Colony Bankcorp Charts Profitable Course Post-TC Federal Deal

Colony Bankcorp ((CBAN)) has held its Q4 earnings call. Read on for the main highlights of the call.

Colony Bankcorp Maps Clear Path to Higher Profitability Despite Near-Term Integration Noise

Colony Bankcorp’s latest earnings call struck a distinctly constructive tone, with management emphasizing a clear path to higher profitability even as merger-related costs and some credit noise weigh on near-term results. The bank has already hit its 1.0% operating return on assets (ROA) goal for 2025, is seeing tangible margin and net interest income improvement, and is ahead of plan on the economics of its TC Federal acquisition. Offsetting these positives are temporarily elevated expenses, higher provisions tied to specific loan segments, and a rise in criticized and nonperforming loans—much of it related to the acquired portfolio. Overall, management framed 2025–2026 as a transition phase that should culminate in stronger, more efficient earnings.

TC Federal Acquisition Tracking Ahead of Expectations

The TC Federal Bank acquisition is emerging as a key value driver. Colony completed the legal close at the start of December and reported that the systems conversion is on track for the first quarter of 2026. Importantly for investors, management said deal financial targets are either on track or better than initially expected, with projected cost savings and overall deal economics improving versus the original model. The expected earn-back period on tangible book value dilution has now been shortened to under 2.5 years, signaling that the acquisition should be accretive more quickly than first planned.

Operating Performance and ROA Targets Move Up

Colony’s operating performance strengthened quarter-over-quarter, with operating net income rising by $675,000. For fiscal 2025, the company achieved its stated goal of a 1.0% operating ROA, marking a meaningful profitability milestone. Management is now raising the bar, targeting a 1.20% operating ROA and expecting to reach this level on a quarterly basis starting in the second quarter of 2026, as well as for full-year 2026. This step-up reflects anticipated cost savings from the TC Federal integration and continued progress in margin and fee income.

Net Interest Income and Margin Move in the Right Direction

Net interest income increased by about $3.2 million from the prior quarter, supported by both improved asset yields and lower funding costs. Net interest margin (NIM) expanded 15 basis points to 3.32%, a meaningful improvement in a competitive banking landscape. Management highlighted that loan repricing at higher rates and a declining cost of funds are combining to lift spreads, and they expect this positive NIM trajectory to continue modestly into 2026.

Loan Yields Firm and Core Loan Growth Solid

Loan yields edged up to 6.19% from 6.15% sequentially, underscoring resilient pricing on the existing book despite intensifying competition. Excluding the TC Federal acquisition, core organic loan growth was 10.5% in 2025, a strong pace for a regional institution. Looking forward, management anticipates that ongoing repricing of loans will support further, if modest, margin expansion, even as organic growth moderates somewhat in 2026.

Diversified Fee Businesses Support Earnings

Noninterest income continues to be an important earnings contributor. Operating noninterest income reached $11.1 million in the fourth quarter, with particularly strong performances from mortgage banking and Small Business Lending (SBSL). Colony also executed a $10 million portfolio mortgage pool sale, generating a gain of roughly $108,000. Management indicated that noninterest income should be slightly better in 2026, supported by continued mortgage activity and momentum in fee-based businesses.

Asset Management and Insurance Lines Expand Rapidly

Colony is seeing notable traction in its asset management and insurance businesses, which diversify revenue beyond traditional banking. Assets under management more than doubled from about $200 million at the end of 2024 to over $460 million at the close of 2025, signaling expanding client relationships and advisory scale. Bank referrals into insurance rose 20% in 2025, and Colony Insurance posted year-over-year growth in both policies and premiums in force. These trends position the company for recurring, higher-margin fee income over time.

Capital Strength, Book Value Growth and Shareholder Returns

On the capital front, Colony’s tangible common equity ratio improved to 8.30% from 8.00% in the prior quarter, and tangible book value per share climbed to $14.31 from $14.24. Shareholder returns were supported by both cash and buybacks: the board raised the quarterly dividend to $0.12 per share, increasing the annualized payout, and the company repurchased 47,000 shares at an average price of $16.50. These moves suggest management is confident in the capital position and underlying earnings power even as integration work continues.

Balance Sheet and AOCI Trends Turn More Favorable

Colony’s securities portfolio and balance sheet positioning provided an additional tailwind. The fair value of the investment portfolio improved quarter-over-quarter, benefiting accumulated other comprehensive income (AOCI) by about $2.5 million. Management also noted an opportunity to redeploy upcoming investment payoffs at current market rates, which are higher than many legacy yields and should help bolster net interest income as those securities roll off and proceeds are reinvested.

Workplace Recognition and Strategic Talent Hires

Beyond the numbers, the bank highlighted recognition and talent initiatives that support long-term growth. Colony was named one of American Banker’s 2025 Best Banks to Work For and was the only institution headquartered in Georgia on the list, which may aid in recruiting and retention. The company also added two financial advisers and shifted to a dual-employee broker-dealer model, a structural change management believes will unlock additional revenue and deepen relationships as assets under management grow.

Elevated Expenses and Merger Costs Weigh Near Term

While revenue metrics improved, expenses remain a near-term drag. Operating noninterest expenses were $24.4 million in the fourth quarter, and net noninterest expense to average assets stood at 1.58%, above historical levels. A meaningful portion of this pressure stems from carrying TC Federal-related costs ahead of the systems conversion, along with roughly $1.3 million of merger-related expenses in the quarter. Management expects most of the cost savings to materialize after conversion, with a target of reducing net noninterest expense to closer to 1.45% by the second quarter of 2026.

Provisioning and Charge-Offs Elevated in Select Loan Segments

Credit costs were higher than in earlier periods, largely driven by specific higher-yielding loan categories. Provision expense rose to $1.65 million in the quarter from $900,000 previously, while net charge-offs totaled $1.6 million—slightly lower than the prior quarter but still elevated. The bulk of these charge-offs came from the SBSL division and third-party marketplace loans. Management acknowledged the volatility inherent in these segments but expects some improvement going forward as they refine risk management and portfolio mix.

Acquisition-Related Asset Quality Noise and NPL Uptick

Asset quality metrics showed some deterioration, though much of it ties back to the acquired TC Federal portfolio. Classified and criticized loans increased quarter-over-quarter, with TC Federal accounting for 68% of the rise in criticized loans and 93% of the increase in classified loans. Nonperforming loans climbed by $9 million, of which $6 million was associated with the acquisition. Management emphasized that acquisition accounting already considered anticipated losses, suggesting that the reported uptick in problem loans is at least partly an expected byproduct of folding in the new book.

Slower Organic Loan Growth and More Conservative Outlook

Organic loan growth stalled in the quarter, with balances essentially flat due to heightened payoffs. In response to a more competitive lending environment and pricing pressures, management tempered its outlook for 2026, guiding organic loan growth toward the lower end of the previous 8%–12% range, around 8%. While still healthy by industry standards, this moderated expectation reflects a more disciplined stance on pricing rather than a push for growth at the expense of returns.

Margin Pressure from Competition and Rate Dynamics

Competitive forces are also influencing loan pricing. The weighted average rate on new and renewed loans was 7.33%, down from the prior quarter, and management expects it to gravitate closer to prime as rivals sharpen pricing. This environment creates some headwinds for loan yields on new production, even as repricing on the existing loan book supports overall yield. Colony plans to balance growth and margin discipline rather than chase volume at compressed spreads.

Deposit Strategy, Mix Shifts and Funding Focus

On the funding side, deposits rose during the quarter but were essentially flat year-over-year on an organic basis when excluding TC Federal. The bank has intentionally and aggressively lowered rates on interest-bearing accounts as market rates declined, which has led to some runoff of non-core, price-sensitive balances. Management stressed that deposit growth remains a key focus to support loan growth organically, with an emphasis on strengthening relationship-based funding rather than relying on high-cost, rate-only customers.

Concentration Risk in Higher-Yielding SBSL and Marketplace Loans

Colony’s SBSL and marketplace loan portfolios, while accounting for only about 5% of total loans, have a disproportionate impact on both yield and credit costs. These segments deliver higher returns but also generated a meaningful share of the fourth-quarter charge-offs. Management expects some improvement but acknowledged that loss rates in these lines can be variable. Investors will be watching how Colony calibrates risk and return in these portfolios as it seeks to sustain earnings growth without adding undue credit volatility.

Guidance Signals Steady 2026 Improvement and Rising Returns

Looking ahead, management guided to steady improvement through 2026, anchored by a targeted 1.20% operating ROA on a quarterly basis beginning in the second quarter of 2026 and for the full year. After delivering 10.5% core loan growth in 2025 (excluding TC Federal), the bank expects 2026 organic loan growth to be nearer 8%, at the low end of its prior range, reflecting a more competitive and rate-sensitive market. Net interest margin, which rose to 3.32% in the fourth quarter with a 6.19% loan yield and a cost of funds of 1.96%, is expected to increase modestly by mid-single digits each quarter as funding costs continue to drift lower and investments—about $65 million at a 3.10% yield rolling off in 2026—are redeployed at higher rates. Noninterest income is projected to be slightly better in 2026, aided by continued mortgage activity, including an expected $30 million mortgage portfolio sale in the first quarter. On the expense side, the company is targeting net noninterest expense to average assets of roughly 1.45% by the second quarter of 2026 as TC Federal cost saves are realized following systems conversion. Combined with capital strength, improving AOCI, ongoing share repurchases, and a higher dividend, management expects to generate higher, more efficient returns while completing the integration.

In summary, Colony Bankcorp’s earnings call painted a picture of a bank in transition but moving in the right direction. Integration costs, select credit hotspots, and slower loan growth guidance are headwinds, yet they are outweighed by improving margins, robust fee and wealth businesses, rising capital and shareholder payouts, and better-than-expected acquisition economics. For investors, the key takeaway is a credible roadmap to stronger profitability by 2026, with manageable risks along the way as the TC Federal integration matures and the balance sheet continues to normalize.