Seacoast Reports $0.07 Earnings Per Share; $0.12 Excluding Merger Related Charges And Other Adjustments

STUART, Fla., July 28, 2014 /PRNewswire/ -- Seacoast Banking Corporation of Florida (NASDAQ-NMS: SBCF), today reported second quarter 2014 net income of $1.9 million or $0.07 per diluted common share. Excluding merger related charges and other adjustments as described below, adjusted net income was $2.9 million or $0.12 per diluted share.

Dennis S. Hudson, Chief Executive Officer commented, "Our core earnings performance this quarter continued to improve on stronger revenue growth as the strategic investments we have been making over the past year or so began to produce better momentum. Revenue growth expanded in all business lines this quarter and our credit costs fell again as the Florida economic outlook continued to strengthen.  We expect to see continued growth in our revenues and earnings as we step up execution of our programs and build further momentum."     

Our previously announced acquisition of BankFIRST is proceeding on schedule with closing expected to occur in early October.  We received approval of the merger from our primary regulator earlier this month and expect final regulatory approval by the Federal Reserve in the coming weeks.  The acquisition will create a $3 Billion Florida bank with exposure to rapidly recovering Florida markets including a significant presence in the vibrant Orlando and South Florida markets. 

Adjusted Net Income

To better evaluate its earnings, the Company removes certain items to arrive at Adjusted Net Income and Adjusted Diluted earnings Per Share (non-GAAP measures) as detailed in the table below:

           

Strategic Investments Update

As a part of our strategy to transform the community bank business model we have made significant investments in our consumer and business banking lines while also reducing our legacy cost structure. 

We are investing in enhancements to our digital platforms, customer sales and marketing processes, and additional personnel in marketing and data analytics.  Year to date, operating expenses associated with these new investments total approximately $748,000 which have been absorbed in our current year operating expense structure.  Total investments in these areas are projected to be approximately $1.3 million annually.  These investments are helping us drive higher customer acquisition, lower customer attrition and improved revenues. 

We also made very substantial investments over the past year related to the startup and support for our Accelerate business distribution platform.  This new commercial banking channel is supporting our growth in metro markets.  Our success with this channel has been evident in improved commercial loan growth, higher business deposits and margin improvement this quarter.  Total operating expense for the Accelerate platform is expected to total approximately $4.7 million in 2014. 

We are stepping up our execution around these strategic initiatives to drive increased momentum and we will begin to invest in new initiatives needed to transform the community bank business model to better meet customer needs in the world we see ahead.  We continue to execute cost reductions related to our legacy cost structure.  Previously announced cost initiatives implemented this year have focused on organizational restructuring, contract negotiation, and other legacy costs and have totaled $3.4 million (annualized). 

Additional Legacy Cost Reductions Announced

This quarter we are announcing additional legacy cost reductions (primarily branch consolidations) we will implement in the fourth quarter of this year.  Annualized gross savings are estimated at $1.8 million when fully implemented.  We expect to implement substantially all of these savings late in the fourth quarter.  These legacy cost reductions are in addition to the previously announced cost reductions related to our acquisition of BankFIRST.  One time charges related to these new initiatives are estimated at approximately $4.0 million and will be incurred primarily in the fourth quarter of 2014.

Core Customer Growth and Digital Engagement Continues to Improve

• Average noninterest bearing demand deposits were up $50.4 million, or 11.1 percent compared with the prior year and $24.8 million, or 20.7 percent linked quarter annualized
• Ending noninterest bearing demand deposits increased to 28.2 percent of total deposits compared with 26.9 percent for the second quarter 2013
• Personal and business mobile banking users have increased 81.6 percent year over year.

Our growth in net new households continued into the summer season, a departure from historical trend.  Core customer funding totaled $1.689 billion at June 30, 2014, an $86.3 million increase from the second quarter of 2013 and a $223.2 million or 16 percent increase from 2012.  Growth in commercial relationships resulting from an improved local economy and our increased focus on small business in our retail stores and our Accelerate business channel has resulted in core commercial business funding (noninterest demand, NOW and money market accounts) of $449.6 million at June 30, 2014, an increase of $43.6 million or 10.7 percent year over year.  

Loan Growth Improves

Total loans were $1.335 billion at June 30, 2014, up $22.7 million from March 31, 2014 due to strong closings in commercial banking and residential lending.  Our prior year investments in revenue producing personnel in our Accelerate business channel have produced solid results seen in our current period loan originations and forward pipeline.  As indicated in the table below, commercial loan originations for the quarter totaled $53.3 million, an increase of $15.9 million linked quarter.  Growth in our commercial loan pipeline is indicative of stronger commercial loan closings into the third quarter.  Closed residential production of $61.2 million produced a sequential increase of 53.9 percent, contributing to growth in mortgage banking revenue linked quarter.  The mortgage banking pipeline totaled $28.3 million at June 30, 2014 compared to $26.7 million at March 31, 2014.

Income Statement Highlights

Noninterest Income

Noninterest income increased from the prior quarter by $338,000 or 6.1 percent.  New mortgage product offerings and overall improved demand in mortgage banking resulted in a $194,000 or 29.3 percent increase in mortgage banking fees from the first quarter. Interchange fees were up $111,000 or 7.9 percent linked quarter.  Additionally, wealth management fees increased $63,000 linked quarter, or 6.0 percent. 

Noninterest Expense

Total noninterest expenses increased $1.9 million from the prior quarter to $20.7 million as merger related charges for legal and professional fees of $1.2 million were incurred related to our previously announced acquisition of The BANKshares, Inc.  Commissions from increased mortgage banking production and brokerage revenues were partially offset by a portion of personnel reductions from strategic cost initiatives in the second quarter.  While employee benefits were $101,000 lower than the prior quarter, higher than expected healthcare claims resulted in higher than anticipated expense.  We expect this trend to slow in the third and fourth quarters in line with trend for the prior year.    

Previously announced expense reductions were completed in the second quarter.  These reductions total $1.9 million annualized and produced a partial benefit in the second quarter.  This benefit will be fully realized in the third quarter.  Severance associated with this restructuring totaled $181,000 for the second quarter.

Income Taxes

The effective tax rate for the second quarter of 2014 was higher due to merger related expenses that are not deductible for tax purposes.  The effective tax rate for the second half of 2014 is expected to be approximately 40.85 percent. 

Other Highlights

Credit Quality Continues to Improve

Improvements in credit quality continued during the second quarter of 2014 across all portfolios.  A substantial paydown on a larger commercial loan during the quarter supported the partial reversal of a specific loan loss impairment reserve which resulted in an increased provision recapture compared with the first quarter.  We expect to see continued improvement in asset quality over the balance of this year.      

• Provision for loan loss recapture of $1.4 million recorded for three months ended June 30, 2014
• Net recoveries of $112,000 during the quarter compared to net charge-offs of $2.0 million one year ago;
• Nonperforming assets to total assets declined to 1.2 percent, compared to 2.0 percent a year ago.

Capital Ratios Continue to Strengthen

The Company's tier 1 capital ratio is estimated at 17.8 percent and the total risk based capital ratio at 19.1 percent at June 30, 2014.  The tier 1 leverage ratio was 10.9 percent at June 30, 2014 compared with 10.6 percent at March 31, 2014 and 5.3 percent the prior year.

Seacoast will host a conference call on Tuesday, July 29, 2014 at 10:00 a.m. (Eastern Time) to discuss the earnings results.  Investors may call in (toll-free) by dialing (800) 774-6070 (passcode: 7789246; host: Dennis S. Hudson).  Slides will be used during the conference call and may be accessed at Seacoast's website at SeacoastBanking.net by selecting "Presentations" under the heading "Investor Services."  A replay of the call will be available for one month, beginning the afternoon of July 29, 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.net.  The link is located in the subsection "Presentations" under the heading "Investor Services."  Beginning the afternoon of July 29, 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.   

Seacoast Banking Corporation of Florida is one of the largest community banks headquartered in Florida with approximately $2.3 billion in assets and $1.8 billion in deposits as of June 30, 2014.  The Company provides integrated financial services including commercial and retail banking, wealth management, and mortgage services to customers through 34 traditional branches of its locally-branded wholly-owned subsidiary bank, Seacoast National Bank, and five Accelerate offices fueled by the power of Seacoast National Bank.  Offices stretch from Fort Lauderdale north through the Treasure Coast and into Orlando, and west to Okeechobee and surrounding counties.

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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, 2013 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.

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SOURCE Seacoast Banking Corporation of Florida