Colony Bankcorp (CBAN) Q3 2026 earnings review
Colony Bankcorp's lending margin widens, but its loan growth stalls
Colony Bankcorp, a community bank in Georgia and Florida, expanded its lending spreads while its loan and deposit balances stalled. Profit per share excluding one-offs rose 15% from a year ago, and net interest margin (the spread between asset yields and funding costs) reached 3.59%. Chief executive Heath Fountain blamed pricing discipline as loan growth slowed to a 2% annualized rate, well below what the bank's own threshold implied.
| Underlying loan growth (stripping TC Bancshares at close) | +1.3% from a year ago, by our math |
|---|---|
| Profit per share, excluding one-offs | $0.54 +15% from a year ago |
| Net interest margin | 3.59% 3.52% last quarter |
| Near-term loan growth outlook | Cut softer near-term growth expected |
⚖️ Verdict: 🔴 Bearish
The story got worse because the bank's standalone growth engine has almost stopped and credit quality slipped. For a third straight quarter management walked back its near-term loan outlook while deposits shrank and nonperforming assets (troubled loans and foreclosed property) jumped 20% by our math. The good news: higher loan yields pushed operating return on assets to 1.26%, and the bank sold three branch buildings after quarter-end to fund a bond portfolio reset.
The question now is whether the lending slowdown is temporary rate discipline or weak demand that leaves the bank reliant on acquisitions for growth. If demand is intact, the $445 million backlog of unfunded commitments from June will turn into funded loans; if those lines sit unused, organic growth stays flat. The unfunded commitment and core loan tables in the third-quarter filing will tell.
🐂 Bull Case
Higher Loan Yields Keep Lifting the Margin
Colony's main earnings engine is repricing older loans into higher rates as they mature. Chief executive Heath Fountain said the margin expanded again as "a result of increasing earning asset yields and consistent pricing on our new and renewed loans". The bank also obtained all regulatory and shareholder approvals for its upcoming merger with First Reliance Bancshares.
- Net interest margin (the spread between asset yields and funding costs): 3.59%, up 0.07 percentage points from last quarter
- Operating return on average assets, excluding one-offs: 1.26%, up from 1.20% in the second quarter
- Net interest income on a tax-equivalent basis: $30.5 million, up from $30.0 million last quarter
That wider spread carried profitability past the 1.20% return on assets target management set for the middle of 2026. Because older loans continue to roll over at higher rates, the bank lifted operating profit per share 14.9% from a year ago to $0.54 even as loan volume barely grew.
What to watch: the average interest rate on new and renewed loans in the third-quarter presentation and filing. A drop below last quarter's 7.14% rate would mean loan repricing is losing steam just as deposit costs stop falling.
SBA Lending Volume Rebounded After Two Slow Quarters
Colony runs a Small Business Specialty Lending (SBSL) unit that originates government-backed Small Business Administration (SBA) loans and sells the guaranteed portions for fee income. Over the first half of 2026, lower loan sales and higher credit write-offs cut the division's profit in half.
In the third quarter, the unit closed $29.9 million of SBA loans and sold $12.7 million, more than doubling last quarter's $13.0 million closed and $5.5 million sold. Alongside wealth advisor fees and service charges, that rebound lifted operating noninterest income (fee revenue excluding one-offs) 6.0% from last quarter to $12.3 million, though SBA sale gains for the nine-month period remained below last year.
What to watch: standalone net income and gain-on-sale margins for the SBSL division in the quarterly filing's segment table. If higher loan sales did not lift segment profit above last quarter's $147 thousand, credit costs are still eating the fee rebound.
🐻 Bear Case
Organic Loan Growth Slowed to a Crawl
"Loan growth was lower in the third quarter and is reflective of our commitment to pricing discipline in a changing rate environment," chief executive Heath Fountain said. Colony has a long-term goal of 8% to 12% annual organic loan growth, which management already walked down to slightly below 8% last quarter.
Total loans excluding loans held for sale rose just $12.3 million, or 0.50% from last quarter, to $2.48 billion. That equals a 2.0% annualized pace, down from 8.5% in the second quarter and 5.4% in the first. Stripping the $413 million of loans acquired from TC Bancshares at close in December 2025, underlying loans grew only 1.3% from a year ago by our math.
Fountain warned that "we are likely to see softer growth in the near-term" even as the long-term target stays unchanged. Because a bank cannot raise loan yields forever once older loans finish repricing, a 2% growth rate leaves Colony reliant on buying other banks to expand its interest income.
What to watch: the split between core and purchased loans, plus unfunded loan commitments, in the quarterly filing. If core loans shrank or commitments fell back from June's $444.6 million level, the slowdown is weak borrower demand rather than pricing discipline alone.
Deposits Fell Again and Borrowings Filled the Gap
Colony needs low-cost customer deposits to fund its loans and keep interest expense down. Instead, total deposits fell $14.5 million in the third quarter to $2.96 billion, bringing the nine-month drop since December 2025 to $109.8 million by our math.
- Noninterest-bearing demand deposits: down $6.8 million from June
- Interest-bearing demand deposits: down $44.1 million, partly offset by $21.4 million more in higher-cost time deposits
- Total borrowings: $263.2 million, up $30.0 million (12.9% by our math) from last quarter
- Operating noninterest expense, excluding one-offs: $26.4 million, up 3.7% from June against a flat outlook
The third quarter is normally a recovery period for the bank's deposits, which rose $28.1 million in the same quarter last year. Replacing lost checking accounts with time deposits and wholesale borrowings raises funding costs, while operating expenses already climbed $952 thousand before the First Reliance merger even closed.
What to watch: total cost of funds and the renewal rates on maturing time deposits in the quarterly filing. Any jump above last quarter's 1.95% funding cost would eat into the margin gains from loan repricing.
Problem Assets Jumped on a Construction Downgrade
Colony has over 80% of its loan book tied to real estate in Georgia and Florida, making credit quality a key risk as interest rates change. The company said an increase in troubled loans this quarter came from the "downgrade of one construction relationship with circumstances unique to the individual borrower".
Nonperforming assets (loans not paying interest plus foreclosed property) rose $4.1 million, or 19.6% by our math, to $25.0 million. Foreclosed real estate and repossessed assets nearly doubled from $2.0 million to $3.9 million, while net loan write-offs held at 0.27% of average loans ($1.7 million). By our math, the $22.5 million credit loss reserve now covers 90% of nonperforming assets, down from 105% in June.
What to watch: total classified and criticized loan balances in the quarterly filing's credit tables. A rise bigger than this single construction loan would show that credit pressure is spreading across the wider real estate book.
👓 Other Themes
Branch Sale-Leaseback Pays for a Bond Reset
On October 27, Colony agreed to sell three retail branch buildings for $19.9 million and lease them back for 15 years. The deal unlocks an estimated $15 million pre-tax gain, which will be "offset by realized losses from a planned repositioning of the Bank’s investment securities portfolio". Selling low-yielding bonds lifts future interest income, but the new leases add $1.65 million in first-year rent with 2.0% annual increases.
💲 Other KPIs
Rose 0.54 percentage points from 12.96% in the second quarter and 1.13 points from 12.37% a year ago. Common equity tier one (CET1) measures core bank capital against risk-weighted assets. Retaining earnings while loan growth slowed to 0.5% allowed the Georgia bank to build a larger capital cushion ahead of the First Reliance acquisition.
Fell 16.4% from $115.4 million in the second quarter, though volume stayed 10.5% above the $87.3 million originated in the third quarter of 2025 by our math. Mortgage loans sold into the secondary market edged up 2.8% from last quarter to $69.2 million, helping support mortgage fee revenue.
Up 21.5% from 17.46 million a year ago by our math, and almost unchanged from 21.16 million in the second quarter. The year-over-year jump came from issuing stock to buy TC Bancshares in December 2025, which diluted GAAP net income growth of 80.8% down to 51.5% on a per-share basis.
🔮 Guidance
Cut. Chief executive Heath Fountain kept the long-term 8% to 12% annual target but warned of "softer growth in the near-term" after third-quarter loans rose just 2.0% annualized. It is the third straight reduction of the 2026 loan outlook. By our math, loans are up 5.4% annualized through September, so reaching even an 8% full-year threshold would require a 15.3% annualized jump in the fourth quarter.
Unchanged. With all regulatory and shareholder approvals now in hand for the First Reliance merger, the lender narrowed the expected timing for systems conversion and customer integration to the second quarter of 2027. Most of the planned cost savings from the deal will only arrive after that conversion finishes.
❓ Key Questions
Why did operating expenses rise before the merger closed?
Management expected third-quarter operating noninterest expense to stay near June's $25.5 million level until First Reliance closed, yet costs rose $952 thousand to $26.4 million. How much of that increase is permanent overhead versus early preparation for the deal?
How much will the bond repositioning boost interest income?
Colony will use an estimated $15 million branch sale-leaseback gain to offset losses from selling low-yielding bonds, while taking on $1.65 million in annual rent. What is the book value and old yield of the bonds being sold, and what yield will replace them?
Did the $445 million loan commitment book convert or shrink?
Unfunded loan commitments jumped 33% in the first half of 2026 to $444.6 million, yet funded loans grew only $12.3 million this quarter. The press release omits the commitment figure; what was the September balance, and why are borrowers not drawing on those lines?
How large is the downgraded construction relationship?
Nonperforming assets rose $4.1 million to $25.0 million and foreclosed property nearly doubled to $3.9 million, which the bank tied to one construction borrower. What is the total dollar exposure to this borrower, and how much did total classified loans move in the quarter?