Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
|
|
June 30,
|
|
|
December 31,
|
|
(Dollars in thousands, except share amounts)
|
|
2017
|
|
|
2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
88,133
|
|
|
$
|
82,520
|
|
Interest bearing deposits with other banks
|
|
|
20,064
|
|
|
|
27,124
|
|
Total cash and cash equivalents
|
|
|
108,197
|
|
|
|
109,644
|
|
|
|
|
|
|
|
|
|
|
Time deposits with other banks
|
|
|
16,426
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Securities:
|
|
|
|
|
|
|
|
|
Available for sale (at fair value)
|
|
|
1,016,744
|
|
|
|
950,503
|
|
Held to maturity (fair value:
$397,357 at June 30, 2017, and $369,881 at December 31, 2016)
|
|
|
397,096
|
|
|
|
372,498
|
|
Total Securities
|
|
|
1,413,840
|
|
|
|
1,323,001
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale (at fair value)
|
|
|
22,262
|
|
|
|
15,332
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
3,330,075
|
|
|
|
2,879,536
|
|
Less: Allowance for loan losses
|
|
|
(26,000
|
)
|
|
|
(23,400
|
)
|
NET LOANS
|
|
|
3,304,075
|
|
|
|
2,856,136
|
|
|
|
|
|
|
|
|
|
|
Bank premises and equipment, net
|
|
|
56,765
|
|
|
|
58,684
|
|
Other real estate owned
|
|
|
8,497
|
|
|
|
9,949
|
|
Goodwill
|
|
|
101,739
|
|
|
|
64,649
|
|
Other intangible assets, net
|
|
|
16,941
|
|
|
|
14,572
|
|
Bank owned life insurance
|
|
|
88,003
|
|
|
|
84,580
|
|
Net deferred income taxes
|
|
|
52,195
|
|
|
|
60,818
|
|
Other assets
|
|
|
92,355
|
|
|
|
83,567
|
|
TOTAL ASSETS
|
|
$
|
5,281,295
|
|
|
$
|
4,680,932
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
3,975,458
|
|
|
$
|
3,523,245
|
|
Federal funds purchased and securities sold under agreements to repurchase, maturing within 30 days
|
|
|
167,558
|
|
|
|
204,202
|
|
Federal Home Loan Bank (FHLB) borrowings
|
|
|
395,000
|
|
|
|
415,000
|
|
Subordinated debt
|
|
|
70,381
|
|
|
|
70,241
|
|
Other liabilities
|
|
|
95,521
|
|
|
|
32,847
|
|
TOTAL LIABILITIES
|
|
|
4,703,918
|
|
|
|
4,245,535
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Common stock, par value $0.10 per share, authorized 60,000,000 shares, issued 43,550,182 and outstanding 43,458,973 shares at June 30, 2017 and issued 38,090,568 and outstanding 38,021,835 shares at December 31, 2016
|
|
|
4,339
|
|
|
|
3,802
|
|
Other shareholders' equity
|
|
|
573,038
|
|
|
|
431,595
|
|
TOTAL SHAREHOLDERS' EQUITY
|
|
|
577,377
|
|
|
|
435,397
|
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
$
|
5,281,295
|
|
|
$
|
4,680,932
|
|
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(Dollars in thousands, except per share data)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Interest and fees on loans
|
|
$
|
38,209
|
|
|
$
|
29,244
|
|
|
$
|
70,100
|
|
|
$
|
55,278
|
|
Interest and dividends on securities
|
|
|
8,585
|
|
|
|
6,902
|
|
|
|
16,959
|
|
|
|
12,749
|
|
Interest on interest bearing deposits and other investments
|
|
|
604
|
|
|
|
433
|
|
|
|
1,114
|
|
|
|
723
|
|
TOTAL INTEREST INCOME
|
|
|
47,398
|
|
|
|
36,579
|
|
|
|
88,173
|
|
|
|
68,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
1,668
|
|
|
|
1,238
|
|
|
|
2,858
|
|
|
|
2,155
|
|
Interest on borrowed money
|
|
|
1,574
|
|
|
|
848
|
|
|
|
2,994
|
|
|
|
1,880
|
|
TOTAL INTEREST EXPENSE
|
|
|
3,242
|
|
|
|
2,086
|
|
|
|
5,852
|
|
|
|
4,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME
|
|
|
44,156
|
|
|
|
34,493
|
|
|
|
82,321
|
|
|
|
64,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
1,401
|
|
|
|
662
|
|
|
|
2,705
|
|
|
|
861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
|
|
|
42,755
|
|
|
|
33,831
|
|
|
|
79,616
|
|
|
|
63,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
10,467
|
|
|
|
9,111
|
|
|
|
20,372
|
|
|
|
17,741
|
|
Securities gains, net (includes net gains (losses) of $23 and ($19) in other comprehensive income reclassifications for the three months ended June 30, 2017 and 2016, respectively, and net gains of $23 and $28 for the six months ended June 30, 2017 and 2016, respectively)
|
|
|
21
|
|
|
|
47
|
|
|
|
21
|
|
|
|
136
|
|
TOTAL NONINTEREST INCOME
|
|
|
10,488
|
|
|
|
9,158
|
|
|
|
20,393
|
|
|
|
17,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NONINTEREST EXPENSES
|
|
|
41,625
|
|
|
|
34,808
|
|
|
|
76,371
|
|
|
|
67,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
11,618
|
|
|
|
8,181
|
|
|
|
23,638
|
|
|
|
14,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes (includes $9 and $(7) in income tax provision (benefit) from reclassification items for the three months ended June 30, 2017 and 2016, respectively, and $9 and $11 in income tax provision for the six months ended June 30, 2017 and 2016, respectively).
|
|
|
3,942
|
|
|
|
2,849
|
|
|
|
8,036
|
|
|
|
5,284
|
|
NET INCOME
|
|
$
|
7,676
|
|
|
$
|
5,332
|
|
|
$
|
15,602
|
|
|
$
|
9,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER SHARE COMMON STOCK:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income diluted
|
|
$
|
0.18
|
|
|
$
|
0.14
|
|
|
$
|
0.38
|
|
|
$
|
0.25
|
|
Net income basic
|
|
|
0.18
|
|
|
|
0.14
|
|
|
|
0.38
|
|
|
|
0.26
|
|
Cash dividends declared
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
Average
shares outstanding-diluted
|
|
|
43,556,285
|
|
|
|
38,141,550
|
|
|
|
41,538,769
|
|
|
|
36,797,259
|
|
Average shares
outstanding-basic
|
|
|
42,841,152
|
|
|
|
37,470,071
|
|
|
|
40,851,273
|
|
|
|
36,159,473
|
|
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(Dollars in thousands)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
NET INCOME
|
|
$
|
7,676
|
|
|
$
|
5,332
|
|
|
$
|
15,602
|
|
|
$
|
9,298
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on securities available for sale
|
|
|
5,601
|
|
|
|
8,953
|
|
|
|
8,776
|
|
|
|
16,597
|
|
Amortization of unrealized losses on securities transferred to held to maturity, net
|
|
|
122
|
|
|
|
122
|
|
|
|
244
|
|
|
|
244
|
|
Reclassification adjustment for gains included in net income
|
|
|
(21
|
)
|
|
|
(47
|
)
|
|
|
(21
|
)
|
|
|
(136
|
)
|
Income tax effect on other comprehensive income
|
|
|
(2,199
|
)
|
|
|
(3,485
|
)
|
|
|
(3,467
|
)
|
|
|
(6,362
|
)
|
COMPREHENSIVE INCOME
|
|
$
|
11,179
|
|
|
$
|
10,875
|
|
|
$
|
21,134
|
|
|
$
|
19,641
|
|
See notes to condensed consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
(Dollars in thousands)
|
|
2017
|
|
|
2016
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
15,602
|
|
|
$
|
9,298
|
|
Adjustments to reconcile net income to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,677
|
|
|
|
2,235
|
|
Amortization of premiums and discounts on securities, net
|
|
|
1,838
|
|
|
|
2,385
|
|
Other amortization and accretion, net
|
|
|
(429
|
)
|
|
|
(1,110
|
)
|
Stock based compensation
|
|
|
2,540
|
|
|
|
1,807
|
|
Origination of loans designated for sale
|
|
|
(117,379
|
)
|
|
|
(83,207
|
)
|
Sale of loans designated for sale
|
|
|
113,527
|
|
|
|
88,760
|
|
Provision for loan losses
|
|
|
2,705
|
|
|
|
861
|
|
Deferred income taxes
|
|
|
7,338
|
|
|
|
4,886
|
|
Gains on sale of securities
|
|
|
(21
|
)
|
|
|
(136
|
)
|
Gains on sale of loans
|
|
|
(3,078
|
)
|
|
|
(2,502
|
)
|
Gains on sale of other real estate owned
|
|
|
(212
|
)
|
|
|
(252
|
)
|
Losses and writedowns on disposition of fixed assets
|
|
|
2,316
|
|
|
|
1,937
|
|
Changes
in operating assets and liabilities, net of effects from acquired companies:
|
|
|
|
|
|
|
|
|
Net decrease (increase) in other assets
|
|
|
1,347
|
|
|
|
(3,877
|
)
|
Net (decrease) increase in other liabilities
|
|
|
(2,634
|
)
|
|
|
5,105
|
|
Net cash provided by operating activities
|
|
|
26,137
|
|
|
|
26,190
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Maturity of securities available for sale
|
|
|
125,115
|
|
|
|
59,151
|
|
Maturity of securities held to maturity
|
|
|
42,883
|
|
|
|
15,584
|
|
Proceeds from sale of securities available for sale
|
|
|
3,820
|
|
|
|
12,211
|
|
Purchases of securities available for sale
|
|
|
(142,062
|
)
|
|
|
(149,969
|
)
|
Purchases of securities held to maturity
|
|
|
(49,963
|
)
|
|
|
(213,766
|
)
|
Maturity
of time deposits with other banks
|
|
|
847
|
|
|
|
0
|
|
Net new loans and principal repayments
|
|
|
(198,080
|
)
|
|
|
(129,832
|
)
|
Proceeds from the sale of other real estate owned
|
|
|
3,324
|
|
|
|
4,207
|
|
Proceeds
from sale of FHLB and Federal Reserve Bank stock
|
|
|
14,832
|
|
|
|
1,700
|
|
Purchase of FHLB and Federal Reserve Stock
|
|
|
(15,012
|
)
|
|
|
(9,297
|
)
|
Purchase of VISA Class B stock
|
|
|
(6,180
|
)
|
|
|
0
|
|
Net cash from bank acquisition
|
|
|
30,233
|
|
|
|
260,471
|
|
Additions to bank premises and equipment
|
|
|
(2,979
|
)
|
|
|
(3,309
|
)
|
Net cash used in investing activities
|
|
|
(193,222
|
)
|
|
|
(152,849
|
)
|
See notes to condensed consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
(Dollars in thousands)
|
|
2017
|
|
|
2016
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
$
|
166,863
|
|
|
$
|
5,421
|
|
Net increase (decrease) in federal funds purchased and repurchase agreements
|
|
|
(36,644
|
)
|
|
|
11,382
|
|
Net increase (decrease) in FHLB borrowings
|
|
|
(20,000
|
)
|
|
|
151,000
|
|
Early redemption of FHLB borrowings
|
|
|
0
|
|
|
|
(50,000
|
)
|
Issuance of common stock, net of related expense
|
|
|
55,641
|
|
|
|
0
|
|
Stock
based employee benefit plans
|
|
|
(222
|
)
|
|
|
(409
|
)
|
Dividends paid
|
|
|
0
|
|
|
|
0
|
|
Net cash provided by financing activities
|
|
|
165,638
|
|
|
|
117,394
|
|
Net decrease in cash and cash equivalents
|
|
|
(1,447
|
)
|
|
|
(9,265
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
109,644
|
|
|
|
136,067
|
|
Cash and cash equivalents at end of period
|
|
$
|
108,197
|
|
|
$
|
126,802
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non cash investing activities:
|
|
|
|
|
|
|
|
|
Transfers from loans to other real estate owned
|
|
$
|
448
|
|
|
$
|
2,806
|
|
Transfers from bank premises to other real estate owned
|
|
|
1,212
|
|
|
|
3,175
|
|
Purchase of securities on trade date
|
|
|
63,926
|
|
|
|
1,198
|
|
See notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Seacoast Banking Corporation of Florida and Subsidiaries
NOTE A — BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended June 30 2017 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2017 or any other period. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2016.
Use of Estimates
The preparation of these condensed consolidated
financial statements required the use of certain estimates by management in determining the Company’s assets, liabilities,
revenues and expenses. Actual results could differ from those estimates.
Specific areas, among others, requiring
the application of management’s estimates include determination of the allowance for loan losses, the valuation of investment
securities available for sale, fair value of impaired loans, contingent liabilities, fair value of other real estate owned, and
the valuation of deferred tax assets. Actual results could differ from those estimates.
NOTE B — RECENTLY ISSUED ACCOUNTING
STANDARDS, Not adopted as of June 30, 2017
The following provides a brief description
of accounting standards that have been issued but are not yet adopted that could affect the Company's financial statements:
In May 2017, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-09, clarifying when changes to
the terms of share-based awards, such as value, vesting conditions or classification of the awards, should be accounted for as
modifications. All the disclosures about modifications that are required today would need to be made, along with disclosing any
change (or no change) in compensation expense. This guidance is effective for annual and interim periods beginning after December
15, 2017. Early adoption is permitted. Adoption of this standard is being evaluated as to its effect on the Company’s operating
results and financial condition.
In March 2017, the FASB
issued ASU 2017-08, requiring entities to amortize premiums on certain purchased callable debt securities to their
earliest call date. The accounting for purchased callable debt securities held at a discount did not change. Amortizing the
premium to the earliest call date generally aligns interest income recognition with the economics of instruments. This
guidance requires a modified retrospective transition under which a cumulative adjustment will be made to retained earnings
as of the beginning of the first reporting period in which the guidance is adopted. This guidance is effective for fiscal
years beginning after December 15, 2018. Adoption of this standard is being evaluated as to its effect on the Company’s
operating results or financial condition.
In January 2017, the FASB issued ASU 2017-04,
eliminating Step 2 from the goodwill impairment test. Under the amendments to the guidance, an entity should perform its goodwill
impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment
charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized, however,
should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income
tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment
loss, if applicable. The guidance is effective for annual periods or any interim goodwill impairment tests beginning
after December 15, 2019 using a prospective transition method. Early adoption is permitted. Adoption of this standard is being
evaluated as to its effect on the Company’s operating results or financial condition.
In August and November 2016, the FASB issued
final guidance via ASU 2016-15 and ASU 2016-18, which address classification of certain cash receipts and cash payments, including
changes in restricted cash, in the statement of cash flows. The guidance may change how an entity classifies certain cash receipts
and cash payments on its statement of cash flows, the purpose being to reduce diversity in practice. The Company is evaluating
the impact of ASU 2016-15 and 2016-18 on the Company’s statement of cash flows which will generally be applied retrospectively
for fiscal years beginning after December 15, 2017.
In June 2016, the FASB issued ASU 2016-13
for “Measurement of Credit Losses on Financial Instruments” to replace the incurred loss impairment methodology with
a current expected credit loss methodology for financial instruments measured at amortized cost and other commitments to extend
credit. Expected credit losses reflect losses over the remaining contractual life of an asset, considering the effect of voluntary
prepayments and considering available information about the collectability of cash flows, including information about past events,
current conditions, and supportable forecasts. The resultant allowance for credit losses reflects the portion of the amortized
cost basis that the entity does not expect to collect. Additional quantitative and qualitative disclosures are required upon adoption.
The Company is assessing current loan loss estimation models and processes to determine the need for changes as part of its evaluation
of the impact of this new accounting guidance. Adoption is required January 1, 2020, with early adoption permitted on January 1,
2019.
In March 2016, under ASU 2016-04, “Liabilities
– Extinguishments of Liabilities, Breakage for Certain Prepaid Stored-Value Products” the FASB intends for entities
to recognize liabilities for the sale of prepaid stored value products redeemable for goods, services, or cash. This guidance aligns
recognition of breakage for these liabilities in a way consistent with how gift card breakage will be recognized. The Company is
currently evaluating the impact of adopting the new guidance on its consolidated financial statements. Effective date for implementation
of the guidance is for annual periods after December 15, 2018.
In February 2016, the FASB amended existing
guidance related to the recognition of lease assets and lease liabilities on the balance sheet and disclosures of key information
about leasing arrangements, under ASU 2016-02. The guidance requires all parties to classify leases to determine how to recognize
lease-related revenue and expense. The amendment requires lessees to put most leases on their balance sheet and record expenses
to the income statement. Changes in the guidance eliminate real estate centric provisions for sale-leaseback transactions, including
initial direct costs and lease execution costs for all entities. For lessors, the new FASB standard modifies classification criteria
and accounting for sales type and direct financing leases. The Company is currently evaluating the impact of adopting the new guidance
on its consolidated financial statements. The amended accounting guidance is applicable to periods after December 15, 2018 and
interim periods within that year.
In January 2016, the FASB issued
ASU 2016-01 for “Recognition and Measurement of Financial Assets and Liabilities.” The ASU addresses certain
aspects of recognition, measurement, presentation, and disclosure of financial instruments. The update: a) requires equity
investments (except those accounted for under the equity method of accounting) to be measured at fair value and recognized in
net income, b) simplifies impairment assessments of equity investments without readily determinable fair values by requiring
a qualitative assessment to identify impairment, and if impaired requires measurement of the investment at fair value, c)
eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value, d) requires
entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, e)
requires an entity to present separately in other comprehensive income the portion of the total change in fair value of a
liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability
at fair value in accordance with the fair value option for financial instruments, f) requires separate presentation of
financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans
and receivables) on the balance sheet or the accompanying notes to the financial statements, and g) clarifies that an entity
should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in
combination with the entity’s other deferred tax assets. The ASU is effective for fiscal years beginning after December
15, 2017, and must be adopted on a modified retrospective basis, including interim periods within those fiscal years. The
adoption of ASU 2016-01 is being evaluated for its impact on the Company’s operating results and financial
condition.
In May 2014, the FASB issued ASU 2014-09,
“Revenue Recognition – Revenue from Contracts with Customers.” The ASU is a converged standard between the FASB
and the IASB that provides a single comprehensive revenue recognition model for all contracts with customers across transactions
and industries. The primary objective of the ASU is revenue recognition that represents the transfer of control of promised goods
or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. Revenue associated with loans and securities is not in the scope of the new guidance, and based the Company’s
evaluation to date we do not expect the adoption to have a significant impact on the Company’s operating results or financial
condition. The Company plans to adopt the new guidance on January 1, 2018.
NOTE C — BASIC AND DILUTED EARNINGS
PER COMMON SHARE
For each of the three month periods
ended June 30, 2017 and 2016, options to purchase 59,000 shares and 127,000 shares, respectively, were antidilutive and
accordingly were excluded in determining diluted earnings per share.
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(Dollars in thousands, except per share data)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders
|
|
$
|
7,676
|
|
|
$
|
5,332
|
|
|
$
|
15,602
|
|
|
$
|
9,298
|
|
Average basic shares outstanding
|
|
|
42,841,152
|
|
|
|
37,470,071
|
|
|
|
40,851,273
|
|
|
|
36,159,473
|
|
Basic earnings per share
|
|
$
|
0.18
|
|
|
$
|
0.14
|
|
|
$
|
0.38
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders
|
|
$
|
7,676
|
|
|
$
|
5,332
|
|
|
$
|
15,602
|
|
|
$
|
9,298
|
|
Average basic shares outstanding
|
|
|
42,841,152
|
|
|
|
37,470,071
|
|
|
|
40,851,273
|
|
|
|
36,159,473
|
|
Restricted stock and stock options
|
|
|
715,133
|
|
|
|
671,479
|
|
|
|
687,496
|
|
|
|
637,786
|
|
Average diluted shares outstanding
|
|
|
43,556,285
|
|
|
|
38,141,550
|
|
|
|
41,538,769
|
|
|
|
36,797,259
|
|
Diluted earnings per share
|
|
$
|
0.18
|
|
|
$
|
0.14
|
|
|
$
|
0.38
|
|
|
$
|
0.25
|
|
The diluted impact of restricted stock
and stock options is calculated under the treasury method.
NOTE D — SECURITIES
The amortized cost, unrealized gains
and losses, and fair value of securities available for sale and held to maturity at June 30, 2017 and December 31, 2016
are summarized as follows:
|
|
June 30, 2017
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
(Dollars in thousands)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
SECURITIES AVAILABLE FOR SALE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities
|
|
$
|
10,907
|
|
|
$
|
300
|
|
|
$
|
0
|
|
|
$
|
11,207
|
|
Mortgage backed securities of U.S. Government Sponsored Entities
|
|
|
291,482
|
|
|
|
1,250
|
|
|
|
(2,632
|
)
|
|
|
290,100
|
|
Collateralized mortgage obligations of U.S. Government Sponsored Entities
|
|
|
217,634
|
|
|
|
614
|
|
|
|
(3,951
|
)
|
|
|
214,297
|
|
Commercial mortgage backed securities of U.S. Government Sponsored Entities
|
|
|
22,304
|
|
|
|
506
|
|
|
|
(9
|
)
|
|
|
22,801
|
|
Private mortgage backed securities
|
|
|
32,860
|
|
|
|
864
|
|
|
|
(92
|
)
|
|
|
33,632
|
|
Private collateralized mortgage obligations
|
|
|
55,828
|
|
|
|
616
|
|
|
|
(488
|
)
|
|
|
55,956
|
|
Collateralized loan obligations
|
|
|
222,725
|
|
|
|
455
|
|
|
|
(41
|
)
|
|
|
223,139
|
|
Obligations of state and political subdivisions
|
|
|
62,847
|
|
|
|
938
|
|
|
|
(385
|
)
|
|
|
63,400
|
|
Corporate and other debt securities
|
|
|
70,930
|
|
|
|
676
|
|
|
|
(168
|
)
|
|
|
71,438
|
|
Private commercial mortgage backed securities
|
|
|
30,780
|
|
|
|
189
|
|
|
|
(195
|
)
|
|
|
30,774
|
|
|
|
$
|
1,018,297
|
|
|
$
|
6,408
|
|
|
$
|
(7,961
|
)
|
|
$
|
1,016,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SECURITIES HELD TO MATURITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities of U.S. Government Sponsored
Entities
|
|
$
|
183,877
|
|
|
$
|
1,413
|
|
|
$
|
(959
|
)
|
|
$
|
184,331
|
|
Collateralized mortgage obligations of U.S. Government Sponsored Entities
|
|
|
135,596
|
|
|
|
461
|
|
|
|
(1,564
|
)
|
|
|
134,493
|
|
Commercial mortgage backed securities of U.S. Government Sponsored Entities
|
|
|
17,420
|
|
|
|
585
|
|
|
|
0
|
|
|
|
18,005
|
|
Collateralized loan obligations
|
|
|
54,325
|
|
|
|
378
|
|
|
|
0
|
|
|
|
54,703
|
|
Private collateralized mortgage obligations
|
|
|
5,878
|
|
|
|
8
|
|
|
|
(61
|
)
|
|
|
5,825
|
|
|
|
$
|
397,096
|
|
|
$
|
2,845
|
|
|
$
|
(2,584
|
)
|
|
$
|
397,357
|
|
|
|
December 31, 2016
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
(Dollars in thousands)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
SECURITIES AVAILABLE FOR SALE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities
|
|
$
|
12,073
|
|
|
$
|
255
|
|
|
$
|
0
|
|
|
$
|
12,328
|
|
Mortgage backed securities of U.S. Government Sponsored Entities
|
|
|
287,726
|
|
|
|
585
|
|
|
|
(4,823
|
)
|
|
|
283,488
|
|
Collateralized mortgage obligations of U.S. Government Sponsored Entities
|
|
|
238,805
|
|
|
|
314
|
|
|
|
(5,065
|
)
|
|
|
234,054
|
|
Commercial mortgage backed securities of U.S. Government Sponsored Entities
|
|
|
22,351
|
|
|
|
222
|
|
|
|
(28
|
)
|
|
|
22,545
|
|
Private mortgage backed securities
|
|
|
32,780
|
|
|
|
0
|
|
|
|
(791
|
)
|
|
|
31,989
|
|
Private collateralized mortgage obligations
|
|
|
67,542
|
|
|
|
563
|
|
|
|
(816
|
)
|
|
|
67,289
|
|
Collateralized loan obligations
|
|
|
124,716
|
|
|
|
838
|
|
|
|
(665
|
)
|
|
|
124,889
|
|
Obligations of state and political subdivisions
|
|
|
63,161
|
|
|
|
622
|
|
|
|
(895
|
)
|
|
|
62,888
|
|
Corporate and other debt securities
|
|
|
74,121
|
|
|
|
257
|
|
|
|
(517
|
)
|
|
|
73,861
|
|
Private commercial mortgage backed securities
|
|
|
37,534
|
|
|
|
111
|
|
|
|
(473
|
)
|
|
|
37,172
|
|
|
|
$
|
960,809
|
|
|
$
|
3,767
|
|
|
$
|
(14,073
|
)
|
|
$
|
950,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SECURITIES HELD TO MATURITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities of U.S. Government Sponsored Entities
|
|
$
|
159,941
|
|
|
$
|
704
|
|
|
$
|
(1,243
|
)
|
|
$
|
159,402
|
|
Collateralized mortgage obligations of U.S. Government Sponsored Entities
|
|
|
147,208
|
|
|
|
386
|
|
|
|
(2,630
|
)
|
|
|
144,964
|
|
Commercial mortgage backed securities of U.S. Government Sponsored Entities
|
|
|
17,375
|
|
|
|
233
|
|
|
|
(74
|
)
|
|
|
17,534
|
|
Collateralized loan obligations
|
|
|
41,547
|
|
|
|
430
|
|
|
|
(314
|
)
|
|
|
41,663
|
|
Private collateralized mortgage obligations
|
|
|
6,427
|
|
|
|
0
|
|
|
|
(109
|
)
|
|
|
6,318
|
|
|
|
$
|
372,498
|
|
|
$
|
1,753
|
|
|
$
|
(4,370
|
)
|
|
$
|
369,881
|
|
Proceeds from sales of securities
during the three and six month period ended June 30, 2017 were $3.8 million, with gross gains of $21,000 and no gross losses.
Proceeds from sales of securities
during the three month period ended June 30, 2016 were $1.7 million, with gross gains of $47,000 and no
gross losses. Proceeds from sales of securities
during the six month period ended June 30, 2016 were $12.1 million, with gross gains of
$147,000 and gross losses of $11,000.
In 2014, approximately $158.8 million
of investment securities available for sale were transferred into held to maturity. The unrealized holding losses at the date
of transfer totaled $3.1 million. The unrealized holding losses at the date of the transfer are amortized over the remaining
life of these securities as an adjustment of yield in a manner consistent with the amortization of a discount. The
amortization of unrealized holding losses reported in other comprehensive income will offset the effect on interest income
of the amortization of the discount. At June 30, 2017, the remaining unrealized holding losses totaled $1.6 million.
Securities at June 30, 2017 with a fair value of $183.3 million
were pledged as collateral for United States Treasury deposits, other public deposits and trust deposits. Securities with a fair
value of $167.6 million were pledged as collateral for repurchase agreements at June 30, 2017.
The amortized cost and fair value of
securities available for sale and held to maturity at June 30, 2017, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because prepayments of the underlying collateral for these securities may
occur, due to the right to call or repay obligations with or without call or prepayment penalties. Securities not due at a
single maturity date are shown separately.
|
|
Held to Maturity
|
|
|
Available for Sale
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
(Dollars in thousands)
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
Due in less than one year
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
10,076
|
|
|
$
|
10,318
|
|
Due after one year through five years
|
|
|
3,600
|
|
|
|
3,600
|
|
|
|
85,126
|
|
|
|
85,641
|
|
Due after five years through ten years
|
|
|
50,725
|
|
|
|
51,103
|
|
|
|
233,030
|
|
|
|
234,071
|
|
Due after ten years
|
|
|
0
|
|
|
|
0
|
|
|
|
28,636
|
|
|
|
28,605
|
|
|
|
|
54,325
|
|
|
|
54,703
|
|
|
|
356,868
|
|
|
|
358,635
|
|
Mortgage backed securities of U.S. Government Sponsored Entities
|
|
|
183,877
|
|
|
|
184,331
|
|
|
|
291,482
|
|
|
|
290,100
|
|
Collateralized mortgage obligations of U.S. Government Sponsored Entities
|
|
|
135,596
|
|
|
|
134,493
|
|
|
|
217,634
|
|
|
|
214,297
|
|
Commercial mortgage backed securities of U.S. Government Sponsored Entities
|
|
|
17,420
|
|
|
|
18,005
|
|
|
|
22,304
|
|
|
|
22,801
|
|
Private mortgage backed securities
|
|
|
0
|
|
|
|
0
|
|
|
|
32,860
|
|
|
|
33,632
|
|
Private collateralized mortgage obligations
|
|
|
5,878
|
|
|
|
5,825
|
|
|
|
55,828
|
|
|
|
55,956
|
|
Other debt securities
|
|
|
0
|
|
|
|
0
|
|
|
|
10,541
|
|
|
|
10,549
|
|
Private commercial mortgage backed securities
|
|
|
0
|
|
|
|
0
|
|
|
|
30,780
|
|
|
|
30,774
|
|
|
|
$
|
397,096
|
|
|
$
|
397,357
|
|
|
$
|
1,018,297
|
|
|
$
|
1,016,744
|
|
The estimated fair value of a
security is determined based on market quotations when available or, if not available, by using quoted market prices for
similar securities, pricing models or discounted cash flow analyses, using observable market data where available. The tables
below indicate the amount of securities with unrealized losses and the period of time for which these losses were outstanding
at June 30, 2017 and December 31, 2016, respectively.
|
|
June 30, 2017
|
|
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
(Dollars in thousands)
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
Mortgage backed securities of U.S.
Government Sponsored Entities
|
|
$
|
205,658
|
|
|
$
|
(2,975
|
)
|
|
$
|
48,199
|
|
|
$
|
(616
|
)
|
|
$
|
253,857
|
|
|
$
|
(3,591
|
)
|
Collateralized mortgage obligations of U.S. Government Sponsored Entities
|
|
|
87,147
|
|
|
|
(1,438
|
)
|
|
|
168,324
|
|
|
|
(4,077
|
)
|
|
|
255,471
|
|
|
|
(5,515
|
)
|
Commercial mortgage backed securities of U.S. Government Sponsored Entities
|
|
|
3,119
|
|
|
|
(9
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
3,119
|
|
|
|
(9
|
)
|
Private mortgage backed securities
|
|
|
0
|
|
|
|
0
|
|
|
|
6,864
|
|
|
|
(153
|
)
|
|
|
6,864
|
|
|
|
(153
|
)
|
Private collateralized mortgage obligations
|
|
|
0
|
|
|
|
0
|
|
|
|
26,129
|
|
|
|
(488
|
)
|
|
|
26,129
|
|
|
|
(488
|
)
|
Collateralized loan obligations
|
|
|
9,966
|
|
|
|
(34
|
)
|
|
|
9,973
|
|
|
|
(7
|
)
|
|
|
19,939
|
|
|
|
(41
|
)
|
Obligations of state and political subdivisions
|
|
|
15,716
|
|
|
|
(287
|
)
|
|
|
2,916
|
|
|
|
(98
|
)
|
|
|
18,632
|
|
|
|
(385
|
)
|
Corporate and other debt securities
|
|
|
12,873
|
|
|
|
(164
|
)
|
|
|
2,388
|
|
|
|
(4
|
)
|
|
|
15,261
|
|
|
|
(168
|
)
|
Private commercial mortgage backed securities
|
|
|
11,126
|
|
|
|
(185
|
)
|
|
|
1,965
|
|
|
|
(10
|
)
|
|
|
13,091
|
|
|
|
(195
|
)
|
Total temporarily impaired securities
|
|
$
|
345,605
|
|
|
$
|
(5,092
|
)
|
|
$
|
266,758
|
|
|
$
|
(5,453
|
)
|
|
$
|
612,363
|
|
|
$
|
(10,545
|
)
|
|
|
December 31, 2016
|
|
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
(Dollars in thousands)
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
Mortgage backed securities of U.S. Government Sponsored Entities
|
|
$
|
327,759
|
|
|
$
|
(5,991
|
)
|
|
$
|
5,387
|
|
|
$
|
(75
|
)
|
|
$
|
333,146
|
|
|
$
|
(6,066
|
)
|
Collateralized mortgage obligations of U.S. Government Sponsored Entities
|
|
|
234,175
|
|
|
|
(5,599
|
)
|
|
|
58,912
|
|
|
|
(2,096
|
)
|
|
|
293,087
|
|
|
|
(7,695
|
)
|
Commercial mortgage backed securities of U.S. Government Sponsored Entities
|
|
|
7,934
|
|
|
|
(102
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
7,934
|
|
|
|
(102
|
)
|
Private mortgage backed securities
|
|
|
0
|
|
|
|
0
|
|
|
|
36,848
|
|
|
|
(900
|
)
|
|
|
36,848
|
|
|
|
(900
|
)
|
Private collateralized mortgage obligations
|
|
|
1,460
|
|
|
|
0
|
|
|
|
38,417
|
|
|
|
(816
|
)
|
|
|
39,877
|
|
|
|
(816
|
)
|
Collateralized loan obligations
|
|
|
8,152
|
|
|
|
(41
|
)
|
|
|
51,694
|
|
|
|
(938
|
)
|
|
|
59,846
|
|
|
|
(979
|
)
|
Obligations of state and political subdivisions
|
|
|
39,321
|
|
|
|
(895
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
39,321
|
|
|
|
(895
|
)
|
Corporate and other debt securities
|
|
|
33,008
|
|
|
|
(517
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
33,008
|
|
|
|
(517
|
)
|
Private commercial mortgage backed securities
|
|
|
12,667
|
|
|
|
(306
|
)
|
|
|
7,139
|
|
|
|
(167
|
)
|
|
|
19,806
|
|
|
|
(473
|
)
|
Total temporarily impaired securities
|
|
$
|
664,476
|
|
|
$
|
(13,451
|
)
|
|
$
|
198,397
|
|
|
$
|
(4,992
|
)
|
|
$
|
862,873
|
|
|
$
|
(18,443
|
)
|
The two tables above include securities
held to maturity that were transferred from available for sale into held to maturity during 2014. Those securities had unrealized
losses of $3.1 million at the date of transfer, and at June 30, 2017, the unamortized balance was $1.6 million. The fair value
of those securities in an unrealized loss position for less than twelve months at June 30, 2017 and December 31, 2016 was $7.4
million and $22.8 million, respectively. The unrealized losses on those securities in an unrealized loss position for less than
twelve months at June 30, 2017 and December 31, 2016 was $0.1 million and $0.4 million, respectively. The fair value of those securities
in an unrealized loss position for more than twelve months at June 30, 2017 and December 31, 2016 was $7.4 million and none, respectively.
The unrealized losses on those securities in an unrealized loss position for more than twelve months at June 30, 2017 and December
31, 2016 was $0.1 million and none, respectively.
At June 30, 2017, unrealized
losses on mortgage backed securities, collateralized mortgage obligations and commercial mortgage backed securities of U.S.
government sponsored entities having a fair value of $512.4 million totaled $9.1
million, which was attributable to a combination of
factors, including relative changes in interest rates since the time of purchase. The contractual cash flows for these
securities are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Based on our assessment of
these factors, management believes that the unrealized losses on these debt security holdings are a function of changes in
investment spreads and interest rate movements and not changes in credit quality. Management expects to recover the entire
amortized cost basis of these securities.
At June 30, 2017, private label securities
secured by seasoned residential collateral with a fair value of $33.0 million had approximately $0.6 million in unrealized losses.
This was attributable to a combination of factors, including relative changes in interest rates since the time of purchase. The
collateral underlying these mortgage investments are 30- and 15-year fixed and 10/1 adjustable rate mortgage loans with low loan
to values, subordination and historically have had minimal foreclosures and losses. Based on its assessment of these factors,
management believes that the unrealized losses on these debt security holdings are a function of changes in investment spreads
and interest rate movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of
these securities.
At June 30, 2017, remaining
securities categories had unrealized losses of $0.7 million and summed to a fair value of $66.9 million. Management believes
that unrealized losses on these remaining debt security holdings are a function of changes in investment spreads and interest
movements and not change in credit quality. Management expects to recover the entire amortized cost basis of these
securities.
As of June 30, 2017, management does
not intend to sell securities that are in unrealized loss positions and it is not more likely than not that the Company will be
required to sell these securities before recovery of the amortized cost basis. Therefore, management does not consider any investment
to be other-than-temporarily impaired at June 30, 2017.
Included in other assets is $36.4 million
of Federal Home Loan Bank and Federal Reserve Bank stock stated at par value. At June 30, 2017, the Company had not identified
events or changes in circumstances which may have a significant adverse effect on the ability to redeem these holdings.
The Company also holds 211,330
shares of Visa Class B stock which, following resolution of Visa litigation, will be converted to Visa Class A shares (the
conversion rate is 1.6483 shares of Class A stock for each share of Class B stock) for a total of 348,335 shares of Visa
Class A stock. Our holdings are related to prior ownership in Visa’s network while Visa operated as a cooperative
(11,330 shares), and by acquisition via auctions (200,000 shares) for $6.2 million conducted by the FDIC during the first
quarter of 2017. These holdings are reported in other assets in the Consolidated Balance Sheets at the Company’s cost
of $6.2 million.
NOTE E — LOANS
Information relating to portfolio loans,
purchased credit impaired (“PCI”) loans, and purchased unimpaired loans (“PUL”) as of June 30,
2017 and December 31, 2016 is summarized as follows:
June 30, 2017
|
|
Portfolio Loans
|
|
|
PCI Loans
|
|
|
PUL's
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Construction and land development
|
|
$
|
181,334
|
|
|
$
|
113
|
|
|
$
|
49,127
|
|
|
$
|
230,574
|
|
Commercial real estate
|
|
|
1,098,634
|
|
|
|
11,463
|
|
|
|
353,971
|
|
|
|
1,464,068
|
|
Residential real estate
|
|
|
874,753
|
|
|
|
702
|
|
|
|
115,689
|
|
|
|
991,144
|
|
Commercial and financial
|
|
|
393,213
|
|
|
|
854
|
|
|
|
71,071
|
|
|
|
465,138
|
|
Consumer
|
|
|
174,376
|
|
|
|
0
|
|
|
|
4,219
|
|
|
|
178,595
|
|
Other loans
|
|
|
556
|
|
|
|
0
|
|
|
|
0
|
|
|
|
556
|
|
NET LOAN BALANCES
(1)
|
|
$
|
2,722,866
|
|
|
$
|
13,132
|
|
|
$
|
594,077
|
|
|
$
|
3,330,075
|
|
December 31, 2016
|
|
Portfolio Loans
|
|
|
PCI Loans
|
|
|
PUL's
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Construction and land development
|
|
$
|
137,480
|
|
|
$
|
114
|
|
|
$
|
22,522
|
|
|
$
|
160,116
|
|
Commercial real estate
|
|
|
1,041,915
|
|
|
|
11,257
|
|
|
|
304,420
|
|
|
|
1,357,592
|
|
Residential real estate
|
|
|
784,290
|
|
|
|
684
|
|
|
|
51,813
|
|
|
|
836,787
|
|
Commercial and financial
|
|
|
308,731
|
|
|
|
941
|
|
|
|
60,917
|
|
|
|
370,589
|
|
Consumer
|
|
|
152,927
|
|
|
|
0
|
|
|
|
1,018
|
|
|
|
153,945
|
|
Other loans
|
|
|
507
|
|
|
|
0
|
|
|
|
0
|
|
|
|
507
|
|
NET LOAN BALANCES
(1)
|
|
$
|
2,425,850
|
|
|
$
|
12,996
|
|
|
$
|
440,690
|
|
|
$
|
2,879,536
|
|
(1)
Net loan balances as of June 30,
2017 and December 31, 2016 include deferred costs of $10.6 million for each period presented, respectively.
Purchased Loans
- PCI loans
are accounted for pursuant to ASC Topic 310-30. The excess of cash flows expected to be collected over the estimated fair value
is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan in situations where
there is a reasonable expectation about the timing and amount of cash flows expected to be collected. The difference between the
contractually required payments and the cash flows expected to be collected, considering the impact of prepayments, is referred
to as the nonaccretable difference. We have applied ASC Topic 310-20 accounting treatment to PULs.
The table below summarizes the changes
in accretable yield for PCI loans during the three and six month periods ended June 30, 2017 and 2016, respectively:
Activity during the three months ended June 30, 2017
|
|
March 31,
2017
|
|
|
Additions
|
|
|
Deletions
|
|
|
Accretion
|
|
|
Reclassifications from
nonaccretable
difference
|
|
|
June 30, 2017
|
|
|
|
(In thousands)
|
|
Accretable yield
|
|
$
|
3,510
|
|
|
|
0
|
|
|
|
(10
|
)
|
|
|
(451
|
)
|
|
|
216
|
|
|
$
|
3,265
|
|
Recorded investment of acquired loans
|
|
$
|
12,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,132
|
|
Allowance for loan losses
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
Recorded investment less allowance for loan losses
|
|
$
|
12,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,132
|
|
Activity during the six months ended June 30, 2017
|
|
December 31,
2016
|
|
|
Additions
|
|
|
Deletions
|
|
|
Accretion
|
|
|
Reclassifications from
nonaccretable
difference
|
|
|
June 30, 2017
|
|
|
|
(In thousands)
|
|
Accretable yield
|
|
$
|
3,807
|
|
|
|
0
|
|
|
|
(10
|
)
|
|
|
(816
|
)
|
|
|
284
|
|
|
$
|
3,265
|
|
Recorded investment of acquired loans
|
|
$
|
12,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,132
|
|
Allowance for loan losses
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
Recorded investment less allowance for loan losses
|
|
$
|
12,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,132
|
|
Activity during the three months ended June 30, 2016
|
|
March 31,
2016
|
|
|
Additions
|
|
|
Deletions
|
|
|
Accretion
|
|
|
Reclassifications from
nonaccretable
difference
|
|
|
June 30, 2016
|
|
|
|
(In thousands)
|
|
Accretable yield
|
|
$
|
3,143
|
|
|
|
1,215
|
|
|
|
1,086
|
|
|
|
(770
|
)
|
|
|
0
|
|
|
$
|
4,674
|
|
Recorded investment of acquired loans
|
|
$
|
16,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,652
|
|
Allowance for loan losses
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
Recorded investment less allowance for loan losses
|
|
$
|
16,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,652
|
|
Activity during the six months ended June 30, 2016
|
|
December 31,
2015
|
|
|
Additions
|
|
|
Deletions
|
|
|
Accretion
|
|
|
Reclassifications from
nonaccretable
difference
|
|
|
June 30, 2016
|
|
|
|
(In thousands)
|
|
Accretable yield
|
|
$
|
2,610
|
|
|
|
1,831
|
|
|
|
1,271
|
|
|
|
(1,038
|
)
|
|
|
0
|
|
|
$
|
4,674
|
|
Recorded investment of acquired loans
|
|
$
|
12,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,652
|
|
Allowance for loan losses
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
Recorded investment less allowance for loan losses
|
|
$
|
12,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,652
|
|
The following tables present the contractual
delinquency of the recorded investment in past due loans by class of loans as of June 30, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
Accruing
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing
|
|
|
Accruing
|
|
|
Greater
|
|
|
|
|
|
|
|
|
Total
|
|
June 30, 2017
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
Than
|
|
|
|
|
|
|
|
|
Financing
|
|
(In thousands)
|
|
Past Due
|
|
|
Past Due
|
|
|
90 Days
|
|
|
Nonaccrual
|
|
|
Current
|
|
|
Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
$
|
273
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
544
|
|
|
$
|
180,517
|
|
|
$
|
181,334
|
|
Commercial real estate
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,209
|
|
|
|
1,097,425
|
|
|
|
1,098,634
|
|
Residential real estate
|
|
|
68
|
|
|
|
65
|
|
|
|
0
|
|
|
|
8,655
|
|
|
|
865,965
|
|
|
|
874,753
|
|
Commercial and financial
|
|
|
125
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
393,088
|
|
|
|
393,213
|
|
Consumer
|
|
|
97
|
|
|
|
14
|
|
|
|
0
|
|
|
|
133
|
|
|
|
174,132
|
|
|
|
174,376
|
|
Other
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
556
|
|
|
|
556
|
|
Total
|
|
|
563
|
|
|
|
79
|
|
|
|
0
|
|
|
|
10,541
|
|
|
|
2,711,683
|
|
|
|
2,722,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Unimpaired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
125
|
|
|
|
49,002
|
|
|
|
49,127
|
|
Commercial real estate
|
|
|
437
|
|
|
|
0
|
|
|
|
0
|
|
|
|
743
|
|
|
|
352,791
|
|
|
|
353,971
|
|
Residential real estate
|
|
|
0
|
|
|
|
0
|
|
|
|
194
|
|
|
|
1,462
|
|
|
|
114,033
|
|
|
|
115,689
|
|
Commercial and financial
|
|
|
514
|
|
|
|
0
|
|
|
|
0
|
|
|
|
347
|
|
|
|
70,210
|
|
|
|
71,071
|
|
Consumer
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
4,219
|
|
|
|
4,219
|
|
Other
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Total
|
|
|
951
|
|
|
|
0
|
|
|
|
194
|
|
|
|
2,677
|
|
|
|
590,255
|
|
|
|
594,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Credit Impaired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
113
|
|
|
|
113
|
|
Commercial real estate
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,761
|
|
|
|
7,702
|
|
|
|
11,463
|
|
Residential real estate
|
|
|
189
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
513
|
|
|
|
702
|
|
Commercial and financial
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
854
|
|
|
|
854
|
|
Consumer
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Other
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Total
|
|
|
189
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,761
|
|
|
|
9,182
|
|
|
|
13,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
1,703
|
|
|
$
|
79
|
|
|
$
|
194
|
|
|
$
|
16,979
|
|
|
$
|
3,311,120
|
|
|
$
|
3,330,075
|
|
|
|
|
|
|
|
|
|
Accruing
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing
|
|
|
Accruing
|
|
|
Greater
|
|
|
|
|
|
|
|
|
Total
|
|
December 31, 2016
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
Than
|
|
|
|
|
|
|
|
|
Financing
|
|
(In thousands)
|
|
Past Due
|
|
|
Past Due
|
|
|
90 Days
|
|
|
Nonaccrual
|
|
|
Current
|
|
|
Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
438
|
|
|
$
|
137,042
|
|
|
$
|
137,480
|
|
Commercial real estate
|
|
|
78
|
|
|
|
171
|
|
|
|
0
|
|
|
|
1,784
|
|
|
|
1,039,882
|
|
|
|
1,041,915
|
|
Residential real estate
|
|
|
1,570
|
|
|
|
261
|
|
|
|
0
|
|
|
|
8,582
|
|
|
|
773,877
|
|
|
|
784,290
|
|
Commercial and financial
|
|
|
30
|
|
|
|
0
|
|
|
|
0
|
|
|
|
49
|
|
|
|
308,652
|
|
|
|
308,731
|
|
Consumer
|
|
|
29
|
|
|
|
59
|
|
|
|
0
|
|
|
|
170
|
|
|
|
152,669
|
|
|
|
152,927
|
|
Other
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
507
|
|
|
|
507
|
|
Total
|
|
|
1,707
|
|
|
|
491
|
|
|
|
0
|
|
|
|
11,023
|
|
|
|
2,412,629
|
|
|
|
2,425,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Unimpaired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
32
|
|
|
|
22,490
|
|
|
|
22,522
|
|
Commercial real estate
|
|
|
345
|
|
|
|
485
|
|
|
|
0
|
|
|
|
1,272
|
|
|
|
302,318
|
|
|
|
304,420
|
|
Residential real estate
|
|
|
153
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,262
|
|
|
|
50,398
|
|
|
|
51,813
|
|
Commercial and financial
|
|
|
39
|
|
|
|
328
|
|
|
|
0
|
|
|
|
197
|
|
|
|
60,353
|
|
|
|
60,917
|
|
Consumer
|
|
|
37
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
981
|
|
|
|
1,018
|
|
Other
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Total
|
|
|
574
|
|
|
|
813
|
|
|
|
0
|
|
|
|
2,763
|
|
|
|
436,540
|
|
|
|
440,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Impaired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
114
|
|
|
|
114
|
|
Commercial real estate
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
4,285
|
|
|
|
6,972
|
|
|
|
11,257
|
|
Residential real estate
|
|
|
0
|
|
|
|
185
|
|
|
|
0
|
|
|
|
0
|
|
|
|
499
|
|
|
|
684
|
|
Commercial and financial
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
941
|
|
|
|
941
|
|
Consumer
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Other
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Total
|
|
|
0
|
|
|
|
185
|
|
|
|
0
|
|
|
|
4,285
|
|
|
|
8,526
|
|
|
|
12,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
2,281
|
|
|
$
|
1,489
|
|
|
$
|
0
|
|
|
$
|
18,071
|
|
|
$
|
2,857,695
|
|
|
$
|
2,879,536
|
|
The Company utilizes an internal
asset classification system as a means of reporting problem and potential problem loans. Under the Company’s risk
rating system, the Company classifies problem and potential problem loans as “Special Mention,”
“Substandard,” and “Doubtful” and these loans are monitored on an ongoing basis. Loans that do not
currently expose the Company to sufficient risk to warrant classification in the Substandard or Doubtful categories, but
possess weaknesses that deserve management’s close attention are deemed to be Special Mention. Substandard loans
include those characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not
corrected. Loans classified as Substandard may require a specific allowance. Loans classified as Doubtful have all the
weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection
or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and
improbable. The principal on loans classified as Doubtful is generally charged off. Risk ratings are updated any time
the situation warrants.
Loans not meeting the criteria above are
considered to be pass-rated loans and risk grades are recalculated at least annually by the loan relationship manager. The
following tables present the risk category of loans by class of loans based on the most recent analysis performed as of June 30,
2017 and December 31, 2016:
June 30, 2017
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
& Land
|
|
|
Commercial
|
|
|
Residential
|
|
|
and
|
|
|
Consumer
|
|
|
|
|
(In thousands)
|
|
Development
|
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Financial
|
|
|
Loans
|
|
|
Total
|
|
Pass
|
|
$
|
216,965
|
|
|
$
|
1,426,634
|
|
|
$
|
965,708
|
|
|
$
|
453,838
|
|
|
$
|
177,470
|
|
|
$
|
3,240,615
|
|
Special mention
|
|
|
8,048
|
|
|
|
12,562
|
|
|
|
1,705
|
|
|
|
6,715
|
|
|
|
1,032
|
|
|
|
30,062
|
|
Substandard
|
|
|
4,631
|
|
|
|
13,364
|
|
|
|
3,274
|
|
|
|
3,981
|
|
|
|
168
|
|
|
|
25,418
|
|
Doubtful*
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
60
|
|
|
|
0
|
|
|
|
60
|
|
Nonaccrual
|
|
|
669
|
|
|
|
5,713
|
|
|
|
10,117
|
|
|
|
347
|
|
|
|
133
|
|
|
|
16,979
|
|
Pass-Troubled debt restructures
|
|
|
37
|
|
|
|
4,909
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
4,946
|
|
Troubled debt restructures
|
|
|
224
|
|
|
|
886
|
|
|
|
10,340
|
|
|
|
197
|
|
|
|
348
|
|
|
|
11,995
|
|
|
|
$
|
230,574
|
|
|
$
|
1,464,068
|
|
|
$
|
991,144
|
|
|
$
|
465,138
|
|
|
$
|
179,151
|
|
|
$
|
3,330,075
|
|
* Comprised of a single loan
that paid off in July 2017.
December 31, 2016
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
& Land
|
|
|
Commercial
|
|
|
Residential
|
|
|
and
|
|
|
Consumer
|
|
|
|
|
(In thousands)
|
|
Development
|
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Financial
|
|
|
Loans
|
|
|
Total
|
|
Pass
|
|
$
|
148,563
|
|
|
$
|
1,319,696
|
|
|
$
|
811,576
|
|
|
$
|
364,241
|
|
|
$
|
153,730
|
|
|
$
|
2,797,806
|
|
Special mention
|
|
|
5,037
|
|
|
|
17,184
|
|
|
|
1,780
|
|
|
|
3,949
|
|
|
|
67
|
|
|
|
28,017
|
|
Substandard
|
|
|
5,497
|
|
|
|
7,438
|
|
|
|
2,709
|
|
|
|
2,153
|
|
|
|
134
|
|
|
|
17,931
|
|
Doubtful
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Nonaccrual
|
|
|
470
|
|
|
|
7,341
|
|
|
|
9,844
|
|
|
|
246
|
|
|
|
170
|
|
|
|
18,071
|
|
Pass-Troubled debt restructures
|
|
|
44
|
|
|
|
4,988
|
|
|
|
358
|
|
|
|
0
|
|
|
|
44
|
|
|
|
5,434
|
|
Troubled debt restructures
|
|
|
505
|
|
|
|
945
|
|
|
|
10,520
|
|
|
|
0
|
|
|
|
307
|
|
|
|
12,277
|
|
|
|
$
|
160,116
|
|
|
$
|
1,357,592
|
|
|
$
|
836,787
|
|
|
$
|
370,589
|
|
|
$
|
154,452
|
|
|
$
|
2,879,536
|
|
NOTE F — IMPAIRED LOANS AND ALLOWANCE
FOR LOAN LOSSES
The Company’s Troubled Debt Restructuring
(“TDR”) concessions granted generally do not include forgiveness of principal balances. Loan modifications are not
reported in calendar years after modification if the loans were modified at an interest rate equal to the yields of new loan originations
with comparable risk and the loans are performing based on the terms of the restructuring agreements. Most loans prior to modification
were classified as an impaired loan and the allowance for loan losses is determined in accordance with Company policy.
The following table presents loans that
were modified within the six months ending June 30, 2017:
|
|
|
|
|
Pre-
|
|
|
Post-
|
|
|
|
|
|
|
|
|
|
Modification
|
|
|
Modification
|
|
|
|
|
|
|
Number
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
Valuation
|
|
|
|
of
|
|
|
Recorded
|
|
|
Recorded
|
|
|
Allowance
|
|
(Dollars in thousands)
|
|
Contracts
|
|
|
Investment
|
|
|
Investment
|
|
|
Recorded
|
|
Construction and land development
|
|
|
1
|
|
|
$
|
52
|
|
|
$
|
46
|
|
|
$
|
6
|
|
Residential real estate
|
|
|
1
|
|
|
|
15
|
|
|
|
15
|
|
|
|
0
|
|
|
|
|
2
|
|
|
$
|
67
|
|
|
$
|
61
|
|
|
$
|
6
|
|
The following table presents loans that
were modified within the six months ending June 30, 2016:
|
|
|
|
|
Pre-
|
|
|
Post-
|
|
|
|
|
|
|
|
|
|
Modification
|
|
|
Modification
|
|
|
|
|
|
|
Number
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
Valuation
|
|
|
|
of
|
|
|
Recorded
|
|
|
Recorded
|
|
|
Allowance
|
|
(Dollars in thousands)
|
|
Contracts
|
|
|
Investment
|
|
|
Investment
|
|
|
Recorded
|
|
Residential real estate
|
|
|
6
|
|
|
$
|
1,660
|
|
|
$
|
1,489
|
|
|
$
|
171
|
|
|
|
|
6
|
|
|
$
|
1,660
|
|
|
$
|
1,489
|
|
|
$
|
171
|
|
For the six months ended June 30,
2017 and 2016, there were no payment defaults on loans that had been modified to a TDR within the previous twelve months. The
Company considers a loan to have defaulted when it becomes 90 days or more delinquent under the modified terms, has been
transferred to nonaccrual status, or has been transferred to other real estate owned. A defaulted TDR is generally placed on
nonaccrual and specific allowance for loan loss is assigned in accordance with the Company’s policy.
As of June 30, 2017 and December 31,
2016, the Company’s recorded investment in impaired loans (excluding PCI loans), the unpaid principal balance, and
the related valuation allowance were as follows:
|
|
June 30, 2017
|
|
|
|
|
|
|
Unpaid
|
|
|
Related
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Valuation
|
|
(Dollars in thousands)
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
Impaired Loans with No Related Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
$
|
577
|
|
|
$
|
879
|
|
|
$
|
0
|
|
Commercial real estate
|
|
|
2,791
|
|
|
|
4,134
|
|
|
|
0
|
|
Residential real estate
|
|
|
10,099
|
|
|
|
14,607
|
|
|
|
0
|
|
Commercial and financial
|
|
|
352
|
|
|
|
361
|
|
|
|
0
|
|
Consumer
|
|
|
127
|
|
|
|
200
|
|
|
|
0
|
|
Impaired Loans with an Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
355
|
|
|
|
367
|
|
|
|
145
|
|
Commercial real estate
|
|
|
4,964
|
|
|
|
4,970
|
|
|
|
244
|
|
Residential real estate
|
|
|
10,360
|
|
|
|
10,566
|
|
|
|
1,255
|
|
Commercial and financial
|
|
|
406
|
|
|
|
197
|
|
|
|
209
|
|
Consumer
|
|
|
355
|
|
|
|
355
|
|
|
|
58
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
932
|
|
|
|
1,246
|
|
|
|
145
|
|
Commercial real estate
|
|
|
7,755
|
|
|
|
9,104
|
|
|
|
244
|
|
Residential real estate
|
|
|
20,459
|
|
|
|
25,173
|
|
|
|
1,255
|
|
Commercial and financial
|
|
|
758
|
|
|
|
558
|
|
|
|
209
|
|
Consumer
|
|
|
482
|
|
|
|
555
|
|
|
|
58
|
|
|
|
$
|
30,386
|
|
|
$
|
36,636
|
|
|
$
|
1,911
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
Unpaid
|
|
|
Related
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Valuation
|
|
(Dollars in thousands)
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
Impaired Loans with No Related Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
$
|
226
|
|
|
$
|
321
|
|
|
$
|
0
|
|
Commercial real estate
|
|
|
3,267
|
|
|
|
4,813
|
|
|
|
0
|
|
Residential real estate
|
|
|
9,706
|
|
|
|
14,136
|
|
|
|
0
|
|
Commercial and financial
|
|
|
199
|
|
|
|
206
|
|
|
|
0
|
|
Consumer
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Impaired Loans with an Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
51
|
|
|
|
51
|
|
|
|
0
|
|
Commercial real estate
|
|
|
6,937
|
|
|
|
6,949
|
|
|
|
395
|
|
Residential real estate
|
|
|
12,332
|
|
|
|
12,681
|
|
|
|
2,059
|
|
Commercial and financial
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Consumer
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
277
|
|
|
|
372
|
|
|
|
0
|
|
Commercial real estate
|
|
|
10,204
|
|
|
|
11,762
|
|
|
|
395
|
|
Residential real estate
|
|
|
22,038
|
|
|
|
26,817
|
|
|
|
2,059
|
|
Commercial and financial
|
|
|
199
|
|
|
|
206
|
|
|
|
0
|
|
Consumer
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
$
|
32,718
|
|
|
$
|
39,157
|
|
|
$
|
2,454
|
|
For the three months ended June 30, 2017
and 2016, the Company’s average recorded investments in impaired loans (excluding PCI loans) and related interest income
were as follows:
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Income
|
|
|
Recorded
|
|
|
Income
|
|
(Dollars in thousands)
|
|
Investment
|
|
|
Recognized
|
|
|
Investment
|
|
|
Recognized
|
|
Impaired Loans with No Related Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction & land development
|
|
$
|
538
|
|
|
$
|
11
|
|
|
$
|
214
|
|
|
$
|
0
|
|
Commercial real estate
|
|
|
2,521
|
|
|
|
40
|
|
|
|
1,860
|
|
|
|
2
|
|
Residential real estate
|
|
|
9,831
|
|
|
|
159
|
|
|
|
9,587
|
|
|
|
37
|
|
Commercial and financial
|
|
|
155
|
|
|
|
6
|
|
|
|
16
|
|
|
|
0
|
|
Consumer
|
|
|
154
|
|
|
|
3
|
|
|
|
183
|
|
|
|
1
|
|
Impaired Loans with an Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction & land development
|
|
|
279
|
|
|
|
2
|
|
|
|
634
|
|
|
|
6
|
|
Commercial real estate
|
|
|
5,745
|
|
|
|
39
|
|
|
|
6,906
|
|
|
|
73
|
|
Residential real estate
|
|
|
11,173
|
|
|
|
84
|
|
|
|
11,993
|
|
|
|
100
|
|
Commercial and financial
|
|
|
371
|
|
|
|
3
|
|
|
|
0
|
|
|
|
0
|
|
Consumer
|
|
|
311
|
|
|
|
7
|
|
|
|
356
|
|
|
|
5
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction & land development
|
|
|
817
|
|
|
|
13
|
|
|
|
848
|
|
|
|
6
|
|
Commercial real estate
|
|
|
8,266
|
|
|
|
79
|
|
|
|
8,766
|
|
|
|
75
|
|
Residential real estate
|
|
|
21,004
|
|
|
|
243
|
|
|
|
21,580
|
|
|
|
137
|
|
Commercial and financial
|
|
|
526
|
|
|
|
9
|
|
|
|
16
|
|
|
|
0
|
|
Consumer
|
|
|
465
|
|
|
|
10
|
|
|
|
539
|
|
|
|
6
|
|
|
|
$
|
31,078
|
|
|
$
|
354
|
|
|
$
|
31,749
|
|
|
$
|
224
|
|
For the six months ended June 30,
2017 and 2016, the Company’s average recorded investments in impaired loans (excluding PCI loans) and related
interest income were as follows:
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Income
|
|
|
Recorded
|
|
|
Income
|
|
(Dollars in thousands)
|
|
Investment
|
|
|
Recognized
|
|
|
Investment
|
|
|
Recognized
|
|
Impaired Loans with No Related Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction & land development
|
|
$
|
431
|
|
|
$
|
22
|
|
|
$
|
179
|
|
|
$
|
0
|
|
Commercial real estate
|
|
|
2,747
|
|
|
|
79
|
|
|
|
2,063
|
|
|
|
5
|
|
Residential real estate
|
|
|
9,767
|
|
|
|
297
|
|
|
|
9,493
|
|
|
|
71
|
|
Commercial and financial
|
|
|
153
|
|
|
|
7
|
|
|
|
16
|
|
|
|
0
|
|
Consumer
|
|
|
105
|
|
|
|
7
|
|
|
|
212
|
|
|
|
1
|
|
Impaired Loans with an Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction & land development
|
|
|
197
|
|
|
|
5
|
|
|
|
702
|
|
|
|
13
|
|
Commercial real estate
|
|
|
6,207
|
|
|
|
108
|
|
|
|
6,970
|
|
|
|
147
|
|
Residential real estate
|
|
|
11,627
|
|
|
|
197
|
|
|
|
12,128
|
|
|
|
185
|
|
Commercial and financial
|
|
|
244
|
|
|
|
7
|
|
|
|
0
|
|
|
|
0
|
|
Consumer
|
|
|
204
|
|
|
|
10
|
|
|
|
353
|
|
|
|
9
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction & land development
|
|
|
628
|
|
|
|
27
|
|
|
|
881
|
|
|
|
13
|
|
Commercial real estate
|
|
|
8,954
|
|
|
|
187
|
|
|
|
9,033
|
|
|
|
152
|
|
Residential real estate
|
|
|
21,394
|
|
|
|
494
|
|
|
|
21,621
|
|
|
|
256
|
|
Commercial and financial
|
|
|
397
|
|
|
|
14
|
|
|
|
16
|
|
|
|
0
|
|
Consumer
|
|
|
309
|
|
|
|
17
|
|
|
|
565
|
|
|
|
10
|
|
|
|
$
|
31,682
|
|
|
$
|
739
|
|
|
$
|
32,116
|
|
|
$
|
431
|
|
Impaired loans also include loans that
have been modified in troubled debt restructurings where concessions to borrowers who experienced financial difficulties have been
granted. At June 30, 2017 and at December 31, 2016, accruing TDRs totaled $16.9 million and $17.7 million, respectively.
The impaired loans are measured for impairment
based on the value of underlying collateral or the present value of expected future cash flows discounted at the loan’s effective
rate. The valuation allowance is included in the allowance for loan losses.
Interest payments received on impaired
loans are recorded as interest income unless collection of the remaining recorded investment is doubtful at which time payments
received are recorded as reductions to principal.
For impaired loans whose impairment is
measured based on the present value of expected future cash flows, a total of $125,000 and $95,000, respectively, was included
in interest income for the six months ended June 30, 2017 and 2016, respectively, and represents the change in present value attributable to
the passage of time.
Nonaccrual loans and accruing loans past
due 90 days or more (excluding purchased loans) totaled $10.5 million and $0, respectively, at June 30, 2017, and $11.0 million
and $0, respectively, at December 31, 2016. Purchased nonaccrual and accruing loans past due 90 days or more were $6.4 million
and $0.2 million, respectively, at June 30, 2017, and $7.0 million and $0, respectively, at December 31, 2016.
Activity in the allowance for loan
losses (excluding PCI loans) for the three month and six month periods ended June 30, 2017 is summarized as
follows:
|
|
Allowance for Loan Losses for the Three Months Ended June 30, 2017
|
|
|
|
|
|
|
Provision
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
Beginning
|
|
|
for Loan
|
|
|
Charge-
|
|
|
|
|
|
(Charge-Offs)
|
|
|
Ending
|
|
(Dollars in thousands)
|
|
Balance
|
|
|
Losses
|
|
|
Offs
|
|
|
Recoveries
|
|
|
Recoveries
|
|
|
Balance
|
|
Construction & land development
|
|
$
|
1,352
|
|
|
$
|
128
|
|
|
$
|
0
|
|
|
$
|
94
|
|
|
$
|
94
|
|
|
$
|
1,574
|
|
Commercial real estate
|
|
|
9,861
|
|
|
|
(167
|
)
|
|
|
(102
|
)
|
|
|
331
|
|
|
|
229
|
|
|
|
9,923
|
|
Residential real estate
|
|
|
7,064
|
|
|
|
324
|
|
|
|
(64
|
)
|
|
|
99
|
|
|
|
35
|
|
|
|
7,423
|
|
Commercial and financial
|
|
|
4,635
|
|
|
|
1,193
|
|
|
|
(447
|
)
|
|
|
79
|
|
|
|
(368
|
)
|
|
|
5,460
|
|
Consumer
|
|
|
1,650
|
|
|
|
(77
|
)
|
|
|
(55
|
)
|
|
|
102
|
|
|
|
47
|
|
|
|
1,620
|
|
|
|
$
|
24,562
|
|
|
$
|
1,401
|
|
|
$
|
(668
|
)
|
|
$
|
705
|
|
|
$
|
37
|
|
|
$
|
26,000
|
|
|
|
Allowance for Loan Losses for the Six Months Ended June 30, 2017
|
|
|
|
|
|
|
Provision
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
Beginning
|
|
|
for Loan
|
|
|
Charge-
|
|
|
|
|
|
(Charge-Offs)
|
|
|
Ending
|
|
(Dollars in thousands)
|
|
Balance
|
|
|
Losses
|
|
|
Offs
|
|
|
Recoveries
|
|
|
Recoveries
|
|
|
Balance
|
|
Construction & land development
|
|
$
|
1,219
|
|
|
$
|
192
|
|
|
$
|
0
|
|
|
$
|
163
|
|
|
$
|
163
|
|
|
$
|
1,574
|
|
Commercial real estate
|
|
|
9,273
|
|
|
|
313
|
|
|
|
(102
|
)
|
|
|
439
|
|
|
|
337
|
|
|
|
9,923
|
|
Residential real estate
|
|
|
7,483
|
|
|
|
(100
|
)
|
|
|
(187
|
)
|
|
|
227
|
|
|
|
40
|
|
|
|
7,423
|
|
Commercial and financial
|
|
|
3,636
|
|
|
|
2,314
|
|
|
|
(616
|
)
|
|
|
126
|
|
|
|
(490
|
)
|
|
|
5,460
|
|
Consumer
|
|
|
1,789
|
|
|
|
(14
|
)
|
|
|
(314
|
)
|
|
|
159
|
|
|
|
(155
|
)
|
|
|
1,620
|
|
|
|
$
|
23,400
|
|
|
$
|
2,705
|
|
|
$
|
(1,219
|
)
|
|
$
|
1,114
|
|
|
$
|
(105
|
)
|
|
$
|
26,000
|
|
Activity in the allowance for loan
losses (excluding PCI loans) for the three month and six month periods ended June 30, 2016 is summarized as
follows:
|
|
Allowance for Loan Losses for the Three Months Ended June 30, 2016
|
|
|
|
|
|
|
Provision
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
Beginning
|
|
|
for Loan
|
|
|
Charge-
|
|
|
|
|
|
(Charge-Offs)
|
|
|
Ending
|
|
(Dollars in thousands)
|
|
Balance
|
|
|
Losses
|
|
|
Offs
|
|
|
Recoveries
|
|
|
Recoveries
|
|
|
Balance
|
|
Construction & land development
|
|
$
|
1,285
|
|
|
$
|
(239
|
)
|
|
$
|
0
|
|
|
$
|
114
|
|
|
$
|
114
|
|
|
$
|
1,160
|
|
Commercial real estate
|
|
|
6,677
|
|
|
|
495
|
|
|
|
(3
|
)
|
|
|
23
|
|
|
|
20
|
|
|
|
7,192
|
|
Residential real estate
|
|
|
8,512
|
|
|
|
(420
|
)
|
|
|
(28
|
)
|
|
|
235
|
|
|
|
207
|
|
|
|
8,299
|
|
Commercial and financial
|
|
|
1,991
|
|
|
|
566
|
|
|
|
(38
|
)
|
|
|
72
|
|
|
|
34
|
|
|
|
2,591
|
|
Consumer
|
|
|
1,259
|
|
|
|
260
|
|
|
|
(53
|
)
|
|
|
17
|
|
|
|
(36
|
)
|
|
|
1,483
|
|
|
|
$
|
19,724
|
|
|
$
|
662
|
|
|
$
|
(122
|
)
|
|
$
|
461
|
|
|
$
|
339
|
|
|
$
|
20,725
|
|
|
|
Allowance for Loan Losses for the Six Months Ended June 30, 2016
|
|
|
|
|
|
|
Provision
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
Beginning
|
|
|
for Loan
|
|
|
Charge-
|
|
|
|
|
|
Charge-
|
|
|
Ending
|
|
(Dollars in thousands)
|
|
Balance
|
|
|
Losses
|
|
|
Offs
|
|
|
Recoveries
|
|
|
Offs
|
|
|
Balance
|
|
Construction & land development
|
|
$
|
1,151
|
|
|
$
|
(180
|
)
|
|
$
|
0
|
|
|
$
|
189
|
|
|
$
|
189
|
|
|
$
|
1,160
|
|
Commercial real estate
|
|
|
6,756
|
|
|
|
510
|
|
|
|
(176
|
)
|
|
|
102
|
|
|
|
(74
|
)
|
|
|
7,192
|
|
Residential real estate
|
|
|
8,057
|
|
|
|
(10
|
)
|
|
|
(145
|
)
|
|
|
397
|
|
|
|
252
|
|
|
|
8,299
|
|
Commercial and financial
|
|
|
2,042
|
|
|
|
147
|
|
|
|
(93
|
)
|
|
|
495
|
|
|
|
402
|
|
|
|
2,591
|
|
Consumer
|
|
|
1,122
|
|
|
|
394
|
|
|
|
(80
|
)
|
|
|
47
|
|
|
|
(33
|
)
|
|
|
1,483
|
|
|
|
$
|
19,128
|
|
|
$
|
861
|
|
|
$
|
(494
|
)
|
|
$
|
1,230
|
|
|
$
|
736
|
|
|
$
|
20,725
|
|
The allowance for loan losses is composed
of specific allowances for certain impaired loans and general allowances grouped into loan pools based on similar characteristics.
The Company’s loan portfolio (excluding PCI loans) and related allowance at June 30, 2017 and December 31, 2016 is shown
in the following tables:
|
|
At June 30, 2017
|
|
|
|
Individually Evaluated for
|
|
|
Collectively Evaluated for
|
|
|
|
|
|
|
|
|
|
Impairment
|
|
|
Impairment
|
|
|
Total
|
|
|
|
Recorded
|
|
|
Associated
|
|
|
Recorded
|
|
|
Associated
|
|
|
Recorded
|
|
|
Associated
|
|
(Dollars in thousands)
|
|
Investment
|
|
|
Allowance
|
|
|
Investment
|
|
|
Allowance
|
|
|
Investment
|
|
|
Allowance
|
|
Construction & land development
|
|
$
|
932
|
|
|
$
|
145
|
|
|
$
|
229,529
|
|
|
$
|
1,429
|
|
|
$
|
230,461
|
|
|
$
|
1,574
|
|
Commercial real estate
|
|
|
7,755
|
|
|
|
244
|
|
|
|
1,444,850
|
|
|
|
9,679
|
|
|
|
1,452,605
|
|
|
|
9,923
|
|
Residential real estate
|
|
|
20,459
|
|
|
|
1,255
|
|
|
|
969,983
|
|
|
|
6,168
|
|
|
|
990,442
|
|
|
|
7,423
|
|
Commercial and financial
|
|
|
758
|
|
|
|
209
|
|
|
|
463,526
|
|
|
|
5,251
|
|
|
|
464,284
|
|
|
|
5,460
|
|
Consumer
|
|
|
482
|
|
|
|
58
|
|
|
|
178,669
|
|
|
|
1,562
|
|
|
|
179,151
|
|
|
|
1,620
|
|
|
|
$
|
30,386
|
|
|
$
|
1,911
|
|
|
$
|
3,286,557
|
|
|
$
|
24,089
|
|
|
$
|
3,316,943
|
|
|
$
|
26,000
|
|
|
|
At December 31, 2016
|
|
|
|
Individually Evaluated for
|
|
|
Collectively Evaluated for
|
|
|
|
|
|
|
|
|
|
Impairment
|
|
|
Impairment
|
|
|
Total
|
|
|
|
Recorded
|
|
|
Associated
|
|
|
Recorded
|
|
|
Associated
|
|
|
Recorded
|
|
|
Associated
|
|
(Dollars in thousands)
|
|
Investment
|
|
|
Allowance
|
|
|
Investment
|
|
|
Allowance
|
|
|
Investment
|
|
|
Allowance
|
|
Construction & land development
|
|
$
|
277
|
|
|
$
|
0
|
|
|
$
|
159,839
|
|
|
$
|
1,219
|
|
|
$
|
160,116
|
|
|
$
|
1,219
|
|
Commercial real estate
|
|
|
10,204
|
|
|
|
395
|
|
|
|
1,335,832
|
|
|
|
8,878
|
|
|
|
1,346,036
|
|
|
|
9,273
|
|
Residential real estate
|
|
|
22,038
|
|
|
|
2,059
|
|
|
|
814,250
|
|
|
|
5,424
|
|
|
|
836,288
|
|
|
|
7,483
|
|
Commercial and financial
|
|
|
199
|
|
|
|
0
|
|
|
|
369,449
|
|
|
|
3,636
|
|
|
|
369,648
|
|
|
|
3,636
|
|
Consumer
|
|
|
0
|
|
|
|
0
|
|
|
|
154,452
|
|
|
|
1,789
|
|
|
|
154,452
|
|
|
|
1,789
|
|
|
|
$
|
32,718
|
|
|
$
|
2,454
|
|
|
$
|
2,833,822
|
|
|
$
|
20,946
|
|
|
$
|
2,866,540
|
|
|
$
|
23,400
|
|
Loans collectively evaluated for
impairment included loans acquired in connection with the acquisition of GulfShore Bancshares, Inc. (“GulfShore”)
on April 7, 2017, Floridian Financial Group, Inc. (“Floridian”) on March 11, 2016, certain branches from BMO
Harris Bank, N.A. (“BMO”) on June 3, 2016, Grand Bankshares, Inc. (“Grand”) on July 17, 2015, and The
BANKshares, Inc. on October 1, 2014 that are not PCI loans. At June 30, 2017, the remaining fair value adjustments for loans
acquired was approximately $15.5 million, or approximately 2.54% of the outstanding aggregate PUL balances. At December 31,
2016, the remaining fair value adjustments for loans acquired was approximately $13.7 million, or approximately 3.11% of the
outstanding aggregate PUL balances. These amounts, representing the remaining fair value discount of each PUL, are accreted
into interest income over the remaining lives of the related loans on a level yield basis.
The table below summarizes PCI loans that
were individually evaluated for impairment based on expected cash flows at June 30, 2017 and December 31, 2016:
|
|
PCI Loans Individually Evaluated for Impairment
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Recorded
|
|
|
Associated
|
|
|
Recorded
|
|
|
Associated
|
|
(Dollars in thousands)
|
|
Investment
|
|
|
Allowance
|
|
|
Investment
|
|
|
Allowance
|
|
Construction & land development
|
|
$
|
113
|
|
|
$
|
0
|
|
|
$
|
114
|
|
|
$
|
0
|
|
Commercial real estate
|
|
|
11,463
|
|
|
|
0
|
|
|
|
11,257
|
|
|
|
0
|
|
Residential real estate
|
|
|
702
|
|
|
|
0
|
|
|
|
684
|
|
|
|
0
|
|
Commercial and financial
|
|
|
854
|
|
|
|
0
|
|
|
|
941
|
|
|
|
0
|
|
Consumer
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
$
|
13,132
|
|
|
$
|
0
|
|
|
$
|
12,996
|
|
|
$
|
0
|
|
NOTE G — SECURITIES SOLD UNDER AGREEMENTS
TO REPURCHASE
Securities sold under agreements to repurchase
are accounted for as secured borrowings. For securities sold under agreements to repurchase, the Company is obligated to provide
additional collateral in the event of a significant decline in fair value of collateral pledged. At June 30, 2017 and December
31, 2016, Company securities sold under agreements to repurchase and securities pledged were as follows by collateral type and
maturity:
(Dollars in thousands)
|
|
Overnight and Continuous Maturity
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Mortgage backed securities and collateralized mortgage obligations of U.S. Government Sponsored Entities
|
|
$
|
167,558
|
|
|
$
|
204,202
|
|
NOTE H – NONINTEREST INCOME AND EXPENSES
Detail of noninterest income and expenses as of
the three and six months ended June 30, 2017 and 2016 follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Noninterest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposits
|
|
$
|
2,435
|
|
|
$
|
2,230
|
|
|
$
|
4,857
|
|
|
$
|
4,359
|
|
Trust income
|
|
|
917
|
|
|
|
838
|
|
|
|
1,797
|
|
|
|
1,644
|
|
Mortgage banking fees
|
|
|
1,272
|
|
|
|
1,364
|
|
|
|
2,824
|
|
|
|
2,363
|
|
Brokerage commissions and fees
|
|
|
351
|
|
|
|
470
|
|
|
|
728
|
|
|
|
1,101
|
|
Marine finance fees
|
|
|
326
|
|
|
|
279
|
|
|
|
460
|
|
|
|
420
|
|
Interchange income
|
|
|
2,671
|
|
|
|
2,370
|
|
|
|
5,165
|
|
|
|
4,587
|
|
Other deposit-based EFT fees
|
|
|
114
|
|
|
|
116
|
|
|
|
254
|
|
|
|
243
|
|
BOLI income
|
|
|
757
|
|
|
|
379
|
|
|
|
1,490
|
|
|
|
1,220
|
|
Other income
|
|
|
1,624
|
|
|
|
1,065
|
|
|
|
2,797
|
|
|
|
1,804
|
|
|
|
|
10,467
|
|
|
|
9,111
|
|
|
|
20,372
|
|
|
|
17,741
|
|
Securities gains, net
|
|
|
21
|
|
|
|
47
|
|
|
|
21
|
|
|
|
136
|
|
TOTAL
|
|
$
|
10,488
|
|
|
$
|
9,158
|
|
|
$
|
20,393
|
|
|
$
|
17,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages
|
|
$
|
18,375
|
|
|
$
|
13,884
|
|
|
$
|
33,744
|
|
|
$
|
27,283
|
|
Employee benefits
|
|
|
2,935
|
|
|
|
2,521
|
|
|
|
6,003
|
|
|
|
5,003
|
|
Outsourced data processing costs
|
|
|
3,456
|
|
|
|
2,803
|
|
|
|
6,725
|
|
|
|
7,242
|
|
Telephone/data lines
|
|
|
648
|
|
|
|
539
|
|
|
|
1,180
|
|
|
|
1,067
|
|
Occupancy
|
|
|
4,421
|
|
|
|
3,645
|
|
|
|
7,578
|
|
|
|
6,617
|
|
Furniture and equipment
|
|
|
1,679
|
|
|
|
1,283
|
|
|
|
3,070
|
|
|
|
2,281
|
|
Marketing
|
|
|
1,074
|
|
|
|
957
|
|
|
|
1,996
|
|
|
|
2,006
|
|
Legal and professional fees
|
|
|
3,276
|
|
|
|
2,656
|
|
|
|
5,408
|
|
|
|
5,013
|
|
FDIC assessments
|
|
|
650
|
|
|
|
643
|
|
|
|
1,220
|
|
|
|
1,187
|
|
Amortization of intangibles
|
|
|
839
|
|
|
|
593
|
|
|
|
1,558
|
|
|
|
1,039
|
|
Asset disposition expense
|
|
|
136
|
|
|
|
160
|
|
|
|
189
|
|
|
|
250
|
|
Net loss (gain) on other real estate owned and
repossessed assets
|
|
|
161
|
|
|
|
(201
|
)
|
|
|
(185
|
)
|
|
|
(252
|
)
|
Early redemption cost for Federal Home Loan Bank borrowings
|
|
|
0
|
|
|
|
1,777
|
|
|
|
0
|
|
|
|
1,777
|
|
Other
|
|
|
3,975
|
|
|
|
3,548
|
|
|
|
7,885
|
|
|
|
6,636
|
|
TOTAL
|
|
$
|
41,625
|
|
|
$
|
34,808
|
|
|
$
|
76,371
|
|
|
$
|
67,149
|
|
NOTE I — EQUITY CAPITAL
On February 21, 2017, the Company
completed a public offering of 2,702,500 shares of common stock, generating net proceeds of $55.6 million. In addition,
CapGen Capital Group III LP (“CapGen”), in conjunction with the Company’s offering, sold 6,210,000 shares
of the Company’s common stock, with no net proceeds to the Company.
The Company is well capitalized and at
June 30, 2017, the Company and the Company’s principal banking subsidiary, Seacoast National Bank, or “Seacoast Bank”,
met the common equity Tier 1 capital ratio (CET1) regulatory threshold of 6.5% for well-capitalized institutions under the
Basel III standardized transition approach, as well as risk-based and leverage ratio requirements for well capitalized banks under
the regulatory framework for prompt corrective action.
NOTE J — CONTINGENCIES
The Company and its subsidiaries, because
of the nature of their businesses, are at all times subject to legal actions, threatened or filed. Management presently believes
that none of the legal proceedings to which it is a party are likely to have a material adverse effect on the Company’s consolidated
financial condition, operating results or cash flows, although no assurance can be given with respect to the ultimate outcome of
any such claim or litigation.
NOTE K — FAIR VALUE
Under ASC 820, fair value measurements
for items measured at fair value on a recurring and nonrecurring basis at June 30, 2017 and December 31, 2016 included:
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Fair Value
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
(Dollars in thousands)
|
|
Measurements
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
At June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities (1)
|
|
$
|
1,016,744
|
|
|
$
|
100
|
|
|
$
|
1,016,644
|
|
|
$
|
0
|
|
Loans held for sale (2)
|
|
|
22,262
|
|
|
|
0
|
|
|
|
22,262
|
|
|
|
0
|
|
Loans (3)
|
|
|
10,710
|
|
|
|
0
|
|
|
|
10,304
|
|
|
|
406
|
|
Other real estate owned (4)
|
|
|
8,497
|
|
|
|
0
|
|
|
|
0
|
|
|
|
8,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities (1)
|
|
$
|
950,503
|
|
|
$
|
100
|
|
|
$
|
950,403
|
|
|
$
|
0
|
|
Loans held for sale (2)
|
|
|
15,332
|
|
|
|
0
|
|
|
|
15,332
|
|
|
|
0
|
|
Loans (3)
|
|
|
4,120
|
|
|
|
0
|
|
|
|
3,170
|
|
|
|
950
|
|
Other real estate owned (4)
|
|
|
9,949
|
|
|
|
0
|
|
|
|
0
|
|
|
|
9,949
|
|
____________
(1)
See Note D for further detail of fair value of individual investment categories.
(2)
Recurring fair value basis determined using observable market data.
(3)
See Note F. Nonrecurring fair
value adjustments to loans identified as impaired reflect full or partial write-downs that are based on the loan’s observable
market price or current appraised value of the collateral in accordance with ASC 310.
(4)
Fair value is measured on a nonrecurring
basis in accordance with ASC 360
.
The fair value of impaired real
estate loans which are collateral dependent is based on recent real estate appraisals less estimated costs of sale. For
residential real estate impaired loans, appraised values or internal evaluation are based on the comparative sales approach.
These impaired loans are considered level 2 in the fair value hierarchy. For commercial and commercial real estate impaired
loans, evaluations may use either a single valuation approach or a combination of approaches, such as comparative sales, cost
and/or income approach. A significant unobservable input in the income approach is the estimated capitalization rate for a
given piece of collateral. At June 30, 2017, the capitalization rates utilized to determine fair value of the underlying
collateral averaged approximately 7.8%. Adjustments to comparable sales may be made by an appraiser to reflect local market
conditions or other economic factors and may result in changes in the fair value of an asset over time. As such, the fair
value of these impaired loans is considered level 3 in the fair value hierarchy. Impaired loans measured at fair value totaled
$10.7 million with a specific reserve of $0.6 million at June 30, 2017, compared to $4.1 million with a specific reserve of
$0.4 million at December 31, 2016.
Fair value of available for sale
securities is determined using valuation techniques for individual investments as described in Note D.
When appraisals are used to determine fair
value and the appraisals are based on a market approach, the fair value of other real estate owned (“OREO”) is classified
as a level 2 input. When the fair value of OREO is based on appraisals which require significant adjustments to market-based valuation
inputs or apply an income approach based on unobservable cash flows, the fair value of OREO is classified as Level 3.
Transfers between levels of the fair value
hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with
the Company’s monthly and/or quarter-end valuation process.
During the six months ended June 30,
2017, there were no transfers between levels of the fair value hierarchy.
For loans classified as level 3,
the additions totaled $0.1 million for the first six months of 2017, consisting of loans that became impaired during 2017.
Reductions consisted primarily of principal payments and totaled $0.6 million.
Charge-offs recognized upon loan foreclosures
are generally offset by general or specific allocations of the allowance for loan losses and generally do not, and did not during
the reported periods, significantly impact the Company’s provision for loan losses.
For OREO classified as level 3 during the
first six months of 2017, foreclosed loans added $0.4 million and migrated branches taken out of service added
$1.2 million. Reductions summed to $3.1 million and consisted almost entirely of sales of $2.9 million.
The carrying amount and fair value of the Company’s other
significant financial instruments that are not measured at fair value on a recurring basis in the balance sheet as of June 30,
2017 and December 31, 2016 is as follows:
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Carrying
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
(Dollars in thousands)
|
|
Amount
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
At June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity (1)
|
|
$
|
397,096
|
|
|
$
|
0
|
|
|
$
|
397,357
|
|
|
$
|
0
|
|
Time deposits with other banks
|
|
|
16,426
|
|
|
|
0
|
|
|
|
0
|
|
|
|
16,386
|
|
Loans, net
|
|
|
3,293,365
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,277,109
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit liabilities
|
|
|
3,975,458
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,973,456
|
|
Subordinated debt
|
|
|
70,381
|
|
|
|
0
|
|
|
|
55,017
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity (1)
|
|
$
|
372,498
|
|
|
$
|
0
|
|
|
$
|
369,881
|
|
|
$
|
0
|
|
Loans, net
|
|
|
2,852,016
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,840,993
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit liabilities
|
|
|
3,523,245
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,523,322
|
|
Subordinated debt
|
|
|
70,241
|
|
|
|
0
|
|
|
|
54,908
|
|
|
|
0
|
|
(1)
See Note D for further detail of
fair value of individual investment categories.
The short maturity of
Seacoast’s assets and liabilities results in having a significant number of financial instruments whose fair value
equals or closely approximates carrying value. Such financial instruments are reported in the following balance sheet
captions: cash and due from banks, interest bearing deposits with other banks, federal funds purchased, and securities sold
under agreement to repurchase, maturing within 30 days, and FHLB borrowings.
The following methods
and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate
that value at June 30, 2017 and December 31, 2016:
Securities
: U.S. Treasury securities
are reported at fair value utilizing Level 1 inputs. Other securities are reported at fair value utilizing Level 2 inputs.
The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury
yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s
terms and conditions, among other factors.
The Company reviews
the prices supplied by independent pricing services, as well as their underlying pricing methodologies, for reasonableness and
to ensure such prices are aligned with traditional pricing matrices. The fair value of collateralized loan obligations is determined
from broker quotes. From time to time, the Company will validate, on a sample basis, prices supplied by the independent pricing
service by comparison to prices obtained from other brokers and third-party sources or derived using internal models.
Loans
: Fair
values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial
or mortgage. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming
categories. The fair value of loans, except residential mortgages, is calculated by discounting scheduled cash flows through the
estimated maturity using estimated market discount rates that reflect the credit and interest rate risks inherent in the loan.
For residential mortgage loans, fair value is estimated by discounting contractual cash flows adjusting for prepayment assumptions
using discount rates based on secondary market sources. The estimated fair value is not an exit price fair value under ASC 820
when this valuation technique is used.
Loans held for sale
: Fair values
are based upon estimated values received from independent third party purchasers. These loans are intended for sale and the Company
believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual
terms of the loan and in accordance with the Company’s policy on loans held for investment. None of the loans are 90 days
or more past due or on nonaccrual as of June 30, 2017 and December 31, 2016, respectively. Loans held for sale were as follows
at June 30, 2017 and December 31, 2016:
|
|
June 30,
|
|
|
December 31,
|
|
(Dollars in thousands)
|
|
2017
|
|
|
2016
|
|
Aggregate fair value
|
|
$
|
22,262
|
|
|
$
|
15,332
|
|
Contractual balance
|
|
|
21,640
|
|
|
|
14,904
|
|
Gains (losses)
|
|
|
622
|
|
|
|
428
|
|
Deposit Liabilities
: The fair value of demand deposits,
savings accounts and money market deposits is the amount payable at the reporting date. The fair value of fixed maturity certificates
of deposit is estimated using the rates currently offered for funding of similar remaining maturities.
NOTE L — BUSINESS COMBINATIONS
Acquisition of Floridian Financial
Group, Inc.
On March 11, 2016, the Company completed
its acquisition of Floridian, the parent company of Floridian Bank. Simultaneously,
upon completion of the merger, Floridian’s wholly owned subsidiary bank, Floridian Bank, was merged with and into Seacoast
Bank. Floridian, headquartered in Lake Mary, Florida, operated 10 branches in Orlando and Daytona Beach, of which several were
consolidated with Seacoast locations. This acquisition added approximately $417 million in total assets, $337 million in deposits,
and $266 million in loans to Seacoast.
The Company acquired 100% of the outstanding
common stock of Floridian. Under the terms of the definitive agreement, Floridian shareholders received, at their election, (i)
the combination of $4.29 in cash and 0.5291 shares of Seacoast common stock, (ii) $12.25 in cash, or (iii) 0.8140 shares of Seacoast
common stock, subject to a customary proration mechanism so that the aggregate consideration mix equaled 35% cash and 65% Seacoast
shares (based on Seacoast’s closing price of $15.47 per share on March 11, 2016).
The following table represents the purchase
price paid to Floridian shareholders in connection with the acquisition:
|
|
March 11, 2016
|
|
Shares exchanged for cash
|
|
$
|
26,699,000
|
|
|
|
|
|
|
Number of Floridian Financial Group, Inc. common shares outstanding
|
|
|
6,222,119
|
|
Per share exchange ratio
|
|
|
0.5289
|
|
Number of shares of common stock issued
|
|
|
3,291,066
|
|
Multiplied by common stock price per share on March 11, 2016
|
|
$
|
15.47
|
|
Value of common stock issued
|
|
|
50,912,791
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
77,611,791
|
|
The acquisition was accounted for under
the acquisition method in accordance with ASC Topic 805,
Business Combinations
. The Company recognized goodwill on this
acquisition which is nondeductible for tax purposes as this acquisition was a nontaxable transaction. The goodwill was calculated
based on the fair values of the assets acquired and liabilities assumed as of the acquisition date. Loans that were nonaccrual
and all loan relationships identified as impaired as of the acquisition date were considered by management to be credit impaired
and were accounted for pursuant to ASC Topic 310-30.
|
|
|
|
|
Measurement
|
|
|
|
|
|
|
Initial Report
|
|
|
Period
|
|
|
As Adjusted
|
|
Date of acquisition
|
|
March 11, 2016
|
|
|
Adjustments
|
|
|
March 11, 2016
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
28,243
|
|
|
$
|
0
|
|
|
$
|
28,243
|
|
Investment securities
|
|
|
66,912
|
|
|
|
95
|
|
|
|
67,007
|
|
Loans, net
|
|
|
268,249
|
|
|
|
(2,112
|
)
|
|
|
266,137
|
|
Fixed assets
|
|
|
7,801
|
|
|
|
(628
|
)
|
|
|
7,173
|
|
Core deposit intangibles
|
|
|
3,375
|
|
|
|
0
|
|
|
|
3,375
|
|
Goodwill
|
|
|
29,985
|
|
|
|
1,647
|
|
|
|
31,632
|
|
Other assets
|
|
|
12,879
|
|
|
|
998
|
|
|
|
13,877
|
|
|
|
$
|
417,444
|
|
|
$
|
0
|
|
|
$
|
417,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
337,341
|
|
|
$
|
0
|
|
|
$
|
337,341
|
|
Other liabilities
|
|
|
2,492
|
|
|
|
0
|
|
|
|
2,492
|
|
|
|
$
|
339,833
|
|
|
$
|
0
|
|
|
$
|
339,833
|
|
The table below presents information with
respect to the fair value of acquired loans, as well as their unpaid principal balance (“Book Balance”) at acquisition
date.
|
|
March 11, 2016
|
|
(In thousands)
|
|
Book Balance
|
|
|
Fair Value
|
|
Loans:
|
|
|
|
|
|
|
|
|
Single family residential real estate
|
|
$
|
38,304
|
|
|
$
|
37,367
|
|
Commercial real estate
|
|
|
172,531
|
|
|
|
167,105
|
|
Construction/development/land
|
|
|
20,546
|
|
|
|
18,108
|
|
Commercial loans
|
|
|
39,070
|
|
|
|
37,804
|
|
Consumer and other loans
|
|
|
3,385
|
|
|
|
3,110
|
|
Purchased credit-impaired
|
|
|
6,186
|
|
|
|
2,643
|
|
Total acquired loans
|
|
$
|
280,022
|
|
|
$
|
266,137
|
|
For the loans acquired we first segregated
all acquired loans with specifically identified credit deficiency factor(s). The factors we considered to identify loans as Purchased
Credit Impaired (“PCI”) loans were all acquired loans that were nonaccrual, 60 days or more past due, designated as
Troubled Debt Restructured (“TDR”), graded “special mention” or “substandard.” These loans
were then evaluated to determine estimated fair values as of the acquisition date. As required by generally accepted accounting
principles, we are accounting for these loans pursuant to ASC Topic 310-30. The table below summarizes the total contractually
required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the
loans as of March 11, 2016 for purchased credit impaired loans. Contractually required principal and interest payments have been
adjusted for estimated prepayments.
(In thousands)
|
|
March 11, 2016
|
|
|
|
|
|
Contractually required principal and interest
|
|
$
|
8,031
|
|
Non-accretable difference
|
|
|
(4,820
|
)
|
Cash flows expected to be collected
|
|
|
3,211
|
|
Accretable yield
|
|
|
(568
|
)
|
Total purchased credit-impaired loan acquired
|
|
$
|
2,643
|
|
Loans without specifically identified credit
deficiency factors are referred to as Purchased Unimpaired Loans (“PULs”) for disclosure purposes. These loans were
then evaluated to determine estimated fair values as of the acquisition date. Although no specific credit deficiencies were identifiable,
we believe there is an element of risk as to whether all contractual cash flows will be eventually received. Factors that were
considered included the economic environment both nationally and locally as well as the real estate market particularly in Florida.
We have applied ASC Topic 310-20 accounting treatment to the PULs.
The Company believes the deposits assumed
from the acquisition have an intangible value. The Company applied ASC Topic 805, which prescribes the accounting for goodwill
and other intangible assets such as core deposit intangibles, in a business combination. In determining the valuation amount, deposits
were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships.
The Company recognized goodwill of $32
million for this acquisition that is nondeductible for tax purposes. The acquisition of Floridian constitutes a business combination.
Accordingly, the assets acquired and liabilities assumed are presented at their fair values. The determination of fair value required
management to make estimates about discount rates, future expected cash flows, market conditions and other future events that
are highly subjective in nature and subject to change, and in some instances rely on use of third party experts.
Acquisition of BMO Harris Central
Florida Offices, Deposits and Loans
On June 3, 2016, Seacoast Bank
assumed approximately $314 million in deposits related to business and consumer banking customers at a deposit premium of
3.0% of the deposit balances, $63 million in business loans at a loan premium of 0.5%, and fourteen branches of BMO, located
in the Orlando Metropolitan Statistical Area (“MSA”).
The fair values listed are subject to
adjustment. The acquisition is accounted for under the acquisition method in accordance with ASC Topic 805,
Business
Combinations
. Determining fair values of assets and liabilities, especially the loan portfolio and bank premises and
leases related to the fourteen branches acquired, is a complicated process involving significant judgment regarding methods
and assumptions used to calculate estimated fair values.
|
|
|
|
|
Measurement
|
|
|
|
|
|
|
Initial Report
|
|
|
Period
|
|
|
As Adjusted
|
|
Date of acquisition
|
|
June 3, 2016
|
|
|
Adjustments
|
|
|
June 3, 2016
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash from BMO (net of payable)
|
|
$
|
234,094
|
|
|
$
|
0
|
|
|
$
|
234,094
|
|
Loans, net
|
|
|
62,671
|
|
|
|
0
|
|
|
|
62,671
|
|
Fixed assets
|
|
|
3,715
|
|
|
|
0
|
|
|
|
3,715
|
|
Core deposit intangibles
|
|
|
5,223
|
|
|
|
(135
|
)
|
|
|
5,088
|
|
Goodwill
|
|
|
7,645
|
|
|
|
163
|
|
|
|
7,808
|
|
Other assets
|
|
|
952
|
|
|
|
(28
|
)
|
|
|
924
|
|
|
|
$
|
314,300
|
|
|
$
|
0
|
|
|
$
|
314,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
314,248
|
|
|
$
|
0
|
|
|
$
|
314,248
|
|
Other liabilities
|
|
|
52
|
|
|
|
0
|
|
|
|
52
|
|
|
|
$
|
314,300
|
|
|
$
|
0
|
|
|
$
|
314,300
|
|
The table below presents information with
respect to the fair value of acquired loans, as well as their unpaid principal balance (“Book Balance”) at acquisition
date.
|
|
June 3, 2016
|
|
(In thousands)
|
|
Book Balance
|
|
|
Fair Value
|
|
Loans:
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
31,564
|
|
|
$
|
31,200
|
|
Commercial loans
|
|
|
32,479
|
|
|
|
31,471
|
|
Purchased credit-impaired
|
|
|
0
|
|
|
|
0
|
|
Total acquired loans
|
|
$
|
64,043
|
|
|
$
|
62,671
|
|
At June 3, 2016, no loans acquired from
BMO Harris were specifically identified with a credit deficiency factor(s). The factors we consider to identify loans as PCI loans
are acquired loans that were nonaccrual, 60 days or more past due, designated as TDR, graded “special mention” or “substandard.”
PULs were evaluated to determine estimated fair values as of the acquisition date. Although no specific credit deficiencies were
identifiable, we believe there is an element of risk as to whether all contractual cash flows will be eventually received. Factors
that were considered included the economic environment both nationally and locally as well as the real estate market particularly
in Florida. We have applied ASC Topic 310-20 accounting treatment to the PULs.
The Company believes the deposits assumed
from the acquisition have an intangible value. The Company applied ASC Topic 805, which prescribes the accounting for goodwill
and other intangible assets such as core deposit intangibles, in a business combination. In determining the valuation amount, a
third party analyzed the deposits based on factors such as type of deposit, deposit retention, interest rates and age of deposit
relationships.
The Company recognized intangibles
(including goodwill) of approximately $13 million for this acquisition that are deductible for tax purposes over a 15-year
period. The acquisition of BMO’s Orlando banking operations by Seacoast Bank constitutes a business combination.
Accordingly, the assets acquired and liabilities assumed are presented at their fair values. The determination of fair value
requires management to make estimates about discount rates, future expected cash flows, market conditions and other future
events that are highly subjective in nature and subject to change, and in some instances rely on use of third party
experts.
Acquisition of GulfShore Bancshares,
Inc.
On April 7, 2017, the Company completed
its acquisition of GulfShore, the parent company of GulfShore Bank. Simultaneously,
upon completion of the merger, GulfShore’s wholly owned subsidiary bank, GulfShore Bank, was merged with and into Seacoast
Bank. GulfShore, headquartered in Tampa, Florida, operated 3 branches in Tampa and St. Petersburg, of which all have been retained
as Seacoast locations.
The Company acquired 100% of the
outstanding common stock of GulfShore. Under the terms of the definitive agreement, GulfShore shareholders received, for each
share of GulfShore common stock, the combination of $1.47 in cash and 0.4807 shares of Seacoast common stock (based on
Seacoast’s closing price of $23.94 per share on April 7, 2017).
|
|
April 7, 2017
|
|
Shares exchanged for cash
|
|
$
|
8,033,999
|
|
|
|
|
|
|
Number of GulfShore Bancshares, Inc. common shares outstanding
|
|
|
5,464,308
|
|
Per share exchange ratio
|
|
|
0.4807
|
|
Number of shares of common stock issued
|
|
|
2,626,693
|
|
Multiplied by common stock price per share on April 7, 2017
|
|
$
|
23.94
|
|
Value of common stock issued
|
|
|
62,883,030
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
70,917,029
|
|
Merger related charges summed to $4.3
million for the second quarter of 2017, primarily impacting salaries and wages, outsourced data processing costs, and legal and
professional fees. All of these costs were expensed in the second quarter of 2017.
The acquisition was accounted for under
the acquisition method in accordance with ASC Topic 805,
Business Combinations
. The Company recognized goodwill on this
acquisition which is nondeductible for tax purposes as this acquisition was a nontaxable transaction. The goodwill was calculated
based on the fair values of the assets acquired and liabilities assumed as of the acquisition date. The fair values initially assigned
to assets acquired and liabilities assumed are preliminary and could change for up to one year after the closing date of the acquisition
as new information and circumstances relative to closing date fair values are known. Determining fair values of assets and liabilities,
especially the loan portfolio and foreclosed real estate, is a complicated process involving significant judgment regarding methods
and assumptions used to calculate estimated fair values.
|
|
|
|
|
|
Initial Report
|
|
Date of acquisition
|
|
April 7, 2017
|
|
|
|
|
|
Assets:
|
|
|
|
|
Cash, interest bearing deposits and time deposits with other banks
|
|
$
|
55,540
|
|
Investment securities
|
|
|
316
|
|
Loans, net
|
|
|
250,884
|
|
Fixed assets
|
|
|
1,307
|
|
Other real estate owned
|
|
|
13
|
|
Core deposit intangibles
|
|
|
3,927
|
|
Goodwill
|
|
|
37,090
|
|
Other assets
|
|
|
8,572
|
|
|
|
$
|
357,649
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Deposits
|
|
$
|
285,350
|
|
Other liabilities
|
|
|
1,382
|
|
|
|
$
|
286,732
|
|
The table below presents information with
respect to the fair value of acquired loans, as well as their unpaid principal balance (“Book Balance”) at acquisition
date.
|
|
April 7, 2017
|
|
(In thousands)
|
|
Book Balance
|
|
|
Fair Value
|
|
Loans:
|
|
|
|
|
|
|
|
|
Single family residential real estate
|
|
$
|
101,281
|
|
|
$
|
99,598
|
|
Commercial real estate
|
|
|
106,729
|
|
|
|
103,908
|
|
Construction/development/land
|
|
|
13,175
|
|
|
|
11,653
|
|
Commercial loans
|
|
|
32,137
|
|
|
|
32,252
|
|
Consumer and other loans
|
|
|
3,554
|
|
|
|
3,473
|
|
Purchased credit-impaired
|
|
|
0
|
|
|
|
0
|
|
Total acquired loans
|
|
$
|
256,876
|
|
|
$
|
250,884
|
|
No loans acquired were specifically identified
with credit deficiency factor(s), pursuant to ASC Topic 310-30. The factors we considered to identify loans as Purchased Credit
Impaired (“PCI”) loans were all acquired loans that were nonaccrual, 60 days or more past due, designated as Troubled
Debt Restructured (“TDR”), graded “special mention” or “substandard.”
Loans without specifically identified credit
deficiency factors are referred to as Purchased Unimpaired Loans (“PULs”) for disclosure purposes. These loans were
then evaluated to determine estimated fair values as of the acquisition date. Although no specific credit deficiencies were identifiable,
we believe there is an element of risk as to whether all contractual cash flows will be eventually received. Factors that were
considered included the economic environment both nationally and locally as well as the real estate market particularly in Florida.
We have applied ASC Topic 310-20 accounting treatment to the PULs.
The Company believes the deposits assumed
from the acquisition have an intangible value. The Company applied ASC Topic 805, which prescribes the accounting for goodwill
and other intangible assets such as core deposit intangibles, in a business combination. In determining the valuation amount, deposits
were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships.
The Company recognized goodwill of $37
million for this acquisition that is nondeductible for tax purposes. The acquisition of GulfShore constitutes a business combination.
Accordingly, the assets acquired and liabilities assumed are presented at their fair values. The determination of fair value required
management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are
highly subjective in nature and subject to change, and in some instances rely on use of third party experts. These fair value estimates
are considered preliminary and are subject to change for up to one year after the closing date of the acquisition as additional
information becomes available. For GulfShore, fair values as presented for securities, loans, fixed assets, other real estate owned,
and certain other assets and liabilities are necessarily considered preliminary.
Operating results of the Company for the
three months ended June 30, 2017 include the operation of the acquired assets and assumed liabilities since the date of acquisition
of April 7, 2017. Pro-forma data for the three months ended June 30, 2016 and six months ended June 30, 2017 and 2016 listed in
the table below present pro-forma information as if the acquisition occurred at the beginning of 2016.
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(In thousands, except per share amounts)
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
36,720
|
|
|
$
|
84,935
|
|
|
$
|
69,201
|
|
Net income
|
|
|
5,877
|
|
|
|
16,384
|
|
|
|
10,566
|
|
EPS - basic
|
|
|
0.15
|
|
|
|
0.39
|
|
|
|
0.27
|
|
EPS - diluted
|
|
|
0.14
|
|
|
|
0.39
|
|
|
|
0.27
|
|
Proposed Acquisition of Palm
Beach Community Bank
On May 4, 2017, the Company
announced that it had entered into an agreement and plan of merger with Palm Beach Community Bank, a Florida Bank
(“PBCB”). The agreement provides that PBCB will merge with and into Seacoast Bank. PBCB operates four branches in
West Palm Beach, Florida with deposits of approximately $281 million and loans of $290 million. This acquisition is
anticipated to close in the fourth quarter of 2017, subject to the receipt of approvals from regulatory authorities, the
approval of PBCB shareholders and the satisfaction of other closing conditions.
Proposed Acquisition of
NorthStar Bank
On May 18, 2017, the
Company announced that it had entered into an agreement and plan of merger with NorthStar Banking Corporation
(“NSBC”) the holding company for NorthStar Bank, a Florida Bank (“NorthStar”). The agreement provides
that NorthStar will merge with and into Seacoast Bank. NorthStar operates three branches in Tampa, Florida with deposits of
approximately $168 million and loans of $137 million. This acquisition is anticipated to close in the fourth quarter of 2017,
subject to the receipt of approvals from regulatory authorities, the approval of NSBC shareholders and the satisfaction of
other conditions.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and
analysis is to aid in understanding significant changes in the financial condition of Seacoast Banking Corporation of Florida
and its subsidiaries (the “Company”) and their results of operations. Nearly all of the Company’s
operations are contained in its banking subsidiary, Seacoast National Bank (“Seacoast Bank” or the
“Bank”). Such discussion and analysis should be read in conjunction with the Company’s Condensed
Consolidated Financial Statements and the related notes included in this report. For purposes of the following discussion,
the words the “Company,” “we,” “us,” and “our” refer to the combined entities
of Seacoast Banking Corporation of Florida and its direct and indirect wholly owned subsidiaries.
SECOND QUARTER 2017
Strategic Overview
Results demonstrate the impact of our
digital transformation strategy, successful integration of acquisitions, and disciplined loan growth. Seacoast continues to
execute on its plan to grow our core business organically, innovating to build our franchise and increase efficiency, and
grow through mergers and acquisitions. We believe that these investments better position us to increase net income to common
shareholders today and prospectively.
Second Quarter and Year-to-Date 2017 Strategic Highlights
Modernizing How We Sell
|
·
|
The Company reached another significant milestone, surpassing 100,000 households during the quarter.
|
|
·
|
We had a record number of deposit accounts opened outside of the branch this quarter, with 13%
of all deposit accounts being opened through non-branch channels including our website and 24/7 call center.
|
|
·
|
On May 4, 2017, we announced the expansion of our presence in the South Florida market
through our agreement to acquire Palm Beach Community Bank (“PBCB”). This proposed acquisition will build upon
our previous investment, the acquisition of Grand, also located in Palm Beach, completed in July 2015. On
May 18,
2017, we
signed an
agreement to
acquire NorthStar Banking Corporation, the holding company for NorthStar Bank (“NorthStar”),
headquartered in Tampa, Florida. The proposed addition of NorthStar will deepen our presence in the Tampa market and build
on our
acquisition of
GulfShore, also located in Tampa, completed on April 7, 2017.
|
|
·
|
Consumer and small business loans originated in digital channels or by our call center grew 25%
over first quarter 2017 and by 9% year-over-year. These are the fastest growing channels and reflect customers seeking the high
level of convenience across our banking platform.
|
Lowering
Our Cost to Serve
|
·
|
Mobile penetration increased to 32% of eligible primary consumer checking customers from 28%
in June of last year.
|
|
·
|
39% of checks are now deposited outside the branch network, compared to 33% in June of last
year.
|
|
·
|
In the first half of 2017, we consolidated five banking center locations. Costs associated with
closures in the second quarter were $1.9 million, and the associated benefits are expected to be more fully realized in the second
half of the year.
|
|
·
|
Customer adoption of more convenient digital channels continues to grow. In June 2017, our non-teller
transactions made up 50% of our total transaction volume, up from 41% two years ago. We expect this shift in customer preference
to continue to accelerate, requiring continued focus on building a digitally integrated business model.
|
Driving Improvements in How Our Business Operates
|
·
|
We recognized savings in the quarter due to the successful renegotiation of our agreement with
a key technology and digital services provider. The agreement expands digital banking capabilities, improves service level agreements
and increases our ability to scale.
|
|
·
|
In the first quarter 2017, by opening a second call center in Orlando, we expanded our ability
to support growth and our customers’ ever-increasing utilization of our 24/7 service model. This contributed to an increase
in expenses in the current quarter by approximately $200,000, while providing us with access to a larger talent pool and helping
strengthen our business continuity plan.
|
|
·
|
During the first half of 2017, we have invested to upgrade core infrastructure and relocate our
primary data center to a hardened facility dedicated to providing resilient infrastructure services.
|
Scaling and Evolving Our Culture
|
·
|
Earlier this year Associates participated in our annual engagement survey, which measures items
such as job satisfaction and commitment to our customers. Key scores in the survey rose across the board, surpassing the 90th percentile
norm for employee engagement.
|
|
·
|
We welcomed 36 associates from GulfShore in April 2017. We continue to grow our talent base in
this highly
attractive market.
Joseph Caballero, former CEO of GulfShore, will lead Seacoast’s efforts in Tampa accepting a role as
Tampa market executive. Joe brings significant experience operating in the Tampa MSA, with over 25 years’ experience
in banking and
middle market lending.
|
|
·
|
Julie Kleffel, EVP and head of community banking was named an Orlando Business Journal 2017 Business
Executive of the Year. She was recognized as part of the publication's annual Women Who Mean Business awards in April.
|
Second
quarter 2017 results and guidance for 2017
|
·
|
For the second quarter of 2017, Seacoast reported net income of $7.7 million or $0.18 per average
common diluted share, compared to $7.9 million or $0.20 per average common diluted share for the first quarter 2017, and $5.3 million
or $0.14 per average common diluted share in the second quarter last year. For the six months ended June 30, 2017, net income was
$15.6 million compared to $9.3 million for six months ended June 30, 2016.
Adjusted net income
1
totaled $12.7 million or $0.29 per average common diluted share for the second quarter of 2017, compared to adjusted net income
of $10.3 million or $0.26 per average common diluted share for the first quarter of 2017, and adjusted net income of $9.2 million
or $0.24 per average common diluted share a year ago. For the six months ended June 30, 2017, adjusted net income
1
was
$22.9 million compared to $16.2 million for the six months ended June 30, 2016.
|
|
·
|
Our merger with GulfShore Bank in Tampa, Florida in April 2017, and expected mergers with
PBCB
in
West Palm
Beach, Florida in the fourth quarter 2017 and NorthStar in Tampa, Florida in the fourth quarter 2017, together with organic
and acquisition-related revenue growth momentum and cost reductions, is expected to drive earnings improvement over the
balance of 2017 and into 2018.
|
|
·
|
Seacoast management maintains its established goal of achieving adjusted diluted earnings per share
1
of $1.28 to $1.32 for 2017.
|
1
Non-GAAP measure, see “Explanation of Certain Non-GAAP Financial Measures”.
Financial Condition
Total assets increased $900 million or
20.5% from June 30, 2016 to $5.28 billion at June 30, 2017, driven by the acquisition of GulfShore in April of 2017, along with
organic growth.
Loan Portfolio
Total loans (net of unearned income
and excluding the allowance for loan losses) were $3.33 billion at June 30, 2017, $714.0 million or 27.3% more than at June
30, 2016, and $450.5 million or 15.6% more than at December 31, 2016. The GulfShore acquisition on April 7, 2017 contributed
$250.9 million in loans. Also, during the last six months of 2016 and first quarter of 2017, we purchased five separate
mortgage loan pools aggregating to $106.5 million, and a marine loan pool of $16.0 million (a total of $122.5 million in
loans purchased), and sold two seasoned mortgage portfolio pools (summing to $70.6 million). Loan pools acquired have a
weighted average yield of 3.4%, with $122.5 million adjustable rate, and contain borrowers with an average FICO score above
740. An $11.0 million Small Business Administration (“SBA”) loan pool acquired in the second quarter of 2017 has
a weighted average yield of 3.0% and is zero risk weighted for capital calculations. Success in commercial lending through
our legacy franchise and through our Accelerate banking model has increased loan growth. Analytics and digital marketing
have further fueled loan growth in the consumer and small business channels.
The following tables detail loan portfolio
composition at June 30, 2017, December 31, 2016 and June 30, 2016 for portfolio loans, purchase credit impaired loans (“PCI”)
and purchased unimpaired loans (“PUL”) as defined in Note E-Loans.
June 30, 2017
|
|
Portfolio Loans
|
|
|
PCI Loans
|
|
|
PUL's
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Construction and land development
|
|
$
|
181,334
|
|
|
$
|
113
|
|
|
$
|
49,127
|
|
|
$
|
230,574
|
|
Commercial real estate
|
|
|
1,098,634
|
|
|
|
11,463
|
|
|
|
353,971
|
|
|
|
1,464,068
|
|
Residential real estate
|
|
|
874,753
|
|
|
|
702
|
|
|
|
115,689
|
|
|
|
991,144
|
|
Commercial and financial
|
|
|
393,213
|
|
|
|
854
|
|
|
|
71,071
|
|
|
|
465,138
|
|
Consumer
|
|
|
174,376
|
|
|
|
0
|
|
|
|
4,219
|
|
|
|
178,595
|
|
Other loans
|
|
|
556
|
|
|
|
0
|
|
|
|
0
|
|
|
|
556
|
|
NET LOAN BALANCES
(1)
|
|
$
|
2,722,866
|
|
|
$
|
13,132
|
|
|
$
|
594,077
|
|
|
$
|
3,330,075
|
|
December 31, 2016
|
|
Portfolio Loans
|
|
|
PCI Loans
|
|
|
PUL's
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Construction and land development
|
|
$
|
137,480
|
|
|
$
|
114
|
|
|
$
|
22,522
|
|
|
$
|
160,116
|
|
Commercial real estate
|
|
|
1,041,915
|
|
|
|
11,257
|
|
|
|
304,420
|
|
|
|
1,357,592
|
|
Residential real estate
|
|
|
784,290
|
|
|
|
684
|
|
|
|
51,813
|
|
|
|
836,787
|
|
Commercial and financial
|
|
|
308,731
|
|
|
|
941
|
|
|
|
60,917
|
|
|
|
370,589
|
|
Consumer
|
|
|
152,927
|
|
|
|
0
|
|
|
|
1,018
|
|
|
|
153,945
|
|
Other loans
|
|
|
507
|
|
|
|
0
|
|
|
|
0
|
|
|
|
507
|
|
NET LOAN BALANCES
(1)
|
|
$
|
2,425,850
|
|
|
$
|
12,996
|
|
|
$
|
440,690
|
|
|
$
|
2,879,536
|
|
June 30, 2016
|
|
Portfolio Loans
|
|
|
PCI Loans
|
|
|
PUL's
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Construction and land development
|
|
$
|
115,789
|
|
|
$
|
114
|
|
|
$
|
26,484
|
|
|
$
|
142,387
|
|
Commercial real estate
|
|
|
849,537
|
|
|
|
11,836
|
|
|
|
378,135
|
|
|
|
1,239,508
|
|
Residential real estate
|
|
|
723,297
|
|
|
|
688
|
|
|
|
70,336
|
|
|
|
794,321
|
|
Commercial and financial
|
|
|
245,821
|
|
|
|
1,014
|
|
|
|
76,631
|
|
|
|
323,466
|
|
Consumer
|
|
|
112,580
|
|
|
|
0
|
|
|
|
2,933
|
|
|
|
115,513
|
|
Other loans
|
|
|
857
|
|
|
|
0
|
|
|
|
0
|
|
|
|
857
|
|
NET LOAN BALANCES
(1)
|
|
$
|
2,047,881
|
|
|
$
|
13,652
|
|
|
$
|
554,519
|
|
|
$
|
2,616,052
|
|
|
(1)
|
Net loan balances at June 30, 2017, December 31, 2016 and June 30, 2016 are net of deferred
costs of $10.6 million, $10.6 million, and $9.7 million, respectively.
|
Note: Commercial real estate
includes owner-occupied balances of $654.8 million, $623.8 million, and $590.1 million, for June 30, 2017, December 31, 2016 and
June 30, 2016, respectively.
Commercial real estate mortgages
increased $224.6 million or 18.1% to $1.46 billion at June 30, 2017, compared to June 30, 2016, a result of improving loan
production and loans acquired in the GulfShore merger. Office building loans of $400.7 million or 27.4% of commercial real
estate mortgages comprise our largest concentration, with a substantial portion owner-occupied. Portfolio composition also
includes lending for retail trade, industrial, healthcare, churches and educational facilities, recreation, multifamily,
mobile home parks, lodging, restaurants, agriculture, convenience stores, marinas, and other types of real estate.
The Company’s ten largest commercial
real estate funded and unfunded loan relationships at June 30, 2017 aggregated to $153.4 million (versus $126.9 million at June
30, 2016), of which $146.9 million was funded. The Company’s 73 commercial real estate relationships in excess of $5 million
totaled $612.2 million, of which $548.7 million was funded at June 30, 2017 (compared to 59 relationships of $473.3 million at
June 30, 2016, of which $413.2 million was funded).
Fixed rate and adjustable rate loans secured
by commercial real estate, excluding construction loans, totaled approximately $1.112 billion and $352 million, respectively, at
June 30, 2017, compared to $908 million and $332 million, respectively, at June 30, 2016
.
Reflecting the impact of organic loan
growth and the GulfShore loan acquisition, commercial and financial loans (“C&I”) outstanding at June 30,
2017 increased to $465.1 million, up 43.8% from $323.5 million at June 30, 2016. Commercial lending activities are directed
principally towards businesses whose demand for funds are within the Company’s lending limits, such as small- to
medium-sized professional firms, retail and wholesale outlets, and light industrial and manufacturing concerns. Such
businesses are smaller and subject to the risks of lending to small to medium sized businesses, including, but not limited
to, the effects of a downturn in the local economy, possible business failure, and insufficient cash flows.
Residential mortgage loans increased
$196.8 million or 24.8% from June 30, 2016 to $991.2 million as of June 30, 2017. Substantially all residential originations
have been underwritten to conventional loan agency standards, including loans having balances that exceed agency value
limitations. During the first quarter of 2017, a $43 million pool of whole loan adjustable rate mortgages with a weighted
average yield of 3.2% and average FICO score of 751 was acquired and added to the portfolio. At June 30, 2017, approximately
$489 million or 49% of the Company’s residential mortgage balances were adjustable 1-4 family mortgage loans (including
hybrid adjustable rate mortgages). Fixed rate mortgages totaled approximately $292 million (29% of the residential mortgage
portfolio) at June 30, 2017, of which 15- and 30-year mortgages totaled $22 million and $178 million, respectively. Remaining
fixed rate balances were comprised of home improvement loans totaling $92 million, most with maturities of 10 years or less
and home equity lines of credit, primarily floating rates, totaling $210 million at June 30, 2017. In comparison, loans
secured by residential properties having fixed rates totaled $126 million at June 30, 2016, with 15- and 30-year fixed rate
residential mortgages totaling $25 million and $101 million, respectively, and home equity mortgages and lines of credit
totaled $84 million and $144 million, respectively.
The Company also provides consumer loans
(including installment loans, loans for automobiles, boats, and other personal, family and household purposes) which increased
$63.1 million or 54.6% year over year and totaled $178.6 million (versus $115.5 million at June 30, 2016). Of the $63.1 million
increase, $23.5 million was in marine loans, $3.0 million in automobile and truck loans, and $36.6 million in other consumer loans.
Marine loans at June 30, 2017 included $12.2 million in purchased loan pools acquired during the third quarter of 2016.
At June 30, 2017, the Company had unfunded
commitments to make loans of $684 million, compared to $504 million at June 30, 2016.
Loan Concentrations
The Company has developed guardrails to
manage loan types that are most impacted by stressed market conditions in order to achieve lower levels of credit loss volatility
in the future. Commercial and commercial real estate loan relationships greater than $10 million totaled $231.0 million and represented
7% of the total portfolio at June 30, 2017, compared to $161.7 million or 13% at year-end 2010.
Concentrations in total construction and
land development loans and total CRE loans are maintained well below regulatory limits. Construction and land development and commercial
real estate loan concentrations as a percentage of total risk based capital, were stable at 49% and 217%, respectively, at June
30, 2017. Regulatory guidance suggests limits of 100% and 300%, respectively.
The Company defines commercial real estate
in accordance with the guidance on “Concentrations in Commercial Real Estate Lending” (the “Guidance”)
issued by the federal bank regulatory agencies in 2006, which defines commercial real estate (“CRE”) loans as exposures
secured by land development and construction, including 1-4 family residential construction, multi-family property, and non-farm
nonresidential property where the primary or a significant source of repayment is derived from rental income associated with the
property (i.e. loans for which 50 percent or more of the source of repayment comes from third party, non-affiliated, rental income)
or the proceeds of the sale, refinancing, or permanent financing of the property. Loans to real estate investment trusts, or “REITs”,
and unsecured loans to developers that closely correlate to the inherent risks in CRE markets would also be considered CRE loans
under the Guidance. Loans on owner occupied CRE are generally excluded.
Nonperforming Loans, Troubled Debt Restructurings, Other
Real Estate Owned, and Credit Quality
Nonperforming assets (“NPAs”)
at June 30, 2017 totaled $25.7 million, and were comprised of $10.5 million of nonaccrual portfolio loans, $6.6 million of nonaccrual
and accruing past due 90 days or more purchased loans, $1.8 million of non-acquired other real estate owned (“OREO”),
$1.7 million of acquired OREO and $5.1 million of branches out of service. NPAs increased from $24.0 million recorded as of June
30, 2016 (comprised of $10.9 million of nonaccrual portfolio loans, $4.4 million of nonaccrual purchased loans, $3.8 million of
non-acquired OREO, $1.6 million of acquired OREO, and $3.3 million of branches out of service). At June 30, 2017, approximately
97% of nonaccrual loans were secured with real estate. See the tables below for details about nonaccrual loans. At June 30, 2017,
nonaccrual loans were written down by approximately $3.2 million or 16% of the original loan balance (including specific impairment
reserves). During the twelve months ended June 30, 2017, OREO amounts related to branches taken out of service that are actively
being marketed increased $1.8 million while OREO for foreclosed properties remained level.
The Company’s asset mitigation staff
handles all foreclosure actions together with outside legal counsel.
The Company pursues loan restructurings
in selected cases where it expects to realize better values than may be expected through traditional collection activities. The
Company has worked with retail mortgage customers, when possible, to achieve lower payment structures in an effort to avoid foreclosure.
TDRs have been a part of the Company’s loss mitigation activities and can include rate reductions, payment extensions and
principal deferrals. Company policy requires TDRs that are classified as nonaccrual loans after restructuring remain on nonaccrual
until performance can be verified, which usually requires six months of performance under the restructured loan terms. Accruing
restructured loans totaled $16.9 million at June 30, 2017 compared to $20.3 million at June 30, 2016. Accruing TDRs are excluded
from our nonperforming asset ratios. The tables below set forth details related to nonaccrual and accruing restructured loans.
|
|
|
|
|
Accruing
|
|
June 30,2017
|
|
Nonaccrual Loans
|
|
|
Restructured
|
|
(Dollars in thousands)
|
|
NonCurrent
|
|
|
Performing
|
|
|
Total
|
|
|
Loans
|
|
Construction & land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
125
|
|
|
$
|
283
|
|
|
$
|
408
|
|
|
$
|
0
|
|
Commercial
|
|
|
80
|
|
|
|
0
|
|
|
|
80
|
|
|
|
37
|
|
Individuals
|
|
|
0
|
|
|
|
181
|
|
|
|
181
|
|
|
|
225
|
|
|
|
|
205
|
|
|
|
464
|
|
|
|
669
|
|
|
|
262
|
|
Residential real estate mortgages
|
|
|
1,798
|
|
|
|
8,319
|
|
|
|
10,117
|
|
|
|
10,339
|
|
Commercial real estate mortgages
|
|
|
4,937
|
|
|
|
776
|
|
|
|
5,713
|
|
|
|
5,795
|
|
Real estate loans
|
|
|
6,940
|
|
|
|
9,559
|
|
|
|
16,499
|
|
|
|
16,396
|
|
Commercial and financial
|
|
|
304
|
|
|
|
43
|
|
|
|
347
|
|
|
|
197
|
|
Consumer
|
|
|
21
|
|
|
|
112
|
|
|
|
133
|
|
|
|
348
|
|
|
|
$
|
7,265
|
|
|
$
|
9,714
|
|
|
$
|
16,979
|
|
|
$
|
16,941
|
|
At June 30, 2017 and 2016, total TDRs (performing
and nonperforming) were comprised of the following loans by type of modification:
|
|
2017
|
|
|
2016
|
|
(Dollars in thousands)
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
Rate reduction
|
|
|
74
|
|
|
$
|
13,684
|
|
|
|
86
|
|
|
$
|
15,122
|
|
Maturity extended with change in terms
|
|
|
53
|
|
|
|
6,360
|
|
|
|
61
|
|
|
|
8,085
|
|
Chapter 7 bankruptcies
|
|
|
31
|
|
|
|
2,055
|
|
|
|
41
|
|
|
|
2,515
|
|
Not elsewhere classified
|
|
|
12
|
|
|
|
1,293
|
|
|
|
14
|
|
|
|
1,674
|
|
|
|
|
170
|
|
|
$
|
23,392
|
|
|
|
202
|
|
|
$
|
27,396
|
|
During the first six months of 2017, newly
identified TDRs totaled $67,000, compared to $2.0 million for all of 2016. Loan modifications are not reported in calendar years
after modification if the loans were modified at an interest rate equal to the yields of new loan originations with comparable
risk and the loans are performing based on the terms of the restructuring agreements. No accruing loans that were restructured
within the twelve months preceding June 30, 2017 defaulted during the twelve months ended June 30, 2017, or for 2016. A restructured
loan is considered in default when it becomes 60 days or more past due under the modified terms, has been transferred to nonaccrual
status, or has been transferred to OREO.
At June 30, 2017, loans (excluding PCI)
totaling $30.4 million were considered impaired (comprised of total nonaccrual, loans 90 days or more past due, and TDRs) and $1.9
million of the allowance for loan losses was allocated for potential losses on these loans, compared to $31.3 million and $2.3
million, respectively, at June 30, 2016.
In accordance with regulatory reporting
requirements, loans are placed on nonaccrual following the Retail Classification of Loan interagency guidance. Typically
loans 90 days or more past due are reviewed for impairment, and if deemed impaired, are placed on nonaccrual. Once impaired,
the current fair market value of the collateral is assessed and a specific reserve and/or charge-off taken. Quarterly thereafter,
the loan carrying value is analyzed and any changes are appropriately made as described above.
Cash and Cash Equivalents and Liquidity
Risk Management
Cash and cash equivalents (including interest
bearing deposits), totaled $108.2 million on a consolidated basis at June 30, 2017, compared to $126.8 million at June 30, 2016
and $109.6 million at December 31, 2016. The issuance of common stock during the first quarter of 2017 was a primary contributor
to the increase in cash and cash equivalents from year-end 2016.
Liquidity risk involves the risk of being
unable to fund assets with the appropriate duration and rate-based liability, as well as the risk of not being able to meet unexpected
cash needs. Liquidity planning and management are necessary to ensure the ability to fund operations cost effectively and to meet
current and future potential obligations such as loan commitments and unexpected deposit outflows.
Funding sources primarily include customer-based
core deposits, collateral-backed borrowings, cash flows from operations, cash flows from our loan and investment portfolios and
asset sales (primarily secondary marketing for residential real estate mortgages and marine financings). Cash flows from operations
are a significant component of liquidity risk management and we consider both deposit maturities and the scheduled cash flows from
loan and investment maturities and payments.
Deposits are also a primary source of liquidity.
The stability of this funding source is affected by numerous factors, including returns available to customers on alternative investments,
the quality of customer service levels, perception of safety and competitive forces. We routinely use securities and loans as collateral
for secured borrowings. In the event of severe market disruptions, we have access to secured borrowings through the FHLB and the
Federal Reserve Bank of Atlanta under its borrower-in-custody.
Contractual maturities for assets and liabilities
are reviewed to meet current and expected future liquidity requirements. Sources of liquidity, both anticipated and unanticipated,
are maintained through a portfolio of high quality marketable assets, such as residential mortgage loans, securities held for sale
and interest-bearing deposits. The Company is also able to provide short term financing of its activities by selling, under an
agreement to repurchase, United States Treasury and Government agency securities not pledged to secure public deposits or trust
funds. At June 30, 2017, Seacoast Bank had available unsecured lines of $75 million and lines of credit under current lendable
collateral value, which are subject to change, of $806 million. Seacoast Bank had $374 million of United States Treasury and Government
agency securities and mortgage backed securities not pledged and available for use under repurchase agreements, and had an additional
$469 million in residential and commercial real estate loans available as collateral. In comparison, at June 30, 2016, the Company
had available unsecured lines of $50 million and lines of credit of $869 million, and had $813 million of Treasury and Government
agency securities and mortgage backed securities not pledged and available for use under repurchase agreements, as well as an additional
$359 million in residential and commercial real estate loans available as collateral.
The Company does not rely on and is not
dependent on off-balance sheet financing or significant amounts of wholesale funding. During the first and second quarters of 2017,
the Company acquired an additional $57.9 million and $82.3 million of brokered certificates of deposit (“CDs”), respectively,
at a rate of 1.18% and 1.27% respectively, all maturing within 12 months. Brokered CDs at June 30, 2017 totaled $149.3
million.
The Company has traditionally relied upon
dividends from Seacoast Bank and securities offerings to provide funds to pay the Company’s expenses and to service the Company’s
debt. At June 30, 2017, Seacoast Bank was able to distribute dividends to the Company of approximately $61 million. At June 30,
2017, the Company had cash and cash equivalents at the parent of approximately $54.6 million, compared to $15.0 million at June
30, 2016, with the increase directly related to the capital raise completed on February 21, 2017.
Securities
Information related to maturities, carrying
values and fair value of the Company’s securities is set forth in “Note D – Securities” of the Company’s
condensed consolidated financial statements.
At June 30, 2017, the Company had
no trading securities, $1.02 billion in securities available for sale, and $397.1 million in securities held to maturity.
The Company's total securities portfolio increased $88.7 million or 6.7% from June 30, 2016. During the first quarter of
2016, securities totaling $66.9 million were added from the acquisition of Floridian. Security purchases during the first
and second quarter of 2016 of $258.3 million were primarily to utilize anticipated cash to be received by Seacoast from the
acquisition of BMO branches, with an increase of $203.4 million in securities held to maturity during the second quarter (almost
a doubling from the first quarter of 2016). Security purchases during the third quarter of 2016 were more limited,
totaling only $13 million, and totaled $130 million in the fourth quarter of 2016, $43 million in the first quarter of 2017
and $213 million in the second quarter of 2017. Securities acquired from GulfShore in the second quarter of 2017 were
nominal. These efforts were primary to the overall increase in the securities portfolio during 2016 and 2017. Funding for
investments was derived from liquidity, both legacy and that acquired in mergers, and increases in funding from our core
customer deposit base and FHLB borrowings.
During 2017, sales of securities resulted
in proceeds of $3.8 million (including net gains of $21,000). In comparison, proceeds from the sales of securities totaled $12.1
million (including net gains of $136,000) for the six months ended June 30, 2016. Management believes the securities sold had minimal
opportunity to further increase in value.
Securities are generally acquired which
return principal monthly. The modified duration of the investment portfolio at June 30, 2017 was 4.3 years, compared to 4.4 years
at June 30, 2016. Securities that are fixed rate comprise 65% of the total investment portfolio, with remaining securities in the
portfolio adjustable rate, or 35% of the total portfolio.
At June 30, 2017, available for sale securities
had gross unrealized losses of $8.0 million and gross unrealized gains of $6.4 million, compared to gross unrealized losses of
$4.7 million and gross unrealized gains of $13.5 million at June 30, 2016. All of the securities with unrealized losses are reviewed
for other-than-temporary impairment at least quarterly. As a result of these reviews it was determined that the securities with
unrealized losses are not other than temporarily impaired and the Company has the intent and ability to retain these securities
until recovery over the periods presented (see additional discussion under “Other Fair Value Measurements” and “Other
than Temporary Impairment of Securities” in “Critical Accounting Policies and Estimates”).
Company management considers the overall
quality of the securities portfolio to be high. The Company has no exposure to securities with subprime collateral. The Company
does not have an investment position in trust preferred securities.
Deposits and Borrowings
The Company’s balance sheet continues
to be primarily core funded.
Total deposits increased $474.1 million
or 13.5% to $3.98 billion at June 30, 2017, compared to June 30, 2016. Excluding the GulfShore acquisition and addition of $140.2
million in brokered CDs, total deposits increased $48.6 million or 1.4% from June 30, 2016. Also, at June 30, 2017, total deposits
excluding Gulfshore deposits and the $140.2 million of brokered CDs grew $26.6 million or 0.1% (not annualized) from year-end 2016.
Deposit growth since year-end 2016 was impacted by seasonal declines in public fund balances, which decreased by $83.3 million
during the first six months of 2017.
Since June 30, 2016, interest bearing deposits
(interest bearing demand, savings and money markets deposits) increased $204.6 million or 10.4% to $2.17 billion, noninterest bearing
demand deposits increased $161.7 million or 14.1% to $1.31 billion, and CDs increased $107.9 million or 27.9% to $494.2 million.
Excluding acquired deposits, noninterest demand deposits were $91.9 million or 8.0% higher from June 30, 2016, and represent 32.9%
deposits, compared to 32.8% at June 30, 2016. Core deposit growth reflects our success in growing households both organically and
through acquisitions.
Additions to CDs and the increase in
CDs at June 30, 2017 year over year have come primarily through the GulfShore acquisition in April 2017 and brokered CDs
acquired during 2017. An intentional decrease in higher cost time deposits was recorded over the two
years prior to the 2016 BMO branch acquisition, and was more than offset by increases in low cost or no cost deposits.
Customer repurchase agreements totaled
$167.6 million at June 30, 2017, decreasing $15.8 million or 8.6% from June 30, 2016. The repurchase agreements are offered by
Seacoast to select customers who wish to sweep excess balances on a daily basis for investment purposes. Public funds comprise
a significant amount of the outstanding balance.
No unsecured federal funds purchased were
outstanding at June 30, 2017 or 2016.
At June 30, 2017 and 2016, borrowings were
comprised of subordinated debt of $70.4 million and $70.1 million, respectively, related to trust preferred securities issued by
trusts organized or acquired by the Company, and borrowings from FHLB of $395.0 million and $151.0 million, respectively. At June
30, 2017, our FHLB borrowings were all maturing within 30 days, and the rate for FHLB funds during the second quarter of 2017 was
0.97%. At December 31, 2016, FHLB borrowings totaled $415.0 million, and were similarly short-term and maturing within 30 days.
Secured FHLB borrowings are an integral tool in liquidity management for the Company. In the second quarter of 2016, borrowings
from the FHLB were comprised of two advances outstanding since 2007 that had a weighted average cost of 3.22% and were scheduled
to mature in late 2017. The two FHLB advances were redeemed during April 2016.
The Company has two wholly owned trust
subsidiaries, SBCF Capital Trust I and SBCF Statutory Trust II that were both formed in 2005. In 2007, the Company formed an additional
wholly owned trust subsidiary, SBCF Statutory Trust III. The 2005 trusts each issued $20.0 million (totaling $40.0 million) of
trust preferred securities and the 2007 trust issued an additional $12.0 million in trust preferred securities. As part of the
BANKshares acquisition in 2014, the Company inherited three junior subordinated debentures totaling $5.2 million, $4.1 million,
and $5.2 million, respectively. Also, as part of the Grand acquisition in 2015, the Company inherited an additional junior subordinated
debenture totaling $7.2 million. The acquired junior subordinated debentures (in accordance with ASU 805 Business Combinations)
were recorded at fair value, which collectively is $4.9 million lower than face value at June 30, 2017. This amount is being amortized
into interest expense over the acquired subordinated debts’ remaining term to maturity. All trust preferred securities are
guaranteed by the Company on a junior subordinated basis.
Under Basel III and Federal Reserve rules,
qualified trust preferred securities and other restricted capital elements can be included as Tier 1 capital, within limitations.
The Company believes that its trust preferred securities qualify under these capital rules. The weighted average interest rate
of our outstanding subordinated debt related to trust preferred securities was 3.42% for the second quarter of 2017, compared to
2.89% for the second quarter ended June 30, 2016.
Off-Balance Sheet Transactions
In the normal course of business, we may
engage in a variety of financial transactions that, under generally accepted accounting principles, either are not recorded on
the balance sheet or are recorded on the balance sheet in amounts that differ from the full contract or notional amounts. These
transactions involve varying elements of market, credit and liquidity risk.
Lending commitments include unfunded loan
commitments and standby and commercial letters of credit. A large majority of loan commitments and standby letters of credit expire
without being funded, and accordingly, total contractual amounts are not representative of our actual future credit exposure or
liquidity requirements. Loan commitments and letters of credit expose the Company to credit risk in the event that the customer
draws on the commitment and subsequently fails to perform under the terms of the lending agreement.
Loan commitments to customers are made
in the normal course of our commercial and retail lending businesses. For commercial customers, loan commitments generally take
the form of revolving credit arrangements. For retail customers, loan commitments generally are lines of credit secured by residential
property. These instruments are not recorded on the balance sheet until funds are advanced under the commitment. For loan commitments,
the contractual amount of a commitment represents the maximum potential credit risk that could result if the entire commitment
had been funded, the borrower had not performed according to the terms of the contract, and no collateral had been provided. Loan
commitments were $684 million at June 30, 2017 and $504 million at June 30, 2016.
Capital Resources
The Company’s equity capital at
June 30, 2017 increased $151.9 million from June 30, 2016 to $577.4 million, and increased $142.0 million from December 31,
2016. On February 21, 2017, the Company closed on an offering of 8,912,500 shares of common stock, consisting of 2,702,500
shares sold by the Company and 6,210,000 shares sold by one of its shareholders. Seacoast received proceeds (net of expenses)
of $55.6 million from the issuance of the 2,702,500 shares of its common stock. The Company intends to use the net proceeds
from the offering for general corporate purposes, including potential future acquisitions and to support organic growth.
Seacoast did not receive any proceeds from the sale of its shareholder’s shares (see “Note I –
Shareholders’ Equity”).
The Company also issued 2,626,693
common shares in regards to the acquisition of GulfShore that was consummated on April 7, 2017 (see Note L – Business
Combinations”). This transaction increased shareholders’ equity $62.9 million, as the Company issued shares of
common stock as consideration for the merger.
The ratio of shareholders’ equity to period end total
assets was 10.93% and 9.71% at June 30, 2017 and 2016, respectively. Equity has also increased as a result of earnings retained
by the Company. During 2016, the ratio of shareholders’ equity to total assets declined, as the Company successfully grew
assets at a faster pace than equity over the period.
Activity in shareholders’ equity
for the six months ended June 30, 2017 and 2016 follows:
(Dollars in thousands)
|
|
2017
|
|
|
2016
|
|
Beginning balance at December 31, 2016 and 2015
|
|
$
|
435,397
|
|
|
$
|
353,453
|
|
Net income
|
|
|
15,602
|
|
|
|
9,298
|
|
Capital raise, net of costs (February 21, 2017)
|
|
|
55,640
|
|
|
|
0
|
|
Issuance
of stock pursuant to acquisition of GulfShore
|
|
|
62,882
|
|
|
|
0
|
|
Issuance
of stock pursuant to acquisition of Floridian
|
|
|
0
|
|
|
|
50,913
|
|
Stock compensation (net of Treasury shares acquired)
|
|
|
2,324
|
|
|
|
1,422
|
|
Other comprehensive income
|
|
|
5,532
|
|
|
|
10,343
|
|
Ending balance at June 30, 2017 and 2016
|
|
$
|
577,377
|
|
|
$
|
425,429
|
|
Capital ratios are well above regulatory
requirements for well-capitalized institutions. Seacoast’s management uses risk-based capital measures to assess the quality
of capital and believes that investors may find it useful in their analysis of the Company. The capital measures are not necessarily
comparable to similar capital measures that may be presented by other companies (see “Note I –
Equity Capital”).
|
|
Seacoast
|
|
|
Seacoast
|
|
|
Minimum to be
|
|
June 30, 2017:
|
|
(Consolidated)
|
|
|
Bank
|
|
|
Well Capitalized*
|
|
|
|
|
|
|
|
|
|
|
|
Common equity Tier 1 ratio (CET1)
|
|
|
12.10
|
%
|
|
|
12.14
|
%
|
|
|
6.5
|
%
|
Tier 1 capital ratio
|
|
|
13.86
|
%
|
|
|
12.14
|
%
|
|
|
8.0
|
%
|
Total risk-based capital ratio
|
|
|
14.56
|
%
|
|
|
12.85
|
%
|
|
|
10.0
|
%
|
Tier 1 leverage ratio
|
|
|
10.35
|
%
|
|
|
9.06
|
%
|
|
|
5.0
|
%
|
* For subsidiary bank only
The Company’s total risk-based capital
ratio was 14.56% at June 30, 2017, a decrease from March 31, 2017 ratio of 14.95%, and an increase from June 30, 2016’s ratio
of 13.45%. Ongoing reinvestment of liquidity into securities and loans with higher risk weightings and the addition of GulfShore’s
loans with higher risk weightings were causes for decreases in Tier 1 and total risk-based capital ratios since March 31, 2017.
The capital raise during 2017 was the primary cause of these ratios improving, compared to prior year at June 30, 2016.
The Company and Seacoast Bank are subject
to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain
adequate capital above regulatory minimums. The appropriate federal bank regulatory authority may prohibit the payment of dividends
where it has determined that the payment of dividends would be an unsafe or unsound practice. The Company is a legal entity separate
and distinct from Seacoast Bank and its other subsidiaries, and the Company’s primary source of cash and liquidity, other
than securities offerings and borrowings, is dividends from its bank subsidiary. Without Office of the Comptroller of the Currency
(“OCC”) approval, Seacoast Bank can pay $61.0 million of dividends to the Company.
The OCC and the Federal Reserve have policies
that encourage banks and bank holding companies to pay dividends from current earnings, and have the general authority to limit
the dividends paid by national banks and bank holding companies, respectively, if such payment may be deemed to constitute an unsafe
or unsound practice. If, in the particular circumstances, either of these federal regulators determined that the payment of dividends
would constitute an unsafe or unsound banking practice, either the OCC or the Federal Reserve may, among other things, issue a
cease and desist order prohibiting the payment of dividends by Seacoast Bank or us, respectively. Under a recently adopted Federal
Reserve policy, the board of directors of a bank holding company must consider different factors to ensure that its dividend level
is prudent relative to the organization’s financial position and is not based on overly optimistic earnings scenarios such
as any potential events that may occur before the payment date that could affect its ability to pay, while still maintaining a
strong financial position. As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding
company, such as Seacoast, should consult with the Federal Reserve and eliminate, defer, or significantly reduce the bank holding
company’s dividends if: (i) its net income available to shareholders for the past four quarters, net of dividends previously
paid during that period, is not sufficient to fully fund the dividends; (ii) its prospective rate of earnings retention is not
consistent with its capital needs and overall current and prospective financial condition; or (iii) it will not meet, or is in
danger of not meeting, its minimum regulatory capital adequacy ratios.
The Company has seven wholly owned trust
subsidiaries that have issued trust preferred stock. Trust preferred securities from our acquisitions were recorded at fair value
when acquired. All trust preferred securities are guaranteed by the Company on a junior subordinated basis. The Federal Reserve’s
rules permit qualified trust preferred securities and other restricted capital elements to be included under Basel III capital
guidelines, with limitations, and net of goodwill and intangibles. The Company believes that its trust preferred securities qualify
under these revised regulatory capital rules and believes that it can treat all $70.4 million of trust preferred securities as
Tier 1 capital. For regulatory purposes, the trust preferred securities are added to the Company’s tangible common shareholders’
equity to calculate Tier 1 capital.
The Company’s capital is expected to continue to increase
with positive earnings.
Results
of Operations
Earnings Overview
The Company has steadily improved results
over the past three years and into 2017. Net income was $7.7 million, or $0.18 per average common diluted share, compared to $7.9
million or $0.20 for the prior quarter and $5.3 million or $0.14 for the second quarter of 2016. For the six months ended June
30, 2017, net income was $15.6 million compared to $9.3 million for six months ended June 30, 2016. Adjusted net income
1
was $12.7 million, or $0.29 per average common diluted share, compared to $10.3 million or $0.26 for the prior quarter and $9.2
million or $0.24 for the second quarter of 2016. For the six months ended June 30, 2017, adjusted net income
1
was $22.9
million compared to $16.2 million for the six months ended June 30, 2016.
Data analytics and
technology-assisted operational improvement are helping us build efficiencies across our organization and drive process automation.
We believe that our success in increasing net income is the result of our success in significantly growing our businesses and
balance sheet, while attaining operating efficiency. We believe our improved earnings also reflect the success we have had in
identifying and incorporating acquisitions, including our recent acquisition of GulfShore on April 7, 2017, providing three offices
in Tampa, Florida (see “Note L – Business Combinations).
Net revenues for the quarter ended
June 30, 2017 were $54.6 million, an increase of $6.6 million or 14% compared to the prior quarter, and an increase of
$11.0 million or 25% from the second quarter of 2016. For the six months ended June 30, 2017, net revenues were $102.7
million, an increase of $20.1 million or 24% compared to the six months ended June 30, 2016. Adjusted revenues
1
were $54.6 million, an increase of $6.6 million, or 14%, from the prior quarter and an increase of $11.0 million, or 25% from
the second quarter of 2016. For the six months ended June 30, 2017, adjusted revenues
1
were $102.7 million, an
increase of $20.7 million or 25% compared to the six months ended June 30, 2016.
1
Non-GAAP measure, see “Explanation of Certain Non-GAAP Financial Measures”
Notable Items Affecting Second Quarter 2017 Results
As Seacoast continues to scale, certain
items, many of which were introduced last quarter, aggregated to $8.2 million in noninterest expense in the second quarter of 2017.
|
·
|
We completed the acquisition of GulfShore on April
7, 2017, expanding the Seacoast footprint to the Tampa market. GulfShore and other merger and acquisition-related charges totaled
$5.1 million
2
, including $3.0 million of compensation-related expense. We added 36 full-time equivalent (“FTE”)
associates to our overall headcount to service the Tampa market. These additions were partially offset by strategic headcount reductions
in other areas.
|
|
·
|
We continued execution of our branch reduction strategy, completing five branch closures in the
first half of this year. Expenses associated with the four previously announced branch closures, and one additional closure in
the second quarter, totaled $1.9 million
2
.
|
|
·
|
During the first quarter 2017, the Company onboarded a commercial lending team focused on specialized
equipment lending for lower middle market companies. The second quarter 2017 noninterest expense reflects the full $571,000 impact
of this team on noninterest expense.
|
|
·
|
During the second quarter of 2017, we recorded incentive expense totaling $247,000 for one-time
signing bonuses associated with investments in technology and audit talent as we scale our organization for growth.
|
|
·
|
We opened a second call center in Orlando during the quarter, expanding our ability to support
growth and our customers’ ever-increasing utilization of our 24/7 service model. This contributed to an increase in expenses
in the second quarter of approximately $200,000.
|
|
·
|
For the second quarter of 2017, net loss on other real estate owned and repossessed assets increased
$507,000 compared to the first quarter of 2017, with a $346,000 net gain in the first quarter of 2017, and losses of $161,000 in
the second quarter of 2017.
|
2
Excluded from the calculation of Adjusted
Noninterest Expense, a Non-GAAP measure. See “Explanation of Certain Non-GAAP Financial Measures.”
Explanation of Certain Non-GAAP Financial Measures
The following table provides a reconcilement
of GAAP to non-GAAP measures indicated.
|
|
Quarters
|
|
|
Year to Date
|
|
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
|
June 30,
|
|
(Dollars in thousands except per share data)
|
|
2017
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, as reported:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
7,676
|
|
|
$
|
7,926
|
|
|
$
|
10,771
|
|
|
$
|
9,133
|
|
|
$
|
5,332
|
|
|
$
|
15,602
|
|
|
$
|
9,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.18
|
|
|
$
|
0.20
|
|
|
$
|
0.28
|
|
|
$
|
0.24
|
|
|
$
|
0.14
|
|
|
$
|
0.38
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income
1
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
7,676
|
|
|
$
|
7,926
|
|
|
$
|
10,771
|
|
|
$
|
9,133
|
|
|
$
|
5,332
|
|
|
$
|
15,602
|
|
|
$
|
9,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BOLI income (benefits upon death)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(464
|
)
|
Security gains
|
|
|
(21
|
)
|
|
|
0
|
|
|
|
(7
|
)
|
|
|
(225
|
)
|
|
|
(47
|
)
|
|
|
(21
|
)
|
|
|
(136
|
)
|
Total adjustments to revenue
|
|
|
(21
|
)
|
|
|
0
|
|
|
|
(7
|
)
|
|
|
(225
|
)
|
|
|
(47
|
)
|
|
|
(21
|
)
|
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger related charges
|
|
|
5,081
|
|
|
|
533
|
|
|
|
561
|
|
|
|
1,698
|
|
|
|
2,447
|
|
|
|
5,614
|
|
|
|
6,768
|
|
Amortization of intangibles
|
|
|
839
|
|
|
|
719
|
|
|
|
719
|
|
|
|
728
|
|
|
|
593
|
|
|
|
1,558
|
|
|
|
1,039
|
|
Branch reductions and other expense initiatives*
|
|
|
1,876
|
|
|
|
2,572
|
|
|
|
163
|
|
|
|
894
|
|
|
|
1,587
|
|
|
|
4,448
|
|
|
|
2,300
|
|
Early redemption cost for FHLB advances
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,777
|
|
|
|
0
|
|
|
|
1,777
|
|
Total adjustments to noninterest expenses
|
|
|
7,796
|
|
|
|
3,824
|
|
|
|
1,443
|
|
|
|
3,320
|
|
|
|
6,404
|
|
|
|
11,620
|
|
|
|
11,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate on adjustments
|
|
|
(2,786
|
)
|
|
|
(1,480
|
)
|
|
|
(404
|
)
|
|
|
(1,168
|
)
|
|
|
(2,532
|
)
|
|
|
(4,266
|
)
|
|
|
(4,377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income
1
|
|
$
|
12,665
|
|
|
$
|
10,270
|
|
|
$
|
11,803
|
|
|
$
|
11,060
|
|
|
$
|
9,157
|
|
|
$
|
22,935
|
|
|
$
|
16,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted diluted earnings per share
1
|
|
$
|
0.29
|
|
|
$
|
0.26
|
|
|
$
|
0.31
|
|
|
$
|
0.29
|
|
|
$
|
0.24
|
|
|
$
|
0.55
|
|
|
$
|
0.44
|
|
(1) Non-GAAP measure
* Includes severance, contract termination costs, disposition
of branch premises and fixed assets, and other costs to effect our branch consolidation and other expense reduction strategies.
This report contains financial
information determined by methods other than Generally Accepted Accounting Principles (“GAAP”), including
adjusted net income, tax equivalent net interest income and margin, and adjusted noninterest expense and efficiency ratios.
The most directly comparable GAAP measures are net income, net interest income, net interest margin, noninterest expense, and
efficiency ratios. 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 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.
Effective in the first quarter of 2017, adjusted net income
and adjusted noninterest expense exclude the effect of amortization of acquisition-related intangibles. Prior periods have been
revised to conform to the current period presentation.
Net Interest Income and Margin
Net interest income for the quarter
totaled $44.2 million, increasing $6.0 million or 16% during the second quarter of 2017 compared to first quarter
2017’s result, and was $9.7 million or 28% higher than second quarter 2016. Net interest margin was
3.84% in the second quarter 2017, compared to 3.63% for first quarter 2017 and 3.63% for prior year’s second quarter.
The second quarter of 2017 benefited from accretion of $1.5 million associated with early payoffs on securities, and
acquired loans. Loan growth, balance sheet mix and yield/cost management have been the primary forces affecting net interest
income and net interest margin results. Acquisitions have further accelerated these trends. Organic loan growth of $463
million or 17.7% since June 30, 2016, and the addition of loans of $251 million from the GulfShore purchase, all contributed
to the net interest income improvement year over year for the second quarter. Net interest income for 2017 will continue to
benefit from the full year impact of acquisitions completed in 2016, as well as from the GulfShore acquisition.
The following table details the trend
for net interest income and margin results (on a tax equivalent basis) (1), the yield on earning assets and the rate paid on
interest bearing liabilities for the past five quarters:
|
|
Net Interest
|
|
|
Net Interest
|
|
|
Yield on
|
|
|
Rate on Interest
|
|
(Dollars in thousands)
|
|
Income (1)
|
|
|
Margin (1)
|
|
|
Earning Assets (1)
|
|
|
Bearing Liabilities
|
|
Second quarter 2016
|
|
$
|
34,801
|
|
|
|
3.63
|
%
|
|
|
3.85
|
%
|
|
|
0.31
|
%
|
Third quarter 2016
|
|
|
37,735
|
|
|
|
3.69
|
|
|
|
3.90
|
|
|
|
0.30
|
|
Fourth quarter 2016
|
|
|
37,628
|
|
|
|
3.56
|
|
|
|
3.78
|
|
|
|
0.31
|
|
First quarter 2017
|
|
|
38,377
|
|
|
|
3.63
|
|
|
|
3.88
|
|
|
|
0.35
|
|
Second quarter 2017
|
|
|
44,320
|
|
|
|
3.84
|
|
|
|
4.12
|
|
|
|
0.41
|
|
(1) On tax equivalent basis, a non-GAAP measure. See
“Non-GAAP Measures regarding Net Interest Income and Margin.”
The 21 basis point increase in margin
for second quarter 2017 compared to first quarter 2017 was due to a steepening of the Treasury yield curve, higher short term
rates, and a higher yield on the securities and loan portfolios. Net interest margin benefited from accretion on early payoffs
of securities and acquired loans totaling 13 basis points. The yield on securities and on loans was higher by 9 basis points and
26 basis points, respectively, for the second quarter of 2017 compared to the first quarter of 2017.
Prospectively, we anticipate a net interest
margin in the low- to mid-3.70’s and a yield on loans near 4.60%, assuming interest rates remain flat.
Total average loans
increased $734.3 million or 29% for second quarter 2017 compared to 2016’s second quarter, and increased $348.1 million
or 12% from first quarter 2017 (non-annualized). Our average investment securities also increased $75.6 million or 6% for second
quarter 2017 year over year and were lower by $18.0 million or 1% (non-annualized) from 2017’s first quarter.
Average loans (the highest yielding component
of earning assets) as a percentage of average earning assets totaled 70.6% during the second quarter of 2017, compared to 65.7%
a year ago. As average total loans as a percentage of earning assets increased, the mix of loans has remained fairly stable, with
volumes related to commercial real estate representing 48.1% of total loans at June 30, 2017 (compared to 50.7% at June 30, 2016)(see
“Loan Portfolio”).
Loan production is detailed in the following
table for the last five quarters:
|
|
Quarters
|
|
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
(Dollars in thousands)
|
|
2017
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial pipeline
|
|
$
|
146,355
|
|
|
$
|
122,703
|
|
|
$
|
88,814
|
|
|
$
|
119,394
|
|
|
$
|
113,261
|
|
Commercial loans closed
|
|
|
110,171
|
|
|
|
94,595
|
|
|
|
144,975
|
|
|
|
109,078
|
|
|
|
111,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential pipeline
|
|
$
|
71,667
|
|
|
$
|
78,323
|
|
|
$
|
72,604
|
|
|
$
|
79,379
|
|
|
$
|
66,083
|
|
Residential loans retained
|
|
|
85,111
|
|
|
|
78,305
|
|
|
|
74,745
|
|
|
|
68,748
|
|
|
|
64,003
|
|
Residential loans sold
|
|
|
45,990
|
|
|
|
39,844
|
|
|
|
81,141
|
|
|
|
79,151
|
|
|
|
39,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and small business pipeline
|
|
$
|
49,724
|
|
|
$
|
44,499
|
|
|
$
|
45,936
|
|
|
$
|
41,428
|
|
|
$
|
38,569
|
|
Consumer and small business originations
|
|
|
97,858
|
|
|
|
89,546
|
|
|
|
83,484
|
|
|
|
87,815
|
|
|
|
79,786
|
|
Consumer and small business originations
reached $98 million during the second quarter of 2017 and commercial loans closed totaled $110 million. Closed residential loans
retained during the quarter totaled $85 million, reflecting continued strong performance. During the quarter, the Company purchased
a Small Business Administration (“SBA”) loan pool, totaling $11.0 million.
Pipelines (loans in underwriting and
approval or approved and not yet closed) remained strong at $146 million in commercial, $72 million in mortgage, and $50
million in consumer and small business. Commercial pipelines increased $23.7 million or 19%, over first quarter 2017 and
$33.1 million or 29%, compared to June 30, 2016. Mortgage pipelines were $6.7 million or 8% lower, compared to first quarter
2017, but increased $5.6 million or 8%, from June 30, 2016. Consumer and small business pipelines increased from first quarter
by $5.2 million or 12%, and increased from June 30, 2016 by $11.2 million or 29%.
We believe the addition of a new
commercial team, focused on specialized equipment financing, and the GulfShore team into our lending business in the second
quarter of 2017 will supply an additional opportunity to further grow our balance sheet prospectively.
Customer relationship funding is detailed
in the following table for the last five quarters:
Customer Relationship Funding
|
|
Quarters
|
|
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
(Dollars in thousands)
|
|
2017
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest demand
|
|
$
|
1,308,458
|
|
|
$
|
1,225,124
|
|
|
$
|
1,148,309
|
|
|
$
|
1,168,542
|
|
|
$
|
1,146,792
|
|
Interest-bearing demand
|
|
|
934,861
|
|
|
|
870,457
|
|
|
|
873,727
|
|
|
|
776,480
|
|
|
|
776,388
|
|
Money market
|
|
|
861,119
|
|
|
|
821,606
|
|
|
|
802,697
|
|
|
|
858,931
|
|
|
|
860,930
|
|
Savings
|
|
|
376,825
|
|
|
|
363,140
|
|
|
|
346,662
|
|
|
|
340,899
|
|
|
|
330,928
|
|
Time certificates of deposit
|
|
|
494,195
|
|
|
|
398,318
|
|
|
|
351,850
|
|
|
|
365,641
|
|
|
|
386,278
|
|
Total deposits
|
|
$
|
3,975,458
|
|
|
$
|
3,678,645
|
|
|
$
|
3,523,245
|
|
|
$
|
3,510,493
|
|
|
$
|
3,501,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer sweep accounts
|
|
$
|
167,558
|
|
|
$
|
183,107
|
|
|
$
|
204,202
|
|
|
$
|
167,693
|
|
|
$
|
183,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core customer funding
(1)
|
|
$
|
3,648,821
|
|
|
$
|
3,463,434
|
|
|
$
|
3,375,597
|
|
|
$
|
3,312,345
|
|
|
$
|
3,298,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest demand deposit mix
|
|
|
32.9
|
%
|
|
|
33.3
|
%
|
|
|
32.6
|
%
|
|
|
33.3
|
%
|
|
|
32.8
|
%
|
(1) Total deposits and customer sweep accounts, excluding time
certificates of deposit
Deposit growth reflects our success in
growing households both organically and through acquisitions. The Company’s balance sheet continues to be primarily core
deposit funded. Core customer funding increased to $3.649 billion at June 30, 2017, a 5% increase from March 31, 2017 and an 11%
increase from June 30, 2016. Excluding acquisitions, core customer funding increased by $75 million, or 2%, from one year ago,
noninterest bearing deposits increased 8% and total deposits increased 1%. Seacoast’s overall cost of deposits is 0.17%,
higher than first quarter 2017 by 4 basis points and compared to 0.10% in prior year’s second quarter. Prospectively, total
deposits are expected to increase 6% on an annualized basis.
Short-term borrowings were entirely comprised of sweep repurchase
agreements with Seacoast Bank customers at June 30, 2017 and 2016. No federal funds purchased were utilized at June 30, 2017 or
2016. The average yield on customer repurchase accounts was 0.45% for the second quarter 2017.
FHLB borrowings, maturing in 30 days or
less, totaled $395.0 million at June 30, 2017, with an average rate of 0.97% paid during the quarter. Advances from the FHLB of
$50.0 million at a fixed rate of 3.22% scheduled to mature in late 2017 were redeemed early in April 2016, with an early redemption
fee of $1.8 million incurred in second quarter a year ago. FHLB borrowings averaged $323.8 million for the second quarter of 2017,
up from $171.0 million for the second quarter 2016.
For the second quarter 2017, average
subordinated debt of $70.3 million related to trust preferred securities issued by subsidiary trusts of the Company
(including subordinated debt for Grand and BANKshares assumed on July 17, 2015 and October 1, 2014, respectively) carried an
average cost of 3.42%.
We have a positive interest rate gap and
our net interest margin should benefit from rising interest rates. Further increases in interest rates are likely, and the Company’s
asset sensitivity is further enhanced by its low cost deposit portfolio (see “Interest Rate Sensitivity”).
The following table details average
balances, net interest income and margin results (on a tax equivalent basis) (1) for the second quarter of 2017, the first
quarter of 2017, and the second quarter of 2016.
|
|
2017
|
|
|
2016
|
|
|
|
Second Quarter
|
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
(Dollars in thousands)
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
$
|
1,261,017
|
|
|
$
|
8,379
|
|
|
|
2.66
|
%
|
|
$
|
1,279,246
|
|
|
$
|
8,087
|
|
|
|
2.53
|
%
|
|
$
|
1,185,022
|
|
|
$
|
6,603
|
|
|
|
2.23
|
%
|
Nontaxable
|
|
|
28,092
|
|
|
|
316
|
|
|
|
4.50
|
|
|
|
27,833
|
|
|
|
441
|
|
|
|
6.34
|
|
|
|
28,445
|
|
|
|
459
|
|
|
|
6.45
|
|
Total Securities
|
|
|
1,289,109
|
|
|
|
8,695
|
|
|
|
2.70
|
|
|
|
1,307,079
|
|
|
|
8,528
|
|
|
|
2.61
|
|
|
|
1,213,468
|
|
|
|
7,062
|
|
|
|
2.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold and
other investments
|
|
|
72,535
|
|
|
|
604
|
|
|
|
3.34
|
|
|
|
56,771
|
|
|
|
510
|
|
|
|
3.64
|
|
|
|
110,636
|
|
|
|
433
|
|
|
|
1.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
|
3,266,812
|
|
|
|
38,263
|
|
|
|
4.70
|
|
|
|
2,918,665
|
|
|
|
31,949
|
|
|
|
4.44
|
|
|
|
2,532,533
|
|
|
|
29,392
|
|
|
|
4.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Earning Assets
|
|
|
4,628,456
|
|
|
|
47,562
|
|
|
|
4.12
|
|
|
|
4,282,515
|
|
|
|
40,987
|
|
|
|
3.88
|
|
|
|
3,856,637
|
|
|
|
36,887
|
|
|
|
3.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(25,276
|
)
|
|
|
|
|
|
|
|
|
|
|
(24,036
|
)
|
|
|
|
|
|
|
|
|
|
|
(20,185
|
)
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
99,974
|
|
|
|
|
|
|
|
|
|
|
|
105,803
|
|
|
|
|
|
|
|
|
|
|
|
92,159
|
|
|
|
|
|
|
|
|
|
Premises and equipment
|
|
|
59,415
|
|
|
|
|
|
|
|
|
|
|
|
58,783
|
|
|
|
|
|
|
|
|
|
|
|
63,149
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
114,563
|
|
|
|
|
|
|
|
|
|
|
|
78,878
|
|
|
|
|
|
|
|
|
|
|
|
69,449
|
|
|
|
|
|
|
|
|
|
Bank owned life insurance
|
|
|
87,514
|
|
|
|
|
|
|
|
|
|
|
|
84,811
|
|
|
|
|
|
|
|
|
|
|
|
43,542
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
117,355
|
|
|
|
|
|
|
|
|
|
|
|
112,991
|
|
|
|
|
|
|
|
|
|
|
|
102,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,082,002
|
|
|
|
|
|
|
|
|
|
|
$
|
4,699,745
|
|
|
|
|
|
|
|
|
|
|
$
|
4,206,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
& Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand
|
|
$
|
949,981
|
|
|
$
|
262
|
|
|
|
0.11
|
%
|
|
$
|
834,244
|
|
|
$
|
163
|
|
|
|
0.08
|
%
|
|
$
|
755,206
|
|
|
$
|
161
|
|
|
|
0.09
|
%
|
Savings
|
|
|
378,989
|
|
|
|
51
|
|
|
|
0.05
|
|
|
|
353,452
|
|
|
|
44
|
|
|
|
0.05
|
|
|
|
322,567
|
|
|
|
39
|
|
|
|
0.05
|
|
Money market
|
|
|
868,427
|
|
|
|
541
|
|
|
|
0.25
|
|
|
|
803,795
|
|
|
|
417
|
|
|
|
0.21
|
|
|
|
810,709
|
|
|
|
488
|
|
|
|
0.24
|
|
Time deposits
|
|
|
432,805
|
|
|
|
814
|
|
|
|
0.75
|
|
|
|
347,143
|
|
|
|
566
|
|
|
|
0.66
|
|
|
|
366,263
|
|
|
|
550
|
|
|
|
0.60
|
|
Federal funds purchased
and other short term borrowings
|
|
|
174,715
|
|
|
|
194
|
|
|
|
0.45
|
|
|
|
181,102
|
|
|
|
153
|
|
|
|
0.34
|
|
|
|
195,802
|
|
|
|
129
|
|
|
|
0.26
|
|
FHLB borrowings
|
|
|
323,780
|
|
|
|
780
|
|
|
|
0.97
|
|
|
|
426,144
|
|
|
|
702
|
|
|
|
0.67
|
|
|
|
171,011
|
|
|
|
215
|
|
|
|
0.51
|
|
Other
borrowings
|
|
|
70,343
|
|
|
|
600
|
|
|
|
3.42
|
|
|
|
70,273
|
|
|
|
565
|
|
|
|
3.26
|
|
|
|
70,064
|
|
|
|
504
|
|
|
|
2.89
|
|
Total
Interest-Bearing Liabilities
|
|
|
3,199,040
|
|
|
|
3,242
|
|
|
|
0.41
|
|
|
|
3,016,153
|
|
|
|
2,610
|
|
|
|
0.35
|
|
|
|
2,691,622
|
|
|
|
2,086
|
|
|
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest demand
|
|
|
1,283,255
|
|
|
|
|
|
|
|
|
|
|
|
1,183,813
|
|
|
|
|
|
|
|
|
|
|
|
1,059,039
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
32,259
|
|
|
|
|
|
|
|
|
|
|
|
32,932
|
|
|
|
|
|
|
|
|
|
|
|
39,391
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
4,514,554
|
|
|
|
|
|
|
|
|
|
|
|
4,232,898
|
|
|
|
|
|
|
|
|
|
|
|
3,790,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
|
|
567,448
|
|
|
|
|
|
|
|
|
|
|
|
466,847
|
|
|
|
|
|
|
|
|
|
|
|
416,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,082,002
|
|
|
|
|
|
|
|
|
|
|
$
|
4,699,745
|
|
|
|
|
|
|
|
|
|
|
$
|
4,206,800
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
3.71
|
%
|
|
|
|
|
|
|
|
|
|
|
3.53
|
%
|
|
|
|
|
|
|
|
|
|
|
3.54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
0.28
|
%
|
|
|
|
|
|
|
|
|
|
|
0.25
|
%
|
|
|
|
|
|
|
|
|
|
|
0.22
|
%
|
Net interest income (1)
|
|
|
|
|
|
$
|
44,320
|
|
|
|
3.84
|
%
|
|
|
|
|
|
$
|
38,377
|
|
|
|
3.63
|
%
|
|
|
|
|
|
$
|
34,801
|
|
|
|
3.63
|
%
|
|
(1)
|
On a fully taxable equivalent basis, a non-GAAP measure,
as defined (see Non-GAAP Measure on next page). All yields and rates have been computed on an annual basis using amortized cost.
Fees on loans have been included in interest on loans. Nonaccrual loans are included in loan balances.
|
Non-GAAP Measures regarding Net Interest
Income and Margin
Fully taxable equivalent net interest income
is a common term and measure used in the banking industry but is not a term used under GAAP. We believe that these presentations
of tax-equivalent net interest income and tax equivalent net interest margin aid in the comparability of net interest income arising
from both taxable and tax-exempt sources over the periods presented. We further believe these non-GAAP measures enhance investors’
understanding of the Company’s business and performance, and facilitate an understanding of performance trends and comparisons
with the performance of other financial institutions. The limitations associated with these measures are the risk that persons
might disagree as to the appropriateness of items comprising these measures and that different companies might calculate these
measures differently, including as a result of using different assumed tax rates. These disclosures should not be considered as
an alternative to GAAP. The following information is provided to reconcile GAAP measures and tax equivalent net interest income
and net interest margin on a tax equivalent basis.
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
(Dollars in thousands)
|
|
2017
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
Nontaxable interest income
|
|
$
|
164
|
|
|
$
|
212
|
|
|
$
|
203
|
|
|
$
|
287
|
|
|
$
|
308
|
|
Tax Rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
Net interest income (TE)
|
|
$
|
44,320
|
|
|
$
|
38,377
|
|
|
$
|
37,628
|
|
|
$
|
37,735
|
|
|
$
|
34,801
|
|
Total net interest income (not TE)
|
|
|
44,156
|
|
|
|
38,165
|
|
|
|
37,425
|
|
|
|
37,448
|
|
|
|
34,493
|
|
Net interest margin (TE)
|
|
|
3.84
|
%
|
|
|
3.63
|
%
|
|
|
3.56
|
%
|
|
|
3.69
|
%
|
|
|
3.63
|
%
|
Net interest margin (not TE)
|
|
|
3.83
|
|
|
|
3.61
|
|
|
|
3.54
|
|
|
|
3.66
|
|
|
|
3.60
|
|
TE = Tax Equivalent
Noninterest Income
Noninterest income (excluding securities
gains or losses) totaled $10.5 million for the second quarter of 2017, $0.6 million or 6% higher than 2017’s first quarter
and $1.3 million or 15% higher than second quarter 2016. For the six months ended June 30, 2017, noninterest income totaled $20.4
million, 14% higher than the six months ended June 30, 2016. For the second quarter 2017, noninterest income accounted for 19.2%
of total revenue (net interest income plus noninterest income, excluding securities gains), compared to 20.6% for the first quarter
of 2017 and 20.9% for second quarter a year ago.
Noninterest income
(excluding security gains) for the second quarter of 2017, compared to first quarter 2017 and the second quarter of 2016, and
for the six months ended June 30, 2017 and 2016, is detailed as follows:
|
|
Second
|
|
|
First
|
|
|
Second
|
|
|
Six Months Ended
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
June 30,
|
|
(In thousands)
|
|
2017
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Service charges on deposits
|
|
$
|
2,435
|
|
|
$
|
2,422
|
|
|
$
|
2,230
|
|
|
$
|
4,857
|
|
|
$
|
4,359
|
|
Trust income
|
|
|
917
|
|
|
|
880
|
|
|
|
838
|
|
|
|
1,797
|
|
|
|
1,644
|
|
Mortgage banking fees
|
|
|
1,272
|
|
|
|
1,552
|
|
|
|
1,364
|
|
|
|
2,824
|
|
|
|
2,363
|
|
Brokerage commissions and fees
|
|
|
351
|
|
|
|
377
|
|
|
|
470
|
|
|
|
728
|
|
|
|
1,101
|
|
Marine finance fees
|
|
|
326
|
|
|
|
134
|
|
|
|
279
|
|
|
|
460
|
|
|
|
420
|
|
Interchange income
|
|
|
2,671
|
|
|
|
2,494
|
|
|
|
2,370
|
|
|
|
5,165
|
|
|
|
4,587
|
|
Other deposit-based EFT fees
|
|
|
114
|
|
|
|
140
|
|
|
|
116
|
|
|
|
254
|
|
|
|
243
|
|
BOLI income
|
|
|
757
|
|
|
|
733
|
|
|
|
379
|
|
|
|
1,490
|
|
|
|
1,220
|
|
Other income
|
|
|
1,624
|
|
|
|
1,173
|
|
|
|
1,065
|
|
|
|
2,797
|
|
|
|
1,804
|
|
Total
|
|
$
|
10,467
|
|
|
$
|
9,905
|
|
|
$
|
9,111
|
|
|
$
|
20,372
|
|
|
$
|
17,741
|
|
For the second quarter of 2017, most categories
of service fee income showed year over year growth compared to 2016’s second quarter, with service charges on deposit accounts
increasing 9.2%, interchange income up 12.7%, BOLI income higher by 99.7%, and other income rising 52.5%. These increases reflect
continued strength in customer acquisition and cross sell and benefits from acquisition activity. Regulators continue to review
banking industry’s practices for overdraft programs and additional regulation could reduce fee income for the Company’s
overdraft services.
Interchange revenue is dependent upon business volumes transacted, as
well as the fees permitted by VISA
®
and MasterCard
®
.
Wealth management, including
brokerage commissions and fees, and trust income, decreased 3.1% during the second quarter of 2017, compared to prior
year’s second quarter. For the six month period ended June 30, 2017, wealth management income was 8.0% lower compared
to 2016. While trust income increased 9.4% from the second quarter of 2016, brokerage commissions and fees were 25.3% lower.
Adopting U.S. Department of Labor (“DOL”) compliant standards reduced product availability, and revenue leveled
and is recognized over a longer period, reflecting a shift toward fee-based accounts. Despite recent decreases, we expect
wealth management revenues to grow over time.
Salable mortgage production was lower
during the second quarter of 2017 compared to 2016’s second quarter (see “Loan Portfolio”), with mortgage
banking activity generating fees that were 6.7% lower, compared to 2016’s second quarter. Six month results for 2017
were $461,000 or 19.5% higher than a year ago. Mortgage banking fees declined $0.3 million from the first quarter of 2017,
the result of shifting consumer demand to construction product and tight inventory levels of homes for sale. Originated
residential mortgage loans are processed by commissioned employees of Seacoast, with many mortgage loans referred by the
Company’s branch personnel.
BOLI income was significantly higher for
second quarter 2017 compared to 2016’s second quarter, due to additional purchases of BOLI in the fourth quarter of 2016
that increased this asset to $85 million, and increased income in the second quarter 2017 by 99.7% compared to second quarter 2017.
For the six months ended June 30, 2017, income was higher but to a lesser degree, by 22.1% compared to the first half of 2016,
in part due to the recognition of a death benefit of $0.5 million in the first quarter of 2016. Higher income is expected to benefit
the Company over 2017 and prospectively.
Marine finance fees increased from the
first quarter of 2017 to $0.3 million, up 143.3%, reflecting stronger demand for marine vessels and a strategic shift to selling
more production. For the six month period ended June 30, 2017, marine financing fees were 9.5% higher than a year ago.
Other income was 52.5% higher year
over year for second quarter 2017. For the first half of 2017, other income was 55.0% higher than the first half of 2016. Of the
increase of $0.6 million for the second quarter of 2017, $0.2 million was income generated by Community Reinvestment
Act (“CRA”) investments the Company has made and $0.1 million in miscellaneous loan related fees. A general
increase in other fee categories also occurred, the result of pricing increases implemented across the franchise on a number
of services offered.
Noninterest Expenses
Noninterest expenses for the second quarter
of 2017 totaled $41.6 million, increasing $6.9 million compared to the first quarter of 2017, and were $6.8 million higher than
second quarter 2016. For the six months ended June 30, 2017, noninterest expense was $76.4 million compared to $67.1 million for
the six months ended June 30, 2016.
Noninterest expenses for the second
quarter of 2017, compared to first quarter 2017 and the second quarter of 2016, and for the six months ended June 30, 2017
and 2016, is detailed as follows:
|
|
Second
|
|
|
First
|
|
|
Second
|
|
|
Six Months Ended
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
June 30,
|
|
(In thousands)
|
|
2017
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Noninterest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages
|
|
$
|
18,375
|
|
|
$
|
15,369
|
|
|
$
|
13,884
|
|
|
$
|
33,744
|
|
|
$
|
27,283
|
|
Employee benefits
|
|
|
2,935
|
|
|
|
3,068
|
|
|
|
2,521
|
|
|
|
6,003
|
|
|
|
5,003
|
|
Outsourced data processing costs
|
|
|
3,456
|
|
|
|
3,269
|
|
|
|
2,803
|
|
|
|
6,725
|
|
|
|
7,242
|
|
Telephone/data lines
|
|
|
648
|
|
|
|
532
|
|
|
|
539
|
|
|
|
1,180
|
|
|
|
1,067
|
|
Occupancy
|
|
|
4,421
|
|
|
|
3,157
|
|
|
|
3,645
|
|
|
|
7,578
|
|
|
|
6,617
|
|
Furniture and equipment
|
|
|
1,679
|
|
|
|
1,391
|
|
|
|
1,283
|
|
|
|
3,070
|
|
|
|
2,281
|
|
Marketing
|
|
|
1,074
|
|
|
|
922
|
|
|
|
957
|
|
|
|
1,996
|
|
|
|
2,006
|
|
Legal and professional fees
|
|
|
3,276
|
|
|
|
2,132
|
|
|
|
2,656
|
|
|
|
5,408
|
|
|
|
5,013
|
|
FDIC assessments
|
|
|
650
|
|
|
|
570
|
|
|
|
643
|
|
|
|
1,220
|
|
|
|
1,187
|
|
Amortization of intangibles
|
|
|
839
|
|
|
|
719
|
|
|
|
593
|
|
|
|
1,558
|
|
|
|
1,039
|
|
Asset disposition expense
|
|
|
136
|
|
|
|
53
|
|
|
|
160
|
|
|
|
189
|
|
|
|
250
|
|
Net loss (gain) on other real estate owned and repossessed assets
|
|
|
161
|
|
|
|
(346
|
)
|
|
|
(201
|
)
|
|
|
(185
|
)
|
|
|
(252
|
)
|
Early redemption cost for Federal Home Loan Bank borrowings
|
|
|
0
|
|
|
|
0
|
|
|
|
1,777
|
|
|
|
0
|
|
|
|
1,777
|
|
Other
|
|
|
3,975
|
|
|
|
3,910
|
|
|
|
3,548
|
|
|
|
7,885
|
|
|
|
6,636
|
|
TOTAL
|
|
$
|
41,625
|
|
|
$
|
34,746
|
|
|
$
|
34,808
|
|
|
$
|
76,371
|
|
|
$
|
67,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Efficiency ratio
|
|
|
73.9
|
%
|
|
|
71.1
|
%
|
|
|
78.0
|
%
|
|
|
72.6
|
%
|
|
|
79.8
|
%
|
Efficiency ratio is defined as (noninterest expense less foreclosed
property expense and amortization of intangibles) divided by net operating revenue (net interest income on a fully tax equivalent
basis plus noninterest income excluding securities gains).
The second quarter of 2017 included expenses
of $1.9 million associated with branch consolidation initiatives, which are expected to have a positive impact to expenses over
the remainder of the year. In addition, $5.9 million of merger related charges and amortization of intangibles was incurred in
the second quarter of 2017, primarily related to the acquisition of GulfShore Bank in April 2017.
Adjusted noninterest expense
1
(a non-GAAP measure, see table below for a reconciliation to noninterest expense, the most comparable GAAP number) was $33.8 million,
compared to $30.9 million in the first quarter of 2017, and $28.4 million in the prior year’s second quarter. For the six
months ended June 30, 2017, adjusted noninterest expense
1
was $64.8 million compared to $55.3 million for the six months
ended June 30, 2016. The increase compared to the first quarter of 2017 on this adjusted basis is related to the addition of ongoing
headcount and expenses associated with our new Tampa market operations totaling $1.1 million, a loss of $161,000 on other real
estate owned in the second quarter of 2017 compared to a net gain of $346,000 in the first quarter of 2017, the full $571,000 impact
in second quarter of the commercial lending team acquired in the first quarter of 2017, as well as other investments made in talent
and professional services to scale the organization.
|
|
Second
|
|
|
First
|
|
|
Second
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
(In thousands)
|
|
2017
|
|
|
2017
|
|
|
2016
|
|
Noninterest expense, as reported
|
|
$
|
41,625
|
|
|
$
|
34,746
|
|
|
$
|
34,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger related charges
|
|
|
5,081
|
|
|
|
533
|
|
|
|
2,446
|
|
Amortization of intangibles
|
|
|
839
|
|
|
|
719
|
|
|
|
593
|
|
Branch reductions and other expense initiatives*
|
|
|
1,876
|
|
|
|
2,572
|
|
|
|
1,587
|
|
Early redemption cost for Federal Home Loan Bank borrowings
|
|
|
0
|
|
|
|
0
|
|
|
|
1,777
|
|
Total adjustments
|
|
|
7,796
|
|
|
|
3,824
|
|
|
|
6,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted noninterest expense
1
|
|
$
|
33,829
|
|
|
$
|
30,922
|
|
|
$
|
28,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted efficiency ratio
1,2
|
|
|
61.2
|
%
|
|
|
64.7
|
%
|
|
|
64.8
|
%
|
|
(1)
|
Non-GAAP measures. The most directly comparable GAAP measures are noninterest expense and
efficiency ratio, respectively.
|
|
(2)
|
Efficiency ratio is defined as (noninterest expense less foreclosed property expense and amortization
of intangibles) divided by the net operating revenue (net interest on a fully tax equivalent basis plus noninterest income excluding
securities gains)
|
*Includes severance, contract termination
costs, disposition of branch premises and fixed assets, and other costs to effect our branch consolidation and other expense reduction
strategies.
Prospectively, Seacoast management
expects its efficiency ratio to improve, entering 2018 in the 50’s. The Company expects its digital
servicing capabilities and technology to continue to support better, more efficient channel integration, allowing consumers
to choose their path of convenience to satisfy their banking needs, resulting in organic growth of our products and services
as well as related revenue.
Total occupancy, furniture and
equipment expenses for the second quarter of 2017 totaled $6.1 million, increasing $1.6 million or 34.1% (on an aggregate
basis) from first quarter 2017 and $1.2 million or 23.8% from 2016’s second quarter. For the six months ended June 30,
2017, these expenses were $1.8 million or 19.7% higher than the six months ended June 30, 2016. Branch closure
charges summed to $1.9 million during the second quarter of 2017. We believe branches are still valuable to our customers for
more complex transactions, but simple tasks, such as depositing and withdrawing funds, are rapidly migrating to a digital
world. During the second quarter of 2017, deposits outside of the branch network increased to 39% from 33% in the same
quarter one year prior. Our goal at the beginning of 2017 was to close 20% of our locations over the next 24 to 36 months.
We consolidated one location during the first quarter of 2017 and four additional locations in the second quarter of 2017.
Some of this operational expense savings will be reinvested into technology and talent to deliver products and services in
new more convenient ways.
Seacoast Bank utilizes third parties for
its core data processing systems and outsourced data processing costs are directly related to the number of transactions processed.
Outsourced data processing costs totaled $3.5 million for the second quarter of 2017, an increase of $0.2 million or 5.7% from
first quarter 2017 and higher by $0.7 million or 23.3% from the second quarter last year. Outsourced data processing expense were
$0.5 million or 7.1% lower for the six months ended June 30, 2017, compared to a year ago. The primary cause for the decrease year
over year was one-time charges of $1.9 million for conversion activity related to the acquisition of Floridian in the first quarter
of 2016.
Legal and professional fees totaled $3.3
million for the second quarter of 2017, compared to $2.1 million for the first quarter of 2017 and $2.7 million for the second
quarter in 2016, and totaled $5.4 million for the first six months of 2017 compared to $5.0 million during same period in 2016,
respectively. Legal and professional fees related to acquisitions were $1.1 million higher in the second quarter of 2017 compared
to the first quarter of 2017, and the primary cause of the overall of $1.2 million increase compared to prior quarter.
Changes in remaining categories, including
marketing, FDIC assessments, and asset disposition expense were less significant.
Other expense totaled $4.0 million for the second quarter of
2017, increasing by $0.1 million or 1.7% compared to first quarter 2017 and higher by $0.4 million or 12.0% compared to second
quarter 2016’s expense. Year-to-date through June 30, 2017, other expense was $1.2 million or 18.8% higher than for the six
months ended June 30, 2016. Contributing to the increase year over year for the six month period ended June 30, 2017, were miscellaneous
losses and charge-offs (up $0.2 million from 2016), director fees (higher by $0.2 million), employee placement fees (increasing
$0.2 million), credit information (up $0.1 million), and bank meetings (rising $0.4 million versus 2016).
Income Taxes
For first and second quarters of
2017, provision for income taxes totaled $3.9 million and $4.1 million, respectively. Various tax strategies have been
implemented to reduce the Company’s overall effective tax rate year-to-date to 34.0% for 2017, compared to 36.2% for
the first six months of 2016. Additionally, ASU 2016-09 provided a tax benefit of $565,000 included in 2017’s provision
for taxes for the first six months. Management believes all of the future tax benefits of the Company’s deferred tax
assets can be realized and no valuation allowance is required.
Critical Accounting Policies
and Estimates
The Company’s consolidated financial
statements are prepared in accordance with U.S. generally accepted accounting principles, (“GAAP”), including prevailing
practices within the financial services industry. The preparation of consolidated financial statements requires management to make
judgments in the application of certain of its accounting policies that involve significant estimates and assumptions. We have
established policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently
from period to period. These estimates and assumptions, which may materially affect the reported amounts of certain assets, liabilities,
revenues and expenses, are based on information available as of the date of the financial statements, and changes in this information
over time and the use of revised estimates and assumptions could materially affect amounts reported in subsequent financial statements.
Management, after consultation with the Company’s Audit Committee, believes the most critical accounting estimates and assumptions
that involve the most difficult, subjective and complex assessments are:
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the allowance and the provision for loan losses;
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acquisition accounting and purchased loans;
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intangible assets and impairment testing;
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other fair value adjustments;
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other than temporary impairment of securities;
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realization of deferred tax assets; and
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contingent liabilities.
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The following is a discussion of the critical accounting policies
intended to facilitate a reader’s understanding of the judgments, estimates and assumptions underlying these accounting policies
and the possible or likely events or uncertainties known to us that could have a material effect on our reported financial information.
Allowance and Provision for Loan Losses – Critical
Accounting Policies and Estimates
Management determines the provision for
loan losses by continuously analyzing and monitoring delinquencies, nonperforming loans levels and the outstanding balances for
each loan category, as well as the amount of net charge-offs, for estimating losses inherent in its portfolio. While the Company’s
policies and procedures used to estimate the provision for loan losses charged to operations are considered adequate by management,
factors beyond the control of the Company, such as general economic conditions, both locally and nationally, make management’s
judgment as to the adequacy of the provision and allowance for loan losses approximate and imprecise (see “Nonperforming
Assets”).
The provision for loan losses is the result
of a detailed analysis estimating for probable loan losses. The analysis includes the evaluation of impaired and purchased credit
impaired loans as prescribed under FASB Accounting Standards Codification (“ASC”) 310,
Receivables
as well as
an analysis of homogeneous loan pools not individually evaluated as prescribed under ASC 450,
Contingencies
. For the first
and second quarters of 2017, the Company recorded provisioning for loan losses of $1.3 million and $1.4 million, respectively,
which compared to provisioning for loan losses for the first and second quarters of 2016 of $0.2 million and 0.7 million, respectively.
The Company had net charge-offs of $105,000 in the first six months of 2017, compared to net recoveries for 2016’s first
six months of ($736,000), representing 0.01% and (0.07%) of year-to-date average total loans. For 2017, provisioning for loan losses
reflects continued strong credit metrics, offset by continued loan growth. Delinquency trends remain low and show continued stability
(see section titled “Nonperforming Loans, Troubled Debt Restructurings, Other Real estate Owned, and Credit Quality”).
The allowance for loan losses increased
$2.6 million to $26.0 million at June 30, 2017, compared to $23.4 million at December 31, 2016. The allowance for loan and lease
losses (“ALLL”) framework has four basic elements: (1) specific allowances for loans individually evaluated for impairment;
(2) general allowances for pools of homogeneous non-purchased loans (“portfolio loans”), which are not individually
evaluated; (3) specific allowances for purchased impaired loans which are individually evaluated based on the loans expected principal
and interest cash flows; and (4) general allowances for purchased unimpaired pools of homogeneous loans that have similar risk
characteristics. The aggregate of these four components results in our total allowance for loan losses.
The first component of the ALLL analysis
involves the estimation of an allowance specific to individually evaluated impaired portfolio loans, including accruing and non-accruing
restructured commercial and consumer loans. In this process, a specific allowance is established for impaired loans based on an
analysis of the most probable sources of repayment, including discounted cash flows, liquidation or operation of the collateral,
or the market value of the loan itself. It is the Company’s policy to charge off any portion of the loan deemed uncollectable.
Restructured consumer loans are also evaluated and included in this element of the estimate. As of June 30, 2017, the specific
allowance related to impaired portfolio loans individually evaluated totaled $1.9 million, compared to $2.5 million as of December
31, 2016. Residential loans that become 90 days past due are placed on nonaccrual and a specific allowance is made for any loan
that becomes 120 days past due. Residential loans are subsequently written down if they become 180 days past due and such write-downs
are supported by a current appraisal, consistent with current banking regulations.
The second component of the ALLL analysis,
the general allowance for homogeneous portfolio loan pools not individually evaluated, is determined by applying factors to pools
of loans within the portfolio that have similar risk characteristics. The general allowance is determined using a baseline factor
that is developed from an analysis of historical net charge-off experience. These baseline factors are developed and applied to
the various portfolio loan pools. Adjustments may be made to baseline reserves for some of the loan pools based on an assessment
of internal and external influences on credit quality not fully reflected in the historical loss experience. These influences may
include elements such as changes in concentration, macroeconomic conditions, and/or recent observable asset quality trends.
The third component consists of amounts
reserved for purchased credit-impaired loans (PCI). On a quarterly basis, the Company updates the amount of loan principal and
interest cash flows expected to be collected, incorporating assumptions regarding default rates, loss severities, the amounts and
timing of prepayments and other factors that are reflective of current market conditions. Probable decreases in expected loan cash
flows trigger the recognition of impairment, which is then measured as the present value of the expected principal loss plus any
related foregone interest cash flows discounted at the loan’s effective interest rate. Impairments that occur after the acquisition
date are recognized through the provision for loan losses. Probable and significant increases in expected principal cash flows
would first reverse any previously recorded allowance for loan losses; any remaining increases are recognized prospectively as
interest income. The impacts of (i) prepayments, (ii) changes in variable interest rates, and (iii) any other changes in the timing
of expected cash flows are recognized prospectively as adjustments to interest income. Disposals of loans, which may include sales
of loans, receipt of payments in full by the borrower, or foreclosure, result in removal of the loan from the purchased credit
impaired portfolio.
The final component consists of amounts
reserved for purchased unimpaired loans (PUL). Loans collectively evaluated for impairment reported at June 30, 2017 include loans
acquired from GulfShore on April 7, 2017, BMO Harris on June 3, 2016, Floridian Bank on March 11, 2016, Grand Bank on July 17,
2015 and BANKshares on October 1, 2014 that are not PCI loans. These loans are performing loans recorded at estimated fair value
at the acquisition date. These fair value discount amounts are accreted into income over the remaining lives of the related loans
on a level yield basis, and remained adequate at June 30, 2017.
Our analysis of the adequacy of the allowance
for loan losses also takes into account qualitative factors such as credit quality, loan concentrations, internal controls, audit
results, staff turnover, local market conditions, employment levels and loan growth.
During the first quarter of 2017, management
enhanced its processes for evaluating the adequacy of the general reserve components of the allowance for loan losses due to the
increasing size and complexity of the commercial loan portfolio. Using a third-party software tool, the enhanced process applies
a migration model to portfolio segments that allows us to observe performance over time, and the ability to separately analyze
sub-segments based on vintage, risk rating, and origination tactics. Previously, an analysis was based on an average loss rate
for various lookback periods.
These enhancements provide a more reliable
estimate of probable losses in the portfolio, improve the efficiency of the process for preparing the analysis, and provide the
foundation for moving to a current expected credit loss approach. This change in accounting estimate was implemented on January
1, 2017 and had no material impact on the allowance for loan losses.
The allowance as a percentage of portfolio
loans outstanding (excluding PCI and PUL loans) was 0.95% at June 30, 2017, compared to 0.96% at December 31, 2016. The reduced
level of impaired loans contributed to a lower risk of loss and the lower allowance for loan losses as of June 30, 2017. The risk
profile of the loan portfolio reflects adherence to credit management methodologies to execute a low risk strategic plan for loan
growth. New loan production is focused on adjustable rate residential real estate loans, owner-occupied commercial real estate,
small business loans for professionals and businesses, as well as consumer lending. Strategies, processes and controls are in place
to ensure that new production is well underwritten and maintains a focus on smaller, diversified and lower-risk lending.
Concentrations of credit risk, discussed
under the caption “Loan Portfolio” of this discussion and analysis, can affect the level of the allowance and may involve
loans to one borrower, an affiliated group of borrowers, borrowers engaged in or dependent upon the same industry, or a group of
borrowers whose loans are predicated on the same type of collateral. At June 30, 2017, the Company had $1.095 billion in loans
secured by residential real estate and $1.591 billion in loans secured by commercial real estate, representing 32.9% and 47.8%
of total loans outstanding, respectively. In addition, the Company is subject to a geographic concentration of credit because it
only operates in central and southeastern Florida.
It is the practice of the Company to ensure
that its charge-off policy meets or exceeds regulatory minimums. Losses on unsecured consumer loans are recognized at 90 days past
due, compared to the regulatory loss criteria of 120 days. In compliance with Federal Financial Institution Examination Council
guidelines, secured consumer loans, including residential real estate, are typically charged-off or charged down between 120 and
180 days past due, depending on the collateral type. Commercial loans and real estate loans are typically placed on nonaccrual
status when principal or interest is past due for 90 days or more, unless the loan is both secured by collateral having realizable
value sufficient to discharge the debt in-full and the loan is in process of collection. Secured loans may be charged-down to the
estimated value of the collateral with previously accrued unpaid interest reversed. Subsequent charge-offs may be required as a
result of changes in the market value of collateral or other repayment prospects. Initial charge-off amounts are based on valuation
estimates derived from appraisals, broker price opinions, or other market information. Generally, new appraisals are not received
until the foreclosure process is completed; however, collateral values are evaluated periodically based on market information and
incremental charge-offs are recorded if it is determined that collateral values have declined from their initial estimates.
While it is the Company’s policy
to charge off in the current period loans in which a loss is considered probable, there are additional risks of future losses that
cannot be quantified precisely or attributed to particular loans or classes of loans. Because these risks include the state of
the economy, borrower payment behaviors and local market conditions as well as conditions affecting individual borrowers, management’s
judgment of the allowance is necessarily approximate and imprecise. The allowance is also subject to regulatory examinations and
determinations as to adequacy, which may take into account such factors as the methodology used to calculate the allowance for
loan losses and the size of the allowance for loan losses in comparison to a group of peer companies identified by the regulatory
agencies. Management will consistently evaluate the allowance for loan losses methodology and seek to refine and enhance this process
as appropriate. As a result, it is likely that the methodology will continue to evolve over time.
Note F to the financial statements (titled
“Impaired Loans and Allowance for Loan Losses”) summarizes the Company’s allocation of the allowance for loan
losses to construction and land development loans, commercial and residential estate loans, commercial and financial loans, and
consumer loans, and provides more specific detail regarding charge-offs and recoveries for each loan component and the composition
of the loan portfolio at June 30, 2017 and June 30, 2016.
Acquisition Accounting and Purchased Loans – Critical
Accounting Policies and Estimates
The Company accounts for its acquisitions
under ASC Topic 805,
Business Combinations
, which requires the use of the acquisition method of accounting. All identifiable
assets acquired, including loans, are recorded at fair value. No allowance for loan losses related to the acquired loans is recorded
on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit risk. All loans acquired
are recorded at fair value in accordance with the fair value methodology prescribed in ASC Topic 820. The fair value estimates
associated with the loans include estimates related to expected prepayments and the amount and timing of expected principal, interest
and other cash flows.
Over the life of the purchased credit impaired
loans acquired, the Company continues to estimate cash flows expected to be collected. The Company evaluates at each balance sheet
date whether the present value of the acquired loans using the effective interest rates has decreased and if so, recognizes a provision
for loan loss in its consolidated statement of income. For any increases in cash flows expected to be collected, the Company adjusts
the amount of accretable yield recognized on a prospective basis over the loan’s remaining life.
Intangible Assets and Impairment
Testing – Critical Accounting Policies and Estimates
Intangible assets consist of goodwill and
core deposit intangibles. Goodwill represents the excess purchase price over the fair value of net assets acquired in business
acquisitions. The core deposit intangible represents the excess intangible value of acquired deposit customer relationships as
determined by valuation specialists. The core deposit intangibles from the BANKshares, Grand, Floridian and GulfShore acquisitions
are being amortized over 74 months, 94 months, 69 months and 98 months, respectively, on a straight-line basis, and are evaluated
for indications of potential impairment at least annually. Goodwill is not amortized but rather is evaluated for impairment on
at least an annual basis. We performed an annual impairment test of goodwill and core deposit intangibles as required by FASB ASC
350,
Intangibles—Goodwill and Other,
in the fourth quarter of 2016. Seacoast employed an independent third party with
extensive experience in conducting and documenting impairment tests of this nature, and concluded that no impairment occurred.
Fair value estimates for acquired assets
and assumed liabilities are based on the information available, and are subject to change for up to one year after the closing
date of the acquisition as additional information relative to closing date fair values becomes available.
Other Fair Value Measurements –
Critical Accounting Policies and Estimates
“As Is” values are used to
measure fair market value on impaired loans, OREO and repossessed assets. All impaired loans, OREO and repossessed assets are reviewed
quarterly to determine if fair value adjustments are necessary based on known changes in the market and/or the project assumptions.
When necessary, the “As Is” appraised value may be adjusted based on more recent appraisal assumptions received
by the Company on other similar properties, the tax assessed market value, comparative sales and/or an internal valuation. Collateral
dependent impaired loans are loans that are solely dependent on the liquidation or operation of the collateral for repayment. If
an updated assessment is deemed necessary and an internal valuation cannot be made, an external “As Is” appraisal will
be requested. Upon receipt of the “As Is” appraisal a charge-off is recognized for the difference between the loan
amount and its current fair market value.
At June 30, 2017, outstanding securities
designated as available for sale totaled $1.017 billion. The fair value of the available for sale portfolio at June 30, 2017 was
less than historical amortized cost, producing net unrealized losses of $1.6 million that have been included in other comprehensive
income (loss) as a component of shareholders’ equity (net of taxes). The Company made no change to the valuation techniques
used to determine the fair values of securities during 2017 and 2016. The fair value of each security available for sale was obtained
from independent pricing sources utilized by many financial institutions or from dealer quotes. The fair value of many state and
municipal securities are not readily available through market sources, so fair value estimates are based on quoted market price
or prices of similar instruments. Generally, the Company obtains one price for each security. However, actual values can only be
determined in an arms-length transaction between a willing buyer and seller that can, and often do, vary from these reported values.
Furthermore, significant changes in recorded values due to changes in actual and perceived economic conditions can occur rapidly,
producing greater unrealized losses or gains in the available for sale portfolio.
The credit quality of the Company’s
securities holdings are primarily investment grade. As of June 30, 2017, the Company’s available for sale investment securities,
except for approximately $63.4 million of securities issued by states and their political subdivisions, generally are traded in
liquid markets. U.S. Treasury and U.S. Government agency obligations totaled $538.4 million, or 53 percent of the total available
for sale portfolio. The portfolio also includes $89.6 million in private label securities, most secured by residential real estate
collateral originated in 2005 or prior years with low loan to values, and current FICO scores above 700. Generally these securities
have credit support exceeding 5%. The collateral underlying these mortgage investments are primarily 30- and 15-year fixed rate,
5/1 and 10/1 adjustable rate mortgage loans. Historically, the mortgage loans serving as collateral for those investments have
had minimal foreclosures and losses. The Company also has invested $223.1 million in uncapped 3-month Libor floating rate collateralized
loan obligations. Collateralized loan obligations are special purpose vehicles that purchase loans as assets that provide a steady
stream of income and possible capital appreciation. The collateral for the securities is first lien senior secured corporate debt.
The Company has purchased senior tranches rated credit A or higher and performed stress tests, which indicated that the senior
subordination levels are sufficient and no principal loss is forecast, verifying the independent rating. In addition, the Company
has acquired several corporate bonds and private commercial mortgage backed securities totaling $102.2 million at June 30, 2017.
At March 11, 2016 and July 17, 2015, Floridian and Grand securities of $67.0 million and $46.4 million, respectively, were acquired
and added to the available for sale portfolio at their fair value. At April 7, 2017, nominal securities were acquired from the GulfShore
acquisition.
During 2014, management identified $158.8
million of investment securities available for sale and transferred them to held to maturity. The unrealized holding losses at
the date of transfer totaled $3.0 million. For the securities that were transferred into the held to maturity category from the
available for sale category, the unrealized holding losses at the date of the transfer will continue to be reported in other comprehensive
income, and will be amortized over the remaining life of the security as an adjustment of yield in a manner consistent with the
amortization of a discount. At June 30, 2017, the remaining unamortized amount of these losses was $1.6 million. The amortization
of unrealized holding losses reported in equity will offset the effect on interest income of the amortization of the discount.
Management believes the securities transferred are a core banking asset that they now intend to hold until maturity, and if interest
rates were to increase before maturity, the fair values would be impacted more significantly and therefore are not consistent with
the characteristics of an available for sale investment.
Seacoast Bank also holds
211,330 shares of Visa Class B stock, which following resolution of Visa’s litigation will be converted to Visa Class A
shares (the conversion rate presently is 1.6483 shares of Class A stock for each share of Class B stock) for a total of
348,335 shares of Visa Class A stock. Our holdings are related to prior ownership in Visa’s network while Visa operated
as a cooperative (11,330 shares), and by acquisition via auctions (200,000 shares) for $6.2 million conducted by the FDIC
during the first quarter of 2017. These holdings are reported in other assets in the Consolidated Balance Sheets at the
Company’s cost of $6.2 million.
Other Than Temporary Impairment of
Securities – Critical Accounting Policies and Estimates
Our investments are reviewed quarterly
for other than temporary impairment (“OTTI”). The following primary factors are considered for securities identified
for OTTI testing: percent decline in fair value, rating downgrades, subordination, duration, amortized loan-to-value, and the ability
of the issuers to pay all amounts due in accordance with the contractual terms. Prices obtained from pricing services are usually
not adjusted. Based on our internal review procedures and the fair values provided by the pricing services, we believe that the
fair values provided by the pricing services are consistent with the principles of ASC 820,
Fair Value Measurement
. However,
on occasion pricing provided by the pricing services may not be consistent with other observed prices in the market for similar
securities. Using observable market factors, including interest rate and yield curves, volatilities, prepayment speeds, loss severities
and default rates, the Company may at times validate the observed prices using a discounted cash flow model and using the observed
prices for similar securities to determine the fair value of its securities.
Changes in the fair values, as a result
of deteriorating economic conditions and credit spread changes, should only be temporary. Further, management believes that the
Company’s other sources of liquidity, as well as the cash flow from principal and interest payments from its securities portfolio,
reduces the risk that losses would be realized as a result of a need to sell securities to obtain liquidity.
Realization of Deferred Tax Assets – Critical Accounting
Policies and Estimates
At June 30, 2017, the Company had net deferred
tax assets (“DTA”) of $52.2 million. Although realization is not assured, management believes that realization of the
carrying value of the DTA is more likely than not, based upon expectations as to future taxable income and tax planning strategies,
as defined by ASC 740 Income Taxes. In comparison, at June 30, 2016 the Company had a net DTA of $62.6 million.
Factors that support this conclusion:
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Income before tax (“IBT”) has steadily increased as a result of organic growth, and the 2017 GulfShore, 2016 Floridian and BMO acquisitions will further assist in achieving management’s forecast of future earnings which recovers the net operating loss carry-forwards well before expiration;
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Credit costs and overall credit risk has been stable which decreases their impact on future taxable earnings;
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Growth rates for loans are at levels adequately supported by loan officers and support staff;
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New loan production credit quality and concentrations are well managed; and
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Current economic growth forecasts for Florida and the Company’s markets are supportive.
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Contingent Liabilities – Critical Accounting Policies
and Estimates
The Company is subject to contingent liabilities,
including judicial, regulatory and arbitration proceedings, and tax and other claims arising from the conduct of our business activities.
These proceedings include actions brought against the Company and/or our subsidiaries with respect to transactions in which the
Company and/or our subsidiaries acted as a lender, a financial advisor, a broker or acted in a related activity. Accruals are established
for legal and other claims when it becomes probable that the Company will incur an expense and the amount can be reasonably estimated.
Company management, together with attorneys, consultants and other professionals, assesses the probability and estimated amounts
involved in a contingency. Throughout the life of a contingency, the Company or our advisors may learn of additional information
that can affect our assessments about probability or about the estimates of amounts involved. Changes in these assessments can
lead to changes in recorded reserves. In addition, the actual costs of resolving these claims may be substantially higher or lower
than the amounts reserved for the claims. At June 30, 2017, the Company had no significant accruals for contingent liabilities
and had no known pending matters that could potentially be significant.
Interest Rate Sensitivity
Fluctuations in interest rates may result
in changes in the fair value of the Company’s financial instruments, cash flows and net interest income. This risk is managed
using simulation modeling to calculate the most likely interest rate risk utilizing estimated loan and deposit growth. The objective
is to optimize the Company’s financial position, liquidity, and net interest income while limiting their volatility.
Senior management regularly reviews
the overall interest rate risk position and evaluates strategies to manage the risk. The Company’s second quarter 2017
Asset and Liability Management Committee (“ALCO”) model simulation indicates net interest income would increase
5.8% if interest rates increased 200 basis points over the next 12 months and 3.0% if interest rates increased 100 basis
points, and improve 9.1% and 4.8% respectively, on a 13 to 24 month basis. This compares with the Company’s second
quarter 2016 model simulation, which indicated net interest income would increase 9.6% if interest rates were increased 200
basis points over the next 12 months and 5.2% if interest rates were increased 100 basis points. Recent regulatory
guidance has placed more emphasis on rate shocks, adding a 13 to 24 month horizon.
The Company had a positive gap position
based on contractual and prepayment assumptions for the next 12 months, with a positive cumulative interest rate sensitivity gap
as a percentage of total earning assets of 17.0% at June 30, 2017. This result includes assumptions for core deposit re-pricing
validated for the Company by an independent third party consulting group.
The computations of interest rate risk do not necessarily include
certain actions management may undertake to manage this risk in response to changes in interest rates. Derivative financial instruments,
such as interest rate swaps, options, caps, floors, futures and forward contracts may be utilized as components of the Company’s
risk management profile.
Effects of Inflation and Changing Prices
The condensed consolidated financial statements
and related financial data presented herein have been prepared in accordance with U.S. GAAP, which require the measurement of financial
position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of
money, over time, due to inflation.
Unlike most industrial companies, virtually
all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant
impact on a financial institution’s performance than the general level of inflation. However, inflation affects financial
institutions by increasing their cost of goods and services purchased, as well as the cost of salaries and benefits, occupancy
expense, and similar items. Inflation and related increases in interest rates generally decrease the market value of investments
and loans held and may adversely affect liquidity, earnings, and shareholders’ equity. Mortgage originations and re-financings
tend to slow as interest rates increase, and higher interest rates likely will reduce the Company’s earnings from such activities
and the income from the sale of residential mortgage loans in the secondary market.
Special Cautionary Notice Regarding Forward Looking Statements
Certain statements made
or incorporated by reference herein which are not statements of historical fact, including those under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein, are “forward-looking
statements” within the meaning and protections of Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements
with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and 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 Banking Corporation of Florida (“Seacoast” or the
“Company”) to be materially different from those set forth in the forward-looking statements.
All statements other
than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking
statements through our use of words such as “may,” “will,” “anticipate,” “assume,”
“should,” “indicate,” “would,” “believe,” “contemplate,” “expect,”
“estimate,” “continue,” “further,” “plan,” “point to,” “project,”
“could,” “intend,” “target” and 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:
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the effects of current and future economic, business and market conditions in the United States
generally or in the communities we serve;
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changes in governmental monetary and fiscal policies, including interest rate policies of the Board
of Governors of the Federal Reserve System (the “Federal Reserve”);
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legislative and regulatory changes, including changes in banking, securities and tax laws and regulations
and their application by our regulators, including those associated with the Dodd Frank Wall Street Reform and Consumer Protection
Act (the “Dodd-Frank Act”) and changes in the scope and cost of Federal Deposit Insurance Corporation (“FDIC”)
insurance and other coverage;
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changes in accounting policies, rules and practices and applications or determinations made thereunder;
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the risks of changes in interest rates on the levels, composition and costs of deposits, loan demand,
and the values and liquidity of loan collateral, securities, and interest sensitive assets and liabilities;
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changes in borrower credit risks and payment behaviors;
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changes in the availability and cost of credit and capital in the financial markets;
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changes in the prices, values and sales volumes of residential and commercial real estate in the
United States and in the communities we serve, which could impact write-downs of assets, our ability to liquidate non-performing
assets, realized losses on the disposition of non-performing assets and increased credit losses;
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our ability to comply with any requirements imposed on us or on our banking subsidiary, Seacoast
National Bank (“Seacoast Bank”) by regulators and the potential negative consequences that may result;
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our concentration in commercial real estate loans;
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the failure of assumptions and estimates, as well as differences in, and changes to, economic,
market and credit conditions, including changes in borrowers’ credit risks and payment behaviors from those used in our loan
portfolio stress test;
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the effects of competition from a wide variety of local, regional, national and other providers
of financial, investment and insurance services;
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the failure of assumptions and estimates underlying the establishment of reserves for possible
loan losses and other estimates;
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the impact on the valuation of our investments due to market volatility or counterparty payment
risk;
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statutory and regulatory restrictions on our ability to pay dividends to our shareholders;
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any applicable regulatory limits on Seacoast Bank’s ability to pay dividends to us;
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increases in regulatory capital requirements for banking organizations generally, which may adversely
affect our ability to expand our business or could cause us to shrink our business;
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the risks of mergers, acquisitions and divestitures, including, without limitation, the related
time and costs of implementing such transactions, integrating operations as part of these transactions and possible failures to
achieve expected gains, revenue growth and/or expense savings from such transactions;
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changes in technology or products that may be more difficult, costly, or less effective than anticipated;
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increased cybersecurity risks, including potential business disruptions or financial losses; inability
of our risk management framework to manage risks associated with our business such as credit risk and operational risk, including
third party vendors and other service providers;
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the effects of war or other conflicts, acts of terrorism or other catastrophic events that may
affect general economic conditions;
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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; and
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other factors and risks described under “Risk Factors” herein and in any of our subsequent
reports filed with the Securities and Exchange Commission (the “Commission” or “SEC”) and available on
its website at www.sec.gov.
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All written or oral
forward-looking statements that are made by us or are attributable to us are expressly qualified in their entirety by this cautionary
notice. We assume no obligation to update, revise or correct any forward-looking statements that are made from time to time, either
as a result of future developments, new information or otherwise, except as may be required by law.