KBRA Affirms Ratings for Southern BancShares (N.C.), Inc. - Southern Bancshares NC (OTC:SBNC)

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Mount Olive, NC-based Southern BancShares ( N.C.), Inc. SBNC ("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 Southern Bank and Trust Company, the main subsidiary. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

SBNC's ratings are supported by a conservative credit and growth culture, which is a function, in our view, of the company's ownership profile (one family and related members have owned half or more of SBNC since the late 1960s). As such, we consider SBNC less inclined than public peers to chase outsized growth, and management is generally reluctant to concede on underwriting standards or credit quality for the sake of growth or margin. Correspondingly, the bank's asset quality performance during and since the global financial crisis (GFC) has been excellent, and NCOs have averaged 0.02% over the past five years. Furthermore, SBNC remained profitable throughout the GFC and never recorded an annual loss. A strong funding profile also supports SBNC's ratings, with the company 89% core deposit funded. The company's attractive funding mix, combined with solid market share in its core operating geographies, contributes to a low-cost deposit base (71 bps at 1Q23 compared to 127 bps for the KBRArated universe of publicly traded banks) that has displayed durability through multiple rate cycles and compares favorably to the rating group. SBNC holds an on-balance sheet investment in equity securities of ~$220 million that is marked-to-market each quarter under ASU 2016-01 accounting standards which creates GAAP earnings exposed to volatile market valuations. As a result, the company's earnings metrics display a greater degree of variability than rated peers. Still, accounting nuances aside, KBRA views SBNC's earnings profile as adequate for the rating category, and we estimate the company's average "core" ROA was 1.09% over the previous nine quarters.