SBCF - Seacoast Reports Record Second Quarter 2019 Earnings Results

Net Income Increased 37% Year-Over-Year to $23.3 Million

Improved Operating Leverage and Strong Noninterest Income Highlight Quarterly Results

STUART, Fla., July 25, 2019 (GLOBE NEWSWIRE) -- Seacoast Banking Corporation of Florida (“Seacoast” or the "Company”) (NASDAQ: SBCF) today reported second quarter 2019 net income of $23.3 million, or $0.45 per diluted share, up 37% or $6.3 million year-over-year. Seacoast reported second quarter 2019 adjusted net income¹ of $25.8 million, or $0.50 per diluted share, an increase of 41% or $7.6 million compared to the second quarter of 2018.

For the second quarter of 2019, return on average tangible assets was 1.50%, return on average tangible shareholders’ equity was 14.3%, and the efficiency ratio was 53.5%, compared to 1.48%, 14.9% and 56.6%, respectively, in the prior quarter and 1.24%, 13.1%, and 58.4%, respectively, in the second quarter of 2018. Adjusted return on average tangible assets¹ was 1.59%, adjusted return on average tangible shareholders’ equity¹ was 15.2%, and the adjusted efficiency ratio¹ was 51.4%, compared to 1.50%, 15.1%, and 55.8%, respectively, in the prior quarter, and 1.28%, 13.5%, and 57.3%, respectively, in the second quarter of 2018.

Dennis S. Hudson, III, Seacoast’s Chairman and CEO, said, "During the quarter, we achieved record earnings, resulting in a 41% year-over-year increase in adjusted net income¹ and 17% year-over-year growth in tangible book value per share. We continue to build a very high quality balance sheet, fortified with a growing capital base, strong asset quality trends, and a well-managed liquidity position."

Hudson added, "Highlights in the quarter included continued expansion of our business banking team in Tampa and South Florida, strong performance from our mortgage banking group, and completion of our $10 million annual expense reduction initiative, all resulting in an improvement in our adjusted efficiency ratio¹, declining 4% from the prior quarter to 51.4%."

Charles M. Shaffer, Seacoast’s Chief Operating Officer and Chief Financial Officer, said, “Our second quarter 2019 results demonstrate that our focus on strong financial performance, disciplined credit underwriting, and franchise expansion in robust markets continues to create value for shareholders. During the quarter, we continued to drive improved operating leverage while delivering a strictly underwritten credit portfolio that is well diversified in terms of asset mix and granularity. We have built a balance sheet that is supported by an excellent customer franchise, with an average loan to deposit ratio of 87.3%, providing ample room for expansion of loans. We ended the quarter with a tangible common equity ratio of 10.7% and healthy levels of liquidity, both of which should support our ability to deploy capital for continued organic growth and disciplined opportunistic acquisitions."

Second Quarter 2019 Financial Highlights

Income Statement

• Net income was $23.3 million, or $0.45 per diluted share, compared to $22.7 million, or $0.44, for the prior quarter and $17.0 million, or $0.35, for the second quarter of 2018. For the six months ended June 30, 2019, net income was $46.0 million, or $0.88 per diluted share, compared to $35.0 million, or $0.73, for the six months ended June 30, 2018. Adjusted net income¹ was $25.8 million, or $0.50 per diluted share, compared to $24.2 million, or $0.47, for the prior quarter and $18.3 million, or $0.38, for the second quarter of 2018. For the six months ended June 30, 2019, adjusted net income¹ was $50.0 million, or $0.96 per diluted share, compared to $37.6 million, or $0.79, for the six months ended June 30, 2018.
  
  
• Net revenues were $73.7 million, an increase of $0.1 million, compared to the prior quarter, and an increase of $10.8 million, or 17%, compared to the second quarter of 2018. For the six months ended June 30, 2019, net revenues were $147.3 million, an increase of $22.3 million, or 18%, compared to the six months ended June 30, 2018. Adjusted revenues¹ were $74.2 million, an increase of $0.6 million, or 1%, from the prior quarter and an increase of $11.2 million, or 18%, from the second quarter of 2018. For the six months ended June 30, 2019, adjusted revenues¹ were $147.8 million, an increase of $22.7 million, or 18%, compared to the six months ended June 30, 2018.
  
  
• Net interest income totaled $60.1 million, a decrease of $0.6 million, or 1%, from the prior quarter and an increase of $9.9 million, or 20%, from the second quarter of 2018. For the six months ended June 30, 2019, net interest income was $120.9 million, an increase of $20.9 million, or 21%, compared to the six months ended June 30, 2018.
  
  
• Net interest margin was 3.94% in the second quarter of 2019, 4.02% in the first quarter of 2019 and 3.77% in the second quarter of 2018. Quarter-over-quarter, the yield on loans contracted 6 basis points, the yield on securities contracted 2 basis points, and the cost of deposits increased 9 basis points. The impact on net interest margin from accretion of purchase discounts on acquired loans was 27 basis points in the second quarter of 2019, compared to 26 basis points in the prior quarter and 17 basis points in the second quarter of 2018. During the quarter, the yield curve declined across all points on the curve, affecting variable rate loans and securities, and reducing add-on rates for new loans originated. Of note, late in the quarter, deposit rate pressure began to abate.
  
  
• Noninterest income totaled $13.6 million, an increase of $0.7 million, or 6%, compared to the prior quarter and an increase of $0.9 million, or 7%, from the second quarter of 2018. For the six months ended June 30, 2019, noninterest income was $26.4 million, an increase of $1.4 million, or 6%, compared to the six months ended June 30, 2018. Sequentially, noninterest income increased across nearly every category. Highlights include an increase of $0.6 million in mortgage banking fees, reflecting increasing success in generating saleable mortgage volume, a $0.2 million increase in wealth-related fees attributed to continued growth in assets under management, a $0.2 million increase in service charges on deposits, in part the result of increased revenue from treasury products, and a $0.2 million increase in other income, primarily attributed to higher swap fees. During the quarter, $38.2 million of securities were sold with an average yield of 1.85%, resulting in a loss of $0.6 million. These funds were reinvested at an average yield of 2.90%.
  
  
• The provision for loan losses was $2.6 million compared to $1.4 million in the prior quarter and $2.5 million in the second quarter of 2018.
  
  
• Noninterest expense was $41.0 million, a decrease of $2.1 million, or 5%, compared to the prior quarter and an increase of $2.8 million, or 7%, from the second quarter of 2018. For the six months ended June 30, 2019, noninterest expense was $84.1 million, an increase of $8.7 million, or 12%, compared to the six months ended June 30, 2018. Sequentially, changes from the first quarter of 2019 in noninterest expense consisted of the following:
  
  º Salaries and wages increased by $0.9 million, attributed to $1.1 million in severance costs associated with the reduction of 50 full time equivalent employees as previously announced. The full benefit of the reduction in force should be realized in the third quarter.
  
  º Employee benefits decreased $1.0 million attributed to the reduction in full time equivalent employees, lower seasonal payroll taxes and 401(k) plan contributions, and lower health insurance claims when compared to the first quarter of 2019.
  
  º Legal and professional fees decreased by $0.8 million primarily due to higher expenses incurred in the first quarter of 2019 on projects in risk management and lending operations, leading to the successful launch of our commercial digital origination platform.
  
  º Our continued focus on efficiency and streamlining operations resulted in decreases across several categories, most notably a decrease of $0.8 million in other expenses and $0.2 million in furniture and equipment.
  
  º During the quarter, we closed one banking center location, resulting in a $0.3 million one-time expense which is included in occupancy expense. We will close an additional banking center location in the third quarter.
  
  
• Seacoast recorded $6.9 million in income tax expense in the second quarter of 2019, compared to $6.4 million in the prior quarter and $5.2 million in the second quarter of 2018. Tax benefits related to stock-based compensation were $0.1 million in the second quarter compared to $0.6 million in the prior quarter, during which a significant amount of previously granted awards vested. The quarter-over-quarter change unfavorably impacted earnings per share by one cent.
  
  
• Year to date adjusted revenues¹ increased 18% compared to prior year while adjusted noninterest expense¹ increased 10%, generating 8% operating leverage.
  
  
• The efficiency ratio was 53.5% compared to 56.6% in the prior quarter and 58.4% in the second quarter of 2018. The adjusted efficiency ratio¹ was 51.4% compared to 55.8% in the prior quarter and 57.3% in the second quarter of 2018. The reduction in both ratios was the outcome of our continued focus on streamlining operations, in combination with driving top-line revenue improvements.

Balance Sheet

• At June 30, 2019, the Company had total assets of $6.8 billion and total shareholders' equity of $930.2 million.  Book value per share was $18.08 and tangible book value per share was $13.65, compared to $17.44 and $12.98, respectively, at March 31, 2019 and $15.18 and $11.67, respectively, at June 30, 2018. Year-over-year, tangible book value per share increased 17%.
  
  
• Debt securities totaled $1.2 billion at June 30, 2019, an increase of $28.9 million compared to the prior quarter and a decrease of $135.1 million from June 30, 2018. During the quarter, $38.2 million of securities were sold, with an average yield of 1.85%, resulting in a loss of $0.6 million. Purchases of securities during the quarter totaled $87.4 million at an average yield of 2.90%.
  
  
• Loans totaled $4.9 billion at June 30, 2019, an increase of $59.7 million, or 1.2%, compared to the prior quarter, and an increase of $914.1 million, or 23%, from June 30, 2018.
  
  
• New loan originations of $407 million, compared to $310 million in the prior quarter, resulted in net loan growth in the quarter of 5% on an annualized basis, overcoming a $59 million increase in early loan payoffs when compared to the prior quarter. During the second quarter, we saw acceleration in commercial real estate loans being refinanced away with minimal or no covenants, limited or no guarantees, in combination with increasing leverage in projects. Additionally, we allowed a few higher risk loans to be refinanced away in categories such as marinas, hotels, and speculative construction. We remain patient and committed to our strict underwriting principles.
  
  
• Consumer and small business originations for the second quarter of 2019 were a record $136.5 million, an increase of 15% compared to the first quarter of 2019 and an increase of 30% compared to the second quarter of 2018.
  
  
• Commercial originations during the second quarter of 2019 were $157.0 million, an increase of 44% compared to the first quarter of 2019 and an increase of 12% compared to the second of quarter 2018.
  
  
• Closed residential loans retained in the portfolio for the second quarter of 2019 were $51.8 million, up 4% from the first quarter of 2019 and down 31% from the second quarter of 2018. The decrease from prior year is consistent with the mortgage banking team's shift towards generating saleable volume and away from residential construction lending.
  
  
• We continue to manage the Company's exposure to commercial real estate. Construction and land development and commercial real estate loans remain well below regulatory guidance at 51% and 205% of total bank-level risk based capital, respectively, down from 57% and 216%, respectively, in the first quarter of 2019. On a consolidated basis, inclusive of capital at the holding company, construction and land development and commercial real estate loans represent 48% and 192%, respectively, of total consolidated risk based capital.
  
  
• Concentrations continue to be well managed with an average commercial loan size of approximately $350,000. The top 10 and top 20 relationships represented 19% and 34%, respectively, of total consolidated risk based capital, down from 25% and 42% compared to second quarter of 2018 and down from 29% and 48% compared to second quarter of 2016. Our largest committed exposure totals $29 million.
  
  
• Pipelines (loans in underwriting and approval or approved and not yet closed) remained strong, totaling $377.6 million as of June 30, 2019.
  
  
• Consumer and small business pipelines were $65.5 million, a decrease of 3% sequentially and an increase of 24% compared to the prior year.
  
  
• Commercial pipelines were $261.6 million, an increase of 48% sequentially and 34% compared to the prior year.
  
  
• Residential pipelines were $50.5 million, an increase of 11% sequentially and a decrease of 21% compared to the prior year, consistent with a shift in focus to generating saleable volume, which at June 30, 2019 represents 90% of the residential pipeline.
  
  
• Total deposits were $5.5 billion as of June 30, 2019, a decrease of $64.4 million, or 1.1%, sequentially and an increase of $843.8 million, or 18%, from the prior year.
  
  
• Total deposits grew 3% on an annualized basis quarter-over-quarter, excluding the impact of a $99 million reduction in brokered time deposits. The decrease in brokered time deposits was the result of a shift towards lower rate Federal Home Loan Bank advances in the second quarter.
  
  
• During the second quarter, we accelerated the velocity of our commercial customer acquisition, with business checking balances growing 8% on an annualized basis overcoming seasonal pressure, the result of expansion of our business banking franchise in the Tampa and Fort Lauderdale markets.
  
  
• Interest-bearing deposits (interest-bearing demand, savings and money market deposits) increased year-over-year $373.0 million, or 15%, to $2.8 billion, noninterest bearing demand deposits increased $206.2 million, or 14%, to $1.7 billion, and CDs increased $264.6 million, or 34%, to $1.1 billion.
  
  
• Overall cost of deposits increased to 76 basis points. Of note, late in the quarter, deposit rate pressure began to abate.
  
  
• Second quarter return on average tangible assets (ROTA) was 1.50%, compared to 1.48% in the prior quarter and 1.24% in the second quarter of 2018. Adjusted ROTA1 was 1.59% compared to 1.50% in the prior quarter and 1.28% in the second quarter of 2018.

Capital

• Second quarter return on average tangible common equity (ROTCE) was 14.3%, compared to 14.9% in the prior quarter and 13.1% in the second quarter of 2018. Adjusted ROTCE1 was 15.2% compared to 15.1% in the prior quarter and 13.5% in the second quarter of 2018.
  
  
• The tier 1 capital ratio was 14.6%, total capital ratio was 15.2% and the tier 1 leverage ratio was 11.7% at June 30, 2019.
  
  
• Tangible common equity to tangible assets was 10.7% at June 30, 2019, compared to 10.2% at March 31, 2019 and 9.6% at June 30, 2018.

Asset Quality

• Nonperforming loans to total loans outstanding was 0.47% at June 30, 2019, 0.46% at March 31, 2019, and 0.66% at June 30, 2018.
  
  
• Nonperforming assets to total assets was 0.50% at June 30, 2019, 0.51% at March 31, 2019 and 0.58% at June 30, 2018. Nonperforming assets decreased by $0.5 million to $33.8 million in the second quarter of 2019.
  
  
• The ratio of allowance for loan losses to total loans was 0.69% at June 30, 2019, 0.68% at March 31, 2019, and 0.73% at June 30, 2018. The ratio of allowance for loan losses to non-acquired loans was 0.87% at June 30, 2019, 0.89% at March 31, 2019, and 0.88% at June 30, 2018.
  
  
• Net charge-offs were $1.8 million or 0.15% of average loans for the second quarter of 2019 compared to $1.0 million, or 0.08% of average loans in the prior quarter.

Vision 2020

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

Second Quarter Operating Highlights

Modernizing How We Sell

• After a successful pilot program early this year, we launched marketing efforts in the second quarter highlighting automated fulfillment for small business loan products. While currently limited to a select group of products, the platform offers digitized onboarding and should significantly reduce the cost to originate small business loans to current customers, while maintaining our strict underwriting principles.

Lowering Our Cost to Serve

• We consolidated one banking center location in the second quarter of 2019 with an eight month payback period and one-time expense of $0.3 million. We have one remaining consolidation planned for the third quarter of 2019.
  
  
• We’ve now achieved our Vision 2020 objective of reducing our footprint by 20% to meet the evolving needs of our customers. We were able to achieve this objective ahead of plan due to successful M&A and the repositioning of our banking center network in strategic growth markets.
  
  
• At quarter end, average deposits per banking center exceeded $113 million, up from $96 million during the same period last year.
  
  
• During the quarter, we completed our previously announced $10 million annual expense reduction initiative, which included reducing the full time equivalent employee count by 50, renegotiating key vendor contracts, and reducing expenses across a number of line items.

Driving Improvements in How Our Business Operates

• Late last year we launched a large-scale initiative to implement a fully digital loan origination platform across all business banking units. In the second quarter, the implementation and launch were completed. This follows the successful rollout of our fully digital mortgage banking origination platform. This investment should lead to significant improvement in operational efficiency and banker productivity in 2020 and beyond.

Scaling and Evolving Our Culture

• We continue to invest in business bankers. In the second quarter we on-boarded 5 new bankers, 15 year to date, in order to fully support the strong markets we serve. We have a robust pipeline of talent as we enter the third quarter of 2019 and will continue to opportunistically add top-tier bankers in the Tampa and Fort Lauderdale markets.

OTHER INFORMATION

Conference Call Information
Seacoast will host a conference call on July 26, 2019 at 10:00 a.m. (Eastern Time) to discuss the second quarter 2019 earnings results and business trends. Investors may call in (toll-free) by dialing (888) 517-2513 (passcode: 8644 001; 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 July 26, 2019 by dialing (888) 843-7419 (domestic) and using passcode: 8644 001#.

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 July 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 $5.5 billion in deposits as of June 30, 2019. The Company provides integrated financial services including commercial and retail banking, wealth management, and mortgage services to customers through advanced banking solutions, and 49 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; uncertainty related to the impact of LIBOR calculations on securities and loans; 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 dividend 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.