COLONY BANKCORP: form 10-K) | MarketScreener

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Management’s discussion and analysis of the financial position and operating results

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with "Item 6. - Selected Financial
Data" and our consolidated financial statements and related notes included
elsewhere in this Annual Report on Form 10-K. This discussion and analysis
contains forward-looking statements that involve risk, uncertainties and,
assumptions. Certain risks, uncertainties and other factors, including but not
limited to those set forth under "Cautionary Note Regarding Forward-Looking
Statements," "Risk Factors," and elsewhere in this Annual Report on Form 10-K,
may cause actual results to differ materially from those projected in the
forward looking statements. We assume no obligation to update any of these
forward-looking statements.

The company

Colony Bankcorp, Inc. is a banking holding company headquartered in Fitzgerald, Georgia which supplies, through its wholly-owned subsidiary Colony bank
(collectively referred to as the Company), a wide range of products and services in the Central, South and Coast regions Georgia markets. The Company provides commercial, consumer and mortgage banking services.

Recent developments

At February 26, 2020, the company acquired the East Georgia Homebuilder Finance loan portfolio from Cadence. This acquisition broadened our presence in the
Savannah and Augusta markets, creating a “one-stop-shop” for home builders coupled with our mortgage business.

On December 10, 2020, the Company announced the strategic realignment of its
branch network. As part of the realignment, select Colony Bank branches will be
consolidated, resulting in the closure of five branches, or a total of 18% of
the Bank's branch network. The branches to be closed consist of one branch
located in each of the Columbus, Douglas, Fitzgerald, Savannah and Valdosta
markets, by April 30, 2021. After the closures, Colony will continue to operate
one branch location in each of the aforementioned markets except for the
Savannah market, where Colony will operate two branch locations.

On December 30, 2020, the Company completed the sale of its Thomaston branch to
SouthCrest Financial Group. Inc. The transaction resulted in the transfer of
approximately $3 million in fully performing loans and approximately $40 million
in deposits, with a deposit premium of 3%.

The Company paid dividends to its shareholders throughout 2020 and 2019 on a
quarterly basis. In 2020, we had a quarterly dividend of $0.10 per common stock
and in 2019, we had a quarterly dividend of $0.075 per common stock.

GAAP reconciliation and management’s explanation of 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 common book value per common share and adjusted earnings per diluted
share are also non-GAAP measures used in the Selected Financial Data section.
Management believes that non-GAAP financial measures provide additional useful
information that allows investors to evaluate the ongoing performance of the
company and provide meaningful comparisons to its peers. Management believes
these non-GAAP financial measures also enhance investors' ability to compare
period-to-period financial results and allow investors and company management to
view our operating results excluding the impact of items that are not reflective
of the underlying operating performance.

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
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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.

Tangible common book value per share, adjusted earning per diluted shares.
Tangible common book value per share is a non-GAAP measure that excludes the
effect of goodwill and other intangibles from book value per common share. The
most directly comparable financial measure calculated in accordance with GAAP is
our book value per common share. Adjusted earnings per diluted share excludes
acquisition-related expenses, gain on the sale of the Thomaston branch, a
building writedown, and the income tax benefits related to such items from
earnings per diluted share. The most directly comparable financial measure
calculated in accordance with GAAP is our earnings per diluted share.

These non-GAAP financial measures should not be viewed as alternatives to GAAP 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 the GAAP performance measures is included in the tables below.

Reconciliation of non-GAAP performance measures

                                                                                         Years Ended December 31,
                                                                                         2020                  2019
(dollars in thousands, except per share data)
Operating noninterest expense reconciliation
Operating net income reconciliation
Net income (GAAP)                                                                  $      11,815          $    10,211
Acquisition-related expenses                                                                 862                2,733
Gain on sale of Thomaston branch                                                          (1,026)                   -
Writedown of Building                                                                        582                    -
Income tax benefit of expenses                                                               (88)                (574)
Operating net income                                                               $      12,145          $    12,370
Weighted average diluted shares                                                        9,498,783            9,129,705
Adjusted earnings per diluted share                                         

$ 1.28 $ 1.35

Reconciliation of tangible book value per common share Book value per common share (GAAP)

                                                 $       15.21          $     13.74
Effect of goodwill and other intangibles                                                   (1.95)               (2.06)
Tangible book value per common share                                                          13.26                11.68



COVID-19 Pandemic

During March 2020, the World Health Organization declared the novel strain of
coronavirus (COVID-19) a global pandemic in response to the rapidly growing
outbreak of the virus. COVID-19 has significantly impacted local, national and
global economies due to stay-at-home orders and social distancing guidelines,
and has caused economic and social disruption on an unprecedented scale. While
some industries have been impacted more severely than others, all businesses
have been impacted to some degree. This disruption has resulted in the
shuttering of businesses across the country, significant job loss, and
aggressive measures by the federal government.

Congress, the President, and the Federal Reserve have taken several actions
designed to cushion the economic fallout. Most notably, the Coronavirus Aid,
Relief and Economic Security ("CARES") Act was signed into law on March 27, 2020
as a $2 trillion legislative package. The goal of the CARES Act was to prevent a
severe economic downturn through various measures, including direct financial
aid to American families and economic stimulus to significantly impacted
industry sectors. The package also included extensive emergency funding for
hospitals and providers. In addition to the general impact of COVID-19, certain
provisions of the CARES Act as well as other recent legislative and regulatory
relief efforts have had and continue to have a material impact on our
operations.

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In response to the COVID-19 pandemic, the Company has prioritized the health and
safety of its employees and customers, and continues to take protective measures
during the ongoing COVID-19 pandemic, such as implementing remote work
arrangements to the full extent possible and by adjusting banking center hours
and operational measures to promote social distancing, and it will continue to
do so throughout the duration of the pandemic. At the same time, the Company is
closely monitoring the effects of the COVID-19 pandemic on our loan and deposit
customers, and is assessing the risks in our loan portfolio and working with our
customers to reduce the pandemic's impact on them while minimizing losses for
the Company. Meanwhile, the Company remains focused on improving shareholder
value, managing credit exposure, challenging expenses, enhancing the customer
experience and supporting the communities it serves.

We have implemented loan programs to allow customers who are experiencing
hardships from the COVID-19 pandemic to defer loan principal and interest
payments for up to 90 days. The Small Business Administration (SBA) has also
guaranteed the principal and interest payments of all our SBA loan customers for
six months. As of December 31, 2020, we had one commercial customer with
outstanding loan balances totaling $1.9 million who had active payment
deferrals. One loan totaling $1.9 million was in the hotel industry, which is
one of the industries heavily impacted by the COVID-19 pandemic.

In addition, we have been participating in the Paycheck Protection Program
created under the CARES Act and implemented by the SBA to help provide loans to
our business customers in need. As of December 31, 2020, the Company closed or
approved with the SBA 1,630 PPP loans for an aggregate amount of funds in excess
of $137.8 million. We have used our current cash balances and available
liquidity from the Paycheck Protection Program Liquidity Facility ("PPPLF") to
fund these PPP loans. Loan fees collected related to these loans was
approximately $2.8 million. In accordance with U.S. generally accepted
accounting principles (GAAP), these fees will be deferred and recognized over
the life of the loans. As of February 28, 2021, the SBA had granted forgiveness
for PPP loans totaling $58.5 million.

The Economic Aid Act, signed into law on December 27, 2020, authorized an
additional $284.5 billion in new PPP funding and extends the authority of
lenders to make PPP loans through March 31, 2021. We are participating in this
new round of PPP loan funding by offering first and second draw loans. As of
February 28, 2021, the Company had approved and funded 410 PPP loans totaling
$30.4 million under this new round of PPP loan funding.

Despite improvements in certain economic indicators, significant constraints to
commerce remain in place, and significant uncertainty remains over the timing of
an effective and widely available coronavirus vaccine and the timing and scope
of additional government stimulus packages. The duration and extent of the
downturn and speed of the related recovery on our business, customers, and the
economy as a whole remains uncertain.

Overview

The following discussion and analysis present the more significant factors
affecting the Company's financial condition as of December 31, 2020 and 2019 and
results of operations for each of the two year-periods ended December 31, 2020.
This discussion and analysis should be read in conjunction with the Company's
consolidated financial statements, notes thereto and other financial information
appearing elsewhere in this report.

Taxable-equivalent adjustments are the result of increasing income from tax-free
loans and investments by an amount equal to the taxes that would be paid if the
income were fully taxable based on a 21% federal tax rate for 2020 and 2019 and,
thus making tax-exempt yields comparable to taxable asset yields.

Dollar amounts in the tables are shown 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
$11.8 million, or $1.24 per diluted shares in 2020, compared to $10.2 million,
or $1.12 per diluted shares in 2019.

Net interest income

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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 66.8% of total
revenue during 2020 and 76.4% of total revenue during 2019.

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

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, was 3.25% and 4.75% as of December 31, 2020 and
2019, respectively. The Federal Reserve Board sets general market rates of
interest, including the deposit and loan rates offered by many financial
institutions. During 2020, the prime interest rate decreased by 150 basis
points.  During 2019, the prime interest rate decreased overall by 50 basis
points.

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 Rate/Volume
Analysis.

Rate/Volume Analysis

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

                                                          Changes from 2019 to 2020 (a)
(dollars in thousands)                                  Volume              Rate         Total
Interest income
Loans, net of unearned fees                       $    11,033            $ (5,695)     $ 5,338
Investment securities, taxable                           (937)             (1,292)      (2,229)
Investment securities, exempt                             494                (219)         275
Interest-bearing deposits                               1,573              (2,191)        (618)
Total interest income                                  12,163              (9,397)       2,766

Interest expense
Interest-Bearing Demand and Savings Deposits              980              (3,384)      (2,404)
Time Deposits                                            (894)             (1,152)      (2,046)
FHLB Advances                                            (277)                (26)        (303)
PPPLF                                                       -                 205          205
Other Borrowings                                          197                (406)        (209)
Total interest expense                                      6              (4,763)      (4,757)

Net interest income                               $    12,157            $ (4,634)     $ 7,523



(a)Changes in net interest income for the periods, based on either changes in
average balances or changes in average rates for interest-earning assets and
interest-bearing liabilities, are shown on this table. During each year there
are numerous and simultaneous balance and rate changes; therefore, it is not
possible to precisely allocate the changes between balances and rates. For the
purpose of this table, changes that are not exclusively due to balance changes
or rate changes have been attributed to rates.

The Company maintains about 18.41% 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
non-maturing core deposits and short term certificates of deposit that mature
within one year. During 2020, Federal Reserve rates decreased 150 basis points.
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the Federal Reserve rates fell 50 basis points in 2019. We saw the net interest margin drop to 3.50% for 2020, from 3.61% for 2019.

Taxable-equivalent net interest income for 2020 increased by $7.5 million or
15.7%, compared to 2019, due to an increase in loan fee income generated through
PPP loan originations during 2020, which was approximately $2.8 million. The
average volume of interest-earning assets during 2020 increased $257.4 million
compared to 2019 while over the same period the net interest margin decreased 11
basis points to 3.50% from 3.61%. The change in the net interest margin in 2020
and 2019 was primarily driven by a higher level of low yielding assets offset by
a decrease in the cost of funds, as well as downward pressure exerted from lower
yielding PPP loans offset by lowering our borrowing costs during the year as
well as lower interest on the level of deposits on our balance sheet. Growth in
average earning assets during 2020 was primarily in loans and interest-bearing
deposits in other banks related to the PPP loans originated and the acquisition
of Home Builder Finance.

The average volume of loans increased $195.9 million in 2020 compared to 2019,
which reflects both organic loan growth and growth in PPP loans. The increase in
average volume for loans was funded primarily through an increase in Paycheck
Protection Program Liquidity Facility and average customer deposits. The average
yield on loans decreased 52 basis points in 2020 compared to 2019, due to lower
yielding PPP loans originated and the reduction in prime rate of 150 points in
2020. The average volume of interest-bearing deposits increased $90.9 million in
2020 compared to 2019. Average demand deposits increased $146.9 million while
average time deposits decreased $55.9 million in 2020 compared to 2019.

Thus, the ratio of average interest-bearing deposits to total average deposits was 78.8% in 2020 and 82.6% in 2019. For 2020, this combination of deposits, combined with a general decline in interest rates , had the effect of (i) reducing the average cost of total deposits by 49 basis points in 2020 compared to 2019 and (ii) offsetting part of the impact of lower yields on interest-bearing assets on the Company’s net interest income.

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 stable at 3.37% and 3.39% in 2020 and 2019,
respectively. The net interest spread, as well as the net interest margin, will
be impacted by future changes in short-term and long-term interest rate levels,
as well as the impact from the competitive environment. A discussion of the
effects of changing interest rates on net interest income is set forth in
"Market Risk and Interest Rate Sensitivity" included elsewhere in this report.

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AVERAGE BALANCE SHEETS

                                                                                2020                                                       2019
                                                           Average             Income/            Yields/             Average             Income/            Yields/
(dollars in thousands)                                     Balances            Expense             Rates              Balances            Expense             Rates
Assets
Loans, net of unearned fees (1)                         $ 1,092,009          $ 55,802                5.11  %       $   896,098          $ 50,464                5.63  %
Investment securities, taxable                              336,140             6,875                2.05              374,719             9,104       

2.43

Investment securities, exempt (2)                            17,070               331                1.94                1,737                56       

3.22

Deposits in banks and short term investments                141,641               438                0.31               56,891             1,056                1.86
Total interest-earning assets                             1,586,860            63,446                4.00            1,329,445            60,680                4.56
Total noninterest-earning assets                            104,375                                                     81,886
Total assets                                            $ 1,691,235                                                $ 1,411,331

Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Savings and interest-bearing demand deposits                787,030             1,870                0.24  %           640,180             4,274                0.67  %
Time deposits                                               305,374             3,729                1.22              361,319             5,775                1.60
Total interest-bearing deposits                         $ 1,092,404          $  5,599                0.51          $ 1,001,499          $ 10,049                1.00
FHLB advances                                                33,249               743                2.23               45,233             1,046                2.31
Paycheck Protection Program Liquidity Facility               90,768               205                0.23                    -                 -                   -
Other borrowings                                             38,527             1,333                3.46               34,159             1,542                4.51
Total interest-bearing liabilities                        1,254,948             7,880                0.63            1,080,891            12,637       

1.17

Noninterest-bearing demand deposits                         294,008                                                    208,320
Other liabilities                                             4,325                                                      5,002
Stockholders' equity                                        137,954                                                    117,118
Total liabilities and stockholders' equity              $ 1,691,235                                                $ 1,411,331
Interest rate spread                                                                                 3.37  %                                                    3.39  %
Net interest income                                                          $ 55,566                                                   $ 48,043
Net interest margin                                                                                  3.50  %                                                    3.61  %



(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 $252,000 and $182,000 for the year ended
December 31, 2020 and 2019, respectively, are included in income and fees on
loans. Accretion income of $763,000 and $583,000 for the year ended December 31,
2020 and 2019 are also included in income and fees on loans.
(2)Taxable-equivalent adjustments totaling $69,000 and $11,000 for the year
ended December 31, 2020 and 2019, respectively, are included in tax-exempt
interest on investment securities. The adjustments are based on federal tax rate
of 21% with appropriate reductions for the effect of disallowed interest expense
incurred in carrying tax-exempt obligations.

Allowance 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 $6.6 million in 2020 compared to $1.1 million
in 2019. See the section captioned "Allowance for Loan Losses" elsewhere in this
discussion for further analysis of the provision for loan losses. The increase
in provision for loan losses for the year ended December 31, 2020 compared to
the same periods in 2019 is largely due to the unprecedented economic
disruptions and uncertainty surrounding the COVID-19 pandemic. Net charge-offs
for the year ended December 31, 2020 were $1.3 million compared to $1.5 million
for the same period in 2019. As of December 31, 2020, Colony's allowance for
loan losses was $12.1 million, or 1.14% of total loans, compared to $6.9
million, or 0.71% of total loans, at December 31, 2019. At December 31, 2020 and
2019, nonperforming assets were $10.1 million and $11.1 million, or 0.58% and
0.74% of total assets, respectively. While asset quality remains stable period
over period, social and economic disruption in response to the COVID-19 pandemic
continued to result in business closures and job losses during the year ended
2020.

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Non-interest income

The components of non-interest income were as follows:

                                                                         $             %
(dollars in thousands)                      2020          2019        Variance      Variance
Service charges on deposit accounts      $  5,293      $  5,593      $   (300)       (5.36) %
Mortgage fee income                         9,149         3,199         5,950       186.00
Gain on sale of SBA loans                   1,600             -         1,600       100.00
Gain on sale of securities                    926            97           829       854.64
Gain on sale of assets                      1,082             -         1,082       100.00
Interchange fees                            4,988         3,768         1,220        32.38
BOLI income                                   743           536           207        38.62
Other                                         463           811          (348)      (42.94)
Total                                    $ 24,244      $ 14,004      $ 10,240        73.12  %



Noninterest income increased $10.2 million, or 73.12% from 2019. The Company saw
considerable increases in mortgage fee income, gain on sale of SBA loans, and
interchange fees, off-set with a slight decrease in service charges on deposit
accounts. The slight decrease in service charges on deposit accounts was
partially attributable to a decrease in overdraft and service charge income as a
result of continued lower customer spending due to the COVID-19 pandemic. The
increase in mortgage fee income is primarily attributed to the opening of a new
mortgage location in LaGrange and the acquisition of the PFB Mortgage division
of Planters First Bank, both of which occurred in the first half of 2019. As
such, these divisions were fully operational in 2020, increasing the volume of
mortgage loans. Furthermore, during the year ended December 31, 2020, there was
an increase in the demand for mortgage rate locks and mortgage closings due to a
historically low interest rate environment. The decrease in mortgage rates was
partially attributable to the 150 basis point decrease in the national federal
funds rate during the year ended December 31, 2020 in response to the COVID-19
pandemic. The increase of $1.2 million in interchange fees was a result of the
perks program the Company offered from Discover®. The increase from gain on sale
of SBA loans grew as the Bank was fully operational in this line of business in
2020.

Noninterest Expense

The components of non-interest expenditure were as follows:

                                                                      $     

%

(dollars in thousands)                   2020          2019        Variance 

Variance

Salaries and Benefits $ 34,141 $ 26,218 $ 7,923

      30.22  %
Occupancy and equipment                  5,311         4,850           461         9.51
Acquisition related expenses               862         2,733        (1,871)      (68.46)
Information technology                   5,746         4,353         1,393        32.00
Professional Fees                        2,250         2,191            59         2.69
Advertising and public relations         2,111         1,991           120         6.03
Communications                             835         1,083          (248)      (22.90)
Writedown of building                      582             -           582       100.00
FHLB prepayment penalty                    925             -           925       100.00
Other                                    5,538         4,717           821        17.41
Total                                 $ 58,301      $ 48,136      $ 10,165        21.12  %



Increases in salaries and employee benefits, information technology expenses,
the writedown of the Thomaston branch and FHLB prepayment penalties accounted
for the majority of the increase in noninterest expense, offset by a decrease in
acquisition-related expenses. The increase in salaries and employee benefits of
$7.9 million in 2020 was primarily attributable to merit pay increases and a
complete year of salaries from the two acquisitions completed in May 2019 of LBC
Bancshares, Inc and PFB Mortgage. Information technology expenses increased $1.4
million as the Company continues to invest in the Company's technology
infrastructures. Other expense increased due to increases in FDIC insurance due
to credits used in 2019,
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and loan expenses related to PPP lending activities. In order to improve the cost of funds and the company’s bottom line, the company repaid two higher rate FHLB advances in 2020, which were offset by securities gains recognized in 2020.

Sources and uses of funds

The following table illustrates, over the years presented, the composition of the company’s sources of funding and the assets in which these funds are invested as a percentage of the company’s average total assets for the period indicated. Total average assets $ 1.7 billion in 2020 compared to $ 1.4 billion in 2019.

(dollars in thousands)                                                     2020                                     2019

Sources of Funds:
Noninterest-bearing deposits                                $   294,008               17.38  %       $   208,320               14.76  %
Interest-bearing deposits                                     1,092,404               64.59  %         1,001,499               70.96
FHLB advances                                                    33,249                1.97  %            45,233                3.20
PPPLF                                                            90,768                5.37  %                 -                   -
Other borrowings                                                 38,527                2.28  %            34,159                2.42
Other noninterest-bearing liabilities                             4,325                0.26  %             5,002                0.35
Equity capital                                                  137,954                8.15  %           117,118                8.31
Total                                                       $ 1,691,235              100.00  %       $ 1,411,331              100.00  %

Uses of Funds:
Loans held for sale and loans                               $ 1,092,009               64.57  %       $   896,098               63.49  %
Investment securities                                           353,210               20.88  %           376,456               26.67
Deposits in banks and short term investments                    141,641                8.38  %            56,891                4.03
Other noninterest-bearing assets                                104,375                6.17  %            81,886                5.81
Total                                                       $ 1,691,235              100.00  %       $ 1,411,331              100.00  %


Deposits remain the main source of funding for the company. During comparable periods, interest-bearing deposits continue to be the most important component in the composition of the Company’s deposits. Average interest-bearing deposits totaled 78.8% in 2020, compared to 82.6% of total average deposits in 2019.

The Company primarily invests funds in loans and securities. Loans continue to be the most important component of the company’s invested asset mix.

Loans

The following table shows the composition of the Company’s loan portfolio as of the 31st of December since five years.

                                        December 31,         December 31,        December 31,        December 31,        December 31,
(dollars in thousands)                      2020                 2019                2018                2017                2016
Construction, land & land
development                            $    121,093          $   96,097    

$ 60,310 $ 53,762 $ 42,168
Other commercial real estate

                520,391             540,239             435,961             418,669             415,768
Total commercial real estate                641,484             636,336             496,271             472,431             457,936
Residential real estate                     183,021             194,796             187,592             193,924             195,486
Commercial , financial, &
agricultural                                213,380             114,360              74,166              64,523              64,074
Consumer & other                             21,618              23,322              23,497              33,911              36,426
Total loans, net of unearned
fees                                      1,059,503             968,814             781,526             764,789             753,922
Allowance for loan losses                   (12,127)             (6,863)             (7,277)             (7,508)             (8,923)
Loans, net                             $  1,047,376          $  961,951          $  774,249          $  757,281          $  744,999



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Maturity and repricing opportunity

The following table presents total loans as of December 31, 2020 according to
maturity distribution and/or repricing opportunity on adjustable rate loans.

                                                         After one year           After three
                                        One year          through three          years through          Over five
(dollars in thousands)                   or less              years               five years              years               Total
Construction, land & land
development                            $ 73,097          $     28,243      

$ 3,034 $ 16,719 $ 121,093
Other commercial real estate

            105,467               122,680                  76,370            215,874             520,391
Total commercial real estate            178,564               150,923                  79,404            232,593             641,484
Residential real estate                  29,779                40,645                  24,607             87,990             183,021
Commercial, financial, &
agricultural                             34,917               122,525                  22,169             33,769             213,380
Consumer & other                          4,660                 8,668                   6,214              2,076              21,618
Total loans, net of unearned
fees                                    247,920               322,761                 132,394            356,428           1,059,503



Overview. Loans totaled $1.1 billion at December 31, 2020, up 9.4% from $968.8
million at December 31, 2019. The majority of the Company's loan portfolio is
comprised of the real estate loans. Commercial and residential real estate which
is primarily 1-4 family residential properties, nonfarm nonresidential
properties and real estate construction loans made up 77.8% and 85.8% of total
loans at December 31, 2020 and December 31, 2019, respectively. Commercial,
financial, & agriculture represents another 20.1% of the population of the loans
at December 31, 2020 up from 11.8% of the population at December 31, 2019. The
reason for the increase is primarily due to the PPP loan production during 2020,
which was $101.1 million in gross PPP loans at December 31, 2020. The PPP loans
are included in our commercial, financial and agricultural loans.

Loan origination/risk management. In accordance with the Company's decentralized
banking model, loan decisions are made at the local 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 criterion 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 criterion 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 uses an independent third party company to review loans and validate the credit risk program on an ongoing quarterly basis. The results of these reviews are presented to management and to the audit committee. The loan review

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The process complements and reinforces the risk identification and assessment decisions made by lenders and credit staff, as well as company policies and procedures.

Commercial, financial and agricultural. Commercial and agricultural loans at
December 31, 2020 increased 86.6% to $213.4 million from December 31, 2019 at
$114.4 million. This increase was primarily attributable to the PPP loans which
was $101.1 million at December 31, 2020. 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.

Construction, land and land development. Construction, land and land use loans increased by $ 25.0 million, or 26.0%, to December 31, 2020 at
$ 121.1 million of $ 96.1 million at December 31, 2019. This increase is mainly due to the purchase of Homebuilder Finance and the continued growth of the business in 2020.

Other commercial real estate. Other commercial real estate loans decreased by
$19.8 million, or 3.7%, at December 31, 2020 to $520.4 million from $540.2
million at December 31, 2019. This decrease was primarily attributable due to
payoffs and amortization of the portfolio.
Residential Real Estate Loans. Residential real estate loans decreased by $11.8
million, or 6.1%, at December 31, 2020 to $183.0 million from $194.8 million at
December 31, 2019. This decrease was primarily attributable to payoffs and
amortization of the portfolio. Residential real estate loans consist of
revolving, open-end and closed-end loans as well as those secured by
closed-end first and junior liens.
Consumer and other. Consumer and other loans include loans to individuals for
personal and household purposes, including secured and unsecured installment
loans and revolving lines of credit. Consumer and other loans at December 31,
2020 decreased 7.3% to $21.6 million from $23.3 million at December 31,
2019.This decrease was primarily attributable to payoffs and amortization of the
portfolio.

Industry concentrations. As of December 31, 2020 and December 31, 2019, there
were no concentrations of loans within any single industry in excess of 10% of
total loans, as segregated by Standard Industrial Classification code ("SIC
code"). The SIC code is a federally designed standard industrial numbering
system used by the Company to categorize loans by the borrower's type of
business. The Company has established industry-specific guidelines with respect
to maximum loans permitted for each industry with which the Company does
business.

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, particularly with the current economic
downturn in the real estate market. At December 31, 2020, approximately 77.8% 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. In addition,
a large portion of the Company's foreclosed assets are also located in these
same geographic markets, making the recovery of the carrying amount of
foreclosed assets susceptible to changes in market conditions. Management
continues to monitor these concentrations and has considered these
concentrations in its allowance for loan loss analysis. In recent years, we have
seen real estate values stabilizing in our markets. The stabilization of rates
has resulted in a decrease in the number of loans being classified as impaired
over the past several years.

Large credit relationships. The Company is currently in eighteen counties in
central, south and coastal Georgia and includes metropolitan markets in
Dougherty, Lowndes, Houston, Chatham and Muscogee counties. As a result, the
Company originates and maintains large credit relationships with several
commercial customers in the ordinary course of business. The Company considers
large credit relationships to be those with commitments equal to or in excess of
$5.0 million prior to any portion being sold. Large relationships also include
loan participations purchased if the credit relationship with the agent is equal
to or in excess of $5.0 million. In addition to the Company's normal policies
and procedures related to the origination of large credits, the Company's
Executive Loan Committee and Director Loan Committee must approve all new and
renewed credit facilities which are part of large credit relationships. At
December 31, 2020,our largest 20 relationships consisted of loans and loan
commitments, where the committed balance was $169.5 million with $120.8 million
outstanding. At December 31, 2019,our largest 20 relationships had a committed
balance of $174.8 million with $156.2 million outstanding.

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Maturities and sensitivities of loans to changes in interest rates. The
following table presents the maturity distribution of the Company's loans at
December 31, 2020. 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 Five
                                  Due in One           After One,            After Three,            Years, but
                                    Year or            but within             but within           within Fifteen        After Fifteen
(dollars in thousands)               Less              Three Years            Five Years               Years                 Years               Total
Loans with fixed interest
rates                            $  188,659          $    305,720          $     124,946          $     230,287          $   14,885          $   864,497
Loans with floating
interest rates                       59,098                17,040                  7,448                 75,659              35,761              195,006

Total                            $  247,757          $    322,760          $     132,394          $     305,946          $   50,646          $ 1,059,503



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.

Potential nonperforming assets and problematic loans

Asset quality remained somewhat stable during the year December 31, 2020. The
continuing effects of the COVID-19 pandemic will likely have an impact on our
asset quality, but it is unknown to what extent at this point. Nonperforming
assets include nonaccrual loans, accruing loans contractually past due 90 days
or more, repossessed personal property and other real estate owned ("OREO").
Pursuant to the provisions of the CARES Act, loans granted payment deferrals
related to the COVID-19 pandemic are not reported as past due or placed on
nonaccrual status (provided the loans were not past due or on nonaccrual status
prior to the deferral), and there were no loans under these terms deemed past
due or nonaccrual as of December 31, 2020. Nonaccrual loans totaled $9.1 million
at December 31, 2020, a decrease of $699,000, or 7.1%, from $9.8 million at
December 31, 2019. There were no loans contractually past due 90 days or more
and still accruing for either period presented. At December 31, 2020, OREO
totaled $1.0 million, a decrease of $314,000, or 23.8%, compared with
$1.3 million at December 31, 2019. The change in OREO is a combination of sales
of assets during 2020 offset by asset additions. At the end of the year ended
December 31 2020, total nonperforming assets as a percent of total assets
decreased to 0.58% compared with 0.74% at December 31, 2019.

At December 31, 2020, 5.2% of the Company's loan portfolio, or $62.7 million, is
in the hotel sector which we expect to be the most sensitive to the COVID-19
pandemic. While our entire loan portfolio is being continuously assessed,
enhanced monitoring for these sectors is ongoing. We are continuously working
with these customers to evaluate how the current economic conditions are
impacting, and will continue to impact, their business operations.
                                       45
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Year-end nonperforming assets and delinquent loans were as follows:

(dollars in thousands)                          2020              2019              2018              2017              2016
Loans accounted for on nonaccrual            $  9,128          $  9,827          $  9,482          $  7,503          $ 12,350
Loans accruing past due 90 days or
more                                                -                 -                 -                 -                 -
Other real estate foreclosed                    1,006             1,320             1,841             4,256             6,439

Total nonperforming assets                   $ 10,134          $ 11,147     

$ 11,323 $ 11,759 $ 18,789

Nonperforming loans by segment
Construction, land & land development        $    197          $    128          $    883          $  2,630          $  3,376
Commercial real estate                          4,613             3,772             5,874             4,635             9,982
Residential real estate                         2,958             3,728             3,299             3,309             4,375
Commercial, financial & agricultural            1,065             2,061             1,267             1,185             1,056
Consumer & other                                  295               138                 -                 -                 -
Total nonperforming loans                    $  9,128          $  9,827     

$ 11,323 $ 11,759 $ 18,789

Nonperforming assets as a percentage
of:
Total loans and other real estate
foreclosed assets                                0.96  %           1.15  %           1.44  %           1.53  %           2.47  %
Total assets                                     0.58  %           0.74  %           0.90  %           0.95  %           1.55  %
Nonperforming loans as a percentage
of:
Total loans                                      0.86  %           1.01  %           1.21  %           0.98  %           1.64  %

Supplemental data:
Trouble debt restructured loans in
compliance with modified terms (1)           $ 12,320          $ 12,337          $ 14,128          $ 18,363          $ 17,992
Trouble debt restructured loans
Past due 30-89 days (1)                           273                 -               864               131               319
Accruing past due loans:
30-89 days past due (1)                      $  3,092          $  2,615          $  8,234          $  4,558          $  4,469
90 or more days past due                            -                 -                 -                 -                 -
Total accruing past due loans                $  3,092          $  2,615     

$ 8,234 $ 4,558 $ 4,469

Allowance for loan losses                    $ 12,127          $  6,863          $  7,277          $  7,508          $  8,923
Allowance for loan losses as a
percentage of:
Total loans                                      1.14  %           0.71  %           0.93  %           0.98  %           1.18  %
Nonperforming loans                            132.85             69.84             76.74            100.06             72.25



(1) Loans granted payment deferrals related to the COVID-19 pandemic are not
reported as past due or placed on nonaccrual status (provided the loans were not
past due or on nonaccrual status prior to the deferral), there were no loans
under these terms deemed past due or nonaccrual as of December 31, 2020.

Nonperforming assets include uncriminated loans, loans 90 days or more past due, foreclosed real estate, and uncriminated securities. Non-performing assets at
December 31, 2020 decreased by 9.1% compared to December 31, 2019, due to the sale of other real estate held and the decrease in non-commercial loans.

                                       46
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Generally, loans are placed on nonaccrual 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 nonaccrual 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.

The restructuring of a loan is considered a "troubled debt restructuring
("TDR")" if both (i) the borrower is experiencing financial difficulties and
(ii) the Company has granted the borrower a concession that we would not
consider otherwise. At December 31, 2020, TDRs totaled $12.6 million, a slight
increase from $12.3 million reported December 31, 2019. At December 31, 2020 and
2019, all TDRs were performing according to their modified terms and were
therefore not considered to be nonperforming assets.

In March 2020, regulatory agencies issued an interagency statement on loan
modifications and reporting for financial institutions working with customers
affected by the COVID-19 pandemic. The agencies confirmed with the staff of the
FASB that short-term modifications made on a good faith basis in response to the
COVID-19 pandemic to borrowers who were current prior to any relief, are not to
be considered TDRs. As of December 31, 2020, the Company had approximately $1.9
million in loans still under their modified terms. The Company's modification
program included payment deferrals, interest only, and other forms of
modifications. See Notes 1 and 4 to of our consolidated financial statements
included in this Annual Report for more information regarding accounting
treatment of loan modifications as a response to the COVID-19 pandemic.

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.

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,
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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.

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.

                                             December 31,                            December 31,                            December 31,                            December 31,                            December 31,
(dollars in thousands)                           2020                                    2019                                    2018                                    2017                                    2016
                                      Reserve               %(1)              Reserve               %(1)              Reserve               %(1)       
      Reserve               %(1)              Reserve               %(1)
Construction, land & land
development                       $      1,013               11.4  %       $       215                9.9  %       $       131                7.7  %       $     1,216                7.0  %       $       711                6.5  %
Commercial real estate                   6,880               49.1  %       
     3,908               55.8  %             5,251               55.8  %             4,654               54.7  %             4,763               53.8  %
Residential real estate                  2,278               17.3  %               980               20.1  %             1,181               24.0  %               968               25.4  %             1,990               26.0  %
Commercial , financial, &
agricultural                             1,713               20.1  %             1,657               11.8  %               618                9.5  %               633                8.4  %             1,058                8.8  %
Consumer & other                           243                2.1  %               103                2.4  %                96                3.0  %                37                4.4  %                82                4.9  %
                                  $     12,127              100.0  %       $     6,863              100.0  %       $     7,277              100.0  %       $     7,508              100.0  %       $     8,604              100.0  %

(1) The percentage represents the loan balance in each category expressed as a percentage of the total end of period loans.

The following table provides an analysis of the Company’s experience with loan losses for the periods indicated.

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(dollars in thousands)                           2020              2019             2018             2017             2016
Allowance for loan losses at beginning
of year                                       $  6,863          $ 7,277          $ 7,508          $ 8,923          $ 8,604
Charge-offs
Construction, land & land development                4               29                -               52               25
Commercial real estate                             226              119              257            1,027            1,112
Residential real estate                            206              758              162            1,048              362
Commercial , financial, & agricultural             242              403              247              458              324
Consumer & other                                 1,103              784              299              330              265
Total charge-offs                             $  1,781          $ 2,093          $   965          $ 2,915          $ 2,088
Recoveries
Construction, land & land development               45               82              155              266              814
Commercial real estate                             153              218               52              544              351
Residential real estate                            142              174               91               82               50
Commercial , financial, & agricultural              43               36              161              141               71
Consumer & other                                   104               65               74               77               59
Total recoveries                                   487              575              533            1,110            1,345
Net charge-offs                                  1,294            1,518              432            1,805              743
Provision for loans losses                       6,558            1,104              201              390            1,062
Allowance for loan losses at end of
year                                          $ 12,127          $ 6,863     

$ 7,277 $ 7,508 $ 8,923

Ratio of net charge-offs to average
loans                                             0.12  %          0.11  %          0.04  %          0.15  %          0.06  %



The allowance for loan losses increased from $6.9 million, or 0.71% of total
loans at December 31, 2019 to $12.1 million, or 1.14% of total loans at
December 31, 2020. Excluding outstanding PPP loans of $101.1 million as of
December 31, 2020, the allowance for loan losses as a percentage of total loans
was 1.27%. The allowance for loan losses allocated 0.10% of the balance to our
PPP loan portfolio at December 31, 2020. The provision for loan losses reflects
loan quality trends, including the level of net charge-offs or recoveries, among
other factors.

Social and economic disruption in response to the COVID-19 pandemic continue to
result in businesses closures and job losses during the year ended 2020. Net
charge-off's improved by $224,000 from $1.5 million in 2019 to $1.3 million in
2020, but management believes there continues to be a weakness in certain
sectors. As such, additional qualitative measures were incorporated as part of
the December 31, 2020 allowance for loan losses calculation for the economic
uncertainties caused by the COVID-19 pandemic, which was the primary cause for
the increase to the provision for loan losses during the year ended December 31,
2020 compared to the same period 2019. Additional reserves were also allocated
to the non-owner occupied commercial real estate pools due to economic impacts
in the retail and hospitality sectors. Other changes to the allowance of loan
losses were a result of new internal procedures for impairment analysis which
appropriately reflect loss potential within the individually tested loans. This
change resulted in an increase of $503,000 in required reserves.

Management believes the allowance for loan losses is adequate to provide for
losses inherent in the loan portfolio as of December 31, 2020. The continuing
impact of the COVID-19 pandemic during 2020 leading to significant market
changes, high levels of unemployment and increasing degrees of uncertainty in
the U.S. economy, the impact on collectability is not currently known, and it is
possible that additional provisions for credit losses could be needed in future
periods.

Investment Portfolio

The following table shows the book value of investment securities held by the company at December 31, 2020, 2019 and 2018.

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(dollars in thousands)                          2020           2019           2018
U.S. treasury securities                     $     245      $       -      $       -
U.S agency                                       1,004              -              -

State, departmental and municipal titles 62,388 5,115

   3,989
Corporate debt securities                        4,250          2,806          2,872
Mortgage-backed securities                     312,927        339,411        346,205
Total debt securities                        $ 380,814      $ 347,332      $ 353,066



The following table represents expected maturities and weighted-average yields
of investment securities held by the Company as of December 31,
2020 (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
(dollars in thousands)                       Amount               Yield              Amount             Yield              Amount              Yield                Amount                Yield
U. S. Treasury securities                $        245               1.70  %       $       -                  -  %       $        -                  -  %       $            -                  -  %
U.S. Agency                                         -                  -                  -                  -               1,004               0.75                       -                  -
State, county and municipal
securities                                        141               2.11              1,968               1.58              15,246               1.49                  45,033               1.88
Corporate debt securities                           -                  -              2,001               4.04               2,249               5.56                       -                  -
Mortgage-backed securities                          -                  -              7,555               3.08              92,368               2.05                 213,004               1.59
Total debt securities                    $        386               1.85  %       $  11,524               2.99  %       $  110,867               2.03  %       $      258,037               1.64  %



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% of its portfolio classified as available for sale.

At December 31, 2020, there were no holdings of any one issuer, other than the
U.S. government and its agencies, in an amount greater than 10% of the Company's
stockholders' equity.

The average return on the securities portfolio was 2.04% in 2020 and 2.43% in 2019. The decrease in the average return from 2020 to 2019 was mainly due to the purchase of new lower yielding securities.

Deposits

The following table shows the average outstanding amount and the average rate paid on deposits by the Company for the years 2020, 2019 and 2018.

                                                                       2020                                      2019                                      2018
                                                           Average              Average              Average              Average              Average              Average
(dollars in thousands)                                      Amount                Rate                Amount                Rate                Amount                Rate
Noninterest-bearing demand deposits                     $   294,008                    -          $   208,320                    -          $   173,442                    -
Interest-bearing demand and savings deposits                787,030                 0.24  %           640,180                 0.67  %           534,887                 0.52  %
Time deposits                                               305,374                 1.22  %           361,319                 1.60  %           326,243                 1.01  %
Total deposits                                          $ 1,386,412                 0.40  %       $ 1,209,819                 0.83  %       $ 1,034,572                 0.59  %


The following table shows the maturities of the Company’s term deposits at
December 31, 2020.

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                                   Time            Time
                                 Deposits        Deposits
                                 $250,000        Less than
(dollars in thousands)          or Greater        $250,000        Total
Months to Maturity
3 or less                     $      4,886      $  43,677      $  48,563
Over 3 through 6                    11,069         40,642         51,711
Over 6 through 12                    8,731         72,603         81,334
Over 12 Months                      10,219         69,787         80,006
                              $     34,905      $ 226,709      $ 261,614



Average deposits increased $176.6 million in 2020 compared to 2019. The increase
in 2020 included $146.9 million or 22.9% in interest-bearing demand and savings
deposits while, at the same time noninterest bearing deposits increased
$85.7 million, or 41.1% and time deposits decreased $55.9 million, or 15.5%. The
growth in our deposits is due primarily to the combination of government
stimulus programs, the deferral of the tax payment deadline, PPP loan proceeds
retained on deposits by corporate borrowers, and customer expense and savings
habits in response to the COVID-19 pandemic.

The Company supplements deposit sources with brokered deposits. As of
December 31, 2020, the Company had $1.1 million, or 0.1% of total deposits, in
brokered certificates of deposit attracted by external third parties. Additional
information is provided in the Notes to Consolidated Financial Statements for
Deposits.

Off-balance sheet arrangements and contractual obligations

In the ordinary course of business, our Bank has granted commitments to extend
credit to approved customers. Generally, these commitments to extend credit have
been granted on a temporary basis for seasonal or inventory requirements or for
construction period financing and have been approved within the Bank's credit
guidelines. Our Bank has also granted commitments to approved customers for
financial standby letters of credit. These commitments are recorded in the
financial statements when funds are disbursed or the financial instruments
become payable. The Bank uses the same credit policies for these
off-balance-sheet commitments as it does for financial instruments that are
recorded in the consolidated financial statements. Commitments generally have
fixed expiration dates or other termination clauses and may require payment of a
fee. Since many of the commitment amounts expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash requirements.

The following table summarizes the commitments and contractual obligations in progress at December 31, 2020.

(dollars in thousands)                                                            Payments Due by Period
                                                                 Less Than 1                                                      More Than 5
                                               Total                Year               1 - 3 Years           3 - 5 Years             Years
Contractual Obligations:
Borrowings                                      $167,081                $5,313              $109,789               $12,750             $39,229
Operating lease liabilities                         $517                143                   202                    90                  82
Time Deposits                                   $261,614            181,609                70,793                 8,650                 562
                                              429,212               187,065               180,784                21,490              39,873

Other Commitments:
Loan commitments                              198,029               148,957                21,512                 2,415              25,145
Standby letters of credit                       3,634                 3,351                   283                     -                   -
                                              201,663               152,308                21,795                 2,415              25,145
Total Contractual Obligations and
Other Commitments                           $ 630,875          $    339,373          $    202,579          $     23,905          $   65,018



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In the ordinary course of business, the Company has entered into off-balance
sheet financial instruments which are not reflected in the consolidated
financial statements. These instruments include commitments to extend credit,
standby letters of credit, 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. 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.

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. Loan commitments outstanding at December 31, 2020 are included
in the preceding table.

Standby Letters of Credit. Letters of credit are written conditional commitments
issued by the Company to guarantee the performance of a customer to a third
party. In the event the customer does not perform in accordance with the terms
of the agreement with the third party, the Company would be required to fund the
commitment. The maximum potential amount of future payments the Company could be
required to make is represented by the contractual amount of the commitment. If
the commitment is funded, the Company would be entitled to seek recovery from
the customer. The Company's policies generally require that standby letters of
credit arrangements contain security and debt covenants similar to those
contained in loan agreements. Standby letters of credit outstanding at
December 31, 2020 are included in the preceding table.

Capital requirements

The Bank is required under federal law to maintain certain minimum capital
levels based on ratios of capital to total assets and capital to risk-weighted
assets. The required capital ratios are minimums, and the federal banking
agencies may determine that a banking organization, based on its size,
complexity or risk profile, must maintain a higher level of capital in order to
operate in a safe and sound manner. Risks such as concentration of credit risks
and the risk arising from non-traditional activities, as well as the
institution's exposure to a decline in the economic value of its capital due to
changes in interest rates, and an institution's ability to manage those risks
are important factors that are to be taken into account by the federal banking
agencies in assessing an institution's overall capital adequacy. For more
information, see "Item 1. Business - Supervision and Regulation - Regulation of
the Company - Capital Requirements."

At December 31, 2020, shareholders' equity totaled $144.5 million compared to
$130.5 million at December 31, 2019. In addition to net income of $11.8 million,
other significant changes in shareholders' equity during 2020 included $3.8
million of dividends declared on common stock. The accumulated other
comprehensive loss component of stockholders' equity totaled $6.8 million at
December 31, 2020 compared to $362,000 at December 31, 2019. This fluctuation
was mostly related to the after-tax effect of changes in the fair value of
securities available for sale. Under regulatory requirements, the unrealized
gain or loss on securities available for sale does not increase or reduce
regulatory capital and is not included in the calculation of risk-based capital
and leverage ratios. 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 less goodwill and disallowed deferred tax assets. Tier 2 capital consists
of certain convertible, subordinated and other qualifying debt and the allowance
for loan losses up to 1.25% 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
December 31, 2020 was 12.71% and total Tier 1 and 2 risk-based capital was
13.78%. Both of these measures compare favorably with the regulatory minimum of
6% for Tier 1 and 8% for total risk-based capital. The Company's common equity
Tier 1 ratio as of December 31, 2020 was 10.62%, which exceeds the regulatory
minimum of 4.50%. The Company's Tier 1 leverage ratio as of December 31, 2020
was 8.49%, which exceeds the required ratio standard of 4%.

In addition, the Bank is participating in the PPP and the PPPLF to fund PPP
Loans. In accordance with regulatory guidance, PPP loans pledged as collateral
for PPPLF, and PPPLF advances, are excluded from leverage capital ratios. PPP
loans will also carry a 0% risk-weight for risk-based capital rules.

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For the year ended December 31, 2020, the average capital was $ 138.0 million
representing 8.2% of the average assets for the year. This compares to the average capital of $ 117.1 million, or 8.3% of average assets for 2019.

For the past years December 31, 2020 and in 2019, the Company had no significant commitments for capital expenditures.

At 23 Aug 2018, the Company granted 5,650 restricted shares of ordinary shares to T. Heath fountain, President and Chief Executive Officer, as part of his employment contract. The restricted shares will vest over a period of three years.

A cash dividend of $ 3.8 million and $ 2.7 million has been paid for the completed year
December 31, 2020 and 2019, respectively.

Although the company believes it has sufficient capital to withstand a prolonged economic recession caused by COVID-19, its reported and regulatory capital ratios could be adversely affected in future periods. Additional information is provided in the notes to the consolidated financial statements for preferred shares and warrants.

Liquidity

The Company, primarily through the actions of its subsidiary 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.

Cash and cash equivalents at December 31, 2020 and 2019 were $183.5 million and
$104.1 million, respectively. The increase in cash and cash equivalents since
year-end 2019 was largely attributable to the significant increase in deposits,
influenced by government stimulus payments and pandemic stay-at-home orders,
which reduced spending and increased liquidity of consumers and businesses in
these uncertain times, and PPP loan proceeds retained on deposit by corporate
borrowers, as well as our own liquidity actions in 2020. Management believes the
various funding sources discussed above are adequate to meet the Company's
liquidity needs in these unsettled times without any material adverse impact on
our operating results.

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 December 31, 2020, the available for sale bond portfolio totaled
$380.8 million. At December 31, 2019, the available for sale bond portfolio
totaled $347.3 million. Only marketable investment grade bonds are purchased.
Although approximately half of the Bank's bond portfolio is encumbered as
pledges to secure various public funds deposits, repurchase agreements, and for
other purposes, management can restructure and free up investment securities for
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. Colony had ratios of loans
to deposits of 73.3% as of December 31, 2020 and 74.9% as of December 31, 2019.
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 December 31, 2020 and December 31, 2019 were 66.7%
and 71.5%, 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 December 31, 2020 and December 31, 2019, the Bank had
$34.9 million and $55.7 million, respectively, in certificates of deposit of
$250,000 or more. These larger deposits represented 2.4% and 4.3% of total
deposits as of December 31, 2020 and 2019, respectively. 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 the sources of deposits with negotiated deposits. From
December 31, 2020, the company had $ 1.1 million or 0.1% of total deposits in CDARS. Additional information is provided in the notes to the consolidated financial statements

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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. The deposits obtained from
listing services are often referred to as wholesale or internet CDs. As of
December 31, 2020, the Company had $100,000 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, Colony and its subsidiary 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. At December
31, 2020 and 2019, we had $22.5 million and $47.0 million, respectively, of
outstanding advances from the FHLB. Based on the values of loans pledged as
collateral, we had $416.1 million and $321.4 million of additional borrowing
availability with the FHLB at December 31, 2020 and 2019, respectively.

In addition, on April 20, 2020, the Company completed a Paycheck Protection
Program Liquidity Facility credit arrangement with The Federal Reserve Bank.
This line of credit is secured by PPP loans and bears a fixed interest rate of
0.35% with a maturity date equal to the maturity date of the related PPP loans,
with the PPP loans maturing either two or five years from the origination date
of the PPP loans. An advance of $140.7 million obtained through the PPPLF
arrangement was used for funding PPP loans during the second quarter of 2020,
subsequently, during the same month during the second quarter 2020, a repayment
of $6.2 million was made upon the determination of a final number of PPP loans
to be funded. As of December 31, 2020, the outstanding balance totaled $106.8
million, and the Company's PPP loans and related PPPLF funding had a weighted
average life of approximately 1.35 years.

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.

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 and 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, two correspondent banks and
repurchase agreement lines that can provide funds on short notice.

As Colony is a bank holding company and does not conduct operations, its main sources of liquidity are upstream dividends from the subsidiary 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.

Impact of inflation and price trends

The Company's financial statements included herein have been prepared in
accordance with accounting principles generally accepted in the United States
(GAAP). GAAP presently requires the Company to measure financial position and
operating results primarily in terms of historic dollars. Changes in the
relative value of money due to inflation or recession are generally not
considered. The primary effect of inflation on the operations of the Company is
reflected in increased operating costs, though given recent economic conditions,
the Company has not experienced any material effects of inflation during the
last three fiscal years. In management's opinion, changes in interest rates
affect the financial condition of a financial institution to a far greater
degree than changes in the inflation rate. While interest rates are greatly
influenced by changes in the inflation rate, they do not necessarily change at
the same rate or in the same magnitude as the inflation rate. Interest rates are
highly sensitive to many factors that are beyond the control of the Company,
including changes in the expected rate of inflation, the influence of general
and local economic conditions and the monetary and fiscal policies of the United
States government, its agencies and various other governmental regulatory
authorities, among other things, as further discussed in the next section.

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Regulatory and economic policies

The Company's business and earnings are affected by general and local economic
conditions and by the monetary and fiscal policies of the United States
government, its agencies and various other governmental regulatory authorities,
among other things. The Federal Reserve Board regulates the supply of money in
order to influence general economic conditions. Among the instruments of
monetary policy available to the Federal Reserve Board are (i) conducting open
market operations in United States government obligations, (ii) changing the
discount rate on financial institution borrowings, (iii) imposing or changing
reserve requirements against financial institution deposits, and (iv)
restricting certain borrowings and imposing or changing reserve requirements
against certain borrowings by financial institutions and their affiliates. These
methods are used in varying degrees and combinations to affect directly the
availability of bank loans and deposits, as well as the interest rates charged
on loans and paid on deposits. For that reason alone, the policies of the
Federal Reserve Board have a material effect on the earnings of the Company.

Governmental policies have had a significant effect on the operating results of
commercial banks in the past and are expected to continue to do so in the
future; however, the Company cannot accurately predict the nature, timing or
extent of any effect such policies may have on its future business and earnings.

Recently published accounting statements

See note 1 – Summary of significant accounting policies included in the notes to the consolidated financial statements.

Market risk and sensitivity to interest rates

Our financial performance is impacted by, among other factors, interest rate
risk and credit risk. We do not utilize derivatives to mitigate our credit risk,
relying instead on an extensive loan review process and our allowance for loan
losses.

Interest rate risk is the change in value due to changes in interest rates. The
Company is exposed only to U.S. dollar interest rate changes and, accordingly,
the Company manages exposure by considering the possible changes in the net
interest margin. The Company does not have any trading instruments nor does it
classify any portion of its investment portfolio as held for trading. The
Company does not engage in any hedging activity or utilize any derivatives. The
Company has no exposure to foreign currency exchange rate risk, commodity price
risk and other market risks. Interest rate risk is addressed by our Risk
Management Committee which includes senior management representatives. The Risk
Management Committee monitors interest rate risk by analyzing the potential
impact to the net portfolio of equity value and net interest income from
potential changes to interest rates and considers the impact of alternative
strategies or changes in balance sheet structure.

Interest rates play a major part in the net interest income of financial
institutions. The repricing of interest earnings assets and interest-bearing
liabilities can influence the changes in net interest income. The timing of
repriced assets and liabilities is Gap management and our Company has
established its policy to maintain a Gap ratio in the one-year time horizon of
.80 to 1.20.

Our exposure to interest rate risk is reviewed at least quarterly by our Board
of Directors and by our Risk Management Committee. Interest rate risk exposure
is measured using interest rate sensitivity analysis to determine our change in
net portfolio value in the event of assumed changes in interest rates. In order
to reduce the exposure to interest rate fluctuations, we have implemented
strategies to more closely match our balance sheet composition. The Company has
engaged FTN Financial to run a quarterly asset/liability model for interest rate
risk analysis. We are generally focusing our investment activities on securities
with terms or average lives in the 3 ½ - 5 ½ year range.

Market risk reflects the risk of economic loss resulting from adverse changes in
market prices and interest rates. This risk of loss can be reflected in either
reduced current market values or reduced current and potential net income.
Colony's most significant market risk is interest rate risk. This risk arises
primarily from Colony's extension of loans and acceptance of deposits.

Managing interest rate risk is a primary goal of the asset liability management
function. Colony attempts to achieve stability in net interest income while
limiting volatility arising from changes in interest rates. Colony seeks to
achieve this goal by balancing the maturity and repricing characteristics of
assets and liabilities. Colony manages its exposure to fluctuations in interest
rates through policies established by the Risk Management Committee and approved
by the Board of Directors. The Risk Management Committee meets at least
quarterly and has responsibility for developing asset liability management
policies, reviewing the interest rate sensitivity of Colony, and developing and
implementing strategies to improve balance sheet structure and interest rate
risk positioning.

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Colony measures the sensitivity of net interest income to changes in market
interest rates through the utilization of Asset/Liability simulation modeling.
On at least a quarterly basis, the following twenty-four month time period is
simulated to determine a baseline net interest income forecast and the
sensitivity of this forecast to changes in interest rates. These simulations
include all of Colony's earning assets and liabilities. Forecasted balance sheet
changes, primarily reflecting loan and deposit growth and forecasts, are
included in the periods modeled. Projected rates for loans and deposits are
based on management's outlook and local market conditions.

The magnitude and velocity of rate changes among the various asset and liability
groups exhibit different characteristics for each possible interest rate
scenario; additionally, customer loan and deposit preferences can vary in
response to changing interest rates. Simulation modeling enables Colony to
capture the expected effect of these differences. Assumptions utilized in the
model are updated on an ongoing basis and are reviewed and approved by the Risk
Management Committee of the Board of Directors.

Colony has modeled its baseline net interest income forecast assuming a flat
interest rate environment with the federal funds rate at the Federal Reserve's
targeted range of 0.25% and the prime rate of 3.25% at December 31, 2020. Colony
has modeled the impact of a gradual increase in short-term rates of 100 and 200
basis points and a decline of 100 basis points to determine the sensitivity of
net interest income for the next twelve months. As illustrated in the table
below, the net interest income sensitivity model indicates that, compared with a
net interest income forecast assuming stable rates, net interest income is
projected to increase by 6.71% and 12.55% if interest rates increased by 100 and
200 basis points, respectively. Net interest income is projected to decline by
2.91% if interest rates decreased by 100 basis points. These changes were within
Colony's policy limit of a maximum 15% negative change.

Twelve-month net interest income sensitivity

Estimated change in net interest

Returned to the 31st of December,

           Change in Short-term Interest Rates
                    (in basis points)                                   2020                     2019
                           +200                                        12.55%                    3.87%
                           +100                                        6.71%                     2.54%
                           Flat                                          -%                       -%
                           -100                                        -2.91%                   -4.12%



The measured interest rate sensitivity indicates an asset sensitive position
over the next year, which could serve to improve net interest income in a rising
interest rate environment. The actual realized change in net interest income
would depend on several factors, some of which could serve to reduce or
eliminate the asset sensitivity noted above. These factors include a higher than
projected level of deposit customer migration to higher cost deposits, such as
certificates of deposit, which would increase total interest expense and serve
to reduce the realized level of asset sensitivity. Another factor which could
impact the realized interest rate sensitivity in a rising rate environment is
the repricing behavior of interest bearing non-maturity deposits. Assumptions
for repricing are expressed as a beta relative to the change in the prime rate.
For instance, a 25% beta would correspond to a deposit rate that would increase
0.25% for every 1% increase in the prime rate. Projected betas for interest
bearing non-maturity deposit repricing are a key component of determining the
Company's interest rate risk position. Should realized betas be higher than
projected betas, the expected benefit from higher interest rates would be
reduced.

Colony is also subject to market risk in certain of its fee income business
lines. Mortgage banking income is subject to market risk. Mortgage loan
originations are sensitive to levels of mortgage interest rates and therefore,
mortgage banking income could be negatively impacted during a period of rising
interest rates. The extension of commitments to customers to fund mortgage loans
also subjects Colony to market risk. This risk is primarily created by the time
period between making the commitment and closing and delivering the loan. Colony
seeks to minimize this exposure by utilizing various risk management tools, the
primary of which are forward sales commitments and best efforts commitments. In
addition to interest rate risk, the recent COVID-19 pandemic and the related
stay-at-home and self-distancing mandates will likely expose us to additional
market value risk. Protracted closures, furloughs and lay-offs have curtailed
economic activity, and will likely continue to curtail economic activity and
could result in lower fair values for collateral in our loan portfolio.


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Point 7A

Quantitative and qualitative information on market risk

The information required by this item can be found in item 7 under the heading Market risk and sensitivity to interest rates.

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