UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_________________
FORM 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal
year ended December 31, 2014
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition
period from _______ to _________
Commission File No. 0-13660
SEACOAST BANKING CORPORATION OF FLORIDA
(Exact Name of Registrant as Specified in
Its Charter)
|
Florida |
|
59-2260678 |
(State or Other Jurisdiction of
Incorporation or Organization) |
|
(I.R.S. Employer
Identification No.) |
| |
|
|
|
815 Colorado
Avenue, Stuart, FL |
|
34994 |
| (Address of Principal Executive Offices) |
|
(Zip Code) |
| Registrant’s telephone number, including area code |
(772) 287-4000 |
Securities registered pursuant to Section 12
(b) of the Act:
| Title of Each Class |
|
Name of Each Exchange on Which Registered |
| |
|
|
| Common Stock, Par Value $0.10 |
|
Nasdaq Global Select Market |
Securities registered pursuant to Section
12(g) of the Act: None.
Indicate by check mark if
the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES ¨ NO
x
Indicate by check mark
if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES ¨ NO
x
Indicate by check mark
whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES x NO
¨
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files).
YES x NO
¨
Indicate by check mark
if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):
|
Large accelerated filer ¨
Non-accelerated filer ¨
(Do not check if a smaller reporting company) |
Accelerated filer x
Smaller reporting company ¨ |
Indicate by check mark
whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).
YES ¨ NO
x
The aggregate market value
of Seacoast Banking Corporation of Florida common stock, par value $0.10 per share, held by non-affiliates, computed by reference
to the price at which the stock was last sold on June 30, 2014, as reported on the Nasdaq Global Select Market, was $210,642,143.
The number of shares
outstanding of Seacoast Banking Corporation of Florida common stock, par value $0.10 per share, as of February 27, 2015, was
33,135,526.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant’s
2015 Proxy Statement for the Annual Meeting of Shareholders to be held May 26, 2015 (the “2015 Proxy Statement”) are
incorporated by reference into Part III, Items 10 through 14 of this report. Other than those portions of the 2015 Proxy Statement
specifically incorporated by reference herein pursuant to Items 10 through 14, no other portions of the 2015 Proxy Statement shall
be deemed so incorporated.
TABLE OF CONTENTS
SPECIAL CAUTIONARY NOTICE
REGARDING FORWARD-LOOKING STATEMENTS
Various of the statements
made herein under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations”,
“Quantitative and Qualitative Disclosures about Market Risk”, “Risk Factors” and elsewhere, are “forward-looking
statements” within the meaning and protections of Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are intended to be covered by the safe
harbor provided by the same.
Forward-looking statements
include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates,
intentions and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our
control, and which may cause the actual results, performance or achievements of Seacoast Banking Corporation of Florida (“Seacoast”
or the “Company”) to be materially different from those set forth in the forward-looking statements.
All statements other than
statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements
through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,”
“indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,”
“continue,” “further,” “plan,” “point to,” “project,” “could,”
“intend,” “target” and other similar words and expressions of the future. These forward-looking statements
may not be realized due to a variety of factors, including, without limitation:
| · | the effects of current and future economic, business and market conditions in the United States
generally or in the communities we serve, including the effects of declines in property values, unemployment rates and potential
reduction of economic growth; |
| · | changes in governmental monetary and fiscal policies, including interest rate policies of the Board
of Governors of the Federal Reserve System (the “Federal Reserve”); |
| · | legislative and regulatory changes, including changes in banking, securities and tax laws and regulations
and their application by our regulators, including those associated with the Dodd Frank Wall Street Reform and Consumer Protection
Act (the “Dodd-Frank Act”) and changes in the scope and cost of Federal Deposit Insurance Corporation (“FDIC”)
insurance and other coverage; |
| · | changes in accounting policies, rules and practices and applications or determinations made thereunder,
as required by the Financial Accounting Standards Board or other regulatory agencies; |
| · | the risks of changes in interest rates on the levels, composition and costs of deposits, loan demand,
and the values and liquidity of loan collateral, securities, and interest sensitive assets and liabilities; |
| · | changes in borrower credit risks and payment behaviors, including changes in the speed of loan
prepayments, loan originations and sale volumes, charge-offs, loan loss provisions or actual loan losses; |
| · | changes in the availability and cost of credit and capital in the financial markets; |
| · | changes in the prices, values and sales volumes of residential and commercial real estate in the
United States and in the communities we serve, which could impact write-downs of assets, our ability to liquidate non-performing
assets, realized losses on the disposition of non-performing assets and increased credit losses; |
| · | our ability to comply with any requirements imposed on us or on our banking subsidiary, Seacoast
National Bank (“Seacoast National”) by regulators and the potential negative consequences that may result; |
| · | our concentration in commercial real estate loans; |
| · | the failure of assumptions and estimates, as well as differences in, and changes to, economic,
market and credit conditions, including changes in borrowers’ credit risks and payment behaviors from those used in our loan
portfolio stress test; |
| · | the effects of competition from a wide variety of local, regional, national and other providers
of financial, investment and insurance services; |
| · | the failure of assumptions and estimates underlying the establishment of reserves for possible
loan losses and other estimates; |
| · | the impact on the valuation of our investments due to market volatility or counterparty payment
risk; |
| · | statutory and regulatory restrictions on our ability to pay dividends to our shareholders; |
| · | any applicable regulatory limits on Seacoast National’s ability to pay dividends to us; |
| · | increases in regulatory capital requirements for banking organizations generally, which may adversely
affect our ability to expand our business or could cause us to shrink our business; |
| · | the risks of mergers, acquisitions and divestitures, including, without limitation, the related
time and costs of implementing such transactions, integrating operations as part of these transactions and possible failures to
achieve expected gains, revenue growth and/or expense savings from such transactions; |
| · | changes in technology or products that may be more difficult, costly, or less effective than anticipated; |
| · | inability of our risk management framework to manage risks associated with our business such as
credit risk and operational risk, including third party vendors and other service providers; |
| · | the effects of war or other conflicts, acts of terrorism or other catastrophic events that may
affect general economic conditions; |
| · | the risks that our deferred tax assets could be reduced if estimates of future taxable income from
our operations and tax planning strategies are less than currently estimated, and sales of our capital stock could trigger a reduction
in the amount of net operating loss carryforwards that we may be able to utilize for income tax purposes; and |
| · | other factors and risks described under “Risk Factors” herein and in any of our subsequent
reports filed with the Securities and Exchange Commission (the “Commission” or “SEC”) and available on
its website at www.sec.gov. |
All written or oral forward-looking
statements that are made by us or are attributable to us are expressly qualified in their entirety by this cautionary notice. We
assume no obligation to update, revise or correct any forward-looking statements that are made from time to time, either as a result
of future developments, new information or otherwise, except as may be required by law.
Part I
General
We are a bank holding company,
incorporated in Florida in 1983, and registered under the Bank Holding Company Act of 1956, as amended (the “BHC Act”).
Our principal subsidiary is Seacoast National Bank, a national banking association (“Seacoast National”). Seacoast
National commenced its operations in 1933, and operated as “First National Bank & Trust Company of the Treasure Coast”
prior to 2006 when we changed its name to Seacoast National Bank.
As a bank holding company,
we are a legal entity separate and distinct from our subsidiaries, including Seacoast National. We coordinate the financial resources
of the consolidated enterprise and maintain financial, operational and administrative systems that allow centralized evaluation
of subsidiary operations and coordination of selected policies and activities. Our operating revenues and net income are derived
primarily from Seacoast National through dividends and fees for services performed.
As of December 31,
2014, we had total consolidated assets of approximately $3.093 billion, total deposits of approximately $2.417 billion, total consolidated
liabilities, including deposits, of approximately $2.781 billion and consolidated shareholders’ equity of approximately $312.7
million. Our operations are discussed in more detail under “Item 7. Management’s Discussion and Analysis of Consolidated
Financial Condition and Results of Operations.”
We and our subsidiaries
offer a full array of deposit accounts and retail banking services, engage in consumer and commercial lending and provide a wide
variety of trust and asset management services, as well as securities and annuity products to our customers. Seacoast National
had 43 traditional banking offices in 14 counties in Florida at year-end 2014. We have 20 branches in the “Treasure Coast
of Florida,” including the counties of Martin, St. Lucie and Indian River on Florida’s southeastern coast. During 2013,
we expanded our footprint by strategically opening five new commercial lending offices in the larger metropolitan markets we serve,
more specifically, three in Orlando, one in Boca Raton, and one in Ft. Lauderdale, Florida. Most recently, in October 2014, we
acquired 12 branches in Central Florida through our acquisition of The BANKshares, Inc., a Florida corporation (“BANKshares”),
and its subsidiary bank, BankFIRST.
Most of our banking offices
have one or more automated teller machines (“ATMs”) providing customers with 24-hour access to their deposit accounts.
We are a member of the “NYCE Payments Network,” an electronic funds transfer organization represented in all fifty
states in the United States, which permits banking customers access to their accounts at 2.5 million participating ATMs and retail
locations throughout the United States. During 2014, Seacoast National partnered with Publix, a major grocery chain in the state
of Florida, to offer free access at over 1,000 Publix ATMs within the state of Florida. Our debit cards are accepted wherever VISA
is accepted.
Seacoast National’s
“MoneyPhone” system allows customers to access information on their loan or deposit account balances, transfer funds
between linked accounts, make loan payments, and verify deposits or checks that may have cleared, all over the telephone. This
service is available 24 hours a day, seven days a week.
In addition, customers
may access banking information via Seacoast National’s Customer Service Center (“CSC”) 24 hours a day, seven
days a week. Our CSC staff is available to open accounts, take applications for certain types of loans, resolve account issues,
and offer information on other bank products and services to existing and potential customers.
We also offer Internet
and Mobile banking to business and retail customers. These services allow customers to access transactional information on their
deposit accounts, review loan and deposit balances, transfer funds between linked accounts and make deposits to and loan payments
from a deposit account, all over the Internet or their Mobile device, 24 hours a day, seven days a week. Seacoast National has
significantly expanded its technology platform and the products offered to its customers by introducing digital deposit capture
on smart phones, launching new consumer and business tablet and mobile platforms, rebranding its website, and enhancing its automatic
teller machine capabilities.
Seacoast National also
provides brokerage and annuity services. Seacoast National personnel involved with the sale of these services are dual employees
with Invest Financial Corporation, the company through which Seacoast National presently conducts its brokerage and annuity services.
We have seven indirect,
wholly-owned subsidiaries:
| · | FNB Insurance Services, Inc. (“FNB Insurance”), an inactive subsidiary, which was formed
to provide insurance agency services; |
| · | South Branch Building, Inc., which is a general partner in a partnership that constructed a branch
facility of Seacoast National; |
| · | TCoast Holdings, LLC, BR West, LLC, and TC Property Ventures, LLC, each of which was formed to
own and operate certain properties acquired through foreclosure. TC Stuart, LLC, similar in operation, was dissolved in the state
of Florida on April 26, 2013; |
| · | Commercial Business Finance, Inc. (“CBF”), a receivables factoring company, acquired
in the BANKshares acquisition, that provides working capital financing for small to medium sized businesses; and |
| · | BankFIRST Realty, Inc., acquired in the BANKshares acquisition, which owns and operates certain
properties acquired through foreclosure. |
The operations of each
of these direct and indirect subsidiaries represented less than 10% of our consolidated assets and contributed less than 10% to
our consolidated revenues in 2014.
We directly own all the
common equity in six statutory trusts relating to our trust preferred securities:
| · | SBCF Capital Trust I, formed on March 31, 2005 for the purpose of issuing $20 million
in trust preferred securities; |
| · | SBCF Statutory Trust II, formed on December 16, 2005 for the purpose of issuing $20 million
in trust preferred securities; |
| · | SBCF Statutory Trust III, formed on June 29, 2007 for the purpose of issuing $12 million
in trust preferred securities; |
| · | BankFIRST (FL) Statutory Trust I, formed on December 19, 2002 for the purpose of issuing $5.2 million
in trust preferred securities; |
| · | BankFIRST (FL) Statutory Trust II, formed on March 5, 2004 for the purpose of issuing $4.1 million
in trust preferred securities; and |
| · | The BANKshares Capital Trust I, formed on December 15, 2005, also for the purpose of issuing $5.2
million in trust preferred securities. |
We have operated an office
of Seacoast Marine Finance Division, a division of Seacoast National, in Ft. Lauderdale, Florida since February 2000. Offices in
California that have been in operation since November 2002 were closed at the end of 2014, but Seacoast National continues to have
representation in California, Washington and Arizona. Seacoast Marine Finance Division is staffed with experienced marine lending
professionals with a marketing emphasis on marine loans of $200,000 and greater, with the majority of loan production sold to correspondent
banks on a non-recourse basis.
Our principal offices
are located at 815 Colorado Avenue, Stuart, Florida 34994, and the telephone number at that address is (772) 287-4000. We
and our subsidiary Seacoast National maintain Internet websites at www.seacoastbanking.com, www.seacoastbank.com,
and www.seacoastnational.com, respectively. We are not incorporating the information on our or Seacoast National’s
website into this report, and none of these websites nor the information appearing on these websites is included or incorporated
in, or is a part of, this report.
We make available, free
of charge on our corporate website, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably
practicable after we electronically file such material with or furnish it to the SEC.
Employees
As of December 31,
2014, we and our subsidiaries employed 579 full-time equivalent employees. We consider our employee relations to be good, and we
have no collective bargaining agreements with any employees.
Expansion of Business
Over the years, we have
expanded our products and services to meet the changing needs of the various segments of our market, and we presently expect to
continue this strategy. We have expanded geographically through the addition of de novo branches. We also, from time to time, have
acquired banks, bank branches and deposits, and have opened new branches and commercial lending offices.
In 2002, we entered Palm
Beach County by establishing a new branch office. On April 30, 2005, we acquired Century National Bank, a commercial bank
headquartered in Orlando, Florida. Century National Bank operated as our wholly owned subsidiary until August 2006 when it was
merged with Seacoast National.
In April 2006, we acquired
Big Lake National Bank (“Big Lake”), a commercial bank headquartered in Okeechobee, Florida, inland from our Treasure
Coast markets, with nine offices in seven counties. Big Lake was merged with Seacoast National in June 2006.
In October 2014, we acquired
BankFIRST, a commercial bank headquartered in Winter Park, Florida, with twelve offices in five counties in Central Florida. BankFIRST
was merged with Seacoast National in October 2014.
Florida law permits statewide
branching, and Seacoast National has expanded, and anticipates future expansion, by opening additional bank offices and facilities,
as well as by acquisition of other financial institutions and branches. Since 2002, we have opened and acquired 31 new offices
in 14 counties of Florida. With technology improvements and changes, we have also rationalized our branch footprint by closing
and consolidating less productive branches. Since 2007, we have closed 16 offices in seven counties of Florida, with five offices
consolidated in December 2014, two offices consolidated in January 2013 and three additional offices consolidated during the last
six months of 2012. During 2013, we opened five new commercial lending offices in our larger metropolitan locations in Florida,
with three opened in Orlando, one in Ft. Lauderdale and one in Boca Raton. The Seacoast Marine Finance Division operates a loan
production office in Ft. Lauderdale, Florida, and has representation in California, Washington and Arizona. For more information
on our branches and offices see “Item 2. Properties”. As part of our overall strategic growth plan, we intend
to regularly evaluate possible mergers, acquisitions and other expansion opportunities. We believe that with the current economic
environment, there will be many opportunities for us to acquire and consolidate other financial institutions in the State of Florida.
Seasonality; Cycles
We believe our commercial
banking operations are somewhat seasonal in nature. Investment management fees and deposits often peak in the first and second
quarters, and often are lowest in the third quarter. Transactional fees from merchants, and ATM and debit card use also typically
peak in the first and second quarters. Public deposits tend to increase with tax collections in the first and fourth quarters and
decline as a result of spending thereafter.
Deposits also tend to increase
due to hurricanes as insurers disburse insurance proceeds more quickly than hurricane-related damage is repaired. No major hurricanes
occurred between 2006 and 2014; as a result, deposit trends were more typical than during 2004 and 2005, when major hurricanes
hit our coastal market areas, leading to an increase in deposits.
Commercial and residential
real estate activity, demand, prices and sales volumes are less seasonal and vary based upon various factors, including economic
conditions, interest rates and credit availability.
Competition
We and our subsidiaries
operate in the highly competitive markets of Martin, St. Lucie, Indian River, Brevard, Palm Beach and Broward Counties, in
southeastern Florida and in the Orlando metropolitan statistical area in Orange, Seminole and Lake County, as well as Volusia County.
We also operate in five competitive counties in central Florida near Lake Okeechobee. Seacoast National not only competes with
other banks of comparable or larger size in its markets, but also competes with various other nonbank financial institutions, including
savings and loan associations, credit unions, mortgage companies, personal and commercial financial companies, peer to peer lending
businesses, investment brokerage and financial advisory firms and mutual fund companies. We compete for deposits, commercial, fiduciary
and investment services and various types of loans and other financial services. Seacoast National also competes for interest-bearing
funds with a number of other financial intermediaries and investment alternatives, including mutual funds, brokerage and insurance
firms, governmental and corporate bonds, and other securities. Continued consolidation, and rapid technological changes, within
the financial services industry will most likely change the nature and intensity of competition that we face, but can also create
opportunities for us to demonstrate and exploit what we believe are our competitive advantages.
Our competitors include
not only financial institutions based in the State of Florida, but also a number of large out-of-state and foreign banks, bank
holding companies and other financial institutions that have an established market presence in the State of Florida, or that offer
products by mail, telephone or over the Internet. Many of our competitors are engaged in local, regional, national and international
operations and have greater assets, personnel and other resources. Some of these competitors are subject to less regulation and/or
more favorable tax treatment than us. Many of these institutions have greater resources, broader geographic markets and higher
lending limits than us and may offer services that we do not offer. In addition, these institutions may be able to better afford
and make broader use of media advertising, support services, and electronic and other technology than us. To offset these potential
competitive disadvantages, we depend on our reputation as an independent, “super” community bank headquartered locally,
our personal service, our greater community involvement and our ability to make credit and other business decisions quickly and
locally.
Supervision and Regulation
Bank holding companies
and banks are extensively regulated under federal and state law. This discussion is qualified in its entirety by reference to the
particular statutory and regulatory provisions below and is not intended to be an exhaustive description of the statutes or regulations
applicable to us and Seacoast National’s business. As a bank holding company under federal law, we are subject to regulation,
supervision and examination by the Federal Reserve. As a national bank, our primary bank subsidiary, Seacoast National, is subject
to regulation, supervision and examination by the Office of the Comptroller of the Currency (“OCC”). In addition, as
discussed in more detail below, Seacoast National and any other of our subsidiaries that offer consumer financial products could
be subject to regulation, supervision, and examination by the Consumer Financial Protection Bureau (“CFPB”). Supervision,
regulation, and examination of us, Seacoast National and our respective subsidiaries by the bank regulatory agencies are intended
primarily for the protection of consumers, bank depositors and the Deposit Insurance Fund (“DIF”) of the FDIC, rather
than holders of our capital stock. The following summarizes certain of the more important statutory and regulatory provisions.
Substantial changes to the regulatory framework applicable to us and our subsidiaries were passed by the U.S. Congress in
2010. These changes have been, and will continue to be implemented, by various regulatory agencies. For a discussion of such changes,
see ‘‘Recent Regulatory Developments” below. The full effect of the changes in the applicable laws and regulations,
as implemented by the regulatory agencies, cannot be fully predicted and could have a material adverse effect on our business and
results of operations.
We are required to comply
with various corporate governance and financial reporting requirements under the Sarbanes-Oxley Act of 2002, as well as rules and
regulations adopted by the SEC, the Public Company Accounting Oversight Board, and Nasdaq. In particular, we are required to include
management and independent registered public accounting firm reports on internal controls as part of our Annual Report on Form
10-K in order to comply with Section 404 of the Sarbanes-Oxley Act. We have evaluated our controls, including compliance with the
SEC rules on internal controls, and have and expect to continue to spend significant amounts of time and money on compliance with
these rules. Our failure to comply with these internal control rules may materially adversely affect our reputation, ability to
obtain the necessary certifications to financial statements, and the values of our securities. The assessments of our financial
reporting controls as of December 31, 2014 are included in this report under “Section 9A. Controls and Procedures.”
Recent Regulatory Developments
The Dodd-Frank Wall
Street Reform and Consumer Protection Act of 2010
On July 21, 2010,
President Obama signed into law the Dodd-Frank Act. The Dodd-Frank Act has and will continue to have a broad impact on the financial
services industry, imposing significant regulatory and compliance changes, the imposition of increased capital, leverage and liquidity
requirements, and numerous other provisions designed to improve supervision and oversight of, and strengthen safety and soundness
within, the financial services sector. Additionally, the Dodd-Frank Act establishes a new framework of authority to conduct systemic
risk oversight within the financial system to be distributed among new and existing federal regulatory agencies, including the
Financial Stability Oversight Council, (the “Oversight Council”), the Federal Reserve, the OCC and the FDIC. Certain
requirements of the Dodd-Frank Act have been implemented, while others will be implemented by regulators in the coming years. Provisions
of the Dodd-Frank Act that have or are likely to affect our operations or the operations of Seacoast National include:
| · | Creation of the CFPB with centralized authority, including examination and enforcement authority,
for consumer protection in the banking industry. |
| · | New limitations on federal preemption. |
| · | New prohibitions and restrictions on the ability of a banking entity and nonbank financial company
to engage in proprietary trading and have certain interests in, or relationships with, a hedge fund or private equity fund (the
“Volcker Rule”). |
| · | Application of new regulatory capital requirements, including changes to leverage and risk-based
capital standards and changes to the components of permissible tiered capital. |
| · | Requirement that holding companies and their subsidiary banks be well capitalized and well managed
in order to engage in activities permitted for financial holding companies. |
| · | Changes to the assessment base for deposit insurance premiums. |
| · | Permanently raising the FDIC’s standard maximum insurance amount to $250,000. |
| · | Restrictions on compensation, including a prohibition on incentive-based compensation arrangements
that encourage inappropriate risk taking by covered financial institutions that are deemed to be excessive, or that may lead to
material losses. |
| · | Requirement that sponsors of asset-backed securities retain a percentage of the credit risk underlying
the securities. |
| · | Requirement that banking regulators remove references to and requirements of reliance upon credit
ratings from their regulations and replace them with appropriate alternatives for evaluating creditworthiness. |
The following items provide
a further description of certain relevant provisions of the Dodd-Frank Act and their potential impact on our operations and activities,
both currently and prospectively.
Creation of New Governmental
Authorities. The Dodd-Frank Act created various new governmental authorities such as the Oversight Council and the
CFPB, an independent regulatory authority housed within the Federal Reserve. The CFPB has broad authority to regulate the offering
and provision of consumer financial products. The CFPB has rulemaking authority for a range of consumer financial protection laws
(such as the Truth in Lending Act, the Electronic Funds Transfer Act and the Real Estate Settlement Procedures Act, among others)
transferred from the federal prudential banking regulators to the CFPB on that date. The Dodd-Frank Act gave the CFPB authority
to supervise and examine depository institutions with more than $10 billion in assets for compliance with these federal consumer
laws. The authority to supervise and examine depository institutions with $10 billion or less in assets for compliance with federal
consumer laws remains largely with those institutions’ primary regulators. However, the CFPB may participate in examinations
of these smaller institutions on a “sampling basis” and may refer potential enforcement actions against such institutions
to their primary regulators. The CFPB also has supervisory and examination authority over certain nonbank institutions that offer
consumer financial products. The Dodd-Frank Act identifies a number of covered nonbank institutions, and also authorizes the CFPB
to identify additional institutions that will be subject to its jurisdiction. Accordingly, the CFPB may participate in examinations
of Seacoast National, which currently has assets of less than $10 billion, and could supervise and examine our other direct or
indirect subsidiaries that offer consumer financial products or services. In addition, the Dodd-Frank Act permits states to adopt
consumer protection laws and regulations that are stricter than those regulations promulgated by the CFPB, and state attorneys
general are permitted to enforce consumer protection rules adopted by the CFPB against certain institutions.
Limitation on Federal
Preemption. The Dodd-Frank Act significantly reduced the ability of national banks to rely upon federal preemption
of state consumer financial laws. Although the OCC will have the ability to make preemption determinations where certain conditions
are met, the broad rollback of federal preemption has the potential to create a patchwork of federal and state compliance obligations.
This could, in turn, result in significant new regulatory requirements applicable to us, with attendant potential significant changes
in our operations and increases in our compliance costs. It could also result in uncertainty concerning compliance, with attendant
regulatory and litigation risks.
Mortgage Loan Origination
and Risk Retention. The Dodd-Frank Act contains additional regulatory requirements that may affect our mortgage
origination and servicing operations, result in increased compliance costs and may impact revenue. For example, in addition to
numerous new disclosure requirements, the Dodd-Frank Act imposed new standards for mortgage loan originations on all lenders, including
banks, in an effort to strongly encourage lenders to verify a borrower’s ability to repay. The CFPB has issued rules that
implement this “ability-to-repay” requirement and provide lenders with protection from liability for “qualified
mortgages,” as required by the Dodd-Frank Act. Most significantly, the new “qualified mortgage” standards, which
took effect on January 10, 2014, generally limit the total points and fees that we and/or a broker may charge on conforming and
jumbo loans to 3% of the total loan amount. Also, the Dodd-Frank Act, in conjunction with the Federal Reserve’s final rule
on loan originator compensation, prohibits certain compensation payments to loan originators and steering consumers to loans not
in their interest because it will result in greater compensation for a loan originator. In addition, the CFPB has issued additional
rules pertaining to loan originator compensation, and that established qualification, registration and licensing requirements for
loan originators. These standards will result in a myriad of new system, pricing, and compensation controls in order to ensure
compliance and to decrease repurchase requests and foreclosure defenses. In addition, the banking regulators that have issued final
rules that require the securitizer of asset-backed securities to retain not less than 5 percent of the credit risk of the assets
collateralizing the asset-backed securities, unless subject to an exemption for asset-backed securities that are collateralized
exclusively by residential mortgages that qualify as “qualified residential mortgages.”
Corporate Governance. The
Dodd-Frank Act addresses many investor protection, corporate governance, and executive compensation matters that will affect most
U.S. publicly traded companies. The Dodd-Frank Act (1) grants shareholders of U.S. publicly traded companies an
advisory vote on executive compensation; (2) enhances independence requirements for Compensation Committee members; and (3) requires
companies listed on national securities exchanges to adopt incentive-based compensation clawback policies for executive officers.
Additionally, the Dodd-Frank Act requires federal regulators to issue regulations or guidelines to prohibit incentive-based compensation
arrangements that encourage inappropriate risk taking by providing excessive compensation or that may lead to material losses at
certain financial institutions with $1 billion or more in assets. However, regulators have yet to issue final rules on the topic.
Further, in June 2010, the regulators issued a comprehensive final guidance designed to ensure that incentive compensation policies
do not undermine the safety and soundness of banking organizations by encouraging employees to take imprudent risks. This regulation
significantly restricts the amount, form, and context in which we pay incentive compensation to our employees.
Deposit Insurance. The
Dodd-Frank Act permanently raised the standard maximum insurance amount to $250,000. Amendments to the Federal Deposit Insurance
Act (the “FDIA”) also revise the DIF assessment base to be the average consolidated total assets less its average tangible
equity. This has shifted the burden of deposit insurance premiums toward those depository institutions that rely on funding sources
other than U.S. deposits. Additionally, the Dodd-Frank Act made changes to the minimum designated reserve ratio (“DRR”)
of the DIF, increasing the minimum DRR, eliminated the requirement that the FDIC pay dividends to depository institutions when
the reserve ratio exceeds certain thresholds, and modified or eliminated certain adjustments. Additionally, the Dodd-Frank Act
repealed the prohibition on the payment of interest on demand deposits.
Capital Standards.
We are required to comply with higher minimum capital requirements as of January 1, 2015. These new rules (“Revised Capital
Rules”) implement the Dodd-Frank Act including the “Collins Amendment” and a separate international regulatory
regime known as “Basel III” (which is discussed below). The Collins Amendment required that the appropriate federal
banking agencies establish minimum leverage and risk-based capital requirements on a consolidated basis for insured depository
institutions and their holding companies. As a result, we and Seacoast National are subject to the same capital requirements, and
must include the same components in regulatory capital.
Shareholder Say-On-Pay
Votes. The Dodd-Frank Act requires public companies to take shareholders' votes on proposals addressing compensation (known
as say-on-pay), the frequency of a say-on-pay vote, and the golden parachutes available to executives in connection with change-in-control
transactions. Public companies must give shareholders the opportunity to vote on the compensation at least every three years and
the opportunity to vote on frequency at least every six years, indicating whether the say-on-pay vote should be held annually,
biennially, or triennially. The first say-on-pay vote occurred at our 2011 annual shareholders meeting. The say-on-pay, the say-on-parachute
and the say-on-frequency votes are explicitly nonbinding and cannot override a decision of our board of directors.
While many of the requirements
called for in the Dodd-Frank Act have been implemented, others will continue to be implemented over time. Given the extent of the
changes brought about by the Dodd-Frank Act and the significant discretion afforded to federal regulators to implement those changes,
we cannot fully predict the extent of the impact such requirements will have on our operations. The changes resulting from the
Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose
upon us more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business. These changes may
also require us to invest significant management attention and resources to evaluate and make any changes necessary to comply with
new statutory and regulatory requirements. Failure to comply with the new requirements may negatively impact our results of operations
and financial condition. While we cannot predict what effect any presently contemplated or future changes in the laws or regulations
or their interpretations would have on us, these changes could be materially adverse to our investors.
Volcker Rule. In
December 2013, the Federal Reserve and other regulators jointly issued final rules implementing requirements of a new Section 13
to the Bank Holding Company Act, commonly referred to as the “Volcker Rule.” The Volcker Rule generally prohibits us
and our subsidiaries from (i) engaging in proprietary trading for our own account, and (ii) acquiring or retaining an ownership
interest in or sponsoring a “covered fund,” all subject to certain exceptions. The Volcker Rule also specifies certain
limited activities in which we and our subsidiaries may continue to engage, and may require us to implement a compliance program.
The regulators provided for a Volcker Rule conformance date of July 21, 2015. Conformance with the provisions prohibiting
certain “covered funds” activities has since been extended by a Federal Reserve Board order that provided for an extension
of the Volcker Rule conformance period for legacy ownership interests and sponsorship of covered funds until July 21, 2016. The
Federal Reserve Board expressed its intention to grant the last available statutory extension for such covered funds activities
until July 21, 2017, by an order to be issued later in 2015.
Basel III
As a result of the Dodd-Frank
Act’s Collins Amendment, we and Seacoast National are subject to the same regulatory capital requirements. Prior to January
1, 2015, the risk-based capital guidelines that apply to us are based upon the 1988 capital accord of the international Basel Committee
on Banking Supervision, a committee of central banks and bank supervisors, as implemented by the U.S. federal banking agencies
on an interagency basis. In 2008, the banking agencies collaboratively began to phase-in capital standards based on a second capital
accord (“Basel II”) for large or “core” international banks (generally defined for U.S. purposes as
having total assets of $250 billion or more or consolidated foreign exposures of $10 billion or more). Basel II
emphasizes internal assessment of credit, market and operational risk, as well as supervisory assessment and market discipline
in determining minimum capital requirements.
On September 12, 2010,
the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced agreement
to a strengthened set of capital requirements for internationally active banking organizations in the United States and around
the world (“Basel III”). In July 2013, U.S. regulators issued the Revised Capital Rules, which implement Basel III,
as well as capital requirements set forth in the Dodd-Frank Act.
The following is a brief
description of the relevant provisions of the Revised Capital Rules and their potential impact on our capital levels. Among other
things, the Revised Capital Rules (i) introduce a new capital measure called “Common Equity Tier 1” (“CET1”),
(ii) specify that Tier 1 Capital consist of CET1 and “Additional Tier 1 Capital” instruments meeting certain requirements,
(iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and note
to the other components of capital and (iv) expand the scope of the deductions/adjustments from capital as compared to existing
regulation that apply to the Company and other banking organizations.
New Minimum Capital
Requirements. The Revised Capital Rules require the following initial minimum capital ratios as of January 1, 2015:
| · | 4.5% CET1 to risk-weighted assets. |
| · | 6.0% Tier 1 capital to risk-weighted assets. |
| · | 8.0% Total capital to risk-weighted assets. |
Capital Conservation
Buffer. The Revised Capital Rules also introduce a new “capital conservation buffer,” composed entirely
of CET1, on top of the minimum risk-weighted asset ratios, which is designed to absorb losses during periods of economic stress.
Banking organizations with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer
will face constraints on dividends, equity repurchases and compensation based on the amount of this difference.
When fully phased in on
January 1, 2019, the Revised Capital Rules will require us and Seacoast National to maintain (i) a minimum ratio of CET1 to risk-weighted
assets of 7% (4.5% attributable to CET1 plus the 2.5% capital conservation buffer); (ii) a minimum ratio of Tier 1 capital to risk-weighted
assets of at least 8.5% (6.0% attributable to Tier 1 capital plus the 2.5% capital conservation buffer), (iii) a minimum ratio
of Total capital (that is, Tier 1 plus Tier 2) to risk-weighted assets of at least 10.5% (8.0% attributable to Total capital plus
the 2.5% capital conservation buffer) and (iv) a minimum leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average
assets (as compared to a current minimum leverage ratio of 3% for banking organizations that either have the highest supervisory
rating or have implemented the appropriate federal regulatory authority's risk-adjusted measure for market risk).
Regulatory Deductions. The
Revised Capital Rules provide for a number of deductions from and adjustments to CET1, including the requirement that mortgage
servicing rights, deferred tax assets arising from temporary differences that could not be realized through net operating loss
carrybacks and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that any one
such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1. Implementation of the deductions
and other adjustments to CET1 began on January 1, 2015 and will be phased-in over a three-year period (beginning at 40% on January
1, 2015 and an additional 20% per year thereafter until fully phased-in at January 1, 2018).
The Revised Capital Rules
also preclude counting certain hybrid securities, such as trust preferred securities, as Tier 1 capital of bank or thrift holding
companies. However, for bank or thrift holding companies that had assets of less than $15 billion as of December 31, 2009 like
us, trust preferred securities issued prior to May 19, 2010 can be treated as Tier 1 capital to the extent that they do not exceed
25% of Tier 1 capital after applying all capital deductions and adjustments.
Bank Holding Company Regulation
As a bank holding company,
we are subject to supervision and regulation by the Federal Reserve under the BHC Act. Bank holding companies generally are limited
to the business of banking, managing or controlling banks, and other activities that the Federal Reserve determines to be closely
related to banking, or managing or controlling banks as to be a proper incident thereto. We are required to file with the Federal
Reserve periodic reports and such other information as the Federal Reserve may request. Ongoing supervision is provided through
regular examinations by the Federal Reserve and other means that allow the regulators to gauge management’s ability to identify,
assess and control risk in all areas of operations in a safe and sound manner and to ensure compliance with laws and regulations.
The Federal Reserve may also examine our non-bank subsidiaries.
Expansion and Activity
Limitations. Under the BHC Act, a bank holding company is generally permitted to engage in, or acquire direct or indirect control
of more than 5 percent of the voting shares of, any company engaged in the following activities:
| · | banking or managing or controlling banks. |
| · | furnishing services to or performing services for our subsidiaries; and
|
| · | any activity that the Federal Reserve determines to be so closely related to banking as to be a proper incident to the business
of banking, including: |
| • | factoring accounts receivable; |
| • | making, acquiring, brokering or servicing loans and usual
related activities; |
| • | leasing personal or real property; |
| • | operating a non-bank depository institution, such as
a savings association; |
| • | performing trust company functions; |
| • | providing financial and investment advisory activities; |
| • | conducting discount securities brokerage activities; |
| • | underwriting and dealing in government obligations and money market instruments; |
| • | providing specified management consulting and counseling
activities; |
| • | performing selected data processing services and support
services; |
| • | acting as agent or broker in selling credit life insurance and other types of insurance in connection
with credit transactions; |
| • | performing selected insurance underwriting activities; |
| • | providing certain community development activities (such as making investments in projects designed
primarily to promote community welfare); and, |
| • | issuing and selling money orders and similar consumer-type payment instruments |
With certain exceptions,
the BHC Act prohibits a bank holding company from acquiring direct or indirect ownership or control of voting shares of any company
which is not a bank or bank holding company, and from engaging directly or indirectly in any activity other than banking or managing
or controlling banks or performing services for its authorized subsidiaries. A bank holding company, may, however, engage in or
acquire an interest in a company that engages in activities which the Federal Reserve has determined by regulation or order to
be so closely related to banking or managing or controlling banks as to be a proper incident thereto.
The Gramm-Leach-Bliley
Act of 1999 (the “GLB”) substantially revised the statutory restrictions separating banking activities from certain
other financial activities. Under the GLB, bank holding companies that are “well-capitalized” and “well-managed”,
as defined in Federal Reserve Regulation Y, which have and maintain “satisfactory” ratings under the Community Reinvestment
Act of 1977, as amended (the “CRA”), and meet certain other conditions, can elect to become “financial holding
companies”. Financial holding companies and their subsidiaries are permitted to acquire or engage in activities such as insurance
underwriting, securities underwriting, travel agency activities, a broad range of insurance agency activities, merchant banking,
and other activities that the Federal Reserve determines to be financial in nature or complementary thereto. In addition, under
the merchant banking authority added by the GLB and Federal Reserve regulation, financial holding companies are authorized to invest
in companies that engage in activities that are not financial in nature, as long as the financial holding company makes its investment
with the intention of limiting the term of its investment and does not manage the company on a day-to-day basis, and the invested
company does not cross-market with any of the financial holding company’s controlled depository institutions. Financial holding
companies continue to be subject to supervision and regulation of the Federal Reserve, but the GLB applies the concept of functional
regulation to the activities conducted by subsidiaries. For example, insurance activities would be subject to supervision and regulation
by state insurance authorities. While we have not become a financial holding company, we may elect to do so in the future in order
to exercise the broader activity powers provided by the GLB. Banks may also engage in similar “financial activities”
through subsidiaries. The GLB also includes consumer privacy provisions, and the federal bank regulatory agencies have adopted
extensive privacy rules implementing these statutory provisions.
The BHC Act permits acquisitions
of banks by bank holding companies, such that we and any other bank holding company, whether located in Florida or elsewhere, may
acquire a bank located in any other state, subject to certain deposit-percentage, age of bank charter requirements, and other restrictions.
Federal law also permits national and state-chartered banks to branch interstate through acquisitions of banks in other states.
Florida’s Interstate Branching Act (the “Florida Branching Act”) permits interstate branching. Under the Florida
Branching Act, with the prior approval of the Florida Department of Banking and Finance, a Florida bank may establish, maintain
and operate one or more branches in a state other than the State of Florida pursuant to a merger transaction in which the Florida
bank is the resulting bank. In addition, the Florida Branching Act provides that one or more Florida banks may enter into a merger
transaction with one or more out-of-state banks, and an out-of-state bank resulting from such transaction may maintain and operate
the branches of the Florida bank that participated in such merger. An out-of-state bank, however, is not permitted to acquire a
Florida bank in a merger transaction, unless the Florida bank has been in existence and continuously operated for more than three
years.
Support of Subsidiary
Banks by Holding Companies. Federal Reserve policy requires a bank holding company to act as a source of financial and managerial
strength and to preserve and protect its bank subsidiaries in situations where additional investments in a troubled bank may not
otherwise be warranted. Notably, the Dodd-Frank Act has codified the Federal Reserve’s “source of strength” doctrine;
this statutory change became effective July 21, 2011. In addition, the Dodd-Frank Act’s new provisions authorize the Federal
Reserve to require a company that directly or indirectly controls a bank to submit reports that are designed both to assess the
ability of such company to comply with its “source of strength” obligations and to enforce the company’s compliance
with these obligations. In addition, under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”),
where a bank holding company has more than one bank or thrift subsidiary, each of the bank holding company’s subsidiary depository
institutions are responsible for any losses to the FDIC resulting from an affiliated depository institution’s failure. Accordingly,
a bank holding company may be required to loan money to its bank subsidiaries in the form of capital notes or other instruments
that qualify as capital under bank regulatory rules. However, any loans from the bank holding company to such subsidiary banks
likely will be unsecured and subordinated to such bank’s depositors and perhaps to other creditors of the bank.
Capital Requirements
Prior to January 1, 2015,
we and Seacoast National were subject to risk-based capital guidelines issued by the Federal Reserve and the OCC for bank holding
companies and national banks, respectively. These guidelines required a minimum ratio of capital to risk-weighted assets (including
certain off-balance-sheet activities, such as standby letters of credit) of 8%. At least half of the total capital must have consisted
of common equity, retained earnings and a limited amount of qualifying preferred stock, less goodwill and certain core deposit
intangibles (“Tier 1 capital”). The remainder may have consisted of non-qualifying preferred stock, qualifying
subordinated, perpetual, and/or mandatory convertible debt, term subordinated debt and intermediate term preferred stock and up
to 45% of pretax unrealized holding gains on available for sale equity securities with readily determinable market values that
are prudently valued, and a limited amount of any loan loss allowance (“Tier 2 capital” and, together with Tier 1
capital, “Total Capital”). Under these rules, the Federal Reserve has stated that Tier 1 voting common equity
should be the predominant form of capital.
In addition, the Federal
Reserve and the OCC established minimum leverage ratio guidelines for bank holding companies and national banks, which provide
for a minimum leverage ratio of Tier 1 capital to adjusted average quarterly assets (“leverage ratio”) equal to
3%, plus an additional cushion of 1.0% to 2.0%, if the institution has less than the highest regulatory rating. The guidelines
also provided that institutions experiencing internal growth or making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels without significant reliance on intangible assets. All bank holding
companies and banks are expected to hold capital commensurate with the level and nature of their risks, including the volume and
severity of their problem loans, and higher capital may be required as a result of an institution’s risk profile.
As noted above in “Basel
III”, the capital requirements applicable to us and Seacoast National have changed effective January 1, 2015 in important
respects as a result of the Revised Capital Rules, which implement provisions of the Dodd-Frank Act and Basel III. Moreover, reflecting
the importance that regulators place on managing capital and other risks, the banking agencies have adopted rules and guidance
for stress testing for banking organizations with more than $10 billion in total consolidated assets; the regulatory guidance outlines
four “high-level” principles for stress testing practices that should be a part of a banking organization’s stress-testing
framework. The guidance calls for the framework to (i) include activities and exercises that are tailored to the activities of
the organization; (ii) employ multiple conceptually sound activities and approaches; (iii) be forward-looking and flexible; and
(iv) be clear, actionable, well-supported, and used in the decision-making process.
FDICIA and Prompt Corrective
Action
The Federal Deposit Insurance
Corporation Improvement Act of 1991 (“FDICIA”), among other things, requires the federal bank regulatory agencies to
take “prompt corrective action” regarding depository institutions that do not meet minimum capital requirements. FDICIA
establishes five regulatory capital tiers: “well capitalized”, “adequately capitalized”, “undercapitalized”,
“significantly undercapitalized”, and “critically undercapitalized”. A depository institution’s capital
tier will depend upon how its capital levels compare to various relevant capital measures and certain other factors, as established
by regulation. The FDICIA imposes progressively more restrictive restraints on operations, management and capital distributions,
depending on the category in which an institution is classified.
All of the federal bank
regulatory agencies have adopted regulations establishing relevant capital measures and relevant capital levels for federally insured
depository institutions. Under the regulations effective prior to January 1, 2015, a national bank will be (i) “well capitalized”
if it has a total risk-based capital ratio of 10% or greater, a Tier 1 capital ratio of 6% or greater, and a leverage ratio
of at least 5%, and is not subject to any written agreement, order, capital directive, or prompt corrective action directive by
a federal bank regulatory agency to meet and maintain a specific capital level for any capital measure; (ii) “adequately
capitalized” if it has a total risk-based capital ratio of 8% or greater, a Tier 1 capital ratio of 4% or greater, and
a leverage ratio of 4% or greater (3% in certain circumstances) and does not meet the definition of a “well capitalized”
bank; (iii) “undercapitalized” if it has a total risk-based capital ratio of less than 8% or a Tier 1 capital
ratio of less than 4% or a leverage ratio that is less than 4% (3% in certain circumstances); (iv) “significantly undercapitalized”
if it has a total risk-based capital ratio of less than 6% or a Tier I capital ratio of less than 3%, or a leverage ratio
of less than 3%; or (v) “critically undercapitalized” if its tangible equity is equal to or less than 2% of average
quarterly tangible assets. In order to qualify as well-capitalized or adequately capitalized, an insured depository institution
must meet all three minimum requirements. At each successively lower capital tier, increasingly stringent corrective actions are
or may be required. The federal bank regulatory agencies have authority to require additional capital.
Notably, the Revised Capital
Rule updated the prompt corrective action framework to correspond to the rule’s new minimum capital thresholds, which took
effect on January 1, 2015. Under this new framework, (i) a well-capitalized insured depository institution is one having a total
risk-based capital ratio of 10 percent or greater, a Tier 1 risk-based capital ratio of 8 percent or greater, a CET1 capital ratio
of 6.5 percent or greater, a leverage capital ratio of 5 percent or greater and that is not subject to any order or written directive
to meet and maintain a specific capital level for any capital measure; (ii) an adequately-capitalized depository institution is
one having a total risk based capital ratio of 8 percent or more, a Tier 1 capital ratio of 6 percent or more, a CET1 capital ratio
of 4.5 percent or more, and a leverage ratio of 4 percent or more; (iii) an undercapitalized depository institution is one having
a total capital ratio of less than 8 percent, a Tier 1 capital ratio of less than 6 percent, a CET1 capital ratio of less than
4.5 percent, or a leverage ratio of less than 4 percent; and (iv) a significantly undercapitalized institution is one having a
total risk-based capital ratio of less than 6 percent, a Tier 1 capital ratio of less than 4 percent, a CET1 ratio of less than
3 percent or a leverage capital ratio of less than 3 percent. The Revised Capital Rules retain the 2 percent threshold for critically
undercapitalized institutions, but make certain changes to the framework for calculating an institution’s ratio of tangible
equity to total assets.
As of December 31, 2014,
the consolidated capital ratios of Seacoast and Seacoast National were as follows:
| | |
Regulatory | | |
Seacoast | | |
Seacoast | |
| | |
Minimum | | |
(Consolidated) | | |
National | |
| Tier 1 capital ratio | |
| 4.0 | % | |
| 15.39 | % | |
| 13.46 | % |
| Total risk-based capital ratio | |
| 8.0 | % | |
| 16.25 | % | |
| 14.32 | % |
| Leverage ratio | |
| 3.0-5.0 | % | |
| 10.32 | % | |
| 9.04 | % |
FDICIA generally prohibits
a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions
are subject to growth limitations and are required to submit a capital restoration plan for approval within 90 days of becoming
undercapitalized. For a capital restoration plan to be acceptable, the depository institution’s parent holding company must
guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company
is limited to the lesser of 5% of the depository institution’s total assets at the time it became undercapitalized and the
amount necessary to bring the institution into compliance with applicable capital standards. If a depository institution fails
to submit an acceptable plan, it is treated as if it is significantly undercapitalized. If the controlling holding company fails
to fulfill its obligations under FDICIA and files (or has filed against it) a petition under the federal Bankruptcy Code, the claim
for such liability would be entitled to a priority in such bankruptcy proceeding over third party creditors of the bank holding
company. In addition, an undercapitalized institution is subject to increased monitoring and asset growth restrictions and is required
to obtain prior regulatory approval for acquisitions, new lines of business, and branching. Such an institution also is barred
from soliciting, taking or rolling over brokered deposits.
Significantly undercapitalized
depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting
stock to become adequately capitalized, requirements to reduce total assets, and cessation of receipt of deposits from correspondent
banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator within 90 days of becoming
significantly undercapitalized, except under limited circumstances. Because our company and Seacoast National exceed applicable
capital requirements, the respective managements of our company and Seacoast National do not believe that the provisions of FDICIA
have had any material effect on our company and Seacoast National or our respective operations.
FDICIA also contains a
variety of other provisions that may affect the operations of our company and Seacoast National, including reporting requirements,
regulatory standards for real estate lending, “truth in savings” provisions, the requirement that a depository institution
give 90 days’ prior notice to customers and regulatory authorities before closing any branch, and a prohibition on the acceptance
or renewal of brokered deposits by depository institutions that are not well capitalized, or are adequately capitalized and have
not received a waiver from the FDIC. Seacoast National was well capitalized at December 31, 2014, and brokered deposits are
not restricted.
Payment of Dividends
We are a legal entity separate
and distinct from Seacoast National and our other subsidiaries. Our primary source of cash, other than securities offerings, is
dividends from Seacoast National. The prior approval of the OCC is required if the total of all dividends declared by a national
bank (such as Seacoast National) in any calendar year will exceed the sum of such bank’s net profits for that year and its
retained net profits for the preceding two calendar years, less any required transfers to surplus. Federal law also prohibits any
national bank from paying dividends that would be greater than such bank’s undivided profits after deducting statutory bad
debts in excess of such bank’s allowance for possible loan losses.
In addition, we and Seacoast
National 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 and to prohibit payment
thereof. The OCC and the Federal Reserve have indicated that paying dividends that deplete a national or state member bank’s
capital base to an inadequate level would be an unsound and unsafe banking practice. The OCC and the Federal Reserve have each
indicated that depository institutions and their holding companies should generally pay dividends only out of current operating
earnings.
Under a Federal Reserve
policy adopted in 2009, the board of directors of a bank holding company must consider different factors to ensure that its dividend
level is prudent relative to maintaining a strong financial position, and is not based on overly optimistic earnings scenarios,
such as potential events 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 should consult with the Federal
Reserve and eliminate, defer or significantly reduce the bank holding company’s dividends if:
| · | 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; |
| · | its prospective rate of earnings retention is not consistent with its capital needs and overall
current and prospective financial condition; or |
| · | it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. |
Seacoast National recorded
a small net loss in 2012, and net income in 2013 and 2014, but no dividends were paid to us during any of these years. Prior approval
by the OCC is required if the total of all dividends declared by a national bank in any calendar year exceeds the bank’s
profits, for that year combined with its retained net profits for the preceding two calendar years. Under this restriction,
based on our recent profitability, Seacoast National is eligible to distribute dividends up to $59.0 million to us, without prior
OCC approval, as of December 31, 2014. Seacoast National has not given any consideration to dividends to the extent permitted
by regulation.
With the redemption of
our Series A Preferred Stock on December 31, 2013, our ability to pay dividends is no longer limited by the terms of our Series
A Preferred Stock. Prior to redemption, and subject to limited exceptions, if we were not current in the payment of quarterly dividends
on the Series A Preferred Stock, we were not permitted to pay dividends on our common stock. Dividend payments on the Series
A Preferred Stock were current at redemption on December 31, 2013. No dividends on our common stock were declared or paid in 2014.
Enforcement Policies and Actions; Formal
Agreement with OCC
The Federal Reserve and
the OCC monitor compliance with laws and regulations. Violations of laws and regulations, or other unsafe and unsound practices,
may result in these agencies imposing fines or penalties, cease and desist orders, or taking other enforcement actions. Under certain
circumstances, these agencies may enforce these remedies directly against officers, directors, employees and other parties participating
in the affairs of a bank or bank holding company.
Bank and Bank Subsidiary Regulation
Seacoast National is a
national bank subject to supervision, regulation and examination by the OCC, which monitors all areas of operations, including
reserves, loans, mortgages, the issuance of securities, payment of dividends, establishing branches, capital adequacy, and compliance
with laws. Seacoast National is a member of the FDIC and, as such, its deposits are insured by the FDIC to the maximum extent provided
by law. See “FDIC Insurance Assessments”.
Under Florida law, Seacoast
National may establish and operate branches throughout the State of Florida, subject to the maintenance of adequate capital and
the receipt of OCC approval.
The OCC has adopted the
Federal Financial Institutions Examination Council’s (“FFIEC”) rating system and assigns each financial institution
a confidential composite rating based on an evaluation and rating of six essential components of an institution’s financial
condition and operations, including Capital Adequacy, Asset Quality, Management, Earnings, Liquidity and Sensitivity to Market
Risk, as well as the quality of risk management practices.
FNB Insurance, a Seacoast
National subsidiary, is authorized by the State of Florida to market insurance products as an agent. FNB Insurance is a separate
and distinct entity from Seacoast National and is subject to supervision and regulation by state insurance authorities. It is a
financial subsidiary, but is inactive.
Standards for Safety
and Soundness
The Federal Deposit Insurance
Act requires the federal bank regulatory agencies to prescribe, by regulation or guideline, operational and managerial standards
for all insured depository institutions relating to: (1) internal controls; (2) information systems and audit systems; (3) loan
documentation; (4) credit underwriting; (5) interest rate risk exposure; and (6) asset quality.
The agencies also must
prescribe standards for asset quality, earnings, and stock valuation, as well as standards for compensation, fees and benefits.
The federal banking agencies have adopted regulations and Interagency Guidelines Establishing Standards for Safety and Soundness
to implement these required standards. These guidelines set forth the safety and soundness standards used to identify and address
problems at insured depository institutions before capital becomes impaired. Under the regulations, if a regulator determines that
a bank fails to meet any standards prescribed by the guidelines, the regulator may require the bank to submit an acceptable plan
to achieve compliance, consistent with deadlines for the submission and review of such safety and soundness compliance plans.
FDIC Insurance Assessments
Seacoast National’s
deposits are insured by the FDIC’s DIF, and Seacoast National is subject to FDIC assessments for its deposit insurance, as
well as assessments by the FDIC to pay interest on Financing Corporation (“FICO”) bonds.
Effective April 1, 2011,
the FDIC began calculating assessments based on an institution’s average consolidated total assets less its average tangible
equity in accordance with changes mandated by the Dodd-Frank Act. Changes to assessment rates were developed to approximate the
same inflow of premiums to the FDIC, but with a shifting of the burden of deposit insurance premiums toward those depository institutions
that rely on funding sources other than U.S. deposits. Initial base assessment rates applicable to second quarter 2011 assessments
(and prospectively until the DIF reserve ratio reaches 1.15 percent) were as follows:
| Risk
Category |
|
Deposit Insurance
Assessment Rate |
| |
|
|
| I |
|
5 to 9 basis points |
| II |
|
14 basis points |
| III |
|
23 basis points |
| IV |
|
35 basis points |
An institution’s
overall rate may be higher by as much as 10 basis points or lower by as much as 5 basis points depending on adjustments to the
base rate for unsecured debt and/or brokered deposits. Furthermore, under the new system, different rate schedules will take effect
when the DIF reserve ratio reaches certain levels. For example, for banks in risk category II, the initial base assessment rate
will be 14 basis points when the DIF reserve ratio is below 1.15 percent, 12 basis points when the DIF reserve ratio is between
1.15 percent and 2 percent, 10 basis points when the DIF reserve ratio is between 2 percent and 2.5 percent and 9 basis points
when the DIF reserve ratio is 2.5 percent or higher.
Since inception of the
new schedule, Seacoast National’s overall rate for assessment calculations had been 14 basis points, the base rate for Risk
Category II. As of September 19, 2013, with the release from its formal agreement with the OCC, Seacoast National’s rate
was reduced to 8.15 basis points, a calculated rate under Risk Category I. As of September 30, 2014, Seacoast National’s
rate was further reduced to 6.79 basis points, as calculated under Risk Category I. Seacoast National anticipates it will continue
to calculate its assessment rate under Risk Category I guidelines prospectively. For Seacoast National, the new methodology has
had a favorable effect, with premiums totaling $1.6 million for 2014, $2.6 million for 2013 and $2.7 million for 2012.
In addition, all FDIC-insured
institutions are required to pay a pro rata portion of the interest due on bonds issued by the FICO. FICO assessments are set by
the FDIC quarterly and were 0.66 basis points for all four quarters during 2012, 0.64 basis points for all four quarters during
2013, and 0.62 basis points for all four quarters during 2014. The FICO assessment rate for the first quarter of 2015 is 0.60 basis
points. FICO assessments of approximately $125,000, $124,000 and $136,000 were paid to the FDIC in 2012, 2013 and 2014, respectively.
Change in Control
Subject to certain exceptions,
the BHC Act and the Change in Bank Control Act, together with regulations promulgated thereunder, require Federal Reserve approval
prior to any person or company acquiring “control” of a bank or bank holding company. Control is conclusively presumed
to exist if an individual or company acquires 25 percent or more of any class of voting securities, and rebuttably presumed to
exist if a person acquires 10 percent or more, but less than 25 percent, of any class of voting securities and either the company
has registered securities under Section 12 of the Exchange Act or no other person owns a greater percentage of that class of voting
securities immediately after the transaction. In certain cases, a company may also be presumed to have control under the BHC Act
if it acquires 5 percent or more of any class of voting securities.
Other Regulations
Anti-Money Laundering.
The International Money Laundering Abatement and Anti-Terrorism Funding Act of 2001 specifies “know your customer”
requirements that obligate financial institutions to take actions to verify the identity of the account holders in connection with
opening an account at any U.S. financial institution. Banking regulators will consider compliance with the Act’s money laundering
provisions in acting upon acquisition and merger proposals. Sanctions for violations of the Act can be imposed in an amount equal
to twice the sum involved in the violating transaction, up to $1 million.
Under the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (“USA PATRIOT”) Act of 2001, financial
institutions are subject to prohibitions against specified financial transactions and account relationships as well as enhanced
due diligence and “know your customer” standards in their dealings with foreign financial institutions and foreign
customers.
The USA PATRIOT Act requires
financial institutions to establish anti-money laundering programs with minimum standards that include:
| · | the development of internal policies, procedures, and controls; |
| · | the designation of a compliance officer; |
| · | an ongoing employee training program; and |
| · | an independent audit function to test the programs. |
Bank regulators routinely
examine institutions for compliance with these anti-money laundering obligations and recently have been active in imposing “cease
and desist” and other regulatory orders and money penalty sanctions against institutions found to be in violation of these
requirements. In addition, the Financial Crimes Enforcement Network has proposed new regulations that would require financial institutions
to obtain beneficial ownership information for certain accounts, however, it has yet to establish final regulations on this topic.
Economic Sanctions.
The Office of Foreign Assets Control (“OFAC”) is responsible for helping to ensure that U.S. entities do not engage
in transactions with certain prohibited parties, as defined by various Executive Orders and acts of Congress. OFAC publishes, and
routinely updates, lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts, including
the Specially Designated Nationals and Blocked Persons List. If we find a name on any transaction, account or wire transfer that
is on an OFAC list, we must undertake certain specified activities, which could include blocking or freezing the account or transaction
requested, and we must notify the appropriate authorities.
Transactions with Related
Parties. We are a legal entity separate and distinct from Seacoast National and our other subsidiaries. Various legal limitations
restrict our banking subsidiaries from lending or otherwise supplying funds to us or our non-bank subsidiaries. We and our banking
subsidiaries are subject to Section 23A of the Federal Reserve Act and Federal Reserve Regulation W thereunder. Section 23A
defines “covered transactions” to include extensions of credit, and limits a bank’s covered transactions with
any affiliate to 10% of such bank’s capital and surplus. All covered and exempt transactions between a bank and its affiliates
must be on terms and conditions consistent with safe and sound banking practices, and banks and their subsidiaries are prohibited
from purchasing low-quality assets from the bank’s affiliates. Finally, Section 23A requires that all of a bank’s extensions
of credit to its affiliates be appropriately secured by acceptable collateral, generally United States government or agency securities.
We and our bank subsidiaries
also are subject to Section 23B of the Federal Reserve Act, which generally requires covered and other transactions among affiliates
to be on terms, including credit standards, that are substantially the same or at least as favorable to the bank or its subsidiary
as those prevailing at the time for similar transactions with unaffiliated companies.
The Dodd-Frank Act generally
enhances the restrictions on transactions with affiliates under Sections 23A and 23B of the Federal Reserve Act, including
an expansion of the definition of “covered transactions” and an increase in the amount of time for which collateral
requirements regarding covered credit transactions must be satisfied. Specifically, Section 608 of the Dodd-Frank Act broadens
the definition of “covered transactions” to include derivative transactions and the borrowing or lending of securities
if the transaction will cause a bank to have credit exposure to an affiliate. The revised definition also includes the acceptance
of debt obligations of an affiliate as collateral for a loan or extension of credit to a third party. Furthermore, reverse repurchase
transactions will be viewed as extensions of credit (instead of asset purchases) and thus become subject to collateral requirements.
These expanded definitions took effect on July 21, 2012. The ability of the Federal Reserve to grant exemptions from these restrictions
is also narrowed by the Dodd-Frank Act, including with respect to the requirement for the OCC, FDIC and Federal Reserve to coordinate
with one another.
Concentrations in Lending.
During 2006, the federal bank regulatory agencies released guidance on “Concentrations in Commercial Real Estate Lending”
(the “Guidance”). The Guidance defines CRE loans as exposures secured by raw land, 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 (that is, 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 (“REIT”) 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.
The Guidance requires that
appropriate processes be in place to identify, monitor and control risks associated with real estate lending concentrations. This
could include enhanced strategic planning, CRE underwriting policies, risk management, internal controls, portfolio stress testing
and risk exposure limits as well as appropriately designed compensation and incentive programs. Higher allowances for loan losses
and capital levels may also be required. The Guidance is triggered when CRE loan concentrations exceed either:
| · | Total reported loans for construction, land development, and other land of 100 percent or more
of a bank’s total risk based capital; or |
| · | Total reported loans secured by multifamily and nonfarm nonresidential properties and loans for
construction, land development, and other land of 300 percent or more of a bank’s total risk based capital. |
The Guidance also applies
when a bank has a sharp increase in CRE loans or has significant concentrations of CRE secured by a particular property type.
The Guidance applies to
our CRE lending activities for construction and land development loans. At December 31, 2014, we had outstanding $53.3 million
in commercial construction and residential land development loans and $33.7 million in residential construction loans to individuals,
which represents approximately 31 percent of Seacoast National’s total risk based capital at December 31, 2014, well
below the Guidance’s threshold.
On October 30, 2009, the
banking regulators issued a policy statement on “Prudent Commercial Real Estate Loan Workouts” (the “Policy Statement”),
which replaced a previous policy statement issued by regulators in 1995. The regulators issued the Policy Statement in recognition
of the difficulties that financial institutions may face when working with commercial real estate borrowers that are experiencing
reduced operating cash flows, depreciated collateral values, or prolonged sales and rental absorption periods. Among other things,
the Policy Statement identifies supervisory expectations for a bank’s risk management elements for loan workout programs,
loan workout arrangements, classification of loans, and regulatory reporting and accounting considerations.
We have always had significant
exposures to loans secured by commercial real estate due to the nature of our markets and the loan needs of both retail and commercial
customers. We believe our long term experience in CRE lending, underwriting policies, internal controls, and other policies currently
in place, as well as our loan and credit monitoring and administration procedures, are generally appropriate to managing our concentrations
as required under the Guidance. The federal bank regulators are looking more closely at the risks of various assets and asset categories
and risk management, and the need for additional rules regarding liquidity, as well as capital rules that better reflects risk.
At December 31, 2014, the total CRE exposure for Seacoast National represents approximately 197 percent of total risk based capital,
below the Guidance’s threshold.
Community Reinvestment
Act. We and our banking subsidiaries are subject to the provisions of the Community Reinvestment Act (“CRA”) and
related federal bank regulatory agencies’ regulations. Under the CRA, all banks and thrifts have a continuing and affirmative
obligation, consistent with their safe and sound operation, to help meet the credit needs for their entire communities, including
low- and moderate-income neighborhoods. The CRA requires a depository institution’s primary federal regulator, in connection
with its examination of the institution, to assess the institution’s record of assessing and meeting the credit needs of
the communities served by that institution, including low- and moderate-income neighborhoods. The bank regulatory agency’s
assessment of the institution’s record is made available to the public. Further, such assessment is required of any institution
which has applied to: (i) charter a national bank; (ii) obtain deposit insurance coverage for a newly-chartered institution; (iii)
establish a new branch office that accepts deposits; (iv) relocate an office; (v) merge or consolidate with, or acquire the assets
or assume the liabilities of, a federally regulated financial institution, or (vi) expand other activities, including engaging
in financial services activities authorized by the GLB. A less than satisfactory CRA rating will slow, if not preclude, expansion
of banking activities and prevent a company from becoming or remaining a financial holding company.
Following the enactment
of the GLB, CRA agreements with private parties must be disclosed and annual CRA reports must be made to a bank’s primary
federal regulator. A bank holding company will not be permitted to become or remain a financial holding company and no new activities
authorized under GLB may be commenced by a holding company or by a bank financial subsidiary if any of its bank subsidiaries received
less than a “satisfactory” CRA rating in its latest CRA examination. Federal CRA regulations require, among other things,
that evidence of discrimination against applicants on a prohibited basis, and illegal or abusive lending practices be considered
in the CRA evaluation.
Privacy and Data Security. The
GLB imposed new requirements on financial institutions with respect to consumer privacy. The GLB generally prohibits disclosure
of consumer information to non-affiliated third parties unless the consumer has been given the opportunity to object and has not
objected to such disclosure. Financial institutions are further required to disclose their privacy policies to consumers annually.
Financial institutions, however, will be required to comply with state law if it is more protective of consumer privacy than the
GLB. The GLB also directed federal regulators, including the FDIC and the OCC, to prescribe standards for the security of consumer
information. Seacoast National is subject to such standards, as well as standards for notifying customers in the event of a security
breach. Under federal law, Seacoast National must disclose its privacy policy to consumers, permit customers to opt out of having
nonpublic customer information disclosed to third parties in certain circumstances, and allow customers to opt out of receiving
marketing solicitations based on information about the customer received from another subsidiary. States may adopt more extensive
privacy protections. The Company is similarly required to have an information security program to safeguard the confidentiality
and security of customer information and to ensure proper disposal. Customers must be notified when unauthorized disclosure involves
sensitive customer information that may be misused.
Consumer Regulation. Activities
of Seacoast National are subject to a variety of statutes and regulations designed to protect consumers. These laws and regulations
include provisions that:
| · | limit the interest and other charges collected or contracted for by Seacoast National, including
new rules respecting the terms of credit cards and of debit card overdrafts; |
| · | govern Seacoast National’s disclosures of credit terms to consumer borrowers; |
| · | require Seacoast National to provide information to enable the public and public officials to determine
whether it is fulfilling its obligation to help meet the housing needs of the community it serves; |
| · | prohibit Seacoast National from discriminating on the basis of race, creed or other prohibited
factors when it makes decisions to extend credit; and |
| · | govern the manner in which Seacoast National may collect consumer debts. |
In addition, the Credit
Card Accountability, Responsibility and Disclosure (“CARD”) Act requires (1) 45-days advance notice to a cardholder
before the interest rate on a card may be increased, subject to certain exceptions; (2) a ban on interest rate increases in
the first year; (3) an opt-in for over-the-limit charges; (4) caps on high fee cards; (5) greater limits on the
issuance of cards to persons below the age of 21; (6) new rules on monthly statements and payment due dates and the crediting
of payments; and (7) the application of new rates only to new charges and of payments to higher rate charges.
Rules regarding overdraft
charges for debit card and automatic teller machine, or ATM, transactions require banks to notify and obtain the consent of customers
before enrolling them in an overdraft protection plan, except with regard to overdraft protection on checks or to automatic bill
payments. Federal Reserve rules establish standards for debit card interchange fees and prohibit network exclusivity arrangements
and routing restrictions. In addition, the CFPB issued final rules revising Regulation E, which governs electronic transactions,
to implement certain Dodd-Frank requirements relating to “remittance transfer” transactions.
The CFPB issued rules that
are likely to impact our residential mortgage lending practices, and the residential mortgage market generally, including rules
that implement the “ability-to-repay” requirement and provide protection from liability for “qualified mortgages,”
as required by the Dodd-Frank Act, which took effect on January 10, 2014. The CFPB has also issued a number of other mortgage-related
rules, including new rules pertaining to loan originator compensation, and that establish qualification, registration and licensing
requirements for loan originators. These and other changes are likely to impose restrictions on future mortgage loan originations,
diminish lenders’ rights against delinquent borrowers or otherwise change the ways in which lenders make and administer residential
mortgage loans. Any or all of these proposals could have a negative effect on the financial performance of Seacoast National’s
mortgage lending operations, by, among other things, reducing the volume of mortgage loans that Seacoast National can originate
and sell into the secondary market and impairing Seacoast National’s ability to proceed against certain delinquent borrowers
with timely and effective collection efforts.
The deposit operations
of Seacoast National are also subject to laws and regulations that:
| · | require Seacoast National to adequately disclose the interest rates and other terms of consumer
deposit accounts; |
| · | impose a duty on Seacoast National to maintain the confidentiality of consumer financial records
and prescribe procedures for complying with administrative subpoenas of financial records; |
| · | require escheatment of unclaimed funds to the appropriate state agencies after the passage of certain
statutory time frames; and, |
| · | govern automatic deposits to and withdrawals from deposit accounts with Seacoast National and the
rights and liabilities of customers who use automated teller machines, or ATMs, and other electronic banking services. As described
above, beginning in July 2010, new rules took effect that limited Seacoast National’s ability to charge fees for the payment
of overdrafts for every day debit and ATM card transactions. |
As noted above, Seacoast
National will likely face a significant increase in its consumer compliance regulatory burden as a result of the combination of
the CFPB and the significant roll back of federal preemption of state laws in the area. The responsibility for oversight of many
consumer protection laws and regulations has, in large measure, transferred from the bank’s primary regulator to the CFPB.
The CFPB has indicated that, in addition to specific statutory mandates, it is working on a wide range of initiatives to address
issues in markets for consumer financial products and services, such as revisions to privacy notice requirements, new rules for
deposit advance products and amendments to the funds availability requirements of Regulation CC. It is anticipated that the CFPB
will engage in numerous other rulemakings in the near term that may impact our business, including by revising consumer protection
regulations and associated disclosures. The CFPB also has broad authority to prohibit unfair, deceptive and abusive acts and practices
(“UDAAP”) and to investigate and penalize financial institutions that violate this prohibition. While the statutory
language of the Dodd-Frank Act sets forth the standards for acts and practices that violate this prohibition, certain aspects of
these standards are untested, which has created some uncertainty regarding how the CFPB will exercise this authority.
Non-Discrimination Policies.
Seacoast National is also subject to, among other things, the provisions of the Equal Credit Opportunity Act (the “ECOA”)
and the Fair Housing Act (the “FHA”), both of which prohibit discrimination based on race or color, religion, national
origin, sex, and familial status in any aspect of a consumer or commercial credit or residential real estate transaction. The Department
of Justice (the “DOJ”), and the federal bank regulatory agencies have issued an Interagency Policy Statement on Discrimination
in Lending that provides guidance to financial institutions in determining whether discrimination exists, how the agencies will
respond to lending discrimination, and what steps lenders might take to prevent discriminatory lending practices. The DOJ has increased
its efforts to prosecute what it regards as violations of the ECOA and FHA.
Enforcement Authority.
Seacoast National and its “institution-affiliated parties,” including management, employees, agents, independent contractors
and consultants, such as attorneys and accountants and others who participate in the conduct of the institution’s affairs,
are subject to potential civil and criminal penalties for violations of law, regulations or written orders of a government agency.
Violations can include failure to timely file required reports, filing false or misleading information or submitting inaccurate
reports. Civil penalties may be as high as $1,000,000 a day for such violations, and criminal penalties for some financial institution
crimes may include imprisonment for 20 years. Regulators have flexibility to commence enforcement actions against institutions
and institution-affiliated parties, and the FDIC has the authority to terminate deposit insurance. When issued by a banking agency,
cease-and-desist orders may, among other things, require affirmative action to correct any harm resulting from a violation or practice,
including restitution, reimbursement, indemnifications or guarantees against loss. A financial institution may also be ordered
to restrict its growth, dispose of certain assets, rescind agreements or contracts, or take other actions determined to be appropriate
by the ordering agency. The federal banking agencies also may remove a director or officer from an insured depository institution
(or bar them from the industry) if a violation is willful or reckless.
Governmental Monetary
Policies. The commercial banking business is affected not only by general economic conditions but also by the monetary policies
of the Federal Reserve. Changes in the discount rate on member bank borrowings, control of borrowings, open market operations,
the imposition of and changes in reserve requirements against member banks, deposits and assets of foreign branches, the imposition
of and changes in reserve requirements against certain borrowings by banks and their affiliates and the placing of limits on interest
rates which member banks may pay on time and savings deposits are some of the instruments of monetary policy available to the Federal
Reserve. These monetary policies influence to a significant extent the overall growth of all bank loans, investments and deposits
and the interest rates charged on loans or paid on time and savings deposits. In response to the recent financial crisis, the Federal
Reserve established several innovative programs to stabilize certain financial institutions and to ensure the availability of credit,
which the Federal Reserve has begun to modify in light of improving economic conditions. However, the nature of future monetary
policies and the effect of such policies on the bank’s future business and earnings cannot be predicted accurately.
Evolving Legislation
and Regulatory Action. Proposals for new statutes and regulations are frequently circulated at both the federal and state levels,
and may include wide-ranging changes to the structures, regulations and competitive relationships of financial institutions. We
cannot predict whether new legislation will be enacted and, if enacted, the effect that it, or any regulations, would have on our
business, financial condition or results of operations.
Other Regulatory Matters.
We and our subsidiaries are subject to oversight by the SEC, Financial Industry Regulatory Authority. (“FINRA”), the
Public Company Accounting Oversight Board (“PCAOB”), and Nasdaq and various state securities regulators. We and our
subsidiaries have from time to time received requests for information from regulatory authorities in various states, including
state attorneys general, securities regulators and other regulatory authorities, concerning our business practices. Such requests
are considered incidental to the normal conduct of business.
Statistical Information
Certain statistical and
financial information (as required by SEC Guide 3) is included in response to Item 7 of this Annual Report on Form 10-K. Certain
additional statistical information is also included in response to Item 6 and Item 8 of this Annual Report on Form 10-K.
In addition to the other information contained
in this Form 10-K, you should carefully consider the risks described below, as well as the risk factors and uncertainties discussed
in our other public filings with the SEC under the caption “Risk Factors” in evaluating us and our business and making
or continuing an investment in our stock. The risks contained in this Form 10-K are not the only risks that we face. Additional
risks that are not presently known, or that we presently deem to be immaterial, could also harm our business, results of operations
and financial condition and an investment in our stock. The trading price of our securities could decline due to the materialization
of any of these risks, and our shareholders may lose all or part of their investment. This Form 10-K also contains forward-looking
statements that may not be realized as a result of certain factors, including, but not limited to, the risks described herein and
in our other public filings with the SEC. Please refer to the section in this Form 10-K entitled “Special Cautionary Notice
Regarding Forward-Looking Statements” for additional information regarding forward-looking statements.
Risks Related to Our Business
Nonperforming assets could result in
an increase in our provision for loan losses, which could adversely affect our results of operations and financial condition.
At December 31, 2014 and
2013, our nonperforming loans (which consist of nonaccrual loans) totaled $21.1 million and $27.7 million, or 1.2 percent and 2.1
percent of the loan portfolio, respectively. At December 31, 2014 and 2013, our nonperforming assets (which include foreclosed
real estate) were $28.6 million and $34.5 million, or 0.9 percent and 1.5 percent of assets, respectively. In addition, we had
approximately $6.1 million and $3.1 million in accruing loans that were 30 days or more delinquent at December 31, 2014 and 2013,
respectively. Our nonperforming assets adversely affect our net income in various ways. We do not record interest income on nonaccrual
loans or other real estate owned, thereby adversely affecting our income, and increasing our loan administration costs. When we
take collateral in foreclosures and similar proceedings, we are required to mark the related loan to the then fair market value
of the collateral, which may result in a loss. These loans and other real estate owned also increase our risk profile and the capital
our regulators believe is appropriate in light of such risks. Until economic and market conditions improve, we may incur additional
losses relating to an increase in nonperforming loans. If economic conditions and market factors negatively and/or disproportionately
affect some of our larger loans, then we could see a sharp increase in our total net charge-offs and also be required to significantly
increase our allowance for loan losses. Any further increase in our nonperforming assets and related increases in our provision
for losses on loans could negatively affect our business and could have a material adverse effect on our capital, financial condition
and results of operations.
While we have reduced our
problem assets significantly through loan sales, workouts, restructurings and otherwise, decreases in the value of these remaining
assets, or the underlying collateral, or in these borrowers’ performance or financial conditions, whether or not due to economic
and market conditions beyond our control, could adversely affect our business, results of operations and financial condition. In
addition, the resolution of nonperforming assets requires significant commitments of time from management and our directors, which
can be detrimental to the performance of their other responsibilities. There can be no assurance that we will not experience further
increases in nonperforming loans in the future, or that nonperforming assets will not result in further losses in the future.
Our allowance for loan losses may prove
inadequate or we may be adversely affected by credit risk exposures.
Our business depends
on the creditworthiness of our customers. We periodically review our allowance for loan losses for adequacy considering economic
conditions and trends, collateral values and credit quality indicators, including past charge-off experience and levels of past
due loans and nonperforming assets. The determination of the appropriate level of the allowance for loan losses involves a high
degree of subjectivity and judgment and requires us to make significant estimates of current credit risks and future trends, all
of which may undergo material changes. We cannot be certain that our allowance for loan losses will be adequate over time to cover
credit losses in our portfolio because of unanticipated adverse changes in the economy, market conditions or events adversely affecting
specific customers, industries or markets, or borrower behaviors towards repaying their loans. Generally speaking, the credit quality
of our borrowers has deteriorated as a result of the economic downturn in our markets. Although there are now signs of economic
recovery, if the credit quality of our customer base or their debt service behavior materially decreases further, if the risk profile
of a market, industry or group of customers declines further or weaknesses in the real estate markets and other economics persist
or worsen, or if our allowance for loan losses is not adequate, our business, financial condition, including our liquidity and
capital, and results of operations could be materially adversely affected. In addition, bank regulatory agencies periodically review
our allowance for loan losses and may require an increase in the provision for loan losses or the recognition of further loan charge-offs,
based on judgments different than those of management. If charge-offs in future periods exceed the allowance for loan losses, we
will need additional provisions to increase the allowance for loan losses, which would result in a decrease in net income and capital,
and could have a material adverse effect on our financial condition and results of operations.
Disruptions to our information systems and
security breaches could adversely affect our business and reputation.
In the ordinary course
of business, we rely on electronic communications and information systems to conduct our businesses and to store sensitive data,
including financial information regarding our customers. The integrity of information systems of financial institutions are under
significant threat from cyber attacks by third parties, including through coordinated attacks sponsored by foreign nations and
criminal organizations to disrupt business operations and other compromises to data and systems for political or criminal purposes.
We employ an in-depth, layered, defense approach that leverages people, processes and technology to manage and maintain cyber security
controls.
Notwithstanding the strength
of our defensive measures, the threat from cyber attacks is severe, attacks are sophisticated and attackers respond rapidly to
changes in defensive measures. Cyber security risks may also occur with our third-party service providers, and may interfere with
their ability to fulfill their contractual obligations to us, with attendant potential for financial loss or liability that could
adversely affect our financial condition or results of operations. We offer our clients the ability to bank remotely and provide
other technology based products and services, which services include the secure transmission of confidential information over
the Internet and other remote channels. To the extent that our client's systems are not secure or are otherwise compromised, our
network could be vulnerable to unauthorized access, malicious software, phishing schemes and other security breaches. To the extent
that our activities or the activities of our clients or third-party service providers involve the storage and transmission of
confidential information, security breaches and malicious software could expose us to claims, regulatory scrutiny, litigation
and other possible liabilities. While to date we have not experienced a significant compromise, significant data loss or material
financial losses related to cyber security attacks, our systems and those of our clients and third-party service providers are
under constant threat and it is possible that we could experience a significant event in the future. We may suffer material financial
losses related to these risks in the future or we may be subject to liability for compromises to our client or third-party service
provider systems. Any such losses or liabilities could adversely affect our financial condition or results of operations, and
could expose us to reputation risk, the loss of client business, increased operational costs, as well as additional regulatory
scrutiny, possible litigation, and related financial liability. These risks also include possible business interruption, including
the inability to access critical information and systems.
Our ability to realize our deferred tax assets may be further reduced in the future if our estimates of future taxable income from
our operations and tax planning strategies do not support our deferred tax amount. Additionally, the amount of net operating loss
carry-forwards and certain other tax attributes realizable for income tax purposes may be reduced under Section 382 of the Internal
Revenue Code (“Section 382”) by sales of our capital securities.
As of December 31, 2014,
we had deferred tax assets of $66.8 million, based on management’s estimation of the likelihood of those deferred tax assets
being realized. These and future deferred tax assets may be reduced in the future if our estimates of future taxable income from
our operations and tax planning strategies do not support the amount of the deferred tax asset.
The
Company recorded a small loss in 2012, and recorded income for 2013 and 2014. The Company is in a three-year cumulative pretax
gain position at December 31, 2014. A cumulative gain position is considered positive evidence in assessing the prospective realization
of a deferred tax asset from a forecast of future taxable income. We also consider all positive and negative evidence including
the impact of recent operating results, reversal of existing taxable temporary differences, tax planning strategies and projected
earnings with the statutory tax loss carryover period. This process requires significant judgment by management about matters
that are by nature uncertain. If we were to conclude that significant portions of our deferred tax assets were not more likely
than not to be realized (due to operating results or other factors), a requirement to establish a valuation allowance could adversely
affect our financial position and results of operation, thereby negatively affecting our stock price.
The amount of net operating
loss carry-forwards and certain other tax attributes realizable annually for income tax purposes may be reduced by an offering
and/or other sales of our capital securities, including transactions in the open market by 5% or greater shareholders, if an ownership
change is deemed to occur under Section 382. The determination of whether an ownership change has occurred under Section 382 is
highly fact specific and can occur through one or more acquisitions of capital stock (including open market trading) if the result
of such acquisitions is that the percentage of our outstanding common stock held by shareholders or groups of shareholders owning
at least 5% of our common stock at the time of such acquisition, as determined under Section 382, is more than 50 percentage points
higher than the lowest percentage of our outstanding common stock owned by such shareholders or groups of shareholders within the
prior three-year period. The sale of common stock in August 2009 is no longer within the prior three-year look back period as required
by Section 382 and reduced, but did not eliminate the possible negative effects of a change in ownership. As previously disclosed
on May 27, 2011, we adopted an amendment to our Amended and Restated Articles of Incorporation, as amended (“Articles of
Incorporation”) that is intended to help preserve our net operating losses (the “Protective Amendment”), however,
such amendment may not be effective. Based upon independent analysis, management does not believe the common stock offering in
November 2013, subsequent reverse stock split in December 2013, and common stock issued in regards to the BANKshares acquisition
in October 2014 have any negative implications for the Company under Section 382. Deferred taxes for Section 382 events netting
to $1.3 million were recorded by BANKshares for acquisition activity prior to our merger on October 1, 2014, and were migrated
and recorded to the Company’s financial statements.
Future acquisition and
expansion activities may disrupt our business, dilute existing shareholders and adversely affect our operating results.
We periodically evaluate
potential acquisitions and expansion opportunities. To the extent we grow through acquisition, we cannot assure you that we will
be able to adequately or profitably manage this growth. Acquiring other banks, branches or businesses, as well as other geographic
and product expansion activities, involve various risks including:
| · | risks of unknown or contingent liabilities; |
| · | unanticipated costs and delays; |
| · | risks that acquired new businesses do not perform consistent with our growth and profitability
expectations; |
| · | risks of entering new market or product areas where we have limited experience; |
| · | risks that growth will strain out infrastructure, staff, internal controls and management, which
may require additional personnel, time and expenditures; |
| · | exposure to potential asset quality issues with acquired institutions; |
| · | difficulties, expenses and delays of integrating the operations and personnel of acquired institutions,
and start-up delays and costs of other expansion activities; |
| · | potential disruptions to our business; |
| · | possible loss of key employees and customers of acquired institutions; |
| · | potential short-term decrease in profitability; and |
| · | diversion of our management’s time and attention from our existing operations and businesses. |
Attractive acquisition opportunities may
not be available to us in the future.
While we seek continued
organic growth, as our earnings and capital position continue to improve, we will consider
the acquisition of other banking businesses. We expect that other banking and financial companies, many of which have significantly
greater resources, will compete with us to acquire financial services businesses. This competition could increase prices for potential
acquisitions that we believe are attractive. Also, acquisitions are subject to various regulatory approvals. If we fail to receive
the appropriate regulatory approvals, we may not be able to consummate an acquisition that we believe is in our best interests,
or we could endure regulatory delays or conditions that would prevent us from obtaining all of the expected benefits of a transaction.
Among other things, our regulators consider our capital, liquidity, profitability, regulatory compliance and levels of goodwill
and intangibles when considering acquisition and expansion proposals. Any acquisition could be dilutive to our earnings and shareholders’
equity per share of our common stock.
Deterioration in the real estate markets,
including the secondary market for residential mortgage loans, can adversely affect us.
The effects of ongoing
mortgage market challenges, combined with the correction in residential real estate market prices and reduced levels of home sales,
could result in price reductions in single family home values, adversely affecting the liquidity and value of collateral securing
commercial loans for residential land acquisition, construction and development, as well as residential mortgage loans and residential
property collateral securing loans that we hold, mortgage loan originations and gains on the sale of mortgage loans. Declining
real estate prices cause higher delinquencies and losses on certain mortgage loans, generally, particularly second lien mortgages
and home equity lines of credit. Significant ongoing disruptions in the secondary market for residential mortgage loans can limit
the market for and liquidity of most residential mortgage loans other than conforming Fannie Mae and Freddie Mac loans. Deteriorating
trends could occur, as various government programs to boost the residential mortgage markets and stabilize the housing markets
wind down or are discontinued. Declines in real estate values, home sales volumes and financial stress on borrowers as a result
of job losses, interest rate resets on adjustable rate mortgage loans or other factors could have adverse effects on borrowers
that result in higher delinquencies and greater charge-offs in future periods, which would adversely affect our financial condition,
including capital and liquidity, or results of operations. In the event our allowance for loan losses is insufficient to cover
such losses, our earnings, capital and liquidity could be adversely affected.
Although the Florida housing market
appears to be strengthening, our real estate portfolios are exposed to weakness in the Florida housing market and the overall state
of the economy.
Florida has experienced
a deeper recession and more dramatic slowdown in economic activity than other states and the decline in real estate values in Florida
has been significantly larger than the national average. The declines in home prices and the volume of home sales in Florida, along
with the reduced availability of certain types of mortgage credit, have resulted in increases in delinquencies and losses in our
portfolios of home equity lines and loans, and commercial loans related to residential real estate acquisition, construction and
development. While home prices have stabilized, further declines in home prices coupled with continued high or increased unemployment
levels could cause additional losses which could adversely affect our earnings and financial condition, including our capital and
liquidity.
Our concentration in commercial real estate
loans could result in increased loan losses.
Commercial real estate
(“CRE”) is cyclical and poses risks of loss to us due to our concentration levels and risks of the asset, especially
during a difficult economy. As of December 31, 2014 and 2013, 48.9 percent and 42.4 percent of our loan portfolio were comprised
of CRE loans, respectively. The banking regulators continue to give CRE lending greater scrutiny, and banks with higher levels
of CRE loans are expected to implement improved underwriting, internal controls, risk management policies and portfolio stress
testing, as well as higher levels of allowances for possible losses and capital levels as a result of CRE lending growth and exposures.
During 2014, we recorded a $3.5 million recapture of provisioning for losses, compared to additions of $3.2 million in 2013 and
$10.8 million in 2012.
Seacoast National has a
written CRE concentration risk management program and monitors its exposure to CRE; however, there is no guarantee that the program
will be effective in managing our concentration in CRE.
Liquidity risks could affect operations
and jeopardize our financial condition.
Liquidity is essential
to our business. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial
negative effect on our liquidity. Our funding sources include federal funds purchases, securities sold under repurchase agreements,
non-core deposits, and short- and long-term debt. We are also members of the Federal Home Loan Bank of Atlanta (the “FHLB”)
and the Federal Reserve Bank of Atlanta, where we can obtain advances collateralized with eligible assets. We maintain a portfolio
of securities that can be used as a secondary source of liquidity. There are also other sources of liquidity available to us or
Seacoast National should they be needed, including our ability to acquire additional non-core deposits, the issuance and sale of
debt securities, and the issuance and sale of preferred or common securities in public or private transactions.
Our access to funding sources
in amounts adequate to finance or capitalize our activities or on terms which are acceptable to us could be impaired by factors
that affect us specifically or the financial services industry or economy in general. Factors that could detrimentally impact our
access to liquidity sources include a downturn in the markets in which our loans are concentrated or adverse regulatory action
against us. In addition, our access to deposits may be affected by the liquidity and/or cash flow needs of depositors. Although
we have historically been able to replace maturing deposits and FHLB advances as necessary, we might not be able to replace such
funds in the future and can lose a relatively inexpensive source of funds and increase our funding costs if, among other things,
customers move funds out of bank deposits and into alternative investments, such as the stock market, that are perceived as providing
superior expected returns. We may be required to seek additional regulatory capital through capital raises at terms that may be
very dilutive to existing shareholders.
Our ability to borrow could
also be impaired by factors that are not specific to us, such as disruptions in the financial markets or negative views and expectations
about the prospects for the financial services industry in light of recent turmoil faced by banking organizations and deterioration
in credit markets.
Our ability to receive dividends from our
subsidiaries could affect our liquidity and ability to pay dividends.
We are a legal entity separate
and distinct from Seacoast National and our other subsidiaries. Our primary source of revenue consists of dividends from Seacoast
National. These dividends are the principal source of funds to pay dividends on our common stock, interest on our trust preferred
securities and interest and principal on our debt. Various laws and regulations limit the amount of dividends that Seacoast National
may pay us. Also, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization
is subject to the prior claims of the subsidiary's creditors. Limitations on our ability to receive dividends from our subsidiaries
could have a material adverse effect on our liquidity and on our ability to pay dividends on common stock. Additionally, if our
subsidiaries’ earnings are not sufficient to make dividend payments to us while maintaining adequate capital levels, we may
not be able to make dividend payments to our common shareholders. We do not expect to pay dividends on our common stock to shareholders
in the foreseeable future and expect to retain all earnings, if any, to support our capital adequacy and growth.
We must effectively manage our interest rate risk.
Our profitability is dependent
to a large extent on our net interest income, which is the difference between the interest income paid to us on our loans and investments
and the interest we pay to third parties such as our depositors, lenders and debt holders. Changes in interest rates can impact
our profits and the fair values of certain of our assets and liabilities. Prolonged periods of unusually low interest rates may
have an adverse effect on our earnings by reducing yields on loans and other earning assets. Increases in market interest rates
may reduce our customers’ desire to borrow money from us or adversely affect their ability to repay their outstanding loans
by increasing their debt service obligations through the periodic reset of adjustable interest rate loans. If our borrowers’
ability to pay their loans is impaired by increasing interest payment obligations, our level of nonperforming assets would increase,
producing an adverse effect on operating results. Increases in interest rates can have a material impact on the volume of mortgage
originations and refinancings, adversely affecting the profitability of our mortgage finance business. Interest rate risk can also
result from mismatches between the dollar amounts of re-pricing or maturing assets and liabilities and from mismatches in the timing
and rates at which our assets and liabilities re-price. We actively monitor and manage the balances of our maturing and re-pricing
assets and liabilities to reduce the adverse impact of changes in interest rates, but there can be no assurance that we will be
able to avoid material adverse effects on our net interest margin in all market conditions.
Federal prohibitions on
the ability of financial institutions to pay interest on commercial demand deposit accounts were repealed in 2011 by the Dodd-Frank
Act. This change has had limited impact to date due to the excess of commercial liquidity and the very low rate environment in
recent years. There can be no assurance that we will not be materially adversely affected in the future if economic activity increases
and interest rates rise, which may result in our interest expense increasing, and our net interest margin decreasing, if we must
offer interest on demand deposits to attract or retain customer deposits.
Our customers may pursue alternatives to
bank deposits, causing us to lose a relatively inexpensive source of funding.
We may experience a decrease
in customer deposits if customers perceive alternative investments, such as the stock market, as providing superior expected returns.
When customers move money out of bank deposits in favor of alternative investments, we may lose a relatively inexpensive source
of funds, and be forced to rely more heavily on borrowings and other sources of funding to fund our business and meet withdrawal
demands, thereby increasing our funding costs and adversely affecting our net interest margin.
Consumers may decide not to use banks to
complete their financial transactions, which could affect our net income.
Technology and other changes
now allow parties to complete financial transactions without banks. For example, consumers can pay bills and transfer funds directly
without banks. This process could result in the loss of fee income, as well as the loss of customer deposits and the income generated
from those deposits.
The Dodd-Frank Wall Street Reform and Consumer
Protection Act could increase our regulatory compliance burden and associated costs or otherwise adversely affect our business.
On July 21, 2010,
the Dodd-Frank Act was signed into law. The Dodd-Frank Act represents a significant overhaul of many aspects of the
regulation of the financial services industry.
The Dodd-Frank Act directs
applicable regulatory authorities to promulgate regulations implementing its provisions, and its effect on the Company and on the
financial services industry as a whole will be clarified as those regulations are issued. Certain provisions of the Act have
been implemented by regulation, while others are expected to be implemented in the coming years. The Dodd-Frank Act addresses
a number of issues, including capital requirements, compliance and risk management, debit card overdraft fees, healthcare, incentive
compensation, expanded disclosures and corporate governance. The Dodd-Frank Act established a new, independent CFPB,
which has broad rulemaking, supervisory and enforcement authority over consumer financial products and services, including deposit
products, residential mortgages, home equity loans and credit cards. States will be permitted to adopt stricter consumer
protection laws and can enforce consumer protection rules issued by the CFPB. The CFPB is working on a wide range of consumer protection
initiatives, including revisions to existing regulations, many of which will likely impact our business.
The Dodd-Frank Act will
increase our regulatory compliance burden and may have a material adverse effect on us, including increasing the costs associated
with our regulatory examinations and compliance measures. The changes resulting from the Dodd-Frank Act, as well as the resulting
regulations promulgated by federal agencies, may impact the profitability of our business activities, require changes to certain
of our business practices, impose upon us more stringent capital, liquidity and leverage ratio requirements or otherwise adversely
affect our business. These changes may also require us to invest significant management attention and resources to evaluate and
make necessary changes to comply with new laws and regulations. For a more detailed description of the Dodd-Frank Act, see “Item
1. Business—Supervision and Regulation” of this Form 10-K.
Higher FDIC deposit insurance premiums
and assessments could adversely affect our financial condition.
FDIC insurance premiums
we pay may change and be significantly higher in the future. Market developments may significantly deplete the insurance fund of
the FDIC and further reduce the ratio of reserves to insured deposits, thereby making it requisite upon the FDIC to charge higher
premiums prospectively.
We are required to maintain capital
to meet regulatory requirements, and if we fail to maintain sufficient capital, whether due to losses, an inability to raise additional
capital or otherwise, our financial condition, liquidity and results of operations, as well as our compliance with regulatory requirements,
would be adversely affected.
Both we and Seacoast National
must meet regulatory capital requirements and maintain sufficient liquidity and our regulators may modify and adjust such requirements
in the future. We were capable of raising additional capital for the redemption of our Series A Preferred Stock; however, our ability
to raise additional capital, when and if needed in the future, will depend on conditions in the capital markets, general economic
conditions and a number of other factors, including investor perceptions regarding the banking industry and the market, governmental
activities, many of which are outside our control, and on our financial condition and performance. Accordingly, we cannot assure
you that we will be able to raise additional capital if needed or on terms acceptable to us. If we fail to meet these capital and
other regulatory requirements, our financial condition, liquidity and results of operations would be materially and adversely affected.
Although we currently comply
with all capital requirements, we will be subject to more stringent regulatory capital ratio requirements in the future and we
may need additional capital in order to meet those requirements. Our failure to remain “well capitalized” for bank
regulatory purposes could affect customer confidence, our ability to grow, our costs of funds and FDIC insurance costs, our ability
to pay dividends on common stock, make distributions on our trust preferred securities, our ability to make acquisitions, and our
business, results of operations and financial condition, generally. Under FDIC rules, if Seacoast National ceases to be a “well
capitalized” institution for bank regulatory purposes, its ability to accept brokered deposits and the interest rates that
it pays may both be restricted.
As of April 1, 2011, the
FDIC implemented its new calculation methodology for insurance assessments, applying revised risk category ratings for calculating
assessments to total assets less Tier 1 risk-based capital. Deposits are no longer utilized as the primary base and the base assessment
rates vary depending on the DIF reserve ratio. We have not experienced any negative impact to our consolidated financial statements
as a result of the new method as of December 14, 2014.
Changes in accounting
and tax rules applicable to banks could adversely affect our financial condition and results of operations.
From time to time, the
Financial Accounting Standards Board (the “FASB”) and the SEC change the financial accounting and reporting standards
that govern the preparation of our financial statements. These changes can be hard to predict and can materially impact how we
record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised
standard retroactively, resulting in us restating prior period financial statements.
Our cost of funds may increase as a
result of general economic conditions, FDIC insurance assessments, interest rates and competitive pressures.
We have traditionally obtained
funds through local deposits and thus we have a base of lower cost transaction deposits. Generally, we believe local deposits are
a cheaper and more stable source of funds than other borrowings because interest rates paid for local deposits are typically lower
than interest rates charged for borrowings from other institutional lenders and reflect a mix of transaction and time deposits,
whereas brokered deposits typically are higher cost time deposits. Our costs of funds and our profitability and liquidity are likely
to be adversely affected if, and to the extent, we have to rely upon higher cost borrowings from other institutional lenders or
brokers to fund loan demand or liquidity needs, and changes in our deposit mix and growth could adversely affect our profitability
and the ability to expand our loan portfolio.
Current and proposed rules may impose
additional executive compensation and corporate governance requirements that may adversely affect us and our business, including
our ability to recruit and retain qualified employees.
The Federal Reserve has
proposed guidelines on executive compensation. Reflecting regulators’ focus on compensation issues, in 2010, the FDIC proposed,
but did not finalize, a rule to incorporate employee compensation factors into the risk assessment system which would adjust risk-based
deposit insurance assessment rates if the design of certain compensation programs does not satisfy certain FDIC goals to prevent
executive compensation from encouraging undue risk-taking. In addition, the Dodd-Frank Act requires banking regulators to issue
regulations or guidelines to prohibit incentive-based compensation arrangements that encourage inappropriate risk taking by providing
excessive compensation or that may lead to material loss at certain financial institutions with $1 billion or more in assets. Regulators
have proposed, but not yet finalized, rules on the topic. Further, in June, 2010, the Federal Reserve, the OCC, the Office of Thrift
Supervision, and the FDIC jointly issued comprehensive final guidance designed to ensure that incentive compensation policies do
not undermine the safety and soundness of banking organizations by encouraging employees to take imprudent risks. This regulation
significantly restricts the amount, form, and context in which we pay incentive compensation.
These provisions and any
future rules issued by the Federal Reserve and the FDIC or any other regulatory agencies could adversely affect our ability to
attract and retain management capable and sufficiently motivated to manage and operate our business through difficult economic
and market conditions. If we are unable to attract and retain qualified employees to manage and operate our business, we may not
be able to successfully execute our business strategy.
The short-term and long-term
impact of the new Basel III capital standards and their implementing rules is uncertain.
On September 12, 2010,
the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced an
agreement to a strengthened set of capital requirements for internationally active banking organizations in the United States and
around the world, known as Basel III. U.S. Regulators issued the Revised Capital Rules, which implement Basel III, as well as capital
requirements set forth in the Dodd-Frank Act. These rules establish increased minimum capital requirements and create other new
requirements, such as the requirement to maintain a “capital conservation buffer” on top of the minimum risk-weighted
asset ratios. These rules took effect on January 1, 2015 and will be phased in over a four year period. For a more detailed description
of Basel III and the Revised Capital Rules, see “Item 1. Business—Supervision and Regulation.”
Lending goals may not be attainable.
It may not be possible
to safely, soundly and profitably make sufficient loans to creditworthy persons in the current economy to satisfy our prospective
goals for commercial, residential and consumer lending volumes. Future demand for additional lending is unclear and uncertain,
and opportunities to make loans may be more limited and/or involve risks or terms that we likely would not find acceptable or in
our shareholders’ best interest. A failure to meet our lending goals could adversely affect our results of operation and
financial condition, liquidity and capital. Also, the profitability of funding such loans using deposits may be adversely affected
by increased FDIC insurance premiums.
Federal banking agencies periodically conduct
examinations of our business, including for compliance with laws and regulations, and our failure to comply with any supervisory
actions to which we are or become subject as a result of such examinations may adversely affect us.
The Federal Reserve and
the OCC periodically conduct examinations of our business and Seacoast National’s business, including for compliance with
laws and regulations, and Seacoast National also may be subject to participation by the CFPB in its future regulatory examinations
as discussed in the “Supervision and Regulation” section above. If, as a result of an examination, the Federal Reserve,
the OCC and/or the CFPB were to determine that the financial condition, capital resources, asset quality, asset concentrations,
earnings prospects, management, liquidity, sensitivity to market risk, or other aspects of any of our or Seacoast National’s
operations had become unsatisfactory, or that we or our management were in violation of any law, regulation or guideline in effect
from time to time, the regulators may take a number of different remedial actions as they deem appropriate. These actions include
the power to enjoin “unsafe or unsound” practices, to require affirmative actions to correct any conditions resulting
from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our
capital, to restrict our growth, to change the composition of our concentrations in portfolio or balance sheet assets, to assess
civil monetary penalties against our officers or directors or to remove officers and directors.
Our future success is dependent on our
ability to compete effectively in highly competitive markets.
We operate in the highly
competitive markets of Martin, St. Lucie, Brevard, Indian River and Palm Beach and Broward Counties in southeastern Florida,
the Orlando, Florida metropolitan statistical area in Orange, Seminole and Lake County, as well as in Volusia County, and more
rural competitive counties in the Lake Okeechobee, Florida region. Our future growth and success will depend on our ability to
compete effectively in these markets. We compete for loans, deposits and other financial services in geographic markets with other
local, regional and national commercial banks, thrifts, credit unions, mortgage lenders, and securities and insurance brokerage
firms. Many of our competitors offer products and services different from us, and have substantially greater resources, name recognition
and market presence than we do, which benefits them in attracting business. Larger competitors may be able to price loans and deposits
more aggressively than we can, and have broader customer and geographic bases to draw upon.
We are dependent on key personnel and
the loss of one or more of those key personnel could harm our business.
Our future success significantly
depends on the continued services and performance of our key management personnel. We believe our management team’s depth
and breadth of experience in the banking industry is integral to executing our business plan. We also will need to continue to
attract, motivate and retain other key personnel. The loss of the services of members of our senior management team or other key
employees or the inability to attract additional qualified personnel as needed could have a material adverse effect on our business,
financial position, results of operations and cash flows.
We are subject to losses due to fraudulent
and negligent acts on the part of loan applicants, mortgage brokers, other vendors and our employees.
When we originate mortgage
loans, we rely heavily upon information supplied by loan applicants and third parties, including the information contained in the
loan application, property appraisal, title information and employment and income documentation provided by third parties. If any
of this information is misrepresented and such misrepresentation is not detected prior to loan funding, we generally bear the risk
of loss associated with the misrepresentation.
We operate in a heavily regulated environment.
We and our subsidiaries
are regulated by several regulators, including the Federal Reserve, the OCC, the SEC, the FDIC, Nasdaq, and the CFPB. Our success
is affected by state and federal regulations affecting banks and bank holding companies, the securities markets and banking, securities
and insurance regulators. Banking regulations are primarily intended to protect consumers and depositors, not shareholders. The
financial services industry also is subject to frequent legislative and regulatory changes and proposed changes, the effects of
which cannot be predicted. These changes, if adopted, could require us to maintain more capital, liquidity and risk controls which
could adversely affect our growth, profitability and financial condition.
We are subject to internal control reporting
requirements that increase compliance costs and failure to comply with such requirements could adversely affect our reputation
and the value of our securities.
We are required to comply
with various corporate governance and financial reporting requirements under the Sarbanes-Oxley Act of 2002, as well as rules and
regulations adopted by the SEC, the Public Company Accounting Oversight Board and Nasdaq. In particular, we are required to include
management and independent registered public accounting firm reports on internal controls as part of our Annual Report on Form
10-K pursuant to Section 404 of the Sarbanes-Oxley Act. The SEC also has proposed a number of new rules or regulations requiring
additional disclosure, such as lower-level employee compensation. We expect to continue to spend significant amounts of time and
money on compliance with these rules. Our failure to track and comply with the various rules may materially adversely affect our
reputation, ability to obtain the necessary certifications to financial statements, and the value of our securities.
Our controls and procedures may fail or
be circumvented.
Management regularly reviews
and updates our internal controls over financial reporting, disclosure controls and procedures, and corporate governance policies
and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide
only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls
and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on
our business, results of operations and financial condition.
Our operations rely on external vendors.
We rely on certain external
vendors to provide products and services necessary to maintain our day-to-day operations, particularly in the areas of operations,
treasury management systems, information technology and security, exposing us to the risk that these vendors will not perform as
required by our agreements. An external vendor’s failure to perform in accordance with our agreement could be disruptive
to our operations, which could have a material adverse impact on our business, financial condition and results of operations.
We must effectively manage
our information systems risk.
We rely heavily on our communications and information
systems to conduct our business. The financial services industry is undergoing rapid technological changes with frequent introductions
of new technology-driven products and services. Our ability to compete successfully depends in part upon our ability to use technology
to provide products and services that will satisfy customer demands. Many of the Company’s competitors invest substantially
greater resources in technological improvements than we do. We may not be able to effectively implement new technology-driven products
and services or be successful in marketing these products and services to our customers, which may negatively affect our business,
results of operations or financial condition.
Our communications and information systems remain
vulnerable to unexpected disruptions and failures. Any failure or interruption of these systems could impair our ability to serve
our customers and to operate our business and could damage our reputation, result in a loss of business, subject us to additional
regulatory scrutiny or enforcement or expose us to civil litigation and possible financial liability. While we have developed extensive
recovery plans, we cannot assure that those plans will be effective to prevent adverse effects upon us and our customers resulting
from system failures. While we maintain an insurance policy which we believe provides sufficient coverage at a manageable expense
for an institution of our size and scope with similar technological systems, we cannot assure that this policy would be sufficient
to cover all related financial losses and damages should we experience any one or more of our or a third party’s systems
failing or experiencing a cyber-attack.
We collect and store sensitive data, including
personally identifiable information of our customers and employees. Computer break-ins of our systems or our customers’ systems,
thefts of data and other breaches and criminal activity may result in significant costs to respond, liability for customer losses
if we are at fault, damage to our customer relationships, regulatory scrutiny and enforcement and loss of future business opportunities
due to reputational damage. Although we, with the help of third-party service providers, will continue to implement security technology
and establish operational procedures to protect sensitive data, there can be no assurance that these measures will be effective.
We advise and provide training to our customers regarding protection of their systems, but there is no assurance that our advice
and training will be appropriately acted upon by our customers or effective to prevent losses. In some cases we may elect to contribute
to the cost of responding to cybercrime against our customers, even when we are not at fault, in order to maintain valuable customer
relationships.
The anti-takeover provisions in our
Articles of Incorporation and under Florida law may make it more difficult for takeover attempts that have not been approved by
our board of directors.
Florida law and our Articles
of Incorporation include anti-takeover provisions, such as provisions that encourage persons seeking to acquire control of us to
consult with our board, and which enable the board to negotiate and give consideration on behalf of us and our shareholders and
other constituencies to the merits of any offer made. Such provisions, as well as supermajority voting and quorum requirements,
a staggered board of directors and the Protective Amendment, may make any takeover attempts and other acquisitions of interests
in us, by means of a tender offer, open market purchase, a proxy fight or otherwise, that have not been approved by our board of
directors more difficult and more expensive. These provisions may discourage possible business combinations that a majority of
our shareholders may believe to be desirable and beneficial. As a result, our board of directors may decide not to pursue transactions
that would otherwise be in the best interests of holders of our common stock.
Hurricanes or other adverse weather
events could negatively affect our local economies or disrupt our operations, which would have an adverse effect on our business
and results of operations.
Our market areas in Florida
are susceptible to hurricanes, tropical storms and related flooding and wind damage. Such weather events can disrupt operations,
result in damage to properties and negatively affect the local economies in the markets where we operate. We cannot predict whether
or to what extent damage that may be caused by future hurricanes will affect our operations or the economies in our current or
future market areas, but such weather events could result in a decline in loan originations, a decline in the value or destruction
of properties securing our loans and an increase in the delinquencies, foreclosures or loan losses. Our business and results of
operations may be adversely affected by these and other negative effects of future hurricanes, tropical storms, related flooding
and wind damage and other similar weather events. As a result of the potential for such weather events, many of our customers have
incurred significantly higher property and casualty insurance premiums on their properties located in our markets, which may adversely
affect real estate sales and values in our markets.
The CFPB’s issued rules may have a
negative impact on our loan origination process, and compliance and collection costs, which could adversely affect our mortgage
lending operations and operating results.
The CFPB issued rules that
are likely to impact our residential mortgage lending practices, and the residential mortgage market generally, including rules
that implement the “ability-to-repay” requirement and provide protection from liability for “qualified mortgages,”
as required by the Dodd-Frank Act, which took effect on January 10, 2014. The CFPB has also issued a number of other mortgage-related
rules, including new rules pertaining to loan originator compensation, and that establish qualification, registration and licensing
requirements for loan originators. These and other changes are likely to impose restrictions on future mortgage loan originations,
diminish lenders’ rights against delinquent borrowers or otherwise change the ways in which lenders make and administer residential
mortgage loans. These rules could have a negative effect on the financial performance of Seacoast National’s mortgage lending
operations, by, among other things, reducing the volume of mortgage loans that Seacoast National can originate and sell into the
secondary market, increasing its compliance burden and impairing Seacoast National’s ability to proceed against certain delinquent
borrowers with timely and effective collection efforts.
Risks Related to our Common
Stock
We may issue additional shares of common
or preferred stock, which may dilute the interests of our shareholders and may adversely affect the market price of our common
stock.
We are currently authorized
to issue up to 60 million shares of common stock, of which 33,136,592 shares were outstanding as of December 31, 2014, and up to
4 million shares of preferred stock, of which no shares are outstanding. Subject to certain NASDAQ requirements, our board of directors
has authority, without action or vote of the shareholders, to issue all or part of the remaining authorized but unissued shares
and to establish the terms of any series of preferred stock. These authorized but unissued shares could be issued on terms or in
circumstances that could dilute the interests of other shareholders.
Our stock price is subject to fluctuations,
and the value of your investment may decline.
The trading price of our
common stock is subject to wide fluctuations. The stock market in general, and the market for the stocks of commercial banks and
other financial services companies in particular, has experienced significant price and volume fluctuations that sometimes have
been unrelated or disproportionate to the operating performance of those companies. These broad market and industry factors may
seriously harm the market price of our common stock, regardless of our operating performance, and the value of your investment
may decline.
| Item 1B. | Unresolved Staff Comments |
None.
We and Seacoast National’s
main office occupies approximately 66,000 square feet of a 68,000 square foot building in Stuart, Florida. This building, together
with an adjacent 10-lane drive-through banking facility and an additional 27,000-square foot office building, are situated on approximately
eight acres of land in the center of Stuart that is zoned for commercial use. The building and land are owned by Seacoast National,
which leases out portions of the building not utilized by us and Seacoast National to unaffiliated third parties.
Adjacent to the main office,
Seacoast National leases approximately 21,400 square feet of office space from third parties to house operational departments,
consisting primarily of information systems and retail support. Seacoast National owns its equipment, which is used for servicing
bank deposits and loan accounts as well as on-line banking services, and providing tellers and other customer service personnel
with access to customers’ records. In addition, Seacoast National owns an operations center consisting of a 4,939 square
foot building situated on 1.44 acres in Okeechobee, Florida. Our PGA Blvd. branch is utilized as a disaster recovery site should
natural disasters or other events preclude use of Seacoast National’s primary operations center.
Seacoast currently operates
its Seacoast Marine Finance Division in a 2,009 square foot leased facility in Ft. Lauderdale, Florida, and has representation
in California, Washington and Arizona. The 1,200 square foot leased space in Newport Beach, California was closed at December 31,
2014.
CBF, our receivables factoring
company occupies 1,511 square feet of leased space on the first floor of the Winter Park branch in Orlando, Florida.
Seacoast National maintained
42 branch offices, five commercial lending offices and its main office in Florida at December 31, 2014. As of December 31,
2014, the net carrying value of these offices (excluding the main office) was approximately $35.2 million. Seacoast National’s
branch and commercial lending offices in 2014 are generally described as follows:
| Branch Office |
|
Year Opened |
|
Square Feet |
|
Owned/Leased |
| |
|
|
|
|
|
|
|
Jensen Beach
1000 N.E. Jensen Beach Blvd.
Jensen Beach, FL 34957 |
|
1977 |
|
1,920 |
|
Owned |
| |
|
|
|
|
|
|
|
East Ocean
2081 East Ocean Blvd
Stuart, FL 34996 |
|
1978 (relocated in 1995) |
|
2,300 |
|
Owned; expected to close in 2015 |
| |
|
|
|
|
|
|
|
Cove Road
5755 S.E. U.S. Highway 1
Stuart, FL 34997 |
|
1983 |
|
3,450 |
|
Leased |
| |
|
|
|
|
|
|
|
Hutchinson Island
4392 N.E. Ocean Blvd.
Jensen Beach, FL 34957 |
|
1984 |
|
4,000 |
|
Lease expired; closed in December 2014 |
| |
|
|
|
|
|
|
|
Westmoreland
1108 S.E. Port St. Lucie Blvd.
Port St. Lucie, FL 34952 |
|
1985 (relocated in 2008) |
|
4,468 (with 1,179 leased to tenants) |
|
Owned building located on leased land |
| |
|
|
|
|
|
|
|
Wedgewood Commons
3200 U.S. Highway 1
Stuart, FL 34997 |
|
1988 (relocated in 2009) |
|
5,477 (with 2,641 available to be leased to tenants) |
|
Owned building located on leased land. |
| |
|
|
|
|
|
|
|
Bayshore
247 S.W. Port St. Lucie Blvd.
Port St. Lucie, FL 34984 |
|
1990 |
|
3,520 |
|
Leased |
| |
|
|
|
|
|
|
|
Hobe Sound
11711 S.E. U.S. Highway 1
Hobe Sound, FL 33455 |
|
1991 |
|
8,000 (with 1,225 available to be leased to tenants) |
|
Owned |
| |
|
|
|
|
|
|
|
Fort Pierce
1901 South U.S. Highway 1
Fort Pierce, FL 34950 |
|
1991 (relocated in 2008) |
|
5,477 (with 2,641 available to be leased to tenants) |
|
Owned building located on leased land |
| |
|
|
|
|
|
|
|
Martin Downs
2601 S.W. High Meadow Ave.
Palm City, FL 34990 |
|
1992 |
|
3,960 |
|
Owned |
|
Tiffany
9698 U.S. Highway 1
Port St. Lucie, FL 34952 |
|
1992 |
|
8,250 |
|
Owned |
| |
|
|
|
|
|
|
|
Vero Beach
1206 U.S. Highway 1
Vero Beach, FL 32960 |
|
1993 |
|
3,300 |
|
Owned |
| |
|
|
|
|
|
|
|
Cardinal
2940 Cardinal Dr.
Vero Beach, FL 32963 |
|
1993 (relocated in 2008) |
|
5,435 |
|
Leased |
| |
|
|
|
|
|
|
|
St. Lucie West
1100 S.W. St. Lucie West Blvd.
Port St. Lucie, FL 34986 |
|
1994 (relocated in 1997) |
|
4,320 |
|
Leased |
| |
|
|
|
|
|
|
|
Sebastian Wal-Mart
2001 U.S. Highway 1
Sebastian, FL 32958 |
|
1996 |
|
865 |
|
Leased; closed in December 2014 |
| |
|
|
|
|
|
|
|
South Vero Square
752 U.S. Highway 1
Vero Beach, FL 32962 |
|
1997 |
|
3,150 |
|
Owned |
| |
|
|
|
|
|
|
|
Sebastian West
1110 Roseland Rd.
Sebastian, FL 32958 |
|
1998 |
|
3,150 |
|
Owned |
| |
|
|
|
|
|
|
|
Tequesta
710 N. U.S. Highway 1
Tequesta, FL 33469 |
|
2003 |
|
3,500 |
|
Owned |
| |
|
|
|
|
|
|
|
Jupiter
585 W. Indiantown Rd.
Jupiter, FL 33458 |
|
2004 |
|
2,881 |
|
Owned building located on leased land |
| |
|
|
|
|
|
|
|
Vero 60 West
6030 20th Street
Vero Beach, FL 32966 |
|
2005 |
|
2,500 |
|
Owned |
| |
|
|
|
|
|
|
|
Downtown Orlando
65 N. Orange Ave.
Orlando, FL 32801 |
|
2005 |
|
6,752 |
|
Lease expired; closed in December 2014 |
| |
|
|
|
|
|
|
|
Maitland
541 S. Orlando Ave.
Maitland, FL 32751 |
|
2005 |
|
4,536 |
|
Leased |
|
PGA Blvd.
3001 PGA Blvd.
Palm Beach Gardens, FL 33410 |
|
2006 |
|
13,454 |
|
Leased |
| |
|
|
|
|
|
|
|
South Parrott
1409 S. Parrott Ave.
Okeechobee, FL 34974 |
|
2006 |
|
8,232 |
|
Owned |
| |
|
|
|
|
|
|
|
North Parrott
500 N. Parrott Ave.
Okeechobee, FL 34974 |
|
2006 |
|
3,920 |
|
Owned |
| |
|
|
|
|
|
|
|
Arcadia
1601 E. Oak St.
Arcadia, FL 34266 |
|
2006 (expanded in 2008) |
|
3,256 |
|
Owned |
| |
|
|
|
|
|
|
|
Moore Haven
501 U.S. Highway 27
Moore Haven, FL 33471 |
|
2006 (relocated from leased premises in 2012) |
|
4,415 |
|
Owned |
| |
|
|
|
|
|
|
|
Clewiston
300 S. Berner Rd.
Clewiston, FL 33440 |
|
2006 |
|
5,661 |
|
Owned |
| |
|
|
|
|
|
|
|
LaBelle
17 N. Lee St.
LaBelle, FL 33935 |
|
2006 |
|
2,361 |
|
Owned |
| |
|
|
|
|
|
|
|
Lake Placid
199 U.S. Highway 27 North
Lake Placid, FL 33852 |
|
2006 |
|
2,125 |
|
Owned |
| |
|
|
|
|
|
|
|
Viera – The Avenues
6711 Lake Andrew Dr.
Viera, FL 32940 |
|
2007 |
|
5,999 |
|
Leased; closed in December 2014 |
| |
|
|
|
|
|
|
|
Murrell Road
5500 Murrell Rd.
Viera, FL 32940 |
|
2008 |
|
9,041 (with 2,408 leased to tenants and 1,856 available to be leased) |
|
Leased; closed in December 2014 |
| |
|
|
|
|
|
|
|
Gatlin Boulevard
1790 S.W. Gatlin Blvd.
Port St. Lucie, FL 34953 |
|
2008 |
|
5,300 (with 2,518 available for leasing) |
|
Owned |
| |
|
|
|
|
|
|
|
Winter Park
1031 West Morse Blvd
Winter Park, FL 32789 |
|
2014 (acquired through BankFIRST merger; opened 1989) |
|
18,135 (with 9,069 occupied by Seacoast, 1,511 by CBF, and 7,555 available to be leased) |
|
Leased |
|
Winter Garden
13207 West Colonial Dr.
Winter Garden, FL 34787 |
|
2014 (acquired through BankFIRST merger; opened 1989) |
|
8,081 |
|
Owned |
| |
|
|
|
|
|
|
|
Eustis
15119 Highway 441
Eustis, FL 32726 |
|
2014 (acquired through BankFIRST merger; opened 1991) |
|
4,699 |
|
Owned |
| |
|
|
|
|
|
|
|
Melbourne
300 South Harbor City Blvd.
Melbourne, FL 32901 |
|
2014 (acquired through BankFIRST merger; opened 1996) |
|
4,558 |
|
Owned |
| |
|
|
|
|
|
|
|
Ormond Beach
1240 W. Granada Blvd.
Ormond Beach, FL 32174 |
|
2014 (acquired through BankFIRST merger; opened 1997) |
|
8,810 |
|
Owned |
| |
|
|
|
|
|
|
|
Oviedo
2839 Clayton Crossing Way
Oviedo, FL 32765 |
|
2014 (acquired through BankFIRST merger; opened 2000) |
|
4,482 |
|
Owned |
| |
|
|
|
|
|
|
|
Viera
105 Capron Trial
Viera, FL 32940 |
|
2014 (acquired through BankFIRST merger; opened 2000) |
|
3,426 |
|
Owned |
| |
|
|
|
|
|
|
|
Apopka
345 East Main St.
Apopka, FL 32703 |
|
2014 (acquired through BankFIRST merger; opened 2001) |
|
4,984 |
|
Owned |
| |
|
|
|
|
|
|
|
Port Orange
405 Dunlawton Ave.
Port Orange, FL 32127 |
|
2014 (acquired through BankFIRST merger; opened 2001) |
|
3,120 |
|
Owned |
| |
|
|
|
|
|
|
|
Sanford
3791 West 1st St.
Sanford, FL 32771 |
|
2014 (acquired through BankFIRST merger; opened 2003) |
|
3,191 |
|
Owned |
| |
|
|
|
|
|
|
|
Titusville
4250 South Washington Ave.
Titusville, FL 32780 |
|
2014 (acquired through BankFIRST merger; opened 2003) |
|
2,050 |
|
Owned |
| |
|
|
|
|
|
|
|
Clermont
1000 East Highway 50
Clermont, FL 34711 |
|
2014 (acquired through BankFIRST merger; opened 2005) |
|
7,354 (with 3,582 leased to tenants) |
|
Owned |
|
Sebastian
1627 U.S. Highway 1, Suite
107
Sebastian, FL 32958 |
|
2014 |
|
1,190 |
|
Leased |
| |
|
|
|
|
|
|
|
Sewall’s Point
3727 S. East Ocean Blvd, #102
Stuart, FL 34996 |
|
2014 |
|
3,522 |
|
Leased |
| |
|
|
|
|
|
|
| Commercial lending offices |
|
Opened In |
|
Square Feet |
|
Owned/Leased |
| |
|
|
|
|
|
|
|
Hannibal Square
444 W. New England Avenue,
Suite 117
Winter Park, FL 32789 |
|
2013 |
|
2,000 |
|
Leased |
| |
|
|
|
|
|
|
|
Rialto
7335 W. Sand Lake Road,
Suite 137
Orlando, FL 32819 |
|
2013 |
|
1,489 |
|
Leased |
| |
|
|
|
|
|
|
|
Park Place
7025 County Road 46A,
Suite 1091
Heathrow, FL 32746 |
|
2013 |
|
1,979 |
|
Leased |
| |
|
|
|
|
|
|
|
Victoria Park Shoppes
622 North Federal Highway
Ft. Lauderdale, FL 33304 |
|
2013 |
|
1,800 |
|
Leased |
| |
|
|
|
|
|
|
|
Town Center
5250 Town Center Circle,
Suite 109
Boca Raton, FL 34486 |
|
2013 |
|
1,495 |
|
Leased |
For additional information
regarding our properties, please refer to Notes G and K of the Notes to Consolidated Financial Statements.
We and our subsidiaries
are subject, in the ordinary course, to litigation incident to the businesses in which we are engaged. Management presently believes
that none of the legal proceedings to which we are a party are likely to have a material effect on our consolidated financial position,
operating results or cash flows, although no assurance can be given with respect to the ultimate outcome of any such claim or litigation.
| Item 4. | Mine Safety Disclosures |
Not applicable.
Part II
| Item 5. | Market For Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities |
Holders of our common stock
are entitled to one vote per share on all matters presented to shareholders as provided in our Articles of Incorporation.
Our common stock is
traded under the symbol “SBCF” on the Nasdaq Global Select Market, which is a national securities exchange
(“Nasdaq”). As of February 27, 2015 there were 33,135,526 shares of our common stock outstanding, held by
approximately 1,980 record holders.
The table below sets forth
the high and low sale prices per share of our common stock on Nasdaq and the dividends paid per share of our common stock for the
indicated periods.
| | |
Sales Price per Share of | | |
Quarterly Dividends | |
| | |
Seacoast Common Stock | | |
Declared Per Share of | |
| | |
High | | |
Low | | |
Seacoast Common Stock | |
| 2013 | |
| | | |
| | | |
| | |
| First Quarter | |
$ | 11.25 | | |
$ | 7.75 | | |
$ | 0.00 | |
| Second Quarter | |
| 11.00 | | |
| 8.50 | | |
| 0.00 | |
| Third Quarter | |
| 12.30 | | |
| 10.10 | | |
| 0.00 | |
| Fourth Quarter | |
| 12.49 | | |
| 10.10 | | |
| 0.00 | |
| 2014 | |
| | | |
| | | |
| | |
| First Quarter | |
$ | 12.51 | | |
$ | 10.55 | | |
$ | 0.00 | |
| Second Quarter | |
| 11.28 | | |
| 10.00 | | |
| 0.00 | |
| Third Quarter | |
| 11.27 | | |
| 10.03 | | |
| 0.00 | |
| Fourth Quarter | |
| 14.24 | | |
| 10.80 | | |
| 0.00 | |
Dividends
Dividends from Seacoast
National are our primary source of funds to pay dividends on our common stock. Under the National Bank Act, national banks may
in any calendar year, without the approval of the OCC, pay dividends to the extent of net profits for that year, plus retained
net profits for the preceding two years (less any required transfers to surplus). The need to maintain adequate capital in Seacoast
National also limits dividends that may be paid to us. Beginning in the third quarter of 2008, we reduced our dividend per share
of common stock to de minimis $0.01. On May 19, 2009, the Company’s board of directors voted to suspend quarterly
dividends on common stock entirely.
Any dividends paid on our
common stock would be declared and paid at the discretion of our board of directors and would be dependent upon our liquidity,
financial condition, results of operations, capital requirements and such other factors as our board of directors may deem relevant.
We do not expect to pay dividends on our common stock in the foreseeable future and expect to retain all earnings, if any, to support
our capital adequacy and growth.
Additional information
regarding restrictions on the ability of Seacoast National to pay dividends to us is contained in Note C of the Notes to Consolidated
Financial Statements. See “Item 1. Business- Payment of Dividends” of this Form 10-K for information with respect to
the regulatory restrictions on dividends.
Outstanding Warrants
On May 30, 2012, Seacoast
repurchased the Warrant previously issued to the U.S. Treasury under the TARP CPP for $81,000 (net of related expenses). Seacoast
had no warrants outstanding at December 31, 2014.
Securities Authorized for Issuance Under
Equity Compensation Plans
See the information included
under Part III, Item 12, which is incorporated in response to this item by reference.
| Item 6. | Selected Financial Data |
For five years selected
financial data of the Company is set forth under the caption “Financial Highlights” on page 120.
| Item 7. | Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
Management’s Discussion
and Analysis of Financial Condition and Results of Operations appears under the caption “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” on pages 61-99.
| Item 7A. | Quantitative and Qualitative Disclosures About Market
Risk |
For discussion of the quantitative
and qualitative disclosures about market risk, see “Interest Rate Sensitivity”, “Securities”, and “Market
Risk” sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 87-88
and pages 96-97.
| Item 8. | Financial Statements and Supplementary Data |
The reports of Crowe
Horwath LLP and KPMG LLP (KPMG), independent registered public accounting firms, and the Consolidated Financial Statements and
Notes appear on pages 121-173. Quarterly Consolidated Income Statements are included on page 119 entitled “Selected
Quarterly Financial Information”.
| Item 9. | Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure |
None.
| Item 9A. | Controls and Procedures |
| (a) | Evaluation of Disclosure Controls and Procedures |
We maintain disclosure controls and procedures
that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”),
as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and
procedures, as defined in SEC Rule 13a-15 under the Exchange Act, management recognized that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
In connection with the preparation of
this Annual Report on Form 10-K, as of the end of the period covered by this report, an evaluation was performed, with the participation
of the CEO and CFO, of the effectiveness of our disclosure controls and procedures, as required by Rule 13a-15 of the Exchange
Act. Based upon that evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of the
end of the period covered by this report.
| (b) | Management’s Report on Internal Control over Financial Reporting |
Management is responsible for establishing
and maintaining adequate internal control over financial reporting for the Company. Our internal control system was designed to
provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the
preparation of financial statements for external purposes.
Management conducted an assessment of
the effectiveness of our internal control over financial reporting as of December 31, 2014. This assessment was based on the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal
Control—Integrated Framework 2013. Based on this assessment, management believes that, as of December 31, 2014, our
internal control over financial reporting was effective. As permitted, the Company has excluded the current
year acquisition of The BANKshares, Inc. (represents approximately 20 percent of total consolidated assets at December 31,
2014) from the scope of management’s report on internal control over financial reporting.
Our independent registered public accounting
firm, Crowe Horwath LLP, has issued an attestation report on our internal control
over financial reporting which is included herein.
| (c) | Change in
Internal Control Over Financial Reporting |
As reported in our 2013 Annual Report on
Form 10-K as of December 31, 2013, our management concluded that our internal control over financial reporting was not effective
as a result of a material weakness related to ineffective review of the accounting for previously
recorded charge-offs, a non-routine matter, related to a matured troubled debt restructured loan.
During
2014, management has taken steps to remediate the material weakness, including implementing controls to ensure that the Company’s
financial department provides for additional management review, and consulting, as needed, with outside independent consultants
and accounting experts when faced with non-routine accounting matters. As a result of the successful implementation of the remediation
activities noted, as well as subsequent successful testing of the design and operation of the enhanced control procedure, management
has concluded that its material weakness as disclosed in the Company’s 2013 Annual Report on Form 10-K has been remediated
as of December 31, 2014.
Except as described
above, there were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| Item 9B. | Other Information. |
None.
Part III
| Item 10. | Directors, Executive Officers and Corporate Governance |
Information concerning
our directors and executive officers is set forth under the headings “Proposal 1 - Election of Directors,” “Corporate
Governance,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Certain Transactions and Business
Relationships” in the 2015 Proxy Statement, incorporated herein by reference.
| Item 11. | Executive Compensation |
Information regarding the
compensation paid by us to our directors and executive officers is set forth under the headings “Executive Compensation,”
“Compensation Discussion & Analysis,” “Compensation and Governance Committee Report” and “2014
Director Compensation” in the 2015 Proxy Statement which are incorporated herein by reference.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters |
The following table sets
forth information about our common stock that may be issued under all of our existing compensation plans as of December 31,
2014.
Equity Compensation Plan Information
| December 31, 2014 | |
| | |
| | |
| |
| | |
| | |
| | |
Number of securities | |
| | |
| | |
| | |
remaining available | |
| | |
| | |
| | |
for future issuance | |
| | |
Number of securities | | |
Weighted average | | |
under equity | |
| | |
to be issued upon | | |
exercise price of | | |
compensation plans | |
| | |
exercise of outstand- | | |
outstanding | | |
(excluding securities | |
| | |
ing options, warrants | | |
options, warrants | | |
represented | |
| Plan Category | |
and rights | | |
and rights | | |
in column (a)) | |
| Equity compensation plans approved by shareholders: | |
| | | |
| | | |
| | |
| 2000 Plan (1) | |
| 37,400 | | |
$ | 116.43 | | |
| 0 | |
| 2008 Plan (2) | |
| 0 | | |
| 0.00 | | |
| 0 | |
| 2013 Plan (3) | |
| 455,600 | | |
| 10.70 | | |
| 387,024 | |
| Employee Stock Purchase Plan (4) | |
| 0 | | |
| 0.00 | | |
| 116,640 | |
| TOTAL | |
| 493,000 | | |
$ | 18.72 | | |
| 503,664 | |
| (1) | Seacoast Banking Corporation of Florida 2000 Long-Term Incentive Plan. Shares reserved under this
plan are available for issuance pursuant to the exercise of stock options and stock appreciation rights granted under the plan,
as well as, vesting of performance award shares, and awards of restricted stock or stock-based awards, previously issued. |
| (2) | Seacoast Banking Corporation of Florida 2008 Long-Term Incentive Plan. Shares reserved under this
plan are available for issuance pursuant to the exercise of stock options and stock appreciation rights granted under the plan,
as well as, vesting of performance award shares, and awards of restricted stock or stock-based awards, previously issued. |
| | |
| (3) | Seacoast Banking Corporation of Florida 2013 Long-Term Incentive Plan. Shares reserved under this
plan are available for issuance pursuant to the exercise of stock options and stock appreciation rights granted under the plan,
and may be granted as awards of restricted stock, performance shares, or other stock-based awards, prospectively. |
| | |
| (4) | Seacoast Banking Corporation of Florida Employee Stock Purchase Plan, as amended. |
Additional information
regarding the ownership of our common stock is set forth under the headings “Proposal 1 - Election of Directors”
and “Security Ownership of Management and Certain Beneficial Holders” in the 2015 Proxy Statement, and is incorporated
herein by reference.
| Item 13. | Certain Relationships and Related Transactions, and Director
Independence |
Information regarding certain
relationships and transactions between us and our officers, directors and significant shareholders is set forth under the heading
“Compensation and Governance Committee Interlocks and Insider Participation” and “Certain Transactions and Business
Relationships” and “Corporate Governance” in the 2015 Proxy Statement and is incorporated herein by reference.
| Item 14. | Principal Accountant Fees and Services |
Information concerning
our principal accounting fees and services is set forth under the heading “Relationship with Independent Registered Public
Accounting Firm; Audit and Non- Audit Fees” in the 2015 Proxy Statement, and is incorporated herein by reference.
Part IV
| Item 15. | Exhibits, Financial Statement Schedules |
(a)(1) The Consolidated
Financial Statements, the Notes thereto and the report of the Independent Registered Public Accounting Firm thereon listed in Item
8 are set forth commencing on page 121.
(a)(2) List of financial
statement schedules
All schedules normally
required by Form 10-K are omitted, since either they are not applicable or the required information is shown in the financial statements
or the notes thereto.
(a)(3) Listing of Exhibits
PLEASE NOTE: It is inappropriate
for readers to assume the accuracy of, or rely upon any covenants, representations or warranties that may be contained in agreements
or other documents filed as Exhibits to, or incorporated by reference in, this report. Any such covenants, representations or warranties
may have been qualified or superseded by disclosures contained in separate schedules or exhibits not filed with or incorporated
by reference in this report, may reflect the parties’ negotiated risk allocation in the particular transaction, may be qualified
by materiality standards that differ from those applicable for securities law purposes, may not be true as of the date of this
report or any other date, and may be subject to waivers by any or all of the parties. Where exhibits and schedules to agreements
filed or incorporated by reference as Exhibits hereto are not included in these Exhibits, such exhibits and schedules to agreements
are not included or incorporated by reference herein.
The following Exhibits
are attached hereto or incorporated by reference herein (unless indicated otherwise, all documents referenced below were filed
pursuant to the Exchange Act by Seacoast Banking Corporation of Florida, Commission File No. 0-13660):
Exhibit 3.1.1 Amended and Restated
Articles of Incorporation
Incorporated herein by reference
from Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q, filed May 10, 2006.
Exhibit 3.1.2 Articles of Amendment
to the Amended and Restated Articles of Incorporation
Incorporated herein by reference
from Exhibit 3.1 to the Company’s Form 8-K, filed December 23, 2008.
Exhibit 3.1.3 Articles of Amendment
to the Amended and Restated Articles of Incorporation
Incorporated herein by reference
from Exhibit 3.4 to the Company’s Form S-1, filed June 22, 2009.
Exhibit 3.1.4 Articles of Amendment
to the Amended and Restated Articles of Incorporation
Incorporated herein by reference
from Exhibit 3.1 to the Company’s Form 8-K, filed July 20, 2009.
Exhibit 3.1.5 Articles of Amendment
to the Amended and Restated Articles of Incorporation
Incorporated herein by reference
from Exhibit 3.1 to the Company’s Form 8-K, filed December 3, 2009.
Exhibit 3.1.6 Articles of Amendment
to the Amended and Restated Articles of Incorporation
Incorporated herein by reference
from Exhibit 3.1 to the Company’s Form 8-K/A, filed July 14, 2010.
Exhibit 3.1.7 Articles of Amendment
to the Amended and Restated Articles of Incorporation
Incorporated herein by reference
from Exhibit 3.1 to the Company’s Form 8-K, filed June 25, 2010.
Exhibit 3.1.8 Articles of Amendment
to the Amended and Restated Articles of Incorporation
Incorporated herein by reference
from Exhibit 3.1 to the Company’s Form 8-K, filed June 1, 2011.
Exhibit 3.1.9 Articles of Amendment
to the Amended and Restated Articles of Incorporation
Incorporated herein by reference
from Exhibit 3.1 to the Company’s Form 8-K, filed December 13, 2013.
Exhibit 3.2 Amended and Restated
By-laws of the Company
Incorporated herein by reference
from Exhibit 3.2 to the Company’s Form 8-K, filed December 21, 2007.
Exhibit 4.1 Specimen Common Stock
Certificate
Incorporated herein by reference
from Exhibit 4.1 to the Company’s Form 10-K, filed on March 17, 2014.
Exhibit 4.2 Junior Subordinated
Indenture
Dated as of March 31, 2005, between
the Company and Wilmington Trust Company, as Trustee (including the form of the Floating Rate Junior Subordinated Note, which appears
in Section 2.1 thereof), incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K filed April 5, 2005.
Exhibit 4.3 Guarantee Agreement
Dated as of March 31, 2005 between
the Company, as Guarantor, and Wilmington Trust Company, as Guarantee Trustee, incorporated herein by reference from Exhibit 10.2
to the Company’s Form 8-K filed April 5, 2005.
Exhibit 4.4 Amended and Restated
Trust Agreement
Dated as of March 31, 2005,
among the Company, as Depositor, Wilmington Trust Company, as Property Trustee, Wilmington Trust Company, as Delaware Trustee and
the Administrative Trustees named therein, as Administrative Trustees (including exhibits containing the related forms of the SBCF
Capital Trust I Common Securities Certificate and the Preferred Securities Certificate), incorporated herein by reference from
Exhibit 10.3 to the Company’s Form 8-K filed April 5, 2005.
Exhibit 4.5 Indenture
Dated as of December 16, 2005,
between the Company and U.S. Bank National Association, as Trustee (including the form of the Junior Subordinated Debt Security,
which appears as Exhibit A to the Indenture), incorporated herein by reference from Exhibit 10.1 to the Company’s Form
8-K filed December 21, 2005.
Exhibit 4.6 Guarantee Agreement
Dated as of December 16, 2005,
between the Company, as Guarantor, and U.S. Bank National Association, as Guarantee Trustee, incorporated herein by reference from
Exhibit 10.2 to the Company’s Form 8-K filed December 21, 2005.
Exhibit 4.7 Amended and Restated
Declaration of Trust
Dated as of December 16, 2005,
among the Company, as Sponsor, Dennis S. Hudson, III and William R. Hahl, as Administrators, and U.S. Bank National Association,
as Institutional Trustee (including exhibits containing the related forms of the SBCF Statutory Trust II Common Securities
Certificate and the Capital Securities Certificate), incorporated herein by reference from Exhibit 10.3 to the Company’s
Form 8-K filed December 21, 2005.
Exhibit 4.8 Indenture
Dated June 29, 2007, between
the Company and LaSalle Bank, as Trustee (including the form of the Junior Subordinated Debt Security, which appears as Exhibit A
to the Indenture), incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K filed July 3, 2007.
Exhibit 4.9 Guarantee Agreement
Dated June 29, 2007, between
the Company, as Guarantor, and LaSalle Bank, as Guarantee Trustee, incorporated herein by reference from Exhibit 10.2 to the Company’s
Form 8-K filed July 3, 2007.
Exhibit 4.10 Amended and Restated
Declaration of Trust
Dated June 29, 2007, among the
Company, as Sponsor, Dennis S. Hudson, III and William R. Hahl, as Administrators, and LaSalle Bank, as Institutional Trustee (including
exhibits containing the related forms of the SBCF Statutory Trust III Common Securities Certificate and the Capital Securities
Certificate), incorporated herein by reference from Exhibit 10.3 to the Company’s Form 8-K filed July 3, 2007.
Exhibit 4.11 Registration Rights
Agreement
Dated January 13, 2014, between the
Company and CapGen Capital Group III, L.P., incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K,
filed January 14, 2014.
Exhibit 10.1 Amended and Restated
Retirement Savings Plan*
Incorporated herein by reference
from Exhibit 10.1 to the Company’s Annual Report on Form 10-K, filed March 15, 2011.
Exhibit 10.2 Amended and Restated
Employee Stock Purchase Plan*
Incorporated by reference to Exhibit
A to the Company’s Definitive Proxy Statement on DEF14A, filed with the Commission on April 27, 2009.
Exhibit 10.3 Dividend Reinvestment
and Stock Purchase Plan
Incorporated by reference to the
Company’s Form S-3 filed on November 12, 2014.
Exhibit 10.4 2000 Long Term Incentive
Plan as Amended*
Incorporated herein by reference
from the Company’s Registration Statement on Form S-8 File No. 333-49972, filed November 15, 2000, and Proxy Statement
on Form DEF 14A, filed on March 13, 2000.
Exhibit 10.5 Executive Deferred
Compensation Plan*
Incorporated herein by reference
from Exhibit 10.12 to the Company’s Annual Report on Form 10-K, filed March 30, 2001.
Exhibit 10.6 Change of Control
Employment Agreement*
Dated December 24, 2003 between
William R. Hahl and the Company, incorporated herein by reference from Exhibit 10.17 to the Company’s Form 8-K, filed December 29,
2003.
Exhibit 10.7 Amended and Restated
Directors Deferred Compensation Plan*
Incorporated herein by
reference from Exhibit 10.9 to the Company’s Form 10-K, filed on March 17, 2014.
Exhibit 10.8 2008 Long-Term Incentive
Plan*
Incorporated herein by reference
from Exhibit A to the Company’s Proxy Statement on Form DEF 14A, filed March 18, 2008.
Exhibit 10.9 Form of 409A Amendment
to Employment Agreement with William R. Hahl*
Incorporated herein by reference
from Exhibit 10.1 to the Company’s Form 8-K, filed January 5, 2009.
Exhibit 10.10 2013 Incentive Plan
Incorporated herein by reference
from Appendix A to the Company’s Proxy Statement on Form DEF 14A, filed April 9, 2013.
Exhibit 10.11 Letter Agreement
Regarding Lead Director Position*
Dated March 1, 2014 between Roger
O. Goldman and the Company, incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K, filed March 6,
2014.
Exhibit 10.12 Form of Change of
Control Employment Agreement with Daniel Chappell, Charles Cross, David Houdeshell, Jeffery D. Lee and Charles Shaffer*
Incorporated herein by reference
from Exhibit 10.1 to the Company’s Form 8-K, filed November 3, 2014.
Exhibit 10.13 Employment Agreement*
Dated December 18, 2014 between Dennis
S. Hudson, III and the Company, incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K, filed December
19, 2014.
Exhibit 10.14 Agreement and Plan
of Merger
Dated April 24, 2014, by and among
the Company, Seacoast National Bank, The BANKshares, Inc. and BankFIRST, incorporated herein by reference from Exhibit 2.1 to the
Company’s Form 8-K, filed April 28, 2014.
Exhibit 21 Subsidiaries of Registrant
Exhibit 23.1 Consent of Independent
Registered Public Accounting Firm
Exhibit 23.2 Consent of Independent
Registered Public Accounting Firm
Exhibit 31.1 Certification of
Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2 Certification of
Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1** Certification of
Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 111 the Emergency Economic Stability
Act, as amended
Exhibit 32.2** Certification of
Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 111 the Emergency Economic Stability
Act, as amended
Exhibit 101 Interactive Data File
| * | Management contract or compensatory plan or arrangement. |
| ** | The certifications attached as Exhibits 32.1 and 32.2 accompany this Annual Report on Form 10-K
and are “furnished” to the Securities and Exchange Commission pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Exchange Act. |
(b) Exhibits
The response to this portion
of Item 15 is submitted under item (a)(3) above.
(c) Financial Statement
Schedules
None.
SIGNATURES
Pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
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SEACOAST BANKING CORPORATION OF FLORIDA |
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(Registrant) |
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By: |
/s/ Dennis S. Hudson, III |
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Dennis S. Hudson, III |
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Chairman of the Board and Chief Executive Officer |
Date: March
16, 2015
Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
| |
|
Date |
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/s/ Dennis S. Hudson, III
Dennis S. Hudson, III, Chairman of the Board,
Chief Executive Officer and Director
(principal executive officer) |
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March 16, 2015 |
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/s/ William R. Hahl
William R. Hahl, Executive Vice President and
Chief Financial Officer
(principal financial and accounting officer) |
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March 16, 2015 |
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/s/ Dennis J. Arczynski
Dennis J. Arczynski, Director |
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March 16, 2015 |
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/s/ Stephen E. Bohner
Stephen E. Bohner, Director |
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March 16, 2015 |
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/s/ T. Michael Crook
T. Michael Crook, Director |
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March 16, 2015 |
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/s/ H. Gilbert Culbreth, Jr.
H. Gilbert Culbreth, Jr, Director |
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March 16, 2015 |
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Date |
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/s/ Julie H. Daum
Julie H. Daum, Director |
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March 16, 2015 |
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/s/ Christopher E. Fogal
Christopher E. Fogal, Director |
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March 16, 2015 |
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/s/ Maryann B. Goebel
Maryann B. Goebel, Director |
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March 16, 2015 |
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/s/ Roger O. Goldman
Roger O. Goldman, Director |
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March 16, 2015 |
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/s/ Robert B. Goldstein
Robert B. Goldstein, Director |
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March 16, 2015 |
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/s/ Dale M. Hudson
Dale M. Hudson, Director |
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March 16, 2015 |
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/s/ Dennis S. Hudson, Jr.
Dennis S. Hudson, Jr., Director |
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March 16, 2015 |
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/s/ Thomas E. Rossin
Thomas E. Rossin, Director |
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March 16, 2015 |
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Edwin E. Walpole, III, Director |
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March 16, 2015 |
Item 7. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose
of this discussion and analysis is to aid in understanding significant changes in the financial condition of Seacoast Banking
Corporation of Florida and its subsidiaries (the “Company”) and their results of operations during 2014, 2013 and
2012. Nearly all of the Company’s operations are contained in its banking subsidiary, Seacoast National Bank (“Seacoast
National” or the “Bank”). This discussion and analysis is intended to highlight and supplement information presented
elsewhere in the annual report on Form 10-K, particularly the consolidated financial statements and related notes appearing in
Item 8. For purposes of the following discussion, the words the “Company,” “we,” “us,” and
“our” refer to the combined entities of Seacoast Banking Corporation of Florida and its direct and indirect wholly
owned subsidiaries.
Overview
The Company
has been proactively positioning its business for growth by aggressively focusing on improving credit quality, de-risking the
overall loan portfolio, disposing of problem assets, increasing loan production and growing core deposits.
In addition, several
important accomplishments in 2014 further improved the position of the Company to increase net income to common shareholders
in 2015, and prospectively. These included:
| • | completion
of its acquisition of The BANKshares, Inc. (“BANKshares”) and its banking
subsidiary BankFIRST on October 1, 2014; |
| • | use
of excess liquidity to acquire floating rate investment securities; |
| • | a
consolidation of branch locations, including the closure of five offices and opening
of two new locations during the fourth quarter (see “Part I, Item 2 – Properties”
for more detail); and |
| • | continued
investments in digital technology and improved processes and reducing future overhead. |
Also a number
of significant milestones and improvements in our business were completed in 2013. They included:
| • | the
recapture of the $45 million valuation allowance on net deferred tax assets; |
| • | a
successful raise of $75 million in common equity; |
| • | the
termination of the Bank’s formal agreement with the Office of the Comptroller of
the Currency (“OCC”); |
| • | the
redemption of the Company’s $50 million in outstanding Series A Preferred Stock
originally issued to the U.S. Department of Treasury under the Troubled Asset Relief
Program; and |
| • | investing
in new commercial lending offices and loan production personnel in larger metro markets in Orlando, Boca Raton and Fort Lauderdale. |
As a result, revenue
(aggregate net interest income and noninterest income) increased significantly for 2014, higher by $10.2 million or 11.3 percent
compared to results for 2013. In addition, for the year ended December 31, 2014, we had strong double digit loan growth from increased
organic loan production and loans acquired from BankFIRST, and the Company reduced noninterest expenses prospectively while absorbing
increases in core operating expenses related to new investments to improve revenue growth and improve customer service.
Enhancing our footprint
was the acquisition of BANKshares. On October 1, 2014, the Company completed its acquisition of BANKshares, whereby BANKshares
merged with and into the Company. Pursuant to and simultaneous with the merger of BANKshares with and into the Company, BANKshares’s
wholly owned subsidiary bank, BankFIRST, merged with and into the Company’s subsidiary bank, Seacoast National Bank. The
Company acquired 100% of the outstanding common stock of BANKshares. The purchase price consisted wholly of stock. Each share
of BANKshares common stock was exchanged for 0.4975 shares of the Company’s common stock. Based on the closing price of
the Company’s common stock on September 30, 2014, the resulting purchase price was $76.8 million. The Company’s primary
reasons for the transaction were to further solidify its market share in the Central Florida market and expand its customer base
to enhance deposit fee income and leverage operating cost through economies of scale. The acquisition contributed $516.3 million
in total deposits and $365.4 million in loans to our balance sheet, and significantly boosted our net interest margin in the fourth
quarter of 2014. The acquisition of BANKshares increases our number of households by approximately 13%. It also provides excellent
opportunities for growth in one of Florida’s fastest growing markets.
Through our new
commercial lending offices, the Company continues to focus on reaching customers in unique ways, creating a path to achieve higher
customer satisfaction. The commercial lending offices provide our customers with talented, results-oriented staff, specializing
in loans to the smaller business market segment. From their tenure and market experience, our bankers are familiar with the multitude
of challenges the small business customer faces. Seacoast intends to build customer relationships with depth that surpass traditional
commercial lending, and open opportunities into other areas in which we provide services.
During the third
and fourth quarters of 2014, average investment securities increased $234.9 million, or $149.5 million excluding securities from
the BANKshares acquisition. Funding for the increase in investment securities (uncapped floating rate collateralized loan obligations
with credit support) was derived from liquidity, both legacy and that acquired in the merger, and increase in seasonal funding
from our core customer deposit base. This deployment contributed approximately 10 basis points to net interest margin improvement
in the fourth quarter and should continue to provide a benefit prospectively.
Our customer growth
strategy has also included investments in digital delivery and products we believe have contributed to increasing core customer
funding. As of December 31, 2014, approximately 59 percent of our online customers have adopted mobile product offerings and the
total number of services utilized by our retail customers increased to an average of 4.1 per household, primarily due to an increase
in debit card activation, direct deposit and mobile banking users. Personal and business mobile banking has grown from 13,659
users at December 31, 2013 to 21,587 users at December 31, 2014, an increase of 58 percent. We are concentrating on building a
more integrated distribution system which will allow us to reduce our fixed costs as we further invest in technology designed
to better serve our customers. The growth in new households, a deepening of relationships with current households, and better
retention overall is creating stronger value in our core customer franchise.
A persistent emphasis
on expense reduction resulted in the successful implementation of first and second quarter 2014 cost savings totaling $1.4 million
and $1.9 million, respectively, annually. These savings were the result of negotiations with our current vendors for competitive
pricing, changes in organizational structure, and the termination of the regulatory agreement and its requirements. Legacy cost
reductions (primarily branch consolidations) totaling $1.8 million annualized were implemented in the fourth quarter 2014. One-time
charges included in noninterest expense for 2014 related to these reductions totaled $4.3 million. These legacy cost reductions
are in addition to cost savings related to the acquisition of BANKshares that totaled in excess of $5.5 million annually and will
be fully implemented in the first quarter 2015. Taken together they are expected to further reduce quarterly noninterest expenses
by an additional $1.1 million beginning in the first quarter of 2015.
The
combination of these actions, including additional office consolidations, revenue enhancements, an acceleration of growth
initiatives and a variety of cost-saving opportunities, resulted in net income available to common shareholders for 2014 of
$5.7 million, compared to 2013’s net income of $3.1 million excluding $44.8 million from the recapture of the deferred
tax valuation allowance, and a net loss of $710,000 for 2012. Net income available to common shareholders for 2014 totaled
$5.7 million or $0.21 per average common diluted share, compared to 2013 net income totaling $47.9 million or $2.44 per
average common diluted share, and a net loss of $4.5 million or $(0.24) per average common diluted share for 2012 (after
preferred dividends and accretion of preferred stock discount). Per share amounts reflect the 1 for 5 reverse stock split
effective December 13, 2013, as previously approved by shareholders of the Company at its annual meeting in 2013.
We project noncore
credit related expenses, primarily losses on other real estate owned (“OREO”) and asset disposition expense, will
continue to decline as nonperforming assets decline and the economy improves, however we expect the provision for loan losses
will normalize and likely increase for 2015, with loan growth in our portfolio the primary driver. Our successful retail and business
deposit growth initiatives continue to be emphasized and we expect further increases in households served, margins and fees for
2015.
We plan to continue
to execute on our targeted plan to grow our customer and commercial franchise. During the fourth quarter of 2014, we refreshed
and reintroduced our brand, retooling our logo and associated signage throughout our branch network and digital platforms. The
accretive effect of the acquisition, as well as, ongoing investments in loan production personnel and digital technology, and
the effect of asset quality improvements and expense management, bode well for prospective earnings improvements. Our successes
in 2014 are expected to carry over into 2015, and are a direct result of Company management executing on our strategic initiatives,
and our improved condition supporting better growth for both consumer household and commercial relationships prospectively. We
believe growing our customer and commercial franchise is the best way to build shareholder value, and we expect to continue supplementing
this growth through strategic acquisition opportunities from time to time.
The Company’s
capital is expected to continue to increase with positive earnings. The board and management currently believe that the Company’s
overall level of capital is sufficient given the current economic environment.
Our Business
The Company is
a single-bank holding company with operations on Florida’s southeast coast (ranging from Broward County in the south to
Brevard and Volusia County in the north) as well as Florida’s interior around Lake Okeechobee and up through Orlando (including
Orange, Seminole and Lake County). The Company had 43 full service offices at December 31, 2014, compared to 34 offices at December
31, 2013. In 2014, Seacoast acquired 12 offices from BANKshares, closed and consolidated five existing offices, and opened two
new full service offices to supplant the closed offices. Two full service offices were closed and consolidated with other locations
during January 2013, and two other offices were closed and consolidated in December 2012. During 2013, five commercial lending
offices with supporting personnel were opened, two late in the first quarter, two during the second quarter and one in the fourth
quarter of 2013.
The Company, through
Seacoast National, provides a broad range of community banking services to commercial, small business and retail customers, offering
a variety of transaction and savings deposit products, treasury management services, brokerage, and secured and unsecured loan
products, including revolving credit facilities, letters of credit and similar financial guarantees. Seacoast National also provides
trust and investment management services to retirement plans, corporations and individuals.
While the past
recession adversely affected our markets, we have seen much improvement in the last two years and expect these markets to continue
to improve because these areas in Florida remain attractive markets in which to live and there are many positive indications that
Florida’s economy will continue to improve.
Florida’s
economic recovery is now well established, with solid job growth, declining unemployment, and higher consumer confidence fueling
improvements in our markets. We believe the Florida economy will further strengthen in 2015, as we continue to attract population
inflows. Our housing markets, manufacturing base, tourism and services industries are building on current momentum, and provide
a diversified base for our economy. The residential real estate market is becoming stronger as pricing continues to firm and sales
volumes continue to increase. Many seasonal businesses are now reporting improving trends. We are also hopeful the Congress and
President of the United States will collaborate to avert any dampening to the economy prospectively. Our primary competitors now
are the mega-banks, and many of these large institutions are struggling with higher capital requirements and new restrictions
and regulations that are requiring difficult choices regarding their business models. We continue to believe we have entered a
period of opportunity to achieve meaningful market share gains
Strategic
Review
As part of its
ongoing consideration and evaluation of its long-term prospects and strategies, Seacoast’s board of directors and senior
management have regularly reviewed and assessed its business strategies and objectives, including strategic opportunities and
challenges, and have considered various strategic opportunities, including mergers and acquisitions, all with the goal of enhancing
long term value for its shareholders and other stakeholders. The Company will likely continue to consider strategic acquisitions
as part of the Company’s overall future growth plans in complementary and attractive markets within the state of Florida.
The Company operates
both a full retail banking strategy in its core markets, which are some of Florida’s wealthiest, as well as a complete commercial
banking strategy. The Company’s core markets are comprised of Martin, St. Lucie and Indian River counties located on Florida’s
southeast coast, Okeechobee County, which is contiguous to these coastal counties, and Orange, Seminole and Lake County located
in Central Florida. Our core markets contain 28 of our 43 retail full service locations, including four private banking centers.
Because of the branch coverage in these markets, the Company has a significant presence, which provides convenience to customers
and results in a larger deposit market share. The Company’s deposit mix for the fourth quarter of 2014 is favorable with
86 percent of average deposit balances comprised of NOW, savings, money market and noninterest bearing transaction customer accounts.
The acquisition of BANKshares increased the Company’s total deposits by approximately $516.3 million, consisting of $208.4
million in noninterest demand deposits, $220.5 million in NOW, savings and money market accounts, and $87.4 million in certificates
of deposit. The cost of deposits averaged 0.12 percent for 2014 (compared to 0.16 percent for 2013 and 0.32 percent for 2012),
which the Company believes ranks among the lowest when compared to other banks operating in the Company’s market. The Company
has improved its acquisition, retention and mix of deposits and has benefited from lower rates paid for interest bearing liabilities
. This has resulted in lower funding costs and improved profitability. As part of the Company’s complete retail product
and service offerings, customers are provided wealth management services through our trust wealth management division and brokerage
services through a co-source relationship.
The Company’s
net interest margin increased 10 basis points to 3.25 percent during 2014 from 2013. The improvement follows on prior year’s
trend when net interest margin decreased from 3.22% in 2012 to 3.15% in 2013. In 2014, the year over year improvement results
from increases in net loans, investment securities and improved deposit mix compared to a year ago. The merger with BANKshares
was favorable, supplementing net interest income and benefiting our margin. The level of nonaccrual loans, changes in the earning
assets mix, and the Federal Reserve’s policies keeping interest rates low have been primary forces affecting net interest
income and net interest margin results. In 2013, net interest income was lower as a result of lower loan and investment security
yields, partially offset by an improved deposit mix and loan growth. Overall, loan production improved during 2014, 2013 and 2012.
In 2014, the Company had commercial/commercial real estate loan production of $258 million, compared to more limited production
of $200 million and $111 million, respectively, for 2013 and 2012. The Company closed $225 million in residential loans during
2014, compared to the $251 million in 2013 and $250 million in 2012. Stabilizing home values and lower interest rates sparked
renewed interest by consumers in home equity loans and lines of credit during 2014. Higher interest rates beginning in the third
quarter of 2013 slowed residential loan production and carried over into first quarter 2014’s production. We expect improved
commercial loan production in 2015, which we anticipate will be accomplished by increasing market share through our growing presence
in the Orlando and Palm Beach markets.
The Board of Governors
of the Federal Reserve System (the “Federal Reserve”) has made a historic effort over the past several years to rejuvenate
the economy and limit the effect of the recession by keeping interest rates between 0 and 25 basis points and expanding various
liquidity programs. The Federal Reserve has indicated that it will maintain the target range for the federal funds rate for a
considerable time following the end of its asset purchase program in October of 2014. However, if incoming information indicates
faster progress toward the Federal Reserve’s employment and inflation objectives than it now expects, then increases in
the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves
slower than expected, then increases in the target range are likely to occur later than currently anticipated. While rates have
been at historic lows, it is not expected to continue indefinitely. Including the acquisition of BANKshares, our net interest
margin for the fourth quarter 2014 was successfully managed to 3.56 percent, up 39 basis points compared to third quarter 2014.
Prospectively, our focus will be on continuing to improve our deposit mix by increasing low cost deposits and adding to our loan
balances to offset compressed interest rate spreads which are expected to continue into 2015.
Loan Growth
and Lending Policies
For 2014, balances
in the loan portfolio increased 39.7 percent, compared with an increase of 6.4 percent for 2013 and a decline of 1.5 percent for
2012, reflecting the acquisition of BANKshares and a significant improvement from the recessionary climate and loan sales of 2012
and prior years. Adjusting for loans acquired from BANKshares, the loan portfolio grew 11.8 percent during 2014, year over year.
Additional commercial relationship managers hired during 2013 at our new commercial lending offices increased loan growth in 2014,
and with improving economic conditions will continue to do so prospectively. The Company expects loan growth opportunities for
all types of lending in 2015, including commercial lending to targeted customer segments and 1-4 family agency conforming residential
mortgages. We will continue to expand our business banking teams, adding new commercial loan officers where market opportunities
arise. In addition, the acquisition of a receivables factoring subsidiary in the BANKshares merger provides another product vehicle
to better serve our customers. We believe that achieving our revenue growth objectives, together with continued reductions in
credit costs and reduced problem loan related expenses will provide us with the potential to make further, meaningful improvements
in our earnings in 2015.
In recent years,
the Company increased its focus and monitoring of its exposure to residential land, acquisition and development loans. We undertook
steps to de-risk this portfolio and our activities resulted in greater loan pay-downs, collections from guarantors, and obtaining
additional collateral to support the loans. Overall, the Company reduced its exposure to residential land, acquisition and development
loans from its peak of $352 million or 20.2 percent of total loans in early 2007 to $16 million or 0.9 percent at December 31,
2014.
Our
construction and land development loans were $87.0 million at December 31, 2014, up $19.5 million from $67.5 million at December
31, 2013, which was up $6.8 million from $60.7 million at December 31, 2012. The size of our average commercial construction and
land development loan at December 31, 2014, 2013 and 2012 was $392,000, $416,000 and $496,000, respectively.
Deposit Growth,
Mix and Costs
The Company’s
focus on high quality customer service, expanded digital products and distribution, as well as convenient branch locations supports
its strategy to provide stable, low cost deposit funding growth over the long term. Over the past several years, the Company has
strengthened its retail deposit franchise using new strategies and product offerings, while maintaining its focus on building
customer relationships. We believe that digital product offerings are central to prospective core deposit growth as access via
these distribution channels is increasingly required by our customers. During the last two years, the Company experienced significant
growth in its average transaction deposits (noninterest bearing demand and NOW accounts), with increases of $157.8 million or
17.2 percent in 2014, and $98.7 million or 12.0 percent in 2013, year over year. Along with new relationships, our deposit programs
have improved our market share, increased average services per household, and decreased customer attrition.
Our growth in core
deposits has also helped us limit further degradation to our net interest margin throughout the last two years. Declines in certificates
of deposit (“CDs”), which are a higher cost of funds, continued in 2014 and 2013, but growth in core deposit relationships
more than offset such declines. The Company believes that its overall deposit mix remains favorable and its average cost of deposits,
including noninterest bearing demand deposits, remains low. The average cost of deposits for the Company continued to trend lower
in 2014. In 2014, the cost of deposits was 0.12 percent, decreasing 4 basis points from 0.16 percent for the prior year, which
was a 16 basis point decrease from 0.32 percent in 2012.
During 2014, total
deposits increased $610 million or 33.8 percent and sweep repurchase agreements increased $2 million or 1.5 percent, versus 2013.
Deposits for 2014 include acquired balances from BANKshares of approximately $516 million. In comparison, during 2013 total deposits
increased $47 million or 2.7 percent and sweep repurchase agreements increased $15 million or 10.6 percent when compared to 2012.
Most of the increase in sweep repurchase agreements during 2013 was in public funds, principally from higher tax collector receipts.
Critical Accounting
Policies and Estimates
The Company’s
consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, (“GAAP”),
including prevailing practices within the financial services industry. The preparation of consolidated financial statements requires
management to make judgments in the application of certain of its accounting policies that involve significant estimates and assumptions.
We have established policies and control procedures that are intended to ensure valuation methods are well controlled and applied
consistently from period to period. These estimates and assumptions, which may materially affect the reported amounts of certain
assets, liabilities, revenues and expenses, are based on information available as of the date of the financial statements, and
changes in this information over time and the use of revised estimates and assumptions could materially affect amounts reported
in subsequent financial statements. Management, after consultation with the Company’s Audit Committee, believes the most
critical accounting estimates and assumptions that involve the most difficult, subjective and complex assessments are:
| • | the
allowance and the provision for loan losses; |
| • | fair
value measurements; |
| · | acquisition
accounting and purchased loans |
| • | other
than temporary impairment of securities; |
| • | realization
of deferred tax assets; and |
The following is
a discussion of the critical accounting policies intended to facilitate a reader’s understanding of the judgments, estimates
and assumptions underlying these accounting policies and the possible or likely events or uncertainties known to us that could
have a material effect on our reported financial information. For more information regarding management’s judgments relating
to significant accounting policies and recent accounting pronouncements (see “Note A-Significant Accounting Policies”
to the Company’s consolidated financial statements).
Allowance
and Provision for Loan Losses
Management determines
the provision for loan losses charged to operations by continually analyzing and monitoring delinquencies, nonperforming loans
and the level of outstanding balances for each loan category, as well as the amount of net charge-offs, and by estimating losses
inherent in its portfolio. While the Company’s policies and procedures used to estimate the provision for loan losses charged
to operations are considered adequate by management, factors beyond the control of the Company, such as general economic conditions,
both locally and nationally, make management’s judgment as to the adequacy of the provision and allowance for loan losses
necessarily approximate and imprecise (see “Nonperforming Assets”).
The provision for
loan losses is the result of a detailed analysis estimating an appropriate and adequate allowance for loan losses. The analysis
includes the evaluation of impaired and purchased loans as prescribed under FASB Accounting Standards Codification (“ASC”)
310, Receivables as well as an analysis of homogeneous loan pools not individually evaluated as prescribed under ASC 450,
Contingencies. For 2014 we recorded a recapture of the allowance for loan losses of $3.5 million, which compared to provisioning
for 2013 of $3.2 million. Net recoveries of $0.5 million for 2014 compared to net charge-offs of $5.2 million for 2013, and were
(0.03) and 0.41 percent of average total loans for each year, respectively. Delinquency trends remain low and show continued stability
(see “Nonperforming Assets”).
Table 12 provides
certain information concerning the Company’s allowance (recapture) and provisioning for loan losses for the years indicated.
Management continuously
monitors the quality of the Company’s loan portfolio and maintains an allowance for loan losses it believes is sufficient
to absorb probable losses inherent in the loan portfolio. The allowance for loan losses declined $2,997,000 to $17,071,000 at
December 31, 2014, compared to $20,068,000 at December 31, 2013. The allowance for loan losses (“ALLL”) framework
has four basic elements. Specific allowances for loans individually evaluated for impairment. General allowances for pools of
homogeneous non purchased loans (“portfolio loans”) within the portfolio that have similar risk characteristics, which
are not individually evaluated. Specific allowances for purchased impaired loans which are individually evaluated based on the
loans expected principal and interest cash flows. General allowances for purchased unimpaired pools of homogeneous loans that
have similar risk characteristics. The aggregate of these four components results in our total allowance for loan losses.
The first element
of the ALLL analysis involves the estimation of allowance specific to individually evaluated impaired portfolio loans, including
accruing and nonaccruing restructured commercial and consumer loans. In this process, a specific allowance is established for
impaired loans based on an analysis of the most probable sources of repayment, including discounted cash flows, liquidation of
collateral, or the market value of the loan itself. It is the Company’s policy to charge off any portion of the loan deemed
a loss. Restructured consumer loans are also evaluated in this element of the estimate. As of December 31, 2014, the specific
allowance related to impaired portfolio loans individually evaluated totaled $3.6 million, compared to $5.4 million as of December
31, 2013.
The second element
of the ALLL analysis, the general allowance for homogeneous portfolio loan pools not individually evaluated, is determined by
applying allowance factors to pools of loans within the portfolio that have similar risk characteristics. The general allowance
factors are determined using a baseline factor that is developed from an analysis of historical net charge-off experience and
qualitative factors designed and intended to measure expected losses. These baseline factors are developed and applied to the
various portfolio loan pools. Adjustments may be made to baseline reserves for some of the loan pools based on an assessment of
internal and external influences on credit quality not fully reflected in the historical loss. These influences may include elements
such as changes in concentration risk, macroeconomic conditions, and/or recent observable asset quality trends.
The third component
consists of amounts reserved for purchased credit-impaired loans. On a quarterly basis, the Company updates the amount of loan
principal and interest cash flows expected to be collected, incorporating assumptions regarding default rates, loss severities,
the amounts and timing of prepayments and other factors that are reflective of current market conditions. Probable decreases in
expected loan principal cash flows trigger the recognition of impairment, which is then measured as the present value of the expected
principal loss plus any related foregone interest cash flows discounted at the pool’s effective interest rate. Impairments
that occur after the acquisition date are recognized through the provision for loan losses. Probable and significant increases
in expected principal cash flows would first reverse any previously recorded allowance for loan losses; any remaining increases
are recognized prospectively as interest income. The impacts of (i) prepayments, (ii) changes in variable interest rates, and
(iii) any other changes in the timing of expected cash flows are recognized prospectively as adjustments to interest income. Disposals
of loans, which may include sales of loans, receipt of payments in full by the borrower, or foreclosure, result in removal of
the loan from the purchased credit impaired portfolio.
The final component
consists of amounts reserved for purchased unimpaired loans. Loans collectively evaluated for impairment reported at December
31, 2014 include loans acquired from BANKshares on October 1, 2014 that are not PCI loans. These loans are performing loans recorded
at estimated fair value at the acquisition date. The fair value adjustment for loans acquired from BANKshares at the acquisition
date was approximately $11.2 million, or approximately 3.1 percent of the outstanding aggregate loan balances. This amount is
accreted into interest income over the remaining lives of the related loans on a level yield basis, but remains adequate at December
31, 2014, and therefore no provision for loan loss was recorded related to these loans at December 31, 2014.
Our analyses of
the adequacy of the allowance for loan losses also takes into account qualitative factors such as credit quality, loan concentrations,
internal controls, audit results, staff turnover, local market conditions and loan growth.
The Company’s
independent Credit Administration Department assigns all loss factors to the individual internal risk ratings based on an estimate
of the risk using a variety of tools and information. Its estimate includes consideration of the level of unemployment which is
incorporated into the overall allowance. In addition, the portfolio loans are segregated into a graded loan portfolio, residential,
installment, home equity, and unsecured signature lines, and loss factors are calculated for each portfolio.
The loss factors
assigned to the graded loan portfolio are based on the historical migration of actual losses by grade over 4, 8, 12, 16, 20 and
24 quarter intervals. Minimum and maximum average historical loss rates over one to five years are referenced in setting the loss
factors by grade within the graded portfolio. Management uses historical loss factors as its starting point, and qualitative elements
are considered to capture trends within each portion of the graded portfolio. The direction and expectations of past dues, charge-offs,
nonaccruals, classified loans, portfolio mix, market conditions, and risk management controls are considered in setting loss factors
for the graded portfolio. The loan loss migration indicates that the minimum and maximum average loss rates and median loss rates
over the past many quarters have been declining. Also, the level of criticized and classified loans has been declining as a result
of a combination of upgrades, loan payoff and loan sales, which are reducing the risk profile of the loan portfolio. Additionally,
the risk profile has declined given the shift in complexion of the graded portfolio, particularly a reduced level of commercial
real estate loan concentrations.
Residential and
consumer (installment, secured lines, and unsecured lines) are analyzed differently as risk ratings, or grades, are not assigned
to individual loans. Residential and consumer loan losses are tracked by pool. Management examines the historical losses over
one to five years in its determination of the appropriate loss factor for vintages of loans currently in the portfolio rather
than the vintages that produced the significant losses in prior years. These loss factors are then adjusted by qualitative factors
determined by management to reflect potential probable losses inherent in each loan pool. Qualitative factors may include various
loan or property types, loan to value, concentrations and economic and environmental factors.
Residential loans
that become 90 days past due are placed on nonaccrual and a specific allowance is made for any loan that becomes 120 days past
due. Residential loans are subsequently written down if they become 180 days past due and such write-downs are supported by a
current appraisal, consistent with current banking regulations.
Our charge-off
policy meets or exceeds regulatory minimums. Losses on unsecured consumer loans are recognized at 90 days past due compared to
the regulatory loss criteria of 120 days. 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, in compliance with Federal Financial Institution
Examination Council guidelines. 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 the legal process of collection. Secured loans may be charged-down to the estimated
value of the collateral with previously accrued unpaid interest reversed. Subsequent charge-offs may be required as a result of
changes in the market value of collateral or other repayment prospects. Initial charge-off amounts are based on valuation estimates
derived from appraisals, broker price opinions, or other market information. Generally, new appraisals are not received until
the foreclosure process is completed; however, collateral values are evaluated periodically based on market information and incremental
charge-offs are recorded if it is determined that collateral values have declined from their initial estimates.
Management continually
evaluates the allowance for loan losses methodology and seeks to refine and enhance this process as appropriate. As a result,
it is likely that the methodology will continue to evolve over time.
Our Loan Review
unit is independent, and performs loan reviews and evaluates a representative sample of credit extensions after the fact for appropriate
individual internal risk ratings. Loan Review has the authority to change internal risk ratings and is responsible for assessing
the adequacy of credit underwriting. This unit reports directly to the Directors’ Loan Committee of Seacoast National’s
board of directors.
Table 13 summarizes
the Company’s allocation of the allowance for loan losses to real estate loans, commercial and financial loans, and installment
loans to individuals, and information regarding the composition of the loan portfolio at the dates indicated.
Net
recoveries for the year ended December 31, 2014 totaled $489,000, compared to net charges-offs of $5,224,000 for the year ended
December 31, 2013 (See “Table 12 – Summary of Loan Loss Experience” for detail on net charge-offs for the last
five years). Note F to the financial statements (titled “Impaired Loans and Allowance for Loan Losses”) summarizes
the Company’s allocation of the allowance for loan losses to construction and land development loans, commercial and residential
estate loans, commercial and financial loans, and consumer loans, and provides more specific detail regarding charge-offs and
recoveries for each loan component and the composition of the loan portfolio at December 31, 2014 and 2013.
Although there is no assurance that we will not have elevated charge-offs in the future, we believe
that we have significantly reduced the risks in our loan portfolio and that with stabilizing market conditions, future charge-offs
should continue to decline.
The allowance as
a percentage of portfolio loans outstanding was 1.14 percent at December 31, 2014, compared to 1.54 percent at December 31, 2013.
The allowance for loan losses represents management’s estimate of an amount adequate in relation to the risk of losses inherent
in the loan portfolio. The reduced level of impaired loans contributed to a lower risk of loss and the lower allowance for loan losses as of December 31, 2014. The risk profile of the loan
portfolio has been reduced by implementing a program to decrease the level of credit risk in such portfolio by strengthening credit
management methodologies and implementing a low risk “back-to-basics” strategic plan for loan growth. New loan production
has shifted to adjustable rate residential real estate loans, owner-occupied commercial real estate, small business loans for
professionals and businesses, and consumer lending. Strategies, processes and controls are in place to ensure that new production
is well underwritten and maintains a focus on smaller, diversified and lower-risk lending. Aided by initiatives embodied in new
loan programs and continued aggressive collection actions, the portfolio mix has changed dramatically and has become more diversified.
The improved mix is most evident by a lower percentage of loans in income producing commercial real estate and construction and
land development loans. Prospectively, we anticipate that the allowance will likely benefit from continued improvement in our
credit quality, but offset by more normal loan growth as business activity and the economy improves.
Concentrations
of credit risk, discussed under the caption “Loan Portfolio” of this discussion and analysis, can affect the level
of the allowance and may involve loans to one borrower, an affiliated group of borrowers, borrowers engaged in or dependent upon
the same industry, or a group of borrowers whose loans are predicated on the same type of collateral. The Company’s most
significant concentration of credit is a portfolio of loans secured by real estate. At December 31, 2014, the Company had $1.611
billion in loans secured by real estate, representing 88.4 percent of total loans, up from $1.181 billion but lower as a percent
of total loans (versus 90.5 percent) at December 31, 2013. In addition, the Company is subject to a geographic concentration of
credit because it only operates in central and southeastern Florida.
While it is the
Company’s policy to charge off in the current period loans in which a loss is considered probable, there are additional
risks of future losses that cannot be quantified precisely or attributed to particular loans or classes of loans. Because these
risks include the state of the economy, borrower payment behaviors and local market conditions as well as conditions affecting
individual borrowers, management’s judgment of the allowance is necessarily approximate and imprecise. The allowance is
also subject to regulatory examinations and determinations as to adequacy, which may take into account such factors as the methodology
used to calculate the allowance for loan losses and the size of the allowance for loan losses in comparison to a group of peer
companies identified by the regulatory agencies.
In assessing the
adequacy of the allowance, management relies predominantly on its ongoing review of the loan portfolio, which is undertaken both
to ascertain whether there are probable losses that must be charged off and to assess the risk characteristics of the portfolio
in aggregate. This review considers the judgments of management, and also those of bank regulatory agencies that review the loan
portfolio as part of their regular examination process. Our bank regulators have generally agreed with our credit assessment,
however in the future, regulators could seek additional provisions to our allowance for loan losses, which would reduce our earnings.
Nonperforming
Assets
Table 14 provides
certain information concerning nonperforming assets for the years indicated.
Nonperforming assets
(“NPAs”) at December 31, 2014 totaled $28,602,000 and were comprised of $18,563,000 of nonaccrual portfolio loans,
$2,577,000 of nonaccrual purchased loans, $5,567,000 of non-acquired other real estate owned (“OREO”) and $1,895,000
of acquired OREO. In comparison, NPAs at December 31, 2013 totaled $34,532,000 (comprised of $27,672,000 in nonaccrual loans and
$6,860,000 of OREO). At December 31, 2014, approximately 99.1 percent of nonaccrual loans were secured with real estate, the remainder
principally by marine vessels. See the tables below for details about nonaccrual loans. At December 31, 2014, nonaccrual loans
have been written down by approximately $5.5 million or 21.9 percent of the original loan balance (including specific impairment
reserves).
As anticipated,
the Company closed a number of OREO sales during 2014 and 2013 that reduced non-acquired OREO outstanding. Compared to December
31, 2013, non-acquired OREO was $1.3 million or 18.8 percent lower at December 31, 2014. This represents the lowest level of OREO
since 2008 and is reflective of our improving credit quality.
During 2014, $8.5
million in loans were moved to nonperforming compared to $10.0 million for all of 2013. Of the $8.5 million, $4.0 million was
related to purchased loans in the fourth quarter. Most of the loans are collateralized by real estate. During the second quarter
of 2014, a single commercial credit of $4.3 million was transferred from nonaccrual loans to troubled debt restructure (“TDR”).
Inflows to nonperforming loans during 2012 included a $14.4 million performing TDR commercial real estate loan participation.
This loan was written down to $10.3 million in the third quarter of 2012 and moved to loans available for sale. Subsequently the
loan was sold for a loss of $1.2 million as reflected on our income statement at December 31, 2012. NPAs are subject to changes
in the economy, both nationally and locally, changes in monetary and fiscal policies, changes in borrowers’ payment behaviors
and changes in conditions affecting various borrowers from Seacoast National. Based on lower classified assets and impaired loan
balances as of December 31, 2014, management believes that future inflows to nonperforming loans will continue to be reduced.
The table below
shows the nonperforming inflows by quarter for 2014, 2013 and 2012:
| New Nonperforming Loans | |
| | |
| | |
| |
| (In thousands) | |
2014 | | |
2013 | | |
2012 | |
| First quarter | |
$ | 1,651 | | |
$ | 2,868 | | |
$ | 20,207 | |
| Second quarter | |
| 810 | | |
| 2,949 | | |
| 17,291 | |
| Third quarter | |
| 523 | | |
| 2,019 | | |
| 14,521 | |
| Fourth quarter* | |
| 5,525 | | |
| 2,167 | | |
| 6,891 | |
*$4,007 related to BankFIRST
loans acquired in the fourth quarter 2014.
The Company pursues
loan restructurings in selected cases where it expects to realize better values than may be expected through traditional collection
activities. The Company has worked with retail mortgage customers, when possible, to achieve lower payment structures in an effort
to avoid foreclosure. TDRs have been a part of the Company’s loss mitigation activities and can include rate reductions,
payment extensions and principal deferrals. Company policy requires TDRs that are classified as nonaccrual loans after restructuring
remain on nonaccrual until performance can be verified, which usually requires six months of performance under the restructured
loan terms. We are optimistic that some of these credits will rehabilitate and be upgraded versus migrating to nonperforming or
OREO prospectively. Accruing restructured loans totaled $25.0 million at December 31, 2014 compared to $25.1 million at December
31, 2013. The tables below set forth details related to nonaccrual and restructured loans.
| | |
Nonaccrual Loans | | |
Accruing | |
| December 31, 2014 | |
Non- | | |
Per- | | |
| | |
Restructured | |
| (In thousands) | |
Current | | |
forming | | |
Total | | |
Loans | |
| Construction & land development | |
| | | |
| | | |
| | | |
| | |
| Residential | |
$ | 0 | | |
$ | 26 | | |
$ | 26 | | |
$ | 1,903 | |
| Commercial | |
| 1,621 | | |
| 0 | | |
| 1,621 | | |
| 71 | |
| Individuals | |
| 0 | | |
| 316 | | |
| 316 | | |
| 202 | |
| | |
| 1,621 | | |
| 342 | | |
| 1,963 | | |
| 2,176 | |
| Residential real estate mortgages | |
| 2,941 | | |
| 11,856 | | |
| 14,797 | | |
| 14,303 | |
| Commercial real estate mortgages | |
| 1,698 | | |
| 2,491 | | |
| 4,189 | | |
| 7,990 | |
| Real estate loans | |
| 6,260 | | |
| 14,689 | | |
| 20,949 | | |
| 24,469 | |
| Commercial and financial | |
| 0 | | |
| 0 | | |
| 0 | | |
| 120 | |
| Consumer | |
| 0 | | |
| 191 | | |
| 191 | | |
| 408 | |
| | |
$ | 6,260 | | |
$ | 14,880 | | |
$ | 21,140 | | |
$ | 24,997 | |
At
December 31, 2014 and 2013, total TDRs (performing and nonperforming) were comprised of the following loans by type of modification:
NONPERFORMING ASSETS
Total TDRs by type of modification
| | |
2014 | | |
2013 | |
| (Dollars in thousands) | |
Number | | |
Amount | | |
Number | | |
Amount | |
| Rate reduction | |
| 106 | | |
$ | 18,906 | | |
| 113 | | |
$ | 19,843 | |
| Maturity extended with change
in terms | |
| 71 | | |
| 8,891 | | |
| 81 | | |
| 10,620 | |
| Forgiveness of principal | |
| 1 | | |
| 1,588 | | |
| 1 | | |
| 1,838 | |
| Chapter 7 bankruptcies | |
| 54 | | |
| 3,348 | | |
| 55 | | |
| 2,594 | |
| Not elsewhere classified | |
| 11 | | |
| 1,786 | | |
| 10 | | |
| 5,602 | |
| | |
| 243 | | |
$ | 34,519 | | |
| 260 | | |
$ | 40,497 | |
During the first,
second, third and fourth quarters of 2014, newly identified TDRs totaled $0.4 million, $4.9 million, $0.1 million and $0.1 million,
respectively, compared to $10.7 million for all of 2013. Loan modifications are not reported in calendar years after modification
if the loans were modified at an interest rate equal to the yields of new loan originations with comparable risk and the loans
are performing based on the terms of the restructuring agreements. No accruing loans that were restructured within the twelve
months preceding December 31, 2014 defaulted during the twelve months ended December 31, 2014, compared to $1,948,000
for 2013. A restructured loan is considered in default when it becomes 60 days or more past due under the modified terms, has
been transferred to nonaccrual status, or has been transferred to other real estate owned.
At December 31,
2014, loans totaling $43,577,000 were considered impaired (comprised of total nonaccrual, loans 90 days or more past due, and
TDRs) and $3,541,000 of the allowance for loan losses was allocated for potential losses on these loans, compared to $52,969,000
and $5,446,000, respectively, at December 31, 2013.
In accordance with
regulatory reporting requirements, loans are placed on nonaccrual following the Retail Classification of Loan interagency guidance.
Typically loans 90 days or more past due are reviewed for impairment, and if deemed impaired, are placed on nonaccrual.
Once impaired, the current fair market value of the collateral is assessed and a specific reserve and/or charge-off taken.
Quarterly thereafter, the loan carrying value is analyzed and any changes are appropriately made as described above.
Acquisition
Accounting, and Purchased Loans .
The Company accounts
for its acquisitions under ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting.
All identifiable assets acquired, including loans, are recorded at fair value. No allowance for loan losses related to the acquired
loans is recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit risk.
All loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in ASC Topic 820. The fair
value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of expected
principal, interest and other cash flows.
Over the life of
the purchased credit impaired loans acquired, the Company continues to estimate cash flows expected to be collected. The Company
evaluates at each balance sheet date whether the present value of the acquired loans using the effective interest rates has decreased
and if so, recognizes a provision for loan loss in its consolidated statement of income. For any increases in cash flows expected
to be collected, the Company adjusts the amount of accretable yield recognized on a prospective basis over the loan’s remaining
life.
Intangible
Assets
Intangible
assets consist of goodwill and core deposit intangibles. Goodwill represents the excess purchase price over the fair value
of net assets acquired in business acquisitions. The core deposit intangible represents the excess intangible value of
acquired deposit customer relationships as determined by valuation specialists. The core deposit intangibles are being
amortized over 74 months on a straight-line basis. Goodwill is not amortized but rather is evaluated for impairment on at
least an annual basis. We perform an annual impairment test of goodwill and core deposit intangibles as required by FASB ASC
350, Intangibles—Goodwill and Other, in the fourth quarter.
Fair Value
Measurements
All impaired loans
are reviewed quarterly to determine if fair value adjustments are necessary based on known changes in the market and/or the project
assumptions. When necessary, the “As Is” appraised value may be adjusted based on more recent appraisal assumptions
received by the Company on other similar properties, the tax assessed market value, comparative sales and/or an internal valuation.
If an updated assessment is deemed necessary and an internal valuation cannot be made, an external “As Is” appraisal
will be obtained. If the “As Is” appraisal does not appropriately reflect the current fair market value, in the Company’s
opinion, a specific reserve is established and/or the loan is written down to the current fair market value.
Collateral dependent
impaired loans are loans that are solely dependent on the liquidation of the collateral for repayment. All OREO and
repossessed assets (“REPO”) are reviewed quarterly to determine if fair value adjustments are necessary based on known
changes in the market and/or project assumptions. When necessary, the “As Is” appraisal is adjusted based on more
recent appraisal assumptions received by the Company on other similar properties, the tax assessment market value, comparative
sales and/or an internal valuation is performed. If an updated assessment is deemed necessary, and an internal valuation cannot
be made, an external appraisal will be requested. Upon receipt of the “As Is” appraisal a charge-off is recognized
for the difference between the loan amount and its current fair market value.
“As Is”
values are used to measure fair market value on impaired loans, OREO and REPOs.
At December 31,
2014, outstanding securities designated as available for sale totaled $741,375,000. The fair value of the available for sale portfolio
at December 31, 2014 was less than historical amortized cost, producing net unrealized losses of $5,015,000 that have been included
in other comprehensive income (loss) as a component of shareholders’ equity (net of taxes). The Company made no change to
the valuation techniques used to determine the fair values of securities during 2014 and 2013. The fair value of each security
available for sale was obtained from independent pricing sources utilized by many financial institutions or from dealer quotes.
The fair value of many state and municipal securities are not readily available through market sources, so fair value estimates
are based on quoted market price or prices of similar instruments. Generally, the Company obtains one price for each security.
However, actual values can only be determined in an arms-length transaction between a willing buyer and seller that can, and often
do, vary from these reported values. Furthermore, significant changes in recorded values due to changes in actual and perceived
economic conditions can occur rapidly, producing greater unrealized losses or gains in the available for sale portfolio.
The credit quality
of the Company’s securities holdings are primarily investment grade. As of December 31, 2014, the Company’s available
for sale investment securities, except for approximately $24.3 million of securities issued by states and their political subdivisions,
generally are traded in liquid markets. U.S. Treasury and U.S. Government agency obligations totaled $476.4 million, or 64.3 percent
of the total available for sale portfolio. The portfolio also includes $115.4 million in private label securities,
most secured by collateral originated in 2005 or prior years with low loan to values, and current FICO scores above 700. Generally
these securities have credit support exceeding 5%. The collateral underlying these mortgage investments are primarily 30- and
15-year fixed rate, 5/1 and 10/1 adjustable rate mortgage loans. Historically, the mortgage loans serving as collateral for those
investments have had minimal foreclosures and losses. During 2013, the Company invested $32.2 million in uncapped 3-month Libor
floating rate collateralized loan obligations. Supplemental purchases of collateralized loan obligations increased the total to
$125.2 million as of December 31, 2014. Collateralized loan obligations are special purpose vehicles that purchase loans as assets
that provide a steady stream of income and possible capital appreciation. The collateral for the securities is first lien senior
secured corporate debt. The Company has purchased senior tranches rated credit rated A or higher and performed stress tests, which
indicated that the senior subordination levels are sufficient and no principal loss is forecast, verifying the independent rating.
At October 1, 2014, BANKshares securities of $85.4 million were acquired and added to the available for sale portfolio at their
fair market value, comprised of $67.6 million of U.S. Treasury and U.S. Government securities and $17.8 million of securities
issued by states and their political subdivisions.
On May 31, 2014
management identified $158.8 million of investment securities available for sale and transferred them to held for investment.
The unrealized holding losses at the date of transfer totaled $3.0 million.
For the securities
that were transferred into the held for investment category from the available for sale category, the unrealized holding losses
at the date of the transfer will continue to be reported in other comprehensive income, and will be amortized over the remaining
life of the security as an adjustment of yield in a manner consistent with the amortization of a discount. The amortization of
unrealized holding losses reported in equity will offset the effect on interest income of the amortization of the discount.
The securities
transferred management believes are a core banking asset that they now intend to hold until maturity and if interest rates were
to increase before maturity the fair values would be impacted more significantly and therefore are not consistent with the characteristics
of an available for sale investment.
Other Than
Temporary Impairment of Securities
Our investments
are reviewed quarterly for other than temporary impairment (“OTTI”). The following primary factors are considered
for securities identified for OTTI testing: percent decline in fair value, rating downgrades, subordination, duration, amortized
loan-to-value, and the ability of the issuers to pay all amounts due in accordance with the contractual terms. Prices obtained
from pricing services are usually not adjusted. Based on our internal review procedures and the fair values provided by the pricing
services, we believe that the fair values provided by the pricing services are consistent with the principles of ASC 820, Fair
Value Measurement. However, on occasion pricing provided by the pricing services may not be consistent with other observed prices
in the market for similar securities. Using observable market factors, including interest rate and yield curves, volatilities,
prepayment speeds, loss severities and default rates, the Company may at times validate the observed prices using a discounted
cash flow model and using the observed prices for similar securities to determine the fair value of its securities.
Changes in the
fair values, as a result of deteriorating economic conditions and credit spread changes, should only be temporary. Further, management
believes that the Company’s other sources of liquidity, as well as the cash flow from principal and interest payments from
its securities portfolio, reduces the risk that losses would be realized as a result of a need to sell securities to obtain liquidity.
The Company also
held stock in the Federal Home Loan Bank of Atlanta (“FHLB”) totaling $8.5 million as of December 31, 2014, $3.6
million more than the balance at year-end 2013. The Company accounts for its FHLB stock based on the industry guidance in ASC
942, Financial Services—Depository and Lending, which requires the investment to be carried at cost and evaluated for impairment
based on the ultimate recoverability of the par value. We evaluated our holdings in FHLB stock at December 31, 2014 and believe
our holdings in the stock are ultimately recoverable at par. We do not have operational or liquidity needs that would require
redemption of the FHLB stock in the foreseeable future and, therefore, have determined that the stock is not other-than-temporarily
impaired.
Realization of Deferred Tax Assets
At December 31,
2014, the Company had net deferred tax assets (“DTA”) of $66.8 million. Although realization is not assured, management
believes that realization of the carrying value of the DTA is more likely than not, based upon expectations as to future taxable
income and tax planning strategies, as defined by ASC 740 Income Taxes. In comparison, at December 31, 2013 the Company had
a net DTA of $66.9 million.
As a result of
the losses incurred in 2010 and 2012, the Company had a three-year cumulative pretax loss until the end of the third quarter of
2013. At September 30, 2013, the total converted to a three-year cumulative pretax income of $4.7 million. Lower credit costs
and increased earnings before taxes for 2013 and 2014 results in management’s conclusion that recovery of the net deferred
tax assets is more likely than not from future earnings. Other important factors that support this conclusion are:
| · | Income
before tax (“IBT”) has steadily increased as a result of organic growth and
the 2014 acquisition will further assist in achieving management’s forecast of
future earnings which recovers the net operating loss carry-forwards before expiration, |
| · | Credit
costs have declined and overall credit risk has declined which decreases the impact on
future taxable earnings, |
| · | Forecasted
growth rates for loans are at levels considered reasonable and supported by the acquisition,
increased loan officers and support staff. Additional loan officer salaries were
added to assure loan portfolio growth and support increased interest income. |
| · | New
loan production credit quality and concentrations are being well managed through improved
and enhanced credit functions and therefore will not cause increased credit costs. The
independent loan review in 2014 focused on review of underwriting of new loans and no
weaknesses were reported. |
| · | Current
economic growth forecasts for Florida and the Company’s markets in particular are
robustly supported by population increases. |
Contingent Liabilities
The Company is
subject to contingent liabilities, including judicial, regulatory and arbitration proceedings, and tax and other claims arising
from the conduct of our business activities. These proceedings include actions brought against the Company and/or our subsidiaries
with respect to transactions in which the Company and/or our subsidiaries acted as a lender, a financial advisor, a broker or
acted in a related activity. Accruals are established for legal and other claims when it becomes probable that the Company will
incur an expense and the amount can be reasonably estimated. Company management, together with attorneys, consultants and other
professionals, assesses the probability and estimated amounts involved in a contingency. Throughout the life of a contingency,
the Company or our advisors may learn of additional information that can affect our assessments about probability or about the
estimates of amounts involved. Changes in these assessments can lead to changes in recorded reserves. In addition, the actual
costs of resolving these claims may be substantially higher or lower than the amounts reserved for the claims. At December 31,
2014 and 2013, the Company had no significant accruals for contingent liabilities and had no known pending matters that could
potentially be significant.
Results of Operations
Earnings Summary
Net income available
to common shareholders for 2014 totaled $5,696,000, or $0.21 per average common diluted share, compared to net income of $47,916,000,
or $2.44 per average common diluted share, in 2013, and a net loss of $4,458,000, or $(0.24) per average common diluted share,
in 2012.
Net Interest Income
Net interest income
(on a fully taxable equivalent basis) for 2014 totaled $75,221,000, increasing by $9,786,000 or 15.0 percent as compared to 2013.
Net interest margin on a tax equivalent basis for 2014 increased 10 basis points to 3.25 percent compared to 3.15 percent in 2013.
The year over year improvement results from increases in net loans, in investment securities and our improved deposit mix compared
to a year ago. The addition of BANKshares’ business volumes on October 1, 2014, amplified performance in the fourth quarter
of 2014, with a $7,601,000 increase in net interest income from the third quarter of 2014, and $8,547,000 increase compared to
fourth quarter 2013. We anticipate 2015’s net interest income will benefit from the full year impact of the acquisition.
The following table details net interest income and margin results (on a tax equivalent basis) for the past five quarters:
| | |
Net Interest | | |
Net Interest | |
| | |
Income | | |
Margin | |
| (Dollars in thousands) | |
(tax equivalent) | | |
(tax equivalent) | |
| Fourth quarter 2013 | |
| 16,336 | | |
| 3.08 | % |
| First quarter 2014 | |
| 16,277 | | |
| 3.07 | |
| Second quarter 2014 | |
| 16,779 | | |
| 3.10 | |
| Third quarter 2014 | |
| 17,282 | | |
| 3.17 | |
| Fourth quarter 2014 | |
| 24,883 | | |
| 3.56 | |
Fully taxable equivalent
net interest income is a common term and measure used in the banking industry but is not a term used under GAAP. We believe that
these presentations of tax-equivalent net interest income and tax equivalent net interest margin aid in the comparability of net
interest income arising from both taxable and tax-exempt sources over the periods presented. We further believe these non-GAAP
measures enhance investors’ understanding of the Company’s business and performance, and facilitate an understanding
of performance trends and comparisons with the performance of other financial institutions. The limitations associated with these
measures are the risk that persons might disagree as to the appropriateness of items comprising these measures and that different
companies might calculate these measures differently, including as a result of using different assumed tax rates. These disclosures
should not be considered as an alternative to GAAP. The following information is provided to reconcile GAAP measures and tax equivalent
net interest income and net interest margin on a tax equivalent basis.
| | |
Total | | |
Fourth | | |
Third | | |
Second | | |
First | | |
Total | | |
Fourth | |
| | |
Year | | |
Quarter | | |
Quarter | | |
Quarter | | |
Quarter | | |
Year | | |
Quarter | |
| (Dollars in thousands | |
2014 | | |
2014 | | |
2014 | | |
2014 | | |
2014 | | |
2013 | | |
2013 | |
| Non-taxable
interest income | |
$ | 314 | | |
$ | 150 | | |
$ | 54 | | |
$ | 54 | | |
$ | 56 | | |
$ | 432 | | |
$ | 112 | |
| Tax Rate | |
| 35 | % | |
| 35 | % | |
| 35 | % | |
| 35 | % | |
| 35 | % | |
| 35 | % | |
| 35 | % |
| Net interest income (TE) | |
$ | 75,221 | | |
$ | 24,883 | | |
$ | 17,282 | | |
$ | 16,779 | | |
$ | 16,277 | | |
$ | 65,435 | | |
$ | 16,336 | |
| Total net interest income
(not TE) | |
| 74,907 | | |
| 24,733 | | |
| 17,228 | | |
| 16,725 | | |
| 16,221 | | |
| 65,206 | | |
| 16,277 | |
| Net interest margin (TE) | |
| 3.25 | % | |
| 3.56 | % | |
| 3.17 | % | |
| 3.10 | % | |
| 3.07 | % | |
| 3.15 | % | |
| 3.08 | % |
| Net interest margin (not
TE) | |
| 3.24 | | |
| 3.54 | | |
| 3.16 | | |
| 3.09 | | |
| 3.06 | | |
| 3.14 | | |
| 3.06 | |
The level of nonaccrual
loans, changes in the earning assets mix, and the Federal Reserve’s policies keeping interest rates low have been primary
forces affecting net interest income and net interest margin results.
The earning asset
mix changed year over year impacting net interest income. For 2014, average loans (the highest yielding component of earning assets)
as a percentage of average earning assets totaled 62.8 percent, compared to 61.2 percent a year ago. Average securities as a percentage
of average earning assets increased from 31.4 percent a year ago to 31.8 percent during 2014 and interest bearing deposits and
other investments decreased to 5.4 percent in 2014 from 7.4 percent in 2013, reflecting the investment of excess liquidity during
the third and fourth quarters of 2014. Average total loans as a percentage of earning assets increased, and the mix of loans was
improved, with volumes related to commercial real estate representing 48.9 percent of total loans at December 31, 2014 (compared
to 42.5 percent at December 31, 2013). Lower yielding residential loan balances with individuals (including home equity loans
and lines, and personal construction loans) represented 39.6 percent of total loans at December 31, 2014 (versus 48.1 percent
at December 31, 2013) (see “Loan Portfolio”).
The yield on earning
assets for 2014 was 3.48 percent, 6 basis points higher than for 2013. The yield on earning assets improved each quarter during
2014. The acquisition of BANKshares improved the loan mix, and together with organic loan growth during the fourth quarter of
2014 contributed approximately 33 basis points to the increase of 38 basis points from third quarter 2014. The deployment of liquidity
during the last three months of 2014 contributed to the yield improvement as well. The following table details the yield on earning
assets (on a tax equivalent basis) for the past five quarters:
| | |
Fourth | | |
Third | | |
Second | | |
First | | |
Fourth | |
| | |
Quarter | | |
Quarter | | |
Quarter | | |
Quarter | | |
Quarter | |
| | |
2014 | | |
2014 | | |
2014 | | |
2014 | | |
2013 | |
| Yield | |
| 3.78 | % | |
| 3.40 | % | |
| 3.33 | % | |
| 3.31 | % | |
| 3.33 | % |
While the yield
on loans decreased 10 basis points to 4.39 percent over the last twelve months, the yield improved quite dramatically in the fourth
quarter of 2014 (by 41 basis points compared to third quarter 2014’s yield on loans) for all the reasons previously detailed,
but primarily an improved loan mix. The yield on investment securities was slightly higher, increasing 16 basis points year over
year to 2.14 percent for 2014, reflecting reduced prepayments of principal from refinancing activities on mortgage backed securities
in the portfolio and higher add-on rates for recent purchases. The yield on interest bearing deposits and other investments was
higher as well at 0.81 percent for 2014, up 24 basis points versus a year ago and reflecting lower balances for interest bearing
deposits at the Federal Reserve earning only 25 basis points.
Average earning
assets for 2014 increased $237.1 million or 11.4 percent compared to 2013’s average balance. Average loan balances for 2014
increased $180.4 million or 14.2 percent to $1,452.8 million and average investment securities increased $84.0 million or 12.9
percent to $737.0 million, while average interest bearing deposits and other investments decreased $27.3 million or 17.9 percent
to $125.5 million.
Commercial and
commercial real estate loan production for 2014 totaled approximately $258 million, compared to production for 2013 of $200 million.
Improvements in commercial production resulted from general economic conditions and consumer confidence in the State of Florida
improving, encouraging commercial customers to expand and borrow, along with the full-year impact of our five commercial lending
offices opened during 2013. Our investment in loan production staff is focused on the hiring of commercial lenders for the larger
metropolitan markets in which the Company competes, principally in Orlando, Palm Beach and Fort Lauderdale. The addition of BANKshares
locations and personnel in the fourth quarter provides the Company with a significant presence in the Orlando market as well as
the coastal region to the east of Orlando. With commercial production improving during 2014 and BANKshares acquisition, period-end
total loans outstanding increased by $517.7 million or 39.7 percent since December 31, 2013. At December 31, 2014, the Company’s
total commercial and commercial real estate loan pipeline was $60 million, compared to $30 million, $58 million and $46 million
at the end of the first, second and third quarters of 2014, and $28 million at the end of 2013.
As of December
31, 2014 and 2013, commercial real estate (“CRE”) loans were $890.5 million and $553.7 million, respectively, up 60.8
percent and up 8.9 percent from the respective prior years. Under regulatory guidelines for commercial real estate concentrations,
Seacoast National’s total commercial real estate loans outstanding at December 31, 2014 (as defined in guidelines) represented
197 percent of risk-based capital, which is below the regulatory threshold.
Closed residential mortgage loan production for the
first, second, third and fourth quarters of 2014 totaled $40 million, $61 million, $66 million and $58 million, respectively,
of which $19 million, $28 million, $35 million and $26 million was sold servicing-released. In comparison, closed residential
mortgage loan production for the first, second, third and fourth quarters of 2013 totaled $56 million, $80 million, $62 million
and $53 million, respectively, of which $33 million, $49 million, $32 million and $26 million was sold servicing-released. Applications
for residential mortgages totaled $344 million during 2014, compared to $378 million for 2013. The majority of our loan production
has been focused on purchased home mortgages. Existing home sales and home mortgage loan refinancing activity in the Company’s
markets has improved as the number of foreclosed properties in Florida has diminished, with some improved demand for new home
construction emerging.
During 2014, proceeds
from the sales of securities totaled $21.9 million (including net gains of $469,000). In comparison, proceeds from the sale of
securities totaled $67.3 million for 2013 (including net gains of $419,000. Securities purchases in 2014 and 2013 have been conducted
principally to reinvest funds from maturities and principal repayments, as well as to reinvest excess funds (in an interest bearing
deposit) at the Federal Reserve Bank, and proceeds from sales. During 2014, maturities (principally pay-downs of $107.8 million)
totaled $108.7 million and securities portfolio purchases totaled $345.5 million. In addition, $85.4 million in securities from
BANKshares were added to the portfolio in the fourth quarter of 2014. In comparison, 2013 maturities totaled $155.6 million (including
$150.3 million in pay-downs) and securities portfolio purchases totaled $230.1 million.
For 2014, the cost
of average interest-bearing liabilities decreased 4 basis points to 0.32 percent from 2013, reflecting the lower interest rate
environment and improved deposit mix. The following table details the cost of average interest bearing liabilities for the past
five quarters:
| | |
Fourth | | |
Third | | |
Second | | |
First | | |
Fourth | |
| | |
Quarter | | |
Quarter | | |
Quarter | | |
Quarter | | |
Quarter | |
| | |
2014 | | |
2014 | | |
2014 | | |
2014 | | |
2013 | |
| Rate | |
| 0.31 | % | |
| 0.32 | % | |
| 0.33 | % | |
| 0.33 | % | |
| 0.35 | % |
During 2014, the
Company’s retail core deposit focus produced strong growth in core deposit customer relationships when compared to prior
year results. Lower rates paid on interest bearing deposits during 2014 (and last several quarters) reduced the overall cost of
total deposits to 0.11 percent for the fourth quarter of 2014, 3 basis points lower than the same quarter a year ago. A significant
component favorably affecting the Company’s net interest margin, the average balances of lower cost interest bearing deposits
(NOW, savings and money market) totaled 80.0 percent of total average interest bearing deposits for 2014, an improvement compared
to the average of 76.9 percent a year ago. The average rate for lower cost interest bearing deposits for 2014 was 0.08 percent,
identical to 2013’s rate. CD rates paid were lower during 2014, averaging 0.55 percent, an 11 basis point decrease compared
to 2013. Average CDs (the highest cost component of interest bearing deposits) were 20.0 percent of interest bearing deposits
for 2014, compared to 23.1 percent for 2013. Prospectively, with interest rates predicted to remain low through 2015, reductions
in interest bearing deposit costs will be more challenging to produce due to more limited re-pricing opportunities.
Average deposits
totaled $1,939.9 million during 2014, and were $205.6 million higher compared to 2013. This increase included the acquisition
of BANKshares on October 1, 2014, with approximately $516.3 in total deposits. Average aggregate amounts for NOW, savings and
money market balances increased $120.5 million or 12.2 percent to $1,106.6 million for 2014 compared to 2013, average noninterest
bearing deposits increased $104.2 million or 23.1 percent to $556.0 million for 2014 compared to 2013, and average CDs decreased
by $19.1 million or 6.4 percent to $277.3 million over the same period. With the low interest rate environment and lower CD rate
offerings available, customers have been more complacent and are leaving more funds in lower cost average balances in savings
and other liquid deposit products that pay no interest or a lower interest rate. Averaging only $8.1 million during 2014, the
Company continues to offer its Certificate of Deposit Registry program (“CDARs”), a program that began in mid-2008
that allows customers to have CDs safely insured beyond the Federal Deposit Insurance Corporation (“FDIC”) deposit
insurance limit, and a favored offering for homeowners’ associations concerned with FDIC insurance coverage.
Average short-term
borrowings have been principally comprised of sweep repurchase agreements with customers of Seacoast National, which decreased
$3.2 million to $152.0 million or 2.1 percent for 2014 as compared to 2013. With balances typically peaking during the fourth
and first quarters each year, public fund clients with larger balances have the most significant influence on average sweep repurchase
agreement balances outstanding during the year. At September 30, 2014, the Company utilized $80 million in term federal funds
purchased from the FHLB at 0.16 percent (maturing in 30 days) to invest in adjustable rate securities, pending seasonal funding
expected prospectively. These funds remained outstanding at December 31, 2014, and for the year averaged $19.9 million. For
2014, average other borrowings are comprised of subordinated debt of $56.4 million related to trust preferred securities issued
by subsidiary trusts of the Company (including subordinated debt for BANKshares added on October 1, 2014) and advances from the
FHLB of $50.0 million. With the exception of the inherited subordinated debt from BANKshares, no changes have occurred to other
borrowings since year-end 2009 (see “Note I – Borrowings” to the Company’s consolidated financial statements).
Prospectively,
with the acquired loans paying down and replaced with new loans at lower yields, partially offset by our lending initiatives producing
improved results, and problem loans continuing to decline, we expect our consolidated net interest margin for 2015 will trend
lowerif interest rates remain low We are positioned for stronger earnings performance and improved margin with a more typical
yield curve, with excess liquidity presently deployed into adjustable rate assets. Our focus on achieving increased household
growth year over year should continue to produce future organic revenue growth, as the long term value of core household relationships
are revealed, as more products are sold and fees earned, and as normalized interest rates return as the economy improves.
Net interest income
(on a fully taxable equivalent basis) for 2013 totaled $65,435,000, increasing by $445,000 or 0.7 percent as compared to 2012.
Net interest margin on a tax equivalent basis for 2013 decreased 14 basis points to 3.08 percent compared to 3.22 percent in 2012.
Lower asset yields as a result of the Federal Reserve’s actions to lower interest rates and the restructuring of the investment
portfolio to lower pricing risks in 2012 were more than offset by improving loan volumes and a recovery of interest on nonaccrual
loans of $505,000 in the third quarter of 2013.
The earning asset
mix changed year over year impacting net interest income. For 2013, average loans (the highest yielding component of earning assets)
as a percentage of average earning assets totaled 61.2 percent, compared to 60.9 percent for 2012. Average securities as a percentage
of average earning assets increased from 29.2 percent for 2012 to 31.4 percent during 2013 and interest bearing deposits and other
investments decreased to 7.4 percent in 2013 from 9.9 percent in 2012, reflecting the reinvestment of $226.8 million of proceeds
from securities sales transacted during the first and second quarters of 2012. Average total loans as a percentage of earning
assets increased nominally, and the mix of loans was generally unchanged, with volumes related to commercial real estate representing
42.5 percent of total loans at December 31, 2013 (compared to 41.5 percent at December 31, 2012). Lower yielding residential
loan balances with individuals (including home equity loans and lines, and personal construction loans) represented 48.1 percent
of total loans at December 31, 2013 (versus 49.6 percent at December 31, 2012).
The yield on earning
assets for 2013 was 3.42 percent, 22 basis points lower than for 2012, a reflection of the lower interest rate environment and
earning asset mix. The yield on loans decreased 27 basis points to 4.49 percent compared to 2012, with nonaccrual loans totaling
$27.7 million or 2.1 percent of total loans at December 31, 2013 (versus $41.0 million or 3.3 percent of total loans at December 31,
2012). The yield on investment securities was lower, decreasing 41 basis points from 2012’s yield to 1.98 percent for 2013,
due to securities sold to reduce interest rate risk during the first six months of 2012 to reduce interest rate risk and reinvestment
at lower yields and lower add-on rates as the result of Federal Reserve actions during the last half of 2012. The yield on interest
bearing deposits and other investments was slightly higher at 0.57 percent for 2013, up 9 basis points versus the yield for 2012.
Average earning
assets for 2013 increased $61.2 million or 3.0 percent compared to 2012’s average balance. Average loan balances for 2013
increased $44.9 million or 3.7 percent to $1,272.4 million and average investment securities increased $63.5 million or 10.8 percent
to $653.0 million, while average interest bearing deposits and other investments decreased $47.2 million or 23.6 percent to $152.8
million.
Commercial and
commercial real estate loan production for 2013 totaled approximately $200 million, compared to production for 2012 of $111 million.
Improvements in commercial production resulted from a focused program to target small business segments less impacted by the lingering
effects of the recession. Commercial production improved and period-end total loans outstanding at year-end 2013 increased by
$78.1 million or 6.4 percent from December 31, 2012.
Closed residential
mortgage loan production for 2013 totaled $251 million, of which $140 million was sold servicing-released. In comparison, closed
residential mortgage loan production for 2012 totaled $249 million, of which $119 million was sold servicing-released. Applications
for residential mortgages totaled $378 million during 2013, compared $387 million for 2012. In the fourth quarter of 2013, higher
interest rates dampened overall residential loan production for the year.
During 2013, proceeds
from the sales of securities totaled $67.3 million (including gains of $419,000). In comparison, proceeds from the sale of securities
totaled $256.1 million for 2012 (including net gains of $7,619,000), with most of the proceeds (and net gains) derived from sales
during the first and second quarters of 2012, totaling $226.8 million (and $6,989,000), respectively. Management believed the
securities sold had minimal opportunity to further increase in value. Securities purchases in 2012 were conducted to reinvest
funds from maturities and principal repayments, but of greater significance, to reinvest the proceeds from sales. During 2013
securities portfolio purchases totaled $230.1 million, compared to purchases totaling $384.6 million in 2012.
For 2013, the cost
of average interest-bearing liabilities decreased 19 basis points to 0.36 percent from 2012, reflecting the lower interest rate
environment and improved deposit mix. During 2013, the Company’s retail core deposit focus produced strong growth in core
deposit customer relationships when compared to prior year results. A significant component favorably affecting the Company’s
net interest margin, the average balances of lower cost interest bearing deposits (NOW, savings and money market) totaled 76.9
percent of total average interest bearing deposits for 2013, an improvement compared to the average of 70.6 percent for 2012.
The average rate for lower cost interest bearing deposits for 2013 was 0.08 percent, down by 8 basis points from 2012’s
rate. CD rates paid were also lower during 2013, averaging 0.66 percent, a 37 basis point decrease compared to 2012. Average CDs
(the highest cost component of interest bearing deposits) were 23.1 percent of interest bearing deposits for 2013, compared to
29.4 percent for 2012.
Average deposits
totaled $1,734.3 million during 2013, and were $37.0 million higher compared to 2012, even with a planned reduction of time deposits
occurring. Average aggregate amounts for NOW, savings and money market balances increased $62.0 million or 6.7 percent to $986.1
million for 2013 compared to 2012, average noninterest bearing deposits increased $63.1 million or 16.2 percent to $451.8 million
for 2013 compared to 2012, and average CDs decreased by $88.1 million or 22.9 percent to $296.4 million over the same period.
For 2013 and 2012, fewer customers sought to invest in CDs, choosing to leave more funds in low rate or no cost liquid deposit
products.
Average sweep repurchase
agreements with customers of Seacoast National increased $13.6 million to $155.2 million or 9.6 percent for 2013 as compared to
2012, and there was limited use of federal funds purchased, other than to test available lines. Other borrowings were comprised
of subordinated debt of $53.6 million related to trust preferred securities issued by trusts organized by the Company, and advances
from the FHLB of $50.0 million.
Noninterest
Income
Noninterest income
(excluding securities gains or losses) for 2014 was $425,000 or 1.7 percent higher than for 2013, increasing to $24,744,000. For
2013, noninterest income of $24,319,000 was $2,875,000 or 13.4 percent higher than for 2012. Noninterest income accounted for
24.8 percent of total revenue (net interest income plus noninterest income, excluding securities gains), compared to 27.2 percent
a year ago and 24.9 percent for 2012 (excluding the loss on sale of commercial loan).
Table 6 provides
detail regarding noninterest income components for the past three years.
For 2014,
revenues from the Company’s wealth management services businesses (trust and brokerage) increased year over year, by
$258,000 or 5.9 percent, and were higher in 2013 than 2012 by $992,000 or 29.6 percent. Included in the $258,000 increase
from a year ago, trust revenue was higher by $275,000 or 10.1 percent and brokerage commissions and fees were lower by
$17,000 or 1.0 percent. Higher agency fees and employee benefit income were the primary cause for the higher trust income
versus 2013, increasing $189,000 and $58,000, respectively, and reflect new pricing effective in the third quarter of 2014.
The $17,000 overall decline in brokerage commissions and fees for 2014 included increases of $58,000 in aggregate brokerage,
mutual fund, and advisory fees and a decrease of $71,000 in annuity income. Of the $992,000 increase for 2013, trust revenue
was higher by $432,000 or 19.0 percent and brokerage commissions and fees were lower by $560,000 or 52.3 percent.
Service charges
on deposits for 2014 were $241,000 or 3.6 percent higher year over year, and were $466,000 or 7.5 percent higher in 2013 when
compared 2012. Overdraft fees increased $106,000 or 2.4 percent year over year and represented approximately 66 percent of total
service charges on deposits for 2014, lower than the average of 67 percent for 2013 and 74 percent for 2012. The regulators continue
to review the banking industry’s practices around overdraft programs and additional regulation could further reduce fee
income for the Company’s overdraft services. Remaining service charges on deposits increased $135,000 or 6.1 percent to
$2,330,000 for 2014, compared to 2013. Service charge increases for 2014 reflect our growing base of core deposit relationships
over the past twelve months, including the addition of BANKshares customers in the fourth quarter, and our emphasis on providing
products meeting the needs of each customer that generates appropriate fees for the services offered.
For 2014, fees
from the non-recourse sale of marine loans totaled $1,320,000, an increase of $131,000 or 11.0 percent compared to 2013, and were
higher for 2013 by $78,000 or 7.0 percent compared to 2012. The Seacoast Marine Division originated $108 million in loans during
2014, compared to $82 million and $79 million for 2013 and 2012, respectively. Of the loans originated during 2014, $80 million
were sold (74.3 percent of production), compared to $69 million sold during 2013 (84.1 percent of production) and $68 million
for 2012 (86.1 percent of production). Approximately $28 million of 2014’s production has been placed in our loan portfolio,
compared to $13 million in 2013 and $11 million in 2012, thereby reducing the percentage of production sold. The Seacoast Marine
Division is headquartered in Ft. Lauderdale, Florida with lending professionals in Florida, California, Washington and Arizona.
Greater usage of
check or debit cards over the past several years by core deposit customers and an increased cardholder base has increased our
interchange income. For 2014, interchange income increased $568,000 or 10.5 percent from 2013, and was $903,000 or 20.1 percent
higher for 2013, compared to 2012’s income. Other deposit-based electronic funds transfer (“EFT”) income increased
nominally in 2014 from 2013, after increasing $6,000 or 1.8 percent in 2013 compared to 2012’s revenue. Interchange revenue
is dependent upon business volumes transacted, as well as the fees permitted by VISA® and MasterCard®. The Dodd-Frank
Act regulation has not impacted this source of fee revenue for Seacoast National materially, but did significantly reduce fees
collected by larger financial institutions.
The Company originates
residential mortgage loans in its markets, with loans processed by commissioned employees of Seacoast National. Many of these
mortgage loans are referred by the Company’s branch personnel. Mortgage banking fees in 2014 decreased $1,116,000 or 26.7
percent from 2013, and were $463,000 or 12.5 percent higher for 2013 than for 2012. Mortgage banking revenue as a component of
overall noninterest income was 12.4 percent for 2014, compared to 17.2 percent for 2013 and 17.3 percent for 2012. Mortgage revenues
are dependent upon favorable interest rates, as well as good overall economic conditions, including the volume of home sales.
Residential real estate sales and activity in our markets improved during 2013, with transactions increasing, prices firming and
affordability improving. However, during the fourth quarter of 2013 and into 2014, the volume of transactions was dampened by
higher interest rates and home prices. The Company was the number one originator of home purchase mortgages in Martin, St. Lucie
and Indian River counties the first eleven months of 2014 and all of 2013, based on the data available to date.
In the fourth quarter
of 2014, Bank owned life insurance (“BOLI”) investments were transferred to the Company from the acquisition of BANKshares,
and were added to policies directly acquired during the quarter. BOLI income of $252,000 was recognized in the fourth quarter
of 2014 and for the year ended December 31, 2014. The addition of these investments will provide approximately $1.3 million in
tax exempt revenues in 2015. No BOLI investments existed for the Company previously.
Other income for
2014 increased $90,000 or 4.2 percent compared to a year ago, and for 2013 decreased $33,000 or 1.5 percent. Included in the increase
for 2014 compared to 2013 was merchant income, which was $50,000 higher than a year ago.
Noninterest
Expenses
The Company's expense
ratio was in the low to mid 60 percentile in years prior to the recession. Lower earnings and cyclical credit costs in 2012, 2011
and 2010 resulted in this ratio increasing to 94.6 percent, 90.1 percent, and 104.6 percent, respectively. When compared to 2012,
total noninterest expenses for 2013 decreased by $7,396,000 or 9.0 percent to $75,152,000, and the expense ratio was 82.9 percent.
For 2014, the expense ratio was 92.4 percent and total noninterest expenses were $18,214,000 or 24.2 percent higher versus 2013,
totaling $93,366,000.
Continued
investments in our digital delivery channels, combined with increased advertising and data analytics have partially
offset our cost reductions. During the fourth quarter of 2014 we invested approximately $697,000 in marketing and other
expenditures to refresh and reintroduce our brand, and as part of this brand refresh, the Company retooled its logo and
signage throughout our branch network and digital platforms.
Some of the decrease
in expenses in 2013 was related to the implementation of prospective cost reductions that occurred in 2012. During third quarter
of 2012 management’s organizational structure was streamlined and the Company announced the consolidation of four offices,
resulting in severance and other organizational costs of $832,000 and branch consolidation costs of $723,000 impacting overhead
for the third and fourth quarters of 2012. Through these decisions and other cost reduction measures that took effect over 2014
and 2013, and our tactical plans to increase loan production and the acquisition of households, we anticipate significant improvement
in our results for 2015.
Table 7 provides
detail of noninterest expense components for the years ending December 31, 2014, 2013 and 2012.
Salaries and wages
were $4,126,000 or 13.3 percent higher for 2014 compared to 2013, and were $1,071,000 or 3.6 percent higher for 2013 compared
to the same period in 2012. Base salaries were higher for 2014 by $2,707,000 or 9.6 percent, with additional personnel retained
as part of the fourth quarter acquisition of BANKshares. Aggregate cash and stock incentives for 2014 were $2,032,000 higher,
reflecting an improved outlook and better than expected production. Severance, primarily related to the acquisition, resultant
organizational changes and cost reduction strategies, was $914,000 higher compared to 2013. Improved loan production year over
year for 2014 resulted in deferred loan origination costs (a contra-expense) increasing $1,586,000 or 64.0 percent which partially
offset the salary and wage increases. For 2013, base salaries were higher when compared to 2012, by $2,201,000 or 8.4 percent,
reflecting additional commercial relationship managers and credit support personnel hired during 2013. Totaling only $67,000,
severance payments for 2013 were $621,000 lower than 2012 when organizational changes were occurring. Higher commission and incentive
payments of $253,000 were included in the increase for salaries and wages for 2013 compared to 2012, but were more than offset
by the deferral of loan origination costs that were $785,000 or 46.3 percent higher for 2013. Executive cash incentive compensation
was not paid in 2013 or 2012.
In 2014, employee
benefits costs increased by $1,446,000 or 19.7 percent to $8,773,000 from a year ago, but were lower by $383,000 or 5.0 percent
for 2013 when compared to 2012. For 2014, costs for our self-funded health care plan were $737,000 higher than for 2013, due to
higher claims and utilization, and the addition of personnel from the acquisition of BANKshares. For 2013, costs for our self-funded
health care plan were $565,000 lower than for 2012, when a few large claims and higher utilization occurred. For 2014, 2013, and
2012, profit sharing contributions for all associates were eliminated. During 2014, matching 401K contributions associated with
employee salary deferrals were returned to levels pre-recession, and were $391,000 higher than in 2013, as compared to an increase
of $36,000 in 401K plan costs for 2013, versus 2012. Higher payroll taxes accounted for remaining increases in employee benefits
for 2014 and 2013, a reflection of additions to staff.
Seacoast National
utilizes third parties for its core data processing systems and outsourced data processing costs are directly related to the number
of transactions processed. Outsourced data processing costs totaled $8,781,000 for 2014, an increase of $2,409,000 or 37.8 percent
from a year ago. In comparison, for 2013 outsourced data processing costs decreased $1,010,000 or 13.7 percent from 2012. Of the
$2,409,000 increase during 2014, $1,581,000 was directly related to additional charges for the BANKshares merger and conversion
of systems. Without the merger related costs, outsourced data processing increased 13.0 percent year over year, with software
licensing and maintenance, and interchange processing costs all increasing during 2014. The Company’s contract with its
core data processor was renegotiated as of January 1, 2013 for a term of 5 1/2 years, resulting in data processing costs decreasing
$861,000 for 2013 under the renegotiated terms as compared to 2012. In addition, software licensing, software maintenance, and
other EFT processing costs were $53,000, $63,000 and $151,000 lower for 2013 than in 2012. Interchange processing costs were $118,000
higher in 2013 as compared to 2012, due entirely to rising transaction volumes. Outsourced data processing costs can be expected
to increase as the Company’s business volumes grow. We continue to further improve and enhance our mobile and other digital
products and services through our core data processor, which will likely increase our outsourced data processing costs as customers
adopt these improvements and products. At December 31, 2014, 59 percent of our customer households use online services and 49
percent of our online customers use our mobile banking products.
Telephone and data
line expenditures, including electronic communications with customers and between branch locations and personnel, as well as third
party data processors, increased $78,000 or 6.2 percent to $1,331,000 for 2014 when compared to 2013. Improved systems and monitoring
of services utilized has reduced our communication costs, and these costs should continue to reflect moderate fluctuations prospectively.
Such expenses for 2013 increased $75,000 or 6.4 percent to $1,253,000 from 2012’s totals.
Total occupancy,
furniture and equipment expenses for 2014 increased year over year versus 2013, by $5,445,000 or 57.2 percent to $14,957,000.
In comparison, 2013 expenses decreased year over year versus 2012, by $953,000 or 9.1 percent to $9,512,000. Branch consolidation
costs totaled $4,261,000 in the fourth quarter 2014, and comprised most of the increase for 2014. The full year impact of opening
five new, smaller commercial lending offices during 2013 in the Orlando, Ft. Lauderdale and Palm Beach markets increased our expense
by $278,000 for 2014. The addition of twelve branches acquired in the BANKshares acquisition during the fourth quarter of 2014
will have a full year impact on 2015 as well (see Form 10K dated December 31, 2014, “Item 2, Properties” for a complete
description). A primary contributor to the decrease for 2013 compared to 2012, branch consolidation costs of $232,000 and $407,000
were recorded during the third and fourth quarters of 2012, respectively. Branch consolidations are likely to continue for the
Company and the banking industry in general, as customers increase their usage of digital and mobile products thereby lessening
the necessity to visit offices.
For 2014, marketing
expenses including sales promotion costs, ad agency production and printing costs, newspaper and radio advertising, and other
public relations costs associated with the Company’s efforts to market products and services, increased $1,635,000 or 69.9
percent compared to the same period in 2013. Fourth quarter 2014’s expenditures included $697,000 to refresh and reintroduce
our brand, including a retooling of our logo and associated signage throughout our branch network and digital platforms. All costs
related for this logo change and additional branding were incurred in the fourth quarter of 2014. Direct mail, sales promotions,
digital/website and media were utilized more extensively during 2014, increasing a combined $836,000 compared to prior year, and
an additional $187,000 was incurred in shareholder relations, including activities related to the merger. Our marketing expenditures
reflect a tailored, focused campaign in our markets targeting the customers of competing financial institutions and promoting
our brand. For 2013, marketing expenses decreased by $756,000 or 24.4 percent to $2,339,000 when compared to 2012. For 2013, direct
mail activities, media costs for newspaper, television and radio advertising, sales promotions, and printing costs were all lower,
by $398,000, $187,000, $98,000 and $94,000, respectively, compared to 2012.
Legal and
professional fees were higher in 2014, increasing by $4,413,000 from a year ago to $6,871,000. Acquisition related legal and
professional fees for BANKshares summed to $2,394,000. In addition, other professional fees during 2014 included $182,000
for consulting fees related to our cost reduction initiatives. For 2014, OCC regulatory examination fees declined
$48,000, alleviated by the release from our regulatory agreement in the third quarter of 2013. In comparison, legal and
professional fees trended lower in 2013, decreasing by $2,783,000 or 53.1 percent to $2,458,000 from 2012. During 2013, legal
fees were $1,515,000 lower when compared to 2012, reflecting a recovery of legal fees of $650,000 and $350,000 in the second
and fourth quarters of 2013, respectively. These amounts were recovered from single creditors in each case. Other
professional fees, CPA fees and OCC regulatory examination fees for 2013 were lower versus 2012 as well, declining
$1,023,000, $156,000 and $89,000, respectively.
The FDIC assessment
for the first, second, third and fourth quarters of 2014 totaled $386,000, $411,000, $387,000 and $476,000, respectively, compared
to first, second, third and fourth quarter 2013’s assessments of $717,000, $720,000, $713,000 and $451,000, respectively.
For 2012, FDIC assessments summed to $2,805,000. FDIC assessments declined in the fourth quarter of 2013, reflecting our improved
risk posture and the termination of the regulatory enforcement actions. This benefited every quarter in 2014, with the increase
in premium paid in the fourth quarter of 2014 reflecting the merger with BANKshares. On July 30, 2013, Seacoast National also
received a refund of $3.8 million for premiums prepaid at the end of 2009 (less premiums calculated and paid since year end 2009).
Although the severity of bank failures and their impact on the FDIC’s Deposit Insurance Fund were less than predicted, Seacoast
National remains exposed to higher FDIC insurance costs.
Net losses on other
real estate owned (OREO) and repossessed assets, and asset disposition expenses associated with the management of OREO and repossessed
assets (aggregated) totaled $181,000, $210,000, $295,000 and $112,000 for the first, second, third and fourth quarters of 2014,
respectively, and totaled $798,000 for the year (declining $1,231,000 when compared to 2013). In comparison, these costs totaled
$857,000, $604,000, $388,000 and $180,000 for the first, second, third and fourth quarters of 2013, and totaled $2,029,000 for
2013 (declining $2,897,000 when compared to 2012). These costs have moderated and declined steadily over the last three years,
with OREO balances for non-acquired properties declining by 18.9 percent and 42.5 percent, respectively, during 2014 compared
to 2013 and 2013 compared to 2012. OREO totals $7.5 million at December 31, 2014, including $1.9 million in properties from the
acquisition of BANKshares. Of the $798,000 total for 2014, asset disposition costs summed to $488,000 and losses on OREO and repossessed
assets totaled $310,000. The Company expects these costs to continue to be lower prospectively.
Amortization of
core deposit intangibles totaled $1,033,000 for the year ended December 31, 2014, compared to $783,000 and $788,000 for 2013 and
2012, respectively. Fourth quarter 2014’s amortization included $315,000 for the acquisition of core deposits from BANKshares,
that for the total year 2015 is expected to total $1,260,000.
Other noninterest
expenses increased $516,000 or 6.1 percent to $9,988,000 for 2014 when compared to 2013, and were $444,000 or 4.5 percent higher
when comparing 2013 to 2012. For 2014, other noninterest expenses included armored car services (up $50,000), bank paid closing
costs (up $528,000), dealer referral fees (up $111,000), SBA fees (up $52,000), director fees (up $87,000), acquisition costs
(of $144,000) and BOLI and related insurance (of $101,000), partially offset by, employee placement fees (down $48,000), appraisal/self-assessment
fees (down $136,000), insurance expense (down $94,000), bank meeting costs (down $62,000), and the lack of a one-time miscellaneous
loss of $190,000 as recorded for 2013. For 2013, other noninterest expenses included a one-time miscellaneous loss of $190,000
in the fourth quarter of 2013, additional director fees (up $495,000, including stock compensation), increases in education-related
expenditures (up $80,000) and bank meeting costs (up $63,000), partially offset by lower check printing costs
(down $195,000), employee placement and relocation costs (down $71,000), and miscellaneous lending fees and bank paid closing
costs (down $77,000 and $41,000, respectively).
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 fourth
quarter 2014 Asset and Liability Management Committee (“ALCO”) model simulation indicates net interest income would
increase 9.1 percent if interest rates increased 200 basis points up over the next 12 months and 4.9 percent if interest rates
increased 100 basis points. This compares with the Company’s fourth quarter 2013 model simulation, which indicated net interest
income would increase 5.3 percent if interest rates were increased 200 basis points up over the next 12 months and 3.1 percent
if interest rates were increased 100 basis points. Recent regulatory guidance has placed more emphasis on rate shocks.
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 11.7 percent at December 31, 2014. 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.
Market Risk
Market risk refers
to potential losses arising from changes in interest rates, and other relevant market rates or prices.
Interest rate risk,
defined as the exposure of net interest income and Economic Value of Equity, or “EVE,” to adverse movements in interest
rates, is the Company’s primary market risk, and mainly arises from the structure of the balance sheet (non-trading activities).
The Company is also exposed to market risk in its investing activities. The Company’s Asset/Liability Committee, or “ALCO,”
meets regularly and is responsible for reviewing the interest rate sensitivity position of the Company and establishing policies
to monitor and limit exposure to interest rate risk. The policies established by the ALCO are reviewed and approved by the Company’s
Board of Directors. The primary goal of interest rate risk management is to control exposure to interest rate risk, within policy
limits approved by the Board. These limits reflect the Company’s tolerance for interest rate risk over short-term and long-term
horizons.
The Company also
performs valuation analyses, which are used for evaluating levels of risk present in the balance sheet that might not be taken
into account in the net interest income simulation analyses. Whereas net interest income simulation highlights exposures over
a relatively short time horizon, valuation analysis incorporates all cash flows over the estimated remaining life of all balance
sheet positions. The valuation of the balance sheet, at a point in time, is defined as the discounted present value of asset cash
flows minus the discounted value of liability cash flows, the net result of which is the EVE. The sensitivity of EVE to changes
in the level of interest rates is a measure of the longer-term re-pricing risks and options risks embedded in the balance sheet.
In contrast to the net interest income simulation, which assumes interest rates will change over a period of time, EVE uses instantaneous
changes in rates.
EVE values only
the current balance sheet, and does not incorporate the growth assumptions that are used in the net interest income simulation
model. As with the net interest income simulation model, assumptions about the timing and variability of balance sheet cash flows
are critical in the EVE analysis. Particularly important are the assumptions driving prepayments and the expected changes in balances
and pricing of the indeterminate life deposit portfolios. Core deposits are a more significant funding source for the Company,
making the lives attached to core deposits more important to the accuracy of our modeling of EVE. The Company periodically reassesses
its assumptions regarding the indeterminate lives of core deposits utilizing an independent third party resource to assist. With
lower interest rates over a prolonged period, the average lives of core deposits have trended higher and favorably impacted our
model estimates of EVE for higher rates. Based on our fourth quarter 2014 modeling, an instantaneous 100 basis point increase
in rates is estimated to increase the EVE 11.5 percent versus the EVE in a stable rate environment, while a 200 basis point increase
in rates is estimated to increase the EVE 21.1 percent.
While an instantaneous
and severe shift in interest rates is used in this analysis to provide an estimate of exposure under an extremely adverse scenario,
a gradual shift in interest rates would have a much more modest impact. Since EVE measures the discounted present value of cash
flows over the estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would
be impacted over a shorter time horizon, i.e., the next fiscal year. Further, EVE does not take into account factors such as future
balance sheet growth, changes in product mix, change in yield curve relationships, and changing product spreads that could mitigate
the adverse impact of changes in interest rates.
Liquidity Risk
Management and Contractual Commitments
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.
In the table that
follows, all deposits with indeterminate maturities such as demand deposits, NOW accounts, savings accounts and money market accounts
are presented as having a maturity of one year or less.
| Contractual Obligations | |
| | |
| | |
| | |
| | |
| |
| | |
December 31,
2014 | |
| | |
| | |
| | |
Over One | | |
Over Three | | |
| |
| | |
| | |
One Year | | |
Year Through | | |
Years Through | | |
Over five | |
| (In thousands) | |
Total | | |
or Less | | |
Three Years | | |
Five Years | | |
Years | |
| Deposit maturities | |
$ | 2,416,534 | | |
$ | 2,318,476 | | |
$ | 66,843 | | |
$ | 30,104 | | |
$ | 1,111 | |
| Short-term borrowings | |
| 233,640 | | |
| 233,640 | | |
| 0 | | |
| 0 | | |
| 0 | |
| Borrowed funds | |
| 50,000 | | |
| 0 | | |
| 50,000 | | |
| 0 | | |
| 0 | |
| Subordinated debt | |
| 64,583 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 64,583 | |
| Operating leases | |
| 26,062 | | |
| 3,894 | | |
| 6,969 | | |
| 3,700 | | |
| 11,499 | |
| TOTAL | |
$ | 2,790,819 | | |
$ | 2,556,010 | | |
$ | 123,812 | | |
$ | 33,804 | | |
$ | 77,193 | |
Funding sources
primarily include customer-based core deposits, collateral-backed borrowings, cash flows from operations, and asset securitizations
and sales.
Cash flows from
operations are a significant component of liquidity risk management and we consider both deposit maturities and the scheduled
cash flows from loan and investment maturities and payments. Deposits are also a primary source of liquidity. The stability of
this funding source is affected by numerous factors, including returns available to customers on alternative investments, the
quality of customer service levels, safety and competitive forces. We routinely use securities and loans as collateral for secured
borrowings. In the event of severe market disruptions, we have access to secured borrowings through the FHLB and the Federal Reserve
Bank of Atlanta under its borrower-in-custody.
Contractual maturities
for assets and liabilities are reviewed to meet current and expected future liquidity requirements. Sources of liquidity, both
anticipated and unanticipated, are maintained through a portfolio of high quality marketable assets, such as residential mortgage
loans, securities held for sale and interest-bearing deposits. The Company is also able to provide short term financing of its
activities by selling, under an agreement to repurchase, United States Treasury and Government agency securities not pledged to
secure public deposits or trust funds. At December 31, 2014, Seacoast National had available unsecured lines of $45 million and
lines of credit under current lendable collateral value, which are subject to change, of $671 million. Seacoast National had $588
million of United States Treasury and Government agency securities and mortgage backed securities not pledged and available for
use under repurchase agreements, and had an additional $235 million in residential and commercial real estate loans available
as collateral. In comparison, at December 31, 2013, the Company had available unsecured lines of $29 million and lines of credit
of $560 million, and had $334 million of Treasury and Government agency securities and mortgage backed securities not pledged
and available for use under repurchase agreements, as well as an additional $163 million in residential and commercial real estate
loans available as collateral.
Liquidity, as measured
in the form of cash and cash equivalents (including interest bearing deposits), totaled $100,539,000 on a consolidated basis at
December 31, 2014 as compared to $191,624,000 at December 31, 2013. The composition of cash and cash equivalents has changed from
a year ago. Over the past twelve months, cash and due from banks increased $15,850,000 to $64,411,000 and interest bearing deposits
decreased to $36,128,000 from $143,063,000. The interest bearing deposits are maintained in Seacoast National’s account
at the Federal Reserve Bank of Atlanta. Cash and cash equivalents vary with seasonal deposit movements and are generally higher
in the winter than in the summer, and vary with the level of principal repayments and investment activity occurring in Seacoast
National’s securities and loan portfolios. During 2014, our intent was to reinvest excess liquidity into the loan and securities
portfolios.
The Company does not rely on and is
not dependent on off-balance sheet financing or wholesale funding.
The Company is
a legal entity separate and distinct from Seacoast National and its other subsidiaries. Various legal limitations, including Section 23A
and 23B of the Federal Reserve Act and Federal Reserve Regulation W, restrict Seacoast National from lending or otherwise supplying
funds to the Company or its non-bank subsidiaries. The Company has traditionally relied upon dividends from Seacoast National
and securities offerings to provide funds to pay the Company’s expenses, to service the Company’s debt and to pay
dividends upon Company common stock and preferred stock. During the third quarter of 2013, formal regulatory agreements with the
OCC were removed thereby allowing Seacoast National to pay dividends to the Company without prior OCC approval. At December 31,
2014, Seacoast National can distribute dividends to the Company of approximately $59.0 million. At December 31, 2014, the
Company had cash and cash equivalents at the parent of approximately $38.3 million. In comparison, at December 31, 2013,
the Company had cash and cash equivalents at the parent of approximately $1.7 million. A $75.0 million common stock offering in
the fourth quarter of 2013 resulted in approximately $47.0 million (net of costs) in funds received during the quarter, with the
remaining funds of $25 million from CapGen Capital received on January 13, 2014 after regulatory approval of CapGen’s investment.
The $47.0 million, along with a portion of existing cash available from the parent, was utilized to redeem all of the Series A
Preferred stock at December 31, 2013 at its $50.0 million par value plus dividends of $319,000 accrued through the date of redemption.
The acquisition of BANKshares supplemented cash and cash equivalents in the parent by approximately $14 million.
Off-Balance
Sheet Transactions
In the normal course
of business, we may engage in a variety of financial transactions that, under generally accepted accounting principles, either
are not recorded on the balance sheet or are recorded on the balance sheet in amounts that differ from the full contract or notional
amounts. These transactions involve varying elements of market, credit and liquidity risk.
Lending commitments
include unfunded loan commitments and standby and commercial letters of credit. A large majority of loan commitments and standby
letters of credit expire without being funded, and accordingly, total contractual amounts are not representative of our actual
future credit exposure or liquidity requirements. Loan commitments and letters of credit expose the Company to credit risk in
the event that the customer draws on the commitment and subsequently fails to perform under the terms of the lending agreement.
Loan commitments
to customers are made in the normal course of our commercial and retail lending businesses. For commercial customers, loan commitments
generally take the form of revolving credit arrangements. For retail customers, loan commitments generally are lines of credit
secured by residential property. These instruments are not recorded on the balance sheet until funds are advanced under the commitment.
For loan commitments, the contractual amount of a commitment represents the maximum potential credit risk that could result if
the entire commitment had been funded, the borrower had not performed according to the terms of the contract, and no collateral
had been provided. Loan commitments were $238 million at December 31, 2014, and $135 million at December 31, 2013 (see “Note
P-Contingent Liabilities and Commitments with Off-Balance Sheet Risk” to the Company’s consolidated financial statements).
Income Taxes
The provision for
income taxes for 2014 and 2013, and benefit for net loss for 2012 totaled $4.5 million, $4.4 million and $0.1 million, respectively.
The deferred tax valuation allowance was decreased or increased by a like amount for 2012, therefore there was no change in the
carrying value of deferred tax assets for 2012 (see “Critical Accounting Estimates – Deferred Tax Assets”).
At September 30, 2013, we were able to reverse the tax valuation allowance of $44.8 million. Management believes it can realize
all of its future tax benefits (see “Note L – Income Taxes” to the Company’s consolidated financial statements).
Capital Resources
Table 8 summarizes
the Company’s capital position and selected ratios. The Company’s equity capital at December 31, 2014 totaled $312.7
million and the ratio of shareholders’ equity to period end total assets was 10.11 percent, compared with 8.75 percent at
December 31, 2013, and 7.62 percent at December 31, 2012. During fourth quarter 2014, the BANKshares acquisition was transacted
for common stock of $76.8 million, increasing total shareholders’ equity. Also, during third quarter 2013, the reversal
of the deferred tax valuation allowance increased net income and total shareholders’ equity. Seacoast’s management
uses certain “non-GAAP” financial measures in its analysis of the Company’s capital adequacy. Seacoast’s
management uses this measure to assess the quality of capital and believes that investors may find it useful in their analysis
of the Company. This capital measure is not necessarily comparable to similar capital measures that may be presented by other
companies (see “Note N – Shareholders’ Equity”).
On November 12,
2013, the Company received $47.0 million (net of costs) in proceeds from its $75 million common stock issuance, with the additional
$25.0 million remitted from CapGen Capital on January 13, 2014 following regulatory approval of CapGen’s investment. In
addition, effective December 13, 2013, the Company transacted a 1 for 5 reverse common stock split, which resulted in 23,637,434
common shares outstanding at December 31, 2013. The proceeds from the capital raise were used to redeem 2,000 shares of outstanding
Series A Preferred Stock (at par) totaling $50 million originally issued to the U.S. Department of Treasury under the Troubled
Asset Relief Program and later sold to third party investors. The remaining funds from the capital raise were retained for general
corporate purposes. The preferred stock carried a 5 percent dividend that was to increase to 9 percent on February 15, 2014. The
preferred stock redemption was completed on December 31, 2013, increasing net income available to common shareholders during 2014
and beyond.
The Company’s
capital position remains strong, meeting the general definition of “well capitalized”, with a total risk-based capital
ratio of 16.25 percent at December 31, 2014, lower than December 31, 2013’s ratio of 16.88 percent and 18.33 percent at
December 31, 2012. Reinvestment of cash and cash equivalents with a zero percent risk weight into securities and loans with higher
risk weightings, and the acquisition of BANKshares’ loans with higher risk weightings, was the primary cause for risk weighted
assets increasing, thereby lowering Tier 1 and total risk-based capital ratios at December 31, 2014. As of December 31, 2014,
the Bank’s leverage ratio was 9.04 percent, compared to 9.51 percent at December 31, 2013 and 9.72 percent at December 31,
2012.
The Company and
Seacoast National 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 National 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 OCC approval
presently, the Seacoast National can pay up to $59.0 million of dividends to the Company (see “Note C - Cash, Dividend and
Loan Restrictions”).
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 National or us,
respectively. Under a recently adopted Federal Reserve policy, the board of directors of a bank holding company must consider
different factors to ensure that its dividend level is prudent relative to the organization’s financial position and is
not based on overly optimistic earnings scenarios such as any potential events that may occur before the payment date that could
affect its ability to pay, while still maintaining a strong financial position. As a general matter, the Federal Reserve has indicated
that the board of directors of a bank holding company, such as Seacoast, should consult with the Federal Reserve and eliminate,
defer, or significantly reduce the bank holding company’s dividends if: (i) its net income available to shareholders for
the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii)
its prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective financial
condition; or (iii) it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
The Company has
six wholly owned trust subsidiaries, SBCF Capital Trust I and SBCF Statutory Trust II that were both formed in 2005 to issue trust
preferred securities. In 2007, the Company formed an additional wholly owned trust subsidiary, SBCF Statutory Trust III. The 2005
trusts each issued $20.0 million (totaling $40.0 million) of trust preferred securities and the 2007 trust issued an additional
$12.0 million in trust preferred securities. In 2014, as part of the BANKshares acquisition, the Company acquired BankFIRST Statutory
Trust I, BankFIRST Statutory Trust II and The BANKshares Capital Trust I that issued in the aggregate $14.4 million in trust preferred
securities. 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 as Tier 1 capital up to
25 percent of core capital, net of goodwill and intangibles. The Company believes that its trust preferred securities qualify
under these revised regulatory capital rules and expects that it will be able to treat all $62.5 million of trust preferred securities
as Tier 1 capital. For regulatory purposes, the trust preferred securities are added to the Company’s tangible common shareholders’
equity to calculate Tier 1 capital. The weighted average interest rate of our outstanding subordinated debt related to trust preferred
securities was 1.87 percent during 2014, compared to 1.74 and 1.93 percent during 2013 and 2012 respectively. The Company also
formed SBCF Capital Trust IV and SBCF Capital Trust V in 2008, however both are currently inactive.
Changes in rules
under new Basel III guidelines take effect on January 1, 2015, and affect risk based capital calculations. The Company has taken
a prospective look at its ratios, finding that our ratios remain strong under these guidelines.
Financial Condition
Total assets
increased $824,395,000 or 36.3 percent to $3,093,335,000 at December 31, 2014, after increasing $95,011,000 or 4.4 percent to
$2,268,940,000 in 2013. The highlight of 2014 was our acquisition of BANKshares which closed on October 1, 2014 and expanded
our presence in Central Florida, particularly in the greater Orlando market, and increased total assets, by approximately
$627 million. The Company is the sixth largest Florida-based bank.
Loan Portfolio
Table 9 shows total
loans (net of unearned income) for commercial and residential real estate, commercial and financial and consumer loans outstanding.
The Company defines
commercial real estate in accordance with the guidance on “Concentrations in Commercial Real Estate Lending” (the
“Guidance”) issued by the federal bank regulatory agencies in 2006, which defines commercial real estate (“CRE”)
loans as exposures secured by land development and construction, including 1-4 family residential construction, multi-family property,
and non-farm nonresidential property where the primary or a significant source of repayment is derived from rental income associated
with the property (i.e. loans for which 50 percent or more of the source of repayment comes from third party, non-affiliated,
rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. Loans to real estate investment
trusts, or “REITs”, and unsecured loans to developers that closely correlate to the inherent risks in CRE markets
would also be considered CRE loans under the Guidance. Loans on owner occupied CRE are generally excluded.
Total loans (net
of unearned income and excluding the allowance for loan losses) were $1,821,885,000 at December 31, 2014, $517,678,000 or 39.7
percent more than at December 31, 2013, and were $1,304,207,000 at December 31, 2013, $78,126,000 or 6.4 percent more than at
December 31, 2012. The BANKshares acquisition on October 1, 2014 contributed $365.4 million in loans.
The Company continues
to look for opportunities to invest excess liquidity, and believes the best current use is to fund loan growth. Additional new
commercial relationship managers hired over the past three years have increased loan growth, and will continue to do so prospectively.
Loan production of $424 million, $354 million and $287 million was retained in the loan portfolio during the twelve months ended
December 31, 2014, 2013 and 2012, respectively. No problem loan sales occurred in 2014 or 2013, compared to $9 million in sales
in 2012. The sales in 2012 were necessary to improve the Company’s overall risk profile.
As shown
in the supplemental loan table below, construction and land development loans (excluding individuals) increased $20.0 million
to $53.3 million at December 31, 2014. The primary causes for the increase were loans collateralized by land of $13.3 million,
many derived via the acquisition of BANKshares, with approximately 70 loans comprising the $18.2 million outstanding at
December 31, 2014. In comparison, construction and land development loans (excluding individuals) increased $11.5 million to
$33.3 million at December 31, 2013.
Construction and
land development loans, including loans secured by commercial real estate, were comprised of the following types of loans at December
31, 2014 and 2013:
| December 31 | |
2014 | | |
2013 | |
| (In millions) | |
Funded | | |
Unfunded | | |
Total | | |
Funded | | |
Unfunded | | |
Total | |
| Construction and land development | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Residential: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Town homes | |
$ | 0.3 | | |
$ | 11.0 | | |
$ | 11.3 | | |
$ | 0.0 | | |
$ | 1.5 | | |
$ | 1.5 | |
| Single family residences | |
| 6.8 | | |
| 17.1 | | |
| 23.9 | | |
| 2.0 | | |
| 3.0 | | |
| 5.0 | |
| Single family land and lots | |
| 6.1 | | |
| 0.0 | | |
| 6.1 | | |
| 4.9 | | |
| 0.0 | | |
| 4.9 | |
| Multifamily | |
| 3.0 | | |
| 0.0 | | |
| 3.0 | | |
| 3.7 | | |
| 0.0 | | |
| 3.7 | |
| | |
| 16.2 | | |
| 28.1 | | |
| 44.3 | | |
| 10.6 | | |
| 4.5 | | |
| 15.1 | |
| Commercial: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Office buildings | |
| 1.6 | | |
| 2.7 | | |
| 4.3 | | |
| 0.0 | | |
| 0.0 | | |
| 0.0 | |
| Retail trade | |
| 0.7 | | |
| 0.4 | | |
| 1.1 | | |
| 7.7 | | |
| 1.3 | | |
| 9.0 | |
| Land | |
| 18.2 | | |
| 3.0 | | |
| 21.2 | | |
| 4.9 | | |
| 1.4 | | |
| 6.3 | |
| Industrial buildings | |
| 2.7 | | |
| 0.5 | | |
| 3.2 | | |
| 0.0 | | |
| 0.0 | | |
| 0.0 | |
| Healthcare | |
| 0.0 | | |
| 0.0 | | |
| 0.0 | | |
| 5.4 | | |
| 3.8 | | |
| 9.2 | |
| Churches and educational facilities | |
| 2.9 | | |
| 0.4 | | |
| 3.3 | | |
| 3.8 | | |
| 0.2 | | |
| 4.0 | |
| Lodging | |
| 7.1 | | |
| 0.0 | | |
| 7.1 | | |
| 0.9 | | |
| 6.3 | | |
| 7.2 | |
| Convenience stores | |
| 3.2 | | |
| 1.7 | | |
| 4.9 | | |
| 0.0 | | |
| 0.0 | | |
| 0.0 | |
| Automobile and RV dealerships | |
| 0.3 | | |
| 0.0 | | |
| 0.3 | | |
| 0.0 | | |
| 0.0 | | |
| 0.0 | |
| Other | |
| 0.4 | | |
| 0.1 | | |
| 0.5 | | |
| 0.0 | | |
| 0.0 | | |
| 0.0 | |
| | |
| 37.1 | | |
| 8.8 | | |
| 45.9 | | |
| 22.7 | | |
| 13.0 | | |
| 35.7 | |
| Total residential and commercial construction and land development | |
| 53.3 | | |
| 36.9 | | |
| 90.2 | | |
| 33.3 | | |
| 17.5 | | |
| 50.8 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Individuals: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Lot loans | |
| 15.5 | | |
| 0.0 | | |
| 15.5 | | |
| 12.9 | | |
| 0.0 | | |
| 12.9 | |
| Construction | |
| 18.2 | | |
| 13.0 | | |
| 31.2 | | |
| 21.3 | | |
| 18.0 | | |
| 39.3 | |
| | |
| 33.7 | | |
| 13.0 | | |
| 46.7 | | |
| 34.2 | | |
| 18.0 | | |
| 52.2 | |
| Total | |
$ | 87.0 | | |
$ | 49.9 | | |
$ | 136.9 | | |
$ | 67.5 | | |
$ | 35.5 | | |
$ | 103.0 | |
Commercial real
estate mortgages were higher by $316.8 million or 60.9 percent, totaling $837.2 million at December 31, 2014. The Company’s
ten largest commercial real estate funded and unfunded loan relationships at December 31, 2014 aggregated to $95.9 million (versus
$104.1 million a year ago) and for the 37 commercial real estate relationships in excess of $5 million the aggregate funded and
unfunded totaled $283.2 million (compared to 26 relationships of $198.0 million a year ago).
Commercial real
estate mortgage loans, excluding construction and development loans, were comprised of the following loan types at December 31,
2014 and 2013:
| December 31 | |
2014 | | |
2013 | |
| (In millions) | |
Funded | | |
Unfunded | | |
Total | | |
Funded | | |
Unfunded | | |
Total | |
| Office buildings | |
$ | 235.7 | | |
$ | 3.6 | | |
$ | 239.3 | | |
$ | 118.7 | | |
$ | 2.5 | | |
$ | 121.2 | |
| Retail trade | |
| 205.5 | | |
| 1.3 | | |
| 206.8 | | |
| 130.6 | | |
| 2.4 | | |
| 133.0 | |
| Industrial | |
| 157.3 | | |
| 3.9 | | |
| 161.2 | | |
| 81.1 | | |
| 0.7 | | |
| 81.8 | |
| Healthcare | |
| 50.6 | | |
| 0.7 | | |
| 51.3 | | |
| 45.5 | | |
| 1.0 | | |
| 46.5 | |
| Churches and educational facilities | |
| 26.1 | | |
| 0.1 | | |
| 26.2 | | |
| 25.3 | | |
| 0.0 | | |
| 25.3 | |
| Recreation | |
| 3.2 | | |
| 0.1 | | |
| 3.3 | | |
| 2.5 | | |
| 0.0 | | |
| 2.5 | |
| Multifamily | |
| 17.4 | | |
| 0.0 | | |
| 17.4 | | |
| 16.8 | | |
| 0.0 | | |
| 16.8 | |
| Mobile home parks | |
| 1.7 | | |
| 0.0 | | |
| 1.7 | | |
| 1.9 | | |
| 0.0 | | |
| 1.9 | |
| Lodging | |
| 16.9 | | |
| 0.0 | | |
| 16.9 | | |
| 17.1 | | |
| 0.0 | | |
| 17.1 | |
| Restaurant | |
| 3.3 | | |
| 0.0 | | |
| 3.3 | | |
| 3.7 | | |
| 0.0 | | |
| 3.7 | |
| Agriculture | |
| 2.6 | | |
| 0.7 | | |
| 3.3 | | |
| 7.0 | | |
| 0.8 | | |
| 7.8 | |
| Convenience stores | |
| 21.2 | | |
| 1.0 | | |
| 22.2 | | |
| 20.8 | | |
| 0.1 | | |
| 20.9 | |
| Marina | |
| 18.5 | | |
| 0.0 | | |
| 18.5 | | |
| 21.3 | | |
| 0.0 | | |
| 21.3 | |
| Other | |
| 77.2 | | |
| 2.5 | | |
| 79.7 | | |
| 28.1 | | |
| 0.1 | | |
| 28.2 | |
| Total | |
$ | 837.2 | | |
$ | 13.9 | | |
$ | 851.1 | | |
$ | 520.4 | | |
$ | 7.6 | | |
$ | 528.0 | |
Fixed rate and
adjustable rate loans secured by commercial real estate, excluding construction loans, totaled approximately $596 million and
$241 million, respectively, at December 31, 2014, compared to $350 million and $170 million, respectively, at December 31, 2013.
Residential mortgage
lending is an important segment of the Company’s lending activities. The Company has never offered sub-prime, Alt A, Option
ARM or any negative amortizing residential loans, programs or products, although we have originated and hold residential mortgage
loans from borrowers with original or current FICO credit scores that are less than “prime.” Substantially all residential
originations have been underwritten to conventional loan agency standards, including loans having balances that exceed agency
value limitations. The Company selectively adds residential mortgage loans to its portfolio, primarily loans with adjustable rates.
The Company’s asset mitigation staff handles all foreclosure actions together with outside legal counsel.
Exposure to market
interest rate volatility with respect to long-term fixed rate mortgage loans held for investment is managed by attempting to match
maturities and re-pricing opportunities and through loan sales of most fixed rate product
Adjustable
and fixed rate residential real estate mortgages were higher at December 31, 2014, by $49.4 million or 12.6 percent and $2.8 million
or 3.0 percent, compared to a year ago. At December 31, 2014,
approximately $441 million or 64 percent of the Company’s residential mortgage balances were adjustable, compared to $392
million or 66 percent at December 31, 2013. Loans secured by residential properties having fixed rates totaled approximately $94
million at December 31, 2014, of which 15- and 30-year mortgages totaled approximately $23 million and $71 million, respectively.
The remaining fixed rate balances were comprised of home improvement loans, most with maturities of 10 years or less, that increased
$9.8 million or 15.8 percent since December 31, 2013. In comparison, loans secured by residential properties having fixed rates
totaled approximately $91 million at December 31, 2013, with 15- and 30-year fixed rate residential mortgages totaling approximately
$22 million and $69 million, respectively. The Company also has a growing home equity line portfolio, primarily floating rates,
totaling approximately $80 million at December 31, 2014, higher than the $48 million that was outstanding at December 31, 2013,
and validating improving property values.
Reflecting the
impact of improved economic conditions and the acquisition, commercial loans increased to $157.4 million at December 31,
2014, doubling from $78.6 million at December 31, 2013, and includes $54.1 million from BANKshares. Commercial lending activities
are directed principally towards businesses whose demand for funds are within the Company’s lending limits, such as small-
to medium-sized professional firms, retail and wholesale outlets, and light industrial and manufacturing concerns. Such businesses
are smaller and subject to the risks of lending to small to medium sized businesses, including, but not limited to, the effects
of a downturn in the local economy, possible business failure, and insufficient cash flows.
The Company also
provides consumer loans (including installment loans, loans for automobiles, boats, and other personal, family and household purposes)
which increased $8.2 million or 18.3 percent year over year and totaled $52.9 million (versus $44.7 million a year ago). In addition,
real estate construction loans to individuals secured by residential properties totaled $18.2 million (versus $21.3 million a
year ago), and residential lot loans to individuals which totaled $15.5 million (versus $12.9 million a year ago).
At December 31,
2014, the Company had commitments to make loans of $238.1 million, compared to $135.1 million at December 31, 2013 and $118.9
million at December 31, 2012 (see “Note P - Contingent Liabilities and Commitments with Off-Balance Sheet Risk” to
the Company’s consolidated financial statements).
Loan Concentrations
Over the past five
years, the Company has been pursuing an aggressive program to reduce exposure to loan types that have been most impacted by stressed
market conditions in order to achieve lower levels of credit loss volatility. The program included aggressive collection efforts,
loan sales and early stage loss mitigation strategies focused on the Company’s largest loans. Successful execution of this
program has significantly reduced our exposure to larger balance loan relationships (including multiple loans to a single borrower
or borrower group). Commercial loan relationships greater than $10 million were reduced by $109.6 million to $95.9 million at
December 31, 2014, compared with year-end 2009.
| December 31 | |
2014 | | |
2013 | | |
2012 | | |
2011 | | |
2010 | | |
2009 | |
| Performing | |
$ | 95,893 | | |
$ | 64,224 | | |
$ | 77,321 | | |
$ | 84,610 | | |
$ | 112,469 | | |
$ | 145,797 | |
| Performing TDR* | |
| 0 | | |
| 0 | | |
| 10,431 | | |
| 25,494 | | |
| 28,286 | | |
| 31,152 | |
| Nonaccrual | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 20,913 | | |
| 28,525 | |
| Total | |
$ | 95,893 | | |
$ | 64,224 | | |
$ | 87,752 | | |
$ | 110,104 | | |
$ | 161,668 | | |
$ | 205,474 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Top 10 Customer Loan | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Relationships | |
$ | 114,632 | | |
$ | 104,145 | | |
$ | 115,506 | | |
$ | 128,739 | | |
$ | 151,503 | | |
$ | 173,162 | |
*TDR = Troubled
debt restructures
Commercial loan
relationships greater than $10 million as a percent of tier 1 capital and the allowance for loan losses totaled 29.7 percent at
December 31, 2014, compared with 27.9 percent at year-end 2013, 37.5 percent at year-end 2012, 45.8 percent at year-end 2011,
66.5 percent at year-end 2010, and 85.9 percent at the end of 2009.
Concentrations
in total construction and development loans and total commercial real estate (CRE) loans have also been substantially reduced.
As shown in the table below, under regulatory guidance for construction and land development and commercial real estate loan concentrations
as a percentage of total risk based capital, Seacoast National’s loan portfolio in these categories (as defined in the guidance)
have improved.
| December 31 | |
2014 | | |
2013 | | |
2012 | | |
2011 | | |
2010 | | |
2009 | |
| Construction
and land development loans to total risk based capital | |
| 31 | % | |
| 30 | % | |
| 28 | % | |
| 22 | % | |
| 39 | % | |
| 81 | % |
| CRE loans to total risk
based capital | |
| 197 | % | |
| 172 | % | |
| 164 | % | |
| 174 | % | |
| 218 | % | |
| 274 | % |
Deposits
The Company’s
balance sheet continues to be primarily core funded. The Company continues to utilize a focused retail and commercial deposit
growth strategy that has successfully generated core deposit relationships and increased services per household.
Total deposits
increased $610,489,000 or 33.8 percent, to $2,416,534,000 at December 31, 2014 compared to one year earlier, and increased $47,084,000,
or 2.7 percent, to $1,806,045,000 at December 31, 2013 when compared to December 31, 2012. The acquisition of BANKshares contributed
approximately $516.3 million in total deposits. The acquisition of BANKshares increases our number of households by approximately
13 percent, further strengthening our customer base. Declining single service time deposits over the past two years have been
more than offset by increasing low cost or no cost deposits.
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.
Securities
Information related
to yields, maturities, carrying values and unrealized gains (losses) of the Company’s securities is set forth in Tables
15-17.
At December 31,
2014, the Company had no trading securities, $741,375,000 in securities available for sale (representing 78.1 percent of the total
portfolio), with the remainder of $207,904,000 in securities held for investment (representing 21.9 percent of the total portfolio).
The Company's total securities portfolio increased $307.7 million or 48.0 percent from December 31, 2013, primarily as a result
of efforts to invest excess liquidity and short-term borrowings, and the addition of securities from the merger with BANKshares.
During 2013, the securities portfolio decreased $15.3 million or 2.3 percent from December 31, 2012, primarily as a result of
improved loan growth.
As part of the
Company’s interest rate risk management process, an average duration for the securities portfolio is targeted. In addition,
securities are acquired which return principal monthly that can be reinvested.
The effective duration
of the investment portfolio at December 31, 2014 was 3.2 years, compared to 4.0 years at December 31, 2013. During the third and
fourth quarters of 2014, average investment securities increased $234.9 million, or $149.5 million excluding securities acquired
from the BANKshares acquisition. Funding for this increase in investments was derived from liquidity, both legacy and that acquired
in the merger, and an increase in seasonal funding from our core customer deposit base. Investments added during the third and
fourth quarters were primarily uncapped, floating rate, senior collateralized loan obligations (CLO) securities with average yields
at static LIBOR ranging from 1.40% to 3.30% and credit support ranging from 17 to 36%. Duration increased in 2013 due to a steeper
yield curve as interest rates increased approximately 80 to 100 basis points for 5- and 10-year maturities during 2013. The Company’s
investments do not extend beyond an average duration of 4.6 years if interest rates were to increase 300 basis points in the future.
Management believes the effective average duration of the portfolio will remain in the 3.0 to 3.5 years over 2015 if the yield
curve remains unchanged.
Cash and due from
banks and interest bearing deposits (aggregated) totaled $100,539,000 at December 31, 2014, compared to $191,624,000 at December
31, 2013. The Company maintained additional liquidity during the uncertain environment and has utilized proceeds held in cash
and cash equivalents to increase loans and investments as the economy has improved.
At December 31,
2014, available for sale securities had gross losses of $9,403,000 and gross gains of $4,388,000, compared to gross losses of
$20,003,000 and gross gains of $3,156,000 at December 31, 2013. All of the securities with unrealized losses are reviewed
for other-than-temporary impairment at least quarterly. As a result of these reviews it was determined that the unrealized losses
were not other than temporarily impaired and the Company has the intent and ability to retain these securities until recovery
over the periods presented (see additional discussion under “Critical Accounting Estimates-Fair Value and Other than Temporary
Impairment of Securities Classified as Available for Sale”).
Company management
considers the overall quality of the securities portfolio to be high. The Company has no exposure to securities with subprime
collateral. The Company holds no interests in trust preferred securities.
Fourth Quarter
Review
For fourth quarter
2014, a net loss of $(1,517,000) or ($0.05) per average common diluted share was reported, compared to net income for the third,
second and first quarter of 2014 of $2,996,000 or $0.12 per average common diluted share, $1,918,000 or $0.07 per average common
diluted share, and $2,299,000 or $0.09 per average common diluted share, respectively. In comparison, net income in 2013’s
fourth quarter was $588,000 or $0.03 per average common diluted share. The most significant factor impacting the fourth quarter
2014’s net income was much higher noninterest expenses.
Noninterest expenses
increased by $14.1 million versus third quarter 2014’s result, and were $15.4 million higher when compared to the fourth
quarter of 2013. Impacting the fourth quarter of 2014, our acquisition of BANKshares (with 12 full-service offices) expanded our
presence in central Florida, particularly the greater Orlando market. Merger related charges in the fourth quarter totaled approximately
$2.7 million and were primarily related to core system conversion costs, software and other contract termination charges, and
investment banking fees. Also accrual of long term stock compensation expense related to an improved outlook and other incentive
costs related to better than expected production added incremental $1.2 million to expenses in the fourth quarter. As expected,
one-time charges were incurred in the fourth quarter of 2014 for approximately $4.3 million, were related to announced branch
closings. Severance totaled $0.5 million for the fourth quarter, versus no payouts a year ago. In addition, during the fourth
quarter 2014, we invested approximately $0.7 million in marketing and other expenditures to refresh and reintroduce our brand,
including retooling our logo and associated signage throughout our branch network and digital platforms. All costs for this logo
change and additional branding were incurred in the fourth quarter of 2014. All of the above added a total of $9.4 to fourth quarter
noninterest expense which will not be incurred in the first quarter of 2015.
On October 1, 2014,
the BANKshares acquisition contributed $516.3 million in deposits and $365.4 million in loans to our balance sheet, and significantly
boosted net interest margin in the fourth quarter of 2014. Our net interest margin of 3.56 percent increased 39 basis points during
the fourth quarter of 2014 from the third quarter of 2014, and was 48 basis points higher when compared to fourth quarter 2013’s
result. The deployment of liquidity and organic balance sheet growth into investment securities contributed to the margin improvement
in the fourth quarter of 2014 (see “Securities”). Loan demand was better during 2014 compared to 2013, and year over
year we expect loan growth will continue to build in 2015. The Company also benefited from lower rates paid for interest bearing
liabilities due to the Federal Reserve’s reduction in interest rates, as well as, an improved mix of deposits. The average
cost of deposits was 1 basis point lower for the fourth quarter of 2014 compared to the third quarter of 2014, and 3 basis points
lower compared to the fourth quarter of 2013. During the fourth quarter, noninterest bearing demand deposits increased to 30.0
percent of total deposits, compared with 28.9 percent for the third quarter 2014 and 25.7 for fourth quarter 2013.
Noninterest income
(excluding securities gains, net) totaled $7.1 million for the fourth quarter of 2014, compared to $6.1 million for the third
quarter of 2014, $5.9 million for the second quarter of 2014, $5.6 million for the first quarter of 2014, and $6.0 million for
the fourth quarter of 2013. During the fourth quarter 2014, noninterest income (excluding security gains, net) increased $1.0
million from third quarter 2014 and $1.1 million from fourth quarter 2013. The increases include a full quarter effect of fees
generated from BANKshares. Bank owned life insurance (“BOLI”) investments were transferred to Seacoast as a result
of the acquisition, and were added to policies directly acquired by the Company during the fourth quarter of 2014. Also increasing
for fourth quarter 2014 (compared to fourth quarter a year ago) were service charges on deposits (up $0.4 million), marine finance
fees (up $0.2 million), and interchange income (up $0.2 million). Charges and fees derived from customer relationships increased
as a result of more accounts and households as a result of our retail deposit growth strategy and the acquisition, and will result
in higher noninterest income in 2015.
A provision for
loan losses of $0.1 million was recorded in the fourth quarter of 2014. Overall, a recapture of provisioning was recorded for
2014, as credit quality has improved, compared to 2013. For the fourth quarter of 2014, net charge-offs totaled $0.6 million,
lower by $0.2 million compared to the fourth quarter of 2013. While the allowance for loan losses to portfolio loans outstanding
ratio at December 31, 2014 was lower, 1.14 percent compared to 1.54 percent a year earlier, the coverage ratio (the allowance
for loan losses to nonaccrual loans) was 80.8 percent at December 31, 2014 compared to 72.5 percent at December 31, 2013, reflecting
the improvement in credit quality.
Internal Controls
The Company's management,
including the Chief Executive Officer and Chief Financial Officer with the assistance of outside consultants, has conducted an
assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2014 based on the
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on its assessment, management has concluded as of December 31, 2014, the Company's internal
control over financial reporting was effective.
The board of directors,
the audit committee of the board and senior management of the Company consider it essential to assure the Company achieves effective
and comprehensive internal controls over every aspect of financial reporting.
Table 1 - Condensed Income Statement*
| | |
2014 | | |
2013 | | |
2012 | |
| | |
(Tax equivalent basis) | |
| Net interest income | |
| 3.03 | % | |
| 2.99 | % | |
| 3.07 | % |
| Provision (recapture) for loan losses | |
| (0.14 | ) | |
| 0.15 | | |
| 0.51 | |
| Noninterest income | |
| | | |
| | | |
| | |
| Securities gains, net | |
| 0.02 | | |
| 0.02 | | |
| 0.36 | |
| Change in fair value of loan held for sale | |
| 0.00 | | |
| 0.00 | | |
| (0.06 | ) |
| Other | |
| 1.00 | | |
| 1.11 | | |
| 1.01 | |
| Noninterest expense | |
| 3.76 | | |
| 3.43 | | |
| 3.89 | |
| Income (loss) before income taxes | |
| 0.43 | | |
| 0.54 | | |
| (0.02 | ) |
| Provision (benefit) for income taxes including
tax equivalent adjustment | |
| 0.20 | | |
| (1.84 | ) | |
| 0.01 | |
| Net income (loss) | |
| 0.23 | % | |
| 2.38 | % | |
| (0.03 | )% |
* As a Percent of Average Assets
Table 2 - Changes in Average Earning
Assets
| | |
Increase/(Decrease) | | |
Increase/(Decrease) | |
| | |
2014
vs 2013 | | |
2013
vs 2012 | |
| | |
(Dollars in thousands) | |
| Securities: | |
| | | |
| | | |
| | | |
| | |
| Taxable | |
$ | 80,956 | | |
| 12.4 | % | |
$ | 63,886 | | |
| 10.9 | % |
| Nontaxable | |
| 3,036 | | |
| 188.8 | | |
| (371 | ) | |
| (18.7 | ) |
| Federal funds sold and other investments | |
| (27,266 | ) | |
| (17.8 | ) | |
| (47,192 | ) | |
| (23.6 | ) |
| Loans, net | |
| 180,304 | | |
| 14.2 | | |
| 44,905 | | |
| 3.7 | |
| TOTAL | |
$ | 237,030 | | |
| 11.4 | | |
$ | 61,228 | | |
| 3.0 | |
Table 3 - Rate/Volume Analysis (on
a Tax Equivalent Basis)
| | |
2014 vs 2013 | | |
2013 vs 2012 | |
| | |
Due
to Change in: | | |
Due
to Change in: | |
| | |
Volume | | |
Rate | | |
Total | | |
Volume | | |
Rate | | |
Total | |
| | |
(Dollars in thousands) | |
| | |
Amount of increase (decrease) | |
| EARNING ASSETS | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Securities | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Taxable | |
$ | 1,653 | | |
$ | 939 | | |
$ | 2,592 | | |
$ | 1,390 | | |
$ | (2,498 | ) | |
$ | (1,108 | ) |
| Nontaxable | |
| 205 | | |
| 14 | | |
| 219 | | |
| (23 | ) | |
| 6 | | |
| (17 | ) |
| | |
| 1,858 | | |
| 953 | | |
| 2,811 | | |
| 1,367 | | |
| (2,492 | ) | |
| (1,125 | ) |
| Federal funds sold and other investments | |
| (190 | ) | |
| 338 | | |
| 148 | | |
| (247 | ) | |
| 162 | | |
| (85 | ) |
| Loans, net | |
| 8,008 | | |
| (1,383 | ) | |
| 6,625 | | |
| 2,076 | | |
| (3,342 | ) | |
| (1,266 | ) |
| TOTAL EARNING ASSETS | |
| 9,676 | | |
| (92 | ) | |
| 9,584 | | |
| 3,196 | | |
| (5,672 | ) | |
| (2,476 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| INTEREST BEARING LIABILITIES | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| NOW | |
| 44 | | |
| (47 | ) | |
| (3 | ) | |
| 42 | | |
| (273 | ) | |
| (231 | ) |
| Savings deposits | |
| 20 | | |
| (8 | ) | |
| 12 | | |
| 23 | | |
| (77 | ) | |
| (54 | ) |
| Money market accounts | |
| 27 | | |
| 45 | | |
| 72 | | |
| (3 | ) | |
| (452 | ) | |
| (455 | ) |
| Time deposits | |
| (115 | ) | |
| (294 | ) | |
| (409 | ) | |
| (744 | ) | |
| (1,278 | ) | |
| (2,022 | ) |
| | |
| (24 | ) | |
| (304 | ) | |
| (328 | ) | |
| (682 | ) | |
| (2,080 | ) | |
| (2,762 | ) |
| Federal funds purchased and other short term borrowings | |
| 30 | | |
| (19 | ) | |
| 11 | | |
| 29 | | |
| (83 | ) | |
| (54 | ) |
| Other borrowings | |
| 68 | | |
| 46 | | |
| 114 | | |
| 0 | | |
| (105 | ) | |
| (105 | ) |
| TOTAL INTEREST BEARING LIABILITIES | |
| 74 | | |
| (277 | ) | |
| (203 | ) | |
| (653 | ) | |
| (2,268 | ) | |
| (2,921 | ) |
| NET INTEREST INCOME | |
$ | 9,602 | | |
$ | 185 | | |
$ | 9,787 | | |
$ | 3,849 | | |
$ | (3,404 | ) | |
$ | 445 | |
(1) Changes attributable to rate/volume
are allocated to rate and volume on an equal basis.
Table 4 - Changes in Average Interest
Bearing Liablities
| | |
Increase/(Decrease) | | |
Increase/(Decrease) | |
| | |
2014
vs 2013 | | |
2013
vs 2012 | |
| | |
(Dollars in thousands) | |
| NOW | |
$ | 53,608 | | |
| 11.5 | % | |
$ | 35,603 | | |
| 8.3 | % |
| Savings deposits | |
| 37,754 | | |
| 20.7 | | |
| 29,002 | | |
| 19.0 | |
| Money market accounts | |
| 29,095 | | |
| 8.6 | | |
| (2,591 | ) | |
| (0.8 | ) |
| Time deposits | |
| (19,053 | ) | |
| (6.4 | ) | |
| (88,101 | ) | |
| (22.9 | ) |
| Federal funds purchased and other short term borrowings | |
| 16,743 | | |
| 10.8 | | |
| 13,630 | | |
| 9.6 | |
| Other borrowings | |
| 2,760 | | |
| 2.7 | | |
| 0 | | |
| 0.0 | |
| TOTAL | |
$ | 120,907 | | |
| 7.8 | | |
$ | (12,457 | ) | |
| (0.8 | ) |
Table 5 – Three Year Summary
Average Balances,
Interest Income and Expenses, Yields and Rates (1)
| | |
2014 | | |
2013 | | |
2012 | |
| | |
Average | | |
| | |
Yield/ | | |
Average | | |
| | |
Yield/ | | |
Average | | |
| | |
Yield/ | |
| | |
Balance | | |
Interest | | |
Rate | | |
Balance | | |
Interest | | |
Rate | | |
Balance | | |
Interest | | |
Rate | |
| | |
| | |
| | |
| | |
(Dollars
in thousands) | | |
| |
| EARNING ASSETS | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Securities | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Taxable | |
$ | 732,324 | | |
$ | 15,448 | | |
| 2.11 | % | |
$ | 651,368 | | |
$ | 12,856 | | |
| 1.97 | % | |
$ | 587,482 | | |
$ | 13,964 | | |
| 2.38 | % |
| Nontaxable | |
| 4,644 | | |
| 323 | | |
| 6.96 | | |
| 1,608 | | |
| 105 | | |
| 6.53 | | |
| 1,979 | | |
| 122 | | |
| 6.16 | |
| | |
| 736,968 | | |
| 15,771 | | |
| 2.14 | | |
| 652,976 | | |
| 12,961 | | |
| 1.98 | | |
| 589,461 | | |
| 14,086 | | |
| 2.39 | |
| Federal
funds sold and other investments | |
| 125,550 | | |
| 1,017 | | |
| 0.81 | | |
| 152,816 | | |
| 868 | | |
| 0.57 | | |
| 200,008 | | |
| 953 | | |
| 0.48 | |
| Loans, net (2) | |
| 1,452,751 | | |
| 63,788 | | |
| 4.39 | | |
| 1,272,447 | | |
| 57,163 | | |
| 4.49 | | |
| 1,227,542 | | |
| 58,429 | | |
| 4.76 | |
| TOTAL EARNING ASSETS | |
| 2,315,269 | | |
| 80,576 | | |
| 3.48 | | |
| 2,078,239 | | |
| 70,992 | | |
| 3.42 | | |
| 2,017,011 | | |
| 73,468 | | |
| 3.64 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Allowance for loan losses | |
| (19,164 | ) | |
| | | |
| | | |
| (21,133 | ) | |
| | | |
| | | |
| (24,352 | ) | |
| | | |
| | |
| Cash and due from banks | |
| 51,581 | | |
| | | |
| | | |
| 36,423 | | |
| | | |
| | | |
| 34,215 | | |
| | | |
| | |
| Bank premises and equipment | |
| 37,970 | | |
| | | |
| | | |
| 34,806 | | |
| | | |
| | | |
| 34,502 | | |
| | | |
| | |
| Bank owned life insurance | |
| 6,154 | | |
| | | |
| | | |
| 0 | | |
| | | |
| | | |
| 0 | | |
| | | |
| | |
| Other intangible assets | |
| 2,197 | | |
| | | |
| | | |
| 1,104 | | |
| | | |
| | | |
| 1,889 | | |
| | | |
| | |
| Goodwill | |
| 6,643 | | |
| | | |
| | | |
| 0 | | |
| | | |
| | | |
| 0 | | |
| | | |
| | |
| Other assets | |
| 84,609 | | |
| | | |
| | | |
| 57,318 | | |
| | | |
| | | |
| 53,810 | | |
| | | |
| | |
| | |
$ | 2,485,259 | | |
| | | |
| | | |
$ | 2,186,757 | | |
| | | |
| | | |
$ | 2,117,075 | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| INTEREST
BEARING LIABILITIES | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| NOW | |
$ | 520,288 | | |
| 399 | | |
| 0.08 | % | |
$ | 466,680 | | |
| 401 | | |
| 0.09 | % | |
$ | 431,077 | | |
| 632 | | |
| 0.15 | % |
| Savings deposits | |
| 219,793 | | |
| 113 | | |
| 0.05 | | |
| 182,039 | | |
| 101 | | |
| 0.06 | | |
| 153,037 | | |
| 155 | | |
| 0.10 | |
| Money market accounts | |
| 366,490 | | |
| 352 | | |
| 0.10 | | |
| 337,395 | | |
| 280 | | |
| 0.08 | | |
| 339,986 | | |
| 735 | | |
| 0.22 | |
| Time deposits | |
| 277,349 | | |
| 1,538 | | |
| 0.55 | | |
| 296,402 | | |
| 1,947 | | |
| 0.66 | | |
| 384,503 | | |
| 3,969 | | |
| 1.03 | |
| Federal
funds purchased and other short term borrowings | |
| 171,965 | | |
| 297 | | |
| 0.17 | | |
| 155,222 | | |
| 286 | | |
| 0.18 | | |
| 141,592 | | |
| 340 | | |
| 0.24 | |
| Other borrowings | |
| 106,370 | | |
| 2,656 | | |
| 2.50 | | |
| 103,610 | | |
| 2,542 | | |
| 2.45 | | |
| 103,610 | | |
| 2,647 | | |
| 2.56 | |
| TOTAL
INTEREST BEARING LIABILIITIES | |
| 1,662,255 | | |
| 5,355 | | |
| 0.32 | | |
| 1,541,348 | | |
| 5,557 | | |
| 0.36 | | |
| 1,553,805 | | |
| 8,478 | | |
| 0.55 | |
| Demand deposits | |
| 556,000 | | |
| | | |
| | | |
| 451,776 | | |
| | | |
| | | |
| 388,685 | | |
| | | |
| | |
| Other liabilities | |
| 10,137 | | |
| | | |
| | | |
| 10,329 | | |
| | | |
| | | |
| 9,204 | | |
| | | |
| | |
| | |
| 2,228,392 | | |
| | | |
| | | |
| 2,003,453 | | |
| | | |
| | | |
| 1,951,694 | | |
| | | |
| | |
| Shareholders'
equity | |
| 256,867 | | |
| | | |
| | | |
| 183,304 | | |
| | | |
| | | |
| 165,381 | | |
| | | |
| | |
| | |
$ | 2,485,259 | | |
| | | |
| | | |
$ | 2,186,757 | | |
| | | |
| | | |
$ | 2,117,075 | | |
| | | |
| | |
| Interest
expense as % of earning assets | |
| | | |
| | | |
| 0.23 | % | |
| | | |
| | | |
| 0.27 | % | |
| | | |
| | | |
| 0.42 | % |
| Net
interest income/yield on earning assets | |
| | | |
$ | 75,221 | | |
| 3.25 | % | |
| | | |
$ | 65,435 | | |
| 3.15 | % | |
| | | |
$ | 64,990 | | |
| 3.22 | % |
(1) The tax equivalent adjustment
is based on a 35% tax rate.
(2) Nonperforming loans are included
in average loan balances. Fees on loans are included in interest on loans.
Table 6 – Noninterest Income
| | |
Year Ended | | |
% Change | |
| | |
2014 | | |
2013 | | |
2012 | | |
14/13 | | |
13/12 | |
| | |
(Dollars in thousands) | | |
| | |
| |
| Service charges on deposit accounts | |
$ | 6,952 | | |
$ | 6,711 | | |
$ | 6,245 | | |
| 3.6 | % | |
| 7.5 | % |
| Trust fees | |
| 2,986 | | |
| 2,711 | | |
| 2,279 | | |
| 10.1 | | |
| 19.0 | |
| Mortgage banking fees | |
| 3,057 | | |
| 4,173 | | |
| 3,710 | | |
| (26.7 | ) | |
| 12.5 | |
| Brokerage commissions and fees | |
| 1,614 | | |
| 1,631 | | |
| 1,071 | | |
| (1.0 | ) | |
| 52.3 | |
| Marine finance fees | |
| 1,320 | | |
| 1,189 | | |
| 1,111 | | |
| 11.0 | | |
| 7.0 | |
| Interchange income | |
| 5,972 | | |
| 5,404 | | |
| 4,501 | | |
| 10.5 | | |
| 20.1 | |
| Other deposit based EFT fees | |
| 343 | | |
| 342 | | |
| 336 | | |
| 0.3 | | |
| 1.8 | |
| BOLI Income | |
| 252 | | |
| 0 | | |
| 0 | | |
| n/m | | |
| n/m | |
| Other | |
| 2,248 | | |
| 2,158 | | |
| 2,191 | | |
| 4.2 | | |
| (1.5 | ) |
| | |
| 24,744 | | |
| 24,319 | | |
| 21,444 | | |
| 1.7 | | |
| 13.4 | |
| Loss on sale of commercial loan | |
| 0 | | |
| 0 | | |
| (1,238 | ) | |
| n/m | | |
| n/m | |
| Securities gains, net | |
| 469 | | |
| 419 | | |
| 7,619 | | |
| 11.9 | | |
| (94.5 | ) |
| TOTAL | |
$ | 25,213 | | |
$ | 24,738 | | |
$ | 27,825 | | |
| 1.9 | | |
| (11.1 | ) |
n/m = not meaningful
Table 7 - NonInterest Expense
| | |
Year Ended | | |
% Change | |
| | |
2014 | | |
2013 | | |
2012 | | |
14/13 | | |
13/12 | |
| | |
(Dollars in thousands) | | |
| | |
| |
| Salaries and wages | |
$ | 35,132 | | |
$ | 31,006 | | |
$ | 29,935 | | |
| 13.3 | % | |
| 3.6 | % |
| Employee benefits | |
| 8,773 | | |
| 7,327 | | |
| 7,710 | | |
| 19.7 | | |
| (5.0 | ) |
| Outsourced data processing costs | |
| 8,781 | | |
| 6,372 | | |
| 7,382 | | |
| 37.8 | | |
| (13.7 | ) |
| Telephone / data lines | |
| 1,331 | | |
| 1,253 | | |
| 1,178 | | |
| 6.2 | | |
| 6.4 | |
| Occupancy | |
| 7,930 | | |
| 7,178 | | |
| 7,507 | | |
| 10.5 | | |
| (4.4 | ) |
| Furniture and equipment | |
| 2,535 | | |
| 2,334 | | |
| 2,319 | | |
| 8.6 | | |
| 0.6 | |
| Marketing | |
| 3,576 | | |
| 2,339 | | |
| 3,095 | | |
| 52.9 | | |
| (24.4 | ) |
| Legal and professional fees | |
| 6,871 | | |
| 2,458 | | |
| 5,241 | | |
| 179.5 | | |
| (53.1 | ) |
| FDIC assessments | |
| 1,660 | | |
| 2,601 | | |
| 2,805 | | |
| (36.2 | ) | |
| (7.3 | ) |
| Amortization of intangibles | |
| 1,033 | | |
| 783 | | |
| 788 | | |
| 31.9 | | |
| (0.6 | ) |
| Asset dispositions expense | |
| 488 | | |
| 740 | | |
| 1,459 | | |
| (34.1 | ) | |
| (49.3 | ) |
| Branch closures and new branding* | |
| 4,958 | | |
| 0 | | |
| 639 | | |
| n/m | | |
| (100.0 | ) |
| Net loss on other real estate owned | |
| | | |
| | | |
| | | |
| | | |
| | |
| and repossessed assets | |
| 310 | | |
| 1,289 | | |
| 3,467 | | |
| (76.0 | ) | |
| (62.8 | ) |
| Other | |
| 9,988 | | |
| 9,472 | | |
| 9,023 | | |
| 5.4 | | |
| 5.0 | |
| TOTAL | |
$ | 93,366 | | |
$ | 75,152 | | |
$ | 82,548 | | |
| 24.2 | | |
| (9.0 | ) |
* n/m = not meaningful
Table 8 - Capital Resources
| | |
December 31 | |
| | |
2014 | | |
2013 | | |
2012 | |
| | |
(Dollars in thousands) | |
| TIER 1 CAPITAL | |
| | | |
| | | |
| | |
| Common stock (2) | |
$ | 3,300 | | |
$ | 2,364 | | |
$ | 1,897 | |
| Preferred stock | |
| 0 | | |
| 0 | | |
| 48,746 | |
| Warrant for purchase of common stock | |
| 0 | | |
| 0 | | |
| 0 | |
| Additional paid in capital (2) | |
| 379,249 | | |
| 277,290 | | |
| 230,438 | |
| Accumulated (deficit) | |
| (65,000 | ) | |
| (70,695 | ) | |
| (118,611 | ) |
| Treasury stock | |
| (71 | ) | |
| (11 | ) | |
| (62 | ) |
| Qualifying trust preferred securities | |
| 62,539 | | |
| 52,000 | | |
| 52,000 | |
| Goodwill | |
| (25,309 | ) | |
| 0 | | |
| 0 | |
| Intangibles | |
| (4,478 | ) | |
| (718 | ) | |
| (1,501 | ) |
| Other | |
| (44,565 | ) | |
| (49,797 | ) | |
| (1,068 | ) |
| TOTAL TIER 1 CAPITAL | |
| 305,665 | | |
| 210,433 | | |
| 211,839 | |
| TIER 2 CAPITAL | |
| | | |
| | | |
| | |
| Allowance for loan losses, as limited (1) | |
| 17,100 | | |
| 16,877 | | |
| 15,589 | |
| TOTAL TIER 2 CAPITAL | |
| 17,100 | | |
| 16,877 | | |
| 15,589 | |
| TOTAL RISK-BASED CAPITAL | |
$ | 322,765 | | |
$ | 227,310 | | |
$ | 227,428 | |
| Risk weighted assets | |
$ | 1,986,291 | | |
$ | 1,346,957 | | |
$ | 1,240,593 | |
| | |
| | | |
| | | |
| | |
| Tier 1 risk based capital ratio | |
| 15.39 | % | |
| 15.62 | % | |
| 17.08 | % |
| Total risk based capital ratio | |
| 16.25 | | |
| 16.88 | | |
| 18.33 | |
| Regulatory minimum | |
| 8.00 | | |
| 8.00 | | |
| 8.00 | |
| Tier 1 capital to adjusted total assets | |
| 10.32 | | |
| 9.59 | | |
| 10.04 | |
| Regulatory minimum | |
| 4.00 | | |
| 4.00 | | |
| 4.00 | |
| Shareholders' equity to assets | |
| 10.11 | | |
| 8.75 | | |
| 7.62 | |
| Average shareholders' equity to average total assets | |
| 10.34 | | |
| 8.38 | | |
| 7.81 | |
(1) Includes reserve for unfunded commitments
of $29,000 at December 31, 2014, 2013, and 2012.
(2) Year end 2012 adjusted to reflect
1 for 5 reverse stock split effective December 13, 2013.
Table 9 - Loans Outstanding
| | |
December 31 | |
| | |
2014 | | |
2013 | | |
2012 | | |
2011 | | |
2010 | |
| | |
(In thousands) | |
| Construction and land development | |
| | | |
| | | |
| | | |
| | | |
| | |
| Residential | |
$ | 16,155 | | |
$ | 10,566 | | |
$ | 9,902 | | |
$ | 11,255 | | |
$ | 14,025 | |
| Commercial | |
| 37,194 | | |
| 22,733 | | |
| 11,907 | | |
| 11,338 | | |
| 33,773 | |
| | |
| 53,349 | | |
| 33,299 | | |
| 21,809 | | |
| 22,593 | | |
| 47,798 | |
| Individuals | |
| 33,687 | | |
| 34,151 | | |
| 38,927 | | |
| 26,591 | | |
| 31,508 | |
| | |
| 87,036 | | |
| 67,450 | | |
| 60,736 | | |
| 49,184 | | |
| 79,306 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Commercial real estate | |
| 837,147 | | |
| 520,382 | | |
| 486,828 | | |
| 508,353 | | |
| 543,603 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Real estate mortgage | |
| | | |
| | | |
| | | |
| | | |
| | |
| Residential real estate | |
| | | |
| | | |
| | | |
| | | |
| | |
| Adjustable | |
| 441,238 | | |
| 391,885 | | |
| 361,005 | | |
| 334,140 | | |
| 303,320 | |
| Fixed rate | |
| 93,865 | | |
| 91,108 | | |
| 98,976 | | |
| 96,952 | | |
| 82,559 | |
| Home equity mortgages | |
| 71,838 | | |
| 62,043 | | |
| 57,955 | | |
| 60,253 | | |
| 73,382 | |
| Home equity lines | |
| 79,956 | | |
| 47,710 | | |
| 51,395 | | |
| 54,901 | | |
| 57,733 | |
| | |
| 686,897 | | |
| 592,746 | | |
| 569,331 | | |
| 546,246 | | |
| 516,994 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Commercial and financial | |
| 157,396 | | |
| 78,636 | | |
| 61,903 | | |
| 53,105 | | |
| 48,825 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Installment loans to individuals | |
| | | |
| | | |
| | | |
| | | |
| | |
| Automobiles and trucks | |
| 7,817 | | |
| 6,607 | | |
| 7,761 | | |
| 8,736 | | |
| 10,874 | |
| Marine loans | |
| 26,236 | | |
| 20,208 | | |
| 18,446 | | |
| 19,932 | | |
| 19,806 | |
| Other | |
| 18,844 | | |
| 17,898 | | |
| 20,723 | | |
| 21,943 | | |
| 20,922 | |
| | |
| 52,897 | | |
| 44,713 | | |
| 46,930 | | |
| 50,611 | | |
| 51,602 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Other loans | |
| 512 | | |
| 280 | | |
| 353 | | |
| 575 | | |
| 278 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| TOTAL | |
$ | 1,821,885 | | |
$ | 1,304,207 | | |
$ | 1,226,081 | | |
$ | 1,208,074 | | |
$ | 1,240,608 | |
Table 10 - Loan Maturity Distribution
| | |
December 31, 2014 | |
| | |
Commercial and
Financial | | |
Construction and
Land Development | | |
Total | |
| | |
(In thousands) | |
| In one year or less | |
$ | 66,844 | | |
$ | 44,031 | | |
$ | 110,875 | |
| After one year but within five years: | |
| | | |
| | | |
| | |
| Interest rates are floating or adjustable | |
| 1,178 | | |
| 20,890 | | |
| 22,068 | |
| Interest rates are fixed | |
| 64,570 | | |
| 10,432 | | |
| 75,002 | |
| In five years or more: | |
| | | |
| | | |
| | |
| Interest rates are floating or adjustable | |
| 2,095 | | |
| 4,989 | | |
| 7,084 | |
| Interest rates are fixed | |
| 22,709 | | |
| 6,694 | | |
| 29,403 | |
| TOTAL | |
$ | 157,396 | | |
$ | 87,036 | | |
$ | 244,432 | |
Table 11 - Maturity of Certificates
of Deposit of $100,000 or More
| | |
December 31 | |
| | |
| | |
% of | | |
| | |
% of | |
| | |
2014 | | |
Total | | |
2013 | | |
Total | |
| | |
(Dollars in thousands) | |
| Maturity Group: | |
| | | |
| | | |
| | | |
| | |
| Under 3 Months | |
$ | 31,244 | | |
| 20.9 | % | |
$ | 38,805 | | |
| 31.6 | % |
| 3 to 6 Months | |
| 31,918 | | |
| 21.3 | | |
| 20,604 | | |
| 16.8 | |
| 6 to 12 Months | |
| 38,840 | | |
| 25.9 | | |
| 24,670 | | |
| 20.1 | |
| Over 12 Months | |
| 47,841 | | |
| 31.9 | | |
| 38,667 | | |
| 31.5 | |
| TOTAL | |
$ | 149,843 | | |
| 100.0 | % | |
$ | 122,746 | | |
| 100.0 | % |
Table 12 - Summary of Loan Loss Experience
| | |
Year Ended December 31 | |
| | |
2014 | | |
2013 | | |
2012 | | |
2011 | | |
2010 | |
| | |
(Dollars in thousands) | |
| Beginning balance | |
$ | 20,068 | | |
$ | 22,104 | | |
$ | 25,565 | | |
$ | 37,744 | | |
$ | 45,192 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Provision (recapture) for loan losses | |
| (3,486 | ) | |
| 3,188 | | |
| 10,796 | | |
| 1,974 | | |
| 31,680 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Charge offs: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Construction and land development | |
| 640 | | |
| 604 | | |
| 612 | | |
| 4,739 | | |
| 18,135 | |
| Commercial real estate | |
| 398 | | |
| 2,714 | | |
| 8,539 | | |
| 3,663 | | |
| 11,162 | |
| Residential real estate | |
| 1,126 | | |
| 3,153 | | |
| 8,381 | | |
| 7,482 | | |
| 10,797 | |
| Commercial and financial | |
| 398 | | |
| 60 | | |
| 346 | | |
| 0 | | |
| 759 | |
| Consumer | |
| 193 | | |
| 253 | | |
| 410 | | |
| 562 | | |
| 775 | |
| TOTAL CHARGE OFFS | |
| 2,755 | | |
| 6,784 | | |
| 18,288 | | |
| 16,446 | | |
| 41,628 | |
| Recoveries: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Construction and land development | |
| 415 | | |
| 212 | | |
| 341 | | |
| 1,053 | | |
| 483 | |
| Commercial real estate | |
| 1,683 | | |
| 547 | | |
| 2,702 | | |
| 354 | | |
| 517 | |
| Residential real estate | |
| 902 | | |
| 449 | | |
| 738 | | |
| 513 | | |
| 861 | |
| Commercial and financial | |
| 170 | | |
| 326 | | |
| 129 | | |
| 301 | | |
| 424 | |
| Consumer | |
| 74 | | |
| 26 | | |
| 121 | | |
| 72 | | |
| 215 | |
| TOTAL RECOVERIES | |
| 3,244 | | |
| 1,560 | | |
| 4,031 | | |
| 2,293 | | |
| 2,500 | |
| Net loan charge offs (recoveries) | |
| (489 | ) | |
| 5,224 | | |
| 14,257 | | |
| 14,153 | | |
| 39,128 | |
| ENDING BALANCE | |
$ | 17,071 | | |
$ | 20,068 | | |
$ | 22,104 | | |
$ | 25,565 | | |
$ | 37,744 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Loans outstanding at end of year* | |
$ | 1,821,885 | | |
$ | 1,304,207 | | |
$ | 1,226,081 | | |
$ | 1,208,074 | | |
$ | 1,240,608 | |
| Ratio of allowance for loan losses to loans outstanding at end of year | |
| 0.94 | % | |
| 1.54 | % | |
| 1.80 | % | |
| 2.12 | % | |
| 3.04 | % |
| Ratio of allowance for loan losses to loans outstanding (excluding purchased loans) at end of period | |
| 1.14 | % | |
| N/A | | |
| N/A | | |
| N/A | | |
| N/A | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Daily average loans outstanding* | |
$ | 1,452,751 | | |
$ | 1,272,447 | | |
$ | 1,227,542 | | |
$ | 1,216,221 | | |
$ | 1,327,111 | |
| Ratio of net charge offs (recoveries) to average loans outstanding | |
| (0.03 | )% | |
| 0.41 | % | |
| 1.16 | % | |
| 1.16 | % | |
| 2.95 | % |
* Net of unearned income.
Table 13 - Allowance for Loan Losses
| | |
December 31, | |
| (Dollars in thousands) | |
2014 | | |
2013 | | |
2012 | | |
2011 | | |
2010 | |
| | |
| | |
| | |
| | |
| | |
| |
| ALLOCATION BY LOAN TYPE | |
| | | |
| | | |
| | | |
| | | |
| | |
| Construction and land development | |
$ | 765 | | |
$ | 808 | | |
$ | 1,134 | | |
$ | 1,883 | | |
$ | 7,214 | |
| Commercial real estate loans | |
| 4,531 | | |
| 6,160 | | |
| 8,849 | | |
| 11,477 | | |
| 18,563 | |
| Residential real estate loans | |
| 9,802 | | |
| 11,659 | | |
| 11,090 | | |
| 10,966 | | |
| 10,102 | |
| Commercial and financial loans | |
| 1,179 | | |
| 710 | | |
| 468 | | |
| 402 | | |
| 480 | |
| Consumer loans. | |
| 794 | | |
| 731 | | |
| 563 | | |
| 837 | | |
| 1,385 | |
| TOTAL | |
$ | 17,071 | | |
$ | 20,068 | | |
$ | 22,104 | | |
$ | 25,565 | | |
$ | 37,744 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| YEAR END LOAN TYPES AS A PERCENT OF TOTAL LOANS | |
| | | |
| | | |
| | | |
| | | |
| | |
| Construction and land development | |
| 4.8 | % | |
| 5.2 | % | |
| 5.0 | % | |
| 4.1 | % | |
| 6.4 | % |
| Commercial real estate loans | |
| 46.0 | | |
| 39.9 | | |
| 39.7 | | |
| 42.1 | | |
| 43.8 | |
| Residential real estate loans | |
| 37.7 | | |
| 45.5 | | |
| 46.5 | | |
| 45.2 | | |
| 41.7 | |
| Commercial and financial loans | |
| 8.6 | | |
| 6.0 | | |
| 5.0 | | |
| 4.4 | | |
| 3.9 | |
| Consumer loans | |
| 2.9 | | |
| 3.4 | | |
| 3.8 | | |
| 4.2 | | |
| 4.2 | |
| TOTAL | |
| 100.0 | % | |
| 100.0 | % | |
| 100.0 | % | |
| 100.0 | % | |
| 100.0 | % |
Table 14 - Nonperforming Assets
| | |
December 31, | |
| | |
2014 | | |
2013 | | |
2012 | | |
2011 | | |
2010 | |
| |
(Dollars in thousands) | |
| Nonaccrual loans (1) (2) | |
| |
| Construction and land development | |
$ | 1,963 | | |
$ | 1,302 | | |
$ | 1,342 | | |
$ | 2,227 | | |
$ | 29,229 | |
| Commercial real estate loans | |
| 4,189 | | |
| 5,111 | | |
| 17,234 | | |
| 13,120 | | |
| 19,101 | |
| Residential real estate loans | |
| 14,797 | | |
| 20,705 | | |
| 22,099 | | |
| 12,555 | | |
| 14,810 | |
| Commercial and financial loans | |
| 0 | | |
| 13 | | |
| 0 | | |
| 16 | | |
| 4,607 | |
| Consumer loans | |
| 191 | | |
| 541 | | |
| 280 | | |
| 608 | | |
| 537 | |
| Total | |
| 21,140 | | |
| 27,672 | | |
| 40,955 | | |
| 28,526 | | |
| 68,284 | |
| Other real estate owned | |
| | | |
| | | |
| | | |
| | | |
| | |
| Construction and land development | |
| 223 | | |
| 421 | | |
| 2,124 | | |
| 10,879 | | |
| 15,358 | |
| Commercial real estate loans | |
| 5,771 | | |
| 5,138 | | |
| 6,305 | | |
| 7,517 | | |
| 8,368 | |
| Residential real estate loans | |
| 1,468 | | |
| 1,301 | | |
| 3,458 | | |
| 2,550 | | |
| 1,971 | |
| Total | |
| 7,462 | | |
| 6,860 | | |
| 11,887 | | |
| 20,946 | | |
| 25,697 | |
| TOTAL NONPERFORMING ASSETS | |
$ | 28,602 | | |
$ | 34,532 | | |
$ | 52,842 | | |
$ | 49,472 | | |
$ | 93,981 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Amount of loans outstanding at end of year (2) | |
$ | 1,821,885 | | |
$ | 1,304,207 | | |
$ | 1,226,081 | | |
$ | 1,208,074 | | |
$ | 1,240,608 | |
| Ratio of total nonperforming assets to loans outstanding and other real estate owned at end of period | |
| 1.56 | % | |
| 2.63 | % | |
| 4.27 | % | |
| 4.03 | % | |
| 7.42 | % |
| Accruing loans past due 90 days or more | |
$ | 311 | | |
$ | 160 | | |
$ | 1 | | |
$ | 0 | | |
$ | 0 | |
| Loans restructured and in compliance with modified terms (3) | |
| 24,997 | | |
| 25,137 | | |
| 41,946 | | |
| 71,611 | | |
| 66,350 | |
| (1) | Interest income that could
have been recorded during 2014, 2013, and 2012 related to nonaccrual loans was $1,942,000, $964,000, and $1,931,000, respectively,
none of which was included in interest income or net income. All nonaccrual loans are secured. |
| (2) | Net of unearned income. |
| (3) | Interest income that would
have been recorded based on original contractual terms was $1,496,000, $1,618,000, and $2,725,000, respectively, for 2014, 2013
and 2012. The amount included in interest income under the modified terms for 2014, 2013, and 2012 was $1,276,000, $1,074,000,
and $2,036,000, respectively. |
Table 15 - Securities Available For Sale
| | |
December 31 | |
| | |
Amortized | | |
Fair | | |
Unrealized | | |
Unrealized | |
| | |
Cost | | |
Value | | |
Gains | | |
Losses | |
| | |
(In thousands) | |
| U.S. Treasury securities and obligations of U.S. Government Sponsored Entities | |
| | | |
| | | |
| | |
|
|
|
|
| 2014 | |
$ | 3,876 | | |
$ | 3,899 | | |
$ | 23 | | |
$ | 0 | |
| 2013 | |
| 100 | | |
| 100 | | |
| 0 | | |
| 0 | |
| | |
| | | |
| | | |
| | | |
| | |
| Mortgage-backed securities of U.S. Government Sponsored Entities | |
| | | |
| | | |
| | |
|
|
|
|
| 2014 | |
| 123,981 | | |
| 125,059 | | |
| 1,501 | | |
| (423 | ) |
| 2013 | |
| 129,468 | | |
| 126,735 | | |
| 1,456 | | |
| (4,189 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Collateralized mortgage obligations of U.S. Government Sponsored Entities | |
| | | |
| | | |
| | |
|
|
|
|
| 2014 | |
| 352,483 | | |
| 347,481 | | |
| 1,075 | | |
| (6,077 | ) |
| 2013 | |
| 383,392 | | |
| 369,421 | | |
| 776 | | |
| (14,747 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Private mortgage-backed securities | |
| | | |
| | | |
| | |
|
|
|
|
| 2014 | |
| 29,967 | | |
| 30,258 | | |
| 291 | | |
| 0 | |
| 2013 | |
| 29,800 | | |
| 29,574 | | |
| 0 | | |
| (226 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Private collateralized mortgage obligations | |
| | | |
| | | |
| | |
|
|
|
|
| 2014 | |
| 85,175 | | |
| 85,135 | | |
| 688 | | |
| (728 | ) |
| 2013 | |
| 76,520 | | |
| 76,838 | | |
| 731 | | |
| (413 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Collateralized loan obligations | |
| | | |
| | | |
| | |
|
|
|
|
| 2014 | |
| 127,397 | | |
| 125,225 | | |
| 0 | | |
| (2,172 | ) |
| 2013 | |
| 32,592 | | |
| 32,179 | | |
| 0 | | |
| (413 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Obligations of state and political subdivisions | |
| | | |
| | | |
| | |
|
|
|
|
| 2014 | |
| 23,511 | | |
| 24,318 | | |
| 810 | | |
| (3 | ) |
| 2013 | |
| 6,586 | | |
| 6,764 | | |
| 193 | | |
| (15 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Total Securities Available For Sale | |
| | | |
| | | |
| | |
|
|
|
|
| 2014 | |
$ | 746,390 | | |
$ | 741,375 | | |
$ | 4,388 | | |
$ | (9,403 | ) |
| 2013 | |
$ | 658,458 | | |
$ | 641,611 | | |
$ | 3,156 | | |
$ | (20,003 | ) |
Table 16 - Securities Held For Investment (1)
| | |
December 31 | |
| | |
Amortized | | |
Fair | | |
Unrealized | | |
Unrealized | |
| | |
Cost | | |
Value | | |
Gains | | |
Losses | |
| | |
(In thousands) | |
| | |
| | |
| | |
| | |
| |
| Mortgage-backed securities of U.S. Government Sponsored Entities | |
| | | |
| | | |
| | |
|
|
|
|
| 2014 | |
$ | 67,535 | | |
$ | 68,347 | | |
$ | 812 | | |
$ | 0 | |
| 2013 | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| | |
| | | |
| | | |
| | | |
| | |
| Collateralized mortgage obligations of U.S. Government Sponsored Entities | |
| | | |
| | | |
| | |
|
|
|
|
| 2014 | |
| 114,541 | | |
| 114,956 | | |
| 695 | | |
| (280 | ) |
| 2013 | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| | |
| | | |
| | | |
| | | |
| | |
| Collateralized loan obligations | |
| | | |
| | | |
| | |
|
|
|
|
| 2014 | |
| 25,828 | | |
| 25,485 | | |
| 0 | | |
| (343 | ) |
| 2013 | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| | |
| | | |
| | | |
| | | |
| | |
| Total Securities Held For Investment | |
| | | |
| | | |
| | |
|
|
|
|
| 2014 | |
$ | 207,904 | | |
$ | 208,788 | | |
$ | 1,507 | | |
$ | (623 | ) |
| 2013 | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
(1) Management changed its intent to hold certain securities
available for sale during the second quarter 2014 and those securities were transferred to securities held for investment to allow
more flexibility in managing interest rate risk.
Table 17 - Maturity Distribution of Securities Available
For Sale
| | |
December 31, 2014 | |
| | |
| | |
| | |
| | |
| | |
| | |
Average | |
| | |
1 Year | | |
1-5 | | |
5-10 | | |
After 10 | | |
| | |
Maturity | |
| | |
Or Less | | |
Years | | |
Years | | |
Years | | |
Total | | |
In Years | |
| | |
(Dollars in thousands) | |
| AMORTIZED COST | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| U.S. Treasury securities and obligations of U.S. Government Sponsored Entities | |
$ | 0 | | |
$ | 100 | | |
$ | 3,776 | | |
$ | 0 | | |
$ | 3,876 | | |
| 8.01 | |
| Mortgage-backed securities of U.S. Government Sponsored Entities | |
| 0 | | |
| 35,264 | | |
| 65,727 | | |
| 22,990 | | |
| 123,981 | | |
| 7.00 | |
| Collateralized mortgage obligations of U.S. Government Sponsored Entities | |
| 9,881 | | |
| 197,736 | | |
| 144,413 | | |
| 453 | | |
| 352,483 | | |
| 4.41 | |
| Private mortgage-backed securities | |
| 0 | | |
| 0 | | |
| 15,444 | | |
| 14,523 | | |
| 29,967 | | |
| 9.91 | |
| Private collateralized mortgage obligations | |
| 19,618 | | |
| 37,945 | | |
| 25,328 | | |
| 2,284 | | |
| 85,175 | | |
| 3.78 | |
| Collateralized loan obligations | |
| 0 | | |
| 0 | | |
| 15,811 | | |
| 111,586 | | |
| 127,397 | | |
| 5.63 | |
| Obligations of state and political subdivisions | |
| 0 | | |
| 742 | | |
| 4,652 | | |
| 18,117 | | |
| 23,511 | | |
| 12.84 | |
| Total Securities Available For Sale | |
$ | 29,499 | | |
$ | 271,787 | | |
$ | 275,151 | | |
$ | 169,953 | | |
$ | 746,390 | | |
| 5.33 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| FAIR VALUE | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| U.S. Treasury securities and obligations of U.S. Government Sponsored Entities | |
$ | 0 | | |
$ | 100 | | |
$ | 3,799 | | |
$ | 0 | | |
$ | 3,899 | | |
| | |
| Mortgage-backed securities of U.S. Government Sponsored Entities | |
| 0 | | |
| 35,623 | | |
| 66,039 | | |
| 23,397 | | |
| 125,059 | | |
| | |
| Collateralized mortgage obligations of U.S. Government Sponsored Entities | |
| 9,891 | | |
| 196,285 | | |
| 140,851 | | |
| 454 | | |
| 347,481 | | |
| | |
| Private mortgage-backed securities | |
| 0 | | |
| 0 | | |
| 15,511 | | |
| 14,747 | | |
| 30,258 | | |
| | |
| Private collateralized mortgage obligations | |
| 19,384 | | |
| 37,903 | | |
| 25,517 | | |
| 2,331 | | |
| 85,135 | | |
| | |
| Collateralized loan obligations | |
| 0 | | |
| 0 | | |
| 15,687 | | |
| 109,538 | | |
| 125,225 | | |
| | |
| Obligations of state and political subdivisions | |
| 0 | | |
| 747 | | |
| 4,692 | | |
| 18,879 | | |
| 24,318 | | |
| | |
| Total Securities Available For Sale | |
$ | 29,275 | | |
$ | 270,658 | | |
$ | 272,096 | | |
$ | 169,346 | | |
$ | 741,375 | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| WEIGHTED AVERAGE YIELD (FTE) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| U.S. Treasury securities and obligations of U.S. Government Sponsored Entities | |
| 0.00 | % | |
| 0.36 | % | |
| 8.19 | % | |
| 0.00 | % | |
| 3.24 | % | |
| | |
| Mortgage-backed securities of U.S. Government Sponsored Entities | |
| 0.00 | % | |
| 2.27 | % | |
| 2.41 | % | |
| 2.60 | % | |
| 2.41 | % | |
| | |
| Collateralized mortgage obligations of U.S. Government Sponsored Entities | |
| 1.73 | % | |
| 2.08 | % | |
| 1.92 | % | |
| 3.65 | % | |
| 2.01 | % | |
| | |
| Private mortgage-backed securities | |
| 0.00 | % | |
| 0.00 | % | |
| 1.66 | % | |
| 1.28 | % | |
| 1.48 | % | |
| | |
| Private collateralized mortgage obligations | |
| 2.56 | % | |
| 2.59 | % | |
| 2.54 | % | |
| 2.88 | % | |
| 2.57 | % | |
| | |
| Collateralized loan obligations | |
| 0.00 | % | |
| 0.00 | % | |
| 1.92 | % | |
| 2.16 | % | |
| 2.13 | % | |
| | |
| Obligations of state and political subdivisions | |
| 0.00 | % | |
| 6.61 | % | |
| 2.68 | % | |
| 4.37 | % | |
| 4.10 | % | |
| | |
| Total Securities Available For Sale | |
| 2.29 | % | |
| 2.20 | % | |
| 2.10 | % | |
| 2.26 | % | |
| 2.18 | % | |
| | |
Table 18 - Maturity Distribution of Securities Held for Investment
| | |
December 31, 2014 | |
| | |
| | |
| | |
| | |
| | |
| | |
Average | |
| | |
1 Year | | |
1-5 | | |
5-10 | | |
After 10 | | |
| | |
Maturity | |
| | |
Or Less | | |
Years | | |
Years | | |
Years | | |
Total | | |
In Years | |
| | |
(Dollars in thousands) | |
| AMORTIZED COST | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Mortgage-backed securities of U.S. Government Sponsored Entities | |
$ | 0 | | |
$ | 37,132 | | |
$ | 19,094 | | |
$ | 11,309 | | |
$ | 67,535 | | |
| 5.28 | |
| Collateralized mortgage obligations of U.S. Government Sponsored Entities | |
| 2,721 | | |
| 57,563 | | |
| 41,682 | | |
| 12,575 | | |
| 114,541 | | |
| 5.05 | |
| Collateralized loan obligations | |
| 0 | | |
| 4,838 | | |
| 20,990 | | |
| 0 | | |
| 25,828 | | |
| 5.31 | |
| Total Securities Available For Sale | |
$ | 2,721 | | |
$ | 99,533 | | |
$ | 81,766 | | |
$ | 23,884 | | |
$ | 207,904 | | |
| 5.16 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| FAIR VALUE | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Mortgage-backed securities of U.S. Government Sponsored Entities | |
$ | 0 | | |
$ | 37,431 | | |
$ | 19,415 | | |
$ | 11,501 | | |
$ | 68,347 | | |
| | |
| Collateralized mortgage obligations of U.S. Government Sponsored Entities | |
| 2,748 | | |
| 57,442 | | |
| 42,083 | | |
| 12,683 | | |
| 114,956 | | |
| | |
| Collateralized loan obligations | |
| 0 | | |
| 4,808 | | |
| 20,677 | | |
| 0 | | |
| 25,485 | | |
| | |
| Total Securities Available For Sale | |
$ | 2,748 | | |
$ | 99,681 | | |
$ | 82,175 | | |
$ | 24,184 | | |
$ | 208,788 | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| WEIGHTED AVERAGE YIELD (FTE) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Mortgage-backed securities of U.S. Government Sponsored Entities | |
| 0.00 | % | |
| 2.36 | % | |
| 2.09 | % | |
| 1.96 | % | |
| 2.22 | % | |
| | |
| Collateralized mortgage obligations of U.S. Government Sponsored Entities | |
| 2.51 | % | |
| 1.78 | % | |
| 2.41 | % | |
| 3.05 | % | |
| 2.16 | % | |
| | |
| Collateralized loan obligations | |
| 0.00 | % | |
| 2.98 | % | |
| 3.05 | % | |
| 0.00 | % | |
| 3.04 | % | |
| | |
| Total Securities Available For Sale | |
| 2.51 | % | |
| 2.05 | % | |
| 2.50 | % | |
| 2.53 | % | |
| 2.29 | % | |
| | |
Table 19 - Interest Rate Sensitivity
Analysis (1)
| | |
December 31, 2014 | |
| | |
0-3 | | |
4-12 | | |
1-5 | | |
Over | | |
| |
| | |
Months | | |
Months | | |
Years | | |
5 Years | | |
Total | |
| | |
(Dollars in thousands) | |
| Federal funds sold and interest bearing deposits | |
$ | 36,128 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 36,128 | |
| Securities (2) | |
| 342,003 | | |
| 109,868 | | |
| 312,205 | | |
| 190,218 | | |
| 954,294 | |
| Loans, net (3) | |
| 480,239 | | |
| 301,543 | | |
| 901,253 | | |
| 129,788 | | |
| 1,812,823 | |
| Earning assets | |
| 858,370 | | |
| 411,411 | | |
| 1,213,458 | | |
| 320,006 | | |
| 2,803,245 | |
| Savings deposits (4) | |
| 1,367,263 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 1,367,263 | |
| Time deposits | |
| 69,135 | | |
| 156,254 | | |
| 97,534 | | |
| 1,110 | | |
| 324,033 | |
| Borrowings | |
| 298,223 | | |
| 0 | | |
| 50,000 | | |
| 0 | | |
| 348,223 | |
| Interest bearing liabilities | |
| 1,734,621 | | |
| 156,254 | | |
| 147,534 | | |
| 1,110 | | |
| 2,039,519 | |
| Interest sensitivity gap | |
$ | (876,251 | ) | |
$ | 255,157 | | |
$ | 1,065,924 | | |
$ | 318,896 | | |
$ | 763,726 | |
| Cumulative gap | |
$ | (876,251 | ) | |
$ | (621,094 | ) | |
$ | 444,830 | | |
$ | 763,726 | | |
| | |
| Cumulative gap to total earning assets (%) | |
| (31.3 | ) | |
| (22.2 | ) | |
| 15.9 | | |
| 27.2 | | |
| | |
| Earning assets to interest bearing liabilities (%) | |
| 49.5 | | |
| 263.3 | | |
| 822.5 | | |
| n/m | | |
| | |
(1) The repricing dates may differ
from maturity dates for certain assets due to prepayment assumptions.
(2) Securities are stated at amortized
cost.
(3) Excludes nonaccrual loans.
(4) This category is comprised of
NOW, savings and money market deposits. If NOW and savings deposits (totaling $917,091) were deemed repriceable in "4-12
months", the interest sensitivity gap and cumulative gap would be $40,840 or 1.5% of total earning assets and an earning
assets to interest bearing liabilities for the 0-3 months category of 105.0%.
n/m = not meaningful
Stock
Performance Graph
The
line graph below compares the cumulative total stockholder return on Seacoast common stock for the five years ended December 31,
2014 with the cumulative total return of the NASDAQ Composite Index and the SNL Southeast Bank Index for the same period. The
graph and table assume that $100 was invested on December 31, 2009 (the last day of trading for the year ended December 31, 2009)
in each of Seacoast common stock, the NASDAQ Composite Index and the SNL Southeast Bank Index. The cumulative total return represents
the change in stock price and the amount of dividends received over the period, assuming all dividends were reinvested.
Comparison
of Five-Year Cumulative Return for Seacoast Common Stock, the NASDAQ Composite Index and the SNL Southeast Bank Index
| | |
Period Ending | |
| Index | |
12/31/09 | | |
12/31/10 | | |
12/31/11 | | |
12/31/12 | | |
12/31/13 | | |
12/31/14 | |
| Seacoast Banking Corporation of Florida | |
| 100.00 | | |
| 89.57 | | |
| 93.25 | | |
| 98.77 | | |
| 149.69 | | |
| 168.71 | |
| NASDAQ Composite | |
| 100.00 | | |
| 118.15 | | |
| 117.22 | | |
| 138.02 | | |
| 193.47 | | |
| 222.16 | |
| SNL Southeast Bank | |
| 100.00 | | |
| 97.10 | | |
| 56.81 | | |
| 94.37 | | |
| 127.88 | | |
| 144.03 | |
Source : SNL Financial LC, Charlottesville, VA
© 2015
www.snl.com
SELECTED QUARTERLY INFORMATION
QUARTERLY CONSOLIDATED INCOME (LOSS) STATEMENTS
(UNAUDITED)
| | |
2014 Quarters | | |
2013 Quarters | |
| | |
Fourth | | |
Third | | |
Second | | |
First | | |
Fourth | | |
Third | | |
Second | | |
First | |
| | |
(Dollars in thousands, except per share data) | |
| Net interest income: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Interest income | |
$ | 26,272 | | |
$ | 18,491 | | |
$ | 17,987 | | |
$ | 17,512 | | |
$ | 17,616 | | |
$ | 18,177 | | |
$ | 17,513 | | |
$ | 17,457 | |
| Interest expense | |
| 1,539 | | |
| 1,263 | | |
| 1,262 | | |
| 1,291 | | |
| 1,339 | | |
| 1,362 | | |
| 1,399 | | |
| 1,457 | |
| Net interest income | |
| 24,733 | | |
| 17,228 | | |
| 16,725 | | |
| 16,221 | | |
| 16,277 | | |
| 16,815 | | |
| 16,114 | | |
| 16,000 | |
| Provision (recapture) for loan losses | |
| 118 | | |
| (1,425 | ) | |
| (1,444 | ) | |
| (735 | ) | |
| 490 | | |
| 1,180 | | |
| 565 | | |
| 953 | |
| Net interest income after provision for loan losses | |
| 24,615 | | |
| 18,653 | | |
| 18,169 | | |
| 16,956 | | |
| 15,787 | | |
| 15,635 | | |
| 15,549 | | |
| 15,047 | |
| Noninterest income: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Service charges on deposit accounts | |
| 2,208 | | |
| 1,753 | | |
| 1,484 | | |
| 1,507 | | |
| 1,778 | | |
| 1,741 | | |
| 1,641 | | |
| 1,551 | |
| Trust fees | |
| 795 | | |
| 817 | | |
| 703 | | |
| 671 | | |
| 693 | | |
| 667 | | |
| 675 | | |
| 676 | |
| Mortgage banking fees | |
| 716 | | |
| 825 | | |
| 855 | | |
| 661 | | |
| 728 | | |
| 1,075 | | |
| 1,256 | | |
| 1,114 | |
| Brokerage commissions and fees | |
| 417 | | |
| 408 | | |
| 410 | | |
| 379 | | |
| 461 | | |
| 383 | | |
| 362 | | |
| 425 | |
| Marine finance fees | |
| 445 | | |
| 281 | | |
| 340 | | |
| 254 | | |
| 215 | | |
| 283 | | |
| 419 | | |
| 272 | |
| Interchange income | |
| 1,603 | | |
| 1,452 | | |
| 1,514 | | |
| 1,403 | | |
| 1,394 | | |
| 1,358 | | |
| 1,388 | | |
| 1,264 | |
| Other deposit based EFT fees | |
| 92 | | |
| 70 | | |
| 83 | | |
| 98 | | |
| 80 | | |
| 77 | | |
| 87 | | |
| 98 | |
| BOLI Income | |
| 252 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| Other income | |
| 613 | | |
| 543 | | |
| 507 | | |
| 585 | | |
| 617 | | |
| 503 | | |
| 507 | | |
| 531 | |
| Securities gains, net | |
| 108 | | |
| 344 | | |
| 0 | | |
| 17 | | |
| 0 | | |
| 280 | | |
| 114 | | |
| 25 | |
| Total noninterest income | |
| 7,249 | | |
| 6,493 | | |
| 5,896 | | |
| 5,575 | | |
| 5,966 | | |
| 6,367 | | |
| 6,449 | | |
| 5,956 | |
| Noninterest expenses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Salaries and wages | |
| 11,676 | | |
| 8,064 | | |
| 7,768 | | |
| 7,624 | | |
| 8,077 | | |
| 7,557 | | |
| 7,902 | | |
| 7,470 | |
| Employee benefits | |
| 2,461 | | |
| 2,049 | | |
| 2,081 | | |
| 2,182 | | |
| 1,568 | | |
| 1,713 | | |
| 1,823 | | |
| 2,223 | |
| Outsourced data processing costs | |
| 3,506 | | |
| 1,769 | | |
| 1,811 | | |
| 1,695 | | |
| 1,586 | | |
| 1,657 | | |
| 1,631 | | |
| 1,498 | |
| Telephone / data lines | |
| 419 | | |
| 313 | | |
| 306 | | |
| 293 | | |
| 325 | | |
| 318 | | |
| 325 | | |
| 285 | |
| Occupancy | |
| 2,325 | | |
| 1,879 | | |
| 1,888 | | |
| 1,838 | | |
| 1,824 | | |
| 1,824 | | |
| 1,775 | | |
| 1,755 | |
| Furniture and equipment | |
| 732 | | |
| 628 | | |
| 604 | | |
| 571 | | |
| 597 | | |
| 605 | | |
| 571 | | |
| 561 | |
| Marketing | |
| 1,163 | | |
| 925 | | |
| 675 | | |
| 813 | | |
| 749 | | |
| 456 | | |
| 685 | | |
| 449 | |
| Legal and professional fees | |
| 2,555 | | |
| 1,103 | | |
| 2,272 | | |
| 941 | | |
| 489 | | |
| 874 | | |
| 299 | | |
| 796 | |
| FDIC assessments | |
| 476 | | |
| 387 | | |
| 411 | | |
| 386 | | |
| 451 | | |
| 713 | | |
| 720 | | |
| 717 | |
| Amortization of intangibles | |
| 446 | | |
| 195 | | |
| 196 | | |
| 196 | | |
| 196 | | |
| 195 | | |
| 197 | | |
| 195 | |
| Asset dispositions expense | |
| 103 | | |
| 139 | | |
| 118 | | |
| 128 | | |
| 180 | | |
| 159 | | |
| 111 | | |
| 290 | |
| Branch closures and new branding | |
| 4,958 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| Net loss on other real estate owned and repossessed assets | |
| 9 | | |
| 156 | | |
| 92 | | |
| 53 | | |
| 0 | | |
| 229 | | |
| 493 | | |
| 567 | |
| Other | |
| 3,243 | | |
| 2,282 | | |
| 2,461 | | |
| 2,063 | | |
| 2,604 | | |
| 2,203 | | |
| 2,512 | | |
| 2,153 | |
| Total noninterest expenses | |
| 34,011 | | |
| 19,889 | | |
| 20,683 | | |
| 18,783 | | |
| 18,646 | | |
| 18,503 | | |
| 19,044 | | |
| 18,959 | |
| Income (loss) before income taxes | |
| (2,147 | ) | |
| 5,257 | | |
| 3,382 | | |
| 3,748 | | |
| 3,107 | | |
| 3,499 | | |
| 2,954 | | |
| 2,044 | |
| Provision (benefit) for income taxes | |
| (630 | ) | |
| 2,261 | | |
| 1,464 | | |
| 1,449 | | |
| 1,257 | | |
| (41,642 | ) | |
| 0 | | |
| 0 | |
| Net income (loss) | |
| (1,517 | ) | |
| 2,996 | | |
| 1,918 | | |
| 2,299 | | |
| 1,850 | | |
| 45,141 | | |
| 2,954 | | |
| 2,044 | |
| Preferred stock dividends and accretion on preferred stock discount | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 1,262 | | |
| 937 | | |
| 937 | | |
| 937 | |
| Net income (loss) available to shareholders | |
$ | (1,517 | ) | |
$ | 2,996 | | |
$ | 1,918 | | |
$ | 2,299 | | |
$ | 588 | | |
$ | 44,204 | | |
$ | 2,017 | | |
$ | 1,107 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| PER COMMON SHARE DATA | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net income (loss) diluted | |
$ | (0.05 | ) | |
$ | 0.12 | | |
$ | 0.07 | | |
$ | 0.09 | | |
$ | 0.03 | | |
$ | 2.31 | | |
$ | 0.11 | | |
$ | 0.06 | |
| Net income (loss) basic | |
| (0.05 | ) | |
| 0.12 | | |
| 0.07 | | |
| 0.09 | | |
| 0.03 | | |
| 2.35 | | |
| 0.11 | | |
| 0.06 | |
| Cash dividends declared: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common stock | |
| 0.00 | | |
| 0.00 | | |
| 0.00 | | |
| 0.00 | | |
| 0.00 | | |
| 0.00 | | |
| 0.00 | | |
| 0.00 | |
| Market price common stock: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Low close | |
| 10.80 | | |
| 10.03 | | |
| 10.00 | | |
| 10.55 | | |
| 10.10 | | |
| 10.20 | | |
| 9.05 | | |
| 8.05 | |
| High close | |
| 14.24 | | |
| 11.27 | | |
| 11.28 | | |
| 12.51 | | |
| 12.40 | | |
| 12.15 | | |
| 11.00 | | |
| 11.10 | |
| Bid price at end of period | |
| 13.75 | | |
| 10.93 | | |
| 10.87 | | |
| 11.00 | | |
| 12.20 | | |
| 10.85 | | |
| 11.00 | | |
| 10.45 | |
FINANCIAL HIGHLIGHTS
| (Dollars in thousands, except per share data) | |
2014 | | |
2013 | | |
2012 | | |
2011 | | |
2010 | |
| | |
| | |
| | |
| | |
| | |
| |
| FOR THE YEAR | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net interest income | |
$ | 74,907 | | |
$ | 65,206 | | |
$ | 64,809 | | |
$ | 66,839 | | |
$ | 66,212 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Provision (recapture) for loan losses | |
| (3,486 | ) | |
| 3,188 | | |
| 10,796 | | |
| 1,974 | | |
| 31,680 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Noninterest income: | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Other | |
| 24,744 | | |
| 24,319 | | |
| 21,444 | | |
| 18,345 | | |
| 18,134 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Loss on sale of commercial loan | |
| 0 | | |
| 0 | | |
| (1,238 | ) | |
| 0 | | |
| 0 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Securities gains, net | |
| 469 | | |
| 419 | | |
| 7,619 | | |
| 1,220 | | |
| 3,687 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Noninterest expenses | |
| 93,366 | | |
| 75,152 | | |
| 82,548 | | |
| 77,763 | | |
| 89,556 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Income (loss) before income taxes | |
| 10,240 | | |
| 11,604 | | |
| (710 | ) | |
| 6,667 | | |
| (33,203 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Provision (benefit) for income taxes | |
| 4,544 | | |
| (40,385 | ) | |
| 0 | | |
| 0 | | |
| 0 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net income (loss) | |
| 5,696 | | |
| 51,989 | | |
| (710 | ) | |
| 6,667 | | |
| (33,203 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Per Share Data | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net income (loss) available to common shareholders: | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Diluted | |
| 0.21 | | |
| 2.44 | | |
| (0.24 | ) | |
| 0.16 | | |
| 2.41 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Basic | |
| 0.21 | | |
| 2.46 | | |
| (0.24 | ) | |
| 0.16 | | |
| 2.41 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cash dividends declared | |
| 0.00 | | |
| 0.00 | | |
| 0.00 | | |
| 0.00 | | |
| 0.00 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Book value per share common | |
| 9.44 | | |
| 8.40 | | |
| 6.16 | | |
| 6.46 | | |
| 6.42 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Dividends to net income | |
| 0.0 | % | |
| 0.0 | % | |
| 0.0 | % | |
| 0.0 | % | |
| 0.0 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| AT YEAR END | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Assets | |
$ | 3,093,335 | | |
$ | 2,268,940 | | |
$ | 2,173,929 | | |
$ | 2,137,375 | | |
$ | 2,016,381 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Securities | |
| 949,279 | | |
| 641,611 | | |
| 656,868 | | |
| 668,339 | | |
| 462,001 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net loans | |
| 1,804,814 | | |
| 1,284,139 | | |
| 1,203,977 | | |
| 1,182,509 | | |
| 1,202,864 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Deposits | |
| 2,416,534 | | |
| 1,806,045 | | |
| 1,758,961 | | |
| 1,718,741 | | |
| 1,637,228 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Shareholders' equity | |
| 312,651 | | |
| 198,604 | | |
| 165,546 | | |
| 170,077 | | |
| 166,299 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Performance ratios: | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Return on average assets | |
| 0.23 | % | |
| 2.38 | % | |
| (0.03 | )% | |
| 0.32 | % | |
| (1.60 | )% |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Return on average equity | |
| 2.57 | | |
| 28.36 | | |
| (0.43 | ) | |
| 4.03 | | |
| (19.30 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net interest margin 2 | |
| 3.25 | | |
| 3.15 | | |
| 3.22 | | |
| 3.42 | | |
| 3.37 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Average equity to average assets | |
| 10.34 | | |
| 8.38 | | |
| 7.81 | | |
| 8.01 | | |
| 8.27 | |
1. Not meaningful
2. On a fully taxable equivalent basis
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Board of Directors and Shareholders
Seacoast Banking Corporation of Florida
Stuart, Florida
We have audited the accompanying
consolidated balance sheet of Seacoast Banking Corporation of Florida as of December 31, 2014, and the related
consolidated statements of income, comprehensive income (loss), cash flows, and shareholders’ equity for the year ended
December 31, 2014. We also have audited the Company’s internal control over financial reporting as of
December 31, 2014, based on criteria established in the 2013 Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for
these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting, included in Management’s report on internal control
over financial reporting contained in Item 9A. of the accompanying Form 10-K. Our responsibility is to express an
opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based
on our audit.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material respects. Our audit of the financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our
audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over
financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of authorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
As permitted, the Company has excluded the operations of BANKshares,
Inc. acquired during 2014, which is described in Note T of the consolidated financial statements, from the scope of management’s
report on internal control over financial reporting. As such, it has also been excluded from the scope of our audit of internal
control over financial reporting.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Seacoast Banking Corporation of
Florida as of December 31, 2014, and the results of its operations and its cash flows for the year ended December 31,
2014 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on
criteria established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).
| |
/s/ Crowe Horwath LLP |
| |
Crowe Horwath LLP |
Fort Lauderdale, Florida
March 16, 2015
Report of Independent Registered Public
Accounting Firm
The Board of Directors and Shareholders
Seacoast Banking Corporation of Florida:
We have audited the accompanying consolidated
balance sheet of Seacoast Banking Corporation of Florida and subsidiaries as of December 31, 2013, and the related consolidated
statements of income, comprehensive income (loss), cash flows, and shareholders’ equity for each of the years in the two-year
period ended December 31, 2013. These consolidated financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Seacoast Banking Corporation of
Florida and subsidiaries as of December 31, 2013, and the results of their operations and their cash flows for each of the
years in the two-year period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.
March 17, 2014
Miami, Florida
Certified Public Accountants
SEACOAST BANKING CORPORATION OF FLORIDA AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
| | |
For the Year Ended December 31 | |
| | |
2014 | | |
2013 | | |
2012 | |
| | |
(Dollars in thousands, except share data) | |
| | |
| | |
| | |
| |
| INTEREST INCOME | |
| | | |
| | | |
| | |
| Interest on securities | |
| | | |
| | | |
| | |
| Taxable | |
$ | 15,448 | | |
$ | 12,856 | | |
$ | 13,964 | |
| Nontaxable | |
| 211 | | |
| 68 | | |
| 80 | |
| Interest and fees on loans | |
| 63,586 | | |
| 56,971 | | |
| 58,290 | |
| Interest on federal funds sold and interest bearing deposits | |
| 1,017 | | |
| 868 | | |
| 953 | |
| Total interest income | |
| 80,262 | | |
| 70,763 | | |
| 73,287 | |
| INTEREST EXPENSE | |
| | | |
| | | |
| | |
| Interest on savings deposits | |
| 864 | | |
| 782 | | |
| 1,522 | |
| Interest on time certificates | |
| 1,538 | | |
| 1,947 | | |
| 3,969 | |
| Interest on short term borrowings | |
| 297 | | |
| 286 | | |
| 340 | |
| Interest on subordinated debt | |
| 1,053 | | |
| 934 | | |
| 1,035 | |
| Interest on other borrowings | |
| 1,603 | | |
| 1,608 | | |
| 1,612 | |
| Total interest expense | |
| 5,355 | | |
| 5,557 | | |
| 8,478 | |
| NET INTEREST INCOME | |
| 74,907 | | |
| 65,206 | | |
| 64,809 | |
| Provision (recapture) for loan losses | |
| (3,486 | ) | |
| 3,188 | | |
| 10,796 | |
| NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | |
| 78,393 | | |
| 62,018 | | |
| 54,013 | |
| NONINTEREST INCOME | |
| | | |
| | | |
| | |
| Loss on sale of commercial loan | |
| 0 | | |
| 0 | | |
| (1,238 | ) |
| Securities gains, net (includes net gains (losses) of
($110), $149, and $6,632 in other comprehensive income reclassifications for 2014, 2013, and 2012 respectively) | |
| 469 | | |
| 419 | | |
| 7,619 | |
| Other | |
| 24,744 | | |
| 24,319 | | |
| 21,444 | |
| Total noninterest income | |
| 25,213 | | |
| 24,738 | | |
| 27,825 | |
| NONINTEREST EXPENSE | |
| 93,366 | | |
| 75,152 | | |
| 82,548 | |
| INCOME (LOSS) BEFORE INCOME TAXES | |
| 10,240 | | |
| 11,604 | | |
| (710 | ) |
| Income taxes (benefit) | |
| 4,544 | | |
| (40,385 | ) | |
| 0 | |
| NET INCOME (LOSS) | |
| 5,696 | | |
| 51,989 | | |
| (710 | ) |
| Preferred stock dividends and accretion on preferred stock discount | |
| 0 | | |
| 4,073 | | |
| 3,748 | |
| NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS | |
$ | 5,696 | | |
$ | 47,916 | | |
$ | (4,458 | ) |
| | |
| | | |
| | | |
| | |
| SHARE DATA | |
| | | |
| | | |
| | |
| Net income (loss) per share of common stock | |
| | | |
| | | |
| | |
| Diluted | |
$ | 0.21 | | |
$ | 2.44 | | |
$ | (0.24 | ) |
| Basic | |
| 0.21 | | |
| 2.46 | | |
| (0.24 | ) |
| | |
| | | |
| | | |
| | |
| Average common shares outstanding | |
| | | |
| | | |
| | |
| Diluted | |
| 27,716,895 | | |
| 19,650,005 | | |
| 18,748,757 | |
| Basic | |
| 27,538,955 | | |
| 19,449,560 | | |
| 18,748,757 | |
See notes to consolidated financial statements.
SEACOAST BANKING CORPORATION OF FLORIDA AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS)
| | |
For the Year Ended December 31 | |
| | |
2014 | | |
2013 | | |
2012 | |
| | |
(Dollars in thousands) | |
| | |
| | |
| | |
| |
| NET INCOME (LOSS) | |
$ | 5,696 | | |
$ | 51,989 | | |
$ | (710 | ) |
| Other comprehensive income (loss): | |
| | | |
| | | |
| | |
| Unrealized gains (losses) on securities available for sale | |
| 12,012 | | |
| (22,532 | ) | |
| 3,227 | |
| Unrealized gains (losses) on transfer of securities
available for sale (AFS) to held for investment (HTM) and securities HTM to securities AFS | |
| (3,137 | ) | |
| 724 | | |
| 0 | |
| Reclassification adjustment for (gains) and losses included in net income | |
| 110 | | |
| (149 | ) | |
| (6,632 | ) |
| Provision (benefit) for income taxes | |
| 3,468 | | |
| (8,475 | ) | |
| (1,315 | ) |
| Total other comprehensive income (loss) | |
| 5,517 | | |
| (13,482 | ) | |
| (2,090 | ) |
| COMPREHENSIVE INCOME (LOSS) | |
$ | 11,213 | | |
$ | 38,507 | | |
$ | (2,800 | ) |
SEACOAST BANKING CORPORATION OF FLORIDA AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | |
December 31 | |
| | |
2014 | | |
2013 | |
| | |
(Dollars in thousands, except
share data) | |
| ASSETS | |
| | | |
| | |
| | |
| | | |
| | |
| Cash and due from banks | |
$ | 64,411 | | |
$ | 48,561 | |
| Interest bearing deposits with other banks | |
| 36,128 | | |
| 143,063 | |
| Total cash and cash equivalents | |
| 100,539 | | |
| 191,624 | |
| Securities available for sale (at fair value) | |
| 741,375 | | |
| 641,611 | |
| Securities held for investment (fair value $208,787 in 2014) | |
| 207,904 | | |
| 0 | |
| Total securities | |
| 949,279 | | |
| 641,611 | |
| Loans held for sale | |
| 12,078 | | |
| 13,832 | |
| Loans | |
| 1,821,885 | | |
| 1,304,207 | |
| Less: Allowance for loan losses | |
| (17,071 | ) | |
| (20,068 | ) |
| Net loans | |
| 1,804,814 | | |
| 1,284,139 | |
| Bank premises and equipment, net | |
| 45,086 | | |
| 34,505 | |
| Other real estate owned | |
| 7,462 | | |
| 6,860 | |
| Goodwill | |
| 25,309 | | |
| 0 | |
| Other intangible assets | |
| 7,454 | | |
| 718 | |
| Banked owned life insurance | |
| 35,679 | | |
| 0 | |
| Other assets | |
| 105,635 | | |
| 95,651 | |
| TOTAL ASSETS | |
$ | 3,093,335 | | |
$ | 2,268,940 | |
| | |
| | | |
| | |
| LIABILITIES | |
| | | |
| | |
| | |
| | | |
| | |
| Demand deposits (noninterest bearing) | |
$ | 725,238 | | |
$ | 464,006 | |
| NOW | |
| 652,353 | | |
| 540,288 | |
| Savings deposits | |
| 264,738 | | |
| 192,491 | |
| Money market accounts | |
| 450,172 | | |
| 331,184 | |
| Other time deposits | |
| 173,247 | | |
| 154,743 | |
| Brokered time certificates | |
| 7,034 | | |
| 9,776 | |
| Time certificates of $100,000 or more | |
| 143,752 | | |
| 113,557 | |
| Total deposits | |
| 2,416,534 | | |
| 1,806,045 | |
| Federal funds purchased and securities sold under agreement to repurchase, maturing within 30 days | |
| 233,640 | | |
| 151,310 | |
| Borrowed funds | |
| 50,000 | | |
| 50,000 | |
| Subordinated debt | |
| 64,583 | | |
| 53,610 | |
| Other liabilities | |
| 15,927 | | |
| 9,371 | |
| | |
| 2,780,684 | | |
| 2,070,336 | |
| | |
| | | |
| | |
| Commitments and Contingencies (Notes K and P) | |
| | | |
| | |
| | |
| | | |
| | |
| SHAREHOLDERS' EQUITY | |
| | | |
| | |
| | |
| | | |
| | |
| Common stock, par value $0.10 per share authorized
60,000,000 shares, issued 33,143,202 and outstanding 33,136,592 shares in 2014 and authorized 60,000,000 shares, issued
23,638,373 and outstanding 23,637,434 shares in 2013 | |
| 3,300 | | |
| 2,364 | |
| Additional paid-in capital | |
| 379,249 | | |
| 277,290 | |
| Accumulated deficit | |
| (65,000 | ) | |
| (70,695 | ) |
| Less: Treasury stock (6,610 shares in 2014 and 939 shares in 2013), at cost | |
| (71 | ) | |
| (11 | ) |
| | |
| 317,478 | | |
| 208,948 | |
| Accumulated other comprehensive income, net | |
| (4,827 | ) | |
| (10,344 | ) |
| | |
| 312,651 | | |
| 198,604 | |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | |
$ | 3,093,335 | | |
$ | 2,268,940 | |
See notes to consolidated financial statements.
SEACOAST BANKING CORPORATION OF FLORIDA AND
SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
| | |
For the Year Ended December 31 | |
| | |
2014 | | |
2013 | | |
2012 | |
| | |
(Dollars in thousands) | |
| CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | | |
| | |
| Interest received | |
$ | 78,564 | | |
$ | 73,849 | | |
$ | 78,119 | |
| Fees and commissions received | |
| 24,689 | | |
| 24,168 | | |
| 20,814 | |
| Interest paid | |
| (4,508 | ) | |
| (5,584 | ) | |
| (9,003 | ) |
| Cash paid to suppliers and employees | |
| (81,268 | ) | |
| (65,405 | ) | |
| (71,016 | ) |
| Income taxes received (paid) | |
| (239 | ) | |
| (157 | ) | |
| 2 | |
| Origination of loans designated held for sale | |
| (188,952 | ) | |
| (208,998 | ) | |
| (188,064 | ) |
| Sale of loans designated held for sale | |
| 190,706 | | |
| 231,187 | | |
| 167,921 | |
| Net change in other assets | |
| 2,954 | | |
| 792 | | |
| (835 | ) |
| Net cash provided (used) by operating activities | |
| 21,946 | | |
| 49,852 | | |
| (2,062 | ) |
| | |
| | | |
| | | |
| | |
| CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | | |
| | |
| Maturities of securities available for sale | |
| 92,499 | | |
| 155,627 | | |
| 133,651 | |
| Maturities of securities held for investment | |
| 16,138 | | |
| 0 | | |
| 6,395 | |
| Proceeds from sale of securities available for sale | |
| 21,527 | | |
| 67,330 | | |
| 256,102 | |
| Purchases of securities available for sale | |
| (280,137 | ) | |
| (230,118 | ) | |
| (384,120 | ) |
| Purchases of securities held for investment | |
| (65,340 | ) | |
| 0 | | |
| (500 | ) |
| Net new loans and principal payments | |
| (154,772 | ) | |
| (88,039 | ) | |
| (54,633 | ) |
| Proceeds from sale of loans | |
| 0 | | |
| 379 | | |
| 0 | |
| Proceeds from the sale of other real estate owned | |
| 4,066 | | |
| 8,843 | | |
| 18,369 | |
| Proceeds from sale of Federal Home Loan Bank and Federal Reserve Bank Stock | |
| 2,423 | | |
| 943 | | |
| 296 | |
| Purchase of Federal Home Loan Bank and Federal Reserve Bank Stock | |
| (6,425 | ) | |
| (1,303 | ) | |
| (142 | ) |
| Purchase of bank owned life insurance | |
| (30,000 | ) | |
| 0 | | |
| 0 | |
| Net cash from bank acquisition | |
| 110,996 | | |
| 0 | | |
| 0 | |
| Additions to bank premises and equipment | |
| (6,083 | ) | |
| (2,817 | ) | |
| (3,839 | ) |
| Net cash (used) by investing activities | |
| (295,111 | ) | |
| (89,155 | ) | |
| (28,421 | ) |
| | |
| | | |
| | | |
| | |
| CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | | |
| | |
| Net increase in deposits | |
| 93,446 | | |
| 47,085 | | |
| 40,223 | |
| Net increase in federal funds purchased and repurchase agreements | |
| 63,852 | | |
| 14,507 | | |
| 551 | |
| Net change in borrowed funds | |
| 0 | | |
| 0 | | |
| 0 | |
| Issuance of common stock, net of related expense | |
| 24,637 | | |
| 46,977 | | |
| 0 | |
| Repurchase of stock warrants, including related expense | |
| 0 | | |
| 0 | | |
| (81 | ) |
| Stock based employee benefit plans | |
| 142 | | |
| 190 | | |
| 196 | |
| Redemption of preferred stock | |
| 0 | | |
| (50,000 | ) | |
| 0 | |
| Dividends paid on preferred shares | |
| 0 | | |
| (2,819 | ) | |
| (2,500 | ) |
| Net cash provided by financing activities | |
| 182,080 | | |
| 55,940 | | |
| 38,389 | |
| Net increase (decrease) in cash and cash equivalents | |
| (91,085 | ) | |
| 16,637 | | |
| 7,906 | |
| Cash and cash equivalents at beginning of year | |
| 191,624 | | |
| 174,987 | | |
| 167,081 | |
| Cash and cash equivalents at end of year | |
$ | 100,539 | | |
$ | 191,624 | | |
$ | 174,987 | |
See notes to consolidated financial statements.
SEACOAST BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY
| | |
| | |
| | |
| | |
| | |
| | |
Retained | | |
| | |
Accumulated | | |
| |
| | |
| | |
| | |
| | |
| | |
Paid-in | | |
Earnings | | |
| | |
Other | | |
| |
| | |
Common
Stock | | |
Preferred
Stock | | |
Capital/ | | |
(Accumulated | | |
Treasury | | |
Comprehensive | | |
| |
| (Dollars and shares in thousands) | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Warrants | | |
Deficit) | | |
Stock | | |
Income
(Loss), Net | | |
Total | |
| BALANCE AT DECEMBER 31, 2011 | |
| 18,937 | | |
| 1,894 | | |
| 2 | | |
| 47,497 | | |
| 229,623 | | |
| (114,152 | ) | |
| (13 | ) | |
| 5,228 | | |
| 170,077 | |
| Comprehensive loss | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| (710 | ) | |
| 0 | | |
| (2,090 | ) | |
| (2,800 | ) |
| Cash dividends on preferred shares | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| (2,500 | ) | |
| 0 | | |
| 0 | | |
| (2,500 | ) |
| Stock based compensation expense | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 796 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 796 | |
| Common stock issued for stock based employee benefit plans | |
| 30 | | |
| 3 | | |
| 0 | | |
| 0 | | |
| 100 | | |
| 0 | | |
| (49 | ) | |
| 0 | | |
| 54 | |
| Purchase of stock warrant | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| (81 | ) | |
| 0 | | |
| 0 | | |
| 0 | | |
| (81 | ) |
| Accretion on preferred stock discount | |
| 0 | | |
| 0 | | |
| 0 | | |
| 1,249 | | |
| 0 | | |
| (1,249 | ) | |
| 0 | | |
| 0 | | |
| 0 | |
| BALANCE AT DECEMBER 31, 2012 | |
| 18,967 | | |
| 1,897 | | |
| 2 | | |
| 48,746 | | |
| 230,438 | | |
| (118,611 | ) | |
| (62 | ) | |
| 3,138 | | |
| 165,546 | |
| Comprehensive income | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 51,989 | | |
| 0 | | |
| (13,482 | ) | |
| 38,507 | |
| Cash dividends on preferred shares | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| (2,819 | ) | |
| 0 | | |
| 0 | | |
| (2,819 | ) |
| Stock based compensation expense | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 246 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 246 | |
| Common stock issued for stock based employee benefit plans | |
| 19 | | |
| 2 | | |
| 0 | | |
| 0 | | |
| 95 | | |
| 0 | | |
| 51 | | |
| 0 | | |
| 148 | |
| Issuance of common stock, net of related expense | |
| 4,652 | | |
| 465 | | |
| 0 | | |
| 0 | | |
| 46,511 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 46,976 | |
| Redemption of preferred stock | |
| 0 | | |
| 0 | | |
| (2 | ) | |
| (50,000 | ) | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| (50,000 | ) |
| Accretion on preferred stock discount | |
| 0 | | |
| 0 | | |
| 0 | | |
| 1,254 | | |
| 0 | | |
| (1,254 | ) | |
| 0 | | |
| 0 | | |
| 0 | |
| BALANCE AT DECEMBER 31, 2013 | |
| 23,638 | | |
| 2,364 | | |
| 0 | | |
| 0 | | |
| 277,290 | | |
| (70,695 | ) | |
| (11 | ) | |
| (10,344 | ) | |
| 198,604 | |
| Comprehensive income | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 5,696 | | |
| 0 | | |
| 5,517 | | |
| 11,213 | |
| Stock based compensation expense | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 1,299 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 1,299 | |
| Common stock issued for stock based employee benefit plans | |
| 147 | | |
| 1 | | |
| 0 | | |
| 0 | | |
| 171 | | |
| 0 | | |
| (60 | ) | |
| 0 | | |
| 112 | |
| Issuance of common stock, net of related expense | |
| 2,326 | | |
| 233 | | |
| 0 | | |
| 0 | | |
| 24,404 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 24,637 | |
| Issuance of common stock, pursuant to acquisition | |
| 7,026 | | |
| 702 | | |
| 0 | | |
| 0 | | |
| 76,085 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 76,787 | |
| Other | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| (1 | ) | |
| 0 | | |
| 0 | | |
| 0 | |
| BALANCE AT DECEMBER 31, 2014 | |
$ | 33,137 | | |
$ | 3,300 | | |
$ | 0 | | |
$ | 0 | | |
$ | 379,249 | | |
$ | (65,000 | ) | |
$ | (71 | ) | |
$ | (4,827 | ) | |
$ | 312,651 | |
See notes to consolidated financial statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Seacoast Banking
Corporation of Florida and Subsidiaries
Note A
Significant Accounting Policies
General:
Seacoast Banking Corporation of Florida (“Company”) is a single segment bank holding company with one operating subsidiary
bank, Seacoast National Bank (“Seacoast National”, together the “Company”). Seacoast National’s
service area includes Okeechobee, Highlands, Hendry, Glades, DeSoto, Palm Beach, Martin, St. Lucie, Brevard, Indian River, Broward,
Orange, Lake, Volusia and Seminole counties, which are located in central and southeast Florida. The bank operates full service
branches within its markets, and during 2014 acquired 12 additional branches as part of the BANKshares acquisition.
The consolidated
financial statements include the accounts of Seacoast and all its majority-owned subsidiaries but exclude trusts created for the
issuance of trust preferred securities. In consolidation, all significant intercompany accounts and transactions are eliminated.
The accounting
and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of
America, and they conform to general practices within the applicable industries.
Cash and Cash
Equivalents: Cash and cash equivalents include cash and due from banks, interest-bearing bank balances and federal funds
sold and securities purchased under resale agreements. Cash and cash equivalents have original maturities of three months or less,
and accordingly, the carrying amount of these instruments is deemed to be a reasonable estimate of fair value.
Securities Purchased
and Sold Agreements: Securities purchased under resale agreements and securities sold under repurchase agreements are generally
accounted for as collateralized financing transactions and are recorded at the amount at which the securities were acquired or
sold plus accrued interest. It is the Company’s policy to take possession of securities purchased under resale agreements,
which are primarily U.S. Government and Government agency securities. The fair value of securities purchased and sold is monitored
and collateral is obtained from or returned to the counterparty when appropriate.
Use of Estimates:
The preparation of these financial statements requires the use of certain estimates by management in determining the Company's
assets, liabilities, revenues and expenses, and contingent liabilities. Specific areas, among others, requiring the application
of management’s estimates include determination of the allowance for loan losses, the valuation of investment securities
available for sale, fair value of impaired loans, contingent liabilities, other real estate owned, and valuation of deferred tax
valuation allowance. Actual results could differ from those estimates.
Securities:
Securities are classified at date of purchase as trading, available for sale or held to maturity. Securities that may be sold
as part of the Company's asset/liability management or in response to, or in anticipation of changes in interest rates and resulting
prepayment risk, or for other factors are stated at fair value with unrealized gains or losses reflected as a component of shareholders'
equity net of tax or included in noninterest income as appropriate. The estimated fair value of a security is determined based
on market quotations when available or, if not available, by using quoted market prices for similar securities, pricing models
or discounted cash flow analyses, using observable market data where available. Debt securities that the Company has the ability
and intent to hold to maturity are carried at amortized cost.
Realized gains
and losses, including other than temporary impairments, are included in noninterest income as investment securities gains (losses).
Interest and dividends on securities, including amortization of premiums and accretion of discounts, is recognized in interest
income on an accrual basis using the interest method. The Company anticipates prepayments of principal in the calculation of the
effective yield for collateralized mortgage obligations and mortgage backed securities by obtaining estimates of prepayments from
independent third parties. The adjusted cost of each specific security sold is used to compute realized gains or losses on the
sale of securities on a trade date basis.
On a
quarterly basis, the Company makes an assessment to determine whether there have been any events or economic circumstances to
indicate that a security is impaired on an other-than-temporary basis. Management considers many factors including the length
of time the security has had a fair value less than the cost basis; our intent and ability to hold the security for a period
of time sufficient for a recovery in value; recent events specific to the issuer or industry; and for debt securities,
external credit ratings and recent downgrades. Securities on which there is an unrealized loss that is deemed to be
other-than temporary are written down to fair value with the write-down recorded as a realized loss or if related to other
factors are recorded as other comprehensive income.
For securities
which are transferred into held to maturity from available for sale the unrealized gain or loss at the date of transfer is reported
as a component of shareholders’ equity and is amortized over the remaining life as an adjustment of yield using the interest
method.
Seacoast National
is a member of the Federal Home Loan Bank system. Members are required to own a certain amount of stock based on the level of
borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted
security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends
are reported as income.
Loans: Loans
are recognized at the principal amount outstanding, net of unearned income and amounts charged off. Unearned income includes discounts,
premiums and deferred loan origination fees reduced by loan origination costs. Unearned income on loans is amortized to interest
income over the life of the related loan using the effective interest rate method. Interest income is recognized on an accrual
basis.
Fees received for
providing loan commitments and letters of credit that may result in loans are typically deferred and amortized to interest income
over the life of the related loan, beginning with the initial borrowing. Fees on commitments and letters of credit are amortized
to noninterest income as banking fees and commissions on a straight-line basis over the commitment period when funding is not
expected.
Loans that management
has the intent and ability to hold for the foreseeable future or until maturity or payoff are considered held for investment.
The Company accounts
for loans in accordance with ASC topics 310 and 470, when due to a deterioration in a borrower’s financial position, the
Company grants concessions that would not otherwise be considered. Troubled debt restructured (TDR) loans are tested for impairment
and placed in nonaccrual status. If borrowers perform pursuant to the modified loan terms for at least six months and the remaining
loan balances are considered collectible, the loans are returned to accrual status. When the Company modifies the terms of an
existing loan that is not considered a troubled debt restructuring, the Company follows the provisions of ASC 310 “Creditor’s
Accounting for a Modification or Exchange of Debt Instruments.”
A loan is considered
to be impaired when based on current information; it is probable the Company will not receive all amounts due in accordance with
the contractual terms of a loan agreement. The fair value is measured based on either the present value of expected future cash
flows discounted at the loan’s effective interest rate, the loan’s observable market price or the fair value of the
collateral if the loan is collateral dependent. A loan is also considered impaired if its terms are modified in a troubled debt
restructuring. When the ultimate collectibility of the principal balance of an impaired loan is in doubt, all cash receipts are
applied to principal. Once the recorded principal balance has been reduced to zero, future cash receipts are applied to interest
income, to the extent any interest has been forgone, and then they are recorded as recoveries of any amounts previously charged
off.
The accrual of
interest is generally discontinued on loans and leases, 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.
Generally, loans past due 90 days or more are placed on nonaccrual status regardless of security. When interest accruals are discontinued,
unpaid interest is reversed against interest income. Consumer loans that become 120 days past due are generally charged off. When
borrowers demonstrate over an extended period the ability to repay a loan in accordance with the contractual terms of a loan classified
as nonaccrual, the loan is returned to accrual status. Interest income on nonaccrual loans is either recorded using the cash basis
method of accounting or recognized after the principal has been reduced to zero, depending on the type of loan.
Purchased loans:
As a part of business acquisitions, the Company acquires loans, some of which have shown evidence of credit deterioration
since origination and others without specifically identified credit deficiency factors. These acquired loans were recorded at
the acquisition date fair value, and after acquisition, any losses are recognized through the allowance for loan losses. Accordingly,
the associated allowance for credit losses related to these loans is not carried over at the acquisition date.
These loans fall
into two groups: purchased credit-impaired (“PCI”) and purchased unimpaired loans (“PUL”). The Company
estimates the amount and timing of expected cash flows for each PUL and the expected cash flows in excess of the amount paid is
recorded as interest income over the remaining life of the loan. The PUL’s were evaluated to determine estimated fair values
as of the acquisition date. Based on management’s estimate of fair value, each PUL was assigned a discount credit mark.
For PCI loans the
Company updates the amount of loan principal and interest cash flows expected to be collected, incorporating assumptions regarding
default rates, loss severities, the amounts and timing of prepayments and other factors that are reflective of current market
conditions on a quarterly basis. Probable decreases in expected loan principal cash flows trigger the recognition of impairment,
which is then measured as the present value of the expected principal loss plus any related foregone interest cash flows discounted
at the loan’s effective interest rate. Impairments that occur after the acquisition date are recognized through the provision
for loan losses. Probable and significant increases in expected principal cash flows would first reverse any previously recorded
allowance for loan losses; any remaining increases are recognized prospectively as interest income. The impacts of (i) prepayments,
(ii) changes in variable interest rates, and (iii) any other changes in the timing of expected cash flows are recognized prospectively
as adjustments to interest income. Disposals of loans, which may include sales of loans, receipt of payments in full by the borrower,
or foreclosure, result in removal of the loan from the purchased credit impaired portfolio. In contrast, PUL’s are evaluated
using the same procedures as used for the Company’s non-purchased loan portfolio.
Derivatives
Used for Risk Management: The Company may designate a derivative as either a hedge of the fair value of a recognized fixed
rate asset or liability or an unrecognized firm commitment (“fair value” hedge), a hedge of a forecasted transaction
or of the variability of future cash flows of a floating rate asset or liability (“cash flow” hedge). All derivatives
are recorded as other assets or other liabilities on the balance sheet at their respective fair values with unrealized gains and
losses recorded either in other comprehensive income or in the results of operations, depending on the purpose for which the derivative
is held. Derivatives that do not meet the criteria for designation as a hedge at inception, or fail to meet the criteria thereafter,
are carried at fair value with unrealized gains and losses recorded in the results of operations.
To the extent of
the effectiveness of a cash flow hedge, changes in the fair value of a derivative that is designated and qualifies as a cash flow
hedge are recorded in other comprehensive income. The net periodic interest settlement on derivatives is treated as an adjustment
to the interest income or interest expense of the hedged assets or liabilities.
At inception of
a hedge transaction, the Company formally documents the hedge relationship and the risk management objective and strategy for
undertaking the hedge. This process includes identification of the hedging instrument, hedged item, risk being hedged and the
methodology for measuring ineffectiveness. In addition, the Company assesses both at the inception of the hedge and on an ongoing
quarterly basis, whether the derivative used in the hedging transaction has been highly effective in offsetting changes in fair
value or cash flows of the hedged item, and whether the derivative as a hedging instrument is no longer appropriate.
The Company discontinues
hedge accounting prospectively when either it is determined that the derivative is no longer highly effective in offsetting changes
in the fair value or cash flows of a hedged item; the derivative expires or is sold, terminated or exercised; the derivative is
de-designated because it is unlikely that a forecasted transaction will occur; or management determines that designation of the
derivative as a hedging instrument is no longer appropriate.
When a fair value
hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment
is amortized or accreted as an adjustment to yield over the remaining life of the asset or liability. When a cash flow hedge is
discontinued but the hedged cash flows or forecasted transaction are still expected to occur, unrealized gains and losses that
are accumulated in other comprehensive income are included in the results of operations in the same period when the results of
operations are also affected by the hedged cash flow. They are recognized in the results of operations immediately if the cash
flow hedge was discontinued because a forecasted transaction is not expected to occur.
Certain commitments
to sell loans are derivatives. These commitments are recorded as a freestanding derivative and classified as an other asset or
liability.
Loans Held for
Sale: Loans are classified as held for sale based on management’s intent to sell the loans, either as part of a core
business strategy or related to a risk mitigation strategy. Loans held for sale and any related unfunded lending commitments are
recorded at fair value, if elected or the lower of cost (which is the carrying amount net of deferred fees and costs and applicable
allowance for loan losses and reserve for unfunded lending commitments) or fair market value less costs to sell. Adjustments to
reflect unrealized gains and losses resulting from changes in fair value and realized gains and losses upon ultimate sale of the
loans are classified as noninterest income in the Consolidated Statements of Income. At the time of the transfer to loans held
for sale, if the fair market value is less than cost, the difference is recorded as additional provision for credit losses in
the results of operations. Fair market value is determined based on quoted market prices for the same or similar loans, outstanding
investor commitments or discounted cash flow analyses using market assumptions.
Fair market value
for substantially all the loans in loans held for sale were obtained by reference to prices for the same or similar loans from
recent transactions. For a relationship that includes an unfunded lending commitment, the cost basis is the outstanding balance
of the loan net of the allowance for loan losses and net of any reserve for unfunded lending commitments. This cost basis is compared
to the fair market value of the entire relationship including the unfunded lending commitment.
Individual loans
or pools of loans are transferred from the loan portfolio to loans held for sale when the intent to hold the loans has changed
and there is a plan to sell the loans within a reasonable period of time. Loans held for sale are reviewed quarterly. Subsequent
declines or recoveries of previous declines in the fair market value of loans held for sale are recorded in other fee income in
the results of operations. Fair market value changes occur due to changes in interest rates, the borrower’s credit, the
secondary loan market and the market for a borrower’s debt. If an unfunded lending commitment expires before a sale occurs,
the reserve associated with the unfunded lending commitment is recognized as a credit to other fee income in the results of operations.
Fair Value Measurements:
The Company measures or monitors many of its assets and liabilities on a fair value basis. Certain assets and liabilities
are measured on a recurring basis. Examples of these include derivative instruments, available for sale and trading securities,
loans held for sale and long-term debt. Additionally, fair value is used on a non-recurring basis to evaluate assets or liabilities
for impairment or for disclosure purposes. Examples of these non-recurring uses of fair value include certain loans held for sale
accounted for on a lower of cost or fair value, mortgage servicing rights, goodwill, and long-lived assets. Fair value is defined
as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various valuation techniques
and assumptions when estimating fair value.
The Company applied
the following fair value hierarchy:
Level 1 – Assets or liabilities
for which the identical item is traded on an active exchange, such as publicly-traded instruments or futures contracts.
Level 2 – Assets and liabilities
valued based on observable market data for similar instruments.
Level 3 – Assets and liabilities
for which significant valuation assumptions are not readily observable in the market; instruments valued based on the best available
data, some of which is internally-developed, and considers risk premiums that a market participant would require.
When determining
the fair value measurements for assets and liabilities required or permitted to be recorded at and/or marked to fair value, the
Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants
would use when pricing the asset or liability. When possible, the Company looks to active and observable markets to price identical
assets or liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to market observable
data for similar assets and liabilities. Nevertheless, certain assets and liabilities are not actively traded in observable markets
and the Company must use alternative valuation techniques to derive a fair value measurement.
Other Real Estate
Owned: Other real estate owned (“OREO”) consists of real estate acquired in lieu of unpaid loan balances.
These assets are carried at an amount equal to the loan balance prior to foreclosure plus costs incurred for improvements to the
property, but no more than the estimated fair value of the property less estimated selling costs. Any valuation adjustments required
at the date of transfer are charged to the allowance for loan losses. Subsequently, unrealized losses and realized gains and losses
are included in other noninterest expense. Operating results from OREO are recorded in other noninterest expense.
Bank
Premises and Equipment: Bank premises and equipment are stated at cost, less accumulated depreciation and amortization. Premises
and equipment include certain costs associated with the acquisition of leasehold improvements. Depreciation and amortization are
recognized principally by the straight-line method, over the estimated useful lives as follows: buildings - 25-40 years, leasehold
improvements - 5-25 years, furniture and equipment - 3-12 years. Premises
and equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable
from future undiscounted cash flows. If impaired, the assets are recorded at fair value.
Intangible Assets:
Mergers and acquisitions are accounted for using the acquisition method of accounting, which requires that acquired assets
and liabilities are recorded at their fair values. This often involves estimates based on third party valuations or internal valuations
based on discounted cash flow analyses or other valuation techniques, all of which are inherently subjective. The amortization
of identified intangible assets is based upon the estimated economic benefits to be received, which is also subjective.
Goodwill resulting
from business combinations is generally determined as the excess of the fair value of the consideration transferred, plus the
fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed
as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have
an indefinite useful life are not amortized, but tested for impairment at least annually. The Company has selected October 31
as the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated
useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on the Company’s
balance sheet.
The core deposit
intangibles are intangible assets arising from either whole bank acquisitions or branch acquisitions. They are initially measured
at fair value and then amortized over a seven-year period on a straight line basis. The Company periodically evaluates whether
events and circumstances have occurred that may affect the estimated useful lives or the recoverability of the remaining balance
of the intangible assets.
Bank owned life
insurance (BOLI): The Company, through its subsidiary bank, has purchased life insurance policies on certain key executives.
Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date,
which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.
Revenue Recognition:
Revenue is recognized when the earnings process is complete and collectibility is assured. Brokerage fees and commissions
are recognized on a trade date basis. Asset management fees, measured by assets at a particular date, are accrued as earned. Commission
expenses are recorded when the related revenue is recognized.
Allowance for
Loan Losses and Reserve for Unfunded Lending Commitments: The Company has developed policies and procedures for assessing
the adequacy of the allowance for loan losses and reserve for unfunded lending commitments that reflect the evaluation of credit
risk after careful consideration of all available information. Where appropriate this assessment includes monitoring qualitative
and quantitative trends including changes in levels of past due, criticized and nonperforming loans. In developing this assessment,
the Company must necessarily rely on estimates and exercise judgment regarding matters where the ultimate outcome is unknown such
as economic factors, developments affecting companies in specific industries and issues with respect to single borrowers. Depending
on changes in circumstances, future assessments of credit risk may yield materially different results, which may result in an
increase or a decrease in the allowance for loan losses.
The allowance for
loan losses and reserve for unfunded lending commitments is maintained at a level the Company believes is adequate to absorb probable
losses incurred in the loan portfolio and unfunded lending commitments as of the date of the consolidated financial statements.
The Company employs a variety of modeling and estimation tools in developing the appropriate allowance for loan losses and reserve
for unfunded lending commitments. The allowance for loan losses and reserve for unfunded lending commitments consists of formula-based
components for both commercial and consumer loans, allowance for impaired commercial loans and allowance related to additional
factors that are believed indicative of current trends and business cycle issues.
If necessary, a
specific allowance is established for individually evaluated impaired loans. The specific allowance established for these loans
is based on a thorough analysis of the most probable source of repayment, including the present value of the loan’s expected
future cash flows, the loan’s estimated market value, or the estimated fair value of the underlying collateral depending
on the most likely source of repayment. General allowances are established for loans grouped into pools based on similar characteristics.
In this process, general allowance factors are based on an analysis of historical charge-off experience, portfolio trends, regional
and national economic conditions, and expected loss given default derived from the Company’s internal risk rating process.
The Company monitors
qualitative and quantitative trends in the loan portfolio, including changes in the levels of past due, criticized and nonperforming
loans. The distribution of the allowance for loan losses and reserve for unfunded lending commitments between the various components
does not diminish the fact that the entire allowance for loan losses and reserve for unfunded lending commitments is available
to absorb credit losses in the loan portfolio. The principal focus is, therefore, on the adequacy of the total allowance for loan
losses and reserve for unfunded lending commitments.
In addition, various
regulatory agencies, as an integral part of their examination process, periodically review the Company’s bank subsidiary’s
allowance for loan losses and reserve for unfunded lending commitments. These agencies may require such subsidiaries to recognize
changes to the allowance for loan losses and reserve for unfunded lending commitments based on their judgments about information
available to them at the time of their examination.
Income Taxes:
The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined
based on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements
and their related tax bases and are measured using the enacted tax rates and laws that are in effect. A valuation allowance is
recognized for a deferred tax asset if, based on the weight of available evidence, it is more likely than not that some portion
or all of the deferred tax asset will not be realized. The effect on deferred tax assets and liabilities of a change in rates
is recognized as income or expense in the period in which the change occurs. See Note L, Income Taxes for related disclosures.
Earnings per
Share: Basic earnings per share are computed by dividing net income available to common shareholders by the weighted-average
number of common shares outstanding during each period. Diluted earnings per share are based on the weighted-average number of
common shares outstanding during each period, plus common share equivalents calculated for stock options and performance restricted
stock outstanding using the treasury stock method.
Stock-Based
Compensation: The stock option plans are accounted for under ASC Topic 718 and the fair value of each option grant
is estimated on the date of grant using the Black-Scholes option-pricing model with market assumptions. This amount is amortized
on a straight-line basis over the vesting period, generally five years. (See Note J)
For restricted
stock awards, which generally vest based on continued service with the Company, the deferred compensation is measured as the fair
value of the shares on the date of grant, and the deferred compensation is amortized as salaries and employee benefits in accordance
with the applicable vesting schedule, generally straight-line over five years. Some shares vest based upon the Company achieving
certain performance goals and salary amortization expense is based on an estimate of the most likely results on a straight line
basis.
Note B
Recently Issued
Accounting Standards, Not Adopted as of December 31, 2014
Accounting Standards Update No. 2014-04
- Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure – In January 2014,
FASB issued ASU 2014-04. This amendment is intended to reduce diversity in practice by clarifying when an in substance repossession
or foreclosure occurs, and when a creditor should be considered to have received physical possession of residential real estate
property. The Update also defines when the accounting change for the loan should take place.
The amendments in this Update are effective
for fiscal years beginning after December 15, 2014. Early adoption is permitted. The Company will adopt the methodologies prescribed
by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or
results of operations.
In April 2014, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update No. 2014-08 (ASU 2014-08) “Presentation of Financial Statements
(Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of
Components of an Entity." ASU 2014-08 raises the threshold for a disposal to qualify as a discontinued operation and requires
new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued
operation. It is effective for annual periods beginning on or after December 15, 2014. Early adoption is permitted but only for
disposals that have not been reported in financial statements previously issued. We do not expect the impact of the adoption of
ASU 2014-08 to be material to our consolidated financial statements.
Accounting Standards Update No. 2014-09
- Revenue from Contracts with Customers (Topic 606). In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) No. 2014-09. The ASU is a converged standard between the FASB and the IASB that provides a single comprehensive
revenue recognition model for all contracts with customers across transactions and industries. The primary objective of the ASU
is revenue recognition that represents the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU is effective for interim
and annual reporting periods beginning after December 15, 2016. The Company is currently assessing the impact of adoption of ASU
2014-09.
In June 2014, the FASB issued Accounting
Standards Update No. 2014-10 (ASU 2014-10) "Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting
Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation". ASU 2014-10 removes
the definition of a development stage entity from the Master Glossary of the ASC thereby removing the financial reporting distinction
between development stage entities and other reporting entities. The amendment eliminating the exception to the sufficiency-of-equity-at-risk
criterion for development stage entities should be applied retrospectively for annual reporting periods beginning after December
15, 2015, and interim periods therein. Early application of these amendments is permitted. We do not expect the impact of the
adoption of ASU 2014-10 to be material to our consolidated financial statements.
Accounting Standards Update No. 2014-11
- Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. In June 2014,
the FASB issued ASU No. 2014-11. This ASU requires secured borrowing accounting treatment for repurchase-to-maturity transactions
and provides guidance on accounting for repurchase financing arrangements. This ASU is effective for interim and annual reporting
periods beginning after December 15, 2014. The adoption of this ASU will result in additional disclosures, but is not expected
to impact significantly the Company’s consolidated financial position or results of operations.
Accounting Standards Update No. 2014-12
- Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide
That a Performance Target Could be Achieved after the Requisite Service Period. In June 2014, the FASB issued ASU No. 2014-12.
This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period
be treated as a performance condition and should not be reflected in estimating the grant-date fair value of the award. This ASU
is effective for interim and annual reporting periods beginning after December 15, 2015 with earlier adoption permitted. The adoption
of this ASU is not expected to impact significantly the Company’s consolidated financial position or results of operations.
FASB issued Accounting Standards Update
2014-14 - Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure. This update requires creditors to reclassify
loans that are within the scope of the ASU to “other receivables” upon foreclosure, rather than reclassifying them
to other real estate owned. The separate other receivable recorded upon foreclosure is to be measured based on the amount of the
loan balance (principal and interest) the creditor expects to recover from the guarantor. The new guidance is effective for public
business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The
impact of adoption of this ASU by the Company is not expected to impact significantly the Company’s consolidated financial
position or results of operations.
| Note C | Cash,
Dividend and Loan Restrictions |
In the normal course
of business, the Company and Seacoast National enter into agreements, or are subject to regulatory agreements that result in cash,
debt and dividend restrictions. A summary of the most restrictive items follows:
Seacoast National
is required to maintain average reserve balances with the Federal Reserve Bank. The average amount of those reserve balances was
$56.6 million for 2014 and $75.4 million for 2013.
Under Federal Reserve
regulation, Seacoast National is limited as to the amount it may loan to its affiliates, including the Company, unless such loans
are collateralized by specified obligations. At December 31, 2014, the maximum amount available for transfer from Seacoast National
to the Company in the form of loans approximated $41.8 million.
The approval of
the Office of the Comptroller of the Currency (“OCC”) is required if the total of all dividends declared by a national
bank in any calendar year exceeds the bank's profits, as defined, for that year combined with its retained net profits for the
preceding two calendar years. Under this restriction Seacoast National can distribute dividends of approximately $59.0 million
to the Company as of December 31, 2014, without prior approval of the OCC.
Note D
Securities
The amortized cost and fair value of secuities
available for sale and held for investment at December 31, 2014 and December 31, 2013 are summarized as follows:
| | |
December 31, 2014 | |
| | |
Gross | | |
Gross | | |
Gross | | |
| |
| | |
Amortized | | |
Unrealized | | |
Unrealized | | |
Fair | |
| | |
Cost | | |
Gains | | |
Losses | | |
Value | |
| | |
(In thousands) | |
| SECURITIES AVAILABLE FOR SALE | |
| | | |
| | | |
| | | |
| | |
| U.S. Treasury securities and obligations of U.S. Government Sponsored Entities | |
$ | 3,876 | | |
$ | 23 | | |
$ | 0 | | |
$ | 3,899 | |
| Mortgage-backed securities of U.S. Government Sponsored Entities | |
| 123,981 | | |
| 1,501 | | |
| (423 | ) | |
| 125,059 | |
| Collateralized mortgage obligations of U.S. Government Sponsored Entities | |
| 352,483 | | |
| 1,075 | | |
| (6,077 | ) | |
| 347,481 | |
| Private mortgage-backed securities | |
| 29,967 | | |
| 291 | | |
| 0 | | |
| 30,258 | |
| Private collateralized mortgage obligations | |
| 85,175 | | |
| 688 | | |
| (728 | ) | |
| 85,135 | |
| Collateralized loan obligations | |
| 127,397 | | |
| 0 | | |
| (2,172 | ) | |
| 125,225 | |
| Obligations of state and political subdivisions | |
| 23,511 | | |
| 810 | | |
| (3 | ) | |
| 24,318 | |
| | |
$ | 746,390 | | |
$ | 4,388 | | |
$ | (9,403 | ) | |
$ | 741,375 | |
| | |
| | | |
| | | |
| | | |
| | |
| SECURITIES HELD FOR INVESTMENT | |
| | | |
| | | |
| | | |
| | |
| Mortgage-backed securities of U.S. Government Sponsored Entities | |
$ | 67,535 | | |
$ | 812 | | |
$ | 0 | | |
$ | 68,347 | |
| Collateralized mortgage obligations of U.S. Government Sponsored Entities | |
| 114,541 | | |
| 695 | | |
| (280 | ) | |
| 114,956 | |
| Collateralized loan obligations | |
| 25,828 | | |
| 0 | | |
| (343 | ) | |
| 25,485 | |
| | |
$ | 207,904 | | |
$ | 1,507 | | |
$ | (623 | ) | |
$ | 208,788 | |
| | |
December 31, 2013 | |
| | |
Gross | | |
Gross | | |
Gross | | |
| |
| | |
Amortized | | |
Unrealized | | |
Unrealized | | |
Fair | |
| | |
Cost | | |
Gains | | |
Losses | | |
Value | |
| | |
(In thousands) | |
| SECURITIES AVAILABLE FOR SALE | |
| | | |
| | | |
| | | |
| | |
| U.S. Treasury securities and obligations of U.S. Government Sponsored Entities | |
$ | 100 | | |
$ | 0 | | |
$ | 0 | | |
$ | 100 | |
| Mortgage-backed securities of U.S. Government Sponsored Entities | |
| 129,468 | | |
| 1,456 | | |
| (4,189 | ) | |
| 126,735 | |
| Collateralized mortgage obligations of U.S. Government Sponsored Entities | |
| 383,392 | | |
| 776 | | |
| (14,747 | ) | |
| 369,421 | |
| Private mortgage-backed securities | |
| 29,800 | | |
| 0 | | |
| (226 | ) | |
| 29,574 | |
| Private collateralized mortgage obligations | |
| 76,520 | | |
| 731 | | |
| (413 | ) | |
| 76,838 | |
| Collateralized loan obligations | |
| 32,592 | | |
| 0 | | |
| (413 | ) | |
| 32,179 | |
| Obligations of state and political subdivisions | |
| 6,586 | | |
| 193 | | |
| (15 | ) | |
| 6,764 | |
| | |
$ | 658,458 | | |
$ | 3,156 | | |
$ | (20,003 | ) | |
$ | 641,611 | |
| | |
| | | |
| | | |
| | | |
| | |
| SECURITIES HELD FOR INVESTMENT | |
| | | |
| | | |
| | | |
| | |
| Mortgage-backed securities of U.S. Government Sponsored Entities | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
| Collateralized mortgage obligations of U.S. Government Sponsored Entities | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| Collateralized loan obligations | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
Proceeds from sales of securities during
2014 were $21,514,000 with gross gains of $456,000 and gross losses of $0. Proceeds from sales of securities during 2013 were $67,330,000
with gross gains of $792,000 and gross losses of $373,000. Proceeds from sales of securities during 2012 were $256,102,000 with
gross gains of $7,833,000 and gross losses of $214,000.
Securities with a carrying and fair value
of $107,660,000 and $107,500,000, respectively, at December 31, 2014, were pledged as collateral for United States Treasury deposits,
other public deposits and trust deposits. Securities with a carrying and fair value of $232,677,000 and $227,620,000, respectively,
were pledged as collateral for repurchase agreements.
On May 31, 2014, management identified
$158.8 million of investment securities available for sale and transferred them to held for investment. The unrealized holding
losses at the date of transfer totaled $3.1 million. The securities that were transferred into the held for investment category
from the available for sale category, the unrealized losses at the date of transfers will continue to be reported in other comprehensive
income, and will be amortized over the remaining life of the secuiruty as an adjustment of yield consistent with the amortization
of a discount. The amortization of unrealized holding losses reported in equity will offset the effect or interest income of the
amortization of the discount.
The amortized cost and fair value of securities
at December 31, 2014, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or repay obligations with or without call or prepayment penalties.
| | |
Held for Investment | | |
Available for Sale | |
| | |
Amortized | | |
Fair | | |
Amortized | | |
Fair | |
| | |
Cost | | |
Value | | |
Cost | | |
Value | |
| | |
(In thousands) | | |
(In thousands) | |
| Due in less than one year | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
| Due after one year through five years | |
| 0 | | |
| 0 | | |
| 842 | | |
| 847 | |
| Due after five years through ten years | |
| 0 | | |
| 0 | | |
| 24,239 | | |
| 24,178 | |
| Due after ten years | |
| 0 | | |
| 0 | | |
| 129,703 | | |
| 128,417 | |
| | |
| 0 | | |
| 0 | | |
| 154,784 | | |
| 153,442 | |
| Mortgage-backed securities of U.S. Government Sponsored Entities | |
| 67,535 | | |
| 68,347 | | |
| 123,981 | | |
| 125,059 | |
| Collateralized mortgage obligations of U.S. Government Sponsored Entities | |
| 114,541 | | |
| 114,956 | | |
| 352,483 | | |
| 347,481 | |
| Private mortgage-backed securities | |
| 0 | | |
| 0 | | |
| 29,967 | | |
| 30,258 | |
| Collateralized loan obligations | |
| 25,828 | | |
| 25,485 | | |
| 85,175 | | |
| 85,135 | |
| | |
$ | 207,904 | | |
$ | 208,788 | | |
$ | 746,390 | | |
$ | 741,375 | |
The estimated fair value of a security is determined based on
market quotations when available or, if not available, by using quoted market prices for similar securities, pricing models or
discounted cash flows analyses, using observable market data where available. The tables below indicate the amount of securities
with unrealized losses and period of time for which these losses were outstanding at December 31, 2014 and December 31, 2013, respectively.
| | |
December 31, 2014 | |
| | |
Less than 12 months | | |
12 months or longer | | |
Total | |
| | |
Fair | | |
Unrealized | | |
Fair | | |
Unrealized | | |
Fair | | |
Unrealized | |
| | |
Value | | |
Losses | | |
Value | | |
Losses | | |
Value | | |
Losses | |
| | |
(In thousands) | |
| U.S. Treasury securities and obligations of U.S. Government Sponsored Entities | |
$ | 100 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 100 | | |
$ | 0 | |
| Mortgage-backed securities of U.S. Government Sponsored Entities | |
| 36,890 | | |
| (153 | ) | |
| 21,640 | | |
| (271 | ) | |
| 58,530 | | |
| (424 | ) |
| Collateralized mortgage obligations of U.S. Government Sponsored Entities | |
| 100,148 | | |
| (833 | ) | |
| 170,400 | | |
| (5,523 | ) | |
| 270,548 | | |
| (6,356 | ) |
| Private collateralized mortgage obligations | |
| 61,554 | | |
| (914 | ) | |
| 10,091 | | |
| (157 | ) | |
| 71,645 | | |
| (1,071 | ) |
| Collateralized loan obligations | |
| 100,714 | | |
| (1,769 | ) | |
| 24,511 | | |
| (403 | ) | |
| 125,225 | | |
| (2,172 | ) |
| Obligations of state and political subdivisions | |
| 1,734 | | |
| (3 | ) | |
| 0 | | |
| 0 | | |
| 1,734 | | |
| (3 | ) |
| Total temporarily impaired securities | |
$ | 301,140 | | |
$ | (3,672 | ) | |
$ | 226,642 | | |
$ | (6,354 | ) | |
$ | 527,782 | | |
$ | (10,026 | ) |
| | |
December 31, 2013 | |
| | |
Less than 12 months | | |
12 months or longer | | |
Total | |
| | |
Fair | | |
Unrealized | | |
Fair | | |
Unrealized | | |
Fair | | |
Unrealized | |
| | |
Value | | |
Losses | | |
Value | | |
Losses | | |
Value | | |
Losses | |
| | |
(In thousands) | |
| Mortgage-backed securities of U.S. Government Sponsored Entities | |
$ | 33,425 | | |
$ | (2,045 | ) | |
$ | 35,043 | | |
$ | (2,144 | ) | |
$ | 68,468 | | |
$ | (4,189 | ) |
| Collateralized mortgage obligations of U.S. Government Sponsored Entities | |
| 287,312 | | |
| (12,450 | ) | |
| 45,657 | | |
| (2,297 | ) | |
| 332,969 | | |
| (14,747 | ) |
| Private mortgage-backed securities | |
| 29,574 | | |
| (226 | ) | |
| 0 | | |
| 0 | | |
| 29,574 | | |
| (226 | ) |
| Private collateralized mortgage obligations | |
| 47,653 | | |
| (413 | ) | |
| 0 | | |
| 0 | | |
| 47,653 | | |
| (413 | ) |
| Collateralized loan obligations | |
| 32,179 | | |
| (413 | ) | |
| 0 | | |
| 0 | | |
| 32,179 | | |
| (413 | ) |
| Obligations of state and political subdivisions | |
| 502 | | |
| (14 | ) | |
| 125 | | |
| (1 | ) | |
| 627 | | |
| (15 | ) |
| Total temporarily impaired securities | |
$ | 430,645 | | |
$ | (15,561 | ) | |
$ | 80,825 | | |
$ | (4,442 | ) | |
$ | 511,470 | | |
$ | (20,003 | ) |
At December 31, 2014, approximately $1.1 million of the unrealized
losses pertain to private label securities secured by collateral originated in 2005 and prior. Their fair value is $71.6 million
and is attributable to a combination of factors, including relative changes in interest rates since the time of purchase. The collateral
underlying these mortgage investments are 30- and 15-year fixed and 10/1 adjustable rate mortgage loans with low loan to values,
subordination and historically have had minimal foreclosures and losses. Based on its assessment of these factors, management believes
that the unrealized losses on these debt security holdings are a function of changes in investment spreads and interest rate movements
and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities.
At December 31, 2014, the Company also had $6.8 million of unrealized
losses on collateralized mortgage obligations and mortgage backed securities of government sponsored entities having a fair value
of $329.1 million that were attributable to a combination of factors, including relative changes in interest rates since the time
of purchase. The contractual cash flows for these securities are guaranteed by U.S. government agencies and U.S. government-sponsored
enterprises. Based on its assessment of these factors , management believes that the unrealized losses on these debt security holdings
are a function of changes in investment spreads and interest movements and not changes in credit quality. Management expects to
recover the entire amortized cost basis of these securities.
At December 31, 2014, the Company
also had $2.2 million of unrealized losses on collateralized loan obligations having a fair value of $125.2 million that
were attributable to a combination of factors, including relative changes in interest rates, spreads and interest movements
since the time of purchase. Based on its assessment of these factors, management believes that the unrealized losses on these
debt security holdings are a function of changes in investment spreads and interest movements and not changes in credit
quality. Management expects to recover the entire amortized cost basis of these securities.
As of December 31, 2014, management does not intend to sell
securities that are in unrealized loss positions and it is not more likely than not that the Company will be required to sell these
securities before recovery of the amortized cost basis. Therefore, management does not consider any investment to be other-than-temporarily
impaired at December 31, 2014.
Included in other assets is $16.3 million of Federal Home Loan
Bank and Federal Reserve Bank stock stated at par value. At December 31, 2014, the Company has not identified events or changes
in circumstances which may have a significant adverse effect on the fair value of the $16.3 million of cost method investment securities.
Note
E
Loans
Information
relating to loans at December 31 is summarized as follows:
| | |
2014 | |
| | |
Portfolio Loans | | |
PCI Loans | | |
PUL's | | |
Total | |
| | |
(In thousands) | |
| Construction and land development | |
$ | 65,896 | | |
$ | 1,557 | | |
$ | 19,583 | | |
$ | 87,036 | |
| Commercial real estate | |
| 610,863 | | |
| 4,092 | | |
| 222,192 | | |
$ | 837,147 | |
| Residential real estate | |
| 639,428 | | |
| 851 | | |
| 46,618 | | |
$ | 686,897 | |
| Commerical and financial | |
| 120,763 | | |
| 1,312 | | |
| 35,321 | | |
$ | 157,396 | |
| Consumer | |
| 50,543 | | |
| 2 | | |
| 2,352 | | |
$ | 52,897 | |
| Other | |
| 512 | | |
| 0 | | |
| 0 | | |
$ | 512 | |
| NET LOAN BALANCES | |
$ | 1,488,005 | | |
$ | 7,814 | | |
$ | 326,066 | | |
$ | 1,821,885 | |
| | |
2013 | |
| | |
(In thousands) | |
| Construction and land development | |
$ | 67,450 | | |
$ | 0 | | |
$ | 0 | | |
$ | 67,450 | |
| Commercial real estate | |
| 520,382 | | |
| 0 | | |
| 0 | | |
$ | 520,382 | |
| Residential real estate | |
| 592,746 | | |
| 0 | | |
| 0 | | |
$ | 592,746 | |
| Commerical and financial | |
| 78,636 | | |
| 0 | | |
| 0 | | |
$ | 78,636 | |
| Consumer | |
| 44,713 | | |
| 0 | | |
| 0 | | |
$ | 44,713 | |
| Other | |
| 280 | | |
| 0 | | |
| 0 | | |
$ | 280 | |
| NET LOAN BALANCES | |
$ | 1,304,207 | | |
$ | 0 | | |
$ | 0 | | |
$ | 1,304,207 | |
| (1) | Net
loan balances at December 31, 2014 and 2013 include deferred costs of $3,645,000 and
$2,618,000, respectively. |
Purchased
Loans PCI loans are accounted for pursuant to ASC Topic 310-30. The excess of cash flows expected to be collected over
the estimated fair value is referred to as the accretable yield and is recognized in interest income over the remaining life of
the loan in situations where there is a reasonable expectation about the timing and amount of cash flows expected to be collected.
The difference between the contractually required payments and the cash flows expected to be collected at acquisition, considering
the impact of prepayments, is referred to as the nonaccretable difference.
We have
applied ASC Topic 310-20 accounting treatment to PULs. The unamortized
credit mark established at acquisition on the loans has been ascribed as an accretable
yield that is accreted into interest income over the estimated remaining life of the loans.
The
table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected
total cash payments and fair value of the loans as of the acquisition date. Contractually required principal and interest payments
have been adjusted for estimated prepayments.
| October 1, 2014 | |
PCI Loans | | |
PUL's | | |
Total | |
| | |
(In thousands) | |
| Contractually required principal and interest | |
$ | 17,169 | | |
$ | 367,881 | | |
$ | 385,050 | |
| Non-accretable difference | |
| (7,196 | ) | |
| 0 | | |
| (7,196 | ) |
| Cash flows expected to be collected | |
| 9,973 | | |
| 367,881 | | |
| 377,854 | |
| Accretable yield | |
| (1,256 | ) | |
| (11,235 | ) | |
| (12,491 | ) |
| Total Acquired loans | |
$ | 8,717 | | |
$ | 356,646 | | |
$ | 365,363 | |
The components of purchased
loans are as follows:
| December 31, 2014 | |
PCI | | |
PULs | | |
Total | |
| | |
(In thousands) | |
| Construction and land development | |
$ | 1,557 | | |
$ | 19,583 | | |
$ | 21,140 | |
| Commercial real estate | |
| 4,092 | | |
| 222,192 | | |
| 226,284 | |
| Residential real estate | |
| 851 | | |
| 46,618 | | |
| 47,469 | |
| Commercial and financial | |
| 1,312 | | |
| 35,321 | | |
| 36,633 | |
| Consumer | |
| 2 | | |
| 2,352 | | |
| 2,354 | |
| Other | |
| 0 | | |
| 0 | | |
| 0 | |
| Carrying value of acquired loans | |
$ | 7,814 | | |
$ | 326,066 | | |
$ | 333,880 | |
| | |
| | | |
| | | |
| | |
| Carrying value , net of allowance of $64 | |
$ | 7,750 | | |
$ | 326,066 | | |
$ | 333,816 | |
We
adjusted our estimates of future expected losses, cash flows and renewal assumptions during the current quarter for PCI loans.
The table below summarizes the changes in total contractually required principal and interest cash payments, management’s
estimate of expected total cash payments and carrying value of PCI loans during the three month period ending December 31, 2014.
Contractually required principal and interest payments have been adjusted for estimated prepayments.
Activity during the three month period ending
December 31, 2014 | |
30-Sep-14 | | |
Additions | | |
Deletions | | |
Accretion | | |
Reclassifications
from
nonaccretable
difference | | |
31-Dec-14 | |
| | |
(In thousands) | |
| Contractually required principal and interest | |
$ | 0 | | |
$ | 17,169 | | |
$ | (2,338 | ) | |
$ | 0 | | |
$ | 0 | | |
$ | 14,831 | |
| Non-accretable difference | |
| 0 | | |
| (7,196 | ) | |
| 1,289 | | |
| 0 | | |
| 82 | | |
| (5,825 | ) |
| Cash flows expected to be collected | |
| 0 | | |
| 9,973 | | |
| (1,049 | ) | |
| 0 | | |
| 82 | | |
| 9,006 | |
| Accretable yield | |
| 0 | | |
| (1,256 | ) | |
| 50 | | |
| 96 | | |
| (82 | ) | |
| (1,192 | ) |
| Carrying value of acquired loans | |
| 0 | | |
| 8,717 | | |
| (999 | ) | |
| 96 | | |
| 0 | | |
| 7,814 | |
| Allowance for loan losses | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| (64 | ) |
| Carrying value less allowance for loan losses | |
$ | 0 | | |
$ | 8,717 | | |
$ | (999 | ) | |
$ | 96 | | |
$ | 0 | | |
$ | 7,750 | |
One
of the sources of the Company's business is loans to directors and executive officers. The aggregate dollar amount of these loans
was approximately $4,514,000 and $4,771,000 at December 31, 2014 and 2013, respectively. During 2014 new loans totaling $867,000
were made and reductions totaled $1,173,000.
At
December 31, 2014 and 2013 loans pledged as collateral for borrowings totaled $130 million and $50.0 million,
respectively.
Loans
are made to individuals, as well as, commercial and tax exempt entities. Specific loan terms vary as to interest rate,
repayment, and collateral requirements based on the type of loan requested and the credit worthiness of the prospective borrower.
Concentrations
of Credit All of the Company’s lending activity occurs within the State of Florida, including Orlando in Central
Florida and Southeast coastal counties from Brevard County in the north to Palm Beach County in the south, as well as, all of
the counties surrounding Lake Okeechobee in the center of the state. The Company’s loan portfolio consists of approximately
one half commercial and commercial real estate loans and one half consumer and residential real estate loans.
The
Company’s extension of credit is governed by the Credit Risk Policy which was established to control the quality of the
Company’s loans. These policies and procedures are reviewed and approved by the Board of Directors on a regular
basis.
Construction
and Land Development Loans The Company defines construction and land development 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 significant source of repayment is from rental income associated with that property (that is, 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.
Commercial
Real Estate Loans The Company’s goal is to create and maintain a high quality portfolio of commercial
real estate loans with customers who meet the quality and relationship profitability objectives of the Company. Commercial
real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans. These
loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation
of the property. Loan performance may be adversely affected by factors impacting the general economy or conditions
specific to the real estate market such as geographic location and/or property type.
Residential
Real Estate Loans The Company selectively adds residential mortgage loans to its portfolio, primarily loans with adjustable
rates, home equity mortgages and home equity lines. Substantially all residential originations have been underwritten to conventional
loan agency standards, including loans having balances that exceed agency value limitations. The Company has never offered sub-prime,
Alt A, Option ARM or any negative amortizing residential loans, programs or products, although we have originated and hold residential
mortgage loans from borrowers with original or current FICO credit scores that are less than “prime.”
Commercial
and Financial Loans Commercial credit is extended primarily to small to medium sized professional firms, retail
and wholesale operators and light industrial and manufacturing concerns. Such credits typically comprise working capital
loans, loans for physical asset expansion, asset acquisition and other business loans. Loans to closely held businesses will generally
be guaranteed in full or for a meaningful amount by the businesses’ major owners. Commercial loans are made based primarily
on the historical and projected cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The
cash flows of borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to economic
or individual performance factors. Minimum standards and underwriting guidelines have been established for all commercial
loan types.
Consumer
Loans The Company originates consumer loans including installment loans, loans for automobiles, boats, and
other personal, family and household purposes. For each loan type several factors including debt to income, type of collateral
and loan to collateral value, credit history and Company relationship with the borrower is considered during the underwriting
process.
The
following tables present the contractual aging of the recorded investment in past due loans by class of loans as of December 31,
2014 and 2013:
| | |
| | |
| | |
Accruing | | |
| | |
| | |
| |
| | |
Accruing | | |
Accruing | | |
Greater | | |
| | |
| | |
Total | |
| | |
30-59 Days | | |
60-89 Days | | |
Than | | |
| | |
| | |
Financing | |
| December 31, 2014 | |
Past Due | | |
Past Due | | |
90 Days | | |
Nonaccrual | | |
Current | | |
Receivables | |
| | |
(In thousands) | |
| Portfolio Loans | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Construction and land development | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 534 | | |
$ | 65,362 | | |
$ | 65,896 | |
| Commercial real estate | |
| 764 | | |
| 0 | | |
| 0 | | |
| 3,457 | | |
| 606,642 | | |
| 610,863 | |
| Residential real estate | |
| 259 | | |
| 159 | | |
| 17 | | |
| 14,381 | | |
| 624,612 | | |
| 639,428 | |
| Commerical and financial | |
| 232 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 120,531 | | |
| 120,763 | |
| Consumer | |
| 256 | | |
| 25 | | |
| 0 | | |
| 191 | | |
| 50,071 | | |
| 50,543 | |
| Other | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 512 | | |
| 512 | |
| Total | |
$ | 1,511 | | |
$ | 184 | | |
$ | 17 | | |
$ | 18,563 | | |
$ | 1,467,730 | | |
$ | 1,488,005 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Purchased Unimpaired Loans | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Construction and land development | |
$ | 303 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 19,280 | | |
$ | 19,583 | |
| Commercial real estate | |
| 2,318 | | |
| 0 | | |
| 41 | | |
| 0 | | |
| 219,833 | | |
| 222,192 | |
| Residential real estate | |
| 142 | | |
| 0 | | |
| 39 | | |
| 5 | | |
| 46,432 | | |
| 46,618 | |
| Commerical and financial | |
| 953 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 34,368 | | |
| 35,321 | |
| Consumer | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 2,352 | | |
| 2,352 | |
| Other | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| Total | |
$ | 3,716 | | |
$ | 0 | | |
$ | 80 | | |
$ | 5 | | |
$ | 322,265 | | |
$ | 326,066 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Purchased Impaired Loans | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Construction and land development | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 1,428 | | |
$ | 129 | | |
$ | 1,557 | |
| Commercial real estate | |
| 7 | | |
| 359 | | |
| 0 | | |
| 733 | | |
| 2,993 | | |
| 4,092 | |
| Residential real estate | |
| 88 | | |
| 0 | | |
| 116 | | |
| 411 | | |
| 236 | | |
| 851 | |
| Commerical and financial | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 1,312 | | |
| 1,312 | |
| Consumer | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 2 | | |
| 2 | |
| Other | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| Total | |
$ | 95 | | |
$ | 359 | | |
$ | 116 | | |
$ | 2,572 | | |
$ | 4,672 | | |
$ | 7,814 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Total Loans | |
$ | 5,322 | | |
$ | 543 | | |
$ | 213 | | |
$ | 21,140 | | |
$ | 1,794,667 | | |
$ | 1,821,885 | |
| | |
| | |
| | |
Accruing | | |
| | |
| | |
| |
| | |
Accruing | | |
Accruing | | |
Greater | | |
| | |
| | |
Total | |
| | |
30-59 Days | | |
60-89 Days | | |
Than | | |
| | |
| | |
Financing | |
| December 31, 2013 (2) | |
Past Due | | |
Past Due | | |
90 Days | | |
Nonaccrual | | |
Current | | |
Receivables | |
| | |
(In thousands) | |
| Construction and land development | |
$ | 3 | | |
$ | 0 | | |
$ | 0 | | |
$ | 1,302 | | |
$ | 66,145 | | |
$ | 67,450 | |
| Commercial real estate | |
| 684 | | |
| 345 | | |
| 0 | | |
| 5,111 | | |
| 514,242 | | |
| 520,382 | |
| Residential real estate | |
| 974 | | |
| 909 | | |
| 160 | | |
| 20,705 | | |
| 569,998 | | |
| 592,746 | |
| Commerical and financial | |
| 353 | | |
| 0 | | |
| 0 | | |
| 13 | | |
| 78,270 | | |
| 78,636 | |
| Consumer | |
| 33 | | |
| 27 | | |
| 0 | | |
| 541 | | |
| 44,112 | | |
| 44,713 | |
| Other | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 280 | | |
| 280 | |
| Total | |
$ | 2,047 | | |
$ | 1,281 | | |
$ | 160 | | |
$ | 27,672 | | |
$ | 1,273,047 | | |
$ | 1,304,207 | |
| (2) | All
purchased loans disclosed were acquired in 2014 and were therefore not presented as part
of this table. |
Nonaccrual
loans and loans past due ninety days or more were $21.1 million and $27.8 million at December 31, 2014 and 2013, respectively.
The reduction in interest income associated with loans on nonaccrual status was approximately $1.9 million, $1.0 million, and
$1.9 million, for the years ended December 31, 2014, 2013, and 2012, respectively.
The
Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Under
the Company’s risk rating system, the Company classifies problem and potential problem loans as “Special Mention,”
“Substandard,” and “Doubtful” and these loans are monitored on an ongoing basis. Substandard
loans include those characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are
not corrected. Loans classified as substandard may require a specific allowance, but generally does not exceed 30%
of the principal balance. Loans classified as Doubtful, have all the weaknesses inherent in those classified Substandard with
the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing
facts, conditions and values, highly questionable and improbable. The principal balance of loans classified as doubtful
are generally charged off. Loans that do not currently expose the Company to sufficient risk to warrant classification in one
of the aforementioned categories, but possess weaknesses that deserve management’s close attention are deemed to be Special
Mention. Risk ratings are updated any time the situation warrants.
Loans
not meeting the criteria above are considered to be pass-rated loans and risk grades are recalculated at least annually by the
loan relationship manager. The following tables present the risk category of loans by class of loans based on the most
recent analysis performed as of December 31, 2014 and 2013:
| | |
Construction | | |
| | |
| | |
Commercial | | |
| | |
| |
| | |
& Land | | |
Commercial | | |
Residential | | |
and | | |
| | |
| |
| December 31, 2014 | |
Development | | |
Real Estate | | |
Real Estate | | |
Financial | | |
Consumer | | |
Total | |
| | |
(In thousands) | |
| Pass | |
$ | 79,397 | | |
$ | 797,934 | | |
$ | 655,518 | | |
$ | 155,281 | | |
$ | 51,764 | | |
$ | 1,739,894 | |
| Special mention | |
| 1,815 | | |
| 11,709 | | |
| 546 | | |
| 993 | | |
| 590 | | |
| 15,653 | |
| Substandard | |
| 1,685 | | |
| 15,325 | | |
| 1,733 | | |
| 1,002 | | |
| 456 | | |
| 20,201 | |
| Doubtful | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| Nonaccrual | |
| 1,963 | | |
| 4,189 | | |
| 14,797 | | |
| 0 | | |
| 191 | | |
| 21,140 | |
| Pass-Troubled debt restructures | |
| 1,672 | | |
| 2,332 | | |
| 17 | | |
| 0 | | |
| 0 | | |
| 4,021 | |
| Troubled debt restructures | |
| 504 | | |
| 5,658 | | |
| 14,286 | | |
| 120 | | |
| 408 | | |
| 20,976 | |
| | |
$ | 87,036 | | |
$ | 837,147 | | |
$ | 686,897 | | |
$ | 157,396 | | |
$ | 53,409 | | |
$ | 1,821,885 | |
| | |
Construction | | |
| | |
| | |
Commercial | | |
| | |
| |
| | |
& Land | | |
Commercial | | |
Residential | | |
and | | |
| | |
| |
| December 31, 2013 | |
Development | | |
Real Estate | | |
Real Estate | | |
Financial | | |
Consumer | | |
Total | |
| | |
(In thousands) | |
| Pass | |
$ | 63,186 | | |
$ | 485,268 | | |
$ | 554,681 | | |
$ | 77,840 | | |
$ | 43,267 | | |
$ | 1,224,242 | |
| Special mention | |
| 583 | | |
| 6,810 | | |
| 824 | | |
| 382 | | |
| 300 | | |
| 8,899 | |
| Substandard | |
| 0 | | |
| 15,886 | | |
| 1,670 | | |
| 248 | | |
| 453 | | |
| 18,257 | |
| Doubtful | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| Nonaccrual | |
| 1,302 | | |
| 5,111 | | |
| 20,705 | | |
| 13 | | |
| 541 | | |
| 27,672 | |
| Pass-Troubled debt restructures | |
| 1,838 | | |
| 5,584 | | |
| 30 | | |
| 0 | | |
| 0 | | |
| 7,452 | |
| Troubled debt restructures | |
| 541 | | |
| 1,723 | | |
| 14,836 | | |
| 153 | | |
| 432 | | |
| 17,685 | |
| | |
$ | 67,450 | | |
$ | 520,382 | | |
$ | 592,746 | | |
$ | 78,636 | | |
$ | 44,993 | | |
$ | 1,304,207 | |
| Note F | Impaired
Loans and Allowance for Loan Losses |
During the twelve months ended December
31, 2014, the total of newly identified TDRs was $5.5 million, of which $4.3 million were accruing commercial real estate loans,
$0.7 million were accruing residential real estate mortgage loans and $0.1 million were accruing construction and land development
loans.
The following table presents loans that
were modified within the twelve months ending December 31, 2014:
| | |
| | |
Pre- | | |
Post- | | |
| | |
| |
| | |
| | |
Modification | | |
Modification | | |
| | |
| |
| | |
Number | | |
Outstanding | | |
Outstanding | | |
Specific | | |
Valuation | |
| | |
of | | |
Recorded | | |
Recorded | | |
Reserve | | |
Allowance | |
| | |
Contracts | | |
Investment | | |
Investment | | |
Recorded | | |
Recorded | |
| | |
(In thousands) | |
| Construction and land | |
| | | |
| | | |
| | | |
| | | |
| | |
| development | |
$ | 1 | | |
$ | 72 | | |
$ | 71 | | |
$ | 0 | | |
$ | 1 | |
| Residential real estate | |
| 6 | | |
| 687 | | |
| 638 | | |
| 0 | | |
| 49 | |
| Commercial real estate | |
| 1 | | |
| 4,300 | | |
| 3,975 | | |
| 0 | | |
| 325 | |
| | |
| 8 | | |
$ | 5,059 | | |
$ | 4,684 | | |
$ | 0 | | |
$ | 375 | |
No accruing loans that were restructured
within the twelve months ending December 31, 2014 defaulted during the twelve months ended December 31, 2014. The Company considers
a loan to have defaulted when it becomes 90 or more days delinquent under the modified terms, has been transferred to non-accrual
status or has been transferred to other real estate owned.
At December 31, 2014 and 2013, the Company's
recorded investment in impaired loans (excluding purchased loans) and related valuation allowance was as follows:
| | |
Impaired Loans | |
| | |
for the Year Ended December
31, 2014 | |
| | |
| | |
Unpaid | | |
Related | | |
Average | | |
Interest | |
| | |
Recorded | | |
Principal | | |
Valuation | | |
Recorded | | |
Income | |
| | |
Investment | | |
Balance | | |
Allowance | | |
Investment | | |
Recognized | |
| | |
| | |
( In thousands ) | | |
| | |
| |
| With no related allowance recorded: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Construction and land development | |
$ | 1,824 | | |
$ | 2,239 | | |
$ | 0 | | |
$ | 2,080 | | |
$ | 106 | |
| Commercial real estate | |
| 3,087 | | |
| 4,600 | | |
| 0 | | |
| 2,713 | | |
| 20 | |
| Residential real estate | |
| 11,898 | | |
| 16,562 | | |
| 0 | | |
| 11,366 | | |
| 198 | |
| Commercial and financial | |
| 120 | | |
| 120 | | |
| 0 | | |
| 110 | | |
| 8 | |
| Consumer | |
| 65 | | |
| 93 | | |
| 0 | | |
| 291 | | |
| 1 | |
| With an allowance recorded: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Construction and land development | |
| 886 | | |
| 931 | | |
| 159 | | |
| 1,213 | | |
| 81 | |
| Commercial real estate | |
| 8,359 | | |
| 8,469 | | |
| 529 | | |
| 10,446 | | |
| 461 | |
| Residential real estate | |
| 16,804 | | |
| 17,693 | | |
| 2,741 | | |
| 20,793 | | |
| 445 | |
| Commercial and financial | |
| 0 | | |
| 0 | | |
| 0 | | |
| 47 | | |
| 0 | |
| Consumer | |
| 534 | | |
| 562 | | |
| 112 | | |
| 543 | | |
| 25 | |
| Total: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Construction and land development | |
| 2,710 | | |
| 3,170 | | |
| 159 | | |
| 3,293 | | |
| 187 | |
| Commercial real estate | |
| 11,446 | | |
| 13,069 | | |
| 529 | | |
| 13,159 | | |
| 481 | |
| Residential real estate | |
| 28,702 | | |
| 34,255 | | |
| 2,741 | | |
| 32,159 | | |
| 643 | |
| Commercial and financial | |
| 120 | | |
| 120 | | |
| 0 | | |
| 157 | | |
| 8 | |
| Consumer | |
| 599 | | |
| 655 | | |
| 112 | | |
| 834 | | |
| 26 | |
| | |
$ | 43,577 | | |
$ | 51,269 | | |
$ | 3,541 | | |
$ | 49,602 | | |
$ | 1,345 | |
| | |
Impaired Loans | |
| | |
for the Year Ended December
31, 2013 | |
| | |
| | |
Unpaid | | |
Related | | |
Average | | |
Interest | |
| | |
Recorded | | |
Principal | | |
Valuation | | |
Recorded | | |
Income | |
| | |
Investment | | |
Balance | | |
Allowance | | |
Investment | | |
Recognized | |
| | |
| | |
( In thousands ) | | |
| | |
| |
| With no related allowance recorded: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Construction and land development | |
$ | 2,561 | | |
$ | 3,180 | | |
$ | 0 | | |
$ | 2,446 | | |
$ | 102 | |
| Commercial real estate | |
| 4,481 | | |
| 6,577 | | |
| 0 | | |
| 7,382 | | |
| 28 | |
| Residential real estate | |
| 12,366 | | |
| 17,372 | | |
| 0 | | |
| 14,512 | | |
| 81 | |
| Commercial and financial | |
| 153 | | |
| 153 | | |
| 0 | | |
| 19 | | |
| 9 | |
| Consumer | |
| 425 | | |
| 569 | | |
| 0 | | |
| 162 | | |
| 19 | |
| With an allowance recorded: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Construction and land development | |
| 1,120 | | |
| 1,197 | | |
| 149 | | |
| 1,347 | | |
| 36 | |
| Commercial real estate | |
| 7,937 | | |
| 8,046 | | |
| 638 | | |
| 17,264 | | |
| 395 | |
| Residential real estate | |
| 23,365 | | |
| 24,766 | | |
| 4,528 | | |
| 22,899 | | |
| 566 | |
| Commercial and financial | |
| 13 | | |
| 13 | | |
| 13 | | |
| 1 | | |
| 1 | |
| Consumer | |
| 548 | | |
| 573 | | |
| 118 | | |
| 571 | | |
| 23 | |
| Total: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Construction and land development | |
| 3,681 | | |
| 4,377 | | |
| 149 | | |
| 3,793 | | |
| 138 | |
| Commercial real estate | |
| 12,418 | | |
| 14,623 | | |
| 638 | | |
| 24,646 | | |
| 423 | |
| Residential real estate | |
| 35,731 | | |
| 42,138 | | |
| 4,528 | | |
| 37,411 | | |
| 647 | |
| Commercial and financial | |
| 166 | | |
| 166 | | |
| 13 | | |
| 20 | | |
| 10 | |
| Consumer | |
| 973 | | |
| 1,142 | | |
| 118 | | |
| 733 | | |
| 42 | |
| | |
$ | 52,969 | | |
$ | 62,446 | | |
$ | 5,446 | | |
$ | 66,603 | | |
$ | 1,260 | |
Impaired loans also include loans that
have been modified in troubled debt restructurings where concessions to borrowers who experienced financial difficulties have
been granted. At December 31, 2014 and 2013, accruing TDRs totaled $25.0 million and $25.1 million, respectively.
The average recorded investment in impaired
loans for the years ended December 31, 2014, 2013 and 2012 was $49,602,000, $66,603,000 and $96,439,000, respectively. The impaired
loans were measured or impairment based on the value of underlying collateral or the present value of expected future cash flows
discounted at the loan's effective interest rate. The valuation allowance is included in the allowance for loan losses.
Interest payments received on impaired
loans are recorded as interest income unless collection of the remaining recorded investment is doubtful at which time payments
received are recorded as reductions to principal. For the years ended December 31, 2014, 2013 and 2012, the Company recorded $1,345,000,
$1,260,000 and $3,054,000, respectively, in interest income on impaired loans.
For impaired loans whose impairment is
measured based on the present value of expected future cash flows a total of $456,000, $1.1 million and $1.0 million, respectively,
for 2014, 2013 and 2012 was included in interest income and represents the change in present value attributable to the passage
of time.
The nonaccrual loans and accruing loans
past due 90 days or more (excluding purchased loans) were $18,563,000 and $17,000, respectively, at December 31, 2014, $27,672,000
and $160,000, respectively at the end of 2013, and were $40,955,000 and $1,000, respectively, at year-end 2012.
The purchased nonaccrual loans and accruing
loans past due 90 days or more were $2,576,000 and $323,000, respectively, at December 31, 2014. There were no purchased loans
prior to 2014.
Activity in the allowance for loans losses (excluding PCI loans)
for the three years ended December 31, 2014, 2013 and 2012 are summarized as follows:
| | |
Beginning
Balance | | |
Provision
for Loan
Losses | | |
Charge-
Offs | | |
Recoveries | | |
Net
(Charge-
Offs)
Recoveries | | |
Ending
Balance | |
| | |
(In thousands) | |
| December 31 , 2014 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Construction and land development | |
$ | 808 | | |
$ | 139 | | |
$ | (640 | ) | |
$ | 415 | | |
$ | (225 | ) | |
$ | 722 | |
| Commercial real estate | |
| 6,160 | | |
| (2,917 | ) | |
| (398 | ) | |
| 1,683 | | |
| 1,285 | | |
| 4,528 | |
| Residential real estate | |
| 11,659 | | |
| (1,651 | ) | |
| (1,126 | ) | |
| 902 | | |
| (224 | ) | |
| 9,784 | |
| Commercial and financial | |
| 710 | | |
| 697 | | |
| (398 | ) | |
| 170 | | |
| (228 | ) | |
| 1,179 | |
| Consumer | |
| 731 | | |
| 182 | | |
| (193 | ) | |
| 74 | | |
| (119 | ) | |
| 794 | |
| | |
$ | 20,068 | | |
$ | (3,550 | ) | |
$ | (2,755 | ) | |
$ | 3,244 | | |
$ | 489 | | |
$ | 17,007 | |
| December 31 , 2013 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Construction and land development | |
$ | 1,134 | | |
$ | 66 | | |
$ | (604 | ) | |
$ | 212 | | |
$ | (392 | ) | |
$ | 808 | |
| Commercial real estate | |
| 8,849 | | |
| (522 | ) | |
| (2,714 | ) | |
| 547 | | |
| (2,167 | ) | |
| 6,160 | |
| Residential real estate | |
| 11,090 | | |
| 3,273 | | |
| (3,153 | ) | |
| 449 | | |
| (2,704 | ) | |
| 11,659 | |
| Commercial and financial | |
| 468 | | |
| (24 | ) | |
| (60 | ) | |
| 326 | | |
| 266 | | |
| 710 | |
| Consumer | |
| 563 | | |
| 395 | | |
| (253 | ) | |
| 26 | | |
| (227 | ) | |
| 731 | |
| | |
$ | 22,104 | | |
$ | 3,188 | | |
$ | (6,784 | ) | |
$ | 1,560 | | |
$ | (5,224 | ) | |
$ | 20,068 | |
| December 31, 2012 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Construction and land development | |
$ | 1,883 | | |
$ | (478 | ) | |
$ | (612 | ) | |
$ | 341 | | |
$ | (271 | ) | |
$ | 1,134 | |
| Commercial real estate | |
| 11,477 | | |
| 3,209 | | |
| (8,539 | ) | |
| 2,702 | | |
| (5,837 | ) | |
| 8,849 | |
| Residential real estate | |
| 10,966 | | |
| 7,767 | | |
| (8,381 | ) | |
| 738 | | |
| (7,643 | ) | |
| 11,090 | |
| Commercial and financial | |
| 402 | | |
| 283 | | |
| (346 | ) | |
| 129 | | |
| (217 | ) | |
| 468 | |
| Consumer | |
| 837 | | |
| 15 | | |
| (410 | ) | |
| 121 | | |
| (289 | ) | |
| 563 | |
| | |
$ | 25,565 | | |
$ | 10,796 | | |
$ | (18,288 | ) | |
$ | 4,031 | | |
$ | (14,257 | ) | |
$ | 22,104 | |
As discussed in Note A, "Significant
Accounting Policies," the allowance for loan losses is composed of specific allowances for certain impaired loans
and general allowances grouped into loan pools based on similar characteristics. The Company's loan portfolio (excluding
PCI loans) and related allowance at December 31, 2014 and 2013 is shown in the following tables.
| | |
Individually Evaluated
for
Impairment | | |
Collectively Evaluated
for
Impairment | | |
Total | |
| December 31, 2014 | |
Carrying
Value | | |
Associated
Allowance | | |
Carrying
Value | | |
Associated
Allowance | | |
Carrying
Value | | |
Associated
Allowance | |
| | |
(In thousands) | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Construction and land development | |
$ | 2,710 | | |
$ | 159 | | |
$ | 82,769 | | |
$ | 563 | | |
$ | 85,479 | | |
$ | 722 | |
| Commercial real estate | |
| 11,446 | | |
| 529 | | |
| 821,609 | | |
| 3,999 | | |
| 833,055 | | |
| 4,528 | |
| Residential real estate | |
| 28,702 | | |
| 2,741 | | |
| 657,344 | | |
| 7,043 | | |
| 686,046 | | |
| 9,784 | |
| Commercial and financial | |
| 120 | | |
| 0 | | |
| 155,964 | | |
| 1,179 | | |
| 156,084 | | |
| 1,179 | |
| Consumer | |
| 599 | | |
| 112 | | |
| 52,808 | | |
| 682 | | |
| 53,407 | | |
| 794 | |
| | |
$ | 43,577 | | |
$ | 3,541 | | |
$ | 1,770,494 | | |
$ | 13,466 | | |
$ | 1,814,071 | | |
$ | 17,007 | |
| | |
Individually Evaluated for | | |
Collectively Evaluated for | | |
| | |
| |
| | |
Impairment | | |
Impairment | | |
Total | | |
| |
| December 31, 2013 | |
Carrying
Value | | |
Associated
Allowance | | |
Carrying
Value | | |
Associated
Allowance | | |
Carrying
Value | | |
Associated
Allowance | |
| | |
(In thousands) | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Construction and land development | |
$ | 3,681 | | |
$ | 149 | | |
$ | 63,769 | | |
$ | 659 | | |
$ | 67,450 | | |
$ | 808 | |
| Commercial real estate | |
| 12,418 | | |
| 638 | | |
| 507,964 | | |
| 5,522 | | |
| 520,382 | | |
| 6,160 | |
| Residential real estate | |
| 35,731 | | |
| 4,528 | | |
| 557,015 | | |
| 7,131 | | |
| 592,746 | | |
| 11,659 | |
| Commercial and financial | |
| 166 | | |
| 13 | | |
| 78,470 | | |
| 697 | | |
| 78,636 | | |
| 710 | |
| Consumer | |
| 973 | | |
| 118 | | |
| 44,020 | | |
| 613 | | |
| 44,993 | | |
| 731 | |
| | |
$ | 52,969 | | |
$ | 5,446 | | |
$ | 1,251,238 | | |
$ | 14,622 | | |
$ | 1,304,207 | | |
$ | 20,068 | |
Loans collectively evaluated for
impairment reported at December 31, 2014 included loans acquired from BANKshares on October 1, 2014 that are not PCI loans.
These loans are performing loans recorded at estimated fair value at the acquisition date. The fair value adjustment for
loans acquired from BANKshares at the acquisition date was approximately $11.2 million, or approximately 3.56% of the
outstanding aggregate loan balances. This amount, which represents the total fair value discount of each PUL, is accreted
into interest income over the remaining lives of the related loans on a level yield basis, and remains adequate at
December 31,2014, and therefore no provision for loan loss was recorded related to these loans at December 31, 2014. The
table below summarizes PCI loans that were individually evaluated for impairment based on expected cash flows.
| | |
PCI Loans Individually
Evaluated for Impairment | |
| December 31, 2014 | |
Carrying
Value | | |
Associated Allowance | |
| | |
| | |
| |
| Construction and land development | |
$ | 1,557 | | |
$ | 43 | |
| Commercial real estate | |
| 4,092 | | |
| 3 | |
| Residential real estate | |
| 851 | | |
| 18 | |
| Commercial and financial | |
| 1,312 | | |
| 0 | |
| Consumer | |
| 2 | | |
| 0 | |
| | |
$ | 7,814 | | |
$ | 64 | |
Note G Bank Premises and Equipment
Bank premises and equipment are summarized as follows:
| | |
| | |
Accumulated | | |
Net | |
| | |
| | |
Depreciation & | | |
Carrying | |
| | |
Cost | | |
Amortization | | |
Value | |
| | |
(In thousands) | |
| December 31, 2014 | |
| | | |
| | | |
| | |
| Premises (including land of $13,594) | |
$ | 59,471 | | |
$ | (20,260 | ) | |
$ | 39,211 | |
| Furniture and equipment | |
| 21,924 | | |
| (16,049 | ) | |
| 5,875 | |
| | |
$ | 81,395 | | |
$ | (36,309 | ) | |
$ | 45,086 | |
| | |
| | | |
| | | |
| | |
| December 31, 2013 | |
| | | |
| | | |
| | |
| Premises (including land of $8,978) | |
$ | 49,647 | | |
$ | (20,518 | ) | |
$ | 29,129 | |
| Furniture and equipment | |
| 22,138 | | |
| (16,762 | ) | |
| 5,376 | |
| | |
$ | 71,785 | | |
$ | (37,280 | ) | |
$ | 34,505 | |
| Note H | Goodwill and Acquired Intangible Assets |
Goodwill was a result of the Company's October 1, 2014 acquisition
of The BANKshares, a whole bank acquisition, and totaled $25,309,000 at year end December 31, 2014.
Acquired intangible assets consist of core deposit intangibles ("CDI")
and which are intangible assets arising from the purchase of deposits separately or from the acquistion of BANKshares. The change
in balance for CDI is
as follows:
| | |
2014 | | |
2013 | | |
2012 | |
| | |
(In thousands) | |
| Beginning of year | |
$ | 718 | | |
$ | 1,501 | | |
$ | 2,289 | |
| Acquired CDI | |
| 7,769 | | |
| 0 | | |
| 0 | |
| Amortization expense | |
| (1,033 | ) | |
| (783 | ) | |
| (788 | ) |
| End of year | |
$ | 7,454 | | |
$ | 718 | | |
$ | 1,501 | |
The gross carrying amount and accumulated amortization of the Company's
intangible asset subject to amortization at December 31 is presented below.
| | |
2014 | | |
2013 | |
| | |
Gross | | |
| | |
Gross | | |
| |
| | |
Carrying | | |
Accumulated | | |
Carrying | | |
Accumulated | |
| | |
Amount | | |
Amortization | | |
Amount | | |
Amortization | |
| | |
(In thousands) | |
| Deposit base | |
$ | 17,263 | | |
$ | (9,809 | ) | |
$ | 9,494 | | |
$ | (8,776 | ) |
| | |
$ | 17,263 | | |
$ | (9,809 | ) | |
$ | 9,494 | | |
$ | (8,776 | ) |
The annual amortization expense for the deposit base intangible
determined using the straight line method in each of the five years subsequent to December 31, 2014 is $1,260,000.
All of the Company's short-term borrowings were
comprised of federal funds purchased and securities sold under agreements to repurchase with maturities primarily from overnight
to seven days:
| | |
2014 | | |
2013 | | |
2012 | |
| | |
(In thousands) | |
| Maximum amount outstanding at any month end | |
$ | 298,399 | | |
$ | 165,770 | | |
$ | 149,316 | |
| Weighted average interest rate at end of year | |
| 0.19 | % | |
| 0.17 | % | |
| 0.21 | % |
| Average amount outstanding | |
$ | 171,965 | | |
$ | 155,222 | | |
$ | 141,592 | |
| Weighted average interest rate during the year | |
| 0.17 | % | |
| 0.18 | % | |
| 0.24 | % |
During 2007, the Company obtained advances
from the Federal Home Loan Bank (FHLB) of $25,000,000 each on September 25, 2007 and November 27, 2007. The advances mature on
September 15, 2017 and November 27, 2017, respectively, and have fixed rates of 3.64 percent and 2.70 percent at December 31, 2014,
respectively, payable quarterly; the FHLB has a perpetual three-month option to convert the interest rate on either advance to
an adjustable rate and the Company has the option to prepay the advance should the FHLB convert the interest rate.
Seacoast National has unused secured lines
of credit of $1,259,345,000 at December 31, 2014.
The Company issued $20,619,000 in junior subordinated
debentures on March 31 and December 16, 2005, an aggregate of $41,238,000. These debentures were issued in conjunction with the
formation of a Delaware and Connecticut trust subsidiary, SBCF Capital Trust I, and SBCF Statutory Trust II ("Trusts I and
II") which each completed a private sale of $20.0 million of floating rate preferred securities. On June 29, 2007, the Company
issued an additional $12,372,000 in junior subordinated debentures which was issued in conjunction with the formation of a Delaware
trust subsidiary, SBCF Statutory Trust III ("Trust III"), which completed a private sale of $12.0 million of floating
rate trust preferred securities. The rates on the trust preferred securities are the 3-month LIBOR rate plus 175 basis points,
the 3-month LIBOR rate plus 133 basis points, and the 3-month LIBOR rate plus 135 basis points, respectively. The rates, which
adjust every three months, are currently 2.01 percent, 1.57 percent,
and 1.59 percent, respectively, per annum. The trust preferred securities have original maturities of thirty years, and may be
redeemed without penalty on or after June 10, 2010, March 15, 2011, and September 15, 2012, respectively, upon approval of the
Federal Reserve or upon occurrence of certain events affecting their tax or regulatory capital treatment. Distributions on the
trust preferred securities are payable quarterly in March, June, September and December of each year. The Trusts also issued $619,000,
$619,000 and $372,000, respectively, of common equity securities to the Company. The proceeds of the offering of trust preferred
securities and common equity securities were used by Trusts I and II to purchase the $41.2 million junior subordinated deferrable
interest notes issued by the Company, and by Trust III to purchase the $12.4 million junior subordinated deferrable interest notes
issued by the Company, all of which have terms substantially similar to the trust preferred securities.
As part of the October 1, 2014 BANKshares acquisition
the Company acquired three junior subordinated debentures. Correspondingly, at December 31, 2014 the Company has $5,155,000 and
$4,124,000 of Floating Rate Junior Subordinated Deferrable Interest Debentures outstanding which are due December 26, 2032 and
March 17, 2034, and callable by the Company, at its option, any time after December 26, 2007 and March 17, 2009. The rates on these
trust preferred securities are the 3-month LIBOR rate plus 325 basis points and the 3-month LIBOR rate plus 279 basis points, respectively.
The rates, which adjust every three months, are currently 3.50 percent and 3.03 percent, respectively, per annum. At December 31,
2014 the Company has $5,155,000 outstanding of Junior Subordinated Debentures due February 23, 2036. The interest rate was fixed
at 6.37 percent through February 2011 and thereafter, and the coupon rate floats quarterly at the three month LIBOR rate plus 139
basis points. The junior subordinated debenture is redeemable in certain circumstances after February 2011. The interest rate was
1.62 percent at December 31, 2014. The above three junior subordinated debentures in accordance with ASU 805 Business Combinations
have been recorded at their acquisition date fair values which collectively is $3.5 million lower than face value and will
be amortized into interest expense over the remaining term to maturity.
The Company has the right to defer payments
of interest on the notes at any time or from time to time for a period of up to twenty consecutive quarterly interest payment periods.
Under the terms of the notes, in the event that under certain circumstances there is an event of default under the notes or the
Company has elected to defer interest on the notes, the Company may not, with certain exceptions, declare or pay any dividends
or distributions on its capital stock or purchase or acquire any of its capital stock. As of December 31, 2014, 2013 and 2012,
all interest payments on trust preferred securities were current.
The Company has entered into agreements to
guarantee the payments of distributions on the trust preferred securities and payments of redemption of the trust preferred securities.
Under these agreements, the Company also agrees, on a subordinated basis, to pay expenses and liabilities of the Trusts other than
those arising under the trust preferred securities. The obligations of the Company under the junior subordinated notes, the trust
agreement establishing the Trusts, the guarantees and agreements as to expenses and liabilities, in aggregate, constitute a full
and conditional guarantee by the Company of the Trusts' obligations under the trust preferred securities.
Note J Employee Benefits
and Stock Compensation
The Company’s profit sharing and retirement
plan covers substantially all employees after one year of service and includes a matching benefit feature for employees electing
to defer the elective portion of their profit sharing compensation. In addition, amounts of compensation contributed by employees
are matched on a percentage basis under the plan. The profit sharing and retirement contributions charged to operations were $1,198,000
in 2014, $807,000 in 2013, and $771,000 in 2012.
The Company’s stock option and
stock appreciation rights plans were approved by the Company’s shareholders on April 25, 1991, April 25, 1996, April
20, 2000, May 8, 2008 and May 23, 2013. The number of shares of common stock that may be granted pursuant to the 1991 and
1996 plans shall not exceed 198,000 shares for each plan, pursuant to the 2000 plan shall not exceed 264,000 shares, pursuant
to the 2008 plan shall not exceed 300,000 shares, and pursuant to the 2013 plan shall not exceed 1,300,000 shares. The
Company has granted options and stock appreciation rights (“SSARs”) on 166,000, 187,000, and 158,000 shares for
the 1991, 1996, and 2000 plans, respectively, through December 31, 2014; no options or SSARs have been granted under the 2008
plan and 462,000 shares have been granted under the 2013 plan. Under the 2008 plan the Company issued 229,000 of restricted
stock awards at $7.10 per share during 2011 and 15,000 of restricted stock awards at $8.10 per share during 2012. Under the
2013 plan, the Company issued 195,000 of restricted stock units at $11.00 per share during 2013 and 28,000 of restricted
stock units at $10.19 per share during 2014. The restricted stock units allow the grantee to earn 0-160 percent of the target
award as determined by two criteria, the Company’s after-tax earnings and its classified assets ratio. Any restricted
stock units that become eligible for vesting pursuant to the performance requirements will vest by
one-third on each of the first, second and third anniversaries of the last day of the performance period, December 31, 2016,
2017 and 2018, respectively. If the Company does not achieve the target performance goal for both criteria by December 31,
2015, then none of the restricted stock units will vest and they will be forfeited. Under the plans, the options,
stock awards, SSARs or restricted stock units’ exercise price equals the common stock’s market price on the date
of the grant. All options or SSARs issued after December 31, 2002 have a vesting period of three to five years and a
contractual life of ten years. All stock awards and restricted stock units have a contractual life of three or five years. To
the extent the Company has treasury shares available, stock options exercised or stock grants awarded may be issued from
treasury shares or, if treasury shares are insufficient, the Company can issue new shares. The Company has a single share
repurchase program in place, approved on September 18, 2001, authorizing the repurchase of up to 165,000 shares. On May 20,
2014 the Company authorized an additional 250,000 shares for the repurchase program; the maximum number of shares that may
yet be purchased under these programs is 237,000.
The Company granted stock
options totaling 413,000 shares in 2014 and 49,000 shares in 2013 at weighted average fair value per share of $2.26 and
$3.10, respectively, but did not grant any stock options or SSARs in 2012. Stock option fair value is measured on the date of grant using
the Black-Scholes option pricing model with market assumptions. Option pricing models require the use of highly subjective
assumptions, including expected price volatility, which when changed can materially affect fair value estimates. Accordingly,
the model does not necessarily provide a reliable single measure of the fair value of the Company’s stock options or
SSARs. The more significant assumptions used in estimating the fair value of stock options granted in 2014 include: a
weighted average risk-free interest rate of 2.7 percent; no dividends; weighted average expected life of 5 years; and a
weighted average volatility of the Company’s common stock of 17.0 percent. The 2014 estimated fair value of stock
options was not reduced by an estimate of forfeiture experience due to the relatively small pool of stock option recipients
and short vesting terms.
The following table presents a summary of stock
option and SSARs activity for the years ended December 31, 2014, 2013 and 2012:
| | |
Number of
Shares | | |
Option or
SSAR Exercise
Price
Per Share | | |
Weighted
Average
Exercise Price | | |
Aggregate
Intrinsic
Value | |
| Dec. 31, 2011 | |
| 107,000 | | |
| 85.40 – 136.80 | | |
| 107.10 | | |
| 0 | |
| Granted | |
| 0 | | |
| 0 | | |
| 0 | | |
| | |
| Exercised | |
| 0 | | |
| 0 | | |
| 0 | | |
| | |
| Expired | |
| 0 | | |
| 0 | | |
| 0 | | |
| | |
| Cancelled | |
| (20,000 | ) | |
| 85.40 – 133.60 | | |
| 113.30 | | |
| | |
| Dec. 31, 2012 | |
| 87,000 | | |
| 85.40 – 136.80 | | |
| 105.60 | | |
| 0 | |
| Granted | |
| 49,000 | | |
| 11.00 | | |
| 11.00 | | |
| | |
| Exercised | |
| 0 | | |
| 0 | | |
| 0 | | |
| | |
| Expired | |
| (28,000 | ) | |
| 85.40 | | |
| 85.40 | | |
| | |
| Cancelled | |
| (6,000 | ) | |
| 111.10 – 136.80 | | |
| 113.57 | | |
| | |
| Dec. 31, 2013 | |
| 102,000 | | |
| 11.00 – 133.60 | | |
| 65.10 | | |
| 0 | |
| Granted | |
| 413,000 | | |
| 10.54 – 10.97 | | |
| 10.67 | | |
| | |
| Exercised | |
| 0 | | |
| 0 | | |
| 0 | | |
| | |
| Expired | |
| (11,500 | ) | |
| 112.00 | | |
| 112.00 | | |
| | |
| Cancelled | |
| (10,500 | ) | |
| 11.00 – 133.60 | | |
| 50.55 | | |
| | |
| Dec. 31, 2014 | |
| 493,000 | | |
| 10.54 – 133.60 | | |
| 18.72 | | |
| 0 | |
No stock options were exercised during 2014.
No windfall tax benefits were realized from the exercise of stock options and no cash was utilized to settle equity instruments
granted under stock option awards.
The following table summarizes information about stock options outstanding
and exercisable at December 31, 2014:
| Options / SSARs Outstanding | | |
Options / SSARs Exercisable (Vested) | |
Number of
Shares
Outstanding | | |
Weighted Average
Remaining
Contractual Life
in Years | | |
Number of
Shares
Exercisable | | |
Weighted
Average
Exercise
Price | | |
Weighted Average
Remaining
Contractual Life
in Years | | |
Aggregate
Intrinsic
Value | |
| | 493,000 | | |
| 8.62 | | |
| 101,000 | | |
$ | 49.73 | | |
| 6.49 | | |
$ | 188,000 | |
At December 31, 2014, non-vested stock
options after adjusting for potential forfeiture experience outstanding at
December 31, 2014, are as follows:
Number of
Non-Vested
Stock Options | | |
Weighted
Average
Remaining
Contractual Life
In Years | | |
Weighted
Average
Fair Value | | |
Remaining
Unrecognized
Compensation
Cost | | |
Weighted
Average
Remaining
Recognition
Period in Years | |
| | 392,000 | | |
| 9.17 | | |
$ | 2.32 | | |
$ | 774,244 | | |
| 2.34 | |
Since December 31, 2013, restricted stock
awards of 131,000 shares were issued, 120,000 awards have vested and 9,000 awards were cancelled. Non-vested restricted stock
awards totaling 170,000 shares were outstanding at December 31, 2014, 2,000 more than at December 31, 2013, and are as follows:
Number of
Non-Vested
Restricted Stock
Award Shares | | |
Remaining
Unrecognized
Compensation Cost | | |
Weighted Average
Remaining Recognition
Period in Years | |
| | 170,000 | | |
$ | 1,114,000 | | |
| 2.85 | |
During 2014, restricted stock units totaling
28,000 were issued, none were vested and 14,000 were cancelled. Non-vested restricted stock units totaling 191,000 were
outstanding at December 31, 2014, and are as follows:
Number of
Non-Vested
Restricted Stock
Units | | |
Remaining
Unrecognized
Compensation Cost | | |
Weighted Average
Remaining Recognition
Period in Years | |
| | 191,000 | | |
$ | 1,929,000 | | |
| 4.00 | |
In 2014, 2013 and 2012 the Company recognized
$1,299,000 ($798,000 after tax), $246,000 ($151,000 after tax) and $796,000 ($489,000 after tax), respectively of non-cash compensation
expense.
No cash was utilized to settle equity instruments
granted under restricted stock awards. No compensation cost has been capitalized and no significant modifications have occurred
with regard to the contractual terms for stock options, SSARs or restricted stock awards.
Note K Lease Commitments
The Company is obligated under various noncancellable
operating leases for buildings, and land. Minimum rent payments under operating leases are recognized on a straight-line basis
over the term of the lease. At December 31, 2014, future minimum lease payments under leases with initial or remaining terms in
excess of one year are as follows:
| | |
(In thousands) | |
| 2015 | |
$ | 3,894 | |
| 2016 | |
| 3,682 | |
| 2017 | |
| 3,287 | |
| 2018 | |
| 1,945 | |
| 2019 | |
| 1,755 | |
| Thereafter | |
| 11,499 | |
| | |
$ | 26,062 | |
Rent expense charged to operations was $4,066,000 for 2014, $3,878,000
for 2013, and $3,881,000 for 2012. Certain leases contain provisions for renewal and change with the consumer price index.
The provision (benefit) for income taxes is as follows:
| | |
Year Ended December 31 | |
| | |
2014 | | |
2013 | | |
2012 | |
| | |
(In thousands) | |
| Current | |
| | | |
| | | |
| | |
| Federal | |
$ | 310 | | |
$ | 160 | | |
$ | 0 | |
| State | |
| 12 | | |
| 7 | | |
| 7 | |
| | |
| | | |
| | | |
| | |
| Deferred | |
| | | |
| | | |
| | |
| Federal | |
| 3,440 | | |
| (30,540 | ) | |
| 0 | |
| State | |
| 782 | | |
| (10,012 | ) | |
| (7 | ) |
| | |
| | | |
| | | |
| | |
| | |
$ | 4,544 | | |
$ | (40,385 | ) | |
$ | 0 | |
The difference between the total expected tax benefit (computed
by applying the U.S. Federal tax rate of 35% to pretax income in 2014, 2013 and 2012) and the reported income tax provision (benefit)
relating to income (loss) before before income taxes is as follows:
| | |
Year Ended December 31 | |
| | |
2014 | | |
2013 | | |
2012 | |
| | |
(In thousands) | |
| Tax rate applied to income (loss) before income taxes | |
$ | 3,583 | | |
$ | 4,061 | | |
$ | (249 | ) |
| Increase (decrease) resulting from the effects of: | |
| | | |
| | | |
| | |
| Nondeductible acquisition costs | |
| 554 | | |
| 0 | | |
| 0 | |
| Tax exempt interest on obligations of states and political subdivisions and bank owned life insurance | |
| (293 | ) | |
| (148 | ) | |
| (118 | ) |
| State income taxes | |
| (278 | ) | |
| (259 | ) | |
| (27 | ) |
| Stock compensation | |
| 92 | | |
| 4 | | |
| 28 | |
| Expiration of capital loss carryforward | |
| 0 | | |
| 0 | | |
| 354 | |
| Other | |
| 92 | | |
| 38 | | |
| 53 | |
| Federal tax provision before valuation allowance | |
| 3,750 | | |
| 3,696 | | |
| 41 | |
| State tax provision before valuation allowance | |
| 794 | | |
| 740 | | |
| 76 | |
| Total income tax provision | |
| 4,544 | | |
| 4,436 | | |
| 117 | |
| Change in valuation allowance | |
| 0 | | |
| (44,821 | ) | |
| (117 | ) |
| Income tax provision (benefit) | |
$ | 4,544 | | |
$ | (40,385 | ) | |
$ | 0 | |
The net deferred tax assets (liabilities) are comprised
of the following:
| | |
December 31 | |
| | |
2014 | | |
2013 | |
| | |
(In thousands) | |
| Allowance for loan losses | |
$ | 6,926 | | |
$ | 8,139 | |
| Other real estate owned. | |
| 1,562 | | |
| 899 | |
| Section 382 limitation | |
| 1,383 | | |
| 0 | |
| Accrued stock compensation | |
| 721 | | |
| 528 | |
| Federal tax loss carryforward | |
| 38,703 | | |
| 42,776 | |
| State tax loss carryforward | |
| 7,468 | | |
| 7,925 | |
| Alternative minimum tax carryforward | |
| 2,136 | | |
| 1,304 | |
| Net unrealized securities losses | |
| 3,035 | | |
| 6,503 | |
| Deferred compensation.. | |
| 1,643 | | |
| 1,169 | |
| Accrued interest and fee income | |
| 3,270 | | |
| 0 | |
| Other | |
| 7,428 | | |
| 273 | |
| Gross deferred tax assets | |
| 74,275 | | |
| 69,516 | |
| Less: Valuation allowance | |
| 0 | | |
| 0 | |
| Deferred tax assets net of valuation allowance | |
| 74,275 | | |
| 69,516 | |
| | |
| | | |
| | |
| Depreciation | |
| (1,334 | ) | |
| (1,365 | ) |
| Deposit base intangible | |
| (2,976 | ) | |
| (233 | ) |
| Accrued interest and fee income | |
| 0 | | |
| (1,060 | ) |
| Other | |
| (3,165 | ) | |
| 0 | |
| Gross deferred tax liabilities | |
| (7,475 | ) | |
| (2,658 | ) |
| | |
| | | |
| | |
| Net deferred tax assets | |
$ | 66,800 | | |
$ | 66,858 | |
At December 31, 2014, the Company's deferred
tax assets of $66.8 million consists of approximately $52.6 million of net U.S. federal deferred tax assets and $14.2 million of
net state deferred tax assets.
Management assesses the necessity of a valuation
allowance recorded against deferred tax assets at each reporting period. The determination of whether a valuation allowance for
net deferred tax assets is appropriate is subject to considerable judgment and requires an evaluation of all positive and negative
evidence. Based on an assessment of all of the evidence, including favorable trending in asset quality and certainty regarding
the amount of future taxable income that the Company forecasts, management concluded that it was more likely than not that its
net deferred tax assets will be realized based upon future taxable income. Management’s confidence in the realization of
projected future taxable income is based upon analysis of the Company’s risk profile and its trending financial performance,
including credit quality. The Company believes it can confidently and reasonably predict future results of operations that result
in taxable income at sufficient levels over the future period of time that the Company has available to realize its net deferred
tax asset.
Management expects to realize the $66.8 million
in net deferred tax assets well in advance of the statutory carryforward period. At December 31, 2014, approximately $38.7 million
of deferred tax assets relate to federal net operating losses which will expire in annual installments beginning in 2029 through
2032. Additionally, $7.5 million of the deferred tax assets relate to state net operating losses which will expire in annual installments
beginning in 2028 through 2034. Tax credit carryforwards at December 31, 2014 include federal alternative minimum tax credits totaling
$2.1 million which have an unlimited carryforward period. Remaining deferred tax assets are not related to net operating losses
or credits and therefore, have no expiration date.
Prior to the third quarter of 2013, the Company
was unable to conclude that there was sufficient evidence to support that the deferred tax asset was more likely than not realizable
and to support the reversal of its deferred tax asset valuation allowance of $44.8 million. The deferred tax asset valuation allowance
was reversed after the achievement of operating results for the third quarter and nine months of 2013 that demonstrated the continuation
of increasing income before tax results.
A valuation allowance could be required in
future periods based on the assessment of positive and negative evidence. Management’s conclusion at December 31, 2014 that
it is more likely than not that the net deferred tax asset of $66.8 million will be realized is based upon estimates of future
taxable income that are supported by internal projections which consider historical performance, various internal estimates and
assumptions, as well as certain external data, all of which management believes to be reasonable although inherently subject to
judgment. If actual results differ significantly from the current estimates of future taxable income, even if caused by adverse
macro-economic conditions, a valuation allowance may need to be recorded for some or all of the Company’s deferred tax assets.
Such an increase to the deferred tax asset valuation allowance could have a material adverse effect on the Company’s financial
condition and results of operations.
The Company recognizes interest and penalties, as appropriate, as
part of the provisioning for income taxes. No interest or penalties were accrued at December 31, 2014.
The Company has no unrecognized income tax
benefits or provisions due to uncertain income tax positions. The Internal Revenue Service (IRS) examined the federal income tax
returns for the years 2006, 2007, 2008 and 2009. The IRS did not propose any adjustments related to this examination. The following
are the major tax jurisdictions in which the Company operates and the earliest tax year subject to examination:
| Jurisdiction | |
| Tax
Year | |
| United States of America | |
| 2011 | |
| Florida | |
| 2011 | |
Income taxes related to securities transactions were
$181,000, $162,000 and $2,939,000 in 2014, 2013 and 2012,
respectively.
| Note M | Noninterest Income and Expenses |
Details of noninterest income and expense follow:
| | |
Year Ended December 31 | |
| | |
2014 | | |
2013 | | |
2012 | |
| | |
(In thousands) | |
| Noninterest income | |
| | | |
| | | |
| | |
| Service charges on deposit accounts | |
$ | 6,952 | | |
$ | 6,711 | | |
$ | 6,245 | |
| Trust fees | |
| 2,986 | | |
| 2,711 | | |
| 2,279 | |
| Mortgage banking fees | |
| 3,057 | | |
| 4,173 | | |
| 3,710 | |
| Brokerage commissions and fees | |
| 1,614 | | |
| 1,631 | | |
| 1,071 | |
| Marine finance fees | |
| 1,320 | | |
| 1,189 | | |
| 1,111 | |
| Interchange income | |
| 5,972 | | |
| 5,404 | | |
| 4,501 | |
| Other deposit based EFT fees | |
| 343 | | |
| 342 | | |
| 336 | |
| BOLI Income | |
| 252 | | |
| 0 | | |
| 0 | |
| Other | |
| 2,248 | | |
| 2,158 | | |
| 2,191 | |
| | |
| 24,744 | | |
| 24,319 | | |
| 21,444 | |
| Loss on sale of commercial loan | |
| 0 | | |
| 0 | | |
| (1,238 | ) |
| Securities gains, net | |
| 469 | | |
| 419 | | |
| 7,619 | |
| TOTAL | |
$ | 25,213 | | |
$ | 24,738 | | |
$ | 27,825 | |
| | |
| | | |
| | | |
| | |
| Noninterest expense | |
| | | |
| | | |
| | |
| Salaries and wages | |
$ | 35,132 | | |
$ | 31,006 | | |
$ | 29,935 | |
| Employee benefits | |
| 8,773 | | |
| 7,327 | | |
| 7,710 | |
| Outsourced data processing costs | |
| 8,781 | | |
| 6,372 | | |
| 7,382 | |
| Telephone / data lines | |
| 1,331 | | |
| 1,253 | | |
| 1,178 | |
| Occupancy | |
| 7,930 | | |
| 7,178 | | |
| 7,507 | |
| Furniture and equipment | |
| 2,535 | | |
| 2,334 | | |
| 2,319 | |
| Marketing | |
| 3,576 | | |
| 2,339 | | |
| 3,095 | |
| Legal and professional fees | |
| 6,871 | | |
| 2,458 | | |
| 5,241 | |
| FDIC assessments | |
| 1,660 | | |
| 2,601 | | |
| 2,805 | |
| Amortization of intangibles | |
| 1,033 | | |
| 783 | | |
| 788 | |
| Asset dispositions expense | |
| 488 | | |
| 740 | | |
| 1,459 | |
| Branch closures and new branding | |
| 4,958 | | |
| 0 | | |
| 639 | |
| Net loss on other real estate owned and repossessed assets | |
| 310 | | |
| 1,289 | | |
| 3,467 | |
| Other | |
| 9,988 | | |
| 9,472 | | |
| 9,023 | |
| TOTAL | |
$ | 93,366 | | |
$ | 75,152 | | |
$ | 82,548 | |
Note N Shareholders' Equity
The Company has reserved 300,000
common shares for issuance in connection with an employee stock purchase plan and 1,000,000 common
shares for issuance in connection with an employee profit sharing plan. At December 31, 2014, an aggregate of 183,360
shares and 0 shares, respectively, have been issued as a result of employee participation in these plans.
A 1 for 5 reverse stock split was effective
as of December 13, 2013. Each five shares of the Company's common stock was automatically converted to one share of the Company's
common stock. Any fractional post-split shares as a result of the reverse split were rounded up to the nearest whole post-split
share. Shareholders of the Company previously authorized the Board of Directors to approve a reverse stock split at the annual
meeting in May 2013. All share amounts have been restated for all years presented.
In December 2008, in connection with the
Troubled Asset Relief Program (TARP) Capital Purchase Program, established as part of the Emergency Economic Stabilization Act
of 2008, the Company issued to the U.S. Treasury Department (U.S. Treasury) 2,000 shares of Fixed Rate Cumulative Perpetual Preferred
Stock, Series A (“Series A Preferred Stock”) with a par value of $0.10 per share and a 10-year warrant to purchase
approximately 117,925 shares of common stock at an exercise price of $31.80 per share. The proceeds received were allocated to
the preferred stock and additional paid-in-capital based on their relative fair values. The Series A Preferred Stock initially
paid quarterly dividends at a five percent annual rate that increased to nine percent after five years on a liquidation preference
of $25,000 per share. Upon the request of the U.S. Treasury, at any time, the Company agreed to enter into a deposit arrangement
pursuant to which the Series A Preferred Stock may be deposited and depository shares may be issued. The Company registered
the Series A Preferred Stock, the warrant, the shares of common stock underlying the warrant and the depository shares, if any,
for resale under the Securities Act of 1933. On March 28, 2012, the U.S. Treasury publicly offered through an auction process their
investment in the Series A Preferred Stock. The auction concluded on April 3, 2012, thereby transferring all of the U.S. Treasury's
ownership in the Series A Preferred Stock to third party investors. The warrant to purchase shares of common stock was acquired
by the Company on May 30, 2012 for $81,000, including related expenses. On December 31, 2013, the full amount of the Series A Preferred
Stock was redeemed at par for $50 million plus accrued dividends through the date of redemption of $319,000 .
A common stock offering was completed during
November 2013 adding $75 million to capital, with approximately $47 million (net of issuance costs) received during November 2013,
and $25 million received in January 2014 from a single investor that was required to obtain approval of the Federal Reserve Bank
for its investment. Of the funds received, $50 million was utilized to redeem the Series A Preferred Stock at December 31, 2013,
with the remainder available for future growth and general corporate purposes.
Holders of common stock are entitled to
one vote per share on all matters presented to shareholders as provided in the Company’s Articles of Incorporation. The Company
implemented a dividend reinvestment plan during 2007, issuing no shares from treasury stock during 2014 and 2013.
The Company was subject to certain standards
for executive compensation while its preferred shares were owned by the U.S. Treasury that included (a) prohibiting “golden
parachute” payments as defined in the Emergency Economic Stabilization Act of 2008 (EESA) to senior executive officers; (b)
requiring recovery of any compensation paid to senior executive officers based on criteria that is later proven to be materially
inaccurate; (c) prohibiting incentive compensation that encourages unnecessary and excessive risks that threaten the value of the
financial institution, and (d) accepting restrictions on the payment of dividends and the repurchase of common stock. Seacoast
believes it complied with all TARP standards and restrictions during the time the Company was a participant.
Required Regulatory Capital
| |
|
|
|
|
|
|
|
Minimum
for Capital
Adequacy Purpose |
|
|
Minimum
To Be Well Capitalized
Under Prompt Corrective Action
Provisions |
|
| |
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
| |
|
(Dollars in thousands) |
|
| SEACOAST BANKING CORP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (CONSOLIDATED) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At December 31, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total
Capital (to risk-weighted assets) |
|
$ |
322,765 |
|
|
|
16.25 |
% |
|
$ |
158,903 |
|
|
|
≥ 8.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
| Tier 1 Capital (to
risk-weighted assets) |
|
|
305,665 |
|
|
|
15.39 |
|
|
|
79,452 |
|
|
|
≥ 4.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
| Tier 1 Capital (to
adjusted average assets) |
|
|
305,665 |
|
|
|
10.32 |
|
|
|
124,731 |
|
|
|
≥ 4.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
| At December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Capital (to
risk-weighted assets) |
|
$ |
227,310 |
|
|
|
16.88 |
% |
|
$ |
107,757 |
|
|
|
≥ 8.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
| Tier 1 Capital (to
risk-weighted assets) |
|
|
210,433 |
|
|
|
15.62 |
|
|
|
53,878 |
|
|
|
≥ 4.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
| Tier 1 Capital (to
adjusted average assets) |
|
|
210,433 |
|
|
|
9.59 |
|
|
|
92,234 |
|
|
|
≥ 4.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| SEACOAST NATIONAL BANK |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (A WHOLLY OWNED BANK SUBSIDIARY) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At December 31, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Capital (to
risk-weighted assets) |
|
$ |
284,555 |
|
|
|
14.32 |
% |
|
$ |
158,925 |
|
|
|
≥ 8.00 |
% |
|
$ |
198,656 |
|
|
|
≥ 10.00 |
% |
| Tier 1 Capital (to
risk-weighted assets) |
|
|
267,455 |
|
|
|
13.46 |
|
|
|
79,462 |
|
|
|
≥ 4.00 |
% |
|
|
119,193 |
|
|
|
≥ 6.00 |
% |
| Tier 1 Capital (to
adjusted average assets) |
|
|
267,455 |
|
|
|
9.04 |
|
|
|
118,409 |
|
|
|
≥ 4.00 |
% |
|
|
148,011 |
|
|
|
≥ 5.00 |
% |
| At December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Capital (to
risk-weighted assets) |
|
$ |
225,102 |
|
|
|
16.74 |
% |
|
$ |
107,571 |
|
|
|
≥ 8.00 |
% |
|
$ |
134,463 |
|
|
|
≥ 10.00 |
% |
| Tier 1 Capital (to
risk-weighted assets) |
|
|
208,253 |
|
|
|
15.49 |
|
|
|
53,785 |
|
|
|
≥ 4.00 |
% |
|
|
80,678 |
|
|
|
≥ 6.00 |
% |
| Tier 1 Capital (to
adjusted average assets) |
|
|
208,253 |
|
|
|
9.51 |
|
|
|
87,636 |
|
|
|
≥ 4.00 |
% |
|
|
109,545 |
|
|
|
≥ 5.00 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| N/A - Not Applicable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company's
financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company
must meet specific capital guidelines that involve quantitative measures of the Company's assets, liabilities and certain off-balance
sheet items as calculated under regulatory accounting practices. The Company's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company to maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations)
to risk-weighted assets (as defined) and of Tier 1 capital to average assets (as defined). Management believes, as of December
31, 2014, that the Company meets all capital adequacy requirements to which it is subject.
The Company is well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, the Company must maintain minimum total risk-based, Tier 1
risk-based and Tier 1 leverage ratios as set forth above. At December 31, 2014, the Company’s deposit-taking bank subsidiary
met the capital and leverage ratio requirements for well capitalized banks.
Note O
Seacoast Banking Corporation of Florida
(Parent Company Only) Financial Information
Balance Sheets
| | |
December 31 | |
| | |
2014 | | |
2013 | |
| | |
(In thousands) | |
| ASSETS | |
| | | |
| | |
| Cash | |
$ | 480 | | |
$ | 919 | |
| Securities purchased under agreement to resell with subsidiary bank, maturing within 30 days | |
| 37,836 | | |
| 792 | |
| Investment in subsidiaries | |
| 341,302 | | |
| 250,033 | |
| Other assets | |
| 0 | | |
| 493 | |
| | |
$ | 379,618 | | |
$ | 252,237 | |
| | |
| | | |
| | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | |
| | | |
| | |
| Subordinated debt | |
$ | 64,584 | | |
$ | 53,610 | |
| Other liabilities | |
| 2,383 | | |
| 23 | |
| Shareholders' equity | |
| 312,651 | | |
| 198,604 | |
| | |
$ | 379,618 | | |
$ | 252,237 | |
Statements of Income (Loss)
| | |
Year Ended December 31 | |
| | |
2014 | | |
2013 | | |
2012 | |
| | |
(In thousands) | |
| | |
| | |
| | |
| |
| Income | |
| | | |
| | | |
| | |
| Dividends from subsidiary Bank | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
| Interest/other | |
| 43 | | |
| 28 | | |
| 29 | |
| | |
| 43 | | |
| 28 | | |
| 29 | |
| | |
| | | |
| | | |
| | |
| Interest expense | |
| 1,053 | | |
| 958 | | |
| 1,057 | |
| Other expenses | |
| 1,000 | | |
| 450 | | |
| 575 | |
| Loss before income tax benefit and equity in undistributed income of subsidiaries | |
| (2,010 | ) | |
| (1,380 | ) | |
| (1,603 | ) |
| Income tax benefit | |
| (704 | ) | |
| (2,281 | ) | |
| 0 | |
| | |
| | | |
| | | |
| | |
| Income (loss) before equity in undistributed income of subsidiaries | |
| (1,306 | ) | |
| 901 | | |
| (1,603 | ) |
| Equity in undistributed income of subsidiaries | |
| 7,002 | | |
| 51,088 | | |
| 893 | |
| Net income (loss) | |
$ | 5,696 | | |
$ | 51,989 | | |
$ | (710 | ) |
Statement of Cash Flows
| | |
Year Ended December 31 | |
| | |
2014 | | |
2013 | | |
2012 | |
| | |
(In thousands) | |
| Cash flows from operating activities | |
| | | |
| | | |
| | |
| Interest received | |
$ | 43 | | |
$ | 5 | | |
$ | 7 | |
| Interest paid | |
| (1,058 | ) | |
| (957 | ) | |
| (1,045 | ) |
| Dividends received | |
| 24 | | |
| 23 | | |
| 22 | |
| Income taxes received (paid) | |
| 573 | | |
| 1,797 | | |
| (32 | ) |
| Other | |
| (964 | ) | |
| (494 | ) | |
| (703 | ) |
| Net cash provided by (used in) operating activities | |
| (1,382 | ) | |
| 374 | | |
| (1,751 | ) |
| | |
| | | |
| | | |
| | |
| Cash flows from investing activities | |
| | | |
| | | |
| | |
| Decrease (increase) in
securities purchased under agreement to resell, maturing within 30 days, net | |
| (37,044 | ) | |
| 2,130 | | |
| 422 | |
| Net cash provided by (used in) investment activities | |
| (37,044 | ) | |
| 2,130 | | |
| 422 | |
| | |
| | | |
| | | |
| | |
| Cash flows from financing activities | |
| | | |
| | | |
| | |
| Issuance of common stock, net of related expense | |
| 24,637 | | |
| 46,977 | | |
| 0 | |
| Subordinated debt increase | |
| 13,208 | | |
| 0 | | |
| 0 | |
| Repurchase of stock warrants, including related expense | |
| 0 | | |
| 0 | | |
| (81 | ) |
| Stock based employment plans | |
| 142 | | |
| 190 | | |
| 196 | |
| Redemption of preferred stock | |
| 0 | | |
| (50,000 | ) | |
| 0 | |
| Dividends paid on preferred shares | |
| 0 | | |
| (2,819 | ) | |
| (2,500 | ) |
| Net cash provided by (used in) financing activities | |
| 37,987 | | |
| (5,652 | ) | |
| (2,385 | ) |
| | |
| | | |
| | | |
| | |
| Net change in cash | |
| (439 | ) | |
| (3,148 | ) | |
| (3,714 | ) |
| Cash at beginning of year | |
| 919 | | |
| 4,067 | | |
| 7,781 | |
| Cash at end of year | |
$ | 480 | | |
$ | 919 | | |
$ | 4,067 | |
| | |
| | | |
| | | |
| | |
| RECONCILIATION OF INCOME (LOSS) TO CASH USED IN OPERATING ACTIVITIES | |
| | | |
| | | |
| | |
| Net income (loss) | |
$ | 5,696 | | |
$ | 51,989 | | |
$ | (710 | ) |
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | |
| | | |
| | | |
| | |
| Equity in undistributed income of subsidiaries | |
| (7,002 | ) | |
| (51,088 | ) | |
| (893 | ) |
| Other, net | |
| (76 | ) | |
| (527 | ) | |
| (148 | ) |
| Net cash provided by (used in) operating activities | |
$ | (1,382 | ) | |
$ | 374 | | |
$ | (1,751 | ) |
Note P
Contingent Liabilities and Commitments
with Off-Balance Sheet Risk
The Company and its
subsidiaries, because of the nature of their business, are at all times subject to numerous legal actions, threatened or filed.
Management presently believes that none of the legal proceedings to which it is a party are likely to have a materially adverse
effect on the Company’s consolidated financial condition, or operating results or cash flows.
The Company's subsidiary
bank is party to financial instruments with off balance sheet risk in the normal course of business to meet the financing needs
of its customers. These financial instruments include commitments to extend credit, standby letters of credit, and limited partner
equity commitments.
The subsidiary bank’s
exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contract or notional amount of those instruments. The subsidiary bank
uses the same credit policies in making commitments and standby letters of credit as they do for on balance sheet instruments.
Commitments to extend
credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
The subsidiary bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held
varies but may include accounts receivable, inventory, equipment, and commercial and residential real estate. Of the $238,130,000
in commitments to extend credit outstanding at December 31, 2014, $98,646,000 is secured by 1-4 family residential properties for
individuals with approximately $10,052,000 at fixed interest rates ranging from 3.25 to 5.125%.
Standby letters of
credit are conditional commitments issued by the subsidiary bank to guarantee the performance of a customer to a third party. These
instruments have fixed termination dates and most end without being drawn; therefore, they do not represent a significant liquidity
risk. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond
financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The subsidiary bank holds collateral supporting these commitments for which collateral
is deemed necessary. The extent of collateral held for secured standby letters of credit at December 31, 2014 and 2013 amounted
to $2,617,000 and $3,187,000 respectively.
Unfunded limited partner
equity commitments at December 31, 2014 totaled $3,715,000 that the Company has committed to small business investment companies
under the SBIC Act to be used to provide capital to small businesses.
| | |
December 31 | |
| | |
2014 | | |
2013 | |
| | |
(In thousands) | |
| Contract or Notional Amount | |
| | | |
| | |
| Financial instruments whose contract amounts represent credit risk: | |
| | | |
| | |
| Commitments to extend credit | |
$ | 238,130 | | |
$ | 135,056 | |
| | |
| | | |
| | |
| Standby letters of credit and financial guarantees written: | |
| | | |
| | |
| Secured | |
| 2,685 | | |
| 2,722 | |
| Unsecured | |
| 200 | | |
| 8 | |
| | |
| | | |
| | |
| Unfunded limited partner equity commitment | |
| 3,715 | | |
| 3,746 | |
The Company’s
subsidiary bank renewed its contract for outsourced data services on December 31, 2012 for a period of five years and six months
which requires a minimum payment for early termination without cause as follows:
| |
Year Ended |
(In thousands) |
| |
|
|
| |
2014 |
$ 11,821 |
| |
2015 |
8,444 |
| |
2016 |
5,066 |
Note Q Supplemental Disclosures for Consolidated Statements
of Cash Flows
Reconciliation of Net Income (Loss) to Net
Cash Provided by Operating Activities for the three years ended:
| | |
Year Ended December 31 | |
| | |
2014 | | |
2013 | | |
2012 | |
| | |
(In thousands) | |
| | |
| | |
| | |
| |
| Net income (loss) | |
$ | 5,696 | | |
$ | 51,989 | | |
$ | (710 | ) |
| Adjustments to reconcile net income (loss) to net cash (used) provided by operating activities | |
| | | |
| | | |
| | |
| Depreciation | |
| 3,268 | | |
| 2,776 | | |
| 2,827 | |
| Net amortization of premiums and discounts on securities | |
| 2,353 | | |
| 3,882 | | |
| 4,740 | |
| Accretion of purchase accounting loan discount | |
| (750 | ) | |
| 0 | | |
| 0 | |
| Other amortization and accretion | |
| 494 | | |
| (172 | ) | |
| 20 | |
| Change in loans available for sale, net | |
| 1,754 | | |
| 22,189 | | |
| (20,143 | ) |
| Provision (recpature) for loan losses, net | |
| (3,486 | ) | |
| 3,188 | | |
| 10,796 | |
| Deferred tax benefit | |
| 0 | | |
| (40,552 | ) | |
| (7 | ) |
| Gain on sale of securities | |
| (469 | ) | |
| (419 | ) | |
| (7,619 | ) |
| Gain on sale of loans | |
| (419 | ) | |
| (455 | ) | |
| (816 | ) |
| Loss on sale or write down of foreclosed assets | |
| 310 | | |
| 1,295 | | |
| 3,548 | |
| Writedown on loan available for sale | |
| 0 | | |
| 0 | | |
| 1,238 | |
| Loss on branch closures and disposition of equipment | |
| 4,493 | | |
| 1 | | |
| 774 | |
| Stock based employee benefit expense | |
| 1,299 | | |
| 246 | | |
| 796 | |
| Earnings on bank owned lif insurance | |
| (219 | ) | |
| 0 | | |
| 0 | |
| Change in interest receivable | |
| (2,763 | ) | |
| 160 | | |
| 861 | |
| Change in interest payable | |
| 847 | | |
| (27 | ) | |
| (524 | ) |
| Change in prepaid expenses | |
| (591 | ) | |
| 4,562 | | |
| 2,601 | |
| Change in accrued taxes | |
| 4,294 | | |
| (102 | ) | |
| (190 | ) |
| Change in other assets | |
| 3,175 | | |
| 792 | | |
| (835 | ) |
| Change in other liabilities | |
| 2,660 | | |
| 499 | | |
| 581 | |
| Net cash provided (used) by operating activities | |
$ | 21,946 | | |
$ | 49,852 | | |
$ | (2,062 | ) |
| | |
| | | |
| | | |
| | |
| Supplemental disclosure of non cash investing activities | |
| | | |
| | | |
| | |
| Fair value adjustment to securities | |
$ | 8,985 | | |
$ | (21,957 | ) | |
$ | (3,405 | ) |
| Transfers from loans to other real estate owned | |
| 4,789 | | |
| 5,087 | | |
| 14,067 | |
| Transfers from loans to loans available for sale | |
| 0 | | |
| 379 | | |
| 10,321 | |
| Matured securities recorded as a recievable | |
| 0 | | |
| 0 | | |
| 3,100 | |
| Securities principal receivable recorded in other assets | |
| 101 | | |
| 159 | | |
| 0 | |
| Transfer from securities held for investment to available for sale | |
| 0 | | |
| 13,818 | | |
| 0 | |
| Transfer from securities available for sale to held for investment | |
| 158,781 | | |
| 0 | | |
| 0 | |
Note R
Fair Value
Fair Value Instruments Measured at Fair Value
In certain circumstances,
fair value enables the Company to more accurately align its financial performance with the market value of actively traded or hedged
assets and liabilities. Fair values enable a company to mitigate the non-economic earnings volatility caused from financial assets
and financial liabilities being carried at different bases of accounting, as well as to more accurately portray the active and
dynamic management of a company’s balance sheet. ASC 820 provides additional guidance for estimating fair value when the
volume and level of activity for an asset or liability has significantly decreased. In addition, it includes guidance on identifying
circumstances that indicate a transaction is not orderly. Under ASC 820, fair value measurements for items measured at fair value
on a recurring and nonrecurring basis at December 31, 2014 and 2013 included:
| | |
| | |
Quoted Prices in | | |
Significant Other | | |
Significant Other | |
| | |
Fair Value | | |
Active Markets for | | |
Observable | | |
Unobservable | |
| | |
Measurements | | |
Identical Assets | | |
Inputs | | |
Inputs | |
| (Dollars in thousands) | |
December 31, 2014 | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| | |
| | |
| | |
| | |
| |
| Available for sale securities (3) | |
$ | 741,375 | | |
$ | 3,899 | | |
$ | 737,476 | | |
$ | 0 | |
| Loans available for sale (4) | |
| 12,078 | | |
| 0 | | |
| 12,078 | | |
| 0 | |
| Loans (1) | |
| 10,409 | | |
| 0 | | |
| 8,324 | | |
| 2,085 | |
| OREO (2) | |
| 7,462 | | |
| 0 | | |
| 1,468 | | |
| 5,994 | |
| | |
| | |
Quoted Prices in | | |
Significant Other | | |
Significant Other | |
| | |
Fair Value | | |
Active Markets for | | |
Observable | | |
Unobservable | |
| | |
Measurements | | |
Identical Assets | | |
Inputs | | |
Inputs | |
| (Dollars in thousands) | |
December 31, 2013 | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| | |
| | |
| | |
| | |
| |
| Available for sale securities (3) | |
$ | 641,611 | | |
$ | 100 | | |
$ | 641,511 | | |
$ | 0 | |
| Loans available for sale (4) | |
| 13,832 | | |
| 0 | | |
| 13,832 | | |
| 0 | |
| Loans (1) | |
| 17,323 | | |
| 0 | | |
| 10,325 | | |
| 6,998 | |
| OREO (2) | |
| 6,860 | | |
| 0 | | |
| 1,301 | | |
| 5,559 | |
(1) See Note E. Nonrecurring fair value adjustments to loans
identified as impaired reflect full or partial write-downs that are based on the loan's observable market price or current appraised
value of the collateral in accordance with ASC 310.
(2) Fair value is measured on a nonrecurring basis in accordance
with ASC 360.
(3) See Note D for further detail of recurring fair value basis
of individual investment categories.
(4) Recurring fair value basis determined using observable market
data.
The fair value of impaired loans which
are not troubled debt restructurings is based on recent real estate appraisals less estimated costs of sale. For residential real
estate impaired loans, appraised values or internal evaluation are based on the comparative sales approach. These impaired loans
are considered level 2 in the fair value hierarchy. For commercial and commercial real estate impaired loans, evaluations may use
either a single valuation approach or a combination of approaches, such as comparative sales, cost and/or income approach. A significant
unobservable input in the income approach is the estimated capitalization rate for a given piece of collateral. At December 31,
2014 the range of capitalization rates utilized to determine fair value of the underlying collateral averaged approximately 8.2%.
Adjustments to comparable sales may be made by an appraiser to reflect local market conditions or other economic factors and may
result in changes in the fair value of an asset over time. As such, the fair value of these impaired loans is considered level
3 in the fair value hierarchy.
Fair value of available for sale securities
are determined using valuation techniques for individual investments as described in Note A.
When appraisals are used to determine fair
value and the appraisals are based on a market approach, the fair value of OREO is classified as level 2. When the fair value of
OREO is based on appraisals which require significant adjustments to market-based valuation inputs or apply an income approach
based on unobservable cash flows, the fair value of OREO is classified as Level 3.
Transfers between levels of the fair value
hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with
the Company's monthly and/or quarter valuation process.
During 2014, there were no transfers between
level 1 and level 2 assets carried at fair value.
For loans classified as level 3 the transfers
in totaled $0.5 million consisting of loans that became impaired during 2014. Transfers out consisted of charge offs of $0.2 million,
and loan foreclosures migrating to OREO and other reductions (including principal payments) totaling $5.2 million. No sales were
recorded.
Charge-offs recognized upon loan foreclosures
are generally offset by general or specific allocations of the allowance for loan losses and generally do not, and did not during
the reported periods, significantly impact the Company's provision for loan losses.
For OREO classified as level 3 during 2014
transfers out totaled $2.3 million consisting of valuation write-downs of $0.3 million and sales of $2.0 million, and transfers
in consisted of foreclosed loans totaling $2.9 million.
The carrying amount and fair value of the
Company's other significant financial instruments that are not measured at fair value on a recurring basis in the balance sheet
as of December 31 is as follows:
| | |
| | |
Quoted Prices in | | |
Significant Other | | |
Significant Other | |
| | |
Carrying | | |
Active Markets for | | |
Observable | | |
Unobservable | |
| | |
Amount | | |
Identical Assets | | |
Inputs | | |
Inputs | |
| | |
December 31, 2014 | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| | |
| |
| (In Thousands) | |
| | | |
| | | |
| | | |
| | |
| Financial Assets | |
| | | |
| | | |
| | | |
| | |
| Securities held to maturity | |
$ | 207,904 | | |
$ | 0 | | |
$ | 207,904 | | |
$ | 0 | |
| Loans, net | |
| 1,794,405 | | |
| 0 | | |
| 0 | | |
| 1,814,746 | |
| | |
| | | |
| | | |
| | | |
| | |
| Financial Liabilities | |
| | | |
| | | |
| | | |
| | |
| Deposits | |
| 2,416,534 | | |
| 0 | | |
| 0 | | |
| 2,417,355 | |
| Borrowings | |
| 50,000 | | |
| 0 | | |
| 52,735 | | |
| 0 | |
| Subordinated debt | |
| 64,583 | | |
| 0 | | |
| 53,861 | | |
| 0 | |
| | |
| | |
Quoted Prices in | | |
Significant Other | | |
Significant Other | |
| | |
Carrying | | |
Active Markets for | | |
Observable | | |
Unobservable | |
| | |
Amount | | |
Identical Assets | | |
Inputs | | |
Inputs | |
| | |
December 31, 2013 | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| | |
| |
| (In Thousands) | |
| | | |
| | | |
| | | |
| | |
| Financial Assets | |
| | | |
| | | |
| | | |
| | |
| Securities held to maturity | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
| Loans, net | |
| 1,266,816 | | |
| 0 | | |
| 0 | | |
| 1,272,893 | |
| | |
| | | |
| | | |
| | | |
| | |
| Financial Liabilities | |
| | | |
| | | |
| | | |
| | |
| Deposits | |
| 1,806,045 | | |
| 0 | | |
| 0 | | |
| 1,807,183 | |
| Borrowings | |
| 50,000 | | |
| 0 | | |
| 53,856 | | |
| 0 | |
| Subordinated debt | |
| 53,610 | | |
| 0 | | |
| 42,888 | | |
| 0 | |
The short maturity of Seacoast’s assets
and liabilities results in having a significant number of financial instruments whose fair value equals or closely approximates
carrying value. Such financial instruments are reported in the following balance sheet captions: cash and cash equivalents, interest
bearing deposits with other banks, federal funds purchased and securities sold under agreement to repurchase, maturing within 30
days.
The following methods and assumptions were
used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value at December
31, 2014 and 2013:
Securities: U.S. Treasury securities
are reported at fair value utilizing Level 1 inputs. Other securities are reported at fair value utilizing Level 2 inputs.
The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury
yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s
terms and conditions, among other things.
The Company
reviews the prices supplied by the independent pricing service, as well as their underlying pricing methodologies, for reasonableness
and to ensure such prices are aligned with traditional pricing matrices. In general, the Company does not purchase investment portfolio
securities that are esoteric or that have a complicated structure. The Company’s entire portfolio consists of traditional
investments, the majority of which are U.S. Treasury obligations, federal agency bullet or mortgage pass-through securities, or
general obligation or revenue based municipal bonds. Pricing for such instruments is fairly generic and is easily obtained. The
fair value of the collateralized loan obligations are determined from broker quotes. From time to time, the Company will validate,
on a sample basis, prices supplied by brokers and the independent pricing service by comparison to prices obtained from other brokers
and third-party sources or derived using internal models.
Loans: Fair values are estimated
for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, mortgage, etc.
Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming categories.
The fair value of loans, except residential mortgages, is calculated by discounting scheduled cash flows through the estimated
maturity using estimated market discount rates that reflect the credit and interest rate risks inherent in the loan. For residential
mortgage loans, fair value is estimated by discounting contractual cash flows adjusting for prepayment assumptions using discount
rates based on secondary market sources. The estimated fair value is not an exit price fair value under ASC 820 when this valuation
technique is used.
Loans held for sale: Fair values
are based upon estimated values to be received from independent third party purchasers.
Deposit Liabilities: The fair value
of demand deposits, savings accounts and money market deposits is the amount payable at the reporting date. The fair value of fixed
maturity certificates of deposit is estimated using the rates currently offered for funding of similar remaining maturities.
Borrowings: The fair value of floating
rate borrowings is the amount payable on demand at the reporting date. The fair value of fixed rate borrowings is estimated using
the rates currently offered for borrowings of similar remaining maturities.
Subordinated debt: The fair value
of the floating rate subordinated debt is estimated using discounted cash flow analysis, estimates of the Company’s current
incremental borrowing rate for similar instruments and dealer quotes for similar debt.
Basic earnings per common share were computed by dividing net income
(loss) available to common shareholders by the weighted average number of shares of common stock outstanding during the year.
The number of shares utilized to compute earnings per share for
the years ended December 31, 2014, 2013 and 2012, have been restated to reflect a 1 for 5 reverse stock split effective December
13, 2013.
In 2014, 2013, and 2012, options and warrants to purchase 293,000,
102,000, and 87,000 shares, respectively, were antidilutive and accordingly were excluded in determining diluted earnings per
share.
| | |
Year Ended December 31 | |
| | |
Net Income | | |
| | |
Per Share | |
| | |
(Loss) | | |
Shares | | |
Amount | |
| | |
(Dollars in thousands, | |
| | |
except per share data) | |
| 2014 | |
| | | |
| | | |
| | |
| Basic Earnings Per Share | |
| | | |
| | | |
| | |
| Income available to common shareholders | |
$ | 5,696 | | |
| 27,538,955 | | |
$ | 0.21 | |
| Diluted Earnings Per Share | |
| | | |
| | | |
| | |
| Employee restricted stock (See Note J) | |
| | | |
| 177,940 | | |
| | |
| Income available to common shareholders plus assumed conversions | |
$ | 5,696 | | |
| 27,716,895 | | |
$ | 0.21 | |
| | |
| | | |
| | | |
| | |
| 2013 | |
| | | |
| | | |
| | |
| Basic Earnings Per Share | |
| | | |
| | | |
| | |
| Income available to common shareholders | |
$ | 47,916 | | |
| 19,449,560 | | |
$ | 2.46 | |
| Diluted Earnings Per Share | |
| | | |
| | | |
| | |
| Employee restricted stock (See Note J) | |
| | | |
| 200,445 | | |
| | |
| Income available to common shareholders plus assumed conversions | |
$ | 47,916 | | |
| 19,650,005 | | |
$ | 2.44 | |
| | |
| | | |
| | | |
| | |
| 2012 | |
| | | |
| | | |
| | |
| Basic and diluted Earnings Per Share | |
| | | |
| | | |
| | |
| Loss available to common shareholders | |
$ | (4,458 | ) | |
| 18,748,757 | | |
$ | (0.24 | ) |
Note T
Business Combinations
The Company, through its subsidiary bank, purchased
The BANKshares Inc. (“BANKshares”) in Winter Park, Florida on October 1, 2014. The acquisition related costs were approximately
$4,361,000 and these expenses are reported in noninterest expenses in the consolidated statement of income. As a result of this
acquisition, the Company expects to further solidify its market share in the Florida market, expand its customer base to enhance
deposit fee income, and leverage operating costs through economies of scale.
The Company acquired
100% of the outstanding common stock of BANKshares. Each share of BANKshares common stock was exchanged for 0.4975 shares of the
Company’s common stock. Based on the closing price of the Company’s common stock on September 30, 2014, the resulting
purchase price was $76.8 million. The table below summarizes the purchase price calculation.
| | |
September 30, | |
| | |
2014 | |
| Number of shares of BANKshares common stock outstanding | |
| 12,644,763 | |
| BANKshares preferred shares that convert to BANKshares common shares upon a change in control | |
| 1,476,660 | |
| Total BANKshares common shares including conversion of preferred shares | |
| 14,121,423 | |
| Per share exchange ratio | |
| 0.4975 | |
| Number of shares of common stock issued | |
| 7,025,408 | |
| Multiplied by common stock price per share on September 30, 2014 | |
$ | 10.93 | |
| Total purchase price | |
| 76,787,709 | |
The table below presents
information with respect to the fair value of acquired loans, as well as their unpaid principal balance (“Book Balance”)
at acquisition date.
| | |
Oct. 1, 2014 | |
| (Dollars in thousands) | |
Book Balance | | |
Fair Value | |
| Loans: | |
| | | |
| | |
| Single family residential real estate | |
$ | 50,768 | | |
$ | 49,184 | |
| Commercial real estate | |
| 229,859 | | |
| 224,837 | |
| Construction/development/land | |
| 30,994 | | |
| 27,578 | |
| Commercial loans | |
| 52,458 | | |
| 51,479 | |
| Consumer and other loans | |
| 3,647 | | |
| 3,568 | |
| Purchased credit-impaired | |
| 11,087 | | |
| 8,717 | |
| | |
| | | |
| | |
| Total loans | |
$ | 378,813 | | |
$ | 365,363 | |
Pro-forma information
Pro-forma data for
the years ending December 31, 2014 and 2013 listed in the table below presents pro-forma information as if the acquisition occurred
at the beginning of 2013.
| | |
Year ended December 31, | |
| (Dollars in thousands, except per share amounts) | |
2014 | | |
2013 | |
| Net interest income | |
$ | 91,382 | | |
$ | 86,401 | |
| Net income available to common shareholders | |
| 9,893 | | |
| 54,099 | |
| EPS - basic | |
$ | 0.30 | | |
$ | 2.04 | |
| EPS - diluted | |
$ | 0.30 | | |
$ | 2.03 | |
The following table summarizes the fair values of
the assets acquired and liabilities assumed at the date of acquisition.
| | |
October 1, | |
| Date of acquisition | |
2014 | |
| | |
(in thousands) | |
| Assets: | |
| | |
| Cash and cash equivalents | |
$ | 110,996 | |
| Loans | |
| 365,363 | |
| Securities available for sale | |
| 85,355 | |
| Bank premises | |
| 12,259 | |
| Other real estate owned | |
| 2,199 | |
| Core deposit intangible | |
| 7,769 | |
| Goodwill | |
| 25,309 | |
| Other assets | |
| 17,641 | |
| Total assets acquired | |
$ | 626,891 | |
| | |
| | |
| Liabilities: | |
| | |
| Deposits | |
$ | 516,297 | |
| Subordinated debt | |
| 10,930 | |
| Repurchase agreements | |
| 18,478 | |
| Other liabilities | |
| 4,398 | |
| Total liabilities assumed | |
$ | 550,103 | |
The acquisition was accounted for under the acquisition
method of accounting in accordance with ASC Topic 805, Business Combinations. Both the purchased assets and liabilities
assumed are recorded at their respective acquisition date fair values. Determining the fair values of assets and liabilities, especially
the loan portfolio and foreclosed real estate, is a complicated process involving significant judgment regarding methods and assumptions
used to calculate estimated fair values.
For the loans acquired we first, segregated all
acquired loans with specifically identified credit deficiency factor(s). The factors we considered to identify loans as Purchase
Credit Impaired (“PCI”) loans were all acquired loans that were non-accrual, 60 days or more past due, designated as
Trouble Debt Restructured (“TDR”), graded “special mention” or “substandard.” . These loans
were then evaluated to determine estimated fair values as of the acquisition date. As required by generally accepted accounting
principles, we are accounting for these loans pursuant to ASC Topic 310-30.
Second, for those loans without specifically identified
credit deficiency factors are referred to as Purchased Unimpaired Loans (“PULs”) for disclosure purposes. These loans
were then evaluated to determine estimated fair values as of the acquisition date. Although no specific credit deficiencies were
identifiable, we believe there is an element of risk as to whether all contractual cash flows will be eventually received. Factors
that were considered included the economic environment both nationally and locally as well as the real estate market particularly
in Florida. Based on management’s estimate of fair value, each of the PUL’s were assigned a discount credit mark. We
have applied ASC Topic 310-20 accounting treatment to PULs.
The operating results of the Company for the year
ended December 31, 2014 includes the operating results of the acquired assets and assumed liabilities since the acquisition date
of October 1, 2014.
EXHIBIT 21
LIST OF SUBSIDIARIES
The Company had the following subsidiaries as of the date of this
report:
| NAME |
|
INCORPORATED |
| |
|
|
|
|
| 1. |
|
Seacoast National Bank |
|
United States |
| |
|
|
|
|
| 2. |
|
FNB Insurance Services, Inc (inactive) |
|
Florida |
| |
|
|
|
|
| 3. |
|
South Branch Building, Inc |
|
Florida |
| |
|
|
|
|
| 4. |
|
TCoast Holdings, LLC |
|
Florida |
| |
|
|
|
|
| 5. |
|
BR West, LLC |
|
Florida |
| |
|
|
|
|
| 6. |
|
TC Property Venture, LLC |
|
Florida |
| |
|
|
|
|
| 7. |
|
SBCF Capital Trust I |
|
Delaware |
| |
|
|
|
|
| 8. |
|
SBCF Statutory Trust II |
|
Connecticut |
| |
|
|
|
|
| 9. |
|
SBCF Satutory Trust III |
|
Delaware |
| |
|
|
|
|
| 10. |
|
BF Realty |
|
Florida |
| |
|
|
|
|
| 11. |
|
BankFIRST Capital Trust I |
|
Delaware |
| |
|
|
|
|
| 12. |
|
BankFIRST Statutory Trust II |
|
Connecticut |
| |
|
|
|
|
| 13. |
|
BankFIRST Statutory Trust III |
|
Delaware |
| |
|
|
|
|
| 14. |
|
CBF |
|
United States |
Exhibit 23.1
Consent of Independent Registered Public
Accounting Firm
The Board of Directors
Seacoast Banking Corporation of Florida:
We consent to the incorporation by reference
in the registration statements on Form S-8 (Nos. 33-22846, 33-25627, 333-161014, 333-188290, 333-190507, 333-49972, 333-198682
and 333-152931) and Form S-3 (Nos. 333-185660, 333-194712 and 333-200137) of Seacoast Banking Corporation of Florida
and subsidiaries (the Company) of our report dated March 17, 2014, with respect to the consolidated balance sheet of
the Company as of December 31, 2013, and the related consolidated statements of income, comprehensive income (loss), cash
flows, and shareholders’ equity for each of the years in the two-year period ended December 31, 2013, which report appears
in the December 31, 2014 annual report on Form 10-K of the Company.
March 16, 2015
Miami, Florida
Certified Public Accountants
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
We consent to the incorporation by reference in
the registration statements on Form S-8 (Nos. 33-22846, 33-25627, 333-161014, 333-188290, 333-190507, 333-49972, 333-198682
and 333-152931) and Form S-3 (Nos. 333-185660, 333-194712 and 333-200137) of Seacoast Banking Corporation of Florida
(the Company) of our report dated March 16, 2015, with respect to the consolidated balance sheet of the Company as of
December 31, 2014, and the related consolidated statements of income, comprehensive income (loss), cash flows, and
shareholders’ equity for the year ended December 31, 2014, and the effectiveness of internal control over financial
reporting, which report appears in the December 31, 2014 annual report on Form 10-K of the Company.
| |
/s/ Crowe Horwath LLP |
| |
Crowe Horwath LLP |
Fort Lauderdale, Florida
March 16, 2015
EXHIBIT 31.1
Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of
2002
I, Dennis S. Hudson, III, certify that:
| 1. | I have reviewed this annual report on Form 10-K of Seacoast Banking Corporation of Florida; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting. |
| Date: March 16, 2015 |
/s/ Dennis S. Hudson , III |
| |
Dennis S. Hudson, III |
| |
Chairman & Chief Executive Officer |
EXHIBIT 31.2
Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of
2002
I, William R. Hahl, certify that:
| 1. | I have reviewed this annual report on Form 10-K of Seacoast Banking Corporation of Florida; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting. |
| Date: March 16, 2015 |
/s/ William R. Hahl |
| |
William R. Hahl |
| |
Executive Vice President and Chief Financial Officer
(Principal Financial Officer) |
EXHIBIT 32.1
STATEMENT OF CHIEF EXECUTIVE OFFICER OF
SEACOAST BANKING CORPORATION OF FLORIDA
PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the
Annual Report on Form 10-K of Seacoast Banking Corporation of Florida (“Company”) for the period ended December 31,
2014 (“Report”), I, Dennis S. Hudson, III , Chairman and Chief Executive Officer of the Company, do hereby certify,
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of The Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company. |
| /s/ Dennis S. Hudson, III |
|
| Dennis S. Hudson, III |
|
| Chairman and Chief Executive Officer |
|
| |
|
| Date: March 16, 2015 |
|
A signed original of
this written statement required by § 906 of The Sarbanes-Oxley Act of 2002, or other document authenticating, acknowledging,
or otherwise adopting the signature that appears in typed version of this written statement required by § 906 of The Sarbanes-Oxley
Act of 2002, has been provided form within the electronic to Seacoast Banking Corporation of Florida and will be retained by Seacoast
Banking Corporation of Florida and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
STATEMENT OF CHIEF FINANCIAL OFFICER OF
SEACOAST BANKING CORPORATION OF FLORIDA
PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the
Annual Report on Form 10-K of Seacoast Banking Corporation of Florida (“Company”) for the period ended December 31,
2014 (“Report”), I, William R. Hahl, Executive Vice President and Chief Financial Officer of the Company, do hereby
certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of The Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company. |
| /s/ William R. Hahl |
|
| William R. Hahl |
|
| Executive Vice President and Chief Financial Officer |
|
| |
|
| Date: March 16, 2015 |
|
A signed original of
this written statement required by § 906 of The Sarbanes-Oxley Act of 2002, or other document authenticating, acknowledging,
or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required
by § 906 of The Sarbanes-Oxley Act of 2002, has been provided to Seacoast Banking Corporation of Florida and will be retained
by Seacoast Banking Corporation of Florida and furnished to the Securities and Exchange Commission or its staff upon request.
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