Colony Bankcorp, Inc. — Q2 2017 Form 10-Q
Business context and reporting period. The company is a Georgia bank holding company whose wholly owned Colony Bank provides retail, commercial and mortgage banking services. This unaudited report covers the quarter and six months ended June 30, 2017; balance-sheet comparisons are with December 31, 2016. Management stated that interim results are not necessarily indicative of full-year results.
Financial performance
Dollars are in millions except per-share amounts and ratios.
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Net interest income | $9.816 | $9.525 | $19.278 | $18.981 |
| Provision for loan losses | $0 | $0.354 | $0.335 | $0.708 |
| Noninterest income | $2.394 | $2.352 | $4.794 | $4.524 |
| Noninterest expense | $8.620 | $8.354 | $17.028 | $16.589 |
| Net income | $2.433 | $2.167 | $4.550 | $4.228 |
| Net income available to common shareholders | $2.433 | $1.761 | $4.339 | $3.417 |
| Diluted EPS | $0.28 | $0.21 | $0.50 | $0.40 |
- Q2 net income available to common shareholders increased 38.2%; six-month income increased 27.0%. The Q2 comparison also reflects the absence of preferred dividends after the March 2017 redemption.
- Tax-equivalent net interest margin was 3.49% for Q2 (3.53% a year earlier) and 3.42% for the first half (3.50%); GAAP margin for the first half was 3.41%. Management expects margin to remain relatively flat for 2017.
- First-half operating cash flow was $7.331 million; investing cash flow was $0.835 million and financing cash flow was negative $17.917 million. Cash and cash equivalents declined $9.751 million to $19.071 million.
Financial position, liquidity and capital
- Total assets were $1.198 billion, down from $1.210 billion at year-end. Gross loans rose 2.8% to $775.566 million; deposits declined 1.7% to $1.027 billion. Net loans were $767.069 million.
- Allowance for loan losses was $8.043 million, or 1.04% of loans, versus $8.923 million and 1.18% at year-end. Nonperforming assets were $12.701 million (1.06% of assets), down from $18.789 million (1.55%) at year-end; nonaccrual loans were $8.176 million.
- Borrowed money totaled $80.229 million, including $24.229 million in subordinated debentures and $56.000 million in other borrowings, up from $70.229 million at year-end. The company reported $250.736 million of remaining FHLB availability, subject to eligible collateral, and $43.5 million in federal funds lines, none drawn.
- Consolidated regulatory capital ratios at June 30 were 15.32% total risk-based, 14.33% Tier 1 risk-based, 11.44% common equity Tier 1 and 9.72% Tier 1 leverage. Management said the company met applicable capital adequacy requirements.
- Stockholders’ equity was $88.992 million, compared with $93.388 million at year-end. The company redeemed $9.360 million of preferred stock in March and paid common dividends of $0.025 per share in each of the first two quarters.
Changes, outlook and risks
- First-half net interest income increased 1.6%; noninterest income increased 6.0%, while noninterest expense increased 2.7%. Higher mortgage fees and other fees contributed to income growth; salaries and benefits rose 6.2%, primarily due to merit increases. Lower FDIC assessments helped reduce other expenses.
- Management expanded the allowance methodology’s historical loss period from eight to 16 quarters in Q1. The change increased the allowance by $431,600 as of June 30. The allowance also reflects charge-offs and recoveries; first-half net charge-offs were $1.215 million.
- Management’s stated 2017 priorities include improving earnings, reducing problem assets and maintaining capital. It plans to pursue core noninterest-income growth, invest in a new loan platform, and consider product and market expansion. The company opened a third Savannah office in January and committed to purchase land for a Statesboro office in June.
- Management noted two 25-basis-point Federal Reserve rate increases in the first half and expected another increase in 2017. Interest-rate changes and competition could affect spread and margin.
- Credit risk remains concentrated in real estate: approximately 87% of loans were real-estate secured. Management cited dependence on local real-estate conditions and collateral values. Other stated risks include regional economic conditions, reserve estimates, deposit and funding needs, regulation, technology, litigation and execution of expansion plans.
- Off-balance-sheet loan commitments were $96.380 million and letters of credit were $1.445 million. Management said pending legal proceedings were not expected to have a material adverse effect. No numeric earnings guidance was provided.
Key facts for investors to verify
- Whether lower nonperforming assets and the reduced allowance adequately reflect continued real-estate and geographic concentration risks.
- How the 16-quarter loss-history methodology affects reserve adequacy, future provisions and comparability with prior periods.
- Whether loan growth, deposit outflows and increased borrowings alter liquidity or funding costs; review the maturity profile and collateral requirements.
- Whether margin performance meets management’s expectation of relative stability as rates and competitive conditions change.
- How the preferred-stock redemption, common dividends, expansion spending and new loan-platform investment affect capital and earnings.
Financial statements are unaudited except for the December 31, 2016 balance sheet; management reported that interim adjustments consisted of normal recurring adjustments.