Seacoast Banking of Florida(SBCF) - 2022 Q4 - Annual Report

Part I Item 1. Business Seacoast Banking Corporation of Florida is a Florida-based financial holding company with $12.1 billion in assets as of December 31, 2022, offering diverse financial services through its subsidiary, Seacoast National Bank, and pursuing growth via organic expansion and strategic acquisitions while operating under extensive regulation - Seacoast is a financial holding company with its principal subsidiary being Seacoast National Bank. As of December 31, 2022, it had total consolidated assets of $12.1 billion and total deposits of $10.0 billion[21] - The company's growth strategy combines organic growth with opportunistic acquisitions. In 2022, Seacoast completed the acquisitions of Sabal Palm Bancorp, Inc., Business Bank of Florida Corp., Drummond Banking Company, and Apollo Bancorp, Inc., significantly expanding its footprint in Florida[22][26] - As of December 31, 2022, the company employed 1,490 full-time equivalent employees and maintained a high associate engagement score of 83.1%, which is above the banking and finance industry benchmarks[29][30] Regulatory Capital Ratios as of December 31, 2022 | Capital Ratio | Seacoast (Consolidated) | Seacoast Bank | Minimum to be Well-Capitalized (Bank) | | :--- | :--- | :--- | :--- | | Total Risk-Based Capital Ratio | 15.79% | 14.47% | 10.00% | | Tier 1 Capital Ratio | 14.79% | 13.46% | 8.00% | | Common Equity Tier 1 Capital Ratio (CET1) | 13.87% | 13.46% | 6.50% | | Leverage Ratio | 11.46% | 10.44% | 5.00% | - Due to exceeding the $10 billion asset threshold in 2022, Seacoast Bank will be subject to the Durbin Amendment's limits on debit card interchange fees starting July 1, 2023. This is expected to reduce the company's annualized after-tax revenue by approximately $10 million[77] Item 1A. Risk Factors The company identifies several material risks to its business, including credit concentration in real estate, interest rate sensitivity, LIBOR transition challenges, intense competition, increased regulatory burdens from exceeding $10 billion in assets, and acquisition integration risks - A substantial portion of the loan portfolio is secured by real estate, with 50% of the portfolio comprised of loans secured by commercial real estate (CRE) as of December 31, 2022, exposing the company to concentration risk and cyclical downturns[94][95] - The company's profitability is highly dependent on net interest income, which is sensitive to interest rate changes. The Federal Reserve's policies on interest rates and inflation create uncertainty and could adversely affect loan demand, borrower repayment ability, and funding costs[101][102] - The transition from LIBOR to alternative reference rates like SOFR is complex and may lead to significant expenses, litigation risk with borrowers, and a potential reduction in interest income. As of December 31, 2022, the company had approximately $244 million in existing loans tied to LIBOR[109][110] - The company faces increasing competition from non-bank financial technology providers and the trend of "disintermediation," where consumers complete financial transactions without banks, which could result in the loss of fee income and low-cost customer deposits[117][118] - Having exceeded $10 billion in assets in 2022, the company is subject to additional regulations, including limits on debit card interchange fees (Durbin Amendment) and direct supervision by the Consumer Financial Protection Bureau (CFPB), which could increase compliance costs and reduce revenue[147][148] - The company's growth strategy involves acquisitions, which carry risks such as difficulties in integration, potential loss of key employees and customers, exposure to unknown liabilities, and failure to realize anticipated benefits and synergies[161][163][164] Item 1B. Unresolved Staff Comments The company reports that there are no unresolved staff comments - None[174] Item 2. Properties Seacoast's corporate headquarters is a 68,000 square foot building in Stuart, Florida, owned by Seacoast Bank, which operated from 78 branch offices and other commercial lending offices throughout Florida as of December 31, 2022 - The company's headquarters is located at 815 Colorado Avenue in Stuart, Florida[175] - As of December 31, 2022, Seacoast Bank operated 78 branch offices in Florida, in addition to other commercial lending offices[176] Item 3. Legal Proceedings The company and its subsidiaries are involved in litigation incidental to their business operations in the ordinary course, with management believing no current proceedings will materially affect financial position, results, or cash flows - Management believes that no ongoing litigation is likely to have a material effect on the company's consolidated financial position, operating results, or cash flows[177] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[178] Part II Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Seacoast's common stock trades on the NASDAQ Global Select Market under "SBCF", with the Board authorizing a $100 million share repurchase program renewal in December 2022, though no shares were repurchased in 2022 - The company's common stock is traded on the NASDAQ Global Select Market under the symbol "SBCF"[181] - On December 15, 2022, the Board of Directors renewed the share repurchase program, authorizing the purchase of up to $100 million of its common stock through December 31, 2023. The company did not repurchase any shares during the year ended December 31, 2022[185] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2022, Seacoast reported net income of $106.5 million, a decrease from 2021 due to a higher provision for credit losses, while net interest income grew 33% with an expanded net interest margin, and the loan portfolio and deposits increased significantly, supported by acquisitions Overview – Strategy and Results Seacoast is one of Florida's largest community banks, with $12.1 billion in assets as of year-end 2022, executing a balanced growth strategy combining organic expansion with strategic acquisitions in Florida's high-growth markets, including four in 2022 and one in early 2023 - Seacoast is executing a balanced growth strategy of organic growth and strategic acquisitions, having completed 16 acquisitions since 2014 to expand its footprint in Florida's fastest-growing markets[194] Recent Acquisition Activity | Acquired Company | Primary Market(s) | Year | Acquired Loans ($M) | Acquired Deposits ($M) | | :--- | :--- | :--- | :--- | :--- | | Drummond Banking Company | Gainesville and Ocala | 2022 | $545 | $881 | | Apollo Bancshares, Inc. | Miami-Dade County | 2022 | $667 | $855 | | Florida Business Bank | Melbourne | 2022 | $122 | $166 | | Sabal Palm Bank | Sarasota | 2022 | $246 | $396 | | Legacy Bank of Florida | Boca Raton/Palm Beach | 2021 | $477 | $495 | Results of Operations In 2022, net income was $106.5 million, down from $124.4 million in 2021, primarily due to a $26.2 million provision for credit losses, while net interest income rose 33% to $366.2 million with a net interest margin of 3.69%, and noninterest income and expenses saw declines and increases respectively Key Financial Results (2022 vs. 2021) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Income | $106.5 million | $124.4 million | | Diluted EPS | $1.66 | $2.18 | | Net Interest Income | $366.2 million | $276.0 million | | Net Interest Margin (FTE) | 3.69% | 3.27% | | Provision for Credit Losses | $26.2 million | ($9.4 million) | | Noninterest Income (excl. gains/losses) | $67.2 million | $71.3 million | | Noninterest Expense | $267.9 million | $197.4 million | - The increase in net interest income was driven by the rising interest rate environment, which increased yields on loans and securities. The yield on loans rose to 4.62% from 4.38%, and the yield on securities increased to 2.21% from 1.61%[201] - The cost of deposits remained low, increasing only three basis points to 0.11% in 2022, reflecting a favorable deposit mix with noninterest-bearing demand deposits representing 41% of total deposits at year-end[201][209] - Noninterest income was negatively impacted by a 70% decrease in mortgage banking fees to $3.5 million, as rising rates slowed refinance and purchase activity. This was partially offset by a 15% increase in wealth management income to $11.1 million[217][219][220] Financial Condition As of December 31, 2022, total assets grew 25% to $12.1 billion, with net loans increasing 37% to $8.1 billion and deposits growing 24% to $10.0 billion, while asset quality remained strong despite significant unrealized losses in the securities portfolio due to rising interest rates - Total assets increased by $2.5 billion (25%) to $12.1 billion at year-end 2022, reflecting both organic growth and acquisitions[249] Loan Portfolio Composition (December 31, 2022) | Loan Category | Amount ($M) | % of Total | | :--- | :--- | :--- | | Commercial real estate - non-owner occupied | $2,589.8 | 32% | | Residential real estate | $1,849.5 | 23% | | Commercial real estate - owner occupied | $1,478.3 | 18% | | Commercial and financial | $1,348.6 | 17% | | Construction and land development | $587.3 | 7% | | Consumer | $286.6 | 3% | | Paycheck Protection Program | $4.6 | 0% | | Total Loans | $8,144.7 | 100% | - Asset quality remained strong, with nonperforming assets decreasing to $31.1 million, or 0.26% of total assets, down from 0.46% at year-end 2021. Nonperforming loans as a percentage of total loans decreased to 0.35% from 0.52%[277][278] - The allowance for credit losses on loans increased to $113.9 million, representing 1.40% of total loans (excluding PPP), compared to $83.3 million, or 1.43%, at the end of 2021[285][286] - Total deposits grew 24% to $10.0 billion. The deposit mix remained favorable, with noninterest-bearing demand deposits increasing to 41% of total deposits from 38% in the prior year[302][303] Capital Resources and Management At December 31, 2022, shareholders' equity increased 23% to $1.6 billion, with capital ratios remaining strong and well above regulatory requirements, though tangible book value was impacted by increased accumulated other comprehensive loss from unrealized securities losses Consolidated Capital Ratios (December 31, 2022 vs. 2021) | Ratio | Dec 31, 2022 | Dec 31, 2021 | Regulatory Minimum (for adequacy) | | :--- | :--- | :--- | :--- | | Common Equity Tier 1 (CET1) | 13.87% | 16.31% | 4.50% | | Tier 1 Capital | 14.79% | 17.40% | 6.00% | | Total Risk-Based Capital | 15.79% | 18.21% | 8.00% | | Leverage Ratio | 11.46% | 11.68% | 4.00% | - Shareholders' equity increased by $297.0 million (23%) to $1.6 billion, driven by net income and stock issuance for acquisitions, but was partially offset by a $181.0 million increase in accumulated other comprehensive loss due to declining securities values[318][319] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, which it manages through simulation modeling to optimize net interest income (NII) and Economic Value of Equity (EVE), projecting an asset-sensitive position where rate increases benefit NII and EVE Projected Impact of Interest Rate Changes on Net Interest Income (as of Dec 31, 2022) | Change in Interest Rates | % Change in NII (1-12 months) | % Change in NII (13-24 months) | | :--- | :--- | :--- | | +2.00% | 7.1% | 9.9% | | +1.00% | 3.5% | 4.8% | | -1.00% | (3.7)% | (5.9)% | | -2.00% | (8.9)% | (14.4)% | Projected Impact of Interest Rate Changes on Economic Value of Equity (EVE) | Change in Interest Rates | % Change in EVE (2022) | % Change in EVE (2021) | | :--- | :--- | :--- | | +2.00% | 8.1% | 18.6% | | +1.00% | 4.3% | 10.2% | | -1.00% | (5.4)% | (10.8)% | | -2.00% | (13.9)% | N/A | Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2022, including balance sheets, income statements, and cash flows, along with notes, and an unqualified opinion from Crowe LLP on both financial statements and internal control effectiveness Note 17 - Business Combinations In 2022, Seacoast completed four acquisitions—Apollo Bancshares, Drummond Banking Company, Business Bank of Florida, and Sabal Palm Bancorp—issuing common stock and recognizing $228.2 million in goodwill, significantly expanding its Florida presence, with a further acquisition of Professional Holding Corp. completed in January 2023 2022 Acquisitions Summary | Acquired Company | Closing Date | Total Purchase Price ($M) | Goodwill Recognized ($M) | Key Market | | :--- | :--- | :--- | :--- | :--- | | Apollo Bancshares, Inc. | Oct 7, 2022 | $145.8 | $90.2 | Miami-Dade | | Drummond Banking Company | Oct 7, 2022 | $158.3 | $103.5 | North Florida | | Sabal Palm Bancorp, Inc. | Jan 3, 2022 | $62.1 | $26.5 | Sarasota | | Business Bank of Florida, Corp. | Jan 3, 2022 | $32.0 | $8.0 | Melbourne | - On January 31, 2023, the Company completed its acquisition of Professional Holding Corp., which operated nine branches in South Florida with approximately $2.2 billion in deposits and $2.1 billion in loans as of December 31, 2022[639] Item 9A. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with the assessment for internal controls excluding the recently acquired Drummond Banking Company as permitted by SEC guidance - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[644] - Management's assessment of internal control over financial reporting concluded that controls were effective as of December 31, 2022. This assessment excluded the internal controls of Drummond Banking Company, acquired on October 7, 2022, in accordance with SEC guidance for recent acquisitions[646][647] Part III Items 10-14 Information for Items 10 through 14, covering Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, Certain Relationships and Related Transactions, and Principal Accountant Fees and Services, is incorporated by reference from the registrant's 2023 Proxy Statement - Information for Part III, Items 10 through 14, is incorporated by reference from the company's 2023 Proxy Statement[652][654][658][659] Part IV Item 15. Exhibits, Financial Statement Schedules This section lists the financial statements included in Item 8 and provides a comprehensive list of exhibits filed with the report or incorporated by reference, with all required financial statement schedules omitted as not applicable or included elsewhere - This section lists all exhibits filed with the Form 10-K, including merger agreements, articles of incorporation, bylaws, indentures, and various management and compensation plans[662][663][664][665]