Colony Bankcorp, Inc. — Q3 2011 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2011. The consolidated interim financial statements are unaudited and cover Colony Bankcorp and its banking subsidiary. Dollar amounts below are in millions unless otherwise stated.
Financial performance
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Net interest income | $8.743 | $9.062 | $26.142 | $28.336 |
| Provision for loan losses | $2.250 | $4.200 | $6.000 | $10.850 |
| Noninterest income | $2.423 | $2.664 | $7.198 | $7.223 |
| Noninterest expense | $8.090 | $9.115 | $24.247 | $25.124 |
| Net income (loss) | $0.558 | $(1.034) | $2.153 | $0.171 |
| Net income (loss) available to common | $0.208 | $(1.384) | $1.103 | $(0.879) |
| Basic and diluted EPS | $0.02 | $(0.16) | $0.13 | $(0.11) |
For the first nine months, taxable-equivalent net interest margin was 3.05%, down from 3.15%; net interest spread was 2.88%, versus 2.97%. Return on average assets was 0.12% (2010: -0.09%). Common dividends remained suspended; no common dividend was declared for the periods shown.
Nine-month cash from operating activities was $13.489 million; investing activities provided $95.594 million and financing activities used $135.894 million. Cash and cash equivalents fell $26.811 million to $27.338 million. At September 30, total assets were $1.146 billion, stockholders’ equity $97.931 million, deposits $948.356 million, loans net of allowance $724.030 million, and borrowed money $95.229 million, including $24.229 million of subordinated debentures.
Material changes and asset quality
- Compared with Q3 2010, quarterly net income improved by $1.592 million, primarily reflecting lower loan-loss provision and noninterest expense, partly offset by lower net interest income and noninterest income. Nine-month net income improved by $1.982 million, principally due to a $4.850 million lower provision and $0.877 million lower noninterest expense.
- Total loans declined 8.9% from December 31, 2010 to $740.999 million. Deposits declined to $948.356 million from $1.059 billion. Loans were 78.1% of deposits at quarter-end.
- Nonperforming assets rose to $63.289 million from $49.261 million at year-end 2010; nonperforming assets were 8.31% of loans and foreclosed assets, versus 5.91%. Nonaccrual loans increased to $42.148 million from $28.902 million. Approximately 85% of loans were real-estate-secured.
- The allowance for loan losses fell to $16.910 million from $28.280 million, or 2.28% of loans versus 3.48%. Nine-month net charge-offs were $17.370 million, compared with $14.497 million in 2010. Allowance coverage of nonperforming loans was 40.12%, down from 97.78% at year-end.
- Available-for-sale securities were $313.119 million at fair value, with accumulated other comprehensive income of $3.244 million, compared with an accumulated loss of $0.600 million at year-end.
Outlook, risks and unusual items
- Management said its 2011 focus was resolving problem assets and expected elevated charge-offs as problem credits moved through collection and resolution. It stated that new problem loans continued to be identified, although at a slower pace than in prior quarters, and that the allowance was adequate at September 30. These estimates are subject to economic, collateral-value and credit-quality changes.
- Management anticipated a relatively flat net interest margin for 2011 and noted continued pressure from low interest rates. Its interest-rate analysis estimated net interest income would decline 19.33% under a 200-basis-point rate decrease and increase 9.21% under a 200-basis-point increase.
- Colony Bank remained subject to a regulatory Memorandum of Understanding requiring corrective actions, enhanced asset and concentration oversight, an earnings improvement plan, and prior regulatory consent for dividends. The MOU requires bank Tier 1 leverage of at least 8% and total risk-based capital of at least 10%; reported bank ratios were 9.13% and 16.32%, respectively. The company said it met applicable capital adequacy requirements.
- Common dividends were restricted absent Federal Reserve approval. The Treasury preferred stock carries a 5% cumulative dividend for its first five years, increasing to 9% thereafter; the company reported $1.050 million of preferred dividends for the nine months.
- CEO Al D. Ross resigned effective October 18, 2011; director James D. Minix was elected interim CEO while the board considered a permanent appointment.
- Loan commitments were $41.692 million and standby letters of credit $1.619 million; amounts may not be fully drawn. Management said pending legal proceedings were not expected to have a material adverse effect. The IRS examination of 2009 was completed; the company paid $0.190 million in the second quarter and said additional amounts, if any, would not be material.
- Key risks include continued weakness in Georgia real estate markets, collateral-value declines, credit losses, deposit and funding pressures, competition, interest-rate changes, regulatory restrictions and technology/vendor disruptions. Management provided no specific earnings or revenue guidance.
Important facts for investors to verify
- Whether nonperforming loans and assets continue to rise, and whether charge-offs, recoveries and collateral values support the allowance level and its coverage.
- Progress against the MOU, compliance with its capital and asset-quality requirements, and any changes to regulatory restrictions or dividend permissions.
- Trends in net interest margin, loan and deposit balances, funding costs, liquidity and reliance on large or external deposits.
- The eventual resolution and financial impact of the IRS appeal, and any further developments following the CEO transition.