Colony Bankcorp, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Colony Bankcorp is a Georgia-based bank holding company providing retail, commercial, mortgage and small-business lending services, primarily in Georgia. Dollar amounts below are in U.S. dollars; financial statement amounts are generally in millions unless otherwise noted.
Financial performance and condition
| Metric | Q1 2021 / March 31, 2021 | Comparable period / prior date |
|---|---|---|
| Net interest income | $14.3 million | $12.7 million, Q1 2020 |
| Net interest margin | 3.50% | 3.68%, Q1 2020 |
| Noninterest income | $8.6 million | $4.5 million, Q1 2020 |
| Noninterest expense | $15.8 million | $13.3 million, Q1 2020 |
| Provision for loan losses | $0.5 million | $2.0 million, Q1 2020 |
| Net income / diluted EPS | $4.9 million / $0.52 | $1.6 million / $0.17, Q1 2020 |
| Total assets | $1.80 billion | $1.76 billion, December 31, 2020 |
| Total loans, excluding loans held for sale | $1.063 billion | $1.060 billion, December 31, 2020 |
| Total deposits | $1.526 billion | $1.445 billion, December 31, 2020 |
| Cash and cash equivalents | $181.6 million | $183.5 million, December 31, 2020 |
| Borrowings | $120.6 million | $167.1 million, December 31, 2020 |
| Stockholders’ equity | $143.5 million | $144.5 million, December 31, 2020 |
- Q1 operating cash flow was $28.3 million; investing cash flow was negative $63.6 million and financing cash flow was positive $33.4 million. Cash and cash equivalents declined $1.9 million during the quarter.
- Net interest income increased year over year as deposit and borrowing costs fell, while net interest margin declined, principally reflecting lower investment yields and the impact of lower-yielding PPP loans.
- Mortgage fee income rose to $4.0 million from $1.3 million, and SBA loan-sale gains rose to $1.5 million from $0.2 million. Management attributed growth in mortgage fees to strong mortgage activity in a low-rate environment and SBA gains to expansion of the specialty lending business.
- Allowance for loan losses was $12.7 million, or 1.19% of loans, versus $12.1 million, or 1.14%, at year-end. Nonperforming assets were $11.2 million, or 0.62% of assets; nonaccrual loans increased to $10.7 million from $9.2 million at year-end. Net recoveries were $66,000 for the quarter.
- Real estate loans were approximately 78% of the portfolio. Commercial real estate represented 61.5% of loans; hotel-sector loans totaled $61.8 million, or 5.8% of loans.
- Noninterest expense increased 18.3% year over year, primarily due to a 32.8% increase in salaries and benefits associated with growth in mortgage and small-business specialty lending. Comprehensive income was negative $37,000, including a $5.0 million after-tax decline in unrealized securities gains.
Material changes and capital
- Versus Q1 2020, net income more than tripled. Management cited lower loan-loss provision and higher mortgage, SBA loan-sale and interchange income. The lower provision reflects, in part, reserves established amid pandemic-related uncertainty; management also added qualitative considerations to its allowance analysis.
- Deposits increased $80.9 million from year-end, with noninterest-bearing deposits rising to $384.8 million. Management attributed deposit growth to stimulus, PPP proceeds retained by borrowers, tax-payment timing and customer saving and spending patterns.
- Available-for-sale securities increased to $433.7 million from $380.8 million at year-end, while accumulated other comprehensive income fell to $1.8 million from $6.8 million, primarily reflecting market-related unrealized losses. Management said losses were largely attributable to higher market rates and did not consider them other-than-temporary.
- Borrowings declined by $46.4 million, largely due to repayment of PPP Liquidity Facility advances as PPP loans were forgiven. The company reported $417.7 million of additional FHLB borrowing availability and $41.5 million of federal funds lines, none outstanding at quarter-end.
- The Bank exceeded regulatory well-capitalized thresholds. At March 31, 2021, its CET1, total risk-based capital and leverage ratios were 12.74%, 13.81% and 9.05%, respectively.
Outlook, risks and unusual items
- The filing provides no formal earnings or financial guidance. Management said the full economic and credit effects of COVID-19 remained uncertain and that additional credit-loss provisions could be required in future periods.
- COVID-19 relief and PPP activity remained significant. The company reported $45.4 million of PPP loans forgiven during the quarter and $46.9 million of new PPP loans closed under the Economic Aid Act. PPP-related fees of approximately $3.6 million are deferred and recognized over the loans’ lives.
- The filing reports $12.7 million of loans under troubled-debt-restructuring terms, while a separate passage says approximately $12.7 million of loans remained under modified terms and the MD&A also reports approximately $2.9 million still under modified terms. These descriptions are not clearly reconciled in the supplied filing text.
- After quarter-end, Colony announced an agreement to acquire SouthCrest Financial Group in a stock-and-cash transaction valued at approximately $84 million. Closing was expected by Q4 2021, subject to regulatory and shareholder approvals. Management expected the deal to be meaningfully accretive to fully diluted EPS in year one, excluding transaction costs; this is an expectation, not a guarantee.
- Key risks include real estate and geographic concentration, credit quality and collateral values, interest-rate and liquidity exposure, COVID-19 effects, PPP-related risks, and execution and integration risks from the proposed acquisition. Management said ordinary-course legal proceedings were not expected to have a material adverse effect; no material changes to previously disclosed risk factors were reported.
- The Board declared a quarterly dividend of $0.1025 per share after quarter-end, payable May 17, 2021 to holders of record May 3, 2021.
Important facts for investors to verify
- Reconcile the reported $12.7 million and $2.9 million figures for COVID-related modified loans and confirm current deferral status and credit performance.
- Track nonaccrual loans, criticized and classified loans, hotel and other real estate exposures, and the adequacy of the allowance as pandemic support and loan modifications evolve.
- Assess whether mortgage and SBA fee income remain sustainable, and monitor the effect of higher operating costs and lower net interest margin on earnings.
- Review the SouthCrest transaction’s approvals, final consideration, integration costs, dilution and realization of projected earnings benefits.
- Monitor deposit growth and mix, PPP-related repayments, securities valuation and liquidity, and regulatory capital after any acquisition or economic deterioration.