KBRA Affirms Ratings for Seacoast Banking Corporation of Florida Following Acquisition Announcement

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”) following the recently proposed acquisition announcement of Villages Bancorporation, Inc. ("VBI"). 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 SBCF's subsidiary, Seacoast National Bank. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

On May 29, 2025, Seacoast Banking Corporation of Florida and Villages Bancorporation, Inc. announced that they have entered into a definitive merger agreement for SBCF to acquire Orlando-area VBI in a 25%/75% cash/stock deal expected to close in 4Q25. With respect to deal terms, the transaction is valued at approximately $711 million, or 1.61x P/TBV. Pro forma ownership is estimated to be comprised of roughly 81% SBCF shareholders vs. 19% VBI (inclusive of non-voting preferred shares on a fully converted basis). SBCF plans to record a 6.4% cumulative gross loan mark on VBI’s loan portfolio, including a ~3.5% interest rate mark and a ~2.9% credit mark. The proposed deal will create a pro-forma institution with $21 billion of assets, $17 billion of deposits, and $12 billion of loans, and the combined company will operate 100+ branches across its home state of Florida. Transaction due diligence appears to be adequate with 100% of VBI’s loans >$3 million reviewed in addition to all criticized and classified loans.

Villages Bancorporation, Inc. is the bank holding company of Citizens First Bank, established in 1991 by the developers of “The Villages” – the largest master planned 55+ residential community in the U.S. catering predominantly affluent retirees. The Villages community is home to approximately 150,000 residents in over 77,000 homes spanning 60,000 acres with more than 6 million square feet of commercial space spanning retail, office, and professional uses. VBI is the only community bank within The Villages and reflects a 53% deposit market share in the Villages MSA. The Villages II development is in progress, with enough land to double The Villages in size over the next 15 to 20 years. As an affiliate of the developer, VBI has had first mover rights allowing it to select branch locations in new developments prior to competitors, a feature which will be retained by SBCF on a go-forward basis.

We view SBCF’s planned acquisition of $4.1 billion asset VBI consistent with the company’s long demonstrated acquisitive growth strategy designed to create the #1 “Pure Play” Florida public bank. In this sense, the VBI deal will further densify SBCF’s existing presence in the Orlando MSA and create the second largest publicly traded bank domiciled in Florida (as measured by Florida-based deposits and excluding Raymond James Financial, Inc.). We also view the transaction as relatively low-risk in nature given the composition of VBI’s balance sheet. With loan-to-deposit ratio of 38%, a related low risk-weighted asset density of 67%, and 27% of loan portfolio to traditionally low loss 1-4 family residential lending, we view credit risk in the acquisition as rather limited. Certainly, VBI’s past performance reflects as much, with the company’s NPA and NCO ratios averaging 0.14% and 0.00% on a quarterly basis since 2016. Additionally, and somewhat uniquely, given VBI’s balance sheet composition, the combined institution is expected to reflect lower CRE/C&D concentration and greater liquidity than that reflected by SBCF today (and we note SBCF as a standalone entity has historically reflected lower CRE/C&D concentration and greater liquidity than most peers).

The rationale for the deal seems straightforward, in our view, with SBCF planning to use low-cost excess liquidity available on VBI’s balance sheet to support higher yielding asset growth. With a low-cost deposit base (cost of deposits of 1.40% in 1Q25) that exhibited a low beta in the rising rate environment of 2022-2024, SBCF expects to deploy VBI’s deposit funding more into loan growth as opposed to securities purchases (the latter more heavily utilized by VBI historically). As such, upon deal completion, SBCF is expected to reposition VBI’s $2.5 billion available-for-sale securities portfolio, which currently features a yield (3.38%) well below market rates, and reinvest the proceeds into higher yielding assets. This reinvestment of low-cost liquidity into higher yielding assets is expected to enhance SBCF’s profitability, with the company modeling a FY26 ROAA of 1.31%, which includes anticipated cost savings equal to 27% of VBI’s noninterest expense base. Furthermore, we believe there is ample opportunity for SBCF to provide its more comprehensive wealth management and insurance product offerings to VBI’s existing affluent retiree customer base.

With the numerous positive aspects and inherent risk mitigants to the deal noted above, a less constructive aspect of the deal, in our opinion, is the material depletion of SBCF’s core capital ratios. Given the partial cash component of transaction consideration, the interest rate/credit marks on VBI’s loan book, and the 1.61x TBV price paid, SBCF’s CET1 ratio is expected to fall from 14.1% in 1Q25 to a pro-forma figure of 10.8% at deal close. On one hand, while the expected 330 bp decline in SBCF’s CET1 ratio marks a deviation from where the company has managed the ratio historically, our indication from management is that the company expects to rebuild core capital rather quickly following deal close back to levels more consistent with peers. More specifically, pro-forma CET1 is estimated to reach 12%+ by YE27. Paramount to SBCF’s existing ratings is the anticipated, steady rebuild of core capital following deal close. KBRA also continues to acknowledge the potential risks associated with SBCF’s brisk, M&A-inspired growth, including 10 whole bank acquisitions completed since 2019 (including VBI) for ~$11 billion in assets. Most recently, in addition to the announced VBI deal, in February 2025, SBCF announced its planned acquisition of Sebring, FL - based Heartland Bancshares, Inc. ($763 million in assets) in a 50% cash/stock deal valued at $110 million. A partial risk-mitigant to the acquisitive growth strategy is SBCF’s focus on acquiring banks in its home state of Florida as opposed to out-of-market deals. SBCF’s ratings include our assumption that the company will successfully integrate its acquisitions and that acquired loan portfolios will not result in credit disruption at the broader institution.

Rating Sensitivities

Positive rating momentum could develop over the longer term if SBCF successfully integrates recent acquisitions, continues to scale, and continues to reflect capital, funding, and asset quality profiles that compare favorably to peers. The affirmation of SBCF's ratings at the current levels and maintenance of the Stable Outlook reflect our assumption (consistent with management's guidance) that SBCF will steadily rebuild core capital higher following the closing of its acquisition of VBI. Should the company's core capital ratios not return to levels more consistent with peers following deal close, we could revisit the ratings. Additionally, should acquired loan portfolios cause credit disruption at SBCF to the extent that the broader institution reflects greater-than-peer deterioration in asset quality metrics, negative rating movement could occur.

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