Colony Bankcorp, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. The Georgia-based bank holding company provides retail, commercial, mortgage and small-business lending services, primarily in Georgia. This unaudited filing covers the quarter and six months ended June 30, 2022; balance-sheet comparisons are with December 31, 2021. Results include the effects of the 2021 SouthCrest acquisition.
Financial results and condition
Dollars in millions, except per-share data and percentages.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net interest income | $19.2 | $15.1 | $38.4 | $29.3 |
| Net interest margin, fully taxable equivalent | 3.15% | 3.68% | 3.15% | 3.57% |
| Provision for loan losses | $1.1 | $0.0 | $1.2 | $0.5 |
| Noninterest income | $10.1 | $7.8 | $19.2 | $16.4 |
| Noninterest expense | $24.5 | $17.5 | $46.3 | $33.2 |
| Net income | $3.4 | $4.0 | $8.7 | $8.9 |
| Diluted earnings per share | $0.19 | $0.42 | $0.52 | $0.94 |
- Drivers and changes: Higher loan and securities volumes helped lift net interest income, but margin narrowed as loan yields fell and borrowing costs rose. Noninterest income grew, led by deposit service charges, SBA loan-sale gains and interchange fees; mortgage fees declined as rising rates slowed demand. Expense growth, principally salaries and benefits, technology and other costs, outpaced revenue growth. Management attributed much of the higher staffing and operating costs to SouthCrest and other 2021 acquisitions. Q2 included $751,000 of interest expense from the recognized mark on two acquired FHLB advances called early.
- Per-share comparison: Net income declined about 15% in Q2 and 2% for the half year, while diluted EPS fell more sharply. Weighted-average shares increased to 17.6 million in Q2 2022 from 9.5 million a year earlier, following the February public offering.
- Balance sheet at June 30: Assets were $2.729 billion, versus $2.692 billion at year-end. Gross loans were $1.453 billion, up $114.8 million (8.6%); deposits were $2.332 billion, down $43.1 million. Noninterest-bearing deposits were $573.0 million.
- Credit quality: Allowance for loan losses was $14.0 million, or 0.96% of loans, versus $12.9 million and 0.96% at year-end. First-half net charge-offs were $97,000, compared with net recoveries of $244,000 in the prior-year period. Nonperforming assets were $5.2 million, or 0.19% of assets, down from $5.8 million and 0.21% at year-end. About 71% of loans were commercial real estate and approximately 86% were secured by real estate.
- Cash flow and liquidity: First-half operating cash flow was $10.2 million, versus $34.3 million a year earlier; investing activities used $206.8 million, largely reflecting securities purchases and loan growth. Financing provided $75.8 million. Cash and cash equivalents fell to $76.5 million from $197.2 million at year-end, which management primarily attributed to funding loan growth. FHLB borrowing availability was $605.6 million; federal funds lines totaled $64.5 million, of which $23.8 million was drawn.
- Debt and capital: Total borrowings were $152.1 million, up from $88.4 million at year-end. The company issued $40.0 million principal amount of 5.25% fixed-to-floating subordinated notes due 2032. Its February share offering raised approximately $63.5 million gross and $59.3 million net, used to repay existing holding-company debt and for general purposes. The Bank remained “well-capitalized”; its total risk-based capital ratio was 12.41% and leverage ratio 8.10%.
- Market-value change: Accumulated other comprehensive loss widened to $54.9 million from $6.2 million at year-end, substantially reflecting unrealized securities losses as market interest rates rose. The company transferred approximately $320.1 million of securities from available-for-sale to held-to-maturity on January 1; the transfer-date unrealized loss was approximately $10.4 million pretax.
Outlook, risks and unusual items
- No specific earnings or financial guidance is provided. Management described its Georgia markets as having a generally solid, positive outlook, while noting inflation, higher interest rates, worker shortages and supply-chain disruption could weigh on growth and borrowers.
- Key stated exposures include real-estate and geographic loan concentrations, borrower credit quality, interest-rate and funding-cost changes, deposit fluctuations, liquidity, competition, acquisition integration, and operational, cyber and regulatory risks. Management cautions that interim results are not necessarily indicative of full-year results.
- Management considered the securities’ unrealized losses primarily rate-driven and stated it had the intent and ability to hold the securities as appropriate; it did not consider the declines other-than-temporary. This judgment and the securities’ liquidity and valuation merit attention.
- Loan commitments were $389.5 million and letters of credit $3.6 million at quarter-end; contractual amounts do not necessarily represent future cash needs. Management said pending ordinary-course legal proceedings were not expected to have a material adverse effect. No material changes to previously disclosed risk factors were reported.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. A $0.1075-per-share quarterly dividend was declared after quarter-end.
Important facts for investors to verify
- Whether loan growth, credit grades, real-estate concentrations and the allowance remain appropriate as economic conditions and borrower performance change.
- Whether deposit trends, available borrowing capacity and securities liquidity adequately support funding needs; monitor the decline in cash and increase in wholesale borrowings.
- How rising rates affect asset yields, deposit costs, net interest margin and the fair value of securities, including the held-to-maturity portfolio.
- Whether acquisition-related staffing, technology and other operating costs produce expected benefits, and whether mortgage and SBA fee income trends persist.
- The impact of the larger share count and subordinated debt on future per-share earnings, funding costs and capital flexibility.