Colony Bankcorp, Inc. Q3 FY2025 earnings call

• Operating performance improved with net interest margin expansion driving operating earnings, and operating pre-provision net revenue also improved, leading to a strong increase in tangible book value.
• Expected to benefit from Fed rate cuts on the funding side but with slower expansion than earlier in the year. Loan growth has settled into a more normalized rate, with fourth quarter expected to be lower than the past quarter but still around the long-term target.
• Noninterest income remained solid despite slowdown in SBSL and mortgage divisions; operating noninterest income increased over $1 million from the prior quarter, with fee and interchange income up, and related business lines growing.
• Operating expenses were slightly higher due to talent investment and activity, but offset by noninterest income increase, and operating net NIE to average assets improved by 4 basis points.
• Credit quality relatively stable, with past due and classified loans improving; SBSL division saw higher provision due to loan growth and charge-offs but bank-level net charge-offs at acceptable levels.
• Monitored federal government shutdown impact, with SBSL group most affected but expecting minimal adverse impact if resolved soon.
• Merger with TC Bancshares and TC Federal Bank progressing well, with S-4 registration statement effective and expected to close in fourth quarter with system conversion in first quarter.
• Welcomed new banker to strengthen market presence and recognized team member's industry honor.

Net interest income increased $314,000 compared to the prior quarter due to continued asset repricing and loan growth. Net interest margin rose 5 basis points from the prior quarter. Operating noninterest income increased over $1 million in the third quarter, with service charge and fee income up $425,000 and other noninterest income up $788,000. Loan growth has moderated from the early half of the year, with the third quarter at around 9% annualized, and expected to be around the long-term target of 8% to 12% a year. Total deposits increased $28.1 million during the quarter, with part reflecting strategic use of brokered funding to replace seasonal municipal deposit runoff.

• Expect息差扩张速度慢于今年上半年，更接近第三季度水平.
• Loan growth expected to be lower in fourth quarter than past quarter, with full-year target of 8% to 12% a year.
• Net interest margin expected to have modest single-digit growth, taking advantage of Fed rate cuts.
• Fourth quarter expenses likely include at least one month of TC Federal expenses post-merger, with targeted cost savings expected in second quarter and beyond.

A wire fraud incident occurred where losses totaled $2.9 million, and a portion of the loss believed to be fully covered by insurance has become disputed. This quarter, a $1.25 million loss related to the disputed coverage was recognized, but all other coverages remain undisputed and no other losses are expected related to this matter.

Q: Given the disruption in D.C. seeing any trickle down to your borrowers and local economy?

A: As mentioned earlier, we are on the lookout for that. We really don't see a lot at this time. We have provided our team and our customers with resources to help out as we see things, and we scrub the portfolio to see if we have any exposures that we're concerned about. But at this time, we don't think there will be a material impact. We don't see any issues arising. Of course, I did mention the SBSL team and the government guaranteed loans and what -- that there could be a potential impact there just as if it drags out longer. But we think if we get a resolution within the next little bit, it shouldn't have too much of an impact on Q4. So we feel pretty good about where that is overall at this time.

Q: Related to loan pricing, what is the average roll-on versus roll rate this quarter and how NIM outlook looks?

A: Yes, absolutely. I'll take that one. Great question. So when you look at the roll-off yields from our previous repricing schedule or our previous released investor presentation for the prior quarter, we had fourth quarter roll-off yields in the 5% range. And so our put-on yield for the new quarter is also in our investor presentation, and it was -- the new and renewed rate was 7.83% for this quarter. So you can see there we have some meaningful pickup in yield. And even with rates moving down a little bit, we'll continue to see that. That will drive some net interest margin growth. We expect that net interest margin growth to be both on the cost of fund side and the asset repricing side. But ultimately, going forward, we expect a modest growth in the single-digit range, but a little bit higher than what we saw this past quarter as we take advantage of some of those Fed rate cuts.

Q: Any NDFI loan exposure as well?

A: No, that's a great question. I appreciate Dave getting that question in, and we do not have any meaningful exposure to that. And I know that's been another area that we've seen a lot of concerns about and seen some situations as some other banks, larger banks have reported. And back to our comments that we made earlier, our real focus in our organic growth strategy has been to bank customers that we know, that are in our footprint, that we have a relationship with or even that our bankers have maybe had relationships with at other banks in the past. So we really focus on the customers we know and the kinds of business that we think we can understand and adequately assess the credit risk.