Colony Bankcorp, Inc. today reported net income of $2.5 million or $0.27 per diluted share for the third quarter of 2019 compared with $2.7 million or $0.32 per diluted share for the same quarter last year. For the nine months ended September 30, 2019, net income was $7.5 million or $0.83 per diluted share compared with $9.0 million or $1.04 per diluted share for the same period in the prior year.

Results for the third quarter and nine months ended September 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 third quarter and nine months ended September 30, 2019, would have been $3.2 million or $0.35 per diluted share and $9.3 million or $1.03 per diluted share, respectively, versus $2.9 million or $0.34 per diluted share and $9.1 million or $1.06 per diluted share, respectively, for the third quarter and nine months ended September 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 November 15, 2019, to shareholders of record as of the close of business on October 31, 2019.

Commenting on the announcement, Heath Fountain, President and Chief Executive Officer, said, “We are pleased to announce improved adjusted results both on a sequential quarter basis and compared with the same period last year.  These results reflect our efforts to improve our earning asset mix through organic loan growth and to grow our noninterest income through deposit account growth and our secondary market mortgage business.  We recruited three business development officers to the new Small Business Specialty Lending Group that we opened last quarter, and we are very optimistic about our loan pipeline. 

“Our business development initiatives have increased our loan volume and net interest income, both on a sequential quarterly basis as well as the nine-months year to date. This growth in net interest income was partially offset by acquisition-related expenses related to our purchases of LBC Bancshares, Inc. and PFB Mortgage, as well as increases in noninterest expense, primarily salaries and benefits, in connection with acquisitions. Further, I am happy to announce that we successfully completed the conversion of Calumet Bank’s core systems during the third quarter and anticipate a return to normalized technology expenses.

“We continue to see solid results from our initiatives to grow loan volume. Organic loan growth in the third quarter totaled $23.5 million, or 10.0% annualized, and are up $46.9 million, or 6.0% over the same period last year, excluding loans acquired through acquisitions. 

“Net interest margin increased seven basis points to 3.64% on both a sequential quarterly basis and compared with the year-earlier period. As the Federal Reserve Bank (FRB) lowered rates twice during the third quarter, the Company followed suit by lowering stated rates on most types of interest‑bearing deposit and certificates of deposit account types. However, as we believe we can opportunistically shift assets into loans, we anticipate margin improvement through loan volume growth.”

In closing, Fountain added, “While the competitive landscape remains intense, we continue to be optimistic about opportunities to continue the Company’s legacy of growth and performance. Our Board is confident with our operational structure and strategic planning as evidenced by the higher quarterly dividend set in January 2019. We look forward to the remainder of the year with enthusiasm based on our strong credit metrics, a strong loan production pipeline and the opportunities we see to continue to reward our shareholders.”

Capital
Colony continues to maintain a strong capital position, with ratios that exceed regulatory minimums required to be classified as “well-capitalized.”  At September 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 8.98%, 12.54%, 13.16% and 10.31%, respectively, compared with 10.45%, 15.02%, 15.88% and 12.19%, respectively, at September 30, 2018.

Net Interest Margin
During the third quarter of 2019, the Company reported net interest income of $12.6 million compared with $10.1 million for the comparable 2018 quarter. For the nine months ended September 30, 2019, net interest income was $34.8 million compared with $30.4 million for the comparable 2018 period. Net interest margin for the third quarter of 2019 was 3.64%, up seven basis points on both a sequential quarter basis and compared with the year-earlier quarter. Net interest margin for the nine months ended September 30, 2019, was flat at 3.56% compared with the first nine months of 2018. Net interest margin, excluding purchase accounting from the acquisition of LBC Bancshares, Inc., was 3.51%, up two basis points on a sequential quarter basis.

Asset Quality
Asset quality remained solid with continued improvement from a year ago. Substandard assets, which include non-performing assets, totaled $20.9 million at September 30, 2019, compared with $23.8 million at September 30, 2018. Substandard assets adjusted for SBA guarantees to tier one capital plus loan loss reserve ratio was 12.86% and 17.00% at September 30, 2019 and September 30, 2018, respectively. Non‑performing assets increased to $10.9 million, or 1.14% of total loans and OREO, from $10.3 million or 1.32% at September 30, 2018. OREO totaled $776 thousand at September 30, 2019, reflecting a 64.3% reduction from $2.2 million at September 30, 2018.

In the third quarter of 2019, net loan charge-offs were $403 thousand or 0.05% of average loans compared with net loan charge‑offs of $65 thousand or 0.01% of average loans in the third quarter of 2018, while net loan charge-offs for the first nine months of 2019 were $1.2 million or 0.14% of average loans compared with $484 thousand or 0.06% of average loans for the same period in 2018. The loan loss reserve was $6.6 million or 0.69% of total loans on September 30, 2019, compared with $7.2 million or 0.92% of total loans at September 30, 2018. Loan loss reserve methodology resulted in a $214 thousand loan loss provision for the three months ended September 30, 2019, compared with $61 thousand for the comparable 2018 period and a $524 thousand loan loss provision for the first nine months of 2019 compared with $131 thousand for the same comparable period in 2018.

Noninterest Income
Total noninterest income increased 44.81% to $10.4 million for the nine months ended September 30, 2019, from $7.2 million in the comparable 2018 period. Gain on the sale of OREO property for the year increased $828 thousand and secondary mortgage fee income increased $1.4 million.

Noninterest Expense
Total noninterest expense increased 35.03% to $35.4 million for the nine months ended September 30, 2019, from $26.2 million in the comparable 2018 period. Salaries and employee benefit expenses increased 25.39%, occupancy expense increased 12.41% and other noninterest expense increased 61.49% from the comparable 2018 period. The efficiency ratio increased to 78.19% for the nine months ended September 30, 2019, from 69.90% in the comparable 2018 period. The increase is attributable to an increase in salary and benefits of $2.3 million connected with the Calumet merger and additional headcount with Colony Bank Mortgage, or 60.2% of the overall salary and benefit increase. Also, acquisition expenses increased noninterest expense by $2.9 million or 31.78% of the overall other noninterest expense increase. Accounting for non‑GAAP items disclosed later in this release, the adjusted efficiency ratio (a non‑GAAP financial measure) would have been 72.47% and 69.16% for the first nine months ended September 30, 2019 and 2018, respectively. See the unaudited reconciliation of non-GAAP measures later in this release.