UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the Fiscal Year Ended December 31, 1998 --------------------------------------------------- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the Transition Period from ___________________________to____________________ Commission File Number 0-12436 -------------------------------------------------------- COLONY BANKCORP, INC. - ------------------------------------------------------------------------------- (Exact Name of Registrant Specified in its Charter) GEORGIA 58-1492391 - ------------------------------- -------------- State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization Identification No.) 115 SOUTH GRANT STREET, FITZGERALD, GEORGIA 31750 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number Including Area Code (912) 426-6000 -------------- Securities Registered Pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered NONE - -------------------------------- ------------------------------------------ Securities Registered Pursuant to Section 12(g) of the Act: COMMON STOCK, $10.00 PAR VALUE - ------------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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. X Yes No --- --- Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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 ] State the aggregate market value of the voting stock held by non-affiliates of the registrant as of March 10, 1999. Common Stock, par value $10.00 per share - $57,655,338 (APPLICABLE ONLY TO CORPORATE REGISTRANTS) Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of March 10, 1999. Common Stock, par value $10.00 per share - 2,217,513 shares
<TABLE> <CAPTION> DOCUMENTS INCORPORATED BY REFERENCE Location in Form 10-K Incorporated Document - -------------------------------------------- ----------------------------------------------------------------------- <S> <C> Part I Item 3 - Legal Proceedings Page 6 of the Company's Definitive Proxy Statement dated April 7, 1999, in connection with its Annual Meeting to be held on April 27, 1999. Part III Item 10 - Directors, Executive Officers, Pages 4 and 5 of the Company's Definitive Proxy Statement dated Promoters and Control Persons; Compliance with April 7, 1999, in connection with its Annual Meeting to be held Section 16(a) of the Exchange Act on April 27, 1999. Item 11 - Executive Compensation Pages 8, 9 and 10 of the Company's Definitive Proxy Statement dated April 7, 1999, in connection with its Annual Meeting to be held on April 27, 1999. Item 12 - Security Ownership of Certain Pages 2 and 3 of the Company's Definitive Proxy Statement dated Beneficial Owners and Management April 7, 1999, in connection with its Annual Meeting to be held on April 27, 1999. Item 13 - Certain Relationships and Page 6 of the Company's Definitive Proxy Statement dated April 7, Related Transactions 1999, in connection with its Annual Meeting to be held on April 27, 1999. </TABLE>
Part I Item 1 BUSINESS OF THE COMPANY AND SUBSIDIARY BANKS 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 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, The 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 Community Bank of Wilcox (formerly 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 Ashburn Bank, Ashburn, Turner County, Georgia, for a combination of cash and interest-bearing promissory notes. Since the date of acquisition, Ashburn Bank 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 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, The 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 Bank of Worth (formerly Worth Federal Savings and Loan Association) in exchange for cash and 7,661 of the Company's common stock for an aggregate purchase price of approximately $718,000. Bank of 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. All financial information for 1996 presented in this document is based on the assumption that the companies were combined for the full year, and financial information presented for prior years has been restated to give effect to the combination. 1
Part I (Continued) Item 1 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. THE BANK OF FITZGERALD History and Business of the Bank The 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 two locations, the main office in Fitzgerald, Georgia at 302 South Main Street and a full-service branch located on the South Dixie Highway. 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 data processing work of the Bank is processed by Colony Management Services, Inc., a wholly-owned subsidiary of Colony Bankcorp, Inc. The Bank of Fitzgerald acts as an agent for Visa Card and MasterCard through The Bankers 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 installment loan department makes both direct consumer loans and also purchases retail installment contracts from local automobile dealers and other sellers of consumer goods. The Bank serves the residents of Fitzgerald and surrounding areas of Ben Hill County which has a population of approximately 16,000 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, soybeans and corn. 2
Part I (Continued) Item 1 A history of the Bank's financial position for fiscal years ended 1998, 1997 and 1996 is as follows: <TABLE> <CAPTION> 1998 1997 1996 ----------------- ------------------ ------------------ <S> <C> <C> <C> Total Assets $100,903,605 $97,730,544 $95,769,043 Total Deposits 87,756,795 87,438,647 86,733,163 Total Stockholders' Equity 9,593,148 9,437,047 8,079,226 Net Income 1,665,050 1,357,070 528,181 Number of Issued and Outstanding Shares 90,000 90,000 90,000 Book Value Per Share $106.59 $104.86 $89.77 Net Income Per Share 18.50 15.08 5.87 </TABLE> 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. Competition The banking business in Ben Hill County is highly competitive. The Bank competes primarily with four other commercial banks operating in Ben Hill County. Additionally, the Bank competes with one credit union 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. The Bank also offers "NOW" accounts, individual retirement accounts, simplified pension plans, KEOGH plans and custodial accounts for minors. Correspondents As of December 31, 1998, the Bank had correspondent relationships with five other banks. The Bank's principal correspondent is The Bankers 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. 3
Part I (Continued) Item 1 ASHBURN BANK History and Business of the Bank Ashburn Bank 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, 1553 U. S. Highway 19 South in Lee County, Georgia and 137 Robert B. Lee Drive in Leesburg, Lee County, Georgia. The Bank's business consists of (1) the acceptance of demand, savings and time deposits; (2) the making of loans to consumers, business and other institutions; (3) investment of excess funds and sale of federal funds, U.S. Treasury obligations and state, county and municipal bonds; and (4) certain other miscellaneous financial services usually handled for customers by commercial banks. The Bank does little mortgage lending and it does not offer trust services. It acts as an agent for Visa Card and MasterCard through The Bankers Bank. A history of the Bank's financial position for fiscal years ended 1998, 1997 and 1996 is as follows: <TABLE> <CAPTION> 1998 1997 1996 ------------ ------------ ------------ <S> <C> <C> <C> Total Assets $114,402,843 $100,172,188 $85,665,407 Total Deposits 98,435,652 85,508,000 75,906,085 Total Stockholders' Equity 9,638,318 8,794,312 8,294,312 Net Income 1,403,712 1,308,236 1,420,284 Number of Issued and Outstanding Shares 50,000 50,000 50,000 Book Value Per Share $192.77 $175.89 $165.89 Net Income Per Share 28.07 26.16 28.41 </TABLE> 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. During 1996, the Bank entered into a 5-year lease agreement with Winn-Dixie Stores, Inc. to operate a retail banking facility at Winn Dixie's Lee County location. The office consists of 350 square feet and includes 3 teller positions, a new accounts area and a private office. The Bank opened a second Lee County office 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. A fourth branch office is scheduled to open in Cordele, Crisp County, Georgia sometime in 1999. All other occupied premises, with the exception of the Lee County Winn Dixie location, are owned by the Bank. 4
Part I (Continued) Item 1 Competition The banking business is highly competitive. The Bank competes in Turner County primarily with Community National Bank which operates out of one facility in Ashburn, Georgia. Ashburn Bank is the larger of the two banks. 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 Ashburn Bank has correspondent relationships with the following banks: The Bankers Bank in Atlanta, Georgia; SouthTrust Bank of Georgia, N.A. in Atlanta, Georgia; Regions Bank in Gainesville, Georgia; The Bank of Fitzgerald in Fitzgerald, Georgia; AMSouth Bank of Alabama in Birmingham, Alabama; 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. COMMUNITY BANK OF 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 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, business and other institutions; (3) investment of excess funds and sale of federal funds, U.S. Treasury obligations and state, county and municipal bonds; and (4) certain other miscellaneous financial services usually handled for customers by commercial banks. The Bank does little mortgage lending and it does not offer trust services. 5
Part I (Continued) Item 1 A history of the Bank's financial position for fiscal years ended 1998, 1997 and 1996 is as follows: <TABLE> <CAPTION> 1998 1997 1996 -------------- -------------- ------------- <S> <C> <C> <C> Total Assets $28,075,187 $27,540,804 $24,352,566 Total Deposits 24,024,259 23,684,818 22,169,442 Total Stockholders' Equity 2,431,843 2,235,004 2,087,243 Net Income 288,897 293,907 327,183 Number of Issued and Outstanding Shares 250 250 250 Book Value Per Share $9,727.37 $8,940.02 $8,348.97 Net Income Per Share 1,155.59 1,175.63 1,308.73 </TABLE> 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. Competition The banking business is highly competitive. The Bank competes in Wilcox County primarily with four commercial banks and one savings and loan institution. 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: The Bankers Bank in Atlanta, Georgia; Federal Home Loan Bank, in Atlanta, Georgia; AMSouth Bank of Alabama in Birmingham, Alabama; and The Bank of Fitzgerald in Fitzgerald, 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. 6
Part I (Continued) Item 1 THE 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 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, business and other institutions; (3) investment of excess funds in the sale of federal funds, U.S. Treasury obligations and state, county and municipal bonds; and (4) certain other miscellaneous financial services usually handled for customers by commercial banks. The Bank does little mortgage lending and it does not offer trust services. A history of the Bank's financial position for fiscal years ended 1998, 1997 and 1996 is as follows: <TABLE> <CAPTION> 1998 1997 1996 ------------- ------------- ------------ <S> <C> <C> <C> Total Assets $45,353,965 $43,145,436 $44,528,215 Total Deposits 41,464,683 37,576,350 39,152,059 Total Stockholders' Equity 3,555,744 3,262,416 3,002,406 Net Income 382,605 310,178 414,550 Number of Issued and Outstanding Shares 1,750 1,750 1,750 Book Value Per Share $2,031.85 $1,864.24 $1,715.66 Net Income Per Share 218.63 177.24 236.89 </TABLE> Banking Facilities The Bank's main office is located at 600 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. 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. 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. 7
Part I (Continued) Item 1 Correspondents The Bank has correspondent relationships with the following banks: The Bankers Bank in Atlanta, Georgia; SouthTrust Bank of Georgia, N.A. in Atlanta, Georgia; Compass Bank in Birmingham, Alabama; The Federal Home Loan Bank in Atlanta, Georgia; and The Bank of Fitzgerald in Fitzgerald, 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. BANK OF WORTH Bank of 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 and became a state-chartered commercial bank. The Bank conducts business at its offices located at 402 West Franklin Street, Sylvester, Worth County, Georgia and 605 West Second Street, Tifton, Tift 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. Treasury 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's loan portfolio is heavily concentrated in mortgage loans due to the fact that it was previously a savings and loan. The Bank does not offer trust services. It acts as an agent for Visa Card and MasterCard through The Bankers Bank. A history of the Bank's financial position for fiscal years ended 1998, 1997 and 1996 is as follows: <TABLE> <CAPTION> 1998 1997 1996 ----------- ----------- ----------- <S> <C> <C> <C> Total Assets $55,396,303 $44,917,783 $44,924,010 Total Deposits 51,076,265 40,970,101 41,350,280 Total Stockholders' Equity 3,969,437 3,600,017 3,237,175 Net Income 454,744 595,329 433,559 Number of Issued and Outstanding Shares 95,790 95,790 95,790 Book Value Per Share $41.44 $37.58 $33.79 Net Income Per Share 4.75 6.21 4.53 </TABLE> 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 is scheduled to open in Moultrie, Colquitt County, Georgia sometime in 1999. 8
Part I (Continued) Item 1 Competition The banking business in Worth County and Tift County is highly competitive. The Bank competes primarily with two other commercial banks operating in Worth County and six other commercial banks in Tift 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, 1998, the Bank had correspondent relationships with four other banks. The Bank's principal correspondent is The Bankers 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. 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. It has conducted a general banking business from a single location at 401 North Alabama Street in Broxton, Georgia since that time. 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, Columbus Bank & Trust; 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 serves the residents of Coffee County, Georgia, which has a population of approximately 32,000. 9
Part I (Continued) Item 1 A history of the Bank's financial position for fiscal years ended 1998, 1997 and 1996 is as follows: <TABLE> <CAPTION> 1998 1997 1996 ----------- ----------- ----------- <S> <C> <C> <C> Total Assets $34,925,063 $26,371,357 $23,060,340 Total Deposits 28,405,278 22,763,357 20,540,352 Total Stockholders' Equity 3,308,576 2,265,171 2,218,141 Net Income 59,204 135,301 193,516 Number of Issued and Outstanding Shares 50,730 50,730 50,730 Book Value Per Share $65.22 $44.65 $43.72 Net Income Per Share 1.17 2.67 3.81 </TABLE> 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 is equipped with 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. Competition The banking business in Coffee County is highly competitive. Colony Bank Southeast competes with six other banks and one credit union in Douglas, Georgia. 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: NationsBank, Atlanta, Georgia; SunTrust Bank, Atlanta, Georgia; The Bankers 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. 10
Part I (Continued) Item 1 EMPLOYEES As of December 31, 1998, Colony Bankcorp, Inc. and its subsidiaries employed 156 full-time employees and 26 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 1998. 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. MONETARY POLICY Banking is a business that depends on interest rate differentials. In general, the difference between the interest rates paid by the Banks on their deposits and other borrowings and the interest rates received on loans extended to their customers and on securities held in their portfolios comprises the major portion of the Banks' earnings. The earnings and growth of the Banks and of Colony are affected not only by general economic conditions, both domestic and foreign, but also by the monetary and fiscal policies of the United States and its agencies, particularly the Board. The Board can and does implement national monetary policy, such as seeking to curb inflation and combat recession, by its open market operations in the United States government securities, limitations upon savings and time deposit interest rates, adjustments in the amount of industry reserves that banks and other financial institutions are required to maintain and adjustments to the discount rates applicable to borrowings by banks from the Federal Reserve System. In view of changing conditions in the national economy and in the money markets, as well as the effect of actions by monetary and fiscal authorities, including the Federal Reserve, no prediction can be made as to possible future changes in interest rates, deposit levels, loan demand or the business and earnings of the Banks. SUPERVISION AND REGULATION OF COLONY BANKCORP, INC. Colony is a bank holding company within the meaning of the Federal Bank Holding Company Act of 1956, as amended (the "Bank Holding Company Act"). As a bank holding company, Colony is required to file with the Board of Governors of the Federal Reserve System (the "Board") an annual report and such additional information as the Board may require pursuant to the Bank Holding Company Act. The Board may also make examinations of Colony and each of its subsidiaries. In addition, a bank holding company is required to obtain approval prior to acquiring, directly or indirectly, ownership or control of a bank. A bank holding company and its subsidiaries are also prohibited from acquiring any voting shares of, or interest in, any banks located outside the state in which the operations of the bank holding company's subsidiaries are located, unless the acquisition is specifically authorized by the statutes of the state in which the target is located. Several southeastern states, including Georgia, have enacted reciprocal legislation that authorizes interstate acquisitions of banking organizations by bank holding companies within the southeastern states. As a result of this legislation, the Company may become a candidate for acquisition by banking organizations located in those states that have enacted reciprocal legislation. In addition, the entry of large bank holding companies from those states into the market areas serviced by the Company would probably result in increased competition. 11
Part I (Continued) Item 1 The Bank Holding Company Act also prohibits a bank holding company, with certain exceptions, from acquiring more than 5 percent of the voting shares of any company that is not a bank and from engaging in any business other than banking or managing or controlling banks and other subsidiaries authorized by the Bank Holding Company Act or furnishing services to, or performing services for, its subsidiaries without the prior approval of the Board. The Board is authorized to approve, among other things, the ownership of shares by a bank holding company in any company the activities of which it has determined to be so closely related to banking or to managing or controlling banks as to be a proper incident thereto. Notice to and review by the Board of such activities would be necessary before the Company could engage in such activities. The Board is empowered to differentiate between activities that are initiated de novo by a bank holding company or a subsidiary and activities commenced by acquisition of a going concern. The Company is also a bank holding company within the meaning of the Georgia Bank Holding Company Act, which provides that, without the approval of the Commissioner of the Georgia Department of Banking and Finance (the "Commissioner"), it is unlawful (i) for any bank holding company to acquire direct or indirect ownership or control of more than 5 percent of the voting shares of any bank; (ii) for any bank holding company or subsidiary thereof, other than a bank, to acquire all or substantially all of the assets of a bank; or (iii) for any bank holding company to merge or consolidate with any other bank holding company. It is unlawful for any bank holding company to acquire direct or indirect ownership or control of more than 5 percent of the voting shares of any bank unless such bank has been in existence and continuously operating as a bank for a period of five years or more prior to the date of application to the Commissioner for approval of such acquisition. While the Company is not presently subject to any regulatory restrictions on dividends, the Company's ability to pay dividends will depend to a large extent on the amount of dividends paid by its subsidiaries. The Banks are subject to regulatory restrictions on the payment of dividends. See Supervision and Regulation of the Banks below. SUPERVISION AND REGULATION OF THE BANKS Federal banking regulations applicable to all depository financial institutions, among other things, (i) provide federal bank regulatory agencies with powers to prevent unsafe and unsound banking practices; (ii) restrict preferential loans by banks to "insiders" of banks; (iii) require banks to keep information on loans to major stockholders and executive officers; and (iv) bar certain director and officer interlocks between financial institutions. Colony is an affiliate of the banks under the Federal Reserve Act, which imposes restrictions on loans to the Company by the Banks, or investments by the Banks in securities of the Company and on the use of such securities as collateral security for loans by the Banks to any borrower. Colony is also subject to certain restrictions with respect to engaging in the business of issuing, underwriting and distributing securities. Bank holding companies may be compelled by bank regulatory authorities to invest additional capital in the event their banks experience either significant loan losses or rapid growth of loans or deposits. In addition, Colony may also be required to provide additional capital to any additional banks it acquires as a condition to obtaining the approvals and consents of regulatory authorities in connection with such acquisitions. 12
Part I (Continued) Item 1 The Banks are examined and regulated by the Department of Banking and Finance of the Sate of Georgia. Pursuant to regulations adopted by that authority, the Banks must each have the approval of the Commissioner to pay cash dividends, unless at the time of such payment (i) the total classified assets at the most recent examination of such Bank do not exceed 80 percent of the equity capital as reflected by such examination; (ii) the aggregate amount of dividends declared or anticipated to be declared in the calendar year does not exceed 50 percent of the net profits, after taxes but before dividends, for the previous calendar year; and (iii) the ratio of equity capital to adjusted total assets is not less than 6 percent. The Banks are members of the Federal Deposit Insurance Corporation (the "FDIC"), which currently insures the deposits of each member bank up to a maximum of $100,000 per account. For this protection, each Bank pays a semiannual statutory assessment and is subject to the rules and regulations of the FDIC. The FDIC has the authority to prevent the continuance or development of unsound and unsafe banking practices. The FDIC is also authorized to approve conversions, mergers, consolidations and assumption of deposit liability transactions between insured banks and uninsured banks or institutions, and to prevent capital or surplus diminution in such transactions where the resulting, continuing or assumed bank is an insured nonmember state bank. The Deposit Insurance Funds Act of 1996 In 1996, the FDIC issued The Deposit Insurance Funds Act of 1996 (Funds Act) requiring the FDIC to impose a one-time special assessment on Savings Association Insurance Fund (SAIF) assessable deposits held by institutions as of March 31, 1995. The amount of the special assessment was based upon the August 31, 1996 SAIF balance and insured deposit data reported in the March 31, 1996 call reports. As a member of the SAIF, Bank of Worth was assessed $240,000 in 1996. The Federal Deposit Insurance Corporation Improvement Act On September 15, 1992, the FDIC approved final regulations adopting the risk- related deposit insurance system that was proposed in May 1992. Under the final risk-related insurance regulations, each insured depository institution will be assigned to one of three risk calculations: "well-capitalized," "adequately capitalized" or "less than adequately capitalized," as defined in regulations to be promulgated by the federal bank regulatory agencies pursuant to FDICIA. The Board and the FDIC approved minimum capital requirements for banks and bank holding companies based in part on the degrees of risk to which the institution's assets are subject. Under these rules, Colony and its subsidiary banks are required to maintain a specified minimum ratio of "qualifying" capital to risk-weighted assets. The ratio is calculated by dividing adjusted qualifying capital by a weighted risk asset base. At least 50 percent of the institution's qualifying capital must be "Core" or "Tier 1" capital. The balance may be "Supplementary" or "Tier 2" capital. For purposes of the rules, a bank holding company's Tier 1 capital is essentially equal to common stockholders' equity, including retained earnings, plus a certain amount of perpetual preferred stock, less intangible assets; Tier 2 capital includes the excess of any perpetual preferred stock not included in Tier 1 capital, mandatory convertible securities, subordinated debt and general reserves for loan and lease losses limited to 1.25 percent of total risk-weighted assets. The weighted risk asset base is equal to the sum of the aggregate dollar value of assets and certain off balance sheet items (such as currency or interest rate swaps) in each of five separate risk categories, multiplied by a weight assigned to each specific asset category. After the items in each category have been totaled and multiplied by the category's risk factor, the total of the adjusted qualifying capital base is divided by the weighted risk assets to derive a ratio. A minimum ratio of 4.0 percent of Tier 1 or Core Capital is required and a minimum ratio of 8 percent of total risk-based capital is required. The capital regulations also require the Bank to maintain a minimum leverage ratio of 4 percent. Colony and its subsidiary banks met all regulatory capital requirements as of December 31, 1998 as discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations. 13
Part I (Continued) Item 1 Each Bank also met its individual regulatory capital requirements as of December 31, 1997. The Riegle-Neal Interstate Banking and Branching Efficiency Act In September 1994, the Interstate Banking Act became law. The Interstate Banking Act provides that as of September 29, 1995, adequately capitalized and managed bank holding companies are permitted to acquire banks in any state. State laws prohibiting interstate banking or discriminating against out-of-state banks were preempted as of the effective date, although states were permitted to require that target banks located within the state be in existence for a period of up to five years before such banks may be subject to the Interstate Banking Act. The Interstate Banking Act establishes deposit caps which prohibit acquisitions that would result in the acquirer controlling 30 percent or more of the deposits of insured banks and thrifts held in the state in which the acquisition or merger is occurring or in any state in which the target maintains a branch or 10 percent or more of the deposits nationwide. State-level deposit caps are not preempted as long as they do not discriminate against out-of-state acquirers, and the federal deposit caps apply only to initial entry acquisitions. The United States Congress and the Georgia General Assembly have periodically considered and adopted legislation that has resulted in, and could further result in, deregulation of both banks and other financial institutions. Such legislation could modify or eliminate geographic restrictions on banks and bank holding companies and current prohibitions against banks engaging in certain nonbanking activities. Such legislative changes could place the Company in more direct competition with other financial institutions, including mutual funds, securities brokerage firms, insurance companies and investment banking firms. The effect of any such legislation on the business of the Company cannot be accurately predicted. The Company cannot predict what other legislation might be enacted or what other regulations might be adopted, or if enacted or adopted, the effect thereof. Executive Officer The following table sets forth certain information with respect to the executive officer of the Registrant. <TABLE> <CAPTION> Name (Age) Position with the Registrant Officer Since - ------------------- -------------------------------------------------- ------------- <S> <C> <C> James D. Minix (57) President and Chief Executive Officer and Director 1994 </TABLE> The officer serves at the discretion of the board of directors. Prior to 1994, Mr. Minix served as president of The Bank of Fitzgerald from January 1993 through June 1994 and prior to that time, Mr. Minix served as president of Ashburn Bank from February 1990 through December 1992. Item 2 DESCRIPTION OF PROPERTY 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. 14
Part I (Continued) Item 3 LEGAL PROCEEDINGS Incorporated herein by reference to page 6 of the Company's Definitive Proxy Statement for Annual Meeting of Stockholders to be Held April 27, 1999, filed with the Securities and Exchange Commission on March 22, 1999 (File No. 0- 18486). Item 4 SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS No matters were submitted to a vote of the Registrant's stockholders during the fourth quarter of 1998. Part II Item 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS 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. <TABLE> <CAPTION> Year Ended December 31, 1998 High Low Close Per Share - ---------------------------- ------- ------ ------ --------- <S> <C> <C> <C> <C> Fourth Quarter $27.00 $25.25 $25.50 $0.060 Third Quarter 25.38 25.25 25.38 0.060 Second Quarter 32.50 27.25 27.50 0.055 First Quarter N/A N/A N/A 0.055 </TABLE> On February 18, 1997, the Company's Board of Directors approved a 50 percent stock split effected in the form of a stock dividend payable to shareholders of record on July 1, 1997. All share and per share information in this report has been restated to give retroactive effect to this split. The Registrant paid cash dividends on its common stock of $510,030 or $0.235 per share and $434,654 or $0.200 per share in 1998 and 1997, respectively. As of December 31, 1998, the Company had approximately 912 shareholders of record. 15
Part II Item 6 <TABLE> <CAPTION> Year Ended December 31, ---------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ---------------------------------------------------------------------------------- (Dollars in Thousands, except per share data) <S> <C> <C> <C> <C> <C> Selected Balance Sheet Data: Total Assets.............................. $381,348 $342,947 $319,540 $299,246 $268,475 Total Loans............................... 252,864 234,288 206,863 200,837 183,499 Total Deposits............................ 330,746 298,162 285,676 271,646 244,751 Investment Securities..................... 71,798 56,915 63,378 51,560 53,458 Stockholders' Equity...................... 33,096 28,821 25,591 23,068 18,454 Selected Income Statement Data: Interest Income........................... 30,653 28,777 26,525 25,739 22,473 Interest Expense.......................... 15,521 13,992 13,158 12,140 9,512 -------- -------- -------- -------- -------- Net Interest Income..................... 15,132 14,785 13,367 13,599 12,961 Provision for Loan Losses................. 11,157 1,489 2,195 3,246 2,097 Other Income.............................. 2,659 2,528 2,649 2,334 1,955 Other Expense............................. 11,090 10,601 9,569 9,332 9,333 -------- -------- -------- -------- -------- Income Before Tax......................... 5,544 5,223 4,252 3,355 3,486 Income Tax Expense........................ 1,692 1,605 1,319 983 1,065 -------- -------- -------- -------- -------- Net Income.............................. 3,852 $3,618 $2,933 $2,372 $2,421 ======== ======== ======== ======== ======== Per Share Data: (a) - ------------------- Net Income (Diluted)...................... $1.74 $1.66 $1.35 $1.15 $1.17 Book Value................................ 14.96 13.26 11.78 10.61 8.95 Tangible Book Value....................... 14.85 13.15 11.66 11.01 8.81 Dividends................................. 0.23 0.20 0.18 0.23 0.20 Profitability Ratios: - --------------------- Net Income to Average Assets.............. 1.09% 1.11% 0.97% 0.84% 0.90% Net Income to Average Stockholders' Equity...................... 12.22% 13.21% 12.04% 11.48% 13.94% Net Interest Margin....................... 4.66% 4.87% 4.74% 5.20% 5.20% Loan Quality Ratios: - ------------------- Net Charge-Offs to Total Loans............ 0.40% 0.58% 0.88% 1.18% 0.92% Reserve for Loan Losses to Total Loans and ORE.................... 1.86% 1.94% 2.12% 2.00% 1.71% Nonperforming Assets to Total Loans and OREO...................... 2.50% 2.51% 3.85% 2.98% 1.32% Reserve for Loan Losses to Nonperforming Loans....................... 74.55% 77.23% 54.88% 67.08% 129.39% Reserve for Loan Losses to Total Nonperforming Assets................ 65.21% 63.23% 40.75% 50.39% 69.67% Liquidity Ratios: - ----------------- Loans to Total Deposits...................... 76.45% 78.58% 72.41% 73.93% 74.97% Loans to Average Earning Assets.............. 78.17% 77.16% 73.34% 76.83% 73.66% Noninterest-Bearing Deposits to Total Deposits............................. 8.83% 9.16% 10.05% 10.26% 11.54% Capital Adequacy Ratios: - ----------------------- Common Stockholders' Equity to Total Assets.. 8.68% 8.40% 8.01% 7.71% 6.87% Total Stockholders' Equity to Total Assets... 8.68% 8.40% 8.01% 7.71% 6.87% Dividend Payout Ratio........................ 13.24% 12.02% 13.60% 19.90% 17.27% </TABLE> (a) Per share data for all periods has been retroactively restated for a 100 percent stock split on July 1, 1995 and a 50 percent stock split on July 1, 1997. All stock splits were effected in the form of dividends. 16
Part II (Continued) Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources Liquidity represents the ability to provide adequate sources of funds for funding loan commitments and investment activities, as well as the ability to provide sufficient funds to cover deposit withdrawals, payment of debt and financing of operations. These funds are obtained by converting assets to cash (representing primarily proceeds from collections on loans and maturities of investment securities) or by attracting and obtaining new deposits. During 1998, the Company was successful in obtaining deposits as evidenced by the fact that average deposits increased by 7.50 percent to $306,168,000 in 1998 from average deposits of $284,800,000 in 1997. Should the need arise, the Company also maintains relationships with Federal Home Loan Bank and several correspondent banks that can provide funds on short notice. Liquidity is monitored on a regular basis by management. The Company's liquidity position remained satisfactory in 1998. Average liquid assets (cash and amounts due from banks, interest-bearing deposits in other banks, funds sold and investment securities) represented 30.24 percent of average deposits in 1998 as compared to 29.73 percent in 1997. Average loans represented 80.60 percent of average deposits in 1998 as compared to 80.00 percent in 1997. Average interest-bearing deposits were 85.08 percent of average earning assets in 1998 as compared to 84.92 percent in 1997. The Company satisfies most of its capital requirements through retained earnings. During 1998, retained earnings provided $3,342,000 of additional equity. Additionally, equity increased $885,000 from stock offering proceeds realized in the first quarter of 1998 and $49,000 from the change during the year in unrealized gains (losses) on securities available for sale, net of taxes. Thus, total equity increased by a net amount of $4,276,000. In 1997, growth in equity was provided by retained earnings of $3,183,000 and increase in unrealized gain (loss) on securities available for sale, net of taxes of $47,000 for a total equity increase of $3,230,000. As of December 31, 1998, total capital of Colony approximated $33,096,000 and there were no outstanding commitments for capital expenditures. The Federal Reserve Board and the FDIC have issued risk-based capital guidelines for U.S. banking organizations. The objective of these efforts is to provide a more uniform framework that is sensitive to differences in risk assets among banking organizations. The guidelines define a two-tier capital framework. Tier 1 capital consists of common stock and qualifying preferred stockholders= equity less goodwill. Tier 2 capital consists of certain convertible, subordinated and other qualifying term debt and the allowance for loan losses up to 1.25 percent of risk-weighted assets. The Company has no Tier 2 capital other than the allowance for loan losses. Using the capital requirements in effect at the end of 1998, the Tier 1 ratio as of December 31, 1998 was 11.91 percent and total Tier 1 and 2 risk-based capital was 13.17 percent. Both of these measures compare favorably with the regulatory minimums of 4 percent for Tier 1 and 8 percent for total risk-based capital. The Company's Tier 1 leverage ratio was 8.83 percent as of December 31, 1998 which exceeds the required leverage ratio standard of 4 percent. 17
Part II (Continued) Item 7 Liquidity and Capital Resources (Continued) For 1998, average capital was $31,524,000 representing 8.92 percent of average assets for the year. This percentage is up from the 1997 level of 8.43 percent. During the first quarter of 1998, the Company offered 44,250 shares of stock at $20.00 per share which resulted in proceeds of $885,000 and increased shares outstanding from 2,173,263 to 2,217,513. In 1998, the Company paid annual dividends of $0.23 per share. The dividend payout ratio, defined as dividends per share divided by net income per share, was 13.22 percent in 1998 as compared with 12.05 percent in 1997. As of December 31, 1998, management was not aware of any recommendations by regulatory authorities which, if they were to be implemented, would have a material effect on the Company's liquidity, capital resources or results of operations. However, it is possible that examinations by regulatory authorities in the future could precipitate additional loss charge-offs which could materially impact the Company's liquidity, capital resources and results of operations. Results of Operations The Company's results of operations are determined by its ability to effectively manage interest income and expense, to minimize loan and investment losses, to generate noninterest income and to control noninterest expense. Since interest rates are determined by market forces and economic conditions beyond the control of the Company, the ability to generate net interest income is dependent upon the Banks' 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 measure for net interest income is the interest margin or net yield, which is taxable-equivalent net interest income divided by average earning assets. Net Income Net income for the year ended December 31,1998 increased to $3,852,000 from the 1997 net income of $3,618,000, representing an increase of $234,000, or 6.47 percent. This increase is the result of an increase in net interest income of $347,000, a decrease of $332,000 in provision for loan losses and an increase of $131,000 in noninterest income. These were offset by an increase in noninterest expense of $448,000 and an increase in income tax expenses of $88,000. The expansion projects undertaken in 1998 impacted earnings approximately $300,000; however, the new offices provided $30,000,000 in asset growth during 1998 and should further enhance shareholder value as they provide additional growth in the future. On a fully-diluted per share basis, net income increased to $1.74 from the 1997 per share amount of $1.66, an $0.08 increase or 4.82 percent. Net income for the year ended December 31, 1997 increased to $3,618,000 from the 1996 net income of $2,934,000, representing an increase of $684,000 or 23.31 percent. This increase is the result of an increase in net interest income of $1,418,000 and a $705,000 decrease in provision for loan losses. These were offset by a decrease in noninterest income of $121,000, an increase in noninterest expense of $1,032,000 and an increase in income tax expense of $286,000. On a fully-diluted per share basis, net income increased to $1.66 from the 1996 per share amount of $1.35, a $0.31 increase or 22.96 percent. 18
Part II (Continued) Item 7 Net Interest Margin Net interest margin decreased to 4.66 percent in 1998 as compared to 4.91 percent in 1997. Net interest income increased by 2.35 percent to $15,132,000 in 1998 from $14,785,000 in 1997 on an increase in average earning assets to $329,109,000 in 1998 from $303,648,000 in 1997 with an interest spread of 4.08 percent in 1998 as compared to 4.29 percent in 1997. Average loans increased by $18,924,000 or 8.31 percent, average funds sold increased by $6,493,000 or 44.66 percent, average investment securities decreased by $95,000 or 1.46 percent and average interest-bearing deposits in other banks increased by $139,000 or 18.19 percent, resulting in a net increase in average earning assets of $25,461,000 or 8.39 percent. The net increase in average assets was funded by a net increase in average deposits of 7.50 percent to $306,168,00 in 1998 from $284,800,000 in 1997. Average interest-bearing deposits increased by 8.58 percent to $279,992,000 in 1998 from $257,871,000 in 1997 while average noninterest-bearing deposits increased 2.80 percent to $26,176,000 in 1998 from $26,929,000 in 1997. Average noninterest-bearing deposits represented 8.55 percent of total deposits in 1998 as compared to 9.46 percent in 1997. The net interest margin decreased to 4.91 percent in 1997 as compared to 4.80 percent in 1996. Net interest income increased by 10.61 percent to $14,785,000 in 1997 from $13,367,000 in 1996 on an increase in average earning assets to $303,648,000 in 1997 from $282,066,000 in 1996 with an interest spread of 4.29 percent in 1997 as compared to 4.18 percent in 1996. Average loans increased by $18,655,000 or 8.92 percent, average funds sold decreased by $1,686,000 or 10.39 percent, average investment securities increased by $4,133,000 or 7.33 percent and average interest-bearing deposits in other banks increased by $480,000 or 169.01 percent, resulting in a net increase in average earning assets of $21,582,000 or 7.65 percent. The net increase in average assets was funded by a net increase in average deposits of 4.69 percent to $284,800,000 in 1997 from $272,042,000 in 1996. Average interest-bearing deposits increased by 4.97 percent to $257,871,000 in 1997 from $245,662,000 in 1996 while average noninterest-bearing deposits increased 2.08 percent to $26,929,000 in 1997 from $26,380,000 in 1996. Average noninterest-bearing deposits represented 9.46 percent of total deposits in 1997 as compared to 9.70 percent in 1996. Provision for Loan Losses The allowance for loan losses represents a reserve for potential losses in the loan portfolio. The adequacy of the allowance for loan losses is evaluated periodically based on a review of all significant loans, with a particular emphasis on nonaccruing, past due and other loans that management believes require attention. The provision for loan losses is a charge to earnings in the current period to replenish the allowance for loan losses and maintain it at a level management has determined to be adequate. The provision for loan losses was $1,157,000 in 1998 as compared to $1,489,000 in 1997, representing a decrease in the provision of $332,000 or 22.30 percent. Net loan charge-offs represented 86.95 percent of the provision for loan losses in 1998 as compared to 90.60 percent in 1997. The decrease in loan charge-offs in 1998 resulted from management's effort the past several years to improve credit quality and to eliminate weak and marginal credits. Net loan charge-offs for 1998 represented 0.41 percent of average loans outstanding as compared to 0.59 percent for 1997. As of December 31, 1998, the allowance for loan losses was 1.87 percent of total loans outstanding as compared to an allowance for loan losses of 1.95 percent of total loans 19
Part II (Continued) Item 7 Provision for Loan Losses (Continued) outstanding as of December 31, 1997. The loan loss reserve of 1.87 percent of total loans outstanding provided coverage of 78.40 percent of nonperforming loans and 68.14 percent of nonperforming assets as of December 31, 1998 as compared to 77.29 percent and 63.28 percent, respectively, as of December 31, 1997. The determination of the reserve rests upon management's judgment about factors affecting loan quality and assumptions about the economy. Management considers the year-end allowance for loan losses adequate to cover potential losses in the loan portfolio. The provision for loan losses was $1,489,000 in 1997 as compared to $2,195,000 in 1996, representing a decrease in the provision of $706,000 or 32.12 percent. Net loan charge-offs represented 90.60 percent of the provision for loan losses in 1997 as compared to 82.52 percent in 1996. The decrease in loan charge-offs in 1997 resulted from management's effort the past several years to improve credit quality and to eliminate weak and marginal credits. Net loan charge-offs for 1997 represented 0.59 percent of average loans outstanding as compared to 0.87 percent for 1996. As of December 31, 1997, the allowance for loan losses was 1.95 percent of total loans outstanding as compared to an allowance for loan losses of 2.14 percent of total loans outstanding as of December 31, 1996. Noninterest Income Noninterest income consists primarily of service charges on deposit accounts. Service charges on deposit accounts totaled $1,932,000 in 1998 as compared to $1,764,000 in 1997 or an increase of 9.52 percent. All other noninterest income decreased by $37,000 to $727,000 in 1998 from $764,000 in 1997. There were no significant variances in other noninterest income accounts in 1998 from 1997. Service charges on deposit accounts totaled $1,764,000 in 1998 as compared to $1,680,000 in 1996 or an increase of 5.00 percent. All other noninterest income decreased by $205,000 to $764,000 in 1997 from $969,000 in 1996. The decrease in other noninterest income was primarily attributable to premiums on loans sold during 1997 of $15,000 compared to $189,000 in 1996. Noninterest Expense Noninterest expense increased by 4.60 percent to $11,088,000 in 1998 from $10,600,000 in 1997. Salaries and employee benefits increased 4.97 percent to $5,721,000 in 1998 from $5,450,000 in 1997 primarily due to increased staffing with the three branches opened in Douglas, Leesburg and Tifton during 1998. Occupancy and equipment expense increased by 19.62 percent to $1,878,000 in 1998 from $1,570,000 in 1997 primarily due to additional depreciation and occupancy expense with the three branch offices opened during 1998. All other noninterest expense decreased by 2.54 percent to $3,489,000 in 1998 from $3,580,000 in 1997. Noninterest expense for 1998 decreased due to $141,000 of nonrecurring expense included in 1997 resulting from a subsidiary bank buying out its data processing contract in order to convert to Colony's data processing system. All other expenses in the aggregate changed nominally. 20
Part II (Continued) Item 7 Noninterest Expense (Continued) Noninterest expense increased by 10.77 percent to $10,600,000 in 1997 from $9,569,000 in 1996. Salaries and employee benefits increased 8.78 percent to $545,000 in 1997 from $5,009,000 in 1996 primarily due to increased staffing for the branch in Leesburg, increased health insurance premiums and profit sharing contributions. Occupancy and equipment expense increased by 28.78 percent to $1,526,000 in 1997 from $1,185,000 in 1996 primarily due to increased depreciation and occupancy expense with the Colony headquarters completed during 1997 and the depreciation expenses with data processing equipment purchased in 1997. All other noninterest expense increased by 7.41 percent to $3,625,000 in 1997 from $3,375,000 in 1996 primarily due to data processing expense incurred approximating $223,000. Of this increase, $141,000 is nonrecurring and results from a subsidiary bank buying out its data processing contract in order to convert to Colony's data processing system. All other expenses in the aggregate realized nominal change. Income Tax Expense Income before taxes increased by $321,000 to $5,544,000 in 1998 from $5,223,000 in 1996 with significant changes being an increase in net interest income of $347,000 in 1998 as compared to 1997, a decrease in provision for loan losses of $332,000 in 1998 as compared to 1997 and an increase in noninterest expenses net of noninterest income of $358,000 in 1998 as compared to 1997. Income tax expense increased 5.42 percent to $1,692,000 in 1998 from $1,605,000 in 1997. Income tax expense as a percentage of income before taxes decreased by 0.68 percent to 30.52 percent in 1998 from 30.73 percent in 1997. Income before taxes increased by $971,000 to $5,223,000 in 1997 from $4,252,000 in 1996 with significant changes being a decrease in provision for loan losses of $705,000 in 1997 as compared to 1996, an increase in net interest income of $1,418,000 in 1997 as compared to 1996 and an increase in noninterest expenses net of noninterest income of $1,153,000 in 1997 as compared to 1996. Income tax expense increased 21.68 percent to $1,605,000 in 1997 from $1,319,000 in 1996. Income tax expense as a percentage of income before taxes decreased by 0.90 percent to 30.73 percent from 31.01 percent in 1996. Outlook for 1999 Colony is an emerging company operating in an industry filled with nonregulated competitors and a rapid pace of consolidation. The year brings with it new opportunities for growth in existing markets, as well as opportunities to expand into new markets through bank acquisitions and branching. Colony completed three new branches in 1998 which are located in Douglas, Tifton and Leesburg, Georgia. Colony has targeted new branches in two growth markets in South Georgia for 1999. These new branches will be located in Cordele and Moultrie. 21
Part II (Continued) Item 7 Year 2000 Compliance Issue Colony has initiated a company-wide program to identify and address issues associated with the ability of its in-house systems and outside service providers to properly recognize date-sensitive information as a result of the century change on January 1, 2000 (Year 2000). Colony has established a five-phase methodology for use in assessing the Year 2000 project's state of readiness. These phases are awareness, assessment, renovation, validation and implementation. An appointed Year 2000 steering committee monitors progress within these phases. These five phases are briefly defined as follows: (1) awareness - defining the problem and establishing the resources needed to achieve compliance; (2) assessment - identifying all areas of operations affected by the Year 2000 date change issue; (3) renovation - updating or replacement of affected systems; (4) validation - testing systems and evaluating the results of testing; (5) implementation - certification and acceptance of Year 2000 compliance. The majority of the Year 2000 issues facing the Company are information technology ("IT") in nature. All IT systems, which includes mainframe and midrange computer systems are 95 percent complete in all phases. Testing of these systems has produced satisfactory results. Non-IT systems, which include embedded technology such as micro controllers, are also being considered. In addition, all third party service providers have provided the Company with documentation regarding the tested or anticipated compliance of their services. Although the Company has obtained and continues to obtain these written verifications, there can be no assurance that the potential impact of a major interruption or failure in the services provided by these companies would not have a material adverse effect on the Company's financial condition or results of operations. Colony has established contingency plans in the event of a failure caused by the Year 2000 date change. This plan is designed to address the most likely risks facing the Company during the rollover period. Some of these risks include application system failures, power outages, security and environmental systems failures. Colony anticipates completion of all phases by early fall of 1999 with minimal additional costs to be provided by Company earnings. The majority of remaining costs will be spent on customer assurance related expenditures. Forward-Looking Statements This document contains statements that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words "believe," "estimate," "intend," "anticipate" and similar expressions and variations thereof identify certain of such forward-looking statements, which speak only as of the dates which they were made. The Company undertakes no obligations to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Users are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those indicated in the forward-looking statements as a result of various factors. Users are therefore cautioned not to place undue reliance on these forward-looking statements. 22
Part II (Continued) Item 7 AVERAGE BALANCE SHEETS <TABLE> <CAPTION> 1998 1997 1996 -------------------------- -------------------------- ----------------------------- Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/ ($ in thousands) Balances Expense Rates Balances Expense Rates Balances Expense Rates - -------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Assets Interest-Earning Assets Loans, Net of Unearned Income Taxable (1) $246,758 $25,851 10.48% $227,834 $24,227 10.63% $209,179 $22,372 10.70% -------- ------- ----- -------- ------- ----- -------- ------- ----- Investment Securities Taxable 52,551 3,234 6.15% 53,971 3,301 6.12% 49,380 2,962 6.00% Tax-Exempt (2) 7,864 596 7.58% 6,539 492 7.52% 6,997 483 6.90% -------- ------- ----- -------- ------- ----- -------- ------- ----- Total Investment Securities 60,415 3,830 6.34% 60,510 3,793 6.27% 56,377 3,445 6.11% -------- ------- ----- -------- ------- ----- -------- ------- ----- Interest-Bearing Deposits in Other Banks 903 49 5.43% 764 46 6.02% 284 9 3.17% -------- ------- ----- -------- ------- ----- -------- ------- ----- Funds Sold 21,003 1,125 5.35% 14,540 823 5.66% 16,226 864 5.32% -------- ------- ----- -------- ------- ----- -------- ------- ----- Total Interest-Earning Assets 329,109 30,855 9.38% 303,648 28,889 9.51% 282,066 26,690 9.46% -------- ------- ----- -------- ------- ----- -------- ------- ----- Noninterest-Earning Assets Cash 10,227 8,861 8,619 -------- -------- -------- Allowance for Loan Losses (4,742) (4,612) (4,346) Other Assets 18,898 17,173 15,837 -------- -------- -------- Total Noninterest-Earning Assets 24,383 21,422 20,110 -------- -------- -------- Total Assets $353,492 $325,070 $302,176 ======== ======== ======== Liabilities and Stockholders' Equity Interest-Bearing Liabilities Interest-Bearing Deposits Interest-Bearing Demand $72,284 $ 2,009 2.78% $62,436 $1,909 3.06% $62,204 $1,863 3.00% and Savings Other Time 207,708 12,624 6.08% 195,435 11,381 5.82% 183,458 11,167 6.09% -------- ------- ----- -------- ------- ----- -------- ------- ----- Total Interest-Bearing Deposits 279,992 14,633 5.22% 257,871 13,290 5.15% 245,662 13,030 5.30% -------- ------- ----- -------- ------- ----- -------- ------- ----- Other Interest-Bearing Liabilities Debt 11,548 875 7.58% 9,813 664 6.77% 3,347 100 2.99% Funds Purchased and Securities Sold Under Agreement to Repurchase 1,578 21 1.33% 558 38 6.81% 303 29 9.57% -------- ------- ----- -------- ------- ----- -------- ------- ----- Total Other Interest-Bearing Liabilities 13,126 896 6.83% 10,371 702 6.77% 3,650 129 3.53% -------- ------- ----- -------- ------- ----- -------- ------- ----- Total Interest-Bearing Liabilities 293,118 15,521 5.30% 268,242 13,992 5.22% 249,312 13,159 5.28% -------- ------- ----- -------- ------- ----- -------- ------- ----- Noninterest-Bearing Liabilities and Stockholders' Equity Demand Deposits 26,176 26,929 26,380 Other Liabilities 2,674 2,503 2,121 Stockholders' Equity 26,176 27,396 24,363 -------- -------- -------- Total Noninterest-Bearing Liabilities and Stockholders' Equity 60,374 56,828 52,864 -------- -------- -------- Total Liabilities and Stockholders' Equity $353,492 $325,070 $302,176 ======== ======== ======== Interest Rate Spread 4.08% 4.29% 4.18% ===== ===== ===== Net Interest Income $15,334 $14,897 $13,531 ======== ======= ======= Net Interest Margin 4.66% 4.91% 4.80% ===== ===== ===== </TABLE> (1) The average balance of loans includes the average balance of nonaccrual loans. Income on such loans is recognized and recorded on the cash basis. (2) Taxable-equivalent adjustments totaling $202,547, $167,180 and $164,074 for 1998, 1997 and 1996, respectively, are included in tax-exempt interest on investment securities. The adjustments are based on a federal tax rate of 34 percent with appropriate reductions for the effect of disallowed interest expense incurred in carrying tax-exempt obligations. 23
Part II (Continued) Item 7 RATE/VOLUME ANALYSIS The rate/volume analysis presented hereafter illustrates the change from year to year for each component of the taxable equivalent net interest income separated into the amount generated through volume changes and the amount generated by changes in the yields/rates. <TABLE> <CAPTION> Changes From 1997 to 1998(1) Changes From 1996 to 1997 (1) ($ in thousands) Volume Rate Total Volume Rate Total ------------------------------ -------------------------------- <S> <C> <C> <C> <C> <C> <C> Interest Income Loans, Net - Taxable $2,012 $(388) $1,624 $1,995 $(140) $1,855 ----------------------------------------------------------------- Investment Securities Taxable (87) 20 (67) 275 64 339 Tax-Exempt 100 4 104 (32) 41 9 ----------------------------------------------------------------- Total Investment Securities 13 24 37 243 105 348 Interest-Bearing Deposits in Other Banks 8 (5) 3 15 22 37 ----------------------------------------------------------------- Funds Sold 368 (66) 302 (90) 49 (41) Total Interest Income 2,401 (435) 1,966 2,163 36 2,199 ----------------------------------------------------------------- Interest Expense Interest-Bearing Demand and Savings Deposits 301 (201) 100 7 39 46 Time Deposits 715 528 1,243 729 (515) 214 Other Interest-Bearing Liabilities Funds Purchased and Securities Under Agreement to Repurchase 69 (86) (17) 24 (15) 9 Other Debt 117 94 211 193 371 564 ----------------------------------------------------------------- Total Interest Expense 1,202 335 1,537 953 (120) 833 ----------------------------------------------------------------- Net Interest Income $1,199 $(770) $429 $1,210 $156 $1,366 ================================================================= </TABLE> (1) Changes in net interest income for the periods, based on either changes in average balances or changes in average rates for interest-earning assets and interest-bearing liabilities, are shown on this table. During each year, there are numerous and simultaneous balance and rate changes; therefore, it is not possible to precisely allocate the changes between balances and rates. For the purpose of this table, changes that are not exclusively due to balance changes or rate changes have been attributed to rates. 24
Part II (Continued) Item 7 INTEREST RATE SENSITIVITY The following table represents the Company's interest-sensitivity gap between interest-earning assets and interest-bearing liabilities as of December 31, 1998. <TABLE> <CAPTION> Assets and Liabilities Repricing Within ------------------------------------------------------------------ 3 Months 4 to 12 1 to 5 Over 5 ($ in thousands) or Less Months 1 Year Years Years Total ------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> Interest-Earning Assets Interest-Bearing Deposits $ 1,057 $ 1,057 $ 1,057 Investment Securities 5,476 $3,261 8,737 $43,723 $19,338 71,798 Funds Sold 27,795 27,795 27,795 Loans, Net of Unearned Income 106,284 59,008 165,292 75,905 11,667 252,864 -------- -------- -------- ------- ------- -------- Total Interest-Earning Assets 140,612 62,269 202,881 119,628 31,005 353,514 -------- -------- -------- ------- ------- -------- Interest-Bearing Liabilities Interest-Bearing Demand and Savings Deposits (1) 75,635 75,635 75,635 Other Time Deposits 64,827 118,200 183,027 42,862 6 225,895 Short-Term Borrowings (2) 1,806 1,806 12,714 14,520 -------- -------- -------- ------- ------- -------- Total Interest-Bearing Liabilities 142,268 118,200 260,468 55,576 6 316,050 -------- -------- -------- ------- ------- -------- Interest-Sensitivity Gap (1,656) (55,931) (57,587) 64,052 30,999 37,464 -------- -------- -------- ------- ------- -------- Cumulative Interest-Sensitivity Gap $ (1,656) $(57,587) $(57,587) $ 6,465 $37,464 $ 37,464 ======== ======== ======== ======= ======= ======== </TABLE> 25
Part II (Continued) Item 7 INVESTMENT PORTFOLIO The following table presents carrying values of investment securities held by the Company as of December 31, 1998, 1997 and 1996. <TABLE> <CAPTION> ($ in thousands) 1998 1997 1996 ------- ------- ------- <S> <C> <C> <C> U.S. Treasuries and Government Agencies $51,525 $36,187 $38,313 Obligations of States and Political Subdivisions 8,733 6,996 7,237 Other Securities 3,093 2,868 1,478 ------- ------- ------- Investment Securities 63,351 46,051 47,028 Mortgage Backed Securities 8,447 10,864 16,350 ------- ------- ------- Total Investment Securities and Mortgage Backed Securities $71,798 $56,915 $63,378 ======= ======= ======= </TABLE> The following table represents maturities and weighted-average yields of investment securities held by the Company as of December 31, 1998. <TABLE> <CAPTION> After 1 Year But After 5 Years But Within 1 Year Within 5 Years Within 10 Years After 10 Years -------------- ---------------- ---------------- -------------- ($ in thousands: yields on a tax-equivalent basis) Amount Yield Amount Yield Amount Yield Amount Yield ------ ----- ------ ----- ----- ----- ----- ----- <S> <C> <C> <C> <C> <C> <C> <C> <C> U.S. Government Agencies $4,511 5.283% $37,391 5.993% $9,623 6.080% $ 0 0.000% Mortgage Backed Securities 0 0.000 714 6.266 826 6.495 6,907 6.646 Obligations of States and Political Subdivisions 1,133 5.313 5,618 4.642 1,483 4.182 499 1.256 Other Securities 3,093 7.620 0 0.000 0 0.000 0 0.000 ------ ----- ------- ----- ------- ----- ------ ----- Total Investment Portfolio $8,737 6.114% $43,723 5.824% $11,932 5.873% $7,406 5.569% ====== ===== ======= ===== ======= ===== ====== ===== </TABLE> 26
Part II (Continued) Item 7 LOANS The following table presents the composition of the Company's loan portfolio as of December 31 for the past five years. <TABLE> <CAPTION> ($ in thousands) 1998 1997 1996 1995 1994 -------- -------- -------- ------- -------- <S> <C> <C> <C> <C> <C> Commercial, Financial and Agricultural $44,879 $34,883 $38,776 $34,459 $31,687 Real Estate Construction 998 2,676 881 526 469 Mortgage, Farmland 18,980 21,898 25,769 23,680 26,334 Mortgage, Other 133,857 117,268 88,896 95,967 81,146 Consumer 40,928 42,956 44,608 38,865 39,263 Other 13,227 14,618 7,946 7,381 4,623 -------- -------- -------- ------- -------- 252,869 234,299 206,876 200,878 183,522 Unearned Discount (5) (11) (13) (41) (23) (4,726) (4,575) (4,435) (4,051) (3,179) -------- -------- -------- ------- -------- Loans, Net $248,138 $229,713 $202,428 $196,786 $180,320 ======== ======== ======== ======== ======== </TABLE> The following table presents total loans less unearned discount as of December 31, 1998 according to maturity distribution. <TABLE> <CAPTION> Maturity ($ in thousands) <S> <C> One Year or Less $165,292 After One Year through Five Years 75,905 After Five Years 11,667 -------- $252,864 ======== </TABLE> The following table presents an interest rate sensitivity analysis of the Company's loan portfolio as of December 31, 1998. <TABLE> <CAPTION> Within 1 to 5 1 to 5 After 5 ($ in thousands) 1 Year Years Years Total -------- ------- ------- -------- <S> <C> <C> <C> <C> Loans with Predetermined Interest Rates $ 84,890 $75,617 $11,653 $172,160 Floating or Adjustable Interest Rates 80,402 288 14 80,704 -------- ------- ------- -------- Loans, Net of Unearned Income $165,292 $75,905 $11,667 $252,864 ======== ======= ======= ======== </TABLE> 27
Part II (Continued) Item 7 NONPERFORMING LOANS A loan is placed on nonaccrual status when, in management's judgment, the collection of interest income appears doubtful. Interest receivable that has been accrued in prior years and is subsequently determined to have doubtful collectibility is charged to the allowance for possible loan losses. Interest on loans that are classified as nonaccrual is recognized when received. Past due loans are loans whose principal or interest is past due 90 days or more. In some cases, where borrowers are experiencing financial difficulties, loans may be restructured to provide terms significantly different from the original contractual terms. The following table presents, at the dates indicated, the aggregate of nonperforming loans for the categories indicated. <TABLE> <CAPTION> December 31, ----------------------------------------------------------- 1998 1997 1996 1995 1994 ------- ------ ------ ------- ------ ($ in thousands) <S> <C> <C> <C> <C> <C> Loans Accounted for on a Nonaccrual Basis $5,823 $5,744 $7,396 $5,229 $2,197 Installment Loans and Term Loans Contractually Past Due 90 Days or More as to Interest or Principal Payments and Still Accruing 296 145 364 213 237 Loans, the Terms of Which Have Been Renegotiated to Provide a Reduction or Deferral of Interest or Principal Because of Deterioration in the Financial Position of the Borrower 220 5 321 597 23 Loans Now Current About Which There are Serious Doubts as to the Ability of the Borrower to Comply with Present Loan Repayment Terms - - - - - </TABLE> During the year ended December 31, 1998, approximately $1,410,000 of loans was charged off and approximately $403,000 was recovered on charged-off loans. All loans classified by regulatory authorities as loss during regular examinations in 1998 have been charged off. As of December 31, 1998, the allowance for loan losses was adequate to cover all loans classified by regulatory authorities as doubtful or substandard. 28
Part II (Continued) Item 7 COMMITMENTS AND CONTINGENCIES In the ordinary course of business, the Banks have entered into off balance sheet financial instruments which are not reflected in the consolidated financial statements. These instruments include commitments to extend credit, standby letters of credit, guarantees and liability for assets held in trust. Such financial instruments are recorded in the financial statements when funds are disbursed or the instruments become payable. The Banks use the same credit policies for these off balance sheet financial instruments as they do for instruments that are recorded in the consolidated financial statements. Following is an analysis of the significant off balance sheet financial instruments as of December 31, 1998 and 1997. <TABLE> <CAPTION> 1998 1997 -------- -------- ($ in thousands) <S> <C> <C> Commitments to Extend Credit $35,980 $30,197 Standby Letters of Credit 1,346 825 ------- ------- $37,326 $31,022 ======= ======= </TABLE> Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitment amounts expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The credit risk involved in issuing these financial instruments is essentially the same as that involved in extending loans to customers. The Company does not anticipate any material losses as a result of the commitments and contingent liabilities. The nature of the business of the Company is such that it ordinarily results in a certain amount of litigation. In the opinion of management and counsel for the Company and the Banks, there is no litigation in which the outcome will have a material effect on the consolidated financial statements. 29
Part II (Continued) Item 7 SUMMARY OF LOAN LOSS EXPERIENCE The allowance for possible loan losses is created by direct charges to operations. Losses on loans are charged against the allowance in the period in which such loans, in management's opinion, become uncollectible. Recoveries during the period are credited to this allowance. The factors that influence management's judgment in determining the amount charged to operating expense are past loan experience, composition of the loan portfolio, evaluation of possible future losses, current economic conditions and other relevant factors. The Company's allowance for loan losses was approximately $4,726,000 as of December 31, 1998, representing 1.87 percent of year-end total loans outstanding, compared with $4,575,000 as of December 31, 1997, which represented 1.95 percent of year-end total loans outstanding. The allowance for loan losses is reviewed continuously based on management's evaluation of current risk characteristics of the loan portfolio as well as the impact of prevailing and expected economic business conditions. Management considers the allowance for loan losses adequate to cover possible loan losses on the loans outstanding. Management has not allocated the Company's allowance for loan losses to specific categories of loans. Based on management's best estimate, approximately 10 percent of the allowance should be allocated to real estate loans, 50 percent to commercial, financial and agricultural loans and 40 percent to consumer/installment loans as of December 31, 1998. The following table presents an analysis of the Company's loan loss experience for the periods indicated. <TABLE> <CAPTION> ($ in thousands) 1998 1997 1996 1995 1994 ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> Allowance for Loan Losses at Beginning of Year $4,575 $4,435 $4,051 $3,179 $2,775 ------ ------ ------ ------ ------ Charge-Offs Commercial, Financial and Agricultural 617 1,026 2,294 2,042 906 Real Estate 111 160 8 4 11 Consumer 681 670 515 861 925 ------ ------ ------ ------ ------ 1,409 1,856 2,817 2,907 1,842 ------ ------ ------ ------ ------ Recoveries Commercial, Financial and Agricultural 144 219 816 77 42 Real Estate 36 37 9 3 3 Consumer 233 251 181 453 103 ------ ------ ------ ------ ------ 403 507 1,006 533 148 ------ ------ ------ ------ ------ Net Charge-Offs 1,006 1,349 1,811 2,374 1,694 ------ ------ ------ ------ ------ Provision for Loans Losses 1,157 1,489 2,195 3,246 2,098 ------ ------ ------ ------ ------ Allowance for Loan Losses at End of Year $4,726 $4,575 $4,435 $4,051 $3,179 ====== ====== ====== ====== ====== Ratio of Net Charge-Offs to Average Loans 0.41% 0.59% 0.87% 1.19% 0.89% ====== ====== ====== ====== ====== </TABLE> 30
Part II (Continued) Item 7 DEPOSITS The following table presents the average amount outstanding and the average rate paid on deposits by the Company for the years 1998, 1997 and 1996. <TABLE> <CAPTION> 1998 1997 1996 ---------------------- ----------------------- ---------------------- Average Average Average Average Average Average ($ in thousands) Amount Rate Amount Rate Amount Rate -------- ------- -------- ------- ------- ------- <S> <C> <C> <C> <C> <C> <C> Noninterest-Bearing Demand Deposits $ 26,176 $ 26,929 $ 26,380 Interest-Bearing Demand and Savings 72,284 2.78% 62,436 3.06% 62,204 2.99% Time Deposits 207,708 6.08 195,435 5.82 183,458 6.09 -------- ---- -------- ---- -------- ---- $306,168 5.22% $284,800 5.15% $272,042 5.30% ======== ==== ======== ==== ======== ==== </TABLE> The following table presents the maturities of the Company's other time deposits as of December 31, 1998. <TABLE> <CAPTION> Other Time Other Time Deposits Deposits $100,000 Less Than ($ in thousands) or Greater $100,000 Total ----------- ---------- ------- <S> <C> <C> <C> Months to Maturity 3 or Less 22,361 $ 42,466 $ 64,827 Over 6 through 12 38,727 79,473 118,200 Over 12 Months 9,908 32,960 42,868 ------ -------- -------- 70,996 $154,899 $225,895 ====== ======== ======== </TABLE> Return on Assets and Stockholders' Equity The following table presents selected financial ratios for each of the periods indicated. <TABLE> <CAPTION> Year Ended December 31, ------------------------- 1998 1997 1996 ----- ---- ------ <S> <C> <C> <C> Return on Assets 1.09% 1.11% 0.97% Return on Equity 12.22% 13.21% 12.04% Dividend Payout 13.24% 12.02% 13.60% Equity to Assets 8.92% 8.43% 8.06% </TABLE> 31
Part II (Continued) Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA The following consolidated financial statements of the Registrant and its subsidiaries are included on exhibit 99(b) of this Annual Report on Form 10-K: Consolidated Balance Sheets - December 31, 1998 and 1997 Consolidated Statements of Income - Years Ended December 31, 1998, 1997 and 1996 Consolidated Statements of Comprehensive Income - Years Ended December 31, 1998, 1997 and 1996 Consolidated Statements of Stockholders' Equity - Years Ended December 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows - Years Ended December 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 1998 and 1997: <TABLE> <CAPTION> Three Months Ended ------------------------------------ Dec. 31 Sept. 30 June 30 Mar. 31 ------- -------- ------- ------- ($ in thousands, except per share data) <S> <C> <C> <C> <C> 1998 Interest Income $7,848 $7,824 $7,519 $7,462 Interest Expense 4,057 3,990 3,803 3,671 ------- ------ ------ ------ Net Interest Income 3,791 3,834 3,716 3,791 Provision for Loan Losses 377 270 231 279 Securities Gains 10 29 0 2 Noninterest Income 635 693 645 645 Noninterest Expense 2,975 2,947 2,725 2,443 ------- ------ ------ ------ Income Before Income Taxes 1,084 1,339 1,405 1,716 Provision for Income Taxes 280 422 441 549 ------- ------ ------ ------ Net Income $ 804 $ 917 $ 964 $1,167 ======= ====== ====== ====== Net Income Per Common Share (1) Basic $0.37 $0.41 $0.43 $0.53 Diluted $0.37 $0.41 $0.43 $0.53 </TABLE> 32
Part II (Continued) Item 8 (Continued) <TABLE> <CAPTION> Three Months Ended ----------------------------------- Dec. 31 Sept. 30 June 30 Mar. 31 ------- -------- ------- ------- ($ in thousands, except per share data) 1997 <S> <C> <C> <C> <C> Interest Income $7,401 $7,316 $7,123 $6,937 Interest Expense 3,680 3,614 3,408 3,290 ------ ------ ------ ------ Net Interest Income 3,721 3,702 3,715 3,647 Provision for Loan Losses 404 332 468 285 Securities Gains 2 0 2 7 Noninterest Income 587 585 658 687 Noninterest Expense 2,908 2,689 2,587 2,417 ------ ------ ------ ------ Income Before Income Taxes 998 1,266 1,320 1,639 Provision for Income Taxes 300 385 402 518 ------ ------ ------ ------ Net Income $ 698 $ 881 $ 918 $1,121 ====== ====== ====== ====== Net Income Per Common Share (1) Basic $0.31 $0.41 $0.42 $0.52 Diluted $0.31 $0.41 $0.42 $0.52 </TABLE> (1) Adjusted for stock dividends and stock splits, as applicable. Item 9 CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There was no accounting or disclosure disagreement or reportable event with the former or current auditors that would have required the filing of a report on Form 8-K. Part III Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated herein by reference to pages 4 and 5 of the Company's Definitive Proxy Statement for Annual Meeting of Stockholders to be held on April 27, 1999, filed with the Securities and Exchange Commission on March 22, 1999 (File No. 0- 18486). Item 11 EXECUTIVE COMPENSATION Incorporated herein by reference to pages 8, 9 and 10 of the Company's Definitive Proxy Statement for Annual Meeting of Stockholders to be held on April 27, 1999, filed with the Securities and Exchange Commission on March 22, 1999 (File No. 0-18486). 33
Part III (Continued) Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference to pages 2 and 3 of the Company's Definitive Proxy Statement for Annual Meeting of Stockholders to be held on April 27, 1999, filed with the Securities and Exchange Commission on March 22, 1999 (File No. 0- 18486). Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated herein by reference to page 6 of the Company's Definitive Proxy Statement for Annual Meeting of Stockholders to be held on April 27, 1999, filed with the Securities and Exchange Commission on March 22, 1999 (File No. 0- 18486). Part IV Item 14 EXHIBITS AND REPORTS ON FORM 8-K <TABLE> <CAPTION> <S> <C> (A) Exhibits included herein: Exhibit No. 3(a) Articles of Incorporation -filed as Exhibit 3(a) to the Registrant's Registration Statement on Form 10 (File No. 0-18486), filed with the Commission on April 25, 1990 and incorporated herein by reference 3(b) Bylaws, as amended -filed as Exhibit 3(b) to the Registrant's Registration Statement on Form 10 (File No. 0-18486), filed with the Commission on April 25, 1990 and incorporated herein by reference 4 Instruments Defining the Rights of Security Holders -incorporated herein by reference to page 1 of the Company's Definitive Proxy Statement for Annual Meeting of Stockholders to be held on April 28, 1998, filed with the Securities and Exchange Commission on March 26, 1998 (File No. 0-18486) 10 Material Contracts 10(a) Deferred Compensation Plan and Sample Director Agreement -filed as Exhibit 10(a) to the Registrant's Registration Statement on Form 10 (File No. 0-18486), filed with the Commission on April 25, 1990 and incorporated herein by reference </TABLE> 34
Part IV (Continued) Item 14 <TABLE> <CAPTION> <S> <C> (A) Exhibits included herein: Exhibit No. 10(b) Profit-Sharing Plan dated January 1, 1979 -filed as Exhibit 10(b) to the Registrant's Registration Statement on Form 10 (File No. 0-18486), filed with the Commission on April 25, 1990 and incorporated herein by reference 11 Statement Re Computation of Per Share Earnings 21 Subsidiaries of the Company 27 Financial Data Schedule 99 Additional Exhibits 99(a) Consolidated Financial Statements -Independent Auditor's Report -Consolidated Balance Sheets - December 31, 1998 and 1997 -Consolidated Statements of Income - Years Ended December 31, 1998, 1997 and 1996 -Consolidated Statements of Comprehensive Income - Years Ended December 31, 1998, 1997 and 1996 -Consolidated Statements of Stockholders' Equity - Years Ended December 31, 1998, 1997 and 1996 -Consolidated Statements of Cash Flows - Years Ended December 31, 1998, 1997 and 1996 -Notes to Consolidated Financial Statements All schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. (B) No reports on Form 8-K have been filed by the registrant during the last quarter of the period covered by this report. </TABLE> 35
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Colony Bankcorp, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized: COLONY BANKCORP, INC. /s/ James D. Minix - ------------------------------------------------ James D. Minix President/Director/Chief Executive Officer Date: 3/29/99 /s/ Terry L. Hester - ------------------------------------------------ Terry L. Hester Executive Vice-President/Controller/Chief Financial Officer/Director Date: 3/29/99 - ------------------------------------------------ Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: <TABLE> <CAPTION> <S> <C> /s/ Terry Coleman Date: 3-29-99 - -------------------------------------------------- ------------------------ Terry Coleman, Director /s/ L. Morris Downing Date: 3-29-99 - -------------------------------------------------- ------------------------ L. Morris Downing, Director /s/ Milton N. Hopkins, Jr. Date: 3-29-99 - -------------------------------------------------- ------------------------ Milton N. Hopkins, Jr., Director /s/ Harold E. Kimball Date: 3-29-99 - -------------------------------------------------- ------------------------ Harold E. Kimball, Director </TABLE> 36
<TABLE> <CAPTION> <S> <C> /s/ Marion H. Massee, III Date: 3-29-99 - -------------------------------------------------- ------------------------ Marion H. Massee, III, Director /s/ Ben B. Mill, Jr. Date: 3-29-99 - -------------------------------------------------- ------------------------ Ben B. Mill, Jr., Director /s/ Ralph D. Roberts, M.D. Date: 3-29-99 - -------------------------------------------------- ------------------------ Ralph D. Roberts, M.D., Director /s/ W. B. Roberts, Jr. Date: 3-29-99 - -------------------------------------------------- ------------------------ W. B. Roberts, Jr., Director /s/ R. Sidney Ross Date: 3-29-99 - -------------------------------------------------- ------------------------ R. Sidney Ross, Director /s/ Joe K. Shiver Date: 3-29-99 - -------------------------------------------------- ------------------------ Joe K. Shiver, Director /s/ Curtis A. Summerlin Date: 3-29-99 - -------------------------------------------------- ------------------------ Curtis A. Summerlin, Director </TABLE> 37