Colony Bankcorp 10K 2015 Annual report | CBAN Filing

EXHIBITNO.13

McNair, McLemore, Middlebrooks & Co., LLC

CERTIFIED PUBLIC ACCOUNTANTS

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

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

mmmcpa.com

March 10, 2016

REPORTOFINDEPENDENT

REGISTEREDPUBLICACCOUNTINGFIRM

The Board of Directors and Stockholders

Colony Bankcorp, Inc.

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

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

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

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

McNAIR, McLEMORE, MIDDLEBROOKS & CO., LLC

COLONYBANKCORP,INC.ANDSUBSIDIARY

CONSOLIDATEDBALANCESHEETS

DECEMBER 31

ASSETS

	2015			2014

Cash and Cash Equivalents
Cash and Due from Banks	$	22,256,646		$	24,472,870
Federal Funds Sold		-			20,132,062

		22,256,646			44,604,932

Interest-Bearing Deposits		38,615,299			21,206,039

InvestmentSecurities
Available for Sale, at Fair Value		296,149,299			274,594,586
Held to Maturity, at Cost (Fair Value of$29,923 as of December 31, 2014)		-			29,796

		296,149,299			274,624,382

FederalHomeLoanBankStock,atCost		2,730,500			2,830,800

Loans		758,635,595			746,093,809
Allowance for Loan Losses		(8,603,905	)		(8,802,316	)
Unearned Interest and Fees		(356,798	)		(361,374	)

		749,674,892			736,930,119

PremisesandEquipment		26,453,530			24,960,445

OtherRealEstate(NetofAllowanceof $1,582,101and $3,319,644in2015and2014,Respectively)		8,839,103			10,401,832

OtherIntangibleAssets		116,264			152,012

OtherAssets		29,313,894			31,187,420

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

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

COLONYBANKCORP,INC.ANDSUBSIDIARY

CONSOLIDATEDBALANCESHEETS

DECEMBER31

LIABILITIES AND STOCKHOLDERS’ EQUITY

	2015			2014

Deposits
Noninterest-Bearing	$	133,886,271		$	128,339,763
Interest-Bearing		877,667,965			850,963,711

		1,011,554,236			979,303,474

BorrowedMoney
Subordinated Debentures		24,229,000			24,229,000
Other Borrowed Money		40,000,000			40,000,000

		64,229,000			64,229,000

OtherLiabilities		2,909,569			4,338,195


CommitmentsandContingencies


Stockholders’Equity
Preferred Stock, Stated Value $1,000; Authorized10,000,000 Shares, Issued 18,021 and 28,000 Shares as ofDecember 31, 2015 and 2014		18,021,000			28,000,000
Common Stock, Par Value $1; Authorized 20,000,000 Shares, Issued 8,439,258 Sharesas of December 31, 2015 and 2014		8,439,258			8,439,258
Paid-In Capital		29,145,094			29,145,094
Retained Earnings		44,285,621			38,287,934
Accumulated Other Comprehensive Loss, Net of Tax		(4,434,351	)		(4,844,974	)

		95,456,622			99,027,312


TotalLiabilitiesandStockholders’Equity	$	1,174,149,427		$	1,146,897,981

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

COLONY BANKCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31

	2015			2014		2013
InterestIncome
Loans, Including Fees	$	39,716,269		$	39,735,615	$	41,350,195
Federal Funds Sold		14,561			32,100		39,199
Deposits with Other Banks		79,735			41,639		26,704
Investment Securities
U.S. Government Agencies		4,235,207			4,737,878		3,516,978
State, County and Municipal		107,638			99,736		123,972
Corporate Obligations		-			-		47,275
Dividends on Other Investments		122,070			115,134		81,398

		44,275,480			44,762,102		45,185,721
InterestExpense
Deposits		4,856,673			5,113,024		5,821,366
Federal Funds Purchased		26			19		116
Borrowed Money		1,712,548			1,685,744		1,675,164

		6,569,247			6,798,787		7,496,646

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

Provision for Loan Losses		865,500			1,308,000		4,485,000

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

NoninterestIncome
Service Charges on Deposits		4,268,438			4,649,008		4,690,599
Other Service Charges, Commissions and Fees		2,627,157			2,387,589		1,725,271
Mortgage Fee Income		527,187			419,963		484,396
Securities Gains (Losses)		(11,466	)		23,735		(363,804	)
Gain on Sale of SBA Loans		-			-		635,190
Other		1,633,205			1,644,294		1,205,631

		9,044,521			9,124,589		8,377,283
NoninterestExpenses
Salaries and Employee Benefits		17,589,631			17,507,926		16,691,972
Occupancy and Equipment		3,989,347			4,062,844		3,794,524
Directors’ Fees		358,291			392,132		416,972
Legal and Professional Fees		737,731			785,683		721,322
Foreclosed Property		1,682,783			2,701,436		3,918,128
FDIC Assessment		899,302			965,898		1,321,981
Advertising		624,844			652,374		508,292
Software		992,593			925,489		852,475
Telephone		710,038			735,735		778,151
ATM/Card Processing		1,061,262			905,732		685,497
Other		5,078,932			5,344,743		4,928,135

		33,724,754			34,979,992		34,617,449

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

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

NetIncome		8,372,697			7,531,625		4,629,045
Preferred Stock Dividends		2,375,010			2,688,604		1,508,761

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

NetIncomePerShareofCommonStock	$	0.71		$	0.57	$	0.37
Basic	$	0.71		$	0.57	$	0.37
Diluted
CashDividendsDeclaredPerShareofCommonStock	$	0.00		$	0.00	$	0.00

WeightedAverageSharesOutstanding, Basic		8,439,258			8,439,258		8,439,258
Weighted Average Shares Outstanding, Diluted		8,458,461			8,439,258		8,439,258

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

COLONYBANKCORP,INC.ANDSUBSIDIARY

CONSOLIDATEDSTATEMENTSOFCOMPREHENSIVEINCOME(LOSS)

FORTHEYEARSENDEDDECEMBER31

	2015			2014			2013

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

OtherComprehensiveIncome (Loss)

Gains (Losses) on Securities Arising During the Year		610,689			6,432,906			(13,886,854	)
Tax Effect		(207,634	)		(2,187,189	)		4,721,531

Realized Gains (Losses) on Sale of AFS Securities		11,466			(23,735	)		(2,819	)
Tax Effect		(3,898	)		8,070			959

Impairment Loss on Securities		-			-			366,623
Tax Effect		-			-			(124,652	)

Change in Unrealized Gains (Losses) on Securities Available for Sale, Net of Reclassification Adjustment and Tax Effects		410,623			4,230,052			(8,925,212	)

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

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

COLONY BANKCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

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

	Preferred Shares Issued			Preferred Stock			Common Shares Issued		Common Stock		Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total

Balance, December 31, 2012		28,000		$	27,827,053			8,439,258	$	8,439,258	$	29,145,094	$	30,497,576		$	(149,814	)	$	95,759,167

Change in Net Unrealized Gains (Losses) onSecurities Available for Sale, Net of Reclassification Adjustment and Tax Effects																	(8,925,212	)		(8,925,212	)
Accretion of Fair Value of Warrant					172,947									(172,947	)					-
Dividends on Preferred Shares														(1,508,761	)					(1,508,761	)
Net Income														4,629,045						4,629,045

Balance, December 31, 2013		28,000			28,000,000			8,439,258		8,439,258		29,145,094		33,444,913			(9,075,026	)		89,954,239

Change in Net Unrealized Gains (Losses) onSecurities Available for Sale, Net ofReclassification Adjustment and Tax Effects																	4,230,052			4,230,052
Dividends on Preferred Shares														(2,688,604	)					(2,688,604	)
Net Income														7,531,625						7,531,625

Balance, December 31, 2014		28,000			28,000,000			8,439,258		8,439,258		29,145,094		38,287,934			(4,844,974	)		99,027,312

Change in Net Unrealized Gains (Losses) onSecurities Available for Sale, Net ofReclassification Adjustment and Tax Effects																	410,623			410,623
Dividends on Preferred Shares														(2,375,010	)					(2,375,010	)
Redemption of Preferred Stock		(9,979	)		(9,979,000	)														(9,979,000	)
Net Income														8,372,697						8,372,697

Balance, December 31, 2015		18,021		$	18,021,000			8,439,258	$	8,439,258	$	29,145,094	$	44,285,621		$	(4,434,351	)	$	95,456,622

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

COLONY BANKCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31

	2015			2014				2013
Cash Flows from Operating Activities
Net Income	$	8,372,697		$	7,531,625			$	4,629,045
Adjustments to Reconcile Net Income to NetCash Provided from Operating Activities
Depreciation		1,657,229			1,595,253				1,527,392
Amortization and Accretion		1,797,152			1,312,857				2,667,404
Provision for Loan Losses		865,500			1,308,000				4,485,000
Deferred Income Taxes		625,436			1,932,950				2,178,222
Securities (Gains) Losses		11,466			(23,735	)			363,804
(Gain) Loss on Sale of Premises and Equipment		11,047			(12,489	)			(677	)
Loss on Sale of Other Real Estate and Repossessions		600,663			828,411				1,565,091
Provision for Losses on Other Real Estate		453,148			1,006,827				1,321,418
Increase in Cash Surrender Value of Life Insurance		(299,010	)		(590,674	)			(338,712	)
Change In
Interest Receivable		(354,274	)		55,786				285,033
Prepaid Expenses		278,637			(64,633	)			(168,060	)
Interest Payable		32,253			(1,099,756	)			385,285
Accrued Expenses and Accounts Payable		(202,343	)		197,195				213,753
Other		217,686			788,958				(243,543	)

		14,067,287			14,766,575				18,870,455
Cash Flows from Investing Activities
Interest-Bearing Deposits in Other Banks		(17,409,260	)		754,252				(164,950	)
Purchase of Investment Securities
Available for Sale		(102,336,227	)		(56,201,891	)			(132,419,073	)
Proceeds from Sale of Investment Securities
Available for Sale		28,273,634			13,620,956				72,672,795
Proceeds from Maturities, Calls and Paydownsof Investment Securities
Available for Sale		51,423,541			36,440,646				48,330,382
Held to Maturity		9,734			12,968				11,623
Proceeds from Sale of Premises and Equipment		28,608			14,376				2,500
Net Loans to Customers		(21,255,018	)		(3,156,342	)			(19,959,948	)
Purchase of Premises and Equipment		(3,189,969	)		(1,681,115	)			(1,489,579	)
Proceeds from Sale of Other Real Estate and Repossessions		8,154,596			7,233,497				8,041,638
Proceeds from Sale of Federal Home Loan Bank Stock		100,300			333,100				200,400
Purchase of Bank-Owned Life Insurance		-			-				(10,000,000	)
							��
		(56,200,061	)		(2,629,553	)			(34,774,212	)
Cash Flows from Financing Activities
Interest-Bearing Customer Deposits		26,704,254			(21,305,068	)			16,550,430
Noninterest-Bearing Customer Deposits		5,546,508			13,079,062				(8,705,841	)
Proceeds from Other Borrowed Money		27,000,000			-				21,500,000
Principal Payments on Other Borrowed Money		(27,000,000	)		-				(16,500,000	)
Dividends Paid on Preferred Stock		(2,487,274	)		(5,492,749	)			-
Redemption of Preferred Stock		(9,979,000	)		-				-

		19,784,488			(13,718,755	)			12,844,589

Net Increase (Decrease) in Cash and Cash Equivalents		(22,348,286	)		(1,581,733	)			(3,059,168	)

Cash and Cash Equivalents, Beginning		44,604,932			46,186,665				49,245,833

Cash and Cash Equivalents, Ending	$	22,256,646		$	44,604,932			$	46,186,665

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

COLONY BANKCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies

Principles of Consolidation

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

Nature of Operations

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

Use of Estimates

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

Reclassifications

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

(1)SummaryofSignificantAccountingPolicies(Continued)

Concentrations of Credit Risk

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

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

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

InvestmentSecurities

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

(1)SummaryofSignificantAccountingPolicies(Continued)

InvestmentSecurities (Continued)

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

FederalHomeLoanBankStock

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

Loans

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

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

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

Loans Modified in a Troubled Debt Restructuring (TDR)

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

(1)SummaryofSignificantAccountingPolicies(Continued)

AllowanceforLoanLosses

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

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

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

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

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

(1)SummaryofSignificantAccountingPolicies(Continued)

Allowance for Loan Losses (Continued)

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

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

PremisesandEquipment

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

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

Description	Life in Years	Method

Banking Premises	15-40	Straight-Line and Accelerated
Furniture and Equipment	5-10	Straight-Line and Accelerated

Expenditures for major renewals and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. When property and equipment are retired or sold, the cost and accumulated depreciation are removed from the respective accounts and any gain or loss is reflected in other income or expense.

IntangibleAssets

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

(1)SummaryofSignificantAccountingPolicies(Continued)

Transfers of Financial Assets

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

StatementofCashFlows

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

Securities Purchased Under Agreement to Resell and SecuritiesSoldUnderAgreements to Repurchase

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

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

AdvertisingCosts

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

IncomeTaxes

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

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

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

(1)SummaryofSignificantAccountingPolicies(Continued)

Income Taxes (Continued)

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

OtherRealEstate

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

Bank-Owned Life Insurance

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

ComprehensiveIncome

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

Off-Balance Sheet Credit Related Financial Instruments

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

(1)SummaryofSignificantAccountingPolicies(Continued)

ChangesinAccountingPrinciplesandEffectsofNewAccountingPronouncements

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

ASU 2015-01,Income Statement—Extraordinary and Unusual Items (Subtopic225-20): Simplifying Income Statement Presentation by Eliminating the Concept of ExtraordinaryItems.ASU 2015-01 eliminates the concept of extraordinary items from U.S. Generally Accepted Accounting Principles (GAAP) and the need for entities to evaluate whether transactions or events are both unusual in nature and infrequently occurring. However, the ASU does not affect the reporting and disclosure requirements for an event or transaction that is unusual in nature or that occurs infrequently. The amendments in Update 2015-01 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company will adopt the requirements of ASU 2015- 01 upon its effective date of January 1, 2016, and does not anticipate it having a material impact on the Company’s consolidated financial statements.

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

(1)Summary of Significant Accounting Policies (Continued)

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

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

(2)CashandBalancesDuefromBanks

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

	2015		2014

Cash on Hand and Cash Items	$	9,061,678	$	9,974,663
Noninterest-Bearing Deposits with Other Banks		13,194,968		14,498,207

	$	22,256,646	$	24,472,870

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

(3)InvestmentSecurities

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

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Fair

Value

Securities Available for Sale

U.S. Government Agencies

Mortgage-Backed

297,778,875

62,815

(6,791,837

)

291,049,853

State, County and Municipal

5,089,137

30,542

(20,233

)

5,099,446

302,868,012

93,357

(6,812,070

)

296,149,299

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

	Securities AvailableforSale
	Amortized Cost		Fair Value

Due in One Year or Less	$	330,531	$	331,818
Due After One Year Through Five Years		770,079		773,706
Due After Five Years Through Ten Years		2,492,993		2,517,901
Due After Ten Years		1,495,534		1,476,021

		5,089,137		5,099,446

Mortgage-Backed Securities		297,778,875		291,049,853

	$	302,868,012	$	296,149,299

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities Available for Sale
U.S. Government Agencies
Mortgage-Backed	$	278,419,055	$	155,902	$	(7,511,288	)	$	271,063,669
State, County and Municipal		3,516,400		27,181		(12,664	)		3,530,917

	$	281,935,455	$	183,083	$	(7,523,952	)	$	274,594,586
Securities Held to Maturity
State, County and Municipal	$	29,796	$	127	$	-		$	29,923

(3)InvestmentSecurities (Continued)

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

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

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

	LessThan12Months					12MonthsorGreater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
December 31, 2015
U.S. Government Agencies
Mortgage-Backed	$	139,765,025	$	(1,270,011	)	$	139,720,125	$	(5,521,826	)	$	279,485,150	$	(6,791,837	)
State, County and Municipal		1,034,613		(20,233	)		-		-			1,034,613		(20,233	)

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

December 31, 2014
U.S. Government Agencies
Mortgage-Backed	$	66,609,319	$	(396,896	)	$	183,645,552	$	(7,114,392	)	$	250,254,871	$	(7,511,288	)
State, County and Municipal		-		-			1,379,547		(12,664	)		1,379,547		(12,664	)

	$	66,609,319	$	(396,896	)	$	185,025,099	$	(7,127,056	)	$	251,634,418	$	(7,523,952	)

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

(3)InvestmentSecurities (Continued)

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

(4)Loans

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

	2015		2014

Commercialand Agricultural
Commercial	$	47,781,689	$	50,960,265
Agricultural		19,193,497		16,689,444

RealEstate
Commercial Construction		40,106,633		51,258,970
Residential Construction		9,413,263		11,220,683
Commercial		346,262,033		332,230,847
Residential		197,002,419		203,752,620
Farmland		61,779,859		49,950,984

ConsumerandOther
Consumer		20,605,465		22,820,314
Other		16,490,737		7,209,682

TotalLoans	$	758,635,595	$	746,093,809

(4)Loans(Continued)

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

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

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

●

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

●

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

●

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

●

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

●

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

(4)Loans(Continued)

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

2015	Pass		SpecialMention		Substandard		TotalLoans

CommercialandAgricultural
Commercial	$	44,273,407	$	1,927,198	$	1,581,084	$	47,781,689
Agricultural		18,970,328		17,843		205,326		19,193,497

RealEstate
Commercial Construction		36,516,165		912,295		2,678,173		40,106,633
Residential Construction		9,413,263		-		-		9,413,263
Commercial		320,566,237		13,652,416		12,043,380		346,262,033
Residential		177,054,188		8,545,942		11,402,289		197,002,419
Farmland		56,798,365		929,814		4,051,680		61,779,859

ConsumerandOther
Consumer		20,037,996		156,739		410,730		20,605,465
Other		16,465,593		636		24,508		16,490,737

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

2014

CommercialandAgricultural
Commercial	$	46,230,110	$	2,905,361	$	1,824,794	$	50,960,265
Agricultural		16,504,404		27,101		157,939		16,689,444

RealEstate
Commercial Construction		45,063,306		1,740,488		4,455,176		51,258,970
Residential Construction		11,220,683		-		-		11,220,683
Commercial		309,828,039		11,220,166		11,182,642		332,230,847
Residential		180,549,640		10,582,704		12,620,276		203,752,620
Farmland		47,548,106		414,521		1,988,357		49,950,984

ConsumerandOther
Consumer		22,114,932		248,997		456,385		22,820,314
Other		7,012,405		-		197,277		7,209,682

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

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

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

(4)Loans(Continued)

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

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

	AccruingLoans
2015	30-89Days PastDue		90Days orMore PastDue		TotalAccruing LoansPastDue		Nonaccrual Loans		Current Loans		TotalLoans

CommercialandAgricultural
Commercial	$	490,727	$	-	$	490,727	$	576,940	$	46,714,022	$	47,781,689
Agricultural		71,416		-		71,416		178,021		18,944,060		19,193,497

RealEstate
Commercial Construction		90,163		-		90,163		1,642,666		38,373,804		40,106,633
Residential Construction		-		-		-		-		9,413,263		9,413,263
Commercial		6,031,257		-		6,031,257		7,564,691		332,666,085		346,262,033
Residential		3,682,509		-		3,682,509		3,163,571		190,156,339		197,002,419
Farmland		122,696		-		122,696		1,103,354		60,553,809		61,779,859

ConsumerandOther
Consumer		469,839		7,799		477,638		178,336		19,949,491		20,605,465
Other		636		-		636		100		16,490,001		16,490,737

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

2014

Commercial andAgricultural
Commercial	$	872,321	$	-	$	872,321	$	405,398	$	49,682,546	$	50,960,265
Agricultural		-		-		-		44,605		16,644,839		16,689,444

RealEstate
Commercial Construction		141,850		-		141,850		3,251,290		47,865,830		51,258,970
Residential Construction		-		-		-		-		11,220,683		11,220,683
Commercial		2,309,114		-		2,309,114		5,325,047		324,596,686		332,230,847
Residential		5,782,701		-		5,782,701		7,461,507		190,508,412		203,752,620
Farmland		281,967		-		281,967		1,449,226		48,219,791		49,950,984

ConsumerandOther
Consumer		313,424		6,642		320,066		201,695		22,298,553		22,820,314
Other		-		-		-		195,497		7,014,185		7,209,682

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

(4)Loans (Continued)

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

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

Unpaid

Contractual

Principal

Balance

Impaired

Balance

Related

Allowance

Average

Recorded

Investment

Interest

Income

Recognized

Interest

Income

Collected

WithNoRelatedAllowanceRecorded

Commercial

454,423

454,013

534,814

17,259

21,253

Agricultural

195,654

178,021

163,078

(9,957

)

10,334

Commercial Construction

6,887,522

1,896,938

2,867,061

25,788

27,007

Commercial Real Estate

15,569,340

15,122,486

15,430,252

529,376

530,699

Residential Real Estate

5,429,121

4,575,547

4,715,162

175,484

159,148

Farmland

1,104,887

1,103,353

1,339,863

583

2,076

Consumer

179,908

178,435

190,566

13,745

14,907

Other

48,438

29,820,855

23,508,793

25,289,234

752,278

765,424

WithAnAllowanceRecorded

Commercial

122,928

94,538

99,749

2,275

2,438

Agricultural

Commercial Construction

76,644

25,344

92,200

375

Commercial Real Estate

8,969,329

8,955,503

1,607,962

6,673,087

213,693

208,657

Residential Real Estate

1,083,127

1,075,367

308,188

1,088,380

16,380

15,873

Farmland

387,968

387,969

37,386

391,060

20,880

20,954

Consumer

Other

10,639,996

10,618,411

2,073,418

8,344,476

253,603

248,297

Total

Commercial

577,351

576,941

94,538

634,563

19,534

23,691

Agricultural

195,654

178,021

163,078

(9,957

)

10,334

Commercial Construction

6,964,166

1,973,582

25,344

2,959,261

26,163

27,382

Commercial Real Estate

24,538,669

24,077,989

1,607,962

22,103,339

743,069

739,356

Residential Real Estate

6,512,248

5,650,914

308,188

5,803,542

191,864

175,021

Farmland

1,492,855

1,491,322

37,386

1,730,923

21,463

23,030

Consumer

179,908

178,435

190,566

13,745

14,907

Other

48,438

40,460,851

34,127,204

2,073,418

33,633,710

1,005,881

1,013,721

(4)Loans (Continued)

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

	Unpaid Contractual Principal Balance		Impaired Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized			Interest Income Collected

With No Related Allowance Recorded
Commercial	$	310,447	$	308,817	$	-	$	679,267	$	9,248		$	17,973
Agricultural		50,163		44,605		-		50,959		(6,029	)		3,000
Commercial Construction		9,573,141		3,463,502		-		3,376,033		13,111			12,833
Commercial Real Estate		17,129,876		16,227,379		-		18,350,015		462,355			474,936
Residential Real Estate		9,136,987		7,600,073		-		5,690,573		312,024			306,859
Farmland		1,450,759		1,449,226		-		949,003		(8,518	)		17,273
Consumer		201,695		201,695		-		211,775		14,455			15,495
Other		206,894		195,497		-		197,519		5,874			10,677

		38,059,962		29,490,794		-		29,505,144		802,520			859,046

With An Allowance Recorded
Commercial		96,580		96,580		96,580		419,464		(299	)		-
Agricultural		-		-		-		-		-			-
Commercial Construction		207,308		136,369		53,947		1,528,817		375			375
Commercial Real Estate		6,135,238		6,135,238		456,941		6,415,086		60,629			50,468
Residential Real Estate		2,072,919		2,065,158		414,684		1,829,102		84,177			86,472
Farmland		396,048		396,048		28,962		529,555		13,077			12,210
Consumer		-		-		-		-		-			-
Other		-		-		-		-		-			-

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

Total
Commercial		407,027		405,397		96,580		1,098,731		8,949			17,973
Agricultural		50,163		44,605		-		50,959		(6,029	)		3,000
Commercial Construction		9,780,449		3,599,871		53,947		4,904,850		13,486			13,208
Commercial Real Estate		23,265,114		22,362,617		456,941		24,765,101		522,984			525,404
Residential Real Estate		11,209,906		9,665,231		414,684		7,519,675		396,201			393,331
Farmland		1,846,807		1,845,274		28,962		1,478,558		4,559			29,483
Consumer		201,695		201,695		-		211,775		14,455			15,495
Other		206,894		195,497		-		197,519		5,874			10,677

	$	46,968,055	$	38,320,187	$	1,051,114	$	40,227,168	$	960,479		$	1,008,571

(4)Loans (Continued)

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

	Unpaid Contractual Principal Balance		Impaired Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized			Interest Income Collected

With No Related Allowance Recorded
Commercial	$	305,272	$	305,272	$	-	$	216,057	$	24,494		$	25,193
Agricultural		-		-		-		9,803		-			-
Commercial Construction		7,856,411		4,750,157		-		4,105,370		34,908			41,164
Commercial Real Estate		20,120,403		19,252,946		-		13,198,988		493,940			503,392
Residential Real Estate		7,836,718		6,361,592		-		4,564,666		224,439			209,330
Farmland		302,629		302,629		-		1,858,654		803			869
Consumer		313,194		307,456		-		252,944		18,469			21,109
Other		9,146		9,146		-		2,287		556			575

		36,743,773		31,289,198		-		24,208,769		797,609			801,632

With An Allowance Recorded
Commercial		1,452,798		1,452,798		433,714		1,689,125		14,845			20,748
Agricultural		-		-		-		-		-			-
Commercial Construction		5,922,674		3,471,587		830,546		5,025,176		(159	)		-
Commercial Real Estate		5,874,473		5,874,473		423,685		11,072,314		157,536			148,495
Residential Real Estate		1,949,301		1,849,301		526,005		3,661,706		25,739			24,414
Farmland		1,326,982		1,326,982		85,500		663,903		44,638			46,930
Consumer		-		-		-		-		-			-
Other		-		-		-		-		-			-

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

Total
Commercial		1,758,070		1,758,070		433,714		1,905,182		39,339			45,941
Agricultural		-		-		-		9,803		-			-
Commercial Construction		13,779,085		8,221,744		830,546		9,130,546		34,749			41,164
Commercial Real Estate		25,994,876		25,127,419		423,685		24,271,302		651,476			651,887
Residential Real Estate		9,786,019		8,210,893		526,005		8,226,372		250,178			233,744
Farmland		1,629,611		1,629,611		85,500		2,522,557		45,441			47,799
Consumer		313,194		307,456		-		252,944		18,469			21,109
Other		9,146		9,146		-		2,287		556			575

	$	53,270,001	$	45,264,339	$	2,299,450	$	46,320,993	$	1,040,208		$	1,042,219

(4)Loans (Continued)

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

●

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

●

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

●

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

(4)Loans (Continued)

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

TroubledDebtRestructurings

2015	#ofContracts		Pre-Modification		Post-Modification

Commercial Real Estate		1	$	513,868	$	505,978
Residential Real Estate		2		1,106,345		1,035,590

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

2014

Farmland		1	$	400,778	$	400,778
Commercial Construction		1		349,976		349,976
Commercial Real Estate		1		1,771,395		1,775,407
Residential Real Estate		1		49,194		49,194

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

2013

Commercial		1	$	83,748	$	81,277
Commercial Construction		2		228,633		225,959
Commercial Real Estate		1		225,852		225,852
Residential Real Estate		4		1,885,700		1,764,399

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

(4)Loans (Continued)

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

	2015				2014				2013
	#of Contracts		Recorded Investment		#of Contracts		Recorded Investment		#of Contracts		Recorded Investment

Commercial		-	$	-		-	$	-		1	$	81,277

TotalLoans		-	$	-		-	$	-		1	$	81,277

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

(5)AllowanceforLoanLosses

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

	2015			2014			2013

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

Provision for Loan Losses		865,500			1,308,000			4,485,000
Loans Charged Off		(2,083,347	)		(5,104,491	)		(6,227,716	)
Recoveries of Loans Previously Charged Off		1,019,436			792,821			811,781

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

(5)AllowanceforLoanLosses (Continued)

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

2015	Beginning Balance		Charge-Offs			Recoveries		Provision			Ending Balance

Commercialand Agricultural
Commercial	$	497,561	$	(454,971	)	$	52,111	$	760,663		$	855,364
Agricultural		304,172		(5,000	)		3,600		(99,681	)		203,091

RealEstate
Commercial Construction		1,222,695		(97,698	)		485,834		(920,065	)		690,766
Residential Construction		138,092		-			-		(118,202	)		19,890
Commercial		3,664,777		(275,297	)		270,003		191,044			3,850,527
Residential		2,425,327		(929,668	)		109,626		385,070			1,990,355
Farmland		103,800		(40,000	)		20,000		827,892			911,692

ConsumerandOther
Consumer		66,914		(255,062	)		61,976		189,549			63,377
Other		378,978		(25,651	)		16,286		(350,770	)		18,843

	$	8,802,316	$	(2,083,347	)	$	1,019,436	$	865,500		$	8,603,905

2014

Commercialand Agricultural
Commercial	$	1,017,073	$	(624,944	)	$	76,002	$	29,430		$	497,561
Agricultural		293,886		-			2,700		7,586			304,172

RealEstate
Commercial Construction		1,782,179		(1,543,099	)		485,005		498,610			1,222,695
Residential Construction		138,092		-			-		-			138,092
Commercial		4,379,276		(1,326,825	)		90,042		522,284			3,664,777
Residential		3,278,269		(1,033,966	)		31,127		149,897			2,425,327
Farmland		311,494		(233,580	)		20,000		5,886			103,800

ConsumerandOther
Consumer		243,253		(342,077	)		72,477		93,261			66,914
Other		362,464		-			15,468		1,046			378,978

	$	11,805,986	$	(5,104,491	)	$	792,821	$	1,308,000		$	8,802,316

(5)AllowanceforLoanLosses (Continued)

2013	Beginning Balance		Charge-Offs			Recoveries		Provision		Ending Balance

Commercialand Agricultural
Commercial	$	981,021	$	(120,690	)	$	55,829	$	100,913	$	1,017,073
Agricultural		296,175		(34,502	)		6,200		26,013		293,886

RealEstate
Commercial Construction		1,890,200		(2,071,162	)		253,459		1,709,682		1,782,179
Residential Construction		138,092		-			-		-		138,092
Commercial		5,162,839		(2,872,408	)		297,984		1,790,861		4,379,276
Residential		3,405,947		(706,242	)		64,583		513,981		3,278,269
Farmland		290,526		(20,977	)		21,762		20,183		311,494

ConsumerandOther
Consumer		227,774		(397,822	)		93,520		319,781		243,253
Other		344,347		(3,913	)		18,444		3,586		362,464

	$	12,736,921	$	(6,227,716	)	$	811,781	$	4,485,000	$	11,805,986

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

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

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

●

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

●

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

(5)AllowanceforLoanLosses(Continued)

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

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

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

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

(5)AllowanceforLoanLosses(Continued)

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

EndingAllowanceBalance

EndingLoanBalance

2015

Individually

EvaluatedforImpairment

Collectively

EvaluatedforImpairment

Total

Individually

EvaluatedforImpairment

Collectively

EvaluatedforImpairment

Total

CommercialandAgricultural

Commercial

94,538

760,826

855,364

122,928

47,658,761

47,781,689

Agricultural

203,091

8,445

19,185,052

19,193,497

RealEstate

Commercial Construction

25,344

665,422

690,766

1,622,560

38,484,073

40,106,633

Residential Construction

19,890

9,413,263

Commercial

1,607,962

2,242,565

3,850,527

23,628,213

322,633,820

346,262,033

Residential

308,188

1,682,167

1,990,355

3,597,386

193,405,033

197,002,419

Farmland

37,386

874,306

911,692

1,402,939

60,376,920

61,779,859

ConsumerandOther

Consumer

63,377

20,605,465

Other

18,843

16,490,737

TotalEndof YearBalance

2,073,418

6,530,487

8,603,905

30,382,471

728,253,124

758,635,595

(5)AllowanceforLoanLosses(Continued)

	Ending Allowance Balance						Ending Loan Balance
2014	Individually EvaluatedforImpairment		Collectively EvaluatedforImpairment		Total		Individually EvaluatedforImpairment		Collectively EvaluatedforImpairment		Total

CommercialandAgricultural
Commercial	$	96,580	$	400,981	$	497,561	$	96,580	$	50,863,685	$	50,960,265
Agricultural		-		304,172		304,172		-		16,689,444		16,689,444

RealEstate
Commercial Construction		53,947		1,168,748		1,222,695		3,384,377		47,874,593		51,258,970
Residential Construction		-		138,092		138,092		-		11,220,683		11,220,683
Commercial		456,941		3,207,836		3,664,777		21,693,061		310,537,786		332,230,847
Residential		414,684		2,010,643		2,425,327		7,559,965		196,192,655		203,752,620
Farmland		28,962		74,838		103,800		1,700,793		48,250,191		49,950,984

ConsumerandOther
Consumer		-		66,914		66,914		-		22,820,314		22,820,314
Other		-		378,978		378,978		-		7,209,682		7,209,682

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

2013

CommercialandAgricultural
Commercial	$	433,714	$	583,359	$	1,017,073	$	1,542,058	$	46,565,390	$	48,107,448
Agricultural		-		293,886		293,886		-		10,665,938		10,665,938

RealEstate
Commercial Construction		830,546		951,633		1,782,179		7,971,298		44,767,485		52,738,783
Residential Construction		-		138,092		138,092		-		6,549,260		6,549,260
Commercial		423,685		3,955,591		4,379,276		24,757,942		317,025,596		341,783,538
Residential		526,005		2,752,264		3,278,269		6,545,490		199,712,437		206,257,927
Farmland		85,500		225,994		311,494		1,617,206		45,417,220		47,034,426

ConsumerandOther
Consumer		-		243,253		243,253		-		25,675,560		25,675,560
Other		-		362,464		362,464		9,146		12,396,436		12,405,582

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

(6)PremisesandEquipment

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

	2015			2014

Land	$	9,696,723		$	8,270,678
Building		23,927,467			23,894,943
Furniture, Fixtures and Equipment		12,154,375			12,243,988
Leasehold Improvements		993,618			990,626
Construction in Progress		1,170,050			14,090

		47,942,233			45,414,325
Accumulated Depreciation		(21,488,703	)		(20,453,880	)

	$	26,453,530		$	24,960,445

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

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

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

YearEndingDecember31	Amount

2016	$	91,703
2017		38,500

	$	130,203

(7)OtherRealEstateOwned

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

	2015			2014			2013

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

Additions		7,536,165			3,852,848			10,251,006
Sales of OREO		(8,054,675	)		(7,102,136	)		(7,804,080	)
Loss on Sale		(591,071	)		(844,515	)		(1,563,739	)
Provision for Losses		(453,148	)		(1,006,827	)		(1,321,418	)

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

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

(8) OtherIntangibleAssets

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

	Core Deposit Intangible		Accumulated Amortization			NetCore Deposit Intangible

CoreDepositIntangible
Balance, December 31, 2013	$	1,056,693	$	(868,932	)	$	187,761

Amortization Expense		-		(35,749	)		(35,749	)

Balance, December 31, 2014		1,056,693		(904,681	)		152,012

Amortization Expense		-		(35,748	)		(35,748	)

Balance,December31,2015	$	1,056,693	$	(940,429	)	$	116,264

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

(9)IncomeTaxes

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

	2015		2014		2013

Current Federal Expense	$	3,162,367	$	1,335,337	$	156,642
Deferred Federal Expense		625,436		1,932,950		2,178,222

Federal Income Tax Expense		3,787,803		3,268,287		2,334,864
Current State Income Tax Expense		-		-		-

Federal and State Income Tax Expense	$	3,787,803	$	3,268,287	$	2,334,864

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

	2015			2014			2013

StatutoryFederalIncomeTaxes	$	4,134,570		$	3,671,971		$	2,367,729
Tax-Exempt Interest		(83,903	)		(74,138	)		(104,307	)
Premiums on Officers’ Life Insurance		(232,988	)		(186,712	)		(111,749	)
Meal and Entertainment Disallowance		21,600			14,044			15,319
Other		(51,476	)		(156,878	)		167,872

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

(9)IncomeTaxes(Continued)

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

	2015			2014

DeferredTaxAssets
Allowance for Loan Losses	$	2,925,328		$	2,992,787
Other Real Estate		537,914			1,178,278
Deferred Compensation		308,128			287,365
Investments		340,000			340,000
Goodwill		212,190			256,714
Other		418,165			427,924

		4,741,725			5,483,068
DeferredTaxLiabilities
Premises and Equipment		(1,183,309	)		(1,299,216	)
Other		(4,185	)		(4,185	)

		(1,187,494	)		(1,303,401	)
Deferred Tax Assets (Liabilities) onUnrealized Securities Gains (Losses)		2,284,362			2,495,896

NetDeferredTaxAssets	$	5,838,593		$	6,675,563

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

	2015		2014		2013

Balance,Beginning	$	-	$	42,327	$	38,676

Positions Taken During the Current Year		-		-		7,247
Reductions Resulting from Lapse ofStatutes of Limitation		-		42,327		(3,596	)

Balance,Ending	$	-	$	-	$	42,327

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

(10)Deposits

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

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

	2015		2014

Interest-Bearing Demand	$	412,959,430	$	363,501,727
Savings		64,976,174		59,215,257
Time, $100,000 and Over		202,800,899		210,502,901
Other Time		196,931,462		217,743,826

	$	877,667,965	$	850,963,711

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

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

Year	Amount

2016	$	287,422,547
2017		55,668,788
2018		32,350,483
2019		10,102,321
2020 and Thereafter		14,188,222

	$	399,732,361

(11)OtherBorrowedMoney

Other borrowed money at December 31 is summarized as follows:

	2015		2014

Federal Home Loan Bank Advances	$	40,000,000	$	40,000,000

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

(11)OtherBorrowedMoney (Continued)

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

Year	Amount

2018	$	2,500,000
2019		8,000,000
2020		-
2021 and Thereafter		29,500,000

	$	40,000,000

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

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

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

(12)SubordinatedDebentures(TrustPreferredSecurities)

Description	Date	Amount		3-Month LiborRate		Added Points		Total Interest Rate		Maturity	5-Year CallOption
	(In Thousands)
Colony Bankcorp Statutory Trust III	6/17/2004	$	4,640		0.52575		2.68		3.20575	6/14/2034	6/17/2009
Colony Bankcorp Capital Trust I	4/13/2006		5,155		0.60670		1.50		2.10670	4/13/2036	4/13/2011
Colony Bankcorp Capital Trust II	3/12/2007		9,279		0.60310		1.65		2.25310	3/12/2037	3/12/2012
Colony Bankcorp Capital Trust III	9/14/2007		5,155		0.32190		1.40		1.72190	9/14/2037	9/14/2012

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

The Trust Preferred Securities pay interest quarterly.

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

(13) Preferred Stock

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

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

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

(14) Employee Benefit Plan

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

(15)CommitmentsandContingencies

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

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

(15)CommitmentsandContingencies (Continued)

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

	Contract Amount
	2015		2014

Commitments to Extend Credit	$	67,889,000	$	68,742,000
Standby Letters of Credit		1,588,212		1,762,000

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

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

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

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

(16)DeferredCompensationPlan

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

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

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

(17)SupplementalCashFlowInformation

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

	2015		2014		2013

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

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

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

	2015		2014		2013

Acquisitions of Real EstateThrough Loan Foreclosures	$	7,536,165	$	3,852,848	$	10,251,006

Change in Unrealized Gain (Loss) on AFS Investment Securities	$	622,155	$	6,409,171	$	(13,523,050	)

(18)RelatedPartyTransactions

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

	2015			2014

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

New Loans		4,900,932			6,406,713
Repayments		(6,065,098	)		(7,237,352	)
Transactions Due to Changes in Directors		(253,174	)		-

Balance,Ending	$	1,816,609		$	3,233,949

(19)FairValueofFinancialInstruments and Fair Value Measurements

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

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

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

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

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

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

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

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

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

(19)FairValueofFinancialInstruments and Fair Value Measurements(Continued)

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

	Carrying		Estimated		Level
2015	Amount		Fair Value		1		2		3
	(in Thousands)
Assets
Cash and Short-Term Investments	$	60,872	$	60,872	$	60,872	$	-	$	-
Investment Securities Available for Sale		296,149		296,149		-		295,219		930
Federal Home Loan Bank Stock		2,731		2,731		2,731		-		-
Loans, Net		749,675		750,412		-		741,867		8,545
Bank-Owned Life Insurance		14,830		14,830		14,830		-		-

Liabilities
Deposits		1,011,554		1,013,111		611,822		401,289		-
Subordinated Debentures		24,229		24,229		-		24,229		-
Other Borrowed Money		40,000		40,421		-		40,421		-

2014

Assets
Cash and Short-Term Investments	$	65,811	$	65,811	$	65,811	$	-	$	-
Investment Securities Available for Sale		274,595		274,595		-		273,647		948
Investment Securities Held to Maturity		30		30		-		30		-
Federal Home Loan Bank Stock		2,831		2,831		2,831		-		-
Loans, Net		736,930		738,948		-		731,170		7,778
Bank-Owned Life Insurance		14,531		14,531		14,531		-		-

Liabilities
Deposits		979,303		980,874		551,057		429,817		-
Subordinated Debentures		24,229		24,229		-		24,229		-
Other Borrowed Money		40,000		41,962		-		41,962		-

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

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

(19)FairValueofFinancialInstruments and Fair Value Measurements(Continued)

FairValueMeasurements

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

●

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

●

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

●

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

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

Assets

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

(19)FairValueofFinancialInstruments and Fair Value Measurements(Continued)

FairValueMeasurements(Continued)

Assets(Continued)

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

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

(19)FairValueofFinancialInstruments and Fair Value Measurements(Continued)

FairValueMeasurements (Continued)

Assets(Continued)

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

			FairValueMeasurementsatReportingDateUsing
2015	Total Fair Value		QuotedPrices inActive Marketsfor IdenticalAssets (Level1)		SignificantOtherObservable Inputs (Level2)		Significant Unobservable Inputs (Level3)

Recurring
SecuritiesAvailableforSale
U.S. Government Agencies
Mortgage-Backed	$	291,049,853	$	-	$	291,049,853	$	-
State, County and Municipal		5,099,446		-		4,169,135		930,311

	$	296,149,299	$	-	$	295,218,988	$	930,311
Nonrecurring
Impaired Loans	$	8,544,993	$	-	$	-	$	8,544,993

Other Real Estate	$	2,535,884	$	-	$	-	$	2,535,884

2014

Recurring
SecuritiesAvailableforSale
U.S. Government Agencies
Mortgage-Backed	$	271,063,669	$	-	$	271,063,669	$	-
State, County and Municipal		3,530,917		-		2,582,527		948,390

	$	274,594,586	$	-	$	273,646,196	$	948,390
Nonrecurring
Impaired Loans	$	7,778,279	$	-	$	-	$	7,778,279

Other Real Estate	$	6,128,365	$	-	$	-	$	6,128,365

Liabilities

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

(19)FairValueofFinancialInstruments and Fair Value Measurements(Continued)

FairValueMeasurements(Continued)

FairValueMeasurementsUsingSignificantUnobservableInputs(Level3)

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

	December31,2015	ValuationTechniques	Unobservable Inputs	Range (WeightedAvg)

Commercial	$ 28,390	Sales Comparison	Adjustment for Differences Between theComparable Sales	(31.77)% - 34.00%
				(1.12%)

			Management Adjustments for Age ofAppraisals and/or Current Market Conditions	0.00% - 10.00%
				(5.00%)

		Income Approach	Capitalization Rate	11.00%

Real Estate
Commercial Construction	51,300	Sales Comparison	Adjustment for Differences Between theComparable Sales	(5.00)% -99.00%
				(47.00%)

			Management Adjustments for Age ofAppraisals and/or Current Market Conditions	0.00% -10.00%
				(5.00%)

Residential Real Estate	767,179	Sales Comparison	Adjustment for Differences Between theComparable Sales	(22.00)% - 10.80%
				(5.60)%

			Management Adjustments for Age ofAppraisals and/or Current Market Conditions	0.00% -25.00%
				(12.50%)

Commercial Real Estate	7,347,541	Sales Comparison	Adjustment for Differences Between theComparable Sales	(31.77)% -34.00%
				(1.12%)

			Management Adjustments for Age ofAppraisals and/or Current Market Conditions	0.00% -10.00%
				(5.00%)

		Income Approach	Capitalization Rate	10.25%

Farmland	350,583	Sales Comparison	Adjustment for Differences Between theComparableSales	(27.00)% -15.00%
				(6.00)%

			Management Adjustments for Age ofAppraisals and/or Current Market Conditions	10.00% -75.00%
				(42.50%)

Other Real Estate Owned	2,535,884	Sales Comparison	Adjustment for Differences Between theComparable Sales	(50.80)% -142.90%
				(46.05%)

			Management Adjustments for Age ofAppraisals and/or Current Market Conditions	15.53% -72.75%
				(43.37%)

		Income Approach	Discount Rate	12.50%

(19)FairValueofFinancialInstruments and Fair Value Measurements(Continued)

FairValueMeasurements(Continued)

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

	December 31, 2014	Valuation Techniques	Unobservable Inputs	Range (Weighted Avg)

Impaired Loans
Commercial Construction	$ 82,422	Sales Comparison	Adjustment for Differences Between the Comparable Sales	(22.00)% - 38.10%
				(8.05%)

			Management Adjustments for Age of Appraisals and/or Current Market Conditions	0.00% - 10.00%
				(5.00%)

Residential Real Estate	1,650,474	Sales Comparison	Adjustment for Differences Between the Comparable Sales	(2.30)% - 191.70%
				(94.70%)

			Management Adjustments for Age of Appraisals and/or Current Market Conditions	0.00% - 10.00%
				(5.00%)

		Income Approach	Capitalization Rate	13.75%

Commercial Real Estate	5,678,297	Sales Comparison	Adjustment for Differences Between the Comparable Sales	0.00% - 0.00%
				(0.00%)

			Management Adjustments for Age of Appraisals and/or Current Market Conditions	0.00% - 90.00%
				(45.00%)

		Income Approach	Capitalization Rate	11.00%

Farmland	367,086	Sales Comparison	Adjustment for Differences Between the Comparable Sales	(8.30)% - 252.50%
				(122.10%)

			Management Adjustments for Age of Appraisals and/or Current Market Conditions	10.00% - 50.00%
				(30.00%)

Other Real Estate Owned	6,128,365	Sales Comparison	Adjustment for Differences Between the Comparable Sales	(40.00)% - 45.00%
				(2.50%)

			Management Adjustments for Age of Appraisals and/or Current Market Conditions	0.33% - 69.36%
				(31.88%)

		Income Approach	Discount Rate	9.00%

			Capitalization Rate	10.00%

(19)FairValueofFinancialInstruments and Fair Value Measurements(Continued)

FairValueMeasurements(Continued)

FairValueMeasurementsUsingSignificantUnobservableInputs(Level3)(Continued)

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

	AvailableforSaleSecurities
	2015			2014		2013

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

Transfers into Level 3		-			-		-
Transfers out of Level 3		-			-		(41,908	)
Securities Purchased During the Year		-			-		-
Securities Called During the Year		-			-		-
Loss on OTTI Impairment Includedin Noninterest Income		-			-		(366,623	)

Unrealized Gains(Losses) Included in Other Comprehensive Income		(18,079	)		7,125		211,558

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

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

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

December 31, 2015	FairValue		ValuationTechniques	UnobservableInputs	Range (WeightedAvg)

State, County and Municipal	$	930,311	Discounted Cash Flow	Discount Rate or Yield		N/A*

December 31, 2014

State, County and Municipal	$	948,390	Discounted Cash Flow	Discount Rate or Yield		N/A*

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

(20)RegulatoryCapitalMatters

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

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

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

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

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

(20)RegulatoryCapitalMatters (Continued)

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

Actual

ForCapital

AdequacyPurposes

ToBeWell

CapitalizedUnder

PromptCorrective

ActionProvisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

As of December 31, 2015

(In Thousands)

Total Capitalto Risk-Weighted Assets

Consolidated

131,948

16.60

63,602

8.00

N/A

Colony Bank

126,939

15.99

63,500

8.00

79,375

10.00

Tier I Capitalto Risk-Weighted Assets

Consolidated

123,344

15.51

47,702

6.00

N/A

Colony Bank

118,335

14.91

47,625

6.00

63,500

8.00

Common Equity Tier 1 Capitalto Risk-Weighted Assets

Consolidated

81,823

10.29

35,776

4.50

N/A

Colony Bank

118,335

14.91

35,719

4.50

51,594

6.50

Tier I Capitalto Average Assets

Consolidated

123,344

10.69

46,149

4.00

N/A

Colony Bank

118,335

10.27

46,074

4.00

57,592

5.00

As of December 31, 2014

Total Capitalto Risk-Weighted Assets

Consolidated

136,022

17.95

60,639

8.00

N/A

Colony Bank

127,833

16.89

60,542

8.00

75,678

10.00

Tier I Capitalto Risk-Weighted Assets

Consolidated

127,220

16.78

30,320

4.00

N/A

Colony Bank

119,031

15.73

30,271

4.00

45,407

6.00

Tier I Capitalto Average Assets

Consolidated

127,220

11.18

45,509

4.00

N/A

Colony Bank

119,031

10.50

45,364

4.00

56,705

5.00

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

(21)FinancialInformationofColonyBankcorp,Inc.(ParentOnly)

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

COLONY BANKCORP, INC. (PARENT ONLY)

BALANCE SHEETS

DECEMBER 31

ASSETS


	2015			2014

Cash	$	4,100,860		$	5,750,652
Premises and Equipment, Net		1,134,524			1,199,639
Investment in Subsidiary, at Equity		114,677,455			115,066,948
Other		170,801			1,708,380

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


LIABILITIESANDSTOCKHOLDERS’EQUITY

Liabilities
Dividends Payable	$	202,736		$	315,000
Other		195,282			154,307

		398,018			469,307

Subordinated Debt		24,229,000			24,229,000

Stockholders’Equity
Preferred Stock, Stated Value $1,000; Authorized10,000,000 Shares, Issued 18,021 and 28,000 Shares as ofDecember 31, 2015 and 2014		18,021,000			28,000,000

Common Stock, Par Value $1; Authorized20,000,000 Shares, Issued 8,439,258Shares as of December 31, 2015 and 2014		8,439,258			8,439,258
Paid-In Capital		29,145,094			29,145,094
Retained Earnings		44,285,621			38,287,934
Accumulated Other Comprehensive Loss, Net of Tax		(4,434,351	)		(4,844,974	)

		95,456,622			99,027,312

TotalLiabilitiesandStockholders’Equity	$	120,083,640		$	123,725,619

(21)FinancialInformationofColonyBankcorp,Inc.(ParentOnly)(Continued)

COLONY BANKCORP, INC. (PARENT ONLY)

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31

	2015			2014			2013

Income
Dividends from Subsidiary	$	10,015,147		$	12,015,572		$	1,515,549
Management Fees		581,334			581,334			581,334
Other		112,876			100,269			96,953

	$	10,709,357		$	12,697,175			2,193,836

Expenses
Interest		503,286			517,381			516,641
Amortization		-			938			2,250
Salaries and Employee Benefits		811,150			782,152			748,149
Other		666,872			538,847			543,139

		1,981,308			1,839,318			1,810,179

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

Income Tax Benefits		444,764			396,738			406,518

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

Dividends Received in Excess ofEarnings of Subsidiary		(800,116	)		(3,722,970	)		-

Equity in UndistributedEarnings of Subsidiary		-			-			3,838,870

NetIncome		8,372,697			7,531,625			4,629,045
Preferred Stock Dividends		2,375,010			2,688,604			1,508,761

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

(21)FinancialInformationofColonyBankcorp,Inc.(ParentOnly)(Continued)

COLONYBANKCORP,INC.ANDSUBSIDIARY

CONSOLIDATEDSTATEMENTSOFCOMPREHENSIVEINCOME(LOSS)

FORTHEYEARSENDEDDECEMBER31

	2015			2014			2013

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

OtherComprehensiveIncome (Loss)

Gains (Losses) on Securities Arising During the Year		610,689			6,432,906			(13,886,854	)
Tax Effect		(207,634	)		(2,187,189	)		4,721,531

Realized Gains (Losses) on Sale of AFS Securities		11,466			(23,735	)		(2,819	)
Tax Effect		(3,898	)		8,070			959

Impairment Loss on Securities		-			-			366,623
Tax Effect		-			-			(124,652	)

Change in Unrealized Gains (Losses) on SecuritiesAvailable for Sale, Net of ReclassificationAdjustment and Tax Effects		410,623			4,230,052			(8,925,212	)

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

(21)FinancialInformationofColonyBankcorp,Inc.(ParentOnly)(Continued)

COLONY BANKCORP, INC. (PARENT ONLY)

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31

	2015			2014			2013

CashFlowsfromOperatingActivities
Net Income	$	8,372,697		$	7,531,625		$	4,629,045
Adjustments to Reconcile Net Income toNet Cash Provided by Operating Activities
Depreciation and Amortization		73,999			75,347			80,711
Equity in UndistributedEarnings of Subsidiary		800,116			3,722,970			(3,838,870	)
Change in Interest Payable		23,072			(1,069,695	)		516,641
Other		1,555,482			(437,115	)		(390,962	)

		10,825,366			9,823,132			996,565

CashFlowsfromInvestingActivities
Purchases of Premises and Equipment		(8,884	)		(2,020	)		(68,708	)

CashFlowsfromFinancingActivities
Dividends Paid on Preferred Stock		(2,487,274	)		(5,492,749	)		-
Redemption of Preferred Stock		(9,979,000	)		-			-

		(12,466,274	)		(5,492,749	)		-

Increase(Decrease)inCash		(1,649,792	)		4,328,363			927,857

Cash and Cash Equivalents,Beginning		5,750,652			1,422,289			494,432

Cash and Cash Equivalents,Ending	$	4,100,860		$	5,750,652		$	1,422,289

(22)EarningsPerShare

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

	2015		2014		2013

Numerator
Net Income Available to Common Stockholders	$	5,997,687	$	4,843,021	$	3,120,284

Denominator
Weighted Average Number of Common SharesOutstanding for Basic Earnings Per Common Share		8,439,258		8,439,258		8,439,258
Dilutive Effect of Potential Common Stock
Restricted Stock		-		-		-
Stock Warrants		19,203		-		-
Weighted-Average Number of Shares Outstanding forDiluted Earnings Per Common Share		8,458,461		8,439,258		8,439,258

Earnings Per Share - Basic	$	0.71	$	0.57	$	0.37

Earnings Per Share - Diluted	$	0.71	$	0.57	$	0.37

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

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	H.S. freshman Avg

Colony Bankcorp (CBAN) 10-K2015 FY Annual report

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