Colony Bankcorp, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Colony Bankcorp is a Georgia-based bank holding company providing retail, commercial, mortgage and SBA lending services. Results include SouthCrest Financial Group from its August 1, 2021 acquisition date.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net interest income | $17.9 million | $13.8 million | $47.2 million | $40.1 million |
| Net interest margin, tax-equivalent | 3.48% | 3.34% | 3.49% | 3.46% |
| Provision for loan losses | $0.15 million | $1.11 million | $0.65 million | $5.26 million |
| Noninterest income | $9.4 million | $7.6 million | $25.5 million | $16.8 million |
| Noninterest expense | $21.2 million | $16.3 million | $54.1 million | $42.9 million |
| Net income | $5.6 million | $3.1 million | $14.5 million | $6.9 million |
| Diluted EPS | $0.45 | $0.33 | $1.39 | $0.73 |
At September 30, total assets were $2.51 billion, loans $1.31 billion, deposits $2.20 billion, and stockholders’ equity $217.1 million. Assets increased from $1.76 billion and deposits from $1.45 billion at December 31, 2020, primarily reflecting SouthCrest and organic funding growth. Cash and cash equivalents were $177.0 million, down from $183.5 million at year-end. Nine-month operating cash flow was $41.0 million, compared with an outflow of $29.2 million in 2020; investing used $55.5 million and financing provided $8.0 million.
Borrowings totaled $88.6 million, down from $167.1 million at year-end, chiefly after repayment of the $106.8 million PPP Liquidity Facility. The Bank reported regulatory capital ratios above “well-capitalized” thresholds: total risk-based capital 12.68%, common equity Tier 1 11.87%, and leverage 8.55%. Management stated liquidity sources were adequate; available FHLB borrowing capacity was $385.4 million.
Changes and notable items
- SouthCrest acquisition consideration was approximately $93.0 million: 3.99 million Colony shares valued at $71.4 million and $21.6 million cash. The transaction added approximately $35.0 million goodwill; acquired deposits were $631.4 million and acquired loans had a fair value of $307.5 million. SouthCrest contributed about $3.0 million revenue and $2.3 million net income from closing through quarter-end. Integration, purchase accounting and expected synergies remain subject to execution and uncertainty.
- Net interest income and margin improved, supported by lower deposit and borrowing costs and loan yields, partly offset by lower investment yields. Noninterest income growth reflected mortgage fees, SBA loan-sale gains and interchange fees. Nine-month mortgage fee income rose 77% and SBA loan-sale gains rose to $4.5 million from $1.0 million.
- Expense growth included higher salaries, technology costs and $3.0 million of acquisition-related expense for the nine months. Management also presented non-GAAP operating net income of $16.7 million for the nine months, excluding after-tax acquisition costs; this is supplemental, not a GAAP measure.
- Unrealized securities losses reduced accumulated other comprehensive income to negative $3.4 million from positive $6.8 million at year-end. Management attributed the losses primarily to market interest-rate increases and did not consider them other-than-temporary.
- Common shares issued and outstanding increased to 13.67 million from 9.50 million, principally from the merger. Tangible common book value per share was $11.42, versus $13.26 at year-end.
Credit, outlook and contingencies
The allowance for loan losses was $12.9 million, or 0.98% of loans, versus $12.1 million, or 1.26%, at year-end. The company recorded net recoveries of $0.1 million for the first nine months, compared with net charge-offs of $1.1 million in 2020. Nonperforming assets were $13.1 million, or 0.52% of assets, compared with $10.2 million, or 0.69%, at year-end; nonaccrual loans increased to $12.2 million. Approximately 86% of loans were secured by real estate, and $61.6 million, or 4.7% of loans, was in the hotel sector.
Management said the full effects of COVID-19 and its variants on borrowers and the economy remained uncertain; it warned additional credit-loss provisions could be required. Other stated risks include real-estate and geographic concentration, interest-rate and funding-cost changes, acquisition integration and dilution, liquidity and capital needs, competition, cybersecurity and regulatory or legal matters. Management gave no specific financial guidance. It stated the Bank remained well-capitalized; legal proceedings were not expected to have a material adverse effect, and no material changes to previously disclosed risk factors were reported. A $0.1025-per-share dividend was declared after quarter-end, payable November 17, 2021.
Important facts for investors to verify
- How SouthCrest integration, cost savings and revenue synergies progress, including final purchase-accounting adjustments.
- Whether rising nonaccrual loans and real-estate and hotel concentrations require higher credit provisions; assess the adequacy of the allowance.
- How securities-market value changes affect accumulated other comprehensive income, liquidity and capital.
- Whether deposit growth and low funding costs persist, and how interest-rate changes affect net interest income and margin.
- The effect of merger share issuance, goodwill and acquisition expenses on per-share value and future profitability.
- PPP forgiveness and fee recognition, COVID-related borrower performance, and available liquidity and regulatory capital.