Colony Bankcorp, Inc.

Good day everyone and welcome to Colony Bank's first quarter 2024 conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star and 2. Please note, this call is being recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Colony's Chief Financial Officer, Mr. Derek Shelnut.

Thanks, Abby. 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 and 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.

Thanks, Derek, and I want to thank all of you for being on the call today and for your support of Colony. We're pleased with our improved operating results in the first quarter, as well as the progress that we've made over the last several quarters. We've managed to build on our core customer relationships, strengthen our complementary lines of business, and align expenses with our current growth outlook, all while continuing to innovate and enhance our customer experience. I first want to thank and congratulate our team members on a great quarter. It's their commitment to achieve our internal mission to build a sustainable, high-performing, independent bank that's driving our improved earnings. In the first quarter, operating net income increased nearly $400,000. And a lot of that's driven by continued improvement in our non-interest income lines of business. Non-interest income increased almost a million dollars on an operating basis. Last quarter, we mentioned that we expect to see a few more basis points of margin decline. And we did see one basis point during the first quarter, which was slightly better than our expectations. We saw some stability and slowing in the rise of our cost of funds during the quarter. However, as you all know, as we've entered into the second quarter, we've seen the rate environment heat back up. The five and 10 year treasury have increased over 40 basis points since the end of the quarter. And you've also seen the likelihood of rate cuts this year continue to diminish. That's driving more competition for deposits in the marketplace, and we will see that put continued pressure on our funding costs. Given that, while we're closer to the end of margin contraction, we could see margin decline another three to five basis points from here if this environment stays where it is now before we start to see that recover and expand, we believe, in the second half of the year. Derek's going to discuss the next items in more detail, but during the first quarter, we did make some strategic balance sheet adjustments, including the sale of securities and some loans, as well as the pay down of broker deposits and borrowings. These adjustments are part of our ongoing balance sheet management, and we likely will see similar transactions, particularly the security sales, going forward when we believe they're appropriate and helpful to future earnings. We're glad to see our complementary lines of business continue to progress. The performance of those lines are highlighted on slide nine. There is seasonality to our marine RV and to our merchant service lines of business. So when you look at Q1 last year, we saw a lot of improvement over Q1 this year, even though they're down a little bit from Q4. We do expect marine RV to be profitable going forward in merchants. to reach profitability in the next quarter or so. The biggest driver in the increase in our non-interest income was from gains on sale of SBA loans. During the first quarter, our SBSL, our Small Business Specialty Lending Group, hit the high mark over the last year or so. We continue to see success with our small dollar lending program and expect to see those do well over the next several quarters. For mortgage, the first quarter is typically a slower quarter for mortgage in any kind of environment. And of course, we still see a challenging interest rate environment. For mortgage, however, we did see our mortgage group break, come pretty close to break even in the first quarter and certainly improvement over where we were in the first quarter of 2023. We did see loans decline during the first quarter. primarily as a result of the sale of portfolio mortgage loans that I mentioned earlier and that Derek will go into more detail on, and some criticized loans that paid off during the quarter. However, if you look at our average balance of loans, we were down only about $3 million quarter over quarter in average balance. And our current loan levels today and our pipeline indicate we should expect some modest loan growth for the rest of this year. which is what we've been forecasting the last few quarters. Total deposits did go down quarter over quarter, but that was primarily due to the payoff of broker deposits. We are glad to report that our core customer deposits increased by about 12 million over the last quarter, and we remain focused on building core deposits and deepening our customer relationships. Expense discipline remains a priority. And although non-interest expense increased slightly from the prior quarter, it was offset by increased non-interest income. So our net non-interest expense to average assets, which given our business lines is really how we think best to judge our operating efficiency. That number was 1.38 on an operating basis in the first quarter, which is exactly the same as it was last quarter. and a significant improvement from 178 in the first quarter of 2023. We feel good about our overall credit quality. Non-performing loans decreased quarter over quarter in addition to the decrease in net charge-offs over the prior quarter. The charge-offs we have seen are primarily related to the unguaranteed portion of our SBA loans. We expect to see some, Did expect to see that increase in charge-offs as we talked about the last couple of quarters, and we expect to see some of those small-dollar loans to have that as well, and we started to see that. However, those loans do have a great premium that we sell those for, and so we think it's a great revenue source for our SPSL team and overall, you know, very profitable product. Innovation. As I mentioned earlier, despite the focus we've had on expense control, we've continued with innovation. It's an important part of our growth strategy and our ability to better serve our customers effectively and efficiently. Our team's got a number of innovation initiatives that they're working on that will give us a better customer experience and boost our customer service standards of being collaborative, prompt, and simple. And we're looking forward to seeing some of that roll out through the rest of the year. And with that, I'm going to turn it back over to Derek, who's going to go over the numbers in some more detail.