KBRA Affirms Ratings for BancPlus Corporation

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Ridgeland, MS based BancPlus Corporation ("BancPlus" 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 BankPlus, the main subsidiary. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

BancPlus’ funding profile is solid and represents a key strength supporting the ratings. The company is 86% core deposit funded and notable market share in its key geographies (especially the Jackson, MS MSA), combined with a robust branch network, contributes to deposit costs moderately below peers (1H23 144 bps vs 151 bps for peers). Furthermore, we note that the company’s deposit costs have remained below peer through multiple rate cycles, which is representative of a durable franchise. Also supporting the ratings is BancPlus’ peer leading levels of noninterest income (~21% of revenues) comprised of relatively stable fee/service charge income, wealth management, card interchange fees, and brokerage and insurance fees. Residential mortgage production, while volatile due to rate cyclicality, strongly benefited the company during the historic mortgage origination and refinance boom, though production has dropped off in 2023. BancPlus’ asset quality has been sound in contemporary periods, and we note the company’s marked improvement regarding credit performance over time as evidenced by a steady decline in NPAs and NCOs over the last five years. The company navigated the pandemic well and emerged with NPA and NCO levels in line with similarly rated peers. Still, elevated exposure to C&D lending (~108% of risk-based capital) poses potential risk. Capital has historically been maintained at adequate levels, and we attribute the decline in capital ratios in the last several years to be largely related to two bank acquisitions. In 2Q22, the company participated in the U.S. Treasury’s Emergency Capital Investment Program (ECIP) and received $250 million of non-cumulative, perpetual preferred stock that carries a maximum coupon rate of 2%. The preferred equity has attributes similar to permanent capital and, if treated as supplemental common equity, returns capital metrics to levels in line with peers. CECL was implemented January 1, 2023, with the LLR now at 1.07% of loans, representing a significant increase and more consistent with peer levels. Overall, we consider loss absorbing capacity to be appropriate for the company’s risk profile.

Rating Sensitivities

A rating upgrade is not expected in the intermediate term. Core regulatory capital, specifically the CET1 ratio, decreasing further could result in a negative rating action. In addition, significant deterioration in credit quality, with elevated credit costs, or increasing funding costs that materially impact earnings over multiple quarters could pressure ratings.

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