Colony Bankcorp, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are against December 31, 2021 unless noted. Colony Bankcorp is a Georgia-based bank holding company providing retail, commercial, mortgage and small-business lending services. Dollar amounts below are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise.
Financial performance and condition
| Metric | Q1 2022 / March 31, 2022 | Comparison |
|---|---|---|
| Net interest income | $19.2 million | $14.3 million in Q1 2021 |
| Net interest margin, taxable-equivalent | 3.13% | 3.50% in Q1 2021 |
| Noninterest income | $9.2 million | $8.6 million in Q1 2021 |
| Noninterest expense | $21.8 million | $15.8 million in Q1 2021 |
| Provision for loan losses | $50,000 | $500,000 in Q1 2021 |
| Net income / diluted EPS | $5.3 million / $0.34 | $4.9 million / $0.52 in Q1 2021 |
| Total assets | $2.687 billion | $2.692 billion at year-end |
| Loans, excluding loans held for sale | $1.354 billion | $1.338 billion at year-end |
| Total deposits | $2.351 billion | $2.375 billion at year-end |
| Cash and cash equivalents | $156.4 million | $197.2 million at year-end |
| Stockholders’ equity | $250.3 million | $217.7 million at year-end |
| Total borrowings | $75.9 million | $88.4 million at year-end |
Operating cash flow was $21.9 million, investing cash flow was negative $84.4 million, and financing cash flow was positive $21.6 million. Cash declined by $40.8 million during the quarter. The Bank’s March 31 capital ratios included a 12.48% CET1 risk-based ratio and an 8.16% leverage ratio; management said the Bank exceeded applicable well-capitalized requirements.
Material changes versus comparable periods
- Net interest income rose 34% year over year, mainly from higher loan and securities volumes, including growth associated with the SouthCrest acquisition. Net interest margin nevertheless declined, reflecting lower loan yields and higher borrowing yields, partly offset by lower deposit costs.
- Net income increased about 8% year over year, while diluted EPS fell from $0.52 to $0.34. The weighted-average share count increased to 15.9 million from 9.5 million, primarily reflecting the February 2022 stock offering.
- Noninterest expense increased 38% year over year, notably salaries and benefits, information technology and acquisition-related costs. Mortgage fee income declined 27% as rising rates slowed mortgage activity; service charges, interchange fees and SBA loan-sale gains increased.
- Deposits declined $23.8 million from year-end. Management attributed the decline to customers spending stimulus-related funds, PPP-related deposit runoff and changing customer spending and savings habits.
- On February 10, 2022, the company issued approximately 3.85 million shares for gross proceeds of about $63.5 million and net proceeds of about $59.3 million. Proceeds were used to repay the company’s term note and line of credit and for general corporate purposes.
Outlook, commentary, risks and unusual items
- The filing provides no specific earnings or financial guidance. Management said existing funding sources were adequate for liquidity needs.
- Net unrealized losses on available-for-sale securities reached $40.2 million at quarter-end, compared with $11.9 million at year-end, primarily due to rising market interest rates. The quarter recorded a $31.0 million after-tax securities-related other comprehensive loss.
- On January 1, 2022, the company transferred securities with approximately $320.1 million of carrying value from available-for-sale to held-to-maturity. Management cited its intent and ability to hold them to maturity and considered future liquidity needs and funding sources. The filing reports approximately $18.2 million of gross unrealized losses on the held-to-maturity portfolio at March 31.
- Credit quality weakened modestly: nonperforming assets rose to $6.5 million, or 0.24% of assets, from $5.8 million, or 0.21%, at year-end. Nonaccrual loans were $6.2 million; there were no loans 90 days past due and still accruing. The allowance was $12.9 million, or 0.95% of loans.
- Real-estate credit concentration is significant: approximately 87% of loans were secured by real estate, and commercial real estate represented 71.9% of total loans. Management identifies economic conditions, real estate values, interest-rate changes, liquidity, funding costs and acquisition integration among key risks.
- Off-balance-sheet commitments included $374.6 million of loan commitments and $5.0 million of letters of credit; contractual amounts do not necessarily represent future cash needs. Management said ordinary-course legal proceedings were not expected to have a material adverse effect.
- Management reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter. No material changes to previously disclosed risk factors were reported.
Most important facts for investors to verify
- Whether loan and deposit trends, net interest margin, and funding costs develop as interest rates change.
- Whether securities valuation changes, liquidity needs and the held-to-maturity classification affect capital, earnings or flexibility to sell securities.
- Whether elevated expense levels, including acquisition integration and technology costs, moderate and translate into improved operating efficiency.
- Whether nonperforming assets and real-estate credit concentrations remain manageable and the allowance remains adequate.
- How the SouthCrest acquisition and February share issuance affect future earnings per share and capital returns. The company declared a $0.1075-per-share dividend for payment in May 2022.