UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-K

xýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2016

2018

¨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 ClassName of Each Exchange on Which Registered
  
Common Stock, Par Value $0.10Nasdaq 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.

YESý Yes            ¨ NONox

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

¨ NOYes           xý

No

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.

YESxý NOYes            ¨

No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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).

YESxý NOYes            ¨

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.¨ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filerAccelerated Filer x
Accelerated Filer ¨
 
Accelerated filerNon-Accelerated Filer x¨
Smaller Reporting Company ¨
Non-accelerated filer¨Smaller reporting company¨
(Do not check if a smaller reporting company)  
Emerging Growth Company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).

YES¨ NOYes  xý

No


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, 2016,2018, as reported on the Nasdaq Global Select Market, was $598,698,205.$1,489,410,982. The number of shares outstanding of Seacoast Banking Corporation of Florida common stock, par value $0.10 per share, as of February 28, 2017,January 31, 2019, was 40,734,382.

51,319,414.




TABLE OF CONTENTS
Part I
5
Item 1.
Business
5
Item 1A.
Risk Factors
14
Item 1B.
Unresolved Staff Comments
26
Item 2.
Properties
26
Item 3.
Legal Proceedings
26
Item 4.
Mine Safety Disclosures
26
Part II
26
Item 5.
Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
26
Item 6.
Selected Financial Data
27
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
27
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
27
Item 8.
Financial Statements and Supplementary Data
27
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
27
Item 9A.
Controls and Procedures
27
Item 9B.
Other Information
28
Part III
28
Item 10.
Directors, Executive Officers and Corporate Governance
28
Item 11.
Executive Compensation
28
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
29
Item 13.
Certain Relationships and Related Transactions, and Director Independence
29
Item 14.
Principal Accountant Fees and Services
29
Part IV
29
Item 15.
Exhibits, Financial Statement Schedules
29
Item 16.
Form 10-K Summary
33


DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrant’s 20172019 Proxy Statement for the Annual Meeting of Shareholders to be held May 25, 2017 (the “2017“2019 Proxy Statement”) are incorporated by reference into Part III, Items 10 through 14 of this report. Other than those portions of the 20172019 Proxy Statement specifically incorporated by reference herein pursuant to Items 10 through 14, no other portions of the 20172019 Proxy Statement shall be deemed so incorporated.

TABLE OF CONTENTS

Part I
Item 1.Business6
Item 1A.Risk Factors26
Item 1B.Unresolved Staff Comments40
Item 2.Properties40
Item 3.Legal Proceedings45
Item 4.Mine Safety Disclosures45
Part II
Item 5.Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities45
Item 6.Selected Financial Data47
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations47
Item 7A.Quantitative and Qualitative Disclosures About Market Risk47
Item 8.Financial Statements and Supplementary Data47
Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure47
Item 9A.Controls and Procedures47
Item 9B.Other Information48
Part III
Item 10.Directors, Executive Officers and Corporate Governance48
Item 11.Executive Compensation48
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters49
Item 13.Certain Relationships and Related Transactions, and Director Independence50
Item 14.Principal Accountant Fees and Services50
Part IV
Item 15.Exhibits, Financial Statement Schedules50

SPECIAL CAUTIONARY NOTICE

REGARDING FORWARD-LOOKING STATEMENTS

Certain statements made or incorporated by reference herein which are not statements of historical fact, including those under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein, are “forward-looking statements” within the meaning and protections of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause the actual results, performance or achievements of Seacoast Banking Corporation of Florida (“Seacoast” or the “Company”) or its wholly-owned banking subsidiary, Seacoast National Bank ("Seacoast Bank") 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;

·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;

·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;

·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;

the effects of current and future economic, business and market conditions in the United States generally or in the communities we serve;

·our ability to comply with any requirements imposed on us or on our banking subsidiary, Seacoast National Bank (“Seacoast Bank”) by regulators and the potential negative consequences that may result;

·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 Bank’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;

·increased cybersecurity risks, including potential business disruptions or financial losses; inability of our risk management framework to manage risks associated with our business such as credit risk and operational risk, including third party vendors and other service providers;

·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

changes in governmental monetary and fiscal policies, including interest rate policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve”);

·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.

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 may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board (the “FASB”), the Securities and Exchange Commission (the “Commission” or “SEC”), and the Public Company Accounting Oversight Board (the “PCAOB”);

the risks of changes in interest rates on the levels, composition and costs of deposits, including the risk of losing customer checking and savings account deposits as customers pursue other, high-yield investments, which could increase our funding costs;

the risks of changes in interest rates on loan demand, and the values and liquidity of loan collateral, debt securities, and interest sensitive assets and liabilities;

changes in borrower credit risks and payment behaviors;

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 our banking subsidiary, Seacoast Bank by regulators and the potential negative consequences that may result;



the effects of problems encountered by other financial institutions that adversely affect us or the banking industry generally could require us to change certain business practices, reduce our revenue, impose additional costs on us, or otherwise negatively affect our businesses;

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 traditional and non-traditional 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 Bank’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;

our ability to continue to identify acquisition targets and successfully acquire desirable financial institutions to sustain our growth, to expand our presence in our markets and to enter new markets;

changes in technology or products that may be more difficult, costly, or less effective than anticipated;

our ability to identify and address increased cybersecurity risks, including data security breaches, malware, "denial of service" attacks, "hacking", and identity theft, a failure of which could result in potential business disruptions or financial losses;

inability of our risk management framework to manage risks associated with our business such as credit risk and operational risk, including third party vendors and other service providers;

dependence on key suppliers or vendors to obtain equipment or services for our business on acceptable terms;

reduction in or the termination of our ability to use the mobile-based platform that is critical to our business growth strategy, including a failure in or breach of our operational or security systems or those of its third party service providers;

the effects of war or other conflicts, acts of terrorism, natural disasters or other catastrophic events that may affect general economic conditions;

unexpected outcomes of, and the costs associated with, existing or new litigation involving us;

our ability to maintain adequate internal controls over financial reporting;

potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings and enforcement actions;

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 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

Item 1.Business

General

We are

Seacoast Banking Corporation of Florida (“Seacoast” or the “Company”) is a bankfinancial 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 Bank”). Seacoast Bank 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“Seacoast National Bank” .

Bank.”

As aof December 31, 2018, the Company’s legal structure includes one domestic subsidiary bank, holding company, we are a legal entity separateSeacoast Bank, which has four wholly owned subsidiaries and distinct from our subsidiaries, includingseven trusts formed for the purpose of issuing trust preferred securities. Seacoast Bank. We coordinatecoordinates the financial resources of the consolidated enterprise and maintainmaintains 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 Bank through dividends and fees for services performed.


As of December 31, 2016, we2018, Seacoast had total consolidated assets of approximately $4.681$6.7 billion, total deposits of approximately $3.523$5.2 billion, total consolidated liabilities, including deposits, of approximately $4.246$5.9 billion and consolidated shareholders’ equity of approximately $435$864.3 million. Our operations are discussed in more detail under “Item 7. “Management’sManagement’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 Bank had 47 traditional banking offices in 14 counties in Florida at year-end 2016. We have 16 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. I

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, and in July 2015, we acquired 3 branches in Palm Beach County (closing one branch in close proximity to an existing Seacoast branch) through our acquisition of Grand Bankshares, Inc., a Florida corporation (“Grand Bankshares”), and its subsidiary bank, Grand Bank (“Grand”). More recently, in March 2016, we acquired 10 offices in Central Florida through our acquisition of Floridian Financial Group, Inc., a Florida Corporation (“Floridian”), and its subsidiary bank, Floridian Bank, a Florida-chartered commercial bank, and in June 2016, we acquired 14 branches as part of an asset purchase of BMO Harris’s Orlando Operations (“BMO”). During the second, third and fourth quarters of 2016, we closed 20 branches that were in close proximity to existing Seacoast branches. In 20 months we transformed from virtually no presence in Orlando to top 10 player and the largest Florida bank in that market. Upcoming in April 2017 will be our closing of the GulfShores acquisition in Tampa, Florida, adding 3 branches and enhancing our team presence already in this vibrant Florida market.

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. Seacoast Bank has also 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.


Seacoast Bank “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 Bank’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 deposit checks 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 Bank 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. Our customers are increasingly choosing more convenient channels to manage routine transactions. At this point, we expect we will process more routine transactions through lower cost channels than in our branch network by July of 2017. Seacoast Bank also provides brokerage and annuity services. Seacoast Bank personnel involved with the sale of these services are dual employees with Invest Financial Corporation, the company through which Seacoast Bank presently conducts its brokerage and annuity services.

Seacoast Bank has five, 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 Bank;

·TCoast Holdings, LLC and TC Property Ventures, LLC, each of which was formed to own and operate certain properties acquired through foreclosure;

·

Syracuse Holdings, Inc., established in Delaware in 2016, to maintain an investment portfolio of high quality investment securities consistent with safe and sound banking practices, and to provide earnings, liquidity, manage tax liabilities, and meet pledging requirements. 

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 2016.

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;

·The BANKshares Capital Trust I, formed on December 15, 2005, for the purpose of issuing $5.2 million in trust preferred securities; and

·Grand Bankshares Capital Trust I, formed on October 29, 2004, also for the purpose of issuing $7.2 million in trust preferred securities.

Seacoast Bank dissolved three, wholly-owned subsidiaries during 2016:

·BR West, LLC, formed to own and operate certain properties acquired through foreclosure, held no remaining properties and was dissolved in the state of Florida on September 15, 2016;

·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 was dissolved in the state of Florida on December 14, 2016, with its operations incorporated into Seacoast Bank as part of our Seacoast Business Funding division; and

·BankFIRST Realty, Inc., acquired in the BANKshares acquisition, which owned and operated certain properties acquired through foreclosure, held no remaining foreclosed properties and was dissolved in the state of Florida on December 31, 2016.

We have operated an office of Seacoast Marine Finance Division, a division of Seacoast Bank, 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 Bank continues to have representation in California and Washington. Seacoast Marine Finance Division is staffed with experienced marine lending professionals with a marketing emphasis on marine loans of $200,000 and greater, with a significant portion of loan production sold to correspondent banks on a non-recourse basis.

During May 2015, Seacoast Bank acquired a receivables factoring location in Boynton Beach, Florida, and operates this office as Seacoast Business Funding, a division of Seacoast Bank. 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 Bank maintain Internet websites atwww.seacoastbanking.com, and www.seacoastbank.com, andwww.seacoastnational.com, respectively. We are not incorporating the information on our or Seacoast Bank’s website into this report, and noneneither 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.

Expansion of Market, Products and Services
Seacoast has grown to be one of the largest community banks headquartered in Florida. This growth has been achieved through a balanced strategy consisting of organic growth and acquisitions focused on the state's most attractive MSAs. Seacoast provides integrated financial services including commercial and retail banking, wealth management, treasury management and home mortgage products through the Company's network of 51 traditional branches of its wholly-owned subsidiary bank, Seacoast Bank, and seven commercial banking centers. Offices stretch from Ft. Lauderdale, Boca Raton and West Palm Beach north through the Daytona Beach area, into Orlando and Central Florida and the adjacent Tampa market, and west to Okeechobee and surrounding counties. Seacoast customers can also access their account information and perform transactions online, through mobile applications, or through our telephone customer support center, which offers extended hours. These options combined with our traditional branch footprint allows us to meet a broad range of customer needs.

During 2018, the Company continued to make enhancements to its customer analytics platforms which equip our bankers with the tools to analyze our customers needs, resulting in an enhanced customer experience and improved banker efficiency. The


Company has also made investments in its new loan origination platforms which streamline the underwriting and approval process. Seacoast has continued to expand its digital offerings to customers designed to improve the customer experience and lower the cost to serve. As more customers adopt these channels, transactions have shifted from the traditional branch network to digital banking. This combination allows Seacoast to serve the ever changing needs of its customer base. Seacoast Bank also provides brokerage and annuity services. Seacoast Bank personnel managing the sale of these services are dual employees with LPL Financial, the company through which Seacoast Bank presently conducts its brokerage and annuity services. In 2018, the Company established Seacoast Insurance Services, Inc., providing our customers with access to a range of insurance products.

In the fourth quarter, Seacoast completed the acquisition of First Green Bancorp, Inc. headquartered in central Florida. This acquisition enhanced Seacoast's presence in the Orlando and Fort Lauderdale MSAs, two of the strongest and fastest growing economies in Florida.

Employees

As of December 31, 2016, we2018, the Company and ourits subsidiaries employed 725902 full-time equivalent employees. We consider ourThe Company considers its employee relations to be good,favorable, 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 to expand organically in our markets. We also, from time to time, have acquired banks, bank branches and deposits, and have opened new branches and commercial lending offices.

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 Bank in October 2014.

In July 2015, we acquired Grand, a commercial bank headquartered in West Palm Beach, Florida, with three offices in Palm Beach County. Grand was merged into Seacoast Bank in July 2015.

In March 2016, we acquired Floridian headquartered in Central Florida, with ten offices in four counties in Central Florida. Floridian was merged into Seacoast Bank in March 2016.

In June 2016, Seacoast Bank acquired the Orlando Banking operations of BMO Harris including their fourteen branch locations in that market.

More recently, on November 3, 2016, we and Seacoast Bank entered into an Agreement and Plan of Merger that provides for the acquisition of GulfShore Bancshares, Inc. (“GulfShore”), a Florida corporation, and GulfShore’s wholly owned subsidiary, GulfShore Bank, located in Tampa, Florida, with three offices. This acquisition will add approximately $328 million in assets, $276 in deposits, and $262 in gross loans. This transaction is anticipated to close on April 7, 2017.

Florida law permits statewide branching, and Seacoast Bank has expanded, and may consider 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 58 new offices in 14 counties of Florida. With technology improvements and changes to our customers’ banking preferences, we have also rationalized our branch footprint by closing and consolidating certain branches. Since 2007, we have closed 39 offices in seven counties of Florida, with 20 offices consolidated during 2016, three offices consolidated during 2015, and five offices consolidated in December 2014. The Seacoast Marine Finance Division operates a loan production office in Ft. Lauderdale, Florida, and has representation in California and Washington. 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 may be additional opportunities for us to acquire and consolidate other financial institutions in the State of Florida.

9 


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. 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

Seacoast operates in thea highly competitive markets of Martin, St. Lucie, Indian River, Brevard,market. Its competitors include other banks, credit unions, mortgage companies, personal and commercial financing companies, investment brokerage and advisory firms, mutual fund companies and insurance companies. These competitors range in both size and geographic footprint. Seacoast operates primarily in Florida from Ft. Lauderdale, Boca Raton and West Palm Beach north through the Daytona Beach area, into Orlando and Broward Counties in southeasternCentral Florida and in the Orlando metropolitan statistical area in Orange, Seminoleadjacent Tampa market, and Lake County, as well as Volusia County. We also operate in three competitive counties in central Florida near Lake Okeechobee.west to Okeechobee and surrounding counties. Seacoast BankBank's competition includes 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 Bank also competes for interest-bearing funds with a number of other financial intermediaries, including brokerage and insurance firms, as well as 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 continue to change the nature and intensity of competition that we face, but can also createcreates opportunities for us to demonstrate and exploitleverage 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.online. 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.we are subject to. 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.we do. To offset these potential competitive disadvantages, we depend on our reputation as an independent, “super” community bank headquartered locally, our personalfor superior service, our greater community involvement and our ability to make credit and other business decisions quickly, and locally.

the delivery of an integrated distribution of traditional branches and bankers, with digital technology.

Supervision and Regulation

Bank holding companies and banks

We are extensively regulated under federal and state law. The following is a brief summary that does not purport to be a complete description of all regulations that affect us or all aspects of those regulations. This discussion is qualified in its entirety by reference to the particular statutory and regulatory provisions described below and is not intended to be an exhaustive description


of the statutes or regulations applicable to usthe Company’s and Seacoast Bank’s business. AsIn addition, proposals to change the laws and regulations governing the banking industry are frequently raised at both the state and federal levels. The likelihood and timing of any changes in these laws and regulations, and the impact such changes may have on us and Seacoast Bank, are difficult to predict. In addition, bank regulatory agencies may issue enforcement actions, policy statements, interpretive letters and similar written guidance applicable to us or Seacoast Bank. Changes in applicable laws, regulations or regulatory guidance, or their interpretation by regulatory agencies or courts may have a material adverse effect on our and Seacoast Bank’s business, operations, and earnings. Supervision and regulation of banks, their holding companies and affiliates is intended primarily for the protection of depositors and customers, the Deposit Insurance Fund (“DIF”) of the Federal Deposit Insurance Corporation (“FDIC”), and the U.S. banking and financial system rather than holders of our capital stock.

Regulation of the Company

We are registered as a bank holding company with the Federal Reserve under federal law,the Bank Holding Company Act of 1956, as amended (the “BHC Act”) and have elected to be a financial holding company. As such, we are subject to regulation,comprehensive supervision and examinationregulation by the Board of Governors of the Federal Reserve System (“and are subject to its regulatory reporting requirements. Federal Reserve”). law subjects financial holding companies, such as the Company, to particular restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and regulations. Violations of laws and regulations, or other unsafe and unsound practices, may result in regulatory 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.

Activity Limitations: As a nationalfinancial holding company, we are permitted to engage directly or indirectly in a broader range of activities than those permitted for a bank holding company. Bank holding companies are generally restricted to engaging in the business of banking, managing or controlling banks and certain other activities determined by the Federal Reserve to be closely related to banking. Financial holding companies may also engage in activities that are considered to be financial in nature, as well as those incidental or complementary to financial activities. We and Seacoast Bank must each remain “well-capitalized” and “well-managed” and Seacoast Bank must receive a Community Reinvestment Act (“CRA”) rating of at least “Satisfactory” at its most recent examination in order for us to maintain our primarystatus as a financial holding company. In addition, the Federal Reserve has the power to order a financial holding company or its subsidiaries to terminate any nonbanking activity or terminate its ownership or control of any nonbank subsidiary, when it has reasonable cause to believe that continuation of such activity or such ownership or control constitutes a serious risk to the financial safety, soundness, or stability of any bank subsidiary of that financial holding company. As further described below, each of the Company and Seacoast Bank is subjectwell-capitalized as of December 31, 2018, and Seacoast Bank has a rating of “Outstanding” in its most recent CRA evaluation.

Source of Strength Obligations: A financial holding company is required to regulation, supervisionact as a source of financial and examination bymanagerial strength to its subsidiary bank and to maintain resources adequate to support its bank. The term “source of financial strength” means the ability of a company, such as us, that directly or indirectly owns or controls an insured depository institution, such as Seacoast Bank, to provide financial assistance to such insured depository institution in the event of financial distress. The appropriate federal banking agency for the depository institution (in the case of Seacoast Bank, this agency is the Office of the Comptroller of the Currency (“OCC”(the “OCC”). In addition,) may require reports from us to assess our ability to serve as discusseda source of strength and to enforce compliance with the source of strength requirements and require us to provide financial assistance to Seacoast Bank in more detail below, Seacoast Bankthe event of financial distress.

Acquisitions: The BHC Act permits acquisitions of banks by bank holding companies, such that we and any other of our subsidiaries that offer consumer financial products could bebank holding company, whether located in Florida or elsewhere, may acquire a bank located in any other state, subject to regulation, supervision,certain deposit-percentages, age of bank charter requirements, and examinationother restrictions. The BHC Act requires that a bank holding company obtain the prior approval of the Federal Reserve before (i) acquiring direct or indirect ownership or control of more than 5% of the voting shares of any additional bank or bank holding company, (ii) taking any action that causes an additional bank or bank holding company to become a subsidiary of the bank holding company, or (iii) merging or consolidating with any other bank holding company. The Federal Reserve may not approve any such transaction that would result in a monopoly or would be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize the business of banking in any section of the United States, or the effect of which may be substantially to lessen competition or to tend to create a monopoly in any section of the country, or that in any other manner would be in restraint of trade, unless the anticompetitive effects of the proposed transaction are clearly outweighed by the Consumer Financial Protection Bureau (“CFPB”). Supervision, regulation,public interest in meeting the convenience and examinationneeds of us,the community to be served. The Federal Reserve is also required to consider: (1) the financial and managerial resources of the companies involved, including pro forma capital ratios; (2) the risk to the stability of the United States banking or financial system; (3) the convenience and needs of the communities to be served, including performance under the CRA; and (4) the effectiveness of the companies in combating money laundering.



Change in Control: Federal law restricts the amount of voting stock of a bank holding company or a bank that a person may acquire without the prior approval of banking regulators. Under the federal Change in Bank Control Act and the regulations thereunder, a person or group must give advance notice to the Federal Reserve before acquiring control of any bank holding company, such as the Company, and the OCC before acquiring control of any national bank, such as Seacoast Bank and our respective subsidiaries byBank. Upon receipt of such notice, the bank regulatory agencies may approve or disapprove the acquisition. The Change in Bank Control Act creates a rebuttable presumption of control if a member or group acquires a certain percentage or more of a bank holding company’s or bank’s voting stock, or if one or more other control factors 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. Any change in laws, regulations,present. As a result, a person or supervisory actions, whether by the OCC,entity generally must provide prior notice to the Federal Reserve before acquiring the FDIC,power to vote 10% or more of our outstanding common stock. The overall effect of such laws is to make it more difficult to acquire a bank holding company and a bank by tender offer or similar means than it might be to acquire control of another type of corporation. Consequently, shareholders of the CFPB,Company may be less likely to benefit from the rapid increases in stock prices that may result from tender offers or Congress, could have a material adverse impact on us and Seacoast Bank.

similar efforts to acquire control of other companies. Investors should be aware of these requirements when acquiring shares of our stock.

Governance and Financial Reporting Obligations: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,Securities and Exchange Commission (the “SEC”), the Public Company Accounting Oversight Board (the “PCAOB”), and Nasdaq.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 valuesvalue of our securities. The assessments of our financial reporting controls as of December 31, 20162018 are included in this report under “Section“Item 9A. Controls and Procedures.”

Regulatory Developments


Corporate Governance: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. Provisions of the Dodd-Frank Act that have affected or are likely to affect our operations or the operations of Seacoast Bank 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 to engage in proprietary trading for its own account and have certain interests in, or relationships with, certain unregistered hedge funds, private equity funds and commodity pools (together, “covered funds”(the “Dodd-Frank Act”).

·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.

·Repealed the prohibition of the payment of interest on demand deposits.


·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 and information provided in subsequent sections 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’s 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 may participate in examinations of Seacoast Bank, 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.

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 ActAct: (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 clawbackclaw-back policies for executive officers.


Incentive Compensation.Compensation: The Dodd-Frank Act requires the banking agencies and the SEC to establish joint rules or guidelines for financial institutions with more than $1 billion in assets, such as us and Seacoast Bank, which prohibit incentive compensation arrangements that the agencies determine to encourage inappropriate risks by the institution. The banking agencies issued proposed rules in 2011 and previously issued guidance on sound incentive compensation policies. In 2016, the Federal Reserve and the OCC have also proposed rules that would, depending upon the assets of the institution, directly regulate incentive compensation arrangements and would require enhanced oversight and recordkeeping. As of December 31, 2016,2018, these rules have not been implemented. We and Seacoast Bank have undertaken efforts to ensure that our incentive compensation plans do not encourage inappropriate risks, consistent with three key principles—principles: that incentive compensation arrangements should appropriately balance risk and financial rewards, be compatible with effective controls and risk management, and be supported by strong corporate governance.


Shareholder Say-On-Pay Votes.Votes:The Dodd-Frank Act requires public companies to take shareholders' votesprovide shareholders with an advisory vote on proposals addressingexecutive compensation (known as say-on-pay)say-on-pay votes), 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 compensationsay-on-pay proposals at least every three years and the opportunity to vote on the frequency of say-on-pay votes 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 advisory and explicitly nonbinding and cannot override a decision of our board of directors.

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


Other Regulatory Matters: We 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,” allare subject to certain exceptions. The Volcker Rule also specifies certain limited activities in which weoversight by the SEC, the Financial Industry Regulatory Authority, (“FINRA”), the PCAOB, NASDAQ and various state securities regulators. We and our subsidiaries may continuehave from time to engage,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.

Capital Requirements

The Company and Seacoast Bank are required usunder federal law to implement a compliance program.maintain certain minimum capital levels based on ratios of capital to total assets and capital to risk-weighted assets. The regulators provided for a Volcker Rule conformance date of July 21, 2015. The Federal Reserve extended the conformance deadline to July 21, 2016 for certain legacy “covered funds” activities and investments in place before December 31, 2013,required capital ratios are minimums, and the Federal Reserve expressed


and OCC may determine that a banking organization, based on its intentionsize, complexity or risk profile, must maintain a higher level of capital in order to grantoperate in a safe and sound manner. Risks such as concentration of credit risks and the last available statutory extension for such covered fundsrisk arising from non-traditional activities, until July 21, 2017. Further,as well as the Federal Reserve Board permits limited exemptions, upon application, for divestiture of certain “illiquid” covered funds, for an additional period of upinstitution’s exposure to 5 years beyond that date.

While most of the requirements called fora decline in the Dodd-Frank Act have been implemented, others will continueeconomic value of its capital due to changes in interest rates, and an institution’s ability to manage those risks are important factors that are to be implemented over time. Given the extent of the changes brought abouttaken into account 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.

Basel III

We were required to comply with higher minimum capital requirements as of January 1, 2015. These new rules (“Revised Capital Rules”) implement the Dodd-Frank Act and a separate international regulatory regime known as “Basel III” (which is discussed below). Prior to January 1, 2015, we and Seacoast Bank were subject to risk-based capital guidelines issued by the Federal Reserve and the OCC for bank holding companies and national banks, respectively. The risk-based capital guidelines that applied to us and Seacoast Bank through December 31, 2014, were 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 onin assessing an interagency basis.


institution’s overall capital adequacy. The following is a brief description of the relevant provisions of the Revised Capital Rulesthese capital rules and their potential impact on our capital levels. Among other things,


The Company and Seacoast Bank are subject to the Revised Capital Rules (i) introducefollowing risk-based capital ratios: a new capital measure called “Common Equity Tier 1” (“CET1”), (ii) specify thatcommon equity Tier 1 Capital consist of("CET1") risk-based capital ratio, a Tier 1 risk-based capital ratio, which includes CET1 and “Additionaladditional Tier 1 Capital”capital, and a total capital ratio, which includes Tier 1 and Tier 2 capital. CET1 is primarily comprised of the sum of common stock instruments meetingand related surplus net of treasury stock, retained earnings, and certain requirements, (iii)qualifying minority interests, less certain adjustments and deductions, including with respect to goodwill, intangible assets, mortgage servicing assets and deferred tax assets subject to temporary timing differences. Additional Tier 1 capital is primarily comprised of noncumulative perpetual preferred stock, tier 1 minority interests and grandfathered trust preferred securities. Tier 2 capital consists of instruments disqualified from Tier 1 capital, including qualifying subordinated debt, other preferred stock and certain hybrid capital instruments, and a limited amount of loan loss reserves up to a maximum of 1.25% of risk-weighted assets, subject to certain eligibility criteria. The capital rules also define CET1 narrowly by requiring that most deductions/adjustmentsthe risk-weights assigned to regulatory capital measures be madeassets and off-balance sheet items to CET1 and note todetermine the otherrisk-weighted asset components of the risk-based capital rules, including, for example, “high volatility” commercial real estate, past due assets, structured securities and (iv) expand the scope of the deductions/adjustments fromequity holdings.

The leverage capital ratio, which serves as compared to existing regulation that apply to us and other banking organizations.

New Minimum Capital Requirements. The Revised Capital Rules required the following initiala minimum capital ratios asstandard, is the ratio of JanuaryTier 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.
·4.0% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (known as the "leverage ratio").

Capital Conservation Buffer.capital to quarterly average assets net of goodwill, certain other intangible assets, and certain required deduction items. The Revised Capital Rules also introducerequired minimum leverage ratio for all banks and bank holding companies is 4%.


In addition, the capital rules require a new “capitalcapital conservation buffer” composed entirely of CET1, on topup to 2.5% above each of the minimum risk-weighted asset ratios,capital ratio requirements (CET1, Tier 1, and total risk-based capital), 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 conservationThese 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 Bank 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%requirements must be met 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). At December 31, 2016, the requisite capital conservation buffer Seacoast is subject to was 0.625%.

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 that arise from operating loss and tax credit carryforwards, net of associated deferred tax liabilities 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).

Under the Revised Capital Rules, the effects of certain accumulated other comprehensive items (except gains and losses on cash flow hedges where the hedged item is not recognized on a banking organization’s balance sheet at fair value) are not excluded; however, certain banking organizations, including us and Seacoast Bank, may make a one-time permanent election to continue to exclude these items. 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.


Management believes, at December 31, 2016, that we and Seacoast Bank meet all capital adequacy requirements under the Revised Capital Rules on a fully phased-in basis if such requirements were currently effective. 

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,to be able to pay dividends, engage in share buybacks or acquire an interestmake discretionary bonus payments to executive management without restriction. This capital conservation buffer is being phased in, a company that engages in activities which the Federal Reserve has determined by regulation or orderand was 1.875% as of January 1, 2018 and is 2.5% effective January 1, 2019.


Failure to be so closely relatedwell-capitalized or to bankingmeet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have an adverse material effect on our operations or managing or controlling banks asfinancial condition. For example, only a well-capitalized depository institution may accept brokered deposits without prior regulatory approval. Failure to be a proper incident thereto.

Under BHC Act, bank holding companies that are, and whose depository institution subsidiaries are “well-capitalized” and “well-managed”, as definedwell-capitalized or to meet minimum capital requirements could also result in Federal Reserve Regulation Y, which have and maintain “satisfactory” ratings underrestrictions on the Community Reinvestment ActCompany’s or Seacoast Bank’s ability to pay dividends or otherwise distribute capital or to receive regulatory approval of 1977, as amended (the “CRA”), and meet certainapplications or 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. While we have not become a financial holding company, we may elect to do so in the future in order to exercise these broader activity powers. Banks may also engage in similar “financial activities” through subsidiaries.

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, subject to certain requirements.

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 protectrestrictions on 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. 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.

FDICIA and Prompt Corrective Action

growth.


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. 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, 2016, the consolidated capital ratios of Seacoast and Seacoast Bank were as follows:

  Seacoast  Seacoast  Minimum to be 
  (Consolidated)  Bank  Well-Capitalized* 
Common equity Tier 1 ratio (CET1)  10.79%  12.03%  6.5%
Tier 1 capital ratio  12.53%  12.03%  8.0%
Total risk-based capital ratio  13.25%  12.75%  10.0%
Leverage ratio  9.15%  8.78%  5.0%

 * For subsidiary bank only

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. UndercapitalizedAll of the federal bank regulatory agencies have adopted regulations establishing relevant capital measures and relevant capital levels for federally insured depository institutionsinstitutions.


To be well-capitalized, Seacoast Bank must maintain at least the following capital ratios:

6.5% CET1 to risk-weighted assets;
8.0% Tier 1 capital to risk-weighted assets;
10.0% Total capital to risk-weighted assets; and
5.0% leverage ratio.

The Federal Reserve has not yet revised the well-capitalized standard for bank holding companies to reflect the higher capital requirements imposed under the current capital rules. For purposes of the Federal Reserve’s Regulation Y, including determining whether a bank holding company meets the requirements to be a financial holding company, bank holding companies, such as the Company, must maintain a Tier 1 risk-based capital ratio of 6.0% or greater and a total risk-based capital ratio of 10.0% or greater


to be well-capitalized. If the Federal Reserve were to apply the same or a similar well-capitalized standard to bank holding companies as that applicable to Seacoast Bank, the Company’s capital ratios as of December 31, 2018 would exceed such revised well-capitalized standard. Also, the Federal Reserve may require bank holding companies, including the Company, to maintain capital ratios substantially in excess of mandated minimum levels, depending upon general economic conditions and a bank holding company’s particular condition, risk profile and growth plans.

The Company’s and Seacoast Bank’s regulatory capital ratios were above the well-capitalized standards and met the then-applicable capital conservation buffer as of December 31, 2018. Based on current estimates, we believe that the Company and Seacoast Bank will continue to exceed all applicable well-capitalized regulatory capital requirements and the capital conservation buffer.  As of December 31, 2018, the consolidated capital ratios of Seacoast and Seacoast Bank were as follows:

 
Seacoast
(Consolidated)
 
Seacoast
Bank
 
Minimum to be
Well-Capitalized(1)
Total Risk-Based Capital Ratio14.43% 13.60% 10.0%
Tier 1 Capital Ratio13.80% 12.97% 8.0%
Common Equity Tier 1 Capital Ratio (CET1)12.43% 12.97% 6.5%
Leverage Ratio11.16% 10.49% 5.0%
(1)For subsidiary bank only
 
  
  
On November 21, 2018, the federal banking agencies jointly issued a proposed rule to simplify the regulatory capital requirements for eligible banks and holding companies with less than $10 billion in consolidated assets that opt into the Community Bank Leverage Ratio (“CBLR”) framework, as required by Section 201 of the Economic Growth, Relief and Consumer Protection Act (the “Regulatory Relief Act”). The Regulatory Relief Act mandates that the banking agencies develop a CBLR of not less than 8% and not more than 10% for qualifying community banking organizations. A qualifying community banking organization that exceeds the CBLR threshold would be exempt from the agencies’ current capital framework, including the risk-based capital requirements and capital conservation buffer described above, and would be deemed well-capitalized under the agencies’ prompt corrective action regulations. The Regulatory Relief Act defines a “qualifying community banking organization” as a depository institution or depository institution holding company with total consolidated assets of less than $10 billion. Under the proposed rule, if a qualifying community banking organization elects to use the CBLR framework, it will be considered “well-capitalized” so long as its CBLR is greater than 9%. The agencies are subjectexpected to growth limitationsissue a final rule in the first quarter of 2019. The Company is currently evaluating the impact of this proposed rule.

On December 21, 2018, federal banking agencies issued a joint final rule to revise their regulatory capital rules to (i) address the upcoming implementation of the “current expected credit losses” (“CECL”) accounting standard under GAAP; (ii) provide an optional three-year phase-in period for the day-one adverse regulatory capital effects that banking organizations are expected to experience upon adopting CECL; and (iii) require the use of CECL in stress tests beginning with the 2020 capital planning and stress testing cycle for certain banking organizations. In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-13, which introduced CECL as the methodology to replace the current “incurred loss” methodology for financial assets measured at amortized cost, and changed the approaches for recognizing and recording credit losses on available-for-sale debt securities and purchased credit impaired financial assets. Under the incurred loss methodology, credit losses are recognized only when the losses are probable or have been incurred; under CECL, companies are required to submit a capital restoration planrecognize the full amount of expected credit losses for approval within 90 daysthe lifetime of becoming undercapitalized. For a capital restoration plan to be acceptable, the depository institution’s parent holding company must guaranteefinancial assets, based on historical experience, current conditions and reasonable and supportable forecasts. This change will result in earlier recognition of credit losses that the institution will complyCompany deems expected but not yet probable. For SEC reporting companies 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 Bank exceed applicable capital requirements, the respective managements of our company and Seacoast Bank do not believe that the provisions of FDICIA have had any material effect on our company and Seacoast Bank or our respective operations.

FDICIA also contains a variety of other provisions that may affect the operations of our company and Seacoast Bank, 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 Bank was well capitalized at December 31 2016, and brokered deposits are not restricted.

fiscal-year ends, such as the Company, CECL will become effective beginning with the first quarter of 2020.


Payment of Dividends

We are


The Company is a legal entity separate and distinct from Seacoast Bank and our other subsidiaries. Our primary source of cash, other than securities offerings, is dividends from Seacoast Bank. The prior approval of the OCC is required if the total of all dividends declared by a national bank (such as Seacoast Bank) 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, wethe Company and Seacoast Bank are subject to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The appropriate


federal bank regulatory authority may prohibit the payment of dividends where it has determined that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof.practice. 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.

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 Bank recorded net income in 2014, 20152018, 2017, and 2016, 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 Bank is eligible to distribute dividends up to $61.0$134.5 million to us,the Holding Company, without prior OCC approval, as of December 31, 2016.

2018.

No dividends on our common stock were declared or paid in 2014, 2015 or2018, 2017, and 2016.

Enforcement Policies


Regulation of the Bank

As a national bank, our primary bank subsidiary, Seacoast Bank, is subject to comprehensive supervision and Actions

regulation by the OCC and is subject to its regulatory reporting requirements. The deposits of Seacoast Bank are insured by the FDIC and, accordingly, the bank is also subject to certain FDIC regulations and the FDIC has backup examination authority and certain enforcement powers over Seacoast Bank.  Seacoast Bank also is subject to certain Federal Reserve regulations.  


In addition, as discussed in more detail below, Seacoast Bank and any other of our subsidiaries that offer consumer financial products and services are subject to regulation and potential supervision by the Consumer Financial Protection Bureau (“CFPB”). Authority to supervise and examine the Company and Seacoast Bank for compliance with federal consumer laws remains largely with the Federal Reserve and the OCC, monitor compliance with lawsrespectively. However, the CFPB may participate in examinations on a “sampling basis” and regulations. Violationsmay refer potential enforcement actions against such institutions to their primary regulators. The CFPB also may participate in examinations of 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 or other unsafethat are stricter than those regulations promulgated by the CFPB, and unsound practices,state attorneys general are permitted to enforce certain federal consumer financial protection rules adopted by the CFPB.

Broadly, regulations applicable to Seacoast Bank include limitations on loans to a single borrower and to its directors, officers and employees; restrictions on the opening and closing of branch offices; the maintenance of required capital and liquidity ratios; the granting of credit under equal and fair conditions; the disclosure of the costs and terms of such credit; requirements to maintain reserves against deposits and loans; limitations on the types of investments that may result in these agencies imposing fines or penalties, ceasebe made by Seacoast Bank; 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

requirements governing risk management practices. Seacoast Bank is permitted under federal law to open a nationalbranch on a de novo basis across state lines where the laws of that state would permit a bank subjectchartered by that state to supervision, regulationopen a de novo branch.


Transactions with Affiliates 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. Insiders: Seacoast Bank is subject to restrictions on extensions of credit and certain other transactions between Seacoast Bank and the Company or any nonbank affiliate. Generally, these covered transactions with either the Company or any affiliate are limited to 10% of Seacoast Bank’s capital and surplus, and all such transactions between Seacoast Bank and the Company and all of its nonbank affiliates combined are limited to 20% of Seacoast Bank’s capital and surplus. Loans and other extensions of credit from Seacoast Bank to the Company or any affiliate generally are required to be secured by eligible


collateral in specified amounts. In addition, any transaction between Seacoast Bank and the Company or any affiliate are required to be on an arm’s length basis. Federal banking laws also place similar restrictions on certain extensions of credit by insured banks, such as Seacoast Bank, to their directors, executive officers and principal shareholders.
Reserves: Federal Reserve rules require depository institutions, such as Seacoast Bank, to maintain reserves against their transaction accounts, primarily interest bearing and non-interest bearing checking accounts. For 2019, the first $16.3 million of covered balances are exempt from these reserve requirements, aggregate balances between $16.3 million and $124.2 million are subject to a member3% reserve requirement, and aggregate balances above $124.2 million are subject to a reserve requirement of $3,237,000 plus 10% of the amount over $124.2 million. These reserve requirements are subject to annual adjustment by the Federal Reserve.

FDIC Insurance Assessments and as such, itsDepositor Preference: Seacoast Bank’s deposits are insured by the FDICFDIC’s DIF up to the maximum extent provided by law. See “FDIC Insurance Assessments”.

Under Floridalimits under applicable law, which currently are set at $250,000 per depositor, per insured bank, for each account ownership category. Seacoast Bank may establish and operate branches throughout the State of Florida,is subject to the maintenance of adequate capital and the receipt of OCC approval.

FDIC assessments for its deposit insurance. The OCC has adopted the Federal Financial Institutions Examination Council’s (“FFIEC”) rating system and assigns each financial institution a confidential composite ratingFDIC calculates quarterly deposit insurance assessments based on an evaluationinstitution’s average total consolidated assets less its average tangible equity, and ratingapplies one of six essential componentsfour risk categories determined by reference to its capital levels, supervisory ratings, and certain other factors. The assessment rate schedule can change from time to time, at the discretion of an institution’s financial conditionthe FDIC, subject to certain limits. As of September 30, 2018, 2017 and operations, including Capital Adequacy, Asset Quality, Management, Earnings, Liquidity2016, Seacoast Bank’s rate was 3.37 basis points, 4.38 basis points, and Sensitivity to Market Risk,5.06 basis points, respectively. Seacoast Bank’s deposit insurance premiums totaled $2.2 million for 2018, $2.3 million for 2017, and $2.4 million for 2016. Our FICO assessment averaged 0.31 basis points for all four quarters during 2018. On September 30, 2018, the FDIC announced that the designated reserve ratio (“DRR”) of the DIF reached 1.36 percent, exceeding the required 1.35 percent, two years ahead of the deadline imposed by the Dodd-Frank Act. Though the FDIC has clarified that assessment rates will not change in the immediate future, banks with less than $10 billion in total consolidated assets, such as well as the quality of risk management practices.

FNB Insurance, a Seacoast Bank, subsidiary, is authorized bywill start receiving credits against their deposit insurance assessments when the State of Florida to market insurance products as an agent. FNB Insurance is a separate and distinct entity fromDRR reaches or exceeds 1.38 percent. In addition, Seacoast Bank and is subject to supervisionquarterly assessments by the FDIC to pay interest on Financing Corporation (“FICO”) bonds. Our FICO assessment rate for the first quarter of 2019 is 0.14 basis points.The FDIC has announced that the remaining FICO bonds are expected to mature in September 2019, and that the final FICO assessment is expected to be made in March 2019 (at a rate of 0.14 (annual) basis points).


Deposit insurance may be terminated by the FDIC upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by state insurance authorities. It is a financial subsidiary, but is inactive.

bank’s federal regulatory agency. In addition, the Federal Deposit Insurance Act provides that, in the event of the liquidation or other resolution of an insured depository institution, the claims of depositors of the institution, including the claims of the FDIC as subrogee of insured depositors, and certain claims for administrative expenses of the FDIC as a receiver, will have priority over other general unsecured claims against the institution, including those of the parent bank holding company.    


Standards for Safety and Soundness

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 Bank’s deposits are insured by the FDIC’s DIF, and Seacoast Bank 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. The FDIC also established a new assessment rate schedule, as well as alternative rate schedules that become effective when the DIF reserve ratio reaches certain levels. In determining the deposit insurance assessments to be paid by insured depository institutions, the FDIC generally assigns institutions to one of four risk categories based on supervisory ratings and capital ratios. Under the FDIC’s risk-based assessment system, insured institutions are assigned to risk categories based on supervisory evaluations, regulatory capital levels and certain other factors. The FDIC’s current system represents a change, required by the Dodd-Frank Act, from its prior practice of basing the assessment on an institution’s aggregate deposits.

The Dodd-Frank Act also increased the minimum designated reserve ratio of the DIF from 1.15% to 1.35% of the estimated amount of total insured deposits, and eliminated the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds. Under FDIC rules, banks with at least $10 billion in assets also pay a surcharge to enable the reserve ratio to reach 1.35 percent.

Upon inception of the new schedule in 2011, Seacoast Bank’s overall rate for assessment calculations was 14 basis points. As of September 19, 2013, with the release from its formal agreement with the OCC, Seacoast Bank’s rate was reduced to 8.15 basis points. As of September 30, 2014 and 2015, Seacoast Bank’s rate was further reduced to 6.79 basis points and 6.54 basis points, respectively. For Seacoast Bank, the new methodology has had a favorable effect. Seacoast Bank’s deposit insurance premiums totaled $1.6 million for 2014, $2.2 million for 2015, and $2.4 million for 2016. The increase in 2016 resulted primarily from total assets increasing due to the impact of the Floridian acquisition in the first quarter of 2016 and BMO assets acquired in the second quarter of 2016.

In addition, the FDIC collects FICO deposit assessments, which are calculated off of the assessment base described above. FICO assessments are set quarterly, and our FICO assessment averaged 0.59 basis points for all four quarters during 2016. Our FICO assessment rate for the first quarter of 2017 is 0.51 basis points.


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.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. Bank regulators routinely examine institutions for compliance with these obligations and have been active in imposing cease and desist and other regulatory orders and money penalty sanctions against institutions found to be violating these obligations. 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, and its implementing regulations adopted by the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the U.S. Department of the Treasury, 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.




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 regulationsFinCEN issued rules that wouldbecame effective on May 11, 2018, that require, subject to certain exclusions and exemptions, covered financial institutions to obtainidentify and verify the identity of beneficial ownership information for certain accounts, however, it has yet to establish final regulations on this topic.

owners of legal entity customers.


Economic Sanctions.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 Bank 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 the corresponding provisions of Federal Reserve Regulation W thereunder. Section 23A defines “covered transactions” to include, among other types of transactions, extensions of credit, and limits a bank’s covered transactions with any of its “affiliates” 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 operating 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 and the corresponding provisions of Federal Reserve Regulation W thereunder, which generally require covered transactions and certain other transactions between a bank and its affiliates to be on terms, including credit standards, that are substantially the same or at least as favorable to, the bank as those prevailing at the time for similar transactions with unaffiliated companies.

The Dodd-Frank Act generally enhances the restrictions on banks’ 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.Lending: During 2006, the federal bank regulatory agencies released guidance on “Concentrations in Commercial Real Estate Lending” (the “Guidance”) and advised financial institutions of the risks posed by commercial real estate (“CRE”) lending concentrations.

The Guidance requires that appropriate processes be in place to identify, monitor and control risks associated with real estate lending concentrations. 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.


Total reported loans for construction, land development, and other land of 100% 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% 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.

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 our 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. At December 31, 2016,2018, we had outstanding $86.5$251.5 million in commercial construction and residential land development loans and $72.6$192.1 million in residential construction loans to individuals, which represents approximately 39 percent63% of Seacoast Bank’s total risk based capital at December 31, 2016,2018, well below the Guidance’s threshold. At December 31, 2016,2018, the total CRE exposure for Seacoast Bank represents approximately 214 percent227% of total risk based capital, also below the Guidance’s threshold.


Community Reinvestment Act.We and our banking subsidiaries areAct: Seacoast Bank is 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, which imposes a continuing and affirmative obligation, consistent with their safe and sound operation, to help meet the credit needs for theirof entire communities where the bank accepts deposits, 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’sOCC’s assessment of the institution’sSeacoast Bank’s CRA 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 Gramm-Leach-Bliley Act (“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 willis 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 receivedreceive 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.

On April 3, 2018, the Department of the Treasury published recommendations for amending the regulations implementing the CRA; on August 28, 2018, the OCC issued an advanced notice of proposed rulemaking seeking industry comment on how the CRA might be modernized. Seacoast Bank has a rating of “Outstanding” in its most recent CRA evaluation.


Privacy and Data Security.Security:  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 consumerscustomers 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 directeddirects federal regulators, including the FDIC and the OCC, to prescribe standards for the security of consumer information. Seacoast Bank is subject to such standards,


as well as standards for notifying customers in the event of a security breach. Under federal law, Seacoast Bank 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. We are 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.Regulation:  Activities of Seacoast Bank are subject to a variety of statutes and regulations designed to protect consumers. These laws and regulations include, among numerous other things, provisions that:

·limit the interest and other charges collected or contracted for by Seacoast Bank, including new rules respecting the terms of credit cards and of debit card overdrafts;


·govern Seacoast Bank’s disclosures of credit terms to consumer borrowers;

·require Seacoast Bank 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 Bank from discriminating on the basis of race, creed or other prohibited factors when it makes decisions to extend credit;

·govern the manner in which Seacoast Bank may collect consumer debts; and

·prohibit unfair, deceptive or abusive acts or practices in the provision of consumer financial products and services.

limit the interest and other charges collected or contracted for by Seacoast Bank, including new rules respecting the terms of credit cards and of debit card overdrafts;

govern Seacoast Bank’s disclosures of credit terms to consumer borrowers;

require Seacoast Bank 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 Bank from discriminating on the basis of race, creed or other prohibited factors when it makes decisions to extend credit;

govern the manner in which Seacoast Bank may collect consumer debts; and

prohibit unfair, deceptive or abusive acts or practices in the provision of consumer financial products and services.

Mortgage Regulation:The CFPB adopted a rule that implements the ability-to-repay and qualified mortgage provisions of the Dodd-Frank Act (the “ATR/QM rule”), which took effect on January 10, 2014, and has impacted our residential mortgage lending practices, and the residential mortgage market generally. The ATR/QM rule requires lenders to consider, among other things, income, employment status, assets, payment amounts, and credit history before approving a mortgage, and provides a compliance “safe harbor” for lenders that issue certain “qualified mortgages.” The ATR/QM rule defines a “qualified mortgage” to have certain specified characteristics, and generally prohibitprohibits loans with negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years from being qualified mortgages. The rule also establishes general underwriting criteria for qualified mortgages, including that monthly payments be calculated based on the highest payment that will apply in the first five years of the loan and that the borrower have a total debt-to-income ratio that is less than or equal to 43 percent.43%. While “qualified mortgages” will generally be afforded safe harbor status, a rebuttable presumption of compliance with the ability-to-repay requirements will attach to “qualified mortgages” that are “higher priced mortgages” (which are generally subprime loans). In addition, under rules that became effective December 24, 2015, the securitizer of asset-backed securities must 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.” These definitions are expected to significantly shape the parameters for the majority of consumer mortgage lending in the U.S.

Reflecting the CFPB's focus on the residential mortgage lending market, the


The CFPB has also issued rules to implement requirements of the Dodd-Frank Act pertaining to mortgage loan origination (including with respect to loan originator compensation and loan originator qualifications) and has finalizedas well as integrated mortgage disclosure rules that replace and combine certain requirements under the Truth in Lending Act and the Real Estate Settlement Procedures Act.rules. In addition, the CFPB has issued rules that require servicers to comply with new standards and practices with regard to: error correction; information disclosure; force-placement of insurance; information management policies and procedures; requiring information about mortgage loss mitigation options be provided to delinquent borrowers; providing delinquent borrowers access to servicer personnel with continuity of contact about the borrower’s mortgage loan account; and evaluating borrowers’ applications for available loss mitigation options. These rules also address initial rate adjustment notices for adjustable-rate mortgages (ARMs), periodic statements for residential mortgage loans, and prompt crediting of mortgage payments and response to requests for payoff amounts.


It is anticipated that the CFPB will engage in numerous other rulemakings in the near term that may impact our business, as 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. The CFPB has also undertaken an effort to “streamline” consumer regulations and has established a database to collect, track and make public consumer complaints, including complaints against individual financial institutions.

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. The CFPB has, however, begun to bring enforcement actions against certain financial institutions for UDAAP violations and issued some guidance on the topic, which provides insight into the agency’s expectations regarding these standards. Among other things, CFPB guidance and its UDAAP-related enforcement actions have emphasized that management of third-party service providers is essential to effective UDAAP compliance and that the CFPB is particularly focused on marketing and sales practices.

We cannot fully predict the effect that being regulated by a new, additional regulatory authority focused on consumer financial protection, or any new implementing regulations or revisions to existing regulations that may result from the establishment of this new authority, will have on our businesses.

The deposit operations of Seacoast Bank are also subject to laws and regulations that:

·require Seacoast Bank to adequately disclose the interest rates and other terms of consumer deposit accounts;

·impose a duty on Seacoast Bank 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 Bank 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 Bank’s ability to charge fees for the payment of overdrafts for every day debit and ATM card transactions.

As noted above, Seacoast Bank has experienced 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.


Non-Discrimination Policies.Policies: Seacoast Bank 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 Bank 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.

Other Regulatory Matters. We and our subsidiaries are subject to oversight by the SEC, the Financial Industry Regulatory Authority. (“FINRA”), the Public Company Accounting Oversight Board (“PCAOB”), 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.

Item 1A.Risk Factors



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

A reduction in consumer confidence could negatively impact our results of operations and financial condition.
Significant market volatility driven in part by concerns relating to, among other things, actions by the U.S. Congress or imposed through Executive Order by the President of the United States, as well as global political actions, could adversely affect the U.S. or global economies, with direct or indirect impacts on the Company and our business. Results could include reduced consumer and business confidence, credit deterioration, diminished capital markets activity, and delays in the Federal Reserve Board increases in interest rates.
Consumers may decide not to use banks to complete their financial transactions, which could adversely affect our net income.
Technology and other changes now allow parties to complete financial transactions without banks. For example, consumers can pay bills, transfer funds directly and obtain loans without banks. This process could result in the loss of interest and fee income, as well as the loss of customer deposits and the income generated from those deposits.
Further, clients may choose to conduct business with other market participants who engage in business or offer products in areas we deem speculative or risky, such as cryptocurrencies. Increased competition may negatively affect our earnings by creating pressure to lower prices or credit standards on our products and services requiring additional investment to improve the quality and delivery of our technology and/or reducing our market share, or affecting the willingness of our clients to do business with us.
In addition, the widespread adoption of new technologies, including internet banking services, cryptocurrencies and payment systems, could require substantial expenditures to modify or adapt our existing products and services as we grow and develop our internet banking and mobile banking channel strategies in addition to remote connectivity solutions. We might not be successful in developing or introducing new products and services, integrating new products or services into our existing offerings, responding or adapting to changes in consumer behavior, preferences, spending, investing and/or saving habits, achieving market acceptance of our products and services, reducing costs in response to pressures to deliver products and services at lower prices or sufficiently developing and maintaining loyal customers.
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.
Our future success is dependent on our ability to compete effectively in highly competitive markets.
We operate from Ft. Lauderdale, Boca Raton and West Palm Beach north through the Daytona Beach area, into Orlando and Central Florida and the adjacent Tampa market, and west to Okeechobee and surrounding counties. Our future growth and success will depend on our ability to compete effectively in these and other potential 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.
Lending goals may not be attainable.
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.

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 a correction in residential real estate market prices and reduced levels of home sales, could result in lower 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, and particularly on 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 implemented to boost the residential mortgage markets and stabilize the housing markets after the financial crisis 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.
Our real estate portfolios are exposed if weakness in the Florida housing market or general economy arises.
Florida has historically experienced deeper recessions and more dramatic slowdowns in economic activity than other states and a decline in real estate values in Florida can be significantly larger than the national average. Declines in home prices and the volume of home sales in Florida, along with the reduced availability of certain types of mortgage credit, can result 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. Declines in home prices coupled with high or increased unemployment levels and increased interest rates can cause losses which adversely affect our earnings and financial condition, including our capital and liquidity.

In addition, the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”) that was signed into law on December 22, 2017 contains several provisions that will affect the tax consequences of home ownership and related borrowing. We cannot predict what impact, if any, the Tax Reform Act will have on our mortgage lending business or the value of homes securing mortgages or other loans, but any decrease in mortgage lending, decrease in home values, or early repayment of mortgage loans caused by changes to the tax code as a result of the Tax Reform Act could have a material adverse effect on our earnings and capital.

 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, 2018 and 2017, 44.2% and 47.9%, respectively, of our loan portfolio was comprised of CRE loans. The banking regulators continue to give CRE lending greater scrutiny, and banks with higher levels of CRE loans are expected to have implemented 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.
Seacoast Bank 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.
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, 20162018 and 2015,2017, our nonperforming loans (which consist of nonaccrual loans) totaled $18.1$26.5 million and $17.4$19.5 million, or 0.6 percent0.6% and 0.8 percent0.5% of the loan portfolio, respectively. At December 31, 20162018 and 2015,2017, our nonperforming assets (which include foreclosed real estate and bank branches taken out of service) were $28.0$39.3 million and $24.4$27.2 million, or 0.6 percent0.6% and 0.7 percent


0.5% of assets, respectively. Other real estate owned (“OREO”) included $5.7$9.4 million for branches taken out of service at December 31, 2016,2018, versus no branches$3.8 million at December 31, 2015.2017. In addition, we had approximately $3.8$22.8 million and $2.6$8.9 million in accruing loans that were 30 days or more delinquent at December 31, 20162018 and 2015,2017, respectively. Our nonperforming assets adversely affect our net income in various ways. We generally do not record interest income on nonaccrual loans or other real estate owned,OREO, thereby adversely affecting our income, and increasing our loan administration costs. When we takethe only source of repayment expected is the underlying 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 ownedOREO also increase our risk profile and the capital our regulators believe is appropriate in light of such risks. 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 allowanceprovision 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.


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,personnel, 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, at a minimum quarterly, 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 towardsborrowers repaying their loans. Generally speaking, the credit quality of our borrowers can deteriorate as a result of economic downturns in our markets. Although there are now signs of economic recovery,the economy is stable and growing, if the credit quality of our customer base or their debt service behavior materially decreases, if the risk profile of a market, industry or group of customers declines or weakness in the real estate markets and other economics were to rise,arise, 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.

We must effectively manage our information systems risk.Disruptions to our information systems and security breaches could adversely affect our business and reputation.
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.
In our 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 , and there is no guarantee that our response to any cyber-attack or system interruption, breach or failure will be effective to mitigate and remediate the issues resulting from such an event, including the costs, reputational harm and litigation challenges that we may face as a result. 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. In addition, as the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, with new and constantly changing requirements applicable to our business, compliance with those requirements could also result in additional costs.
We operate in a heavily regulated environment. Regulatory compliance burdens and associated costs can affect our business.
We and our subsidiaries are regulated by several regulators, including, but not limited to, the Federal Reserve, the OCC, the FDIC, the CFPB, the SEC, and NASDAQ. 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. Any such changes in law can impact the profitability of our business activities, require changes to our operating policies and procedures, or otherwise adversely impact our business.

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 has issued mortgage-related rules required under the Dodd-Frank Act addressing borrower ability-to-repay and qualified mortgage standards. The CFPB has also issued rules for loan originators related to compensation, licensing requirements, administration capabilities and restrictions on pursuance of delinquent borrowers. These rules could have a negative effect on the financial performance of Seacoast Bank’s mortgage lending operations such as limiting the volume of mortgage originations and


sales into the secondary market, increased compliance burden and impairing Seacoast Bank’s ability to proceed against certain delinquent borrowers with timely and effective collection efforts.
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.
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 a restatement of our prior period financial statements.
The Tax Cuts and Jobs Act of 2017 may have an impact on net income, shareholders’ equity and the Company’s regulatory capital ratios.
On December 22, 2017, the President of the United States signed the Tax Cuts and Jobs Act (the “Tax Reform Act”) into law. Under the Tax Reform Act, the highest marginal federal tax rate for corporations has been lowered from 35% to 21% resulting in a reduction to the Company’s deferred tax assets (“DTAs”). This remeasurement resulted in an immediate, one-time adjustment increasing the provision for taxes, and lowering net income for 2017 by $8.6 million. Over prospective periods, a lower federal tax rate could result in improved net income performance. We believe the initial impact of a reduction to the federal rate, and the resultant reduction to DTAs and capital, via higher tax provisioning at inception, will be recovered with lower tax provisioning prospectively from the date of inception. The reduction in our DTAs negatively impacted our capital ratios (as a small portion of our DTA is includable in regulatory capital calculations) but not below well-capitalized levels, as defined by our regulators. As higher net income is recorded due to lower tax provisioning, and increases shareholders’ equity, the detrimental impact to capital ratios will diminish and accrete capital over time.

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 issuance of our capital securities or purchase of concentrations by investors

investors.

As of December 31, 2016,2018, we had deferred tax assetsnet DTAs of $60.8$29.0 million, based on management’s estimation of the likelihood of those deferred tax assetsDTAs being realized. These and future deferred tax assetsDTAs 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.

amounts recorded.

The Company recorded income for 2014, 20152018, 2017 and 2016.Management2016. Management expects to realize the $60.8$29.0 million in deferred tax assetsnet DTAs well in advance of the statutory carryforward period, based on its forecast of future taxable income.Weincome. We consider positive and negative evidence, including the impact of reversals of existing taxable temporary differences, tax planning strategies and projected earnings within the statutory tax loss carryover period.Thisperiod. This process requires significant judgment by management about matters that are by nature uncertain.Ifuncertain. If we were to conclude that significant portions of our deferred tax assetsDTAs 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.

operations.

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 specificfact-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. Based upon independent analysis, managementManagement does not believe the commonany stock offering in November 2013, subsequentofferings, issuances, or reverse stock split in December 2013, and common stock issued in regards to the BANKshares acquisition in October 2014, Grand acquisition in July 2015, and Floridian acquisition in March 2016, have had any negative implications for the Company under Section 382. Deferred taxes for Section 382 events netting to $1.4 million were recorded by BANKshares for acquisition activity priordate.



The Federal Reserve has implemented significant economic strategies that have impacted interest rates, inflation, asset values, and the shape of the yield curve, and currently is transitioning from many years of easing to our merger on October 1, 2014, and were migrated and recordedwhat may be an uneven, but extended, period of tightening.

In recent years, in response to the Company’s financial statements.


Prospective changerecession in tax statutes may occur, and these legislative changes may have an immediate or retroactive impact on net income, shareholders’ equity2008 and the Company’s regulatory capital ratios, if passedfollowing uneven recovery, the Federal Reserve implemented a series of domestic monetary initiatives. Several of these have emphasized so-called quantitative easing strategies, the most recent of which ended during 2014. Since then the Federal Reserve raised rates nine times during 2015-2018, in each case by a modest 25 basis points. Further rate changes reportedly are dependent on the United States Congress and signed into law by the PresidentFederal Reserve’s assessment of the United States.

A reductioneconomic data as it becomes available. This data-dependent process, now in its fifth year, may represent a fitful transition to the U.S. federal taxa tightening trend, or it may represent merely an interim period during which rates on commercial businesses is a current subject within the U.S. political arena. If federal tax rates for commercial entities are lowered by statute, the effect of the enactment would result in a reduction to the Company’s deferred tax assets (that currently total $60.8 million), with the reduction offset by an immediate, one-time adjustment increasing provision for taxes, and lowering net income. Over prospective periods, a lower federal tax rate would result in improved net income performance. We have performed calculations regarding the impact of tax rate reductions. We believe the initial impact of a reduction to the federal rate, and the resultant reduction to deferred tax assets and capital, via higher tax provisioning at inception, would be recovered with lower tax provisioning prospectively from the date of inception. The reduction in our deferred tax assets (“DTAs”) would negatively impact our capital ratios (as a small portion of our DTA is includable in regulatory capital calculations) but not below well-capitalized levels, as defined by our regulators. As higher net income is recorded due to lower tax provisioning, and increases shareholders’ equity, the detrimental impact to capital ratios would diminish and accrete capital over time.

little clear up or down long-term trend.


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.

•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 our 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, and failure to effectively integrate acquisition targets or our inability to achieve expected benefits from an acquisition may adversely impact our results.

future.


While we seek continued organic growth,as we anticipate continuing to evaluate merger and acquisition opportunities presented to us in our earningscore markets and capital position continuebeyond. The number of financial institutions headquartered in Florida, the Southeastern United States, and across the country continues to improve, we will likely consider the acquisition ofdecline through merger and other banking businesses.activity. 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, as the number of appropriate merger targets decreases, could increase prices for potential acquisitions that we believe are attractive.which could reduce our potential returns, and reduce the attractiveness of these opportunities to us. Also, acquisitions are subject to various regulatory approvals. If we fail to receive the appropriate regulatory approvals, we maywill 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.interests. Among other things, our regulators consider our capital, liquidity, profitability, regulatory compliance, including with respect to anti-money laundering ("AML") obligations, consumer protection laws and CRA obligations 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


Our business strategy includes significant growth plans, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.
We intend to continue to pursue an organic growth strategy for our business while also regularly evaluating potential acquisitions and expansion opportunities. If appropriate opportunities present themselves, we expect to engage in selected acquisitions of financial institutions, branch acquisitions and other business growth initiatives or undertakings. There can be no assurance that we will successfully identify appropriate opportunities, that we will be able to negotiate or finance such activities or that such activities, if undertaken, will be successful.
There are risks associated with our growth strategy. To 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,extent that we grow through acquisitions, we cannot ensure that we will be able to adequately or profitably manage this growth. Acquiring other banks, branches or other assets, as well as residential mortgage loansother expansion activities, involves various risks including the risks of incorrectly assessing the credit quality of acquired assets, encountering greater than expected costs of integrating acquired banks or branches into us, the risk of loss of customers and/or



employees of the acquired institution or branch, executing cost savings measures, not achieving revenue enhancements and residential property collateral securing loansotherwise not realizing the transaction’s anticipated benefits. Our ability to address these matters successfully cannot be assured. In addition, our strategic efforts may divert resources or management’s attention from ongoing business operations, may require investment in integration and in development and enhancement of additional operational and reporting processes and controls and may subject us to additional regulatory scrutiny.
Our growth initiatives may also require us to recruit and retain experienced personnel to assist in such initiatives. Accordingly, the failure to identify and retain such personnel would place significant limitations on our ability to successfully execute our growth strategy. In addition, to the extent we expand our lending beyond our current market areas, we could incur additional risks related to those new market areas. We may not be able to expand our market presence in our existing market areas or successfully enter new markets.
If we do not successfully execute our acquisition growth plan, it could adversely affect our business, financial condition, results of operations, reputation and growth prospects. In addition, if we were to conclude that we hold, mortgage loan originations and gains on the salevalue 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 disruptionsan acquired business had decreased, that conclusion may result 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 programsan impairment charge 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 loansgoodwill or other factors could have adverse effects on borrowers that result in higher delinquencies and greater charge-offs in future periods,tangible or intangible assets, which would adversely affect our financial condition, including capital and liquidity, or results of operations. InWhile we believe we have the eventexecutive management resources and internal systems in place to successfully manage our allowance for loan losses is insufficientfuture growth, there can be no assurance growth opportunities will be available or that we will successfully manage our growth.
Additionally, we may pursue divestitures of non-strategic branches or other assets. Such divestitures involve various risks, including the risks of not being able to cover such losses, our earnings, capital andtimely or fully replace liquidity couldpreviously provided by deposits which may be adversely affected.

Although the Florida housing market is strengthening, our real estate portfolios are exposed to weakness in the Florida housing market and the overall statetransferred as part 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 lossesdivestiture, which could adversely affect our earnings and financial condition including our capital and liquidity.

results of operations.

Our concentration

We may not be able to successfully integrate our acquisitions or to realize the anticipated benefits of them.

A successful integration of each acquired bank with ours will depend substantially on our ability to successfully consolidate operations, corporate cultures, systems and procedures and to eliminate redundancies and costs. While we have substantial experience in commercial real estate loanssuccessfully integrating institutions we have acquired, we may encounter difficulties during integration, such as:

•the loss of key employees;
•the disruption of operations and businesses;
•loan and deposit attrition, customer loss and revenue loss;
•possible inconsistencies in standards, control procedures and policies;
•unexpected issues with expected branch closures; and/or
•unexpected issues with costs, operations, personnel, technology and credit;

all of which could divert resources from regular banking operations. Additionally, general market and economic conditions or governmental actions affecting the financial industry generally may inhibit our successful merger integrations.

Further, we acquire banks with the expectation that these mergers will result in various benefits including, among other things, benefits relating to enhanced revenues, a strengthened market position for the combined company, cross selling opportunities, technology, cost savings and operating efficiencies. Achieving the anticipated benefits of these mergers is subject to a number of uncertainties, including whether we integrate these institutions in an efficient and effective manner, and general competitive factors in the marketplace. Failure to achieve these anticipated benefits could result in a reduction in the price of our shares as well as in increased loan losses.

Commercial real estate (“CRE”) is cyclicalcosts, decreases in the amount of expected revenues and posesdiversion of management's time and energy and could materially and adversely affect our business, financial condition and operating results.

The implementation of other new lines of business or new products and services may subject us to additional risk.

We continuously evaluate our service offerings and may implement new lines of business or offer new products and services within existing lines of business in the future. There are substantial risks and uncertainties associated with these efforts.  In developing and marketing new lines of lossbusiness and/or new products and services, we undergo a process to us due to our concentration levels andassess the risks of the asset, especially during a difficult economy. As of December 31, 2016initiative, and 2015, 50.2 percentinvest significant time and 49.8 percent of our loan portfolio were comprised of CRE loans, respectively. The banking regulators continueresources to give CRE lending greater scrutiny, and banks with higher levels of CRE loans are expected to implement improved underwriting,build internal controls, risk management policies and portfolio stress testing,procedures to mitigate those risks, including hiring experienced management to oversee the implementation of the initiative.  Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible. External factors, such as well as higher levelscompliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of allowances for possible lossesa new line of business and/or a new product or service. Furthermore, any new line of business and/or new product or service could require the establishment of new key and capital levels asother controls and have a resultsignificant impact on our existing system of CRE lending growthinternal controls. Failure to successfully manage these risks in the development and exposures. During 2016, we recorded


implementation of new lines of business and/or new products or services could have a $2.4 million provision for loan losses, compared to a $2.6 million provision for losses during 2015,material adverse effect on our business and, compared to a $3.5 million recapturein turn, our financial condition and results of provisioning during 2014.

Seacoast Bank 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. Seacoast Bank’s CRE concentrations as of December 31, 2016 were favorably below regulatory guidance.

operations.


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 non-core 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 otherOther sources of liquidity available to us or Seacoast Bank should they be needed, including our ability to acquireinclude the acquisition of 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 or on terms which are acceptable to us could be impaired by other 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 may be 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.

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industry.

Our ability to receive dividends from our subsidiaries could affect our liquidity and ability to pay interest on our trust preferred securities or reinstate dividends.

We are a legal entity separate and distinct from Seacoast Bank and our other subsidiaries. Our primary source of revenue consists ofcash, other then securities offerings, is dividends from Seacoast Bank. 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 Bank may pay us.us, as further described in "Supervision and Regulation - Payment of Dividends". 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'ssubsidiary’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 payments on our trust preferred securities or reinstate 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 growth.

We must effectively manage our interest rate risk.The impact of changing interest rates on our results is difficult to predict and changes in interest rates may impact our performance in ways we cannot predict.

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 incrementally adverse effect on our earnings by reducing yields on loans and other earning assets over time. 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 re-financings, 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 commercial demand deposits to attract or retain customer deposits.

Our customers may pursue alternatives


Interest rates on our outstanding financial instruments might be subject to bank deposits, causing us to lose a relatively inexpensive sourcechange based on regulatory developments, which could adversely affect our revenue, expenses, and the value of funding.

We may experience a decrease in customer deposits if customers perceive alternative investments, such asthose financial instruments.


LIBOR and certain other “benchmarks” are the stock market, as providing superior expected returns. When customers move money outsubject 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 borrowingsrecent national, international, and other sources of fundingregulatory guidance and proposals for reform. These reforms may cause such benchmarks to fund our business and meet withdrawal demands, thereby increasing our funding costs and adversely affecting our net interest margin.


Consumers may decide notperform differently than in the past or have other consequences which cannot be predicted. On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, publicly announced that it intends to usestop persuading or compelling banks to complete their financial transactions, which could affectsubmit LIBOR rates after 2021. It is unclear whether, at that time, LIBOR will cease to exist or if new methods of calculating LIBOR will be established. If LIBOR ceases to exist or if the methods of calculating LIBOR change from current methods for any reason, interest rates on our net income.

Technologyfloating rate obligations, loans, deposits, derivatives, and other changes now allow partiesfinancial instruments tied to complete financial transactions without banks. For example, consumers can pay bills, transfer funds directly and obtain loans without banks. This process could result in the loss of interest and fee income,LIBOR rates, as well as the loss of customer depositsrevenue and the income generated fromexpenses associated with those deposits. The impact to our loan growthfinancial instruments, may be more significant prospectively.

Regulatory compliance burdensadversely affected. Any uncertainty regarding the continued use and associated costs have increased and adversely affect our business.

On July 21, 2010, the Dodd-Frank Act was signed into law.  The Dodd-Frank Act represents a significant overhaulreliability 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 industryLIBOR 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 assessmentsbenchmark interest rate could adversely affect the value of our floating rate obligations, loans, deposits, derivatives, and other financial condition.

FDIC insurance premiums we pay may change and be significantly higherinstruments tied to LIBOR rates


A portion of our variable rate loans are tied to LIBOR. While many of these loans contain “fallback” provisions providing for alternative rate calculations in the future. Market developmentsevent LIBOR is unavailable, not all of our loans contain these “fallback” provisions and existing “fallback” provisions may significantly depletenot adequately address the insurance fundactual changes to LIBOR or successor rates. We may not be able to successfully amend these loans to provide for alternative rate calculations and such amendments could prove costly. Even with “fallback” provisions, changes to or the discontinuance of the FDICLIBOR could result in customer uncertainty and further reduce the ratiodisputes around how variable rates should be calculated. All of reservesthis could result in damage to insured deposits, thereby making it requisite upon the FDICour reputation, loss of customers and additional costs to charge higher premiums prospectively.

Weareus, all of which could be material.

We are required to maintain capital to meet regulatory requirements, and if we fail to maintain sufficient capital, whether due to losses, growth opportunities, or 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 Bank must meet regulatory capital requirements and maintain sufficient liquidity and our regulators may modify and adjust such requirements in the future. 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 wethe Company currently complycomplies 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 payresume payments of 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 Bank 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 31, 2016.

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.

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.

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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 Bank’s business, including for compliance with laws and regulations, and Seacoast Bank also may be subject to participationfuture regulatory examinations 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 Bank’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 competitivemarkets.

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 and other potential 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.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. Our regulators also impose requirements on us with respect to monitoring and implementing adequate controls and procedures in connection with our third party vendors.


From time to time, we may decide to retain a new vendorvendors for new or existing products and services. Transition to these new vendors may not proceed as anticipated and could negatively impact our customers or our ability to conduct business, which, in turn, could have an adverse effect on our business, results of operations and financial condition.

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.

Disruptions to our information systems and security breaches could adversely affect our business and reputation.

In our 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.

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, and 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 ofoperations.

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 Bank’s mortgage lending operations, by, among other things, reducing the volume of mortgage loans that Seacoast Bank can originate and sell into the secondary market, increasing its compliance burden and impairing Seacoast Bank’s ability to proceed against certain delinquent borrowers with timely and effective collection efforts.

Ownership concentrations of our common stock and actions by large shareholders may affect the market price of our common stock.

A substantial number of shares of our common stock are owned by a small number of large institutional investors and those shares could be sold into the public market pursuant. In the event these large shareholders elect to sell their shares, such sales or attempted sales could result in significant downward pressure on the market price of our common stock and actual price declines.

A reduction in consumer confidence could negatively impact our results of operations and financial condition.

The beginning of 2017 has seen significant market volatility driven in part by concerns relating to, among other things, the 2016 U.S. presidential election. The continued impact of this issue could adversely affect the U.S. or global economies, with direct or indirect impacts on the Company and our business. Results could include drops in consumer and business confidence, credit deterioration, diminished capital markets activity, and delays in the Federal Reserve Board increases in interest rates.

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 60120 million shares of common stock, of which 38,021,83551.4 million shares were outstanding as of December 31, 2016,2018, 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.fluctuations and may be subject to fluctuations in the future. 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.


Ownership concentrations

Securities analysts might not continue coverage on our common stock, which could adversely affect the market for our common stock.
The trading price of our common stock depends in part on the research and actions by large shareholdersreports that securities analysts publish about us and our business. We do not have any control over these analysts, and they may not continue to cover our common stock. If securities analysts do not continue to cover our common stock, the lack of research coverage may adversely affect its market price. If securities analysts continue to cover our common stock, and our common stock is the subject of an unfavorable report, the price


of our common stock may decline. If one or more of these analysts cease to cover us or fail to publish regular reports on us, we could lose visibility in the financial markets, which could cause the price or trading volume of our common stock to decline.
Offerings of debt, which would rank senior to our common stock upon liquidation, may adversely affect the market price of our common stock.

A substantial number

We may attempt to increase our capital resources or, if our or Seacoast Bank’s regulatory capital ratios fall below the required minimums, we could be forced to raise additional capital by making additional offerings of sharesdebt or equity securities, senior or subordinated notes, preferred stock and common stock. Upon liquidation, holders of our debt securities and lenders with respect to other borrowings will receive distributions of our available assets prior to the holders of our common stock.
Shares of our common stock are owned by a small number of large institutional investors,not insured deposits and those shares could be sold into the public market pursuant to the registration rights of such institutional investors. In the event of these large shareholders elect to sell their shares, such sales or attempted sales could result in significant downward pressure on the market pricemay lose value.
Shares of our common stock are not savings accounts, deposits or other obligations of any depository institution and actual price declines.

are not insured or guaranteed by the FDIC or any other governmental agency or instrumentality, any other deposit insurance fund or by any other public or private entity, and are subject to investment risk, including the possible loss of principal.

Item 1B.Unresolved Staff Comments

None.

Item 2.Properties

We and

Seacoast Bank’s main office occupies approximately 66,000 square feet ofmaintains its corporate headquarters in a 68,000 square foot, three story building at 815 Colorado Avenue 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 areis owned by Seacoast Bank, which leases out portions of the building not utilized by us and Seacoast Bank to unaffiliated third parties.

Adjacent to the main office, Seacoast Bank 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 Bank 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 Bank 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 the use of Seacoast Bank’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.

Seacoast Business Funding, a receivables factoring division of Seacoast Bank, occupies 1,511 square feet of leased space on the first floor of the Winter Park branch in Orlando, Florida, and Seacoast Bank 6,000 square feet of leased space in Boynton Beach, Florida.

Bank.

Seacoast Bank owns or leases all of the real property and/or buildings in which we operate our business. As ofAt December 31, 2016,2018, we and our subsidiaries had 4651 branch offices, fiveseven commercial lending offices, and its main office in Florida at December 31, 2016. As of December 31, 2016, the net carrying value of these offices (excluding the main office) was approximately $43.6 million. Seacoast Bank’s branch and commercial lending offices in 2015 are generally described as follows:


Branch Office

 Year Opened/Acquired 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; closed in February 2015; moved to OREO and sold
       

Cove Road

5755 S.E. U.S. Highway 1

Stuart, FL 34997 

 1983 3,450 Leased
       

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; closed in May 2016
       

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
       

South Vero Square

752 U.S. Highway 1

Vero Beach, FL 32962 

 1997 3,150 Owned; closed in December 2015 and moved to OREO to sell
       

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
       

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; closed in May 2016 and moved to OREO to sell


Clewiston

300 S. Berner Rd.

Clewiston, FL 33440 

 2006 5,661 Owned
       

LaBelle

17 N. Lee St.

LaBelle, FL 33935 

 2006 2,361 Owned; closed in May 2016 and moved to OREO to sell
       

Lake Placid

199 U.S. Highway 27 North

Lake Placid, FL 33852 

 2006 2,125 Owned; closed in May 2016, moved to OREO and sold
       

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
       

Palm Beach Lakes

2055 Palm Beach Lakes Blvd

West Palm Beach, FL 33409 

 2015 (acquired through Grand Bank merger; opened in 1999) 6,496 Owned
       

Lantana

2000 Lantana Road

Lake Worth, FL 33462 

 2015 (acquired through Grand Bank merger; opened in 2000) 2,777 Owned


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

Florida. For additional information regarding our properties, please refer to Notes G and K of the Notes to Consolidated Financial Statements.

Item 3.Legal Proceedings

We and our subsidiaries are subject, in the ordinary course, to litigation incidentincidental 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”NASDAQ”). As of February 28, 2017January 31, 2019, there were 40,734,38251,319,414 shares of our common stock outstanding, held by approximately 2,2041,819 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 
2015            
First Quarter $14.46  $12.02  $0.00 
Second Quarter  16.09   13.81   0.00 
Third Quarter  16.26   14.11   0.00 
Fourth Quarter  16.95   14.10   0.00 
2016            
First Quarter $16.22  $13.40  $0.00 
Second Quarter  17.19   15.21   0.00 
Third Quarter  17.80   15.50   0.00 
Fourth Quarter  22.91   15.85   0.00 

Dividends from Seacoast Bank 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 Bank also limits dividends that may be paid to us. We have not paid dividends since 2009.

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 immediate future and expect to retain any earnings to support our growth.

Additional information regarding restrictions on the ability of Seacoast Bank 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.

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

Five years of selected financial data of the Company is set forth under the caption “Financial Highlights” on page 114.

pages 84-85.
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 57-94.

36-81.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

For discussion of the quantitative and qualitative disclosures about market risk, see “Securities”, “Interest Rate Sensitivity”, “Securities”, and “Market Risk” sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 89-90, 68-69,48 and pages 90-91.

61-62.
Item 8.Financial Statements and Supplementary Data

The Consolidated Financial Statements and the report of Crowe Horwath LLP, the Company's independent registered public accounting firms, and the Consolidated Financial Statements and Notesfirm, appear on pages 115-172. Quarterly Consolidated Income Statements86-138.

Supplementary financial data for each full quarter in the two years ended December 31, 2018 are included on page 113pages 82-83 in the section 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

(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

(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, 2016.2018. This assessment was based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission inInternal Control—Integrated Framework 2013. Based on this assessment, management believes that, as of December 31, 2016,2018, our internal control over financial reporting was effective.

Our independent registered public accounting firm, CroweHorwathLLP, has issued an attestationaudit report on our internal control over financial reporting which is included herein.

(c)Change in Internal Control Over Financial Reporting

(c)Change in Internal Control Over Financial Reporting

During 2015 and 2016,the three months ended December 31, 2018, there were no changes in our internal control over financial reporting that occurred or 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 20172019 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 “2016“2018 Director Compensation” in the 20172019 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, 2016.

2018.

Equity Compensation Plan Information

December 31, 2016         
        Number of securities 
        remaining available 
  (a)     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)  28,537  $111.09   0 
2008 Plan (2)  0   0.00   0 
2013 Plan (3)  750,241   12.24   1,160,656 
Employee Stock Purchase Plan (4)  0   0.00   97,103 
TOTAL  778,778  $15.86   1,257,759 

(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.

Plan Category 
(a)
Number of securities
to be issued upon
exercise of outstanding
options, warrants
and rights
 
Weighted average
exercise price of
outstanding
options, warrants
and rights
 
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
represented
in column (a))
Equity compensation plans approved by shareholders:  
  
  
2013 Plan(1)
 933,495
 $22.00
 1,255,593
Employee Stock Purchase Plan(2)
 —
 —
 69,434
TOTAL 933,495
 $22.00
 1,325,027
(1)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.
(2)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 20172019 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 20172019 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 20172019 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 .

86.

(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 2.1 Agreement and Plan of Merger
Dated November 3, 2016, by and among the Company, Seacoast Bank, GulfShore Bancshares, Inc. and GulfShore Bank, incorporated herein by reference from Exhibit 2.1 to the Company’s Form 8-K, filed November 9, 2016.
Exhibit 2.2 Agreement and Plan of Merger
Dated May 4, 2017, by and among the Company, Seacoast Bank, Palm Beach Community Bank, incorporated herein by reference from Exhibit 2.1 to the Company’s Form 8-K, filed May 9, 2017.
Exhibit 2.3 Agreement and Plan of Merger
Dated May 8, 2017, by and among the Company, Seacoast Bank, and NorthStar Banking Corporation and NorthStar Bank incorporated herein by reference from Exhibit 2.1 to the Company’s Form 8-K, filed May 24, 2017.
Exhibit 2.4 Agreement and Plan of Merger, dated as of June 11, 2018, by and among Seacoast Banking Corporation of Florida, Seacoast National Bank, First Green Bancorp, Inc. and First Green Bank
Incorporated herein by reference from Exhibit 2.1 to the Company’s Form 8-K, filed June 15, 2018.

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 3.1.10 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 May 30, 2018.

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*

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*

Plan*

Incorporated by reference to Exhibit A to the Company’s Definitive Proxy Statement on DEF 14A, 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 File No. 333-221822, filed on November 12, 2014.

30, 2017.

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*

Plan*

Incorporated herein by reference from Exhibit 10.12 to the Company’s Annual Report on Form 10-K, filed March 30, 2001.

Exhibit 10.610.5 Change of Control Employment Agreement*

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 10.710.6 Amended and Restated Directors Deferred Compensation Plan*

Plan*

Incorporated herein to the Company’s Form 10-K filed March 14, 2016.

Exhibit 10.810.7 2008 Long-Term Incentive Plan*

Plan*

Incorporated herein by reference from Exhibit A to the Company’s Proxy Statement on Form DEF 14A, filed March 18, 2008.


Exhibit 10.910.8 Form of 409A Amendment to Employment Agreement with William R. Hahl*

Hahl*

Incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K, filed January 5, 2009.

Exhibit 10.1010.9 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 10.1210.10 Form of Change of Control Employment Agreement with Daniel Chappell, Charles Cross, David Houdeshell, Jeffery D. Lee and Charles Shaffer*

Shaffer*

Incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K, filed November 3, 2014.

Exhibit 10.1310.11 Employment Agreement*

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 March 25, 2015, by and among the Company, Seacoast Bank, Grand Bankshares, Inc. and Grand Bank & Trust of Florida, incorporated herein by reference from Exhibit 2.1 to the Company’s Form 8-K, filed March 31, 2015.


Exhibit 10.15 Branch Sale Agreement

Dated October 14, 2015, by and between Seacoast Bank and BMO Harris Bank N.A., incorporated herein by reference from Exhibit 2.1 to the Company’s Form 8-K, filed October 19, 2015.

Exhibit 10.16 Agreement and Plan of Merger

Dated November 2, 2015, by and among the Company, Seacoast Bank, Floridian Financial Group, Inc. and Floridian Bank, incorporated herein by reference from Exhibit 2.1 to the Company’s Form 8-K, filed November 4, 2015.

Exhibit 10.17 Change of Control Employment Agreement*

Dated August 6, 2015 between Stephen Fowle and the Company, incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K, filed August 10, 2015.

Exhibit 10.18 Executive Transition Agreement*

Dated April 30, 2015 between William R. Hahl and the Company, incorporated herein to the Company’s Form 10-K, filed March 14, 2016.

Exhibit 10.19 Observation Rights Agreement

Dated March 23, 2016, Observer Rights Agreement by and between the Company, Basswood and Matthew Lindenbaum, incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K, filed March 24, 2016.

Exhibit 10.20 Amendment No. 1 to Observer Rights Agreement

Dated July 26, 2016, the Company entered into Amendment No. 1 to the Observer Rights Agreement dated as of March 23, 2016, whereby the date which either Matthew Lindenbaum or the Company may terminate the Agreement was extended, incorporated herein by reference from Exhibit 10.1 to the Company’s From 8-K, filed July 29, 2016.

Exhibit 10.2110.12 Form of Change of Control Employment Agreement with Charles Cross, David Houdeshell and Charles Shaffer

Incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K, filed September 23, 2016.

Exhibit 10.2210.13 Amendment to Employment Agreement and Plan of Merger

Dated November 3, 2016, by and among the Company, Seacoast Bank, GulfShore Bancshares, Inc. and GulfShore Bank, incorporatedwith Dennis S. Hudson, III

Incorporated herein by reference fromto Exhibit 2.110.1 to the Company’s Form 8-K, filed Novembe r 9, 2016.

June 27, 2017.

Exhibit 21 Subsidiaries of Registrant

Exhibit 23.1 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.


None.
Item 16.Form 10-K Summary
Not applicable.



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.

 SEACOAST BANKING CORPORATION OF FLORIDA
 (Registrant)
   
 By:/s/ Dennis S. Hudson, III
  Dennis S. Hudson, III
  Chairman of the Board and Chief Executive Officer

Date: March 14, 2017

February 26, 2019

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

   

/s/ Dennis S. Hudson, III

 March 14, 2017February 26, 2019
Dennis S. Hudson, III, Chairman of the Board,  
Chief Executive Officer and Director  
(principal executive officer)  
   

/s/ Stephen A. Fowle

Charles M. Shaffer		 March 14, 2017February 26, 2019
Stephen A. Fowle,Charles M. Shaffer, Executive Vice President and  
Chief Financial Officer  
(principal financial and accounting officer)  
   

/s/ Dennis J. Arczynski

Julie H. Daum		 March 14, 2017February 26, 2019
Dennis J. Arczynski,Julie H. Daum, Director  
   

/s/ Stephen E. Bohner

Jacqueline L. Bradley		 March 14, 2017February 26, 2019
Stephen E. Bohner,Jacqueline L. Bradley, Director  
   

/s/ T. Michael Crook

H. Gilbert Culbreth, Jr.		 March 14, 2017February 26, 2019
T. Michael Crook,H. Gilbert Culbreth, Jr, Director  
   

/s/ H. Gilbert Culbreth, Jr.

March 14, 2017
H. Gilbert Culbreth, Jr, Director


Date

/s/ Christopher E. Fogal

 March 14, 2017February 26, 2019
Christopher E. Fogal, Director  
   
/s/ Maryann Goebel March 14, 2017February 26, 2019
Maryann Goebel, Director


/s/ Herbert LurieFebruary 26, 2019
Herbert Lurie, Director  
   
/s/ Roger O. GoldmanAlvarro Monserrat March 14, 2017February 26, 2019
Roger O. Goldman, Lead Director

/s/ Dennis S. Hudson, Jr.

March 14, 2017
Dennis S. Hudson, Jr.,Alvaro Monserrat, Director  
   
/s/ Timothy S. HuvalThomas E. Rossin March 14, 2017
Timothy S. Huval, Director

/s/ Thomas E. Rossin

March 14, 2017February 26, 2019
Thomas E. Rossin, Director  

56 




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 2016, 20152018, 2017 and 2014.2016. Nearly all of the Company’s operations are contained in its banking subsidiary, Seacoast Bank (“Seacoast Bank” 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 – Strategy and Results

Seacoast continuesBanking Corporation of Florida (“Seacoast” or the “Company”), a financial holding company, incorporated in Florida in 1983, and registered under the Bank Holding Company Act of 1956, as amended (the “BHC Act”), is one of the largest community banks in Florida with approximately $6.7 billion in assets and $5.2 billion in deposits as of December 31, 2018. The Company provides integrated financial services including commercial and retail banking, wealth management, and mortgage services to execute oncustomers through advanced banking solutions, 51 traditional branches of its plan to grow our core business organically, innovate to build our franchiselocally-branded wholly-owned subsidiary bank, Seacoast National Bank (“Seacoast Bank”), a national banking association, and increase efficiency, and grow through mergers and acquisitions. We believe that these investments in growth, efficiency and digital transformation better position us to grow shareholder value today and prospectively. Highlights of our performance in 2016 included:

·27% year-over-year revenue growth during 2016, outpacing a 26% increase in noninterest expense over the corresponding period. Adjusted revenues, excluding securities gains and a bargain purchase gain in the fourth quarter 2015 grew 28%, outpacing a 14% increase in adjusted noninterest expenses over the same period. Adjusted revenues and adjusted noninterest expense are non-GAAP measures (see page 92, “Explanation of Certain Unaudited Non-GAAP Financial Measures” in “Results of Operations”);

·achievement of our $1.00 adjusted diluted earnings per share goal for 2016, a non-GAAP measure (see page 92, “Explanation of Certain Unaudited Non-GAAP Financial Measures”in “Results of Operations”). This metric represented a 35% increase from the prior year, exiting 2016 on a strong upward trajectory and on a path to outperform peers;

·reduction in costs related to branch consolidations, a substantial portion of cost savings coming from the integration of BMO Harris and Floridian offices during the second and third quarters of 2016;

·continuation of our analytics-driven cross sell and improved sales execution combined with a favorable Florida economy that drove record loan production; total loans increased 34% compared to a year ago, with record production volumes;

·completion and successful integration of our acquisitions of Floridian Financial Group, Inc. (Floridian) on March 11, 2016, and the purchase of BMO Harris Bank, N.A.’s (“BMO”) Orlando operations on June 3, 2016. These acquisitions further solidified Seacoast’s status in Orlando, propelling Seacoast to a top-10 position in this market. In 2016, we also announced the acquisition of GulfShore Bancshares, Inc. (“GulfShore”) in Tampa, Florida which we expect to close on April 7, 2017.


We introduced Seacoast’s Accelerateseven commercial banking model in 2011, strategically openingcenters.

The Company’s offices in the larger metropolitan markets we serve, including Orlando,stretch from Ft. Lauderdale, Boca Raton and Ft. Lauderdale.West Palm Beach north through the Daytona Beach area, into Orlando and Central Florida, and the adjacent Tampa market as well as Okeechobee and surrounding counties.
Seacoast is executing a balanced growth strategy, combining both organic growth with strategic acquisitions in growing urban markets. The commercial lending offices provide our customersCompany delivers integrated banking services, combining traditional retail locations with talented, results-oriented staff, specializing in loans to businesses with revenues above $5 million in specific industries. From their tenureonline and market experience, our bankers are familiar with the multitude of challenges the small business customer faces. Through this investment, the Company continues to focus on reaching customers in unique ways, creatingmobile technology and a path to achieve higher customer engagement.

In addition, convenient telephone banking center.

Seacoast has built a fully integrated distribution platform across all channels to provide our customers with the ability to choose their path of convenience to satisfy their banking needs, and which providesproviding us an opportunity to reach our customers through a variety of sales channels. For 2016, Seacoast’s debit card spend was up 17% year-over-year, a new high, consumer loans sold to existing customers increased 62% and 37%Non-teller transactions surpassed teller transactions during 2018, with 45% of check deposits were madechecks now deposited outside the branch. Expansion of our 24/7/365 call center in early 2017, further enhances our distribution system, with over 11% of our deposit relationships and nearly 16% of our consumer loan production originated through this channel during 2016. Taken together, we have proactively positioned our business for growth. Excluding the acquisitions, loan growth reached $377 million or 18%,branch network, compared to $218 million or 12% growth for 2015.

41% a year ago in December. This shift in customer preference is expected to continue, requiring our continued focus on building and enhancing our digitally integrated business model.

We believe our digital delivery and products have contributedare contributing to growing our franchise. As of December 31, 2016, approximately 70% of our online customers adopted mobile product offerings and the total number of services utilized by Seacoast’s retail customer averaged 4.4 per household,franchise, primarily due to increases in debit card activation, direct deposit and mobile banking users. Personal and business mobile banking has grown from 21,587over 47,000 users at December 31, 2014,2016, to 32,305over 62,000 users at December 31, 2015,2017, to 47,131over 83,000 users at December 31, 2016. The2018, a 77% growth in new households, a deepening of relationships with current households, and better retention overall is creating stronger value in our core customer franchise.

Our brand reflects our forward-looking strategy and our intent to benefittwo years. There were over 99,000 online banking customers at year-end 2018, increasing 19% from continued investments in analytics, digital servicing capabilities and technology, and reduce overhead. Embracing technology, especially electronic delivery channels, has helped us improve efficiency. During 2016, we added 24 branches, but we were also successful in closing 20 branches. This has allowed us to improve deposits per facility, with total deposits per branch increasing to $75 million at December 31, 2016, from $66 million one year earlier. We expect to continue consolidating our more expensive, traditional banking facilities, and related personnel costs, as digital and call center channels expand dramatically.

The combination of the above actions improved net income available to common shareholders (on a GAAP basis) totaling $29.2 million or $0.78 per diluted share, compared to $22.1 million or $0.66 per diluted share for 2015, and $5.7 million or $0.21 per diluted share for 2014.

2017.

Acquisitions – Enhancing Our Success

Enhancing our

The Company enhanced its footprint werewith the acquisitions of First Green Bancorp, Inc. ("First Green") in 2018, GulfShore Bancshares, Inc. ("GulfShore"), NorthStar Banking Corporation ("NorthStar") and Palm Beach Community Bank ("PBCB") in 2017, Floridian Financial Group, Inc. ("Floridian") and the Orlando banking operation of BMO officesHarris Bank, N.A. ("BMO") in 2016 Grand in 2015 and BANKshares late in 2014 (see “Note S – Business Combinations”). Our primary reasons for these transactions were to further solidifyThe acquisition of First Green continued our market shareexpansion in the attractive Palm BeachOrlando, Daytona and Central Florida markets, expandFort Lauderdale markets. During 2017, our customer base and leverage operating costs through economies of scale. These acquisitions not only increased our households, but opened markets and customer bases where our convenience offering resonates. These acquisitions were accretive in the first year (excluding merger charges). In aggregate, the Floridian and BMO acquisitions contributed $651 million in total deposits and $328 million in loans to our balance sheet, the Grand acquisition provided $188 million in total deposits and $111 million in loans to our balance sheet, and the BANKshares acquisition added $516 million in total deposits and $365 million in loans. Merger related charges for 2016, 2015 and 2014 summed to $8.7 million, $4.3 million and $4.3 million, respectively, primarily impacting salaries and wages, outsourced data processing costs, and legal and professional fees.

During the fourth quarter of 2016, we announced our acquisition of GulfShore jumpstarting our entryand NorthStar expanded the Seacoast franchise into the Tampa market. We look forward to a significant opportunityopportunities in the fast-growing, business rich Tampa market. Our approach to the Tampa market in the second quarter of 2017. As we approach this market we plan to useuses lessons learned from our successful buildgrowth in the fast-growing Orlando marketplace.marketplace following our acquisitions in 2016. We are now the largest Florida-based bank in Orlando and a top-10 bank in thisthat market overall. At year-end 2016, The First Green, GulfShore, NorthStar, PBCB, Floridian and BMO transactions solidified our market share in the attractive Palm Beach and Central Florida markets, expanded our customer base and leveraged operating costs through economies of scale. All of these acquisitions not only increased our customer households, but opened markets and customer bases where our convenience offering resonates and were immediately accretive to earnings. In aggregate, our acquisitions over the past several years have added the following to our loans and deposits:




(In thousands) Date of Acquisition Acquired Loans Acquired Deposits
First Green Bank(1)
 October 19, 2018 $631,497
 $624,289
Palm Beach Community Bank November 3, 2017 270,318
 268,633
NorthStar Bank(2)
 October 20, 2017 136,832
 182,443
GulfShore Bank(3)
 April 7, 2017 250,876
 285,350
BMO Harris(4)
 June 3, 2016 62,671
 314,248
Floridian Bank(5)
 March 11, 2016 266,137
 337,341
(1)Wholly-owned subsidiary of First Green Bancorp, Inc.
(2)Wholly-owned subsidiary of NorthStar Banking Corporation, Inc.
(3)Wholly-owned subsidiary of GulfShore BancShares, Inc.
(4)Orlando represents 37%banking operations of our franchise, measured by deposits. Regulatory approval for the GulfShore transaction has been received and we are waiting for shareholder approval, with the closeBMO Harris Bank, N.A.
(5)Wholly-owned subsidiary of the GulfShore acquisition expected on April 7, 2017, subject to customary closing conditions (see “Note S – Business Combinations”).

Floridian Financial Group, Inc.


The Company will likely continue to consider strategic acquisitions as part of the Company’s overall future growth plans.

The Florida Economy

Florida’s economic recovery is now well established, with solid job growth, declining unemployment, and higher consumer confidence fueling improvements in our markets. Florida’s economic indicators continue to show strength for the state. We believe the Florida economy will further strengthen in 2017, as the state continues to attract population inflows. Florida’s housing markets, manufacturing base, tourism and services industries provide a diversified base for our economy. The residential real estate market is becoming stronger as pricing and sales volumes continue to increase. 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.

The Florida economy continues to amplify our success and the state of Florida remains an attractive market in which to live and work. ThereWe believe that there are many positive indications that Florida’s economy will continue to improve. A December 2016 report from Wells Fargo Securities Economics Group stated, “The recently updated state (Florida) GDP data andexpand.

During 2018, we continued to focus on our technology investments, including the Quarterly Censusaddition of Employment and Wages (“QCEW”) provide additional insight into Florida’s recent strong economic performance. Florida’s economy grew 2.9% year-over-yeara Chief Technology Officer to our executive team, investments in Q2, far exceeding the nation’s 1.2% growth.” Their November report forecasted, “We look for Florida’s strong run of economic growth to carry over into 2017, albeit at a slightly more modest pace. Real GDP should grow 3.3% next year and nonfarm payrolls should add around 235,000 new jobs. Homebuilding should continue to gain momentum, as stronger jobs and income growth boosts household formation and encourages more job seekers to move to Florida.”


Florida’s residential real estate market remains solid. Recent Florida REALTORS reports indicate year over year increase in closed sales and median sales price, with time to contract continuing a shortening trend.

Our Business

The Company is a single-bank holding company with operations on Florida’s southeast coast (ranging from Broward and Palm Beach 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). Additionally, in 2016 we began to serve the attractive Tampa market and announced the GulfShore acquisition to fortify our presence. The Company had 47 full service offices at December 31, 2016, an increase of four offices from December 31, 2015.

The Company operates both a full retail banking strategy in its core markets, which are some of Florida’s wealthiest, as well as a commercial banking strategy serving small- to mid-sized businesses. The Company, through its bank subsidiary, 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 unsecuredfully digital loan products, including revolving credit facilities, letters of credit and similar financial guarantees, and asset based financing. Seacoast also provides trust and investment management services to retirement plans, corporations and individuals.

Loan Growth and Lending Policies

For 2016, balances in the loan portfolio increased 34%, compared with an increase of 18% for 2015, reflecting strong business production and the acquisitions of Floridian, BMO, Grand and BANKshares. Adjusting for the loans acquired through acquisitions, the loan portfolio grew 18% and 12% during 2016 and 2015, respectively.

Loan production improved during 2016 and 2015 and growth continuedorigination platform across all business lines. For 2016, $432 million in commercial/commercial real estate loans wereunits, enhanced digital services including for mobile wire transfer approvals, same day ACH and card controls, and a continued push to move transactions from the branch market to digital. As of December 31, 2018, 53% of consumer deposit transactions originated through our digital channels, compared to $299 million47% as of December 31, 2017.

Highlights of our performance in 2018 included:
An 11% year-over-year growth in revenue on a GAAP basis in excess of an 8% increase in noninterest expense on the same basis. A 19% year-over-year adjusted revenue growth during 2018, out pacing a 15% increase in adjusted noninterest expense over the corresponding period. Adjusted revenues and adjusted noninterest expense are non-GAAP measures (see pages 46-47, “Explanation of Certain Unaudited Non-GAAP Financial Measures” in “Results of Operations,” and accompanying non-GAAP reconciliations to GAAP);

Diluted earnings per share of $1.38 for 2015. Our loan pipeline2018, compared to $0.99 diluted earnings per share for commercial/commercial real estate loans totaled $892017 on a GAAP basis. Achievement of our $1.62 adjusted diluted earnings per share goal for 2018, a non-GAAP measure (see pages 46-47, “Explanation of Certain Unaudited Non-GAAP Financial Measures” in “Results of Operations,” and accompanying non-GAAP reconciliations to GAAP). This metric represented a 26% increase from the prior year, exiting 2018 on a strong upward trajectory and on a path to outperform peers;

Continued execution on the Company’s balanced growth strategy through the completion and successful integration of the acquisition of First Green on October 19, 2018, together with organic and acquisition-related revenue growth momentum and cost reductions, which drove continued growth through 2018;

Reduction in costs related to branch consolidations, with the addition of seven branches in 2018 from acquisition, offset by the consolidation of seven branches, ten branches added from acquisitions during 2017 offset by the successful consolidation of six branches, and the addition of 24 branches and the closure of 20 branches in 2016. Deposits per branch improved, with total deposits per banking center exceeding $101.5 million at December 31, 2018, up from $90.1 million one year earlier and $75.0 million at year-end 2016. We expect to continue consolidating our more expensive, traditional banking facilities, and related personnel costs, as digital and call center channels expand;

Continued discipline around controlling expenses, focused primarily on reducing overhead and streamlining our approach to our business and cost savings. These reductions have allowed us to re-deploy overhead to hiring on additional bankers in Tampa and South Florida and technology investments in 2018 and will continue to support growth and operating leverage into 2020; and

Continuation of the Company’s analytics-driven product marketing and service delivery combined with a favorable Florida economy that drove record loan production; total loans increased 26% compared to a year ago; excluding acquisitions, total loans were 10% higher year over year.




Results of Operations
Earnings Summary
The Company has steadily improved results over the past three years. Net income for 2018 totaled $67.3 million or $1.38 diluted earnings per share, compared to $42.9 million or $0.99 diluted earnings per share for 2017, and $29.2 million or $0.78 diluted earnings per share for 2016. Return on average assets (“ROA”) increased to 1.11% during 2018, and return on average equity (“ROE”) to 9.08% for the same period.
Adjusted net income(1) totaled $79.1 million and was $23.7 million or 43% higher year-over-year for the twelve months ended December 31, 2018. In comparison, adjusted net income(1) increased $16.3 million or 42% during 2017, compared to 2016. Adjusted diluted earnings per share(1) increased to $1.62 for 2018, compared to $1.28 for 2017 and $1.04 for 2016.

(1)See pages 46-47, "Explanation of Certain Unaudited Non-GAAP Financial Measures."

Net Interest Income and Margin

Net interest income (on a fully taxable equivalent basis) for 2018 totaled $212.0 million, increasing $35.0 million or 20%, as compared to 2017’s net interest income of $177.0 million, which increased by $36.5 million or 26% compared to 2016. The Company’s net interest margin increased 12 basis points to 3.85% during 2018 from 2017, and increased 10 basis points to 3.73% during 2017 from 2016.
Loan growth, balance sheet mix and yield/cost management have been the primary forces affecting net interest income and net interest margin results. Acquisitions have further accelerated these trends. Organic loan growth (excluding acquisitions) year-over-year was $376.3 million, or 10%. For 2018, the First Green acquisition added loans and deposits of $631.5 million and $624.3 million, respectively. For 2017, GulfShore loans and deposits added $250.9 million and $285.4 million, respectively, NorthStar loans and deposits added $136.8 million and $182.4 million, respectively, and PBCB loans and deposits added $270.3 million and $268.6 million, respectively. These acquisitions were contributors to net interest income improvement year-over-year for 2018 compared to 2017, and for 2017 compared to 2016. The same full-year income growth dynamic occurred in 2016 compared to 2015, with the acquisition of Floridian adding $266.1 million in loans, $67.0 million in securities and $337.3 million in deposits, and the purchase of investment securities ahead of the BMO acquisition, which added $62.7 million in loans and $314.2 million in deposits. We expect net interest income in 2019 will continue to benefit from the full year impact of the acquisition completed in the fourth quarter of 2018.
The increase in margin in 2018 compared to 2017 reflects significantly improved yields on investment securities, federal funds sold and other investments, and loans, up 27 basis points, 98 basis points and 23 basis points, respectively. Lower non-cash related loan accretion associated with acquisitions limited the increase in yield on loans to one basis point for 2017, compared to 2016, but yields on investment securities and federal funds sold and other investments were higher for 2017 compared to 2016, up 35 basis points and 118 basis points, respectively.
Table 2 presents the Company’s average balance sheets, interest income and expenses, and yields and rates, for the past three years.
The following table details the trend for net interest income and margin results (on a tax equivalent basis)(1), and yield on earning assets and rate on interest bearing liabilities.  
(In thousands, except percentages) 
Net Interest
Income(1)
 
Net Interest
Margin(1)
 
Yield on
Earning Assets(1)
 
Rate on Interest
Bearing Liabilities
Fourth quarter 2017 $48,402
 3.71% 4.11% 0.56%
First quarter 2018 49,853
 3.80
 4.23
 0.62
Second quarter 2018 50,294
 3.77
 4.25
 0.71
Third quarter 2018 51,709
 3.82
 4.38
 0.82
Fourth quarter 2018 60,100
 4.00
 4.67
 0.97
(1)On tax equivalent basis, a non-GAAP measure. See pages 46-47, "Explanation of Certain Unaudited Non-GAAP Financial Measures."



Total average loans increased $788.6 million or 24% during 2018 compared to 2017, and increased $739.0 million or 29% during 2017 compared to 2016. Our average investment securities decreased $14.9 million or 1% during 2018 versus $1062017, and increased $144.9 million or 12% during 2017 compared to 2016.
For 2018, average loans (the highest yielding component of earning assets) as a percentage of average earning assets totaled 75%, compared to 70% for 2017 and 67% for 2016 while interest earning deposits and other investments decreased to 1%, compared to 2% in 2017 and 2% in 2016, reflecting the Company’s continuing efforts to reduce lower yielding excess liquidity. As average total loans as a percentage of earning assets increased, the mix of loans has remained fairly stable, with volumes related to commercial real estate representing 49% of total loans at December 31, 2018 (compared to 48% at December 31, 2015. The Company also closed $403 million in residential loans during 2016, compared to $272 million in 2015. The residential loan pipeline2017 and 50% at December 31, 20162016). Residential loan balances with individuals (including home equity loans and lines, and personal construction loans) represented 31% of total loans at December 31, 2018 (versus 31% at December 31, 2017 and 32% at December 31, 2016) (see “Loan Portfolio”).
Commercial and commercial real estate loan production for 2018 totaled $73$552.9 million, versus $30compared to production for all of 2017 and 2016 of $482.7 million a year ago. Increasing home values and lower interest rates have bolstered consumer interest in borrowing.$432.4 million, respectively. Consumer and small business originations improved as well, totaling $302reached $443.4 million during 20162018, compared to $203$354.4 million during 2015.

The Company expects more2017 and $302.3 million during 2016. Closed residential loan growth opportunitiesproduction totaled $495.2 million for 2018 compared to production for all typesof 2017 and 2016 of $487.8 million and $403.4 million, respectively. A $19.5 million adjustable rate residential loan pool, with a weighted average yield of 4.15% and average FICO score of 775, was acquired during 2018 and included in residential loans retained. During 2017, an additional $43.0 million pool of whole loan adjustable rate residential mortgages with a weighted average yield of 3.2% and average FICO score of 751 was acquired and added to our portfolio, offset by $86.3 million in sales of two seasoned pools of portfolio residential mortgages. The sales during 2017 were deemed opportunities given the Treasury yield curve at the time, and to manage interest rate risk, adjust loan mix to permit growth in construction lending and to manage liquidity. During 2016, an additional $63.5 million of residential mortgage and $19.2 million of marine loan pools were purchased, and partially offset by $70.6 million in sales of seasoned pools of portfolio residential mortgages.

  For the Year Ended December 31,
(In thousands) 2018 2017 2016
Commercial/commercial real estate loan pipeline at year-end $164,064
 $118,930
 $88,814
Commercial/commercial real estate loans closed 552,878
 482,705
 432,438
       
Residential loan pipeline at year-end $43,655
 $48,836
 $72,604
Residential loan originations retained 305,953
 312,656
 243,831
Residential loan originations sold(1)
 189,235
 261,458
 230,136
       
Consumer and small business pipeline $53,453
 $38,790
 $45,936
Consumer and small business originations 443,406
 354,383
 302,317
(1)Includes sales of previously retained seasoned production of $86.3 million for 2017 and $70.6 million for 2016.

Pipelines at year-end 2018 (loans in underwriting and approval or approved and not yet closed) reflect the robust Florida economy, while year-end 2017 pipelines reflected the lingering effects of the fall 2017 hurricanes. At December 31, 2018, pipelines were $164.1 million in commercial, $43.7 million in residential mortgages, and $53.5 million in consumer and small business. Commercial pipelines increased $45.1 million or 38%, over 2017, mortgage pipelines were $5.2 million or 11% lower compared to 2017, and consumer and small business pipelines increased from 2017 by $14.7 million, or 38%.
Loan production remains strong, supported by customer analytics and expansion of the banking teams, particularly in the Tampa, Orlando and South Florida MSAs. During the third quarter of 2018, we added senior leadership in Tampa with the hiring of the former President & CEO of SunTrust for the Tampa MSA. The addition of lending personnel from the First Green acquisition in 2017. We will continuethe fourth quarter of 2018 is expected to expandprovide growth in the Orlando and South Florida MSAs, prospectively. The GulfShore team added in the second quarter of 2017 supplemented the commercial pipeline and commercial loans closed during the third and fourth quarters of 2017, and the addition of NorthStar and PBCB during the fourth quarter of 2017 provided additional opportunities to further grow our business banking teams, adding new, seasoned, commercial loan officers where market opportunities arise,balance sheet during 2018.
The average securities portfolio grew in size but was a smaller percentage of average earning assets, 24% for 2018 compared to 28% for 2017. However, careful portfolio management has resulted in increased securities yields. For 2018 our securities yielded 2.93%, up from 2.66% in 2017 and improving service through electronic and digital means. In addition, receivables factoring provides another vehicle to better serve customers. We believe that achieving our loan growth objectives, together with the prudent management of credit risk will provide us with the potential to make further, meaningful improvements to our earnings2.31% in 2017.

2016.

Our


For 2018, the cost of average interest-bearing liabilities increased 33 basis points to 0.79% from 2017. For 2017, this cost increased 15 basis points to 0.46% from 2016. The cost of our funding reflects the Company’s successful core deposit focus that produced strong growth is accompanied by sound risk management procedures. Our lending policies contain numerous guardrails that pertain to lending by type of collateral and purpose, along with limits regarding loan concentrations andin customer relationships over the dollar amount (size) of loans. With a disciplined approach, we have benefited from having loan production and loan pipelines that are diverse, de-risking our balance sheet. For example, in recent years the Company increased its focus and monitoring of its exposure to residential land, acquisition and development loans. Overall, the Company has reduced its exposure to commercial developers of residential land, acquisition and development loans from its peak of $352 million or 20%past several years. Noninterest bearing demand deposits at December 31, 2018 represent 30.3% of total loans in early 2007deposits, compared to $30 million or 1%30.5% and 32.6% at December 31, 2016. Our exposure2017 and 2016, respectively. The cost of average total deposits (including noninterest bearing demand deposits) for the fourth quarter of 2018 was 0.54%, compared to commercial real estate lending is significantly below regulatory limits (see “Loan Concentrations”).

Deposit Growth, Mix0.29% and Costs0.15% for the fourth quarters of

2017 and 2016, respectively.

The following table provides trend detail on the ending balance components of our customer relationship funding as of:
  December 31,
(In thousands, except percentages) 2018 2017 2016
Noninterest demand $1,569,602
 $1,400,227
 $1,148,309
Interest-bearing demand 1,014,032
 1,050,755
 873,727
Money market 1,173,950
 931,458
 802,697
Savings 493,807
 434,346
 346,662
Time certificates of deposit 925,849
 775,934
 351,850
Total deposits $5,177,240
 $4,592,720
 $3,523,245
       
Customer sweep accounts $214,323
 $216,094
 $204,202
       
Total core customer funding(1)
 $4,465,714
 $4,032,880
 $3,375,597
       
Noninterest demand deposit mix 30.3% 30.5% 32.6%
(1)Total deposits and customer sweep accounts, excluding time certificates of deposit.

The Company’s focus on convenience, with high quality customer service, expanded digital offerings and distribution channels provides stable, low cost core deposit funding for the company.Company. Over the past several years, the Company has strengthened its retail deposit franchise using new strategies and product offerings, while maintaining a focus on growing customer relationships. We believe that digital product offerings are central to core deposit growth as access via these distribution channels is required by customers. During the last two years,2018, 2017 and 2016, we have significantly grown our average transaction deposits (noninterest and interest bearing demand), with significant increases of $268.3 million or 12% in 2018, $370.8 million or 20% in 2017 and $379.3 million or 26% in 2016 and $375.8 million or 35% in 2015.. Along with new relationships, our deposit programs and digital sales have improved our market share and increased average services per household.

deepened our relationships with existing customers.

Our growth in core deposits has also provided low funding costs. The Company’s deposit mix remains favorable, with 90 percent83% of average deposit balances comprised of savings, money market, and demand deposits in the fourth quarter of 2016.2018. The Company’s average cost of deposits, including noninterest bearing demand deposits, was 0.14%0.43% for 2016, slightly2018, above 2015’s2017’s rate of 0.13%0.21% and 2016's rate of 0.14%, aswith higher interest rates and acquired deposits marginally increasedincreasing the Company’s cost of deposits.

We believe this reflects the significant value of the deposit franchise, despite the increases of 22 basis points during 2018 and 7 basis points during 2017.

Short-term borrowings (principally comprised of sweep repurchase agreements with customers of Seacoast Bank) decreased $29.2 million or 17% to average $200.8 million during 2018, after decreasing $15.9 million or 8% to average $171.7 million for 2017, as compared to 2016. 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. The average rate on customer repurchase accounts was 0.90% for 2018, compared to 0.45% and 0.26% for 2017 and 2016, respectively. No federal funds purchased were utilized at December 31, 2018, 2017 and 2016.
FHLB borrowings, all maturing within six months or less, totaled $380.0 million at December 31, 2018, with an average rate of 2.45% at year-end, compared to $211.0 million at December 31, 2017, maturing in 30 days or less (along with $7.0 million of FHLB borrowings acquired from PBCB maturing in 2018 and 2019), with an average rate of 1.39% at year-end. Advances from the FHLB of $50.0 million at a fixed rate of 3.22% to mature in late 2017 were redeemed early in April 2016 with an early redemption penalty of $1.8 million incurred. FHLB borrowings averaged $225.0 million for 2018, down from $377.4 million for 2017 but higher than $198.3 million for 2016 (see “Note I – Borrowings” to the Company’s consolidated financial statements).


For 2018, average subordinated debt of $70.7 million related to trust preferred securities issued by subsidiary trusts of the Company (including subordinated debt for Grand Bankshares, Inc. (“Grand”) and The BANKshares Inc. (“BANKshares”) assumed on July 17, 2015 and October 1, 2014, respectively) carried an average cost of 4.48%, up from 3.47% for 2017 and 2.94% for 2016 reflecting higher market interest rates as the subordinated debt cost is based on LIBOR plus a spread (see "Note I- Borrowings").
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
Year
 
Fourth
Quarter
 
Third
Quarter
 
Second
Quarter
 
First
Quarter
 
Total
Year
 
Fourth
Quarter
(In thousands, except percentages) 2018 2018 2018 2018 2018 2017 2017
Nontaxable interest adjustment $441
 $116
 $147
 $87
 $91
 $706
 $176
Tax rate 21% 21% 21% 21% 21% 35% 35%
Net interest income (TE) $211,956
 $60,100
 $51,709
 $50,294
 $49,853
 $177,002
 $48,402
Total net interest income (not TE) 211,515
 59,984
 51,562
 50,207
 49,762
 176,296
 48,226
Net interest margin (TE) 3.85% 4.00% 3.82% 3.77% 3.80% 3.73% 3.71%
Net interest margin (not TE) 3.84
 3.99
 3.81
 3.76
 3.79
 3.72
 3.70
TE = Tax Equivalent, a non-GAAP measure.
Noninterest Income
Noninterest income (excluding securities losses and gains, and the gain on sale of Class B Visa stock) totaled $50.6 million for 2018, an increase of $7.4 million or 17%, compared to 2017. On the same basis, noninterest income totaled $43.2 million for 2017, an increase of $5.8 million or 16% compared to 2016. The gain on sale of Class B Visa stock totaled $15.2 million and was recorded in the fourth quarter of 2017. The Visa shares were purchased early in 2017. Noninterest income accounted for 19% of total revenue in 2018 (net interest income plus noninterest income, excluding securities losses and gains, and the gain on sale of Class B Visa stock), compared to 20% in 2017 and 21% for 2016 (on the same basis). Results for the year ended December 31, 2018, reflect growth in deposits and increased customer engagement, resulting in revenue improvement in nearly every category. Analytics driven product marketing and service delivery, combined with organic and acquisition-related growth, were primary factors contributing to the growth in noninterest income during 2018, 2017 and 2016.
Table 4 provides detail regarding noninterest income components for the past three years.
For 2018, most categories of service fee income showed strong year over year growth compared to 2017, with service charges on deposit accounts increasing $1.1 million or 11% to $11.2 million, interchange income up $1.8 million or 17% to $12.3 million, while other deposit based EFT charges were generally flat year over year. These increases reflect continued strength in customer acquisition and cross sell and benefits from acquisition activity. Overdraft fees represent 55% of total service charges on deposits for 2018, versus 57% for 2017 and 60% for 2016. Overdraft fees totaled $6.2 million during 2018, increasing $0.5 million from 2017, after decreasing $0.1 million during 2017 from 2016. The decrease for 2017 was, in part, due to third quarter 2017’s post-hurricane Irma accommodations for customers including waivers of fees where circumstances were appropriate. Regulators continue to review the banking industry’s practices for overdraft programs and additional regulation could reduce fee income for the Company’s overdraft services.

Interchange revenue is dependent upon business volumes transacted, as well as the fees permitted by VISA® and MasterCard®. For 2018, 2017 and 2016, this revenue totaled $12.3 million, $10.6 million and $9.2 million, respectively, with steady increases year over year of 17% and 15%, respectively.



Wealth management, including brokerage commissions and fees, and trust income, increased during 2018 by $0.9 million or 17%. Growth in trust revenues of $0.5 million or 13% and an increase in the Company’s brokerage fees of $0.4 million is the result of a growing sales and support team, industry leading products including digital tools, and the benefit of direct referrals from the branches and lending network. Our wealth management team added nearly $100 million in new assets under management during the year ended December 31, 2018. While trust income was higher in 2017 compared to 2016 by $0.3 million or 8%, the result was entirely offset by a decline in brokerage fees of $0.7 million, compared to 2016, reflecting our shift to fee-based accounts and an investment management model in 2017. We fully expect wealth management revenues to continue to grow over time.
Mortgage production was lower during 2018 (see “Loan Portfolio”), with mortgage banking activity generating fees of $4.7 million, which were $1.8 million or 27% lower compared to 2017. The opposite was true for 2017 compared to 2016, when fees increased $0.6 million or 10%. Fee income opportunities were more limited during 2018, in part, as a result of higher interest rates, shifting consumer demand to construction products, and low inventory levels of homes for sale. Also, during 2017, two pools of seasoned portfolio mortgages were sold, generating incremental gains of $1.3 million. During 2016, two pools of seasoned portfolio mortgages were sold as well, generating additional gains of $0.9 million. Originated residential mortgage loans are processed by commissioned employees of Seacoast, with many mortgage loans referred by the Company’s branch personnel.
Marine lending originations sold were higher in both 2018 and 2017. Continued strong demand for marine vessel financing and a larger portion of originations being sold were primary contributors to the improvement year over year for 2018 compared to 2017, and 2017 compared to 2016. Fees from marine financing grew $0.5 million or 54% from 2017 levels and $0.2 million or 35% from 2016 levels. In addition to our principal marine lending office in Ft. Lauderdale, Florida, we continue to use third party independent contractors in Texas and on the West coast of the United States to assist in generating marine loans.
During 2018, BOLI income was significantly higher, totaling $4.3 million, up $0.9 million or 25% from 2017, and for 2017 up $1.2 million or 55% from 2016. An additional purchase of $30.0 million of BOLI in the third quarter of 2017 and a purchase in the fourth quarter of 2016 were contributing factors. At December 31, 2018, the BOLI asset totaled $123.4 million.
Other income was $4.1 million or 60% higher for 2018 compared to 2017, with incremental fees by our Small Business Administration ("SBA") lending team of $2.5 million, $1.5 million from Small Business Investment Company ("SBIC") related revenue, and $0.5 million for swap related income with loan customers. A general increase in other fee categories also occurred year over year for 2018, the result of pricing increases implemented across the franchise on a number of services offered.

For 2017, other income was $2.5 million or 57% higher compared to 2016. Additional fees include $0.8 million for swap related income with loan customers, $0.5 million for secondary market activities with the SBA, $0.2 million from SBIC related revenue, $0.2 million for check cashing fees, $0.1 million for wire transfer activity, $0.1 million for credit card related fees, and $0.1 million for income generated by factoring fees related to asset-based lending.
Noninterest Expense
Table 5 provides detail of noninterest expense components for the years ending December 31, 2018, 2017 and 2016.
Seacoast management expects its efficiency ratios to improve in 2019. The Company expects its digital servicing capabilities and technology to support better, more efficient channel integration allowing consumers to choose their path of convenience to satisfy their banking needs, resulting in organic growth of our products and services as well as related revenue, in addition to increased efficiency in how we serve our customers. Acquisition activity added to noninterest expenses with acquisition related costs for First Green in 2018, GulfShore, NorthStar and PBCB in 2017, Floridian and BMO in 2016 of approximately $9.7 million, $12.9 million and $9.0 million, respectively, as well as ongoing costs related to this growth. In 2018, the Company consolidated seven branches in conjunction with the acquisition of First Green and in alignment with our Vision 2020 objective of reducing our footprint to meet the evolving demands of our customers, and we announced an additional legacy banking center consolidation to occur by mid-2019. Our investments in 2018 launched a number of new enhancements, resulting in even greater digital access for our customers, and providing improvements in productivity for our customers in their daily lives. For 2019, we are targeting $7.0 million of expense reduction, which will be reinvested to expand the number of bankers in Tampa and South Florida, install a fully digital loan origination platform, and develop digital direct fulfillment for small business lending. We expect these investments to support growth and greater operating leverage in 2020 and beyond. At year-end 2018, we had initiated 70% of the 2019 expense reductions resulting in a $0.4 million one-time expense in the fourth quarter of 2018.
For 2018, our efficiency ratio, defined as noninterest expense less foreclosed property expense and amortization of intangibles divided by net operating revenue (net interest income on a fully tax equivalent basis plus noninterest income excluding securities gains and the gain on sale of Visa stock in 2017) was 60.0% compared to 66.7% for 2017 and 72.1% for 2016. Adjusted noninterest expense (a non-GAAP measure, see table below for a reconciliation to noninterest expense, the most comparable GAAP number)


was $147.7 million for 2018, compared to $129.0 million for 2017 and $114.2 million for 2016. Noninterest expense includes the addition during the fourth quarter of 2018 and the second and fourth quarters of 2017 of personnel and expenses associated with our acquisitions. The adjusted efficiency ratio1 for the past three years steadily improved over the course of each year, from 64.6% in 2016, to 58.7% in 2017, and to 56.1% for 2018. For 2018, an adjusted efficiency ratio(1)of 57.0% during the first quarter declined to 54.2% during the the fourth quarter of 2018.
  For the Year Ended December 31,
(In thousands) 2018 2017 2016
Noninterest expense, as reported $162,273
 $149,916
 $130,881
       
Merger related charges 9,681
 12,922
 9,028
Amortization of intangibles 4,300
 3,360
 2,486
Branch reductions and other expense initiatives 587
 4,321
 3,357
Business continuity expenses for Hurricane Irma —
 352
 —
Early redemption cost for FHLB advances —
 —
 1,777
Total adjustments 14,568
 20,955
 16,648
Adjusted noninterest expense(1)
 $147,705
 $128,961
 $114,233
       
Adjusted efficiency ratio(1)(2)
 56.1% 58.7% 64.6%
(1)See pages 46-47, "Explanation of Certain Unaudited Non-GAAP Financial Measures."
(2)Adjusted efficiency ratio is defined as noninterest expense, including adjustments to noninterest expense (see pages 46-47) divided by aggregated tax equivalent net interest income (see pages 41) and noninterest income, including adjustments to revenue (see pages 46-47).
Salaries and wages totaling $71.1 million were $5.4 million or 8% higher for 2018 than for 2017. Base salaries were $7.4 million or 14% higher during 2018, reflecting the full-year impact of additional personnel retained as part of second quarter 2017’s purchase of GulfShore, fourth quarter 2017’s acquisitions of NorthStar and PBCB, and fourth quarter 2018's purchase of First Green. Improved revenue generation and lending production, among other factors, resulted in commissions, cash and stock incentives (aggregated) that were $4.1 million higher for 2018, compared to 2017. Temporary services and severance costs increased $0.1 million and decreased $2.2 million, respectively, in 2018. Deferred loan origination costs (a contra expense), increased $3.9 million, reflecting the greater number of loans produced during 2018.
Similarly, salaries and wages for 2017 were $11.6 million or 21% higher than for 2016. A significant portion of the increase was for base salaries that were $6.9 million or 15% greater, reflecting the full-year impact of first quarter 2016's acquisition of Floridian, second quarter 2016's purchase of BMO's Orlando operations, second quarter 2017's purchase of GulfShore, and fourth quarter 2017's acquisitions of NorthStar and PBCB. Commissions, cash and stock incentives (aggregated) were $3.5 million higher for 2017 compared to 2016. Temporary services and severance costs increased $1.1 million and $1.8 million, respectively, in 2017. Deferred loan origination costs increased by $1.7 million, reflecting a greater number of loans produced during 2017 than in 2016.
During 2018, employee benefits costs (group health insurance, defined contribution plan, payroll taxes, as well as unemployment compensation) increased $1.2 million or 10% to $12.9 million from 2017, and compared to a $1.8 million or 18% increase in 2017, versus 2016 expenditures. These costs reflect the increased staffing and salary costs, discussed above. Our self funded health care plan comprises the largest portion of employee benefits, totaling $6.0 million for 2018, and payroll taxes totaling $4.7 million was the second largest category. The Company offers competitively priced health coverage to all of its associates that qualify for benefits, to attract the best professional talent to the Company, at a reasonable cost and competitive with other businesses in the Florida markets where we conduct business.

Seacoast Bank utilizes third parties for its core data processing systems and outsourced data processing costs are directly related to the number of transactions processed. Outsourced data processing costs totaled $16.4 million for 2018, an increase of $2.3 million or 16% from 2017, and were $0.6 million higher for 2017 versus 2016. Data processing costs include one-time charges for conversion activity related to our acquisitions. We continue to improve and enhance our mobile and other digital products and services through our core data processor, which may increase our outsourced data processing costs as customers adopt improvements and products and as the Company’s business volumes grow.
Telephone and data line expenditures, including electronic communications with customers and between branch locations and personnel, as well as our third party data processors, increased $0.2 million or 8% to $2.5 million for 2018 when compared to 2017, and were $0.2 million or 9% higher in 2017 compared to 2016. Additional activity for acquired First Green locations in


2018 and GulfShore, NorthStar and PBCB locations in 2017, and locations closed during 2018 and 2017, as well as additional customers from the acquisitions, were the primary contributors to the increases in telephone and data line expenses for each year.
Total occupancy, furniture and equipment expense for 2018 increased $0.8 million or 4% (on an aggregate basis) to $20.1 million year over year. For 2017, these costs were $1.5 million or 8% higher than in 2016. For 2017, the increases were primarily driven by the 10 offices acquired from GulfShore, NorthStar and PBCB acquisitions. Seacoast Bank consolidated 7 offices and 6 offices, respectively, during the 2018 and 2017 calendar years. Lease payments were higher by $0.8 million or 15% and $0.5 million or 9% for 2018 and 2017, respectively, and include recurring payments for many of the closed offices. Depreciation was also $0.7 million or 13% greater for 2018 than 2017. Write downs totaling $1.2 million were incurred for 2018, compared to $2.3 million expended during both 2017 and 2016 for closed offices. We believe branches are still valuable to our customers for more complex transactions, but simple tasks, such as depositing and withdrawing funds, are rapidly migrating to a digital world. Our goal at the beginning of 2017 was to close 20% of our locations over the next 24 to 36 months. Some of the operational expense savings has and will be invested into technology and talent to deliver products and services in more convenient ways. We anticipate that branch consolidations will continue for the Company and the banking industry in general (see “Item 2, Properties” for a complete description of our banking offices).
For 2018, marketing expenses (including sales promotion costs, ad agency production and printing costs, digital, newspaper, TV and radio advertising, and other public relations costs) increased by $0.3 million or 6% to $5.1 million, compared to 2017. For 2017, these costs were $1.2 million or 32% higher, versus 2016. Incremental use of outdoor media, digital media and direct mail to connect and solidify customer acquisition and corporate brand awareness within the Orlando and new Tampa footprint contributed to the increases in 2018 and 2017.
Legal and professional fees for 2018 were lower by $1.1 million or 10% from 2017, and were $1.4 million higher for 2017 versus 2016. Included were acquisition related fees that totaled $2.1 million for 2018, $1.9 million for 2017, and $1.5 million for 2016. Regulatory examination fees increased as total depositsassets increased $679(the basis for examination fee calculation).

Growth in total assets (both organic and through acquisitions) increased the basis for calculating our FDIC premiums. The Company’s total assets and equity have increased during the past three years and Seacoast expects increases prospectively. Improved earnings and asset quality have favorably affected the rate paid by Seacoast. Also, the FDIC rates declined for financial institutions under $10 billion in total assets during 2016 as FDIC insurance pools achieved higher amounts specified by the U.S. Congress. FDIC assessments were $2.2 million, $2.3 million and $2.4 million for 2018, 2017 and 2016, respectively.
As nonperforming assets have declined so have associated costs (see “Nonperforming Loans, Troubled Debt Restructurings, Other Real Estate Owned, and Credit Quality”). For the last three years, asset disposition costs and net (gains) losses on other real estate owned and repossessed assets on an aggregated basis have been stable, from zero for 2016 to a gain of $0.3 million for 2017 to a loss of $0.5 million for 2018.    
Other expenses were higher by $1.7 million or 11% for 2018 compared to 2017, totaling $17.2 million. For 2017, other expenses were $2.0 million or 15% higher, compared to 2016. For 2018, larger increases in other expenses included: loan servicing costs and dealer fees for lending (each up by $0.4 million from 2017), and director fees and SBA expenses (each rising $0.2 million from 2017). Contributing to the $2.0 million increase for 2017 were the following: miscellaneous losses and charge-offs (up $0.4 million from 2016), travel related expenses (up $0.4 million), bank meetings costs (rising $0.2 million compared to 2016), robberies (rising $0.1 million from 2016), director fees (higher by $0.1 million), employee placement fees (increasing $0.1 million), and armored car services (higher by $0.1 million).

Income Taxes
For 2018, 2017 and 2016, provision for income taxes totaled $20.3 million, and $36.3 million and $14.9 million, respectively. The Tax Cuts and Jobs Act of 2017 (the "Tax Reform Act"), enacted by the U.S. Congress and signed by the President of the United States on December 22, 2017, had a significant impact on our deferred tax position and provision for taxes at year-end 2017. The new legislation resulted in additional provisioning of $8.6 million during the fourth quarter of 2017.
While various tax strategies have been implemented to reduce the Company’s overall effective tax rate, the reduction in provisioning for taxes benefited from the enactment of the Tax Reform Act, resulting in a rate of 23.1% for 2018, a decrease from 45.9% in 2017 and 33.8% in 2016. Without the additional provision from the legislation, the effective rate for 2017 was 35.1%. For 2018, 2017 and 2016, a portion of investment banking fees, and legal and professional fees expended and related to bank acquisitions were not deductible for tax purposes. Additionally, changes in ASC Topic 718 -- Compensation-Stock Compensation, adopted in the third quarter of 2016, provided a tax benefit of $1.1 million, $1.1 million, and $0.8 million for 2018, 2017 and


2016, respectively. Taxes for 2018 also included taxes and penalties of $0.5 million on the redemption of First Green BOLI policies in the fourth quarter.
Management believes all of the future tax benefits of the Company’s deferred tax assets can be realized and no valuation allowance is required (see “Note L – Income Taxes”).

Fourth Quarter Review
Earnings highlights for the fourth quarter 2018:
•
Net income totaled $16.0 million, an increase of $2.9 million or 22% from the fourth quarter of 2017, and a decline of $0.4 million or 2% compared with third quarter 2018 levels. Adjusted net income(1) increased $6.6 million or 38% from fourth quarter 2017 levels and $6.3 million or 36% from third quarter 2018. Diluted earnings per common share (“EPS”) were $0.31 and adjusted diluted EPS(1) were $0.47 in the fourth quarter of 2018, compared to diluted EPS of $0.28 and adjusted diluted EPS(1) of $0.37 in the fourth quarter of 2017; and
Revenues decreased $2.2 million or 3% from fourth quarter 2017 levels, primarily due to the $15.2 million gain realized on the sale of Visa Class B stock in fourth quarter of 2017. Net interest income improved $11.8 million or 24% compared to fourth quarter 2017, due to organic growth and sweep repurchase agreements grew $32impact of the acquisitions settled during the fourth quarter of both 2018 and 2017.
(1) See pages 46-47, "Explanation of Certain Unaudited Non-GAAP Financial Measures."
Net interest income (on a tax-equivalent basis, a non-GAAP measure) for the fourth quarter 2018 totaled $60.1 million, a $11.7 million or 19%, versus 2015. In comparison, total deposits increased $42824% increase from the fourth quarter 2017 and $8.4 million or 18%16% higher than third quarter 2018. Net interest margin (on a tax-equivalent basis, a non-GAAP measure) increased to 4.00%, a 29 basis point increase from 2017, and sweep repurchase agreements18 basis points higher than third quarter 2018. Year-over-year net interest income growth was amplified by the acquisition of First Green. The margin increase year over year reflects increased $18loan and securities yields, reflecting the rising interest rate environment, and improved balance sheet mix. Linked quarter results reflect higher rates on deposits and higher loan accretion associated with the acquisition of First Green.
Noninterest income (excluding securities losses and gains and gain on sale of Class B Visa stock) totaled $13.1 million for the fourth quarter of 2018, an increase of $1.8 million or 12% during 2015, versus 2014. Deposits for 2016 included acquired balances15% from Floridianfourth quarter 2017 and BMO that aggregatedcompared to over $651$12.3 million in the third quarter 2018. Service charges on deposits, interchange income and other income increased the most year-over-year, increasing $0.5 million, $0.4 million and $1.5 million, respectively. Service charges on deposits and interchange income reflect continued growth and benefits from our acquisition activity, including the First Green, NorthStar and PBCB acquisitions in the fourth quarter of 2018 and 2017. Other income benefited from increased SBA fee income, a BOLI payout, increased SBIC investment income, and higher other miscellaneous related fees associated with the acquisition of First Green. Partially offsetting, mortgage banking fees declined $0.7 million for 2015 included acquired depositsthe fourth quarter, year over year, the result of nearly $189continued tight inventory levels and increasing customer demand for new home construction.

Noninterest expenses for the fourth quarter 2018 totaled $49.5 million, up 26% from 2017 and 32% higher than third quarter 2018. Of the $10.3 million increase year-over-year for fourth quarter 2018, salaries, wages and employee benefits increased $6.7 million, outsourced data processing grew $1.6 million, and occupancy and furniture and equipment costs (aggregated) were $1.1 million higher. The acquisitions of First Green, NorthStar and PBCB were the primary cause, although for 2018, the number of branch offices remained flat compared to year-end 2017. Fourth quarter 2018 expense also reflected merger related charges of $8.0 million from Grand. Mostthe First Green acquisition, including related severance. The most significant factor impacting the fourth quarter 2017’s noninterest expense was also merger related charges, totaling $6.8 million from acquisitions, and including related severance.
A provision for loan losses of $2.3 million was recorded in both fourth quarters for 2018 and 2017, respectively. Third quarter 2018’s provision for loan losses totaled $5.8 million, including an increase in provisioning of $3.1 million for a single impaired commercial real estate loan, subsequently charged off in the fourth quarter of 2018. Our fourth quarter 2017 provisioning reflects the effect of higher charge-offs, including a $0.6 million charge-off related to one customer whose business exporting to the Caribbean was significantly impacted by the hurricanes of 2017. For the fourth quarter of 2018, net charge-offs totaled $3.7 million, compared to $1.3 million for fourth quarter 2017.The allowance for loan losses to portfolio loans outstanding ratio at December 31, 2018 was 0.67%, compared to 0.71% a year earlier, and the coverage ratio (the allowance for loan losses to nonaccrual loans) was 122.5% at December 31, 2018 compared to 138.9% at December 31, 2017, reflecting improvement in credit quality.


Update on Vision 2020
Our Vision 2020 objectives were introduced at our investor day in early 2017. These targets are reiterated below. We feel confident in our ability to achieve these objectives.
Vision 2020 Targets
Year-End 2018(1)
Return on Tangible Assets1.30%+1.49%
Return on Tangible Common Equity16%+15.44%
Efficiency RatioBelow 50%54.19%
(1)Annualized fourth quarter 2018 results. See below for "Explanation of Certain Unaudited Non-GAAP Financial Measures."

Explanation of Certain Unaudited Non-GAAP Financial Measures
This report contains financial information determined by methods other than Generally Accepted Accounting Principles (“GAAP”), including adjusted net income, adjusted earnings per share, tax equivalent net interest income and margin, and adjusted noninterest expense and adjusted efficiency ratios. The most directly comparable GAAP measures are net income, earnings per share, net interest income, net interest margin, noninterest expense, and efficiency ratios. Management uses these non-GAAP financial measures in its analysis of the increaseCompany’s performance and believes these presentations provide useful supplemental information, and a clearer understanding of the Company’s performance. The Company believes the non-GAAP measures enhance investors’ understanding of the Company’s business and performance and if not provided would be requested by the investor community. These measures are also useful in sweep repurchase agreements during 2016understanding performance trends and 2015 was in public funds, principally from higher seasonal tax collector receipts from property owners.

facilitate comparisons with the performance of other financial institutions. The limitations associated with operating measures are the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might calculate these measures differently. The Company provides reconciliations between GAAP and these non-GAAP measures. These disclosures should not be considered an alternative to GAAP.


The tables below provide reconciliation between GAAP net income and adjusted net income.
  Quarters  
  Fourth Third Second First Total
(In thousands except per share data) 2018 2018 2018 2018 Year
Net income, as reported:  
  
  
  
  
Net income $15,962
 $16,322
 $16,964
 $18,027
 $67,275
Diluted earnings per share $0.31
 $0.34
 $0.35
 $0.38
 $1.38
           
Adjusted net income:  
  
  
  
  
Net income $15,962
 $16,322
 $16,964
 $18,027
 $67,275
          

BOLI benefits on death (included in other income) $(280) $—
 $—
 $—
 $(280)
Securities losses 425
 48
 48
 102
 623
Total adjustments to revenue 145
 48
 48
 102
 343
          

Merger related charges 8,034
 482
 695
 470
 9,681
Amortization of intangibles 1,303
 1,004
 1,004
 989
 4,300
Branch reductions and other expense initiatives 587
 —
 —
 —
 587
Total adjustments to noninterest expense 9,924
 1,486
 1,699
 1,459
 14,568
           
Tax effect of adjustments (2,623) (230) (443) (538) (3,834)
Taxes and tax penalties on acquisition-related BOLI redemption 485
 —
 —
 —
 485
Effect of change in corporate tax rate —
 —
 —
 248
 248
Adjusted net income $23,893
 $17,626
 $18,268
 $19,298
 $79,085
Adjusted diluted earnings per share $0.47
 $0.37
 $0.38
 $0.40
 $1.62


  Quarters  
  Fourth Third Second First Total
(In thousands except per share data) 2017 2017 2017 2017 Year
Net income, as reported:  
  
  
  
  
Net income $13,047
 $14,216
 $7,676
 $7,926
 $42,865
Diluted earnings per share $0.28
 $0.32
 $0.18
 $0.20
 $0.99
           
Adjusted net income:  
  
  
  
  
Net income $13,047
 $14,216
 $7,676
 $7,926
 $42,865
           
Gain on sale of VISA stock (15,153) —
 —
 —
 (15,153)
Securities (gains) losses (112) 47
 (21) —
 (86)
Total adjustments to revenue (15,265) 47
 (21) —
 (15,239)
           
Merger related charges 6,817
 491
 5,081
 533
 12,922
Amortization of intangibles 963
 839
 839
 719
 3,360
Business continuity expenses - Hurricane Irma —
 352
 —
 —
 352
Branch reductions and other expense initiatives(1)
 —
 (127) 1,876
 2,572
 4,321
Total adjustments to noninterest expense 7,780
 1,555
 7,796
 3,824
 20,955
           
Tax effect of adjustments 3,147
 (673) (2,786) (1,480) (1,792)
Effect of change in corporate tax rate 8,552
 —
 —
 —
 8,552
Adjusted net income $17,261
 $15,145
 $12,665
 $10,270
 $55,341
Adjusted diluted earnings per share $0.37
 $0.35
 $0.29
 $0.26
 $1.28
(1)Includes severance, contract termination costs, disposition of branch, premises and fixed assets, and other costs to effect our branch consolidation and other expense reduction strategies.
  Quarters  
  Fourth Third Second First Total
(In thousands except per share data) 2016 2016 2016 2016 Year
Net income, as reported:  
  
  
  
  
Net income $10,771
 $9,133
 $5,332
 $3,966
 $29,202
Diluted earnings per share $0.28
 $0.24
 $0.14
 $0.11
 $0.78
           
Adjusted net income:  
  
  
  
  
Net income $10,771
 $9,133
 $5,332
 $3,966
 $29,202
           
Securities gains (7) (225) (47) (89) (368)
BOLI benefits on death (included in other income) 0
 0
 0
 (464) (464)
Total adjustments to revenue (7) (225) (47) (553) (832)
           
Merger related charges 561
 1,699
 2,446
 4,322
 9,028
Amortization of intangibles 719
 728
 593
 446
 2,486
Branch reductions and other expense initiatives(1)
 163
 894
 1,587
 713
 3,357
Early redemption cost for FHLB advances —
 —
 1,777
 —
 1,777
Total adjustments to noninterest expense 1,443
 3,321
 6,403
 5,481
 16,648
           
Tax effect of adjustments (404) (1,168) (2,532) (1,845) (5,949)
Adjusted net income $11,803
 $11,061
 $9,156
 $7,049
 $39,069
Adjusted diluted earnings per share $0.31
 $0.29
 $0.24
 $0.20
 $1.04
(1)Includes severance, contract termination costs, disposition of branch, premises and fixed assets, and other costs to effect our branch consolidation and other expense reduction strategies.



Financial Condition

Total assets increased $1.15$0.9 billion or 32%16% year-over-year to $4.68$6.7 billion at December 31, 2016, after increasing $441.4 million2018, and $1.1 billion or 14%24% year-over-year to $3.53$5.8 billion in 2015.2017. Growth highlights were our acquisitions; Floridianacquisitions: First Green which closed March 11, 2016, BMOOctober 19, 2018, GulfShore which closed June 3, 2016, and GrandApril 7, 2017, NorthStar which closed July 17, 2015,October 20, 2017, and PBCB which closed November 3, 2017, expanding our presence in Central Florida, Tampa, and Palm Beach and Central Florida (particularly in the greater Tampa and Orlando market)markets), and increasing total assets by $417$817.4 million, $314$357.6 million, $216.3 million, and $215$357.0 million, respectively.

respectively, along with organic growth.

61 


Securities
Information related to yields, maturities, carrying values and fair value of the Company’s securities is set forth in Tables 13-16 and “Note D – Securities” of the Company’s consolidated financial statements.
At December 31, 2018, the Company had no trading securities, $865.8 million in securities available for sale, and $357.9 million in securities held to maturity. The Company's total debt securities portfolio decreased $142.5 million or 10% from December 31, 2017. Given the current interest rate environment, the securities portfolio is being used as a liquidity source to fund loan growth. For the twelve months ended December 31, 2018, debt security purchases aggregated to $72.5 million, and were less than maturities (principally pay-downs) over the same period. Debt security purchases during the first, second, third and fourth quarters of 2017 totaled $43.1 million, $212.9 million, $35.4 million and $220.1 million, respectively. Funding for investments in 2017 was derived from liquidity, both legacy and that acquired in mergers, and increases in funding from our core customer deposit base and FHLB borrowings.

During 2018, proceeds from the sales of lower yielding securities totaled $31.7 million (including net losses of $0.5 million). In comparison, proceeds from the sales of securities totaled $235.6 million (with net gains of $0.1 million) for 2017 and $40.4 million (including net gains of $0.4 million) for 2016. Management believes the securities sold had minimal opportunity to further increase in value.
Securities are generally acquired which return principal monthly. During 2018, maturities (primarily pay-downs of $198.0 million) totaled $199.5 million. During 2017, maturities (primarily pay-downs of $294.1 million) totaled $297.6 million and for 2016, maturities (primarily pay-downs of $175.1 million) totaled $176.6 million. The modified duration of the investment portfolio at

December 31, 2018 was 4.8 years, compared to 4.4 years at December 31, 2017.


At December 31, 2018, available for sale securities had gross unrealized losses of $18.3 million and gross unrealized gains of $1.3 million, compared to gross unrealized losses of $8.5 million and gross unrealized gains of $4.2 million at December 31, 2017. All of the securities with unrealized losses are reviewed for other-than-temporary impairment at least quarterly. As a result of these reviews it was determined that the securities were not other than temporarily impaired (see additional discussion under “Other Fair Value Measurements” and “Other than Temporary Impairment of Securities” in “Critical Accounting Policies and Estimates”).
Company management considers the overall quality of the securities portfolio to be high. The Company has no exposure to securities with subprime collateral. The Company does not have an investment position in trust preferred securities.
The credit quality of the Company’s securities holdings are primarily investment grade. As of December 31, 2018, the Company’s investment securities, except for $39.4 million of securities issued by states and their political subdivisions, generally are traded in liquid markets. U.S. Treasury and U.S. Government agency obligations totaled $865.7 million, or 71% of the total portfolio. The portfolio also includes $77.3 million in private label securities, most secured by residential real estate collateral originated in 2005 or prior years with low loan to values, and current FICO scores above 700. Generally these securities have credit support exceeding 5%. The collateral underlying these mortgage investments are primarily 30- and 15-year fixed rate, 5/1 and 10/1 adjustable rate mortgage loans. Historically, the mortgage loans serving as collateral for those investments have had minimal foreclosures and losses. The Company also has invested $241.4 million in uncapped 3-month LIBOR floating rate collateralized loan obligations. Collateralized loan obligations are special purpose vehicles that purchase 1st lien sub-investment grade corporate loans while providing support to senior tranche investors. As of December 31, 2018, the Company held 84% in AAA/AA tranches and 16% in A rated tranches with average credit support of 33% and 19%, respectively. The Company performs routine stress testing on these securities to assess both structure and collateral.


Loans
Total loans (net of unearned income and excluding the allowance for loan losses) were $4.8 billion at December 31, 2018, $1.0 billion or 26% more than at December 31, 2017, and were $3.8 billion at December 31, 2017, $0.9 billion or 33% more than at December 31, 2016. Loan Portfolio

production of $1.3 billion and $1.1 billion was retained in the loan portfolio during the twelve months ended December 31, 2018 and 2017, respectively. Seacoast generated loan growth across all business lines for 2018 and 2017. For 2018, $552.9 million in commercial and commercial real estate loans were originated compared to $482.7 million for 2017. Our loan pipeline for commercial and commercial real estate loans totaled $164.1 million at December 31, 2018, versus $118.9 million at December 31, 2017. The Company also closed $495.2 million in residential loans during 2018, compared to $574.1 million in 2017. The residential loan pipeline at December 31, 2018 totaled $43.7 million, versus $48.8 million at December 31, 2017. Consumer and small business originations totaled $443.4 million during 2018, compared to $354.4 million during 2017, and the pipeline for these loans totaled $53.5 million at December 31, 2018 compared to $38.8 million at a year ago at December 31, 2017.


Successful acquisition activity has further supplemented loan growth. The First Green acquisition in 2018, and GulfShore, NorthStar and PBCB acquisitions in 2017, contributed $631.5 million, $250.9 million, $136.8 million, and $270.3 million, respectively. During the third quarter of 2018, a $19.5 million pool of whole loan fixed rate mortgages with a weighted average yield of 4.15% and average FICO score of 775 was acquired and added to the portfolio. During the first quarter of 2017, we purchased a whole loan adjustable rate mortgage pool of $43.0 million with a weighted average yield of 3.20% and average FICO score of 751. Also in 2017, the Company sold two seasoned mortgage loan pools totaling $86.3 million ($58.0 million in the third quarter of 2017 and $28.3 million in the fourth quarter of 2017). The mortgage pools sold were believed to have reached their peak in market value and resulted in gains of $1.3 million during 2017. An $11.0 million Small Business Administration (“SBA”) loan pool acquired in 2017 had a weighted average yield of 3.00% at acquisition and was zero risk weighted for capital calculations. Success in commercial lending through continued investment in our business bankers has increased loan growth. Analytics and digital marketing have further fueled loan growth in the consumer and small business channels.

We will continue to expand our business banking teams, adding new, seasoned, commercial loan officers where market opportunities arise, and improving service through electronic and digital means. We believe that achieving our loan growth objectives, together with the prudent management of credit risk will provide us with the potential to make further, meaningful improvements to our earnings in 2019.
Our strong growth is accompanied by sound risk management procedures. Our lending policies contain numerous guardrails that pertain to lending by type of collateral and purpose, along with limits regarding loan concentrations and the dollar amount (size) of loans. Our exposure to commercial real estate lending is significantly below regulatory limits (see “Loan Concentrations”).
Table 7 shows total loans (net of unearned income) for commercial and residential real estate, commercial and financial and consumer loans outstanding for the last five years.

Total loans (net of unearned income and excluding the allowance for loan losses) were $2.88 billion at December 31, 2016, $723.2 million or 34% more than at December 31, 2015, and were $2.16 billion at December 31, 2015, $334.4 million or 18% more than at December 31, 2014. The Floridian and BMO acquisitions in 2016 and Grand acquisition in 2015, contributed $276 million, $64 million and $110 million in loans, respectively. Also, during the last six months of 2016, we purchased four separate mortgage loan pools aggregating to $63.5 million and a marine loan pool of $16.0 million (a total of $79.5 million in loans purchased), and sold two seasoned mortgage portfolio pools (summing to $70.6 million). The sale of mortgage pools believed to have reached their peak in market value resulted in gains of $0.9 million. Success in commercial lending through our legacy franchise and through our Accelerate banking model has increased loan growth. Analytics and digital marketing have further fueled loan growth in the consumer and small business channels. Loan production of $979 million and $688 million was retained in the loan portfolio during the twelve months ended December 31, 2016 and 2015, respectively. Successful acquisition activity has further supplemented our growth.

The following table details loan portfolio composition at December 31, 20162018 and 20152017 for portfolio loans, purchasepurchased credit impaired loans (“PCI”), and purchasepurchased unimpaired loans (“PUL”) as defined in Note E-Loans.

December 31, 2016 Portfolio Loans  PCI Loans  PUL's  Total 
  (Dollars in thousands) 
Construction and land development $137,480  $114  $22,522  $160,116 
Commercial real estate(1)  1,041,915   11,257   304,420   1,357,592 
Residential real estate  784,290   684   51,813   836,787 
Commercial and financial  308,731   941   60,917   370,589 
Consumer  152,927   0   1,018   153,945 
Other loans  507   0   0   507 
NET LOAN BALANCES $2,425,850  $12,996  $440,690  $2,879,536 

December 31, 2015 Portfolio Loans  PCI Loans  PUL's  Total 
  (Dollars in thousands) 
Construction and land development $97,629  $114  $11,044  $108,787 
Commercial real estate(1)  776,875   9,990   222,513   1,009,378 
Residential real estate  678,131   922   44,732   723,785 
Commercial and financial  188,013   1,083   39,421   228,517 
Consumer  82,717   0   2,639   85,356 
Other loans  507   0   0   507 
NET LOAN BALANCES $1,823,872  $12,109  $320,349  $2,156,330 

(1)
  December 31, 2018
(In thousands) Portfolio Loans PCI Loans PULs Total
Construction and land development $301,473
 $151
 $141,944
 $443,568
Commercial real estate(1)
 1,437,989
 10,828
 683,249
 2,132,066
Residential real estate 1,055,525
 2,718
 266,134
 1,324,377
Commercial and financial 603,057
 737
 118,528
 722,322
Consumer 190,207
 —
 12,674
 202,881
Net Loan Balances(2)
 $3,588,251
 $14,434
 $1,222,529
 $4,825,214


  December 31, 2017
(In thousands) Portfolio Loans PCI Loans PULs Total
Construction and land development $215,315
 $1,121
 $126,689
 $343,125
Commercial real estate(1)
 1,170,618
 9,776
 459,598
 1,639,992
Residential real estate 845,420
 5,626
 187,764
 1,038,810
Commercial and financial 512,430
 894
 92,690
 606,014
Consumer 178,826
 —
 10,610
 189,436
Net Loan Balances(2)
 $2,922,609
 $17,417
 $877,351
 $3,817,377
(1)Commercial real estate includes owner-occupied balances of $970.2 million and $791.4 million at December 31, 2018 and 2017, respectively.
(2)Commercial real estate includes owner-occupied balances of $623.8 million and $453.3 million at December 31, 2016 and 2015, respectively.

Net loan balances at December 31, 20162018 and 2015 are net of2017 include deferred costs of $4.4$16.9 million and $7.7$12.9 million, respectively.


Commercial real estate mortgages increased $348.2loans were higher by $492.1 million or 35% to $1.3630% totaling $2.1 billion at December 31, 2016,2018, compared to December 31, 2015, a result2017. Owner occupied loans represent $970.2 million or 46% of improving loan production and loans acquired in the mergers.commercial real estate portfolio. Office building loans of $341.6$630.0 million or 25%30% of commercial real estate mortgages, comprise our largest concentration with a substantial portion owner-occupied. Portfolio composition also includes lending for retail trade, industrial, healthcare,health care, churches and educational facilities, recreation, multifamily, mobile home parks, lodging, restaurants, agriculture, convenience stores, marinas, and other types of real estate.

The Company’s ten largest commercial real estate funded and unfunded loan relationships at December 31, 20162018 aggregated to $153.0$218.6 million (versus $119.8$169.7 million a year ago), of which $148.5$162.5 million was funded. The Company’s 65128 commercial real estate relationships in excess of $5 million totaled $564.3 million,$1.3 billion, of which $502.1 million$1.0 billion was funded (compared to 4789 relationships of $370.9$803.5 million a year ago, of which $322.6$684.2 million was funded).

Fixed rate and adjustable rate loans secured by commercial real estate, excluding construction loans, was $1.042totaled approximately $1.6 billion and $315$533.4 million, respectively, at December 31, 2016,2018, compared to $743 million$1.2 billion and $266$410.0 million, respectively, a year ago.

at December 31, 2017.


Reflecting the impact of organic loan growth and the FloridianFirst Green, GulfShore, NorthStar and BMOPBCB loan acquisitions, commercial loans (“C&I”) outstanding at year-end 20162018 increased to $370.6$722.3 million, up substantially from $228.5$606.0 million a year ago.at December 31, 2017. 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 smallsmall- to medium sizedmedium-sized businesses, including, but not limited to, the effects of a downturn in the local economy, possible business failure, and insufficient cash flows.

Residential mortgage loans increased $113$285.6 million or 16%27% year-over-year to $837 million$1.3 billion as of December 31, 2016.2018. Substantially all residential originations have been underwritten to conventional loan agency standards, including loans having balances that exceed agency value limitations. During 2016, $642018 and 2017, $19.5 million and $43.0 million of whole loan mortgages were acquired and added to the portfolio.portfolio, respectively. At December 31, 2016,2018, approximately $418$618.1 million or 50%47% of the Company’s residential mortgage balances were adjustable 1-4 family mortgage loans (including hybrid adjustable rate mortgages). Fixed rate mortgages totaled approximately $210$370.2 million (25%or 28% of the residential mortgage portfolio)portfolio at December 31, 2016,2018, of which 15- and 30-year mortgages totaled $24$32.1 million and $153$276.5 million, respectively. Remaining fixed rate balances were comprised of home improvement loans totaling $78$135.8 million, most with maturities of 10 years or less and homeless. Home equity lines of credit, primarily floating rates, totaling $164totaled $261.9 million at December 31, 2016.2018. In comparison, loans secured by residential properties having fixed rates totaled $110$246.9 million at December 31, 2015,2017, with 15- and 30-year fixed rate residential mortgages totaling $25$22.2 million and $85$172.9 million, respectively, and home equity mortgages and lines of credit totaled $69$123.1 million and $114$233.3 million, respectively.

The Company also provides consumer loans (including installment loans, loans for automobiles, boats, and other personal, family and household purposes) which increased $68.6$13.0 million or 80%7% year over year and totaled $153.9$201.7 million at December 31, 2018 (versus $85.4$188.7 million a year ago)at December 31, 2017). Of the $68.6$13.0 million increase, $32.4 million was inautomobile and truck loans, marine loans, $4.3and other consumer loans increased $1.5 million, $4.8 million and $6.8 million, respectively. In comparison, consumer loans increased $34.8 million or 23% year over year for 2017 compared to year-end 2016, with nominal changes in automobile and truck loans and $31.9other consumer loans, but a $35.1 million increase in other consumermarine loans. Marine loans at December 31, 2016 include $15.52017 included $10.8 million infrom a purchased loan poolspool acquired duringin 2016, and management has chosen to retain a larger portion of marine production in the third quarter of 2016.

portfolio.

At December 31, 2016,2018, the Company had unfunded commitments to make loans of $532.1$982.7 million, compared to $343.2$807.7 million at December 31, 20152017 (see “Note P - Contingent Liabilities and Commitments with Off-Balance Sheet Risk” to the Company’s consolidated financial statements).



Loan Concentrations

The Company has developed guardrails to manage to loan types that are most impacted by stressed market conditions in order to achieve lower levels of credit loss volatility in the future. CommercialOutstanding balances for commercial and commercial real estate ("CRE") loan relationships greater than $10 million totaled $217.3$502.1 million, and represent 8%representing 10% of the total portfolio at December 31, 2016,2018, compared to $161.7 million or 13% at year-end 2010.


Concentrations in total construction and land development loans and total CRE loans are maintained well below regulatory limits. Construction and land development and commercial real estateCRE loan concentrations as a percentage of total risk based capital, were stable at 39%63% and 214%227%, respectively, at December 31, 2016.2018. Regulatory guidance suggests limits of 100% and 300%, respectively.

The To determine these ratios, the Company defines commercial real estateCRE in accordance with the guidance on “Concentrations in Commercial Real Estate Lending” (the “Guidance”) issued by the federal bank regulatory agencies in 2006 (and reinforced in 2015), which defines commercial real estate (“CRE”)CRE loans as exposures secured by land development and construction, including 1-4 family residential construction, multi-familymultifamily property, and non-farm nonresidential property where the primary or a significant source of repayment is derived from rental income associated with the property (i.e. loans for which 50 percent or more of the source of repayment comes from third party, non-affiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. Loans to real estate investment trusts, or “REITs”, and unsecured loans to developers that closely correlate to the inherent risks in CRE markets would also be considered CRE loans under the Guidance. Loans on owner occupied CRE are generally excluded.

Nonperforming Loans, Troubled Debt Restructurings, Other Real Estate Owned, and Credit Quality

Table 12 provides certain information concerning nonperforming assets for the years indicated.

Nonperforming assets (“NPAs”) at December 31, 20162018 totaled $28.0$39.3 million, and were comprised of $11.0$15.8 million of nonaccrual portfolio loans, $7.1$10.7 million of nonaccrual purchased loans, $3.0$0.4 million of non-acquired other real estate owned (“OREO”), $1.2$3.0 million of acquired OREO and $5.7$9.4 million of branches out of service. NPAs increased from $24.4 million recorded as ofat December 31, 20152018 from $27.2 million at December 31, 2017 (comprised of $12.8$12.6 million of nonaccrual portfolio loans, $4.6$7.0 million of nonaccrual purchased loans, and $3.7$2.2 million of non-acquired OREO, and $3.3$1.6 million of acquired OREO)OREO, and $3.8 million of branches out of service). At December 31, 2016,2018, approximately 98%87% of nonaccrual loans were secured with real estate. See the tables below for details about nonaccrual loans. At December 31, 2016,2018, nonaccrual loans have been written down by approximately $2.8$4.3 million or 14% of the original loan balance (including specific impairment reserves). During 2016,2018, total OREO increased $2.9$5.2 million or 41%68%, primarily related to seven branches consolidated and taken out of service during 2018, with balances for closed branches increasing $6.3 million from September 30, 2018 and $5.6 million from year end 2017. A single residence valued at $3.8 million (added to acquired OREO during the first quarter of 2018) was subsequently sold in 2016 that are actively being marketed.

the third quarter of 2018.

Nonperforming loans to total loans outstanding at December 31, 2018 increased to 0.55% from 0.51% at December 31, 2017.
The Company’s asset mitigation staff handles all foreclosure actions together with outside legal counsel.

The Company pursues loan restructurings in selected cases where it expects to realize better values than may be expected through traditional collection activities. The Company has worked with retail mortgage customers, when possible, to achieve lower payment structures in an effort to avoid foreclosure. TDRsTroubled debt restructurings (“TDRs”) have been a part of the Company’s loss mitigation activities and can include rate reductions, payment extensions and principal deferrals. Company policy requires TDRs that are classified as nonaccrual loans after restructuring remain on nonaccrual until performance can be verified, which usually requires six months of performance under the restructured loan terms. Accruing restructured loans totaled $17.7$13.3 million at December 31, 20162018 compared to $20.0$15.6 million at December 31, 2015.2017. Accruing TDRs are excluded from our nonperforming asset ratios. The tables below set forth details related to nonaccrual and accruing restructured loans.

           Accruing 
December 31, 2016 Nonaccrual Loans  Restructured 
(In thousands) Non-Current  Performing  Total  Loans 
Construction & land development                
Residential $0  $258  $258  $262 
Commercial  0   0   0   44 
Individuals  0   212   212   243 
   0   470   470   549 
Residential real estate mortgages  1,635   8,209   9,844   10,878 
Commercial real estate mortgages  2,093   5,248   7,341   5,933 
Real estate loans  3,728   13,927   17,655   17,360 
Commercial and financial  246   0   246   0 
Consumer  67   103   170   351 
TOTAL $4,041  $14,030  $18,071  $17,711 



  December 31, 2018
  Nonaccrual Loans 
Accruing
Restructured
(In thousands) Non-Current Current Total Loans
Construction & land development  
  
  
  
Residential $—
 $—
 $—
 $—
Commercial —
 —
 —
 14
Individuals 16
 28
 44
 170
  16
 28
 44
 184
         
Residential real estate mortgages 5,567
 8,141
 13,708
 7,176
Commercial real estate mortgages 7,720
 1,500
 9,220
 5,662
Real estate loans 13,303
 9,669
 22,972
 13,022
         
Commercial and financial 2,488
 833
 3,321
 —
Consumer 108
 75
 183
 324
Total loans $15,899
 $10,577
 $26,476
 $13,346
At December 31, 20162018 and 2015,2017, total TDRs (performing and nonperforming) were comprised of the following loans by type of modification:


  2016  2015 
(Dollars in thousands) Number  Amount  Number  Amount 
Rate reduction  81  $14,472   91  $15,776 
Maturity extended with change in terms  56   6,975   56   7,143 
Forgiveness of principal  0   0   0   0 
Chapter 7 bankruptcies  36   2,308   44   2,693 
Not elsewhere classified  13   1,739   14   1,808 
TOTAL  186  $25,494   205  $27,420 

  December 31, 2018 December 31, 2017
(Dollars in thousands) Number Amount Number Amount
Rate reduction 56
 $10,739
 71
 $12,843
Maturity extended with change in terms 48
 5,083
 51
 5,803
Chapter 7 bankruptcies 22
 1,275
 28
 1,812
Not elsewhere classified 11
 966
 11
 1,190
Total loans 137
 $18,063
 161
 $21,648
During the twelve months ended December 31, 2016,2018, there were 4 newly identified TDRs totaled $2.0totaling $0.2 million, compared to $2.6$0.1 million for 2015.all of 2017. 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, 20162018 defaulted during the twelve months ended December 31, 2016, the same as for 2015.2018, or during 2017. A restructured loan is considered in default when it becomes 90 days or more past due under the modified terms, has been transferred to nonaccrual status, or has been transferred to OREO.

At December 31, 2016,2018, loans (excluding PCI loans) totaling $32.7$36.7 million were considered impaired (comprised of total nonaccrual, loans 90 days or more past due, and TDRs) and $2.5$2.7 million of the allowance for loan losses was allocated for potentialprobable losses on these loans, compared to $32.7$30.3 million and $2.5$2.4 million, respectively, at December 31, 2015.

2017.


In accordance with regulatory reporting requirements, loans are placed on nonaccrual following the Retail Classification of Loan interagency guidance. Typically loans 90 days or more past due are reviewed for impairment, and if deemed impaired, are placed on nonaccrual. Once impaired, the current fair market value of the collateral is assessed and a specific reserve and/or charge-off taken. Quarterly thereafter, the loan carrying value is analyzed and any changes are appropriately made as described above.


Cash and Cash Equivalents, Liquidity Risk Management and Contractual Commitments

Cash and cash equivalents (including interest bearing deposits), totaled $109.6$116.0 million on a consolidated basis at December 31, 2016,2018, compared to $136.1$109.5 million at December 31, 2015.

2017.

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.

The table below presents maturities of our funding. In this table, all deposits with indeterminate maturities such as interest bearing and noninterest bearing demand deposits, savings accounts and money market accounts are presented as having a maturity of one year or less. We consider these low cost no-cost deposits to be our largest, most stable funding source, despite no contracted maturity.


Contractual Obligations

  December 31, 2016 
        Over One  Over Three    
     One Year  Year Through  Years Through  Over Five 
(In thousands) Total  or Less  Three Years  Five Years  Years 
Deposit maturities $3,523,245  $3,385,027  $84,419  $52,010  $1,789 
Short-term borrowings  204,202   204,202   0   0   0 
FHLB borrowings  415,000   415,000   0   0   0 
Subordinated debt  70,241   0   0   0   70,241 
Operating leases  31,568   5,325   8,239   5,575   12,429 
TOTAL $4,244,256  $4,009,554  $92,658  $57,585  $84,459 

  December 31, 2018
    One Year 
Over One
Year Through
 
Over Three
Years Through
 Over Five
(In thousands) Total or Less Three Years Five Years Years
Deposit maturities $5,177,240
 $4,936,266
 $216,498
 $23,237
 $1,239
Short-term borrowings 214,323
 214,323
 —
 —
 —
FHLB borrowings 380,000
 380,000
 —
 —
 —
Subordinated debt 70,804
 —
 —
 —
 70,804
Operating leases(1)
 36,889
 6,671
 10,293
 6,685
 13,240
Total $5,879,256
 $5,537,260
 $226,791
 $29,922
 $85,283
(1)Of the $36.9 million, approximately $7.1 million is related to offices taken out of service (closed).
Funding sources primarily include customer-based core deposits, collateral-backed borrowings, cash flows from operations, cash flows from our loan and investment portfolios and asset sales (primarily secondary marketing for residential real estate mortgages and marine financings). Cash flows from operations are a significant component of liquidity risk management and we consider both deposit maturities and the scheduled cash flows from loan and investment maturities and payments.

payments when managing risk.

Deposits are also a primary source of liquidity. The stability of this funding source is affected by numerous factors, including returns available to customers on alternative investments, the quality of customer service levels, perception of safety and soundness 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.

borrower-in-custody program.


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, debt securities heldavailable 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, 2016,2018, Seacoast Bank had available unsecured lines of $75$130.0 million and lines of credit under current lendable collateral value, which are subject to change, of $578$781.7 million. Seacoast Bank had $688$665.7 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 $378$869.8 million in residential and commercial real estate loans available as collateral. In comparison, at December 31, 2015, the Company2017, Seacoast Bank had available unsecured lines of $40$95.0 million and lines of credit under current lendable collateral value, which are subject to change, of $886 million, and$1.01 billion. Seacoast Bank had $510$455.1 million of United States Treasury and Government agency securities and mortgage backed securities not pledged and available for use under repurchase agreements, as well asand had an additional $277$593.5 million in residential and commercial real estate loans available as collateral.

The Company does not rely on and is not dependent on off-balance sheet financing or significant amounts of wholesale funding.

Brokered certificates of deposit ("CDs") at December 31, 2018 total $220.6 million, compared to $217.4 million at year-end 2017. All of the brokered CDs at December 31, 2018 have maturities of 12 months or less and will mature in 2019.

The Company has traditionally relied upon dividends from Seacoast Bank and securities offerings to provide funds to pay the Company’s expenses and to service the Company’s debt. At December 31, 2016,2018, Seacoast Bank canwas permitted to distribute dividends to the Company of approximately $61.0$134.5 million. At December 31, 2016,2018, the Company had cash and cash equivalents at the parent of approximately $13.3$40.3 million, compared to $43.7$34.3 million (exclusive of $21.3 million that settled in early 2018 for the sale of Visa Class B stock) at December 31, 2015,2017, with the decreaseincrease directly related to the Company’s offering of common stock in February 2017 (see “Note N – Shareholders’ Equity”), net of cash paid in the Floridian acquisitionGulfShore, NorthStar and PBCB acquisitions (see “Note S – Business Combinations”).

Securities

Information related to yields, maturities, carrying values and fair value of the Company’s securities is set forth in Tables 13-16 and “Note D – Securities” of the Company’s consolidated financial statements.

At December 31, 2016, the Company had no trading securities, $950.5 million in securities available for sale, and $372.5 million in securities held to maturity. The Company's total securities portfolio increased $328.7 million or 33% from December 31, 2015. During the first quarter of 2016, securities totaling $66.9 million were added from Floridian. Security purchases during the first and second quarter of 2016 of $258.3 million were primarily to utilize anticipated cash to be received by Seacoast from BMO, with an increase of $203.4 million in securities held to maturity during the second quarter (almost a doubling from the first quarter of 2016). Security purchases during the third quarter of 2016 were more limited, totaling only $13 million, and totaled $130 million in the fourth quarter of 2016. These efforts were primary to the overall increase in the securities portfolio during 2016. For 2015, securities totaling $46.4 million were added from Grand during the third quarter. Funding for investments was derived from liquidity, both legacy and that acquired in mergers, and increases in funding from our core customer deposit base and FHLB borrowings.

During 2016, proceeds from the sales of securities totaled $40.4 million (including net gains of $0.4 million). In comparison, proceeds from the sales of securities totaled $60.5 million (including net gains of $0.2 million) for 2015, and proceeds from the sale of securities totaled $21.9 million for 2014 (including net gains of $0.5 million). Management believes the securities sold had minimal opportunity to further increase in value.

Securities are generally acquired which return principal monthly. During 2016, maturities (primarily pay-downs of $175.1 million) totaled $176.6 million. During 2015, maturities (primarily pay-downs of $146.6 million) totaled $147.1 million and for 2014 maturities totaled $108.7 million (including $107.8 million in pay-downs). The modified duration of the investment portfolio at December 31, 2016 was 4.1 years, compared to 3.7 years at December 31, 2015.

At December 31, 2016, available for sale securities had gross unrealized losses of $14.1 million and gross unrealized gains of $3.8 million, compared to gross unrealized losses of $10.8 million and gross unrealized gains of $3.0 million at December 31, 2015. 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 “Other Fair Value Measurements” and “Other than Temporary Impairment of Securities” in “Critical Accounting Policies and Estimates”).


Company management considers the overall quality of the securities portfolio to be high. The Company has no exposure to securities with subprime collateral. The Company does not have an investment position in trust preferred securities.


Deposits and Borrowings

The Company’s balance sheet continues to be primarily funded by core funded.

deposits.

Total deposits increased $678.9$584.5 million or 24%13% to $3.52$5.2 billion at December 31, 2016,2018, compared to December 31, 2017. Excluding the First Green acquisition, total deposits decreased $50.3 million or 1% from December 31, 2017. In comparison, total deposits increased $1.1 billion or 30% to $4.6 billion at December 31, 2017, compared to one year earlier. Excluding the FloridianGulfShore, NorthStar and BMOPBCB acquisitions, total deposits increased $27.3$123.0 million or 1%4% from December 31, 2015. Deposit growth since year-end 2015 was impacted by declines in public fund balances, which decreased by more than $36 million during 2016.

Since December 31, 2015,2017, interest bearing deposits (interest bearing demand, savings and money markets deposits) increased $327.1$265.2 million or 19%11% to $2.02$2.7 billion at December 31, 2018, noninterest bearing demand deposits increased $293.9$169.4 million or 34%12% to $1.15$1.6 billion, and CDs increased $57.9$149.9 million or 20%19% to $351.9$925.8 million. Excluding acquired deposits, noninterest demand deposits were $109.6lower by $7.0 million or 13% higherslightly less than 1% from year-end 2015, and represent 33%2017, but still represented 30% of deposits, compared to 30%the same as at December 31, 2015.2017. Core deposit growth reflects our success in growing householdsrelationships both organically and through acquisitions.

Additions

The addition of CDs from the First Green acquisition has been the primary contributor to CDs and the increase in CDs during 2018, whereas an increase in 2016 year over year have come primarilybrokered CDs through prior, multiple acquisitions duringcontributed to higher CD balances for 2017, compared to 2016. An intentional decrease in higher cost time deposits was recorded over the two years prior to 2016’s acquisitions, and was more than offset by increases in low cost or no cost deposits.

Customer repurchase agreements totaled $204.2$214.3 million at December 31, 2016, increasing $32.22018, decreasing $1.8 million or 19%1% from December 31, 2015. The repurchase2017, after increasing $11.9 million or 6% at year-end 2017 from December 31, 2016. Repurchase agreements are offered by Seacoast to select customers who wish to sweep excess balances on a daily basis for investment purposes. Public funds comprise a significant amount of the outstanding balance.

No unsecured federal funds purchased were outstanding at December 31, 2016 nor 2015.

2018, or 2017.


At December 31, 20162018 and 2015,2017, borrowings were comprised of subordinated debt of $70.2$70.8 million and $70.0$70.5 million, respectively, related to trust preferred securities issued by trusts organized or acquired by the Company, and borrowings from the FHLB of $415.0$380.0 million and $50.0$211.0 million, respectively. At December 31, 2016,2018 and 2017, our FHLB borrowings were substantially all maturing within 30 days, with the exception of $63.0 million that mature in April and June 2019, and the 30-day rate for FHLB funds at year-end 2018 and 2017 was 0.61%. In2.45% and 1.39%, respectively. During the second quarter of 2016, we paid an early redemption costfee of $1.8 million related to prepayment of the $50.0 million of FHLB advances having a weighted average cost of 3.22% and scheduled to mature in late 2017 (see “Noninterest Expense”"Noninterest Expense"). The two FHLB advances redeemedcomprising the $50.0 million redemption had been outstanding since 2007.

Secured FHLB borrowings are an integral tool in liquidity management for the Company.

The Company has twoissued subordinated debt in conjunction with its wholly owned trust subsidiaries, SBCF Capital Trust I and SBCF Statutory Trust II that were both formed in 2005. In 2007, the Company formed anissued additional subordinated debt for its wholly owned trust subsidiary, SBCF Statutory Trust III. The 2005 trustssubordinated debt for each issued $20.0trust totaled $20.6 million (totaling $40.0(aggregating to $41.2 million) of trust preferred securities and the 2007 trust issued an additional $12.0 million in trust preferred securities.subordinated debt totaled $12.4 million. As part of the October 1, 2014 The BANKshares Inc. (“BANKshares”) acquisition, the Company inherited three junior subordinated debentures totaling $5.2 million, $4.1 million, and $5.2 million, respectively. Also, as part of the Grand acquisition, the Company inherited an additional junior subordinated debenture totaling $7.2 million. The acquired junior subordinated debentures (in accordance with ASUASC Topic 805 Business Combinations)Combinations) were recorded at fair value, which collectively is $5.1$4.5 million lower than face value at December 31, 2016.2018. This amount is being amortized into interest expense over the acquired subordinated debts’ remaining term to maturity. All trust preferred securities are guaranteed by the Company on a junior subordinated basis.

Under Basel III and Federal Reserve rules, qualified trust preferred securities and other restricted capital elements can be included as Tier 1 capital, within limitations. The Company believes that its trust preferred securities qualify under these capital rules. The weighted average interest rate of our outstanding subordinated debt related to trust preferred securities was 2.47%4.48% for the twelve month period ended December 31, 2016,2018, compared to 2.43%3.47% for all of 2015.

2017.

Go to “Note I – Borrowings” of our consolidated financial statements for more detailed information pertaining to borrowings.



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. For loan commitments, the contractual amount of a commitment represents the maximum potential credit risk that could result if the entire commitment had been funded, the borrower had not performed according to the terms of the contract, and no collateral had been provided. A large majority of loan commitments and standby letters of credit expire without being funded, and accordingly, total contractual amounts are not representative of 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 are 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 $532$982.7 million at December 31, 2016,2018, and $343$807.7 million at December 31, 20152017 (see “Note P-Contingent Liabilities and Commitments with Off-Balance Sheet Risk” to the Company’s consolidated financial statements).


Capital Resources

and Management

Table 6 summarizes the Company’s capital position and selected ratios.

The Company’s equity capital at December 31, 2016 increased $81.9 million to $435.4 million since December 31, 2015, and was $40.8 million higher at December 31, 2015, when compared to year-end 2014.


The ratio of shareholders’ equity to period end total assets was 9.30%12.81% and 10.00%11.87% at December 31, 20162018 and 2015,2017, respectively. The ratio of tangible shareholders’ equity to tangible assets was 9.72% and 9.27% at December 31, 2018 and 2017, respectively. Equity primarilyhas also increased fromas a combinationresult of earnings retained by the Company.
Activity in shareholders’ equity for the year ended December 31, 2018 and 2017 follows: 
  For the Year Ended December 31,
(In thousands) 2018 2017
Beginning balance at January 1, 2018 and 2017 $689,664
 $435,397
Net income 67,275
 42,865
Issuance of stock via common stock offering on February 21, 2017 —
 55,641
Issuance of stock pursuant to acquisition of First Green Bancorp, Inc. (2018), GulfShore Bancshares, Inc., NorthStar Banking Corporation, and Palm Beach Community Bank (2017) 107,486
 146,547
Stock compensation (net of Treasury shares acquired) 8,801
 5,211
Change in accumulated other comprehensive income (AOCI) (8,959) 4,003
Ending balance at December 31, 2018 and 2017 $864,267
 $689,664

The Company’s equity capital at December 31, 2018 increased $174.6 million to $864.3 million since December 31, 2017, and was $254.3 million higher at December 31, 2017, when compared to year-end 2016.
On February 21, 2017, the Company closed on an offering of 8,912,500 shares of common stock, consisting of 2,702,500 shares sold by the Company and capital6,210,000 shares sold by one of $50.9its shareholders. Seacoast received proceeds (net of expense) of $55.6 million from the issuance of the 2,702,500 shares of its common stock. The Company has used and intends to use the net proceeds from the offering for general corporate purposes, including acquisitions completed, potential future acquisitions, and to support organic growth. Seacoast did not receive any proceeds from the sale of its shareholder’s shares (see “Note N – Shareholders’ Equity”).
The Company also issued common shares valued at $107.5 million, $62.9 million, $27.4 million, and $17.2$56.3 million issued in conjunction with the acquisitionacquisitions of FloridianFirst Green in 20162018 and GrandGulfShore, NorthStar and PBCB in 2015,2017, respectively. The Company issued shares of common stock as consideration for each of the mergers. The BMO purchase did not include an issuance of any equity. The ratio of shareholders’ equity to total assets declined during 2016 and 2015, as the Company successfully grew assets at a faster pace than equity over these periods.

Activity in shareholders’ equity for the twelve months ended December 31, 2016 and 2015 follows:

(Dollars in thousands) 2016  2015 
Beginning balance at January 1, 2015 and 2014 $353,453  $312,651 
Net income  29,202   22,141 
Issuanceof stock pursuant to acquisition of Floridian (2016) and Grand (2015)  50,913   17,172 
Stock compensation (net of Treasury shares acquired)  3,129   2,875 
Change in other comprehensive income  (1,300)  (1,386)
Ending balance at December 31, 2016 and 2015 $435,397  $353,453 

Capital ratios are well above regulatory requirements for well-capitalized institutions. Seacoast management’s use of risk-based capital ratios in its analysis of the Company’s capital adequacy are “non-GAAP”not GAAP financial measures. Seacoast’s management


uses these measures to assess the quality of capital and believes that investors may find it useful in their analysis of the Company. The capital measures are not necessarily comparable to similar capital measures that may be presented by other companies and Seacoast does not nor should investors consider such non-GAAP financial measures in isolation from, or as a substitute for GAAP financial information (see “Table 6 - Capital Resources” and “Note N – Shareholders’ Equity”).

  Seacoast  Seacoast  Minimum to be 
  (Consolidated)  Bank  Well-Capitalized* 
Common equity Tier 1 ratio (CET1)  10.79%  12.03%  6.5%
Tier 1 capital ratio  12.53%  12.03%  8.0%
Total risk-based capital ratio  13.25%  12.75%  10.0%
Leverage ratio  9.15%  8.78%  5.0%

* For subsidiary bank only

 

  
Seacoast
(Consolidated)
 
Seacoast
Bank
 
Minimum to be
Well-Capitalized(1)
Total Risk-Based Capital Ratio 14.43% 13.60% 10.0%
Tier 1 Capital Ratio 13.80% 12.97% 8.0%
Common Equity Tier 1 Ratio (CET1) 12.43% 12.97% 6.5%
Leverage Ratio 11.16% 10.49% 5.0%
(1)For subsidiary bank only
  
  
  
The Company’s total risk-based capital ratio was 13.25%14.43% at December 31, 2016, below our2018, an increase from December 31, 2015’s2017’s ratio of 16.01%14.24%. Larger pro rata cash payments and more modest amounts of common stock issued to Floridian shareholders, as well as ongoing reinvestment of liquidity into securities and loans with higher risk weightings and the addition of Floridian’s and BMO’s loans with higher risk weightings, wereHigher earnings have been a primary causes for Tier 1 and total risk-based capital ratios decreasing during 2016.contributor. As of December 31, 2016,2018, the Bank’s leverage ratio (Tier 1 capital to adjusted total assets) was 8.78%10.49%, compared to 9.36%9.72% at December 31, 2015, reflecting growth2017.

Accumulated other comprehensive income ("AOCI") declined $8.8 million during the twelve months ended December 31, 2018, and reflects the effectimpact of push down accountinghigher interest rates on Seacoast’s subsidiary bank’s capital.

available for sale securities.

On February 21, 2017, the Company closed on its offering of 8,912,500 shares of common stock, consisting of 2,702,500 shares sold by the Company and 6,210,000 shares sold by one of its shareholders. Seacoast received proceeds of $56.8 million from the issuance of the 2,702,500 shares of its common stock, without any reduction for legal and professional fees. The Company intends to use the net proceeds from the offering for general corporate purposes, including potential future acquisitions and to support organic growth. Seacoast did not receive any proceeds from the sale of its shareholder’s shares (see “Note N – Shareholders’ Equity”).

The Company and Seacoast Bank are subject to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The appropriate federal bank regulatory authority may prohibit the payment of dividends where it has determined that the payment of dividends would be an unsafe or unsound practice. The Company is a legal entity separate and distinct from Seacoast Bank and its other subsidiaries, and the Company’s primary source of cash and liquidity, other than securities offerings and borrowings, is dividends from its bank subsidiary. Without Office of the Comptroller of the Currency (“OCC”) approval, Seacoast Bank can pay $61.0$134.5 million of dividends to the Company (see “Note C - Cash, Dividend and Loan Restrictions”“Part I. Item 1. Business”).

The OCC and the Federal Reserve have policies that encourage banks and bank holding companies to pay dividends from current earnings, and have the general authority to limit the dividends paid by national banks and bank holding companies, respectively, if such payment may be deemed to constitute an unsafe or unsound practice. If, in the particular circumstances, either of these federal regulators determined that the payment of dividends would constitute an unsafe or unsound banking practice, either the OCC or the Federal Reserve may, among other things, issue a cease and desist order prohibiting the payment of dividends by Seacoast Bank or us, respectively. Under a recently adopted Federal Reserve policy, the board of directors of a bank holding company must consider different factors to ensure that its dividend level is prudent relative to the organization’s financial position and is not based on overly optimistic earnings scenarios such as any potential events that may occur before the payment date that could affect its ability to pay, while still maintaining a strong financial position. As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company, such as Seacoast, should consult with the Federal Reserve and eliminate, defer, or significantly reduce the bank holding company’s dividends if: (i) its net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) its prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective financial condition; or (iii) it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.


The Company has seven wholly owned trust subsidiaries, two of which, SBCF Capital Trust I and SBCF Statutory Trust II, that were both formed in 2005 to issuetrust 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. In 2015, as part of the Grand acquisition, the Company also acquired Grand Bankshares Capital Trust I that issued $7.2 million in trust preferred securities. Trust preferred securities from our acquisitions are recorded at fair value when acquired. All trust preferred securities are guaranteed by the Company on a junior subordinated basis. The Federal Reserve’s rules permit qualified trust preferred securities and other restricted capital elements to be included under Basel III capital guidelines, with limitations, and net of goodwill and intangibles. The Company believes that its trust preferred securities qualify under these revised regulatory capital rules and believes that it will be able to treat all $70.2$70.8 million of trust preferred securities as Tier 1 capital. For regulatory purposes, the trust preferred securities are added to the Company’s tangible common shareholders’ equity to calculate Tier 1 capital.



The Company’s capital is expected to continue to increase with positive earnings.

Results of Operations

Earnings Summary

The Company has steadily improved results over the past three years. Net income for 2016 totaled $29.2 million or $0.78 diluted earnings per share, compared to $22.1 million or $0.66 diluted earnings per share for 2015, and $5.7 million or $0.21 diluted earnings per share for 2014. Return on average assets (“ROA”) increased to 0.94% during the fourth quarter of 2016, and return on average equity (“ROE”) to 9.80% for the same period.

Adjusted net income, a non-GAAP measure (see page 92, “Explanation of Certain Unaudited Non-GAAP Financial Measures”), totaled $37.5 million and was $12.2 million or 48% higher year-over-year for the twelve months ended December 31, 2016. In comparison, adjusted net income increased $12.3 million or 95% during 2015, compared to 2014. Adjusted diluted earnings per share (see page 92, “Explanation of Certain Unaudited Non-GAAP Financial Measures”) of $1.00 for 2016, compared to $0.74 for 2015 and $0.47 for 2014. We added 24 offices during 2016, primarily through acquisitions, and closed 20 offices, with a net add of 4 offices and a total of 47 full-service offices at year-end 2016.

Data analytics and technology-assisted operational improvement are also helping us build efficiencies across our organization and drive process automation.

We believe that our success in increasing net income is the result of our success in significantly growing our businesses and balance sheet, while attaining operating efficiency. This success also reflects the success we have had in identifying and incorporating acquisitions.

Net Interest Income and Margin

Net interest income (on a fully taxable equivalent basis) for 2016 totaled $140.5 million, increasing $30.5 million or 28% as compared to 2015’s net interest income of $110.0 million, which increased by $34.8 million or 46% compared to 2014. The Company’s net interest margin decreased one basis point to 3.63% during 2016 from 2015, and increased 39 basis points to 3.64% during 2015 from 2014.


Loan growth, balance sheet mix and yield/cost management have been the primary forces affecting net interest income and net interest margin results during 2016. Acquisitions also contributed to net interest income growth. Organic loan growth (excluding acquisitions) year-over-year was $877 million, or 18%. Floridian loans, securities and deposits added $266 million, $67 million and $337 million, respectively, and the purchase of investment securities ahead of the BMO acquisition, which added $314 million in deposits and $63 million in loans, were contributors to net interest income improvement year-over-year for 2016, compared to 2015. The same full-year income growth dynamic occurred in 2015 compared to 2014, with the addition of BANKshares in the fourth quarter 2014 and Grand in July 2015 and $224 million of organic loan growth during the year. We expect 2017’s net interest income will continue to benefit from the full year impact of acquisitions completed in 2016.

The slight decrease in margin for 2016 year-over-year from 2015 reflects decreased loan yields, reflecting the current low interest rate environment, partially offset by improved balance sheet mix. Margin expansion in 2015 benefited from organic and acquisition related growth, strong loan growth and improving core yields more than compensated for decreasing purchased loan accretion by the end of 2015.

Table 2 presents the Company’s average balance sheets, interest income and expenses, and yields and rates, for the past three years.

The following table details the trend for net interest income and margin results (on a tax equivalent basis), and yield on earning assets and rate on interest bearing liabilities that has changed nominally for the past five quarters:

  Net Interest  Net Interest  Yield on  Rate on Interest 
(Dollars in thousands) Income (1)  Margin (1)  Earning Assets  Bearing Liabilities 
Fourth quarter 2015 $29,216   3.67%  3.90%  0.33%
First quarter 2016  30,349   3.68   3.92   0.34 
Second quarter 2016  34,801   3.63   3.85   0.31 
Third quarter 2016  37,735   3.69   3.90   0.30 
Fourth quarter 2016  37,628   3.56   3.78   0.31 

(1) On tax equivalent basis, a non-GAAP measure

Total average loans increased $599.8 million or 30% during 2016 compared to 2015, and increased $531.2 million or 36.6% during 2015 compared to 2014. Our average investment securities also increased $238.3 million or 25% during 2016 versus 2015, and $225.2 million or 31% during 2015..

For 2016, average loans (the highest yielding component of earning assets) as a percentage of average earning assets totaled 66.8%, compared to 65.6% a year ago and 62.8% for 2014 while interest earning deposits and other investments decreased to 2.2%, compared to 2.5% in 2015 and 5.4% in 2014, reflecting the Company’s significant effort to reduce excess liquidity. As average total loans as a percentage of earning assets increased, the mix of loans has improved, with volumes related to commercial real estate representing 50.2% of total loans at December 31, 2016 (compared to 49.8% at December 31, 2015 and 48.9% at December 31, 2014). Lower yielding residential loan balances with individuals (including home equity loans and lines, and personal construction loans) represented 31.6% of total loans at December 31, 2016 (versus 35.7% at December 31, 2015 and 39.6 percent at December 31, 2014) (see “Loan Portfolio”).


Commercial and commercial real estate loan production for 2016 totaled $432 million, with almost $145 million originated in the fourth quarter of 2015, compared to production for all of 2015 and 2014 of $299 million and $258 million, respectively. Closed residential loan production totaled $403 million, compared to production for all of 2015 and 2014 of $272 million and $225 million, respectively. During 2016, an additional $63.5 million of residential mortgage and $19.2 million of marine loan pools were purchased, and partially offset by $70.6 million in sales of seasoned pools of portfolio residential mortgages. The following chart details the trend for commercial and residential loans closed and pipelines for the past three years:

  Twelve Months Ended December 31, 
(Dollars in thousands) 2016  2015  2014 
          
Commercial/commercial real estate loan pipeline at year-end $88,814  $105,556  $60,136 
Commercial/commercial real estate loans closed  432,438   298,998   257,989 
             
Residential loan pipeline at year-end $72,604  $30,340  $21,351 
Residential loan originations retained  243,831   130,479   117,990 
Residential loan originations sold  159,554   141,352   107,112 

The securities portfolio has grown in size but remained a relatively constant percentage of the balance sheet. However, careful portfolio management has resulted in increased securities yields. In 2016 our securities yielded 2.31%, up from 2.21% in 2015 and 2.14% in 2014.

For 2016, the cost of average interest-bearing liabilities decreased 2 basis points to 0.31% from 2015. For 2015, this cost increased 1 basis point to 0.33% from 2014. The cost of our funding reflects the low interest rate environment and the Company’s successful core deposit focus that produced strong growth in core deposit customer relationships over the past several years. Excluding higher cost certificates of deposit (CDs), core deposits including noninterest bearing demand deposits at December 31, 2016 represent 90.0% of total deposits. The cost of average total deposits (including noninterest bearing demand deposits) for the fourth quarter of 2016 was 0.15%, compared to 0.12% and 0.11% for the fourth quarters of 2015 and 2014. Prospectively, the Company’s ability to further reduce the rate paid on deposits will be challenging to produce, due to more limited re-pricing opportunities, competition and an increasing rate environment. The following table provides trend detail on the ending balance components of our customer relationship funding for the past three year-ends:


Customer Relationship Funding December 31, 
(Dollars in thousands) 2016  2015  2014 
          
Noninterest demand $1,148,309  $854,447  $725,238 
Interest-bearing demand  873,727   734,749   652,353 
Money market  802,697   665,353   450,172 
Savings  346,662   295,851   264,738 
Time certificates of deposit  351,850   293,987   324,033 
Total deposits $3,523,245  $2,844,387  $2,416,534 
             
Customer sweep accounts $204,202  $172,005  $153,640 
             
Total core customer funding (1) $3,375,597  $2,722,405  $2,246,141 
             
Demand deposit mix  32.6%  30.0%  30.0%

 (1) Total deposits and customer sweep accounts, excluding time certificates of deposit

Short-term borrowings, principally comprised of sweep repurchase agreements with customers of Seacoast Bank, increased $19.4 million or 12% to average $187.6 million during 2016, after increasing $16.1 million or 11% to average $168.2 million for 2015, as compared to 2014. 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. No federal funds sold were utilized at December 31, 2016 and 2015.

FHLB borrowings, maturing in 30 days or less, totaled $415.0 million at December 31, 2016, with an average rate of 0.61% at year-end. Advances from the FHLB of $50.0 million at a fixed rate of 3.22% to mature in late 2017 were redeemed early in April 2016 with an early redemption penalty $1.8 million incurred. FHLB borrowings averaged $198.3 million for 2016, up from $64.7 million for 2015 and $69.8 million for 2014 (see “Note I – Borrowings” to the Company’s consolidated financial statements).

For 2016, average subordinated debt of $70.1 million related to trust preferred securities issued by subsidiary trusts of the Company (including subordinated debt for Grand and BANKshares added on July 17, 2015 and October 1, 2014) carried an average cost of 2.94%.

We have a positive interest rate gap and our net interest margin will benefit from rising interest rates. During 2016, the Federal Reserve increased its overnight interest rate by 25 basis points. Further increases in interest rates are currently expected for 2017 (see “Interest Rate Sensitivity”).

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.

76 

  Total  Fourth  Third  Second  First  Total  First 
  Year  Quarter  Quarter  Quarter  Quarter  Year  Quarter 
(Dollars in thousands 2016  2016  2016  2016  2016  2015  2015 
Nontaxable interest adjustment $925  $203  $287  $308  $127  $481  $116 
Tax rate  35%  35%  35%  35%  35%  35%  35%
Net interest income (TE) $140,514  $37,628  $37,735  $34,801  $30,349  $109,968  $29,216 
Total net interest income (not TE)  139,588   37,425   37,448   34,493   30,222   109,487   29,100 
Net interest margin (TE)  3.63%  3.56%  3.69%  3.63%  3.68%  3.64%  3.67%
Net interest margin (not TE)  3.61   3.54   3.66   3.60   3.67   3.62   3.66 

TE = Tax Equivalent

Noninterest Income

Noninterest income (excluding securities gains) totaled $37.4 million for 2016, higher by $5.4 million 17%. For 2015, noninterest income (excluding securities gains and bargain purchase gain) totaled $32.0 million for 2015, 29% higher than for 2014. For 2014, noninterest income of $24.7 million was $0.4 million or 2% higher than for 2013. Noninterest income accounted for 21.1% of total revenue (net interest income plus noninterest income, excluding securities gains and the bargain purchase gain), compared to 22.6% a year ago and 24.8% for 2014 (on the same basis) as net interest income growth, helped by expanding net interest margin, outpaced a strong increase in noninterest income. Digitally driven product marketing and service delivery, combined with organic and acquisition-related household growth, were primary to growth occurring in noninterest income during 2016 and 2015.

Table 4 provides detail regarding noninterest income components for the past three years.

For 2016, most categories of service fee income showed strong year over year growth compared to 2015, with service charges on deposit accounts increasing $1.1 million or 13% to $9.7 million, interchange income up $1.5 million or 20% to $9.2 million, and other deposit based EFT charges up 20% to $0.5 million. These increases reflect continued strength in customer acquisition and cross sell and benefits from acquisition activity. Overdraft fees represent 60% of total service charges on deposits for 2015, versus 67% for 2015. Overdraft fees totaled $5.8 million during 2016, up nominally from 2015. Regulators continue to review banking industry’s practices for overdraft programs and additional regulation could reduce fee income for the Company’s overdraft services. Interchange revenue is dependent upon business volumes transacted, as well as the fees permitted by VISA® and MasterCard®.


Wealth management, including brokerage commissions and fees, and trust income, increased during 2016, growing by $0.2 million or 4%. Growth was driven by revenues from the Company’s trust business and partially offset a slight decline in brokerage fees, a result of our transition from transaction fee-based sales to an investment management model.

Mortgage production was higher during 2016 (see “Loan Portfolio”), with mortgage banking activity generating fees of $5.9 million which were $1.6 million or 38% higher, compared to 2015. Originated residential mortgage loans are processed by commissioned employees of Seacoast, with many mortgage loans referred by the Company’s branch personnel. During 2016, two pools of seasoned portfolio mortgage were sold, generating gains of $0.9 million.

Seacoast chose to keep in its portfolio more of its marine financing during 2016. Marine lending business volumes sold during 2016 were lower, negatively impacting fees from marine financing which declined $0.5 million or 42% from 2015 levels. In addition to our principal office in Ft. Lauderdale, Florida, we continue to use third party independent contractors on the West coast of the United States to assist in generating marine loans.

During 2016, BOLI income totaled $2.2 million, up from $1.4 million for 2015. The increase in BOLI income reflects an additional $0.5 million from a death benefit in the first quarter of 2016 and purchase of additional BOLI in the fourth quarter of 2016. This revenue is tax-exempt and is expected to increase with the additional purchase during 2017.

Other income was $1.3 million or 50% higher, with additional fees of $0.5 million for asset financing activities, and a general increase in other fee categories, including wire transfer fees, cashier check, money order and check cashing fees, miscellaneous loan related fees, with document preparation, construction inspection, and letter of credit fees all rising, as well as other miscellaneous fees. This growth reflects the impact of both organic and acquisition related additions to our base of customers overall.

For 2015, Seacoast’s noninterest income (excluding securities gains and the bargain purchase gain) was $7.3 million or 29% higher when compared to 2014’s revenues. While service charges on deposit accounts and interchange income grew $1.6 million or 23% and $1.7 million or 29%, reflecting successful household growth, wealth management fee income and mortgage banking income were higher as well, by $1.2 million or 39% and $0.7 million or 14%, respectively. A full-year of BOLI income, a new addition in the fourth quarter of 2014, provided $1.2 million of income. The closing of our Newport Beach, California office at December 31, 2014 affected marine financing fees, with these fees declining $0.2 million during 2015.

Fourth quarter 2015’s noninterest income result included a bargain purchase gain of $0.4 million from the acquisition of Grand, that arose from unanticipated recoveries and resulting adjustments to loans and other real estate owned realized during the fourth quarter. Seacoast also benefited from a gain on a participated loan of $0.7 million that was realized during the second quarter of 2015, with no amounts to compare to for 2014. Accounting treatment for this gain, related to a discount accreted on a BANKshares loan that was participated during the second quarter of 2015, required this income to be included in other operating income rather than recognition through the margin.

78 

Noninterest Expense

Table 5 provides detail of noninterest expense components for the years ending December 31, 2016, 2015 and 2014.

Salaries and wages totaling $54.1 million were $13.0 million or 32% higher for 2016, than for 2015, including $3.4 million in expenses related to mergers and other non-routine items. Base salaries were $7.3 million or 19% higher during 2016, reflecting the full-year impact of additional personnel retained as part of the third quarter 2015 acquisition of Grand, first quarter 2016’s acquisition of Floridian, and second quarter 2016’s purchase of BMO’s Orlando operations. Improved revenue generation and lending production, among other factors resulted in commissions, cash and stock incentives (aggregated) that were $4.9 million higher for 2016, compared to a year ago. Deferred loan origination costs (a contra expense), were also lower by $0.5 million, reflecting a greater number of loans produced but at a more efficient cost per loan.

Similarly, salaries and wages for 2015 were $5.9 million or 17% higher than for 2014. A significant portion of the increase was for base salaries that were $6.8 million or 22% greater, reflecting the full-year impact of additional BANKshares personnel and retained personnel from third quarter 2015’s acquisition of Grand. Additional personnel from our receivable funding acquisition were incremental as well. Higher deferred loan origination costs were favorably offsetting.

During 2016, employee benefits costs (group health insurance, profit sharing, payroll taxes, as well as unemployment compensation) increased $0.3 million or 4% to $9.9 million from a year ago, and compared to a $0.8 million or 9% increase in 2015, versus 2014 expenditures. These costs reflect the increased staffing and salary costs, discussed above. Our self-funded health care plan comprises the largest portion of employee benefits, totaling $4.3 million for 2016, and payroll taxes totaling $3.7 million were the second largest category. The Company offers competitively priced health coverage to all of its associates that qualify for benefits, to use as an attraction for the best professional talent seeking to be employed by the Company, and at a reasonable cost and competitive with other businesses in the Florida markets where we conduct business.

Seacoast Bank utilizes third parties for its core data processing systems and outsourced data processing costs are directly related to the number of transactions processed. Outsourced data processing costs totaled $13.5 million for 2016, an increase of $3.4 million or 33% from a year ago, and were $1.4 million higher for 2015, versus 2014. Increased data processing costs included $2.1 million in one-time charges for conversion activity related to our acquisitions. We continue to improve and enhance our mobile and other digital products and services through our core data processor, which may increase our outsourced data processing costs as customers adopt improvements and products and as the Company’s business volumes grow.

Telephone and data line expenditures, including electronic communications with customers and between branch locations and personnel, as well as third party data processors, increased $0.3 million or 17% to $2.1 million for 2016 when compared to 2015, and were $0.5 million or 35% higher for 2015 versus 2014’s expenditure. Additional activity for acquired Floridian and BMO locations and locations closed during 2016, as well as additional customers from the acquisitions, were the primary contributors to the increase.


Total occupancy, furniture and equipment expense for 2016 increased $5.7 million or 47% (on an aggregate basis) to $17.8 million year over year, versus 2015’s expense. For 2015, these costs were $1.7 million or 16% higher than in 2014. For 2016 and 2015, the increases were primarily driven by the 24 offices acquired from Floridian and BMO acquisitions and two offices added from Grand. Seacoast Bank consolidated 20 offices, primarily in the Central Florida region, during the 2016 calendar year and a third Grand office and two legacy branches were closed during 2015. Write downs totaling $2.3 million were incurred during 2016 for closed offices. Lease payments were also higher by $1.1 million or 27%, and include recurring payments for many of the closed offices. 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 (see Form 10K dated December 31, 2015, “Item 2, Properties” for a complete description).

For 2016, marketing expenses (including sales promotion costs, ad agency production and printing costs, digital, newspaper, TV and radio advertising, and other public relations costs), decreased by $0.8 million or 18% to $3.6 million, compared to all of 2015. For 2015, these costs were $0.9 million or 24% higher, versus 2014. Primary to the decrease during 2016 was an effort to utilize digital media as a primary source for brand awareness rather than more costly, traditional venues such as newspaper, radio and TV advertising, with the savings utilized for more direct mail and customer incentives. Increases for 2015 were related to efforts to solidify customer acquisition and corporate brand awareness surrounding the newer Palm Beach and Orlando footprints, with more advertising on television and radio in 2015, increasing our expense $0.5 million from 2014.

Legal and professional fees for 2016 were higher by $1.6 million or 20% from a year ago, and were $1.2 million higher for 2015, versus 2014. Included were acquisition related fees that totaled $1.5 million for 2016 and $1.1 million for 2015. Regulatory examination fees increased as total assets increased, which are the basis for examination fee calculation.

Growth in total assets (both organic and through acquisitions) increased the basis for calculating our FDIC premiums and increased our FDIC quarterly assessments. FDIC assessments were $2.4 million, $2.2 million and $1.7 million for 2016, 2015 and 2014, respectively. The Company’s total assets and equity have increased during the past three years and Seacoast expects increases prospectively. FDIC rates declined for financial institutions under $10 billion in total assets as FDIC insurance pools achieved higher amounts specified by Congress.

As nonperforming assets have declined so have associated costs (see “Nonperforming Loans, Troubled Debt Restructurings, Other Real Estate Owned, and Credit Quality”).  For the last three years, asset disposition costs and net (gains) losses on other real estate owned and repossessed assets on an aggregated basis have been stable or declined, from $0.8 million for 2014 to $0.7 million for 2015 to zero for 2016.

Included in noninterest expenses for 2016 was an early redemption cost of $1.8 million for Federal Home Loan Bank advances that was paid in April. Two $25 million advances with a combined fixed rate of 3.22% and maturing in November 2017 were redeemed (see “Note I – Borrowings”).


Other expenses were higher by $1.3 million or 11% for 2016 compared to a year ago, totaling $13.5 million. For 2015, other expenses were $2.2 million or 22% higher, compared to 2014. Larger increases during 2016 and 2015 were driven by a full-year and partial-year impacts of acquisitions and variable costs related to our successful lending activity.

Seacoast management expects its expense ratios to improve. The Company anticipates its digital servicing capabilities and technology will support better, more efficient channel integration allowing consumers to choose their path of convenience to satisfy their banking needs, resulting in organic growth of our products and services as well as related revenue, in addition to increased efficiency in how we serve our customers. Acquisition activity added to noninterest expenses during 2016, 2015, and 2014 with acquisition related costs for Floridian and BMO in 2016, Grand in 2015 and BANKshares in 2014 of approximately $8.6 million, $3.7 million and $4.4 million, respectively, as well as ongoing costs related to this growth. These additional costs have been key to our tactical plans to increase loan production and acquire households, increasing value in the Seacoast franchise.

Income Taxes

For 2016, 2015 and 2014, provision for income taxes totaled $14.9 million, and $13.5 million and $4.5 million, respectively. For 2016, 2015 and 2014, a portion of investment banking fees, and legal and professional fees expended and related to the acquisitions were not deductible for tax purposes. Various tax strategies have been implemented to reduce the Company’s overall effective tax rate to 33.8% for 2016, from 37.9% in 2015 and 44.4% in 2014. Additionally, the early adoption of ASU 2016-09 during the third quarter of 2016 provided a tax benefit of $0.8 million for the year (see “Note A- Significant Accounting Policies”). Management believes all of the future tax benefits of the Company’s deferred tax assets can be realized and no valuation allowance is required (see “Note L – Income Taxes”).

Critical Accounting Policiesand 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;


•acquisition accounting and purchased loans;
•intangible assets and impairment testing;
•other fair value adjustments;
•other than temporary impairment of debt securities;
•realization of deferred tax assets; and
•contingent liabilities.


The following is a discussion of the critical accounting policies intended to facilitate a reader’s understanding of the judgments, estimates and assumptions underlying these accounting policies and the possible or likely events or uncertainties known to 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 – Critical Accounting Policies and Estimates

Management determines the provisionallowance for loan losses by continuously analyzing and monitoring delinquencies, nonperforming loansloan levels and the outstanding balances for each loan category, as well as the amount of net charge-offs, for estimating losses inherent in its portfolio. While the Company’s policies and procedures used to estimate the provisionallowance for loan losses charged to operations are considered adequate by management, factors beyond the control of the Company, such as general economic conditions, both locally and nationally, make management’s judgment as to the adequacy of the provision and allowance for loan losses approximate and imprecise (see “Nonperforming Assets”).


The provision for loan losses is the result of a detailed analysis estimating for probable loan losses. The analysis includes the evaluation of impaired and purchased credit impaired loans as prescribed under FASB Accounting Standards Codification (“ASC”) Topic 310,Receivablesas well as an analysis of homogeneous loan pools not individually evaluated as prescribed under ASC Topic 450,Contingencies. For 2016,2018, the Company recorded provisioningprovision for loan losses of $2.4$11.7 million, which compared to provisioningprovision for loan losses for 20152017 of $2.6$5.6 million and a recapture2016 of the allowance for loan losses for 2014 of $3.5$2.4 million. The Company achievedincurred net recoveriescharge-offs for 20162018 of $1.9$6.2 million, compared to net charge-offs for 20152017 of $0.6$1.6 million, and net recoveries for 20142016 of $0.5$2.1 million, representing (0.07%)0.15%, 0.03%0.05% and (0.03%)(0.08)% of average total loans for each year, respectively. For 2018, provision for loan losses included $3.1 million for a single impaired commercial real estate loan, originated in 2007, and moved to nonaccrual status in the second quarter of 2018, which was subsequently charged off in the fourth quarter of 2018. The effects of portfolio growth were the primary cause for the increase in provision for loan losses for 2018, compared to prior years. Delinquency trends remain low at year-end 2018, with nonperforming loans increasing $7.0 million from year-end 2017, but totaling 0.55% of loans at December 31, 2018, compared to 0.51% and 0.63% at year-end 2017 and 2016, respectively. For 2017, provisioning for loan losses reflectsreflected continued strong credit metrics, decreases in the residential loan portfolio with lower modeled loss rates given near-zero historical losses and net recoveries, offset bylower balances (after the $57.9 million sale in the third quarter of 2017 and $28.5 million sale in the fourth quarter of 2017), and reflecting a continued loan growth both organicfocus on managing concentration risk in the commercial and through merger and acquisition activity.commercial real estate portfolios. Delinquency trends remain low and show continued stability (see section titled “Nonperforming Loans, Troubled Debt Restructurings, Other Real estateEstate Owned, and Credit Quality”).

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 inherentincurred in the loan portfolio. The allowance for loan lossesALLL increased $4.3$5.3 million to $23.4$32.4 million at December 31, 2016,2018, compared to $19.1$27.1 million at December 31, 2015.2017. The allowance for loan and lease losses (“ALLL”)ALLL framework has four basic elements: (1) specific allowances for loans individually evaluated for impairment; (2) general allowances for pools of homogeneous non-purchasednon-


purchased loans (“portfolio loans”) within the portfolio that have similar risk characteristics, which are not individually evaluated; (3) specific allowances for purchased impaired loans which are individually evaluated based on the loansloan's expected principal and interest cash flows; and (4) general allowances for purchased unimpaired pools of homogeneous loans that have similar risk characteristics. The aggregate of these four components results in our total allowance for loan losses.

ALLL.

The first elementcomponent of the ALLL analysis involves the estimation of an allowance specific to individually evaluated impaired portfolio loans, including accruing and non-accruing restructured commercial and consumer loans. In this process, a specific allowance is established for impaired loans based on an analysis of the most probable sources of repayment, including discounted cash flows, liquidation or operation of the collateral, or the market value of the loan itself. It is the Company’s policy to charge off any portion of the loan deemed uncollectable.uncollectible. Restructured consumer loans are also evaluated and included in this element of the estimate. As of December 31, 2016,2018, the specific allowance related to impaired portfolio loans individually evaluated totaled $2.3$2.7 million, compared to $2.5$2.4 million as ofat December 31, 2015.2017. Residential loans that become 90 days past due are placed on nonaccrual and a specific allowance is made for any loan that becomes 120 days past due. Residential loans are subsequently written down if they become 180 days past due and such write-downs are supported by a current appraisal, consistent with current banking regulations.

The second elementcomponent of the ALLL analysis, the general allowance for homogeneous portfolio loan pools not individually evaluated, is determined by applying factors to pools of loans within the portfolio that have similar risk characteristics. The general allowance is determined usingby applying a baseline factormigration model to portfolio segments that is developed from an analysis of historical net charge-off experience. These baseline factors are developedallows us to observe performance over time, and applied to the various portfolio loan pools.separately analyze sub-segments based in vintage, risk rating, and origination tactics. Adjustments may be made to baseline reserves for some of the loan pools based on an assessment of internal and external influences on credit quality not fully reflected in the historical loss experience. These influences may include elements such as changes in concentration, macroeconomic conditions, and/or recent observable asset quality trends. The loan portfolio is segregated into the following primary types: commercial, commercial real estate, residential, installment, home equity, and unsecured signature lines. The loss factors assigned to the graded commercial loan portfolio are based on the historical migrationOur analysis of actual losses by grade over 4, 8, 12, 16, and 20 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. 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 as a percentage of total loans has been declining as a result of a combination of prudent upfront underwriting practices, risk grading upgrades and loan payoffs, which are reducing the risk profile of the loan portfolio. 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 segment loss rates represent an annualized expectation of loss based on the historical average net loss divided average outstanding balances.

Management uses historical loss factors as its starting point, and qualitative elements are considered to capture trends within each segment of the portfolio. Internal influences such as the direction of past dues, charge-offs, nonaccruals, classified loans, portfolio mix, market conditions, and risk management controls are considered in determining adjustments to loss rates loss factors. Adjustments may also be made to baseline loss rates for some of the loan pools based on an assessment of the extent to which external influences on credit quality are not fully reflected in the historical loss rates. These influences may include elements such as changes in the micro/macroeconomic conditions, and/or recent regulatory changes. In addition, internal reviews may also drive possible adjustments. The Company’s 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 the ALLL also takes into account qualitative factors such as credit underwriting. This unit reports directly to the Directors’ Loan Committee of Seacoast National Bank’s board of directors. Our bank regulators have generally agreed with our credit assessment, however in the future, regulators could seek additional provisions to our allowance forquality, loan losses, which would reduce our earnings.

concentrations, internal controls, audit results, staff turnover, local market conditions, employment levels and loan growth.

The third component consists of amounts reserved for purchased credit-impaired loans (PCI).("PCI") 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 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 impairedPCI portfolio.

The final component consists of amounts reserved for purchased unimpaired loans (PUL)("PUL"). Loans collectively evaluated for impairment reported at December 31, 20162018 include loans acquired from BMO Harris on June 3, 2016, Floridian Bank on March 11, 2016, Grand Bank on July 17, 2015 and BANKshares on October 1, 2014acquisitions that are not PCI loans. These loans are performing loans recorded at estimated fair value at the acquisition date. These fairFair value discount amounts are accreted into income over the remaining lives of the related loans on a level yield basis, and remained adequate at December 31, 2016.

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, employment levels and loan growth. These qualitative factors are another protective layer of reserves that can be applied to a particular loan segment or to all loans equally.

basis.

The allowance as a percentage of portfolio loans outstanding (excluding PCI and PUL loans) was 0.96%0.89% at December 31, 2016,2018, compared to 1.03%0.90% at December 31, 2015. The reduced level of impaired loans contributed to a lower risk of loss and the lower allowance for loan losses as of December 31, 2016.2017. The risk profile of the loan portfolio has been reduced by implementing a programreflects adherence to decrease the level of credit risk in such portfolio by strengthening credit management methodologies and executingto execute a low risk strategic plan for loan growth. New loan production has shifted to adjustable rateis focused on residential real estate loans, owner-occupied commercial real estate, small business loans for professionals and businesses, as well as consumer lending. Strategies, processes and controls are in place to ensure that new production is well underwritten and maintains a focus on smaller, diversified and lower-risk lending. The improved mix is most evident by a lower percentage of loans in income producing commercial real estate and construction and land development loans than during the prior economic recession. Prospectively, we anticipate that the allowance is likely to 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, 2016,2018, the Company had $2.354$1.3 billion in loans secured by residential real estate and $2.1 billion in loans secured by commercial real estate representing 81.8%27% and 44% of total loans up from $1.842 billion but lower as a percent of total loans (versus 85.4%) at December 31, 2015.outstanding, respectively. In addition, the Company is subject to a geographic concentration of credit because it only operates in central and southeastern Florida.

It is the practice of the Company to ensure that its charge-off policy meets or exceeds regulatory minimums. Losses on unsecured consumer loans are recognized at 90 days past due, compared to the regulatory loss criteria of 120 days. In compliance


with Federal Financial Institution Examination Council guidelines, secured consumer loans, including residential real estate, are typically charged-off or charged down between 120 and 180 days past due, depending on the collateral type. Commercial loans and real estate loans are typically placed on nonaccrual status when principal or interest is past due for 90 days or more, unless the loan is both secured by collateral having realizable value sufficient to discharge the debt in-full and the loan is in process of collection. Secured loans may be charged-down to the estimated value of the collateral with previously accrued unpaid interest reversed. Subsequent charge-offs may be required as a result of changes in the market value of collateral or other repayment prospects. Initial charge-off amounts are based on valuation estimates derived from appraisals, broker price opinions, or other market information. Generally, new appraisals are not received until the foreclosure process is completed; however, collateral values are evaluated periodically based on market information and incremental charge-offs are recorded if it is determined that collateral values have declined from their initial estimates.

As mentioned, while

While it is the Company’s policy to charge off in the current period loans infor 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 lossesALLL and the size of the allowance for loan lossesALLL in comparison to a group of peer companies identified by the regulatory agencies.

Management will consistently evaluatehas established a transition oversight committee responsible for implementing the allowance guidance set forth under ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). Development of accounting policies and business processes is currently underway and will be established in time for loan losses methodology and seekthe Company to refine and enhance this process as appropriate. As a result, it is likely thatadopt the methodology will continue to evolve over time.

new guidance on January 1, 2020.

Table 10 provides certain information concerning the Company’s provisioning for loan losses and allowance (recapture)ALLL for the years indicated.

Note F to the financial statements (titled “Impaired Loans and Allowance"Allowance for Loan Losses”Losses") summarizes the Company’s allocation of the allowance for loan lossesALLL 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, 20162018 and 2015.

Table 11 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 indicated2017.


Acquisition Accounting and Purchased Loans – Critical Accounting Policies and Estimates

The Company accounts for its acquisitions under ASC Topic 805,Business Combinations, which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. No allowance for loan losses related to the acquired loans is recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit risk. All loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in ASC Topic 820.820, Fair Value Measurement. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of expected principal, interest and other cash flows.

Over the life of the purchased credit impairedPCI loans acquired, the Company continues to estimate cash flows expected to be collected. The Company evaluates at each balance sheet date whether the present value of the acquired loans using the effective interest rates has decreased and if so, recognizes a provision for loan loss in its consolidated statement of income. For any increases in cash flows expected to be collected, the Company adjusts the amount of accretable yield recognized on a prospective basis over the loan’s remaining life.

Intangible Assets and Impairment Testing – Critical Accounting Policies and Estimates

Intangible assets consist of goodwill and core deposit intangibles. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The core deposit intangible represents the excess intangible value of acquired deposit customer relationships as determined by valuation specialists. The coreCore deposit intangibles from the BANKshares, Grand, Floridian and BMO are being amortized over 74 months, 94 months, 69 months and 87 months, respectively, on a straight-line basis, and are evaluated for indications of potential impairment at least annually. Goodwill is not amortized but rather is evaluated for impairment on at least an annual basis. We performed an annual impairment test of goodwill as required by FASB ASC Topic 350,Intangibles—Goodwill and Other, in the fourth quarter of 2016.2018. Seacoast employed an independent third party with extensive experience in conducting andconducted the test internally, documenting the impairment tests of this nature,test results, and concluded that no impairment occurred. Goodwill was not recorded for the Grand acquisition (on July 17, 2015) that resulted in a bargain purchase gain,gain; however a core deposit intangible was recorded.


Fair value estimates for acquired assets and assumed liabilities are based on the information available, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available.



Other Fair Value Measurements – Critical Accounting Policies and Estimates

“As Is” values are used to measure fair market value on impaired loans, OREO and repossessed assets. All impaired loans, OREO and repossessed assets are reviewed quarterly to determine if fair value adjustments are necessary based on known changes in the market and/or the project assumptions.  When necessary, the “As Is” appraised value may be adjusted based on more recent appraisal assumptions received by the Company on other similar properties, the tax assessed market value, comparative sales and/or an internal valuation. Collateral dependent impaired loans are loans that arewhere repayment is solely dependent on the liquidation of the collateral or operation of the collateral for repayment.  If an updated assessment is deemed necessary and an internal valuation cannot be made, an external “As Is” appraisal will be requested. Upon receipt of the “As Is” appraisal a charge-off is recognized for the difference between the loan amount and its current fair market value.

At December 31, 2016, outstanding securities designated as available for sale totaled $950.5 million.


The fair value of the available for sale portfolio at December 31, 20162018 was less than historical amortized cost, producing net unrealized losses of $10.3$17.0 million that have been included in other comprehensive income (loss) as a component of shareholders’ equity (net of taxes). The Company made no change to the valuation techniques used to determine the fair values of securities during 20162018 and 2015.2017. 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, 2016, the Company’s available for sale investment securities, except for approximately $62.9 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 $552.4 million, or 58 percent of the total available for sale portfolio. The portfolio also includes $99.3 million in private label securities, most secured by residential real estate collateral originated in 2005 or prior years with low loan to values, and current FICO scores above 700. Generally these securities have credit support exceeding 5%. The collateral underlying these mortgage investments are primarily 30- and 15-year fixed rate, 5/1 and 10/1 adjustable rate mortgage loans. Historically, the mortgage loans serving as collateral for those investments have had minimal foreclosures and losses. The Company also has invested $124.9 million in uncapped 3-month Libor floating rate collateralized loan obligations. Collateralized loan obligations are special purpose vehicles that purchase loans as assets that provide a steady stream of income and possible capital appreciation. The collateral for the securities is first lien senior secured corporate debt. The Company has purchased senior tranches rated credit A or higher and performed stress tests, which indicated that the senior subordination levels are sufficient and no principal loss is forecast, verifying the independent rating. In addition, during 2015 and 2016, the Company acquired several corporate bonds and private commercial mortgage backed securities totaling $111.0 million at year-end. At March 11, 2016 and July 17, 2015, Floridian and Grand securities of $67.0 million and $46.4 million, respectively, were acquired and added to the available for sale portfolio at their fair value.


During 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$3.1 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. At December 31, 2016,2018, the remaining unamortized amount of these losses was $1.8$0.7 million. The amortization of unrealized holding losses reported in equity will offset the effect on interest income of the amortization of the discount. Management believes the securities transferred are a core banking asset that they now intend to hold until maturity, and if interest rates were to increase before maturity, the fair values would be impacted more significantly and therefore are not consistent with the characteristics of an available for sale investment.

Seacoast Bank

The Company also holds 11,330 shares of Visa Class B stock which, following resolution of Visa’s litigation will be converted to Visa Class A shares (theshares. Under the current conversion rate presently is 1.6483that became effective June 28, 2018, the Company expects to receive 1.6298 shares of Class A stock for each share of Class B stock)stock, for a total of 18,67518,465 shares of Visa Class A stock. Our ownership is related to prior ownership in Visa’s network, while Visa operated as a cooperative. This ownership is recorded on our financial records at a zero basis.

Also, included in other assets is a $6.2 million investment in a CRA related mutual fund carried at fair value.

Other Than Temporary Impairment of Debt Securities – Critical Accounting Policies and Estimates

OurSeacoast reviews 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 Topic 820,Fair Value Measurement. However, on occasion pricing provided by the pricing services may not be consistent with other observed prices in the market for similar securities. Using observable market factors, including interest rate and yield curves, volatilities, prepayment speeds, loss severities and default rates, the Company may at times validate the observed prices using a discounted cash flow model and using the observed prices for similar securities to determine the fair value of its securities.


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.


Income Taxes and Realization of Deferred Tax AssetsTaxes – Critical Accounting Policies and Estimates



Seacoast is subject to income tax laws of the various jurisdictions in which it operates, including U.S. federal, state and local jurisdictions. These laws can be complex and subject to interpretation. Seacoast makes assumptions about how these laws should be applied when determining the provision for income tax expense, including assumptions around the timing of when certain items may be deemed taxable.
Seacoast’s provision for income taxes is comprised of current and deferred taxes. Deferred taxes represent the difference in measurement of assets and liabilities for financial reporting purposes compared to income tax return purposes. Deferred tax assets may also be recognized in connection with certain net operating losses (NOLs) and tax credits. Deferred tax assets are recognized if, based upon management’s judgment, it is more likely than not the benefits of the deferred tax assets will be realized.
At December 31, 2016,2018, the Company had net deferred tax assets (“DTA”) of $60.8$29.0 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 Topic 740Income Taxes. In comparison, at December 31, 20152017 the Company had a net DTA of $60.3$25.4 million.

Factors that support this conclusion:

·Income before tax (“IBT”) has steadily increased as a result of organic growth, and the 2015 Grand and 2016 Floridian and BMO acquisitions will further assist in achieving management’s forecast of future earnings which recovers the net operating loss carry-forwards well before expiration;
·Credit costs and overall credit risk has been stable which decreases their impact on future taxable earnings;
·Growth rates for loans are at levels adequately supported by loan officers and support staff;
·New loan production credit quality and concentrations are well managed; and
·Current economic growth forecasts for Florida and the Company’s markets are supportive.

Income before tax (“IBT”) has steadily increased as a result of organic growth, and the 2016 Floridian and BMO, 2017 GulfShore, NorthStar and PBCB, and 2018 First Green acquisitions will further assist in achieving management’s forecast of future earnings which recovers the remaining state net operating loss carry-forwards well before expiration;
The Company has utilized all of its federal net operating loss carry-forwards, with the exception of those inherited in the acquisitions to which section 382 limitations apply;
Credit costs and overall credit risk have been stable which decreases their impact on future taxable earnings;
Growth rates for loans are at levels adequately supported by loan officers and support staff;
We believe new loan production credit quality and concentrations are well managed; and
Current economic growth forecasts for Florida and the Company’s markets are supportive.

Contingent Liabilities – Critical Accounting Policies and Estimates

The Company is subject to contingent liabilities, including judicial, regulatory and arbitration proceedings, and tax and other claims arising from the conduct of our business activities. These proceedings include actions brought against the Company and/or our subsidiaries with respect to transactions in which the Company and/or our subsidiaries acted as a lender, a financial advisor,adviser, a broker or acted in a related activity. Accruals are established for legal and other claims when it becomes probable that the Company will incur an expense and the amount can be reasonably estimated. Company management, together with attorneys, consultants and other professionals, assesses the probability and estimated amounts involved in a contingency. Throughout the life of a contingency, the Company or our advisorsadvisers 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, 20162018 and 2015,2017, the Company had no significant accruals for contingent liabilities and had no known pending matters that could potentially be significant.


Interest Rate Sensitivity

Fluctuations in interest rates may result in changes in the fair value of the Company’s financial instruments, cash flows and net interest income. This risk is managed using simulation modeling to calculate the most likely interest rate risk utilizing estimated loan and deposit growth. The objective is to optimize the Company’s financial position, liquidity, and net interest income while limiting their volatility.


Senior management regularly reviews the overall interest rate risk position and evaluates strategies to manage the risk. The Company’s fourth quarter 20162018 Asset and Liability Management Committee (“ALCO”) model simulation indicates net interest income would increase 1.7%8.4% if interest rates increased 200 basis points in a parallel fashion over the next 12 months and 4.4% if interest rates increased 100 basis points in a parallel fashion, and improve 13.3% and 7.0%, respectively, on a 13 to 24 month basis. This compares with the Company’s fourth quarter 2017 model simulation, which indicated net interest income would increase 7.5% if interest rates increased 200 basis points over the next 12 months in a parallel fashion and 0.9%3.9% if interest rates increased 100 basis points. This compares withpoints in a parallel fashion, and improve 11.6% and 6.1%, respectively, on a 13 to 24 month basis. These simulations do not include the Company’s fourth quarter 2015 model simulation, which indicated net interest income would increase 10.9% if interest rates increased 200 basis points over the next 12 months and 5.4% if interest rates increased 100 basis points. Recent regulatory guidance has placed more emphasis on rate shocks.

impact of accretion from purchased credit impaired loans, or unimpaired loans.



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 4.8%18.9% at December 31, 2016.2018. 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,”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 20162018 modeling, an instantaneous 100 basis point parallel increase in rates is estimated to increase the EVE 18.6%9.4% versus the EVE in a stable rate environment, while a 200 basis point parallel increase in rates is estimated to increase the EVE 31.2%15.7%.

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.


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.

Fourth Quarter Review

Earnings highlights for the fourth quarter 2016:

·Fourth quarter 2016 net income totaled $10.8 million, an increase of $4.7 million or 78% from the same period of 2015, and rose $1.6 million or 18% compared with third quarter 2016 levels. Adjusted net income (1) increased $4.8 million or 73% from fourth quarter 2015 levels and $0.7 million or 7% above third quarter 2016. Diluted earnings per common share (“EPS’) were $0.28 and adjusted diluted EPS (1) were $0.30 in the fourth quarter of 2016, compared to diluted EPS of $0.18 and adjusted diluted EPS (1) of $0.19 in the fourth quarter of 2015;


·Fourth quarter revenues increased $10.0 million or 27% from fourth quarter 2015 levels Net interest income improved $8.3 million or 29% compared to fourth quarter 2015, due to organic growth and the acquisitions settled earlier in 2016;
·Net interest margin decreased 11 basis points year-over-year to 3.56%;

Fourth quarter 2015 growth highlights:

·Loans increased $723 million or 34% from fourth quarter a year ago. Adjusting for acquisitions, loan growth was $383 million or 18%. Loans increased $110 million sequentially from third quarter 2016, recording a 16% annualized growth rate;
·Total deposits per branch increased to $75 million as of December 31, 2016, compared to $66 million at the end of 2015.

Explanation of Certain Unaudited Non-GAAP Financial Measures

The tables below provide reconciliation between Generally Accepted Accounting Principles (“GAAP”) net income and adjusted net income. Management uses these non-GAAP financial amounts in its analysis of the Company’s performance and believes the presentation provides a clearer understanding of the Company’s performance. The Company believes the presentation of adjusted net income enhances investor understanding of the performance trend and facilitates comparisons with the performance of other financial institutions. The limitations associated with adjusted net income are the risk that persons might disagree as to the appropriateness of items comprising the measure and that different companies might calculate the measure differently. The Company provides reconciliations between GAAP and non-GAAP measures, and these measures should not be considered an alternative to GAAP. For 2016 and 2015, by quarter and for total year, net income and adjusted net income were as follows:


  Quarters    
  Fourth  Third  Second  First  Total 
(Dollars in thousands except per share data) 2016  2016  2016  2016  Year 
                
Net income, as reported:                    
Net income $10,771  $9,133 ��$5,332  $3,966  $29,202 
Diluted earnings per share $0.28  $0.24  $0.14  $0.11  $0.78 
                     
Adjusted net income:                    
Net income $10,771  $9,133  $5,332  $3,966  $29,202 
                     
BOLI income (benefits upon death)  0   0   0   (464)  (464)
Securities gains  (7)  (225)  (47)  (89)  (368)
Total adjustments to revene  (7)  (225)  (47)  (553)  (832)
                     
Severance  165   287   464   306   1,222 
Merger related charges  559   1,628   2,448   4,038   8,673 
Branch closure charges and costs related to expense initiatives  0   678   1,121   691   2,490 
Early redemption cost for FHLB advances  0   0   1,777   0   1,777 
Total adjustments to noninterest expense  724   2,593   5,810   5,035   14,162 
                     
Effective tax rate on adjustments  (151)  (913)  (2,322)  (1,690)  (5,076)
Adjusted net income $11,337  $10,588  $8,773  $6,758  $37,456 
Adjusted diluted earnings per share $0.30  $0.28  $0.23  $0.19  $1.00 

  Quarters    
  Fourth  Third  Second  First  Total 
(Dollars in thousands except per share data) 2015  2015  2015  2015  Year 
                
Net income, as reported:                    
Net income $6,036  $4,441  $5,805  $5,859  $22,141 
Diluted earnings per share $0.18  $0.13  $0.18  $0.18  $0.66 
                     
Adjusted net income:                    
Net income $6,036  $4,441  $5,805  $5,859  $22,141 
                     
Securities gains  (1)  (160)  0   0   (161)
Bargain purchase gain  (416)  0   0   0   (416)
Total adjustments to revene  (417)  (160)  0   0   (577)
         ��           
Severance  187   670   29   12   898 
Merger related charges  1,043   2,120   337   275   3,775 
Other  0   121   0   0   121 
Miscellaneous losses  48   112   0   0   160 
Total adjustments to noninterest expense  1,278   3,023   366   287   4,954 
                     
Effective tax rate on adjustments  (328)  (1,072)  (140)  (111)  (1,651)
Adjusted net income $6,569  $6,232  $6,031  $6,035  $24,867 
Adjusted diluted earnings per share $0.19  $0.18  $0.18  $0.18  $0.74 


Net interest income (on a tax-equivalent basis, a non-GAAP measure) for the fourth quarter 2016 totaled $37.6 million, an $8.4 million or 29% increase from the fourth quarter a year ago and $0.1 million lower than third quarter 2016’s result. Net interest margin (on a tax-equivalent basis) declined to 3.56%, an eleven basis point decrease from prior year, and thirteen basis points lower than third quarter 2016. Year-over-year net interest income growth was amplified by the acquisitions of Floridian and BMO. Margin decreases reflect decreased loan yields, reflecting the current low interest rate environment, partially offset by improved balance sheet mix. Linked quarter results reflect accelerated levels of purchase loan accretion in the third quarter of 2016 that contributed to the higher margin during that quarter.

Noninterest income (excluding securities gains and bargain purchase gain) totaled $9.9 million for the fourth quarter of 2016, an increase of $2.2 million or 27% from fourth quarter 2015 and compared to $9.8 million in the third quarter 2016. Most categories of service fee income showed year-over-year growth with service charges on deposit and interchange income each up 17%, indicating continued growth in customers and cross sell, and benefits from our acquisition activity, including the Floridian and BMO acquisitions in the first and second quarters of 2016. BOLI income was 54% higher, with additional purchases of BOLI occurring during the fourth quarter. Mortgage banking revenue was particularly strong, up 69% year over year for fourth quarter, and included gains of $0.5 million from the sale of seasoned residential portfolio loans.

Noninterest expenses for the fourth quarter 2016 totaled $30.3 million, up 12% from prior year and 9% lower than third quarter 2016. Of the $3.1 million increase year-over-year for fourth quarter 2016, salaries, wages and employee benefits increased $1.6 million, outsourced data processing grew $0.6 million, and occupancy and furniture and equipment costs (aggregated) were $0.7 million higher. The acquisitions of Floridian and BMO were the primary cause and incremental, although for 2016 the Company added only four more branch offices, compared to year-end 2015. Fourth quarter 2016 expense also reflected remaining merger related charges of $0.6 million from our acquisitions and severance of $0.2 million. The most significant factor impacting the fourth quarter 2015’s noninterest expense was also merger related charges, totaling $1.0 million from the Grand acquisition and $0.2 million for severance.

A provision for loan losses of $1.0 million and $0.4 million was recorded in the fourth quarter of 2016 and 2015, respectively. Our fourth quarter 2016 provisioning reflects continued strong credit metrics, offset by continued loan growth. For the fourth quarter of 2016, net charge-offs totaled $0.3 million, compared to $0.6 million for fourth quarter 2015. The allowance for loan losses to portfolio loans outstanding ratio at December 31, 2016 was 0.96%, compared to 1.03% a year earlier, and the coverage ratio (the allowance for loan losses to nonaccrual loans) was 125.1% at December 31, 2016 compared to 110.0% at December 31, 2015, reflecting improvement in credit quality.

Internal Controls

The Company's management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of December 31, 2016 and concluded that those disclosure controls and procedures are effective. There have been no changes to the Company’s internal control over financial reporting that occurred since the beginning of 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

While the Company believes that its existing disclosure controls and procedures have been effective to accomplish these objectives, the Company intends to examine, refine and formalize its disclosure controls and procedures and to monitor ongoing developments in this area.


Table 1 - Condensed Income Statement*

  2016  2015  2014 
  (Tax equivalent basis) 
Net interest income  3.34%  3.33%  3.03%
Provision (recapture) for loan losses  0.06   0.08   (0.14)
Noninterest income            
Securities gains, net  0.01   0.00   0.02 
Bargain purchase gains, net  0.00   0.01   0.00 
Other  0.89   0.97   1.00 
Noninterest expense  3.11   3.14   3.76 
Income before income taxes  1.07   1.09   0.43 
Provision for income taxes including tax equivalent adjustment  0.38   0.42   0.20 
Net income  0.69%  0.67%  0.23%

Statement(1)
 

* As

  For the Year Ended December 31,
(In thousands) 2018 2017 2016
Net interest income 3.50% 3.40% 3.34%
Provision for loan losses 0.19
 0.11
 0.06
Noninterest income  
  
  
Securities (losses) gains, net (0.01) —
 0.01
Gain on sale of Visa stock —
 0.29
 —
Other 0.83
 0.83
 0.89
Noninterest expense 2.68
 2.88
 3.11
Income before income taxes 1.45
 1.53
 1.07
Provision for income taxes including tax equivalent adjustment 0.34
 0.71
 0.38
Net income 1.11% 0.82% 0.69%
(1) On a Percentfully taxable equivalent basis. Balances presented as a percentage of Average Assets

average assets.


Table 2 – Three Year Summary

Average Balances, Interest Income and Expenses, Yields and Rates(1)

  2016  2015  2014 
  Average     Yield/  Average     Yield/  Average     Yield/ 
  Balance  Interest  Rate  Balance  Interest  Rate  Balance  Interest  Rate 
  (Dollars in thousands) 
EARNING ASSETS                                    
Securities                                    
Taxable $1,174,627  $26,133   2.22% $946,986  $20,341   2.15% $732,324  $15,448   2.11%
Nontaxable  25,841   1,592   6.16   15,208   895   5.89   4,644   323   6.96 
   1,200,468   27,725   2.31   962,194   21,236   2.21   736,968   15,771   2.14 
Federal funds sold and other investments  75,442   1,669   2.21   76,851   1,022   1.33   125,550   1,017   0.81 
Loans, net (2)  2,584,389   119,587   4.63   1,984,545   94,640   4.77   1,452,751   63,788   4.39 
TOTAL EARNING ASSETS  3,860,299   148,981   3.86   3,023,590   116,898   3.87   2,315,269   80,576   3.48 
                                     
Allowance for loan losses  (21,131)          (18,725)          (19,164)        
Cash and due from banks  88,919           73,001           51,581         
Bank premises and equipment, net  60,470           51,396           37,970         
Bank owned life insurance  45,009           39,343           6,154         
Goodwill  53,792           25,320           6,643         
Other intangible assets, net  12,819           7,956           2,197         
Other assets  101,645           102,516           84,609         
  $4,201,822          $3,304,397          $2,485,259         
                                     
INTEREST BEARING LIABILITIES                                    
                                     
Interest bearing demand $764,917   616   0.08% $632,304   472   0.07% $520,288   399   0.08%
Savings deposits  325,371   161   0.05   281,470   158   0.06   219,793   113   0.05 
Money market  791,998   1,816   0.23   607,768   1,455   0.24   366,490   352   0.10 
Time deposits  351,646   2,074   0.59   307,329   1,228   0.40   277,349   1,538   0.55 
Federal funds purchased and other short term borrowings  187,560   484   0.26   168,188   340   0.20   152,129   260   0.17 
Federal Home Loan Bank borrowings  198,268   1,256   0.63   64,726   1,643   2.54   69,836   1,640   2.35 
Other borrowings  70,097   2,060   2.94   67,056   1,634   2.44   56,370   1,053   1.87 
TOTAL INTEREST BEARING LIABILITIES  2,689,857   8,467   0.31   2,128,841   6,930   0.33   1,662,255   5,355   0.32 
Noninterest demand  1,066,463           819,801           556,000         
Other liabilities  31,628           18,388           10,137         
   3,787,948           2,967,030           2,228,392         
Shareholders' equity  413,874           337,367           256,867         
  $4,201,822          $3,304,397          $2,485,259         
Interest expense as % of earning assets          0.22%          0.23%          0.23%
Net interest income/yield on earning assets     $140,514   3.63%     $109,968   3.64%     $75,221   3.25%

(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.

  For the Year Ended December 31,
  2018 2017 2016
(In thousands, except percentages) 
Average
Balance
 Interest 
Yield/
Rate
 
Average
Balance
 Interest 
Yield/
Rate
 
Average
Balance
 Interest 
Yield/
Rate
Assets                  
Earning Assets:  
  
  
  
  
  
  
  
  
Securities  
  
  
  
  
  
  
  
  
Taxable $1,299,089
 $37,860
 2.91% $1,316,972
 $34,442
 2.62% $1,174,627
 $26,133
 2.22%
Nontaxable 31,331
 1,115
 3.56
 28,369
 1,401
 4.94
 25,841
 1,592
 6.16
Total Securities 1,330,420
 38,975
 2.93
 1,345,341
 35,843
 2.66
 1,200,468
 27,725
 2.31
                   
Federal funds sold and other investments 61,048
 2,670
 4.37
 71,352
 2,416
 3.39
 75,442
 1,669
 2.21
Loans, net 4,112,009
 200,194
 4.87
 3,323,403
 154,043
 4.64
 2,584,389
 119,587
 4.63
Total Earning Assets 5,503,477
 241,839
 4.39
 4,740,096
 192,302
 4.06
 3,860,299
 148,981
 3.86
                   
Allowance for loan losses (29,972)  
  
 (25,485)  
  
 (21,131)  
  
Cash and due from banks 114,936
  
  
 106,710
  
  
 88,919
  
  
Bank premises and equipment, net 67,332
  
  
 59,842
  
  
 60,470
  
  
Bank owned life insurance 124,452
  
  
 97,939
  
  
 45,009
  
  
Intangible assets 178,287
  
  
 115,511
  
  
 66,611
  
  
Other assets 98,823
  
  
 112,004
  
  
 101,645
  
  
 Total Assets $6,057,335
  
  
 $5,206,617
  
  
 $4,201,822
  
  
                   
Liabilities and Shareholders' Equity                  
Interest-Bearing Liabilities:                  
Interest-bearing demand $978,030
 1,883
 0.19% $922,353
 1,065
 0.12% $764,917
 616
 0.08%
Savings deposits 457,542
 811
 0.18
 385,515
 241
 0.06
 325,371
 161
 0.05
Money market 1,049,900
 6,069
 0.58
 868,427
 2,348
 0.27
 791,998
 1,816
 0.23
Time deposits 811,741
 11,684
 1.44
 523,646
 4,678
 0.89
 351,646
 2,074
 0.59
Federal funds purchased and other short term borrowings 200,839
 1,804
 0.90
 171,686
 781
 0.45
 187,560
 484
 0.26
Federal Home Loan Bank borrowings 224,982
 4,468
 1.99
 377,396
 3,744
 0.99
 198,268
 1,256
 0.63
Other borrowings 70,658
 3,164
 4.48
 70,377
 2,443
 3.47
 70,097
 2,060
 2.94
Total Interest-Bearing Liabilities 3,793,692
 29,883
 0.79
 3,319,400
 15,300
 0.46
 2,689,857
 8,467
 0.31
                   
Noninterest demand 1,492,451
  
  
 1,279,825
     1,066,463
  
  
Other liabilities 30,621
  
  
 36,993
     31,628
  
  
Total Liabilities 5,316,764
  
  
 4,636,218
  
  
 3,787,948
  
  
                   
Shareholders' equity 740,571
  
  
 570,399
     413,874
  
  
Total Liabilities & Shareholders' Equity $6,057,335
  
  
 $5,206,617
  
  
 $4,201,822
  
  
                   
Cost of deposits     0.43%     0.21%     0.14%
Interest expense as % of earning assets  
  
 0.54%  
  
 0.32%  
  
 0.22%
Net interest income/yield on earning assets  
 $211,956
 3.85%  
 $177,002
 3.73%  
 $140,514
 3.63%
(1)On a fully taxable equivalent basis. All yields and rates have been computed using amortized costs.
Fees on loans have been included in interest on loans. Nonaccrual loans are included in loan balances.



Table 3 - Rate/Volume Analysis (on(1)
  
2018 vs 2017
Due to Change in:
 2017 vs 2016
Due to Change in:
(In thousands) Volume Rate Total Volume Rate Total
  Amount of increase (decrease)
Earning Assets:  
  
  
  
  
  
Securities  
  
  
  
  
  
Taxable $(494) $3,912
 $3,418
 $3,445
 $4,864
 $8,309
Nontaxable 126
 (412) (286) 140
 (331) (191)
Total Securities (368)
3,500

3,132

3,585

4,533

8,118
             
Federal funds sold and other investments (400) 654
 254
 (115) 862
 747
Loans, net 37,473
 8,678
 46,151
 34,225
 231
 34,456
Total Earning Assets 36,705

12,832

49,537

37,695

5,626

43,321
             
Interest-Bearing Liabilities:  
  
  
  
  
  
Interest-bearing demand 86
 732
 818
 154
 295
 449
Savings deposits 86
 484
 570
 34
 46
 80
Money market accounts 770
 2,951
 3,721
 192
 340
 532
Time deposits 3,360
 3,646
 7,006
 1,276
 1,328
 2,604
Federal funds purchased and other short term borrowings 197
 825
 1,022
 (57) 355
 298
Federal Home Loan Bank borrowings (2,269) 2,994
 725
 1,456
 1,031
 2,487
Other borrowings 11
 710
 721
 9
 374
 383
Total Interest Bearing Liabilities (2,061)
4,529

2,468

1,408

1,760

3,168
Net Interest Income $38,766
 $8,303
 $47,069
 $34,631
 $1,857
 $36,488
(1)On a Tax Equivalent Basis)

  2016 vs 2015  2015 vs 2014 
  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 $4,977  $815  $5,792  $4,570  $323  $4,893 
Nontaxable  640   57   697   678   (106)  572 
   5,617   872   6,489   5,248   217   5,465 
Federal funds sold and other investments  (26)  673   647   (522)  527   5 
Loans, net  28,181   (3,234)  24,947   24,355   6,497   30,852 
TOTAL EARNING ASSETS  33,772   (1,689)  32,083   29,081   7,241   36,322 
                         
INTEREST BEARING LIABILITIES                        
Interest bearing demand  103   41   144   85   (12)  73 
Savings deposits  23   (20)  3   33   12   45 
Money market accounts  433   (72)  361   406   697   1,103 
Time deposits  219   627   846   143   (453)  (310)
   778   576   1,354   667   244   911 
Federal funds purchased and other short term borrowings  45   99   144   30   50   80 
Federal Home Loan Bank borrowings  2,118   (2,505)  (387)  (125)  128   3 
Other borrowings  82   344   426   230   351   581 
TOTAL INTEREST BEARING LIABILITIES  3,023   (1,486)  1,537   802   773   1,575 
NET INTEREST INCOME $30,749  $(203) $30,546  $28,279  $6,468  $34,747 

fully taxable equivalent basis. All yields and rates have been computed using amortized costs.
Fees on loans have been included in interest on loans. Nonaccrual loans are included in loan balances.

(1) Changes attributable to rate/volume (mix) are allocated to rate and volume on an equal basis.



Table 4 – Noninterest Income

  Year Ended  % Change 
  2016  2015  2014  16/15  15/14 
  (Dollars in thousands)       
Service charges on deposit accounts $9,669  $8,563  $6,952   12.9%  23.2%
Trust fees  3,433   3,132   2,986   9.6   4.9 
Mortgage banking fees  5,864   4,252   3,057   37.9   39.1 
Brokerage commissions and fees  2,044   2,132   1,614   (4.1)  32.1 
Marine finance fees  673   1,152   1,320   (41.6)  (12.7)
Interchange income  9,227   7,684   5,972   20.1   28.7 
Other deposit based EFT fees  477   397   343   20.2   15.7 
BOLI Income  2,213   1,426   252   55.2   465.9 
Gain on participated loan  0   725   0   (100.0)   n/m 
Other  3,827   2,555   2,248   49.8   13.7 
   37,427   32,018   24,744   16.9   29.4 
Securities gains, net  368   161   469   128.6   (65.7)
Bargain purchase gain, net  0   416   0   (100.0)  n/m 
TOTAL $37,795  $32,595  $25,213   16.0   29.3 

  For the Year Ended December 31, % Change
(In thousands, except percentages) 2018 2017 2016 18/17 17/16
Service charges on deposit accounts $11,198
 $10,049
 $9,669
 11.4% 3.9%
Trust fees 4,183
 3,705
 3,433
 12.9
 7.9
Mortgage banking fees 4,682
 6,449
 5,864
 (27.4) 10.0
Brokerage commissions and fees 1,732
 1,352
 2,044
 28.1
 (33.9)
Marine finance fees 1,398
 910
 673
 53.6
 35.2
Interchange income 12,335
 10,583
 9,227
 16.6
 14.7
BOLI income 4,291
 3,426
 2,213
 25.2
 54.8
Other 10,826
 6,756
 4,304
 60.2
 57.0
  50,645

43,230

37,427
 17.2
 15.5
Gain on sale of Visa stock —
 15,153
 —
 (100.0) 100.0
Securities (losses) gains, net (623) 86
 368
 n/m
 (76.6)
Total Noninterest Income $50,022

$58,469

$37,795
 (14.4) 54.7
n/m = not meaningful



Table 5 - Noninterest Expense

  Year Ended  % Change 
  2016  2015  2014  16/15  15/14 
  (Dollars in thousands)       
Salaries and wages $54,096  $41,075  $35,132   31.7%  16.9%
Employee benefits  9,903   9,564   8,773   3.5   9.0 
Outsourced data processing costs  13,516   10,150   8,781   33.2   15.6 
Telephone / data lines  2,108   1,797   1,331   17.3   35.0 
Occupancy  13,122   8,744   7,930   50.1   10.3 
Furniture and equipment  4,720   3,434   2,535   37.4   35.5 
Marketing  3,633   4,428   3,576   (18.0)  23.8 
Legal and professional fees  9,596   8,022   6,871   19.6   16.8 
FDIC assessments  2,365   2,212   1,660   6.9   33.3 
Amortization of intangibles  2,486   1,424   1,033   74.6   37.9 
Asset dispositions expense  553   472   488   17.2   (3.3)
Branch closures and new branding  0   0   4,958   0.0   (100.0)
Net (gain)/loss on other real estate owned and repossessed assets  (509)  239   310   (313.0)  (22.9)
Early redemption cost for Federal Home Loan Bank advances  1,777   0   0    n/m   0.0 
Other  13,515   12,209   9,988   10.7   22.2 
TOTAL $130,881  $103,770  $93,366   26.1   11.1 

*

  For the Year Ended December 31, % Change
(In thousands, except percentages) 2018 2017 2016 18/17 17/16
Salaries and wages $71,111
 $65,692
 $54,096
 8.2 % 21.4 %
Employee benefits 12,945
 11,732
 9,903
 10.3
 18.5
Outsourced data processing costs 16,374
 14,116
 13,516
 16.0
 4.4
Telephone / data lines 2,481
 2,291
 2,108
 8.3
 8.7
Occupancy 13,394
 13,290
 13,122
 0.8
 1.3
Furniture and equipment 6,744
 6,067
 4,720
 11.2
 28.5
Marketing 5,085
 4,784
 3,633
 6.3
 31.7
Legal and professional fees 9,961
 11,022
 9,596
 (9.6) 14.9
FDIC assessments 2,195
 2,326
 2,365
 (5.6) (1.6)
Amortization of intangibles 4,300
 3,361
 2,486
 27.9
 35.2
Foreclosed property expense and net (gain)/loss on sale 461
 (300) 44
 n/m
 n/m
Early redemption cost for Federal Home Loan Bank advances —
 —
 1,777
 n/m
 (100.0)
Other 17,222
 15,535
 13,515
 10.9
 14.9
Total Noninterest Expense $162,273
 $149,916
 $130,881
 8.2
 14.5
n/m = not meaningful



Table 6 - Capital Resources

  December 31��
  2016  2015  2014 
     (Dollars in thousands)    
TIER 1 CAPITAL            
Common stock $3,802  $3,435  $3,300 
Additional paid in capital  454,001   399,162   379,249 
Accumulated (deficit)  (13,657)  (42,858)  (65,000)
Treasury stock  (1,236)  (73)  (71)
Goodwill  (64,649)  (25,211)  (25,309)
Intangibles  (6,371)  (2,057)  (4,478)
Other  (20,121)  (15,394)   n/a 
COMMON EQUITY TIER 1 CAPITAL  351,769   317,004    n/a 
Qualifying trust preferred securities  70,241   69,961   62,539 
Other  (13,414)  (23,092)  (44,565)
TOTAL TIER 1 CAPITAL  408,596   363,873   305,665 
TIER 2 CAPITAL            
Allowance for loan losses, as limited (1)  23,462   19,166   17,100 
TOTAL TIER 2 CAPITAL  23,462   19,166   17,100 
TOTAL RISK-BASED CAPITAL $432,058  $383,039  $322,765 
Risk weighted assets $3,259,871  $2,392,668  $1,986,291 
             
Common equity Tier 1 ratio (CET1)  10.79%  13.25%  n/a%
Regulatory minimum (2)  4.50   4.50   n/a 
Tier 1 capital ratio  12.53   15.21   15.39 
Regulatory minimum (2)  6.00   6.00   n/a 
Total capital ratio  13.25   16.01   16.25 
Regulatory minimum (2)  8.00   8.00   8.00 
Tier 1 capital to adjusted total assets  9.15   10.70   10.32 
Regulatory minimum  4.00   4.00   4.00 
Shareholders' equity to assets  9.30   10.00   10.11 
Average shareholders' equity to average total assets  9.85   10.21   10.34 
Tangible shareholders' equity to tangible assets  7.74   9.13   9.14 


  December 31,
(In thousands, except percentages) 2018 2017 2016
Tier 1 Capital  
  
  
Common stock $5,136
 $4,693
 $3,802
Additional paid in capital 778,501
 661,632
 454,001
Retained earnings (Accumulated deficit) 97,074
 29,914
 (13,657)
Treasury stock (3,384) (2,359) (1,236)
Goodwill (204,753) (147,578) (64,649)
Intangibles (24,808) (15,150) (6,371)
Other (6,426) (7,320) (20,121)
Common Equity Tier 1 Capital 641,340
 523,832
 351,769
       
Qualifying trust preferred securities 70,804
 70,521
 70,241
Other —
 (1,791) (13,414)
Total Tier 1 Capital 712,144
 592,562
 408,596
       
Tier 2 Capital  
  
  
Allowance for loan losses, as limited 32,543
 27,184
 23,462
Total Tier 2 Capital 32,543
 27,184
 23,462
Total Risk-Based Capital $744,687
 $619,746
 $432,058
Risk weighted assets $5,159,431
 $4,352,390
 $3,259,871
       
Common equity Tier 1 ratio (CET1) 12.43% 12.04% 10.79%
Regulatory minimum(1)
 4.50
 4.50
 4.50
Tier 1 capital ratio 13.80
 13.61
 12.53
Regulatory minimum(1)
 6.00
 6.00
 6.00
Total capital ratio 14.43
 14.24
 13.25
Regulatory minimum(1)
 8.00
 8.00
 8.00
Tier 1 capital to adjusted total assets 11.16
 10.68
 9.15
Regulatory minimum 4.00
 4.00
 4.00
       
Shareholders' equity to assets 12.81
 11.87
 9.30
Average shareholders' equity to average total assets 12.23
 10.96
 9.85
Tangible shareholders' equity to tangible assets 9.72
 9.27
 7.74
(1) Includes reserve for unfunded commitments of $62,000 at December 31, 2016, $38,000 at December 31, 2015 and $29,000 at December 31, 2014.

(2) Excludes newthe capital conservation buffer of 1.875% for 2018, 1.250% for 2017, and 0.625% the Company is subject to,for 2016, which if not exceeded may constrain dividends, equity repurchases and compensation.

n/a = not applicable





Table 7 - Loans Outstanding

  December 31 
  2016  2015  2014  2013  2012 
  (In thousands) 
Construction and land development                    
Residential $29,693  $31,650  $16,155  $10,566  $9,902 
Commercial  57,856   31,977   37,194   22,733   11,907 
   87,549   63,627   53,349   33,299   21,809 
Individuals  72,567   45,160   33,687   34,151   38,927 
   160,116   108,787   87,036   67,450   60,736 
                     
Commercial real estate(1)  1,357,592   1,009,378   837,147   520,382   486,828 
                     
Real estate mortgage                    
Residential real estate                    
Adjustable  418,276   429,826   441,238   391,885   361,005 
Fixed rate  210,365   110,391   93,865   91,108   98,976 
Home equity mortgages  44,484   69,339   71,838   62,043   57,955 
Home equity lines  163,662   114,229   79,956   47,710   51,395 
   836,787   723,785   686,897   592,746   569,331 
                     
Commercial and financial  370,589   228,517   157,396   78,636   61,903 
                     
Installment loans to individuals                    
Automobiles and trucks  19,234   14,965   7,817   6,607   7,761 
Marine loans  78,993   46,534   26,236   20,208   18,446 
Other  55,718   23,857   18,844   17,898   20,723 
   153,945   85,356   52,897   44,713   46,930 
                     
Other loans  507   507   512   280   353 
                     
TOTAL $2,879,536  $2,156,330  $1,821,885  $1,304,207  $1,226,081 

(1)Commercial real estate includes owner-occupied balances of $623.8 million, $453.3 million, $362.3 million, $194.0 million and $188.9 million, respectively, for each of the years, beginning with 2016.

  December 31,
(In thousands) 2018 2017 2016 2015 2014
Construction and land development  
  
  
  
  
Residential $123,326
 $97,725
 $29,693
 $31,650
 $16,155
Commercial 128,175
 91,043
 57,856
 31,977
 37,194
  251,501
 188,768
 87,549
 63,627
 53,349
Individuals 192,067
 154,357
 72,567
 45,160
 33,687
  443,568
 343,125
 160,116
 108,787
 87,036
           
Commercial real estate          
Owner-occupied 970,181
 791,400
 623,800
 453,300
 362,300
Non owner-occupied 1,161,885
 848,592
 733,792
 556,078
 474,847
  2,132,066
 1,639,992
 1,357,592
 1,009,378
 837,147
           
Residential real estate  
  
  
  
  
Adjustable 618,123
 487,231
 418,276
 429,826
 441,238
Fixed rate 370,224
 246,884
 210,365
 110,391
 93,865
Home equity mortgages 74,127
 71,367
 44,484
 69,339
 71,838
Home equity lines 261,903
 233,328
 163,662
 114,229
 79,956
  1,324,377
 1,038,810
 836,787
 723,785
 686,897
           
Commercial and financial 722,322
 606,014
 370,589
 228,517
 157,396
           
Installment loans to individuals  
  
  
  
  
Automobiles and trucks 20,482
 19,006
 19,234
 14,965
 7,817
Marine loans 83,606
 78,855
 78,993
 46,534
 26,236
Other 97,606
 90,851
 55,718
 23,857
 18,844
  201,694
 188,712
 153,945
 85,356
 52,897
           
Other loans 1,187
 724
 507
 507
 512
           
Total Loans $4,825,214
 $3,817,377
 $2,879,536
 $2,156,330
 $1,821,885





Table 8 - Loan Maturity Distribution

  December 31, 2016 
  Commercial and
Financial		  Construction and
Land Development		  Total 
     (In thousands)    
In one year or less $149,942  $62,629  $212,571 
After one year but within five years:            
Interest rates are floating or adjustable  44,999   17,177   62,176 
Interest rates are fixed  97,614   23,164   120,778 
In five years or more:            
Interest rates are floating or adjustable  7,360   26,463   33,823 
Interest rates are fixed  70,674   30,683   101,357 
TOTAL $370,589  $160,116  $530,705 
 December 31, 2018
(In thousands)
Commercial and
Financial
 
Construction and
Land Development
 Total
In one year or less$331,320
 $207,549
 $538,869
      
After one year but within five years: 
  
 

Interest rates are floating or adjustable74,175
 48,429
 122,604
Interest rates are fixed202,370
 31,361
 233,731
      
In five years or more: 
  
  
Interest rates are floating or adjustable6,375
 69,467
 75,842
Interest rates are fixed108,082
 86,762
 194,844
Total$722,322
 $443,568
 $1,165,890


Table 9 - Maturity of Certificates of Deposit of $100,000 or More

Maturity of Certificates of Deposit of $100,000 through $250,000 December 31 
     % of     % of 
  2016  Total  2015  Total 
  (Dollars in thousands) 
Maturity Group:                
Under 3 Months $20,304   16.4% $26,301   25.9%
3 to 6 Months  15,919   12.9   18,962   18.6 
6 to 12 Months  31,608   25.6   27,015   26.5 
Over 12 Months  55,801   45.1   29,481   29.0 
TOTAL $123,632   100.0% $101,759   100.0%

Maturity of Certificates of Deposit of more than $250,000 December 31 
     % of     % of 
  2016  Total  2015  Total 
  (Dollars in thousands) 
Maturity Group:                
Under 3 Months $15,832   23.3% $11,315   29.4%
3 to 6 Months  14,325   21.1   6,604   17.1 
6 to 12 Months  12,294   18.1   4,792   12.4 
Over 12 Months  25,450   37.5   15,824   41.1 
TOTAL $67,901   100.0% $38,535   100.0%


Maturity of Certificates of Deposit of $100,000 through $250,000

  December 31,
    % of   % of
(In thousands, except percentages) 2018 Total 2017 Total
Maturity Group:  
  
  
  
Under 3 Months $46,410
 17.9% $22,266
 10.5%
3 to 6 Months 33,291
 12.9
 36,380
 17.1
6 to 12 Months 83,280
 32.2
 89,486
 42.2
Over 12 Months 95,798
 37.0
 63,954
 30.2
Total Time Deposits $258,779
 100.0% $212,086
 100.0%
Maturity of Certificates of Deposit of more than $250,000

  December 31,
    % of   % of
(In thousands, except percentages) 2018 Total 2017 Total
Maturity Group:  
  
  
  
Under 3 Months $30,542
 15.9% $17,774
 12.3%
3 to 6 Months 23,077
 12.0
 20,100
 13.9
6 to 12 Months 68,600
 35.8
 59,344
 41.2
Over 12 Months 69,722
 36.3
 47,054
 32.6
Total Time Deposits $191,941
 100.0% $144,272
 100.0%


Table 10 - Summary of Allowance for Loan Loss Experience

  Year Ended December 31 
  2016  2015  2014  2013  2012 
    
Beginning balance $19,128  $17,071  $20,068  $22,104  $25,565 
                     
Provision (recapture) for loan losses  2,411   2,644   (3,486)  3,188   10,796 
                     
Charge offs:                    
Construction and land development  0   1,271   640   604   612 
Commercial real estate  301   482   398   2,714   8,539 
Residential real estate  215   779   1,126   3,153   8,381 
Commercial and financial  615   726   398   60   346 
Consumer  244   341   193   253   410 
TOTAL CHARGE OFFS  1,375   3,599   2,755   6,784   18,288 
Recoveries:                    
Construction and land development  226   404   415   212   341 
Commercial real estate  306   700   1,683   547   2,702 
Residential real estate  786   1,260   902   449   738 
Commercial and financial  1,809   531   170   326   129 
Consumer  109   117   74   26   121 
TOTAL RECOVERIES  3,236   3,012   3,244   1,560   4,031 
Net loan charge offs (recoveries)  (1,861)  587   (489)  5,224   14,257 
ENDING BALANCE $23,400  $19,128  $17,071  $20,068  $22,104 
                     
Loans outstanding at end of year* $2,879,536  $2,156,330  $1,821,885  $1,304,207  $1,226,081 
Ratio of allowance for loan losses to loans outstanding at end of year  0.81%  0.89%  0.94%  1.54%  1.80%
Ratio of allowance for loan losses to loans outstanding (excluding purchased loans) at end of period (1)  0.96%  1.03%  1.14%  1.54%  1.80%
Daily average loans outstanding* $2,584,389  $1,984,545  $1,452,751  $1,272,447  $1,227,542 
Ratio of net charge offs (recoveries) to average loans outstanding  (0.29)%  0.03%  (0.03)%  0.41%  1.16%

 

(1)A non-GAAP measure.

*

  For the Year Ended December 31,
(In thousands, except percentages) 2018 2017 2016 2015 2014
Beginning balance $27,122
 $23,400
 $19,128
 $17,071
 $20,068
           
Provision (recapture) for loan losses 11,730
 5,648
 2,411
 2,644
 (3,486)
           
Charge offs:  
  
  
  
  
Construction and land development —
 —
 —
 1,271
 640
Commercial real estate 3,139
 407
 256
 263
 285
Residential real estate 80
 569
 205
 779
 1,126
Commercial and financial 3,396
 1,869
 439
 726
 398
Consumer 1,411
 1,257
 244
 341
 193
Total Charge Offs 8,026
 4,102
 1,144
 3,380
 2,642
           
Recoveries:  
  
  
  
  
Construction and land development 27
 896
 226
 404
 415
Commercial real estate 292
 747
 306
 700
 1,683
Residential real estate 816
 336
 786
 1,260
 902
Commercial and financial 325
 226
 1,809
 531
 170
Consumer 329
 290
 109
 117
 74
Total Recoveries 1,789
 2,495
 3,236
 3,012
 3,244
           
Net loan charge offs (recoveries) 6,237
 1,607
 (2,092) 368
 (602)
           
TDR valuation adjustments:  
  
  
  
  
Construction and land development —
 2
 8
 (43) 12
Commercial real estate 62
 64
 132
 69
 (25)
Residential real estate 121
 244
 86
 151
 118
Commercial and financial —
 —
 —
 6
 —
Consumer 9
 9
 5
 36
 8
Total TDR Valuation Adjustments 192

319

231

219

113
Total Allowance for Loan Losses $32,423
 $27,122
 $23,400
 $19,128
 $17,071
           
Loans outstanding at end of year(1)
 $4,825,214 $3,814,377 $2,879,536 $2,156,330 $1,821,885
Ratio of allowance for loan losses to loans outstanding at end of year 0.67% 0.71% 0.81 % 0.89% 0.94 %
Daily average loans outstanding(1)
 $4,112,009 $3,323,403 $2,584,389 $1,984,545 $1,452,751
Ratio of net charge offs (recoveries) to average loans outstanding 0.15% 0.05% (0.08)% 0.02% (0.04)%
(1)Net of unearned income.




Table 11 - Allowance for Loan Losses

  December 31, 
(Dollars in thousands) 2016  2015  2014  2013  2012 
                
ALLOCATION BY LOAN TYPE                    
Construction and land development $1,219  $1,151  $765  $808  $1,134 
Commercial real estate loans  9,273   6,756   4,531   6,160   8,849 
Residential real estate loans  7,483   8,057   9,802   11,659   11,090 
Commercial and financial loans  3,636   2,042   1,179   710   468 
Consumer loans  1,789   1,122   794   731   563 
TOTAL $23,400  $19,128  $17,071  $20,068  $22,104 
                     
YEAR END LOAN TYPES AS A PERCENT OF TOTAL LOANS                    
Construction and land development  5.6%  5.0%  4.8%  5.2%  5.0%
Commercial real estate loans  47.1   46.8   46.0   39.9   39.7 
Residential real estate loans  29.1   33.6   37.7   45.5   46.5 
Commercial and financial loans  12.9   10.6   8.6   6.0   5.0 
Consumer loans  5.3   4.0   2.9   3.4   3.8 
TOTAL  100.0%  100.0%  100.0%  100.0%  100.0%

105 

  December 31,
(In thousands, except percentages) 2018 2017 2016 2015 2014
Allocation by Loan Type  
  
  
  
  
Construction and land development $2,233
 $1,642
 $1,219
 $1,151
 $765
Commercial real estate loans 11,112
 9,285
 9,273
 6,756
 4,531
Residential real estate loans 7,775
 7,131
 7,483
 8,057
 9,802
Commercial and financial loans 8,585
 7,297
 3,636
 2,042
 1,179
Consumer loans 2,718
 1,767
 1,789
 1,122
 794
Total Allowance for Loan Losses $32,423
 $27,122
 $23,400
 $19,128
 $17,071
           
Year End Loan Types as a Percent of Total Loans  
  
  
  
  
Construction and land development 9.2% 9.0% 5.6% 5.0% 4.8%
Commercial real estate loans 44.2
 43.0
 47.1
 46.8
 46.0
Residential real estate loans 27.4
 27.2
 29.1
 33.6
 37.7
Commercial and financial loans 15.0
 15.9
 12.9
 10.6
 8.6
Consumer loans 4.2
 4.9
 5.3
 4.0
 2.9
Total 100.0% 100.0% 100.0% 100.0% 100.0%


Table 12 - Nonperforming Assets

  December 31, 
  2016  2015  2014  2013  2012 
Nonaccrual loans (1) (2) (Dollars in thousands) 
Construction and land development $470  $309  $1,963  $1,302  $1,342 
Commercial real estate loans  7,341   6,410   4,189   5,111   17,234 
Residential real estate loans  9,844   10,290   14,797   20,705   22,099 
Commercial and financial loans  246   130   0   13   0 
Consumer loans  170   247   191   541   280 
Total  18,071   17,386   21,140   27,672   40,955 
Other real estate owned                    
Construction and land development  1,203   2,617   223   421   2,124 
Commercial real estate loans  3,041   3,959   5,771   5,138   6,305 
Residential real estate loans  0   463   1,468   1,301   3,458 
Bank branches closed  5,705   0   0   0   0 
Total  9,949   7,039   7,462   6,860   11,887 
TOTAL NONPERFORMING ASSETS $28,020  $24,425  $28,602  $34,532  $52,842 
                     
Amount of loans outstanding at end of year (2) $2,879,536  $2,156,330  $1,821,885  $1,304,207  $1,226,081 
Ratio of total nonperforming assets to loans outstanding and other real estate owned at end of period  0.97%  1.13%  1.56%  2.63%  4.27%
Accruing loans past due 90 days or more $0  $0  $311  $160  $1 
Loans restructured and in compliance with modified terms (3)  17,711   19,970   24,997   25,137   41,946 

(1)Interest income that could have been recorded during 2016, 2015, and 2014 related to nonaccrual loans was $728,000, $614,000, and $1,942,000, 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 $1,001,000, $1,211,000, and $1,496,000, respectively, for 2016, 2015 and 2014. The amount included in interest income under the modified terms for 2016, 2015, and 2014 was $792,000, $836,000, and $1,276,000, respectively.

106 

  December 31,
(In thousands, except percentages) 2018 2017 2016 2015 2014
Nonaccrual loans(1)(2)
  
Construction and land development $44
 $238
 $470
 $309
 $1,963
Commercial real estate loans 9,220
 2,833
 7,341
 6,410
 4,189
Residential real estate loans 13,708
 13,856
 9,844
 10,290
 14,797
Commercial and financial loans 3,321
 2,499
 246
 130
 —
Consumer loans 183
 98
 170
 247
 191
Total Nonaccrual Loans 26,476
 19,524
 18,071
 17,386
 21,140
           
Other real estate owned  
  
  
  
  
Construction and land development 1,543
 1,268
 1,203
 2,617
 223
Commercial real estate loans 1,566
 2,550
 3,041
 3,959
 5,771
Residential real estate loans 297
 60
 —
 463
 1,468
Bank branches closed 9,396
 3,762
 5,705
 —
 —
Total Other Real Estate Owned 12,802
 7,640
 9,949
 7,039
 7,462
           
Total Nonperforming Assets $39,278
 $27,164
 $28,020
 $24,425
 $28,602
           
Amount of loans outstanding at end of year(2)
 4,825,214
 3,817,377
 2,879,536
 2,156,330
 1,821,885
Ratio of total nonperforming assets to loans outstanding and other real estate owned at end of period 0.81% 0.71% 0.97% 1.13% 1.56%
Accruing loans past due 90 days or more $526
 $—
 $—
 $—
 $311
Loans restructured and in compliance with modified terms(3)
 13,346
 15,559
 17,711
 19,970
 24,997
(1)Interest income that could have been recorded during 2018, 2017, and 2016 related to nonaccrual loans was $1.0 million, $0.7 million, and $0.7 million, 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 $0.5 million, $0.7 million, and $1.1 million, respectively, for 2018, 2017 and 2016. The amount included in interest income under the modified terms for 2018, 2017 and 2016 was $0.7 million , $0.7 million, and $0.8 million, respectively.


Table 13 - Debt 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                
2016 $12,073  $12,328  $255  $0 
2015  3,833   3,911   78   0 
                 
Mortgage-backed securities of U.S. Government Sponsored Entities                
2016  287,726   283,488   585   (4,823)
2015  192,224   191,749   847   (1,322)
                 
Collateralized mortgage obligations of U.S. Government Sponsored Entities                
2016  238,805   234,054   314   (5,065)
2015  242,620   238,190   470   (4,900)
                 
Commercial mortgage-backed securities of U.S. Government Sponsored Entities                
2016  22,351   22,545   222   (28)
2015  0   0   0   0 
                 
Private mortgage-backed securities                
2016  32,780   31,989   0   (791)
2015  32,558   31,792   0   (766)
                 
Private collateralized mortgage obligations                
2016  67,542   67,289   563   (816)
2015  77,965   77,957   700   (708)
                 
Collateralized loan obligations                
2016  124,716   124,889   838   (665)
2015  124,477   122,583   0   (1,894)
                 
Obligations of state and political subdivisions                
2016  63,161   62,888   622   (895)
2015  39,119   39,891   882   (110)
                 
Corporate and other debt securities                
2016  74,121   73,861   257   (517)
2015  44,652   44,273   37   (416)
                 
Private commercial mortgage backed securities                
2016  37,534   37,172   111   (473)
2015  41,127   40,420   13   (720)
                 
Total Securities Available For Sale                
2016 $960,809  $950,503  $3,767  $(14,073)
2015 $798,575  $790,766  $3,027  $(10,836)

  December 31,
(In thousands) 
Gross
Amortized
Cost
 
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities  
  
  
  
2018 $7,200
 $7,300
 $106
 $(6)
2017 9,475
 9,744
 274
 (5)
         
Mortgage-backed securities and collateralized mortgage obligations of US Government Sponsored Entities  
  
  
  
2018 567,753
 554,006
 300
 (14,047)
2017 560,396
 553,525
 1,163
 (8,034)
         
Private mortgage-backed securities and collateralized mortgage obligations  
  
  
  
2018 55,569
 55,728
 560
 (401)
2017 75,152
 76,021
 1,154
 (285)
         
Collateralized loan obligations  
  
  
  
2018 212,807
 209,366
 1
 (3,442)
2017 263,579
 264,309
 798
 (68)
         
Obligations of state and political subdivisions  
  
  
  
2018 39,543
 39,431
 339
 (451)
2017 45,118
 45,861
 813
 (70)
         
Total Debt Securities Available For Sale  
  
  
  
2018 $882,872
 $865,831
 $1,306
 $(18,347)
2017 $953,720
 $949,460
 $4,202
 $(8,462)


Table 14 - Debt Securities Held to Maturity

  December 31 
  Amortized  Fair  Unrealized  Unrealized 
  Cost  Value  Gains  Losses 
  (In thousands) 
             
Mortgage-backed securities of U.S. Government Sponsored Entities                
2016 $159,941  $159,402  $704  $(1,243)
2015  64,993   65,551   574   (16)
                 
Collateralized mortgage obligations of U.S. Government Sponsored Entities                
2016  147,208   144,964   386   (2,630)
2015  89,265   89,440   581   (406)
                 
Commercial mortgage-backed securities of U.S. Government Sponsored Entities                
2016  17,375   17,534   233   (74)
2015  0   0   0   0 
                 
Collateralized loan obligations                
2016  41,547   41,663   430   (314)
2015  41,300   39,940   0   (1,360)
                 
Private mortgage backed securities                
2016  6,427   6,318   0   (109)
2015  7,967   7,882   0   (85)
                 
Total Securities Held to Maturity                
2016 $372,498  $369,881  $1,753  $(4,370)
2015 $203,525  $202,813  $1,155  $(1,867)

  December 31,
(In thousands) 
Gross
Amortized
Cost
 
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
Mortgage-backed securities of U.S. Government Sponsored Entities  
  
  
  
2018 $304,423
 $297,099
 $—
 $(7,324)
2017 353,541
 350,184
 802
 (4,159)
         
Private mortgage-backed securities and collateralized mortgage obligations  
  
  
  
2018 21,526
 21,673
 277
 (130)
2017 22,799
 23,460
 714
 (53)
         
Collateralized loan obligations  
  
  
  
2018 32,000
 31,123
 —
 (877)
2017 40,523
 40,826
 303
 —
         
Total Debt Securities Held to Maturity  
  
  
  
2018 $357,949
 $349,895
 $277
 $(8,331)
2017 $416,863
 $414,470
 $1,819
 $(4,212)


Table 15 - Maturity Distribution of Debt Securities Available For Sale

  December 31, 2016 
                 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 $7,348  $4,725  $0  $0  $12,073   0.66 
Mortgage-backed securities of U.S. Government Sponsored Entities  0   119,379   159,693   8,654   287,726   6.10 
Collateralized mortgage obligations of U.S. Government Sponsored Entities  4,481   191,096   43,030   198   238,805   3.61 
Commercial mortgage backed securities of U.S. Government Sponsored Entities  0   5,399   16,095   857   22,351   6.46 
Private mortgage backed securities  0   0   15,547   17,233   32,780   9.17 
Private collateralized mortgage obligations  34,059   22,977   6,788   3,718   67,542   2.26 
Collateralized loan obligations  0   32,879   91,837   0   124,716   5.71 
Obligations of state and political subdivisions  0   9,695   26,697   26,769   63,161   11.02 
Corporate and other debt securities  8,000   38,528   22,947   4,646   74,121   4.46 
Private commercial mortgage backed securities  548   4,883   14,149   17,954   37,534   13.60 
Total Securities Available For Sale $54,436  $429,561  $396,783  $80,029  $960,809   5.54 
                         
FAIR VALUE                        
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities $7,534  $4,794  $0  $0  $12,328     
Mortgage-backed securities of U.S. Government Sponsored Entities  0   118,603   156,178   8,707   283,488     
Collateralized mortgage obligations of U.S. Government Sponsored Entities  4,516   187,557   41,781   200   234,054     
Commercial mortgage backed securities of U.S. Government Sponsored Entities  0   5,383   16,301   861   22,545     
Private mortgage backed securities  0   0   14,980   17,009   31,989     
Private collateralized mortgage obligations  33,780   22,973   6,955   3,581   67,289     
Collateralized loan obligations  0   32,581   92,308   0   124,889     
Obligations of state and political subdivisions  0   9,731   27,061   26,096   62,888     
Corporate and other debt securities  8,010   38,573   22,664   4,614   73,861     
Private commercial mortgage backed securities  547   4,844   13,988   17,793   37,172     
Total Securities Available For Sale $54,387  $425,039  $392,216  $78,861  $950,503     
                         
WEIGHTED AVERAGE YIELD (FTE)                        
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities  3.94%  3.27%  0.00%  0.00%  3.68%    
Mortgage-backed securities of U.S. Government Sponsored Entities  0.00%  2.05%  2.53%  3.17%  2.31%    
Collateralized mortgage obligations of U.S. Government Sponsored Entities  1.82%  1.77%  2.33%  1.40%  1.87%    
Commercial mortgage backed securities of U.S. Government Sponsored Entities  0.00%  1.99%  3.87%  1.92%  3.58%    
Private mortgage backed securities  0.00%  1.95%  2.06%  1.87%  1.97%    
Private collateralized mortgage obligations  1.90%  4.02%  3.54%  1.93%  2.79%    
Collateralized loan obligations  0.00%  2.02%  3.53%  0.00%  3.23%    
Obligations of state and political subdivisions  0.00%  2.40%  3.32%  3.80%  3.38%    
Corporate and other debt securities  2.05%  2.48%  3.08%  3.67%  2.69%    
Private commercial mortgage backed securities  1.77%  2.40%  2.65%  2.46%  2.51%    
Total Securities Available For Sale  2.19%  2.03%  2.91%  2.93%  2.50%    

  December 31, 2018
(In thousands) 
1 Year
Or Less
 
1-5
Years
 
5-10
Years
 
After 10
Years
 Total 
Average
Maturity
In Years
Amortized Cost  
  
  
  
  
  
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities $—
 $5,726
 $1,474
 $—
 $7,200
 4.17
Mortgage-backed securities and collateralized mortgage obligations of US Government Sponsored Entities 7,363
 262,724
 295,120
 2,546
 567,753
 4.18
Private mortgage-backed securities and collateralized mortgage obligations 2
 41,502
 14,065
 —
 55,569
 4.41
Collateralized loan obligations 4,220
 70,514
 138,073
 —
 212,807
 5.28
Obligations of state and political subdivisions 7,970
 12,162
 15,946
 3,465
 39,543
 3.55
Total Debt Securities Available For Sale $19,555
 $392,628
 $464,678
 $6,011
 $882,872
 4.25
             
Fair Value  
  
  
  
  
  
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities $—
 $5,804
 $1,496
 $—
 $7,300
  
Mortgage-backed securities and collateralized mortgage obligations of US Government Sponsored Entities 7,307
 256,887
 287,203
 2,609
 554,006
  
Private mortgage-backed securities and collateralized mortgage obligations 2
 41,612
 14,114
 —
 55,728
  
Collateralized loan obligations 4,219
 69,808
 135,339
 —
 209,366
  
Obligations of state and political subdivisions 7,912
 12,197
 15,871
 3,451
 39,431
  
Total Debt Securities Available For Sale $19,440
 $386,308
 $454,023
 $6,060
 $865,831
  
             
Weighted Average Yield(1)
  
  
  
  
  
  
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities —% 3.44% 4.64% —% 3.68%  
Mortgage-backed securities and collateralized mortgage obligations of US Government Sponsored Entities 1.08% 2.36% 2.75% 4.05% 2.55%  
Private mortgage-backed securities and collateralized mortgage obligations 5.00% 3.74% 3.59% —% 3.70%  
Collateralized loan obligations 4.18% 3.75% 4.09% —% 3.98%  
Obligations of state and political subdivisions 2.19% 3.13% 2.74% 3.02% 2.77%  
Total Debt Securities Available For Sale 2.20% 2.80% 3.18% 3.46% 2.99%  
(1)On a fully taxable equivalent basis. All yields and rates have been computed using amortized costs.



Table 16 - Maturity Distribution of Debt Securities Held to Maturity

  December 31, 2016 
                 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  $113,596 $33,833 $12,512 $159,941   5.05 
Collateralized mortgage obligations of U.S. Government Sponsored Entities  0   126,338  20,870  0   147,208   3.16 
Commercial mortgage backed securities of U.S. Government Sponsored Entities  0   0  17,375  0   17,375   7.21 
Collateralized loan obligations  0   0  41,547  0   41,547   6.69 
Private mortgage backed securities  0   1,460  4,967  0   6,427   6.98 
Total Securities Held to Maturity $0  $241,394  $118,592  $12,512  $372,498   4.62 
                         
FAIR VALUE                        
Mortgage-backed securities of U.S. Government Sponsored Entities $0  $112,872 $34,195 $12,335 $159,402     
Collateralized mortgage obligations of U.S. Government Sponsored Entities  0   125,021  19,943   0   144,964     
Commercial mortgage backed securities of U.S. Government Sponsored Entities  0   0  17,534   0   17,534     
Collateralized loan obligations  0   0  41,663   0   41,663     
Private mortgage backed securities  0   1,460  4,858   0   6,318     
Total Securities Held to Maturity $0  $239,353  $118,193  $12,335  $369,881     
                         
WEIGHTED AVERAGE YIELD (FTE)                        
Mortgage-backed securities of U.S. Government Sponsored Entities  0.00%  2.06%  2.09%  2.70%  2.12%    
Collateralized mortgage obligations of U.S. Government Sponsored Entities  0.00%  1.79%  2.24%  0.00%  1.85%    
Commercial mortgage backed securities of U.S. Government Sponsored Entities  0.00%  0.00%  4.24%  0.00%  4.24%    
Collateralized loan obligations  0.00%  0.00%  4.34%  0.00%  4.34%    
Private mortgage backed securities  0.00%  1.95%  1.85%  0.00%  1.88%    
Total Securities Held to Maturity  0.00%  1.92%  3.21%  2.70%  2.35%    

  December 31, 2018
(In thousands) 
1 Year
Or Less
 
1-5
Years
 
5-10
Years
 
After 10
Years
 Total 
Average
Maturity
In Years
Amortized Cost  
  
  
  
  
  
Mortgage-backed securities of U.S. Government Sponsored Entities $—
 $172,280
 $132,143
 $—
 $304,423
 4.20
Private mortgage-backed securities and collateralized mortgage obligations —
 10,622
 10,904
 —
 21,526
 4.93
Collateralized loan obligations —
 —
 32,000
 —
 32,000
 7.42
Total Debt Securities Held for Investment $—
 $182,902 $175,047 $—
 $357,949 4.68
             
Fair Value  
  
  
  
  
  
Mortgage-backed securities of U.S. Government Sponsored Entities $—
 $168,499
 $128,600
 $—
 $297,099
  
Private mortgage-backed securities and collateralized mortgage obligations —
 10,853
 10,820
 —
 21,673
  
Collateralized loan obligations —
 —
 31,123
 —
 31,123
  
Total Debt Securities Held for Investment $—
 $179,352 $170,543 $— $349,895  
             
Weighted Average Yield(1)
  
  
  
  
  
  
Mortgage-backed securities of U.S. Government Sponsored Entities —% 2.20% 2.77% —% 2.45%  
Private mortgage-backed securities and collateralized mortgage obligations —% 4.21% 3.76% —% 3.98%  
Collateralized loan obligations —% —% 4.95% —% 4.95%  
Total Debt Securities Held for Investment —% 2.31% 3.23% —% 2.76%  
(1)On a fully taxable equivalent basis. All yields and rates have been computed using amortized costs.



Table 17 - Interest Rate Sensitivity Analysis(1)

  December 31, 2016 
  0-3  4-12  1-5  Over    
  Months  Months  Years  5 Years  Total 
  (Dollars in thousands) 
Federal funds sold and interest bearing deposits $27,124  $0  $0  $0  $27,124 
Securities (2)  452,500   110,801   399,154   360,546   1,323,001 
Loans, net (3)  797,954   337,967   1,238,044   520,903   2,894,868 
Earning assets  1,277,578   448,768   1,637,198   881,449   4,244,993 
Savings deposits (4)  2,023,086   0   0   0   2,023,086 
Time deposits  68,234   145,398   136,429   1,789   351,850 
Borrowings  689,443   0   0   0   689,443 
Interest bearing liabilities  2,780,763   145,398   136,429   1,789   3,064,379 
Interest sensitivity gap $(1,503,185) $303,370  $1,500,769  $879,660  $1,180,614 
Cumulative gap $(1,503,185) $(1,199,815) $300,954  $1,180,614     
Cumulative gap to total earning assets (%)  (35.4)  (28.3)  7.1   27.8     
Earning assets to interest bearing liabilities (%)  45.9   308.6   1,200.0    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)Includes loans available for sale.

(4)This category is comprised of interest-bearing demand, savings and money market deposits. If interest-bearing demand and savings deposits (totaling $1,220,389) were deemed repriceable in "4-12 months", the interest sensitivity gap and cumulative gap would be ($282,796) or (6.7)% of total earning assets and an earning assets to interest bearing liabilities for the 0-3 months category of 81.9%.

  December 31, 2018
(In thousands) 
0-3
Months
 
4-12
Months
 
1-5
Years
 
Over
5 Years
 Total
Federal funds sold and interest bearing deposits $12,553
 $—
 $—
 $—
 $12,553
Securities(2)
 491,399
 58,750
 282,622
 539,896
 1,372,667
Loans, net(3)
 1,316,938
 486,273
 1,468,700
 569,772
 3,841,683
Earning assets 1,820,890
 545,023
 1,751,322
 1,109,668
 5,226,903
Savings deposits(4)
 2,416,559
 —
 —
 —
 2,416,559
Time deposits 154,351
 473,088
 147,466
 1,028
 775,933
Borrowings 497,615
 —
 —
 —
 497,615
Interest bearing liabilities 3,068,525
 473,088
 147,466
 1,028
 3,690,107
Interest sensitivity gap $(1,247,635) $71,935
 $1,603,856
 $1,108,640
 $1,536,796
Cumulative gap $(1,247,635) $(1,175,700) $428,156
 $1,536,796
  
Cumulative gap to total earning assets (%) (23.9) (22.5) 8.2
 29.4
  
Earning assets to interest bearing liabilities (%) 59.3
 115.2
 1,187.6
 n/m
  
(1)The repricing dates may differ from maturity dates for certain assets due to prepayment assumptions.
(2)Securities are stated at carrying value.
(3)Includes loans available for sale.
(4)This category is comprised of interest-bearing demand, savings and money market deposits. If interest-bearing demand and savings deposits (totaling $1,365,804) were deemed repriceable in "4-12 months", the interest sensitivity gap and cumulative gap would be $118,169 or 2.3% of total earning assets and earning assets to interest bearing liabilities percentage for the 0-3 months category of 106.9%.
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, 20162018 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, 20112013 (the last day of trading for the year ended December 31, 2011)2013) 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.

  Period Ending 
Index 12/31/11  12/31/12  12/31/13  12/31/14  12/31/15  12/31/16 
Seacoast Banking Corporation of Florida  100.00   105.92   160.53   180.92   197.11   290.26 
NASDAQ Composite  100.00   117.45   164.57   188.84   201.98   219.89 
SNL Southeast Bank  100.00   166.11   225.10   253.52   249.57   331.30 

Source : SNL Financial, an offering of


chart-8dcb940acf23150f756.jpg

    Period Ending  
Index 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018
Seacoast Banking Corporation of Florida 100.00
 112.70
 122.79
 180.82
 206.64
 213.28
NASDAQ Composite Index 100.00
 114.75
 122.74
 133.62
 173.22
 168.30
SNL Southeast Bank Index 100.00
 112.63
 110.87
 147.18
 182.06
 150.42
Source: S&P Global Market Intelligence

© 2017

www.snl.com

112 

2019




SELECTED QUARTERLY INFORMATION

QUARTERLY CONSOLIDATED INCOME (LOSS) STATEMENTS (UNAUDITED)

  2016 Quarters  2015 Quarters 
  Fourth  Third  Second  First  Fourth  Third  Second  First 
  (Dollars in thousands, except per share data) 
Net interest income:                                
Interest income $39,691  $39,614  $36,579  $32,171  $30,915  $30,823  $27,361  $27,318 
Interest expense  2,266   2,166   2,086   1,949   1,815   1,812   1,695   1,608 
Net interest income  37,425   37,448   34,493   30,222   29,100   29,011   25,666   25,710 
Provision for loan losses  1,000   550   662   199   369   987   855   433 
Net interest income after provision for loan losses  36,425   36,898   33,831   30,023   28,731   28,024   24,811   25,277 
Noninterest income:                                
Service charges on deposit accounts  2,612   2,698   2,230   2,129   2,229   2,217   2,115   2,002 
Trust fees  969   820   838   806   791   781   759   801 
Mortgage banking fees  1,616   1,885   1,364   999   955   1,177   1,032   1,088 
Brokerage commissions and fees  480   463   470   631   511   604   576   441 
Marine finance fees  115   138   279   141   205   258   492   197 
Interchange income  2,334   2,306   2,370   2,217   1,989   1,925   2,033   1,737 
Other deposit based EFT fees  125   109   116   127   99   88   96   114 
BOLI Income  611   382   379   841   396   366   334   330 
Gain on participated loan  0   0   0   0   0   0   725   0 
Other income  1,060   963   1,065   739   607   666   684   598 
Securities gains, net  7   225   47   89   1   160   0   0 
Bargain purchase gain, net  0   0   0   0   416   0   0   0 
Total noninterest income  9,929   9,989   9,158   8,719   8,199   8,242   8,846   7,308 
Noninterest expenses:                                
Salaries and wages  12,476   14,337   13,884   13,399   11,135   11,850   9,301   8,789 
Employee benefits  2,475   2,425   2,521   2,482   2,178   2,430   2,541   2,415 
Outsourced data processing costs  3,076   3,198   2,803   4,439   2,455   3,277   2,234   2,184 
Telephone / data lines  502   539   539   528   412   446   443   496 
Occupancy  2,830   3,675   3,645   2,972   2,314   2,396   2,011   2,023 
Furniture and equipment  1,211   1,228   1,283   998   1,000   883   819   732 
Marketing  847   780   957   1,049   1,128   1,099   1,226   975 
Legal and professional fees  2,370   2,213   2,656   2,357   2,580   2,189   1,590   1,663 
FDIC assessments  661   517   643   544   551   552   520   589 
Amortization of intangibles  719   728   593   446   397   397   315   315 
Asset dispositions expense  84   219   160   90   79   77   173   143 
Net (gain)/loss on other real estate owned and repossessed assets  (161)  (96)  (201)  (51)  (157)  262   53   81 
Early redemption cost for Federal Home Loan Bank advances  0   0   1,777   0   0   0   0   0 
Other  3,207   3,672   3,548   3,088   3,097   3,269   3,062   2,781 
Total noninterest expenses  30,297   33,435   34,808   32,341   27,169   29,127   24,288   23,186 
Income before income taxes  16,057   13,452   8,181   6,401   9,761   7,139   9,369   9,399 
Provision for income taxes  5,286   4,319   2,849   2,435   3,725   2,698   3,564   3,540 
Net income $10,771  $9,133  $5,332  $3,966  $6,036  $4,441  $5,805  $5,859 
                                 
PER COMMON SHARE DATA                                
Net income diluted $0.28  $0.24  $0.14  $0.11  $0.18  $0.13  $0.18  $0.18 
Net income basic  0.29   0.24   0.14   0.11   0.18   0.13   0.18   0.18 
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  15.85   15.50   15.21   13.40   14.10   14.11   13.81   12.02 
High close  22.91   17.80   17.19   16.22   16.95   16.26   16.09   14.46 
Bid price at end of period  22.06   16.09   16.24   15.79   14.98   14.68   15.80   14.27 

  2018 Quarters 2017 Quarters
(In thousands, except per share data) Fourth Third Second First Fourth Third Second First
Net interest income:  
  
  
  
  
  
  
  
Interest income $70,058
 $59,154
 $56,709
 $55,477
 $53,344
 $50,079
 $47,398
 $40,775
Interest expense 10,074
 7,592
 6,502
 5,715
 5,118
 4,330
 3,242
 2,610
Net interest income 59,984
 51,562
 50,207
 49,762
 48,226
 45,749
 44,156
 38,165
Provision for loan losses 2,342
 5,774
 2,529
 1,085
 2,263
 680
 1,401
 1,304
Net interest income after provision for loan losses 57,642
 45,788
 47,678
 48,677
 45,963
 45,069
 42,755
 36,861
Noninterest income:                
Service charges on deposit accounts 3,019
 2,833
 2,674
 2,672
 2,566
 2,626
 2,435
 2,422
Trust fees 1,040
 1,083
 1,039
 1,021
 941
 967
 917
 880
Mortgage banking fees 809
 1,135
 1,336
 1,402
 1,487
 2,138
 1,272
 1,552
Brokerage commissions and fees 468
 444
 461
 359
 273
 351
 351
 377
Marine finance fees 185
 194
 446
 573
 313
 137
 326
 134
Interchange income 3,198
 3,119
 3,076
 2,942
 2,836
 2,582
 2,671
 2,494
BOLI income 1,091
 1,078
 1,066
 1,056
 1,100
 836
 757
 733
Other income 3,329
 2,453
 2,671
 2,373
 1,861
 1,844
 1,738
 1,313
Gain on sale of VISA stock —
 —
 —
 —
 15,153
 —
 —
 —
Securities gains (losses), net (425) (48) (48) (102) 112
 (47) 21
 —
Total noninterest income 12,714
 12,291
 12,721
 12,296
 26,642
 11,434
 10,488
 9,905
Noninterest expenses:                
Salaries and wages 22,172
 17,129
 16,429
 15,381
 16,321
 15,627
 18,375
 15,369
Employee benefits 3,625
 3,205
 3,034
 3,081
 2,812
 2,917
 2,935
 3,068
Outsourced data processing costs 5,809
 3,493
 3,393
 3,679
 4,160
 3,231
 3,456
 3,269
Telephone / data lines 602
 624
 643
 612
 538
 573
 648
 532
Occupancy 3,747
 3,214
 3,316
 3,117
 3,265
 2,447
 4,421
 3,157
Furniture and equipment 2,452
 1,367
 1,468
 1,457
 1,806
 1,191
 1,679
 1,391
Marketing 1,350
 1,139
 1,344
 1,252
 1,490
 1,298
 1,074
 922
Legal and professional fees 3,668
 2,019
 2,301
 1,973
 3,054
 2,560
 3,276
 2,132
FDIC assessments 571
 431
 595
 598
 558
 548
 650
 570
Amortization of intangibles 1,303
 1,004
 1,004
 989
 964
 839
 839
 719
Net (gain)/loss on other real estate owned and repossessed assets —
 (136) 405
 192
 (7) (297) 297
 (293)
Other 4,165
 3,910
 4,314
 4,833
 4,223
 3,427
 3,975
 3,910
Total noninterest expenses 49,464
 37,399
 38,246
 37,164
 39,184
 34,361
 41,625
 34,746
Income before income taxes 20,892
 20,680
 22,153
 23,809
 33,421
 22,142
 11,618
 12,020
Income taxes 4,930
 4,358
 5,189
 5,782
 20,374
 7,926
 3,942
 4,094
Net income $15,962
 $16,322
 $16,964
 $18,027
 $13,047
 $14,216
 $7,676
 $7,926
                 
PER COMMON SHARE DATA                
Net income diluted $0.31
 $0.34
 $0.35
 $0.38
 $0.28
 $0.32
 $0.18
 $0.20
Net income basic 0.32
 0.35
 0.36
 0.38
 0.29
 0.33
 0.18
 0.20


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 21.74
 28.30
 25.61
 23.96
 22.42
 20.58
 21.65
 20.59
High close 29.86
 34.95
 33.51
 28.44
 27.13
 24.87
 25.88
 25.13
Bid price at end of period 26.02
 29.20
 31.58
 26.47
 25.21
 23.89
 24.10
 23.98


FINANCIAL HIGHLIGHTS

(Dollars in thousands, except per share data) 2016  2015  2014  2013  2012 
                     
FOR THE YEAR                    
                     
Net interest income $139,588  $109,487  $74,907  $65,206  $64,809 
                     
Provision (recapture) for loan losses  2,411   2,644   (3,486)  3,188   10,796 
                     
Noninterest income:                    
                     
Other  37,427   32,018   24,744   24,319   21,444 
                     
Loss on sale of commercial loan  0   0   0   0   (1,238)
                     
Securities gains, net  368   161   469   419   7,619 
                     
Bargain purchase gains, net  0   416   0   0   0 
                     
Noninterest expenses  130,881   103,770   93,366   75,152   82,548 
                     
Income (loss) before income taxes  44,091   35,668   10,240   11,604   (710)
                     
Provision (benefit) for income taxes  14,889   13,527   4,544   (40,385)  0 
                     
Net income (loss)  29,202   22,141   5,696   51,989   (710)
                     
Per Share Data                    
                     
Net income (loss) available to common shareholders:                    
                     
Diluted  0.78   0.66   0.21   2.44   (0.24)
                     
Basic  0.79   0.66   0.21   2.46   (0.24)
                     
Cash dividends declared  0.00   0.00   0.00   0.00   0.00 
                     
Book value per share common  9.37   10.29   9.44   8.40   6.16 
                     
AT YEAR END                    
                     
Assets $4,680,932  $3,534,780  $3,093,335  $2,268,940  $2,173,929 
                     
Securities  1,323,001   994,291   949,279   641,611   656,868 
                     
Net loans  2,856,136   2,137,202   1,804,814   1,284,139   1,203,977 
                     
Deposits  3,523,245   2,844,387   2,416,534   1,806,045   1,758,961 
                     
FHLB borrowings  415,000   50,000   130,000   50,000   50,000 
                     
Subordinated debt  70,241   69,961   64,583   53,610   53,610 
                     
Shareholders' equity  435,397   353,453   312,651   198,604   165,546 
                     
Performance ratios:                    
                     
Return on average assets  0.69%  0.67%  0.23%  2.38%  (0.03)%
                     
Return on average equity  7.06   6.56   2.22   28.36   (0.43)
                     
Net interest margin1  3.63   3.64   3.25   3.15   3.22 
                     
Average equity to average assets  9.85   10.21   10.34   8.38   7.81 

 

1. On a fully taxable equivalent basis, a non-GAAP measure (see page 77 of Management’s Discussion and Analysis).

  For the Year Ended and at December 31,
(In thousands, except per share data) 2018 2017 2016 2015 2014
Net interest income $211,515
 $176,296
 $139,588
 $109,487
 $74,907
           
Provision (recapture) for loan losses 11,730
 5,648
 2,411
 2,644
 (3,486)
           
Noninterest income:          
           
Other 50,645
 43,230
 37,427
 32,018
 24,744
           
Securities (losses) gains, net (623) 86
 368
 161
 469
           
Gain on sale of VISA stock —
 15,153
 —
 —
 —
           
Bargain purchase gains, net —
 —
 —
 416
 —
           
Noninterest expenses 162,273
 149,916
 130,881
 103,770
 93,366
           
Income before income taxes 87,534
 79,201
 44,091
 35,668
 10,240
           
Income taxes 20,259
 36,336
 14,889
 13,527
 4,544
           
Net income $67,275
 $42,865
 $29,202
 $22,141
 $5,696
           
Per Share Data  
  
  
  
  
           
Net income available to common shareholders:  
  
  
  
  
           
Diluted 1.38
 0.99
 0.78
 0.66
 0.21
           
Basic 1.40
 1.01
 0.79
 0.66
 0.21
           
Cash dividends declared 0.00
 0.00
 0.00
 0.00
 0.00
           
Book value per share common 16.83
 14.70
 11.45
 10.29
 9.44
           
Tangible book value per share 12.33 11.15 9.37 9.31 8.51
           
Assets $6,747,659
 $5,810,129
 $4,680,932
 $3,534,780
 $3,093,335
           
Securities 1,223,780
 1,372,667
 1,323,001
 994,291
 949,279
           
Net loans 4,792,791
 3,790,255
 2,856,136
 2,137,202
 1,804,814
           
Deposits 5,177,240
 4,592,720
 3,523,245
 2,844,387
 2,416,534
           
FHLB borrowings 380,000
 211,000
 415,000
 50,000
 130,000
           
Subordinated debt 70,804
 70,521
 70,241
 69,961
 64,583
           
Shareholders' equity 864,267
 689,664
 435,397
 353,453
 312,651
           


Performance ratios:  
  
  
  
  
           
Return on average assets 1.11% 0.82% 0.69% 0.67% 0.23%
           
Return on average equity 9.08
 7.51
 7.06
 6.56
 2.22
           
Net interest margin(1)
 3.85
 3.73
 3.63
 3.64
 3.25
           
Average equity to average assets 9.72
 10.96
 9.85
 10.21
 10.34
           
Return on tangible assets 1.20 0.88 0.75 0.71 0.26
           
Return on tangible common equity 12.54 9.90 8.87 7.59 2.57
(1)On a fully taxable equivalent basis, a non-GAAP measure (see pages 46-47 of Management's Discussion and Analysis).





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and the Board of Directors and Shareholders

of Seacoast Banking Corporation of Florida

Stuart, Florida

Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Seacoast Banking Corporation of Florida (the “Company”"Company") as of December 31, 20162018 and 2015, and2017, the related consolidated statements of income, and comprehensive income, changes in shareholders'shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2016.2018, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2016,2018, based on criteria established in the 2013 Internal Control – Integrated FrameworkFramework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018 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, 2018, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.
Basis for Opinions
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.Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on thesethe Company’s financial statements and an opinion on the company'sCompany’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the financial statement presentation.statements. 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 audits 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.

Definition and Limitations of Internal Control Over Financial Reporting
A company'scompany’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'scompany’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 unauthorized acquisition, use, or disposition of the company'scompany’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.

In our opinion,

/s/ Crowe LLP
Crowe LLP
We have served as the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2016 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, 2016, 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 15, 2017 

Company's auditor since 2014.
Atlanta, Georgia
February 26, 2019





SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

  For the Year Ended December 31 
  2016  2015  2014 
  (Dollars in thousands, except share data) 
          
INTEREST INCOME            
Interest on securities            
Taxable $26,133  $20,341  $15,448 
Nontaxable  1,036   585   211 
Interest and fees on loans  119,217   94,469   63,586 
Interest on federal funds sold and interest bearing deposits  1,669   1,022   1,017 
Total interest income  148,055   116,417   80,262 
INTEREST EXPENSE            
Interest on savings deposits  2,593   2,085   864 
Interest on time certificates  2,074   1,228   1,538 
Interest on federal funds purchased and other short term borrowings  484   340   260 
Interest on Federal Home Loan Bank borrowings  1,256   1,643   1,640 
Interest on subordinated debt  2,060   1,634   1,053 
Total interest expense  8,467   6,930   5,355 
NET INTEREST INCOME  139,588   109,487   74,907 
Provision (recapture) for loan losses  2,411   2,644   (3,486)
NET INTEREST INCOME AFTER PROVISION (RECAPTURE) FOR LOAN LOSSES  137,177   106,843   78,393 
NONINTEREST INCOME (Note M)            
Bargain purchase gain  0   416   0 
Securities gains, net (includes net losses of $617, $325, and $110 in other comprehensive income reclassifications for 2016, 2015, and 2014 respectively)  368   161   469 
Other  37,427   32,018   24,744 
Total noninterest income  37,795   32,595   25,213 
NONINTEREST EXPENSE (Note M)  130,881   103,770   93,366 
INCOME BEFORE INCOME TAXES  44,091   35,668   10,240 
Income taxes  14,889   13,527   4,544 
NET INCOME $29,202  $22,141  $5,696 
             
SHARE DATA            
Net income per share of common stock            
Diluted $0.78  $0.66  $0.21 
Basic  0.79   0.66   0.21 
             
Average common shares outstanding            
Diluted  37,508,046   33,744,171   27,716,895 
Basic  36,872,007   33,495,827   27,538,955 

  For the Year Ended December 31,
(In thousands, except per share data) 2018 2017 2016
Interest Income  
  
  
Interest on securities  
  
  
Taxable $37,860
 $34,442
 $26,133
Nontaxable 884
 913
 1,036
Interest and fees on loans 199,984
 153,825
 119,217
Interest on federal funds sold and other investments 2,670
 2,416
 1,669
Total Interest Income 241,398
 191,596
 148,055
       
Interest Expense      
Interest on savings deposits 8,763
 3,654
 2,593
Interest on time certificates 11,684
 4,678
 2,074
Interest on federal funds purchased and other short term borrowings 1,804
 781
 484
Interest on Federal Home Loan Bank borrowings 4,468
 3,744
 1,256
Interest on subordinated debt 3,164
 2,443
 2,060
Total Interest Expense 29,883
 15,300
 8,467
Net Interest Income 211,515
 176,296
 139,588
       
Provision for loan losses 11,730
 5,648
 2,411
Net Interest Income After Provision for Loan Losses 199,785
 170,648
 137,177
       
Noninterest Income (Note M)      
Gain on sale of Visa stock —
 15,153
 —
Securities (losses) gains, net (includes net losses of ($96) for 2018, net gains of $1,950 for 2017, and net losses of ($617) for 2016 in other comprehensive income reclassifications) (623) 86
 368
Other 50,645
 43,230
 37,427
Total Noninterest Income 50,022
 58,469
 37,795
       
Noninterest Expense (Note M) 162,273
 149,916
 130,881
       
Income Before Income Taxes 87,534
 79,201
 44,091
Income taxes 20,259
 36,336
 14,889
Net Income $67,275
 $42,865
 $29,202
       
Share Data      
Net income per share of common stock      
Diluted $1.38
 $0.99
 $0.78
Basic 1.40
 1.01
 0.79
Average common shares outstanding      
Diluted 48,748
 43,350
 37,508
Basic 47,969
 42,613
 36,872
See notes to consolidated financial statements.




SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

  For the Year Ended December 31 
  2016  2015  2014 
  (Dollars in thousands) 
          
NET INCOME $29,202  $22,141  $5,696 
Other comprehensive income:            
Unrealized gains (losses) on securities available for sale (AFS)  (1,151)  (1,556)  12,881 
Unrealized losses on transfer of securities available for sale to held to maturity (HTM)  0   0   (3,137)
Amortization of unrealized losses on securities transferred to HTM, net  (488)  (539)  (290)
Reclassification adjustment for gains included in net income  (368)  (161)  (469)
Provision for income taxes  707   870   (3,468)
Total other comprehensive income (loss)  (1,300)  (1,386)  5,517 
COMPREHENSIVE INCOME $27,902  $20,755  $11,213 
  For the Year Ended December 31,
(In thousands) 2018 2017 2016
Net Income $67,275
 $42,865
 $29,202
Other comprehensive income (loss):      
Unrealized gains (losses) on securities available for sale (13,266) 5,976
 (2,129)
Amortization of unrealized losses on securities transferred to held to maturity, net 550
 596
 488
Reclassification adjustment for losses (gains) included in net income 485
 (86) (368)
Benefit (provision) for income taxes 3,272
 (2,483) 709
Total Other Comprehensive Income (Loss) (8,959) 4,003
 (1,300)
Comprehensive Income $58,316
 $46,868
 $27,902

See notes to consolidated financial statements.



SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

  December 31 
  2016  2015 
  (Dollars in thousands, except share data) 
       
ASSETS        
         
Cash and due from banks $82,520  $81,216 
Interest bearing deposits with other banks  27,124   54,851 
Total cash and cash equivalents  109,644   136,067 
Securities available for sale (at fair value)  950,503   790,766 
Securities held to maturity (fair value $369,881 in 2016 and $202,813 in 2015)  372,498   203,525 
Total securities  1,323,001   994,291 
Loans held for sale  15,332   23,998 
Loans  2,879,536   2,156,330 
Less: Allowance for loan losses  (23,400)  (19,128)
Net loans  2,856,136   2,137,202 
Bank premises and equipment, net  58,684   54,579 
Other real estate owned  9,949   7,039 
Goodwill  64,649   25,211 
Other intangible assets, net  14,572   8,594 
Bank owned life insurance  84,580   43,579 
Net deferred tax assets  60,818   60,274 
Other assets  83,567   43,946 
TOTAL ASSETS $4,680,932  $3,534,780 
         
LIABILITIES        
         
Noninterest demand $1,148,309  $854,447 
Interest-bearing demand  873,727   734,749 
Savings  346,662   295,851 
Money market  802,697   665,353 
Other time deposits  159,887   153,318 
Brokered time certificates  7,342   9,403 
Time certificates of $100,000 or more  184,621   131,266 
Total deposits  3,523,245   2,844,387 
Federal funds purchased and securities sold under agreement to repurchase, maturing  within 30 days  204,202   172,005 
Federal Home Loan Bank borrowings  415,000   50,000 
Subordinated debt  70,241   69,961 
Other liabilities  32,847   44,974 
   4,245,535   3,181,327 
         
Commitments and Contingencies (Notes K and P)        
         
SHAREHOLDERS' EQUITY        
         
Common stock, par value $0.10 per share authorized 60,000,000 shares, issued 38,090,568 and outstanding 38,021,835 shares in 2016 and authorized 60,000,000 shares, issued  34,356,892 and outstanding 34,351,409 shares in 2015  3,802   3,435 
Additional paid-in capital  454,001   399,162 
Accumulated deficit  (13,657)  (42,858)
Less: Treasury stock (68,733 shares in 2016 and 5,484 shares in 2015), at cost  (1,236)  (73)
   442,910   359,666 
Accumulated other comprehensive loss, net  (7,513)  (6,213)
   435,397   353,453 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,680,932  $3,534,780 

  December 31,
(In thousands, except share data) 2018 2017
Assets  
  
Cash and due from banks $92,242
 $104,039
Interest bearing deposits with other banks 23,709
 5,465
Total Cash and Cash Equivalents 115,951
 109,504
     
Time deposits with other banks 8,243
 12,553
     
Debt securities:    
Securities available for sale (at fair value) 865,831
 949,460
Securities held to maturity (fair value $349,895 in 2018 and $414,470 in 2017) 357,949
 416,863
Total Debt Securities 1,223,780
 1,366,323
     
Loans held for sale 11,873
 24,306
     
Loans 4,825,214
 3,817,377
 Less: Allowance for loan losses (32,423) (27,122)
Loans, Net of Allowance for Loan Losses 4,792,791
 3,790,255
     
Bank premises and equipment, net 71,024
 66,883
Other real estate owned 12,802
 7,640
Goodwill 204,753
 147,578
Other intangible assets, net 25,977
 19,099
Bank owned life insurance 123,394
 123,981
Net deferred tax assets 28,954
 25,417
Other assets 128,117
 116,590
Total Assets $6,747,659
 $5,810,129
     
Liabilities  
  
Deposits    
Noninterest demand $1,569,602
 $1,400,227
Interest-bearing demand 1,014,032
 1,050,755
Savings 493,807
 434,346
Money market 1,173,950
 931,458
Other time deposits 513,312
 414,277
Brokered time certificates 220,594
 217,385
Time certificates of more than $250,000 191,943
 144,272
Total Deposits 5,177,240
 4,592,720
     
Securities sold under agreements to repurchase, maturing within 30 days 214,323
 216,094
Federal Home Loan Bank borrowings 380,000
 211,000
Subordinated debt 70,804
 70,521
Other liabilities 41,025
 30,130
Total Liabilities 5,883,392
 5,120,465
     
Commitments and Contingencies (Notes K and P) 

 



     
Shareholders' Equity  
  
Common stock, par value $0.10 per share authorized 120,000,000 shares, issued 51,514,734 and outstanding 51,361,079 shares in 2018 and authorized 60,000,000 shares, issued 47,032,259 and outstanding 46,917,735 shares in 2017 5,136
 4,693
Additional paid-in capital 778,501
 661,632
Retained earnings 97,074
 29,914
Less: Treasury stock (153,655 shares in 2018 and 114,524 shares in 2017), at cost (3,384) (2,359)
  877,327
 693,880
Accumulated other comprehensive loss, net (13,060) (4,216)
Total Shareholders' Equity 864,267
 689,664
Total Liabilities & Shareholders' Equity $6,747,659
 $5,810,129

See notes to consolidated financial statements.



SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

  For the Year Ended December 31 
  2016  2015  2014 
  (Dollars in thousands) 
CASH FLOWS FROM OPERATING ACTIVITIES            
Net Income $29,202  $22,141  $5,696 
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation  5,076   3,773   3,268 
Amortization of premiums and discounts on securities, net  7,559   3,920   2,353 
Other amortization and accretion, net  (2,238)  (7,943)  (256)
Stock based compensation  4,154   2,859   1,299 
Origination of loans designated for sale  (175,842)  (206,199)  (188,952)
Sale of loans designated for sale  184,508   194,279   190,706 
Provision for loan losses  2,411   2,644   (3,486)
Deferred income taxes  14,206   12,888   4,222 
Gain on sale of securities  (368)  (161)  (469)
Gain on sale of loans  (668)  (702)  (419)
Losses (gains) on sale and write-downs of other real estate owned  (509)  239   310 
Losses and write-downs on disposition of fixed assets  2,442   183   4,493 
Changes in operating assets and liabilities, net of effects from acquired companies:            
Net increase in other assets  (14,107)  (4,526)  (315)
Net increase (decrease) in other liabilities  6,181   (406)  3,496 
Net cash provided by operating activities  62,007   22,989   21,946 
             
CASH FLOWS FROM INVESTING ACTIVITIES            
Maturities and repayments of securities available for sale  127,879   118,493   92,499 
Maturities and repayments of securities held to maturity  48,705   28,629   16,138 
Proceeds from sale of securities available for sale  40,421   60,314   21,527 
Purchases of securities available for sale  (297,719)  (159,616)  (280,137)
Purchases of securities held to maturity  (218,654)  (24,366)  (65,340)
Net new loans and principal payments  (390,354)  (217,346)  (154,772)
Proceeds from the sale of other real estate owned  7,952   5,758   4,066 
Proceeds from sale of Federal Home Loan Bank and Federal Reserve Bank Stock  9,350   7,427   2,423 
Purchase of Federal Home Loan Bank and Federal Reserve Bank Stock  (28,857)  (7,510)  (6,425)
Purchase of bank owned life insurance  (40,000)  0   (30,000)
Net cash from bank acquisitions  235,546   32,927   110,996 
Additions to bank premises and equipment  (6,054)  (9,091)  (6,083)
Net cash used in investing activities  (511,785)  (164,381)  (295,108)
             
CASH FLOWS FROM FINANCING ACTIVITIES            
Net increase in deposits  27,320   240,086   93,446 
Net increase (decrease) in federal funds purchased and repurchase agreements  32,196   16,707   (16,148)
Net increase (decrease) in FHLB borrowings, maturing in 30 days or less  415,000   (80,000)  80,000 
Early redemption of FHLB borrowings (see Note I)  (50,000)  0  0 
Issuance of common stock, net of related expense  0   0   24,637 
Stock based employee benefit plans  (1,161)  127   142 
Net cash provided by financing activities  423,355   176,920   182,077 
Net increase (decrease) in cash and cash equivalents  (26,423)  35,528   (91,085)
Cash and cash equivalents at beginning of year  136,067   100,539   191,624 
Cash and cash equivalents at end of year $109,644  $136,067  $100,539 
             
Supplemental disclosure of cash flow information:            
Cash paid during the period for interest $7,855  $6,636  $3,521 
Cash paid during the period for income taxes  703   575   239 
             
Supplemental disclosure of non cash investing activities:            
Transfers from loans to other real estate owned $3,009  $4,946  $4,789 
Transfers from bank premises to other real estate owned  7,708   309   0 



  For the Year Ended December 31,
(In thousands) 2018 2017 2016
Cash Flows From Operating Activities  
  
  
Net Income $67,275
 $42,865
 $29,202
Adjustments to reconcile net income to net cash provided by operating activities: 

 

 

Depreciation 6,353
 5,614
 5,076
Amortization of premiums and discounts on securities, net 3,196
 3,977
 7,559
Other amortization and accretion, net (1,158) (697) (2,238)
Stock based compensation 7,823
 5,267
 4,154
Origination of loans designated for sale (303,928) (213,027) (175,842)
Sale of loans designated for sale 326,328
 211,091
 190,843
Provision for loan losses 11,730
 5,648
 2,411
Deferred income taxes 459
 35,827
 14,206
Losses (gains) on sale of securities 485
 (86) (368)
Gain on sale of VISA Class B stock —
 (15,153) —
Gains on sale of loans (8,961) (7,038) (6,335)
Gains on sale and write-downs of other real estate owned (107) (711) (509)
Losses on disposition of fixed assets 1,235
 2,270
 2,442
Changes in operating assets and liabilities, net of effects from acquired companies:  
  
  
Net increase (decrease) in other assets 10,051
 (5,506) (11,573)
Net increase (decrease) in other liabilities 8,827
 (21,432) 2,979
Net Cash Provided by Operating Activities 129,608
 48,909
 62,007
       
Cash Flows From Investing Activities  
 

 

Maturities and repayments of debt securities available for sale 141,223
 211,173
 127,879
Maturities and repayments of debt securities held to maturity 58,315
 86,460
 48,705
Proceeds from sale of debt securities available for sale 31,694
 235,613
 40,421
Purchases of debt securities available for sale (72,505) (371,926) (297,719)
Purchases of debt securities held to maturity —
 (131,439) (218,654)
Maturities of time deposits with other banks 4,310
 4,720
 —
Net new loans and principal repayments (365,816) (328,868) (396,862)
Proceeds from the sale of portfolio loans —
 106,815
 71,433
Purchases of loans held for investment (19,541) (55,352) (64,925)
Proceeds from the sale of other real estate owned 10,072
 6,069
 7,952
Proceeds from sale of Federal Home Loan Bank (FHLB) and Federal Reserve Bank Stock 44,731
 48,295
 9,350
Purchase of FHLB and Federal Reserve Bank Stock (51,505) (42,680) (28,857)
Purchase of Visa Class B stock —
 (6,180) —
Proceeds from sale of Visa Class B stock 21,333
 —
 —
Redemption of bank owned life insurance 4,232
 3,609
 —
Purchase of bank owned life insurance —
 (30,000) (40,000)
Net cash from bank acquisitions 22,876
 23,825
 235,546
Additions to bank premises and equipment (4,019) (5,710) (6,054)


Net Cash Used in Investing Activities (174,600) (245,576) (511,785)
       
Cash Flows From Financing Activities  
 

 

Net (decrease) increase in deposits (39,769) 333,049
 27,320
Net (decrease) increase in federal funds purchased and repurchase agreements (1,771) 11,892
 32,196
Net increase (decrease) in FHLB borrowings with original maturities of three months or less 32,000
 (204,000) 415,000
Proceeds from FHLB borrowings with original maturities of more than three months 60,000
 —
 —
Early redemption of FHLB borrowings —
 —
 (50,000)
Stock based employee benefit plans 979
 (55) (1,161)
Issuance of common stock, net of related expense —
 55,641
 —
Dividends paid —
 —
 —
Net Cash Provided by Financing Activities 51,439
 196,527
 423,355
Net increase (decrease) in cash and cash equivalents 6,447
 (140) (26,423)
Cash and cash equivalents at beginning of year 109,504
 109,644
 136,067
Cash and Cash Equivalents at End of Year $115,951
 $109,504
 $109,644
       
Supplemental disclosure of cash flow information:  
  
  
Cash paid during the period for interest $28,301
 $15,125
 $7,855
Cash paid during the period for taxes 13,200
 400
 703
       
Supplemental disclosure of non cash investing activities:  
 

 

Transfer from loans to other real estate owned $5,549
 $1,774
 $3,009
Transfer from bank premises to other real estate owned 9,168
 1,212
 7,708
Transfer from loans held for investment to loans held for sale —
 5,664
 —

See notes to consolidated financial statements.




SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

           Retained     Accumulated    
           Earnings     Other    
  Common Stock  Paid-in  (Accumulated  Treasury  Comprehensive    
(Dollars and shares in thousands) Shares  Amount  Capital  Deficit)  Stock  Income (Loss), Net  Total 
BALANCE AT DECEMBER 31, 2013  23,638  $2,364  $277,290 $(70,695) $(11) $(10,344) $198,604 
Comprehensive income  0   0   0   5,696   0   5,517   11,213 
Stock based compensation expense  0   0   1,299   0   0   0   1,299 
Common stock issued for stock based employee benefit plans  147   1   171   0   (60)  0   112 
Issuance of common stock, net of related expense  2,326   233   24,404   0   0   0   24,637 
Issuance of common stock, pursuant to acquisition  7,026   702   76,085   0   0   0   76,787 
Other  0   0   0   (1)  0   0   0 
BALANCE AT DECEMBER 31, 2014  33,137   3,300   379,249   (65,000)  (71)  (4,827)  312,651 
Comprehensive income  0   0   0   22,141   0   (1,386)  20,755 
Stock based compensation expense  0   0   2,859   0   0   0   2,859 
Common stock issued for stock based employee benefit plans  124   0   17   0   (2)  0   15 
Issuance of common stock, pursuant to acquisition  1,090   109   17,063   0   0   0   17,172 
Other  0   26   (26)  1   0   0   1 
BALANCE AT DECEMBER 31, 2015  34,351   3,435   399,162   (42,858)  (73)  (6,213)  353,453 
Comprehensive income  0   0   0   29,202   0   (1,300)  27,902 
Stock based compensation expense  0   0   4,154   0   0   0   4,154 
Common stock issued for stock based employee benefit plans  87   0   2   0   (1,163)  0   (1,161)
Common stock issued for stock options  12   1   133   0   0   0   134 
Issuance of common stock, pursuant to acquisition  3,291   329   50,584   0   0   0   50,913 
Other  281   37   (34)  (1)  0   0   2 
BALANCE AT DECEMBER 31, 2016  38,022  $3,802  $454,001  $(13,657) $(1,236) $(7,513) $435,397 

        
Retained
Earnings
   
Accumulated
Other
  
  Common Stock Paid-in (Accumulated Treasury Comprehensive  
(Dollars and shares in thousands) Shares Amount Capital Deficit) Stock Income (Loss), Net Total
Balance at December 31, 2015 34,351
 $3,435
 $399,162
 $(42,858) $(73) $(6,213) $353,453
Comprehensive income —
 —
 —
 29,202
 —
 (1,300) 27,902
Stock based compensation expense —
 —
 4,154
 —
 —
 —
 4,154
Common stock issued for stock based employee benefit plans 87
 —
 2
 —
 (1,163) —
 (1,161)
Common stock issued for stock options 12
 1
 133
 —
 —
 —
 134
Issuance of common stock, pursuant to acquisition 3,291
 329
 50,584
 —
 —
 —
 50,913
Other 281
 37
 (34) (1) —
 —
 2
Balance at December 31, 2016 38,022
 $3,802
 $454,001
 $(13,657) $(1,236) $(7,513) $435,397
Comprehensive income —
 —
 —
 42,865
 —
 4,003
 46,868
Reclassification of disproportionate tax effects upon adoption of new accounting pronouncement —
 —
 —
 706
 —
 (706) —
Stock based compensation expense —
 —
 5,267
 —
 —
 —
 5,267
Common stock issued for stock based employee benefit plans 61
 —
 (15) —
 (1,123) —
 (1,138)
Common stock issued for stock options 91
 16
 1,066
 —
 —
 —
 1,082
Issuance of common stock, net of related expenses 2,703
 270
 55,371
 —
 —
 —
 55,641
Issuance of common stock, pursuant to acquisition 6,041
 605
 145,942
 —
 —
 —
 146,547
Balance at December 31, 2017 46,918
 $4,693
 $661,632
 $29,914
 $(2,359) $(4,216) 689,664
Comprehensive income —
 —
 —
 67,275
 —
 (8,959) 58,316
Reclassification of unrealized losses on equity investment upon adoption of new accounting pronouncement —
 —
 —
 (115) —
 115
 —
Stock based compensation expense 32
 —
 7,823
 —
 —
 —
 7,823
Common stock issued for stock based employee benefit plans 43
 —
 (6) —
 (1,025) —
 (1,031)
Common stock issued for stock options 368
 43
 1,966
 —
 —
 —
 2,009
Issuance of common stock, pursuant to acquisition 4,000
 400
 107,086
 —
 —
 —
 107,486
Balance at December 31, 2018 51,361
 $5,136
 $778,501
 $97,074
 $(3,384) $(13,060) $864,267

See notes to consolidated financial statements.




NOTES TOCONSOLIDATEDFINANCIALSTATEMENTS



Seacoast Banking Corporation of Florida and Subsidiaries

Note A

- Significant Accounting Policies

General: Seacoast Banking Corporation of Florida (“Company”Seacoast” or the “Company”) is a single segment bankfinancial holding company with one operating subsidiary bank, Seacoast National Bank (“Seacoast Bank”, together the “Company”). The Company provides integrated financial services including commercial and retail banking, wealth management, and mortgage services to customers through advanced banking solutions, 4751 traditional branch offices and fiveseven commercial banking centers operated by Seacoast Bank. Offices stretch from Ft. Lauderdale, Boca Raton and West Palm Beach north through the Daytona Beach area, into Orlando and Central Florida and the adjacent Tampa market, and west to Okeechobee and surrounding counties.

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. Certain reclassificationsprior period amounts have been made to prior period amountsreclassified to conform to the current period presentation.

Use of Estimates: The preparation of theseconsolidated financial statements requires management to make judgments in the useapplication of certain of its accounting policies that involve significant estimates by management in determiningand 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 Company'sreported amounts of certain assets, liabilities, revenues and expenses, are based on information available as of the date of the financial statements, and contingent liabilities.changes in this information over time and the use of revised estimates and assumptions could materially affect amounts reported in subsequent financial statements. Specific areas, among others, requiring the application of management’s estimates include determination of the allowance for loan losses, the valuationacquisition accounting and purchased loans, intangible assets and impairment testing, other fair value adjustments, other than temporary impairment of investment securities, available for sale, valuation of impaired loans, contingent liabilities, valuation of other real estate owned,income taxes and valuationrealization of deferred taxes valuation allowance. Actual results could differ from those estimates.

tax assets and contingent liabilities.

Cash and Cash Equivalents: Cash and cash equivalents include cash and due from banks and interest-bearing bank balances. 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.


Time deposits with other banks: Time deposits with other banks consist of certificates of deposit with a maturity greater than three months and are carried at cost.

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.

Securities: Securities Debt securities are classified at date of purchase as trading, available for sale or held to maturity. SecuritiesDebt 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. Debt securities that the Company has the ability and intent to hold to maturity are carried at amortized cost. Equity securities are stated at fair value with unrealized gains or losses included in noninterest income as securities gains or losses.

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 on


debt securities, 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; recent events specific to the issuer or industry; and for debt securities, external credit ratings and recent downgrades. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a debt security in an unrealized loss position before recovery of its amortized cost basis. Securities onDebt securities for 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.


For securities which are transferred into held

On January 1, 2018, the Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2016-1, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." Upon adoption, the Company reclassified $0.1 million of accumulated unrealized loss pertaining to maturity froman equity investment previously classified as 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.

from accumulated other comprehensive income to retained earnings.

Seacoast NationalBank is a member of the Federal Home Loan Bank (“FHLB”) system. Members are required to own a certain amount of FHLB 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: The Company accounts for a loan depending on the strategy for the loan and on the credit impaired status of the loan upon acquisition. Loans are accounted for using the following categories:
Loans and leases held for sale
Loans and leases originated by the Company and held for investment
Loans and leases purchased by the Company, which are considered purchased unimpaired (“PUL), and held for investment
Loans and leases purchased by the Company, which are considered purchased credit impaired (“PCI”)

Loans that are held for sale are carried 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 was obtained by reference to prices for the same or similar loans from recent transactions. 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.
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 that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are considered held for investment. Loans originated by Seacoast and held for investment are recognized at the principal amount outstanding, net of unearned income purchased discounts 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 topic 310 when a borrower is experiencing financial difficulties and the Company grants concessions that would not otherwise be considered. Troubled debt restructured 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 310.20.

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, except consumer loans, that become 90 days past due as to principal or interest unless well-secured and in process of collection. 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 wereare recorded at fair value on the acquisition date fair value, and after acquisition, any losses are recognized through the allowance for loan losses.date. Accordingly, the associated allowance for credit losses related to these loans is not carried over at the acquisition date.

Any losses after acquisition are recognized through the allowance for loan losses.



These loans fall into two groups: purchased credit-impaired (“PCI”) and purchased unimpaired loans (“PUL”) and purchased credit-impaired loans (“PCI”). PULs demonstrate no evidence of significant credit deterioration and there is an expectation that all contractual payments will be made. The Company estimatesdetermines fair value by estimating the amount and timing of expected future cash flows forand assigning a discount or premium to each PUL andloan. The difference between the expected cash flows in excess ofand the amount paid is recorded as interest income over the remaining life of the loan.
PCI loans demonstrate evidence of credit deterioration since origination and the risk that all contractual payments will not be made. The PUL’s were evaluated to determine estimated fair values as of the acquisition date. Based on management’s estimate ofCompany estimates fair value each PUL was assigned a discount credit mark.


For PCI loans the Company updatesby estimating 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’sPULs are evaluated using the same procedures as used for the Company’s non-purchased loan portfolio.

Under certain scenarios, the Company will grant modifications to a loan when a borrower is experiencing financial difficulties. Such modifications allow the Company to minimize the risk of loss on the loan and maximize future cash flows received from the borrower. Such modifications are referred to as troubled debt restructured (TDR) loans. TDRs are considered impaired 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.
The Company reviews all loans for impairment on a periodic basis. 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. When the ultimate collectability 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, 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. 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.
Derivatives: The Company enters into derivative contracts with customers who request such services, and into offsetting contracts with substantially matching terms with third parties to minimize the risks involved with these types of transactions.

Certain

Loan Commitments and Letters of Credit: Loan commitments and letters of credit are an off-balance sheet item and represent commitments to sellmake loans or lines of credit available to borrowers. The face amount of these commitments represents an exposure to loss, before considering customer collateral or ability to repay. Such commitments are recognized as loans when funded.
Fees received for providing loan commitments and letters of credit that may result in loans are derivatives. Thesetypically 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 recordedamortized to noninterest income 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 deferredbanking 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 ofcommissions on a straight-line basis over 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 valuecommitment period when funding 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.

not expected.

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,basis, including available for sale securities and trading securities, loans held for sale, impaired loans, OREO, and long-term debt.sale. These assets are carried at fair value on the Company’s balance sheets. Additionally, fair value is usedmeasured 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 certainimpaired loans, held for sale accounted for on a lower of cost or fair value,OREO, 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 appliedapplies 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 primarily 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.

OREO may also include bank premises no longer utilized in the course of our business (closed branches) that are initially recorded at the lower of carrying value or fair value, (whichever is lower), less costs to sell. If fair value of the premises is less than amortized book value, a write down is recorded through noninterest expense. Costs to operate the facility are expensed.

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. Leasehold improvements typically amortize over the shorter of lease terms or estimated useful life. 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 atwritten down to fair value.

value with a corresponding impact to noninterest expense.

Intangible Assets:Mergersassets. The Company’s intangible assets consist of goodwill and acquisitions are accounted for usingcore deposit intangibles (CDIs). Goodwill results from business combinations and represents the acquisition methoddifference between the purchase price and the fair value of accounting, which requires that acquirednet 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.acquired. Goodwill canmay be adjusted for up to one year from the acquisition date as provisional amounts recognized atin the acquisition date are updated whenevent new information is obtained from facts and circumstances that existed as of the acquisition that,which, if known at the date of acquisitions would have affected amounts initially recognized or would have resulted in the recognition of additional assets or liabilities. See Note S – Business Combinations for related disclosures. 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 ofimpacted the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the netacquired assets acquired and liabilities assumed as of the acquisition date.liabilities. Goodwill and intangible assets acquired in a purchase business combination and determinedis considered to have an indefinite useful life areand is not amortized, but rather tested for impairment at least annually. annually in the fourth quarter, or more often if circumstances arise that may indicate risk of impairment. If impaired, Goodwill is written down with a corresponding impact to noninterest expense.

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 arisingrecognizes CDIs that result from either whole bank acquisitions or branch acquisitions. They are initially measured at fair value and then amortized over periods ranging from six to eight years on a straight line basis. The Company periodically evaluates whether events andCDIs for impairment annually, or more often if circumstances have occurredarise that may affectindicate risk of impairment. If impaired, the estimated useful lives or the recoverability of the remaining balance of the intangible assets.

CDI is written down with a corresponding impact to noninterest expense.

Bank owned life insurance (BOLI):The Company, through its subsidiary bank, has purchased or acquired through bank acquisitions, life insurance policies on certain key executives. Bank owned life insuranceBOLI 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: On January 1, 2018, we adopted FASB ASU 2014-9, “Revenue from Contracts with Customers,” and all the related amendments (collectively, Accounting Standards Codification “ASC” Topic 606) using the modified retrospective approach applied to all contracts in place at that date. Adoption had no material impact on the Company’s consolidated financial statements including no change to the amount or timing of revenue recognized for contracts within the scope of the new standard.

Revenue recognized reflects the consideration to which we expect to be entitled in exchange for the services provided and is recognized when the earnings process is completepromised services (performance obligations) are transferred to a customer, requiring the application of the following five-steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and collectibility is assured. Brokerage(v) recognize revenue when (or as) the entity satisfies a performance obligation. Activity in the scope of the new standard includes:

•Service Charges on Deposits: Seacoast Bank offers a variety of deposit-related services to its customers through several delivery channels including branch offices, ATMs, telephone, mobile, and internet banking. Transaction-based fees and commissions are recognized when services, each of which represents a performance obligation, are satisfied. Service fees may be assessed monthly, quarterly, or annually; however, the account agreements to which these fees relate can be canceled at any time by Seacoast and/or the customer. Therefore, the contract term is considered a single day (a day-to-day contract).

•Trust Fees: The Company earns trust fees from fiduciary services provided to trust customers which include custody of assets, recordkeeping, collection and distribution of funds. Fees are earned over time and accrued monthly as the Company provides services, and are generally assessed based on a trade date basis. Assetthe market value of the trust assets under management fees, measured by assets at a particular date are accrued as earned. Commission expensesor over a particular period.

•Brokerage Commissions and Fees: The Company earns commissions and fees from investment brokerage services provided to its customers through an arrangement with a third-party service provider. Commissions received from the third-party service provider are recorded whenmonthly and are based upon customer activity. Fees are earned over time and accrued monthly as services are provided. The Company acts as an agent in this arrangement and therefore presents the brokerage commissions and fees net of related revenue is recognized.

costs.


•Interchange Income: Fees earned on card transactions depend upon the volume of activity, as well as the fees permitted by the payment network. Such fees are recognized by the Company upon fulfilling its performance obligation to approve the card transaction.

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 reserveis a valuation allowance for unfunded lending commitments that reflectprobable incurred credit losses. Loan losses are charged against 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,allowance when the Company must necessarily rely on estimates and exercise judgment regarding matters wherebelieves the ultimate outcomeuncollectibility of a loan balance is unknown such as economic factors, developments affecting companies in specific industries and issues with respectconfirmed. Subsequent recoveries, if any, are credited 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.

allowance.

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 subsidiariessubsidiary 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
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law. Some of the most significant impacts included a decrease in the highest marginal corporate tax, from 35% to 21%, the repeal of the corporate alternative minimum tax, changes to net operating losses such that they may only be used as a carryforward, with a limit of 80% of taxable income, expansion of bonus depreciation rules, and limitation of the deduction for related disclosures.

net business interest expense to 30% of adjusted taxable income. The Company remeasured its deferred tax assets and liabilities to reflect the impact of the Tax Reform Act, resulting in additional income tax expense of $8.6 million in 2017.

In February 2018, the FASB issued ASU 2018-02, which permits companies to reclassify the disproportionate tax effects in accumulated other comprehensive income, caused by the Tax Reform Act, to retained earnings. The Company early adopted ASU 2018-02 in 2017, and elected to reclassify the income tax effects of the Tax Reform Act, totaling $0.7 million, from accumulated other comprehensive income to retained earnings. 
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. 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. Forfeitures are estimated at the date of grant based on historical rates, and updated as necessary. See Note J, Employee Benefit and Stock Compensation for related disclosures.


Note B

 - Recently Issued Accounting Standards, Not Adopted at December 31, 2016

2018

The following provides a brief description of accounting standards that have been issued but are not yet adopted that could have a material effect on the Company's financial statements:

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update “ASU” 2017-04, eliminating Step 2 from the goodwill impairment test. Under the amendments to the guidance, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized, however, should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.  The guidance is effective for annual periods or any interim goodwill impairment tests beginning after December 15, 2019 using a prospective transition method. Early adoption is permitted. Adoption of this standard is being evaluated as to its effect on the Company’s operating results or financial condition.

In August and November 2016, The FASB issued final guidance via ASU 2016-15 and ASU 2016-18, which address classification of certain cash receipts and cash payments, including changes in restricted cash, in the statement of cash flows. The guidance may change how an entity classifies certain cash receipts and cash payments on its statement of cash flows, the purpose being to reduce diversity in practice. The Company is evaluating the impact of ASU 2016-15 and 2016-18, which will generally be applied retrospectively for fiscal years beginning after December 15, 2017.

In June 2016, the FASB issued ASU 2016-13 for “Measurement of Credit Losses on Financial Instruments” to replace the incurred loss impairment methodology with a current expected credit loss methodology for financial instruments measured at amortized cost and other commitments to extend credit. Expected credit losses reflect losses over the remaining contractual life of an asset, considering the effect of voluntary prepayments and considering available information about the collectability of cash flows, including information about past events, current conditions, and supportable forecasts. The resultant allowance for credit losses reflects the portion of the amortized cost basis that the entity does not expect to collect. Additional quantitative and qualitative disclosures are required upon adoption. The Company is assessing current loan loss estimation models and processes to determine the need for changes as part of its evaluation of the impact of this new accounting guidance. Adoption is required January 1, 2020, with early adoption permitted January 1, 2019.

In March 2016, under ASU 2016-04, “Liabilities – Extinguishments of Liabilities, Breakage for Certain Prepaid Stored-Value Products” the FASB intends for entities to recognize liabilities for the sale of prepaid stored value products redeemable for goods, services, or cash. This guidance aligns recognition of breakage for these liabilities in a way consistent with how gift card breakage will be recognized. The Company is currently evaluating the impact of adopting the new guidance on the consolidated financial statements. Effective date for implementation is for annual periods after December 15, 2018.

In February 2016, the FASB amended existing guidance related to the recognition of lease assets and lease liabilities on the balance sheet and disclosures on key information about leasing arrangements, under ASU 2016-02. It will be necessary for all parties to classify leases to determine how to recognize lease-related revenue and expense. The amendment requires lessees to put most leases on their balance sheet and record expenses to the income statement. Changes in the guidance eliminate real estate centric provisions for sale-leaseback transactions, including initial direct costs and lease execution costs for all entities. For lessors, the new FASB standard modifies classification criteria and accounting for sales type and direct financing leases. The Company is currently evaluating the impact of adopting the new guidance on the consolidated financial statements. The amended accounting is applicable to periods after December 15, 2018 and interim periods within that year.

ASU 2016-02, Leases (Topic 842)
Description
In February 2016, the FASB amended existing guidance that requires lessees recognize the following for all leases (with the exception of short-term leases) at the commencement date:
1.    A lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis.
2.    A right-of-use specified asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align lessor accounting with the lessee accounting model and ASC Topic 606, Revenue from Contracts with Customers.
Date of AdoptionThis amendment is effective for public business entities for reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted.
Effect on the Consolidated Financial StatementsThe Company will adopt the new standard effective January 1, 2019. Upon adoption, the Company will record lease liabilities and right-of-use assets totaling approximately $33 million and $29 million, respectively, and will remove other liabilities of approximately $4 million recorded under prior guidance for fair value adjustments, vacated properties, and straight line adjustments. Adoption is not expected to be material to the Company's consolidated results of operations or cash flows.

In January 2016, the FASB issued ASU 2016-01 for “Recognition and Measurement of Financial Assets and Liabilities.” The ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The update requires: a) equity investments (except those accounted for under the equity method of accounting) to be measured at fair value and recognized in net income, b) simplifies impairment assessments of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, and if impaired requires measurement of the investment at fair value, c) eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value d) requires entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, e) requires an entity to present separately in other comprehensive income the portion of the total change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements, g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The ASU is effective for fiscal years beginning after December 15, 2017, and must be adopted on a modified retrospective basis, including interim periods within those fiscal years. The adoption of ASU 2016-01 is being evaluated for its impact on the Company’s operating results and financial condition.

In May 2014, the FASB issued ASU 2014-09, “Revenue Recognition – Revenue from Contracts with Customers.” The ASU is a converged standard between the FASB and the IASB that provides a single comprehensive revenue recognition model for all contracts with customers across transactions and industries. The primary objective of the ASU is revenue recognition that represents the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenue associated with loans and securities is not in the scope of the new guidance, and the Company’s evaluation and implementation effort for contracts within the scope of the standard is ongoing. The Company plans to adopt the new guidance on January 1, 2018.


ASU 2016-13, Financial Instruments –Credit Losses (Topic 326)
DescriptionIn June 2016, FASB issued guidance to replace the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables and held to maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (i.e. loan commitments, standby letters of credit, financial guarantees and other similar instruments).
Date of AdoptionThis amendment is effective for public business entities for reporting periods beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted only as of annual reporting periods after December 15, 2018, including interim reporting periods within that period.
Effect on the Consolidated Financial StatementsThe Company's transition oversight committee is in the process of evaluating and implementing changes to credit loss estimation models and related processes. Updates to business processes and the documentation of accounting policy decisions are ongoing. The company may recognize an increase in the allowance for credit losses upon adoption, recorded as a one-time cumulative adjustment to retained earnings. However, the magnitude of the impact on the Company's consolidated financial statements has not yet been determined. The Company will adopt this accounting standard effective January 1, 2020.
ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
DescriptionIn January 2017, the FASB amended the existing guidance to simplify the goodwill impairment measurement test by eliminating Step 2. The amendment requires the Company to perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the fair value. Additionally, an entity should consider the tax effects from any tax deductible goodwill on the carrying amount when measuring the impairment loss.
Date of AdoptionThis amendment is effective for public business entities for reporting periods beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted on annual goodwill impairment tests performed after January 1, 2017.
Effect on the Consolidated Financial StatementsThe impact to the consolidated financial statements from the adoption of this pronouncement is not expected to be material.
ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
Description
In August 2017, the FASB provided guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments also simplify the application of the hedge accounting guidance.
Date of adoptionThe amendments are effective for public business entities for annual periods beginning after December 15, 2018, including interim periods with those periods.
Effect on the Consolidated Financial StatementsThe impact to the consolidated financial statements from the adoption of this pronouncement is not expected to be material.
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
DescriptionIn August 2018, the FASB issued ASU 2018-13, which changes the disclosure requirements on fair value measurements in topic 820. The amendments in this ASU are the result of a broader disclosure project called FASB Concepts Statement, Conceptual Framework for Financial Reporting - Chapter 8: Notes to Financial Statements. the ASU modifies or removes certain existing disclosures, and add new disclosures.
Date of adoptionThe amendments are effective for public business entities for annual periods beginning after December 15, 2018, including interim periods with those periods.
Effect on the Consolidated Financial StatementsThe impact to the consolidated financial statements from the adoption of this pronouncement is not expected to be material.

Note C - Cash, Dividend and Loan Restrictions

In the normal course of business, the Company and Seacoast Bank 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 Bank may be required to maintain average reserve balances with the Federal Reserve Bank; however nothe average amount of those reserve balances were necessarywas $0.9 million for 20162018 and 2015.

$0.5 million for 2017.

Under Federal Reserve regulation, Seacoast Bank 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, 2016,2018, the maximum amount available for transfer from Seacoast Bank to the Company in the form of loans approximated $52.0$82.4 million, if the Company has sufficient acceptable collateral.

The approval of There were no loans made to affiliates during 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 $61.0 million to the Company as ofperiods ending December 31, 2016, without prior approval of the OCC.

2018 and 2017.

Note D

- Securities

The amortized cost, gross unrealized gains and losses and fair value of securities available for sale and held to maturity at December 31, 20162018 and December 31, 20152017 are summarized as follows:

  December 31, 2016 
    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 $12,073  $255  $0  $12,328 
Mortgage-backed securities of U.S. Government Sponsored Entities  287,726   585   (4,823)  283,488 
Collateralized mortgage obligations of U.S. Government Sponsored Entities  238,805   314   (5,065)  234,054 
Commercial mortgage backed securities of U.S. Government Sponsored Entities  22,351   222   (28)  22,545 
Private mortgage backed securities  32,780   0   (791)  31,989 
Private collateralized mortgage obligations  67,542   563   (816)  67,289 
Collateralized loan obligations  124,716   838   (665)  124,889 
Obligations of state and political subdivisions  63,161   622   (895)  62,888 
Corporate and other debt securities  74,121   257   (517)  73,861 
Private commercial mortgage backed securities  37,534   111   (473)  37,172 
  $960,809  $3,767  $(14,073) $950,503 
                 
SECURITIES HELD TO MATURITY                
Mortgage-backed securities of U.S. Government Sponsored Entities $159,941  $704  $(1,243) $159,402 
Collateralized mortgage obligations of U.S. Government Sponsored Entities  147,208   386   (2,630)  144,964 
Commercial mortgage backed securities of U.S. Government Sponsored Entities  17,375   233   (74)  17,534 
Collateralized loan obligations  41,547   430   (314)  41,663 
Private mortgage backed securities  6,427   0   (109)  6,318 
  $372,498 $1,753 $(4,370) $369,881 

  December 31, 2015 
    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 $3,833 $78  $0  $3,911 
Mortgage-backed securities of U.S. Government Sponsored Entities  192,224   847   (1,322)  191,749 
Collateralized mortgage obligations of U.S. Government Sponsored Entities  242,620  470   (4,900)  238,190 
Private mortgage-backed securities  32,558  0   (766)  31,792 
Private collateralized mortgage obligations  77,965   700  (708)  77,957 
Collateralized loan obligations  124,477  0   (1,894)  122,583 
Obligations of state and political subdivisions  39,119   882   (110)  39,891 
Corporate and other debt securities  44,652   37   (416)  44,273 
Private commercial mortgage backed securities  41,127   13   (720)  40,420 
  $798,575  $3,027  $(10,836) $790,766 
                 
SECURITIES HELD TO MATURITY                
Mortgage-backed securities of U.S. Government Sponsored Entities $64,993 $574  $(16) $65,551 
Collateralized mortgage obligations of U.S. Government Sponsored Entities  89,265  581   (406)  89,440 
Collateralized loan obligations  41,300   0   (1,360)  39,940 
Private mortgage backed securities  7,967   0   (85)  7,882 
  $203,525  $1,155  $(1,867) $202,813 

  December 31, 2018
(In thousands) 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Debt Securities Available for Sale  
  
  
  
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities $7,200
 $106
 $(6) $7,300
Mortgage-backed securities and collateralized mortgage obligations of US Government Sponsored Entities 567,753
 300
 (14,047) 554,006
Private mortgage-backed securities and collateralized mortgage obligations 55,569
 560
 (401) 55,728
Collateralized loan obligations 212,807
 1
 (3,442) 209,366
Obligations of state and political subdivisions 39,543
 339
 (451) 39,431
  $882,872
 $1,306
 $(18,347) $865,831
         
Debt Securities Held to Maturity  
  
  
  
Mortgage-backed securities of U.S. Government Sponsored Entities $304,423
 $—
 $(7,324) $297,099
Private mortgage-backed securities and collateralized mortgage obligations 21,526
 277
 (130) 21,673
Collateralized loan obligations 32,000
 —
 (877) 31,123
  $357,949
 $277
 $(8,331) $349,895


  December 31, 2017
(In thousands) 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Debt Securities Available for Sale  
  
  
  
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities $9,475
 $274
 $(5) $9,744
Mortgage-backed securities and collateralized mortgage obligations of US Government Sponsored Entities 560,396
 1,163
 (8,034) 553,525
Private mortgage-backed securities and collateralized mortgage obligations 75,152
 1,154
 (285) 76,021
Collateralized loan obligations 263,579
 798
 (68) 264,309
Obligations of state and political subdivisions 45,118
 813
 (70) 45,861
  $953,720
 $4,202
 $(8,462) $949,460
         
Debt Securities Held to Maturity        
Mortgage-backed securities of U.S. Government Sponsored Entities $353,541
 $802
 $(4,159) $350,184
Private mortgage-backed securities and collateralized mortgage obligations 22,799
 714
 (53) 23,460
Collateralized loan obligations 40,523
 303
 —
 40,826
  $416,863
 $1,819
 $(4,212) $414,470
Proceeds from sales of debt securities during 2018 were $31.7 million, with gross gains of $0.2 million and gross losses of $0.7 million. Proceeds from sales of debt securities during 2017 were $235.6 million with gross gains of $1.6 million and gross losses of $1.5 million. Proceeds from sales of debt securities during 2016 were $40.4 million with gross gains of $454,000$0.5 million and gross losses of $86,000. Proceeds from sales$0.1 million. Included in "Securities (losses) gains net" for 2018 is $0.1 million representing the decline in the value of securities during 2015 were $60.3 million with gross gains of $633,000 and gross losses of $472,000. Proceeds from sales of securities during 2014 were $21.5 million with gross gains of $456,000 and no gross losses.

In 2014, approximately $158.8 million ofan investment securities available for sale were transferred into held to maturity. The unrealized holding losses at the date of transfer totaled $3.1 million for the securities transferred into the held to maturity category from available for sale, the unrealized holding losses at the date of transfer will continue to be reported in other comprehensive income, and will be amortized over the remaining life of these security as an adjustment of yield consistent with the amortizationshares of a discount. The amortization of unrealized holding losses reportedmutual fund that invests in equity will offset the effect or interest income of the amortization of the discount. As ofCRA-qualified debt securities.

At December 31, 2016, the remaining unrealized holding losses totaled $1.8 million.

Securities at December 31, 20162018, debt securities with a fair value of $193.8$180.9 million were pledged as collateral for United States Treasury deposits, other public deposits and trust deposits. SecuritiesDebt securities with a fair value of $204.2$214.3 million were pledged as collateral for repurchase agreements.

The amortized cost and fair value of securities at December 31, 2016,2018, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowersprepayments of the underlying collateral for these securities may haveoccur, due to the right to call or repay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.


  Held to Maturity  Available for Sale 
  Amortized  Fair  Amortized  Fair 
  Cost  Value  Cost  Value 
  (In thousands) 
Due in less than one year $0  $0  $8,848  $9,044 
Due after one year through five years  0   0   83,308   83,154 
Due after five years through ten years  41,547   41,663   139,611   140,167 
Due after ten years  0   0   31,415   30,709 
   41,547   41,663   263,182   263,074 
Mortgage-backed securities of U.S. Government Sponsored Entities  159,941   159,402   287,726   283,488 
Collateralized mortgage obligations of U.S. Government Sponsored Entities  147,208   144,964   238,805   234,054 
Commercial mortgage backed securities of U.S. Government Sponsored Entities  17,375   17,534   22,351   22,545 
Private mortgage-backed securities  0   0   32,780   31,989 
Private collateralized mortgage obligations  6,427   6,318   67,542   67,289 
Other debt securities  0   0   10,889   10,892 
Private commercial mortgage backed securities  0   0   37,534   37,172 
  $372,498  $369,881  $960,809  $950,503 

  Held to Maturity Available for Sale
(In thousands) 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Due in less than one year $—
 $—
 $12,190
 $12,131
Due after one year through five years —
 —
 88,402
 87,808
Due after five years through ten years 32,000
 31,123
 155,493
 152,707
Due after ten years —
 

 3,465
 3,451
  32,000
 31,123
 259,550
 256,097
Mortgage-backed securities of U.S. Government Sponsored Entities 304,423
 297,099
 567,753
 554,006
Private mortgage-backed securities and collateralized mortgage obligations 21,526
 21,673
 55,569
 55,728
  $357,949
 $349,895
 $882,872
 $865,831


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 amountfair value of debt securities with unrealized losses and the period of time for which these losses were outstanding at December 31, 20162018 and December 31, 2015,2017, respectively.

  December 31, 2016 
  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 $327,759  $(5,991) $5,387  $(75) $333,146  $(6,066)
Collateralized mortgage obligations of U.S. Government Sponsored Entities  234,175   (5,599)  58,912   (2,096)  293,087   (7,695)
Commercial mortgage backed securities of U.S. Government Sponsored Entities  7,934   (102)  0   0   7,934   (102)
Private mortgage backed securities  0   0   36,848   (900)  36,848   (900)
Private collateralized mortgage obligations  1,460   0   38,417   (816)  39,877   (816)
Collateralized loan obligations  8,152   (41)  51,694   (938)  59,846   (979)
Obligations of state and political subdivisions  39,321   (895)  0   0   39,321   (895)
Corporate and other debt securities  33,008   (517)  0   0   33,008   (517)
Private commercial mortgage backed securities  12,667   (306)  7,139   (167)  19,806   (473)
Total temporarily impaired securities $664,476  $(13,451) $198,397  $(4,992) $862,873  $(18,443)

  December 31, 2015 
  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 $112,236  $(1,082) $14,508  $(256) $126,744  $(1,338)
Collateralized mortgage obligations of U.S. Government Sponsored Entities  97,512   (973)  147,266   (4,333)  244,778   (5,306)
Private mortgage-backed securities  31,792   (766)  0   0   31,792   (766)
Private collateralized mortgage obligations  19,939   (321)  31,533   (472)  51,472   (793)
Collateralized loan obligations  101,601   (1,642)  60,922   (1,612)  162,523   (3,254)
Obligations of state and political subdivisions  11,570   (110)  0   0   11,570   (110)
Corporate and other debt securities  31,342   (416)  0   0   31,342   (416)
Private commercial mortgage-backed securities  37,838   (720)  0   0   37,838   (720)
Total temporarily impaired securities $443,830  $(6,030) $254,229  $(6,673) $698,059  $(12,703)

  December 31, 2018
  Less than 12 months 12 months or longer Total
(In thousands) 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities $99
 $(1) $642
 $(5) $741
 $(6)
Mortgage-backed securities and collateralized mortgage obligations of U.S. Government Sponsored Entities 200,184
 (2,235) 623,420
 (19,136) 823,604
 (21,371)
Private mortgage-backed securities and collateralized mortgage obligations 20,071
 (344) 12,739
 (187) 32,810
 (531)
Collateralized loan obligations 238,894
 (4,319) —
 —
 238,894
 (4,319)
Obligations of state and political subdivisions 19,175
 (241) 9,553
 (210) 28,728
 (451)
Total temporarily impaired securities $478,423
 $(7,140) $646,354
 $(19,538) $1,124,777
 $(26,678)
  December 31, 2017
  Less than 12 months 12 months or longer Total
(In thousands) 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities $1,107
 $(5) $—
 $—
 $1,107
 $(5)
Mortgage-backed securities and collateralized mortgage obligations of U.S. Government Sponsored Entities 304,723
 (2,047) 413,725
 (10,146) 718,448
 (12,193)
Private mortgage-backed securities and collateralized mortgage obligations —
 —
 20,744
 (338) 20,744
 (338)
Collateralized loan obligations 14,933
 (68) —
 —
 14,933
 (68)
Obligations of state and political subdivisions 5,414
 (14) 5,864
 (56) 11,278
 (70)
Total temporarily impaired securities $326,177
 $(2,134) $440,333
 $(10,540) $766,510
 $(12,674)
The two tables above include debt securities held to maturity that were transferred from available for sale into held to maturity in 2014. Those securities had unrealized losses of $3.1 million at the date of transfer, and at December 31, 2016,2018, the unamortized balance was $1.8$0.7 million. The fair value of those securities in an unrealized loss position for less than 12 months at December 31, 20162018 and December 31, 20152017 is $22.8$35.7 million and $38.9$22.9 million respectively, with unrealized losses of $0.1 million and $0.2 million, respectively. The unrealized losses onfair value of those securities in an unrealized loss position for less than 12 months or more at December 31, 20162018 and December 31, 20152017 is $0.4$31.3 million and $15.3 million, respectively, with unrealized losses of $1.1 million and $0.4 million, respectively. None of these securities were in an unrealized loss position for more than twelve months at December 31, 2016 and December 31, 2015, respectively.

At December 31, 2016, approximately $1.7 million of the unrealized losses pertain to private label securities secured by seasoned residential collateral. Their fair value is $76.7 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, 2016,2018, the Company also had $13.9$21.4 million of unrealized losses on mortgage backed securities and collateralized mortgage obligations of government sponsored entities having a fair value of $634.2$823.6 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 itsthe assessment of these mitigating 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, 2016,2018, the Company also had $1.0 million of unrealized losses of $4.3 million on collateralized loan obligations havingwith a fair value of $59.9 million$238.9 million. The collateral for these securities is first lien senior secured corporate debt. The Company holds senior tranches


rated credit A or higher and management has tested that were attributablethese tranches are sufficient to a combinationprevent loss of factors, including relative changes in interest rates 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 believes the collateralized loan obligations provide a strong credit enhancement even under severe stress scenarios.principal. Management expects to recover the entire amortized cost basis of these securities.


At December 31, 2016, remaining securities categories has unrealized losses of $1.8 million and summed to a fair value of $92.1 million. Management believes that2018, 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

As of December 31, 2016 the companyCompany does not intend to sell nordebt securities that are in an unrealized loss position and it is it anticipatednot more than likely than not that it wouldthe Company will be required to sell anythese securities before recovery of its investment securities that have losses.the amortized cost basis. Therefore, management does not consider any investment to be other-than-temporarily impaired at December 31, 2016.

2018.

Included in other assets at December 31, 2018 is $35.9$44.5 million of Federal Home Loan Bank and Federal Reserve Bank stock stated at par value. At December 31, 2016, theThe Company has not identified events or changes in circumstances which may have a significant adverse effect on the fair value of the $35.9 million ofthese cost method investment securities.

Also included in other assets is a $6.2 million investment in a mutual fund carried at fair value.

The company alsoCompany holds 11,330 shares of Visa Class B stock, which following resolution of Visa litigation will be converted to Visa Class A shares (theshares. Under the current conversion rate presently is 1.6483ratio that became effective June 28, 2018, the company would receive 1.6298 shares of Class A stock for each share of Class B stock)stock for a total of 18,67518,465 shares of Visa Class A stock. Our ownership is related to prior ownership in Visa's network, while Visa operated as a cooperative. This ownership is recorded on our financial records at zero basis.

In March 2017, the Company acquired 200,000 shares of Visa Class B stock at a cost of $6.2 million. The shares were sold in December 2017 at a gain of $15.2 million.

Note E

- Loans

Information relating to portfolio, purchase

The Company accounts for a loan depending on the strategy for the loan and on the credit impaired status of the loan upon acquisition. Loans are accounted for using the following categories:
Loans and leases held for sale
Loans and leases originated by the Company and held for investment
Loans and leases purchased by the Company, which are considered purchased unimpaired (“PUL”), and held for investment
Loans and leases purchased by the Company, which are considered purchased credit impaired (“PCI”)

Refer to Note A for further discussion on how the categories above are defined.
Loans are also categorized based on the customer and use type of the credit extended. The following outlines the categories used:
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 purchase unimpaired (“PUL”)non-farm nonresidential property where the primary or significant source of repayment is from proceeds of the sale, refinancing, or permanent financing of the property.

Commercial Real Estate Loans: 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 rental income from 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.

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 based primarily on the historical and projected cash flow of the borrower and secondarily on the capacity of credit enhancements, guarantees and 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 and revolving lines, 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 are considered during the underwriting process.

The following table outlines net loans balances by category as of:
  December 31, 2018
(In thousands) Portfolio Loans PCI Loans PULs Total
Loans        
Construction and land development $301,473
 $151
 $141,944
 $443,568
Commercial real estate 1,437,989
 10,828
 683,249
 2,132,066
Residential real estate 1,055,525
 2,718
 266,134
 1,324,377
Commercial and financial 603,057
 737
 118,528
 722,322
Consumer 190,207
 —
 12,674
 202,881
    Total Loans(1)
 $3,588,251
 $14,434
 $1,222,529
 $4,825,214
  December 31, 2017
(In thousands) Portfolio Loans PCI Loans PULs Total
Loans        
Construction and land development $215,315
 $1,121
 $126,689
 $343,125
Commercial real estate 1,170,618
 9,776
 459,598
 1,639,992
Residential real estate 845,420
 5,626
 187,764
 1,038,810
Commercial and financial 512,430
 894
 92,690
 606,014
Consumer 178,826
 —
 10,610
 189,436
    Total Loans(1)
 $2,922,609
 $17,417
 $877,351
 $3,817,377
(1)Loan balances at December 31, 2018 and 2017 include deferred costs of $16.9 million and $12.9 million, respectively.

Loan accrual status is summarizeda primary qualitative credit factor monitored by the Company’s Credit Risk Management when determining the allowance for loan and lease losses. As a loan remains delinquent, the likelihood increases that a borrower is either unable or unwilling to repay. Loans are moved to nonaccrual status when they become 90 days past due, have been evaluated for impairment and have been deemed impaired. The following table presents the balances outstanding status by class of loans as follows:

  2016 
  Portfolio Loans  PCI Loans  PUL's  Total 
  (In thousands) 
Construction and land development $137,480  $114  $22,522  $160,116 
Commercial real estate  1,041,915   11,257   304,420   1,357,592 
Residential real estate  784,290   684   51,813   836,787 
Commercial and financial  308,731   941   60,917   370,589 
Consumer  152,927   0   1,018   153,945 
Other loans  507   0   0   507 
NET LOAN BALANCES (1) $2,425,850  $12,996  $440,690  $2,879,536 

  2015 
  Portfolio Loans  PCI Loans  PUL's  Total 
  (In thousands) 
Construction and land development $97,629  $114  $11,044  $108,787 
Commercial real estate  776,875   9,990   222,513   1,009,378 
Residential real estate  678,131   922   44,732   723,785 
Commercial and financial  188,013   1,083   39,421   228,517 
Consumer  82,717   0   2,639   85,356 
Other loans  507   0   0   507 
NET LOAN BALANCES (1) $1,823,872  $12,109  $320,349  $2,156,330 

(1)Net loan balances at December 31, 2016 and 2015 include deferred costs of $4.4 million and $7.7 million, respectively.

Purchasedof:



  December 31, 2018
    
Accruing
30-59 Days
 
Accruing
60-89 Days
 
Accruing
Greater
Than
   
Total
Financing
(In thousands) Current Past Due Past Due 90 Days Nonaccrual Receivables
Portfolio Loans  
  
  
  
  
  
Construction and land development $301,348
 $97
 $—
 $—
 $28
 $301,473
Commercial real estate 1,427,413
 3,852
 97
 141
 6,486
 1,437,989
Residential real estate 1,044,375
 2,524
 525
 295
 7,806
 1,055,525
Commercial and financial 594,930
 5,186
 1,661
 —
 1,280
 603,057
Consumer 189,061
 637
 326
 —
 183
 190,207
Total Portfolio Loans 3,557,127
 12,296
 2,609
 436
 15,783
 3,588,251
             
PULs            
Construction and land development 140,013
 1,931
 —
 —
 —
 141,944
Commercial real estate 680,060
 1,846
 —
 —
 1,343
 683,249
Residential real estate 260,781
 1,523
 —
 90
 3,740
 266,134
Commercial and financial 116,173
 342
 —
 —
 2,013
 118,528
Consumer 12,643
 —
 31
 —
 —
 12,674
Total PULs 1,209,670
 5,642
 31
 90
 7,096

1,222,529
             
PCI Loans            
Construction and land development 135
 —
 —
 —
 16
 151
Commercial real estate 8,403
 1,034
 —
 —
 1,391
 10,828
Residential real estate 556
 —
 —
 —
 2,162
 2,718
Commercial and financial 74
 635
 —
 —
 28
 737
Consumer —
 —
 —
 —
 —
 —
Total PCI Loans 9,168
 1,669

—

—

3,597

14,434
            

Total Loans $4,775,965

$19,607

$2,640

$526

$26,476

$4,825,214


  December 31, 2017
    
Accruing
30-59 Days
 
Accruing
60-89 Days
 
Accruing
Greater
Than
   
Total
Financing
(In thousands) Current Past Due Past Due 90 Days Nonaccrual Receivables
Portfolio Loans  
  
  
  
  
  
Construction and land development $215,077
 $—
 $—
 $—
 $238
 $215,315
Commercial real estate 1,165,738
 2,605
 585
 —
 1,690
 1,170,618
Residential real estate 836,117
 812
 75
 —
 8,416
 845,420
Commercial and financial 507,501
 2,776
 26
 —
 2,127
 512,430
Consumer 178,676
 52
 —
 —
 98
 178,826
Total Portfolio Loans 2,903,109
 6,245

686

—

12,569

2,922,609
             
PULs            
Construction and land development 126,655
 34
 —
 —
 —
 126,689
Commercial real estate 457,899
 979
 —
 —
 720
 459,598
Residential real estate 186,549
 128
 87
 —
 1,000
 187,764
Commercial and financial 92,315
 54
 —
 —
 321
 92,690
Consumer 10,610
 —
 —
 —
 —
 10,610
Total PULs 874,028

1,195

87

—

2,041

877,351
             
PCI Loans            
Construction and land development 1,121
 —
 —
 —
 —
 1,121
Commercial real estate 9,352
 —
 —
 —
 424
 9,776
Residential real estate 544
 642
 —
 —
 4,440
 5,626
Commercial and financial 844
 —
 —
 —
 50
 894
Consumer —
 —
 —
 —
 —
 —
Total PCI Loans 11,861

642

—

—

4,914

17,417
             
Total Loans $3,788,998

$8,082

$773

$—

$19,524

$3,817,377
The reduction in interest income associated with loans on nonaccrual status was approximately $1.0 million, $0.7 million, and $0.7 million, for the years ended December 31, 2018, 2017, and 2016, respectively.
The Company’s Credit Risk Management also utilizes an internal asset classification system as a means of identifying problem and potential problem loans.  The following classifications are used to categorize loans under the internal classification system:

Pass: Loans that are not problems or potential problem loans are considered to be pass-rated.
Special Mention: Loans that do not currently expose the Company to sufficient risk to warrant classification in the Substandard or Doubtful categories, but possess weaknesses that deserve management’s close attention are deemed to be Special Mention. 
Substandard: Loans with the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful: Loans that 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 likely to be charged off.

Risk ratings on commercial lending facilities are re-evaluated during the annual review process at a minimum, based on the size of the aggregate exposure, and/or when there is a credit action of the existing credit exposure. The following tables present the risk category of loans by class of loans based on the most recent analysis performed as of:



  December 31, 2018
(In thousands) Pass 
Special
Mention
 Substandard Doubtful Total
Net Loans          
Construction and land development $428,044
 $10,429
 $5,095
 $—
 $443,568
Commercial real estate 2,063,589
 41,429
 27,048
 —
 2,132,066
Residential real estate 1,296,634
 3,654
 24,089
 —
 1,324,377
Commercial and financial 707,663
 8,387
 6,247
 25
 722,322
Consumer 198,367
 3,397
 1,117
 —
 202,881
Total Net Loans $4,694,297
 $67,296
 $63,596
 $25
 $4,825,214

  December 31, 2017
(In thousands) Pass 
Special
Mention
 Substandard Doubtful Total
Net Loans          
Construction and land development $328,127
 $10,414
 $4,584
 $—
 $343,125
Commercial real estate 1,586,932
 29,273
 23,787
 —
 1,639,992
Residential real estate 1,023,925
 4,621
 10,203
 61
 1,038,810
Commercial and financial 593,689
 3,237
 8,838
 250
 606,014
Consumer 189,354
 —
 82
 —
 189,436
Total Net Loans $3,722,027
 $47,545
 $47,494
 $311
 $3,817,377

Loans to directors and executive officers totaled $0.9 million and $1.1 million at December 31, 2018 and 2017, respectively. No new loans were originated to directors or officers in 2018.
At December 31, 2018 and 2017 loans pledged as collateral for borrowings totaled $380 million and $211 million, respectively.

Concentrations of Credit
The Company’s lending activity primarily occurs within the State of Florida, specifically in the Fort Lauderdale, Boca Raton, West Palm Beach, Daytona Beach, Orlando and Tampa MSAs.
PCI 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 components of purchased loans are as follows at December 31, 2016 and 2015:

  December 31, 2016  December 31, 2015 
  PCI  PULs  Total  PCI  PULs  Total 
  (In thousands)  (In thousands) 
Construction and land development $114  $22,522  $22,636  $114  $11,045  $11,159 
Commercial real estate  11,257   304,420   315,677   9,990   222,513   232,503 
Residential real estate  684   51,813   52,497   922   44,732   45,654 
Commercial and financial  941   60,917   61,858   1,083   39,420   40,503 
Consumer  0   1,018   1,018   0   2,639   2,639 
Carrying value of acquired loans $12,996  $440,690  $453,686  $12,109  $320,349  $332,458 
                         
Carrying value, net of allowance of $0 for 2016 and $137 for 2015 $12,996  $440,690  $453,686  $12,109  $320,212  $332,321 


The table below summarizes the changes in accretable yield foron PCI loans duringfor the twelve months ended December 31, 2016, and December 31, 2015. years ended:
  December 31,
(In thousands) 2018 2017 2016
Beginning balance $3,699
 $3,807
 $2,610
Additions —
 763
 2,052
Deletions (43) (11) (15)
Accretion (1,291) (1,647) (1,734)
Reclassifications from non-accretable difference 559
 787
 894
Ending Balance $2,924
 $3,699
 $3,807
See Note S for information related to PCI loans acquiredpurchased in transactions accounted for as business combinations during the period.

periods presented.

Activity during the twelve month period ending December 31, 2016 12/31/2015  Additions  Deletions  Accretion  Reclassifications from nonaccretable difference  12/31/2016 
  (In thousands) 
Accretable yield $2,610  $2,052  $(15) $(1,734) $894  $3,807 
                         
Carrying value $12,109                  $12,996 
Allowance for loan losses  0                   0 
Carrying value less allowance for loan losses $12,109                  $12,996 
                         
Activity during the twelve month period ending December 31, 2015 12/31/2014  Additions  Deletions  Accretion  Reclassifications from nonaccretable difference  12/31/2015 
  (In thousands) 
Accretable yield $1,192  $702  $(357) $(601) $1,674  $2,610 
                         
Carrying value of acquired loans $7,814                  $12,109 
Allowance for loan losses  (64)                  0 
Carrying value less allowance for loan losses $7,750                  $12,109 
                         
Activity during the three month period ending December 31, 2014 9/30/2014  Additions  Deletions  Accretion  Reclassifications from nonaccretable difference  12/31/2014 
  (In thousands) 
Accretable yield $0  $1,256  $(50) $(96) $82  $1,192 
                         
Carrying value of acquired loans $0                  $7,814 
Allowance for loan losses  0                   (64)
Carrying value less allowance for loan losses $0                  $7,750 

Troubled Debt Restructured Loans
The Company pursues troubled debt restructures (TDR) for loans in selected cases where it expects to directors and executive officers totaled $2.1 million and $4.0 million at December 31, 2016 and 2015, respectively. During 2016, new loansrealize better values than may be expected through traditional collection activities. The Company has worked with retail mortgage customers, when possible, to directors and officer totaling $1.2 million were made, and reductions totaled $3.1 million.

At December 31, 2016 and 2015 loans pledged as collateral for borrowings totaled $415 million and $50 million, respectively.

Loans are madeachieve lower payment structures in an effort 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 The Company’s lending activity primarily 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 the counties surrounding Lake Okeechobee in the center of the state. The Company’s loan portfolio consists of approximately 60% commercial and commercial real estate loans and 40% 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 qualityavoid foreclosure. TDRs have been a part of the Company’s loans.  These policiesloss mitigation activities and procedurescan include rate reductions, payment extensions and principal deferrals. Company policy requires TDRs that are reviewed and approved by the Board of Directors on a regular basis.


Construction and Land Development Loans  The Company defines construction and land developmentclassified as nonaccrual 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.

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, 2016 and 2015:


        Accruing          
  Accruing  Accruing  Greater        Total 
  30-59 Days  60-89 Days  Than        Financing 
December 31, 2016 Past Due  Past Due  90 Days  Nonaccrual  Current  Receivables 
                   
Portfolio Loans                        
Construction and land development $0  $0  $0  $438  $137,042  $137,480 
Commercial real estate  78   171   0   1,784   1,039,882   1,041,915 
Residential real estate  1,570   261   0   8,582   773,877   784,290 
Commerical and financial  30   0   0   49   308,652   308,731 
Consumer  29   59   0   170   152,669   152,927 
Other  0   0   0   0   507   507 
Total Loans $1,707  $491  $0  $11,023  $2,412,629  $2,425,850 
                         
Purchased Loans                  
Construction and land development $0  $0  $0  $32  $22,490  $22,522 
Commercial real estate  345   485   0   1,272   302,318   304,420 
Residential real estate  153   0   0   1,262   50,398   51,813 
Commerical and financial  39   328   0   197   60,353   60,917 
Consumer  37   0   0   0   981   1,018 
Other  0   0   0   0   0   0 
Total Loans $574  $813  $0  $2,763  $436,540  $440,690 
                         
Purchased Impaired Loans                  
Construction and land development $0  $0  $0  $0  $114  $114 
Commercial real estate  0   0   0   4,285   6,972   11,257 
Residential real estate  0   185   0   0   499   684 
Commerical and financial  0   0   0   0   941   941 
Consumer  0   0   0   0   0   0 
Other  0   0   0   0   0   0 
Total Loans $0  $185  $0  $4,285  $8,526  $12,996 


  Accruing  Accruing  Greater        Total 
  30-59 Days  60-89 Days  Than        Financing 
December 31, 2015 Past Due  Past Due  90 Days  Nonaccrual  Current  Receivables 
                   
Portfolio Loans                        
Construction and land development $665  $0  $0  $269  $96,695  $97,629 
Commercial real estate  810   0   0   2,301   773,764   776,875 
Residential real estate  141   0   0   9,941   668,049   678,131 
Commerical and financial  59   0   0   0   187,954   188,013 
Consumer  430   0   0   247   82,040   82,717 
Other  0   0   0   0   507   507 
Total Loans $2,105  $0  $0  $12,758  $1,809,009  $1,823,872 
                         
Purchased Loans                  
Construction and land development $0  $0  $0  $40  $11,004  $11,044 
Commercial real estate  179   0   0   2,294   220,040   222,513 
Residential real estate  66   0   0   0   44,666   44,732 
Commerical and financial  39   0   0   130   39,252   39,421 
Consumer  39   0   0   0   2,600   2,639 
Other  0   0   0   0   0   0 
Total Loans $323  $0  $0  $2,464  $317,562  $320,349 
                         
Purchased Impaired Loans                  
Construction and land development $0  $0  $0  $0  $114  $114 
Commercial real estate  132   0   0   1,816   8,042   9,990 
Residential real estate  0   0   0   348   574   922 
Commerical and financial  0   0   0   0   1,083   1,083 
Consumer  0   0   0   0   0   0 
Other  0   0   0   0   0   0 
Total Loans $132  $0  $0  $2,164  $9,813  $12,109 

Nonaccrual loans and loans past due ninety days or more were $18.1 million and $17.4 million at December 31, 2016 and 2015, respectively. The reduction in interest income associated with loansafter restructuring remain on nonaccrual status was approximately $0.7 million, $0.6 million, and $1.9 million, foruntil performance can be verified, which usually requires six months of performance under the years ended December 31, 2016, 2015, and 2014, respectively.

restructured loan terms.

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. 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, 2016 and 2015:

December 31, 2016 Construction
& Land
Development		  Commercial
Real Estate		  Residential
Real Estate		  Commercial &
Financial		  Consumer
Loans		  Total 
                   
Pass $148,563  $1,319,696  $811,576  $364,241  $153,730  $2,797,806 
Special mention  5,037   17,184   1,780   3,949   67   28,017 
Substandard  5,497   7,438   2,709   2,153   134   17,931 
Doubtful  0   0   0   0   0   0 
Nonaccrual  470   7,341   9,844   246   170   18,071 
Pass - Troubled debt restructures  44   4,988   358   0   44   5,434 
Troubled debt restructures  505   945   10,520   0   307   12,277 
Total $160,116  $1,357,592  $836,787  $370,589  $154,452  $2,879,536 

December 31, 2015 Construction
& Land
Development		  Commercial
Real Estate		  Residential
Real Estate		  Commercial &
Financial		  Consumer
Loans		  Total 
                   
Pass $100,186  $973,942  $697,907  $226,391  $83,786  $2,082,212 
Special mention  3,377   12,599   629   1,209   1,392   19,206 
Substandard  4,242   9,278   3,197   769   70   17,556 
Doubtful  0   0   0   0   0   0 
Nonaccrual  309   6,410   10,290   130   247   17,386 
Pass - Troubled debt restructures  58   5,893   0   18   0   5,969 
Troubled debt restructures  615   1,256   11,762   0   368   14,001 
Total $108,787  $1,009,378  $723,785  $228,517  $85,863  $2,156,330 


Note F Impaired Loans and Allowance for Loan Losses

During the twelve months ended December 31, 2016, the total of newly identified TDRs was $2.0 million, of which $1.2 million were accruing residential real estate loans.

The Company's TDR concessions granted generally do not include forgiveness of principal balances. Loan modifications are not reported in the calendar years after modification if the loans were modified at an interest rate equal to yields of new loan originations with comparable risk and loans are performing based on the terms of the restructuring agreements. When a loan is modified as a TDR, there is not a direct, material impact on the carrying value of the loans within the consolidated balance sheet, as principal balances generally are generally not forgiven. Most loans prior to modification were classified as an impaired loan and the allowance for loan losses is determined in accordance with Company policy.

The following table presents accruing loans that Loans modified in a TDR were modified withinimmaterial during the twelve months endingyears ended December 31, 2018, 2017 and 2016, and 2015:

     Pre-  Post-       
     Modification  Modification       
  Number  Outstanding  Outstanding  Specific  Valuation 
  of  Recorded  Recorded  Reserve  Allowance 
  Contracts  Investment  Investment  Recorded  Recorded 
     (In thousands)    
                
2016:                    
Construction and land  development  1  $20  $18  $0  $2 
Residential real estate  4   1,169   1,019   0   150 
   5  $1,189  $1,037  $0  $152 
2015:                    
Construction and land development  2  $220  $218  $0  $2 
Residential real estate  1   27   26   0   1 
Commercial real estate  3   1,881   1,787   0   94 
Consumer  1   48   45   0   3 
   7  $2,176  $2,076  $0  $100 

During the years 2016, 2015 and 2014, there were no material payment defaults on loans that had been modified to a TDR within the previous twelve months. The Company considers a loan to have defaulted when it becomes 90 days or more days delinquent under the modified terms, has been transferred to non-accrualnonaccrual status or has been transferred to other real estate owned. A defaulted TDR is generally placed on nonaccrual status and a specific allowance for loan losses assigned in accordance with the Company'sCompany’s policy.

Impaired Loans
Loans are considered impaired if they are 90 days or more past due, in nonaccrual status, or are TDRs. At December 31, 20162018 and 2015,2017, the Company'sCompany’s recorded investment in impaired loans, (excludingexcluding PCI loans)loans, and related valuation allowance was as follows:

  Impaired Loans 
  for the Year Ended December 31, 2016 
     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 $226  $321  $0  $193  $17 
Commercial real estate  3,267   4,813   0   1,784   215 
Residential real estate  9,706   14,136   0   9,370   579 
Commercial and financial  199   206   0   15   9 
Consumer  0   0   0   168   0 
With an allowance recorded:                    
Construction and land development  51   51   0   605   2 
Commercial real estate  6,937   6,949   395   6,699   309 
Residential real estate  12,332   12,681   2,059   12,015   455 
Commercial and financial  0   0   0   0   0 
Consumer  0   0   0   338   0 
Total:                    
Construction and land development  277   372   0   798   19 
Commercial real estate  10,204   11,762   395   8,483   524 
Residential real estate  22,038   26,817   2,059   21,385   1,034 
Commercial and financial  199   206   0   15   9 
Consumer  0   0   0   506   0 
  $32,718  $39,157  $2,454  $31,187  $1,586 

  Impaired Loans 
  for the Year Ended December 31, 2015 
     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 $107  $255  $0  $1,252  $6 
Commercial real estate  2,363   3,911   0   2,880   16 
Residential real estate  9,256   13,707   0   10,259   168 
Commercial and financial  17   17   0   84   1 
Consumer  264   349   0   141   3 
With an allowance recorded:                    
Construction and land development  835   870   84   987   29 
Commercial real estate  7,087   7,087   429   7,280   302 
Residential real estate  12,447   12,803   1,964   15,136   337 
Commercial and financial  0   0   0   0   0 
Consumer  351   351   40   495   18 
Total:                    
Construction and land development  942   1,125   84   2,239   35 
Commercial real estate  9,450   10,998   429   10,160   318 
Residential real estate  21,703   26,510   1,964   25,395   505 
Commercial and financial  17   17   0   84   1 
Consumer  615   700   40   636   21 
  $32,727  $39,350  $2,517  $38,514  $880 


  December 31, 2018
  Recorded 
Unpaid
Principal
 
Related
Valuation
(In thousands) Investment Balance Allowance
Impaired Loans with No Related Allowance Recorded:  
  
  
Construction and land development $15
 $229
 $—
Commercial real estate 3,852
 5,138
 —
Residential real estate 13,510
 18,111
 —
Commercial and financial 1,191
 1,414
 —
Consumer 280
 291
 —
       
Impaired Loans with an Allowance Recorded:  
  
  
Construction and land development 196
 211
 22
Commercial real estate 9,786
 12,967
 369
Residential real estate 5,537
 5,664
 805
Commercial and financial 2,131
 2,309
 1,498
Consumer 202
 211
 34
       
Total Impaired Loans      
Construction and land development 211
 440
 22
Commercial real estate 13,638
 18,105
 369
Residential real estate 19,047
 23,775
 805
Commercial and financial 3,322
 3,723
 1,498
Consumer 482
 502
 34
Total Impaired Loans $36,700
 $46,545
 $2,728
  December 31, 2017
  Recorded 
Unpaid
Principal
 
Related
Valuation
(In thousands) Investment Balance Allowance
Impaired Loans with No Related Allowance Recorded:  
  
  
Construction and land development $223
 $510
 $—
Commercial real estate 3,475
 4,873
 —
Residential real estate 10,272
 15,063
 —
Commercial and financial 19
 29
 —
Consumer 105
 180
 —
       
Impaired Loans with an Allowance Recorded:      
Construction and land development 251
 264
 23
Commercial real estate 4,780
 4,780
 195
Residential real estate 8,448
 8,651
 1,091
Commercial and financial 2,436
 883
 1,050
Consumer 282
 286
 43
       
Total Impaired Loans      
Construction and land development 474
 774
 23
Commercial real estate 8,255
 9,653
 195
Residential real estate 18,720
 23,714
 1,091
Commercial and financial 2,455
 912
 1,050
 Consumer 387
 466
 43
Total Impaired Loans $30,291
 $35,519
 $2,402


Impaired loans also include loans thatTDRs where concessions have been modified in troubled debt restructurings where concessionsgranted to borrowers who have experienced financial difficulties have been granted.difficulty. At December 31, 20162018 and 2015,2017, accruing TDRs totaled $17.7$13.3 million and $20.0$15.6 million, respectively.

The average recorded investment in

Average impaired loans for the years ended December 31, 2018, 2017, and 2016 2015 and 2014 was $31.2were $35.3 million, $38.5$30.9 million, and $49.6$31.2 million, respectively. The impaired loans were measured for impairment based on the value of underlying collateral or the present value of expected future cash flows discounted at the loan'sloan’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 toin principal. For the years ended December 31, 2016, 20152018, 2017 and 2014,2016, the Company recorded $1,586,000, $880,000$2.0 million, $1.5 million, and $1,345,000,$1.6 million, 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 $235,000, $318,000$0.2 million, $0.3 million and $456,000,$0.2 million, respectively, for 2016, 20152018, 2017, and 20142016 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 $11,024,000 and $0, respectively, at December 31, 2016, $12,758,000 and $0, respectively at the end of 2015, and were $18,563,000 and $17,000, respectively, at year-end 2014.

The purchased nonaccrual loans and accruing loans past due 90 days or more were $2,867,000 and $0 , respectively at December 31, 2016, $4,628,000 and $0, respectively, at December 31, 2015 and $2,577,000 and $196,000, respectively, December 31, 2014.




Note F - Allowance for Loan Losses
Activity in the allowance for loans losses (excluding PCI loans) for the three years ended December 31, 2018, 2017 and 2016 2015 and 2014 areis summarized as follows:

  Beginning
 Balance		  Provision
for Loan
Losses		  Charge-
Offs		  Recoveries  Net (Charge-
Offs)
Recoveries		  Ending
 Balance		 
  (In thousands)
December 31 , 2016                        
Construction and land development $1,151  $(158) $0  $226  $226  $1,219 
Commercial real estate  6,756   2,512   (301)  306   5   9,273 
Residential real estate  8,057   (1,145)  (215)  786   571   7,483 
Commercial and financial  2,042   400   (615)  1,809   1,194   3,636 
Consumer  1,122   802   (244)  109   (135)  1,789 
  $19,128  $2,411  $(1,375) $3,236  $1,861  $23,400 
December 31 , 2015                        
Construction and land development $722  $1,296  $(1,271) $404  $(867) $1,151 
Commercial real estate  4,528   2,010   (482)  700   218   6,756 
Residential real estate  9,784   (2,208)  (779)  1,260   481   8,057 
Commercial and financial  1,179   1,058   (726)  531   (195)  2,042 
Consumer  794   552   (341)  117   (224)  1,122 
  $17,007  $2,708  $(3,599) $3,012  $(587) $19,128 
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 
(In thousands) 
Beginning
Balance
 
Provision
for Loan
Losses
 
Charge-
Offs
 Recoveries 
TDR
Allowance
Adjustments
 
Ending
Balance
December 31, 2018  
  
  
  
  
  
Construction and land development $1,642
 $564
 $—
 $27
 $—
 $2,233
Commercial real estate 9,285
 4,736
 (3,139) 292
 (62) 11,112
Residential real estate 7,131
 29
 (80) 816
 (121) 7,775
Commercial and financial 7,297
 4,359
 (3,396) 325
 —
 8,585
Consumer 1,767
 2,042
 (1,411) 329
 (9) 2,718
Total $27,122

$11,730

$(8,026)
$1,789

$(192)
$32,423
             
December 31, 2017            
Construction and land development $1,219
 $(471) $—
 $896
 $(2) $1,642
Commercial real estate 9,273
 (264) (407) 747
 (64) 9,285
Residential real estate 7,483
 125
 (569) 336
 (244) 7,131
Commercial and financial 3,636
 5,304
 (1,869) 226
 —
 7,297
Consumer 1,789
 954
 (1,257) 290
 (9) 1,767
Total $23,400

$5,648

$(4,102)
$2,495

$(319)
$27,122
             
December 31, 2016            
Construction and land development $1,151
 $(150) $—
 $226
 $(8) $1,219
Commercial real estate 6,756
 2,599
 (256) 306
 (132) 9,273
Residential real estate 8,057
 (1,069) (205) 786
 (86) 7,483
Commercial and financial 2,042
 224
 (439) 1,809
 —
 3,636
Consumer 1,122
 807
 (244) 109
 (5) 1,789
Total $19,128

$2,411

$(1,144)
$3,236

$(231)
$23,400

As discussed in Note A, "Significant Accounting Policies," the allowance for loan losses is composedcomprised 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, 20162018 and 20152017 is shown in the following tables.

  Individually Evaluated for
Impairment		  Collectively Evaluated for
 Impairment		  Total 
December 31, 2016 

Recorded

Investment

  Associated
Allowance		  

Recorded

Investment

  Associated
 Allowance		  

Recorded

Investment

  Associated
Allowance		 
  (In thousands) 
                   
Construction and land development $277  $0  $159,839  $1,219  $160,116  $1,219 
Commercial real estate  10,204   395   1,335,832   8,878   1,346,036   9,273 
Residential real estate  22,038   2,059   814,250   5,424   836,288   7,483 
Commercial and financial  199   0   369,449   3,636   369,648   3,636 
Consumer  0   0   154,452   1,789   154,452   1,789 
  $32,718  $2,454  $2,833,822  $20,946  $2,866,540  $23,400 

  Individually Evaluated for  
Impairment		  Collectively Evaluated for
Impairment		  Total 
December 31, 2015 

Recorded

Investment

  Associated
Allowance		  

Recorded

Investment

  Associated
Allowance		  

Recorded

Investment

  Associated
Allowance		 
  (In thousands) 
                   
Construction and land development $942  $84  $107,731  $1,067  $108,673  $1,151 
Commercial real estate  9,450   429   989,938   6,327   999,388   6,756 
Residential real estate  21,703   1,964   701,160   6,093   722,863   8,057 
Commercial and financial  17   0   227,417   2,042   227,434   2,042 
Consumer  615   40   85,248   1,082   85,863   1,122 
  $32,727  $2,517  $2,111,494  $16,611  $2,144,221  $19,128 

  December 31, 2018
  
Individually Evaluated for
Impairment
 
Collectively Evaluated for
Impairment
 Total
(In thousands) 
Recorded
Investment
 
Associated
Allowance
 
Recorded
Investment
 
Associated
Allowance
 
Recorded
Investment
 
Associated
Allowance
Construction and land development $211
 $22

$443,206
 $2,211
 $443,417
 $2,233
Commercial real estate 13,638
 369
 2,107,600
 10,743
 2,121,238
 11,112
Residential real estate 19,047
 805
 1,302,612
 6,970
 1,321,659
 7,775
Commercial and financial 3,322
 1,498
 718,263
 7,087
 721,585
 8,585
Consumer 482
 34
 202,399
 2,684
 202,881
 2,718
Total $36,700
 $2,728
 $4,774,080
 $29,695
 $4,810,780
 $32,423


  December 31, 2017
  
Individually Evaluated for
Impairment
 
Collectively Evaluated for
Impairment
 Total
(In thousands) 
Recorded
Investment
 
Associated
Allowance
 
Recorded
Investment
 
Associated
Allowance
 
Recorded
Investment
 
Associated
Allowance
Construction and land development $474
 $23
 $341,530
 $1,619
 $342,004
 $1,642
Commercial real estate 8,255
 195
 1,621,960
 9,090
 1,630,215
 9,285
Residential real estate 18,720
 1,091
 1,014,465
 6,040
 1,033,185
 7,131
Commercial and financial 2,455
 1,050
 602,666
 6,247
 605,121
 7,297
Consumer 387
 43
 189,049
 1,724
 189,436
 1,767
Total $30,291
 $2,402
 $3,769,670
 $24,720
 $3,799,961
 $27,122
Loans collectively evaluated for impairment reported at December 31, 20162018 included loans acquired from Floridian on March 11, 2016, BMO on June 3, 2016, Grand on July 17, 2015 and BANKshares on October 1, 2014loans that are not PCI loans. At December 31, 2016,2018, the remaining fair value adjustments for loans acquired was approximately $13.7$47.0 million, or approximately 3.11%3.86% of the outstanding aggregate PUL balances. At December 31, 2015,2017, the remaining fair value adjustments for loans acquired was approximately $14.2$17.5 million, or approximately 4.43%2.00% of the outstanding aggregate PUL balances.

These amounts, which representsrepresent the remaining fair value discount of each PUL, are accreted into interest income over the remaining lives of the related loans on a level yield basis. ProvisioningRecapture for loan losses of $1.3$0.2 million and net charge-offsrecoveries of $1.2$0.1 million were recorded for these loans during 2015.2018. Recapture of $0.2 million and net recoveries of $0.1 million were recorded during 2017. No provision for loan losses was recorded related to these loans at December 31, 2014. during 2016.
The table below summarizes PCI loans that were individually evaluated for impairment based on expected cash flows at December 31, 20162018 and 2015.

  December 31, 2016
 PCI Loans Individually
Evaluated for Impairment		  December 31, 2015
 PCI Loans Individually
Evaluated for Impairment		 
  

Recorded

Investment

  Associated
Allowance		  

Recorded

Investment

  Associated
 Allowance		 
             
Construction and land development $114  $0  $114  $0 
Commercial real estate  11,257   0   9,990   0 
Residential real estate  684   0   922   0 
Commercial and financial  941   0   1,083   0 
Consumer  0   0   0   0 
  $12,996  $0  $12,109  $0 
2017.
  December 31, 2018 December 31, 2017
  
PCI Loans Individually
Evaluated for Impairment
 
PCI Loans Individually
Evaluated for Impairment
(In thousands) 
Recorded
Investment
 
Associated
Allowance
 
Recorded
Investment
 
Associated
Allowance
Construction and land development $151
 $—
 $1,121
 $—
Commercial real estate 10,828
 —
 9,776
 —
Residential real estate 2,718
 —
 5,626
 —
Commercial and financial 737
 —
 894
 —
Consumer —
 —
 —
 —
Total $14,434
 $—
 $17,417
 $—




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, 2016            
Premises (including land of $14,773) $71,562  $(22,969) $48,593 
Furniture and equipment  30,281   (20,190)  10,091 
  $101,843  $(43,159) $58,684 
             
             
December 31, 2015            
Premises (including land of $14,839) $66,965  $(21,298) $45,667 
Furniture and equipment  26,546   (17,634)  8,912 
  $93,511  $(38,932) $54,579 

of:
(In thousands) Cost 
Accumulated
Depreciation &
Amortization
 
Net
Carrying
Value
December 31, 2018  
  
  
Premises (including land of $18,546) $85,027
 $(26,107) $58,920
Furniture and equipment 36,892
 (24,788) 12,104
Total $121,919
 $(50,895) $71,024
       
December 31, 2017  
  
  
Premises (including land of $18,269) $78,255
 $(24,045) $54,210
Furniture and equipment 34,532
 (21,859) 12,673
Total $112,787
 $(45,904) $66,883

Note H - Goodwill and Acquired Intangible Assets

Goodwill totaled $64.6 million at

The following table presents changes in the carrying amount of goodwill:

  For the Year Ended December 31,
(In thousands) 2018 2017 2016
Beginning of year $147,578
 $64,649
 $25,211
Changes from business combinations 57,175
 82,929
 39,438
Total $204,753
 $147,578
 $64,649

 The Company performs an analysis for goodwill impairment on an annual basis. Based on the analysis performed in the fourth quarter, the Company has concluded goodwill was not impaired as of December 31, 2016, a result of the Company's acquisitions of The BANKshares on October 1, 20142018 and Floridan Financial Group on March 11, 2016, each a whole bank acquisition, and BMO Harris's Orlando operations on June 3, 2016, and for each totaled $25.2 million, $31.6 million and $7.8 million at year end December 31, 2016, respectively. The acquisition of Grand Bankshares, a whole bank acquisition, on July 17, 2015, was recorded as a bargain purchase, with no goodwill and a bargain purchase gain of $416,000 recorded to income.

2017.

Acquired intangible assets consist of core deposit intangibles ("CDI"), which are intangible assets arising from the purchase of deposits separately or from the acquisitions of BANKshares in 2014, Grand Bankshares in 2015, and Floridian Financial Group and BMO Harris's Orlando operations, each in 2016.bank acquisitions. The change in balance for CDI is as follows:

  2016  2015  2014 
  (In thousands) 
Beginning of year $8,594  $7,454  $718 
Acquired CDI  8,464   2,564   7,769 
Amortization expense  (2,486)  (1,424)  (1,033)
End of year $14,572  $8,594  $7,454 
             
    (In months)
Remaining Average Amoritzation Period  64   67   71 

  For the Year Ended December 31,
(In thousands) 2018 2017 2016
Beginning of year $18,937
 $14,572
 $8,594
Acquired CDI 10,170
 7,726
 8,464
Amortization expense (4,300) (3,361) (2,486)
End of year $24,807
 $18,937
 $14,572
       
(In months)  
    
Remaining average amortization period for CDI 58
 63
 64
The gross carrying amount and accumulated amortization of the Company's intangible assetCDI subject to amortization at December 31 is presented below.

  2016  2015 
  Gross     Gross    
  Carrying  Accumulated  Carrying  Accumulated 
  Amount  Amortization  Amount  Amortization 
  (In thousands) 
 Deposit base $18,796  $(4,224) $19,827  $(11,233)

as of:

  December 31, 2018 December 31, 2017
(In thousands) 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Deposit base $36,691
 $(11,884) $26,522
 $(7,585)


The annual amortization expense for the Company's CDI determined using the straight line method infor each of the threefive years subsequent to December 31, 20162018 is $2,876,000,$5.9 million, $5.8 million, $4.6 million, $4.1 million and amortization in$3.0 million, respectively.
Mortgage servicing rights ("MSRs") retained from the fourthsale of Small Business Administration ("SBA") guarantees totaled $1.1 million and fifth year subsequent to $0.2 million at December 31, 2016 is $2,771,0002018 and $1,567,000,2017, respectively.


Note I - Borrowings

A significant portion of the Company's short-term borrowings were comprised of unsecured federal funds purchased and securities sold under agreements to repurchase with maturities primarily from overnight to seven days:

  2016  2015  2014 
  (In thousands) 
Maximum amount outstanding at any month end $236,099  $192,786  $218,399 
Weighted average interest rate at end of year  0.31%  0.28%  0.18%
Average amount outstanding $187,560  $168,188  $152,129 
Weighted average interest rate during the year  0.26%  0.20%  0.17%

maturities:

  For the Year Ended December 31,
(In thousands) 2018 2017 2016
Maximum amount outstanding at any month end $341,213
 $216,094
 $236,099
Weighted average interest rate at end of year 1.14% 0.71% 0.31%
Average amount outstanding $200,839
 $171,686
 $187,560
Weighted average interest rate during the year 0.90% 0.46% 0.26%
Securities sold under agreements to repurchase are accounted for as secured borrowings. For securities sold under agreements to repurchase, the companyCompany would be obligated to provide additional collateral in the event of a significant decline in fair value of collateral pledged. At December 31, 2016, 2015, and 2014, companyCompany securities pledged were as follows by collateral type and maturity:

  Overnight and Continuous Maturity 
Fair-Value of Pledge Securities 2016  2015  2014 
  (In thousands) 
Mortgage-backed securities and collateralized mortgage obligations of U.S. Government Sponsored Entities $204,202  $172,005  $153,640 

maturity as of:

  December 31,
(In thousands) 2018 2017 2016
Fair value of pledged securities – overnight and continuous  
  
  
Mortgage-backed securities and collateralized mortgage obligations of U.S. Government Sponsored Entities $246,829
 $216,094
 $204,202
Seacoast Bank had secured lines of credit of $1.0$1.8 billion at December 31, 2016,2018, of which $415,000$380 million was outstanding from the Federal Home Loan Bank ("FHLB") at the end of 2016,2018, with their entire amount$317 million maturing within 30 days or less.less, and the remainder maturing by June 2019. The weighted average interest rate on the balance at end of year 2018 was 0.62%2.45% and during the year averaged 0.63%1.99% for all of 2016. 2018. The Company acquired FHLB advances of $77.0 million from First Green on October 19, 2018 which were repaid in November.
On April 7, 2016, Seacoast Bank incurred an early redemption cost of $1.8 million related to prepayment of $50.0 million of FHLB advances. The $50.0 million of FHLB borrowings was comprised of two advances of $25.0$25 million each acquiredborrowed on September 15, 2007 and November 27, 2007, respectively, and had fixed rates of 3.64% and 2.70%, respectively, payable quarterly.

The Company issued $20.6 million in junior subordinated debentures on March 31, 2005 and December 16, 2005, for an aggregate of $41.2 million. 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"), respectively, which each completed a private sale of $20.0 million of floating rate preferred securities. On June 29, 2007, the Company issued an additional $12.4 million in junior subordinated debentures which waswere 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,as of December 31, 2018 are currently 2.75%4.55%, 2.31%4.12%, and 2.29%4.14%, respectively. The trust preferred securities have original maturities of thirty years, and may be redeemed without penalty, 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$619 million, $619 million and $372,000,$372 million, 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 The BANKshares Inc. (“BANKshares”) acquisition the Company assumedacquired three junior subordinated debentures. Correspondingly, at December 31, 2015 and 2014,2018, the Company had $5.2 million and $4.1 million of Floating Rate Junior Subordinated Deferrable Interest Debenturesfloating 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.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,as of December 31, 2018 are currently 4.25% percent6.07% and 3.78%5.58%, respectively, per annum. At December 31, 2015 and 2014,2018, the Company also had $5.2 million outstanding of Junior Subordinated Debentures due February 23, 2036. CouponThe coupon rate floats quarterly at the three month3-month LIBOR rate plus 139 basis points. The junior subordinated debenture is redeemable in certain circumstances. The interest rate was 2.31%4.04% at December 31, 2016.2018. The above three junior subordinated debentures in accordance with ASUASC Topic 805Business Combinationshave been were recorded at their acquisition date fair values which collectively iswas $3.5 million lower than face value and will be amortized into interest expense over the remaining term to maturity.

As part of the July 17, 2015 Grand BankBankshares, Inc. (“Grand”) acquisition the Company assumedacquired one junior subordinated debentures.debenture. Correspondingly, at December 31, 20162018 the companyCompany has $7.2 million of Floating Rate Junior Subordinated Deferrable Interest Debenturefloating rate junior subordinated deferrable interest debenture outstanding which is due December 30, 2034, and callable by the Company, at its option.2034. The interest rate is the 3-month LIBOR rate plus 198 basis points. The rate, which adjusts every three months, is currently 2.98%4.38%, per annum. The junior subordinated debentures in acccordanceaccordance with ASUASC Topic 805Business Combinationshave been were recorded at the acquisition date fair values which iswas $2.1 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 notes, intime at the event that under certain circumstances there is an event of default under the notes orCompany's election. Interest can be deferred for a period not longer than five years. If the Company has electedelects to defer interest, on the notes, the Companyit 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, 2016, 20152018, 2017 and 2014,2016, 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 retirementdefined contribution plan covers substantially all employees after one year of service and includes a matching benefit feature for employees electingwho can elect to defer the electivea 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 retirementdefined contribution plan contributions charged to operations were $2.1 million in 2018, $1.9 million in 2017, and $1.7 million in 2016, $1.5 million in 2015, and $1.2 million in 2014.

2016.

The Company, through its Compensation and Governance Committee of the Board of Directors (the “Compensation Committee”), offers equity compensation to employees and non-employee directors of Seacoast and Seacoast Bank in the form of various share-based awards. Stockawards, including stock options, restricted stock awards (“RSAs”), andor restricted stock units (“RSUs”). The awards may vest over time, upon the satisfaction of establishedhave certain performance based criteria, or both.

Option awards

Stock options are granted with an exercise price at least equal to the market price of the Company’s stock at the date of grant. Option and other share-based awards vest at such times as areThe fair value of options granted is estimated on the date of grant using the Black-Scholes option-pricing model. Compensation cost is amortized on a straight-line basis over the vesting period. Vesting is determined by the Compensation Committee at the time of grant.grant, generally over five years. The options have a maximum term of ten years.

The fair value of RSAs and RSUs are estimated based on the price of the Company’s common stock on the date of grant. Compensation cost is measured straight-line for RSAs and ratably for RSUs over the vesting period of the awards and reversed for awards which are forfeited due to unfulfilled service or performance criteria. To the extent the Company has treasury shares available, stock options exercised or stock grants awarded may be issued from treasury shares or, ifshares. If treasury shares are insufficient, the Company can issue new shares.

Vesting of share-based awards is immediately accelerated on death or disability. Upon the event of a change-in-control, awards are either immediately accelerated, or can be at the discretiondisability of the Compensation Committee.recipient. The Compensation Committee may, alsoat its discretion, accelerate vesting upon retirement (including a voluntary termination of employment at age 55) for those employees with five or more years of service with the Company.

Company, or upon the event of a change-in-control.



Awards are currently granted under the Seacoast 2013 Incentive Plan (“2013 Plan”), which shareholders approved on May 23, 2013 and amended on MayAugust 26, 2015 to increase the number of authorized shares for issuance thereunder.thereunder to 3,000,000 and amended on May 24, 2018 to increase the number of authorized shares for issuance thereunder to 4,250,000. The 2013 Plan expires on May 26, 2025. The 2013 Plan replaced the 2000 Incentive Plan and the 2008 Incentive Plan (the “Prior Plans”). Upon adoption of the 2013 Plan, no further awards were granted under the Prior Plans, which remain in effect only so long as awards granted thereunder remain outstanding. Under the terms of the 2013 Plan, approximately 1.2 millionApproximately 1,256,000 shares remain available for issuance as of December 31, 2016.

2018.

The impact of share-based compensation on the Company’s financial results is presented below:

(In thousands) Year Ended December 31, 
  2016  2015  2014 
Share-based compensation expense $4,154  $2,859   1,299 
Income tax benefit  (1,602)  (963)  (501)

  For the Year Ended December 31,
(In thousands) 2018 2017 2016
Share-based compensation expense $7,823
 $5,267
 4,154
Income tax benefit (1,911) (1,966) (1,602)

The total unrecognized compensation cost and the weighted-average period over which unrecognized compensation cost is expected to be recognized related to non-vested share-based compensation arrangements at December 31, 20162018 is presented below:

(In thousands) 
Unrecognized
Compensation
Cost
 Weighted-Average Period Remaining (Years)
Restricted stock awards $4,637
 1.5
Restricted stock units 4,319
 1.7
Stock options 1,653
 1.8
Total $10,609
 1.7
Restricted Stock Awards
RSAs were granted in 2018 to various employees and vest over time, generally three years. Compensation cost of RSAs is based on the market value of the Company’s common stock at the date of grant and is recognized over the required service period on a straight-line basis. The Company’s accounting policy is to recognize forfeitures as they occur.
A summary of the status of the Company’s non-vested RSAs as of December 31, 2018, and changes during the year then ended, is presented below:
  
Restricted
Award
Shares
 Weighted-Average Grant-Date Fair Value
Non-vested at January 1, 2018 187,511
 $19.18
Granted 242,613
 26.48
Forfeited/Canceled (15,514) 25.47
Vested (119,480) 21.05
Non-vested at December 31, 2018 295,130
 24.09
Information regarding restricted stock awards during each of the following years:
  Year Ended December 31,
  2018 2017 2016
Shares granted 242,613
 114,331
 164,599
Weighted-average grant date fair value $26.48
 $24.08
 $16.03
Fair value of awards vested(1)
 $2,515
 $1,407
 $1,981
(1)Based on grant date fair value

(In thousands) Unrecognized Compensation Cost  Weighted-Average Period Remaining (Years) 
Restricted stock $4,341   2.2 
Stock options  796   3.2 
Total $5,137   2.4 


Restricted Stock

Units

Certain RSUs granted in 2018 and 2017 allow the grantee to earn 0%-200% of the target award based on the Company's adjusted earnings per share growth or its adjusted return on average tangible equity, each measured over a three year period beginning with the year of grant. Certain RSUs granted in 2016 allow the grantee to earn 0%-175%-200% of the target award as determined by two criteria,both the Company’sCompany's adjusted net income and its adjusted return on tangible equityequity. The 2016 awards measure performance through December 31, 2019. If the Company does not achieve the target performance goal for both criteria, then none of these RSUs will vest and they will be forfeited, subject to a one year catch-up performance period.

Information regarding restricted stock is summarized below:

(In thousands, except share and per share data) Year Ended December 31, 
  2016  2015  2014 
Shares granted  300,787   250,934   27,692 
Weighted-average grant date fair value $14.90  $13.42  $10.19 
Fair value of awards vested(1) $2,827  $836  $1,455 

(1)Based on grant date fair value


A summary of the status of the Company’s non-vested restricted stockRSUs as of December 31, 2016,2018, and changes during the year then ended, is presented below:

(In thousands, except share and per share data) Shares  Weighted-Average Grant-Date Fair Value 
Non-vested at January 1, 2016  543,177  $11.25 
Granted  300,787   14.90 
Forfeited/Cancelled  (10,631)  14.94 
Vested  (303,689)  9.31 
Non-vested at December 31, 2016  529,644  $14.37 

  
Restricted
Award
Shares
 Weighted-Average Grant-Date Fair Value
Non-vested at January 1, 2018 375,967
 $16.96
Granted 173,193
 24.02
Forfeited/Canceled (247) 10.50
Vested (82,077) 13.34
Non-vested at December 31, 2018 466,836
 20.22
Information regarding restricted stock units during each of the following years:

  For the Year Ended December 31,
  2018 2017 2016
Shares granted 173,193
 164,268
 136,188
Weighted-average grant date fair value $24.02
 $23.94
 $13.53
Fair value of awards vested(1)
 $1,095
 $937
 $846
(1)Based on grant date fair value
Stock Options

The Company estimated the fair value of each option grant on the date of grant using the Black-Scholes options-pricing model with the following weighted-average assumptions:

  For the Year Ended December 31,
  2018 2017 2016
Risk-free interest rates 2.56% 1.85% 1.63%
Expected dividend yield 0% 0% 0%
Expected volatility 26.6% 25.4% 21.9%
Expected lives (years) 5.0
 5.0
 5.0

  Year Ended December 31, 
  2016  2015  2014 
Risk-free interest rates  1.63%  1.65%  2.70%
Expected dividend yield  0%  0%  0%
Expected volatility  21.9%  15.5%  17.0%
Expected lives (years)  5.0   5.0   5.0 

Information regarding

A summary of the Company’s stock options as of December 31, 2016,2018, and changes during the year then ended, are presented below:

  Options  Weighted-Average Exercise Price  Weighted-Average Remaining Contractual Term (Years)  Aggregate Intrinsic Value (000s) 
Outstanding at January 1, 2016  556,647  $18.02         
Granted  243,391   14.94         
Exercised  (12,400)  10.82         
Forfeited  (8,860)  133.60         
Outstanding at December 31, 2016  778,778  $15.86   6.88  $7,369 
Exercisable at December 31, 2016  432,660  $17.73   6.73  $4,412 

The following table summarizes information



  Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (Years) 
Aggregate
Intrinsic
Value
(000s)
Outstanding at January 1, 2018 951,349
 $17.29
    
Granted 219,118
 30.98
    
Exercised (175,541) 11.45
    
Forfeited (61,431) 11.17
    
Outstanding at December 31, 2018 933,495
 22.00
 7.09 $5,569
Exercisable at December 31, 2018 447,033
 16.50
 6.04 4,511
Information related to stock options:

(In thousands, except share and per share data) Year Ended December 31, 
  2016  2015  2014 
Options granted  243,391   63,650   413,000 
Weighted-average grant date fair value $3.41  $2.21  $2.26 
Intrinsic value of stock options exercised $80   0   0 

options during each of the following years:

  For the Year Ended December 31,
  2018 2017 2016
Options granted 219,118
 297,576
 243,391
Weighted-average grant date fair value $5.65
 $4.66
 $3.41
Intrinsic value of stock options exercised 3,045
 1,143
 80
The following table summarizes information related to stock options as of December 31, 2016:

Range of Exercise Prices Options Outstanding  Remaining Contractual Life (Years)  Shares Exercisable  Weighted Average Exercise Price 
$10.54 to $10.78  390,000   7.2   312,239  $10.66 
$10.97 to $15.99  360,241   7.0   91,884   13.88 
$110.80 to $111.10  28,537   0.3   28,537   111.09 
Total  778,778   6.9   432,660  $17.73 

2018:

Range of Exercise Prices 
Options
Outstanding
 
Remaining
Contractual
Life (Years)
 
Options
Exercisable
 
Weighted
Average
Exercise
Price
$10.54 to $14.82 391,113
 5.2 311,759
 $12.23
$15.99 to $28.69 333,281
 8.0 135,274
 26.35
$31.15 to $31.15 209,101
 9.3 —
 —
Total 933,495
 7.1 447,033
 $16.50
Employee Stock Purchase Plan

The Employee Stock Purchase Plan (“ESPP”), as amended, was approved by shareholders on April 25, 1989, and additional shares were authorized for issuance by shareholders on June 18, 2009 and May 2, 2013. Under the ESPP, the Company is authorized to issue up to 300,000 common shares of the Company’s common stock to eligible employees of the Company.  These shares may be purchased by employees at a price equal to 95% of the fair market value of the shares on the purchase date.  Purchases under the ESPP are made monthly.  Employee contributions to the ESPP are made through payroll deductions.

  Year Ended December 31, 
  2016  2015  2014 
ESPP shares purchased  10,483   9,083   13,294 
Weighted-average employee purchase price $16.02  $13.99  $10.63 

  2018 2017 2016
ESPP shares purchased 15,225
 12,434
 10,483
Weighted-average employee purchase price $26.85
 $22.67
 $16.02






Note K - Lease Commitments

The Company is obligated under various noncancellable operating leases for equipment, 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, 2016,2018, future minimum lease payments under leases with initial or remaining terms in excess of one year are as follows:

  (In thousands) 
2017 $5,325 
2018  4,213 
2019  4,026 
2020  3,362 
2021  2,213 
Thereafter  12,429 
  $31,568 

 (In thousands)
2019$6,671
20205,778
20214,515
20223,718
20232,967
Thereafter13,240
 $36,889
Rent expense charged to operations was $5,293,000$6.7 million for 2016, $4,133,0002018, $5.8 million for 20152017 and $4,066,000$5.3 million for 2014.2016. Certain leases contain provisions for renewal and change with the consumer price index.


Note L - Income Taxes

The provision for income taxes is as follows:

  Year Ended December 31 
  2016  2015  2014 
     (In thousands)    
Current            
Federal $653  $578  $310 
State  30   61   12 
             
Deferred            
Federal  12,163   10,818   3,440 
State  2,043   2,070   782 
  $14,889  $13,527  $4,544 



  For the Year Ended December 31,
(In thousands) 2018 2017 2016
Current  
  
  
Federal $9,078
 $667
 $653
State —
 2
 30
       
Deferred  
 

 

Federal 7,018
 32,791
 12,163
State 4,163
 2,876
 2,043
  $20,259
 $36,336
 $14,889
The difference between the total expected tax benefit (computed by applying the U.S. Federal tax rate of 35%21% to pretax income in 2016, 20152018 and 2014)35% in 2017 and 2016) and the reported income tax provision relating to income before income taxes is as follows:

  Year Ended December 31 
  2016  2015  2014 
     (In thousands)    
Tax rate applied to income (loss) before income taxes $15,431  $12,484  $3,583 
Increase (decrease) resulting from the effects of:            
Nondeductible acquisition costs  217   441   554 
Tax exempt interest on loans, obligations of states and political subdivisions and bank owned life insurance  (1,215)  (761)  (293)
State income taxes  (726)  (746)  (278)
Nontaxable bargain purchase gain  0   (146)  0 
Tax credit investments  (55)  0   0 
Stock compensation  (731)  127   92 
Other  (105)  (3)  92 
Federal tax provision  12,816   11,396   3,750 
State tax provision  2,073   2,131   794 
Total income tax provision $14,889  $13,527  $4,544 

  For the Year Ended December 31,
(In thousands) 2018 2017 2016
Tax rate applied to income before income taxes $18,381
 $27,720
 $15,431
Increase (decrease) resulting from the effects of:      
Tax law change —
 8,552
 —
Nondeductible acquisition costs 207
 657
 217
Tax exempt interest on loans, obligations of states and political subdivisions and bank owned life insurance (667) (1,445) (1,215)
State income taxes (874) (1,007) (726)
Tax credit investments (33) (165) (55)
Stock compensation (918) (1,027) (731)
Other —
 173
 (105)
Federal tax provision 16,096
 33,458
 12,816
State tax provision 4,163
 2,878
 2,073
Total income tax provision $20,259
 $36,336
 $14,889
The net deferred tax assets (liabilities) are comprised of the following:

  December 31 
  2016  2015 
  (In thousands) 
Allowance for loan losses $9,477  $7,759 
Premises and equipment  2,334   898 
Other real estate owned  841   1,737 
Accrued stock compensation  1,561   1,235 
Federal tax loss carryforward  28,089   33,507 
State tax loss carryforward  6,123   6,593 
Alternative minimum tax carryforward  4,261   3,355 
Net unrealized securities losses  4,616   3,906 
Deferred compensation  3,279   1,829 
Accrued interest and fee income  3,267   2,404 
Other  3,748   3,185 
Gross deferred tax assets  67,596   66,408 
Less: Valuation allowance  0   0 
Deferred tax assets net of valuation allowance  67,596   66,408 
         
Deposit base intangible  (3,953)  (3,452)
Other  (2,825)  (2,682)
Gross deferred tax liabilities  (6,778)  (6,134)
Net deferred tax assets $60,818  $60,274 

following as of:



  December 31,
(In thousands) 2018 2017
Allowance for loan losses $8,592
 $7,187
Premises and equipment 1,670
 1,390
Other real estate owned 207
 207
Accrued stock compensation 2,547
 1,569
Federal tax loss carryforward 4,699
 4,755
State tax loss carryforward 2,912
 5,578
Alternative minimum tax credit carryforward —
 2,209
Net unrealized securities losses 4,658
 1,429
Deferred compensation 2,287
 2,125
Accrued interest and fee income 7,674
 2,411
Other 1,627
 2,248
Gross deferred tax assets 36,873
 31,108
Less: Valuation allowance —
 —
Deferred tax assets net of valuation allowance 36,873
 31,108
     
Core deposit base intangible (5,706) (3,964)
Other (2,213) (1,727)
Gross deferred tax liabilities (7,919) (5,691)
Net deferred tax assets $28,954
 $25,417
Included in the table above is the effect of certain temporary differences for which no deferred tax expense or benefit was recognized. The effect of these items is instead recorded as Accumulated Other Comprehensive Income in the shareholders' equity section of the consolidated balance sheet. In 2016,2018 and 2017 such items consisted primarily of $12.1$4.7 million and $1.4 million on $17.7 million and $5.6 million, respectively, of unrealized losses on certain investments in debt and equity securities accounted for under ASC Topic 320. In 2015, they consisted primarily of $10.1 million of unrealized losses on certain investments in debt and equity securities.

At December 31, 2016,2018, the Company's net deferred tax assets ("DTAs") of $60.8$29.0 million consists of approximately $48.0$20.5 million of net U.S. federal DTAs and $12.8$8.5 million of net state DTAs.

As a result of the acquisition of Floridian Financial Group, Inc. (Floridian), the Company recorded a net DTA of $13.3 million. Included in this DTA are $15.6 million of federal net operating loss (NOL) carryovers and $209,000 of alternative minimum tax credit carryovers. There are also $14.9 million of state NOL carryovers. The federal and state NOL’s expire beginning in 2030 and 2029, respectively, while the tax credits have an indefintite life.

Management assesses the necessity of a valuation allowance recorded against DTAs at each reporting period. The determination of whether a valuation allowance for net DTAs 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 DTAs will be realized based upon future taxable income. Management’sManagement's confidence in the realization of projected future taxable income is based upon analysis of the Company’sCompany'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 DTA.

Management expects to realize the $60.8 million in net DTAs well in advance of the statutory carryforward period. At December 31, 2016, approximately $28.1 million of DTAs relate to federal net operating losses which will expire in annual installments beginning in 2029 through 2032. Additionally, $6.6 million of the DTAs relate to state net operating losses which will expire in annual installments beginning in 2028 through 2034. Tax credit carryforwards at December 31, 2016 include federal alternative minimum tax credits totaling $4.3 million which have an unlimited carryforward period. Remaining DTAs are not related to net operating losses or credits and therefore, have no expiration date.


A valuation allowance could be required in future periods based on the assessment of positive and negative evidence. Management’sManagement's conclusion at December 31, 20162018 that it is more likely than not that the net DTAs of $60.8$29.0 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’sCompany's DTAs. The establishment of a DTA valuation allowance could have a material adverse effect on the Company’sCompany's financial condition and results of operations.

Management expects to realize the $29.0 million in net DTAs well in advance of the statutory carryforward period. At December 31, 2018, approximately $4.7 million of DTAs relate to federal net operating losses which will expire in annual installments beginning in 2029 through 2032. Additionally, $2.9 million of the DTAs relate to state net operating losses which will expire in annual installments beginning in 2029 through 2034. Remaining DTAs are not related to net operating losses or credits and therefore, have no expiration date.



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, 2016.

2018.

In March 2016, the FASB issued ASU No. 2016-09, 2016-9, Improvements to Employee Share-Based Payment Accounting, Compensation – Stock Compensation (Topic 718). ASU 2016-09 changes2016-9 changed several aspects of the accounting for share-based payment award transactions, including: (1) accounting and cash flow classification for excess tax benefits and deficiencies, (2) forfeitures, and (3) tax withholding requirements and cash flow classification. The standard is effective for public business entities in annual and interim periods in fiscal years beginning after December 15, 2016. Early adoption is permitted if the entire standard is adopted. If an entity early adopts the standard in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company adopted ASU 2016-092016-9 in the third quarter of 2016 and recognized a $0.4$0.8 million tax benefit in the Consolidated Statements of Operations. An additional $0.4Operations over the third and fourth quarters of 2016. During 2018 and 2017, the Company recognized $1.1 million and $1.1 million, respectively, of tax benefit was recognized in the fourth quarter of 2016.under this standard. In addition, the Company presented excess tax benefits as an operating activity in the Consolidated Statement of Cash Flows using a retrospective transition method.

As a result of the adoption in 2016 of ASU No. 2014-01,2014-1, “Investments-Equity Method and Joint Ventures: Accounting for Investments in Qualified Affordable Housing Projects,” the" amortization of our low-income housing credit investment of $1.0 million, $0.7 million and $39,000 has been reflected as income tax expense. Accordingly, $39,000expense for the years ended December 31, 2018, 2017 and 2016, respectively. The amount of suchaffordable housing tax credits, amortization has been reflectedand tax benefits recorded as income tax expense for the year ended December 31, 2016.2018 were $0.8 million, $1.0 million, $0.2 million, respectively. The amount of affordable housing tax credits, amortization and tax benefits recorded as income tax expense for the year ended December 31, 2017 were $0.6 million, $0.7 million and $0.3 million, respectively. The amount of affordable housing tax credits, amortization and tax benefits recorded as income tax expense for the year ended December 31, 2016 were $32,000, $39,000 and $67,000, respectively. The carrying value of the investment in affordable housing credits is $10.0$8.3 million and $9.3 million at December 31, 2016,2018 and 2017, respectively, of which $8.3$3.2 million and $5.2 million, respectively, is unfunded.

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 through 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, exclusive of the impact of the net operating loss carryforwards, subject to examination:

JurisdictionTax Year
United States of America20132015
Florida20132015

On December 22, 2017 H.R. 1, also known as the Tax Cuts and Jobs Act ( the "Tax Reform Act), was enacted. As a result, the Company was required to revalue its existing net DTA on that date based on the future federal corporate tax rate of 21%. The DTA revaluation resulted in a one-time charge to income tax expense in the amount of $8.6 million. Prior to enactment of this legislation, the Company's net DTA was $34.0 million which was then revalued to the $25.4 million reflected in the table above. The tax charge was initially estimated by the Company and was permitted to be adjusted in future periods following evaluation of the effects, if any, of implementation guidance or regulations that may be issued by the Internal Revenue Service on the Company's initial analysis of the Tax Reform Act. Upon the filing of the Company's 2017 income tax return, a $0.2 million tax benefit was recorded in 2018 to true-up the initial estimate. No further adjustments related to the Tax Reform Act are expected.
In 2017, the Company early adopted ASU 2018-2, as discussed in Note A - Significant Accounting Policies, to adjust for the historical impact of the corporate tax rate change to accumulated other comprehensive income. The adjustment relates to changes in the deferred tax asset associated with mark to market adjustments on available for sale securities. The table below reflects the balances before and after the adjustment between accumulated other comprehensive income and retained earnings:
(In thousands) Unadjusted as of
December 31, 2017		 Adjustment Adjusted as of
December 31, 2017
Retained Earnings $29,208
 $706
 $29,914
Accumulated Other Comprehensive Income (3,510) (706) (4,216)



Note M - Noninterest Income and Expenses

Details of noninterest income and expense follow:

  Year Ended December 31 
  2016  2015  2014 
  (In thousands) 
Noninterest income            
Service charges on deposit accounts $9,669  $8,563  $6,952 
Trust fees  3,433   3,132   2,986 
Mortgage banking fees  5,864   4,252   3,057 
Brokerage commissions and fees  2,044   2,132   1,614 
Marine finance fees  673   1,152   1,320 
Interchange income  9,227   7,684   5,972 
Other deposit based EFT fees  477   397   343 
BOLI Income  2,213   1,426   252 
Gain on participated loan  0   725   0 
Other  3,827   2,555   2,248 
   37,427   32,018   24,744 
Securities gains, net  368   161   469 
Bargain purchase gain, net  0   416   0 
TOTAL $37,795  $32,595  $25,213 
             
Noninterest expense            
Salaries and wages $54,096  $41,075  $35,132 
Employee benefits  9,903   9,564   8,773 
Outsourced data processing costs  13,516   10,150   8,781 
Telephone / data lines  2,108   1,797   1,331 
Occupancy  13,122   8,744   7,930 
Furniture and equipment  4,720   3,434   2,535 
Marketing  3,633   4,428   3,576 
Legal and professional fees  9,596   8,022   6,871 
FDIC assessments  2,365   2,212   1,660 
Amortization of intangibles  2,486   1,424   1,033 
Asset dispositions expense  553   472   488 
Branch closures and new branding  0   0   4,958 
Net (gain)/loss on other real estate owned and repossessed assets  (509)  239   310 
Early redemption cost for Federal Home Loan Bank advances  1,777   0   0 
Other  13,515   12,209   9,988 
TOTAL $130,881  $103,770  $93,366 

are as follows:
  For the Year Ended December 31,
(In thousands) 2018 2017 2016
Noninterest Income  
  
  
Service charges on deposit accounts $11,198
 $10,049
 $9,669
Trust fees 4,183
 3,705
 3,433
Mortgage banking fees 4,682
 6,449
 5,864
Brokerage commissions and fees 1,732
 1,352
 2,044
Marine finance fees 1,398
 910
 673
Interchange income 12,335
 10,583
 9,227
BOLI Income 4,291
 3,426
 2,213
Other 10,826
 6,756
 4,304
  50,645
 43,230
 37,427
Gain on sale of Visa stock —
 15,153
 —
Securities (losses) gains, net (623) 86
 368
Total Noninterest Income $50,022
 $58,469
 $37,795
       
Noninterest Expenses      
Salaries and wages 71,111
 65,692
 54,096
Employee benefits 12,945
 11,732
 9,903
Outsourced data processing costs 16,374
 14,116
 13,516
Telephone and data lines 2,481
 2,291
 2,108
Occupancy 13,394
 13,290
 13,122
Furniture and equipment 6,744
 6,067
 4,720
Marketing 5,085
 4,784
 3,633
Legal and professional fees 9,961
 11,022
 9,596
FDIC assessments 2,195
 2,326
 2,365
Amortization of intangibles 4,300
 3,361
 2,486
    Foreclosed property expense and net loss (gain) on sale 461
 (300) 44
Early redemption cost for Federal Home Loan Bank advances —
 —
 1,777
Other 17,222
 15,535
 13,515
Total Noninterest Expenses $162,273
 $149,916
 $130,881

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, 2016, an aggregate of 202,897 shares and 32,120 shares, respectively, have been issued as a result of employee participation in these plans.

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 2016 and 2015.


Required Regulatory Capital

        Minimum for Capital Adequacy
Purpose (1)		  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, 2016:                        
Total Capital Ratio (to risk-weighted assets) $432,058   13.25% $260,790   ≥ 8.00%   n/a   n/a 
Tier 1 Capital Ratio (to risk-weighted assets)  408,596   12.53   195,592   ≥ 6.00%   n/a   n/a 
Common Equity Tier 1 Capital (to risk-weighted assets)  351,769   10.79   146,694   ≥ 4.50%   n/a   n/a 
Tier 1 Leverage Ratio (to adjusted average assets)  408,596   9.15   178,656   4.0   n/a   n/a 
At December 31, 2015:                        
Total Capital Ratio (to risk-weighted assets) $383,039   16.01% $191,413   ≥ 8.00%   n/a   n/a 
Tier 1 Capital Ratio (to risk-weighted assets)  363,873   15.21   143,560   ≥ 6.00%   n/a   n/a 
Common Equity Tier 1 Capital (to risk-weighted assets)  317,004   13.25   107,670   ≥ 4.50%   n/a   n/a 
Tier 1 Leverage Ratio (to adjusted average assets)  363,873   10.70   136,009   ≥ 4.00%   n/a   n/a 
                         
SEACOAST BANK                        
(A WHOLLY OWNED BANK SUBSIDIARY)                        
At December 31, 2016:                        
Total Capital Ratio (to risk-weighted assets) $415,147   12.75% $260,491   ≥ 8.00%  $325,987   ≥ 10.00% 
Tier 1 Capital Ratio (to risk-weighted assets)  391,685   12.03   195,368   ≥ 6.00%   260,790   ≥   8.00% 
Common Equity Tier 1 Capital (to risk-weighted assets)  391,685   12.03   146,526   ≥ 4.50%   211,892   ≥   6.50% 
Tier 1 Leverage Ratio (to adjusted average assets)  391,685   8.78   178,501   4.0   223,320   ≥   5.00% 
At December 31, 2015:                        
Total Capital Ratio (to risk-weighted assets) $337,259   14.11% $191,240   ≥ 8.00%  $239,050   ≥ 10.00% 
Tier 1 Capital Ratio (to risk-weighted assets)  318,093   13.31   143,430   ≥ 6.00%   191,240   ≥   8.00% 
Common Equity Tier 1 Capital (to risk-weighted assets)  318,093   13.31   107,572   ≥ 4.50%   155,382   ≥   6.50% 
Tier 1 Leverage Ratio (to adjusted average assets)  318,093   9.36   135,929   ≥ 4.00%   169,911   ≥   5.00% 

(1)Excludes new capital conservation buffer of 0.625% the Company is subject to, which if not exceeded may constrain dividends, equity repurchases and compensation.

n/a - not applicable

The Company is subject to various regulatory capital requirements administered by the federalFederal banking agencies. Under new Basel III standards adopted January 1, 2015, deferred tax assets (DTAs) were substantially restricted in regulatory capital calculations, the Common Equity Tier 1 Capital calculation was created, and new minimum adequacy and well capitalized thresholds were established. Failure to meet the minimum capital requirements can initiate certain mandatory and possiblypossible additional discretionary actions by the regulators, that, if undertaken,which could have a direct material effectimpact 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 thatThese requirements involve quantitative measures of the Company's assets, liabilities and certain off-balance sheet items as calculated underpursuant to regulatory accounting practices.guidance. 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, Tier 1 capital and common equity 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, 2016, that the Company meets all capital adequacy requirements to which it is subject.

At December 31, 2016,2018 and 2017, the Company and Seacoast Bank, our wholly-owned banking subsidiary, were both considered "well capitalized" based on the applicable U.S. regulatory capital ratio requirements as reflected in the table below:



      Minimum to meet "Well Capitalized" Requirements
Minimum for Capital Adequacy
Purpose(1)
 
(Dollars in thousands) Amount Ratio Amount  RatioAmount  Ratio 
Seacoast Banking Corporation  
  
      
   
 
(Consolidated)  
  
      
   
 
               
At December 31, 2018:  
  
      
   
 
Total Risk-Based Capital Ratio (to risk-weighted assets) $744,687
 14.43% n/a
  n/a
$412,754
 ≥8.00% 
Tier 1 Capital Ratio (to risk-weighted assets) 712,144
 13.80% n/a
  n/a
309,566
 ≥6.00% 
Common Equity Tier 1 Capital Ratio (to risk-weighted assets) 641,340
 12.43% n/a
  n/a
232,174
 ≥4.50% 
Leverage Ratio (to adjusted average assets) 712,144
 11.16% n/a
  n/a
255,167
 ≥4.00% 
At December 31, 2017:              
Total Risk-Based Capital Ratio (to risk-weighted assets) $619,746
 14.24% n/a
  n/a
$348,191
 ≥8.00% 
Tier 1 Capital Ratio (to risk-weighted assets) 592,562
 13.61% n/a
  n/a
261,143
 ≥6.00% 
Common Equity Tier 1 Capital Ratio (to risk-weighted assets) 523,832
 12.04% n/a
  n/a
195,858
 ≥4.50% 
Leverage Ratio (to adjusted average assets) 592,562
 10.68% n/a
  n/a
221,863
 ≥4.00% 
               
Seacoast National Bank              
(A Wholly Owned Bank Subsidiary)              
At December 31, 2018:              
Total Risk-Based Capital Ratio (to risk-weighted assets) $701,093
 13.60% $515,607
 ≥10.00%$412,486
 ≥8.00% 
Tier 1 Capital Ratio (to risk-weighted assets) 668,550
 12.97% 412,486
 ≥8.00%309,364
 ≥6.00% 
Common Equity Tier 1 Capital Ratio (to risk-weighted assets) 668,550
 12.97% 335,145
 ≥6.50%232,023
 ≥4.50% 
Leverage Ratio (to adjusted average assets) 668,550
 10.49% 318,795
 ≥5.00%255,036
 ≥4.00% 
At December 31, 2017:       ≥      
Total Risk-Based Capital Ratio (to risk-weighted assets) $565,149
 13.04% $433,475
 ≥10.00%$346,780
 ≥8.00% 
Tier 1 Capital Ratio (to risk-weighted assets) 537,965
 12.41% 346,780
 ≥8.00%260,085
 ≥6.00% 
Common Equity Tier 1 Capital Ratio (to risk-weighted assets) 537,965
 12.41% 281,759
 ≥6.50%195,022
 ≥4.50% 
Leverage Ratio (to adjusted average assets) 537,965
 9.72% 276,791
 ≥5.00%221,432
 ≥4.00% 
(1)Excludes the capital conservation buffer requisiteof 1.875% for 2018 and 1.250% for 2017, which if not exceeded may constrain dividends, equity repurchases and compensation.
n/a - not applicable

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.
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 is subject to was 0.625%.

implemented a dividend reinvestment plan during 2007, issuing no shares from treasury stock under this plan during 2018 and 2017.


On February 21, 2017, the Company closed on its offering of 8,912,5008.9 million shares of common stock, consisting of 2,702,5002.7 million shares sold by the Company and 6,210,0006.2 million shares sold by one of its shareholders. SeacoastThe Company received proceeds of $56.8$56.7 million that will be reduced byless legal and professional fees of $1.1 million from the issuance of the 2,702,5002.7 million shares of its common stock. The Company intends to useis using the net proceeds from the offering for general corporate purposes, including potential futurethe acquisitions of GulfShore Bancshares, Inc., NorthStar Banking Corporation, and Palm Beach Community Bank in 2017, First Green Bancorp, Inc in 2018, and to support organic growth. Seacoast did not receive any proceeds from the sale of its shareholder's shares. Herbert Lurie, who is a member of our board of directors is a consulting Senior AdvisorAdviser to Guggenheim Securities, LLC, an underwriter of this offering. Under his consulting agreement with Guggenheim, Mr. Lurie iswas entitled to receive customary compensation, including in connection with our offering of common stock. Mr. Lurie has recused himself and will continue to recuse himself from any board decisions regarding thethis offering.


Note O

- Seacoast Banking Corporation of Florida

(Parent (Parent Company Only) Financial Information

Balance Sheets

  December 31 
  2016  2015 
  (In thousands) 
ASSETS        
Cash $648  $364 
Securities purchased under agreement to resell with subsidiary bank, maturing within 30 days  12,676   43,323 
Investment in subsidiaries  494,809   383,516 
Other assets  1,211   10 
  $509,344  $427,213 
         
LIABILITIES AND SHAREHOLDERS' EQUITY        
Subordinated debt $70,241  $69,961 
Other liabilities  3,706   3,799 
Shareholders' equity  435,397   353,453 
  $509,344  $427,213 
  December 31,
(In thousands) 2018 2017
Assets  
  
Cash $197
 $1,154
Securities purchased under agreement to resell with subsidiary bank, maturing within 30 days 40,130
 33,151
Investment in subsidiaries 897,683
 711,973
Other assets 777
 21,337
  $938,787
 $767,615
     
Liabilities and Shareholders' Equity    
Subordinated debt $70,804
 $70,521
Other liabilities 3,716
 7,430
Shareholders' equity 864,267
 689,664
  $938,787
 $767,615

Statements of Income (Loss)

  Year Ended December 31 
  2016  2015  2014 
  (In thousands) 
          
Income            
Interest/other $352  $115  $43 
Dividends from subsidiary Bank  0   0   0 
   352   115   43 
             
Interest expense  2,115   1,671   1,053 
Other expenses  462   317   1,000 
Loss before income tax benefit and equity in undistributed income of subsidiaries  (2,225)  (1,873)  (2,010)
Income tax benefit  (801)  (661)  (704)
             
Income (loss) before equity in undistributed income of subsidiaries  (1,424)  (1,212)  (1,306)
Equity in undistributed income of subsidiaries  30,626   23,353   7,002 
Net income $29,202  $22,141  $5,696 
  Year Ended December 31,
(In thousands) 2018 2017 2016
Income  
  
  
Interest/other $484
 $2,104
 $352
Dividends from subsidiary Bank —
 —
 —
Gain on sale of Visa Class B stock —
 15,153
 —
  484
 17,257
 352
       
Interest expense 3,165
 2,499
 2,115
Other expenses 879
 649
 462
Income (loss) before income taxes and equity in undistributed income of subsidiaries (3,560) 14,109
 (2,225)
Income tax provision (benefit) (747) 4,938
 (801)
       
Income (loss) before equity in undistributed income of subsidiaries (2,813) 9,171
 (1,424)
Equity in undistributed income of subsidiaries 70,088
 33,694
 30,626
Net income $67,275
 $42,865
 $29,202



Statements of Cash Flows

  Year Ended December 31 
  2016  2015  2014 
  (In thousands) 
Cash flows from operating activities            
Net Income $29,202  $22,141  $5,696 
Equity in undistributed (income) loss of subsidiaries  (30,626)  (23,353)  (7,002)
Net (increase) decrease in other assets  (12)  10   0 
Net increase (decrease) in other liabilities  12   (48)  (76)
Net cash used in operating activities  (1,424)  (1,250)  (1,382)
             
Cash flows from investing activities            
Net cash paid for bank acquisition  (28,905)  0   0 
Investment in unconsolidated subsidiary  (200)  0   0 
Decrease (increase) in securities purchased under agreement to resell, maturing within 30 days, net  30,647   (5,487)  (37,044)
Net cash provided by (used in) investment activities  1,542   (5,487)  (37,044)
             
Cash flows from financing activities            
Issuance of common stock, net of related expense  0   0   24,637 
Subordinated debt increase  0   6,494   13,208 
Stock based employment plans  166   127   142 
Net cash provided by financing activities  166   6,621   37,987 
             
Net change in cash  284   (116)  (439)
Cash at beginning of year  364   480   919 
Cash at end of year $648  $364  $480 
             
Supplemental disclosure of cash flow information:            
Cash paid during the period for interest $1,824  $1,487  $1,058 
  Year Ended December 31,
(In thousands) 2018 2017 2016
Cash flows from operating activities  
  
  
Adjustments to reconcile net income to net cash provided
by operating activities:
  
  
  
Net Income $67,275
 $42,865
 $29,202
Equity in undistributed income of subsidiaries (70,088) (33,694) (30,626)
Gain on sale of Visa Class B stock —
 (15,153) —
Net (increase) decrease in other assets (10,045) 1,415
 (12)
Net increase (decrease) in other liabilities (3,431) 4,005
 12
Net cash provided by (used in) operating activities (16,289) (562) (1,424)
       
Cash flows from investing activities      
Net cash paid for bank acquisition (6,558) (27,862) (28,905)
Investment in unconsolidated subsidiary —
 —
 (200)
Purchase of Visa Class B stock —
 (6,180) —
Proceeds from sale of Visa Class B stock 21,333
 —
 —
(Increase) decrease in securities purchased under agreement to resell, maturing within 30 days, net (421) (20,475) 30,647
Net cash provided by (used in) investment activities 14,354
 (54,517) 1,542
       
Cash flows from financing activities      
Issuance of common stock, net of related expense —
 55,641
 —
Stock based employment benefit plans 978
 (56) 166
Net cash provided by financing activities 978
 55,585
 166
       
Net change in cash (957) 506
 284
Cash at beginning of year 1,154
 648
 364
Cash at end of year $197
 $1,154
 $648
       
Supplemental disclosure of cash flow information:      
Cash paid during the period for interest $2,936
 $2,205
 $1,824

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 $532,082,000$982.7 million in commitments to extend credit outstanding at December 31, 2016, $273,658,0002018, $438.6 million is secured by 1-4 family residential properties for individuals with approximately $87,292,000$92.4 million at fixed interest rates ranging from 2.8753.24% to 5.250%6.50%.

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, 20162018 and 20152017 amounted to $46,647,000$19.1 million and $5,259,000,$26.4 million respectively.

Unfunded limited partner equity commitments at December 31, 20162018 totaled $10,148,000$7.3 million that the Company has committed to small business investment companies under the SBIC Act to be used to provide capital to small businesses, and entities that provide low income housing tax credits.


Unfunded commitments for the Company at December 31, 2016 and 2015 are as follows:

  December 31 
  2016  2015 
  (In thousands) 
Contract or Notional Amount        
         
Financial instruments whose contract amounts represent credit risk:        
         
Commitments to extend credit $532,082  $343,245 
         
Standby letters of credit and financial guarantees written:        
Secured  10,776   9,593 
Unsecured  554   93 
         
Unfunded limited partner equity commitment  10,148   2,911 

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 End December 31, (In thousands) 
    
2016 $7,707 
2017  2,569 
of: 
  December 31,
(In thousands) 2018 2017
Contract or Notional Amount  
  
Financial instruments whose contract amounts represent credit risk:  
  
Commitments to extend credit $982,739
 $807,651
     
Standby letters of credit and financial guarantees written:    
Secured 17,736
 12,913
Unsecured 847
 681
     
Unfunded limited partner equity commitment 7,252
 10,914



Note Q - 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.

Under 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 ASCTopic 820, fair value measurements for items measured at fair value on a recurring and nonrecurring basis at December 31, 20162018 and December 31, 20152017 included:

     Quoted Prices in  Significant Other  Significant Other 
     Active Markets for  Observable  Unobservable 
  Fair Value  Identical Assets  Inputs  Inputs 
(Dollars in thousands) Measurements  Level 1  Level 2  Level 3 
At December 31, 2016                
Available for sale securities (1) $950,503  $100  $950,403  $0 
Loans held for sale (2)  15,332   0   15,332   0 
Loans (3)  4,120   0   3,170   950 
Other real estate owned (4)  9,949   0   0   9,949 
                 
At December 31, 2015                
Available for sale securities (1) $790,766  $225  $790,541  $0 
Loans held for sale (2)  23,998   0   23,998   0 
Loans (3)  7,511   0   6,052   1,459 
Other real estate owned (4)  7,039   0   598   6,441 

  Fair Value 
Quoted Prices in
Active Markets for
Identical Assets
 
Significant Other
Observable
Inputs
 
Significant Other
Unobservable
Inputs
(In thousands) Measurements Level 1 Level 2 Level 3
At December 31, 2018  
  
  
  
Available for sale debt securities(1)
 $865,831
 $100
 $865,731
 $—
Loans held for sale(2)
 11,873
 —
 11,873
 —
Loans(3)
 8,590
 —
 2,290
 6,300
Other real estate owned(4)
 12,802
 —
 297
 12,505
Equity securities(5)
 6,205
 6,205
 —
 —
         
At December 31, 2017        
Available for sale debt securities(1)(5)
 $949,460
 $100
 $949,360
 $—
Loans held for sale(2)
 24,306
 —
 24,306
 —
Loans(3)
 4,192
 —
 3,454
 738
Other real estate owned(4)
 7,640
 —
 60
 7,580
Equity securities(5)
 6,344
 6,344
 —
 —
(1)(1)
See Note D for further detail of fair value of individual investment categories.
(2)Recurring fair value basis determined using observable market data.
(3)See Note F. Nonrecurring fair value adjustments to loans identified as impaired reflect full or partial write-downs that are based on the loan’s observable market price or current appraised value of the collateral in accordance with ASC 310.
(4)Fair value is measured on a nonrecurring basis in accordance with ASC 360.

The fair value of individual investment categories.

(2)Recurring fair value basis determined using observable market data.
(3)See Note E. Nonrecurring fair value adjustments to loans identified as 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 valuesreflect full or internal evaluationpartial write- downs that 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 approachloan’s observable market price 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, 2016 the range of capitalization rates utilized to determine faircurrent appraised value of the underlying collateral averaged approximately 7.8%. Adjustments to comparable sales may be made by an appraiser to reflect local market conditions or other economic factors and may result in changes in the fair value of an asset over time.  As such, the fair value of these impaired loans is considered level 3 in the fair value hierarchy. Impaired loans measured at fair value total $4.1 millionaccordance with a specific reserve of $0.4 million at December 31, 2016, compared to $7.5 million with a specific reserve of $2.9 million at December 31, 2015.             

ASC Topic 310.

(4)Fair value is measured on a nonrecurring basis in accordance with ASC Topic 360.

(5)Prior to adoption of ASU 2016-1 on January 1, 2018, an investment in shares of a mutual fund that invests primarily in CRA-qualified debt securities was classified as an available for sale securities are determined using valuation techniques for individual investments as describedsecurity. Beginning in Note A.                

When appraisals are used to determine fair value and the appraisals are based on a market approach, thefair value of OREO2018, this security 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 the twelve months ended December 31, 2016, there were no transfers between level 1 and level 2assets carried at fair value.  

For loans classified as level 3 the transfers in totaled $0.3 million consisting of loans that became impaired for thetwelve months ended December 31, 2016.  Transfers out consisted of charge offs of $0.1 million, and loan foreclosures migrating to OREO and other reductions (including principal payments) totaling $0.7 million.

Charge-offs recognized upon loan foreclosures are generally offset by general or specific allocations of the allowance for loan losses and generally do not, and did not during the reported periods, significantly impact the Company's provision for loan losses.                 

For OREO classified as level 3 during the twelve months ended December 31,  2016, transfers in consisted offoreclosed loans totaling $2.5 million and migrated branches taken out of service of $7.3 million, transfers out totaled $6.4 million and consisted entirely of sales.

The carrying amount and fair value of the Company's other significant financial instruments that are not measuredat fair value on a recurring basis in the balance sheet as of December 31, 2016 and December 31, 2015 is as follows:

     Quoted Prices in  Significant Other  Significant Other 
     Active Markets for  Observable  Unobservable 
  Carrying  Identical Assets  Inputs  Inputs 
(Dollars in thousands) Amount  Level 1  Level 2  Level 3 
At December 31, 2016                
Financial Assets                
Securities held to maturity (1) $372,498  $0  $369,881  $0 
Loans, net  2,852,016   0   0   2,840,993 
Financial Liabilities                
Deposits  3,523,245   0   0   3,523,322 
Subordinated debt  70,241   0   54,908   0 
                 
At December 31, 2015                
Financial Assets                
Securities held to maturity (1) $203,525  $0  $202,813  $0 
Loans, net  2,129,691   0   0   2,147,024 
Financial Liabilities                
Deposits  2,844,387   0   0   2,843,800 
FHLB borrowings  50,000   0   51,788   0 
Subordinated debt  69,961   0   52,785   0 

(1)See Note D for further detail of recurring fair value basis of individual investment categories.


The short maturity of Seacoast’s assets and liabilities results in having a significant number of financial instruments whose fair value equals or closely approximates carrying value. Such financial instruments are reported in the following balance sheet captions: cash and cash equivalents, interest bearing deposits with other banks, federal funds purchased, FHLB borrowings 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, 2016 and December 31, 2015:

Securities: U.S. Treasury securities are reported at fair value utilizing Level 1 inputs.in Other securities are reported at fairAssets. 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, 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 is 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.

quotations.


Loans held for sale: Fair values are based upon estimated values to be received from independent third party purchasers. These loans are intended for sale and the Company believes the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on contractual terms of the loan in accordance with Company policy on loans held for investment. None of the loans are 90 days or more past due or on nonaccrual as of December 31, 2018 and 2017. The aggregate fair value and contractual balance of loans held for sale as of December 31, 2018 and 2017 is as follows:
  December 31,
(In thousands) 2018 2017
Aggregate fair value $11,873
 $24,306
Contractual balance 11,562
 23,627
Excess 311
 679

Loans: Level 2 loans consist of impaired real estate loans which are collateral dependent. Fair value 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. Level 3 loans consist of commercial and commercial real estate impaired loans. For these 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, 2018 the range of capitalization rates utilized to determine fair value of the underlying collateral averaged approximately 7.6%. Adjustments to comparable sales may be made by an appraiser to reflect local market conditions or other economic factors and may result in changes in the fair value of an asset over time. As such, the fair value of these impaired loans is considered level 3 in the fair value hierarchy. Impaired loans measured at fair value totaled $8.6 million with a specific reserve of $2.7 million at December 31, 20162018, compared to $4.2 million with a specific reserve of $2.4 million at December 31, 2017.



For loans classified as level 3, the changes included additions of $9.4 million related to loans that became impaired during the twelve months ended December 31, 2018, offset by paydowns, chargeoffs and changes in specific reserves of $3.8 million in 2018.
Other real estate owned: When appraisals are used to determine fair value and the appraisals are based on a market approach, the fair value of other real estate owned ("OREO") is classified as 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.

For OREO classified as level 3 during the twelve months ended December 31, 2018, changes included the addition of foreclosed loans of $0.3 million and acquired branches taken out of service of $8.4 million offset by reductions primarily consisting of sales of $5.9 million.
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. There were no such transfers during the twelve months ended December 31, 2018 and 2017.
The carrying amount and fair value of the Company's other significant financial instruments that were not disclosed previously in the balance sheet and for which carrying amount is not fair value as of December 31, 2018 and December 31, 2015, respectively.

  December 31,  December 31, 
(Dollars in thousands) 2016  2015 
Aggregate fair value $15,332  $23,998 
Contractual balance  14,904   23,384 
Gains (losses)  428   614 

2017 is as follows:

  Carrying 
Quoted Prices in
Active Markets for
Identical Assets
 
Significant Other
Observable
Inputs
 
Significant Other
Unobservable
Inputs
(In thousands) Amount Level 1 Level 2 Level 3
At December 31, 2018  
  
  
  
Financial Assets  
  
  
  
Debt securities held to maturity (1)
 $357,949
 $—
 $349,895
 $—
Time deposits with other banks 8,243
 —
 —
 8,132
Loans, net 4,784,201
 —
 —
 4,835,248
Financial Liabilities        
Deposits 5,177,240
 —
 —
 5,172,098
Federal Home Loan Bank (FHLB) borrowings 380,000
 —
 —
 380,027
Subordinated debt 70,804
 —
 61,224
 —
         
At December 31, 2017        
Financial Assets        
Debt securities held to maturity (1)
 $416,863
 $—
 $414,470
 $—
Time deposits with other banks 12,553
 —
 —
 12,493
Loans, net 3,786,063
 —
 —
 3,760,754
Financial Liabilities        
Deposits 4,592,720
 —
 —
 4,588,515
Federal Home Loan Bank (FHLB) borrowings 211,000
 —
 —
 211,000
Subordinated debt 70,521
 —
 61,530
 —
(1)See Note D for further detail of recurring fair value basis of individual investment categories.

The short maturity of Seacoast’s assets and liabilities results in having a significant number of financial instruments whose fair value equals or closely approximates carrying value. Such financial instruments are reported in the following balance sheet captions: cash and due from banks, interest bearing deposits with other banks, FHLB borrowings, 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, 2018 and December 31, 2017:
Debt 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 estimated fair value of a security is determined based on market quotations when available or, if not available, by using quoted market prices for similar securities, pricing models or discounted cash flow analyses, using observable market data where available.
The Company reviews the prices supplied by independent pricing services, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. The fair value of collateralized loan obligations is determined from broker quotes. From time to time, the Company will validate, on a sample basis, prices supplied by the independent pricing service by comparison to prices obtained from other brokers and third-party sources or derived using internal models.
Loans: Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, 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 is calculated by discounting scheduled cash flows through the estimated life including prepayment considerations, using estimated market discount rates that reflect the risks inherent in the loan. Prior to adoption of ASU 2016-1 on January 1, 2018, the estimated fair value of the loan portfolio utilized an "entrance price" approach. Beginning in 2018, the fair value approach considers market-driven variables including credit related factors and reflects an "exit price" as defined in ASC Topic 820.
Deposit Liabilities: The fair value of demand deposits, savings accounts and money market deposits is the amount payable at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for funding of similar remaining maturities.


Note R - Earnings Per Share

Basic earnings per common share wereis computed by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding during the year.

In 2016, 2015,2018, 2017, and 2014,2016, options and warrants to purchase 131,000, 456,000,483,000, 274,000, and 293,000131,000 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) 
2016            
Basic Earnings Per Share            
Income available to common shareholders $29,202   36,872,007  $0.79 
Diluted Earnings Per Share            
Employee restricted stock and stock options (See Note J)      636,039     
Income available to common shareholders plus assumed conversions $29,202   37,508,046  $0.78 
             
2015            
Basic Earnings Per Share            
Income available to common shareholders $22,141   33,495,827  $0.66 
Diluted Earnings Per Share            
Employee restricted stock and stock options (See Note J)      248,344     
Income available to common shareholders plus assumed conversions $22,141   33,744,171  $0.66 
             
2014            
Basic Earnings Per Share            
Income available to common shareholders $5,696   27,538,955  $0.21 
Diluted Earnings Per Share            
Employee restricted stock and stock options (See Note J)      177,940     
Income available to common shareholders plus assumed conversions $5,696   27,716,895  $0.21 

  For the Year Ended December 31
(In thousands, except per share data) 2018 2017 2016
Basic earnings per share  
  
  
Net Income $67,275
 $42,865
 $29,202
Total weighted average common stock outstanding 47,969
 42,613
 36,872
Net income per share $1.40
 $1.01
 $0.79
       
Diluted earnings per share      
Net Income $67,275
 $42,865
 $29,202
       
Total weighted average common stock outstanding 47,969
 42,613
 36,872
Add: Dilutive effect of employee restricted stock and stock options (See Note J) 779
 737
 636
Total weighted average diluted stock outstanding 48,748
 43,350
 37,508
Net income per share $1.38
 $0.99
 $0.78



Note S - Business Combinations


Acquisition of Grand Bankshares,GulfShore Bancshares, Inc.

On July 17, 2015,April 7, 2017, the Company completed its previously announced acquisition of Grand Bankshares,GulfShore Bancshares, Inc. (“Grand”("GulfShore") as set forth in, the Agreement and Planparent company of Merger (“Agreement”) whereby GrandGulfShore Bank. Simultaneously, upon completion of the merger, GulfShore’s wholly owned subsidiary bank, GulfShore Bank, was merged with and into the Company. Pursuant to and simultaneously with the merger of Grand with and into the Company, Grand’s wholly owned subsidiary bank, Grand Bank & Trust of Florida (“GB”), merged with and into the Company’s subsidiary bank, Seacoast Bank. TheGulfShore, headquartered in Tampa, Florida, operated 3 branches in Tampa and St. Petersburg. This acquisition related costs were approximately $3.1added $357.6 million in total assets, $250.9 million in loans and these expenses are reported$285.4 million in noninterest expenses in the consolidated statement of income.deposits to Seacoast. As a result of this acquisition the Company expects to further solidifyenhanced its market sharepresence in the attractive Palm BeachTampa, Florida market, expandexpanded its customer base and leverageleveraged operating cost through economies of scale, and positively affectaffected the Company’s operating results to the extent the Company earns more from interest earning assets than it pays in interest on its interest bearing liabilities.

The Company acquired 100% of the outstanding common stock of Grand. The purchase price consistedGulfShore. Under the terms of the definitive agreement, GulfShore shareholders received, for each share of GulfShore common stock, and additionally the Company paid approximately $1.48 millioncombination of $1.47 in cash for all of Grand’s outstandingand 0.4807 shares of preferred B stock, representing the par value of $1,000 per share of preferred B stock. Each share of GrandSeacoast common stock and Preferred A stock was exchanged for 0.3114 shares of the Company’s common stock, or approximately 1.09 million shares of Company stock. Based(based on theSeacoast’s closing price of the Company’s common stock of $15.75$23.94 per share on July 17, 2015, plus cash paid for Grand’s outstanding shares of preferred B stock, the total purchase price was $18.7 million.

  July 15, 2015 
Grand preferred B shares exchanged for cash $1,481,000 
     
Number of Grand common shares outstanding  3,501,185 
Per share exchange ratio  0.3114 
Number of shares of common stock issued  1,090,269 
Multiplied by comon stock price per share on July 17, 2015 $15.75 
Value of common stock issued  17,171,737 
     
Total purchase price $18,652,737 

April 7, 2017).

(In thousands, except per share data)April 7, 2017
Shares exchanged for cash$8,034
  
Number of GulfShore Bancshares, Inc. common shares outstanding5,464
Per share exchange ratio0.4807
Number of shares of common stock issued2,627
Multiplied by common stock price per share on April 7, 2017$23.94
Value of common stock issued62,883
  
Total purchase price$70,917
The acquisition iswas accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations.Combinations. The following table summarizes the fair valuesCompany recognized goodwill of the assets acquired and liabilities assumed at the date of acquisition. As previously disclosed the fair value initially assigned to assets acquired and liabilities assumed were preliminary and could change$37.1 million for up to one year after the closing date of thethis acquisition as new information and circumstances relative to closing date fair values are known. Based on recoveries of principal and interest on loans previously charged off and OREO appraisals received subsequent to the acquisition date, the Company adjusted its initial fair value estimates at acquisition date as indicated in the table below.that is nondeductible for tax purposes. Determining fair values of assets and liabilities, especially the loan portfolio, core deposit intangibles, and foreclosed real estate,deferred taxes, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. Adjustments under ASU Topic 805 resulted in a bargain purchase gain of $416,000 that was recorded in noninterest income in the fourth quarter of 2015.

(In thousands) April 7, 2017
Assets:  
Cash $38,267
Time deposits with other banks 17,273
Investment securities 316
Loans, net 250,876
Fixed assets 1,307
Other real estate owned 13
Core deposit intangibles 3,927
Goodwill 37,098
Other assets 8,572
  Total assets $357,649
   
Liabilities:  
Deposits $285,350
Other liabilities 1,382
  Total liabilities $286,732

     Measurement    
  July 17, 2015  Period  July 17, 2015 
  (Initially Reported)  Adjustments  (As Adjusted) 
  (in thousands) 
Assets:            
Cash $34,408  $0  $34,408 
Investment securities  46,366   0   46,366 
Loans, net  109,988   1,304   111,292 
Fixed assets  4,191   0   4,191 
OREO  2,424   437   2,861 
Core deposit intangibles  2,564   0   2,564 
Goodwill  555   (555)  0 
Other assets  14,163   (770)  13,393 
  $214,659  $416  $215,075 
             
Liabilities:            
Deposits $188,469  $0  $188,469 
Borrowings  1,658   0   1,658 
Subordinated debt  5,151   0   5,151 
Other liabilities  728   0   728 
  $196,006  $0  $196,006 
Bargain purchase gain     $(416)    


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.

  July 17, 2015 
(Dollars in thousands) Book Balance  Fair Value 
Loans:        
Single family residential real estate $6,158  $6,379 
Commercial real estate  82,782   81,191 
Construction/development/land  979   913 
Commercial loans  2,393   1,516 
Consumer and other loans  14,575   13,692 
Purchased credit-impaired  10,993   7,601 
Total acquired loans $117,880  $111,292 

For the



  April 7, 2017
(In thousands) Book Balance Fair Value
Loans:  
  
Single family residential real estate $101,281
 $99,598
Commercial real estate 106,729
 103,905
Construction/development/land 13,175
 11,653
Commercial loans 32,137
 32,247
Consumer and other loans 3,554
 3,473
Purchased credit-impaired —
 —
Total acquired loans $256,876
 $250,876
No loans acquired we first segregated all acquired loans withwere specifically identified with credit deficiency factor(s)., pursuant to ASC Topic 310-30. The factors we considered to identify loans as Purchase Credit Impaired (“PCI”)PCI loans were all acquired loans that were nonaccrual, 60 days or more past due, designated as Trouble Debt Restructured (“TDR”),TDR, graded “special mention” or “substandard.” These loans were then evaluated to determine estimated fair values as of the acquisition date. As required by generally accepted accounting principles, we are accounting for these loans pursuant to ASC Topic 310-30. The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the loans as of March 11, 2016 for purchased credit impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.


(Dollars in thousands) July 17, 2015 
    
Contractually required principal and interest $12,552 
Non-accretable difference  (4,249)
Cash flows expected to be collected  8,303 
Accretable yield  (702)
Total purchased credit impaired loans acquired $7,601 

Loans without specifically identified credit deficiency factors are referred to as Purchased Unimpaired Loans (“PULs”)PULs for disclosure purposes. These loans were then evaluated to determine estimated fair values as of the acquisition date. Although no specific credit deficiencies were identifiable, we believe there is an element of risk as to whether all contractual cash flows will be eventually received. Factors that were considered included the economic environment both nationally and locally as well as the real estate market particularly in Florida. We have applied ASC Topic 310-20 accounting treatment to the PULs.

The Company believes the deposits assumed from the acquisition have an intangible value. The Company applied ASC Topic 805, which prescribes the accounting for goodwill and other intangible assets such as core deposit intangibles, in a business combination. In determining the valuation amount, a third partydeposits were analyzed the deposits based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships.

The Company recognized no goodwill for this acquisition, based on the fair values of the assets acquired and liabilities assumed as of the acquisition date and, in some instances, based on use of third party experts for valuations. The acquisition of Grand constituted a business combination. Accordingly, the assets acquired and liabilities assumed are presented at their fair values. The determination of fair value requires management to make estimates about discount rates and future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. Fair value estimates are based on the information available, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available.

The operating results of the Company for the twelve months ended December 31, 2015 includes the operating results of the acquired assets and assumed liabilities since the date of acquisition of July 17, 2015.

Acquisition of Floridian Financial Group, Inc.

NorthStar Banking Corporation

On March 11, 2016,October 20, 2017, the Company completed its acquisition of Floridian Financial Group, Inc.NorthStar Banking Corporation (“Floridian”NorthStar”), the parent company of Floridian Bank.. Simultaneously, upon completion of the merger Floridian’sof NorthStar with and into the Company, NorthStar’s wholly owned subsidiary bank, FloridianNorthStar Bank, was merged with and into Seacoast Bank. Floridian,NorthStar, headquartered in Lake Mary,Tampa, Florida, operated 10three branches in Orlando and Daytona Beach,Tampa, of which several were consolidated withall have been retained as Seacoast locations. This acquisition added approximately $417$216.3 million in total assets, $337$136.8 million in loans and $182.4 million in deposits and $267 million in loans to Seacoast.
As a result of this acquisition the Company expects to further solidifyenhanced its market sharepresence in the CentralTampa, Florida market, expandexpanded its customer base and leverageleveraged operating cost through economies of scale, and positively affectaffected the Company’s operating results to the extent the Company earns more from interest earning assets than it pays in interest on its interest bearing liabilities.


The Company acquired 100% of the outstanding common stock of Floridian.NorthStar. Under the terms of the definitive agreement, FloridianNorthStar shareholders received, at their election, (i)for each share of NorthStar common stock, the combination of $4.29$2.40 in cash and 0.52910.5605 shares of Seacoast common stock (ii) $12.25 in cash, or (iii) 0.8140 shares of Seacoast common stock, subject to a customary proration mechanism so that the aggregate consideration mix equals 35% cash and 65% Seacoast shares (based on Seacoast’s closing price of $15.47$24.92 per share on March 11, 2016)October 20, 2017).

  March 11, 2016 
Floridian shares exchanged for cash $26,699,000 
     
Number of Floridian common shares outstanding  6,222,119 
Per share exchange ratio  0.5289 
Number of shares of common stock issued  3,291,066 
Multiplied by common stock price per share on March 11, 2016 $15.47 
Value of common stock issued  50,912,791 
     
Total purchase price $77,611,791 

(In thousands, except per share data)October 20, 2017
Shares exchanged for cash$4,701
  
Number of NorthStar Banking Corporation Common shares outstanding1,958
Per share exchange ratio0.5605
Number of shares of common stock issued1,098
Multiplied by common stock price per share on October 20, 2017$24.92
Value of common stock issued27,353
Cash paid for NorthStar Banking Corporation vested stock options801
  
Total purchase price$32,855


The acquisition iswas accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations.Combinations. The Company recognized goodwill onof $12.3 million for this acquisition whichthat is nondeductible for tax purposes as this acquisition is a nontaxable transaction. The goodwill was calculated based on thepurposes. Determining fair values of the assets acquired and liabilities, assumed asespecially the loan portfolio core deposit intangibles, and deferred taxes, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. The adjustments reflected in the table below are the result of information obtained subsequent to the acquisition date. Loans that were nonaccrual and all loan relationships identified as impaired as of the acquisition date were considered by management to be credit impaired and were accounted for pursuant to ASC Topic 310-30.

initial measurement.
(In thousands)Initially Measured October 20, 2017 Measurement Period Adjustments As Adjusted October 20, 2017
Assets: 
    
Cash$5,485
 $—
 $5,485
Investment securities56,123
 —
 56,123
Loans, net136,832
 —
 136,832
Fixed assets2,637
 —
 2,637
Core deposit intangibles1,275
 —
 1,275
Goodwill12,404
 (99) 12,305
Other assets1,522
 99
 1,621
Total assets$216,278
 $—
 $216,278
      
Liabilities:     
Deposits$182,443
 $—
 $182,443
Other liabilities980
 —
 980
Total liabilities$183,423
 $—
 $183,423

     Measurement    
  March 11, 2016  Period  March 11, 2016 
  (Initially Reported)  Adjustments  (As Adjusted) 
  (in thousands) 
Assets:            
Cash $28,243  $0  $28,243 
Investment securities  66,912   95   67,007 
Loans, net  268,249   (2,112)  266,137 
Fixed assets  7,801   (628)  7,173 
Core deposit intangibles  3,375   0   3,375 
Goodwill  29,985   1,647   31,632 
Other assets  12,879   998   13,877 
  $417,444  $0  $417,444 
             
Liabilities:            
Deposits $337,341  $0  $337,341 
Other liabilities  2,492   0   2,492 
  $339,833  $0  $339,833 

The table below presents information with respect to the fair value of acquired loans, as well as their unpaid principal balance (“Book Balance”) at acquisition date.

  March 11, 2016 
(Dollars in thousands) Book Balance  Fair Value 
Loans:        
Single family residential real estate $38,304  $37,367 
Commercial real estate  172,531   167,105 
Construction/development/land  20,546   18,108 
Commercial loans  39,070   37,804 
Consumer and other loans  3,385   3,110 
Purchased credit-impaired  6,186   2,643 
Total acquired loans $280,022  $266,137 

  October 20, 2017
(In thousands) Book Balance Fair Value
Loans:  
  
Single family residential real estate $15,111
 $15,096
Commercial real estate 73,139
 69,554
Construction/development/land 11,706
 10,390
Commercial loans 31,200
 30,854
Consumer and other loans 6,761
 6,645
Purchased Credit Impaired 5,527
 4,293
Total acquired loans $143,444
 $136,832
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”)PCI loans were all acquired loans that were nonaccrual, 60 days or more past due, designated as Trouble Debt Restructured (“TDR”),TDR, graded “special mention” or “substandard.” These loans were then evaluated to determine estimated fair values as of the acquisition date. As required by generally accepted accounting principles, we are accounting for these loans pursuant to ASC Topic 310-30. The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the loans as of March 11, 2016October 20, 2017 for purchased credit impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.

(Dollars in thousands) March 11, 2016 
    
Contractually required principal and interest $8,031 
Non-accretable difference  (4,820)
Cash flows expected to be collected  3,211 
Accretable yield  (568)
Total purchased credit impaired loans acquired $2,643 



(In thousands)October 20, 2017
Contractually required principal and interest$5,596
Non-accretable difference(689)
Cash flows expected to be collected4,907
Accretable yield(614)
Total purchased credit-impaired loans acquired$4,293
Loans without specifically identified credit deficiency factors are referred to as Purchased Unimpaired Loans (“PULs”)PULs for disclosure purposes. These loans were then evaluated to determine estimated fair values as of the acquisition date. Although no specific credit deficiencies were identifiable, we believe there is an element of risk as to whether all contractual cash flows will be eventually received. Factors that were considered included the economic environment both nationally and locally as well as the real estate market particularly in Florida. We have applied ASC Topic 310-20 accounting treatment to the PULs.

The Company believes the deposits assumed from the acquisition have an intangible value. The Company applied ASC Topic 805, which prescribes the accounting for goodwill and other intangible assets such as core deposit intangibles, in a business combination. In determining the valuation amount, deposits will bewere analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships.

Acquisition of Palm Beach Community Bank
On November 3, 2017, the Company completed its acquisition of Palm Beach Community Bank (“PBCB”). PBCB was merged with and into Seacoast Bank. This acquisition added $357.0 million in total assets, $270.3 million in loans and $268.6 million in deposits to Seacoast. PBCB, headquartered in West Palm Beach, Florida, operated four branches in West Palm Beach.

As a result of this acquisition the Company enhanced its presence in the Palm Beach, Florida market, expanded its customer base and leveraged operating cost through economies of scale, and positively affected the Company’s operating results to the extent the Company earns more from interest earning assets than it pays in interest on its interest bearing liabilities.
The Company acquired 100% of the outstanding common stock of PBCB. Under the terms of the definitive agreement, PBCB shareholders received, for each share of PBCB common stock, the combination of $6.26 in cash and 0.9240 shares of Seacoast common stock (based on Seacoast’s closing price of $24.31 per share on November 3, 2017).
(In thousands, except per share data)November 3, 2017
Shares exchanged for cash$15,694
  
Number of Palm Beach Community Bank Common shares outstanding2,507
Per share exchange ratio0.9240
Number of shares of common stock issued2,316
Multiplied by common stock price per share on November 3, 2017$24.31
Value of common stock issued56,312
Total purchase price$72,006
The acquisition was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations. The Company recognized goodwill of $32$34.5 million for this acquisition that is nondeductible for tax purposes. The acquisitionDetermining fair values of Floridian constitutes a business combination. Accordingly, the assets acquired and liabilities, assumed are presented at theirespecially the loan portfolio, core deposit intangibles, and deferred taxes, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events, and in some instances rely on use of third party experts.

The operating results of the Company for the twelve months ended December 31, 2016 include the operating results of the acquired assets and assumed liabilities since the date of acquisition of March 11, 2016. Pro-forma data for the twelve months ended December 31, 2016 and 2015 listedadjustments reflected in the table below present pro-formaare the result of information obtained subsequent to the initial measurement.



(In thousands)Initially Measured November 3, 2017 Measurement Period Adjustments As Adjusted November 3, 2017
Assets: 
    
Cash$9,301
 $—
 $9,301
Investment securities22,098
 —
 22,098
Loans, net272,090
 (1,772) 270,318
Fixed assets7,641
 —
 7,641
Core deposit intangibles2,523
 —
 2,523
Goodwill33,428
 1,076
 34,504
Other assets9,909
 696
 10,605
Total assets$356,990
 $—
 $356,990
      
Liabilities:     
Deposits$268,633
 $—
 $268,633
Other liabilities16,351
 —
 16,351
Total liabilities$284,984
 $—
 $284,984
The table below presents information with respect to the fair value of acquired loans, as ifwell as their Book Balance at acquisition date.
  November 3, 2017
(In thousands) Book Balance Fair Value
Loans:  
  
Single family residential real estate $30,153
 $30,990
Commercial real estate 134,705
 132,089
Construction/development/land 69,686
 67,425
Commercial loans 36,076
 35,876
Consumer and other loans 179
 172
Purchased Credit Impaired 4,768
 3,766
Total acquired loans $275,567
 $270,318
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 PCI loans were all acquired loans that were nonaccrual, 60 days or more past due, designated as TDR, graded “special mention” or “substandard.” These loans were then evaluated to determine estimated fair values as of the acquisition occurred atdate. As required by generally accepted accounting principles, we are accounting for these loans pursuant to ASC Topic 310-30. The table below summarizes the beginningtotal contractually required principal and interest cash payments, management’s estimate of 2015.

  Twelve Months Ended 
  December 31, 
(Dollars in thousands, except per share amounts) 2016  2015 
       
Net interest income $142,354  $122,413 
Net income available to common shareholders  30,466   27,070 
EPS - basic $0.81  $0.74 
EPS - diluted  0.80   0.73 

expected total cash payments and fair value of the loans as of November 3, 2017 for purchased credit impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.


(In thousands)November 3, 2017
Contractually required principal and interest$4,768
Non-accretable difference(1,002)
Cash flows expected to be collected3,766
Accretable yield—
Total purchased credit-impaired loans acquired$3,766
Loans without specifically identified credit deficiency factors are referred to as PULs for disclosure purposes. These loans were then evaluated to determine estimated fair values as of the acquisition date. Although no specific credit deficiencies were identifiable, we believe there is an element of risk as to whether all contractual cash flows will be eventually received. Factors


that were considered included the economic environment both nationally and locally as well as the real estate market particularly in Florida. We have applied ASC Topic 310-20 accounting treatment to the PULs.
The Company believes the deposits assumed from the acquisition have an intangible value. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships.

Acquisition of BMO Harris Central Florida Offices, Deposits and Loans

First Green Bancorp, Inc.


On June 3, 2016, Seacoast Bank assumed approximately $314 million in deposits related to business and consumer banking customers at a deposit premiumOctober 19, 2018, the Company completed its acquisition of 3.0%First Green Bancorp, Inc ("First Green"). Simultaneously, upon completion of the deposit balances, $63 million in business loans at a loan premiummerger of 0.5%,First Green with and fourteeninto the Company, First Green's wholly owned subsidiary bank, First Green Bank, was merged with and into Seacoast Bank. Prior to the acquisition, First Green operated seven branches of BMO Harris Bank N.A. (“BMO”), located in the Orlando, Metropolitan Statistical Area (“MSA”).Daytona, and Fort Lauderdale markets.

As a result of this acquisition the Company expects to further improveenhance its market sharepresence in the CentralOrlando, Daytona and Fort Lauderdale, Florida market,markets, expand its customer base and leverage operating cost through economies of scale, and positively affect the Company’s operating results to the extent the Company earns more from interest earning assets than it pays in interest on its interest bearing liabilities.


The fair values listed are preliminary and are subjectCompany acquired 100% of the outstanding common stock of First Green. Under the terms of the definitive agreement, each share of First Green common stock was converted into the right to adjustment. receive 0.7324 shares of Seacoast common stock.

(In thousands, except per share data)October 19, 2018
Number of First Green common shares outstanding5,462
Per share exchange ratio0.7324
Number of shares of common stock issued4,000
  
Multiplied by common stock price per share on October 19, 2018$26.87
Value of common stock issued107,486
Cash paid for First Green vested stock options6,558
  
Total purchase price$114,044

The acquisition isof First Green was accounted for under the acquisition method of accounting in accordance with ASC Topic 805,Business Combinations. The Company recognized goodwill of $56.2 million for this acquisition that is nondeductible for tax purposes. The fair values initially assigned to assets acquired and liabilities assumed are preliminary and could change for up to one year after the closing date of the acquisition as new information and circumstances relative to closing date fair values are known. Determining fair values of assets and liabilities, especially the loan portfolio, core deposit intangibles, and bank premises and leases related to the fourteen branches acquired,deferred taxes, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values.

     Measurement    
  June 3, 2016  Period  June 3, 2016 
  (Initially Reported)  Adjustments  (As Adjusted) 
  (in thousands) 
Assets:            
Cash from BMO (net of payable) $234,094  $0  $234,094 
Loans, net  62,671   0   62,671 
Fixed assets  3,715   0   3,715 
Core deposit intangibles  5,223   (135)  5,088 
Goodwill  7,645   163   7,808 
Other assets  952   (28)  924 
  $314,300  $0  $314,300 
             
Liabilities:            
Deposits $314,248  $0  $314,248 
Other liabilities  52   0   52 
  $314,300  $0  $314,300 



(In thousands)  October 19, 2018
Assets:  
Cash $29,434
Investment securities 32,145
Loans, net 631,497
Fixed assets 16,828
Other real estate owned 410
Core deposit intangibles 10,170
Goodwill 56,198
Other assets 40,669
Total assets $817,351
   
Liabilities:  
Deposits $624,289
Other liabilities 79,018
   Total liabilities $703,307

The table below presents information with respect to the fair value of acquired loans, as well as their unpaid principal balance (“Book Balance”) at acquisition date.

  June 3, 2016 
(Dollars in thousands) Book Balance  Fair Value 
Loans:      
Commercial real estate $31,564  $31,200 
Commercial loans  32,479   31,471 
Purchased credit-impaired  0   0 
Total acquired loans $64,043  $62,671 

At June 3, 2016, no

  October 19, 2018
(In thousands) Book Balance Fair Value
Loans:  
  
Single family residential real estate $101,674
 $101,119
Commercial real estate 437,767
 406,613
Construction/development/land 61,195
 58,385
Commercial loans 56,288
 54,973
Consumer and other loans 9,156
 8,942
Purchased credit-impaired 2,136
 1,465
Total acquired loans $668,216
 $631,497
For the loans acquired from BMO Harris werewe first segregated all acquired loans with specifically identified with a credit deficiency factor(s). The factors we considerconsidered to identify loans as PCI loans arewere all acquired loans that were nonaccrual, 60 days or more past due, designated as TDR, graded “special mention” or “substandard.” These loans were then evaluated to determine estimated fair values as of the acquisition date. As required by generally accepted accounting principles, we are accounting for these loans pursuant to ASC Topic 310-30. The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the loans as of October 19, 2018 for purchased credit impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.

(In thousands)October 19, 2018
Contractually required principal and interest$2,136
Non-accretable difference(671)
Cash flows expected to be collected1,465
Accretable yield—
Total purchased credit-impaired loans acquired$1,465

Loans without specifically identified credit deficiency factors are referred to as PULs for disclosure purposes. These loans were then evaluated to determine estimated fair values as of the acquisition date. Although no specific credit deficiencies were identifiable, we believe there is an element of risk as to whether all contractual cash flows will be eventually received. Factors


that were considered included the economic environment both nationally and locally as well as the real estate market particularly in Florida. We have applied ASC Topic 310-20 accounting treatment to the PULs.



The Company believes the deposits assumed from the acquisition have an intangible value. The Company applied ASC Topic 805, which prescribes the accounting for goodwill and other intangible assets such as core deposit intangibles, in a business combination. In determining the valuation amount, a third party analyzed the deposits based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships.


The Company recognized intangibles (including goodwill) of approximately $13 million for this acquisition that is deductible for tax purposes over a 15-year period. The acquisition of BMO Harris’s Orlando banking operations by Seacoast Bank constitutes a business combination. Accordingly, the assets acquired and liabilities assumed are presented at their fair values. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change, and in some instances rely on use of third party experts. These fair value estimates are considered preliminary and are subject to change for up to one year after the closing date of the acquisition as additional information becomes available. For the BMO Harris transaction, fair values as presented for loans, fixed assets, deposits, and certain other assets and liabilities are necessarily considered preliminary.

Announced Acquisition of GulfShore Bancshares, Inc.

On November 3, 2016, the Company announced that it signed a definitive agreement to acquire GulfShore Bancshares, Inc. (“GulfShore”), the parent company of GulfShore Bank. Upon completion of the merger, Seacoast expects GulfShore Bank will be merged into Seacoast Bank. GulfShore, headquartered in Tampa, Florida, currently operates three branches in Tampa and will add approximately $328 million in assets, $276 million in deposits, and $262 million in loans to Seacoast.

Under the terms of the definitive agreement, each share of GulfShore common stock (except for specified shares of GulfShore common stock held by GulfShore or Seacoast and any dissenting shares) will be converted into the right to receive the combination of $1.47 in cash and 0.4807 shares of Seacoast common stock.

The transaction is expected to close on April 7, 2017.

The acquisition will be accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. Some disclosures are being omitted at this time as the information is not available and incomplete. The Company will recognize goodwill on this acquisition which is nondeductible for tax purposes as this acquisition is a nontaxable transaction. The goodwill will be calculated based on the fair values of the assets acquired and liabilities assumed as of the acquisition date, which at the time of this filing were incomplete and reliant upon use of third party experts for pending valuations, including the core deposit intangible and pending appraisals on purchased unimpaired loans and purchased credit impaired loans, bank premises and other fixed assets, other real estate owned, subordinated debt, and remaining assets and other liabilities. Loans that are nonaccrual and all loan relationships identified as impaired as of the acquisition date will be considered by management to be credit impaired and will be accounted for pursuant to ASC Topic 310-30. 

The Company believes the deposits assumed from the acquisition will have an intangible value. The Company will be applying ASC Topic 805, which prescribes the accounting for goodwill and other intangible assets such as core deposit intangibles, in a business combination. In determining the valuation amount, deposits will bewere analyzed based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships.


Acquisition Costs

Acquisition costs included in the Company’s income statement for the years ended December 31, 2018, 2017 and 2016 are $9.7 million, $12.9 million, and $9.0 million, respectively.
Pro-Forma Information
Pro-forma data as of 2018 and 2017 present information as if the acquisitions of GulfShore, NorthStar, PBCB, and First Green occurred at the beginning of 2017:
 Twelve Months Ended December 31,
(In thousands, except per share data) 2018 2017
Net interest income $238,498
 $223,508
Net income available to common shareholders 82,307
 62,188
EPS - basic $1.61
 $1.24
EPS - diluted $1.58
 $1.22
.


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