Seacoast Banking Reports Second Quarter 2016 Results

STUART, Fla., July 27, 2016 /PRNewswire/ -- Seacoast Banking Corporation of Florida ("Seacoast" or "the Company") (NASDAQ: SBCF) today reported results for the second quarter of 2016. 

Seacoast reported net income of $5.3 million during the second quarter of 2016, compared to $4.0 million in the first quarter of 2016 and $5.8 million in the second quarter last year. Quarter over quarter, return on average assets (ROA) increased 7 basis points to 0.51% and return on tangible common equity (ROTCE) increased 150 basis points to 6.6%. During the quarter, Seacoast closed the previously announced acquisition of BMO Harris' Orlando Banking operations including 14 traditional branch locations and its business banking team; and the second quarter 2016 results include $5.8 million in charges taken in conjunction with the BMO acquisition, branch closures and other non-core items¹. 

The Company reported second quarter adjusted net income^[1] of $8.8 million, a year-over-year increase of $2.7 million, or 45% and an increase of  $2.0 million, or 30% (not annualized), from the prior quarter.  Diluted earnings per common share (EPS) was $0.14 and adjusted diluted EPS¹ was $0.23, a $0.04 or 21% increase above the first quarter 2016 and $0.05 or 28% above the year-ago period.

Net income for the first half of 2016 was $9.3 million compared to $11.7 million in the first half of 2015.  Diluted EPS was $0.25 compared to $0.35 in the same period of 2015.  Adjusted net income^[1] increased $3.4 million to $15.5 million for the first half of 2016 and adjusted^[1] diluted EPS increased 15% to $0.42.

Second Quarter 2016 Earnings Highlights

• Adjusted revenues¹ increased $9.1 million, or 26% year-over-year, to $43.7 million; and increased $4.2 million, or 11% (not annualized), from the first quarter 2016.
• Net interest income improved $8.8 million, or 34% year-over-year, reflecting continued strong organic growth combined with the impact of strategic acquisitions.
• Adjusted fully diluted earnings per share^[1] rose to $0.23, an increase of 28% year-over-year and 21% from the first quarter 2016.
• Adjusted return on assets¹ improved nine basis points to 0.84% over first quarter 2016; the return on tangible common equity¹ eclipsed the double digit mark, reaching 10.6% during the second quarter.

Second Quarter 2016 Growth Highlights  

• Loans grew $679 million or 35% from year-ago levels.  Adjusting for acquisitions, loans grew $234 million or 12% as consumer, small business, and mortgage loan production hit record levels during the second quarter.
• Debit card volume also reached a record high, increasing 9% over the prior quarter and 18% over Q2 2015.
• Acquisitions continue to fuel growth.  Customers acquired from BankFirst show a 27% increase in total services 18 months from acquisition and customers acquired from the Grand Bank acquisition show a 10% improvement in total services less than a year from acquisition.    
• Seacoast completed the acquisition and integration of BMO Harris' Orlando banking operations during June 2016, making Seacoast the largest Florida-based bank in this MSA.     

2016 Guidance

• Seacoast reaffirms 2016 adjusted diluted EPS1  target of $1.00.

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

Dennis S. Hudson, III, Chairman and CEO said, "Seacoast's increase in second quarter earnings shows the operating leverage created by our balanced growth strategy.  We are sustaining our momentum in organic growth with record consumer, small business and mortgage loan expansion, combined with value-creating acquisitions and robust risk management.  These successes provided a solid step forward towards our full-year 2016 adjusted EPS¹ goal of $1.00.

"Total loans increased $679 million or 35% over second quarter 2015 levels and $161 million or 7%, compared to the first quarter of this year.  Excluding acquisitions, loans grew a strong 16%, annualized, from first quarter levels and 12% above the prior year's second quarter.  We are managing a granular loan portfolio while prudently limiting commercial real estate as a percent of total capital to ensure we are well-positioned for sustainable value creation.

'We continue to execute our broader transformation, modernizing our sales and service delivery models to better align with customers' rapidly changing expectations while retaining the best aspects of traditional community banking. Digital delivery of products and services through convenient non-branch channels again drove our consumer franchise this quarter.  For example, 32% of all deposits were made outside the branch, compared to 30% in the prior quarter.  Moreover, 23% of consumer loans were originated outside the branch, compared to 16% in Q2 2015.

"We are also beginning to realize significant cost savings through the execution of our digital transformation as our multi-channel delivery of banking services enables us to trim our physical presence while keeping customer satisfaction high.  For example, we entered the year with eight Orlando branches, and acquired six Floridian and 14 BMO Harris locations in that market. By the end of the third quarter we will operate a total of 15 branches in the Orlando MSA, substantially reducing our physical presence in this market.  We will continue to prudently refine our infrastructure as we move into the future.

"Data analytics and technology-assisted operational improvement are also helping us build efficiencies across our organization and drive process automation.  For example, during the second quarter, more than 40% of new consumer loan applications were provided a decision in an automated manner and loan documents were signed electronically, providing responsiveness and efficient service for our customers and cost savings for Seacoast.

"These facets of our strategy, when taken together, produced a solid step towards our long term goals.  ROTCE grew 150 basis points and our efficiency ratio improved 370 basis points. Our adjusted ROTCE¹ improved 210 basis points to double digit levels and our adjusted efficiency ratio¹ declined nearly 500 basis points to 65.1%, all while maintaining appropriate guardrails around our loan portfolio.  We believe this year represents an inflection point in the execution of our strategy as we continue our growth and drive urgency in expense rationalization.  We look forward to continued success over the next quarters and beyond," Hudson concluded. 

Acquisitions Update
Hudson noted, "We are pleased to have completed the acquisition of BMO Harris' Orlando banking operations and we look forward to introducing Seacoast's product and services to these newly acquired customers.  We completed the BMO Harris integration in early June, one quarter after closing on our acquisition of Floridian Financial. These acquisitions bring together three established central-Florida franchises and propel Seacoast to a top-ten position in Orlando, making us the largest Florida based bank in that market. The BMO Harris acquisition is yet another in the recent series of successful acquisitions that have provided us with opportunity to further deploy our model of digital service delivery. 

"As a result of these recent acquisitions, as well as the successful integration of our BankFirst and Grand Bank branches, we continue to drive incremental value creation within Orlando and Palm Beach markets. Organic household growth remains very strong and cross sell statistics are above the healthy growth rates in our legacy markets," Hudson concluded.

Florida Economic Update
"Florida continues to gain recognition for its strong economy and business friendly environment," Hudson commented.  "Job growth continues to outpace the nation by a wide margin. A recent Wells Fargo Economics Group research report, dated May 2016, commented, 'While hiring decelerated in most of the country in May, Florida employers continued to add jobs at a breakneck pace. Following April's upwardly revised gain of 34,900 jobs, the state added another 24,500 jobs in May.'"

"Additionally, Florida made CNBC's 2016 top-ten list of the 'Best states for Business', citing a vibrant economy, solid infrastructure and strong workforce as top factors," Hudson concluded. "Florida's economic strength continues to serve as a tailwind as we execute on our fundamental business plan."

https://www08.wellsfargomedia.com/assets/pdf/commercial/insights/economics/regional-reports/fl-employment-20160617.pdf

Second Quarter 2016 Income Statement Highlights

Organic Growth along with Merger Activity Drives Net Interest Income Growth
Net interest income for the quarter totaled $34.8 million, a $9.0 million or 35% increase from second quarter 2015 levels.  Net interest margin expanded to 3.63%, a 13 basis point increase from the prior year. Year-over-year net interest income and margin increases reflect improved balance sheet mix combined with favorable yield / cost trends on all major asset and liability classes. Acquisition activity also contributed to net interest income gains as Seacoast welcomed customers from Floridian and BMO Harris, and continued to grow relationships with customers of other recent acquisitions. 

Net interest income increased $4.5 million in the second quarter of 2016 compared to the first quarter of 2016, while net interest margin decreased five basis points from 3.68% in the prior quarter. The net interest income improvement was built through continued organic and acquisition-related loan growth as well as purchases of investment securities in anticipation of the BMO Harris acquisition, which added deposits of $317 million and $64 million of business banking loans.  Investment securities leverage, combined with additional liquidity at the time of the acquisition, was the main contributor to net interest margin decline.

Noninterest Income Growth Driven by Franchise Growth
Noninterest income excluding securities gains, totaled $9.1 million for the second quarter of 2016, $0.3 million above $8.8 million recorded in the second quarter of 2015.  Included in second quarter 2015's noninterest income was a $725,000 gain on participated loan. Adjusting for the gain on the participated loan, fee income increased $1.0 million or 12%. Significant contributors to the increase in noninterest income include mortgage banking revenue of $1.4 million, which increased $0.3 million or 33% from the year-ago period reflecting record originations. Strong increases in interchange income and deposit service charges, up 17% and 5%, respectively, reflect intentional customer analytics-driven cross sell combined with strong household growth and customer engagement.   

Noninterest income excluding securities gains, increased $481,000 or 6% (not annualized) from first quarter 2016 levels.  First quarter 2016 noninterest income included $464,000 in unanticipated non-taxable income related to the Bank's investment in bank owned life insurance (BOLI).  Excluding securities gains and the unanticipated BOLI income for first quarter 2016, noninterest income increased $945,000 or 11% from first quarter.  Strength in mortgage banking revenue, as well as transaction-based fees such as interchange and deposit service charges also added to the linked-quarter gain.  Other noninterest income increased at a strong pace, representing growth in our businesses and returns on certain CRA investments.    

Noninterest Expense Reflects Merger Activity and Other Investments in Seacoast Strategy
Noninterest expense increased $10.5 million from the second quarter of 2015, largely driven by $5.8 million in expense related to the acquisition of 14 branch offices from BMO Harris on June 3, 2016 and other non-core expenses.  Adjusted noninterest expense¹ increased $5.1 million from prior-year levels.  The year-over-year increase in adjusted expense reflects ongoing costs related to the 2015 and 2016 acquisitions of Grand Bankshares and Floridian Financial Group and BMO Harris' Orlando operations.  Expenses also reflect support of organic growth of and investment in the franchise. Larger drivers include salary and benefits costs, occupancy and equipment and data processing expense, largely from acquisition activity.  While adjusted noninterest expense grew 21% compared to prior year levels, revenues, excluding securities gains, grew 26% - providing 5% operating leverage.

Noninterest expense increased $2.5 million from the first quarter, 2016.  Adjusted noninterest expense¹ grew $1.7 million or 6%. Contributing to the higher adjusted noninterest expense during the second quarter of 2016 were salary and benefits costs, occupancy and equipment and data processing expense, largely from acquisition activity. 

Second Quarter 2016 Balance Sheet Highlights

Strong Originations and Acquisition Activity Continue Loan Portfolio Build
Total loans were $2.62 billion, an increase of $679 million or 35% from the second quarter 2015.  Excluding acquired loans, loans increased $234 million or 12% above the prior year.  Loans increased $161 million or 7% (not annualized) from first quarter 2016.  Adjusted for the BMO Harris acquisition, loans increased $97 million or 4.0% (not annualized) linked-quarter.    

Loan production continued at a strong pace across all business lines. Commercial loan originations for the quarter exceeded $111 million, well ahead of 2015 levels, with the commercial pipeline (in underwriting and approval or approved and not yet closed) totaling $113 million at June 30, 2016. Consumer loan and small business originations totaled $81 million during the second quarter of 2016 compared to $55 million one year ago.

Closed residential production for the quarter totaled $104 million compared with $82 million during the second quarter 2015, with a total residential pipeline of $66 million as of June 30, 2016, up from $54 million one year ago.

Credit Quality Remains Stable and Strong
The provision for loan losses was $662,000 for the second quarter of 2016, down from $855,000 in the second quarter 2015 and above $463,000 recorded in the first quarter 2016.  The decrease in provision was driven by strong credit metrics, including $339,000 in net recoveries collected during the quarter, offset by the impact of continued loan growth. The ratio of allowance for loan losses to non-acquired loans was 1.01% as of June 30 2016, a slight decrease from 1.03% as of December 31, 2015. 

Additional highlights include:

• Nonperforming loans to total loans outstanding at the end of the second quarter decreased to 0.58%, down from 1.01% as of June 30, 2015;
• Nonperforming assets to total assets declined to 0.55%, compared to 0.79% one year ago.

Deposits Built on Core Customer Growth and Acquired Deposits
Total deposits increased $3.5 billion, 34% above the second quarter 2015.  Core customer funding increased to $3.30 billion, an $828 million or 34% increase.  Excluding acquisitions, core customer funding increased by $158 million or 6% and total deposits increased $67 million or 3% above the second quarter 2015.  Core customer funding increased $240 million or 8% (not annualized) and total deposits grew $279 million or 9% (not annualized), compared to the prior quarter.  Excluding acquired deposits, core customer funding decreased slightly, by $16 million from end of first quarter 2016 levels, reflecting normal seasonality.

Noninterest demand deposits grew $93 million or 9% (not annualized) from the first quarter of 2016 and $338 million or 42% from the second quarter of 2015.  Excluding acquired deposits, noninterest demand deposits increased $140 million or 17% from the end of the second quarter 2015 and represent a strong 33% of total deposits.

Other Highlights

Capital Ratios Remain Strong
As expected, capital ratios decreased in conjunction with the BMO Harris acquisition and remain well above regulatory requirements for well-capitalized institutions. The common equity tier 1 capital ratio (CET1) is estimated at 10.9% and the total capital ratio is estimated at 13.4% at June 30, 2016.  The tier 1 leverage ratio is estimated at 9.3% at June 30, 2016.  Ratios are down slightly as earnings during the first and second quarter were offset by acquisition activity.

Tangible book value per share increased $0.11 to $8.98 while book value per share increased $1.25 to $11.09 compared to the second quarter of 2015.  Average tangible common equity to assets was 8.4% at June 30, 2016. 

Conference Call Information
Seacoast will host a conference call on Thursday, July 28, 2016 at 10:00 a.m. (Eastern Time) to discuss the earnings results.  Investors may call in (toll-free) by dialing (800) 697-5978 (passcode: 7908 524). Slides will be used during the conference call and may be accessed at Seacoast's website at SeacoastBanking.com by selecting "Presentations" under the heading "Investor Services."  A replay of the call will be available for one month, beginning late afternoon of July 28, by dialing (888) 843-7419 and using passcode: 7908 524.

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

About Seacoast Banking Corporation of Florida (NASDAQ: SBCF)
Seacoast Banking Corporation of Florida is one of the largest community banks headquartered in Florida with approximately $4.4 billion in assets and $3.5 billion in deposits as of June 30, 2016. The Company provides integrated financial services including commercial and retail banking, wealth management, and mortgage services to customers through advanced banking solutions, 52 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 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, 2015, 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.

Explanation of Certain Unaudited Non-GAAP Financial Measures
This press release contains financial information determined by methods other than Generally Accepted Accounting Principles ("GAAP").  The financial highlights provide reconciliations between GAAP net income and adjusted net income, GAAP income and adjusted pretax, pre-provision income. 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, and if not provided would be requested by the investor community. The Company believes the non-GAAP measures enhance investors' understanding of the Company's business and performance. 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.

To better evaluate its earnings, the Company removes certain items to arrive at adjusted net income, adjusted pretax, pre-provision income and adjusted diluted earnings per share (non-GAAP measures) as detailed in the table below⁽²⁾:

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SOURCE Seacoast Banking Corporation of Florida

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