Seacoast Q3 Net Income Rises More Than 48% Year-over-Year to $4.4 Million

STUART, Fla., Oct. 22, 2015 /PRNewswire/ --

Third Quarter 2015 Earnings Highlights

• Revenues increased $2.6 million to a record $37.1 million, or 7.5% compared to Q2 2015, and $13.7 million, or 59% compared to Q3 2014.
• Net interest margin increased 58 basis points year-over-year to 3.75% and net interest income improved $11.8 million or 69%, reflecting organic growth and acquisition activity.
• Adjusted net income excluding merger costs and other adjustments¹ increased 96% to $6.4 million, or $ 0.19 per diluted share, compared to $3.3 million, or $0.13 per diluted share, in Q3 2014.

Third Quarter 2015 Growth Highlights

• Loans increased $162 million or 8% compared to Q2 2015, and rose 51% year-over-year. Excluding acquisitions, loans increased $58 million or 3% compared to Q2 2015 and $227 million or 16% from Q3 2014.
• Total households increased a strong 4% (not annualized) compared to Q2 2015 and 23% compared to Q3 2014. Excluding acquisition, household growth accelerated to 6% (annualized) over Q2 levels.
• Seacoast closed the Grand Bankshares, Inc. acquisition and completed the conversion of Grand's customers over the July 17 weekend, adding approximately $188 million in deposits and $112 million in gross loans in the attractive Palm Beach market with minimal customer attrition.

Seacoast Banking Corporation of Florida (NASDAQ: SBCF) today reported results for the third quarter of 2015.  Third quarter revenue rose $2.6 million, or 7.5%, to $37.1 million compared to $34.5 million in the prior quarter.  Net income increased $1.4 million, or 48%, to $4.4 million, compared to the third quarter of 2014, and adjusted net income¹ increased $3.1 million or 96% from year-ago levels.  Diluted earnings per common share were $0.13 and adjusted diluted earnings per common share¹ were $0.19 in the third quarter compared with $0.13 in the third quarter of 2014 and $0.19 in the second quarter of 2015.

Net income improved 123% to $16.1 million, or $0.48 per diluted common share, for the first three quarters of 2015 from $7.2 million, or $0.28 per diluted common share, for the first three quarters of 2014.

Dennis S. Hudson, III, Chairman and CEO said, "We continue to build momentum, growing our top-line and improving earnings and profitability while investing for the future and managing risk. Our balanced expansion strategy, combining strong organic growth with strategic acquisitions in attractive Florida markets, positions Seacoast for continued success."

"As we strengthen our franchise, we have invested for the future, especially in high quality employees.  This quarter's expenses reflect the first full quarter with our receivables funding team from First Growth Capital (FGC), nearly a full quarter of Grand Bankshares in Palm Beach, and new hires to support organic revenue initiatives," continued Hudson.  "We look forward to considerable positive impact from these investments in succeeding quarters." 

"In addition to successfully integrating Palm Beach-based Grand Bankshares during the third quarter," Hudson said, "we recently announced an agreement to purchase BMO Harris Bank's Orlando banking franchise, including retail and business banking employees and customers.  This acquisition builds on our 2014 acquisition of BankFIRST and makes us a Top-10 bank in the attractive Orlando market, adding nearly 8,500 additional households.  We look forward to welcoming these customers in early 2016."  

Acquisitions Update
Hudson noted that, "Seacoast continued to benefit from acquisitions integrated during the last four quarters. Our acquisition of Grand Bankshares on July 17 doubled our existing share in the attractive Palm Beach County market and made us the third-largest Florida-based bank doing business there."

Nearly a year after completing our acquisition, customer metrics for Winter Park-based BankFIRST are extremely encouraging. Household growth for former BankFIRST customers was 7.5% annualized and cross-sell, the number of products used by each household, increased at a 9.4% annualized rate.

Florida Economic Update
"We continue to enjoy the tailwinds of a strong regional economy, with data showing that Florida is significantly outperforming the nation," said Hudson.

Wells Fargo's Economics Group, in its report titled "Florida's Economy Continues to See Solid Job Gains" stated, "On a year-over-year basis, nonfarm employment has risen a solid 3.3 percent throughout Florida, reflecting an increase of 261,500 jobs. The nation as a whole reported a gain of 2.1 percent over the year. Florida's year-to-year job gains have exceeded the nation every month since April 2012."  The report noted that Florida's unemployment rate dropped 0.2 percentage points to 5.3% in August with the steepest declines in areas hard hit by the housing slump and now recovering nicely.

The future also looks promising.  In its "Southeast Florida 3rd Quarter 2015 Market Outlook", PNC Financial Services Group stated that, "…Southeast Florida's economy will be an above-average performer in 2015 and 2016. A strengthening global economy will sustain trade and investment while rising real disposable income nationally will boost tourism."  The article continued, "Longer term, strong population growth, well-developed infrastructure and deep international linkages will give the region a higher trend rate of economic growth."

Income Statement Highlights

Core Loan Growth and Acquisition Fuel Net Interest Income and Margin Expansion
Net interest income for the quarter totaled $29.0 million, an $11.8 million or 68% increase from third quarter 2014 levels.  Net interest margin expanded to 3.75%, a 58 basis point, or an 18% increase from the prior year.  Year-over-year net interest income and margin increases reflect acquisition activity, core deposit and loan growth, and the strategic investment of excess liquidity.

Net interest income increased $3.3 million or 13% and net interest margin expanded 25 basis points or 7% from 3.50% in the prior quarter.  Linked quarter results reflect an improved balance sheet mix and acquisition activity.  In addition, net interest income benefited from excess purchased loan accretion recognized from early loan payoffs, contributing approximately 10 basis points in margin to the quarter. 

Noninterest Income
Noninterest income excluding security gains, totaled $8.1 million for the third quarter, an increase of $1.9 million or 31% from a year ago. Year-over-year growth in all categories of service fee income reflects strength in customer acquisition and cross sell, as well as benefits from acquisition activity. 

Noninterest income declined from the prior quarter's $8.8 million, the result of a $725,000 gain on a participated loan included in noninterest income in the second quarter.  Excluding the gain on the participated loan, noninterest income was down slightly.   A strong quarter for mortgage banking fees and wealth management was offset by seasonal volatility in marine lending fees.

Noninterest Expense Increases from Acquisition and Investments in Franchise
Noninterest expense increased $9.2 million or 46% from the third quarter 2014.  Year-over-year expense increases reflect the acquisitions of The BANKshares, FGC and Grand Bankshares, merger related expenses and other one-time expenses totaling $3.0 million in the third quarter compared to $0.6 million in the prior year, and additional investments to promote organic growth. 

Noninterest expense increased $4.8 million or 20% from the prior quarter.  Excluding merger related charges and other one-time items, noninterest expenses grew $2.1 million or 9%.  A significant amount of this increase is related to nearly a full quarter's operating expense impact from the Grand Bankshares acquisition. Other areas of investment in the franchise include: a full quarter's expense related to the acquisition of FGC during the second quarter 2015 which contributed approximately $309,000 in additional expense, production-driven commission and incentive expense which added approximately $352,000, core legal and professional fees that typically vary from quarter to quarter totaling $396,000, and marketing expense focused on customer acquisition and corporate brand awareness surrounding the Grand Bankshares Palm Beach footprint which contributed $133,000 to the increase.

Seacoast's efficiency ratio was 76.3%, improving from 82.8% in the prior year.  This decrease is related to improved operating leverage, as strong revenue growth outpaced expenses offset by a significant amount of merger related costs.  Seacoast's adjusted efficiency ratio¹ was 68.2%, a 14% improvement from the 79.6% one year ago and a slight increase from 67.5% in the second quarter 2015. 

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

Balance Sheet Highlights

Deposit Growth Reflects Success of Core Customer Increase and Acquisitions
Total deposits increased 51.6% to $2.74 billion at September 30, 2015, from year ago levels.  Core customer funding increased to $2.58 billion at September 30, 2015, an $898.2 million increase from the third quarter of 2014.  Excluding acquisitions, core customer funding increased by $292.6 million or 17.4% from one year ago and total deposits increased $229.0 million or 12.7% from one year ago.  Excluding Grand Bankshares, core customer funding decreased $45.5 million compared to the prior quarter, entirely due to seasonal declines in public funds.

Noninterest demand deposits grew $61.4 million, or 7.6% from the second quarter and $347.9 million or 66.6% from the third quarter of 2014.  Noninterest demand deposits increased to 31.7% of total deposits, up from 28.9% one year ago. 

Loans Up Substantially from Acquisition and Strong Core Growth
Total loans were $2.10 billion at September 30, 2015, an increase of $708 million or 51% from a year ago.  Excluding acquired loans, loans increased $227 million or 16% from the prior year's third quarter.

Commercial loan originations for the quarter were $71.8 million with the commercial pipeline (in underwriting and approval or approved and not yet closed) totaling a strong $104.9 million at September 30, 2015 only slightly below second quarter levels and well in excess of recent history.  Consumer loan and small business originations (inclusive of lines of credit) totaled $51.1 million in the third quarter of 2015 compared to $55.3 million in the second quarter and $24.5 million one year ago.

Along with this strong loan growth, the portfolio continued to build granularity, with solid industry diversification.  The average commercial and small business loan originated in the first three quarters of 2015 totaled only $278,000.

Closed residential production totaled $74.0 million compared with $66.0 million a year ago, with a total residential pipeline of $38.0 million at September 30, 2015 versus a pipeline of $22.6 million one year ago.

Other Highlights

Credit Quality Remains Stable with Growth Trends
The provision for loan losses increased to $987,000 for the third quarter of 2015, up from a $1.4 million recapture in the third quarter 2014 and a $132,000 or 15% increase from $855,000 recorded in the second quarter 2015.  The third quarter provision is attributable to loan growth during the quarter and was also impacted by $655,000 related to a single purchased credit impaired loan performing below our initial expectations.  The allowance for loan losses for non-acquired loans was 1.11% of total loans, compared to 1.10% in the second quarter 2015.

Additional highlights include:

• Nonperforming loans to total loans outstanding at the end of the third quarter was 0.8%, down from 1.4% at September 30, 2014;
• Nonperforming assets to total assets declined to 0.7%, compared to 1.0% a year ago.

Capital Ratios Continue to Improve from Earnings Momentum
Capital ratios remain healthy and well above regulatory requirements for well-capitalized institutions.  The common equity tier 1 capital ratio (CET1) is estimated at 12.9% and the total capital ratio is estimated at 15.5% at September 30, 2015.  The tier 1 leverage ratio is estimated at 10.6% at September 30, 2015 compared to 10.1% at June 30, 2015.

Tangible book value increased $0.31 per share to $9.18 and book value per share increased $0.36 to $10.20 at September 30, 2015, versus the prior quarter.  Average tangible common equity to assets was a strong 9.40% for the third quarter 2015. 

Conference Call Information
Seacoast will host a conference call on Friday, October 23, 2015 at 1:00 p.m. (Eastern Time) to discuss the earnings results.  Investors may call in (toll-free) by dialing (888) 517-2513 (passcode: 7789246; host: Dennis S. Hudson). Slides will be used during the conference call and may be accessed at Seacoast's website at SeacoastBanking.com by selecting "Presentations" under the heading "Investor Services."  A replay of the call will be available for one month, beginning late afternoon of October 23, by dialing (888) 843-7419 (domestic), using the passcode 7789246.

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 23, 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 $3.4 billion in assets and $2.7 billion in deposits as of September 30, 2015. The Company provides integrated financial services including commercial and retail banking, wealth management, and mortgage services to customers through advanced banking solutions, 43 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 Space Coast of Florida, into Orlando and Central Florida, and west to Okeechobee and surrounding counties. More information about the Company is available at SeacoastBanking.com.

Sources: 

https://www08.wellsfargomedia.com/downloads/pdf/com/insights/economics/regional-reports/FL_Employment_09182015.pdf
http://www.fsfoa.org/documents/PNCMarketOutlook.pdf

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, ability to realized deferred tax assets, 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, 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, 2014, 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. 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: