Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity
Fluctuations in interest rates may result in changes in the fair value of the Company’s financial instruments, cash flows and net interest income. This risk is managed using simulation modeling to calculate the most likely interest rate risk utilizing estimated loan and deposit growth. The objective is to optimize the Company’s financial position, liquidity, and net interest income while limiting volatility.
Senior management regularly reviews the overall interest rate risk position and evaluates strategies to manage the risk. The Company's Asset and Liability Management Committee (“ALCO”) uses simulation analysis to monitor changes in net interest income due to changes in market interest rates. The simulation of rising, declining and flat interest rate scenarios allows management to monitor and adjust interest rate sensitivity to assess the impact of market interest rate swings. The analysis of the impact on net interest income over a twelve month period is subjected to instantaneous changes in market rates of 100 basis point and 200 basis point increases and 100 basis point and 200 basis point decreases on net interest income and is monitored at least quarterly.
The following table presents the ALCO simulation model's projected impact of a change in interest rates on the projected baseline net interest income for the 12 and 24 month periods beginning on January 1, 2023, holding all other changes in the balance sheet static. This change in interest rates assumes parallel shifts in the yield curve and does not take into account changes in the slope of the yield curve nor changes in balance sheet size or mix.
% Change in Projected Baseline Net Interest Income
December 31, 2022 December 31, 2021
Changes in Interest Rates 1-12 months 13-24 months 1-12 months 13-24 months
+2.00% 7.1% 9.9% 13.4% 19.6%
+1.00% 3.5 4.8 6.7 10.1
Current — — — —
-1.00% (3.7) (5.9) (2.5) (8.8)
-2.00% (8.9) (14.4) N/A N/A
The Company's calculation of interest rate sensitivity for the year ended December 31, 2022 is presented below. The balances of interest rate sensitive assets and liabilities are presented in the periods in which they reprice to market rates or mature. The amounts are aggregated to reflect the interest rate sensitivity gap. This analysis includes assumptions for prepayments of loans and securities and assumptions for core deposit re-pricing. The Company utilizes interest rate floors for certain variable rate loans to offset the potential impact of declining interest rates.
The computations of interest rate sensitivity are based on the static balance sheet and do not necessarily include certain actions management may undertake to manage this risk in response to changes in interest rates in the future. This may include specific efforts to change the size of the balance sheet or the relative composition of fixed versus variable rate assets and liabilities as well as qualitative changes that could impact quantitative performance.
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Interest Rate Sensitivity Analysis 1
December 31, 2022
(In thousands) 0-3
Months 4-12
Months 1-5
Years Over
5 Years Total
Federal funds sold and interest bearing deposits $ 84,428 $ — $ — $ — $ 84,428
Debt securities 2
495,159 152,874 712,462 1,258,655 2,619,150
Loans 3
2,213,822 1,151,747 3,572,948 1,209,358 8,147,875
Other assets 47,879 — — 8,220 56,099
Earning assets $ 2,841,288 $ 1,304,621 $ 4,285,410 $ 2,476,233 $ 10,907,552
Non-maturity deposits 107,130 137,817 1,188,713 3,954,296 5,387,956
Time deposits 126,239 341,418 54,381 628 522,666
Borrowings 319,291 — 12,250 75,021 406,562
Interest bearing liabilities $ 552,660 $ 479,235 $ 1,255,344 $ 4,029,945 $ 6,317,184
Interest rate swaps 300,000 — — — 300,000
Interest sensitivity gap $ 1,988,628 $ 825,386 $ 3,030,066 $ (1,553,712) $ 4,290,368
Cumulative gap $ 1,988,628 $ 2,814,014 $ 5,844,080 $ 4,290,368
Cumulative gap to total earning assets 18 % 26 % 54 % 39 %
Earning assets to interest bearing liabilities 514 % 272 % 341 % 61 %
1 The repricing dates may differ from contractual maturity dates for certain assets due to prepayment assumptions.
2 Securities are stated at carrying value.
3 Includes loans available-for-sale.
Market Risk
Market risk refers to potential losses arising from changes in interest rates, and other relevant market rates or prices.
Interest rate risk, defined as the exposure of net interest income and Economic Value of Equity (“EVE”) to adverse movements in interest rates, is the Company’s primary market risk, and mainly arises from the structure of the balance sheet (non-trading activities). The Company is also exposed to market risk in its investing activities. The ALCO meets regularly and is responsible for reviewing the interest rate sensitivity position of the Company and establishing policies to monitor and limit exposure to interest rate risk. The policies established by the ALCO are reviewed and approved by the Company’s board of directors. The primary goal of interest rate risk management is to control exposure to interest rate risk, within policy limits approved by the board of directors. These limits reflect the Company’s tolerance for interest rate risk over short-term and long-term horizons.
The Company also performs valuation analyses, which are used for evaluating levels of risk present in the balance sheet that might not be taken into account in the net interest income simulation analyses. Whereas net interest income simulation highlights exposures over a relatively short time horizon, valuation analysis incorporates all cash flows over the estimated remaining life of all balance sheet positions. The valuation of the balance sheet, at a point in time, is defined as the discounted present value of asset cash flows minus the discounted value of liability cash flows, the net result of which is the EVE. The sensitivity of EVE to changes in the level of interest rates is a measure of the longer-term re-pricing risks and options risks embedded in the balance sheet. In contrast to the net interest income simulation, which assumes interest rates will change over a period of time, EVE uses instantaneous changes in rates.
EVE values only the current balance sheet, and does not incorporate the growth assumptions that are used in the net interest income simulation model. As with the net interest income simulation model, assumptions about the timing and variability of balance sheet cash flows are critical in the EVE analysis. Particularly important are the assumptions driving prepayments and the expected changes in balances and pricing of the indeterminate life deposit portfolios. Core deposits are a more significant funding source for the Company, making the lives attached to core deposits more important to the accuracy of our modeling of EVE. The Company periodically reassesses its assumptions regarding the indeterminate lives of core deposits utilizing an independent third party resource to assist.
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The following table presents the projected impact of a change in interest rates on the balance sheet. This change in interest rates assumes parallel shifts in the yield curve and does not take into account changes in the slope of the yield curve.
% Change in Economic Value of Equity
Changes in Interest Rates 2022 2021
+2.00% 8.1% 18.6%
+1.00% 4.3 10.2
Current — —
-1.00% (5.4) (10.8)
-2.00% (13.9) N/A
While an instantaneous and severe shift in interest rates is used in this analysis, a gradual shift in interest rates would have a much more modest impact. Since EVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon, i.e., the next fiscal year. Further, EVE does not take into account factors such as future balance sheet growth, changes in product mix, change in yield curve relationships, and changing product spreads that could mitigate the adverse impact of changes in interest rates.
Effects of Inflation and Changing Prices
The consolidated financial statements and related financial data presented herein have been prepared in accordance with U.S. GAAP, which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money, over time, due to inflation.
Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the general level of inflation. However, inflation affects financial institutions by increasing their cost of goods and services purchased, as well as the cost of salaries and benefits, occupancy expense, and similar items. Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings, and shareholders’ equity. Mortgage originations and re-financings tend to slow as interest rates increase, and higher interest rates likely will reduce the Company’s earnings from such activities and the income from the sale of residential mortgage loans in the secondary market.
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Table 1 - Capital Resources
December 31,
(In thousands, except percentages) 2022 2021
Tier 1 Capital
Common stock $ 7,162 $ 5,850
Additional paid in capital 1,377,698 963,747
Retained earnings 423,863 358,598
Treasury stock (13,019) (10,569)
Goodwill (480,319) (252,154)
Intangibles (71,285) (12,998)
Other 1
33,195 23,182
Common Equity Tier 1 Capital $ 1,277,295 $ 1,075,656
Qualifying subordinated debt $ 84,533 $ 71,646
Other 4 4
Total Tier 1 Capital $ 1,361,832 $ 1,147,306
Tier 2 Capital
Allowance for credit losses on loans 1 , as limited
$ 92,336 $ 53,579
Total Tier 2 Capital 92,336 53,579
Total Risk-Based Capital $ 1,454,168 $ 1,200,885
Risk weighted assets $ 9,208,859 $ 6,595,378
Common equity Tier 1 ratio (CET1) 13.87 % 16.31 %
Regulatory minimum 2
4.50 4.50
Tier 1 capital ratio 14.79 17.40
Regulatory minimum 2
6.00 6.00
Total capital ratio 15.79 18.21
Regulatory minimum 2
8.00 8.00
Tier 1 capital to adjusted total assets 11.46 11.68
Regulatory minimum 4.00 4.00
Shareholders' equity to assets 13.24 13.54
Average shareholders' equity to average total assets 12.84 13.02
Tangible shareholders' equity to tangible assets 9.08 11.09
1 Upon adoption of the CECL accounting standard in 2020, the Company elected, in accordance with interagency guidance, to delay the estimated impact on regulatory capital resulting from the implementation of CECL. The guidance provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). As of December 31, 2022 and 2021, the adjustment to Tier 1 Capital was $18.5 million and $23.0 million, respectively, and the adjustment to Tier 2 Capital was $22.6 million and $28.5 million, respectively.
2 Excludes the Basel III capital conservation buffer of 2.5% which, if not exceeded, may constrain dividends, equity repurchases and compensation.
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Table 2 - Loans Outstanding
December 31,
(In thousands) 2022 2021
Amount % to Total Loans Amount % to Total Loans
Construction and land development $ 587,332 7 % $ 230,824 4 %
Commercial real estate - owner occupied 1,478,302 18 % 1,197,774 20 %
Commercial real estate - non-owner occupied 2,589,774 32 % 1,736,439 29 %
Residential real estate 1,849,503 23 % 1,425,354 24 %
Commercial and financial 1,348,636 17 % 1,069,356 18 %
Consumer 286,587 3 % 174,175 3 %
Paycheck Protection Program 4,590 — % 91,107 2 %
Total Loans $ 8,144,724 100 % $ 5,925,029 100 %
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Table 3 - Loan Maturity Distribution
The following table presents loans by maturity, separately presenting fixed rate loans from those with floating or adjustable rates.
December 31, 2022
After one year but within five years: After five year but within fifteen years: After fifteen years:
(In thousands) In one year or less Floating or adjustable Fixed Floating or adjustable Fixed Floating or adjustable Fixed Total
Construction and Land Development $ 151,992 $ 139,698 $ 32,183 $ 97,990 $ 40,741 $ 87,523 $ 37,205 $ 587,332
Commercial Real Estate - Owner Occupied 64,654 62,224 361,710 187,816 727,611 45,477 28,810 1,478,302
Commercial Real Estate - Non-owner Occupied 257,633 242,083 800,769 593,525 674,069 13,181 8,514 2,589,774
Residential Real Estate 47,818 16,584 19,830 323,501 123,987 406,034 911,749 1,849,503
Commercial and Financial 248,248 151,449 419,128 118,141 195,336 165,318 51,016 1,348,636
Consumer 56,843 21,152 77,955 13,274 58,905 27,512 30,946 286,587
Paycheck Protection Program 54 — 4,536 — — — — 4,590
Total $ 827,242 $ 633,190 $ 1,716,111 $ 1,334,247 $ 1,820,649 $ 745,045 $ 1,068,240 $ 8,144,724
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Table 4 - Select Credit Ratios
For the Year Ended December 31,
(In thousands, except percentages) 2022 2021 2020
Daily average loans outstanding 1
$ 6,838,266 $ 5,751,064 $ 5,678,807
Ratio of allowance for credit losses on loans to loans outstanding at end of year 1.40 % 1.41 % 1.62 %
Ratio of net charge-offs (recoveries) to average loans outstanding
Construction and land development — % — % — %
Commercial real estate - owner occupied — % — % — %
Commercial real estate - non-owner occupied — % 0.02 % — %
Residential real estate — % (0.02) % — %
Commercial and financial — % 0.05 % 0.10 %
Consumer 0.01 % — % 0.03 %
Paycheck Protection Program — % — % — %
Total ratio of net charge-offs to average loans outstanding 0.01 % 0.05 % 0.13 %
1 Net of unearned income.
Table 5 - Allowance for Credit Losses on Loans
December 31,
(In thousands, except percentages) 2022 2021 2020
Allocation by Loan Type Amount % of Total Allowance Amount % of Total Allowance Amount % of Total Allowance
Construction and land development $ 6,464 6 % $ 2,751 3 % $ 4,920 5 %
Commercial real estate - owner occupied 6,051 5 8,579 10 9,868 11
Commercial real estate - non-owner occupied 43,258 38 36,617 44 38,266 41
Residential real estate 29,605 26 12,811 16 17,500 19
Commercial and financial 15,648 14 19,744 24 18,690 20
Consumer 12,869 11 2,813 3 3,489 4
Paycheck Protection Program — — — — — —
Total Allowance for Credit Losses on Loans $ 113,895 100 % $ 83,315 100 % $ 92,733 100%
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Table 6 - Nonperforming Assets
December 31,
(In thousands, except percentages) 2022 2021 2020
Nonaccrual loans 1,2
Construction and land development $ 549 $ 259 $ 167
Commercial real estate loans - owner occupied 2,340 3,966 8,181
Commercial real estate loans - non-owner occupied 4,483 5,905 8,084
Residential real estate loans 9,457 13,045 12,492
Commercial and financial loans 11,672 6,869 6,604
Consumer loans 342 554 582
Total Nonaccrual Loans $ 28,843 $ 30,598 $ 36,110
Other real estate owned
Construction and land development $ 109 $ 8,828 $ 6,715
Commercial real estate loans - non-owner occupied 221 3,395 5,963
Residential real estate loans 200 — 72
Bank branches closed 1,771 1,395 —
Total Other Real Estate Owned $ 2,301 $ 13,618 $ 12,750
Total Nonperforming Assets $ 31,144 $ 44,216 $ 48,860
Amount of loans outstanding at end of year 2
$ 8,144,724 $ 5,925,029 $ 5,735,349
Ratio of total nonperforming assets to loans outstanding and other real estate owned at end of period 0.38 % 0.74 % 0.85 %
Ratio of total nonaccrual loans to loans outstanding at end of period 0.35 0.52 0.63
Ratio of allowance for credit losses on loans to total nonaccrual loans 395 272 257
Accruing loans past due 90 days or more $ 1,848 $ 121 $ 63
Loans restructured and in compliance with modified terms 3
4,032 3,917 4,182
1 Interest income that could have been recorded during 2022, 2021, and 2020 related to nonaccrual loans was $1.6 million, $0.9 million, and $1.1 million, respectively, none of which was included in interest income or net income.
2 Net of unearned income.
3 Interest income that would have been recorded based on original contractual terms was $0.3 million, $0.2 million, and $0.2 million, respectively, for 2022, 2021, and 2020. The amount included in interest income under the modified terms for 2022, 2021, and 2020 was $0.1 million, $0.2 million, and $0.3 million respectively.
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Table 7 - Maturity Distribution of Available-For-Sale Debt Securities
December 31, 2022
(In thousands) Less than 1 Year After 1-5
Years After 5-10
Years After 10
Years Total
Amortized Cost
U.S. Treasury securities and obligations of U.S. government agencies $ 89 $ 3,104 $ — $ 10,620 $ 13,813
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities — 226,164 137,572 1,197,461 1,561,197
Private mortgage-backed securities and collateralized mortgage obligations — — — 179,148 179,148
Collateralized loan obligations — 7,999 122,722 182,434 313,155
Obligations of state and political subdivisions 1,901 14,405 3,123 9,921 29,350
Other debt securities — — — 22,640 22,640
Total Available-For-Sale Debt Securities $ 1,990 $ 251,672 $ 263,417 $ 1,602,224 $ 2,119,303
Fair Value
U.S. Treasury securities and obligations of U.S. government agencies $ 89 $ 3,139 $ — $ 10,419 $ 13,647
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities — 215,691 123,584 999,378 1,338,653
Private mortgage-backed securities and collateralized mortgage obligations — — — 166,387 166,387
Collateralized loan obligations — 7,796 119,591 175,517 302,904
Obligations of state and political subdivisions 1,998 14,280 3,030 8,433 27,741
Other debt securities — — — 22,410 22,410
Total Available-For-Sale Debt Securities $ 2,087 $ 240,906 $ 246,205 $ 1,382,544 $ 1,871,742
Weighted Average Yield 1
U.S. Treasury securities and obligations of U.S. government agencies 2.50 % 4.67 % — % 4.41 % 4.46 %
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities — 2.96 2.61 1.84 2.07
Private mortgage-backed securities and collateralized mortgage obligations — — — 2.59 2.59
Collateralized loan obligations — 6.01 5.67 5.77 5.74
Obligations of state and political subdivisions 2.65 2.76 2.41 2.45 2.61
Other debt securities — — — 4.92 4.92
Total Available-For-Sale Debt Securities 2.65 % 3.06 % 4.03 % 2.44 % 2.71 %
1 All yields and rates have been computed using amortized costs.
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Table 8 - Maturity Distribution of Held-to-Maturity Debt Securities
December 31, 2022
(In thousands) Less than 1 year After 1-5
Years After 5-10
Years After 10
Years Total
Amortized Cost
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities $ 5,531 $ 1,181 $ 100,111 $ 640,585 $ 747,408
Total Held-to-Maturity Debt Securities $ 5,531 $ 1,181 $ 100,111 $ 640,585 $ 747,408
Fair Value
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities $ 5,470 $ 1,146 $ 88,810 $ 522,315 $ 617,741
Total Held-to-Maturity Debt Securities $ 5,470 $ 1,146 $ 88,810 $ 522,315 $ 617,741
Weighted Average Yield 1
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 2.75 % 1.55 % 2.43 % 1.87 % 1.95 %
Total Held-to-Maturity Debt Securities 2.75 % 1.55 % 2.43 % 1.87 % 1.95 %
1 All yields and rates have been computed using amortized costs.
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Stock Performance Graph
The line graph below compares the cumulative total stockholder return on Seacoast common stock with the cumulative total return of the NASDAQ Composite Index and the S&P U.S. BMI Banks - Southeast Region Index for the same period. The graph and table assume that $100 was invested on December 29, 2017 (the last day of trading for the year ended December 31, 2017) in each of Seacoast common stock, the NASDAQ Composite Index and the S&P U.S. BMI Banks - Southeast Region Index. The cumulative total return represents the change in stock price and the amount of dividends received over the period, assuming all dividends were reinvested.
Index December 31, 2017 December 31, 2018 December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022
Seacoast Banking Corporation of Florida 100.00 103.21 121.26 116.82 142.04 127.69
NASDAQ Composite Index 100.00 97.16 132.81 192.47 235.15 158.65
S&P U.S. BMI Banks - Southeast Region Index 100.00 82.62 116.45 104.41 149.13 121.30
Source: S&P Global Market Intelligence © 2023
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SELECTED QUARTERLY INFORMATION
QUARTERLY CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
2022 Quarters 2021 Quarters
(In thousands, except per share data) Fourth Third Second First Fourth Third Second First
Net interest income:
Interest income $ 127,109 $ 91,404 $ 83,749 $ 78,232 $ 73,942 $ 73,209 $ 67,763 $ 69,330
Interest expense 7,400 3,120 2,102 1,710 1,653 1,885 1,961 2,720
Net interest income 119,709 88,284 81,647 76,522 72,289 71,324 65,802 66,610
Provision for credit losses 14,129 4,676 822 6,556 (3,942) 5,091 (4,855) (5,715)
Net interest income after provision for credit losses on loans 105,580 83,608 80,825 69,966 76,231 66,233 70,657 72,325
Noninterest income:
Service charges on deposit accounts 3,996 3,504 3,408 2,801 2,606 2,495 2,338 2,338
Interchange income 4,650 4,138 4,255 4,128 4,135 4,131 4,145 3,820
Wealth management income 2,886 2,732 2,774 2,659 2,356 2,562 2,387 2,323
Mortgage banking fees 426 434 932 1,686 2,030 2,550 2,977 4,225
Marine finance fees 208 209 312 191 147 152 177 189
SBA gains 105 108 473 156 200 812 232 287
BOLI income 1,526 1,363 1,349 1,334 1,295 1,128 872 859
Other income 3,836 3,977 3,761 2,870 6,316 5,228 2,249 3,744
Securities gains (losses), net 18 (362) (300) (452) (379) (30) (55) (114)
Total noninterest income 17,651 16,103 16,964 15,373 18,706 19,028 15,322 17,671
Noninterest expenses:
Salaries and wages 45,405 28,420 28,056 28,219 25,005 27,919 22,966 21,393
Employee benefits 5,300 4,074 4,151 5,501 4,763 4,177 3,953 4,980
Outsourced data processing costs 9,918 5,393 6,043 6,156 5,165 5,610 4,676 4,468
Telephone and data lines 1,185 973 908 733 790 810 838 785
Occupancy 5,457 5,046 4,050 3,986 3,500 3,541 3,310 3,789
Furniture and equipment 1,944 1,462 1,588 1,426 1,403 1,567 1,166 1,254
Marketing 1,772 1,461 1,882 1,171 1,060 1,353 1,002 1,168
Legal and professional fees 9,174 3,794 2,946 4,789 2,461 4,151 2,182 2,582
FDIC assessments 889 760 699 789 713 651 515 526
Amortization of intangibles 4,763 1,446 1,446 1,446 1,304 1,306 1,212 1,211
Foreclosed property expense and net (gain) loss on sale (411) 9 (968) (164) (175) 66 (90) (65)
Provision for credit losses on unfunded commitments — 1,015 — 142 — 133 — —
Other 6,114 7,506 5,347 4,723 4,274 3,984 4,054 4,029
Total noninterest expenses 91,510 61,359 56,148 58,917 50,263 55,268 45,784 46,120
Income before income taxes 31,721 38,352 41,641 26,422 44,674 29,993 40,195 43,876
Income taxes 7,794 9,115 8,886 5,834 8,344 7,049 8,785 10,157
Net income $ 23,927 $ 29,237 $ 32,755 $ 20,588 $ 36,330 $ 22,944 $ 31,410 $ 33,719
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2022 Quarters 2021 Quarters
(In thousands, except per share data) Fourth Third Second First Fourth Third Second First
Per Common Share Data
Net income diluted $ 0.34 $ 0.47 $ 0.53 $ 0.33 $ 0.62 $ 0.40 $ 0.56 $ 0.60
Net income basic 0.34 0.48 0.53 0.34 0.62 0.40 0.57 0.61
Cash dividends declared:
Common stock $ 0.17 $ 0.17 $ 0.17 $ 0.13 $ 0.13 $ 0.13 $ 0.13 $ 0.00
Market price common stock:
Low close 29.60 30.23 31.46 32.43 33.29 29.62 33.08 29.17
High close 34.94 36.75 35.21 39.15 38.31 34.26 38.81 40.35
Bid price at end of period 31.19 30.23 33.04 35.02 35.39 33.81 34.15 36.24
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