Seacoast Banking Corporation of Florida — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. Seacoast is a Florida-focused financial holding company providing commercial and retail banking, wealth management, and mortgage services through Seacoast National Bank.
Financial performance and condition
| Metric | 2019 | 2018 |
|---|---|---|
| Total assets, year-end | $7.11 billion | $6.75 billion |
| Loans, year-end | $5.20 billion | $4.83 billion |
| Deposits, year-end | $5.58 billion | $5.18 billion |
| Net income | $98.7 million | $67.3 million |
| Diluted EPS | $1.90 | $1.38 |
| Net interest margin, tax-equivalent | 3.92% | 3.85% |
| Return on average assets | 1.45% | 1.11% |
| Efficiency ratio | 51.71% | 59.98% |
| Operating cash flow | $117.7 million | $129.6 million |
Adjusted net income, a non-GAAP measure, was $104.6 million and adjusted diluted EPS was $2.01, compared with $79.1 million and $1.62 in 2018. Management reports 15% GAAP revenue growth and a 1% decline in noninterest expense. Noninterest income excluding securities gains rose 10% to $55.5 million; provision for loan losses was $11.0 million.
Year-end shareholders’ equity was $985.6 million, up 14%. Consolidated regulatory capital ratios were strong: total risk-based capital 15.71%, Tier 1 15.06%, CET1 13.77%, and leverage 12.20%. Seacoast reported $124.5 million in cash and cash equivalents. Borrowings included $315 million of FHLB advances, $71.1 million of subordinated debt, and $86.1 million of repurchase agreements. The company paid no common dividends in 2019.
Changes versus 2018
- Net income rose 47%, while diluted EPS increased from $1.38 to $1.90. Growth reflected higher net interest income, the full-year contribution of the 2018 First Green acquisition, and lower reported expenses.
- Loans grew 8% year over year; deposits grew 8%. Average loans increased 20%, while average securities balances declined 10%.
- Net interest income on a fully taxable-equivalent basis increased 15% to $244.0 million. Margin improved 7 basis points for the year, although it fell to 3.84% in the fourth quarter as asset yields repriced lower.
- Reported noninterest expense declined 1%; the efficiency ratio improved by more than eight percentage points. The 2018 comparison included $9.7 million of First Green merger costs. In 2019, branch consolidations and other cost initiatives generated approximately $10 million in pretax expense reductions.
- Net charge-offs increased to $8.1 million from $6.2 million, or 0.16% of average loans versus 0.15%. The allowance for loan losses rose to $35.2 million from $32.4 million.
Outlook, risks and unusual items
- Acquisitions: At the filing date, the First Bank of the Palm Beaches and Fourth Street Banking Company/Freedom Bank acquisitions were pending, subject to approvals and other closing conditions. Management expected closings in the first and second quarters of 2020, respectively, and projected more than 5% EPS accretion in 2021 and thereafter. Integration costs, customer attrition, regulatory approvals, and realization of expected savings were identified risks.
- Operating targets: Management expected the adjusted efficiency ratio to rise modestly above 50% in the first half of 2020 and fall below 50% exiting 2020. Its Vision 2020 targets included return on tangible assets above 1.30%, return on tangible common equity above 16%, and an efficiency ratio below 50%; 2019 adjusted results were 1.58%, 14.93%, and 50.90%, respectively.
- Credit concentration: CRE loans were 46% of the loan portfolio. Management reported nonperforming loans of $27.0 million, or 0.52% of loans, and nonperforming assets of $39.3 million. Florida real estate and economic conditions, borrower performance, and the adequacy of loan-loss reserves remain significant risks.
- CECL adoption: Effective January 1, 2020, the new expected-credit-loss standard was estimated to increase the allowance by approximately $19–$23 million, raise the allowance-to-loans ratio from 0.68% to 1.06%–1.12%, and reduce the Tier 1 capital ratio by about 32 basis points. The company expected greater future quarterly provision volatility.
- Funding and rates: Brokered CDs rose to $472.9 million from $220.6 million; all were due to mature in 2020. Rising funding costs, deposit competition, interest-rate changes, and the transition away from LIBOR were cited as risks. The company’s interest-rate simulations indicated projected 12-month net interest income increases of 1.6% under a 100-basis-point rise and decreases of 1.5% under a 100-basis-point decline.
- Unusual items: A Florida corporate tax-rate change caused $1.1 million of deferred-tax-asset write-down expense. Other 2019 items included a $1.0 million BOLI death benefit and $1.2 million in net securities gains. Management reported $16.5 million of net deferred tax assets and no valuation allowance.
- The auditor gave an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded controls were effective. The auditor identified qualitative loan-loss factors as a critical audit matter. Management said ordinary-course legal proceedings were not expected to have a material effect.
Most important facts for investors to verify
- Whether the pending acquisitions closed as expected, and whether announced EPS accretion and cost savings were achieved without material integration or customer-retention costs.
- The actual CECL opening adjustment and subsequent allowance, credit costs, and capital effects compared with the estimates disclosed.
- Trends in CRE concentration, nonperforming assets, charge-offs, and reserve coverage, particularly under weaker Florida economic or real-estate conditions.
- Deposit mix and pricing, brokered-CD maturities, liquidity sources, and the effect of funding costs and rate changes on net interest margin.
- Progress toward management’s efficiency and return targets, with attention to the distinction between GAAP results and non-GAAP adjusted measures.