Colony Bankcorp, Inc.

Signing by. My name is JL and I will be your conference operator today. At this time, I would like to welcome everyone to the Colony Bank first quarter 2026 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Now let's turn the conference over to Bentley Collins, communications manager. You may begin.

Thanks, JL. 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 guaranteed for future performance but involve known and unknown risks and uncertainties. Factors that can cause 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 first quarter earnings release and investor presentation, which were both filed yesterday. So please have those available to reference. And with that, I will turn the call over to our Chief Executive Officer, Heath Fountains.

Thanks, Brantley, and thank you to everyone for joining our first quarter earnings call today. We're pleased to report a solid start to the year with our first quarter operating performance. This quarter marked a pivotal operational milestone as we successfully finalized our core systems conversion and completed the customer integration following the TC federal merger. We're proud of our team's execution and are now fully positioned to deliver a premier service experience to our new colony customers. Operating income increased $580,000 from the prior quarter as we begin to see the impacts of a combined company post-murder. We expect to see this continue to improve post-conversion as we begin to realize operational efficiencies and additional cost savings moving into next quarter. With the primary integration milestones behind us, we're confident in our ability to scale toward a 1.20% ROA benchmark in Q2. Margin continues to expand, and we ended the quarter at 3.48%, which was a little better than our internal projections. This was driven by an acceleration of accretion income on acquired loans from the TC federal merger. This acceleration was driven by early payoff of loans, several of which were participations that we acquired in the merger. Core margin continues to steadily increase, and Derek will talk more about the projections, but we do expect that margin may be a few basis points lower next quarter without the additional lift of the pull-forward loan accretion. Loan growth in the first quarter was lower than what we realized in 2025, And we mentioned last quarter that we expected 2026 to trend closer to the 8% end of our 8% to 12% growth target. The payoffs in the first quarter impacted loan growth along with lighter demand, which was driven partially by the volatile rate environment driven by the conflict in the Middle East. We are starting to see more activity in our loan pipeline and are having more discussions with customers about loan opportunities. We still feel that a good growth number for 2026 is around that 8% mark. Turning to credit quality, we observed a quarter-over-quarter contraction in MPLs and a decline in criticized loans. Our credit team continues to demonstrate efficiency in resolving identified issues, preventing any buildup or stagnant criticized or classified loans. We provided an overview of our credit migration activity on slide 33, which shows that we are actively resolving problem loans. The first quarter was a strong quarter for many of our complementary business loans. These are highlighted on slide 17, and you can see the past quarter showed meaningful improvement on a combined pre-tax basis compared to the first quarter of last year. Mold production and sales were higher in our mortgage division compared to the same period last year. Pre-tax income was significantly higher than Q1 2025, driven by more volume and slightly better margins. We believe this sets mortgage up to have a good year, although interest rate fluctuations and housing inventory continue to be challenges that will likely impact mortgage throughout 2026. Marine and RV lending and merchant services continue to show progress, and we expect that to continue, particularly in marine and RV lending as we head into a period of higher seasonal activity. This past quarter was the best quarter to date for Collingwood Financial Advisors, and we are proud of the progress the division continues to make. Recruiting has been strong with the addition of several new advisors over the past few quarters. These additions, along with the transition of our broker-dealer relationship from a managed to a dual program where we get a larger revenue share but also bear the expenses, has led to meaningful improvement. This has allowed for higher profitability that will continue to scale as we increase assets under management. Slide 20 illustrates that growth in AUM, showing us at $555 million at the end of the quarter, up from 198 million at the end of the first quarter of 2025. This represents significant growth in the formation of colony financial advisors in late 2022. Colony insurance also had their best quarter to date in Q1 for pre-tax income. Referrals to insurance from the bank were strong in the first quarter, and we feel we have a lot of opportunity to capture more. Items in force and premiums in force are shown on slide 21. The premium rate increases in 2025 presented some challenges last year, but there have been recent rate reductions that we think will drive additional policy volume as we go throughout this year. Our SBSL division had a lighter quarter driven by lower sales revenue and variability in charge-offs. The loan pipeline has shown positive improvement, and with a shift towards real estate's pure loans versus the small dollar loans we see this year, revenues. Past news for SPSL were down about 30% and non-accruals were down around 24% during the quarter. We're likely to see more variability in charge-offs this year, and while some quarters could be around these same levels, we are not seeing anything to indicate significant increases. Also during the quarter, we added national sales manager John Kay in SPSL and look forward to seeing the expertise he will bring to the division. We've been without a person in that role for a little while, and we believe we've found the right person to help us lead our sales team. Last month, we announced that the Kroll Bond Rating Agency affirmed the credit ratings for both the company and the bank with a stable outlook. This independent validation reflects the disciplined execution of our long-term strategies. We believe these ratings serve as a confirmation of our capital strength and the overall stability of our platform. As industry consolidation accelerates, we are seeing significant M&A-related disruptions across our footprint. This environment creates a unique tailwind for us, and our team is focused on capturing high-quality customer relationships that are seeking the stability and high-tech service that our model provides. We are well positioned to capitalize on these market shifts to drive organic growth, and we are seeing positive growth tied directly to this disruption. We remain encouraged by the M&A landscape. Our recent integration success has enhanced our capacity to scale, and we are actively evaluating opportunities that align with our strategic cultural criteria. We feel very good about our current position and are confident in our ability to execute another accretive transaction as the right opportunities emerge. We're proud of our overall performance in the quarter, and iTunes has done a great job through our post-merger systems conversion as well as We believe this leaves us well-positioned to provide consistent execution as we continue on the path of building a sustainable, high-performing, independent bank. With that, I'll turn it over to Derek to go over the financials in more detail. Thank you, Heath. Operating net income increased to $9.5 million in the first quarter, and operating pre-provision net revenue increased approximately $1.3 million to $13.9 million in the quarter. Net interest income increased approximately $3.3 million during the quarter and is reflective of a full quarter post-merger, and that's in addition to continued repricing benefits from both sides of the balance sheet. Net interest margin increased 16 basis points to 3.48%, with the interest-earning assets component increasing 13 basis points to 5.33%, and interest-bearing liabilities decreasing three basis points to 2.28%. Our overall cost of funds remains relatively stable, decreasing two basis points quarter over quarter to 1.94%. And we expect that our cost of funds will remain around this level unless we see changes to short-term interest rates. Steve mentioned accelerated accretion income in the first quarter, and that drove margin above our initial forecast. From a core margin perspective, so excluding the accelerated accretion, we're around 3.41%. Our projections indicate modest increases in margin of a few basis points each quarter, and we should see margin trend closer to a core margin in the second quarter under our base case assumptions, which means we're likely to see margin a few basis points lower in the second quarter. Operating non-interest income in the first quarter was $10.7 million. The first quarter is shorter in the number of days and is seasonally lighter for us in terms of activity and our complementary business lines. Compared to the same quarter last year, operating non-interest income increased $1.7 billion for $9 billion in the first quarter of 2025. On slide 17, we illustrate pre-tax income by business line. Mortgage pre-tax income was $222,000 compared with $31,000 in the first quarter of last year. Slide 19 overviews production and sales. Q1 of last year. We're seeing a good start to the year and expect a better mortgage trend this year compared to what we saw in 2025. Over the past several quarters, we've recruited MLOs in key markets and adjusted our products to meet customers' needs and drive increased profitability. Keith mentioned the growth in economy financial advisors and on a pre-tax income basis, this was their best quarter to date. The AUM growth has been solid, and we see lots of potential to grow that organically in several key markets, and that's in addition to also recruiting new advisors. Colony Insurance had a great start to the year in the first quarter. He's mentioned challenges on pricing last year and how those have recently been scaled back. We believe these changes will help both customer retention and new customer acquisition, and in turn, drive better profitability for that division. SPSL pre-tax income decreased to $95,000 in the quarter. This was driven by lower revenue and higher charge-offs. Slide 18 shows the production sales volume by quarter. Seasonally, the first quarter is lighter, but we're starting to see a stronger loan pipeline in both volume and credit quality. Charge-offs with SPSL have variability, and we may see similar levels next quarter with a trend toward improvement in the following quarters. Also during the quarter, approximately $30 million of portfolio mortgages were sold for a gain of about $110,000. We mentioned this on last quarter's call and noted the increase in the hell for sale classification at the end of the year. We do not anticipate any other pool sales in the near term. Operating non-interest expenses were $26 million in the quarter. This includes the cost and personnel expenses that were needed to get us through the systems conversion and customer integration following merger. Now we are positioned to begin seeing additional cost savings beginning at the second quarter. However, this is expected to be offset by seasonally higher activity in our business lines that will drive some higher variable expenses. But we expect that to be outpaced by additional revenue, which should generate positive operating leverage across our business lines. Operating net non-interest expense to average assets was 1.68% for the quarter, and this is reflective of seasonally lower activity in our business lines as well as the additional expenses for assistance conversion, we expect this to trend towards our target of 1.45% over the next several quarters. Emerging related expenses in the quarter were approximately $1.6 million. Provision expense totaled $1.75 million and was a slight increase of $100,000 for the prior quarter. Next charge-offs might tie for on slide 32. And while there was a slight increase in coordinate loan charge-offs It only represents $315,000, or about five base points of average loans. Both non-performing loans and classified loans decreased quarter to quarter. The allowance for credit loss was 0.90% of total loans and 122% of non-performing loans. As you may remember from last quarter calls, a large percentage of the increase in classified and criticized loans starting in the fourth quarter was a result of the TC federal merger. Loan total for investment increased $32.2 million, or around 5.4% annualized. There were earnings and payoffs on acquired CC federal loans. A portion of those were related to legacy participation loans. And then the weighted average rate on new and renewed loans is shown on slide 34, and that was 7.11% for the quarter. Total deposits declined slightly during the quarter by $19 million and was a result of repositioning of municipal funds year-end tax collection. The municipal deposit balance has declined approximately $30 million in the first quarter. Our deposit pipeline still sits with many opportunities to develop strong customer-deposit relationships across our footprint. We've developed a deposit strategy to target customer relationships, as well as take advantage of emanating disruption in our markets. Deposits remain a key focus in our strategic program. Total share repurchases during the quarter were about $89,000 at an average price of $19.78. This week, the board also declared a quarterly cash dividend of $0.12 per share. Our AMCI slightly improved quarter over quarter despite an increase to interest rates along the curve. This reflects a continued strengthening of our balance sheet health. TCE at the end of the quarter was 8.49%, an increase 8.30% in the prior quarter, and tangible building value per share also increased to $14.65, up from $14.31 at the end of the year, and $13.46 a year ago. That concludes my overview, and now I will turn it back over to Heath before we take questions. Thanks, Derek, and thanks again, everyone, for being on the call today. We're very pleased with our performance this quarter. That wraps up our prepared comments, and with that, I will call on JL to open up the line for any questions we have. Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you'd like to withdraw your questions, simply press star 1 again. Your first question comes from the line of David Bishop of Havli Group. Your line is open. Hey, good morning, Heath and Derek. Good morning, Dan. I was just curious, you know, from the small business SPSL segment, is that sort of the key driver of this sort of, you know, recent uptake in the low loss provisioning level, you know, this quarter and last? Is this something you should maybe get used to right close to this, you know, close to the $2 million per quarter? You see, you know, I think you said last quarter you're trying to migrate away from maybe the express and lightning type credits. You know, do you see maybe some of the the credit net went sort of abating the latter half of the year as we sort of roll off the books. Yeah, Dave, I think, you know, what I would expect to see is, you know, volumes pick back up and the overall profitability of that division revenues get back closer to levels we saw in the last year. You know, on the provisioning and charge-off levels, you know, I think going forward, you know, if we're our... our allowance is, we're going to generally see backfilling any charge-offs. And then I think in future quarters, we should see a little more loan growth than we saw this quarter. So we'll keep up with that. So somewhere around the current level, maybe down a little, up a little, just Even though it's small and relative dollars, you know, we're replenishing those reserves. Got it. And then I think I've heard you say, Heath, at the start of the call, feel good about the loan pipeline. So, we're replenishing here. Still talking about 8% loan growth rate. I'm just curious where you're seeing the best opportunities to grow the portfolio and where you're seeing that current pricing. Thanks. Yeah, no, so Derek mentioned, you know, start off with pricing. You know, we were around 7, a little over 7% for the quarter. You know, of course, prime around 675. It's looking like that will be stable. We are seeing, you know, more competitive pricing out there. And so I would expect our yields to come down a little bit as volume goes up there. We are, you know, committed to good, solid pricing. You know, we think that's important. Relationship pricing, we look to, you know, be as competitive as we can be there, but just kind of measuring and monitoring that growth versus pricing because we like what we're seeing in terms of continuing to improve our margin and our asset yields. So, you know, but it is competitive out there. I think we're seeing it, you know, geographically across the board, and I would say, you know, it would look like our current, you know, portfolio. So, obviously, commercial real estate, you know, we're seeing good opportunities there, but also, you know, the commercial business side, TNI, we're seeing good opportunities there as well. So, I think we'd see a track similar to the breakdown of our portfolio today, and we are seeing it pretty good across our footprint. Got it. And then one final question, I guess, before I hop into the queue. The insurance group, do you recognize their contribution here? you know, pricing and conditions and improve that market, you can continue to see an uptick in pre-tax profitability there this year. Thanks. Yeah, I do think we will, you know, last year we added the LOV agency to that team, and, you know, we got through that integration, you know, at a time where you were seeing rate increases, and it was so a tougher environment, we're now starting to see some great decreases. Plus, we've also had the time to integrate, you know, a better sales platform, better sales training, better integration of working with the bankers to get referrals. So we've seen a big uptick in those referrals, and we expect to continue to see that Great. I'll hop back in with you. Your next question comes from Christopher Baranak of Brand Research. Your line is open.

Hey, good morning. Keith and Derek, can you tell a little bit about the merchant services business and how that can not only further grow but also impact deposits and pricing for the overall spread business going forward?

Yeah, Chris, that's a great question. And we see this as a really good deposit acquisition part of our business. So we have taken our merchant, our treasury, and our credit card group and lumped that all into what we call banking solutions. And because of doing that, we've made it simpler for how we interact with the customers. We've made it simpler for how we interact with the bankers. And there's a ton of opportunity to lead with the right product. And so we find merchant services to be one where in that field there's a lot of turnover with other companies. There's a lot of ambiguity into the rates charge. So we find that customers really are happy to meet with us on the first call and turn over their merchant statements to us and give us an opportunity. And, of course, when we do that, if we're able to win that business, we establish a deposit relationship for settling there, and then we just continue to work on that relationship to bring over deposit business. So it's really a great customer acquisition tool to bring in core commercial small business deposit relationships, and we're seeing really good success. And then as you see that just incrementally grow, that's very much a recurring revenue business so we just keep building that and we don't really have to add much level of expense there as we grow so we're excited about that business they're doing a great job and the banking solutions team all together how that's integrated and made it simpler for us it leads to a quicker a quicker time to win a relationship And so we're very pleased with how that group is performing.

Great. And my follow-up was about this loan pricing in general. You know, with the loan yields this quarter, I know TC impacted that to some extent. Is there opportunity for that loan yield to rise with the repricing and the details that you had repeated again this morning?

Yeah, I think so. I mean, if you look at our, you know, our new and renewed loan rate in the past quarter at 7.11% relative to where our overall loan yields are, I think that we could see some incremental increases there. I don't expect anything drastic, you know. I mean, obviously, that depends on what level of growth that we see. And, you know, as Pete mentioned earlier, you know, we're starting to see some competition there on loan pricing. So that will have some impact here as well. But I do think that we have the possibility to see that continue to kind of struggle along and increase over time, you know, outside of the impacts of any accelerated accretion that we see the impact overall along the line. And Chris, if you think about it, you know, even if we pull back a little bit on our new rate yields there's still a delta there between where our portfolio yields, you know, I think for the quarter it was 635. Now some of that, you know, is some of that accelerated accretion. But even if we pull back some, there's opportunity to be originating new and renewed above our current yield. And then plus, you know, the amortization that's running off, any payoffs that we get, you know, that are at those lower yields that were, you know, little previously that are starting to renew and amortize. So, you know, we feel like that place on the asset side, there's really, you know, we should see continued improvement there.

Great. And last one for me just has to do with overall expense efficiency in general. I mean, should we continue to see that progress as this year plays out and any, I guess, just general goals on, you know, next year?

Yeah, very much so. We're very focused on that, and again, we look at that from the standpoint of our net NIE, which was 168, and we should start seeing that trend towards that 145. We'll have merger expenses or additional staffing and contract expenses for TC that you know, we're in Q1, that'll be, have rolled off many of them. The stacking side is done, and most of the contract expenses are done now or will be done during the quarter, and so we'll see improvement there. Where we will see, you know, we expect some of the variable expenses in our business lines increase a little bit as we go through Q2 and 3, which are seasonally higher, plus you know, the return of SBSL. And as I just pointed out, you know, we saw year-over-year increases in our complementary lines really in the quarter that our SBSL was down a little bit, and it's a significant driver. So as it returns to a higher level of revenues, you know, mortgage improvement for seasonality, you know, you can look on our mortgage slide and see, you know, how that Q1 is always a light quarter, but much more profitable this quarter. So we'll see that net NIE start to improve in the second quarter, both from the revenue side on the complementary lines, but also from the expense side in the core bank.

Sounds good. Thank you both for your feedback this morning, and thanks for hosting the call. Thank you, Chris.

And we have a follow-up question from David Bishop of Havde Group. Your line is open. Yeah, maybe just curious, now that you have the TC Federal behind, from an acquisition perspective, just curious, you know, what might be in your target sites here? You know, there's been a lot of consolidation within your markets. Just curious where you're focusing your efforts these days on potential acquisitions. Yeah, thanks, Dave. Good question. And we do believe, you know, we're in a place, we've gotten the TC Federal, you know, integration complete, and we are out actively having conversations. It's an area of focus, you know, for our team, but particularly, you know, for me. And so we're out being very active in, you know, Throughout our footprint, you know, on slide 14, we laid out, you know, kind of our target area, which is really Georgia and the contiguous states. So we're out in both in Georgia and in these other states actively having conversations with other management teams that we think would be a good fit. A merger, I think, just shows how a good cultural fit is important. It makes integration much easier both from the team member side but also from the customer side. And so, you know, our focus is, you know, really on strategic deals where we can have alignment with the other banks' management teams and they view it as an opportunity to continue their investment and see that the combined company, you know, can be more profitable, have more scale, and also, you know, have additional products and services and larger lending limits to be able to grow better as a combined company than either could on their own. And we think those opportunities are out there. It takes time in developing relationships, and it's something that we're spending our time on, and particularly my time. And, you know, we are at the place now where we feel good about, you know, being able to start a process with another one. So hopefully we'll keep having good success there. like we have with this last one, and just keep the momentum going forward. That sounds great. Appreciate the color. There are no further questions at this time. That's concluding our Q&A session. I will now turn the conference back over to Heath Fountain, CEO, for closing remarks. Thanks, JL, and thanks again, everyone, for being on the call today and for your support of Colony Bancorp. Excited about the opportunities ahead and appreciate you being on the call today. This concludes today's conference call. You may now disconnect.