Colony Bankcorp Reports Second Quarter 2023 Results

Colony Bankcorp, Inc. (Nasdaq: CBAN) (“Colony” or the “Company”) today reported financial results for the second quarter of 2023. Financial highlights are shown below.

Financial Highlights:

• Net income increased to $5.3 million, or $0.30 per diluted share, for the second quarter of 2023, compared to $5.0 million, or $0.29 per diluted share, for the first quarter of 2023, and $3.4 million, or $0.19 per diluted share, for the second quarter of 2022.
• Operating net income increased to $5.7 million, or $0.33 of adjusted earnings per diluted share, for the second quarter of 2023, compared to $5.5 million, or $0.31 of adjusted earnings per diluted share, for the first quarter of 2023, and an increase from $5.2 million, or $0.30 of adjusted earnings per diluted share, for the second quarter of 2022. (See Reconciliation of Non-GAAP Measures).
• Continued controlling our noninterest expense through a reduction in force of 23 employees which decreases our fixed compensation expenses by $2.5 million per year going forward.
• Strong liquidity with available sources of funding of approximately $1.4 billion at June 30, 2023. No overnight borrowings utilized or Federal Reserve Bank Term Funding program used as of June 30, 2023.
• Estimated uninsured deposits of $817.8 million, or 30.73% of total Bank deposits at June 30, 2023. Adjusted uninsured deposit estimate (excluding deposits collateralized by public funds or internal accounts) of $489.9 million, or 18.41% of total Bank deposits at June 30, 2023.
• Provision for credit losses of $200,000 was recorded in second quarter of 2023 compared to $900,000 in first quarter of 2023, and $1.1 million in second quarter of 2022.
• Total loans were $1.84 billion at June 30, 2023, an increase of $39.0 million, or 2.17%, from the prior quarter.
• Total deposits were $2.63 billion and $2.52 billion at June 30, 2023 and March 31, 2023, respectively, an increase of $111.1 million.
• Mortgage production was $106.4 million, and mortgage sales totaled $66.4 million in the second quarter of 2023 compared to $62.0 million and $37.6 million, respectively, for the first quarter of 2023.
• Small Business Specialty Lending (“SBSL”) closed $26.0 million in Small Business Administration (“SBA”) loans and sold $11.1 million in SBA loans in the second quarter of 2023 compared to $19.6 million and $11.5 million, respectively, for the first quarter of 2023.

The Company also announced that on July 26, 2023, the Board of Directors declared a quarterly cash dividend of $0.11 per share, to be paid on its common stock on August 23, 2023, to shareholders of record as of the close of business on August 9, 2023. The Company had 17,567,276 shares of its common stock outstanding as of July 25, 2023.

“We are pleased to announce improved quarter over quarter earnings. Non-interest income increased $1.3 million primarily related to higher volume in our mortgage division during the home buying season. Non-interest expenses increased slightly, but are trending lower when excluding variable commission-based expenses and severance costs.”

“Despite the challenging environment for deposits, we saw strong growth in core deposits across our footprint during the quarter as Colony remains committed to building our long-term customer relationships. This growth enhanced our already robust liquidity position and is a testament to the proactivity of our team and the confidence our customers place in Colony Bank,” said Heath Fountain, Chief Executive Officer and Acting Chief Financial Officer.

“Net interest margin declined 32 basis points from the previous quarter. This reduction is a product of the interest rate environment and the pressure of cost of funds that is being experienced industry wide. We continue to remain focused on managing our funding costs effectively relative to our growth outlook. At the end of this quarter, we entered into $50 million of cash flow hedges on our wholesale funding that will help protect funding costs in future quarters.”

“Although we did see a slight increase in non-performing loans, asset quality remains high, especially in our commercial real estate portfolio where the number of nonperforming loans remains low. The provision for credit losses was $200,000 for the quarter which is related to lower loan growth of 2.27%, down from 3.6% in the prior quarter, and a portion of that loan growth being the funding of loan commitments that were previously reserved for under the Current Expected Credit Losses (CECL) methodology.”

Balance Sheet

• Total assets were $3.10 billion at June 30, 2023, an increase of $104.1 million from March 31, 2023.
• Total loans, including loans held for sale, were at $1.87 billion at June 30, 2023, an increase of $53.6 million from the quarter ended March 31, 2023.
• Total deposits were $2.63 billion and $2.52 billion at June 30, 2023 and March 31, 2023, respectively, an increase of $111.1 million. Time deposits increased $91.5 million and savings and money market deposits increased $46.7 million, which was partially offset by a decrease in interest bearing demand deposits of $30.4 million from March 31, 2023 to June 30, 2023.
• Total borrowings at June 30, 2023 totaled $218.4 million, a decrease of $10.0 million or, 4.4%, compared to March 31, 2023 related to decreases in Federal Home Loan Bank advances.

Capital

• Colony continues to maintain a strong capital position, with ratios that exceed regulatory minimums required to be considered as “well-capitalized.”
• Preliminary tier one leverage ratio, tier one capital ratio, total risk-based capital ratio and common equity tier one capital ratio were 8.85%, 12.22%, 14.86%, and 11.12%, respectively, at June 30, 2023.
• Colony repurchased 41,481 shares of its common stock during the quarter at a weighted average price of $9.78.

Second Quarter and June 30, 2023 Year to Date Results of Operations

• Net interest income, on a tax-equivalent basis, totaled $19.3 million for the second quarter ended June 30, 2023 and 2022. Net interest income, on a tax-equivalent basis, for the six months ended June 30, 2023 totaled $40.1 million, compared to $38.6 million for the six months ended June 30, 2022. Although there was no change overall for the comparable quarterly periods and only a moderate increase in year to date comparisons, increases can be seen in both income on interest earning assets offset by expenses on interest bearing liabilities due to the significant rise in interest rates period over period. Income on interest earning assets increased $9.6 million, to $30.9 million for the second quarter of 2023 and $17.8 million, to $59.4 million for the six month period ended June 30, 2023, each compared to the respective period in 2022. Expense on interest bearing liabilities increased $9.6 million, to $11.6 million for the second quarter of 2023 and $16.3 million, to $19.4 million for the six month period ended June 30, 2023, each compared to the respective period in 2022.
• Net interest margin for the second quarter of 2023 was 2.77% compared to 3.15% for the second quarter of 2022. Net interest margin was 2.92% for the six months ended June 30, 2023 compared to 3.15% for the six months ended June 30, 2022. The decrease for both comparisons is the result of an increase in deposit rates along with an increase in borrowings, offset by higher yielding investment securities, an increase in rates paid on deposits with the Federal Reserve and an increase in loan rates.
• Noninterest income totaled $9.0 million for the second quarter ended June 30, 2023, a decrease of $1.1 million, or 10.88%, compared to the same period in 2022. Noninterest income totaled $16.6 million for the six months ended June 30, 2023, a decrease of $2.6 million, or 13.46%, compared to the same period in 2022. These decreases were primarily attributable to decreases in mortgage fee income and SBSL loan sales.
• Noninterest expense totaled $21.4 million for the second quarter ended June 30, 2023, compared to $24.5 million for the same period in 2022. Noninterest expense totaled $42.6 million for the six months ended June 30, 2023, compared to $46.3 million for the same period in 2022. These decreases were a result of overall decreases in salaries and employee benefits related to lower commissions and bonus expenses as well as a decreases in data processing expense as a result of cost savings upon renewal of the core processing contract.

Asset Quality

• Nonperforming assets totaled $11.9 million and $7.8 million at June 30, 2023 and March 31, 2023, respectively, an increase of $4.1 million. This increase was primarily due to the repurchase of the government guaranteed portion of $2.3 million in nonperforming loans.
• Other real estate owned and repossessed assets totaled $792,000 at June 30, 2023 and $651,000 at March 31, 2023.
• Net loans charged-off were $200,000, or 0.04% of average loans for the second quarter of 2023, compared to net charge-offs of $237,000 or 0.05% for the first quarter of 2023.
• The credit loss reserve was $17.1 million, or 0.93% of total loans, at June 30, 2023, compared to $16.6 million, or 0.92% of total loans at March 31, 2023.

Earnings call information

The Company will host an earnings conference call at 9:00 a.m. ET on Thursday, July 27, 2023, to discuss the recent results and answer appropriate questions. The conference call can be accessed by dialing 1-888-259-6580 (or 1-416-764-8624 for international participants). The conference call access code is 03803040. A replay of the call will be available until Thursday, August 3, 2023. To listen to the replay, dial 1-877-674-7070 and enter the access code 803040#.

About Colony Bankcorp

Colony Bankcorp, Inc. is the bank holding company for Colony Bank. Founded in 1975 and headquartered in Fitzgerald, Georgia, Colony operates 38 locations throughout Georgia and is now serving Alabama. At Colony Bank, we offer a range of banking solutions for personal and business customers. In addition to traditional banking services, Colony provides specialized solutions including mortgage, government guaranteed lending, consumer insurance, wealth management and merchant services. Colony’s common stock is traded on the NASDAQ Global Market under the symbol “CBAN.” For more information, please visit www.colony.bank. You can also follow the Company on social media.

Forward-Looking Statements

Certain statements contained in this press release that are not statements of historical fact constitute “forward-looking statements” within the meaning of, and subject to the protections of, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition, certain statements may be contained in the Company’s future filings with the SEC, in press releases, and in oral and written statements made by or with the approval of the Company that are not statements of historical fact and constitute “forward-looking statements” within the meaning of, and subject to the protections of, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Examples of forward-looking statements include, but are not limited to: (i) projections and/or expectations of revenues, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statement of plans and objectives of Colony Bankcorp, Inc. or its management or Board of Directors, including those relating to products or services; (iii) statements of future economic performance; (iv) statements regarding growth strategy, capital management, liquidity and funding, and future profitability; and (v) statements of assumptions underlying such statements. Words such as “believes,” “anticipates,” “expects,” “intends,” “targeted” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve known and unknown risks and uncertainties. Factors that might cause such differences include, but are not limited to: the impact of current and economic conditions, particularly those affecting the financial services industry, including the effects of declines in the real estate market, high unemployment rates, inflationary pressures, elevated interest rates and slowdowns in economic growth, as well as the financial stress on borrowers as a result of the foregoing; potential impacts of the recent adverse developments in the banking industry highlighted by high-profile bank failures, including impacts on customer confidence, deposit outflows, liquidity and the regulatory response thereto; risks arising from media coverage of the banking industry; risks arising from perceived instability in the banking sector; the risks of changes in interest rates and their effects on the level, cost, and composition of, and competition for, deposits, loan demand and timing of payments, the values of loan collateral, securities, and interest sensitive assets and liabilities; the ability to attract new or retain existing deposits, to retain or grow loans or additional interest and fee income, or to control noninterest expense; the effect of pricing pressures on the Company’s net interest margin; the failure of assumptions underlying the establishment of reserves for possible credit losses, fair value for loans and other real estate owned; changes in real estate values; the Company’s ability to implement its various strategic and growth initiatives; increased competition in the financial services industry, particularly from regional and national institutions, as well as from fintech companies; economic conditions, either nationally or locally, in areas in which the Company conducts operations being less favorable than expected; changes in the prices, values and sales volumes of residential and commercial real estate; developments in our mortgage banking business, including loan modifications, general demand, and the effects of judicial or regulatory requirements or guidance; legislation or regulatory changes which adversely affect the ability of the consolidated Company to conduct business combinations or new operations; adverse results from current or future litigation, regulatory examinations or other legal and/or regulatory actions, including as a result of the Company’s participation in and execution of government programs; potential impact of the phase-out of the London Interbank Offered Rate (“LIBOR”) or other changes involving LIBOR; significant turbulence or a disruption in the capital or financial markets and the effect of a fall in the stock market prices on our investment securities; the effects of war or other conflicts including the impacts related to or resulting from Russia’s military action in Ukraine; risks related to the Company’s recently completed acquisitions, including that the anticipated benefits from the recently completed acquisitions are not realized in the time frame anticipated or at all as a result of changes in general economic and market conditions or other unexpected factors or events; the risks associated with the Company’s pursuit of future acquisitions; and general competitive, economic, political and market conditions or other unexpected factors or events. These and other factors, risks and uncertainties could cause the actual results, performance or achievements of the Company to be materially different from the future results, performance or achievements expressed or implied by such forward-looking statements. Many of these factors are beyond the Company’s ability to control or predict.

Forward-looking statements speak only as of the date on which such statements are made. These forward-looking statements are based upon information presently known to the Company’s management and are inherently subjective, uncertain and subject to change due to any number of risks and uncertainties, including, without limitation, the risks and other factors set forth in the Company’s filings with the Securities and Exchange Commission, the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, under the captions “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors,” and in the Company’s quarterly reports on Form 10-Q and current reports on Form 8-K. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events. Readers are cautioned not to place undue reliance on these forward-looking statements.

Explanation of Certain Unaudited Non-GAAP Financial Measures

The measures entitled operating noninterest income, operating noninterest expense, operating net income, adjusted earnings per diluted share, tangible book value per common share, tangible equity to tangible assets, operating efficiency ratio, operating net noninterest expense to average assets and pre-provision net revenue are not measures recognized under U.S. generally accepted accounting principles (GAAP) and therefore are considered non-GAAP financial measures. The most comparable GAAP measures are noninterest income, noninterest expense, net income, diluted earnings per share, book value per common share, total equity to total assets, efficiency ratio, net noninterest expense to average assets and net interest income before provision for credit losses, respectively. Operating noninterest income excludes gain on sale of bank premises. Operating noninterest expense excludes acquisition-related expenses and severance costs. Operating net income and operating efficiency ratio both exclude acquisition-related expenses, severance costs and FHLB mark from called borrowings from net income and efficiency ratio, respectively. Operating net noninterest expense to average assets ratio excludes from net noninterest expense, severance costs, acquisition-related expenses and gain on sale of bank premises. Acquisition-related expenses includes fees associated with acquisitions and vendor contract buyouts. Severance costs includes costs associated with termination and retirement of employees. Adjusted earnings per diluted share includes the adjustments to operating net income. Tangible book value per common share and tangible equity to tangible assets exclude goodwill and other intangibles from book value per common share and total equity to total assets, respectively. Pre-provision net revenue is calculated by adding noninterest income to net interest income before provision for credit losses, and subtracting noninterest expense.

Management uses these non-GAAP financial measures in its analysis of the Company's performance and believes these presentations provide useful supplemental information, and a clearer understanding of the Company's performance, and if not provided would be requested by the investor community. The Company believes the non-GAAP measures enhance investors' understanding of the Company's business and performance. These measures are also useful in understanding performance trends and facilitate comparisons with the performance of other financial institutions. The limitations associated with operating measures are the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might calculate these measures differently.

These disclosures should not be considered an alternative to GAAP. The computations of operating noninterest income, operating noninterest expense, operating net income, adjusted earnings per diluted share, tangible book value per common share, tangible equity to tangible assets, operating efficiency ratio, operating net noninterest expense to average assets and pre-provision net revenue and the reconciliation of these measures to net income, diluted earnings per share, book value per common share, total equity to total assets, efficiency ratio, and net interest income before provision for credit losses are set forth in the table below.