SBCF Seacoast Banking Corporation of Florida

STUART, Fla., July 27, 2017 /PRNewswire/ -- Seacoast Banking Corporation of Florida ("Seacoast" or "the Company") (NASDAQ: SBCF) today reported net income of $7.7 million for the second quarter of 2017, a 44% or $2.3 million increase from the second quarter of 2016. Year to date net income as of June 30, 2017 was $15.6 million, a 68% or $6.3 million increase compared to the prior year period. The Company reported second quarter adjusted net income¹ of $12.7 million, representing a 38% or $3.5 million increase from the second quarter of 2016. Year to date adjusted net income¹ was $22.9 million, a 42% or $6.7 million increase compared to prior year to date results.

For the second quarter 2017, return on average tangible assets was 0.66%, return on average tangible shareholders' equity was 7.25%, and the efficiency ratio was 73.90%, compared to 0.56%, 6.62%, and 78.01%, respectively, in the second quarter of 2016.  Adjusted return on average tangible assets¹ was 1.02%, adjusted return on average tangible shareholders' equity¹ was 11.22%, and the adjusted efficiency ratio¹ was 61.20%, compared to 0.89%, 10.60%, and 64.78%, respectively, in the second quarter of 2016. 

Dennis S. Hudson, III, Seacoast's Chairman and CEO, said "Our commitment to organic growth is producing continued consumer and small business loan growth, with a robust sales pipeline and expansion in households and customers, as we follow our credit guardrails and maintain loan granularity. Our loan growth is matched with continued execution of sound, accretive acquisitions that allow us to implement our proven integration playbook and strengthen our footprint in important Florida markets."

"Our investments over the last six months have helped put Seacoast in a position to successfully execute our Vision 2020 plan, based on modernizing how we sell while lowering our cost-to-serve. The signs of progress are already evident as we boost transactions outside the branch and provide a heightened level of banking convenience through mobile adoption." 

Guidance 

The Company is reiterating its previous guidance of $1.28 to $1.32 adjusted diluted earnings per share¹ for full year 2017.

Notable Items Affecting Second Quarter 2017 Results

As Seacoast continues to scale and invest in its Vision 2020 objectives, certain items, many of which were introduced last quarter, aggregated to $8.2 million in noninterest expense in the second quarter.

• Leveraging our proven acquisition playbook, we completed the acquisition of GulfShore Bank on April 7, 2017, expanding the Seacoast footprint to the Tampa market.  GulfShore and other merger and acquisition-related charges totaled $5.1 million², including $3.0 million of compensation-related expense.  We added 36 full-time equivalent ("FTE") associates to our overall headcount to service the Tampa market.  These additions were partially offset by strategic headcount reductions in other areas.
• We continued execution of our branch reduction strategy, completing five branch closures in the first half of this year.  Expenses associated with the four previously announced branch closures, and one additional closure in the second quarter, totaled $1.9 million².
• During the first quarter 2017, the Company onboarded a commercial lending team focused on specialized equipment lending for lower middle market companies.  The second quarter noninterest expense reflects the full $571 thousand impact of this team on noninterest expense.
• During the second quarter, we recorded incentive expense totaling $247 thousand for one-time signing bonuses associated with investments in technology and audit talent as we scale our organization for growth.
• We opened a second customer support center in Orlando during the quarter, expanding our ability to support growth and our customers' ever-increasing utilization of our 24/7 service model.  This contributed to an increase in expenses in the second quarter by approximately $200 thousand.
• Net loss on other real estate owned and repossessed assets increased $507 thousand compared to the prior quarter, with a $346 thousand net gain in the first quarter, and losses of $161 thousand in the second quarter.

Second Quarter 2017 Financial Highlights

Income Statement

• Net income was $7.7 million, or $0.18 per average common diluted share, compared to $7.9 million or $0.20 for the prior quarter and $5.3 million or $0.14 for the second quarter of 2016.  For the six months ended June 30, 2017, net income was $15.6 million compared to $9.3 million for the six months ended June 30, 2016.  Adjusted net income¹ was $12.7 million, or $0.29 per average common diluted share, compared to $10.3 million or $0.26 for the prior quarter and $9.2 million or $0.24 for the second quarter of 2016.  For the six months ended June 30, 2017, adjusted net income¹ was $22.9 million compared to $16.2 million for the six months ended June 30, 2016.
• Net revenues were $54.6 million, an increase of $6.6 million or 14% compared to the prior quarter, and an increase of $11.0 million or 25% from the second quarter of 2016.  For the six months ended June 30, 2017, net revenues were $102.7 million, an increase of $20.1 million or 24% compared to the six months ended June 30, 2016. Adjusted revenues¹ were $54.6 million, an increase of $6.6 million, or 14%, from the prior quarter and an increase of $11.0 million, or 25% from the second quarter of 2016.  For the six months ended June 30, 2017, adjusted revenues¹ were $102.7 million, an increase of $20.7 million or 25% compared to the six months ended June 30, 2016.
• Net interest income totaled $44.2 million, an increase of $6.0 million or 16% from the prior quarter and an increase of $9.7 million or 28% from the second quarter of 2016.  The current quarter benefited from accretion of $1.5 million associated with early payoffs on securities and acquired loans. For the six months ended June 30, 2017, net interest income totaled $82.3 million, an increase of $17.6 million or 27% compared to the six months ended June 30, 2016.
• Noninterest income totaled $10.5 million, an increase of $0.6 million or 6% compared to the prior quarter and $1.3 million or 15% higher than the second quarter of 2016. For the six months ended June 30, 2017, noninterest income totaled $20.4 million, 14% higher than the six months ended June 30, 2016.  Mortgage banking fees declined quarter over quarter, the result of shifting consumer demand for construction product and tight inventory levels.  Offsetting the decline, marine finance fees increased quarter over quarter reflecting strong demand for marine vessels and a strategic shift to selling more production.  Other noninterest income also increased quarter over quarter by $451 thousand, largely the result of pricing increases implemented across the franchise on a number of services offered. 
• Net interest margin was 3.84% in the current quarter compared to 3.63% in the prior quarter and 3.63% in the second quarter of 2016.  Net interest margin benefited from accretion on early payoffs of securities and acquired loans totaling 13 basis points.  The remaining increase quarter over quarter was primarily the result of higher short-term interest rates. 
• The provision for loan losses was $1.4 million compared to $1.3 million in the prior quarter and $0.7 million in the second quarter of 2016, as a result of growth in loans outstanding.
• Noninterest expense was $41.6 million compared to $34.7 million in the prior quarter and $34.8 million in the second quarter of 2016. For the six months ended June 30, 2017, noninterest expense was $76.4 million compared to $67.1 million for the six months ended June 30, 2016.
• • The current quarter included expenses of $1.9 million associated with branch reduction initiatives, which are expected to have a positive impact to expenses over the remainder of the year. In addition, $5.9 million of merger related charges and amortization of intangibles was incurred in the current quarter primarily related to the acquisition of GulfShore Bank in April 2017.
  • Adjusted noninterest expense¹ was $33.8 million compared to $30.9 million in the prior quarter, and $28.4 million in the second quarter of 2016.  For the six months ended June 30, 2017, adjusted noninterest expense¹ was $64.8 million compared to $55.3 million for the six months ended June 30, 2016.   The increase quarter over quarter is related to the addition of ongoing headcount and expenses associated with our new Tampa market operations totaling $1.1 million, a loss of $161 thousand on other real estate owned in the current quarter compared to a net gain of $346 thousand in the prior quarter, the full $571 thousand impact in the current quarter of the commercial lending team acquired in the first quarter, as well as other investments made in talent and professional services to scale the organization.
• Seacoast recorded a $3.9 million income tax provision in the current quarter, compared to $4.1 million in the prior quarter and $2.8 million in the second quarter of 2016. Tax benefits in excess of stock-based compensation were $331 thousand in the current quarter and $234 thousand in the prior quarter.
• Second quarter 2017 adjusted revenues1 increased 14% compared to prior quarter, while adjusted noninterest expense¹ increased 9%, providing 5% operating leverage.
• The efficiency ratio was 73.9% compared to 71.1% in the prior quarter and 78.0% in the second quarter of 2016.  The adjusted efficiency ratio¹ decreased to 61.2% compared to 64.7% in the prior quarter and 64.8% in the second quarter of 2016. 

Balance Sheet

• At June 30, 2017, the Company had total assets of $5.3 billion and total shareholders' equity of $577.4 million.  Book value per share was $13.29 and tangible book value per share was $10.55, compared to $12.34 and $10.41, respectively, at March 31, 2017.
• Loan production remained strong across all categories.  Net loans totaled $3.3 billion at June 30, 2017, an increase of $355 million or 12% compared to March 31, 2017, and an increase of $709 million or 27% from June 30, 2016.  Excluding acquisitions, loans increased $463 million or 18% from the second quarter of 2016. 
• • Consumer and small business originations reached $98 million, a new record level, during the current quarter.
  • Commercial originations remain strong at $110 million. 
  • We continue to prudently manage CRE exposure. At 49% and 217% of total risk-based capital respectively, construction and land development and commercial real estate loan concentrations remain well below regulatory guidance.
  • Closed residential loans retained during the current quarter were $85 million, reflecting continued strong performance.
• Pipelines (loans in underwriting and approval or approved and not yet closed) remain strong at $146 million in commercial, $72 million in mortgage, and $50 million in consumer and small business.
• • Commercial pipelines increased $23.7 million, or 19%, over prior quarter and $33.1 million, or 29%, over year-ago levels.
  • Mortgage pipelines decreased $6.7 million, or 9%, from prior quarter and increased $5.6 million, or 8%, over year-ago levels.
  • Consumer and small business increased from prior quarter by $5.2 million, or 12%, and from year-ago levels by $11.2 million, or 29%.
• Total deposits were $4.0 billion as of June 30, 2017, an increase of $297 million, or 8%, compared to prior quarter and an increase of $474 million, or 14%, from the second quarter of 2016.
• • Deposit growth reflects our success in growing households both organically and through acquisitions. Since June 30, 2016, interest bearing deposits (interest bearing demand, savings and money markets deposits) increased $205 million, or 10%, to $2.2 billion, noninterest bearing demand deposits increased $162 million, or 14%, to $1.3 billion, and CDs increased $108 million, or 28%, to $494 million. Excluding acquired deposits, noninterest bearing deposits increased 8% and total deposits increased 1% compared to June 30, 2016.
  • The Company's balance sheet continues to be primarily core deposit funded. Core customer funding increased to $3.6 billion at June 30, 2017, a 5% increase from March 31, 2017 and an 11% increase from June 30, 2016.
  • Seacoast continues to benefit from our competitive cost of funds. Overall cost of deposits in the current quarter is 0.17%, reflecting the significant value of the deposit franchise.
• Second quarter return on average assets (ROA) was 0.61%, compared to 0.68% in the prior quarter and 0.51% from the second quarter of 2016. Return on average tangible assets (ROTA) was 0.66%, compared to 0.74% in the prior quarter and 0.56% in the second quarter of 2016. Adjusted ROTA¹ was 1.02% compared to 0.90% in the prior quarter and 0.89% in the second quarter of 2016.

Capital

• Issued 2.6 million shares in connection with the acquisition of GulfShore Bank on April 7, 2017.
• The common equity tier 1 capital ratio (CET1) was 12.1%, total capital ratio was 14.5% and the tier 1 leverage ratio was 10.3% at June 30, 2017. 
• Tangible common equity to tangible assets was 8.9% at June 30, 2017.

Asset Quality

• Nonperforming loans to total loans outstanding at June 30, 2017 decreased to 0.52% from 0.57% at March 31, 2017 and from 0.58% as of June 30, 2016.
• Nonperforming assets to total assets declined to 0.49% at June 30, 2017, compared to 0.52% at March 31, 2017 and 0.55% one year ago.  Of the $25.7 million in nonperforming assets, $5 million relates to seven closed branch properties held as REO. 
• The ratio of allowance for loan losses to non-acquisition related loans was 0.95% at June 30, 2017, 0.95% at March 31, 2017, and 0.99% at June 30, 2016.

Second Quarter and Year-to-Date 2017 Strategic Highlights

Modernizing How We Sell

• The Company reached another significant milestone, surpassing 100,000 households during the quarter.
• We had a record number of deposit accounts opened outside of the branch this quarter, with 13% of all deposit accounts being opened through non-branch channels including our website and 24/7 customer support center. 
• On May 4, we announced the expansion of our presence in the South Florida market through our agreement to acquire Palm Beach Community Bank. This acquisition will build upon our previous investment, the acquisition of Grand Bankshares Inc., completed in July 2015.  On May 18, we signed an agreement to acquire NorthStar Banking Corporation, the holding company for NorthStar Bank, headquartered in Tampa, Florida. The addition of NorthStar Bank deepens our presence in the Tampa market and builds on our acquisition of GulfShore Bank completed in April 2017.
• Consumer and small business loans originated in digital channels or by our customer support center grew 25% over first quarter 2017 and by 9% year-over-year. These are the fastest growing channels and reflects customers seeking the high level of convenience across our banking platform.

Lowering Our Cost to Serve

• Mobile penetration increased to 32% of eligible primary consumer checking customers from 28% in June of last year. 
• 39% of checks are now deposited outside the branch network, compared to 33% in June of last year. 
• In the first half of 2017, we consolidated five banking center locations. Costs associated with closures in the second quarter were $1.9 million, and the associated benefits are expected to be more fully realized in the second half of the year.
• Customer adoption of more convenient digital channels continues to grow. In June 2017, our non-teller transactions made up 50% of our total transaction volume, up from 41% two years ago.  We expect this shift in customer preference to continue to accelerate, requiring continued focus on building a digitally integrated business model.

Driving Improvements in How Our Business Operates

• We recognized savings in the quarter due to the successful renegotiation of our agreement with a key technology and digital services provider. The agreement expands digital banking capabilities, improves service level agreements and increases our ability to scale. 
• In the first quarter 2017, by opening a second customer support center in Orlando, we expanded our ability to support growth and our customers' ever-increasing utilization of our 24/7 service model.  This contributed to an increase in expenses in the current quarter by approximately $200 thousand, while providing us with access to a larger talent pool and helping strengthen our business continuity plan.
• During the first half of 2017, we have invested to upgrade core infrastructure and relocate our primary data center to a hardened facility dedicated to providing resilient infrastructure services.

Scaling and Evolving Our Culture

• Earlier this year Associates participated in our annual engagement survey, which measures items such as job satisfaction and commitment to our customers. Key scores in the survey rose across the board, surpassing the 90th percentile norm for employee engagement.
• We welcomed 36 associates from GulfShore Bank. We continue to grow our talent base in this highly attractive market.  Joseph Caballero, former CEO of Gulfshore Bank will lead Seacoast's efforts in Tampa accepting a role as Tampa market executive.  Joe brings significant experience operating in the Tampa MSA, with over 25 years' experience in banking and middle market lending. 
• Julie Kleffel, EVP and head of community banking was named an Orlando Business Journal 2017 Business Executive of the Year. She was recognized as part of the publication's annual Women Who Mean Business awards in April.

¹Non-GAAP measure, see "Explanation of Certain Unaudited Non-GAAP Financial Measures"
Effective in the first quarter of 2017, adjusted net income and adjusted noninterest expense exclude the effect of amortization of acquisition-related intangibles.  Prior periods have been revised to conform with the current period presentation.

²Excluded from the calculation of Adjusted Noninterest Expense, a Non-GAAP measure.  See "Explanation of Certain Unaudited Non-GAAP Financial Measures."

OTHER INFORMATION

Conference Call Information

Seacoast will host a conference call on Friday, July 28, 2017 at 10:00 a.m. (Eastern Time) to discuss the earnings results.  Investors may call in (toll-free) by dialing (888) 517-2458 (passcode: 9982 916). Slides will be used during the conference call and may be accessed at Seacoast's website at SeacoastBanking.com by selecting "Presentations" under the heading "Investor Services."  A replay of the call will be available for one month, beginning late afternoon of July 28, by dialing (888) 843-7419 and using passcode: 9982 916.

Alternatively, individuals may listen to the live webcast of the presentation by visiting Seacoast's website at SeacoastBanking.com. The link is located in the subsection "Presentations" under the heading "Investor Services." Beginning the afternoon of July 28, an archived version of the webcast can be accessed from this same subsection of the website.  The archived webcast will be available for one year.   

About Seacoast Banking Corporation of Florida (NASDAQ: SBCF)

Seacoast Banking Corporation of Florida is one of the largest community banks headquartered in Florida with approximately $5.3 billion in assets and $4.0 billion in deposits as of June 30, 2017. The Company provides integrated financial services including commercial and retail banking, wealth management, and mortgage services to customers through advanced banking solutions, 45 traditional branches of its locally-branded wholly-owned subsidiary bank, Seacoast Bank, and five commercial banking centers. Offices stretch from Ft. Lauderdale, Boca Raton and West Palm Beach north through the Daytona Beach area, into Orlando and Central Florida and the adjacent Tampa market, and west to Okeechobee and surrounding counties. More information about the Company is available at SeacoastBanking.com.

Cautionary Notice Regarding Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements about future financial and operating results,  cost savings, enhanced revenues, economic and seasonal conditions in our markets, and improvements to reported earnings that may be realized from cost controls and for integration of banks that we have acquired, or expect to acquire, as well as statements with respect to Seacoast's objectives, expectations and intentions and other statements that are not historical facts.  Actual results may differ from those set forth in the forward-looking statements.

Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause the actual results, performance or achievements of Seacoast to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. You should not expect us to update any forward-looking statements. 

You can identify these forward-looking statements through our use of words such as "may," "will," "anticipate," "assume," "should," "support", "indicate," "would," "believe," "contemplate," "expect," "estimate," "continue," "further", "point to," "project," "could," "intend" 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 effects of future economic and market conditions, including seasonality; governmental monetary and fiscal policies, as well as legislative, tax and regulatory changes; changes in accounting policies, rules and practices; the risks of changes in interest rates on the level and composition of deposits, loan demand, liquidity and the values of loan collateral, securities, and interest sensitive assets and liabilities; interest rate risks, sensitivities and the shape of the yield curve; the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market areas and elsewhere, including institutions operating regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the Internet; and the failure of assumptions underlying the establishment of reserves for possible loan losses.  The risks of mergers and acquisitions, include, without limitation: unexpected transaction costs, including the costs of integrating operations; the risks that the businesses will not be integrated successfully or that such integration may be more difficult, time-consuming or costly than expected; the potential failure to fully or timely realize expected revenues and revenue synergies, including as the result of revenues following the merger being lower than expected; the risk of deposit and customer attrition; any changes in deposit mix; unexpected operating and other costs, which may differ or change from expectations; the risks of customer and employee loss and business disruption, including, without limitation, as the result of difficulties in maintaining relationships with employees; increased competitive pressures and solicitations of customers by competitors; as well as the difficulties and risks inherent with entering new markets.

All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary notice, including, without limitation, those risks and uncertainties described in our annual report on Form 10-K for the year ended December 31, 2016, under "Special Cautionary Notice Regarding Forward-looking Statements" and "Risk Factors", and otherwise in our SEC reports and filings. Such reports are available upon request from the Company, or from the Securities and Exchange Commission, including through the SEC's Internet website at http://www.sec.gov.