COLONY BANKCORP INC - Quarter Report: 2019 March (Form 10-Q)

cban20190331_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019

COMMISSION FILE NUMBER 0-12436

COLONY BANKCORP, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

GEORGIA	58-1492391
(STATE OR OTHER JURISDICTION OF	(I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)	IDENTIFICATION NUMBER)

115 SOUTH GRANT STREET, FITZGERALD, GEORGIA 31750

ADDRESS OF PRINCIPAL EXECUTIVE OFFICES

(229) 426-6000

REGISTRANT’S TELEPHONE NUMBER INCLUDING AREA CODE

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.00 per share	CBAN	NASDAQ Global Market

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

YES X NO

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

YES X NO

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

LARGE ACCELERATED FILER

ACCELERATED FILER X

NON-ACCELERATED FILER

SMALLER REPORTING COMPANY X

EMERGING GROWTH COMPANY

IF AN EMERGING GROWTH COMPANY, INDICATE BY CHECK MARK IF THE REGISTRANT HAS ELECTED NOT TO USE THE EXTENDED TRANSITION PERIOD FOR COMPLYING WITH ANY NEW OR REVISED FINANCIAL ACCOUNTING STANDARDS PROVIDED PURSUANT TO SECITON 13(A) OF THE EXCHANGE ACT.

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

YES NO X

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

CLASS	OUTSTANDING AT MAY 8, 2019
COMMON STOCK, $1 PAR VALUE	9,498,937

TABLE OF CONTENTS

		Page
PART I – Financial Information

Forward Looking Statement Disclosure		4

Item 1.	Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	65
Item 4.	Controls and Procedures	65


PART II – Other Information

Item 1.	Legal Proceedings	66
Item 1A.	Risk Factors	66
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	66
Item 3.	Defaults Upon Senior Securities	66
Item 4.	Mine Safety Disclosures	66
Item 5.	Other Information	66
Item 6.	Exhibits	66
Signatures		69

Forward Looking Statement Disclosure

Certain statements contained in this Quarterly Report that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the Act), notwithstanding that such statements are not specifically identified. In addition, certain statements may be contained in the Company’s future filings with the SEC, in press releases, and in oral and written statements made by or with the approval of the Company that are not statements of historical fact and constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans and objectives of Colony Bankcorp, Inc. or its management or Board of Directors, including those relating to products or services; (ii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as “believes,” “anticipates,” “expects,” “intends,” “targeted,” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

●

Local and regional economic conditions and the impact they may have on the Company and its customers and the Company’s assessment of that impact.

●

Changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements.

●

The effects of and changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board.

●

Inflation, interest rate, market and monetary fluctuations.

●

Political instability.

●

Acts of war, terrorism or cyberterrorism.

●

The timely development and acceptance of new products and services and perceived overall value of these products and services by users.

●

Changes in consumer spending, borrowings and savings habits.

●

Technological changes.

●

Acquisitions and integration of acquired businesses.

●

The ability to increase market share and control expenses.

●

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

●

The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Financial Accounting Standards Board and other accounting standard setters.

●

Changes in the Company’s organization, compensation and benefit plans.

●

The costs and effects of litigation and of unexpected or adverse outcomes in such litigation.

●

Greater than expected costs or difficulties related to the integration of new lines of business.

●

The Company’s success at managing the risks involved in the foregoing items.

Forward-looking statements speak only as of the date on which such statements are made. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events.

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

PART 1. FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS

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

CONSOLIDATED BALANCE SHEETS – MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2018 (AUDITED).

CONSOLIDATED STATEMENTS OF INCOME – FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018 (UNAUDITED).

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018 (UNAUDITED).

CONSOLIDATED STATEMENTS OF CASH FLOWS – FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018 (UNAUDITED).

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

THE RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2019 ARE NOT NECESSARILY INDICATIVE OF THE RESULTS TO BE EXPECTED FOR THE FULL YEAR.

Part I (Continued)

Item 1

COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2019 AND DECEMBER 31, 2018
(DOLLARS IN THOUSANDS)

	March 31, 2019			December 31, 2018
	(Unaudited)			(Audited)
ASSETS

Cash and Cash Equivalents
Cash and Due from Banks	$	10,643		$	10,377

Interest-Bearing Deposits		75,062			49,779
Investment Securities
Available for Sale, at Fair Value		357,889			353,066

Federal Home Loan Bank Stock, at Cost		2,782			2,978
Loans		779,991			782,027
Allowance for Loan Losses		(6,589	)		(7,277	)
Unearned Interest and Fees		(513	)		(501	)
		772,889			774,249
Premises and Equipment		29,541			28,831
Other Real Estate (Net of Allowance of $860 and $877 as of March 31, 2019 and December 31, 2018, Respectively)		1,635			1,841
Goodwill		202			202
Other Intangible Assets		529			556
Other Assets		27,905			29,999
Total Assets	$	1,279,077		$	1,251,878

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-Bearing	$	199,485		$	192,847
Interest-Bearing		912,193			892,278
		1,111,678			1,085,125
Borrowed Money
Subordinated Debentures		24,229			24,229
Other Borrowed Money		39,000			44,000
		63,229			68,229

Other Liabilities		3,104			2,832

Stockholders' Equity
Common Stock, Par Value $1 a Share; Authorized 20,000,000 Shares, Issued 8,444,908 Shares as of March 31, 2019 and December 31, 2018, Respectively		8,445			8,445
Paid-In Capital		25,987			25,978
Retained Earnings		71,661			69,459
Accumulated Other Comprehensive (Loss), Net of Tax Benefits		(5,027	)		(8,190	)
		101,066			95,692
Total Liabilities and Stockholders' Equity	$	1,279,077		$	1,251,878

The accompanying notes are an integral part of these statements.

Part I (Continued)

Item 1 (Continued)

COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(UNAUDITED)
(DOLLARS IN THOUSANDS)

	Three Months Ended
	March 31, 2019		March 31, 2018
Interest Income
Loans, Including Fees	$	10,470	$	9,728
Deposits with Other Banks		282		75
Investment Securities
U.S. Government Agencies		2,156		1,911
State, County and Municipal		25		27
Corporate Bonds		27		28
Dividends on Other Investments		53		41
		13,013		11,810
Interest Expense
Deposits		2,122		1,200
Borrowed Money		534		481
		2,656		1,681

Net Interest Income		10,357		10,129
Provision for Loan Losses		131		26
Net Interest Income After Provision for Loan Losses		10,226		10,103

Noninterest Income
Service Charges on Deposits		964		1,101
Other Service Charges, Commissions and Fees		900		789
Mortgage Fee Income		143		149
Other		327		395
		2,334		2,434
Noninterest Expenses
Salaries and Employee Benefits		5,371		4,920
Occupancy and Equipment		1,025		1,046
Other		2,630		2,570
		9,026		8,536

Income Before Income Taxes		3,534		4,001
Income Taxes		699		813
Net Income	$	2,835	$	3,188

Net Income Per Share of Common Stock
Basic	$	0.34	$	0.38
Diluted	$	0.34	$	0.37
Cash Dividends Paid Per Share of Common Stock	$	0.075	$	0.05
Weighted Average Basic Shares Outstanding		8,440,357		8,439,258
Weighted Average Diluted Shares Outstanding		8,440,357		8,657,379

The accompanying notes are an integral part of these statements.

Part I (Continued)

Item 1 (Continued)

COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(UNAUDITED)
(DOLLARS IN THOUSANDS)

	Three Months Ended
	March 31, 2019			March 31, 2018

Net Income	$	2,835		$	3,188

Other Comprehensive Income:

Gains (Losses) on Securities Arising During the Year		4,004			(3,954	)
Tax Effect		(841	)		830
Realized Gains on Sale of AFS Securities		-			-
Tax Effect		-			-

Change in Unrealized Gains (Losses) on Securities Available for Sale, Net of Reclassification Adjustment and Tax Effects		3,163			(3,124	)

Comprehensive Income	$	5,998		$	64

The accompanying notes are an integral part of these statements.

Part I (Continued)

Item 1 (Continued)

COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(UNAUDITED)
(DOLLARS IN THOUSANDS)

	Three Months Ended
	March 31, 2019			March 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	2,835		$	3,188
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation		423			454
Share-based Compensation Expense		8			-
Provision for Loan Losses		131			26
Amortization and Accretion		263			284
(Gain) Loss on Sale of Other Real Estate and Repossessions		5			(114	)
Provision for Losses on Other Real Estate		6			-
(Increase) Decrease in Cash Surrender Value of Life Insurance		414			(126	)
(Gain) on Sale of Premises & Equipment		(2	)		-
Other Prepaids, Deferrals and Accruals, Net		1,101			1,339
		5,184			5,051
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Investment Securities Available for Sale		(14,119	)		(3,531	)
Proceeds from Maturities, Calls, and Paydowns of Investment Securities:
Available for Sale		13,065			11,930
Interest-Bearing Deposits in Other Banks		(25,284	)		(7,499	)
Net Loans to Customers		1,085			(3,652	)
Purchase of Premises and Equipment		(1,152	)		(1,375	)
Proceeds from Sale of Other Real Estate and Repossessions		351			909
Redemption (Purchase of) Federal Home Loan Bank Stock		195			(126	)
Proceeds from Sale of Premises and Equipment		22			-
		(25,837	)		(3,344	)
CASH FLOWS FROM FINANCING ACTIVITIES
Noninterest-Bearing Customer Deposits		6,637			(14,173	)
Interest-Bearing Customer Deposits		19,915			(1,460	)
Dividends Paid for Common Stock		(633	)		(422	)
Payments on Federal Home Loan Bank Advances		(5,000	)		(2,500	)
Proceeds from Federal Home Loan Bank Advances		-			5,000
Payments on Other Borrowed Money		-			(1,500	)
		20,919			(15,055	)

Net Increase (Decrease) in Cash and Cash Equivalents		266			(13,348	)
Cash and Cash Equivalents at Beginning of Period		10,377			23,145
Cash and Cash Equivalents at End of Period	$	10,643		$	9,797

The accompanying notes are an integral part of these statements.

Part I (Continued)

Item 1 (Continued)

COLONY BANKCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies

Presentation

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

All dollars in notes to consolidated financial statements are rounded to the nearest thousand, except for per share amounts.

The consolidated financial statements in this report are unaudited, except for the December 31, 2018 consolidated balance sheet. All adjustments consisting of normal recurring accruals which are, in the opinion of management, necessary for fair presentation of the interim consolidated financial statements, have been included and fairly and accurately present the financial position, results of operations and cash flows of the Company. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results which may be expected for the entire year.

Nature of Operations

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

Use of Estimates

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

Reclassifications

In certain instances, amounts reported in prior years’ consolidated financial statements have been reclassified to conform to statement presentations selected for 2019. Such reclassifications have not affected previously reported stockholders’ equity or net income.

Concentrations of Credit Risk

Concentrations of credit risk can exist in relation to individual borrowers or groups of borrowers, certain types of collateral, certain types of industries, or certain geographic regions. The Company has a concentration in real estate loans as well as a geographic concentration that could pose an adverse credit risk. At March 31, 2019, approximately 87 percent of the Company’s loan portfolio was concentrated in loans secured by real estate. A substantial portion of borrowers’ ability to honor their contractual obligations is dependent upon the viability of the real estate economic sector. Management continues to monitor these concentrations and has considered these concentrations in its allowance for loan loss analysis.

Part I (Continued)

Item 1 (Continued)

(1) Summary of Significant Accounting Policies (Continued)

Concentrations of Credit Risk (Continued)

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

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

Investment Securities

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

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

Federal Home Loan Bank Stock

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

Loans

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

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

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

Part I (Continued)

Item 1 (Continued)

(1) Summary of Significant Accounting Policies (Continued)

Loans Modified in a Troubled Debt Restructuring (“TDR”)

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

Allowance for Loan Losses

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

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

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

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

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

Part I (Continued)

Item 1 (Continued)

(1) Summary of Significant Accounting Policies (Continued)

Allowance for Loan Losses (Continued)

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

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

Premises and Equipment

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

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

Description	Life in Years			Method
Banking Premises	15	-	40	Straight-Line and Accelerated
Furniture and Equipment	5	-	10	Straight-Line and Accelerated

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

Goodwill

Goodwill represents the excess of the cost of businesses acquired over the fair value of the net assets acquired. Goodwill is assigned to reporting units and tested for impairment at least annually, or on an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value.

Intangible Assets

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

Part I (Continued)

Item 1 (Continued)

(1) Summary of Significant Accounting Policies (Continued)

Transfers of Financial Assets

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

Statement of Cash Flows

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

Advertising Costs

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

Income Taxes

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

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

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

Other Real Estate

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

Part I (Continued)

Item 1 (Continued)

(1) Summary of Significant Accounting Policies (Continued)

Bank-Owned Life Insurance

The Company has purchased life insurance on the lives of certain key members of management and directors. The life insurance policies are recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or amounts due that are probable at settlement, if applicable. Increases in the cash surrender value are recorded as other income in the consolidated statements of income. The cash surrender value of the insurance contracts is recorded in other assets on the consolidated balance sheets in the amount of $17,184 and $17,598 as of March 31, 2019 and December 31, 2018, respectively.

Comprehensive Income

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

Off-Balance Sheet Credit Related Financial Instruments

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

Changes in Accounting Principles and Effects of New Accounting Pronouncements

ASU 2016-02, Leases (Topic 842). This ASU requires lessees to put most leases on their balance sheets but recognize expenses in the income statement in a manner similar to current accounting treatment. This ASU changes the guidance on sale-leaseback transactions, initial direct costs and lease execution costs, and, for lessors, modifies the classification criteria and the accounting for sales-type and direct financing leases. For public business entities, this ASU is effective for annual periods beginning after December 15, 2018, and interim periods therein. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. ASU 2016-02 was effective for the Company on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements as of March 31, 2019. During the second quarter of 2019, the Company had two acquisitions in which both acquired entities have leases. The Company is currently evaluating the impact on its consolidated financial statements stemming from these transactions.

ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). This ASU sets forth a “current expected credit loss” (CECL) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supported forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of this ASU on its consolidated financial statements.

ASU 2017-04, Intangibles: Goodwill and Other: Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates Step 2 from the goodwill impairment test to simplify the subsequent measurement of goodwill. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, the income tax effects of tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. ASU 2017-04 also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The standard must be adopted using a prospective basis and the nature and reason for the change in accounting principle should be disclosed upon transition. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in reporting periods beginning after December 15, 2019. Early adoption is permitted on testing dates after January 1, 2017. The Company is currently evaluating the impact this ASU will have on the Company’s Consolidated Financial Statements, but it is not expected to have a material impact.

Part I (Continued)

Item 1 (Continued)

(1) Summary of Significant Accounting Policies (Continued)

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

ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities. This ASU shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. Today, entities generally amortize the premium over the contractual life of the security. The new guidance does not change the accounting for purchased callable debt securities held at a discount; the discount continues to be amortized to maturity. ASU No. 2017-08 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. The guidance calls for a modified retrospective transition approach under which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. ASU 2017-08 was effective for the Company on January 1, 2019. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

ASU 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820). This ASU modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective for interim and annual reporting periods after December 15, 2019; early adoption is permitted. The Company is currently evaluating the provisions of ASU 2018-13 to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements.

ASU 2019-1, Leases (Topic 842): Codification Improvements. ASU 2019-1 amends certain aspects of ASU 2016-02, Leases. This ASU addresses the following issues: (1) determining the fair value of the underlying asset by lessors that are not manufacturers or dealers; (2) statement of cash flow presentation for sales – type and direct financing leases by lessors within the scope of ASC 942, Financial Services – Depository and Lending; and (3) clarification of interim disclosure requirements during transition. ASU 2019-1 is effective for the first and second issues for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. If an entity early adopts, the ASU will be applied as of the date the entity first applies ASU 2016-02. For the third issue, there is no transition and effective date because the amendments are to the original transition requirements in ASU 2016-02. The Company is currently evaluating the impact this ASU will have on the Company’s Consolidated Financial Statements, but it is not expected to have a material impact.

(2) Business Acquisitions

On October 22, 2018, the Bank completed its acquisition of one branch office and a vacant lot from Planters First Bank (“PFB”) located in Albany, Georgia for a total cash consideration of $10.2 million. The assets and liabilities as of the effective date of the transaction were recorded at their respective estimated fair values. The excess of the purchase price over the net estimated fair values of the acquired assets and liabilities was allocated to identifiable intangible assets with the remaining excess allocated to goodwill. In the periods following the acquisition, the financial statements will include the results attributable to the Albany branch purchase beginning on the date of purchase. For the three months period ended March 31, 2019, the revenues and net loss attributable to the Albany branch were $71 thousand and $75 thousand, respectively. It is impracticable to determine the pro-forma impact to the 2018 revenues and net income if the acquisition had occurred on January 1, 2018 as the Bank does not have access to those records for a single branch.

Part I (Continued)

Item 1 (Continued)

(2) Business Acquisitions (Continued)

The following table provides the purchase price as of acquisition date, the identifiable assets acquired and liabilities assumed at their estimated fair values, and the resulting goodwill of $202 thousand recorded from the acquisition:

Purchase Price Consideration (in thousands):
Cash Consideration	$	10,238
Total purchase price for PFB branch acquisition	$	10,238

Assets acquired at fair value:
Cash and cash equivalents	$	195
Loans		20,430
Premises and equipment, net		773
Core deposit intangible		560
Other assets		123
Total fair value of assets acquired	$	22,081

Liabilities assumed at fair value:
Deposits	$	12,032
Other liabilities		13
Total fair value of liabilities assumed	$	12,045

Net Assets acquired at fair value:	$	10,036

Amount of goodwill resulting from acquisition	$	202

The total amount of goodwill arising from this transaction of $202 thousand is deductible for tax purposes, pursuant to section 197 of the Internal Revenue Code.

The Bank recorded all loans acquired at the estimated fair value on the purchase date with no carryover of the related allowance for loan losses. The Bank only acquired loans which were deemed to be performing loans with no signs of credit deterioration.

On May 1, 2019, the Company completed its acquisition of LBC Bancshares, Inc. (“LBC”), a bank holding company headquartered in LaGrange, Georgia. Upon consummation of the acquisition, LBC was merged with and into the Company, with Colony as the surviving entity in the merger. At that time, LBC’s wholly owned bank subsidiary, Calumet Bank, was also merged with and into the Bank. The acquisition expanded the Company’s market presence, as Calumet Bank had two full-service banking locations, one each in LaGrange, Georgia and Columbus, Georgia, as well as a loan production office in Atlanta, Georgia. Under the terms of the Merger Agreement, each LBC shareholder will have the option to receive either $23.50 in cash or 1.3239 shares of the Company’s Common Stock in exchange for each share of LBC common stock, subject to customary proration and location procedures, such that 55 percent of LBC shares received the stock consideration and 45 percent received the cash consideration, and at least 50 percent of the merger consideration paid in the Company stock. As a result, the Company issued 1,054,029 common shares at a fair value of $18.7 million and paid $15.3 million in cash to the former shareholders of LBC as merger consideration.

The Company is currently evaluating all fair value adjustments related to this transaction. The purchase price will be allocated among the net assets of LBC acquired as appropriate, with the remaining balance being reported as goodwill. As of March 31, 2019, LBC had total assets of $207.3 million, total loans of $131.9 million, and total deposits of $184.9 million.

On April 16, 2019, the Bank entered into an agreement to acquire PFB Mortgage, the secondary market mortgage business of Planters First Bank for approximately $833 thousand. The transaction, which did not require regulatory approval, closed on May 1, 2019. It included fixed assets and all pipeline loans, and customers will not be affected as loans will close and be processed as normal. Planters First Bank retained closed loans not yet sold (loans held for sale). The Bank is currently evaluating all fair value adjustments related to this transaction. The purchase price will be allocated among the net assets of PFB Mortgage acquired as appropriate, with the remaining balance being reported as goodwill.

Part I (Continued)

Item 1 (Continued)

(3) Investment Securities

Investment securities as of March 31, 2019 and December 31, 2018 are summarized as follows:

March 31, 2019

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Fair Value

Securities Available for Sale:

U. S. Government Agencies Mortgage-Backed

357,480

883

(7,225

)

351,138

State, County & Municipal

3,873

(12

)

3,895

Corporate Bonds

2,899

(43

)

2,856

364,252

917

(7,280

)

357,889

December 31, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities Available for Sale:
U. S. Government Agencies Mortgage-Backed	$	356,498	$	303	$	(10,596	)	$	346,205
State, County & Municipal		4,008		18		(37	)		3,989
Corporate Bonds		2,927		-		(55	)		2,872
	$	363,433	$	321	$	(10,688	)	$	353,066

The amortized cost and fair value of investment securities as of March 31, 2019, by contractual maturity, are shown hereafter. Expected maturities may differ from contractual maturities for certain investments because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. This is often the case with mortgage-backed securities, which are disclosed separately in the table below.

	Securities
	Available for Sale
	Amortized Cost		Fair Value

Due In One Year or Less	$	351	$	351
Due After One Year Through Five Years		4,158		4,129
Due After Five Years Through Ten Years		1,134		1,157
Due After Ten Years		1,129		1,114
	$	6,772	$	6,751

Mortgage-Backed Securities		357,480		351,138
	$	364,252	$	357,889

The Bank did not sell any investments during the first three months of 2019 and 2018. Therefore the Bank did not have any proceeds, gains or losses during the first three months of 2019 and 2018.

Investment securities having a carrying value approximating $151,428 and $178,978 as of March 31, 2019 and December 31, 2018, respectively, were pledged to secure public deposits and for other purposes.

Part I (Continued)

Item 1 (Continued)

(3) Investment Securities (Continued)

Information pertaining to securities with gross unrealized losses at March 31, 2019 and December 31, 2018 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	Less Than 12 Months					12 Months or Greater					Total

			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses

March 31, 2019
U. S. Government Agencies Mortgage-Backed	$	12,669	$	(66	)	$	253,449	$	(7,159	)	$	266,118	$	(7,225	)
State, County and Municipal		-		-			1,600		(12	)		1,600		(12	)
Corporate Bonds		2,005		(20	)		851		(23	)		2,856		(43	)
	$	14,674	$	(86	)	$	255,900	$	(7,194	)	$	270,574	$	(7,280	)

December 31. 2018
U.S. Government Agencies Mortgage-Backed	$	39,083	$	(504	)	$	255,747	$	(10,092	)	$	294,830	$	(10,596	)
State, County and Municipal		612		(3	)		1,882		(34	)		2,494		(37	)
Corporate Bonds		2,009		(21	)		863		(34	)		2,872		(55	)
	$	41,704	$	(528	)	$	258,492	$	(10,160	)	$	300,196	$	(10,688	)

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

At March 31, 2019, 133 securities have unrealized losses which have depreciated 2.00 percent from the Company’s amortized cost basis. These securities are guaranteed by either the U.S. Government, other governments or U.S. corporations. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition. The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available-for-sale, no declines are deemed to be other than temporary.

Part I (Continued)

Item 1 (Continued)

(4) Loans

The following table presents the composition of loans segregated by class of loans, as of March 31, 2019 and December 31, 2018.

	March 31, 2019		December 31, 2018
Commercial and Agricultural
Commercial	$	51,368	$	57,410
Agricultural		15,290		16,799

Real Estate
Commercial Construction		44,305		47,849
Residential Construction		14,947		12,500
Commercial		373,263		373,534
Residential		181,004		187,714
Farmland		64,056		62,709

Consumer and Other
Consumer		17,907		18,485
Other		17,851		5,027

Total Loans	$	779,991	$	782,027

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

Credit Quality Indicators. As part of the ongoing monitoring of the credit quality of the loan portfolio, management tracks certain credit quality indicators including trends related to (i) the risk grade assigned to commercial and consumer loans, (ii) the level of classified commercial loans, (iii) net charge-offs, (iv) nonperforming loans, and (v) the general economic conditions in the Company’s geographic markets.

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

●

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

●

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

●

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

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

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

Part I (Continued)

Item 1 (Continued)

(4) Loans (Continued)

The following table presents the loan portfolio by credit quality indicator (risk grade) as of March 31, 2019 and December 31, 2018. Those loans with a risk grade of 1, 2, 3 or 4 have been combined in the pass column for presentation purposes. For the period ending March 31, 2019, the Company did not have any loans classified as “doubtful” or a “loss”.

March 31, 2019

Pass

Special Mention

Substandard

Total Loans

Commercial and Agricultural

Commercial

49,378

1,277

713

51,368

Agricultural

13,554

1,215

521

15,290

Real Estate

Commercial Construction

43,876

128

301

44,305

Residential Construction

14,947

Commercial

357,401

7,681

8,181

373,263

Residential

166,641

4,147

10,216

181,004

Farmland

59,805

1,825

2,426

64,056

Consumer and Other

Consumer

17,555

261

17,907

Other

17,848

17,851

Total Loans

741,005

16,364

22,622

779,991

December 31, 2018
	Pass		Special Mention		Substandard		Total Loans
Commercial and Agricultural
Commercial	$	55,808	$	729	$	873	$	57,410
Agricultural		15,664		637		498		16,799

Real Estate
Commercial Construction		47,087		45		717		47,849
Residential Construction		12,500		-		-		12,500
Commercial		358,139		7,662		7,733		373,534
Residential		170,050		7,107		10,557		187,714
Farmland		58,713		1,912		2,084		62,709

Consumer and Other
Consumer		18,104		59		322		18,485
Other		5,018		5		4		5,027

Total Loans	$	741,083	$	18,156	$	22,788	$	782,027

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

Part I (Continued)

Item 1 (Continued)

(4) Loans (Continued)

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

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

The following table represents an age analysis of past due loans and nonaccrual loans, segregated by class of loans, as of March 31, 2019 and December 31, 2018:

March 31, 2019

Accruing Loans

90 Days

30-89 Days

or More

Total Accruing

Nonaccrual

Past Due

Loans Past Due

Loans

Current Loans

Total Loans

Commercial and Agricultural

Commercial

106

537

50,725

51,368

Agricultural

504

14,764

15,290

Real Estate

Commercial Construction

44,243

44,305

Residential Construction

14,947

Commercial

228

1,740

371,295

373,263

Residential

2,546

2,569

175,889

181,004

Farmland

929

2,015

61,112

64,056

Consumer and Other

Consumer

143

133

17,631

17,907

Other

17,848

17,851

Total Loans

3,996

7,541

768,454

779,991

Part I (Continued)

Item 1 (Continued)

(4) Loans (Continued)

December 31, 2018
	Accruing Loans
			90 Days
	30-89 Days		or More		Total Accruing		Nonaccrual
	Past Due		Past Due		Loans Past Due		Loans		Current Loans		Total Loans
Commercial and Agricultural
Commercial	$	282	$	-	$	282	$	637	$	56,491	$	57,410
Agricultural		117		-		117		413		16,269		16,799

Real Estate
Commercial Construction		88		-		88		463		47,298		47,849
Residential Construction		-		-		-		-		12,500		12,500
Commercial		679		-		679		2,966		369,889		373,534
Residential		6,882		-		6,882		2,734		178,098		187,714
Farmland		76		-		76		2,052		60,581		62,709

Consumer and Other
Consumer		110		-		110		213		18,162		18,485
Other		-		-		-		4		5,023		5,027

Total Loans	$	8,234	$	-	$	8,234	$	9,482	$	764,311	$	782,027

Part I (Continued)

Item 1 (Continued)

(4) Loans (Continued)

The following table details impaired loan data as of March 31, 2019:

March 31, 2019
	Unpaid
	Contractual						Average		Interest		Interest
	Principal		Impaired		Related		Recorded		Income		Income
	Balance		Balance		Allowance		Investment		Recognized		Collected

With No Related Allowance Recorded
Commercial	$	594	$	537	$	-	$	566	$	8	$	8
Agricultural		525		504		-		459		11		14
Commercial Construction		107		107		-		120		2		2
Residential Construction		-		-		-		-		-		-
Commercial Real Estate		12,599		12,543		-		12,354		143		145
Residential Real Estate		4,481		3,958		-		4,044		7		59
Farmland		2,017		2,016		-		2,034		-		5
Consumer		134		134		-		173		2		2
Other		3		3		-		3		-		-

		20,460		19,802		-		19,753		173		235

With An Allowance Recorded
Commercial		-		-		-		21		-		-
Agricultural		-		-		-		-		-		-
Commercial Construction		-		-		-		199		-		-
Residential Construction		-		-		-		-		-		-
Commercial Real Estate		1,985		1,985		819		2,838		16		16
Residential Real Estate		267		267		52		271		8		8
Farmland		361		361		34		362		6		6
Consumer		-		-		-		-		-		-
Other		-		-		-		-		-		-

		2,613		2,613		905		3,691		30		30

Total
Commercial		594		537		-		587		8		8
Agricultural		525		504		-		459		11		14
Commercial Construction		107		107		-		319		2		2
Residential Construction		-		-		-		-		-		-
Commercial Real Estate		14,584		14,528		819		15,192		159		161
Residential Real Estate		4,748		4,225		52		4,315		15		67
Farmland		2,378		2,377		34		2,396		6		11
Consumer		134		134		-		173		2		2
Other		3		3		-		3		-		-

	$	23,073	$	22,415	$	905	$	23,444	$	203	$	265

Part I (Continued)

Item 1 (Continued)

(4) Loans (Continued)

The following table details impaired loan data as of December 31, 2018:

December 31, 2018
	Unpaid
	Contractual						Average		Interest		Interest
	Principal		Impaired		Related		Recorded		Income		Income
	Balance		Balance		Allowance		Investment		Recognized		Collected

With No Related Allowance Recorded
Commercial	$	595	$	595	$	-	$	526	$	21	$	24
Agricultural		434		413		-		383		18		25
Commercial Construction		132		132		-		69		8		8
Residential Contruction		-		-				-		-		-
Commercial Real Estate		12,164		12,164		-		11,040		582		583
Residential Real Estate		4,214		4,130		-		4,067		208		213
Farmland		2,054		2,052		-		1,361		53		82
Consumer		213		213		-		197		14		14
Other		4		4		-		1		-		-

		19,810		19,703		-		17,644		904		949

With An Allowance Recorded
Commercial		42		42		6		8		2		2
Agricultural		-		-		-		-		-		-
Commercial Construction		399		399		39		466		-		-
Residential Contruction		-		-		-		-		-		-
Commercial Real Estate		3,691		3,691		1,276		5,121		135		142
Residential Real Estate		274		274		61		98		8		8
Farmland		364		364		36		368		24		25
Consumer		-		-		-		-		-		-
Other		-		-		-		-		-		-

		4,770		4,770		1,418		6,061		169		177

Total
Commercial		637		637		6		534		23		26
Agricultural		434		413		-		383		18		25
Commercial Construction		531		531		39		535		8		8
Residential Contruction		-		-		-		-		-		-
Commercial Real Estate		15,855		15,855		1,276		16,161		717		725
Residential Real Estate		4,488		4,404		61		4,165		216		221
Farmland		2,418		2,416		36		1,729		77		107
Consumer		213		213		-		197		14		14
Other		4		4		-		1		-		-

	$	24,580	$	24,473	$	1,418	$	23,705	$	1,073	$	1,126

Part I (Continued)

Item 1 (Continued)

(4) Loans (Continued)

The following table details impaired loan data as of March 31, 2018:

March 31, 2018
	Unpaid
	Contractual						Average		Interest		Interest
	Principal		Impaired		Related		Recorded		Income		Income
	Balance		Balance		Allowance		Investment		Recognized		Collected

With No Related Allowance Recorded
Commercial	$	595	$	595	$	-	$	596	$	8	$	8
Agricultural		411		390		-		394		8		12
Commercial Construction		42		42		-		48		1		1
Commercial Real Estate		10,438		10,438		-		11,538		118		112
Residential Real Estate		4,379		3,956		-		4,268		46		49
Farmland		873		872		-		855		7		7
Consumer		210		210		-		199		3		3

		16,948		16,503		-		17,898		191		192

With An Allowance Recorded
Commercial		-		-		-		-		-		-
Agricultural		-		-		-		-		-		-
Commercial Construction		485		485		57		489		1		1
Commercial Real Estate		5,337		5,337		1,662		5,533		53		45
Residential Real Estate		36		36		21		72		1		1
Farmland		369		369		30		371		5		6
Consumer		-		-		-		-		-		-

		6,227		6,227		1,770		6,465		60		53

Total
Commercial		595		595		-		596		8		8
Agricultural		411		390		-		394		8		12
Commercial Construction		527		527		57		537		2		2
Commercial Real Estate		15,775		15,775		1,662		17,071		171		157
Residential Real Estate		4,415		3,992		21		4,340		47		50
Farmland		1,242		1,241		30		1,226		12		13
Consumer		210		210		-		199		3		3

	$	23,175	$	22,730	$	1,770	$	24,363	$	251	$	245

Part I (Continued)

Item 1 (Continued)

(4) Loans (Continued)

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

●

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

●

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

●

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

As discussed in Note 1, Summary of Significant Accounting Policies, once a loan is identified as a TDR, it is accounted for as an impaired loan. The Company had no unfunded commitments to lend to a customer that has a troubled debt restructured loan as of March 31, 2019. The Company had no loan contracts restructured during the three month period ended March 31, 2019 and 2018. Loans modified in a troubled debt restructuring are considered to be in default once the loan becomes 90 days past due. A TDR may cease being classified as impaired if the loan is subsequently modified at market terms and, has performed according to the modified terms for at least six months, and there has not been any prior principal forgiveness on a cumulative basis.

The Company had no loans that subsequently defaulted during the three months ended March 31, 2019. The Company had one loan that subsequently defaulted during the three months ended March 31, 2018. The loan totaling $131,067 failed to continue to perform as agreed and was moved to non-accrual status.

Part I (Continued)

Item 1 (Continued)

(5) Allowance for Loan Losses

The following tables detail activity in the allowance for loan losses, segregated by class of loan, for the three month period ended March 31, 2019 and March 31, 2018. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other loan categories and periodically may result in reallocation within the provision categories.

March 31, 2019
	Beginning										Ending
	Balance		Charge-Offs			Recoveries		Provision			Balance

Commercial and Agricultural
Commercial	$	370	$	(97	)	$	6	$	(38	)	$	241
Agricultural		248		-			-		(23	)		225

Real Estate
Commercial Construction		115		(29	)		17		(88	)		15
Residential Construction		16		-			-		(11	)		5
Commercial		4,549		(56	)		33		(152	)		4,374
Residential		1,181		(629	)		49		348			949
Farmland		702		(63	)		1		48			688

Consumer and Other
Consumer		86		(70	)		17		36			69
Other		10		-			2		11			23

	$	7,277	$	(944	)	$	125	$	131		$	6,589

March 31, 2018
	Beginning										Ending
	Balance		Charge-Offs			Recoveries		Provision			Balance

Commercial and Agricultural
Commercial	$	447	$	(4	)	$	8	$	19		$	470
Agricultural		186		(17	)		1		32			202

Real Estate
Commercial Construction		1,216		-			20		187			1,423
Residential Construction		-		-			-		-			-
Commercial		3,874		-			4		(551	)		3,327
Residential		968		(61	)		12		270			1,189
Farmland		780		-			1		24			805

Consumer and Other
Consumer		34		(59	)		28		45			48
Other		3		-			-		-			3

	$	7,508	$	(141	)	$	74	$	26		$	7,467

Management continually evaluates the allowance for loan losses methodology seeking to refine and enhance this process as appropriate, and it is likely that the methodology will continue to evolve over time.

Part I (Continued)

Item 1 (Continued)

(5) Allowance for Loan Losses (Continued)

The Company determines its individual reserves during its quarterly review of substandard loans. This process involves reviewing all loans with a risk grade of 6 or greater and an outstanding balance of $250,000 or more, regardless of the loans impairment classification. At March 31, 2019, there were 134 impaired loans totaling $3.9 million below the $250,000 review threshold which were not individually reviewed for impairment. Those loans were subject to the bank’s general loan loss reserve methodology and are included in the “Collectively Evaluated for Impairment” column of the following tables. Likewise, at March 31, 2018, there were 144 impaired loans totaling $3.5 million which were below the $250,000 review threshold and were subject to the bank’s general loan loss reserve methodology and are included in the “Collectively Evaluated for Impairment” column of the following tables.

Since not all loans in the substandard category are considered impaired, this quarterly review process may result in the identification of specific reserves on unimpaired loans. Management considers those loans graded substandard, but not classified as impaired, to be higher risk loans and, therefore, makes specific allocations to the allowance for those loans if warranted. The total of such loans is $10.28 million and $12.70 million as of March 31, 2019 and 2018, respectively. Specific allowance allocations were made for these loans totaling $1.86 million and $1.22 million as of March 31, 2019 and 2018, respectively. Since these loans are not considered impaired, both the loan balance and related specific allocation are included in the “Collectively Evaluated for Impairment” column of the following tables.

Part I (Continued)

Item 1 (Continued)

(5) Allowance for Loan Losses (Continued)

The following tables present breakdowns of the allowance for loan losses, segregated by impairment methodology for March 31, 2019 and 2018:

March 31, 2019

Ending Allowance Balance

Ending Loan Balance

Individually

Collectively

Individually

Collectively

Evaluated for

Impairment

Total

Impairment

Total

Commercial and Agricultural

Commercial

241

51,342

51,368

Agricultural

225

15,267

15,290

Real Estate

Commercial Construction

44,237

44,305

Residential Construction

14,947

Commercial

819

3,555

4,374

14,107

359,156

373,263

Residential

897

949

2,175

178,829

181,004

Farmland

654

688

2,102

61,954

64,056

Consumer and Other

Consumer

17,907

Other

17,851

Total End of Period Balance

905

5,684

6,589

18,501

761,490

779,991

March 31, 2018
	Ending Allowance Balance						Ending Loan Balance

	Individually		Collectively				Individually		Collectively
	Evaluated for		Evaluated for				Evaluated for		Evaluated for
	Impairment		Impairment		Total		Impairment		Impairment		Total
Commercial and Agricultural
Commercial	$	-	$	470	$	470	$	77	$	46,616	$	46,693
Agricultural		-		202		202		5		16,346		16,351

Real Estate
Commercial Construction		57		1,366		1,423		485		49,174		49,659
Residential Construction		-		-		-		-		8,145		8,145
Commercial		1,662		1,665		3,327		15,574		338,524		354,098
Residential		21		1,168		1,189		2,023		191,353		193,376
Farmland		30		775		805		1,034		66,077		67,111

Consumer and Other
Consumer		-		48		48		-		18,805		18,805
Other		-		3		3		-		14,259		14,259

Total End of Period Balance	$	1,770	$	5,697	$	7,467	$	19,198	$	749,299	$	768,497

Part I (Continued)

Item 1 (Continued)

(6) Other Real Estate Owned

The aggregate carrying amount of Other Real Estate Owned (“OREO”) at March 31, 2019 and December 31, 2018 was $1,635 and $1,841, respectively. All of the Company’s other real estate owned represents properties acquired through foreclosure or deed in lieu of foreclosure. The following table details the change in OREO for the three months ended March 31, 2019 and the year ended December 31, 2018.

	Three Months Ended			Twelve Months Ended
	March 31, 2019			December 31, 2018

Balance, Beginning	$	1,841		$	4,256

Additions		144			793
Sales of OREO		(348	)		(2,949	)
Transfer to Bank Premises		-			(300	)
Gains (Losses) on Sale		4			303
Provision for Losses		(6	)		(262	)

Balance, Ending	$	1,635		$	1,841

At March 31, 2019, the Company held $359 thousand of residential real estate property as foreclosed property compared to $565 thousand as of December 31, 2018. Also at March 31, 2019, $157 thousand of consumer mortgage loans collateralized by residential real estate property were in the process of foreclosure according to local requirements of the applicable jurisdictions. At December 31, 2018, only $25 thousand of consumer mortgage loans collateralized by residential real estate property were in the process of foreclosure according to local requirements of the applicable jurisdictions.

(7) Deposits

The aggregate amount of overdrawn deposit accounts reclassified as loan balances totaled $320 thousand and $476 thousand as of March 31, 2019 and December 31, 2018.

Components of interest-bearing deposits as of March 31, 2019 and December 31, 2018 are as follows:

	Three Months Ended		Twelve Months Ended
	March 31, 2019		December 31, 2018

Interest-Bearing Demand	$	488,435	$	471,794
Savings		85,259		79,453
Time, $250,000 and Over		53,801		53,881
Other Time		284,698		287,150
	$	912,193	$	892,278

At March 31, 2019 and December 31, 2018, the Company had brokered deposits of $94,620 and $80,535, respectively. All of these brokered deposits represent Certificate of Deposits Account Registry Service (“CDARS”) reciprocal deposits. The CDARS deposits are ones in which customers placed core deposits into the CDARS program for FDIC insurance coverage and the Company receives reciprocal brokered deposits in a like amount. The aggregate amount of short-term jumbo certificates of deposit, each with a minimum denomination of $250,000 was approximately $41,242 and $41,104 as of March 31, 2019 and December 31, 2018, respectively. The aggregate amount of certificates of deposit, each with a minimum deposit of $250,000 was $53,801 and $53,881 as of March 31, 2019 and December 31, 2018.

Part I (Continued)

Item 1 (Continued)

(7) Deposits (Continued)

As of March 31, 2019 and December 31, 2018, the scheduled maturities of certificates of deposits are as follows:

Maturity	March 31, 2019		December 31, 2018
One Year and Under	$	232,126	$	241,366
One to Three Years		91,444		82,412
Three Years and Over		14,929		17,253
	$	338,499	$	341,031

(8) Other Borrowed Money

Other borrowed money at March 31, 2019 and December 31, 2018 is summarized as follows:

		March 31, 2019				December 31, 2018
Federal Home Loan Bank Advances		$	39,000			$	44,000

Advances from the Federal Home Loan Bank (“FHLB”) have maturities ranging from 2020 to 2028 and interest rates ranging from 0.98 percent to 3.51 percent. As collateral on the outstanding FHLB advances, the Company has provided a blanket lien on its portfolio of qualifying residential first mortgage loans and commercial loans. At March 31, 2019, the book value of those loans pledged is $109,408. At March 31, 2019, the Company had remaining credit availability from the FHLB of $273,448. The Company may be required to pledge additional qualifying collateral in order to utilize the full amount of the remaining credit line.

The aggregate stated maturities of other borrowed money at March 31, 2019 are as follows:

Year	Amount
2020	$	2,500
2021		-
2022		18,000
2023		6,000
2024 and After		12,500
	$	39,000

The Company also has available federal funds lines of credit with various financial institutions totaling $43,500, none of which were outstanding at March 31, 2019.

The Company has the ability to borrow funds from the Federal Reserve Bank (“FRB”) of Atlanta utilizing the discount window. The discount window is an instrument of monetary policy that allows eligible institutions to borrow money from the FRB on a short-term basis to meet temporary liquidity shortages caused by internal or external disruptions. At March 31, 2019, the Company had borrowing capacity available under this arrangement, with no outstanding balances. The Company would be required to pledge certain available-for-sale investment securities as collateral under this agreement.

(9) Subordinated Debentures (Trust Preferred Securities)

3 Month

Added

Total

5 Year

Description

Date

Amount

Libor Rate

Points

Rate

Maturity

Call Option

Colony Bankcorp Statutory Trust III

6/17/2004

4,640

2.61463

2.68

5.29463

6/14/2034

6/17/2009

Colony Bankcorp Capital Trust I

4/13/2006

5,155

2.59175

1.50

4.09175

4/13/2036

4/13/2011

Colony Bankcorp Capital Trust II

3/12/2007

9,279

2.59175

1.65

4.24175

3/12/2037

3/12/2012

Colony Bankcorp Capital Trust III

9/14/2007

5,155

2.75050

1.40

4.15050

9/14/2037

9/14/2012

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

The Trust Preferred Securities pay interest quarterly.

Part I (Continued)

Item 1 (Continued)

(10) Commitments and Contingencies

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

The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies, but may include cash or cash equivalents, negotiable instruments, real estate, accounts receivable, inventory, oil, gas and mineral interests, property, plant, and equipment.

At March 31, 2019 and December 31, 2018 the following financial instruments were outstanding whose contract amounts represent credit risk:

	Contract Amount
	March 31, 2019		December 31, 2018

Loan Commitments	$	120,676	$	98,736
Letters of Credit		1,521		1,525

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

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

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

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

Part I (Continued)

Item 1 (Continued)

(11) Fair Value of Financial Instruments and Fair Value Measurements

Generally accepted accounting standards in the U.S. require disclosure of fair value information about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practicable to estimate that value. The assumptions used in the estimation of the fair value of the Company and the Bank’s financial instruments are detailed hereafter. Where quoted prices are not available, fair values are based on estimates using discounted cash flows and other valuation techniques. The use of discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.

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

●

Level 1

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

●

Level 2

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

●

Level 3

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

The following disclosures should not be considered a surrogate of the liquidation value of the Company, but rather a good-faith estimate of the increase or decrease in value of financial instruments held by the Company since purchase, origination or issuance.

Cash and Short-Term Investments – For cash, due from banks, bank-owned deposits and federal funds sold, the carrying amount is a reasonable estimate of fair value and is classified as Level 1.

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

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

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

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

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

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

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

Part I (Continued)

Item 1 (Continued)

(11) Fair Value of Financial Instruments and Fair Value Measurements (Continued)

Disclosures of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis, are required in the financial statements.

The carrying amount, estimated fair values, and placement in the fair value hierarchy of the Company’s financial instruments as of March 31, 2019 and December 31, 2018 are as follows:

Fair Value Measurements at

March 31, 2019

Carrying

Estimated

Level

Value

Fair Value

Assets

Cash and Short-Term Investments

85,705

Investment Securities Available for Sale

357,889

353,992

3,897

Federal Home Loan Bank Stock

2,782

Loans, Net

772,889

769,078

767,370

1,708

Bank-Owned Life Insurance

17,184

Liabilities

Deposits

1,111,678

1,113,541

773,179

340,362

Subordinated Debentures

24,229

Other Borrowed Money

39,000

39,112

	Fair Value Measurements at
	December 31, 2018
	Carrying		Estimated		Level		Level		Level
	Value		Fair Value		1		2		3

Assets
Cash and Short-Term Investments	$	60,155	$	60,155	$	60,155	$	-	$	-
Investment Securities Available for Sale		353,066		353,066		-		348,788		4,278
Federal Home Loan Bank Stock		2,978		2,978		2,978		-		-
Loans, Net		774,249		769,809		-		766,457		3,352
Bank-Owned Life Insurance		17,598		17,598		17,598		-		-

Liabilities
Deposits		1,085,125		1,086,503		744,094		342,409		-
Subordinated Debentures		24,229		24,229		-		24,229		-
Other Borrowed Money		44,000		44,032		-		44,032		-

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

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

Part I (Continued)

Item 1 (Continued)

(11) Fair Value of Financial Instruments and Fair Value Measurements (Continued)

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

Assets

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

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

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

Assets and Liabilities Measured at Fair Value on a Recurring and Nonrecurring Basis – The following table presents the recorded amount of the Company’s assets measured at fair value on a recurring and nonrecurring basis as of March 31, 2019 and December 31, 2018, aggregated by the level in the fair value hierarchy within which those measurements fall. The table below includes only impaired loans with a specific reserve and only other real estate properties with a valuation allowance at March 31, 2019 and at December 31, 2018. Those impaired loans and other real estate properties are shown net of the related specific reserves and valuation allowances.

Part I (Continued)

Item 1 (Continued)

(11) Fair Value of Financial Instruments and Fair Value Measurements (Continued)

Fair Value Measurements at Reporting Date Using

Quoted Prices in

Significant

Active Markets for

Significant Other

Unobservable

Total Fair

Identical Assets

Observable

Inputs

March 31, 2019

Value

(Level 1)

Inputs (Level 2)

(Level 3)

Recurring Securities Available for Sale

U.S. Government Agencies Mortgage-Backed

351,138

347,456

3,682

State, County and Municipal

3,895

3,680

215

Corporate Bonds

2,856

357,889

353,992

3,897

Nonrecurring

Impaired Loans

1,708

Other Real Estate

1,123

			Fair Value Measurements at Reporting Date Using
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
	Total Fair		Identical Assets		Observable		Inputs
December 31, 2018	Value		(Level 1)		Inputs (Level 2)		(Level 3)

Recurring Securities Available for Sale
U.S. Government Agencies Mortgage-Backed	$	346,205	$	-	$	342,142	$	4,063
State, County and Municipal		3,989		-		3,775		214
Corporate Bonds		2,872		-		2,872		-

	$	353,066	$	-	$	348,789	$	4,277

Nonrecurring
Impaired Loans	$	3,352	$	-	$	-	$	3,352

Other Real Estate	$	1,183	$	-	$	-	$	1,183

Liabilities

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

Part I (Continued)

Item 1 (Continued)

(11) Fair Value of Financial Instruments and Fair Value Measurements (Continued)

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

The following table presents quantitative information about the significant unobservable inputs used in the fair value measurements for assets in level 3 of the fair value hierarchy measured on a nonrecurring basis at March 31, 2019 and December 31, 2018. This table is comprised primarily of collateral dependent impaired loans and other real estate owned:

Valuation

Unobservable

Range

March 31, 2019

Techniques

Inputs

Weighted Avg

Real Estate

Residential Real Estate

215

Sales Comparison

Adjustment for Differences

(10.86)%

6.70%

Between the Comparable Sales

(2.08)%

Management Adjustments for

0.00%

25.00%

Age of Appraisals and/or Current

12.50%

Market Conditions

Commercial Real Estate

1,166

Income Approach

Capitalization Rate

10.50%

Management Adjustments for

0.00%

10.00%

Age of Appraisals and/or Current

5.00%

Market Conditions

Farmland

327

Sales Comparison

Adjustment for Differences

(71.00)%

(3.50)%

Between the Comparable Sales

(37.25)%

Management Adjustments for

10.00%

80.00%

Age of Appraisals and/or Current

45.00%

Market Conditions

Other Real Estate Owned

1,123

Sales Comparison

Adjustment for Differences

(30.00)%

25.02%

Between the Comparable Sales

(2.49)%

Management Adjustments for

9.82%

99.39%

Age of Appraisals and/or Current

38.12%

Market Conditions

Income Approach

Discount Rate

10.00%

Part I (Continued)

Item 1 (Continued)

(11) Fair Value of Financial Instruments and Fair Value Measurements (Continued)

			Valuation	Unobservable	Range
	December 31, 2018		Techniques	Inputs	Weighted Avg

Real Estate
Commercial Construction	$	360	Sales Comparison	Adjustment for Differences	(6.00)%	-	1,975.00%
				Between the Comparable Sales		984.20%

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

Residential Real Estate		213	Sales Comparison	Adjustment for Differences	(10.86)%	-	6.70%
				Between the Comparable Sales		(2.08)%

				Management Adjustments for	0.00%	-	25.00%
				Age of Appraisals and/or Current		12.50%
				Market Conditions

Commercial Real Estate		2,415	Sales Comparison	Adjustment for Differences	(60.00)%	-	80.00%
				Between the Comparable Sales		10.00%

				Management Adjustments for	0.00%	-	35.00%
				Age of Appraisals and/or Current		17.50%
				Market Conditions

			Income Approach	Capitalization Rate		10.13%

Farmland		328	Sales Comparison	Adjustment for Differences	(71.00)%	-	(3.50)%
				Between the Comparable Sales		(37.25)%

				Management Adjustments for	10.00%	-	80.00%
				Age of Appraisals and/or Current		45.00%
				Market Conditions

Commercial		36	Sales Contract	Adjustment for Estimated Costs	0.00%	-	0.00%
				to Sell		(0.00)%

				Management Adjustment for	0.00%	-	15.00%
				Age of Appraisals and/or Current		15.00%
				Market Conditions

Other Real Estate Owned		1,183	Sales Comparison	Adjustment for Differences	(30.00)%	-	25.02%
				Between the Comparable Sales		(2.49)%

				Management Adjustment for	9.82%	-	99.39%
				Age of Appraisals and/or Current		35.26%
				Market Conditions

			Income Approach	Capitalization Rate		10.00%

Part I (Continued)

Item 1 (Continued)

(11) Fair Value of Financial Instruments and Fair Value Measurements (Continued)

The table below presents a reconciliation and statement of income classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (level 3) for the three months ended March 31, 2019 and the twelve months ended December 31, 2018.

	Available for Sale Securities
	March 31, 2019			December 31, 2018

Balance, Beginning	$	4,277		$	7,298
Transfers out of Level 3		-			(2,009	)
Maturities		-			-
Purchases		-			-
Paydowns		(390	)		(886	)
Unrealized Gains included in Other
Comprehensive Income (Loss)		10			(126	)


Balance, Ending	$	3,897		$	4,277

The Company’s policy is to recognize transfers in and transfers out of levels 1, 2 and 3 as of the end of a reporting period. There were no transfers of securities between levels for the three months ended March 31, 2019 and the twelve months ended December 31, 2018.

The following table presents quantitative information about recurring level 3 fair value measurements as of March 31, 2019.

				Unobservable	Range
March 31, 2019	Fair Value		Valuation Techniques	Inputs	(Weighted Avg)

State, County and Municipal	$	215	Discounted Cash Flow	Discount Rate or Yield		N/A*

U. S. Government Agencies Mortgage -Backed		3,682	Fundamental Analysis	Discount Rate or Yield		N/A*

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

(12) Regulatory Capital Matters

The amount of dividends payable to the parent company from the subsidiary bank is limited by various banking regulatory agencies. Upon approval by regulatory authorities, the Bank may pay cash dividends to the parent company in excess of regulatory limitations.

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

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. As of March 31, 2019, the interim final Basel III rules (“Basel III”) require the Company to also maintain minimum amounts and ratios of common equity Tier 1 capital to risk-weighted assets. These amounts and ratios as defined in regulations are presented hereafter. Management believes, as of March 31, 2019, the Company meets all capital adequacy requirements to which it is subject under the regulatory framework for prompt corrective action. In the opinion of management, there are no events or conditions since prior notification of capital adequacy from the regulators that have changed the institution’s category.

Part I (Continued)

Item 1 (Continued)

(12) Regulatory Capital Matters (Continued)

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

The following table summarizes regulatory capital information as of March 31, 2019 and December 31, 2018 on a consolidated basis and for the subsidiary, as defined. Regulatory capital ratios for March 31, 2019 and December 31, 2018 were calculated in accordance with the Basel III rules.

To Be Well

Capitalized Under

For Capital

Prompt Corrective

Actual

Adequacy Purposes

Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

As of March 31, 2019

Total Capital to Risk-Weighted Assets

Consolidated

135,451

16.09

67,341

8.00

N/A

Colony Bank

132,664

15.78

67,237

8.00

84,047

10.00

Tier I Capital to Risk-Weighted Assets

Consolidated

128,862

15.31

50,505

6.00

N/A

Colony Bank

126,075

15.00

50,428

6.00

67,237

8.00

Common Equity Tier I Capital to Risk-Weighted Assets

Consolidated

105,362

12.52

37,879

4.50

N/A

Colony Bank

126,075

15.00

37,821

4.50

54,630

6.50

Tier I Capital to Average Assets

Consolidated

128,862

10.18

50,637

4.00

N/A

Colony Bank

126,075

9.97

50,557

4.00

63,196

5.00

Part I (Continued)

Item 1 (Continued)

(12) Regulatory Capital Matters (Continued)

											To Be Well
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2018

Total Capital to Risk-Weighted Assets
Consolidated	$	133,900		15.86	%	$	67,527		8.00	%		N/A		N/A
Colony Bank		131,723		15.63			67,418		8.00		$	84,272		10.00	%

Tier I Capital to Risk-Weighted Assets
Consolidated		126,623		15.00			50,645		6.00			N/A		N/A
Colony Bank		124,446		14.77			50,563		6.00			67,418		8.00

Common Equity Tier I Capital to Risk-Weighted Assets
Consolidated		103,123		12.22			37,984		4.50			N/A		N/A
Colony Bank		124,446		14.77			37,923		4.50			54,777		6.50

Tier I Capital to Average Assets
Consolidated		126,623		10.24			49,478		4.00			N/A		N/A
Colony Bank		124,446		10.08			49,396		4.00			61,745		5.00

(13) Stock-Based Compensation

In August 2018, the Company granted an award of 5,650 restricted shares of the Company’s common stock to T. Heath Fountain, the Company’s Chief Executive Officer (“CEO”), with a market price of $17.73 per share. The restricted shares vest in equal installments on each of July 30, 2019, July 2020 and July 2021, subject to continued service by Mr. Fountain through each applicable vesting date, or earlier upon the occurrence of a change in control. With the restricted stock, there will be no cash consideration to the Company for the shares. The CEO will have the right to vote all shares subject to such grant and receive all dividends with respect to such shares, whether or not the shares have vested.

Compensation expense for restricted stock is based on the market price of the Company stock at the time of the grant and amortized on a straight-line basis over the vesting period. The balance of unearned compensation related to these restricted shares as of March 31, 2019 is $77,782 which is expected to be recognized over a weighted-average of 2.33 years. Total compensation expense recognized for the restricted shares granted for the three months ended March 31, 2019 was $8,334.

Part I (Continued)

Item 1 (Continued)

(14) Earnings Per Share

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period. Diluted earnings per share reflects the potential dilution of restricted stock and common stock warrants. Net income available to common stockholders represents net income after preferred stock dividends. The following table presents earnings per share for the three month period ended March 31, 2019 and 2018.

	Three Months Ended
	March 31
	2019		2018

Numerator
Net Income Available to Common Stockholders	$	2,835	$	3,188

Denominator
Weighted Average Number of Common Shares Outstanding for Basic Earnings Per Common Share		8,440		8,439

Dilutive Effect of Potential Common Stock
Restricted Stock		-		-
Stock Warrants		-		218
Weighted-Average Number of Shares Outstanding for Diluted Earnings Per Common Share		8,440		8,657

Earnings Per Share - Basic	$	0.34	$	0.38

Earnings Per Share - Diluted	$	0.34	$	0.37

(15) Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) for unrealized gains and losses securities available for sale for the period ended March 31, 2019 and the year ended December 31, 2018 are as follows:

	March 31, 2019			December 31, 2018

Beginning Balance	$	(8,190	)	$	(6,492	)

Other Comprehensive Income Before Reclassification		3,163			(1,607	)

Amounts Reclassified from Accumulated Other Comprehensive Income		-			(91	)

Net Current Period Other Comprehensive Income		3,163			(1,698	)

Ending Balance	$	(5,027	)	$	(8,190	)

Part I (Continued)

Item 1 (Continued)

(16) Subsequent Events

On April 18, 2019, the Board of Directors declared a cash dividend of $0.075 per share to shareholders of record on April 30, 2019, payable on May 15, 2019.

On May 1, 2019, the Company completed a borrowing arrangement with a correspondent bank for $10.0 million. The term note is secured by the Bank’s stock, expires on May 1, 2024, and bears a fixed interest rate of 4.70 percent. The proceeds were used for the acquisition of LBC Bancshares, Inc. and its subsidiary, Calumet Bank.

On May 1, 2019, the Company completed a revolving credit arrangement with a correspondent bank with a maximum line amount of $10.0 million. This line of credit is secured by the Bank’s stock, expires on May 1, 2021, and bears a variable interest rate of Wall Street Journal Prime minus 0.40 percent. The Company advanced $5.3 million that was used toward the acquisition of LBC Bancshares, Inc. and its subsidiary, Calumet Bank.

On May 1, 2019, the Company completed its acquisitions of LBC Bancshares, Inc. and PFB Mortgage as further described in Note (2) Business Acquisitions.

Part I (Continued)

Item 2 (Continued)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Future Outlook

Our Company has started the current year focusing on increasing our deposits along with solid loan growth. We are exploring opportunities in new product lines and services, which could help to improve core non-interest income and in market expansion.

In May 2019, the Company will open its first full service banking office in Statesboro, Georgia. In October 2018, the Bank purchased a vacant lot of real estate in Albany, Georgia from the branch acquisition transaction with Planters First Bank. The Bank intends to build a new branch office in the future.

On April 16, 2019, the Bank announced the purchase of the mortgage division from Planters First Bank, PFB Mortgage. The transaction, which does not require regulatory approval, closed on May 1, 2019. PFB Mortgage consists of several originators in Albany, Georgia; Athens, Georgia; Macon, Georgia and Warner Robins, Georgia and are expected to remain with the Bank. In addition, the Bank established a new mortgage loan origination office in LaGrange, Georgia in March 2019.

On May 1, 2019, the Company completed its acquisition of LBC Bancshares, Inc. and its subsidiary, Calumet Bank, which will be merged within the Company. The acquisition expanded the Company’s market presence, as Calumet Bank had two full-service banking locations, one each in LaGrange, Georgia and Columbus, Georgia, as well as a loan production office in Atlanta, Georgia. The Company issued 1,054,029 common shares at a fair value of $18.7 million and paid $15.3 million in cash to the former shareholders of LBC as merger consideration. As of March 31, 2019, LBC Bancshares, Inc. and its subsidiary, Calumet Bank has total assets of $207.3 million, total loans of $131.9 million, and total deposits of $184.9 million.

We have reinstated dividend payments beginning first quarter 2017 and have continued on a quarterly basis. In 2018, we paid a quarterly dividend of $0.05 per common stock. For the first quarter of 2019, we paid a dividend payment of $0.075 per common stock.

Major Trends/Significant Considerations

The following discussion sets forth management’s discussion and analysis of our consolidated financial condition as of March 31, 2019, and the consolidated results of operations for the three months ended March 31, 2019. This discussion should be read in conjunction with the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission on March 15, 2019. Readers should also carefully review all other disclosures we file from time to time with the SEC.

Non-GAAP Financial Measures

Our accounting and reporting policies conform to generally accepted accounting principles (“GAAP”) in the United States and prevailing practices in the banking industry. However, certain non-GAAP measures are used by management to supplement the evaluation of our performance. These include the fully-taxable equivalent measures: tax-equivalent net interest income, tax-equivalent net interest margin, and tax-equivalent net interest spread, which include the effects of taxable-equivalent adjustments using a federal income tax rate of 21% to increase tax-exempt interest income to a tax-equivalent basis. Tax-equivalent adjustments are reported in Notes 1 and 2 to the Average Balances with Average Yields and Rates table under Rate/Volume Analysis. Tangible book value per common share is also a non-GAAP measure used in the selected Financial Data Section.

Tax-equivalent net interest income, net interest margin and net interest spread. Net interest income on a tax-equivalent basis is a non-GAAP measure that adjusts for the tax-favored status of net interest income from loans and investments. We believe this measure to be the preferred industry measurement of net interest income and it enhances comparability of net interest income arising from taxable and tax-exempt sources. The most directly comparable financial measure calculated in accordance with GAAP is our net interest income. Net interest margin on a tax-equivalent basis is net interest income on a tax-equivalent basis divided by average interest-earning assets on a tax-equivalent basis. The most directly comparable financial measure calculated in accordance with GAAP is our net interest margin. Net interest spread on a tax-equivalent basis is the difference in the average yield on average interest-earning assets on a tax equivalent basis and the average rate paid on average interest-bearing liabilities. The most directly comparable financial measure calculated in accordance with GAAP is our net interest spread.

Part I (Continued)

Item 2 (Continued)

These non-GAAP financial measures should not be considered alternatives to GAAP-basis financial statements, and other bank holding companies may define or calculate these non-GAAP measures or similar measures differently.

A reconciliation of these performance measures to GAAP performance measures is included in the tables below.

Non-GAAP Performance Measures Reconciliation

	Three months ended March 31,
	2019		2018

Interest Income Reconciliation
Interest Income – Taxable Equivalent	$	13,065	$	11,826
Tax Equivalent Adjustment		52		16
Interest Income (GAAP)	$	13,013	$	11,810

Net Interest Income Reconciliation
Net Interest Income – Taxable Equivalent	$	10,409	$	10,145
Tax Equivalent Adjustment		52		16
Net Interest Income (GAAP)	$	10,357	$	10,129

	Three Months Ended March 31,
	2019			2018

Net Interest Margin Reconciliation
Net Interest Margin – Taxable Equivalent		3.46	%		3.55	%
Tax Equivalent Adjustment		0.02			0.01
Net Interest Margin (GAAP)		3.44	%		3.54	%

Interest Rate Spread Reconciliation
Interest Rate Spread – Taxable Equivalent		3.25	%		3.43	%
Tax Equivalent Adjustment		0.02			0.01
Interest Rate Spread (GAAP)		3.23	%		3.42	%

The Company

Colony Bankcorp, Inc. is a bank holding company headquartered in Fitzgerald, Georgia that provides, through Colony Bank, its wholly owned subsidiary (collectively referred to as the Company), a broad array of products and services throughout central, south and coastal Georgia markets. The Company offers commercial, consumer and mortgage banking services.

Application of Critical Accounting Policies and Accounting Estimates

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the banking industry. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company’s financial position and/or results of operations. Critical accounting policies are those policies that management believes are the most important to the portrayal of the Company’s financial condition and results of operations, and they require management to make estimates that are difficult and subjective.

Overview

The following discussion and analysis presents the more significant factors affecting the Company’s financial condition as of March 31, 2019 and December 31, 2018, and results of operations for each of the three months in the periods ended March 31, 2019 and 2018. This discussion and analysis should be read in conjunction with the Company’s consolidated financial statements, notes thereto and other financial information appearing elsewhere in this report.

Part I (Continued)

Item 2 (Continued)

Taxable-equivalent adjustments are the result of increasing income from tax-free loans and investments by an amount equal to the taxes that would be paid if the income were fully taxable based on a 21 percent federal tax rate, thus making tax-exempt yields comparable to taxable asset yields.

Dollar amounts in tables are stated in thousands, except for per share amounts.

Results of Operations

The Company’s results of operations are determined by its ability to effectively manage interest income and expense, to minimize loan and investment losses, to generate noninterest income and to control noninterest expense. Since market forces and economic conditions beyond the control of the Company determine interest rates, the ability to generate net interest income is dependent upon the Company’s ability to obtain an adequate spread between the rate earned on interest-earning assets and the rate paid on interest-bearing liabilities. Thus, the key performance for net interest income is the interest margin or net yield, which is taxable-equivalent net interest income divided by average interest-earning assets. Net income available to common shareholders totaled $2.84 million, or $0.34 diluted per common share, in the three months ended March 31, 2019 compared to net income available to common shareholders of $3.19 million, or $0.37 diluted per common share, in the three months ended March 31, 2018. The Company did not have any material changes in the first quarter of 2019.

Selected income statement data, returns on average assets and average common equity and dividends per share for the comparable periods were as follows:

	Three Months Ended March 31
							$			%
	2019			2018			Variance			Variance

Taxable-equivalent net interest income	$	10,409		$	10,145		$	264			2.60	%
Taxable-equivalent adjustment		52			16			36			225.00

Net interest income		10,357			10,129			228			2.25
Provision for loan losses		131			26			105			403.85
Noninterest income		2,334			2,434			(100	)		(4.11	)
Noninterest expense		9,026			8,536			490			5.74

Income before income taxes		3,534			4,001			(467	)		(11.67	)
Income taxes		699			813			(114	)		(14.02	)

Net income	$	2,835		$	3,188		$	(353	)		(11.07	)%


Net income available to common shareholders:
Basic	$	0.34		$	0.38		$	(0.04	)		(10.53	)%
Diluted	$	0.34		$	0.37		$	(0.03	)		(8.11	)%
Return on average assets		0.90	%		1.06	%		(0.16	)%		(15.09	)%
Return on average total equity		11.76	%		14.18	%		(2.42	)%		(17.07	)%

Details of the changes in the various components of net income are further discussed below.

Part I (Continued)

Item 2 (Continued)

Net Interest Income

Net interest income is the difference between interest income on earning assets, such as loans and securities, and interest expense on liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest income is the Company’s largest source of revenue, representing 81.42 percent of total revenue for three months ended March 31, 2019 and 80.63 percent for the same period a year ago.

Net interest margin is the taxable-equivalent net interest income as a percentage of average interest-earning assets for the period. The level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income and net interest margin.

The Federal Reserve Board influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. The Company’s loan portfolio is significantly affected by changes in the prime interest rate. The prime interest rate, which is the rate offered on loans to borrowers with strong credit, is currently 5.50 percent. The rate remained unchanged in the first quarter of 2019 and increased four times in 2018. The federal funds rate moved similarly to the prime rate with interest rates currently at 2.40 percent. We expect no additional rate increases in 2019.

The following table presents the changes in taxable-equivalent net interest income and identifies the changes due to differences in the average volume of interest-earning assets and interest-bearing liabilities and the changes due to changes in the average interest rate on those assets and liabilities. The changes in net interest income due to changes in both average volume and average interest rate have been allocated to the average volume change or the average interest rate change in proportion to the absolute amounts of the change in each. The Company’s consolidated average balance sheets along with an analysis of taxable-equivalent net interest earnings are presented in the Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report.

Part I (Continued)

Item 2 (Continued)

Rate/Volume Analysis

The rate/volume analysis presented hereafter illustrates the change from March 31, 2018 to March 31, 2019 for each component of the taxable equivalent net interest income separated into the amount generated through volume changes and the amount generated by changes in the yields/rates.

	Changes from March 31, 2018 to March 31, 2019
($ in thousands)	Volume			Rate			Total

Interest Income
Loans, Net-taxable	$	237		$	541		$	778

Investment Securities
Taxable		26			220			246
Tax-exempt		(2	)		(2	)		(4	)
Total Investment Securities		24			218			242

Interest-Bearing Deposits in other Banks		141			66			207

Federal Funds Sold		-			-			-

Other Interest - Earning Assets		(1	)		13			12
Total Interest Income		401			838			1,239

Interest Expense
Interest-Bearing Demand and Savings Deposits		25			301			326
Time Deposits		8			588			596
Subordinated Debentures		-			65			65
Other Borrowed Money		(17	)		5			(12	)
Federal Funds Purchased		-			-			-

Total Interest Expense		16			959			975
Net Interest Income	$	385		$	(121	)	$	264

(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.

The Company maintains about 23.97 percent of its loan portfolio in adjustable rate loans that reprice with prime rate changes, while the bulk of its other loans mature within 3 years. The liabilities to fund assets are primarily in short term certificate of deposits that mature within one year. The net interest margin decreased to 3.46 percent for the three months ended March 31, 2019 compared to 3.55 percent for the same period a year ago. We anticipate the net interest margin to be impacted from the competitive environment.

Taxable-equivalent net interest income for the three months ended March 31, 2019 increased by $264 thousand, or 2.60 percent compared to the same period a year ago. The average volume of earning assets during three months ended March 31, 2019 increased $60.16 million compared to the same period a year ago. Growth in average earning assets during 2019 was primarily in loans and interest-bearing deposits in other Banks.

The average volume of loans increased $18.52 million for the three months ended March 31, 2019 compared to the same period a year ago. The average yield on loans increased 27 basis points for the three months ended March 31, 2019 compared to the same period a year ago. The average volume of investment securities increased $4.50 million for the three months ended March 31, 2019 compared to the same year ago period, while the average yield on investment securities increased 24 basis points for the same period comparison. The average volume of deposits increased $48.69 million for the three months ended March 31, 2019 compared to the same period a year ago, with interest-bearing deposits increasing $30.88 million for the three months ended March 31, 2019.

Part I (Continued)

Item 2 (Continued)

Accordingly, the ratio of average interest-bearing deposits to total average deposits was 82.84 percent for the three months ended March 31, 2019 compared to 83.74 percent in the same period a year ago. This deposit mix, combined with a general increase in market rates, had the effect of increasing the average cost of total deposits by 32 basis points in three months ended March 31, 2019 compared to the same period a year ago.

The Company’s net interest spread, which represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities, was 3.25 percent in three months ended March 31, 2019 compared to 3.43 percent in the same period a year ago. The net interest spread, as well as the net interest margin, will be impacted by future changes in short-term and long-term interest rate levels, as well as the impact from the competitive environment.

Part I (Continued)

Item 2 (Continued)

AVERAGE BALANCE SHEETS	Three Months Ended								Three Months Ended
	March 31, 2019								March 31, 2018
	Average			Income/		Yields/			Average			Income/		Yields/
($ in thousands)	Balances			Expense		Rates			Balances			Expense		Rates
Assets
Interest-Earning Assets
Loans, Net of Unearned Interest and fees
Taxable (1)	$	779,930		$	10,518		5.39	%	$	761,412		$	9,740		5.12	%
Investment Securities
Taxable		361,847			2,197		2.43	%		357,115			1,951		2.19	%
Tax-Exempt (2)		1,977			15		3.03	%		2,206			19		3.45	%
Total Investment Securities		363,824			2,212		2.43	%		359,321			1,970		2.19	%
Interest-Bearing Deposits		57,065			282		1.98	%		19,817			75		1.51	%
Federal Funds Sold		-			-		-	%		-			-		-	%
Interest-Bearing Other Assets		2,951			53		7.18	%		3,057			41		5.36	%
Total Interest-Earning Assets	$	1,203,770		$	13,065		4.34	%	$	1,143,607		$	11,826		4.14	%
Non-interest-Earning Assets
Cash and Cash Equivalents		11,733								18,926
Allowance for Loan Losses		(7,189	)							(7,528	)
Other Assets		50,335								49,995
Total Noninterest-Earning Assets		54,879								61,393
Total Assets	$	1,258,649							$	1,205,000
Liabilities and Stockholders' Equity
Interest-Bearing Liabilities
Interest-Bearing Deposits
Interest-Bearing Demand and Savings	$	564,306		$	838		0.59	%	$	537,561		$	512		0.38	%
Other Time		339,523			1,284		1.51	%		335,387			688		0.82	%
Total Interest-Bearing Deposits		903,829			2,122		0.94	%		872,948			1,200		0.55	%
Other Interest-Bearing Liabilities
Other Borrowed Money		43,333			260		2.40	%		46,306			272		2.35	%
Subordinated Debentures		24,229			274		4.52	%		24,229			209		3.45	%
Total Other Interest-Bearing Liabilities		67,562			534		3.16	%		70,535			481		2.73	%
Total Interest-Bearing Liabilities	$	971,391		$	2,656		1.09	%	$	943,483		$	1,681		0.71	%
Noninterest-Bearing Liabilities and Stockholders' Equity
Demand Deposits		187,289								169,477
Other Liabilities		3,573								2,071
Stockholders' Equity		96,396								89,969
Total Noninterest-Bearing Liabilities and Stockholders' Equity		287,258								261,517
Total Liabilities and Stockholders' Equity	$	1,258,649							$	1,205,000

Interest Rate Spread							3.25	%							3.43	%
Net Interest Income				$	10,409							$	10,145
Net Interest Margin							3.46	%							3.55	%

(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. Taxable equivalent adjustments totaling $48 and $12 for three month periods ended March 31, 2019 and 2018, respectively, are included in tax-exempt interest on loans.

(2)

Taxable-equivalent adjustments totaling $4 and $4 for three month periods ended March 31, 2019 and 2018, respectively, are included in tax-exempt interest on investment securities. The adjustments are based on a federal tax rate of 21 percent with appropriate reductions for the effect of disallowed interest expense incurred in carrying tax-exempt obligations.

Part I (Continued)

Item 2 (Continued)

Provision for Loan Losses

The provision for loan losses is determined by management as the amount to be added to the allowance for loan losses after net charge-offs have been deducted to bring the allowance to a level which, in management’s best estimate, is necessary to absorb probable losses within the existing loan portfolio. The provision for loan losses totaled $131 thousand in the three months ended March 31, 2019 compared to $26 thousand in the same period a year ago. See the section captioned “Allowance for Loan Losses” elsewhere in this discussion for further analysis of the provision for loan losses.

Noninterest Income

The components of noninterest income were as follows:

	Three Months Ended March 31
					$			%
	2019		2018		Variance			Variance

Service Charges on Deposit Accounts	$	964	$	1,101	$	(137	)		(12.44	)%
Other Charges, Commissions and Fees		900		789		111			14.07	%
Mortgage Fee Income		143		149		(6	)		(4.03	)%
Other		327		395		(68	)		(17.22	)%

Total	$	2,334	$	2,434	$	(100	)		(4.11	)%

Service Charges on Deposit Accounts. The decrease is primarily attributed to overdraft fees which decreased $127 thousand in 2019 compared to the same period in 2018.

Other Charges, Commissions and Fees. Debit card interchange fees and foreign fees increased $121 thousand in 2019 compared to the same period in 2018.

Mortgage Fee Income. The volume of mortgage loans has shown a slight decrease in 2019 compared to the same period in 2018 which contributed to the decrease in mortgage fee income.

Noninterest Expense

The components of noninterest expense were as follows:

	Three Months Ended March 31
					$			%
	2019		2018		Variance			Variance

Salaries and Employee Benefits	$	5,371	$	4,920	$	451			9.17	%
Occupancy and Equipment		1,025		1,046		(21	)		(2.01	)%
Other		2,630		2,570		60			2.33	%

Total	$	9,026	$	8,536	$	490			5.74	%

Salaries and Employee Benefits. The increase in 2019 is primarily attributable to merit pay increases and increase in headcount.

Other. The increase in the first quarter of 2019 as compared to comparable periods is primarily attributable to software and data processing costs which increased by $100 thousand from $277 thousand in 2018 compared to $377 thousand in 2019. ATM expense increased by $45 thousand in 2019 compared to comparable periods. FDIC assessments decreased by $89 thousand in 2019 compared to comparable periods due to the Bank receiving a preliminary notification of a Small Bank Assessments Credit from the FDIC that will be applied to the Bank’s 2019 FDIC assessments. Telephone expense decreased by $63 thousand in 2019 compared to comparable periods.

Part I (Continued)

Item 2 (Continued)

Investment Portfolio

The following table presents carrying values of investment securities held by the Company for the periods indicated.

	March 31,		December 31,
	2019		2018

State, County & Municipal	$	3,895	$	3,989
Mortgage-Backed Securities		351,138		346,205
Corporate Bonds		2,856		2,872
Total Investment Securities and Mortgage-Backed Securities	$	357,889	$	353,066

The following table represents expected maturities and weighted-average yields of investment securities held by the Company as of March 31, 2019. (Mortgage-backed securities are based on the average life at the projected speed, while State and Political Subdivisions reflect anticipated calls being exercised.)

After 1 Year But

After 5 Years But

Within 1 Year

Within 5 Years

Within 10 Years

After 10 Years

Amount

Yield

Amount

Yield

Amount

Yield

Amount

Yield

Mortgage-Backed Securities

25,597

2.89

168,401

2.17

131,246

2.63

25,894

3.29

State, County & Municipal

1,001

2.64

2,630

2.43

264

4.03

Corporate Bonds

2,856

3.76

Total Investment Portfolio

26,598

2.88

173,887

2.20

131,246

2.63

26,158

3.30

Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income. The Company has 100 percent of its portfolio classified as available for sale.

At March 31, 2019, there were no holdings of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10 percent of the Company’s stockholders’ equity.

The average yield of the securities portfolio was 2.43 percent for the three months ended March 31, 2019 compared to 2.19 percent for the same period in 2018. The increase in the average yield from 2018 to 2019 was primarily attributed to the purchase of new securities which have a higher yield.

Part I (Continued)

Item 2 (Continued)

Loans

The following table presents the composition of the Company’s loan portfolio as of March 31, 2019 and December 31, 2018:

	March 31, 2019			December 31, 2018			$ Variance			% Variance

Commercial and Agricultural
Commercial	$	51,368		$	57,410		$	(6,042	)		(10.52	)%
Agricultural		15,290			16,799			(1,509	)		(8.98	)
Real Estate
Commercial Construction		44,305			47,849			(3,544	)		(7.41	)
Residential Construction		14,947			12,500			2,447			19.58
Commercial		373,263			373,534			(271	)		(0.07	)
Residential		181,004			187,714			(6,710	)		(3.57	)
Farmland		64,056			62,709			1,347			2.15
Consumer and Other
Consumer		17,907			18,485			(578	)		(3.13	)
Other		17,851			5,027			12,824			255.10
Gross Loans		779,991			782,027			(2,036	)		(0.26	)
Unearned Interest and Fees		(513	)		(501	)		(12	)		2.40
Allowance for Loan Losses		(6,589	)		(7,277	)		688			(9.45	)
Net Loans	$	772,889		$	774,249		$	(1,360	)		(0.18	)%

Loan Origination/Risk Management. In accordance with the Company’s decentralized banking model, loan decisions are made at the Bank level. The Company utilizes both an Executive Loan Committee and a Director Loan Committee to assist lenders with the decision making and underwriting process of larger loan requests. Due to the diverse economic markets served by the Company, evaluation and underwriting criteria may vary slightly by market. Overall, loans are extended after a review of the borrower’s repayment ability, collateral adequacy, and overall credit worthiness.

Commercial purpose, commercial real estate, and agricultural loans are underwritten similarly to how other loans are underwritten throughout the Company. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location. In addition, the Company restricts total loans to $10 million per borrower, subject to exception and approval by the Director Loan Committee. This diversity helps reduce the company’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans monthly based on collateral, geography, and risk grade criteria. The Company also utilizes information provided by third-party agencies to provide additional insight and guidance about economic conditions and trends affecting the markets it serves.

The Company extends loans to builders and developers that are secured by non-owner occupied properties. In such cases, the Company reviews the overall economic conditions and trends for each market to determine the desirability of loans to be extended for residential construction and development. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim mini-perm loan commitment from the Company until permanent financing is obtained. In some cases, loans are extended for residential loan construction for speculative purposes and are based on the perceived present and future demand for housing in a particular market served by the Company. These loans are monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, general economic conditions and trends, the demand for the properties, and the availability of long-term financing.

The Company originates consumer loans at the Bank level. Due to the diverse economic markets served by the Company, underwriting criteria may vary slightly by market. The Company is committed to serving the borrowing needs of all markets served and, in some cases, adjusts certain evaluation methods to meet the overall credit demographics of each market. Consumer loans represent relatively small loan amounts that are spread across many individual borrowers to help minimize risk. Additionally, consumer trends and outlook reports are reviewed by management on a regular basis.

The Company utilizes an independent third party company for loan review and validation of the credit risk program on an ongoing quarterly basis. Results of these reviews are presented to management and the audit committee. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.

Part I (Continued)

Item 2 (Continued)

Commercial and Agricultural. Commercial and agricultural loans at March 31, 2019 decreased 10.18 percent to $66.66 million from December 31, 2018 at $74.21 million. The Company’s commercial and agricultural loans are a diverse group of loans to small, medium and large businesses. The purpose of these loans varies from supporting seasonal working capital needs to term financing of equipment. While some short-term loans may be made on an unsecured basis, most are secured by the assets being financed with collateral margins that are consistent with the Company’s loan policy guidelines.

Real Estate. Commercial and residential construction loans decreased by $1.10 million, or 1.82 percent, at March 31, 2019 to $59.25 million from $60.35 million at December 31, 2018. This decrease is partially due to new commercial construction loans being financed during the year that have now been completed by the end of the quarter. Commercial real estate decreased $271 thousand, or 0.07 percent, at March 31, 2019 to $373.26 million from $373.53 million at December 31, 2018.

Other. Other loans at March 31, 2019 increased 255.10 percent to $17.85 million from $5.03 million at December 31, 2018. Other loans consist primarily of loans to local governmental authorities. The increase is attributed to the Company financing approximately $11.50 million to one local governmental authority.

Collateral Concentrations. Concentrations of credit risk can exist in relation to individual borrowers or groups of borrowers, certain types of collateral, certain types of industries, or certain geographic regions. The Company has a concentration in real estate loans as well as a geographic concentration that could pose an adverse credit risk. At March 31, 2019, approximately 87 percent of the Company’s loan portfolio was concentrated in loans secured by real estate. A substantial portion of borrowers’ ability to honor their contractual obligations is dependent upon the viability of the real estate economic sector. Management continues to monitor these concentrations and has considered these concentrations in its allowance for loan loss analysis.

Maturities and Sensitivities of Loans to Changes in Interest Rates. The following table presents the maturity distribution of the Company’s loans at March 31, 2019. The table also presents the portion of loans that have fixed interest rates or variable interest rates that fluctuate over the life of the loans in accordance with changes in an interest rate index such as the prime rate.

After One,

After Three,

Due in One

but Within

After Five

Year or Less

Three Years

Five Years

Years

Total

Loans with fixed interest rates

179,011

255,142

120,804

38,104

593,061

Loans with floating interest rates

90,643

52,707

32,156

11,424

186,930

Total

269,654

307,849

152,960

49,528

779,991

The Company may renew loans at maturity when requested by a customer whose financial strength appears to support such renewal or when such renewal appears to be in the Company’s best interest. In such instances, the Company generally requires payment of accrued interest and may adjust the rate of interest, require a principal reduction or modify other terms of the loan at the time of renewal.

Part I (Continued)

Item 2 (Continued)

Nonperforming Assets and Potential Problem Loans

Nonperforming assets and accruing past due loans as of March 31, 2019, December 31, 2018 and March 31, 2018 were as follows:

	March 31, 2019			December 31, 2018			March 31, 2018

Loans Accounted for on Nonaccrual	$	7,541		$	9,482		$	6,452
Loans Accruing Past Due 90 Days or More		-			-			-
Other Real Estate Foreclosed		1,635			1,841			3,892
Total Nonperforming Assets	$	9,176		$	11,323		$	10,344

Nonperforming Assets by Segment
Construction and Land Development	$	460		$	883		$	2,281
1-4 Family Residential		2,928			3,299			2,815
Nonfarm Residential		2,596			3,821			3,182
Farmland		2,015			2,053			871
Commercial and Consumer		1,177			1,267			1,195
Total Nonperforming Assets	$	9,176		$	11,323		$	10,344

Nonperforming Assets as a Percentage of:
Total Loans and Foreclosed Assets		1.17	%		1.44	%		1.34	%
Total Assets		0.72	%		0.90	%		0.85	%
Nonperforming Loans as a Percentage of:
Total Loans		0.97	%		1.21	%		0.84	%

Supplemental Data:
Trouble Debt Restructured Loans In Compliance with Modified Terms	$	14,010		$	14,128		$	16,277
Trouble Debt Restructured Loans Past Due 30-89 Days		864			864			-
Accruing Past Due Loans:
30-89 Days Past Due	$	3,996		$	8,234		$	4,855
90 or More Days Past Due		-			-			-
Total Accruing Past Due Loans	$	3,996		$	8,234		$	4,855

Allowance for Loan Losses	$	6,589		$	7,277		$	7,467
ALLL as a Percentage of:
Total Loans		0.84	%		0.93	%		0.97	%
Nonperforming Loans		87.38	%		76.74	%		115.73	%

Nonperforming assets include nonaccrual loans, loans past due 90 days or more and foreclosed real estate. Nonperforming assets at March 31, 2019 decreased 18.96 percent from December 31, 2018.

Generally, loans are placed on non-accrual status if principal or interest payments become 90 days past due and/or management deems the collectability of the principal and/or interest to be in question, as well as when required by regulatory requirements. Loans to a customer whose financial condition has deteriorated are considered for non-accrual status whether or not the loan is 90 days or more past due. For consumer loans, collectability and loss are generally determined before the loan reaches 90 days past due. Accordingly, losses on consumer loans are recorded at the time they are determined. Consumer loans that are 90 days or more past due are generally either in liquidation/payment status or bankruptcy awaiting confirmation of a plan. Once interest accruals are discontinued, accrued but uncollected interest is charged to current year operations. Subsequent receipts on nonaccrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Classification of a loan as nonaccrual does not preclude the ultimate collection of loan principal or interest.

Troubled debt restructured loans are loans on which, due to deterioration in the borrower’s financial condition, the original terms have been modified in favor of the borrower or either principal or interest has been forgiven.

Part I (Continued)

Item 2 (Continued)

Foreclosed assets represent property acquired as the result of borrower defaults on loans. Foreclosed assets are recorded at estimated fair value less estimated selling costs, at the time of foreclosure. Write-downs occurring at foreclosure are charged against the allowance for loan losses. On an ongoing basis, properties are appraised as required by market indications and applicable regulations. Write-downs are provided for subsequent declines in value and are included in other non-interest expense along with other expenses related to maintaining the properties.

Allowance for Loan Losses

The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The allowance for loan losses includes allowance allocations calculated in accordance with current U.S. accounting standards. The level of the allowance reflects management’s continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Company’s control, including the performance of the Company’s loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

The Company’s allowance for loan losses consists of specific valuation allowances established for probable losses on specific loans and historical valuation allowances for other loans with similar risk characteristics. The allowances established for probable losses on specific loans are the result of management’s quarterly review of substandard loans with an outstanding balance of $250,000 or more. This review process usually involves regional credit officers along with local lending officers reviewing the loans for impairment. Specific valuation allowances are determined after considering the borrower’s financial condition, collateral deficiencies, and economic conditions affecting the borrower’s industry, among other things. In the case of collateral dependent loans, collateral shortfall is most often based upon local market real estate value estimates. This review process is performed at the subsidiary bank level and is reviewed at the parent Company level.

Once the loan becomes impaired, it is removed from the pool of loans covered by the general reserve and reviewed individually for exposure as described above. In cases where the individual review reveals no exposure, no reserve is recorded for that loan, either through an individual reserve or through a general reserve. If, however, the individual review of the loan does indicate some exposure, management often charges off this exposure, rather than recording a specific reserve. In these instances, a loan which becomes nonperforming could actually reduce the allowance for loan losses. Those loans deemed uncollectible are transferred to our problem loan department for workout, foreclosure and/or liquidation. The problem loan department obtains a current appraisal on the property in order to record the fair market value (less selling expenses) when the property is foreclosed on and moved into other real estate.

The allowances established for the remainder of the loan portfolio are based on historical loss factors, adjusted for certain qualitative factors, which are applied to groups of loans with similar risk characteristics. Loans are segregated into fifteen separate groups based on call codes. Most of the Company’s charge-offs during the past two years have been real estate dependent loans. The historical loss ratios applied to these groups of loans are updated quarterly based on actual charge-off experience. The historical loss ratios are further adjusted by qualitative factors.

Management evaluates the adequacy of the allowance for each of these components on a quarterly basis. Peer comparisons, industry comparisons, and regulatory guidelines are also used in the determination of the general valuation allowance. Loans identified as losses by management, internal loan review, and/or bank examiners are charged off. Additional information about the Company’s allowance for loan losses is provided in the Notes to the Consolidated Financial Statements for Allowance for Loan Losses.

Part I (Continued)

Item 2 (Continued)

The following table sets forth the breakdown of the allowance for loan losses by loan category for the periods indicated. The allocation of the allowance to each category is subjective and is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any other category.

	March 31,					December 31,
	2019					2018
	Reserve		%*			Reserve		%*

Commercial and Agricultural
Commercial	$	241		7	%	$	370		7	%
Agricultural		225		2	%		248		2	%

Real Estate
Commercial Construction		15		6	%		115		6	%
Residential Construction		5		2	%		16		2	%
Commercial		4,374		48	%		4,549		48	%
Residential		949		23	%		1,181		24	%
Farmland		688		8	%		702		8	%

Consumer and Other
Consumer		69		2	%		86		2	%
Other		23		2	%		10		1	%
	$	6,589		100	%	$	7,277		100	%

*	Percentage represents the loan balance in each category expressed as a percentage of total end of period loans.

Part I (Continued)

Item 2 (Continued)

The following table presents an analysis of the Company’s loan loss experience for the periods indicated.

	Three Months Ended March 31,
	2019			2018


Allowance for Loan Losses at Beginning of Year	$	7,277		$	7,508

Charge-Offs
Commercial		97			4
Agricultural		-			17
Commercial Construction		29			-
Residential Construction		-			-
Commercial		56			-
Residential		629			61
Farmland		63			-
Consumer		70			59
Other		-			-

	$	944		$	141

Recoveries
Commercial		6			8
Agricultural		-			1
Commercial Construction		17			20
Residential Construction		-			-
Commercial		33			4
Residential		49			12
Farmland		1			1
Consumer		17			28
Other		2			-

		125			74

Net Charge-Offs		819			67

Provision for Loans Losses		131			26

Allowance for Loan Losses at End of Year	$	6,589		$	7,467

Ratio of Annualized Net Charge-Offs to Average Loans		0.42	%		0.04	%

Part I (Continued)

Item 2 (Continued)

Deposits

The following table presents the average amount outstanding and the average rate paid on deposits by the Company for the three month periods ended March 31, 2019 and March 31, 2018.

	March 31, 2019					March 31, 2018
	Average		Average			Average		Average
	Amount		Rate (1)			Amount		Rate (1)

Noninterest-Bearing Demand Deposits	$	187,289				$	169,477
Interest-Bearing Demand and Savings Deposits		564,306		0.59	%		537,561		0.38	%
Time Deposits		339,523		1.51	%		335,387		0.82	%

Total Deposits	$	1,091,118		0.78	%	$	1,042,425		0.46	%

(1) Average rate is an annualized rate.

Average deposits increased $48.69 million to $1.09 billion at March 31, 2019 from $1.04 billion at March 31, 2018. The increase included an increase of $17.81 million, or 10.51 percent in noninterest-bearing demand deposits while, at the same time, interest-bearing demand and savings deposits increased $26.75 million, or 4.98 percent and time deposits increased $4.14 million, or 1.23 percent. Accordingly the ratio of average noninterest-bearing deposits to total average deposits was 17.16 percent for three months ended March 31, 2019 compared to 16.26 percent for three months ended March 31, 2018. The average cost of total deposits increased 32 basis points when comparing the three months ended March 31, 2019 compared to the same period a year ago.

Part I (Continued)

Item 2 (Continued)

Off-Balance-Sheet Arrangements, Commitments, Guarantees

In the ordinary course of business, the Company enters 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, performance 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 and the contract or notional amounts of these instruments reflect the extent of involvement and exposure to credit loss that we have in these particular classes of financial instruments.

Commitments to extend credit are agreements to lend to a customer provided that the terms established in the contract are met. Commitments generally have fixed expiration dates and may require the payment of fees. Since some commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers and similarly do not necessarily represent future cash obligations.

As of March 31, 2019 and December 31, 2018, financial instruments with off-balance sheet risk were as follows:

	Contract Amount
	March 31, 2019		December 31, 2018

Loan Commitments	$	120,676	$	98,736
Letters of Credit		1,521		1,525

The Company uses the same credit policies for these off-balance sheet financial instruments as they do for instruments that are recorded in the consolidated financial statements. We evaluate each customer’s creditworthiness at a local bank level on a case-by-case basis. The amount of collateral obtained, if deemed necessary, upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies but may include cash or cash equivalents, negotiable instruments, real estate, accounts receivable, inventory, oil, gas and mineral interests, property, plant, and equipment.

Loan Commitments. The Company enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of the Company’s commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding. The Company minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures. Management assesses the credit risk associated with certain commitments to extend credit in determining the level of the allowance for loan losses.

Capital and Liquidity

At March 31, 2019, stockholders’ equity totaled $101.07 million compared to $95.69 million at December 31, 2018. In addition to net income of $2.84 million, other significant changes in stockholders’ equity during three months ended March 31, 2019 included $633 thousand of dividends declared on common stock. The accumulated other comprehensive income (loss) component of stockholders’ equity totaled $(5.03) million at March 31, 2019 compared to $(8.19) million at December 31, 2018. This fluctuation was mostly related to the after-tax effect of changes in the fair value of securities available for sale.

Regulatory agencies for banks and bank holding companies utilize capital guidelines designed to measure Tier 1 and total capital and take into consideration the risk inherent in both on-balance sheet and off-balance sheet items.

Tier 1 capital consists of common stock and qualifying preferred stockholders’ equity and trust preferred securities less goodwill. Tier 2 capital consists of tier 1 capital and the allowance for loan losses up to 1.25 percent of risk-weighted assets. The Company has no Tier 2 capital other than the allowance for loan losses.

Using the capital requirements presently in effect, the Tier 1 ratio as of March 31, 2019 was 15.31 percent and total Tier 1 and 2 risk-based capital was 16.09 percent. Both of these measures compare favorably with the regulatory minimum to be adequately capitalized of 6 percent for Tier 1 and 8 percent for total risk-based capital. The Company’s common equity Tier 1 ratio as of March 31, 2019 was 12.52, which exceeds the regulatory minimum of 4.50 percent. The Company’s Tier 1 leverage ratio as of March 31, 2019 was 10.18 percent, which exceeds the required ratio standard of 4 percent.

Part I (Continued)

Item 2 (Continued)

As of March 31, 2019, average capital was $96.40 million, representing 7.66 percent of average assets for the year. This compares to 7.47 percent for March 2018.

The Company reinstated common stock dividends in the first quarter of 2017. The Company paid $0.05 per share of common stock in each of the quarters of 2018. The Company paid $0.075 per share of common stock in March 2019.

The Company, primarily through the actions of the Bank, engages in liquidity management to ensure adequate cash flow for deposit withdrawals, credit commitments and repayments of borrowed funds. Needs are met through loan repayments, net interest and fee income and the sale or maturity of existing assets. In addition, liquidity is continuously provided through the acquisition of new deposits, the renewal of maturing deposits and external borrowings.

Management monitors deposit flow and evaluates alternate pricing structures to retain and grow deposits. To the extent needed to fund loan demand, traditional local deposit funding sources are supplemented by the use of FHLB borrowings, brokered deposits and other wholesale deposit sources outside the immediate market area. Internal policies have been updated to monitor the use of various core and non-core funding sources, and to balance ready access with risk and cost. Through various asset/liability management strategies, a balance is maintained among goals of liquidity, safety and earnings potential. Internal policies that are consistent with regulatory liquidity guidelines are monitored and enforced by the Bank.

The investment portfolio provides a ready means to raise cash if liquidity needs arise. As of March 31, 2019, the available for sale bond portfolio totaled $357.89 million. At December 31, 2018, the available for sale bond portfolio totaled $353.07 million. Only marketable investment grade bonds are purchased. Although a good portion of the banks’ bond portfolios are encumbered as pledges to secure various public funds deposits, repurchase agreements, and for other purposes, management can restructure and free up investment securities for a sale if required to meet liquidity needs.

Management continually monitors the relationship of loans to deposits as it primarily determines the Company’s liquidity posture. The Company had ratios of loans to deposits of 70.16 percent as of March 31, 2019 and 72.07 percent at December 31, 2018. Management employs alternative funding sources when deposit balances will not meet loan demands. The ratios of loans to all funding sources (excluding Subordinated Debentures) at March 31, 2019 and December 31, 2018 were 67.79 percent and 69.26 percent, respectively.

Management continues to emphasize programs to generate local core deposits as our Company’s primary funding sources. The stability of the banks’ core deposit base is an important factor in Colony’s liquidity position. A heavy percentage of the deposit base is comprised of accounts of individuals and small businesses with comprehensive banking relationships and limited volatility. At March 31, 2019 and December 31, 2018, the Company had $53.80 million and $53.88 million in certificates of deposit of $250,000 or more. These larger deposits represented 4.84 percent and 4.97 percent of respective total deposits. Management seeks to monitor and control the use of these larger certificates, which tend to be more volatile in nature, to ensure an adequate supply of funds as needed. Relative interest costs to attract local core relationships are compared to market rates of interest on various external deposit sources to help minimize the Company’s overall cost of funds.

The Company supplemented deposit sources with brokered deposits. As of March 31, 2019, the Company had $94.62 million, or 8.51 percent of total deposits, in CDARS. Additional information is provided in the Notes to the Consolidated Financial Statements regarding these brokered deposits. Additionally, the Company uses external deposit listing services to obtain out-of-market certificates of deposit at competitive interest rates when funding is needed. These deposits obtained from listing services are often referred to as wholesale or internet CDs. As of March 31, 2019, the Company had $6.85 million, or 0.62 percent of total deposits, in internet certificates of deposit obtained through deposit listing services.

To plan for contingent sources of funding not satisfied by both local and out-of-market deposit balances, the Company and the Bank have established multiple borrowing sources to augment their funds management. The Company has borrowing capacity through membership of the Federal Home Loan Bank program. The Bank has also established overnight borrowing for Federal Funds purchased through various correspondent banks. Management believes the various funding sources discussed above are adequate to meet the Company’s liquidity needs in the future without any material adverse impact on operating results.

Liquidity measures the ability to meet current and future cash flow needs as they become due. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits and to take advantage of interest rate market opportunities. The ability of a financial institution to meet its current financial obligations is a function of balance sheet structure, the ability to liquidate assets, and the availability of alternative sources of funds. The Company seeks to ensure its funding needs are met by maintaining a level of liquid funds through asset/liability management.

Part I (Continued)

Item 2 (Continued)

Asset liquidity is provided by liquid assets which are readily marketable or pledgeable or which will mature in the near future. Liquid assets include cash, interest-bearing deposits in banks, securities available for sale, federal funds sold and securities purchased under resale agreements.

Liability liquidity is provided by access to funding sources which include core deposits. Should the need arise, the Company also maintains relationships with the Federal Home Loan Bank, Federal Reserve Bank and three correspondent banks.

Since the Company is a bank holding company and does not conduct operations, its primary sources of liquidity are dividends up streamed from the Bank and borrowings from outside sources.

The liquidity position of the Company is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Management is not aware of any events that are reasonably likely to have a material adverse effect on the Company’s liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity, which if implemented, would have a material adverse effect on the Company.

Return on Assets and Stockholders’ Equity

The following table presents selected financial ratios for each of the periods indicated.

	Three Months Ended
	March 31
	2019			2018

Return on Average Assets (1)		0.90	%		1.06	%

Return on Average Total Equity (1)		11.76	%		14.18	%

Average Total Equity to Average Assets		7.66	%		7.47	%

(1) Computed using annualized net income available to common shareholders.

Part I (Continued)

Item 3

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate risk is the change in value due to changes in interest rates. The Company is exposed only to U.S. dollar interest rate changes and, accordingly, the Company manages exposure by considering the possible changes in the net interest margin. In order to reduce the exposure to interest rate fluctuations, we have implemented strategies to more closely match our balance sheet composition. There have been no material changes in market risk from the information provided in the Company’s annual report on Form 10-K for the year ended December 31, 2018.

ITEM 4 – CONTROLS AND PROCEDURES

The Company’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) or 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, no change in the Company’s internal control over financial reporting occurred during the quarter ended March 31, 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

None

ITEM 1A – RISK FACTORS

There have been no material changes to the risk factors disclosed in Item 1A of Part I in our Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 2 – UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no shares of the Company’s common stock sold during the three-month period ended March 31, 2019.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4 – MINE SAFETY DISCLOSURES

Not applicable

ITEM 5 – OTHER INFORMATION

None

ITEM 6 – EXHIBITS

3.1 Articles of Incorporation, As Amended

-filed as Exhibit 99.1 to the Registrant’s 10-Q for the period ended June 30, 2014 (File No. 0-12436), filed with the Commission on August 4, 2014 and incorporated herein by reference.

3.2 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.

3.3 Article of Amendment to the Company’s Articles of Incorporation Authorizing Additional Capital Stock in the Form of Ten Million Shares of Preferred Stock

-filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 000-12436) filed with the Commission on January 13, 2009 and incorporated herein by reference.

3.4 Articles of Amendment to the Company’s Articles of Incorporation Establishing the Terms of the Series A Preferred Stock

-filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 000-12436) filed with the Commission on January 13, 2009 and incorporated herein by reference.

3.5 Amendment to the Company’s Bylaws

-filed as Exhibit 99.1 to the Registrant’s 8-K (File No.000-12436) , filed with the Commission on May 29, 2015 and incorporated herein by reference.

4.1 Warrant to Purchase up to 500,000 shares of Common Stock

-filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 000-12436), filed with the Commission on January 13, 2009 and incorporated herein by reference.

Part II (Continued)

Item 6 (Continued)

4.2 Form of Series A Preferred Stock Certificate

-filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K (File No. 000-12436), filed with the Commission on January 13, 2009 and incorporated herein by reference.

10.1 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.

10.2 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.

10.3 1999 Restricted Stock Grant Plan and Restricted Stock Grant Agreement

-filed as Exhibit 10(c) the Registrant’s Annual Report on Form 10-K (File No. 000-12436), filed with the Commission on March 30, 2001 and incorporated herein by reference.

10.4 2004 Restricted Stock Grant Plan and Restricted Stock Grant Agreement

- filed as Exhibit C to the Registrant’s Definitive Proxy Statement for Annual Meeting of Shareholders held on April 27, 2004, filed with the Securities and Exchange Commission on March 3, 2004 (File No. 000-12436) and incorporated herein by reference.

10.5 Lease Agreement – Mobile Home Tracts, LLC c/o Stafford Properties, Inc. and Colony Bank Worth

- filed as Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10Q (File No. 000-12436), filed with Securities and Exchange Commission on November 5, 2004 and incorporated herein by reference.

10.6 Letter Agreement, Dated January 9, 2009, Including Securities Purchase Agreement – Standard Terms Incorporated by Reference Therein, Between the Company and the United States Department of the Treasury

- filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 000-12436), filed with the Commission on January 13, 2009 and incorporated herein by reference.

10.7 Form of Waiver, Executed by Al D. Ross

- filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 000-12436), filed with the Commission on January 13, 2009 and incorporated herein by reference.

10.8 Form of Waiver, Executed by Terry L. Hester

- filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 000-12436), filed with the Commission on January 13, 2009 and incorporated herein by reference.

10.9 Form of Waiver, Executed by Henry F. Brown, Jr.

- filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 000-12436), filed with the Commission on January 13, 2009 and incorporated herein by reference.

10.10 Form of Waiver, Executed by Walter F. Patten

- filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 000-12436), filed with the Commission on January 13, 2009 and incorporated herein by reference.

Part II (Continued)

Item 6 (Continued)

10.11 Form of Waiver, Executed by Larry E. Stevenson

- filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 000-12436), filed with the Commission on January 13, 2009 and incorporated herein by reference.

10.12 Employment Agreement, Dated April 27, 2012 Between Edward P. Loomis, Jr. and Colony Bankcorp, Inc.

-filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 000-12436), filed with the Commission on May 2, 2012 and incorporated herein by reference.

10.13 Retention Agreement

-filed as Exhibit 99.1 to the Registrant’s 10-Q for the period ended March 31, 2015 (File No. 000-12436), filed with the Commission on May 4, 2015 and incorporated herein by reference.

10.14 Retention Agreement

-filed as Exhibit 99.2 to the Registrant’s 10-Q for the period ended June 30, 2016 (File No. 000-12436), filed with the Commission on May 31, 2016 and incorporated herein by reference.

10.15 Retention Agreement

-filed as Exhibit 99.3 to the Registrant’s 10-Q for the period ended March 31, 2018 (File No. 000-12436), filed with the Commission on May 4, 2018 and incorporated herein by reference.

10.16 Employment Agreement, Dated July 27, 2018 Between T. Heath Fountain and Colony Bankcorp, Inc.

-filed as Exhibit 99.4 to the Registrant’s 10-Q for the period ended September 30, 2018 (File No. 000-12436), filed with the Commission on November 2, 2018 and incorporated herein by reference.

10.17 Restricted Stock Award Between T. Heath Fountain and Colony Bankcorp, Inc.

-filed as Exhibit 10.1 to the Registrant’s Registration Statement on Form S-8 (File No. 000-12436), filed with the Commission on August 23, 2018 and incorporated herein by reference.

10.18 Retention Agreement

-filed as Exhibit 99.2 to the Registrant’s Current Report on Form 8-K (File No. 000-12436), filed with the Commission on January 17, 2019 and incorporated herein by reference.

31.1 Certificate of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2 Certificate of Chief Financial Officer Pursuant to Section 302 of Sarbanes – Oxley Act of 2002

32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS XBRL Instance Document

101.SCH XBRL Schema Document

101.CAL XBRL Calculation Linkbase Document

101.DEF XBRL Definition Linkbase Document

101.LAB XBRL Label Linkbase Document

101.PRE XBRL Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Colony Bankcorp, Inc.



	/s/ T. Heath Fountain
Date: May 8, 2019	T. Heath Fountain
	President/Director/Chief Executive Officer



	/s/Terry L. Hester
Date: May 8, 2019	Terry L. Hester
	Executive Vice-President/Director/Chief Financial Officer