Colony Bank (CBAN) Q4 2025: TC Federal Merger Cuts Earn-Back to Under 2.5 Years

January 29, 2026 | By EarningsIQ Research

Colony Bank’s fourth quarter showcased disciplined margin expansion, cost control, and a faster-than-expected TC Federal merger earn-back, positioning the bank for improved returns in 2026. Management is targeting a 1.2% operating ROA for the coming year, with merger synergies and a focus on core deposit growth set to drive efficiency and earnings power. The bank’s selective M&A stance, paired with prudent loan and deposit strategies, signal a balanced approach to growth amid intensifying competition.

Summary

• Merger Integration Accelerates: TC Federal deal synergies are materializing faster, with earn-back now under 2.5 years.
• Margin and Efficiency Focus: Net interest margin and operating ROA targets remain central, as cost saves ramp in Q2 2026.
• M&A and Organic Growth Balance: Selective M&A and disciplined lending guide Colony’s approach amid competitive Southeast banking landscape.

Performance Analysis

Colony Bank’s Q4 results reflected tangible progress on both operating and strategic fronts. Net income improved sequentially, driven by higher net interest margin and non-interest income, supported by the initial impact of the TC Federal merger. The bank’s operating net interest margin rose to 3.32%, benefiting from loan repricing, lower cost of funds, and accretive merger economics. Loan yields increased to 6.19%, while cost of funds dropped to 1.96%, reflecting proactive rate management as the Federal Reserve cut rates.

Non-interest income was solid, buoyed by gains on mortgage pool sales and continued strength in specialty lending and merchant services. Operating expenses were elevated due to temporary TC Federal-related costs, but management expects these to subside after systems conversion in Q1 2026. Charge-offs remained slightly elevated, mainly from SBA and marketplace loans, but these segments represent only 5% of the portfolio and offer higher risk-adjusted returns. The bank’s tangible book value per share increased, aided by improved AOCI and favorable purchase accounting adjustments.

• Loan Growth Moderation: Core loan growth for 2025 was 10.5%, but management now expects 2026 growth to land near the low end of its 8% to 12% target due to competitive pressures.
• Deposit Stability: Deposits were flat organically for the year, with the focus on quality, low-cost relationships over rate-sensitive balances.
• Expense Leverage: Operating non-interest expense to average assets spiked to 1.58% in Q4, but is guided to revert to 1.45% in Q2 as merger cost saves are realized.

Overall, the quarter validated Colony’s disciplined approach to margin, credit, and M&A, with the TC Federal deal already exceeding initial financial expectations.

Executive Commentary

Strategic Positioning

1. TC Federal Merger Execution

The TC Federal acquisition, completed in December, is already outperforming initial financial models. Cost saves are ahead of schedule, with earn-back on tangible book value dilution now projected at less than 2.5 years (versus the original sub-3-year forecast). The systems conversion will be finished in Q1, unlocking further expense reductions and integration synergies in subsequent quarters.

2. Margin and Return Optimization

Management is laser-focused on net interest margin (NIM, a measure of lending profitability) and operating return on assets (ROA, a key bank profitability metric). The bank achieved its 1% ROA target in 2025 and is now aiming for 1.2% by Q2 2026, reflecting confidence in merger-driven efficiency and repricing tailwinds.

3. Disciplined Lending and Deposit Strategy

Loan growth is being balanced with margin discipline as competition intensifies across the Southeast. Management is willing to walk away from low-return deals, prioritizing relationship-based lending. On deposits, the bank is focused on “core” accounts and has aggressively repriced interest-bearing accounts to defend margin, even at the expense of some deposit outflows.

4. Diversification of Fee Income

Complementary business lines—especially mortgage, SBA lending, insurance, and wealth management—are gaining momentum. Notably, assets under management more than doubled to over $460 million with the transition to a dual-employee financial advisor model, increasing future fee income potential.

5. M&A-Driven Growth Platform

Colony is actively evaluating additional M&A opportunities in Georgia and contiguous states. The preference is for negotiated, partnership-oriented deals that align with Colony’s culture and financial criteria. The current regulatory environment and industry M&A activity create favorable conditions for both small and larger transactions.

Key Considerations

This quarter underscores Colony’s ability to execute on multiple fronts, from merger integration to organic growth and margin defense. The bank’s forward plan is shaped by:

Key Considerations:

• Merger Synergy Realization: Full cost saves from TC Federal will not be realized until Q2 2026, making expense leverage a key watchpoint in early 2026.
• Competitive Lending Environment: Loan growth is slowing as Colony prioritizes margin and credit quality over volume, with management signaling willingness to cede market share to maintain profitability.
• Deposit Growth and Mix: The focus on relationship-based deposits, rather than rate-driven growth, could limit near-term funding but supports long-term margin resilience.
• Fee Income Expansion: Wealth and insurance platforms are scaling, but require upfront investment and successful advisor recruitment to reach full earnings potential.
• Selective M&A Pipeline: Colony is positioned to capitalize on regional M&A, but remains disciplined on pricing and integration risk.

Risks

The primary risks for Colony Bank remain external competition for loans and deposits, integration execution for the TC Federal merger, and potential credit normalization in higher-yielding SBA and marketplace loans. A rapidly shifting rate environment or unexpected loan losses could pressure both margin and returns, while aggressive M&A could introduce integration and capital management risks if not carefully sequenced.

Forward Outlook

For Q1 2026, Colony Bank expects:

• Completion of the TC Federal systems conversion, with the majority of cost saves realized in Q2.
• Modest sequential increases in net interest margin as loans reprice and cost of funds remain contained.

For full-year 2026, management raised expectations to:

• Achieve a 1.2% operating ROA by Q2 and sustain it for the year.
• Maintain loan growth near the lower end of the 8% to 12% long-term target.

Management highlighted several factors that will shape the year:

• Continued focus on margin expansion and disciplined credit underwriting.
• Active pursuit of negotiated M&A opportunities in Georgia and neighboring states.

Takeaways

Colony Bank’s fourth quarter demonstrates the benefits of disciplined execution, with merger synergies, margin expansion, and fee income diversification positioning the bank for improved returns in 2026.

• Merger Integration Outperformance: Faster-than-expected earn-back and cost saves from TC Federal improve forward earnings visibility and capital flexibility.
• Margin and Return Discipline: Management’s willingness to forgo low-return growth in favor of margin defense should support sustainable profitability, even as competition intensifies.
• Strategic Optionality in M&A: The bank’s selective approach to M&A, combined with a strong capital position, gives it the flexibility to pursue accretive deals without compromising on integration quality or shareholder returns.

Conclusion

Colony Bank exits 2025 with momentum in operating returns, merger integration, and strategic positioning. The bank’s disciplined approach to growth, capital allocation, and efficiency sets a strong foundation for improved profitability and shareholder value creation in 2026.

Industry Read-Through

Colony’s results and commentary reflect broader themes in regional banking: margin defense amid heightened competition, the importance of relationship-based deposit gathering, and a renewed appetite for M&A as industry consolidation accelerates. The rapid earn-back on merger dilution and focus on fee income diversification are key signals for regional peers, suggesting that disciplined integration and business line expansion will be critical differentiators in the year ahead. Banks that maintain pricing discipline and execute on cost saves are likely to outperform as the rate and competitive landscape evolves.

CBAN Financials Regional Banks Mergers Net Interest Margin Fee Income Deposit Growth Loan Growth