UNITED
STATES
SECURITIES
AND EXCHANGE
COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
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x
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ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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(Fee
Required)
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For
the Fiscal Year Ended December 31, 2007
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o
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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(No
Fee Required)
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For
the Transition Period from _____________to
______________
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Commission
File Number 000-12436
COLONY BANKCORP,
INC.
(Exact
Name of Registrant Specified in its Charter)
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Georgia
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58-1492391
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(State
or Other Jurisdiction of Incorporation
or Organization)
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(I.R.S.
Employer Identification
Number)
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115
South Grant Street
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||
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Fitzgerald,
Georgia
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31750
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(229)
426-6000
Issuer’s
Telephone Number, Including Area Code
Securities
Registered Pursuant to Section 12(b) of the Act: None.
Securities
Registered Pursuant to Section 12(g) of the Act:
COMMON
STOCK, $1.00 PAR VALUE
(Title of
Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No x
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days. Yes x No o
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K in this form, and no disclosure will be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a nonaccelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange
Act. (Check one):
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Large
Accelerated Filer o
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Accelerated
Filer x
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Nonaccelerated
Filer o
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act): Yeso No x
State the
aggregate market value of the voting stock held by nonaffiliates computed by
reference to the price at which the stock was sold, or the average bid and asked
prices of such stock, as of June 30, 2007: $104,778,888 based on
stock price of $19.48.
State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date: 7,216,113 shares of $1.00 par
value common stock as of March 10, 2008.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the information required by Part III of this Annual Report are incorporated
by reference from the Registrant’s definitive Proxy Statement to be filed with
Securities and Exchange Commission pursuant to Regulation 14A not later than 120
days after the end of the fiscal year covered by this Annual
Report.
- 1
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TABLE OF
CONTENTS
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Page
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PART I
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3
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Item
1.
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4
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Item
1A.
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25
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Item
1B.
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28
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Item
2.
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28
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Item
3.
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28
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Item
4.
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28
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PART II
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Item
5.
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28
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Item
6.
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30
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Item
7.
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32
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Item
7A.
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62
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Item
8.
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62
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Item
9.
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64
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Item
9A.
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64
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Item
9B.
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65
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PART III
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Item
10.
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65
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Item
11.
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65
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Item
12.
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Item
13.
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Item
14.
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66
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PART IV
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Item
15.
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67
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69
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Forward Looking Statement Disclosure
Statements
in this Annual Report regarding future events or performance are
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995 (the PSLRA) and are made pursuant to the safe
harbors of the PSLRA. Actual results of Colony Bankcorp, Inc. (the
Company) could be quite different from those expressed or implied by the
forward-looking statements. Any statements containing the words
“could,” “may,” “will,” “should,” “plan,” “believes,” “anticipates,”
“estimates,” “predicts,” “expects,” “projections,” “potential,” “continue,” or
words of similar import, constitute “forward-looking statements,” as do any
other statements that expressly or implicitly predict future events, results, or
performance. Factors that could cause results to differ from results
expressed or implied by our forward-looking statements include, among others,
risks discussed in the text of this Annual Report as well as the following
specific items:
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•
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General
economic conditions, whether national or regional, that could affect the
demand for loans or lead to increased loan
losses;
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•
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Competitive
factors, including increased competition with community, regional, and
national financial institutions, that may lead to pricing pressures that
reduce yields the Company achieves on loans and increase rates the Company
pays on deposits, loss of the Company’s most valued customers, defection
of key employees or groups of employees, or other
losses;
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•
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Increasing
or decreasing interest rate environments, including the shape and level of
the yield curve, that could lead to decreases in net interest margin,
lower net interest and fee income, including lower gains on sales of
loans, and changes in the value of the Company’s investment
securities;
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•
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Changing
business or regulatory conditions, or new legislation, affecting the
financial services industry that could lead to increased costs, changes in
the competitive balance among financial institutions, or revisions to our
strategic focus;
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•
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Changes
or failures in technology or third party vendor relationships in important
revenue production or service areas, or increases in required investments
in technology that could reduce our revenues, increase our costs or lead
to disruptions in our business.
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Readers
are cautioned not to place undue reliance on our forward-looking statements,
which reflect management’s analysis only as of the date of the
statements. The Company does not intend to publicly revise or update
forward-looking statements to reflect events or circumstances that arise after
the date of this report.
Readers
should carefully review all disclosures we file from time to time with the
Securities and Exchange Commission (SEC).
Part I
Item
1
Business
COLONY
BANKCORP, INC.
Colony
Bankcorp, Inc. (the Company or Colony) is a Georgia business corporation which
was incorporated on November 8, 1982. The Company was organized for
the purpose of operating as a bank holding company under the Federal Bank
Holding Company Act of 1956, as amended, and the bank holding company laws of
Georgia (Georgia Laws 1976, p. 168, et. seq.). On
July 22, 1983, the Company, after obtaining the requisite regulatory approvals,
acquired 100 percent of the issued and outstanding common stock of Colony Bank
of Fitzgerald (formerly The Bank of Fitzgerald), Fitzgerald, Georgia, through
the merger of the Bank with a subsidiary of the Company which was created for
the purpose of organizing the Bank into a one-bank holding
company. Since that time, Colony Bank of Fitzgerald has operated as a
wholly-owned subsidiary of the Company.
On April
30, 1984, Colony, with the prior approval of the Federal Reserve Bank of Atlanta
and the Georgia Department of Banking and Finance, acquired 100 percent of the
issued and outstanding common stock of Colony Bank Wilcox (formerly Community
Bank of Wilcox and Pitts Banking Company), Pitts, Wilcox County,
Georgia. As part of that transaction, Colony issued an additional
17,872 shares of its $10.00 par value common stock, all of which was exchanged
with the holders of shares of common stock of Pitts Banking Company for 100
percent of the 250 issued and outstanding shares of common stock of Pitts
Banking Company. Since the date of acquisition, the Bank has operated
as a wholly-owned subsidiary of the Company.
On
November 1, 1984, after obtaining the requisite regulatory approvals, Colony
acquired 100 percent of the issued and outstanding common stock of Colony Bank
Ashburn (formerly Ashburn Bank), Ashburn, Turner County, Georgia, for a
combination of cash and interest-bearing promissory notes. Since the
date of acquisition, Colony Bank Ashburn has operated as a wholly-owned
subsidiary of the Company.
On
September 30, 1985, after obtaining the requisite regulatory approvals, the
Company acquired 100 percent of the issued and outstanding common stock of
Colony Bank of Dodge County (formerly The Bank of Dodge County), Chester, Dodge
County, Georgia. The stock was acquired in exchange for the issuance
of 3,500 shares of common stock of Colony. Since the date of its
acquisition, Colony Bank of Dodge County has operated as a wholly-owned
subsidiary of the Company.
Effective
July 31, 1991, the Company acquired all of the outstanding common stock of
Colony Bank Worth (formerly Worth Federal Savings and Loan Association and Bank
of Worth) in exchange for cash and 7,661 of the Company's common stock for an
aggregate purchase price of approximately $718,000. Since the date of
its acquisition, Colony Bank Worth has operated as a wholly-owned subsidiary of
the Company.
On
November 8, 1996, Colony organized Colony Management Services, Inc. to provide
support services to each subsidiary. Services provided include loan
and compliance review, internal audit and data processing.
On
November 30, 1996, the Company acquired Broxton State Bank (name subsequently
changed to Colony Bank Southeast) in a business combination accounted for as a
pooling of interests. Broxton State Bank became a wholly-owned
subsidiary of the Company through the exchange of 157,735 shares of the
Company’s common stock for all of the outstanding stock of Broxton State
Bank.
Part
I (Continued)
Item 1
(Continued)
On March
2, 2000, Colony Bank Ashburn purchased the capital stock of Georgia First
Mortgage Company in a business combination accounted for as a
purchase. The purchase price of $346,725 was the fair value of the
net assets of Georgia First Mortgage at the date of purchase. Georgia
First Mortgage is primarily engaged in residential real estate mortgage lending
in the state of Georgia.
On March
26, 2002 and December 19, 2002, Colony formed Colony Bankcorp Statutory Trust I
and Colony Bankcorp Statutory Trust II, respectively. Both were
formed to establish special purpose entities to issue trust preferred
securities. During 2007, both Trusts were liquidated as Colony
exercised its option to call and pay off the trust preferred
securities.
On March
29, 2002, Colony purchased 100 percent of the outstanding voting stock of
Quitman Bancorp, Inc., 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 (name subsequently changed to Colony
Bank Quitman, FSB) becoming a wholly-owned subsidiary of Colony. The
aggregate acquisition price was $7,446,163, which included cash and 367,093
shares of the Company’s common stock.
On March
19, 2004, Colony Bank Ashburn purchased Flag Bank-Thomaston office in a business
combination accounted for as a purchase. Since the date of
acquisition, the Thomaston office has operated as a branch office of Colony Bank
Ashburn.
On June
17, 2004, Colony formed Colony Bankcorp Statutory Trust III for the purpose of
establishing a special purpose entity to issue trust preferred
securities.
On April
13, 2006, Colony formed Colony Bankcorp Capital Trust I for the purpose of
establishing a special purpose entity to issue trust preferred
securities.
On March
12, 2007, Colony formed Colony Bankcorp Capital Trust II for the purpose of
establishing a special purpose entity to issue trust preferred
securities.
On
September 14, 2007, Colony formed Colony Bankcorp Capital Trust III for the
purpose of establishing a special purpose entity to issue trust preferred
securities.
The
Company conducts all of its operations through its bank
subsidiaries. A brief description of each Bank's history and business
operations is discussed below.
COLONY
BANK OF FITZGERALD
History
and Business of the Bank
Colony
Bank of Fitzgerald is a state banking institution chartered under the laws of
Georgia on November 10, 1975. Since opening on April 15, 1976, the
Bank has continued a general banking business and presently serves its customers
from four locations, the main office in Fitzgerald, Georgia at 302 South Main
Street, a full-service branch located on Highway 129 South, a full-service
branch at 1290 Houston Lake Road in Warner Robins, Georgia and a full-service
branch at 200 Gunn Road in Centerville, Georgia.
Part
I (Continued)
Item 1
(Continued)
The Bank
operates a full-service banking business and engages in a broad range of
commercial banking activities, including accepting customary types of demand and
time deposits; making individual, consumer, commercial and installment loans;
money transfers; safe deposit services; and making investments in United States
Government and municipal securities. The Bank does not offer
trust services other than acting as custodian of individual retirement
accounts. The Bank’s mortgage lending services are through Georgia
First Mortgage.
The data
processing work of the Bank is processed by Colony Management Services, Inc., a
wholly-owned subsidiary of Colony Bankcorp, Inc.
Colony
Bank of Fitzgerald acts as an agent for Visa Card and MasterCard through
Silverton Bank which allows merchants to accept Visa Card and MasterCard and
deposit the charge tickets in their accounts with the Bank. The Bank
also offers its customers a variety of checking and savings
accounts.
The Bank
serves the residents of Fitzgerald and surrounding areas of Ben Hill County
which has a population of approximately 18,000 people. Manufacturing
facilities located in Ben Hill County employ many people and are the most
significant part of the local economy. Ben Hill County also has a
large agricultural industry producing timber and row crops. Major row
crops are peanuts, tobacco, cotton and corn.
The Bank
serves Houston County with the opening of its offices in Centerville and Warner
Robins, Georgia. The Houston County market has an estimated
population of 128,000. Robins Air Force base, located in Houston
County, is a major employer in the area which has survived national base closure
mandates and expanded in size in recent years.
A history
of the Bank's financial position for fiscal years ended 2007, 2006 and 2005 is
as follows:
|
2007
|
2006
|
2005
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||||||||||
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Total
Assets
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$ | 196,006,764 | $ | 203,113,676 | $ | 185,403,798 | ||||||
|
Total
Deposits
|
168,106,878 | 174,078,725 | 155,593,897 | |||||||||
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Total
Stockholders' Equity
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17,844,900 | 16,465,138 | 14,815,728 | |||||||||
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Net
Income
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2,638,166 | 2,778,915 | 2,464,452 | |||||||||
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Number
of Issued and Outstanding Shares
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90,000 | 90,000 | 90,000 | |||||||||
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Book
Value Per Share
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$ | 198.28 | $ | 182.95 | $ | 164.62 | ||||||
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Net
Income Per Share
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29.31 | 30.88 | 27.38 | |||||||||
Banking
Facilities
The
Bank's main offices are housed in a building located in Fitzgerald,
Georgia. The main offices, which are owned by the Bank, consist of
approximately 13,000 square feet, three drive-in windows and an adjacent parking
lot. Banking operations also are conducted from the southside branch
which is located at South Dixie Highway, Fitzgerald, Georgia. This
branch is owned by the Bank and has been in continuous operation since it opened
in December 1977. The branch is a single story building with
approximately 850 square feet and is operated with three drive-in
windows.
Part
I (Continued)
Item 1
(Continued)
In August
2002, the Bank moved from its temporary facilities (opened July 2001) in Warner
Robins, Georgia to a new building located at 1290 Houston Lake
Road. The 5,500 square foot building has four inside teller windows,
four drive-in windows and an ATM machine.
In
February 2006, the Bank opened its second office in the Houston County, Georgia
market at 200 Gunn Road in Centerville, Georgia. The approximate
5,000 square foot building has four inside teller windows, four drive-in windows
and an ATM machine.
Competition
The
banking business in Ben Hill County and Houston County is highly
competitive. The Bank competes primarily with four other commercial
banks and one credit union operating in Ben Hill County. In Houston
County the Bank competes with ten commercial banks and four credit
unions. Additionally, the Bank competes to a lesser extent with
insurance companies and governmental agencies. The banking industry
is also experiencing increasing competition for deposits from less traditional
sources such as money market and mutual funds. The Bank also offers
"NOW" accounts, individual retirement accounts, simplified pension plans, KEOGH
plans and custodial accounts for minors.
Correspondents
As of
December 31, 2007, the Bank had correspondent relationships with two other
banks. The Bank's principal correspondent is Silverton Bank located
in Atlanta, Georgia. These correspondent banks provide certain
services to the Bank such as investing its excess funds, processing checks and
other items, buying and selling federal funds, handling money fund transfers and
exchanges, shipping coins and currency, providing security and safekeeping of
funds and other valuable items, handling loan participations and furnishing
management investment advice on the Bank's securities portfolio. As
compensation for these services, the Bank maintains balances with its
correspondents in noninterest-bearing accounts.
COLONY
BANK ASHBURN
History
and Business of the Bank
Colony
Bank Ashburn was chartered as a state commercial bank in 1900 and currently
operates under the Financial Institutions Code of Georgia. The Bank's
deposits are insured up to $100,000 per account by the Federal Deposit Insurance
Corporation. The Bank conducts business at the offices located at 515
East Washington and 416 East Washington in Ashburn, Turner County, Georgia, 137
Robert E. Lee Drive in Leesburg, Georgia, 2609 Ledo Road in Lee County, Georgia,
1031 24th Ave.,
E. in Cordele, Georgia, 206 North Church Street in Thomaston, Georgia, 716
Philema Road in Albany, Georgia and 1581 Bradley Park Drive in Columbus,
Georgia. The offices operate under the name Colony Bank. The Bank's business
largely consists of (1) the acceptance of demand, savings and time deposits; (2)
the making of loans to consumers, businesses and other institutions; (3)
investment of excess funds and sale of federal funds, U.S. Government
obligations and state, county and municipal bonds; and (4) internet online
banking. The Bank’s mortgage lending services are through Georgia
First Mortgage and it does not offer trust services. It acts as an
agent for Visa Card and MasterCard through Silverton Bank.
Part
I (Continued)
Item 1
(Continued)
The Bank
serves Turner County, Georgia, which has a population of approximately 10,000
people. The Bank serves Crisp County with the opening of its branch
in Cordele, Georgia. The Crisp County market has an estimated
population of 22,000. The Bank serves Lee and Dougherty counties with
the opening of offices in Albany and Leesburg, Georgia. The
Albany/Leesburg MSA market has an estimated population of
160,000. The Bank serves Upson County with the opening of its branch
in Thomaston, Georgia. The Upson County market has an estimated
population of 28,000. The Bank serves Muscogee County with the
opening of its office in Columbus, Georgia. The Columbus MSA market
has an estimated population of 282,000.
A history
of the Bank's financial position for fiscal years ended 2007, 2006 and 2005 is
as follows:
|
2007
|
2006
|
2005
|
||||||||||
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Total
Assets
|
$ | 334,741,915 | $ | 342,704,792 | $ | 332,217,540 | ||||||
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Total
Deposits
|
284,228,173 | 299,891,433 | 294,311,410 | |||||||||
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Total
Stockholders' Equity
|
29,189,963 | 27,777,175 | 27,017,259 | |||||||||
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Net
Income
|
2,061,767 | 2,593,841 | 2,586,828 | |||||||||
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Number
of Issued and Outstanding Shares
|
50,000 | 50,000 | 50,000 | |||||||||
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Book
Value Per Share
|
$ | 583.80 | $ | 555.54 | $ | 540.35 | ||||||
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Net
Income Per Share
|
41.24 | 51.88 | 51.74 | |||||||||
Banking
Facilities
The
Bank's main office is located at 515 East Washington Street in Ashburn and
consists of a building of approximately 13,000 square feet of office and banking
space with an adjacent parking lot. A branch facility is located
across the street from the main office and consists of a single story building
with approximately 850 square feet and is operated with three drive-in windows
and one automated teller machine.
The Bank
has a Lee County office which opened in October 1998. This
full-service facility, located within the city limits of Leesburg, consists of a
two-story brick building of approximately 5,000 square feet and includes three
drive-in lanes. In 2001, a second Lee County facility located at 2609
Ledo Road opened. The facility is a 5,500 square foot facility with
four drive-in windows and five inside teller windows. The Bank has a
third Lee/Dougherty County office which opened in March 2004. This
full service facility located within the city limits of Albany consists of
approximately 5,000 square feet, with four drive-in-lanes and one automated
teller machine. As a result of the purchase of Georgia First Mortgage
Company, the Bank has a mortgage lending office at 616 North Westover Blvd.,
Albany, Dougherty County, Georgia.
The Bank
opened a branch office in Cordele, Crisp County, Georgia on October 4,
1999. The full-service branch facility consists of approximately
5,500 square feet, with four drive-in lanes and one automated teller
machine.
In March
2004, the Bank acquired Flag Bank-Thomaston office in Thomaston, Upson County,
Georgia. The full service branch facility consists of approximately
18,000 square feet, with four drive-in-lanes and one automated teller
machine.
Part
I (Continued)
Item 1
(Continued)
In
September 2004, the Bank opened a loan production office in Columbus, Muscogee
County, Georgia. The Bank opened a branch office in Columbus, Muscogee County,
Georgia in June 2006 and relocated the loan production operation to the new
office. The approximate 5,000 square foot facility has four drive-in
windows, four inside teller windows and one automated teller
machine.
All
occupied premises, with the exception of Georgia First Mortgage located in
Albany, are owned by the Bank.
Competition
The
banking business is highly competitive. The Bank competes in Turner
County primarily with South Georgia Banking Company which operates out of one
facility in Ashburn, Georgia. The Bank competes with four commercial
banks in Crisp County, eight in Lee County, eleven in Dougherty County, three in
Upson County and eleven in Muscogee County. The Bank also competes
with other financial institutions, including credit unions and finance companies
and, to a lesser extent, with insurance companies and certain governmental
agencies. The banking industry is also experiencing increased
competition for deposits from less traditional sources such as money market and
mutual funds.
Correspondents
Colony
Bank Ashburn has correspondent relationships with the following
banks: Silverton Bank in Atlanta, Georgia; SunTrust Bank, N.A. in
Atlanta, Georgia; Colony Bank of Fitzgerald in Fitzgerald, Georgia; and the
Federal Home Loan Bank in Atlanta, Georgia. The correspondent
relationships facilitate the transactions of business by means of loans, letters
of credit, acceptances, collections, exchange services and data
processing. As compensation for these services, the Bank maintains
balances with its correspondents in noninterest-bearing accounts.
COLONY
BANK WILCOX
History
and Business of the Bank
The Bank
was chartered on June 2, 1906 under the name "Pitts Banking
Company." The name of the Bank subsequently was changed to Community
Bank of Wilcox on June 1, 1991 and then to Colony Bank Wilcox in
2000. The Bank currently operates under the Financial Institutions
Code of Georgia. The Bank's deposits are insured up to $100,000 per
account by the Federal Deposit Insurance Corporation. The Bank
conducts business at locations in Pitts and Rochelle in Wilcox County,
Georgia. The Bank's business consists of: (1) the
acceptance of demand, savings and time deposits; (2) the making of loans to
consumers, businesses and other institutions; (3) investment of excess funds and
sale of federal funds, U.S. Government obligations and state, county and
municipal bonds; and (4) certain other miscellaneous financial services usually
handled for customers by commercial banks. The Bank’s mortgage
lending services are through Georgia First Mortgage and it does not offer trust
services.
The Bank
serves the residents of Wilcox County, Georgia, which has a population of
approximately 9,000.
Part
I (Continued)
Item 1
(Continued)
A history
of the Bank's financial position for fiscal years ended 2007, 2006 and 2005 is
as follows:
|
2007
|
2006
|
2005
|
||||||||||
|
Total
Assets
|
$ | 51,746,386 | $ | 49,190,359 | $ | 48,959,120 | ||||||
|
Total
Deposits
|
43,892,009 | 41,757,568 | 42,482,714 | |||||||||
|
Total
Stockholders' Equity
|
4,293,545 | 4,231,005 | 4,327,857 | |||||||||
|
Net
Income
|
737,941 | 766,236 | 691,579 | |||||||||
|
Number
of Issued and Outstanding Shares
|
250 | 250 | 250 | |||||||||
|
Book
Value Per Share
|
$ | 17,174.18 | $ | 16,924.02 | $ | 17,311.43 | ||||||
|
Net
Income Per Share
|
2,951.76 | 3,064.94 | 2,766.32 | |||||||||
Banking
Facilities
The Bank
operates out of two locations at 105 South Eighth Street, Pitts, Georgia and at
Highway 280, Rochelle, Georgia, both of which are in Wilcox
County. The Pitts office consists of a building of approximately
2,200 square feet of usable office and banking space which it
owns. The facility contains one drive-in window and three teller
windows. The Rochelle office, which opened in August 1989, consists
of a building of approximately 5,000 square feet of usable office and banking
space, which is owned by the Company. The facility has three inside
teller windows, three drive-in windows and one automated teller
machine.
Competition
The
banking business is highly competitive. The Bank competes in Wilcox
County primarily with four commercial banks. In addition, the Bank
competes with other financial institutions, including credit unions and finance
companies and, to a lesser extent, insurance companies and certain governmental
agencies. The banking industry is also experiencing increased
competition for deposits from less traditional sources such as money market and
mutual funds.
Correspondents
The Bank
has correspondent relationships with the following banks: Silverton
Bank in Atlanta, Georgia; Federal Home Loan Bank, in Atlanta, Georgia; and
SunTrust Bank, N.A., in Atlanta, Georgia. The correspondent
relationships facilitate the transactions of business by means of loans, letters
of credit, acceptances, collections, exchange services and data
processing. As compensation for these services, the Bank maintains
balances with its correspondents in noninterest-bearing
accounts.
Part
I (Continued)
Item 1
(Continued)
COLONY
BANK OF DODGE COUNTY
History
and Business of the Bank
The Bank
was chartered on June 14, 1966 under the name "Bank of Chester." The
name of the Bank subsequently was changed to The Bank of Dodge County on April
15, 1983 and then to Colony Bank of Dodge County in 2000. The Bank
currently operates under the Financial Institutions Code of
Georgia. The Bank's deposits are insured up to $100,000 per account
by the Federal Deposit Insurance Corporation. The Bank's business
consists of: (1) the acceptance of demand, savings and time deposits;
(2) the making of loans to consumers, businesses and other institutions; (3)
investment of excess funds in the sale of federal funds, U.S. Government
obligations and state, county and municipal bonds; and (4) certain other
miscellaneous financial services usually handled for customers by commercial
banks. The Bank’s mortgage lending services are through Georgia First
Mortgage and it does not offer trust services.
The Bank
serves the residents of Dodge County, Georgia, which has a population of
approximately 20,000. The Bank serves Treutlen County, Georgia with the opening
of its office in Soperton, Georgia. The Treutlen County market has an
estimated population of 7,000.
A history
of the Bank's financial position for fiscal years ended 2007, 2006 and 2005 is
as follows:
|
2007
|
2006
|
2005
|
||||||||||
|
Total
Assets
|
$ | 88,848,084 | $ | 81,020,282 | $ | 77,083,271 | ||||||
|
Total
Deposits
|
79,364,535 | 72,720,715 | 68,111,242 | |||||||||
|
Total
Stockholders' Equity
|
6,089,440 | 5,775,668 | 5,555,685 | |||||||||
|
Net
Income
|
898,916 | 1,122,422 | 932,931 | |||||||||
|
Number
of Issued and Outstanding Shares
|
1,750 | 1,750 | 1,750 | |||||||||
|
Book
Value Per Share
|
$ | 3,479.68 | $ | 3,300.38 | $ | 3,174.68 | ||||||
|
Net
Income Per Share
|
513.67 | 641.38 | 533.10 | |||||||||
Banking
Facilities
The
Bank's main office is located at 5510 Oak Street in Eastman, Dodge County,
Georgia and consists of a building of approximately 11,000 square feet of office
and banking space with an adjacent parking lot and is operated with three
drive-in windows. The branch facility is located in Chester, Dodge
County, Georgia and consists of a building with approximately 2,700 square feet
of office and banking space and an adjacent parking lot. A second
branch was opened during 2000 in Soperton, Treutlen County, Georgia at 310 Main
Street. The branch has approximately 1,600 square feet of banking and
office space with three walk-up teller units and two drive-in
windows. The Bank owns all of the premises which it
occupies.
Competition
The
banking business is highly competitive. The Bank competes in the
Dodge County area with two other banks. The Bank competes in the
Treutlen County market with one other bank. In addition, the Bank
competes with other financial institutions, including credit unions and finance
companies and, to a lesser extent, insurance companies and certain governmental
agencies. The banking industry is also experiencing increased
competition for deposits from less traditional sources such as money market and
mutual funds.
Part
I (Continued)
Item 1
(Continued)
Correspondents
The Bank
has correspondent relationships with the following banks: Silverton Bank in
Atlanta, Georgia; The Federal Home Loan Bank in Atlanta, Georgia; and SunTrust
Bank, N.A., in Atlanta, Georgia. The correspondent relationships
facilitate the transactions of business by means of loans, letters of credit,
acceptances, collections, exchange services and data processing. As
compensation for these services, the Bank maintains balances with its
correspondents in noninterest-bearing accounts.
COLONY
BANK WORTH
Colony
Bank Worth operated as a savings and loan stock association until it was
acquired by the Company on July 31, 1991, at which time the association changed
its name to Bank of Worth (subsequently named Colony Bank Worth) and became a
state-chartered commercial bank. The Bank conducts business at its
offices located at 601 North Main Street, Sylvester, Worth County, Georgia, 605
West Second Street and 1909 Highway 82 West, Tifton, Tift County, Georgia and
621 East By-Pass, NE, Moultrie, Colquitt County, Georgia. The Bank's
business consists of: (1) the acceptance of demand, savings and time
deposits; (2) the making of loans to consumers, businesses and other
institutions; (3) investment of excess funds and sale of federal funds, U.S.
Government obligations and state, county and municipal bonds; and (4) certain
other miscellaneous financial services usually handled for customers by
commercial banks. The Bank's deposits are insured up to $100,000 per
account by the Federal Deposit Insurance Corporation. The Bank does
not offer trust services. It acts as an agent for Visa Card and
MasterCard through Silverton Bank. The Bank’s mortgage lending
services are through Georgia First Mortgage.
The Bank
serves the residents of Worth County, Georgia, which has a population of
approximately 22,000. The Bank serves the residents of Tift County, Georgia with
the opening of its two offices in Tifton, Georgia. The Tift County
market has an estimated population of 42,000. The Bank serves
the residents of Colquitt County, Georgia with the opening of its office in
Moultrie, Georgia. The Colquitt County market has an estimated
population of 45,000.
A history
of the Bank's financial position for fiscal years ended 2007, 2006 and 2005 is
as follows:
|
2007
|
2006
|
2005
|
||||||||||
|
Total
Assets
|
$ | 180,872,592 | $ | 178,612,527 | $ | 172,221,653 | ||||||
|
Total
Deposits
|
159,096,106 | 160,719,979 | 152,518,642 | |||||||||
|
Total
Stockholders' Equity
|
14,089,489 | 12,822,905 | 11,895,191 | |||||||||
|
Net
Income
|
2,217,024 | 1,978,512 | 1,671,621 | |||||||||
|
Number
of Issued and Outstanding Shares
|
95,790 | 95,790 | 95,790 | |||||||||
|
Book
Value Per Share
|
$ | 147.09 | $ | 133.86 | $ | 124.18 | ||||||
|
Net
Income Per Share
|
23.14 | 20.65 | 17.45 | |||||||||
Part
I (Continued)
Item 1
(Continued)
Banking
Facilities
The
Bank's main office is housed in a building located in Sylvester,
Georgia. The building, which is owned by the Bank, consists of
approximately 13,000 square feet, a drive-in window and an adjacent parking
lot. On June 15, 1998, the Bank opened a branch office at 605 West
Second Street, Tifton, Georgia. The office is a single story building
of approximately 2,300 square feet with one attached drive-in
window. A second branch office opened in 2000 in Moultrie, Colquitt
County, Georgia. This branch building of approximately 5,000 square
feet includes three walk-up teller units and four drive-in
windows. In August 2004, the Bank opened a second office in Tifton,
Tift County, Georgia. The office is located at 1909 Highway 82 West
and consists of approximately 2,800 square feet. The office has four
drive-in windows and an ATM machine. All occupied offices, with the
exception of the two Tifton locations, are owned by the Bank.
Competition
The
banking business in Worth County, Tift County and Colquitt County is highly
competitive. The Bank competes primarily with three other commercial
banks operating in Worth County, seven other commercial banks in Tift County and
seven other commercial banks in Colquitt County. Additionally, the
Bank competes with credit unions of employers located in the area and, to a
lesser extent, insurance companies and governmental agencies. The
banking industry is also experiencing increasing competition for deposits from
less traditional sources such as money market and mutual funds.
Correspondents
As of
December 31, 2007, the Bank had correspondent relationships with three other
banks. The Bank's principal correspondent is Silverton Bank located
in Atlanta, Georgia. These correspondent banks provide certain
services to the Bank such as investing its excess funds, processing checks and
other items, buying and selling federal funds, handling money fund transfers and
exchanges, shipping coins and currency, providing security and safekeeping of
funds and other valuable items, handling loan participations and furnishing
management investment advice on the Bank's securities portfolio. As
compensation for these services, the Bank maintains balances with its
correspondents in noninterest-bearing accounts.
COLONY
BANK SOUTHEAST
History
and Business of the Bank
Colony
Bank Southeast, formerly Broxton State Bank, was chartered under the laws of
Georgia on August 4, 1966 and opened for business on September 1, 1966,
having absorbed “Citizens Bank,” a private, unincorporated bank.
The Bank
is a full-service bank offering a wide variety of banking services targeted at
all sectors of the Bank’s primary market area. The Bank offers
customary types of demand, savings, time and individual retirement accounts;
installment, commercial and real estate loans; home mortgages and personal
lines-of-credit; Visa and Master Card services through its correspondent,
Silverton Bank; safe deposit and night depository services; cashier’s checks,
money orders, traveler's checks, wire transfers and various other services that
can be tailored to the customer’s needs. The Bank does not offer
trust services at this time. The Bank’s mortgage lending services are
through Georgia First Mortgage. The Bank serves the residents of
Coffee County, Georgia, which has a population of approximately
40,000.
Part
I (Continued)
Item 1
(Continued)
In March
2004, the Bank opened a loan production office in Savannah, Chatham County,
Georgia. The Bank renovated an approximately 7,000 square foot
facility for a full service branch. The branch opened in September
2005. In addition, the Bank has begun construction of its second
office in Savannah with anticipated opening in the fourth quarter of
2008. The new facility will be a full service branch consisting of
approximately 8,000 square feet. The Bank serves the residents of the
Chatham County, Georgia MSA market which has a population of approximately
293,000.
A history
of the Bank's financial position for fiscal years ended 2007, 2006 and 2005 is
as follows:
|
2007
|
2006
|
2005
|
||||||||||
|
Total
Assets
|
$ | 210,019,712 | $ | 215,668,120 | $ | 173,059,806 | ||||||
|
Total
Deposits
|
180,602,528 | 188,267,151 | 146,533,872 | |||||||||
|
Total
Stockholders' Equity
|
20,420,442 | 17,980,842 | 13,640,842 | |||||||||
|
Net
Income
|
912,414 | 1,793,773 | 1,176,862 | |||||||||
|
Number
of Issued and Outstanding Shares
|
50,730 | 50,730 | 50,730 | |||||||||
|
Book
Value Per Share
|
$ | 402.53 | $ | 354.44 | $ | 268.89 | ||||||
|
Net
Income Per Share
|
17.99 | 35.36 | 23.20 | |||||||||
Banking
Facilities
The Bank
operates one banking office located at 401 North Alabama Street, Broxton,
Georgia which consists of approximately 5,000 square feet of
space. The building has four alarm-equipped vaults, one for
safe-deposit boxes and cash storage, one for night depository service and two
for record storage. The building has two drive-in systems, one
commercial drawer and one pneumatic tube system. Colony Bank
Southeast opened a branch office in Douglas, Georgia on July 6,
1998. The two-story brick building located at 625 West Ward Street
consists of approximately 8,300 square feet and provides four drive-in lanes for
customer convenience. A second Douglas office was opened on September
8, 1999 and consists of approximately 1,200 square feet with three drive-in
lanes and one automated teller machine. A loan production office was
opened in Savannah, Chatham County, Georgia in March 2004. The Bank
renovated an approximately 7,000 square foot facility for a full service branch
in September 2005 with the loan production office moving its operation into the
new office. All occupied premises are owned by the Bank, with the
exception of the branch located at 1351 A SE Bowens Mill Road,
Douglas. The Bank purchased real estate during 2006 for the future
site of its second office in Savannah, Chatham County, Georgia. It is
anticipated construction of its second office branch will be completed during
the fourth quarter of 2008. The new facility will approximate 8,000
square feet.
Competition
The
banking business in Coffee County is highly competitive. Colony Bank
Southeast competes with nine other banks and one credit union in Douglas,
Georgia. As a result of the opening of a branch office in Savannah,
the Bank now competes with nineteen other banks in Chatham
County. The banking industry is also experiencing increased
competition for deposits from less traditional sources such as money market and
mutual funds.
Part
I (Continued)
Item 1
(Continued)
Correspondents
The Bank
has correspondent relationships with the following banks: SunTrust
Bank, Atlanta, Georgia; Silverton Bank, Atlanta, Georgia; the Federal Home Loan
Bank in Atlanta, Georgia and Columbus Bank & Trust, Columbus,
Georgia. The correspondent relationships facilitate the transactions
of business by means of loans, letters-of-credit, acceptances, collections,
exchange services and data processing. As compensation for these
services, the Bank maintains balances with its correspondents in
noninterest-bearing accounts.
COLONY
BANK QUITMAN, FSB
History
and Business of the Bank
Colony
Bank Quitman, FSB was chartered as a federal savings association in
1936. The Bank operates under the oversight of the Office of Thrift
Supervision. The Federal Deposit Insurance Corporation insures the
Bank’s deposits up to $100,000 per depositor. The Bank conducts
business at offices located at 602 East Screven Street in Quitman, Brooks
County, Georgia, 2910-N North Ashley Street, Valdosta, Lowndes County, Georgia
and Highway 41-North Valdosta Road, Valdosta, Lowndes County,
Georgia. The Bank’s business largely consists of (1) the acceptance
of demand, savings and time deposits; (2) the making of loans to consumers,
businesses and other institutions; and (3) investment of excess funds through
the sale of federal funds and purchase of U.S. government agency obligations and
state, county and municipal bonds. The Bank is primarily a portfolio
lender with a major focus on residential real estate lending. The
Bank acts as an agent for Visa Card and Mastercard through Silverton
Bank. The Bank’s mortgage lending services are through Georgia First
Mortgage.
The Bank
serves the residents of Brooks County, Georgia, which has a population of
approximately 16,500. The Bank serves Lowndes County with the opening of its two
branches in Valdosta, Georgia. The Lowndes County market has an
estimated population of 98,000.
A history
of the Bank’s financial position for calendar years ended 2007, 2006 and 2005 is
as follows:
|
2007
|
2006
|
2005
|
||||||||||
|
Total
Assets
|
$ | 147,588,709 | $ | 141,038,931 | $ | 126,149,879 | ||||||
|
Total
Deposits
|
108,894,100 | 108,487,649 | 95,069,270 | |||||||||
|
Total
Stockholder’s Equity
|
11,679,989 | 10,898,134 | 10,162,924 | |||||||||
|
Net
Income
|
1,353,790 | 1,423,846 | 1,388,222 | |||||||||
|
Numbers
of Issued and Outstanding Shares
|
100,000 | 100,000 | 100,000 | |||||||||
|
Book
Value Per Share
|
$ | 116.80 | $ | 108.98 | $ | 101.63 | ||||||
|
Net
Income Per Share
|
13.54 | 14.24 | 13.88 | |||||||||
Part
I (Continued)
Item 1
(Continued)
Banking
Facilities
The
Bank’s main office is located at 602 East Screven Street in Quitman and consists
of a building of approximately 6,720 square feet of office and banking
space. The building has additional expansion room
upstairs. The attached drive-through facility consists of three
drive-through lanes plus an automated teller machine lane. The
building has four inside teller windows. In March 2003, the Bank
opened its first branch. The new facility, located at 2190-N North
Ashley Street in Valdosta, Georgia, is a 2,200 square foot building with two
drive-through lanes, three inside teller windows and a walk-up automated teller
machine. The Bank owns the Quitman location and leases the Valdosta
location. The Bank opened a second office in Valdosta, Lowndes
County, Georgia that consists of approximately 5,000 square feet. The
new office opened in May 2005 with three drive-through lanes plus an automated
teller machine lane.
Competition
The
banking business is highly competitive. In Brooks County, the Bank
competes with four banks. In Lowndes County, the Bank competes with
fifteen banks, two savings and loan associations and six federal credit
unions. The Bank also competes to a lesser extent with finance
companies, insurance companies and certain governmental agencies. The
banking industry is also experiencing increased competition for deposits from
less traditional sources such as money market and mutual funds.
Correspondents
Colony
Bank Quitman, FSB has correspondent relationships with the following
banks: Silverton Bank in Atlanta, Georgia; Colony Bank of Fitzgerald
in Fitzgerald, Georgia; Compass Bank in Birmingham, Alabama; and the Federal
Home Loan Bank in Atlanta, Georgia. The correspondent relationships
facilitate the transactions of business by means of loans, collections,
investment services, exchange services and data processing. As
compensation for these services, the Bank maintains balances with its
correspondents in noninterest-bearing accounts and pays some service
charges.
EMPLOYEES
As of
December 31, 2007, Colony Bankcorp, Inc. and its subsidiaries employed 349
full-time employees and 41 part-time employees. Colony considers its
relationship with its employees to be excellent.
The
subsidiary banks have noncontributory profit-sharing plans covering all
employees subject to certain minimum age and service
requirements. All Banks made contributions for all eligible employees
in 2007. In addition, Colony Bankcorp, Inc. and its subsidiaries
maintain a comprehensive employee benefit program providing, among other
benefits, hospitalization, major medical insurance and life insurance.
Management considers these benefits to be competitive with those offered by
other financial institutions in south Georgia. Colony's employees are not
represented by any collective bargaining group.
Part
I (Continued)
Item 1
(Continued)
SUPERVISION
AND REGULATION
BANK
HOLDING COMPANY REGULATION
General
Colony is
a bank holding company within the meaning of the Bank Holding Company Act of
1956, as amended (BHCA). As a bank holding company registered with
the Federal Reserve under the BHCA and the Georgia Department of Banking and
Finance (the Georgia Department) under the Financial Institutions Code of
Georgia, it is subject to supervision, examination and reporting by the Federal
Reserve and the Georgia Department. Its activities are limited to
banking, managing or controlling banks, furnishing services to or performing
services for its subsidiaries, or engaging in any other activity that the
Federal Reserve determines to be so closely related to banking, or managing or
controlling banks, as to be a proper incident to these activities.
Colony is
required to file with the Federal Reserve and the Georgia Department periodic
reports and any additional information as they may require. The
Federal Reserve and Georgia Department will also regularly examine the
Company. The Federal Deposit Insurance Corporation and Georgia
Department also examine the Banks, while the Office of Thrift Supervision
examines the Thrift Bank.
Activity
Limitations
The BHCA
requires prior Federal Reserve approval for, among other things:
|
|
·
|
the
acquisition by a bank holding company of direct or indirect ownership or
control of more than 5 percent of the voting shares or substantially all
of the assets of any bank, or
|
|
|
·
|
a
merger or consolidation of a bank holding company with another bank
holding company.
|
Similar
requirements are imposed by the Georgia Department.
A bank
holding company may acquire direct or indirect ownership or control of voting
shares of any company that is engaged directly or indirectly in banking, or
managing or controlling banks, or performing services for its authorized
subsidiaries. A bank holding company may also engage in or acquire an
interest in a company that engages in activities that the Federal Reserve has
determined by regulation or order to be so closely related to banking as to be a
proper incident to these activities. The Federal Reserve normally
requires some form of notice or application to engage in or acquire companies
engaged in such activities. Under the BHCA, Colony will generally be
prohibited from engaging in or acquiring direct or indirect control of more than
5 percent of the voting shares of any company engaged in activities other than
those referred to above.
The BHCA
permits a bank holding company located in one state to lawfully acquire a bank
located in any other state, subject to deposit percentage, aging requirements
and other restrictions. The Riegle-Neal Interstate Banking and
Branching Efficiency Act also generally provides that national and state
chartered banks may, subject to applicable state law, branch interstate through
acquisitions of banks in other states.
Part
I (Continued)
Item 1
(Continued)
In
November 1999, Congress enacted the Gramm-Leach-Bliley Act, which made
substantial revisions to the statutory restrictions separating banking
activities from other financial activities. Under the
Gramm-Leach-Bliley Act, bank holding companies that are well capitalized, well
managed and meet other conditions can elect to become “financial holding
companies.” As financial holding companies, they and their
subsidiaries are permitted to acquire or engage in activities that were not
previously allowed bank holding companies, such as insurance underwriting,
securities underwriting and distribution, travel agency activities, broad
insurance agency activities, merchant banking and other activities that the
Federal Reserve determines to be financial in nature or complementary to these
activities. Financial holding companies continue to be subject to the
overall oversight and supervision of the Federal Reserve, but the
Gramm-Leach-Bliley Act applies the concept of functional regulation to the
activities conducted by subsidiaries. For example, insurance
activities would be subject to supervision and regulation by state insurance
authorities. While Colony has not elected to become a financial
holding company in order to exercise the broader activity powers provided by the
Gramm-Leach-Bliley Act, it may elect to do so in the future.
Limitations
on Acquisitions of Bank Holding Companies
As a
general proposition, other companies seeking to acquire control of a bank
holding company would require the approval of the Federal Reserve under the
BHCA. In addition, individuals or groups of individuals seeking to
acquire control of a bank holding company would need to file a prior notice with
the Federal Reserve (which the Federal Reserve may disapprove under certain
circumstances) under the Change in Bank Control Act. Control is
conclusively presumed to exist if an individual or company acquires 25 percent
or more of any class of voting securities of the bank holding
company. Control may exist under the Change in Bank Control Act if
the individual or company acquires 10 percent or more of any class of voting
securities of the bank holding company.
Source
of Financial Strength
Federal
Reserve policy requires a bank holding company to act as a source of financial
strength and to take measures to preserve and protect bank subsidiaries in
situations where additional investments in a troubled bank may not otherwise be
warranted, In addition, if a bank holding company has more than one
bank or thrift subsidiary, each of the bank holding company’s subsidiary
depository institutions is responsible for any losses to the FDIC as a result of
an affiliated depository institution’s failure. As a result, a bank
holding company may be required to loan money to its subsidiaries in the form of
capital notes or other instruments that qualify as capital of the subsidiary
bank under regulatory rules. However, any loans from the bank holding
company to those subsidiary banks will likely be unsecured and subordinated to
that of bank’s depositors and perhaps to other creditors of that
bank.
Part
I (Continued)
Item 1
(Continued)
BANK
REGULATION
General
The Banks
are commercial banks chartered under the laws of the State of Georgia, and as
such are subject to supervision, regulation and examination by the Georgia
Department. The Banks are members of the FDIC, and their deposits are
insured by the FDIC’s Deposit Insurance Fund up to the amount permitted by
law. The FDIC, Office of Thrift Supervision (OTS) and the Georgia
Department routinely examine the Banks and monitor and regulate all of the
Banks’ operations, including such things as adequacy of reserves, quality and
documentation of loans, payments of dividends, capital adequacy, adequacy of
systems and controls, credit underwriting and asset liability management,
compliance with laws and establishment of branches. Interest and
other charges collected or contracted for by the Banks are subject to state
usury laws and certain federal laws concerning interest rates. The
Banks file periodic reports with the FDIC, OTS and the Georgia
Department.
Transactions
with Affiliates and Insiders
The
Company is a legal entity separate and distinct from the
Banks. Various legal limitations restrict the Banks from lending or
otherwise supplying funds to the Company and other nonbank subsidiaries of the
Company, all of which are deemed to be “affiliates” of the Banks for the
purposes of these restrictions. The Company and the Banks are subject
to Section 23A of the Federal Reserve Act. Section 23A defines
“covered transactions,” which include extensions of credit, and limits a bank’s
covered transactions with any affiliate to 10 percent of such bank’s capital and
surplus and with all affiliates to 20 percent of such bank’s capital and
surplus. All covered and exempt transactions between a bank and its
affiliates must be on terms and conditions consistent with safe and sound
banking practices, and banks and their subsidiaries are prohibited from
purchasing low-quality assets from the bank’s affiliates. Finally,
Section 23 A requires that all of a bank’s extensions of credit to an affiliate
be appropriately secured by acceptable collateral, generally United States
government or agency securities. The Company and the Banks are also
subject to Section 23B of the Federal Reserve Act, which generally limits
covered and other transactions between a bank and its affiliates to terms and
under circumstances, including credit standards, that are substantially the same
or at least as favorable to the bank as prevailing at the time for transactions
with unaffiliated companies.
Dividends
The
Company is a legal entity separate and distinct from the Banks. The
principal source of the Company’s cash flow, including cash flow to pay
dividends to its stockholders, is dividends that the Banks pay to
it. Statutory and regulatory limitations apply to the Banks’ payment
of dividends to the Company as well as to the Company’s payment of dividends to
its stockholders.
A variety
of federal and state laws and regulations affect the ability of the Banks and
the Company to pay dividends. A depository institution may not pay
any dividend if payment would cause it to become undercapitalized or if it
already is undercapitalized. The federal banking agencies may prevent
the payment of a dividend if they determine that the payment would be unsafe and
unsound banking practice. Moreover, the federal agencies have issued
policy statements that provide that bank holding companies and insured banks
should generally only pay dividends out of current operating
earnings. In addition, regulations promulgated by the Georgia
Department limit the Bank’s payment of dividends.
Part
I (Continued)
Item 1
(Continued)
Mortgage
Banking Regulation
Georgia
First Mortgage is licensed and regulated as a “mortgage banker” by the Georgia
Department. It is also qualified as a Fannie Mae and Freddie Mac
seller/servicer and must meet the requirements of such corporations and of the
various private parties with which it conducts business, including warehouse
lenders and those private entities to which it sells mortgage
loans.
Enforcement
Policies and Actions
Federal
law gives the Federal Reserve and FDIC substantial powers to enforce compliance
with laws, rules and regulations. Banks or individuals may be ordered
to cease and desist from violations of law or other unsafe or unsound
practices. The agencies have the power to impose civil money
penalties against individuals or institutions of up to $1,000,000 per day for
certain egregious violations. Persons who are affiliated with
depository institutions can be removed from any office held in that institution
and banned from participating in the affairs of any financial
institution. The banking regulators have not hesitated to use the
enforcement authorities provided in federal law.
Capital
Regulations
The
federal bank regulatory authorities have adopted capital guidelines for banks
and bank holding companies. In general, the authorities measure the
amount of capital an institution holds against its assets. There are
three major capital tests: (i) the Total Capital ratio (the total of Tier 1
Capital and Tier 2 Capital measured against risk-adjusted assets), (ii) the Tier
1 Capital ratio (Tier 1 Capital measured against risk-adjusted assets) and (iii)
the leverage ratio (Tier 1 Capital measured against average (i.e.,
nonrisk-weighted) assets).
Tier 1
Capital consists of common equity, retained earnings and a limited amount of
qualifying preferred stock, less goodwill and core deposit
intangibles. Tier 2 Capital consists of nonqualifying preferred
stock, qualifying subordinated, perpetual and/or mandatory convertible debt,
term subordinated debt and intermediate term preferred stock and up to 45
percent of the pretax unrealized holding gains on available-for-sale equity
securities with readily determinable market values that are prudently valued,
and a limited amount of any loan loss allowance.
In
measuring the adequacy of capital, assets are generally weighted for
risk. Certain assets, such as cash and U.S. government securities,
have a zero risk weighting. Others, such as commercial and consumer
loans, have a 100 percent risk weighting. Risk weightings are also
assigned for off-balance sheet items such as loan commitments. The
various assets are multiplied by the appropriate risk-weighting to determine
risk- adjusted assets for the capital calculations. For the leverage
ratio mentioned above, average assets are not risk-weighted.
Part
I (Continued)
Item 1
(Continued)
The
federal banking agencies must take “prompt corrective action” in respect of
depository institutions that do not meet minimum capital
requirements. There are five tiers for financial institutions: “well
capitalized,” “adequately capitalized,” “undercapitalized,” “significantly
undercapitalized” and “critically undercapitalized.” Under these
regulations, a bank will be:
|
|
·
|
“well
capitalized” if it has a Total Capital ratio of 10 percent or greater, a
Tier 1 Capital ratio of 6 percent or greater, a leverage ratio of 5
percent or better – or 4 percent in certain circumstances – and is not
subject to any written agreement, order, capital directive, or prompt
corrective action directive by a federal bank regulatory agency to meet
and maintain a specific capital level for any capital
measure;
|
|
|
·
|
“adequately
capitalized” if it has a Total Capital ratio of 8 percent or greater, a
Tier 1 Capital ratio of 4 percent or greater, and a leverage ratio of 4
percent or greater – or 3 percent in certain circumstances – and is not
well capitalized;
|
|
|
·
|
“undercapitalized”
if it has a Total Capital ratio of less that 8 percent, a Tier 1 Capital
ratio of less that 4 percent – or 3 percent in certain
circumstances;
|
|
|
·
|
“significantly
undercapitalized” if it has a Total Capital ratio of less than 6 percent
or a Tier 1 Capital ratio of less than 3 percent, or a leverage ratio of
less than 3 percent; or
|
|
|
·
|
“critically
undercapitalized” if its tangible equity is equal to or less than 2
percent of average quarterly
assets.
|
Federal
law generally prohibits a depository institution from making any capital
distribution, including the payment of a dividend or paying any management fee
to its holding company if the depository institution would be undercapitalized
as a result. Undercapitalized depository institutions may not accept
brokered deposits absent a waiver from the FDIC, are subject to growth
limitations and are required to submit a capital restoration plan for
approval. For a capital restoration plan to be acceptable, the
depository institution’s parent holding company must guarantee that the
institution will comply with such capital restoration plan. The
aggregate liability of the parent holding company is limited to the lesser of 5
percent of the depository institution’s total assets at the time it became
undercapitalized, and the amount necessary to bring the institution into
compliance with applicable capital standards. If a depository
institution fails to submit an acceptable plan, it is treated as if it is
significantly undercapitalized. If the controlling holding company
fails to fulfill its obligations under this law and files, or has filed against
it, a petition under the federal Bankruptcy Code, the FDIC claim related to the
holding company’s obligations would be entitled to a priority in such bankruptcy
proceeding over third party creditors of the bank holding company.
Significantly
undercapitalized depository institutions may be subject to a number of
requirements and restrictions, including orders to sell sufficient voting stock
to become adequately capitalized, requirements to reduce total assets and
cessation of receipt of deposits from correspondent banks. Critically
undercapitalized institutions are subject to the appointment of a receiver or
conservator.
At
December 31, 2007, the Company exceeded the minimum Tier 1, risk-based and
leverage ratios and qualified as “well capitalized” under current Federal
Reserve Board criteria. The following table sets forth certain
capital information for the Company as of December 31, 2007. Consider
the following brief summary rather than the preceeding and the
table. As of December 31, 2007, Colony had Tier 1 Capital and Total
Capital of approximately 10.83 percent and 12.08 percent, respectively, of
risk-weighted assets. As of December 31, 2007, Colony had a leverage ratio of
Tier 1 Capital to total average assets of approximately 8.60
percent.
Part
I (Continued)
Item 1
(Continued)
|
December
31, 2007
|
||||||||
|
Amount
|
Percent
|
|||||||
|
Leverage
Ratio
|
||||||||
|
Actual
|
$ | 104,157 | 8.60 | % | ||||
|
Well-Capitalized
Requirement
|
60,583 | 5.00 | ||||||
|
Minimum
Required (1)
|
48,467 | 4.00 | ||||||
|
Risk
Based Capital:
|
||||||||
|
Tier
1 Capital
|
||||||||
|
Actual
|
104,157 | 10.83 | ||||||
|
Well-Capitalized
Requirement
|
57,708 | 6.00 | ||||||
|
Minimum
Required (1)
|
38,472 | 4.00 | ||||||
|
Total
Capital
|
||||||||
|
Actual
|
116,222 | 12.08 | ||||||
|
Well-Capitalized
Requirement
|
96,180 | 10.00 | ||||||
|
Minimum
Required (1)
|
76,944 | 8.00 | ||||||
|
(1)
|
Represents
the minimum requirement. Institutions that are contemplating
acquisitions or anticipating or experiencing significant growth may be
required to maintain a substantially higher leverage
ratio.
|
The
guidelines also provide that institutions experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels without significant reliance on intangible
assets. Higher capital may be required in individual cases, depending
upon a bank or bank holding company’s risk profile. All bank holding
companies and banks are expected to hold capital commensurate with the level and
nature of their risks, including the volume and severity of their problem
loans. Lastly, the Federal Reserve’s guidelines indicate that the
Federal Reserve will continue to consider a “Tangible Tier 1 Leverage Ratio,”
calculated by deducting all intangibles, in evaluating proposals for expansion
or new activity.
FDIC
Insurance Assessments
The
Banks’ deposits are insured by the FDIC and thus the Banks are subject to FDIC
deposit insurance assessments. The FDIC utilizes a risk-based
insurance premium scheme to determine the assessment rates for insured
depository institutions. Each financial institution is assigned to
one of three capital groups: well capitalized, adequately capitalized
or undercapitalized.
Each
financial institution is further assigned to one of three subgroups within a
capital group, on the basis of supervisory evaluations by the institution’s
primary federal and, if applicable, state regulators and other information
relevant to the institution’s financial condition and the risk posed to the
insurance fund. The actual assessment rate applicable to a particular
institution will, therefore, depend in part upon the risk assessment
classification assigned to the institution by the FDIC. The FDIC is
presently considering whether to charge deposit insurance premiums based upon
management weaknesses and whether the Banks’ underwriting practices,
concentrations of risk and growth are undisciplined or outside industry
norms.
Part
I (Continued)
Item 1
(Continued)
The
deposit insurance assessment rates currently range from five basis points on
deposits (for a financial institution in the highest category) to 43 basis
points on deposits (for an institution in the lowest category). In
addition, the FDIC collects The Financing Corporation (FICO) deposit assessments
on assessable deposits at the same rate. FICO assessments are set
quarterly, and in 2007 ranged from 1.14 to 1.22 basis points. The
FICO assessment rate for the Banks for the first quarter of 2008 is 1.14 basis
points of assessable deposits.
Community
Reinvestment Act
The Banks
are subject to the provisions of the Community Reinvestment Act of 1977, as
amended (the CRA), and the federal banking agencies’ related
regulations. Under the CRA, all banks and thrifts have a continuing
and affirmative obligation, consistent with safe and sound operation, to help
meet the credit needs for their entire communities, including low- and
moderate-income neighborhoods. The CRA requires a depository
institution’s primary federal regulator, in connection with its examination of
the institution or its evaluation of certain regulatory applications, to assess
the institution’s record in assessing and meeting the credit needs of the
community served by that institution, including low- and moderate-income
neighborhoods. The regulatory agency’s assessment of the
institution’s record is made available to the public.
Current
CRA regulations rate institutions based on their actual performance in meeting
community credit needs. The Banks received a “satisfactory” rating on
their most recent examinations in 2007.
Consumer
Regulations
Interest
and other charges collected or contracted for by the Banks are subject to state
usury laws and certain federal laws concerning interest rates. The
Banks’ loan operations are also subject to federal laws and regulations
applicable to credit transactions, such as those:
|
|
·
|
Governing
disclosures of credit terms to consumer
borrowers;
|
|
|
·
|
Requiring
financial institutions provide information to enable the public and public
officials to determine whether a financial institution is fulfilling its
obligation to help meet the housing needs of the community it
serves;
|
|
|
·
|
Prohibiting
discrimination on the basis of race, creed or other prohibited factors in
extending credit;
|
|
|
·
|
Governing
the use and provision of information to credit reporting agencies;
and
|
|
|
·
|
Governing
the manner in which consumer debts may be collected by collection
agencies.
|
The
deposit operations of the Banks are also subject to laws and regulations
that:
|
|
·
|
Impose
a duty to maintain the confidentiality of consumer financial records and
prescribe procedures for complying with administrative subpoenas of
financial records; and
|
|
|
·
|
Govern
automatic deposits to and withdrawals from deposit accounts and customers’
rights and liabilities arising from the use of automated teller machines
and other electronic banking
services.
|
Part
I (Continued)
Item 1
(Continued)
Fiscal
and Monetary Policy
Banking
is a business that depends on interest rate differentials. In
general, the difference between the interest paid by a bank on its deposits and
its other borrowings, and the interest received by a bank on its loans and
securities holdings, constitutes the major portion of a bank’s
earnings. Thus, Colony’s earnings and growth and that of the Banks
will be subject to the influence of economic conditions, generally both domestic
and foreign, and also to the monetary and fiscal policies of the United States
and its agencies, particularly the Federal Reserve. The Federal
Reserve regulates the supply of money through various means, including open
market dealings in United States government securities, the discount rate at
which banks may borrow from the Federal Reserve and the reserve requirements on
deposits.
The
monetary policies of the Federal Reserve historically have had a significant
effect on the operating results of commercial banks and mortgage banking
operations and will continue to do so in the future. The Company
cannot predict the conditions in the national and international economies and
money markets, the actions and changes in policy by monetary and fiscal
authorities or their effect on the Banks.
Anti-Terrorism
Legislation
In the
wake of the tragic events of September 11th, on
October 26, 2001, the President signed the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA
PATRIOT) Act of 2001. Under the USA PATRIOT Act, financial
institutions are subject to prohibitions against specified financial
transactions and account relationships as well as enhanced due diligence and
“know your customer” standards in their dealings with foreign financial
institutions and foreign customers. For example, the enhanced due
diligence policies, procedures and controls generally require financial
institutions to take reasonable steps to:
|
|
·
|
conduct
enhanced scrutiny of account relationships to guard against money
laundering and report any suspicious
transaction;
|
|
|
·
|
ascertain
the identity of the nominal and beneficial owners of, and the source of
funds deposited into, each account as needed to guard against money
laundering and report any suspicious
transactions;
|
|
|
·
|
ascertain
for any foreign bank, the shares of which are not publicly traded, the
identity of the owners of the foreign bank, and the nature and extent of
the ownership interest of each owner;
and
|
|
|
·
|
ascertain
whether any foreign bank provides correspondent accounts to other foreign
banks and, if so, the identity of those foreign banks and related due
diligence information.
|
The USA
PATRIOT Act requires financial institutions to establish anti-money laundering
programs. The USA PATRIOT Act sets forth minimum standards for these
programs, including:
|
|
·
|
The
development of internal policies, procedures and
controls;
|
|
|
·
|
The
designation of a compliance
officer;
|
|
|
·
|
An
ongoing employee training program;
and
|
|
|
·
|
An
independent audit function to test the
programs.
|
Part
I (Continued)
Item 1
(Continued)
In
addition, the USA PATRIOT Act authorizes the Secretary of the Treasury to adopt
rules increasing the cooperation and information sharing between financial
institutions, regulators and law enforcement authorities regarding individuals,
entities and organizations engaged in, or reasonably suspected based on credible
evidence of engaging in, terrorist acts or money laundering
activities. Any financial institution complying with these rules will
not be deemed to have violated the privacy provisions of the Gramm-Leach-Bliley
Act, as discussed above.
Item 1A
Risk
Factors
The
following are certain risks that management believes are specific to our
business. This should not be viewed as an all inclusive list or in any
particular order.
Future
loan losses may exceed our allowance for loan losses
We are
subject to credit risk, which is the risk of losing principal or interest due to
borrowers’ failure to repay loans in accordance with their terms. A
downturn in the economy or the real estate market in our market areas or a rapid
change in interest rates could have a negative effect on collateral values and
borrowers’ ability to repay. This deterioration in economic
conditions could result in losses to the Bank in excess of loan loss
allowances.
Our loan
customers may not repay their loans according to the terms of these loans, and
the collateral securing the payment of these loans may be insufficient to ensure
repayment. As a result, we may experience loan losses, which could
have a material adverse effect on our operating results. Management
makes various assumptions and judgments about the collectibility of our loan
portfolio, including the creditworthiness of our borrowers and the value of the
real estate and other assets serving as collateral for the repayment of many of
our loans. We maintain an allowance for loan losses in an attempt to
cover any loan losses that may occur. In determining the size of the
allowance, we rely on an analysis of our loan portfolio based on historical loss
experience, volume and types of loans, trends in classification, volume and
trends in delinquencies and nonaccruals, national and local economic conditions
and other pertinent information. Our determination of the size of the
allowance could be understated due to our lack of familiarity with
market-specific factors.
If our
assumptions are wrong, our current allowance may not be sufficient to cover
future loan losses, and adjustments may be necessary to allow for different
economic conditions or adverse developments in our loan
portfolio. Material additions to our allowance would materially
decrease our net income. As a result of a difficult real estate
market, we have increased our allowance from $11.99 million as of December 31,
2006 to $15.51 million as of December 31, 2007. We expect to continue
to increase our allowance in 2008; however, we can make no assurance that our
allowance will be adequate to cover future loan losses given current and future
market conditions.
In
addition, federal and state regulators periodically review our allowance for
loan losses and may require us to increase our provision for loan losses or
recognize further loan charge-offs, based on judgments different than those of
our management. Any increase in our allowance for loan losses or loan
charge-offs as required by these regulatory agencies could have a negative
effect on our operating results.
Part
I (Continued)
Item 1A
(Continued)
Rapidly
changing interest rate environments could reduce our net interest margin, net
interest income, fee income and net income
Interest
and fees on loans and securities, net of interest paid on deposits and
borrowings, are a large part of our net income. Interest rates are
key drivers of our net interest margin and subject to many factors beyond the
control of management. As interest rates change, net interest income
is affected. Rapid increases in interest rates in the future could
result in interest expense increasing faster than interest income because of
mismatches in financial instrument maturities. Further, substantially
higher interest rates generally reduce loan demand and may result in slower loan
growth particularly in construction lending, an important factor in the
Company’s revenue growth over the years. Decreases or increases in
interest rates could have a negative effect on the spreads between the interest
rates earned on assets and the rates of interest paid on liabilities and,
therefore, decrease net interest income. In response to the dramatic
deterioration of the subprime, mortgage, credit and liquidity markets, the
Federal Reserve recently has taken action on five occasions to reduce interest
rates by a total of 225 basis points since September 2007, which likely will
reduce our net interest income during the first quarter of 2008 and the
foreseeable future. See “Quantitative and Qualitative Disclosures
about Market Risk.”
Our
business is subject to the success of the local economies where we
operate
Our
success significantly depends upon the growth in population, income levels,
deposits and housing starts in our primary and secondary markets. If
the communities in which we operate do not grow or if prevailing economic
conditions locally or nationally are unfavorable, our business may not
succeed. We are currently experiencing adverse economic conditions in
some of our market areas, which affect the ability of our customers to repay
their loans to us and generally negatively affect our financial condition and
results of operations.
The
market value of the real estate securing our loans as collateral has been
adversely affected by the slowing economy and unfavorable change in economic
conditions in our market areas and could be further adversely affected in the
future. As of December 31, 2007, approximately 84.5 percent of our
loans receivable were secured by real estate. Any sustained period of
increased payment delinquencies, foreclosures or losses caused by the adverse
market and economic conditions, including the downturn in the real estate market
in the state of Georgia will adversely affect the value of our assets, our
revenues, results of operations and financial condition. Currently,
we are experiencing such an economic downturn, and if it continues, our
operations could be further adversely affected.
We
make and hold in our portfolio a significant number of land acquisition and
development and construction loans, which in the current market environment pose
more credit risk than other types of loans typically made by financial
institutions.
We offer
land acquisition and development and construction loans for builders and
developers. As of December 31, 2007, approximately $202 million of
our loan portfolio represents loans for which the related property is neither
presold nor preleased. These land acquisition and development and
construction loans are considered more risky than other types of residential
mortgage loans. The primary credit risks associated with land
acquisition and development and construction lending are underwriting, project
risks and market risks. Project risks include cost overruns, borrower
credit risk, project completion risk, general contractor credit risk and
environmental and other hazard risks. Market risks are risks
associated with the sale of the completed residential units. They
include affordability risk, which means the risk of affordability of financing
by borrowers, product design risks, and risks posed by completing
projects. While we believe we have established adequate reserves on
our financial statements to cover the credit risk of our land acquisition and
development and construction loan portfolio, there can be no assurance that
losses will not exceed our reserves, which could adversely impact our
earnings.
Part
I (Continued)
Item 1A
(Continued)
Current
and anticipated deterioration in the housing market and the homebuilding
industry may lead to increased loss severities and further worsening of
delinquencies and nonperforming assets in our loan
portfolios. Consequently, our results of operations may be adversely
impacted.
There has
been substantial industry concern and publicity over asset quality among
financial institutions due in large part to issues related to subprime mortgage
lending, declining real estate values and general economic
concerns. Furthermore, the housing and the residential mortgage
markets recently have experienced a variety of difficulties and changed economic
conditions. If market conditions continue to deteriorate, they may
lead to additional valuation adjustments on our loan portfolios and real estate
owned as we continue to reassess the market value of our loan portfolio, the
losses associated with the loans in default and the net realizable value of real
estate owned.
The
homebuilding industry has experienced a significant and sustained decline in
demand for new homes and an oversupply of new and existing homes available for
sale in various markets, including some of the markets in which we
lend. Our customers who are builders and developers face greater
difficulty in selling their homes in markets where these trends are more
pronounced. Consequently, we are facing increased delinquencies and
nonperforming assets as these builders and developers are forced to default on
their loans with us. We do not anticipate that the housing market
will improve in the near-term and, accordingly, additional downgrades,
provisions for loan losses and charge-offs related to our loan portfolio may
occur.
Slower
than anticipated growth in new branches and new product and service offerings
could result in reduced net income
We have
placed a strategic emphasis on expanding our branch network and product
offerings. Executing this strategy carries risks of slower than anticipated
growth both in new branches and new products. New branches and
products require a significant investment of both financial and personnel
resources. Lower than expected loan and deposit growth in new
investments can decrease anticipated revenues and net income generated by those
investments, and opening new branches and introducing new products could result
in more additional expenses than anticipated and divert resources from current
core operations.
The
financial services industry is very competitive
We face
competition in attracting and retaining deposits, making loans, and providing
other financial services throughout our market area. Our competitors
include other community banks, larger banking institutions, and a wide range of
other financial institutions such as credit unions, government-sponsored
enterprises, mutual fund companies, insurance companies and other nonbanking
businesses. Many of these competitors have substantially greater
resources than us. For a more complete discussion of our competitive
environment, see “Business – Competition” in Item 1 above. If we are unable to
compete effectively, we will lose market share, and income from deposits, loans
and other products may be reduced.
Inability
to hire or retain certain key professionals, management and staff could
adversely affect our revenues and net income
We rely
on key personnel to manage and operate our business, including major revenue
generating functions such as our loan and deposit portfolios. The
loss of key staff may adversely affect our ability to maintain and manage these
portfolios effectively, which could negatively affect our
revenues. In addition, loss of key personnel could result in
increased recruiting and hiring expenses, which could cause a decrease in our
net income.
Item 1B
Unresolved
Staff Comments
None.
Item 2
Properties
The
principal properties of the Registrant consist of the properties of the
Banks. For a description of the properties of the Banks, see "Item 1
– Business of the Company and Subsidiary Banks” included elsewhere in this
Annual Report.
Item 3
Legal
Proceedings
The
Company and its subsidiaries may become parties to various legal proceedings
arising from the normal course of business. As of December 31, 2007,
there are no material pending legal proceedings to which Colony or its
subsidiaries are a party or of which any of its property is the
subject.
Item 4
Submission
of Matters to a Vote of Security Holders
No
matters were submitted to a vote of the Registrant's stockholders during the
fourth quarter of 2007.
Part II
Item
5
Market
for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchase of Equity Securities
Effective
April 2, 1998, Colony Bankcorp, Inc. common stock is quoted on the NASDAQ
National Market under the symbol “CBAN.” Prior to this date, there
was no public market for the common stock of the registrant.
The
following table sets forth the high, low and close sale prices per share of the
common stock as reported on the NASDAQ National Market, and the dividends
declared per share for the periods indicated.
|
Year
Ended December 31, 2007
|
High
|
Low
|
Close
|
Dividends
Per
Share
|
||||||||||||
|
Fourth
Quarter
|
$ | 19.00 | $ | 14.55 | $ | 15.20 | $ | 0.095 | ||||||||
|
Third
Quarter
|
20.50 | 16.47 | 17.35 | 0.093 | ||||||||||||
|
Second
Quarter
|
21.85 | 18.88 | 19.48 | 0.090 | ||||||||||||
|
First
Quarter
|
20.76 | 17.55 | 20.76 | 0.088 | ||||||||||||
|
|
||||||||||||||||
|
Year
Ended December 31, 2006
|
||||||||||||||||
|
Fourth
Quarter
|
20.52 | 17.25 | 17.70 | 0.085 | ||||||||||||
|
Third
Quarter
|
22.07 | 19.04 | 20.90 | 0.083 | ||||||||||||
|
Second
Quarter
|
22.63 | 17.10 | 22.34 | 0.080 | ||||||||||||
|
First
Quarter
|
27.55 | 21.05 | 22.04 | 0.078 | ||||||||||||
Part
II (Continued)
Item 5
(Continued)
Market
for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchase of Equity Securities (Continued)
The
Registrant paid cash dividends on its common stock of $2,629,381 or $0.365 per
share and $2,336,865 or $0.325 per share in 2007 and 2006,
respectively.
As of
December 31, 2007, the Company had approximately 2,107 stockholders of
record. There were no sales of unregistered securities of the Company
in 2007.
Performance
Graph
The graph
presented below compares the cumulative total stockholder return on Colony
Bankcorp, Inc.’s common stock to the cumulative total return of the NASDAQ
Composite and the SNL Southeast Bank Index for the five fiscal years, which
commenced January 1, 2003 and ended December 31, 2007. The cumulative
total stockholder return assumes the investment of $100 in Colony Bankcorp,
Inc.’s common stock and in each index on December 31, 2002 and assumes
reinvestment of dividends. The NASDAQ Composite Index is a publicly
available measure of over 3,000 companies including NASDAQ domestic and
international based common type stocks listed on The NASDAQ Stock Market.
The SNL Southeast Bank Index is a compilation of the total stockholder return of
all publicly-traded bank holding companies headquartered in the Southeastern
United States.
Comparison of Five-Year Cumulative
Total Stockholder Return
|
Period
Ending
|
||||||||||||||||||||||||
|
Index
|
12/31/02
|
12/31/03
|
12/31/04
|
12/31/05
|
12/31/06
|
12/31/07
|
||||||||||||||||||
|
Colony
Bankcorp, Inc.
|
100.00 | 160.35 | 273.31 | 253.65 | 182.70 | 160.15 | ||||||||||||||||||
|
NASDAQ
Composite
|
100.00 | 150.01 | 162.89 | 165.13 | 180.85 | 198.60 | ||||||||||||||||||
|
SNL
Southeast Bank Index
|
100.00 | 125.58 | 148.92 | 152.44 | 178.75 | 134.65 | ||||||||||||||||||
Source: SNL
Financial LC
Part
II (Continued)
Item 5
(Continued)
Issuer
Purchase of Equity Securities
The
Company purchased no shares of the Company’s common stock during the quarter
ended December 31, 2007.
Item 6
Selected
Financial Data
|
Year
Ended December 31,
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
(Dollars
in Thousands, except per share data)
|
||||||||||||||||||||
|
Selected
Balance Sheet Data
|
||||||||||||||||||||
|
Total
Assets
|
$ | 1,208,777 | $ | 1,213,504 | $ | 1,108,338 | $ | 997,591 | $ | 868,606 | ||||||||||
|
Total
Loans, Net of Unearned Interest and Fees
|
944,978 | 941,772 | 858,815 | 778,643 | 654,177 | |||||||||||||||
|
Total
Deposits
|
1,018,602 | 1,042,446 | 944,365 | 850,329 | 732,318 | |||||||||||||||
|
Investment
Securities
|
167,191 | 149,307 | 124,326 | 112,593 | 110,408 | |||||||||||||||
|
Federal
Home Loan Bank Stock
|
5,533 | 5,087 | 5,034 | 4,479 | 3,000 | |||||||||||||||
|
Stockholders’
Equity
|
83,743 | 76,611 | 68,128 | 61,763 | 55,976 | |||||||||||||||
|
Selected
Income Statement Data
|
||||||||||||||||||||
|
Interest
Income
|
90,159 | 83,280 | 63,634 | 51,930 | 46,418 | |||||||||||||||
|
Interest
Expense
|
47,701 | 41,392 | 26,480 | 18,383 | 18,414 | |||||||||||||||
|
Net
Interest Income
|
42,458 | 41,888 | 37,154 | 33,547 | 28,004 | |||||||||||||||
|
Provision
for Loan Losses
|
5,931 | 3,987 | 3,444 | 3,469 | 4,060 | |||||||||||||||
|
Other
Income
|
7,817 | 7,350 | 6,152 | 6,424 | 7,128 | |||||||||||||||
|
Other
Expense
|
31,579 | 29,882 | 26,076 | 24,271 | 20,864 | |||||||||||||||
|
Income
Before Tax
|
12,765 | 15,369 | 13,786 | 12,231 | 10,208 | |||||||||||||||
|
Income
Tax Expense
|
4,218 | 5,217 | 4,809 | 4,162 | 3,392 | |||||||||||||||
|
Net
Income
|
$ | 8,547 | $ | 10,152 | $ | 8,977 | $ | 8,069 | $ | 6,816 | ||||||||||
|
Weighted
Average Shares Outstanding (1)
|
7,189 | 7,177 | 7,168 | 7,131 | 7,127 | |||||||||||||||
|
Shares
Outstanding (1)
|
7,201 | 7,190 | 7,181 | 7,172 | 7,160 | |||||||||||||||
|
Intangible
Assets
|
$ | 2,815 | $ | 2,851 | $ | 2,932 | $ | 3,047 | $ | 691 | ||||||||||
|
Dividends
Declared
|
2,629 | 2,337 | 2,058 | 1,808 | 1,555 | |||||||||||||||
|
Average
Assets
|
1,204,165 | 1,160,718 | 1,034,777 | 938,283 | 816,666 | |||||||||||||||
|
Average
Stockholders’ Equity
|
80,595 | 71,993 | 65,146 | 59,037 | 53,843 | |||||||||||||||
|
Net
Charge-Offs
|
2,407 | 2,760 | 2,694 | 1,973 | 2,908 | |||||||||||||||
|
Reserve
for Loan Losses
|
15,513 | 11,989 | 10,762 | 10,012 | 8,516 | |||||||||||||||
|
OREO
|
1,332 | 970 | 2,170 | 1,127 | 2,724 | |||||||||||||||
|
Nonperforming
Loans
|
15,016 | 8,078 | 8,593 | 8,809 | 7,492 | |||||||||||||||
|
Nonperforming
Assets
|
16,348 | 9,048 | 10,763 | 9,936 | 10,216 | |||||||||||||||
|
Average
Interest-Earning Assets
|
1,141,652 | 1,097,716 | 979,966 | 887,331 | 774,984 | |||||||||||||||
|
Noninterest-Bearing
Deposits
|
86,112 | 77,336 | 78,778 | 68,169 | 64,044 | |||||||||||||||
Part
II (Continued)
Item 6
(Continued)
|
Year
Ended December 31,
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
(Dollars
in Thousands, except per share data)
|
||||||||||||||||||||
|
Per
Share Data: (1)
|
||||||||||||||||||||
|
Net
Income (Diluted)
|
$ | 1.19 | $ | 1.41 | $ | 1.25 | $ | 1.13 | $ | 0.95 | ||||||||||
|
Book
Value
|
11.63 | 10.66 | 9.49 | 8.61 | 7.82 | |||||||||||||||
|
Tangible
Book Value
|
11.24 | 10.26 | 9.08 | 8.19 | 7.72 | |||||||||||||||
|
Dividends
|
0.365 | 0.325 | 0.285 | 0.252 | 0.217 | |||||||||||||||
|
Profitability
Ratios:
|
||||||||||||||||||||
|
Net
Income to Average Assets
|
0.71 | % | 0.87 | % | 0.87 | % | 0.86 | % | 0.83 | % | ||||||||||
|
Net
Income to Average Stockholders' Equity
|
10.60 | 14.10 | 13.78 | 13.67 | 12.66 | |||||||||||||||
|
Net
Interest Margin
|
3.75 | 3.84 | 3.81 | 3.81 | 3.65 | |||||||||||||||
|
Loan
Quality Ratios:
|
||||||||||||||||||||
|
Net
Charge-Offs to Total Loans
|
0.25 | 0.29 | 0.31 | 0.25 | 0.44 | |||||||||||||||
|
Reserve
for Loan Losses to Total Loans and OREO
|
1.64 | 1.27 | 1.25 | 1.28 | 1.30 | |||||||||||||||
|
Nonperforming
Assets to Total Loans and OREO
|
1.73 | 0.96 | 1.25 | 1.27 | 1.56 | |||||||||||||||
|
Reserve
for Loan Losses to Nonperforming Loans
|
103.31 | 148.42 | 125.24 | 113.66 | 113.67 | |||||||||||||||
|
Reserve
for Loan Losses to Total Nonperforming Assets
|
94.89 | 132.50 | 99.99 | 100.76 | 83.36 | |||||||||||||||
|
Liquidity
Ratios:
|
||||||||||||||||||||
|
Loans
to Total Deposits
|
92.77 | 90.34 | 90.94 | 91.57 | 89.33 | |||||||||||||||
|
Loans
to Average Earning Assets
|
82.77 | 85.79 | 87.64 | 87.75 | 84.41 | |||||||||||||||
|
Noninterest-Bearing
Deposits to Total Deposits
|
8.45 | 7.42 | 8.34 | 8.02 | 8.75 | |||||||||||||||
|
Capital
Adequacy Ratios:
|
||||||||||||||||||||
|
Common
Stockholders' Equity to Total Assets
|
6.93 | 6.31 | 6.15 | 6.19 | 6.45 | |||||||||||||||
|
Total
Stockholders' Equity to Total Assets
|
6.93 | 6.31 | 6.15 | 6.19 | 6.45 | |||||||||||||||
|
Dividend
Payout Ratio
|
30.67 | 23.05 | 22.80 | 22.30 | 22.84 | |||||||||||||||
|
(1)
|
All
per share data adjusted to reflect 5-for-4 stock split effective May 15,
2005.
|
Part II (Continued)
Item
7
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Forward-Looking
Statements and Factors that Could Affect Future Results
Certain
statements contained in this Annual Report that are not statements of historical
fact constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 (the Act), notwithstanding that such
statements are not specifically identified. In addition, certain statements may
be contained in the Company’s future filings with the SEC, in press releases,
and in oral and written statements made by or with the approval of the Company
that are not statements of historical fact and constitute forward-looking
statements within the meaning of the Act. Examples of forward-looking statements
include, but are not limited to: (i) projections of revenues, income or
loss, earnings or loss per share, the payment or nonpayment of dividends,
capital structure and other financial items; (ii) statements of plans and
objectives of Colony Bankcorp, Inc. or its management or Board of Directors,
including those relating to products or services; (iii) statements of future
economic performance; and (iv) statements of assumptions underlying such
statements. Words such as “believes,” “anticipates,” “expects,” “intends,”
“targeted” and similar expressions are intended to identify forward-looking
statements but are not the exclusive means of identifying such
statements.
Forward-looking
statements involve risks and uncertainties that may cause actual results to
differ materially from those in such statements. Factors that could cause actual
results to differ from those discussed in the forward-looking statements
include, but are not limited to:
|
|
·
|
Local
and regional economic conditions and the impact they may have on the
Company and its customers and the Company’s assessment of that
impact.
|
|
|
·
|
Changes
in estimates of future reserve requirements based upon the periodic review
thereof under relevant regulatory and accounting
requirements.
|
|
|
·
|
The
effects of and changes in trade, monetary and fiscal policies and laws,
including interest rate policies of the Federal Reserve
Board.
|
|
|
·
|
Inflation,
interest rate, market and monetary
fluctuations.
|
|
|
·
|
Political
instability.
|
|
|
·
|
Acts
of war or terrorism.
|
|
|
·
|
The
timely development and acceptance of new products and services and
perceived overall value of these products and services by
users.
|
|
|
·
|
Changes
in consumer spending, borrowings and savings
habits.
|
|
|
·
|
Technological
changes.
|
|
|
·
|
Acquisitions
and integration of acquired
businesses.
|
|
|
·
|
The
ability to increase market share and control
expenses.
|
Part
II (Continued)
Item 7
(Continued)
|
|
·
|
The
effect of changes in laws and regulations (including laws and regulations
concerning taxes, banking, securities and insurance) with which the
Company and its subsidiaries must
comply.
|
|
|
·
|
The
effect of changes in accounting policies and practices, as may be adopted
by the regulatory agencies, as well as the Financial Accounting Standards
Board and other accounting standard
setters.
|
|
|
·
|
Changes
in the Company’s organization, compensation and benefit
plans.
|
|
|
·
|
The
costs and effects of litigation and of unexpected or adverse outcomes in
such litigation.
|
|
|
·
|
Greater
than expected costs or difficulties related to the integration of new
lines of business.
|
|
|
·
|
The
Company’s success at managing the risks involved in the foregoing
items.
|
Forward-looking
statements speak only as of the date on which such statements are
made. The Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made, or to reflect the occurrence of unanticipated
events.
The
Company
Colony
Bankcorp, Inc. (Colony) is a bank holding company headquartered in Fitzgerald,
Georgia that provides, through its wholly-owned subsidiaries (collectively
referred to as the Company), a broad array of products and services throughout
18 Georgia markets. The Company offers commercial, consumer and mortgage banking
services.
Application
of Critical Accounting Policies and Accounting Estimates
The
accounting and reporting policies of the Company are in accordance with
accounting principles generally accepted in the United States of America and
conform to general practices within the banking industry. The
Company’s financial position and results of operations are affected by
management’s application of accounting policies, including judgments made to
arrive at the carrying value of assets and liabilities and amounts reported for
revenues, expenses and related disclosures. Different assumptions in
the application of these policies could result in material changes in the
Company’s financial position and/or results of operations. Critical
accounting policies are those policies that management believes are the most
important to the portrayal of the Company’s financial condition and results of
operations, and they require management to make estimates that are difficult and
subjective.
Allowance for Loan Losses –
The allowance for loan losses provides coverage for probable losses inherent in
the Company’s loan portfolio. Management evaluates the adequacy of
the allowance for loan losses quarterly based on changes, if any, in
underwriting activities, the loan portfolio composition (including product mix
and geographic, industry or customer-specific concentrations), trends in loan
performance, regulatory guidance and economic factors. This
evaluation is inherently subjective, as it requires the use of significant
management estimates. Many factors can affect management’s estimates
of specific and expected losses, including volatility of default probabilities,
collateral values, rating migrations, loss severity and economic and political
conditions. The allowance is increased through provisions charged to
operating earnings and reduced by net charge-offs.
Part
II (Continued)
Item 7
(Continued)
The
Company determines the amount of the allowance based on relative risk
characteristics of the loan portfolio. The allowance recorded for
loans is based on reviews of individual credit relationships and historical loss
experience. The allowance for losses relating to impaired loans is
based on the loan’s observable market price, the discounted cash flows using the
loan’s effective interest rate, or the value of collateral for collateral
dependent loans.
Regardless
of the extent of the Company’s analysis of customer performance, portfolio
trends or risk management processes, certain inherent but undetected losses are
probable within the loan portfolio. This is due to several factors,
including inherent delays in obtaining information regarding a customer’s
financial condition or changes in their unique business conditions, the
judgmental nature of individual loan evaluations, collateral assessments and the
interpretation of economic trends. Volatility of economic or
customer-specific conditions affecting the identification and estimation of
losses for larger nonhomogeneous credits and the sensitivity of assumptions
utilized to establish allowances for homogeneous groups of loans are among other
factors. The Company estimates a range of inherent losses related to
the existence of these exposures. The estimates are based upon the
Company’s evaluation of risk associated with the commercial and consumer levels
and the estimated impact of the current economic environment.
Goodwill and Other Intangibles
– The Company records all assets and liabilities acquired in purchase
acquisitions, including goodwill and other intangibles, at fair value as
required by SFAS 141. Goodwill is subject, at a minimum, to annual
tests for impairment. Other intangible assets are amortized over
their estimated useful lives using straight-line and accelerated methods, and
are subject to impairment if events or circumstances indicate a possible
inability to realize the carrying amount. The initial goodwill and
other intangibles recorded and subsequent impairment analysis require management
to make subjective judgments concerning estimates of how the acquired asset will
perform in the future. Events and factors that may significantly
affect the estimates include, among others, customer attrition, changes in
revenue growth trends, specific industry conditions and changes in
competition.
Overview
The
following discussion and analysis presents the more significant factors
affecting the Company’s financial condition as of December 31, 2007 and
2006, and results of operations for each of the years in the three-year period
ended December 31, 2007. This discussion and analysis should be read in
conjunction with the Company’s consolidated financial statements, notes thereto
and other financial information appearing elsewhere in this report.
Taxable-equivalent
adjustments are the result of increasing income from tax-free loans and
investments by an amount equal to the taxes that would be paid if the income
were fully taxable based on a 34 percent federal tax rate, thus
making tax-exempt yields comparable to taxable asset yields.
Dollar
amounts in tables are stated in thousands, except for per share
amounts.
Part
II (Continued)
Item 7
(Continued)
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 totaled $8.55 million, or $1.19 diluted
per common share in 2007 compared to $10.15 million, or $1.41 diluted per common
share in 2006 and $8.98 million, or $1.25 diluted per common share in
2005.
Selected
income statement data, returns on average assets and average equity and
dividends per share for the comparable periods were as follows:
|
2007
|
2006
|
2005
|
||||||||||
|
Taxable–Equivalent
Net Interest Income
|
$ | 42,817 | $ | 42,158 | $ | 37,381 | ||||||
|
Taxable-Equivalent
Adjustment
|
359 | 270 | 227 | |||||||||
|
Net
Interest Income
|
42,458 | 41,888 | 37,154 | |||||||||
|
Provision
for Possible Loan Losses
|
5,931 | 3,987 | 3,444 | |||||||||
|
Noninterest
Income
|
7,817 | 7,350 | 6,152 | |||||||||
|
Noninterest
Expense
|
31,579 | 29,882 | 26,076 | |||||||||
|
Income
Before Income Taxes
|
12,765 | 15,369 | 13,786 | |||||||||
|
Income
Taxes
|
4,218 | 5,217 | 4,809 | |||||||||
|
Net
Income
|
$ | 8,547 | $ | 10,152 | $ | 8,977 | ||||||
|
Earnings
per Common Share:
|
||||||||||||
|
Basic
|
$ | 1.19 | $ | 1.41 | $ | 1.25 | ||||||
|
Diluted
|
$ | 1.19 | $ | 1.41 | $ | 1.25 | ||||||
|
Return
on Average Assets
|
0.71 | % | 0.87 | % | 0.87 | % | ||||||
|
Return
on Average Equity
|
10.60 | % | 14.10 | % | 13.78 | % | ||||||
Part
II (Continued)
Item 7
(Continued)
Net
income for 2007 decreased $1.61 million, or 15.81 percent, compared to
2006. The decrease was primarily the result of a $1.95 million
increase in provision for loan losses and an increase of $1.70 million in
noninterest expense. The impact of these items was partly offset by a
$0.57 million increase in net interest income, an increase of $0.47 million in
noninterest income and a decrease of $1 million in income tax
expense. Net income for 2006 increased $1.18 million, or 13.09
percent, compared to 2005. The increase was primarily the result of a
$4.74 million increase in net interest income and an increase of $1.20 million
in noninterest income. The impact of these items was partly offset by
a $3.81 million increase in noninterest expense, an increase of $0.54 million in
provision for loan losses and an increase of $0.41 million in income tax
expense.
Details
of the changes in the various components of net income are further discussed
below.
Net
Interest Income
Net
interest income is the difference between interest income on earning assets,
such as loans and securities, and interest expense on liabilities, such as
deposits and borrowings, which are used to fund those assets. Net interest
income is the Company’s largest source of revenue, representing 84.45 percent of
total revenue during 2007 and 85.07 percent during 2006.
Net
interest margin is the taxable-equivalent net interest income as a percentage of
average earning assets for the period. The level of interest rates
and the volume and mix of earning assets and interest-bearing liabilities impact
net interest income and net interest margin.
The
Federal Reserve Board influences the general market rates of interest, including
the deposit and loan rates offered by many financial institutions. The Company’s
loan portfolio is significantly affected by changes in the prime interest rate.
The prime interest rate, which is the rate offered on loans to borrowers with
strong credit, ended with a prime interest rate of 4.75 percent, 4.25 percent,
4.00 percent, 5.25 percent, 7.25 percent, 8.25 percent and 7.25 percent,
respectively, as of year-end 2001, 2002, 2003, 2004, 2005, 2006 and
2007. The federal funds rate moved similar to prime rate with an
interest rate of 1.75 percent, 1.25 percent, 1.00 percent, 2.25 percent, 4.25
percent, 5.25 percent and 4.25 percent, respectively, as of year-end 2001, 2002,
2003, 2004, 2005, 2006 and 2007. With the current housing and real
estate concerns along with recessionary fears, it is anticipated that the
Federal Reserve will continue reducing interest rates during
2008. The impact of further interest rate cuts will put further
pressure on the Company’s net interest margin.
The
following table presents the changes in taxable-equivalent net interest income
and identifies the changes due to differences in the average volume of earning
assets and interest-bearing liabilities and the changes due to changes in the
average interest rate on those assets and liabilities. The changes in net
interest income due to changes in both average volume and average interest rate
have been allocated to the average volume change or the average interest rate
change in proportion to the absolute amounts of the change in each. The
Company’s consolidated average balance sheets along with an analysis of
taxable-equivalent net interest earnings are presented in the Quantitative and
Qualitative Disclosures About Market Risk included elsewhere in this
report.
Part
II (Continued)
Item 7
(Continued)
Rate/Volume
Analysis
The
rate/volume analysis presented hereafter illustrates the change from year to
year 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
2006
to 2007 (a)
|
Changes
From
2005
to 2006 (a)
|
|||||||||||||||||||||||
|
($
in thousands)
|
Volume
|
Rate
|
Total
|
Volume
|
Rate
|
Total
|
||||||||||||||||||
|
Interest
Income
|
||||||||||||||||||||||||
|
Loans,
Net-Taxable
|
$ | 2,855 | $ | 3,028 | $ | 5,883 | $ | 6,633 | $ | 10,156 | $ | 16,789 | ||||||||||||
|
Investment
Securities
|
||||||||||||||||||||||||
|
Taxable
|
704 | 627 | 1,331 | 680 | 1,208 | 1,888 | ||||||||||||||||||
|
Tax-Exempt
|
278 | (7 | ) | 271 | 75 | 19 | 94 | |||||||||||||||||
|
Total
Investment Securities
|
982 | 620 | 1,602 | 755 | 1,227 | 1,982 | ||||||||||||||||||
|
Interest-Bearing
Deposits in
|
||||||||||||||||||||||||
|
Other
Banks
|
6 | 4 | 10 | (1 | ) | 48 | 47 | |||||||||||||||||
|
Federal
Funds Sold
|
(613 | ) | 56 | (557 | ) | 86 | 683 | 769 | ||||||||||||||||
|
Other
Interest-Earning Assets
|
6 | 24 | 30 | 11 | 91 | 102 | ||||||||||||||||||
|
Total
Interest Income
|
3,236 | 3,732 | 6,968 | 7,484 | 12,205 | 19,689 | ||||||||||||||||||
|
Interest-Expense
|
||||||||||||||||||||||||
|
Interest-Bearing
Demand and
|
||||||||||||||||||||||||
|
Savings
Deposits
|
72 | 328 | 400 | 108 | 1,257 | 1,365 | ||||||||||||||||||
|
Time
Deposits
|
1,090 | 4,631 | 5,721 | 3,258 | 9,397 | 12,655 | ||||||||||||||||||
|
Total
Interest Expense
|
||||||||||||||||||||||||
|
On
Deposits
|
1,162 | 4,959 | 6,121 | 3,366 | 10,654 | 14,020 | ||||||||||||||||||
|
Other
Interest-Bearing Liabilities
|
||||||||||||||||||||||||
|
Federal
Funds Purchased
|
29 | 1 | 30 | 4 | 9 | 13 | ||||||||||||||||||
|
Subordinated
Debentures
|
272 | (145 | ) | 127 | 242 | 368 | 610 | |||||||||||||||||
|
Other
Debt
|
18 | 13 | 31 | (32 | ) | 301 | 269 | |||||||||||||||||
|
Total
Interest Expense
|
1,481 | 4,828 | 6,309 | 3,580 | 11,332 | 14,912 | ||||||||||||||||||
|
Net
Interest Income (Loss)
|
$ | 1,755 | $ | (1,096 | ) | $ | 659 | $ | 3,904 | $ | 873 | $ | 4,777 | |||||||||||
|
(a)
|
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.
Part
II (Continued)
Item 7
(Continued)
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. Interest rate
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 earnings 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 at least quarterly by our Board of
Directors and the ALCO. Interest rate risk exposure is measured using interest
rate 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. The Company has engaged SunTrust Bank to run a
quarterly asset/liability model for interest rate risk analysis. We
are generally focusing our investment activities on securities with terms or
average lives in the 3-7 year range.
The
Company maintains about 37 percent 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 certificates of deposit that mature within one year. This balance
sheet composition has allowed the Company to be relatively constant with its net
interest margin the past several years, though the unprecedented 475 basis point
decrease by U.S. Federal Reserve in 2001, 50 basis point decrease in 2002 and 25
basis point decrease in 2003 resulted in significant net interest margin
pressure. During 2004 interest rates increased 125 basis points, during 2005
interest rates increased 200 basis points, during 2006 interest rates increased
100 basis points and during 2007 interest rates decreased 100 basis
points. The shift to increased rates the prior three years resulted
in improved and stable net interest margins; however, the significant rate
decrease the last four months of 2007 resulted in margin compression for the
Company. Net interest margin decreased to 3.75 percent for 2007
compared to 3.84 percent for 2006 and 3.81 percent for 2005. We
anticipate some contraction in the net interest margin for 2008 given the
Federal Reserve’s present declining rate forecast for 2008. Should
the Federal Reserve’s stance be further rate cuts, the Company would be
challenged with net interest rate compression.
Part
II (Continued)
Item 7
(Continued)
Taxable-equivalent
net interest income for 2007 increased $0.66 million, or 1.56 percent, compared
to 2006, while taxable-equivalent net interest income for 2006 increased by
$4.78 million, or 12.78 percent, compared to 2005. The fluctuation
between the comparable periods resulted from the positive impact of growth in
the average volume of earning assets and a negative impact from the increasing
average interest rates. The average volume of earning assets during
2007 increased almost $43.9 million compared to 2006 while over the
same period the net interest margin decreased to 3.75 from 3.84
percent. Similarly, the average volume of earning assets during 2006
increased $117.8 million compared to 2005 while over the same period the net
interest margin increased to 3.84 percent from 3.81 percent. Growth
in average earning assets during 2007 and 2006 was primarily in loans. The
reduction in the net interest margin in 2007 was primarily the result of the
Federal Reserve reducing interest rates 100 basis points the last four months of
the year along with sluggish loan growth in 2007.
The
average volume of loans increased $34.6 million in 2007 compared to 2006 and
increased $93.0 million in 2006 compared to 2005. The average yield
on loans increased 32 basis points in 2007 compared to 2006 and increased 111
basis points in 2006 compared to 2005. Funding for this growth was
primarily provided by deposit growth. The average volume of deposits increased
$30.6 million in 2007 compared to 2006 and increased $112.9 million in 2006
compared to 2005. Interest-bearing deposits made up 89.6 percent of
the growth in average deposits in 2007 and 95.5 percent of the growth in average
deposits in 2006. Accordingly, the ratio of average interest-bearing
deposits to total average deposits was 92.5 percent in 2007, 92.6 percent in
2006 and 92.2 percent in 2005. This deposit mix, combined with a
general increase in interest rates, had the effect of (i) increasing the average
cost of total deposits by 49 basis points in 2007 compared to 2006 and
increasing the average cost of total deposits by 112 basis points in 2006
compared to 2005, and (ii) mitigating a portion of the impact of increasing
yields on earning assets on the Company’s net interest income.
The
Company’s net interest spread, which represents the difference between the
average rate earned on earning assets and the average rate paid on
interest-bearing liabilities, was 3.34 percent in 2007 compared to 3.50 percent
in 2006 and 3.56 percent in 2005. The net interest spread, as well as
the net interest margin, will be impacted by future changes in short-term and
long-term interest rate levels, as well as the impact from the competitive
environment. A discussion of the effects of changing interest rates
on net interest income is set forth in Quantitative and Qualitative Disclosures
About Interest Rate Sensitivity included elsewhere in this report.
Provision
for Possible Loan Losses
The
provision for possible loan losses is determined by management as the amount to
be added to the allowance for possible loan losses after net charge-offs have
been deducted to bring the allowance to a level which, in management’s best
estimate, is necessary to absorb probable losses within the existing loan
portfolio. The provision for possible loan losses totaled $5.93
million in 2007 compared to $3.99 million in 2006 and $3.44 million in
2005. See the section captioned “Allowance for Possible Loan Losses”
elsewhere in this discussion for further analysis of the provision for possible
loan losses.
Part
II (Continued)
Item 7
(Continued)
Noninterest
Income
The
components of noninterest income were as follows:
|
2007
|
2006
|
2005
|
||||||||||
|
Service
Charges on Deposit Accounts
|
$ | 4,771 | $ | 4,580 | $ | 4,128 | ||||||
|
Other
Charges, Commissions and Fees
|
921 | 831 | 708 | |||||||||
|
Other
|
974 | 1,171 | 822 | |||||||||
|
Mortgage
Fee Income
|
967 | 768 | 494 | |||||||||
|
Securities
Gains
|
184 | - | - | |||||||||
| $ | 7,817 | $ | 7,350 | $ | 6,152 | |||||||
Total
noninterest income for 2007 increased $0.47 million, or 6.35 percent, compared
to 2006 while total noninterest income for 2006 increased $1.20 million, or
19.47 percent, compared to 2005. The increase in 2007 noninterest
income compared to 2006 was primarily in mortgage fee income and service charges
on deposits accounts, while the increase in 2006 noninterest income compared to
2005 was primarily in mortgage fee income, service charges on deposit accounts
and other. Changes in these items and the other components of
noninterest income are discussed in more detail below.
Service Charges on Deposit
Accounts. Service charges on deposit accounts for 2007
increased $191 thousand, or 4.17 percent, compared to 2006. The
increase was primarily due to an increase in overdraft fees assessed and
increased volume of consumer and business accounts. Service charges
on deposit accounts for 2006 increased $452 thousand, or 10.95 percent, compared
to 2005. The increase was primarily due to an increase in overdraft
fees, which were mostly related to consumer accounts.
Mortgage Fee
Income. Mortgage fee income for 2007 increased $199 thousand,
or 25.91 percent, compared to 2006. The increase was primarily due to
a company-wide focus on mortgage loans to be sold into the secondary
market. Of significance was the increased activity in the larger MSA
markets that the Company has operations. Mortgage fee income for 2006
increased $274 thousand, or 55.47 percent, compared to 2005.
All Other Noninterest
Income. The aggregate of all other noninterest income accounts
increased $77 thousand, or 3.85 percent, compared to 2006. The
increase was primarily due to gains realized from the sale of securities of $184
thousand for 2007 compared to no security gains in 2006, or an increase of $184
thousand. In addition ATM fee income increased to $765 thousand for
2007 compared to $652 thousand for 2006, or an increase of $113 thousand and fee
income on check orders increased to $147 thousand for 2007 compared to $78
thousand for 2006, or an increase of $69 thousand. These increases
were offset by a reduction in gains realized from the sale of SBA and FSA
governmental loans as gains realized were $150 thousand for 2007 compared to
$512 thousand for 2006, or a reduction of $362 thousand.
Part
II (Continued)
Item 7
(Continued)
The
aggregate of all other noninterest income accounts increased $472 thousand, or
30.85 percent, compared to 2005. The increase was primarily due to
gains realized from the sale of SBA and FSA governmental loans that increased to
$512 thousand for 2006 compared to $42 thousand for 2005, or an increase of $470
thousand. Also, ATM fee income increased to $652 thousand for 2006
compared to $526 thousand for 2005, or an increase of $126
thousand. These increases were offset by fee income recorded on
director and executive officer deferred compensation and retirement plans that
decreased to $148 thousand for 2006 compared to $329 thousand for 2005, or a
decrease of $181 thousand. For 2005 fee income on deferred
compensation included a one-time entry from the demutualization of insurance
companies used to fund the plan.
Noninterest
Expense
The
components of noninterest expense were as follows:
|
2007
|
2006
|
2005
|
||||||||||
|
Salaries
and Employee Benefits
|
$ | 17,866 | $ | 16,870 | $ | 14,128 | ||||||
|
Occupancy
and Equipment
|
4,039 | 4,035 | 3,778 | |||||||||
|
Other
|
9,674 | 8,977 | 8,170 | |||||||||
| $ | 31,579 | $ | 29,882 | $ | 26,076 | |||||||
Total
noninterest expense for 2007 increased $1.70 million, or 5.68 percent compared
to 2006 while total noninterest expense for 2006 increased $3.81 million, or
14.60 percent, compared to 2005. Growth in noninterest expense in
2007 and 2006 was primarily in salaries, employee benefits, occupancy and
equipment expense and other noninterest expenses. These items and the changes in
the various components of noninterest expense are discussed in more detail
below.
Salaries and Employee
Benefits. Salaries and benefits expense for 2007 increased
$996 thousand, or 5.90 percent, compared to 2006. The increase is
primarily related to increases in head count, merit increases, payroll taxes and
health insurance expense. The slight increase in head count was
primarily staffing needs in the back office support area as no new offices were
opened during 2007. Areas of addition included technology, human
resources and administrative support. These increases were offset by
a reduction in incentive and profit sharing expense as payouts were
approximately $442 thousand less than in 2006 due to the Company’s performance
in which targeted goals with the incentive and profit sharing plan were not met.
Salaries
and benefits expense for 2006 increased $2.74 million, or 19.41 percent,
compared to 2005. The increase is primarily related to increases in
head count, merit increases and denovo branching. During 2006, new
offices were opened in Centerville and Columbus, Georgia while new offices
opened in Valdosta and Savannah, Georgia during 2005 were online all of 2006
compared to being online part of 2005.
Part
II (Continued)
Item 7
(Continued)
Occupancy and
Equipment. Net occupancy expense for 2007 remained flat
compared to 2006. The Company matched up with net occupancy and
equipment expense for 2006 primarily because there were no new offices opened
during 2007. Net occupancy expense for 2006 increased $257 thousand,
or 6.80 percent, compared to 2005. The Company experienced increased
net occupancy and equipment expense for 2006 resulting from two new offices
opened during 2006. The impact of new offices opened during 2006
resulted in higher maintenance, insurance, utilities and depreciation.
All Other Noninterest
Expense. All other noninterest expense for 2007 increased $697
thousand, or 7.76 percent. Significant changes in noninterest expense
were: legal and professional fees increased to $1.14 million for 2007
compared to $1.07 million for 2006, or an increase of $70 thousand; ATM expense
increased to $462 thousand for 2007 compared to $377 thousand for 2006, or an
increase of $85 thousand; software and license fee expense increased to $424
thousand for 2007 compared to $341 thousand for 2006, or an increase of $83
thousand; deferred compensation expense increased to $238 thousand for 2007
compared to $165 thousand for 2006, or an increase of $73 thousand and
amortization expense on trust preferred securities increased to $295 thousand
for 2007 compared to $30 thousand for 2006, or an increase of $265
thousand. The Company exercised call options on trust preferred
securities to refinance at lower interest rates and expensed the unamortized
fees on the two trust preferred securities.
All other
noninterest expense for 2006 increased $807 thousand, or 9.88 percent, compared
to 2005. The increase is primarily due to additional overhead
associated with new offices opened along with significant changes in noninterest
expense as follows: loss on sale of other real estate decreased to
$20 thousand for 2006 compared to $185 thousand for 2005, or a decrease of $165
thousand; other real estate and repossession expense increased to $162 thousand
for 2006 compared to $127 thousand for 2005, or an increase of $35 thousand;
legal and professional fees increased to $1.071 million for 2006 compared to
$765 thousand for 2005, or an increase of $306 thousand; ATM expense increased
to $377 thousand for 2006 compared to $322 thousand for 2005, or an increase of
$55 thousand; director fees increased to $639 thousand for 2006 compared to $617
thousand for 2005, or an increase of $22 thousand; stationery and supplies
increased to $559 thousand for 2006 compared to $514 thousand for 2005, or an
increase of $45 thousand; postage expense increased to $386 thousand for 2006
compared to $348 thousand for 2005, or an increase of $38 thousand; and
advertising expense increased to $653 thousand for 2006 compared to $457
thousand for 2005, or an increase of $196 thousand.
Sources
and Uses of Funds
The
following table illustrates, during the years presented, the mix of the
Company’s funding sources and the assets in which those funds are invested as a
percentage of the Company’s average total assets for the period indicated.
Average assets totaled $1,204 million in 2007 compared to $1,161 million in 2006
and $1,035 million in 2005.
Part
II (Continued)
Item 7
(Continued)
|
2007
|
2006
|
2005
|
||||||||||||||||||||||
|
Sources
of Funds
|
||||||||||||||||||||||||
|
Deposits
|
||||||||||||||||||||||||
|
Noninterest-Bearing
|
$ | 76,509 | 6.4 | % | $ | 73,334 | 6.3 | % | $ | 68,259 | 6.6 | % | ||||||||||||
|
Interest-Bearing
|
945,028 | 78.5 | 917,634 | 79.1 | 809,850 | 78.3 | ||||||||||||||||||
|
Federal
Funds Purchased
|
1,130 | - | 563 | - | 449 | - | ||||||||||||||||||
|
Subordinated
Debentures and Other Borrowed Money
|
92,211 | 7.7 | 88,512 | 7.6 | 85,675 | 8.3 | ||||||||||||||||||
|
Other
Noninterest-Bearing Liabilities
|
8,692 | 0.7 | 8,682 | 0.8 | 5,398 | 0.5 | ||||||||||||||||||
|
Equity
Capital
|
80,595 | |||||||||||||||||||||||