SBCF Seacoast Banking Corporation of Florida

STUART, Fla., Oct. 26, 2017 /PRNewswire/ -- Seacoast Banking Corporation of Florida ("Seacoast" or "the Company") (NASDAQ: SBCF) today reported net income of $14.2 million for the third quarter of 2017, a 56% or $5.1 million increase from the third quarter of 2016. Year to date net income as of September 30, 2017 was $29.8 million, a 62% or $11.4 million increase compared to the prior year period. The Company reported third quarter adjusted net income¹ of $15.1 million, representing a 37% or $4.1 million increase from the third quarter of 2016. Year to date adjusted net income¹ was $38.1 million, a 40% or $10.8 million increase compared to prior year to date results.

For the third quarter 2017, return on average tangible assets was 1.12%, return on average tangible shareholders' equity was 12.4%, and the efficiency ratio was 58.9%, compared to 0.88%, 10.9%, and 68.6%, respectively, in the third quarter of 2016.  Adjusted return on average tangible assets¹ was 1.16%, adjusted return on average tangible shareholders' equity¹ was 12.8%, and the adjusted efficiency ratio¹ was 57.7%, compared to 1.01%, 12.6%, and 63.1%, respectively, in the third quarter of 2016. 

Dennis S. Hudson, III, Seacoast's Chairman and CEO, said "Our record third quarter results show the investments we have made over the past two years to modernize our banking platform and how we serve customers are resonating. We are successfully transforming Seacoast into an integrated financial services provider that is providing better experiences for our customers and creating value for our shareholders."

"We continue to execute our balanced growth strategy, expanding loans and households organically; maintaining portfolio granularity, to manage risk; and completing disciplined, accretive acquisitions. On October 20, we completed the acquisition and integration of NorthStar Bank, bolstering our presence in the attractive Tampa market, and expect to close and integrate Palm Beach Community Bank next month, expanding our presence into South Florida. Both transactions are on track to perform as we expected at announcement."

Charles M. Shaffer, Seacoast's Chief Financial Officer and Head of Strategy, said "At our investor day in early 2017, we laid out a vision for 2020 that showed significant improvement in Seacoast's return on assets, return on tangible common equity and efficiency.  This quarter's performance demonstrates that we are on track to achieve these goals. Seacoast continues to show strong momentum in top line revenue, while continuing to create operating leverage using the data analytics and the digital tool set we built over the past three years." 

Guidance 

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

Impact of Hurricane Irma on Third Quarter 2017 Results

In early September, the State of Florida was preparing for the potential impact of dangerous category 5 Hurricane Irma.  This caused a full two weeks of business interruption as a week was spent on preparation and a week on recovery.  Ultimately, the storm made landfall in the Florida Keys as a category 4 storm and a second landfall in Marco Island in southwest Florida.

The impact of Hurricane Irma on the quarter was approximately $0.01 per share.  Revenue was impacted in the form of waived service charges, slower activity in wealth management, and delayed closings on loans.  Direct expenses totaled $0.4 million, comprised of compensation for staff working throughout the storm to ensure our customers had digital and web access at all times, remote support from our backup site in Nashville, Tennessee, and recovery expenses to bring our branch network back on-line.  These direct incremental expenses were removed from the presentation of adjusted results.

In the days following the storm, we conducted site visits and inquiries with commercial customers throughout our markets to help assess potential recovery needs.  We had direct conversations with commercial customers covering 69% of the commercial portfolio, and expect any credit-related impacts to be nominal.

Our branches and operations facilities suffered no meaningful damage.

Third Quarter 2017 Financial Highlights

Income Statement

• Net income was $14.2 million, or $0.32 per average common diluted share, compared to $7.7 million or $0.18 for the prior quarter and $9.1 million or $0.24 for the third quarter of 2016. For the nine months ended September 30, 2017, net income was $29.8 million compared to $18.4 million for the nine months ended September 30, 2016. Adjusted net income¹ was $15.1 million, or $0.35 per average common diluted share, compared to $12.7 million or $0.29 for the prior quarter and $11.1 million or $0.29 for the third quarter of 2016. For the nine months ended September 30, 2017, adjusted net income¹ was $38.1 million compared to $27.3 million for the nine months ended September 30, 2016.
                                                                           
• Net revenues were $57.2 million, an increase of $2.5 million or 5% compared to the prior quarter, and an increase of $9.7 million or 21% from the third quarter of 2016. For the nine months ended September 30, 2017, net revenues were $159.9 million, an increase of $29.9 million or 23% compared to the nine months ended September 30, 2016. Adjusted revenues¹ were $57.2 million, an increase of $2.6 million, or 5%, from the prior quarter and an increase of $10.0 million, or 21% from the third quarter of 2016. For the nine months ended September 30, 2017, adjusted revenues¹ were $159.9 million, an increase of $30.7 million or 24% compared to the nine months ended September 30, 2016.
                                                                           
• Net interest income totaled $45.7 million, an increase of $1.6 million or 4% from the prior quarter and an increase of $8.3 million or 22% from the third quarter of 2016. For the nine months ended September 30, 2017, net interest income totaled $128.1 million, an increase of $25.9 million or 25% compared to the nine months ended September 30, 2016.
                                                                           
• Noninterest income totaled $11.4 million, an increase of $0.9 million or 9% compared to the prior quarter and an increase of $1.4 million or 14% from the third quarter of 2016. For the nine months ended September 30, 2017, noninterest income totaled $31.8 million, an increase of $4.0 million or 14% compared to the nine months ended September 30, 2016. Mortgage banking fees increased quarter over quarter, primarily due to a $57.7 million sale of conforming salable mortgages originated in prior quarters, which resulted in $0.8 million in mortgage banking fee income. In addition, late in the third quarter the Company made a $30 million investment in bank owned life insurance at a first-year tax equivalent return of 6.2%.
                                                                           
• Net interest margin was 3.74% in the current quarter compared to 3.84% in the prior quarter and 3.69% in the third quarter of 2016. The decrease quarter over quarter was the result of lower accretion on both securities and loans when compared to the prior quarter, as well as higher interest expense on deposits and borrowings.
                                                                           
• The provision for loan losses was $0.7 million compared to $1.4 million in the prior quarter and $0.6 million in the third quarter of 2016, reflecting the effect of sustained positive credit trends and lower net loan growth in the quarter.
                                                                           
• Noninterest expense was $34.4 million compared to $41.6 million in the prior quarter and $33.4 million in the third quarter of 2016. For the nine months ended September 30, 2017, noninterest expense was $110.7 million compared to $100.6 million for the nine months ended September 30, 2016.
                                                                           
• • Merger related charges and costs related to several branch closures resulted in elevated expenses in the prior quarter totaling $7.0 million, compared to $0.4 million in the current quarter.
  • Adjusted noninterest expense¹ was $32.8 million compared to $33.8 million in the prior quarter, and $30.1 million in the third quarter of 2016. For the nine months ended September 30, 2017, adjusted noninterest expense¹ was $97.6 million compared to $85.4 million for the nine months ended September 30, 2016.
                                                                             
• Seacoast recorded a $7.9 million income tax provision in the current quarter, compared to $3.9 million in the prior quarter and $4.3 million in the third quarter of 2016. Tax benefits in excess of stock-based compensation were $137 thousand in the current quarter, compared to $331 thousand in the prior quarter.
                                                                           
• Third quarter 2017 adjusted revenues¹ increased 5% compared to prior quarter, while adjusted noninterest expense¹ decreased 3%, providing 8% operating leverage.
                                                                           
• The efficiency ratio was 58.9% compared to 73.9% in the prior quarter and 68.6% in the third quarter of 2016. The adjusted efficiency ratio¹ decreased to 57.7% compared to 61.2% in the prior quarter and 63.1% in the third quarter of 2016.

Balance Sheet

• At September 30, 2017, the Company had total assets of $5.3 billion and total shareholders' equity of $594.4 million. Book value per share was $13.67 and tangible book value per share was $10.95, compared to $13.29 and $10.55, respectively, at June 30, 2017.
                                                                                        
• Loan production was robust across all categories, despite the disruption of Hurricane Irma. Net loans totaled $3.4 billion at September 30, 2017, an increase of $54.7 million or 2% compared to June 30, 2017, and an increase of $612 million or 22% from September 30, 2016. Excluding acquisitions, loans increased $365 million or 13% from the third quarter of 2016.
• • Commercial originations reached a new record high of $146 million, up 34% compared to prior year quarter.
  • Consumer and small business originations were $86.9 million during the current quarter.
  • We continue to prudently manage CRE exposure. At 50% and 207% 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 $74 million.
                                                                                          
• Pipelines (loans in underwriting and approval or approved and not yet closed) were $155 million in commercial, $64 million in mortgage, and $47 million in consumer and small business.
• • Commercial pipelines increased $9.0 million, or 6%, over prior quarter and $36.0 million, or 30%, over year-ago levels.
  • Mortgage pipelines were lower by $7.7 million, or 11%, from prior quarter and by $15.4 million, or 19%, compared to year-ago levels.
  • Consumer and small business decreased from prior quarter by $2.7 million, or 5%, and were higher than year-ago levels by $5.6 million, or 13%.
                                                                                          
• Total deposits were $4.1 billion as of September 30, 2017, an increase of $137 million, or 3%, compared to prior quarter and an increase of $602 million, or 17%, from the third quarter of 2016.
• • Since September 30, 2016, interest bearing deposits (interest bearing demand, savings and money markets deposits) increased $209 million, or 11%, to $2.2 billion, noninterest bearing demand deposits increased $116 million, or 10%, to $1.2 billion, and CDs increased $277 million, or 76%, to $643 million.
  • Excluding acquired deposits, noninterest bearing deposits increased 4% and total deposits increased 1% compared to September 30, 2016.
  • The Company's balance sheet continues to be primarily core deposit funded. Core customer funding was $3.6 billion at September 30, 2017, flat compared to June 30, 2017 and an increase of 9% compared to September 30, 2016.
  • Overall cost of deposits in the current quarter is 0.22%, reflecting the significant value of the deposit franchise.
                                                                                          
• Third quarter return on average assets (ROA) was 1.06%, compared to 0.61% in the prior quarter and 0.82% from the third quarter of 2016. Return on average tangible assets (ROTA) was 1.12%, compared to 0.66% in the prior quarter and 0.88% in the third quarter of 2016. Adjusted ROTA¹ was 1.16% compared to 1.02% in the prior quarter and 1.01% in the third quarter of 2016.

Capital

• The common equity tier 1 capital ratio (CET1) was 12.4%, total capital ratio was 14.8% and the tier 1 leverage ratio was 10.2% at September 30, 2017.
• Tangible common equity to tangible assets was 9.1% at September 30, 2017, compared to 8.9% in the prior quarter, and 8.0% one year prior.

Asset Quality

• Nonperforming loans to total loans outstanding at September 30, 2017 decreased to 0.42% from 0.52% at June 30, 2017 and from 0.67% as of September 30, 2016.
• Nonperforming assets to total assets declined to 0.40% at September 30, 2017 from 0.49% at June 30, 2017 and 0.69% one year ago. Of the $21.5 million in nonperforming assets, $4 million relates to five closed branch properties held as REO.
• The ratio of allowance for loan losses to total loans was 0.77% at September 30, 2017, 0.78% at June 30, 2017, and 0.82% at September 30, 2016. The ratio of allowance for loan losses to non-acquisition related loans was 0.91% at September 30, 2017, 0.95% at June 30, 2017, and 0.98% at September 30, 2016. The decline in coverage in the non-acquired loan ALLL was the result of improved credit quality and loan mix as well as another quarter of nominal losses in this portfolio. Additionally, commercial and commercial real estate concentration risk continues to decline as we continue to maintain a well-diversified and granular portfolio.

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.

Third Quarter and Year-to-Date 2017 Strategic Highlights  

Modernizing How We Sell

• In late September, we received OCC approval to acquire both NorthStar Bank and Palm Beach Community Bank. The acquisition of NorthStar Bank, headquartered in Tampa, Florida, will deepen our presence in the Tampa market and build upon our acquisition of GulfShore Bank completed in April 2017. The acquisition of Palm Beach Community Bank will expand our presence in the South Florida market and build upon our acquisition of Grand Bankshares Inc., completed in July 2015. NorthStar Bank closed on October 20^th, 2017, and Palm Beach Community Bank is expected to close in the fourth quarter of this year. Both acquisitions are on track to perform as expected at announcement.
• The proportion of deposit accounts opened outside of our banking centers this quarter continues to increase, with 13.3% of all deposit accounts this quarter opened through our website or 24/7 customer support center.
• We have made significant progress in modernizing our retail and small business sales strategy, focusing on enhancing customer lifetime value. We also began development on a commercial analytics portal that will connect our commercial bankers with the analytics and insights that we have provided our retail and small business teams. This portal will provide daily insight into customer behaviors, emerging customer needs, and suggested opportunities to enhance relationship value.
• We also kicked off a project to improve our loan origination process this quarter. This effort will extend well into 2018. Using technology, partners, and lean process improvement we'll improve cycle times and strengthen the customer experience.

Lowering Our Cost to Serve

• Mobile penetration increased during the quarter to more than 32% of eligible primary consumer checking customers from 29.5% in September of last year.
• A new record 40% of checks are now deposited outside the banking center network, compared to 35% in September of last year.
• In the first half of 2017, we consolidated five banking center locations. Looking forward into 2018, we expect to continue making progress towards our previously announced goal of reducing our branch footprint by 20% over a 24 to 36-month period.
• Customer adoption of more convenient digital channels continues to grow. In September 2017, our non-teller transactions made up 52% of our total transaction volume, up from 43% 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

• Hurricane Irma tested our disaster recovery plans. Before the storm, we dispatched a team of operations and IT associates to our recovery site to Nashville, Tennessee. This enabled us to continue to operate the bank during and immediately following the storm to ensure our customers had digital and web access at all times. Our back-up customer support center provided uninterrupted, 24/7 customer service.
• We recognized our first full quarter of savings 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 August we announced the consolidation of our customer support center in Stuart. In the fourth quarter we'll be migrating all customer support operations to our Orlando location which we launched early this year. The new, expanded site supports our 24/7 customer service model and our growth strategy.

Scaling and Evolving Our Culture

• This quarter we on-boarded key talent in the areas of digital marketing and compliance. These important additions to the Seacoast team help position us for future growth.
• We completed our annual United Way campaign in alignment with our Promise #4: to invest in you and your community, breaking records three years in a row for participation and funds raised to support our communities. We also participated in the American Cancer Society "Making Strides Against Breast Cancer" walk across all of our markets.

OTHER INFORMATION

Conference Call Information 
Seacoast will host a conference call on Friday, October 27, 2017 at 10:00 a.m. (Eastern Time) to discuss the earnings results.  Investors may call in (toll-free) by dialing (888) 517-2513 (passcode: 8290 746). 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 October 27, by dialing (888) 843-7419 and using passcode: 8290 746.

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 October 27, 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 $4.1 billion in deposits as of September 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.