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 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 largely in smaller Georgia markets that, in our opinion, reflect lower interest rate sensitivity, supporting lower funding costs when compared to peers (1.96% total cost of deposits in 4Q24 compared to a KBRA-rated median of 2.25%). In addition, the company maintains a strong funding profile reflected by a core deposit to total funding ratio of 83% (5-year average of 88%). CBAN has a diversified revenue stream with a strong contribution of non-spread revenue (35% of total operating revenue for 2024), a level stronger than most rated peers, which is primarily derived of durable, stable fee income complemented by GoS of SBA loans and mortgage fee income. While the company’s earnings power has been pressured since the Federal Reserve began its aggressive interest rate hikes in 2022—consistent with trends impacting the broader industry—the 2024 ROA of 0.77% is viewed as adequate. Performance for 2024 was impacted by the conservative balance sheet composition with ~26% of earning assets held in investment securities with a yield that essentially matches the cost of funds. Also, the company’s operating structure and efficiency ratio are negatively impacted by its scale, the company’s branch-heavy model, and prior merger-related expenses, thus weighing on earnings relative to rated peers in recent years. That said, operating expenses have decreased since 2022, though remain slightly above peer averages at 2.7% of average assets at 4Q24. Following CBAN’s $59.3 million common equity raise in 1Q22, accompanied by improved earnings accretion and modest loan growth, the company has improved its capital ratios more in line with peer averages. However, negative AOCI balances represent ~17% of shareholder equity pressuring the TCE ratio. CBAN’s loss absorption capacity derived from the LLR in addition to its core capital position (CET1 of 13.1% at 4Q24), is, in KBRA’s view, appropriate for its overall 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. M&A has been the main source of growth since 2019, and management indicated that CBAN may participate in additional transactions opportunistically, focusing on expansion into adjacent markets. Despite the inherent integration risk, we recognize the company’s successful M&A track record to date.

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