SBCF - Seacoast Reports Third Quarter 2018 Results

Net Income Increased 15% Year-Over-Year to $16.3 Million

Third Consecutive Quarter of Record Consumer and Small Business Loan Originations, up 45% Year-Over-Year

First Green Acquisition Completed

STUART, Fla., Oct. 25, 2018 (GLOBE NEWSWIRE) -- Seacoast Banking Corporation of Florida (“Seacoast” or “the Company”) (NASDAQ: SBCF) reported net income of $16.3 million, or $0.34 per share for the third quarter of 2018, up 15% or $2.1 million year-over-year. Seacoast reported adjusted net income¹ of $17.6 million, or $0.37 per share, representing a 16% or $2.5 million increase year-over-year.

For the third quarter 2018, return on average tangible assets was 1.18%, return on average tangible shareholders’ equity was 12.0%, and the efficiency ratio was 57.0%, compared to 1.24%, 13.1% and 58.4%, respectively, in the prior quarter and 1.12%, 12.5%, and 58.9%, respectively, in the third quarter of 2017. Adjusted return on average tangible assets¹ was 1.22%, adjusted return on average tangible shareholders’ equity¹ was 12.4%, and the adjusted efficiency ratio¹ was 56.3%, compared to 1.28%, 13.5%, and 57.3%, respectively, in the prior quarter, and 1.16%, 12.8%, and 57.7%, respectively, in the third quarter of 2017.

Dennis S. Hudson, III, Seacoast’s Chairman and CEO, said, “Our shareholders continue to benefit from Seacoast's balanced growth strategy, combining organic growth with value-creating acquisitions. Our data analytics and  proprietary tools are generating strong growth and returns to our franchise, producing our third consecutive quarter of record consumer and small business originations. Our underlying fundamentals are robust, with increasing operating leverage, a strong balance sheet, and a low-cost deposit base, positioning us for continued growth and community banking leadership."

Hudson added, "Our acquisition of First Green Bancorp, completed on October 19, is exceeding our expectations and we fully expect to exceed the returns that we projected at the time of announcement."

Charles M. Shaffer, Seacoast’s Chief Financial Officer, said, “We maintained our disciplined approach to credit, liquidity, and expense management, while continuing to make investments in technology and talent, resulting in an increase in tangible book value per share to $12.01 at period end, situating us well to achieve our Vision 2020 goals. Our balance sheet continues to perform as expected, with the net interest margin expanding 5 basis points, loan yields expanding 10 basis points, securities yields expanding 15 basis points, and the cost of deposits only increasing 4 basis points. With a loan to deposit ratio of 86% and a ratio of tangible common equity to tangible assets of 9.8%, we have  the resources to invest in our organic growth initiatives while maintaining the granularity and quality of our loan portfolio."

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

Notable Items Impacting the Third Quarter

Results for the third quarter were impacted by a $3.1 million increase in the reserve for a single impaired loan, originated in 2007, which we discussed last quarter upon moving to nonaccrual. The increase in this specific reserve impacted earnings per diluted share by 5 cents.

Completion of the Acquisition of First Green Bancorp

On October 19, 2018, we completed the acquisition of First Green Bancorp, Inc., headquartered in Orlando, Florida. First Green operated seven branches in the Orlando, Daytona and Ft. Lauderdale markets, with deposits of approximately $664 million and loans of $676 million at September 30, 2018. We expect the acquisition to have a tangible book value earn-back of less than one year using the cross over method and to provide an internal rate of return well over 25%. We are ahead of schedule on our expense consolidation efforts, and are confident we will exceed our announced returns and accretion targets.

"We welcome First Green's customers and associates to the Seacoast family, and look forward to working together as we build on our strengths and expand our franchise," Hudson added.

Third Quarter 2018 Financial Highlights

Income Statement

• Net income was $16.3 million, or $0.34 per diluted share, compared to $17.0 million or $0.35 for the prior quarter and $14.2 million or $0.32 for the third quarter of 2017. For the nine months ended September 30, 2018, net income was $51.3 million compared to $29.8 million for the nine months ended September 30, 2017. Adjusted net income¹ was $17.6 million, or $0.37 per diluted share, compared to $18.3 million or $0.38 for the prior quarter and $15.1 million or $0.35 for the third quarter of 2017. For the nine months ended September 30, 2018, adjusted net income¹ was $55.2 million compared to $38.1 million for the nine months ended September 30, 2017.
  
  
• Net revenues were $63.9 million, an increase of $0.9 million or 1% compared to the prior quarter, and an increase of $6.7 million or 12% compared to the third quarter of 2017. For the nine months ended September 30, 2018, net revenues were $188.8 million, an increase of $28.9 million or 18% compared to the nine months ended September 30, 2017. Adjusted revenues¹ were $63.9 million, an increase of $0.9 million, or 1%, from the prior quarter and an increase of $6.7 million, or 12% from the third quarter of 2017. For the nine months ended September 30, 2018, adjusted revenues¹ were $189.0 million, an increase of $29.1 million or 18% compared to the nine months ended September 30, 2017.
  
  
• Net interest income totaled $51.6 million, an increase of $1.4 million or 3% from the prior quarter and an increase of $5.8 million or 13% from the third quarter of 2017. For the nine months ended September 30, 2018, net interest income totaled $151.5 million, an increase of $23.5 million or 18% compared to the nine months ended September 30, 2017.
  
  
• Net interest margin was 3.82% in the current quarter compared to 3.77% in the prior quarter and 3.74% in the third quarter of 2017. Removing the impact of accretion of purchase discounts on acquired loans, the net interest margin was 3.64% in the current quarter, compared to 3.61% in the prior quarter and 3.54% in the third quarter of 2017. Quarter over quarter, the yield on loans expanded 10 basis points, the yield on securities expanded 15 basis points, and the cost of deposits increased 4 basis points.
  
  
• Noninterest income totaled $12.3 million, a decrease of $0.4 million or 3% compared to the prior quarter and an increase of $0.9 million or 7% from the third quarter of 2017. For the nine months ended September 30, 2018, noninterest income totaled $37.3 million, 17% higher than the nine months ended September 30, 2017. Growth in deposits and increased customer engagement resulted in increases in the 2018 year to date period of $1.4 million in interchange income and $0.7 million in service charges on deposits when compared to the 2017 year to date period. Wealth management revenue, which includes trust and brokerage services, continues to benefit from prior investment in technology and talent, resulting in an increase of $0.6 million compared to the nine months ended September 30, 2017. Partially offsetting, mortgage banking fees decreased by $1.1 million during the nine months ended September 30, 2018. The prior year benefited from two larger portfolio sales over the last two quarters of 2017.
  
  
• The provision for loan losses was $5.8 million, compared to $2.5 million in the prior quarter and $0.7 million in the third quarter of 2017, reflecting the effects of portfolio growth as well as an increase of $3.1 million in the reserve for a single impaired loan. This loan, which we discussed last quarter upon moving to nonaccrual, was originated in 2007. This increase in specific reserve added 9 basis points to the nonacquired loan allowance as a percentage of nonacquired loans.
  
  
• Noninterest expense was $37.4 million, a decrease of $0.8 million or 2% to the prior quarter and an increase of $3.0 million or 9% from the third quarter of 2017. Increases in salaries and wages and employee benefits of $0.9 million quarter-over-quarter were the result of investments in commercial bankers and talent to scale our organization. More than offsetting, expenses were well controlled during the quarter across other line items. For the nine months ended September 30, 2018, noninterest expense was $112.8 million compared to $110.7 million for the nine months ended September 30, 2017. Adjusted noninterest expense¹ was $35.9 million compared to $36.5 million in the prior quarter, and $32.8 million in the third quarter of 2017. For the nine months ended September 30, 2018, adjusted noninterest expense¹ was $108.2 million compared to $97.6 million for the nine months ended September 30, 2017. As a percentage of average tangible assets, adjusted noninterest expense¹ in the current quarter was 2.48% compared to 2.57% for the prior quarter and 2.50% for the third quarter of 2017.
  
  
• Seacoast recorded $4.4 million in income tax expense in the current quarter, compared to $5.2 million in the prior quarter and $7.9 million in the third quarter of 2017. Tax benefits related to stock-based compensation were $0.4 million in the current quarter compared to $0.2 million in the prior quarter.
  
  
• Year to date adjusted revenues¹ increased 18% compared to prior year while adjusted noninterest expense¹ increased 10%, providing 8% operating leverage.
  
  
• The efficiency ratio was 57.0% compared to 58.4% in the prior quarter and 58.9% in the third quarter of 2017. The adjusted efficiency ratio¹ was 56.3% compared to 57.3% in the prior quarter and 57.7% in the third quarter of 2017.

Balance Sheet

• At September 30, 2018, the Company had total assets of $5.9 billion and total shareholders' equity of $733 million.  Book value per share was $15.50 and tangible book value per share was $12.01, compared to $15.18 and $11.67, respectively, at June 30, 2018 and $13.66 and $10.95, respectively, at September 30, 2017.
  
  
• Debt Securities totaled $1.3 billion at September 30, 2018, a decrease of $46 million compared to prior quarter and a decrease of $74 million from September 30, 2017. Given the current interest rate environment, the securities portfolio is being used as a liquidity source to fund loan growth.
  
  
• Net loans totaled $4.0 billion at September 30, 2018, an increase of $80 million compared to prior quarter or 9% annualized in the current quarter, and an increase of $667 million or 20% from September 30, 2017. Excluding the impact of two acquisitions in the fourth quarter of 2017, loans increased $267 million or 8% from September 30, 2017. Loan production remains strong, supported by analytics and expansion markets of Tampa, Orlando, and South Florida.
  -- For the third consecutive quarter, consumer and small business originations reached record highs, resulting in an increase of 20% from the prior quarter to $125.9 million.
  -- Commercial originations were $131.0 million compared to $140.4 million in the prior quarter. Towards the end of the quarter, $16 million in production slid to fourth quarter, and was closed in October.
  -- We continue to prudently manage commercial real estate exposure. Construction and land development and commercial real estate loans remain well below regulatory guidance at 59% and 199% of total risk based capital, respectively.
  -- Closed residential loans retained increased 5% quarter-over-quarter to $78.7 million.
  
  
• Pipelines (loans in underwriting and approval or approved and not yet closed) remained strong, totaling $315.2 million.
  -- Consumer and small business pipelines reached a new peak of $59.7 million, an increase of 13% sequentially and 27% compared to the prior year.
  -- Commercial pipelines were $196.5 million, an increase of 1% sequentially and an increase of 26% compared to the prior year.
  -- Residential pipelines were $58.9 million, down $4.8 million from the prior quarter.
  
  
• Total deposits were $4.6 billion as of September 30, 2018, a decrease of $54 million sequentially and an increase of $531 million, or 13%, from the prior year.
  -- Excluding acquired deposits, noninterest bearing deposits increased 8% while total deposits increased 4% compared to September 30, 2017.
  -- Despite the impact of seasonal trends on overall deposits, year-over-year, interest bearing deposits (interest bearing demand, savings and money market deposits) increased $216 million, or 10%, to $2.4 billion, noninterest bearing demand deposits increased $205 million, or 16%, to $1.5 billion, and CDs increased $199 million, or 55%, to $561 million.
  -- The Company’s balance sheet continues to be primarily core deposit funded. Core customer funding was $4.1 billion at September 30, 2018, flat compared to June 30, 2018 and an increase of 13% compared to September 30, 2017.
  -- Overall cost of deposits remains low at 43 basis points, an increase of only 4 basis points from the prior quarter.
  
  
• Third quarter return on average tangible assets (ROTA) was 1.18%, compared to 1.24% in the prior quarter and 1.12% in the third quarter of 2017. Adjusted ROTA¹ was 1.22% compared to 1.28% in the prior quarter and 1.16% in the third quarter of 2017.

Capital

• Third quarter return on average tangible common equity (ROTCE) was 12.04%, compared to 13.08% in the prior quarter and 12.45% in the third quarter of 2017. Adjusted ROTCE¹ was 12.43% compared to 13.49% in the prior quarter and 12.80% in the third quarter of 2017.
  
  
• The common equity tier 1 capital ratio (CET1) was 13.1%, total capital ratio was 15.5% and the tier 1 leverage ratio was 11.3% at September 30, 2018.
  
  
• Tangible common equity to tangible assets was 9.85% at September 30, 2018, compared to 9.56% at June 30, 2018, and 9.13% at September 30, 2017.

Asset Quality

• Nonperforming loans to total loans outstanding was 0.56% at September 30, 2018, 0.61% at June 30, 2018, and 0.38% at September 30, 2017.
  
  
• Nonperforming assets to total assets was 0.52% at September 30, 2018, 0.58% at June 30, 2018 and 0.40% at September 30, 2017. Nonperforming assets decreased $3.8 million, the result of the sale of a single REO property. The remaining balance includes $3.1 million in closed branch properties held as REO.
  
  
• The ratio of allowance for loan losses to total loans was 0.83% at September 30, 2018, 0.73% at June 30, 2018, and 0.77% at September 30, 2017. The ratio of allowance for loan losses to non-acquired loans was 0.98% at September 30, 2018, 0.88% at June 30, 2018, and 0.91% at September 30, 2017. The increase in coverage is primarily the result of a $3.1 million increase in the reserve for a single impaired loan.
  
  
• Net charge-offs were $0.8 million or 0.08% for the current quarter compared to $1.7 million in the prior quarter. Net charge-offs for the four most recent quarters averaged 0.10%.

¹Non-GAAP measure, see “Explanation of Certain Unaudited Non-GAAP Financial Measures”
²Common shares outstanding multiplied by closing bid price on last day of each period

Vision 2020

We remain confident in our ability to achieve our Vision 2020 targets announced early last year.

Third Quarter Strategic Highlights

Modernizing How We Sell

• This quarter we saw record consumer and small business loan originations. The increase is attributable, in part, to our commitment to serving small businesses and the expansion of our Small Business Administration (SBA) program. On an organic basis, small businesses represent our fastest growing customer segment with 5% growth year-over year. This growth is supported by our proprietary Connections portal, which provides our teams with greater access and insight to customer service and sales opportunities to better meet customer needs.
• Seacoast Wealth Management added almost $100 million in new assets under management year to date. On a net basis, assets under management have grown 21% year over year. The resulting trust and brokerage revenues continue to rise, with industry leading products including digital tools, and a growing sales and support team throughout the footprint.

Lowering Our Cost to Serve

• We have consolidated five banking center locations in the fourth quarter in conjunction with the acquisition of First Green Bank and in alignment with our Vision 2020 objective of reducing our footprint to meet the evolving demands of our customers. Average deposits per branch are expected to surpass $100 million by year end.
• New digital service enhancements launched in October include mobile approval capability for wire transfers, same day ACH, and card controls, providing even greater digital access for our customers.
• We continue to aggressively move transactions from the branch network to digital, with 53% of transactions now originating through our digital channels.

Driving Improvements in How Our Business Operates

• In the third quarter we launched a large-scale initiative to implement a fully digital loan origination platform across all business units. This follows our successful rollout of our fully digital mortgage banking origination platform. By investing in new technology, improving our digital offerings, and providing best in class analytics, we continue to create efficiency in our lending operations and increase the productivity of our Bankers.
  
• Our expense control initiative launched at the end of the second quarter, designed to reduce overhead and help us become more streamlined in our approach, will continue into next year. We are targeting $7 million in expense reduction in 2019 which will be reinvested in expanding bankers in Tampa and South Florida, installation of a fully digital loan origination platform, and development of digital direct fulfillment for small business lending. These investments will support growth and greater operating leverage into 2020.

Scaling and Evolving Our Culture

• In August we announced Allen Brinkman as Market President and Head of Commercial Banking for the Tampa market. Brinkman brings senior leadership in a market that has significant opportunity for growth. Brinkman previously worked as President and CEO of SunTrust for the Tampa MSA.
  
• On July 1, we implemented a $15 per hour minimum pay rate company-wide. Our associates are our most important strength, and paying nearly twice the state minimum wage supports our ability to attract and retain the best talent in the market.

OTHER INFORMATION

Conference Call Information
Seacoast will host a conference call on Friday, October 26, 2018 at 10:00 a.m. (Eastern Time) to discuss the earnings results. Investors may call in (toll-free) by dialing (866) 294-4838 (passcode: 7746 433; 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 October 26, 2018 by dialing (888) 843-7419 (domestic) and using passcode: 7746 433#.

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 26, 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 $5.9 billion in assets and $4.6 billion in deposits as of September 30, 2018. The Company provides integrated financial services including commercial and retail banking, wealth management, and mortgage services to customers through advanced banking solutions, 49 traditional branches of its locally-branded wholly-owned subsidiary bank, Seacoast Bank, and seven 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 http://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, 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, 2017, 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.

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

Explanation of Certain Unaudited Non-GAAP Financial Measures

This presentation contains financial information determined by methods other than Generally Accepted Accounting Principles (“GAAP”). Management uses these non-GAAP financial measures in its analysis of the Company’s performance and believes these presentations provide useful supplemental information, and a clearer understanding of the Company’s performance. The Company believes the non-GAAP measures enhance investors’ understanding of the Company’s business and performance and if not provided would be requested by the investor community. These measures are also useful in understanding performance trends and facilitate comparisons with the performance of other financial institutions. The limitations associated with operating measures are the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might calculate these measures differently. The Company provides reconciliations between GAAP and these non-GAAP measures. These disclosures should not be considered an alternative to GAAP.