Colony Bank(CBAN) - 2020 Q4 - Annual Report

Part I Business Colony Bankcorp, Inc. is a Georgia-based bank holding company operating through Colony Bank, providing diverse banking services with $1.8 billion in assets as of December 31, 2020 - Colony Bankcorp, Inc. is a bank holding company conducting business through its wholly-owned subsidiary, Colony Bank, with 28 banking offices in Georgia[18][20] Financial Snapshot as of December 31, 2020 | Metric | Value (USD) | | :--- | :--- | | Total Assets | $1.8 billion | | Total Loans | $1.1 billion | | Total Deposits | $1.4 billion | | Stockholder's Equity | $144.5 million | - Recent strategic activities in 2020 include the acquisition of the East Georgia Homebuilder Finance loan portfolio, a plan to close five branches (18% of the network) by April 2021, and the sale of the Thomaston branch which transferred ~$3 million in loans and ~$40 million in deposits[27][28][29] - The company is extensively regulated by federal and state authorities, including the Federal Reserve and the FDIC, which impacts its operations, capital requirements, and dividend policies[40][42][74] General Overview and Recent Developments Colony Bankcorp, Inc. operates through Colony Bank, offering comprehensive services across 28 Georgia offices, with 2020 marked by strategic acquisitions and branch realignment - Acquired the East Georgia Homebuilder Finance loan portfolio from Cadence on February 26, 2020, to expand its presence in the Savannah and Augusta markets[27] - Announced a strategic branch network realignment on December 10, 2020, involving the closure of five branches (18% of the network) by April 30, 2021[28] - Completed the sale of its Thomaston branch on December 30, 2020, transferring approximately $3 million in loans and $40 million in deposits[29] Quarterly Dividend Per Common Stock | Year | Dividend per Share | | :--- | :--- | | 2020 | $0.10 | | 2019 | $0.075 | Supervision and Regulation The company and its bank subsidiary are extensively regulated at federal and state levels, primarily by the Federal Reserve and FDIC, covering capital adequacy and anti-money laundering - As a financial holding company, Colony is subject to comprehensive supervision by the Federal Reserve and must remain "well-capitalized" and "well-managed" to engage in a broad range of financial activities[42][43] Well-Capitalized Minimum Ratios for Colony Bank | Capital Ratio | Minimum Requirement | | :--- | :--- | | CET1 to risk-weighted assets | 6.5% | | Tier 1 capital to risk-weighted assets | 8.0% | | Total capital to risk-weighted assets | 10.0% | | Leverage ratio | 5.0% | - As of December 31, 2020, Colony Bank's regulatory capital ratios were above the well-capitalized standards[63] - The company is subject to guidance on Concentrations in Commercial Real Estate (CRE) Lending, triggered if CRE loans exceed certain percentages of total risk-based capital, with policies believed to be appropriate[87][89][90] - The company will be required to adopt the Current Expected Credit Losses (CECL) accounting standard, replacing the incurred loss methodology, effective for the first quarter of 2023[67] Risk Factors The company faces significant risks including the COVID-19 pandemic, economic downturns, interest rate fluctuations, credit concentration, operational vulnerabilities, and extensive regulatory changes Risks Related to Our Business The company's business faces risks from the COVID-19 pandemic, local economic downturns, interest rate fluctuations, credit concentration in commercial real estate, and operational vulnerabilities - The COVID-19 pandemic poses a significant risk, potentially leading to decreased loan repayment, lower collateral values, and reduced demand for services, with approximately 25.4% of the loan portfolio in vulnerable sectors like hotels and restaurants[101][103][108] - The company's concentration in Georgia makes it vulnerable to local economic conditions, which could reduce demand for loans and increase delinquencies[115][116] - The transition away from LIBOR after 2021 creates uncertainty and could adversely affect revenue, expenses, and the value of financial instruments tied to LIBOR[124][125][127] - At December 31, 2020, commercial real estate and commercial/financial/agricultural loans totaled $824.5 million, representing 77.8% of total loans, increasing exposure to credit risks[134] - The upcoming implementation of the Current Expected Credit Loss (CECL) standard, effective in 2023, will require significant data and methodological changes and could lead to an increase in the allowance for loan losses[144][145] Risks Related to Legislative and Regulatory Events The company operates in a highly regulated environment, with changes in laws or adverse examination findings from regulators potentially increasing costs, restricting activities, and leading to penalties - The company is subject to extensive government regulation, and changes in laws or adverse examination findings from regulators like the Federal Reserve and FDIC could restrict activities and increase costs[190][191] - There is a growing risk of enforcement actions related to anti-discrimination statutes (Fair Housing Act, ECOA) based on the "disparate impact" theory, which could lead to significant liability[194][195][196] - Failure to comply with anti-money laundering regulations, such as the Bank Secrecy Act, could result in serious penalties, reputational harm, and restrictions on business plans[198][199] - The Federal Reserve's "source of strength" doctrine may require the holding company to inject capital into the bank, potentially at times when resources are unavailable, which could adversely affect the company's financial condition[200] Risks Related to Our Common Stock Investment in the company's common stock carries risks including price volatility due to limited trading volume, dividend payment uncertainty, and potential dilution from future equity issuances - The ability to pay dividends is dependent on the subsidiary Bank's results and regulatory approval, and there is no guarantee of future dividend payments[207][208] - The common stock price may be volatile due to limited trading volume, with an average of approximately 198 trades per day in 2020[205] - Future equity issuances could dilute the value of existing common stock[213] Unresolved Staff Comments The company reports that there are no unresolved staff comments - None[215] Properties The company's headquarters is in Fitzgerald, Georgia, with its subsidiary operating 28 banking offices and two corporate operations offices in Georgia, mostly owned - The company operates 28 banking offices and two corporate operations offices, with all properties owned except for three leased banking offices in Valdosta, Albany, and Douglas[216] Legal Proceedings As of December 31, 2020, the company and its subsidiary are not party to any material pending legal proceedings - There are no material pending legal proceedings to which the Company or its subsidiary are a party as of December 31, 2020[218] Mine Safety Disclosures This item is not applicable to the company - Not applicable[219] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Colony Bankcorp, Inc.'s common stock trades on NASDAQ under "CBAN", with 9.5 million shares outstanding as of March 22, 2021, and paid $3.8 million in dividends in 2020 - The company's common stock trades on the NASDAQ Global Market under the symbol "CBAN", with 9,498,783 shares outstanding as of March 22, 2021[221][222] Cash Dividends Paid | Year | Total Dividends Paid (in millions) | | :--- | :--- | | 2020 | $3.8 | | 2019 | $2.7 | - The company did not purchase any of its own common stock during the year ended December 31, 2020[224] Cumulative Total Return Performance Graph (2015-2020) | Index | 12/31/15 | 12/31/16 | 12/31/17 | 12/31/18 | 12/31/19 | 12/31/20 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Colony Bankcorp, Inc. | 100.00 | 138.51 | 154.33 | 156.23 | 179.85 | 164.94 | | NASDAQ Composite Index | 100.00 | 108.87 | 141.13 | 137.12 | 187.44 | 271.64 | | SNL Southeast Bank Index | 100.00 | 132.75 | 164.21 | 135.67 | 191.06 | 172.07 | Selected Financial Data This section summarizes key financial data, showing net income increased to $11.8 million in 2020, total assets grew to $1.76 billion, and the allowance for loan losses significantly increased to 1.14% Selected Financial Data (in thousands, except per share data) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Earnings Summary | | | | Net interest income | $55,245 | $47,845 | | Provision for loan losses | $6,558 | $1,104 | | Net income | $11,815 | $10,211 | | Per Common Share | | | | Earnings per diluted share | $1.24 | $1.12 | | Cash dividends declared per share | $0.40 | $0.30 | | Common book value per share | $15.21 | $13.74 | | Performance Ratios | | | | Net interest margin | 3.50% | 3.61% | | Return on average assets | 0.70% | 0.72% | | Return on average total equity | 8.56% | 8.73% | | Asset Quality | | | | Total nonperforming assets (NPAs) | $10,134 | $11,147 | | Allowance for loan losses to total loans | 1.14% | 0.71% | | NPAs to total assets | 0.58% | 0.74% | | Average Balances | | | | Total assets | $1,691,235 | $1,411,331 | | Loans, net | $1,092,009 | $896,098 | | Total stockholders' equity | $137,954 | $117,118 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights a year of significant activity, with net income rising to $11.8 million in 2020, driven by increased net interest and noninterest income, despite higher expenses and loan loss provisions COVID-19 Pandemic Impact In response to COVID-19, the company implemented loan deferral programs and actively participated in the PPP, approving over $137.8 million in loans and collecting $2.8 million in fees - Implemented loan deferral programs for customers impacted by COVID-19, with one commercial customer in the hotel industry having an outstanding loan balance of $1.9 million with an active payment deferral as of December 31, 2020[252] - Participated in the Paycheck Protection Program (PPP), approving 1,630 loans for an aggregate of over $137.8 million as of December 31, 2020, and collecting approximately $2.8 million in related fees[253] - Began participating in the new round of PPP funding authorized by the Economic Aid Act, approving and funding 410 loans totaling $30.4 million as of February 28, 2021[254] Results of Operations For 2020, net income increased to $11.8 million, driven by a $7.5 million rise in net interest income and a $10.2 million increase in noninterest income, partially offset by a $6.6 million surge in loan loss provision Key Performance Indicators | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net Income | $11.8 million | $10.2 million | | Diluted EPS | $1.24 | $1.12 | | Taxable-equivalent Net Interest Income | $55.6 million | $48.0 million | | Net Interest Margin | 3.50% | 3.61% | - The provision for loan losses increased to $6.6 million in 2020 from $1.1 million in 2019, largely due to economic disruptions from the COVID-19 pandemic[276] Noninterest Income Breakdown (in thousands) | Component | 2020 | 2019 | $ Variance | | :--- | :--- | :--- | :--- | | Service charges on deposit accounts | $5,293 | $5,593 | ($300) | | Mortgage fee income | $9,149 | $3,199 | $5,950 | | Gain on sale of SBA loans | $1,600 | $— | $1,600 | | Interchange fees | $4,988 | $3,768 | $1,220 | | Total Noninterest Income | $24,244 | $14,004 | $10,240 | Noninterest Expense Breakdown (in thousands) | Component | 2020 | 2019 | $ Variance | | :--- | :--- | :--- | :--- | | Salaries and employee benefits | $34,141 | $26,218 | $7,923 | | Acquisition related expenses | $862 | $2,733 | ($1,871) | | Information technology | $5,746 | $4,353 | $1,393 | | FHLB prepayment penalty | $925 | $— | $925 | | Total Noninterest Expense | $58,301 | $48,136 | $10,165 | Financial Condition Analysis The company's financial condition strengthened in 2020, with total assets growing to $1.7 billion, the loan portfolio increasing by 9.4%, and the allowance for loan losses significantly increased to 1.14% Loan Portfolio Composition (in thousands) | Loan Type | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total commercial real estate | $641,484 | $636,336 | | Residential real estate | $183,021 | $194,796 | | Commercial, financial, & agricultural | $213,380 | $114,360 | | Consumer & other | $21,618 | $23,322 | | Total loans | $1,059,503 | $968,814 | - The increase in Commercial, financial, & agricultural loans was primarily due to $101.1 million in gross PPP loans outstanding at December 31, 2020[289] Nonperforming Assets (in thousands) | Metric | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Nonaccrual loans | $9,128 | $9,827 | | Other real estate foreclosed | $1,006 | $1,320 | | Total nonperforming assets | $10,134 | $11,147 | | NPAs as a % of Total Assets | 0.58% | 0.74% | - The allowance for loan losses increased from $6.9 million (0.71% of total loans) at year-end 2019 to $12.1 million (1.14% of total loans) at year-end 2020, primarily due to economic uncertainties from the COVID-19 pandemic[327][328] - Average deposits increased by $176.6 million in 2020, driven by government stimulus programs, PPP loan proceeds, and changes in customer savings habits due to the pandemic[338] Quantitative and Qualitative Disclosures About Market Risk The company's most significant market risk is interest rate risk, managed by the Risk Management Committee, with a modeled 100 basis point increase in rates projected to increase net interest income by 6.71% - The company's primary market risk is interest rate risk, which is managed by the Risk Management Committee to achieve stability in net interest income[378][379] Twelve Month Net Interest Income Sensitivity Analysis | Change in Short-term Interest Rates (bps) | Estimated Change in NII (2020) | Estimated Change in NII (2019) | | :--- | :--- | :--- | | +200 | 12.55% | 3.87% | | +100 | 6.71% | 2.54% | | Flat | —% | —% | | -100 | -2.91% | -4.12% | - The company is also exposed to market risk through its mortgage banking operations, as loan originations are sensitive to mortgage interest rate levels[385] Financial Statements and Supplementary Data This section includes the consolidated financial statements for 2020 and 2019, along with the independent auditor's unqualified opinion, which identified the Allowance for Loan Losses as a critical audit matter Report of Independent Registered Public Accounting Firm The independent auditor issued an unqualified opinion on the consolidated financial statements, identifying the Allowance for Loan Losses as a critical audit matter due to significant subjective judgments - The auditor issued an unqualified opinion, stating the financial statements present fairly, in all material respects, the financial position and results of operations of the Company[388] - The Allowance for Loan Losses was identified as a Critical Audit Matter due to the high degree of subjectivity and complex judgments required in its estimation, particularly regarding qualitative factors[395][396] Consolidated Financial Statements The consolidated financial statements show total assets grew to $1.76 billion in 2020 from $1.52 billion in 2019, with net income reaching $11.8 million for 2020 Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Assets | $1,763,974 | $1,515,313 | | Net Loans | $1,047,376 | $961,951 | | Total Deposits | $1,445,027 | $1,293,742 | | Total Liabilities | $1,619,486 | $1,384,807 | | Total Stockholders' Equity | $144,488 | $130,506 | Consolidated Income Statement Highlights (in thousands) | Account | 2020 | 2019 | | :--- | :--- | :--- | | Net Interest Income | $55,245 | $47,845 | | Provision for Loan Losses | $6,558 | $1,104 | | Noninterest Income | $24,244 | $14,004 | | Noninterest Expense | $58,301 | $48,136 | | Net Income | $11,815 | $10,211 | Notes to Consolidated Financial Statements The notes provide detailed explanations of accounting policies and financial results, including the 2019 acquisition of LBC Bancshares, investment and loan portfolios, allowance for loan losses, and regulatory capital ratios - The company will adopt the CECL credit loss standard for fiscal years beginning after December 15, 2022[469] - In 2019, the company acquired LBC Bancshares, Inc. for total consideration of $33.5 million, resulting in $15.2 million of goodwill[471][475] Segment Net Income/(Loss) (in thousands) | Segment | 2020 | 2019 | | :--- | :--- | :--- | | Bank | $11,176 | $13,217 | | Mortgage | $1,248 | $36 | | Small Business Specialty Lending | ($609) | ($959) | | Total Net Income | $11,815 | $10,211 | Colony Bank Regulatory Capital Ratios (Actual) | Ratio | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Capital to Risk-Weighted Assets | 13.78% | 13.22% | | Tier I Capital to Risk-Weighted Assets | 13.53% | 12.71% | | Common Equity Tier 1 to Risk-Weighted Assets | 13.53% | 12.71% | | Tier I Capital to Average Assets | 8.49% | 9.64% | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no change in auditors in 2020 and no disagreements with them on accounting principles, financial disclosure, or auditing scope - The Company did not change auditors in 2020 and there were no disagreements with the current auditors on accounting or financial disclosure[629] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by the report[630] - Management assessed the effectiveness of internal control over financial reporting based on the COSO framework and determined it was effective as of December 31, 2020[634] - No changes in internal control over financial reporting occurred during the period that materially affected, or are reasonably likely to materially affect, these controls[631][635] Other Information The company reports that there is no other information to disclose for this item - None[639] Part III Directors and Executive Officers and Corporate Governance Information for this item, including details on directors, executive officers, and the Code of Ethics, is incorporated by reference from the 2021 Proxy Statement - The required information is incorporated by reference from the Registrant's Proxy Statement for the 2021 Annual Meeting of Shareholders[642] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive Proxy Statement for the 2021 Annual Meeting of Shareholders - The required information is incorporated by reference from the Registrant's Proxy Statement for the 2021 Annual Meeting of Shareholders[643] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of beneficial owners and management, and equity compensation plans, is incorporated by reference from the 2021 Proxy Statement - The required information is incorporated by reference from the Registrant's Proxy Statement for the 2021 Annual Meeting of Shareholders[644] Certain Relationships and Related Transactions and Director Independence Information concerning related party transactions and director independence is incorporated by reference from the company's definitive Proxy Statement for the 2021 Annual Meeting of Shareholders - The required information is incorporated by reference from the Registrant's Proxy Statement for the 2021 Annual Meeting of Shareholders[645] Principal Accounting Fees and Services Information regarding fees paid to the principal accountant and services rendered is incorporated by reference from the 2021 Proxy Statement - The required information is incorporated by reference from the Registrant's Proxy Statement for the 2021 Annual Meeting of Shareholders[647] Part IV Exhibits, Financial Statement Schedules This section lists documents filed as part of the Form 10-K report, including consolidated financial statements and an index of exhibits, with financial statement schedules omitted - The consolidated financial statements of Colony Bankcorp, Inc. and its subsidiaries are filed as part of this report[648] - All financial statement schedules are omitted because the required information is either inapplicable or already presented in the financial statements or notes[648] - An index of exhibits required by Item 601 of Regulation S-K is included, listing documents such as corporate governance papers, employment agreements, and Sarbanes-Oxley certifications[648][651] Form 10-K Summary The company reports that there is no Form 10-K summary - None[654]