SEACOAST BANKING CORP OF FLORIDA annual report, FY2023

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Seacoast Banking Corporation of Florida — FY2023 Form 10-K

Reporting period: Year ended December 31, 2023; fourth-quarter results are also summarized. Seacoast is a Florida-focused financial holding company providing banking and wealth, mortgage and insurance services. It completed its acquisition of Professional Holding Corp. on January 31, 2023, expanding its South Florida presence. At year-end, it had 77 Florida branches, $14.6 billion in assets and $11.8 billion in deposits.

Financial performance and position

  • FY2023 earnings: Net income was $104.0 million, down 2% from $106.5 million in 2022; diluted EPS was $1.23 versus $1.66. Adjusted net income, a non-GAAP measure, was $154.7 million, up 14%, and adjusted diluted EPS was $1.83 versus $2.12.
  • Revenue and margin: Net interest income was $488.2 million, up 33%; fully taxable-equivalent net interest margin (NIM) was 3.77%, compared with 3.69%. Net interest income plus noninterest income, including securities losses, totaled $567.4 million, versus $432.3 million. Higher earning-asset yields and acquisition-driven growth supported interest income, while higher deposit costs were a significant offset.
  • Other income and expenses: Noninterest income was $79.2 million, including $2.9 million of net securities losses. Noninterest expense rose 48% to $395.6 million, including $33.2 million in acquisition-related costs and $5.2 million for branch consolidation and other expense initiatives. Adjusted noninterest expense was $328.5 million, up 43%.
  • Credit costs: Provision for credit losses was $37.5 million, versus $26.2 million, including $26.6 million of day-one provision on acquired loans. Net charge-offs were $21.4 million, or 0.22% of average loans, compared with $0.8 million, or 0.01%, in 2022. The allowance was $148.9 million, equal to 1.48% of loans.
  • Fourth quarter: Net income was $29.5 million and diluted EPS was $0.35. Net revenue was $128.2 million, down 7% from both the prior quarter and prior-year quarter. NIM declined to 3.36% from 3.57% in Q3; deposit cost rose to 2.00% from 1.79%. Expenses declined 8% sequentially to $86.4 million, partly reflecting workforce reductions and expense discipline.
  • Balance sheet and liquidity: Assets grew 20% to $14.6 billion; loans rose 24% to $10.1 billion and deposits rose 18% to $11.8 billion. Cash and cash equivalents were $447.2 million, up from $201.9 million. Management reported $5.5 billion of available borrowing capacity. Estimated uninsured deposits were $4.1 billion, or 35% of deposits; excluding public funds with additional loss protection, uninsured and uncollateralized deposits were 29%.
  • Cash flow and funding: Operating cash flow was $150.6 million, down from $195.9 million. Investing activities provided $527.4 million, including acquisition-related cash; financing activities used $432.8 million. Year-end funding included $374.6 million in customer repurchase agreements, $50.0 million in FHLB borrowings and $106.3 million in long-term debt.
  • Capital: Shareholders’ equity was $2.1 billion. Consolidated CET1, Tier 1 and total risk-based capital ratios were 13.87%, 14.54% and 15.92%, respectively; the bank was above applicable well-capitalized standards. Tangible common equity to tangible assets was 9.31%.

Material changes and management commentary

  • Professional added approximately $2.1 billion in deposits and $2.0 billion in loans. Acquisition effects also increased goodwill and intangible assets and contributed to higher amortization and operating costs.
  • Average interest-bearing liability costs rose sharply as rates increased and deposit competition intensified. Average deposit cost increased to 1.50% from 0.11%; 89% of average deposits remained in savings, money-market and demand accounts.
  • Debit interchange income fell 19% for the year after the Durbin Amendment limits took effect for Seacoast in July 2023. Mortgage banking fees fell 49%, reflecting higher rates and limited housing inventory.
  • Management cited expense-management actions to improve efficiency in 2024, including a 6% workforce reduction completed in Q3; Q4 expenses were 8% below Q3. The filing provides no specific numerical earnings or revenue guidance.
  • Management’s rate simulation projected that an instantaneous parallel 200-basis-point rate increase would reduce net interest income by 9.2% over the next 12 months and 7.7% over months 13–24, all else held constant. It believes capital ratios will remain above well-capitalized requirements in 2024, based on current estimates.

Risks, contingencies and unusual items

  • Credit and collateral risks include Florida economic and real-estate exposure. The filing identifies commercial real estate concentration as significant; CRE exposure under the regulatory guidance measure was 244% of bank risk-based capital, below the 300% guidance threshold. Nonaccrual loans were $65.1 million (0.65% of loans), and nonperforming assets were $72.7 million (0.50% of assets), both higher than year-end 2022.
  • Available-for-sale securities had $217.7 million of gross unrealized losses at year-end; held-to-maturity securities had a $122.0 million fair-value shortfall to amortized cost. Management attributed losses to interest rates and spreads, reported no expected credit losses, and stated it had the intent and ability to hold the securities as needed.
  • Key uncertainties include deposit outflows and funding costs, interest-rate movements, economic and CRE deterioration, acquisition integration, regulatory changes, cybersecurity and third-party risks, and Florida hurricanes and insurance costs. A proposed debit interchange rule could further reduce fee income.
  • The company reported $2.7 billion of unfunded loan commitments. Management said pending or threatened legal proceedings were not expected to materially affect consolidated financial condition, results or cash flows. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
  • The company recognized $2.9 million of securities losses after repositioning part of its portfolio into higher-yielding securities; management estimated an earnback period of 1.3 years. The filing also reports $11.3 million of acquired-loan charge-offs, fully reserved at acquisition, with no impact on earnings or capital.

Important facts for investors to verify

  1. Whether deposit pricing, mix and retention stabilize, particularly given the $4.1 billion estimate of uninsured deposits and rising funding costs.
  2. Whether credit quality and provisioning remain adequate as nonaccrual loans and net charge-offs have increased, with particular attention to CRE and acquired loans.
  3. Whether reported NIM and earnings can be sustained as acquired-loan discount accretion declines and deposit costs continue to reprice.
  4. How the Professional integration and cost actions affect expenses, customer retention and realized acquisition benefits.
  5. How securities valuation, liquidity capacity and the disclosed rate-sensitivity scenarios evolve; compare adjusted non-GAAP results with GAAP results.