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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

COLONY BANKCORP, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

ADDRESS OF PRINCIPAL EXECUTIVE OFFICES

REGISTRANT’S TELEPHONE NUMBER INCLUDING AREA CODE

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED REPORTS REQUIRED TO BE FILED BY SECTIONS 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.

INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS SUBMITTED ELECTRONICALLY AND POSTED ON ITS CORPORATE WEB SITE, IF ANY, EVERY INTERACTIVE DATA FILE REQUIRED TO BE SUBMITTED AND POSTED PURSUANT TO RULE 405 OF REGULATION S-T (§232.405 OF THIS CHAPTER) DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO SUBMIT AND POST SUCH FILES).

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A LARGE ACCELERATED FILER, AN ACCELERATED FILER, A NON-ACCELERATED FILER OR A SMALLER REPORTING COMPANY.   SEE DEFINITIONS OF “ACCELERATED FILER”, “LARGE ACCELERATED FILER” AND “SMALLER REPORTING COMPANY” IN RULE 12b-2 OF THE EXCHANGE ACT.

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT).

INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER’S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.

 

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Forward Looking Statement Disclosure

Certain statements contained in this Quarterly 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), not withstanding 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; (ii) 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:

·

Loss 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.

·

The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which the Company and its subsidiary 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.

 

Readers should carefully review all disclosures we file from time to time with the Securities and Exchange Commission (SEC).

 

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PART 1.

FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS

THE FOLLOWING FINANCIAL STATEMENTS ARE PROVIDED FOR COLONY BANKCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY BANK, COLONY BANK

A.

CONSOLIDATED BALANCE SHEETS – MARCH 31, 2015 (UNAUDITED) AND DECEMBER 31, 2014 (AUDITED).

B.

CONSOLIDATED STATEMENTS OF INCOME – FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014 (UNAUDITED).

C.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014 (UNAUDITED).

D.

CONSOLIDATED STATEMENTS OF CASH FLOWS – FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014 (UNAUDITED).

THE CONSOLIDATED FINANCIAL STATEMENTS FURNISHED HAVE NOT BEEN AUDITED BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, BUT REFLECT, IN THE OPINION OF MANAGEMENT, ALL ADJUSTMENTS (CONSISTING SOLELY OF NORMAL RECURRING ADJUSTMENTS) NECESSARY FOR A FAIR PRESENTATION OF THE RESULTS OF OPERATIONS FOR THE PERIODS PRESENTED.

THE RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2015 ARE NOT NECESSARILY INDICATIVE OF THE RESULTS TO BE EXPECTED FOR THE FULL YEAR.

 

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Part I (Continued)

Item 2 (Continued)

 

 

COLONY BANKCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2015 AND DECEMBER 31, 2014

(DOLLARS IN THOUSANDS)

The accompanying notes are an integral part of these statements.

 

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Part I (Continued)

Item 2 (Continued)

 

 

COLONY BANKCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED MARCH 31, 2015 AND 2014

(UNAUDITED)

(DOLLARS IN THOUSANDS)

The accompanying notes are an integral part of these statements.

 

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Part I (Continued)

Item 2 (Continued)

 

COLONY BANKCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

THREE MONTHS ENDED MARCH 31, 2015 AND 2014

(UNAUDITED)

(DOLLARS IN THOUSANDS)

The accompanying notes are an integral part of these statements.

 

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Part I (Continued)

Item 2 (Continued)

 

COLONY BANKCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2015 AND 2014

(UNAUDITED)

(DOLLARS IN THOUSANDS)

The accompanying notes are an integral part of these statements.

 

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Part I (Continued)

Item 2 (Continued)

 

COLONY BANKCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  Summary of Significant Accounting Policies

Presentation

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

All dollars in notes to consolidated financial statements are rounded to the nearest thousand.

The consolidated financial statements in this report are unaudited, except for the December 31, 2014 consolidated balance sheet.  All adjustments consisting of normal recurring accruals which are, in the opinion of management, necessary for fair presentation of the interim consolidated financial statements have been included and fairly and accurately present the financial position, results of operations and cash flows of the Company.  The results of operations for the three months ended March 31, 2015, are not necessarily indicative of the results which may be expected for the entire year.

Nature of Operations

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

Use of Estimates

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

Reclassifications

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

Concentrations of Credit Risk

Concentrations of credit risk can exist in relation to individual borrowers or groups of borrowers, certain types of collateral, certain types of industries, or certain geographic regions.  The Company has a concentration in real estate loans as well as a geographic concentration that could pose an adverse credit risk, particularly with the current economic downturn in the real estate market.  At March 31, 2015, approximately 87 percent of the Company’s loan portfolio was concentrated in loans secured by real estate.  A substantial portion of borrowers’ ability to honor their contractual obligations is dependent upon the viability of the real estate economic sector.  Declining collateral real estate values that secure land development, construction and speculative real estate loans in the Company’s larger MSA markets have resulted in high loan loss provisions in recent years.  In addition, a large portion of the Company’s foreclosed assets are also located in these same geographic markets, making the recovery of the carrying amount of foreclosed assets susceptible to changes in market conditions.  Management continues to monitor these concentrations and has considered these concentrations in its allowance for loan loss analysis.

 

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(1)  Summary of Significant Accounting Policies (Continued)

Concentrations of Credit Risk (Continued)

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

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

Investment Securities

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

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

Federal Home Loan Bank Stock

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

Loans

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

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

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

 

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Part I (Continued)

Item 2 (Continued)

 

(1)  Summary of Significant Accounting Policies (Continued)

 

Loans Modified in a Troubled Debt Restructuring (TDR)

Loans are considered to have been modified in a TDR when due to a borrower’s financial difficulty, the Company makes certain concessions to the borrower that it would not otherwise consider for new debt with similar risk characteristics.  Modifications may include interest rate reductions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of the collateral.  Generally, a non-accrual loan that has been modified in a TDR remains on non-accrual status for a period of 6 months to demonstrate that the borrower is able to meet the terms of the modified loan.  However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period.  If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on non-accrual status.  Once a loan is modified in a troubled debt restructuring it is accounted for as an impaired loan, regardless of its accrual status, until the loan is paid in full, sold or charged off.

Allowance for Loan Losses

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

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

The allowance consists of specific, historical and general components. The specific component relates to loans that are classified as either doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The historical component covers nonclassified loans and is based on historical loss experience adjusted for qualitative factors. A general component is maintained to cover uncertainties that could affect management’s estimate of probable losses.  The general component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and historical losses in the portfolio.  General valuation allowances are based on internal and external qualitative risk factors such as (i) changes in the composition of the loan portfolio, (ii) the extent of loan concentrations within the portfolio, (iii) the effectiveness of the Company’s lending policies, procedures and internal controls, (iv) the experience, ability and effectiveness of the Company’s lending management and staff, and (v) national and local economics and business conditions.

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

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

A significant portion of the Company’s impaired loans are deemed to be collateral dependent.  Management therefore measures impairment on these loans based on the fair value of the collateral.  Collateral values are determined based on appraisals performed by qualified licensed appraisers hired by the Company or by senior members of the Company’s credit administration staff.  The decision whether or not to obtain an external third-party appraisal usually depends on the type of property being evaluated.  External appraisals are usually obtained on more complex, income producing properties such as hotels, shopping centers and businesses.  Less complex properties such as residential lots, farm land and single family houses may be evaluated internally by senior credit administration staff.

 

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Part I (Continued)

Item 2 (Continued)

 

(1)  Summary of Significant Accounting Policies (Continued)

Allowance for Loan Losses (Continued)

When the Company does obtain appraisals from external third-parties, the values utilized in the impairment calculation are “as is” or current market values.  The appraisals, whether prepared internally or externally, may utilize a single valuation approach or a combination of approaches including the comparable sales, income and cost approach.  Appraised amounts used in the impairment calculation are typically discounted 10 percent to account for selling and marketing costs, if the repayment of the loan is to come from the sale of the collateral.  Although appraisals are not obtained each year on all impaired loans, the collateral values used in the impairment calculations are evaluated quarterly by management.  Based on management’s knowledge of the collateral and the current real estate market conditions, appraised values may be further discounted to reflect facts and circumstances known to management since the initial appraisal was performed.

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

Premises and Equipment

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

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

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

Intangible Assets

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

Transfers of Financial Assets

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

Statement of Cash Flows

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

Advertising Costs

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

 

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Part I (Continued)

Item 2 (Continued)

 

(1)  Summary of Significant Accounting Policies (Continued)

Income Taxes

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

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

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

Other Real Estate

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

Bank-Owned Life Insurance

The Company has purchased life insurance on the lives of certain key members of management and directors.  The life insurance policies are recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or amounts due that are probable at settlement, if applicable.  Increases in the cash surrender value are recorded as other income in the consolidated statements of income.  The cash surrender value of the insurance contracts is recorded in other assets on the consolidated balance sheets in the amount of $14,648 and $14,531 as of March 31, 2015 and December 31, 2014, respectively.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Certain changes in assets and liabilities, such as unrealized gains and losses on securities available for sale, represent equity changes from economic events of the period other than transactions with owners and are not reported in the consolidated statements of operations but as a separate component of the equity section of the consolidated balance sheets. Such items are considered components of other comprehensive income (loss).  Accounting standards codification requires the presentation in the consolidated financial statements of net income and all items of other comprehensive income (loss) as total comprehensive income (loss).

Off-Balance Sheet Credit Related Financial Instruments

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

 

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(1)  Summary of Significant Accounting Policies (Continued)

Changes in Accounting Principles and Effects of New Accounting Pronouncements

Adoption of New Accounting Standards

 

In May 2014, the FASB issued an update ASU No. 2014-09, Revenue from Contracts with Customers creating FASB Topic 606, Revenue from Contracts with Customers.  The guidance in this update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts).  The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The guidance provides steps to follow to achieve the core principle.  An entity should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.  Qualitative and quantitative information is required about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.  The amendments in this update are effective for interim and annual reporting periods beginning after December 15, 2016.  We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

(2)  Investment Securities

Investment securities as of March 31, 2015 and December 31, 2014 are summarized as follows:

 

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Part I (Continued)

Item 2 (Continued)

 

(2)  Investment Securities (Continued)

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

Proceeds from the sale of investments available for sale during the first three months of 2015 totaled $25,173 compared to $0 for the first three months of 2014.  The sale of investments available for sale during the first three months of 2015 resulted in gross realized gains of $199 and losses of $196.

Investment securities having a carry value approximating $126,792 and $135,532 as of March 31, 2015 and December 31, 2014, respectively, were pledged to secure public deposits and for other purposes.

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

 

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(2)  Investments (Continued)

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

At March 31, 2015, the debt securities with unrealized losses have depreciated 2.27 percent from the Company’s amortized cost basis.  These securities are guaranteed by either the U.S. Government, other governments or U.S. corporations.  In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition.  The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased.  As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available-for-sale, no declines are deemed to be other than temporary.

 

(3)  Loans

		March 31, 2015				December 31, 2014
Commercial and Agricultural
Commercial		$	51,774			$	50,960
Agricultural			19,188				16,689
Real Estate
Commercial Constuction			48,611				51,259
Residential Construction			10,030				11,221
Commercial			341,845				332,231
Residential			202,878				203,753
Farmland			51,572				49,951
Consumer and Other
Consumer			21,705				22,820
Other			6,031				7,210
Total Loans		$	753,634			$	746,094

March 31, 2015
		Pass				Special Mention				Substandard				Total Loans
Commercial and Agricultural
Commercial		$	47,730			$	2,329			$	1,715			$	51,774
Agricultural			19,005				27				156				19,188
Real Estate
Commercial Construction			42,481				1,665				4,465				48,611
Residential Construction			10,030				-				-				10,030
Commercial			322,579				9,198				10,068				341,845
Residential			182,105				10,838				9,935				202,878
Farmland			49,247				767				1,558				51,572
Consumer and Other
Consumer			21,049				203				453				21,705
Other			5,835				2				194				6,031
Total Loans		$	700,061			$	25,029			$	28,544			$	753,634

December 31, 2014
		Pass				Special Mention				Substandard				Total Loans
Commercial and Agricultural
Commercial		$	46,230			$	2,905			$	1,825			$	50,960
Agricultural			16,504				27				158				16,689
Real Estate
Commercial Construction			45,063				1,741				4,455				51,259
Residential Construction			11,221				-				-				11,221
Commercial			309,828				11,220				11,183				332,231
Residential			180,550				10,582				12,621				203,753
Farmland			47,548				415				1,988				49,951
Consumer and Other
Consumer			22,115				249				456				22,820
Other			7,013				-				197				7,210
Total Loans		$	686,072			$	27,139			$	32,883			$	746,094

March 31, 2015
		Accruing Loans
		30-89 Days Past Due				90 Days or More Past Due				Total Accruing Loans Past Due				Nonaccrual Loans				Current Loans				Total Loans
Commercial and Agricultural
Commercial		$	484			$	-			$	484			$	558			$	50,732			$	51,774
Agricultural			77				-				77				156				18,955				19,188
Real Estate
Commercial Construction			383				-				383				3,223				45,005				48,611
Residential Construction			105				-				105				-				9,925				10,030
Commercial			1,754				-				1,754				5,018				335,073				341,845
Residential			4,025				-				4,025				4,021				194,832				202,878
Farmland			446				-				446				1,417				49,709				51,572
Consumer and Other
Consumer			343				8				351				192				21,162				21,705
Other			35				-				35				194				5,802				6,031
Total Loans		$	7,652			$	8			$	7,660			$	14,779			$	731,195			$	753,634

December 31, 2014
		Accruing Loans
		30-89 Days Past Due				90 Days or More Past Due				Total Accruing Loans Past Due				Nonaccrual Loans				Current Loans				Total Loans
Commercial and Agricultural
Commercial		$	872			$	-			$	872			$	405			$	49,683			$	50,960
Agricultural			-				-				-				45				16,644				16,689
Real Estate
Commercial Construction			142				-				142				3,251				47,866				51,259
Residential Construction			-				-				-				-				11,221				11,221
Commercial			2,309				-				2,309				5,325				324,597				332,231
Residential			5,783				-				5,783				7,462				190,508				203,753
Farmland			282				-				282				1,449				48,220				49,951
Consumer and Other
Consumer			313				7				320				202				22,298				22,820
Other			-				-				-				195				7,015				7,210
Total Loans		$	9,701			$	7			$	9,708			$	18,334			$	718,052			$	746,094

March 31, 2015		Unpaid Contractual Principal Balance				Impaired Balance				Related Allowance				Average Recorded Investment				Interest Income Recognized				Interest Income Collected
With No Related Allowance Recorded
Commercial		$	492			$	464			$	-			$	464			$	(7	)		$	5
Agricultural			174				156				-				156				(10	)			10
Commercial Construction			9,537				3,428				-				3,428				6				7
Residential Construction			-				-				-				-				-				-
Commercial Real Estate			17,531				17,037				-				17,037				157				163
Residential Real Estate			6,141				5,195				-				5,195				42				47
Farmland			1,419				1,417				-				1,417				3				3
Consumer			200				192				-				192				1				4
Other			205				194				-				194				2				2
			35,699				28,083				-				28,083				194				241
With An Allowance Recorded
Commercial			94				94				94				94				-				-
Agricultural			-				-				-				-				-				-
Commercial Construction			206				134				49				134				-				-
Residential Construction			-				-				-				-				-				-
Commercial Real Estate			5,463				5,463				209				5,463				45				45
Residential Real Estate			1,209				1,103				330				1,103				13				6
Farmland			394				394				53				394				5				5
Consumer			-				-				-				-				-				-
Other			-				-				-				-				-				-
			7,366				7,188				735				7,188				63				56
Total
Commercial			586				558				94				558				(7	)			5
Agricultural			174				156				-				156				(10	)			10
Commercial Construction			9,743				3,562				49				3,562				6				7
Residential Construction			-				-				-				-				-				-
Commercial Real Estate			22,994				22,500				209				22,500				202				208
Residential Real Estate			7,350				6,298				330				6,298				55				53
Farmland			1,813				1,811				53				1,811				8				8
Consumer			200				192				-				192				1				4
Other			205				194				-				194				2				2
		$	43,065			$	35,271			$	735			$	35,271			$	257			$	297

December 31, 2014		Unpaid Contractual Principal Balance				Impaired Balance				Related Allowance				Average Recorded Investment				Interest Income Recognized				Interest Income Collected
With No Related Allowance Recorded
Commercial		$	310			$	308			$	-			$	679			$	9			$	18
Agricultural			50				45				-				51				(6	)			3
Commercial Construction			9,573				3,464				-				3,376				13				13
Commercial Real Estate			17,130				16,228				-				18,350				462				474
Residential Real Estate			9,137				7,600				-				5,691				312				306
Farmland			1,451				1,449				-				949				(8	)			18
Consumer			202				202				-				212				14				16
Other			207				195				-				197				6				11
			38,060				29,491				-				29,505				802				859
With An Allowance Recorded
Commercial			97				97				97				420				-				-
Agricultural			-				-				-				-				-				-
Commercial Construction			207				136				54				1,529				-				-
Commercial Real Estate			6,135				6,135				457				6,415				61				51
Residential Real Estate			2,073				2,065				414				1,829				84				87
Farmland			396				396				29				529				13				12
Consumer			-				-				-				-				-				-
Other			-				-				-				-				-				-
			8,908				8,829				1,051				10,722				158				150
Total
Commercial			407				405				97				1,099				9				18
Agricultural			50				45				-				51				(6	)			3
Commercial Construction			9,780				3,600				54				4,905				13				13
Commercial Real Estate			23,265				22,363				457				24,765				523				525
Residential Real Estate			11,210				9,665				414				7,520				396				393
Farmland			1,847				1,845				29				1,478				5				30
Consumer			202				202				-				212				14				16
Other			207				195				-				197				6				11
		$	46,968			$	38,320			$	1,051			$	40,227			$	960			$	1,009

March 31, 2014		Unpaid Contractual Principal Balance				Impaired Balance				Related Allowance				Average Recorded Investment				Interest Income Recognized				Interest Income Collected
With No Related Allowance Recorded
Commercial		$	599			$	599			$	-			$	599			$	5			$	13
Agricultural			56				51				-				51				(9	)			-
Commercial Construction			7,460				4,354				-				4,354				8				8
Residential Construction			-				-				-				-				-				-
Commercial Real Estate			21,196				20,686				-				20,686				130				132
Residential Real Estate			7,113				5,642				-				5,642				46				46
Farmland			349				348				-				348				(2	)			1
Consumer			256				251				-				251				4				5
Other			203				203				-				203				2				2
			37,232				32,134				-				32,134				184				207
With An Allowance Recorded
Commercial			1,380				1,380				423				1,380				-				-
Agricultural			-				-				-				-				-				-
Commercial Construction			5,922				3,470				1,548				3,470				-				-
Residential Construction			-				-				-				-				-				-
Commercial Real Estate			6,466				6,109				407				6,109				46				46
Residential Real Estate			962				954				289				954				11				15
Farmland			1,324				1,324				233				1,324				-				-
Consumer			-				-				-				-				-				-
Other			-				-				-				-				-				-
			16,054				13,237				2,900				13,237				57				61
Total