KBRA Affirms Ratings for Seacoast Banking Corporation of Florida

KBRA affirms the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, and the short-term debt rating of K2 for Stuart, Florida based Seacoast Banking Corporation of Florida (NASDAQ: SBCF) (“the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and the short-term deposit and debt ratings of K2 for its subsidiary, Seacoast National Bank. The Outlook for all long-term ratings is Stable.

SBCF’s ratings are supported by its well-executed strategy that has seen the company evolve into a leading community/regional bank franchise in the demographically attractive state of Florida. Though the company’s growth in recent years has been significant (essentially doubling in assets since 2018), we appreciate that the company’s above-peer growth has coincided with a strong financial profile, including solid core earnings (excluding merger impact), a favorable funding profile, and near peer leading core capital metrics. Regarding the latter, SBCF’s 2Q24 CET1 and TCE ratios of 14.1% and 9.3% exceed KBRA universal medians by ~240 bps and ~100 bps, respectively. In our opinion, such capital levels position the company well to navigate an economic downturn should one materialize. KBRA also views SBCF’s funding profile positively. While the company’s deposit costs have reset higher than many peers over the past year, we point out that recent deposit cost “underperformance” followed notable outperformance earlier in the Federal Reserve’s rate hike cycle, suggesting that a degree of reversion to peer performance was somewhat expected. Even with some negative deposit mix shift in recent quarters (a development hardly unique to SBCF), the company still reflects peer leading levels of noninterest bearing deposits (28%), below average total deposit costs, and a favorable proportion of granular, low-cost consumer/retail deposits (42% of total).

Asset quality trends at SBCF over the past year have been consistent with the modest credit normalization seen within the broader industry. In this sense, though SBCF has reflected an uptick in NPAs, during the year period ending 2Q24, at 0.63% of loans, they remain at relatively low levels. Similarly, NCOs have remained contained apart from sporadic elevated activity in select quarters related to the winddown of non-core acquired loan portfolios. KBRA considers the composition of SBCF’s loan portfolio favorably, noting higher than peer exposure to residential mortgage (traditionally a lower loss asset class) and lower exposure to investor CRE. At 222% of total risk-based capital, SBCF’s more limited exposure to investor CRE could prove beneficial to the company if industry concerns regarding commercial real estate are ultimately realized. Like most peers, SBCF’s core earnings have reset lower over the last twelve to eighteen months compared to the cyclically stronger returns recorded previous years, primarily due to NIM compression and declining net interest income. However, management believes 2Q24 represented a “trough” for the company’s earnings, with NIM expected to be higher in 2H24.

To access rating and relevant documents, click here.

Click here to view the report.

Methodologies