Colony Bankcorp, Inc. — Q1 2023 Form 10-Q
Business context and reporting period. Colony Bankcorp is a Georgia-based bank holding company providing retail, commercial, mortgage and small-business lending services, primarily in Georgia and through loan offices in Alabama. This unaudited filing covers the quarter ended March 31, 2023; balance-sheet comparisons are with December 31, 2022, and operating results with Q1 2022.
Financial performance and condition
| Metric | Q1 2023 / March 31, 2023 | Comparison |
|---|---|---|
| Total assets | $2.997 billion | $2.937 billion at Dec. 31, 2022 |
| Gross loans | $1.800 billion | Up $62.7 million, or 3.6%, from year-end |
| Total deposits | $2.516 billion | Up $25.1 million, or 1.0%, from year-end |
| Net interest income | $20.6 million | $19.2 million in Q1 2022; tax-equivalent NII was $20.7 million versus $19.3 million |
| Net interest margin | 3.08% | 3.13% in Q1 2022 |
| Net income / diluted EPS | $5.0 million / $0.29 | $5.3 million / $0.34 in Q1 2022 |
| Provision for credit losses | $0.9 million | $50,000 in Q1 2022 |
| Noninterest income / expense | $7.7 million / $21.2 million | Income down $1.5 million; expense down $0.6 million year over year |
| Cash and cash equivalents | $82.0 million | $80.7 million at year-end |
| Total borrowings | $228.4 million | $203.4 million at year-end |
| Stockholders’ equity | $238.8 million | $230.3 million at year-end |
Operating cash flow was $11.4 million, compared with $21.9 million in Q1 2022. Investing activities used $58.2 million and financing activities provided $48.1 million; cash and cash equivalents increased $1.3 million during the quarter.
Regulatory capital remained above well-capitalized thresholds: the Bank reported a 12.02% common equity Tier 1 ratio, 12.88% total risk-based capital ratio and 8.82% leverage ratio. The consolidated total risk-based capital ratio was 14.80%.
Material changes versus the prior comparable period
- Net income fell about 5%, and diluted EPS declined from $0.34 to $0.29. Management attributed the earnings decrease mainly to lower mortgage fee income and SBA loan sale gains, partly offset by higher net interest income.
- Interest income rose with higher loan and securities yields, but deposit and borrowing costs increased faster, compressing net interest margin. Total interest expense rose to $7.8 million from $1.0 million.
- Mortgage fee income fell 59% to $1.2 million, and gains on SBA loan sales fell 39% to $1.1 million. Other noninterest income increased, partly offsetting these declines.
- Loans grew 3.6% from year-end, while the company said it shifted its 2023 focus away from commercial real estate lending and tightened pricing and credit standards. Commercial real estate represented 68.7% of loans; approximately 86% of the portfolio was secured by real estate.
- Nonperforming assets increased to $7.8 million, or 0.26% of assets, from $6.4 million, or 0.22%, at year-end. Nonaccrual loans were $7.2 million; there were no loans 90 days past due and still accruing.
- The allowance for loan credit losses was $16.6 million, or 0.92% of loans. Net charge-offs were $237,000 versus $41,000 in Q1 2022.
Outlook, risks and unusual items
- No quantified earnings or revenue guidance was provided. Management described local economic activity as solid overall, while noting inflation, higher rates, construction-cost pressures, supply-chain disruptions and recession concerns. It expects credit conditions, unemployment and delinquencies to be affected by economic deterioration over the next two years, as reflected in its CECL estimate.
- The company adopted CECL on January 1, 2023. Adoption reduced retained earnings by $1.2 million net of tax, created a $1.7 million allowance for unfunded commitments and reduced the loan allowance by $53,000. Management cautioned that CECL provisions may be more volatile as portfolio and economic conditions change.
- In response to banking-sector volatility, management reported minimal deposit outflows, deposits up 1% from year-end and uninsured deposits at 30.96% of total deposits, down from 34.85%. Brokered deposits increased to $87.3 million from $50.8 million.
- Available liquidity sources included $567 million of additional FHLB borrowing capacity, $57.2 million of discount-window capacity and a $100 million Federal Reserve Term Funding Program line; neither Federal Reserve facility was drawn at quarter-end. FHLB advances outstanding were $165 million.
- Available-for-sale securities had $50.6 million of gross unrealized losses; held-to-maturity securities had $45.0 million. Management attributed losses primarily to higher market rates and said it did not consider them other-than-temporary. HTM fair value was $419.1 million versus $463.9 million amortized cost. A forced sale to meet liquidity needs could crystallize losses and affect earnings or capital.
- Market-risk modeling showed estimated net interest income down 0.99% under a 200-basis-point rate increase at March 31, 2023; the comparable year-end estimate was an increase of 2.59%.
- Management identified risks from deposit competition and confidence, CRE concentration, interest-rate and liquidity exposure, credit quality, regulation and potential funding-cost increases. It anticipates increased regulatory scrutiny following bank failures. Ordinary-course legal proceedings were not expected by management to have a material adverse effect.
- The Board declared a $0.11-per-share quarterly dividend payable May 24, 2023. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether deposit balances, uninsured-deposit mix, brokered funding and borrowing capacity remain stable amid continued competition and banking-sector stress.
- Whether loan growth, the high real-estate concentration and rising nonaccrual loans lead to further credit costs; assess the assumptions and sensitivity of the CECL allowance.
- How deposit and borrowing repricing affects net interest margin, and whether actual rate sensitivity tracks the filing’s modeled estimates.
- Whether mortgage and SBA-related income recover, and whether other noninterest income gains are recurring.
- The extent and duration of unrealized securities losses and the company’s ability to avoid selling securities to fund liquidity needs.
- Capital and liquidity ratios, including any regulatory developments or constraints on dividends from the Bank to the holding company.