Colony Bankcorp (CBAN) Q1 2026 Earnings Transcript

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DATE

Thursday, April 23, 2026 at 9 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — T. Heath Fountain
• Chief Financial Officer — Derek Shelnutt

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TAKEAWAYS

• Operating Net Income -- $9.5 million, reflecting growth with full post-merger contribution and compared to the previous quarter.
• Operating Pre-Provision Net Revenue -- $13.9 million, up approximately $1.3 million sequentially from Q4 2025.
• Net Interest Income -- Increased by about $3.3 million versus the prior quarter, primarily due to merger impacts and balance sheet repricing.
• Net Interest Margin -- Increased 16 basis points to 3.48%, driven by loan accretion from acquired TC Federal loans; core margin excluding this accretion was 3.41%.
• Operating Noninterest Income -- $10.7 million, up $1.7 million year over year.
• Mortgage Pretax Income -- $222,000, significantly higher than $31,000 in Q1 2025, reflecting improved production and margin.
• Colony Financial Advisors AUM -- $555 million, up from $198 million a year ago.
• Colony Insurance Pretax Income -- Best quarter to date, with recent rate reductions expected to further benefit volume and profitability.
• Small Business Specialty Lending (SBSL) Pretax Income -- $95,000, decreased due to lower revenues and higher charge-offs; past dues declined by about 30%, and nonaccruals declined by around 24% from the prior quarter.
• Loan Growth -- Loans held for investment grew by $32.2 million, or approximately 5.4% annualized, below the targeted 8%-12% range due to payoffs and softer demand.
• Weighted Average Rate on New and Renewed Loans -- 7.11% for the quarter, with portfolio yields at 6.35% partially boosted by accretion income.
• Total Deposits -- Declined by $19 million, primarily from a $30 million repositioning of municipal funds after year-end tax collection.
• Allowance for Credit Losses -- 0.90% of total loans and 122% of nonperforming loans at quarter-end.
• Nonperforming and Classified Loans -- Both decreased sequentially, signifying improving credit quality.
• Operating Noninterest Expense -- $26 million, reflecting integration costs that are anticipated to decline in coming quarters as cost savings are realized.
• Net Noninterest Expense to Average Assets -- 1.68%, expected to trend down to 1.45% over subsequent quarters.
• Share Repurchases -- Approximately 89,000 shares repurchased at an average price of $19.78 per share during the quarter.
• Dividend -- Quarterly cash dividend of $0.12 per share declared.
• Tangible Common Equity (TCE) -- 8.49%, up from 8.30% in Q4.
• Tangible Book Value Per Share -- $14.65, up from $14.31 sequentially and $13.46 the previous year.
• Merger-Related Expenses -- $1.6 million incurred during the quarter, related to final integration activities.
• Kroll Bond Ratings -- Credit ratings for the company and bank affirmed with a stable outlook.

SUMMARY

Colony Bankcorp (NYSE:CBAN) completed its core system conversion and customer integration following the TC Federal merger, resulting in sequentially higher operating income and efficiency gains. Management expects further operational leverage as merger expenses decrease and business lines benefit from seasonally increased activity. The quarter featured significant asset growth in Colony Financial Advisors and improved pretax profitability in mortgage and insurance divisions. Nonperforming and classified loans, as well as charge-offs, declined, supporting management’s emphasis on proactive credit risk mitigation. The company is shifting focus to organic growth and potential acquisitions in Georgia and neighboring states, seeking opportunities from ongoing market consolidation.

• Fountain stated, "we're confident in our ability to scale toward a 1.20% ROA benchmark in Q2," highlighting expectations for higher efficiency and profitability in the coming quarter.
• Management noted the margin in Q2 "may be a few basis points lower next quarter without the additional lift" from merger-related loan accretion, indicating normalization from a nonrecurring income source.
• Recent hiring and dual program transitions in Colony Financial Advisors and the insurance division contributed to record pretax earnings and expanded future revenue potential alongside higher expenses.
• Fountain said the company is "actively evaluating opportunities that align with our strategic and cultural criteria" for further M&A transactions, signaling a clear acquisition strategy focused on culture and profitability fit.
• Fountain explained, "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," clarifying risk expectations for that segment.
• Merchant services and banking solutions were cited as effective means for deposit acquisition and recurring revenue growth, with integration efforts streamlining cross-selling and customer onboarding.

INDUSTRY GLOSSARY

• SBSL (Small Business Specialty Lending): A bank division focused on originating and managing specialized loan products tailored to small business clients, often including nontraditional or government-backed credit lines.
• AUM (Assets Under Management): The total market value of assets overseen by Colony Financial Advisors, reflecting scale and growth in wealth management operations.
• Accretion Income: Interest income recognized on acquired loans, particularly due to early payoffs or resolution of purchased loans following a merger.
• TCE (Tangible Common Equity): A key regulatory capital metric representing common equity minus intangible assets, measured as a percentage of tangible assets.
• AOCI (Accumulated Other Comprehensive Income): An equity account reflecting unrealized gains and losses on securities and certain other items, impacting overall book value but not operating earnings.

Full Conference Call Transcript

T. Fountain: 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 the combined company post merger.

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 NPLs and the 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 lines.

These are highlighted on Slide 17, and you can see the past quarter showed meaningful improvement on a combined pretax basis compared to the first quarter of last year. Loan production and sales were higher in our mortgage division compared to the same period last year. Pretax 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 Colony Financial Advisors, and we are proud of the progress the division continues to make. Recruiting has been strong with the addition of several new advisers 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 in 2025. This represents significant growth since the formation of Colony Financial Advisors in late 2022. Colony Insurance also had their best quarter to date in Q1 for pretax 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 secured loans versus the small dollar loans, we see this as an opportunity for steady volume and improved revenues. Past dues for SBSL were down about 30% and nonaccruals 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 a National Sales Manager, John Kay in SBSL 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 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 strategy.

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-touch 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 at scale, and we are actively evaluating opportunities that align with our strategic and 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 our team has done a great job through our post-merger systems conversion as well as continuing to execute on many of our strategic objectives. 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.

Derek Shelnutt: 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 3 basis points to 2.28%.

Our overall cost of funds remained relatively stable, decreasing 2 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. Heath mentioned the 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 are 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 the core margin in the second quarter under our base case assumptions, which means we are likely to see margin a few basis points lower in the second quarter.

Operating noninterest 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 in our complementary business lines. Compared to the same quarter last year, operating noninterest income increased $1.7 million from $9 million in the first quarter of '25. On Slide 17, we illustrate pretax income by business line. Mortgage pretax income was $222,000 compared with $31,000 in the first quarter of last year. Slide 19 overviews production and sales volume by quarter with the first quarter of 2026 showing meaningful increases in both production and sales compared to 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. Heath mentioned the growth in Colony Financial Advisors and on a pretax 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 advisers. Colony Insurance had a great start to the year in the first quarter.

Heath 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. SBSL pretax income decreased to $95,000 in the quarter. This was driven by lower revenue and higher charge-offs. Slide 18 shows the production and 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 SBSL 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 held-for-sale classification at the end of the year. We do not anticipate any other pool sales in the near term. Operating noninterest 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 the merger. Now we are positioned to begin seeing additional cost savings beginning in 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 noninterest expense to average assets was 1.68% for the quarter, and this is reflective of seasonally lower activity in our business line as well as the additional expenses through systems conversion. We expect this to trend towards our target of 1.45% over the next several quarters. And merger-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. Net charge-offs by type on Slide 32.

And while there was a slight increase in core bank loan charge-offs, it only represents $315,000 or about 5 basis points of average loans. Both nonperforming loans and classified loans decreased quarter-over-quarter. The allowance for credit losses was 0.90% of total loans and 122% of nonperforming loans. As you may remember from last quarter call, a large percentage of the increase in classified and criticized loans starting in the fourth quarter was a result of the TC Federal merger. Loans held for investment increased $32.2 million or around 5.4% annualized. There were early payoffs on acquired TC Federal loans and 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 after year-end tax collection. Municipal deposit balances declined approximately $30 million in the first quarter. Our deposit pipeline still see 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 M&A disruption in our markets. Deposits remain a key focus in our strategic growth plan. 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 AOCI slightly improved quarter-over-quarter despite an increase to interest rates along the curve. This reflects the continued strengthening of our balance sheet health. TCE at the end of the quarter was 8.49%, an increase from 8.30% in the prior quarter and tangible book 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.

T. Fountain: 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 J.L. to open up the line for any questions we have.

Operator: [Operator Instructions] Your first question comes from the line of David Bishop of Hovde Group.

David Bishop: I'm just curious from the Small Business SBSL segment, is that sort of the key driver of this sort of recent uptick in the loan loss provisioning level this quarter and last? And is this something we should maybe get used to a run rate close to -- closer to $2 million per quarter? You see -- I think you said last quarter, you're trying to migrate away from maybe the Express and Lightning type credits. Do you see maybe some of the credit headwinds sort of abating the latter half of the year as we sort of roll off the books?

T. Fountain: Yes, Dave, I think what I would expect to see is volumes pick back up and the overall profitability of that division and revenues get back closer to levels we saw in the middle of last year. On the provisioning and charge-off levels, I think going forward, where 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 depending on the charge-off activity. So even though it's small in relative dollars, we're replenishing those reserves.

David Bishop: Got it. And then I think I heard you say, Heath, at the start of the call, I feel good about the loan pipeline replenishing here. Still talking about 8% loan growth rate. I'm just curious where you're seeing the best opportunity to grow the portfolio and where you're seeing current pricing?

T. Fountain: Yes. No. So Derek mentioned, start off with pricing, we were around 7 -- a little over 7% for the quarter. Of course, prime around 6.75%. It's looking like that will be stable. We are seeing 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 committed to good solid pricing. We think that's important. Relationship pricing, we will look to 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 -- but it is competitive out there. I think we're seeing it geographically across the board. And I would say there's -- it would look like our current portfolio. So obviously, commercial real estate, we're seeing good opportunities there, but also on the commercial business side, C&I, we're seeing good opportunities there as well. So I think we'd see it track similar to the breakdown of our portfolio today, and we are seeing it pretty good across our footprint.

David Bishop: Got it. And then one final question, I guess, I'll before I hop in the queue. The insurance group, you recognize their contribution here. Do you think pricing and conditions can improve that market, you can continue to see an uptick in pretax profitability there this year?

T. Fountain: Yes. I do think we will -- last year, we've added the LOB agency to that team. And we got through that integration at a time where we were seeing rate increases and it was a tougher environment. We're now starting to see some rate decreases. Plus we also had the time to integrate 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 grow. So I think we'll continue to see good things out of the insurance group.

Operator: Your next question comes from the line of Christopher Marinac of Brean Research.

Christopher Marinac: Can you talk 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?

T. Fountain: Yes, 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 moved 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 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 charged.

So we find that customers really are happy to meet with us on our 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 in the banking solutions team altogether, how that's integrated and made it simpler for us. It leads to a quicker time to win a relationship. And so we're very pleased with how that group has performed.

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

T. Fountain: Yes, I think so. I mean if you look at 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. I mean, obviously, that depends on the level of growth that we see. And as Heath mentioned earlier, we're starting to see some competition there on loan pricing. So that will have some impact there as well. But I do think that we have the possibility to see that continue to kind of chug along and increase over time outside of the impact of any accelerated accretion that will see the impact overall loan yield.

And Chris, if you think about it, even if we pull back a little bit on our new and renewed rate yield, there's still a delta there between where our portfolio yields. I think for the quarter, it was 6.35%. Now some of that 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 the amortization that's running off any payoffs that we get that are at those lower yields that were -- previously that are starting to renew and amortize. So we feel like that place on the asset side, there's really -- we should see continued improvement there.

Christopher Marinac: Great. And last one for me just has to do with the 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 next year?

T. Fountain: Yes. Very much so. We're very focused on that. And again, we look at that from the standpoint of our net NIE, which was 1.68%, and we should start seeing that trend towards that 1.45%. We'll have merger expenses or additional staffing and contract expenses from TC that were in Q1 that will have rolled off many of them, the staffing side is done and most of the contract expenses are done now or will be done during the quarter. And so you'll see improvement there.

Where we will see -- we expect some of the variable expenses in our business lines to increase a little bit as we go through Q2 and Q3, which are seasonally higher plus the return of SBSL. And I just point out, 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, mortgage improvement for seasonality. You can look on our mortgage slide and see how that Q1 is always a light quarter, but a 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.

Operator: And we have a follow-up question from David Bishop of Hovde Group.

David Bishop: Maybe just curious, now that you have TC Federal behind. From an acquisition perspective, just curious what might be in your target sights here? There's been a lot of consolidation within your markets. Just curious where you're focusing your efforts these days on potential acquisitions?

T. Fountain: Yes. Thanks, Dave. Good question. And we do believe we're in a place we've gotten the TC Federal integration complete, and we are actively having conversations. It's an area of focus for our team, but particularly for me. And so we're out being very active throughout our footprint. On Slide 14, we laid out 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 will be a good fit. The TC merger, I think, just shows how a good cultural fit is important.

It made the integration much easier both from the team member side, but also from the customer side. And so our focus is really on strategic deals where we can have alignment with the other bank's management team, and they view it as an opportunity to continue their investment and see that the combined company can be more profitable, have more scale and also have additional products and services and larger lending limit 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 we are at the place now where we feel good about being able to start the 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.

Operator: 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.

T. Fountain: Thanks, J.L., and thanks again, everyone, for being on the call today and for your support of Colony Bancorp. We're excited about the opportunities ahead and appreciate you being on the call today.

Operator: This concludes today's conference call. You may now disconnect.

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