Seacoast Banking of Florida : Reports Fourth Quarter and Full-Year 2018 Results (Printable)

Charles M. Shaffer Executive Vice President Chief Financial Officer

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SEACOAST REPORTS FOURTH QUARTER AND FULL-YEAR 2018 RESULTS

Full-Year Net Income Increased 57% Year-Over-Year to $67.3 Million

Net Interest Margin Expanded to 4.0%, Up 18 Basis Points from Prior Quarter

Achieved Record Commercial Originations, Up 21%Year-Over-Year

STUART, Fla., January 24, 2019 /GLOBE NEWSWIRE/ -- Seacoast Banking Corporation of Florida ("Seacoast" or "the Company") (NASDAQ: SBCF) today reported fourth quarter 2018 net income of $16.0 million, or $0.31 per share, up 22% or $2.9 million year-over-year. For the full-year 2018, net income was $67.3 million, or $1.38 per share, up 57% year-over-year. Seacoast reported fourth quarter adjusted net income1 of $23.9 million, or $0.47 per share, increasing $6.6 million compared to fourth quarter 2017. For the full year 2018, adjusted net income1 was $78.6 million, or $1.62 per share, a 42% increase year-over-year.

For the fourth quarter 2018, return on average tangible assets was 1.05%, return on average tangible shareholders' equity was 10.9%, and the efficiency ratio was 65.8%, compared to 1.18%, 12.0% and 57.0%, respectively, in the prior quarter and 0.97%, 10.7%, and 64.0%, respectively, in the fourth quarter of 2017. Adjusted return on average tangible assets1 was 1.49%, adjusted return on average tangible shareholders' equity1 was 15.4%, and the adjusted efficiency ratio1 was 54.2%, compared to 1.22%, 12.4%, and 56.3%, respectively, in the prior quarter, and 1.23%, 13.5%, and 52.6%, respectively, in the fourth quarter of 2017.

Dennis S. Hudson, III, Seacoast's Chairman and CEO, said, "Seacoast's outstanding performance in 2018 demonstrates the continued success of our balanced growth strategy, with consistent organic growth augmented by prudent and well-integrated acquisitions. Our focused efforts to position our franchise in attractive Florida markets, among the fastest-growing markets in the United States, combined with our unique customer analytics capabilities, helped us to deliver another year of robust shareholder returns as we remained on-track to achieve our Vision 2020 goals."

Hudson added, "I would like to personally thank our associates for their dedication and hard work in 2018, and I am very excited to carry our momentum into 2019 as we build on our position as Florida's bank of choice."

Charles M. Shaffer, Seacoast's Chief Financial Officer, said, "We successfully allocated capital towards accretive opportunities in 2018, resulting in an 11% increase year-over-year in tangible book value per share to $12.33, despite the initial dilutive effect of integrating First Green Bancorp in the fourth quarter. Our disciplined approach to credit, liquidity, and expense management combined with accretive acquisitions has driven operating leverage and margin expansion while maintaining the granularity and quality of our loan portfolio."

Completion of the Acquisition of First Green Bancorp

On October 19, 2018, we completed the acquisition of First Green Bancorp, Inc., which added $631 million in loans and $624 million in deposits. The acquisition continues our expansion into the attractive Orlando, Daytona and Fort Lauderdale markets. All expense consolidation activities are largely complete.

Fourth Quarter 2018 Financial Highlights

Income Statement

• • Net income was $16.0 million, or $0.31 per diluted share, compared to $16.3 million or $0.34 for the prior quarter and $13.0 million or $0.28 for the fourth quarter of 2017. For the year ended December 31, 2018, net income was $67.3 million compared to $42.9 million for the year ended December 31, 2017. Adjusted net income1 was $23.9 million, or $0.47 per diluted share, compared to $17.6 million or $0.37 for the prior quarter and $17.3 million or $0.37 for the fourth quarter of 2017. For the year ended December 31, 2018, adjusted net income1 was $78.6 million compared to $55.3 million for the year ended December 31, 2017.

• • Net revenues were $72.7 million, an increase of $8.8 million or 14% compared to the prior quarter, and a decrease of $2.2 million or 3% compared to the fourth quarter of 2017. For the year ended December 31, 2018, net revenues were $261.5 million, an increase of $26.8 million or 11% compared to the year ended December 31, 2017. The fourth quarter of 2017 included a gain of $15.2 million on the sale of Visa class B shares. Adjusted revenues1 were $73.1 million, an increase of $9.2 million, or 14%, from the prior quarter and an increase of $13.5 million, or 23% from the fourth quarter of 2017. For the year ended December 31, 2018, adjusted revenues1 were $262.2 million, an increase of $42.6 million or 19% compared to the year ended December 31, 2017.

• • Net interest income totaled $60.0 million, an increase of $8.4 million or 14% from the prior quarter and an increase of $11.8 million or 24% from the fourth quarter of 2017. For the year ended December 31, 2018, net interest income totaled $211.5 million, an increase of $35.2 million or 20% compared to the year ended December 31, 2017.

• • Net interest margin was 4.00% in the current quarter compared to 3.82% in the prior quarter and 3.71% in the fourth quarter of 2017. Quarter over quarter, the yield on loans expanded 29 basis points, the yield on securities expanded 11 basis points, and the cost of deposits increased 11 basis points. The cost of deposits excluding First Green increased approximately 6 basis points sequentially. The impact on net interest margin from accretion of purchase discounts on acquired loans was 27 basis points in the current quarter, compared to 18 basis points in the prior quarter and 22 basis points in the fourth quarter of 2017. Removing accretion on acquired loans, the net interest margin expanded 9 basis points.

• • Noninterest income totaled $12.7 million, an increase of $0.4 million or 3% compared to the prior quarter and a decrease of $13.9 million or 52% from the fourth quarter of 2017. For the year ended December 31, 2018, noninterest income totaled $50.0 million, 14% lower than the year ended December 31, 2017. The fourth quarter of 2017 included a gain of $15.2 million on the sale of Visa class B shares. Sequentially, increases in other income, service charges on deposits, and interchange income were partially offset by a decline in mortgage banking fees and securities losses. Service charges on deposits and interchange income benefited from the First Green acquisition and continued customer acquisition and engagement. Other income increased quarter over quarter, the result of increased fee income in SBA, a bank owned life insurance (BOLI) payout, increased SBIC investment income, and higher other miscellaneous customer related fees associated with the acquisition of First Green. Partially offsetting, mortgage banking fees declined quarter over quarter, the result of continued tight inventory levels and increasing customer demand for new home construction.

• • The provision for loan losses was $2.3 million compared to $5.8 million in the prior quarter and $2.3 million in the fourth quarter of 2017.

• • Noninterest expense was $49.5 million, an increase of $12.1 million or 32% compared to the prior quarter and an increase of $10.3 million or 26% from the fourth quarter of 2017. For the year ended December 31, 2018, noninterest expense was $162.3 million compared to $149.9 million for the year ended December 31, 2017. Fourth quarter included $8.0 million in merger related charges and $0.6 million in expenses associated with branch reductions and other expense initiatives. During the quarter, the company integrated the First Green acquisition, began consolidation on a legacy Seacoast branch location, and recorded severance expense associated with a

reduction in force initiative. The company continued to make investments in talent to scale the organization, including 10 new C&I small business and commercial bankers, and additional personnel in our risk and compliance functions. The company accrued $0.8 million for a discretionary bonus for second level leadership given the successful execution of the First Green integration, all while driving expense reduction and growth initiatives. As a percentage of average tangible assets, adjusted noninterest expense1 in the current quarter was 2.46% compared to 2.48% for the prior quarter, reflecting our continued objective of driving operating leverage and efficiency into the organization. Merger related charges and expenses associated with the branch reduction and expense initiatives are removed from the presentation of adjusted results.

• • Seacoast recorded $4.9 million in income tax expense in the current quarter, compared to $4.4 million in the prior quarter and $20.4 million in the fourth quarter of 2017. Taxes included additional expense of $0.5 million associated with the redemption of First Green's BOLI policies. Tax benefits related to stock-based compensation were $0.4 million in the current quarter, consistent with the prior quarter. The tax impact associated with redemption of First Green's BOLI policies was removed from the presentation of adjusted results.

• • Full year adjusted revenues1 increased 19% compared to prior year while adjusted noninterest expense1 increased 14%, providing 5% operating leverage.

• • The efficiency ratio was 65.8% compared to 57.0% in the prior quarter and 64.0% in the fourth quarter of 2017. The adjusted efficiency ratio1 was 54.2% compared to 56.3% in the prior quarter and 52.6% in the fourth quarter of 2017.

Balance Sheet

• • At December 31, 2018, the Company had total assets of $6.7 billion and total shareholders' equity of $864 million. Book value per share was $16.83 and tangible book value per share was $12.33, compared to $15.50 and $12.01, respectively, at September 30, 2018 and $14.70 and $11.15, respectively, at December 31, 2017. Year-over-year, tangible book value per share increased 11%.

• • Debt Securities totaled $1.2 billion at December 31, 2018, a decrease of $67 million compared to prior quarter and a decrease of $143 million from December 31, 2017. The decrease included the sale of $32 million of certain low yielding securities, which resulted in a loss of $0.4 million in the current quarter.

• • Loans totaled $4.8 billion at December 31, 2018, an increase of $766 million compared to the prior quarter, and an increase of $1.0 billion or 26% from December 31, 2017. Seacoast ended the year with record originations of $1.5 billion, attributed to continued innovation in analytics technology and our continued expansion into the fast growing markets of Tampa, Orlando, and South Florida. Excluding the impact of First Green in the fourth quarter, loans increased $134 million or 13% annualized in the current quarter compared to third quarter, and $376 million or 10% from December 31, 2017.

  • • Record commercial originations during the fourth quarter of 2018 were $159 million, an increase of 22% compared to third quarter of 2018. Originations for the year ended December 31, 2018 were $553 million, an increase of 15% compared to the year ended 2017.

  • • Consumer and small business originations for the fourth quarter of 2018 were $53 million, a decrease of 10% compared to the third quarter of 2018. Originations for the year ended December 31, 2018 were $443 million, an increase of 25% compared to the year ended 2017.

  • • We continue to prudently manage commercial real estate exposure. Construction and land development and commercial real estate loans remain well below regulatory guidance at 63% and 227% of total risk based capital, respectively.

  • • Closed residential loans retained for the fourth quarter of 2018 were $73 million, down 7% from the third quarter of 2018. Residential loans retained for the year ended December 31, 2018 were $306 million, a decrease of 2% compared to the year ended 2017.

• • Pipelines (loans in underwriting and approval or approved and not yet closed) remained strong, totaling $261.2 million.

  • • Commercial pipelines were $164 million, a decrease of 17% sequentially and an increase of 38% compared to the prior year. The decline sequentially is in line with previous year seasonal trends.

  • • Consumer and small business pipelines were $53 million, a decrease of 10% sequentially and an increase of 38% compared to the prior year. The decline sequentially is in line with previous year seasonal trends.

  • • Residential pipelines were $44 million, a decrease of 26% sequentially and a decrease of 11% compared to the prior year.

• • Total deposits were $5.2 billion as of December 31, 2018, an increase of $534 million sequentially and an increase of $585 million, or 13%, from the prior year.

  • • Interest bearing deposits (interest bearing demand, savings and money market deposits) increased year-over-year $265 million, or 11%, to $2.7 billion, noninterest bearing demand deposits increased $169 million, or 12%, to $1.6 billion, and CDs increased $150 million, or 19%, to $926 million.

  • • The Company's balance sheet continues to be primarily core deposit funded. Core customer funding was $4.5 billion at December 31, 2018, an increase of 9% compared to September 30, 2018 and an increase of 11% compared to December 31, 2017.

  • • Overall cost of deposits remains low at 54 basis points, an increase of 11 basis points from the prior quarter. The cost of deposits on Seacoast's legacy franchise excluding First Green increased approximately 6 basis points sequentially.

• • Fourth quarter return on average tangible assets (ROTA) was 1.05%, compared to 1.18% in the prior quarter and 0.97% in the fourth quarter of 2017. Adjusted ROTA1 was 1.49% compared to 1.22% in the prior quarter and 1.23% in the fourth quarter of 2017.

Capital

• • Fourth quarter return on average tangible common equity (ROTCE) was 10.94%, compared to 12.04% in the prior quarter and 10.69% in the fourth quarter of 2017. Adjusted ROTCE1 was 15.44% compared to 12.43% in the prior quarter and 13.49% in the fourth 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 December 31, 2018.

• • Tangible common equity to tangible assets was 9.72% at December 31, 2018, compared to 9.85% at September 30, 2018, and 9.27% at December 31, 2017.

Asset Quality

• • Nonperforming loans to total loans outstanding was 0.44% at December 31, 2018, 0.56% at September 30, 2018, and 0.43% at December 31, 2017.

• • Nonperforming assets to total assets was 0.58% at December 31, 2018, 0.52% at September 30, 2018 and 0.47% at December 31, 2017. Nonperforming assets increased $8.4 million, attributed primarily to four former First Green branches valued at $6.3 million.

• • The ratio of allowance for loan losses to total loans was 0.67% at December 31, 2018, 0.83% at September 30, 2018, and 0.71% at December 31, 2017. The ratio of allowance for loan losses to non-acquired loans was 0.89% at December 31, 2018, 0.98% at September 30, 2018, and 0.90% at December 31, 2017. The decrease in coverage sequentially on the non-acquired portfolio is the result of a $3.0 million charge-off of a single impaired loan, which resulted in a change of 9 basis points.

• • Net charge-offs were $3.7 million, including $3.0 million on a single impaired loan, or 0.32% for the current quarter compared to $0.8 million in the prior quarter. Net charge-offs for the four most recent quarters averaged 0.16%.

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

FINANCIAL HIGHLIGHTS

(Amounts in thousands except per share data)Selected Balance Sheet Data: Total Assets

Gross Loans Total Deposits

(Unaudited)
Quarterly Trends
4Q'18	3Q'18	2Q'18	1Q'18	4Q'17
$6,747,659	$5,930,934	$5,922,681	$5,903,101	$5,810,129
4,825,214	4,059,323	3,974,016	3,897,125	3,817,377
5,177,240	4,643,510	4,697,440	4,719,543	4,592,720

Performance Measures: Net Income

Net Interest Margin

Average Diluted Shares Outstanding Diluted Earnings Per Share (EPS) Return on (annualized):

Average Assets (ROA)

Average Return on Tangible Assets (ROTA) Average Tangible Common Equity (ROTCE) Efficiency Ratio

• $ 15,962 4.00 % 51,237

  • $ 16,322 3.82 % 48,029

    • $ 16,963 3.77 % 47,974

      • $ 18,027 3.80 % 47,688

• $ 0.31

  0.96 %

  • $ 0.34

    1.10 %

    • $ 0.35

      1.16 %

      • $ 0.38 1.25 %

      • $ 13,047 3.71 % 46,473

      • $ 0.28 0.91 %

• 1.18

10.94

65.76

12.04

57.04

• 1.24

13.08

58.41

• 1.34

0.97 1.12 14.41 10.69 57.80 63.95

Adjusted Operating Measures1: Adjusted Net Income Adjusted Diluted EPS Adjusted ROTA Adjusted ROTCE Adjusted Efficiency Ratio Adjusted Noninterest Expenses as a Percent of Average Tangible Assets Other Data

Market capitalization2 Full-time equivalent employees Number of ATMs

Full service banking offices Registered online users Registered mobile devices

$

23,893

$

17,626

0.47

0.37

1.49 %

1.22 %

15.44

12.43

54.19 2.46

56.29 2.48

$1,336,415	$1,380,275	$1,489,411	$1,243,644	$1,182,796
902	835	826	814	805
87	86	87	86	85
51	49	49	49	51
99,415	94,400	92,107	91,636	83,881
83,151	73,300	69,038	65,336	62,516

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

$

18,268

$

19,298

• $ 17,261

0.38

0.40 0.37

1.28 %

1.38 %

1.23 %

13.49

14.82 13.49

57.31 2.57

57.05 52.55

2.55 2.24