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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR QUARTER ENDED SEPTEMBER 30, 2004

 

COMMISSION FILE NUMBER 0-12436

 

COLONY BANKCORP, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

 

GEORGIA   58-1492391
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
  (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)

 

115 SOUTH GRANT STREET, FITZGERALD, GEORGIA 31750

ADDRESS OF PRINCIPAL EXECUTIVE OFFICES

 

229/426-6000

REGISTRANT’S TELEPHONE NUMBER INCLUDING AREA CODE

 

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED REPORTS REQUIRED TO BE FILED BY SECTIONS 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.

 

YES x    NO ¨

 

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN RULE 12b-2 OF THE ACT)

 

YES x    NO ¨

 

INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER’S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.

 

CLASS


 

OUTSTANDING AT NOVEMBER 2, 2004


COMMON STOCK, $1 PAR VALUE   5,738,343

 



 

PART 1 – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

THE FOLLOWING FINANCIAL STATEMENTS ARE PROVIDED FOR COLONY BANKCORP, INC. AND SUBSIDIARIES: COLONY BANK OF FITZGERALD, COLONY BANK ASHBURN, COLONY BANK WILCOX, COLONY BANK OF DODGE COUNTY, COLONY BANK WORTH, COLONY BANK SOUTHEAST, COLONY MANAGEMENT SERVICES, INC., AND COLONY BANK QUITMAN, FSB.

 

  A. CONSOLIDATED BALANCE SHEETS – SEPTEMBER 30, 2004 AND DECEMBER 31, 2003.

 

  B. CONSOLIDATED STATEMENTS OF INCOME – FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003.

 

  C. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

 

  D. CONSOLIDATED STATEMENTS OF CASH FLOWS – FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003.

 

THE CONSOLIDATED FINANCIAL STATEMENTS FURNISHED HAVE NOT BEEN AUDITED BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, BUT REFLECT, IN THE OPINION OF MANAGEMENT, ALL ADJUSTMENTS NECESSARY FOR A FAIR PRESENTATION OF THE RESULTS OF OPERATIONS FOR THE PERIODS PRESENTED.

 

THE RESULTS OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 ARE NOT NECESSARILY INDICATIVE OF THE RESULTS TO BE EXPECTED FOR THE FULL YEAR.

 

2


 

COLONY BANKCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2004 AND DECEMBER 31, 2003

(DOLLARS IN THOUSANDS)

 

     Sept 30, 2004

    Dec 31, 2003

 
     (Unaudited)        

ASSETS

                

Cash and Balances Due from Depository Institutions

   $ 18,792     $ 22,355  

Interest-Bearing Deposits

     3,189       11,615  

Federal Funds Sold

     28,128       37,368  

Investment Securities

                

Available for Sale, at Fair Value

     105,036       110,327  

Held to Maturity, at Cost (Fair Value of $89 and $81, Respectively)

     89       81  
    


 


       105,125       110,408  
    


 


Federal Home Loan Bank Stock, at Cost

     3,402       3,000  

Loans Held for Sale

     1,559       1,677  

Loans

     777,363       654,210  

Allowance for Loan Losses

     (10,114 )     (8,516 )

Unearned Interest and Fees

     (35 )     (33 )
    


 


       767,214       645,661  
    


 


Premises and Equipment

     21,747       17,571  

Other Real Estate

     3,139       2,724  

Goodwill

     2,412       448  

Intangible Assets

     673       243  

Other Assets

     15,898       15,536  
    


 


Total Assets

   $ 971,278     $ 868,606  
    


 


LIABILITIES AND STOCKHOLDERS’ EQUITY

                

Deposits

                

Noninterest-Bearing

   $ 62,042     $ 64,043  

Interest-Bearing

     762,467       668,275  
    


 


       824,509       732,318  
    


 


Borrowed Money

                

Subordinated Debentures

     19,074       14,434  

Other Borrowed Money

     62,507       61,184  
    


 


       81,581       75,618  
    


 


Other Liabilities

     4,660       4,694  
    


 


Stockholders’ Equity

                

Common Stock, Par Value $1, Authorized 20,000,000 Shares, Issued 5,738,343 and 5,727,968 Shares as of September 30, 2004 and December 31, 2003, Respectively

     5,738       5,728  

Paid-In Capital

     23,713       23,499  

Retained Earnings

     31,513       26,857  

Restricted Stock - Unearned Compensation

     (250 )     (130 )

Accumulated Other Comprehensive Income, Net of Tax

     (186 )     22  
    


 


       60,528       55,976  
    


 


Total Liabilities and Stockholders’ Equity

   $ 971,278     $ 868,606  
    


 


 

The accompanying notes are an integral part of these statements.

 

3


 

COLONY BANKCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

(UNAUDITED)

(DOLLARS IN THOUSANDS)

 

     Three Months Ended

   Nine Months Ended

     9/30/2004

    9/30/2003

   9/30/2004

    9/30/2003

Interest Income

                             

Loans, including fees

   $ 12,256     $ 10,800    $ 34,763     $ 32,020

Federal Funds Sold

     89       53      227       274

Deposits with Other Banks

     13       40      59       120

Investment Securities

                             

U.S. Treasury & Federal Agencies

     792       536      2,441       1,543

State, County and Municipal

     63       77      229       240

Other Investments

     54       104      222       340

Dividends on Other Investments

     27       31      79       98
    


 

  


 

       13,294       11,641      38,020       34,635
    


 

  


 

Interest Expense

                             

Deposits

     3,904       3,673      10,873       11,995

Federal Funds Purchased

     1       0      4       1

Borrowed Money

     816       754      2,375       2,192
    


 

  


 

       4,721       4,427      13,252       14,188
    


 

  


 

Net Interest Income

     8,573       7,214      24,768       20,447

Provision for Loan Losses

     864       1,455      2,709       2,927
    


 

  


 

Net Interest Income After Provisions for loan losses

     7,709       5,759      22,059       17,520
    


 

  


 

Noninterest Income

                             

Service Changes on Deposits

     1,100       1,011      3,170       2,778

Other Service Changes, Commissions & Fees

     269       294      777       800

Security Gains (Losses), net

     (31 )     369      (31 )     369

Other Income

     253       422      768       1,482
    


 

  


 

       1,591       2,096      4,684       5,429
    


 

  


 

Noninterest Expense

                             

Salaries and Employee Benefits

     3,189       2,839      9,433       8,414

Occupancy and Equipment

     940       848      2,606       2,401

Other Operating Expenses

     2,095       1,606      5,630       4,562
    


 

  


 

       6,224       5,293      17,669       15,377
    


 

  


 

Income Before Income Taxes

     3,076       2,562      9,074       7,572

Income Taxes

     1,019       843      3,085       2,543
    


 

  


 

Net Income

   $ 2,057     $ 1,719    $ 5,989     $ 5,029
    


 

  


 

Net Income Per Share of Common Stock

                             

Basic

   $ 0.36     $ 0.30    $ 1.05     $ 0.88
    


 

  


 

Diluted

   $ 0.36     $ 0.30    $ 1.05     $ 0.88
    


 

  


 

Weighted Average Basic Shares Outstanding

     5,707,843       5,694,978      5,703,819       5,694,978
    


 

  


 

Weighted Average Diluted Shares Outstanding

     5,727,619       5,720,374      5,723,475       5,720,481
    


 

  


 

 

The accompanying notes are an integral part of these statements.

 

4


 

COLONY BANKCORP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

(UNAUDITED)

(DOLLARS IN THOUSANDS)

 

     Three Months Ended

    Nine Months Ended

 
     09/30/04

   09/30/03

    09/30/04

    09/30/03

 

Net Income

   $ 2,057    $ 1,719     $ 5,989     $ 5,029  

Other Comprehensive Income, Net of Tax

                               

Gains (Losses) on Securities Arising During Year

     857      (698 )     (228 )     (699 )

Reclassification Adjustment

     20      (244 )     20       (244 )
    

  


 


 


Unrealized Gains (Losses) on Securities

     877      (942 )     (208 )     (943 )
    

  


 


 


Comprehensive Income

   $ 2,934    $ 777     $ 5,781     $ 4,086  
    

  


 


 


 

The accompanying notes are an integral part of these statements.

 

5


 

COLONY BANKCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

(UNAUDITED)

(DOLLARS IN THOUSANDS)

 

     2004

    2003

 

CASH FLOW FROM OPERATING ACTIVITIES

                

Net Income

   $ 5,989     $ 5,029  

Adjustments to reconcile net income to net cash provided by operating activities:

                

(Gain) loss on sale of investment securities

     31       (369 )

Depreciation

     1,304       1,201  

Provision for loan losses

     2,709       2,927  

Amortization of excess costs

     107       117  

Other prepaids, deferrals and accruals, net

     (1,417 )     (3,923 )
    


 


Total Adjustments

     2,734       (47 )
    


 


Net cash provided by operating activities

     8,723       4,982  
    


 


CASH FLOW FROM INVESTING ACTIVITIES

                

Cash received in business acquistion, net

     14,377       0  

Purchase of other assets (FHLB stock)

     (402 )     (138 )

Purchases of securities available for sale

     (25,793 )     (63,394 )

Proceeds from sales of securities available for sale

     10,477       11,141  

Proceeds from maturities, calls, and paydowns of investment securities:

                

Available for Sale

     19,233       48,374  

Held to Maturity

     7       34  

Decrease (Increase) in interest-bearing deposits in banks

     8,426       130  

(Increase) in loans

     (105,482 )     (75,136 )

Purchase of premises and equipment

     (3,289 )     (1,473 )

Investment in Statutory Trust

     (140 )     0  

Investment in Other

     0       420  
    


 


Net cash provided by investing activities

     (82,586 )     (80,042 )
    


 


CASH FLOW FROM FINANCING ACTIVITIES

                

Net increase in deposits

     56,387       33,211  

Federal funds purchased

     0       0  

Dividends paid

     (1,290 )     (1,077 )

Net (decrease) increase in other borrowed money

     1,323       13,816  

Proceeds from issuance of subordinated debentures

     4,640       0  
    


 


Net cash provided by financing activities

     61,060       45,950  
    


 


Net increase (decrease) in cash and cash equivalents

     (12,803 )     (29,110 )

Cash and cash equivalents at beginning of period

     59,723       69,831  
    


 


Cash and cash equivalents at end of period

   $ 46,920     $ 40,721  
    


 


 

The accompanying notes are an integral part of these statements.

 

6


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(1) Summary of Significant Accounting Policies

 

Basis of presentation

 

Colony Bankcorp, Inc. is a multi-bank holding company located in Fitzgerald, Georgia. The consolidated financial statements include the accounts of Colony Bankcorp, Inc. and its wholly-owned subsidiaries, Colony Bank of Fitzgerald, Fitzgerald, Georgia; Colony Bank Ashburn, Ashburn, Georgia; Colony Bank Worth, Sylvester, Georgia; Colony Bank of Dodge County, Eastman, Georgia; Colony Bank Wilcox, Rochelle, Georgia; Colony Bank Southeast, Broxton, Georgia; Colony Bank Quitman, FSB, Quitman, Georgia (the Banks); and Colony Management Services, Inc., 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.

 

In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses, the valuation of real estate acquired in connection with foreclosure or in satisfaction of loans and the valuation of deferred tax assets.

 

In certain instances, amounts reported in prior years’ consolidated financial statements have been reclassified to conform to statement presentations selected for 2004. Such reclassifications had no effect on previously reported stockholders’ equity or net income.

 

All dollars in notes to consolidated financial statements are rounded to the nearest thousand.

 

Description of Business

 

The Banks provide a full range of retail and commercial banking services for consumers and small to medium size businesses primarily in South Georgia. Lending and investing activities are funded primarily by deposits gathered through its retail branch office network. Lending is concentrated in commercial and real estate loans to local borrowers. The Banks have a high concentration of real estate loans; however, these loans are well collateralized and in management’s opinion, do not pose an adverse credit risk. In addition, the balance of the loan portfolio is sufficiently diversified to avoid significant concentration of credit risk. Although the Banks have a diversified loan portfolio, a substantial portion of borrowers’ ability to honor their contracts is dependent upon the viability of the real estate economic sector.

 

The success of Colony is dependent, to a certain extent, upon the economic conditions in the geographic markets it serves. No assurance can be given that the current economic conditions will continue. 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 Colony 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.

 

Accounting Policies

 

The accounting and reporting policies of Colony Bankcorp, Inc. and its subsidiaries are in accordance with accounting principles generally accepted and conform to general practices within the banking industry. The significant accounting policies followed by Colony and the methods of applying those policies are summarized hereafter.

 

Investment Securities

 

Investment securities are recorded under Statement of Financial Accounting Standards (SFAS) No. 115, whereby the Banks classify their 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. 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 other 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 reported, net of deferred taxes, in accumulated other comprehensive income, a component of stockholders’ equity. Gains and losses from sales of securities available for sale are computed using the specific identification method. This caption 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.

 

7


(1) Summary of Significant Accounting Policies (Continued)

 

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 Statement of Financial Accounting Standards (SFAS) No. 115; accordingly, the provisions of SFAS No. 115 are not applicable to this investment. The FHLB stock is reported in the financial statements at cost. Dividend income is recognized when earned.

 

Loans Held for Sale

 

Loans held for sale consist primarily of mortgage loans in the process of being sold to a third party investor and are carried at the lower of cost or market value on an aggregate loan portfolio basis. Gains or losses realized on the sale of loans are recognized at the time of sale and are determined by the difference between the net sales proceeds and the carrying value of the loans sold. Gains and losses on sales of loans are included in noninterest income.

 

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. Interest income on loans is recognized using the effective interest method.

 

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.

 

Impaired loans are recorded under Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan and SFAS No. 118, Accounting by Creditors for Impairment of a Loan – Income Recognition and Disclosures. Impaired loans are loans for which principal and interest are unlikely to be collected in accordance with the original terms and, generally, represent loans delinquent in excess of 90 days which have been placed on nonaccrual status and for which collateral values are less than outstanding principal and interest. Small balance, homogenous loans are excluded from impaired loans.

 

Allowance for Loan Losses

 

The allowance method is used in providing for losses on loans. Accordingly, all loan losses decrease the allowance and all recoveries increase it. The provision for loan losses is based on factors which, in management’s judgment, deserve current recognition in estimating possible loan losses. Such factors considered by management include growth and composition of the loan portfolio, economic conditions and the relationship of the allowance for loan losses to outstanding loans.

 

An allowance for loan losses is maintained for all impaired loans. Provisions are made for impaired loans upon changes in expected future cash flows or estimated net realizable value of collateral. When determination is made that impaired loans are wholly or partially uncollectible, the uncollectible portion is charged-off.

 

Management believes the allowance for possible loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgment about information available to them at the time of their examination.

 

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

   15-40    Straight-Line and Accelerated

Furniture and Equipment

     5-10    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.

 

8


(1) Summary of Significant Accounting Policies (Continued)

 

Statement of Cash Flows

 

For reporting cash flows, cash and cash equivalents include cash on hand, noninterest-bearing amounts due from banks and federal funds sold. Cash flows from demand deposits, NOW accounts, savings accounts, loans and certificates of deposit are reported net.

 

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 purposes. Deferred tax assets and liabilities are recognized based on future tax consequences attributable to differences arising from the financial statement carrying values of assets and liabilities and their tax bases. The differences relate primarily to depreciable assets (use of different depreciation methods for financial statement and income tax purposes) and allowance for loan losses (use of the allowance method for financial statement purposes and the direct write-off method for tax purposes). In the event of changes in the tax laws, deferred tax assets and liabilities are adjusted in the period of the enactment of those changes, with effects included in the income tax provision. The Company and its subsidiaries file a consolidated federal income tax return. Each subsidiary pays its proportional share of federal income taxes to the Company based on its taxable income.

 

Other Real Estate

 

Other real estate generally represents real estate acquired through foreclosure and is initially recorded at the lower of cost or estimated market value at the date of acquisition. Losses from the acquisitions of property in full or partial satisfaction of debt are recorded as loan losses. Subsequent declines in value, routine holding costs and gains or losses upon disposition are included in other losses.

 

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 and are not reported in the consolidated statement of income but as a separate component of the equity section of the consolidated balance sheets. Such items are considered components of other comprehensive income. SFAS No. 130, Reporting Comprehensive Income, requires the presentation in the financial statements of net income and all items of other comprehensive income as total comprehensive income.

 

New Accounting Standards

 

SEC Staff Accounting Bulletin (SAB) No. 105 “Application of Accounting Principles to Loan Commitments.” SAB 105 summarizes the views of the staff of the SEC regarding the application of generally accepted accounting principles to loan commitments accounted for as derivate instruments. SAB 105 provides that the fair value of recorded loan commitments that are accounted for as derivates under SFAS 133, “Accounting for Derivate Instruments and Hedging Activities,” should not incorporate the expected future cash flows related to the associated servicing of the future loan. In addition, SAB 105 requires registrants to disclose their accounting policy for loan commitments. The provisions of SAB 105 must be applied to loan commitments accounted for as derivates that are entered into after March 31, 2004. The adoption of this accounting standard did not have a material impact on the Corporation’s financial statements.

 

Emerging Issues Task Force (EITF) Issue 03-1. “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” EITF 03-1 provides guidance for determining when an investment is considered impaired, whether impairment is other-that-temporary, and measurement of an impairment loss. An investment is considered impaired if the fair value of the investment is less than its cost. Generally, an impairment is considered other-than-temporary unless; (i) the investor has the ability and intent to hold an investment for a reasonable period of time sufficient for an anticipated recovery of fair value up to (or beyond) the cost of the investment; and (ii) evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. If impairment is determined to be other-than-temporary, then an impairment loss should be recognized equal to the difference between the investment’s cost and its fair value. The recognition and measurement provisions were initially effective for other-than-temporary impairment evaluations in reporting periods beginning after June 15, 2004. However, in September 2004, the effective date of these provisions was delayed until the finalization of a FASB Staff Position (FSP) to provide additional implementation guidance. Currently, the FASB expects to issue the FSP no later than December 2004.

 

Restricted Stock – Unearned Compensation

 

In 1999, the board of directors of Colony Bankcorp, Inc. adopted a restricted stock grant plan which awards certain executive officers common shares of the Company. The maximum number of shares which may be subject to restricted stock awards is 48,787 (split adjusted). During 2000, 2001, 2002, 2003, and 2004, 5,250, 5,250, 7,500, 10,150 and 12,250 shares were issued under this plan, respectively. Of the shares issued, 3,425 were forfeited due to non-vesting. The shares are recorded at fair market value (on the date granted) as a separate component of stockholders’ equity. The cost of these shares is being amortized against earnings using the straight-line method over 3 years (the restriction period).

 

9


(1) Summary of Significant Accounting Policies (Continued)

 

In April 2004, the shareholders of Colony Bankcorp, Inc. adopted a restricted stock grant plan which awards certain executive officers common shares of the Company. The maximum number of shares which may be subject to restricted stock awards is 114,800. No shares have been issued pursuant to this stock grant plan.

 

(2) Cash and Balances Due from Depository Institutions

 

Components of cash and balances due from depository institutions at September 30, 2004 and December 31, 2003 are as follows:

 

     September 30, 2004

   December 31, 2003

Cash on Hand and Cash Items

   $ 9,349    $ 8,085

Noninterest-Bearing Deposits with Other Banks

     9,443      14,270
    

  

     $ 18,792    $ 22,355
    

  

 

As of September 30, 2004, the Banks had required deposits of approximately $2,932 with the Federal Reserve.

 

(3) Investment Securities

 

Investment securities as of September 30, 2004 are summarized as follows:

 

     Amortized
Cost


   Gross
Unrealized
Gains


   Gross
Unrealized
Losses


    Fair
Value


Securities Available for Sale:

                            

U.S. Government Agencies

                            

Mortgage-Backed

   $ 72,211    $ 133      ($735 )   $ 71,609

Other

     23,110      180      (14 )     23,276

State, County & Municipal

     6,876      139      (8 )     7,007

Corporate Obligations

     3,121      23      0       3,144
    

  

  


 

     $ 105,318    $ 475      ($757 )   $ 105,036
    

  

  


 

Securities Held to Maturity:

                            

State, County and Municipal

   $ 89    $ 0    $ 0     $ 89
    

  

  


 

 

The amortized cost and fair value of investment securities as of September 30,2004, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers have the right to call or prepay obligations with or without call or prepayment penalties.

 

     Securities

     Available for Sale

   Held to Maturity

     Amortized Cost

   Fair Value

   Amortized Cost

   Fair Value

Due in One Year or Less

   $ 821    $ 833    $ 0    $ 0

Due After One Year Through Five Years

     25,213      25,388      0      0

Due After Five Years Through Ten Years

     5,085      5,150      0      0

Due After Ten Years

     1,988      2,056      89      89
    

  

  

  

       33,107      33,427      89      89

Mortgage-Backed Securities

     72,211      71,609      0      0
    

  

  

  

     $ 105,318    $ 105,036    $ 89    $ 89
    

  

  

  

 

10


(3) Investment Securities (Continued)

 

Investment securities as of December 31, 2003 are summarized as follows:

 

     Amortized
Cost


   Gross
Unrealized
Gains


   Gross
Unrealized
Losses


    Fair Value

Securities Available for Sale:

                          

U.S. Government Agencies

                          

Mortgage-Backed Securities

   $ 75,485    $ 246    ($558 )   $ 75,173

Other

     17,621      226    (2 )     17,845

State, County & Municipal

     9,579      236    (6 )     9,809

Corporate Obligations

     6,384      181    (9 )     6,556

Marketable Equity Securities

     1,130      0    (186 )     944
    

  

  

 

     $ 110,199    $ 889    ($761 )   $ 110,327
    

  

  

 

Securities Held to Maturity:

                          

State, County and Municipal

   $ 81    $ 0    $0     $ 81
    

  

  

 

 

Proceeds from the sale of investments available for sale during nine months ended September 30, 2004 was $10,477 and during nine months ended September 30, 2003 was $11,141.

 

Investment securities having a carry value approximating $64,224 and $56,611 as of September 30, 2004 and December 31, 2003, respectively, were pledged to secure public deposits and for other purposes.

 

(4) Loans

 

The composition of loans as of September 30, 2004 and December 31, 2003 was as follows:

 

     September 30,
2004


   December 31,
2003


Commercial, Financial and Agricultural

   $ 52,393    $ 44,590

Real Estate – Construction

     95,846      56,374

Real Estate – Farmland

     36,396      33,097

Real Estate – Other

     495,034      428,197

Installment Loans to Individuals

     76,681      73,020

All Other Loans

     21,013      18,932
    

  

     $ 777,363    $ 654,210
    

  

 

Nonaccrual loans are loans for which principal and interest are doubtful of collection in accordance with original loan terms and for which accruals of interest have been discontinued due to payment delinquency. Nonaccrual loans totaled $7,073 and $7,251 as of September 30, 2004 and December 31, 2003, respectively. On September 30, 2004, the Company had 90 day past due loans with principal balances of $1,104 compared to 90 day past due loans with principal balances of $241 on December 31, 2003.

 

(5) Allowance for Loan Losses

 

Transactions in the allowance for loan losses are summarized below for nine months ended September 30, 2004 and September 30, 2003 as follows:

 

     Sept 30, 2004

    Sept 30, 2003

 

Balance, Beginning

   $ 8,516     $ 7,364  

Provision Charged to Operating Expenses

     2,709       2,927  

Loans Charged Off

     (1,249 )     (2,672 )

Loan Recoveries

     138       129  
    


 


Balance, Ending

   $ 10,114     $ 7,748  
    


 


 

11


(6) Premises and Equipment

 

Premises and equipment are comprised of the following as of September 30, 2004 and December 31, 2003:

 

     September 30, 2004

    December 31, 2003

 

Land

   $ 4,893     $ 2,837  

Building

     16,445       13,874  

Furniture, Fixtures and Equipment

     11,919       10,928  

Leasehold Improvements

     744       678  

Construction in Progress

     343       551  
    


 


       34,344       28,868  
    


 


Accumulated Depreciation

     (12,597 )     (11,297 )
    


 


     $ 21,747     $ 17,571  
    


 


 

Depreciation charged to operations totaled $1,304 and $1,201 for nine months ended September 30, 2004 and September 30, 2003, respectively.

 

Certain Company facilities and equipment are leased under various operating leases. Rental expense approximated $128 and $87 for nine months ended September 30, 2004 and 2003.

 

(7) Income Taxes

 

The Company records income taxes under SFAS No. 109, Accounting for Income Taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

 

(8) Deposits

 

Components of interest-bearing deposits as of September 30, 2004 and December 31, 2003 are as follows:

 

     September 30, 2004

   December 31, 2003

Interest-Bearing Demand

   $ 152,104    $ 149,518

Savings

     39,421      33,513

Time, $100,000 and Over

     198,083      163,036

Other Time

     372,859      322,208
    

  

     $ 762,467    $ 668,275
    

  

 

The aggregate amount of short-term jumbo certificates of deposit, each with a minimum denomination of one hundred thousand, was approximately $174,976 and $149,154 as of September 30, 2004 and December 31, 2003, respectively.

 

As of September 30, 2004 and December 31, 2003, the scheduled maturities of certificates of deposits are as follows:

 

Maturity


   September 30, 2004

   December 31, 2003

One Year and Under

   $ 508,139    $ 412,897

One to Three Years

     43,974      57,378

Three Years and Over

     18,829      14,969
    

  

     $ 570,942    $ 485,244
    

  

 

12


(9) Borrowed Money

 

Borrowed money at September 30, 2004 and December 31, 2003 is summarized as follows:

 

     September 30, 2004

   December 31, 2003

Federal Home Loan Bank Advances

   $ 62,000    $ 59,500

First Port City Note Payable

     0      1,000

The Banker’s Bank Note Payable

     507      684
    

  

     $ 62,507    $ 61,184
    

  

 

Advances from the Federal Home Loan Bank (FHLB) have maturities ranging from 2004 to 2013 and interest rates ranging from 2.46 percent to 5.93 percent. Under the Blanket Agreement for Advances and Security Agreement with the FHLB, residential first mortgage loans, commercial real estate loans and cash balances held by the FHLB are pledged as collateral for the FHLB advances outstanding. At September 30, 2004, the Company had available line of credit commitments totaling $88,894, of which $26,894 was available.

 

First Port City note payable was originated on December 30, 2003 for $1,000. Annual principal payments of $250 are due beginning January 1, 2005 with interest paid quarterly at the Wall Street Prime beginning April 10, 2004. The debt is secured by 250 shares of capital stock in Colony Bank Wilcox. The note payable was paid off during second quarter 2004 from proceeds of Trust Preferred Securities issued in June 2004.

 

The Banker’s Bank note payable was renewed on January 7, 2002 for $1,113 at a rate of the Wall Street Prime minus one half percent. Payments are due monthly in the amount of $21 with final maturity of January 7, 2007. The debt is secured by all non-rolling fixed assets of Colony Management Services, Inc. and the guaranty of Colony Bankcorp, Inc.

 

The aggregate stated maturities of borrowed money at September 30, 2004 are as follows:

 

Year


   Amount

2004

   $ 63

2005

     5,746

2006

     3,198

2007

     2,500

2008 and Thereafter

     51,000
    

     $ 62,507
    

 

(10) Subordinated Debentures (Trust Preferred Securities)

 

During the first quarter of 2002, the Company formed a subsidiary whose sole purpose was to issue $9,000 in Trust Preferred Securities through a pool sponsored by FTN Financial Capital Market. The Trust Preferred Securities have a maturity of 30 years and are redeemable after five years with certain exceptions. At September 30, 2004, the floating-rate securities had a 5.55 percent interest rate, which will reset quarterly at the three-month LIBOR rate plus 3.60 percent.

 

During the fourth quarter of 2002, the Company formed a second subsidiary whose sole purpose was to issue $5,000 in Trust Preferred Securities through a pool sponsored by FTN Financial Capital Market. The Trust Preferred Securities have a maturity of 30 years and are redeemable after five years with certain exceptions. At September 30, 2004, the floating-rate securities had a 5.20 percent interest rate, which will reset quarterly at the three-month LIBOR rate plus 3.25 percent.

 

During the second quarter of 2004, the Company formed a third subsidiary whose sole purpose was to issue $4,500 in Trust Preferred Securities through a pool sponsored by FTN Financial Capital Market. The Trust Preferred Securities have a maturity of 30 years and are redeemable after five years with certain exceptions. At September 30, 2004, the floating rate securities had a 4.57 percent interest rate, which will reset quarterly at the three-month LIBOR rate plus 2.68 percent.

 

The Trust Preferred Securities are recorded as a liability on the balance sheet, but subject to certain limitations qualify as Tier 1 Capital for regulatory capital purposes. The proceeds from the offering were used to fund the cash portion of the Quitman acquisition, payoff holding company debt, and inject capital into bank subsidiaries.

 

On December 31, 2003, the Company retroactively implemented FASB Interpretation No. 46R, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51, resulting in the deconsolidation of Colony Bankcorp Statutory Trusts I and II. The implementation of this interpretation resulted in Colony’s $434 investment in the common equity of the trusts being included in the consolidated balance sheets as other assets and the interest income and interest expense received from and paid to the trusts,

 

13


(10) Subordinated Debentures (Trust Preferred Securities) (continued)

 

respectively, being included in the consolidated statements of income as other income and interest expense. The increase to other income and interest expense totaled $17 and $16 for the nine months ended September 30, 2004 and 2003, respectively.

 

(11) Derivative Financial Instruments

 

On July 1, 2003, the Company adopted SFAS No. 149, Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities. This statement requires that all derivates be recognized as assets or liabilities in the balance sheet and measured at fair value. Loan commitments related to the origination or acquisition of mortgage loans that will be held for sale must be accounted for as derivative instruments.

 

The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (rate lock commitments). Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. Accordingly, such commitments, along with related fees received from potential borrowers, are to be recorded at fair value in derivative assets or liabilities, with changes in fair value recorded in the net gain or loss on sale of mortgage loans. Fair value is based on fees currently charged to enter into similar agreements, and for fixed-rate commitments also considers the difference between current levels of interest rates and the committed rates. The company has not recorded rate lock commitments as derivative assets or liabilities as of September 30, 2004 as the effects did not have a material effect upon the consolidated financial statements.

 

(12) Profit Sharing Plan

 

The Company has a profit sharing plan that covers substantially all employees who meet certain age and service requirements. It is the Company’s policy to make contributions to the plan as approved annually by the board of directors. The total provision for contributions to the plan was $476 for 2003, $427 for 2002 and $384 for 2001.

 

(13) Commitments and Contingencies

 

In the normal course of business, certain commitments and contingencies are incurred which are not reflected in the consolidated financial statements. Commitments under standby and performance letters of credit to U.S. addresses approximate $2,158 as of September 30, 2004 and $2,032 as of December 31, 2003. Unfulfilled loan commitments as of September 30, 2004 and December 31, 2003 approximated $93,122 and $73,993, respectively. No losses are anticipated as a result of commitments and contingencies.

 

At September 30, 2004, the company had an outstanding commitment of approximately $1,000,000 to construct and furnish a second office in Valdosta. As of September 30, 2004, approximately $144 has been advanced for construction in progress. Anticipated opening of the office is during first quarter 2005.

 

(14) Deferred Compensation Plan

 

Two of the Bank subsidiaries have deferred compensation plans covering directors choosing to participate through individual deferred compensation contracts. In accordance with terms of the contracts, the Banks are committed to pay the directors deferred compensation over a specified number of years, beginning at age 65. In the event of a director’s death before age 65, payments are made to the director’s named beneficiary over a specified number of years, beginning on the first day of the month following the death of the director.

 

Liabilities accrued under the plans totaled $945 and $878 as of September 30, 2004 and December 31, 2003, respectively. Benefit payments under the contracts were $132 and $50 for the nine month period ended September 30, 2004 and September 30, 2003, respectively. Provisions charged to operations totaled $164 and $106 for the nine month period ended September 30, 2004 and September 30, 2003.

 

(15) Regulatory Capital Matters

 

The amount of dividends payable to the parent company from the subsidiary banks is limited by various banking regulatory agencies. Upon approval by regulatory authorities, the banks may pay cash dividends to the parent company in excess of regulatory limitations.

 

The Company is subject to various regulatory capital requirements administered by 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

 

14


(15) Regulatory Capital Matters (continued)

 

accounting practices. The Company’s capital amounts and classifications 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 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. The amounts and ratios as defined in regulations are presented hereafter. Management believes, as of September 30, 2004, the Company meets all capital adequacy requirements to which it is subject and is classified as well capitalized under the regulatory framework for prompt corrective action. In the opinion of management, there are no conditions or events since prior notification of capital adequacy from the regulators that have changed the institution’s category.

 

     Actual

    For Capital
Adequacy
Purposes


    To Be Well Capitalized
Under Prompt Corrective
Action Provisions


 
     Amount

   Ratio

    Amount

   Ratio

    Amount

   Ratio

 

As of September 30, 2004

                                       

Total Capital to Risk-Weighted Assets

   $ 85,683    11.22 %   $ 61,102    8.00 %   $ 76,378    10.00 %

Tier 1 Capital to Risk-Weighted Assets

     76,129    9.97 %     30,551    4.00 %     45,827    6.00 %

Tier 1 Capital to Average Assets

     76,129    7.99 %     38,098    4.00 %     47,622    5.00 %

As of December 31, 2003

                                       

Total Capital to Risk-Weighted Assets

   $ 77,140    12.06 %   $ 51,171    8.00 %   $ 63,964    10.00 %

Tier 1 Capital to Risk-Weighted Assets

     69,140    10.81 %     25,584    4.00 %     38,376    6.00 %

Tier 1 Capital to Average Assets

     69,140    8.12 %     34,059    4.00 %     42,574    5.00 %

 

15


(16) Financial Information of Colony Bankcorp, Inc. (Parent Only)

 

The parent company’s balance sheets as of September 30, 2004 and December 31, 2003 and the related statements of income and comprehensive income and cash flows are as follows:

 

COLONY BANKCORP, INC. (PARENT ONLY)

BALANCE SHEETS

FOR PERIOD ENDED SEPTEMBER 30, 2004 AND DECEMBER 31, 2003

 

     Sept 30, 2004

    Dec 31, 2003

 
     (Unaudited)        

ASSETS

                

Cash

   $ 1,014     $ 15  

Investments in Subsidiaries at Equity

     77,360       69,987  

Other

     1,780       1,997  
    


 


Totals Assets

   $ 80,154     $ 71,999  
    


 


LIABILITIES AND STOCKHOLDERS’ EQUITY

                

Liabilities

                

Dividends Payable

     459     $ 415  

Other

     93       174  
    


 


       552       589  
    


 


Other Borrowed Money

     0       1,000  
    


 


Subordinated Debt

     19,074       14,434  
    


 


Stockholders’ Equity

                

Common Stock, Par Value $1 a Share; Authorized 20,000,000 Shares, Issued 5,738,343 and 5,727,968 Shares as of September 30, 2004 and December 31, 2003 Respectively

     5,738       5,728  

Paid-In Capital

     23,713       23,499  

Retained Earnings

     31,513       26,857  

Restricted Stock - Unearned Compensation

     (250 )     (130 )

Accumulated Other Comprehensive Income, Net of Tax

     (186 )     22  
    


 


Total Stockholders’ Equity

     60,528       55,976  
    


 


Total Liabilities and Stockholders’ Equity

   $ 80,154     $ 71,999  
    


 


 

16


(16) Financial Information of Colony Bankcorp, Inc. (Parent Only) (continued)

 

COLONY BANKCORP, INC. (PARENT ONLY)

STATEMENT OF INCOME AND COMPREHENSIVE INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND SEPTEMBER 30, 2003

(UNAUDITED)

 

    

SEPTEMBER 30,

2004


   

SEPTEMBER 30,

2003


 

Income

                

Dividends from Subsidiaries

   $ 1,942     $ 1,816  

Other

     49       48  
    


 


       1,991       1,864  
    


 


Expenses

                

Interest

     600       515  

Other

     1,067       980  
    


 


       1,667       1,495  
    


 


Income Before Taxes and Equity in Undistributed Earnings
of Subsidiaries

     324       369  

Income Tax (Benefits)

     (524 )     (477 )
    


 


Income Before Taxes and Equity in Undistributed Earnings of Subsidiaries

     848       846  

Equity in Undistributed Earnings of Subsidiaries

     5,141       4,183  
    


 


Net Income

     5,989       5,029  
    


 


Other Comprehensive Income, Net of Tax

                

Gains (losses) on Securities Arising During Year

     (228 )     (699 )

Reclassification Adjustment

     20       (244 )
    


 


Unrealized Gains (Losses) in Securities

     (208 )     (943 )
    


 


Comprehensive Income

   $ 5,781     $ 4,086  
    


 


 

17


(16) Financial Information of Colony Bankcorp, Inc. (Parent Only) (continued)

 

COLONY BANKCORP, INC. (PARENT ONLY)

STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND SEPTEMBER 30, 2003

(UNAUDITED)

 

    

September 30,

2004


   

September 30,

2003


 

Cash Flows from Operating Activities

                

Net Income

   $ 5,989     $ 5,029  

Adjustments to Reconcile Net Income to Net Cash
Provided from Operating Activities

                

Depreciation and Amortization

     61       62  

Equity in Undistributed Earnings of Subsidiary

     (5,141 )     (4,183 )

Other

     195       (166 )
    


 


       1,104       742  
    


 


Cash Flows from Investing Activities

                

Cash used in business acquistion, net

     0       0  

Capital Infusion in Subsidiary

     (2,300 )     (125 )

Purchase of Premises and Equipment

     (15 )     (236 )

Investment in Statutory Trust

     (140 )     0  
    


 


       (2,455 )     (361 )
    


 


Cash Flows from Financing Activities

                

Dividends Paid

     (1,290 )     (1,077 )

Purchase of Treasury Stock

     0       0  

Principal Payments on Notes and Debentures

     (1,000 )     0  

Proceeds from Notes and Debentures

     4,640       0  
    


 


       2,350       (1,077 )
    


 


Increase (Decrease) in Cash and Cash Equivalents

     999       (696 )

Cash and Cash Equivalents, Beginning

     15       745  
    


 


Cash and Cash Equivalents, Ending

   $ 1,014     $ 49  
    


 


 

(17) Legal Contingencies

 

In the ordinary course of business, there are various legal proceedings pending against Colony and its subsidiaries. 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.

 

(18) Stock Grant Plan

 

On February 16, 1999, a restricted stock grant plan was approved by the Board. The plan was adopted for the purpose of establishing incentives designed to recognize, reward and retain executive employees whose performance, contribution and skills are critical to the Company. The plan period commenced February 16, 1999 and ends February 15, 2009 with the maximum number of shares subject to restricted stock awards being 48,787 (split-adjusted). During 2000 – 2004, the Company has issued an aggregate total of 40,400 shares pursuant to the stock grant plan, of which 3,425 shares have been forfeited, which leaves 11,812 available shares that can be issued over the remaining life of the plan.

 

On April 27, 2004, a restricted stock grant plan was approved by the shareholders of Colony Bankcorp, Inc. The plan was adopted for the purpose of establishing incentives designed to recognize, reward and retain executive employees whose performance, contribution and skills are critical to the Company. The plan period commences February 17, 2004 and ends February 16, 2014 with the maximum number of shares subject to restricted stock awards being 114,800. No shares have been issued pursuant to this stock grant plan.

 

18


(19) Proforma Financial Statement – Business Combination

 

Colony Bankcorp Inc.’s wholly-owned subsidiary, Colony Bank Ashburn and Flag Bank entered into a Purchase and Assumption Agreement for Flag Bank’s Thomaston Office dated as of December 19, 2003, pursuant to which Flag Bank-Thomaston was merged with and into Colony Bank Ashburn, becoming a branch office of Colony Bank Ashburn contemporaneous with the consummation of the purchase. The purchase was consummated and became effective as of March 19, 2004. The business combination was accounted for by the purchase method of accounting and the results of operations of Flag Bank-Thomaston office since the date of acquisition are included in the Consolidated Financial Statements.

 

Following is a condensed balance sheet showing fair values of the assets acquired and the liabilities assumed as of the date of acquisition:

 

Cash Due from Banks and Federal Funds Sold

   $ 14,377  

Loans, net

     16,759  

Premises and Equipment

     2,188  

Goodwill Arising in Acquisition

     1,944  

Core Deposit Intangible

     536  

Other Assets

     54  

Deposits

     (35,804 )

Other Liabilities

     (54 )
    


Net Assets Acquired

   $ 0  
    


 

The proforma information below discloses results of operations for the current period and the corresponding period in the preceding year as though the companies had combined at January 1, 2003:

 

     Three Months Ended

   Nine Months Ended

     Sept 30, 2004

   Sept 30, 2003

   Sept 30, 2004

   Sept 30, 2003

Interest Income

   $ 13,294    $ 12,060    $ 38,343    $ 35,958

Interest Expense

     4,721      4,810      13,379      14,959

Net Income

     2,057      1,734      6,062      5,060

Earnings Per Share - Basic

   $ 0.36    $ 0.30    $ 1.06    $ 0.89

Earnings Per Share - Diluted

   $ 0.36    $ 0.30    $ 1.06    $ 0.89

Weighted Avg Shares Outstanding - Basic

     5,707,843      5,694,978      5,703,819      5,694,978

Weighted Avg Shares Outstanding - Diluted

     5,727,619      5,720,374      5,723,475      5,720,481

 

19


(20) Earnings Per Share

 

SFAS No. 128 establishes standards for computing and presenting basic and diluted earnings per share. Basic earnings per share is calculated and presented based on income available to common stockholders divided by the weighted average number of shares outstanding during the reporting periods. Diluted earnings per share reflects the potential dilution of restricted stock. The following presents earnings per share for the three months and nine months ended September 30, 2004 and 2003, respectively, under the requirements of Statement 128:

 

    

Three Months Ended

September 30, 2004


  

Three Months Ended

September 30, 2003


    

Income

Numerator


   Common
Shares
Denominator


   EPS

  

Income

Numerator


   Common
Shares
Denominator


   EPS

Basic EPS

                                     

Income Available to Common Stockholders

   $ 2,057    5,708    $ 0.36    $ 1,719    5,695    $ 0.30
    

       

  

       

Dilutive Effect of Potential Common Stock

                                     

Restricted Stock

          20                  25       
           
                
      

Diluted EPS

                                     

Income Available to Common Stockholders after Assumed Conversions of Dilutive Securities

   $ 2,057    5,728    $ 0.36    $ 1,719    5,720    $ 0.30
    

  
  

  

  
  

    

Nine Months Ended

September 30, 2004


  

Nine Months Ended

September 30, 2003


     Income
Numerator


   Common
Shares
Denominator


   EPS

   Income
Numerator


   Common
Shares
Denominator


   EPS

Basic EPS

                                     

Income Available to Common Stockholders

   $ 5,989    5,704    $ 1.05    $ 5,029    5,695    $ 0.88
    

       

  

       

Dilutive Effect of Potential Common Stock

                                     

Restricted Stock

          19                  25       
           
                
      

Diluted EPS

                                     

Income Available to Common Stockholders after Assumed Conversions of Dilutive Securities

   $ 5,989    5,723    $ 1.05    $ 5,029    5,720    $ 0.88
    

  
  

  

  
  

 

20


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 Quarterly Report that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”), notwithstanding that such statements are not specifically identified. In addition, certain statements may be contained in the Company’s future filings with the SEC, in press releases, and in oral and written statements made by or with the approval of the Company that are not statements of historical fact and constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans and objectives of Colony Bankcorp, Inc. or its management or Board of Directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as “believes”, “anticipates”, “expects”, “intends”, “targeted” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

 

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

 

  Local and regional economic conditions and the impact they may have on the Company and its customers and the Company’s assessment of that impact.

 

  Changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements.

 

  The effects of and changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board.

 

  Inflation, interest rate, market and monetary fluctuations.

 

  Political instability.

 

  Acts of war or terrorism.

 

  The timely development and acceptance of new products and services and perceived overall value of these products and services by users.

 

  Changes in consumer spending, borrowings and savings habits.

 

  Technological changes.

 

  Acquisitions and integration of acquired businesses.

 

  The ability to increase market share and control expenses.

 

  The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which the Company and its subsidiaries must comply.

 

  The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Financial Accounting Standards Board and other accounting standard setters.

 

  Changes in the Company’s organization, compensation and benefit plans.

 

  The costs and effects of litigation and of unexpected or adverse outcomes in such litigation.

 

  Greater than expected costs or difficulties related to the integration of new lines of business.

 

  The Company’s success at managing the risks involved in the foregoing items.

 

21


Forward-looking statements speak only as of the date on which such statements are made. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events.

 

The Company

 

Colony Bankcorp, Inc. (Colony) is a bank holding company headquartered in Fitzgerald, Georgia that provides, through its wholly owned subsidiaries (collectively referred to as the “Company”), a broad array of products and services throughout 18 Georgia markets. The Company offers commercial, consumer and mortgage banking services.

 

Application of Critical Accounting Policies and Accounting Estimates

 

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the banking industry. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company’s financial position and/or results of operations. Critical accounting policies are those policies that management believes are the most important to the portrayal of the Company’s financial condition and results of operations, and they require management to make estimates that are difficult, subjective or complete.

 

Allowance for Loan Losses – The allowance for loan losses provides coverage for probable losses inherent in the Company’s loan portfolio. Management evaluates the adequacy of the allowance for loan losses quarterly based on changes, if any, in underwriting activities, the loan portfolio composition (including product mix and geographic, industry or customer-specific concentrations), trends in loan performance, regulatory guidance and economic factors. This evaluation is inherently subjective, as it requires the use of significant management estimates. Many factors can affect management’s estimates of specific and expected losses, including volatility of default probabilities, collateral values, rating migrations, loss severity and economic and political conditions. The allowance is increased through provisions charged to operating earnings and reduced by net charge-offs.

 

The company determines the amount of the allowance based on relative risk characteristics of the loan portfolio. The allowance recorded for loans is based on reviews of individual credit relationships and historical loss experience. The allowance for losses relating to impaired loans is based on the loan’s observable market price, the discounted cash flows using the loan’s effective interest rate, or the value of collateral for collateral dependent loans.

 

Regardless of the extent of the Company’s analysis of customer performance, portfolio trends or risk management processes, certain inherent but undetected losses are probable within the loan portfolio. This is due to several factors, including inherent delays in obtaining information regarding a customer’s financial condition or changes in their unique business conditions, the judgmental nature of individual loan evaluations, collateral assessments and the interpretation of economic trends. Volatility of economic or customer-specific conditions affecting the identification and estimation of losses for larger nonhomogeneous credits and the sensitivity of assumptions utilized to establish allowances for homogeneous groups of loans are among other factors. The Company estimates a range of inherent losses related to the existence of these exposures. The estimates are based upon the Company’s evaluation of risk associated with the commercial and consumer levels and the estimated impact of the current economic environment.

 

Goodwill and Other Intangibles – The Company records all assets and liabilities acquired in purchase acquisitions, including goodwill and other intangibles, at fair value as required by SFAS 141. Goodwill is subject, at a minimum, to annual tests for impairment. Other intangible assets are amortized over their estimated useful lives using straight-line and accelerated methods, and are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount. The initial goodwill and other intangibles recorded and subsequent impairment analysis require management to make subjective judgments concerning estimates of how the acquired asset will perform in the future. Events and factors that may significantly affect the estimates include, among others, customer attrition, changes in revenue growth trends, specific industry conditions and changes in competition.

 

Overview

 

The following discussion and analysis presents the more significant factors affecting the Company’s financial condition as of September 30, 2004 and 2003, and results of operations for each of the three months and nine months in the periods ended September 30, 2004 and 2003. 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. All of the acquisitions during the reported periods were accounted for as purchase transactions, and as such, their related results of operations are included from the date of acquisition.

 

Prior year financial statements have been restated to de-consolidate the Company’s investment in Colony Bankcorp Statutory Trust I and II in connection with the implementation of a new accounting standard related to variable interest entities during 2003.

 

22


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% federal tax rate, thus making tax-exempt yields comparable to taxable asset yields.

 

Dollar amounts in tables are stated in thousands, except for per share amounts.

 

Results of Operations

 

The Company’s results of operations are determined by its ability to effectively manage interest income and expense, to minimize loan and investment losses, to generate noninterest income and to control noninterest expense. Since market forces and economic conditions beyond the control of the Company determine interest rates, the ability to generate net interest income is dependent upon the Company’s ability to obtain an adequate spread between the rate earned on earning assets and the rate paid on interest-bearing liabilities. Thus, the key performance for net interest income is the interest margin or net yield, which is taxable-equivalent net interest income divided by average earning assets. Net income totaled $2.057 million, or $0.36 diluted per common share, in three months ended September 30, 2004 compared to $1.719 million, or $0.30 diluted per common share, in three months ended September 30, 2003 and net income totaled $5.989 million, or $1.05 diluted per common share, in nine months ended September 30, 2004 compared to $5.029 million or $0.88 diluted per common share, in nine months ended September 30, 2003.

 

Selected income statement data, returns on average assets and average equity and dividends per share for the comparable periods were as follows:

 

     Three Months Ended
September 30,


    Nine Months Ended
September 30,


 
     2004

    2003

    2004

    2003

 

Taxable–equivalent net interest income

   $ 8,639     $ 7,279     $ 24,973     $ 20,646  

Taxable-equivalent adjustment

     66       65       205       199  

Net interest income

     8,573       7,214       24,768       20,447  

Provision for possible loan losses

     864       1,455       2,709       2,927  

Non-interest income

     1,591       2,096       4,684       5,429  

Non-interest expense

     6,224       5,293       17,669       15,377  

Income before income taxes

     3,076       2,562       9,074       7,572  

Income taxes

     1,019       843       3,085       2,543  
    


 


 


 


Net Income

   $ 2,057     $ 1,719     $ 5,989     $ 5,029  
    


 


 


 


Basic per common share:

                                

Net income

   $ 0.36     $ 0.30     $ 1.05     $ 0.88  

Diluted per common share:

                                

Net income

   $ 0.36     $ 0.30     $ 1.05     $ 0.88  

Return on average assets:

                                

Net income

     0.86 %     0.83 %     0.87 %     0.83 %

Return on average equity:

                                

Net income

     13.82 %     12.64 %     13.71 %     12.58 %

 

Income from operations for three months ended September 30, 2004 increased $0.34 million, or 19.66%, compared to the same period in 2003. The increase was primarily the result of a $1.36 million increase in net interest income. The impact of net interest income was partly offset by a $0.93 million increase in non-interest expense, a decrease of $0.59 million in the provision for possible loan losses, a $0.18 million increase in income tax expense and a $0.51 million decrease in non-interest income.

 

Income from operations for nine months ended September 30, 2004 increased $0.96 million, or 19.09%, compared to the same period in 2003. The increase was primarily the result of a $4.32 million increase in net interest income. The impact of net interest income was partly offset by a $2.29 million increase in non-interest expense, a decrease of $0.22 million in provision for possible loan losses, a $0.54 million increase in income tax expense and a $0.75 million decrease in non-interest income.

 

23


Details of the changes in the various components of net income are further discussed below.

 

Net Interest Income

 

Net interest income is the difference between interest income on earning assets, such as loans and securities, and interest expense on liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest income is the Company’s largest source of revenue, representing 58.00% of total revenue for nine months ended September 30, 2004 and 51.04% for the same period a year ago.

 

Net interest margin is the taxable-equivalent net interest income as a percentage of average earning assets for the period. The level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net interest income and net interest margin.

 

The Federal Reserve Board influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. The Company’s loan portfolio is significantly affected by changes in the prime interest rate. The prime interest rate, which is the rate offered on loans to borrowers with strong credit, began 2001 at 9.50% and decreased 150 basis points in the first quarter, decreased 125 basis points in the second quarter, decreased 75 basis points in the third quarter and decreased 125 basis points in the fourth quarter to end the year at 4.75%. During 2002, the prime rate remained at 4.75% until the fourth quarter when the rate decreased 50 basis points to 4.25%. During 2003, the prime rate remained at 4.25% until the end of the second quarter, when the rate decreased 25 basis points to 4.00%. During second and third quarter 2004, the Federal Reserve moved rates up 75 basis points; thus the prime rate increased to 4.75% effective September 22, 2004. The federal funds rate, which is the cost of immediately available overnight funds, decreased in a similar manner. It began 2001 at 6.50% and decreased 475 basis points over the course of the year, and began 2002 at 1.75% and decreased 50 basis points in the fourth quarter. During 2003, the federal funds rate remained at 1.25% until the end of the second quarter, when the rate decreased 25 basis points to 1.00%. During second and third quarter 2004, the Federal Reserve Board increased the Federal Fund rate by 75 basis points to 1.75%. It is anticipated that future interest rate hikes will occur during the balance of 2004.

 

The following table presents the changes in taxable-equivalent net interest income and identifies the changes due to differences in the average volume of earning assets and interest-bearing liabilities and the changes due to changes in the average interest rate on those assets and liabilities. The changes in net interest income due to changes in both average volume and average interest rate have been allocated to the average volume change or the average interest rate change in proportion to the absolute amounts of the change in each. The Company’s consolidated average balance sheets along with an analysis of taxable-equivalent net interest earnings are presented in the Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report.

 

24


Rate/Volume Analysis

 

The rate/volume analysis presented hereafter illustrates the change from September 30, 2003 to September 30, 2004 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.

 

     Changes from September 30, 2003 to
September 30, 2004 (1)


 

($ in thousands)


   Volume

    Rate

    Total

 

Interest Income

                        

Loans, Net-taxable

   $ 5,031       ($2,277 )   $ 2,754  
    


 


 


Investment Securities

                        

Taxable

     485       294       779  

Tax-exempt

     15       (30 )     (15 )
    


 


 


Total Investment Securities

     500       264       764  
    


 


 


Interest-Bearing Deposits in other Banks

     (55 )     (6 )     (61 )
    


 


 


Funds Sold

     (34 )     (13 )     (47 )
    


 


 


Other Interest - Earning Assets

     6       (25 )     (19 )
    


 


 


Total Interest Income

     5,448       (2,057 )     3,391  
    


 


 


Interest Expense

                        

Interest-Bearing Demand and Savings Deposits

     259       (357 )     (98 )

Time Deposits

     1,437       (2,461 )     (1,024 )
    


 


 


Total Interest Expense on Deposits

     1,696       (2,818 )     (1,122 )
    


 


 


Other Interest-Bearing Liabilities

                        

Funds Purchased and Securities Under Agreement to Repurchase

     4       (1 )     3  

Subordinated Debentures

     64       21       85  

Other Debt

     236       (138 )     98  
    


 


 


Total Interest Expense (Benefit)

     2,000       (2,936 )     (936 )
    


 


 


Net Interest Income

   $ 3,448     $ 879     $ 4,327  
    


 


 


 

(1) Changes in net interest income for the periods, based on either changes in average balances or changes in average rates for interest-earning assets and interest-bearing liabilities, are shown on this table. During each year. there are numerous and simultaneous balance and rate changes; therefore, it is not possible to precisely allocate the changes between balances and rates. For the purpose of this table, changes that are not exclusively due to balance changes or rate changes have been attributed to rates.

 

Our financial performance is impacted by, among other factors, interest rate risk and credit risk. We do not utilize derivatives to mitigate our credit risk, relying instead on an extensive loan review process and our allowance for loan losses.

 

Interest rate risk is the change in value due to changes in interest rates. The Company is exposed only to U.S. dollar interest rate changes and accordingly, the Company manages exposure by considering the possible changes in the net interest margin. The Company does not have any trading instruments nor does it classify any portion of its investment portfolio as held for trading. The Company does not engage in any hedging activity or utilize any derivatives. The Company has no exposure to foreign currency exchange rate risk, commodity price risk and other market risks. This 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.

 

25


Interest rates play a major part in the net interest income of financial institutions. The repricing of interest earning 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 on at least a quarterly basis 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. We are generally focusing our investment activities on securities with terms or average lives in the 2-5 year range.

 

The Company maintains about 41% of its loan portfolio in adjustable rate loans that reprice with prime rate changes, while the bulk of its other loans mature within 3 years. The liabilities to fund assets are primarily in short term certificate of deposits that mature within one year. This balance sheet composition has allowed the Company to be relatively constant with its net interest margin the past several years, though the unprecedented 475 basis point decrease by U.S. Federal Reserve in 2001, 50 basis point decrease in 2002 and 25 basis point decrease in 2003 resulted in significant net interest margin pressure. Net interest margin increased to 3.82% for nine months ended September 30, 2004 compared to 3.61% for the same period a year ago. We anticipate continued improvement or stability in the net interest margin for 2004 given the Federal Reserve’s present neutral/slight interest rates forecast for the balance of 2004.

 

Taxable-equivalent net interest income for nine months ended September 30, 2004 increased $4.33 million, or 20.96%, compared to the same period a year ago. The significant fluctuation between the comparable periods resulted from the positive impact of growth in the average volume of earning assets that was partially offset by the negative impact of declining average interest rates. The average volume of earning assets during nine months ended September 30, 2004 increased almost $108.4 million compared to the same period a year ago while over the same period the net interest margin increased by 21 basis points from 3.61% to 3.82%. Growth in average earning assets during 2004 and 2003 was primarily in loans. The increase in the net interest margin in 2004 was primarily the result of the general decline in market interest rates and concentration on pricing by company management.

 

The average volume of loans increased $97.5 million in nine months ended September 30, 2004 compared to the same period a year ago. The average yield on loans decreased 42 basis points in nine months ended September 30, 2004 compared to the same period a year ago. Funding for this growth was primarily provided by deposit growth. The average volume of deposits increased $101.0 million in nine months ended September 30, 2004 compared to the same period a year ago. Interest-bearing deposits made up 88.8% of the growth in average deposits in nine months ended September 30, 2004. Accordingly, the ratio of average interest-bearing deposits to total average deposits was 92.02% in nine months ended September 30, 2004 compared to 92.5% in the same period a year ago. This deposit mix, combined with a general decline in market rates, had the effect of (i) reducing the average cost of total deposits by 50 basis points in nine months ended September 30, 2004 compared to the same period a year ago and, (ii) mitigating a portion of the impact of declining yields on earning assets on the Company’s net interest income.

 

The Company’s net interest spread, which represents the difference between the average rate earned on earning assets and the average rate paid on interest-bearing liabilities, was 3.63% in nine months ended September 30, 2004 compared to 3.37% in the same period a year ago. The net interest spread, as well as the net interest margin, will be impacted by future changes in short-term and long-term interest rate levels, as well as the impact from the competitive environment. A discussion of the effects of changing interest rates on net interest income is set forth in Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report.

 

Provision for Possible Loan Losses

 

The provision for possible loan losses is determined by management as the amount to be added to the allowance for possible 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 possible loan losses totaled $864 thousand in three months ended September 30, 2004 compared to $1.455 million in same period a year ago and the provision for possible loan losses totaled $2.709 million in nine months ended September 30, 2004 compared to $2.927 million in same period a year ago. See the section captioned “Allowance for Possible Loan Losses” elsewhere in this discussion for further analysis of the provision for possible loan losses.

 

26


Non-Interest Income

 

The components of non-interest income were as follows:

 

     Three Months Ended
September 30,


   Nine Months Ended
September 30,


     2004

    2003

   2004

    2003

Service charges on deposit accounts

   $ 1,100     $ 1,011    $ 3,170     $ 2,778

Other charges, commissions and fees

     269       294      777       800

Net gain (loss) on securities transactions

     (31 )     369      (31 )     369

Other

     26       30      101       102

Mortgage banking income

     227       392      667       1,380
    


 

  


 

Total

   $ 1,591     $ 2,096    $ 4,684     $ 5,429
    


 

  


 

 

Total non-interest income for three months ended September 30, 2004 decreased $505 thousand, or 24.09%, compared to the same period a year ago. Growth in non-interest income over the comparable periods was primarily in deposit service charges while mortgage banking fees and gains on the sale of securities decreased significantly over the comparable periods.

 

Total non-interest income for nine months ended September 30, 2004 decreased $745 thousand, or 13.72%, compared to the same period a year ago. Growth in non-interest income over the comparable periods was primarily in deposit service changes while mortgage banking fees and gains on the sale of securities decreased significantly over the comparable periods. Changes in these items and the other components of non-interest income are discussed in more detail below.

 

Service Charges on Deposit Accounts. Service charges on deposit accounts for three months ended September 30, 2004 increased $89 thousand, or 8.80%, compared to the same period a year ago. The increase was primarily due to a $85 thousand increase in overdraft fees, which were mostly related to consumer accounts. Service charges on deposit accounts for nine months ended September 30, 2004 increased $392 thousand, or 14.11%, compared to the same period a year ago. The increase was primarily due to a $352 thousand increase in overdraft fees, which were mostly related to consumer accounts. The increase in overdraft fees for both comparable periods was primarily due to the increased volume in consumer and commercial accounts.

 

Mortgage Banking Fees. Mortgage banking fees for three months ended September 30, 2004 decreased $165 thousand, or 42.09%, compared to the same period a year ago. The decrease was primarily due to decreased mortgage loan activity during third quarter 2004 that was primarily attributable to a decrease in mortgage loan refinancing. Mortgage banking fees for nine months ended September 30, 2004 decreased $713 thousand, or 51.67% compared to the same period a year ago. The decrease was primarily due to decreased mortgage loan activity during the first three quarters of 2004 that was again primarily attributable to a decrease in mortgage loan refinancing. The company anticipates mortgage loan refinancing to trend downward in future years as most borrowers have already refinanced to historical low rates.

 

All Other Non-Interest Income. The aggregate of all other non-interest income accounts remain relatively flat for both comparable periods, except losses of sale of securities totaled $31 thousand for third quarter 2004 and nine months ended September 30, 2004 while gains on sale of securities totaled $369 thousand for the same year ago period.

 

Non-Interest Expense

 

The components of non-interest expense were as follows:

 

     Three Months Ended
September 30,


   Nine Months Ended
September 30,


     2004

   2003

   2004

   2003

Salaries and employee benefits

   $ 3,189    $ 2,839    $ 9,433    $ 8,414

Occupancy and Equipment

     940      848      2,606      2,401

Other

     2,095      1,606      5,630      4,562
    

  

  

  

Total

   $ 6,224    $ 5,293    $ 17,669    $ 15,377
    

  

  

  

 

27


Total non-interest expense for three month ended September 30, 2004 increased $931 thousand, or 17.59%, compared to the same period a year ago. Growth in non-interest expense in three months ended September 30, 2004 was primarily in salaries, employee benefits, occupancy and equipment expense and other non-interest expenses. Total non-interest expense for nine months ended September 30, 2004 increased $2.29 million, or 14.91% compared to the same period a year ago. Growth in non-interest expense in nine months ended September 30, 2004 was primarily in salaries and employee benefits, occupancy and equipment expense and other non-interest expense. These items and the changes in the various components of non-interest expense are discussed in more detail below.

 

Salaries and Employee Benefits. Salaries and benefits expense for three months ended September 30, 2004 increased $350 thousand, or 12.33%, compared to the same period a year ago. Salaries and benefits expense for nine months ended September 30, 2004 increased $1.02 million, or 12.11%, compared to the same period a year ago. The increase for both comparable periods is primarily related to increases in headcount and merit increases as a result of new offices with the Company’s denovo branch expansions and the acquisition of Flag Bank – Thomaston Office.

 

Occupancy and Equipment. Net occupancy expense for three months ended September 30, 2004 increased $92 thousand, or 10.85%, compared to the same period a year ago. The company experienced an increase in net occupancy and equipment expense for the three months ended September 30, 2004 resulting from new offices opened during first and third quarter 2004. Net occupancy expense for nine months ended September 30, 2004 increased $205 thousand, or 8.54%, compared to the same period a year ago. The increased occupancy and equipment expense was attributable to the new offices opened during 2004. The impact of new offices and additional leasing of office space resulted in higher building maintenance, insurance and utilities costs, higher depreciation on building and equipment and higher lease expense for both comparable periods.

 

All Other Non-Interest Expense. All other non-interest expense for three months ended September 30, 2004 increased $489 thousand, or 30.45%, compared to the same period a year ago. The increase is primarily due to additional overhead associated with new offices opened. In addition, director fees increased $9 thousand, city, county and state business occupation taxes increased $82 thousand, software and license fee expense increased $27 thousand, and losses from sale/write down on OREO property increased $221 thousand for three months ended September 30, 2004 compared to the same period a year ago.

 

All other non-interest expense for nine months ended September 30, 2004 increased $1.068 million, or 23.41%, compared to the same period a year ago. Again, the increase is primarily due to additional overhead associated with new offices opened during 2004. In addition, legal and professional fees increased $17 thousand, director fees increased $64 thousand, city, county and state business occupation taxes increased $118 thousand, software and license fee expense increased $114 thousand, other losses primarily for establishment of contingency fund for potential lawsuit claims increased $94 thousand and losses on sale/write down of OREO property increased $123 thousand to account for additional increases for nine months ended September 30, 2004.

 

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 $921 million in nine months ended September 30, 2004 compared to $805 million in nine months ended September 30, 2003.

 

    

Nine Months Ended

September 30,


 
     2004

    2003

 

Source of Funds:

                          

Deposits:

                          

Noninterest –Bearing

   $ 62,214    6.76 %   $ 50,890    6.32 %

Interest-Bearing

     717,551    77.92 %     627,843    77.98 %

Federal Funds Purchased

     372    0.04 %     77    0.01 %

Long-term Debt and Other Borrowings

     78,218    8.49 %     68,772    8.54 %

Other Noninterest-Bearing Liabilities

     4,285    0.46 %     4,237    0.53 %

Equity Capital

     58,251    6.33 %     53,316    6.62 %
    

  

 

  

Total

   $ 920,891    100.00 %   $ 805,135    100.00 %
    

  

 

  

Uses of Funds:

                          

Loans

   $ 709,956    77.10 %   $ 613,990    76.26 %

Securities

     111,881    12.15 %     90,506    11.24 %

Federal Funds Sold

     28,473    3.09 %     32,476    4.03 %

Interest-Bearing Deposits in Other Banks

     8,045    0.87 %     14,736    1.83 %

Other Interest-Earning Assets

     3,142    0.34 %     2,965    0.37 %

Other Noninterest-Earning Assets

     59,394    6.45 %     50,462    6.27 %
    

  

 

  

Total

   $ 920,891    100.00 %   $ 805,135    100.00 %
    

  

 

  

 

28


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 92.02% of total average deposits in nine months ended September 30, 2004 compared to 92.50% in the same period a year ago.

 

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 continues to be strong as total loans were $777.4 million at September 30, 2004, up 18.83%, compared to loans of $654.2 million at December 31, 2003. See additional discussion regarding the Company’s loan portfolio in the section captioned “Loans” included elsewhere in this discussion. The majority of funds provided by deposit growth have been invested in loans.

 

Loans

 

The following table presents the composition of the Company’s loan portfolio as of September 30, 2004 and December 31, 2003:

 

    

September 30,

2004


   

December 31,

2003


 

Commercial, Financial and Agricultural

   $ 52,393     $ 44,590  

Real Estate

                

Construction

     95,846       56,374  

Mortgage, Farmland

     36,396       33,097  

Mortgage, Other

     495,034       428,197  

Consumer

     76,681       73,020  

Other

     21,013       18,932  
    


 


       777,363       654,210  

Unearned Discount

     (35 )     (33 )

Allowance for Loan Losses

     (10,114 )     (8,516 )
    


 


Loans

   $ 767,214     $ 645,661  
    


 


 

The following table presents total loans as of September 30, 2004 according to maturity distribution.

 

Maturity


   ($ in Thousands)

One Year or Less

   $ 507,047

After One Year through Five Years

     257,091

After Five Years

     13,225
    

     $ 777,363
    

 

Overview. Loans totaled $777.4 million at September 30, 2004, up 18.83% from December 31, 2003 loans of $654.2 million. The majority of the Company’s loan portfolio is comprised of the real estate loans-other, real estate construction and installment loans to individuals. Real estate-other, which is primarily 1-4 family residential properties and nonfarm nonresidential properties, made up 63.68% and 65.45% of total loans, real estate construction made up 12.33% and 8.62%, while installment loans to individuals made up 9.86% and 11.16% of total loans at September 30, 2004 and December 31, 2003, respectively. Real estate loans-other include both commercial and consumer balances.

 

Loan Origination/Risk Management. In accordance with the Company’s decentralized banking model, loan decisions are made at the local bank level. The Company utilizes a Senior 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 bank. Overall, loans are extended after a review of the borrower’s repayment ability, collateral adequacy, and overall credit worthiness.

 

Commercial purpose, commercial real estate, and industrial loans are underwritten similar to other loans throughout the company. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography, and risk grade criteria. The company also utilizes information provided by third-party agencies to provide additional insight and guidance about economic conditions and trends affecting the markets it serves.

 

The Company extends loans to builders and developers that are secured by non-owner occupied properties. In such cases, the Company reviews the overall economic conditions and trends for each market to determine the desirability of loans to be extended for residential construction and development. Sources of repayment for these types of loans may be pre-committed permanent loans from

 

29


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 bank. 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 borrower’s that helps minimize risk. Additionally, consumer trends and outlook reports are reviewed by management on a regular basis.

 

The Company maintains an independent loan review department that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.

 

Commercial, Financial and Agricultural. Commercial, financial and agricultural loans at September 30, 2004 increased 17.5% from December 31, 2003 to $52.4 million. The Company’s commercial and industrial loans are a diverse group of loans to small, medium and large businesses. The purpose of these loans varies from supporting seasonal working capital needs to term financing of equipment. While some short-term loans may be made on an unsecured basis, most are secured by the assets being financed with collateral margins that are consistent with the Company’s loan policy guidelines.

 

Industry Concentrations. As of September 30, 2004 and December 31, 2003, there were no concentrations of loans within any single industry in excess of 10% of total loans, as segregated by Standard Industrial Classification code (“SIC code”). The SIC code is a federally designed standard industrial numbering system used by the Company to categorize loans by the borrower’s type of business.

 

Collateral Concentrations. Lending is concentrated in commercial and real estate loans primarily to local borrowers. The Company has a high concentration of real estate loans; however, these loans are well collateralized and, in management’s opinion, do not pose an adverse credit risk. In addition, the balance of the loan portfolio is sufficiently diversified to avoid significant concentration of credit risk. Although the Company has a diversified loan portfolio, a substantial portion of borrower’s ability to honor their contracts is dependent upon the viability of the real estate economic sector.

 

Large Credit Relationships. Colony is currently in seventeen counties in South and Central Georgia and include metropolitan markets in Doughtery, Lowndes, Houston and Chatham 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 Central Credit 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 September 30, 2004 and December 31, 2003.

 

     September 30, 2004

   December 31, 2003

          Period End Balances

        Period End Balances

     Number of
Relationships


   Committed

   Outstanding

   Number of
Relationships


   Committed

   Outstanding

Large Credit Relationships:

                                     

$10 million and greater

   1    $ 12,869    $ 11,457    1    $ 10,416    $ 9,673

$5 million to $9.9 million

   7    $ 39,595    $ 32,012    2    $ 12,299    $ 11,591

 

30


Maturities and Sensitivities of Loans to Changes in Interest Rates. The following table presents the maturity distribution of the Company’s loans at September 30, 2004. 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
Five Years


   After
Five
Years


   Total

Loans with fixed interest rates

   $ 194,334    $ 250,874    $ 13,225    $ 458,433

Loans with floating interest rates

     312,713      6,217      0      318,930
    

  

  

  

Total

   $ 507,047    $ 257,091    $ 13,225    $ 777,363
    

  

  

  

 

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.

 

Non-Performing Assets and Potential Problem Loans

 

Non-performing assets and accruing past due loans as of September 30, 2004 and December 31, 2003 were as follows:

 

     September 30, 2004

    December 31, 2003

 

Loans accounted for on nonaccrual

   $ 7,073     $ 7,251  

Loans past due 90 days or more

     1,104       241  

Other real estate foreclosed

     3,139       2,724  
    


 


Total non-performing assets

   $ 11,316     $ 10,216  
    


 


Non-performing assets as a percentage of:

                

Total loans and foreclosed assets

     1.45 %     1.56 %

Total assets

     1.17 %     1.18 %

Accruing past due loans:

                

30-89 days past due

   $ 8,197     $ 6,703  

90 or more days past due

     1,104       241  
    


 


Total accruing past due loans

   $ 9,301     $ 6,944  
    


 


 

Non-performing assets include non-accrual loans, loans past due 90 days or more, restructured loans and foreclosed real estate. Non-performing assets at September 30, 2004 increased 10.77% from December 31, 2003. A contract is being negotiated for a 1-4 residential subdivision and golf course development for approximately $1.8 million in other real estate foreclosed that we anticipate closing by December 31, 2004. During third quarter 2004 the Company had a write-down of $222 thousand on this OREO property to more accurately reflect the value of the property based on market indications.

 

Generally, loans are placed on non-accrual 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 non-accrual 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 non-accrual 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 non-accrual does not preclude the ultimate collection of loan principal or interest.

 

Renegotiated loans are loans on which, due to deterioration in the borrower’s financial condition, the original terms have been modified in favor of the borrower or either principal or interest has been forgiven.

 

Foreclosed assets represent property acquired as the result of borrower defaults on loans. Foreclosed assets are recorded at estimated fair value, less estimated selling costs, at the time of foreclosure. Write-downs occurring at foreclosure are charged against the allowance for possible loan losses. On an ongoing basis, properties are appraised as required by market indications and applicable regulations. Write-downs are provided for subsequent declines in value and are included in other non-interest expense along with other expenses related to maintaining the properties.

 

31


Allowance for Possible Loan Losses

 

The allowance for possible loan losses is a reserve established through a provision for possible 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 possible loan losses includes allowance allocations calculated in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” as amended by SFAS 118, and allowance allocations determined in accordance with SFAS No. 5, “Accounting for Contingencies.” The level of the allowance reflects management’s continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Company’s control, including the performance of the Company’s loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

 

The company’s allowance for possible 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.

 

The allowances established for probable losses on specific loans are based on a regular analysis and evaluation of classified loans. Loans are classified based on an internal credit risk grading process that evaluates, among other things: (i) the obligor’s ability to repay; (ii) the underlying collateral, if any; and (iii) the economic environment and industry in which the borrower operates. This analysis is performed at the subsidiary bank level and is reviewed at the parent company level. Once a loan is classified, it is reviewed to determine whether the loan is impaired and, if impaired, a portion of the allowance for possible loan losses is specifically allocated to the loan. Specific valuation allowances are determined after considering the borrower’s financial condition, collateral deficiencies, and economic conditions affecting the borrower’s industry, among other things.

 

Historical valuation allowances are calculated from loss factors applied to loans with similar risk characteristics. The loss factors are based on loss ratios for groups of loans with similar risk characteristics. The loss ratios are derived from the proportional relationship between actual loan losses and the total population of loans in the risk category. The historical loss ratios are periodically updated based on actual charge-off experience. The company’s groups of similar loans include similarly risk-graded groups of loans not reviewed for individual impairment.

 

Management evaluates the adequacy of the allowance for each of these components on a quarterly basis. Peer comparisons, industry comparisons, and regulatory guidelines are also used in the determination of the general valuation allowance.

 

Loans identified as losses by management, internal loan review, and/or bank examiners are charged-off.

 

An allocation for loan losses has been made according to the respective amounts deemed necessary to provide for the possibility of incurred losses within the various loan categories. The allocation is based primarily on previous charge-off experience adjusted for changes in experience among each category. Additional amounts are allocated by evaluating the loss potential of individual loans that management has considered impaired. The reserve for loan loss allocation is subjective since it is based on judgment and estimates, and therefore is not necessarily indicative of the specific amounts or loan categories in which the charge-offs may ultimately occur. The following table shows a comparison of the allocation of the reserve for loan losses for the periods indicated.

 

     September 30, 2004

    December 31, 2003

 
     Reserve

   %*

    Reserve

   %*

 

Commercial, Financial and Agricultural

   $ 2,629    7 %   $ 2,470    7 %

Real Estate – Construction

     1,011    12 %     340    9 %

Real Estate – Farmland

     455    5 %     426    5 %

Real Estate – Other

     3,338    64 %     2,981    65 %

Loans to Individuals

     1,973    10 %     1,703    11 %

All other Loans

     708    2 %     596    3 %
    

  

 

  

Total

   $ 10,114    100 %   $ 8,516    100 %
    

  

 

  

 

* Loan balance in each category expressed as a percentage of total end of period loans.

 

32


Activity in the allowance for loan losses is presented in the following table. There were no charge-offs or recoveries related to foreign loans during any of the periods presented.

 

The following table presents an analysis of the Company’s loan loss experience for the periods indicated.

 

($ in thousands)


   Three Months Ended
September 30, 2004


    Three Months Ended
September 30, 2003


 

Allowance for Loan Losses at Beginning of Quarter

   $ 9,677     $ 7,963  
    


 


Charge-Off

                

Commercial, Financial and Agricultural

     83       1,108  

Real Estate

     113       227  

Consumer

     244       335  

All Other

     21       42  
    


 


       461       1,712  
    


 


Recoveries

                

Commercial, Financial and Agricultural

     9       7  

Real Estate

     2       14  

Consumer

     21       14  

All Other

     2       7  
    


 


       34       42  
    


 


Net Charge-Offs

     427       1,670  
    


 


Provision for Loan Losses

     864       1,455  
    


 


Allowance for Loan Losses at End of Quarter

   $ 10,114     $ 7,748  
    


 


Ratio of Net Charge-Offs to Average Loans

     0.06 %     0.26 %
    


 


 

The allowance for possible loan losses is maintained at a level considered appropriate by management, based on estimated probable losses within the existing loan portfolio. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The provision for possible loan losses reflects loan quality trends, including the level of net charge-offs or recoveries, among other factors. The provision for possible loan losses decreased $591 thousand from $1.455 million in three months ended September 30, 2003 to $864 thousand in three months ended September 30, 2004. Higher provisions were necessary during third quarter 2003 due to one large commercial line being charged-off that accounted for approximately 48 percent of total third quarter charge-offs.

 

Net charge-offs in three months ended September 30, 2004 decreased $1.243 million compared to the same period a year ago. The decrease in net charge-offs during the comparable periods is reflective of more stringent credit standards that have improved overall asset quality and the one large commercial line charged-off during third quarter 2003 as indicated above.

 

Management believes the level of the allowance for possible loan losses was adequate as of September 30, 2004. Should any of the factors considered by management in evaluating the adequacy of the allowance for possible loan losses change, the Company’s estimate of probable loan losses could also change, which could affect the level of future provisions for possible loan losses.

 

33


The following table presents an analysis of the Company’s loan loss experience for the periods indicated.

 

($ in thousands)


   Nine Months Ended
September 30, 2004


    Nine Months Ended
September 30, 2003


 

Allowance for Loan Losses at Beginning of Quarter

   $ 8,516     $ 7,364  
    


 


Charge-Off

                

Commercial, Financial and Agricultural

     388       1,589  

Real Estate

     184       501  

Consumer

     461       449  

All Other

     216       133  
    


 


       1,249       2,672  
    


 


Recoveries

                

Commercial, Financial and Agricultural

     36       18  

Real Estate

     8       36  

Consumer

     78       47  

All Other

     16       28  
    


 


       138       129  
    


 


Net Charge-Offs

     1,111       2,543  
    


 


Provision for Loan Losses

     2,709       2,927  
    


 


Allowance for Loan Losses at End of Quarter

   $ 10,114     $ 7,748  
    


 


Ratio of Net Charge-Offs to Average Loans

     0.15 %     0.41 %
    


 


 

The allowance for possible loan losses is maintained at a level considered appropriate by management, based on estimated probable losses within the existing loan portfolio. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The provision for possible loan losses reflects loan quality trends, including the level of net charge-offs or recoveries, among other factors. The provision for possible loan losses decreased $218 thousand from $2.927 million in nine months ended September 30, 2003 to $2.709 million in nine months ended September 30, 2004. Year-to-date 2004 loan loss provisions are lower than 2003 loan loss provisions due to improved asset quality and the fact that 2003 charge-offs included one large commercial line of approximately $821 thousand that did not reoccur in 2004.

 

Net charge-offs in nine months ended September 30, 2004 decreased $1.432 million compared to the same period a year ago. The decrease in net charge-offs during the comparable periods is reflective of more stringent credit standards that have improved overall asset quality and the one large commercial line charged-off during third quarter 2003 of approximately $821 that did not reoccur in 2004.

 

Management believes the level of the allowance for possible loan losses was adequate as of September 30, 2004. Should any of the factors considered by management in evaluating the adequacy of the allowance for possible loan losses change, the Company’s estimate of probable loan losses could also change, which could affect the level of future provisions for possible loan losses.

 

34


Investment Portfolio

 

The following table presents carrying values of investment securities held by the Company as of September 30, 2004 and December 31, 2003.

 

($ in thousands)


   September 30, 2004

   December 31, 2003

U.S. Treasuries and Government Agencies

   $ 23,276    $ 17,845

Obligations of States and Political Subdivisions

     7,096      9,890

Corporate Obligations

     3,144      6,556

Marketable Equity Securities

     0      944
    

  

Investment Securities

     33,516      35,235

Mortgage Backed Securities

     71,609      75,173
    

  

Total Investment Securities and

             

Mortgage Backed Securities

   $ 105,125    $ 110,408
    

  

 

The following table represents maturities and weighted-average yields of investment securities held by the Company as of September 30, 2004. (Mortgage backed securities are based on the average life at the projected speed, while Agencies and State and Political subdivisions reflect anticipated calls being exercised.)

 

     Within 1 Year

    After 1 Year But
Within 5 Years


    After 5 Years But
Within 10 Years


    After 10 Years

 
     Amount

   Yield

    Amount

   Yield

    Amount

   Yield

    Amount

   Yield

 

U.S. Government Agencies

   $ 3,357    3.90 %   $ 18,930    3.61 %   $ 492    3.78 %   $ 497    4.71 %

Mortgage Backed Securities

     1,435    (7.29 )     66,250    2.22       3,924    4.19       —      —    

Obligations of States and Political Subdivisions

     2,262    2.46       3,424    4.61       996    5.85       414    8.56  

Corporate Obligations

     —      —         3,144    3.71       —      —         —      —    

Marketable Equity Securities

     —      —         —      —         —      —         —      —    
    

  

 

  

 

  

 

  

Total Investment Portfolio

   $ 7,054    2.49 %   $ 91,748    2.65 %   $ 5,412    4.44 %   $ 911    6.46 %
    

  

 

  

 

  

 

  

 

Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income. The Company has 99.9% of its portfolio classified as available for sale.

 

At September 30, 2004, there were no holdings of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of the Company’s shareholders’ equity.

 

The average yield of the securities portfolio was 3.57% in nine months ended September 30, 2004 compared to 3.29% in the same period a year ago. The increase in the average yield over the comparable periods primarily resulted from the investment of new funds received from deposit growth at higher current yields and the reinvestment of proceeds from the early repayment of mortgage-backed securities in similar investments, also at higher current yields. The early repayment of mortgage-backed securities primarily resulted from borrower refinancing due to lower market interest rates. The overall reduction in the securities portfolio over the comparable periods was primarily due to the Company adopting a lower liquidity policy; thus the funding of more loans and less funding of new securities.

 

35


Deposits

 

The following table presents the average amount outstanding and the average rate paid on deposits by the Company for the nine months period ended September 30, 2004 and September 30, 2003.

 

     September 30, 2004

    September 30, 2003

 

($ in thousands)


   Average
Amount


   Average
Rate


    Average
Amount


   Average
Rate


 

Noninterest-Bearing Demand Deposits

   $ 62,214          $ 50,890       

Interest-Bearing Demand and Savings Deposits

     196,427    1.11 %     170,817    1.35 %

Time Deposits

     521,124    2.36 %     457,026    2.99 %
    

  

 

  

Total Deposits

   $ 779,765    1.86 %   $ 678,733    2.36 %
    

  

 

  

 

The following table presents the maturities of the Company’s time deposits as of September 30, 2004.

 

($ in thousands)


   Time
Deposits
$100,000
or Greater


   Time
Deposits
Less Than
$100,000


   Total

Months to Maturity

                    

3 or Less

   $ 55,604    $ 79,097    $ 134,701

Over 3 through 12

     119,372      254,066      373,438

Over 12 Months

     23,107      39,696      62,803
    

  

  

     $ 198,083    $ 372,859    $ 570,942
    

  

  

 

Average deposits increased $101.1 million to $779.8 million at September 30, 2004 from $678.7 million at September 30, 2003. The increase included $11.3 million or 11.2%, related to noninterest-bearing deposits. Accordingly the ratio of average noninterest-bearing deposits to total average deposits was 7.98% for nine months ended September 30, 2004 compared to 7.50% for nine months ended September 30, 2003. The general decline in market rates, had the effect of (i) reducing the average cost of total deposits by 50 basis points in nine months ended September 30, 2004 compared to the same period a year ago; and (ii) mitigating a portion of the impact of declining yields on earning assets on the Company’s net interest income.

 

Total average interest-bearing deposits increased $89.7 million, or 14.3% in nine months ended September 30, 2004 compared to the same period a year ago. The growth in average deposits at September 30, 2004 compared to September 30, 2003 was primarily in money market deposit accounts and savings and interest-on-checking accounts and other time accounts. Due to the uncertainty of the low interest rate environment, it appears that many customers are less inclined to invest their funds for extended periods and are choosing to maintain such funds in readily accessible money market and interest-on-checking accounts and short term time accounts.

 

36


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 September 30, 2004. 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.

 

     Payments Due by Period

     1 Year or Less

   More than 1
Year but Less
Than 3 Years


   3 Years or
More but Less
Than 5 Years


   5 Years or
More


   Total

Contractual obligations:

                                  

Subordinated debentures

   $ —      $ —      $ —      $ 19,074    $ 19,074

Other borrowed money

     123      384      —        —        507

Federal Home Loan Bank advances

     5,500      3,000      18,500      35,000      62,000

Operating leases

     136      166      109      221      632

Deposits with stated maturity dates

     508,139      43,975      18,789      39      570,942
    

  

  

  

  

       513,898      47,525      37,398      54,334      653,155

Other commitments:

                                  

Loan commitments

     93,122      —        —        —        93,122

Standby letters of credit

     1,751      —        —        —        1,751

Performance letters of credit

     407      —        —        —        407
    

  

  

  

  

       95,280      —        —        —        95,280
    

  

  

  

  

Total contractual obligations and Other commitments

   $ 609,178    $ 47,525    $ 37,398    $ 54,334    $ 748,435
    

  

  

  

  

 

In the ordinary course of business, the Banks have entered into off-balance sheet financial instruments which are not reflected in the consolidated financial statements. These instruments include commitments to extend credit, standby letters of credit, performance letters of credit, guarantees and liability for assets held in trust. Such financial instruments are recorded in the financial statements when funds are disbursed or the instruments become payable. The Company uses the same credit policies for these off-balance sheet financial instruments as they do for instruments that are recorded in the consolidated financial statements.

 

Loan Commitments. The Company enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of the Company’s commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding. The Company minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures. Management assesses the credit risk associated with certain commitments to extend credit in determining the level of the allowance for possible loan losses. Loan commitments outstanding at September 30, 2004 are included in the table above.

 

Standby and Performance 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 and performance letters of credit arrangements contain security and debt covenants similar to those contained in loan agreements. Standby and performance letters of credit outstanding at September 30, 2004 are included in the table above.

 

Capital and Liquidity

 

At September 30, 2004, shareholders’ equity totaled $60.5 million compared to $56 million at December 31, 2003. In addition to net income of $5.99 million, other significant changes in shareholders’ equity during nine months ended September 30, 2004 included $1.33 million of dividends paid and an increase of $0.105 million resulting from the amortization of the stock grant plan. The accumulated other comprehensive income component of shareholders’ equity totaled a loss of $0.186 million at September 30, 2004 compared to a gain of $22 thousand at December 31, 2003. 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. 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 September 30, 2004 was 9.97 percent and total Tier 1 and 2 risk-based capital was 11.22 percent. Both of these measures compare favorably with the regulatory minimum of 4 percent for Tier 1

 

37


and 8 percent for total risk-based capital. The Company’s Tier 1 leverage ratio as of September 30, 2004 was 7.99 percent, which exceeds the required ratio standard of 4 percent.

 

For nine months ended September 30, 2004, average capital was $58.2 million, representing 6.33 percent of average assets for the year. This compares to 6.62 percent for nine months ended September 30, 2003 and 6.59 percent for calendar year 2003.

 

The Company paid quarterly dividends of $0.075, $0.0775 and $0.08 for first three quarters of 2004, respectively, compared to $0.06, $0.068 and $0.07 for first three quarters of 2003, respectively. This equates to a dividend payout ratio of 22.14% for nine months ended September 30, 2004 compared to 22.50% for nine months ended September 30, 2003.

 

Liquidity measures the ability to meet current and future cash flow needs as they become due. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits and to take advantage of interest rate market opportunities. The ability of a financial institution to meet its current financial obligations is a function of balance sheet structure, the ability to liquidate assets, and the availability of alternative sources of funds. The Company seeks to ensure its funding needs are met by maintaining a level of liquid funds through asset/liability management.

 

Asset liquidity is provided by liquid assets which are readily marketable or pledgeable or which will mature in the near future. Liquid assets include cash, interest-bearing deposits in banks, securities available for sale, maturities and cash flow from securities held to maturity, and federal funds sold and securities purchased under resale agreements.

 

Liability liquidity is provided by access to funding sources which include core deposits. Should the need arise; the Company also maintains relationships with the Federal Home Loan Bank and several correspondent banks that can provide funds on short notice. Since Colony is a holding company and does not conduct operations, its primary sources of liquidity are dividends up streamed from subsidiary banks and borrowings from outside sources.

 

The liquidity position of the Company is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Management is not aware of any events that are reasonably likely to have a material adverse effect on the Company’s liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity, which if implemented, would have a material adverse effect on the Company.

 

Impact of Inflation and Changing Prices

 

The Company’s financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). GAAP presently requires the Company to measure financial position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation or recession are generally not considered. The primary effect of inflation on the operations of the Company is reflected in increased operating costs. In management’s opinion, changes in interest rates affect the financial condition of a financial institution to a far greater degree than changes in the inflation rate. While interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. Interest rates are highly sensitive to many factors that are beyond the control of the Company, including changes in the expected rate of inflation, the influence of general and local economic conditions and the monetary and fiscal policies of the United States government, its agencies and various other governmental regulatory authorities, among other things, as further discussed in the next section.

 

Regulatory and Economic Policies

 

The Company’s business and earnings are affected by general and local economic conditions and by the monetary and fiscal policies of the United States government, its agencies and various other governmental regulatory authorities, among other things. The Federal Reserve Board regulates the supply of money in order to influence general economic conditions. Among the instruments of monetary policy available to the Federal Reserve Board are (i) conducting open market operations in United States government obligations, (ii) changing the discount rate on financial institution borrowings, (iii) imposing or changing reserve requirements against financial institution deposits, and (iv) restricting certain borrowings and imposing or changing reserve requirements against certain borrowing by financial institutions and their affiliates. These methods are used in varying degrees and combinations to affect directly the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. For that reason alone, the policies of the Federal Reserve Board have a material effect on the earnings of the Company.

 

Governmental policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future; however, the Company cannot accurately predict the nature, timing or extent of any effect such policies may have on its future business and earnings.

 

38


Quantitative and Qualitative Disclosures About Market Risk

 

AVERAGE BALANCE SHEETS

 

     Nine Months Ended
September 30, 2004


    Nine Months Ended
September 30, 2003


 

($ in thousands)


   Average
Balances


    Income/
Expense


   Yields/
Rates


    Average
Balances


    Income/
Expense


   Yields/
Rates


 

Assets

                                  

Interest-Earning Assets

                                  

Loans, Net of Unearned Income Taxable (1)

   719,340     34,862    6.46 %   621,842     32,108    6.88 %
    

 
  

 

 
  

Investment Securities

                                  

Taxable

   103,578     2,686    3.46 %   82,577     1,907    3.08 %

Tax-Exempt (2)

   8,303     312    5.01 %   7,929     327    5.50 %
    

 
  

 

 
  

Total Investment Securities

   111,881     2,998    3.57 %   90,506     2,234    3.29 %
    

 
  

 

 
  

Interest-Bearing Deposits in Other Banks

   8,045     59    0.98 %   14,736     120    1.09 %
    

 
  

 

 
  

Funds Sold

   28,473     227    1.06 %   32,476     274    1.12 %
    

 
  

 

 
  

Interest-Bearing Other Assets

   3,142     79    3.35 %   2,965     98    4.41 %
    

 
  

 

 
  

Total Interest-Earning Assets

   870,881     38,225    5.85 %   762,525     34,834    6.09 %
    

 
  

 

 
  

Non-interest-Earning Assets

                                  

Cash

   18,503                16,435             

Allowance for Loan Losses

   (9,384 )              (7,852 )           

Other Assets

   40,891                34,027             
    

            

          

Total Noninterest-Earning Assets

   50,010                42,610             
    

            

          

Total Assets

   920,891                805,135             
    

            

          

Liabilities and Stockholders’ Equity

                                  

Interest-Bearing Liabilities

                                  

Interest-Bearing Deposits

                                  

Interest-Bearing Demand and Savings

   196,427     1,632    1.11 %   170,817     1,730    1.35 %

Other Time

   521,124     9,241    2.36 %   457,026     10,265    2.99 %
    

 
  

 

 
  

Total Interest-Bearing Deposits

   717,551     10,873    2.02 %   627,843     11,995    2.55 %
    

 
  

 

 
  

Other Interest-Bearing Liabilities

                                  

Debt

   61,988     1,775    3.82 %   54,338     1,677    4.11 %

Trust Preferred Securities

   16,230     600    4.93 %   14,434     515    4.76 %

Funds Purchased and Securities

                                  

Sold Under Agreement to Repurchase

   372     4    1.43 %   77     1    1.73 %
    

 
  

 

 
  

Total Other Interest-Bearing Liabilities

   78,590     2,379    4.04 %   68,849     2,193    4.25 %
    

 
  

 

 
  

Total Interest-Bearing Liabilities

   796,141     13,252    2.22 %   696,692     14,188    2.72 %
    

 
  

 

 
  

Noninterest-Bearing Liabilities and Stockholders’ Equity

                                  

Demand Deposits

   62,214                50,890             

Other Liabilities

   4,285                4,237             

Stockholder’s Equity

   58,251                53,316             
    

            

          

Total Noninterest-Bearing Liabilities and Stockholders’ Equity

   124,750                108,443             

Total Liabilities and Stockholders’ Equity

   920,891                805,135             
    

            

          

Interest Rate Spread

              3.63 %              3.37 %
               

            

Net Interest Income

         24,973                20,646       
          
  

       
  

Net Interest Margin

              3.82 %              3.61 %
               

            

 

(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 $99 and $88 for nine month period ended September 30, 2004 and 2003 respectively, are included in tax-exempt interest on loans.

 

(2) Taxable-equivalent adjustments totaling $106 and $111 for nine month period ended September 30, 2004 and 2003, 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.

 

39


Colony Bankcorp, Inc. and Subsidiary

Interest Rate Sensitivity

 

The following table is an analysis of the Company’s interest rate-sensitivity position at September 30, 2004. 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

($ in Thousands)


   3 Months
or Less


    4 to 12
Months


    1 Year

    1 to 5
Years


    Over 5
Years


    Total

EARNING ASSETS:

                                  

Interest-bearing deposits

   3,189     0     3,189     0     0     3,189

Federal Funds Sold

   28,128     0     28,128     0     0     28,128

Investment Securities

   18,964     2,142     21,106     70,388     13,631     105,125

Loans, net of unearned income

   335,425     171,622     507,047     257,056     13,225     777,328

Loans held for sale

   1,559     0     1,559     0     0     1,559

Other interest-bearing assets

   3,402     0     3,402     0     0     3,402
    

 

 

 

 

 

Total Interest-earning assets

   390,667     173,764     564,431     327,444     26,856     918,731
    

 

 

 

 

 

INTEREST-BEARING LIABILITIES:

                                  

Interest-bearing Demand deposits (1)

   152,104     0     152,104     0     0     152,104

Savings (1)

   39,421     0     39,421     0     0     39,421

Time Deposits

   134,701     373,438     508,139     62,764     39     570,942

Other Borrowings (2)

   6,007     0     6,007     21,500     35,000     62,507

Subordinated Debentures

   19,074     0     19,074     0     0     19,074
    

 

 

 

 

 

Total Interest-bearing liabilities

   351,307     373,438     724,745     84,264     35,039     844,048
    

 

 

 

 

 

Interest rate-sensitivity gap

   39,360     (199,674 )   (160,314 )   243,180     (8,183 )   74,683
    

 

 

 

 

 

Cumulative interest-sensitivity gap

   39,360     (160,314 )   (160,314 )   82,866     74,683      
    

 

 

 

 

   

Interest rate-sensivitiy gap as a percentage of interest-earning assets

   4.28 %   (21.73 %)   (17.45 %)   26.47 %   (0.89 %)    
    

 

 

 

 

   

Cumulative interest rate-sensitivity as a percentage of interest-earning assets

   4.28 %   (17.45 %)   (17.45 %)   9.02 %   8.13 %    
    

 

 

 

 

   

 

(1) Interest-bearing Demand and Savings Accounts for repricing purposes are considered to reprice within 3 months or less.

 

(2) Short-term borrowings for repricing purposes are considered to reprice within 3 months or less.

 

The foregoing table indicates that we had a one year negative gap of ($160) million, or (17.45%) of total assets at September 30, 2004. In theory, this would indicate that at September 30, 2004, $160 million more in liabilities than assets would reprice if there were a change in interest rates over the next 365 days. Thus, if interest rates were to decline, the gap would indicate a resulting increase in net interest margin. However, changes in the mix of earning assets or supporting liabilities can either increase or decrease the net interest margin without affecting interest rate sensitivity. In addition, the interest rate spread between an asset and our supporting liability can vary significantly while the timing of repricing of both the assets and our supporting liability can remain the same, thus impacting net interest income. This characteristic is referred to as a basis risk and, generally, relates to the repricing characteristics of short-term funding sources such as certificates of deposits.

 

Gap analysis has certain limitations. Measuring the volume of repricing or maturing assets and liabilities does not always measure the full impact on the portfolio value of equity or net interest income. Gap analysis does not account for rate caps on products; dynamic changes such as increasing prepay speeds as interest rates decrease, basis risk, or the benefit of non-rate funding sources. The majority of our loan portfolio reprices quickly and completely following changes in market rates, while non-term deposit rates in

 

40


general move slowly and usually incorporate only a fraction of the change in rates. Products categorized as non-rate 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. In fact, during the recent period of declines in interest rates, our net interest margin has declined. Therefore, management uses gap analysis, net interest margin analysis and market value of portfolio equity as our primary interest rate risk management tools.

 

Return on Assets and Stockholder’s Equity

 

The following table presents selected financial ratios for each of the periods indicated.

 

     Three Months Ended
September 30


    Nine Months Ended
September 30


 
     2004

    2003

    2004

    2003

 

Return on Assets

   0.86 %   0.83 %   0.87 %   0.83 %

Return on Equity

   13.82 %   12.64 %   13.71 %   12.58 %

Dividend Payout Ratio

   22.22 %   23.33 %   22.14 %   22.50 %

Equity to Assets

   6.23 %   6.58 %   6.32 %   6.63 %

 

Future Outlook

 

Colony is an emerging company in an industry filled with nonregulated competitors and a rapid pace of consolidation. The year brings with it new opportunities for growth in our existing markets, as well as opportunities to expand into new markets through acquisitions and denovo branching. Colony completed the acquisition of Quitman Federal during 2002 and with the Quitman acquisition opened a branch in the Valdosta/Lowndes County market during the first quarter of 2003. The company has purchased real estate for a second location in Lowndes County that should open in first quarter 2005. The company purchased real estate in the Dougherty/Lee Counties market during 2002 and has constructed its third office that opened in early 2004. Additionally, real estate was purchased in the Thomas County market for a future office, probably in 2005. Other areas of interest in South and Central Georgia include Glynn, Ware, and Chatham Counties, with annual retail sales greater than $650 million and a population greater than 35,000. The company opened a loan production office in Savannah during first quarter 2004 and has purchased real estate for a branch office to open in 2005. In addition, the company opened its second office in Tift County during third quarter 2004. In addition, the Company signed a definitive agreement to purchase Flag-Thomaston office that closed on March 19, 2004. The office, with current deposits of approximately $36 million, will allow Colony to compete in Upson County and Muscogee County Georgia. The company opened a loan production office in Columbus, Georgia during third quarter 2004. The company has purchased real estate for a second office in Warner Robins that should open during the last half of 2005.

 

41


 

BUSINESS

 

General

 

The Company was organized in 1983 as a bank holding company through the merger of Colony Bank of Fitzgerald with a subsidiary of the Company. Since that time, Colony Bank of Fitzgerald, which was formed by principals of Colony Bankcorp, Inc. in 1976, has operated as a wholly-owned subsidiary of the Company. In April 1984, Colony Bankcorp, Inc. acquired Colony Bank Wilcox, and in November 1984, Colony Bank Ashburn became a wholly-owned subsidiary of Colony Bankcorp, Inc. Colony Bankcorp, Inc. continued its growth with the acquisition of Colony Bank of Dodge County in September 1985. In August 1991, Colony Bankcorp, Inc. acquired Colony Bank Worth. In November 1996, Colony Bankcorp, Inc. acquired Colony Bank Southeast and in November 1996 formed a non-bank subsidiary Colony Management Services, Inc. In March 2002, Colony Bankcorp, Inc. acquired Colony Bank Quitman, FSB and also formed Colony Bankcorp Statutory Trust I. In December 2002, Colony formed its second trust, Colony Bankcorp Statutory Trust II and in June, 2004, Colony formed its third trust, Colony Bankcorp Statutory Trust III.

 

Through its seven subsidiary banks, Colony Bankcorp, Inc. operates a full-service banking business and offers a broad range of retail and commercial banking services including checking, savings, NOW accounts, money market and time deposits of various types; loans for business, agriculture, real estate, personal uses, home improvement and automobiles; credit card; letters of credit; investment and discount brokerage services; IRA’s; safe deposit box rentals, bank money orders; electronic funds transfer services, including wire transfers and automated teller machines and internet accounts. Each of the Banks is a member of Federal Deposit Insurance Corporation whose customer deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation.

 

On April 2, 1998, the Company was listed on Nasdaq National Market. The Company’s common stock trades on the Nasdaq Stock Market under the symbol “CBAN”. The Company presently has approximately 1,628 shareholders as of September 30, 2004. “The Nasdaq Stock Market” or “Nasdaq” is a highly-regulated electronic securities market comprised of competing Market Makers whose trading is supported by a communications network linking them to quotation dissemination, trade reporting and order execution systems. This market also provides specialized automation services for screen-based negotiations of transactions, on-line comparison of transactions, and a range of informational services tailored to the needs of the securities industry, investors and issuers. The Nasdaq Stock Market is operated by The Nasdaq Stock Market, Inc., a wholly-owned subsidiary of the National Association of Securities Dealers, Inc.

 

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

See pages 39-41 of this report for disclosure.

 

ITEM 4 – CONTROLS AND PROCEDURES

 

We maintain a system of internal controls and procedures designed to provide reasonable assurance as to the realiability of our published financial statements and other disclosures included in this report. As of the end of the period covered by this report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and our Principal Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to Colony Bankcorp, Inc. (including its consolidated subsidiaries) required to be included in this quarterly report on Form 10-Q.

 

There have been no significant changes in our internal controls or in other factors which could significantly affect internal controls subsequent to the date that we carried out our evaluation.

 

42


 

PART II – OTHER INFORMATION

 

ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

Not applicable

 

ITEM 6 – EXHIBITS AND REPORTS ON FORM 8-K

 

A.     Exhibits –

   3.1 Articles of Incorporation
    

•     filed as Exhibit 3(a) to the Registrant’s Registration Statement on Form 10 (File No. 0-18486), filed with the Commission on April 25, 1990 and incorporated herein by reference

     3.2 Bylaws, as Amended
    

•     filed as Exhibit 3(b) to the Registrant’s Registration Statement on Form 10 (File No. 0-18486), filed with the Commission on April 25, 2990 and incorporated herein by reference

     4.1 Instruments Defining the Rights of Security Holders
    

•     incorporated herein by reference to page 1 of the Company’s Definitive Proxy Statement for Annual Meeting of Stockholders to be held on April 27, 2004, filed with the Securities and Exchange Commission on March 3, 2004 (File No. 000-12436)

     10.1 Deferred Compensation Plan and Sample Director Agreement
    

•     filed as Exhibit 10(a) to the Registrant’s Registration Statement on Form 10 (File No. 0-18486), filed with the Commission on April 25, 1990 and incorporated herein by reference

     10.2 Profit-Sharing Plan Dated January 1, 1979
    

•     filed as Exhibit 10(b) to the Registrant’s Registration Statement on Form 10 (File No. 0-18486), filed with the Commission on April 25, 1990 and incorporated herein by reference

     10.3 1999 Restricted Stock Grant Plan and Restricted Stock Grant Agreement
    

•     filed as Exhibit 10(c) the Registrant’s Annual Report on Form 10-K (File No. 000-12436), filed with the Commission on March 30, 2001 and incorporated herein by reference

     10.4 2004 Restricted Stock Grant Plan and Restricted Stock Grant Agreement
    

•     filed as Exhibit C to the Registrant’s Definitive Proxy Statement for Annual Meeting of Stockholders to be held on April 27, 2004, filed with the Securities and Exchange Commission on March 3, 2004 (File No. 000-12436) and incorporated herein by reference

     10.5 Lease Agreement – Mobile Home Tracts, LLC c/o Stafford Properties, Inc. and Colony Bank Worth
     11.1 Statement of Computation of Earnings Per Share
     31.1 Certificate of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
     31.2 Certificate of Chief Financial Officer Pursuant to Section 302 of Sarbanes – Oxley Act of 2002
     32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

43


B. The Company filed Form 8-K on July 9, 2004 reporting that a press release had been issued on July 9, 2004 in which financial results for the quarter ended June 30, 2004 was reported.

 

The Company filed Form 8-K on August 19, 2004 reporting that a press release had been issued on August 19, 2004 announcing the opening of a new banking facility in Tifton/Tift County, Ga.

 

The Company filed Form 8-K on September 20, 2004 reporting that a press release had been issued on September 20, 2004 announcing the opening of a loan production office in Columbus/Muscogee County, Ga.

 

The Company filed Form 8-K on September 22, 2004 reporting that a press release had been issued on September 22, 2004 announcing declaration of its third quarter dividends.

 

The Company filed Form 8-K on October 8, 2004 reporting that a press release had been issued on October 8, 2004 announcing the financial results for the quarter ended September 30, 2004.

 

The Company filed Form 8-K on October 22, 2004 reporting that Charles E. Myler and DeNean Stafford, III had been elected to the Board of Directors on October 19, 2004.

 

SIGNATURE

 

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

         

Date: November 2, 2004

     

/s/ James D. Minix

       

James D. Minix, President and

       

Chief Executive Officer

Date: November 2, 2004

     

/s/ Terry L. Hester

       

Terry L. Hester, Executive Vice President and

       

Chief Financial Officer

 

44