Business context and reporting period
Colony Bankcorp, Inc. is a Georgia bank holding company providing retail, commercial and mortgage banking, plus SBA and other government-guaranteed lending. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2022; balance-sheet comparisons are with December 31, 2021. Figures below are consolidated unless noted; dollar amounts are in millions unless stated otherwise.
Financial performance and condition
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net interest income | $20.9 | $17.9 | $59.2 | $47.2 |
| Provision for loan losses | $1.3 | $0.2 | $2.5 | $0.7 |
| Noninterest income | $8.2 | $9.4 | $27.4 | $25.5 |
| Noninterest expense | $21.4 | $21.2 | $67.6 | $54.1 |
| Net income | $5.3 | $5.6 | $14.0 | $14.5 |
| Diluted EPS | $0.30 | $0.45 | $0.82 | $1.39 |
- Interest margins: Tax-equivalent net interest income was $21.0 million in Q3 and $59.5 million for nine months. Net interest margin fell to 3.25% from 3.48% in Q3, and to 3.19% from 3.49% year to date.
- Balance sheet at September 30: Assets were $2.806 billion (up from $2.692 billion at year-end); loans were $1.587 billion gross and $1.571 billion net; deposits were $2.410 billion; stockholders’ equity was $226.1 million.
- Liquidity and cash flow: Cash and cash equivalents were $85.0 million, down from $197.2 million at year-end. Nine-month operating cash flow was $35.5 million, investing cash outflow $305.7 million and financing cash inflow $158.1 million. Loan growth was a major use of cash. Management said available funding sources were adequate.
- Funding and debt: FHLB advances were $95.0 million and other borrowings $63.4 million, totaling $158.4 million versus $88.4 million at year-end. The company reported $585.6 million of remaining FHLB borrowing availability, subject to eligible collateral, and $64.5 million of federal funds lines with no outstanding balance.
- Credit and capital: Allowance for loan losses was $15.2 million, or 0.96% of loans. Nonperforming assets were $5.5 million (0.20% of assets), versus $5.8 million (0.21%) at year-end. The Bank was classified as well-capitalized; its total risk-based capital ratio was 13.34% and leverage ratio 8.96%.
Material changes versus comparable periods
- Net income declined 5.9% in Q3 and 3.5% for the nine months; diluted EPS fell more sharply, alongside a larger weighted-average share count following the February 2022 equity offering.
- Net interest income increased with higher loan and securities volumes, including the effect of the SouthCrest acquisition, but margin contracted as loan yields fell and deposit and borrowing costs rose.
- Loan balances rose 18.6% from year-end. Provision expense increased to $2.5 million year to date, which management attributed primarily to loan growth. Nine-month net charge-offs were $198,000, compared with net recoveries of $100,000 in 2021.
- Quarterly noninterest income declined 13.3%, primarily from lower mortgage fees and SBA loan-sale gains; nine-month income rose 7.5%, led by deposit service charges, interchange fees and other income. Nine-month noninterest expense rose 25.0%, largely due to salaries, technology and other costs associated with the expanded organization and acquisition integration.
- Cash declined as funds were deployed to support loan growth. Deposits increased $35.1 million, while brokered deposits rose to $30.4 million from $0.9 million at year-end.
Outlook, commentary, risks and unusual items
- No specific earnings, margin, growth or credit-loss guidance is provided. Management described local economic activity as near pre-pandemic levels, while citing inflation, rising rates, worker shortages and supply-chain disruption as headwinds that could affect borrowers and growth.
- The company issued approximately 3.85 million common shares in February, generating about $59.5 million net proceeds, and issued $40 million of subordinated notes in May at 5.25% fixed through May 2027, then floating at three-month SOFR plus 265 basis points through maturity in 2032.
- During 2022, approximately $511 million book value of securities was transferred from available-for-sale to held-to-maturity; market value at transfer was approximately $477 million. The associated approximately $34 million pretax unrealized loss in accumulated other comprehensive loss is being amortized over the securities’ remaining terms. At September 30, available-for-sale securities had $57.8 million gross unrealized losses; held-to-maturity securities had $57.3 million. Management attributed losses primarily to higher market rates and stated it intended and was able to hold the securities.
- CECL was scheduled to apply to the company beginning in 2023; management estimated an initial 15%–25% increase in allowance for credit losses, subject to portfolio composition and economic conditions at adoption.
- Key risks include real-estate and Georgia geographic concentration (about 86% of loans secured by real estate), borrower credit quality, interest-rate and funding-cost changes, securities valuation and liquidity, reliance on deposits and brokered funding, and economic slowdown. Loan commitments totaled $365.7 million and letters of credit $3.6 million; these contractual amounts do not necessarily represent expected funding needs. Management said pending legal matters were not expected to have a material adverse effect. The filing reports no material change in previously disclosed risk factors.
- The Board declared a $0.1075 per-share dividend payable November 18, 2022. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether loan growth can continue without further material increases in provisions, nonperforming loans or charge-offs.
- How quickly deposit and wholesale funding costs rise relative to asset yields, and the resulting effect on net interest margin and earnings.
- Liquidity and capital sensitivity to deposit outflows and the substantial unrealized losses in the securities portfolio, including the practical consequences of the AFS-to-HTM transfers.
- Whether the 15%–25% estimated CECL allowance increase remains appropriate at adoption and how it affects reported capital.
- Whether acquisition-related growth and added operating costs translate into durable earnings, particularly given lower mortgage activity and the increased share count.