KBRA Affirms Ratings for Colony Bankcorp, Inc.

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Fitzgerald, GA-based Colony Bankcorp, Inc. (NYSE: CBAN) (“the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for Colony Bank ("the bank"), the main subsidiary. The Outlook for all long-term ratings is Stable.

The ratings are supported by CBAN’s durable branch-based deposit franchise, with a footprint concentrated in smaller markets that we view as exhibiting relatively low interest rate sensitivity, supporting funding costs that compare favorably to peers (1.73% which is 20 bps below KBRA-rated peer median). The core deposit base further supports the solid funding profile with core deposits representing 83% of total funding (5-year average of 87%), which remains supportive of the company's margin. CBAN’s diversified revenue stream is supported by a meaningful contribution from nonspread revenue (30% of total operating revenue for 2025), exceeding most rated peers. This provides an important offset to margin pressure, as the company's NIM has been constrained by a lower-yielding securities portfolio, with ~25% of earning assets generating a yield of only 20 bps above interest bearing liabilities. Nonspread revenue is anchored by stable, recurring fee-based sources, primarily driven by GoS of SBA loans and mortgage banking income, which supports overall earnings stability. However, the company’s operating structure continues to reflect pressure from its relatively smaller scale, branch-heavy operating model as well as merger-related expenses, which have weighed on earnings relative to peers in recent years. As a result, operating expenses remain elevated at 3.1% of average assets, though are expected to trend toward peer levels through 2026 as integration efforts advance and anticipated operating efficiencies are realized. The ratings also reflect conservative underwriting, a relatively granular loan portfolio, and manageable concentrations, which are viewed favorably. Following the transaction, the company experienced some negative credit migration, largely attributable to the assumption of approximately $6 million of nonperforming loans from the TC Bancshares, Inc. acquisition, with nonaccrual balances primarily concentrated in CRE and commercial, financial, and agricultural loans. Nevertheless, overall credit losses remain manageable at 0.25% for 2025, reflecting the bank’s historically disciplined credit culture and generally well-collateralized loan book. While capital metrics declined following the merger, CBAN’s loss absorption capacity – supported by the allowance for loan losses and its core capital position (CET1 of 12.7% at 4Q25) – remains appropriate for its overall risk profile, in our view. Capital ratios were bolstered by the $59.3 million common equity raise in 1Q22, supported by earnings accretion and modest loan growth. However, negative AOCI balances representing 9% of total shareholder equity, continues to weigh on the TCE ratio. Looking ahead, we expect capital to continue to build through internal capital generation and improving profitability, supported, in part, by the bank's liability-sensitive balance sheet positioning.

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