Seacoast Banking Corporation of Florida — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Unless noted, amounts are in U.S. dollars. The filing is unaudited. Results include Professional Holding Corp. from its January 31, 2023 acquisition.
Financial performance
- Net interest income: $131.2 million, up 71% from $76.5 million in Q1 2022. Fully tax-equivalent net interest margin was 4.31%, versus 3.25% a year earlier and 4.36% in Q4 2022.
- Profit: Net income was $11.8 million, down 43% from $20.6 million in Q1 2022; diluted EPS was $0.15 versus $0.33. The company reported non-GAAP adjusted net income of $29.2 million and adjusted diluted EPS of $0.36; these measures exclude specified items and are not substitutes for GAAP results.
- Credit provision and expenses: Provision for credit losses was $31.6 million, including $26.6 million recorded for Professional-acquired loans. Noninterest expense was $107.5 million, up 82% year over year, including $17.5 million in merger-related charges. The reported efficiency ratio was 65.43%; adjusted efficiency ratio was 53.10%.
- Revenue and margins: Noninterest income was $22.4 million, up 46% year over year. Loan yield rose to 5.86%, while deposit cost rose to 0.77% from 0.06% a year earlier. Management cited higher asset yields and balances, partly offset by rising deposit costs and an inverted yield curve.
- Cash flow: Cash provided by operating activities was $13.0 million, versus $54.5 million in Q1 2022. Cash and cash equivalents increased by $589.3 million during the quarter to $791.2 million; acquisition and financing flows contributed to the increase.
Financial position and material changes
- Scale and acquisition: Total assets were $15.3 billion, up 26% from year-end 2022, primarily reflecting Professional, which added approximately $2.7 billion in assets, $2.1 billion in deposits and $2.0 billion in loans. The acquisition purchase price was $421.0 million, primarily in Seacoast shares; recorded goodwill was $248.1 million. Integration and systems conversion were expected to finish late in Q2 2023.
- Loans and credit: Loans were $10.1 billion, up $2.0 billion from year-end, mostly from Professional. The allowance for credit losses was $155.6 million, or 1.54% of loans, compared with 1.40% at year-end. Nonaccrual loans were $50.8 million, up from $28.8 million; nonperforming assets were $58.5 million. Net charge-offs were $3.2 million.
- Deposits and liquidity: Deposits totaled $12.3 billion, up 23% from year-end, mainly due to the acquisition. Noninterest-bearing demand deposits were 37% of deposits, compared with 41% at year-end. The company reported $5.6 billion of available borrowing capacity in addition to cash. Uninsured deposits were 36% of deposit accounts, including public funds protected under Florida’s qualified public depository program; uninsured and uncollateralized deposits were 32% of total deposits.
- Borrowings and capital: At quarter-end, FHLB borrowings were $385.0 million, subordinated debt was $105.8 million, and customer repurchase agreements were $267.6 million. The consolidated total risk-based capital ratio was 14.62%; the company and bank exceeded applicable well-capitalized thresholds. Tangible common equity to tangible assets was 8.36%; the company illustrated that it would be 7.77% if held-to-maturity securities were carried at fair value.
- Securities: Available-for-sale securities had $224.8 million of gross unrealized losses at quarter-end, compared with $248.7 million at year-end. Management attributed losses to interest rates and investment spreads, expected recovery of amortized cost, and recorded no credit-loss allowance. Held-to-maturity securities had a fair value of $618.8 million versus a $737.9 million carrying amount.
Outlook, commentary and risks
- No specific full-year earnings or revenue guidance is provided in the supplied filing text. Management expected merger-related expense synergies to benefit the adjusted efficiency ratio beginning in Q3 2023.
- Management described a cautious economic outlook and more selective commercial lending; higher rates were cited as weighing on commercial loan production and consumer demand. The company also noted increasingly competitive deposit pricing and elevated deposit costs.
- Key exposures include interest-rate and liquidity sensitivity, Florida real estate and commercial real estate concentrations, economic deterioration and borrower stress, and successful integration and retention of Professional customers and employees. Non-owner-occupied CRE was $3.4 billion, including $618 million of office loans; management reported limited central-business-district office exposure.
- Management stated that legal proceedings were not expected to materially adversely affect financial condition, results or cash flows. It reported no material changes to the risk factors in its 2022 Form 10-K. Disclosure controls were assessed as effective.
Most important facts for investors to verify
- Whether Professional integration finishes on schedule and whether anticipated synergies emerge beginning in Q3 2023.
- Deposit retention, mix and pricing, and the company’s liquidity coverage under further deposit outflows or market stress.
- Trends in nonaccrual loans, CRE and office credit quality, charge-offs, and the adequacy of the allowance as acquisition balances season.
- How much earnings depend on acquired-loan discount accretion and non-GAAP adjustments, and how reported profitability develops after merger costs.
- Potential effects of interest rates on net interest margin, securities values, tangible capital and liquidity, including the unrealized losses on securities.