Business context and reporting period
Seacoast Banking Corporation of Florida (Nasdaq: SBCF) filed this unaudited Form 10-Q for the quarter ended March 31, 2022. It is a Florida-focused regional bank holding company. Results include the January 3 acquisitions of Business Bank of Florida and Sabal Palm Bancorp; comparisons are with Q1 2021 unless noted.
Financial and operating performance
- Earnings: Net income was $20.6 million and diluted EPS was $0.33, versus $33.7 million and $0.60 a year earlier. Adjusted net income, a non-GAAP measure, was $27.1 million and adjusted diluted EPS was $0.44; adjustments principally included $6.7 million of merger-related charges and intangible amortization.
- Revenue and costs: Net interest income was $76.5 million, up 15%; noninterest income was $15.4 million, down 13%. Noninterest expense increased 28% to $58.9 million, reflecting acquisition costs, added staff and operating costs. The reported efficiency ratio rose to 62.33% from 53.21%; adjusted efficiency ratio was 54.86% versus 51.99%.
- Margins: Fully tax-equivalent net interest margin was 3.25%, down from 3.51% a year earlier, but up from 3.16% in Q4 2021. Management cited higher securities and non-PPP loan yields, partly offset by lower PPP income. Cost of deposits was 0.06%, versus 0.13% a year earlier.
- Credit: Provision for credit losses was $6.6 million, compared with a $5.7 million provision reversal in Q1 2021; Q1 2022 included $5.1 million related to the acquisitions. Net charge-offs were $0.1 million. Allowance for credit losses was $89.8 million, or 1.40% of loans excluding PPP loans. Nonperforming assets were $37.8 million, 0.35% of assets, down from $44.2 million at year-end.
- Balance sheet and liquidity: Total assets were $10.9 billion, up 13% from year-end; loans were $6.45 billion and deposits $9.24 billion. Cash and cash equivalents increased to $1.22 billion from $737.7 million. Cash from operations was $54.5 million; investing activities used $178.5 million and financing activities provided $608.8 million, including deposit growth and acquisition effects.
- Debt and capital: Subordinated debt was $71.7 million; customer repurchase agreements were $120.9 million, and the company reported no FHLB borrowings. Consolidated total risk-based capital was 17.72%; the bank’s CET1 ratio was 15.27%. Equity was $1.36 billion. The company paid a $0.13-per-share dividend during Q1.
Material changes versus comparable periods
- Q1 acquisitions added $367.9 million of loans and $562.3 million of deposits, contributed to asset and loan growth, and increased the share count. Total loans grew $526.2 million from year-end; excluding acquisitions and a $111.3 million purchased residential loan pool, management reported annualized loan growth of 7%.
- Net interest income improved, but earnings declined as the prior-year quarter included a $5.7 million credit-loss provision reversal, while Q1 2022 included acquisition-related provisioning and higher merger and operating expenses.
- Rising rates reduced the fair value of available-for-sale securities: gross unrealized losses increased to $97.6 million from $20.9 million at year-end. The resulting $66.0 million after-tax other comprehensive loss reduced reported equity; management attributed the declines to market rates and spreads, not credit deterioration, and recorded no securities credit-loss allowance.
- Mortgage banking fees fell 60% year over year, reflecting limited housing inventory and slowing refinancing. Commercial loan originations increased 83% year over year and the period-end commercial pipeline rose to $619.5 million.
Outlook, commentary and risks
- Management expected higher rates to benefit net interest income and margin, citing an asset-sensitive balance sheet; its static-balance model projected net interest income increases of 6.8% and 13.8% under +100 and +200 basis-point rate shocks over 1–12 months. Actual results depend on balance growth, deposit repricing and other assumptions.
- Management expected high-single-digit annualized loan growth and mid-single-digit deposit growth for the rest of 2022, excluding acquisitions. It expected $150–$250 million of net securities growth in Q2.
- Management expected Q2 adjusted efficiency below 55%, declining through the year toward the low 50s for full-year 2022. It also anticipated higher Q2 expenses and increased Q2 noninterest income.
- The quarterly dividend was increased from $0.13 to $0.17 per share for Q2, subject to board discretion and regulatory constraints.
- Apollo Bancshares was proposed for acquisition, with a target close early in Q4 2022, subject to approvals and other conditions. Drummond Banking Company was announced as a proposed acquisition on May 4, 2022, also targeting early Q4.
- Key risks include Florida and commercial real estate concentration, interest-rate and securities valuation exposure, inflation and economic uncertainty, acquisition integration and execution, credit-loss estimation, and LIBOR transition. Management said there were no material changes to previously disclosed risk factors and no known legal proceedings expected to materially affect results.
Important facts for investors to verify
- Reconcile the GAAP earnings decline with adjusted earnings and the timing and amount of acquisition-related expenses and credit provisions.
- Track deposit retention, funding costs and asset repricing as rates rise, alongside the assumptions behind management’s interest-rate sensitivity projections.
- Monitor securities marks and tangible capital: the Q1 AFS-related loss materially reduced accumulated other comprehensive income, although management expected recovery and reported no credit-loss allowance.
- Assess acquired-loan quality, allowance adequacy, Florida CRE exposure and whether loan and deposit growth targets are achieved organically.
- Confirm completion, approvals, integration costs and expected benefits for the Apollo and Drummond transactions; both remained proposed acquisitions in the filing.