Colony Bank Q4 2025 Colony Bankcorp Inc Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 Colony Bankcorp Inc Earnings Call
Speaker #1: Good morning, ladies and gentlemen, and
Operator: Good morning, ladies and gentlemen, and welcome to the Colony Bank Q4 2025 Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press *0 for the operator. This call is being recorded on Thursday, 29 January 2026. I would now like to turn the conference over to Brantley Collins. Please go ahead.
Speaker #1: welcome to the COLONY BANK 4th Quarter 2025 Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session.
Speaker #1: If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, January 29th, 2026.
Speaker #1: I would now like to turn the conference over to Brantley Collins. Please go ahead.
Brantley Collins: Thanks, Danny. Before we get started, I would like to go through our standard disclosures. Certain statements we make on this call could be constituted as forward-looking statements within the meaning of the Securities Act of 1933, and the Securities Exchange Act of 1934. Current and prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance but involve known and unknown risk and uncertainties.
Speaker #2: Thanks, Danny. 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.
Speaker #2: Current and prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance but involve known and unknown risk and uncertainties.
Speaker #2: 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.
David Brown: 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. I would also like to add that during our call today, we will reference our Q4 earnings release and investor presentation, which were both 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. Thanks, Brantley, and thank you to everyone for joining our Q4 earnings call today. We are pleased to report a Q4 with strong operating performance. Our team's done a great job of delivering results and executing on our strategic initiatives. We're really excited about the legal close of the TC Federal merger, which occurred at the beginning of December, and we're on track to complete the systems conversion during Q1.
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. I would also like to add that during our call today, we will reference our Q4 earnings release and investor presentation, which were both 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.
Speaker #2: I would also like to add that during our call today, we will reference our fourth quarter earnings release and investor presentation, which were both filed yesterday.
Speaker #2: 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 Q4 earnings call today. We are pleased to report a Q4 with strong operating performance. Our team's done a great job of delivering results and executing on our strategic initiatives. We're really excited about the legal close of the TC Federal merger, which occurred at the beginning of December, and we're on track to complete the systems conversion during Q1.
Speaker #3: Thanks, Brantley, and thank you to everyone for joining our fourth quarter earnings call today. We are pleased to report a fourth quarter with strong operating performance.
Speaker #3: Our team's done a great job of delivering results and executing on our strategic initiatives. We're really excited about the legal close of the TC Federal merger, which occurred at the beginning of December, and we're on track to complete the systems conversion during the first quarter.
Speaker #3: Both teams have done a great job to get us to this point, and we're looking forward to the upcoming customer integration. We're also pleased to report that our financial targets for the deal are on track, or better than expected, as Derek will discuss later on in the call.
David Brown: Both teams have done a great job to get us to this point, and we're looking forward to the upcoming customer integration. We're also pleased to report that our financial targets for the deal are on track or better than expected, as Derek will discuss later on in the call. Operating earnings continue to improve with an increase in operating net income of $675,000 compared to Q3. This was driven by continued increase in our net interest margin as well as a strong quarter in terms of non-interest income. As we mentioned early last year, our projections indicated achieving a 1% ROA by the latter half of the year and maintaining 1% or better going forward. We were able to hit that target in Q2 and maintain it through the rest of 2025.
Both teams have done a great job to get us to this point, and we're looking forward to the upcoming customer integration. We're also pleased to report that our financial targets for the deal are on track or better than expected, as Derek will discuss later on in the call. Operating earnings continue to improve with an increase in operating net income of $675,000 compared to Q3. This was driven by continued increase in our net interest margin as well as a strong quarter in terms of non-interest income. As we mentioned early last year, our projections indicated achieving a 1% ROA by the latter half of the year and maintaining 1% or better going forward. We were able to hit that target in Q2 and maintain it through the rest of 2025.
Speaker #3: Operating earnings continue to improve, with an increase in operating net income of $675,000 compared to the third quarter. This was driven by continued increase in our net interest margin, as well as a strong quarter in terms of non-interest income.
Speaker #3: As we mentioned early last year, our projections indicated achieving a 1% ROA by the latter half of the year and maintaining 1% or better going forward.
Speaker #3: We were able to hit that target in the second quarter and maintain it through the rest of '25. I'm proud of our team's accomplishments, and being able to do this and report that we've achieved a 1% operating ROA for the 2025 fiscal year.
David Brown: I'm proud of our team's accomplishments in being able to do this and report that we've achieved a 1% operating ROA for the 2025 fiscal year. We now set our sights on our next goal of a 120 ROA and believe that we can achieve that on a quarterly basis starting in Q2 of 2026 once we get the full benefit of the TC Federal merger and expect to hit the 120 mark for the full year of 2026. In 2025, we saw core loan growth of 10.5%, excluding the impact of the TC Federal acquisition. Our outlook on loan growth for 2026 remains positive, and our pipelines remain strong, but we are seeing a trend where we think we'll be closer to the 8% end of our 8% to 12% long-term target. We've seen an increased competition in lending across our footprints.
I'm proud of our team's accomplishments in being able to do this and report that we've achieved a 1% operating ROA for the 2025 fiscal year. We now set our sights on our next goal of a 120 ROA and believe that we can achieve that on a quarterly basis starting in Q2 of 2026 once we get the full benefit of the TC Federal merger and expect to hit the 120 mark for the full year of 2026. In 2025, we saw core loan growth of 10.5%, excluding the impact of the TC Federal acquisition. Our outlook on loan growth for 2026 remains positive, and our pipelines remain strong, but we are seeing a trend where we think we'll be closer to the 8% end of our 8% to 12% long-term target. We've seen an increased competition in lending across our footprints.
Speaker #3: We now set our sights on our next goal of a 1.20 ROA, and believe that we can achieve that on a quarterly basis starting in the second quarter of 2026, once we get the full benefit of the TC Federal merger, and expect to hit the 1.20 mark for the full year of 2026.
Speaker #3: In 2025, we saw core loan growth of 10.5%, excluding the impact of the TC Federal acquisition. Our outlook on loan growth for 2026 remains positive, and our pipelines remain strong.
Speaker #3: But we are seeing a trend where we think we'll be closer to the 8% end of our 8 to 12% long-term target. We've seen an increased competition in lending across our footprints.
Speaker #3: However, we remain focused on growing core customer relationships. This strategy has allowed us to maintain a disciplined approach to pricing and credit while still achieving our growth goals.
David Brown: However, we remain focused on growing core customer relationships. This strategy has allowed us to maintain a disciplined approach to pricing and credit while still achieving our growth goals. With expected loan growth and repricing opportunities, we project margin to increase at a modest pace throughout 2026, around mid-single digits each quarter. In addition, we feel good about the outlook on the non-interest income side and expect it to be slightly better in 2026 as we continue to see improvement in our lines of business and fee income. Deposits were up for the quarter and organically flat year-over-year, excluding the acquisition of TC Federal. We are driving deposit account growth, and our team's focused on building the deposit-first and relationship banking culture.
However, we remain focused on growing core customer relationships. This strategy has allowed us to maintain a disciplined approach to pricing and credit while still achieving our growth goals. With expected loan growth and repricing opportunities, we project margin to increase at a modest pace throughout 2026, around mid-single digits each quarter. In addition, we feel good about the outlook on the non-interest income side and expect it to be slightly better in 2026 as we continue to see improvement in our lines of business and fee income. Deposits were up for the quarter and organically flat year-over-year, excluding the acquisition of TC Federal. We are driving deposit account growth, and our team's focused on building the deposit-first and relationship banking culture.
Speaker #3: With expected loan growth and repricing opportunities, we project margin to increase at a modest pace throughout 2026, around mid-single digits each quarter. In addition, we feel good about the outlook on the non-interest income side and expect to it to be slightly better in 2026 as we continue to see improvement in our lines of business and fee income.
Speaker #3: Deposits were up for the quarter, and organically flat year over year, excluding the acquisition of TC Federal. We are driving deposit account growth, and our team's focused on building a deposit-first and relationship banking culture.
Speaker #3: At the same time, we're also focused on improving margin and have moved our interest-bearing accounts aggressively during the recent rate cuts this cycle. Which has caused us to lose some non-relationship price-sensitive accounts.
David Brown: At the same time, we're also focused on improving margin and have moved our interest-bearing accounts aggressively during the recent rate cuts this cycle, which has caused us to lose some non-relationship price-sensitive accounts. We carefully monitor this and believe we can grow the right kinds of deposit relationships, and as rates stabilize, we will become more competitive for interest-bearing deposits as well. In Q4, we executed a portfolio mortgage pool sale of around $10 million with a gain of a little over $100,000. Our loans held-for-sale balance also increased quarter-over-quarter, and we're expecting to sell another $30 million of portfolio mortgage loans in Q1 of this year. There's a couple of reasons why we're doing this. First, the secondary market for non-agency loans has improved, and we're now able to push some previous quarter's mortgage production into the secondary market.
At the same time, we're also focused on improving margin and have moved our interest-bearing accounts aggressively during the recent rate cuts this cycle, which has caused us to lose some non-relationship price-sensitive accounts. We carefully monitor this and believe we can grow the right kinds of deposit relationships, and as rates stabilize, we will become more competitive for interest-bearing deposits as well. In Q4, we executed a portfolio mortgage pool sale of around $10 million with a gain of a little over $100,000. Our loans held-for-sale balance also increased quarter-over-quarter, and we're expecting to sell another $30 million of portfolio mortgage loans in Q1 of this year. There's a couple of reasons why we're doing this. First, the secondary market for non-agency loans has improved, and we're now able to push some previous quarter's mortgage production into the secondary market.
Speaker #3: We carefully monitor this and believe we can grow the right kinds of deposit relationships and, as rates stabilize, we will become more competitive for interest-bearing deposits as well.
Speaker #3: In the fourth quarter, we executed a portfolio mortgage pool sale of around $10 million with a gain of a little over $100,000. Our loan sale for sale balance also increased quarter over quarter, and we're expecting to sell another $30 million of portfolio mortgage loans in the first quarter of this year.
Speaker #3: There's a couple of reasons why we're doing this. First, the secondary market for non-agency loans has improved. And we're now able to push some previous quarter's mortgage production into the secondary market.
Speaker #3: Second, with the addition of TC Federal, we knew we'd be expanding our one-to-four family portfolios. So to manage that concentration, we feel it's prudent to trim some mortgage loan exposure.
David Brown: Second, with the addition of TC Federal, we knew we'd be expanding our 1 to 4 family portfolios, so to manage that concentration, we feel it's prudent to trim some mortgage loan exposure. Operating expenses were higher in Q4 as we have not yet realized all of the expected cost savings from the TC Federal acquisition. As we complete the systems conversion in Q4, we anticipate a majority of those remaining cost savings to occur after the conversion and be realized in Q2 and going forward. Charge-offs were lower in Q4 but still elevated slightly compared to earlier quarters. Charge-offs have primarily come from our SBSL division, and we provide a breakdown of the net charge-offs on slide 34 in our investor presentation. We saw some charge-offs from our marketplace loan partners in Q4, but do not expect that to be a long-term trend.
Second, with the addition of TC Federal, we knew we'd be expanding our 1 to 4 family portfolios, so to manage that concentration, we feel it's prudent to trim some mortgage loan exposure. Operating expenses were higher in Q4 as we have not yet realized all of the expected cost savings from the TC Federal acquisition. As we complete the systems conversion in Q4, we anticipate a majority of those remaining cost savings to occur after the conversion and be realized in Q2 and going forward. Charge-offs were lower in Q4 but still elevated slightly compared to earlier quarters. Charge-offs have primarily come from our SBSL division, and we provide a breakdown of the net charge-offs on slide 34 in our investor presentation. We saw some charge-offs from our marketplace loan partners in Q4, but do not expect that to be a long-term trend.
Speaker #3: Operating expenses were higher in the fourth quarter as we have not yet realized all of the expected cost saves from the TC Federal acquisition.
Speaker #3: As we complete the systems conversion in the first quarter, we anticipate a majority of those remaining cost savings to occur after the conversion and be realized in the second quarter and going forward.
Speaker #3: Car costs were lower in the fourth quarter but still elevated slightly compared to earlier quarters. Car costs have primarily come from our SBSL division, and we provide a breakdown of the net charge-offs on slide 34 in our investor presentation.
Speaker #3: We saw some charge-offs from our marketplace loan partners in the fourth quarter. But do not expect that to be a long-term trend. SBSL and marketplace loans only represent about 5% of our total loan portfolios.
David Brown: SBSL and marketplace loans only represent about 5% of our total loan portfolio. As you can see on that slide, bank net charge-offs remain at low levels and give us confidence in the credit quality of our overall portfolio. We also outlined the yields in those categories, and it's important to note that both of these third-party marketplace loans and SBA loans provide higher yields, which offset charge-offs and provide for a nice risk-adjusted return. Additionally, of course, on the SBA loans, we've also generated significant gain-on-sale income on the guaranteed portion of those. Our performance in complementary lines of business are highlighted on slide 19 on a pre-tax basis. SBSL and mortgage finished the year with a strong Q4, and we continue to see improvement in marine RV lending as well as merchant services.
SBSL and marketplace loans only represent about 5% of our total loan portfolio. As you can see on that slide, bank net charge-offs remain at low levels and give us confidence in the credit quality of our overall portfolio. We also outlined the yields in those categories, and it's important to note that both of these third-party marketplace loans and SBA loans provide higher yields, which offset charge-offs and provide for a nice risk-adjusted return. Additionally, of course, on the SBA loans, we've also generated significant gain-on-sale income on the guaranteed portion of those. Our performance in complementary lines of business are highlighted on slide 19 on a pre-tax basis. SBSL and mortgage finished the year with a strong Q4, and we continue to see improvement in marine RV lending as well as merchant services.
Speaker #3: And as you can see on that slide, bank net charge-offs remain at low levels and give us confidence in the credit quality of our overall portfolio.
Speaker #3: We also outlined the yields in those categories. And it's important to note that both of these third-party marketplace loans and SBA loans provide higher yields which offset charge-offs and provide for a nice risk-adjusted return.
Speaker #3: Additionally, of course, on the SBA loans, we've also generated significant gain on sale income. On the guaranteed portion of those. Our performance in complementary lines of business are highlighted on slide 19 on a pre-tax basis.
Speaker #3: SBSL and mortgage finished the year with a strong fourth quarter. And we continue to see improvement in marine RV lending as well as merchant services.
Speaker #3: We've welcomed the addition of two new proven financial advisors. Financial advisors to the Colony team in the fourth quarter. Glen Weir and Lagrange and Tim Owens and Macon.
David Brown: We've welcomed the addition of two new proven financial advisors to the Colony team in Q4: Glenn Weir in LaGrange, and Tim Owens in Macon, and they have been successfully transitioning their client base to Colony. With the addition of Tim and Glenn, we've also begun the transition of our relationship with our broker-dealer, Ameriprise, from a managed program to a dual-employee model where our financial advisors are employed by Colony and where we receive the majority of the revenue, but also bear the full expense load. As we've more than doubled our assets under management from about $200 million at the end of 2024 to over $460 million at the end of 2025, we believe this transition will be beneficial for the long term and offers more flexibility for our advisors while maintaining the relationship with our broker-dealer. Overall, this structure will provide increased income opportunities going forward.
We've welcomed the addition of two new proven financial advisors to the Colony team in Q4: Glenn Weir in LaGrange, and Tim Owens in Macon, and they have been successfully transitioning their client base to Colony. With the addition of Tim and Glenn, we've also begun the transition of our relationship with our broker-dealer, Ameriprise, from a managed program to a dual-employee model where our financial advisors are employed by Colony and where we receive the majority of the revenue, but also bear the full expense load. As we've more than doubled our assets under management from about $200 million at the end of 2024 to over $460 million at the end of 2025, we believe this transition will be beneficial for the long term and offers more flexibility for our advisors while maintaining the relationship with our broker-dealer. Overall, this structure will provide increased income opportunities going forward.
Speaker #3: And they have been successfully transitioning their client base to Colony. With the addition of Tim and Glen, we've also begun the transition of our relationship with our broker-dealer, Ameriprized, from a managed program to a dual employee model, where our financial advisors are employed by Colony and where we receive the majority of the revenue, but also bear the full expense load.
Speaker #3: As we more than doubled our assets under management from about $200 million at the end of 2024 to over $460 million at the end of 2025, we believe this transition will be beneficial for the long term and offers more flexibility for our advisors while maintaining the relationship with our broker-dealer.
Speaker #3: Overall, this structure will provide increased income opportunities going forward. Some of the related expenses to that occurred in the fourth quarter. And we expect to be fully transitioned by the end of the first quarter of this year.
David Brown: Some of the related expenses to that occurred in Q4, and we expect to be fully transitioned by the end of Q1 of this year. The building out of this platform is an important piece of our long-term strategy, and we are actively recruiting to continue to grow this line of business. Slide 23 illustrates the year-over-year improvement with Colony Insurance and shows significant increases in items and premiums in force. Bank referrals to insurance increased 20% in 2025. We've been in a very hard insurance market the last couple of years, facing significant rate increases from our carriers for our customers, which has had an impact on retention rates, but we are starting to see the market soften some and believe we will see improvements to retention and production in 2026.
Some of the related expenses to that occurred in Q4, and we expect to be fully transitioned by the end of Q1 of this year. The building out of this platform is an important piece of our long-term strategy, and we are actively recruiting to continue to grow this line of business. Slide 23 illustrates the year-over-year improvement with Colony Insurance and shows significant increases in items and premiums in force. Bank referrals to insurance increased 20% in 2025. We've been in a very hard insurance market the last couple of years, facing significant rate increases from our carriers for our customers, which has had an impact on retention rates, but we are starting to see the market soften some and believe we will see improvements to retention and production in 2026.
Speaker #3: The building out of this platform is an important piece of our long-term strategy, and we are actively recruiting to continue to grow this line of business.
Speaker #3: Slide 23 illustrates the year-over-year improvement with Colony Insurance and shows significant increases in items and premiums enforced. Bank referrals to insurance increased 20% in 2025.
Speaker #3: We've been in a very hard insurance market the last couple of years, facing significant rate increases from our carriers for our customers. Which has had an impact on retention rates.
Speaker #3: But we are starting to see the market soften some. And believe we will see improvements to retention and production in 2026. Yesterday, the board declared an increase to our quarterly dividend to 12 cents per share, which is an increase of 2 cents on an annualized basis.
David Brown: Yesterday, the board declared an increase to our quarterly dividend to $0.12 per share, which is an increase of $0.02 on an annualized basis. Dividends are important to many of our shareholders, and we're proud to increase the dividend for another consecutive year. I'd also like to recognize that Colony Bank has been named one of American Banker's 2025 Best Banks to Work For. This is a tremendous accomplishment and reflects our commitment to culture and to our team members. I'm grateful for everything our team members do to support each other and the customers we serve. Colony was the only bank headquartered in Georgia to be recognized on this list in 2025. We continue to see opportunities to capitalize on the increased M&A activity in the industry and across our footprint.
Yesterday, the board declared an increase to our quarterly dividend to $0.12 per share, which is an increase of $0.02 on an annualized basis. Dividends are important to many of our shareholders, and we're proud to increase the dividend for another consecutive year. I'd also like to recognize that Colony Bank has been named one of American Banker's 2025 Best Banks to Work For. This is a tremendous accomplishment and reflects our commitment to culture and to our team members. I'm grateful for everything our team members do to support each other and the customers we serve. Colony was the only bank headquartered in Georgia to be recognized on this list in 2025. We continue to see opportunities to capitalize on the increased M&A activity in the industry and across our footprint.
Speaker #3: Dividends are important to many of our shareholders. And we're proud to increase the dividend for another consecutive year. I'd also like to recognize that Colony Bank has been named one of American Bankers 2025 best banks to work for.
Speaker #3: This is a tremendous accomplishment and reflects our commitment to culture and to our team members. I'm grateful for everything our team members do to support each other and the customers we serve.
Speaker #3: Colony was the only bank headquartered in Georgia to be recognized on this list in 2025. We continue to see opportunities to capitalize on the increased M&A activity.
Speaker #3: In the industry and across our footprint, this includes opportunity for new customer acquisition, new talent acquisition, and expanded fee income as we develop deeper customer relationships across our existing markets.
David Brown: This includes opportunity for new customer acquisition, new talent acquisition, and expanded fee income as we develop deeper customer relationships across our existing markets. As I mentioned earlier, our team's focused on the integration and core conversion with TC Federal in Q4. At the same time, we continue to see an increased level of activity from an M&A perspective, and we are actively having conversations with potential M&A targets. We're at a place where we feel comfortable moving forward with another opportunity, and we believe that given the level of conversations and activity we've seen in the industry, we'll have the opportunity to announce another transaction at some point in 2026. Slide 14 in our investor presentation lays out our approach to M&A opportunities. The strong momentum exiting 2025 positions us well as we enter 2026.
This includes opportunity for new customer acquisition, new talent acquisition, and expanded fee income as we develop deeper customer relationships across our existing markets. As I mentioned earlier, our team's focused on the integration and core conversion with TC Federal in Q4. At the same time, we continue to see an increased level of activity from an M&A perspective, and we are actively having conversations with potential M&A targets. We're at a place where we feel comfortable moving forward with another opportunity, and we believe that given the level of conversations and activity we've seen in the industry, we'll have the opportunity to announce another transaction at some point in 2026. Slide 14 in our investor presentation lays out our approach to M&A opportunities. The strong momentum exiting 2025 positions us well as we enter 2026.
Speaker #3: As I mentioned earlier, our team's focused on the integration and core conversion of TC Federal in the first quarter. At the same time, we continue to see an increased level of activity from an M&A perspective.
Speaker #3: And we are actively having conversations with potential M&A targets. We're at a place where we feel comfortable moving forward with another opportunity. And we believe that given the level of conversations and activity we've seen in the industry, we'll have the opportunity to announce another transaction at some point in 2026.
Speaker #3: Slide 14 in our investor presentation lays out our approach to M&A opportunities. The strong momentum exiting 2025 positions us well as we enter 2026.
Speaker #3: We remain optimistic about the opportunities ahead and are focused on continuing to enhance performance through discipline, execution, and ongoing improvement. With that, I'm going to turn it over to Derek to go over the financials in
David Brown: We remain optimistic about the opportunities ahead and are focused on continuing to enhance performance through discipline, execution, and ongoing improvement. With that, I'm going to turn it over to Derek to go over the financials in more detail. Thank you, Heath. From an operating income perspective, we saw net income increase $675,000 in Q4, driven by the completion of the TC Federal acquisition as of 1 December, as well as continued increase in margin and solid results for many of our complementary lines of business. Operating pre-provision net revenue improved again in Q4 and was a significant improvement over Q4 of 2024. We continue to see positive improvement in our core earnings. Net interest income increased approximately $3.2 million compared to the prior quarter and was a product of continued improvement in earning asset yields, a reduction in cost of funds, and the addition of TC Federal in December.
We remain optimistic about the opportunities ahead and are focused on continuing to enhance performance through discipline, execution, and ongoing improvement. With that, I'm going to turn it over to Derek to go over the financials in more detail.
Speaker #3: more detail. Thank you,
Derek Shelnutt: Thank you, Heath. From an operating income perspective, we saw net income increase $675,000 in Q4, driven by the completion of the TC Federal acquisition as of 1 December, as well as continued increase in margin and solid results for many of our complementary lines of business. Operating pre-provision net revenue improved again in Q4 and was a significant improvement over Q4 of 2024. We continue to see positive improvement in our core earnings. Net interest income increased approximately $3.2 million compared to the prior quarter and was a product of continued improvement in earning asset yields, a reduction in cost of funds, and the addition of TC Federal in December.
Speaker #2: Heath. From an operating income perspective, we saw net income increase 675,000 in the fourth quarter, driven by the completion of the TC Federal acquisition as of December 1st.
Speaker #2: As well as continued increase in margin, and solid results for many of our complementary lines of business. Operating pre-provision net revenue improved again in the fourth quarter and was a significant improvement over the fourth quarter of 2024.
Speaker #2: We continue to see positive improvement in our core earnings. Net interest income increased approximately 3.2 million, compared to the prior quarter, and was a product of continued improvement in earning asset yields; a reduction in cost of funds; and the addition of TC Federal in December.
Speaker #2: Net interest margin increased 15 basis points to 3.32% in the quarter. Loan yields increased to 6.19%, up from 6.15% in the previous quarter. And reflects continued positive loan repricing, the addition of one-month of TC Federal loans in the related accretion income, which was slightly offset by the reset on variable-rate loans due to the short-term rate cuts.
David Brown: Net interest margin increased 15 basis points to 3.32% in Q4. Loan yields increased to 6.19%, up from 6.15% in the previous quarter, and reflects continued positive loan repricing, the addition of one month of TC Federal loans, and the related accretion income, which was slightly offset by the reset on variable-rate loans due to the short-term rate cuts. The impact of the short-term rate cuts was captured in our overall cost of funds, which decreased to 1.96% for the quarter, and that is down from 2.03% in Q3. The short-term rate cuts from the Fed helped drive those fund costs lower, in addition to the seasonal inflow of the lower cost deposits that we typically see later in the year. We may see some slight variability in accretion income depending on the timing of payoffs and paydowns from the acquired TCF loans.
Net interest margin increased 15 basis points to 3.32% in Q4. Loan yields increased to 6.19%, up from 6.15% in the previous quarter, and reflects continued positive loan repricing, the addition of one month of TC Federal loans, and the related accretion income, which was slightly offset by the reset on variable-rate loans due to the short-term rate cuts. The impact of the short-term rate cuts was captured in our overall cost of funds, which decreased to 1.96% for the quarter, and that is down from 2.03% in Q3. The short-term rate cuts from the Fed helped drive those fund costs lower, in addition to the seasonal inflow of the lower cost deposits that we typically see later in the year. We may see some slight variability in accretion income depending on the timing of payoffs and paydowns from the acquired TCF loans.
Speaker #2: The impact of the short-term rate cuts was captured in our overall cost of funds, which decreased to 1.96% for the quarter and that is down from 2.03% in the third quarter.
Speaker #2: The short-term rate cuts from the Fed helped drive those fund costs lower. In addition to the seasonal inflow of the lower cost deposits that we typically see later in the year.
Speaker #2: may see some slight We variability in accretion income depending on the timing of payoffs and paydowns from the acquired TCF loans. Going forward, as we receive payoffs of acquired loans that were marked a fair value, we are then able to deploy those funds at current market rates, resulting in minimal impact to overall interest income.
David Brown: Going forward, as we receive payoffs of acquired loans that were marked at fair value, we are then able to deploy those funds at current market rates, resulting in minimal impact to overall interest income. We're still projecting a modest increase in net interest margin each quarter throughout 2026 as we continue to see repricing of cash flows from lower-earning assets. Q4 operating non-interest income was $11.1 million, reflective of a good quarter for many of our complementary business lines, particularly mortgage and SBSL. Slide 19 gives an overview of the pre-tax performance of our complementary lines, with a noticeable improvement overall from Q3. Mortgage-related non-interest revenue increased $270,000 from the prior quarter, and as Heath mentioned, we did have a $108,000 gain from a sale of portfolio mortgage pool of about $10 million during the quarter.
Going forward, as we receive payoffs of acquired loans that were marked at fair value, we are then able to deploy those funds at current market rates, resulting in minimal impact to overall interest income. We're still projecting a modest increase in net interest margin each quarter throughout 2026 as we continue to see repricing of cash flows from lower-earning assets. Q4 operating non-interest income was $11.1 million, reflective of a good quarter for many of our complementary business lines, particularly mortgage and SBSL. Slide 19 gives an overview of the pre-tax performance of our complementary lines, with a noticeable improvement overall from Q3. Mortgage-related non-interest revenue increased $270,000 from the prior quarter, and as Heath mentioned, we did have a $108,000 gain from a sale of portfolio mortgage pool of about $10 million during the quarter.
Speaker #2: We're still projecting a modest increase in net interest margin each quarter throughout 2026, as we continue to see repricing of cash flows from lower-earning assets.
Speaker #2: Fourth quarter operating non-interest income was 11.1 million, reflective of a good quarter for many of our complementary business lines, particularly mortgage and SBSL. Slide 19 gives an overview of the pre-tax performance of our complementary lines, with a noticeable improvement overall from the third quarter.
Speaker #2: Mortgage-related non-interest revenue increased $270,000 from the prior quarter and, as Heath mentioned, we did have a $108,000 gain from a sale of portfolio mortgage pool of about $10 million during the quarter.
Speaker #2: Marina and RV lending continues to improve on a quarterly basis. In addition to improvement in our emergent services division. Heath also mentioned the conversion with Colony Financial Advisors from a managed program to a dual program, along with the addition of two financial advisors.
David Brown: Marine and RV lending continues to improve on a quarterly basis, in addition to improvement in our merchant services division. Heath also mentioned the conversion with Colony Financial Advisors from a managed program to a dual program, along with the addition of two financial advisors. There are some upfront expenses associated with that strategy, and although we will see expenses increase with that change, the dual program will allow us to receive a larger share of dealer commissions, which will outweigh the increase in expense and ultimately improve the earnings power of that division, leading to increased net income. Typically, Q4 is a lower-volume quarter for Colony Insurance based on the time of the policy renewals and seasonality. We expect this to revert back to normal in Q1 and improve into the rest of 2026.
Marine and RV lending continues to improve on a quarterly basis, in addition to improvement in our merchant services division. Heath also mentioned the conversion with Colony Financial Advisors from a managed program to a dual program, along with the addition of two financial advisors. There are some upfront expenses associated with that strategy, and although we will see expenses increase with that change, the dual program will allow us to receive a larger share of dealer commissions, which will outweigh the increase in expense and ultimately improve the earnings power of that division, leading to increased net income. Typically, Q4 is a lower-volume quarter for Colony Insurance based on the time of the policy renewals and seasonality. We expect this to revert back to normal in Q1 and improve into the rest of 2026.
Speaker #2: There are some upfront expenses associated with that strategy. And although we will see expenses increase with that change, the dual program will allow us to receive a larger share of dealer commissions which will outweigh the increase in expense and ultimately improve the earnings power of that division, leading to increased net income.
Speaker #2: Typically, the fourth quarter is a lower volume quarter for Colony Insurance based on the timing of policy renewals and seasonality. We expect this to revert back to normal in the first quarter and improve into the rest of 2026.
Speaker #2: Operating non-interest expenses for 24.4 million and the increase is attributable to the TC Federal acquisition. We're still carrying some TC Federal-related expenses until the systems conversion in mid-first quarter.
David Brown: Operating non-interest expenses were $24.4 million, and the increase is attributable to the TC Federal acquisition. We're still carrying some TC Federal-related expenses until the systems conversion in Q4, and then expect those expenses to drop off for Q2 of 2026. This led to a higher net non-interest expense to average assets of 1.58% for the quarter, and a little higher than our historical average. We expect that to be closer to our target of 1.45% in Q2 as we capture the remaining cost savings for the merger. The focus of discipline expense management relative to our growth and earnings remains a priority for us as we continue to execute on our strategic initiatives that improve operating efficiency across the organization. Merger-related expenses totaled $1.3 million for the quarter, and were an adjustment to operating earnings. Provision expense totaled $1.65 million for the quarter.
Operating non-interest expenses were $24.4 million, and the increase is attributable to the TC Federal acquisition. We're still carrying some TC Federal-related expenses until the systems conversion in Q4, and then expect those expenses to drop off for Q2 of 2026. This led to a higher net non-interest expense to average assets of 1.58% for the quarter, and a little higher than our historical average. We expect that to be closer to our target of 1.45% in Q2 as we capture the remaining cost savings for the merger. The focus of discipline expense management relative to our growth and earnings remains a priority for us as we continue to execute on our strategic initiatives that improve operating efficiency across the organization. Merger-related expenses totaled $1.3 million for the quarter, and were an adjustment to operating earnings. Provision expense totaled $1.65 million for the quarter.
Speaker #2: And then expect those expenses to drop off for the second quarter of 2026. This led to a higher net non-interest expense to average assets of 1.58% for the quarter, and a little higher than our historical average.
Speaker #2: We expect that to be closer to our target of 1.45% in the second quarter as we capture the remaining cost savings for the merger.
Speaker #2: The focus of discipline expense management relative to our growth and earnings remains a priority for us as we continue to execute on our strategic initiatives that improve operating efficiency across the organization.
Speaker #2: Merger-related expenses totaled 1.3 million for the quarter and were an adjustment to operating earnings. Provision expense totaled 1.65 million for the quarter. That's an increase from 900,000 in the prior quarter.
David Brown: That's an increase from $900,000 in Q4. Net charge-offs for the quarter were $1.6 million, a slight decrease from Q4. Charge-offs were primarily driven by SBA loans as well as some marketplace loans from our third-party partners. As Heath mentioned, SBA and marketplace loans represent about 5% of the portfolio. Slide 34 shows a breakout of charge-offs between those product types and the bank portfolio, and in addition, slide 34 also provides a breakout of loan yields in those categories. As we look forward to 2026 in regards to SBA charge-offs, we feel that we will see improvement compared to the trends that we saw in 2025. That expectation is supported by the underlying collateral of classified SBA loans. Classified and criticized loans increased from Q4, and 68% of that increase came from TC Federal for criticized loans and 93% for classified loans. Non-performing loans increased quarter-over-quarter.
That's an increase from $900,000 in Q4. Net charge-offs for the quarter were $1.6 million, a slight decrease from Q4. Charge-offs were primarily driven by SBA loans as well as some marketplace loans from our third-party partners. As Heath mentioned, SBA and marketplace loans represent about 5% of the portfolio. Slide 34 shows a breakout of charge-offs between those product types and the bank portfolio, and in addition, slide 34 also provides a breakout of loan yields in those categories. As we look forward to 2026 in regards to SBA charge-offs, we feel that we will see improvement compared to the trends that we saw in 2025. That expectation is supported by the underlying collateral of classified SBA loans. Classified and criticized loans increased from Q4, and 68% of that increase came from TC Federal for criticized loans and 93% for classified loans. Non-performing loans increased quarter-over-quarter.
Speaker #2: Net charge-offs for the quarter were 1.6 million, a slight decrease from the prior quarter. Charge-offs were primarily driven by SBA loans as well as some marketplace loans from our third-party partners.
Speaker #2: As Heath mentioned, SBA and marketplace loans represent about 5% of the portfolio. Slide 34 shows a breakout of charge-offs between those product types and the bank portfolio.
Speaker #2: And in addition, slide 34 also provides a breakout of loan yields in those categories. As we look forward to 2026 in regards to SBA charge-offs, we feel that we will see improvement compared to the trends that we saw in 2025.
Speaker #2: That expectation is supported by the underlying collateral of classified SBA loans. Classified and criticized loans increased from the prior quarter, and 68% of that increase came from TC Federal for criticized loans, and 93% for classified loans.
Speaker #2: Non-performing loans increased quarter over quarter. 6 million of the $9 million increase in non-performing loans was due to the acquisition of TC Federal, and any anticipated losses were captured through acquisition accounting.
David Brown: $6 million of the $9 million increase in non-performing loans was due to the acquisition of TC Federal, and any anticipated losses were captured through acquisition accounting. We early adopted the new CECL-related accounting standard, and this resulted in no CECL double count as part of the acquisition. The credit quality of TC Federal's loans was reflected in the adjustment to the allowance for credit losses as part of the purchase accounting. Loan sales for investment increased in Q4 due to acquired loans from the TC Federal merger. Organic loan growth for Q4 was flat, but was due to Q4 payoffs of both Colony loans as well as some legacy TC Federal loan payoffs in December. There was also $50 million in mortgage loans reclassified from held for investment to held for sales. We continue to market those loans for a pool sale.
$6 million of the $9 million increase in non-performing loans was due to the acquisition of TC Federal, and any anticipated losses were captured through acquisition accounting. We early adopted the new CECL-related accounting standard, and this resulted in no CECL double count as part of the acquisition. The credit quality of TC Federal's loans was reflected in the adjustment to the allowance for credit losses as part of the purchase accounting. Loan sales for investment increased in Q4 due to acquired loans from the TC Federal merger. Organic loan growth for Q4 was flat, but was due to Q4 payoffs of both Colony loans as well as some legacy TC Federal loan payoffs in December. There was also $50 million in mortgage loans reclassified from held for investment to held for sales. We continue to market those loans for a pool sale.
Speaker #2: We early adopted the new CSOL-related accounting standard. And this resulted in no CSOL double count as part of the acquisition. The credit quality of TC Federal's loans was reflected in the adjustment to the allowance for credit losses as part of the purchase accounting.
Speaker #2: Loans held for investment increased in the quarter due to acquired loans from the TC Federal merger, organic loan growth for the quarter was flat, but was due to four-quarter payoffs of both Colony loans as well as some legacy TC Federal loan payoffs in December.
Speaker #2: There was also a $50 million in mortgage loans reclassified from held for investment to held for sales. We continue to market those loans for a pool sale.
Speaker #2: Organic loan growth for 2025 was around 10.5%, and we anticipate organic loan growth for 2026 to be slightly less, towards the lower end of our 8% to 12% target.
David Brown: Organic loan growth for 2025 was around 10.5%, and we anticipate organic loan growth for 2026 to be slightly less towards the lower end of our 8 to 12% target. Slide 35 shows the weighted average rate on new and renewed loans of 7.33%, a decrease from the previous quarter due to rate cuts, and changes in the rate environment. We expect to see that yield fall closer to the Prime Rate. However, that still leaves room for loan yields to improve from loan repricing. Fixed-rate loan rolloff for 2026 is below 6% and noted on slide 28. Slide 35 highlights loans acquired through the TCF merger as of the acquisition date and also notes the early adoption of the new accounting standard related to CECL. Total deposits increased from Q4, also a result of the merger.
Organic loan growth for 2025 was around 10.5%, and we anticipate organic loan growth for 2026 to be slightly less towards the lower end of our 8 to 12% target. Slide 35 shows the weighted average rate on new and renewed loans of 7.33%, a decrease from the previous quarter due to rate cuts, and changes in the rate environment. We expect to see that yield fall closer to the Prime Rate. However, that still leaves room for loan yields to improve from loan repricing. Fixed-rate loan rolloff for 2026 is below 6% and noted on slide 28. Slide 35 highlights loans acquired through the TCF merger as of the acquisition date and also notes the early adoption of the new accounting standard related to CECL. Total deposits increased from Q4, also a result of the merger.
Speaker #2: Slide 35 shows the weighted average rate on new and renewed loans of 7.33%, a decrease from the previous quarter due to rate cuts and changes in the rate environment.
Speaker #2: We expect to see that yield fall closer to the prime rate. However, that still leaves room for loan yields to improve from loan repricing.
Speaker #2: Fixed-rate loan roll-off for 2026 is below 6% and noted on slide 28. Slide 35 highlights loans acquired through the TCF merger. As of the acquisition date, it also notes the early adoption of the new accounting standard related to CSOL.
Speaker #2: Total deposits increased from the prior quarter. Also a result of the merger, excluding acquired deposits, total deposit growth was around 24.3 million in the fourth quarter and flat for the overall year.
David Brown: Excluding acquired deposits, total deposit growth was around $24.3 million in Q4 and flat for the overall year. As Heath mentioned, when the Fed started cutting rates in 2024, we began to lower our higher cost deposit rates aggressively, and that continued with the rate cuts in 2025. This is reflected in our cost of funds, which was 1.96% last quarter compared to a high of 2.32% in Q3 of 2024. We believe we have a lot of opportunity in both current markets as well as the legacy TC Federal markets to continue to develop core customer relationships that will drive deposit growth. We acquired the TC Federal investments during the quarter, which were marked at fair value. A small portion was sold at the acquisition date and did not generate an earnings gain or loss. We didn't sell any other securities during the quarter.
Excluding acquired deposits, total deposit growth was around $24.3 million in Q4 and flat for the overall year. As Heath mentioned, when the Fed started cutting rates in 2024, we began to lower our higher cost deposit rates aggressively, and that continued with the rate cuts in 2025. This is reflected in our cost of funds, which was 1.96% last quarter compared to a high of 2.32% in Q3 of 2024. We believe we have a lot of opportunity in both current markets as well as the legacy TC Federal markets to continue to develop core customer relationships that will drive deposit growth. We acquired the TC Federal investments during the quarter, which were marked at fair value. A small portion was sold at the acquisition date and did not generate an earnings gain or loss. We didn't sell any other securities during the quarter.
Speaker #2: As Heath mentioned, when the Fed started cutting rates in 2024, we began to lower our higher cost deposit rates aggressively, and that continued with the rate cuts in 2025.
Speaker #2: This is reflected in our cost of funds, which was 1.96% last quarter, compared to a high of 2.32% in the third quarter of 2024.
Speaker #2: We believe we have a lot of opportunity in both current markets as well as the legacy TC Federal markets to continue to develop core customer relationships that will drive deposit growth.
Speaker #2: We acquired the TC Federal investments during the quarter, which were marked at fair value. A small portion was sold at the acquisition date and did not generate an earnings gain or loss.
Speaker #2: We didn't sell any other securities during the quarter. We'll continue to evaluate the need for future sales based on market conditions and balance sheet needs.
David Brown: We'll continue to evaluate the need for future sales based on market conditions and balance sheet needs. The fair value of the portfolio improved quarter-over-quarter and resulted in a positive impact to AOCI of around $2.5 million. Total share repurchases during the quarter were $47,000 at an average price of $16.50. And as Heath mentioned, this week, the board declared an increase to our quarterly dividend of $0.12 per share. Our TCE ratio at the end of the quarter was 8.30% compared to 8% even in Q4. Tangible book value per share increased to $14.31 from $14.24 in Q4 due to a better AOCI position, favorable purchase accounting, and the early adoption of the new accounting standard that removes the CECL double count. Slide 16 illustrates some of the highlights from the merger with TC Federal.
We'll continue to evaluate the need for future sales based on market conditions and balance sheet needs. The fair value of the portfolio improved quarter-over-quarter and resulted in a positive impact to AOCI of around $2.5 million. Total share repurchases during the quarter were $47,000 at an average price of $16.50. And as Heath mentioned, this week, the board declared an increase to our quarterly dividend of $0.12 per share. Our TCE ratio at the end of the quarter was 8.30% compared to 8% even in Q4. Tangible book value per share increased to $14.31 from $14.24 in Q4 due to a better AOCI position, favorable purchase accounting, and the early adoption of the new accounting standard that removes the CECL double count. Slide 16 illustrates some of the highlights from the merger with TC Federal.
Speaker #2: The fair value of the portfolio improved quarter over quarter and resulted in a positive impact to AOCI of around $2.5 million. Total share repurchases during the quarter were 47,000 at an average price of $16.50.
Speaker #2: And as Heath mentioned, this week the board declared an increase to our quarterly dividend of 12 cents per share. Our TCE ratio at the end of the quarter was 8.30% compared to 8% even in the prior quarter.
Speaker #2: Tangible book value per share increased to $14.31 from $14.24 in the prior quarter. Due to better AOCI position, favorable purchase accounting, and the early adoption of the new accounting standard that removes the CSOL double count.
Speaker #2: Slide 16 illustrates some of the highlights from the merger with TC Federal. We're on track to achieve our projected cost savings, and we'll see more impact from that in the second quarter.
David Brown: We're on track to achieve our projected cost savings, and we'll see more impact from that in Q2. The deal economics remain strong, and forecasts are better compared to what we projected in our earlier modeling. Tangible book value dilution was less than expected, and our original forecast for earnback was less than three years. We now expect that earnback to be less than two and a half years. We've also provided projections on expected 2026 base case earnings impact from the accounting treatment on acquired assets and liabilities. That concludes my overview, and now I'll turn it back over to Heath before we take questions. Thanks, Derek. And again, thanks for everyone to be on the call today. We're really pleased with the quarter we had and the performance both for the quarter and the overall year.
We're on track to achieve our projected cost savings, and we'll see more impact from that in Q2. The deal economics remain strong, and forecasts are better compared to what we projected in our earlier modeling. Tangible book value dilution was less than expected, and our original forecast for earnback was less than three years. We now expect that earnback to be less than two and a half years. We've also provided projections on expected 2026 base case earnings impact from the accounting treatment on acquired assets and liabilities. That concludes my overview, and now I'll turn it back over to Heath before we take questions. Thanks, Derek. And again, thanks for everyone to be on the call today. We're really pleased with the quarter we had and the performance both for the quarter and the overall year.
Speaker #2: The deal economics remain strong, and forecasts are better compared to what we projected in our earlier modeling. Tangible book value dilution was less than expected, and our original forecast for earnback was less than three years.
Speaker #2: We now expect that earnback to be less than two and a half years. We've also provided projections on expected 2026 base case earnings impact from the accounting treatment on acquired assets and liabilities.
Speaker #2: That concludes my overview, and now I'll turn it back over to Heath before we take questions. Thanks, Derek. And again, thanks for everyone to be on the call today.
Speaker #2: quarter we had and the We're really pleased with the performance both for the quarter and the overall year. This wraps up our prepared remarks, and with that, I'll call on Danny to open up the line for any
Speaker #2: quarter we had and the We're really pleased with the performance both for the quarter and the overall year. This wraps up our prepared remarks, and with that, I'll call on Danny to open up the line for any questions.
David Brown: This wraps up our prepared remarks, and with that, I'll call on Danny to open up the line for any questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star key followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star key followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, while we assemble a queue. Your first question comes from Christopher Marinac of Janney. Please go ahead. Hey, thanks. Good morning. Thank you both for all the details in the presentation and in the press release.
This wraps up our prepared remarks, and with that, I'll call on Danny to open up the line for any questions.
Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star key followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star key followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, while we assemble a queue. Your first question comes from Christopher Marinac of Janney. Please go ahead.
Speaker #3: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star key followed by the number one on your touch-tone phone.
Speaker #3: You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star key followed by the number two.
Speaker #3: If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, while we assemble the queue. Your first question comes from Christopher Marinak of Jani.
Speaker #3: Please go ahead.
Christopher Marinac: Hey, thanks. Good morning. Thank you both for all the details in the presentation and in the press release.
Speaker #4: Hey, thanks.
Speaker #4: Good morning. Thank you both for all the details and the presentation and the press release. I wanted to look at the small business lending line and just sort of think out loud with you about does that business become a higher risk-adjusted business for you and perhaps you have a little higher charge-off going forward, but it has a better return?
David Brown: I wanted to look at the small business lending line and just sort of think out loud with you about, does that business become a higher risk-adjusted business for you, and perhaps you have a little higher charge-off going forward, but it has a better return? Is that how we should think about that? And then do you see that business being a bigger contributor as the next year or two unfold? Yeah, great question, Chris. And I think if you look at the way that business operates, it's certainly high-risk lending, and the team we have has done a great job. Going back a couple of years, we had the opportunity to do some higher volume of higher risk but higher return loans that had both high yields and low cost to originate with the Flash and Lightning programs. And then with some changes, those went down.
I wanted to look at the small business lending line and just sort of think out loud with you about, does that business become a higher risk-adjusted business for you, and perhaps you have a little higher charge-off going forward, but it has a better return? Is that how we should think about that? And then do you see that business being a bigger contributor as the next year or two unfold?
Speaker #4: Is that how we should think about that? And then do you see that business being a bigger contributor as the next year or two unfold?
Heath Fountain: Yeah, great question, Chris. And I think if you look at the way that business operates, it's certainly high-risk lending, and the team we have has done a great job. Going back a couple of years, we had the opportunity to do some higher volume of higher risk but higher return loans that had both high yields and low cost to originate with the Flash and Lightning programs. And then with some changes, those went down.
Speaker #2: Yeah, great question, Chris. And I think if you look at the way that business operates, it's certainly higher risk lending and the team we have has done a great job going back a couple of years we have the opportunity to do some higher volume of higher risk, but higher return loans that have both high yields and a low cost to originate.
Speaker #2: With the flash and lightning programs and then with some changes, those went down. So I think a lot sort of depends on the opportunities that the programs may have and change.
David Brown: So, I think a lot sort of depends on the opportunities that the programs may have and change. I think the general, I guess, bread-and-butter kind of 7(a) and a little USDA business kind of remains constant, not a super higher than normal. But the opportunity potentially with, like, we took advantage of with the Lightning and Flash programs that had a higher return but also a higher loss rate. So it kind of depends and could vary. I mean, the challenge with that business is that the income's not as steady, but it's such a good ROE contributor that it's a really great business to have and be in.
So, I think a lot sort of depends on the opportunities that the programs may have and change. I think the general, I guess, bread-and-butter kind of 7(a) and a little USDA business kind of remains constant, not a super higher than normal. But the opportunity potentially with, like, we took advantage of with the Lightning and Flash programs that had a higher return but also a higher loss rate. So it kind of depends and could vary. I mean, the challenge with that business is that the income's not as steady, but it's such a good ROE contributor that it's a really great business to have and be in.
Speaker #2: I think the general I guess bread and butter kind of 7A and a little USDA, business kind of remains constant. Not a super higher than normal, but the opportunity potentially with like we took advantage of with the lightning and flash programs that had a higher return but also a higher loss rate.
Speaker #2: So it kind of depends and could vary. I mean, the challenge with that business is that the income is not as steady but it's such a good ROE contributor.
Speaker #2: That it's a really great business to have a VM. I don't know that we'll go back to the level it was a couple of years ago when it was we were originating all those small dollar loans.
David Brown: I don't know that we'll go back to the level it was a couple of years ago when we were originating all those small-dollar loans, but we expect it to improve sort of from the run rate we had this year. Great. Thanks for that. As you look at M&A as a line of business these next several quarters and years ahead, do you think that you'll have competition for some of the banks you're looking at, or do you think there are more negotiated transactions where you can kind of pick and choose really where you want to be in various markets and various companies? Yeah.
I don't know that we'll go back to the level it was a couple of years ago when we were originating all those small-dollar loans, but we expect it to improve sort of from the run rate we had this year.
Speaker #2: But we expect it to improve sort of from the run rate we had this year.
Speaker #4: Great. Thanks for that. And as you look at M&A as a line of business, these next several quarters and years ahead, do you think that you'll have competition for some of the banks you're looking at, or do you think there are more negotiated transactions where you can kind of pick and choose really where you want to be in various markets and various companies?
Christopher Marinac: Great. Thanks for that. As you look at M&A as a line of business these next several quarters and years ahead, do you think that you'll have competition for some of the banks you're looking at, or do you think there are more negotiated transactions where you can kind of pick and choose really where you want to be in various markets and various companies?
Heath Fountain: Yeah.
Speaker #2: Yeah, so our hope is, in as many cases as possible, for us to have the opportunity to do negotiated, or what I would call limited marketing-type deals, where—much like on the TC Federal—where the seller is looking for a buyer with alignment to what they're doing, where it's more of a partnership than just a true sale. And I think, just based on the conversations we have and what we're seeing in the market, there'll be opportunity to do that.
David Brown: So our hope is, in as many cases as possible, for us to have the opportunity to do negotiated or what I would call limited marketing-type deals where, much like on the TC Federal, where the seller's looking for a buyer with alignment to what they're doing, where it's more of a partnership than just a true sale. And I think just based on the conversations we have and what we're seeing in the market, there'll be opportunity to do that. At the same time, there are bid situations that come up. Some of those look attractive to us, but I think our ability to execute on those will be fewer and further between because just from a pricing perspective, I think we're going to price those not as aggressively maybe as some others.
So our hope is, in as many cases as possible, for us to have the opportunity to do negotiated or what I would call limited marketing-type deals where, much like on the TC Federal, where the seller's looking for a buyer with alignment to what they're doing, where it's more of a partnership than just a true sale. And I think just based on the conversations we have and what we're seeing in the market, there'll be opportunity to do that. At the same time, there are bid situations that come up. Some of those look attractive to us, but I think our ability to execute on those will be fewer and further between because just from a pricing perspective, I think we're going to price those not as aggressively maybe as some others.
Speaker #2: At the same time, there are bid situations that come up. Some of those look attractive to us. But I think our ability to execute on those will be fewer and farther between, because just from a pricing perspective, I think we're going to price those not as aggressively, maybe, as some others.
Speaker #2: So we may hit on some if the competition happens to be lighter because of capacity or market or whatever it may be. But I think the real opportunity and the way I would describe it is I think we're going to have opportunity to do plenty of M&A over the next several years our job is to make sure that it's the best possible deals that we can do for our shareholders, for our team, for the combined companies.
David Brown: So we may hit on some if the competition happens to be lighter because of capacity or market or whatever it may be. But I think the real opportunity, and the way I would describe it is, I think we're going to have opportunity to do plenty of M&A over the next several years. Our job is to make sure that it's the best possible deals that we can do for our shareholders, for our team, for the combined companies. And so that means as many as we can be involved in being more of a limited process where they see the value and the upside partnering with Colony. And I think there'll be other opportunities to do that. And I think that's what Greg and the TC team saw.
So we may hit on some if the competition happens to be lighter because of capacity or market or whatever it may be. But I think the real opportunity, and the way I would describe it is, I think we're going to have opportunity to do plenty of M&A over the next several years. Our job is to make sure that it's the best possible deals that we can do for our shareholders, for our team, for the combined companies. And so that means as many as we can be involved in being more of a limited process where they see the value and the upside partnering with Colony. And I think there'll be other opportunities to do that. And I think that's what Greg and the TC team saw.
Speaker #2: And so that means as many as we can be involved in being more of a limited process where they see the value and the upside partnering with Colony.
Speaker #2: And I think there'll be other opportunities to do that. And I think that's what Greg and the TC team saw, but that means more work on our part hitting the streets and getting out there and having conversations and being involved in things and just courting other bank management
David Brown: But that means more work on our part, hitting the streets and getting out there, having conversations and being involved in things, and just courting other bank management teams. Sounds good. And just last question for me just has to do with sort of new hires within your footprint on the lending and deposit side. How is the flow of that, and what would be the outlook in general? Yeah. So a couple of things there. I don't see us being on a very aggressive hiring spree in terms of trying to add a certain number over the next period of time. I think that our current team, with the opportunities we have, there is plenty of opportunity for organic growth with our current team. That being said, we will be opportunistic for hires within our footprint, particularly as it comes to displacement from other M&A activity.
But that means more work on our part, hitting the streets and getting out there, having conversations and being involved in things, and just courting other bank management teams.
Speaker #2: teams. Sounds good.
Christopher Marinac: Sounds good. And just last question for me just has to do with sort of new hires within your footprint on the lending and deposit side. How is the flow of that, and what would be the outlook in general?
Speaker #4: And just last question for me just has to do with sort of new hires within your footprint on the lending and deposit side, how does the flow of that and what would be the outlook in general?
Heath Fountain: Yeah. So a couple of things there. I don't see us being on a very aggressive hiring spree in terms of trying to add a certain number over the next period of time. I think that our current team, with the opportunities we have, there is plenty of opportunity for organic growth with our current team. That being said, we will be opportunistic for hires within our footprint, particularly as it comes to displacement from other M&A activity.
Speaker #2: Yeah, so a couple of things there. I don't see us being on a very aggressive hiring spree. In terms of trying to add a certain number over the next period of time, I think that our current team can—with the opportunities we have—there is plenty of opportunity for organic growth with our current team.
Speaker #2: That being said, we will be opportunistic for hires within our footprint, particularly as it comes to displacement from other M&A activity. And so I think there's going to be opportunities for that.
David Brown: And so I think there's going to be opportunities for that, but I would say they would be more in the one-off areas than big, massive teams or looking to hire large numbers across our footprint. More in the handful, I think, type area. Great. Thank you both again. I appreciate all the information today. Thank you, Chris. Thanks, Chris. Your next question comes from David Bishop of Hovde Group. Please go ahead. Hey, good morning, gentlemen. Good morning, Dave. Hey, quick question. I think Heath or Derek, you touched on the organic growth profile maybe slipping a little bit towards the lower end of the longer-term guidance. And obviously, the Southeast, the regional economy remains very strong, always very healthy pricing competition.
And so I think there's going to be opportunities for that, but I would say they would be more in the one-off areas than big, massive teams or looking to hire large numbers across our footprint. More in the handful, I think, type area.
Speaker #2: But I would say they would be more in the one-off areas than big, massive teams or looking to hire large numbers across our footprint.
Speaker #2: I'm more in the handful, I think, type area.
Christopher Marinac: Great. Thank you both again. I appreciate all the information today.
Speaker #4: Great. Thank you both again. I appreciate all the information today.
Heath Fountain: Thank you, Chris.
Speaker #2: Thank you, Chris.
Speaker #3: Thanks, Chris.
Derek Shelnutt: Thanks, Chris.
Operator: Your next question comes from David Bishop of Hovde Group. Please go ahead.
Speaker #1: Your
Speaker #1: Next question comes from David Bishop of Hovde Group. Please go ahead.
David Bishop: Hey, good morning, gentlemen.
Speaker #3: Hey, good morning, gentlemen.
Heath Fountain: Good morning, Dave.
Speaker #2: Good morning, Dave.
David Bishop: Hey, quick question. I think Heath or Derek, you touched on the organic growth profile maybe slipping a little bit towards the lower end of the longer-term guidance. And obviously, the Southeast, the regional economy remains very strong, always very healthy pricing competition.
Speaker #3: Hey, quick question. I didn't think you either, Derek, you touched on the organic growth profile maybe slipping a little bit towards the lower end of the longer-term guidance.
Speaker #3: And obviously, the Southeast, the regional economy remains very strong. Always very healthy pricing competition. Maybe just talk about some of the puts and takes in terms of the growth you saw this quarter on organic basis and what you are seeing in terms of the competitive environment on the commercial side.
David Brown: Maybe just talk about some of the puts and takes in terms of the growth you saw this quarter on an organic basis, and what you are seeing in terms of the competitive environment on the commercial side. Thanks. Yeah. So it's definitely getting more competitive. I think that what we've been trying to do and what we've been able to do is price things from a relationship perspective, be willing to be disciplined on that, walk away from deals that don't hit return objectives for us, be very focused on relationships. And so that's limited the growth a little bit, but it was important and continues to be important for us to expand our margin and our profitability. And so we're just balancing those needs, I think, Dave, and trying to make sure that we continue to see margin improvement.
Maybe just talk about some of the puts and takes in terms of the growth you saw this quarter on an organic basis, and what you are seeing in terms of the competitive environment on the commercial side. Thanks.
Speaker #3: Thanks.
Heath Fountain: Yeah. So it's definitely getting more competitive. I think that what we've been trying to do and what we've been able to do is price things from a relationship perspective, be willing to be disciplined on that, walk away from deals that don't hit return objectives for us, be very focused on relationships. And so that's limited the growth a little bit, but it was important and continues to be important for us to expand our margin and our profitability. And so we're just balancing those needs, I think, Dave, and trying to make sure that we continue to see margin improvement.
Speaker #2: So it's definitely getting more competitive. I think that what we've been trying to do and what we've been able to do is price things from a relationship perspective be willing to be disciplined on that, walk away from deals that don't hit return objectives for us.
Speaker #2: We have been very focused on relationships, and so that’s limited the growth a little bit, but it was important—and continues to be important—for us to expand our margin and our profitability.
Speaker #2: And so we're just balancing those needs, I think, Dave. And trying to make sure that we continue to see margin improvement. We continue to price things attractive where it's attractive, but also I think reflective in our outlook and guidance and what Derek talked about and what we think we're going to see loan yields come into.
David Brown: We continue to price things where it's attractive, but also, I think, reflective in our outlook and guidance and what Derek talked about and what we think we're going to see loan yields come into. We're going to need to be a little more competitive on that front in order to get the kind of growth that we want from a pricing perspective, just given where the market is and where competition is. So we'll see that. I think Derek indicated coming down off of the 7.33 yield to closer to where prime is on lending. And I think that's sort of what it's going to take. I think as rates settle out and they get more stable, I think the competitive range of pricing is going to narrow in. It's pretty wide right now, and we see some pricing where we just aren't going to price things.
We continue to price things where it's attractive, but also, I think, reflective in our outlook and guidance and what Derek talked about and what we think we're going to see loan yields come into. We're going to need to be a little more competitive on that front in order to get the kind of growth that we want from a pricing perspective, just given where the market is and where competition is. So we'll see that. I think Derek indicated coming down off of the 7.33 yield to closer to where prime is on lending. And I think that's sort of what it's going to take. I think as rates settle out and they get more stable, I think the competitive range of pricing is going to narrow in. It's pretty wide right now, and we see some pricing where we just aren't going to price things.
Speaker #2: We're going to need to be a little more competitive on that front. In order to get the kind of growth that we want, from a pricing perspective, just given where the market is and where competition is.
Speaker #2: But so we'll see that. I think Derek indicated coming down off of the 733 yield to closer to where prime is. On lending. And I think that's sort of what it's going to take.
Speaker #2: I think as rates settle out and they get more stable, I think the competitive range of pricing is going to narrow in. It's pretty wide.
Speaker #2: Right now. And we see some pricing where we just aren't going to price things. And so but I think as expectations for rate cuts kind of stabilizes and I think the market thinks we're getting maybe one more cut now, that's more stable.
David Brown: But I think as expectations for rate cuts kind of stabilize and I think the market thinks we're getting maybe one more cut now, if that's more stable, I think that range of pricing that we see out there narrows in as well. And so I think that that will help. I also think another big positive is not just the economic environment is good in the Southeast, but also because of the M&A, I think we'll see some turnover of assets from some of the larger banks that are going through M&A. But at the same time, you've got a lot of banks wanting to participate in that. For us, if we can stay in that 8% to 12% and also see margin improvement, we think that's the sweet spot to where we'll drive the most value for our shareholders.
But I think as expectations for rate cuts kind of stabilize and I think the market thinks we're getting maybe one more cut now, if that's more stable, I think that range of pricing that we see out there narrows in as well. And so I think that that will help. I also think another big positive is not just the economic environment is good in the Southeast, but also because of the M&A, I think we'll see some turnover of assets from some of the larger banks that are going through M&A. But at the same time, you've got a lot of banks wanting to participate in that. For us, if we can stay in that 8% to 12% and also see margin improvement, we think that's the sweet spot to where we'll drive the most value for our shareholders.
Speaker #2: I think that range of pricing that we see out there narrows in as well. And so I think that that will help. I also think another big positive is not just the economic environment is good in the Southeast, but also because of the M&A, I think we'll see some turnover of assets from some of the larger banks that are going through M&A.
Speaker #2: But at the same time, you've got a lot of banks wanting to participate in that. For us, if we can stay in that 8% to 12% and also see margin improvement, we think that's the sweet spot to where we'll drive the most value for our shareholders.
Speaker #2: If we have to start doing things that are going to stop the margin improvement to result in higher growth, we just don't see that as the right trade-off for the long-term benefit of our shareholders.
David Brown: If we have to start doing things that are going to stop the margin improvement to result in higher growth, we just don't see that as the right trade-off for the long-term benefit of our shareholders. So that's what we're trying to balance. I think our team is doing a really good job of that, but it's just a constant push and pull. Got it. Appreciate that, Colin. Maybe sort of staying on the converse of that topic. Obviously, there's the puts on the loan side. But on the funding side, I think, Heath, Derek, you mentioned that there's some opportunities, obviously, to grow some core relationships there. What is your sense that you can organically fund loan growth with deposits this year? What sort of trends are you seeing on deposit pricing given the aggressiveness you've had this quarter? Yeah. And I'll share some thoughts.
If we have to start doing things that are going to stop the margin improvement to result in higher growth, we just don't see that as the right trade-off for the long-term benefit of our shareholders. So that's what we're trying to balance. I think our team is doing a really good job of that, but it's just a constant push and pull.
Speaker #2: So that's what we're trying to balance. And I think our team is doing a really good job of that, but it's just a constant push and pull.
Speaker #2: pull. Got it.
David Bishop: Got it. Appreciate that, Colin. Maybe sort of staying on the converse of that topic. Obviously, there's the puts on the loan side. But on the funding side, I think, Heath, Derek, you mentioned that there's some opportunities, obviously, to grow some core relationships there. What is your sense that you can organically fund loan growth with deposits this year? What sort of trends are you seeing on deposit pricing given the aggressiveness you've had this quarter?
Speaker #3: Appreciate that, Color. Maybe sort of staying on the converse of that topic. Obviously, there's the puts on the loan side, but on the funding side, I think Derek you mentioned that some opportunities obviously to grow some core relationships there.
Speaker #3: What is your sense that you can organically fund loan growth with deposits this year? What sort of trends are you seeing on deposit pricing given the aggressiveness you've had this quarter?
Heath Fountain: Yeah. And I'll share some thoughts.
Speaker #2: Yeah, and I'll share some thoughts, and then Derek, if you want to chime in with anything else. But I think you'll see similar, Dave, like I was talking about with the rates on the deposits.
David Brown: Then, Derek, if you want to chime in anything else. But I think you'll see similar, Dave, like I was talking about with the rates on the deposits. We've been very aggressive trying to get the full amount of each rate cut out of our underlying funding, and sometimes more than that with the rate cuts. I think others have been doing that, but I think some others have been trailing and lagging. So I think, again, as we, let's say, we only get one more rate cut, I think you'll see the competition start to narrow. The range of the competition from market to above market will be slimmer. And so that'll allow us to be more aggressive at a time when that spread from conservative to aggressive is less, which is better timing for us from a margin perspective.
Then, Derek, if you want to chime in anything else. But I think you'll see similar, Dave, like I was talking about with the rates on the deposits. We've been very aggressive trying to get the full amount of each rate cut out of our underlying funding, and sometimes more than that with the rate cuts. I think others have been doing that, but I think some others have been trailing and lagging. So I think, again, as we, let's say, we only get one more rate cut, I think you'll see the competition start to narrow. The range of the competition from market to above market will be slimmer. And so that'll allow us to be more aggressive at a time when that spread from conservative to aggressive is less, which is better timing for us from a margin perspective.
Speaker #2: We've been very aggressive trying to get the full amount of each rate cut out of our funding underlying funding. And sometimes more than that.
Speaker #2: With the rate cuts, and I think others have been doing that, but I think some others have been trailing and lagging. So I think, again, as we let's say we're going to get one more rate cut, I think you'll see the competition start to narrow their range of the competition from market to above market will be slimmer.
Speaker #2: And so that will allow us to be more aggressive at a time when that spread from conservative to aggressive is less. Which is better timing for us from a margin perspective.
Speaker #2: Our team's focus is primarily on the non-interest-bearing and interest-bearing DDA that don't carry a high interest balance. And so that's where we're out trying to generate most of the relationships.
David Brown: Our team's focused primarily on the non-interest-bearing and interest-bearing DDA that don't carry, that doesn't carry a high interest balance. And so that's where we're out trying to generate most of the relationships. But as those rates stabilize, our ability to use interest-bearing DDAs as a sweetener to go get relationships or to get our foot in the door with relationships, I think we'll be able to use that more in the future. And so I think our deposit pipelines continue to grow. We have a lot of effort and focus on that. Our incentive for our bankers is based largely on that and less on lending than it has been historically. So we're getting the right kinds of behavior that we want to see from our bankers.
Our team's focused primarily on the non-interest-bearing and interest-bearing DDA that don't carry, that doesn't carry a high interest balance. And so that's where we're out trying to generate most of the relationships. But as those rates stabilize, our ability to use interest-bearing DDAs as a sweetener to go get relationships or to get our foot in the door with relationships, I think we'll be able to use that more in the future. And so I think our deposit pipelines continue to grow. We have a lot of effort and focus on that. Our incentive for our bankers is based largely on that and less on lending than it has been historically. So we're getting the right kinds of behavior that we want to see from our bankers.
Speaker #2: But as those rates stabilize, our ability to use interest-bearing DDAs as a sweetener to go get relationships, or to get our foot in the door with relationships, I think we'll be able to use that more in the future.
Speaker #2: And so I think our deposit pipelines continue to grow. We have a lot of effort and focus on that. Our incentive for our bankers is based largely on that and less on lending than it has been historically.
Speaker #2: So we're getting the right kinds of behavior that we want to see from our bankers. And as that's picking up steam, our banking solutions group, which is how we've combined our treasury, our merchant services, our credit cards, all our payment functions together, they're picking up traction.
David Brown: As that's picking up steam, our banking solutions group, which is how we've combined our treasury, our merchant services, our credit cards, and all our payment functions together, is picking up traction. We're getting good business development out of that area, and we think there's opportunity there. In the meantime, as that's picking up steam, we've got a little time where we're continuing to see the roll-off in our investment portfolio, and we start to get that down to levels that we want it to be in the long term. So we can have some switching of assets on the balance sheet from investments to loans while deposit generation starts to pick up. We feel confident we can bring that all together at the right time and grow organically deposits to fund loans over the next few years.
As that's picking up steam, our banking solutions group, which is how we've combined our treasury, our merchant services, our credit cards, and all our payment functions together, is picking up traction. We're getting good business development out of that area, and we think there's opportunity there. In the meantime, as that's picking up steam, we've got a little time where we're continuing to see the roll-off in our investment portfolio, and we start to get that down to levels that we want it to be in the long term. So we can have some switching of assets on the balance sheet from investments to loans while deposit generation starts to pick up. We feel confident we can bring that all together at the right time and grow organically deposits to fund loans over the next few years.
Speaker #2: We're getting good business development out of that area. And we think there's opportunity there. In the meantime, as that's picking up steam, we've got a little time where we're continuing to see the roll-off in our investment portfolios.
Speaker #2: And we start to get that down to levels that we want it to be in the long term. So we can have some switching of assets on the balance sheet from investments to loans while deposit generation starts to pick up.
Speaker #2: We feel confident. We can bring that all together at the right time and grow organically deposits to fund loans over the next few years.
Speaker #2: That may not match up each quarter, but we think deposit generation is going to continue to be something that we find the ability to improve quarter after quarter.
David Brown: That may not match up each quarter, but we think deposit generation is going to continue to be something that we find the ability to improve quarter after quarter. I agree. And then on the funding front, we have about $65 million base case investments rolling off in 2026, and that's coming off at a 3.10% yield. So that's going to be able to reprice upwards coupled with the deposit growth. But as Heath mentioned, on the loan and deposit side, we're seeing a little bit more competition with the banks. The spreads are kind of coming together a little bit, but that ultimately translates back to our kind of forecast and projection of that modest margin increase throughout 2026. And I assume that incorporates, Derek, the impact of purchase accounting accretion, correct? That is correct. Okay. And got it.
That may not match up each quarter, but we think deposit generation is going to continue to be something that we find the ability to improve quarter after quarter.
Speaker #2: quarter. I agree.
Derek Shelnutt: I agree. And then on the funding front, we have about $65 million base case investments rolling off in 2026, and that's coming off at a 3.10% yield. So that's going to be able to reprice upwards coupled with the deposit growth. But as Heath mentioned, on the loan and deposit side, we're seeing a little bit more competition with the banks. The spreads are kind of coming together a little bit, but that ultimately translates back to our kind of forecast and projection of that modest margin increase throughout 2026.
Speaker #3: And then on the funding front, we have about 65 million base case investments rolling off in 2026. And that's coming off at a 310 yield.
Speaker #3: So that's going to be able to reprice upwards coupled with the deposit growth. But as Heath mentioned, on the loan and deposit side, we're seeing a little bit more competition with the banks.
Speaker #3: The spreads are kind of coming together a little bit. But that ultimately translates back to our kind of forecast and projection of that modest margin increase throughout 2026.
David Bishop: And I assume that incorporates, Derek, the impact of purchase accounting accretion, correct?
Speaker #1: And I assume that incorporates Derek the impact of purchase accounting accretion,
Speaker #1: correct? That is correct. Okay. And got it. And then finally, circling back to M&A, I appreciate the slide 14. Just as you are, obviously getting bigger in size, approaching the 4 to 5 billion asset range.
Derek Shelnutt: That is correct.
David Bishop: Okay. And got it.
David Brown: And then finally, circling back to M&A, Heath, I appreciate the slide 14. Just as you are, obviously, getting bigger in size, approaching the $4 to 5 billion asset range, do you get the sense that maybe the ideal target is moving close to that $6 to 1.2 billion range as opposed to the under $600 million range? And would you look to seek to potentially go over state lines like into South Carolina and Alabama and such? Just curious from a geographic perspective. Yeah. Dave, great question. And from a geographic perspective, let me tackle that one first. Basically, we look at it as Georgia and the contiguous states, South Carolina, given that we operate two markets, Savannah and Augusta, that are right on the South Carolina line. We already do a lot of business in South Carolina.
And then finally, circling back to M&A, Heath, I appreciate the slide 14. Just as you are, obviously, getting bigger in size, approaching the $4 to 5 billion asset range, do you get the sense that maybe the ideal target is moving close to that $6 to 1.2 billion range as opposed to the under $600 million range? And would you look to seek to potentially go over state lines like into South Carolina and Alabama and such? Just curious from a geographic perspective.
Speaker #1: Do you get the sense that maybe the ideal target is moving close to that 6 to 1.2 billion range as opposed to the under 600 million range?
Speaker #1: And would you look to seek to potentially go over state lines like in the South Carolina and Alabama and such? Just curious from a geographic perspective.
Heath Fountain: Yeah. Dave, great question. And from a geographic perspective, let me tackle that one first. Basically, we look at it as Georgia and the contiguous states, South Carolina, given that we operate two markets, Savannah and Augusta, that are right on the South Carolina line. We already do a lot of business in South Carolina.
Speaker #2: Yeah. Dave, great question. And from a geographic perspective, when we tackle that one, first, basically, we look at it as Georgia and the contiguous states South Carolina, given that we operate two markets, Savannah and Augusta, that are right on the South Carolina line.
Speaker #2: We already do a lot of business in South Carolina. Would love to see the ability to expand that way in Tennessee. We are right at the border of Tennessee.
David Brown: Would love to see the ability to expand that way. In Tennessee, we are right at the border of Tennessee. And so any opportunity to move in that direction will be a natural expansion. Alabama, same thing. We operate markets right along the Georgia-Alabama line and do business in that state. So we'd like. There's opportunity there. And, as well as in Florida, we operate in North Florida, and we'd love to see opportunities there. Of course, saying all that, the sheer numbers of bank opportunities are much higher in Georgia than they are in those other states. So the number of opportunities is going to drive some of that. And I'd say same thing with size. We would love to do more sizable transactions just because it's going to drive more meaningful financial metrics. However, when you move up in size, the chances of more competition come into play.
Would love to see the ability to expand that way. In Tennessee, we are right at the border of Tennessee. And so any opportunity to move in that direction will be a natural expansion. Alabama, same thing. We operate markets right along the Georgia-Alabama line and do business in that state. So we'd like. There's opportunity there. And, as well as in Florida, we operate in North Florida, and we'd love to see opportunities there. Of course, saying all that, the sheer numbers of bank opportunities are much higher in Georgia than they are in those other states. So the number of opportunities is going to drive some of that. And I'd say same thing with size. We would love to do more sizable transactions just because it's going to drive more meaningful financial metrics. However, when you move up in size, the chances of more competition come into play.
Speaker #2: And so any opportunity to move in that direction would be a natural expansion. Alabama, same thing. We operate markets right along the Georgia-Alabama line and do business in that state.
Speaker #2: So we'd like there's opportunity there. And as well as in Florida, we operate in North Florida and would love to see opportunities there. Of course, saying all that, the sheer numbers of bank opportunities are much higher in Georgia than they are in those other states.
Speaker #2: So the number of opportunities is going to drive some of that. And I'd say same thing with size. We would love to do more sizable transactions just because it's going to drive more meaningful financial metrics.
Speaker #2: However, when you move up in size, the chances of more competition comes into play. And so it's just a, I think, if you just look at the numbers game, Dave, certainly a billion and below are really even maybe 750 million and below.
David Brown: And so it's just, I think, if you just look at the numbers game, Dave, certainly $1 billion and below, or really even maybe $750 million and below, the numbers would tell you more likelihood at those sizes. But we continue to have conversations with banks above that and look for opportunities there as well. And we are prepared to execute on what opportunities may come about. And there's just so many factors in M&A that are timing that you can't control, that's on the side of the seller, and you've got to be willing to move and execute based on that. The good news is, in this environment, if you have an opportunity to do a smaller deal and you don't have a larger deal pending, you can get that one in, get it done.
And so it's just, I think, if you just look at the numbers game, Dave, certainly $1 billion and below, or really even maybe $750 million and below, the numbers would tell you more likelihood at those sizes. But we continue to have conversations with banks above that and look for opportunities there as well. And we are prepared to execute on what opportunities may come about. And there's just so many factors in M&A that are timing that you can't control, that's on the side of the seller, and you've got to be willing to move and execute based on that. The good news is, in this environment, if you have an opportunity to do a smaller deal and you don't have a larger deal pending, you can get that one in, get it done.
Speaker #2: The numbers would tell you more likelihood at those sizes. But we continue to have conversations with banks above that and look for opportunities there as well.
Speaker #2: And we are prepared to execute on what opportunities may come about. And there's just so many factors in M&A that are timing that you can't control.
Speaker #2: That's on the side of a seller. And you've got to be willing to move and execute based on that. The good news is, in this environment, if you have an opportunity to do a smaller deal, and you don't have a larger deal pending, you can get that one in, get it done, approvals are happening quickly, and we would not be opposed to lining up more than one at the same time.
David Brown: Approvals are happening quickly, and we would not be opposed to lining up more than one at the same time. I think our team can handle that. I think from a regulatory perspective, we're in an environment where you can do a very close succession of deals. And so that gives you greater, I think, flexibility to create value by doing a smaller deal, whereas maybe a couple of years ago, we would have looked at that and said, "Well, we better not do that smaller deal because it may put you out of the game for 18 months." And so I think this environment sets up nicely the ability to execute on some opportunities that I think will be great in building a great deposit franchise, great earnings, and the ability to grow organically. That's great, Colin. One final, I promise, last question.
Approvals are happening quickly, and we would not be opposed to lining up more than one at the same time. I think our team can handle that. I think from a regulatory perspective, we're in an environment where you can do a very close succession of deals. And so that gives you greater, I think, flexibility to create value by doing a smaller deal, whereas maybe a couple of years ago, we would have looked at that and said, "Well, we better not do that smaller deal because it may put you out of the game for 18 months." And so I think this environment sets up nicely the ability to execute on some opportunities that I think will be great in building a great deposit franchise, great earnings, and the ability to grow organically.
Speaker #2: I think our team can handle that. I think from a regulatory perspective, we're an environment where you can do very close succession of deals.
Speaker #2: And so that create gives you greater, I think, flexibility to value by doing a smaller deal whereas maybe a couple of years ago, we would have looked at that and said, "Well, we better not do that smaller deal because it may put you out of the game for 18 months." And so I think this environment sets up nicely the ability to execute on some opportunities I think will be great in building a great deposit franchise and a great earnings and the ability to grow organically.
David Bishop: That's great, Colin. One final, I promise, last question.
Speaker #1: That's great color. One final—I promise—last question. Derek, I think you're just saying that net operating expense ratio, you're trying to get back to that mid-140s by second quarter or so, and then maybe just some thoughts on the effective tax rate.
David Brown: Derek, I think you already just said that net operating expense ratio you're trying to get back to that mid-140s by Q2 or so. And then maybe just some thoughts on the effective tax rate. I know that can bounce around. I don't know if that's changed with the merger. Thanks. Yeah. Great question, Dave. Yeah. We think we'll be able to get back to that 145 later in the year. We still have a lot of the expenses from TCF that we're carrying. And then after Q1, typically seasonality in our non-interest income business lines will increase. And with the addition of we have the wealth thing coming. And so there are several components we think that will drive getting us back to that number.
Derek, I think you already just said that net operating expense ratio you're trying to get back to that mid-140s by Q2 or so. And then maybe just some thoughts on the effective tax rate. I know that can bounce around. I don't know if that's changed with the merger. Thanks.
Speaker #1: I know that can bounce around. I don't know if that's changed with the merger.
Speaker #1: Thanks. Yeah.
Derek Shelnutt: Yeah. Great question, Dave. Yeah. We think we'll be able to get back to that 145 later in the year. We still have a lot of the expenses from TCF that we're carrying. And then after Q1, typically seasonality in our non-interest income business lines will increase. And with the addition of we have the wealth thing coming. And so there are several components we think that will drive getting us back to that number.
Speaker #3: Great question, Dave. Yeah, we try to—we think we'll be able to get back to that $145 later in the year. We still have a lot of the expenses from TCF.
Speaker #3: That we're carrying and then after the first quarter, typically seasonality in our non-interest income business lines will increase. And with the addition of we have the wealth thing coming and so there are several components we think that will drive getting us back to that number.
Speaker #3: So, I think we feel pretty comfortable about moving back towards that rate later in the year, after we get the systems conversion behind us.
David Brown: So I think we feel pretty comfortable about moving back towards that rate later in the year after we get the systems conversion behind us. And then on the tax rate, right now, we don't expect any changes from the prior year just with the merger and everything. We still expect to be around that 21-ish% effective tax rate. Perfect. I'll stop there. There are no further questions at this time. I will now turn the call back over to Heath Fountain. Please continue. All right. Well, thank you, everybody, for being on the call. Thank you for the questions today. And thanks for all your support of Colony Bankcorp. We appreciate it. And that concludes our call for today. Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
So I think we feel pretty comfortable about moving back towards that rate later in the year after we get the systems conversion behind us. And then on the tax rate, right now, we don't expect any changes from the prior year just with the merger and everything. We still expect to be around that 21-ish% effective tax rate.
Speaker #3: And then on the tax rate, right now, we don't expect any changes from the prior year, just with the merger and everything. We still expect to be around that 21-ish percent effective tax
Speaker #3: rate. Perfect.
David Bishop: Perfect. I'll stop there.
Speaker #1: I'll stop
Operator: There are no further questions at this time. I will now turn the call back over to Heath Fountain. Please continue.
Speaker #4: There are no further questions at this time. I will now turn the call back over to Heath Fountain. Please
Heath Fountain: All right. Well, thank you, everybody, for being on the call. Thank you for the questions today. And thanks for all your support of Colony Bankcorp. We appreciate it. And that concludes our call for today.
Speaker #2: All right. Well, thank you, everybody, for being on the call. Thank you for the questions today, and thanks for all your support of Colony Bankcorp.
Speaker #2: We appreciate it. And that concludes our call for today.
Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
