Results of Operations
For the first quarter of 2021, the Company reported net income of $33.7 million, or $0.60 per average diluted share, compared to $29.3 million, or $0.53, for the fourth quarter of 2020 and $0.7 million, or $0.01, for the first quarter of 2020. Adjusted net income1 for the first quarter of 2021 totaled $35.5 million, or $0.63 per average diluted share, compared to $30.7 million, or $0.55, for the fourth quarter of 2020 and $5.5 million, or $0.10, for the first quarter of 2020.
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First
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Fourth
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First
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Quarter
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Quarter
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Quarter
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2021
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2020
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2020
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Return on average tangible assets
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1.70
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%
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|
1.49
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%
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|
0.11
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%
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Return on average tangible shareholders' equity
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15.62
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13.87
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0.95
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Efficiency ratio
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53.21
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48.23
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59.85
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Adjusted return on average tangible assets1
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1.75
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%
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1.50
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%
|
|
0.32
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%
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Adjusted return on average tangible shareholders' equity1
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16.01
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14.00
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|
2.86
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Adjusted efficiency ratio1
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51.99
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48.75
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53.55
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1Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP.
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Net Interest Income and Margin
Net interest income for the first quarter of 2021 totaled $66.6 million, decreasing $2.2 million, or 3%, compared to the fourth quarter of 2020, and increasing $3.4 million, or 5%, compared to the first quarter of 2020. The decrease quarter-over-quarter was due to lower accretion of purchase discount on acquired loans, fewer days in the quarter, lower loan balances excluding Paycheck Protection Program (“PPP”) loans and lower yields, partially offset by higher income from PPP loans and lower cost of deposits. Net interest margin (on a fully tax equivalent basis)1 was 3.51% in the first quarter 2021, compared to 3.59% in the fourth quarter of 2020 and 3.93% in the first quarter of 2020. The effect of accretion of purchase discounts on acquired loans was an increase of 15 basis points in the first quarter of 2021, compared to an increase of 23 basis points in the fourth quarter 2020 and an increase of 27 basis points in the first quarter of 2020. The effect of interest and fees on PPP loans was an increase of 11 basis points in the first quarter of 2021, and a decrease of one basis point in the fourth quarter of 2020. Excluding these items, net interest margin declined to 3.25% from 3.37% in the fourth quarter of 2020 and 3.66% in the first quarter of 2020. The decrease from the fourth quarter of 2020 is largely the result of significant growth in cash balances. The decrease from the first quarter of 2020 also reflects the lower interest rate environment. The yield on loans in the first quarter of 2021, excluding PPP and accretion of purchase discount, decreased eight basis points compared to the fourth quarter of 2020, and decreased 42 basis points compared to the first quarter of 2020, both largely due to the impact of the overall lower rate environment. The yield on securities declined eight basis points compared to the fourth quarter of 2020 and 137 basis points from the first quarter of 2020, resulting from elevated prepayments and lower yields on new purchases. The cost of deposits declined to 13 basis points in the first quarter of 2021, compared to 19 basis points in the fourth quarter of 2020 and 57 basis points in the first quarter of 2020. Lower cost of deposits reflects lower market rates, and a favorable shift in product mix to include a higher proportion of noninterest bearing demand deposits to total deposits. 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 periods specified:
1Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP.
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(In thousands, except ratios)
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Net Interest
Income1
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Net Interest
Margin1
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Yield on
Earning Assets1
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Rate on Interest
Bearing Liabilities
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First quarter 2021
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$
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66,741
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3.51
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%
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3.65
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%
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0.23
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%
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Fourth quarter 2020
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68,903
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3.59
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%
|
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3.80
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%
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0.33
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%
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First quarter 2020
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63,291
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3.93
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%
|
|
4.54
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%
|
|
0.90
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%
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1On tax equivalent basis, a non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP.
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Total average loans decreased $146.7 million, or 2%, for the first quarter of 2021 compared to the fourth quarter of 2020, and increased $544.1 million, or 10%, from the first quarter of 2020. The decrease from the prior quarter reflects the effect of elevated payoffs exceeding loan originations, and a net decrease in PPP loans as a result of loan forgiveness. The increase from the prior year reflects the Company's participation in the PPP program and the acquisitions of FBPB and Freedom Bank.
Average loans as a percentage of average earning assets totaled 75% for the first quarter of 2021, 77% for the fourth quarter of 2020 and 81% for the first quarter of 2020.
Loan production is detailed in the following table for the periods specified:
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First
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Fourth
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First
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Quarter
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Quarter
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Quarter
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(In thousands)
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2021
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2020
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2020
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Commercial pipeline at period end
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$
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240,871
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$
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166,735
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$
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171,125
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Commercial loan originations
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204,253
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277,389
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183,330
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Residential pipeline - saleable at period end
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92,141
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92,017
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75,226
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Residential loans - sold
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138,337
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161,628
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62,865
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Residential pipeline - portfolio at period end
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72,448
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25,083
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11,779
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Residential loans - retained
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46,620
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54,464
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25,776
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Consumer pipeline at period end
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28,127
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18,207
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29,123
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Consumer originations
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46,745
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47,529
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51,516
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PPP originations
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232,478
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—
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—
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Commercial originations during the first quarter of 2021 were $204.3 million, a decrease of $73.1 million, or 26%, compared to the fourth quarter of 2020, typical of seasonal activity, and an increase of $20.9 million, or 11%, compared to the first quarter of 2020.
The commercial pipeline increased $74.1 million, or 44%, to $240.9 million at March 31, 2021, compared to December 31, 2020, and increased $69.7 million, or 41%, compared to March 31, 2020, reflecting increasing demand in line with Florida’s strong economic recovery.
The Company originates residential mortgage loans identified for sale to investors in the secondary market. The Company uses rate locks with investors at the time of application, thereby eliminating interest rate risk. Residential loans originated for sale in the secondary market totaled $138.3 million in the first quarter of 2021, compared to $161.6 million in the fourth quarter of 2020 and $62.9 million in the first quarter of 2020, a decrease of 14% and an increase of 120%, respectively. Lower mortgage interest rates since the first quarter of 2020 have fueled an increase in refinancings. In addition, significant inflows of new residents and businesses into Florida continues to drive demand for mortgage originations. Residential saleable pipelines were $92.1 million as of March 31, 2021, compared to $92.0 million as of December 31, 2020 and $75.2 million as of March 31, 2020.
Residential loan production retained in the portfolio for the first quarter of 2021 was $46.6 million compared to $54.5 million in the fourth quarter of 2020 and $25.8 million in the first quarter of 2020, a decrease of 14% and an increase of 81%, respectively. The pipeline of residential loans intended to be retained in the portfolio was $72.4 million as of March 31, 2021, compared to $25.1 million as of December 31, 2020, and $11.8 million as of March 31, 2020. The increase in the retained
residential pipeline reflects a selective Florida correspondent program expanded during the first quarter of 2021 to generate both portfolio growth and cross-sell opportunities for depository and other products.
Consumer originations totaled $46.7 million during the first quarter of 2021, a decrease of $0.8 million, or 2%, from the fourth quarter of 2020 and a decrease of $4.8 million, or 9%, from the first quarter of 2020. The consumer pipeline was $28.1 million as of March 31, 2021, compared to $18.2 million as of December 31, 2020 and $29.1 million at March 31, 2020.
In March 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law. The CARES Act includes provisions for the Paycheck Protection Program (“PPP”) offered through the U.S. Small Business Administration (“SBA”). Loans originated under this program have a contractual rate of interest of 1% with principal and interest that may be forgiven, provided that the borrower uses the funds in a manner consistent with PPP guidelines. Seacoast assisted borrowers in 2020 with more than 5,500 loans originated through the PPP and, when combined with PPP loans acquired from Freedom Bank, outstanding balances totaled $567.0 million at December 31, 2020. In January 2021, the program was renewed, and the Company originated more than 2,450 additional loans totaling $232.5 million in the first quarter of 2021.
Average debt securities increased $53.9 million, or 4%, for the first quarter 2021 compared to the fourth quarter 2020, and were $404.2 million, or 34%, higher compared to the first quarter of 2020. Increases reflect the impact of purchases, offset by paydowns and maturities.
The cost of average interest-bearing liabilities contracted in the three months ended March 31, 2021 to 23 basis points from 33 basis points for the three months ended December 31, 2020, and from 90 basis points for the three months ended March 31, 2020. The cost of average total deposits (including noninterest bearing demand deposits) in the first quarter of 2021 was 13 basis points compared to 19 basis points in the fourth quarter of 2020 and 57 basis points in the first quarter of 2020, reflecting continued repricing downward of interest-bearing deposits and time deposits.
During the first quarter of 2021, average transaction deposits (noninterest and interest bearing demand) increased $149.7 million, or 4%, compared to the fourth quarter of 2020 and increased $1.2 billion, or 44%, compared to the first quarter of 2020, reflecting higher customer deposit balances along with new and acquired relationships.
The Company’s deposit mix remains favorable, with 90% of average deposit balances comprised of savings, money market, and demand deposits for the three months ended March 31, 2021. Seacoast's average cost of deposits, including noninterest bearing demand deposits, decreased to 13 basis points for the three months ended March 31, 2021 compared to 19 basis points for the three months ended December 31, 2020 and 57 basis points for the three months ended March 31, 2020, reflecting the lower rate environment and shifts in deposit mix with a higher proportion of low cost deposits. Brokered CDs totaled $93.5 million at March 31, 2021, with a weighted average rate of 0.99% and $73.5 million maturing in the second quarter of 2021.
Sweep repurchase agreements with customers increased $41.8 million, or 59%, year-over-year. For the three months ended March 31, 2021, the average balance was $112.8 million compared to an average balance of $101.7 million for the three months ended December 31, 2020 and an average balance of $71.1 million for the three months ended March 31, 2020. The average rate on customer sweep repurchase accounts was 0.15% for the three months ended March 31, 2021, compared to 0.16% for the three months ended December 31, 2020 and 0.95% for three months ended March 31, 2020. No federal funds purchased were utilized at March 31, 2021 or March 31, 2020.
The Company had no FHLB borrowings during the three months ended March 31, 2021, average FHLB borrowings of $16.0 million with an average rate of 1.99% for the three months ended December 31, 2020, and $250.0 million with an average rate of 1.56% for the three months ended March 31, 2020. The decrease reflects the impact of higher average deposit balances that were sufficient to fund the Company’s liquidity needs during the first quarter of 2021.
For the three months ended March 31, 2021, subordinated debt averaged $71.4 million, compared to $71.3 million for the three months ended December 31, 2020 and $71.1 million for the three months ended March 31, 2020. The average rate on subordinated debt for the three months ended March 31, 2021 was 2.43%, compared to 2.43% for the three months ended December 31, 2020 and 4.08% for the three months ended March 31, 2020. The subordinated debt relates to trust preferred securities issued by subsidiary trusts of the Company.
The following tables detail average balances, net interest income and margin results (on a tax equivalent basis) for the periods presented:
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Average Balances, Interest Income and Expenses, Yields and Rates1
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|
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|
2021
|
|
2020
|
|
First Quarter
|
|
Fourth Quarter
|
|
First Quarter
|
|
Average
|
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|
|
Yield/
|
|
Average
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|
|
Yield/
|
|
Average
|
|
|
|
Yield/
|
(In thousands, except ratios)
|
Balance
|
|
Interest
|
|
Rate
|
|
Balance
|
|
Interest
|
|
Rate
|
|
Balance
|
|
Interest
|
|
Rate
|
Assets
|
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|
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Earning assets:
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|
|
Securities:
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
Taxable
|
$
|
1,550,457
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|
|
$
|
6,298
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|
|
1.62
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%
|
|
$
|
1,496,536
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|
|
$
|
6,477
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|
|
1.73
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%
|
|
$
|
1,152,473
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|
|
$
|
8,696
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|
|
3.02
|
%
|
Nontaxable
|
25,932
|
|
|
187
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|
|
2.89
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|
|
25,943
|
|
|
109
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|
|
1.68
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|
|
19,740
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|
|
152
|
|
|
3.09
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|
Total Securities
|
1,576,389
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|
|
6,485
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|
|
1.65
|
|
|
1,522,479
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|
|
6,586
|
|
|
1.73
|
|
|
1,172,213
|
|
|
8,848
|
|
|
3.02
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|
|
|
|
|
|
|
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Federal funds sold and other investments
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377,344
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|
|
586
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|
|
0.63
|
|
|
197,379
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|
|
523
|
|
|
1.05
|
|
|
87,924
|
|
|
734
|
|
|
3.36
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
Loans excluding PPP loans
|
5,149,642
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|
|
55,504
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|
|
4.37
|
|
|
5,276,224
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|
|
60,497
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|
|
4.56
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|
|
5,215,234
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|
|
63,524
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|
|
4.90
|
|
PPP Loans
|
609,733
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|
|
6,886
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|
|
4.58
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|
|
629,855
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|
|
5,187
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|
|
3.28
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|
|
—
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|
|
—
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|
|
—
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|
Total Loans
|
5,759,375
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|
|
62,390
|
|
|
4.39
|
|
|
5,906,079
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|
|
65,684
|
|
|
4.42
|
|
|
5,215,234
|
|
|
63,524
|
|
|
4.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Earning Assets
|
7,713,108
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|
|
69,461
|
|
|
3.65
|
|
|
7,625,937
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|
|
72,793
|
|
|
3.80
|
|
|
6,475,371
|
|
|
73,106
|
|
|
4.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Allowance for loan losses
|
(91,735)
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|
|
|
|
|
|
(93,148)
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|
|
|
|
|
|
(56,931)
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|
Cash and due from banks
|
255,685
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|
|
|
|
|
|
235,519
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|
|
|
|
|
|
90,084
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|
|
|
|
|
Premises and equipment
|
74,272
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|
|
|
|
|
|
76,001
|
|
|
|
|
|
|
67,585
|
|
|
|
|
|
Intangible assets
|
237,323
|
|
|
|
|
|
|
238,631
|
|
|
|
|
|
|
226,712
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|
|
|
|
|
Bank owned life insurance
|
132,079
|
|
|
|
|
|
|
131,208
|
|
|
|
|
|
|
126,492
|
|
|
|
|
|
Other assets
|
164,622
|
|
|
|
|
|
|
162,248
|
|
|
|
|
|
|
126,230
|
|
|
|
|
|
Total Assets
|
$
|
8,485,354
|
|
|
|
|
|
|
$
|
8,376,396
|
|
|
|
|
|
|
$
|
7,055,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand
|
$
|
1,600,490
|
|
|
$
|
258
|
|
|
0.07
|
%
|
|
$
|
1,458,299
|
|
|
$
|
249
|
|
|
0.07
|
%
|
|
$
|
1,173,930
|
|
|
$
|
834
|
|
|
0.29
|
%
|
Savings
|
722,274
|
|
|
137
|
|
|
0.08
|
|
|
672,864
|
|
|
166
|
|
|
0.10
|
|
|
526,727
|
|
|
348
|
|
|
0.27
|
|
Money market
|
1,609,938
|
|
|
670
|
|
|
0.17
|
|
|
1,523,960
|
|
|
813
|
|
|
0.21
|
|
|
1,128,757
|
|
|
2,008
|
|
|
0.72
|
|
Time deposits
|
711,320
|
|
|
1,187
|
|
|
0.68
|
|
|
911,091
|
|
|
2,104
|
|
|
0.92
|
|
|
1,151,750
|
|
|
4,768
|
|
|
1.67
|
|
Securities sold under agreements to repurchase
|
112,834
|
|
|
41
|
|
|
0.15
|
|
|
101,665
|
|
|
42
|
|
|
0.16
|
|
|
71,065
|
|
|
167
|
|
|
0.95
|
|
Federal Home Loan Bank borrowings
|
—
|
|
|
—
|
|
|
—
|
|
|
15,978
|
|
|
80
|
|
|
1.99
|
|
|
250,022
|
|
|
968
|
|
|
1.56
|
|
Other borrowings
|
71,390
|
|
|
427
|
|
|
2.43
|
|
|
71,321
|
|
|
436
|
|
|
2.43
|
|
|
71,114
|
|
|
722
|
|
|
4.08
|
|
Total Interest-Bearing Liabilities
|
4,828,246
|
|
|
2,720
|
|
|
0.23
|
|
|
4,755,178
|
|
|
3,890
|
|
|
0.33
|
|
|
4,373,365
|
|
|
9,815
|
|
|
0.90
|
|
Noninterest demand
|
2,432,038
|
|
|
|
|
|
|
2,424,523
|
|
|
|
|
|
|
1,625,215
|
|
|
|
|
|
Other liabilities
|
88,654
|
|
|
|
|
|
|
85,622
|
|
|
|
|
|
|
62,970
|
|
|
|
|
|
Total Liabilities
|
7,348,938
|
|
|
|
|
|
|
7,265,323
|
|
|
|
|
|
|
6,061,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
1,136,416
|
|
|
|
|
|
|
1,111,073
|
|
|
|
|
|
|
993,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities & Equity
|
$
|
8,485,354
|
|
|
|
|
|
|
$
|
8,376,396
|
|
|
|
|
|
|
$
|
7,055,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of deposits
|
|
|
|
|
0.13
|
%
|
|
|
|
|
|
0.19
|
%
|
|
|
|
|
|
0.57
|
%
|
Interest expense as a % of earning assets
|
|
|
|
|
0.14
|
%
|
|
|
|
|
|
0.20
|
%
|
|
|
|
|
|
0.61
|
%
|
Net interest income as a % of earning assets
|
|
|
$
|
66,741
|
|
|
3.51
|
%
|
|
|
|
$
|
68,903
|
|
|
3.59
|
%
|
|
|
|
$
|
63,291
|
|
|
3.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1On a fully taxable equivalent basis, a non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP. 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.
|
|
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
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|
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|
|
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|
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|
|
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|
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
|
|
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|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Income
Noninterest income totaled $17.7 million for the first quarter of 2021, an increase of $2.7 million, or 18%, compared to the fourth quarter of 2020 and an increase of $3.0 million, or 20%, from the first quarter of 2020.
Noninterest income is detailed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
Fourth
|
|
First
|
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
(In thousands)
|
2021
|
|
2020
|
|
2020
|
|
|
|
|
Service charges on deposit accounts
|
$
|
2,338
|
|
|
$
|
2,423
|
|
|
$
|
2,825
|
|
|
|
|
|
Interchange income
|
3,820
|
|
|
3,596
|
|
|
3,246
|
|
|
|
|
|
Wealth management income
|
2,323
|
|
|
1,949
|
|
|
1,867
|
|
|
|
|
|
Mortgage banking fees
|
4,225
|
|
|
3,646
|
|
|
2,208
|
|
|
|
|
|
Marine finance fees
|
189
|
|
|
145
|
|
|
146
|
|
|
|
|
|
SBA gains
|
287
|
|
|
113
|
|
|
139
|
|
|
|
|
|
BOLI income
|
859
|
|
|
889
|
|
|
886
|
|
|
|
|
|
Other income
|
3,744
|
|
|
2,187
|
|
|
3,352
|
|
|
|
|
|
|
17,785
|
|
|
14,948
|
|
|
14,669
|
|
|
|
|
|
Securities (losses) gains, net
|
(114)
|
|
|
(18)
|
|
|
19
|
|
|
|
|
|
Total
|
$
|
17,671
|
|
|
$
|
14,930
|
|
|
$
|
14,688
|
|
|
|
|
|
Service charges on deposits were $2.3 million in the first quarter of 2021, a decrease of $0.1 million, or 4%, compared to the fourth quarter of 2020 and a decrease of $0.5 million, or 17%, compared to the first quarter of 2020. Decreases in service charges reflect the impact of higher average deposit balances during the first quarter of 2021. Overdraft fees represent 39% of total service charges on deposits for the three months ended March 31, 2021.
Interchange income reached a record $3.8 million for the three months ended March 31, 2021, an increase of $0.2 million, or 6%, compared to the three months ended December 31, 2020, and an increase of $0.6 million, or 18%, compared to the three months ended March 31, 2020. The first quarter of 2021 benefited from a higher volume of transactions and higher per-card spending.
Wealth management income, including trust fees and brokerage commissions and fees, was a record $2.3 million in the first quarter of 2021, increasing $0.4 million, or 19%, from the fourth quarter of 2020 and increasing $0.5 million, or 24% compared to the first quarter of 2020. Assets under management have grown significantly with the addition of new relationships, increasing $156 million from December 31, 2020 and $436 million from March 31, 2020 to exceed $1 billion at March 31, 2021.
Mortgage banking fees increased by $0.6 million, or 16%, to $4.2 million in the first quarter of 2021 compared to the fourth quarter of 2020, and increased $2.0 million, or 91%, compared to the first quarter of 2020, with mortgage rates at historic lows and an influx of new residents and businesses into Florida driving demand for mortgage originations.
Marine finance fees were $0.2 million, compared to $0.1 million in the fourth quarter of 2020 and $0.1 million in the first quarter of 2020.
SBA gains totaled $0.3 million, an increase of $0.2 million, or 154%, compared to the fourth quarter of 2020 and an increase of $0.1 million, or 106%, compared to the first quarter of 2020.
Bank owned life insurance (“BOLI”) income totaled $0.9 million for the first quarter of 2021, in line with the fourth quarter of 2020 and prior year results.
Other income was $3.7 million in the first quarter of 2021, an increase of $1.6 million, or 71%, quarter-over-quarter and an increase of $0.4 million, or 12%, year-over-year. Included in other income in the first quarter of 2021 is $1.7 million in income associated with the resolution of contingencies on two loans acquired in 2017. Similar activity is not expected in subsequent periods.
Noninterest Expenses
The Company has demonstrated its commitment to efficiency through disciplined, proactive management of its cost structure. For the first quarter of 2021, the efficiency ratio, defined as noninterest expense less amortization of intangibles and gains, losses, and expenses on foreclosed properties divided by net operating revenue (net interest income on a fully taxable equivalent basis plus noninterest income excluding securities gains and losses), was 53.21% compared to 48.23% for the fourth quarter of 2020 and 59.85% for the first quarter of 2020. The increase in the efficiency ratio quarter-over-quarter reflects overall higher noninterest expense, attributed to higher seasonal payroll related expenses and a return to more normalized legal and professional fees, as well as lower net interest income, partially offset by an increase in noninterest income. The decrease in the efficiency ratio when compared to the prior year quarter reflects higher merger-related charges in the 2020 quarter and higher net interest income and noninterest income in the 2021 quarter.
The adjusted efficiency ratio1 was 51.99% in the first quarter of 2021, compared to 48.75% in the fourth quarter of 2020 and 53.55% in the first quarter of 2020. The increase in the adjusted efficiency ratio quarter-over-quarter reflects higher noninterest expense and lower net interest income, partially offset by higher noninterest income. The decrease in the adjusted efficiency ratio compared to the prior year quarter reflects higher net interest income and higher noninterest income in the 2021 quarter, partially offset by higher noninterest expenses. At March 31, 2021, adjusted noninterest expense1 as a percent of average tangible assets was 2.16% for the first quarter of 2021 compared to 2.00% for the fourth quarter of 2020 and 2.46% for the first quarter of 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
Fourth
|
|
First
|
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
(In thousands, except ratios)
|
2021
|
|
2020
|
|
2020
|
|
|
|
|
Noninterest expense, as reported
|
$
|
46,120
|
|
|
$
|
43,681
|
|
|
$
|
47,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger-related charges
|
(581)
|
|
|
—
|
|
|
(4,553)
|
|
|
|
|
|
Amortization of intangibles
|
(1,211)
|
|
|
(1,421)
|
|
|
(1,456)
|
|
|
|
|
|
Business continuity expenses
|
—
|
|
|
—
|
|
|
(307)
|
|
|
|
|
|
Branch reductions and other expense initiatives
|
(449)
|
|
|
(354)
|
|
|
—
|
|
|
|
|
|
Adjusted noninterest expense1
|
$
|
43,879
|
|
|
$
|
41,906
|
|
|
$
|
41,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed property expense and net (loss)/gain on sale
|
65
|
|
|
(1,821)
|
|
|
315
|
|
|
|
|
|
Provision for credit losses on unfunded commitments
|
—
|
|
|
795
|
|
|
(46)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net adjusted noninterest expense1
|
$
|
43,944
|
|
|
$
|
40,880
|
|
|
$
|
41,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Efficiency ratio
|
53.21
|
%
|
|
48.23
|
%
|
|
59.85
|
%
|
|
|
|
|
Adjusted efficiency ratio1,2
|
51.99
|
|
|
48.75
|
|
|
53.55
|
|
|
|
|
|
Adjusted noninterest expense as a percent of average tangible assets1,2
|
2.16
|
|
|
2.00
|
|
|
2.46
|
|
|
|
|
|
1Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP.
|
2Adjusted efficiency ratio is defined as noninterest expense, including adjustments to noninterest expense divided by aggregated tax equivalent net interest income and noninterest income, including adjustments to revenue.
|
Noninterest expense for the first quarter of 2021 totaled $46.1 million, an increase of $2.4 million, or 6%, compared to the fourth quarter of 2020, and a decrease of $1.7 million, or 4%, from the first quarter of 2020. Noninterest expenses are detailed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
Fourth
|
|
First
|
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
(In thousands)
|
2021
|
|
2020
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages
|
$
|
21,393
|
|
|
$
|
21,490
|
|
|
$
|
23,698
|
|
|
|
|
|
Employee benefits
|
4,980
|
|
|
3,915
|
|
|
4,255
|
|
|
|
|
|
Outsourced data processing costs
|
4,468
|
|
|
4,233
|
|
|
4,633
|
|
|
|
|
|
Telephone/data lines
|
785
|
|
|
774
|
|
|
714
|
|
|
|
|
|
Occupancy
|
3,789
|
|
|
3,554
|
|
|
3,353
|
|
|
|
|
|
Furniture and equipment
|
1,254
|
|
|
1,317
|
|
|
1,623
|
|
|
|
|
|
Marketing
|
1,168
|
|
|
1,045
|
|
|
1,278
|
|
|
|
|
|
Legal and professional fees
|
2,582
|
|
|
509
|
|
|
3,363
|
|
|
|
|
|
FDIC assessments
|
526
|
|
|
528
|
|
|
—
|
|
|
|
|
|
Amortization of intangibles
|
1,211
|
|
|
1,421
|
|
|
1,456
|
|
|
|
|
|
Foreclosed property expense and net (gain) loss on sale
|
(65)
|
|
|
1,821
|
|
|
(315)
|
|
|
|
|
|
Provision for credit losses on unfunded commitments
|
—
|
|
|
(795)
|
|
|
46
|
|
|
|
|
|
Other
|
4,029
|
|
|
3,869
|
|
|
3,694
|
|
|
|
|
|
Total
|
$
|
46,120
|
|
|
$
|
43,681
|
|
|
$
|
47,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages totaled $21.4 million for the first quarter of 2021, $21.5 million for the fourth quarter of 2020, and $23.7 million for the first quarter of 2020. The first quarter of 2020 included $2.2 million in merger-related expenses associated with the acquisition of First Bank of the Palm Beaches.
During the first quarter of 2021, employee benefit costs, which include costs associated with the Company's self-funded health insurance benefits, 401(k) plan, payroll taxes, and unemployment compensation, were $5.0 million, an increase of $1.1 million, or 27%, compared to the fourth quarter of 2020 and an increase of $0.7 million, or 17%, compared to the first quarter of 2020. The increase quarter-over-quarter reflects higher seasonal payroll taxes and 401(k) plan contributions typical of the first quarter. The increase compared to the prior year quarter primarily reflects the impact of increased benefits costs.
The Company utilizes third parties for its core data processing systems. Ongoing data processing costs are directly related to the number of transactions processed and the negotiated rates associated with those transactions. Outsourced data processing costs totaled $4.5 million, $4.2 million and $4.6 million for the first quarter of 2021, fourth quarter of 2020 and first quarter of 2020, respectively.
Telephone and data line expenditures, including electronic communications with customers and between branch and customer support locations and personnel, as well as with third-party data processors, were $0.8 million, $0.8 million, and $0.7 million for the first quarter of 2021, fourth quarter of 2020, and first quarter of 2020, respectively.
Total occupancy, furniture and equipment expenses were $5.0 million for the first quarter of 2021, $4.9 million in the fourth quarter of 2020, and $5.0 million in the first quarter of 2020. The first quarter of 2021 includes $0.3 million in costs associated with three branch consolidations, and the first quarter of 2020 includes $0.3 million in merger-related expenses.
Marketing expenses for the first quarter of 2021 totaled $1.2 million, $1.0 million in the fourth quarter of 2020 and $1.3 million in the first quarter of 2020. Targeted marketing campaigns allows the Company to engage of new and existing customers while maintaining a controlled expense base.
Legal and professional fees for the first quarter of 2021 were $2.6 million, an increase of $2.1 million, compared to the fourth quarter of 2020 and a decrease of $0.8 million, or 23%, compared to the first quarter of 2020. Acquisition-related expenses were $0.6 million in the first quarter of 2021 and $1.1 million in the first quarter of 2020, while the fourth quarter of 2020 benefited from the one-time recovery of certain legal expenses incurred during 2020.
FDIC assessments were $0.5 million for the first quarter of 2021 and the fourth quarter of 2020, while the first quarter of 2020 benefited from FDIC small bank assessment credits to offset expenses. These credits were fully utilized by the second quarter of 2020.
During the first quarter of 2021, the Company recorded gains on the sale of OREO, net of other expenses of $0.1 million compared to write-downs of $1.8 million in the fourth quarter of 2020 and net gains of $0.3 million in the first quarter of 2020 (see “Nonperforming Loans, Troubled Debt Restructurings, Other Real Estate Owned, and Credit Quality” for more discussion).
No adjustment to the reserve for credit losses on unfunded lending commitments was recorded in the first quarter of 2021, compared to a reversal of reserves of $0.8 million in the fourth quarter of 2020 and a nominal adjustment in the first quarter of 2020.
Other expense totaled $4.0 million, $3.9 million and $3.7 million for the first quarter of 2021, the fourth quarter of 2020 and the first quarter of 2020, respectively.
Income Taxes
For the first quarter of 2021, the Company recorded tax expense of $10.2 million compared to tax expense of $8.8 million in the fourth quarter of 2020 and tax benefit of $0.2 million in the first quarter of 2020. Taxes included nominal impacts for stock-based compensation in each of these periods.
Explanation of Certain Unaudited Non-GAAP Financial Measures
This report contains financial information determined by methods other than Generally Accepted Accounting Principles (“GAAP”). The financial highlights provide reconciliations between GAAP and adjusted financial measures including net income, fully taxable equivalent net interest income, noninterest income, noninterest expense, tax adjustments, net interest margin and other financial 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 define or 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.
Reconciliation of Non-GAAP Measures
|
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First
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Fourth
|
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First
|
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
(In thousands, except per share data)
|
2021
|
|
2020
|
|
2020
|
|
|
|
|
Net income, as reported:
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
33,719
|
|
|
$
|
29,347
|
|
|
$
|
709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
$
|
0.60
|
|
|
$
|
0.53
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Income
|
$
|
17,671
|
|
|
$
|
14,930
|
|
|
$
|
14,688
|
|
|
|
|
|
Securities (gains) losses, net
|
114
|
|
|
18
|
|
|
(19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments to noninterest income
|
114
|
|
|
18
|
|
|
(19)
|
|
|
|
|
|
Total Adjusted Noninterest Income
|
$
|
17,785
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|
|
$
|
14,948
|
|
|
$
|
14,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
Fourth
|
|
First
|
|
|
|
Quarter
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|
Quarter
|
|
Quarter
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|
|
(In thousands, except per share data)
|
2021
|
|
2020
|
|
2020
|
|
|
|
|
Noninterest Expense
|
46,120
|
|
|
$
|
43,681
|
|
|
$
|
47,798
|
|
|
|
|
|
Merger-related charges
|
(581)
|
|
|
—
|
|
|
(4,553)
|
|
|
|
|
|
Amortization of intangibles
|
(1,211)
|
|
|
(1,421)
|
|
|
(1,456)
|
|
|
|
|
|
Business continuity expenses
|
—
|
|
|
—
|
|
|
(307)
|
|
|
|
|
|
Branch reductions and other expense initiatives1
|
(449)
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|
|
(354)
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|
|
—
|
|
|
|
|
|
Total adjustments to noninterest expense
|
(2,241)
|
|
|
(1,775)
|
|
|
(6,316)
|
|
|
|
|
|
Total Adjusted Noninterest Expense
|
$
|
43,879
|
|
|
$
|
41,906
|
|
|
$
|
41,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Taxes
|
$
|
10,157
|
|
|
$
|
8,793
|
|
|
$
|
(155)
|
|
|
|
|
|
Tax effect of adjustments
|
577
|
|
|
440
|
|
|
1,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments to income taxes
|
577
|
|
|
440
|
|
|
1,544
|
|
|
|
|
|
Adjusted income taxes
|
10,734
|
|
|
9,233
|
|
|
1,389
|
|
|
|
|
|
Adjusted net income
|
$
|
35,497
|
|
|
$
|
30,700
|
|
|
$
|
5,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per diluted share, as reported
|
$
|
0.60
|
|
|
$
|
0.53
|
|
|
$
|
0.01
|
|
|
|
|
|
Adjusted diluted earnings per share
|
0.63
|
|
|
0.55
|
|
|
0.10
|
|
|
|
|
|
Average diluted shares outstanding
|
55,992
|
|
|
55,739
|
|
|
52,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Noninterest Expense
|
$
|
43,879
|
|
|
$
|
41,906
|
|
|
$
|
41,482
|
|
|
|
|
|
Foreclosed property expense and net (loss) gain on sale
|
65
|
|
|
(1,821)
|
|
|
315
|
|
|
|
|
|
Provision for unfunded commitments
|
—
|
|
|
795
|
|
|
(46)
|
|
|
|
|
|
Net Adjusted Noninterest Expense
|
$
|
43,944
|
|
|
$
|
40,880
|
|
|
$
|
41,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
84,281
|
|
|
$
|
83,721
|
|
|
$
|
77,865
|
|
|
|
|
|
Total adjustments to revenue
|
114
|
|
|
18
|
|
|
(19)
|
|
|
|
|
|
Impact of FTE adjustment
|
131
|
|
|
112
|
|
|
114
|
|
|
|
|
|
Adjusted revenue on a fully tax equivalent basis
|
$
|
84,526
|
|
|
$
|
83,851
|
|
|
$
|
77,960
|
|
|
|
|
|
Adjusted Efficiency Ratio
|
51.99
|
%
|
|
48.75
|
%
|
|
53.55
|
%
|
|
|
|
|
Net Adjusted Noninterest Expense as a Percent of Average Tangible Assets2
|
2.16
|
%
|
|
2.00
|
%
|
|
2.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
$
|
66,610
|
|
|
$
|
68,791
|
|
|
$
|
63,177
|
|
|
|
|
|
Impact of FTE adjustment
|
131
|
|
|
112
|
|
|
114
|
|
|
|
|
|
Net interest income including FTE adjustment
|
66,741
|
|
|
68,903
|
|
|
63,291
|
|
|
|
|
|
Noninterest income
|
17,671
|
|
|
14,930
|
|
|
14,688
|
|
|
|
|
|
Noninterest expense
|
46,120
|
|
|
43,681
|
|
|
47,798
|
|
|
|
|
|
Pre-Tax Pre-Provision Earnings
|
38,292
|
|
|
40,152
|
|
|
30,181
|
|
|
|
|
|
Adjustments to noninterest income
|
114
|
|
|
18
|
|
|
(19)
|
|
|
|
|
|
Adjustments to noninterest expense
|
(2,176)
|
|
|
(2,801)
|
|
|
(6,047)
|
|
|
|
|
|
Adjusted Pre-Tax Pre-Provision Earnings
|
$
|
40,582
|
|
|
$
|
42,971
|
|
|
$
|
36,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Assets
|
$
|
8,485,354
|
|
|
$
|
8,376,396
|
|
|
$
|
7,055,543
|
|
|
|
|
|
Less average goodwill and intangible assets
|
(237,323)
|
|
|
(238,631)
|
|
|
(226,712)
|
|
|
|
|
|
Average Tangible Assets
|
$
|
8,248,031
|
|
|
$
|
8,137,765
|
|
|
$
|
6,828,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
Fourth
|
|
First
|
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
(In thousands, except per share data)
|
2021
|
|
2020
|
|
2020
|
|
|
|
|
Return on Average Assets (ROA)
|
1.61
|
%
|
|
1.39
|
%
|
|
0.04
|
%
|
|
|
|
|
Impact of removing average intangible assets and related amortization
|
0.09
|
|
|
0.10
|
|
|
0.07
|
|
|
|
|
|
Return on Average Tangible Assets (ROTA)
|
1.70
|
|
|
1.49
|
|
|
0.11
|
|
|
|
|
|
Impact of other adjustments for Adjusted Net Income
|
0.05
|
|
|
0.01
|
|
|
0.21
|
|
|
|
|
|
Adjusted Return on Average Tangible Assets
|
1.75
|
%
|
|
1.50
|
%
|
|
0.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Shareholders' Equity
|
$
|
1,136,416
|
|
|
$
|
1,111,073
|
|
|
$
|
993,993
|
|
|
|
|
|
Less average goodwill and intangible assets
|
(237,323)
|
|
|
(238,631)
|
|
|
(226,712)
|
|
|
|
|
|
Average Tangible Equity
|
$
|
899,093
|
|
|
$
|
872,442
|
|
|
$
|
767,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on Average Shareholders' Equity
|
12.03
|
%
|
|
10.51
|
%
|
|
0.29
|
%
|
|
|
|
|
Impact of removing average intangible assets and related amortization
|
3.59
|
|
|
3.36
|
|
|
0.66
|
|
|
|
|
|
Return on Average Tangible Common Equity (ROTCE)
|
15.62
|
|
|
13.87
|
|
|
0.95
|
|
|
|
|
|
Impact of other adjustments for Adjusted Net Income
|
0.39
|
|
|
0.13
|
|
|
1.91
|
|
|
|
|
|
Adjusted Return on Average Tangible Common Equity
|
16.01
|
%
|
|
14.00
|
%
|
|
2.86
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Interest Income2
|
$
|
62,390
|
|
|
$
|
65,684
|
|
|
$
|
63,524
|
|
|
|
|
|
Accretion on acquired loans
|
(2,868)
|
|
|
(4,448)
|
|
|
(4,287)
|
|
|
|
|
|
Interest and fees on PPP loans
|
(6,886)
|
|
|
(5,187)
|
|
|
—
|
|
|
|
|
|
Loan interest income excluding PPP and accretion on acquired loans2
|
$
|
52,636
|
|
|
$
|
56,049
|
|
|
$
|
59,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield on Loans2
|
4.39
|
%
|
|
4.42
|
%
|
|
4.90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of accretion on acquired loans
|
(0.20)
|
|
|
(0.30)
|
|
|
(0.33)
|
|
|
|
|
|
Impact of PPP loans
|
(0.04)
|
|
|
0.11
|
|
|
—
|
|
|
|
|
|
Yield on loans excluding PPP and accretion on acquired loans2
|
4.15
|
%
|
|
4.23
|
%
|
|
4.57
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income2
|
$
|
66,741
|
|
|
$
|
68,903
|
|
|
$
|
63,291
|
|
|
|
|
|
Accretion on acquired loans
|
(2,868)
|
|
|
(4,448)
|
|
|
(4,287)
|
|
|
|
|
|
Interest and fees on PPP loans
|
(6,886)
|
|
|
(5,187)
|
|
|
—
|
|
|
|
|
|
Net interest income excluding PPP and accretion on acquired loans2
|
$
|
56,987
|
|
|
$
|
59,268
|
|
|
$
|
59,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin2
|
3.51
|
%
|
|
3.59
|
%
|
|
3.93
|
%
|
|
|
|
|
Impact of accretion on acquired loans
|
(0.15)
|
|
|
(0.23)
|
|
|
(0.27)
|
|
|
|
|
|
Impact of PPP loans
|
(0.11)
|
|
|
0.01
|
|
|
—
|
|
|
|
|
|
Net interest margin excluding PPP and accretion on acquired loans2
|
3.25
|
%
|
|
3.37
|
%
|
|
3.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Interest Income2
|
$
|
62,390
|
|
|
$
|
65,684
|
|
|
$
|
63,524
|
|
|
|
|
|
Tax equivalent adjustment to loans
|
(92)
|
|
|
(89)
|
|
|
(84)
|
|
|
|
|
|
Loan interest income excluding tax equivalent adjustment
|
$
|
62,298
|
|
|
$
|
65,595
|
|
|
$
|
63,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Interest Income2
|
$
|
6,485
|
|
|
$
|
6,586
|
|
|
$
|
8,848
|
|
|
|
|
|
Tax equivalent adjustment to securities
|
(39)
|
|
|
(23)
|
|
|
(30)
|
|
|
|
|
|
Securities interest income excluding tax equivalent adjustment
|
$
|
6,446
|
|
|
$
|
6,563
|
|
|
$
|
8,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
Fourth
|
|
First
|
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
(In thousands, except per share data)
|
2021
|
|
2020
|
|
2020
|
|
|
|
|
Net Interest Income2
|
$
|
66,741
|
|
|
$
|
68,903
|
|
|
$
|
63,291
|
|
|
|
|
|
Tax equivalent adjustments to loans
|
(92)
|
|
|
(89)
|
|
|
(84)
|
|
|
|
|
|
Tax equivalent adjustments to securities
|
(39)
|
|
|
(23)
|
|
|
(30)
|
|
|
|
|
|
Net interest income excluding tax equivalent adjustments
|
$
|
66,610
|
|
|
$
|
68,791
|
|
|
$
|
63,177
|
|
|
|
|
|
1Includes severance, contract termination costs, disposition of branch premises and fixed assets, and other costs to effect the Company's branch consolidation and other expense reduction strategies.
|
2On a fully taxable equivalent basis. All yields and rates have been computed using amortized cost.
|
Financial Condition
Total assets increased $0.5 billion at March 31, 2021, or 6%, from December 31, 2020, reflecting the origination of PPP loans under the renewed program, as well as higher cash balances due to higher customer deposit balances.
Securities
Information related to maturities, carrying values and fair value of the Company’s debt securities is set forth in “Note D – Securities” of the Company’s condensed consolidated financial statements.
At March 31, 2021, the Company had $1.1 billion in debt securities available-for-sale and $512.3 million in debt securities held-to-maturity. The Company's total debt securities portfolio decreased $18.9 million, or 1%, from December 31, 2020.
During the three months ended March 31, 2021, the Company reclassified debt securities with an amortized cost of $210.8 million from available-for-sale to held-to-maturity. These securities had net unrealized gains of $0.8 million at the date of transfer, which will continue to be reported in accumulated other comprehensive income and will be amortized over the remaining life of the securities as an adjustment of yield. The effect on interest income of the amortization of net unrealized gains is offset by the amortization of the premium on the securities transferred. The Company has the intent and ability to retain these securities until maturity.
During the three months ended March 31, 2021, there were $196.5 million of debt security purchases and $199.2 million in aggregated paydowns and maturities. For the three months ended March 31, 2021, the Company had no sales of securities. For the three months ended March 31, 2020, there were $74.2 million debt security purchases and aggregated maturities and principal paydowns totaled $63.5 million. Proceeds from sales of securities during the three months ended March 31, 2020 totaled $27.8 million, with net losses of $0.1 million.
Debt securities generally return principal and interest monthly. At March 31, 2021, available-for-sale debt securities had gross unrealized losses of $7.3 million and gross unrealized gains of $19.1 million, compared to gross unrealized losses of $2.1 million and gross unrealized gains of $28.7 million at December 31, 2020. The modified duration of the available-for-sale portfolio at March 31, 2021 was 4.0 years, compared to 3.8 years at December 31, 2020.
The credit quality of the Company’s securities holdings is primarily investment grade. U.S. Treasuries, obligations of U.S. government agencies and obligations of U.S. government sponsored entities totaled $1.3 billion, or 82%, of the total portfolio.
The portfolio includes $80.2 million, with a fair value of $81.9 million, in private label residential and commercial mortgage-backed securities and collateralized mortgage obligations. Included are $55.1 million, with a fair value of $55.7 million, in private label mortgage-backed residential securities with weighted average credit support of 25%. The collateral underlying these mortgage investments includes both fixed-rate and adjustable-rate mortgage loans. Non-guaranteed agency commercial securities total $25.0 million, with a fair value of $26.2 million. These securities have weighted average credit support of 11%. The collateral underlying these mortgages are primarily pooled multifamily loans.
The Company also has invested $172.4 million, with a fair value of $172.5 million, in uncapped 3-month LIBOR floating rate collateralized loan obligations (“CLOs”). CLOs are special purpose vehicles, and the Company’s holdings purchase nearly all first lien broadly syndicated corporate loans across a diversified band of industries while providing support to senior tranche investors. As of March 31, 2021, the Company held 24 total positions, all of which were in AAA/AA tranches with average credit support of 31%. The Company utilizes credit models with assumptions of loan level defaults, recoveries, and prepayments for each CLO security. The results of this analysis did not indicate expected credit losses.
Held-to-maturity securities consist solely of mortgage-backed securities guaranteed by government agencies.
At March 31, 2021, the Company has determined that all debt securities in an unrealized loss position are the result of both broad investment type spreads and the current rate environment. Management believes that each investment will recover any price depreciations over its holding period as the debt securities move to maturity and there is the intent and ability to hold these investments to maturity if necessary. Therefore, at March 31, 2021, no allowance for credit losses has been recorded.
Loan Portfolio
Loans, net of unearned income and excluding the allowance for credit losses, were $5.7 billion at March 31, 2021, a $73.9 million decrease from December 31, 2020. During the first quarter of 2021, the Company participated in the most recent round of the PPP, resulting in originations of $232.5 million. This was offset by $213.8 million in PPP loans originated in 2020 that were forgiven by the SBA during the first quarter. Remaining decreases in the loan book reflect the impact of continued loan paydowns, while offsetting originations, particularly within the commercial loan portfolio, were seasonally lower during the quarter.
For the three months ended March 31, 2021, the Company originated $204.3 million in commercial and commercial real estate loans, compared to $183.3 million for the three months ended March 31, 2020, an increase of $20.9 million, or 11%. The loan pipeline for commercial and commercial real estate loans totaled $240.9 million at March 31, 2021. Prior year’s production and pipeline reflect the impact of the onset of the COVID-19 pandemic where the Company purposefully slowed originations. The current year activity reflects the Company’s return to its pre-pandemic credit policy and conservative underwriting guidelines.
The Company originated $46.6 million in residential loans retained in the portfolio during the three months ended March 31, 2021, compared to $25.8 million during the three months ended March 31, 2020, an increase of $20.8 million, or 81%. Saleable production increased for the three months ended March 31, 2021, representing $138.3 million versus $62.9 million during the three months ended March 31, 2020. The saleable residential mortgage pipeline increased to $92.1 million while the retained pipeline increased to $72.4 million as of March 31, 2021. Increases reflect the continued demand driven by low rates and inflows of new residents and businesses into Florida.
Consumer originations totaled $46.7 million for the three months ended March 31, 2021, a decrease of $4.8 million, or 9%, compared to the three months ended March 31, 2020, and the pipeline for these loans at March 31, 2021 was $28.1 million.
The Company remains committed to sound risk management procedures. Lending policies contain guardrails that pertain to lending by type of collateral and purpose, along with limits regarding loan concentrations and the principal amount of loans. The Company's exposure to commercial real estate lending remains well below regulatory limits (see “Loan Concentrations”).
The following tables detail loan portfolio composition at March 31, 2021 and December 31, 2020 for portfolio loans, purchased credit deteriorated (“PCD”) and loans purchased which are not considered purchased credit deteriorated (“Non-PCD”) as defined in Note E-Loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
(In thousands)
|
Portfolio Loans
|
|
Acquired Non-PCD Loans
|
|
PCD Loans
|
|
Total
|
Construction and land development
|
$
|
206,627
|
|
|
$
|
18,465
|
|
|
$
|
2,025
|
|
|
$
|
227,117
|
|
Commercial real estate - owner-occupied
|
868,347
|
|
|
225,785
|
|
|
38,953
|
|
|
1,133,085
|
|
Commercial real estate - non owner-occupied
|
1,116,362
|
|
|
294,128
|
|
|
27,875
|
|
|
1,438,365
|
|
Residential real estate
|
1,088,822
|
|
|
149,762
|
|
|
7,965
|
|
|
1,246,549
|
|
Commercial and financial
|
760,975
|
|
|
84,309
|
|
|
15,529
|
|
|
860,813
|
|
Consumer
|
167,778
|
|
|
5,900
|
|
|
232
|
|
|
173,910
|
|
Paycheck Protection Program
|
547,308
|
|
|
34,345
|
|
|
—
|
|
|
581,653
|
|
Totals
|
$
|
4,756,219
|
|
|
$
|
812,694
|
|
|
$
|
92,579
|
|
|
$
|
5,661,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(In thousands)
|
Portfolio Loans
|
|
Acquired Non-PCD Loans
|
|
PCD Loans
|
|
Total
|
Construction and land development
|
$
|
216,420
|
|
|
$
|
26,250
|
|
|
$
|
2,438
|
|
|
$
|
245,108
|
|
Commercial real estate - owner-occupied
|
854,769
|
|
|
247,090
|
|
|
39,451
|
|
|
1,141,310
|
|
Commercial real estate - non owner-occupied
|
1,043,459
|
|
|
323,273
|
|
|
29,122
|
|
|
1,395,854
|
|
Residential real estate
|
1,155,914
|
|
|
176,105
|
|
|
10,609
|
|
|
1,342,628
|
|
Commercial and financial
|
743,846
|
|
|
94,627
|
|
|
16,280
|
|
|
854,753
|
|
Consumer
|
181,797
|
|
|
6,660
|
|
|
278
|
|
|
188,735
|
|
Paycheck Protection Program
|
515,532
|
|
|
51,429
|
|
|
—
|
|
|
566,961
|
|
Totals
|
$
|
4,711,737
|
|
|
$
|
925,434
|
|
|
$
|
98,178
|
|
|
$
|
5,735,349
|
|
The amortized cost basis of loans at March 31, 2021 included net deferred costs of $23.8 million on non-PPP portfolio loans and net deferred fees of $13.5 million on PPP loans. At December 31, 2020, the amortized cost basis included net deferred costs of $22.6 million on non-PPP portfolio loans and net deferred fees of $9.5 million on PPP loans. At March 31, 2021, the remaining fair value adjustments on acquired loans was $27.3 million, or 2.9% of the outstanding acquired loan balances. At December 31, 2020, the remaining fair value adjustments for acquired loans was $30.2 million, or 2.9% of the acquired loan balances. These amounts are accreted into interest income over the remaining lives of the related loans on a level yield basis.
Commercial real estate (“CRE”) loans, inclusive of owner-occupied commercial real estate, increased by $34.3 million, or 1%, in the three months ended March 31, 2021, totaling $2.6 billion at March 31, 2021 compared to $2.5 billion at December 31, 2020. Owner-occupied commercial real estate loans represent $1.1 billion, or 44%, of the commercial real estate portfolio.
Fixed-rate and adjustable-rate loans secured by commercial real estate, excluding construction loans, totaled approximately $2.1 billion and $445.7 million, respectively, at March 31, 2021, compared to $2.1 billion and $453.7 million, respectively, at December 31, 2020.
During the first quarter of 2021, the Company participated in the most recent round of the PPP and originated over 2,450 loans for $232.5 million. Also during the first quarter of 2021, $213.8 million in PPP loans funded in 2020 were forgiven by the SBA.
At March 31, 2021, Seacoast had $28.4 million of loans with payment accommodations to borrowers financially impacted by the COVID-19 pandemic, none of which have been classified as TDRs, compared to $74.1 million at December 31, 2020. Interest and fees have continued to accrue on these loans during the deferral period.
Residential real estate loans decreased $96.1 million, or 7%, to $1.2 billion as of March 31, 2021, compared to December 31, 2020. Substantially all residential mortgage originations have been underwritten to conventional loan agency standards, including loans having balances that exceed agency value limitations. At March 31, 2021, approximately $382.2 million, or 31%, of the Company’s residential mortgage balances were adjustable 1-4 family mortgage loans, which includes hybrid adjustable-rate mortgages. Fixed-rate mortgages totaled approximately $544.2 million, or 44%, at March 31, 2021, of which 15- and 30-year mortgages totaled $41.2 million and $361.0 million, respectively. Remaining fixed-rate balances were comprised of home improvement loans totaling $142.0 million, most with maturities of 10 years or less. Home equity lines of credit ("HELOCs"), primarily floating rates, totaled $320.1 million at March 31, 2021. In comparison, loans secured by residential properties having fixed rates totaled $499.0 million at December 31, 2020, with 15- and 30-year fixed-rate residential mortgages totaling $38.4 million and $362.9 million, respectively, and home equity mortgages and HELOCs totaling $163.5 million and $341.6 million, respectively. Borrowers in the residential real estate portfolio have an average credit score of 747. Specifically for HELOCs, borrowers have an average credit score of 762. The average LTV of our HELOC portfolio is 67% with 44% of the portfolio being in first lien position.
The Company also provides consumer loans, which include installment loans, auto loans, marine loans, and other consumer loans, which decreased $14.8 million, or 8%, to total $173.9 million compared to $188.7 million at December 31, 2020. Borrowers in the consumer portfolio have an average credit score of 731.
At March 31, 2021, the Company had unfunded loan commitments of $1.6 billion compared to $1.5 billion at December 31, 2020.
Loan Concentrations
The Company has developed prudent guardrails to manage loan types that are most impacted by stressed market conditions in order to minimize credit risk concentration to capital. Outstanding balances for commercial and CRE loan relationships greater than $10 million totaled $798.0 million and represented 14% of the total portfolio at March 31, 2021 compared to $753.7 million, or 13%, at year-end 2020.
The Company’s ten largest commercial and commercial real estate funded and unfunded loan relationships at March 31, 2021 aggregated to $251.3 million, of which $189.1 million was funded compared to $254.3 million at December 31, 2020, of which $188.0 million was funded. The Company had 144 commercial and commercial real estate relationships in excess of $5 million totaling $1.4 billion, of which $1.2 billion was funded at March 31, 2021 compared to 135 relationships totaling $1.3 billion at December 31, 2020, of which $1.2 billion was funded.
Concentrations in total construction and land development loans and total CRE loans are maintained well below regulatory limits. Construction and land development and CRE loan concentrations as a percentage of subsidiary bank total risk based capital declined to 23% and 168%, respectively, at March 31, 2021, compared to 26% and 169%, respectively, at December 31, 2020. Regulatory guidance suggests limits of 100% and 300%, respectively. On a consolidated basis, construction and land development and commercial real estate loans represent 21% and 155%, respectively, of total consolidated risk based capital. To determine these ratios, the Company defines CRE in accordance with the guidance on “Concentrations in Commercial Real Estate Lending” (the “Guidance”) issued by the federal bank regulatory agencies in 2006 (and reinforced in 2015), which defines 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 (“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. In addition, the Company is subject to a geographic concentration of credit because it primarily operates in Florida.
Nonperforming Loans, Troubled Debt Restructurings, Other Real Estate Owned, and Credit Quality
Nonperforming assets (“NPAs”) at March 31, 2021 totaled $50.9 million, and were comprised of $35.3 million of nonaccrual loans, $10.8 million of other real estate owned (“OREO”), and $4.7 million of branches and other properties used in bank operations taken out of service. Compared to December 31, 2020, nonaccrual loans decreased $0.8 million, primarily the result of paydowns. The increase in OREO for bank branches of $2.1 million reflects the addition of three branch properties totaling $3.3 million, offset by the sale of a branch property. Overall, NPAs increased $2.0 million, or 4%, from $48.9 million recorded as of December 31, 2020. At March 31, 2021, approximately 82% of nonaccrual loans were secured with real estate. See the tables below for details about nonaccrual loans. At March 31, 2021, nonaccrual loans were written down by approximately $7.5 million, or 11% of the original loan balance (including specific impairment reserves).
Nonperforming loans to total loans outstanding at March 31, 2021 decreased to 0.62% from 0.63% at December 31, 2020. Nonperforming assets to total assets at March 31, 2021 decreased to 0.58% from 0.59% at December 31, 2020.
The Company’s asset mitigation staff handles all foreclosure actions together with outside legal counsel.
The Company pursues loan restructurings in select 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. Troubled debt restructurings (“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 TDRs totaled $4.1 million at March 31, 2021 compared to $4.2 million at December 31, 2020. Accruing TDRs are excluded from the nonperforming asset ratios.
Beginning in March 2020, in response to the economic downturn resulting from the COVID-19 pandemic, the Company has offered short-term payment deferrals to affected borrowers. As of March 31, 2021, pandemic-related deferrals totaled $28.4 million and are not considered TDRs. If economic conditions deteriorate further, these borrowers may be unable to resume scheduled payments, which may result in further modification of terms and the potential for classification as a TDR in future periods.
The table below sets forth details related to nonaccrual and accruing restructured loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
|
Nonaccrual Loans
|
|
Accruing
Restructured Loans
|
(In thousands)
|
|
Non-Current
|
|
Current
|
|
Total
|
|
Construction and land development
|
|
$
|
37
|
|
|
$
|
125
|
|
|
$
|
162
|
|
|
$
|
99
|
|
Commercial real estate - owner-occupied
|
|
2,027
|
|
|
5,138
|
|
|
7,165
|
|
|
107
|
|
Commercial real estate - non owner-occupied
|
|
1,884
|
|
|
5,987
|
|
|
7,871
|
|
|
—
|
|
Residential real estate
|
|
1,624
|
|
|
11,989
|
|
|
13,613
|
|
|
3,617
|
|
Commercial and financial
|
|
2,829
|
|
|
3,265
|
|
|
6,094
|
|
|
—
|
|
Consumer
|
|
332
|
|
|
91
|
|
|
423
|
|
|
244
|
|
Total
|
|
$
|
8,733
|
|
|
$
|
26,595
|
|
|
$
|
35,328
|
|
|
$
|
4,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Nonaccrual Loans
|
|
Accruing
Restructured Loans
|
(In thousands)
|
|
Non-Current
|
|
Current
|
|
Total
|
|
Construction and land development
|
|
$
|
37
|
|
|
$
|
129
|
|
|
$
|
166
|
|
|
$
|
109
|
|
Commercial real estate - owner-occupied
|
|
5,682
|
|
|
2,500
|
|
|
8,182
|
|
|
109
|
|
Commercial real estate - non owner-occupied
|
|
2,030
|
|
|
6,053
|
|
|
8,083
|
|
|
—
|
|
Residential real estate
|
|
4,074
|
|
|
8,418
|
|
|
12,492
|
|
|
3,740
|
|
Commercial and financial
|
|
3,777
|
|
|
2,827
|
|
|
6,604
|
|
|
—
|
|
Consumer
|
|
543
|
|
|
40
|
|
|
583
|
|
|
224
|
|
Total
|
|
$
|
16,143
|
|
|
$
|
19,967
|
|
|
$
|
36,110
|
|
|
$
|
4,182
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2021 and December 31, 2020, total TDRs (performing and nonperforming) were comprised of the following loans by type of modification:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
(In thousands)
|
|
Number
|
|
Amount
|
|
Number
|
|
Amount
|
Maturity extended
|
|
51
|
|
|
$
|
5,327
|
|
|
51
|
|
|
$
|
5,438
|
|
Rate reduction
|
|
35
|
|
|
4,118
|
|
|
37
|
|
|
4,275
|
|
Chapter 7 bankruptcies
|
|
12
|
|
|
389
|
|
|
13
|
|
|
417
|
|
Not elsewhere classified
|
|
6
|
|
|
189
|
|
|
5
|
|
|
160
|
|
Total
|
|
104
|
|
|
$
|
10,023
|
|
|
106
|
|
|
$
|
10,290
|
|
During the three months ended March 31, 2021, there were no defaults on loans that were modified in TDRs in the preceding twelve months, compared to three loans to a single borrower totaling $1.4 million for the three months ended March 31, 2020. 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. A restructured loan is considered in default when it becomes 90 days or more past due under the modified terms, has been transferred to nonaccrual status, has been charged off or has been transferred to OREO.
In accordance with regulatory reporting requirements, loans are placed on nonaccrual following the Retail Classification of Loan interagency guidance. The accrual of interest is generally discontinued on loans, except consumer loans, that become 90 days past due as to principal or interest unless collection of both principal and interest is assured by way of collateralization, guarantees or other security. Consumer loans that become 120 days past due are generally charged off. The loan carrying value is analyzed and any changes are appropriately made as described above quarterly.
Allowance for Credit Losses on Loans
Management estimates the allowance using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit losses provide the basis for estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific
risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, loan to value ratios, borrower credit characteristics, loan seasoning or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, occupancy rates, and other macroeconomic metrics.
During the first quarter of 2021, the Company recorded a reversal of provision of $5.7 million reflecting improvement in the economic forecast. No allowance has been assigned to PPP loans, which are guaranteed by the U.S. government. Net charge-offs for the first quarter of 2021 were $0.4 million, or 0.03% of average loans and, for the four most recent quarters, averaged 0.12% of outstanding loans. Excluding PPP loans, the ratio of allowance to total loans decreased to 1.71% at March 31, 2021 from 1.79% at December 31, 2020.
The following tables present the activity in the allowance for credit losses on loans by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021
|
(In thousands)
|
Beginning
Balance
|
|
|
|
Provision
for Credit
Losses
|
|
Charge-
Offs
|
|
Recoveries
|
|
TDR
Allowance
Adjustments
|
|
Ending
Balance
|
Construction and land development
|
$
|
4,920
|
|
|
|
|
$
|
(510)
|
|
|
$
|
—
|
|
|
$
|
18
|
|
|
$
|
—
|
|
|
$
|
4,428
|
|
Commercial real estate - owner-occupied
|
9,868
|
|
|
|
|
(76)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,792
|
|
Commercial real estate - non owner-occupied
|
38,266
|
|
|
|
|
(2,038)
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
36,229
|
|
Residential real estate
|
17,500
|
|
|
|
|
(3,372)
|
|
|
—
|
|
|
229
|
|
|
(4)
|
|
|
14,353
|
|
Commercial and financial
|
18,690
|
|
|
|
|
775
|
|
|
(756)
|
|
|
207
|
|
|
—
|
|
|
18,916
|
|
Consumer
|
3,489
|
|
|
|
|
(494)
|
|
|
(185)
|
|
|
116
|
|
|
(1)
|
|
|
2,925
|
|
Paycheck Protection Program
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Totals
|
$
|
92,733
|
|
|
|
|
$
|
(5,715)
|
|
|
$
|
(941)
|
|
|
$
|
571
|
|
|
$
|
(5)
|
|
|
$
|
86,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2021, the Company had $1.2 billion in loans secured by residential real estate and $2.6 billion in loans secured by commercial real estate, representing 22% and 45% of total loans outstanding, respectively. In addition, the Company is subject to a geographic concentration of credit because it primarily operates in Florida.
LIBOR Transition
The Company’s LIBOR transition steering committee is responsible for overseeing the execution of the Company’s enterprise-wide LIBOR transition program, and for evaluating and mitigating risks associated with the transition from LIBOR. The LIBOR transition program includes a comprehensive review of the financial products, agreements, contracts, and business processes that may use LIBOR as a reference rate, and the development and execution of strategy to transition away from LIBOR, with appropriate consideration of the potential financial, customer, counterpart, regulatory and legal impacts. The Company continues to execute its LIBOR transition program, and to monitor regulatory and legislative activity to identify any necessary actions and facilitate the transition to alternative reference rates.
Cash and Cash Equivalents and Liquidity Risk Management
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 include primarily customer-based deposits, collateral-backed borrowings, brokered deposits, cash flows from operations, cash flows from the loan and investment portfolios and asset sales, primarily secondary marketing for residential real estate mortgages and marine loans. Cash flows from operations are a significant component of liquidity risk management and the Company considers both deposit maturities and the scheduled cash flows from loan and investment maturities and payments when managing risk.
Deposits are 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. The Company routinely uses debt securities and loans as collateral for secured borrowings. In the event of severe market
disruptions, the Company has access to secured borrowings through the FHLB and the Federal Reserve Bank of Atlanta under its borrower-in-custody program.
The Company does not rely on and is not dependent on off-balance sheet financing or significant amounts of wholesale funding. The Company strategically increased brokered deposits in the first quarter of 2020 to supplement its liquidity position, given the unknown impact of the COVID-19 pandemic on business and economic conditions. Brokered certificates of deposit ("CDs") at March 31, 2021 were $93.5 million, a decrease of $140.3 million, or 60%, from December 31, 2020, with $73.5 million maturing in the second quarter of 2021.
Cash and cash equivalents, including interest bearing deposits, totaled $979.3 million on a consolidated basis at March 31, 2021, compared to $404.1 million at December 31, 2020, an increase of 142%. Higher cash and cash equivalent balances at March 31, 2021 reflect favorable deposit growth, including PPP loan funds, government stimulus payments received by our customers as well as the inflow of tax refunds during the quarter.
Contractual maturities for assets and liabilities are reviewed to meet current and expected future liquidity requirements. Sources of liquidity are maintained through a portfolio of high quality marketable assets, such as residential mortgage loans, debt securities available-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 debt securities not pledged to secure public deposits or trust funds. At March 31, 2021, the Company had available unsecured lines of credit of $135.0 million and secured lines of credit, which are subject to change, of $1.7 billion. In addition, the Company had $1.3 billion of debt securities and $703.8 million in residential and commercial real estate loans available as collateral. In comparison, at December 31, 2020, the Company had available unsecured lines of $135.0 million and secured lines of credit of $1.8 billion, and $1.2 billion of debt securities and $733.3 million in residential and commercial real estate loans available as collateral.
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. During the first quarter of 2021, Seacoast Bank distributed $11.9 million to the Company and, at March 31, 2021, is eligible to distribute dividends to the Company of approximately $165.5 million without prior regulatory approval. At March 31, 2021, the Company had cash and cash equivalents at the parent of approximately $81.5 million compared to $70.1 million at December 31, 2020.
Deposits and Borrowings
Customer relationship funding is detailed in the following table for the periods specified:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
|
|
March 31,
|
(In thousands, except ratios)
|
|
2021
|
|
2020
|
|
|
|
|
|
2020
|
Noninterest demand
|
|
$
|
2,685,247
|
|
|
$
|
2,289,787
|
|
|
|
|
|
|
$
|
1,703,628
|
|
Interest-bearing demand
|
|
1,647,935
|
|
|
1,566,069
|
|
|
|
|
|
|
1,234,193
|
|
Money market
|
|
1,671,179
|
|
|
1,556,370
|
|
|
|
|
|
|
1,124,378
|
|
Savings
|
|
768,362
|
|
|
689,179
|
|
|
|
|
|
|
554,836
|
|
Time certificates of deposit
|
|
613,026
|
|
|
831,156
|
|
|
|
|
|
|
1,270,464
|
|
Total deposits
|
|
$
|
7,385,749
|
|
|
$
|
6,932,561
|
|
|
|
|
|
|
$
|
5,887,499
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer sweep accounts
|
|
$
|
109,171
|
|
|
$
|
119,609
|
|
|
|
|
|
|
$
|
64,723
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest demand deposits as % of total deposits
|
|
36
|
%
|
|
33
|
%
|
|
|
|
|
|
29
|
%
|
The Company’s balance sheet continues to be primarily funded by core deposits.
Total deposits increased $0.5 billion, or 7%, to $7.4 billion at March 31, 2021, compared to $6.9 billion at December 31, 2020. The increase is attributed to new PPP loan originations, ongoing stimulus programs and tax refunds and growth in relationships.
Since December 31, 2020, interest bearing deposits (interest bearing demand, savings and money market deposits) increased $275.9 million, or 7%, to $4.1 billion, and CDs (excluding brokered CDs) decreased $77.8 million, or 13%, to $519.5 million. Noninterest demand deposits were higher by $395.5 million, or 17%, compared to year-end 2020, totaling $2.7 billion. Noninterest demand deposits represented 36% of total deposits at March 31, 2021 and 33% at December 31, 2020.
During the three months ended March 31, 2021, $140.3 million of brokered CDs at an average rate of 1.13% matured. Brokered CDs at March 31, 2021 totaled $93.5 million compared to $233.8 million at December 31, 2020, with $73.5 million maturing in the second quarter of 2021.
Customer repurchase agreements totaled $109.2 million at March 31, 2021, decreasing $10.4 million, or 9%, from December 31, 2020. 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 March 31, 2021.
At March 31, 2021 and December 31, 2020, borrowings were comprised of subordinated debt of $71.4 million in each period, related to trust preferred securities issued by trusts organized or acquired by the Company, and there were no borrowings from FHLB. For the three months ended March 31, 2020, FHLB borrowings averaged $250.0 million with a weighted average rate of 1.56%.
The weighted average interest rate of outstanding subordinated debt related to trust preferred securities was 2.43%, 2.43%, and 4.08% for the three months ended March 31, 2021, December 31, 2020, and March 31, 2020, respectively.
Off-Balance Sheet Transactions
In the normal course of business, the Company 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. 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. A large majority of loan commitments and standby letters of credit expire without being funded, and accordingly, total contractual amounts are not representative of 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.
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. Loan commitments were $1.6 billion at March 31, 2021 and $1.5 billion at December 31, 2020.
Capital Resources
The Company’s equity capital at March 31, 2021 increased $24.9 million, or 2%, from December 31, 2020 to $1.2 billion. Changes in equity included increases from net income of $33.7 million, partially offset by a decrease in accumulated other comprehensive income of $11.0 million primarily attributed to the decrease in market value of available-for-sale debt securities.
The ratio of shareholders’ equity to period end total assets was 13.11% and 13.55% at March 31, 2021 and December 31, 2020, respectively. The ratio of tangible shareholders’ equity to tangible assets was 10.71% and 11.01% at March 31, 2021 and December 31, 2020, respectively. The decrease was due to growth in the balance sheet, the result of bank acquisitions, PPP loans and associated liquidity.
Activity in shareholders’ equity for the three months ended March 31, 2021 and 2020 follows:
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2021
|
|
2020
|
Beginning balance at December 31, 2020 and 2019
|
$
|
1,130,402
|
|
|
$
|
985,639
|
|
Net income
|
33,719
|
|
|
709
|
|
Cumulative change in accounting principle upon adoption of new accounting pronouncement
|
—
|
|
|
(16,876)
|
|
Issuance of stock pursuant to acquisition
|
—
|
|
|
21,031
|
|
Stock compensation, net of Treasury shares acquired
|
2,193
|
|
|
990
|
|
Change in accumulated other comprehensive income
|
(10,965)
|
|
|
294
|
|
Ending balance at March 31, 2021 and 2020
|
$
|
1,155,349
|
|
|
$
|
991,787
|
|
Capital ratios are well above regulatory requirements for well-capitalized institutions. Seacoast management's use of risk-based capital ratios in its analysis of the Company’s capital adequacy are “non-GAAP” financial measures. Seacoast management uses these 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 J – Equity Capital”).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
Seacoast (Consolidated)
|
|
Seacoast
Bank
|
|
Minimum to be Well- Capitalized1
|
Total Risk-Based Capital Ratio
|
19.07%
|
|
17.55%
|
|
10.00%
|
Tier 1 Capital Ratio
|
18.09
|
|
16.57
|
|
8.00
|
Common Equity Tier 1 Ratio (CET1)
|
16.80
|
|
16.57
|
|
6.50
|
Leverage Ratio
|
12.19
|
|
11.16
|
|
5.00
|
1For subsidiary bank only.
|
The Company’s total risk-based capital ratio was 19.07% at March 31, 2021, an increase from December 31, 2020’s ratio of 18.51%. During the first quarter of 2020, the Company adopted interagency guidance which delays the impact of CECL adoption on capital for two years followed by a three-year phase-in period. At March 31, 2021, the Bank’s leverage ratio (Tier 1 capital to adjusted total assets) was 11.16%, well above the minimum to be well capitalized under regulatory guidelines.
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 $165.5 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. The board of directors of a bank holding company must consider different factors to ensure that its dividend level, if any, 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 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 $71.4 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.
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. The Company has 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 believes the most critical accounting estimates and assumptions that involve the most difficult, subjective and complex assessments are:
•the allowance and the provision for credit losses on loans;
•acquisition accounting and purchased loans;
•intangible assets and impairment testing;
•other fair value adjustments;
•impairment of debt securities, and;
•contingent liabilities.
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 the Company that could have a material effect on reported financial information.
Allowance and Provision for Credit Losses on Loans– Critical Accounting Policies and Estimates
For loans, management estimates the allowance for credit losses using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit losses provide the basis for estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, loan to value ratios, borrower credit characteristics, loan seasoning or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, occupancy rates, and other macroeconomic metrics.
The allowance for credit losses is measured on a collective basis when similar risk characteristics exist. The Company has developed an allowance model based on an analysis of probability of default ("PD") and loss given default ("LGD") to determine an expected loss by loan segment. PDs and LGDs are developed by analyzing the average historical loss migration of loans to default.
The allowance estimation process also applies an economic forecast scenario over a three year forecast period. The forecast may utilize one scenario or a composite of scenarios based on management's judgment and expectations around the current and future macroeconomic outlook. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. For portfolio segments with a weighted average life longer than three years, the Company reverts to longer term historical loss experience, adjusted for prepayments, to estimate losses over the remaining life of the loans within each segment.
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 quantitative components of the allowance model. These influences may include elements such as changes in concentration, macroeconomic conditions, recent observable asset quality trends, staff turnover, regional market conditions, employment levels and loan growth. Based upon management's assessments of these factors, the Company may apply qualitative adjustments to the allowance.
Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.
The allowance for credit losses on troubled debt restructurings (“TDRs”) is measured using the same method as all other loans held for investment, except when the value of a concession cannot be measured using a method other than the discounted cash flow method. When the value of a concession is measured using the discounted cash flow method, the allowance for credit losses is determining by discounting the expected future cash flows at the original interest rate of the loan.
It is the Company's practice to ensure that the charge-off policy meets or exceeds regulatory requirements. 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. Loans provided with short-term payment deferrals under the CARES Act or interagency guidance are not considered past due if in compliance with the terms of their deferral. Secured loans may be charged down to the estimated value of the collateral with previously accrued unpaid interest reversed against interest income. 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.
Note F to the financial statements (titled “Allowance for Credit Losses”) summarizes the Company’s allocation of the allowance for credit losses on loans by loan segment and provides detail regarding charge-offs and recoveries for each loan segment and the composition of the loan portfolio at March 31, 2021 and December 31, 2020.
Acquisition Accounting and Purchased Loans – Critical Accounting Policies and Estimates
The Company accounts for 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. All loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in ASC Topic 820, Fair Value Measurement. 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. Loans are identified as purchased credit deteriorated (“PCD”) when they have experienced more-than-insignificant deterioration in credit quality since origination. An allowance for expected credit losses on PCD loans is recorded at the date of acquisition through an adjustment to the loans’ amortized cost basis. In contrast, expected credit losses on loans not considered PCD are recognized in net income at the date of acquisition.
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.
Intangible Assets and Impairment Testing – Critical Accounting Policies and Estimates
Intangible assets consist of goodwill, core deposit intangibles and mortgage servicing rights. 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. Core deposit intangibles are amortized 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. The Company performed an annual impairment test of goodwill, as required by ASC Topic 350, Intangibles—Goodwill and Other, in the fourth quarter of 2020, and concluded that no impairment existed.
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
The fair value of collateral-dependent loans, OREO and repossessed assets is typically based on current appraisals, which 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 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 loans are loans where repayment is solely dependent on the liquidation of the collateral or operation of the collateral for repayment.
The Company also holds 11,330 shares of Visa Class B stock which, following resolution of Visa’s litigation, will be converted to Visa Class A shares. Under the current conversion rate that became effective September 27, 2019, the Company expects to receive 1.6228 shares of Class A stock for each share of Class B stock, for a total of 18,386 shares of Visa Class A stock. The Company's ownership is related to prior ownership in Visa’s network while Visa operated as a cooperative. This ownership is recorded on the Company's financial records at a zero basis.
Impairment of Debt Securities – Critical Accounting Policies and Estimates
Expected credit losses on both held-to-maturity (“HTM”) and available-for-sale (“AFS”) securities are recognized through a valuation allowance. For HTM securities, management estimates expected credit losses over the remaining expected life and recognizes this estimate as an allowance for credit losses. An AFS security is considered impaired if the fair value is less than amortized cost basis. For AFS securities, if any portion of the decline in fair value is related to credit, the amount of allowance is determined as the portion related to credit, limited to the difference between the amortized cost basis and the fair value of the security. If the fair value of the security increases in subsequent periods, or changes in factors used within the credit loss assessment result in a change in the estimated credit loss, the Company would reflect the change by decreasing the allowance. If the Company has the intent to sell or believes it is more likely than not that it will be required to sell an impaired AFS security before recovery of the amortized cost basis, the credit loss is recorded as a direct write-down of the amortized cost basis. Declines in the fair value of AFS securities that are not considered credit related are recognized in Accumulated Other Comprehensive Income on the Company’s Consolidated Balance Sheet.
Seacoast analyzes AFS debt securities quarterly for credit losses. The analysis is performed on an individual security basis for all securities where fair value has declined below amortized cost. Fair value is based upon pricing obtained from third party pricing services. Based on internal review procedures and the fair values provided by the pricing services, the Company believes that the fair values provided by the pricing services are consistent with the principles of ASC Topic 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.
The Company utilizes both quantitative and qualitative assessments to determine if a security has a credit loss. Quantitative assessments are based on a discounted cash flow method. Qualitative assessments consider a range of factors including: 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.
Contingent Liabilities – Critical Accounting Policies and Estimates
Seacoast is subject to contingent liabilities, including judicial, regulatory and arbitration proceedings, and tax and other claims arising from the conduct of the Company's business activities. These proceedings include actions brought against the Company and/or its subsidiaries with respect to transactions in which the Company and/or its subsidiaries acted as a lender, a financial adviser, 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 its advisers may learn of additional information that can affect the 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 March 31, 2021 and December 31, 2020, 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 Asset and Liability Management Committee ("ALCO") uses simulation analysis to monitor changes in net interest income due to changes in market interest rates. The simulation of rising, declining and flat interest rate scenarios allows management to monitor and adjust interest rate sensitivity to minimize the impact of market interest rate swings. The analysis of the impact on net interest income over a twelve-month period is subjected to instantaneous changes in market rates of 100 basis point increases up to 200 basis points of change on net interest income and is monitored on a quarterly basis.
The following table presents the ALCO simulation model's projected impact of a change in interest rates on the projected baseline net interest income for the 12 and 24 month periods beginning on April 1, 2021, holding all other changes in the balance sheet static. This change in interest rates assumes parallel shifts in the yield curve and does not take into account changes in the slope of the yield curve.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change in Projected Baseline Net
|
Change in Interest Rates
|
|
Interest Income
|
|
1-12 months
|
|
13-24 months
|
+2.00%
|
|
9.1%
|
|
12.4%
|
+1.00%
|
|
4.5%
|
|
6.3%
|
Current
|
|
—%
|
|
—%
|
-1.00%
|
|
(6.3%)
|
|
(12.3%)
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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 30.5% at March 31, 2021. 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.