Seacoast Reports Record Third Quarter 2019 Earnings Results

Net Income Increased 57% Year-Over-Year to $25.6 Million

Improved Operating Leverage and Strong Performance in Both Commercial and Mortgage Banking Highlight 3Q Results

STUART, Fla., Oct. 24, 2019 (GLOBE NEWSWIRE) -- Seacoast Banking Corporation of Florida (“Seacoast” or the "Company”) (NASDAQ: SBCF) today reported third quarter 2019 net income of $25.6 million, or $0.49 per diluted share, up 57% or $9.3 million year-over-year. Seacoast reported third quarter 2019 adjusted net income¹ of $27.7 million, or $0.53 per diluted share, an increase of 57% or $10.1 million compared to the third quarter of 2018.

For the third quarter of 2019, return on average tangible assets was 1.61%, return on average tangible shareholders’ equity was 14.7%, and the efficiency ratio was 48.6%, compared to 1.50%, 14.3% and 53.5%, respectively, in the prior quarter and 1.18%, 12.0%, and 57.0%, respectively, in the third quarter of 2018. Adjusted return on average tangible assets¹ was 1.67%, adjusted return on average tangible shareholders’ equity¹ was 15.3%, and the adjusted efficiency ratio¹ was 49.0%, compared to 1.59%, 15.2%, and 51.4%, respectively, in the prior quarter, and 1.22%, 12.4%, and 56.3%, respectively, in the third quarter of 2018.

Dennis S. Hudson, III, Seacoast’s Chairman and CEO, said, "During the third quarter, Seacoast reported a record $25.6 million in net income. Both our mortgage and commercial banking units showed continued momentum in the quarter, with robust loan originations generating disciplined growth in loan outstandings and a new record in mortgage banking fees. We are generating this growth and improving our operating leverage, all while delivering a highly disciplined credit portfolio."

Charles M. Shaffer, Seacoast’s Chief Operating Officer and Chief Financial Officer, said, “We continue to steadily build shareholder value through consistent growth in our tangible book value per share, ending the period at $14.30, an increase of 19% compared to one year prior. Year to date, we have generated 11% operating leverage, with adjusted revenues¹ increasing 18%, and adjusted noninterest expense¹ increasing 7%, in spite of a more challenging interest rate environment. Despite two reductions in the Federal Reserve overnight rate and a declining 10-year treasury rate, our net interest margin, excluding the discount on purchased loans, decreased only 3 basis points, a testament to the high quality balance sheet we continue to cultivate. This balance sheet is fortified with a robust capital base, strong asset quality, and a prudent liquidity position. We ended the quarter with a tangible common equity ratio of 11.1% supporting our ability to deploy capital for organic growth and opportunistic acquisitions. As the banking and economic cycle continues to mature, Seacoast is committed to maintaining its fortress balance sheet, built around strong capital and strict credit underwriting.”

¹Non-GAAP measure, see “Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and for a reconciliation to GAAP.

Third Quarter 2019 Financial Highlights

Income Statement

• Net income was $25.6 million, or $0.49 per diluted share, compared to $23.3 million, or $0.45, for the prior quarter and $16.3 million, or $0.34, for the third quarter of 2018. For the nine months ended September 30, 2019, net income was $71.6 million, or $1.38 per diluted share, compared to $51.3 million, or $1.07, for the nine months ended September 30, 2018. Adjusted net income¹ was $27.7 million, or $0.53 per diluted share, compared to $25.8 million, or $0.50, for the prior quarter and $17.6 million, or $0.37, for the third quarter of 2018. For the nine months ended September 30, 2019, adjusted net income¹ was $77.8 million, or $1.50 per diluted share, compared to $55.2 million, or $1.15, for the nine months ended September 30, 2018.
• Net revenues were $74.9 million, an increase of $1.2 million, or 2%, compared to the prior quarter, and an increase of $11.0 million, or 17%, compared to the third quarter of 2018. For the nine months ended September 30, 2019, net revenues were $222.2 million, an increase of $33.4 million, or 18%, compared to the nine months ended September 30, 2018. Adjusted revenues¹ were $74.8 million, an increase of $0.6 million, or 1%, from the prior quarter and an increase of $10.9 million, or 17%, from the third quarter of 2018. For the nine months ended September 30, 2019, adjusted revenues¹ were $222.6 million, an increase of $33.5 million, or 18%, compared to the nine months ended September 30, 2018.
• Net interest income totaled $60.9 million, an increase of $0.8 million, or 1%, from the prior quarter and an increase of $9.4 million, or 18%, from the third quarter of 2018. For the nine months ended September 30, 2019, net interest income was $181.9 million, an increase of $30.3 million, or 20%, compared to the nine months ended September 30, 2018.
• Net interest margin was 3.89% in the third quarter of 2019, 3.94% in the second quarter of 2019 and 3.82% in the third quarter of 2018. Quarter-over-quarter, the yield on loans contracted 10 basis points, the yield on securities contracted 4 basis points, and the cost of deposits decreased 3 basis points. The impact on net interest margin from accretion of purchase discounts on acquired loans was 25 basis points in the third quarter of 2019, compared to 27 basis points in the prior quarter and 18 basis points in the third quarter of 2018. The Federal Reserve reduced the overnight rate twice by 25 basis points during the third quarter and the 10-year treasury rate fell by approximately 30 basis points, resulting in lower new earning asset yields and further declines in our variable rate earning asset portfolios. This was partially offset by our success in lowering the cost of funding, the result of our focus on maintaining deposit pricing discipline.
• Noninterest income totaled $13.9 million, an increase of $0.4 million, or 3%, compared to the prior quarter and an increase of $1.7 million, or 13%, from the third quarter of 2018. For the nine months ended September 30, 2019, noninterest income was $40.4 million, an increase of $3.0 million, or 8%, compared to the nine months ended September 30, 2018. Changes in noninterest income from the second quarter of 2019 consisted of the following:
  • Mortgage banking fees increased by $0.4 million, reflecting the combination of increased refinance activity due to lower long term rates and a greater focus on generating saleable volume.
  • Interchange income decreased by $0.2 million, reflecting lower customer activity as a result of Hurricane Dorian.
  • Other noninterest income includes a $1.0 million BOLI death benefit.
  • During the quarter, $49.6 million of securities were sold with an average yield of 1.85%, resulting in a loss of $0.9 million. These funds were reinvested at an average yield of 2.65%.
• The provision for loan losses was $2.3 million compared to $2.6 million in the prior quarter and $5.8 million in the third quarter of 2018.
• Noninterest expense was $38.6 million, a decrease of $2.4 million, or 6%, compared to the prior quarter, the result of our proven success at disciplined cost control, and an increase of $1.2 million, or 3%, from the third quarter of 2018. For the nine months ended September 30, 2019, noninterest expense was $122.7 million, an increase of $9.9 million, or 9%, compared to the nine months ended September 30, 2018. Changes from the second quarter of 2019 in noninterest expense consisted of the following:
  • Salaries and wages decreased by $0.8 million. The second quarter's results included $1.1 million of one-time severance costs associated with the previously announced expense reduction initiative. Offsetting in the current quarter were additional incentives aligned with driving continued earnings growth.
  • Our continued proactive focus on efficiency and streamlining operations resulted in an additional $1.4 million in operating expense reductions from several expense categories, including $0.4 million in occupancy, $0.4 million in legal and professional fees, $0.3 million in telephone and data lines and $0.3 million in marketing.
  • During the third quarter, the FDIC announced the achievement of their target deposit insurance reserve ratio, resulting in our ability to apply previously awarded credits to our deposit insurance assessment. This resulted in $0.3 million in lower FDIC assessment expense for the quarter. The Company has remaining credits of $1.2 million, which will be applied to future assessments if the FDIC’s reserve ratio remains above the target threshold.
  • In late August, communities across our footprint prepared for the potential landfall of Hurricane Dorian. To ensure the safety of our associates and customers and to maintain uninterrupted digital and telephone access for our customers, we executed on our business continuity plans, transitioned operational activities to our backup facility, and closed our branches and corporate offices for one business day. Florida was ultimately spared a direct hit and our expenses, which were limited to preparing physical locations and to standing up the offsite operations hub, totaled $0.1 million.
• Seacoast recorded $8.5 million in income tax expense in the third quarter of 2019, compared to $6.9 million in the prior quarter and $4.4 million in the third quarter of 2018. In September 2019, the State of Florida announced a reduction in the corporate income tax rate from 5.5% to 4.458% for the years 2019, 2020 and 2021. This change resulted in additional income tax expense of $1.1 million upon the write down of deferred tax assets affected by the change, offset by a $0.4 million benefit upon adjusting the year-to-date provision to the new statutory tax rate.  Tax benefits related to stock-based compensation were negligible in the third quarter of 2019, compared to $0.1 million in the prior quarter and $0.4 million in the third quarter of 2018.
• Year to date adjusted revenues¹ increased 18% compared to prior year while adjusted noninterest expense¹ increased 7%, generating 11% operating leverage.
• The efficiency ratio was 48.6% compared to 53.5% in the prior quarter and 57.0% in the third quarter of 2018. The adjusted efficiency ratio¹ was 49.0% compared to 51.4% in the prior quarter and 56.3% in the third 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 growth.

Balance Sheet

• At September 30, 2019, the Company had total assets of $6.9 billion and total shareholders' equity of $962.7 million. Book value per share was $18.70 and tangible book value per share was $14.30, compared to $18.08 and $13.65, respectively, at June 30, 2019 and $15.50 and $12.01, respectively, at September 30, 2018. Year-over-year, tangible book value per share increased 19%, evidencing our commitment to building shareholder value.
• Debt securities totaled $1.2 billion at September 30, 2019, a decrease of $7.5 million compared to the prior quarter and a decrease of $96.1 million from September 30, 2018. During the quarter, $49.6 million of securities were sold, with an average yield of 1.85%, resulting in a loss of $0.9 million. Purchases of securities during the quarter totaled $77.0 million at an average yield of 2.65%.
• Loans totaled $5.0 billion at September 30, 2019, an increase of $98.2 million, or 2.0%, compared to the prior quarter, and an increase of $927.0 million, or 23%, from September 30, 2018. Changes in total loans consisted of the following:
  • New loan originations of $488 million, compared to $407 million in the prior quarter, resulted in net loan growth in the quarter of 8% on an annualized basis. Excluding the impact of the First Green acquisition in October 2018, loan outstandings have grown 7% year-over-year.
  • Commercial originations during the third quarter of 2019 were $282.2 million, an increase of $125.3 million, or 80%, compared to the second quarter of 2019 and an increase of $151.2 million, or 115%, compared to the third quarter of 2018. Increases in loan production reflect the addition of business bankers across the Company's footprint, solid execution by the legacy banking team, and higher customer loan demand due to lower long term interest rates. The third quarter of 2019 results include the opportunistic purchase of a $52.1 million commercial real estate loan portfolio.
  • Closed residential loans retained in the portfolio for the third quarter of 2019 were $22.4 million, down 57% from the second quarter of 2019 and down 72% from the third quarter of 2018. Closed residential loans sold for the third quarter of 2019 were $80.8 million, up 32% from the second quarter of 2019 and up 45% from the third quarter of 2018.
  • Consumer and small business originations for the third quarter of 2019 were $103.1 million, a decrease of 24% compared to the second quarter of 2019 and a decrease of 18% compared to the third quarter of 2018.
  • We continue to manage carefully the Company's exposure to commercial real estate. Construction and land development and commercial real estate loans remain well below regulatory guidance at 42% and 204% of total bank-level risk based capital, respectively, down from 51% and 205%, respectively, in the second quarter of 2019. On a consolidated basis, construction and land development and commercial real estate loans represent 39% and 191%, respectively, of total consolidated risk based capital.
  • The funded balances of our top 10 and top 20 relationships represented 19% and 33%, respectively, of total consolidated risk based capital, down from 21% and 38% compared to the third quarter of 2018 and down from 32% and 53% compared to the third quarter of 2016. Our largest committed exposure totals $30 million and our average commercial loan size is $350,000.
• Pipelines (loans in underwriting and approval or approved and not yet closed) increased over the prior quarter, totaling $504.6 million as of September 30, 2019.
  • Commercial pipelines were $359.7 million, an increase of 38% sequentially and 83% compared to the prior year.
  • Retained residential pipelines were $43.4 million, significantly higher than the prior quarter, the result of a test launch of a correspondent mortgage banking channel focused on acquiring mass affluent, affluent and ultra-high net worth Florida customers.
  • Saleable residential pipelines were $35.1 million, a decrease of 25% sequentially and an increase of 94% compared to the prior year. The decrease in the saleable pipeline from the prior quarter reflects slowing refinance activity late in the quarter.
  • Consumer and small business pipelines were $66.3 million, an increase of 1% sequentially and an increase of 11% compared to the prior year.                               
• Total deposits were $5.7 billion as of September 30, 2019, an increase of $131.9 million, or 2%, sequentially and an increase of $1.0 billion, or 22%, from the prior year.
  • Interest-bearing deposits (interest-bearing demand, savings and money market deposits) increased year-over-year $400.7 million, or 17%, to $2.8 billion, noninterest bearing demand deposits increased $164.2 million, or 11%, to $1.7 billion, and CDs increased $464.7 million, or 62%, to $1.2 billion.
  • Third quarter balances reflect an increase from the prior quarter of $189.4 million in brokered deposits. We continue to actively manage our mix of brokered deposits and advances from the Federal Home Loan Bank to obtain the most advantageous rates.
  • Overall cost of deposits decreased to 73 basis points from 76 basis points in the prior quarter, reflecting the impact of the Federal Reserve's interest rate cuts and our focus on maintaining deposit pricing discipline.
• Third quarter return on average tangible assets (ROTA) was 1.61%, compared to 1.50% in the prior quarter and 1.18% in the third quarter of 2018. Adjusted ROTA¹ was 1.67% compared to 1.59% in the prior quarter and 1.22% in the third quarter of 2018.

Capital

• Third quarter return on average tangible common equity (ROTCE) was 14.7%, compared to 14.3% in the prior quarter and 12.0% in the third quarter of 2018. Adjusted ROTCE¹ was 15.3% compared to 15.2% in the prior quarter and 12.4% in the third quarter of 2018.
• The tier 1 capital ratio was 14.9%, total capital ratio was 15.5% and the tier 1 leverage ratio was 12.0% at September 30, 2019.
• Tangible common equity to tangible assets was 11.1% at September 30, 2019, compared to 10.7% at June 30, 2019 and 9.9% at September 30, 2018.

Asset Quality

• Nonperforming loans to total loans outstanding was 0.52% at September 30, 2019, 0.47% at June 30, 2019, and 0.64% at September 30, 2018.
• Nonperforming assets to total assets was 0.58% at September 30, 2019, 0.50% at June 30, 2019 and 0.52% at September 30, 2018. Nonperforming assets increased by $5.8 million to $39.6 million in the third quarter of 2019, primarily the result of five customer relationships moving to nonperforming status, all of which are either fully collateralized or previously written down to realizable values.
• The ratio of allowance for loan losses to total loans was 0.67% at September 30, 2019, 0.69% at June 30, 2019, and 0.83% at September 30, 2018. The ratio of allowance for loan losses to non-acquired loans was 0.84% at September 30, 2019, 0.87% at June 30, 2019, and 0.98% at September 30, 2018.
• Net charge-offs were $2.1 million or 0.17% of average loans for the third quarter of 2019 compared to $1.8 million, or 0.15% of average loans in the prior quarter.

Vision 2020

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

Since announcing our Vision 2020 targets in February 2017, we have achieved a compounded annual growth rate in tangible book value per share of 13%, steadily building shareholder value.

Third Quarter Operating Highlights

Modernizing How We Sell

• During the quarter the Company achieved record commercial and residential loan originations and pipelines are strong entering the fourth quarter.
• Late in the quarter, the Company began testing a correspondent mortgage banking channel focused on acquiring mass affluent, affluent, and ultra-high net worth Florida customers. Our objective is to acquire customers using this channel and expand the value of these high quality relationships using data driven analytics.
• Seacoast has partnered with a leading consumer insights firm to capture and analyze feedback from our customers. Program implementation and launch were completed in the third quarter, with the objective of identifying additional customer opportunities.

Lowering Our Cost to Serve

• In the third quarter of 2019, average deposits per banking center exceeded $118.2 million, up from $94.8 million during the same period last year.
• Seacoast consolidated one banking center location in the third quarter of 2019, in addition to the two locations consolidated earlier this year.
• Seacoast has reduced its physical footprint by 20% to meet the evolving needs of customers in the most cost-effective manner. This reduction was achieved ahead of plan due to successful M&A and the repositioning of the banking center network in strategic growth markets.

Driving Improvements in How Our Business Operates

• Earlier this year Seacoast further enhanced its interactive voice response (IVR) system in its Florida-based Customer Support Center. The system provides customers with additional secure, self-serve options and expedited call routing processes. This investment provides added scalability and elevates the customer experience.
• Late last year Seacoast launched a large-scale initiative to implement a fully digital loan origination platform across all business banking units. Implementation and launch were completed in the second quarter and full conversion from the legacy system was completed in the third quarter. This investment should lead to further gains in operational efficiency and banker productivity in 2020 and beyond.

Scaling and Evolving Our Culture

• Seacoast continues to invest in business bankers. In the third quarter Seacoast on-boarded three new bankers, 18 year to date, in order to fully support the strong markets we serve. Seacoast has a robust pipeline of talent entering the fourth quarter of 2019 and will continue to opportunistically add top-tier bankers in the Tampa and South Florida markets.

OTHER INFORMATION

Conference Call Information
Seacoast will host a conference call on October 25, 2019 at 10:00 a.m. (Eastern Time) to discuss the third quarter 2019 earnings results and business trends. Investors may call in (toll-free) by dialing (888) 517-2513 (passcode: 6648 701; 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 25, 2019 by dialing (888) 843-7419 (domestic) and using passcode: 6648 701#.

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 October 25, 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 $6.9 billion in assets and $5.7 billion in deposits as of September 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 48 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, new initiatives 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.

Charles M. Shaffer
Executive Vice President
Chief Operating Officer
and 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 define or 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.