10-Q: Colony Bankcorp Reports Strong Q3 2025 Earnings, Merger Progress

Colony Bankcorp, Inc. announced increased net income and an improved net interest margin for the third quarter and first nine months of 2025, alongside progress on its acquisition of TC Bancshares, Inc.

Summary

• Net income for the three months ended September 30, 2025, was $5.8 million ($0.33 diluted EPS), an increase from $5.6 million ($0.32 diluted EPS) for the same period in 2024.
• Net income for the nine months ended September 30, 2025, was $20.4 million ($1.17 diluted EPS), an increase from $16.4 million ($0.94 diluted EPS) for the same period in 2024.
• Total consolidated assets increased to $3.15 billion at September 30, 2025, from $3.11 billion at December 31, 2024.
• Total loans, net, grew to $2.02 billion at September 30, 2025, from $1.82 billion at December 31, 2024.
• Total deposits increased to $2.58 billion at September 30, 2025, from $2.57 billion at December 31, 2024.
• Stockholders' equity rose to $302.3 million at September 30, 2025, from $278.7 million at December 31, 2024.
• Net interest income (tax equivalent basis) increased to $22.9 million for Q3 2025 from $18.7 million for Q3 2024, and to $66.6 million for YTD Q3 2025 from $56.1 million for YTD Q3 2024.
• Net interest margin improved to 3.17% for Q3 2025 (from 2.64% in Q3 2024) and to 3.07% for YTD Q3 2025 (from 2.67% in YTD Q3 2024).
• Provision for credit losses was $900,000 for Q3 2025 and $2.9 million for YTD Q3 2025.
• Net charge-offs increased to $1.8 million for Q3 2025 (from $139,000 in Q3 2024) and to $3.5 million for YTD Q3 2025 (from $1.5 million in YTD Q3 2024), primarily due to SBA loans.
• Nonperforming assets increased to $15.2 million (0.48% of total assets) at September 30, 2025, from $11.3 million (0.36% of total assets) at December 31, 2024.
• A wire fraud incident in March 2025 resulted in a non-recoverable loss of $1.25 million recognized in Q3 2025, with the remaining $1.65 million expected to be covered by insurance.
• The company entered into an Equity Distribution Agreement on November 3, 2025, to sell up to $40 million in common stock via an "at-the-market" offering.
• The acquisition of TC Bancshares, Inc. for approximately $86.1 million is expected to close in Q4 2025 and be immediately accretive to the company's earnings per share, excluding transaction costs.

Sentiment

Score: 7

Explanation: The company reported solid financial performance with increased net income and improved net interest margin, driven by loan growth and effective interest rate management. The pending acquisition is expected to be accretive. However, increased net charge-offs, particularly from older SBA loans, and a wire fraud loss temper the overall positive sentiment.

Positives

• Net income increased for both the three and nine months ended September 30, 2025, compared to the prior year periods.
• Net interest margin significantly improved to 3.17% in Q3 2025 (from 2.64% in Q3 2024) and to 3.07% YTD Q3 2025 (from 2.67% YTD Q3 2024), indicating enhanced profitability from core lending activities.
• Gross loans outstanding increased by $194.1 million, or 10.53%, since December 31, 2024, demonstrating strong loan growth.
• Interest expense on deposits and other borrowings decreased, reflecting effective interest rate management and a focus on low-cost deposit growth.
• Noninterest income increased, driven by higher mortgage fee income, insurance commissions, interchange fees, and other noninterest income.
• The company maintains strong liquidity with approximately $1.3 billion in available funding sources.
• Colony Bankcorp and its subsidiary, Colony Bank, are categorized as "well-capitalized" under regulatory frameworks, exceeding all minimum capital requirements.
• The percentage of uninsured deposits decreased from 33.03% at December 31, 2024, to 31.52% at September 30, 2025, enhancing deposit stability.
• The pending acquisition of TC Bancshares, Inc. is expected to be immediately accretive to earnings per share, excluding transaction costs.

Negatives

• Gain on sales of SBA loans decreased by 36.6% for Q3 2025 and 39.6% for YTD Q3 2025, due to decreased loan production and sales in the Small Business Specialty Lending division.
• Net charge-offs significantly increased to $1.8 million for Q3 2025 and $3.5 million for YTD Q3 2025, primarily attributed to SBA loans originated prior to changes in the company's credit policy.
• Nonperforming assets increased to $15.2 million (0.48% of total assets) at September 30, 2025, from $11.3 million (0.36% of total assets) at December 31, 2024, indicating a slight decrease in asset quality.
• A wire fraud incident in March 2025 resulted in a non-recoverable loss of $1.25 million recognized in Q3 2025.
• Noninterest expense increased for both the three and nine months ended September 30, 2025, driven by higher salaries and employee benefits, occupancy and equipment, acquisition-related expenses, information technology expenses, professional fees, and the wire fraud loss.
• BOLI income decreased for the nine months ended September 30, 2025, due to the payout of death benefits during the first quarter of 2024.

Risks

• Impact of current and future economic and market conditions, including inflationary pressures, changes in interest rates, supply chain issues, slowdowns in economic growth, and potential for high unemployment rates.
• Changes in the interest rate environment may result in increased funding costs or reduced earning asset yields, thus reducing margins and net interest income.
• Uncertainties surrounding geopolitical events, trade policy, taxation policy, and monetary policy impacting future economic growth.
• Ability to comply with applicable capital and liquidity requirements, including generating liquidity internally or raising capital on favorable terms.
• Risk that a future economic downturn and contraction, including a recession, could have a material adverse effect on capital, financial condition, credit quality, results of operations, and future growth.
• Factors impacting the performance of the loan portfolio, including real estate values and liquidity in primary market areas, and the financial health of borrowers.
• Concentration of the loan portfolio in real estate loans and changes in the prices, values, and sales volumes of commercial and residential real estate.
• Weakness in the real estate market affecting collateral values, mortgage loan originations, delinquencies, and mortgage fee income.
• Credit and lending risks associated with loan portfolios.
• Factors negatively impacting mortgage banking services, including declines in originations or profitability due to rising interest rates, increased competition, and regulation.
• Impact of prolonged elevated interest rates on financial projections and models.
• Ability to attract sufficient loans that meet prudent credit standards.
• Ability to successfully manage credit risk and the sufficiency of the allowance for credit losses.
• Adverse developments in the banking industry, highlighted by high-profile bank failures, impacting customer confidence, liquidity, and regulatory responses.
• Inability of the risk management framework to effectively mitigate credit risk, interest rate risk, liquidity risk, price risk, compliance risk, operational risk, strategic risk, and reputational risk.
• Risks related to the Proposed Merger with TC Bancshares, Inc., including potential for cost savings and revenue synergies to be less than expected, disruption to customer/employee relationships, failure to obtain necessary approvals, higher-than-anticipated costs, and diversion of management time.
• Cyber-security risks, fraud, and systems errors, including those exacerbated by generative artificial intelligence, and the costs of defending against them.
• Dependence on third-party business partners and vendors for key components of business infrastructure.
• Inability to keep pace with the rate of technological advances due to a lack of resources.
• Potential implementation of a regulatory reform agenda under the current presidential administration.
• Continued or increasing competition from other financial institutions, credit unions, and non-bank financial services companies.
• Risks related to diversity, equity, and inclusion (DEI) and environmental, social, and governance (ESG) strategies and initiatives.
• A deterioration of the credit rating for U.S. long-term sovereign debt, actions to avoid exceeding the debt ceiling, and uncertainties surrounding the debt ceiling and federal budget.

Future Outlook

The company expects the acquisition of TC Bancshares, Inc. to close in the fourth quarter of 2025 and anticipates it will be immediately accretive to earnings per share, excluding transaction costs. Management projects stable economic and unemployment conditions in its operating markets over the next year, with delinquencies returning to more normalized levels. The net interest spread and margin are expected to continue to be influenced by future changes in short-term and long-term interest rate levels, as well as the competitive environment.

Management Comments

• Management believes that the Company and the Bank exceeded all well-capitalized requirements at September 30, 2025, and there have been no conditions or events since quarter-end that would change the status of well-capitalized.
• Management believes the various funding sources discussed are adequate to meet the Company’s liquidity needs without any material adverse impact on operating results.
• Management believes the allowance for credit losses for loans is adequate to provide for losses expected in the loan portfolio as of September 30, 2025.
• The increase in net income for the three months ended September 30, 2025, compared to the three months ended September 30, 2024, was primarily a result of an increase in interest income on loans, and a minimal increase in noninterest income, along with a decrease in interest expense, that was partially offset by an increase in noninterest expense.

Industry Context

The banking industry is currently navigating a dynamic interest rate environment, with Colony Bankcorp demonstrating effective management through disciplined relationship pricing, loan growth, and strategic repricing of deposits and assets. The decrease in federal funds interest rates has contributed to lower funding costs, aligning with broader industry trends. The company's emphasis on a 'deposit first culture' and building customer relationships is a key strategy for securing stable, low-cost funding amidst intense competition. The announced acquisition of TC Bancshares reflects ongoing consolidation within the regional banking sector, aimed at achieving increased scale, market presence, and operational efficiencies.

Comparison to Industry Standards

• Colony Bankcorp and its subsidiary, Colony Bank, are categorized as 'well-capitalized' under the regulatory framework for prompt corrective action, exceeding all minimum capital requirements.
• The consolidated Common Equity Tier 1 (CET1) capital ratio of 12.37% significantly surpasses the 'well-capitalized' guideline of 6.5%.
• The consolidated Tier 1 capital ratio of 13.44% is well above the 'well-capitalized' guideline of 8.0%.
• The consolidated Total capital ratio of 16.00% exceeds the 'well-capitalized' guideline of 10.0%.
• The consolidated Leverage ratio of 9.91% is nearly double the 'well-capitalized' guideline of 5.0%.

Corporate Governance

Legal Proceedings

• Various legal proceedings are pending against the Company and the Bank in the ordinary course of business.
• Management believes the aggregate liabilities, if any, arising from such proceedings would not have a material adverse effect on the Company’s consolidated financial position.

Stakeholder Impact

• Shareholders: Benefit from increased net income, improved EPS, and a declared cash dividend. Potential for future growth from the accretive TC Bancshares acquisition, but also potential dilution from the ATM offering.
• Customers: Continue to receive a full range of retail, commercial, and mortgage banking services, as well as government guaranteed lending, consumer insurance, wealth management, credit cards, and merchant services.
• Employees: Impacted by the acquisition of the Ellerbee Insurance Agency (contributing to increased salaries and benefits) and will be involved in the integration process with TC Bancshares.
• Creditors: Strong capital ratios and liquidity position provide assurance regarding the company's ability to meet its obligations.
• Regulatory Authorities: The company maintains compliance with all capital requirements and is categorized as 'well-capitalized'.

Next Steps

• Closing of the TC Bancshares, Inc. acquisition, expected in the fourth quarter of 2025.
• Payment of a quarterly cash dividend of $0.1150 per share on November 19, 2025, to shareholders of record as of November 5, 2025.
• Potential sale of up to $40 million in common stock through an "at-the-market" offering.
• Continued monitoring of economic conditions and loan portfolio quality, especially regarding SBA loans.
• Evaluation of the impact of new income tax disclosure requirements (ASU 2023-09) for the Annual Report on Form 10-K for the year ended December 31, 2025.

Key Dates

Recommendation

The company demonstrates solid core banking performance with improved net interest margin and loan growth, and its capital position is strong. The pending acquisition is a positive strategic move expected to be accretive. However, the increase in nonperforming assets and net charge-offs, particularly from the SBSL portfolio, along with the wire fraud loss, introduce some caution. The ATM offering could also lead to short-term dilution. Given the mixed signals, a 'hold' recommendation is appropriate, awaiting further clarity on asset quality trends and successful integration of the acquisition.

Keywords

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