KBRA Affirms Ratings for Alpine Banks of Colorado

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Glenwood Springs, Colorado-based Alpine Banks of Colorado (OTC: ALPIB) ("Alpine" or "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 its main subsidiary, Alpine Bank. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The ratings are supported by Alpine’s low-cost core deposit base that has been a hallmark of its balance sheet for many years, generally representing 90% or higher of total funding. Total deposit costs have remained below peer averages at 1.41% for 1Q25 compared to 2.12% for all KBRA rated publicly traded banks, aided by the company's solid deposit market share in its operating markets, ranking in the top five for the state of Colorado (2nd among state-chartered banks) and its healthy level of noninterest-bearing accounts. Additionally, Alpine maintains a solid liquidity position with a below peer loan-to-deposit ratio of 70% as of 1Q25, offering a degree of funding flexibility. Given the company’s sizeable residential mortgage portfolio and lower loan to average earning asset mix (66% at 1Q25), asset yields have slightly trailed peers, notably, loan yields have been slower to reprice upwards in the higher interest rate environment resulting in a historically lower NIM in recent years, which has weighed on earnings with ROA tracking in the high-70 to mid-80 bp range. That said, it appears that NIM has troughed in 1Q24 with sequential NIM expansion since that time as management has allowed higher cost funding to run-off the balance sheet combined with the reinvestment of securities cashflows into higher yielding assets. Prospectively, as more asset repricing opportunities arise, and loan growth accelerates, we expect NIM to benefit, which, in turn, should support earnings closer to historical levels. Additionally, we note that earnings have been upheld by Alpine’s respectable level of revenue diversity, with noninterest income representing nearly 20% of revenues the past five years, which is largely comprised of more stable/recurring sources. Despite an idiosyncratic uptick in NPAs, which we believe does not present any material loss content as it is a sizable residential real estate property in a desirable location, credit quality remains a strength with negligible NCOs (5-yr average of 0.05%), which has been supported by minimal exposure to vulnerable lending segments as well as management’s disciplined underwriting. We believe that Alpine is well situated given its lower level of investor CRE (196% of total risk-based capital), notably, a minimal amount of office exposure and solid loan loss reserves representing 1.10% of loans as of 1Q25. ALPIB has steadily rebuilt risk-based capital metrics with CET1 at 12.2% as of 1Q25, though TCE remains below peers given the larger investment securities portfolio representing ~26% of total assets, which has been negatively impacted by AOCI impacts in the higher-rate environment.

Rating Sensitivities

An upgrade is unlikely over the medium term, though continued market share gains and geographic expansion paired with stronger profitability/capital and credit outperformance could result in positive rating momentum over the longer term. A downgrade is also not expected, though asset quality deterioration, notably, elevated charge-off activity, weaker capital levels, or substantial degradation in the funding profile could negatively impact ratings.

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Methodologies