Colony Bankcorp, Inc. today reported net income of $1.6 million or $0.17 per diluted share for the first quarter of 2020 compared to $2.8 million or $0.34 per diluted share for the same period in 2019. The Company reported operating net income (a non‑GAAP financial measure) of $1.9 million or $0.17 per diluted share in the first quarter of 2020 versus $2.9 million or $0.34 per diluted share for the same period prior year. Operating net income excludes charges for acquisition-related expenses as well as gains on the sales of other real estate owned (“OREO”). See the reconciliation of non-GAAP financial measures included below.

Separately, the Company also announced that on April 22, 2020, the Board of Directors declared a quarterly cash dividend of $0.10 per share, to be paid on its common stock on May 22, 2020, to shareholders of record as of the close of business on May 8, 2020.

Commenting on the announcement, Heath Fountain, President and Chief Executive Officer, said, “Despite operating in a very difficult economic environment, which contributed to decreases in year-over-year and sequential-quarter net income and operating net income, we are pleased with the strong underlying fundamentals in our business. We are also pleased to report that the first quarter saw growth in mortgage banking income as well as revenue contribution for the first time from our Small Business Specialty Lending Division. Furthermore, during the quarter, we signed a definitive agreement to acquire Cadence Bank’s East Georgia Homebuilder Finance Loan Portfolio to expand our presence in the Savannah and Augusta markets, creating a “one-stop-shop” for homebuilders coupled with our mortgage business.

“The COVID-19 pandemic has caused severe disruptions to the global economy and the markets in which we operate. Our top concerns have shifted to servicing the immediate liquidity needs of our clients, ensuring the health and well-being of our team members, and supporting the communities in which we live and serve. We are actively participating in the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) enacted as part of the Coronavirus Aid, Relief and Economic Security Act and expect to fund it with minimal capital impact. Through April 23^rd, the Bank has obtained SBA approval for approximately 1,300 PPP loan requests totaling over $110 million. Furthermore, we have executed our strategic pandemic plan, which included implementing remote work arrangements, separating individual departments, reducing branch hours, and actively promoting social distancing in all aspects of our everyday business.

“Growth in net interest income of 23% year over year was partially offset by acquisition-related expenses associated with our purchases of LBC Bancshares, Inc. and PFB Mortgage. Net interest margin improved 17 basis points to 3.63% compared with the year-earlier period as our earnings mix improved through loan growth.

“Noninterest income saw very strong growth, increasing 91% year over year as a result of our efforts to diversify our revenue streams with mortgage fee income increasing to $1.3 million in the current quarter compared to $143,000 in the first quarter of 2019 due to the acquisition of PFB Mortgage. This increase in noninterest income was offset by increases in noninterest expense, such as salaries and employee benefits due to the additional headcount, as well as increases in occupancy and equipment.

“We took a higher provision for loan and leases losses of $2.0 million, a substantial increase from $131,000 in the first quarter of 2019, primarily due to the current operating environment. Our allowance for loan and lease losses now represents 0.85% of total loans outstanding, an increase from 0.84% in the year-earlier quarter and 0.71% on a sequential-quarter basis. Total nonperforming assets increased to 0.91% of total assets from 0.72% in the year-earlier quarter and 0.73% on a sequential-quarter basis. The increase is due primarily to a $2.1 million hotel loan in the Atlanta area that became troubled during the first quarter.

“In these very unusual times, our strength and resolve enable us to take exceptional care of our customers, team members and communities. Based on our capital levels, conservative underwriting policies, strong loan diversification, and current economic conditions within the markets we serve, we expect to navigate the uncertainties associated with the pandemic and remain well-capitalized. We will continue to monitor the changing economic conditions and make adjustments to our capital policy, including dividends, if our outlook for future earnings deteriorates,” concluded Fountain.

Capital

Colony continues to maintain a strong capital position, with ratios that exceed regulatory minimums required to be classified as “well-capitalized.”  At March 31, 2020, the Company’s preliminary tier one leverage ratio, tier one capital ratio, total risk-based capital ratio and common equity tier one capital ratio were 9.46%, 12.67%, 13.43% and 12.67%, respectively. In comparison, at March 31, 2019, the Company reported tier one leverage ratio, tier one capital ratio, total risk-based capital ratio and common equity tier one capital ratio of 10.18%, 15.31%, 16.09% and 12.52%, respectively.

Net Interest Margin

During the first quarter of 2020, the Company reported net interest income of $12.7 million compared with $10.4 million for the comparable 2019 quarter. Net interest margin for the first quarter of 2020 was 3.63%, down nine basis points on a sequential-quarter basis and up 17 basis points compared with the year-earlier quarter.

Asset Quality

Asset quality remained solid with continued improvement from a year ago. Substandard assets, which include nonperforming assets, totaled $23.9 million at March 31, 2020, compared with $24.3 million at March 31, 2019. Substandard assets adjusted for SBA guarantees to tier one capital plus loan loss reserve ratio was 16.07% and 16.89% at March 31, 2020 and March 31, 2019, respectively. Nonperforming assets increased to $13.8 million, or 1.39% of total loans and OREO at March 31, 2020, from $9.2 million or 1.17% at March 31, 2019. OREO totaled $847,000 at March 31, 2020, reflecting a 48.2% decrease from $1.6 million at March 31, 2019.

In the first quarter of 2020, net loan charge-offs were $67,000 or 0.03% of average loans compared with $818,000 or 0.10% of average loans in the first quarter of 2019. The loan loss reserve was $8.4 million or 0.85% of total loans on March 31, 2020, compared with $6.6 million or 0.84% of total loans at March 31, 2019. The loan loss reserve methodology resulted in the Company recording a $2.0 million provision for loan loss at March 31, 2020, compared with $131,000 for the comparable 2019 period.

Noninterest Income

Total noninterest income in the first quarter of 2020 totaled $4.4 million, an increase of $2.1 million or 91.0% from the first quarter of 2019. The increase during the first quarter 2020 is primarily a result of significant increases in mortgage loan production because of consumers continuing to refinance due to the Federal Reserve rate cuts.

Noninterest Expense

Total noninterest expense totaled $13.3 million, an increase of $4.2 million or 46.9% during the first quarter ended March 31, 2020, compared to the same period in 2019. Salaries and employee benefit expenses increased 39.6%, occupancy expense increased 28.6% and other noninterest expense increased 69.0% from the comparable 2019 period. The efficiency ratio increased to 77.3% for the three months ended March 31, 2020, from 71.1% in the comparable 2019 period. The increase is attributable to an increase in salary and benefits of $880,000 connected with the Calumet merger and additional headcount with Colony Bank Mortgage, or 16.4% of the overall salary and benefit increase. Acquisition-related expenses increased noninterest expense by $287,000 or 11.0% of the overall increase in other noninterest expense from the same period in 2019. The operating efficiency ratio decreased 168 basis points to 75.6% for the three months ended March 31, 2020, as a result of adjustments for nonrecurring, non-GAAP acquisition-related expenses, compared to an operating efficiency ratio of 70.1% for the same period in 2019.