Colony Bankcorp, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; comparisons are primarily with 2019. Colony is a Georgia-based bank holding company operating through Colony Bank, with 28 banking offices. The audited financial statements received an unqualified opinion. The auditor identified the allowance for loan losses as a critical audit matter.
Financial performance
| Metric | 2020 | 2019 |
|---|---|---|
| Total assets, year-end | $1.764 billion | $1.515 billion |
| Gross loans, year-end | $1.060 billion | $968.8 million |
| Deposits, year-end | $1.445 billion | $1.294 billion |
| Net interest income | $55.2 million | $47.8 million |
| Noninterest income | $24.2 million | $14.0 million |
| Net income | $11.8 million | $10.2 million |
| Diluted earnings per share | $1.24 | $1.12 |
| Net interest margin | 3.50% | 3.61% |
- Net income rose about 16%; net interest income increased about 15%. Noninterest income grew 73%, led by mortgage fees, SBA loan-sale gains and interchange fees.
- Provision for loan losses increased to $6.6 million from $1.1 million, primarily reflecting COVID-19 uncertainty and higher qualitative reserves. Net charge-offs were $1.3 million, down from $1.5 million.
- Noninterest expense rose 21% to $58.3 million, including higher salaries and technology costs, a $925,000 FHLB prepayment penalty and a $582,000 building writedown. The company also recorded a $1.026 million gain on the Thomaston branch sale.
- Management’s non-GAAP adjusted diluted EPS was $1.28, versus $1.35 in 2019. Adjustments excluded acquisition-related costs, the Thomaston sale gain, the building writedown and related tax effects.
Cash flow, debt and liquidity
- Cash and cash equivalents were $183.5 million at year-end, up from $104.1 million. Cash flow was $(19.1) million from operations, $(130.3) million from investing and $228.8 million from financing; the financing inflow included deposit growth and PPP liquidity-facility funding.
- Total borrowings were $167.1 million, including $106.8 million outstanding under the Federal Reserve’s Paycheck Protection Program Liquidity Facility (PPPLF). FHLB advances were $22.5 million, down from $47.0 million; other borrowed money was $37.8 million.
- Loans-to-deposits was 73.3%, compared with 74.9%. Management said funding sources were adequate; reported additional FHLB borrowing availability was $416.1 million.
- Year-end shareholders’ equity was $144.5 million, compared with $130.5 million. Consolidated regulatory ratios included a 10.62% common equity Tier 1 ratio, 12.71% Tier 1 risk-based ratio and 8.49% Tier 1 leverage ratio. The Bank exceeded applicable well-capitalized standards.
Material changes and notable items
- Average earning assets increased, supported by loan growth, PPP lending and the Homebuilder Finance portfolio acquired in February 2020. PPP loans were $101.1 million at year-end; the company reported 1,630 PPP loans totaling more than $137.8 million closed or approved during 2020. Associated fees of approximately $2.8 million were deferred and are recognized over the loans’ lives.
- Average deposit growth reflected stimulus funds, PPP proceeds retained by business customers and increased customer savings. Average deposit cost declined 43 basis points to 0.40%, helping offset lower asset yields; the net interest margin nevertheless fell 11 basis points.
- Allowance for loan losses rose to $12.1 million, or 1.14% of loans, from $6.9 million, or 0.71%. Nonperforming assets declined to $10.1 million, or 0.58% of assets, from $11.1 million, or 0.74%. The filing notes that COVID-related deferrals were not treated as past due or nonaccrual when eligible.
- Colony completed the sale of its Thomaston branch on December 30, transferring about $40 million of deposits and $3 million of performing loans for a 3% deposit premium. It announced five branch closures, representing 18% of the branch network, targeted for completion by April 30, 2021.
- Quarterly dividends increased to $0.10 per share from $0.075; total cash dividends paid were $3.8 million. The filing provides no quantified earnings or revenue guidance.
Outlook, risks and contingencies
Management described the duration and economic effects of COVID-19 as uncertain and said additional credit-loss provisions could be needed. Key exposures include Georgia-focused lending, real-estate concentrations (77.8% of loans were secured by real estate), commercial real estate and construction lending, and pandemic-sensitive sectors. Hotels represented $62.7 million, or 5.2% of loans; management also identified restaurant, retail, healthcare and energy exposure. Low interest rates may pressure asset yields and net interest income, although the company’s year-end model projected higher net interest income under rising-rate scenarios. Other risks include borrower repayment and collateral values, deposit funding, cybersecurity and operational disruptions, regulatory requirements, and the transition away from LIBOR. CECL adoption was scheduled for fiscal years beginning after December 15, 2022.
One commercial borrower with $1.9 million outstanding remained under a COVID-related payment deferral at year-end. Management reported no material pending legal proceedings and no material adverse effect expected from ordinary-course legal matters. The filing does not provide a clear quantified forecast for future operating results.
Important facts for investors to verify
- Track subsequent credit quality, especially hotel and other pandemic-sensitive exposures, payment deferrals, criticized loans and the adequacy of the allowance.
- Assess whether PPP fee recognition, loan forgiveness and PPPLF repayment affect future net interest income, liquidity and reported loan growth.
- Monitor margin performance and deposit pricing as rates and customer deposit balances change.
- Evaluate whether branch consolidation and the Thomaston sale deliver expected cost and funding benefits, including any associated one-time costs.
- Verify share-count disclosures: the cover page reports 9,489,783 shares outstanding as of March 22, 2021, while other filing sections report 9,498,783.