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10-K - FORM 10-K - COLONY BANKCORP INCcban20151231_10k.htm

 

EXHIBIT NO. 13

McNair, McLemore, Middlebrooks & Co., LLC

CERTIFIED PUBLIC ACCOUNTANTS

389 Mulberry Street • Post Office Box One • Macon, GA 31202

Telephone (478) 746-6277 • Facsimile (478) 743-6858

mmmcpa.com

 

 

 

 

March 10, 2016

 

 

REPORT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

 

 

The Board of Directors and Stockholders

Colony Bankcorp, Inc.

 

We have audited the accompanying consolidated balance sheets of Colony Bankcorp, Inc. and Subsidiary as of December 31, 2015 and 2014 and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Colony Bankcorp, Inc. and Subsidiary as of December 31, 2015 and 2014, and the results of its operations and cash flows for each of the years in the three-year period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America.

 

We were not engaged to examine management’s assessment of the effectiveness of Colony Bankcorp, Inc.’s internal control over financial reporting as of December 31, 2015 included under Item 9A, Controls and Procedures, in Colony Bankcorp, Inc.’s Annual Report on Form 10-K and, accordingly, we do not express an opinion thereon.

 

 

 

McNAIR, McLEMORE, MIDDLEBROOKS & CO., LLC

 

 
 

 

 

COLONY BANKCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

DECEMBER 31

 

ASSETS

 
                 
   

2015

   

2014

 
                 

Cash and Cash Equivalents

               

Cash and Due from Banks

  $ 22,256,646     $ 24,472,870  

Federal Funds Sold

    -       20,132,062  
                 
      22,256,646       44,604,932  
                 

Interest-Bearing Deposits

    38,615,299       21,206,039  
                 

Investment Securities

               

Available for Sale, at Fair Value

    296,149,299       274,594,586  

Held to Maturity, at Cost (Fair Value of $29,923 as of December 31, 2014)

    -       29,796  
                 
      296,149,299       274,624,382  
                 

Federal Home Loan Bank Stock, at Cost

    2,730,500       2,830,800  
                 

Loans

    758,635,595       746,093,809  

Allowance for Loan Losses

    (8,603,905 )     (8,802,316 )

Unearned Interest and Fees

    (356,798 )     (361,374 )
                 
      749,674,892       736,930,119  
                 

Premises and Equipment

    26,453,530       24,960,445  
                 

Other Real Estate (Net of Allowance of $1,582,101 and $3,319,644 in 2015 and 2014, Respectively)

    8,839,103       10,401,832  
                 

Other Intangible Assets

    116,264       152,012  
                 

Other Assets

    29,313,894       31,187,420  
                 

Total Assets

  $ 1,174,149,427     $ 1,146,897,981  

 

 

See accompanying notes which are an integral part of these financial statements.

 

 
 

 

 

COLONY BANKCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

DECEMBER 31

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

   

2015

   

2014

 
                 

Deposits

               

Noninterest-Bearing

  $ 133,886,271     $ 128,339,763  

Interest-Bearing

    877,667,965       850,963,711  
                 
      1,011,554,236       979,303,474  
                 

Borrowed Money

               

Subordinated Debentures

    24,229,000       24,229,000  

Other Borrowed Money

    40,000,000       40,000,000  
                 
      64,229,000       64,229,000  
                 

Other Liabilities

    2,909,569       4,338,195  
                 
                 

Commitments and Contingencies

               
                 
                 

StockholdersEquity

               

Preferred Stock, Stated Value $1,000; Authorized 10,000,000 Shares, Issued 18,021 and 28,000 Shares as of December 31, 2015 and 2014

    18,021,000       28,000,000  

Common Stock, Par Value $1; Authorized 20,000,000 Shares, Issued 8,439,258 Shares as of December 31, 2015 and 2014

    8,439,258       8,439,258  

Paid-In Capital

    29,145,094       29,145,094  

Retained Earnings

    44,285,621       38,287,934  

Accumulated Other Comprehensive Loss, Net of Tax

    (4,434,351 )     (4,844,974 )
                 
      95,456,622       99,027,312  
                 
                 

Total Liabilities and StockholdersEquity

  $ 1,174,149,427     $ 1,146,897,981  

 

 

See accompanying notes which are an integral part of these financial statements.

 

 
 

 

 

COLONY BANKCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31

 

   

2015

   

2014

   

2013

 

Interest Income

                       

Loans, Including Fees

  $ 39,716,269     $ 39,735,615     $ 41,350,195  

Federal Funds Sold

    14,561       32,100       39,199  

Deposits with Other Banks

    79,735       41,639       26,704  

Investment Securities

                       

U.S. Government Agencies

    4,235,207       4,737,878       3,516,978  

State, County and Municipal

    107,638       99,736       123,972  

Corporate Obligations

    -       -       47,275  

Dividends on Other Investments

    122,070       115,134       81,398  
                         
      44,275,480       44,762,102       45,185,721  

Interest Expense

                       

Deposits

    4,856,673       5,113,024       5,821,366  

Federal Funds Purchased

    26       19       116  

Borrowed Money

    1,712,548       1,685,744       1,675,164  
                         
      6,569,247       6,798,787       7,496,646  
                         

Net Interest Income

    37,706,233       37,963,315       37,689,075  
                         

Provision for Loan Losses

    865,500       1,308,000       4,485,000  
                         

Net Interest Income After Provision for Loan Losses

    36,840,733       36,655,315       33,204,075  
                         

Noninterest Income

                       

Service Charges on Deposits

    4,268,438       4,649,008       4,690,599  

Other Service Charges, Commissions and Fees

    2,627,157       2,387,589       1,725,271  

Mortgage Fee Income

    527,187       419,963       484,396  

Securities Gains (Losses)

    (11,466 )     23,735       (363,804 )

Gain on Sale of SBA Loans

    -       -       635,190  

Other

    1,633,205       1,644,294       1,205,631  
                         
      9,044,521       9,124,589       8,377,283  

Noninterest Expenses

                       

Salaries and Employee Benefits

    17,589,631       17,507,926       16,691,972  

Occupancy and Equipment

    3,989,347       4,062,844       3,794,524  

Directors’ Fees

    358,291       392,132       416,972  

Legal and Professional Fees

    737,731       785,683       721,322  

Foreclosed Property

    1,682,783       2,701,436       3,918,128  

FDIC Assessment

    899,302       965,898       1,321,981  

Advertising

    624,844       652,374       508,292  

Software

    992,593       925,489       852,475  

Telephone

    710,038       735,735       778,151  

ATM/Card Processing

    1,061,262       905,732       685,497  

Other

    5,078,932       5,344,743       4,928,135  
                         
      33,724,754       34,979,992       34,617,449  
                         

Income Before Income Taxes

    12,160,500       10,799,912       6,963,909  
                         

Income Taxes

    3,787,803       3,268,287       2,334,864  
                         

Net Income

    8,372,697       7,531,625       4,629,045  

Preferred Stock Dividends

    2,375,010       2,688,604       1,508,761  
                         

Net Income Available to Common Stockholders

  $ 5,997,687     $ 4,843,021     $ 3,120,284  
                         

Net Income Per Share of Common Stock

  $ 0.71     $ 0.57     $ 0.37  

Basic

  $ 0.71     $ 0.57     $ 0.37  

Diluted

                       

Cash Dividends Declared Per Share of Common Stock

  $ 0.00     $ 0.00     $ 0.00  
                         

Weighted Average Shares Outstanding, Basic

    8,439,258       8,439,258       8,439,258  

Weighted Average Shares Outstanding, Diluted

    8,458,461       8,439,258       8,439,258  

 

See accompanying notes which are an integral part of these financial statements.

 

 
 

 

 

COLONY BANKCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31

   

2015

   

2014

   

2013

 
                         

Net Income

  $ 8,372,697     $ 7,531,625     $ 4,629,045  
                         

Other Comprehensive Income (Loss)

                       
                         

Gains (Losses) on Securities Arising During the Year

    610,689       6,432,906       (13,886,854 )

Tax Effect

    (207,634 )     (2,187,189 )     4,721,531  
                         

Realized Gains (Losses) on Sale of AFS Securities

    11,466       (23,735 )     (2,819 )

Tax Effect

    (3,898 )     8,070       959  
                         

Impairment Loss on Securities

    -       -       366,623  

Tax Effect

    -       -       (124,652 )
                         

Change in Unrealized Gains (Losses) on Securities 

Available for Sale, Net of Reclassification

Adjustment and Tax Effects

    410,623       4,230,052       (8,925,212 )
                         

Comprehensive Income (Loss)

  $ 8,783,320     $ 11,761,677     $ (4,296,167 )

 

See accompanying notes which are an integral part of these financial statements.

 

 
 

 

 

COLONY BANKCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013

 

   

 

 

Preferred

Shares Issued

   

Preferred

Stock

   

Common

Shares

Issued

   

Common

Stock

   

Paid-In

Capital

   

Retained

Earnings

   

Accumulated Other Comprehensive Income (Loss)

   

Total

 
                                                                 

Balance, December 31, 2012

    28,000     $ 27,827,053       8,439,258     $ 8,439,258     $ 29,145,094     $ 30,497,576     $ (149,814 )   $ 95,759,167  
                                                                 

Change in Net Unrealized Gains (Losses) on Securities Available for Sale, Net of  Reclassification Adjustment and Tax Effects

                                                    (8,925,212 )     (8,925,212 )

Accretion of Fair Value of Warrant

            172,947                               (172,947 )             -  

Dividends on Preferred Shares

                                            (1,508,761 )             (1,508,761 )

Net Income

                                            4,629,045               4,629,045  
                                                                 

Balance, December 31, 2013

    28,000       28,000,000       8,439,258       8,439,258       29,145,094       33,444,913       (9,075,026 )     89,954,239  
                                                                 

Change in Net Unrealized Gains (Losses) on Securities Available for Sale, Net of Reclassification Adjustment and Tax Effects

                                                    4,230,052       4,230,052  

Dividends on Preferred Shares

                                            (2,688,604 )             (2,688,604 )

Net Income

                                            7,531,625               7,531,625  
                                                                 

Balance, December 31, 2014

    28,000       28,000,000       8,439,258       8,439,258       29,145,094       38,287,934       (4,844,974 )     99,027,312  
                                                                 

Change in Net Unrealized Gains (Losses) on Securities Available for Sale, Net of Reclassification Adjustment and Tax Effects

                                                    410,623       410,623  

Dividends on Preferred Shares

                                            (2,375,010 )             (2,375,010 )

Redemption of Preferred Stock

    (9,979 )     (9,979,000 )                                             (9,979,000 )

Net Income

                                            8,372,697               8,372,697  
                                                                 

Balance, December 31, 2015

    18,021     $ 18,021,000       8,439,258     $ 8,439,258     $ 29,145,094     $ 44,285,621     $ (4,434,351 )   $ 95,456,622  

 

 

See accompanying notes which are an integral part of these financial statements.

 

 
 

 

 

COLONY BANKCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31

 

   

2015

   

2014

   

2013

 

Cash Flows from Operating Activities

                       

Net Income

  $ 8,372,697     $ 7,531,625     $ 4,629,045  

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

                       

Depreciation

    1,657,229       1,595,253       1,527,392  

Amortization and Accretion

    1,797,152       1,312,857       2,667,404  

Provision for Loan Losses

    865,500       1,308,000       4,485,000  

Deferred Income Taxes

    625,436       1,932,950       2,178,222  

Securities (Gains) Losses

    11,466       (23,735 )     363,804  

(Gain) Loss on Sale of Premises and Equipment

    11,047       (12,489 )     (677 )

Loss on Sale of Other Real Estate and Repossessions

    600,663       828,411       1,565,091  

Provision for Losses on Other Real Estate

    453,148       1,006,827       1,321,418  

Increase in Cash Surrender Value of Life Insurance

    (299,010 )     (590,674 )     (338,712 )

Change In

                       

Interest Receivable

    (354,274 )     55,786       285,033  

Prepaid Expenses

    278,637       (64,633 )     (168,060 )

Interest Payable

    32,253       (1,099,756 )     385,285  

Accrued Expenses and Accounts Payable

    (202,343 )     197,195       213,753  

Other

    217,686       788,958       (243,543 )
                         
      14,067,287       14,766,575       18,870,455  

Cash Flows from Investing Activities

                       

Interest-Bearing Deposits in Other Banks

    (17,409,260 )     754,252       (164,950 )

Purchase of Investment Securities

                       

Available for Sale

    (102,336,227 )     (56,201,891 )     (132,419,073 )

Proceeds from Sale of Investment Securities

                       

Available for Sale

    28,273,634       13,620,956       72,672,795  

Proceeds from Maturities, Calls and Paydowns of Investment Securities

                       

Available for Sale

    51,423,541       36,440,646       48,330,382  

Held to Maturity

    9,734       12,968       11,623  

Proceeds from Sale of Premises and Equipment

    28,608       14,376       2,500  

Net Loans to Customers

    (21,255,018 )     (3,156,342 )     (19,959,948 )

Purchase of Premises and Equipment

    (3,189,969 )     (1,681,115 )     (1,489,579 )

Proceeds from Sale of Other Real Estate and Repossessions

    8,154,596       7,233,497       8,041,638  

Proceeds from Sale of Federal Home Loan Bank Stock

    100,300       333,100       200,400  

Purchase of Bank-Owned Life Insurance

    -       -       (10,000,000 )
                         
      (56,200,061 )     (2,629,553 )     (34,774,212 )

Cash Flows from Financing Activities

                       

Interest-Bearing Customer Deposits

    26,704,254       (21,305,068 )     16,550,430  

Noninterest-Bearing Customer Deposits

    5,546,508       13,079,062       (8,705,841 )

Proceeds from Other Borrowed Money

    27,000,000       -       21,500,000  

Principal Payments on Other Borrowed Money

    (27,000,000 )     -       (16,500,000 )

Dividends Paid on Preferred Stock

    (2,487,274 )     (5,492,749 )     -  

Redemption of Preferred Stock

    (9,979,000 )     -       -  
                         
      19,784,488       (13,718,755 )     12,844,589  
                         

Net Increase (Decrease) in Cash and Cash Equivalents

    (22,348,286 )     (1,581,733 )     (3,059,168 )
                         

Cash and Cash Equivalents, Beginning

    44,604,932       46,186,665       49,245,833  
                         

Cash and Cash Equivalents, Ending

  $ 22,256,646     $ 44,604,932     $ 46,186,665  

 

 

See accompanying notes which are an integral part of these financial statements.

 

 
 

 

 

COLONY BANKCORP, INC. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

(1) Summary of Significant Accounting Policies

 

Principles of Consolidation

 

Colony Bankcorp, Inc. (the Company) is a bank holding company located in Fitzgerald, Georgia. The consolidated financial statements include the accounts of Colony Bankcorp, Inc. and its wholly-owned subsidiary, Colony Bank, Fitzgerald, Georgia. All significant intercompany accounts have been eliminated in consolidation. The accounting and reporting policies of Colony Bankcorp, Inc. conform to generally accepted accounting principles and practices utilized in the commercial banking industry.

 

Nature of Operations

 

The Company provides a full range of retail and commercial banking services for consumers and small- to medium-size businesses located primarily in central, south and coastal Georgia. Colony Bank is headquartered in Fitzgerald, Georgia with banking offices in Albany, Ashburn, Broxton, Centerville, Chester, Columbus, Cordele, Douglas, Eastman, Fitzgerald, Leesburg, Moultrie, Pitts, Quitman, Rochelle, Savannah, Soperton, Sylvester, Thomaston, Tifton, Valdosta and Warner Robins. Lending and investing activities are funded primarily by deposits gathered through its retail banking office network.

 

Use of Estimates

 

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

 

Reclassifications

 

In certain instances, amounts reported in prior years’ consolidated financial statements and note disclosures have been reclassified to conform to statement presentations selected for 2015. Such reclassifications had no effect on previously reported stockholders’ equity or net income.

 

 
 

 

 

(1) Summary of Significant Accounting Policies (Continued)

 

Concentrations of Credit Risk

 

Concentrations of credit risk can exist in relation to individual borrowers or groups of borrowers, certain types of collateral, certain types of industries or certain geographic regions. The Company has a concentration in real estate loans as well as a geographic concentration that could pose an adverse credit risk, particularly with the current economic downturn in the real estate market. At December 31, 2015, approximately 86 percent of the Company’s loan portfolio was concentrated in loans secured by real estate. A substantial portion of borrowers’ ability to honor their contractual obligations is dependent upon the viability of the real estate economic sector. Declining collateral real estate values that secure land development, construction and speculative real estate loans in the Company’s larger MSA markets have resulted in high loan loss provisions in recent years. In addition, a large portion of the Company’s foreclosed assets are also located in these same geographic markets, making the recovery of the carrying amount of foreclosed assets susceptible to changes in market conditions. Management continues to monitor these concentrations and has considered these concentrations in its allowance for loan loss analysis.

 

The success of the Company is dependent, to a certain extent, upon the economic conditions in the geographic markets it serves. Adverse changes in the economic conditions in these geographic markets would likely have a material adverse effect on the Company’s results of operations and financial condition. The operating results of the Company depend primarily on its net interest income. Accordingly, operations are subject to risks and uncertainties surrounding the exposure to changes in the interest rate environment.

 

At times, the Company may have cash and cash equivalents at financial institutions in excess of federal deposit insurance limits. The Company places its cash and cash equivalents with high credit quality financial institutions whose credit rating is monitored by management to minimize credit risk.

 

Investment Securities

 

The Company classifies its investment securities as trading, available for sale or held to maturity. Securities that are held principally for resale in the near term are classified as trading. Trading securities are carried at fair value, with realized and unrealized gains and losses included in noninterest income. Currently, no securities are classified as trading. Securities acquired with both the intent and ability to be held to maturity are classified as held to maturity and reported at amortized cost. All securities not classified as trading or held to maturity are considered available for sale. Securities available for sale are reported at estimated fair value. Unrealized gains and losses on securities available for sale are excluded from earnings and are reported, net of deferred taxes, in accumulated other comprehensive income (loss), a component of stockholders’ equity. Gains and losses from sales of securities available for sale are computed using the specific identification method. Securities available for sale includes securities, which may be sold to meet liquidity needs arising from unanticipated deposit and loan fluctuations, changes in regulatory capital requirements, or unforeseen changes in market conditions.

 

 

 
 

 

 

(1) Summary of Significant Accounting Policies (Continued)

 

Investment Securities (Continued)

 

The Company evaluates each held to maturity and available for sale security in a loss position for other-than-temporary impairment (OTTI). In estimating other-than-temporary impairment losses, management considers such factors as the length of time and the extent to which the market value has been below cost, the financial condition of the issuer and the Company’s intent to sell and whether it is more likely than not that the Company will be required to sell the security before anticipated recovery of the amortized cost basis. If the Company intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery, the OTTI write-down is recognized in earnings. If the Company does not intend to sell the security or it is not more likely than not that it will be required to sell the security before recovery, the OTTI write-down is separated into an amount representing credit loss, which is recognized in earnings, and an amount related to all other factors, which is recognized in other comprehensive income (loss).

 

Federal Home Loan Bank Stock

 

Investment in stock of a Federal Home Loan Bank (FHLB) is required for every federally insured institution that utilizes its services. FHLB stock is considered restricted, as defined in the accounting standards. The FHLB stock is reported in the consolidated financial statements at cost. Dividend income is recognized when earned.

 

Loans

 

Loans that the Company has the ability and intent to hold for the foreseeable future or until maturity are recorded at their principal amount outstanding, net of unearned interest and fees. Loan origination fees, net of certain direct origination costs, are deferred and amortized over the estimated terms of the loans using the straight-line method. Interest income on loans is recognized using the effective interest method.

 

A loan is considered to be delinquent when payments have not been made according to contractual terms, typically evidenced by nonpayment of a monthly installment by the due date.

 

When management believes there is sufficient doubt as to the collectibility of principal or interest on any loan or generally when loans are 90 days or more past due, the accrual of applicable interest is discontinued and the loan is designated as nonaccrual, unless the loan is well secured and in the process of collection. Interest payments received on nonaccrual loans are either applied against principal or reported as income, according to management’s judgment as to the collectibility of principal. Loans are returned to an accrual status when factors indicating doubtful collectibility on a timely basis no longer exist.

 

Loans Modified in a Troubled Debt Restructuring (TDR)

 

Loans are considered to have been modified in a TDR when, due to a borrower’s financial difficulty, the Company makes certain concessions to the borrower that it would not otherwise consider for new debt with similar risk characteristics. Modifications may include interest rate reductions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of the collateral. Generally, a nonaccrual loan that has been modified in a TDR remains on nonaccrual status for a period of six months to demonstrate that the borrower is able to meet the terms of the modified loan. However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on nonaccrual status. Once a loan is modified in a troubled debt restructuring, it is accounted for as an impaired loan, regardless of its accrual status, until the loan is paid in full, sold or charged off.

 

 
 

 

 

(1) Summary of Significant Accounting Policies (Continued)

 

Allowance for Loan Losses

 

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

 

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revisions as more information becomes available.

 

The allowance consists of specific, historical and general components. The specific component relates to loans that are classified as either doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan are lower than the carrying value of that loan. The historical component covers nonclassified loans and is based on historical loss experience adjusted for qualitative factors. A general component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The general component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and historical losses in the portfolio. General valuation allowances are based on internal and external qualitative risk factors such as (1) changes in lending policies and procedures, including changes in underwriting standards and collections, charge offs, and recovery practices, (2) changes in international, national, regional, and local conditions, (3) changes in the nature and volume of the portfolio and terms of loans, (4) changes in the experience, depth, and ability of lending management, (5) changes in the volume and severity of past due loans and other similar conditions, (6) changes in the quality of the organization's loan review system, (7) changes in the value of underlying collateral for collateral dependent loans, (8) the existence and effect of any concentrations of credit and changes in the levels of such concentrations, and (9) the effect of other external factors (i.e. competition, legal and regulatory requirements) on the level of estimated credit losses.

 

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

 

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

 

 
 

 

 

(1) Summary of Significant Accounting Policies (Continued)

 

Allowance for Loan Losses (Continued)

 

A significant portion of the Company’s impaired loans are deemed to be collateral dependent. Management therefore measures impairment on these loans based on the fair value of the collateral. Collateral values are determined based on appraisals performed by qualified licensed appraisers hired by the Company or by senior members of the Company’s credit administration staff. The decision whether to obtain an external third-party appraisal usually depends on the type of property being evaluated. External appraisals are usually obtained on more complex, income producing properties such as hotels, shopping centers and businesses. Less complex properties such as residential lots, farm land and single family houses may be evaluated internally by senior credit administration staff. When the Company does obtain appraisals from external third-parties, the values utilized in the impairment calculation are “as is” or current market values. The appraisals, whether prepared internally or externally, may utilize a single valuation approach or a combination of approaches including the comparable sales, income and cost approach. Appraised amounts used in the impairment calculation are typically discounted 10 percent to account for selling and marketing costs, if the repayment of the loan is to come from the sale of the collateral. Although appraisals may not be obtained each year on all impaired loans, the collateral values used in the impairment calculations are evaluated quarterly by management. Based on management’s knowledge of the collateral and the current real estate market conditions, appraised values may be further discounted to reflect facts and circumstances known to management since the initial appraisal was performed.

 

Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a level 3 classification of the inputs for determining fair value. Because of the high degree of judgment required in estimating the fair value of collateral underlying impaired loans and because of the relationship between fair value and general economic conditions, we consider the fair value of impaired loans to be highly sensitive to changes in market conditions.

 

Premises and Equipment

 

Premises and equipment are recorded at acquisition cost net of accumulated depreciation.

 

Depreciation is charged to operations over the estimated useful lives of the assets. The estimated useful lives and methods of depreciation are as follows:

 

Description

 

Life in Years

 

Method

         

Banking Premises

 

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.   

 

Intangible Assets

 

Intangible assets consist of core deposit intangibles acquired in connection with a business combination. The core deposit intangible is initially recognized based on an independent valuation performed as of the consummation date. The core deposit intangible is amortized by the straight-line method over the average remaining life of the acquired customer deposits.

 

 
 

 

 

(1) Summary of Significant Accounting Policies (Continued)

 

Transfers of Financial Assets

 

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

 

Statement of Cash Flows

 

For reporting cash flows, cash and cash equivalents include cash on hand, noninterest-bearing amounts due from banks, federal funds sold and securities purchased under agreement to resell. Cash flows from demand deposits, interest-bearing checking accounts, savings accounts, loans and certificates of deposit are reported net.

 

Securities Purchased Under Agreement to Resell and Securities Sold Under Agreements to Repurchase

 

The Company purchases certain securities under agreements to resell. The amounts advanced under these agreements represent short-term loans and are reflected as assets in the consolidated balance sheets.

 

The Company sells securities under agreements to repurchase. These repurchase agreements are treated as borrowings. The obligations to repurchase securities sold are reflected as a liability and the securities underlying the agreements are reflected as assets in the consolidated balance sheets.

 

Advertising Costs

 

The Company expenses the cost of advertising in the periods in which those costs are incurred.

 

Income Taxes

 

The provision for income taxes is based upon income for financial statement purposes, adjusted for nontaxable income and nondeductible expenses. Deferred income taxes have been provided when different accounting methods have been used in determining income for income tax purposes and for financial reporting purposes.

 

Deferred tax assets and liabilities are recognized based on future tax consequences attributable to differences arising from the financial statement carrying values of assets and liabilities and their tax basis. The differences relate primarily to depreciable assets (use of different depreciation methods for financial statement and income tax purposes) and allowance for loan losses (use of the allowance method for financial statement purposes and the direct write-off method for tax purposes). In the event of changes in the tax laws, deferred tax assets and liabilities are adjusted in the period of the enactment of those changes, with effects included in the income tax provision. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company and its subsidiary file a consolidated federal income tax return. The subsidiary pays its proportional share of federal income taxes to the Company based on its taxable income.

 

The Company’s federal and state income tax returns for tax years 2015, 2014, 2013 and 2012 are subject to examination by the Internal Revenue Service (IRS) and the Georgia Department of Revenue, generally for three years after filing.

 

 
 

 

 

(1) Summary of Significant Accounting Policies (Continued)

 

Income Taxes (Continued)

 

Positions taken in the Company’s tax returns may be subject to challenge by the taxing authorities upon examination. Uncertain tax positions are initially recognized in the consolidated financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are both initially and subsequently measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement with the tax authority, assuming full knowledge of the position and all relevant facts. The Company provides for interest and, in some cases, penalties on tax positions that may be challenged by the taxing authorities. Interest expense is recognized beginning in the first period that such interest would begin accruing. Penalties are recognized in the period that the Company claims the position in the tax return. Interest and penalties on income tax uncertainties are classified within income tax expense in the consolidated statements of operations.

 

Other Real Estate

 

Other real estate generally represents real estate acquired through foreclosure and is initially recorded at estimated fair value at the date of acquisition less the cost of disposal. Losses from the acquisition of property in full or partial satisfaction of debt are recorded as loan losses. Properties are evaluated regularly to ensure the recorded amounts are supported by current fair values, and valuation allowances are recorded as necessary to reduce the carrying amount to fair value less estimated cost of disposal. Routine holding costs and gains or losses upon disposition are included in foreclosed property expense.

 

Bank-Owned Life Insurance

 

The Company has purchased life insurance on the lives of certain key members of management and directors. The life insurance policies are recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or amounts due that are probable at settlement, if applicable. Increases in the cash surrender value are recorded as other income in the consolidated statements of income. The cash surrender value of the insurance contracts is recorded in other assets on the consolidated balance sheets in the amount of $14,829,861 and $14,530,851 as of December 31, 2015 and 2014, respectively.

 

Comprehensive Income

 

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Certain changes in assets and liabilities, such as unrealized gains and losses on securities available for sale, represent equity changes from economic events of the period other than transactions with owners. Such items are considered components of other comprehensive income (loss). Accounting standards codification requires the presentation in the consolidated financial statements of net income and all items of other comprehensive income (loss) as total comprehensive income (loss).

 

Off-Balance Sheet Credit Related Financial Instruments

 

In the ordinary course of business, the Company has entered into commitments to extend credit, commercial letters of credit and standby letters of credit. Such financial instruments are recorded on the consolidated balance sheets when they are funded.

 

 
 

 

 

(1) Summary of Significant Accounting Policies (Continued)

 

Changes in Accounting Principles and Effects of New Accounting Pronouncements

 

Accounting Standards Update (ASU) 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. ASU 2015-05 provides guidance to customers as to whether a cloud computing arrangement (e.g., software as a service, platform as a service, infrastructure as a service, and other similar hosting arrangements) includes a software license and, based on that determination, whether such arrangement should be accounted for consistent with the acquisition of other software licenses or as a service contract. The amendments may be applied on either a prospective or retrospective basis and early adoption is permitted. ASU 2015-05 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

 

ASU 2015-01, Income Statement—Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. ASU 2015-01 eliminates the concept of extraordinary items from U.S. Generally Accepted Accounting Principles (GAAP) and the need for entities to evaluate whether transactions or events are both unusual in nature and infrequently occurring. However, the ASU does not affect the reporting and disclosure requirements for an event or transaction that is unusual in nature or that occurs infrequently. The amendments in Update 2015-01 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company will adopt the requirements of ASU 2015- 01 upon its effective date of January 1, 2016, and does not anticipate it having a material impact on the Company’s consolidated financial statements.

 

ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity is expected to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each performance obligation. ASU 2014-09, as deferred one year by ASU 2015-14, is effective for the Company in the first quarter of fiscal year 2018. The Company is currently evaluating the impact of the pending adoption of ASU 2014-09 on the consolidated financial statements.

 

 
 

 

 

(1) Summary of Significant Accounting Policies (Continued)

 

Changes in Accounting Principles and Effects of New Accounting Pronouncements (Continued)

 

ASU  2016-1, “No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU  2016-1, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (viii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. ASU  2016-1 will be effective for the Company on January 1, 2018. The Company is currently evaluating the impact of the pending adoption of ASU 2016-1 on the consolidated financial statements.

 

 

(2) Cash and Balances Due from Banks

 

Components of cash and balances due from banks are as follows as of December 31:

 

   

2015

   

2014

 
                 

Cash on Hand and Cash Items

  $ 9,061,678     $ 9,974,663  

Noninterest-Bearing Deposits with Other Banks

    13,194,968       14,498,207  
                 
    $ 22,256,646     $ 24,472,870  

 

The Company is required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank based on a percentage of deposits. Reserve balances totaled approximately $1,275,000 and $1,278,000 at December 31, 2015 and 2014, respectively.

 

 
 

 

 

(3) Investment Securities

 

Investment securities as of December 31, 2015 are summarized as follows:

 

   

 

Amortized

Cost

   

Gross

Unrealized

Gains

   

Gross

Unrealized

Losses

   

 

Fair

Value

 

Securities Available for Sale

                               

U.S. Government Agencies

                               

Mortgage-Backed

  $ 297,778,875     $ 62,815     $ (6,791,837 )   $ 291,049,853  

State, County and Municipal

    5,089,137       30,542       (20,233 )     5,099,446  
                                 
    $ 302,868,012     $ 93,357     $ (6,812,070 )   $ 296,149,299  

 

The amortized cost and fair value of investment securities as of December 31, 2015, by contractual maturity, are shown hereafter. Expected maturities may differ from contractual maturities for certain investments because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. This is often the case with mortgage-backed securities, which are disclosed separately in the table below.

 

   

Securities

Available for Sale

 
   

Amortized

Cost

   

Fair

Value

 
                 

Due in One Year or Less

  $ 330,531     $ 331,818  

Due After One Year Through Five Years

    770,079       773,706  

Due After Five Years Through Ten Years

    2,492,993       2,517,901  

Due After Ten Years

    1,495,534       1,476,021  
                 
      5,089,137       5,099,446  
                 

Mortgage-Backed Securities

    297,778,875       291,049,853  
                 
    $ 302,868,012     $ 296,149,299  

 

Investment securities as of December 31, 2014 are summarized as follows:

 

   

 

Amortized

Cost

   

Gross

Unrealized

Gains

   

Gross

Unrealized

Losses

   

 

Fair

Value

 

Securities Available for Sale

                               

U.S. Government Agencies

                               

Mortgage-Backed

  $ 278,419,055     $ 155,902     $ (7,511,288 )   $ 271,063,669  

State, County and Municipal

    3,516,400       27,181       (12,664 )     3,530,917  
                                 
    $ 281,935,455     $ 183,083     $ (7,523,952 )   $ 274,594,586  

Securities Held to Maturity

                               

State, County and Municipal

  $ 29,796     $ 127     $ -     $ 29,923  

 

 
 

 

 

(3) Investment Securities (Continued)

 

Proceeds from sales of investments available for sale were $28,273,634 in 2015, $13,620,956 in 2014, and $72,672,795 in 2013. Gross realized gains totaled $207,896 in 2015, $67,601 in 2014, and $442,124 in 2013. Gross realized losses totaled $196,316 in 2015, $45,666 in 2014, and $805,928 in 2013. In addition, gross realized losses of $23,046 in 2015 was due to a loss on a maturity for a held-to-maturity investment and gross realized gains of $1,800 in 2014 was due to a gain on a call for a held-to-maturity investment.

 

Investment securities having a carrying value totaling $133,754,087 and $135,531,563 as of December 31, 2015 and 2014, respectively, were pledged to secure public deposits and for other purposes.

 

Information pertaining to securities with gross unrealized losses at December 31, 2015 and 2014 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

 

   

Less Than 12 Months

   

12 Months or Greater

   

Total

 
   

 

Fair

Value

   

Gross

Unrealized

Losses

   

 

Fair

Value

   

Gross

Unrealized

Losses

   

 

Fair

Value

   

Gross

Unrealized

Losses

 

December 31, 2015

                                               

U.S. Government Agencies

                                               

Mortgage-Backed

  $ 139,765,025     $ (1,270,011 )   $ 139,720,125     $ (5,521,826 )   $ 279,485,150     $ (6,791,837 )

State, County and Municipal

    1,034,613       (20,233 )     -       -       1,034,613       (20,233 )
                                                 
    $ 140,799,638     $ (1,290,244 )   $ 139,720,125     $ (5,521,826 )   $ 280,519,763     $ (6,812,070 )
                                                 

December 31, 2014

                                               

U.S. Government Agencies

                                               

Mortgage-Backed

  $ 66,609,319     $ (396,896 )   $ 183,645,552     $ (7,114,392 )   $ 250,254,871     $ (7,511,288 )

State, County and Municipal

    -       -       1,379,547       (12,664 )     1,379,547       (12,664 )
                                                 
    $ 66,609,319     $ (396,896 )   $ 185,025,099     $ (7,127,056 )   $ 251,634,418     $ (7,523,952 )

 

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

 

 
 

 

 

(3) Investment Securities (Continued)

 

At December 31, 2015, the debt securities with unrealized losses have depreciated 2.37 percent from the Company’s amortized cost basis. These securities are guaranteed by either the U.S. Government, other governments or U.S. corporations. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition. The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available-for-sale, no declines are deemed to be other than temporary. However, the Company did own one asset-backed security at December 31, 2015 which was completely written off during prior years. This investment is comprised of one issuance of a trust preferred security and has no book value. Management evaluates this investment on a quarterly basis utilizing a third-party valuation model. The results of this model revealed other-than-temporary impairment and as a result, $366,623 was written off during the year ended December 31, 2013.

 

 

(4) Loans

 

The following table presents the composition of loans, segregated by class of loans, as of December 31:

 

   

2015

   

2014

 
                 

Commercial and Agricultural

               

Commercial

  $ 47,781,689     $ 50,960,265  

Agricultural

    19,193,497       16,689,444  
                 

Real Estate

               

Commercial Construction

    40,106,633       51,258,970  

Residential Construction

    9,413,263       11,220,683  

Commercial

    346,262,033       332,230,847  

Residential

    197,002,419       203,752,620  

Farmland

    61,779,859       49,950,984  
                 

Consumer and Other

               

Consumer

    20,605,465       22,820,314  

Other

    16,490,737       7,209,682  
                 

Total Loans

  $ 758,635,595     $ 746,093,809  

 

 
 

 

 

(4) Loans (Continued)

 

Commercial and agricultural loans are extended to a diverse group of businesses within the Company’s market area. These loans are often underwritten based on the borrower’s ability to service the debt from income from the business. Real estate construction loans often require loan funds to be advanced prior to completion of the project. Due to uncertainties inherent in estimating construction costs, changes in interest rates and other economic conditions, these loans often pose a higher risk than other types of loans. Consumer loans are originated at the bank level. These loans are generally smaller loan amounts spread across many individual borrowers to help minimize risk.

 

Credit Quality Indicators. As part of the ongoing monitoring of the credit quality of the loan portfolio, management tracks certain credit quality indicators including trends related to (1) the risk grade assigned to commercial and consumer loans, (2) the level of classified commercial loans, (3) net charge-offs, (4) nonperforming loans, and (5) the general economic conditions in the Company’s geographic markets.

 

The Company uses a risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a scale of 1 to 8. A description of the general characteristics of the grades is as follows:

 

 

Grades 1 and 2 - Borrowers with these assigned grades range in risk from virtual absence of risk to minimal risk. Such loans may be secured by Company-issued and controlled certificates of deposit or properly margined equity securities or bonds. Other loans comprising these grades are made to companies that have been in existence for a long period of time with many years of consecutive profits and strong equity, good liquidity, excellent debt service ability and unblemished past performance, or to exceptionally strong individuals with collateral of unquestioned value that fully secures the loans. Loans in this category fall into the “pass” classification.

 

 

Grades 3 and 4 - Loans assigned these “pass” risk grades are made to borrowers with acceptable credit quality and risk. The risk ranges from loans with no significant weaknesses in repayment capacity and collateral protection to acceptable loans with one or more risk factors considered to be more than average.

 

 

Grade 5 - This grade includes “special mention” loans on management’s watch list and is intended to be used on a temporary basis for pass grade loans where risk-modifying action is intended in the short-term.

 

 

Grade 6 - This grade includes “substandard” loans in accordance with regulatory guidelines. This category includes borrowers with well-defined weaknesses that jeopardize the payment of the debt in accordance with the agreed terms. Loans considered to be impaired are assigned this grade, and these loans often have assigned loss allocations as part of the allowance for loan and lease losses. Generally, loans on which interest accrual has been stopped would be included in this grade.

 

 

Grades 7 and 8 - These grades correspond to regulatory classification definitions of “doubtful” and “loss,” respectively. In practice, any loan with these grades would be for a very short period of time, and generally the Company has no loans with these assigned grades. Management manages the Company’s problem loans in such a way that uncollectible loans or uncollectible portions of loans are charged off immediately with any residual, collectible amounts assigned a risk grade of 6.

 

 
 

 

 

(4) Loans (Continued)

 

The following tables present the loan portfolio by credit quality indicator (risk grade) as of December 31. Those loans with a risk grade of 1, 2, 3 or 4 have been combined in the pass column for presentation purposes.

 

2015

 

Pass

   

Special Mention

   

Substandard

   

Total Loans

 
                                 

Commercial and Agricultural

                               

Commercial

  $ 44,273,407     $ 1,927,198     $ 1,581,084     $ 47,781,689  

Agricultural

    18,970,328       17,843       205,326       19,193,497  
                                 

Real Estate

                               

Commercial Construction

    36,516,165       912,295       2,678,173       40,106,633  

Residential Construction

    9,413,263       -       -       9,413,263  

Commercial

    320,566,237       13,652,416       12,043,380       346,262,033  

Residential

    177,054,188       8,545,942       11,402,289       197,002,419  

Farmland

    56,798,365       929,814       4,051,680       61,779,859  
                                 

Consumer and Other

                               

Consumer

    20,037,996       156,739       410,730       20,605,465  

Other

    16,465,593       636       24,508       16,490,737  
                                 

Total Loans

  $ 700,095,542     $ 26,142,883     $ 32,397,170     $ 758,635,595  
                                 

2014

                               
                                 

Commercial and Agricultural

                               

Commercial

  $ 46,230,110     $ 2,905,361     $ 1,824,794     $ 50,960,265  

Agricultural

    16,504,404       27,101       157,939       16,689,444  
                                 

Real Estate

                               

Commercial Construction

    45,063,306       1,740,488       4,455,176       51,258,970  

Residential Construction

    11,220,683       -       -       11,220,683  

Commercial

    309,828,039       11,220,166       11,182,642       332,230,847  

Residential

    180,549,640       10,582,704       12,620,276       203,752,620  

Farmland

    47,548,106       414,521       1,988,357       49,950,984  
                                 

Consumer and Other

                               

Consumer

    22,114,932       248,997       456,385       22,820,314  

Other

    7,012,405       -       197,277       7,209,682  
                                 

Total Loans

  $ 686,071,625     $ 27,139,338     $ 32,882,846     $ 746,093,809  

 

A loan’s risk grade is assigned at the inception of the loan and is based on the financial strength of the borrower and the type of collateral. Loan risk grades are subject to reassessment at various times throughout the year as part of the Company’s ongoing loan review process. Loans with an assigned risk grade of 6 or below and an outstanding balance of $250,000 or more are reassessed on a quarterly basis. During this reassessment process individual reserves may be identified and placed against certain loans which are not considered impaired.

 

In assessing the overall economic condition of the markets in which it operates, the Company monitors the unemployment rates for its major service areas. The unemployment rates are reviewed on a quarterly basis as part of the allowance for loan loss determination.

 

 
 

 

 

(4) Loans (Continued)

 

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Generally, loans are placed on nonaccrual status if principal or interest payments become 90 days past due or when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provision. Loans may be placed on nonaccrual status regardless of whether such loans are considered past due.

 

The following table represents an age analysis of past due loans and nonaccrual loans, segregated by class of loans, as of December 31:

 

   

Accruing Loans

                         

2015

 

 

30-89 Days

Past Due

   

90 Days

or More

Past Due

   

 

Total Accruing

Loans Past Due

   

 

Nonaccrual

Loans

   

 

Current

Loans

   

 

 

Total Loans

 
                                                 

Commercial and Agricultural

                                         

Commercial

  $ 490,727     $ -     $ 490,727     $ 576,940     $ 46,714,022     $ 47,781,689  

Agricultural

    71,416       -       71,416       178,021       18,944,060       19,193,497  
                                                 

Real Estate

                                               

Commercial Construction

    90,163       -       90,163       1,642,666       38,373,804       40,106,633  

Residential Construction

    -       -       -       -       9,413,263       9,413,263  

Commercial

    6,031,257       -       6,031,257       7,564,691       332,666,085       346,262,033  

Residential

    3,682,509       -       3,682,509       3,163,571       190,156,339       197,002,419  

Farmland

    122,696       -       122,696       1,103,354       60,553,809       61,779,859  
                                                 

Consumer and Other

                                               

Consumer

    469,839       7,799       477,638       178,336       19,949,491       20,605,465  

Other

    636       -       636       100       16,490,001       16,490,737  
                                                 

Total Loans

  $ 10,959,243     $ 7,799     $ 10,967,042     $ 14,407,679     $ 733,260,874     $ 758,635,595  
                                                 

2014

                                               
                                                 

Commercial and Agricultural

                                         

Commercial

  $ 872,321     $ -     $ 872,321     $ 405,398     $ 49,682,546     $ 50,960,265  

Agricultural

    -       -       -       44,605       16,644,839       16,689,444  
                                                 

Real Estate

                                               

Commercial Construction

    141,850       -       141,850       3,251,290       47,865,830       51,258,970  

Residential Construction

    -       -       -       -       11,220,683       11,220,683  

Commercial

    2,309,114       -       2,309,114       5,325,047       324,596,686       332,230,847  

Residential

    5,782,701       -       5,782,701       7,461,507       190,508,412       203,752,620  

Farmland

    281,967       -       281,967       1,449,226       48,219,791       49,950,984  
                                                 

Consumer and Other

                                               

Consumer

    313,424       6,642       320,066       201,695       22,298,553       22,820,314  

Other

    -       -       -       195,497       7,014,185       7,209,682  
                                                 

Total Loans

  $ 9,701,377     $ 6,642     $ 9,708,019     $ 18,334,265     $ 718,051,525     $ 746,093,809  

 

 
 

 

 

(4) Loans (Continued)

 

Had nonaccrual loans performed in accordance with their original contractual terms, the Company would have recognized additional interest income of approximately $418,400, $591,900, and $968,700 for the years ended December 31, 2015, 2014 and 2013, respectively.

 

The following table details impaired loan data as of December 31, 2015:

 

   

Unpaid

Contractual

Principal

Balance

   

 

 

Impaired

Balance

   

 

 

Related

Allowance

   

 

Average

Recorded

Investment

   

 

Interest

Income

Recognized

   

 

Interest

Income

Collected

 
                                                 

With No Related Allowance Recorded

                                         

Commercial

  $ 454,423     $ 454,013       -     $ 534,814     $ 17,259     $ 21,253  

Agricultural

    195,654       178,021       -       163,078       (9,957 )     10,334  

Commercial Construction

    6,887,522       1,896,938       -       2,867,061       25,788       27,007  

Commercial Real Estate

    15,569,340       15,122,486       -       15,430,252       529,376       530,699  

Residential Real Estate

    5,429,121       4,575,547       -       4,715,162       175,484       159,148  

Farmland

    1,104,887       1,103,353       -       1,339,863       583       2,076  

Consumer

    179,908       178,435       -       190,566       13,745       14,907  

Other

    -       -       -       48,438       -       -  
                                                 
    $ 29,820,855     $ 23,508,793       -     $ 25,289,234     $ 752,278     $ 765,424  
                                                 

With An Allowance Recorded

                                               

Commercial

  $ 122,928     $ 122,928     $ 94,538     $ 99,749     $ 2,275     $ 2,438  

Agricultural

    -       -       -       -       -       -  

Commercial Construction

    76,644       76,644       25,344       92,200       375       375  

Commercial Real Estate

    8,969,329       8,955,503       1,607,962       6,673,087       213,693       208,657  

Residential Real Estate

    1,083,127       1,075,367       308,188       1,088,380       16,380       15,873  

Farmland

    387,968       387,969       37,386       391,060       20,880       20,954  

Consumer

    -       -       -       -       -       -  

Other

    -       -       -       -       -       -  
                                                 
    $ 10,639,996     $ 10,618,411     $ 2,073,418     $ 8,344,476     $ 253,603     $ 248,297  
                                                 

Total

                                               

Commercial

  $ 577,351     $ 576,941     $ 94,538     $ 634,563     $ 19,534     $ 23,691  

Agricultural

    195,654       178,021       -       163,078       (9,957 )     10,334  

Commercial Construction

    6,964,166       1,973,582       25,344       2,959,261       26,163       27,382  

Commercial Real Estate

    24,538,669       24,077,989       1,607,962       22,103,339       743,069       739,356  

Residential Real Estate

    6,512,248       5,650,914       308,188       5,803,542       191,864       175,021  

Farmland

    1,492,855       1,491,322       37,386       1,730,923       21,463       23,030  

Consumer

    179,908       178,435       -       190,566       13,745       14,907  

Other

    -       -       -       48,438       -       -  
                                                 
    $ 40,460,851     $ 34,127,204     $ 2,073,418     $ 33,633,710     $ 1,005,881     $ 1,013,721  

 

 
 

 

 

(4) Loans (Continued)

 

The following table details impaired loan data as of December 31, 2014:

 

   

 

Unpaid

Contractual

Principal

Balance

   

 

 

 

Impaired

Balance

   

 

 

 

Related

Allowance

   

 

 

Average

Recorded

Investment

   

 

 

Interest

Income

Recognized

   

 

 

Interest

Income

Collected

 
                                                 

With No Related Allowance Recorded

                                         

Commercial

  $ 310,447     $ 308,817     $ -     $ 679,267     $ 9,248     $ 17,973  

Agricultural

    50,163       44,605       -       50,959       (6,029 )     3,000  

Commercial Construction

    9,573,141       3,463,502       -       3,376,033       13,111       12,833  

Commercial Real Estate

    17,129,876       16,227,379       -       18,350,015       462,355       474,936  

Residential Real Estate

    9,136,987       7,600,073       -       5,690,573       312,024       306,859  

Farmland

    1,450,759       1,449,226       -       949,003       (8,518 )     17,273  

Consumer

    201,695       201,695       -       211,775       14,455       15,495  

Other

    206,894       195,497       -       197,519       5,874       10,677  
                                                 
      38,059,962       29,490,794       -       29,505,144       802,520       859,046  
                                                 

With An Allowance Recorded

                                               

Commercial

    96,580       96,580       96,580       419,464       (299 )     -  

Agricultural

    -       -       -       -       -       -  

Commercial Construction

    207,308       136,369       53,947       1,528,817       375       375  

Commercial Real Estate

    6,135,238       6,135,238       456,941       6,415,086       60,629       50,468  

Residential Real Estate

    2,072,919       2,065,158       414,684       1,829,102       84,177       86,472  

Farmland

    396,048       396,048       28,962       529,555       13,077       12,210  

Consumer

    -       -       -       -       -       -  

Other

    -       -       -       -       -       -  
                                                 
      8,908,093       8,829,393       1,051,114       10,722,024       157,959       149,525  
                                                 

Total

                                               

Commercial

    407,027       405,397       96,580       1,098,731       8,949       17,973  

Agricultural

    50,163       44,605       -       50,959       (6,029 )     3,000  

Commercial Construction

    9,780,449       3,599,871       53,947       4,904,850       13,486       13,208  

Commercial Real Estate

    23,265,114       22,362,617       456,941       24,765,101       522,984       525,404  

Residential Real Estate

    11,209,906       9,665,231       414,684       7,519,675       396,201       393,331  

Farmland

    1,846,807       1,845,274       28,962       1,478,558       4,559       29,483  

Consumer

    201,695       201,695       -       211,775       14,455       15,495  

Other

    206,894       195,497       -       197,519       5,874       10,677  
                                                 
    $ 46,968,055     $ 38,320,187     $ 1,051,114     $ 40,227,168     $ 960,479     $ 1,008,571  

  

 
 

 

 

(4) Loans (Continued)

 

The following table details impaired loan data as of December 31, 2013:

 

   

Unpaid

Contractual

Principal

Balance

   

 

 

Impaired

Balance

   

 

 

Related

Allowance

   

 

Average

Recorded

Investment

   

 

Interest

Income

Recognized

   

Interest

Income

Collected

 
                                                 

With No Related Allowance Recorded

                                         

Commercial

  $ 305,272     $ 305,272     $ -     $ 216,057     $ 24,494     $ 25,193  

Agricultural

    -       -       -       9,803       -       -  

Commercial Construction

    7,856,411       4,750,157       -       4,105,370       34,908       41,164  

Commercial Real Estate

    20,120,403       19,252,946       -       13,198,988       493,940       503,392  

Residential Real Estate

    7,836,718       6,361,592       -       4,564,666       224,439       209,330  

Farmland

    302,629       302,629       -       1,858,654       803       869  

Consumer

    313,194       307,456       -       252,944       18,469       21,109  

Other

    9,146       9,146       -       2,287       556       575  
                                                 
      36,743,773       31,289,198       -       24,208,769       797,609       801,632  
                                                 

With An Allowance Recorded

                                               

Commercial

    1,452,798       1,452,798       433,714       1,689,125       14,845       20,748  

Agricultural

    -       -       -       -       -       -  

Commercial Construction

    5,922,674       3,471,587       830,546       5,025,176       (159 )     -  

Commercial Real Estate

    5,874,473       5,874,473       423,685       11,072,314       157,536       148,495  

Residential Real Estate

    1,949,301       1,849,301       526,005       3,661,706       25,739       24,414  

Farmland

    1,326,982       1,326,982       85,500       663,903       44,638       46,930  

Consumer

    -       -       -       -       -       -  

Other

    -       -       -       -       -       -  
                                                 
      16,526,228       13,975,141       2,299,450       22,112,224       242,599       240,587  
                                                 

Total

                                               

Commercial

    1,758,070       1,758,070       433,714       1,905,182       39,339       45,941  

Agricultural

    -       -       -       9,803       -       -  

Commercial Construction

    13,779,085       8,221,744       830,546       9,130,546       34,749       41,164  

Commercial Real Estate

    25,994,876       25,127,419       423,685       24,271,302       651,476       651,887  

Residential Real Estate

    9,786,019       8,210,893       526,005       8,226,372       250,178       233,744  

Farmland

    1,629,611       1,629,611       85,500       2,522,557       45,441       47,799  

Consumer

    313,194       307,456       -       252,944       18,469       21,109  

Other

    9,146       9,146       -       2,287       556       575  
                                                 
    $ 53,270,001     $ 45,264,339     $ 2,299,450     $ 46,320,993     $ 1,040,208     $ 1,042,219  

 

 
 

 

 

(4) Loans (Continued)

 

Troubled Debt Restructurings (TDRs) are troubled loans on which the original terms of the loan have been modified in favor of the borrower due to deterioration in the borrower’s financial condition. Each potential loan modification is reviewed individually and the terms of the loan are modified to meet the borrower’s specific circumstances at a point in time. Not all loan modifications are TDRs. Loan modifications are reviewed and approved by the Company’s senior lending staff, who then determine whether the loan meets the criteria for a TDR. Generally, the types of concessions granted to borrowers that are evaluated in determining whether a loan is classified as a TDR include:

 

 

Interest rate reductions - Occur when the stated interest rate is reduced to a nonmarket rate or a rate the borrower would not be able to obtain elsewhere under similar circumstances.

 

 

Amortization or maturity date changes - Result when the amortization period of the loan is extended beyond what is considered a normal amortization period for loans of similar type with similar collateral.

 

 

Principal reductions - These are often the result of commercial real estate loan workouts where two new notes are created. The primary note is underwritten based upon the Company’s normal underwriting standards and is structured so that the projected cash flows are sufficient to repay the contractual principal and interest of the newly restructured note. The terms of the secondary note vary by situation and often involve that note being charged off, or the principal and interest payments being deferred until after the primary note has been repaid. In situations where a portion of the note is charged off during modification, there is often no specific reserve allocated to those loans. This is due to the fact that the amount of the charge-off usually represents the excess of the original loan balance over the collateral value and the Company has determined there is no additional exposure on those loans.

 

 
 

 

 

(4) Loans (Continued)

 

As discussed in Note 1, Summary of Significant Accounting Policies, once a loan is identified as a TDR, it is accounted for as an impaired loan. The Company had no unfunded commitments to lend to a customer that has a troubled debt restructured loan as of December 31, 2015. The following tables present the number of loan contracts restructured during the 12 months ended December 31, 2015, 2014 and 2013. It shows the pre- and post-modification recorded investment as well as the number of contracts and the recorded investment for those TDRs modified during the previous 12 months which subsequently defaulted during the period. Loans modified in a troubled debt restructuring are considered to be in default once the loan becomes 90 days past due. A TDR may cease being classified as impaired if the loan is subsequently modified at market terms, has performed according to the modified terms for at least six months, and has not had any prior principal forgiveness on a cumulative basis.

 

Troubled Debt Restructurings

                       
                         

2015

 

# of Contracts

   

Pre-Modification

   

Post-Modification

 
                         

Commercial Real Estate

    1     $ 513,868     $ 505,978  

Residential Real Estate

    2       1,106,345       1,035,590  
                         

Total Loans

    3     $ 1,620,213     $ 1,541,568  
                         

2014

                       
                         

Farmland

    1     $ 400,778     $ 400,778  

Commercial Construction

    1       349,976       349,976  

Commercial Real Estate

    1       1,771,395       1,775,407  

Residential Real Estate

    1       49,194       49,194  
                         

Total Loans

    4     $ 2,571,343     $ 2,575,355  
                         

2013

                       
                         

Commercial

    1     $ 83,748     $ 81,277  

Commercial Construction

    2       228,633       225,959  

Commercial Real Estate

    1       225,852       225,852  

Residential Real Estate

    4       1,885,700       1,764,399  
                         

Total Loans

    8     $ 2,423,933     $ 2,297,487  

 

 
 

 

 

(4) Loans (Continued)

 

Troubled debt restructurings that subsequently defaulted as of December 31 are as follows:

 

   

2015

   

2014

   

2013

 
   

# of

Contracts

   

Recorded

Investment

   

# of

Contracts

   

Recorded

Investment

   

# of

Contracts

   

Recorded

Investment

 
                                                 

Commercial

    -     $ -       -     $ -       1     $ 81,277  
                                                 

Total Loans

    -     $ -       -     $ -       1     $ 81,277  

 

At December 31, 2015 and 2014, all restructured loans were performing as agreed. During 2013, restructured loans totaling $81,277 failed to continue to perform as agreed and were charged off in August 2013.

 

 

(5) Allowance for Loan Losses

 

Changes in the allowance for loan losses for the years ended December 31 are as follows:

 

   

2015

   

2014

   

2013

 
                         

Balance, Beginning of Year

  $ 8,802,316     $ 11,805,986     $ 12,736,921  
                         

Provision for Loan Losses

    865,500       1,308,000       4,485,000  

Loans Charged Off

    (2,083,347 )     (5,104,491 )     (6,227,716 )

Recoveries of Loans Previously Charged Off

    1,019,436       792,821       811,781  
                         

Balance, End of Year

  $ 8,603,905     $ 8,802,316     $ 11,805,986  

 

 
 

 

 

(5) Allowance for Loan Losses (Continued)

 

The following tables detail activity in the allowance for loan losses, segregated by class of loan, for the years ended December 31. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other loan categories and periodically may result in reallocation within the provision categories.

 

 

2015

 

Beginning

Balance

   

 

Charge-Offs

   

 

Recoveries

   

 

Provision

   

Ending

Balance

 
                                         

Commercial and Agricultural

                                       

Commercial

  $ 497,561     $ (454,971 )   $ 52,111     $ 760,663     $ 855,364  

Agricultural

    304,172       (5,000 )     3,600       (99,681 )     203,091  
                                         

Real Estate

                                       

Commercial Construction

    1,222,695       (97,698 )     485,834       (920,065 )     690,766  

Residential Construction

    138,092       -       -       (118,202 )     19,890  

Commercial

    3,664,777       (275,297 )     270,003       191,044       3,850,527  

Residential

    2,425,327       (929,668 )     109,626       385,070       1,990,355  

Farmland

    103,800       (40,000 )     20,000       827,892       911,692  
                                         

Consumer and Other

                                       

Consumer

    66,914       (255,062 )     61,976       189,549       63,377  

Other

    378,978       (25,651 )     16,286       (350,770 )     18,843  
                                         
    $ 8,802,316     $ (2,083,347 )   $ 1,019,436     $ 865,500     $ 8,603,905  
                                         

2014

                                       
                                         

Commercial and Agricultural

                                       

Commercial

  $ 1,017,073     $ (624,944 )   $ 76,002     $ 29,430     $ 497,561  

Agricultural

    293,886       -       2,700       7,586       304,172  
                                         

Real Estate

                                       

Commercial Construction

    1,782,179       (1,543,099 )     485,005       498,610       1,222,695  

Residential Construction

    138,092       -       -       -       138,092  

Commercial

    4,379,276       (1,326,825 )     90,042       522,284       3,664,777  

Residential

    3,278,269       (1,033,966 )     31,127       149,897       2,425,327  

Farmland

    311,494       (233,580 )     20,000       5,886       103,800  
                                         

Consumer and Other

                                       

Consumer

    243,253       (342,077 )     72,477       93,261       66,914  

Other

    362,464       -       15,468       1,046       378,978  
                                         
    $ 11,805,986     $ (5,104,491 )   $ 792,821     $ 1,308,000     $ 8,802,316  

 

 
 

 

 

(5) Allowance for Loan Losses (Continued)

 

 

2013

 

Beginning

Balance

   

 

Charge-Offs

   

 

Recoveries

   

 

Provision

   

Ending

Balance

 
                                         

Commercial and Agricultural

                                       

Commercial

  $ 981,021     $ (120,690 )   $ 55,829     $ 100,913     $ 1,017,073  

Agricultural

    296,175       (34,502 )     6,200       26,013       293,886  
                                         

Real Estate

                                       

Commercial Construction

    1,890,200       (2,071,162 )     253,459       1,709,682       1,782,179  

Residential Construction

    138,092       -       -       -       138,092  

Commercial

    5,162,839       (2,872,408 )     297,984       1,790,861       4,379,276  

Residential

    3,405,947       (706,242 )     64,583       513,981       3,278,269  

Farmland

    290,526       (20,977 )     21,762       20,183       311,494  
                                         

Consumer and Other

                                       

Consumer

    227,774       (397,822 )     93,520       319,781       243,253  

Other

    344,347       (3,913 )     18,444       3,586       362,464  
                                         
    $ 12,736,921     $ (6,227,716 )   $ 811,781     $ 4,485,000     $ 11,805,986  

 

The loss history period used at December 31, 2015, 2014 and 2013 was based on the loss rate from the eight quarters ended September 30, 2015, 2014 and 2013, respectively.

 

The Company’s allowance for loan losses consists of specific valuation allowances established for probable losses on specific loans and historical valuation allowances for other loans with similar risk characteristics. Effective with the quarter ended June 30, 2015, the calculation of the amount needed in the Allowance for Loan Losses changed. Management determined that the segmentation method for the ASC 450-20 portion of the loan portfolio should be changed to bank call report categories. Prior to this change, the ASC 450-20 segmentation categorized loans by various non-owner occupied commercial real estate loan types and risk grades for the remainder of the ASC 450-20 portion of the portfolio. On the date of change, June 30, 2015, the change in methodology resulted in an increase to the calculated allowance for loan loss reserve of $1,621,424; however, no additional provisions were required to be recorded as a result of the change.

 

During 2014, management changed its methodology for calculating the allowance for loan losses to better reflect the estimated losses inherent in the portfolio.  Specific changes included:

 

 

Reducing the historical loss ratios by including loan loss recoveries in the calculation.  Previously, management included only the loan charge-off amount and did not consider the effect of subsequent recoveries.

 

 

Reducing the balance of those loans which are guaranteed by government agencies, such as SBA loans.  Previously, the entire balance of such loans was considered in the calculation of the general reserves; however, beginning in 2014, only the nonguaranteed portion of these loans is subject to the loss calculation.

  

 
 

 

 

(5) Allowance for Loan Losses (Continued)

 

Management feels these changes better align the calculation of the allowance for loan losses with the direction of the loan portfolio.  These changes did not result in a significant change to the recorded allowance for loan loss balance.

 

During the third quarter of 2013, management implemented a change to its methodology for calculating the allowance for loan losses. This change was intended to better reflect the current position of the loan portfolio. Prior to the third quarter, the allowance for loan loss calculation incorporated a qualitative factor related to improvements in credit administration. These improvements, which began in 2008, included organizational changes to credit administration, specifically related to managing past due loans, grading of loans, recognition of losses and underwriting of new loans. Primary among the organizational changes was the appointment of experienced lending officers to oversee the lending function, as well as the appointment of a chief credit officer. Management feels these organizational changes are now fully implemented, as evidenced by a lower charge-off rate and, therefore, the qualitative factor is no longer relevant. The removal of this qualitative factor did not result in a significant adjustment to the recorded allowance for loan loss balance.

 

The Company determines its individual reserves during its quarterly review of substandard loans. This process involves reviewing all loans with a risk grade of 6 or greater and an outstanding balance of $250,000 or more, regardless of the loans impairment classification. Effective March 31, 2013, management increased the dollar threshold of this review process from $50,000 to $250,000. The threshold change resulted in loans totaling $4.1 million at December 31, 2013 being removed from the individual impairment review process and being placed in the collective review process.

 

Since not all loans in the substandard category are considered impaired, this quarterly review process may result in the identification of specific reserves on nonimpaired loans. Management considers those loans graded substandard, but not classified as impaired, to be higher risk loans and, therefore, makes specific allocations to the allowance for those loans if warranted. The total of such loans is $11,155,813 and $9,356,253 as of December 31, 2015 and 2014, respectively. Specific allowance allocations were made for these loans totaling $276,731 and $747,982 as of December 31, 2015 and 2014, respectively. Since these loans are not considered impaired, both the loan balance and related specific allocation are included in the “Collectively Evaluated for Impairment” column of the following tables.

 

 
 

 

 

(5) Allowance for Loan Losses (Continued)

 

At December 31, 2015, impaired loans totaling $3,744,733 were below the $250,000 review threshold and were not individually reviewed for impairment. Those loans were subject to the Bank’s general loan loss reserve methodology and are included in the “Collectively Evaluated for Impairment” column of the following tables. Likewise, at December 31, 2014 and 2013, impaired loans totaling $3,885,411 and $2,821,199, respectively, were below the $250,000 review threshold and were subject to the Bank’s general loan loss reserve methodology and are included in the “Collectively Evaluated for Impairment” column of the following tables.

 

   

Ending Allowance Balance

   

Ending Loan Balance

 

2015

 

Individually

Evaluated for Impairment

   

Collectively

Evaluated for Impairment

   

Total

   

Individually

Evaluated for Impairment

   

Collectively

Evaluated for Impairment

   

Total

 
                                                 

Commercial and Agricultural

                                               

Commercial

  $ 94,538     $ 760,826     $ 855,364     $ 122,928     $ 47,658,761     $ 47,781,689  

Agricultural

    -       203,091       203,091       8,445       19,185,052       19,193,497  
                                                 

Real Estate

                                               

Commercial Construction

    25,344       665,422       690,766       1,622,560       38,484,073       40,106,633  

Residential Construction

    -       19,890       19,890       -       9,413,263       9,413,263  

Commercial

    1,607,962       2,242,565       3,850,527       23,628,213       322,633,820       346,262,033  

Residential

    308,188       1,682,167       1,990,355       3,597,386       193,405,033       197,002,419  

Farmland

    37,386       874,306       911,692       1,402,939       60,376,920       61,779,859  
                                                 

Consumer and Other

                                               

Consumer

    -       63,377       63,377       -       20,605,465       20,605,465  

Other

    -       18,843       18,843       -       16,490,737       16,490,737  
                                                 

Total End of Year Balance

  $ 2,073,418     $ 6,530,487     $ 8,603,905     $ 30,382,471     $ 728,253,124     $ 758,635,595  

 

 
 

 

 

(5) Allowance for Loan Losses (Continued)

 

   

Ending Allowance Balance

   

Ending Loan Balance

 

2014

 

Individually

Evaluated for Impairment

   

Collectively

Evaluated for Impairment

   

Total

   

Individually

Evaluated for Impairment

   

Collectively

Evaluated for Impairment

   

Total

 
                                                 

Commercial and Agricultural

                                               

Commercial

  $ 96,580     $ 400,981     $ 497,561     $ 96,580     $ 50,863,685     $ 50,960,265  

Agricultural

    -       304,172       304,172       -       16,689,444       16,689,444  
                                                 

Real Estate

                                               

Commercial Construction

    53,947       1,168,748       1,222,695       3,384,377       47,874,593       51,258,970  

Residential Construction

    -       138,092       138,092       -       11,220,683       11,220,683  

Commercial

    456,941       3,207,836       3,664,777       21,693,061       310,537,786       332,230,847  

Residential

    414,684       2,010,643       2,425,327       7,559,965       196,192,655       203,752,620  

Farmland

    28,962       74,838       103,800       1,700,793       48,250,191       49,950,984  
                                                 

Consumer and Other

                                               

Consumer

    -       66,914       66,914       -       22,820,314       22,820,314  

Other

    -       378,978       378,978       -       7,209,682       7,209,682  
                                                 

Total End of Year Balance

  $ 1,051,114     $ 7,751,202     $ 8,802,316     $ 34,434,776     $ 711,659,033     $ 746,093,809  
                                                 

2013

                                               
                                                 

Commercial and Agricultural

                                               

Commercial

  $ 433,714     $ 583,359     $ 1,017,073     $ 1,542,058     $ 46,565,390     $ 48,107,448  

Agricultural

    -       293,886       293,886       -       10,665,938       10,665,938  
                                                 

Real Estate

                                               

Commercial Construction

    830,546       951,633       1,782,179       7,971,298       44,767,485       52,738,783  

Residential Construction

    -       138,092       138,092       -       6,549,260       6,549,260  

Commercial

    423,685       3,955,591       4,379,276       24,757,942       317,025,596       341,783,538  

Residential

    526,005       2,752,264       3,278,269       6,545,490       199,712,437       206,257,927  

Farmland

    85,500       225,994       311,494       1,617,206       45,417,220       47,034,426  
                                                 

Consumer and Other

                                               

Consumer

    -       243,253       243,253       -       25,675,560       25,675,560  

Other

    -       362,464       362,464       9,146       12,396,436       12,405,582  
                                                 

Total End of Year Balance

  $ 2,299,450     $ 9,506,536     $ 11,805,986     $ 42,443,140     $ 708,775,322     $ 751,218,462  

  

 
 

 

 

(6) Premises and Equipment

 

Premises and equipment are comprised of the following as of December 31:

 

   

2015

   

2014

 
                 

Land

  $ 9,696,723     $ 8,270,678  

Building

    23,927,467       23,894,943  

Furniture, Fixtures and Equipment

    12,154,375       12,243,988  

Leasehold Improvements

    993,618       990,626  

Construction in Progress

    1,170,050       14,090  
                 
      47,942,233       45,414,325  

Accumulated Depreciation

    (21,488,703 )     (20,453,880 )
                 
    $ 26,453,530     $ 24,960,445  

 

Depreciation charged to operations totaled $1,657,229 in 2015, $1,595,253 in 2014 and $1,527,392 in 2013.

 

Certain Company facilities and equipment are leased under various operating leases. Rental expense approximated $560,000 for 2015, $613,000 for 2014 and $490,000 for 2013.

 

Future minimum rental payments as of December 31, 2015 are as follows:

 

Year Ending December 31

 

Amount

 
         

2016

  $ 91,703  

2017

    38,500  
         
    $ 130,203  

 

(7) Other Real Estate Owned

 

The aggregate carrying amount of Other Real Estate Owned (OREO) at December 31, 2015, 2014 and 2013 was $8,839,103, $10,401,832 and $15,502,462, respectively. All of the Company’s other real estate owned represents properties acquired through foreclosure or deed in lieu of foreclosure. The following table details the change in OREO during 2015, 2014 and 2013 as of December 31:

 

   

2015

   

2014

   

2013

 
                         

Balance, Beginning of Year

  $ 10,401,832     $ 15,502,462     $ 15,940,693  
                         

Additions

    7,536,165       3,852,848       10,251,006  

Sales of OREO

    (8,054,675 )     (7,102,136 )     (7,804,080 )

Loss on Sale

    (591,071 )     (844,515 )     (1,563,739 )

Provision for Losses

    (453,148 )     (1,006,827 )     (1,321,418 )
                         

Balance, End of Year

  $ 8,839,103     $ 10,401,832     $ 15,502,462  

 

At December 31, 2015, the Company held $1,033,000 of residential real estate property as foreclosed property. Also at December 31, 2015, $159,372 of consumer mortgage loans collateralized by residential real estate property was in the process of foreclosure according to local requirements of the applicable jurisdictions.

 

 
 

 

 

(8) Other Intangible Assets

 

The following is an analysis of the core deposit intangible activity for the years ended December 31:

 

   

Core

Deposit

Intangible

   

Accumulated

Amortization

   

Net Core

Deposit

Intangible

 
                         

Core Deposit Intangible

                       

Balance, December 31, 2013

  $ 1,056,693     $ (868,932 )   $ 187,761  
                         

Amortization Expense

    -       (35,749 )     (35,749 )
                         

Balance, December 31, 2014

    1,056,693       (904,681 )     152,012  
                         

Amortization Expense

    -       (35,748 )     (35,748 )
                         

Balance, December 31, 2015

  $ 1,056,693     $ (940,429 )   $ 116,264  

 

Amortization expense related to the core deposit intangible was $35,748, $35,749 and $35,749 for the years ended December 31, 2015, 2014 and 2013. Amortizations expense will continue at an annual rate of approximately $35,749 through the first quarter of 2019, at which point the core deposit will be fully amortized.

 

 

(9) Income Taxes

 

The components of income tax expense for the years ended December 31 are as follows:

 

   

2015

   

2014

   

2013

 
                         

Current Federal Expense

  $ 3,162,367     $ 1,335,337     $ 156,642  

Deferred Federal Expense

    625,436       1,932,950       2,178,222  
                         

Federal Income Tax Expense

    3,787,803       3,268,287       2,334,864  

Current State Income Tax Expense

    -       -       -  
                         

Federal and State Income Tax Expense

  $ 3,787,803     $ 3,268,287     $ 2,334,864  

 

The federal income tax expense of $3,787,803 in 2015, $3,268,287 in 2014 and $2,334,864 in 2013 is different than the income taxes computed by applying the federal statutory rates to income before income taxes. The reasons for the differences are as follows:

 

   

2015

   

2014

   

2013

 
                         

Statutory Federal Income Taxes

  $ 4,134,570     $ 3,671,971     $ 2,367,729  

Tax-Exempt Interest

    (83,903 )     (74,138 )     (104,307 )

Premiums on Officers’ Life Insurance

    (232,988 )     (186,712 )     (111,749 )

Meal and Entertainment Disallowance

    21,600       14,044       15,319  

Other

    (51,476 )     (156,878 )     167,872  
                         

Actual Federal Income Taxes

  $ 3,787,803     $ 3,268,287     $ 2,334,864  

 

 
 

 

 

(9) Income Taxes (Continued)

 

Deferred taxes in the accompanying consolidated balance sheets as of December 31 include the following:

 

   

2015

   

2014

 
                 

Deferred Tax Assets

               

Allowance for Loan Losses

  $ 2,925,328     $ 2,992,787  

Other Real Estate

    537,914       1,178,278  

Deferred Compensation

    308,128       287,365  

Investments

    340,000       340,000  

Goodwill

    212,190       256,714  

Other

    418,165       427,924  
                 
      4,741,725       5,483,068  

Deferred Tax Liabilities

               

Premises and Equipment

    (1,183,309 )     (1,299,216 )

Other

    (4,185 )     (4,185 )
                 
      (1,187,494 )     (1,303,401 )

Deferred Tax Assets (Liabilities) on Unrealized Securities Gains (Losses)

    2,284,362       2,495,896  
                 

Net Deferred Tax Assets

  $ 5,838,593     $ 6,675,563  

 

The deferred tax assets are included in Other Assets in the consolidated balance sheets. As discussed in Note 1, certain positions taken in the Company’s tax returns may be subject to challenge by the taxing authorities. An analysis of activity related to unrecognized taxes as of December 31 follows.

 

   

2015

   

2014

   

2013

 
                         

Balance, Beginning

  $ -     $ 42,327     $ 38,676  
                         

Positions Taken During the Current Year

    -       -       7,247  

Reductions Resulting from Lapse of Statutes of Limitation

    -       42,327       (3,596 )
                         

Balance, Ending

  $ -     $ -     $ 42,327  

 

The net decrease of $42,327 is included in income tax expense for the year ended December 31, 2014.

 

 
 

 

 

(10) Deposits

 

The aggregate amount of overdrawn deposit accounts reclassified as loan balances totaled $272,110 and $511,387 as of December 31, 2015 and 2014, respectively.

 

Components of interest-bearing deposits as of December 31 are as follows:

 

   

2015

   

2014

 
                 

Interest-Bearing Demand

  $ 412,959,430     $ 363,501,727  

Savings

    64,976,174       59,215,257  

Time, $100,000 and Over

    202,800,899       210,502,901  

Other Time

    196,931,462       217,743,826  
                 
    $ 877,667,965     $ 850,963,711  

 

At December 31, 2015 and December 31, 2014, the Company had brokered deposits of $25,576,524 and $26,298,267, respectively. All of these brokered deposits represent Certificate of Deposit Account Registry Service (CDARS) reciprocal deposits. The CDARS deposits are ones in which customers placed core deposits into the CDARS program for FDIC insurance coverage and the Company receives reciprocal brokered deposits in a like amount. The aggregate amount of short-term jumbo certificates of deposit, each with a minimum denomination of $100,000 was $141,900,102 and $140,832,026 as of December 31, 2015 and December 31, 2014, respectively. The aggregate amount of jumbo certificates of deposit, each with a minimum denomination of $250,000 was $31,755,483 and $35,750,272 as of December 31, 2015 and December 31, 2014, respectively.

 

As of December 31, 2015, the scheduled maturities of certificates of deposit are as follows:

 

Year

 

Amount

 
         

2016

  $ 287,422,547  

2017

    55,668,788  

2018

    32,350,483  

2019

    10,102,321  

2020 and Thereafter

    14,188,222  
         
    $ 399,732,361  

 

(11) Other Borrowed Money

 

Other borrowed money at December 31 is summarized as follows:

 

   

2015

   

2014

 
                 

Federal Home Loan Bank Advances

  $ 40,000,000     $ 40,000,000  

 

Advances from the Federal Home Loan Bank (FHLB) have maturities ranging from 2018 to 2022 and interest rates ranging from 1.47 percent to 4.75 percent. As collateral on the outstanding FHLB advances, the Company has provided a blanket lien on its portfolio of qualifying residential first mortgage loans and commercial loans. At December 31, 2015, the book value of those loans pledged is $100,412,458. At December 31, 2015, the Company had remaining credit availability from the FHLB of $128,817,500. The Company may be required to pledge additional qualifying collateral in order to utilize the full amount of the remaining credit line.

 

 
 

 

 

(11) Other Borrowed Money (Continued)

 

The aggregate stated maturities of other borrowed money at December 31, 2015 are as follows:

 

Year

 

Amount

 
         

2018

  $ 2,500,000  

2019

    8,000,000  

2020

    -  

2021 and Thereafter

    29,500,000  
         
    $ 40,000,000  

 

At December 31, 2015, $13,000,000 of FHLB advances are subject to fixed rates of interest, while the remaining $27,000,000 is subject to floating interest rates which will convert to fixed rates of interests in the next few years.

 

The Company also has available federal funds lines of credit with various financial institutions totaling $43,500,000, of which there were none outstanding at December 31, 2015.

 

The Company has the ability to borrow funds from the Federal Reserve Bank (FRB) of Atlanta utilizing the discount window. The discount window is an instrument of monetary policy that allows eligible institutions to borrow money from the FRB on a short-term basis to meet temporary liquidity shortages caused by internal or external disruptions. At December 31, 2015, the Company had borrowing capacity available under this arrangement, with no outstanding balances. The Company would be required to pledge certain available-for-sale investment securities as collateral under this agreement.

 

 

(12) Subordinated Debentures (Trust Preferred Securities)

 

Description

Date

 

Amount

   

3-Month

Libor Rate

   

Added

Points

   

Total

Interest

Rate

 

Maturity

5-Year

Call Option

  (In Thousands)                      

Colony Bankcorp Statutory Trust III

6/17/2004

  $ 4,640       0.52575       2.68       3.20575  

6/14/2034

6/17/2009

Colony Bankcorp Capital Trust I

4/13/2006

    5,155       0.60670       1.50       2.10670  

4/13/2036

4/13/2011

Colony Bankcorp Capital Trust II

3/12/2007

    9,279       0.60310       1.65       2.25310  

3/12/2037

3/12/2012

Colony Bankcorp Capital Trust III

9/14/2007

    5,155       0.32190       1.40       1.72190  

9/14/2037

9/14/2012

 

The Trust Preferred Securities are recorded as subordinated debentures on the consolidated balance sheets, and subject to certain limitations, qualify as Tier 1 Capital for regulatory capital purposes. The proceeds from these offerings were used to fund certain acquisitions, pay off holding company debt and inject capital into the Bank subsidiary.

 

The Trust Preferred Securities pay interest quarterly.

 

Quarterly interest payments on the Trust Preferred Securities were suspended from February 13, 2012 until November 17, 2014, at which time the Company reinstated the interest payments and paid $1,069,695 of interest payments in arrears.

 

 
 

 

 

(13) Preferred Stock

 

The Company had 18,021 shares and 28,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the Preferred Stock) issued and outstanding with private investors as of December 31, 2015 and 2014, respectively. The Company redeemed 9,979 shares of Preferred Stock at $1,000 per share during 2015. The Company also had a warrant (the Warrant) to purchase up to 500,000 shares of the Company’s common stock outstanding with private investors. Both the Preferred Stock and the Warrant originated in 2009 through transactions with the United States Department of the Treasury and were subsequently sold to the public through an auction process during 2013.

 

The Preferred Stock qualifies as Tier 1 capital and is nonvoting, other than class voting rights on certain matters that could adversely affect the Preferred Stock. The Preferred Stock may be redeemed by the Company at the liquidation preference of $1,000 per share, plus any accrued and unpaid dividends. The Warrant may be exercised on or before January 9, 2019 at an exercise price of $8.40 per share. No voting rights may be exercised with respect to the shares of the Warrant until the Warrant has been exercised.

 

The Preferred Stock requires a cumulative cash dividend be paid quarterly at a rate of 9 percent per annum. Prior to January 9, 2014, the annual dividend rate for the Preferred Stock was 5 percent. Unpaid dividends on the Preferred Stock must be declared and set aside for the benefit of the holders of the Preferred Stock before any dividend may be declared on common stock. On February 13, 2012, the Company announced the suspension of dividends on Preferred Stock. On November 17, 2014, the Company reinstated dividend payments on the Preferred Stock and paid $5,492,749 of accumulated dividends in arrears to the holders of the Preferred Stock.

 

 

(14) Employee Benefit Plan

 

The Company offers a defined contribution 401(k) Profit Sharing Plan (the Plan) which covers substantially all employees who meet certain age and service requirements. The Plan allows employees to make voluntary pre-tax salary deferrals to the Plan. The Company, at its discretion, may elect to make an annual contribution to the Plan equal to a percentage of each participating employee’s salary. Such discretionary contributions must be approved by the Company’s board of directors. Employees are fully vested in the Company contributions after six years of service. In 2015 and 2014, the Company made total contributions of $385,453 and $401,497 to the Plan. The Company made no discretionary contributions in 2013.

 

 

(15) Commitments and Contingencies

 

Credit-Related Financial Instruments. The Company is a party to credit-related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and commercial letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

 

The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments.

 

 
 

 

 

(15) Commitments and Contingencies (Continued)

 

At December 31, 2015 and 2014, the following financial instruments were outstanding whose contract amounts represent credit risk:

 

   

Contract Amount

 
   

2015

   

2014

 
                 

Commitments to Extend Credit

  $ 67,889,000     $ 68,742,000  

Standby Letters of Credit

    1,588,212       1,762,000  

 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for equity lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.

 

Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit are uncollateralized and usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Company is committed.

 

Standby and performance letters of credit are conditional lending commitments issued by the Company to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

 

Legal Contingencies. In the ordinary course of business, there are various legal proceedings pending against Colony and its subsidiary. The aggregate liabilities, if any, arising from such proceedings would not, in the opinion of management, have a material adverse effect on Colony’s consolidated financial position.

 

 

(16) Deferred Compensation Plan

 

Colony Bank, the wholly-owned subsidiary, has deferred compensation plans covering certain former directors and certain officers choosing to participate through individual deferred compensation contracts. In accordance with terms of the contracts, the Bank is committed to pay the participant’s deferred compensation over a specified number of years, beginning at age 65. In the event of a participant’s death before age 65, payments are made to the participant’s named beneficiary over a specified number of years, beginning on the first day of the month following the death of the participant.

 

Liabilities accrued under the plans totaled $906,259 and $845,192 as of December 31, 2015 and 2014, respectively. Benefit payments under the contracts were $131,652 in 2015 and $112,605 in 2014. Provisions charged to operations totaled $196,869 in 2015, $69,653 in 2014 and $75,777 in 2013.

 

The Company has purchased life insurance policies on the plans’ participants and uses the cash flow from these policies to partially fund the plan. Fee income recognized with these plans totaled $174,675 in 2015, $167,911 in 2014 and $164,073 in 2013. In addition death benefits recognized as income totaled $137,058 in 2015.

 

 
 

 

 

(17) Supplemental Cash Flow Information

 

Cash payments for the following were made during the years ended December 31:

 

   

2015

   

2014

   

2013

 
                         

Interest Expense

  $ 6,536,994     $ 7,898,543     $ 7,111,361  
                         

Income Taxes

  $ 4,738,000     $ 113,000     $ 173,883  

 

Noncash financing and investing activities for the years ended December 31 are as follows:

 

   

2015

   

2014

   

2013

 
                         

Acquisitions of Real Estate Through Loan Foreclosures

  $ 7,536,165     $ 3,852,848     $ 10,251,006  
                         

Change in Unrealized Gain (Loss) on AFS Investment Securities

  $ 622,155     $ 6,409,171     $ (13,523,050 )

 

 

(18) Related Party Transactions

 

The following table reflects the activity and aggregate balance of direct and indirect loans to directors, executive officers or principal holders of equity securities of the Company. All such loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than a normal risk of collectibility. A summary of activity of related party loans is shown below:

 

   

2015

   

2014

 
                 

Balance, Beginning

  $ 3,233,949     $ 4,064,588  
                 

New Loans

    4,900,932       6,406,713  

Repayments

    (6,065,098 )     (7,237,352 )

Transactions Due to Changes in Directors

    (253,174 )     -  
                 

Balance, Ending

  $ 1,816,609     $ 3,233,949  

 

 
 

 

 

(19) Fair Value of Financial Instruments and Fair Value Measurements

 

Generally accepted accounting standards in the U.S. require disclosure of fair value information about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practicable to estimate that value. The assumptions used in the estimation of the fair value of Colony Bankcorp, Inc. and Subsidiary’s financial instruments are detailed hereafter. Where quoted prices are not available, fair values are based on estimates using discounted cash flows and other valuation techniques. The use of discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following disclosures should not be considered a surrogate of the liquidation value of the Company, but rather a good-faith estimate of the increase or decrease in value of financial instruments held by the Company since purchase, origination or issuance.

 

Cash and Short-Term Investments - For cash, due from banks, bank-owned deposits and federal funds sold, the carrying amount is a reasonable estimate of fair value and is classified Level 1.

 

Investment Securities - Fair values for investment securities are based on quoted market prices where available and classified as Level 1. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable instruments and classified as Level 2. If a comparable is not available, the investment securities are classified as Level 3.

 

Federal Home Loan Bank Stock - The fair value of Federal Home Loan Bank stock approximates carrying value and is classified as Level 1.

 

Loans - The fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings. For variable rate loans, the carrying amount is a reasonable estimate of fair value. Most loans are classified as Level 2, but impaired loans with a related allowance are classified as Level 3.

 

Bank-Owned Life Insurance - The carrying value of bank-owned life insurance policies approximates fair value and is classified as Level 1.

 

Deposit Liabilities - The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date and is classified as Level 1. The fair value of fixed maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities and is classified as Level 2.

 

Subordinated Debentures – The fair value of subordinated debentures is estimated by discounting the future cash flows using the current rates at which similar advances would be obtained. Subordinated debentures are classified as Level 2.

 

Other Borrowed Money - The fair value of other borrowed money is calculated by discounting contractual cash flows using an estimated interest rate based on current rates available to the Company for debt of similar remaining maturities and collateral terms. Other borrowed money is classified as Level 2 due to their expected maturities.

 

 
 

 

 

(19) Fair Value of Financial Instruments and Fair Value Measurements (Continued)

 

The carrying amount and estimated fair values of the Company’s financial instruments as of December 31 are as follows:

 

   

Carrying

   

Estimated

   

Level

 
2015  

Amount

   

Fair Value

    1     2     3  
   

(in Thousands)

 

Assets

                                       

Cash and Short-Term Investments

  $ 60,872     $ 60,872     $ 60,872     $ -     $ -  

Investment Securities Available for Sale

    296,149       296,149       -       295,219       930  

Federal Home Loan Bank Stock

    2,731       2,731       2,731       -       -  

Loans, Net

    749,675       750,412       -       741,867       8,545  

Bank-Owned Life Insurance

    14,830       14,830       14,830       -       -  
                                         

Liabilities

                                       

Deposits

    1,011,554       1,013,111       611,822       401,289       -  

Subordinated Debentures

    24,229       24,229       -       24,229       -  

Other Borrowed Money

    40,000       40,421       -       40,421       -  
                                         

2014

                                       
                                         

Assets

                                       

Cash and Short-Term Investments

  $ 65,811     $ 65,811     $ 65,811     $ -     $ -  

Investment Securities Available for Sale

    274,595       274,595       -       273,647       948  

Investment Securities Held to Maturity

    30       30       -       30       -  

Federal Home Loan Bank Stock

    2,831       2,831       2,831       -       -  

Loans, Net

    736,930       738,948       -       731,170       7,778  

Bank-Owned Life Insurance

    14,531       14,531       14,531       -       -  
                                         

Liabilities

                                       

Deposits

    979,303       980,874       551,057       429,817       -  

Subordinated Debentures

    24,229       24,229       -       24,229       -  

Other Borrowed Money

    40,000       41,962       -       41,962       -  

 

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on many judgments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

 

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include deferred income taxes and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

 

 
 

 

 

(19) Fair Value of Financial Instruments and Fair Value Measurements (Continued)

 

Fair Value Measurements

 

Generally accepted accounting principles related to Fair Value Measurements define fair value, establish a framework for measuring fair value, establish a three-level valuation hierarchy for disclosure of fair value measurement and enhance disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

 

 

Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

 

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

 

Level 3 inputs to the valuation methodology are unobservable and represent the Company’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

 

Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring and nonrecurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy:

 

Assets

 

Securities - Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 inputs include securities that have quoted prices in active markets for identical assets. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Examples of such instruments, which would generally be classified within level 2 of the valuation hierarchy, include certain collateralized mortgage and debt obligations and certain high-yield debt securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within level 3 of the valuation hierarchy. When measuring fair value, the valuation techniques available under the market approach, income approach and/or cost approach are used. The Company’s evaluations are based on market data and the Company employs combinations of these approaches for its valuation methods depending on the asset class.

 

 
 

 

 

(19) Fair Value of Financial Instruments and Fair Value Measurements (Continued)

 

Fair Value Measurements (Continued)

 

Assets (Continued)

 

Impaired Loans - Impaired loans are those loans which the Company has measured impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

 

Other Real Estate - Other real estate owned assets are adjusted to fair value less estimated selling costs upon transfer of the loans to other real estate owned. Typically, an external, third-party appraisal is performed on the collateral upon transfer into the other real estate owned account to determine the asset’s fair value. Subsequent adjustments to the collateral’s value may be based upon either updated third-party appraisals or management’s knowledge of the collateral and the current real estate market conditions.   Appraised amounts used in determining the asset’s fair value, whether internally or externally prepared, are discounted 10 percent to account for selling and marketing costs. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a level 3 classification of the inputs for determining fair value. Because of the high degree of judgment required in estimating the fair value of other real estate owned assets and because of the relationship between fair value and general economic conditions, we consider the fair value of other real estate owned assets to be highly sensitive to changes in market conditions.

 

 
 

 

 

(19) Fair Value of Financial Instruments and Fair Value Measurements (Continued)

 

Fair Value Measurements (Continued)

 

Assets (Continued)

 

Assets and Liabilities Measured at Fair Value on a Recurring and Nonrecurring Basis - The following table presents the recorded amount of the Company’s assets measured at fair value on a recurring and nonrecurring basis as of December 31, 2015 and 2014, aggregated by the level in the fair value hierarchy within which those measurements fall. The table below includes only impaired loans with a specific reserve and only other real estate properties with a valuation allowance at December 31, 2014. Those impaired loans and other real estate properties are shown net of the related specific reserves and valuation allowances.

 

           

Fair Value Measurements at Reporting Date Using

 

2015

 

Total Fair Value

   

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

   

Significant Other Observable

Inputs

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

 
                                 

Recurring

                               

Securities Available for Sale

                               

U.S. Government Agencies

                               

Mortgage-Backed

  $ 291,049,853     $ -     $ 291,049,853     $ -  

State, County and Municipal

    5,099,446       -       4,169,135       930,311  
                                 
    $ 296,149,299     $ -     $ 295,218,988     $ 930,311  

Nonrecurring

                               

Impaired Loans

  $ 8,544,993     $ -     $ -     $ 8,544,993  
                                 

Other Real Estate

  $ 2,535,884     $ -     $ -     $ 2,535,884  
                                 

2014

                               
                                 

Recurring

                               

Securities Available for Sale

                               

U.S. Government Agencies

                               

Mortgage-Backed

  $ 271,063,669     $ -     $ 271,063,669     $ -  

State, County and Municipal

    3,530,917       -       2,582,527       948,390  
                                 
    $ 274,594,586     $ -     $ 273,646,196     $ 948,390  

Nonrecurring

                               

Impaired Loans

  $ 7,778,279     $ -     $ -     $ 7,778,279  
                                 

Other Real Estate

  $ 6,128,365     $ -     $ -     $ 6,128,365  

 

Liabilities

 

The Company did not identify any liabilities that are required to be presented at fair value.

 

 
 

 

 

(19) Fair Value of Financial Instruments and Fair Value Measurements (Continued)

 

Fair Value Measurements (Continued)

 

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

 

The following tables present quantitative information about the significant unobservable inputs used in the fair value measurements for assets in level 3 of the fair value hierarchy measured on a nonrecurring basis at December 31, 2015 and 2014. These tables are comprised primarily of collateral dependent impaired loans and other real estate owned:

 

 

December 31, 2015

 

Valuation Techniques

 

Unobservable

Inputs

 

Range

(Weighted Avg)

               

Commercial

$ 28,390

 

Sales Comparison

 

Adjustment for Differences Between the Comparable Sales

 

(31.77)% - 34.00%

              (1.12%)
               
         

Management Adjustments for Age of Appraisals and/or Current Market Conditions

 

0.00% - 10.00%

              (5.00%)
               
     

Income Approach

 

Capitalization Rate

 

11.00%

               

Real Estate

             

Commercial Construction

51,300

 

Sales Comparison

 

Adjustment for Differences Between the Comparable Sales

 

(5.00)% - 99.00%

              (47.00%)
               
         

Management Adjustments for Age of Appraisals and/or Current Market Conditions

 

0.00% - 10.00%

              (5.00%)
               

Residential Real Estate

767,179

 

Sales Comparison

 

Adjustment for Differences Between the Comparable Sales

 

(22.00)% - 10.80%

              (5.60)%
               
         

Management Adjustments for Age of Appraisals and/or Current Market Conditions

 

0.00% - 25.00%

              (12.50%)
               

Commercial Real Estate

7,347,541

 

Sales Comparison

 

Adjustment for Differences Between the Comparable Sales

 

(31.77)% - 34.00%

              (1.12%)
               
         

Management Adjustments for Age of Appraisals and/or Current Market Conditions

 

0.00% - 10.00%

              (5.00%)
               
     

Income Approach

 

Capitalization Rate

 

10.25%

               

Farmland

350,583

 

Sales Comparison

 

Adjustment for Differences Between the Comparable Sales

 

(27.00)% - 15.00%

              (6.00)%
               
         

Management Adjustments for Age of Appraisals and/or Current Market Conditions

 

10.00% - 75.00%

              (42.50%)
               

Other Real Estate Owned

2,535,884

 

Sales Comparison

 

Adjustment for Differences Between the Comparable Sales

 

(50.80)% - 142.90%

              (46.05%)
               
         

Management Adjustments for Age of Appraisals and/or Current Market Conditions

 

15.53% - 72.75%

              (43.37%)
               
     

Income Approach

 

Discount Rate

 

12.50%

 
 
 

 

 

(19) Fair Value of Financial Instruments and Fair Value Measurements (Continued)

 

Fair Value Measurements (Continued)

 

Fair Value Measurements using Significant Unobservable Inputs (Level 3) (Continued)

 

 

December 31, 2014

 

Valuation Techniques

 

Unobservable

Inputs

 

Range

(Weighted Avg)

               

Impaired Loans

             

Commercial Construction

$ 82,422

 

Sales Comparison

 

Adjustment for Differences Between the Comparable Sales

 

(22.00)% - 38.10%

              (8.05%)
               
         

Management Adjustments for Age of Appraisals and/or Current Market Conditions

 

0.00% - 10.00%

              (5.00%)
               

Residential Real Estate

1,650,474

 

Sales Comparison

 

Adjustment for Differences Between the Comparable Sales

 

(2.30)% - 191.70%

              (94.70%)
               
         

Management Adjustments for Age of Appraisals and/or Current Market Conditions

 

0.00% - 10.00%

              (5.00%)
               
     

Income Approach

 

Capitalization Rate

 

13.75%

               

Commercial Real Estate

5,678,297

 

Sales Comparison

 

Adjustment for Differences Between the Comparable Sales

 

0.00% - 0.00%

              (0.00%)
               
         

Management Adjustments for Age of Appraisals and/or Current Market Conditions

 

0.00% - 90.00%

              (45.00%)
               
     

Income Approach

 

Capitalization Rate

 

11.00%

               

Farmland

367,086

 

Sales Comparison

 

Adjustment for Differences Between the Comparable Sales

 

(8.30)% - 252.50%

              (122.10%)
               
         

Management Adjustments for Age of Appraisals and/or Current Market Conditions

 

10.00% - 50.00%

              (30.00%)
               

Other Real Estate Owned

6,128,365

 

Sales Comparison

 

Adjustment for Differences Between the Comparable Sales

 

(40.00)% - 45.00%

              (2.50%)
               
         

Management Adjustments for Age of Appraisals and/or Current Market Conditions

 

0.33% - 69.36%

              (31.88%)
               
     

Income Approach

 

Discount Rate

 

9.00%

               
         

Capitalization Rate

 

10.00%

 

 
 

 

 

(19) Fair Value of Financial Instruments and Fair Value Measurements (Continued)

 

Fair Value Measurements (Continued)

 

Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (Continued)

 

The following table presents a reconciliation and statement of income classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (level 3) for the years ended December 31, 2015, 2014 and 2013:

 

   

Available for Sale Securities

 
   

2015

   

2014

   

2013

 
                         

Balance, Beginning

  $ 948,390     $ 941,265     $ 1,138,238  
                         

Transfers into Level 3

    -       -       -  

Transfers out of Level 3

    -       -       (41,908 )

Securities Purchased During the Year

    -       -       -  

Securities Called During the Year

    -       -       -  

Loss on OTTI Impairment Included in Noninterest Income

    -       -       (366,623 )

 

                       

Unrealized Gains(Losses) Included in Other Comprehensive Income

    (18,079 )     7,125       211,558  
                         

Balance, Ending

  $ 930,311     $ 948,390     $ 941,265  

 

The Company’s policy is to recognize transfers in and transfers out of levels 1, 2 and 3 as of the end of a reporting period. During the year ended December 31, 2013, the Company had transfers out of level 3 and into level 2. The transfers out of level 3 were the result of increased market activity for these types of securities, as well as more current credit ratings on these securities. There were no transfers of securities between level 1 and level 2 for the years ended December 31, 2015, 2014 or 2013.

 

The following table presents quantitative information about recurring level 3 fair value measurements as of December 31, 2015 and 2014:

 

December 31, 2015

 

Fair Value

 

Valuation Techniques

 

Unobservable Inputs

 

Range

(Weighted Avg)

 
                       

State, County and Municipal

  $ 930,311  

Discounted Cash Flow

 

Discount Rate

or Yield

    N/A*  
                       

December 31, 2014

                     
                       

State, County and Municipal

  $ 948,390  

Discounted Cash Flow

 

Discount Rate

or Yield

    N/A*  

 

* The Company relies on a third-party pricing service to value its municipal securities. The details of the unobservable inputs and other adjustments used by the third-party pricing service were not readily available to the Company.

 

 
 

 

 

(20) Regulatory Capital Matters

 

The amount of dividends payable to the parent company from the subsidiary bank is limited by various banking regulatory agencies. Upon approval by regulatory authorities, the Bank may pay cash dividends to the parent company in excess of regulatory limitations. Additionally, the Company suspended the payment of dividends to its stockholders in the third quarter of 2009.    

 

The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and, possibly, additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

 

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets. As of December 31, 2015, the interim final Basel III rules (Basel III) require the Company to also maintain minimum amounts and ratios of common equity Tier 1 capital to risk weighted assets. These amounts and ratios as defined in regulations are presented hereafter. Management believes, as of December 31, 2015, the Company meets all capital adequacy requirements to which it is subject under the regulatory framework for prompt corrective action. In the opinion of management, there are no conditions or events since prior notification of capital adequacy from the regulators that have changed the institution’s category.

 

The Basel III rules also require the implementation of a new capital conservation buffer comprised of common equity Tier 1 capital. The capital conservation buffer will be phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increase each subsequent year by 0.625% until reaching its final level of 2.5% on January 1, 2019.

 

The following table summarizes regulatory capital information as of December 31, 2015 and December 31, 2014 on a consolidated basis and for the subsidiary, as defined. Regulatory capital ratios for December 31, 2015 were calculated in accordance with the Basel III rules, whereas the December 31, 2014 regulatory ratios were calculated in accordance with the Basel I rules.

 

 
 

 

 

(20) Regulatory Capital Matters (Continued)

 

The following table summarizes regulatory capital information as of December 31, 2015 and 2014 on a consolidated basis and for its wholly-owned subsidiary, as defined:

   

 

 

 

Actual

   

 

 

For Capital

Adequacy Purposes

   

To Be Well

Capitalized Under

Prompt Corrective

Action Provisions

 
   

Amount

   

Ratio

   

Amount

   

Ratio

   

Amount

   

Ratio

 

As of December 31, 2015

 

(In Thousands)

 
                                                 

Total Capital to Risk-Weighted Assets

                                               

Consolidated

  $ 131,948       16.60 %   $ 63,602       8.00 %     N/A       N/A  

Colony Bank

    126,939       15.99       63,500       8.00     $ 79,375       10.00 %
                                                 

Tier I Capital to Risk-Weighted Assets

                                               

Consolidated

    123,344       15.51       47,702       6.00       N/A       N/A  

Colony Bank

    118,335       14.91       47,625       6.00       63,500       8.00  
                                                 

Common Equity Tier 1 Capital to Risk-Weighted Assets

                                               

Consolidated

    81,823       10.29       35,776       4.50       N/A       N/A  

Colony Bank

    118,335       14.91       35,719       4.50       51,594       6.50  
                                                 

Tier I Capital to Average Assets

                                               

Consolidated

    123,344       10.69       46,149       4.00       N/A       N/A  

Colony Bank

    118,335       10.27       46,074       4.00       57,592       5.00  
                                                 

As of December 31, 2014

                                               
                                                 

Total Capital to Risk-Weighted Assets

                                               

Consolidated

  $ 136,022       17.95 %   $ 60,639       8.00 %     N/A       N/A  

Colony Bank

    127,833       16.89       60,542       8.00     $ 75,678       10.00 %
                                                 

Tier I Capital to Risk-Weighted Assets

                                               

Consolidated

    127,220       16.78       30,320       4.00       N/A       N/A  

Colony Bank

    119,031       15.73       30,271       4.00       45,407       6.00  
                                                 

Tier I Capital to Average Assets

                                               

Consolidated

    127,220       11.18       45,509       4.00       N/A       N/A  

Colony Bank

    119,031       10.50       45,364       4.00       56,705       5.00  

 

In 2015, the Bank obtained approval of its regulators and paid a $10,000,000 dividend to the Company. The dividend was utilized to redeem 9,979 shares of Preferred Stock. Effective October 22, 2014, the Board Resolution (BR) the Bank had been operating under was lifted. The BR required that, prior to declaring or paying any cash dividend to the Company, the Bank must obtain written consent of its regulators. In November 2014, the Bank paid a $12,000,000 dividend to the Company. This dividend was utilized to bring the interest payments of the Trust Preferred Securities and the dividend payments of the Preferred Stock to a current status and to fund holding company operations for the coming year.

 

 
 

 

 

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

 

The parent company’s balance sheets as of December 31, 2015 and 2014 and the related statements of operations and comprehensive income (loss) and cash flows for each of the years in the three-year period then ended are as follows:

 

COLONY BANKCORP, INC. (PARENT ONLY)

BALANCE SHEETS

DECEMBER 31

 

ASSETS

 
                 
                 
   

2015

   

2014

 
                 

Cash

  $ 4,100,860     $ 5,750,652  

Premises and Equipment, Net

    1,134,524       1,199,639  

Investment in Subsidiary, at Equity

    114,677,455       115,066,948  

Other

    170,801       1,708,380  
                 

Total Assets

  $ 120,083,640     $ 123,725,619  
                 
                 

LIABILITIES AND STOCKHOLDERSEQUITY

 
                 

Liabilities

               

Dividends Payable

  $ 202,736     $ 315,000  

Other

    195,282       154,307  
                 
      398,018       469,307  
                 

Subordinated Debt

    24,229,000       24,229,000  
                 

StockholdersEquity

               

Preferred Stock, Stated Value $1,000; Authorized 10,000,000 Shares, Issued 18,021 and 28,000 Shares as of December 31, 2015 and 2014

    18,021,000       28,000,000  

 

               

Common Stock, Par Value $1; Authorized 20,000,000 Shares, Issued 8,439,258 Shares as of December 31, 2015 and 2014

    8,439,258       8,439,258  

Paid-In Capital

    29,145,094       29,145,094  

Retained Earnings

    44,285,621       38,287,934  

Accumulated Other Comprehensive Loss, Net of Tax

    (4,434,351 )     (4,844,974 )
                 
      95,456,622       99,027,312  
                 

Total Liabilities and StockholdersEquity

  $ 120,083,640     $ 123,725,619  

 

 
 

 

 

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

 

COLONY BANKCORP, INC. (PARENT ONLY)

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31

 

   

2015

   

2014

   

2013

 
                         

Income

                       

Dividends from Subsidiary

  $ 10,015,147     $ 12,015,572     $ 1,515,549  

Management Fees

    581,334       581,334       581,334  

Other

    112,876       100,269       96,953  
                         
    $ 10,709,357     $ 12,697,175       2,193,836  
                         

Expenses

                       

Interest

    503,286       517,381       516,641  

Amortization

    -       938       2,250  

Salaries and Employee Benefits

    811,150       782,152       748,149  

Other

    666,872       538,847       543,139  
                         
      1,981,308       1,839,318       1,810,179  
                         

Income Before Taxes and Equity in Undistributed Earnings of Subsidiary

    8,728,049       10,857,857       383,657  
                         

Income Tax Benefits

    444,764       396,738       406,518  
                         

Income Before Equity in Undistributed Earnings of Subsidiary

    9,172,813       11,254,595       790,175  
                         

Dividends Received in Excess of Earnings of Subsidiary

    (800,116 )     (3,722,970 )     -  
                         

Equity in Undistributed Earnings of Subsidiary

    -       -       3,838,870  
                         

Net Income

    8,372,697       7,531,625       4,629,045  

Preferred Stock Dividends

    2,375,010       2,688,604       1,508,761  
                         

Net Income Available to Common Stockholders

  $ 5,997,687     $ 4,843,021     $ 3,120,284  

 

 
 

 

 

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

 

COLONY BANKCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31

 

   

2015

   

2014

   

2013

 
                         

Net Income

  $ 8,372,697     $ 7,531,625     $ 4,629,045  
                         

Other Comprehensive Income (Loss)

                       
                         

Gains (Losses) on Securities Arising During the Year

    610,689       6,432,906       (13,886,854 )

Tax Effect

    (207,634 )     (2,187,189 )     4,721,531  
                         

Realized Gains (Losses) on Sale of AFS Securities

    11,466       (23,735 )     (2,819 )

Tax Effect

    (3,898 )     8,070       959  
                         

Impairment Loss on Securities

    -       -       366,623  

Tax Effect

    -       -       (124,652 )
                         

Change in Unrealized Gains (Losses) on Securities Available for Sale, Net of Reclassification Adjustment and Tax Effects

    410,623       4,230,052       (8,925,212 )
                         

Comprehensive Income (Loss)

  $ 8,783,320     $ 11,761,677     $ (4,296,167 )

 

 
 

 

 

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

 

COLONY BANKCORP, INC. (PARENT ONLY)

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31

 

   

2015

   

2014

   

2013

 
                         

Cash Flows from Operating Activities

                       

Net Income

  $ 8,372,697     $ 7,531,625     $ 4,629,045  

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

                       

Depreciation and Amortization

    73,999       75,347       80,711  

Equity in Undistributed Earnings of Subsidiary

    800,116       3,722,970       (3,838,870 )

Change in Interest Payable

    23,072       (1,069,695 )     516,641  

Other

    1,555,482       (437,115 )     (390,962 )
                         
      10,825,366       9,823,132       996,565  
                         

Cash Flows from Investing Activities

                       

Purchases of Premises and Equipment

    (8,884 )     (2,020 )     (68,708 )
                         

Cash Flows from Financing Activities

                       

Dividends Paid on Preferred Stock

    (2,487,274 )     (5,492,749 )     -  

Redemption of Preferred Stock

    (9,979,000 )     -       -  
                         
      (12,466,274 )     (5,492,749 )     -  
                         

Increase (Decrease) in Cash

    (1,649,792 )     4,328,363       927,857  
                         

Cash and Cash Equivalents, Beginning

    5,750,652       1,422,289       494,432  
                         

Cash and Cash Equivalents, Ending

  $ 4,100,860     $ 5,750,652     $ 1,422,289  

 

 
 

 

 

(22) Earnings Per Share

 

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period. Diluted earnings per share reflects the potential dilution of restricted stock and common stock warrants. Net income available to common stockholders represents net income after preferred stock dividends. The following table presents earnings per share for the years ended December 31, 2015, 2014 and 2013:

 

   

2015

   

2014

   

2013

 
                         

Numerator

                       

Net Income Available to Common Stockholders

  $ 5,997,687     $ 4,843,021     $ 3,120,284  
                         

Denominator

                       

Weighted Average Number of Common Shares Outstanding for Basic Earnings Per Common Share

    8,439,258       8,439,258       8,439,258  

Dilutive Effect of Potential Common Stock

                       

Restricted Stock

    -       -       -  

Stock Warrants

    19,203       -       -  

Weighted-Average Number of Shares Outstanding for Diluted Earnings Per Common Share

    8,458,461       8,439,258       8,439,258  
                         

Earnings Per Share - Basic

  $ 0.71     $ 0.57     $ 0.37  
                         

Earnings Per Share - Diluted

  $ 0.71     $ 0.57     $ 0.37  

 

For the years ended December 31, 2014 and 2013, respectively, the Company has excluded 500,000 shares of common stock equivalents because the strike price of the common stock equivalents would cause them to have an anti-dilutive effect.