Colony Bankcorp, Inc. — 2018 Form 10-K Summary
Business context and reporting period
Colony Bankcorp is a Georgia bank holding company operating through Colony Bank, a community bank with 27 offices across central, south and coastal Georgia. It provides commercial, consumer and mortgage banking services. This 10-K covers the fiscal year ended December 31, 2018; the filing also reports unaudited quarterly results.
Financial performance and condition
| Metric | 2018 | 2017 |
|---|---|---|
| Total assets | $1.252 billion | $1.233 billion |
| Total loans, net of unearned interest and fees | $781.5 million | $764.8 million |
| Total deposits | $1.085 billion | $1.068 billion |
| Stockholders’ equity | $95.7 million | $90.3 million |
| Net interest income | $40.8 million | $39.0 million |
| Net income | $11.9 million | $7.8 million |
| Net income per diluted common share | $1.40 | $0.87 |
| Net interest margin, taxable-equivalent | 3.56% | 3.46% |
| Return on average assets | 0.99% | 0.63% |
- Net interest income rose 4.49%; higher loan and securities yields were partly offset by increased funding costs. Interest expense increased to $8.2 million from $6.9 million.
- Noninterest income was $9.6 million, down 1.2%. Noninterest expense rose 4.3% to $35.3 million, including higher salaries, occupancy, data processing and acquisition-related conversion costs.
- Income before tax increased 2.7% to $14.9 million, while income tax expense fell to $3.0 million from $6.8 million. The filing excerpt does not clearly explain the full reason for this tax change.
- Credit quality was mixed: net charge-offs fell to $432,000 from $1.8 million, but nonperforming loans rose to $9.5 million from $7.5 million. Nonperforming assets were $11.3 million, down from $11.8 million. The allowance for loan losses declined to $7.3 million, or 0.93% of loans, from $7.5 million, or 0.98%.
- Commercial real estate, construction and commercial business loans totaled $478.8 million, or 61.22% of loans. Approximately 87.5% of the loan portfolio was secured by real estate.
- Regulatory capital remained strong: the Bank was “well capitalized.” Consolidated CET1 was 12.22%, Tier 1 risk-based capital 15.00%, total risk-based capital 15.86%, and leverage ratio 10.24%.
- Liquidity indicators included a 72.02% loans-to-deposits ratio and $80.5 million of brokered certificates of deposit, equal to 7.42% of deposits. Borrowings included $44.0 million of FHLB advances and $24.2 million of subordinated debentures.
- The filing identifies the consolidated cash flow statements but the supplied text does not provide their figures; operating, investing and financing cash flows therefore cannot be summarized clearly.
Material changes versus the prior comparable period
- Net income available to common shareholders increased 58.1%, supported by higher net interest income and lower provision expense; lower income taxes also contributed materially.
- Loans grew 2.2% and deposits 1.6%. The allowance-to-loans ratio declined, while nonperforming loans increased.
- Common dividends doubled to $0.20 per share for 2018 from $0.10 in 2017. The company also repurchased $3.175 million of warrants during 2018.
- Unrealized losses on available-for-sale securities reached $10.4 million at year-end; accumulated other comprehensive loss was $8.2 million, compared with $6.5 million in 2017.
Outlook, commentary, risks and unusual items
- Management said it would focus on improving earnings, growing deposits and loans, developing core noninterest income, and considering product and market expansion. No quantified earnings or growth guidance was provided.
- Management anticipated only slight interest-rate increases in 2019, while noting that the Federal Reserve had signaled a patient approach. Interest-rate sensitivity modeling projected next-12-month net interest income increases of 1.46% and 2.36% for +100 and +200 basis-point scenarios, respectively, and a 2.86% decline for a -100 basis-point scenario. These are model estimates, not guidance.
- In December 2018, Colony agreed to acquire LBC Bancshares and its Calumet Bank subsidiary for consideration valued at approximately $34.1 million. The deal, subject to shareholder and regulatory approvals, was expected to close in the first half of 2019. LBC reported $207 million in assets, $136 million in gross loans and $182 million in deposits at year-end.
- Colony acquired a Planters First Bank branch in Albany in October 2018, adding $20.7 million of loans and $12.0 million of deposits. It also closed another Albany branch and planned a Statesboro office for the second quarter of 2019.
- Key disclosed risks include Georgia economic and real-estate exposure, commercial real-estate concentration, loan-loss estimation, deposit competition and rising funding costs, interest-rate changes, cyber and operational risk, regulatory change, and execution and integration risks from acquisitions. The filing reports no material pending legal proceedings at December 31, 2018.
- The CEO retired and T. Heath Fountain became CEO in 2018. The company reported effective disclosure controls and effective internal control over financial reporting as of year-end.
Important facts for investors to verify
- Review the full financial statements and notes for cash flows, the drivers of the lower 2018 tax expense, and any tax-related unusual items.
- Assess the rise in nonperforming loans, the allowance’s coverage of problem loans, and the concentration of lending in real estate-related categories.
- Check the fair-value exposure and liquidity implications of the securities portfolio’s unrealized losses and pledged securities.
- Verify the LBC merger’s final approvals, consideration mix, purchase accounting, integration costs and realized contribution to earnings.
- Monitor deposit pricing, brokered funding reliance and the effect of future rate changes on margins and liquidity.