Seacoast Banking Corporation of Florida — Q3 2023 Form 10-Q
Reporting period: Unaudited quarter and nine months ended September 30, 2023. Seacoast is a Florida-based bank holding company. The January 31, 2023 acquisition of Professional Holding Corp. added approximately $2.1 billion of deposits and $2.0 billion of loans; integration and system conversion were completed in June.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net interest income | $119.3 million | $88.3 million | $377.4 million | $246.5 million |
| Net interest margin, fully taxable equivalent | 3.57% | 3.67% | 3.91% | 3.44% |
| Provision for credit losses | $2.7 million | $4.7 million | $33.5 million | $12.1 million |
| Noninterest income | $17.8 million | $16.1 million | $61.8 million | $48.4 million |
| Noninterest expense | $93.9 million | $61.4 million | $309.3 million | $176.4 million |
| Net income | $31.4 million | $29.2 million | $74.5 million | $82.6 million |
| Diluted earnings per share | $0.37 | $0.47 | $0.89 | $1.33 |
- Q3 net income rose 7% year over year, while diluted EPS fell as average diluted shares increased to 85.7 million from 62.0 million, primarily reflecting acquisition-related share issuance. Nine-month net income declined 10% and diluted EPS declined 33% year over year.
- Q3 net interest income increased 35% year over year but fell 6% from Q2 2023. The Q3 margin was down from 3.86% in Q2, as higher deposit costs and an inverted yield curve outweighed higher asset yields. Q3 deposit cost was 1.79%, versus 1.38% in Q2 and 0.09% a year earlier.
- Management reported adjusted net income, a non-GAAP measure, of $39.7 million for Q3, up 21% year over year but down 19% from Q2. Nine-month adjusted net income was $118.2 million versus $96.2 million; adjusted diluted EPS was $1.41 versus $1.56.
- Q3 GAAP efficiency ratio was 62.60%, compared with 57.13% a year earlier; adjusted efficiency ratio was 60.19% versus 53.28%. These adjusted measures are non-GAAP.
Financial position, cash flow and credit
- At September 30, 2023, total assets were $14.8 billion, loans were $10.0 billion, deposits were $12.1 billion and shareholders’ equity was $2.05 billion. Compared with December 31, 2022, loans increased 23% and deposits increased 21%, primarily reflecting the Professional acquisition.
- Cash and cash equivalents were $696.0 million, up from $201.9 million at year-end. Nine-month operating cash flow was $120.7 million, down from $147.4 million; investing cash flow was positive $488.0 million, including acquisition-related cash and proceeds from sales of FHLB/Federal Reserve stock. Financing cash flow was negative $114.6 million.
- Liquidity sources included $5.7 billion of available borrowing capacity, in addition to cash. Uninsured deposits were 34% of deposits, or 29% excluding Florida public funds protected under the state program. Brokered deposits were $308 million.
- Debt included $110 million of FHLB borrowings, $276.5 million of customer repurchase agreements and $106.1 million of subordinated debt. The company and bank exceeded regulatory well-capitalized thresholds; the bank’s CET1 ratio was 13.17% and leverage ratio was 10.05%.
- The allowance for credit losses was $149.7 million, or 1.49% of loans, versus $113.9 million, or 1.40%, at year-end. Nine-month provision was $33.5 million, including $26.6 million related to Professional acquisition loans; net charge-offs were $16.6 million. Nonaccrual loans were $41.5 million, up from $28.8 million at year-end, and nonperforming assets were $48.7 million.
- Commercial real estate non-owner-occupied loans totaled $3.29 billion, or 32.8% of loans. The bank’s construction and land development and CRE concentration ratios were 51% and 248% of risk-based capital, respectively, below regulatory guidance levels of 100% and 300%.
Changes, outlook and risks
- Higher loan and securities yields and acquisition-driven balance growth lifted year-to-date net interest income, but rising funding costs pressured Q3 margin. The Florida Bar Association’s IOTA rate changes added an estimated five basis points to Q3 deposit costs. The Durbin Amendment began limiting debit interchange fees for Seacoast on July 1, 2023.
- Acquisition-related costs totaled $33.2 million for the first nine months. Q2 included $10.9 million of data-processing contract termination costs; Q3 included $3.2 million of severance-related expense following a 6% workforce reduction. Acquisitions also increased amortization of intangibles and FDIC assessments.
- Commercial originations declined 37% year over year for the first nine months. Management cited higher interest rates and a selective approach to new credit facilities amid a cautious economic outlook. The Q3 commercial loan pipeline rose from Q2 but remained below the prior-year level.
- The filing provides no specific earnings or revenue guidance. Management expected additional Q4 marketing investment to support deposit growth. Interest-rate modeling estimated a 14.3% reduction in projected 12-month net interest income under an instantaneous 300-basis-point rate increase, holding balances static; actual results may differ.
- Available-for-sale securities had $287.3 million of gross unrealized losses, versus $248.7 million at year-end, which management attributed to rates and spreads rather than credit deterioration. Accumulated other comprehensive loss was $212.3 million. Management stated it expected to recover amortized cost and recorded no securities credit-loss allowance.
- Key risks include deposit competition and funding costs, interest-rate sensitivity, Florida real estate and CRE concentration, credit quality and collateral values, acquisition integration, economic conditions, cybersecurity and vendor risks, and litigation. Management said pending legal proceedings were not expected to have a material adverse effect; no material change to previously disclosed risk factors was reported.
Important facts for investors to verify
- Whether deposit pricing and mix stabilize and net interest margin holds up as competition and market rates evolve.
- Credit trends, including nonaccrual loans, charge-offs, CRE exposures and the adequacy of the allowance, particularly as acquired loans season.
- Whether acquisition integration delivers expected efficiencies and offsets added expenses, goodwill and intangible amortization.
- The composition and stability of uninsured and brokered deposits, and continued access to stated liquidity sources.
- The sensitivity of tangible capital and securities values to interest rates; the filing’s rate-shock estimates rely on assumptions and static balance sheets.