Colony Bankcorp Inc.
11/07/2025 | Press release | Distributed by Public on 11/07/2025 12:32
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The purpose of this discussion and analysis is to focus on significant changes in the financial condition of Colony Bankcorp, Inc. and our wholly owned subsidiary, Colony Bank, from December 31, 2024 through September 30, 2025 and on our results of operations for the three and nine months ended September 30, 2025 and 2024. This discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto in the Company's 2024 Form 10-K, and information presented elsewhere in this Quarterly Report on Form 10-Q, particularly the unaudited consolidated financial statements and related notes appearing in Item 1.
Forward-looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance and statements regarding the proposed merger of TC Bancshares, Inc. ("TCBC") with the Company (the "Proposed Merger") and expectations with regard to the benefits of the Proposed Merger. These statements are often, but not always, made through the use of words or phrases such as "may," "might," "should," "could," "predict," "potential," "believe," "expect," "continue," "will," "anticipate," "seek," "estimate," "intend," "plan," "strive," "projection," "goal," "target," "outlook," "aim," "would," "annualized" and "outlook," or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including those factors discussed elsewhere in this Quarterly Report on Form 10-Q and the following:
•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, supply chain issues, 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;
•changes in interest rate environment (including changes to the federal funds rate, the level and composition of deposits (as well as the cost of, and competition for, deposits), loan demand, liquidity and the values of loan collateral, securities and market fluctuations, and interest rate sensitive assets and liabilities), and competition in our markets may result in increased funding costs or reduced earning assets yields, thus reducing our margins and net interest income;
•uncertainties surrounding geopolitical events, trade policy, taxation policy, and monetary policy which continue to impact the outlook for future economic growth, including U.S. imposition of tariffs and consideration of responsive actions by the impacted nations and/or the expansion of import fees and tariffs among a larger group of nations, which is bringing greater ambiguity to the outlook for future economic growth;
•our ability to comply with applicable capital and liquidity requirements, including our ability to generate liquidity internally or raise capital on favorable terms, including continued access to the debt and equity capital markets;
•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, persistent inflation, trade wars or economic uncertainty as a result of the foregoing;
•factors that can impact the performance of our loan portfolio, including real estate values and liquidity in our primary market areas, the financial health and credit quality of our borrowers and the success of various projects that we finance;
•concentration of our loan portfolio in real estate loans and changes in the prices, values and sales volumes of commercial and residential real estate;
•changes in the prices, values and sales volumes of commercial and residential real estate, especially as they relate to the value of collateral supporting the Company's loans;
•weakness in the real estate market, which can affect, among other things, the value of collateral securing mortgage loans, mortgage loan originations and delinquencies, and mortgage fee income;
•credit and lending risks associated with our loan portfolios;
•factors that negatively impact our mortgage banking services, including declines in our mortgage originations or profitability due to rising or elevated interest rates and increased competition and regulation, the Bank's or third party's failure to satisfy mortgage servicing obligations, loan modifications, the effects of judicial or regulatory requirements or guidance, and the possibility of the Bank being required to repurchase mortgage loans or indemnify buyers;
•the impact of prolonged elevated interest rates on our financial projections and models;
•our ability to attract sufficient loans that meet prudent credit standards;
•our ability to attract and maintain business banking relationships with well-qualified businesses, real estate developers and investors with proven track records in our market areas;
•our ability to successfully manage our credit risk and the sufficiency of our allowance for credit losses ("ACL");
•the adequacy of our reserves (including ACL) and the appropriateness of our methodology for calculating such reserves;
•adverse developments in the banking industry highlighted by high-profile bank failures and the impact of such developments on customer confidence, liquidity and regulatory responses to these developments (including increases in the cost of our deposit insurance assessments and increased regulatory scrutiny), our ability to effectively manage our liquidity risk and any growth plans and the availability of capital and funding;
•our ability to successfully execute our business strategy to achieve profitable growth;
•the concentration of our business within our geographic areas of operation in Georgia, Alabama, Florida and neighboring markets;
•our focus on small and mid-sized businesses;
•our ability to manage our growth;
•our ability to increase our operating efficiency;
•significant turbulence or a disruption in the capital or financial markets and the effect of a fall in stock market prices on our investment securities;
•risks that our cost of funding could increase, in the event we are unable to continue to attract stable, low-cost deposits and reduce our cost of deposits;
•inability of our risk management framework to effectively mitigate credit risk, interest rate risk, liquidity risk, price risk, compliance risk, operational risk (including by virtue of our relationships with third party business partners, as well as our relationships with third party vendors and other service providers), strategic risk, reputational risk and other risks inherent to the business of banking;
•our ability to maintain expenses in line with current projections;
•the makeup of our asset mix and investments;
•external economic, political and/or market factors, such as changes in monetary and fiscal policies and laws, and also including the interest rate policies of the Federal Reserve, inflation or deflation, changes in the demand for loans, and fluctuations in consumer spending, borrowing and savings habits, which may have an adverse impact on our financial condition;
•the potential implementation of a regulatory reform agenda under the current presidential administration that is significantly different than that of the prior administration, impacting rulemaking, supervision, examination and enforcement priorities of the federal banking agencies;
•continued or increasing competition from other financial institutions (including fintech companies), credit unions, and non-bank financial services companies, many of which are subject to different regulations than we are;
•challenges arising from unsuccessful attempts to expand into new geographic markets, products, or services;
•restraints on the ability of the Bank to pay dividends to us, which could limit our liquidity;
•increased capital requirements imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all;
•a failure in the internal controls we have implemented to address the risks inherent to the business of banking;
•inaccuracies in our assumptions about future events, which could result in material differences between our financial projections and actual financial performance;
•changes in our management personnel or our inability to retain, motivate and hire qualified management personnel;
•the dependence of our operating model on our ability to attract and retain experienced and talented bankers in each of our markets, which may be impacted as a result of labor shortages;
•our ability to prevent, identify and address cyber-security risks (which may be exacerbated by the development of generative artificial intelligence), fraud and systems errors;
•disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems, and the cost of defending against them and any reputational or other financial risks following such a cybersecurity incident;
•our business relationships with, and reliance upon, third parties that have strategic partnerships with us or that provide key components of our business infrastructure, including the costs of services and products provided to us by third parties, and disruptions in service, security breaches, financial difficulties with or other adverse events affecting a third-party vendor or business relationship;
•an inability to keep pace with the rate of technological advances due to a lack of resources to invest in new technologies;
•fraudulent and negligent acts by our clients, employees or vendors and our ability to identify and address such acts;
•the risks related to the Proposed Merger, without limitation: (a) the risk that the cost savings and any revenue synergies from the Proposed Merger is less than or different from expectations, (b) disruption from the Proposed Merger with customer, supplier, or employee relationships, (c) the occurrence of any event, change, or other circumstances that could give rise to the termination of the Agreement and Plan of Merger by and between the Company and TCBC, (d) the failure to obtain necessary regulatory approvals for the Proposed Merger, (e) the failure to obtain the approval of the Company's and TCBC's shareholders in connection with the Proposed Merger, (f) the possibility that the costs, fees, expenses and charges related to the Proposed Merger may be greater than anticipated, including as a result of unexpected or unknown factors, events, or liabilities, (g) the failure of the conditions to the Proposed Merger to be satisfied, (h) the risks related to the integration of the combined businesses, including the risk that the integration will be materially delayed or will be more costly or difficult than expected, (i) the diversion of management time on merger-related issues, (j) the ability of the Company to effectively manage the larger and more complex operations of the combined company following the Proposed Merger, (k) the risks associated with the Company's pursuit of future acquisitions, (l) the risk of expansion into new geographic or product markets, (m) reputational risk and the reaction of the parties' customers to the Proposed Merger, (n) the Company's ability to successfully execute its various business strategies, including its ability to execute on potential acquisition opportunities, (o) the risk of potential litigation
or regulatory action related to the Proposed Merger, and (p) general competitive, economic, political, and market conditions;
•risks related to potential acquisitions, including the risk that the regulatory environment may not be conducive to or may prohibit the consummation of future mergers and/or business combinations, may increase the length of time and amount of resources required to consummate such transactions, and may reduce the anticipated benefit;
•the impact of any claims or legal actions to which we may be subject, including any effect on our reputation;
•compliance with governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities and tax matters, and our ability to maintain licenses required in connection with commercial mortgage origination, sale and servicing operations;
•changes in the scope and cost of Federal Deposit Insurance Corporation ("FDIC") insurance and other coverage;
•changes in our accounting standards;
•changes in tariffs and trade barriers;
•changes in federal tax law or policy;
•the institution and outcome of litigation and other legal proceedings against us or to which we may become subject to;
•the impact of recent and future legislative and regulatory changes;
•examinations by our regulatory authorities;
•the effects of war or other conflicts, civil unrest, acts of terrorism, acts of God, natural disasters, health emergencies, epidemics or pandemics, climate changes, or other catastrophic events that may affect general economic conditions;
•risks related to diversity, equity and inclusion ("DEI") and environmental, social and governance ("ESG") strategies and initiatives, the scope and pace of which could alter the Company's reputation and shareholder, associate, customer and third-party affiliations or result in litigation in connection with anti-DEI and anti-ESG laws, rules or activism;
•a deterioration of the credit rating for U.S. long-term sovereign debt, actions that the U.S. government may take to avoid exceeding the debt ceiling, and uncertainties surrounding the debt ceiling and the federal budget;
•any adverse effects of a prolonged shutdown of the U.S. government; and
•other risks and factors identified in our 2024 Form 10-K, this Quarterly Report on Form 10-Q for the period ended September 30, 2025, and in any of the Company's other reports filed with the U.S. Securities and Exchange Commission and available on its website at www.sec.gov.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Quarterly Report on Form 10-Q. Because of these risks and other uncertainties, our actual future results, performance or achievement, or industry results, may be materially different from the results indicated by the forward looking statements in this Quarterly Report on Form 10-Q. In addition, our past results of operations are not necessarily indicative of our future results. You should not rely on any forward looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
Proposed Acquisition of TC Bancshares, Inc. and TC Federal Bank
The Company and TC Bancshares, Inc. (OTCQX: TCBC) ("TCBC"), the holding company for TC Federal Bank, on July 23, 2025, jointly announced the signing of an Agreement and Plan of Merger under which the Company has agreed to acquire 100% of the common stock of TCBC in a combined stock-and-cash transaction valued at approximately $86.1 million. Upon completion of the transaction, the combined organization is expected to have approximately $3.8 billion in total assets, $2.4
billion in total loans and $3.1 billion in total deposits. The transaction is expected to be immediately accretive to the Company's earnings per share, excluding transaction costs.
The Agreement and Plan of Merger has been approved by the Boards of Directors of the Company and TCBC. The closing of the transaction, which is expected to occur in the fourth quarter of 2025, is subject to customary conditions, including regulatory approval and approval by the shareholders of the Company and TCBC.
Under the terms of the Agreement and Plan of Merger, each TCBC shareholder will have the right to elect to receive either $21.25 in cash or 1.25 shares of the Company's common stock in exchange for each share of TCBC common stock, subject to customary proration and allocation procedures such that approximately 20% of TCBC common stock will be converted to cash consideration and the remaining 80% of TCBC common stock will be converted to Company common stock.
Overview
The following discussion and analysis presents the more significant factors affecting the Company's financial condition as of September 30, 2025 and December 31, 2024, and results of operations for the three and nine month periods ended September 30, 2025 and 2024. This discussion and analysis should be read in conjunction with the Company's consolidated financial statements, notes thereto and other financial information appearing elsewhere in this report.
At September 30, 2025, the Company had total consolidated assets of $3.2 billion, total loans, net of $2.0 billion, total deposits of $2.6 billion, and stockholders' equity of $302.3 million. The Company reported net income of $5.8 million, or $0.33 per diluted share, for the three months ended September 30, 2025 and $20.4 million, or $1.17 per diluted share, for the first nine months of 2025, compared to net income of $5.6 million, or $0.32 per diluted share, for the three months ended September 30, 2024 and $16.4 million, or $0.94 per diluted share, for the first nine months of 2024. The increase in net income for the three months ended September 30, 2025 compared to the three months ended September 30, 2024 was primarily a result of an increase in interest income on loans, and a minimal increase in noninterest income, along with a decrease in interest expense, that was partially offset by an increase in noninterest expense. The increase in net income for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 was primarily a result of increases in interest income, reflected in the loan and deposit in banks categories, as well as an increase in noninterest income, along with a decrease in interest expense that was partially offset by an increase in noninterest expense.
Net interest income on a tax equivalent basis was $22.9 million for the third quarter of 2025 compared to $18.7 million for the third quarter of 2024, an increase of $4.2 million. Net interest income on a tax equivalent basis for the nine months ended September 30, 2025 was $66.6 million, compared to $56.1 million for the nine months ended September 30, 2024, an increase of $10.5 million. These increases are the result of an increase in income on interest earning assets along with a decrease in expense on interest bearing liabilities. Income on interest earning assets increased $2.3 million to $37.1 million for the third quarter of 2025 compared to the respective period in 2024. Expense on interest bearing liabilities decreased $1.9 million to $14.2 million for the third quarter of 2025 compared to the respective period in 2024. Income on interest earning assets increased $8.1 million to $109.8 million for the first nine months of 2025 compared to the respective period in 2024. Expense on interest bearing liabilities decreased $2.4 million to $43.2 million for the first nine months of 2025 compared to the respective period in 2024.
Provision for credit losses for the three and nine months ended September 30, 2025 was $900,000 and $2.9 million, which represents $760,000 and $2.6 million in provision for credit losses on loans and $140,000 and $262,000 in provision for credit losses on unfunded commitments, respectively. This is compared to $750,000 and $2.4 million for the three and nine months ended September 30, 2024, which represents $996,000 and $2.8 million in provision for credit losses on loans and $246,000 and $362,000 in release of credit losses on unfunded commitments, respectively. For the third quarter of 2025, there were net charge-offs of $1.8 million compared to $139,000 for the same period in 2024. Net charge-offs for the first nine months of 2025 were $3.5 million compared to $1.5 million for the same period in 2024. Colony's allowance for credit losses on loans was $18.1 million, or 0.89% of total loans at September 30, 2025, compared to $19.0 million, or 1.03% of total loans, at December 31, 2024. Both periods experienced increases in net charge-offs primarily due to SBA loans in the SBSL portfolio related to loans originated prior to changes made in the Company's credit policy. Newly originated loans of this type have tighter credit requirements and higher SBA guarantee percentages. At September 30, 2025 and December 31, 2024, nonperforming assets were $15.2 million and $11.3 million, or 0.48% and 0.36% of total assets, respectively.
Noninterest income of $10.1 million for the third quarter of 2025 represents an increase of $9,000, or 0.09%, from the third quarter of 2024. Noninterest income of $29.2 million for the nine months ended September 30, 2025 represents an increase of $167,000, or 0.57%, from the nine months ended September 30, 2024. These increases are a result of increases in mortgage fee income, insurance commissions, interchange fees and other noninterest income which were partially offset by a
decrease in gain on sales of SBA loans. See "Table 3 - Noninterest Income" for more detail and discussion on the primary drivers to the increase in noninterest income.
For the three months ended September 30, 2025, noninterest expense was $24.6 million, an increase of $3.8 million, or 18.13%, from the same period in 2024. For the nine months ended September 30, 2025, noninterest expense was $66.8 million, an increase of $5.3 million, or 8.57%, from the same period in 2024. Increases in noninterest expense for both periods were a result of increases in salaries and employee benefits, occupancy and equipment, acquisition related expenses, information technology expenses, professional fees and other noninterest expenses, which includes a loss related to a wire fraud incident. See "Table 4 - Noninterest Expense" for more detail and discussion on the primary drivers to the increase in noninterest expense.
Critical Accounting Policies
Our accounting and reporting policies are in accordance with GAAP and conform to general practices within the banking industry. We have identified certain of its accounting policies as "critical accounting policies," consisting of those related to business combinations, allowance for credit losses and income taxes. In determining which accounting policies are critical in nature, we have identified the policies that require significant judgment or involve complex estimates. It is management's practice to discuss critical accounting policies with the Board of Directors' Audit Committee on a periodic basis, including the development, selection, implementation and disclosure of the critical accounting policies. The application of these policies has a significant impact on the Company's unaudited interim consolidated financial statements. Our financial results could differ significantly if different judgments or estimates are used in the application of these policies. All accounting policies described in Note 1 of our consolidated financial statements as of December 31, 2024, which are included in the Company's 2024 Form 10-K should be reviewed for a greater understanding of how we record and report our financial performance. Other than our methodology for estimating allowance for credit losses (mentioned below), there have been no significant changes to the Significant Accounting Policies as described in Note 1 of the Notes to Consolidated Financial Statements for the year ended December 31, 2024, which are included in the Company's 2024 Form 10-K.
Allowance for Credit Losses
A consequence of lending activities is that we may incur credit losses. The amount of such losses will vary depending upon the risk characteristics of the loan lease portfolio as affected by economic conditions such as rising interest rates and the financial performance of borrower.
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."
The estimate of expected credit losses under the CECL approach is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. We then consider whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period from which historical experience was used. Finally, we consider forecasts about future economic conditions that are reasonable and supportable. The allowance for unfunded commitments represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit. This allowance is estimated by loan segment at each balance sheet date under the CECL model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur.
Management's evaluation of the appropriateness of the reserve for credit losses is often the most critical of accounting estimates for a financial institution. Our determination of the amount of the reserve for credit losses is a critical accounting estimate as it requires significant reliance on the credit risk rating we assign to individual borrowers, the use of estimates and significant judgment as to the amount and timing of expected future cash flows, reliance on historical loss rates on homogenous portfolios, consideration of our quantitative and qualitative evaluation of economic factors, and the reliance on our reasonable and supportable forecasts. The reserve for credit losses attributable to each portfolio segment also includes an amount for inherent risks not reflected in the historical analyses. Relevant factors include, but are not limited to, concentrations of credit risk (geographic, large borrower, and industry), local/regional economic trends and conditions,
changes in underwriting standards, changes in collateral values, experience and depth of lending staff, trends in delinquencies, and the volume and terms of loans.
Liquidity sources and capital ratios
The Company's uninsured deposits represented 31.52% of total Bank deposits at September 30, 2025 compared to 33.03% of total Bank deposits at December 31, 2024. The Company continues to maintain strong liquidity with available sources of funding of approximately $1.3 billion at September 30, 2025. Furthermore, the Company's capital remains strong with common equity Tier 1 and total capital ratios of 12.37% and 16.00%, respectively, as of September 30, 2025.
Results of Operations
We reported net income and diluted earnings per share of $5.8 million and $0.33, respectively, for the third quarter of 2025. This compares to net income and diluted earnings per share of $5.6 million and $0.32, respectively, for the same period in 2024. We reported net income and diluted earnings per share of $20.4 million and $1.17, respectively, for the first nine months ended September 30, 2025. This compares to net income and diluted earnings per share of $16.4 million and $0.94, respectively, for the same period in 2024.
Net Interest Income
Net interest income, which is the difference between interest earned on assets and the interest paid on deposits and borrowed funds, is the single largest component of total revenue. Management strives to optimize this income while balancing interest rate, credit and liquidity risks.
The banking industry uses two key ratios to measure relative profitability of net interest income: net interest spread and net interest margin. The net interest spread measures the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities. The interest rate spread eliminates the effect of noninterest-bearing deposits and gives a direct perspective on the effect of market interest rate movements. The net interest margin is an indication of the profitability of a company's balance sheet and is defined as net interest income as a percent of average total interest-earning assets, which includes the positive effect of funding a portion of interest-earning assets with noninterest-bearing deposits and stockholders' equity.
Fully taxable equivalent net interest income for the third quarters of 2025 and 2024 was $22.9 million and $18.7 million, respectively. This increase quarter over quarter can be seen in increases in rates and volume on loans, net and the decrease in rates paid on deposits and other borrowings. The net interest margin for the third quarter of 2025 and 2024 was 3.17% and 2.64%, respectively. This increase in the net interest margin for the third quarter of 2025 compared to the same period in 2024 is primarily a result of increases in rates on loans, net and the decrease in rates paid on deposits and other borrowings. Fully taxable equivalent net interest income for the nine months ended September 30, 2025 and 2024 was $66.6 million and $56.1 million, respectively. This increase period over period primarily resulted from increases in rates and volume on loans, net and rates on taxable investment securities as well as the decrease in rates paid on deposits and other borrowings. The net interest margin for the nine months ended September 30, 2025 and 2024 was 3.07% and 2.67%, respectively. This increase in the net interest margin is primarily a result of increases in rates on loans, net and taxable investment securities as well as the decrease in rates paid on deposits and other borrowings. Disciplined relationship pricing, loan growth and repricing of deposits and assets for both the quarter and nine month period contributed to the improved net interest margin compared to the prior periods.
The following tables indicate the relationship between interest income and interest expense and the average amounts of assets and liabilities for the periods indicated. As shown in the tables below, both average assets and average liabilities increased for the three months ended September 30, 2025 compared to the same period in 2024. The increase in average assets was primarily driven by the increase in loans of $124.8 million and deposits in banks of $140,000, which was partially offset by decreases in investment securities of $80.9 million. The increase in average liabilities was primarily attributed to an increase in interest bearing deposits of $36.2 million as well as an increase in other borrowings $1.8 million. For the nine months ended September 30, 2025, both average assets and average liabilities increased compared to the same period in 2024. The increase in average assets was primarily driven by the increase in the loan portfolio and deposits in banks of $67.8 million and $76.1 million, respectively, partially offset by a decrease in investment securities of $50.7 million. The increase in average liabilities was attributed to an increase in interest bearing deposits and Federal Home Loan Bank advances of $79.9 million and $11.5 million, respectively. 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.
The yield on total interest-bearing liabilities decreased from 2.76% in the third quarter of 2024 to 2.40% in the third quarter of 2025. The yield on total interest-bearing liabilities decreased from 2.66% for the nine months ended September 30, 2024 to 2.43% for the nine months ended September 30, 2025. These decreases were primarily due to decreases in the federal funds interest rate of 100 basis points during the fourth quarter of 2024 as well as an additional decrease of 25 basis points in September 2025, along with low cost deposit growth during the nine months of 2025, which illustrates the Company's continued focus on its deposit first culture and building customer relationships.
| Table 1 - Average Balance Sheet and Net Interest Analysis | ||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands) |
Average Balances |
Income/ Expense |
Yields/ Rates |
Average Balances |
Income/ Expense |
Yields/ Rates |
||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||
| Interest-earning assets: | ||||||||||||||||||||||||||||||||||||||
| Loans held for sale | $ | 17,062 | $ | 256 | 5.96 | % | $ | 34,533 | $ | 616 | 7.10 | % | ||||||||||||||||||||||||||
|
Loans, net of unearned income(1)
|
2,024,153 | 31,364 | 6.15 | 1,881,842 | 27,944 | 5.91 | ||||||||||||||||||||||||||||||||
| Investment securities, taxable | 641,774 | 4,132 | 2.55 | 719,669 | 4,852 | 2.68 | ||||||||||||||||||||||||||||||||
|
Investment securities, tax-exempt(2)
|
92,498 | 489 | 2.10 | 95,464 | 501 | 2.09 | ||||||||||||||||||||||||||||||||
| Deposits in banks and short term investments | 88,703 | 839 | 3.75 | 88,563 | 855 | 3.84 | ||||||||||||||||||||||||||||||||
| Total interest-earning assets | $ | 2,864,190 | $ | 37,080 | 5.14 | % | $ | 2,820,071 | $ | 34,768 | 4.90 | % | ||||||||||||||||||||||||||
| Noninterest-earning assets | 228,221 | 218,876 | ||||||||||||||||||||||||||||||||||||
| Total assets | $ | 3,092,411 | $ | 3,038,947 | ||||||||||||||||||||||||||||||||||
| Liabilities and stockholders' equity | ||||||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||
| Interest-earning demand and savings | $ | 1,479,499 | $ | 5,999 | 1.61 | % | $ | 1,460,011 | $ | 7,342 | 2.00 | % | ||||||||||||||||||||||||||
| Other time | 620,141 | 5,333 | 3.41 | 603,391 | 5,812 | 3.83 | ||||||||||||||||||||||||||||||||
| Total interest-bearing deposits | 2,099,640 | 11,332 | 2.14 | 2,063,402 | 13,154 | 2.54 | ||||||||||||||||||||||||||||||||
| Federal Home Loan Bank advances | 185,000 | 1,909 | 4.09 | 185,000 | 1,913 | 4.11 | ||||||||||||||||||||||||||||||||
| Other borrowings | 64,834 | 952 | 5.83 | 63,001 | 996 | 6.29 | ||||||||||||||||||||||||||||||||
| Total other interest-bearing liabilities | 249,834 | 2,861 | 4.54 | 248,003 | 2,909 | 4.67 | ||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities | $ | 2,349,474 | $ | 14,193 | 2.40 | % | $ | 2,311,405 | $ | 16,063 | 2.76 | % | ||||||||||||||||||||||||||
| Noninterest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||
| Demand deposits | 427,100 | 440,699 | ||||||||||||||||||||||||||||||||||||
| Other liabilities | 19,810 | 18,074 | ||||||||||||||||||||||||||||||||||||
| Stockholders' equity | 296,027 | 268,769 | ||||||||||||||||||||||||||||||||||||
| Total noninterest-bearing liabilities and stockholders' equity | 742,937 | 727,542 | ||||||||||||||||||||||||||||||||||||
| Total liabilities and stockholders' equity | $ | 3,092,411 | $ | 3,038,947 | ||||||||||||||||||||||||||||||||||
| Interest rate spread | 2.74 | % | 2.14 | % | ||||||||||||||||||||||||||||||||||
| Net interest income | $ | 22,887 | $ | 18,705 | ||||||||||||||||||||||||||||||||||
| Net interest margin | 3.17 | % | 2.64 | % | ||||||||||||||||||||||||||||||||||
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 $85,000 and $59,000 for the three months ended September 30, 2025 and 2024, respectively, are calculated using the statutory federal tax rate and are included in income and fees on loans. Accretion income of $25,000 and $25,000 for the three months ended September 30, 2025 and 2024, respectively, are also included in income and fees on loans.
2.Taxable-equivalent adjustments totaling $103,000 and $105,000 for the three months ended September 30, 2025 and 2024, respectively, are calculated using the statutory federal tax rate and are included in tax-exempt interest on investment securities.
| Table 1 - Average Balance Sheet and Net Interest Analysis | ||||||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands) |
Average Balances |
Income/ Expense |
Yields/ Rates |
Average Balances |
Income/ Expense |
Yields/ Rates |
||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||
| Interest-earning assets: | ||||||||||||||||||||||||||||||||||||||
| Loans held for sale | $ | 20,914 | $ | 910 | 5.81 | % | $ | 30,737 | $ | 1,697 | 7.37 | % | ||||||||||||||||||||||||||
|
Loans, net of unearned income(3)
|
1,951,785 | 89,218 | 6.11 | 1,874,169 | 81,668 | 5.82 | ||||||||||||||||||||||||||||||||
| Investment securities, taxable | 683,243 | 13,726 | 2.69 | 726,462 | 14,511 | 2.67 | ||||||||||||||||||||||||||||||||
|
Investment securities, tax-exempt(4)
|
93,313 | 1,475 | 2.11 | 100,789 | 1,652 | 2.19 | ||||||||||||||||||||||||||||||||
| Deposits in banks and short term investments | 150,328 | 4,487 | 3.99 | 74,255 | 2,232 | 4.01 | ||||||||||||||||||||||||||||||||
| Total interest-earning assets | $ | 2,899,583 | $ | 109,816 | 5.06 | % | $ | 2,806,412 | $ | 101,760 | 4.84 | % | ||||||||||||||||||||||||||
| Noninterest-earning assets | 226,827 | 222,135 | ||||||||||||||||||||||||||||||||||||
| Total assets | $ | 3,126,410 | $ | 3,028,547 | ||||||||||||||||||||||||||||||||||
| Liabilities and stockholders' equity | ||||||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||
| Interest-earning demand and savings | $ | 1,519,282 | $ | 18,777 | 1.65 | % | $ | 1,454,287 | $ | 20,534 | 1.89 | % | ||||||||||||||||||||||||||
| Other time | 612,521 | 15,960 | 3.48 | 597,623 | 16,817 | 3.76 | ||||||||||||||||||||||||||||||||
| Total interest-bearing deposits | 2,131,803 | 34,737 | 2.18 | 2,051,910 | 37,351 | 2.43 | ||||||||||||||||||||||||||||||||
| Federal Home Loan Bank advances | 185,000 | 5,671 | 4.10 | 173,540 | 5,306 | 4.08 | ||||||||||||||||||||||||||||||||
| Other borrowings | 63,658 | 2,808 | 5.90 | 63,241 | 2,989 | 6.31 | ||||||||||||||||||||||||||||||||
| Total other interest-bearing liabilities | 248,658 | 8,479 | 4.56 | 236,786 | 8,295 | 4.68 | ||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities | $ | 2,380,461 | $ | 43,216 | 2.43 | % | $ | 2,288,696 | $ | 45,646 | 2.66 | % | ||||||||||||||||||||||||||
| Noninterest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||
| Demand deposits | 441,259 | 461,336 | ||||||||||||||||||||||||||||||||||||
| Other liabilities | 17,325 | 16,869 | ||||||||||||||||||||||||||||||||||||
| Stockholders' equity | 287,365 | 261,646 | ||||||||||||||||||||||||||||||||||||
| Total noninterest-bearing liabilities and stockholders' equity | 745,949 | 739,851 | ||||||||||||||||||||||||||||||||||||
| Total liabilities and stockholders' equity | $ | 3,126,410 | $ | 3,028,547 | ||||||||||||||||||||||||||||||||||
| Interest rate spread | 2.63 | % | 2.18 | % | ||||||||||||||||||||||||||||||||||
| Net interest income | $ | 66,600 | $ | 56,114 | ||||||||||||||||||||||||||||||||||
| Net interest margin | 3.07 | % | 2.67 | % | ||||||||||||||||||||||||||||||||||
3. 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 $254,000 and $163,000 for the nine months ended September 30, 2025 and 2024, respectively, are calculated using the statutory federal tax rate and are included in income and fees on loans. Accretion income of $61,000 and $35,000 for the nine months ended September 30, 2025 and 2024, respectively, are also included in income and fees on loans.
4. Taxable-equivalent adjustments totaling $310,000 and $347,000 for the nine months ended September 30, 2025 and 2024, respectively, are calculated using the statutory federal tax rate and are included in tax-exempt interest on investment securities.
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 nine month periods ended September 30, 2025 compared to the three and nine month periods ended September 30, 2024.
| Table 2 - Change in Interest Revenue and Expense on a Taxable Equivalent Basis | |||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2025 | Nine Months Ended September 30, 2025 | ||||||||||||||||||||||||||||||||||
| (dollars in thousands) |
Compared to Three Months Ended September 30, 2024 Increase (Decrease) Due to Changes in
|
Compared to Nine Months Ended September 30, 2024 Increase (Decrease) Due to Changes in
|
|||||||||||||||||||||||||||||||||
| Interest-earning assets: | Volume | Rate | Total | Volume | Rate | Total | |||||||||||||||||||||||||||||
| Loans held for sale | $ | (356) | $ | (4) | $ | (360) | $ | (762) | $ | (25) | $ | (787) | |||||||||||||||||||||||
| Loans, net of unearned fees | 3,307 | 113 | 3,420 | 7,034 | 516 | 7,550 | |||||||||||||||||||||||||||||
| Investment securities, taxable | (712) | (8) | (720) | (1,001) | 216 | (785) | |||||||||||||||||||||||||||||
| Investment securities, tax-exempt | (30) | 18 | (12) | (175) | (2) | (177) | |||||||||||||||||||||||||||||
| Deposits in banks and short term investments | 91 | (107) | (16) | 2,312 | (57) | 2,255 | |||||||||||||||||||||||||||||
| Total interest-earning assets (FTE) | 2,300 | 12 | 2,312 | 7,408 | 648 | 8,056 | |||||||||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Interest-Bearing Demand and Savings Deposits | 7,868 | (9,211) | (1,343) | 5,175 | (6,932) | (1,757) | |||||||||||||||||||||||||||||
| Time Deposits | 4,094 | (4,573) | (479) | 2,270 | (3,127) | (857) | |||||||||||||||||||||||||||||
| Federal Home Loan Bank Advances | - | (4) | (4) | 364 | 1 | 365 | |||||||||||||||||||||||||||||
| Other Borrowed Money | 475 | (519) | (44) | 211 | (392) | (181) | |||||||||||||||||||||||||||||
| Total interest-bearing liabilities | 12,437 | (14,307) | (1,870) | 8,020 | (10,450) | (2,430) | |||||||||||||||||||||||||||||
| Increase (decrease) in net interest income (FTE) | $ | (10,137) | $ | 14,319 | $ | 4,182 | $ | (612) | $ | 11,098 | $ | 10,486 | |||||||||||||||||||||||
Provision for Credit Losses
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 nine months ended September 30, 2025 was $900,000 and $2.9 million, respectively, compared to $750,000 and $2.4 million, respectively, for the same period in 2024. The provision for credit losses for the three and nine months ended September 30, 2025 includes $760,000 and $2.6 million, respectively, in credit losses on loans and $140,000 and $262,000, respectively in credit losses on unfunded commitments. The provision for credit losses for the three and nine months ended September 30, 2024 includes $996,000 and $2.8 million, respectively, in credit losses on loans and $246,000 and $362,000, 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.
Noninterest Income
The following table represents the major components of noninterest income for the periods indicated.
| Table 3 - Noninterest Income | |||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2025 | 2024 | Amount | Percent | 2025 | 2024 | Amount | Percent | |||||||||||||||||||||||||||||||||||||||
| Service charges on deposits | $ | 2,640 | $ | 2,401 | $ | 239 | 10.0 | % | $ | 7,031 | $ | 7,063 | $ | (32) | (0.5) | % | |||||||||||||||||||||||||||||||
| Mortgage fee income | 1,851 | 1,812 | 39 | 2.2 | 5,414 | 4,503 | 911 | 20.2 | |||||||||||||||||||||||||||||||||||||||
| Gain on sales of SBA loans | 1,411 | 2,227 | (816) | (36.6) | 3,996 | 6,620 | (2,624) | (39.6) | |||||||||||||||||||||||||||||||||||||||
| Loss on sales of securities | (1,039) | (454) | (585) | 128.9 | (1,039) | (1,434) | 395 | (27.5) | |||||||||||||||||||||||||||||||||||||||
| Interchange fees | 2,273 | 2,163 | 110 | 5.1 | 6,284 | 6,269 | 15 | 0.2 | |||||||||||||||||||||||||||||||||||||||
| BOLI income | 396 | 383 | 13 | 3.4 | 1,215 | 1,313 | (98) | (7.5) | |||||||||||||||||||||||||||||||||||||||
| Insurance commissions | 874 | 433 | 441 | 101.8 | 2,109 | 1,318 | 791 | 60.0 | |||||||||||||||||||||||||||||||||||||||
| Other noninterest income | 1,685 | 1,117 | 568 | 50.9 | 4,223 | 3,414 | 809 | 23.7 | |||||||||||||||||||||||||||||||||||||||
| Total noninterest income | $ | 10,091 | $ | 10,082 | $ | 9 | 0.1 | % | $ | 29,233 | $ | 29,066 | $ | 167 | 0.6 | % | |||||||||||||||||||||||||||||||
Noninterest income increased for the three and nine month periods ended September 30, 2025as compared to the same periods in 2024. The increases in both periods is primarily a result of increases in mortgage fee income, insurance commissions, interchange fees and other noninterest income partially offset by a decrease in gain on sales of SBA loans.
Service charges on deposits.For the three months ended September 30, 2025, service charges on deposits increased compared to the same period ended September 30, 2024. This increase was related to increases in deposit account fees implemented in June 2025. For the ninemonths ended September 30, 2025, service charges on deposits experienced a slight decrease compared to the same period ended September 30, 2024. This decrease in service charges was primarily a result of lower NSF fees on deposit accounts, partially offset by the increase in deposit account fees described above.
Mortgage Fee Income. For the three and nine months ended September 30, 2025, mortgage fee income increased compared to the same periods ended September 30, 2024. These increases in mortgage fee income were the result of higher mortgage production in each respective period in 2025 compared to their prior respective periods in 2024.
Gain on sales of SBA loans. For the three and nine months ended September 30, 2025, net realized gains on the sale of the guaranteed portion of SBA loans decreased as compared to the same periods ended September 30, 2024. These decreases are related to decreased loan production and sales in 2025 in the Small Business Specialty Lending division.
BOLI income.For the three months ended September 30, 2025, BOLI income was slightly higher whencompared to the same period ended September 30, 2024 due to normal fluctuations in cash surrender value. For the nine months ended September 30, 2025 compared to the same period in 2024, BOLI income decreased due to the payout of death benefits during the first quarter of 2024.
Interchange fees.For the three and ninemonths ended September 30, 2025, interchange fee income was slightly higher thanthe same periods ended September 30, 2024. This increase in interchange fees is the result of customer use of our card programs and fluctuating purchasing habits between periods.
Insurance commissions.For the three and ninemonths ended September 30, 2025, insurance commissions increased compared to the same periods ended September 30, 2024. This variance is volume driven by activity in the Company's insurance division and was also impacted by the acquisition of the Ellerbee Insurance Agency in the second quarter of 2025.
Other noninterest income.For the three and ninemonths ended September 30, 2025, other noninterest income increased as compared to the same periods ended September 30, 2024. The increase in other noninterest income for both periods ended September 30, 2025 was primarily attributable to increases in wealth advisory and merchant services, SBSL related fees and income related to the Company's portion of a Fintech distribution, offset by a decrease in equity investment market valuation gains and decreases in gains on sales of other real estate and repossessed assets.
Noninterest Expense
The following table represents the major components of noninterest expense for the periods indicated.
| Table 4 - Noninterest Expense | ||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2025 | 2024 | Amount | Percent | 2025 | 2024 | Amount | Percent | ||||||||||||||||||||||||||||||||||||
| Salaries and employee benefits | $ | 13,532 | $ | 12,594 | $ | 938 | 7.4 | % | $ | 38,302 | $ | 36,890 | $ | 1,412 | 3.8 | % | ||||||||||||||||||||||||||||
| Occupancy and equipment | 1,732 | 1,523 | 209 | 13.7 | 4,995 | 4,504 | 491 | 10.9 | ||||||||||||||||||||||||||||||||||||
| Acquisition related expenses | 732 | - | 732 | 100.0 | 732 | - | 732 | 100.0 | ||||||||||||||||||||||||||||||||||||
| Information technology expenses | 2,680 | 2,150 | 530 | 24.7 | 7,749 | 6,487 | 1,262 | 19.5 | ||||||||||||||||||||||||||||||||||||
| Professional fees | 998 | 748 | 250 | 33.4 | 2,488 | 2,286 | 202 | 8.8 | ||||||||||||||||||||||||||||||||||||
| Advertising and public relations | 1,130 | 965 | 165 | 17.1 | 2,877 | 2,891 | (14) | (0.5) | ||||||||||||||||||||||||||||||||||||
| Communications | 218 | 210 | 8 | 3.8 | 611 | 652 | (41) | (6.3) | ||||||||||||||||||||||||||||||||||||
| Other noninterest expense | 3,590 | 2,645 | 945 | 35.7 | 9,083 | 7,852 | 1,231 | 15.7 | ||||||||||||||||||||||||||||||||||||
| Total noninterest expense | $ | 24,612 | $ | 20,835 | $ | 3,777 | 18.1 | % | $ | 66,837 | $ | 61,562 | $ | 5,275 | 8.6 | % | ||||||||||||||||||||||||||||
Noninterest expense increased for the three and nine months ended September 30, 2025 compared to the same periods in 2024.
Salaries and employee benefits.Salaries and employee benefits for the three months ended September 30, 2025 increased as compared to the same period ended September 30, 2024. This increase was primarily related to increases in employee salaries, insurance and bonus partially offset by decreases in commission expense due to lower SBSL sales and an increase in FAS91-deferred costs due to growth in loans. Salaries and employee benefits for the nine months ended September 30, 2025 increased as compared to the same period ended September 30, 2024. This increase was primarily due to the acquisition of the Ellerbee Insurance Agency on April 1, 2025 as well as employee insurance and bonus expense which was partially offset by a decrease in stock award expense and an increase in FAS91-deferred costs due to growth in loans.
Occupancy and equipment. Occupancy and equipment expenses increased for the three and nine months ended September 30, 2025 compared to the same periods ended September 30, 2024. These increases relate primarily to increases in repair and maintenance, real estate taxes and lease expenses.
Acquisition related expenses. Acquisition related expenses increased for the three and nine months ended September 30, 2025 compared to the same periods ended September 30, 2024 and consist primarily of professional fees, regulatory fees and advertising attributable to the merger with TC Bancshares announced in the third quarter of 2025.
Information technology expenses. Information technology expenses increased for the three and nine months ended September 30, 2025 compared to the same periods ended September 30, 2024. These increases relate primarily to increases in software expenses which are partially offset by decreases in data processing expenses.
Professional fees. Professional fees increased for the three and nine months ended September 30, 2025 compared to the same periods ended September 30, 2024. These increases relate to increases in accounting and consulting fees partially offset by decreases in legal fees.
Advertising and public relations. Advertising and public relations expenses increased and decreased for the three and nine months ended September 30, 2025 compared to the same periods ended September 30, 2024, respectively. The quarter over quarter increase was related to increases in donations to various local community projects while the decrease year over year related primarily to the timing of donations during the first quarter of 2024 compared to first quarter of 2025 related to the Georgia Scholarship Program along with a decrease in appraisal fees.
Communications. Communications expense increased and decreased for the three and nine months ended September 30, 2025 compared to the same periods ended September 30, 2024, respectively. The changes are related to fluctuations in data circuit fees.
Other noninterest expense. Other noninterest expense increased for the three and nine months ended September 30, 2025 as compared to the same periods ended September 30, 2024. These increases were primarily due to a nonrecoverable loss related to a wire fraud incident recorded in the third quarter of 2025 partially offset by increases in the valuation of the SBSL servicing asset.
Income Tax Expense
Income tax expense for the three and nine months ended September 30, 2025 was $1.5 million and $5.2 million, respectively, compared to $1.4 million and $4.3 million, respectively, for the same periods in 2024. The Company's effective tax rate for the three and nine months ended September 30, 2025 was 20.0% and 20.2%, respectively, compared to 20.0% and 20.6%, respectively, for the three and nine months ended September 30, 2024. The largest driver of the difference is the tax-exempt income primarily from BOLI and tax exempt interest.
Balance Sheet Review
Total assets increased to $3.2 billion at September 30, 2025 from $3.1 billion at December 31, 2024.
Loans and Allowance for Credit Losses
At September 30, 2025, gross loans outstanding (excluding loans held for sale) were $2.04 billion, an increase of $194.1 million, or 10.53%, compared to $1.84 billion at December 31, 2024.
At September 30, 2025, approximately 64.1% of our loans were secured by commercial real estate. Our total commercial real estate loans have increased since December 31, 2024 as well as our residential real estate and consumer lending, while commercial, financial & agricultural saw a slight decrease. We continue to maintain loan growth at disciplined pricing levels which has contributed to an improved net interest margin.
The following table presents a summary of the loan portfolio as of September 30, 2025 and December 31, 2024.
| Table 5 - Loans Outstanding | ||||||||||||||
| (dollars in thousands) |
September 30, 2025
|
December 31, 2024 | ||||||||||||
| Construction, land & land development | $ | 240,819 | $ | 205,046 | ||||||||||
| Other commercial real estate | 1,064,984 | 990,648 | ||||||||||||
| Total commercial real estate | 1,305,803 | 1,195,694 | ||||||||||||
| Residential real estate | 377,058 | 344,167 | ||||||||||||
| Commercial, financial & agricultural | 213,274 | 213,910 | ||||||||||||
| Consumer and other | 140,921 | 89,209 | ||||||||||||
| Total loans | $ | 2,037,056 | $ | 1,842,980 | ||||||||||
The Company's risk mitigation processes include an independent loan review designed to evaluate the credit risk in the loan portfolio and to ensure credit grade accuracy. The analysis serves as a tool to assist management in assessing the overall credit quality of the loan portfolio and the adequacy of the allowance for credit losses. Loans classified as "substandard" are loans which are inadequately protected by the current credit worthiness and paying capacity of the borrower and/or the collateral pledged. These assets exhibit well-defined weaknesses or are showing signs there is a distinct possibility the Company will sustain some loss if the deficiencies are not corrected. These weaknesses may be characterized by past due performance, operating losses and/or questionable collateral values. Loans classified as "doubtful" are those loans that have characteristics similar to substandard loans but have an increased risk of loss. Loans classified as "loss" are those loans which are considered uncollectible and are in the process of being charged off.
The Company regularly monitors the composition of the loan portfolio as part of its evaluation over the adequacy of the allowance for credit losses. The Company focuses on the following loan categories: (1) construction, land & land development; (2) other commercial real estate; (3) residential real estate; (4) commercial, financial & agricultural; and (5) consumer and other.
The allowance for credit losses for loans is a reserve established through charges to earnings in the form of a provision for credit losses. The provision for credit losses for loans is based on management's evaluation of the size and composition of the loan portfolio, the level of nonperforming and past due loans, historical trends of charged off loans and recoveries, prevailing economic conditions and other factors management deems appropriate. The Company's management has established an
allowance for credit losses for loans which it believes is adequate to cover expected credit losses over the expected life of a loan exposure and unfunded commitments where the likelihood is that funding will occur. Based on a credit evaluation of the loan portfolio, management presents a quarterly review of the allowance for credit losses for loans and allowance for credit losses on unfunded commitments to the Company's Board of Directors, which primarily focuses on risk by evaluating individual loans in certain risk categories. These categories have also been established by management and take the form of loan grades. By grading the loan portfolio in this manner, the Company's management is able to effectively evaluate the portfolio by risk, which management believes is the most effective way to analyze the loan portfolio and thus analyze the adequacy of the allowance for credit losses on loans.
The allowance for credit losses on loans is established by examining (1) the large classified loans, nonaccrual loans and loans considered impaired and evaluating them individually to determine the specific reserve allocation and (2) the remainder of the loan portfolio to allocate a portion of the allowance based on past loss experience and reasonable and supportable forecasts of economic conditions for the particular loan category. The Company also considers other factors such as changes in lending policies and procedures; changes in national, regional and/or local economic and business conditions; changes in the nature and volume of the loan portfolio; changes in the experience, ability and depth of either the market president or lending staff; changes in the volume and severity of past due and classified loans; changes in the quality of the loan review system; and other factors management deems appropriate.
The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The ACL is calculated using the same aggregate reserve rates calculated for the funded portion of loans at the portfolio level applied to the amount of commitments expected to fund.
The allowance for credit losses on loans was $18.1 million at September 30, 2025 compared to $19.7 million at September 30, 2024, a decrease of $1.6 million, or 8.0%. The allowance for credit losses on loans as a percentage of loans was 0.89% and 1.04% at September 30, 2025 and 2024, respectively. The provision for credit losses was $900,000 compared to $750,000 for the three months ended September 30, 2025 and September 30, 2024, respectively. The provision for credit losses for the quarter ended September 30, 2025 includes $760,000 in credit losses on loans and $140,000 in credit losses on unfunded commitments. The provision for credit losses for the quarter ended September 30, 2024 includes $996,000 in credit losses on loans and a release of $246,000 in credit losses on unfunded commitments. The provision for credit losses was $2.9 million compared to $2.4 million for the nine months ended September 30, 2025 and 2024, respectively. The provision for credit losses for the nine months ended September 30, 2025 includes $2.6 million in credit losses on loans and $262,000 in credit losses on unfunded commitments. The provision for credit losses for the nine months ended September 30, 2024 includes $2.8 million in credit losses on loans and a release of $362,000 in credit losses on unfunded commitments. For the three and nine month periods ended September 30, 2025, we experienced increases in net charge-offs primarily related to SBA loans in our SBSL portfolio which represented 70% and 67%, respectively, of total net charge-offs for each period. These charge-offs were related to loans originated prior to changes made in the Company's credit policy. Newly originated loans of this type have tighter credit requirements and higher SBA guarantee percentages. In addition to the increased net charge-offs, another impact to the allowance for credit losses was the reduction in loss rates for 1-4 family loans in the allowance model based on updated prepayment metrics which reduced our calculated loss rate before qualitative adjustments. Therefore, 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.
Additional information about the Company's allowance for credit losses is provided in Note 4 to our consolidated financial statements as of September 30, 2025, included elsewhere in this Quarterly Report on Form 10-Q.
The following table presents an analysis of the allowance for credit losses on loans as of and for the nine months ended September 30, 2025 and 2024:
| Table 6 - Analysis of Allowance for Credit Losses on Loans | |||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||
| (dollars in thousands) | Reserve | %* | Reserve | %* | |||||||||||||||||||
| Construction, land & land development | $ | 1,787 | 11.8 | % | $ | 1,294 | 10.4 | % | |||||||||||||||
| Other commercial real estate | 5,142 | 52.3 | % | 7,046 | 53.7 | % | |||||||||||||||||
| Residential real estate | 4,030 | 18.5 | % | 6,095 | 18.5 | % | |||||||||||||||||
| Commercial, financial & agricultural | 3,806 | 10.5 | % | 2,891 | 12.9 | % | |||||||||||||||||
| Consumer and other | 3,321 | 6.9 | % | 2,337 | 4.5 | % | |||||||||||||||||
| $ | 18,086 | 100 | % | $ | 19,663 | 100 | % | ||||||||||||||||
*Percentage represents the loan balance in each category expressed as a percentage of total end of period loans.
The following table presents a summary of allowance for credit loss for the three and nine months ended September 30, 2025 and 2024.
| Table 7 - Summary of Allowance for Credit Losses on Loans | ||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (dollars in thousands) | September 30, 2025 | September 30, 2024 | September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||
| Allowance for credit losses on loans - beginning balance | $ | 19,153 | $ | 18,806 | $ | 18,980 | $ | 18,371 | ||||||||||||||||||
| Charge-offs: | ||||||||||||||||||||||||||
| Other commercial real estate | 283 | - | 509 | 20 | ||||||||||||||||||||||
| Residential real estate | 1 | 9 | 183 | 349 | ||||||||||||||||||||||
| Commercial, financial & agricultural | 1,235 | 85 | 2,149 | 1,099 | ||||||||||||||||||||||
| Consumer and other | 385 | 215 | 939 | 466 | ||||||||||||||||||||||
| Total charge-offs | 1,904 | 309 | 3,780 | 1,934 | ||||||||||||||||||||||
| Recoveries: | ||||||||||||||||||||||||||
| Construction, land & land development | - | 13 | 1 | 15 | ||||||||||||||||||||||
| Other commercial real estate | 10 | 25 | 20 | 43 | ||||||||||||||||||||||
| Residential real estate | 37 | 45 | 165 | 252 | ||||||||||||||||||||||
| Commercial, financial & agricultural | 25 | 76 | 88 | 135 | ||||||||||||||||||||||
| Consumer and other | 5 | 11 | 24 | 19 | ||||||||||||||||||||||
| Total recoveries | 77 | 170 | 298 | 464 | ||||||||||||||||||||||
| Net charge-offs | 1,827 | 139 | 3,482 | 1,470 | ||||||||||||||||||||||
| Provision for credit losses on loans | 760 | 996 | 2,588 | 2,762 | ||||||||||||||||||||||
| Allowance for credit losses on loans- ending balance | $ | 18,086 | $ | 19,663 | $ | 18,086 | $ | 19,663 | ||||||||||||||||||
| Net charge-offs to average loans (annualized) | 0.36 | % | 0.03 | % | 0.24 | % | 0.10 | % | ||||||||||||||||||
| Allowance for credit losses on loans to total loans | 0.89 | 1.04 | 0.89 | 1.04 | ||||||||||||||||||||||
| Allowance to nonperforming loans | 125.89 | 160.40 | 125.89 | 160.40 | ||||||||||||||||||||||
Management believes the allowance for credit losses for loans is adequate to provide for losses expected in the loan portfolio as of September 30, 2025.
Nonperforming Assets
Asset quality experienced a slight decrease during the first nine months of 2025. 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 $14.3 million at September 30, 2025, an increase of $3.6 million, or 33.8%, from $10.7 million at December 31, 2024. There were ten loans contractually past due 90 days or more and still accruing totaling $98,000 at September 30, 2025 compared to six loans totaling $152,000 at December 31, 2024. There was $160,000 in repossessed personal property at September 30, 2025 and $328,000 at December 31, 2024. OREO totaled $710,000 at September 30, 2025 compared to $202,000 at December 31, 2024, which represents the addition of two properties totaling $820,000 and the sale of one of those which totaled $320,000. As of September 30, 2025, total nonperforming assets as a percent of total assets increased to 0.48% compared with 0.36% at December 31, 2024. The increase in nonperforming assets was primarily the result of increases in all loan segments except residential real estate loans, partially offset by repayments, payoffs and charged off loans.
Generally, loans are placed on non-accrual status if principal or interest payments become 90 days past due and/or management deems the collectability of the principal and/or interest to be in question, as well as when required by regulatory requirements. Loans to a customer whose financial condition has deteriorated are considered for non-accrual status whether or not the loan is 90 days or more past due. Once interest accruals are discontinued, accrued but uncollected interest is charged to current year operations. Subsequent loan payments made on nonaccrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Classification of a loan as nonaccrual does not preclude the ultimate collection of loan principal or interest.
Foreclosed property is initially recorded at fair value, less estimated costs to sell. If the fair value, less estimated costs to sell, at the time of foreclosure is less than the loan balance, the deficiency is charged against the allowance for credit losses on loans. If the lesser of the fair value, less estimated costs to sell, or the listed selling price, less the costs to sell, of the foreclosed property decreases during the holding period, a valuation allowance is established with a charge to foreclosed property expense. When the foreclosed property is sold, a gain or loss is recognized on the sale for the difference between the sales proceeds and the carrying amount of the property.
Nonperforming assets at September 30, 2025 and December 31, 2024 were as follows:
| Table 8 - Nonperforming Assets | ||||||||||||||
| (dollars in thousands) | September 30, 2025 | December 31, 2024 | ||||||||||||
| Nonaccrual loans | $ | 14,268 | $ | 10,660 | ||||||||||
| Loans past due 90 days and accruing | 98 | 152 | ||||||||||||
| Other real estate owned | 710 | 202 | ||||||||||||
| Repossessed assets | 160 | 328 | ||||||||||||
| Total nonperforming assets | $ | 15,236 | $ | 11,342 | ||||||||||
| Nonaccrual loans by loan segment | ||||||||||||||
| Construction, land & land development | $ | 388 | $ | - | ||||||||||
| Commercial real estate | 7,533 | 4,833 | ||||||||||||
| Residential real estate | 1,214 | 1,204 | ||||||||||||
| Commercial, financial & agricultural | 5,016 | 4,559 | ||||||||||||
| Consumer & other | 117 | 64 | ||||||||||||
| Total nonaccrual loans | $ | 14,268 | $ | 10,660 | ||||||||||
| NPAs as a percentage of total loans and OREO | 0.75 | % | 0.62 | % | ||||||||||
| NPAs as a percentages of total assets | 0.48 | % | 0.36 | % | ||||||||||
| Nonaccrual loans as a percentage of total loans | 0.70 | % | 0.58 | % | ||||||||||
The Company had one loan modified due to financial difficulty during the three and nine month periods ended September 30, 2025. See Note 3 - Loans, included elsewhere in this Quarterly Report on Form 10-Q for additional details on loan modifications.
Deposits
Deposits at September 30, 2025 and December 31, 2024 were as follows:
| Table 9 - Deposits | ||||||||||||||
| (dollars in thousands) | September 30, 2025 | December 31, 2024 | ||||||||||||
| Noninterest-bearing demand | $ | 442,142 | $ | 462,283 | ||||||||||
| Interest-bearing demand | 811,031 | 813,783 | ||||||||||||
| Savings and money market | 644,312 | 687,603 | ||||||||||||
| Time, $250,000 and over | 192,545 | 185,176 | ||||||||||||
| Other time | 494,299 | 419,098 | ||||||||||||
| Total deposits | $ | 2,584,329 | $ | 2,567,943 | ||||||||||
Total deposits increased $16.4 million to $2.58 billion at September 30, 2025 from $2.57 billion at December 31, 2024. As of September 30, 2025, 17.1% of total deposits were comprised of noninterest-bearing accounts and 82.9% were comprised of interest-bearing deposit accounts, compared to 18.0% and 82.0% as of December 31, 2024, respectively. The overall increase in our deposits was primarily due to an increase in time deposits related to brokered deposits, partially offset by decreases in noninterest-bearing demand, interest-bearing demand and savings and money market deposits due to seasonality in customer deposit balances.
We had $130.0 million in brokered deposits at September 30, 2025 and $59.5 million at December 31, 2024. 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.
The Company's estimated uninsured deposits were $824.6 million at September 30, 2025, or 31.52% of total Bank deposits, compared to $857.6 million at December 31, 2024, or 33.03% of total Bank deposits. Adjusted uninsured deposit estimate (which excludes deposits collateralized by public funds and internal accounts) were $502.7 million at September 30, 2025, or 19.21% of total Bank deposits, compared to $457.3 million at December 31, 2024, or 17.61% of total Bank deposits. Adjusted uninsured deposits represent a small percentage of our overall deposits, which increases the stability of our deposit base and lowers our overall funding risk.
Off-Balance Sheet Arrangements
The Company is a party to credit related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and commercial letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.
The Company's exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, upon extension of credit, is based on management's credit evaluation of the borrower. The type of collateral held varies, but may include cash or cash equivalents, unimproved or improved real estate, personal property or other acceptable collateral.
See Note 8 to our consolidated financial statements as of September 30, 2025, included elsewhere in this Form 10-Q, for a table setting forth the financial instruments that were outstanding whose contract amounts represent credit risk and more information regarding our off-balance sheet arrangements as of September 30, 2025 and December 31, 2024.
Liquidity
An important part of the Bank's liquidity resides in the asset portion of the balance sheet, which provides liquidity primarily through loan interest and principal repayments and the maturities and sales of securities, as well as the ability to use these assets as collateral for borrowings on a secured basis.
The Bank's main source of liquidity is customer interest-bearing and noninterest-bearing deposit accounts. Liquidity is also available from wholesale funding sources consisting primarily of federal funds purchased, FHLB advances and brokered deposits. These sources of liquidity are generally short-term in nature and are used as necessary to fund asset growth and meet other short-term liquidity needs.
To plan for contingent sources of funding not satisfied by both local and out-of-market deposit balances, the Company and the Bank have established multiple borrowing sources to augment their funds management. The Company has borrowing capacity through membership in the FHLB program. The Bank has also established overnight borrowing for federal funds purchased through various correspondent banks. There were no outstanding balances of federal funds purchased at September 30, 2025 and December 31, 2024, respectively.
Cash and cash equivalents at September 30, 2025 and December 31, 2024 were $200.0 million and $231.0 million, respectively. Cash and cash equivalents have decreased since year end 2024, primarily due to increases in loans. Management believes the various funding sources discussed above are adequate to meet the Company's liquidity needs without any material adverse impact on our operating results.
Liquidity management involves the matching of cash flow requirements of customers and the ability of the Company to manage those requirements. These requirements of customers include, but are not limited to, deposits being withdrawn or providing assurance to borrowers that sufficient funds are available to meet their credit needs. We strive to maintain an adequate liquidity position by managing the balances and maturities of interest-earning assets and interest-bearing liabilities so that the balance we have in short-term assets at any given time will adequately cover any reasonably anticipated need for funds. Additionally, we maintain relationships with correspondent banks, which could provide funds on short notice, if needed. We have also invested in FHLB stock for the purpose of establishing credit lines with the FHLB. At September 30, 2025 and December 31, 2024, we had $185.0 million of outstanding advances from the FHLB for both periods. Based on the values of loans pledged as collateral, we had $590.6 million and $578.7 million of additional borrowing availability with the FHLB at September 30, 2025 and December 31, 2024, respectively.
Other sources of liquidity include overnight borrowings from the Federal Reserve Discount Window of $99.1 million of which there was no outstanding balance at September 30, 2025. The Company also had unencumbered securities of $300.8 million, $162.0 million in FRB Reserves and $36.4 million in other cash and due from banks as of September 30, 2025. Unencumbered investment securities provide the ability to either be pledged as collateral with borrowing sources or sold and converted to cash.
The Company is a separate entity from the Bank, and as such it must provide for its own liquidity. The Company is responsible for the payment of dividends declared for its common shareholders and payment of interest and principal on any outstanding debt or trust preferred securities. These obligations are met through internal capital resources such as service fees and dividends from the Bank, which are limited by applicable laws and regulations.
Capital Resources
The Company and the Bank are required under federal law to maintain certain minimum capital levels based on ratios of capital to total assets and capital to risk-weighted assets. The required capital ratios are minimums, and the federal banking agencies may determine that a banking organization, based on its size, complexity or risk profile, must maintain a higher level of capital in order to operate in a safe and sound manner. Risks such as concentration of credit risks and the risk arising from non-traditional activities, as well as the institution's exposure to a decline in the economic value of its capital due to changes in interest rates, and an institution's ability to manage those risks are important factors that are to be taken into account by the federal banking agencies in assessing an institution's overall capital adequacy.
The table below summarizes the capital requirements applicable to the Company and the Bank in order to be considered "well-capitalized" from a regulatory perspective, as well as the Company's and the Bank's capital ratios as of September 30, 2025 and December 31, 2024. The Company and the Bank exceeded all regulatory capital requirements and was considered to be "well-capitalized" as of September 30, 2025 and December 31, 2024. There have been no conditions or events since September 30, 2025 that management believes would change this classification.
| Table 10 - Capital Ratio Requirements | ||||||||||||||
| Minimum Requirement | Well-capitalized | |||||||||||||
| Risk-based ratios: | ||||||||||||||
| Common equity tier 1 capital (CET1) | 4.5 | % | 6.5 | % | ||||||||||
| Tier 1 capital | 6.0 | 8.0 | ||||||||||||
| Total capital | 8.0 | 10.0 | ||||||||||||
| Leverage ratio | 4.0 | 5.0 | ||||||||||||
| Table 11 - Capital Ratios | ||||||||||||||
| Company | September 30, 2025 | December 31, 2024 | ||||||||||||
| CET1 risk-based capital ratio | 12.37 | % | 13.08 | % | ||||||||||
| Tier 1 risk-based capital ratio | 13.44 | 14.26 | ||||||||||||
| Total risk-based capital ratio | 16.00 | 17.10 | ||||||||||||
| Leverage ratio | 9.91 | 9.50 | ||||||||||||
| Colony Bank | ||||||||||||||
| CET1 risk-based capital ratio | 13.33 | % | 14.33 | % | ||||||||||
| Tier 1 risk-based capital ratio | 13.33 | 14.33 | ||||||||||||
| Total risk-based capital ratio | 14.18 | 15.29 | ||||||||||||
| Leverage ratio | 9.83 | 9.55 | ||||||||||||
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