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 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, 2024, 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, 2023
Changes in Interest Rates 1-12 months 13-24 months
+2.00% (9.2%) (7.7%)
+1.00% (3.7) (2.4)
Current — —
-1.00% 1.3 —
-2.00% 2.6 (1.2)
-3.00% 1.7 (5.3)
The Company's calculation of interest rate sensitivity for the year ended December 31, 2023 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.
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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.
Interest Rate Sensitivity Analysis 1
December 31, 2023
(In thousands) 0-3
Months 4-12
Months 1-5
Years Over
5 Years Total
Federal funds sold and interest bearing deposits $ 285,528 $ — $ — $ — $ 285,528
Debt securities 2
424,938 178,038 791,899 1,121,458 2,516,333
Loans 3
2,699,669 1,289,320 4,234,040 1,844,302 10,067,331
Other Assets — — — 83,621 83,621
Earning assets $ 3,410,135 $ 1,467,358 $ 5,025,939 $ 3,049,381 $ 12,952,813
Non-maturity deposits 4,401,164 321,812 266,291 1,766,685 6,755,952
Time deposits 782,833 661,788 30,822 559 1,476,002
Borrowings 449,936 — 62,561 18,378 530,875
Interest bearing liabilities $ 5,633,933 $ 983,600 $ 359,674 $ 1,785,622 $ 8,762,829
Interest rate swaps 600,000 — (600,000) — —
Interest sensitivity gap $ (1,623,798) $ 483,758 $ 4,066,265 $ 1,263,759 $ 4,189,984
Cumulative gap $ (1,623,798) $ (1,140,040) $ 2,926,225 $ 4,189,984
Cumulative gap to total earning assets (13 %) (9 %) 23 % 32 %
Earning assets to interest bearing liabilities 61 % 149 % 1397 % 171 %
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 held 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
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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.
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 2023
+2.00% (14.8)
+1.00% (6.8)
Current —
-1.00% 4.3
-2.00% 5.7
-3.00% 6.7
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 origination and refinancing tends to slow as interest rates increase, and higher interest rates will likely 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) 2023 2022
Tier 1 Capital
Common stock $ 8,486 $ 7,162
Additional paid in capital 1,808,883 1,377,698
Retained earnings 467,305 423,863
Treasury stock (16,710) (13,019)
Goodwill (732,417) (480,319)
Intangibles (95,645) (71,285)
Other 1
53,597 33,195
Common Equity Tier 1 Capital $ 1,493,499 $ 1,277,295
Qualifying Trust Preferred Debt $ 72,207 $ 84,533
Other 4 4
Total Tier 1 Capital $ 1,565,710 $ 1,361,832
Tier 2 Capital
Allowance for credit losses on loans 1 , as limited
$ 126,553 $ 92,336
Qualifying subordinated debt 21,534 —
Total Tier 2 Capital 148,087 92,336
Total Risk-Based Capital $ 1,713,797 $ 1,454,168
Risk weighted assets $ 10,766,942 $ 9,208,859
Common equity Tier 1 ratio (CET1) 13.87 % 13.87 %
Regulatory minimum 2
4.50 4.50
Tier 1 capital ratio 14.54 14.79
Regulatory minimum 2
6.00 6.00
Total capital ratio 15.92 15.79
Regulatory minimum 2
8.00 8.00
Tier 1 capital to adjusted total assets 11.00 11.46
Regulatory minimum 4.00 4.00
Shareholders' equity to assets 14.46 13.24
Average shareholders' equity to average total assets 13.85 12.84
Tangible shareholders' equity to tangible assets 9.31 9.08
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, 2023 and 2022, the adjustment to Tier 1 Capital was $12.3 million and $18.5 million, respectively, and the adjustment to Tier 2 Capital was $15.1 million and $22.6 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) 2023 2022
Amount % to Total Loans Amount % to Total Loans
Construction and land development $ 767,622 8 % $ 587,332 7 %
Commercial real estate - owner occupied 1,670,281 17 1,478,302 18
Commercial real estate - non-owner occupied 3,319,890 33 2,589,774 32
Residential real estate 2,445,692 24 1,849,503 23
Commercial and financial 1,607,888 16 1,353,226 17
Consumer 251,567 2 286,587 3
Total Loans $ 10,062,940 100 % $ 8,144,724 100 %
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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, 2023
After one year but within five years: After five years 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 $ 197,008 $ 153,313 $ 67,833 $ 98,822 $ 46,411 $ 160,549 $ 43,686 $ 767,622
Commercial Real Estate - Owner Occupied 87,415 91,503 490,522 254,293 679,573 54,870 12,105 1,670,281
Commercial Real Estate - Non-owner Occupied 359,080 239,473 1,147,472 514,861 1,018,529 32,924 7,551 3,319,890
Residential Real Estate 10,571 20,400 13,303 322,655 144,353 1,004,145 930,265 2,445,692
Commercial and Financial 346,281 135,645 504,206 97,224 270,603 179,926 74,003 1,607,888
Consumer 11,568 35,957 79,469 12,325 58,870 24,284 29,094 251,567
Total $ 1,011,923 $ 676,291 $ 2,302,805 $ 1,300,180 $ 2,218,339 $ 1,456,698 $ 1,096,704 $ 10,062,940
Table 4 - Select Credit Ratios
For the Year Ended December 31,
(In thousands, except percentages) 2023 2022 2021
Daily average loans outstanding 1
$ 9,889,070 $ 6,838,266 $ 5,751,064
Ratio of allowance for credit losses on loans to loans outstanding at end of year 1.48 % 1.40 % 1.41 %
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 0.17 — 0.05
Consumer 0.05 0.01 —
Total ratio of net charge-offs to average loans outstanding 0.22 % 0.01 % 0.05 %
1 Net of unearned income.
Table 5 - Allowance for Credit Losses on Loans
December 31,
(In thousands, except percentages) 2023 2022
Allocation by Loan Type Amount % of Total Allowance Amount % of Total Allowance
Construction and land development $ 8,637 6 % $ 6,464 6 %
Commercial real estate - owner occupied 5,529 4 6,051 5
Commercial real estate - non-owner occupied 48,288 32 43,258 38
Residential real estate 39,016 26 29,605 26
Commercial and financial 34,343 23 15,648 14
Consumer 13,118 9 12,869 11
Total Allowance for Credit Losses on Loans $ 148,931 100 % $ 113,895 100 %
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Table 6 - Nonperforming Assets
December 31,
(In thousands, except percentages) 2023 2022
Nonaccrual loans 1,2
Construction and land development $ 824 $ 549
Commercial real estate loans - owner occupied 9,684 2,340
Commercial real estate loans - non-owner occupied 8,735 4,483
Residential real estate loans 9,986 9,457
Commercial and financial loans 34,693 11,672
Consumer loans 1,182 342
Total Nonaccrual Loans $ 65,104 $ 28,843
Other real estate owned
Construction and land development $ — $ 109
Commercial real estate loans - non-owner occupied 221 221
Residential real estate loans — 200
Bank branches closed 7,339 1,771
Total Other Real Estate Owned $ 7,560 $ 2,301
Total Nonperforming Assets $ 72,664 $ 31,144
Amount of loans outstanding at end of year 2
$ 10,062,940 $ 8,144,724
Ratio of total nonperforming assets to loans outstanding and other real estate owned at end of period 0.72 % 0.38 %
Ratio of total nonaccrual loans to loans outstanding at end of period 0.65 0.35
Ratio of allowance for credit losses on loans to total nonaccrual loans 229 395
Accruing loans past due 90 days or more $ 1,179 $ 1,848
1 Interest income that could have been recorded during 2023 and 2022 related to nonaccrual loans was $0.5 million and $1.6 million, respectively, none of which was included in interest income or net income.
2 Net of unearned income.
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Table 7 - Maturity Distribution of Available-For-Sale Debt Securities
December 31, 2023
(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 $ 1,185 $ 6,066 $ 8,965 $ 21,502 $ 37,718
Residential mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 13 2,659 5,255 1,144,826 1,152,753
Commercial mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 24,950 170,046 109,497 80,520 385,013
Private mortgage-backed securities and collateralized mortgage obligations — — 1,161 134,717 135,878
Collateralized loan obligations — 4,038 114,383 182,434 300,855
Obligations of state and political subdivisions 3,353 — 500 6,633 10,486
Other debt securities — 7,389 — 19,210 26,599
Total Available-For-Sale Debt Securities $ 29,501 $ 190,198 $ 239,761 $ 1,589,842 $ 2,049,302
Fair Value
U.S. Treasury securities and obligations of U.S. government agencies $ 1,172 $ 6,069 $ 8,929 $ 21,275 $ 37,445
Residential mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 13 2,619 5,065 961,684 969,381
Commercial mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 24,465 163,673 101,636 78,498 368,272
Private mortgage-backed securities and collateralized mortgage obligations — — 1,086 123,917 125,003
Collateralized loan obligations — 4,028 113,880 181,547 299,455
Obligations of state and political subdivisions 3,332 — 433 5,625 9,390
Other debt securities — 7,382 — 19,692 27,074
Total Available-For-Sale Debt Securities $ 28,982 $ 183,771 $ 231,029 $ 1,392,238 $ 1,836,020
Weighted Average Yield 1
U.S. Treasury securities and obligations of U.S. government agencies 3.99 % 4.81 % 6.43 % 5.83 % 5.75 %
Residential mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 2.79 3.69 3.09 2.03 2.03
Commercial mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 2.92 3.16 3.14 5.69 3.67
Private mortgage-backed securities and collateralized mortgage obligations — — 6.31 2.76 2.79
Collateralized loan obligations — 7.02 6.99 7.02 7.01
Obligations of state and political subdivisions 2.52 — 1.55 2.16 2.25
Other debt securities — 6.70 — 7.15 7.03
Total Available-For-Sale Debt Securities 2.92 % 3.44 % 5.11 % 2.96 % 3.26 %
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, 2023
(In thousands) Less than 1 Year After 1-5
Years After 5-10
Years After 10
Years Total
Amortized Cost
Residential mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities $ — $ — $ — $ 590,676 $ 590,676
Commercial mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 196 20,679 62,500 6,262 89,637
Total Held-to-Maturity Debt Securities $ 196 $ 20,679 $ 62,500 $ 596,938 $ 680,313
Fair Value
Residential mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities $ — $ — $ — $ 478,930 $ 478,930
Commercial mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities 195 18,960 55,493 4,781 79,429
Total Held-to-Maturity Debt Securities $ 195 $ 18,960 $ 55,493 $ 483,711 $ 558,359
Weighted Average Yield 1
Residential mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities — % — % — % 1.88 % 1.88 %
Commercial mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities — 2.48 2.29 1.67 2.28
Total Held-to-Maturity Debt Securities — % 2.48 % 2.29 % 1.88 % 1.93 %
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 31, 2018 (the last day of trading for the year ended December 31, 2018) 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, 2018 December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023
Seacoast Banking Corporation of Florida 100.00 117.49 113.18 137.62 123.72 116.33
NASDAQ Composite Index 100.00 136.69 198.10 242.03 163.28 236.17
S&P U.S. BMI Banks - Southeast Region Index 100.00 140.94 126.37 180.49 146.81 151.44
Source: S&P Global Market Intelligence © 2024
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SELECTED QUARTERLY INFORMATION
QUARTERLY CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
2023 Quarters 2022 Quarters
(In thousands, except per share data) Fourth Third Second First Fourth Third Second First
Net interest income:
Interest income $ 176,855 $ 179,846 $ 174,283 $ 157,991 $ 127,109 $ 91,404 $ 83,749 $ 78,232
Interest expense 66,036 60,540 47,320 26,839 7,400 3,120 2,102 1,710
Net interest income 110,819 119,306 126,963 131,152 119,709 88,284 81,647 76,522
Provision for credit losses 3,990 2,694 (764) 31,598 14,129 4,676 822 6,556
Net interest income after provision for credit losses on loans 106,829 116,612 127,727 99,554 105,580 83,608 80,825 69,966
Noninterest income:
Service charges on deposit accounts 4,828 4,648 4,560 4,242 3,996 3,504 3,408 2,801
Interchange income 2,433 1,684 5,066 4,694 4,650 4,138 4,255 4,128
Wealth management income 3,261 3,138 3,318 3,063 2,886 2,732 2,774 2,659
Mortgage banking fees 378 410 576 426 426 434 932 1,686
Insurance agency income 1,066 1,183 1,160 1,101 805 — — —
SBA gains 921 613 249 322 105 108 473 156
BOLI income 2,220 2,197 2,068 1,916 1,526 1,363 1,349 1,334
Other income 4,668 4,307 4,755 6,574 3,239 4,186 4,073 3,061
Securities (losses) gains, net
(2,437) (387) (176) 107 18 (362) (300) (452)
Total noninterest income 17,338 17,793 21,576 22,445 17,651 16,103 16,964 15,373
Noninterest expenses:
Salaries and wages 38,435 46,431 45,155 47,616 45,405 28,420 28,056 28,219
Employee benefits 6,678 7,206 7,472 8,562 5,300 4,074 4,151 5,501
Outsourced data processing costs 8,609 8,714 20,222 14,553 9,918 5,393 6,043 6,156
Telephone and data lines 1,196 1,409 1,518 1,081 1,185 973 908 733
Occupancy 6,316 6,349 7,065 6,938 5,457 5,046 4,050 3,986
Furniture and equipment 2,028 2,052 2,345 2,267 1,944 1,462 1,588 1,426
Marketing 2,995 1,876 2,047 2,238 1,772 1,461 1,882 1,171
Legal and professional fees 3,294 2,679 4,062 7,479 9,174 3,794 2,946 4,789
FDIC assessments 2,813 2,258 2,116 1,443 889 760 699 789
Amortization of intangibles 6,888 7,457 7,654 6,727 4,763 1,446 1,446 1,446
Other real estate owned expense and net loss (gain) on sale
573 274 (57) 195 (411) 9 (968) (164)
Provision for credit losses on unfunded commitments — — — 1,239 — 1,015 — 142
Other 6,542 7,210 8,266 7,137 6,114 7,506 5,347 4,723
Total noninterest expenses 86,367 93,915 107,865 107,475 91,510 61,359 56,148 58,917
Income before income taxes 37,800 40,490 41,438 14,524 31,721 38,352 41,641 26,422
Income taxes 8,257 9,076 10,189 2,697 7,794 9,115 8,886 5,834
Net income $ 29,543 $ 31,414 $ 31,249 $ 11,827 $ 23,927 $ 29,237 $ 32,755 $ 20,588
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2023 Quarters 2022 Quarters
(In thousands, except per share data) Fourth Third Second First Fourth Third Second First
Per Common Share Data
Net income diluted $ 0.35 $ 0.37 $ 0.37 $ 0.15 $ 0.34 $ 0.47 $ 0.53 $ 0.33
Net income basic 0.35 0.37 0.37 0.15 0.34 0.48 0.53 0.34
Cash dividends declared:
Common stock $ 0.18 $ 0.18 $ 0.18 $ 0.17 $ 0.17 $ 0.17 $ 0.17 $ 0.13
Market price common stock:
Low close 19.59 21.51 18.83 21.31 29.60 30.23 31.46 32.43
High close 29.28 27.01 23.85 33.50 34.94 36.75 35.21 39.15
Bid price at end of period 28.46 21.82 21.78 23.18 31.19 30.23 33.04 35.02
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