Colony Bankcorp, Inc.

Good morning, ladies and gentlemen, and welcome to Colony Bank fourth quarter 2023 conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, January 25th, 2024. I will now like to turn the conference over to Derek Shelnut, Chief Financial Officer. Please go ahead.

Thanks, Julie. Before we get started, I would like to go through our standard disclosures. Certain statements we make on this call could be constituted as forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Current prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance, but involve known and unknown risk and uncertainties. Factors that could cause these differences include, but are not limited to, pandemics, variations of the company's assets, businesses, cash flows, financial condition, prospects, and other results of operations. I would also like to add that during our call today, we will reference both our earnings release and our quarterly investor presentation. both 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 Fountain.

Thank you, Derek, and thanks to everyone for being on the call today. Before we start diving into the results, I do want to congratulate Derek on being promoted to our CFO. We announced this Tuesday morning of this week, and Derek's been serving as CFO of Colony Bank and Chief Accounting Officer for the company. Derek's done a really great job over the last year as we've made this transition into this new role. And so I just wanted to take a moment to acknowledge him and thank him and wish him well in this new role. I'm going to run through and highlight some of the activity for the quarter and the year, and then I'll pass it back to Derek to get into more of the details. You know, since the beginning of the rate hikes and really in earnest in 2023, we've changed the way we've operated our business. We've had an increased focus this year on efficiency, developing core customer relationships, improving our complementary lines of business, and managing expenses to align with the current environment and opportunities there. And our team's done a really great job. We've made a lot of progress in areas where we saw opportunities to adapt to the changing environment. And we're confident that the success we've had in those areas is going to make us or has made us better and is going to ultimately lead to improved performance in the future when we get to margin expansion again. So in the fourth quarter, our earnings were slightly lower than the third quarter. That's primarily a product of increased funding costs and additional provision expense. We indicated last quarter we expected margin to decline another 5 to 10 basis points in Q4, and it did decline by about 8 basis points. However, we do continue to see easing pressure on deposit costs and the rate of increase on the deposit side is slower. Our interest income did increase for the quarter, but, of course, the interest expense outpaced that. And so that led to the slightly lower net interest income. We continue to see assets repricing the higher rates and that funding costs continue to slow. So we think those trends will start to move in the right direction. As I mentioned, it's slow toward the end of the fourth quarter. And so what we're forecasting going forward is margin to be flat or slightly down next quarter before we start seeing expansion later in 2024. Our provision expense was higher in the fourth quarter. Charge-offs were at similar levels to what we saw in the third quarter, and we did see a slight increase in our classified and criticized loans. Last quarter, we also mentioned we'd likely see some additional charge-offs going forward related to our SBSL. And really, with the guaranteed loans, with those floating rates increasing so much, putting pressure on those borrowers, our team's doing a really good job of managing those. We remain confident in our overall credit quality and the small increases we've seen are isolated. We haven't seen any widespread issues that would otherwise lead us to believe there are any larger credit concerns. The criticized classified levels are really still very low overall levels, and we've outlined some more information on criticized and classifieds in slide 29 of our presentation just to give you some granularity of those loans. Non-interest income was lower in the fourth quarter, primarily due to the seasonality of our mortgage, in addition to just the challenges with the mortgage environment. service charges increased with our concerted effort to improve those and our SPSL division revenue also increased. Non-interest expense declined in the quarter. We're really proud of what we've been doing in addressing non-interest expense, but we don't necessarily expect them to remain at this level going forward. As we look at the next year, We'll have annual compensation increases go into effect, and Derek will talk more about where we expect non-interest expense going forward. With the change in the rate environment, we saw in the fourth quarter the fair value of our AFS securities portfolio improve, which led to an 18% improvement in our OCI, which we were glad to see. Total deposits for the quarter were down from the prior quarter, but this was all really due to the payoff and reduction of broker deposits. So on a core deposit basis, when you look at our customer deposits, they increase both quarter over quarter and year over year. We also announced during the quarter about our entry into Northwest Florida with the addition of Kyle Phelps as our regional market executive. We're glad to have Kyle on the team and look forward to the opportunities to build customer relationships in those markets, particularly Tallahassee and the Florida Panhandle. Those are markets that we're very familiar with, having banked many customers in those areas due to the proximity to our South Georgia markets. Outlined in slide nine, we see a trend of, for the year, overall improvement in our startup lines complimentary lines. Of course, fourth quarter is a slower quarter, particularly the seasonality of our marine RV. But I've been pleased with the progress of these businesses. We continue to focus on these lines of business in 2024 to ensure they continue to improve, add to our non-interest income, and better serve the needs of our customers. We're also very pleased to announce an increase in our quarterly dividends. to 11.25 cents per share. Our dividend is very important to our long-term shareholders, especially those individual shareholders in the communities we serve, many of whom are significant bank customers. This marks the eighth consecutive year of increased dividends and reflects the confidence we have in our earnings. As we look out into 2024, we expect we'll continue to see some long growth, but we're probably looking at under 5% loan growth for the year, which is much a reflection of customer demand as it is our loan appetite. In addition to lending, we'll be focused really on three primary areas internally. First, deposits, looking to retain and grow our current deposit relationships, looking to develop new relationships from our calling efforts and our marketing efforts and all of our or the majority of our incentives around deposit gathering. The second is in non-interest income, looking to certainly improve our mortgage revenue as the rate market stabilizes a little bit, and then growing the revenue, as I mentioned earlier, in our other complementary business lines, and as we better utilize our customer data and integrate those businesses into our internal processes. And third is in efficiency. looking to maintain the discipline on expenses that we put in place in 2023 and looking for other opportunities to serve our customers more efficiently. We use the service standards internally, collaborative, prompt, and simple. And when we have opportunity to continue to improve that customer experience, get more efficient in that to achieve those standards. So now I'm going to turn it over to Derek, and he's going to go into the financials in more detail.