CBAN 10-Q Quarterly Report June 30, 2022

COLONY BANKCORP INC

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cban-20220630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

OF 1934

For the quarterly period ended June 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 000-12436

COLONY BANKCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)


Georgia			58-1492391
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)

115 South Grant Street, Fitzgerald, Georgia 31750

(Address of principal executive offices) (Zip Code)

(229) 426-6000

(Registrant’s Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerate Filer ☐ Accelerated Filer ☐ Non-accelerated Filer ☒

Smaller Reporting Company ☒ Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with the new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of August 11, 2022, the registrant had 17,652,982 shares of common stock, $1.00 par value per share, issued and outstanding.

TABLE OF CONTENTS


		Page
PART I – Financial Information

Item 1.	Financial Statements

	Consolidated Balance Sheet – J une 30 , 2022 (unaudited) and December 31, 2021 (audited)	3

	Consolidated Statements of Income – For the Three and Six Months Ended June 30 , 2022 and 2021 (unaudited)	4

	Consolidated Statements of Comprehensive (Loss) Income – For the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)	5

	Consolidated Statements of Changes in Stockholder's Equity – For the Three and S ix Months Ended June 30 , 2022 and 2021 (unaudited)	6

	Consolidated Statements of Cash Flows – For the Six Months Ended June 30, 2022 and 2021 (unaudited)	8

	Notes to Consolidated Financial Statements (unaudited)	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	56

Item 4.	Controls and Procedures	56


PART II – Other Information

Item 1.	Legal Proceedings	57

Item 1A.	Risk Factors	57

Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	57

Item 3.	Defaults Upon Senior Securities	57

Item 4.	Mine Safety Disclosures	57

Item 5.	Other Information	57

Item 6.	Exhibits	58

Signatures		59

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

COLONY BANKCORP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets


	June 30, 2022		December 31, 2021
(dollars in thousands, except per share data)	(Unaudited)		(Audited)
ASSETS
Cash and due from banks	$	23,133	$	18,975

Federal funds sold and interest-bearing deposits in banks	53,349		178,257
Cash and cash equivalents	76,482		197,232
Investment securities available for sale, at fair value	657,546		938,164
Investment securities held to maturity, at amortized cost	304,014		—
Other investments, at cost	12,968		14,012
Loans held for sale	38,526		38,150
Loans	1,452,805		1,337,977
Allowance for loan losses	(13,963)		(12,910)
Loans, net	1,438,842		1,325,067
Premises and equipment	41,322		43,033
Other real estate owned	246		281
Goodwill	54,078		52,906
Other intangible assets	6,478		7,389
Bank-owned life insurance	54,845		55,159
Deferred income taxes, net	21,166		3,644
Other assets	22,189		16,678
Total assets	$	2,728,702	$	2,691,715

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
Noninterest-bearing	$	572,978	$	552,576
Interest-bearing	1,758,533		1,822,032
Total deposits	2,331,511		2,374,608
Federal funds purchased	23,766		—
Federal Home Loan Bank advances	65,000		51,656

Other borrowings	63,342		36,792
Other liabilities	10,488		10,952
Total liabilities	$	2,494,107	$	2,474,008

Stockholders' equity:
Preferred stock, no par value; 10,000,000 shares authorized, none issued or outstanding as of June 30, 2022 and December 31, 2021, respectively	—		—
Common stock, par value $1.00 per share; 50,000,000 and 20,000,000 shares authorized, 17,581,212 and 13,673,898 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively	17,581		13,674
Paid in capital	167,376		111,021
Retained earnings	104,561		99,189
Accumulated other comprehensive loss, net of tax	(54,923)		(6,177)
Total stockholders' equity	234,595		217,707
Total liabilities and stockholders' equity	$	2,728,702	$	2,691,715

See accompanying notes to consolidated financial statements (unaudited).

COLONY BANKCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Income (unaudited)


	Three Months Ended				Six Months Ended
(dollars in thousands, except per share data)	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Interest income
Loans, including fees	$	16,266	$	14,099	$	32,281	$	27,672
Investment securities	4,803		1,893		8,974		3,591
Federal funds sold, interest bearing deposits in banks and short term investments	103		44		159		98
Total interest income	21,172		16,036		41,414		31,361

Interest expense
Deposits	626		569		1,225		1,223
Federal funds purchased	27		—		27		—
Federal Home Loan Bank Advances	943		115		1,192		230
Paycheck Protection Program Liquidity Facility	—		25		—		93
Other borrowings	409		258		611		515
Total interest expense	2,005		967		3,055		2,061
Net interest income	19,167		15,069		38,359		29,300
Provision for loan losses	1,100		—		1,150		500
Net interest income after provision for loan losses	18,067		15,069		37,209		28,800

Noninterest income
Service charges on deposits	1,895		1,264		3,720		2,486
Mortgage fee income	2,736		3,005		5,648		7,000
Gain on sales of SBA loans	1,863		1,263		3,589		2,735
Gain on sales of securities	—		141		24		137
Interchange fees	2,159		1,667		4,159		3,197
BOLI Income	353		222		665		430

Other	1,052		189		1,400		367
Total noninterest income	10,058		7,751		19,205		16,352

Noninterest expense
Salaries and employee benefits	15,072		10,126		28,344		20,081
Occupancy and equipment	1,608		1,245		3,227		2,571
Acquisition related expenses	1		699		125		699
Information technology expenses	2,549		1,856		4,903		3,448
Professional fees	1,073		690		1,946		1,177
Advertising and public relations	695		566		1,464		1,146
Communications	417		308		854		527
Other	3,061		1,975		5,419		3,570
Total noninterest expense	24,476		17,465		46,282		33,219
Income before income taxes	3,649		5,355		10,132		11,933
Income taxes	234		1,358		1,395		3,016
Net income	$	3,415	$	3,997	$	8,737	$	8,917
Earnings per common share:
Basic	$	0.19	$	0.42	$	0.52	$	0.94
Diluted	0.19		$	0.42	0.52		$	0.94
Dividends declared per share	0.1075		0.1025		0.2150		0.2050
Weighted average common shares outstanding:
Basic	17,586,276		9,498,783		16,731,986		9,498,783
Diluted	17,586,276		9,498,783		16,731,986		9,498,783

See accompanying notes to consolidated financial statements (unaudited).

COLONY BANKCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive (Loss) Income (unaudited)


	Three Months Ended				Six Months Ended
(dollars in thousands)	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Net income	$	3,415	$	3,997	$	8,737	$	8,917
Other comprehensive (loss) income:
Unrealized (losses) gains on securities arising during the period	(20,603)		629		(56,657)		(5,851)
Tax effect	2,884		(146)		7,932		1,375
Realized gains on sales of available for sale securities	—		(141)		(24)		(137)
Tax effect	—		33		3		32
Change in unrealized (losses) gains on securities available for sale, net of reclassification adjustment and tax effects	(17,719)		375		(48,746)		(4,581)
Comprehensive (loss) income	$	(14,304)	$	4,372	$	(40,009)	$	4,336

See accompanying notes to consolidated financial statements (unaudited).

COLONY BANKCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders' Equity (unaudited)


(dollars in thousands, except per share data)	Common Stock
Three Months Ended	Shares	Amount		Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance, March 31, 2022	17,586	$	17,586	$	166,859	$	103,036	$	(37,204)	$	250,277
Change in net unrealized losses on securities available for sale, net of reclassification adjustment and tax effects	—	—		—		—		(17,719)		(17,719)
Dividends on common shares (0.1075 per share)	—	—		—		(1,890)		—		(1,890)

Forfeiture of restricted stock	(5)	(5)		(14)		—		—		(19)

Stock-based compensation expense	—	—		531		—		—		531
Net income	—	—		—		3,415		—		3,415
Balance, June 30, 2022	17,581	$	17,581	$	167,376	$	104,561	$	(54,923)	$	234,595

Balance, March 31, 2021	9,499	$	9,499	$	43,224	$	88,939	$	1,825	$	143,487
Change in net unrealized gains on securities available for sale, net of reclassification adjustment and tax effects	—	—		—		—		375		375
Dividends on common shares (0.1025 per share)	—	—		—		(973)		—		(973)

Stock-based compensation expense	—	—		8		—		—		8
Net income	—	—		—		3,997		—		3,997
Balance, June 30, 2021	9,499	$	9,499	$	43,232	$	91,963	$	2,200	$	146,894

See accompanying notes to consolidated financial statements (unaudited).

COLONY BANKCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders' Equity (unaudited)


(dollars in thousands, except per share data)	Common Stock
Six Months Ended	Shares	Amount		Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance, December 31, 2021	13,674	$	13,674	$	111,021	$	99,189	$	(6,177)	$	217,707
Change in net unrealized losses on securities available for sale, net of reclassification adjustment and tax effects	—	—		—		—		(48,746)		(48,746)
Dividends on common shares ($0.2150 per share)	—	—		—		(3,365)		—		(3,365)
Issuance of common stock	3,848	3,848		55,620		—		—		59,468
Forfeiture of restricted stock	(5)	(5)		(14)		—		—		(19)
Issuance of restricted stock	64	64		(64)		—		—		—
Stock-based compensation expense	—	—		813		—		—		813
Net income	—	—		—		8,737		—		8,737
Balance, June 30, 2022	17,581	$	17,581	$	167,376	$	104,561	$	(54,923)	$	234,595

Balance, December 31, 2020	9,499	$	9,499	$	43,215	$	84,993	$	6,781	$	144,488
Change in net unrealized losses on securities available for sale, net of reclassification adjustment and tax effects	—	—		—		—		(4,581)		(4,581)
Dividends on common shares ($0.2050 per share)	—	—		—		(1,947)		—		(1,947)

Stock-based compensation expense	—	—		17		—		—		17
Net income	—	—		—		8,917		—		8,917
Balance, June 30, 2021	9,499	$	9,499	$	43,232	$	91,963	$	2,200	$	146,894

See accompanying notes to consolidated financial statements (unaudited).

COLONY BANKCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)


	Six Months Ended
(dollars in thousands)	June 30, 2022		June 30, 2021
Operating Activities
Net income	$	8,737	$	8,917
Adjustments reconciling net income to net cash provided by (used in) operating activities:
Provision for loan losses	1,150		500
Depreciation, amortization, and accretion	6,766		3,231
Equity method investment income	264		—
Share-based compensation expense	813		17
Net change in servicing asset	(347)		(485)
Gain on sales of securities, available-for-sale	(24)		(137)
Gain on sales of SBA loans	(3,589)		(2,735)
Gain on sales of other real estate owned	—		(36)
Donation of other real estate owned	35		—
Writedown on other real estate owned	—		80
Gain on sales of premises & equipment	(62)		—
Originations of loans held for sale	(202,031)		(207,531)
Proceeds from sales of loans held for sale	205,244		231,742
Change in bank-owned life insurance	(694)		(258)
Deferred tax benefit	(971)		(518)
Change in other assets	(4,583)		2,261
Change in other liabilities	(464)		(760)
Net cash provided by operating activities	10,244		34,288
Investing Activities
Purchases of investment securities, available-for-sale	(137,038)		(166,995)
Proceeds from maturities, calls, and paydowns of investment securities, available-for-sale	36,330		53,620
Proceeds from sales of investment securities, available-for-sale	3,061		17,559
Proceeds from maturities, calls and paydowns of securities, held-to-maturity	5,233		—
Change in loans, net	(115,354)		36,671
Purchase of premises and equipment	(872)		(1,764)
Proceeds from sales of premises and equipment	71		—
Proceeds from sales of other real estate owned	—		837
Proceeds from bank-owned life insurance	1,008		—
Redemption of other investments	1,356		—
Redemption (purchase) of Federal Home Loan Bank Stock	(576)		593

Net cash used in investing activities	(206,781)		(59,479)
Financing Activities
Change in noninterest-bearing customer deposits	20,402		66,678
Change in interest-bearing customer deposits	(63,499)		30,509
Issuance of common stock, net of stock issuance cost	59,468		—
Dividends paid for common stock	(3,365)		(1,947)
Increase in federal funds purchased	23,766		—
Issuance of Subordinated Debt	39,097		—
Repayment on Paycheck Protection Program Liquidity Fund	—		(106,789)
Repayments on Federal Home Loan Bank Advances	(27,500)		—
Proceeds from Federal Home Loan Bank Advances	40,000		—
Repayments on Other borrowings	(12,563)		(500)

Forfeiture of restricted stock	(19)		—
Net cash provided by (used in) financing activities	75,787		(12,049)
Net decrease in cash and cash equivalents	(120,750)		(37,240)
Cash and cash equivalents at beginning of period	197,232		183,506
Cash and cash equivalents at end of period	$	76,482	$	146,266

COLONY BANKCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

(DOLLARS IN THOUSANDS)


	Six Months Ended
	June 30, 2022		June 30, 2021
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest	$	3,142	$	2,377
Cash paid during the period for income taxes	3,223		3,600
Noncash Investing and Financing Activities
Goodwill adjustment	1,176		—
Acquisition of real estate through foreclosure	—		145
Carrying amount of Securities AFS transferred to HTM, net of $10.4 million unrealized loss	320,116		—

See accompanying notes to consolidated financial statements (unaudited).

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(1) Summary of Significant Accounting Policies

Presentation

Colony Bankcorp, Inc. (the “Company”) is a bank holding company located in Fitzgerald, Georgia. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Colony Bank, Fitzgerald, Georgia (the “Bank”). The “Company” or “our,” as used herein, includes Colony Bank, except where the context requires otherwise.

In July 2019, a new subsidiary of the Company was incorporated under the name Colony Risk Management, Inc. Colony Risk Management, Inc. is a subsidiary of the Company and is located in Las Vegas, Nevada. It is a captive insurance subsidiary which insures various liability and property damage policies for the Company and its related subsidiaries. Colony Risk Management is regulated by the State of Nevada Division of Insurance.

All adjustments consisting of normal recurring accruals which are, in the opinion of management, necessary for fair presentation of the interim consolidated financial statements, have been included and fairly and accurately present the financial position, results of operations and cash flows of the Company. All significant intercompany accounts have been eliminated in consolidation.

The accounting and reporting policies of the Company conform to generally accepted accounting principles and practices utilized in the commercial banking industry for interim financial information and Regulation S-X. Accordingly, the accompanying unaudited interim consolidated financial statements do not include all of the information or notes required for complete financial statements.

The results of operations for the six months ended June 30, 2022 are not necessarily indicative of the results which may be expected for the year ending December 31, 2022. These statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”).

Nature of Operations

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

Use of Estimates

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

Reclassifications

In certain instances, amounts reported in prior years’ consolidated financial statements have been reclassified to conform to statement presentations selected for 2022. Such reclassifications have not materially affected previously reported stockholders’ equity or net income.

Adjustments

The Company updated its purchase accounting adjustment during the second quarter of 2022 with a $1.2 million adjustment to goodwill primarily related to premises and equipment and deferred taxes.

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Concentrations of Credit Risk

Concentrations of credit risk can exist in relation to individual borrowers or groups of borrowers, certain types of collateral, certain types of industries, or certain geographic regions. The Company has a concentration in real estate loans as well as a geographic concentration that could pose an adverse credit risk. At June 30, 2022, approximately 86% of the Company’s loan portfolio was concentrated in loans secured by real estate. A substantial portion of borrowers’ ability to honor their contractual obligations is dependent upon the viability of the real estate economic sector. Management continues to monitor these concentrations and has considered these concentrations in its allowance for loan loss analysis.

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

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

Changes in Accounting Principles and Effects of New Accounting Pronouncements

ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). This ASU sets forth a “current expected credit loss” ("CECL") model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supported forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. On October 16, 2019, the Financial Accounting Standards Board ("FASB") voted to extend the delay of the effective date of this ASU for smaller reporting companies, such as the Company, until fiscal years beginning after December 15, 2022. The Company is in the process of working with a third party vendor using their software solution to assist with adoption. The Company is also currently gathering necessary data to implement this change and is continuing to assess the impact of the adoption of this ASU on its consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). ASU 2020-04 provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments are effective for the Company as of March 12, 2020 through December 31, 2022. The provisions of ASU 2020-04 did not have a material impact on the consolidated financial statements.

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(2) Investment Securities

The amortized cost and estimated fair value of securities available-for-sale and held-to-maturity along with gross unrealized gains and losses are summarized as follows:


(dollars in thousands)
June 30, 2022	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities Available for Sale:
U.S. treasury securities	$	95,897	$	—	$	(6,063)	$	89,834
U.S. agency	6,672		—		(381)		6,291
Asset backed securities	27,983		—		(845)		27,138
State, county & municipal securities	199,336		223		(26,864)		172,695
Corporate debt securities	50,073		45		(2,471)		47,647
Mortgage-backed securities	341,805		4		(27,868)		313,941
Total	$	721,766	$	272	$	(64,492)	$	657,546

June 30, 2022	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities Held to Maturity:
U.S. treasury securities	$	21,577	$	—	$	(1,395)	$	20,182
U.S. agency	15,476		—		(1,188)		14,288
State, county & municipal securities	88,712		—		(13,084)		75,628
Mortgage-backed securities	178,249		—		(18,396)		159,853
Total	$	304,014	$	—	$	(34,063)	$	269,951

December 31, 2021
Securities Available for Sale:
U.S. treasury securities	$	88,638	$	—	$	(1,087)	$	87,551
U.S. agency	17,916		5		(140)		17,781
State, county & municipal securities	252,632		877		(3,356)		250,153
Corporate debt securities	48,153		520		(265)		48,408
Mortgage-backed securities	539,172		2,160		(7,061)		534,271
Total	$	946,511	$	3,562	$	(11,909)	$	938,164

The Company transferred certain agency-issued securities from the available-for-sale to held-to-maturity portfolio on January 1, 2022 having a book value of approximately $320.1 million and a market value of approximately $309.7 million. As of the date of transfer, the related pre-tax net unrecognized losses of approximately $10.4 million within the accumulated other comprehensive loss balance are being amortized over the remaining term of the securities using the effective interest method. This transfer was completed after careful consideration of the Company’s intent and ability to hold these securities to maturity. Factors used in assessing the ability to hold these securities to maturity were future liquidity needs and sources of funding.

The amortized cost and fair value of investment securities as of June 30, 2022, by contractual maturity, are shown hereafter. Expected maturities may differ from contractual maturities for certain investments because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. This is often the case with mortgage-backed securities,

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

which are disclosed separately in the table below.


	Available for Sale				Held to Maturity
(dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	—	$	—	$	—	$	—
Due after one year through five years	80,050		76,251		6,701		6,432
Due after five years through ten years	119,910		108,410		45,685		41,464
Due after ten years	180,001		158,944		73,379		62,202
	$	379,961	$	343,605	$	125,765	$	110,098

Mortgage-backed securities	341,805		313,941		178,249		159,853
	$	721,766	$	657,546	$	304,014	$	269,951

Proceeds from the sale of investment securities totaled $0 and $3.1 million, and $15.9 million and $17.6 million for the three and six months ended June 30, 2022 and 2021, respectively. The sale of investment securities for the three months ended June 30, 2022 and 2021 resulted in gross realized gains of $0 and $208,000 and losses of $0 and $67,000, respectively. The sale of investment securities for the six months ended June 30, 2022 and 2021 resulted in gross realized gains of $24,000 and $209,000 and losses of $0 and $72,000, respectively.

Investment securities having a carrying value of approximately $312.3 million and $126.5 million were pledged to secure public deposits and for other purposes as of June 30, 2022 and December 31, 2021, respectively.

Information pertaining to available-for-sale securities with gross unrealized losses at June 30, 2022 and December 31, 2021 aggregated by investment category and length of time that individual securities have been in a continuous loss position is as follows:


	Less Than 12 Months				12 Months or Greater				Total
(dollars in thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
June 30, 2022
U.S. treasury securities	$	89,838	$	(6,063)	$	—	$	—	$	89,838	$	(6,063)
U.S. agency	6,132		(381)		—		—		6,132		(381)
Asset backed securities	23,162		(594)		3,976		(251)		27,138		(845)
State, county & municipal securities	143,652		(23,724)		14,227		(3,140)		157,879		(26,864)
Corporate debt securities	43,294		(2,471)		—		—		43,294		(2,471)
Mortgage-backed securities	261,103		(21,109)		40,971		(6,759)		302,074		(27,868)
	$	567,181	$	(54,342)	$	59,174	$	(10,150)	$	626,355	$	(64,492)

December 31, 2021
U.S. treasury securities	$	87,302	$	(1,087)	$	—	$	—	$	87,302	$	(1,087)
U.S. agency	10,969		(140)		—		—		10,969		(140)
State, county & municipal securities	180,551		(3,131)		5,970		(225)		186,521		(3,356)
Corporate debt securities	31,977		(265)		—		—		31,977		(265)
Mortgage-backed securities	377,413		(6,421)		21,129		(640)		398,542		(7,061)
	$	688,212	$	(11,044)	$	27,099	$	(865)	$	715,311	$	(11,909)

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Information pertaining to held-to-maturity securities with gross unrealized losses at June 30, 2022 aggregated by investment category and length of time that individual securities have been in a continuous loss position is as follows:


	Less Than 12 Months				12 Months or Greater				Total
(dollars in thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
June 30, 2022
U.S. Treasury	$	20,182	$	(1,395)	$	—	$	—	$	20,182	$	(1,395)
U.S. agency	14,287		(1,188)		—		—		14,287		(1,188)
State, county & municipal securities	74,929		(12,783)		699		(301)		75,628		(13,084)

Mortgage-backed securities	136,075		(15,534)		23,779		(2,862)		159,854		(18,396)
	$	245,473	$	(30,900)	$	24,478	$	(3,163)	$	269,951	$	(34,063)

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

At June 30, 2022, there were 369 available-for-sale securities and 77 held-to-maturity securities that had unrealized losses. These securities are guaranteed by either the U.S. Government, other governments or U.S. corporations. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial condition. The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available-for-sale, no declines are deemed to be other than temporary.

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(3) Loans

The following table presents the composition of loans segregated by legacy and purchased loans and by class of loans, as of June 30, 2022 and December 31, 2021. Purchased loans are defined as loans that were acquired in bank acquisitions.


	June 30, 2022
(dollars in thousands)	Legacy Loans		Purchased Loans		Total
Construction, land and land development	$	169,791	$	17,254	$	187,045
Other commercial real estate	699,184		147,197		846,381
Total commercial real estate	868,975		164,451		1,033,426
Residential real estate	170,590		45,599		216,189
Commercial, financial, & agricultural (*)	167,710		17,088		184,798
Consumer and other	16,870		1,522		18,392
Total Loans	$	1,224,145	$	228,660	$	1,452,805


	December 31, 2021
(dollars in thousands)	Legacy Loans		Purchased Loans		Total
Construction, land and land development	$	119,953	$	45,493	$	165,446
Other commercial real estate	595,739		191,653		787,392
Total commercial real estate	715,692		237,146		952,838
Residential real estate	159,469		53,058		212,527
Commercial, financial, & agricultural (*)	113,040		41,008		154,048
Consumer and other	16,003		2,561		18,564
Total Loans	$	1,004,204	$	333,773	$	1,337,977

(*) Includes $128,000 and $9.0 million in PPP loans at June 30, 2022 and December 31, 2021, respectively.

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

Credit Quality Indicators. As part of the ongoing monitoring of the credit quality of the loan portfolio, management tracks certain credit quality indicators including trends related to (1) the risk grade assigned to commercial and consumer loans, (2) the level of classified commercial loans, (3) net charge-offs, (4) nonperforming loans, and (5) the general economic conditions in the Company’s geographic markets.

The Company uses a risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a scale of 1 to 10. A description of the general characteristics of the grades is as follows:

•Grades 1, 2 and 3 - Borrowers with these assigned risk grades range from virtual absence of risk to minimal risk. Such loans may be secured by Company-issued and controlled certificates of deposit or properly margined equity securities or bonds. Other loans comprising these grades are made to companies that have been in existence for a long period of time with many years of consecutive profits and strong equity, good liquidity, excellent debt service ability and unblemished past performance, or to exceptionally strong individuals with collateral of unquestioned value that fully secures the loans. Loans in this category fall into the “pass” classification.

•Grades 4 and 5 - Loans assigned these “pass” risk grades are made to borrowers with acceptable credit quality and risk. The risk ranges from loans with no significant weaknesses in repayment capacity and collateral protection to acceptable loans with one or more risk factors considered to be more than average. These loans are also included in into the “pass” classification.

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

•Grade 6 - This grade includes “special mention” loans on management’s watch list and is intended to be used on a temporary basis for pass grade loans where risk-modifying action is intended in the short-term.

•Grades 7 and 8 - These grades includes “substandard” loans in accordance with regulatory guidelines. This category includes borrowers with well-defined weaknesses that jeopardize the payment of the debt in accordance with the agreed terms. Loans considered to be impaired are assigned grade 8, and these loans often have assigned loss allocations as part of the allowance for loan and lease losses. Generally, loans on which interest accrual has been stopped would be included in this grade.

•Grades 9 and 10 - These grades correspond to regulatory classification definitions of “doubtful” and “loss,” respectively. In practice, any loan with these grades would be for a very short period of time, and generally the Company has no loans with these assigned grades. Management manages the Company’s problem loans in such a way that uncollectible loans or uncollectible portions of loans are charged off immediately with any residual, collectible amounts assigned a risk grade of 7 or 8.

The following table presents the loan portfolio, excluding purchased loans, by credit quality indicator (risk grade) as of June 30, 2022 and December 31, 2021. Those loans with a risk grade of 1, 2, 3, 4 and 5 have been combined in the pass column for presentation purposes.


(dollars in thousands)	Pass		Special Mention		Substandard		Total Loans
June 30, 2022
Construction, land and land development	$	168,324	$	1,257	$	210	$	169,791
Other commercial real estate	669,200		20,930		9,054		699,184
Total commercial real estate	837,524		22,187		9,264		868,975
Residential real estate	160,982		5,890		3,718		170,590
Commercial, financial, & agricultural	165,149		869		1,692		167,710
Consumer and other	16,815		55		—		16,870
Total Loans	$	1,180,470	$	29,001	$	14,674	$	1,224,145

(dollars in thousands)
December 31, 2021
Construction, land and land development	$	117,044	$	2,634	$	275	$	119,953
Other commercial real estate	562,228		25,718		7,793		595,739
Total commercial real estate	679,272		28,352		8,068		715,692
Residential real estate	148,507		5,733		5,229		159,469
Commercial, financial, & agricultural	110,267		1,488		1,285		113,040
Consumer and other	15,787		78		$	138	16,003
Total Loans	$	953,833	$	35,651	$	14,720	$	1,004,204

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following table presents the purchased loan portfolio by credit quality indicator (risk grade) as of June 30, 2022 and December 31, 2021. Those loans with a risk grade of 1, 2, 3, 4 or 5 have been combined in the pass column for presentation purposes. For the period ending June 30, 2022, the Company did not have any loans classified as “doubtful” or a “loss”.


(dollars in thousands)	Pass		Special Mention		Substandard		Total Loans
June 30, 2022
Construction, land and land development	$	17,254	$	—	$	—	$	17,254
Other commercial real estate	145,932		289		976		147,197
Total commercial real estate	163,186		289		976		164,451
Residential real estate	42,977		674		1,948		45,599
Commercial, financial, & agricultural	16,523		—		565		17,088
Consumer and other	1,375		—		147		1,522
Total Loans	$	224,061	$	963	$	3,636	$	228,660

December 31, 2021
Construction, land and land development	$	45,432	$	—	$	61	$	45,493
Other commercial real estate	186,905		3,518		1,230		191,653
Total commercial real estate	232,337		3,518		1,291		237,146
Residential real estate	49,875		563		2,620		53,058
Commercial, financial, & agricultural	40,711		—		297		41,008
Consumer and other	2,558		3		—		2,561
Total Loans	$	325,481	$	4,084	$	4,208	$	333,773

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

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

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

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following table presents the aging of the amortized cost basis in legacy loans by aging category and accrual status as of June 30, 2022 and December 31, 2021:


(dollars in thousands)	30-89 Days Past Due		90 Days or More Past Due		Total Accruing Loans Past Due		Nonaccrual Loans		Current Loans		Total Loans
June 30, 2022
Construction, land and land development	$	39	$	—	$	39	$	68	$	169,684	$	169,791
Other commercial real estate	341		—		341		684		698,159		699,184
Total commercial real estate	380		—		380		752		867,843		868,975
Residential real estate	390		—		390		1,518		168,682		170,590
Commercial, financial, & agricultural	141		—		141		972		166,597		167,710
Consumer and other	11		—		11		16		16,843		16,870
Total Loans	$	922	$	—	$	922	$	3,258	$	1,219,965	$	1,224,145

December 31, 2021
Construction, land and land development	$	6	$	—	$	6	$	—	$	119,947	$	119,953
Other commercial real estate	349		—		349		577		594,813		595,739
Total commercial real estate	355		—		355		577		714,760		715,692
Residential real estate	421		—		421		2,641		156,407		159,469
Commercial, financial, & agricultural	69		—		69		708		112,263		113,040
Consumer and other	93		—		93		26		15,884		16,003
Total Loans	$	938	$	—	$	938	$	3,952	$	999,314	$	1,004,204

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following table presents the aging of the amortized cost basis in purchased loans by aging category and accrual status as of June 30, 2022 and December 31, 2021:


(dollars in thousands)	30-89 Days Past Due		90 Days or More Past Due		Total Accruing Loans Past Due		Nonaccrual Loans		Current Loans		Total Loans
June 30, 2022
Construction, land and land development	$	—	$	—	$	—	$	—	$	17,254	$	17,254
Other commercial real estate	—		—		—		121		147,076		147,197
Total commercial real estate	—		—		—		121		164,330		164,451
Residential real estate	65		—		65		849		44,685		45,599
Commercial, financial, & agricultural	—		—		—		565		16,523		17,088
Consumer and other	—		—		—		153		1,369		1,522
Total Loans	$	65	$	—	$	65	$	1,688	$	226,907	$	228,660

December 31, 2021
Construction, land and land development	$	2,680	$	—	$	2,680	$	31	$	42,782	$	45,493
Other commercial real estate	—		—		—		260		191,393		191,653
Total commercial real estate	2,680		—		2,680		291		234,175		237,146
Residential real estate	560		—		560		1,198		51,300		53,058
Commercial, financial, & agricultural	389		—		389		—		40,619		41,008
Consumer and other	—		—		—		8		2,553		2,561
Total Loans	$	3,629	$	—	$	3,629	$	1,497	$	328,647	$	333,773

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following table details impaired loan data, including purchased credit impaired loans, as of June 30, 2022.


	June 30, 2022
(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With No Related Allowance Recorded
Construction, land and land development	$	—	$	—	$	—	$	31
Commercial real estate	7,253		7,253		—		6,340
Residential real estate	521		521		—		942
Commercial, financial & agriculture	418		418		—		168
Consumer & other	1		1		—		1
	8,193		8,193		—		7,482

With An Allowance Recorded
Construction, land and land development	—		—		—		—
Commercial real estate	417		417		129		1,722
Residential real estate	595		595		57		255
Commercial, financial & agriculture	822		818		350		888
Consumer & other	—		—		—		—
	1,834		1,830		536		2,865

Purchased Credit Impaired Loans
Construction, land and land development	—		—		—		—
Commercial real estate	1,429		1,429		—		1,070
Residential real estate	49		49		—		16
Commercial, financial & agriculture	—		—		—		12
Consumer & other	69		69		—		137
	1,547		1,547		—		1,235
Total
Construction, land and land development	—		—		—		31
Commercial real estate	9,099		9,099		129		9,132
Residential real estate	1,165		1,165		57		1,213
Commercial, financial & agriculture	1,240		1,236		350		1,068
Consumer & other	70		70		—		138
	$	11,574	$	11,570	$	536	$	11,582

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following table details impaired loan data as of December 31, 2021.


	December 31, 2021
(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With No Related Allowance Recorded
Construction, land and land development	$	62	$	62	$	—	$	4,311
Commercial real estate	7,203		6,369		—		8,113
Residential real estate	958		997		—		1,083
Commercial, financial & agriculture	75		75		—		56
Consumer & other	—		—		—		—
	8,298		7,503		—		13,563

With An Allowance Recorded
Construction, land and land development	—		—		—		—
Commercial real estate	430		483		148		4,429
Residential real estate	685		773		108		1,029
Commercial, financial & agriculture	—		—		—		79
Consumer & other	—		—		—		1
	1,115		1,256		256		5,538
Purchased Credit Impaired Loans
Construction, land and land development	—		—		—		51
Commercial real estate	2,003		1,916		18		802
Residential real estate	4		—		6		7
Commercial, financial & agriculture	—		—		—		35
Consumer & other	192		73		96		72
	2,199		1,989		120		967
Total
Construction, land and land development	62		62		—		4,362
Commercial real estate	9,636		8,768		166		13,344
Residential real estate	1,647		1,770		114		2,119
Commercial, financial & agriculture	75		75		—		170
Consumer & other	192		73		96		73
	$	11,612	$	10,748	$	376	$	20,068

Interest income recorded on impaired loans during the three months ended June 30, 2022 and 2021 was $165,000 and $325,000, respectively. Interest income recorded on impaired loans during the six months ended June 30, 2022 and 2021 was $380,000 and $563,000, respectively.

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Troubled Debt Restructurings

The restructuring of a loan is considered a troubled debt restructuring ("TDR") if both the borrower is experiencing financial difficulties and the Company has granted a concession to the terms of the loan. Concessions may include interest rate reductions to below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses.

As discussed in Note 1 of the Notes to Consolidated Financial Statements for the year ended December 31, 2021, which are included in the Company’s 2021 Form 10-K, once a loan is identified as a TDR, it is accounted for as an impaired loan. The Company had no unfunded commitments to lend to a customer that has a troubled debt restructured loan as of June 30, 2022. The Company had one commercial real estate loan restructured during the three and six month period ended June 30, 2022 with outstanding principal balance of $181,000. The loan was restructured related to payment terms. Loans modified in a TDR are considered to be in default once the loan becomes 90 days past due. A TDR may cease being classified as impaired if the loan is subsequently modified at market terms and, has performed according to the modified terms for at least six months, and there has not been any prior principal forgiveness on a cumulative basis.

The Company had no loans that subsequently defaulted during the three and six months ended June 30, 2022 and 2021.

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(4) Allowance for Loan Losses

The following tables detail activity in the allowance for loan losses, segregated by class of loan, for the three and six month periods ended June 30, 2022 and June 30, 2021. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other loan categories and periodically may result in reallocation within the provision categories.


(dollars in thousands)	Construction, land and land development		Other commercial real estate		Residential real estate		Commercial, financial & agricultural		Consumer and other		Total
Three Months Ended June 30, 2022
Beginning Balance	$	1,339	$	7,355	$	1,811	$	2,087	$	327	$	12,919
Charge-offs	—		—		(30)		(132)		(5)		(167)
Recoveries	5		67		18		12		9		111
Provision	(292)		606		(311)		(289)		1,386		$	1,100
Ending balance	$	1,052	$	8,028	$	1,488	$	1,678	$	1,717	$	13,963

Six Months Ended June 30, 2022
Beginning Balance	$	1,127	$	7,691	$	1,805	$	1,083	$	1,204	$	12,910
Charge-offs	—		(58)		(48)		(148)		(21)		(275)
Recoveries	11		74		22		56		15		178
Provision	(86)		321		(291)		687		519		1,150
Ending balance	$	1,052	$	8,028	$	1,488	$	1,678	$	1,717	$	13,963


Period end amount allocated to
Individually evaluated for impairment	$	—	$	129	$	57	$	350	$	—	$	536
Collectively evaluated for impairment	1,052		7,899		1,431		1,328		1,717		13,427
Purchase credit impaired	—		—		—		—		—		—
Ending Balance	$	1,052	$	8,028	$	1,488	$	1,678	$	1,717	$	13,963

Loans
Individually evaluated for impairment	$	—	$	7,670	$	1,115	$	1,240	$	2	$	10,027
Collectively evaluated for impairment	187,045		837,282		215,025		183,558		18,321		1,441,231
Purchase credit impaired	—		1,429		49		—		69		1,547
Ending balance	$	187,045	$	846,381	$	216,189	$	184,798	$	18,392	$	1,452,805

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)


(dollars in thousands)	Construction, land and land development		Other commercial real estate		Residential real estate		Commercial, financial & agricultural		Consumer and other		Total
Three Months Ended June 30, 2021
Beginning Balance	$	1,053	$	7,128	$	2,411	$	1,666	$	435	$	12,693
Charge-offs	—		(36)		—		—		(32)		(68)
Recoveries	70		95		44		15		22		246
Provision	2		90		(182)		92		(2)		—
Ending balance	$	1,125	$	7,277	$	2,273	$	1,773	$	423	$	12,871
Six Months Ended June 30, 2021
Beginning Balance	$	1,013	$	6,880	$	2,278	$	1,713	$	243	$	12,127
Charge-offs	—		(36)		—		(15)		(43)		(94)
Recoveries	85		95		110		18		30		338
Provision	27		338		(115)		57		193		500
Ending balance	$	1,125	$	7,277	$	2,273	$	1,773	$	423	$	12,871

Year ended December 31, 2021
Period end amount allocated to
Individually evaluated for impairment	$	—	$	148	$	108	$	—	$	—	$	256
Collectively evaluated for impairment	1,127		7,525		1,691		1,083		1,108		12,534
Purchase credit impaired	—		18		6		—		96		120
Ending Balance	$	1,127	$	7,691	$	1,805	$	1,083	$	1,204	$	12,910

Loans
Individually evaluated for impairment	$	62	$	6,852	$	1,770	$	75	$	—	$	8,759
Collectively evaluated for impairment	165,384		778,624		210,757		153,973		18,491		1,327,229
Purchase credit impaired	—		1,916		—		—		73		1,989
Ending Balance	$	165,446	$	787,392	$	212,527	$	154,048	$	18,564	$	1,337,977

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

The Company determines its individual reserves during its quarterly review of substandard loans. This process involves reviewing all loans with a risk grade of 6 or greater and an outstanding balance of $250,000 or more, regardless of the loans impairment classification.

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(5) Borrowings

The following table presents information regarding the Company’s outstanding borrowings at June 30, 2022 and December 31, 2021:


(dollars in thousands)	June 30, 2022		December 31, 2021
Federal funds purchased	$	23,766	$	—
Federal Home Loan Bank advances	65,000		51,656
Other borrowings	63,342		36,792
	$	152,108	$	88,448

Advances from the Federal Home Loan Bank (“FHLB”) have maturities ranging from 2022 to 2029 and interest rates ranging from 1.01% to 2.67%. As collateral on the outstanding FHLB advances, the Company has provided a blanket lien on its portfolio of qualifying residential first mortgage loans, commercial loans, multifamily loans and HELOC loans. At June 30, 2022, the lendable collateral of those loans pledged is $88.1 million. At June 30, 2022, the Company had remaining credit availability from the FHLB of $605.6 million. The Company may be required to pledge additional qualifying collateral in order to utilize the full amount of the remaining credit line.

On May 1, 2019, the Company entered into two borrowing arrangements with a correspondent bank for $10.0 million each. The term note is secured by the Bank’s stock, expiring on May 1, 2024, and bears a fixed interest rate of 4.70%. The line of credit is also secured by the Bank’s stock, expiring on July 30, 2022, and bears a variable interest rate of Wall Street Journal Prime minus 0.40%.The proceeds were used for the acquisition of LBC Bancshares, Inc. and its subsidiary, Calumet Bank. As of June 30, 2022, the term note and the line of credit were closed and had zero balances, as both were paid off with the proceeds from the Company's public offering of its common stock completed on February 10, 2022.

The Company's debentures issued in connection with trust preferred securities are recorded as other borrowings on the consolidated balance sheets, but, subject to certain limitations, qualify as Tier 1 capital for regulatory capital purposes. At June 30, 2022 and December 31, 2021, $24.2 million of debentures underlying trust preferred securities were outstanding. The proceeds from the offerings were used to fund certain acquisitions, pay off holding company debt and inject capital into the bank subsidiary. The debentures underlying the trust preferred securities require quarterly interest payments.

On May 20, 2022, the Company entered into a Subordinated Note Purchase Agreement with certain qualified institutional buyers in which the Company issued and sold $40.0 million in aggregate principal amount of its 5.25% Fixed-to-Floating Rate Subordinated Notes (the "Notes"). The Notes mature on May 20, 2032 and bear interest at a fixed rate of 5.25% per year, from May 20, 2022 to, but excluding, May 20, 2027, payable semi-annually in arrears on June 30 and December 30 of each year. From and including May 20, 2027 to, but excluding, the maturity date or early redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month Secured Overnight Financing Rate, as published by the Federal Reserve Bank of New York, plus 265 basis points, payable quarterly in arrears. Prior to May 20, 2027, the Company may redeem the Notes, in whole but not in part, only under certain limited circumstances set forth in the Notes. On or after May 20, 2027, the Company may redeem the Notes, in whole or in part, at its option, on any interest payment date. The Notes are included on the consolidated balance sheets as other borrowings at the carrying value, net of issuance costs. The debt issuance costs are being amortized through maturity and recognized as a component of interest expense. At June 30, 2022, $39.1 million of Subordinated Notes were outstanding. The proceeds from the sale of the Notes was used for general corporate purposes.

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The aggregate stated maturities of other borrowed money at June 30, 2022 are as follows:


(dollars in thousands)
Year	Amount
2022	$	63,766




2027 and After	88,342
	$	152,108

The Company also has available federal funds lines of credit with various financial institutions totaling $64.5 million, of which $23.8 million were outstanding at June 30, 2022.

The Company has the ability to borrow funds from the Federal Reserve Bank (“FRB”) of Atlanta utilizing the discount window. The discount window is an instrument of monetary policy that allows eligible institutions to borrow money from the FRB on a short-term basis to meet temporary liquidity shortages caused by internal or external disruptions. At June 30, 2022, the Company had borrowing capacity available under this arrangement, with no outstanding balances. The Company would be required to pledge certain available-for-sale investment securities as collateral under this agreement.

(6) Earnings Per Share

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period. Diluted earnings per share reflects the potential dilution of restricted stock.

The following table presents earnings per share for the three and six months ended June 30, 2022 and 2021.


(dollars in thousands, except per share data)	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Numerator
Net income available to common stockholders	$	3,415	$	3,997	$	8,737	$	8,917

Denominator
Weighted average number of common shares
Outstanding for basic earnings per common share	17,586		9,499		16,732		9,499




Weighted-average number of shares outstanding for diluted earnings per common share	17,586		9,499		16,732		9,499

Earnings per share - basic	$	0.19	$	0.42	$	0.52	$	0.94

Earnings per share - diluted	$	0.19	$	0.42	$	0.52	$	0.94

(7) Commitments and Contingencies

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

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

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

At June 30, 2022 and December 31, 2021 the following financial instruments were outstanding whose contract amounts represent credit risk:


	Contract Amount
(dollars in thousands)	June 30, 2022		December 31, 2021
Loan commitments	$	389,523	$	318,853
Letters of credit	3,649		4,869

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

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

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

Legal Contingencies. In the ordinary course of business, there are various legal proceedings pending against the Company and the Bank. As of June 30, 2022, the aggregate liabilities, if any, arising from such proceedings would not, in the opinion of management, have a material adverse effect on the Company’s consolidated financial position.

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

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

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

•Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

•Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

•Level 3 inputs to the valuation methodology are unobservable and represent the Company’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

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

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

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

Other investments, at cost– The fair value of other bank stock approximates carrying value and is classified as Level 2. Fair values for investment funds are based on quoted market prices where available and classified as Level 1. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable instruments and classified as Level 2 If a comparable is not available, the investment securities are classified as Level 3.

Loans held for sale – The fair value of loans held for sale is determined on outstanding commitments from third party investors in the secondary markets and is classified within Level 2 of the valuation hierarchy.

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

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

Federal funds purchased – The carrying amounts of Federal funds purchased approximate fair value and are classified as Level 2.

Federal Home Loan Bank advances– The fair value of Federal Home Loan Bank advances is estimated by discounting the future cash flows using the current rates at which similar advances would be obtained. Federal Home Loan Bank advances are classified as Level 2.

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

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

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The carrying amount, estimated fair values, and placement in the fair value hierarchy of the Company’s financial instruments as of June 30, 2022 and December 31, 2021 are as follows:


	Fair Value Measurements
(dollars in thousands)	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
June 30, 2022
Assets
Cash and short-term investments	$	76,482	$	76,482	$	76,482	$	—	$	—
Investment securities available for sale	657,546		657,546		—		657,546		—
Investment securities held to maturity	304,014		269,951		—		269,951		—
Other investments, at cost	12,968		12,968		—		10,199		2,769
Loans held for sale	38,526		38,526		—		38,526		—
Loans, net	1,438,842		1,361,078		—		—		1,361,078

Liabilities
Deposits	2,331,511		2,331,682		—		2,331,682		—

Federal funds purchased	23,766		23,766		—		23,766		—
Federal Home Loan Bank advances	65,000		64,951		—		64,951		—
Other borrowings	63,342		57,685		—		57,685		—


	Fair Value Measurements
(dollars in thousands)	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
December 31, 2021
Assets
Cash and short-term investments	$	197,232	$	197,232	$	197,232	$	—	$	—
Investment securities available for sale	938,164		938,164		87,551		850,613		—
Other investments, at cost	14,012		14,012		5,574		4,183		4,255
Loans held for sale	38,150		38,150		—		38,150		—
Loans, net	1,325,067		1,328,853		—		—		1,328,853

Liabilities
Deposits	2,374,608		2,375,385		—		2,375,385		—

Federal Home Loan Bank advances	51,656		51,162		—		51,162		—
Other borrowings	36,792		36,796		—		36,796		—

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

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

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

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

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

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

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

Assets Measured at Fair Value on a Recurring and Nonrecurring Basis – The following table presents the recorded amount of the Company’s assets measured at fair value on a recurring and nonrecurring basis as of June 30, 2022 and December 31, 2021, aggregated by the level in the fair value hierarchy within which those measurements fall. The table below includes only impaired loans with a specific reserve and only other real estate properties with a valuation allowance at June 30, 2022 and December 31, 2021. Those impaired loans and other real estate properties are shown net of the related specific reserves and valuation allowances.


			Fair Value Measurements at Reporting Date Using
(dollars in thousands)	Total Fair Value		(Level 1)		(Level 2)		(Level 3)
June 30, 2022
Nonrecurring
Collateral dependent impaired loans	$	1,298	$	—	$	—	$	1,298
Other real estate owned	246		—		—		246
Total nonrecurring assets	$	1,544	$	—	$	—	$	1,544


			Fair Value Measurements at Reporting Date Using
(dollars in thousands)	Total Fair Value		(Level 1)		(Level 2)		(Level 3)
December 31, 2021
Nonrecurring
Collateral dependent impaired loans	$	1,837	$	—	$	—	$	1,837
Other real estate owned	281		—		—		281
Total nonrecurring assets	$	2,118	$	—	$	—	$	2,118

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

The following table presents quantitative information about the significant unobservable inputs used in the fair value measurements for assets in level 3 of the fair value hierarchy measured on a nonrecurring basis at June 30, 2022 and December 31, 2021. This table is comprised primarily of collateral dependent impaired loans and other real estate owned:


(dollars in thousands)	June 30, 2022		Valuation Techniques	Unobservable Inputs	Range Weighted Avg
Collateral dependent impaired loans	$	1,298	Appraised Value	Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell	25	%	100	%
Other real estate owned	246		Appraised Value/Comparable Sales	Discounts to reflect current market conditions and estimated costs to sell	—	%	20	%


(dollars in thousands)	December 31, 2021		Valuation Techniques	Unobservable Inputs	Range Weighted Avg
Collateral dependent impaired loans	$	1,837	Appraised Value	Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell	25	%	100	%
Other real estate owned	281		Appraised Value/Comparable Sales	Discounts to reflect current market conditions and estimated costs to sell	—	%	20	%

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following table presents quantitative information about recurring level 3 fair value measurements as of June 30, 2022 and December 31, 2021.

As of June 30, 2022

(dollars in thousands)

Fair Value

Valuation
Techniques

Unobservable
Inputs

Range
(Weighted Avg)

Other investments

2,769

Discounted Cash Flow

Discount Rate or Yield

N/A*

As of December 31, 2021

(dollars in thousands)

Fair Value

Valuation
Techniques

Unobservable
Inputs

Range
(Weighted Avg)

Other investments

4,255

Discounted Cash Flow

Discount Rate or Yield

N/A*

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

The table below presents a reconciliation and statement of income classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (level 3) for the three and six months ended June 30, 2022.


	Available for Sale Securities
	Three Months Ended June 30, 2022		Six Months Ended June 30, 2022
(dollars in thousands)
Balance, Beginning	$	4,083	$	4,255
Redemption of security	(1,356)		(1,356)
Unrealized/realized losses included in earnings	42		(130)
Balance, Ending	$	2,769	$	2,769

The Company’s policy is to recognize transfers in and transfers out of levels 1, 2 and 3 as of the end of a reporting period. There were no transfers of securities between levels for the three and six months ended June 30, 2022 and June 30, 2021.

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(9) Segment Information

The Company’s operating segments include banking, mortgage banking and small business specialty lending division. The reportable segments are determined by the products and services offered, and internal reporting. The Bank segment derives its revenues from the delivery of full-service financial services, including retail and commercial banking services and deposit accounts. The Mortgage Banking segment derives its revenues from the origination and sales of residential mortgage loans held for sale. The Small Business Specialty Lending Division segment derives its revenue from the origination, sales and servicing of Small Business Administration loans and other government guaranteed loans. Segment performance is evaluated using net interest income and noninterest income. Income taxes are allocated based on income before income taxes, and indirect expenses (includes management fees) are allocated based on various internal factors for each segment. Transactions among segments are made at fair value. Information reported internally for performance assessment follows. The following tables present information reported internally for performance assessment for the three and six months ended June 30, 2022 and 2021:


(dollars in thousands)	Bank		Mortgage Banking		Small Business Specialty Lending Division		Totals
Six Months Ended June 30, 2022
Net Interest Income	$	37,647	$	128	$	584	$	38,359
Provision for Loan Losses	1,150		—		—		1,150
Noninterest Income	9,482		5,648		4,075		19,205
Noninterest Expenses	37,206		5,510		3,566		46,282
Income Taxes	1,127		94		174		1,395
Segment Profit	$	7,646	$	172	$	919	$	8,737

Segments Assets at June 30, 2022	$	2,664,966	$	20,183	$	43,553	$	2,728,702

Full time employees at June 30, 2022	396		59		28		483


(dollars in thousands)	Bank		Mortgage Banking		Small Business Specialty Lending Division		Totals
Six Months Ended June 30, 2021
Net Interest Income	$	28,797	$	291	$	212	$	29,300
Provision for Loan Losses	500		—		—		500
Noninterest Income	6,384		6,983		2,985		16,352
Noninterest Expenses	25,298		5,680		2,241		33,219
Income Taxes	2,401		414		201		3,016
Segment Profit	$	6,982	$	1,180	$	755	$	8,917

Segments Assets at December 31, 2021	$	2,620,501	$	25,149	$	46,065	$	2,691,715

Full time employees at June 30, 2021	294		53		24		371

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)


(dollars in thousands)	Bank		Mortgage Banking		Small Business Specialty Lending Division		Totals
Three months ended June 30, 2022
Net Interest Income	$	18,819	$	57	$	291	$	19,167
Provision for Loan Losses	1,100		—		—		1,100
Noninterest Income	5,187		2,736		2,135		10,058
Noninterest Expenses	19,504		2,799		2,173		24,476
Income Taxes	227		(7)		14		234
Segment Profit	$	3,175	$	1	$	239	$	3,415


(dollars in thousands)	Bank		Mortgage Banking		Small Business Specialty Lending Division		Totals
Three months ended June 30, 2021
Net Interest Income	$	14,864	$	123	$	82	$	15,069
Provision for Loan Losses	—		—		—		—
Noninterest Income	3,354		2,997		1,400		7,751
Noninterest Expenses	13,366		2,887		1,212		17,465
Income Taxes	1,241		60		57		1,358
Segment Profit	$	3,611	$	173	$	213	$	3,997

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(10) Regulatory Capital Matters

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

As of June 30, 2022, the Company and the Bank were categorized as well-capitalized under the regulatory framework for prompt corrective action in effect at such time. To be categorized as well-capitalized, the Company and the Bank must have exceeded the well-capitalized guideline ratios in effect at the time, as set forth in the table below, and have met certain other requirements. Management believes that the Company and the Bank exceeded all well-capitalized requirements at June 30, 2022, and there have been no conditions or events since quarter-end that would change the status of well-capitalized.

The Board of Governors of the Federal Reserve raised the threshold for determining applicable of the Small Bank Holding Company and Savings and Loan Company Policy Statement in August 2018 from $1 billion to $3 billion in consolidated total assets to provide regulatory burden relief, therefore, the Company is no longer subject to the minimum capital requirements on a consolidated basis.

The following table summarizes regulatory capital information as of June 30, 2022 and December 31, 2021 on a consolidated basis and for the subsidiary, as defined. Regulatory capital ratios for June 30, 2022 and December 31, 2021 were calculated

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

in accordance with the Basel III rules.


(dollars in thousands)	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of June 30, 2022
Total Capital to Risk-Weighted Assets
Consolidated	$	305,454	16.48	%	$	148,279	8.00	%	N/A		N/A
Colony Bank	229,775		12.41		148,071		8.00		$	185,089	10.00	%

Tier 1 Capital to Risk-Weighted Assets
Consolidated	252,378		13.62		111,180		6.00		N/A		N/A
Colony Bank	215,812		11.66		111,053		6.00		148,071		8.00

Common Equity Tier 1 Capital to Risk-Weighted Assets
Consolidated	228,149		12.31		83,401		4.50		N/A		N/A
Colony Bank	215,812		11.66		83,290		4.50		120,308		6.50

Tier 1 Capital to Average Assets
Consolidated	252,378		9.22		109,492		4.00		N/A		N/A
Colony Bank	215,812		8.10		106,554		4.00		133,193		5.00


(dollars in thousands)	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of December 31, 2021
Total Capital to Risk-Weighted Assets
Consolidated	$	207,366	12.05	%	$	137,670	8.00	%	N/A		N/A
Colony Bank	203,265		12.18		133,507		8.00		$	166,884	10.00	%

Tier 1 Capital to Risk-Weighted Assets
Consolidated	194,456		11.28		103,434		6.00		N/A		N/A
Colony Bank	190,355		11.41		100,099		6.00		133,465		8.00

Common Equity Tier 1 Capital to Risk-Weighted Assets
Consolidated	170,956		9.87		77,943		4.50		N/A		N/A
Colony Bank	190,355		11.41		75,074		4.50		108,441		6.50

Tier 1 Capital to Average Assets
Consolidated	194,456		7.25		107,286		4.00		N/A		N/A
Colony Bank	190,355		7.53		101,118		4.00		126,398		5.00

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(11) Subsequent Events

Dividend

On July 21, 2022, the Board of Directors declared a quarterly cash dividend of $0.1075 per share, to be paid on its common stock on August 20, 2022, to shareholders of record as of the close of business on August 6, 2022.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The purpose of this discussion and analysis is to focus on significant changes in the financial condition of Colony Bankcorp, Inc. and our wholly owned subsidiary, Colony Bank, from December 31, 2021 through June 30, 2022 and on our results of operations for the three and six months ended June 30, 2022 and 2021. This discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto in the Company's 2021 Form 10-K, and information presented elsewhere in this Quarterly Report on Form 10-Q, particularly the unaudited consolidated financial statements and related notes appearing in Item 1.

Forward-looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “strive,” “projection,” “goal,” “target,” “outlook,” “aim,” “would,” “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control, particularly with regard to developments related to the COVID-19 (and the variants thereof) pandemic. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including those factors discussed elsewhere in this Annual Report and the following:

•business and economic conditions, particularly those affecting the financial services industry and our primary market areas;

•the risk that a future economic downturn and contraction, including a recession, could have a material adverse effect on our capital, financial condition, credit quality, results of operations and future growth, including the risk that the strength of the current economic environment could be weakened by the impact of rising interest rates, supply chain challenges and inflation;

•factors that can impact the performance of our loan portfolio, including real estate values and liquidity in our primary market areas, the financial health of our borrowers and the success of various projects that we finance;

•concentration of our loan portfolio in real estate loans and changes in the prices, values and sales volumes of commercial and residential real estate;

•credit and lending risks associated with our construction and development, commercial real estate, commercial and industrial and residential real estate loan portfolios;

•our ability to attract sufficient loans that meet prudent credit standards, including in our construction and development, commercial and industrial and owner-occupied commercial real estate loan categories;

•our ability to attract and maintain business banking relationships with well-qualified businesses, real estate developers and investors with proven track records in our market areas;

•changes in interest rate environment, including changes to the federal funds rate, and competition in our markets may result in increased funding costs or reduced earning assets yields, thus reducing our margins and net interest income;

•our ability to successfully manage our credit risk and the sufficiency of our allowance for loan losses;

•the adequacy of our reserves (including allowance for loan losses) and the appropriateness of our methodology for calculating such reserves;

•our ability to successfully execute our business strategy to achieve profitable growth;

•the concentration of our business within our geographic areas of operation in Georgia and neighboring markets;

•our focus on small and mid-sized businesses;

•our ability to manage our growth;

•our ability to increase our operating efficiency;

•liquidity issues, including fluctuations in the fair value and liquidity of the securities we hold for sale and our ability to raise additional capital, if necessary;

•failure to maintain adequate liquidity and regulatory capital and comply with evolving federal and state banking regulations;

•risks that our cost of funding could increase, in the event we are unable to continue to attract stable, low-cost deposits and reduce our cost of deposits;

•inability of our risk management framework to effectively mitigate credit risk, interest rate risk, liquidity risk, price risk, compliance risk, operational risk, strategic risk and reputational risk;

•inflation, interest rate, securities market and monetary fluctuations and the respective impact on our financial condition and results of operation;

•the makeup of our asset mix and investments;

•external economic, political and/or market factors, such as changes in monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve, inflation or deflation, changes in the demand for loans, and fluctuations in consumer spending, borrowing and savings habits, which may have an adverse impact on our financial condition;

•the risks relating to the completed acquisition including, without limitation: unexpected transaction costs, including the costs of integrating operations; the risks that the businesses will not be integrated successfully or that such integration may be more difficult, time-consuming or costly than expected; the potential failure to fully or timely realize expected revenues and revenue synergies, including as the result of revenues being lower than expected;

•uncertainty related to the transition away from the London Inter-bank Offered Rate (“LIBOR”);

•adverse results from current or future litigation, regulatory examinations or other legal and/or regulatory actions related to the COVID-19 pandemic, including as a result of our participation in and execution of government programs related to the COVID-19 pandemic, including, but not limited to, the Paycheck Protection Program ("PPP");

•the impact of the continuing COVID-19 pandemic on our business;

•continued or increasing competition from other financial institutions (including fintech companies), credit unions, and non-bank financial services companies, many of which are subject to different regulations than we are;

•challenges arising from unsuccessful attempts to expand into new geographic markets, products, or services;

•restraints on the ability of the Bank to pay dividends to us, which could limit our liquidity;

•increased capital requirements imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all;

•a failure in the internal controls we have implemented to address the risks inherent to the business of banking;

•inaccuracies in our assumptions about future events, which could result in material differences between our financial projections and actual financial performance;

•changes in our management personnel or our inability to retain motivate and hire qualified management personnel;

•the dependence of our operating model on our ability to attract and retain experienced and talented bankers in each of our markets, which may be impacted as a result of labor shortages;

•our ability to identify and address cyber-security risks, fraud and systems errors;

•disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems;

•disruptions, security breaches, or other adverse events affecting the third-party vendors who perform several of our critical processing functions;

•an inability to keep pace with the rate of technological advances due to a lack of resources to invest in new technologies;

•fraudulent and negligent acts by our clients, employees or vendors and our ability to identify and address such acts;

•risks related to potential acquisitions;

•the impact of any claims or legal actions to which we may be subject, including any effect on our reputation;

•compliance with governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities and tax matters, and our ability to maintain licenses required in connection with commercial mortgage origination, sale and servicing operations;

•changes in the scope and cost of FDIC insurance and other coverage;

•changes in our accounting standards;

•changes in tariffs and trade barriers;

•changes in federal tax law or policy;

•the effects of war or other conflicts (including the military conflict between Russia and Ukraine), acts of terrorism, natural disasters, health emergencies, epidemics or pandemics, or other catastrophic events that may affect general economic conditions; and

•other risks and factors identified in our 2021 Form 10-K, this Quarterly Report on Form 10-Q for the period ended June 30, 2022, and in any of the Company's other reports filed with the U.S. Securities and Exchange Commission and available on its website at www.sec.gov.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Quarterly Report on Form 10-Q. Because of these risks and other uncertainties, our actual future results, performance or achievement, or industry results, may be materially different from the results indicated by the forward looking statements in this Quarterly Report on Form 10-Q. In addition, our past results of operations are not necessarily indicative of our future results. You should not rely on any forward looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

Overview

The following discussion and analysis presents the more significant factors affecting the Company’s financial condition as of June 30, 2022 and December 31, 2021, and results of operations for each of the three and six month periods ended June 30, 2022 and 2021. 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.

At June 30, 2022, the Company had total consolidated assets of $2.7 billion, total loans, net of $1.4 billion, total deposits of $2.3 billion, and stockholders’ equity of $234.6 million. The Company reported net income of $3.4 million, or $0.19 per diluted share, for the three months ended June 30, 2022, and $8.7 million, or $0.52 per diluted share, for the first six months of 2022, compared to net income of $4.0 million, or $0.42 per diluted share, for the three months ended June 30, 2021, and $8.9 million, or $0.94 per diluted share, for the first six months of 2021. The small decrease in net income for the three and six months ended June 30, 2022 compared to the same periods ended June 30, 2021 was primarily driven by the increase in provision for loan loss and salaries and recognized mark on two FHLB advances that were acquired in the SouthCrest acquisition that were called early, offset by the increase in volume of taxable and tax-exempt investment securities and loans, acquisition of SouthCrest Financial Group, Inc. ("SouthCrest"), and an increase in interchange fees and gain on sale of SBA loans.

Net interest income on a tax equivalent basis increased to $19.3 million for the second quarter of 2022, compared to $15.2 million for the same period in 2021, primarily due to an increase in investment securities and loan volume. The net interest margin decreased to 3.15% for the quarter ended June 30, 2022 from 3.68% for the same period in 2021. Net interest income on a tax equivalent basis increased to $38.5 million for the first six months of 2022, compared to $29.6 million for the first six months of 2021, primarily due to an increase in investment securities and loan volume. The net interest margin decreased to 3.15% for the six months ended June 30, 2022 from 3.57% for the same period in 2021. The reason for the decrease in net interest margin for the three and six months ended June 30, 2022 compared to the same periods in 2021 is primarily due to a decrease in yield on loans offset by slight decrease in deposit and borrowing rates.

Provision for loan losses for the three and six months ended June 30, 2022 was $1.1 million and $1.2 million compared to zero and $500,000 for the same period in 2021, respectively. Net charge-offs for the second quarter of 2022 were $56,000 compared to net recoveries of $178,000 for the same period in 2021. Net charge-offs for the first six months of 2022 were $97,000 compared to net recoveries of $244,000 for the same period in 2021. As of June 30, 2022, Colony’s allowance for loan losses was $14.0 million, or 0.96% of total loans, compared to $12.9 million, or 0.96% of total loans, at December 31, 2021. At June 30, 2022 and December 31, 2021, nonperforming assets were $5.2 million and $5.8 million, or 0.19% and 0.21% of total assets, respectively.

Noninterest income of $10.1 million for the second quarter of 2022 was up $2.3 million, or 29.76%, from the second quarter of 2021. The increase was primarily due to increases in service charges, interchange fees and gain on sale of SBA loans, offset by a decrease in mortgage fee income. Noninterest income of $19.2 million for the six months ended of 2022 was up $2.9 million, or 17.45%, from the second quarter of 2021. The increase was primarily due to increases in service charges, interchange fees and gain on sale of SBA loans other noninterest income, offset by a decrease in mortgage fee income. See "Table 3 - Noninterest income" for more detail and discussion on the primary drivers to the increase in noninterest income.

For the three months ended June 30, 2022, noninterest expense was $24.5 million, an increase of $7.0 million, or 40.14%, from the same period in 2021. For the six months ended June 30, 2022, noninterest expense was $46.3 million, an increase of $13.1 million, or 39.3%, from the same period in 2021. Increases in noninterest expense are in part due to changes to the Company's organizational structure, along with acquisition expenses related to the SouthCrest merger. Those expenses that were the primary contributors to the increase year over year include salaries and employee benefits. See "Table 4 - Noninterest expense" for more detail and discussion on the primary drivers to the increase in noninterest expense.

On February 10, 2022, the Company completed a public offering of approximately 3.85 million shares of its common stock with aggregate proceeds totaling approximately $63.5 million. The offering generated net proceeds of approximately $59.3 million, which were used to fund the repayment of the Company's existing term note and the line of credit and for other general corporate purposes.

Economic Conditions

The economic conditions and growth prospects for our markets, even against the headwinds of inflation and recessionary concerns, continue to reflect a solid and positive overall outlook with economic activity close to pre-pandemic levels. Increasing interest rates and rising building costs have caused some slowing of the highly robust single family housing market, however, there continues to be a shortage of housing in several Georgia markets. Worker shortages especially in the restaurant, hospitality and retail industries combined with supply chain disruptions impacting numerous industries and inflationary conditions has had some impact on the level of economic growth. Ongoing higher inflation levels and higher

interest rates could have a negative impact on both our consumer and commercial borrowers. Overall, Georgia continues to experience economic growth due to company relocations and expansions combined with overall population growth.

Critical Accounting Policies

Our accounting and reporting policies are in accordance with GAAP and conform to general practices within the banking industry. We have identified certain of its accounting policies as “critical accounting policies,” consisting of those related to business combinations, allowance for loan losses and income taxes. In determining which accounting policies are critical in nature, we have identified the policies that require significant judgment or involve complex estimates. It is management's practice to discuss critical accounting policies with the Board of Directors' Audit Committee on a periodic basis, including the development, selection, implementation and disclosure of the critical accounting policies. The application of these policies has a significant impact on the Company’s unaudited interim consolidated financial statements. Our financial results could differ significantly if different judgments or estimates are used in the application of these policies. All accounting policies described in Note 1 of our consolidated financial statements as of December 31, 2021, which are included in the Company’s 2021 Form 10-K should be reviewed for a greater understanding of how we record and report our financial performance. There have been no significant changes to the Significant Accounting Policies as described in Note 1 of the Notes to Consolidated Financial Statements for the year ended December 31, 2021, which are included in the Company’s 2021 Form 10-K.

Results of Operations

We reported net income and diluted earnings per share of $3.4 million and $8.7 million and $0.19 and $0.52, respectively, for the first three and six months of 2022. This compared to net income and diluted earnings per share of $4.0 million and $8.9 million and $0.42 and $0.94, respectively, for the same periods in 2021.

Net Interest Income

Net interest income, which is the difference between interest earned on assets and the interest paid on deposits and borrowed funds, is the single largest component of total revenue. Management strives to optimize this income while balancing interest rate, credit and liquidity risks.

The banking industry uses two key ratios to measure relative profitability of net interest income. The net interest spread measures the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities. The interest rate spread eliminates the effect of noninterest-bearing deposits and gives a direct perspective on the effect of market interest rate movements. The net interest margin is an indication of the profitability of a company's balance sheet and is defined as net interest income as a percent of average total interest-earning assets, which includes the positive effect of funding a portion of interest-earning assets with noninterest-bearing deposits and stockholders' equity.

Fully taxable equivalent net interest income for the second quarter of 2022 and 2021 was $19.3 million and $15.2 million, respectively. This increase is primarily due to an increase in volume of securities and loans. The net interest margin for the second quarter of 2022 and 2021 was 3.15% and 3.68% respectively. This decrease in net interest margin for the second quarter of 2022 compared to same period in 2021 is a result of the decrease in loan yields and higher borrowing yields, offset by lower yields paid on deposits.

Fully taxable equivalent net interest income for the six months ended June 30, 2022 and 2021 was $38.5 million and $29.6 million, respectively. This increase is primarily due to an increase in volume of securities and loans. The net interest margin for the six months ended June 30, 2022 and 2021 was 3.15% and 3.57% respectively. This decrease in net interest margin for the six months ended June 30, 2022 compared to the same period in 2021 is a result of the decrease in loan yields and higher borrowing yields, offset by lower yields paid on deposits.

The following tables indicate the relationship between interest income and interest expense and the average amounts of assets and liabilities for the periods indicated. As shown in the tables, both average assets and average liabilities for the three and six months ended June 30, 2022 increased compared to the same period in 2021. The increase in average assets was primarily driven by the increase from the acquisition of SouthCrest in third quarter 2021 and purchasing of investment securities of $506.6 million and $528.0 million as well as an increase in loans of $350.8 million and $317.3 million for the three and six months ended June 30, 2022 compared to the same periods in 2021. The loan increase is primarily due to the SouthCrest acquisition and loan growth. The increase in average liabilities for the three and six months ended June 30, 2022 was funded primarily through an increase in deposits from the SouthCrest merger during the last half of 2021.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.

The yield on total interest-bearing liabilities increased from 0.32% in the second quarter of 2021 to 0.43% in the second quarter of 2022. The yield on total interest-bearing liabilities remained the same at 0.33% for the six months ended June 30, 2022 and 2021, due to Federal Home Loan Bank advances interest expense including $751,000 for the recognized mark on two advances that were acquired in the SouthCrest acquisition that were called early. In March of 2020, the Federal Reserve's Federal Open Market Committee ("FOMC") lowered interest rates twice for a total reduction of 150 basis points in response to the COVID-19 pandemic, which was the most aggressive action taken by the FOMC since the financial crisis in 2008. In March 2022, the FOMC raised the rate 25 basis points. In second quarter 2022, the FOMC raised the rate twice, the first increase being 50 basis points and the second increase being 75 basis points.


Table 1 - Average Balance Sheet and Net Interest Analysis
	Three Months Ended June 30,
	2022						2021
(dollars in thousands)	Average Balances		Income/ Expense		Yields/ Rates		Average Balances		Income/ Expense		Yields/ Rates
Assets
Interest-earning assets:
Loans, net of unearned income(1)	$	1,427,563	$	16,317	4.58	%	$	1,076,784	$	14,165	5.34	%
Investment securities, taxable	842,481		4,332		2.06		417,343		1,794		1.74
Investment securities, tax-exempt(2)	114,658		542		1.90		33,156		160		1.96
Deposits in banks and short term investments	73,190		103		0.56		146,591		45		0.12
Total interest-earning assets	2,457,892		21,294		3.47		1,673,874		16,164		3.92
Noninterest-earning assets	218,720						103,685
Total assets	$	2,676,612					$	1,777,559
Liabilities and stockholders' equity
Interest-bearing liabilities:
Interest-earning demand and savings	$	1,429,331	$	307	0.09	%	$	901,978	$	146	0.07	%
Other time	328,355		319		0.39		253,944		423		0.68
Total interest-bearing deposits	1,757,686		626		0.14		1,155,922		569		0.20
Federal funds purchased	7,916		27		1.37	%	—		—		—
Federal Home Loan Bank advances (3)	46,550		943		8.13		22,500		115		2.09
Paycheck Protection Program Liquidity Facility	—		—		—		19,031		25		0.53
Other borrowings	44,729		409		3.67		37,536		258		2.78
Total other interest-bearing liabilities	99,195		1,379		5.58		79,067		398		2.04
Total interest-bearing liabilities	1,856,881		2,005		0.43		1,234,989		967		0.32
Noninterest-bearing liabilities:
Demand deposits	568,070						391,217
Other liabilities	10,380						6,592
Stockholders' equity	241,281						144,761
Total noninterest-bearing liabilities and stockholders' equity	819,731						542,570
Total liabilities and stockholders' equity	$	2,676,612					$	1,777,559
Interest rate spread					3.04	%					3.60	%
Net interest income			$	19,289					$	15,197
Net interest margin					3.15	%					3.68	%

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 $31,000 and $67,000 for the quarters ended June 30, 2022 and 2021, respectively, are included in income and fees on loans. Accretion income of $269,000 and $104,000 for the quarters ended June 30, 2022 and 2021 are also included in income and fees on loans.

2.Taxable-equivalent adjustments totaling $70,000 and $43,000 for the quarters ended June 30, 2022 and 2021, respectively, are included in tax-exempt interest on investment securities.

3. Federal Home Loan Bank advances interest expense includes $751,000 for the quarter ended June 30, 2022 and is the recognized mark on two advances that were acquired in the SouthCrest acquisition that were called early.


Table 1 - Average Balance Sheet and Net Interest Analysis
	Six Months Ended June 30, 2022
	2022						2021
(dollars in thousands)	Average Balances		Income/ Expense		Yields/ Rates		Average Balances		Income/ Expense		Yields/ Rates
Assets
Interest-earning assets:
Loans, net of unearned income(1)	$	1,395,179	$	32,339	4.67	%	$	1,077,859	$	27,805	5.20	%
Investment securities, taxable	842,491		8,084		1.93		394,431		3,401		1.74
Investment securities, tax-exempt(2)	112,843		1,022		1.83		32,887		314		1.93
Deposits in banks and short term investments	117,177		159		0.27		164,882		97		0.12
Total interest-earning assets	2,467,690		41,604		3.40		1,670,059		31,617		3.82
Noninterest-earning assets	210,625						105,746
Total assets	$	2,678,315					$	1,775,805
Liabilities and stockholders' equity
Interest-bearing liabilities:
Interest-earning demand and savings	$	1,437,325	$	568	0.08	%	$	880,838	$	311	0.07	%
Other time	335,744		657		0.39		257,173		912		0.72
Total interest-bearing deposits	1,773,069		1,225		0.14		1,138,011		1,223		0.22
Federal funds purchased	3,978		27		1.37		—		—		—
Federal Home Loan Bank advances (3)	49,100		1,192		4.90		22,500		230		2.05
Paycheck Protection Program Liquidity Facility	—		—				51,516		93		0.36
Other borrowings	38,492		611		3.20		37,715		514		2.75
Total other interest-bearing liabilities	91,570		1,830		4.03		111,731		837		1.51
Total interest-bearing liabilities	1,864,639		3,055		0.33		1,249,742		2,060		0.33
Noninterest-bearing liabilities:
Demand deposits	560,444						373,728
Other liabilities	11,036						6,791
Stockholders' equity	242,196						145,544
Total noninterest-bearing liabilities and stockholders' equity	813,676						526,063
Total liabilities and stockholders' equity	$	2,678,315					$	1,775,805
Interest rate spread					3.08	%					3.49	%
Net interest income			$	38,549					$	29,557
Net interest margin					3.15	%					3.57	%

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 $62,000 and $124,000 for the six months ended June 30, 2022 and 2021, respectively, are included in income and fees on loans. Accretion income of $429,000 and $313,000 for the six months ended June 30, 2022 and 2021 are also included in income and fees on loans.

2. Taxable-equivalent adjustments totaling $133,000 and $84,000 for the six months ended June 30, 2022 and 2021, respectively, are included in tax-exempt interest on investment securities.

3. Federal Home Loan Bank advances interest expense includes $751,000 for the six months ended June 30, 2022 and is the recognized mark on two advances that were acquired in the SouthCrest acquisition that were called early.

The following table presents the effect of net interest income for changes in the average outstanding volume amounts of interest-earning assets and interest-bearing liabilities and the rates earned and paid on these assets and liabilities from June 30, 2021 to June 30, 2022.


Table 2 - Change in Interest Revenue and Expense on a Taxable Equivalent Basis
	Six Months Ended June 30, 2022
	Compared to Six Months Ended June 30, 2021 Increase (Decrease) Due to Changes in
(dollars in thousands)	Volume		Rate		Total
Interest-earning assets:
Loans, net of unearned fees	$	16,501	$	(11,967)	$	4,534
Investment securities, taxable	7,796		(3,113)		4,683
Investment securities, tax-exempt	1,543		(835)		708
Deposits in banks and short term investments	(57)		119		62
Total interest-earning assets (FTE)	25,783		(15,796)		9,987
Interest-bearing liabilities:
Interest-Bearing Demand and Savings Deposits	390		(133)		257
Time Deposits	566		(821)		(255)
Federal funds purchased	—		27		27
Federal Home Loan Bank Advances	545		417		962
Paycheck Protection Program Liquidity Facility	(185)		92		(93)
Other Borrowed Money	21		76		97
Total interest-bearing liabilities	1,337		(342)		995
Increase in net interest income (FTE)	$	24,446	$	(15,454)	$	8,992

Provision for Loan Losses

The provision for loan losses is based on management's evaluation of probable, inherent losses in the loan portfolio and unfunded commitments and the corresponding analysis of the allowance for loan losses at quarter-end. Provision for loan losses for the three and six months ended June 30, 2022 was $1.1 million and $1.2 million compared to zero and $500,000 for the same period in 2021, respectively. The amount of provision expense recorded in each period was the amount required such that the total allowance for loan losses reflected the appropriate balance, in the estimation of management, sufficient to cover probable, inherent loan losses in the loan portfolio. The increase in provision for loan losses in the three and six months ended June 30, 2022 compared to the same periods in 2021 is largely due to the loan growth the Bank has experienced in the second quarter of 2022. See the section captioned “Loans and Allowance for Loan Losses” elsewhere in this discussion for further analysis of the provision for loan losses.

Noninterest Income

The following table represents the major components of noninterest income for the periods indicated.


Table 3 - Noninterest Income
	Three Months Ended June 30,				Change				Six Months Ended June 30,				Change
(dollars in thousands)	2022		2021		Amount		Percent		2022		2021		Amount		Percent
Service charges on deposits	$	1,895	$	1,264	$	631	49.9	%	$	3,720	$	2,486	$	1,234	49.6	%
Mortgage fee income	2,736		3,005		(269)		(9.0)		5,648		7,000		(1,352)		(19.3)
Gain on sales of SBA loans	1,863		1,263		600		47.5		3,589		2,735		854		31.2
(Loss)/gain on sales of securities	—		141		(141)		100.0		24		137		(113)		(82.5)
Interchange fee	2,159		1,667		492		29.5		4,159		3,197		962		30.1
BOLI income	353		222		131		59.0		665		430		235		54.7
Other noninterest income	1,052		189		863		456.6		1,400		367		1,033		281.5
Total noninterest income	$	10,058	$	7,751	$	2,307	29.76	%	$	19,205	$	16,352	$	2,853	17.45	%

For the three and six months ended June 30, 2022, noninterest income increased $2.3 million and $2.9 million, respectively, compared to the same periods in 2021. The primary reason for this increase was due to increases in almost all noninterest income accounts offset by the decrease in mortgage fee income.

Service charges on deposit accounts. For the three and six months ended June 30, 2022, services charges on deposits was $1.9 million and $3.7 million, an increase of $631,000, or 49.9%, and $1.2 million, or 49.6%, compared to the same periods in 2021, respectively. This increase in service charges on deposits was primarily attributable to the additional deposits acquired from the SouthCrest acquisition and the bank's strategic efforts to grow deposits.

Mortgage Fee Income. For the three and six months ended June 30, 2022, mortgage fee income was $2.7 million and $5.6 million, a decrease of $269,000, or 9.0%, and $1.4 million, or 19.3%, compared to the same periods in 2021, respectively. During the three and six months ended June 30, 2021, there was a continued increase in the demand for mortgage rate locks and mortgage closings due to a historically low interest rate environment. As the rates started to increase in 2022, the demand slowed down which primarily caused the decrease.

Gain on Sale of SBA loans. For the three and six months ended June 30, 2022, net realized gains on the sale of the guaranteed portion of SBA loans totaled $1.9 million and $3.6 million, an increase of $600,000, or 47.5%, and $854,000, or 31.2%, compared to the same periods in 2021, respectively. The increase in 2022 was a result of continued growth in the Small Business Specialty Lending division compared to the same periods in 2021.

Interchange Fees. For the three and six months ended June 30, 2022, interchange fee income was $2.2 million and $4.2 million, an increase of $492,000, or 29.5%, and $962,000, or 30.1%, compared to the same periods in 2021. The increase in interchange fees was primarily attributable growth of customers from the SouthCrest acquisition and the continued success with the Discover® Card program.

Other noninterest income. For the three and six months ended June 30, 2022, other noninterest income was $1.1 million and $1.4 million, an increase of $863,000, or 456.6%, and $1.0 million, or 281.5%, compared to the same periods in 2021. The increase in other income was primarily attributable to insurance commissions from the insurance acquisitions that occurred in third and fourth quarter of 2021 and equity method investment loss taken in first quarter of 2022. .

Noninterest Expense

The following table represents the major components of noninterest expense for the periods indicated.


Table 4 - Noninterest Expense
	Three Months Ended June 30,				Change				Six Months Ended June 30,				Change
(dollars in thousands)	2022		2021		Amount		Percent		2022		2021		Amount		Percent
Salaries and employee benefits	$	15,072	$	10,126	$	4,946	48.8	%	$	28,344	$	20,081	$	8,263	41.1	%
Occupancy and equipment	1,608		1,245		363		29.2		3,227		2,571		656		25.5
Acquisition-related expenses	1		699		(698)		(99.9)		125		699		(574)		(82.1)
Information technology expenses	2,549		1,856		693		37.3		4,903		3,448		1,455		42.2
Professional fees	1,073		690		383		55.5		1,946		1,177		769		65.3
Advertising and public relations	695		566		129		22.8		1,464		1,146		318		27.7
Communications	417		308		109		35.4		854		527		327		62.0


Other noninterest expense	3,061		1,975		1,086		55.0		5,419		3,570		1,849		51.8
Total noninterest expense	$	24,476	$	17,465	$	7,011	40.1	%	$	46,282	$	33,219	$	13,063	39.3	%

Noninterest expense increased for the three and six months ended June 30, 2022 by $7.0 million and $13.1 million, respectively, compared to the same periods in 2021. Increases in salaries and employee benefits and information technology expenses and other expenses accounted for the majority of the increases, which were partially offset by a decrease in acquisition expenses.

Salaries and Employee Benefits. Salaries and employee benefits for the three and six months ended June 30, 2022 was $15.1 million and $28.3 million, an increase of $4.9 million, or 48.8%, and $8.3 million, or 41.1%, compared to the same periods in 2021, respectively. The increase in both periods of 2022 is primarily attributable to the salary and employee benefits from the additional employees from the SouthCrest acquisition compared to the same periods in 2021.

Information technology Expenses. Information technology expense for the three and six months ended June 30, 2022 was $2.5 million and $4.9 million, an increase of $693,000, or 37.3% and $1.5 million, or 42.2%, compared to the same periods in 2021. These increases relate to increases in employees and data processing costs from the SouthCrest merger and software costs due to the implementation of new software platforms used in various areas of the bank.

Acquisition-related Expenses. Acquisition-related expenses for the three and six months ended June 30, 2022 decreased $698,000, or 99.9% and $574,000, or 82.1%, compared to the same periods in 2021, respectively. These decreases are related to the completion of the SouthCrest and insurance acquisitions that occurred in 2021.

Other noninterest expenses. Other noninterest expense for the three and six months ended June 30, 2022 was $3.1 million and $5.4 million, an increase of $1.1 million, or 55.0% and $1.8 million, or 51.8%, compared to the same periods in 2021. These increases relate primarily to increased amortization expense of intangibles and servicing rights valuations.

Income Tax Expense

Income tax expense for the three and six months ended June 30, 2022 was $234,000 and $1.4 million compared to $1.4 million and $3.0 million for the three and six months ended June 30, 2021, respectively. The Company’s effective tax rates for the three and six months ended June 30, 2022 were 6.4% and 13.8% compared to 25.4% and 25.3%, respectively for the same periods of 2021. The largest driver of the difference is tax exempt income primarily from BOLI and tax exempt interest along with the benefit of Georgia state tax credits.

Balance Sheet Review

Total assets remained stable at $2.7 billion at June 30, 2022 and December 31, 2021.

Loans and Allowance for Loan Losses

At June 30, 2022, gross loans outstanding (excluding loans held for sale) were $1.5 billion, an increase of $114.8 million, or 8.6%, compared to $1.3 billion at December 31, 2021. During the six months ended June 30, 2022, PPP loans totaling approximately $8.4 million were forgiven through the SBA.

At June 30, 2022, approximately 71.1% of our loans are secured by commercial real estate. The following table presents a summary of the loan portfolio as of June 30, 2022 and December 31, 2021.


Table 5 - Loans Outstanding
(dollars in thousands)	June 30, 2022			December 31, 2021
Construction, land and land development	$	187,045		$	165,446
Other commercial real estate	846,381			787,392
Total commercial real estate	1,033,426			952,838
Residential real estate	216,189			212,527
Commercial, financial, & agricultural (*)	184,798			154,048
Consumer and other	18,392			18,564
Total loans	$	1,452,805		$	1,337,977

As a percentage of total loans:
Construction, land and land development	12.9		%	12.4		%
Other commercial real estate	58.2		%	58.8		%
Total commercial real estate	71.1		%	71.2		%
Residential real estate	14.9		%	15.9		%
Commercial, financial & agricultural	12.7		%	11.5		%
Consumer and other	1.3		%	1.4		%
Total loans	100		%	100		%

(*) Includes $128,000 and $9.0 million in PPP loans at June 30, 2022 and December 31, 2021, respectively.

The Company's risk mitigation processes include an independent loan review designed to evaluate the credit risk in the loan portfolio and to ensure credit grade accuracy. The analysis serves as a tool to assist management in assessing the overall credit quality of the loan portfolio and the adequacy of the allowance for loan losses. Loans classified as "substandard" are loans which are inadequately protected by the current credit worthiness and paying capacity of the borrower and/or the collateral pledged. These assets exhibit well-defined weaknesses or are showing signs there is a distinct possibility the Company will sustain some loss if the deficiencies are not corrected. These weaknesses may be characterized by past due performance, operating losses and/or questionable collateral values. Loans classified as "doubtful" are those loans that have characteristics similar to substandard loans but have an increased risk of loss. Loans classified as "loss" are those loans which are considered uncollectible and are in the process of being charged off.

The Company regularly monitors the composition of the loan portfolio as part of its evaluation over the adequacy of the allowance for loan losses. The Company focuses on the following loan categories: (1) construction, land and land development; (2) commercial, financial and agricultural; (3) commercial and farmland real estate; (4) residential real estate; and (5) consumer.

The allowance for loan losses is a reserve established through charges to earnings in the form of a provision for loan losses. The provision for loan losses is based on management’s evaluation of the size and composition of the loan portfolio, the level of non-performing and past-due loans, historical trends of charged off loans and recoveries, prevailing economic conditions and other factors management deems appropriate. The Company’s management has established an allowance for loan losses which it believes is adequate for the probable incurred losses in the loan portfolio. Based on a credit evaluation of the loan portfolio, management presents a quarterly review of the allowance for loan losses to the Company’s Board of Directors, which primarily focuses on risk by evaluating individual loans in certain risk categories. These categories have also been established by management and take the form of loan grades. By grading the loan portfolio in this manner the Company’s

management is able to effectively evaluate the portfolio by risk, which management believes is the most effective way to analyze the loan portfolio and thus analyze the adequacy of the allowance for loan losses.

The allowance for loan losses is established by examining (1) the large classified loans, nonaccrual loans and loans considered impaired and evaluating them individually to determine the specific reserve allocation and (2) the remainder of the loan portfolio to allocate a portion of the allowance based on past loss experience and the economic conditions for the particular loan category. The Company also considers other factors such as changes in lending policies and procedures; changes in national, regional and/or local economic and business conditions; changes in the nature and volume of the loan portfolio; changes in the experience, ability and depth of either the market president or lending staff; changes in the volume and severity of past-due and classified loans; changes in the quality of the loan review system; and other factors management deems appropriate.

The allowance for loan losses was $14.0 million at June 30, 2022 compared to $12.9 million at June 30, 2021, an increase of $1.1 million, or 8.5%. The allowance for loan losses as a percentage of loans was 0.96% and 1.26% at June 30, 2022 and 2021, respectively. The provision was $1.2 million compared to $500,000 for the six months ended June 30, 2022 and June 30, 2021, respectively. The provision was $1.1 million compared to $0 for the three months ended June 30, 2022 and June 30, 2021, respectively. The amount of provision expense recorded in each period was the amount required such that the total allowance for loan losses reflected the appropriate balance, in the estimation of management, sufficient to cover probable, inherent losses in the loan portfolio. The primary reason for the increase in allowance to loans as a percentage for loans and provision is primarily due to the bank's loan growth.

Additional information about the Company’s allowance for loan losses is provided in Note 4 to our consolidated financial statements as of June 30, 2022, included elsewhere in this Form 10-Q.

The following table presents an analysis of the allowance for loan losses as of and for the six months ended June 30, 2022 and 2021:


Table 6 - Analysis of Allowance for Loan Loss
	June 30, 2022				June 30, 2021
(dollars in thousands)	Reserve		%*		Reserve		%*
Construction, land and land development	$	1,052	12.9	%	$	1,125	12.4	%
Other commercial real estate	8,028		58.2	%	7,277		58.8	%
Residential real estate	1,488		14.9	%	2,273		15.9	%
Commercial, financial, & agricultural	1,678		12.7	%	1,773		11.5	%
Consumer and other	1,717		1.3	%	423		1.4	%
	$	13,963	100	%	$	12,871	100	%

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

The following table presents a summary of allowance for loan loss for the three and six months ended June 30, 2022 and 2021.


Table 7 - Summary of Allowance for Loan Loss
	Three Months Ended							Six Months Ended
(dollars in thousands)		June 30, 2022			June 30, 2021			June 30, 2022			June 30, 2021
Allowance for loan loss - beginning balance		$	12,919		$	12,693		$	12,910		$	12,127
Charge-offs:
Construction, land and land development		—			—			—			—
Other commercial real estate		—			36			58			36
Residential real estate		30			—			48			—
Commercial, financial, & agricultural		132			—			148			15
Consumer and other		5			32			21			43
Total loans charged-off		167			68			275			94
Recoveries:
Construction, land and land development		5			70			11			85
Other commercial real estate		67			95			74			95
Residential real estate		18			44			22			110
Commercial, financial, & agricultural		12			15			56			18
Consumer and other		9			22			15			30
Total recoveries		111			246			178			338
Net (recoveries)/charge-offs		56			(178)			97			(244)
Provision for loan loss		1,100			—			1,150			500
Allowance for loan loss - ending balance		$	13,963		$	12,871		$	13,963		$	12,871

Net (recoveries)/charge-offs to average loans (annualized)		0.02		%	(0.07)		%	0.01		%	(0.05)		%
Allowance for loan losses to total loans		0.96			1.26			0.96			1.26
Allowance to nonperforming loans		282.31			139.83			282.31			139.83

Management believes the allowance for loan losses is adequate to provide for losses inherent in the loan portfolio as of June 30, 2022.

Nonperforming Assets

Asset quality experienced some improvement during the first six months of 2022. Nonperforming assets include nonaccrual loans, accruing loans contractually past due 90 days or more, repossessed personal property and other real estate owned ("OREO"). Nonaccrual loans totaled $4.9 million at June 30, 2022, a decrease of $503,000, or 9.2%, from $5.4 million at December 31, 2021. There were no loans contractually past due 90 days or more and still accruing for either period presented. At June 30, 2022, OREO totaled $246,000, a decrease of $35,000, or 12.5%, compared with $281,000 at December 31, 2021. The decrease in OREO was due to a donation of assets during the first six months of 2022. As of June 30, 2022 , total nonperforming assets as a percent of total assets decreased to 0.19% compared with 0.21% at December 31, 2021.

Generally, loans are placed on non-accrual status if principal or interest payments become 90 days past due and/or management deems the collectability of the principal and/or interest to be in question, as well as when required by regulatory requirements. Loans to a customer whose financial condition has deteriorated are considered for non-accrual status whether or not the loan is 90 days or more past due. Once interest accruals are discontinued, accrued but uncollected interest is charged to current year operations. Subsequent loan payments made 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.

Foreclosed property is initially recorded at fair value, less estimated costs to sell. If the fair value, less estimated costs to sell, at the time of foreclosure is less than the loan balance, the deficiency is charged against the allowance for loan losses. If the lesser of the fair value, less estimated costs to sell, or the listed selling price, less the costs to sell, of the foreclosed property decreases during the holding period, a valuation allowance is established with a charge to foreclosed property expense. When the foreclosed property is sold, a gain or loss is recognized on the sale for the difference between the sales proceeds and the carrying amount of the property.

Nonperforming assets at June 30, 2022 and December 31, 2021 were as follows:


Table 8 - Nonperforming Assets
(dollars in thousands)	June 30, 2022			December 31, 2021
Nonaccrual loans	$	4,946		$	5,449
Loans past due 90 days and accruing	—			—
Other real estate owned	246			281
Repossessed assets	48			49
Total nonperforming assets	$	5,240		$	5,779
Nonaccrual loans by loan segment
Construction, land and land development	$	68		$	31
Commercial real estate	805			837
Residential real estate	2,367			3,839
Commercial, financial & agriculture	1,537			708
Consumer & other	169			34
Total nonaccrual loans	$	4,946		$	5,449

NPAs as a percentage of total loans and OREO	0.36		%	0.43		%
NPAs as a percentages of total assets	0.19		%	0.21		%
Nonaccrual loans as a percentage of total loans	0.34		%	0.41		%

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 June 30, 2022, TDR increased to $7.6 million from $7.3 million reported at December 31, 2021. At June 30, 2022, $514,000 in TDRs were considered nonperforming and at December 31, 2021, all TDRs were performing according to their modified terms and were therefore not considered to be nonperforming assets.

Deposits

Deposits at June 30, 2022 and December 31, 2021 were as follows:


Table 9 - Deposits
(dollars in thousands)	June 30, 2022		December 31, 2021
Noninterest-bearing deposits	$	572,978	$	552,576
Interest-bearing deposits	872,668		930,811
Savings	556,738		541,993
Time, $250,000 and over	59,900		73,407
Other time	269,227		275,821
Total deposits	$	2,331,511	$	2,374,608

Total deposits decreased $43.1 million to $2.33 billion at June 30, 2022 from $2.37 billion at December 31, 2021. As of June 30, 2022, 24.6% of total deposits were comprised of noninterest-bearing accounts and 75.4% comprised of interest-bearing deposit accounts, compared to 23.3% and 76.7% as of December 31, 2021, respectively. The decline in our deposits is due to a combination of changes in post COVID-19 customer saving and spending habits as well as the seasonality of our public funds.

We had $10.3 million and $883,000 in brokered deposits at June 30, 2022 and December 31, 2021, respectively. We use brokered deposits, subject to certain limitations and requirements, as a source of funding to support our asset growth and augment the deposits generated from our branch network, which are our principal source of funding. Our level of brokered deposits varies from time to time depending on competitive interest rate conditions and other factors, and tends to increase as a percentage of total deposits when the brokered deposits are less costly than issuing internet certificates of deposit or borrowing from the FHLB.

Off-Balance Sheet Arrangements

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

The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, upon extension of credit, is based on management’s credit evaluation of the borrower. The type of collateral held varies, but may include cash or cash equivalents, unimproved or improved real estate, personal property or other acceptable collateral.

See Note 7 to our consolidated financial statements as of June 30, 2022, included elsewhere in this Form 10-Q, for a table setting forth the financial instruments that were outstanding whose contract amounts represent credit risk and more information regarding our off-balance sheet arrangements as of June 30, 2022 and December 31, 2021.

Liquidity

An important part of the Bank's liquidity resides in the asset portion of the balance sheet, which provides liquidity primarily through loan interest and principal repayments and the maturities and sales of securities, as well as the ability to use these assets as collateral for borrowings on a secured basis.

The Bank's main source of liquidity is customer interest-bearing and noninterest-bearing deposit accounts. Liquidity is also available from wholesale funding sources consisting primarily of Federal funds purchased, FHLB advances and brokered deposits. These sources of liquidity are generally short-term in nature and are used as necessary to fund asset growth and meet other short-term liquidity needs.

To plan for contingent sources of funding not satisfied by both local and out-of-market deposit balances, the Company and the Bank have established multiple borrowing sources to augment their funds management. The Company has borrowing capacity through membership of the Federal Home Loan Bank program. The Bank has also established overnight borrowing

for Federal Funds purchased through various correspondent banks. The outstanding balance of Federal Funds purchased at June 30, 2022 and December 31, 2021 was $23.8 million and $0, respectively.

Cash and cash equivalents at June 30, 2022 and December 31, 2021 were $76.5 million and $197.2 million, respectively. This decrease is primarily attributable to the deployment of funds used for funding current loan growth. Management believes the various funding sources discussed above are adequate to meet the Company’s liquidity needs without any material adverse impact on our operating results.

On February 10, 2022, the Company completed a public offering of approximately $63.5 million of its common stock. The offering generated net proceeds of approximately $59.3 million, which were used to fund the repayment of the Company's existing term note and the line of credit and for other general corporate purposes.

Liquidity management involves the matching of cash flow requirements of customers and the ability of the Company to manage those requirements. These requirements of customers include, but are not limited to, deposits being withdrawn or providing assurance to borrowers that sufficient funds are available to meet their credit needs. We strive to maintain an adequate liquidity position by managing the balances and maturities of interest-earning assets and interest-bearing liabilities so that the balance we have in short-term assets at any given time will adequately cover any reasonably anticipated need for funds. Additionally, we maintain relationships with correspondent banks, which could provide funds on short notice, if needed. We have also invested in FHLB stock for the purpose of establishing credit lines with the FHLB. At June 30, 2022 and December 31, 2021, we had $65.0 million of outstanding advances from the FHLB. Based on the values of loans pledged as collateral, we had $605.6 million and $574.7 million of additional borrowing availability with the FHLB at June 30, 2022 and December 31, 2021, respectively.

The Company is a separate entity from the Bank, and as such it must provide for its own liquidity. The Company is responsible for the payment of dividends declared for its common shareholders and payment of interest and principal on any outstanding debt or trust preferred securities. These obligations are met through internal capital resources such as service fees and dividends from the Bank, which are limited by applicable laws and regulations.

Capital Resources

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.

The table below summarizes the capital requirements applicable to the Bank in order to be considered “well-capitalized” from a regulatory perspective, as well as the Bank’s capital ratios as of June 30, 2022 and December 31, 2021. The Bank exceeded all regulatory capital requirements and was considered to be “well-capitalized” as of June 30, 2022 and December 31, 2021. There have been no conditions or events since December 31, 2021 that management believes would change this classification.


Table 10 - Capital Ratio Requirements
	Minimum Requirement		Well-capitalized¹
Risk-based ratios:
Common equity tier 1 capital (CET1)	4.5	%	6.5	%
Tier 1 capital	6.0		8.0
Total capital	8.0		10.0
Leverage ratio	4.0		5.0
(1) The prompt corrective action provisions are only applicable at the bank level.


Table 11 - Capital Ratios
Company	June 30, 2022		December 31, 2021
CET1 risk-based capital ratio	12.31	%	9.87	%
Tier 1 risk-based capital ratio	13.62		11.28
Total risk-based capital ratio	16.48		12.05
Leverage ratio	9.22		7.25

Colony Bank
CET1 risk-based capital ratio	11.66	%	11.41	%
Tier 1 risk-based capital ratio	11.66		11.41
Total risk-based capital ratio	12.41		12.18
Leverage ratio	8.10		7.53

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's primary market risk exposures are credit risk, interest rate risk, and to a lesser degree, liquidity risk. The Bank operates under an Asset Liability Management Policy which is approved by the ALCO, which is a Board committee that meets regularly. The policy outlines limits on interest rate risk in terms of changes in net interest income and changes in the net market values of assets and liabilities over certain changes in interest rate environments. These measurements are made through a simulation model which projects the impact of changes in interest rates on the Bank's assets and liabilities. The policy also outlines responsibility for monitoring interest rate risk and the process for the approval, implementation and monitoring of interest rate risk strategies to achieve the Bank's interest rate risk objectives.

The following table presents our interest sensitivity position at the dates indicated.


Table 12 - Interest Sensitivity
	Increase (Decrease) in Net Interest Income from Base Scenario at
	June 30, 2022	December 31, 2021
Changes in rates
200 basis point increase	6.06%	13.80%
100 basis point increase	3.29	6.83
100 basis point decrease	(4.80)	(3.18)

See Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2021 for additional disclosures related to market and interest rate risk.

There are no material changes during the period covered by this Report to Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” previously disclosed in the Company's 2021 Form 10-K.

ITEM 4 – CONTROLS AND PROCEDURES

Under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company has evaluated its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report, as required by paragraph (b) of Rules 13a-15 or 15d-15 of the Exchange Act. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for ensuring that information the Company is required to disclose in reports that it files or submits under the Exchange Act, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to the Company's senior management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

During the quarter ended June 30, 2022, there were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 of the Exchange Act that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

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

ITEM 1A – RISK FACTORS

In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in "Part I - Item IA - Risk Factors” of the Company’s 2021 Form 10-K, which could materially affect its business, financial position, results of operations, cash flows, or future results. Please be aware that these risks may change over time and other risks may prove to be important in the future. New risks may emerge at any time, and we cannot predict such risks or estimate the extent to which they may affect our business, financial condition or results of operations, or the trading price of our securities.

There are no material changes during the period covered by this Report to the risk factors previously disclosed in the Company's 2021 Form 10-K.

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

(a) There were no unregistered shares of the Company’s common stock sold during the three-month period ended June 30, 2022.

(b) Not applicable.

(c) There were no purchases of the Company's equity securities by the Company or its affiliates during the three-month period ended June 30, 2022.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 – MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5 – OTHER INFORMATION

None.

ITEM 6 – EXHIBITS



3.1			Articles of Incorporation, As Amended -filed as Exhibit 99.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 0-12436), filed with the Commission on August 4, 2014 and incorporated herein by reference.

3.2			Articles of Amendment to Articles of Incorporation, As Amended, of Colony Bankcorp, Inc.

3.3			Amended and Restated Bylaws -filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 000-12436), filed with the Commission on September 18, 2020 and incorporated herein by reference.

4.1			Form of 5.25% Fixed to Floating Rate Subordinated Note due 2032 - filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 000-12436), filed with the Commission on May 23, 2022 and incorporated herein by reference.

10.1			Form of Note Purchase Agreement, dated as of May 20, 2022, by and among Colony Bankcorp, Inc. and the Purchasers - filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 000-12436), filed with the Commission on May 23, 2022 and incorporated herein by reference .

10.2			Separation Agreement between Colony Bank and Tracie Youngblood, dated as of April 14, 2022†





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

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

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

101			Interactive data files pursuant to Rule 405 of Regulation S-T, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021; (ii) Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2022 and 2021; (iii) Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2022 and 2021; (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021; (v) Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021; and (vi) Notes to Unaudited Condensed Consolidated Financial Statements*

104			The cover page from Colony Bankcorp’s Quarterly Report on Form 10-Q for the three and six months ended June 30, 2022 (formatted in Inline XBRL and included in Exhibit 101)

†			Represents a management contract or a compensatory plan or arrangement.

SIGNATURES

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


			Colony Bankcorp, Inc.


			/s/ T. Heath Fountain
Date: August 12, 2022			T. Heath Fountain
			President and Chief Executive Officer
			(Principal Executive Officer)

			/s/ Andrew Borrmann
Date: August 12, 2022			Andrew Borrmann
			Executive Vice President and Chief Financial Officer
			(Principal Financial Officer)

TABLE OF CONTENTS

Part I. Financial Information Item 1. Financial Statements Item 2. Management's Discussion and Analysis Of Financial Condition and Results Of Operations Item 3 Quantitative and Qualitative Disclosures About Market Risk Item 4 Controls and Procedures Part II Other Information Item 1 Legal Proceedings Item 1A Risk Factors Item 2 Unregistered Sale Of Equity Securities and Use Of Proceeds Item 3 Defaults Upon Senior Securities Item 4 Mine Safety Disclosures Item 5 Other Information Item 6 Exhibits

Exhibits

3.1 Articles of Incorporation, As Amended -filed as Exhibit 99.1 to the Registrants Quarterly Report on Form 10-Q (File No. 0-12436), filed with the Commission on August 4, 2014 and incorporated herein by reference. 3.2 Articles of Amendment to Articles of Incorporation, As Amended, of Colony Bankcorp, Inc. 3.3 Amended and Restated Bylaws -filed as Exhibit 3.1 to the Registrants Current Report on Form 8-K (File No. 000-12436), filed with the Commission on September 18, 2020 and incorporated herein by reference. 4.1 Form of 5.25% Fixed to Floating Rate Subordinated Note due 2032 - filed as Exhibit 4.1 to the Registrants Current Report on Form 8-K (File No. 000-12436), filed with the Commission on May 23, 2022 and incorporated herein by reference. 10.1 Form of Note Purchase Agreement, dated as of May 20, 2022, by and among Colony Bankcorp, Inc. and the Purchasers - filed as Exhibit 10.1 to the Registrants Current Report on Form 8-K (File No. 000-12436), filed with the Commission on May 23, 2022 and incorporated herein by reference. 10.2 Separation Agreement between Colony Bank and Tracie Youngblood, dated as of April 14, 2022 31.1 Certificate of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 31.2 Certificate of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of theSarbanes-Oxley Act of 2002

CBAN 10-Q Quarter ended June 30, 2022

Exhibits