SEACOAST BANKING CORP OF FLORIDA 8-K 2007
To 8-K dated April 30, 2007
SEACOAST BANKING CORPORATION OF FLORIDA
Dennis S. Hudson, III
Chairman and Chief Executive Officer
Seacoast Banking Corporation of Florida
William R. Hahl
Executive Vice President/
Chief Financial Officer
Seacoast Banking Corporation of Florida
SEACOAST EARNS $6.4 MILLION OR $0.34 PER SHARE
FOR THE FIRST QUARTER
STUART, FL., April 25, 2007 Seacoast Banking Corporation of Florida (NASDAQ: SBCF), a bank holding company whose principal subsidiary is Seacoast National Bank, reported net income totaling $6.4 million for the first quarter of 2007 compared to $5.9 million for the first quarter of 2006. Diluted earnings per share (DEPS) was $0.34 for the quarter, compared to $0.34 DEPS in the first quarter of 2006.
We are pleased with our performance this quarter. Our net interest margin stabilized as a result of improvements in funding and continued loan growth. Deposit declines evident in the past two quarters reversed on improved growth in noninterest bearing balances. We also successfully collected, without loss, a large loan placed on nonaccrual in the third quarter of 2006. Finally, we undertook more active management of our balance sheet beginning with a repositioning of our investment portfolio that should improve our net interest margin performance and reduce interest rate volatility over the balance of the year, said Dennis S. Hudson, III, Chairman and Chief Executive Officer of Seacoast.
Other highlights for the quarter included the following:
Loan growth slowed in the first quarter 2007 as a result of anticipated payoffs of residential real estate construction projects with $10 million or 2.4 percent growth annualized for the quarter. Loan growth is expected to total 8-10 percent for the full year 2007;
Net interest margin for the quarter declined modestly by 3 basis points to 3.92 percent compared to the fourth quarter 2006;
Average earning assets increased $223 million to $2.2 billion over the last twelve months;
Deposit mix remained good with noninterest bearing deposits increasing $9.3 million during the quarter and now representing 21.2 percent of total deposits;
A team was developed to manage loan syndications to assist in lowering concentrations and to increase loan production; and
The Company commenced a marketing campaign in the first quarter to take advantage of potential market disruptions with the integration and rebranding by two of the Companys largest local Treasure Coast competitors to a large Ohio-based institution;
Nonperforming assets declined from $12.5 million or 0.72 percent of loans and other real estate owned at year-end 2006 to $4.1 million or 0.23 percent at quarter end 2007. The decline is primarily related to the collection in full of an $8 million nonaccrual loan which was reported as impaired at year-end with a specific valuation allowance of over $1 million. The collection of this credit and reduction in the specific allowance resulted in a recapture of $550,000 or $0.02 DEPS for the quarter.
The Company expects future provisioning to be closely aligned with loan growth for the following reasons: credit quality remains strong despite slowing residential real estate markets; the Company increased the allowance in the fourth quarter of 2006 for risks then identified with a change in market conditions effecting Florida real estate; and other risks affecting the Companys model for calculating the allowance were moved to more conservative ranges based on a continuation of market conditions during the first quarter.
The Company elected to early adopt Financial Accounting Standards (FAS) 157 and 159 in the first quarter of 2007. Under the transition provisions of FAS 159, approximately $251 million of investment securities were selected to be reported beginning January 1, 2007 at fair value with the effect of the remeasurement to fair value at this date as a cumulative-effect adjustment to the opening balance of retained earnings and the changes to fair value after that date as a component of current earnings reflected in the income statement. A total of $365,000, net of tax, or $0.02 DEPS was reported as trading account profits for the first quarter 2007. The cumulative-effect adjustment reduced opening retained earnings by $3.7 million. The elective use of fair value accounting for financial instruments enables us to better align the financial results of those items with their economic value and allows for more active management of our balance sheet, commented Dennis S. Hudson, III, Chairman and Chief Executive Officer of Seacoast.
Operating revenues (fully tax equivalent) grew in the first quarter 2007, up $2.1 million or 8.1 percent from the prior year, primarily as a result of the acquisition of Big Lake National Bank in the second quarter 2006. Compared to the fourth quarter, operating revenues were up $83,000 with improvement in noninterest income of $497,000 or 8.7 percent with increased fees from mortgage banking activities, marine finance, and wealth management services offset by a decrease in net interest income.
The net interest margin for the first quarter 2007 was 3.92 percent, representing a 3 basis point decline from the 3.95 percent achieved during the fourth quarter, and a much smaller decline than 27 basis points that occurred during the fourth quarter 2006. The smaller decline in the net interest margin resulted primarily from a modest increase in the cost for interest bearing liabilities, combined with an increase in the yield on earning assets. In addition, the margin was negatively impacted last quarter by seasonal increases in public fund customer balances that produce spreads of less than 1.0 percent.
The cost for interest bearing deposits increased 15 basis points to 3.40 percent from 3.25 percent in the fourth quarter 2006 and was lower than the 30 basis points increase in the fourth quarter 2006 from the 2.95 percent for the third quarter. The cost of interest bearing liabilities increased by 22 basis points for the quarter, but only increased by one basis point in the month of March 2007. The lower increase in rates during March 2007 for interest bearing liabilities was attributed to a better mix of deposits, as noninterest bearing deposits and lower cost savings deposits increased more than higher cost time deposits and average overnight borrowings were lower during the month. Time deposit pricing improved during the first quarter with fewer competitors paying above market rates. The average rate for time deposits increased 19 basis points for the first quarter 2007, compared to 34 basis points in the fourth quarter 2006.
Net interest income on a tax equivalent basis for the first quarter declined $414,000 or 1.9 percent from the fourth quarter, but was up $1.2 million or 5.7 percent when compared to first quarter 2006. Net interest income and the margin for the remainder of the year will increase from the impact of the balance sheet management decisions discussed earlier in this release related to the adoption of FAS 159. The balance sheet restructuring discussed earlier related to the $251 million in investment securities will increase net interest income in the range of $550,000 to $800,000 per quarter, but the ultimate effects will depend on decisions in the second quarter and beyond. The pressure on the net interest margin, after the effects of the balance sheet management activities, are likely to remain due to inversion of the yield curve and slower noninterest bearing deposit growth compressing interest spreads on earning assets. The Company believes that the margin will improve in the latter half of 2007, provided loan growth reaches targeted levels of 8 to 10 percent for the year.
Average loans for the first quarter 2007 increased 2.9 percent, or 11.6 percent linked quarter annualized compared to the fourth quarter 2006. The increase in loans was the result of organic growth in the Companys markets over the last 12 months. The impact of a slower housing market has impacted the Companys loan pipelines, and it is believed that slower loan growth will result for the remainder of 2007. The Companys expansion into Broward County with a loan production office opening in the first quarter 2007, and acquisition of additional loan officers for the Treasure Coast and Big Lake markets, should result in greater loan opportunities. In addition, the integration and rebranding of the Companys two largest community bank competitors by a large Cleveland, Ohio based bank in March and April 2007 has improved the Companys prospects for loan and deposit growth in the second half of 2007.
Noninterest income, excluding securities gains (losses) and fair value changes for the first quarter, increased as a result of better revenues from debit card interchange fees, merchant income, and much improved mortgage banking gains, as well as increased fees from service charges on deposit accounts as a result of the acquisition of Big Lake National Bank, compared to first quarter 2006. During the past several quarters, noninterest income related to mortgage loan production has been lower due to more production being retained in the loan portfolio. With the Companys expanded market presence, production in the first quarter increased fee income, which also benefited from a pick-up in mortgage refinancing activities. In addition, the pricing on products sold was improved during the first quarter and accounted for some of the increase in fee income. The Company expects that fee income from mortgage banking activities will continue to be challenged due to a slower housing market, but some of this weakness may be offset by higher production related to refinance activities and expanded market share. While marine finance fees were slightly lower in the first quarter compared to the prior year, production was very good, and the Company retained more loans in its portfolio during the first three months this year than in the prior years comparable period. For the total year 2006, the marine finance business was muted due to prior years hurricanes, higher fuel prices and insurance costs. Recent events, including record crowds at first quarter boat shows, suggest that 2007 may be a much better year in comparison.
Noninterest expenses in the first quarter of $18.7 million were in line with management expectations and guidance provided in the fourth quarter earnings release. Noninterest expenses for the quarter included added spending related to the opening of a loan production office in Broward County, a new branch in Brevard County, and several loan officer hires in the Treasure Coast, Palm Beach County and Big Lake markets. It is forecasted that these overhead additions will have positive revenue offsets beginning as early as the third quarter of 2007. The Company has completed its review of its processes, operations and costs. Based on this review, the Company believes that its target for quarterly overhead to remain relatively flat in 2007 when compared to 2006, after adjusting for the acquisition completed in the second quarter of 2006, is achievable. Salary expenses directly related to revenue growth could result in quarterly increases above this target for 2007. In addition, higher marketing costs for the second quarter (and if successful, for the third quarter as well) are expected as a result of the opportunities for expanded growth in both loans and deposits related to the integration and rebranding of the Companys two largest community bank competitors.
The Company has maintained strong and consistent credit quality and low net charge-offs over the long term, and its net charge-offs have consistently been much better than peers. Net charge-offs totaled $125,000 in the first quarter 2007, compared to net recoveries of $80,000 a year ago. The Companys largest nonaccrual loan at quarter-end totaled $3.0 million and is well secured. The Company does not expect to incur any principal loss as a result of the ultimate collection of this credit.
Seacoast will host a conference call on Thursday, April 26 at 10:00 a.m. (Eastern Time) to discuss the earnings results and business trends. Investors may call in (toll-free) by dialing (800) 640-9765 (access code: 17448512; leader: Dennis S. Hudson). Charts will be used during the conference call and may be accessed at Seacoasts website at www.seacoastbanking.net by selecting Presentations under the heading Investor Services. A replay of the call will be available beginning the afternoon of April 26 by dialing (877) 213-9653 (domestic), using the passcode 17448512.
Seacoast, with approximately $2.4 billion of assets, is one of the largest independent commercial banking organizations in Florida. Seacoast has 43 offices in South and Central Florida and is headquartered on Floridas Treasure Coast, which is one of the wealthiest and fastest growing areas in the nation.
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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, 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 Seacoasts 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 and regulatory changes; the risks of changes in interest rates on the level and composition of deposits, loan demand, 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, 2006 under Special Cautionary Notice Regarding Forward-Looking Statements, and otherwise in our SEC reports and filings. Such reports are available upon request from Seacoast, or from the Securities and Exchange Commission, including through the SECs Internet website at http://www.sec.gov.
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(1) Calculated on a fully taxable equivalent basis using amortized cost.
(2) These ratios are stated on an annualized basis and are not necessarily indicative of future periods.
(3) The calculation of ROA and ROE do not include the mark-to-market unrealized gains (losses) because the unrealized gains (losses) are not included in net income.
(4) The Company believes that cash operating earnings excluding the impacts of noncash amortization expense on intangible assets is a better measurement of the Companys trend in earnings growth.
n/m = not meaningful
Note: The balance sheet at December 31, 2006 has been derived from the audited financial statements at that date.
Calculated on a fully taxable equivalent basis using amortized cost.
These ratios are stated on an annualized basis and are not necessarily indicative of future periods.
The calculation of ROA and ROE do not include the mark-to-market unrealized gains (losses), because the unrealized gains (losses) are not included in net income.
The Company believes that cash operating earnings excluding the impacts of noncash amortization expense on intangible assets is a better measurement of the Companys trend in earnings growth.
(Dollars in thousands)
On a fully taxable equivalent basis. All yields and rates have been computed on an annualized basis using amortized cost. Fees on loans have been included in interest on loans. Nonaccrual loans are included in loan balances.