Business context and reporting period
Colony Bankcorp, Inc. is a Georgia-based bank holding company providing retail, commercial, mortgage and small-business lending services. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2021; balance-sheet comparisons are with December 31, 2020. Unless noted otherwise, financial amounts below are in millions of dollars.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net interest income | $15.1 | $13.5 | $29.3 | $26.2 |
| Provision for loan losses | $0 | $2.2 | $0.5 | $4.2 |
| Noninterest income | $7.8 | $4.8 | $16.4 | $9.4 |
| Noninterest expense | $17.5 | $13.4 | $33.2 | $26.8 |
| Net income | $4.0 | $2.2 | $8.9 | $3.8 |
| Diluted earnings per share | $0.42 | $0.23 | $0.94 | $0.40 |
- Margins: Net interest margin was 3.68% for Q2, versus 3.46% a year earlier; for the six-month period it was 3.57%, versus 3.53%. Management attributed improvement mainly to lower deposit and borrowing costs, partly offset by lower yields on investments.
- Balance sheet at June 30: Assets were $1.756 billion, loans $1.023 billion, deposits $1.542 billion and stockholders’ equity $146.9 million. Gross loans decreased $36.9 million from year-end, while deposits increased $97.2 million.
- Credit quality: Allowance for loan losses was $12.9 million, or 1.26% of loans, versus $12.1 million, or 1.14%, at year-end. Nonperforming assets were $9.5 million, or 0.54% of assets, compared with $10.2 million, or 0.69%, at year-end. The company reported net recoveries of $244,000 for the first six months.
- Cash flow and liquidity: For the first six months, operating cash flow was $34.3 million, investing cash flow was negative $59.5 million and financing cash flow was negative $12.0 million. Cash and cash equivalents fell $37.2 million to $146.3 million, primarily reflecting use of PPP-related funds and repayment of the Paycheck Protection Program Liquidity Facility (PPPLF). Additional disclosed capacity included $426.5 million of FHLB borrowing availability and $41.5 million of federal funds lines, neither outstanding at period-end.
- Borrowings and capital: Reported FHLB advances and other borrowings totaled $59.8 million; the $106.8 million PPPLF balance outstanding at year-end was repaid in Q2. The filing also reports $24.2 million of trust-preferred debentures. At the bank level, total risk-based capital was 14.99%, common equity Tier 1 was 13.85%, and the leverage ratio was 8.84%; the bank exceeded well-capitalized thresholds.
- Dividends: The company declared $0.1025 per share for Q2. A further $0.1025 quarterly dividend was declared July 22, payable August 17, 2021.
Material changes versus comparable periods
- Net income rose year over year in Q2 and the first half. Management cited lower loan-loss provisions and increased mortgage fees, interchange fees and gains on SBA loan sales.
- First-half noninterest income increased 73.9% year over year, including mortgage fee income of $7.0 million and SBA loan-sale gains of $2.7 million. These sources contributed to earnings growth and may vary with lending and market conditions.
- First-half noninterest expense increased 24.2% year over year. Salaries and benefits, IT costs and acquisition-related expenses were principal contributors; salaries and benefits rose 31.9%.
- Investment securities available for sale increased to $469.7 million from $380.8 million at year-end. Accumulated other comprehensive income declined to $2.2 million from $6.8 million, reflecting net unrealized securities losses in the first half.
- Noninterest-bearing deposits increased to $393.7 million from $327.0 million. Management linked deposit growth to stimulus programs, PPP proceeds retained by customers and customer savings behavior.
Outlook, commentary, risks and unusual items
- The filing provides no numerical earnings or revenue guidance. Management cautioned that six-month results are not necessarily indicative of full-year results.
- COVID-19-related economic effects remain uncertain. Management said it continued enhanced credit monitoring and incorporated additional qualitative measures in its loan-loss allowance analysis; future provisions could be required.
- Credit exposure is concentrated geographically in Georgia and in real estate: approximately 82% of loans were secured by real estate, and about 65% were commercial real estate. Hotel loans were approximately $61 million, or 6% of the portfolio.
- On August 1, 2021, after quarter-end, Colony completed its acquisition of SouthCrest Financial Group. The filing estimated consideration at approximately $96 million and said about 4.0 million Colony shares were issued. Risks include integration, realization of expected synergies, acquisition costs and dilution.
- Other cited risks include changes in interest rates and funding costs, borrower and collateral performance, liquidity and capital requirements, competition, cyber and operational risks, and regulatory or legal matters. Management said pending ordinary-course legal proceedings were not expected to have a material adverse effect. No material changes to previously disclosed risk factors were reported.
- The company reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether credit performance, including hotel and other commercial real estate exposure, remains stable and whether the allowance remains adequate as pandemic-related effects develop.
- How much earnings growth is recurring versus dependent on mortgage activity, SBA loan sales, lower credit provisions and other variable items; also monitor rising compensation and technology expenses.
- SouthCrest’s final purchase accounting, integration costs, share dilution, and progress toward any expected cost savings or revenue synergies.
- Deposit stability and liquidity after the PPPLF repayment, along with the company’s capacity to manage funding costs and maintain regulatory capital.
- Reconcile reported figures with the full filing where needed: certain narrative and tabular disclosures differ in wording or presentation, and the filing does not provide a clear numerical full-year outlook.