-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UpNAA6iOUXXlYAeucJH9pBTE3cYDU/fk1Ocmpnq1SOJHmjwOG1FVCmNOSk7YTldU 052XpKBssULvJW/vlkPycQ== 0000931763-98-002823.txt : 19981113 0000931763-98-002823.hdr.sgml : 19981113 ACCESSION NUMBER: 0000931763-98-002823 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLONY BANKCORP INC CENTRAL INDEX KEY: 0000711669 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 581492391 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-12436 FILM NUMBER: 98743897 BUSINESS ADDRESS: STREET 1: 302 S MAIN ST STREET 2: PO BOX 989 CITY: FITZGERALD STATE: GA ZIP: 31750 BUSINESS PHONE: 9124235446 10-Q 1 COLONY BANKCORP, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED SEPTEMBER 30, 1998 COMMISSION FILE NUMBER 0-12436 COLONY BANKCORP, INC. -------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) GEORGIA 58-1492391 ------- ---------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER) INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER 115 SOUTH GRANT STREET, FITZGERALD, GEORGIA 31750 ------------------------------------------------- ADDRESS OF PRINCIPAL EXECUTIVE OFFICES 912/426-6000 ------------ REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED REPORTS REQUIRED TO BE FILED BY SECTIONS 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK, AS OF THE CLOSE OF THE PERIOD COVERED BY THIS REPORT. CLASS OUTSTANDING AT SEPTEMBER 30, 1998 ----- --------------------------------- COMMON STOCK, $10 PAR VALUE 2,217,513 PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE FOLLOWING FINANCIAL STATEMENTS ARE PROVIDED FOR COLONY BANKCORP, INC. AND SUBSIDIARIES: THE BANK OF FITZGERALD, ASHBURN BANK, COMMUNITY BANK OF WILCOX, THE BANK OF DODGE COUNTY, THE BANK OF WORTH, COLONY BANK SOUTHEAST AND COLONY MANAGEMENT SERVICES, INC. A. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1998 AND DECEMBER 31, 1997. B. CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997. C. CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997. THE CONSOLIDATED FINANCIAL STATEMENTS FURNISHED HAVE NOT BEEN EXAMINED BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, BUT REFLECT, IN THE OPINION OF MANAGEMENT, ALL ADJUSTMENTS NECESSARY FOR A FAIR PRESENTATION OF THE RESULTS OF OPERATIONS FOR THE PERIODS PRESENTED. THE RESULTS OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998 ARE NOT NECESSARILY INDICATIVE OF THE RESULTS TO BE EXPECTED FOR THE FULL YEAR. 2 COLONY BANKCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 (UNAUDITED) (DOLLARS IN THOUSANDS)
SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ----------------- ASSETS Cash and Balances Due from Depository Institutions (Note 2) $ 10,406 $ 11,764 Federal Funds Sold 12,725 25,540 Investment Securities (Aggregate Fair Value of $56,179 and $56,891 Respectively) (Note 3) 56,197 56,916 Loans (Notes 4 and 5) 261,255 234,299 Allowance for Loan Losses (4,773) (4,575) Unearned Interest and Fees (8) (11) -------- -------- Total Loans 256,474 229,713 Premises and Equipment (Note 6) 11,120 9,135 Other Real Estate 516 1,311 Other Assets 8,587 8,568 -------- -------- Total Assets $356,025 $342,947 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest-Bearing $ 24,876 $ 27,320 Interest-Bearing (Note 8) 280,665 270,842 -------- -------- Total Deposits 305,541 298,162 Borrowed Money: Federal Funds Purchased 90 0 Other Borrowed Money (Note 9) 15,029 13,074 -------- -------- Total Borrowed Money 15,119 13,074 Other Liabilities 2,889 2,890 Commitments and Contingencies (Note 11) Stockholders' Equity: Common Stock, Par Value $10 a Share; Authorized 5,000,000 shares, Issued 2,217,513 and 2,173,263 Shares as of September 30, 1998 and December 31, 1997, respectively 22,175 21,733 Paid-In Capital 1,580 1,137 Retained Earnings 8,754 6,083 Net Unrealized Loss on Securities Available for Sale, Net of Tax Liability of $72 in 1998 and $25 in 1997 (33) (132) -------- -------- Total Stockholders' Equity 32,476 28,821 -------- -------- Total Liabilities and Stockholders' Equity $356,025 $342,947 ======== ========
The accompanying notes are an integral part of these balance sheets. 3 COLONY BANKCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED) (DOLLARS IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED 9/30/98 9/30/97 9/30/98 9/30/97 ---------- ---------- ---------- ---------- Interest Income: Loans, including fees $ 6,644 $ 6,286 $ 19,239 $ 18,002 Federal Funds Sold 220 142 762 529 Deposits with Other Banks 8 8 63 34 Investment Securities: U.S. Treasury & Federal Agencies 791 769 2,306 2,500 State, County and Municipal 113 83 289 234 Other Investments 48 28 146 77 ---------- ---------- ---------- ---------- Total Interest Income 7,824 7,316 22,805 21,376 ---------- ---------- ---------- ---------- Interest Expense: Deposits 3,717 3,375 10,791 9,830 Federal Funds Purchased 19 15 21 37 Other Borrowed Money 254 224 652 445 ---------- ---------- ---------- ---------- Total Interest Expense 3,990 3,614 11,464 10,312 Net Interest Income 3,834 3,702 11,341 11,064 Provision for Loan Losses 270 332 780 1,085 ---------- ---------- ---------- ---------- Net Interest Income After Provision 3,564 3,370 10,561 9,979 ---------- ---------- ---------- ---------- Noninterest Income: Service Charge on Deposits 521 457 1,519 1,366 Other Service Charges, Commissions & Fees 101 92 311 315 Security Gains, net 29 0 31 9 Other Income 71 36 153 249 ---------- ---------- ---------- ---------- Total Noninterest Income 722 585 2,014 1,939 ---------- ---------- ---------- ---------- Noninterest Expense: Salaries and Employee Benefits 1,566 1,383 4,290 4,129 Occupancy and Equipment 477 395 1,296 1,082 Other Operating Expenses 904 911 2,529 2,482 ---------- ---------- ---------- ---------- Total Noninterest Expense 2,947 2,689 8,115 7,693 ---------- ---------- ---------- ---------- Income Before Income Taxes 1,339 1,266 4,460 4,225 Income Taxes 422 385 1,412 1,305 ---------- ---------- ---------- ---------- Net Income $ 917 $ 881 $ 3,048 $ 2,920 ========== ========== ========== ========== Net Income Per Share of Common Stock Basic $ 0.41 $ 0.41 $ 1.37 $ 1.34 ========== ========== ========== ========== Diluted $ 0.41 $ 0.41 $ 1.37 $ 1.34 ========== ========== ========== ========== Weighted Average Shares Outstanding 2,217,663 2,173,263 2,211,680 2,173,263 ========== ========== ========== ==========
The accompanying notes are an integral part of these statements. 4 COLONY BANKCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED) (DOLLARS IN THOUSANDS)
1998 1997 --------- --------- CASH FLOW FROM OPERATING ACTIVITIES Net Income (loss) $ 3,048 $ 2,920 Adjustments to reconcile net income to net cash provided by operating activities: (Gain) loss on sale of investment securities (31) (9) Depreciation 707 545 Provision for loan losses 780 1,085 Amortization of excess costs 35 38 Other prepaids, deferrals and accruals, net 1,417 (29) -------- -------- Total Adjustments $ 2,908 $ 1,630 -------- -------- Net cash provided by operating activities $ 5,956 $ 4,550 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities available for sale $(53,309) $(11,447) Proceeds from sales of securities available for sale 3,167 3,797 Proceeds from maturities, calls, and paydowns of investment securities: Available for Sale 48,323 13,389 Held to Maturity 1,064 765 Decrease (Increase) in interest-bearing deposits in banks 620 297 (Increase) in loans (26,959) (34,437) Purchase of premises and equipment (2,371) (2,165) -------- -------- Net cash (used in) investing activities $(29,465) $(29,801) -------- -------- CASH FLOW FROM FINANCING ACTIVITIES Net (decrease) increase in deposits $ 7,379 $ (928) Proceeds from issuance of common stock 885 0 Federal funds purchased 90 1,090 Dividends paid (353) (326) Net (decrease) increase in other borrowed money 1,955 8,541 -------- -------- Net cash provided by financing activities $ 9,956 $ 8,377 -------- -------- Net increase (decrease) in cash and cash equivalents (13,553) (16,874) Cash and cash equivalents at beginning of period 36,289 35,293 -------- -------- Cash and cash equivalents at end of period $ 22,736 $ 18,419
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 5 COLONY BANKCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --- ------------------------------------------ BASIS OF PRESENTATION Colony Bankcorp, Inc. is a multi-bank holding company located in Fitzgerald, Georgia. The consolidated financial statements include the accounts of Colony Bankcorp, Inc. and its wholly-owned subsidiaries, The Bank of Fitzgerald, Fitzgerald, Georgia; Ashburn Bank, Ashburn, Georgia; Bank of Worth, Sylvester, Georgia; The Bank of Dodge County, Eastman, Georgia; Community Bank of Wilcox, Pitts, Georgia; Colony Bank Southeast (formerly Broxton State Bank), Broxton, Georgia; and Colony Management Services, Inc., Fitzgerald, Georgia (the Banks). All significant intercompany accounts have been eliminated in consolidation. The accounting and reporting policies of Colony Bankcorp, Inc. conform to generally accepted accounting principles and practices utilized in the commercial banking industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses, the valuation of real estate acquired in connection with foreclosure or in satisfaction of loans and the valuation of deferred tax assets. In February, 1997, the Financial Accounting Standards Board (FASB) issued Statement No. 128, Earnings Per Share (SFAS 128). SFAS 128 replaced the calculation of primary and fully diluted earnings per share (EPS) with basic and diluted EPS. Unlike primary EPS basic EPS excludes any dilutive effects of options, warrants and convertible securities. Diluted EPS is very similar to fully diluted EPS. All EPS amounts presented have been restated as applicable, to conform with the new requirements. INVESTMENT SECURITIES The Company records investment securities under Statement of Financial Accounting Standards (SFAS) No. 115 Accounting for Certain Investments in Debt and Equity Securities. Under the provisions of SFAS No. 115, the Company must classify its securities as trading, available for sale or held to maturity. Trading securities are purchased and held for sale in the near term. Securities held to maturity are those which the Company has the ability and intent to hold until maturity. All other securities not classified as trading or held to maturity are considered available for sale. Securities available for sale are measured at fair value with unrealized gains and losses reported net of deferred taxes as a separate component of stockholders' equity. Fair value represents an approximation of realizable value as of September 30, 1998 and December 31, 1997. Realized and unrealized gains and losses are determined using the specific identification method. Premiums and discounts are recognized in interest income using the interest method over the period to maturity. LOANS Loans are generally reported at principal amount less unearned interest and fees. Impaired loans are recorded under SFAS 114, Accounting by Creditors for Impairment of a Loan and SFAS 118, Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures. Impaired loans are loans for which principal and interest are unlikely to be collected in accordance with the original loan terms and, generally, represent loans delinquent in excess of 120 days which have been placed on nonaccrual status and for which collateral values are less than outstanding principal and interest. Small balance, homogeneous loans are excluded from impaired loans. Generally, interest payments received on impaired loans are applied to principal. Upon receipt of all loan principal, additional interest payments are recognized as interest income on the cash basis. Other nonaccrual loans are loans for which payments of principal and interest are considered doubtful of collection under original terms but collateral values equal or exceed outstanding principal and interest. Colony Bankcorp, Inc.'s loans consist of commercial, financial and agricultural loans, real estate mortgage loans and consumer loans primarily to individual's and entities located throughout central and south Georgia. Accordingly, the ultimate collectability of the loans is largely dependent upon economic conditions in the central and south Georgia area. 6 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) - --- ------------------------------------------------------ ALLOWANCE FOR LOAN LOSSES The allowance method is used in providing for losses on loans. Accordingly, all loan losses decrease the allowance and all recoveries increase it. The provision for loan losses is based on factors which, in management's judgment, deserve current recognition in estimating possible loan losses. Such factors considered by management include growth and composition of the loan portfolio, economic conditions and the relationship of the allowance for loan losses to outstanding loans. An allowance for loan losses is maintained for all impaired loans. Provisions are made for impaired loans upon changes in expected future cash flows or estimated net realizable value of collateral. When determination is made that impaired loans are wholly or partially uncollectible, the uncollectible portion is charged-off. Management believes the allowance for possible loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgment about information available to them at the time of their examination. PREMISES AND EQUIPMENT Premises and equipment are recorded at acquisition cost net of accumulate 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. CASH FLOWS For reporting cash flows, cash and cash equivalents include cash on hand, noninterest-bearing amounts due from banks and federal funds sold. Cash flows from demand deposits, NOW accounts, savings accounts, loans and certificates of deposit are reported net. INCOME TAXES Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. 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 experience method for tax purposes). The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. OTHER REAL ESTATE Other real estate generally represents real estate acquired through foreclosure and is initially recorded at the lower of cost or estimated market value at the date of acquisition. Losses from the acquisitions of property in full or partial satisfaction of debt are recorded as loan losses. Subsequent declines in value, routine holding costs and gains or losses upon disposition are included in other losses. 7 (2) CASH AND BALANCES DUE FROM DEPOSITORY INSTITUTIONS - --- -------------------------------------------------- Components of cash and balances due from depository institutions at September 30, 1998 and December 31, 1997 are as follows:
September 30, 1998 December 31, 1997 ------------------ ----------------- Cash on Hand and Cash Items $ 3,690 $ 3,211 Noninterest-Bearing Deposits with Other Banks 6,321 7,538 Interest-Bearing Deposits with Other Banks 395 1,015 ------- ------- $10,406 $11,764 ======= =======
(3) INVESTMENT SECURITIES - --- --------------------- Investment securities as of September 30, 1998 are summarized as follows:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value Securities Available for Sale: U.S. Treasury $ 0 $ 0 $ 0 $ 0 U.S. Government Agencies: Mortgage-Backed 8,177 56 (31) 8,202 Other 35,800 110 (2) 35,908 State, County & Municipal 6,688 78 0 6,766 The Banker's Bank Stock 50 0 0 50 Federal Home Loan Bank Stock 2,094 0 0 2,094 Marketable Equity Securities 1,130 0 (173) 957 ------- ---- ----- ------- $53,939 $244 $(206) $53,977 ======= ==== ===== ======= Securities Held to Maturity: U.S. Government Agencies $ 800 $ 0 $ (1) $ 799 State, County and Municipal 1,420 2 (19) 1,403 ------- ---- ----- ------- $ 2,220 $ 2 $ (20) $ 2,202 ======= ==== ===== =======
The amortized cost and fair value of investment securities as of September 30, 1998 by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers have the right to call or prepay obligations with or without call or prepayment penalties.
Securities Available for Sale Held to Maturity Amortized Cost Fair Value Amortized Cost Fair Value Due in One Year or Less $ 4,980 $ 4,986 $ 965 $ 965 Due After One Year Through Five Years 34,147 34,317 810 814 Due After Five Years Through Ten Years 3,361 3,371 0 0 Due After Ten Years 0 0 445 423 ------- ------- ------ ------ 42,488 42,674 2,220 2,202 Federal Home Loan Bank Stock 2,094 2,094 0 0 The Banker's Bank Stock 50 50 0 0 Marketable Equity Securities 1,130 957 0 0 Mortgage-Backed Securities 8,177 8,202 0 0 ------- ------- ------ ------ $53,939 $53,977 $2,220 $2,202 ======= ======= ====== ======
8 (3) INVESTMENT SECURITIES (CONTINUED) - --- --------------------------------- Investment securities as of December 31, 1997 are summarized as follows:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value Securities Available for Sale: U.S. Treasury $ 1,074 $ 0 $ (3) $ 1,071 U.S. Government Agencies: Mortgage-Backed 10,866 60 (62) 10,864 Other 33,468 41 (43) 33,466 State, County & Municipal 5,328 85 (5) 5,408 The Banker's Bank Stock 50 0 0 50 Federal Home Loan Bank Stock 1,870 0 0 1,870 Marketable Equity Securities 1,130 0 (181) 949 ------- ---- ----- ------- $53,786 $186 $(294) $53,678 ======= ==== ===== ======= Securities Held to Maturity: U.S. Government Agencies $ 1,649 $ 0 $ (5) $ 1,644 State, County and Municipal 1,588 1 (20) 1,569 ------- ---- ----- ------- $ 3,237 $ 1 $ (25) $ 3,213 ======= ==== ===== =======
Investment securities having a carry value approximating $23,299 and $25,563 as of September 30, 1998 and December 31, 1997, respectively, were pledged to secure public deposits and for other purposes. (4) LOANS - --- ----- The composition of loans as of September 30, 1998 and December 31, 1997 was as follows:
September 30, 1998 December 31, 1997 ------------------ ----------------- Commercial, Financial and Agricultural $ 54,706 $ 34,883 Real - Estate Construction 1,399 2,676 Real - Estate Farmland 19,557 21,898 Real - Estate Other 134,257 117,268 Installment Loans to Individuals 41,512 42,956 All Other Loans 9,824 14,618 -------- -------- $261,255 $234,299 ======== ========
Nonaccrual loans are loans for which principal and interest are doubtful of collection in accordance with original loan terms and for which accruals of interest have been discontinued due to payment delinquency. Nonaccrual loans totaled $6,674 and $5,774 as of September 30, 1998 and December 31, 1997, respectively. On September 30, 1998, the Company had 90 day past due loans with principal balances of $871 and restructured loans with principal balances of $15. Colony Bankcorp, Inc. recognizes impaired loans as nonaccrual loans delinquent in excess of 120 days for which collateral values are insufficient to recover outstanding principal and interest under original loan terms. Impaired loan data as of September 30, 1998 and December 31, 1997 was as follows: Total Investment in Impaired Loans $1,292 Less Allowance for Impaired Loan Losses (461) ------ Net Investment, September 30, 1998 and December 31, 1997 $ 831 ====== 9 (5) ALLOWANCE FOR LOAN LOSSES - --- ------------------------- Transactions in the allowance for loan losses are summarized below for nine months ended September 30, 1998 and September 30, 1997 was as follows:
Sept. 30, 1998 Sept. 30, 1997 -------------- -------------- Balance, Beginning $4,575 $ 4,435 Provision Charged to Operating Expenses 780 1,085 Loans Charged Off (904) (1,253) Loan Recoveries 322 410 ------ ------- Balance, Ending $4,773 $ 4,677 ====== =======
(6) PREMISES AND EQUIPMENT - --- ---------------------- Premises and equipment are comprised of the following as of September 30, 1998 and December 31, 1997: Sept. 30, 1998 December 31, 1997 -------------- ----------------- Land $ 1,352 $ 1,306 Building 8,119 6,717 Furniture, Fixtures and Equipment 7,012 5,938 Leasehold Improvements 311 180 ------- ------- 16,794 14,141 Accumulated Depreciation (5,674) (5,006) ------- ------- $11,120 $ 9,135 ======= ======= Certain Company facilities and equipment are leased under various operating leases. Future minimum rental payments to be paid are as follows: Year Ending December 31 Amount ----------- ------ 1998 $ 62 1999 58 2000 54 2001 46 2002 7 ---- $227 ==== (7) INCOME TAXES - --- ------------ The Company records income taxes under SFAS No. 109, Accounting for Income Taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. 10 (8) DEPOSITS - --- -------- Components of interest-bearing deposits as of September 30, 1998 and December 31, 1997 are as follows: Sept. 30, 1998 December 31, 1997 -------------- ----------------- Interest-Bearing Demand $ 51,441 $ 54,770 Savings 12,103 11,971 Time, $100,000 and Over 69,016 61,198 Other Time 148,105 142,903 -------- -------- $280,665 $270,842 ======== ======== The aggregate amount of short-term jumbo certificates of deposit, each with a minimum denomination of $100,000, was approximately $58,421 and $51,608 as of September 30, 1998 and December 31, 1997, respectively. As of September 30, 1998, the scheduled maturities of time deposits are as follows: Maturity Amount -------- -------- One Year and Under $178,431 One to Three Years 25,726 Three Years and Over 12,964 -------- $217,121 ======== (9) OTHER BORROWED MONEY - --- -------------------- Other borrowed money at September 30, 1998 and December 31, 1997 is summarized as follows: Sept. 30, 1998 December 31, 1997 -------------- ----------------- Federal Home Loan Bank Advances $12,800 $ 9,800 Debentures Payable 534 534 AmSouth Note Payable 0 821 First Port City Note Payable 867 963 The Bankers Bank Note Payable 828 956 ------- ------- $15,029 $13,074 ======= ======= Advances from the Federal Home Loan Bank (FHLB) have maturities ranging from 1998 to 2008 and interest rates ranging from 5.00 percent to 6.98 percent. Under the Blanket Agreement for Advances and Security Agreement with the FHLB, residential mortgage loans are pledged as collateral for the FHLB advances outstanding. Debentures payable were issued November 28, 1984 for $4,360. The debentures are due in annual payments of $267 plus variable interest with the unpaid balance due November 1, 1999. Collateral for the outstanding debt consists of 100 percent of the common stock of Ashburn Bank. Effective interest rate as June 30, 1998 was 8.0 percent. AmSouth note payable originated on December 20, 1994 for $1,445. Collateral consists of 100 percent of the common stock of The Bank of Fitzgerald and The Bank of Worth. This debt was paid out in February, 1998. First Port City note payable was renewed on January 30, 1997 with additional funds added for an amount totaling $963. Annual principal payments of $96 are due with interest paid quarterly at The Wall Street Prime minus one-half percent. The debt is secured by commercial real estate in downtown Fitzgerald, which includes the parent company's facilities. Any unpaid balance is due January 29, 2000. 11 (9) OTHER BORROWED MONEY (CONTINUED) - --- -------------------------------- The Bankers Bank note payable originated on September 5, 1997 for $1,000 at a rate of The Wall Street Prime minus one half percent. Payments are due monthly with the entire unpaid balance due September 5, 2002. The debt is secured by all furniture, fixtures, machinery, equipment and software of Colony Management Services, Inc. Colony Bankcorp, Inc. guarantees the debt. The aggregate stated maturities of other borrowed money at September 30, 1998 are as follows: Year Amount ---- ------- 1998 $ 1,367 1999 564 2000 971 2001 2,000 2002 and Thereafter 10,127 ------- $15,029 ======= (10) PROFIT SHARING PLAN - ---- ------------------- The Company has a profit sharing plan that covers substantially all employees who meet certain age and service requirements. It is the Company's policy to make contributions to the plan as approved annually by the board of directors. The total provision for contributions to the plan was $295 for 1997. (11) COMMITMENTS AND CONTINGENCIES - ---- ----------------------------- In the normal course of business, certain commitments and contingencies are incurred which are not reflected in the consolidated financial statements. The Bank had commitments under standby letters of credit to U.S. addresses approximating $1,316 as of September 30, 1998 and $825 as of December 31, 1997. Unfulfilled loan commitments as of September 30, 1998 and December 31, 1997 approximated $35,807 and $30,197 respectively. No losses are anticipated as a result of commitments and contingencies. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitment amounts expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The credit risk involved in issuing these financial instruments is essentially the same as that involved in extending loans to customers. The amount of collateral obtained, if deemed necessary by the Banks upon extension of credit, is based on management's credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties. The Banks do not anticipate any material losses as a result of the commitments and contingent liabilities. The nature of the business of the Banks is such that it ordinarily results in a certain amount of litigation. In the opinion of management and counsel for the company and the Banks, there is no litigation in which the outcome will have a material effect on the consolidated financial statement. 12 (12) REGULATORY CAPITAL MATTERS - ---- -------------------------- The amount of dividends payable to the parent company from the subsidiary banks is limited by various banking regulatory agencies. The amount of cash dividends available from subsidiaries for payment in 1998 without prior approval from the banking regulatory agencies approximates $2,017. Upon approval by regulatory authorities, the banks may pay cash dividends to the parent company in excess of regulatory limitations. The Company is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and, possibly, additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's 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 classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. The amounts and ratios as defined in regulations are presented hereafter. Management believes, as of September 30, 1998, the Company meets all capital adequacy requirements to which it is subject and is classified as well capitalized under the regulatory framework for prompt corrective action. In the opinion of management, there are no conditions or events since prior notification of capital adequacy from the regulators that have changed the institution's category.
To Be Well Capitalized For Capital Under Prompt Corrective Actual Adequacy Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio AS OF SEPTEMBER 30, 1998 Total Capital to Risk-Weighted Assets $35,317 12.84% $22,007 8.00% $27,508 10.00% Tier 1 Capital to Risk-Weighted Assets 31,862 11.58% 11,003 4.00% 16,505 6.00% Tier 1 Capital to Average Assets 31,862 8.96% 14,219 4.00% 17,773 5.00% AS OF DECEMBER 31, 1997 Total Capital to Risk-Weighted Assets $31,424 12.50% $20,111 8.00% $25,139 10.00% Tier 1 Capital to Risk-Weighted Assets 28,265 11.25% 10,050 4.00% 15,075 6.00% Tier 1 Capital to Average Assets 28,265 8.44% 13,396 4.00% 16,745 5.00%
13 (13) FINANCIAL INFORMATION OF COLONY BANKCORP, INC. (PARENT ONLY) - ----------------------------------------------------------------- The parent company's balance sheets as of September 30, 1998 and December 31, 1997 and the related statements of income are as follows: COLONY BANKCORP, INC. (PARENT ONLY) BALANCE SHEETS FOR PERIOD ENDED SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
ASSETS SEPT. 30, 1998 DECEMBER 31, 1997 --------------------- ------------------------------ Cash $ 488 $ 9 Investments in Subsidiaries at Equity 32,184 29,787 Other 1,450 1,534 ------- ------- Totals Assets $34,122 $31,330 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Dividends Payable $ 133 $ 109 Notes and Debentures Payable 1,401 2,318 Other 112 82 ------- ------- Stockholders' Equity 1,646 2,509 Common Stock, Par Value $10; 5,000,000 Shares Authorized, 2,217,513 and 2,173,263 Shares Issued and Outstanding as of June 30, 1998 and December 31, 1997, respectively $22,175 $21,733 Paid-In Capital 1,580 1,137 Retained Earnings 8,754 6,083 Net Unrealized Loss on Securities Available for Sale, Net of Tax (33) (132) ------- ------- Total Stockholders' Equity 32,476 28,821 ------- ------- Total Liabilities and Stockholders' Equity $34,122 $31,330 ======= =======
COLONY BANKCORP, INC. (PARENT ONLY) STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
SEPT. 30, 1998 SEPT. 30, 1997 -------------- -------------- Income $2,075 $ 860 Dividends from Subsidiaries 132 207 Management Fees from Subsidiaries 59 30 ------ ------ Other $2,266 $1,097 Expenses $ 95 $ 150 Interest 247 281 Salaries and Benefits 289 285 ------ ------ Other $ 631 $ 716 ------ ------ Income Before Taxes and Equity in Undistributed Earnings of Subsidiaries 1,635 381 Income Tax (Benefits) (115) (175) ------ ------ Income Before Equity in Undistributed Earnings of Subsidiaries 1,750 556 Equity in Undistributed Earnings of Subsidiaries 1,298 2,364 ------ ------ Net Income $3,048 $2,920 ====== ======
14 (13) Financial Information of Colony Bankcorp, Inc. (Parent Only)(continued) - ---------------------------------------------------------------------------- COLONY BANKCORP, INC. (PARENT ONLY) STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
SEPT. 30, 1998 SEPT. 30, 1997 -------------- -------------- Cash Flows from Operating Activities Net Income $ 3,048 $ 2,920 Adjustments to Reconcile Net Income to Net Cash Provided from Operating Activities Depreciation and Amortization 64 41 Equity in Undistributed Earnings of Subsidiary (1,298) (2,364) Other 56 (215) ------- ------- 1,870 382 Cash Flows from Investing Activities Capital Infusion in Subsidiary (1,000) 0 Purchase of Premises and Equipment (5) (479) ------- ------- (1,005) (479) Cash Flows from Financing Activities Dividends Paid (353) (326) Proceeds from Issuance of Common Stock 885 0 Principal Payments on Notes and Debentures (918) (447) Proceeds from Notes and Debentures 0 963 ------- ------- (386) 190 Increase (Decrease) in Cash and Cash Equivalents 479 93 Cash and Cash Equivalents, Beginning 9 61 ------- ------- Cash and Cash Equivalents, Ending $ 488 $ 154 ======= =======
(14) COMMON STOCK SPLIT - ----------------------- On February 18, 1997 a 50 percent stock split effected on July 1, 1997 in the form of a dividend was approved by the board. Weighted average shares and per share data for all periods presented in the accompanying consolidated financial statements and related notes have been retroactively restated to reflect the additional shares outstanding resulting from the stock split. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION LIQUIDITY AND CAPITAL RESOURCES Liquidity represents the ability to provide adequate sources of funds for funding loan commitments and investment activities, as well as the ability to provide sufficient funds to cover deposit withdrawals, payment of debt and financing of operations. These funds are obtained by converting assets to cash (representing primarily proceeds from collections on loans and maturities of investment securities) or by attracting and obtaining new deposits. For the nine months ended September 30, 1998, the Company was successful in meeting its liquidity needs by increasing deposits 2.47% to $305,541,000 from deposits of $298,162,000 on December 31, 1997 and reducing Federal Funds 50.18% to $12,725,000 from $25,540,000 on December 31, 1997. Additionally, the Company increased its borrowings from Federal Home Loan Bank 30.61% to $12,800,000 from Federal Home Loan Borrowings of $9,800,000 on December 31, 1997. Should the need arise, the Company also maintains relationships with several correspondent banks that can provide funds on short notice. The Company's liquidity position remained acceptable for the nine months ended September 30, 1998. Average liquid assets (cash and amounts due from banks, interest-bearing deposits in other banks, funds sold and investment securities) represented 29.89% of average deposits for nine months ended September 30, 1998 as compared to 29.91% of average deposits for nine months ended September 30, 1997 and 29.73% for calendar year 1997. Average loans represented 81.03% of average deposits for nine months ended September 30, 1998 as compared to 79.61% for nine months ended September 30, 1997 and 80.00% for calendar year 1997. Average interest-bearing deposits were 84.55% of average earning assets for nine months ended September 30, 1998 as compared to 85.15% for nine months ended September 30, 1997 and 84.92% for calendar year 1997. The Company satisfies most of its capital requirements through retained earnings. During the first quarter 1998, retained earnings provided $1,045,000 of increase in equity. Additionally, equity capital decreased by $18,000 during first quarter 1998 as a result of changes in unrealized losses on securities available-for-sale, net of taxes and the Company realized $885,000 in proceeds from the sale of common stock through a public offering that was completed during the first quarter. During the second quarter of 1998, retained earnings provided $842,000 of increase in equity while equity capital decreased by $6,000 during second quarter 1998 as a result of changes in unrealized losses on available-for-sale securities, net of taxes. During the third quarter of 1998, retained earnings provided $784,000 of increase in equity while equity capital increased by $123,000 during third quarter 1998 as a result of changes in unrealized losses on available-for-sale securities, net of taxes. Thus total equity increased by a net amount of $1,912,000, $836,000 and $907,000 for the first three quarters of 1998, respectively for a net change of $3,655,000 for the nine month period ended September 30, 1998. This compares to total equity increase of $2,590,000 for the nine month period ended September 30, 1997. Total equity increased by a net amount of $3,230,000 in 1997. At September 30, 1998, total capital of Colony amounted to $32,476,000. At September 30, 1998, there were no outstanding commitments for any major capital expenditures. The Federal Reserve Bank Board and FDIC have issued capital guidelines for U.S. banking organizations. The objective of these efforts was to provide a more uniform capital framework that is sensitive to differences in risk assets among banking organizations. The guidelines define a two-tier capital framework. Tier 1 capital consists of common stock and qualifying preferred stockholders' equity less goodwill. Tier 2 capital consists of convertible, subordinated and other qualifying term debt and the allowance for loan losses up to 1.25 percent of risk-weighted assets. The Company has no Tier 2 capital other than the allowance for loan losses. Using the capital requirements presently in effect, the Tier 1 ratio at September 30, 1998 was 11.58% and total Tier 1 and 2 risk-based capital was 12.84%. Both of these measures compare favorably with the regulatory minimums of 4% for Tier 1 and 8% for total risk-based capital. The Company's leverage ratio as of September 30, 1998 was 8.96% which exceeds the required leverage ratio standard of 4%. For the third quarter of 1998, the Company paid quarterly dividends of $0.06 per share and for the first two quarters of 1998 the Company paid quarterly dividends of $0.055 per share. The dividend payout ratio, defined as dividends per share divided by net income per share, was 12.41% for nine months ended 16 September 30, 1998 as compared to 11.19% for the nine month period ended September 30, 1997. For the first three quarters of 1997, the company paid quarterly dividends of $0.05 per share. At September 30, 1998, management was not aware of any recommendations by regulatory authorities which, if they were to be implemented, would have a material effect on the Company's liquidity, capital resources of operations. However, it is possible that examinations by regulatory authorities in the future could precipitate additional loan charge-offs which could materially impact the Company's liquidity, capital resources and operations RESULTS OF OPERATION The Company's results of operations are determined by its ability to effectively manage interest income and expenses, to minimize loan and investment losses, to generate noninterest income and to control noninterest expense. Since interest rates are determined by market forces and economic conditions beyond the control of the Company, the ability to generate net interest income is dependent upon the Bank's ability to obtain an adequate spread between the rate earned on earning assets and the rate paid on interest-bearing liabilities. Thus, the key performance measure for net interest income is the interest margin or net yield, which is taxable-equivalent net interest income divided by average earning assets. Net Income - ---------- Net income for the three months ended September 30, 1998 was $917,000 as compared with $881,000 for the three months ended September 30, 1997, or an increase of 4.09% and net income for the nine months ended September 30, 1998 was $3,048,000 as compared with $2,920,000 for the nine months ended September 30, 1997, or an increase of 4.38%. Earnings for the first three quarters of 1998 were relatively stable compared to the first three quarters of 1997. Net Interest Margin - ------------------- The net interest margin decreased by 18 basis points to 4.70% in third quarter 1998 as compared to 4.88% in third quarter 1997 and decreased by 23 basis points to 4.74% for nine months ended September 30, 1998 as compared to 4.97% for the same period in 1997. Net interest income increased by 3.57% to $3,834,000 in third quarter 1998 from $3,702,000 for the same period in 1997 on an increase in average earning assets to $332,742,000 in third quarter 1998 from $308,155,000 in third quarter 1997. Net interest income increased by 2.50% to $11,341,000 for nine months ended September 30, 1998 from $11,064,000 for the same period in 1997 on an increase in average earning assets to $324,728,000 for the nine months ended September 30, 1998 from $301,139,000 for the same period in 1997. For the nine months ended September 30, 1998 compared to the same period in 1997, average loans increased by $19,043,000 or 8.46%, average Federal funds sold increased by $6,451,000 or 54.69%, average investment securities decreased by $2,367,000 or 3.73% and average interest bearing deposits in other banks increased by $462,000 or 59.31%, resulting in a net increase in average earning assets of $23,589,000 or 7.83%. The net increase in average earnings assets was funded by a net increase in average deposits of 6.56% to $301,273,000 for nine months ended September 30, 1998 from $282,719,000 for the same period in 1997. Average interest-bearing deposits increased by 7.08% to $274,573,000 for nine months ended September 30, 1998 compared to $256,415,000 for nine months ended September 30, 1997, while average noninterest-bearing deposits represented 8.86% of average total deposits for nine month ended September 30, 1998 as compared to 9.30% for the same period in 1997 and 9.46% for calendar year 1997. Interest expense increased for the three months ended September 30, 1998 by $376,000 compared to the same period in 1997 and increased by $1,152,000 for the nine months ended September 30, 1998 compared to the same period in 1997. The increase in interest expense is primarily attributable to the increase in average interest-bearing deposits to $274,573,000 for the nine months ended September 30, 1998 compared to $256,415,000 for the nine months ended September 30, 1997 and an increase in average borrowings to $12,587,000 for the nine months ended September 30, 1998 compared to $9,241,000 for the nine months ended September 30, 1997. The combination of a decrease in net interest margin and an increase in average earning assets resulted in an increase in net interest income of $132,000 for third quarter 1998 compared to third quarter 1997 and an increase in net interest income of $277,000 for nine months ended September 30, 1998 compared to the same period in 1997. 17 Provision for Loan Losses - ------------------------- The allowance for loan losses represents a reserve for potential losses in the loan portfolio. The adequacy of the allowance for loan losses is evaluated periodically based on a review of all significant loans with a particular emphasis on non-accruing, past due and other loans that management believes requires attention. The provision for loan losses is a charge to earnings in the current period to replenish the allowance for loan losses and maintain it at a level that management had determined to be adequate. The provision for loan losses was $270,000 for third quarter 1998 compared to $332,000 for third quarter 1997 and $780,000 for nine months ended September 30, 1998 compared to $1,085,000 for the same period in 1997. The decrease in the provision for loan losses in both periods is attributable to a leveling off of problem loans and an adequate build-up in the loan loss reserve for any future losses. Net loan charge-offs represented 117.41% of the provision for loan losses in third quarter 1998 as compared to 101.51% in third quarter 1997. Net loan charge-offs represented 74.62% of the provision for loan losses in the nine month period ended September 30, 1998 as compared to 77.60% of the provision for loan losses in the nine month period ended September 30, 1997. During the first nine months of 1998 and 1997, a net of $582,000 and $842,000, respectively was charged-off. Net loan charge-offs for the nine months ended September 30, 1998 represented 0.24% of average loans outstanding as compared to 0.37% for nine months ended September 30, 1997. At September 30, 1998 the allowance for loan losses was 1.83% of total loans outstanding as compared to an allowance for loan losses of 1.94% at September 30, 1997 and 1.95% at December 31, 1997. The allowance for loan losses of 1.83% of total loans at September 30, 1998 provided coverage of 63.26% of nonperforming loans and 59.21% of nonperforming assets, compared to 75.39% and 63.31%, respectively at September 30, 1997. The determination of the reserve rests upon management's judgment about factors affecting loan quality and assumptions about the economy. Management considers the September 30, 1998 allowance for loan losses adequate to cover potential losses in the loan portfolio. Noninterest Income - ------------------ Noninterest income consists primarily of service charges on deposit accounts. Service charges on deposit accounts amounted to $521,000 in third quarter 1998 compared to $457,000 in third quarter 1997, or an increase of 14.00% and amounted to $1,519,000 for nine months ended September 30, 1998 compared to $1,366,000 for nine months ended September 30, 1997, or an increase of 11.20%. All other non-interest income increased by $73,000 to $201,000 for third quarter 1998 from $128,000 for third quarter 1997 and all other noninterest income decreased by $78,000 to $495,000 for nine months ended September 30, 1998 from $573,000 for nine months ended September 30, 1997. The primary decrease of all other noninterest income is primarily attributable to gains realized on the sale of other assets in the nine months ended September 30, 1997 which did not recur in 1998. Additionally, credit life insurance commissions reflected a $62,000 decrease for the nine months ended September 30, 1998 as compared to the same period in 1997. Noninterest Expense - ------------------- Noninterest expense increased by 9.59% to $2,947,000 for three months ended September 30, 1998 from $2,689,000 for the same period in 1997. Salaries and benefits increased 13.23% to $1,566,000 for third quarter 1998 from $1,383,000 for the same period in 1997 and was attributable to additional staffing for the new branches in Douglas, Tifton and Leesburg, Georgia. With the new branches, occupancy expenses also increased from $477,000 for third quarter 1998 from $395,000 for third quarter 1997, or an increase of 20.76%. All other operating expenses remained relatively flat for the two quarters. Noninterest expense increased by 5.49% to $8,115,000 for nine months ended September 30, 1998 from $7,693,000 for the same period in 1997. Salaries and benefits increased by 3.90% to $4,290,000 for nine months ended September 30, 1998 compared to $4,129,000 for the same period in 1997. Occupancy and equipment expense increased by 19.78% to $1,296,000 for nine months ended September 30, 1998 compared to $1,082,000 for the same period in 1997. Salaries and benefits and occupancy expenses increased as a result of branching into three new markets in 1998. All other noninterest expense increased by 1.89% to $2,529,000 for nine months ended September 30, 1998 compared to $2,482,000 for the same period in 1997. Income Tax Expense - ------------------ Income before taxes increased by 5.77% to $1,339,000 in third quarter 1998 from $1,266,000 in third quarter 1997 and increased by 5.56% to $4,460,000 for nine months ended September 30, 1998 compared to $4,225,000 for the same period in 1997. The increase for the nine months ended September 30, 1998 is primarily attributable to the increased net interest income. Income taxes as a percentage of income before taxes increased by 3.65% to 31.52% in third quarter 1998 as 18 compared to 30.41% in third quarter 1997 and increased by 2.49% to 31.66% for nine months ended September 30, 1998 as compared to 30.89% for nine months ended September 30, 1997. Income tax expense increased 9.61% to $422,000 for third quarter 1998 compared to $385,000 for third quarter 1997 and increased 8.20% to $1,412,000 for nine months ended September 30, 1998 compared to $1,305,000 for the same period in 1997. Future Outlook - -------------- Colony is an emerging company operating in an industry filled with non-regulated competitors and a rapid pace of consolidation. The balance of 1998 and 1999 brings with it new opportunities for growth in our existing markets, as well as opportunities to expand into new markets through bank acquisitions and branching. Colony has already opened new branches in Douglas, Tifton, Cordele and Leesburg during 1998. These new branches are located in four growth markets in South Georgia and will further enhance our Company's presence in South Georgia. Colony Management Services, Inc. has invested over $1,000,000 in computer up-grades and software enhancements in a major cost containment initiative. Not only will this reduce overhead through back-office consolidation, but it also will allow us to better serve our customers through improved customer data resources and state-of-the-art technological services. Year 2000 Compliance - -------------------- The Company has developed policy, procedures and plans to address the possible exposure related to the impact on its financial, informational and operational systems of the Year 2000. The Company recently, underwent a major computer conversion, which has been tested and assured to be Year 2000 compliant. Other equipment has been identified and vendors are being contacted. The Company's subsidiary, Colony Management Services, Inc. is responsible for coordinating efforts of all bank subsidiaries in any follow-up procedures necessary. While there may be some expenses incurred during the next two years, it is not expected to have a material effect on the Company's consolidated financial statements. The Company's Year 2000 Compliance Plan of Action is detailed below: 1. A master file should be created that contains all documentation relating to Year 2000 compliance. This file should contain copies of all board of directors meeting minutes that pertain to this issue, any correspondence with vendors, letters of certification of 2000 compliance, evidence of all in-house testing of software or hardware, and any other items relating to Year 2000 such as memos, releases from regulatory agencies etc. 2. In order for the Year 2000 of Action to be successful senior management must be informed and involved in the process. Progress should be documented with written reports and provided to senior management on a timely basis. Progress reports should also be made directly to the Board of Directors of both the holding company and all subsidiaries. 3. Three mission critical applications have been identified. These applications are Unisys Mainframe computer system and related equipment, ITI software that is used in conjunction with this equipment, and the Banker Systems platform software used in the subsidiary banks for the loan and deposit platform system. We have letters of certification of Year 2000 compliance from all three of these vendors. In order to assure that these systems are compliant, a program of testing will be undertaken. The basic testing will be to load some dummy CD's and loans with maturity dates after the year 2000 and test interest calculations for accuracy. The testing for the Bankers System applications will be similar. 4. Beyond the mission critical applications there are many items of hardware and software that are very important to our bank's operations. A program will be developed to identify and contact these hardware and software vendors to determine if they can certify Year 2000 Compliance. If they cannot certify Year 2000 compliance they will be asked to disclose any expected problems that the millennium change will cause in the performance of their products. It is understood that some vendors will be in the process of making the necessary changes to software and hardware to resolve Year 2000 compliance problems. It is very important that follow-up contact be made to determine the progress of these vendors. Based on the responses received management will take whatever actions are deemed necessary to resolve any problems. All personal computers in the organization will be tested to determine if the basic operating system is Year 2000 compliant. Any computers that fail this test will be repaired or replaced before the millennium change. 19 5. There are other less important items of equipment that may be affected by the millennium change. Items such as Fax machines, ATM'S, Telephone Banking Systems, Vaults, Security Systems are involved. A check list of these items will be developed and tested and the appropriate vendor will be contacted to obtain information about Year 2000 performance. 6. An assessment of the year 2000 processing capabilities of payment system providers will also be made. This assessment will focus on wire transfer systems, automated clearing houses, and ATM networks and any electronic data interchange systems. This will primarily be accomplished by direct written correspondence with the providers involved. Individual ATMs will also be tested through the use of the Mastercard ATM test card program. In addition a list of all lead banks from which we have purchased participations will be compiled. These banks will be contacted to determine their status on Year 2000 compliance. 7. The seriousness of this issue must be communicated at all levels of the organization. This process will start with senior management and the Board of Directors. Periodic progress reports and updated action plans will be made to the Board of Directors. Any known problems will be addressed promptly to insure adequate time for testing of new software/hardware. The Company's Year 2000 Testing Plan is detailed below: TIMELINES - --------- As required by the FDIC testing guidelines release of 4/10/98, testing will commence by 9/01/98 and will be completed by 12/31/98. Implementation of corrections to substandard systems should be completed by 6/30/99. MISSION CRITICAL ITEMS - ---------------------- The following items are considered to mission critical. Unisys Clearpath mainframe computer and all related equipment. ITI coreprocessing software. Baynetworks Wide Area Network equipment, software. Modems used for connection to serviced banks. All personal computers used to control or communicate with the items above. UNISYS CLEARPATH MAINFRAME AND ITI SOFTWARE. - ------------------------------------------- The testing of these systems will be accomplished through the use of the ITI Year 2000 test module. This module was purchased from ITI and will allow direct in-house testing of these systems. This module uses the baseline testing methodology. A 12/31/97 backup will be loaded into the system. EES Blocks for 12/31/97 will be loaded and updated and 1/02/98 IES blocks will be loaded and updated. All the normal printouts will be produced. These printouts will be used to establish a baseline for comparison. At this time the same process will be repeated with the exceptions that all items will be run through the Year 2000 module. The Year 2000 module will advance all dates in the system by 2 years (ie. 12/31/97 will become 12/31/99 & 1/02/98 will become 1/02/00). The same printouts will be produced and compared to the baseline printouts to determine if the system has properly processed these two days work. See the attached printout titled Y2K Testing Options for further explanation. It should be noted that the test can be run for any set of dates and leap year transition can be tested in the same manner. The comparison of the printouts will be performed by various qualified personnel including members of the internal audit staff. BAYNETWORKS WIDE AREA NETWORK EQUIPMENT AND SOFTWARE & MODEMS - ------------------------------------------------------------- The testing of this equipment will be accomplished in house by resetting the dates on equipment and software to 12/31/99 and checking for a successful transition to 1/01/00. Test results will be documented and sent to subsidiary banks. 20 PERSONAL COMPUTERS - ------------------ All personal computers will be tested with the software provided by the National Software Testing Laboratories. This software tests the BIOS chip and software for successful transition to Year 2000 dates and leap years to the Year 2009. Some PC's that will not make the transitions automatically can be manually set. This manual resetting is considered to be a viable alternative to replacement on computers not involved in mission critical applications. All testing will be documented and results will be kept in the Year 2000 project manual. FEDERAL RESERVE - FEDLINE CONNECTION - ------------------------------------ Per the Century Date Change Bulletin of March 1998 the Federal Reserve will make available six dates for the testing of connections. The dates are 9/18/98, 10/16/98, 11/20/98, and 12/11/98. It is the intention of Colony Management Services, Inc. to participate in the necessary testing of the Fedline connection on one of these dates. The test will be documented and the results will be kept in the Year 2000 Project manual. ATM's - ----- Although Automated Teller Machines are the responsibility of the subsidiary banks, Colony Management Services personnel has been made aware of a MasterCard ATM test card program that can be used to test ATM's. This program will be obtained and used to test all ATM's of subsidiary banks. The results will be documented and kept in the Year 2000 project manual. In addition a report will be sent to each bank showing the results of the test. INTERCEPT ATM NETWORK PROVIDER. - ------------------------------- At this time Intercept is in the process of developing testing procedures for the ATM network used by all Colony Bankcorp, Inc. subsidiaries. It is the intention of the company to participate in the testing of this network. When the full details of the testing procedures become available the plan will be amended to include them. Bankers Systems - Loan and new accounts processing software - ----------------------------------------------------------- Colony Management Services has received testing software from Banker's Systems. The software includes all test scripts and instructions necessary to perform a full test on these applications. This software cannot be loaded on a network server system. The subsidiary banks currently use a network server type system to access this software. Colony Management Services will load a current version of the Bankers System software and the testing software on a stand alone PC and run all necessary test. The results will be documented and forwarded to the subsidiary banks. OTHER ITEMS - ----------- There are other items of hardware and software that while not mission critical are useful in the performance of day to day operations. On a great majority of these items, letters of Year 2000 compliance have been received. At this time no plans to test these items are in place. It is believed that if a failure occurs there are viable ways to work around these items over a short term and that the long term solution will be replacement. The following is a list of items that are considered to be this type. Microsoft Word and Excel Cheyenne Anti-Virus and Backup Software Lotus 123 and Amipro - Word processing and spreadsheet software SBS Telephone Banking Nortridge Stockholder Accounting software Southware Payroll Software Fax Machines Postage Machine & Scale Telephone System 21 Year 2000 Readiness - ------------------- As of 9/30/98 Colony Bankcorp, Inc. and its subsidiaries have completed the assessment phase of their Year 2000 plan and initial testing procedures have been completed on all mission critical systems. Management does not anticipate any material costs to be incurred throughout the remainder of the Year 2000 preparedness. Liquidity - --------- The Company's goals with respect to liquidity are to ensure that sufficient funds are available to meet current operating requirements and to provide reserves against unforeseen liquidity requirements. Management continuously reviews the Company's liquidity position, which is maintained on a basis consistent with established internal guidelines and the tests and reviews of the various regulatory authorities. The Company's primary liquidity sources at September 30, 1998 included cash, due from banks, federal funds and short-term investment securities. The Company also has the ability, on a short-term basis, to borrow funds from the Federal Reserve System and to invest in Federal Funds Sold from other financial institutions. The mix of asset maturities contributes to the company's overall liquidity position. Certain Transactions - -------------------- In the normal course of business, officers and directors of the Banks, and certain business organizations and individuals associated with them, maintain a variety of banking relationships with the bank. Transactions with senior officers and directors are made on terms comparable to those available to other bank customers. BUSINESS General The Company was organized in 1983 as a bank holding company through the merger of The Bank of Fitzgerald with a subsidiary of the Company. Since that time, The Bank of Fitzgerald, which was formed by principals of Colony Bankcorp, Inc. in 1976, has operated as wholly-owned subsidiary of the Company. In April 1984, Colony Bankcorp, Inc. acquired Community Bank of Wilcox, and in November 1984, Ashburn Bank became a wholly-owned subsidiary of Colony Bankcorp, Inc. Colony Bankcorp, Inc. continued its growth with the acquisition of The Bank of Dodge County in September 1985. In August 1991, Colony Bankcorp, Inc. acquired The Bank of Worth. In November 1996, Colony Bankcorp, Inc. acquired Colony Bank Southeast and in November, 1996 formed a non-bank subsidiary Colony Management Services, Inc. Through its nine subsidiary banks, Colony Bankcorp, Inc. operates a full-service banking business and offers a broad range of retail and commercial banking services including checking, savings, NOW accounts, money market and time deposits of various types; loans for business, agriculture, real estate, personal uses, home improvement and automobiles; credit card; letters of credit; trust services investment, and discount brokerage services; IRA's, safe deposit box rentals, bank money orders, and electronic funds transfer services, including wire transfers and automated teller machines. Each of the Banks is a state chartered institution whose customer deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation. On April 2, 1998, the Company was listed on Nasdaq National Market. The Company's common stock trades on the Nasdaq Stock Market under the symbol "CBAN". The Company presently has 926 shareholders of record as of September 30, 1998. "The Nasdaq Stock Market" or "Nasdaq" is a highly-regulated electronic securities market comprised of competing Market Makers whose trading is supported by a communications network linking them to quotation dissemination, trade reporting and order execution systems. This market also provides specialized automation services for screen-based negotiations of transactions, on-line comparison of transactions, and a range of informational services tailored to the needs of the securities industry, investors and issuers. The Nasdaq Stock Market is operated by The Nasdaq Stock Market, Inc., a wholly-owned subsidiary of the National Association of Securities Dealers, Inc. 22 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K - ---------------------------------------- A. Exhibits - None B. There have been no reports filed on Form 8-K for the quarter ended September 30, 1998. 23 SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COLONY BANKCORP, INC. August 10, 1998 /s/ James D. Minix - ------------------------------ -------------------------------------- Date James D. Minix, President and Chief Executive Officer /s/ Terry L. Hester -------------------------------------- Terry L. Hester, Executive Vice President and Chief Financial Officer 24 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 9,976 395 12,725 0 53,977 2,220 2,202 261,247 4,773 356,025 305,541 1,090 2,889 14,029 0 0 22,175 10,301 356,025 19,239 2,741 825 22,805 10,791 11,464 11,341 780 31 8,115 4,460 4,460 0 0 3,048 1.37 1.37 4.74 6,674 871 15 0 4,575 904 322 4,773 4,773 0 0
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