Q3 2024 Colony Bankcorp Inc Earnings Call
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Operator: Good day, everyone, and welcome to today's Colony Bancorp 3rd quarter 2024 conference call. At this time, all participants are going to listen to your own expense, or later you will have an opportunity to ask a question, offering the question and answer session. You may register to ask a question at any time by pressing star one on your phone. You may withdraw yourself from the queue by pressing star two.
Operator: Good day everyone and welcome to today's Colony Bank 3rd Quarter 2024 Conference Call. At this time all participants are on a listen-only mode. Later you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star one on your telephone keypad. You may withdraw yourself from the queue by pressing star two. Today's call is being recorded. I will be standing by if you should need any assistance.
Operator: Today's call is being recorded. I will be standing by if you should need any assistance.
Derek Shelnutt: It is now my pleasure to turn the conference over to Mr. Derek Shelnutt.
Operator: It is now my pleasure to turn the conference over to Mr. Derek Shelnutt.
Derek Shelnutt: Thanks, Marjorie.
Derek Shelnutt: Thanks Marjorie.
Derek Shelnutt: 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 1936. and the Securities Exchange Act of 1994.
Derek Shelnutt: Before we get started, I would like to go through our standard disclosures. Certain statements we make on this call could be constituted as forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Current prospective investors are cautioned that any such forward looking statements are not guarantees a future performance, but evolve known and unknown risk and uncertainty. Factors that could cause these differences include, but are not limited to, epidemics, variations of the company's assets, businesses, cash flows, financial conditions, prospects, and other results of operation.
Derek Shelnutt: Current and prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance, but involve known and unknown risk in Factors that could cause these differences include, but are not limited to, pandemics, variations of the company's assets, businesses, cash flows, financial...
Derek Shelnutt: prospects, and other results of our I would also like to add that during our call today, we referenced both our earnings release and our quarterly investor presentation, both of which were filed please have those available.
Derek Shelnutt: I would also like to add that during our call today we are a reference both our earnings release and our quarterly investor presentation, both of which were filed yesterday. So please have those available to us.
Derek Shelnutt: And with that, I will turn the call over to our Chief Executive Officer.
Heath: With that, I will turn the call over to our Chief Executive Officer.
Heath: He's found. Thanks, Derek. And thanks to all of you joining our third quarter earnings call today.
Heath: Thanks, Derek, and thanks to all of you joining our third quarter earnings call today.
Heath: Before we get started on the quarterly results, I just want to say a few words about the impact of Hurricane Helene on our team. Our customers and communities that happened right at the end of the third quarter. We were very fortunate that none of our team members were injured by the storm, in spite of the fact that about 10% of our team were impacted by damage during the storm, or 10% or more. Several of our communities were impacted significantly with tree damage, wind damage, power outages, and the like today. Those communities have power restored. They've moved back to some level of normalcy.
Heath: Before we get started on the quarterly results, I just want to say a few words about the impact of Hurricane Helene on our team, our customers, and communities that happened right at the end of the third quarter. We were very fortunate that none of our team members were injured by the storm, in spite of the fact that about 10% of our team were impacted by damage during the storm, or 10% or more. Several of our communities were impacted significantly with tree damage, wind damage, power outages. and the like. Today, those communities have power restored. They've moved back to some level of normalcy.
Heath: I'm really proud of how our team stepped up to help each other and their communities, whether it was serving over 2,000 meals immediately after the storm. manning chainsaws to clear roadways and driveways, or making financial contributions to help their fellow. team members and members of their community. Our team really went above and beyond my expectations and in true community bank fashion they stepped up and I'm really proud of our response. While many of our communities were hit with that storm, we did not see near the level of devastation. that was seen in some areas like eastern Tennessee and western North Carolina.
Heath: I'm really proud of how our team stepped up to help each other in their communities, whether it was serving over 2000 meals immediately after the storms. Main and chain souls to clear roadways and driveways are making financial contributions to help their fellow team members and members of their community. Our team really went above and beyond my expectations and true community bank fashion. They stepped up, and I'm really proud of our response. While many of our communities were hit with that storm, we did not see near the level of devastation that was seen in some areas like eastern Tennessee and western North Carolina.
Heath: We don't expect any material financial impact from the storm at this time, but our thoughts and prayers are certainly with all those impacted by Hurricane Helene and other resources.
Heath: And we don't expect any material financial impact from the storm at this time.
Heath: But our thoughts and prayers are certainly with all those impacted by Hurricane Helene and other other So now I'll move into our operating results.
Heath: and storms. So now move into our operating results. We're really pleased with the quarter. Glad to see continued progress being made in our complimentary lines of business, which reported to us. Our operating net income increased 238,000 during the quarter as we saw increases in both net interest income and non interest income. All of our complimentary lines of business were profitable in the third quarter, and combined pre-tax net income increased over 20%. Net interest income increased approximately 132,000 in the third quarter. And this is the first quarter-over-quarter increase in the past year. And we saw that despite a slight decrease in margin during the quarter.
Heath: We're really pleased with the quarter. Glad to see continued progress being made in our complimentary lines of business, which are important to us. Our operating net income increased $238,000 during the quarter as we saw increases in both net interest income and non-interest income.
Heath: All of our complementary lines of business were profitable in the third quarter and combined. pre-tax net income increased over Net interest income increased approximately $132,000 in the third quarter, and this is the first quarter-over-quarter increase in the past year. And we saw that despite a slight decrease in margin during the quarter. With the rate environment changing in the latter part of the third quarter and the Fed beginning to ease, it has allowed us to focus on reducing our funding costs and it's relieved a lot of pressure on both the pricing of deposits and the competition that we've seen for deposits.
Heath: With the rate environment changing in the latter part of the third quarter and the Fed beginning to ease, it has allowed us to focus on reducing our funding calls. And it's relieved a lot of pressure on both the pricing of the deposits and the competition that we've seen for deposits. We still have a lot of opportunity, though, for earning asset yields to continue their climb. So it leads us to a point where we do feel comfortable that we see the bottom of margin decline and expect margin to expand going forward. We'd expect that to be rather modest to start with and then improve further as we get into 2025.
Heath: We still have a lot of opportunity, though, for earning asset yields to continue their climb. So it leads us to a point where we do feel comfortable that we've seen the bottom of margin decline and expect margin to expand going forward.
Heath: We'd expect that to be rather modest to start with and then improve further as we get into 2025. total deposits grew in the third quarter, and we saw customer deposits return after seasonality that we mentioned on last quarter's call. Along with deposit growth, there was some mixed shift that occurred where we saw CD and money market accounts increasing and DDAs decreasing, which had a negative impact on our margin for the quarter. We were pleased to see loan growth tick up a little bit. So we were around 4% on an annualized basis, a little over 20 million for the quarter.
Heath: Total deposits grew in the third quarter, and we saw customer deposits return after some seasonality that we mentioned on last quarter's call. Along with deposit growth, there were some mixed shifts that occurred where we saw CD and money market accounts increase, and the DDA's decreasing, which had a negative impact on our margin for the quarter. We were pleased to see long growth tick up a little bit, so we were around 4% on an annualized basis, a little over 20 million for the quarter. We are starting to see the pipeline pick up, but it does take some time to get stuff through the pipeline.
Heath: We are starting to see the pipeline pick up, but it does take some time to get stuff through the pipeline. We would expect to see similar loan activity in the fourth quarter. It could be down a little.
Heath: We would expect to see similar loan activity in the fourth quarter. It could be down a little. We do expect some large payoffs in Q4 that could put pressure on our long growth, but we do expect to get back to more normalized growth rates for us in 2025.
Heath: We do expect some large payoffs in Q4 that could put pressure on our loan growth, but we do expect to get back to more normalized growth rates for us in 2020.
Heath: In the second quarter, we did have some increases in our non-performing loans, and or in the second quarter, non-performing loans and criticize where it historic lows. So we did see some increases this quarter, so white and unusual coming off those lows. But we still feel good about credit quality, and we're not seeing anything pop up that gives us concern about any larger issues or systemic weakness. I mentioned our complementary lines earlier. Our increase in non-interest income was led by good quarters for both mortgage banking and for our SPSL. Mortgage rates did go down a little bit in the third quarter.
Heath: In the second quarter, we did have some increases in non-performing loans and, or in the second quarter, non-performing loans are criticized were at historic lows. So we did see some increases this quarter, somewhat unusual coming off those lows, but we still feel good about credit quality and we're not seeing anything pop up that gives us concern about any larger issues or systemic. I mentioned our complimentary lines earlier. Our increase in non-interest income was led by good quarters for both mortgage banking and for our SPSL. Mortgage rates did go down a little bit in the third quarter.
Heath: They've ticked back up a little bit, as we've seen, especially even in the last few weeks. And so there's still a challenging environment there.
Heath: They've ticked back up a little bit, as we've seen, especially even in the last few weeks, and so there's still a challenging environment there. There's inventory challenges, so mortgage may not see the kind of quarters that we saw this quarter, but it was good to see that improvement there. Our other lines of business are growing, and we're excited about the opportunities for more growth going forward. Discipline around efficiency and expense is continued in the third quarter. The metric we've talked about a lot that we track are operating net non-interest expense to average assets was 1.32 percent on operating basis, which is continued to improve quarter over quarter for the last seven quarters.
Heath: There's inventory challenges, so mortgage may not see the kind of quarters that we saw this quarter, but it was good to see that. improvement there.
Speaker Change: There's inventory challenges so.
Speaker Change: Mortgage may not see the kind of quarters that we saw this quarter, but it was good to see that.
Speaker Change: Improvement there are.
Heath: Our other lines of business are growing and we're excited about the opportunities for more growth going forward. Discipline around efficiency and expense. Expenses continued in the third quarter. The metric we've talked about a lot that we track our operating net non-interest expense to average assets. was 1.32% on an operating basis, which has continued to improve quarter over quarter for the last seven quarters. We expect that to stay around 140 or below, which will give us a lot of upside to net income as margin begins to expand.
Speaker Change: Our other lines of business are growing and we're excited about the opportunities for more growth going forward.
Speaker Change: Disciplined around efficiency and expense.
Speaker Change: Spence has continued in the third quarter.
Speaker Change: Are the metric we've talked about a lot that we track our operating net noninterest expense to average assets.
Speaker Change: Does 132% on operating basis, which has continued to improve quarter over quarter for the last seven quarters.
Heath: We expect that to save around 140 or below, which will give us a lot of upside to net income as margin begins to expand.
Speaker Change: We expect that to say around $1 40, or below which will give us a lot of upside to net income as margin begins to expand.
Heath: Earlier this week, we announced the hiring of Sissy Giglio as our director of optimization, and that just highlights kind of the priority and commitment we have to efficiency and profitability as we move back into margin expansion and growth again. We're going to keep our focus on efficiency and ensure that we're able to scale and improve earnings as we drive it.
Heath: Earlier this week, we announced hiring Sissy Giglio as our Director of Optimization, and this just highlights kind of the priority and commitment we have to efficiency and profitability. As we move back into margin expansion and growth again, we're going to keep our focus on efficiency and ensure that we're able to scale and improve earnings as This past quarter, we launched a new digital online banking platform, which really came from our commitment to invest in and enhance our technology to improve our customer experience. Our teams really work hard to ensure a successful launch and a seamless transition.
Speaker Change: Earlier this week, we announced hiring of Cc <unk>, who is our director of optimization.
Speaker Change: And this just highlights kind of the priority and commitment we have to efficiency and profitability as we move back into margin expansion and growth again.
Speaker Change: Going to keep our focus on efficiency ensure that and ensure that we're able to scale and improve earnings as we drive.
Heath: This past quarter, we launched a new digital online banking platform, which really came from our commitment to invest in and enhance our technology to improve our customer experience. Our teams really work hard to ensure a successful launch and a seamless transition. We're proud to have a platform that is state of the art that has robust features that our customers can use to stay connected and take care of their banking needs. That's also going to support this platform to also support our vision for where we want to go with growth and expansion and more abilities to do things from a digital perspective.
Speaker Change: This past quarter, we launched a new digital online banking platform.
Speaker Change: Really came from our commitment to invest in and enhance our technology to improve our customer experience and.
Speaker Change: Our teams really worked hard.
Speaker Change: To ensure a successful launch and a seamless transition.
Heath: We're proud to have a platform that is state-of-the-art, that has robust features that our customers can use to stay connected and take care of their banking needs. That's also gonna support, this platform will also support our vision for where we want to go with growth and expansion and more abilities to do things from a digital perspective. This investment also opens up the opportunity to increase our marketing and business development efforts through the efficient use of data. So we're really excited about that as well.
Speaker Change: We're proud to have a platform that is state of the art that has robust features that our customers can use to stay connected and take care of their banking needs.
Speaker Change: That's also going to support this platform will also support our vision for where we want to go with <unk> with.
Speaker Change: With growth and expansion and more abilities to do things from a digital perspective.
Heath: This investment also opens up the opportunity to increase our marketing and business development efforts through the efficient use of data, so we're really excited about that as well. So to kind of summarize that with reduced pressure on cost of funds and the rate environment we're in stable credit and asset quality growing low on pipeline.
Speaker Change: This investment also opens up the opportunity to increase our marketing and business development efforts through the efficient use of data. So we're really excited about that as well.
Speaker Change: Yes.
Heath: So, you know, to kind of summarize that, with reduced pressure on cost of funds and the rate environment we're in, stable credit and asset quality, growing loan pipeline, we believe there's a lot of upside opportunity as we head into the fourth quarter and into 2025.
Speaker Change: So.
Speaker Change: To kind of summarize that with reduced pressure on cost of funds.
Speaker Change: The rate environment, we're in stable credit and asset quality growing loan pipeline. We believe there is a lot of upside opportunity as we head into the fourth quarter and into 2025, and so with that I'll turn it over to Derek to go into more details on the financials.
Derek Shelnutt: We believe there's a lot of upside opportunity as we head into the fourth quarter and into 2025, and so with that, I'll turn it over to Derek to go into more details on the financials. Thank you. He's gap and operating that income increase in a third quarter with operating that income increasing 238,000 as a result of increasing that interest income and increase non interest income. Interest income increased by over 1.2 million in a third quarter as a result of long growth and continued reprising.
Derek Shelnutt: And so with that, I'll turn it over to Derek to go into more details on the funding.
Derek Shelnutt: Thank you, Heath. Gap and the operating net income increase in the third quarter with operating net income increasing $238,000 as a result of increasing that interest income and increasing on... Interest income increased by over $1.2 million in the third quarter as a result of loan growth and continued repricing. We still see good opportunity to increase earning asset yields. and Colony Bancorp. Interest expense on deposits increased about $1 million as we saw a makeshift in deposits. It's not unusual to see a decline in our municipal DDAs in the third quarter as they start their new budget.
Derek: Thank you Heath GAAP and operating net income increase in the third quarter with operating net income increasing 238000 as a result of increased net interest income and increased noninterest income.
Derek: Interest income increased by over $1 2 million in the third quarter as a result of loan growth and continued repricing of earning assets.
Derek Shelnutt: Vernon, Asset. We still see a good opportunity to increase earning asset yields and interesting income, even in a declining rate environment. There are still a lot of loans that will reprise up at maturity, and that reprise is enough to support increases in overall yields. Interest expense on deposits increased about 1 million as we solve makeshift in deposits. It's not unusual to see in the climb in our municipal DDAs in the third quarter as they start their new budget year, and then there's deposits return in the fourth quarter when property taxes are collected. We have adjusted our deposit rates in response to market changes and cooling competition that happened primarily in the later portion of the quarter, so we have not yet seen a full impact of that, but we expect it to reduce or change the upper trajectory that we've seen on deposit costs over the last several quarters.
Derek Shelnutt: And then those deposits return in the fourth quarter on property taxes. We have adjusted our deposit rates in response to market changes and cooling competition. That happened primarily in the later portion of the quarter, so we have not yet seen a full impact of that. but we expect it to reduce or change the upward trajectory that we've seen on deposit costs over the last. As Heath mentioned, that interest income increased quarter over quarter after several quarters of decline, and even though margin was down for... This increase along with the improvement in our funding environment are good indicators that the lowest part of the margin is behind.
Derek Shelnutt: As Heath mentioned, net interest income increased quarter of a quarter after several quarters of the climb, and even though margin was down for basis points, this increase, along with the improvement in our funding environment, are good indicators that the lowest part of the margin is behind us. We feel that the expansion of margin will start off gradually for the next quarter or two, and we're conservative how we're thinking about the number and magnitude of Fed rates going forward that may impact that increase in margin. Moving to non-interesting income, third quarter operating non-interesting income increased about $417,000 led by a good quarter for mortgage, with mortgage related fee revenue being up about 370,000 NSF, and deposit fees were up slightly compared to the previous quarter. Although our small business specialty lending division revenue decreased slightly, it was still better than an average quarter for them.
Derek Shelnutt: We feel that the expansion of margin will start off gradually for the next quarter. we're conservative how we're thinking about the number of.
Derek Shelnutt: of fed rates going forward that may Moving to non-interest income, third quarter operating non-interest income increased about $417,000, led by a good quarter for mortgage, with mortgage-related fee revenue being up about $370,000. NSF and deposit fees were up slightly compared to the previous quarter, and although our small business specialty lending division revenue decreased slightly, it was still better than an average. Operating non-interest expense increased about $240,000, and that was a result of some variable-based compensation related. income, and our SBA servicing value. We feel good about operating net non-interest expense to average assets at 1.32% and see it remaining here and between our target of 1.32% and 1.32%.
Derek Shelnutt: Operating non-interesting expense increased about $240,000, and that was a result of some variable-based compensation related to non-interesting income and our SBA servicing valuation. We feel good about operating that interest net non-interesting expense to average assets at 1.32% and see it remaining here in between our target of 140 going forward. Provision expense total 750,000 for the quarter; the loan growth contributed to the increase compared to the prior quarter. Non-performing loans also increased during the quarter, but again, as heat mentioned, that was coming off the quarter at very low levels. We're not seeing anything unusual outside the normal course of business that otherwise gives us any concern.
Derek Shelnutt: Provision expense totaled $750,000 for the quarter. The loan growth contributed to the increase compared to the prior quarter. Non-performing loans also increased during the quarter, but again, as he mentioned, that was coming off the quarter very well. We're not seeing anything unusual outside of the normal course of business that would Net charge-offs were down during the quarter, and it is likely we will see levels going forward that would be more comparable to the first quarter. Total loans held for investment increased $20 million from the prior quarter, or roughly 4% annualized. As we mentioned on our last call, our pipeline suggested more growth in the second half of the year, and that's what we're starting to see.
Derek Shelnutt: Net targers were down during the quarter, and it is likely we will see levels going forward that would be more comparable to the first and second quarter of this year. Total loans help for investment increase 20 million from the prior quarter, or roughly 4% annualized. As we mentioned on our last call, our pipeline suggested more growth in the second half of the year, and that's what we're starting to see. Also, as he mentioned, we do expect a number of payoffs in the fourth quarter, which will hold back low growth a little bit. There's good upside on the redeployment, because those payoffs are coming in off rates that are well off the market.
Derek Shelnutt: Also, as he's mentioned, we do expect a number of payoffs in the fourth quarter, which will hold back loan growth a little bit. There's good upside on the redeployment, because those payoffs are coming in off rates that are well below zero. total deposits increased by 4.7 million, of which half were about customer deposits. and the other half were brokered CDs tied to a camera. Part of deposit growth was a money market and retail CDs, as we saw a big shift in overall deposit. a large portion of our lower cost interest bearing DDA balances decline. again was a result of a municipal deposit.
Derek Shelnutt: Total deposits increased by-
Derek Shelnutt: Although it is still early, we haven't seen any deposit runoff or anything that would indicate that as we've started to reduce rates to align with the market. Additionally, we have between 70 and 80 million of retail CDs maturing in the fourth quarter that are above our current board rates. So we see a lot of opportunities. there for a reduction. Federal Home Owned Bank advances decreased in the quarter by 20 million as we paid off And as we saw, the steepening of the inversion of the curve during the quarter, we did employ some additional cash flow hedge strategies which helped.
Derek Shelnutt: The pressure on any cost that we may see in wholesale funding if the Fed does not cut rates as fast as some forecast. Again, this quarter we sold some investments for a loss, and those are summarized on slide 29 in the investor presentation. sold approximately $7.6 million. including a $454,000 loss. The book yield on those was 2.61% and our earn back estimates are around 2 years. We expect to make similar transactions in the upcoming quarter to help speed up the restructure of the portfolio. With the recent change in the outlook and the rate environment, we've seen an increase in the fair value of our overall portfolio.
Derek Shelnutt: We are evaluating the possibility of a larger transaction. which would look similar to what we've done so far, just slightly larger.
Derek Shelnutt: During the quarter, we repurchased 35,000 shares at an average price of $15.05 as part of our stock repurchase program. Additionally, yesterday the board declared a quarterly cash dividend of $11.25 per share and we're proud to continue another. Mortgage net income was $275,000 for the second quarter, an increase of $137,000 from the prior quarter. Gain on sale and related revenue increased about $356,000 from the prior quarter. Mortgage rates dipped in the third quarter and generated some activity, but rates have since moved back up. you a little bit of perspective on that. The third quarter of last year saw mortgage rates in the high 7s and low 8s.
Derek Shelnutt: And the third quarter of this year started in the high sixes, but dipped to the mid to low sixes. And then today they're back up to the high sixes, maybe even low sevens, as we've seen a climb.
Derek Shelnutt: Inventory has also remained low in our markets, which has slowed So we'll likely see some decline in revenue in the fourth quarter from our mortgage banking division, but we expect mortgage to remain profitable. and that profitability level could be influenced by changes in rate. Small business especially lending division had net income of $1.5 million during the quarter $174,000 increase from the prior quarter. charge-offs on the unguaranteed portion of loans. down during the third quarter, but are likely expected to return to similar that would be comparable to the first. Green on sale revenue is forecasted to be at this level or slightly higher in the fourth quarter and then a little softer.
Derek: Expect that to return to similar levels.
Derek: That would be comparable to the first and second quarter of this year.
Derek: Don't sell revenue is forecasted to be at this level or slightly higher in the fourth quarter and then a little softer in the first quarter, which is generally a slower quarter for SBA sale.
Derek Shelnutt: We're still seeing good volume in the pipeline for both our small express loans. Slide 8 provides a breakdown of pre-tax income for our complimentary lines of business. No business line experienced a loss in the third quarter, and all business lines showed improvement from the prior quarter, with the exception of Merchant, which shows break-even, but was actually profitable by a few hundred dollars. And that's really due to seasonality in that line of business. We're still seeing a lot of good progress there, but processing volume does flow. a little bit.
Derek: We're still seeing good volume in the pipeline for both our small express loans in our core loans.
Derek: Slide eight provides a breakdown of pre tax income for our complementary lines of business and that business line experienced a loss in the third quarter and all business lines showed improvement from the prior quarter with the exception of merchant, which shows breakeven, but was actually profitable by a few hundred dollars and that's really due to seasonality.
Derek: And that line of business, we're still seeing a lot of good progress there, but processing volume does fluctuate a little bit due to seasonality.
Derek Shelnutt: and RV Lending had a slower start to the year but was back to profitability in the third We're still growing that line of business and plan to eventually get to a spot where we can create some additional revenue with sales.
Derek: Marine and RV lending had a slower start to the year, but was back to profitability in the third quarter.
Derek: We're still growing that line of business and plan to eventually get to a spot where we can create some additional revenue with sales of loan pools on the secondary market.
Derek Shelnutt: Talking a little bit about insurance last quarter, we discussed the tighter underwriting requirements and lower risk appetite earlier in the year that was impacting the industry and colony. We mentioned that we are starting to see some relaxing of those requirements, and we have seen that, and that's allowed our team to increase volume. and led to an increase in pre-temporal.
Speaker Change: Talk a little bit about insurance last quarter, we discussed the tighter underwriting requirements and lower risk appetite earlier in the year that was impacting the industry and colony insurance.
Speaker Change: We mentioned that we are starting to see some relaxing of those requirements and we have seen that and that's allowed our team to increase volume and led to an increase in pre tax income in the third quarter.
Heath: So that concludes my overview, and now I'll turn it back over to Heath for any final comments.
Speaker Change: So that concludes my overview and I'll turn it back over to Heath for any final comments before we take questions.
Heath: Thanks, Derek. That wraps up our comments.
Heath: That wraps up our comments and with that I'd call on Margery to open up the line for any questions we might have got.
Operator: And with that, I'd call on Marjorie to open up the line for any questions. Thank you, sir. If you'd like to ask a question, please press star 1 on your telephone keypad.
Thank you, Sir if you'd like to ask a question. Please press star one on your telephone John Humphrey.
Christopher Marinac: We'll take our first question from Christopher Marinac with Janie Montgomery Scott. Thanks. Good morning. I appreciate you taking the call today. I wanted to ask about the profitability going forward. and to the extent that we could take the core earnings and annualize them, particularly in 2025. I know there's a few moving parts in Q4, as Derek had outlined. Is that a reasonable base? Yeah, is that a reasonable base? Yeah, I think that would be pretty reasonable to do. I mean, we're continuing to see improvement in our complementary lines of business that's leading to, you know, better non-interest income.
Speaker Change: Our first question from Christopher <unk> with Janney Montgomery Scott.
Speaker Change: In summary, Scott.
Christopher: Thanks, Good morning, I appreciate you taking the question.
Christopher <unk>: Call today.
Christopher: Paul today.
Christopher <unk>: I wanted to ask about.
Christopher <unk>: <unk> profitability going forward with all these going forward.
Christopher <unk>: And to the extent that we could take the core earnings.
Christopher <unk>: So annualized them, particularly in 25 I know, there's a few moving parts in Q4 as Eric outlined I do for a quarter or could outline.
Christopher <unk>: So is that a reasonable base.
Speaker Change: Yeah, I think that would be pretty reasonable to do I mean, we're continuing to see improvement in our complementary lines of business that's leading to.
Christopher <unk>: You know.
Christopher <unk>: Better noninterest income.
Heath: Our net NIE number that measures that contrast between non-interest income and non-interest expenses, you know, that's been in our target and we expect it to remain there. We're not seeing anything that would cause that to be out of line. And then, you know, we are seeing a conservative increase in margin as we go forward and couple that with a little bit of growth. I think it's pretty reasonable to kind of take this quarter, look at it and annualize it as a good foundation.
Christopher <unk>: Our net NII number that measures that contrast between noninterest income and noninterest expenses.
Christopher <unk>: That's been in our target and we expect it to remain there we're not seeing anything.
Christopher <unk>: That would cause that to be out of line and then you know we are seeing a conservative increase in margin as we go forward and couple that with a little bit of growth I think it's pretty reasonable to kind of take this quarter look at it and annualize it as a good foundation for the next year and Chris.
Heath: And Chris, you know, I think that we're committed to keeping this efficiency through our growth going forward. And we do expect to get back to growth. And so when we think about, you know, the value we can create over the next couple of years, we start thinking about getting back to. you know, getting first to a one and then, you know, we talk about one ROA and then getting back to higher levels within where we can get back in the top quartile of our peer group. And if we can do that by also getting back to eventually within a few quarters of our historical growth rate of eight to 12%.
Chris: Thanks, Matt.
Chris: We're committed to keeping this efficiency through our growth going forward and we do expect.
To get back to growth and so when we think about the value. We can create over the next couple of years, we start thinking about getting back to.
Chris: You know getting first to have one and then we talk about one or a way and then getting back to higher.
Chris: Levels within.
Chris: Where we can get back in the top quartile of our peer group and if we can do that.
Chris: By also getting back to eventually within a few quarters of our historical growth rate of 8% to 12%.
Heath: You know, we're excited about the opportunity that we have there and really, you know, having gone through this rate up environment and this margin pressure. has really caused us to really focus hard on the expenses and on our operating efficiency and put us in a really good place to where we think we can be.
Chris: We're excited about the opportunity that we have there and really haven't gone through this rate up environment in this margin pressure.
Chris: It is really.
Chris: Caused us to really focus hard on the expenses and on our operating efficiency and put us in a really good place.
Chris: Where we think we can go from here.
Derek Shelnutt: Great, thank you both for that color and I just wanted to go back to the asset sales that Derek mentioned. Would those come over multiple quarters or is it just a one-time thing in the near term? I don't think we would see outsized, you know, for more than a quarter. You know, we just continue to evaluate that. We're starting to see others, you know, do that as well. Don't expect anything super humongous either. You know, we're also focused on this, trying to, you know, build capital each quarter improve our and so you know we don't want to eat up a lot of our earnings but maybe something a little bigger.
Speaker Change: Great. Thank you both for that color and thank you wanted to go back.
Speaker Change: I wanted to go back just wondering back to the asset sales.
Speaker Change: Eric.
Speaker Change: Bertman.
Eric Bertman: Would those come over multiple quarters or is it just a onetime thing in the near term, but one time thing.
Speaker Change: Sure.
Eric Bertman: I don't think we would see outsized you know for more than a quarter.
Speaker Change: We just continue to evaluate that.
Speaker Change: We're starting to see others do that as well.
Speaker Change: Don't expect anything Super Humongous either.
Speaker Change: We're also focused on this are trying to build capital each quarter improve our.
Speaker Change: Our capital in terms of <unk>.
Speaker Change: <unk> and so we don't want to eat up a lot of our earnings, but maybe something a little bigger than than what we've done.
Derek Shelnutt: than what we've done. kind of give them the market and of course. five to seven year part of the curve that we watch probably the most. impact market.
Speaker Change: Just kind of given the market and of course, it's kind of.
Speaker Change: Pat.
Speaker Change: Five to seven year part of the curve that we why probably the most to count on.
Impact market value adjustments.
Derek Shelnutt: Yeah, yeah, that was good Heath. And I would just, you know, say that we would It might look at a one off transaction be a little bit larger than what we have been doing to his point, not anything super large. But you know, I mean, going forward in future quarters of next year probably continue smaller transactions like we've been doing as Again, anything larger would probably be a one-time. Got it. Sounds great.
Speaker Change: Any color you want.
Speaker Change: Yeah, Yeah got it that that that was good he said and I would just.
Speaker Change: Say that we would.
Speaker Change: Might look at a one off transaction I'd be a little bit larger than what we have been doing to heath's point not anything super large, but you know I mean going forward in future quarters of next year, probably continue just to do smaller transactions like we've been doing as it makes sense, but again anything larger would probably be a one.
Speaker Change: One time thing in one quarter.
Speaker Change: Got it sounds great. Thanks, again for hosting the call. This morning, and thanks again for hosting the call. This morning. Thanks, Chris.
Christopher Marinac: Thanks again for hosting the call this morning. Thanks, Chris.
Dave Bishop: Thank you and we'll take our next question from Dave Bishop with Hopkins Group. Yeah, good morning, gentlemen. Question in terms of the expected payoff. Sounds like there's some line of sight there, just curious if you're hearing other banks. Note that the sponsors are getting more comfortable taking the process and rolling into new projects. Are you seeing that, dropping some of the payoffs? Dave, you're cutting out a little bit. Would you mind repeating? We heard pieces of that question, but not the whole thing. Sorry, there's an echo apparently. Just curious drivers of the loan payoffs expected?
Speaker Change: Thank you and we'll take our next question from James Fish with Husky.
Speaker Change: Trip with hockey group.
Speaker Change: Yes.
James Fish: Yes, good morning, gentlemen.
James Fish: Gentlemen, good morning.
James Fish: Okay.
Speaker Change: Question in terms of the expected.
Speaker Change: We expected to pay off.
Speaker Change: It sounds like Theres some line of sight, there just curious here.
Speaker Change: You'll hear another bank.
Speaker Change: Note that the sponsors are getting more comfortable with a small profit.
Speaker Change: Robert.
Speaker Change: Our rolling into the new projects are you seeing that the new proud of having something that probably some of the payroll.
Speaker Change: So youre cutting out a little bit would you mind repeating we heard pieces of that question, but not the whole thing.
Speaker Change: Sorry, there's an echo apparently sorry, there's an echo apparently.
Speaker Change: Just curious.
Speaker Change: So the loan payoff.
Speaker Change: The loan payoffs expected.
Heath: Oh, okay. Yeah. So we're just aware of projects that are coming to completion that don't typically have bank financing as part of their permanent takeout. And so that's where we're seeing payoffs come in, project completion. So they're expected type payoffs for the most part, and so that's where. That's, you know, how that is, the timing of those can vary based on completion date. those kind of things. So could be this quarter, we could see some flow into the first quarter. So just kind of see how and then good growth on construction, just various types of projects you're underwriting these days.
Speaker Change: Oh, Okay. Yeah. So we're just aware of projects that are coming to completion that don't typically have bank financing as part of their permanent take out and so that's where we're seeing pay offs come in project completions. So there.
Speaker Change: Our expected type pay.
Speaker Change: Pay offs for the most part and so that's where we are.
That's you know how that is the timing of those can vary based on completion dates in that.
Speaker Change: This kind of thing so to be this quarter, we could see some flow into the first quarter. So just kind of like.
Speaker Change: Well see how that plays out.
Speaker Change: And then good growth on construction.
Speaker Change: The types of projects you are underwriting.
We're underwriting these days.
Heath: Yeah, I mean, I would say that nothing that we're seeing in terms of like one specific type of industry or things that we're seeing, it's kind of across the board, I think, you know, we are seeing, I think, more stability. I think we do see that borrowers, you know, do see some stability of rates, and that started returning, you know, throughout the year, but there was a time period there where you weren't sure when rates were going to stop going up. And so couldn't pencil in infinite rate increases into your project. Now that you're getting to some stability where I think sponsors feel good about what longer term rates may be, or what the worst case for longer term rates may be, they feel comfortable moving forward with things.
Speaker Change: Yeah, I mean, I would say that.
Speaker Change: Nothing that we're seeing in terms of like one specific.
Speaker Change: Type of.
Speaker Change: Industry or.
Speaker Change: Things that we're seeing it's kind of across the board I think we are seeing more stability.
We do see that borrowers.
Speaker Change: You do see some stability of rates and that started returning yeah throughout the year, but there was a time period, there where you werent sure when rates were going to stop going up and so.
Speaker Change: You couldn't pencil in infinite rate increases into your projects and now that youre getting to some stability, where I think sponsors feel good about what longer term rates may be.
Speaker Change: Or what the worst case for longer term rates may be they feel comfortable moving forward with things. So I think we just see sort of a tick up in activity across the board.
Heath: So I think we just see sort of a tick up in activity across the board. Got it.
Got it and then just curious.
Derek Shelnutt: And then just curious, new loan origination yields this quarter? What was that, Dave, again? What was new loan production for the quarter? I'm just curious what, yeah, do you look, yeah, do you look. New loan origination, yeah, yeah. I think our average was just a little bit over eight percent. for the quarter, let's see, yeah. the this quarter's production a little over just barely over 8% 8.23% and that's That's. coming down off of I think our peak was maybe around 860 and 850 so we are starting to see that come down. Got it.
Speaker Change: Origination yields this quarter.
Speaker Change: What was that Dave again.
Speaker Change: What was new loans, just curious question for the quarter I'm curious what do you look.
Yes.
Speaker Change: New loan origination loan originations.
Speaker Change: Loan origination.
Speaker Change: Yes.
Speaker Change: Yeah, I think our average was just a little bit over 8% for.
Speaker Change: For the quarter.
Speaker Change:
Speaker Change: But let's see.
Speaker Change: This quarter's production.
Speaker Change: Over just barely over 8% eight 3% and Thats.
Speaker Change: That's.
Speaker Change: Coming down off of I think our peak was maybe around 860, then 850. So we are starting to see that come down and expect to see it obviously continues to come down with the move in rates.
Speaker Change: Got it and then Heath it seems like got it $90 million is the new run rate for fee income do you feel comfortable about that level moving forward.
Heath: And then Heath, it seems like $10 million is the new run rate for fee income. Do you feel comfortable about that level moving forward? I think we're in a pretty good spot for that. You know, I think, Dave, the only, you know, the challenge there, we mentioned mortgage, you have seen, you know, rates starting to move back and you still have the inventory challenge in our markets, but the economic activity is really good. I mean, it's not like when rates came down a little bit, the floodgates opened, it ticked up a little bit. We've had some good recruiting on the mortgage side too, and trying to open up, you know, some addition.
Speaker Change: Yeah.
Speaker Change: I think we're in a pretty good spot for that I think Dave the only.
Speaker Change: The challenge there.
Speaker Change: We mentioned mortgage you have seen you know.
Speaker Change: <unk> started to move back and you still have the inventory challenge in our markets, but the economic activity is really good I mean, it's not like when rates came down a little bit the floodgates opened it ticked up a little bit.
We've had some good recruiting on the mortgage side too.
Speaker Change: And trying to open up.
Speaker Change: Some some additional.
Heath: MLOs there, so I think we could see it stay at about this level. Great, I'll have that delivered to you.
Speaker Change: Email is there so I think we could.
Speaker Change: C C would stay about this level.
Speaker Change: Great.
Speaker Change: After the Q.
Heath: Thank you and at this time we have no further questions so I'll turn it back to our speakers for any final remarks. All right, well, thanks again. No further remarks, but really appreciate everyone's support of Colony Bank and appreciate you being on the call today. Thanks.
Speaker Change: Thank you and at this time, we have no further questions. So I'll turn it back to our speakers for any <unk>.
Final remark.
Speaker Change: Final remarks.
Speaker Change: Alright, well.
Speaker Change: Thanks again, no further remarks, but really appreciate everyone's support of colony Bank and appreciate you being on the call today. Thank you.
Operator: Thank you and that does conclude today's program. You may now disconnect.
Thank you and that does conclude today's program now disconnect.
Speaker Change: Disconnect.
Speaker Change: [music].
Speaker Change: Hum.
Speaker Change: Okay.
Speaker Change: Uh huh.
[music].
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change:
Speaker Change: Uh huh.
Speaker Change: [music].
Operator: ["The Gentleman's Gazette Theme Song"]