
PART I – Financial Information Item 1. Financial Statements The company's financial statements for the period ended September 30, 2022, show an increase in total assets to $2.8 billion, driven by significant loan growth. Net income for the third quarter was $5.3 million, a slight decrease from the prior year, primarily due to a higher provision for loan losses. Stockholders' equity was significantly impacted by a $60.9 million net unrealized loss on available-for-sale securities, leading to a comprehensive loss of $46.9 million for the nine-month period Consolidated Balance Sheet As of September 30, 2022, total assets grew to $2.81 billion from $2.69 billion at year-end 2021, primarily driven by an 18.6% increase in net loans. Total stockholders' equity increased slightly to $226.1 million, though it was negatively impacted by a significant increase in accumulated other comprehensive loss to $67.1 million, largely due to unrealized losses on investment securities Consolidated Balance Sheet (dollars in thousands) | (dollars in thousands) | September 30, 2022 (Unaudited) | December 31, 2021 (Audited) | | :--- | :--- | :--- | | Total Assets | $2,805,912 | $2,691,715 | | Loans, net | $1,571,431 | $1,325,067 | | Total Deposits | $2,409,662 | $2,374,608 | | Total Liabilities | $2,579,845 | $2,474,008 | | Accumulated other comprehensive loss | ($67,100) | ($6,177) | | Total Stockholders' Equity | $226,067 | $217,707 | Consolidated Statements of Income For the third quarter of 2022, net income was $5.3 million ($0.30 per diluted share), a decrease from $5.6 million ($0.45 per diluted share) in Q3 2021. For the nine-month period, net income was $14.0 million, down from $14.5 million year-over-year, primarily due to a significantly higher provision for loan losses, which increased from $150,000 to $1.3 million for the quarter and from $650,000 to $2.5 million for the nine-month period Consolidated Statements of Income (dollars in thousands, except EPS) | (dollars in thousands, except EPS) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $20,865 | $17,868 | $59,225 | $47,167 | | Provision for Loan Losses | $1,320 | $150 | $2,470 | $650 | | Noninterest Income | $8,179 | $9,438 | $27,384 | $25,475 | | Noninterest Expense | $21,367 | $21,211 | $67,648 | $54,113 | | Net Income | $5,252 | $5,583 | $13,991 | $14,500 | | Diluted EPS | $0.30 | $0.45 | $0.82 | $1.39 | Consolidated Statements of Comprehensive (Loss) Income The company experienced a significant shift from comprehensive income to a comprehensive loss, primarily due to unrealized losses on securities. For the nine months ended September 30, 2022, the company reported a comprehensive loss of $46.9 million, compared to a comprehensive income of $4.3 million in the same period of 2021, driven by a $60.9 million negative change in unrealized losses on securities, net of tax Consolidated Statements of Comprehensive (Loss) Income (dollars in thousands) | (dollars in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net Income | $13,991 | $14,500 | | Change in unrealized (losses) gains on securities, net of tax | ($60,923) | ($10,192) | | Comprehensive (Loss) Income | ($46,932) | $4,308 | Consolidated Statements of Changes in Stockholder's Equity For the nine months ended September 30, 2022, stockholders' equity increased from $217.7 million to $226.1 million, with key activities including $14.0 million net income and $59.5 million from common stock issuance, offset by $5.3 million in dividends and a $60.9 million increase in net unrealized losses on securities - Accumulated Other Comprehensive Loss increased dramatically from ($6.2 million) at the beginning of the year to ($67.1 million) at September 30, 2022, primarily due to unrealized losses on available-for-sale securities20 - The company issued 3.8 million shares of common stock, raising $59.5 million in capital during the first nine months of 202220 Consolidated Statements of Cash Flows For the nine months ended September 30, 2022, cash and cash equivalents decreased by $112.2 million, with $35.5 million from operating activities, $305.7 million used in investing activities, and $158.1 million provided by financing activities, driven by common stock issuance ($59.5 million) and new subordinated debt ($39.1 million) Consolidated Statements of Cash Flows (dollars in thousands) | (dollars in thousands) | Nine Months Ended Sep 30, 2022 | | :--- | :--- | | Net cash provided by operating activities | $35,464 | | Net cash used in investing activities | ($305,719) | | Net cash provided by financing activities | $158,063 | | Net decrease in cash and cash equivalents | ($112,192) | Notes to Consolidated Financial Statements The notes detail significant accounting policies and provide further information on the company's financial position, including a $511.0 million transfer of securities to held-to-maturity, significant real estate loan growth, increased allowance for loan losses, new debt issuance, and confirmation of well-capitalized status - The company transferred securities with a book value of approximately $511.0 million from the available-for-sale to the held-to-maturity portfolio during 2022 to mitigate the impact of rising interest rates on regulatory capital47 - The loan portfolio has a concentration in real estate, with approximately 86% of loans secured by real estate as of September 30, 202238 - The company adopted ASU 2016-13 (CECL) effective for fiscal years beginning after December 15, 2022, and expects a 15-25% increase in the allowance for credit losses upon implementation41 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the slight decrease in year-over-year net income to a higher provision for loan losses and increased noninterest expenses, while net interest income grew due to higher asset volumes despite net interest margin compression from rising funding costs, and capital was successfully raised to support growth Results of Operations For the first nine months of 2022, net income was $14.0 million, down from $14.5 million in 2021, despite a $12.1 million increase in net interest income, as net interest margin declined 30 basis points to 3.19%, and the provision for loan losses increased to $2.5 million to support loan growth, while noninterest expense rose 25.0% to $67.6 million due to the SouthCrest acquisition - Net interest margin decreased to 3.25% for Q3 2022 from 3.48% in Q3 2021, primarily due to a decrease in loan yields and an increase in deposit and borrowing rates189 - The provision for loan losses for the nine months ended September 30, 2022, was $2.5 million, a significant increase from $650,000 in the prior-year period, largely due to strong loan growth190213 - Noninterest income for the nine months of 2022 increased by $1.9 million, driven by higher service charges and interchange fees, which offset a $2.8 million decline in mortgage fee income as interest rates rose191217 - Noninterest expense for the nine months of 2022 increased by $13.5 million (25.0%) compared to the same period in 2021, primarily due to higher salaries and IT costs following the SouthCrest merger192222 Financial Condition and Balance Sheet Review Total assets increased to $2.8 billion at September 30, 2022, with gross loans growing by $248.6 million (18.6%) to $1.6 billion, while the allowance for loan losses stood at $15.2 million (0.96% of total loans), nonperforming assets remained low at 0.20% of total assets, and total deposits saw modest growth to $2.41 billion - Gross loans increased by 18.6% to $1.6 billion at September 30, 2022, from $1.3 billion at December 31, 2021230 - Nonperforming assets as a percentage of total assets slightly improved to 0.20% at September 30, 2022, compared to 0.21% at December 31, 2021244 - The allowance for loan losses as a percentage of total loans remained stable at 0.96% at both September 30, 2022, and December 31, 2021190 Liquidity and Capital Resources The company maintains a strong liquidity and capital position, enhancing its capital base in 2022 through a $63.5 million public offering of common stock and $40.0 million in subordinated notes, remaining well-capitalized with the bank's CET1 risk-based capital ratio at 12.57% and leverage ratio at 8.96% - In February 2022, the company completed a public offering of common stock, generating net proceeds of approximately $59.5 million193259 - In May 2022, the company issued $40.0 million of 5.25% Fixed-to-Floating Rate Subordinated Notes to further bolster its capital position195260 Capital Ratios (Colony Bank) | Capital Ratios (Colony Bank) | September 30, 2022 | Well-Capitalized Minimum | | :--- | :--- | :--- | | CET1 risk-based capital ratio | 12.57% | 6.5% | | Tier 1 risk-based capital ratio | 12.57% | 8.0% | | Total risk-based capital ratio | 13.34% | 10.0% | | Leverage ratio | 8.96% | 5.0% | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are credit, interest rate, and liquidity, managed by ALCO, with simulation models projecting a 4.56% increase in net interest income from a 200 basis point rate increase as of September 30, 2022, with no material changes from the 2021 Form 10-K Changes in Net Interest Income from Rate Changes | Changes in Rates | Increase (Decrease) in Net Interest Income (Sep 30, 2022) | | :--- | :--- | | +200 basis points | 4.56% | | +100 basis points | 2.34% | | -100 basis points | (2.53)% | Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2022, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period272 - No material changes to the company's internal control over financial reporting occurred during the third quarter of 2022273 PART II – Other Information Item 1. Legal Proceedings The company is involved in various legal proceedings in the ordinary course of business, with management believing that any resulting liabilities will not have a material adverse effect on its consolidated financial position - In the opinion of management, pending legal proceedings are not expected to have a material adverse effect on the company's financial condition276 Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to the risk factors disclosed in the 2021 Form 10-K were reported for the period278 Item 2. Unregistered Sale of Equity Securities and Use of Proceeds During the third quarter of 2022, the company did not sell any unregistered shares of its common stock, nor did it or its affiliates repurchase any of its equity securities - There were no unregistered sales of the company's common stock during the three-month period ended September 30, 2022279 - The company did not repurchase any of its equity securities during the third quarter of 2022280 Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period Item 5. Other Information The company reported no other information required to be disclosed under this item Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act of 2002 and interactive data files (Inline XBRL)