Colony Bankcorp, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; balance-sheet comparisons are with December 31, 2019. Unless otherwise stated, financial amounts are in millions of dollars. The company is a Georgia bank holding company serving consumers and small- and medium-sized businesses, primarily in Georgia. Financial statements are unaudited except the December 31, 2019 balance sheet.
Financial results and condition
- Profitability: Net interest income was $12.7 million, up 22.7% from $10.4 million in Q1 2019. Net interest margin increased to 3.63% from 3.46%. Net income fell to $1.6 million from $2.8 million; diluted EPS was $0.17 versus $0.34.
- Revenue and expenses: The income statement reports noninterest income of $4.6 million, compared with $2.3 million. GAAP noninterest expense was $13.4 million, compared with $9.0 million. The increase in expenses included higher salaries and benefits, growth-related costs, and acquisition-related expenses.
- Credit costs and asset quality: Provision for loan losses rose to $2.0 million from $0.1 million. The allowance was $8.4 million, or 0.85% of loans, versus $6.9 million, or 0.71%, at year-end. Net charge-offs were $0.4 million. Nonperforming assets were $11.0 million, or 0.73% of assets; nonaccrual loans were $10.1 million, with no loans 90 days past due and still accruing.
- Balance sheet: Assets were $1.510 billion, loans $989.0 million, deposits $1.293 billion, and shareholders’ equity $136.1 million. Loans increased $20.2 million from year-end; deposits and total assets were nearly unchanged. About 86% of loans were secured by real estate.
- Cash flow: Operating activities provided $3.3 million and investing activities provided $0.5 million; financing activities used $12.1 million. Cash and cash equivalents declined $8.3 million to $95.8 million.
- Debt and liquidity: Other borrowings were $51.1 million, including $36.5 million of FHLB advances; subordinated debentures were $24.2 million. The company reported $341.4 million of additional FHLB borrowing availability, plus $55.0 million of unused federal funds lines. The filing says additional collateral may be required to access the full FHLB availability.
- Capital: Consolidated total risk-based capital was 13.47%, CET1 was 10.47%, and the leverage ratio was 9.06%. Colony Bank reported 13.98%, 13.19%, and 9.46%, respectively, and was classified as well-capitalized.
Changes and management commentary
- Higher average loan balances—reflecting organic growth and the 2019 LBC Bancshares and PFB Mortgage acquisitions—were the main driver of increased net interest income. Management also cited lower deposit costs.
- Mortgage fee income rose substantially with expanded mortgage operations and stronger rate-lock and closing activity amid falling interest rates. SBA loan-sale gains and securities-sale gains also contributed to higher noninterest income.
- Management increased qualitative credit-loss assumptions in response to COVID-19-related business closures, job losses, and economic uncertainty. It warned that further provisions may be needed; the ultimate effect on borrowers and collections was unknown.
- As of May 7, 2020, 918 non-SBA commercial customers with $182.7 million in outstanding loans had been approved for payment deferrals. As of May 13, the company had closed or approved more than 1,650 PPP loans exceeding $140 million; associated fees were estimated at $5.4 million and are to be deferred and recognized over the loans’ lives.
- The company reported $45.4 million in hotel and restaurant loans at March 31, including $44.0 million in hotel loans and $0.4 million in restaurant loans among the approved non-SBA deferrals reported as of May 7. COVID-19 effects were described as uncertain, with hospitality, retail, restaurant, and energy among the exposed industries.
- No full-year earnings or other quantitative guidance was provided. The board declared a $0.10-per-share dividend on April 22, payable May 22, 2020. The company said ordinary-course legal proceedings were not expected to have a material adverse effect.
Risks, contingencies, and unusual items
- COVID-19 may increase borrower distress, credit losses, collateral-value declines, liquidity needs, operational disruption, and cybersecurity exposure. PPP participation carries potential litigation and SBA-guaranty risks if loan eligibility, origination, funding, or servicing is challenged.
- Interest rates were cut by 150 basis points during March. Management identified the possibility that prolonged low rates could pressure net interest income and margins; the filing also discusses risks from market volatility and possible negative rates.
- Loan commitments were $147.4 million and letters of credit $2.6 million at quarter-end. These are contractual off-balance-sheet exposures, not necessarily expected funding requirements.
- Available-for-sale securities had a $4.9 million after-tax unrealized gain recorded in other comprehensive income, increasing reported equity; the company also recognized a $0.3 million gain on securities sales.
- Management stated that disclosure controls were effective and that no material change in internal control over financial reporting occurred during the quarter.
Important facts for investors to verify
- Track subsequent loan deferrals, PPP balances and fee recognition, borrower performance, and any SBA-guaranty or litigation developments.
- Assess whether the allowance for loan losses remains adequate as COVID-19 effects emerge, particularly given the real-estate concentration and exposures to affected industries.
- Monitor net interest margin, deposit costs, funding needs, FHLB collateral availability, and regulatory capital under prolonged low-rate or recessionary conditions.
- Reconcile MD&A figures with the financial statements: the filing contains differing reported totals for noninterest income and expense in some MD&A passages and tables. The income statement reports $4.561 million and $13.378 million, respectively.