Seacoast Banking Corporation of Florida — Q3 2022 Form 10-Q
Business context and period. This unaudited quarterly report covers the three and nine months ended September 30, 2022; balance-sheet comparisons are with December 31, 2021. Seacoast is a Florida-focused bank holding company. Results include the January 2022 acquisitions of Business Bank of Florida and Sabal Palm Bancorp.
Financial results and condition
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net interest income | $88.3 million | $71.3 million | $246.5 million | $203.7 million |
| Provision for credit losses | $4.7 million | $5.1 million | $12.1 million | $(5.5) million |
| Noninterest income | $16.1 million | $19.0 million | $48.4 million | $52.0 million |
| Noninterest expense | $61.4 million | $55.3 million | $176.4 million | $147.2 million |
| Net income | $29.2 million | $22.9 million | $82.6 million | $88.1 million |
| Diluted earnings per share | $0.47 | $0.40 | $1.33 | $1.56 |
- Margins and operating performance: Fully taxable-equivalent net interest margin was 3.67% in Q3, up from 3.22% a year earlier and 3.38% in Q2 2022. The reported efficiency ratio was 57.13%, versus 59.55% a year earlier; the adjusted ratio was 53.28% (a non-GAAP measure). Adjusted Q3 net income was $32.8 million, or $0.53 per diluted share.
- Balance sheet at September 30: Total assets were $10.35 billion, loans $6.69 billion, deposits $8.77 billion, and shareholders’ equity $1.29 billion. Since year-end 2021, loans increased $765.8 million and deposits increased $697.8 million, reflecting organic growth and acquisitions.
- Credit quality: The allowance for credit losses was $95.3 million, or 1.42% of loans. Nonperforming assets were $23.9 million, down from $44.2 million at year-end 2021; nonaccrual loans were $21.5 million. Q3 net charge-offs were $0.1 million.
- Cash flow and liquidity: For the first nine months, operating activities provided $147.4 million; investing activities used $748.7 million; financing activities provided $82.2 million. Cash and cash equivalents fell to $218.6 million from $737.7 million at year-end, mainly as funds went into securities and loan growth. Seacoast reported $165 million of available unsecured credit lines and $2.1 billion of secured lines, subject to change.
- Funding and debt: Deposits were the primary funding source. Repurchase agreements were $94.2 million and subordinated debt was $71.9 million; the filing reports no FHLB borrowings at the periods presented. The company and bank exceeded regulatory well-capitalized thresholds.
Material changes and notable items
- Year-to-date net income declined 6% despite higher net interest income. The prior-year period included a $5.5 million provision reversal, while 2022 included acquisition-related credit provisions and a $2.1 million allowance increase for possible Hurricane Ian impacts.
- Q3 available-for-sale securities had $246.7 million of gross unrealized losses, compared with $20.9 million at year-end 2021, primarily reflecting higher interest rates and wider investment spreads. The resulting nine-month after-tax securities-related other comprehensive loss was $180.2 million, reducing reported equity. Management attributed the losses to market movements rather than credit deterioration and recorded no securities credit-loss allowance.
- Mortgage banking income weakened: nine-month mortgage banking fees fell 69% year over year, which management attributed to higher rates and limited housing inventory. Noninterest expense increased 20% year over year for the first nine months, including higher staffing, growth, technology, and acquisition-related costs.
- On October 7, 2022, after quarter-end, Seacoast completed the Apollo Bancshares and Drummond Banking Company acquisitions. A proposed Professional Holding Corp. acquisition was expected to close in Q1 2023, subject to shareholder approval and customary conditions.
Outlook, risks, and contingencies
- Management expected high-single-digit annualized loan growth excluding acquisitions in Q4 2022, and expected rising rates to support net interest income and margin as assets reprice faster and more than liabilities.
- Management expected the adjusted efficiency ratio to remain in the low-to-mid 50% range in Q4. It also expected Q4 expenses to rise, particularly from the Apollo and Drummond acquisitions and continued investment in talent and growth.
- Key risks include interest-rate changes and securities valuation, inflation and recession concerns, Florida real-estate and commercial real-estate concentration, borrower credit performance, acquisition integration and customer retention, and Hurricane Ian’s still-uncertain effects. Commercial real estate was 50% of loans; management reported concentrations below regulatory guidance thresholds.
- Management stated that pending legal proceedings were not expected to have a material adverse effect and reported no significant contingent-liability accruals. Disclosure controls were judged effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether deposit costs rise faster than management expects and how that affects net interest margin and funding mix.
- Whether the securities portfolio’s unrealized losses remain non-credit-related and how further rate changes affect equity and liquidity.
- Loan growth, credit deterioration, and the adequacy of the allowance, particularly after Hurricane Ian and under weaker economic scenarios.
- Actual integration costs, deposit retention, and performance of Apollo and Drummond; progress and final terms for the proposed Professional transaction.
- Adjusted earnings, efficiency, and return measures are non-GAAP; review the filing’s reconciliations alongside GAAP results.