SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 2002 COMMISSION FILE NUMBER 0-12436
COLONY BANKCORP, INC.
--------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 58-1492391
------- ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
115 SOUTH GRANT STREET, FITZGERALD, GEORGIA 31750
-------------------------------------------------
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES
229/426-6000
------------
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED REPORTS REQUIRED TO
BE FILED BY SECTIONS 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE CLOSE OF THE PERIOD COVERED BY THIS REPORT.
CLASS OUTSTANDING AT JUNE 30, 2002
----- ----------------------------
COMMON STOCK, $1 PAR VALUE 4,573,482
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE FOLLOWING FINANCIAL STATEMENTS ARE PROVIDED FOR COLONY BANKCORP, INC. AND
SUBSIDIARIES: COLONY BANK OF FITZGERALD, COLONY BANK ASHBURN, COLONY BANK
WILCOX, COLONY BANK OF DODGE COUNTY, COLONY BANK WORTH, COLONY BANK SOUTHEAST,
COLONY MANAGEMENT SERVICES, INC. AND QUITMAN FEDERAL SAVINGS BANK.
A. CONSOLIDATED BALANCE SHEETS - JUNE 30, 2002 AND DECEMBER 31, 2001.
B. CONSOLIDATED STATEMENTS OF INCOME - FOR THE THREE MONTHS ENDED JUNE
30, 2002 AND 2001 AND FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001.
C. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - FOR THE THREE MONTHS
ENDED JUNE 30, 2002 AND 2001 AND FOR THE SIX MONTHS ENDED JUNE 30,
2002 AND 2001.
D. CONSOLIDATED STATEMENTS OF CASH FLOWS - FOR THE SIX MONTHS ENDED JUNE
30, 2002 AND 2001.
THE CONSOLIDATED FINANCIAL STATEMENTS FURNISHED HAVE NOT BEEN AUDITED BY
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, BUT REFLECT, IN THE OPINION OF
MANAGEMENT, ALL ADJUSTMENTS NECESSARY FOR A FAIR PRESENTATION OF THE RESULTS OF
OPERATIONS FOR THE PERIODS PRESENTED.
THE RESULTS OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2002 ARE NOT
NECESSARILY INDICATIVE OF THE RESULTS TO BE EXPECTED FOR THE FULL YEAR.
COLONY BANKCORP, INC. AND QUITMAN BANCORP, INC. ENTERED INTO AN AGREEMENT AND
PLAN OF MERGER DATED AS OF OCTOBER 22, 2001, PURSUANT TO WHICH QUITMAN WAS
MERGED WITH AND INTO COLONY WITH COLONY BANKCORP, INC. SURVIVING THE MERGER AND
QUITMAN'S WHOLLY-OWNED SUBSIDIARY, QUITMAN FEDERAL SAVINGS BANK, BECOMING A
WHOLLY-OWNED SUBSIDIARY OF COLONY CONTEMPORANEOUS WITH THE CONSUMMATION OF THE
MERGER. THE MERGER WAS CONSUMMATED AND BECAME EFFECTIVE AS OF MARCH 29, 2002.
THE BUSINESS COMBINATION WAS ACCOUNTED FOR BY THE PURCHASE METHOD OF ACCOUNTING
AND THE RESULTS OF OPERATIONS OF QUITMAN FEDERAL SAVINGS BANK SINCE THE DATE OF
ACQUISTION ARE INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS.
2
COLONY BANKCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND DECEMBER 31, 2001
(DOLLARS IN THOUSANDS)
June 30, 2002 Dec 31, 2001
--------------- --------------
ASSETS (Unaudited)
Cash and Balances Due from Depository Institutions $ 27,408 $ 29,195
Federal Funds Sold 22,308 30,998
Investment Securities
Available for Sale, at Fair Value 98,048 77,285
Held to Maturity, at Cost (Fair Value of $124 and
$148, Respectively) 124 148
--------- ---------
98,172 77,433
--------- ---------
Federal Home Loan Bank Stock, at Cost 2,712 2,214
Loans Held for Sale 1,720 3,865
Loans 547,379 456,056
Allowance for Loan Losses (7,101) (6,159)
Unearned Interest and Fees (77) (4)
--------- ---------
540,201 449,893
--------- ---------
Premises and Equipment 16,898 14,625
Other Real Estate 1,211 1,554
Other Assets 12,307 11,798
--------- ---------
Total Assets $ 722,937 $ 621,575
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-Bearing $ 47,224 $ 45,967
Interest-Bearing 570,724 482,050
--------- ---------
617,948 528,017
--------- ---------
Federal Funds Purchased 50 251
Borrowed Money 42,221 46,929
Trust Preferred Securities 9,000 0
--------- ---------
51,271 47,180
--------- ---------
Other Liabilities 4,228 4,407
Stockholders' Equity
Common Stock, Par Value $1, Authorized 20,000,000
Shares, Issued 4,573,482 and 4,445,526 Shares as of
June 30, 2002 and December 31, 2001, Respectively 4,574 4,446
Paid-In Capital 23,361 21,650
Retained Earnings 20,596 18,248
Restricted Stock - Unearned Compensation (116) (59)
Accumulated Other Comprehensive Income, Net of Tax 1,075 348
--------- ---------
49,490 44,633
Less Treasury Stock (204,838 shares in 2001), at cost 0 (2,662)
--------- ---------
49,490 41,971
--------- ---------
Total Liabilities and Stockholders' Equity $ 722,937 $ 621,575
========= =========
The accompanying notes are an integral part of these balance sheets.
3
COLONY BANKCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30, 2002 AND 2001
AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Three Months Ended Six Months Ended
06/30/02 06/30/01 06/30/02 06/30/01
-------- -------- -------- --------
Interest Income
Loans, including fees $ 10,481 $ 10,113 $ 19,689 $ 20,066
Federal Funds Sold 90 144 209 404
Deposits with Other Banks 42 78 80 118
Investment Securities
U.S. Treasury & Federal Agencies 907 785 1,678 1,588
State, County and Municipal 85 84 159 167
Other Investments 304 300 609 546
Dividends on Other Investments 36 31 72 64
Other Interest Income 15 0 15 0
---------- ---------- ---------- ----------
11,960 11,535 22,511 22,953
---------- ---------- ---------- ----------
Interest Expense
Deposits 5,112 6,044 9,893 12,106
Federal Funds Purchased 2 4 2 11
Borrowed Money 591 520 1,196 973
---------- ---------- ---------- ----------
5,705 6,568 11,091 13,090
---------- ---------- ---------- ----------
Net Interest Income 6,255 4,967 11,420 9,863
Provision for Loan Losses 863 373 1,149 659
---------- ---------- ---------- ----------
Net Interest Income After Provision for loan losses 5,392 4,594 10,271 9,204
---------- ---------- ---------- ----------
Noninterest Income
Service Charges on Deposits 862 749 1,607 1,447
Other Service Charges, Commissions & Fees 136 135 373 260
Security Gains, net 507 49 507 64
Other Income 184 129 297 263
---------- ---------- ---------- ----------
1,689 1,062 2,784 2,034
---------- ---------- ---------- ----------
Noninterest Expense
Salaries and Employee Benefits 2,530 2,114 4,745 4,162
Occupancy and Equipment 784 648 1,482 1,323
Other Operating Expenses 1,372 1,030 2,413 1,993
---------- ---------- ---------- ----------
4,686 3,792 8,640 7,478
---------- ---------- ---------- ----------
Income Before Income Taxes 2,395 1,864 4,415 3,760
Income Taxes 813 642 1,473 1,278
---------- ---------- ---------- ----------
Net Income $ 1,582 $ 1,222 $ 2,942 $ 2,482
========== ========== ========== ==========
Net Income Per Share of Common Stock
Basic $ 0.35 $ 0.27 $ 0.67 $ 0.56
========== ========== ========== ==========
Diluted $ 0.35 $ 0.27 $ 0.67 $ 0.56
========== ========== ========== ==========
Weighted Average Shares Outstanding 4,573,482 4,445,526 4,391,962 4,445,526
========== ========== ========== ==========
The accompanying notes are an integral part of these statements.
4
COLONY BANKCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
THREE MONTHS ENDED JUNE 30, 2002 AND 2001
AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Three Months Ended Six Months Ended
06/30/02 06/30/01 06/30/02 06/30/01
-------- -------- -------- --------
Net Income $1,582 $1,222 $2,942 $2,482
Other Comprehensive Income, Net of Tax
Gains (Losses) on Securities Arising During Year 1,335 97 1,062 872
Reclassification Adjustment (335) (32) (335) (42)
------ ------ ------ ------
Unrealized Gains (Losses) on Securities 1,000 65 727 830
------ ------ ------ ------
Comprehensive Income $2,582 $1,287 $3,669 $3,312
====== ====== ====== ======
The accompanying notes are an integral part of these statements.
5
COLONY BANKCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
(DOLLARS IN THOUSANDS)
2002 2001
---- ----
CASH FLOW FROM OPERATING ACTIVITIES
Net Income $ 2,942 $ 2,482
Adjustments to reconcile net income to net cash
provided by operating activities:
(Gain) loss on sale of investment securities (507) (64)
Depreciation 715 684
Provision for loan losses 1,149 659
Amortization of excess costs 1 27
Other prepaids, deferrals and accruals, net 445 (702)
--------- ---------
Total Adjustments 1,803 604
--------- ---------
Net cash provided by operating activities 4,745 3,086
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Cash used in business acquistion, net (1,021) 0
Purchase of other assets (FHLB stock) (126) (454)
Purchases of securities available for sale (35,245) (47,366)
Proceeds from sales of securities available for sale 5,331 13,670
Proceeds from maturities, calls, and paydowns of
investment securities:
Available for Sale 17,369 23,056
Held to Maturity 27 32
Decrease (Increase) in interest-bearing deposits in banks 1,669 (3,079)
(Increase) in loans (33,734) (43,614)
Purchase of premises and equipment (1,614) (1,208)
--------- ---------
Net cash provided by investing activities (47,344) (58,963)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Net increase in deposits 31,080 26,218
Federal funds purchased (201) 0
Dividends paid (529) (533)
Net (decrease) increase in other borrowed money 2,792 17,088
Purchase of Treasury Stock, at cost (537) 0
--------- ---------
Net cash provided by financing activities 32,605 42,773
--------- ---------
Net increase (decrease) in cash and cash equivalents (9,994) (13,104)
Cash and cash equivalents at beginning of period 50,317 37,357
--------- ---------
Cash and cash equivalents at end of period $ 40,323 $ 24,253
========= =========
The accompanying notes are an integral part of these statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Basis of presentation
Colony Bankcorp, Inc. is a multi-bank holding company located in Fitzgerald,
Georgia. The consolidated financial statements include the accounts of Colony
Bankcorp, Inc. and its wholly-owned subsidiaries, Colony Bank of Fitzgerald,
Fitzgerald, Georgia; Colony Bank Ashburn, Ashburn, Georgia; Colony Bank Worth,
Sylvester, Georgia; Colony Bank of Dodge County, Eastman, Georgia; Colony Bank
Wilcox, Rochelle, Georgia; Colony Bank Southeast, Broxton, Georgia; Quitman
Federal Savings Bank, Quitman, Georgia (the Banks); and Colony Management
Services, Inc., 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.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the balance sheet date and revenues and expenses for the period. Actual results
could differ significantly from those estimates. Material estimates that are
particularly susceptible to significant change in the near-term relate to the
determination of the allowance for loan losses, the valuation of real estate
acquired in connection with foreclosure or in satisfaction of loans and the
valuation of deferred tax assets.
In certain instances, amounts reported in prior years' consolidated financial
statements have been reclassified to conform to statement presentations selected
for 2002. Such reclassifications had no effect on previously reported
stockholders' equity or net income.
All dollars in notes to consolidated financial statements are rounded to the
nearest thousand.
Description of Business
The Banks provide a full range of retail and commercial banking services for
consumers and small to medium size businesses primarily in South Georgia.
Lending and investing activities are funded primarily by deposits gathered
through its retail branch office network. Lending is concentrated in
agricultural, commercial and real estate loans to local borrowers. The Banks
have a high concentration of agricultural and real estate loans; however, these
loans are well collateralized and in management's opinion, do not pose an
adverse credit risk. In addition, the balance of the loan portfolio is
sufficiently diversified to avoid significant concentration of credit risk.
Although the Banks have a diversified loan portfolio, a substantial portion of
borrowers' ability to honor their contracts is dependent upon the viability of
the real estate economic sector.
The success of Colony is dependent, to a certain extent, upon the economic
conditions in the geographic markets it serves. No assurance can be given that
the current economic conditions will continue. Adverse changes in the economic
conditions in these geographic markets would likely have a material adverse
effect on the Company's results of operations and financial condition The
operating results of Colony depend primarily on its net interest income.
Accordingly, operations are subject to risks and uncertainties surrounding the
exposure to changes in the interest rate environment.
Accounting Policies
The accounting and reporting policies of Colony Bankcorp, Inc. and its
subsidiaries are in accordance with accounting principles generally accepted and
conform to general practices within the banking industry. The significant
accounting policies followed by Colony and the methods of applying those
policies are summarized hereafter.
Investment Securities
Investment securities are recorded under Statement of Financial Accounting
Standards (SFAS) No. 115, whereby the Banks classify their securities as
trading, available for sale or held to maturity. Securities that are held
principally for resale in the near term are classified as trading. Trading
securities are carried at fair value, with realized and unrealized gains and
losses included in noninterest income. Securities acquired with both the intent
and ability to be held to maturity are classified as held to maturity and
reported at amortized cost. All other securities not classified as trading or
held to maturity are considered available for sale
Securities available for sale are reported at estimated fair value. Unrealized
gains and losses on securities available for sale are excluded from earnings and
reported, net of deferred taxes, in accumulated other comprehensive income, a
component of stockholders' equity. Gains and losses from sales of securities
available for sale and computed using the specific identification method. This
caption includes securities, which may be sold to meet liquidity needs arising
from unanticipated deposit and loan fluctuations, changes in regulatory capital
requirements, or unforeseen changes in market conditions.
7
(1) Summary of Significant Accounting Policies (Continued)
Federal Home Loan Bank Stock
Investment in stock of a Federal Home Loan Bank (FHLB) is required for every
federally insured institution that utilizes its services. FHLB stock is
considered restricted, as defined in Statement of Financial Accounting Standards
(SFAS) No. 115; accordingly, the provisions of SFAS No. 115 are not applicable
to this investment. The FHLB stock is reported in the financial statements at
cost. Dividend income is recognized when earned.
Loans Held for Sale
Loans held for sale consist primarily of mortgage loans in the process of being
sold to a third party investor and are carried at the lower of cost or fair
value. The method used to determine the lower of cost or fair value is the
individual loan method.
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. Interest income on loans is recognized using the
effective interest method.
When management believes there is sufficient doubt as to the collectibility of
principal or interest on any loan or generally when loans are 90 days or more
past due, the accrual of applicable interest is discontinued and the loan is
designated as nonaccrual, unless the loan is well secured and in the process of
collection. Interest payments received on nonaccrual loans are either applied
against principal or reported as income, according to management's judgment as
to the collectibility of principal. Loans are returned to an accrual status when
factors indicating doubtful collectibility on a timely basis no longer exist.
Impaired loans are recorded under Statement of Financial Accounting Standards
(SFAS) No. 114. Accounting by Creditors for Impairment of a Loan and SFAS No.
118, Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures. Impaired loans are loans for which principal and interest are
unlikely to be collected in accordance with the original terms and, generally,
represent loans delinquent in excess of 90 days which have been placed on
nonaccrual status and for which collateral values are less than outstanding
principal and interest. Small balance, homogenous loans re excluded from
impaired loans.
Allowance for Loan Losses
The allowance method is used in providing for losses on loans. Accordingly, all
loan losses decrease the allowance and all recoveries increase it. The provision
for loan losses is based on factors which, in management's judgment, deserve
current recognition in estimating possible loan losses. Such factors considered
by management include growth and composition of the loan portfolio, economic
conditions and the relationship of the allowance for loan losses to outstanding
loans.
An allowance for loan losses is maintained for all impaired loans. Provisions
are made for impaired loans upon changes in expected future cash flows or
estimated net realizable value of collateral. When determination is made that
impaired loans are wholly or partially uncollectible, the uncollectible portion
is charged-off.
Management believes the allowance for possible loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance for loan
losses. Such agencies may require the Company to recognize additions to the
allowance based on their judgment about information available to them at the
time of their examination.
Premises and Equipment
Premises and equipment are recorded at acquisition cost net of 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.
Cash Flows
For reporting cash flows, cash and cash equivalents include cash on hand,
noninterest-bearing amounts due from banks and federal funds sold. Cash flows
from demand deposits, NOW accounts, savings accounts, loans and certificates of
deposit are reported net.
8
(1) Summary of Significant Accounting Policies (Continued)
Income Taxes
The provision for income taxes is based upon income for financial statement
purposes, adjusted for nontaxable income and nondeductible expenses. Deferred
income taxes have been provided when different accounting methods have been used
in determining income for income tax purposes and for financial purposes.
Deferred tax assets and liabilities are recognized based on future tax
consequences attributable to differences arising from the financial statement
carrying values of assets and liabilities and their tax bases. The differences
relate primarily to depreciable assets (use of different depreciation methods
for financial statement and income tax purposes) and allowance for loan losses
(use of the allowance method for financial statement purposes and the direct
write-off method for tax purposes). In the event of changes in the tax laws,
deferred tax assets and liabilities are adjusted in the period of the enactment
of those changes, with effects included in the income tax provision. The Company
and its subsidiaries file a consolidated federal income tax return. Each
subsidiary pays its proportional share of federal income taxes to the Company
based on its taxable income.
Other Real Estate
Other real estate generally represents real estate acquired through foreclosure
and is initially recorded at the lower of cost or estimated market value at the
date of acquisition. Losses from the acquisitions of property in full or partial
satisfaction of debt are recorded as loan losses. Subsequent declines in value,
routine holding costs and gains or losses upon disposition are included in other
losses.
Comprehensive Income
Accounting principles generally require that recognized revenue, expenses, gains
and losses be included in net income. Certain changes in assets and liabilities,
such as unrealized gains and losses on securities available for sale, represent
equity changes from economic events of the period other than transactions with
owners and are not reported in the consolidated statement of income but as a
separate component of the equity section of the consolidated balance sheets.
Such items are considered components of other comprehensive income. Statement of
Financial Accounting Standards 130 requires the presentation in the financial
statements of net income and all items of other comprehensive income as total
comprehensive income.
Changes in Accounting Principles and Effects of New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gain or loss to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. In June 1999, the FASB issued SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133, which delays the original effective
date of SFAS No. 133 until fiscal year beginning after June 15, 2000. In June
2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities an Amendment of FASB Statement No.
133, which addresses a limited number of issues causing implementation
difficulties for certain entities that apply Statement 133. Management does not
anticipate that the derivative statements will have a material effect, if any,
on the financial position and result of operations of Colony.
During the second quarter of 1998, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 98-5, Accounting for Start-up
Costs. SOP 98-5 provides guidance on the financial reporting of start-up costs
and organization costs and requires start-up costs to be expended as incurred.
The adoption of the Statement had no impact on Colony's financial position or
results of operations.
On July 20, 2001, the FASB issued SFAS No. 141, Business Combinations and SFAS
No. 142, Goodwill and Other Intangible Assets. Theses statements make
significant changes to the accounting for business combinations, goodwill and
intangible assets. SFAS No. 141 eliminates the pooling-of-interests method of
accounting for business combinations with limited exceptions for combinations
initiated prior to July 1, 2001. In addition, it further clarifies the criteria
for recognition of intangible assets separately from goodwill. This statement is
effective for business combinations completed after June 30, 2001.
SFAS No. 142 discontinues the practice of amortizing goodwill and
indefinite-lived intangible assets and initiates and annual review for
impairment. Impairment would be examined more frequently if certain indicators
are encountered. Intangible assets with a determinable useful life will continue
to be amortized over that period. The Banks are required to adopt the provisions
of SFAS No. 142, effective January 1, 2002. It is anticipated that the adoption
of SFAS No. 142 will not have a material effect on the Banks' financial
statements.
9
(1) Summary of Significant Accounting Policies (Continued)
Restricted Stock - Unearned Compensation
In 1999, the board of directors of Colony Bankcorp, Inc. adopted a restricted
stock grant plan which awards certain executive officers common shares of the
Company. The maximum number of shares which may be subject to restricted stock
awards is 44,350. During 2000 - 2002, 17,500 shares were issued. The shares are
recorded at fair market value (on the date granted) as a separate component of
stockholder's equity. The cost of these shares is being amortized against
earnings using the straight-line method over 3 years (the restriction period).
(2) Cash and Balances Due from Depository Institutions
Components of cash and balances due from depository institutions at June 30,
2002 and December 31, 2001 are as follows:
June 30, 2002 December 31, 2001
------------- -----------------
Cash on Hand and Cash Items $ 5,659 $ 5,297
Noninterest-Bearing Deposits with Other Banks 12,356 14,023
Interest-Bearing Deposits with Other Banks 9,393 9,875
-------- --------
$ 27,408 $ 29,195
======== ========
(3) Investment Securities
Investment securities as of June 30, 2002 are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ----------- ----------- ---------
Securities Available for Sale
U.S. Government Agencies
Mortgage-Baked $ 54,507 $ 883 ($63) $ 55,327
Other 17,638 373 0 18,011
State, County & Municipal 8,580 227 (16) 8,791
Corporate Obligations 14,475 529 (43) 14,961
Marketable Equity Securities 1,130 0 (172) 958
-------- ------- ------- --------
$ 96,330 $ 2,012 ($294) $ 98,048
======== ======= ======= ========
Securities Held to Maturity:
State, County and Municipal $ 124 $ 0 $ 0 $ 124
======== ======= ======= ========
The amortized cost and fair value of investment securities as of June 30, 2002,
by contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because issuers have the right to call or prepay
obligations with or without call or prepayment penalties.
Securities
---------------------------------------------------------------------
Available for Sale Held to Maturity
------------------ ----------------
Amortized Cost Fair Value Amortized Cost Fair Value
--------------- ---------- -------------- ----------
Due in One Year or Less $ 2,897 $ 2,962 $ 0 $ 0
Due After One Year Through Five Years 30,769 31,575 0 0
Due After Five Years Through Ten Years 5,494 5,681 0 0
Due After Ten Years 1,533 1,545 124 124
------- ------- ---- ----
40,693 41,763 124 124
Marketable Equity Securities 1,130 958 0 0
Mortgage-Backed Securities 54,507 55,327 0 0
------- ------- ---- ----
$96,330 $98,048 $124 $124
======= ======= ==== ====
10
(3) Investment Securities (Continued)
Investment securities as of December 31, 2001 are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
Securities Available for Sale:
U.S. Government Agencies
Mortgage-Backed Securities $48,065 $ 515 ($172) $48,408
Other 3,752 97 0 3,849
State, County & Municipal 5,812 91 (33) 5,870
The Banker's Bank Stock 50 0 0 50
Marketable Equity Securities 1,130 0 (187) 943
Corporate Obligations 17,853 418 (106) 18,165
------- ------ ----- -------
$76,662 $1,121 ($498) $77,285
======= ====== ===== =======
Securities Held to Maturity:
State, County and Municipal $ 148 $ 0 $ 0 $ 148
======= ====== ===== =======
Proceeds from sales of investments available for sale were $5,331 during the
first half of 2002 and $13,670 during the first half of 2001. Gross realized
gains totaled $507 during the first half of 2002 and $78 during the first half
of 2001. Gross realized losses totaled $0 during the first half of 2002 and $14
during the first half of 2001.
Investment securities having a carry value approximating $54,496 and $40,711 as
of June 30, 2002 and December 31, 2001, respectively, were pledged to secure
public deposits and for other purposes.
(4) Loans
The composition of loans as of June 30, 2002 and December 31, 2001 was as
follows:
June 30, 2002 December 31, 2001
------------- -----------------
Commercial, Financial and Agricultural $ 55,597 $ 65,004
Real Estate - Construction 9,342 7,988
Real Estate - Farmland 31,739 28,130
Real Estate - Other 361,105 277,146
Installment Loans to Individuals 73,752 64,885
All Other Loans 15,844 12,903
-------- --------
$547,379 $456,056
======== ========
Nonaccrual loans are loans for which principal and interest are doubtful of
collection in accordance with original loan terms and for which accruals of
interest have been discontinued due to payment delinquency. Nonaccrual loans
totaled $8,333 and $8,205 as of June 30, 2002 and December 31, 2001,
respectively. On June 30, 2002, the Company had 90 day past due loans with
principal balances of $1,005 and restructured loans with principal balances of
$24 compared to 90 day past due loans with principal balances of $332 and
restructured loans with principal balances of $585 on December 31, 2001.
11
(5) Allowance for Loan Losses
Transactions in the allowance for loan losses are summarized below for three
months ended June 30, 2002 and June 30, 2001 as follows:
June 30, 2002 June 30, 2001
------------- -------------
Balance, Beginning $6,159 $5,661
Provision Charged to Operating Expenses 1,149 659
Loans Charged Off (779) (649)
Loan Recoveries 120 217
Business combination, Quitman Federal 452 0
------ ------
Balance, Ending $7,101 $5,888
====== ======
(6) Premises and Equipment
Premises and equipment are comprised of the following as of June 30, 2002 a
December 31, 2001:
June 30, 2002 December 31, 2001
------------- -----------------
Land $ 2,253 $ 2,019
Building 12,855 11,970
Furniture, Fixtures and Equipment 10,323 8,617
Leasehold Improvements 283 267
Construction in Progress 837 168
------- -------
26,551 23,041
------- -------
Accumulated Depreciation (9,653) (8,416)
------- -------
$16,898 $14,625
======= =======
Depreciation charged to operations totaled $715 and $684 for June 30, 2002 and
June 30, 2001 respectively.
Certain Company facilities and equipment are leased under various operating
leases. Rental expense approximated $75 and $72 for six months ended June 30,
2002 and 2001.
Future minimum rental payments to be paid are as follows:
Year Ending
December 31 Amount
----------- ------
2002 $ 59
2003 44
2004 24
2005 5
2006 4
-
$136
(7) Income Taxes
The Company records income taxes under SFAS No. 109, Accounting for Income
Taxes, which requires an asset and liability approach to financial accounting
and reporting for income taxes. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax bases
of assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in deferred
tax assets and liabilities.
12
(8) Deposits
Components of interest-bearing deposits as of June 30, 2002 and December 31,
2001 are as follows:
June 30, 2002 December 31, 2001
------------- -----------------
Interest-Bearing Demand $111,220 $104,217
Savings 29,472 19,404
Time, $100,000 and Over 141,445 111,530
Other Time 288,587 246,899
-------- --------
$570,724 $482,050
======== ========
The aggregate amount of short-term jumbo certificates of deposit, each with a
minimum denomination of one hundred thousand, was approximately $131,808 and
$101,267 as of June 30, 2002 and December 31, 2001, respectively.
As of June 30, 2002 and December 31, 2001, the scheduled maturities of
certificates of deposits are as follows:
Maturity June 30, 2002 December 31, 2001
-------- ------------- -----------------
One Year and Under $381,259 $302,589
One to Three Years 40,596 45,084
Three Years and Over 8,177 10,756
-------- --------
$430,032 $358,429
======== ========
(9) Borrowed Money
Borrowed money at June 30, 2002 and December 31, 2001 is summarized as follows:
June 30, 2002 December 31, 2001
------------- -----------------
Federal Home Loan Bank Advances $40,700 $41,300
First Port City Note Payable 482 578
The Banker's Bank Note Payable 1,039 387
First Port City Line of Credit 0 4,664
Trust Preferred Securities 9,000 0
------- -------
$51,221 $46,929
======= =======
Advances from the Federal Home Loan Bank (FHLB) have maturities ranging from
2002 to 2011 and interest rates ranging from 2.00 percent to 6.18 percent. Under
the Blanket Agreement for Advances and Security Agreement with the FHLB,
residential first mortgage loans and cash balances held by the FHLB are pledged
as collateral for the FHLB advances outstanding. At June 30, 2002, the Company
had available line of credit commitments totaling $60,266, of which $19,566 was
available.
First Port City note payable was renewed on January 29, 2000 for $675. Annual
principal payments of $96 are due with interest paid quarterly at The Wall
Street Prime minus one half percent. The debt is secured by commercial real
estate in downtown Fitzgerald, which includes the parent company's facilities.
Any unpaid balance is due January 29, 2003.
The Banker's Bank note payable was renewed on January 23, 2002 into a credit
line up to $1,110 at a rate of the Wall Street Prime minus one half percent.
Payments are due monthly in the amount of $21 with final maturity of January 7,
2007. The debt is secured by all non-rolling fixed assets of Colony Management
Services, Inc. and the guaranty of Colony Bankcorp, Inc. At June 30, 2002 no
draws are available on the line of credit.
Advances under the line of credit with First Port City have an interest rate of
the Wall Street Prime. Interest payments are due quarterly with the principal
balance due on June 30, 2002. All of the outstanding stock of Colony Bank of
Fitzgerald is pledged as collateral for the line of credit. At June 30, 2002 the
line of credit had been paid out with proceeds realized from the trust preferred
securities offering. The line of credit is no longer in force at June 30, 2002.
The Trust Preferred Securities debt originated on March 26, 2002 in the amount
of $9,000 with a maturity date of March 26, 2032. The initial rate of interest
is 5.59% and adjusts quarterly to the effective 3 month Libor rate plus 360
basis points. Interest payments are scheduled quarterly with principal due at
maturity, though the Company has the option at the end of five years to pay
partially or in full the principal balance. The present rate of interest at June
30, 2002 was 5.47%.
13
(9) Borrowed Money (Continued)
The aggregate stated maturities of borrowed money at June 30, 2002 are as
follows:
Year Amount
---- ------
2002 $ 3,000
2003 14,682
2004 3,000
2005 0
2006 and Thereafter 30,539
-------
$51,221
=======
(10) Profit Sharing Plan
The Company has a profit sharing plan that covers substantially all employees
who meet certain age and service requirements. It is the Company's policy to
make contributions to the plan as approved annually by the board of directors.
The total provision for contributions to the plan was $384 for 2001, $369 for
2000 and $328 for 1999.
(11) Commitments and Contingencies
In the normal course of business, certain commitments and contingencies are
incurred which are not reflected in the consolidated financial statements.
Commitments under standby letters of credit to U.S. addresses approximate $2,224
as of June 30, 2002 and $1,426 as of December 31, 2001. Unfulfilled loan
commitments as of June 30, 2002 and December 31, 2001 approximated $67,225 and
$46,871 respectively. No losses are anticipated as a result of commitments and
contingencies.
Colony Bank Fitzgerald is currently constructing a new branch to be located in
the Warner Robins/Houston County market. The total estimated cost to complete
construction and furnish the facility is $1,200. At June 30, 2002 the bank had
paid approximately $821 of the total estimated cost.
(12) Regulatory Capital Matters
The amount of dividends payable to the parent company from the subsidiary banks
is limited by various banking regulatory agencies. The amount of cash dividends
available from subsidiaries for payment in 2002 without prior approval from the
banking regulatory agencies approximates $2,433. Upon approval by regulatory
authorities, the banks may pay cash dividends to the parent company in excess of
regulatory limitations.
The Company is subject to various regulatory capital requirements administered
by federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and, possibly, additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Company's consolidated financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets, and of Tier 1 capital to average assets. The
amounts and ratios as defined in regulations are presented hereafter. Management
believes, as of June 30, 2002, the Company meets all capital adequacy
requirements to which it is subject and is classified as well capitalized under
the regulatory framework for prompt corrective action. In the opinion of
management, there are no conditions or events since prior notification of
capital adequacy from the regulators that have changed the institution's
category.
14
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of June 30, 2002
Total Capital
to Risk-Weighted Assets $62,955 11.64% $43,279 8.00% $54,133 10.00%
Tier 1 Capital
to Risk-Weighted Assets 56,188 10.39% 21,640 4.00% 32,460 6.00%
Tier 1 Capital
to Average Assets 56,188 7.93% 28,358 4.00% 35,448 5.00%
As of December 31, 2001
Total Capital
to Risk-Weighted Assets $47,061 9.78% $38,496 8.00% $48,120 10.00%
Tier 1 Capital
to Risk-Weighted Assets 41,051 8.53% 19,248 4.00% 28,872 6.00%
Tier 1 Capital
to Average Assets 41,051 6.80% 24,147 4.00% 30,184 5.00%
15
(13) Financial Information of Colony Bankcorp, Inc. (Parent Only)
The parent company's balance sheets as of June 30, 2002 and December 31, 2001
and the related statements of income and comprehensive income and cash flows are
as follows:
COLONY BANKCORP, INC. (PARENT ONLY)
BALANCE SHEETS
FOR PERIOD ENDED JUNE 30, 2002 AND DECEMBER 31, 2001
ASSETS June 30, 2002 Dec 31, 2001
------------- ------------
(Unaudited)
Cash $ 574 $ 63
Investments in Subsidiaries at Equity 56,559 46,156
Other 2,199 1,340
-------- --------
Totals Assets $ 59,332 $ 47,559
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Dividends Payable $ 320 $ 255
Notes and Debentures Payable 9,482 5,242
Other 40 91
-------- --------
9,842 5,588
Stockholders' Equity
Common Stock, Par Value $1 a Share; Authorized 20,000,000
Shares, Issued 4,573,482 and 4,445,526 Shares
as of June 30, 2002 and December 31, 2001
Respectively 4,574 4,446
Paid-In Capital 23,361 21,650
Retained Earnings 20,596 18,248
Restricted Stock - Unearned Compensation (116) (59)
Accumulated Other Comprehensive Income, Net of Tax 1,075 348
-------- --------
49,490 44,633
Less Treasury Stock (204,838 shares) at Cost 0 (2,662)
-------- --------
Total Stockholders' Equity 49,490 41,971
-------- --------
Total Liabilities and Stockholders' Equity $ 59,332 $ 47,559
======== ========
16
(13) Financial Information of Colony Bankcorp, Inc. (Parent Only) (continued)
COLONY BANKCORP, INC. (PARENT ONLY)
STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001
(UNAUDITED)
June 30, 2002 June 30, 2001
------------- -------------
Income
Dividends from Subsidiaries $ 1,000 $ 994
Other 39 34
Securities gains 251 0
------- -------
1,290 1,028
------- -------
Expenses
Interest 205 23
Amortization 0 9
Other 535 458
------- -------
740 490
------- -------
Income Before Taxes and Equity in Undistributed Earnings
of Subsidiaries 550 538
Income Tax (Benefits) (144) (152)
------- -------
Income Before Taxes and Equity in Undistributed Earnings of Subsidiaries 694 690
Equity in Undistributed Earnings of Subsidiaries 2,248 1,792
------- -------
Net Income 2,942 2,482
------- -------
Other Comprehensive Income, Net of Tax
Gains (losses) on Securities Arising During Year 1,062 872
Reclassification Adjustment (335) (42)
------- -------
Unrealized Gains (Losses) in Securities 727 830
------- -------
Comprehensive Income $ 3,669 $ 3,312
======= =======
17
(13) Financial Information of Colony Bankcorp, Inc. (Parent Only) (continued)
COLONY BANKCORP, INC. (PARENT ONLY)
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001
(UNAUDITED)
June 30, 2002 June 30, 2001
------------- -------------
Cash Flows from Operating Activities
Net Income $ 2,942 $ 2,482
Adjustments to Reconcile Net Income to Net Cash
Provided from Operating Activities
Depreciation and Amortization 35 44
Equity in Undistributed Earnings of Subsidiary (2,248) (1,792)
Other (664) (60)
-------- --------
65 674
-------- --------
Cash Flows from Investing Activities
Sales and maturities of securities 301 0
Cash used in business acquistion, net (2,371) 0
Capital Infusion in Subsidiary (650) 0
Purchase of Premises and Equipment (8) (19)
-------- --------
(2,728) (19)
-------- --------
Cash Flows from Financing Activities
Dividends Paid (529) (533)
Purchase of Treasury Stock (537) 0
Principal Payments on Notes and Debentures (5,896) (96)
Proceeds from Notes and Debentures 10,136 0
-------- --------
3,174 (629)
-------- --------
Increase (Decrease) in Cash and Cash Equivalents 511 26
Cash and Cash Equivalents, Beginning 63 4
-------- --------
Cash and Cash Equivalents, Ending $ 574 $ 30
======== ========
(14) Legal Contingencies
In the ordinary course of business, there are various legal proceedings pending
against Colony and its subsidiaries. The aggregate liabilities, if any, arising
from such proceedings would not, in the opinion of management, have a material
adverse effect on Colony's consolidated financial position.
(15) Stock Grant Plan
On February 16, 1999, a restricted stock grant plan was approved by the Board.
The plan was adopted for the purpose of establishing incentives designed to
recognize, reward and retain executive employees whose performance, contribution
and skills are critical to the Company. The plan period commences February 16,
1999 and ends February 15, 2009 with the maximum number of shares subject to
restricted stock awards being 22,175 shares (44,350 shares after the two-for-one
stock split effective September 30, 1999). During 2000 - 2002, the Company has
issued an aggregate total of 17,500 shares pursuant to the stock grant plan
which leaves 26,850 available shares that can be issued over the remaining life
of the plan.
18
(16) Proforma Financial Statement - Business Combination
Colony Bankcorp, Inc, and Quitman Bancorp, Inc. entered into an agreement and
plan of merger dated as of October 22, 2001, pursuant to which Quitman was
mergerd with and into Colony with Colony Bankcorp, Inc. surviving the merger and
Quitman's wholly-owned subsidiary, Quitman Federal Savings Bank, becoming a
wholly-owned subsidiary of Colony contemporaneous with the consummation of the
merger. The merger was consummated and became effective as of March 29, 2002.
The business combination was accounted for by the purchase method of accounting
and the results of operations of Quitman Federal Savings Bank since the date of
acquisition are included in the Consolidated Financial Statements.
The proforma information below discloses results of operations for the current
period and the corresponding period in the preceeding year as though the
companies had combined at the beginning of the period being reported on:
Three Months Ended Six Months Ended
June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001
------------- ------------- ------------- -------------
Interest Income $ 11,960 $ 12,862 $ 23,796 $ 25,588
Interest Expense 5,705 7,445 11,777 14,836
Net Income 1,582 1,293 2,842 2,606
Earnings Per Share $ 0.35 $ 0.27 $ 0.62 $ 0.54
Weighted Avg Shares Outstanding 4,573,482 4,812,619 4,575,509 4,812,619
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Liquidity represents the ability to provide adequate sources of funds for
funding loan commitments and investment activities, as well as the ability to
provide sufficient funds to cover deposit withdrawals, payment of debt and
financing of operations. Converting assets to cash for these funds is primarily
with proceeds from collections on loans and maturities of investment securities
or by attracting and obtaining new deposits. For the six months ended June 30,
2002, the Company was successful in meeting its liquidity needs by increasing
deposits 17.03 percent to $617,948,000 from deposits of $528,017,000 on December
31, 2001. Of this increase, $59,212,000 or 65.84 percent resulted from the
purchase of Quitman Federal Savings Bank in 2002. Also, the Company met its
liquidity needs by increasing other borrowed money 8.67 percent to $51,271,000
from $47,180,000 on December 31, 2001. Of this increase, $2,000,000 or 48.89
percent resulted from the Quitman purchase. Should the need arise; the Company
also maintains relationships with the Federal Home Loan Bank and several
correspondent banks that can provide funds on short notice.
Liquidity is monitored on a regular basis by management. The Company's liquidity
position remained satisfactory for the six-month period ended June 30, 2002.
Average liquid assets (cash and amounts due from banks, interest-bearing
deposits in other banks, funds due and securities) represented 25.22 percent of
average deposits for the six months ended June 30, 2002 as compared to 23.78
percent of average deposits for the same period in 2001 and 23.18 percent for
calendar year 2001. Average loans represented 88.09 percent of average deposits
for the six months ended June 30, 2002 as compared to 89.09 percent for the same
period in 2001 and 89.80 percent for calendar year 2001. Average
interest-bearing deposits were 82.91 percent of average earning assets for the
six months ended June 30, 2002 as compared to 83.53 percent for the same period
in 2001 and 83.12 percent for calendar year 2001.
The Company satisfies most of its capital requirements through retained
earnings. During the first three months of 2002, retained earnings provided
$1,086,000 of increase in equity. Additionally, equity had a decrease of
$273,000 resulting from the change during the quarter in unrealized gains on
securities available for sale, net of taxes, an increase of $18,000 resulting
from the stock grant plan, a decrease of $537,000 resulting from treasury shares
acquired through the company's stock repurchase plan and an increase of
$4,944,000 as a result of the acquisition of Quitman Federal Savings Bank. Thus,
total equity increased by a net amount of $5,238,000. During the second quarter
of 2002, retained earnings provided $1,263,000 of increase in equity.
Additionally, equity had an increase of $1,000,000 resulting from the change
during the quarter in unrealized gains on securities available for sale, net of
taxes and an increase of $18,000 resulting from the stock grant plan. Thus,
total equity increased by a net amount of $2,281,000 in the three-month period
ended June 30, 2002 and increased by a net amount of $7,519,000 in the six-month
period ended June 30, 2002.
During the first three months of 2001, retained earnings provided $994,000 of
increase in equity. Additionally, equity had an increase of $765,000 resulting
from the change during the year in unrealized gains on securities available for
sale, net of taxes and an increase of $10,000 resulting from the stock grant
plan. Thus, total equity increased by a net amount of $1,769,000 for the
three-month period ended March 31, 2001. During the second quarter of 2001,
retained earnings provided $955,000 of increase in equity. Additionally, equity
had an increase of $65,000 resulting from the change during the quarter in
unrealized gains on securities available for sale, net of taxes and an increase
of $10,000 resulting from the stock grant plan. Thus, total equity increased by
a net amount of $1,030,000 in the three-month period ended June 30, 2001 and
increased by a net amount of $2,799,000 in the six-month period ended June 30,
2001. Total equity increased by a net amount of $1,761,000 for calendar year
2001.
As of June 30, 2002, the Company's capital totaled approximately $49,490,000 and
the only outstanding commitment for capital expenditures was by a subsidiary
bank for construction of a branch facility in Warner Robins/ Houston County,
Georgia. Total cost of the facility will be approximately $1,200,000 with
approximately $821,000 paid as of June 30, 2002 for construction completed.
The Federal Reserve Board and the FDIC have issued risk-based capital guidelines
for U. S. banking organizations. The objective of these efforts was to provide a
more uniform framework that is sensitive to differences in risk assets among
banking organizations. The guidelines define a two-tier capital framework. Tier
1 capital consists of common stock and qualifying preferred stockholders' equity
less goodwill. Tier 2 capital consists of certain convertible, subordinated and
other qualifying term debt and the allowance for loan losses up to 1.25 percent
of risk-weighted assets. The Company has no Tier 2 capital other than the
allowance for loan losses.
Using the capital requirements presently in effect, the Tier 1 ratio as of June
30, 2002 was 10.39 percent and total Tier 1 and 2 risk-based capital was 11.64
percent. Both of these measures compare favorably with the regulatory minimum of
4 percent for Tier 1 and 8 percent for total risk-based capital. The Company's
Tier 1 leverage ratio was 7.93 percent as of June 30, 2002 which exceeds the
required ratio standard of 4 percent.
For the six months ended June 30, 2002, average capital was $45,337,000
representing 6.79 percent of average assets for the year. This percentage is
down from the 2001 level of 7.75 percent.
20
The Company paid quarterly dividends of $0.06 and $0.07, for first quarter and
second quarter, respectively or $0.13 per share in the first half of 2002
compared to quarterly dividends of $0.06 and $0.06, for first quarter and second
quarter, respectively or $0.12 per share in the first half of 2001. The dividend
payout ratio, defined as dividends per share divided by net income per share,
was 19.40 percent for six months ended June 30, 2002 as compared to 21.43
percent for the same period in 2001.
As of June 30, 2002, management was not aware of any recommendations by
regulatory authorities which if they were to be implemented, would have a
material effect on the Company's liquidity, capital resources or results of
operations. However, it is possible that examinations by regulatory authorities
in the future could precipitate additional loss charge-offs that could
materially impact the Company's liquidity, capital resources and results of
operations.
Results of Operations
The Company's results of operations are determined by its ability to effectively
manage interest income and expense, to minimize loan and investment losses, to
generate noninterest income and to control noninterest expense. Since market
forces and economic conditions beyond the control of the Company determine
interest rates, the ability to generate net interest income is dependent upon
the Company's ability to obtain an adequate spread between the rate earned on
earning assets and the rate paid on interest-bearing liabilities. Thus, the key
performance for net interest income is the interest margin or net yield, which
is taxable-equivalent net interest income divided by average earning assets.
Net Income
Net income for the three months ended June 30, 2002 was $1,582,000 as compared
to $1,222,000 for the three months ended June 30, 2001, or an increase of 29.46
percent. Of this $360,000 increase, $210,000 or 58.33 percent is attributable to
Quitman Federal. The increase is the result of an increase in net interest
income of $1,288,000, an increase in other noninterest income of $169,000 and an
increase in gain on sale of securities of $458,000. An increase in noninterest
expense of $894,000, an increase in income tax expense of $171,000 and an
increase in provision for loan losses of $490,000 offset the increases during
the quarter. On a fully diluted share basis, net income increased to $0.35 per
share for the three months ended June 30, 2002 from $0.27 for the same period in
2001, or an increase of 29.63 percent.
Net income for the six months ended June 30, 2002 was $2,942,000 as compared to
$2,482,000 for the six months ended June 30, 2001, or an increase of 18.53
percent. Of this $460,000 increase, $210,000 or 45.65 percent is attributable to
Quitman Federal. The increase is the result of an increase in net interest
income of $1,557,000, an increase in noninterest income of $307,000 and an
increase in gain on sale of securities of $443,000. An increase in noninterest
expense of $1,162,000, an increase in income tax expense of $195,000 and an
increase in provision for loan losses of $490,000 offset the increases during
the first half of the year. On a fully diluted share basis, net income increased
to $0.67 per share for the six months ended June 30, 2002 from $0.56 for the
same period in 2001, or an increase of 19.64 percent.
Net Interest Margin
The company's net interest margin decreased by 10 basis points to 3.77 percent
in second quarter 2002 as compared to 3.87 percent in second quarter 2001. The
net interest margin compression the past several quarters was primarily
attributable to U. S. Federal Reserve lowering interest rates an unprecedented
475 basis points during 2001; however, the Company realized improvement in the
second quarter 2002 net interest margin from the first quarter 2002 net interest
margin of 3.54 percent and should see stable or continued improvement the
balance of the year given the Federal Reserve's current neutral bias toward
interest rates in 2002. Net interest income increased 25.93 percent to
$6,255,000 in second quarter 2002 from $4,967,000 in the same period a year ago
on an increase in average earning assets to $671,877,000 in second quarter 2002
from $520,020,000 in second quarter 2001. Net interest margin decreased by 28
basis points to 3.66 percent for the six months ended June 30, 2002 as compared
to 3.94 percent for the same period in 2001. Net interest income increased 15.79
percent to $11,420,000 in the six-month period ended June 30, 2002 from
$9,863,000 in the same period a year ago. Average earning assets increased to
$631,298,000 in the six-month period ended June 30, 2002 from $506,731,000 for
the same period a year ago. Average loans increased by $91,146,000 or 22.24
percent, average funds sold increased by $9,510,000 or 63.62 percent, average
investment securities increased by $18,178,000 or 24.22 percent, average
interest-bearing deposits in other banks increased by $4,595,000 or 91.61
percent and average interest-bearing other assets increased $1,138,000 or 62.25
percent resulting in a net increase in average earning assets of $124,567,000 or
24.58 percent. Of the $124,567,000 increase in average assets from first half
2002 compared to first half 2001, Quitman Federal Savings acquired in March 2002
is attributable for $65,220,000 or 52.36 percent.
21
The net increase in average assets was funded by a net increase in average
deposits of 23.63 percent to $568,792,000 in the six-month period ended June 30,
2002 from $460,094,000 in the same period a year ago and a net increase in
average debt and funds purchased of 53.79 percent to $ 50,222,000 in six-month
period ended June 30, 2002 from $32,657,000 in the same period a year ago. Of
the average deposit increase, Quitman Federal is attributable for $59,140,000 or
54.40 percent. Average interest-bearing deposits increased by 23.65 percent to
$523,401,000 in the six-month period ended June 30, 2002 from $423,287,000 in
the same period a year ago while average noninterest-bearing deposits increased
23.32 percent to $45,391,000 in the six-months ended June 30, 2002 from
$36,807,000 in the same period a year ago. Average noninterest-bearing deposits
represented 7.98 percent of average total deposits in the six-month period ended
June 30, 2002 as compared to 8.00 percent in the same period a year ago.
Interest expense decreased for the three months ended June 30, 2002 by $863,000
compared to the same period in 2001 and decreased by $1,999,000 in the six-month
period ended June 30, 2002 compared to the same period in 2001. The decrease is
primarily attributable to the U. S. Federal Reserve lowering interest rates an
unprecedented 475 basis points during 2001. The combination of the increase in
average earning assets and the decrease in the net interest margin resulted in
an increase of net interest income of $1,288,000 for the three months ended June
30, 2002 compared to the same period a year ago and an increase of net interest
income of $1,557,000 in the six-month period ended June 30, 2002 compared to the
same period a year ago.
Provision for Loan Losses
The allowance for loan losses represents a reserve for potential losses in the
loan portfolio. The adequacy of the allowance for loan losses is evaluated
periodically based on a review of all significant loans, with a particular
emphasis on nonaccruing, past due and other loans that management believes
require attention.
The provision for loan losses is a charge to earnings in the current period to
replenish the allowance for loan losses and maintain it at a level management
has determined to be adequate. The provision for loan losses was $863,000 for
the three months ended June 30, 2002 as compared to $373,000 for the three
months ended June 30, 2001 representing an increase of $490,000 or 131.37
percent. The provision for loan losses was $1,149,000 in the six-month period
ended June 30, 2002 as compared to $659,000 in the same period a year ago,
representing an increase of $490,000 or 74.36 percent. The company's provision
for loan losses in the second quarter allows the company's reserve for loan loss
level to keep pace with the rapid loan growth that the company has experienced.
Net loan charge-offs represented 28.16 percent of the provision for loan losses
in the second quarter of 2002 as compared to 129.49 percent in the second
quarter of 2001. Net loan charge-offs represented 57.35 percent of the provision
for loan losses for the six-month period ended June 30, 2002 compared to 65.55
percent for the same period a year ago. Net loan charge-offs for the three
months ended June 30, 2002 represented 0.05 percent of average loans outstanding
as compared to 0.11 percent in the same period a year ago while net loan
charge-offs for the six-month period ended June 30, 2002 was 0.13 percent
compared to 0.11 percent in the same year ago period. The leveling off of loan
charge-offs resulted from management's effort the past several years to improve
credit quality and to eliminate weak and marginal credits. As of June 30, 2002,
the allowance for loan losses was 1.30 percent of total loans outstanding as
compared to an allowance for loan losses of 1.36 percent of total loans
outstanding as of June 30, 2001. The loan loss reserve of 1.30 percent of total
loans outstanding provided coverage of 75.85 percent of nonperforming loans and
67.16 percent of nonperforming assets as of June 30, 2002 compared to 73.61
percent and 68.94 percent, respectively as of June 30, 2001 and compared to
69.10 percent and 58.84 percent, respectively as of December 31, 2001. The
determination of the reserve rests upon management's judgment about factors
affecting loan quality and assumptions about the economy. Management considers
the June 30, 2002 allowance for loan losses adequate to cover potential losses
in the loan portfolio.
Noninterest Income
Noninterest income consists primarily of service charges on deposit accounts.
Service charges on deposit accounts totaled $862,000 in second quarter 2002 as
compared to $749,000 in second quarter 2001 or an increase of 15.09 percent.
This increase is attributable to the increase in noninterest-bearing and
interest-bearing deposit accounts and the acquisition of Quitman Federal in
March 2002. All other noninterest income increased to $320,000 in second quarter
2002 from $264,000 in second quarter 2001, or an increase of 21.21 percent. Most
of the increase is attributable to additional fee income generated by the
mortgage company. With a significant rally in the bond market during the second
quarter, the company initiated balance sheet restructuring with its investment
portfolio that resulted in gross gains of $507,000 compared to $49,000 in the
same period a year ago. Thus, total noninterest income for second quarter 2002
was $1,689,000 compared to $1,062,000 in second quarter 2001, or an increase of
59.04 percent and was $2,784,000 in six-month period ended June 30, 2002
compared to $2,034,000 in the same period a year ago, or an increase of 36.87
percent. Excluding the gain on sale of securities, noninterest income increased
16.68 percent for the three month period ended June 30, 2002 and by 15.58
percent for the six month period ended June 30, 2002 compared to the same year
ago periods.
22
Noninterest Expense
Noninterest expense increased by 23.58 percent to $4,686,000 in second quarter
2002 from $3,792,000 in second quarter 2001 and increased by 15.54 percent to
$8,640,000 in six-month period ended June 30, 2002 compared to $7,478,000 for
the same year ago period. Salaries and employee benefits increased 19.68 percent
to $2,530,000 in second quarter 2002 from $2,114,000 in second quarter 2001
primarily due to increased staffing with two new branches opened in 2001 and the
acquisition of Quitman Federal and increased 14.01 percent to $4,745,000 in
six-month period ended June 30, 2002 from $4,162,000 in the same period a year
ago. Occupancy and equipment expense increased by 20.99 percent to $784,000 in
second quarter 2002 from $648,000 in second quarter 2001 primarily due to
additional depreciation and occupancy expense with the new offices opened during
2001 and the Quitman acquisition and increased 12.02 percent to $1,482,000 in
the six-month period ended June 30, 2002 from $1,323,000 in the same period a
year ago. All other noninterest expense increased 33.20 percent to $1,372,000 in
second quarter 2002 from $1,030,000 a year ago and increased 21.07 percent to
$2,413,000 in the six-month period ended June 30, 2002 from $1,993,000 in the
same year ago period. Other increases in noninterest expense are primarily
attributable to expenses incurred in opening two new offices during 2001 and the
acquisition of Quitman Federal.
Income Tax Expense
Income before taxes increased by $531,000 to $2,395,000 in second quarter 2002
from $1,864,000 in second quarter 2001 with significant changes being an
increase in net interest income of $1,288,000 in second quarter 2002 as compared
to first quarter 2001, an increase in noninterest expense, net of noninterest
income of $267,000 in second quarter 2002 as compared to second quarter 2001 and
an increase in provision for loan losses of $490,000 in second quarter 2002 as
compared to second quarter 2001. Income tax expense increased 26.64 percent to
$813,000 in second quarter 2002 from $642,000 in second quarter 2001. Income tax
expense as a percentage of income before taxes was 33.95 percent in second
quarter 2002 compared to 34.44 percent in second quarter 2001 or a decrease of
1.42 percent while income tax expense as a percentage of income before taxes was
33.36 percent in six-month period ended June 30, 2002 as compared to 33.99
percent for the same period a year ago, or a decrease of 1.85 percent.
23
Quantitative and Qualitative Disclosures About Market Risk.
AVERAGE BALANCE SHEETS
Six Months Ended June 30, 2002 Six Months Ended June 30, 2001
--------------------------------- --------------------------------
Average Income/ Yields/ Average Income/ Yields/
($ in thousands) Balances Expense Rates Balances Expense Rates
- -----------------------------------------------------------------------------------------------------------------------------------
Assets
Interest-Earning Assets
Loans, Net of Unearned Income
Taxable (1) 501,040 19,749 7.88% 409,894 20,108 9.81%
-------------------------------------------------------------------
Investment Securities
Taxable 85,384 2,287 5.36% 67,267 2,134 6.34%
Tax-Exempt (2) 7,839 241 6.15% 7,778 252 6.48%
-------------------------------------------------------------------
Total Investment Securities 93,223 2,528 5.42% 75,045 2,386 6.36%
-------------------------------------------------------------------
Interest-Bearing Deposits in Other Banks 9,611 80 1.66% 5,016 118 4.70%
-------------------------------------------------------------------
Funds Sold 24,458 209 1.71% 14,948 404 5.41%
-------------------------------------------------------------------
Interest-Bearing Other Assets 2,966 87 5.87% 1,828 64 7.00%
-------------------------------------------------------------------
Total Interest-Earning Assets 631,298 22,653 7.18% 506,731 23,080 9.11%
-------------------------------------------------------------------
Non-interest-Earning Assets
Cash 16,155 12,573
Allowance for Loan Losses (6,375) (5,900)
Other Assets 26,883 24,769
-------------------------------------------------------------------
Total Noninterest-Earning Assets 36,663 31,442
-------------------------------------------------------------------
Total Assets 667,961 538,173
===================================================================
Liabilities and Stockholders' Equity
Interest-Bearing Liabilities
Interest-Bearing Deposits
Interest-Bearing Demand and Savings 139,419 1,597 2.29% 86,400 1,370 3.17%
Other Time 383,982 8,296 4.32% 336,887 10,736 6.37%
-------------------------------------------------------------------
Total Interest-Bearing Deposits 523,401 9,893 3.78% 423,287 12,106 5.72%
-------------------------------------------------------------------
Other Interest-Bearing Liabilities
Debt 50,075 1,196 4.78% 32,226 973 6.04%
Funds Purchased and Securities
Sold Under Agreement to Repurchase 147 2 2.72% 431 11 5.10%
-------------------------------------------------------------------
Total Other Interest-Bearing Liabilities 50,222 1,198 4.77% 32,657 984 6.03%
-------------------------------------------------------------------
Total Interest-Bearing Liabilities 573,623 11,091 3.87% 455,944 13,090 5.74%
-------------------------------------------------------------------
Noninterest-Bearing Liabilities and Stockholders' Equity
Demand Deposits 45,391 36,807
Other Liabilities 3,610 3,720
Stockholder's Equity 45,337 41,702
-------------------------------------------------------------------
Total Noninterest-Bearing Liabilities
and Stockholders' Equity 94,338 82,229
-------------------------------------------------------------------
Total Liabilities and Stockholders' Equity 667,961 538,173
===================================================================
Interest Rate Spread 3.31% 3.37%
===================================================================
Net Interest Income 11,562 9,990
===================================================================
Net Interest Margin 3.66% 3.94%
===================================================================
(1) The average balance of loans includes the average alance of nonaccrual
loans. Income on such loans is recognized and recorded on the cash basis.
Taxable equivalent adjustments totaling $60 and $42 for six months period
ended June 30, 2002 and 2001, respectively, are included in tax-exempt
interest on loans.
(2) Taxable-equivalent adjustments totaling $82 and $85 for six month period
ended June 30, 2002 and 2001, respectively, are included in tax-exempt
interest on investment securities. The adjustments are based on a federal
tax rate of 34 percent with appropriate reductions for the effect of
disallowed interest expense incurred in carrying tax-exempt obligations.
24
RATE/VOLUME ANALYSIS
The rate/volume analysis presented hereafter illustrates the change from period
to period for each component of the taxable equivalent net interest income
separated into the amount generated through volume changes and the amount
generated by changes in the yields/rates.
Changes from June 30, 2001 to June 30, 2002 (1)
($ in thousands) Volume Rate Total
- ------------------------------------------------------------------------------------------------------------
Interest Income
Loans, Net-taxable $ 9,301 ($9,660) ($359)
------------------------------------------------
Investment Securities
Taxable 997 (844) 153
Tax-exempt 15 (26) (11)
------------------------------------------------
Total Investment Securities 1,012 (870) 142
------------------------------------------------
Interest-Bearing Deposits in other banks 254 (292) (38)
------------------------------------------------
Funds Sold 709 (904) (195)
------------------------------------------------
Other Earning Assets 57 (34) 23
------------------------------------------------
Total Interest Income 11,333 (11,760) (427)
------------------------------------------------
Interest Expense
Interest-Bearing Demand and Savings Deposits 1,455 (1,228) 227
Time Deposits 5,442 (7,882) (2,440)
Other Interest-Bearing Liabilities
Funds Purchased and Securities
Under Agreement to Repurchase (5) (4) (9)
Other Debt 855 (632) 223
------------------------------------------------
Total Interest Expense (Benefit) 7,747 (9,746) (1,999)
------------------------------------------------
Net Interest Income $ 3,586 ($2,014) $ 1,572
------------------------------------------------
(1) Changes in net interest income for the periods, based on either changes in
average balances or changes in average rates for interest-earning assets and
interest-bearing liabilities, are shown on this table. During each year, there
are numerous and simultaneous balance and rate changes; therefore, it is not
possible to precisely allocate the changes between balances and rates. For the
purpose of this table, changes that are not exclusively due to balance changes
or rate changes have been attributed to rates.
Our financial performance is impacted by, among other factors, interest rate
risk and credit risk. We do not utilize derivatives to mitigate our credit risk,
relying instead on an extensive loan review process and our allowance for loan
losses.
Interest rate risk is the change in value due to changes in interest rates. The
Company is exposed only to U. S. dollar interest rate changes and, accordingly,
the Company manages exposure by considering the possible changes in the net
interest margin. The Company does not have any trading instruments nor does it
classify any portion of its investment portfolio as held for trading. The
Company does not engage in any hedging activity or utilize any derivatives. The
Company has no exposure to foreign currency exchange rate risk, commodity price
risk and other market risks. This risk is addressed by our Asset & Liability
Management Committee ("ALCO") which includes senior management representatives.
The ALCO monitors interest rate risk by analyzing the potential impact to the
net portfolio of equity value and net interest income from potential changes to
interest rates and considers the impact of alternative strategies or changes in
balance sheet structure.
Interest rates play a major part in the net interest income of financial
institutions. The repricing of interest earning assets and interest-bearing
liabilities can influence the changes in net interest income. The timing of
repriced assets and liabilities is Gap management and our Company has
established its policy to maintain a Gap ratio in the one-year time horizon of
..80 to 1.20.
Our exposure to interest rate risk is reviewed on at least a quarterly basis by
our Board of Directors and the ALCO. Interest rate risk exposure is measured
using interest risk sensitivity analysis to determine our change in net
portfolio value in the event of assumed changes in interest rates. In order to
reduce the exposure to interest rate fluctuations, we have implemented
strategies to more closely match our balance sheet composition. We are generally
focusing our investment activities on securities with terms or average lives in
the 2 -5 year range.
25
The Company maintains about one-third of its loan portfolio in adjustable rate
loans that reprice with prime rate changes, while the bulk of its other loans
mature within 3 years. The liabilities to fund assets are primarily in short
term certificate of deposits that mature within one year. This balance sheet
composition has allowed the Company to be relatively constant with its net
interest margin the past several years, though the unprecedented 475 basis point
decrease by U. S. Federal Reserve in 2001 resulted in a significant decrease in
the net interest margin during 2001 and the first quarter of 2002. We reflected
an increase in net interest margin for second quarter 2002 compared to first
quarter 2002 and anticipate continued improvement or stability in the net
interest margin the balance of the year given the Federal Reserve's present
neutral interest rates forecast for the balance of 2002.
Colony Bankcorp, Inc. and Subsidiaries Interest Rate Sensitivity
The following table is an analysis of the Company's interest rate-sensitivity
position at June 30, 2002. The interest rate-sensitivity gap, which is the
difference between interest-earning assets and interest-bearing liabilities by
repricing period, is based upon maturity or first repricing opportunity, along
with a cumulative interest rate-sensitivity gap. It is important to note that
the table indicates a position at a specific point in time and may not be
reflective of positions at other times during the year or in subsequent periods.
Major changes in the gap position can be, and are, made promptly as market
outlooks change.
Assets and Liabilities Repricing Within
3 Over
Months 4 to 12 1 to 5 5
or Less Months 1 Year Years Years Total
------- ------ ------ ----- ----- -----
($ in Thousands)
- -------------------------------------------------------------------------------------------------------------------------------
EARNING ASSETS:
Interest-bearing deposits 9,393 0 9,393 0 0 9,393
Federal Funds Sold 22,308 0 22,308 0 0 22,308
Investment Securities 10,557 4,363 14,920 65,226 18,026 98,172
Loans, net of unearned income 190,117 133,078 323,195 204,961 19,223 547,379
-------- --------- --------- -------- -------- --------
Total Interest-earning assets 232,375 137,441 369,816 270,187 37,249 677,252
-------- --------- --------- -------- -------- --------
INTEREST-BEARING LIABILITIES:
Interest-bearing Demand deposits (1) 111,220 0 111,220 0 0 111,220
Savings (1) 29,472 0 29,472 0 0 29,472
Time Deposits 125,584 255,673 381,257 48,775 0 430,032
Other Borrowings (2) 24,271 3,500 27,771 6,000 17,500 51,271
-------- --------- --------- -------- -------- --------
Total Interest-bearing liabilities 290,547 259,173 549,720 54,775 17,500 621,995
-------- --------- --------- -------- -------- --------
Interest rate-sensitivity gap (58,172) (121,732) (179,904) 215,412 19,749 55,257
-------- --------- --------- -------- -------- --------
Cumulative interest-sensitivity gap (58,172) (179,904) (179,904) 35,508 55,257
-------- --------- --------- -------- --------
Interest rate-sensivitiy gap as a
percentage of interest-earning assets -8.59% -17.97% -26.56% 31.81% 2.92%
-------- --------- --------- -------- --------
Cumulative interest rate-sensitivity as
as a percentage of interest-earning assets -8.59% -26.56% -26.56% 5.24% 8.16%
-------- --------- --------- -------- --------
(1) Interest-bearing Demand and Savings accounts for repricing purposes are
considered to reprice within 3 months or less.
(2) Short-term borrowings for repricing purposes are considered to reprice
within 3 months or less.
26
The foregoing table indicates that we had a one year negative gap of $(180)
million, or (26.56)% of total assets at June 30, 2002. In theory, this would
indicate that at June 30, 2002, $180 million more in liabilities than assets
would reprice if there were a change in interest rates over the next 365 days.
Thus, if interest rates were to decline, the gap would indicate a resulting
increase in net interest margin. However, changes in the mix of earning assets
or supporting liabilities can either increase or decrease the net interest
margin without affecting interest rate sensitivity. In addition, the interest
rate spread between an asset and our supporting liability can vary significantly
while the timing of repricing of both the assets and our supporting liability
can remain the same, thus impacting net interest income. This characteristic is
referred to as a basis risk and, generally, relates to the repricing
characteristics of short-term funding sources such as certificates of deposits.
Gap analysis has certain limitations. Measuring the volume of repricing or
maturing assets and liabilities does not always measure the full impact on the
portfolio value of equity or net interest income. Gap analysis does not account
for rate caps on products; dynamic changes such as increasing prepay speeds as
interest rates decrease, basis risk, or the benefit of non-rate funding sources.
The majority of our loan portfolio reprices quickly and completely following
changes in market rates, while non-term deposit rates in general move slowly and
usually incorporate only a fraction of the change in rates. Products categorized
as non-rate sensitive, such as our noninterest-bearing demand deposits, in the
gap analysis behave like long term fixed rate funding sources. Both of these
factors tend to make our actual behavior more asset sensitive than is indicated
in the gap analysis. In fact, we experience higher net interest income when
rates rise, opposite what is indicated by the gap analysis. In fact, during the
recent period of declines in interest rates, our net interest margin has
declined. Therefore, management uses gap analysis, net interest margin analysis
and market value of portfolio equity as our primary interest rate risk
management tools.
Future Outlook
Colony is an emerging company operating in an industry filled with nonregulated
competitors and a rapid pace of consolidation. The year brings with it new
opportunities for growth in our existing markets, as well as opportunities to
expand into new markets through branch acquisitions and branching. Colony
completed two new branches in 2001, which are located in Lee County and Warner
Robins, Georgia. During first quarter 2002, Colony completed the acquisition of
Quitman Federal Savings Bank. With this acquisition, the Company will explore
opportunities to expand into the Valdosta/Lowndes County market during 2002. The
Warner Robins office opened in temporary offices in 2001 and will move into a
new 5,500 square foot office mid-year 2002.
Liquidity
The Company's goals with respect to liquidity are to ensure that sufficient
funds are available to meet current operating requirements and to provide
reserves against unforeseen liquidity requirements. Management continuously
reviews the Company's liquidity position, which is maintained on a basis
consistent with established internal guidelines and the tests and reviews of the
various regulatory authorities. The Company's primary liquidity sources at June
30, 2002 included cash, due from banks, federal funds and short-term investment
securities. The Company also has the ability, on a short-term basis, to borrow
funds from Federal Home Loan Bank and correspondent banks. The mix of asset
maturities contributes to the company's overall liquidity position.
Certain Transactions
In the normal course of business, officers and directors of the Banks, and
certain business organizations and individuals associated with them, maintain a
variety of banking relationships with the bank. Transactions with senior
officers and directors are made on terms comparable to those available to other
bank customers.
Changes in Accounting Principles and Effects of New Accounting Pronouncements
On July 20, 2001, the FASB issued SFAS No. 141, Business Combinations and SFAS
No. 142, Goodwill and Other Intangible Assets. These statements make significant
changes to the accounting for business combinations, goodwill and intangible
assets. SFAS 141 eliminates the pooling-of-interests method of accounting for
business combinations with limited exceptions for combinations initiated prior
to July 1, 2001. In addition, it further clarifies the criteria for recognition
of intangible assets separately from goodwill. This statement is effective for
business combinations completed after June 30, 2001.
SFAS No. 142 discontinues the practice of amortizing goodwill and
indefinite-lived intangible assets and initiates an annual review for
impairment. Impairment would be examined more frequently if certain indicators
are encountered. Intangible assets with a determinable useful life will continue
to be amortized over that period. The Banks are required to adopt the provisions
of SFAS No. 142 effective January 1, 2002. It is anticipated that the adoption
of SFAS No. 142 will not have a material effect on the Banks' financial
statements.
27
Forward-Looking Statements
This document contains statements that constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The words
"believe," "estimate," "expect," "intend," "anticipate" and similar expressions
and variations thereof identify certain of such forward-looking statements,
which speaks only as of the dates which they were made. The Company undertakes
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events, or otherwise. Users are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those indicated in the forward-looking statements as a
result of various factors. Users are therefore cautioned not to place undue
reliance on these forward-looking statements.
BUSINESS
General
The Company was organized in 1983 as a bank holding company through the merger
of Colony Bank of Fitzgerald with a subsidiary of the Company. Since that time,
Colony Bank of Fitzgerald, which was formed by principals of Colony Bankcorp,
Inc. in 1976, has operated as a wholly-owned subsidiary of the Company. In April
1984, Colony Bankcorp, Inc. acquired Colony Bank Wilcox, and in November 1984,
Colony Bank Ashburn became a wholly-owned subsidiary of Colony Bankcorp, Inc.
Colony Bankcorp, Inc. continued its growth with the acquisition of Colony Bank
of Dodge County in September 1985. In August 1991, Colony Bankcorp, Inc.
acquired Colony Bank Worth. In November 1996, Colony Bankcorp, Inc. acquired
Colony Bank Southeast and in November 1996 formed a non-bank subsidiary Colony
Management Services, Inc. In March 2002, Colony Bankcorp, Inc. acquired Quitman
Federal Savings Bank.
Through its seven subsidiary banks, Colony Bankcorp, Inc. operates a
full-service banking business and offers a broad range of retail and commercial
banking services including checking, savings, NOW accounts, money market and
time deposits of various types; loans for business, agriculture, real estate,
personal uses, home improvement and automobiles; credit card; letters of credit;
investment and discount brokerage services; IRA's; safe deposit box rentals,
bank money orders; electronic funds transfer services, including wire transfers
and automated teller machines and internet accounts. Each of the Banks is a
state chartered institution whose customer deposits are insured up to applicable
limits by the Federal Deposit Insurance Corporation.
On April 2, 1998, the Company was listed on Nasdaq National Market. The
Company's common stock trades on the Nasdaq Stock Market under the symbol
"CBAN". The Company presently has approximately 1,350 shareholders as of June
30, 2002. "The Nasdaq Stock Market" or "Nasdaq" is a highly-regulated electronic
securities market comprised of competing Market Makers whose trading is
supported by a communications network linking them to quotation dissemination,
trade reporting and order execution systems. This market also provides
specialized automation services for screen-based negotiations of transactions,
on-line comparison of transactions, and a range of informational services
tailored to the needs of the securities industry, investors and issuers. The
Nasdaq Stock Market is operated by The Nasdaq Stock Market, Inc., a wholly-owned
subsidiary of the National Association of Securities Dealers, Inc.
PART II- OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Shareholders of the Company was held on April 23,
2002. At the Annual Meeting of the Shareholders, proxies were solicited under
Regulation 14 of the Securities and Exchange Act of 1934. Total shares eligible
to vote amounted to 4,206,889. A total of 2,939,927 shares (69.9%) were
represented by shareholders in attendance or by proxy. The following directors
were elected by yes votes of 2,938,722 and no votes of 1,205 to serve one year
until the next annual meeting:
Terry L. Coleman James D. Minix
L. Morris Downing, Jr. W. B. Roberts, Jr.
Terry L. Hester R. Sidney Ross
Harold Kimball Walter Patten
Ben B. Mills, Jr. B. Gene Waldron
The other matter voted on by shareholders was a proposed bylaw change requiring
mandatory retirement of directors upon reaching seventy years of age. The
mandatory retirement of directors upon reaching seventy years of age was
approved on a vote of 2,834,371 shares for, 65,566 shares against and 39,990
abstaining.
Shareholders voted upon no other matters.
28
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits - None
B. There have been no reports filed on Form 8-K for the quarter ended June 30,
2002.
CERTIFICATION OF QUARTERLY REPORT ON FORM 10-Q
OF
COLONY BANKCORP, INC.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
The undersigned are the Chief Executive Officer and the Chief Financial Officer
of Colony Bankcorp, Inc. (the "Registrant"). This Certification is made pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. This Certification accompanies
the Quarterly Report on Form 10-Q of the Registrant for the quarterly period
ended June 30, 2002.
We certify that such Quarterly Report on Form 10-Q fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934
and that the information contained in such 10-Q Report fairly presents, in all
material respects, the financial condition and results of operations of the
Registrant.
/s/ James D. Minix
---------------------------
This Certification is executed as of August 7, 2002 James D. Minix,
President and
Chief Executive Officer
/s/ Terry L. Hester
---------------------------
Terry L. Hester,
Executive Vice President
and Chief Financial Officer
29