Colony Sells the Buildings to Bury the Bond Losses

A $433M Georgia bank halves its loan growth guide, pushes its ROA target out to 3Q27, and pays for a securities cleanse with three branch sale-leasebacks.

CBAN · Earnings Call · 2026-10-29

The trade, finally priced in a number

For at least four consecutive quarters Heath Fountain has said some version of the same thing: Colony will not buy loan growth with margin. In January he drew the line plainly — “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.” — T. Fountain, CEO · 2026-01-29 In July he repeated it almost word for word. This quarter the philosophy finally got a number attached, and the number is roughly half the long-term target. “We think we'll be looking at loan growth around our current level of 5% for the coming year as we continue to prioritize improving profitability.” — Heath Fountain, CEO · 2026-10-29 That sits against a stated 8–12% range and a backward-looking brag that Colony has "averaged about 12% organic growth over the last eight years." Third-quarter growth was ~2% annualized, 5.4% year-to-date. So the guide is halved, explicitly, and dressed as discipline. The tell is the very next paragraph on ROA: “We still feel good about reaching our ROA target of 1.35% or better, but that will occur after we start to realize the full cost savings, which will begin in the third quarter of next year.” — Heath Fountain, CEO · 2026-10-29 They cleared a 1.25% operating ROA this quarter — and note the migrating goalpost. In July an analyst congratulated them on a "longer term 120 ROA goal"; today the target is 1.35%. The bar went up while the date went out, and management was candid that ROA gives back 10–15bp for several quarters running two core systems post-close. That's a four-quarter air pocket between the promise and the payoff, disclosed rather than buried — which is honest, and also hard to walk back later.

Paying for a securities cleanse with branch real estate

The genuinely new item is the balance sheet restructure announced the same week as earnings: three retail branches sold and leased back on an initial 15-year term for $19.9M aggregate, $1.65M of first-year base rent escalating 2%, and a pre-tax gain of roughly $15M. Paired with the sale of about $100M of underperforming AFS securities yielding ~2%, with a 5.5% reinvestment assumption primarily into loans. The mechanics are the story:

The current tax adjusted unrealized losses on AFS securities are recorded in the AOCI, but the gain on the sale of the buildings is not, therefore will be accretive to tangible book value with neutral regulatory capital impacts.
Derek Shelnutt, CFO · 2026-10-29

That is clean small-bank financial engineering. Crystallize AOCI marks the market already discounts, harvest a real-estate gain that never sat in AOCI, and let the two roughly cancel on the regulatory capital line while tangible book value rises — TBV per share to $15.16 from $15.12, TCE steady at 8.99% even after absorbing this quarter's marks. The cost is ~$1.8M of annual rent, under 1.5% of the combined expense base, against interest income from moving $100M out of 2% paper. Management is explicit it will not reinvest "back into similar duration bonds simply for the yield pickup" — the point is a shorter duration securities profile and a better interest rate risk profile, not a duration extension for yield's sake. The margin math behind it is the whole 2027 case. NIM improved 7bp to 3.59%; cost of funds ticked to 1.98% from 1.95%; new and renewed loan rates climbed to 7.26% from 7.14% — a third straight quarter of improvement off the 7.11% first-quarter trough, against a legacy portfolio yield around 6.35%. The repricing schedule is unusually concrete: $223M of fixed-rate loans at a 5.21% average and $76M of investments at 1.77% waiting to reprice into today's curve. Strip out purchase accounting and the core margin still grinds higher, which is why the lower growth guide doesn't panic anyone yet.

One borrower, one construction loan

Classified loans jumped into the top-five keywords on this call, a level of prominence the phrase hasn't had in the previous two quarters of coverage. The cause is a single commercial construction credit of roughly $16M, adequately collateralized on recent appraisals, plus a $575K measurement-period adjustment tied to a legacy TC Federal loan that had to be charged off. “This downgrade reflects circumstances specific to this individual borrower and is not indicative of any broader systemic trends across our loan portfolio.” — Derek Shelnutt, CFO · 2026-10-29 Believe it — provision expense was only $1.65M and net charge-offs fell sequentially. But the timing matters: future loan growth is being throttled to 5% at the exact moment credit noise rises in the construction book. A 5% grower has less earnings cushion to absorb surprises than a 12% grower, and Colony is asking investors to accept that trade.

What the tape and the sector are saying

The stock is -4% over 90 days and 8.3% off its August 14 high of $22.27, drifting into a report management says beat "external expectations." At about 1.1x book and ~13x earnings, the market is neither paying up for the merger nor writing it off. The operating backdrop earns some of that multiple: an efficiency ratio of 45.6%, down from 76.5% in 2022Q2, with net income of $11M, +36% yoy and net interest income of $30M, +33% yoy. Deposits stand near $3.0B, though that is TC Federal residue rather than organic gathering. Which is why the deposit discussion is the least differentiated part of the call. Core deposits and Total deposits both sit in the market's top-ten keywords this quarter, and the reporter tape is thick with funding-cost language. Colony's version — deposits down $14.5M on "seasonality," prioritizing relationship operating accounts, letting rate-sensitive money walk — is the same script a dozen regionals are reading this week. The company-specific difference is that Colony can afford to be picky because repricing does the heavy lifting. "Deposits are priority one" was “the July formulation” — Heath Fountain, CEO · 2026-07-23; the substance hasn't changed. What quietly vanished is more interesting. Merchant Services was a standing Q&A topic through 2025 and early 2026 — the deposit-acquisition flywheel, the recurring-revenue pitch, the banking-solutions consolidation. This quarter it barely surfaces. Colony Insurance, a fixture earlier in the year, is gone entirely. Their replacements: South Carolina, the wealth platform, treasury depth. The merger is rewriting what management wants to talk about. The mortgage business gets the opposite treatment — still loved, but explicitly softer than original combined-company projections, with expenses being rightsized around volume and First Reliance's third-party origination platform held up as the new lever. And buybacks, suspended for the merger, changed vocabulary rather than direction: “some systematic repurchases each quarter, and then being more opportunistic” — Heath Fountain, CEO · 2026-10-29 — a step away from the purely opportunistic framing that has characterized prior calls, and a real option again once the deal closes and the repurchase line, dormant at zero this quarter, restarts. The bet, in one sentence: Colony will look visibly worse for four quarters — ROA back to 1.10–1.15%, growth at 5% — in exchange for a 2027 that is unusually well-lit. The risk is that "after we start to realize the full cost savings" slips one more quarter, and 5% becomes the number rather than the trough.