Seacoast Banking Corporation of Florida — 2022 Form 10-K
Reporting period: Year ended December 31, 2022. Seacoast is a Florida-based financial holding company providing commercial and consumer banking, wealth management, mortgage and insurance services. Unless otherwise noted, amounts are in U.S. dollars.
Financial performance and condition
| Metric | 2022 | 2021 |
|---|---|---|
| Total assets, year-end | $12.15 billion | $9.68 billion |
| Total deposits, year-end | $9.98 billion | $8.07 billion |
| Loans, before allowance, year-end | $8.14 billion | $5.93 billion |
| Net interest income | $366.2 million | $276.0 million |
| Net interest margin, fully tax-equivalent | 3.69% | 3.27% |
| Noninterest income | $66.1 million | $70.7 million |
| Noninterest expense | $267.9 million | $197.4 million |
| Provision for credit losses | $26.2 million | $(9.4) million benefit |
| Net income | $106.5 million | $124.4 million |
| Diluted earnings per share | $1.66 | $2.18 |
| Operating cash flow | $195.9 million | $154.6 million |
| Cash and cash equivalents, year-end | $201.9 million | $737.7 million |
Reported return on average assets was 0.96% and return on average equity was 7.51%, versus 1.33% and 10.24%, respectively, in 2021. Adjusted net income, a non-GAAP measure, was $136.1 million ($2.12 per diluted share), compared with $135.0 million ($2.36) in 2021. The reported efficiency ratio rose to 60.01% from 55.39%; the adjusted ratio was 53.03% versus 52.59%.
Loans grew 37% year over year, reflecting organic growth and acquisitions; management reported 9% organic loan growth. Net charge-offs were $0.8 million, or 0.01% of average loans excluding PPP loans. The allowance for credit losses was $113.9 million, and 0.35% of loans were nonaccrual. Deposits grew 24%, though acquisition-related additions were partly offset by outflows in the second half as rates rose. Noninterest-bearing deposits were 41% of deposits, versus 38% a year earlier.
Year-end shareholders’ equity was $1.61 billion. The consolidated CET1 ratio was 13.87%, total risk-based capital was 15.79%, and the leverage ratio was 11.46%; the bank also exceeded its applicable well-capitalized thresholds. Total debt and repurchase-agreement balances included $150 million of FHLB borrowings, $84.5 million of subordinated debt and $172.0 million of customer repurchase agreements. Available liquidity included $2.4 billion in secured lines of credit, subject to collateral value and change, and $175 million in unsecured lines.
Material changes and notable items
- Seacoast completed four acquisitions in 2022: Business Bank of Florida, Sabal Palm, Apollo and Drummond. The acquisitions added scale and expanded the Florida footprint; acquisition-related expenses totaled $27.9 million for the year.
- Net interest income increased 33%, supported by loan growth and higher asset yields as rates rose. Deposit costs also increased, and management expected further deposit-cost pressure.
- Noninterest income excluding securities gains and losses declined 6%. Mortgage banking fees fell 70% as higher mortgage rates and low housing inventory slowed activity; SBIC income also declined. Deposit service charges, wealth management and interchange income increased.
- Net income declined 14% despite higher net interest income, primarily amid higher expenses and a return to credit-loss provisioning. The 2022 provision included $20.2 million of initial provisioning for acquired loans, as well as effects from loan growth and updated economic forecasts.
- Available-for-sale securities had $248.7 million of gross unrealized losses at year-end, compared with $20.9 million in 2021. The related decline in accumulated other comprehensive income contributed to a $181.0 million other comprehensive loss. Management attributed the securities losses to rates and spreads, expected recovery of amortized cost, and recorded no credit-loss allowance.
- In January 2023, the company completed its acquisition of Professional Holding Corp., adding a South Florida franchise with approximately $2.2 billion in deposits and $2.1 billion in loans at December 31, 2022. Purchase accounting was incomplete when the 10-K was filed.
Outlook, risks and contingencies
Management described a rising-rate and inflationary environment, with competition for deposits expected to intensify and funding costs likely to increase. The filing identifies sensitivity to interest rates, deposit outflows and liquidity needs, Florida real estate and commercial real estate concentration, economic deterioration, credit-loss estimates, and acquisition integration as key risks. Commercial real estate represented approximately 50% of loans; the bank’s CRE concentration was 230% of risk-based capital, below the cited 300% regulatory-guidance threshold.
Because the bank exceeded $10 billion in assets, the filing expected direct CFPB supervision of consumer compliance beginning in the first quarter of 2023. Debit interchange limits were due to apply by July 1, 2023; management estimated an annualized after-tax revenue reduction of approximately $10 million. Management expected cost synergies from Apollo and Drummond to begin benefiting results in the second quarter of 2023. These statements are forward-looking and subject to the risks described in the filing.
The company had approximately $244 million of existing loans indexed to LIBOR at year-end and was preparing for the benchmark transition. Unfunded commitments to extend credit were $2.81 billion. Management said ordinary-course legal proceedings were not expected to materially affect the company; it reported no significant contingent-liability accruals or known pending matters it considered potentially significant. The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting; Drummond’s internal controls were excluded from the year-end assessment as a recently acquired business.
Important facts for investors to verify
- Track deposit balances, deposit pricing, uninsured deposits (estimated at $3.5 billion), and use of wholesale or secured funding as rates and competition evolve.
- Assess CRE and Florida real estate exposures, larger borrower relationships, delinquency trends, and whether the allowance remains adequate under changing economic conditions.
- Monitor securities values, accumulated other comprehensive loss, and available liquidity; year-end cash was substantially below 2021.
- Verify realization of expected acquisition synergies, integration progress, and the final purchase accounting for Professional and 2022 acquisitions.
- Evaluate the realized impact of debit interchange limits and rising FDIC assessments, and distinguish GAAP results from management’s non-GAAP adjusted measures.