Item 2. Management’s Discussion and Analysis
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis is to aid in understanding significant changes in the financial condition of Seacoast Banking Corporation of Florida and its subsidiaries (“Seacoast” or the “Company”) and their results of operations. Nearly all of the Company’s operations are contained in its banking subsidiary, Seacoast National Bank (“Seacoast Bank” or the “Bank”). Such discussion and analysis should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and the related notes included in this report.
The emphasis of this discussion will be on the three months ended March 31, 2024 compared to the three months ended March 31, 2023 for the consolidated statements of income. For the consolidated balance sheets, the emphasis of this discussion will be the balances as of March 31, 2024 compared to December 31, 2023.
This discussion and analysis contain statements that may be considered “forward-looking statements” as defined in, and subject to the protections of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. See the following section for additional information regarding forward-looking statements.
For purposes of the following discussion, the words “Seacoast” or the “Company” refer to the combined entities of Seacoast Banking Corporation of Florida and its direct and indirect wholly owned subsidiaries.
Special Cautionary Notice Regarding Forward-Looking Statements
Certain statements made or incorporated by reference herein which are not statements of historical fact, including those under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein, are “forward-looking statements” within the meaning, and protections, of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements with respect to the Company’s beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, and intentions about future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond the Company’s control, and which may cause the actual results, performance or achievements of Seacoast Banking Corporation of Florida (“Seacoast” or the “Company”) or its wholly-owned banking subsidiary, Seacoast National Bank (“Seacoast Bank”), to be materially different from those set forth in the forward-looking statements.
All statements other than statements of historical fact could be forward-looking statements. You can identify these forward-looking statements through the use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “support,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “further,” “plan,” “point to,” “project,” “could,” “intend,”
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“target” or other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation:
• The impact of current and future economic and market conditions generally (including seasonality) and in the financial services industry, nationally and within Seacoast’s primary market areas, including the effects of inflationary pressures, changes in interest rates, slowdowns in economic growth, and the potential for high unemployment rates, as well as the financial stress on borrowers and changes to customer and client behavior and credit risk as a result of the foregoing;
• Potential impacts of adverse developments in the banking industry, including those highlighted by high-profile bank failures, and including impacts on customer confidence, deposit outflows, liquidity and the regulatory response thereto (including increases in the cost of our deposit insurance assessments), the Company’s ability to effectively manage its liquidity risk and any growth plans, and the availability of capital and funding;
• Governmental monetary and fiscal policies, including interest rate policies of the Board of Governors of the Federal Reserve, as well as legislative, tax and regulatory changes, including those that impact the money supply and inflation;
• The risks of changes in interest rates on the level and composition of deposits (as well as the cost of, and competition for, deposits), loan demand, liquidity and the values of loan collateral, securities, and interest rate sensitive assets and liabilities;
• Interest rate risks (including the impact of interest rates on macroeconomic conditions, customer and client behavior, and on our net interest income), sensitivities, and the shape of the yield curve;
• Changes in accounting policies, rules, and practices;
• Changes in retail distribution strategies, customer preferences and behavior generally and as a result of economic factors, including heightened inflation;
• Changes in the availability and cost of credit and capital in the financial markets;
• Changes in the prices, values and sales volumes of residential and commercial real estate, especially as they relate to the value of collateral supporting the Company’s loans;
• The Company’s concentration in commercial real estate loans and in real estate collateral in Florida;
• Seacoast’s ability to comply with any regulatory requirements and the risk that the regulatory environment may not be conducive to or may prohibit the consummation of future mergers and/or business combinations, may increase the length of time and amount of resources required to consummate such transactions, and may reduce the anticipated benefit;
• Inaccuracies or other failures from the use of models, including the failure of assumptions and estimates, as well as differences in, and changes to, economic, market and credit conditions;
• The impact on the valuation of Seacoast’s investments due to market volatility or counterparty payment risk, as well as the effect of a decline in stock market prices on our fee income from our wealth management business;
• Statutory and regulatory dividend restrictions; increases in regulatory capital requirements for banking organizations generally;
• The risks of mergers, acquisitions and divestitures, including Seacoast’s ability to continue to identify acquisition targets, successfully acquire and integrate desirable financial institutions and realize expected revenues and revenue synergies;
• Changes in technology or products that may be more difficult, costly, or less effective than anticipated;
• The Company’s ability to identify and address increased cybersecurity risks, including those impacting vendors and other third parties which may be exacerbated by recent developments in generative artificial intelligence;
• Fraud or misconduct by internal or external parties, which Seacoast may not be able to prevent, detect or mitigate;
• Inability of Seacoast’s risk management framework to manage risks associated with the Company’s business;
• Dependence on key suppliers or vendors to obtain equipment or services for the business on acceptable terms, including the impact of supply chain distruptions;
• Reduction in or the termination of Seacoast’s ability to use the online- or mobile-based platform that is critical to the Company’s business growth strategy;
• The effects of war or other conflicts, including the impacts related to or resulting from Russia’s military action in Ukraine and the escalating conflicts in the Middle East, acts of terrorism, natural disasters, including hurricanes in the Company’s footprint, health emergencies, epidemics or pandemics, or other catastrophic events that may affect general economic conditions and/or increase costs, including, but not limited to, property and casualty and other insurance costs;
• Seacoast’s ability to maintain adequate internal controls over financial reporting;
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• Potential claims, damages, penalties, fines, costs and reputational damage resulting from pending or future litigation, regulatory proceedings and enforcement actions;
• The risks that deferred tax assets could be reduced if estimates of future taxable income from the Company’s operations and tax planning strategies are less than currently estimated, the results of tax audit findings, challenges to our tax positions, or adverse changes or interpretations of tax laws;
• The effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, non-bank financial technology providers, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions;
• The failure of assumptions underlying the establishment of reserves for expected credit losses;
• Risks related to, and the costs associated with, environmental, social and governance (“ESG”) matters, including the scope and pace of related rulemaking activity and disclosure requirements;
• A deterioration of the credit rating for U.S. long-term sovereign debt, actions that the U.S. government may take to avoid exceeding the debt ceiling, and uncertainties surrounding the debt ceiling and the federal budget;
• The risk that balance sheet, revenue growth, and loan growth expectations may differ from actual results; and
• Other factors and risks described under “Risk Factors” herein and in any of the Company’s subsequent reports filed with the SEC and available on its website at www.sec.gov.
All written or oral forward-looking statements that are made or are attributable to Seacoast are expressly qualified in their entirety by this cautionary notice, including, without limitation, those risks and uncertainties described in the Company’s annual report on Form 10-K for the year ended December 31, 2023 and in other periodic reports that the Company files with the SEC. The Company assumes no obligation to update, revise or correct any forward-looking statements that are made from time to time, either as a result of future developments, new information or otherwise, except as may be required by law.
Results of Operations
For the first quarter of 2024, the Company reported net income of $26.0 million, or $0.31 per average diluted share, a decrease of $3.5 million, or 12%, from the fourth quarter of 2023 and an increase of $14.2 million, or 120%, compared to the first quarter of 2023. Adjusted net income 1 for the first quarter of 2024 totaled $31.1 million, or $0.37 per average diluted share, a decrease of $0.2 million, or 1%, compared to the fourth quarter of 2023 and an increase of $7.5 million, or 31%, compared to the first quarter of 2023.
In the first quarter of 2023, the Company completed the acquisition of Professional Holding Corp. (“Professional”), parent company of Professional Bank, adding deposits of approximately $2.1 billion and loans of approximately $2.0 billion.
First Fourth First
Quarter Quarter Quarter
2024 2023 2023
Return on average tangible assets 0.89 % 0.99 % 0.52 %
Return on average tangible shareholders’ equity 9.55 11.22 5.96
Efficiency ratio 66.78 60.32 64.62
Adjusted return on average tangible assets 1
1.04 % 1.04 % 0.88 %
Adjusted return on average tangible shareholders’ equity 1
11.15 11.80 10.16
Adjusted efficiency ratio 1
61.13 60.32 53.10
1 Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP.
Net Interest Income and Margin
Net interest income for the first quarter of 2024 totaled $105.1 million, a decrease of $5.7 million, or 5% , compared to the fourth quarter of 2023, and a decrease of $26.1 million , or 20% , c ompared to the first quarter of 2023. The decrease from the prior quarter reflects higher interest expense on deposits driven by higher deposit costs attributed in part to overall growth in deposit balances. The decrease was partially offset by higher yields on loans and securities. The decrease from the prior year is primarily due to the higher cost of deposits.
1 Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP.
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Net interest income (on a fully taxable equivalent basis) 1 for the first quarter of 2024 was $105.3 million, a decrease of $5.7 million, or 5%, compared to the fourth quarter of 2023, and a decrease of $26.1 million, or 20%, c ompared to the first quarter of 2023. Accretion on acquired loans totaled $10.6 million for the first quarter of 2024, compared to $11.3 million for the fourth quarter of 2023, and $15.9 million for the first quarter of 2023.
Net interest margin (on a fully tax equivalent basis) 1 was 3.24% in the first quarter of 2024, compared to 3.36% in the fourth quarter of 2023, and 4.31% in the first quarter of 2023. The decrease during the first quarter of 2024 was largely driven by the growth in deposit costs. Compared to the fourth quarter of 2023, securities yields expanded five basis points to 3.47% and loan yields increased to 5.90% during the first quarter of 2024. The effect on net interest margin of accretion of purchase discounts on acquired loans were increases of 33 basis points in the first quarter of 2024, 34 basis points in the fourth quarter of 2023, and 53 basis points in the first quarter of 2023. The cost of deposits was 2.19% in the first quarter of 2024, compared to 2.00% in the fourth quarter of 2023, and 0.77% in the first quarter of 2023. For the first quarter of 2024, the higher cost of deposits reflects the impact of the continuing elevated interest rate environment.
The following table details the trend for net interest income and margin results (on a tax equivalent basis) 1 , the yield on earning assets and the rate paid on interest bearing liabilities for the periods specified:
(In thousands, except ratios) Net Interest
Income 1
Net Interest
Margin 1
Yield on
Earning Assets 1
Rate on Interest
Bearing Liabilities
First quarter 2024 $ 105,298 3.24 % 5.41 % 3.20 %
Fourth quarter 2023 111,035 3.36 % 5.36 % 2.98 %
First quarter 2023 131,351 4.31 % 5.19 % 1.43 %
1 On tax equivalent basis, a non-GAAP measure - see “ Explanation of Certain Unaudited Non-GAAP Financial Measures ” for more information and a reconciliation to GAAP.
Average loans increased $1.4 million for the first quarter of 2024 compared to the fourth quarter of 2023, and increased $665.5 million, or 7%, from the first quarter of 2023.
Average loans as a percentage of average earning assets totaled 77% for the first quarter of 2024, 77% for the fourth quarter of 2023 and 76% for the first quarter of 2023.
Average investment securities increased $78.0 million, or 3%, during the first quarter of 2024 compared to the fourth quarter of 2023, and were $131.5 million, or 5%, lower compared to the first quarter of 2023. Securities yields expanded five basis points to 3.47% during the first quarter of 2024 from 3.42% in the fourth quarter of 2023, benefiting from recent portfolio restructurings.
The cost of average interest-bearing liabilities increased 22 basis points in the first quarter of 2024 to 3.20% from 2.98% in the fourth quarter of 2023, and increased 177 basis points from 1.43% in the first quarter of 2023. The cost of average total deposits (including noninterest bearing demand deposits) was 2.19% in the first quarter of 2024, 2.00% in the fourth quarter of 2023 and 0.77% in the first quarter of 2023.
During the first quarter of 2024, average transaction deposits (noninterest and interest bearing demand) decreased $311.9 million, or 5%, compared to the fourth quarter of 2023 and decreased $539.3 million, or 8%, compared to the first quarter of 2023. The Company’s deposit mix remains favorable, with 87% of average deposit balances comprised of savings, money market, and demand deposits for the three months ended March 31, 2024.
Average balances of sweep repurchase agreements with customers decreased $2.2 million, or 1%, from the fourth quarter of 2023 and increased $159.9 million, or 92%, compared to the first quarter of 2023. The average rate on customer sweep repurchase accounts was 3.71% for the first quarter of 2024, compared to 3.54% for the fourth quarter of 2023, and 2.02% for the first quarter of 2023.
The Company had an average balance of $102.4 million in FHLB borrowings outstanding for the first quarter of 2024, with a weighted average interest rate of 4.15%, compared to $59.0 million for the fourth quarter of 2023, with a weighted average interest rate of 3.23%, and $282.4 million for the first quarter of 2023, with a weighted average interest rate of 4.26%.
Long-term debt balances averaged $106.4 million in the first quarter of 2024, $106.2 million in the fourth quarter of 2023, and $98.4 million in the first quarter of 2023. The average rate on long-term debt for the first quarter of 2024 was 7.31%, an increase of 15 basis points compared to the fourth quarter of 2023 and an increase of 66 basis points compared to the first quarter of 2023.
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The following tables detail average balances, net interest income and margin results (on a tax equivalent basis, a non-GAAP measure) for the periods presented:
Average Balances, Interest Income and Expenses, Yields and Rates 1
2024 2023 2023
First Quarter Fourth Quarter First Quarter
Average Yield/ Average Yield/ Average Yield/
(In thousands, except ratios) Balance Interest Rate Balance Interest Rate Balance Interest Rate
Assets
Earning assets:
Securities:
Taxable $ 2,578,938 $ 22,393 3.47 % $ 2,499,047 $ 21,383 3.42 % $ 2,700,122 $ 19,244 2.85 %
Nontaxable 5,907 41 2.75 7,835 68 3.48 16,271 131 3.22
Total Securities 2,584,845 22,434 3.47 2,506,882 21,451 3.42 2,716,393 19,375 2.85
Federal funds sold 370,494 5,056 5.49 465,506 6,426 5.48 106,778 1,294 4.91
Interest bearing deposits with other banks and other investments 95,619 1,128 4.74 91,230 1,190 5.18 178,463 2,180 4.95
Total Loans 10,034,658 147,308 5.90 10,033,245 148,004 5.85 9,369,201 135,341 5.86
Total Earning Assets 13,085,616 175,926 5.41 13,096,863 177,071 5.36 12,370,835 158,190 5.19
Allowance for credit losses (148,422) (149,110) (139,989)
Cash and due from banks 166,734 179,908 156,235
Premises and equipment 112,391 115,556 116,083
Intangible assets 825,531 832,029 750,694
Bank owned life insurance 299,765 297,525 274,517
Other assets including deferred tax assets 349,161 365,263 419,601
Total Assets $ 14,690,776 $ 14,738,034 $ 13,947,976
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand $ 2,719,334 $ 15,266 2.26 % $ 2,819,743 $ 15,658 2.20 % $ 2,452,113 $ 3,207 0.53 %
Savings 628,329 540 0.35 679,720 505 0.29 1,053,220 400 0.15
Money market 3,409,310 31,728 3.74 3,268,829 28,760 3.49 2,713,224 12,426 1.86
Time deposits 1,590,070 17,121 4.33 1,524,460 15,764 4.10 812,422 5,552 2.77
Securities sold under agreements to repurchase 333,386 3,079 3.71 335,559 2,991 3.54 173,498 864 2.02
Federal Home Loan Bank borrowings 102,418 960 3.77 59,022 442 2.97 282,444 2,776 3.99
Long-term debt 106,373 1,934 7.31 106,205 1,916 7.16 98,425 1,614 6.65
Total Interest-Bearing Liabilities 8,889,220 70,628 3.20 8,793,538 66,036 2.98 7,585,346 26,839 1.43
Noninterest demand 3,528,489 3,739,993 4,334,969
Other liabilities 154,686 145,591 130,616
Total Liabilities 12,572,395 12,679,122 12,050,931
Shareholders’ equity 2,118,381 2,058,912 1,897,045
Total Liabilities & Equity $ 14,690,776 $ 14,738,034 $ 13,947,976
Cost of deposits 2.19 % 2.00 % 0.77 %
Interest expense as a % of earning assets 2.17 % 2.00 % 0.88 %
Net interest income as a % of earning assets $ 105,298 3.24 % $ 111,035 3.36 % $ 131,351 4.31 %
1 On a fully taxable equivalent basis, a non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP. All yields and rates have been computed on an annual basis using amortized cost. Fees on loans have been included in interest on loans. Nonaccrual loans are included in loan balances.
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Noninterest Income
Noninterest income totaled $20.5 million for the first quarter of 2024, an increase of $3.2 million, or 18%, compared to the fourth quarter of 2023 and a decrease of $1.9 million, or 9% from the first quarter of 2023.
Noninterest income is detailed as follows:
First Fourth First
Quarter Quarter Quarter
(In thousands) 2024 2023 2023
Service charges on deposit accounts $ 4,960 $ 4,828 $ 4,242
Interchange income 1,888 2,433 4,694
Wealth management income 3,540 3,261 3,063
Mortgage banking fees 381 378 426
Insurance agency income 1,291 1,066 1,101
SBA gains 739 921 322
BOLI income 2,264 2,220 1,916
Other income 5,205 4,668 6,574
20,268 19,775 22,338
Securities gains (losses), net 229 (2,437) 107
Total $ 20,497 $ 17,338 $ 22,445
Service charges on deposits were $5.0 million in the first quarter of 2024, compared to $4.8 million in the fourth quarter of 2023, and $4.2 million in the first quarter of 2023. The increase in fees primarily reflects the benefit of an expanded deposit base and the continued expansion of commercial treasury management services and new customer acquisition.
Interchange income decreased to $1.9 million for the first quarter of 2024, compared to $2.4 million for the fourth quarter of 2023, and $4.7 million for the first quarter of 2023. The decrease in interchange income compared to the prior quarter is due to an annual volume-based incentive earned from the payment network provider in the previous quarter. The decrease compared to the prior year quarter is due to the impact of the Durbin amendment, which became effective for the first time for the Company on July 1, 2023, limiting network interchange fees earned on debit card transactions.
Wealth management income, including trust fees and brokerage commissions and fees, was $3.5 million in the first quarter of 2024, compared to $3.3 million for the fourth quarter of 2023 and $3.1 million for the first quarter of 2023. The wealth management division continues to demonstrate success in building relationships, and during the first quarter of 2024, assets under management grew $160 million, or 9%, to $1.9 billion.
Insurance agency income increased $0.2 million, or 21%, compared to the fourth quarter of 2023 and totaled $1.3 million.
Bank owned life insurance (“BOLI”) income was $2.3 million for the first quarter of 2024 compared to $2.2 million for the fourth quarter of 2023 and $1.9 million for the first quarter of 2023. The increase of $0.3 million, or 18%, compared to the first quarter of 2023 is attributed to additions, including those from bank acquisitions.
Other income was $5.2 million in the first quarter of 2024, an increase of $0.5 million, or 12%, compared to the fourth quarter of 2023, and a decrease of $1.4 million, or 21% compared to the first quarter of 2023. The increase compared to the prior quarter reflects higher marine and aircraft loan production sold, as well as higher SBIC income. The decrease compared to the first quarter of 2023 was attributed to BOLI death benefits of $2.1 million in the first quarter of 2023.
Net securities gains of $0.2 million in the first quarter of 2024 include gains of $4.1 million on the sale of the Company’s holdings of Visa Class B stock. This was largely offset by losses of $3.8 million on the sale of $86.8 million, or 3%, of the bank’s investment securities portfolio. The proceeds were reinvested at a yield of 5.53%, with an expected earnback on the trade of 1.9 years.
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Noninterest Expenses
Noninterest expense for the first quarter of 2024 totaled $90.4 million, an increase of $4.0 million, or 5%, compared to the fourth quarter of 2023, and a decrease of $17.1 million, or 16%, from the first quarter of 2023. Noninterest expenses are detailed as follows:
First Fourth First
Quarter Quarter Quarter
(In thousands) 2024 2023 2023
Salaries and wages $ 40,304 $ 38,435 $ 47,616
Employee benefits 7,889 6,678 8,562
Outsourced data processing costs 12,118 8,609 14,553
Occupancy 8,037 7,512 8,019
Furniture and equipment 2,011 2,028 2,267
Marketing 2,655 2,995 2,238
Legal and professional fees 2,151 3,294 7,479
FDIC assessments 2,158 2,813 1,443
Amortization of intangibles 6,292 6,888 6,727
Other real estate owned expense and net (gain) loss on sale (26) 573 195
Provision for credit losses on unfunded commitments 250 — 1,239
Other 6,532 6,542 7,137
Total $ 90,371 $ 86,367 $ 107,475
Salaries and wages totaled $40.3 million for the first quarter of 2024, $38.4 million for the fourth quarter of 2023, and $47.6 million for the first quarter of 2023. The increase compared to the fourth quarter of 2023 reflects severance-related costs arising from reductions in the workforce early in the first quarter of 2024. The decrease compared to the first quarter of 2023 reflects $4.2 million in merger-related expenses during the first quarter of 2023. The first quarter of 2023 also included expenses related to the net addition of branch locations and associates, as well as new bankers and operational staff associated with acquisitions.
During the first quarter of 2024, employee benefit costs, which include costs associated with the Company’s self-funded health insurance benefits, 401(k) plan, payroll taxes, and unemployment compensation, were $7.9 million, an increase of $1.2 million, or 18%, compared to the fourth quarter of 2023, and a decrease of $0.7 million, or 8%, compared to the first quarter of 2023. The increase compared to the fourth quarter of 2023 reflects higher seasonal payroll taxes and 401(k) contributions. The decrease compared to the first quarter of 2023 is related to reductions in the workforce.
The Company utilizes third parties for its core data processing systems. Ongoing data processing costs are directly related to the number of transactions processed and the negotiated rates associated with those transactions. Outsourced data processing costs totaled $12.1 million, $8.6 million, and $14.6 million for the first quarter of 2024, fourth quarter of 2023, and first quarter of 2023, respectively. The increased costs in the first quarter of 2024 are attributed to $4.1 million in charges associated with contract terminations and modifications to consolidate systems, which should lead to lower ongoing operating expenses.
Total occupancy, furniture and equipment expenses were $10.0 million in the first quarter of 2024, $9.5 million in the fourth quarter of 2023, and $10.3 million in the first quarter of 2023. Expenses in the first quarter of 2024 included charges of $0.8 million associated with early lease terminations and consolidation of locations as part of the Company’s expense reduction initiative.
Marketing expenses totaled $2.7 million in the first quarter of 2024, $3.0 million in the fourth quarter of 2023, and $2.2 million in the first quarter of 2023.
Legal and professional fees for the first quarter of 2024 were $2.2 million, a decrease of $1.1 million, or 35%, compared to the fourth quarter of 2023, and a decrease of $5.3 million, or 71%, compared to the first quarter of 2023. There were no acquisition-related expenses in the first quarter of 2024 or the fourth quarter of 2023, compared to $4.8 million in the first quarter of 2023.
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Provision for Credit Losses
The provision for credit losses was $1.4 million for the first quarter of 2024, compared to $4.0 million for the fourth quarter of 2023, and $31.6 million for the first quarter of 2023. The first quarter of 2023 included a $26.6 million day-one provision associated with the acquisition of Professional.
Income Taxes
For the first quarter of 2024, the Company recorded tax expense of $7.8 million, compared to $8.3 million in the fourth quarter of 2023 and $2.7 million in the first quarter of 2023. Lower income tax expense in the first quarter of 2024 compared to the fourth quarter of 2023 and the first quarter of 2023 is primarily due to lower pre-tax income.
Explanation of Certain Unaudited Non-GAAP Financial Measures
This report contains financial information determined by methods other than Generally Accepted Accounting Principles (“GAAP”). The financial highlights provide reconciliations between GAAP and adjusted financial measures including net income, fully taxable equivalent net interest income, noninterest income, noninterest expense, tax adjustments, net interest margin and other financial ratios. Management uses these non-GAAP financial measures in its analysis of the Company’s performance and believes these presentations provide useful supplemental information, and a clearer understanding of the Company’s performance. The Company believes the non-GAAP measures enhance investors’ understanding of the Company’s business and performance and if not provided would be requested by the investor community. These measures are also useful in understanding performance trends and facilitate comparisons with the performance of other financial institutions. The limitations associated with operating measures are the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might define or calculate these measures differently. The Company provides reconciliations between GAAP and these non-GAAP measures. These disclosures should not be considered an alternative to GAAP.
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Reconciliation of Non-GAAP Measures
First Fourth First
Quarter Quarter Quarter
(Amounts in thousands, except per share data) 2024 2023 2023
Net income $ 26,006 $ 29,543 $ 11,827
Total noninterest income $ 20,497 $ 17,338 $ 22,445
Securities (gains) losses, net (229) 2,437 (107)
BOLI benefits on death (included in other income) — — (2,117)
Total adjustments to noninterest income (229) 2,437 (2,224)
Adjusted noninterest income $ 20,268 $ 19,775 $ 20,221
Total noninterest expense $ 90,371 $ 86,367 $ 107,475
Merger related charges:
Salaries and wages — — (4,240)
Outsourced data processing — — (6,551)
Legal and professional fees — — (4,789)
Other — — (1,952)
Total merger related charges — — (17,532)
Branch reductions and other expense initiatives 1 :
Salaries and wages (2,073) — (539)
Outsourced data processing (4,089) — —
Occupancy (771) — —
Other (161) — (752)
Total branch reductions and other expense initiatives 1
(7,094) — (1,291)
Adjustments to noninterest expense (7,094) — (18,823)
Adjusted noninterest expense 2
$ 83,277 $ 86,367 $ 88,652
Income taxes $ 7,830 $ 8,257 $ 2,697
Tax effect of adjustments 1,739 617 4,744
Adjusted income taxes 9,569 8,874 7,441
Adjusted net income 2
$ 31,132 $ 31,363 $ 23,682
Earnings per diluted share, as reported $ 0.31 $ 0.35 $ 0.15
Adjusted earnings per diluted share 0.37 0.37 0.29
Average diluted shares outstanding 85,270 85,336 80,717
Adjusted noninterest expense $ 83,277 $ 86,367 $ 88,652
Provision for credit losses on unfunded commitments (250) — (1,239)
Other real estate owned expense and net gain (loss) on sale 26 (573) (195)
Amortization of intangibles (6,292) (6,888) (6,727)
Net adjusted noninterest expense $ 76,761 $ 78,906 $ 80,491
Net adjusted noninterest expense $ 76,761 $ 78,906 $ 80,491
Average tangible assets $ 13,865,245 $ 13,906,005 $ 13,197,282
Net adjusted noninterest expense to average tangible assets 2.23 % 2.25 % 2.47 %
Revenue $ 125,575 $ 128,157 $ 153,597
Total adjustments to revenue (229) 2,437 (2,224)
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First Fourth First
Quarter Quarter Quarter
(Amounts in thousands, except per share data) 2024 2023 2023
Impact of FTE adjustment 220 216 199
Adjusted revenue on a fully taxable equivalent basis $ 125,566 $ 130,810 $ 151,572
Adjusted efficiency ratio 61.13 % 60.32 % 53.10 %
Net interest income $ 105,078 $ 110,819 $ 131,152
Impact of FTE adjustment 220 216 199
Net interest income including FTE adjustment 105,298 111,035 131,351
Total noninterest income 20,497 17,338 22,445
Total noninterest expense less provision for credit losses on unfunded commitments 90,121 86,367 106,236
Pre-tax pre-provision earnings 35,674 42,006 47,560
Total adjustments to noninterest income (229) 2,437 (2,224)
Total adjustments to noninterest expense including foreclosed property expense 7,068 573 19,018
Adjusted pre-tax pre-provision earnings 2
$ 42,513 $ 45,016 $ 64,354
Average assets $ 14,690,776 $ 14,738,034 $ 13,947,976
Less average goodwill and intangible assets (825,531) (832,029) (750,694)
Average tangible assets $ 13,865,245 $ 13,906,005 $ 13,197,282
Return on average assets (ROA) 0.71 % 0.80 % 0.34 %
Impact of removing average intangible assets and related amortization 0.18 0.19 0.18
Return on average tangible assets (ROTA) 0.89 0.99 0.52
Impact of other adjustments for adjusted net income 0.15 0.05 0.36
Adjusted return on average tangible assets 1.04 % 1.04 % 0.88 %
Pre-tax pre-provision return on average tangible assets 1.22 % 1.39 % 1.67 %
Impact of adjustments on pre-tax pre-provision earnings 0.20 0.09 0.51
Adjusted pre-tax pre-provision return on average tangible assets 2
1.42 % 1.48 % 2.18 %
Average shareholders’ equity $ 2,118,381 $ 2,058,912 $ 1,897,045
Less average goodwill and intangible assets (825,531) (832,029) (750,694)
Average tangible equity $ 1,292,850 $ 1,226,883 $ 1,146,351
Return on average shareholders’ equity 4.94 % 5.69 % 2.53 %
Impact of removing average intangible assets and related amortization 4.61 5.53 3.43
Return on average tangible common equity (ROTCE) 9.55 11.22 5.96
Impact of other adjustments for adjusted net income 1.60 0.58 4.20
Adjusted return on average tangible common equity 11.15 % 11.80 % 10.16 %
Loan interest income 3
$ 147,308 $ 148,004 $ 135,341
Accretion on acquired loans (10,595) (11,324) (15,942)
Loan interest income excluding accretion on acquired loans 3
$ 136,713 $ 136,680 $ 119,399
Yield on loans 3
5.90 % 5.85 % 5.86 %
Impact of accretion on acquired loans (0.42) (0.45) (0.69)
Yield on loans excluding accretion on acquired loans 3
5.48 % 5.40 % 5.17 %
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T a b l e o f C o n t e n t s
First Fourth First
Quarter Quarter Quarter
(Amounts in thousands, except per share data) 2024 2023 2023
Net interest income 3
$ 105,298 $ 111,035 $ 131,351
Accretion on acquired loans (10,595) (11,324) (15,942)
Net interest income excluding accretion on acquired loans 3
$ 94,703 $ 99,711 $ 115,409
Net interest margin 3
3.24 % 3.36 % 4.31 %
Impact of accretion on acquired loans (0.33) (0.34) (0.53)
Net interest margin excluding accretion on acquired loans 3
2.91 % 3.02 % 3.78 %
Securities interest income 3
$ 22,434 $ 21,451 $ 19,375
Tax equivalent adjustment to securities (7) (13) (26)
Securities interest income excluding tax equivalent adjustment $ 22,427 $ 21,438 $ 19,349
Loan interest income 3
$ 147,308 $ 148,004 $ 135,341
Tax equivalent adjustment to loans (213) (203) (173)
Loan interest income excluding tax equivalent adjustment $ 147,095 $ 147,801 $ 135,168
Net interest income 3
$ 105,298 $ 111,035 $ 131,351
Tax equivalent adjustments to securities (7) (13) (26)
Tax equivalent adjustments to loans (213) (203) (173)
Net interest income excluding tax equivalent adjustments $ 105,078 $ 110,819 $ 131,152
1 Includes severance, contract termination costs, disposition of branch premises and fixed assets, and other costs to effect the Company’s branch consolidation and other expense reduction strategies.
2 As of 1Q’24, amortization of intangibles is excluded from adjustments to noninterest expense; prior periods have been updated to reflect the change.
3 On a fully taxable equivalent basis. All yields and rates have been computed using amortized cost.
Financial Condition
Total assets as of March 31, 2024 were $14.8 billion, an increase of $0.2 billion, or 2%, from December 31, 2023.
Securities
Information related to yields, maturities, carrying values and fair value of the Company’s securities is set forth in “Note 3 – Securities” of the Company’s condensed consolidated financial statements.
At March 31, 2024, the Company had $1.9 billion in AFS securities and $669.9 million in HTM securities. The Company’s total debt securities portfolio increased $103.0 million from December 31, 2023. During the three months ended March 31, 2024, the Company recognized a $4.1 million gain on the opportunistic sale of Visa Class B shares. The gain was offset by a partial repositioning of the securities portfolio, in which $86.8 million of securities were sold, with $3.8 million in realized losses. Additionally, during the three months ended March 31, 2024, there were $261.0 million of debt securities purchased and $61.2 million in paydowns and maturities over the same period.
Debt securities generally return principal and interest monthly. The modified duration of the AFS securities portfolio and the total portfolio was 4.5 and 4.9, respectively, at both March 31, 2024 and December 31, 2023.
At March 31, 2024, AFS securities had gross unrealized losses of $223.6 million and gross unrealized gains of $3.6 million, compared to gross unrealized losses of $217.7 million and gross unrealized gains of $4.4 million at December 31, 2023.
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T a b l e o f C o n t e n t s
The credit quality of the Company’s securities holdings is primarily investment grade. U.S. Treasury securities, obligations of U.S. government agencies, and obligations of U.S. government sponsored entities totaled $2.2 billion, or 83%, of the total portfolio.
The portfolio includes $136.6 million, with a fair value of $126.2 million, in private label residential and commercial mortgage-backed securities and collateralized mortgage obligations. Included are $127.0 million, with a fair value of $116.9 million, in private label residential securities with weighted average credit support of 23%. The collateral underlying these mortgage investments includes both fixed-rate and adjustable-rate residential mortgage loans. Commercial securities totaled $9.6 million, with a fair value of $9.2 million. These securities have weighted average credit support of 26%. The collateral underlying these mortgages are primarily pooled multifamily loans.
The Company also has invested $284.7 million in floating rate collateralized loan obligations. Collateralized loan obligations are special purpose vehicles that purchase first lien broadly syndicated corporate loans while providing support to senior tranche investors. As of March 31, 2024, all of the Company’s collateralized loan obligations were in AAA/AA tranches with weighted average credit support of 34%. The Company utilizes credit models with assumptions of loan level defaults, recoveries, and prepayments to evaluate each security for potential credit losses. The result of this analysis did not indicate expected credit losses.
HTM securities consist solely of mortgage-backed securities and collateralized mortgage obligations guaranteed by U.S. government-sponsored entities, each of which is expected to recover any price depreciation over its holding period as the debt securities move to maturity. The Company has significant liquidity and available borrowing capacity through other sources if needed, and has the intent and ability to hold these investments to maturity.
At March 31, 2024, the Company has determined that all debt securities in an unrealized loss position are the result of both broad investment type spreads and the current interest rate environment. Management believes that each investment will recover any price depreciation over its holding period as the debt securities move to maturity, and management has the intent and ability to hold these investments to maturity if necessary. Therefore, at March 31, 2024, no allowance for credit losses has been recorded.
Loan Portfolio
Loans, net of unearned income and excluding the allowance for credit losses, were $10.0 billion at March 31, 2024, an $84.9 million, or 1%, decrease from December 31, 2023.
The Company remains committed to sound risk management procedures. Portfolio diversification in terms of asset mix, industry, and loan type has been and continues to be an important element of the Company’s lending strategy. The average loan size is only $332 thousand, and the average commercial loan size is only $742 thousand at March 31, 2024, reflecting the Company’s longtime focus on granularity and on creating valuable customer relationships. Lending policies contain guardrails that pertain to lending by type of collateral and purpose, along with limits regarding loan concentrations and the principal amount of loans. The Company’s exposure to commercial real estate lending remains well below regulatory limits (see “Loan Concentrations”).
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T a b l e o f C o n t e n t s
The following tables detail loan portfolio composition at March 31, 2024 and December 31, 2023 for portfolio loans, purchased credit deteriorated (“PCD”) and loans purchased which are not considered purchased credit deteriorated (“Non-PCD”) as defined in “Note 4 - Loans”.
March 31, 2024
(In thousands) Portfolio Loans Acquired Non-PCD Loans PCD Loans Total
Construction and land development $ 454,591 $ 168,116 $ 539 $ 623,246
Commercial real estate - owner occupied 1,088,086 532,259 35,785 1,656,130
Commercial real estate - non-owner occupied 1,934,419 1,293,008 140,912 3,368,339
Residential real estate 1,756,236 745,349 19,814 2,521,399
Commercial and financial 1,216,045 305,200 44,954 1,566,199
Consumer 164,387 77,677 675 242,739
Totals $ 6,613,764 $ 3,121,609 $ 242,679 $ 9,978,052
December 31, 2023
(In thousands) Portfolio Loans Acquired Non-PCD Loans PCD Loans Total
Construction and land development $ 519,426 $ 247,654 $ 542 $ 767,622
Commercial real estate - owner occupied 1,079,633 552,627 38,021 1,670,281
Commercial real estate - non-owner occupied 1,844,588 1,323,222 152,080 3,319,890
Residential real estate 1,714,748 710,129 20,815 2,445,692
Commercial and financial 1,237,090 318,683 52,115 1,607,888
Consumer 175,969 74,854 744 251,567
Totals $ 6,571,454 $ 3,227,169 $ 264,317 $ 10,062,940
The amortized cost basis of loans included net deferred costs of $44.9 million at March 31, 2024 and $43.1 million at December 31, 2023. At March 31, 2024, the remaining fair value adjustments on acquired loans were $163.4 million, or 4.6%, of the outstanding acquired loan balances, compared to $174.0 million, or 4.8%, of the acquired loan balances at December 31, 2023. The discount is accreted into interest income over the remaining lives of the related loans on a level yield basis.
Collateral types and characteristics of non-owner occupied commercial real estate (“CRE”) loans as of March 31, 2024 were as follows:
March 31, 2024
(In thousands)
Balance Balance % of Total Loans Average Loan Size 30+ Days Past Due-Accruing Non Accrual Weighted Avg LTV 1
Retail $ 1,120,440 11.2 % $ 2,138 $ — $ 1,608 51 %
Office 565,127 5.7 1,605 — 11,521 55
Multifamily 5+ 370,342 3.7 1,824 3,208 — 52
Hotel/Motel 359,446 3.6 3,524 1,659 1,012 50
Industrial/Warehouse 364,790 3.7 1,771 — 831 54
Other 588,194 5.9 967 — 6,216 53
Total $ 3,368,339 33.8 % $ 1,688 $ 4,867 $ 21,188 52 %
1 Loan-to-value is calculated based on the real estate value at the time of origination, renewal, or update, whichever is more recent.
CRE non-owner occupied loans increased by $48.4 million in the three months ended March 31, 2024, totaling $3.37 billion at March 31, 2024 compared to $3.32 billion at December 31, 2023. Non-owner occupied CRE loans are collateralized by properties where the source of repayment is typically from the sale or lease of the property. Within the non-owner occupied CRE portfolio, the largest segment is Retail properties, which totaled approximately $1.12 billion at March 31, 2024.
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This segment targets grocery or credit tenant-anchored shopping plazas, single credit tenant retail buildings, smaller outparcels, and other small retail units. Loans in this segment have a weighted average loan to value of 51% and an average loan size of $2.1 million. The second-largest segment in the non-owner occupied CRE portfolio is Office properties, which totaled $565.1 million at March 31, 2024. This segment targets low to mid-rise suburban offices and is broadly diversified across many types of professional services. There is limited exposure to central business districts. Loans in this segment have a weighted average loan to value of 55% and an average loan size of $1.6 million.
Owner-occupied CRE loans decreased by $14.2 million in the three months ended March 31, 2024 to $1.7 billion. Owner-occupied CRE is used by the owner, where the primary source of repayment is the cash flow from business operations housed within the property.
Commercial and financial loans are extended to commercial customers for working capital, physical asset expansion, asset acquisition or other business purposes. Balances decreased $41.7 million, or 3%, from December 31, 2023, totaling $1.6 billion at March 31, 2024.
Residential mortgage loans increased $75.7 million to $2.5 billion during the three months ended March 31, 2024. Included in the balance as of March 31, 2024, were $1.0 billion of fixed rate mortgages, $932.3 million of adjustable rate mortgages and $475.9 million in primarily floating rate home equity lines of credit (“HELOCs”), compared to $1.0 billion, $865.2 million and $488.2 million, respectively, at December 31, 2023. Borrowers in the residential real estate portfolio have an average credit score of 752. Substantially all residential originations have been underwritten to conventional loan agency standards, including loan balances that exceed agency value limitations. The average LTV of our HELOC portfolio is 63%, with 33% of the loans being in first lien position at March 31, 2024, compared to an average LTV of 63%, with 35% of the portfolio being in the first lien position at December 31, 2023.
The Company also provides consumer loans, which include installment loans, auto loans, marine loans, and other consumer loans, which decreased $8.8 million, or 4%, to total $242.7 million at March 31, 2024, compared to $251.6 million at December 31, 2023.
Loan production and late-stage pipelines (loans in underwriting and approval or approved and not yet closed) are detailed in the following table for the periods specified:
First Fourth First
Quarter Quarter Quarter
(In thousands) 2024 2023 2023
Commercial/commercial real estate loan pipeline at period end $ 498,617 $ 306,531 $ 289,162
Commercial/commercial real estate loans closed 260,032 334,229 320,209
SBA pipeline at period end 15,630 20,600 8,218
SBA originations 18,944 25,034 1,456
Residential pipeline - saleable at period end 9,279 2,657 6,614
Residential loans - sold 4,618 15,614 13,935
Residential pipeline - portfolio at period end 24,364 44,422 48,371
Residential loans - retained 36,412 41,186 90,058
Consumer pipeline at period end 25,057 18,745 38,742
Consumer originations 48,244 61,847 110,602
Commercial and commercial real estate originations during the first quarter of 2024 were $260.0 million, a decrease of $74.2 million, or 22%, compared to the fourth quarter of 2023, and a decrease of $60.2 million, or 19%, compared to the first quarter of 2023. Lower originations compared to the fourth quarter of 2023 were consistent with typical seasonality. Lower originations compared to the first quarter of 2023 were largely the result of the impact of higher rates on customer demand. Commercial and commercial real estate pipelines were $498.6 million as of March 31, 2024, an increase of 63% from $306.5 million at December 31, 2023, and an increase of 72% from $289.2 million at March 31, 2023.
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SBA originations totaled $18.9 million during the first quarter of 2024, a decrease of $6.1 million compared to the fourth quarter of 2023, and an increase of $17.5 million compared to the first quarter of 2023.
Residential loans originated for sale in the secondary market totaled $4.6 million in the first quarter of 2024, compared to $15.6 million in the fourth quarter of 2023 and $13.9 million in the first quarter of 2023. Residential saleable pipelines were $9.3 million as of March 31, 2024, compared to $2.7 million as of December 31, 2023 and $6.6 million as of March 31, 2023.
Residential loan production retained in the portfolio for the first quarter of 2024 was $36.4 million, compared to $41.2 million in the fourth quarter of 2023 and $90.1 million in the first quarter of 2023. The pipeline of residential loans intended to be retained in the portfolio was $24.4 million as of March 31, 2024, compared to $44.4 million as of December 31, 2023, and $48.4 million as of March 31, 2023.
Consumer originations, which include HELOCs, totaled $48.2 million during the first quarter of 2024, compared to $61.8 million in the fourth quarter of 2023 and $110.6 million in the first quarter of 2023. The consumer pipeline was $25.1 million as of March 31, 2024, compared to $18.7 million as of December 31, 2023 and $38.7 million at March 31, 2023.
Loan Concentrations
The Company has developed guardrails to manage loan types that are most impacted by stressed market conditions to minimize credit risk concentration to capital. Outstanding balances for commercial and commercial real estate loan relationships greater than $10 million totaled $2.3 billion, representing 23% of the total portfolio, at both March 31, 2024 and December 31, 2023. The Company’s ten largest commercial and commercial real estate funded and unfunded relationships at March 31, 2024 aggregated to $552.1 million, of which $386.8 million was funded, compared to $505.7 million at December 31, 2023, of which $348.3 million was funded.
Concentrations in construction and land development loans and CRE loans are maintained well below regulatory limits. Construction and land development and CRE loan concentrations as a percentage of subsidiary bank total risk based capital were 39% and 236%, respectively, at March 31, 2024, compared to 48% and 244%, respectively, at December 31, 2023. Regulatory guidance suggests limits of 100% and 300%, respectively. On a consolidated basis, construction and land development and commercial real estate loans represent 36% and 222%, respectively, of total consolidated risk based capital as of March 31, 2024. To determine these ratios, the Company defines CRE in accordance with the guidance on “Concentrations in Commercial Real Estate Lending” (the “Guidance”) issued by the federal bank regulatory agencies in 2006 (and reinforced in 2015), which defines CRE loans as exposures secured by land development and construction, including 1-4 family residential construction, multi-family property, and non-farm nonresidential property where the primary or a significant source of repayment is derived from rental income associated with the property (i.e., loans for which 50 percent or more of the source of repayment comes from third party, non-affiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. Loans to real estate investment trusts (“REITs”) and unsecured loans to developers that closely correlate to the inherent risks in CRE markets would also be considered CRE loans under the Guidance. Loans on owner-occupied CRE are generally excluded. In addition, the Company is subject to a geographic concentration of credit because it primarily operates in Florida.
Nonperforming Loans, Troubled Borrower Modifications, Other Real Estate Owned and Credit Quality
Nonperforming assets (“NPAs”) at March 31, 2024 totaled $84.5 million, and were comprised of $77.2 million of nonaccrual loans, and $7.3 million of other real estate owned (“OREO”), including $7.0 million of branches taken out of service. Overall, NPAs increased $11.9 million, or 16%, from $72.7 million as of December 31, 2023. Nonperforming assets to total assets at March 31, 2024 increased to 0.57% from 0.50% at December 31, 2023.
Compared to December 31, 2023, nonaccrual loans increased $12.1 million, or 19%. Approximately 58% of nonaccrual loans were secured with real estate at March 31, 2024. Nonperforming loans to total loans outstanding at March 31, 2024 increased to 0.77% from 0.65% at December 31, 2023. See the tables below for the payment status of nonaccrual loans.
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T a b l e o f C o n t e n t s
The table below sets forth details related to nonaccrual loans.
March 31, 2024
Nonaccrual Loans
(In thousands) Non-Current Current Total
Construction and land development $ 419 $ 473 $ 892
Commercial real estate - owner occupied 3,069 8,153 11,222
Commercial real estate - non-owner occupied 19,264 1,923 21,187
Residential real estate 4,883 6,842 11,725
Commercial and financial 8,124 22,667 30,791
Consumer 888 500 1,388
Total $ 36,647 $ 40,558 $ 77,205
December 31, 2023
Nonaccrual Loans
(In thousands) Non-Current Current Total
Construction and land development $ 109 $ 715 $ 824
Commercial real estate - owner occupied 5,234 4,450 9,684
Commercial real estate - non-owner occupied 4,179 4,556 8,735
Residential real estate 3,864 6,122 9,986
Commercial and financial 7,304 27,389 34,693
Consumer 779 403 1,182
Total $ 21,469 $ 43,635 $ 65,104
In accordance with regulatory reporting requirements, loans are placed on nonaccrual following the Retail Classification of Loan interagency guidance. The accrual of interest is generally discontinued on loans, except consumer loans, that become 90 days past due as to principal or interest unless collection of both principal and interest is assured by way of collateralization, guarantees or other security. Consumer loans that become 120 days past due are generally charged off. The loan carrying value is analyzed and any changes are appropriately made as described above quarterly.
In certain circumstances, the Company provides modifications of loans to borrowers experiencing financial difficulty, which the Company refers to as troubled borrower modifications (“TBMs”). Loans that were modified as TBMs during the three months ended March 31, 2024 are included in “Note 4 - Loans”.
Allowance for Credit Losses on Loans
Management establishes the allowance using relevant available information from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The forecasts of future economic conditions are over a period that has been deemed reasonable and supportable, and in segments where it can no longer develop reasonable and supportable forecasts, the Company reverts to longer-term historical loss experience to estimate losses over the remaining life of the loans. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments.
During the three months ended March 31, 2024, the Company recorded provision expense of $1.4 million. The Company reported net charge-offs for the three months ended March 31, 2024 of $3.6 million.
The ratio of allowance for credit losses to total loans was 1.47% at March 31, 2024, 1.48% at December 31, 2023, and 1.54% at March 31, 2023.
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T a b l e o f C o n t e n t s
Cash and Cash Equivalents and Liquidity Risk Management
Liquidity risk involves the risk of being unable to fund assets with the appropriate duration and rate-based liability, as well as the risk of not being able to meet unexpected cash needs. Liquidity planning and management are necessary to ensure the ability to fund operations cost effectively and to meet current and future potential obligations such as loan commitments and unexpected deposit outflows.
Funding sources primarily include customer-based deposits, collateral-backed borrowings, brokered deposits, cash flows from operations, cash flows from the loan and investment portfolios and asset sales, primarily secondary marketing for residential real estate mortgages. Cash flows from operations are a significant component of liquidity risk management and the Company considers both deposit maturities and the scheduled cash flows from loan and investment maturities and payments when managing risk.
Cash and cash equivalents, including interest bearing deposits, totaled $682.7 million at March 31, 2024, compared to $447.2 million at December 31, 2023. Higher cash and cash equivalent balances at March 31, 2024 are consistent with the Company’s strategic balance sheet management.
Deposits are a primary source of liquidity. The stability of this funding source is affected by numerous factors, including returns available to customers on alternative investments, the quality of customer service levels, perception of safety and competitive forces. Total uninsured deposits were estimated to be $4.2 billion at March 31, 2024, representing 35% of overall deposit accounts. This includes public funds under the Florida Qualified Public Depository program, which provides loss protection to depositors beyond FDIC insurance limits. Excluding such balances, the uninsured and uncollateralized deposits were 29% of total deposits at March 31, 2024. The Company has liquidity sources as discussed below, including cash and lines of credit with the FRB and FHLB, that represent 138% of uninsured deposits, and 164% of uninsured and uncollateralized deposits.
In addition to $682.7 million in cash and cash equivalents at March 31, 2024, the Company had $5.1 billion in available borrowing capacity, including $4.4 billion in available collateralized lines of credit, $391.3 million of unpledged debt securities available as collateral for potential additional borrowings, and available unsecured lines of credit of $300.0 million. The Company may also access funding by acquiring brokered deposits. Brokered deposits at March 31, 2024 totaled $142.7 million compared to $122.3 million at December 31, 2023.
Contractual maturities for assets and liabilities are reviewed to meet current and expected future liquidity requirements. Sources of liquidity are maintained through a portfolio of high quality marketable assets, such as residential mortgage loans, debt securities available-for-sale and interest-bearing deposits. The Company is also able to provide short-term financing of its activities by selling, under an agreement to repurchase, United States Treasury and Government agency debt securities not pledged to secure public deposits or trust funds.
The Company has traditionally relied upon dividends from Seacoast Bank and securities offerings to provide funds to pay the Company’s expenses and to service the Company’s debt. During the first quarter of 2024, Seacoast Bank distributed $15.1 million to the Company and, at March 31, 2024, is eligible to distribute dividends to the Company of approximately $138.7 million without prior regulatory approval. At March 31, 2024, the Company had cash and cash equivalents at the parent of approximately $101.5 million, compared to $101.7 million at December 31, 2023.
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Deposits and Borrowings
Customer relationship funding is detailed in the following table for the periods specified:
March 31, December 31,
(In thousands, except ratios) 2024 2023
Noninterest demand $ 3,555,401 $ 3,544,981
Interest-bearing demand 2,711,041 2,790,210
Money market 3,531,029 3,314,288
Savings 608,088 651,454
Time deposits 1,467,564 1,353,655
Brokered deposits $ 142,717 $ 122,347
Total deposits $ 12,015,840 $ 11,776,935
Customer sweep accounts 326,732 374,573
Total customer funding 1
$ 12,199,855 $ 12,029,161
Noninterest demand deposits as % of total deposits 30 % 30 %
1 Total deposits and customer sweep accounts, excluding brokered deposits.
The Company benefits from a diverse and granular deposit base that serves as a significant source of strength. Total deposits increased $238.9 million, or 2%, to $12.0 billion at March 31, 2024 compared to December 31, 2023.
Noninterest demand deposits represented 30% of total deposits at both March 31, 2024 and December 31, 2023. Transaction account balances (noninterest demand and interest-bearing demand) represented 52% of total deposits at March 31, 2024, compared to 54% at December 31, 2023.
Customer sweep accounts totaled $326.7 million at March 31, 2024, decreasing $47.8 million, or 13%, from December 31, 2023. Repurchase agreements are offered by Seacoast to select customers who wish to sweep excess balances on a daily basis for investment purposes.
At March 31, 2024 and December 31, 2023, long-term debt included $72.3 million and $72.2 million, respectively, related to trust preferred securities issued by trusts organized or acquired by the Company. At March 31, 2024, the average interest rate in effect on our outstanding subordinated debt related to trust preferred securities was 7.29%, compared to 7.34% at December 31, 2023. All trust preferred securities are guaranteed by the Company on a junior subordinated basis. Under Basel III and FRB rules, qualified trust preferred securities and other restricted capital elements can be included as Tier 1 capital, within limitations. The Company believes that its trust preferred securities qualify under these capital rules.
In 2022, the Company acquired $12.3 million in senior debt through the acquisition of Apollo Bancshares, Inc. Contractual interest is paid on a semiannual basis at a fixed rate of 5.50% until April 30, 2025, at which point the rate converts to a floating rate of 3-month SOFR plus 533 basis points. The debt was recorded at fair value, resulting in a $0.4 million premium that is being amortized into interest expense over the remaining term to maturity.
In 2023, the Company acquired $25.0 million in subordinated debt through the acquisition of Professional that qualifies as Tier 2 Capital. Contractual interest is paid on a semiannual basis at a fixed interest rate of 3.375% until January 30, 2027, at which point the rate converts to a 3-month SOFR rate plus 203 basis points paid quarterly. The debt was recorded at fair value, resulting in a $3.9 million discount that is being accreted into interest expense over the remaining term to maturity.
Federal Home Loan Bank advances totaled $110.0 million at March 31, 2024 with a weighted average interest rate of 4.15%, compared to $50.0 million at December 31, 2023 with an interest rate of 3.23%.
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Off-Balance Sheet Transactions
In the normal course of business, the Company may engage in a variety of financial transactions that, under generally accepted accounting principles, either are not recorded on the balance sheet or are recorded on the balance sheet in amounts that differ from the full contract or notional amounts. These transactions involve varying elements of market, credit and liquidity risk.
Lending commitments include unfunded loan commitments and standby and commercial letters of credit. For loan commitments, the contractual amount of a commitment represents the maximum potential credit risk that could result if the entire commitment had been funded, the borrower had not performed according to the terms of the contract, and no collateral had been provided. A large majority of loan commitments and standby letters of credit expire without being funded, and accordingly, total contractual amounts are not representative of actual future credit exposure or liquidity requirements. Loan commitments and letters of credit expose the Company to credit risk in the event that the customer draws on the commitment and subsequently fails to perform under the terms of the lending agreement.
For commercial customers, loan commitments generally take the form of revolving credit arrangements. For retail customers, loan commitments generally are lines of credit secured by residential property. These instruments are not recorded on the balance sheet until funds are advanced under the commitment. Unfunded commitments to extend credit were $2.7 billion at both March 31, 2024 and December 31, 2023.
In the normal course of business, the Company and Seacoast Bank enter into agreements, or are subject to regulatory agreements that result in cash, debt and dividend restrictions. A summary of the most restrictive items follows:
Seacoast Bank may be required to maintain reserve balances with the FRB. There was no reserve requirement at March 31, 2024 or December 31, 2023.
Under FRB regulation, Seacoast Bank is limited as to the amount it may loan to its affiliates, including the Company, unless such loans are collateralized by specified obligations. At March 31, 2024, the maximum amount available for transfer from Seacoast Bank to the Company in the form of loans approximated $184.1 million, if the Company has sufficient acceptable collateral. There were no loans made to affiliates during the three months ended March 31, 2024.
Capital Resources
The Company’s equity capital at March 31, 2024 increased $9.7 million from December 31, 2023 to $2.1 billion. Changes in equity included an increase from net income of $26.0 million, partially offset by the payment of common stock dividends totaling $15.3 million and a decrease in accumulated other comprehensive income of $4.1 million.
The ratio of shareholders’ equity to period end total assets was 14.28% and 14.46% at March 31, 2024 and December 31, 2023, respectively. The ratio of tangible shareholders’ equity to tangible assets was 9.25% and 9.31% at March 31, 2024 and December 31, 2023, respectively. Changes in the value of HTM securities are not reflected in shareholders’ equity under GAAP; however, illustratively, if all HTM securities were presented at fair value, the tangible common equity ratio would have been 8.59% at March 31, 2024 and 8.68% at December 31, 2023.
Activity in shareholders’ equity for the three months ended March 31, 2024 and 2023 follows:
(In thousands) 2024 2023
Beginning balance at December 31, 2023 and 2022
$ 2,108,086 $ 1,607,775
Net income 26,006 11,827
Common stock transactions related to stock based employee benefit plans 813 3,617
Issuance of common stock and conversion of options pursuant to acquisition — 421,042
Stock based compensation expense 2,217 2,642
Dividends on common stock ($0.18 per share and $0.17 per share, respectively)
(15,294) (14,419)
Change in accumulated other comprehensive income (4,078) 18,600
Ending balance at March 31, 2024 and 2023
$ 2,117,750 $ 2,051,084
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Capital ratios are well above regulatory requirements for well-capitalized institutions. Management’s use of risk-based capital ratios in its analysis of the Company’s capital adequacy are not GAAP financial measures. Seacoast’s management uses these measures to assess the quality of capital and believes that investors may find it useful in their analysis of the Company. The capital measures are not necessarily comparable to similar capital measures that may be presented by other companies and Seacoast does not nor should investors consider such non-GAAP financial measures in isolation from, or as a substitute for GAAP financial information (see “Note 8 – Regulatory Capital”).
March 31, 2024 Seacoast
(Consolidated) Seacoast
Bank Minimum to be Well- Capitalized 1
Total Risk-Based Capital Ratio 16.14% 15.18% 10.00%
Tier 1 Capital Ratio 14.69 13.93 8.00
Common Equity Tier 1 Ratio (CET1) 14.01 13.93 6.50
Leverage Ratio 11.06 10.49 5.00
1 For subsidiary bank only.
The Company and Seacoast Bank are subject to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The appropriate federal bank regulatory authority may prohibit the payment of dividends where it has determined that the payment of dividends would be an unsafe or unsound practice. The Company is a legal entity separate and distinct from Seacoast Bank and its other subsidiaries, and the Company’s primary source of cash and liquidity, other than securities offerings and borrowings, is dividends from its bank subsidiary. Without Office of the Comptroller of the Currency (“OCC”) approval, Seacoast Bank can pay $138.7 million of dividends to the Company.
The OCC and the Federal Reserve have policies that encourage banks and bank holding companies to pay dividends from current earnings, and have the general authority to limit the dividends paid by national banks and bank holding companies, respectively, if such payment may be deemed to constitute an unsafe or unsound practice. If, in the particular circumstances, either of these federal regulators determined that the payment of dividends would constitute an unsafe or unsound banking practice, either the OCC or the Federal Reserve may, among other things, issue a cease and desist order prohibiting the payment of dividends by Seacoast Bank or us, respectively. The board of directors of a bank holding company must consider different factors to ensure that its dividend level, if any, is prudent relative to the organization’s financial position and is not based on overly optimistic earnings scenarios such as any potential events that may occur before the payment date that could affect its ability to pay, while still maintaining a strong financial position. As a general matter, the FRB has indicated that the board of directors of a bank holding company, such as Seacoast, should consult with the FRB and eliminate, defer, or significantly reduce the bank holding company’s dividends if: (i) its net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) its prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective financial condition; or (iii) it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
The Company has paid quarterly dividends to the holders of its common stock since the second quarter of 2021. Whether the Company continues to pay quarterly dividends and the amount of any such dividends will be at the discretion of the Company’s Board of Directors and will depend on the Company’s earnings, financial condition, results of operations, business prospects, capital requirements, regulatory restrictions, and other factors that the Board of Directors may deem relevant.
The Company has seven wholly owned trust subsidiaries that have issued trust preferred stock. Trust preferred securities from acquisitions were recorded at fair value when acquired. All trust preferred securities are guaranteed by the Company on a junior subordinated basis. The FRB’s rules permit qualified trust preferred securities and other restricted capital elements to be included under Basel III capital guidelines, with limitations, and net of goodwill and intangibles. The Company believes that its trust preferred securities qualify under these revised regulatory capital rules and believes that it can treat all its trust preferred securities as Tier 1 capital. For regulatory purposes, the trust preferred securities are added to the Company’s tangible common shareholders’ equity to calculate Tier 1 capital.
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Critical Accounting Policies and Estimates
The Company’s critical accounting policies are discussed in the MD&A in Seacoast’s Annual Report on Form 10-K for the year ended December 31, 2023. Significant accounting policies and changes in accounting principles and effects of recently issued accounting pronouncements are discussed in “Note 1 – Significant Accounting Policies” in Form 10-K for the year ended December 31, 2023. Disclosures regarding the effects of new accounting pronouncements are included in “Note 1 – Basis of Presentation” in this report. There have been no changes to the Company’s critical accounting policies during 2024.
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 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 April 1, 2024, holding all balances on 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
March 31, 2024
Change in Interest Rates 1-12 months 13-24 months
+2.00% (8.1)% (7.6)%
+1.00% (3.5)% (3.1)%
Current —% —%
-1.00% 0.7% —%
-2.00% 0.2% (2.5%)
The computations of interest rate risk do not necessarily include certain actions management may undertake to manage this risk in response to changes in interest rates. Management may adjust asset or liability pricing or structure in order to manage interest rate risk through an interest rate cycle. This may include the use of investment portfolio purchases or sales or the use of derivative financial instruments, such as interest rate swaps, options, caps, floors, futures or forward contracts.
Effects of Inflation and Changing Prices
The condensed 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 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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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.