Colony Bankcorp, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020; balance-sheet comparisons are with December 31, 2019 unless noted. Colony is a Georgia-based bank holding company providing retail, commercial, mortgage and small-business lending services, primarily in Georgia.
Financial results and condition
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net interest income | $13.8 million | $12.7 million | $40.1 million | $34.9 million |
| Provision for loan losses | $1.1 million | $0.2 million | $5.3 million | $0.5 million |
| Noninterest income | $7.6 million | $4.0 million | $16.8 million | $10.4 million |
| Noninterest expense | $16.3 million | $13.4 million | $42.9 million | $35.4 million |
| Net income | $3.1 million | $2.5 million | $6.9 million | $7.5 million |
| Diluted EPS | $0.33 | $0.27 | $0.73 | $0.83 |
| Net interest margin | 3.34% | 3.62% | 3.46% | 3.57% |
At September 30, assets were $1.76 billion, gross loans $1.10 billion, deposits $1.42 billion, and shareholders’ equity $140.3 million. Cash and cash equivalents were $148.8 million, up from $104.1 million at year-end. Total deposits rose $122.7 million; noninterest-bearing deposits increased to $324.1 million from $232.6 million.
Borrowings totaled $195.0 million: $134.5 million under the Federal Reserve’s PPP Liquidity Facility (PPPLF), $22.5 million in FHLB advances, and $38.0 million in other borrowings. The Bank reported regulatory capital ratios above the stated “well-capitalized” thresholds, including a 13.35% CET1 risk-based ratio and 9.66% leverage ratio.
For the first nine months, operating cash flow was negative $29.2 million and investing cash flow was negative $155.1 million, principally reflecting loan growth and securities activity. Financing cash flow was positive $229.1 million, supported by deposit growth and PPPLF funding.
Changes and notable items
- Q3 net income increased year over year, but nine-month net income declined 7.2%, mainly because the loan-loss provision rose substantially and lower market rates pressured asset yields.
- Net interest income increased in both comparisons, supported by growth in earning assets and PPP loan fees; lower-yielding PPP balances contributed to margin compression. Deposit costs fell to 0.42% in Q3 from 1.06% a year earlier.
- Noninterest income grew, led by mortgage fees, SBA loan-sale gains, securities-sale gains and interchange fees. Nine-month mortgage fee income was $5.7 million versus $1.9 million; SBA loan-sale gains were $1.0 million, with no comparable 2019 activity.
- Noninterest expense increased 22.1% in Q3 and 21.3% for the nine-month period. Q3 included a $582,000 Thomaston branch building writedown and a $925,000 FHLB prepayment penalty. Salaries and benefits also increased, while acquisition-related expense declined.
- The allowance for loan losses rose to $11.0 million, or 1.00% of loans, from $6.9 million, or 0.71%, at year-end. Nine-month provision was $5.3 million; net charge-offs were $1.1 million versus $1.2 million a year earlier.
- Gross loans increased $132.8 million from year-end, primarily reflecting $137.8 million of PPP originations. Real estate secured approximately 75% of the portfolio; commercial real estate was 57.9% of loans. Hotel loans were $63.9 million, or 5.8% of the portfolio.
- Nonperforming assets were $11.8 million, or 0.67% of assets, versus $10.5 million, or 0.69%, at year-end. Nonaccrual loans were $9.9 million; there were no loans 90 days past due and still accruing. COVID-related loan modifications still under modified terms totaled approximately $12.6 million.
Outlook, risks and contingencies
The filing provides no specific earnings or financial guidance. Management said the duration of the pandemic-related downturn, recovery pace, further stimulus and effects on borrowers remain uncertain; future credit provisions, liquidity, capital and dividend capacity could be affected. Management considered the allowance adequate at quarter-end but cautioned that additional credit-loss provisions may be required.
Colony reported approximately 1,630 PPP loans totaling more than $137.8 million and about $5.5 million of related fees, which are deferred and recognized over the loans’ lives. It had $12.6 million in loans under COVID-related modified terms at quarter-end; qualifying short-term deferrals were not treated as TDRs or reported past due/nonaccrual under the applicable relief. The filing identifies real-estate and Georgia-market concentration, interest-rate, credit, liquidity, operational and regulatory risks. Management said pending ordinary-course legal matters were not expected to have a material adverse effect. Disclosure controls were judged effective, with no material change in internal control reported.
After quarter-end, the Board declared a $0.10 per-share dividend, payable November 13, 2020. Management also noted that the bank subsidiary’s ability to pay dividends to the parent is subject to regulatory limits.
Important facts for investors to verify
- Whether the elevated allowance adequately reflects COVID-19 credit risk, particularly hotel, commercial real estate and other affected borrowers, and how deferred loans perform when relief ends.
- How much loan growth and deposit growth are attributable to PPP and pandemic-related liquidity, and the effects of PPP fee recognition and PPPLF repayment/maturities.
- Whether mortgage, SBA and securities-sale income can be sustained, and whether higher operating costs and the unusual writedown and FHLB penalty recur.
- How the compressed net interest margin, interest-rate sensitivity and funding mix—including $76.0 million of brokered deposits—affect future earnings and liquidity.
- Reconcile selected disclosures against the full filing: the fair-value table appears to reverse the carrying amounts for PPPLF and FHLB advances, and some narrative year-over-year comparisons contain apparent wording or period-reference errors.