KBRA Affirms Ratings for Dickinson Financial Corporation II

KBRA affirms the senior unsecured debt ratings of BBB, subordinated debt ratings of BBB-, and short-term debt ratings of K3 for Kansas City, Missouri based Dickinson Financial Corporation II ("Dickinson", "the company", or "DFCII") and intermediate holding company, Dickinson Financial Corporation ("DFC"). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+ and short-term deposit and debt ratings of K2 for its subsidiaries, Academy Bank, N.A. ("AB") and Armed Forces Bank, N.A. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The ratings remain supported by Dickinson's robust capitalization, with a consolidated CET1 ratio of ~17% and total risk-based capital ratio of ~20% comparing favorably to rated peers. That said, Dickinson's private ownership limits access to external common equity and increases reliance on internally generated capital to fund balance sheet growth, shareholder distributions, and potential acquisitions.

Earnings have demonstrated relative stability over the last several years with an ROA tracking around 1%, and improvement over the last year has been supported by NIM expansion and disciplined expense management. There are additional realizable repricing benefits on both sides of the balance sheet over the near term, given the substantial fixed-rate portions of both the loan and deposit books. The mortgage businesses provide a natural hedge to a moderately asset sensitive balance sheet and have demonstrated relative resilience amidst more constraining market conditions. Total noninterest contribution typically represents ~40% of total revenues, a level well-above peers. The developing Embedded Banking business, as well as continued technology deployment for process efficiency and automation along with continued refinement of the branch footprint, represent opportunities to bolster earnings over the medium term.

Asset quality remains adequate for the current ratings, though metrics have demonstrated normalization, particularly at AB. The NCO ratio is typically elevated relative to the KBRA-rated peer set, with overdraft NCOs driving a portion of charge-off activity, though partly offset by overdraft fee income. Dickinson maintains elevated ACL coverage relative to peers, partially mitigating credit risk, and while consolidated C&D and investor CRE as a portion of total loans are generally in-line with the peer set, the substantially above peer capital position results in consolidated concentrations relative to risk-based capital which are generally conservative relative to rated-peer set averages.

The consolidated funding profile is characterized by complementary core deposit franchises, limited brokered funding reliance, and moderate balance sheet leverage. However, deposit costs remain somewhat elevated, partly reflecting a comparatively large CD portfolio along with the recently launched digital sub-brand, which offers online high yield savings accounts. Dickinson maintains on-balance sheet liquidity (cash and unpledged securities) representing ~18% of total assets, supplemented by FHLB borrowing capacity. Holding company liquidity management at DFC and DFCII is appropriate, in our view.

Rating Sensitivities

Greater market penetration across the company’s footprint, sustained improvement in profitability and asset quality, and maintenance of strong capital and funding profiles could support positive rating momentum over the longer term. Conversely, while a rating downgrade is not anticipated, more aggressive capital management, including M&A activity that materially weakens regulatory capital ratios without a credible plan to rebuild capital to levels at or above peer averages, or sustained deterioration in asset quality or other key financial metrics, could result in negative rating pressure.

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