Colony Bankcorp (CBAN) Q3 2026 Earnings Call Transcript

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DATE

Thursday, Oct. 29, 2026

CALL PARTICIPANTS

• Communications Manager - Brantley Collins
• Chief Executive Officer - Heath Fountain
• Executive Vice President and Chief Financial Officer - Derek Shelnutt

TAKEAWAYS

• Net Income -- $10.5 million, or $0.50 per diluted share, representing a decrease from $10.9 million, or $0.51 per diluted share, in the prior quarter.
• Operating Net Income -- $11.6 million, or $0.54 per diluted share, which excludes acquisition-related expenses and one-time gains.
• Net Interest Margin (NIM) -- 3.59%, reflecting a 7 basis point expansion from the second quarter of 2026 driven by higher earning asset yields.
• Total Loans -- $2.48 billion, an increase of $12.3 million from the prior quarter, representing 2% annualized growth.
• Total Deposits -- $2.96 billion, a decrease of $14.5 million from the prior quarter due to seasonal patterns in the deposit base.
• Operating Return on Average Assets (ROA) -- 1.26%, compared to 1.20% in the prior quarter, surpassing the company's 1.25% short-term objective.
• Operating Pre-Provision Net Revenue (PPNR) -- $16.3 million, an increase from $16 million in the prior quarter.
• Mortgage Production -- $96.5 million, a decrease from $115.4 million in the prior quarter as higher interest rates tempered volume.
• Small Business Specialty Lending (SBSL) -- $29.9 million in loan closings and $12.7 million in sales, representing increases from $13 million and $5.5 million, respectively, in the prior quarter.
• New Loan Rates -- 7.26%, the weighted average rate for new and renewed loans during the third quarter, up from 7.14% in the prior quarter.
• Efficiency Ratio -- 61.89% on an operating basis, representing a slight increase from 61.41% in the prior quarter.
• Wealth Management Assets Under Management (AUM) -- $17 million increase during the quarter, representing 11% annualized growth.
• Tangible Book Value (TBV) per Share -- $15.16, an increase from $15.12 at the end of the second quarter.
• Tangible Common Equity (TCE) Ratio -- 8.99%, remaining flat relative to the prior quarter.
• Marine and RV Lending -- $10 million in loan growth, bringing total outstandings in this segment to $116.8 million.
• Sale-Leaseback Transaction -- $19.9 million aggregate sales price for three retail branches, which is expected to generate a pre-tax gain of approximately $15 million.
• Securities Portfolio Restructuring -- $100 million in underperforming securities yielding approximately 2% targeted for sale to offset the leaseback gain and provide liquidity for loan growth.
• Operating Net Noninterest Expense to Average Assets -- 1.53%, a slight increase from 1.51% in the prior quarter, with a long-term target of 1.45%.
• Provision for Credit Losses -- $1.7 million, a decrease from $1.9 million in the prior quarter.
• Classified and Criticized Loans -- $53.9 million and $103.9 million, respectively, with the increase primarily driven by a single $16 million commercial construction loan relationship.
• Net Charge-Offs -- $1.7 million, or 0.27% of average loans, compared to $1.8 million, or 0.29%, in the second quarter of 2026.

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RISKS

• Fountain stated, "as we integrate First Reliance, we expect ROA to pull back by 10-15 basis points over the next few quarters due to higher expenses associated with operating the combined company on two core systems," noting that full cost savings will not begin until the third quarter of 2027.
• Fountain noted that "as the rate environment remains relatively elevated, we do expect mortgage origination volumes to moderate," as higher rates impact the home sales and refinance pipelines.
• Shelnutt warned that "classified loans and classified loans increased during the quarter and are largely related to one commercial construction loan with one borrower totaling approximately $16 million," though management stated the risk is mitigated by underlying collateral.

SUMMARY

Colony Bankcorp, Inc. (NYSE:CBAN) reported improved financial performance for the third quarter of 2026, supported by net interest margin expansion and the successful execution of its specialty lending and wealth management strategies. Management announced the imminent legal close of the First Reliance partnership on Nov. 1, which will transition the company into a multi-state operation across Georgia and South Carolina. To optimize its financial position ahead of full integration, the company executed a $19.9 million sale-leaseback transaction and initiated a $100 million restructuring of its securities portfolio to redeploy capital into higher-yielding loans. While near-term loan growth has been moderated to approximately 5% by the higher interest rate environment and management's focus on pricing discipline, the company expects significant asset repricing in 2027 to drive further earnings growth.

• CEO Fountain stated, "Completing our partnership with First Reliance is a transformative milestone that significantly elevates our scale and competitive positioning across the Southeast."
• The company expects to maintain a loan growth rate of approximately 5% through next year as it prioritizes profitability over volume in the current rate environment.
• Management identified $223 million in fixed-rate loans at an average rate of 5.21% and $76 million in investments at 1.77% as key opportunities for significant yield pickup when they reprice in 2027.
• The planned systems conversion for the First Reliance merger is scheduled for the second quarter of 2027, with anticipated cost savings beginning to manifest in the following quarter.
• CFO Shelnutt reported that the $100 million security sale will target bonds yielding approximately 2%, with proceeds intended for redeployment into loans with an assumed reinvestment rate of 5.5%.
• The board declared a quarterly cash dividend of $0.12 per share, and management indicated plans to resume systematic stock repurchases following the close of the merger.

INDUSTRY GLOSSARY

• AOCI (Accumulated Other Comprehensive Income): A component of stockholders' equity that includes unrealized gains and losses on certain investments, such as available-for-sale securities.
• First Reliance: Refers to First Reliance Bancshares, Inc., the merger partner for Colony Bankcorp's expansion into South Carolina.
• NIM (Net Interest Margin): A measure of the difference between the interest income generated by a bank and the amount of interest paid out to its lenders, relative to the amount of its interest-earning assets.
• PPNR (Pre-Provision Net Revenue): Net interest income plus noninterest income, minus noninterest expense; it represents a bank's ability to generate income before accounting for credit losses and taxes.
• SBA 7(a): A primary program for providing financial assistance to small businesses through government-guaranteed loans.
• SBSL (Small Business Specialty Lending): The division of the bank focused on government-guaranteed lending, particularly through the Small Business Administration.
• TCE (Tangible Common Equity) Ratio: A measure of a bank's physical capital compared to its tangible assets, used to evaluate the bank's ability to absorb potential losses.

Full Conference Call Transcript

Operator: Hello, everyone. Thank you for joining us, and welcome to the Colony Bank third quarter 2026 conference call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Brantley Collins, Communications Manager. Brantley, please go ahead.

Brantley Collins: Thanks, Megan. 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 risks 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 conditions, prospects, and other results of operations.

Additional cautionary statements related to the First Reliance merger are located in our merger press release, merger investor presentation, and SEC filings, all of which are available on our website. I would also like to add that during our call today, we will reference our third quarter earnings release and investor presentation, which were both filed yesterday. Please have those available to reference. With that, I will turn the call over to our Chief Executive Officer, Heath Fountain.

Heath Fountain: Thanks, Brantley, and thank you to everyone for joining our third quarter earnings call today. We are pleased to report improved financial performance for the quarter, and our team continues to make progress towards achieving our goals. We previously announced that regulatory and shareholder approvals have been obtained for our partnership with First Reliance, and we are expecting legal close to occur on November 1. Both teams have been working diligently toward ensuring a smooth transition for both the upcoming legal close in November and the scheduled systems conversion and customer integration that will occur in the second quarter of next year. We are proud of the progress both teams have made, and we remain on track with our timeline.

We are pleased to have surpassed a 1.25% operating ROA this quarter and believe we are on a good long-term trajectory for continued growth and profitability. However, as we integrate First Reliance, we expect ROA to pull back by 10-15 basis points over the next few quarters due to higher expenses associated with operating the combined company on two core systems until conversion late in the second quarter of 2027. We still feel good about reaching our ROA target of 1.35% or better, but that will occur after we start to realize the full cost savings, which will begin in the third quarter of next year.

Loan growth for the third quarter was around 2% annualized, and that brings us to about 5.4% year-to-date annualized loan growth. Pricing discipline remains a priority for us, and the rising rate environment has tempered near-term loan growth compared to our long-term target of 8%-12%. Repricing of loan renewals from lower rates will continue to provide opportunities to capture increased interest income and drive growth in earning asset yields even as near-term net loan growth is softer. As we look out into next year, given the current economic environment and rate outlook, we think we'll be looking at loan growth around our current level of 5% for the coming year as we continue to prioritize improving profitability.

Margin improved seven basis points from the prior quarter to 3.59% and reflects continued balance sheet improvement and a healthy weighted average rate on new and renewed loans. As illustrated on slide 40, our expected base case repricing unlocks substantial value heading into 2027. The spread between our legacy asset yields and current origination rates will allow us to drive meaningful net interest income growth as those loans and investments reprice. Our non-interest income was strong this quarter, expanding over the prior quarter thanks to disciplined execution and steady growth across our business lines. However, as the rate environment remains relatively elevated, we do expect mortgage origination volumes to moderate.

Higher mortgage rates naturally create a cooling effect on home sales and refinance pipelines, and we are proactively managing that business to align with expected production levels. As we look at the combined company, we expect mortgage production to be softer in the near term compared to our original projections. We are actively rightsizing expenses and operational infrastructure to match expected mortgage volumes while preserving the capacity needed to scale effectively over the long term. Core deposits remain a strategic priority. While competition across our footprint has increased in this rate environment, our team remains disciplined by prioritizing relationship-driven, low-cost operating accounts over high-cost, rate-sensitive deposits that compromise our net interest margin.

This approach aligns with our current lending posture and lower near-term loan growth expectations. Our focus is on efficient balance sheet growth to drive earnings improvement over the long term rather than funding growth at the expense of margin. Treasury yields across the curve have reached multi-decade highs, creating some incremental pressure on our unrealized investment losses and AOCI. The impact today on our portfolio is less pronounced than what we experienced in prior cycles. Our efforts to downsize the bond portfolio and allow duration to shorten have positioned the balance sheet to be more resilient to rate volatility.

Even after absorbing these marks this quarter, our tangible book value per share increased from the prior quarter and our TCE ratio held firm. Yesterday, we also announced a sale-leaseback transaction for three of our retail branch locations with a lease agreement to lease back those branches for an initial 15-year term. There will be no closures or customer impacts as part of this transaction, and the lease term represents a long-term commitment to those markets and to our customers there. We expect a gain on sale of the assets of approximately $15 million, which we plan to fully offset with a strategic sale of underperforming securities.

We plan to redeploy proceeds primarily in loans over the next several quarters, providing liquidity for future growth and improving the position of the balance sheet. While we may be opportunistic in purchasing investments, reinvesting proceeds back into similar duration securities at higher yields is not part of our strategy. The two primary considerations for us to consider a balance sheet restructure have been the ability to improve our net interest rate risk position and to deploy the funds into loans. Derek will provide more detail on the transaction in slides 17 and 18, and our investor presentation gives an overview. We expect the net outcome will be accretive to tangible book value and to earnings.

Looking ahead to the fourth quarter, our primary focus is on execution. Completing our partnership with First Reliance is a transformative milestone that significantly elevates our scale and competitive positioning across the Southeast. We are executing from a position of financial strength, and we are excited about the significant value this combination will unlock heading into 2027. With that, I'll turn it over to Derek to go over the financials in more detail.

Derek Shelnutt: Thank you, Heath. Operating net income increased to $11.6 million in the third quarter, and operating pre-provision net revenue increased to approximately $16.3 million. Earning asset yields increased for another consecutive quarter, leading to margin expansion of 7 basis points to 3.59%. Net interest income increased approximately $508,000, and the driver behind the increase is the new and renewed weighted average loan rate of 7.26%, compared to 7.14% in the previous quarter, and shown on slide 38. Overall cost of funds ticked up slightly to 1.98% from 1.95% in the prior quarter and is representative of the current rate environment and rate outlook.

We expect long-term deposit betas to be in line with the previous cycle, although the timing could be slightly different due to the competitive nature and sensitivity of depositors across the combined company's footprint. Margin is expected to increase in the fourth quarter due to the impacts of purchase accounting and accretion after the close of the merger. We still expect that increase to be largely in line with our initial projections. Heath mentioned repricing in 2027, and we feel that will be a meaningful contributor to net interest income and margin as those dollars reprice.

As shown on slide 40, base case indicates $223 million of fixed-rate loans currently at an average rate today of 5.21%, and $76 million of investments at an average of 1.77%. This provides the opportunity to pick up meaningful yield on the repricing of those assets at today's rates. Operating non-interest income increased $702,000 from the previous quarter to $12.3 million. The quarter-over-quarter increase is primarily attributed to increased deposit related fees, interchange income, and SBA related income. Slide 19 shows the pre-tax performance of our business lines. Mortgage production has slowed in the current rate environment and upon entering a seasonally lower period of activity. Marine and RV lending shows a decline in pre-tax income.

However, we allocate funding costs based on market-driven funds transfer pricing, and those costs were higher in the quarter due to market dynamics. Those costs are eliminated on a consolidated basis but are included in their standalone metrics. For marine and RV lending, interest income grew by $190,000 in the quarter, and loans outstanding increased about $10 million. Colony Financial Advisors' pre-tax income slightly decreased quarter-over-quarter due to additional commission income in the second quarter. AUM increased $17 million quarter-over-quarter, or about 11% annualized. The SBSL division improvement during the quarter is related to the increased gain on sale of SBA loans.

Production also increased during the quarter, but the production we are seeing in SBSL is primarily construction-type loans that will be sold in the next year. Additionally, in non-interest income, we received insurance proceeds related to a loss at one of our banking center locations, which is treated as a one-time gain under GAAP. We also sold a small amount of securities for a loss during the quarter. Both of these items are excluded from operating non-interest income. Operating non-interest expenses increased $950,000 in the third quarter. Roughly half the increase was in loan-related expenses for the SBSL division, and the other driver was related to performance-based compensation.

Overall, our operating net non-interest expense to average assets was 1.53%, up slightly from 1.51% in the second quarter. Our long-term goal on net NIE is still 1.45%, but it will take several quarters to shift back toward that number. After legal close with First Reliance, we will have elevated expenses until core conversion late in the second quarter of 2027. We still feel comfortable with our merger-related cost save projections, but will not begin to see those until the third quarter of 2027 after the system's conversion. Provision expense totaled $1.65 million and was a slight decrease from the prior quarter.

Net charge-offs were slightly lower than last quarter, and charge-offs from SBSL were lower in the third quarter by $450,000. Included in the charge-off number for the third quarter is a charge-off related to a legacy TC Federal loan. During the third quarter, we became aware of circumstances related to one loan that existed prior to the merger with Colony. Because the underlying conditions were present as of the merger date, we recognized a $575,000 measurement period adjustment to our credit loss reserve and goodwill. The amount was then charged off at the end of the quarter, and excluding that one item, charge-offs would've been approximately $1.1 million.

Criticized loans and classified loans increased during the quarter and are largely related to one commercial construction loan with one borrower totaling approximately $16 million. Based on recent appraisals, we are adequately collateralized, which should help mitigate our ultimate risk as we manage the credit towards resolution. This downgrade reflects circumstances specific to this individual borrower and is not indicative of any broader systemic trends across our loan portfolio. The overall levels of criticized and classified loans represent a relatively low level compared to our total loans and below our targeted thresholds. First Reliance also has strong credit quality, and when combined, those levels also represent a small percentage of total loans.

Heath mentioned loan growth for the quarter, and on a year-to-date basis, loan growth is approximately 5.4% annualized. Looking ahead to repricing in 2027 as lower yielding fixed rate loans approach maturity, we have the ability to be competitive on pricing while also capturing meaningful yield pickup on those loans and maintaining those loan relationships. As Heath mentioned, looking ahead to next year's loan growth, in the current environment, we are projecting a similar 5% growth as we continue to focus on pricing discipline and profitability. Total deposits declined $14.5 million during the quarter, and is representative of the seasonality of our deposit base.

We prioritize growing core relationships over rate sensitive high cost deposits and believe this approach enhances our core deposit franchise. This week, the board declared a quarterly cash dividend of $0.12 per share. TCE at the end of the quarter was 8.99%, which is flat compared to the second quarter. Tangible book value per share increased to $15.16, up from $15.12 in the prior quarter, both slightly impacted by an increased AOCI loss position. We paused stock repurchases during the quarter due to the pending merger with First Reliance. However, we do expect to be active again as appropriate after the close of the merger.

Heath mentioned we completed a sale-leaseback transaction this week, and on slide 17 and 18, we provide an overview. The aggregate sales price was $19.9 million, with a total first year base rent of $1.65 million subject to 2% annual escalations. On a GAAP basis under lease accounting, we expect expense to increase by $1.8 million annually, net of the current depreciation expense on those locations. That represents an expense that's less than 1.5% of the combined company's projected expense base. We expect a pre-tax gain of approximately $15 million, which will be offset with the sale of underperforming available-for-sale securities.

The current tax adjusted unrealized losses on AFS securities are recorded in the AOCI, but the gain on the sale of the buildings is not, therefore will be accretive to tangible book value with neutral regulatory capital impacts. The purpose of this strategic repositioning is to improve our balance sheet health, improve our interest rate risk profile, and give us flexibility while providing liquidity for future loan growth. We expect to sell approximately $100 million of securities currently yielding around 2%. We expect the redeployment of the proceeds from both the security sale and the building sales to be in a combination of loans, cash or short to medium duration securities that provide liquidity and cash flow going forward.

Redeployment and loans gives us the opportunity to be competitive on high quality credit opportunities while realizing a meaningful pickup and yield compared to the securities sold. Our reinvest assumption is 5.5%, and we expect to redeploy more than half the proceeds into loans over the next several quarters while keeping the remainder for liquidity. We expect this to ultimately result in accretion to margin and ROA of about a few basis points. However, the timing of that full realization will not happen until late next year. We will maintain appropriate on-hand cash, but may purchase short-term T-bills to align with loan funding expectations and projections.

We will be opportunistic on the purchase of investments that are short to medium duration, but this is secondary to lending and liquidity. Our objective is to unlock liquidity from underperforming securities to position us for future loan growth and improve our interest rate risk profile, not to reinvest back into similar duration bonds simply for the yield pickup. We expect the increased interest income to be greater than the lease expense, leading to increased overall earnings. First Reliance reported their third quarter results yesterday, and they were largely in line with our expectations and projections. Our projections on the impact of the First Reliance merger remain in line with what we reported at announcement.

Of course, since we made that announcement back in June, we've seen increases in medium and long-term rates. Given the shorter duration of their loans and investments, we do not expect those to have a major impact on our initial projections on earnback. The slight increase we may see on day one marks would be offset by higher accretion. That concludes my overview, and now I'll turn it back over to Heath before we take questions.

Heath Fountain: Thanks, Derek, and thanks everyone again for being on the call today. We're pleased with our performance this quarter, which met our expectations for performance and exceeded external expectations. I'm proud of how our team executed on achieving our desired results from the TC Federal merger, which positions us well for our upcoming merger with First Reliance and demonstrates the strength of our M&A strategy to gain scale and improve operating performance. Further, our expense and pricing discipline set us up well to finish the year strong. That wraps up our prepared remarks. With that, I'll call on Megan to open up the floor for questions.

Operator: Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of David Bishop with Hovde Group. Your line is open. Please go ahead.

David Bishop: Hey, good morning, Heath, Derek. How are you?

Heath Fountain: Good morning, Dave.

David Bishop: Hey, Heath. Noted your comments regarding the expectations for loan growth sort of settling into the 5% range. It sounds like your origination yields came up. Is that sort of the factor governing the growth? It is just less projects, you are maintaining your pricing discipline and that is sort of impacting some of the ability for some of these projects to pencil out. I guess, are you pricing above the market? Just curious what is sort of leading to that conservatism relative to loan growth versus the longer-term growth rate.

Heath Fountain: Yeah, Dave, good question. I think it's really a couple of things. One is, we are seeing some softening of real estate projects overall, just in the higher rate environment. So you are seeing that pull back a little bit. We are seeing, though, plenty of volume to look at, but just isn't meeting our pricing parameters. I think we've seen as rates have gone up, that spread between where we wanted to be and maybe where the competition was has come in some. So I think that's a good thing and should help us with some loan growth going forward.

Then as we talked about, as Derek did with the repricing and the liquidity pulling some things off of our balance sheet from a lower yield allow us to, I guess, narrow the gap in that pricing we're seeing out there and allow us to generate. But just don't feel like at those 8%-12% for a little bit. I think it's still going to be a little pullback in that 5% range, and we're okay with that, just because we have those levers to pull margin up and overall yields up. So, just trying to balance that tension between growth and profitability improvement.

We think that around that 5% spot puts us in a nice place where we can achieve both.

David Bishop: Got it. Then you mentioned the ability to maintain the margin and obviously the restructuring helps here. Just looking at the, I appreciate all the color in the slide deck related to the repricing. Looks like you guys are in a good position to continue to expand the margin into 2027. Is that sort of your expectations? You see a continued move up, irrespective of what purchase accounting accretion does?

Heath Fountain: Yeah, I think our core margin, without that accretion, will continue to modestly move up just because of the structure of the balance sheet getting that repricing. I think there's an opportunity there, and even where current loan rates are relative to where we'll have stuff roll off, we should, and even considering some increase in the deposit competition. But we feel pretty good about that core margin. Then, on First Reliance and the accretion there, they're running a slightly higher margin than us already anyway. Then, the ability to get that reprice, again, that helps us be able to see profitability improvement with maybe less modest loan growth than we've had in the past.

Certainly feel like at some point, as we have more clarity on where long-term rates are going, I think we'll get back into the larger levels of loan growth, more in that 8%-12% range that we've. I think we've averaged about 12% organic growth over the last eight years since I've been here at Colony. So we think we'll get back to that. We just don't want to do that at the expense of margin improvement till we get to a healthier margin.

David Bishop: Got it. I guess one final question, you noted the increase on the classified loans. Any more details you can share just in terms of that particular borrower? It sounds like that's a pretty isolated incident, correct?

Heath Fountain: Yeah. Nothing that we see spilling over into other things, just kind of an isolated situation. Think it's a good project still and something that could potentially move forward. Just on some of these deals, you get to a situation where the project and the capital inputs from the borrowers didn't exactly align and the partners. So I think over the next quarter or two, we'll work through that and get that resolved. So, we feel good about the collateral. We have multiple pieces of collateral on that, but we just got to work through that situation.

David Bishop: Appreciate the color.

Operator: Your next question comes from the line of Chris Marinac with Brean Capital. Your line is open. Please go ahead.

Chris Marinac: Hey, good morning, Heath and Derek. I wanted to ask about the mortgage business real quick and just kind of your thought as a combined company. Does the external mortgage market have any sort of negative implications for the next year, or can you kind of work around it and continue to grow with the core bank?

Heath Fountain: Yeah, I think, in the long term, we love the mortgage business. I think it's a critical part of driving a solid community bank deposit franchise. There are just so many reasons that having a healthy mortgage business is good. Obviously, in the short term, it is a more cyclical and volatile business line, especially when you see rates move pretty quickly, which we've seen over the last several months. Having a larger combined company in mortgage gives you a better ability to ride out these rate challenges. It just gives you more operating leverage, more leverage you can pull to manage that. We're working through that. We love the business in the long term. We've got a great team.

The idea is, we just have to manage that from an expense base so that it doesn't become a drag during times like this when it's a little tougher, but still be opportunistic for the long term. Sometimes high rate environments are great recruiting periods for bringing on MLOs as well because they're not leaving behind a big pipeline at other places. It's just managing that, and I think that a larger platform just gives you more leverage you can pull on that. Also, First Reliance has a third-party origination platform, which is just another lever you can pull to optimize volume and expenses.

We're still very excited about that business, and we really think it's part of the core long term of how you build a good both fee side of your business, but also how you build a strong deposit base.

Chris Marinac: That's helpful. Thank you for that. I appreciate it. Back to your main business on loans and deposits. What do you see as the deposit gathering outlook, not just for Colony standalone, which still has a really low cost base, but also combined and maybe the new opportunities that the South Carolina team brings you just on core funding in these next several quarters?

Heath Fountain: Well, so I think both organizations have just a fantastic deposit base and a very similar deposit base and a really good mix of retail and commercial customers. This lower loan growth period has given us time to really focus on, and focus our commercial bankers on deposits and deposit relationships. We certainly think that going into South Carolina and those bankers having a larger platform opens up larger lending opportunities. That also opens up the ability to go after core operating businesses and their deposits that they may not have been able to go after before. I think we have an opportunity to invest, as a combined company, in more retail deposit growth strategies.

Both companies have done a good job of growing retail deposits, but with a wider deposit base and more resources, I think investing in good technology continue to make the deposit account opening process really smooth and easy. I think another big driver that I think is a long-term driver deposit growth, when you look at the ability to add our wealth platform across South Carolina. I think our wealth team does a good job of using those relationships that they have in and outside the bank to help grow the core deposits of the bank as well.

I think there's a lot of opportunities, new opportunities in South Carolina, but opportunities as a larger organization with more resources to invest in that consumer and commercial deposit account experience is going to improve on, I think, our treasury and what we talk about in the past, Chris, our banking solutions group, the ability to have a deeper treasury platform to offer merchant services, credit cards from a payment perspective, not a balance perspective. Those are all new tools for those bankers in South Carolina, or enhanced tools that are helpful in going out and originating deposit business.

Chris Marinac: Great. That's good. Thank you for that. Just a last quick question for Derek on the securities portfolio. I think you said 550 was your yield assumption. What does that imply for duration? I also was curious if you will still have that same relationship on what's AFS versus held to maturity, or if that might change.

Derek Shelnutt: Yeah. So a couple of things there. On the 5.5% reinvest assumption, that's primarily into loans. So right now, we're looking at lending five years or less. So you're looking at a lower duration compared to ultimately what we're selling out of in the securities book. So that improves our interest rate risk position. We'll keep some of that in short-term liquidity, just with the expectation of future growth there. I will comment and say that the 5.5% reinvestment assumption is over time. It will take us a couple of quarters to redeploy those net proceeds into loans, just as we kind of see deals that we like over the next few quarters.

So that's kind of the long-term benchmark on the 5.5%. But the ultimate goal there is ultimately shortening the duration, compared to the securities that we're selling out of. On the HTM AFS mix, we're selling legacy Colony AFS securities, and next week we're bringing on First Reliance's investment securities and marking those to market. Our intent is to keep those in AFS. So really you should see a pretty similar mix on the other side of this because we're selling out of these AFS securities coming up soon, but we're also bringing on the First Reliance side through the merger.

Chris Marinac: Got it. Thank you very much. That's helpful, and I appreciate you taking our questions this morning.

Heath Fountain: Thank you, Chris.

Operator: Your next question comes from the line of David Bishop with Hovde Group. Please go ahead.

David Bishop: Hey, just a couple follow-ups. I think you said you're out of the market on share repurchases with the close of the acquisition. Do you think you start to sort of re-up and get more active on that front?

Heath Fountain: Yeah. Good question, Dave, and we do expect to be active again. One of the things that improved profitability and lower growth allows you to do is have more leverage you can pull on capital management. I think we have historically been opportunistic and will continue to be opportunistic if market situations give us the opportunity in pricing. I think going forward, what we're also looking to do while we're in a period of really good profitability and a little bit lower growth, is to be more systematic with our repurchases over time.

What I think you can expect to see is some systematic repurchases each quarter, and then being more opportunistic if overall macro market moves give us the opportunity to do that.

David Bishop: Got it. Then, good quarter for the SBSL group. Just curious expectations heading into the final quarter into 2027. Thanks.

Heath Fountain: Yeah. The SBSL group has done a fantastic job. It's a great line of business. Darren Davis that runs that is one of the best leaders we have in the company and does a great job there. They've really strategically shifted that business over the last year to more traditional 7(a), more real estate based. During that transition, we saw a little lighter production. We've seen that production pick back up. As Derek indicated, we are doing a decent amount of construction in some of those originations, so that'll build up and some of those sales will come into next year, which is building a nice, healthy revenue pipeline as we look at next year.

Then we've also seen Darren brought in some new sales management, and they've really done a great job of focusing on our bankers and our legacy markets, not just traditional SBA referral channels. It's been top of mind. We've seen some good increase in activity from our markets. Of course, adding South Carolina, that's just another tool that those bankers will have with a full-service SBA group that they haven't had in the past. We think we should see activity pick up from that as well.

David Bishop: Got it. Makes sense. Thanks for the color.

Heath Fountain: Yep.

Operator: There are no further questions at this time. I will now turn the call back to Heath Fountain for closing remarks.

Heath Fountain: Well, thank you again for everyone for being on the call today. Thanks for your support of Colony Bankcorp. We are excited about the opportunities ahead. We are pleased with how things are progressing, and we appreciate you being on the call today. Thank you for your support.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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