Business Overview and History

Established in 1975, Colony Bankcorp has evolved from a small, local institution to a regional banking powerhouse with a presence across Georgia, Alabama, and the Florida Panhandle. The company's journey began as Colony Bank, a community bank serving its local market in Fitzgerald, Georgia. Over the years, Colony Bank expanded its presence throughout Georgia, opening new branches and acquiring other community banks.

A significant milestone in the company's expansion came in 2014 when it opened its first out-of-state branch in Birmingham, Alabama. This move was followed by further growth into the Florida Panhandle region in 2018, solidifying Colony Bankcorp's position as a multi-state financial institution.

In 2016, the company launched its small business specialty lending division, which has since become a crucial contributor to non-interest income. This division focuses on originating, selling, and servicing Small Business Administration loans and other government-guaranteed loans, diversifying the company's revenue streams.

However, Colony Bankcorp's journey has not been without challenges. In 2019, the bank faced a period of increased non-performing assets and credit quality issues, leading to higher provisions for loan losses and impacting profitability. The management team responded by refocusing lending practices and strengthening risk management processes to address these challenges.

Today, Colony Bankcorp operates a network of 45 branches, serving a diverse customer base ranging from individuals to large commercial entities. The company continues to invest in technology and expand its complementary business lines, such as mortgage banking and insurance, to enhance its profitability and maintain its position as a community-focused bank serving local markets in Georgia, Alabama, and Florida.

The banking industry has experienced significant volatility in 2023 with multiple high-profile bank failures, leading to industry-wide concerns related to liquidity, deposit outflows, uninsured deposit concentrations, unrealized securities losses and eroding consumer confidence. However, Colony Bankcorp's balance sheet remains robust with strong capital and liquidity positions. The company's uninsured deposits represent 31.64% of total bank deposits as of September 30, 2024.

Colony Bankcorp continues to focus on its core markets in Georgia, Alabama and Florida, maintaining its position as a community bank serving small and mid-sized businesses. The company has grown its complementary business lines, including mortgage banking and small business specialty lending, which have contributed to its improved financial performance. Colony Bankcorp is also investing in technology to enhance its customer experience and support future growth and expansion plans.

Financials

As of the latest reported quarter (Q3 2024), Colony Bankcorp boasted total assets of $3.07 billion, up slightly from $3.05 billion at the end of 2023. The company's loan portfolio stood at $1.89 billion, a modest 2.6% increase from the $1.88 billion reported at the close of 2023. Deposits, a crucial source of funding for the bank, decreased marginally to $2.52 billion from $2.54 billion at the end of the prior year.

Colony Bankcorp's financial performance has been relatively stable, with net income reaching $16.44 million for the first nine months of 2024, compared to $16.15 million in the same period of 2023. The bank's net interest margin, a key metric in the banking industry, stood at 2.67% for the nine-month period ended September 30, 2024, a slight decline from the 2.87% reported in the same period of the prior year.

The company's asset quality metrics have remained relatively strong, with nonperforming assets comprising 0.41% of total assets as of September 30, 2024, up from 0.35% at the end of 2023. The allowance for credit losses on loans stood at 1.04% of total loans, up from 0.98% at the close of the previous year.

In the most recent quarter, Colony Bankcorp reported revenue of $28,623,000, net income of $5,629,000, operating cash flow of $12,714,000, and free cash flow of $12,945,000. The company experienced year-over-year growth in these metrics, which can be attributed to growth across its business lines, especially in mortgage banking and small business specialty lending.

Colony Bankcorp operates through three primary segments: Banking, Mortgage Banking, and Small Business Specialty Lending Division. For the three months ended September 30, 2024, the Banking segment had net interest income of $17.15 million, noninterest income of $5.49 million, and a segment profit of $3.86 million. The Mortgage Banking segment reported net interest income of $67,000, noninterest income of $1.81 million, and a segment profit of $275,000. The Small Business Specialty Lending Division segment generated net interest income of $1.32 million, noninterest income of $2.78 million, and a segment profit of $1.50 million.

Navigating Market Challenges

Throughout its history, Colony Bankcorp has demonstrated its ability to navigate challenging market conditions. The company weathered the Great Recession of the late 2000s, emerging with a strengthened balance sheet and a more diversified loan portfolio. More recently, the COVID-19 pandemic presented its own set of obstacles, yet Colony Bankcorp proved its resilience, adapting its operations and supporting its customers and communities during this unprecedented time.

In the current environment, the bank is confronting the evolving interest rate landscape, which has resulted in margin compression. However, the company has proactively managed its cost of funds, and it is optimistic about the potential for margin expansion in the quarters ahead as the rate environment stabilizes. Management believes that the bottom of margin decline has been reached and expects margin to start expanding, though the initial expansion will be modest before improving further in 2025.

Complementary Business Lines

In addition to its core community banking operations, Colony Bankcorp has strategically built out complementary business lines that contribute to its diversified revenue streams. These include a thriving mortgage banking division, a successful small business specialty lending (SBSL) unit, and a growing insurance agency.

The mortgage banking division has weathered the challenges of rising interest rates, reporting a net income of $275,000 in the third quarter of 2024, up from $210,000 in the prior quarter. However, the company expects mortgage banking revenue to decline in Q4 2024 compared to Q3 2024 due to higher mortgage rates, but they expect it to remain profitable.

The SBSL division, meanwhile, generated net income of $1.5 million in the same period, a 13% increase from the previous quarter. The company expects their small business specialty lending division's gain on sale revenue to be at a similar level or slightly higher in Q4 2024, before softening in Q1 2025.

The company's insurance agency has also demonstrated its value, navigating the industry's tight underwriting requirements earlier in the year and reporting increased profitability in the third quarter of 2024 as market conditions have since improved.

These complementary business lines not only contribute to the overall financial performance of Colony Bankcorp but also enhance the bank's ability to serve its customers with a comprehensive suite of financial solutions.

Liquidity

Colony Bankcorp has maintained a strong capital position, with common equity Tier 1 and total capital ratios of 12.51% and 16.48%, respectively, as of September 30, 2024. This robust capital base provides the bank with the flexibility to support its growth initiatives, weather potential economic headwinds, and deliver value to its shareholders.

The company has a track record of returning capital to its shareholders through quarterly cash dividends. In the third quarter of 2024, the board of directors declared a dividend of $0.1125 per share, continuing the bank's commitment to providing consistent returns to its investors.

Additionally, Colony Bankcorp has an active stock repurchase program in place, which it has utilized judiciously to enhance shareholder value. During the third quarter of 2024, the company repurchased 35,000 shares at an average price of $15.05 per share.

The company's debt-to-equity ratio stands at 0.8984, with $185 million in Federal Home Loan Bank advances and $63.02 million in other borrowings. Colony Bankcorp has $564.3 million in remaining credit availability from the FHLB. The current ratio and quick ratio both stand at 0.8939, indicating the company's ability to meet its short-term obligations.

Future Outlook

Looking ahead, Colony Bankcorp expects loan growth to be similar to the 4% annualized growth seen in Q3 2024, though they anticipate some pressure on loan growth in Q4 2024 due to large payoffs. The company expects to return to more normalized loan growth rates in 2025.

Management anticipates that the operating net non-interest expense to average assets ratio will remain around 1.40% or below, which they see as providing upside for net income as margins expand. This, coupled with the expected margin expansion, positions Colony Bankcorp for potential improved profitability in the coming quarters.

Conclusion

Colony Bankcorp's story is one of resilience, adaptability, and a steadfast commitment to its local communities. As the bank navigates the evolving landscape of the financial services industry, it continues to leverage its diversified business model, prudent risk management, and strong capital position to deliver value to its shareholders, customers, and employees.

With a rich history spanning nearly five decades, Colony Bankcorp remains poised to capitalize on emerging opportunities and overcome the challenges that may arise in the years to come. As the company continues to execute its strategic vision, investors would be well-advised to closely follow its progress and the ongoing developments within the regional banking sector.