Seacoast Banking of Florida(SBCF) - 2021 Q3 - Quarterly Report

Part I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited condensed consolidated financial statements show Q3 2021 net income of $22.9 million, with nine-month net income at $88.1 million, and total assets growing to $9.9 billion driven by deposit and loan growth Condensed consolidated statements of income Q3 2021 net income was $22.9 million, with net interest income at $71.3 million, and nine-month net income significantly increased to $88.1 million Condensed Consolidated Statements of Income Highlights (Unaudited) | (In thousands, except per share data) | Three Months Ended Sep 30, 2021 (in thousands) | Three Months Ended Sep 30, 2020 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | Nine Months Ended Sep 30, 2020 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $71,324 | $63,503 | $203,736 | $193,952 | | Provision for credit losses | $5,091 | $(845) | $(5,479) | $36,279 | | Total Noninterest Income | $19,028 | $16,946 | $52,021 | $46,640 | | Total Noninterest Expenses | $55,268 | $51,674 | $147,172 | $141,871 | | Net Income | $22,944 | $22,628 | $88,073 | $48,417 | | Diluted EPS | $0.40 (per share) | $0.42 (per share) | $1.56 (per share) | $0.91 (per share) | Condensed consolidated balance sheets Total assets increased to $9.9 billion by September 30, 2021, from $8.3 billion at year-end 2020, driven by cash, securities, and loan growth, and substantial deposit increases Condensed Consolidated Balance Sheet Highlights (Unaudited) | (In thousands) | September 30, 2021 (in thousands) | December 31, 2020 (in thousands) | | :--- | :--- | :--- | | Total cash and cash equivalents | $1,227,695 | $404,088 | | Total debt securities | $2,072,657 | $1,582,641 | | Loans, net of allowance | $5,818,061 | $5,642,616 | | Total Assets | $9,893,498 | $8,342,392 | | Deposits | $8,334,172 | $6,932,561 | | Total Liabilities | $8,602,978 | $7,211,990 | | Total Shareholders' Equity | $1,290,520 | $1,130,402 | Notes to condensed consolidated financial statements Detailed disclosures cover the $2.1 billion securities portfolio, $5.9 billion loan portfolio, $87.8 million allowance for credit losses, derivative instruments, and business combinations - During Q1 2021, the company reclassified debt securities with an amortized cost of $210.8 million from available-for-sale to held-to-maturity, as it has the ability and intent to hold these securities to maturity[28] - Total loans on nonaccrual status were $32.6 million at September 30, 2021, a decrease from $36.1 million at December 31, 2020[43][44][45] - The allowance for credit losses decreased to $87.8 million at September 30, 2021, from $92.7 million at year-end 2020, primarily due to a negative provision for credit losses of $5.5 million for the nine-month period[62] - On August 6, 2021, the company completed its acquisition of Legacy Bank of Florida for a total purchase price of $91.2 million, resulting in $31.0 million of goodwill[100][102] - The company announced two additional proposed acquisitions in August 2021: Sabal Palm Bancorp, Inc. and Business Bank of Florida, Corp, both expected to close in Q1 2022[98][99] Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported Q3 2021 net income of $22.9 million, adjusted net income of $29.4 million, highlighting 12% YoY net interest income growth, strong commercial loan originations, improved asset quality, and a well-capitalized position Results of Operations Q3 2021 net income was $22.9 million, adjusted net income $29.4 million, driven by 12% YoY net interest income growth and higher noninterest income, leading to an improved adjusted efficiency ratio of 51.50% Q3 2021 Performance Summary | Metric | Q3 2021 (in millions) | Q2 2021 (in millions) | Q3 2020 (in millions) | | :--- | :--- | :--- | :--- | | Net Income (GAAP) | $22.9M | $31.4M | $22.6M | | Diluted EPS (GAAP) | $0.40 | $0.56 | $0.42 | | Adjusted Net Income (Non-GAAP) | $29.4M | $33.3M | $27.3M | | Adjusted Diluted EPS (Non-GAAP) | $0.51 | $0.59 | $0.50 | - Net interest margin was 3.22% in Q3 2021, compared to 3.23% in Q2 2021 and 3.40% in Q3 2020. The margin was positively impacted by 18 basis points from PPP loan interest and fees[142] - Commercial loan originations were a strong $331.6 million in Q3 2021, a 72% increase from Q2 2021 and a 276% increase from Q3 2020, reflecting investments in commercial banking talent[144] - Wealth management income reached a record $2.6 million in Q3 2021, up 30% YoY, with assets under management growing to $1.2 billion[162] - The adjusted efficiency ratio improved to 51.50% in Q3 2021 from 54.82% in Q3 2020, reflecting higher revenues[168][169] Financial Condition Total assets grew 19% to $9.9 billion by September 30, 2021, driven by the Legacy Bank acquisition and strong deposit growth, with asset quality improving and a CET1 ratio of 16.53% - Total assets increased by $1.6 billion (19%) since December 31, 2020, driven by the Legacy Bank acquisition and higher cash balances from deposit growth[187] - Total deposits increased by $1.4 billion (20%) to $8.3 billion since year-end 2020. Noninterest demand deposits grew by 35% and now represent 37% of total deposits[237][238] - Asset quality improved, with nonperforming assets (NPAs) decreasing to $46.2 million, or 0.47% of total assets, compared to $48.9 million, or 0.59% of total assets, at December 31, 2020[215][216] Regulatory Capital Ratios (Consolidated) | Ratio | September 30, 2021 (%) | Minimum to be Well Capitalized (%) | | :--- | :--- | :--- | | Total Risk-Based Capital | 18.56% | 10.00% | | Tier 1 Capital | 17.66% | 8.00% | | Common Equity Tier 1 (CET1) | 16.53% | 6.50% | | Leverage Ratio | 11.74% | 5.00% | Critical Accounting Policies and Estimates Critical accounting policies involve significant estimates for allowance for credit losses, acquisition accounting, intangible asset impairment, fair value measurements, debt security impairment, and contingent liabilities - The most critical accounting estimates involve the allowance for credit losses, acquisition accounting, intangible asset impairment, fair value measurements, debt security impairment, and contingent liabilities[255][262] - The allowance for credit losses is estimated using a model based on probability of default (PD) and loss given default (LGD), incorporating a three-year economic forecast and qualitative adjustments[257][258][259] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate risk, managed by ALCO, with simulation models projecting NII and EVE sensitivity to interest rate changes, indicating an asset-sensitive position Projected Impact of Interest Rate Changes on Net Interest Income (NII) | Change in Interest Rates | % Change in NII (1-12 months) | % Change in NII (13-24 months) | | :--- | :--- | :--- | | +2.00% | 11.4% | 15.1% | | +1.00% | 5.6% | 7.7% | | -1.00% | (1.8%) | (7.5%) | Projected Impact of Interest Rate Changes on Economic Value of Equity (EVE) | Change in Interest Rates | % Change in EVE | | :--- | :--- | | +2.00% | 20.7% | | +1.00% | 11.2% | | -1.00% | (12.1%) | Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[293] - No material changes were made to the internal control over financial reporting during the quarter ended September 30, 2021[294] Part II OTHER INFORMATION Item 1. Legal Proceedings The company is subject to various legal actions in the normal course of business, none of which are expected to have a material adverse effect on financial condition or results - Management does not expect any current legal proceedings to have a material adverse effect on the company's financial position or results of operations[295] Item 1A. Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes have been made to the risk factors previously disclosed in the Form 10-K for the year ended December 31, 2020[297] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company details share repurchases for tax withholding obligations, noting no shares were repurchased under the $100 million program authorized in December 2020 - A $100 million share repurchase program was authorized in December 2020, expiring December 31, 2021[298] - As of September 30, 2021, no shares had been repurchased under the $100 million program. The 62,350 shares purchased year-to-date were to satisfy tax withholding on employee stock awards[298] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including merger agreements, corporate governance documents, and CEO/CFO certifications