Colony Bankcorp, Inc. — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. Colony is a Georgia bank holding company operating through Colony Bank, with 27 banking offices serving central, south and coastal Georgia.
Financial results and position
Unless otherwise noted, amounts are in millions of dollars. The filing’s selected financial and management discussion figures are annual, not quarterly.
| Metric | 2016 | 2015 |
|---|---|---|
| Total assets at year-end | $1,210.4 | $1,174.1 |
| Loans, net of unearned interest and fees | $753.9 | $758.3 |
| Deposits | $1,044.4 | $1,011.6 |
| Investment securities | $323.7 | $296.1 |
| Stockholders’ equity | $93.4 | $95.5 |
| Net interest income | $38.1 | $37.7 |
| Provision for loan losses | $1.1 | $0.9 |
| Noninterest income | $9.6 | $9.0 |
| Noninterest expense | $34.1 | $33.7 |
| Net income | $8.7 | $8.4 |
| Net income available to common shareholders | $7.2 | $6.0 |
| Diluted earnings per common share | $0.84 | $0.71 |
- Profitability and margins: Return on average assets was 0.62%, up from 0.52%; return on average equity was 7.17%, up from 5.90%. Tax-equivalent net interest margin was 3.51%, slightly below 3.52% in 2015 (GAAP margin: 3.49% versus 3.51%).
- Credit quality: Net charge-offs were $0.7 million, or 0.10% of average loans, versus $1.1 million and 0.14% in 2015. Nonperforming assets fell to $18.8 million from $23.3 million; nonperforming loans were $12.4 million. The allowance for loan losses was $8.9 million, or 1.18% of loans, and covered 72.25% of nonperforming loans.
- Capital: At year-end, reported consolidated ratios included a 10.29% leverage ratio, 15.50% Tier 1 risk-based ratio, 11.32% common equity Tier 1 ratio and 16.64% total capital ratio. Colony Bank was classified as well capitalized.
- Debt and liquidity: Year-end FHLB advances were $46.0 million and subordinated debentures were $24.2 million. Loans were 72.19% of deposits, down from 74.96%. The company reported $49.3 million of brokered certificates of deposit, equal to 4.72% of deposits, plus $15.6 million of internet CDs. Management said available funding sources were adequate. The filing text does not provide a clear cash-flow total or cash-flow trend in the supplied material.
- Q4 detail: For the quarter ended December 31, 2016, net income was $2.19 million and income available to common shareholders was $1.88 million, or $0.22 per share. Net interest income was $9.57 million, with no loan-loss provision recorded. Q4 2015 common income was $1.58 million, or $0.19 per share.
Material changes versus 2015
- Common-shareholder income rose 19.7% and diluted EPS increased from $0.71 to $0.84. Net income increased 3.6%; lower preferred dividends, following preferred-stock redemptions, contributed to the larger increase in common income.
- Net interest income increased 1.1%, while net interest margin edged down. Higher average earning-asset volumes and securities income offset lower loan yields.
- Deposits rose 3.2%, while loans declined 0.6%. Noninterest-bearing deposits increased to $159.1 million from $133.9 million.
- Nonperforming assets declined 19.2%. The allowance increased to $8.9 million from $8.6 million, including an $804,000 increase associated with extending the historical loss period used in the allowance methodology.
- Noninterest income increased 5.6%, including $385,000 of securities gains versus an $11,000 loss in 2015. Noninterest expense rose 1.0%; lower foreclosed-property and FDIC assessment costs were partly offset by higher salaries and benefits.
- Equity declined to $93.4 million from $95.5 million, despite net income, reflecting preferred-stock redemption, preferred dividends and a larger accumulated other comprehensive loss, primarily related to available-for-sale securities.
Outlook, commentary and risks
- Management’s 2017 priorities were to improve earnings, reduce problem assets and seek regulatory approval to redeem the remaining preferred stock. It also cited possible product and market expansion, investment in a new loan platform, and efforts to grow core noninterest income.
- The company reported opening offices in Tifton and Statesboro and closing four offices in smaller rural markets during 2016; a third Savannah office opened in January 2017.
- Common dividends were not paid in 2016. Management said common dividends were reinstated beginning in first-quarter 2017; future payments remain subject to board action, earnings, capital needs and regulatory limits. The company used $8.661 million of 2016 bank dividends to redeem preferred stock.
- Management described the company as asset-sensitive in its simulation model: projected 12-month net interest income increased 1.88% under a 100-basis-point rate increase and 3.35% under a 200-basis-point increase, but declined 3.67% under a 100-basis-point decrease. These are model estimates, not forecasts of actual results. Separately, the modeled economic value of equity fell 12.44% under an immediate 100-basis-point decline, beyond the company’s stated 10% policy limit; management cited assumptions and the low-rate environment as mitigating considerations.
- Key risks include concentration in Georgia and real-estate-secured lending (about 87% of loans), competition, interest-rate and funding-cost changes, credit deterioration, dependence on fee income, regulatory and compliance costs, cybersecurity and third-party vendor disruptions, and severe weather. Management noted no material pending legal proceedings at year-end.
- The filing reports no common dividends in 2015 or 2016 and no material capital-expenditure commitments for 2016. It does not provide a numerical earnings or revenue forecast.
Important facts for investors to verify
- Review the full financial statements and notes for operating cash flow, cash balances, deposit composition, debt terms and preferred-stock balances; those cash-flow details are not clear in the supplied filing text.
- Track whether loan quality continues to improve and whether the allowance remains adequate, particularly given real-estate concentration and the allowance methodology change.
- Verify execution of the planned preferred-stock redemption and assess the sustainability and regulatory capacity for common dividends.
- Compare actual net interest income and deposit pricing with management’s rate-sensitivity assumptions, especially deposit betas and the modeled downside in economic value of equity.
- Assess whether deposit growth, reduced loans, brokered and internet funding, and planned branch or market expansion support sustainable earnings without increasing liquidity or operating risk.