KBRA Assigns Ratings to Southern First Bancshares, Inc.

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Kroll Bond Rating Agency (KBRA) assigns a senior unsecured debt rating of BBB, subordinated debt rating of BBB-, and short-term debt rating of K3 for Greenville, South Carolina-based Southern First Bancshares, Inc. (NASDAQ: SFST) (the company). In addition, KBRA assigns deposit and senior unsecured debt ratings of BBB+, a subordinated debt rating of BBB, and short-term deposit and debt ratings of K2 for the subsidiary bank, Southern First Bank. The Outlook for all long-term ratings is Stable.

The ratings are supported by a highly experienced and capable management team with deep-rooted knowledge of its footprints and execution of a consistent organic growth strategy that has resulted in solid market share in its home market. Additionally, reflecting a prudent credit culture and disciplined approach to managing operating efficiency, the company has demonstrated strong through-the-cycle asset quality, including low credit costs, and sustained favorable overhead cost metrics. The company has been profitable every year since inception with nominal charge-offs during the financial crisis. Additionally, the companys bottom line profitability has trended positively with recent performance tracking above peers, boosted by cyclically strong mortgage banking income, a well-diversified loan portfolio, and reinforced by the aforementioned operating efficiency. The funding profile is anchored by a large core deposit base, underpinned by diverse deposit relationships. Core capital is conservatively managed at sufficient levels given the companys consistent credit risk profile. The ratings are primarily constrained by high reliance on spread-derived income and relatively limited noninterest income scale and diversity outside of mortgage banking, which is correlated to the lending business. A narrow geographic footprint is also a limiting rating factor, though its Southeast MSAs are viewed as possessing favorable economic prospects. While NIM tracks in line with peers, NIM pressure has increased in recent periods with deposit costs trending above peer average, though partly buffered by a solid 20% noninterest-bearing deposit mix.

To view the rating report, click here.

The ratings are based on KBRAs Global Bank and Bank Holding Company Rating Methodology published on February 19, 2016.

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KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.

Analytical:

Bryan So, Director

(301) 969-3246

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Joe Scott, Managing Director

(646) 731-2438

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