<PAGE>
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
<PAGE>
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
<PAGE>
COLONY BANKCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
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
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE>
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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
9/30/98 9/30/97 9/30/98 9/30/97
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
COLONY BANKCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
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
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
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
<PAGE>
(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
<PAGE>
(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:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
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
======= =======
</TABLE>
(3) INVESTMENT SECURITIES
- --- ---------------------
Investment securities as of September 30, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
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
======= ==== ===== =======
</TABLE>
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.
<TABLE>
<CAPTION>
Securities
Available for Sale Held to Maturity
Amortized Cost Fair Value Amortized Cost Fair Value
<S> <C> <C> <C> <C>
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
======= ======= ====== ======
</TABLE>
8
<PAGE>
(3) INVESTMENT SECURITIES (CONTINUED)
- --- ---------------------------------
Investment securities as of December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
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
======= ==== ===== =======
</TABLE>
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:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
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
======== ========
</TABLE>
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
<PAGE>
(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:
<TABLE>
<CAPTION>
Sept. 30, 1998 Sept. 30, 1997
-------------- --------------
<S> <C> <C>
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
====== =======
</TABLE>
(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
<PAGE>
(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
<PAGE>
(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
<PAGE>
(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.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
13
<PAGE>
(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
<TABLE>
<CAPTION>
ASSETS SEPT. 30, 1998 DECEMBER 31, 1997
--------------------- ------------------------------
<S> <C> <C>
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
======= =======
</TABLE>
COLONY BANKCORP, INC. (PARENT ONLY)
STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
SEPT. 30, 1998 SEPT. 30, 1997
-------------- --------------
<S> <C> <C>
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
====== ======
</TABLE>
14
<PAGE>
(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
<TABLE>
<CAPTION>
SEPT. 30, 1998 SEPT. 30, 1997
-------------- --------------
Cash Flows from Operating Activities
<S> <C> <C>
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
======= =======
</TABLE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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