SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIESEXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 2003
COMMISSION FILE NUMBER 0-12436
COLONY BANKCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
115 SOUTH GRANT STREET, FITZGERALD, GEORGIA 31750ADDRESS OF PRINCIPAL EXECUTIVE OFFICES
229/426-6000REGISTRANT’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 o
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN RULE 12b-2 OF THE ACT)
YES o NO x
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.
PART 1 – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FOLLOWING FINANCIAL STATEMENTS ARE PROVIDED FOR COLONY BANKCORP, INC. AND SUBSIDIARIES: COLONY BANK OF FITZGERALD, COLONY BANK ASHBURN, COLONY BANK WILCOX, COLONY BANK OF DODGE COUNTY, COLONY BANK WORTH, COLONY BANK SOUTHEAST, COLONY MANAGEMENT SERVICES, INC.,COLONY BANK QUITMAN, FSB, COLONY BANKCORP STATUTORY TRUST I AND COLONY BANKCORP STATUTORY TRUST II.
THE CONSOLIDATED FINANCIAL STATEMENTS FURNISHED HAVE NOT BEEN AUDITED BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, BUT REFLECT, IN THE OPINION OF MANAGEMENT, ALL ADJUSTMENTS NECESSARY FOR A FAIR PRESENTATION OF THE RESULTS OF OPERATIONS FOR THE PERIODS PRESENTED.
THE RESULTS OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2003 ARE NOT NECESSARILY INDICATIVE OF THE RESULTS TO BE EXPECTED FOR THE FULL YEAR.
COLONY BANKCORP, INC. AND QUITMAN BANCORP, INC. ENTERED INTO AN AGREEMENT AND PLAN OF MERGER DATED AS OF OCTOBER 22, 2001, PURSUANT TO WHICH QUITMAN WAS MERGED WITH AND INTO COLONY WITH COLONY BANKCORP, INC. SURVIVING THE MERGER AND QUITMAN’S WHOLLY-OWNED SUBSIDIARY, QUITMAN FEDERAL SAVINGS BANK, BECOMING A WHOLLY-OWNED SUBSIDIARY OF COLONY CONTEMPORANEOUS WITH THE CONSUMMATION OF THE MERGER. THE MERGER WAS CONSUMMATED AND BECAME EFFECTIVE AS OF MARCH 29, 2002. THE BUSINESS COMBINATION WAS ACCOUNTED FOR BY THE PURCHASE METHOD OF ACCOUNTING AND THE RESULTS OF OPERATIONS OF QUITMAN FEDERAL SAVINGS BANK SINCE THE DATE OF ACQUISTION ARE INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS.
2
COLONY BANKCORP, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSJUNE 30, 2003 AND DECEMBER 31, 2002(DOLLARS IN THOUSANDS)
June 30, 2003
Dec 31, 2002
(Unaudited)
ASSETS
Cash and Balances Due from Depository Institutions
$
36,917
35,883
Federal Funds Sold
23,811
47,993
Investment Securities
Available for Sale, at Fair Value
92,281
90,289
Held to Maturity, at Cost (Fair Value of $87 and $118, Respectively)
87
118
92,368
90,407
Federal Home Loan Bank Stock, at Cost
2,925
2,837
Loans Held for Sale
7,618
6,910
Loans
631,360
571,817
Allowance for Loan Losses
(7,963
)
(7,364
Unearned Interest and Fees
(41
(1
623,356
564,452
Premises and Equipment
17,501
17,329
Other Real Estate
1,704
1,357
Goodwill
448
Intangible Assets
321
399
Other Assets
12,354
13,086
Total Assets
819,323
781,101
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Noninterest-Bearing
51,924
51,534
Interest-Bearing
636,717
613,060
688,641
664,594
Borrowed Money
Federal Funds Purchased
0
58,308
46,427
Guaranteed Mandatorily Redeemable Trust
Preferred Securities of Subsidiary Trusts
14,000
Other Liabilities
4,319
4,652
Stockholders’ Equity
Common Stock, Par Value $1, Authorized 20,000,000Shares, Issued 4,583,082 and 4,573,232 Shares as of June 30, 2003 and December 31, 2002, Respectively
4,583
4,573
Paid-In Capital
23,506
23,358
Retained Earnings
25,319
22,742
Restricted Stock - Unearned Compensation
(185
(78
Accumulated Other Comprehensive Income, Net of Tax
832
833
54,055
51,428
Total Liabilities and Stockholders’ Equity
The accompanying notes are an integral part of these statements.
3
COLONY BANKCORP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOMETHREE MONTHS ENDED JUNE 30, 2003 AND 2002AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002(UNAUDITED)(DOLLARS IN THOUSANDS)
Three Months Ended
Six Months Ended
6/30/2003
6/30/2002
Interest Income
Loans, including fees
11,007
10,481
21,628
19,689
98
90
221
209
Deposits with Other Banks
46
42
80
U.S. Treasury & Federal Agencies
432
907
1,007
1,678
State, County and Municipal
85
163
159
Other Investments
119
304
236
609
Dividends on Other Investments
31
36
67
72
Other Interest Income
9
15
18
11,822
11,960
23,420
22,511
Interest Expense
4,043
5,112
8,322
9,893
1
578
462
1,088
1,059
Trust Preferred Securities
168
129
339
137
4,790
5,705
9,750
11,091
Net Interest Income
7,032
6,255
13,670
11,420
Provision for Loan Losses
823
863
1,472
1,149
Net Interest Income After Provisions for loan losses
6,209
5,392
12,198
10,271
Noninterest Income
Service Changes on Deposits
911
862
1,767
1,607
Other Service Changes, Commissions & Fees
229
136
506
373
Security Gains, net
507
Other Income
380
184
623
297
1,520
1,689
2,896
2,784
Noninterest Expense
Salaries and Employee Benefits
2,830
2,530
5,575
4,745
Occupancy and Equipment
791
784
1,553
1,482
Other Operating Expenses
1,579
1,372
2,956
2,413
5,200
4,686
10,084
8,640
Income Before Income Taxes
2,529
2,395
5,010
4,415
Income Taxes
864
813
1,700
1,473
Net Income
1,665
1,582
3,310
2,942
Net Income Per Share of Common Stock
Basic
0.36
0.35
0.72
0.67
Diluted
Weighted Average Shares Outstanding
4,555,982
4,378,672
4
COLONY BANKCORP INC. AND SUBSIDIARIESCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMETHREE MONTHS ENDED JUNE 30, 2003 AND 2002AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002(UNAUDITED)(DOLLARS IN THOUSANDS)
06/30/03
06/30/02
Other Comprehensive Income, Net of Tax
Gains (Losses) on Securities Arising During Year
270
1,335
1,062
Reclassification Adjustment
(335
Unrealized Gains (Losses) on Securities
1,000
727
Comprehensive Income
1,935
2,582
3,309
3,669
5
COLONY BANKCORP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSSIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) (DOLLARS IN THOUSANDS)
2003
2002
CASH FLOW FROM OPERATING ACTIVITIES
Adjustments to reconcile net income to net cash provided by operating activities:
(Gain) loss on sale of investment securities
(507
Depreciation
715
Provision for loan losses
Amortization of excess costs
78
Other prepaids, deferrals and accruals, net
(119
445
Total Adjustments
2,215
1,803
Net cash provided by operating activities
5,525
CASH FLOW FROM INVESTING ACTIVITIES
Cash used in business acquistion, net
(1,021
Purchase of other assets (FHLB stock)
(88
(126
Purchases of securities available for sale
(41,612
(35,245
Proceeds from sales of securities available for sale
5,331
Proceeds from maturities, calls, and paydowns of investment securities:
Available for Sale
38,920
17,369
Held to Maturity
34
27
Decrease (Increase) in interest-bearing deposits in banks
(1,392
1,669
(Increase) in loans
(60,211
(33,734
Purchase of premises and equipment
(957
(1,614
Investment in other
Net cash provided by investing activities
(65,306
(47,344
CASH FLOW FROM FINANCING ACTIVITIES
Net increase in deposits
24,047
31,080
Federal funds purchased
(201
Dividends paid
(687
(529
Net (decrease) increase in other borrowed money
11,881
2,792
Purchase of Treasury Stock, at cost
(537
Net cash provided by financing activities
35,241
32,605
Net increase (decrease) in cash and cash equivalents
(24,540
(9,994
Cash and cash equivalents at beginning of period
69,831
50,317
Cash and cash equivalents at end of period
45,291
40,323
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Basis of presentation
Colony Bankcorp, Inc. is a multi-bank holding company located in Fitzgerald, Georgia. The consolidated financial statements include the accounts of Colony Bankcorp, Inc. and its wholly-owned subsidiaries, Colony Bank of Fitzgerald, Fitzgerald, Georgia; Colony Bank Ashburn, Ashburn, Georgia; Colony Bank Worth, Sylvester, Georgia; Colony Bank of Dodge County, Eastman, Georgia; Colony Bank Wilcox, Rochelle, Georgia; Colony Bank Southeast, Broxton, Georgia; Colony Bank Quitman, FSB, Quitman, Georgia (the Banks); Colony Management Services, Inc., Fitzgerald, Georgia; and Colony Bankcorp Statutory Trusts I and II. All significant intercompany accounts have been eliminated in consolidation. The accounting and reporting policies of Colony Bankcorp, Inc. conform to generally accepted accounting principles and practices utilized in the commercial banking industry.
In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses, the valuation of real estate acquired in connection with foreclosure or in satisfaction of loans and the valuation of deferred tax assets.
In certain instances, amounts reported in prior years’ consolidated financial statements have been reclassified to conform to statement presentations selected for 2003. Such reclassifications had no effect on previously reported stockholders’ equity or net income.
All dollars in notes to consolidated financial statements are rounded to the nearest thousand.
Description of Business
The Banks provide a full range of retail and commercial banking services for consumers and small to medium size businesses primarily in South Georgia. Lending and investing activities are funded primarily by deposits gathered through its retail branch office network. Lending is concentrated in agricultural, commercial and real estate loans to local borrowers. The Banks have a high concentration of agricultural and real estate loans; however, these loans are well collateralized and in management’s opinion, do not pose an adverse credit risk. In addition, the balance of the loan portfolio is sufficiently diversified to avoid significant concentration of credit risk. Although the Banks have a diversified loan portfolio, a substantial portion of borrowers’ ability to honor their contracts is dependent upon the viability of the real estate economic sector.
The success of Colony is dependent, to a certain extent, upon the economic conditions in the geographic markets it serves. No assurance can be given that the current economic conditions will continue. Adverse changes in the economic conditions in these geographic markets would likely have a material adverse effect on the Company’s results of operations and financial condition The operating results of Colony depend primarily on its net interest income. Accordingly, operations are subject to risks and uncertainties surrounding the exposure to changes in the interest rate environment.
Accounting Policies
The accounting and reporting policies of Colony Bankcorp, Inc. and its subsidiaries are in accordance with accounting principles generally accepted and conform to general practices within the banking industry. The significant accounting policies followed by Colony and the methods of applying those policies are summarized hereafter.
Investment securities are recorded under Statement of Financial Accounting Standards (SFAS) No. 115, whereby the Banks classify their securities as trading, available for sale or held to maturity. Securities that are held principally for resale in the near term are classified as trading. Trading securities are carried at fair value, with realized and unrealized gains and losses included in noninterest income. Securities acquired with both the intent and ability to be held to maturity are classified as held to maturity and reported at amortized cost. All other securities not classified as trading or held to maturity are considered available for sale.
Securities available for sale are reported at estimated fair value. Unrealized gains and losses on securities available for sale are excluded from earnings and reported, net of deferred taxes, in accumulated other comprehensive income, a component of stockholders’ equity. Gains and losses from sales of securities available for sale and computed using the specific identification method. This caption includes securities, which may be sold to meet liquidity needs arising from unanticipated deposit and loan fluctuations, changes in regulatory capital requirements, or unforeseen changes in market conditions.
7
(1) Summary of Significant Accounting Policies (Continued)
Federal Home Loan Bank Stock
Investment in stock of a Federal Home Loan Bank (FHLB) is required for every federally insured institution that utilizes its services. FHLB stock is considered restricted, as defined in Statement of Financial Accounting Standards (SFAS) No. 115; accordingly, theprovisions of SFAS No. 115 are not applicable to this investment. The FHLB stock is reported in the financial statements at cost. Dividend income is recognized when earned.
Loans held for sale consist primarily of mortgage loans in the process of being sold to a third party investor and are carried at the lower of cost or fair value. Gains or losses realized on the sale of loans are recognized at the time of sale and are determined by the difference between the net sales proceeds and the carrying value of the loans sold. Gains and losses on sales of loans are included in noninterest income.
Loans that the Company has the ability and intent to hold for the foreseeable future or until maturity are recorded at their principal amount outstanding, net of unearned interest and fees. Interest income on loans is recognized using the effective interest method.
When management believes there is sufficient doubt as to the collectibility of principal or interest on any loan or generally when loans are 90 days or more past due, the accrual of applicable interest is discontinued and the loan is designated as nonaccrual, unless the loan is well secured and in the process of collection. Interest payments received on nonaccrual loans are either applied against principal or reported as income, according to management’s judgment as to the collectibility of principal. Loans are returned to an accrual status when factors indicating doubtful collectibility on a timely basis no longer exist.
Impaired loans are recorded under Statement of Financial Accounting Standards (SFAS) No. 114. Accounting by Creditors forImpairment of a Loan and SFAS No. 118, Accounting by Creditors for Impairment of a Loan – Income Recognition and Disclosures. Impaired loans are loans for which principal and interest are unlikely to be collected in accordance with the original terms and, generally, represent loans delinquent in excess of 90 days which have been placed on nonaccrual status and for which collateral values are less than outstanding principal and interest. Small balance, homogenous loans are excluded from impaired loans.
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 are recorded at acquisition cost net of accumulated depreciation.
Depreciation is charged to operations over the estimated useful lives of the assets. The estimated useful lives and methods of depreciation are as follows:
Description
Life in Years
Method
Banking Premises
15-40
Straight-Line and Accelerated
Furniture and Equipment
5-10
Expenditures for major renewals and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. When property and equipment are retired or sold, the cost and accumulated depreciation are removed from the respective accounts and any gain or loss is reflected in other income or expense.
8
Statement of Cash Flows
For reporting cash flows, cash and cash equivalents include cash on hand, noninterest-bearing amounts due from banks and federal funds sold. Cash flows from demand deposits, NOW accounts, savings accounts, loans and certificates of deposit are reported net.
The provision for income taxes is based upon income for financial statement purposes, adjusted for nontaxable income and nondeductible expenses. Deferred income taxes have been provided when different accounting methods have been used in determining income for income tax purposes and for financial purposes. Deferred tax assets and liabilities are recognized based on future tax consequences attributable to differences arising from the financial statement carrying values of assets and liabilities and their tax bases. The differences relate primarily to depreciable assets (use of different depreciation methods for financial statement and income tax purposes) and allowance for loan losses (use of the allowance method for financial statement purposes and the direct write-off method for tax purposes). In the event of changes in the tax laws, deferred tax assets and liabilities are adjusted in the period of the enactment of those changes, with effects included in the income tax provision. The Company and its subsidiaries file a consolidated federal income tax return. Each subsidiary pays its proportional share of federal income taxes to the Company based on its taxable income.
Other real estate 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.
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Certain changes in assets and liabilities, such as unrealized gains and losses on securities available for sale, represent equity changes from economic events of the period other than transactions with owners and are not reported in the consolidated statement of income but as a separate component of the equity section of the consolidated balance sheets. Such items are considered components of other comprehensive income. Statement of Financial Accounting Standards No. 130 requires the presentation in the financial statements of net income and all items of other comprehensive income as total comprehensive income.
Changes in Accounting Principles and Effects of New Accounting Pronouncements
In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities(FIN 46). This interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements, addresses consolidation by business enterprises of variable interest entities that posses certain characteristics. FIN 46 requires that if a business enterprise has a controlling financial interest in a variable interest entity, the assets, liabilities, and results of the activities of the variable interest entity must be included in the consolidated financial statements with those of the business enterprise. FIN 46 applies immediately to variable interest entities in which an enterprise obtains an interest after that date. FIN 46 also applies in the first fiscal year or interim period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest that it acquired before February 15, 2003. As of June 30, 2003 and December 31, 2002, the Company had a variable interest in a securitization trust. This securitization trust is a qualifying special purpose entity which is exempt from the consolidation requirements of FIN 46.
The Company adopted FIN 46 on July 1, 2003. In its current form, FIN 46 may require the Company to de-consolidate its investment in Colony Bankcorp, Inc. Statutory Trusts I and II (the Trusts) in future financial statements. The potential de-consolidation of subsidiary trusts of bank holding companies formed in connection with the issuance of trust preferred securities, like the Trust, appears to be an unintended consequence of FIN 46. It is currently unknown if, or when, the FASB will address this issue. In July 2003, the Board of Governors of the Federal Reserve Systems issued a supervisory letter instructing bank holding companies to continue to include the trust preferred securities in their Tier I capital for regulatory capital purposes until notice is given to the contrary. The Federal Reserve intends to review the regulatory implications of any accounting treatment changes and, if necessary or warranted, provide further appropriate guidance. There can be no assurance that the Federal Reserve will continue to allow institutions to include trust preferred securities in Tier I capital for regulatory capital purposes.
In May 2003, the FASB issued SFAS No. 149,Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. Colony does not believe that the adoption of SFAS No. 149 will have a material impact on our financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. The Statement requires that an issue classify financial instruments that are within its scope as a liability. Many of those instruments were classified as equity under previous guidance. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003. Otherwise, it is effective on July 1, 2003. Colony does not believe that the adoption of SFAS No. 150 will have a material effect on our financial position or results of operations.
Restricted Stock – Unearned Compensation
In 1999, the board of directors of Colony Bankcorp, Inc. adopted a restricted stock grant plan which awards certain executive officers common shares of the Company. The maximum number of shares which may be subject to restricted stock awards is 44,350. During 2000, 2001, 2002 and 2003, 5,250, 5,250, 7,500 and 10,150 shares were issued under this plan, respectively. Of the shares issued, 800 were forfeited due to non-vesting. The shares are recorded at fair market value (on the date granted) as a separate component of stockholder’s equity. The cost of these shares is being amortized against earnings using the straight-line method over 3 years (the restriction period).
(2) Cash and Balances Due from Depository Institutions
Components of cash and balances due from depository institutions at June 30, 2003 and December 31, 2002 are as follows:
December 31, 2002
Cash on Hand and Cash Items
7,141
7,745
Noninterest-Bearing Deposits with Other Banks
14,339
14,093
Interest-Bearing Deposits with Other Banks
15,437
14,045
(3) Investment Securities
Investment securities as of June 30, 2003 are summarized as follows:
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Securities Available for Sale:
U.S. Government Agencies
Mortgage-Backed
64,075
470
($216
64,329
Other
9,793
394
10,187
State, County & Municipal
7,766
401
8,166
Corporate Obligations
8,176
449
8,625
Marketable Equity Securities
1,130
(156
974
90,940
1,714
Securities Held to Maturity:
The amortized cost and fair value of investment securities as of June 30, 2003, 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
Due in One Year or Less
3,353
3,437
Due After One Year Through Five Years
15,766
16,613
Due After Five Years Through Ten Years
5,094
5,348
Due After Ten Years
1,522
1,580
25,735
26,978
Mortgage-Backed Securities
10
(3) Investment Securities (Continued)
Investment securities as of December 31, 2002 are summarized as follows:
51,684
521
($88
52,117
20,429
491
(63
20,857
7,991
268
(19
8,240
7,711
393
8,104
(159
971
88,945
1,673
($329
Proceeds from sales of investments available for sale during the first half of 2003 was $0 and during the first half of 2002 was $5,331.
Investment securities having a carry value approximating $51,166 and $48,488 as of June 30, 2003 and December 31, 2002, respectively, were pledged to secure public deposits and for other purposes.
(4) Loans
The composition of loans as of June 30, 2003 and December 31, 2002 was as follows:
Commercial, Financial and Agricultural
45,578
46,598
Real Estate – Construction
7,121
21,341
Real Estate – Farmland
30,319
29,503
Real Estate – Other
448,395
392,332
Installment Loans to Individuals
81,645
73,462
All Other Loans
18,302
8,581
Nonaccrual loans are loans for which principal and interest are doubtful of collection in accordance with original loan terms and for which accruals of interest have been discontinued due to payment delinquency. Nonaccrual loans totaled $7,522 and $6,890 as of June 30, 2003 and December 31, 2002, respectively. On June 30, 2003, the Company had 90 day past due loans still accruing interest with principal balances of $160 compared to 90 day past due loans with principal balances of $935 on December 31, 2002.
(5) Allowance for Loan Losses
Transactions in the allowance for loan losses are summarized below for six months ended June 30, 2003 and
June 30, 2002 as follows:
June 30, 2002
Balance, Beginning
7,364
6,159
Provision Charged to Operating Expenses
Loans Charged Off
(960
(779
Loan Recoveries
120
Business combination, Quitman Federal
452
Balance, Ending
7,963
7,101
11
(5) Allowance for Loan Losses (continued)
The following table represents the Company’s loan loss experience on all loans for the three months ended June 30:
($ in Thousands)
Allowance for Loan Losses, April 1
7,820
6,481
Charge-Offs
Commercial, Financial and Agricultrual
441
77
Real Estate - Mortgage
183
113
Consumer
66
93
All Other
43
28
733
311
Recoveries
16
13
37
53
68
Net Charge-Offs
680
243
Business Combination, Quitman Federal
Allowance for Loan Losses, June 30
Ratio of Net Charge-Offs to Average Loans
0.11
%
0.05
12
The following table presents the Company’s loan loss experience on all loans for the six months ended June 30:
481
283
274
131
114
199
91
166
960
779
22
20
33
21
873
659
0.14
0.13
(6) Premises and Equipment
Premises and equipment are comprised of the following as of June 30, 2003 and December 31, 2002:
Land
2,802
Building
13,681
Furniture, Fixtures and Equipment
11,332
10,565
Leasehold Improvements
593
629
Construction in Progress
235
28,678
27,755
Accumulated Depreciation
(11,177
(10,426
Depreciation charged to operations totaled $784 and $715 for six months ended June 30, 2003 and June 30, 2002 respectively.
Certain Company facilities and equipment are leased under various operating leases. Rental expense approximated $60 and $75 for six months ended June 30, 2003 and 2002.
(7) Income Taxes
The Company records income taxes under SFAS No. 109, Accounting for Income Taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
(8) Deposits
Components of interest-bearing deposits as of June 30, 2003 and December 31, 2002 are as follows:
Interest-Bearing Demand
134,888
138,526
Savings
32,943
30,103
Time, $100,000 and Over
157,010
152,394
Other Time
311,876
292,037
The aggregate amount of short-term jumbo certificates of deposit, each with a minimum denomination of one hundred thousand, was approximately $142,901 and $142,828 as of June 30, 2003 and December 31, 2002, respectively.
As of June 30, 2003 and December 31, 2002, the scheduled maturities of certificates of deposits are as follows:
Maturity
One Year and Under
395,213
402,326
One to Three Years
53,199
36,875
Three Years and Over
20,474
5,230
468,886
444,431
(9) Borrowed Money
Borrowed money at June 30, 2003 and December 31, 2002 is summarized as follows:
Federal Home Loan Bank Advances
57,500
45,500
The Banker’s Bank Note Payable
804
927
Colony Bank of Fitzgerald Note Payable
Advances from the Federal Home Loan Bank (FHLB) have maturities ranging from 2003 to 2013 and interest rates ranging from 1.22 percent to 5.93 percent. Under the Blanket Agreement for Advances and Security Agreement with the FHLB, residential first mortgage loans, commercial real estate loans and cash balances held by the FHLB are pledged as collateral for the FHLB advances outstanding. At June 30, 2003, the Company had available line of credit commitments totaling $70,914, of which $13,414 was available.
The Banker’s Bank note payable was renewed on January 23, 2002 into a credit line up to $1,110 at a rate of the Wall Street Prime minus one half percent. Payments are due monthly in the amount of $21 with final maturity of January 7, 2007. The debt is secured by all non-rolling fixed assets of Colony Management Services, Inc. and the guaranty of Colony Bankcorp, Inc. At June 30, 2003, no draws are available on the line of credit.
Colony Bank of Fitzgerald note payable is a line of credit up to $125 established by Colony Management Services on January 21, 2003. The debt is secured by accounts receivables and matures on January 30, 2004. The interest rate is at Wall Street Prime rate. At June 30, 2003, $121 thousand was available to draw on the line.
14
(9) Borrowed Money (continued)
The aggregate stated maturities of borrowed money at June 30, 2003 are as follows:
Year
Amount
1,123
2004
3,250
2005
246
2006
3,189
2007 and Thereafter
50,500
(10) Issuance of Trust Preferred Securities
During the first quarter of 2002, the Company formed a subsidiary whose sole purpose was to issue $9,000 in Trust Preferred Securities through a pool sponsored by FTN Financial Capital Market. The Trust Preferred Securities have a maturity of 30 years and are redeemable after five years with certain exceptions. At June 30, 2003, the floating-rate securities had a 4.61 percent interest rate, which will reset quarterly at the three-month LIBOR rate plus 3.60 percent.
During the fourth quarter of 2002, the Company formed a second subsidiary whose sole purpose was to issue $5,000 in Trust Preferred Securities through a pool sponsored by FTN Financial Capital Market. The Trust Preferred Securities have a maturity of 30 years and are redeemable after five years with certain exceptions. At June 30, 2003, the floating-rate securities had a 4.26 percent interest rate, which will reset quarterly at the three-month LIBOR rate plus 3.25 percent.
The Trust Preferred Securities are recorded as a liability on the balance sheet, but subject to certain limitations qualify as Tier 1 Capital for regulatory capital purposes. The proceeds from the offering were used to fund the cash portion of the Quitman acquisition, payoff holding company debt, and inject capital into bank subsidiaries.
(11) 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 $431 for 2002, $384 for 2001 and $369 for 2000.
(12) Commitments and Contingencies
In the normal course of business, certain commitments and contingencies are incurred which are not reflected in the consolidated financial statements. Commitments under standby letters of credit to U.S. addresses approximate $1,025 as of June 30, 2003 and
(12) Commitments and Contingencies (continued)
$1,884 as of December 31, 2002. Unfulfilled loan commitments as of June 30, 2003 and December 31, 2002 approximated $68,835 and $51,833 respectively. No losses are anticipated as a result of commitments and contingencies.
(13) Deferred Compensation Plan
Two of the Bank subsidiaries have deferred compensation plans covering directors choosing to participate through individual deferred compensation contracts. In accordance with terms of the contracts, the Banks are committed to pay the directors deferred compensation over a specified number of years, beginning at age 65. In the event of a director’s death before age 65, payments are made to the director’s named beneficiary over a specified number of years, beginning on the first day of the month following the death of the director.
Liabilities accrued under the plans totaled $918 and $838 as of June 30, 2003 and December 31, 2002, respectively. Benefit payments under the contracts were $30 and $30 for six month period ended June 30, 2003 and June 30, 2002, respectively. Provisions charged to operations totaled $70 and $63 for six month period ended June 30, 2003 and June 30, 2002.
(14) 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 2003 without prior approval from the banking regulatory agencies approximates $3,440. Upon approval by regulatory authorities, the banks may pay cash dividends to the parent company in excess of regulatory limitations.
The Company is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and, possibly, additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance sheet items as calculated under regulatory 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 June 30, 2003, the Company meets all capital adequacy requirements to which it is subject and is classified as well capitalized under the regulatory framework for prompt corrective action. In the opinion of management, there are no conditions or events since prior notification of capital adequacy from the regulators that have changed the institution’s category.
Actual
For Capital Adequacy Purposes
To Be Well Capitalized Under Prompt Corrective Action Provisions
Ratio
As of June 30, 2003
Total Capital to Risk-Weighted Assets
74,062
12.01
49,333
8.00
61,666
10.00
Tier 1 Capita to Risk-Weighted Assets
66,351
10.76
24,666
4.00
37,000
6.00
Tier 1 Capital to Average Assets
8.23
32,235
40,294
5.00
As of December 31, 2002
70,675
12.56
45,016
56,270
Tier 1 Capital to Risk-Weighted Assets
63,642
11.31
22,508
33,762
8.31
30,633
38,291
(15) Financial Information of Colony Bankcorp, Inc. (Parent Only)
The parent company’s balance sheets as of June 30, 2003 and December 31, 2002 and the related statements of income and comprehensive income and cash flows are as follows:
COLONY BANKCORP, INC. (PARENT ONLY)BALANCE SHEETSFOR PERIOD ENDED JUNE 30, 2003 AND DECEMBER 31, 2002
Cash
138
745
Investments in Subsidiaries at Equity
66,853
63,984
1,848
1,612
Totals Assets
68,839
66,341
Liabilities
Dividends Payable
390
343
(40
350
479
Subordinated Debt
14,434
Common Stock, Par Value $1 a Share; Authorized 20,000,000 Shares, Issued 4,583,082 and 4,573,232 Shares as of June 30, 2003 and December 31, 2002 Respectively
Total Stockholders’ Equity
17
(15) Financial Information of Colony Bankcorp, Inc. (Parent Only) (continued)
COLONY BANKCORP, INC. (PARENT ONLY)STATEMENT OF INCOME AND COMPREHENSIVE INCOMEFOR THE SIX MONTHS ENDED JUNE 30, 2003 AND JUNE 30, 2002(UNAUDITED)
Income
Dividends from Subsidiaries
1,211
32
39
Securities gains
251
1,243
1,290
Expenses
Interest
349
205
647
535
996
740
Income Before Taxes and Equity in Undistributed Earnings of Subsidiaries
247
550
Income Tax (Benefits)
(318
(144
565
694
Equity in Undistributed Earnings of Subsidiaries
2,745
2,248
Gains (losses) on Securities Arising During Year
Unrealized Gains (Losses) in Securities
COLONY BANKCORP, INC. (PARENT ONLY)STATEMENT OF CASH FLOWSFOR THE SIX MONTHS ENDED JUNE 30, 2003 AND JUNE 30, 2002(UNAUDITED)
Cash Flows from Operating Activities
Adjustments to Reconcile Net Income to Net Cash
Provided from Operating Activities
Depreciation and Amortization
40
35
Equity in Undistributed Earnings of Subsidiary
(2,745
(2,248
(664
420
65
Cash Flows from Investing Activities
Sales and maturities of securities
301
(2,371
Capital Infusion in Subsidiary
(125
(650
Purchase of Premises and Equipment
(215
(8
Investment in Statutory Trust
(279
(340
(3,007
Cash Flows from Financing Activities
Dividends Paid
Purchase of Treasury Stock
Principal Payments on Notes and Debentures
(5,896
Proceeds from Notes and Debentures
10,415
3,453
Increase (Decrease) in Cash and Cash Equivalents
(607
511
Cash and Cash Equivalents, Beginning
63
Cash and Cash Equivalents, Ending
574
(16) Legal Contingencies
In the ordinary course of business, there are various legal proceedings pending against Colony and its subsidiaries. The aggregate liabilities, if any, arising from such proceedings would not, in the opinion of management, have a material adverse effect on Colony’s consolidated financial position.
(17) Stock Grant Plan
On February 16, 1999, a restricted stock grant plan was approved by the Board. The plan was adopted for the purpose of establishing incentives designed to recognize, reward and retain executive employees whose performance, contribution and skills are critical to the Company. The plan period commences February 16, 1999 and ends February 15, 2009 with the maximum number of shares subject to restricted stock awards being 22,175 shares (44,350 shares after the two-for-one stock split effective March 31, 1999). During 2000 – 2003, the Company has issued an aggregate total of 28,150 shares pursuant to the stock grant plan, of which 800 shares have been forfeited, which leaves 17,000 available shares that can be issued over the remaining life of the plan.
19
(18) Proforma Financial Statement – Business Combination
Colony Bankcorp, Inc, and Quitman Bancorp, Inc. entered into an agreement and plan of merger dated as of October 22, 2001, pursuant to which Quitman was merged with and into Colony with Colony Bankcorp, Inc. surviving the merger and Quitman’s wholly-owned subsidiary, Quitman Federal Savings Bank, becoming a wholly-owned subsidiary of Colony contemporaneous with the consummation of the merger. The merger was consummated and became effective as of March 29, 2002. The business combination was accounted for by the purchase method of accounting and the results of operations of Quitman Federal Savings Bank since the date of acquisition are included in the Consolidated Financial Statements.
The proforma information below discloses results of operations for the current period and the corresponding period in the preceding year as though the companies had combined at the beginning of the period being reported on:
23,796
11,777
2,842
Earnings Per Share
0.62
Weighted Avg Shares Outstanding
4,583,382
4,573,482
4,575,509
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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. Converting assets to cash for these funds is primarily with proceeds from collections on loans and maturities of investment securities or by attracting and obtaining new deposits. During the six months ended June 30, 2003, the Company was successful in meeting its liquidity needs by increasing deposits 3.62 percent to $688,641,000 from deposits of $664,594,000 on December 31, 2002. Also, the Company met its liquidity needs by increasing other borrowed money and trust-preferred securities 19.66 percent to $72,308,000 from $60,427,000 on December 31, 2002. Should the need arise; the Company also maintains relationships with the Federal Home Loan Bank and several correspondent banks that can provide funds on short notice.
Liquidity is monitored on a regular basis by management. The Company’s liquidity position remained satisfactory for the six months ended June 30, 2003. Average liquid assets (cash and amounts due from banks, interest-bearing deposits in other banks, funds due and securities) represented 23.46 percent of average deposits in the six months ended June 30, 2003 as compared to 25.22 percent in the same period a year ago and 24.25 percent for calendar year 2002. Average loans represented 90.58 percent of average deposits in the six months ended June 30, 2003 as compared to 88.09 percent in the same period a year ago and 88.64 percent for calendar year 2002. Average interest-bearing deposits were 82.53 percent of average earning assets in the six months ended June 30, 2003 as compared to 82.91 percent in the same period a year ago and 83.36 percent for calendar year 2002.
The Company satisfies most of its capital requirements through retained earnings. During the first three months of 2003, retained earnings provided $1,301,000 of increase in equity. Additionally, equity had a decrease of $270,000 resulting from the change during the quarter in unrealized gains on securities available for sale, net of taxes and an increase of $25,000 resulting from the stock grant plan. Thus, total equity increased by a net amount of $1,056,000. During the second quarter of 2003, retained earnings provided $1,276,000 of increase in equity. Additionally, equity had an increase of $270,000 resulting from the change during the quarter in unrealized gains on securities available for sale, net of taxes, and an increase of $25,000 resulting from the stock grant plan. Thus, total equity increased by a net amount of $1,571,000 in the three months ended June 30, 2003 and increased by a net amount of $2,627,000 in the six months ended June 30, 2003.
During the first three months of 2002, retained earnings provided $1,086,000 of increase in equity. Additionally, equity had a decrease of $273,000 resulting from the change during the quarter in unrealized gains on securities available for sale, net of taxes, an increase of $18,000 resulting from the stock grant plan, a decrease of $537,000 resulting from treasury shares acquired through the company’s stock repurchase plan and an increase of $4,944,000 as a result of the acquisition of Quitman Federal Savings Bank. Thus, total equity increased by a net amount of $5,238,000. During the second quarter of 2002, retained earnings provided $1,263,000 of increase in equity. Additionally, equity had an increase of $1,000,000 resulting from the change during the quarter in unrealized gains on securities available for sale, net of taxes and an increase of $18,000 resulting from the stock grant plan. Thus, total equity increased by a net amount of $2,281,000 in the three months ended June 30, 2002 and increased by a net amount of $7,519,000 in the six months ended June 30, 2002.
As of June 30, 2003, the Company’s capital totaled approximately $54,055,000 and the only outstanding commitment for capital expenditures was by a subsidiary bank for construction of its third office in the Dougherty/Lee County market. It is anticipated that the project will approximate $1,200,000 with anticipated opening during the first quarter of 2004. The company has purchased land for a location in Thomasville, Georgia; however, it is not anticipated that construction will occur until 2004.
The Federal Reserve Board and the FDIC have issued risk-based capital guidelines for U. S. banking organizations. The objective of these efforts was to provide a more uniform 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 certain 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 as of June 30, 2003 was 10.76 percent and total Tier 1 and 2 risk-based capital was 12.01 percent. Both of these measures compare favorably with the regulatory minimum of 4 percent for Tier 1 and 8 percent for total risk-based capital. The Company’s Tier 1 leverage ratio was 8.23 percent as of June 30, 2003 which exceeds the required ratio standard of 4 percent.
For the six months ended June 30, 2003, average capital was $52,773,000 representing 6.65 percent of average assets for the year. This compares to 6.79 percent of average assets for the same period in 2002 and to 6.77 percent for calendar year 2002.
The company paid quarterly dividends of $0.075 and $0.085, for first quarter and second quarter 2003, respectively, or $0.16 per share in the first half of 2003 compared to quarterly dividends of $0.06 and $0.07, for first quarter and second quarter 2002, respectively, or $0.13 per share in the first half of 2002. The dividend payout ratio, defined as dividends per share divided by net income per share, was 22.22% for the six months ended June 30, 2003 as compared to 19.40 percent for the same period in 2002. The dividend payout for calendar year 2002 was 21.48 percent.
As of June 30, 2003, 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 or results of operations. However, it is possible that examinations by regulatory authorities in the future could precipitate additional loss charge-offs that could materially impact the Company’s liquidity, capital resources and results of operations.
Results of Operations
The Company’s results of operations are determined by its ability to effectively manage interest income and expense, to minimize loan and investment losses, to generate noninterest income and to control noninterest expense. Since market forces and economic conditions beyond the control of the Company determine interest rates, the ability to generate net interest income is dependent upon the Company’s ability to obtain an adequate spread between the rate earned on earning assets and the rate paid on interest-bearing liabilities. Thus, the key performance for net interest income is the interest margin or net yield, which is taxable-equivalent net interest income divided by average earning assets.
Net income for the three months ended June 30, 2003 was $1,665,000 as compared to $1,582,000 for the three months ended June 30, 2002, or an increase of 5.25 percent. Of this $83,000 increase from the same period a year ago, net interest income increased $777,000, provision for loan losses decreased $40,000, noninterest expense increased $514,000, income tax expense increased $51,000 and noninterest income decreased $169,000. On a fully diluted share basis, net income increased to $0.36 per share for the three months ended June 30, 2003 from $0.35 for the same period in 2002, or an increase of 2.86 percent.
Net income for the six months ended June 30, 2003 was $3,310,000 as compared to $2,942,000 for the six months ended June 30, 2002, or an increase of 12.51%. Of this increase $251,000 or 68.21 percent is attributable to Quitman Federal acquisition since their income was not included in first quarter 2002 due to their acquisition being consummated on March 29, 2002. Of the $368,000 increase from the same period a year ago, net interest income increased $2,250,000, provision for loan losses increased $323,000, noninterest income increased $112,000, noninterest expense increased $1,444,000 and income tax expense increased $227,000. On a fully diluted share basis, net income increased to $0.72 per share for the six months ended June 30, 2003 from $0.67 for the same period in 2002, or an increase of 7.46 percent.
Net Interest Margin
A primary focus of our 2003 business plan is net interest margin improvement, which improved to 3.71 percent for second quarter 2003 compared to 3.63 percent for first quarter 2003 and 3.54 percent for fourth quarter 2002. Though improvement is noted for the past couple of quarters, second quarter 2003 net margin of 3.71 percent reflects a decrease of six basis points from second quarter 2002 net interest margin of 3.77 percent; however, net interest margin for the six months ended June 30, 2003 of 3.67 percent reflects a slight improvement from 3.66 percent for the same period a year ago. Net interest margin compression has been primarily attributable to U. S. Federal Reserve lowering interest rates an unprecedented 475 basis points during 2001, another 50 basis points during 2002 and an additional 25 basis points during 2003. Net interest income increased 12.42 percent to $7,032,000 in the three months ended June 30, 2003 from $6,255,000 in the same period a year ago on an increase in average earning assets to $766,152,000 in the three months ended June 30, 2003 from $671,877,000 in the same period a year ago. Average loans increased by $88,078,000 or 16.38 percent, average funds sold increased by $13,474,000 or 67.59 percent, average investment securities decreased by $13,938,000 or 13.89 percent, average interest-bearing deposits in other banks increased by $6,154,000 or 60.61 percent and average interest-bearing other assets increased $507,000 or 13.95 percent resulting in a net increase in average earning assets of $94,275,000 or 14.03 percent.
The net increase in average assets was funded by a net increase in average deposits of 12.12 percent to $678,013,000 in the three months ended June 30, 2003 from $604,691,000 in the same period a year ago and a net increase in average debt and funds purchased of 29.81 percent to $57,051,000 in the three months ended June 30, 2003 from $43,950,000 in the same period a year ago. Average interest-bearing deposits increased by 12.30 percent to $627,943,000 in the three months ended June 30, 2003 from $559,142,000 in the same period a year ago while average noninterest-bearing deposits increased 9.93 percent to $50,070,000 in the three months ended June 30, 2003 from $45,549,000 in the same period a year ago. Average noninterest-bearing deposits represented 7.38 percent of average total deposits in the three months ended June 30, 2003 as compared to 7.53 percent in the same period a year ago.
Net interest income increased 19.70 percent to $13,670,000 in the six months ended June 30, 2003 from $11,420,000 in the same period a year ago. Average earning assets increased to $752,580,000 in the six months ended June 30, 2003 from $631,298,000 in the same period a year ago. Average loans increased by $106,915,000 or 21.34 percent, average funds sold increased by $13,200,000 or 53.97 percent, average investment securities decreased by $4,295,000 or 4.61 percent, average interest-bearing deposits in other banks increased $4,419,000 or 45.98 percent and average interest-bearing other assets increased $1,043,000 or 35.17 percent resulting in a net increase in average earning assets of $121,282,000 or 19.21 percent.
The net increase in average assets was funded by a net increase in average deposits of 18.00 percent to $671,149,000 in the six months ended June 30, 2003 from $568,792,000 in the same period a year ago and a net increase in average debt and funds purchased of 12.90 percent to $51,311,000 in the six months ended June 30, 2003 from $45,449,000 in the same period a year ago. Average interest-bearing deposits increased by 18.66 percent to $621,069,000 in the six months ended June 30, 2003 from $523,401,000 in the same period a year ago while average noninterest-bearing deposits increased 10.33 percent to $50,080,000 in the six months ended June 30, 2003 from $45,391,000 in the same period a year ago. Average noninterest-bearing deposits represented 7.46 percent of average total deposits in the six months ended June 30, 2003 as compared to 7.98 percent in the same period a year ago.
Interest expense decreased in the three months ended June 30, 2003 by $915,000 to $4,790,000 in the three months ended June 30, 2003 from $5,705,000 in the same period a year ago and decreased by $1,341,000 to $9,750,000 in the six months ended June 30, 2003 from $11,091,000 in the same period a year ago. The decrease is primarily attributable to the U. S. Federal Reserve lowering interest rates an unprecedented 475 basis points during 2001, 50 basis points in 2002, and another 25 basis points in 2003. The combination of the increase in average earning assets with maintenance of a relatively flat net interest margin resulted in an increase of net interest income of $777,000 in the three months ended June 30, 2003 compared to the same period a year ago and an increase in net interest income of $2,250,000 in the six months ended June 30, 2003 compared to the same period a year ago.
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 nonaccruing, past due and other loans that management believes require 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 management has determined to be adequate. The provision for loan losses was $823,000 in three months ended June 30, 2003 as compared to $863,000 in the same period a year ago, representing a decrease of $40,000 or 4.63 percent. The provision for loan losses was $1,472,000 in the six months ended June 30, 2003 as compared to $1,149,000 in the same period a year ago, representing an increase of $323,000 or 28.11 percent. The increase in provision for loan losses allowed the company’s reserve for loan losses to keep pace with the rapid loan growth that the company has experienced the past several years. Net loan charge-offs represented 82.62 percent of the provision for loan losses in the three months ended June 30, 2003 as compared to 28.16 percent in the same period a year ago. Net loan charge-offs represented 59.31 percent of the provision for loan losses in the six months ended June 30, 2003 as compared to 57.35 percent in the same period a year ago. Net loan charge-offs in the three months ended June 30, 2003 represented 0.11 percent of average loans outstanding as compared to 0.05 percent in the same period a year ago while net loan charge-offs in the six months ended June 30, 2003 represented 0.14 percent of average loans outstanding as compared to 0.13 percent in the same period a year ago. The leveling off of loan charge-offs the past several years resulted from management’s effort to improve credit quality and to eliminate weak and marginal credits. As of June 30, 2003, the allowance for loan losses was 1.26 percent of total loans outstanding as compared to an allowance for loan losses of 1.30 percent of total loans outstanding as of June 30, 2002. The loan loss reserve of 1.26 percent of total loans outstanding provided coverage of 103.66 percent of nonperforming loans and 84.84 percent of nonperforming assets as of June 30, 2003 compared to 75.85 percent and 67.16 percent, respectively as of June 30, 2002. The determination of the reserve rests upon management’s judgment about factors affecting loan quality and assumptions about the economy. Management considers the June 30, 2003 allowance for loan losses adequate to cover potential losses in the loan portfolio.
23
Noninterest income consists primarily of service charges on deposit accounts. Service charges on deposit accounts totaled $911,000 in the three months ended June 30, 2003 as compared to $862,000 in the same period a year ago, or an increase of 5.68 percent. This increase is attributable to additional fees resulting from the increase in noninterest-bearing and interest-bearing deposit accounts. All other noninterest income decreased to $609,000 in the three months ended June 30, 2003 from $827,000 in the same period a year ago, or a decrease of 26.36 percent. Most of the decrease is attributable to gain on the sale of securities amounting to $507,000 in second quarter 2002 compared to zero security gains in second quarter 2003. Excluding the security gains in second quarter 2002, all other noninterest income increased 90.31 percent to $609,000 in the three months ended June 30, 2003 from $320,000 in the same period a year ago and is primarily attributable to additional fee income generated by the mortgage company. Thus, total noninterest income in the three months ended June 30, 2003 was $1,520,000 compared to $1,689,000 in the same period a year ago, or a decrease of 10.01 percent. Excluding the gain on sale of securities, total noninterest income in the three months ended June 30, 2003 was $1,520,000 compared to $1,182,000 in the same period a year ago, or an increase of 28.60 percent. Total noninterest income in the six months ended June 30, 2003 was $2,896,000 compared to $2,784,000 in the same period a year ago, or an increase of 4.02 percent. Excluding the gain on sale of securities in 2002, total noninterest income in the six months ended June 30, 2003 was $2,896,000 compared to $2,277,000 in the same period a year ago, or an increase of 27.18 percent.
Noninterest expense increased 10.97 percent to $5,200,000 in the three months ended June 30, 2003 from $4,686,000 in the same period a year ago and increased 16.71 percent to $10,084,000 in the six months ended June 30, 2003 from $8,640,000 in the same period a year ago. Salaries and employee benefits increased 11.86 percent to $2,830,000 in the three months ended June 30, 2003 from $2,530,000 in the same period a year ago and increased 17.49 percent to $5,575,000 in the six months ended June 30, 2003 from $4,745,000 in the same period a year ago primarily due to increased staffing with one new branch opened during 2003 and increased commissions at the mortgage company due to increased volume. Occupancy and equipment expense increased 0.90 percent to $791,000 in the three months ended June 30,2003 from $784,000 in the same period a year ago and increased 4.79 percent to $1,553,000 in the six months ended June 30, 2003 from $1,482,000 in the same period a year ago. All other noninterest expense increased 15.09 percent to $1,579,000 in the three months ended June 30, 2003 from $1,372,000 in the same period a year ago and increased 22.50% to $2,956,000 in the six months ended June 30, 2003 from $2,413,000 in the same period a year ago. Other increases in noninterest expense are primarily attributable to expenses incurred in opening one new office during 2003, acquiring Quitman Federal in March 2002 and losses on disposition of foreclosed property.
Income Tax Expense
Income before taxes increased $134,000 to $2,529,000 in the three months ended June 30, 2003 from $2,395,000 in the same period a year ago with significant changes being an increase in net interest income of $777,000 in the three months ended June 30, 2003 as compared to the same period a year ago, an increase in noninterest expense, net of noninterest income of $683,000 in the three months ended June 30, 2003 as compared to the same period a year ago and a decrease in provision for loan losses of $40,000 in the three months ended June 30, 2003 as compared to the same period a year ago. Income tax expense increased 6.27 percent to $864,000 in the three months ended June 30, 2003 from $813,000 in the same period a year ago. Income before taxes increased $595,000 to $5,010,000 in the six months ended June 30, 2003 from $4,415,000 in the same period a year ago. Income tax expense increased 15.41 percent to $1,700,000 in the six months ended June 30, 2003 from $1,473,000 in the same period a year ago. Income tax expense as a percentage of income before taxes was 34.16 percent in the three months ended June 30, 2003 compared to 33.95 percent in the same period a year ago, or an increase of 0.62 percent while income tax expense as a percentage of income before taxes was 33.93 percent in the six months ended June 30, 2003 compared to 33.36 percent in the same period a year ago, or an increase of 1.71 percent.
24
Quantitative and Qualitative Disclosures About Market Risk
AVERAGE BALANCE SHEETS
Six Months Ended June 30, 2003
Six Months Ended June 30, 2002
($ in thousands)
Average Balances
Income/ Expense
Yields/ Rates
Assets
Interest-Earning Assets
Loans, Net of Unearned Income Taxable (1)
607,955
21,686
7.13
501,040
19,749
7.88
Taxable
80,952
1,259
3.11
85,384
2,287
5.36
Tax-Exempt (2)
7,976
223
5.59
7,839
241
6.15
Total Investment Securities
88,928
3.33
93,223
2,528
5.42
Interest-Bearing Deposits in Other Banks
14,030
1.14
9,611
1.66
Funds Sold
37,658
1.17
24,458
1.71
Interest-Bearing Other Assets
4,009
4.24
2,966
5.87
Total Interest-Earning Assets
752,580
23,554
6.26
631,298
22,653
7.18
Non-interest-Earning Assets
16,830
16,155
(7,757
(6,375
31,866
26,883
Total Noninterest-Earning Assets
40,939
36,663
793,519
667,961
Liabilities and Stockholders’ Equity
Interest-Bearing Liabilities
Interest-Bearing Deposits
Interest-Bearing Demand and Savings
172,365
1,267
1.47
139,419
1,597
2.29
448,704
7,055
3.14
383,982
8,296
4.32
Total Interest-Bearing Deposits
621,069
2.68
523,401
3.78
Other Interest-Bearing Liabilities
Debt
51,257
4.25
45,302
4.68
4.84
4,773
5.74
Funds Purchased and Securities
Sold Under Agreement to Repurchase
54
3.70
147
2.72
Total Other Interest-Bearing Liabilities
65,311
1,428
4.37
50,222
1,198
4.77
Total Interest-Bearing Liabilities
686,380
2.84
573,623
3.87
Noninterest-Bearing Liabilities and
Demand Deposits
50,080
45,391
4,286
3,610
Stockholder’s Equity
52,773
45,337
Total Noninterest-Bearing Liabilities and Stockholders’ Equity
107,139
94,338
Total Liabilities and Stockholders' Equity
Interest Rate Spread
3.42
3.31
13,804
11,562
3.67
3.66
25
RATE/VOLUME ANALYSIS
The rate/volume analysis presented hereafter illustrates the change from period to period for each component of the taxable equivalent net interest income separated into the amount generated through volume changes and the amount generated by changes in the yields/rates.
Changes from June 30, 2002 to June 30, 2003 (1)
Volume
Rate
Total
Loans, Net-taxable
4,212
($2,275
1,937
(909
(1,028
Tax-exempt
(22
(18
(115
(931
(1,046
Interest-Bearing Deposits in other banks
(37
(101
Other Earning Assets
(33
(2
Total Interest Income
4,278
(3,377
901
Interest-Bearing Demand and Savings Deposits
377
(707
(330
Time Deposits
1,398
(2,639
(1,241
Funds Purchased and Securitiess
Under Agreement to Repurchase
Other Debt
139
(110
29
265
202
Total Interest Expense (Benefit)
2,178
(3,519
(1,341
2,100
142
2,242
(1) Changes in net interest income for the periods, based on either changes in average balances or changes in average rates for interest-earning assets and interest-bearing liabilities, are shown on this table. During each year, there are numerous and simultaneous balance and rate changes; therefore, it is not possible to precisely allocate the changes between balances and rates. For the purpose of this table, changes that are not exclusively due to balance changes or rate changes have been attributed to rates.
Our financial performance is impacted by, among other factors, interest rate risk and credit risk. We do not utilize derivatives to mitigate our credit risk, relying instead on an extensive loan review process and our allowance for loan losses.
Interest rate risk is the change in value due to changes in interest rates. The Company is exposed only to U. S. dollar interest rate changes and, accordingly, the Company manages exposure by considering the possible changes in the net interest margin. The Company does not have any trading instruments nor does it classify any portion of its investment portfolio as held for trading. The Company does not engage in any hedging activity or utilize any derivatives. The Company has no exposure to foreign currency exchange rate risk, commodity price risk and other market risks. This risk is addressed by our Asset & Liability Management Committee (“ALCO”) which includes senior management representatives. The ALCO monitors interest rate risk by analyzing the potential impact to the net portfolio of equity value and net interest income from potential changes to interest rates and considers the impact of alternative strategies or changes in balance sheet structure.
Interest rates play a major part in the net interest income of financial institutions. The repricing of interest earning assets and interest-bearing liabilities can influence the changes in net interest income. The timing of repriced assets and liabilities is Gap management and our Company has established its policy to maintain a Gap ratio in the one-year time horizon of .80 to 1.20.
Our exposure to interest rate risk is reviewed on at least a quarterly basis by our Board of Directors and the ALCO. Interest rate risk exposure is measured using interest risk sensitivity analysis to determine our change in net portfolio value in the event of assumed changes in interest rates. In order to reduce the exposure to interest rate fluctuations, we have implemented strategies to more closely match our balance sheet composition. We are generally focusing our investment activities on securities with terms or average lives in the 2 –5 year range.
26
The Company maintains about one-third of its loan portfolio in adjustable rate loans that reprice with prime rate changes, while the bulk of its other loans mature within 3 years. The liabilities to fund assets are primarily in short term certificate of deposits that mature within one year. This balance sheet composition has allowed the Company to be relatively constant with its net interest margin the past several years, though the unprecedented 475 basis point decrease by U. S. Federal Reserve in 2001, 50 basis point decrease in 2002 and 25 basis point decrease in 2003 resulted in significant net interest margin pressure. Net interest margin increased to 3.71% for second quarter 2003 compared to 3.63% net interest margin for first quarter 2003 or 3.67% for first half 2003 compared to 3.66% for first half 2002. We anticipate continued improvement or stability in the net interest margin the balance of the year given the Federal Reserve’s present neutral interest rates forecast for the balance of 2003.
Colony Bankcorp, Inc. and Subsidiaries Interest Rate Sensitivity
The following table is an analysis of the Company’s interest rate-sensitivity position at June 30, 2003. The interest rate-sensitivity gap, which is the difference between interest-earning assets and interest-bearing liabilities by repricing period, is based upon maturity or first repricing opportunity, along with a cumulative interest rate-sensitivity gap. It is important to note that the table indicates a position at a specific point in time and may not be reflective of positions at other times during the year or in subsequent periods. Major changes in the gap position can be, and are, made promptly as market outlooks change.
Assets and Liabilities Repricing Within
3Months or Less
4 to 12 Months
1 Year
1 to 5 Years
Over 5 Years
EARNING ASSETS:
Interest-bearing deposits
16,567
3,261
19,828
64,115
8,425
Loans, net of unearned income
249,808
146,502
396,310
227,075
15,593
638,978
Other earning assets
4,010
Total Interest-earning assets
305,623
149,763
455,386
291,190
28,028
774,604
INTEREST-BEARING LIABILITIES:
Interest-bearing Demand deposits (1)
Savings (1)
133,390
261,823
73,597
76
Other Borrowings (2)
1,808
2,000
3,808
19,500
35,000
Total Interest-bearing liabilities
317,029
263,823
580,852
93,097
35,076
709,025
Interest rate-sensitivity gap
(11,406
(114,060
(125,466
198,093
(7,048
65,579
Cumulative interest-sensitivity gap
72,627
Interest rate-sensivitiy gap as a percentage of interest-earning assets
(1.47
)%
(14.72
(16.20
25.57
(0.91
Cumulative interest rate-sensitivity as as a percentage of interest-earning assets
9.38
8.47
The foregoing table indicates that we had a one year negative gap of $(125) million, or (16.20)% of total assets at June 30, 2003. In theory, this would indicate that at June 30, 2003, $125 million more in liabilities than assets would reprice if there were a change in interest rates over the next 365 days. Thus, if interest rates were to decline, the gap would indicate a resulting increase in net interest margin. However, changes in the mix of earning assets or supporting liabilities can either increase or decrease the net interest margin without affecting interest rate sensitivity. In addition, the interest rate spread between an asset and our supporting liability can vary significantly while the timing of repricing of both the assets and our supporting liability can remain the same, thus impacting net interest income. This characteristic is referred to as a basis risk and, generally, relates to the repricing characteristics of short-term funding sources such as certificates of deposits.
Gap analysis has certain limitations. Measuring the volume of repricing or maturing assets and liabilities does not always measure the full impact on the portfolio value of equity or net interest income. Gap analysis does not account for rate caps on products; dynamic changes such as increasing prepay speeds as interest rates decrease, basis risk, or the benefit of non-rate funding sources. The majority of our loan portfolio reprices quickly and completely following changes in market rates, while non-term deposit rates in general move slowly and usually incorporate only a fraction of the change in rates. Products categorized as non-rate sensitive, such as our noninterest-bearing demand deposits, in the gap analysis behave like long term fixed rate funding sources. Both of these factors tend to make our actual behavior more asset sensitive than is indicated in the gap analysis. In fact, we experience higher net interest income when rates rise, opposite what is indicated by the gap analysis. In fact, during the recent period of declines in interest rates, our net interest margin has declined. Therefore, management uses gap analysis, net interest margin analysis and market value of portfolio equity as our primary interest rate risk management tools.
Future Outlook
Colony is an emerging company in an industry filled with nonregulated competitors and a rapid pace of consolidation. The year brings with it new opportunities for growth in our existing markets, as well as opportunities to expand into new markets through acquisitions and denovo branching. Colony completed the acquisition of Quitman Federal during 2002 and with the Quitman acquisition opened a branch in the Valdosta/Lowndes County market during the first quarter of 2003. The company anticipates purchasing real estate for a second location in Lowndes County that would open during 2004.The company purchased real estate in the Dougherty/Lee Counties market during 2002 and is constructing its third office with an anticipated opening in early 2004. Additionally, real estate was purchased in the Thomas County market for a future office, probably in 2004. Other areas of interest in South and Central Georgia include Glynn and Ware Counties, both with annual retail sales greater than $650 million and a population greater than 35,000.
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 regulator authorities. The Company’s primary sources at June 30, 2003 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 Federal Home Loan Bank and correspondent banks. The mix of asset maturities contributes to the company’s overall liquidity position.
Off Balance Sheet Items
In the normal course of business, certain commitments and contingencies are incurred which are not reflected in the consolidated financial statements. Commitments under standby letters of credit to U.S. addresses approximated $1,025,000 as of June 30, 2003. Unfulfilled loan commitments as of June 30, 2003 approximated $68,835,000. No losses are anticipated as a result of commitments or contingencies.
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.
Forward-Looking Statements
This document contains statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “believe,” “estimate,” “expect,” “intend,” “anticipate” and similar expressions and variations thereof identify certain of such forward-looking statements, which speaks only as of the dates which they were made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Users are cautioned that any such
forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those indicated in the forward-looking statements as a result of various factors. Users are therefore cautioned not to place undue reliance on these forward-looking statements.
Critical Accounting Policies
The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the banking industry. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company’s financial position and/or results of operations. Critical accounting policies are those policies that management believes are the most important to the portrayal of the Company’s financial condition and results, and they require management to make estimates that are difficult, subjective or complete.
Allowance for Loan Losses – The allowance for loan losses provides coverage for probable losses inherent in the Company’s loan portfolio. Management evaluates the adequacy of the allowance for loan losses quarterly based on changes, if any, in underwriting activities, the loan portfolio composition (including product mix and geographic, industry or customer-specific concentrations), trends in loan performance, regulatory guidance and economic factors. This evaluation is inherently subjective, as it requires the use of significant management estimates. Many factors can affect management’s estimates of specific and expected losses, including volatility of default probabilities, collateral values, rating migrations, loss severity and economic and political conditions. The allowance is increased through provisions charged to operating earnings and reduced by net charge-offs.
The Company determines the amount of the allowance based on relative risk characteristics of the loan portfolio. The allowance recorded for commercial loans in based on reviews of individual credit relationships and historical loss experience. The allowance recorded for homogeneous consumer loans is based on an analysis of loan mix, risk characteristics of the portfolio, and historical losses, adjusted for current trends, for each homogeneous category or group of loans. The allowance for loan losses relating to impaired loans is based on the loan’s observable market price, the collateral for certain collateral-dependent loans, or the discounted cash flows using the loan’s effective interest rate.
Regardless of the extent of the Company’s analysis of customer performance, portfolio trends or risk management processes, certain inherent but undetected losses are probable within the loan portfolio. This is due to several factors, including inherent delays in obtaining information regarding a customer’s financial condition or changes in their unique business conditions, the judgmental nature of individual loan evaluations, collateral assessments and the interpretation of economic trends. Volatility of economic or customer-specific conditions affecting the identification and estimation of losses for larger nonhomogeneous credits and the sensitivity of assumptions utilized to establish allowances for homogeneous groups of loans are among other factors. The Company estimates a range of inherent losses related to the existence of these exposures. The estimates are based upon the Company’s evaluation of risk associated with the commercial and consumer levels and the estimated impact of the current economic environment.
Goodwill and Other Intangibles – The Company records all assets and liabilities acquired in purchase acquisitions, including goodwill and other intangibles, at fair value as required by SFAS 141. Goodwill is subject, at a minimum, to annual tests for impairment. Other intangible assets are amortized over their estimated useful lives using straight-line and accelerated methods, and are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount. The initial goodwill and other intangibles recorded and subsequent impairment analysis require management to make subjective judgments concerning estimates of how the acquired asset will perform in the future. Events and factors that may significantly affect the estimates include, among others, customer attrition, changes in revenue growth trends, specific industry conditions and changes in competition.
BUSINESS
General
The Company was organized in 1983 as a bank holding company through the merger of Colony Bank of Fitzgerald with a subsidiary of the Company. Since that time, Colony Bank of Fitzgerald, which was formed by principals of Colony Bankcorp, Inc. in 1976, has operated as a wholly-owned subsidiary of the Company. In April 1984, Colony Bankcorp, Inc. acquired Colony Bank Wilcox, and in November 1984, Colony Bank Ashburn became a wholly-owned subsidiary of Colony Bankcorp, Inc. Colony Bankcorp, Inc. continued its growth with the acquisition of Colony Bank of Dodge County in September 1985. In August 1991, Colony Bankcorp, Inc. acquired Colony Bank Worth. In November 1996, Colony Bankcorp, Inc. acquired Colony Bank Southeast and in November 1996 formed a non-bank subsidiary Colony Management Services, Inc. In March 2002, Colony Bankcorp, Inc. acquired Colony Bank
Quitman, FSB and also formed Colony Bankcorp Statutory Trust I. In December 2002, Colony formed its second trust, Colony Bankcorp Statutory Trust II.
Through its seven subsidiary banks, Colony Bankcorp, Inc. operates a full-service banking business and offers a broad range of retail and commercial banking services including checking, savings, NOW accounts, money market and time deposits of various types; loans for business, agriculture, real estate, personal uses, home improvement and automobiles; credit card; letters of credit; investment and discount brokerage services; IRA’s; safe deposit box rentals, bank money orders; electronic funds transfer services, including wire transfers and automated teller machines and internet accounts. Each of the Banks is a 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 approximately 1,375 shareholders as of June 30, 2003. “The Nasdaq Stock Market” or “Nasdaq” is a highly-regulated electronic securities market comprised of competing Market Makers whose trading is supported by a communications network linking them to quotation dissemination, trade reporting and order execution systems. This market also provides specialized automation services for screen-based negotiations of transactions, on-line comparison of transactions, and a range of informational services tailored to the needs of the securities industry, investors and issuers. The Nasdaq Stock Market is operated by The Nasdaq Stock Market, Inc., a wholly-owned subsidiary of the National Association of Securities Dealers, Inc.
ITEM 4 – CONTROLS AND PROCEDURES
We maintain a system of internal controls and procedures designed to provide reasonable assurance as to the realiability of our published financial statements and other disclosures included in this report. Within the 90-day period prior to the date of this report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and our Principal Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to Colony Bankcorp, Inc. (including its consolidated subsidiaries) required to be included in this quarterly report on Form 10-Q.
There have been no significant changes in our internal controls or in other factors which could significantly affect internal controls subsequent to the date that we carried out our evaluation.
PART II- OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Shareholders of the Company was held on April 22, 2003. At the Annual Meeting of the Shareholders, proxies were solicited under Regulation 14 of the Securities and Exchange Act of 1934. Total shares eligible to vote amounted to 4,583,382. A total of 3,067,242 shares (66.92%) were represented by shareholders in attendance or by proxy. The following directors were elected to serve one year until the next annual meeting:
Terry Coleman
James D. Minix
L. Morris Downing, Jr.
W. B. Roberts, Jr.
Terry L. Hester
R. Sidney Ross
Edward J. Harrell
Walter Patten
Harold Kimball
B. Gene Waldron
The motion for election of directors was approved on a vote of 3,062,832 shares “for”, except for Messrs. Coleman, Downing and Waldron. Messrs. Downing and Waldron had 3,015,487 shares “for” and Mr. Coleman had 3,062,453 shares “for”.
Shareholders voted upon no other matters.
30
ITEM 6 – EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No. 11 –
Statement of Computation of Earnings Per Share
Exhibit No. 31.1 –
Certificate of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
Exhibit No. 31.2 –
Certificate of Chief Financial Officer Pursuant to Section 302 of Sarbanes – Oxley Act of 2002
Exhibit No. 32.1 –
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The company filed Form 8-K on June 18, 2003 reporting that a press release had been issued on June 18, 2003 announcing the declaration of a second quarter 2003 dividend payment.
The company filed Form 8-K on July 11, 2003 reporting that a press release had been issued on July 11, 2003 in which financial results for the quarter ended June 30, 2003 was reported.
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.
/s/ JAMES D. MINIX
Date: August 8, 2003
James D. Minix, President and Chief Executive Officer
/s/ TERRY L HESTER
Terry L. Hester, Executive Vice President and Chief Financial Officer