Colony Bankcorp, Inc. — Q1 2024 Form 10-Q
Business context and reporting period. This unaudited filing covers the three months ended March 31, 2024, with balance-sheet comparisons to December 31, 2023. Colony Bankcorp is a Georgia-based bank holding company serving consumers and businesses primarily in Georgia, Alabama and Florida through banking, mortgage and government-guaranteed lending businesses. Dollar amounts below are in millions unless stated otherwise.
Financial results and position
- Profit: Net income was $5.33 million, or $0.30 per diluted share, versus $5.04 million, or $0.29, in Q1 2023. Income before taxes was $6.74 million versus $6.16 million.
- Interest income and margin: Net interest income was $18.65 million, down 9.3% from $20.57 million. On a taxable-equivalent basis, it was $18.83 million versus $20.72 million. Net interest margin fell to 2.69% from 3.08%; the reported average cost of interest-bearing liabilities rose to 2.58% from 1.47%, as deposit and borrowing costs outpaced asset-yield gains.
- Other income and expenses: Noninterest income increased 23.9% to $9.49 million, led by SBA loan-sale gains ($2.05 million, up $0.99 million) and higher deposit service charges. It included a $0.56 million securities-sale loss. Noninterest expense declined 3.6% to $20.40 million, primarily reflecting lower staffing and data-processing costs. The effective tax rate was 20.9%, versus 18.2%.
- Credit costs: Provision for credit losses was $1.00 million, including $0.95 million for loans. Net charge-offs were $0.66 million, versus $0.24 million a year earlier. The loan allowance was $18.66 million, or 1.00% of loans, versus $18.37 million, or 0.98%, at year-end.
- Cash flow: Operating activities provided $5.03 million, compared with $11.39 million in Q1 2023. Investing activities provided $50.90 million, versus $58.22 million used, while financing activities used $44.58 million, versus $48.13 million provided. Cash and cash equivalents ended the quarter at $94.67 million, up from $83.32 million at year-end.
- Balance sheet and funding: Total assets were $3.02 billion, down from $3.05 billion. Net loans were $1.84 billion, down from $1.87 billion; deposits were $2.52 billion, down $22.0 million. Customer deposits increased $12.5 million, while overall deposits declined primarily due to wholesale deposit payoffs. Borrowings totaled $217.97 million, including $155.0 million of FHLB advances.
- Capital and liquidity: Stockholders’ equity was $259.9 million. The company reported CET1 and total capital ratios of 11.90% and 15.79%, respectively, and said the company and bank remained well-capitalized. Management reported approximately $1.3 billion of available funding sources, including $605.9 million of additional FHLB availability and $98.3 million of discount-window capacity; neither facility had an outstanding balance at quarter-end.
Material changes versus comparable periods
- Net income increased modestly year over year despite lower net interest income and a 39-basis-point decline in net interest margin. Management attributed the improvement mainly to stronger fee income and ongoing expense reductions.
- Loan-sale gains from the small-business specialty lending division rose substantially; management said first-quarter production and sales reached the division’s highest level in five quarters.
- Asset quality improved versus year-end: nonperforming assets declined to $6.99 million, or 0.23% of assets, from $10.66 million, or 0.35%. Nonaccrual loans were $6.43 million, down from $9.84 million.
- Gross loans declined 1.3% from year-end. Real estate-secured loans represented approximately 84% of the portfolio; commercial real estate was approximately 64.9% of loans.
- Estimated uninsured deposits rose to 30.82% of total Bank deposits from 30.22%; the company’s adjusted uninsured-deposit estimate was 18.04%. Brokered deposits declined to $59.0 million from $93.6 million.
Outlook, risks and unusual items
- Outlook: The filing provides no numerical earnings or margin guidance. Management expects stable economic and unemployment conditions in its markets and a return of delinquencies toward more normalized levels over the next two years. It cautions that results depend on interest rates, deposit costs, loan demand, credit quality and competition.
- Key risks: Interest-rate and funding-cost pressure; real-estate and geographic loan concentrations; borrower and collateral deterioration; deposit competition and liquidity; and economic weakness, inflation or recession. The company also identifies operational, cybersecurity, regulatory and third-party risks.
- Securities and rates: Available-for-sale and held-to-maturity securities had combined gross unrealized losses of approximately $96.8 million at quarter-end, largely attributed by management to higher market rates rather than credit deterioration. The company recorded a $0.56 million loss on securities sales. Management said it did not intend, and was not likely to be required, to sell the securities in unrealized-loss positions before recovery or maturity. Interest-rate sensitivity analysis estimated net interest income increases of 2.67% under a 200-basis-point rate increase and 0.24% under a 100-basis-point decrease at March 31, 2024.
- Other items: The board extended the $12 million share-repurchase authorization through year-end 2024; $11.5 million remained available and there were no Q1 repurchases. A quarterly dividend of $0.1125 per share was declared for payment May 22, 2024. Management said pending ordinary-course legal proceedings were not expected to have a material adverse effect. Disclosure controls were reported effective, with no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether deposit pricing and funding costs stabilize enough to arrest further net-interest-margin compression.
- Credit trends in the concentrated real-estate portfolio, including charge-offs, criticized loans, nonaccruals and allowance adequacy.
- Deposit stability and the availability and terms of contingent funding, particularly given uninsured deposits and securities pledged as collateral.
- How much earnings growth depends on SBA loan-sale gains, other fee income and cost reductions, and whether those sources are sustainable.
- The liquidity and capital implications of the securities portfolio’s unrealized losses, and any material change in management’s ability or intent to hold securities through recovery or maturity.