COLONY BANKCORP INC

Previous wording

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, 2023 through March 31, 2024 and on our results of operations for the three months ended March 31, 2024 and 2023. This discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto in the Company's 2023 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.

Current wording

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, 2023 through June 30, 2024 and on our results of operations for the three and six months ended June 30, 2024 and 2023. This discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto in the Company's 2023 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.

Previous wording

•the impact of current and future economic and market conditions generally (including seasonality) and in the financial services industry, nationally and within our primary market areas, including the effects of inflationary pressures, changes in interest rates, slowdowns in economic growth, and the potential for high unemployment rates, as well as the financial stress on borrowers and changes to customer and client behavior (including the velocity of loan repayment) and credit risk as a result of the foregoing

Current wording

•the impact of current and future economic and market conditions generally (including seasonality) and in the financial services industry, nationally and within our primary market areas, including the effects of inflationary pressures, changes in interest rates (including the impact of prolonged elevated interest rates on our financial projections and models), slowdowns in economic growth, and the potential for high unemployment rates, as well as the financial stress on borrowers and changes to customer and client behavior (including the velocity of loan repayment) and credit risk as a result of the foregoing

Previous wording

•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 or elevated interest rates and persistent inflation;

Current wording

•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 prolonged elevated interest rates and inflation;

Previous wording

•our ability to successfully manage our credit risk and the sufficiency of our allowance for credit losses ("ACL"), including the implementation of the Current Expected Credit Losses ("CECL") model;

Current wording

•our ability to successfully manage our credit risk and the sufficiency of our allowance for credit losses ("ACL");

Previous wording

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

Current wording

•our ability to prevent, identify and address cyber-security risks (which may be exacerbated by the development of generative artificial intelligence), fraud and systems errors;

Previous wording

The following discussion and analysis presents the more significant factors affecting the Company’s financial condition as of March 31, 2024 and December 31, 2023, and results of operations for the three month periods ended March 31, 2024 and 2023. 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.

Current wording

The following discussion and analysis presents the more significant factors affecting the Company’s financial condition as of June 30, 2024 and December 31, 2023, and results of operations for the three and six month periods ended June 30, 2024 and 2023. 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.

Previous wording

At March 31, 2024, the Company had total consolidated assets of $3.0 billion, total loans, net of $1.8 billion, total deposits of $2.5 billion, and stockholders’ equity of $259.9 million. The Company reported net income of $5.3 million, or $0.30 per diluted share, for the three months ended March 31, 2024 compared to net income of $5.0 million, or $0.29 per diluted share, for the three months ended March 31, 2023. The increase in net income for the three months ended March 31, 2024 compared to the same period ended March 31, 2023 was primarily the result of increased noninterest income from our complementary lines of business which include mortgage, SBSL, marine/RV lending, insurance and wealth and merchant services coupled with the continued impact of the expense reduction initiative implemented in 2023 which included a reduction in force along with an intentional focus on expense control in all noninterest expense categories.

Current wording

At June 30, 2024, the Company had total consolidated assets of $3.0 billion, total loans, net of $1.8 billion, total deposits of $2.5 billion, and stockholders’ equity of $264.7 million. The Company reported net income of $5.5 million, or $0.31 per diluted share, for the three months ended June 30, 2024 and $10.8 million, or $0.62 per diluted share, for the first six months of 2024 compared to net income of $5.3 million, or $0.30 per diluted share, for the three months ended June 30, 2023 and $10.3 million, or $0.59 per diluted share, for the first six months of 2023. The increases in net income for the three and six months ended June 30, 2024 compared to the same periods ended June 30, 2023 was primarily the result of increased noninterest income from our complementary lines of business which include mortgage, small business specialty lending, marine/RV lending, insurance and wealth and merchant services coupled with the continued impact of the expense reduction initiative implemented in 2023 which included a reduction in force along with an intentional focus on expense control in all noninterest expense categories.

Previous wording

Net interest income on a tax equivalent basis was $18.8 million for the first quarter of 2024 compared to $20.7 million for the first quarter of 2023, a decrease of $1.9 million. Increases can be seen in income on interest earning assets which is more than offset by increases in expenses on interest bearing liabilities due to the significant rise in interest rates period over period along with increases in FHLB advances. Income on interest earning assets increased $5.0 million to $33.5 million for the first quarter of 2024 compared to the respective period in 2023. Expense on interest bearing liabilities increased $6.9 million to $14.7 million for the first quarter of 2024 compared to the respective period in 2023.

Current wording

Net interest income on a tax equivalent basis was $18.6 million for the second quarter of 2024 compared to $19.3 million for the second quarter of 2023, a decrease of $747,000. Net interest income on a tax equivalent basis for the six months ended June 30, 2024 was $37.4 million, compared to $40.1 million for the six months ended June 30, 2023, a decrease of $2.7 million. Increases can be seen in income on interest earning assets which is more than offset by increases in expenses on interest bearing liabilities due to the significant rise in interest rates period over period along with increases in FHLB advances. Income on interest earning assets increased $2.6 million to $33.5 million for the second quarter of 2024 compared to the respective period in 2023. Expense on interest bearing liabilities increased $3.3 million to $14.9 million for the second quarter of 2024 compared to the respective period in 2023. Income on interest earning assets increased $7.6 million to $67.0 million for the first six months of 2024 compared to the respective period in 2023. Expense on interest bearing liabilities increased $10.2 million to $29.6 million for the first six months of 2024 compared to the respective period in 2023.

Previous wording

Provision for credit losses for the three months ended March 31, 2024 was $1.0 million, which represents $950,000 in provision for credit losses on loans and $50,000 in provision for credit losses on unfunded commitments. For the first quarter of 2024, there were net charge-offs of $664,000 compared to $237,000 for the same period in 2023. Although we did see an increase in loan charge-offs following a period of historically low charge-offs, this uptick pertains to a small number of loans and does not raise any concerns regarding the quality of our overall loan portfolio. Colony’s allowance for credit losses on loans was $18.7 million, or 1.00% of total loans at March 31, 2024, compared to $18.4 million, or 0.98% of total loans, at December 31, 2023. At March 31, 2024 and December 31, 2023, nonperforming assets were $7.0 million and $10.7 million, or 0.23% and 0.35% of total assets, respectively.

Current wording

Provision for credit losses for the three and six months ended June 30, 2024 was $650,000 and $1.7 million, which represents $816,000 and $1.8 million in provision for credit losses on loans and $166,000 and $116,000 in release of credit losses on unfunded commitments, respectively. This is compared to $200,000 and $1.1 million for the three and six months ended June 30, 2023, which represents $430,000 and $1.2 million in provision for credit losses on loans and $230,000 and $91,000 in release of credit losses on unfunded commitments, respectively. For the second quarter of 2024, there were net charge-offs of $667,000 compared to net recoveries of $37,000 for the same period in 2023. Net charge-offs for the first six months of 2024 were $1.3 million compared to $200,000 for the same period in 2023. Although we did see an increase in loan charge- offs, this uptick pertains to a small number of loans and does not raise any concerns regarding the quality of our overall loan portfolio. Colony’s allowance for credit losses on loans was $18.8 million, or 1.01% of total loans at June 30, 2024, compared to $18.4 million, or 0.98% of total loans, at December 31, 2023. At June 30, 2024 and December 31, 2023, nonperforming assets were $7.3 million and $10.7 million, or 0.24% and 0.35% of total assets, respectively.

Previous wording

Noninterest income of $9.5 million for the first quarter of 2024 represents an increase of $1.8 million, or 23.87%, from the first quarter of 2023, primarily related to increases in service charges on deposits, mortgage fee income, gain on sales of SBA loans and other noninterest income which were partially offset by a decrease in interchange fee income and losses on sales of securities. See "Table 3 - Noninterest income" for more detail and discussion on the primary drivers to the variances in noninterest income.

Current wording

Noninterest income of $9.5 million for the second quarter of 2024 represents an increase of $545,000, or 6.09%, from the second quarter of 2023. Noninterest income of $19.0 million for the six months ended June 30, 2024 represents an increase of $2.4 million, or 14.29%, compared to the same period of 2023. These increases were primarily related to increases in service charges on deposits, gain on sales of SBA loans and other noninterest income which were partially offset by decreases in mortgage fee income, interchange fee income and losses on sales of securities. See "Table 3 - Noninterest income" for more detail and discussion on the primary drivers to the variances in noninterest income.

Previous wording

For the three months ended March 31, 2024, noninterest expense was $20.4 million, a decrease of $768,000, or 3.63%, from the same period in 2023. Decreases in noninterest expense were a result of overall decreases in salaries and employee benefits expenses related to the Company's expense reduction initiative in 2023 which lowered the total number of employees period over period. Data processing expense also decreased as a result of the continued cost savings upon renewal of the core processing contract in the second quarter of 2023. See "Table 4 - Noninterest expense" for more detail and discussion on the primary drivers to the decrease in noninterest expense.

Current wording

For the three months ended June 30, 2024, noninterest expense was $20.3 million, a decrease of $1.1 million, or 5.14%, from the same period in 2023. For the six months ended June 30, 2024, noninterest expense was $40.7 million, a decrease of $1.9 million, or 4.39%, from the same period in 2023. Decreases in noninterest expense were a result of overall decreases in salaries and employee benefits expenses related to the Company's expense reduction initiative in 2023 which lowered the total number of employees period over period. Occupancy and equipment expenses, communications expenses, deposit related expenses and insurance expenses also saw decreases period over period which were partially offset by an increase in advertising and public relation expenses. See "Table 4 - Noninterest expense" for more detail and discussion on the primary drivers to the decrease in noninterest expense.

Previous wording

During 2023, the banking industry experienced significant volatility with multiple high-profile bank failures which led to industry wide concerns related to liquidity, deposit outflows, uninsured deposit concentrations, unrealized securities losses and eroding consumer confidence in the banking system, all of which still remains relevant in 2024. These negative industry developments did not impact the Company’s liquidity position and our balance sheet remains robust. The Company’s total deposits did experience a minimal decline of 0.87% as compared to December 31, 2023, to $2.52 billion at March 31, 2024 which was due to wholesale deposit payoffs. Our customer deposits however increased by $12.5 million as a result of our continued commitment to growing customer relationships. The Company’s uninsured deposits represented 30.82% of total Bank deposits at March 31, 2024 compared to 30.22% of total Bank deposits at December 31, 2023. The Company continues to maintain strong liquidity with available sources of funding of approximately $1.3 billion at March 31, 2024. Furthermore, the Company’s capital remains strong with common equity Tier 1 and total capital ratios of 11.90% and 15.79%, respectively, as of March 31, 2024.

Current wording

During 2023, the banking industry experienced significant volatility with multiple high-profile bank failures which led to industry wide concerns related to liquidity, deposit outflows, uninsured deposit concentrations, unrealized securities losses and eroding consumer confidence in the banking system, which has begun to soften in 2024. These negative industry developments did not impact the Company’s liquidity position and our balance sheet remains robust. The Company’s total deposits did experience a minimal decline of 3.32% as compared to December 31, 2023, to $2.46 billion at June 30, 2024 which was due to wholesale deposit payoffs. Our customer deposits also saw a slight decline due to seasonality of deposits during this time of year, but we anticipate a return to growth in the coming quarters. The Company’s uninsured deposits represented 31.23% of total Bank deposits at June 30, 2024 compared to 30.22% of total Bank deposits at December 31, 2023. The Company continues to maintain strong liquidity with available sources of funding of approximately $1.2 billion at June 30, 2024. Furthermore, the Company’s capital remains strong with common equity Tier 1 and total capital ratios of 12.25% and 16.17%, respectively, as of June 30, 2024.

Previous wording

We reported net income and diluted earnings per share of $5.3 million and $0.30, respectively, for the first quarter of 2024. This compares to net income and diluted earnings per share of $5.0 million and $0.29, respectively, for the same period in 2023.

Current wording

We reported net income and diluted earnings per share of $5.5 million and $0.31, respectively, for the second quarter of 2024. This compares to net income and diluted earnings per share of $5.3 million and $0.30, respectively, for the same period in 2023. We reported net income and diluted earnings per share of $10.8 million and $0.62, respectively, for the first six months of 2024. This compares to net income and diluted earnings per share of $10.3 million and $0.59, respectively, for the same period in 2023.

Previous wording

Fully taxable equivalent net interest income for the first quarter of 2024 and 2023 was $18.8 million and $20.7 million, respectively. This decrease quarter over quarter can be seen in increases in rates paid on deposits and other borrowings which outpaced the increases in rates and volume on loans and deposits in banks. The net interest margin for the first quarter of 2024 and 2023 was 2.69% and 3.08%, respectively. This decrease in net interest margin for the first quarter of 2024 compared to the same period in 2023 is primarily a result of the increase in higher yields paid on deposits and borrowings that outpaced the increase in rates on loans and investments.

Current wording

Fully taxable equivalent net interest income for the second quarter of 2024 and 2023 was $18.6 million and $19.3 million, respectively. This decrease quarter over quarter can be seen in increases in rates paid on deposits and other borrowings which outpaced the increases in rates and volume on loans and deposits in banks. The net interest margin for the second quarter of 2024 and 2023 was 2.68% and 2.77%, respectively. This decrease in net interest margin for the second quarter of 2024 compared to the same period in 2023 is primarily a result of the increase in higher yields paid on deposits that outpaced the increase in rates on loans and deposits in banks. Fully taxable equivalent net interest income for the six months ended June 30, 2024 and 2023 was $37.4 million and $40.1 million, respectively. This decrease quarter over quarter can be seen in increases in rates paid on deposits and other borrowings which outpaced the increases in rates and volume on loans and deposits in banks. The net interest margin for the six months ended June 30, 2024 compared to the same period in 2023 was 2.69% and 2.92%, respectively. This decrease in net interest margin is primarily a result of the increase in higher yields paid on deposits that outpaced the increase in rates on loans and deposits in banks. While we did experience a decline in our net interest margin for both periods, the decrease was less pronounced than expected. The resilience in our margin performance highlights the effectiveness of our strategic initiatives aimed at optimizing our balance sheet and managing interest rate risks.

Previous wording

The following tables indicates 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 months ended March 31, 2024 increased compared to the same period in 2023. The increase in average assets was primarily driven by the increase in the loan portfolio of $116.2 million for the three months ended March 31, 2024 compared to the same period in 2023, which primarily reflects organic loan growth and an increase in deposits in banks and short term investments of $20.5 million, partially offset by a decrease of $57.2 million in the securities portfolio. The increase in average liabilities for the three months ended March 31, 2024 was funded through an increase in interest bearing deposits of $146.5 million partially offset by a decrease in borrowings of $12.5 million. The net interest spread, as well as the net interest margin, will continue to be impacted by future changes in short-term and long-term interest rate levels, as well as the impact from the competitive environment.

Current wording

The following tables indicates 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 decreased for the three months ended June 30, 2024 compared to the same period in 2023. The decrease in average assets was primarily driven by the decrease in investment securities and deposits in banks of $68.4 million and $11.4 million, respectively, which was offset by an increase in the loan portfolio of $66.8 million. The decrease in average liabilities was primarily attributed to a decrease in borrowings of $7.8 million partially offset by an increase in interest bearing deposits of $4.5 million. For the six months ended June 30, 2024, both average assets and average liabilities increased compared to the same period in 2023. The increase in average assets was primarily driven by the increase in the loan portfolio and deposits in banks of $91.3 million and $4.5 million, respectively, partially offset by a decrease in investment securities of $62.7 million. The increase in average liabilities was funded through an increase in interest bearing deposits of $75.2 million partially offset by a decrease in borrowings of $10.2 million. The net interest spread, as well as the net interest margin, will continue to be impacted by future changes in short-term and long-term interest rate levels, as well as the impact from the competitive environment.

Previous wording

The yield on total interest-bearing liabilities increased from 1.47% in the first quarter of 2023 to 2.58% in the first quarter of 2024 primarily due to increases in the federal funds interest rate of an additional 50 basis points during the second and third quarters of 2023.

Current wording

The yield on total interest-bearing liabilities increased from 2.04% in the second quarter of 2023 to 2.64% in the second quarter of 2024. The yield on total interest-bearing liabilities increased from 1.77% for the six months ended June 30, 2024 to 2.61% for the six months ended June 30, 2023. These increases were primarily due to increases in the federal funds interest rate of an additional 50 basis points during the second and third quarters of 2023.

Previous wording

The average balance of loans includes the average balance of nonaccrual loans. Income on such loans is recognized and recorded on the cash basis. Taxable-equivalent adjustments totaling $48,000 and $45,000 for the three months ended March 31, 2024 and 2023, respectively, are calculated using the statutory federal tax rate and are included in income and fees on loans. Accretion expense of $5,000 and income of $71,000 for the three months ended March 31, 2024 and 2023 are also included in income and fees on loans.

Current wording

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 $56,000 and $45,000 for the three months ended June 30, 2024 and 2023, respectively, are calculated using the statutory federal tax rate and are included in income and fees on loans. Accretion income of $15,000 and $53,000 for the three months ended June 30, 2024 and 2023 are also included in income and fees on loans.

Previous wording

Taxable-equivalent adjustments totaling $127,000 and $108,000 for the three months ended March 31, 2024 and 2023, respectively, are included in tax-exempt interest on investment securities.

Current wording

Taxable-equivalent adjustments totaling $115,000 and $108,000 for the three months ended June 30, 2024 and 2023, respectively, are included in tax-exempt interest on investment securities.

Previous wording

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 three month period ended March 31, 2024 compared to the three month period ended March 31, 2023.

Current wording

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 three and six month periods ended June 30, 2024 compared to the three and six month periods ended June 30, 2023.

Previous wording

The provision for credit losses recorded in each period is based on the amount required such that the total allowance for credit losses reflects the appropriate balance, in the estimation of management, sufficient to cover expected credit losses over the expected life of a loan exposure and unfunded commitments where the likelihood is that funding will occur. Provision for credit losses for the three months ended March 31, 2024 was $1.0 million compared to $900,000 for the same period in 2023. The provision for credit losses for the three months ended March 31, 2024 includes $950,000 in credit losses on loans and $50,000 in provision for credit losses on unfunded commitments. The provision for credit losses for the three months ended March 31, 2023 includes $761,000 in credit losses on loans and $139,000 in provision for credit losses on unfunded commitments. See the section captioned “Loans and Allowance for Credit Losses” elsewhere in this discussion for further analysis of the provision for credit losses.

Current wording

The provision for credit losses recorded in each period is based on the amount required such that the total allowance for credit losses reflects the appropriate balance, in the estimation of management, sufficient to cover expected credit losses over the expected life of a loan exposure and unfunded commitments where the likelihood is that funding will occur. Provision for credit losses for the three and six months ended June 30, 2024 was $650,000 and $1.7 million, respectively, compared to $200,000 and $1.1 million, respectively, for the same period in 2023. The provision for credit losses for the three and six months ended June 30, 2024 includes $816,000 and $1.8 million, respectively, in credit losses on loans and $166,000 and $116,000, respectively, in release of credit losses on unfunded commitments. The provision for credit losses for the three and six months ended June 30, 2023 includes $430,000 and $1.2 million, respectively, in credit losses on loans and $230,000 and $91,000, respectively, in release of credit losses on unfunded commitments. See the section captioned “Loans and Allowance for Credit Losses” elsewhere in this discussion for further analysis of the provision for credit losses.

Previous wording

For the three months ended March 31, 2024, noninterest income increased $1.8 million compared to the same period in 2023. The primary reason for the increase was due to increases in service charges on deposits, mortgage fee income, gain on sales of SBA loans and other noninterest income which were partially offset by a decrease in interchange fee income and losses on sales of securities during the three months ended March 31, 2024.

Current wording

Noninterest income increased for the three and six month periods ended June 30, 2024 as compared to the same periods in 2023. The increases in both periods is a result of increases in service charges on deposits, gain on sales of SBA loans and other noninterest income which were partially offset by decreases in mortgage fee income, interchange fee income and losses on sales of securities.

Previous wording

Service charges on deposit accounts. For thethree months ended March 31, 2024, service charges on deposits was$2.4 million compared to $1.9 million for the same period ended March 31, 2023, an increase of $459,000. This increase in service charges on deposits can be attributed to the Company's ability to continue to grow customer deposits despite the challenging rate environment.

Current wording

Service charges on deposits. For thethree and six months ended June 30, 2024, service charges on deposits experienced increases compared to the same periods ended June 30, 2023. These increases in service charges on deposits can be attributed to the Company's ability to maintain a strong deposit base despite the challenging rate environment.

Previous wording

Gain on Sales of SBA loans. For the three months ended March 31, 2024, net realized gains on the sale of the guaranteed portion of SBA loans totaled $2.0 million compared to $1.1 million in the same period ended March 31, 2023, an increase of $989,000. This increase is related to increased production and sales in the Small Business Specialty Lending division which hit its highest mark in five consecutive quarters during the first quarter of 2024.

Current wording

Gain on sales of SBA loans. For the three and six months ended June 30, 2024, net realized gains on the sale of the guaranteed portion of SBA loans increased as compared to the same periods ended June 30, 2023. These increases are related to increased production and sales in the Small Business Specialty Lending division which hit its highest mark in five consecutive quarters during the first quarter of 2024 and continues to perform at a high level.

Previous wording

BOLI income. For thethree months ended March 31, 2024, BOLI income was$533,000 compared to $331,000 for the same period ended March 31, 2023, an increase of $202,000. This increase is primarily related to income from the payout of death benefits during the first quarter of 2024.

Current wording

BOLI income. For thethree and six months ended June 30, 2024, BOLI income was higher when compared to the same periods ended June 30, 2023. These increases are primarily related to income from the payout of death benefits during the first quarter of 2024.

Previous wording

Interchange Fees. For thethree months ended March 31, 2024, interchange fee income was$2.0 million compared to $2.1 million for the same period ended March 31, 2023, a decrease of$40,000. This slight decrease in interchange fees is the result of customer use of our card programs whose buying habits can fluctuate between periods.

Current wording

Interchange fees. For thethree and six months ended June 30, 2024, interchange fee income was slightly lower than the same periods ended June 30, 2023. These minimal decreases in interchange fees are the result of customer use of our card programs whose buying habits can fluctuate between periods.

Previous wording

Insurance commissions. For thethree months ended March 31, 2024, insurance commissions were$465,000 compared to $460,000 for the same period ended March 31, 2023, an increase of $5,000. This variance is volume driven by activity in the Company's insurance division.

Current wording

Insurance commissions. For thethree and six months ended June 30, 2024, insurance commissions decreased slightly compared to the same periods ended June 30, 2023. These variances are volume driven by activity in the Company's insurance division.

Previous wording

Other noninterest income. For thethree months ended March 31, 2024, other noninterest income was$1.3 million compared to $646,000 forthe same period ended March 31, 2023, an increase of$702,000. The increase in other noninterest income was primarily attributable to an increase in wealth advisory and merchant services of $54,000, gains on sales of other real estate of $131,000 along with increases in SBA servicing and other related fee income, partially offset by a decrease in equity investment market valuation gains of $35,000.

Current wording

Other noninterest income. For thethree and six months ended June 30, 2024, other noninterest income increased ascompared tothe same periods ended June 30, 2023. These increases in other noninterest income were primarily attributable to increases in wealth advisory and merchant services, gains on sales of other real estate along with increases in SBA servicing and other related fee income, partially offset by a writedown of Bank premises in the second quarter of 2024.

Previous wording

Noninterest expense decreased for the three months ended March 31, 2024 by $768,000 compared to the same period in 2023. Decreases were seen in all categories except professional fees and other noninterest expense.

Current wording

Noninterest expense decreased for the three and six months ended June 30, 2024 compared to the same periods in 2023.

Previous wording

Salaries and employee benefits. Salaries and employee benefits for the three months ended March 31, 2024 was $12.0 million compared to $12.6 million for the same period ended March 31, 2023, a decrease of $591,000. This decrease in salaries and employee benefits expenses is related to the Company's expense reduction initiative in 2023 which lowered total number of employees period over period.

Current wording

Salaries and employee benefits. Salaries and employee benefits for the three and six months ended June 30, 2024 decreased as compared to the same periods ended June 30, 2023. These decreases in salaries and employee benefits expenses are related to the Company's expense reduction initiative in 2023 which lowered total number of employees period over period.

Previous wording

Other noninterest expenses. Other noninterest expense for the three months ended March 31, 2024 was $2.7 million compared to $2.6 million for the same period ended March 31, 2023, an increase of $151,000. This increase relates primarily to increased servicing rights valuation partially offset by decreases in other loan related expenses, printing and supplies and business development expenses.

Current wording

Other noninterest expense. Other noninterest expense decreased for the three and six months ended June 30, 2024 as compared to the same periods ended June 30, 2023. These decreases relate primarily to decreases in other loan related expenses, printing and supplies and business development expenses which are partially offset by increased servicing rights valuation.

Previous wording

Income tax expense for the three months ended March 31, 2024 was $1.4 million compared to $1.1 million for the same period in 2023. The Company’s effective tax rate for the three months ended March 31, 2024 was 20.9% compared to 18.2% for the three months ended March 31, 2023. The largest driver of the difference is the tax exempt income primarily from

Current wording

Income tax expense for the three and six months ended June 30, 2024 was $1.5 million and $2.9 million, respectively, compared to $1.2 million and $2.3 million, respectively, for the same periods in 2023. The Company’s effective tax rate for the three and six months ended June 30, 2024 was 21.0% and 20.9%, respectively, compared to 18.4% and 18.3%, respectively, for the three and six months ended June 30, 2023. The largest driver of the difference is the tax exempt income primarily from BOLI and tax exempt interest. Also, in both the first quarter of 2024 and 2023, the Company experienced a favorable tax impact from the donation made to the Georgia Scholarship Program.

Previous wording

At March 31, 2024, gross loans outstanding (excluding loans held for sale) were $1.86 billion, a decrease of $24.5 million, or 1.30%, compared to $1.88 billion at December 31, 2023.

Current wording

At June 30, 2024, gross loans outstanding (excluding loans held for sale) were $1.87 billion, a decrease of $17.9 million, or 0.95%, compared to $1.88 billion at December 31, 2023.

Previous wording

At March 31, 2024, approximately 64.9% of our loans were secured by commercial real estate. Our total commercial real estate loans have decreased slightly since December 31, 2023 as well as all other categories except for consumer lending which is driven by our marine and RV division. These decreases are largely due to the sale of portfolio mortgages and credit related payoffs of a limited number of loans, along with the general slowdown in loan production over the past several quarters. We continue to maintain competitive loan pricing and tightened credit standards.

Current wording

At June 30, 2024, approximately 63.5% of our loans were secured by commercial real estate. Our total commercial real estate loans have decreased slightly since December 31, 2023 as well as our commercial, financial & agricultural loans while increases can be seen in residential real estate and consumer lending which is driven by our marine and RV division. These movements are largely due to the sale of portfolio mortgages and credit related payoffs of a limited number of loans, along with the general slowdown in loan production over the past several quarters. We continue to maintain competitive loan pricing and tightened credit standards.

Previous wording

The allowance for credit losses on loans was $18.7 million at March 31, 2024 compared to $16.6 million at March 31, 2023, an increase of $2.1 million, or 12.4%. The allowance for credit losses on loans as a percentage of loans was 1.00% and 0.92% at March 31, 2024 and 2023, respectively. The provision for credit losses was $1.0 million compared to $900,000 for the three months ended March 31, 2024 and March 31, 2023, respectively. The provision for credit losses for the quarter ended March 31, 2024 includes $950,000 in credit losses on loans and $50,000 in credit losses on unfunded commitments. The provision for credit losses for the quarter ended March 31, 2023 includes $761,000 in credit losses on loans and $139,000 in credit losses on unfunded commitments. The amount of provision expense recorded in each period was the amount required such that the total allowance for credit losses reflected the appropriate balance, in the estimation of management, that was sufficient to cover expected credit losses on loans over the expected life of a loan exposure and unfunded commitments where the likelihood is that funding will occur. The primary reason for the increase in allowance to loans as a percentage for loans and provision is primarily due to the slight increase in loan charge offs. These charge offs are limited to a few loans and raises no concerns regarding the quality of our loan portfolio as a whole.

Current wording

The allowance for credit losses on loans was $18.8 million at June 30, 2024 compared to $17.1 million at June 30, 2023, an increase of $1.7 million, or 10.2%. The allowance for credit losses on loans as a percentage of loans was 1.01% and 0.93% at June 30, 2024 and 2023, respectively. The provision for credit losses was $650,000 compared to $200,000 for the three months ended June 30, 2024 and June 30, 2023, respectively. The provision for credit losses for the quarter ended June 30, 2024 includes $816,000 in credit losses on loans and a release of $166,000 in credit losses on unfunded commitments. The provision for credit losses for the quarter ended June 30, 2023 includes $430,000 in credit losses on loans and a release of $230,000 in credit losses on unfunded commitments. The provision for credit losses was $1.7 million compared to $1.1 million for the six months ended June 30, 2024 and 2023, respectively. The provision for credit losses for the six months ended June 30, 2024 includes $1.8 million in credit losses on loans and a release of $116,000 in credit losses on unfunded commitments. The provision for credit losses for the six months ended June 30, 2023 includes $1.2 million in credit losses on loans and a release of $91,000 in credit losses on unfunded commitments. The amount of provision expense recorded in each period was the amount required such that the total allowance for credit losses reflected the appropriate balance, in the estimation of management, that was sufficient to cover expected credit losses on loans over the expected life of a loan exposure and unfunded commitments where the likelihood is that funding will occur.

Previous wording

The following table presents an analysis of the allowance for credit losses on loans as of and for the three months ended March 31, 2024 and 2023:

Current wording

The following table presents an analysis of the allowance for credit losses on loans as of and for the six months ended June 30, 2024 and 2023:

Previous wording

The following table presents a summary of allowance for credit loss for the three months ended March 31, 2024 and 2023.

Current wording

The following table presents a summary of allowance for credit loss for the three and six months ended June 30, 2024 and 2023.

Previous wording

Asset quality experienced improvement during the first three months of 2024. 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 $6.4 million at March 31, 2024, a decrease of $3.4 million, or 34.6%, from $9.8 million at December 31, 2023. There was one loan contractually past due 90 days or more and still accruing totaling $370,000 at December 31, 2023. There was no repossessed personal property for either period presented. OREO totaled $562,000 at March 31, 2024 compared to $448,000 at December 31, 2023. As of March 31, 2024, total nonperforming assets as a percent of total assets decreased to 0.23% compared with 0.35% at December 31, 2023. The decrease in nonperforming assets was a result of repayments, payoffs and charged off loans.

Current wording

Asset quality experienced improvement during the first six months of 2024. 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 $6.7 million at June 30, 2024, a decrease of $3.2 million, or 32.2%, from $9.8 million at December 31, 2023. There was one loan contractually past due 90 days or more and still accruing totaling $41,000 at June 30, 2024 and one loan totaling $370,000 at December 31, 2023. There was $13,000 in repossessed personal property at June 30, 2024 and none at June 30, 2023. OREO totaled $582,000 at June 30, 2024 compared to $448,000 at December 31, 2023. As of June 30, 2024, total nonperforming assets as a percent of total assets decreased to 0.24% compared with 0.35% at December 31, 2023. The decrease in nonperforming assets was a result of repayments, payoffs and charged off loans.

Previous wording

The Company had three loans modified due to financial difficulty during the three month period ended March 31, 2024. See Note 3 - Loans, for additional details on loan modifications.

Current wording

The Company had four loans modified due to financial difficulty during the six month period ended June 30, 2024. See Note 3 - Loans, included elsewhere in this Quarterly Report on Form 10-Q for additional details on loan modifications.

Previous wording

Total deposits decreased $22.0 million to $2.52 billion at March 31, 2024 from $2.54 billion at December 31, 2023. As of March 31, 2024, 18.9% of total deposits were comprised of noninterest-bearing accounts and 81.1% were comprised of interest-bearing deposit accounts, compared to 19.6% and 80.4% as of December 31, 2023, respectively. The overall decrease in our deposits is due primarily to wholesale deposit payoffs. However, customer deposits increased by $12.5 million and is a result of the Company's commitment to growing customer relationships.

Current wording

Total deposits decreased $84.6 million to $2.46 billion at June 30, 2024 from $2.54 billion at December 31, 2023. As of June 30, 2024, 17.8% of total deposits were comprised of noninterest-bearing accounts and 82.2% were comprised of interest-bearing deposit accounts, compared to 19.6% and 80.4% as of December 31, 2023, respectively. The overall decrease in our deposits is due primarily to wholesale deposit payoffs. Also, customer deposits have historically experienced seasonality during the second quarter of the year and therefore saw declines as they managed their cash flow needs. However, we remain confident in the underlying strength of our deposit base and anticipate a return to growth in the coming quarters.

Previous wording

We had $59.0 million and $93.6 million in brokered deposits at March 31, 2024 and December 31, 2023, 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.

Current wording

We had $39.2 million and $93.6 million in brokered deposits at June 30, 2024 and December 31, 2023, 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.