Seacoast Banking Corp. of Florida spent last year working to prove its doubters wrong.
The Stuart, Fla., company met an aggressive profitability goal, became much more efficient and agreed to buy GulfShore Bancshares to enter Tampa. At the same time, management spent half the year in the cross hairs of an unhappy investor.
The $4.5 billion-asset company is moving forward this year, setting another ambitious profitability goal while setting its first investor day for Feb. 22. And it has been several months since CapGen Capital Group has taken umbrage with Seacoast’s financial performance.
“Seacoast is in a good place,” said Joseph Fenech, an analyst at Hovde Group. “At the beginning of 2016, they issued what seemed … to be ambitious guidance for the year and they achieved it. We were impressed. That enhances their credibility for the next round of guidance.”
Seacoast credits a focus on analytics and digital banking for helping it reach its 2016 goal of $1 adjusted diluted earnings per share, a 33% improvement from 2015. Management intends to boost earnings by up to 28% this year.
“Not many of our peers are focused on the same priorities as we are,” said Dennis Hudson III, Seacoast’s CEO and chairman. “That opens up opportunities for us.”
The efficiency ratio improved to 62.4% at Dec. 31, down from 72.6% a year earlier, after Seacoast was able to generate enough revenue to offset rising operating costs. Its return on average assets finished last year at 0.94%, an improvement from 0.69% at the end of 2015.
It is unclear how much of a role external pressure played in the improvement.
CapGen, a private equity firm run by former Comptroller Eugene Ludwig, complained of “anemic” financial results in a May letter to the company. The firm, which owned about a fifth of Seacoast’s stock in early June, at one point pushed the company to consider selling itself.
Management also faced some pressure from Basswood Capital Management, which successfully lobbied for a nonvoting observer board.
Efforts to reach CapGen and Basswood were unsuccessful. CapGen has been quiet since June, even though Seacoast’s annual meeting is three months away. Basswood, which owned 6.2% of Seacoast’s stock in early December, recently said that it has no plans to end its pact with Seacoast, which includes provisions barring the shareholder from taking an activist position against the bank.
Seacoast did a “nice job of responding to some of the concerns raised,” Hudson said when asked about CapGen’s complaints. Management is focused “on improving our performance and we’ve made remarkable progress. … That is certainly a positive for all shareholders and we see tremendous opportunity.”
As for the Basswood agreement, Hudson said Seacoast “continues to benefit from that relationship.”
Seacoast will likely remain independent for now, said Chris Marinac, an analyst at FIG Partners.
“You don’t have [investor] days if you are thinking of selling,” Marinac said. “They’re interested in maintaining their independence and trying to grow. I look at it [as] a sign of strength.”
Hudson said Seacoast would always consider offers, though the company is focused on building shareholder value. The investor day is intended to provide a deeper dive into strategic direction, progress with analytics and understanding its customer base.
“That can’t be shared in 15-minute conversations,” Hudson said.
Seacoast has been at the forefront of using analytics to get the right product offers in front of customers, industry experts said. So far, analytics have been helpful in the small-business and consumer segments, Hudson said.
The bank uses data from internal and third-party sources to better understand customer needs before sending targeted offers. Management decided to focus on this strategy several years ago after realizing that declining branch traffic had limited the opportunities for employees to engage with customers, Hudson said.
Seacoast also began convincing more customers to use mobile technology. At Dec. 31, 30% of eligible customers used mobile banking, up from 26% a year earlier. Nearly 37% of all paper checks were deposited remotely at yearend, compared with 22% a year earlier.
All of this can help enhance profits from potential acquisitions, Hudson said. Seacoast has been an active acquirer in recent years, and getting a seller’s customers to use mobile banking, when paired with Seacoast’s analytics, can accelerate growth.
While Seacoast could pursue more acquisitions, Hudson said he doesn’t feel any pressure to do so.
“I see the ability for us to transform … how we build value for shareholders,” Hudson said. “It’s really important to have a lower-cost way and a more effective way to come to market.”
Seacoast’s challenge this year is taking the next step to become a top-performing Florida bank, Fenech said. Management’s 2017 guidance, if achieved, would do that.
“I don’t think it is as big of a leap in 2017,” Fenech said. “Doing what you say you will earn you credibility when you set the next target.”