bp
+/- 100 bp
+/- 200 bp
+/- 300 bp
+/- 400 bp
+/- 10%
+/- 15%
+/- 20%
+/- 25%
+/- 10%
+/- 20%
+/- 30%
+/- 40%
-3.83%
-9.39
-10.90
-12.53
-12.44
-28.91
-36.87
-37.08
2.01%
3.35
4.75
4.82
9.59
16.27
20.52
23.18
97
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
2015
2016
2014
0.62%
7.17%
7.72%
0.52%
5.90%
8.13%
0.43%
5.11%
8.63%
Common Stock Dividends Declared
$0.00
$0.00
$0.00
(1) Computed using net income available to common shareholders.
98
Vision
Colony Bank strives to be a high
performance community bank,
providing shareholders with a fair
return on their investment while
improving the quality of life in the
communities we serve.
Mission
Our mission can best be
accomplished by applying
sound banking principles in
corporate decision-making and
by providing our customers a
degree of highly personalized,
professional service that is
unmatched in the market.
SERVICE | STABILITY | SUCCESS
Colony Bankcorp, Inc. common stock is
quoted on the NASDAQ Global Market
under the symbol “CBAN.”
COLONY BANKCORP, INC.
SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS:
Colony Bankcorp, Inc.
P.O. Box 989
115 South Grant Street
Fitzgerald, Georgia 31750
229-426-6000
ANNUAL MEETING
Tuesday, May 23, 2017 at 2:00 p.m.
Colony Bankcorp, Inc.
115 South Grant Street
Fitzgerald, Georgia 31750
INDEPENDENT AUDITORS:
McNair, McLemore, Middlebrooks & Co., LLC
P.O. Box One
Macon, Georgia 31202
SHAREHOLDER SERVICES:
Shareholders who want to change the name,
address or ownership of stock; to report
lost, stolen or destroyed certifi cates; or to
consolidate accounts should contact:
American Stock Transfer & Trust Company
Operations Center
6201 15th Avenue
Brooklyn, NY 11219
800-937-5449
www.amstock.com
You belong here.
2016 Annual Report
Member FDIC
Colony Bankcorp, Inc.
P.O. Box 989 • 115 S. Grant St.
Fitzgerald, GA 31750
229-426-6000 • www.colonybank.com