Colony Bankcorp Reports Second Quarter Results
Friday, July 19th, 2019
Colony Bankcorp, Inc. reported net income of $2.1 million or $0.23 per diluted share for the second quarter of 2019 compared with $3.1 million or $0.36 per diluted share for the same quarter last year. For the six months ended June 30, 2019, net income was $4.9 million or $0.56 per diluted share compared with $6.3 million or $0.72 per diluted share for the same period in the prior year.
Results for the second quarter and six months ended June 30, 2019, included charges for acquisition-related expenses as well as gains on other real estate owned ("OREO") property held for sale. Excluding these and other less significant items in both periods, adjusted net income (a non-GAAP financial measure) for the second quarter and six months ended June 30, 2019, would have been $3.1 million or $0.34 per diluted share and $6.0 million or $0.69 per diluted share, respectively, versus $3.1 million or $0.36 per diluted share and $6.2 million or $0.72 per diluted share, respectively, for the second quarter and six months ended June 30, 2018. See the unaudited reconciliation of non-GAAP measures later in this release.
Separately, the Company also announced that the Board of Directors has declared a quarterly cash dividend of $0.075 per share, to be paid on its common stock on August 15, 2019, to shareholders of record as of the close of business on July 31, 2019. This continues the higher rate set in January 2019, an increase of 50%, which reflects the Board’s ongoing confidence in the Company’s strong earnings and capital position and the Company’s prospects for continued attractive growth.
Commenting on the announcement, Heath Fountain, President and Chief Executive Officer, said, “While our year-over-year net income for the second quarter of 2019 declined, these results do not demonstrate the work we have put in place for long-term growth and profitability. We have realigned our regional loan production structure and added new bankers to the team, which is reflected in our loan volume, and we recorded higher net interest income, on a comparable period basis. This growth was partially offset by an increase in noninterest expense, which included several charges of a nonoperating nature – acquisition-related expenses in the second quarter related to our purchases of LBC Bancshares, Inc. and PFB Mortgage and an impairment loss on assets held for sale – that obscure the stronger underlying organic growth. Our mortgage services division, which had losses primarily due to purchase accounting adjustments, lost $203 thousand and $183 thousand for the second quarter and year to date, respectively, versus income of $21 thousand and $51 thousand for last year’s second quarter and year to date, respectively, will be strengthened as a result of the PFB Mortgage acquisition.
“We have begun to see solid results from these initiatives to grow our loan volume. On an organic basis, excluding loans from acquisitions, core loans increased 3.8% over the same period last year and increased 4.3% from the prior quarter ending March 31, 2019. Further, we continue to expand our efforts to increase loan volume with the recent announcement of the start up of a Small Business Specialty Lending Group and the hiring of two veteran bankers to lead the group. This new unit will expand our participation in government guaranteed loans and expand our footprint into new markets, providing us with the opportunity to service new clients and drive additional fee income.
“We continue to actively refine our management to strengthen and grow our organization,” continued Fountain. “Tracie Youngblood recently joined Colony as Chief Financial Officer, succeeding Terry L. Hester, who is retiring on December 31, 2019, after 42 years with the Company. I wish to thank Terry for all his tireless years of service and look forward to working with Tracie. Also, we realigned the roles of several of our regional executives and appointed M. Eddie Hoyle to the newly created position of Chief Banking Officer. We also promoted Edward Lee Bagwell to Executive Vice President, Chief Risk Officer and General Counsel, J. Stan Cook to Executive Vice President and Chief Credit Officer and hired Lance Whitley as Chief People Officer. These promotions and additions underscore our ongoing efforts to capitalize on our deep management expertise as well as recruit the best people to our growing organization. We look forward to the remainder of the year with a sense of confidence and optimism, supported by attractive business fundamentals, a strong loan production pipeline and the opportunity to welcome new customers.”
Colony continues to maintain a strong capital position, with ratios that exceed regulatory minimums required to be classified as “well-capitalized.” At June 30, 2019, the Company’s tier one leverage ratio, tier one ratio, total risk-based capital ratio and common equity tier one capital ratio were 9.34%, 12.70%, 13.37% and 10.41%, respectively, compared with 10.17%, 14.87%, 15.74% and 12.02%, respectively, at June 30, 2018.
Net Interest Margin
During the second quarter of 2019, the Company reported net interest income of $11.8 million compared with $10.2 million for the comparable 2018 quarter. For the six months ended June 30, 2019, net interest income was $22.2 million compared with $20.3 million for the comparable 2018 period. Net interest margin for the second quarter of 2019 was 3.57%, up 11 basis points on a sequential quarter basis and flat compared with the year-earlier quarter. Net interest margin for the six months ended June 30, 2019, was 3.52%, reflecting a decrease of four basis points from 3.56% for the first half of 2018. Net interest margin, excluding purchase accounting from the acquisition of LBC Bancshares, Inc. was 3.51%, up five basis points on a sequential quarter basis.
Asset quality remained solid with continued improvement from a year ago. Substandard assets, which include non-performing assets, totaled $24.6 million at June 30, 2019, compared with $24.4 million at June 30, 2018. Substandard assets adjusted for SBA guarantees to tier one capital plus loan loss reserve ratio was 15.36% and 17.58% at June 30, 2019 and June 30, 2018, respectively. Non-performing assets increased to $11.6 million or 1.23% of total loans and OREO from $9.2 million or 1.20% at June 30, 2018. OREO totaled $987 thousand at June 30, 2019, reflecting a 72.50% reduction from $3.6 million at June 30, 2018.
In the second quarter of 2019, the company had net loan recoveries of $21 thousand compared with net loan charge-offs of $353 thousand or 0.05% of average loans in the second quarter of 2018, while net loan charge-offs for the first half of 2019 were $797 thousand or 0.10% of average loans compared with $419 thousand or 0.05% of average loans for 2018. The loan loss reserve was $6.8 million or 0.73% of total loans on June 30, 2019, compared with $7.2 million or 0.93% of total loans at June 30, 2018. Loan loss reserve methodology resulted in a $178 thousand loan loss provision for the three months ended June 30, 2019, compared with $44 thousand for the comparable 2018 period and a $310 thousand loan loss provision for the first half of 2019 compared with $70 thousand for the same comparable period in 2018.
Total noninterest income increased 33.12% to $6.3 million for the six months ended June 30, 2019, from $4.8 million in the comparable 2018 period. Gain on the sale of OREO property for the year increased $894 thousand and secondary mortgage fee income increased $356 thousand.
Total noninterest expense increased 28.61% to $22.0 million for the six months ended June 30, 2019, from $17.14 million in the comparable 2018 period. Salaries and employee benefit expenses increased 17.55%, occupancy expense increased 7.11% and other noninterest expense increased 58.15% from the 2018 comparable period. The efficiency ratio increased to 77.17% for the six months ended June 30, 2019, from 68.63% in the comparable 2018 period. The increase is attributable to an increase in salary and benefits of 1.0 million connected with the Calumet merger and additional headcount with Colony Bank Mortgage, or 56.29% of the overall salary and benefit increase. Also, acquisition expenses increased noninterest expense by $2.1 million or 70.21% of the overall other noninterest expense increase. Accounting for non-GAAP items disclosed later in this release, the adjusted efficiency ratio would have been 71.90% and 69.07%, respectively, for the comparable periods.