SBCF - Seacoast Reports First Quarter 2019 Results

Net Income Increased 26% Year-Over-Year to $22.7 Million

Net Interest Margin Expands to 4.02%

27% Annualized Growth in Noninterest Bearing Demand Deposits

STUART, Fla., April 25, 2019 (GLOBE NEWSWIRE) -- Seacoast Banking Corporation of Florida (“Seacoast” or “the Company”) (NASDAQ: SBCF) today reported first quarter 2019 net income of $22.7 million, or $0.44 per share, up 26% or $4.7 million year-over-year. Seacoast reported first quarter 2019 adjusted net income¹ of $24.2 million, or $0.47 per share, an increase of $4.9 million compared to the first quarter of 2018. First quarter 2019 results reflect the acquisition of First Green Bancorp, Inc., which closed on October 19, 2018.

For the first quarter of 2019, return on average tangible assets was 1.48%, return on average tangible shareholders’ equity was 14.9%, and the efficiency ratio was 56.6%, compared to 1.05%, 10.9% and 65.8%, respectively, in the prior quarter and 1.34%, 14.4%, and 57.8%, respectively, in the first quarter of 2018. Adjusted return on average tangible assets¹ was 1.50%, adjusted return on average tangible shareholders’ equity¹ was 15.1%, and the adjusted efficiency ratio¹ was 55.8%, compared to 1.49%, 15.4%, and 54.2%, respectively, in the prior quarter, and 1.38%, 14.8%, and 57.1%, respectively, in the first quarter of 2018.

Dennis S. Hudson, III, Seacoast’s Chairman and CEO, said, “Seacoast’s balanced growth strategy, combining organic growth with value-creating acquisitions, continues to benefit our shareholders. We had an outstanding quarter of customer acquisition and deposit growth, with pipelines increasing in all loan categories, reflecting our strong fundamentals and position in attractive markets. The underlying strength of our customer franchise and the value of our unique combination of customer analytics, marketing automation, and experienced bankers in growing urban markets situates us well to deliver sustainable, profitable growth.”

Charles M. Shaffer, Seacoast’s Chief Financial Officer, said, “Our first quarter 2019 results demonstrate a continued focus on strong financial performance, disciplined credit underwriting, and increasing levels of liquidity. We continue to build a balance sheet that is supported by a robust customer franchise, with an ending loan to deposit ratio of 86%, providing ample room for expansion of loans which reinforces our net interest margin. We will also take proactive additional expense reduction measures during the second quarter of 2019 that we expect will result in an annual pre-tax expense reduction of approximately $10 million. These initiatives, our quarter-end tangible common equity ratio of 10.2%, increasing levels of liquidity and a healthy balance sheet support our ability to deploy capital for continued organic growth and disciplined opportunistic acquisitions."

 First Quarter 2019 Financial Highlights

Income Statement

• Net income was $22.7 million, or $0.44 per diluted share, compared to $16.0 million or $0.31 for the prior quarter and $18.0 million or $0.38 for the first quarter of 2018. Adjusted net income¹ was $24.2 million, or $0.47 per diluted share, compared to $23.9 million or $0.47 for the prior quarter and $19.3 million or $0.40 for the first quarter of 2018.
• Net revenues were $73.6 million, an increase of $0.9 million or 1% compared to the prior quarter, and an increase of $11.6 million or 19% compared to the first quarter of 2018. Adjusted revenues¹ were $73.6 million, an increase of $0.8 million, or 1%, from the prior quarter and an increase of $11.5 million, or 18%, from the first quarter of 2018.
• Net interest income totaled $60.8 million, an increase of $0.8 million or 1% from the prior quarter and an increase of $11.0 million or 22% from the first quarter of 2018. The increase quarter over quarter was despite a flattening yield curve and two fewer days in the quarter.
• Net interest margin was 4.02% in the first quarter of 2019, 4.00% in the fourth quarter of 2018 and 3.80% in the first quarter of 2018. Quarter over quarter, the yield on loans expanded 10 basis points, the yield on securities contracted 4 basis points, and the cost of deposits increased 13 basis points. The impact on net interest margin from accretion of purchase discounts on acquired loans was 26 basis points in the first quarter of 2019, 1 basis point below the prior quarter. The net interest margin continues to benefit from positive remixing of earning assets as well as actions taken to reduce reliance on Federal Home Loan Bank advances and migrate funding towards lower rate deposit balances.
• Noninterest income totaled $12.8 million, an increase of $0.1 million or 1% compared to the prior quarter and an increase of $0.5 million or 4% from the first quarter of 2018. Sequentially, service charges on deposits declined by $0.3 million, the result of fewer business days in the first quarter, which was offset by mortgage banking fees which increased $0.3 million, the result of a successful introduction of new saleable residential mortgage products and a focus on generating saleable volume. SBA and marine-related fees improved modestly, the result of higher volumes in both units. Interchange income increased $0.2 million, sequentially, while wealth-related fees were down modestly, the result of lower equity valuations. Other income declined primarily due to the prior quarter benefiting from a $0.3 million bank owned life insurance ("BOLI") payout. The decline in BOLI-related income was the result of the cancellation of low yielding policies acquired in the First Green acquisition. Finally, securities losses were lower by $0.4 million sequentially.
• The provision for loan losses was $1.4 million compared to $2.3 million in the prior quarter and $1.1 million in the first quarter of 2018.
• Noninterest expense was $43.1 million, a decrease of $6.4 million or 13% compared to the prior quarter and an increase of $5.9 million or 16% from the first quarter of 2018. During the fourth quarter of 2018, the Company integrated the operations of First Green, recording $8.0 million in merger related charges. Noninterest expense in the first quarter included:
  • Lower salaries and wage expenses were offset by increases in employee benefits associated with higher seasonal payroll taxes and 401(k) plan contributions, typical of the first quarter.
  • We hired 10 business bankers in Fort Lauderdale and Tampa, augmenting the 10 business bankers hired in the fourth quarter.
  • As required by existing accounting guidance, we defer the net costs of loan originations. Such deferrals were lower quarter over quarter due to lower loan production, resulting in higher noninterest expense.
  • Two previously ongoing projects in risk management and lending operations were accelerated that will support the scaling of our business, resulting in higher professional fees in the quarter. We launched our small business direct loan origination platform ahead of schedule and will launch our digital commercial origination platform in June.
  • The quarter included merger related charges of $0.3 million due to the First Green acquisition and one banking center consolidation charge totaling $0.2 million.
  • Looking forward, during the second quarter of 2019, our continued focus on efficiency and streamlining operations will result in a reduction of approximately 50 full time equivalent employees. While the Company will incur severance charges of approximately $1.5 million, this in combination with other expense initiatives, including two more banking center closures, will result in approximately a $10 million annual pre-tax expense reduction.
• Seacoast recorded $6.4 million in income tax expense in the first quarter of 2019, compared to $4.9 million in the prior quarter and $5.8 million in the first quarter of 2018. Tax benefits related to stock-based compensation were $0.6 million in the first quarter of 2019 and $0.4 million in the fourth quarter of 2018. Taxes in the fourth quarter of 2018 also included $0.5 million in additional expenses associated with the redemption of First Green's BOLI policies, which was removed from the presentation of adjusted results.
• Adjusted revenues¹ increased 18% compared to prior year while adjusted noninterest expense¹ increased 15%, generating 3% operating leverage.
• The efficiency ratio was 56.6% compared to 65.8% in the prior quarter and 57.8% in the first quarter of 2018. The adjusted efficiency ratio¹ was 55.8% compared to 54.2% in the prior quarter and 57.1% in the first quarter of 2018. The increase quarter over quarter in the adjusted efficiency ratio, was primarily the result of a return of seasonal 401(k) and payroll tax expenses.

Balance Sheet

• At March 31, 2019, the Company had total assets of $6.8 billion and total shareholders' equity of $896.4 million.  Book value per share was $17.44 and tangible book value per share was $12.98, compared to $16.83 and $12.33, respectively, at December 31, 2018 and $14.94 and $11.39, respectively, at March 31, 2018. Year-over-year, tangible book value per share increased 14%.
• Debt securities totaled $1.2 billion at March 31, 2019, a decrease of $50.7 million compared to the prior quarter and a decrease of $210.6 million from March 31, 2018. The decrease included the sale of $35.0 million of certain low yielding securities, which resulted in a loss of $0.1 million in the first quarter of 2019. In addition, in connection with the adoption of new accounting guidance in January 2019, the Company elected to transfer securities with an aggregate amortized cost basis of $53.5 million and fair value of $52.8 million from the held-to-maturity designation to available-for-sale.
• Loans totaled $4.8 billion at March 31, 2019, an increase of $3.2 million compared to the prior quarter, and an increase of $931.3 million or 24% from March 31, 2018.
  • Consumer and small business originations for the first quarter of 2019 were $118.5 million, an increase of 4% compared to the fourth quarter of 2018 and an increase of 20% compared to the first quarter of 2018.
  • Commercial originations during the first quarter of 2019 were $109.1 million, a decrease of 32% compared to the fourth quarter of 2018 and 11% compared to the first of quarter 2018, largely a reflection of seasonal trends.
  • We continue to prudently manage commercial real estate exposure. Construction and land development and commercial real estate loans remain well below regulatory guidance at 57% and 216% of total risk based capital, respectively, down from 63% and 227%, respectively, in the fourth quarter of 2018.
  • Closed residential loans retained in the portfolio for the first quarter of 2019 were $49.6 million, down 32% from the fourth quarter of 2018 and down 37% from the first quarter of 2018. This is consistent with the Residential Lending team's emphasis on generating saleable volume.
• Pipelines (loans in underwriting and approval or approved and not yet closed) remained strong, totaling $290.2 million.
  • Consumer and small business pipelines were $67.6 million, an increase of 26% sequentially and 34% compared to the prior year.
  • Commercial pipelines were $177.3 million, an increase of 8% sequentially and 44% compared to the prior year.
  • Residential pipelines were $45.3 million, an increase of 4% sequentially and a decrease of 36% compared to the prior year.
• Total deposits were $5.6 billion as of March 31, 2019, an increase of $428.3 million, or 8%, sequentially and an increase of $886.0 million, or 19%, from the prior year.
  • Interest-bearing deposits (interest-bearing demand, savings and money market deposits) increased year-over-year $312.4 million, or 13%, to $2.8 billion, noninterest bearing demand deposits increased $187.7 million, or 13%, to $1.7 billion, and CDs increased $385.9 million, or 52%, to $1.1 billion.
  • Total deposits grew 16% on an annualized basis during the quarter, excluding the favorable impact of $76 million of customer sweep repurchase agreements migrating to interest-bearing deposits and the acquisition of $147 million of brokered CDs.
  • During the quarter, noninterest bearing demand deposits grew 27% on an annualized basis.
  • Overall cost of deposits increased to 67 basis points, due in part to a strategic shift in funding from FHLB advances to brokered deposits. This shift impacted the cost of deposits by 3 basis points, but reduced the overall cost of funding.
• First quarter return on average tangible assets (ROTA) was 1.48%, compared to 1.05% in the prior quarter and 1.34% in the first quarter of 2018. Adjusted ROTA¹ was 1.50% compared to 1.49% in the prior quarter and 1.38% in the first quarter of 2018.
  

Capital

• First quarter return on average tangible common equity (ROTCE) was 14.86%, compared to 10.94% in the prior quarter and 14.41% in the first quarter of 2018. Adjusted ROTCE¹ was 15.11% compared to 15.44% in the prior quarter and 14.82% in the first quarter of 2018.
• The common equity tier 1 capital ratio (CET1) was 14.3%, total capital ratio was 15.0% and the tier 1 leverage ratio was 11.2% at March 31, 2019.
• Tangible common equity to tangible assets was 10.18% at March 31, 2019, compared to 9.72% at December 31, 2018 and 9.33% at March 31, 2018.

Asset Quality

• Nonperforming loans to total loans outstanding was 0.46% at March 31, 2019, 0.55% at December 31, 2018, and 0.50% at March 31, 2018.
• Nonperforming assets to total assets was 0.51% at March 31, 2019, 0.58% at December 31, 2018 and 0.50% at March 31, 2018. Nonperforming assets decreased $4.9 million in the first quarter of 2019, attributed primarily to the payoff of a $3.0 million acquired residential real estate loan.
• The ratio of allowance for loan losses to total loans was 0.68% at March 31, 2019, 0.67% at December 31, 2018, and 0.72% at March 31, 2018. The ratio of allowance for loan losses to non-acquired loans was 0.89% at March 31, 2019, 0.89% at December 31, 2018, and 0.90% at March 31, 2018.
• Net charge-offs were $1.0 million or 0.08% of average loans for the first quarter of 2019 compared to $3.7 million in the prior quarter.

Vision 2020

We remain confident in our ability to achieve our Vision 2020 targets announced in 2017.

First Quarter Operating Highlights

Modernizing How We Sell

• In the first quarter, we completed a pilot program for automated fulfillment of small business loan products. The pilot was limited to a select group of products, and offers auto-decisioning and digitized onboarding. Once fully implemented, this technology will significantly reduce the cost to originate small business loans to current customers, while maintaining our strict credit underwriting culture.

Lowering Our Cost to Serve

• We consolidated one banking center location in the first quarter of 2019 in alignment with our Vision 2020 objective of reducing our footprint to meet the evolving needs of our customers. We expect a six-month payback period, and recorded $0.2 million in associated expenses. We have two additional banking center consolidations planned in the second quarter of 2019. We expect negligible customer impact given the proximity to other banking centers and increased usage of digital channels by these customers.
• At March 31, 2019, average deposits per banking center exceeded $112 million, up from $96 million at March 31, 2018.
• During the second quarter of 2019, our continued focus on efficiency and streamlining operations will result in a reduction of approximately 50 full time equivalent employees. While the Company will incur severance charges of approximately $1.5 million, this in combination with other expense initiatives, including two more banking center closures, will result in approximately a $10 million annual pre-tax expense reduction.

Driving Improvements in How Our Business Operates

• Late in 2018, we launched a large-scale initiative to implement a fully digital loan origination platform across all business banking units. This follows the successful rollout of our fully digital mortgage banking origination platform. This investment should provide financial returns through a significant improvement in efficiency and banker productivity in 2020 and beyond.

Scaling and Evolving Our Culture

• We continue to invest in business bankers. In the first quarter of 2019 we on-boarded 10 new business bankers in order to fully support the strong markets we serve and to advance our growth and operating leverage objectives. We have a robust pipeline of talent as we enter the second quarter of 2019 and will continue to opportunistically add top-tier bankers in both the Fort Lauderdale and Tampa markets.
• In the first quarter of 2019, Seacoast Bank’s 401(k) plan was recognized as a Best in Class 401(k) Plan for 2019 by PLANSPONSOR magazine. Associate participation in the 401(k) plan and Seacoast's contribution match differentiates us from industry peers.

¹Non-GAAP measure, see “Explanation of Certain Unaudited Non-GAAP Financial Measures”

OTHER INFORMATION

Conference Call Information
Seacoast will host a conference call on April 26, 2019 at 10:00 a.m. (Eastern Time) to discuss the earnings results and business trends. Investors may call in (toll-free) by dialing (888) 424-8151 (passcode: 6617 843; host: Dennis S. Hudson). Charts will be used during the conference call and may be accessed at Seacoast's website at www.SeacoastBanking.com by selecting "Presentations" under the heading "News/Events" A replay of the call will be available for one month, beginning late afternoon of April 26, 2019 by dialing (888) 843-7419 (domestic) and using passcode: 6617 843#.

Alternatively, individuals may listen to the live webcast of the presentation by visiting Seacoast's website at www.SeacoastBanking.com. The link is located in the subsection "Presentations" under the heading "Investor Services." Beginning the afternoon of April 26, 2019, 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 $6.8 billion in assets and $5.6 billion in deposits as of March 31, 2019. The Company provides integrated financial services including commercial and retail banking, wealth management, and mortgage services to customers through advanced banking solutions, and 50 traditional branches of its locally-branded wholly-owned subsidiary bank, Seacoast Bank. Offices stretch from Fort 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 www.SeacoastBanking.com.

Cautionary Notice Regarding Forward-Looking Statements
This press release contains “forward-looking statements” within the meaning, and protections, 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, tax law changes, and for integration of banks that we have acquired, or expect to acquire, as well as statements with respect to Seacoast's objectives, strategic plans, including Vision 2020, 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, assumptions, estimates and intentions about future performance 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.

All statements other than statements of historical fact could be 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”, “plan”, “point to”, “project”, “could”, “intend”, “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 effects of future economic and market conditions, including seasonality; 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; 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; changes in borrower credit risks and payment behaviors; 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; our ability to comply with any regulatory requirements; the effects of problems encountered by other financial institutions that adversely affect us or the banking industry; our concentration in commercial real estate loans; 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 our investments due to market volatility or counterparty payment risk; statutory and regulatory dividends restrictions; increases in regulatory capital requirements for banking organizations generally; the risks of mergers, acquisitions and divestitures, including our ability to continue to identify acquisition targets and successfully acquire desirable financial institutions; changes in technology or products that may be more difficult, costly, or less effective than anticipated; our ability to identify and address increased cybersecurity risks; inability of our risk management framework to manage risks associated with our business; dependence on key suppliers or vendors to obtain equipment or services for our business on acceptable terms; reduction in or the termination of our ability to use the mobile-based platform that is critical to our business growth strategy; the effects of war or other conflicts, acts of terrorism, natural disasters or other catastrophic events that may affect general economic conditions; unexpected outcomes of, and the costs associated with, existing or new litigation involving us; our ability to maintain adequate internal controls over financial reporting; potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings and enforcement actions; the risks that our deferred tax assets could be reduced if estimates of future taxable income from our operations and tax planning strategies are less than currently estimated and sales of our capital stock could trigger a reduction in the amount of net operating loss carryforwards that we may be able to utilize for income tax purposes; 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.

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, 2018, 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 www.sec.gov.

Charles M. Shaffer
Executive Vice President
Chief Financial Officer
(772) 221-7003
Chuck.Shaffer@seacoastbank.com