CBAN 10-Q Quarterly Report Sept. 30, 2022

COLONY BANKCORP INC

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cban-20220930

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 September 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 November 9, 2022, the registrant had 17,641,123 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 – September 30, 2022 (unaudited) and December 31, 2021 (audited)	4

	Consolidated Statements of Income – For the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)	5

	Consolidated Statements of Comprehensive (Loss) Income – For the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)	6

	Consolidated Statements of Changes in Stockholder's Equity – For the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)	7

	Consolidated Statements of Cash Flows – For the Nine Months Ended September 30, 2022 and 2021 (unaudited)	9

	Notes to Consolidated Financial Statements (unaudited)	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	57

Item 4.	Controls and Procedures	57


PART II – Other Information

Item 1.	Legal Proceedings	58

Item 1A.	Risk Factors	58

Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	58

Item 3.	Defaults Upon Senior Securities	58

Item 4.	Mine Safety Disclosures	58

Item 5.	Other Information	58

Item 6.	Exhibits	59

Signatures		60

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

COLONY BANKCORP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets


	September 30, 2022		December 31, 2021
(dollars in thousands, except per share data)	(Unaudited)		(Audited)
ASSETS
Cash and due from banks	$	18,533	$	18,975

Federal funds sold and interest-bearing deposits in banks	66,507		178,257
Cash and cash equivalents	85,040		197,232
Investment securities available for sale, at fair value	439,716		938,164
Investment securities held to maturity, at amortized cost	468,306		—
Other investments, at cost	12,850		14,012
Loans held for sale	23,945		38,150
Loans	1,586,613		1,337,977
Allowance for loan losses	( 15,182 )		( 12,910 )
Loans, net	1,571,431		1,325,067
Premises and equipment	41,249		43,033
Other real estate owned	246		281
Goodwill	48,923		52,906
Other intangible assets	6,065		7,389
Bank-owned life insurance	55,157		55,159
Deferred income taxes, net	30,614		3,644
Other assets	22,370		16,678
Total assets	$	2,805,912	$	2,691,715

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
Noninterest-bearing	$	558,347	$	552,576
Interest-bearing	1,851,315		1,822,032
Total deposits	2,409,662		2,374,608
Federal funds purchased	—		—
Federal Home Loan Bank advances	95,000		51,656

Other borrowings	63,364		36,792
Other liabilities	11,819		10,952
Total liabilities	$	2,579,845	$	2,474,008

Stockholders' equity:
Preferred stock, no par value; 10,000,000 shares authorized, none issued or outstanding as of September 30, 2022 and December 31, 2021, respectively	—		—
Common stock, par value $ 1.00 per share; 50,000,000 and 20,000,000 shares authorized, 17,641,123 and 13,673,898 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively	17,641		13,674
Paid in capital	167,608		111,021
Retained earnings	107,918		99,189
Accumulated other comprehensive loss, net of tax	( 67,100 )		( 6,177 )
Total stockholders' equity	226,067		217,707
Total liabilities and stockholders' equity	$	2,805,912	$	2,691,715

See accompanying notes to consolidated financial statements (unaudited).

COLONY BANKCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Income (unaudited)


	Three Months Ended				Nine Months Ended
(dollars in thousands, except per share data)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Interest income
Loans, including fees	$	18,150	$	16,013	$	50,431	$	43,684
Investment securities	5,266		2,954		14,240		6,546
Federal funds sold, interest bearing deposits in banks and short term investments	278		58		437		154
Total interest income	23,694		19,025		65,108		50,384

Interest expense
Deposits	1,449		698		2,674		1,921
Federal funds purchased	3		—		22		—
Federal Home Loan Bank Advances	555		170		1,746		401
Paycheck Protection Program Liquidity Facility	—		—		—		93
Other borrowings	822		289		1,441		802
Total interest expense	2,829		1,157		5,883		3,217
Net interest income	20,865		17,868		59,225		47,167
Provision for loan losses	1,320		150		2,470		650
Net interest income after provision for loan losses	19,545		17,718		56,755		46,517

Noninterest income
Service charges on deposits	2,104		1,792		5,823		4,278
Mortgage fee income	1,708		3,107		7,356		10,107
Gain on sales of SBA loans	1,215		1,813		4,805		4,548
Gain (loss) on sales of securities	( 96 )		—		( 72 )		137
Interchange fees	2,179		1,745		6,338		4,941
BOLI Income	312		280		977		710

Other	757		701		2,157		754
Total noninterest income	8,179		9,438		27,384		25,475

Noninterest expense
Salaries and employee benefits	12,154		11,826		40,498		31,907
Occupancy and equipment	1,645		1,599		4,872		4,169
Acquisition related expenses	2		1,994		142		3,031
Information technology expenses	2,491		2,045		7,394		5,493
Professional fees	881		804		2,773		1,975
Advertising and public relations	876		674		2,406		1,817
Communications	471		310		1,325		837
Other	2,847		1,959		8,238		4,884
Total noninterest expense	21,367		21,211		67,648		54,113
Income before income taxes	6,357		5,945		16,491		17,879
Income taxes	1,105		362		2,500		3,379
Net income	$	5,252	$	5,583	$	13,991	$	14,500
Earnings per common share:
Basic	$	0.30	$	0.45	$	0.82	$	1.39
Diluted	0.30		$	0.45	0.82		$	1.39
Dividends declared per share	0.1075		0.1025		0.3225		0.3075
Weighted average common shares outstanding:
Basic	17,645,119		12,344,926		17,042,838		10,447,496
Diluted	17,645,119		12,344,926		17,042,838		10,447,496

See accompanying notes to consolidated financial statements (unaudited).

COLONY BANKCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive (Loss) Income (unaudited)


	Three Months Ended				Nine Months Ended
(dollars in thousands)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Net income	$	5,252	$	5,583	$	13,991	$	14,500
Other comprehensive (loss) income:
Unrealized losses on securities arising during the period	( 14,256 )		( 7,335 )		( 70,913 )		( 13,186 )
Tax effect	1,996		1,724		9,928		3,099
Realized (gains) losses on sales of available for sale securities	96		—		72		( 137 )
Tax effect	( 13 )		—		( 10 )		32
Change in unrealized (losses) gains on securities available for sale, net of reclassification adjustment and tax effects	( 12,177 )		( 5,611 )		( 60,923 )		( 10,192 )
Comprehensive (loss) income	$	( 6,925 )	$	( 28 )	$	( 46,932 )	$	4,308

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, June 30, 2022	17,581	$	17,581	$	167,376	$	104,561	$	( 54,923 )	$	234,595
Change in net unrealized losses on securities available for sale, net of reclassification adjustment and tax effects	—	—		—		—		( 12,177 )		( 12,177 )
Dividends on common shares ($ 0.1075 per share)	—	—		—		( 1,895 )		—		( 1,895 )

Tax withholding related to vesting of restricted stock	( 12 )	( 12 )		( 137 )		—		—		( 149 )
Issuance of restricted stock	72	72		( 72 )		—		—		—
Stock-based compensation expense	—	—		441		—		—		441
Net income	—	—		—		5,252		—		5,252
Balance, September 30, 2022	17,641	$	17,641	$	167,608	$	107,918	$	( 67,100 )	$	226,067

Balance, June 30, 2021	9,499	$	9,499	$	43,232	$	91,963	$	2,200	$	146,894
Change in net unrealized losses on securities available for sale, net of reclassification adjustment and tax effects	—	—		—		—		( 5,611 )		( 5,611 )
Dividends on common shares ($ 0.1025 per share)	—	—		—		( 1,401 )		—		( 1,401 )
Issuance of common stock	3,988	3,988		67,395		—		—		71,383
Issuance of restricted stock	187	187		( 187 )		—		—		—
Stock-based compensation expense	—	—		282		—		—		282
Net income	—	—		—		5,583		—		5,583
Balance, September 30, 2021	13,674	$	13,674	$	110,722	$	96,145	$	( 3,411 )	$	217,130

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
Nine 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	—	—		—		—		( 60,923 )		( 60,923 )
Dividends on common shares ($ 0.3225 per share)	—	—		—		( 5,262 )		—		( 5,262 )
Issuance of common stock	3,848	3,848		55,620		—		—		59,468
Tax withholding related to vesting of restricted stock	( 15 )	( 15 )		( 216 )		—		—		( 231 )
Issuance of restricted stock, net of forfeitures	134	134		( 134 )		—		—		—
Stock-based compensation expense	—	—		1,317		—		—		1,317
Net income	—	—		—		13,991		—		13,991
Balance, September 30, 2022	17,641	$	17,641	$	167,608	$	107,918	$	( 67,100 )	$	226,067

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	—	—		—		—		( 10,192 )		( 10,192 )
Dividends on common shares ($ 0.3075 per share)	—	—		—		( 3,348 )		—		( 3,348 )
Issuance of common stock	3,988	3,988		67,395		—		—		71,383
Issuance of restricted stock, net of forfeitures	187	187		( 187 )		—		—		—
Stock-based compensation expense	—	—		299		—		—		299
Net income	—	—		—		14,500		—		14,500
Balance, September 30, 2021	13,674	$	13,674	$	110,722	$	96,145	$	( 3,411 )	$	217,130

See accompanying notes to consolidated financial statements (unaudited).

COLONY BANKCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)


	Nine Months Ended
(dollars in thousands)	September 30, 2022		September 30, 2021
Operating Activities
Net income	$	13,991	$	14,500
Adjustments reconciling net income to net cash provided by operating activities:
Provision for loan losses	2,470		650
Depreciation, amortization, and accretion	9,322		5,592
Equity method investment income	357		—
Share-based compensation expense	1,317		299
Net change in servicing asset	( 582 )		( 656 )
(Gain)/Loss on sales of securities, available-for-sale	72		( 137 )
Gain on sales of SBA loans	( 4,805 )		( 4,548 )
Loss on sales of other real estate owned	—		54
Donation of other real estate owned	35		—
Writedown on other real estate owned	—		21
Gain on sales of premises & equipment	( 65 )		—
Originations of loans held for sale	( 269,586 )		( 294,759 )
Proceeds from sales of loans held for sale	288,596		324,996
Change in bank-owned life insurance	( 1,006 )		( 538 )
Deferred tax benefit	( 990 )		( 2,794 )
Change in other assets	( 4,529 )		1,924
Change in other liabilities	867		( 3,426 )
Net cash provided by operating activities	35,464		41,178
Investing Activities
Purchases of investment securities, available-for-sale	( 157,391 )		( 230,868 )
Proceeds from maturities, calls, and paydowns of investment securities, available-for-sale	45,014		75,830
Proceeds from sales of investment securities, available-for-sale	47,175		17,559
Proceeds from maturities, calls and paydowns of securities, held-to-maturity	8,432		—
Change in loans, net	( 249,384 )		56,679
Purchase of premises and equipment	( 1,449 )		( 2,924 )
Proceeds from sales of premises and equipment	71		—
Proceeds from sales of other real estate owned	—		807
Proceeds from bank-owned life insurance	1,008		585
Redemption (purchase of) other investments	2,506		( 9,582 )
Redemption (purchase) of Federal Home Loan Bank Stock	( 1,701 )		2,307
Net cash and cash equivalents received from acquisition	—		34,087
Net cash used in investing activities	( 305,719 )		( 55,520 )
Financing Activities
Change in noninterest-bearing customer deposits	5,771		72,982
Change in interest-bearing customer deposits	29,283		45,738
Issuance of common stock, net of stock issuance cost	59,468		—
Dividends paid for common stock	( 5,262 )		( 3,348 )

Issuance of Subordinated Debt	39,097		—
Repayment on Paycheck Protection Program Liquidity Fund	—		( 106,789 )
Repayments on Federal Home Loan Bank Advances	( 137,500 )		—
Proceeds from Federal Home Loan Bank Advances	180,000		—
Repayments on Other borrowings	( 12,563 )		( 750 )

Tax withholding related to vesting of restricted stock	( 231 )		—
Net cash provided by financing activities	158,063		7,833
Net decrease in cash and cash equivalents	( 112,192 )		( 6,509 )
Cash and cash equivalents at beginning of period	197,232		183,506
Cash and cash equivalents at end of period	$	85,040	$	176,997

COLONY BANKCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(UNAUDITED)

(DOLLARS IN THOUSANDS)


	Nine Months Ended
	September 30, 2022		September 30, 2021
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest	$	5,053	$	3,189
Cash paid during the period for income taxes	3,625		4,923
Noncash Investing and Financing Activities
Goodwill adjustment	( 3,983 )		—
Acquisition of real estate through foreclosure	—		145
Carrying amount of Securities AFS transferred to HTM, net of $ 34.0 million unrealized loss	510,956		—

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 nine months ended September 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 finalized its purchase accounting adjustment during the second and third quarters of 2022 with a $ 4.0 million net 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 September 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 expecting a 15 - 25 % increase in allowance for credit losses related to CECL implementation inclusive of expected credit losses for loans and unfunded commitments. The estimates provided above are subject to substantial change and will ultimately depend upon the composition of the loan portfolio, as well as economic conditions and forecasts at the time of CECL adoption.

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)
September 30, 2022	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities Available for Sale:
U.S. treasury securities	$	1,642	$	—	$	( 12 )	$	1,630
U.S. agency	5,405		—		( 487 )		4,918
Asset backed securities	26,919		—		( 747 )		26,172
State, county & municipal securities	126,472		—		( 23,182 )		103,290
Corporate debt securities	54,782		—		( 4,117 )		50,665
Mortgage-backed securities	282,269		15		( 29,243 )		253,041
Total	$	497,489	$	15	$	( 57,788 )	$	439,716

September 30, 2022	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities Held to Maturity:
U.S. treasury securities	$	91,189	$	—	$	( 4,460 )	$	86,729
U.S. agency	16,440		—		( 1,853 )		14,587
State, county & municipal securities	135,994		—		( 21,030 )		114,964
Mortgage-backed securities	224,683		—		( 29,945 )		194,738
Total	$	468,306	$	—	$	( 57,288 )	$	411,018

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 and September 1, 2022, having a combined book value of approximately $ 511.0 million and a combined market value of approximately $ 477.0 million. As of the date of each transfer, the related pre-tax net unrecognized losses of approximately $ 34.0 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 September 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

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

securities, 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	$	1,020	$	1,011	$	—	$	—
Due after one year through five years	13,612		12,701		62,300		59,996
Due after five years through ten years	88,747		77,200		87,245		77,143
Due after ten years	111,841		95,763		94,078		79,141
	$	215,220	$	186,675	$	243,623	$	216,280

Mortgage-backed securities	282,269		253,041		224,683		194,738
	$	497,489	$	439,716	$	468,306	$	411,018

Proceeds from the sale of investment securities totaled $ 44.1 million and $ 47.2 million, and $ 0 and $ 17.6 million for the three and nine months ended September 30, 2022 and 2021, respectively. The sale of investment securities for the three months ended September 30, 2022 and 2021 resulted in no gross realized gains for each period and losses of $ 96,000 and $ 0 , respectively. The sale of investment securities for the nine months ended September 30, 2022 and 2021 resulted in gross realized gains of $ 24,000 and $ 209,000 and losses of $ 96,000 and $ 72,000 , respectively.

Investment securities having a carrying value of approximately $ 350.1 million and $ 247.4 million were pledged to secure public deposits and for other purposes as of September 30, 2022 and December 31, 2021, respectively.

Information pertaining to available-for-sale securities with gross unrealized losses at September 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
September 30, 2022
U.S. treasury securities	$	841	$	( 7 )	$	789	$	( 5 )	$	1,630	$	( 12 )
U.S. agency	4,918		( 487 )		—		—		4,918		( 487 )
Asset backed securities	14,785		( 262 )		11,387		( 485 )		26,172		( 747 )
State, county & municipal securities	50,600		( 9,562 )		52,690		( 13,620 )		103,290		( 23,182 )
Corporate debt securities	26,326		( 2,538 )		15,086		( 1,579 )		41,412		( 4,117 )
Mortgage-backed securities	155,170		( 13,980 )		82,264		( 15,263 )		237,434		( 29,243 )
	$	252,640	$	( 26,836 )	$	162,216	$	( 30,952 )	$	414,856	$	( 57,788 )

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 September 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
September 30, 2022
U.S. Treasury	$	77,682	$	( 4,058 )	$	9,047	$	( 402,000 )	$	86,729	$	( 4,460 )
U.S. agency	6,235		( 489 )		8,352		( 1,364 )		14,587		( 1,853 )
State, county & municipal securities	47,941		( 7,526 )		67,023		( 13,504 )		114,964		( 21,030 )

Mortgage-backed securities	31,436		( 3,299 )		163,302		( 26,646 )		194,738		( 29,945 )
	$	163,294	$	( 15,372 )	$	247,724	$	( 41,916 )	$	411,018	$	( 57,288 )

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 September 30, 2022, there were 272 available-for-sale securities and 161 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 September 30, 2022 and December 31, 2021. Purchased loans are defined as loans that were acquired in bank acquisitions.


	September 30, 2022
(dollars in thousands)	Legacy Loans		Purchased Loans		Total
Construction, land and land development	$	215,731	$	19,923	$	235,654
Other commercial real estate	750,531		135,276		885,807
Total commercial real estate	966,262		155,199		1,121,461
Residential real estate	198,377		42,874		241,251
Commercial, financial, & agricultural (*)	191,362		15,223		206,585
Consumer and other	16,256		1,060		17,316
Total Loans	$	1,372,257	$	214,356	$	1,586,613


	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 $ 98,000 and $ 9.0 million in PPP loans at September 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 September 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
September 30, 2022
Construction, land and land development	$	215,087	$	240	$	404	$	215,731
Other commercial real estate	726,455		14,872		9,204		750,531
Total commercial real estate	941,542		15,112		9,608		966,262
Residential real estate	188,721		5,819		3,837		198,377
Commercial, financial, & agricultural	189,093		802		1,467		191,362
Consumer and other	16,149		58		49		16,256
Total Loans	$	1,335,505	$	21,791	$	14,961	$	1,372,257

(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 September 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 September 30, 2022, the Company did not have any loans classified as “doubtful” or a “loss”.


(dollars in thousands)	Pass		Special Mention		Substandard		Total Loans
September 30, 2022
Construction, land and land development	$	19,923	$	—	$	—	$	19,923
Other commercial real estate	131,111		3,117		1,048		135,276
Total commercial real estate	151,034		3,117		1,048		155,199
Residential real estate	40,444		632		1,798		42,874
Commercial, financial, & agricultural	14,638		82		503		15,223
Consumer and other	1,060		—		—		1,060
Total Loans	$	207,176	$	3,831	$	3,349	$	214,356

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 September 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
September 30, 2022
Construction, land and land development	$	315	$	—	$	315	$	143	$	215,273	$	215,731
Other commercial real estate	650		—		650		1,283		748,598		750,531
Total commercial real estate	965		—		965		1,426		963,871		966,262
Residential real estate	411		—		411		1,457		196,509		198,377
Commercial, financial, & agricultural	159		—		159		900		190,303		191,362
Consumer and other	29		—		29		26		16,201		16,256
Total Loans	$	1,564	$	—	$	1,564	$	3,809	$	1,366,884	$	1,372,257

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 September 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
September 30, 2022
Construction, land and land development	$	—	$	—	$	—	$	—	$	19,923	$	19,923
Other commercial real estate	—		—		—		126		135,150		135,276
Total commercial real estate	—		—		—		126		155,073		155,199
Residential real estate	125		—		125		864		41,885		42,874
Commercial, financial, & agricultural	—		—		—		503		14,720		15,223
Consumer and other	—		—		—		—		1,060		1,060
Total Loans	$	125	$	—	$	125	$	1,493	$	212,738	$	214,356

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 September 30, 2022.


	September 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	$	—	$	—	$	—	$	21
Commercial real estate	4,954		4,954		—		5,964
Residential real estate	640		640		—		804
Commercial, financial & agriculture	708		708		—		325
Consumer & other	—		—		—		1
	6,302		6,302		—		7,115

With An Allowance Recorded
Construction, land and land development	235		235		70		59
Commercial real estate	412		412		126		624
Residential real estate	299		350		57		781
Commercial, financial & agriculture	452		456		251		369
Consumer & other	—		—		—		—
	1,398		1,453		504		1,833

Purchased Credit Impaired Loans
Construction, land and land development	—		—		—		—
Commercial real estate	812		812		17		1,061
Residential real estate	—		—		—		14
Commercial, financial & agriculture	—		—		—		—
Consumer & other	—		—		—		113
	812		812		17		1,188
Total
Construction, land and land development	235		235		70		80
Commercial real estate	6,178		6,178		143		7,649
Residential real estate	939		990		57		1,599
Commercial, financial & agriculture	1,160		1,164		251		694
Consumer & other	—		—		—		114
	$	8,512	$	8,567	$	521	$	10,136

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 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 September 30, 2022 and 2021 was $ 152,000 and $ 261,000 , respectively. Interest income recorded on impaired loans during the nine months ended September 30, 2022 and 2021 was $ 532,000 and $ 825,000 , 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 September 30, 2022. The Company had one commercial real estate loan restructured during the three and nine month period ended September 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 nine months ended September 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 nine month periods ended September 30, 2022 and September 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 September 30, 2022
Beginning Balance	$	1,052	$	8,028	$	1,488	$	1,678	$	1,717	$	13,963
Charge-offs	—		—		—		( 118 )		( 33 )		( 151 )
Recoveries	5		5		23		7		10		50
Provision	873		345		424		1,163		( 1,485 )		$	1,320
Ending balance	$	1,930	$	8,378	$	1,935	$	2,730	$	209	$	15,182

Nine Months Ended September 30, 2022
Beginning Balance	$	1,127	$	7,691	$	1,805	$	1,083	$	1,204	$	12,910
Charge-offs	—		( 58 )		( 48 )		( 266 )		( 54 )		( 426 )
Recoveries	16		79		45		63		25		228
Provision	787		666		133		1,850		( 966 )		2,470
Ending balance	$	1,930	$	8,378	$	1,935	$	2,730	$	209	$	15,182


Period end amount allocated to
Individually evaluated for impairment	$	70	$	126	$	57	$	251	$	—	$	504
Collectively evaluated for impairment	1,860		8,235		1,878		2,479		209		14,661
Purchase credit impaired	—		17		—		—		—		17
Ending Balance	$	1,930	$	8,378	$	1,935	$	2,730	$	209	$	15,182

Loans
Individually evaluated for impairment	$	235	$	5,366	$	939	$	1,160	$	—	$	7,700
Collectively evaluated for impairment	235,419		879,629		240,312		205,425		17,316		1,578,101
Purchase credit impaired	—		812		—		—		—		812
Ending balance	$	235,654	$	885,807	$	241,251	$	206,585	$	17,316	$	1,586,613

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 September 30, 2021
Beginning Balance	$	1,125	$	7,277	$	2,273	$	1,773	$	423	$	12,871
Charge-offs	—		( 531 )		—		( 209 )		( 3 )		( 743 )
Recoveries	363		14		143		66		13		599
Provision	( 439 )		540		( 126 )		203		( 28 )		150
Ending balance	$	1,049	$	7,300	$	2,290	$	1,833	$	405	$	12,877
Nine Months Ended September 30, 2021
Beginning Balance	$	1,013	$	6,880	$	2,278	$	1,713	$	243	$	12,127
Charge-offs	—		( 568 )		—		( 225 )		( 44 )		( 837 )
Recoveries	448		108		254		83		44		937
Provision	( 412 )		880		( 242 )		262		162		650
Ending balance	$	1,049	$	7,300	$	2,290	$	1,833	$	405	$	12,877

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 September 30, 2022 and December 31, 2021:


(dollars in thousands)	September 30, 2022		December 31, 2021

Federal Home Loan Bank advances	95,000		51,656
Other borrowings	63,364		36,792
	$	158,364	$	88,448

Advances from the Federal Home Loan Bank (“FHLB”) have maturities ranging from 2022 to 2028 and interest rates ranging from 2.07 % to 2.95 %. 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, as well as U.S. Treasury and Agency securities. At September 30, 2022, the lendable collateral of those loans pledged is $ 126.6 million. At September 30, 2022, the Company had remaining credit availability from the FHLB of $ 585.6 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 September 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 September 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 September 30, 2022, $ 39.1 million of Subordinated Notes were outstanding. The proceeds from the sale of the Notes was used for general corporate purposes.

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


(dollars in thousands)
Year	Amount
2022	$	90,000




2027 and After	68,364
	$	158,364

The Company also has available federal funds lines of credit with various financial institutions totaling $ 64.5 million, with no outstanding balance at September 30, 2022.

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

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 September 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 nine months ended September 30, 2022 and 2021.


(dollars in thousands, except per share data)	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Numerator
Net income available to common stockholders	$	5,252	$	5,583	$	13,991	$	14,500

Denominator
Weighted average number of common shares
Outstanding for basic earnings per common share	17,645		12,345		17,043		10,447




Weighted-average number of shares outstanding for diluted earnings per common share	17,645		12,345		17,043		10,447

Earnings per share - basic	$	0.30	$	0.45	$	0.82	$	1.39

Earnings per share - diluted	$	0.30	$	0.45	$	0.82	$	1.39

(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.

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

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)


	Contract Amount
(dollars in thousands)	September 30, 2022		December 31, 2021
Loan commitments	$	365,739	$	318,853
Letters of credit	3,584		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 September 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.

• 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.

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

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 September 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
September 30, 2022
Assets
Cash and short-term investments	$	85,040	$	85,040	$	85,040	$	—	$	—
Investment securities available for sale	439,716		439,716		—		439,716		—
Investment securities held to maturity	468,306		411,018		—		411,018		—
Other investments, at cost	12,850		12,850		—		11,235		1,615
Loans held for sale	23,945		23,945		—		23,945		—
Loans, net	1,571,431		1,420,257		—		—		1,420,257

Liabilities
Deposits	2,409,662		2,409,080		—		2,409,080		—


Federal Home Loan Bank advances	95,000		95,011		—		95,011		—
Other borrowings	63,364		57,807		—		57,807		—


	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 September 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 September 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)
September 30, 2022
Nonrecurring
Collateral dependent impaired loans	$	949	$	—	$	—	$	949
Other real estate owned	246		—		—		246
Total nonrecurring assets	$	1,195	$	—	$	—	$	1,195


			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 September 30, 2022 and December 31, 2021. This table is comprised primarily of collateral dependent impaired loans and other real estate owned:


(dollars in thousands)	September 30, 2022		Valuation Techniques	Unobservable Inputs	Range Weighted Avg
Collateral dependent impaired loans	$	949	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 September 30, 2022 and December 31, 2021.

As of September 30, 2022

(dollars in thousands)

Fair Value

Valuation
Techniques

Unobservable
Inputs

Range
(Weighted Avg)

Other investments

1,615

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 nine months ended September 30, 2022.


	Available for Sale Securities
	Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022
(dollars in thousands)
Balance, Beginning	$	2,769	$	4,255
Redemption of security	( 1,151 )		( 2,507 )
Unrealized/realized losses included in earnings	( 3 )		( 133 )
Balance, Ending	$	1,615	$	1,615

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 nine months ended September 30, 2022 and September 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 nine months ended September 30, 2022 and 2021:


(dollars in thousands)	Bank		Mortgage Banking		Small Business Specialty Lending Division		Totals
Nine Months Ended September 30, 2022
Net Interest Income	$	58,156	$	145	$	924	$	59,225
Provision for Loan Losses	2,470		—		—		2,470
Noninterest Income	13,770		7,993		5,621		27,384
Noninterest Expenses	54,742		7,799		5,107		67,648
Income Taxes	2,174		104		222		2,500
Segment Profit	$	12,540	$	235	$	1,216	$	13,991

Segments Assets at September 30, 2022	$	2,738,082	$	16,905	$	50,925	$	2,805,912

Full time employees at September 30, 2022	396		61		29		486


(dollars in thousands)	Bank		Mortgage Banking		Small Business Specialty Lending Division		Totals
Nine Months Ended September 30, 2021
Net Interest Income	$	45,977	$	429	$	761	$	47,167
Provision for Loan Losses	650		—		—		650
Noninterest Income	10,409		10,087		4,979		25,475
Noninterest Expenses	41,922		8,445		3,746		54,113
Income Taxes	2,836		124		419		3,379
Segment Profit	$	10,978	$	1,947	$	1,575	$	14,500

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

Full time employees at September 30, 2021	417		53		24		494

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 September 30, 2022
Net Interest Income	$	20,508	$	17	$	340	$	20,865
Provision for Loan Losses	1,320		—		—		1,320
Noninterest Income	4,288		2,345		1,546		8,179
Noninterest Expenses	17,537		2,289		1,541		21,367
Income Taxes	1,047		10		48		1,105
Segment Profit	$	4,892	$	63	$	297	$	5,252


(dollars in thousands)	Bank		Mortgage Banking		Small Business Specialty Lending Division		Totals
Three months ended September 30, 2021
Net Interest Income	$	17,181	$	138	$	549	$	17,868
Provision for Loan Losses	150		—		—		150
Noninterest Income	4,340		3,104		1,994		9,438
Noninterest Expenses	16,941		2,765		1,505		21,211
Income Taxes	434		( 290 )		218		362
Segment Profit	$	3,996	$	767	$	820	$	5,583

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 September 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 September 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 September 30, 2022 and December 31, 2021 on a consolidated basis and for the subsidiary, as defined. Regulatory capital ratios for September 30, 2022 and December 31,

COLONY BANKCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

2021 were calculated 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 September 30, 2022
Total Capital to Risk-Weighted Assets
Consolidated	$	311,849	15.78	%	$	158,098	8.00	%	N/A		N/A
Colony Bank	263,104		13.34		157,784		8.00		$	197,229	10.00	%

Tier 1 Capital to Risk-Weighted Assets
Consolidated	257,531		13.04		118,496		6.00		N/A		N/A
Colony Bank	247,922		12.57		118,340		6.00		157,786		8.00

Common Equity Tier 1 Capital to Risk-Weighted Assets
Consolidated	233,302		11.81		88,896		4.50		N/A		N/A
Colony Bank	247,922		12.57		88,755		4.50		128,202		6.50

Tier 1 Capital to Average Assets
Consolidated	257,531		9.28		111,005		4.00		N/A		N/A
Colony Bank	247,922		8.96		110,679		4.00		138,349		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 October 20, 2022, the Board of Directors declared a quarterly cash dividend of $ 0.1075 per share, to be paid on its common stock on November 18, 2022, to shareholders of record as of the close of business on November 4, 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 September 30, 2022 and on our results of operations for the three and nine months ended September 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 Quarterly Report on Form 10-Q 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;

• developments in our mortgage banking business, including loan modifications, general demand, and the effects of judicial or regulatory requirements or guidance;

• 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;

• significant turbulence or a disruption in the capital or financial markets and the effect of a fall in stock market prices on our investment securities;

• 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 past 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 Federal Deposit Insurance Corporation ("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 September 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 September 30, 2022 and December 31, 2021, and results of operations for each of the three and nine month periods ended September 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 September 30, 2022, the Company had total consolidated assets of $2.8 billion, total loans, net of $1.6 billion, total deposits of $2.4 billion, and stockholders’ equity of $226.1 million. The Company reported net income of $5.3 million, or $0.30 per diluted share, for the three months ended September 30, 2022, and $14.0 million, or $0.82 per diluted share, for the first nine months of 2022, compared to net income of $5.6 million, or $0.45 per diluted share, for the three months ended September 30, 2021, and $14.5 million, or $1.39 per diluted share, for the first nine months of 2021. The slight decrease in net income for the three and nine months ended September 30, 2022 compared to the same periods ended September 30, 2021 was primarily driven by the increase in provision for loan losses, 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 $21.0 million for the third quarter of 2022, compared to $18.0 million for the same period in 2021, primarily due to an increase in investment securities and loan volume. The net interest margin decreased to 3.25% for the quarter ended September 30, 2022 from 3.48% for the same period in 2021. Net interest income on a tax equivalent basis increased to $59.5 million for the first nine months of 2022, compared to $47.4 million for the first nine months of 2021, primarily due to an increase in investment securities and loan volume. The net interest margin decreased to 3.19% for the nine months ended September 30, 2022 from 3.49% for the same period in 2021. The reason for the decrease in net interest margin for the three months ended September 30, 2022 compared to the same period in 2021 is primarily due to a decrease in yield on loans as well as an increase in deposit and borrowing rates. For the nine months ended September 30, 2022 compared to the same period in 2021, the decrease in net interest margin was due to a decrease in yield on loans and an increase in borrowing rates partially offset by a decrease in deposit rates.

Provision for loan losses for the three and nine months ended September 30, 2022 was $1.3 million and $2.5 million compared to $150,000 and $650,000 for the same periods in 2021, respectively. Net charge-offs for the third quarter of 2022 were $101,000 compared to$144,000 for the same period in 2021. Net charge-offs for the first nine months of 2022 were $198,000 compared to net recoveries of $100,000 for the same period in 2021. As of September 30, 2022, Colony’s allowance for loan losses was $15.2 million, or 0.96% of total loans, compared to $12.9 million, or 0.96% of total loans, at December 31, 2021. At September 30, 2022 and December 31, 2021, nonperforming assets were $5.5 million and $5.8 million, or 0.20% and 0.21% of total assets, respectively.

Noninterest income of $8.2 million for the third quarter of 2022 was down $1.3 million, or 13.34%, from the third quarter of 2021. The decrease was primarily due to decreases in both mortgage fee income and gains on sales of SBA loans, offset by increases in service charges on deposits and interchange fees. Noninterest income of $27.4 million for the nine months ended of 2022 was up $1.9 million, or 7.49%, from the third quarter of 2021. The increase was primarily due to increases in service charges, interchange fees and gain on sales of SBA loans and 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 September 30, 2022, noninterest expense was $21.4 million, an increase of $156,000, or 0.74%, from the same period in 2021. For the nine months ended September 30, 2022, noninterest expense was $67.6 million, an increase of $13.5 million, or 25.0%, 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 $59.5 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.

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 $5.3 million and $14.0 million and $0.30 and $0.82, respectively, for the first three and nine months of 2022. This compared to net income and diluted earnings per share of $5.6 million and $14.5 million and $0.45 and $1.39, 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 third quarter of 2022 and 2021 was $21.0 million and $18.0 million, respectively. This increase is primarily due to an increase in volume of securities and loans. The net interest margin for the third quarter of 2022 and 2021 was 3.25% and 3.48% respectively. This decrease in net interest margin for the third quarter of 2022 compared to the same period in 2021 is primarily a result of the increase in higher borrowing yields as well as higher yields paid on deposits.

Fully taxable equivalent net interest income for the nine months ended September 30, 2022 and 2021 was $59.5 million and $47.4 million, respectively. This increase is primarily due to an increase in volume of securities and loans. The net interest margin for the nine months ended September 30, 2022 and 2021 was 3.19% and 3.49%, respectively. This decrease in net

interest margin for the nine months ended September 30, 2022 compared to the same period in 2021 is a result of the decrease in loan yields as well as higher deposit and borrowing yields.

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 nine months ended September 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 $242.1 million and $431.7 million as well as an increase in loans of $310.8 million and $315.1 million for the three and nine months ended September 30, 2022 compared to the same periods in 2021. The loan increase is partially due to the SouthCrest acquisition and primarily due to loan growth. The increase in average liabilities for the three and nine months ended September 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 0.30% in the third quarter of 2021 to 0.57% in the third quarter of 2022. The yield on total interest-bearing liabilities increased to 0.41% from 0.33% for the nine months ended September 30, 2022 and 2021, respectively, 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. The FOMC again raised the rate twice during the third quarter of 2022, each time by 75 basis points.


Table 1 - Average Balance Sheet and Net Interest Analysis
	Three Months Ended September 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)	$	1,553,882	$	18,183	4.64	%	$	1,243,066	$	16,085	5.25	%
Investment securities, taxable	809,692		4,711		2.31		614,404		2,668		1.76
Investment securities, tax-exempt (2)	124,038		638		2.04		77,255		362		1.90
Deposits in banks and short term investments	70,455		278		1.56		166,064		57		0.14
Total interest-earning assets	$	2,558,067	$	23,810	3.69	%	$	2,100,789	$	19,172	3.70	%
Noninterest-earning assets	219,323						172,115
Total assets	$	2,777,390					$	2,272,904
Liabilities and stockholders' equity
Interest-bearing liabilities:
Interest-earning demand and savings	$	1,424,171	$	772	0.21	%	$	1,169,693	$	319	0.11	%
Other time	370,282		677		0.72		320,484		380		0.48
Total interest-bearing deposits	1,794,453		1,449		0.32		1,490,177		699		0.19
Federal funds purchased	541		3		2.20		—		—		—
Federal Home Loan Bank advances	96,848		555		2.27		42,391		171		1.64

Other borrowings	65,741		822		4.96		37,289		289		3.14
Total other interest-bearing liabilities	163,130		1,380		3.36		79,680		460		2.34
Total interest-bearing liabilities	$	1,957,583	$	2,829	0.57	%	$	1,569,857	$	1,159	0.30	%
Noninterest-bearing liabilities:
Demand deposits	572,257						485,241
Other liabilities	11,993						20,697
Stockholders' equity	235,557						197,109
Total noninterest-bearing liabilities and stockholders' equity	819,807						703,047
Total liabilities and stockholders' equity	$	2,777,390					$	2,272,904
Interest rate spread					3.12	%					3.40	%
Net interest income			$	20,981					$	18,013
Net interest margin					3.25	%					3.48	%

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 $33,000 and $73,000 for the quarters ended September 30, 2022 and 2021, respectively, are included in income and fees on loans. Accretion income of $122,000 and $104,000 for the quarters ended September 30, 2022 and 2021 are also included in income and fees on loans.

2. Taxable-equivalent adjustments totaling $83,000 and $72,000 for the quarters ended September 30, 2022 and 2021, respectively, are included in tax-exempt interest on investment securities.


Table 1 - Average Balance Sheet and Net Interest Analysis
	Nine Months Ended September 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)	$	1,448,661	$	50,526	4.66	%	$	1,133,533	$	43,890	5.18	%
Investment securities, taxable	831,438		12,795		2.06		468,561		6,011		1.72
Investment securities, tax-exempt (2)	116,615		1,661		1.90		47,839		677		1.89
Deposits in banks and short term investments	101,432		437		0.58		165,280		155		0.13
Total interest-earning assets	2,498,146		65,419		3.50		1,815,213		50,733		3.74
Noninterest-earning assets	213,556						121,417
Total assets	$	2,711,702					$	1,936,630
Liabilities and stockholders' equity
Interest-bearing liabilities:
Interest-earning demand and savings	$	1,432,892	$	1,340	0.13	%	$	978,181	$	630	0.09	%
Other time	347,383		1,334		0.51		278,508		1,291		0.62
Total interest-bearing deposits	1,780,275		2,674		0.14		1,256,689		1,921		0.20
Federal funds purchased	2,820		22		1.04		—		—		—
Federal Home Loan Bank advances (3)	65,191		1,746		3.58		29,197		401		1.84
Paycheck Protection Program Liquidity Facility	—		—		—		34,155		93		0.36
Other borrowings	47,675		1,441		4.04		37,536		896		3.19
Total other interest-bearing liabilities	115,686		3,209		3.71		100,888		1,390		1.84
Total interest-bearing liabilities	1,895,961		5,883		0.41		1,357,577		3,311		0.33
Noninterest-bearing liabilities:
Demand deposits	564,425						411,307
Other liabilities	11,357						5,096
Stockholders' equity	239,959						162,650
Total noninterest-bearing liabilities and stockholders' equity	815,741						579,053
Total liabilities and stockholders' equity	$	2,711,702					$	1,936,630
Interest rate spread					3.09	%					3.41	%
Net interest income			$	59,536					$	47,422
Net interest margin					3.19	%					3.49	%

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 $95,000 and $206,000 for the nine months ended September 30, 2022 and 2021, respectively, are included in income and fees on loans. Accretion income of $550,000 and $375,000 for the nine months ended September 30, 2022 and 2021 are also included in income and fees on loans.

2. Taxable-equivalent adjustments totaling $216,000 and $135,000 for the nine months ended September 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 nine months ended September 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 for the nine month period ended September 30, 2022 compared to the nine month period ended September 30, 2021.


Table 2 - Change in Interest Revenue and Expense on a Taxable Equivalent Basis
	Nine Months Ended September 30, 2022
	Compared to Nine Months Ended September 30, 2021 Increase (Decrease) Due to Changes in
(dollars in thousands)	Volume		Rate		Total
Interest-earning assets:
Loans, net of unearned fees	$	16,324	$	(9,688)	$	6,636
Investment securities, taxable	6,241		543		6,784
Investment securities, tax-exempt	1,300		(316)		984
Deposits in banks and short term investments	(83)		365		282
Total interest-earning assets (FTE)	23,782		(9,096)		14,686
Interest-bearing liabilities:
Interest-Bearing Demand and Savings Deposits	409		301		710
Time Deposits	427		(384)		43
Federal funds purchased	—		22		22
Federal Home Loan Bank Advances	662		683		1,345
Paycheck Protection Program Liquidity Facility	(123)		30		(93)
Other Borrowed Money	323		222		545
Total interest-bearing liabilities	1,698		874		2,572
Increase in net interest income (FTE)	$	22,084	$	(9,970)	$	12,114

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 nine months ended September 30, 2022 was $1.3 million and $2.5 million compared to $150,000 and $650,000 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 nine months ended September 30, 2022 compared to the same periods in 2021 is largely due to the loan growth the Bank has experienced during 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 September 30,				Change				Nine Months Ended September 30,				Change
(dollars in thousands)	2022		2021		Amount		Percent		2022		2021		Amount		Percent
Service charges on deposits	$	2,104	$	1,792	$	312	17.4	%	$	5,823	$	4,278	$	1,545	36.1	%
Mortgage fee income	1,708		3,107		(1,399)		(45.0)		7,356		10,107		(2,751)		(27.2)
Gain on sales of SBA loans	1,215		1,813		(598)		(33.0)		4,805		4,548		257		5.7
(Loss)/gain on sales of securities	(96)		—		(96)		100.0		(72)		137		(209)		(152.6)
Interchange fee	2,179		1,745		434		24.9		6,338		4,941		1,397		28.3
BOLI income	312		280		32		11.4		977		710		267		37.6
Other noninterest income	757		701		56		8.0		2,157		754		1,403		186.1
Total noninterest income	$	8,179	$	9,438	$	(1,259)	(13.34)	%	$	27,384	$	25,475	$	1,909	7.49	%

For the three and nine months ended September 30, 2022 , noninterest income decreased $1.3 million and increased $1.9 million, respectively, compared to the same periods in 2021. The primary reason for the three month decrease was due to decreases in both mortgage fee income and gains on sales of SBA loans. The nine month increase is primarily due to an increase in almost all noninterest income accounts offset by the decrease in mortgage fee income.

Service charges on deposit accounts. For the three and nine months ended September 30, 2022, services charges on deposits was $2.1 million and $5.8 million , an increase of $312,000 , or 17.4%, and $1.5 million, or 36.1%, 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 nine months ended September 30, 2022, mortgage fee income was $1.7 million and $7.4 million, a decrease of $1,399,000, or 45.0%, and $2.8 million, or 27.2%, compared to the same periods in 2021, respectively. During the three and nine months ended September 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 corresponding decrease.

Gain on Sales of SBA loan s. For the three and nine months ended September 30, 2022, net realized gains on the sale of the guaranteed portion of SBA loans totaled $1.2 million and $4.8 million, a decrease of $598,000, or 33.0%, and an increase of $257,000, or 5.7%, compared to the same periods in 2021, respectively. The fluctuations in 2022, as compared to the same periods in 2021, were the result of production variations and secondary market changes driven by the current interest rate environment.

Interchange Fees. For the three and nine months ended September 30, 2022, interchange fee income was $2.2 million and $6.3 million , an increase of $434,000, or 24.9%, and $1.4 million , or 28.3%, compared to the same periods in 2021. The increase in interchange fees was primarily attributable to growth of customers from the SouthCrest acquisition and the continued success with the Discover® Card program.

Other noninterest income. For the three and nine months ended September 30, 2022, other noninterest income was $757,000 and $2.2 million , an increase of $56,000, or 8.0%, and $1.4 million , or 186.1%, 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 quarters of 2021 partially offset by an 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 September 30,				Change				Nine Months Ended September 30,				Change
(dollars in thousands)	2022		2021		Amount		Percent		2022		2021		Amount		Percent
Salaries and employee benefits	$	12,154	$	11,826	$	328	2.8	%	$	40,498	$	31,907	$	8,591	26.9	%
Occupancy and equipment	1,645		1,599		46		2.9		4,872		4,169		703		16.9
Acquisition-related expenses	2		1,994		(1,992)		(99.9)		142		3,031		(2,889)		(95.3)
Information technology expenses	2,491		2,045		446		21.8		7,394		5,493		1,901		34.6
Professional fees	881		804		77		9.6		2,773		1,975		798		40.4
Advertising and public relations	876		674		202		30.0		2,406		1,817		589		32.4
Communications	471		310		161		51.9		1,325		837		488		58.3


Other noninterest expense	2,847		1,959		888		45.3		8,238		4,884		3,354		68.7
Total noninterest expense	$	21,367	$	21,211	$	156	0.7	%	$	67,648	$	54,113	$	13,535	25.0	%

Noninterest expense increased for the three and nine months ended September 30, 2022 by $156,000 and $13.5 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 nine months ended September 30, 2022 was $12.2 million and $40.5 million, an increase of $328,000 , or 2.8%, and $8.6 million, or 26.9%, 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 nine months ended September 30, 2022 was $2.5 million and $7.4 million, an increase of $446,000, or 21.8% and $1.9 million, or 34.6%, compared to the same periods in 2021, respectively. 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 nine months ended September 30, 2022 decreased $2.0 million, or 99.9% and $2,889,000, or 95.3%, 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 nine months ended September 30, 2022 was $2.8 million and $8.2 million, an increase of $888,000, or 45.3% and $3.4 million, or 68.7%, compared to the same periods in 2021, respectively. These increases relate primarily to increased amortization expense of intangibles and servicing rights valuations along with increased FDIC insurance premiums.

Income Tax Expense

Income tax expense for the three and nine months ended September 30, 2022 was $1.1 million and $2.5 million compared to $362,000 and $3.4 million for the same periods in 2021, respectively. The Company’s effective tax rates for the three and nine months ended September 30, 2022 were 17.4% and 15.2% compared to 6.1% and 18.9%, 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 increased to $2.8 billion at September 30, 2022 from $2.7 billion at December 31, 2021.

Loans and Allowance for Loan Losses

At September 30, 2022, gross loans outstanding (excluding loans held for sale) were $1.6 billion, an increase of $248.6 million, or 18.6%, compared to $1.3 billion at December 31, 2021. During the nine months ended September 30, 2022, PPP loans totaling approximately $8.4 million were forgiven through the SBA.

At September 30, 2022, approximately 70.7% of our loans are secured by commercial real estate. The following table presents a summary of the loan portfolio as of September 30, 2022 and December 31, 2021.


Table 5 - Loans Outstanding
(dollars in thousands)	September 30, 2022			December 31, 2021
Construction, land and land development	$	235,654		$	165,446
Other commercial real estate	885,807			787,392
Total commercial real estate	1,121,461			952,838
Residential real estate	241,251			212,527
Commercial, financial, & agricultural (*)	206,585			154,048
Consumer and other	17,316			18,564
Total loans	$	1,586,613		$	1,337,977

As a percentage of total loans:
Construction, land and land development	14.9		%	12.4		%
Other commercial real estate	55.8		%	58.8		%
Total commercial real estate	70.7		%	71.2		%
Residential real estate	15.2		%	15.9		%
Commercial, financial & agricultural	13.0		%	11.5		%
Consumer and other	1.1		%	1.4		%
Total loans	100		%	100		%

(*) Includes $98,000 and $9.0 million in PPP loans at September 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 $15.2 million at September 30, 2022 compared to $12.9 million at September 30, 2021, an increase of $2.3 million, or 17.9%. The allowance for loan losses as a percentage of loans was 0.96% and 0.98% at September 30, 2022 and 2021, respectively. The provision was $2.5 million compared to $650,000 for the nine months ended September 30, 2022 and September 30, 2021, respectively. The provision was $1.3 million compared to $150,000 for the three months ended September 30, 2022 and September 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 September 30, 2022, included elsewhere in this Quarterly Report on Form 10-Q.

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


Table 6 - Analysis of Allowance for Loan Loss
	September 30, 2022				September 30, 2021
(dollars in thousands)	Reserve		%*		Reserve		%*
Construction, land and land development	$	1,930	14.9	%	$	1,049	11.7	%
Other commercial real estate	8,378		55.8	%	7,300		57.3	%
Residential real estate	1,935		15.2	%	2,290		16.8	%
Commercial, financial, & agricultural	2,730		13.0	%	1,833		12.7	%
Consumer and other	209		1.1	%	405		1.5	%
	$	15,182	100	%	$	12,877	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 nine months ended September 30, 2022 and 2021.


Table 7 - Summary of Allowance for Loan Loss
	Three Months Ended							Nine Months Ended
(dollars in thousands)		September 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
Allowance for loan loss - beginning balance		$	13,963		$	12,871		$	12,910		$	12,127
Charge-offs:
Construction, land and land development		—			—			—			—
Other commercial real estate		—			531			58			568
Residential real estate		—			—			48			—
Commercial, financial, & agricultural		118			209			266			225
Consumer and other		33			3			54			44
Total loans charged-off		151			743			426			837
Recoveries:
Construction, land and land development		5			363			16			448
Other commercial real estate		5			14			79			108
Residential real estate		23			143			45			254
Commercial, financial, & agricultural		7			66			63			83
Consumer and other		10			13			25			44
Total recoveries		50			599			228			937
Net (recoveries)/charge-offs		101			144			198			(100)
Provision for loan loss		1,320			150			2,470			650
Allowance for loan loss - ending balance		$	15,182		$	12,877		$	15,182		$	12,877

Net (recoveries)/charge-offs to average loans (annualized)		0.03		%	0.05		%	0.02		%	(0.02)		%
Allowance for loan losses to total loans		0.96			0.98			0.96			0.98
Allowance to nonperforming loans		286.34			105.15			286.34			105.15

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

Nonperforming Assets

Asset quality experienced slight improvement during the first nine 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 $5.3 million at September 30, 2022, a decrease of $147,000, or 2.7%, 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 September 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 nine months of 2022. As of September 30, 2022, total nonperforming assets as a percent of total assets decreased to 0.20% 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 September 30, 2022 and December 31, 2021 were as follows:


Table 8 - Nonperforming Assets
(dollars in thousands)	September 30, 2022			December 31, 2021
Nonaccrual loans	$	5,302		$	5,449
Loans past due 90 days and accruing	—			—
Other real estate owned	246			281
Repossessed assets	—			49
Total nonperforming assets	$	5,548		$	5,779
Nonaccrual loans by loan segment
Construction, land and land development	$	143		$	31
Commercial real estate	1,409			837
Residential real estate	2,321			3,839
Commercial, financial & agriculture	1,403			708
Consumer & other	26			34
Total nonaccrual loans	$	5,302		$	5,449

NPAs as a percentage of total loans and OREO	0.35		%	0.43		%
NPAs as a percentages of total assets	0.20		%	0.21		%
Nonaccrual loans as a percentage of total loans	0.33		%	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 September 30, 2022, TDR increased to $7.5 million from $7.3 million reported at December 31, 2021. At September 30, 2022, $845,000 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 September 30, 2022 and December 31, 2021 were as follows:


Table 9 - Deposits
(dollars in thousands)	September 30, 2022		December 31, 2021
Noninterest-bearing deposits	$	558,347	$	552,576
Interest-bearing deposits	823,179		930,811
Savings	621,875		541,993
Time, $250,000 and over	87,361		73,407
Other time	318,900		275,821
Total deposits	$	2,409,662	$	2,374,608

Total deposits increased $35.1 million to $2.41 billion at September 30, 2022 from $2.37 billion at December 31, 2021. As of September 30, 2022, 23.2% of total deposits were comprised of noninterest-bearing accounts and 76.8% comprised of interest-bearing deposit accounts, compared to 23.3% and 76.7% as of December 31, 2021, respectively. The increase in our deposits is due primarily to the increase in rates the Company offers on its deposit products as well as the increase in brokered deposits.

We had $30.4 million and $883,000 in brokered deposits at September 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 September 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 September 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. There were no outstanding balances of Federal Funds purchased at September 30, 2022 and December 31, 2021, respectively.

Cash and cash equivalents at September 30, 2022 and December 31, 2021 were $85.0 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 September 30, 2022 and December 31, 2021, we had $95.0 million and $51.7 million, respectively, of outstanding advances from the FHLB. Based on the values of loans pledged as collateral, we had $585.6 million and $574.7 million of additional borrowing availability with the FHLB at September 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 September 30, 2022 and December 31, 2021. The Bank exceeded all regulatory capital requirements and was considered to be “well-capitalized” as of September 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	September 30, 2022		December 31, 2021
CET1 risk-based capital ratio	11.81	%	9.87	%
Tier 1 risk-based capital ratio	13.04		11.28
Total risk-based capital ratio	15.78		12.05
Leverage ratio	9.28		7.25

Colony Bank
CET1 risk-based capital ratio	12.57	%	11.41	%
Tier 1 risk-based capital ratio	12.57		11.41
Total risk-based capital ratio	13.34		12.18
Leverage ratio	8.96		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
	September 30, 2022	December 31, 2021
Changes in rates
200 basis point increase	4.56%	13.80%
100 basis point increase	2.34	6.83
100 basis point decrease	(2.53)	(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 September 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 September 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 September 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 .-filed as Exhibit 3.2 to the Registrant's Quarterly Report on Form 10Q (File No. 0-12436), filed with the Commission on August 12, 2022 and incorporated herein by reference.

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.



10.1			Employment Agreement, Dated Septemb er 9 , 2022, Between R Dallis Copeland, Jr. and Colony Bankcorp, Inc . †



10.2			Employment Agreement, Dated September 9, 2022, Between Max Edward Hoyle and Colony Bankcorp, Inc .†



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 September 30, 2022 and December 31, 2021; (ii) Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2022 and 2021; (iii) Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021; (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021; (v) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 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 nine months ended September 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: November 10, 2022			T. Heath Fountain
			Chief Executive Officer
			(Principal Executive Officer)

			/s/ Andrew Borrmann
Date: November 10, 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.-filed as Exhibit 3.2 to the Registrant's Quarterly Report on Form 10Q (File No. 0-12436), filed with the Commission on August 12, 2022 and incorporated herein by reference. 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. 10.1 Employment Agreement, DatedSeptember 9, 2022, Between R Dallis Copeland, Jr. and Colony Bankcorp, Inc. 10.2 Employment Agreement, Dated September 9, 2022, BetweenMax Edward Hoyleand Colony Bankcorp, Inc. 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 Sept. 30, 2022

Exhibits