Q2 2025 Colony Bankcorp Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Colony Bank, second quarter 2025 conference call at this time. I'll answer only mode.
Following the presentation, we will conduct a question and answer session. If at any time during this call, you need assistance. Please press Start 0 for the operator.
Speaker Change: This call is being recorded on Thursday July 2020. I would now like to turn the conference over to Presley Collins. Please go ahead
Speaker Change: Thanks, Joanna. Before we get started, I would like to go through our standard disclosures. Certain statements, we make on this call could be constituted as forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934 current. And prospective investors are cautioned that any such forward-looking statements are not guarantees a future performance but involve know
Speaker Change: And unknown risk and uncertainties factors that could cause these differences include, but are not limited to pandemics variations of the company's assets, businesses cash flows, Financial condition prospects and other results of operations.
Speaker Change: I would also like to add that during our call today, we will reference our second quarter earnings release and investor presentation as well as our joint press release and investor presentation on the TC Federal merger, all of which were filed yesterday. So please have those available to reference and with that, I will turn the call over to our chief executive officer Heath fountain.
Heath Fountain: Thanks Brantley and thank you to everyone for joining. Our second quarter earnings call. We're pleased to report improved financial performance this quarter, which reflects the continued Improvement of our operations and success and discipline of our team members.
Speaker Change: Core earnings improved meaningfully in the quarter supported by both long growth and efficiency. We also saw continued expansion in our net interest margin benefiting from pricing discipline on the asset side and our stable core deposit base.
Speaker Change: Also we announced yesterday that we entered a definitive merger agreement. With TC Bank shares, which operates TC Federal bank and attractive markets in south, Georgia North Florida.
Speaker Change: We believe this partnership represents a compelling, strategic, and cultural fit. We'll discuss that transaction in more detail later in the call. Included the expected benefits and timing
Speaker Change: On the lending front, we delivered strong loan. Growth of 15% annualized rate in the second quarter. Continuing the positive momentum. We've seen this year while growth came in just slightly below first quarter levels, we continue to see solid demand, across both commercial and consumer portfolios. Looking ahead, we anticipate long growth May moderate somewhat in the second half of the Year closer to the 10 to 12% range. But the pipeline remains very healthy.
Speaker Change: Our return on assets, for the quarter was 1.02%, which is a meaningful improvement from the prior quarter and has been a short-term Target for us.
Speaker Change: No way, so we're pleased, we're able to achieve that. It came about a quarter earlier than what we had projected.
Speaker Change: We feel confident in our ability to uh maintain that 1 or better Roa going forward. And and now move towards our intermediate goal of achieving a 1.2 Roa.
Speaker Change: Margin increased to 3.12% in the quarter and as we previously mentioned uh that margin over 3 was where forecasts were indicating. We would be at a 1% or better Roa.
Speaker Change: We still expect margin to increase in the second half of the year. However, with more normalized loan growth rate and a stabilizing cost of funds, we're likely to see the expansion, the softer and the remainder of the year than what we saw. In this past quarter, not interest income, improved quarter over quarter as Revenue, increased across many of our complimentary lines of business, particularly, you know, mortgage we also have really good quarter and Marine and RV Lending.
Speaker Change: While we did see Improvement compared to the prior quarter, we still think there's an opportunity for Meaningful Improvement, um, to enhance our performance, across our business lines, and that's a real priority for us.
Speaker Change: Credit quality remains stable. And we saw an improvement in non-performing assets as well as criticizing classified loans.
Speaker Change: Net charge also increased slightly after being down last quarter last quarter. And that was driven by charge offs and our sbsl division, which we mentioned on last quarter's call that we were likely to see some variability there. Overall, we feel good about what we're seeing in terms of credit quality, and we're happy with these trends.
Speaker Change: As expected, we experienced some seasonal Deposit Road off during the second quarter, which is not unusual for us. Given the nature of our customer base, and our local market dynamics importantly, though, core customer deposits, which exclude Brokers or of year-over-year, more than 75 million.
Speaker Change: Uh, we're also excited about the addition of 2 Bankers in the shadow nouga, MSA, uh, we announced earlier this week, Rex rutlidge will be joining us as Chattanooga Market, president and kitty Griffith as a commercial, Banker. We look forward to them, uh, coming on our team and expanding our existing presence in the Chattanooga. MSA, where we have 1, Branch already in North, Georgia, and continue to build relationships in that market.
Speaker Change: Additionally we were honored to celebrate our 50th anniversary by ringing the opening bell. At the New York Stock Exchange, last week we were glad to be joined by team members. More members and supporters who've been instrumental to Our Success.
Speaker Change: It was a proud Milestone that reflects the many accomplishments we achieved as an organization and has been made possible by the dedication talent and commitment of our entire team. So it was our honor to be there to represent them.
Speaker Change: With that, on, turn it over to Derek to go through the financials in more detail.
Speaker Change: Thank you, Heath net income, increased 1.4 million compared to the first quarter increased net, interest income and lower Provisions. Expense on improving credit metrics for the major contributing factors to the increase along with improved financial interest Revenue.
Speaker Change: That interest income increased approximately 1.4 million dollars quarter over a quarter as we continue to see our earning asset yields game momentum through loan growth and asset repricing.
Speaker Change: Our cost of funds for the quarter were down 3 basis points to 2.04%. We're seeing the cost of funds stabilized and expect them to be around this level. Unless there is a change to short-term interest rates,
Speaker Change: We have experienced the bulk of the downward repricing on funding costs. But we remain focused on keeping low cost deposit growth of priority.
Speaker Change: Margin increased 19 basis points. Led by an increase in earning asset yields of 16 basis points.
Speaker Change: As Heath mentioned, we expect margin to continue to increase going forward and it will likely be more moderate compared to this past quarter.
Speaker Change: Second quarter, non-interest income, increase over a million dollars with gains and mortgage spsl and service charge related Revenue increased for production activity in spsl and mortgage or highlighted on sides 13 and 14 in the investor presentation.
Speaker Change: This is positive moment, momentum. Coming off a seasonally slower first quarter. However, we see a lot of opportunity to continue to leverage that momentum
Speaker Change: complimentary lines of business.
Speaker Change: To drive increased future performance.
Speaker Change: not interest expenses, increase 1.8 million in the quarter largely due to variable based compensation expenses, driven by increased activity
Speaker Change: The quarterly valuation adjustment on our SBA servicing asset. These adjustments are based on prepayment projections and market dynamics related to the value of servicing. Additionally increased expenses for data processing were related to increased activity
Speaker Change: Our net nie to average assets was 1.52% for the quarter, and that's a little higher than our Target of 1.45% non-interest income, uh, performance and expense discipline, remain priorities for us. As we work to Target, the 1.45% going forward, we have continued to Trend better than our peer Median on this key metric.
Speaker Change: With more activity, we've been seeing in our non-interest income lines and with our investment, and growing markets. With the addition of Bankers, we are likely to see non-interest expense a little higher offset by non-interest income and interest income.
Speaker Change: We are expecting non-interest expenses to increase slightly to around, 21 to 22 million a quarter, and may also see some variability on that based on activity, in our business lives.
Speaker Change: Provision expense, total of 450,000 for the quarter and net charge offs, were 1 million dollars. The majority of the net charge offs when our spsl division about 780,000 of that and the both were related to older loans originated prior to this interest rate cycle.
Speaker Change: And those were also originated prior to us TI tithing our credit, uh, requirements.
Speaker Change: Overall credit quality remains strong. And as he mentioned, we saw Improvement quarter over a quarter on mpas classified and criticized loans.
Speaker Change: Loans held for investment increased 72.3 million. As Heath mentioned, we are still seeing a good long pipeline that will likely start trending towards a 10 to 12% growth rate.
Speaker Change: The weighted average new and renewed loan rate. For the second quarter was 7.78%, which has a positive impact on our portfolio, yield and is shown on slide 26.
Speaker Change: There's still a lot of opportunity to capture positive increases in the repricing of loans and Investments.
Speaker Change: We have a repricing schedule on slide 28.
Speaker Change: base case, forecasted re
Speaker Change: Budget, Loans and Investments.
Speaker Change: Total deposits decrease, 66 million during the quarter which we mentioned on our last call that we expected seasonality uh, of deposits and that was not unusual for us. We anticipate these deposits to seasonally return in the late, third quarter and fourth quarter. Uh, as previously mentioned, deposits are up year-over-year by more than 75 million dollars.
Speaker Change: We did not sell any investments in the second quarter but given our increased loan growth and increasing margin, we are considering upcoming investment sales to further improve our balance sheet, position and fund loan growth. We are evaluating the potential size of any sales and we are considering a larger transaction to what we've done in previous quarters, as part of that evaluation
Speaker Change: During the quarter. We repurchased 62,000 shares at an average price of 15.46, as part of our stock repurchase program.
Speaker Change: We will continue to review the need for any possible repurchases years this year based on Capital needs and market conditions.
Speaker Change: Additionally earlier this week, the board declared a quarterly cash dividend of 11 and a half cents per share.
Speaker Change: I mentioned on last quarter's call that we are in the process of putting an active shelf registration in place or uh 2 2 replace are 2021 shelf that expired. We feel it as a part of prudent Capital Management um to have a shelf in place and we expect to have that filed during the third quarter.
Speaker Change: Our insurance division pre-tax income for the quarter was flat compared to the previous quarter as the team focused on integration and onboarding of the LLB Insurance Agency. We acquired during the quarter that integration has gone well and we are seeing a ramp up in volume policy sold increased 50% from the month of March compared to the month of June. Uh there were also increased marketing.
Speaker Change: Expenses and the second quarter, which will drive future production, and customer acquisition.
Speaker Change: That concludes my overview. And now I will turn it back over to Heath to begin the discussion about our merger announcement.
Speaker Change: Greg and his team have built under his leadership. TC Federal has established a strong reputation for customer service Community engagement and consistent performance. We're excited to bring together 2 cultural. Align institutions and look forward to working closely with Greg and his team as we build on that success.
Speaker Change: We're also pleased that Greg will be joining our team as Executive Vice President and chief Community banking officer. We look forward to working with him. Uh, next hickton TC senior lender who will also be joining our team and other members of the TC team as we work through this.
Speaker Change: The combination is a transformational step that enhances our franchise and positions us for sustained. Long-term growth and key markets. Both in Georgia and Florida. It enhances what we were already doing in Tallahassee and Savannah and provides us entry into 2. Great markets, Thomasville Georgia, and Jacksonville Florida, 2 markets that we've long desired to be in.
Speaker Change: Together this deal enhances, our earnings power, and our balance sheet strength through increased scale. And operating efficiency, we expect the transaction to be immediately accretive to earnings per share excluding 1-time costs, and it really sets us up to be among the top performers in our peer group.
Speaker Change: From a cultural standpoint, there's strong alignment between our teams and we're confident that integration will be smooth and collaborative.
Speaker Change: The merger represents a natural next step in our growth strategy and we believe it will deliver meaningful value to our shareholders customers team members and the communities, we serve.
Speaker Change: We expect the transaction to close in the fourth quarter of this year. Pending shareholder and Regulatory approvals and complete the course system conversion early next year.
Speaker Change: while our focus in the next quarter will be on a smooth transition, for the TCT and customers, we believe there will be further opportunities for us to benefit from industry consolidation and this deal illustrates our ability to be an acquirer of choice for Community Banks and our markets
Speaker Change: Now, I'd like to hand it over to Greg for any additional comments. He'd like to have about the merchant
Greg: Thank you Heath. I'd like to start by saying how excited we are about this partnership and the opportunities. It brings to our customers employees and communities. When evaluating strategic options for the future of our organization, it became clear. That colony was the ideal partner, The Proven, track record for looking strategy and commitment to doing things the right way. Made them the right choice. When we knew we respect our Legacy by helping us grow into the future. Our teams have spent significant time together over the past several months and it's clear. There's a strong cultural alignment between our organizations from how we support our employees to how we serve our customers.
Greg: And how we show up in the community. Our values are remarkably consistent colonies investment in technology and digital tools is impressive. And it gives our customers access to an expanded Suite of modern user-friendly banking Solutions. While still maintaining the high-tech service. We've always provided, we believe in the things colony is doing to grow its earnings and we expect this transaction will add significantly to the Future performance of colony. I'm incredibly proud of what our team has built at TC Federal. And I'm confident that this partnership with Colony will take it to the next level. We're excited to be part of this next chapter together.
Speaker Change: Thank you, Greg. And we are as excited as you are and we look forward to seeing what we can accomplish together as we combine, our organizations. Now Derek's going to go through some of the details of the transaction.
Derek: Thanks Keith.
Derek: As he mentioned, uh, this is a strategic and financially compelling transaction.
Derek: The consideration mix is structured as 80% stock and 20% cash, which allows us to preserve Capital, maintain strong regulatory, ratios, and align, both shareholder bases with the future, success of the combined company.
Derek: We expect double digit EPS secretion by year, 2 drives, Revenue growth, scalable operating leverage, and although we have not modeled them, we do believe, we will see synergies in the combined company.
Derek: Particularly as we were able to expand our complimentary business lines across the TC customer base.
Derek: On a pro forma basis. The combined organization will have approximately 3.8 billion in assets.
Derek: 3.1 billion and deposits and 2.4 billion in loans. Making us 1 of the leading Community Banks in the southeast.
Derek: Slide 4 in the merger. Investor presentation provides an overview of ProForm modeling, and we expect the approximately 8.4% EPS secretion in 2026 at 11.9% in 2027.
Derek: Tangible Book, value dilution per share is only 5.74% with an earned backup Less Than 3 years.
Derek: CC's projected, non-interest expenses. In addition, the projected loan interest rate. Mark is 3% with a gross credit Mark of 1.4% of TC's, projected loan portfolio, balance at closing.
This transaction enhances Roa to a projected 1.19% in 2026 with a projected, net interest margin of 3.43%.
Derek: From a capital ratio perspective, proforma tce is at 7.9%, leverage ratio at 9.8% and total, risc-based capital of, 15.9% resulting in a strong Capital position for the combined company.
And with that, I will hand it back over to Heath for final remarks.
Heath Fountain: Thanks, Derek. And again, thanks to all of you for being on the call today. We're pleased with our performance this quarter and we're very excited about the partnership with TC and opportunities for the confined company. That wraps up our prepared comments. And with that, I'll call on Joanna, to open up the line for any questions we might have
Thank you.
Joanna: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question please? Press the star followed by the 1 on your touchtone phone. If you will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by the 2 and if you are using a speaker-phone, please lift the handset, before pressing any keys.
Scott: The first question comes from Christopher marinick at Jaime Montgomery. Scott, please go ahead.
Speaker Change: Hey, thanks. Good morning. I wanted to ask about the quarter first and then the acquisition, um, from the standpoint of kind of loan pipelines. And and where the progress, um, goes beyond this last quarter that we saw. Can you just update us on, on kind of a reasonable growth rate, uh, organically. Um, and then the same goes for deposit costs and if they would be stable and then I'll follow up on the merger after.
Speaker Change: Yeah, yeah. Thanks Chris. Um, as far as you know, long growth, you know, we were 16% of the prior quarter 15, um, in this past quarter, we're thinking, you know, more probably in the 10 to 12% range for the rest of the year. Um, we we still have strong pipelines, they're not quite as full as they were, as we ended up the year and into the first and second. So I think, you know, we feel comfortable, uh, getting, uh, you know, getting down to to that level. Um, as far as, as deposit calls, uh, we have seen those flattened out. Um, we think we've squeezed, most of the, uh, of the, uh, juice. We can get out of, uh, our deposits where they are right now. So, we think they'll be, but, but we're not looking to see them increase in in significantly. Um, looking for pretty flat deposit costs. Uh,
Speaker Change: barring, you know, some actions by the Fed
Speaker Change: great. Those are both helpful, thanks for that. And then on the merger with with TC um, is this the the change in accretion from 26 to 27 purely just based on the timing of your systems conversion? I was just curious if that date has been locked in.
Speaker Change: Um, it it's not just uh uh based on that. That is part of that uh, is the timing of of, of expense changes. But it's also based on continued, organic growth of the organization. So uh, our expectations are uh based on that. So it's a little bit of of both of those. Chris we have not uh nailed down an exact date just yet. Uh, for that conversion, we're we're working through that. But expect that to be in the first quarter,
Chris: Perfect. And and he's just 1 last 1 on the merger. Do you think that there's enough other potential Acquisitions in the future for you? To look at something else as 26 comes in the focus or, uh, would you just assume handle TC stand alone and, and not consider something else at this point?
Yeah, I you know, we are very focused on ensuring that that this goes through, you know, in a great manner. But between our team and the TC team, you know, we've got a lot of great Bankers, a lot of people very experienced in doing these transactions.
Chris: That they'll be uh, other opportunities for us as we go into next year.
Chris: Great, thank you all for the time. I will see the floor.
Speaker Change: Thank you. The next question comes from Kyle German at Hof group. Please go ahead.
Kyle German: Hey thanks. Good morning. Uh, I was hoping you can provide some insight on the overall health of the loan portfolio particularly in the SBA lending segment.
Speaker Change: Sure, I'd be happy to, uh, you know, I think from an overall perspective. Uh, in, as we mentioned, you know, our, our total non-performing criticized classified levels, you know, came down. Uh, we do continue to see, you know, in those criticized classified and non-performing levels there is activity. Um, we've seen, um, new stuff, come in some stuff. Go out and get resolved. Uh, and in the past quarter, we had some some good resolution, uh, to some problem loans that I think, you know, helped us, uh, better than expected resolution. So it's good to see, uh, that kind of activity. Um, you know, we don't see anything, uh, systematic, uh, where we're seeing whole categories or, or Industries, uh, that we have major exposure to. Um, we're we're not seeing anything systemic, we continue to see, you know, isolated in,
Kyle German: Impacts of Borrowers.
Um, as mentioned in the, you know, on the SBA portfolio. Um, you know, we uh some of what we've been seeing are some of the older loans have been at. Um, they started at lower rates and then rates went up a lot on them, that put a lot of pressure on them and we're seeing, you know, that have, uh, impact on on the businesses. And so, uh, we do expect, you know, that is an area where we'll continue to see higher charge offs, but, you know, that they're, uh, our, our premium revenue, and what we're doing and that, uh, side of the business is very strong. So, you know, we kind of expect the higher charge off level there. Um, we, we are seeing I think that get a little better through these resolutions, but do expect it to be somewhat elevated in that area. Uh, going forward,
Kyle German: And and also um, just to add a little bit of color, you know, in in our earnings release, we break out the table on um, the guaranteed versus, I'm guarantee portion, um, some of them being increased and what we've seen in spsl this year has been from buying back some of that guaranteed portion, um, which, uh, is guaranteed by SBA and, and not have, uh, the, the same, uh, not not have any losses because of that, that government guarantee. So, that is part of also, what you're seeing in terms of activity and the SBS application. Yeah. And and we will have that from time to time sometimes, you know, we'll make the decision to
Kyle German: Buy in the loan back in. If we think we can work that out quickly. Um, and uh, uh, sometimes, you know, just just situation by situation. Sometimes we may not buy back in that guaranteed portion. I mean, the guaranteed portion. Um, in order to work that out so we did have a little bit of increase due to that this quarter, even though the net increase or the net wasn't decreased,
Speaker Change: Thank you. And I was also hoping you can provide some additional color, um, on the
Speaker Change: How much additional Runway you see for loan repricing?
Yeah. Um so we still are in a really good place. Um, in terms of uh the ability uh to see assets continue to reprice. You know, I think we indicated um we're in, you know, over around 7 to 78, I believe for uh new and renewed loans, this quarter. Uh so we're putting loans on at a good rate, you know, our our overall portfolio yield is only slightly above 6.
Speaker Change: So, uh, you know, we feel good about that. Um, I think Derek mentioned the slide in the investor presentation that breaks down our loan and uh investment repricing. There's obviously repricing and Investment Portfolio too.
Speaker Change: as we talked about on the deposit side being, you know, sort of uh uh
Speaker Change: You know, we're kind of at the place where we're not going to get much margin improvement from here without a rate, change on the liability side. Um, we still have significant opportunity to get Improvement on the uh, asset yield side again. Uh, we've been getting it on both sides and now just becoming from, uh, more from the asset side. So we do expect that margin expansion to to to not be quite as as strong as it has been this past past couple of quarters.
Speaker Change: Thank you for your time.
Speaker Change: Thank you, that concludes today's Q&A session. I'll turn the call back over to Heath fountain for closing comments.
Heath Fountain: Yeah. Uh, thank you everyone, for being on the call today. Uh, thank you Greg for being here with us. We appreciate everyone's support of calling bankrupt and, uh, we look forward to talking to you again soon. Thank you.
Speaker Change: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines