Colony Bankcorp, Inc.

Good morning ladies and gentlemen and welcome to the quality test second quarter 2025 conference call. At this time I'll rise in election only mode. Following the presentation we will conduct a question and answer session. If at any time during this call you need assistance, please press star zero for the oscillator. This call is being recorded on Thursday July 20, 2025. I would now like to turn the cards over to Betsy Collins. Please go ahead.

Thanks Jayanna. Before we get started I would like to go through our standards of closures. Certain statements we make on this call could be constituted as forward-looking statements within the meaning of the Security Act of 1933 and the Securities Exchange Act of 1934. Current for second investors are cautious that any such forward-looking statements are not guarantees of future performance. It involves known and unknown risks and uncertainties. Practices that could call these differences include but are not limited to pandemics, variations of the company's assets, businesses, cash flows, financial conditions, prospects, and other results of operations. I would also like to add that during our call today we will reference our second quarter earnings release and investor presentation as well as our joint press release and investor presentation on the TC Federal merger. All of which were filed yesterday so please have those available to reference. And with that I will turn the call over to our Chief Executive Officer Heath Gowman.

Thanks Brantley and thank

you to everyone for joining our second quarter earnings call. We're pleased for a course to improve financial performance this quarter which reflects the continued improvement of our operations and success and discipline of our team members. Core earnings improved uniquely in the quarter supported by both long-rows and efficiency. We also saw continued expansion in our net interest margins benefiting from pricing discipline on the asset side and our stable core deposit base. Also we announced yesterday that we entered a definitive merger agreement with TC Bank shares which operates TC Federal banks and attractive markets in South Georgia and North Florida. We believe that partnership represents a compelling strategic and cultural fit. We'll discuss that transaction in more detail later in the call including the expected benefits and timing. On the lending front we delivered strong long-growth with 15% annualized rate in the second quarter continuing in the positive momentum we've seen this year. While growth came in just slightly below first quarter levels we continue to see solid demand across both commercial and consumer portfolios. Looking ahead we anticipate long-growth may moderate somewhat in the second half of the year closer to the 10 to 12% range that the pipeline remains very healthy. Our return on assets from the quarter was .03% which is a meaningful improvement from the prior quarter and has been a short-term target for us achieving that 1% ROA. So we're pleased we were able to achieve that. It came about a quarter earlier than what we had projected. We feel confident in our ability to maintain that one or better ROA going forward and now move towards our intermediate goal of achieving a 1.2 ROA. Merging increased to .12% in the quarter and as we previously mentioned that merging over three was where forecasts were indicating we would be at a 1% or better ROA. We feel a steady margin increase in the second half of the year however the more normalized long-growth rate and a stabilizing cost of funds we're likely to see the expansion be softer in the remainder of the year than what we saw in this past quarter. Non-interest income improved quarter over quarter as revenue increased across many of our complementary lines of business particularly in mortgage. We also had earlier quarter in marine and RV lending. While we just see improvement compared to the prior quarter we feel that there's an opportunity for meaningful improvement to enhance that performance across our business lines and that's a real priority for us. Credit quality remained stable and we saw improvement in non-performing assets as well as criticized and classified loans. Net charge-offs increased slightly after being down last quarter and that was driven by charge-offs in our FDSL division which we mentioned on last quarter's call that we were likely to see some variability there. Overall we feel good about what we're seeing in terms of credit quality and we're happy with these trends. As expected we experienced some seasonal deposit rolls through the second quarter which is not unusual for us given the nature of our customer base and our local market dynamics. Importantly though core customer deposits which exclude brokers are of year over year more than $75 million. We're also excited about the addition of two bankers in the Chattanooga MNC. We announced earlier this week Rex Redleaf will be joining us as Chattanooga Market President and Kitty Memphis as a commercial banker. We look forward to them coming on our team and expanding our existing presence in the Chattanooga MFA where we have one branch already in North Georgia and continue to build relationships in that market. Additionally we were honored to celebrate our 50th anniversary by ringing the opening bell at the New York Stock Exchange last week. We were glad to be joined by team members, board members and supporters who have been instrumental to our success. It was a proud moment for them that reflects the many accomplishments we have achieved as an organization and it's been made possible by the dedication, talent and commitment of our entire team so it's our honor to be there to represent them. We've added on the permit for the chair to go through the financials in more detail. Thank you. Net income increased $1.4 million compared to the first quarter. Increased net interest income and lower provision spent on improving credit metrics for the major contributing factors to the increase along with improved financials growth rate. Net interest income increased approximately $1.4 million quarter over quarter as we continue to see our earning asset yield gain momentum for loan growth times every private. Our cost of funds for the quarter were down three basis points to 2.04%. We're seeing the cost of funds stabilize and expect them to be around this level unless there is a change to short-term interest rates. We have experienced the bulk of the downward repricing on funding costs but we were being focused on keeping low cost deposit growth priority. Margin increased 19 basis points split by an increase in earning asset yields of 16 basis points. As Keith mentioned we expect margin to continue to increase going forward and there will likely be more moderate compared to the past quarter. Second quarter net interest income increased over $1.0 million with gains and mortgage, FTSL and surface charge related revenue. Increased production activities in FTSL and mortgages are highlighted on slide 13 and 14 in the investor presentation. This is positive momentum coming off of a season like lower first quarter. However, we see a lot of opportunities to continue to leverage that momentum across our complementary lines of business to drive increased future performance. Non-interest expenses increased $1.8 million in the quarter largely due to variable based compensation expenses driven by increased activity. In other financial expenses we did have an expense of about $340,000 related to the quarterly valuation adjustment on our SBA servicing asset. These adjustments are based on prepayment projections and market dynamics related to the value of servicing. Additionally, increased expenses for data processing were related to increased activity. Our net NIE average assets was $1.52 for six of the quarter and that's a little higher than our target of $1.45 percent. Non-interest income performance and expense didn't play a remaining property for us as we worked to target the $1.45 percent going forward. We continue to trend better than our peer we again on the key metrics. With more activity we've been seeing in our non-interest income lines and with our investment in growing markets with the addition of bankers, we are likely to see non-interest expense a little higher offset by non-interest income and interest income. We are expecting non-interest expenses to increase slightly to around $21 to $22 million a quarter and may also see comparability on that based on activity of the supply. Provision expense totaled $450,000 for the quarters and net charge drops were $1 million. The majority of the net charge drops were in our SBA division of about $708,000 of that and the loans were related to older loans originated prior to the Federal Trade Cycle and those were also originated prior to the other timing or credit requirements. Overall credit quality remains strong as he mentioned we saw in pre-measured quarter over quarter on MTA classified and criticized loans. Loan health for investment increased $72.3 million as he mentioned. We are still seeing a good loan pipeline but will likely start trending towards a 10 to 12 percent growth range. The weighted average new and reduced loan rate for the second quarter was 7.78 percent which has a positive impact on our portfolio yield and is shown on slide 26. There is still a lot of opportunity to capture positive increases in the repricing of loans and investments. We have a repricing schedule on slide 28 that outlines our base page forecasted repricing of budged loans and investments. Turbo deposits decreased 60-60 major in the quarter which we mentioned on our last call that we expected in and out of the other deposits and that was not unusual for us. We anticipate these deposits to frequently return in the late third quarter and fourth quarter. As previously mentioned deposits are up year over year by more than $75 million. We did not sell any investments in the second quarter but given our increased loan growth and increasing margin we are considering upcoming investment sales to further improve our balance sheet position and fund loan growth. We are evaluating the potential size of these sales and we are considering a larger transaction to what we have done in previous quarters as part of that valuation. During the quarter we repriced just 62,000 shares at an average price of $15.46 as part of our stock repurchase program. We will continue to review the need for any cost-floating purchases used this year based on capital needs and market conditions. At this point earlier this week the board declared a quarterly cash dividend of $11.50 per share. I mentioned on our last quarter's call that we were in the process of putting an active shelf registration in place or just to replace our 2021 shelf that expired. We feel that as part of pre-debate capital management to have a shelf in place and we expect to have that filed here in the third quarter. Our insurance division pre-tax income for the quarter was black compared to the previous quarter as the team focused on immigration and onboarding of the LOB insurance agency. As you can see we acquired during the quarter. That integration has gone well and we are seeing a ramp up in volume. Policy of sole has increased 50% from the month of March compared to the month of June. There were also increased mortgage expenses in the second quarter which would drive future production and customer acquisition. That concludes my overview and now I will turn it back over to H to begin the discussion about our merger and outflow. Thanks Harris. We are excited about the merger we announced with TC Bainshares which operates TC Federal Bank headquartered in Thomasville, We appreciate the opportunity to share more details with you today. We share a separate investor presentation and press release which is available on our website. We also have Greg Eichberg the president and CEO of TC with us today. He will share some of his perspective on the merger as well. I have tremendous respect for the organization that Greg and his team have built. Under his leadership TC Federal has established a strong reputation for customer service, community engagement and consistent performance. We are excited to bring together two culturally reliant institutions and look forward to working closely with Greg and his team as we build on that success. We are also pleased that Greg will be joining our team as executive vice president and chief community management officer. We look forward to working with him, Matt Hinton, TC's senior lender who will also be joining our team and other members of the TC's team as we work through this. The combination is a transformational step that enhances our franchise and positions us for sustainable long-term growth in key markets both in Georgia and Florida. It enhances what we were already doing in Tallahassee and Savannah and provides us entry into two great markets, Thomasville, Georgia and Jacksonville, Florida. Two markets that we long desire to be in. Together this deal enhances our earning power and our balance sheet strength through increased scale and operating efficiency. We expect the transactions to be immediately appreciated to earnings for share excluding one-time costs. And it really sets us up to be among the top performers in our pure breed. From a cultural standpoint there is strong alignment between our teams and we are confident that integration will be smooth and collaborative. The merger represents a natural next step in our great strategy and we believe it will deliver meaningful value to our shareholders, customers, team members and communities we serve. We expect the transaction to close in the fourth quarter of this year pending shareholders and regulatory approvals and complete the core system of conversion early next year. While our focus in the next two quarters will be on a smooth transition for the TC team and customers, we believe there will be further opportunities for us to benefit from industry consolidation and this will illustrate our ability to be an acquired choice for community banks and our markets. Now I would like to hand it over to Greg for any additional comments he would like to add about the merger. Thank you Gene. I would like to start by saying how excited we are about the partnership and the opportunity it brings to our customers, employees and communities. When evaluating strategic options for the future of our organization it became clear that the college was the ideal partner. The present track record, forward looking strategy and commitment to doing things the right way may be in the right place. One we knew would respect our legacy by helping us grow into the future. Our teams have since committed to coming together over the past double month and it's clear there is a strong cultural alignment between our organizations. From how we support our employees, to how we serve our customers and to how we show up in the community, our values are remarkably consistent. The college's investment in technology and digital tools is impressive and it gives our customers access to an expanded suite of modern, user-friendly banking solutions while still maintaining the high-tech service we always provide. We believe in the name of the colony as doing the growth and governance and we expect this transaction will add significantly to the future performance of the colony. I'm incredibly proud of where our team has built at TC Cuttle and I'm confident that this partnership colony will take us to the next level. We're excited to be part of this next chapter together. Thank you, Greg and we're as excited as you are and we look forward to seeing what we can accomplish together as we combine our organizations. Now, Jerry is going to go through some of the details of the transaction. Thanks, Steve. As Steve mentioned, this is a strategic financial resource-based transaction. It's a consideration-based structure that has 80% stock and 20% cash which allows us to preserve capital, maintain strong, re-report ratios and align both shareholder bases with the future success of the combined company. We expect double-digit ETS accretion by year two driven by revenue growth, stable operating leverage, and although we have not modeled them, we do believe we will see synergies in the combined company, particularly as we are able to expand our complementary business plans across the TC Cuttle Group. On a pro-forma basis, the combined organization will have approximately 3.8 billion in assets, 3.1 billion in deposits, and 2.4 billion in annual loans, making us one of the leading community banks in the South Coast. Slide 4 in the merger and measure presentation provides an overview of pro-forma modeling, and we expect approximately .4% ETS accretion in 2026 at .9% in 2027. And we will look at a solution for shares only .74% within our backup limits of three years. Our cost-takers are modeled at .4% of TC projected non-access expenses. In addition, the projected loan interest rate marks to 3% with a gross credit mark of .4% of TC's projected loan portfolio balance at closing. This transaction enhances ROAs of projected .29% in 2026 with a projected net interest margin of 3.43%. From a capital ratio perspective, pro-forma TCE is at 7.9%, leverage ratio at 9.8%, and total risk-based capital of 15.9%, resulting in a strong capital position for a combined company. And with that, I will hand it back over to Heath for final remarks. Thanks, Aaron. And again, thanks to all of you for being on the call today. We're pleased with our performance this quarter, and we're very excited about partnership with TC and opportunities for the combined company. That wraps up our prepared comments, and with that, I'll call on Joanna to open up the line for any questions you might have.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star, followed by the one on your touch-tone phone. Here are a prompt that your hand has been raised. If you wish to decline from the polling process, please press star, followed by the two. And if you are using your speakerphone, please flip the handset before pressing any keys. The first question comes from Christopher Maroneck at Journey Montgomery Scott. Please go ahead.

Hey, thanks. Good morning. I wanted to ask you about the quarter first and then the opposition. From a standpoint, it's kind of loan pipelines, and you can see where the progress goes beyond this last quarter that we saw. Could you just update us on kind of a reasonable growth rate organically? And then the same goes for deposit costs, and if they would be stable, and then I'll follow up on the merger of markets.

Yeah, yeah.

Thanks, Chris. As far as long-road, we were 15% of our quarter, 15 in the past quarter. We're thinking more probably in the 10 to 12% range for the rest of the year. We still have strong pipelines. They're not quite as full as they were as we ended up the year and into the first and second. So I think we feel comfortable getting down to that level. As far as deposit costs, we have in those quite now, we think we've squeezed most of the juice we can get out of our deposits where they are right now. So we think they'll be, but we're not looking to see them increase significantly. We're really looking for free blast deposit

costs, barring some actions out of debt.

Great. Those are both helpful. Thanks for that. And then on the merger with TC, is the change in the creasing from 26 to 27 purely just based on the timing of your systems conversion? I was curious if that case has been locked in.

It is not

just based on that. That is part of that is the timing of expense changes, but it's also based on continued organic growth of the organization. So our expectations are based on that. So it's a little bit of both of those. I think Chris, we have not nailed down an exact date just yet for that conversion. We're working through that, but

expect that to be in the first quarter. Perfect. And then he's just one last one on the merger. Do you think that there's enough other potential acquisitions in the future for you to look at something else as 26 comes into focus, or would you just assume that Tangle TC stand alone and not consider something else at this point?

Yeah, we

are very focused on ensuring that this goes through in a great manner, but between our team and the TC team, we've got a lot of great lancers, a lot of people very experienced in doing these transactions. So the first priority is making sure that goes through. But we continue to look for opportunities. We continue to have conversations. And I do think there'll be further opportunities. We don't plan to just be on the sidelines because of this, but that is the number one priority is making sure this goes through well. But we continue to look and have conversations and see disruption in the marketplace. And we do think that there'll be other opportunities for us as we go into next year.

Great. Thank you all for the time. I'll see you before.

Thank you. The next question comes from Kryon German at Hubs Group. Please go ahead.

Thanks. Good morning. I was hoping you could provide some insight on the overall health of the MoM portfolio, particularly in the SBA learning segment.

Sure. I'd be happy to. I think from an overall perspective, as we mentioned, our total non-performing, precise, classified levels coming down, we do continue to see in those criticized, classified and non-performing levels, there is activity. We've seen new stuff come in, some stuff go out and get resolved. In the past quarter, we have some good resolution to some problem loans that I think have helped us better than expected resolution. So it's good to see that kind of activity. We don't see anything systematic where we're seeing whole categories or industries that we have major exposure to. We're not seeing anything systemic. We continue to see isolated impacts of Mars. As mentioned in the SBA portfolio, some of what we've been seeing are some of the older loans. They started at lower rates and then rates went up a lot on them. That put a lot of pressure on them. And we're seeing that have impacts on the businesses. And so we do expect that is an area where we'll continue to see higher charge-offs. But our premium revenue and what we're doing in that side of the business is very strong. So we kind of expect a higher charge-off level there. We are seeing, I think, that get a little better through these resolutions. But we do expect it to be

somewhat elevated in that area of lower fall. And also just to

add a little bit of coverage, in our earnings relief we bring out the table on the guaranteed versus unguaranteed portion. Some of them increase in what we've seen in the SBA. This year has been from buying back some of that guaranteed portion, which is guaranteed by SBA. And not have the same, not having losses because of the fact that everything guaranteed. But that is part of what you're seeing in terms of activities that have to be a definition. Yep. And we will have that from time to time. Sometimes we'll make the decision to buy in the loan back here if we think we can work that out quickly. And sometimes, you know, just a situation by situation, sometimes we may not buy back here in that unguaranteed portion. I mean the guaranteed portion is where we work that out. So we have a little bit of an increase through that, even though the net increase

was a net worth a decrease. Thank you. And I was also hoping you can provide some additional color on how much additional runway you see for loan rewriting. Yeah.

So we feel we're in a really good place in terms of the ability to see assets continue to replace, you know, I think we've indicated we're in, you know, over around 778, I believe, for new and renewed loans this quarter. So we're putting loans on at good rates. You know, our overall portfolio yield is only slightly above six. So, you know, we feel good about that. I think Derek mentioned the slide in the investor presentation that breaks down our loan and investment repricing. There's obviously repricing in investment portfolio too. And what's good about where we sit right now is even with, even if we do get some levels of, you know, rate cut in the second half of the year, we'll still be repricing assets. It'll be lower than what we did this quarter in terms of new asset generation, but it will still be significantly higher than where our asset yields are. So we think that, you know, still puts us in a really good place to improve margin as we talked about on the private side being, you know, sort of, you know, we're kind of at a place where we're not going to get as much margin improvement from here without a rate change on the liability side. We still have significant opportunity to get improvement on the asset mule side. Again, we've been getting it on both sides and now it'll just be coming from more from the asset side. So we do expect that margin sanctions are not quite as strong as it has

been

over the

past couple of years. Thank you for your time.

Thank you. That concludes today's Q&A session. I'll turn the call back over to Heath Felton for closing comments.

Yeah. Thank you everyone for being on the call today. Thank you Greg for being here with us. We appreciate everyone's support of the County Land Court and we look forward to talking with you again.