Colony Bankcorp, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; balance-sheet comparisons are to December 31, 2022. Amounts are in millions of dollars unless otherwise stated. Colony is a Georgia-based bank holding company serving consumers and businesses primarily in Georgia, with a loan production office in Alabama.
Financial performance and position
| Metric | Q3 / September 30, 2023 | Comparison |
|---|---|---|
| Net income | $5.8; diluted EPS $0.33 | Q3 2022: $5.3; $0.30 |
| Net interest income | $19.6 GAAP; $19.8 taxable-equivalent | Q3 2022: $20.9 GAAP; $21.0 taxable-equivalent |
| Net interest margin | 2.78% | Q3 2022: 3.26% |
| Provision for credit losses | $1.0 | Q3 2022: $1.3 |
| Noninterest income / expense | $9.7 / $20.9 | Q3 2022: $8.1 / $21.4 |
| Total assets | $3,093.8 | Year-end 2022: $2,936.6 |
| Loans, gross | $1,865.0 | Year-end 2022: $1,737.1 |
| Total deposits | $2,591.3 | Year-end 2022: $2,491.0 |
| Cash and cash equivalents | $141.3 | Year-end 2022: $80.7 |
| Borrowings | $248.4 | Year-end 2022: $203.4 |
| Stockholders’ equity | $238.7 | Year-end 2022: $230.3 |
For the first nine months, net income was $16.1 million and diluted EPS was $0.92, versus $14.0 million and $0.82 in 2022. Taxable-equivalent net interest income was $59.9 million versus $59.6 million; nine-month margin was 2.87% versus 3.19%. Nine-month noninterest income was $26.3 million (down 3.7%) and expense was $63.5 million (down 6.2%).
Cash flow: For the nine months, operating activities provided $15.2 million, investing activities used $93.4 million, and financing activities provided $138.9 million. Cash and cash equivalents increased $60.7 million. Dividends paid were $5.8 million.
Credit and capital: Allowance for credit losses on loans was $17.4 million, or 0.93% of loans. Nonperforming assets were $10.1 million, or 0.33% of assets, compared with $6.4 million and 0.22% at year-end 2022. Regulatory capital ratios remained above well-capitalized thresholds: consolidated CET1 11.36% and total capital 15.11%.
Material changes and management commentary
- Q3 net income increased despite lower net interest income, supported by higher noninterest income and lower noninterest expense. Management attributed expense reductions principally to a first-half reduction in force and lower data-processing costs following a core-processing contract renewal.
- Higher deposit and borrowing costs outpaced growth in asset yields: Q3 interest expense rose to $13.0 million from $2.8 million a year earlier. Management cited higher market rates and competition for deposits as pressures on margin.
- Loans grew 7.4% from year-end. Growth included residential real estate and consumer lending; management said it had shifted focus away from commercial real estate lending. About 83% of the loan portfolio was secured by real estate.
- Deposits increased 4.0%, but the mix shifted: noninterest-bearing deposits declined to 19.1% of total deposits from 22.8%. Brokered deposits rose to $148.7 million from $50.8 million. Estimated uninsured deposits fell to 28.21% of total deposits from 34.85%.
- Net charge-offs rose to $0.7 million for Q3 and $0.9 million for nine months, versus $0.1 million and $0.2 million, respectively, in 2022. Management attributed the increase to a limited number of loans in the Small Business Specialty Lending division. Nonaccrual loans increased to $9.3 million from $5.7 million at year-end.
- Q3 noninterest income rose 19.3%, including higher insurance commissions, wealth advisory and merchant-services income, and equity investment gains. Nine-month mortgage fee income fell 33.0% and SBA loan-sale gains fell 28.6%, which management associated with higher rates and a shift toward adjustable-rate portfolio production.
Outlook, liquidity, risks and unusual items
- The filing provides no specific earnings, margin, or growth guidance. Management described expected stable economic and unemployment conditions in its markets, with delinquencies returning toward more normal levels over the next two years; estimates remain subject to economic conditions and forecasts.
- Management said liquidity remained robust amid 2023 banking-industry concerns. Available sources included $587.9 million of additional FHLB borrowing capacity, $54.3 million of discount-window capacity, and a $100 million Federal Reserve Term Funding Program line; neither Federal Reserve facility had been used. The company also reported $443.0 million of unencumbered securities.
- Investment securities carried substantial unrealized losses, primarily attributed by management to higher market interest rates. At September 30, available-for-sale securities had $64.4 million of gross unrealized losses and held-to-maturity securities had $66.0 million; management stated it could hold the securities and recorded no securities credit-loss allowance.
- Two cash-flow interest-rate swaps, each with $25 million notional, were entered into in June to hedge variability in cash flows on certain variable-rate liabilities.
- CECL adoption on January 1, 2023 reduced retained earnings by $1.2 million net of tax, including an initial $1.7 million allowance for unfunded commitments. Management cautioned that CECL estimates may increase provision and earnings volatility.
- Key risks include higher funding costs, interest-rate and liquidity changes, real-estate and geographic concentration, borrower credit deterioration, and mortgage-market weakness. The filing reported no material change to previously disclosed risk factors and no material adverse effect expected from ordinary-course legal proceedings.
- The board declared a $0.11-per-share quarterly dividend on October 25, payable November 22, 2023. Management reported disclosure controls were effective and no material internal-control changes during the quarter.
Important facts for investors to verify
- Whether deposit pricing and funding mix continue to compress net interest margin; review subsequent margin, deposit costs, brokered deposits, and noninterest-bearing deposit trends.
- Whether loan growth, higher charge-offs, and rising nonaccrual loans affect credit quality, especially in commercial real estate and Small Business Specialty Lending.
- How the securities portfolio’s unrealized losses and the company’s ability to hold securities affect liquidity and capital under changing rate conditions.
- Whether management’s liquidity sources remain available on acceptable terms and how much reliance on FHLB advances and brokered deposits develops.
- Reconcile the filing’s narrative reference to a loan past due 90 days and still accruing “totaling $9 million” with the nonperforming-assets table, which reports $9 thousand.