COLONY BANKCORP INC

Previous wording

The Company paid dividends to its shareholders throughout 2023 and 2022 on a quarterly basis. In 2023, we had a quarterly dividend of$0.11 per share of common stock and in 2022, we had a quarterly dividend of $0.1075 per share of common stock.

Current wording

The Company paid dividends to its shareholders throughout 2024 and 2023 on a quarterly basis. In 2024, we had a quarterly dividend of$0.1125 per share of common stock and in 2023, we had a quarterly dividend of $0.1100 per share of common stock.

Previous wording

On January 1, 2023, the Company adopted ASC Topic 326 which replaced the incurred loss approach for measuring credit losses with an expected loss model, referred to the current expected credit loss ("CECL") model. CECL applies to financial assets subject to credit losses and measured at amortized cost and certain off-balance-sheet credit exposures, which include, but are not limited to, loans, leases, held-to-maturity securities, loan commitments and financial guarantees. The adoption of this guidance resulted in a decrease of the allowance for credit losses on loans of $53,000, the creation of an allowance for unfunded commitments of $1.7 million and a reduction of retained earnings of $1.2 million, net of the increase in deferred tax assets of $410,000.

Current wording

On January 1, 2023, the Company adopted ASC Topic 326 which replaced the incurred loss approach for measuring credit losses with an expected loss model, referred to the current expected credit loss ("CECL") model. CECL applies to financial assets subject to credit losses and measured at amortized cost and certain off-balance-sheet credit exposures, which include, but are not limited to, loans, leases, held-to-maturity securities, loan commitments and financial guarantees. The adoption of this guidance resulted in a decrease of the allowance for credit losses on loans of $53,000, the creation of an allowance for unfunded commitments of $1.7 million and a reduction of retained earnings of $1.2 million, net of the increase in deferred tax assets of $410,000 as of December 31, 2023.

Previous wording

In June 2023, the Company entered into two derivative instruments, specifically interest rate swaps, to help manage its interest rate risk position and mitigate exposure to the variability of future cash flows or other forecasted transactions. The interest rate swaps are designated as cash flow hedges of certain variable rate liabilities. Gains are recorded on the swap transactions as a component of interest expense in the consolidated statements of income. Amounts reported in accumulated OCI related to swaps are reclassified to interest expense as interest payments are made on the Bank's variable rate liabilities. For additional discussion of the Company's derivative instruments, see "Note 10 - Derivatives".

Current wording

In June 2023 and August, September and October 2024, the Company entered into a total of five derivative instruments, specifically interest rate swaps, to help manage its interest rate risk position and mitigate exposure to the variability of future cash flows or other forecasted transactions. Three of the interest rate swaps are designated as cash flow hedges of certain variable rate liabilities and two are designated as fair value hedges of certain fixed rate assets. Gains and losses are recorded on the swap transactions as a component of interest expense in the consolidated statements of income. Amounts reported in accumulated OCI related to swaps are reclassified to interest income or expense as interest payments are made on the Bank's fixed rate assets and variable rate liabilities. For additional discussion of the Company's derivative instruments, see "Note 10 - Derivatives".

Previous wording

The reserve for credit losses consists of the allowance for credit losses (“ACL”) and the allowance for unfunded commitments. As a result of our January 1, 2023 adoption of ASU No. 2016-13, and its related amendments, our methodology for estimating the reserve for credit losses changed significantly from December 31, 2022. The standard replaced the “incurred loss” approach with an “expected loss” approach known as the Current Expected Credit Losses (“CECL”). The CECL approach requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures). It removes the incurred loss approach’s threshold that delayed the recognition of a credit loss until it was “probable” a loss event was “incurred.”

Current wording

The reserve for credit losses consists of the allowance for credit losses (“ACL”) and the allowance for unfunded commitments. As a result of our January 1, 2023 adoption of ASU No. 2016-13, and its related amendments, our methodology for estimating the reserve for credit losses changed significantly from prior years. The standard replaced the “incurred loss” approach with an “expected loss” approach known as the Current Expected Credit Losses (“CECL”). The CECL approach requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures). It removes the incurred loss approach’s threshold that delayed the recognition of a credit loss until it was “probable” a loss event was “incurred.”

Previous wording

The Company’s results of operations are determined by its ability to effectively manage interest income and expense, to minimize loan and investment losses, to generate noninterest income and to control noninterest expense. Since market forces and economic conditions beyond the control of the Company determine interest rates, the ability to generate net interest income is dependent upon the Company’s ability to obtain an adequate spread between the rate earned on interest-earning assets and the rate paid on interest-bearing liabilities. Thus, the key performance for net interest income is the interest margin or net yield, which is taxable-equivalent net interest income divided by average interest-earning assets. Net income available to common shareholders totaled $21.7 million, or $1.24 per diluted shares in 2023, compared to $19.5 million, or $1.14 per diluted shares in 2022.

Current wording

The Company’s results of operations are determined by its ability to effectively manage interest income and expense, to minimize loan and investment losses, to generate noninterest income and to control noninterest expense. Since market forces and economic conditions beyond the control of the Company determine interest rates, the ability to generate net interest income is dependent upon the Company’s ability to obtain an adequate spread between the rate earned on interest-earning assets and the rate paid on interest-bearing liabilities. Thus, the key performance for net interest income is the interest margin or net yield, which is taxable-equivalent net interest income divided by average interest-earning assets. Net income available to common shareholders totaled $23.9 million, or $1.36 per diluted shares in 2024, compared to $21.7 million, or $1.24 per diluted shares in 2023.

Previous wording

Net interest income is the difference between interest income on earning assets, such as loans and securities, and interest expense on liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest income is the Company’s largest component of income, representing 68.7% of total income during 2023 and 69.7% of total income during 2022.

Current wording

Net interest income is the difference between interest income on earning assets, such as loans and securities, and interest expense on liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest income is the Company’s largest component of income, representing 65.9% of total income during 2024 and 68.7% of total income during 2023.

Previous wording

The Company’s loan portfolio is significantly affected by changes in the prime interest rate. The prime interest rate, which is the rate offered on loans to borrowers with strong credit, was 8.50% as of December 31, 2023 and 7.50% as of December 31, 2022. The Federal Reserve Board sets general market rates of interest, including the deposit and loan rates offered by many financial institutions. During 2023, the prime interest rate increased 1.00%. During 2022, the prime interest rate increased 4.25%.

Current wording

The Company’s loan portfolio is significantly affected by changes in the prime interest rate. The prime interest rate, which is the rate offered on loans to borrowers with strong credit, was 7.50% as of December 31, 2024 and 8.50% as of December 31, 2023. The Federal Reserve Board sets general market rates of interest, including the deposit and loan rates offered by many financial institutions. During 2024, the prime interest rate decreased 1.00%. During 2023, the prime interest rate increased 1.00%.

Previous wording

The Company maintains about 15.32% of its loan portfolio in adjustable rate loans that reprice with prime rate changes, while a little over half of its other loans mature within 5 years. The liabilities to fund assets are primarily in non-maturing core deposits and short-term certificates of deposit that mature within one year. During 2023, Federal Reserve rates increased 100 basis points. During 2022, Federal Reserve rates increased 425 basis points. We have seen the net interest margin decrease to 2.83% for 2023, compared to 3.20% for 2022 primarily due to increases in rates on interest bearing liabilities outpacing rate increases on interest earning assets.

Current wording

The Company maintains about 21.74% of its loan portfolio in adjustable rate loans that reprice with prime rate changes, while a little over half of its other loans mature within 5 years. The liabilities to fund assets are primarily in non-maturing core deposits and short-term certificates of deposit that mature within one year. During 2024, Federal Reserve rates decreased 100 basis points. During 2023, Federal Reserve rates increased 100 basis points. We have seen the net interest margin decrease to 2.72% for 2024, compared to 2.83% for 2023 primarily due to the rates on interest bearing liabilities continuing to outpace the rates on interest earning assets.

Previous wording

Taxable-equivalent net interest income for 2023 decreased by $2.2 million or 2.7%, compared to 2022, primarily due to increases in loan volume and rates, offset by increases in deposit rates and increases in borrowings to fund loan growth. The average volume of interest-earning assets during 2023 increased $256.2 million compared to 2022, primarily related to increases in loans. The total yield on interest-earning assets increased year over year with increases in loan volume, partially offset by decreases in investment securities balances along with increased rates on all interest-earning assets.

Current wording

Taxable-equivalent net interest income for 2024 decreased by $2.2 million or 2.8%, compared to 2023, primarily due to increases in loan volume and rates, offset by increases in deposit rates and increases in borrowings to fund loan growth. The average volume of interest-earning assets during 2024 increased $36.8 million compared to 2023, primarily related to increases in loans and deposits in banks and short-term investments. The total yield on interest-earning assets increased year over year with increases in loan and deposits in banks and short-term investments volume, partially offset by decreases in investment securities balances along with increased rates on loan and deposits in banks.

Previous wording

The average volume of loans increased $344.3 million in 2023 compared to 2022, which primarily reflects organic loan growth. The average yield on loans increased by 67 basis points in 2023 compared to 2022, primarily due to the increased loan volume in addition to the increase in rates. The average volume of interest-bearing deposits increased $199.7 million in 2023 compared to 2022. Average savings and interest-bearing demand deposits decreased $49.0 million offset by an increase in average time deposits of $248.7 million in 2023 compared to 2022.

Current wording

The average volume of loans increased $50.3 million in 2024 compared to 2023, which primarily reflects organic loan growth in the first half of 2024. The average yield on loans increased by 51 basis points in 2024 compared to 2023, primarily due to the increased loan volume in addition to the previous year's increase in rates. The average volume of interest-bearing deposits increased $58.1 million in 2024 compared to 2023. Average savings and interest-bearing demand deposits increased $74.1 million offset by a decrease in average time deposits of $16.0 million in 2024 compared to 2023.

Previous wording

Accordingly, the ratio of average interest-bearing deposits to total average deposits was 79.47% in 2023 and 76.23% in 2022. For 2023, this deposit mix, combined with an increase in interest rates, had the effect of increasing the average cost of total deposits by 144 basis points in 2023 compared to 2022. The Company used borrowings to fund loan growth during 2023. The funds borrowed in 2023 were at higher interest rates and were a contributing factor in the increase of 87 basis points in total other interest-bearing liabilities in 2023 compared to 2022.

Current wording

Accordingly, the ratio of average interest-bearing deposits to total average deposits was 81.81% in 2024 and 79.47% in 2023. For 2024, this deposit mix, combined with an increase in interest rates, had the effect of increasing the average cost of total deposits by 66 basis points in 2024 compared to 2023. This was partially offset by a decrease of 13 basis points in other interest-bearing liabilities in 2024 compared to 2023 due to 2024 borrowings being at lower interest rates.

Previous wording

The Company’s net interest spread, which represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities, decreased to 2.42% in 2023 from 3.07% in 2022 and was also a result of deposit rate increases and an increase in borrowings, partially offset by increases in loan volume and rates. The net interest spread, as well as the net interest margin, will be impacted by future changes in short-term and long-term interest rate levels, as well as the impact from the competitive environment. A discussion of the effects of changing interest rates on net interest income is set forth in "Market Risk and Interest Rate Sensitivity" included elsewhere in this report.

Current wording

The Company’s net interest spread, which represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities, decreased to 2.23% in 2024 from 2.42% in 2023 and was also a result of deposit rate increases and an increase in borrowings, partially offset by increases in loan volume and rates. The net interest spread, as well as the net interest margin, will be impacted by future changes in short-term and long-term interest rate levels, as well as the impact from the competitive environment. A discussion of the effects of changing interest rates on net interest income is set forth in "Market Risk and Interest Rate Sensitivity" included elsewhere in this report.

Previous wording

(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 $216,000 and $139,000 for the year ended December 31, 2023 and 2022, respectively, are calculated using the statutory federal tax rate and are included in income and fees on loans. Accretion income of $165,000 and $590,000 for the year ended December 31, 2023 and 2022 are also included in income and fees on loans.

Current wording

(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 $229,000 and $216,000 for the years ended December 31, 2024 and 2023, respectively, are calculated using the statutory federal tax rate and are included in income and fees on loans. Accretion income of $47,000 and $165,000 for the years ended December 31, 2024 and 2023 are also included in income and fees on loans.

Previous wording

(2)Taxable-equivalent adjustments totaling $513,000 and $315,000 for the year ended December 31, 2023 and 2022, respectively, are calculated using the statutory federal tax rate and are included in tax-exempt interest on investment securities.

Current wording

(2)Taxable-equivalent adjustments totaling $453,000 and $513,000 for the years ended December 31, 2024 and 2023, respectively, are calculated using the statutory federal tax rate and are included in tax-exempt interest on investment securities.

Previous wording

Provision for credit losses totaled $3.6 million in 2023 compared to $3.4 million in 2022. 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, 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. The provision for credit losses for the year ended December 31, 2023 includes $3.9 million in provision for credit losses on loans and $286,000 in release of credit losses on unfunded commitments. See the section captioned “Allowance for Credit Losses” elsewhere in this discussion for further analysis of the provision for credit losses. The increase in provision for credit losses for the year ended December 31, 2023 compared to 2022 isdue to downgrades and charge-offs on a small number of loans and does not represent systemic issues across the entire loan portfolio. See the sections captioned “Loans" and "Allowance for Credit Losses” elsewhere in this discussion for further analysis of the provision for credit losses. Net charge-offs for the year ended December 31, 2023 were$1.6 million compared to $152,000 for the same period in 2022. As of December 31, 2023, Colony’s allowance for credit losses was $18.4 million, or 0.98% of total loans, compared to $16.1 million, or 0.93% of total loans, at December 31, 2022. At December 31, 2023 and 2022, nonperforming assets were $10.7 million and $6.4 million, or 0.35% and 0.22% of total assets, respectively, with credit quality in the overall loan portfolio remaining strong.

Current wording

Provision for credit losses totaled $3.1 million in 2024 compared to $3.6 million in 2023. 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, 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. The provision for credit losses for the years ended December 31, 2024 and 2023 includes $3.6 million and $3.9 million, respectively, in credit losses on loans and $562,000 and $286,000, respectively, in release of credit losses on unfunded commitments. See the section captioned “Allowance for Credit Losses” elsewhere in this discussion for further analysis of the provision for credit losses. The decrease in provision for credit losses for the year ended December 31, 2024 compared to 2023 is relatedto the change in our loan balances year over year. See the sections captioned “Loans" and "Allowance for Credit Losses” elsewhere in this discussion for further analysis of the provision for credit losses. Net charge-offs for the year ended December 31, 2024 were$3.0 million compared to$1.6 million for the same period in 2023. As of December 31, 2024, Colony’s allowance for credit losses was $19.0 million, or 1.03% of total loans, compared to $18.4 million, or 0.98% of total loans, at December 31, 2023. At December 31, 2024 and 2023, nonperforming assets were $11.3 million and $10.7 million, or 0.36% and 0.35% of total assets, respectively, with credit quality in the overall loan portfolio remaining strong.

Previous wording

Noninterest income in 2023 increased$609,000, or 1.74% from 2022. The Company's increases were primarily seen in service charges on deposit accounts and other noninterest income, which included increases in equity investment income and income on wealth advisory and merchant services. These increases were offset by decreases in mortgage fee income and gain on sales of SBA loans. The increase of$860,000 in service charges on deposit accounts can be attributed to our strong retail banking center footprint and our ability to continue to grow our core deposits despite the challenging rate environment. The increase of$3.0 million in other noninterest income was attributable to equity investment market valuation gains of$156,000 in 2023 compared to market valuation losses of$503,000 in 2022, an increase of$729,000 in wealth advisory and merchant services, gains on sales of assets of$379,000 along with increases in SBA servicing and other related fee income of$656,000. The decrease in mortgage fee income was a result of a reduction in mortgage production and changes in allocation between portfolio and secondary market. The increase in mortgage rates was partially attributable to the 525 basis point increase in the national federal funds rate during 2022 and 2023.

Current wording

Noninterest income in 2024 increased$3.7 million, or 10.50% from 2023. The Company's increases were primarily seen in service charges on deposit accounts, gains on sales of SBA loans, BOLI income and other noninterest income, which included increases in equity investment income and income on wealth advisory and merchant services. These increases were offset by losses on sales of investment securities and decreases in mortgage fee income, interchange fees and insurance commissions. The increase in service charges on deposit accounts can be attributed to our ability to continue to grow deposits, particularly lower cost transactional deposit accounts despite the challenging rate environment. The increase of$4.2 million in gain on sales of SBA loans is due to the sale of 451 loans in 2024 compared to 81 loans in 2023. The increase of $766,000 in other noninterest income was attributable to equity investment market valuation gains of$270,000 in 2024 compared to$156,000 in 2023, an increase of$235,000 in wealth advisory and merchant services along with increases in SBA servicing and other related fee income of$671,000, offset by a decrease in sales of assets of $446,000. The decrease in mortgage fee income was a result of lower mortgage production year over year and interchange fees decreased due to fluctuations in the buying habits of consumers. Investment securities were sold in 2024 for the purpose of restructuring underperforming assets in order to reinvest at higher yields and resulted in losses of$1.8 million. There were no sales of investment securities in 2023.

Previous wording

The following table illustrates, during the years presented, the mix of the Company’s funding sources and the assets in which those funds are invested as a percentage of the Company’s average total assets for the period indicated. Average assets totaled $3.0 billion in 2023 compared to $2.7 billion in 2022.

Current wording

The following table illustrates, during the years presented, the mix of the Company’s funding sources and the assets in which those funds are invested as a percentage of the Company’s average total assets for the period indicated. Average assets totaled $3.05 billion in 2024 compared to $3.02 billion in 2023.

Previous wording

Deposits continue to be the Company’s primary source of funding. Over the comparable periods, interest-bearing deposits continues to be the largest component of the Company's mix of deposits. Average interest-bearing deposits totaled 79.5% in 2023 compared to 76.2% of total average deposits in 2022.

Current wording

Deposits continue to be the Company’s primary source of funding. Over the comparable periods, interest-bearing deposits continues to be the largest component of the Company's mix of deposits. Average interest-bearing deposits totaled 81.8% in 2024 compared to 79.5% of total average deposits in 2023.

Previous wording

Overview. Loans totaled $1.9 billion at December 31, 2023, up 8.4% from $1.7 billion at December 31, 2022. The majority of the Company’s loan portfolio is comprised of real estate loans. Commercial and residential real estate which is primarily 1-4 family residential properties, nonfarm nonresidential properties and real estate construction loans made up 83.8% and 86.1% of total loans at December 31, 2023 and December 31, 2022, respectively. Commercial, financial and agriculture loans represents 12.9% of the loans at December 31, 2023 and 2022. Consumer and other loans increased to 3.3% of total loans at December 31, 2023 from 1.1% at December 31, 2022.

Current wording

Overview. Loans totaled $1.8 billion at December 31, 2024, a decrease of 2.1% from $1.9 billion at December 31, 2023. The majority of the Company’s loan portfolio is comprised of real estate loans. Commercial and residential real estate which is primarily 1-4 family residential properties, nonfarm nonresidential properties and real estate construction loans made up 83.6% and 83.8% of total loans at December 31, 2024 and December 31, 2023, respectively. Commercial, financial and agriculture loans represents 11.6% of the loans at December 31, 2024 and 2023. Consumer and other loans increased to 4.8% of total loans at December 31, 2024 from 3.3% at December 31, 2023.

Previous wording

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

Current wording

Commercial purpose, commercial real estate, and agricultural loans are underwritten similarly to how other loans are underwritten throughout the Company. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location. In addition, the Company restricts any single loan to a $20 million transaction amount, unless approved by the Director Loan Committee ("DLC"). This diversity helps reduce the Company’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans monthly based on collateral, geography, and risk grade criteria. The Company also utilizes information provided by third-party agencies to provide additional insight and guidance about economic conditions and trends affecting the markets it serves.

Previous wording

Commercial, financial & agricultural. Commercial, financial and agricultural loans at December 31, 2023 increased by $18.8 million, or 8.4% to $242.8 million from December 31, 2022 at $223.9 million. This increase was related to organic growth of commercial and industrial loans. The Company’s commercial, financial and agricultural loans are a diverse group of loans to small, medium and large businesses. The purpose of these loans varies from supporting seasonal working capital needs to term financing of equipment. These agricultural lines typically reduce in size at year end as crops are sold. While some short-term loans may be made on an unsecured basis, most are secured by the assets being financed with collateral margins that are consistent with the Company’s loan policy guidelines.

Current wording

Commercial, financial & agricultural. Commercial, financial and agricultural loans at December 31, 2024 decreased by $28.8 million, or 11.9% to $213.9 million from December 31, 2023 at $242.8 million. This decrease was related to loan payoffs during 2024 of a small number of larger commercial and industrial loans. The Company’s commercial, financial and agricultural loans are a diverse group of loans to small, medium and large businesses. The purpose of these loans varies from supporting seasonal working capital needs to term financing of equipment. These agricultural lines typically reduce in size at year end as crops are sold. While some short-term loans may be made on an unsecured basis, most are secured by the assets being financed with collateral margins that are consistent with the Company’s loan policy guidelines.

Previous wording

Construction, land & land development. Construction, land and land development loans increased by $17.7 million, or 7.7%, at December 31, 2023 to $247.1 million from$229.4 million at December 31, 2022. This increase was primarily attributable to organic growth of consumer residential construction loans.

Current wording

Construction, land & land development. Construction, land and land development loans decreased by $42.1 million, or 17.0%, at December 31, 2024 to $205.0 million from$247.1 million at December 31, 2023. This decrease was partially due to interest rates remaining at higher levels throughout the first nine months of 2024 resulting in a decrease in consumer residential construction loans.

Previous wording

Other commercial real estate. Other commercial real estate loans decreased by $1.1 million, or 0.1%, at December 31, 2023 to $974.4 million from$975.4 million at December 31, 2022. This decrease was primarily attributable to decreases in both owner occupied and non-owner occupied commercial real estate and due to the current lending environment, rate environment, and the Company's lending appetite. At December 31, 2023, the Company's other commercial real estate loans were comprised of 60.9% of non-owner occupied loans and 39.1% of owner occupied loans.

Current wording

Other commercial real estate. Other commercial real estate loans increased by $16.3 million, or 1.7%, at December 31, 2024 to $990.6 million from$974.4 million at December 31, 2023. This increase was primarily attributable to increases in owner occupied commercial real estate and farmland loans partially offset by decreases in non-owner occupied commercial real estate and multifamily loans. Also, the increase was impacted by the current lending environment, rate environment, and the Company's lending appetite. At December 31, 2024, the Company's other commercial real estate loans were comprised of 58.7% of non-owner occupied loans and 41.3% of owner occupied loans.

Previous wording

Residential Real Estate Loans. Residential real estate loans increased by$66.2 million or 22.8%, at December 31, 2023 to $356.2 million from $290.1 million at December 31, 2022. This increase was attributable to growth of portfolio 1-4 family residential real estate loans. Residential real estate loans consist of revolving, open-end and closed-end loans as well as those secured by closed-end first and junior liens.

Current wording

Residential Real Estate Loans. Residential real estate loans decreased by$12.1 million or 3.4%, at December 31, 2024 to $344.2 million from $356.2 million at December 31, 2023. This decrease was attributable to a decline in portfolio 1-4 family residential real estate loans. Residential real estate loans consist of revolving, open-end and closed-end loans as well as those secured by closed-end first and junior liens.

Previous wording

Consumer and other. Consumer and other loans include loans to individuals for personal and household purposes, including secured and unsecured installment loans and revolving lines of credit. Consumer and other loans at December 31, 2023 increased $44.7 million or 245.0% to $63.0 million from $18.2 million at December 31, 2022. This increase was primarily attributable to increases in the Company's marine and RV lending division.

Current wording

Consumer and other. Consumer and other loans include loans to individuals for personal and household purposes, including secured and unsecured installment loans and revolving lines of credit. Consumer and other loans at December 31, 2024 increased $26.3 million or 41.7% to $89.2 million from $63.0 million at December 31, 2023. This increase was primarily attributable to increases in the Company's marine and RV lending division as well as an increase in Upstart loans, consumer loans to individuals with no or limited credit history.

Previous wording

Industry concentrations. As of December 31, 2023 and December 31, 2022, there were no concentrations of loans within any single industry in excess of 10% of total loans, as segregated by Standard Industrial Classification code (“SIC code”). The SIC code is a federally designed standard industrial numbering system used by the Company to categorize loans by the borrower’s type of business. The Company has established industry-specific guidelines with respect to maximum loans permitted for each industry with which the Company does business.

Current wording

Industry concentrations. As of December 31, 2024 and 2023, the Company had one industry, identified as Lessors of Non-Residential real estate, where the concentrations of loans was in excess of 10% of total loans, as segregated by Standard Industrial Classification code (“SIC code”). The SIC code is a federally designed standard industrial numbering system used by the Company to categorize loans by the borrower’s type of business. The Company has established industry-specific guidelines with respect to maximum loans permitted for each industry with which the Company does business.

Previous wording

Collateral concentrations. Concentrations of credit risk can exist in relation to individual borrowers or groups of borrowers, certain types of collateral, certain types of industries, or certain geographic regions. The Company has a concentration in real estate loans as well as a geographic concentration that could pose an adverse credit risk. At December 31, 2023, approximately 83.8% of the Company’s loan portfolio was concentrated in loans secured by real estate. A substantial portion of borrowers’ ability to honor their contractual obligations is dependent upon the viability of the real estate economic sector. In addition, a large portion of the Company’s foreclosed assets are also located in these same geographic markets, making the recovery of the carrying amount of foreclosed assets susceptible to changes in market conditions. Management continues to monitor these concentrations and has considered these concentrations in its allowance for credit loss analysis. In recent years, we have seen real estate values stabilizing in our markets. The stabilization of rates has resulted in a decrease in the number of loans being classified as impaired over the past several years.

Current wording

Collateral concentrations. Concentrations of credit risk can exist in relation to individual borrowers or groups of borrowers, certain types of collateral, certain types of industries, or certain geographic regions. The Company has a concentration in real estate loans as well as a geographic concentration that could pose an adverse credit risk. At December 31, 2024, approximately 83.6% of the Company’s loan portfolio was concentrated in loans secured by real estate. A substantial portion of borrowers’ ability to honor their contractual obligations is dependent upon the viability of the real estate economic sector. In addition, a large portion of the Company’s foreclosed assets are also located in these same geographic markets, making the recovery of the carrying amount of foreclosed assets susceptible to changes in market conditions. Management continues to monitor these concentrations and has considered these concentrations in its allowance for credit loss analysis. In recent years, we have seen real estate values stabilizing in our markets. The stabilization of rates has resulted in a decrease in the number of loans being classified as impaired over the past several years.

Previous wording

Large credit relationships. The Company currently operates 34 locations in north, central, south and coastal Georgia and includes metropolitan markets in Fulton, Fayette, Dougherty, Lowndes, Houston, Chatham and Muscogee counties. The Company has also expanded its presence in 2023 into Birmingham, Alabama as well as Tallahassee and the Florida panhandle. As a result, the Company originates and maintains large credit relationships with several commercial customers in the ordinary course of business. The Company considers large credit relationships to be those with commitments equal to or in excess of $5.0 million prior to any portion being sold. Large relationships also include loan participations purchased if the credit relationship with the agent is equal to or in excess of $5.0 million. In addition to the Company’s normal policies and procedures related to the origination of large credits, the Company’s Executive Loan Committee and Director Loan Committee must approve all new and renewed credit facilities which are part of large credit relationships. At December 31, 2023, our largest 20 relationships consisted of loans and loan commitments, where the total committed balance was $354.1 million with $266.7 million outstanding. At December 31, 2022, our largest 20 relationships had total committed balance of $327.2 million with $227.2 million outstanding.

Current wording

Large credit relationships. The Company currently operates 34 locations in north, central, south and coastal Georgia andalso expanded its presence in 2023 into Birmingham, Alabama as well as Tallahassee and the Florida panhandle. As a result, the Company originates and maintains large credit relationships with several commercial customers in the ordinary course of business. The required approval of loans (new or renewal) is based on the total credit exposure of a borrower, the type of loan, combined with whether or not there are any material policy exceptions on the loan. For non-owner occupied commercial real estate loans, the DLC approves loans $18 million or greater with material exceptions and loans $26 million or greater without exceptions. For other loans that are not commercial real estate, the DLC approves loans $21 million or greater with material exceptions and loans $30 million or greater with no exceptions. At December 31, 2024, our largest 20 relationships consisted of loans and loan commitments, where the total committed balance was $304.5 million with $286.1 million outstanding. At December 31, 2023, our largest 20 relationships had total committed balance of $354.1 million with $266.7 million outstanding.

Previous wording

Asset quality experienced a slight decrease during the year ended December 31, 2023, primarily due to the repurchase of the government guaranteed portion of nonperforming loans, which were repurchased as part of the liquidation process and have no expected losses. 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 $9.8 million at December 31, 2023, an increase of$4.1 million, or 72.4%, from $5.7 million at December 31, 2022. There were two loans contractually past due 90 days or more and still accruing at December 31, 2023 and none at December 31, 2022. At December 31, 2023, OREO totaled $448,000, a decrease of $203,000, or 31.2%, compared with $651,000 at December 31, 2022. The change in OREO is primarily the result of four properties added to other real estate totaling $3.1 million offset by $3.3 million from the sale of five OREO properties. At the end of the year ended December 31, 2023, total nonperforming assets as a percentage of total assets increased to 0.35% compared with 0.22% at December 31, 2022.

Current wording

Asset quality experienced a slight decrease during the year ended December 31, 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 $10.7 million at December 31, 2024, an increase of$821,000, or 8.3%, from $9.8 million at December 31, 2023. There were six loans contractually past due 90 days or more and still accruing totaling $152,000 at December 31, 2024 and two loans totaling $370,000 at December 31, 2023. At December 31, 2024, OREO totaled $202,000, a decrease of $246,000, or 54.9%, compared with $448,000 at December 31, 2023. The change in OREO is primarily the result of five properties added to other real estate totaling $1.2 million offset by $1.4 million from the sale of six OREO properties. At the end of the year ended December 31, 2024, total nonperforming assets as a percentage of total assets increased to 0.36% compared with 0.35% at December 31, 2023. The increase in nonperforming assets was primarily the result of increases in commercial, financial & agricultural loans as well as SBSL government guaranteed loans in various call codes, partially offset by repayments, payoffs and charged off loans.

Previous wording

Nonperforming assets include nonaccrual loans, loans past due 90 days or more, foreclosed real estate, repossessed assets and nonaccrual securities. Nonperforming assets at December 31, 2023 increased 67.6% from December 31, 2022, as a result of the increase in nonaccrual loans and loans accruing past due 90 days or more, offset by a slight decrease in other real estate owned property.

Current wording

Nonperforming assets include nonaccrual loans, loans past due 90 days or more, foreclosed real estate, repossessed assets and nonaccrual securities. Nonperforming assets at December 31, 2024 increased 6.4% from December 31, 2023, as a result of the increase in nonaccrual loans and repossessed assets, offset by decreases in loans accruing past due 90 days or more and other real estate owned property.

Previous wording

The Company had two loans modified due to financial difficulty during the year ended December 31, 2023. See Note 3. Loans, for additional details on loan modifications.

Current wording

The Company had nine loans modified due to financial difficulty during the year ended December 31, 2024. See Note 3. Loans, for additional details on loan modifications.

Previous wording

The allowance for credit losses on loans increased from $16.1 million or 0.93% of total loans at December 31, 2022 to $18.4 million, or 0.98% of total loans at December 31, 2023. The provision for credit losses on loans reflects loan quality trends, including the level of net charge-offs or recoveries, among other factors. The primary reason for the increase year over year was due to a few loans that faced downgrades and charge-offs. These loans represented a small number of loans and circumstances, and management has no concern that there are systemic issues across the portfolio.

Current wording

The allowance for credit losses on loans increased from $18.4 million or 0.98% of total loans at December 31, 2023 to $19.0 million, or 1.03% of total loans at December 31, 2024. The provision for credit losses on loans reflects loan quality trends, including the level of net charge-offs or recoveries, among other factors. The primary reason for the increase year over year was due to the increase in charge-offs. These charge-offs represent a small number of loans and circumstances, and management has no concern that there are systemic issues across the portfolio.

Previous wording

The amount of provision expense recorded in 2023 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 amount of provision expense recorded in 2022 and prior periods was the amount required such that the total allowance for credit losses reflected the appropriate balance, in the estimation of management, sufficient to cover probable, inherent losses in the loan portfolio.

Current wording

The amount of provision expense recorded in 2024 and 2023 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

Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income. The Company had both held to maturity and available for sale securities in the investment portfolio at December 31, 2023. Management also evaluates its securities portfolio for any credit-related impairment on a quarterly basis. The Company did not identify any credit-related impairment in its held to maturity or available for sale portfolios at December 31, 2023.

Current wording

Securities are classified as held-to-maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available-for-sale when they might be sold before maturity. Securities available-for-sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income. The Company had both held-to-maturity and available-for-sale securities in the investment portfolio at December 31, 2024. Management also evaluates its securities portfolio for any credit-related losses on a quarterly basis. The Company did not identify any credit-related losses in its held-to-maturity or available-for-sale portfolios at December 31, 2024.

Previous wording

The average yield of the securities portfolio was 2.72% in 2023 and 2.16% in 2022. The increase in the average yield from 2022 to 2023 was primarily attributed to paydowns of lower yielding investments and repricing of variable rate securities.

Current wording

The average yield of the securities portfolio was 2.61% in 2024 and 2.72% in 2023. The decrease in the average yield from 2023 to 2024 was primarily attributed to the decrease in average balances of investment securities related to paydowns and the sales of investments securities during 2024.

Previous wording

Average deposits increased $154.6 million in 2023 compared to 2022. The increase in 2023 included $248.7 million, or 67.2% in time deposits, which were partially offset by decreases in interest-bearing demand and savings deposits of $49.0 million, or 3.4% and noninterest-bearing deposits of $45.1 million, or 8.0%. The increase in our overall deposits is due primarily to the increase in the rate the Company offers on its time deposit products as well as the increase in brokered deposits. The increase in deposit rates is attributable to the 100 basis point increase in the national federal funds rate during 2023.

Current wording

Average deposits decreased $1.3 million in 2024 compared to 2023. The decrease in 2024 included decreases of $16.0 million, or 2.6% in time deposits and $59.4 million, or 11.4% in noninterest-bearing deposits, which were partially offset by an increase in interest-bearing demand and savings deposits of $74.1 million, or 5.3%. The increase in our overall deposits is due primarily to the Company's ability to attract interest-bearing demand and savings deposits despite the challenging interest rate environment.

Previous wording

As of December 31, 2023 and 2022,$777.8 million and $882.2 million, respectively, of our deposit portfolio was uninsured. The uninsured amounts are estimated based on the methodologies and assumptions used for the Bank's regulatory reporting requirements.

Current wording

As of December 31, 2023 and 2022,$857.6 million and $777.8 million, respectively, of our deposit portfolio was uninsured. The uninsured amounts are estimated based on the methodologies and assumptions used for the Bank's regulatory reporting requirements.

Previous wording

The Company supplements deposit sources with brokered deposits. As of December 31, 2023, the Company had $93.6 million, or 3.68% of total deposits, in brokered certificates of deposit attracted by external third parties. Additional information is provided in the Notes to Consolidated Financial Statements for Deposits.

Current wording

The Company supplements deposit sources with brokered deposits. As of December 31, 2024, the Company had $59.5 million, or 2.32% of total deposits, in brokered certificates of deposit attracted by external third parties. Additional information is provided in the Notes to Consolidated Financial Statements for Deposits.

Previous wording

At December 31, 2023, shareholders’ equity totaled $254.9 million compared to $230.3 million at December 31, 2022. In addition to net income of $21.7 million, another significant change in shareholders’ equity during 2023 included $7.7 million of dividends declared on common stock. The accumulated other comprehensive loss component of stockholders’ equity totaled $55.6 million at December 31, 2023 compared to $66.4 million at December 31, 2022. This fluctuation was mostly related to the after-tax effect of changes in the fair value of securities available for sale. Under regulatory requirements, the unrealized gain or loss on securities available for sale does not increase or reduce regulatory capital and is not included in the calculation of risk-based capital and leverage ratios. Regulatory agencies for banks and bank holding companies utilize capital guidelines designed to measure Tier 1 and total capital and take into consideration the risk inherent in both on-balance sheet and off-balance sheet items.

Current wording

At December 31, 2024, shareholders’ equity totaled $278.7 million compared to $254.9 million at December 31, 2023. In addition to net income of $23.9 million, another significant change in shareholders’ equity during 2024 included $7.9 million of dividends declared on common stock. The accumulated other comprehensive loss component of stockholders’ equity totaled $47.6 million at December 31, 2024 compared to $55.6 million at December 31, 2023. This fluctuation was mostly related to the after-tax effect of changes in the fair value of securities available-for-sale. Under regulatory requirements, the unrealized gain or loss on securities available for sale does not increase or reduce regulatory capital and is not included in the calculation of risk-based capital and leverage ratios. Regulatory agencies for banks and bank holding companies utilize capital guidelines designed to measure Tier 1 and total capital and take into consideration the risk inherent in both on-balance sheet and off-balance sheet items.

Previous wording

Using the capital requirements presently in effect, the Tier 1 ratio as of December 31, 2023 was 12.77% and total Tier 1 and 2 risk-based capital was 15.47%. Both of these measures compare favorably with the regulatory minimum of 6.0% for Tier 1 and 8% for total risk-based capital. The Company’s common equity Tier 1 ratio as of December 31, 2023 was 11.66%, which exceeds the regulatory minimum of 4.50%. The Company’s Tier 1 leverage ratio as of December 31, 2023 was 9.17%, which exceeds the required ratio standard of 4.0%.

Current wording

Using the capital requirements presently in effect, the Tier 1 ratio as of December 31, 2024 was 14.26% and total Tier 1 and 2 risk-based capital was 17.10%. Both of these measures compare favorably with the regulatory minimum of 6.0% for Tier 1 and 8% for total risk-based capital. The Company’s common equity Tier 1 ratio as of December 31, 2024 was 13.08%, which exceeds the regulatory minimum of 4.50%. The Company’s Tier 1 leverage ratio as of December 31, 2024 was 9.50%, which exceeds the required ratio standard of 4.0%.