Colony Bankcorp, Inc. today reported financial results for the fourth quarter of 2022 and for the year ended December 31, 2022. Financial highlights are shown below.

Financial Highlights:

• Net income increased to $5.6 million, or $0.31 per diluted share, for the fourth quarter of 2022, compared to $5.3 million, or $0.30 per diluted share, for the third quarter of 2022, and $4.2 million, or $0.30 per diluted share, for the fourth quarter of 2021.

• Operating net income of $5.6 million, or $0.31 per diluted share remained stable for the fourth quarter of 2022 as compared to $5.3 million, or $0.30 per diluted share, for the third quarter of 2022, and $5.2 million, or $0.40 per diluted share, for the fourth quarter of 2021 (see Reconciliation of Non-GAAP Measures).

• The tax rate for the quarter was meaningfully lower than trend due to the Company’s $500,000 contribution in a Georgia tax credit program with local hospitals. The tax rate for 2023 is estimated to be 18%.

• Provision for loan losses of $900,000 was recorded in fourth quarter of 2022, compared to $1.3 million in the third quarter of 2022, and $50,000 recorded in fourth quarter of 2021.

• Total loans were $1.74 billion at December 31, 2022, an increase of $150.5 million, or 9.49% from the prior quarter.

• Mortgage production was $92.6 million, and mortgage sales totaled $38.1 million in the fourth quarter of 2022 compared to $99.4 million and $68.5 million, respectively, for the third quarter of 2022. For the twelve months ended December 31, 2022, mortgage production was $402.9 million and mortgage sales totaled $280.1 million.

• Small Business Specialty Lending (“SBSL”) closed $29.0 million in Small Business Administration (“SBA”) loans and sold $18.0 million in SBA loans in the fourth quarter of 2022 compared to $19.4 million and $14.8 million, respectively, for the third quarter of 2022. For the twelve months ended December 31, 2022, SBA loans closed were $75.1 million and SBA loans sold were $64.5 million.

The Company also announced that on January 26, 2023, the Board of Directors declared a quarterly cash dividend of $0.11 per share, to be paid on its common stock on February 23, 2023, to shareholders of record as of the close of business on February 9, 2023. The Company had 17,598,123 shares of its common stock outstanding as of January 25, 2023.

In addition, the Company announced today that Terry L. Hester passed away on January 22, 2023. Terry began his career with Colony in 1978 and served as Executive Vice President and Chief Financial Officer at the time of his retirement in 2019. He was currently serving on the Board of Directors of the Company.

Today the Company also announced that Chief Financial Officer Andy Borrmann is leaving the Company to pursue other career opportunities. The Company has appointed Chief Executive Officer T. Heath Fountain to the additional role of Acting Chief Financial Officer of the Company, and current Chief Accounting Officer, Derek Shelnutt to the additional role of Acting Chief Financial Officer of Colony Bank. Shelnutt joined the Company in September of 2020, and has served in many roles in the treasury and finance areas, including Controller and Treasurer, before being named Chief Accounting Officer in May of 2022. He is a Certified Public Accountant and has experience in both banking and public accounting. The Company has initiated a search process for a new Chief Financial Officer.

Fountain continued, “I would like to thank Andy Borrmann for his contributions to the Company since joining us in 2021 through the SouthCrest merger. Andy has contributed significantly to our success, and we wish him well in his future endeavors.”

Commenting on today’s announcement, Heath Fountain, Chief Executive Officer, said, “We were also saddened to learn the recent news of the passing of our director Terry Hester. Our deepest sympathies go out to his family. Terry’s hard work ethic and dedication will leave a long lasting impact on the Colony team. He will be sorely missed by his colleagues in the Company and throughout the banking industry.”

Fountain added, “We are pleased to announce improved results for the 4th quarter of 2022. We continued to experience strong loan growth during the quarter. Our mortgage team also continued to deliver strong production, despite the higher interest environment we experienced in the late third and early fourth quarters. However, as mortgage rates rose, adjustable rate portfolio loan products became more attractive, and our production efforts shifted more toward this portfolio, meaningfully decreasing our secondary market production and thus our gain on sales revenue included within mortgage fee income for the quarter.”

“Earnings quality has also improved during the year, with 93% of our year to date earnings coming from the core bank as compared to 75% in 2021 and 2020. Investments in new lines of business continued to be a short term drag on earnings, reducing our return on assets by approximately 6 basis points in the fourth quarter and 4 basis points year to date.”

“Net interest margin decreased slightly during the quarter as we funded some of our loan growth with higher cost borrowings. We are pleased that we were able to grow core deposits during the quarter 2.5% in a very challenging rate environment. We have placed our bankers’ focus on growing deposits, and we believe our strong retail banking center footprint, combined with our enhanced calling efforts, can continue to profitably fund our loan growth.”

“We expect loan growth to slow considerably in the coming quarters, and should be more in line with our long term goal of 8 - 12% by the second half of the year. We are seeing our loan pipelines decrease as we continue to increase loan pricing, maintain strong credit standards and shift our focus away from commercial real estate lending. We continued to see strong asset quality, as nonperforming loans to total loans remained stable and levels of criticized and classified loans decreased.”

Balance Sheet

• Total assets were $2.94 billion at December 31, 2022, an increase of $130.7 million from September 30, 2022.

• Total loans, including loans held for sale, were at $1.75 billion at December 31, 2022, an increase of $144.3 million from the quarter ended September 30, 2022.

• Total deposits were $2.49 billion and $2.41 billion at December 31, 2022 and September 30, 2022, respectively, an increase of $81.3 million.

• Total borrowings at December 31, 2022 totaled $203.4 million, an increase of $45.0 million or, 28.4%, compared to September 30, 2022 related to additional Federal Home Loan Bank advances and borrowings from the Federal Reserve Bank.

Capital

• Colony continues to maintain a strong capital position, with ratios that exceed regulatory minimums required to be considered as “well-capitalized.”

• Preliminary tier one leverage ratio, tier one capital ratio, total risk-based capital ratio and common equity tier one capital ratio were 9.21%, 12.54%, 15.16%, and 11.39%, respectively, at December 31, 2022.

Fourth Quarter and December 31, 2022 Year to Date Results of Operations

• Net interest income, on a tax-equivalent basis, for the fourth quarter of 2022 totaled $21.5 million, compared to $19.2 million for the fourth quarter of 2021. Net interest income, on a tax-equivalent basis, for the twelve months ended December 31, 2022 totaled $81.1 million, compared to $66.7 million for the twelve months ended December 31, 2021. The increase during the quarter and twelve months ended December 31, 2022 compared to the same periods in 2021 is primarily attributable to increases in loan volume and purchases of investment securities, offset by increases in deposit rates and increases in borrowings to fund loan growth.

• Net interest margin for the quarter increased 7 basis points from the fourth quarter of 2021. This is primarily due to the purchase of higher yielding investment securities and an increase in rates paid on deposits with the Federal Reserve, partially offset by an increase in deposit rates and volume along with an increase in borrowings. Net interest margin for the twelve months ended December 31, 2022 decreased 19 basis points from the twelve months ended December 31, 2021. The decrease is the result of increased deposit rates along with an increase in borrowings.

• Noninterest income totaled $7.7 million for the fourth quarter ended December 31, 2022, a decrease of $3.1 million, or 28.9%, compared to the same period in 2021. The decrease was primarily attributable to decreases in mortgage fee income and SBSL loan sales. Noninterest income totaled $35.1 million for the twelve months ended December 31, 2022, a decrease of $1.2 million, or 3.4%, compared to the same period in 2021. The decrease was primarily attributable to decreases in mortgage fee income and SBSL loan sales, offset by growth in interchange fee income, service charges on deposits and insurance commissions.

• Noninterest expense totaled $21.8 million for the fourth quarter ended December 31, 2022, compared to $24.5 million for the same period in 2021. The decrease was attributable to acquisition costs in the prior period as well as a decrease in salaries. Noninterest expense totaled $89.5 million for the twelve months ended December 31, 2022, compared to $78.6 million for the same period in 2021. The increase for the twelve month period was primarily related to increases in salaries and information technology related to the acquisition of SouthCrest Financial Group, Inc. (“SouthCrest”) in August of 2021.

Asset Quality

• Nonperforming assets totaled $6.4 million and $5.5 million at December 31, 2022 and September 30, 2022, respectively, an increase of $813,000.

• Other real estate owned and repossessed assets totaled approximately $651,000 at December 31, 2022, and $246,000 at September 30, 2022, an increase of $405,000.

• Net loans charged-off were $154,000, or 0.04% of average loans for the fourth quarter of 2022, compared to net charge-offs of $198,000 or 0.05% for the third quarter of 2022.

• The loan loss reserve was $16.1 million, or 0.93% of total loans, at December 31, 2022, compared to $15.2 million, or 0.96% of total loans at September 30, 2022, and $12.9 million, or 0.96% of total loans, at December 31, 2021.

As noted above and in the table on page 8, overall asset quality remains strong.

Stock Buyback Authorization

On October 20, 2022, the Board of Directors of the Company authorized a stock buyback program, under which the Company may repurchase up to $12 million of its outstanding common stock. Repurchases under this program may be made from time to time through open market purchases, privately negotiated transactions or such other manners as will comply with applicable laws and regulations. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions and other corporate liquidity requirements and priorities. The buyback program does not obligate the Company to purchase any particular number of shares and there is no guarantee as to the exact number of shares that will be repurchased by the Company. The buyback program is intended to expire at the end of 2023 but may be suspended, modified or terminated by the Company at any time and for any reason, without prior notice. As of December 31, 2022, 40,000 shares had been repurchased at a price of $13.50, leaving $11.5 million available for future repurchase.