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. (NASDAQ: 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 main subsidiary. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The ratings are supported by CBAN’s durable, branch-based deposit franchise with a footprint largely in smaller Georgia markets that, in our opinion, reflects lower interest rate sensitivity and allows for lower funding costs than peers (1.91% total cost of deposits in 1Q24 compared to a KBRA-rated median of 2.36%). In addition, the company maintains a strong funding profile reflected by a core deposit to total funding ratio of 84% (5-year average of 90%). After CBAN’s $59.3 million common equity raise in 1Q22, accompanied by improved earnings accretion and a smaller balance sheet, the company has improved capital ratios to be more in line with peers. Although negative AOCI balances represent more than 20% of shareholder equity, sequential declines over the last few quarters have driven incremental improvements in the TCE ratio. M&A has been the main source of growth since 2019; however, CBAN is not presently contemplating acquisitions and is focusing on organic growth funded by relationship oriented deposit growth and capital accretion. CBAN’s operating structure and efficiency ratio are somewhat impacted by the bank’s branch-heavy model and prior merger related expenses pressuring earnings below similarly rated peers in recent years. However, CBAN has a diversified revenue stream with noninterest income contributing 34% to total operating revenue, a level stronger than most rated peer banks. KBRA views CBAN’s loss absorption capacity derived from the LLR, in combination with its core capital position (CET1 of 11.9% at 1Q24), to be appropriate for its risk profile. The company’s credit management practices appear to be conservative in nature in conjunction with a relatively stable credit profile as CBAN’s loan portfolio performed well throughout the pandemic and into the post-pandemic economy.

Rating Sensitivities

Improved profitability and further geographic diversification, combined with the maintenance of strong capital, credit quality and liquidity profiles, could lead to positive rating momentum over time. Conversely, significant deterioration in credit quality, with elevated credit costs adversely impacting earnings over an extended period, deteriorating capital levels inconsistent with the rating category, or significant runoff of core deposits could result in a negative rating action.

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