Colony Bankcorp, Inc. reported net income of $2.8 million or $0.29 per diluted share for the fourth quarter of 2019 compared with $3.0 million or $0.35 per diluted share for the same quarter last year. The Company reported adjusted net income (a non‑GAAP financial measure) of $3.0 million or $0.32 per diluted share versus $3.1 million or $0.36 per diluted share for the prior-year fourth quarter. For the year ended December 31, 2019, net income was $10.2 million or $1.12 per diluted share compared with $11.9 million or $1.40 per diluted share in the prior year.  Adjusted net income for the year was $12.3 million or $1.35 per diluted share, versus $12.1 million or $1.43 per diluted share for the year ended December 31, 2018. Adjusted net income excludes charges for acquisition‑related expenses as well as gains on other real estate owned (“OREO”) property held for sale. See the unaudited reconciliation of non-GAAP measures later in this release.

Separately, the Company also announced that the Board of Directors has voted to increase its quarterly cash dividend to $0.10 per share from $0.075 per share previously set in January 2019. The Board’s decision was based on the ongoing strength of the Company’s earnings, improvement in asset quality and an outlook for long-term earnings growth. The new rate will apply to the next dividend to be paid on February 18, 2020, to shareholders of record as of the close of business on January 31, 2020.

Commenting on the announcement, Heath Fountain, President and Chief Executive Officer, said, “We are pleased to announce solid results for the fourth quarter and year. While adjusted net income was down $0.03 over the previous quarter and $0.04 over the year-earlier quarter, the main driver was an increase in provision expense, primarily due to our continued loan growth. In addition, current year results reflect startup costs related to our Small Business Specialty Lending Division, which we expect to begin generating revenue in the first quarter of 2020.      

“Our investments in business development initiatives continue to be successful as we increased our loan volume and net interest income both for the fourth quarter and full year. Total loans, including acquisition activity, increased 24% year over year, while legacy loan growth increased 11%. Our net interest margins also showed improvement for both the quarter and the full year. Growth in net interest income was partially offset by acquisition-related expenses associated with our purchases of LBC Bancshares, Inc. and PFB Mortgage, including increases in noninterest expense, such as salaries and employee benefits, as well as occupancy and equipment.

“Net interest margin increased to 3.72%, an increase of eight basis points over the sequential quarter and 17 basis points compared with the year-earlier period. As the Federal Reserve Bank lowered rates three times throughout 2019, we were able to shift assets into loans, improving our earnings mix through loan volume growth and margin improvement. Additionally, our efforts to improve noninterest income contributed to an increase of $1.1 million and $2.5 million in mortgage fee income for the fourth quarter and full year, respectively, versus the same periods last year.”

In closing, Fountain added, “We are pleased with the Company’s prosperity during 2019. These achievements reaffirm the strategies we have in place to grow our business across our markets and also reflect the hard work of everyone at Colony Bancorp. While the competitive landscape is intense, we remain optimistic based on our loan pipeline, mortgage fee income and core deposit base growth, and we continue to deliver market share gains. Our Board is confident with our operational structure and strategic planning as evidenced by the increase in the quarterly dividend. We look forward to the year with enthusiasm, and we see opportunities 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 December 31, 2019, the Company’s tier one leverage ratio, tier one ratio, total risk-based capital ratio and common equity tier one capital ratio were 9.04%, 12.52%, 13.17% and 10.33%, respectively, compared with 10.24%, 15.00%, 15.86% and 12.22%, respectively, at December 31, 2018.

Net Interest Margin

During the fourth quarter of 2019, the Company reported net interest income of $13.0 million compared with $10.4 million for the comparable 2018 quarter. For the year ended December 31, 2019, net interest income was $47.8 million compared with $40.8 million for the comparable 2018 period. Net interest margin for the fourth quarter of 2019 was 3.72%, up eight basis points on a sequential quarter basis and up 17 basis points compared with the year-earlier quarter. Net interest margin for the year ended December 31, 2019, was 3.61% compared with 3.56% for 2018. Net interest margin, excluding purchase accounting from the acquisition of LBC Bancshares, Inc., was 3.60%, up nine 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 $21.5 million at December 31, 2019, compared with $24.6 million at December 31, 2018. Substandard assets adjusted for SBA guarantees to tier one capital plus loan loss reserve ratio was 14.22% and 17.38% at December 31, 2019 and December 31, 2018, respectively. Non‑performing assets decreased to $11.1 million, or 1.15% of total loans and OREO, from $11.3 million or 1.45% at December 31, 2018. OREO totaled $1.3 million at December 31, 2019, reflecting a 28.3% reduction from $1.8 million at December 31, 2018.

In the fourth quarter of 2019, net loan charge-offs were $317 thousand or 0.13% of average loans compared with net loan recoveries of $53 thousand or 0.01% of average loans in the fourth quarter of 2018, while net loan charge-offs for the year ended December 31, 2019, were $1.5 million or 0.17% of average loans compared with $431 thousand or 0.06% of average loans for 2018. The loan loss reserve was $6.9 million or 0.71% of total loans on December 31, 2019, compared with $7.3 million or 0.93% of total loans at December 31, 2018. Loan loss reserve methodology resulted in a $581 thousand loan loss provision for the three months ended December 31, 2019, compared with $70 thousand for the comparable 2018 period and a $1.1 million loan loss provision for the year ended December 31, 2019, compared with $201 thousand for 2018.

Noninterest Income

Total noninterest income increased 53.7% to $14.8 million for the year ended December 31, 2019, from $9.6 million in the comparable 2018 period. Gain on the sale of OREO property for the year increased $739 thousand and secondary mortgage fee income increased $2.5 million.

Noninterest Expense

Total noninterest expense increased 38.5% to $48.9 million for the year ended December 31, 2019, from $35.3 million in the comparable 2018 period. Salaries and employee benefit expenses increased 30.3%, occupancy expense increased 16.0% and other noninterest expense increased 62.1% from the comparable 2018 period. The efficiency ratio increased to 77.93% for the year ended December 31, 2019, from 70.05% in the comparable 2018 period. The increase is attributable to an increase in salary and benefits of $3.4 million connected with the Calumet merger and additional headcount with Colony Bank Mortgage, or 13.0% of the overall salary and benefit increase. Also, acquisition expenses increased noninterest expense by $3.1 million or 42.63% 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 73.26% and 69.23% for the year ended December 31, 2019 and 2018, respectively.