Q1 2025 Colony Bankcorp Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the colony Bad first quarter 'twenty 'twenty five conference call.
At this time all lines are in listen only mode. Following the presentation, we will conduct a question and answer session.
Speaker Change: Any time during this call Jack White and you get the assistance. Please dial star Zero. This call is being recorded on Thursday April 24 of 2025, I would now like to turn the corner franchise, which you badly College Communications manager. Please go ahead.
Speaker Change: Thanks, Chloe before we get started I would like to go through our standard disclosures certain statements. We make on this call could be.
Speaker Change: Constituted as forward looking statements within the meaning of the Securities Act of 1933, and the Securities Exchange Act of 1930 for 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.
Speaker Change: These include but are not limited to Pandemics variations of the company's assets businesses cashflows financial condition prospects and other results of operations.
Speaker Change: Also like to add that during our call today, we will reference our earnings release, and our quarterly Investor presentation, both of which were filed yesterday. So please have those available to reference and with that I will now turn the call over to our Chief Executive Officer Heath Stout.
Speaker Change: Thanks, Bradley and thank you to everyone for joining our first quarter earnings call that they.
Speaker Change: We're really pleased with our first quarter financial results I'm pleased to see continued improvement in both net interest income and margin.
Speaker Change: Better than expected loan growth in the first quarter, along with growth in lower cost transactional deposit accounts helped drive margin higher.
Speaker Change: Oh last quarters call. We mentioned, we expect it to return to normal levels of loan growth in 2025, the sale that we would not see those levels until later in the year.
Speaker Change: That growth came earlier than we thought it was due to strong loan production, but also fewer payoffs than anticipated.
Speaker Change: First quarter annualized loan growth was 17%.
Speaker Change: And while we feel good about our pipeline for the rest of the year future orders are likely to be closer to our more normal range of 8% to 12% annualized growth.
Speaker Change: The increase in our deposits was about eight 5% on annualized basis close to $55 million for the quarter.
Speaker Change: We are starting to enter.
Speaker Change: That time of year, where we began to see seasonal outflows, particularly in municipal deposits.
Speaker Change: But we still have ample own balance sheet liquidity and cash flow from our bond portfolio.
Speaker Change: We continue to fund lending activities Derek will touch on that later.
Speaker Change: We feel good about how the growth in both loans and deposits positions us well for the rest of the year.
Speaker Change: Seasonally the first quarter activity for both mortgage and S. E. S. P. S. L is generally slower.
Speaker Change: Which we mentioned on last quarter's call and that was the driving factor in the decrease in noninterest income.
We're seeing indications that activity will pick up this coming quarter and that's in line with what is the normal seasonality of this for us.
Speaker Change: We're very excited about our recently announced acquisition of the L. O B agency. They are excited to have them as part of the colony insurance team.
Speaker Change: On slide 10 in our Investor presentation, we provided some highlights of the deal which will be EPS accretive and we also have a separate presentation with more detail on that acquisition that was filed earlier this month.
Speaker Change: We're glad to have shown here will be joining us as director of sales for colony insurance and look forward to Sean and his team being part of the growth and continued success of our insurance Division.
Speaker Change: Insurance is an important part of our long term desire to grow noninterest income and its also an important part along with wealth management or other complementary wants to become in the primary source of financial services and our branch network.
Speaker Change: We have thousands of loyal long time deposit customers.
Speaker Change: We're also excited to have launched our credit card program for both consumer and commercial credit cards. During the quarter. Our team has worked hard to achieve a successful launch and we are proud to be able to expand our product offering to our customers.
Speaker Change: We feel this is a great solution from a service perspective to our customers, but also a great way to generate significant noninterest income overtime through interchange fees.
Speaker Change: I'd like to take a moment to.
Speaker Change: To acknowledge the recent volatility we've seen in the markets both in the equity and fixed income markets.
Speaker Change: All aware increased uncertainty around global trade and tariff policies contributed to heightened market fluctuations and shifts in rate expectations.
Speaker Change: While this environment is to introduce new <unk>.
Speaker Change: Dynamics, we want to emphasize at this point, we've not seen any developments that have had an impact on customers or on the health of our loan portfolio.
Speaker Change: Our team is closely monitoring the evolving landscape, including policy changes and their ripple effects across industries and consumer behavior, we're maintaining a regular dialogue with our customers, especially those in sectors more directly exposed to trade dynamics to ensure we remain proactive and responsive to their needs.
Speaker Change: Yeah.
Speaker Change: We have not seen any indicators that would give us cause for concern about large scale disruptions that could significantly impact the overall credit quality of our portfolio.
Speaker Change: Many of the customers we've spoken with have been proactive in adjusting to the changing environment.
Speaker Change: Thoughtful steps to manage their supply chains pricing strategies and their businesses accordingly.
Speaker Change: This disruption in the market and the drop.
Speaker Change: Equity prices in the banking sector, certainly play into the M&A environment in banking.
Speaker Change: As noted in the past, we certainly expect to participate in bank M&A.
Speaker Change: Short term volatility in stock prices may have an impact on timing, but we continue to have discussions and nurture relationships with potential targets and we think opportunity still exists for M&A in this environment.
Speaker Change: And speaking of M&A, we have also seen a significant amount of M&A activity in our footprint and we're excited about the opportunity that creates for us to grow our customer base and recruit talent.
Speaker Change: Lastly, I want to recognize a few changes on our board of directors.
Speaker Change: This past quarter, Paul Joiner joined the board and brings over two decades of finance and accounting experience to our board.
Speaker Change: <unk> is a valuable addition, we welcome him and look forward to his meaningful contributions to the company.
Speaker Change: Additionally, we announced the retirement of Ed Lewis, who has been part of colony since 2012, as a director and as a former CEO is played an instrumental role in shaping the duration and strength of our organization.
Speaker Change: His insight leadership and dedication have left have left a lasting impact.
Speaker Change: We're grateful for his contributions and wish him all the best in his full retirement.
Speaker Change: With that I'm going to turn it over to Derek to go over the financials in more detail.
Derek: Thank you Keith operating net income declined by $1 1 million in the first quarter due largely in part to normal seasonal declines in a few of our non interest income lines of business, particularly spss, which we mentioned on last quarter's call and was expected and not unusual pipelines for both mortgage and SBA sales have increased.
Derek: Indicating more revenue opportunity as we move forward into a period with higher seasonal activity.
Derek: Pre provision net revenue increased almost one $5 million on an operating basis when compared to the first quarter of 2024 and this highlights the continued improvement in our core earning fundamentals.
Derek: Net interest income increased by approximately 480000 in the first quarter.
Derek: With loan growth and a reduction in our cost of funds were contributing factors. Our loan growth was primarily in the later half of the quarter. So we should see a positive impact to earning asset yields in the second quarter.
Derek: Our cost of funds for the quarter was 2.07%, which is about a 12 basis point decline from the previous quarter and a 25 basis point decline from the third quarter of 2024.
Derek: The majority of our deposit growth was at a low cost transactional DDA accounts, which has been and continues to be a focus area on deposits.
Derek: Margin increased nine basis points to 293% that's up from $2, 84% in the prior quarter, we still expect to see modest increases in margin throughout the remainder of 2025, given our current rate environment outlook.
Derek: First quarter operating noninterest income decreased about $1.7 million that was driven by decreased activity in our Sps L Division, where revenues fell by $1 6 million.
Derek: The fourth quarter was a great quarter for our Sps L team and we've mentioned that we would say latter revenues of the first quarter activity has picked up in the SBA sale pipeline. So we should see more production in sales revenue in upcoming quarters.
Derek: Revenues in our mortgage division were slightly higher and expenses slightly lower in the quarter and the division was profitable.
Derek: Posit service charge related revenue and interchange fees were down about 220000, and this is due to a shorter quarter with fewer days.
Derek: Noninterest expenses decreased around $1 million in the quarter and was related to decreases in variable expenses based on activity as well as lower advertising and donation expenses. As you may remember, we had about 450000 in community related donations through state tax credit programs during the.
Derek: Last quarter.
Derek: And that was the fourth in the fourth quarter of 2024.
Derek: Our net NII to average assets was 144% in the quarter, an increase from $1 three 5% from the prior quarter.
Derek: And last quarter, we mentioned that we would likely see an increase in that we were targeting around 145% in our forecast we expect NII to remain around this level, which is still well below our peer median.
Derek: Our effective tax rate for the quarter was a little over 20%, which was in line with our guidance from last quarter, where we mentioned a 21% ETR for 2025.
Derek: Provision expense totaled $1 5 million and the increase is related to our loan growth.
Derek: Net charge offs were 606000, which is consistent with levels observed during the first half of last year, we expect future quarters to remain within this range. Although there may be some variability driven by our Sps cell division.
Derek: Nonperforming assets were $12 4 million classified loans were $26 4 million and criticized loans for $55 $8 million. We feel that these are still at historically low levels and balances are not driven by any systemic credit issues that cause concern we've.
Derek: We've had a few isolated issues in agricultural production lines of trucking loans, but they represent a small portion of our portfolio and balances are relatively low compared to loans as a whole.
Derek: Committed AG production lines represent around one 5% of the portfolio with 0.8% outstanding.
Derek: Trucking is about 0.63% of the loan portfolio.
Derek: Our CRE loans in other loan types are still performing well from a credit perspective and past dues have remained at low levels. We had two CRE past dues at the end of the quarter totaling less than $200000.
Derek: Loans held for investment increased $78 3 million, we mentioned last quarter that we expected to see loan growth in 2025 and that started earlier than we were forecasting fewer expected pay offs also contributed to that growth.
Derek: Our pipeline is still strong and we expect to see continued loan growth this year, but it may not be at the same levels that we saw this quarter.
Derek: We feel good about the rates and the credit we're seeing on deals and loan production is expected to drive an increase in our loan yields this year.
Derek: Our new and renewed loan weighted average rate as highlighted on slide 27, and that was 772% for the quarter.
Derek: Total deposits increased $54 6 million in the quarter as we remain focused on the deposit first culture.
Derek: Slide 22, and the Investor presentation outlines our deposit mix and illustrates the decline we've seen in our cost of interest bearing deposits over the last two quarters.
Derek: We're still seeing cooling deposit competition across our footprint, which we think will help keep cost pressures minimal.
Derek: As previously discussed we typically experienced seasonal fluctuations in our deposit base with runoff were getting around this time of year, particularly within our municipal and agricultural related deposits. This may slow the rate of decrease on our cost of funds and could have an impact on how much increase in margin we see.
Derek: Our cash the assets was a little over 7% at the end of the quarter, which gives us room to continue funding loan growth.
Derek: Cash flow from the bond portfolio is expected to be around $80 million to $90 million for the remainder of the year based on our base case modeling.
Derek: This was this is without any investment sales, we mentioned last quarter, our pause on investment sales, but given our loan growth outlook, we may resume sales in upcoming quarters.
Derek: Those would be at level similar to the transactions, we did each quarter in 2024.
Derek: During the quarter, we repurchased 38000 shares at an average price of $16 45, as part of our stock repurchase program additional repurchases Kobe likely going forward as market conditions and volatility could provide us with the opportunity to purchase shares at attractive levels.
Derek: Additionally, yesterday, the board declared a quarterly cash dividend of <unk> 11, and a half cents per share.
Derek: Our previous shelf registration from 2021 has expired and we plan on going through the process to have an active shelf in place for future flexibility in capital management.
Derek: Slide 13 provides a breakdown of pre tax income for our complementary lines of business again, it was a seasonally lighter quarter for many of our lines, but we anticipate activity to pick up.
Derek: We're still seeing good progress on referrals and pipelines and so we're optimistic about the future performance and are complementary lines of business.
Derek: That concludes my overview and now I'll turn it back over to Heath for any final comments before we take questions.
Speaker Change: That wraps up our prepared comments and with that I'll call on Chloe to open up the lines for questions.
Thank you, ladies and gentlemen, we will now conduct a question and answer session.
Speaker Change: I have a question. Please press star followed by one on your telephone you will hear a one selling pumps consolidating your request.
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Speaker Change: If you would like to thank Ryan from Tommy process. Please press the pound.
Speaker Change: Please ensure you lift the handset if you are using a speaker phone before pressing any keys one moment for your questions.
Speaker Change: We have a question on behalf of base Vishal.
Speaker Change: The change in expectations for U S. P S L loan growth and asset quality as well as pricing for the rest of the year and any impact from recent actions from the current administration.
Speaker Change: Okay.
Dave: For that question submitting that Dave.
Speaker Change: I guess first off let me just address.
Speaker Change: As I did in the prepared comments about the recent.
Speaker Change: The actions, we've seen related to tariffs and trade policy.
Speaker Change: You know we are a.
Speaker Change: Be very vigilant of what impact that may have on our customers as I mentioned, especially those that could be more heavily impacted.
Speaker Change: Uh huh.
Speaker Change: Import and export trade.
Speaker Change: I think that overall, we've been very pleased with the comments we've been having.
Speaker Change: The discussions we've been having with customers.
Speaker Change: I think a lot of our customers are going through the COVID-19 cycle.
Speaker Change: Really became very aware of their.
Speaker Change: <unk>, maybe more so than they have been in the past as they came to a grinding halt during COVID-19 and started looking for contingency supply plans.
Speaker Change: Different ways to purchase inventory different sources different countries. So I think having gone through that COVID-19 experience, where the supply chain stopped is really been beneficial and made our customers more aware of what they're seeing in supply chains, where their supply chain has come from.
Speaker Change: They have taken for granted before.
Speaker Change: No.
Speaker Change: Customers, who become more flexible in how they acquire.
Speaker Change: Inventory items for production resale whatever it may be so I think the discussions.
Speaker Change: Discussions we've had have made us feel.
Speaker Change: A lot better about some of that a lot of comments there.
Speaker Change: They don't expect supplies to be halted like they were before but obviously cost may change and they may need to look for different.
Speaker Change: Supply sources, if they if they are unable to pass some of the higher tariff items those costs on to there in consumer so way less disruption I think.
Speaker Change: Then they saw during COVID-19, but obviously it is going to require.
Speaker Change: Some adjustments in operating models for some customers, but we feel good so far and.
Speaker Change: I think many of our customers also feeling this will be short lived that it's.
Speaker Change: Tariff negotiation isn't going to be permanent and that things will settle down in a quarter or two.
Speaker Change: So.
Speaker Change: Again, as we mentioned.
Speaker Change: Long term, we feel good about it in the short term, we might see disruption and we kind of standby ready.
Speaker Change: Our ready to work with our customers to work through any short term issues. They may they may encounter.
Speaker Change: As far as SBS L.
Speaker Change: Again, as Derek mentioned, we had a banner fourth quarter that.
Speaker Change: We knew was not going to repeat due to just the nature of that high level historically high level of production in that quarter, plus the seasonality of the first quarter, where we generally see it come down, but we do see good activity in Sps L. Good building of our pipelines.
Speaker Change: And expect to return to levels.
Speaker Change: We've seen in previous years, so we'll see.
Speaker Change: Good activity and pick up in the remainder of the year from our S. E. S. L group and feel good about the historical margins, we've had in that business as well so feel good about the outlook for spss.
Dave Bishop: Okay second question question from Dave Bishop.
Dave Bishop: Net interest margin impacts do you expect from a 25 basis point great Scott.
Dave Bishop: Yes.
Dave Bishop: Kind of give some more guidance on that but we do feel in general will position for the current rate.
Dave Bishop: Cut expectations, considering the market place.
Dave Bishop: We're still in a place where.
Dave Bishop: Small cuts I think will help us improve margin, but if we don't see those we'll still see improved margin.
Dave Bishop: From.
Dave Bishop: Just for the repricing of assets. So Derek do you want to add a little more color on that yes, sure and I'll kind of start with the impact to our earning asset yield so right now our loan portfolio yield is around 6%.
Dave Bishop: But our new and renewed weighted average rate is in the mid to high Sevens and so if we do see a quarter point cut or even two for quarter point cut.
Dave Bishop: And some loan production, we will still see pricing at a level that's favorable.
Dave Bishop: The loan portfolio yields and would increase those yields in addition to that we still have cash flow from the bond portfolio that's coming in.
Just naturally.
Dave Bishop: And those yields are at a lot lower rates, so theres opportunity there to pick up redeploy that cash into loans or.
Dave Bishop: Other investments or cash I get out and get a pickup there.
Overall, earning asset yields on the cost side.
Dave Bishop: We've been able to achieve.
Dave Bishop: So some cuts to our higher rate.
Dave Bishop: Money market accounts, and Cds that are at or more than the.
Dave Bishop: The cuts from the fed and so we've been able to achieve that I think that's evidence evident by the reduction of our cost of funds and so we think we can continue to achieve that just what the overall a cooling deposit.
Dave Bishop: Competition environment that we're seeing and so there's a lot of opportunity to see earning asset yields increased and our cost of funds decrease with a 25 basis point cut from the fed and so that's going to have a positive overall impact to margin and so.
Dave Bishop: That should continue to help us along our path and seeing margin increase.
Speaker Change: Ladies and gentlemen is there any additional questions at this time. Please press star followed by one as a reminder, if you are using a speaker phone. Please leave behind said before pressing.
Dave Bishop: Sure.
Dave Bishop: There are no further questions at this time please continue.
Dave Bishop: Alright, well, thanks again, everyone for being on the call today. Thanks for your support economy Bank core and we appreciate you being on the call and look forward to speaking with you again in the future.
Dave Bishop: Ladies and gentlemen, this concludes the conference call for today. Thank you for participating you may now disconnect.
Dave Bishop: Okay.
Dave Bishop: Yeah.
Dave Bishop: [music].
Dave Bishop: Sure.
Dave Bishop: Yeah.