UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

x

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

For the fiscal year ended December 31, 2017

¨2019

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

Seacoast Banking Corporation of Florida
(Exact Name of Registrant as Specified in Itsits Charter)

Florida 59-2260678
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
815 Colorado Avenue,StuartFL 34994
(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code
 (772)287-4000
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12 (b)12(b) of the Act:

Title of Each Class
Name of Each Exchange on Which Registered
 Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock Par Value $0.10NasdaqSBCFNASDAQ 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.

YESx          NO¨

Yes            No
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¨          NOx

Yes           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.

YESx          NO¨

Yes            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).

YESx          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.¨

Yes            No
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 FilerxAccelerated Filer¨
Non-Accelerated Filer¨
Large accelerated filerAccelerated filer

Non-accelerated filer  Smaller Reporting Company¨reporting company
 Emerging Growth Company¨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.¨

Emerging growth company¨

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

YES¨          NOx

Yes   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, 2017,2019, as reported on the NasdaqNASDAQ Global Select Market, was $1,005,690,952.$1,309,158,096. The number of shares outstanding of Seacoast Banking Corporation of Florida common stock, par value $0.10 per share, as of January 31, 2018,2020, was 46,917,528.

51,523,499.

TABLE OF CONTENTS

Part I5
Item 1.Business5
Item 1A.Risk Factors21
Item 1B.Unresolved Staff Comments33
Item 2.Properties33
Item 3.Legal Proceedings34
Item 4.Mine Safety Disclosures34
Part II34
Item 5.Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities34
Item 6.Selected Financial Data35
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations35
Item 7A.Quantitative and Qualitative Disclosures About Market Risk36
Item 8.Financial Statements and Supplementary Data36
Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure36
Item 9A.Controls and Procedures36
Item 9B.Other Information36
Part III37
Item 10.Directors, Executive Officers and Corporate Governance37
Item 11.Executive Compensation37
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters37
Item 13.Certain Relationships and Related Transactions, and Director Independence38
Item 14.Principal Accountant Fees and Services38
Part IV38
Item 15.Exhibits, Financial Statement Schedules38
Item 16.Form 10-K Summary42

2

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrant’s 2018 Proxy Statement for the 2020 Annual Meeting of Shareholders to be held May 24, 2018 (the “2018“2020 Proxy Statement”) are incorporated by reference into Part III, Items 10 through 14 of this report. Other than those portions of the 20182020 Proxy Statement specifically incorporated by reference herein pursuant to Items 10 through 14, no other portions of the 20182020 Proxy Statement shall be deemed so incorporated.






TABLE OF CONTENTS


2



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 ourthe Company's 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 ourthe Company's 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 ourthe 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"may", "will", "anticipate", "assume", "should", "support", "indicate", "would", "believe", "contemplate", "expect", "estimate", "continue", "further", "plan", "point to", "project", "could", "intend", "target" or 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 future economic and market conditions, including seasonality;
governmental monetary and fiscal policies, including interest rate policies of the Board of Governors of the Federal Reserve ("Federal Reserve"), as well as legislative, tax and regulatory changes;
changes in accounting policies, rules and practices; the risks of changes in interest rates on the level and composition of deposits, loan demand, liquidity and the values of loan collateral, securities, and interest rate sensitive assets and liabilities;
interest rate risks, sensitivities and the shape of the yield curve; uncertainty related to the impact of LIBOR calculations on securities, loans and debt;
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; the Company's ability to comply with any regulatory requirements;
the effects of problems encountered by other financial institutions that adversely affect Seacoast or the banking industry;
Seacoast's 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;
the impact on the valuation of Seacoast's investments due to market volatility or counterparty payment risk;
statutory and regulatory dividend restrictions;
increases in regulatory capital requirements for banking organizations generally;
the risks of mergers, acquisitions and divestitures, including Seacoast's ability to continue to identify acquisition targets and successfully acquire desirable financial institutions;
changes in technology or products that may be more difficult, costly, or less effective than anticipated;
the Company's ability to identify and address increased cybersecurity risks;
inability of Seacoast's risk management framework to manage risks associated with the business;
dependence on key suppliers or vendors to obtain equipment or services for the business on acceptable terms;
reduction in or the termination of Seacoast's ability to use the mobile-based platform that is critical to the Company's business growth strategy;
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 the Company;
Seacoast's 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;


3



the risks that deferred tax assets could be reduced if estimates of future taxable income from operations and tax planning strategies are less than currently estimated and sales of capital stock could trigger a reduction in the amount of net operating loss carryforwards that the Company may be able to utilize for income tax purposes;
the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in the Company's market areas and elsewhere, including institutions operating regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the Internet;
the failure of assumptions underlying the establishment of reserves for possible loan losses, including risks associated with the adoption of new accounting guidance for credit losses in 2020.
the risks relating to the proposed First Bank of the Palm Beaches and Fourth Street Banking Company mergers including, without limitation: the timing to consummate the proposed mergers;
the risk that a condition to closing of the proposed mergers may not be satisfied;
the risk that a regulatory approval that may be required for the proposed mergers is not obtained or is obtained subject to conditions that are not anticipated;
the diversion of management time on issues related to the proposed mergers;
unexpected transaction costs, including the costs of integrating operations;
the risks that the businesses will not be integrated successfully or that such integration may be more difficult, time- consuming or costly than expected;
the potential failure to fully or timely realize expected revenues and revenue synergies, including as the result of revenues following the mergers being lower than expected;
the risk of deposit and customer attrition;
any changes in deposit mix;
unexpected operating and other costs, which may differ or change from expectations;
the risks of customer and employee loss and business disruptions, including, without limitation, the results of difficulties in maintaining relationships with employees;
the inability to grow the customer and employee base;
increased competitive pressures and solicitations of customers by competitors;
the difficulties and risks inherent with entering new markets; and
·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, 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, 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;

3

·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;
·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;

·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;

·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;

·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, or adjustments to our preliminary estimates of the impact of the Tax Cuts and Jobs Act (the “Tax Reform Act”) on certain tax attributes including our deferred tax assets, 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 ourthe Company's subsequent reports filed with the SEC and available on its website at www.sec.gov.www.sec.gov.

All written or oral forward-looking statements that are made by us or are attributable to usSeacoast are expressly qualified in their entirety by this cautionary notice. We assumeThe Company assumes 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.



4



Part I
4
Item 1.Business

Part I

Item 1.Business

General

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”). OurIts principal subsidiary is Seacoast National Bank, a wholly-owned 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 was changed to “Seacoast National Bank.”


As of December 31, 2017,2019, the Company’s legal structure also includes one domestic subsidiary bank, Seacoast Bank, which has five wholly owned subsidiaries and seven trusts formed for the purpose of issuing trust preferred securities.securities and a wholly-owned domestic corporation, Seacoast coordinatesInsurance Services, Inc., which provides Seacoast Bank customers with access to a range of insurance products. Seacoast Bank has three wholly-owned subsidiaries. Through one of these subsidiaries, Seacoast Bank has a controlling interest in a real estate investment trust (“REIT”). Unrelated investors own a noncontrolling interest in the financial resourcespreferred stock of the consolidated enterprise and maintains 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. In 2015, Seacoast Bank acquired a receivables factoring company headquartered in Boynton Beach, Florida, and operates this office as Seacoast Business Funding, a division of Seacoast Bank.

REIT.  

As of December 31, 2017,2019, Seacoast had total consolidated assets of approximately $5.8$7.1 billion, total deposits of approximately $4.6$5.6 billion, total consolidated liabilities, including deposits, of approximately $5.1$6.1 billion and consolidated shareholders’ equity of approximately $690 million. Our operations$1.0 billion. Operations are discussed in more detail under “Item 7. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations.”

Our

The Company's principal offices are located at 815 Colorado Avenue, Stuart, Florida 34994, and the telephone number at that address is (772) 287-4000. WeThe Company and our subsidiary Seacoast Bank maintain Internet websites atwww.seacoastbanking.com andwww.seacoastbank.com, respectively. We are not incorporating theThe information on our or Seacoast Bank’s website intothese websites is not part of this report, and neither of these websites nor the information appearing on these websites is included or incorporated in or is a part of, this report.

We make

Seacoast makes available, free of charge on ourits corporate website, ourits 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 is electronically filed with or furnish itfurnished to the SEC.

5

Proposed Mergers with First Bank of the Palm Beaches and Fourth Street Banking Company

First Bank of the Palm Beaches
On November 19, 2019, Seacoast announced that Seacoast and Seacoast Bank had entered into an agreement and plan of merger with First Bank of the Palm Beaches (“First Bank”). Pursuant to the terms of the merger agreement, First Bank, headquartered in West Palm Beach, will be merged with and into Seacoast Bank. Organized in 2006, First Bank has deposits of approximately $172 million and loans of $150 million and the merger will increase Seacoast’s deposits in Palm Beach County by 25% to approximately $821 million. Seacoast plans to add First Bank’s two branches to the six it currently operates in the market. Seacoast entered the county in 2003 and then expanded by acquiring Grand Bankshares, Inc. in 2015 and Palm Beach Community Bank in 2017. Closing of the First Bank acquisition is expected late in the first quarter of 2020 after receipt of approvals from regulatory authorities, the approval of First Bank shareholders and the satisfaction of other customary closing conditions.
Fourth Street Banking Company
On January 23, 2020, Seacoast announced that Seacoast and Seacoast Bank had entered into an agreement and plan of merger with Fourth Street Banking Company (“Fourth Street”) and its wholly-owned subsidiary, Freedom Bank. Pursuant to the terms of the merger agreement, Fourth Street, headquartered in St. Petersburg, will be merged with and into Seacoast and Freedom Bank will be merged with and into Seacoast Bank. Organized in 2005, Freedom Bank has deposits of approximately $276 million and loans of $249 million and the merger will increase Seacoast’s deposits in the Tampa MSA by 87% to approximately $679 million. Seacoast plans to add Freedom Bank’s two branches to the four it currently operates in the market. Seacoast entered the Tampa MSA with the acquisitions of GulfShore Bank and NorthStar Bank in 2017. Closing of the Fourth Street acquisition is expected in the second quarter of 2020 after receipt of approvals from regulatory authorities, the approval of Fourth Street shareholders and the satisfaction of other customary closing conditions.


5



Additional Information
Seacoast has filed a registration statement on Form S-4 with the United States Securities and Exchange Commission (the “SEC”) in connection with the proposed merger of First Bank with and into Seacoast Bank and will file a registration statement on Form S-4 with the SEC in connection with the proposed merger of Fourth Street with and into Seacoast and Freedom Bank with and into Seacoast Bank. The registration statement in connection with the First Bank merger includes a proxy statement of First Bank and a prospectus of Seacoast and the registration statement in connection with the Fourth Street merger will include a proxy statement of Fourth Street and a prospectus of Seacoast. A definitive proxy statement/prospectus has been mailed to shareholders of First Bank and will be mailed to shareholders of Fourth Street.  This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval.  WE URGE INVESTORS TO READ THE PROXY STATEMENTS/PROSPECTUSES AND ANY OTHER DOCUMENTS TO BE FILED WITH THE SEC IN CONNECTION WITH THE MERGERS OR INCORPORATED BY REFERENCE IN THE PROXY STATEMENTS/PROSPECTUSES BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.
Investors may obtain (when available) these documents free of charge at the SEC’s Web site (www.sec.gov). In addition, documents filed with the SEC by Seacoast will be available free of charge by contacting Investor Relations at (772) 288-6085.
First Bank and Fourth Street, their directors, and executive officers and other members of management and employees may be considered participants in the solicitation of proxies in connection with the proposed mergers of First Bank with and into Seacoast Bank and Fourth Street with and into Seacoast. Information regarding the participants in the proxy solicitation of First Bank and a description of their direct and indirect interests, by security holdings or otherwise, is contained in the proxy statement/prospectus and other relevant materials to be filed with the SEC. Information regarding the participants in the proxy solicitation of Fourth Street and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the proxy statement/prospectus and other relevant materials to be filed with 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 markets. The Company provides integrated financial services including commercial and retail banking, wealth management and mortgage services to customers through advanced banking solutions 51and Seacoast Bank's network of 48 traditional branches of its locally-branded wholly-owned subsidiary bank, Seacoast Bank, and fivenine commercial banking centers. Offices stretch from Ft. Lauderdale, Boca RatonSeacoast operates primarily in Florida, with concentrations in the state's fastest growing markets, each with unique characteristics and West Palm Beach northopportunities. Seacoast Bank customers can also access their account information and perform transactions online, through mobile applications, or through Seacoast Bank's telephone customer support center, which offers extended hours. These options, combined with a traditional branch footprint, meet a broad range of customer needs.
During 2019, the Daytona Beach area, into OrlandoCompany added business bankers across key MSAs, invested in technology to improve banker productivity and Central Florida and the adjacent Tampa market, and west to Okeechobee and surrounding counties.

enhance customer self service. Seacoast has strategically positioned acontinued to expand digital offerings to provide an improved customer experience and lower the cost to serve. As more customers adopt these channels, transactions have shifted from the traditional branch network of branches throughout Floridato digital banking. This combination allows Seacoast to serve our customers.  Our dedicated Florida bankers work to assist customers with allthe ever changing needs of their banking needs on a personal level. The branches offer extended drive-through hours to accommodate our business and retail customers. 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 offers Online and Mobile banking to business and retail customers. These services enable customers to access transactional information on their deposit accounts, review loan and deposit balances, transfer funds between linked accounts and digitally deposit checks, all online or through their mobile devices, 24 hours a day, seven days a week.

Seacoast Bank “MoneyPhone” system allows retail and business 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 via telephone. Seacoast customers also can bank through our “Text Banking” system as well as reach out to us via Live Chat on our website 24 hours a day, seven days a week, 365 days a year.  

In 2017, Seacoast expanded its Customer Service Center (“CSC”) to nearly 50 staff members and opened a new state of the art call center facility in Lake Mary, Florida. Our CSC staff is available to open accounts, accept applications for certain types of loans, resolve account issues, and offer information on other bank products and services to existing and potential customers. These services are available 24 hours a day, seven days a week, 365 days a year.

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 Bank has significantly expanded its technology platform and the products it offersInsurance Services, Inc., providing customers with access to customers by introducing digital deposit capture on smart phones, launching new consumer and business tablet and mobile platforms, improving its website, and enhancing its ATM capabilities. During 2017, these new services proved so popular with our customers that online transactions eclipsed the numbera range of transactions processed through our physical branch network.

Expansion of Business

insurance products.

Seacoast has focused on growing its businessin recent years sought to serve a broader customer base across the state of Florida. This has involved investing in digital and traditional products and services to meet the changing needs of our customers, and strategic acquisitions of community banks in Florida’s most attractive markets.

Seacoast Bank has focused on continued expansion, both organically and throughcomplement organic growth with the acquisition of other financial institutions that complement the Company's strategy and branches. We believeexpand its ability to serve customers in Florida's key markets. Since 2014, Seacoast has acquired eight institutions that withhave enhanced the current economic environment, there may be additional opportunities for us to acquire and consolidate other financial institutionsCompany's presence in the State ofstrongest and fastest growing MSAs in Florida.

Since In addition, the beginning of 2014, onede novo office was opened, 49 branch locations were acquired (of which 19 branches were closed and consolidated into existing office locations), and another 14 branches unrelatedCompany expects to acquisitions were closed and consolidated. A total of 6 offices in close proximity to existing Seacoast branches were closed during 2017, in alignment with our plans to consolidate redundant and/or inefficient banking locations and reduce our branch footprint. Most importantly, as a result of ourcomplete two acquisitions in Central Florida, we have transformed from virtually no presence in Orlando to becoming the largest Florida based bank in that market,Palm Beach and amongTampa MSAs during the top 10 overall in that market.

6
first half of 2020.

Employees

Employees

As of December 31, 2017, we2019, the Company and ourits subsidiaries employed 805867 full-time equivalent employees. We consider ourThe Company considers employee relations to be good,favorable and we havehas no collective bargaining agreements with any employees.



6



Seasonality; Cycles

We believe our commercial

Seacoast believes 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, includingon economic conditions, interest rates and credit availability.

Competition

Seacoast and our subsidiaries operateoperates in thea highly competitive markets of Martin, St. Lucie, Indian River, Brevard,market. Competitors include other banks, credit unions, mortgage companies, personal and commercial financing companies, investment brokerage and advisory firms, mutual fund companies and insurance companies. Competitors range in both size and geographic footprint. Seacoast operates throughout Florida from the southeast, including Fort Lauderdale, Boca Raton and Palm Beach north along the east coast to the Daytona 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 Hillsboroughwest to Okeechobee and Pinellas County on the west coast of Florida, and in three competitive counties in central Florida near Lake Okeechobee.surrounding counties. Seacoast BankBank's competition includes not only competes with other banks of comparable or larger size in itsthe same 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 competeSeacoast Bank competes 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 change the nature and intensity of competition, that we face, but can also will create opportunities for usthe Company to demonstrate and leverage what we believe are ourits competitive advantages. Our competitors
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 online.internet-based products. Many of ourthe Company's 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 we are subject to.treatment. Many of these institutions have greater resources, broader geographic markets and higher lending limits, than we can and may offer services that we dothe Company does 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 we do.technology. To offset these potential competitive disadvantages, we dependthe Company depends on ourits reputation for superior service, ability to make credit and other business decisions quickly, and the delivery of an integrated distribution of traditional branches and bankers, with digital technology.

Supervision and Regulation

Bank holding companies and banks are

The Company is 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 the Company 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 the Company 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 the Company 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 the Company 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 the Company's capital stock.


7



Regulation of the Company
The Company is registered as a bank holding company with the Federal Reserve under federal law, we arethe Bank Holding Company Act of 1956, as amended (the “BHC Act”) and has elected to be a financial holding company. As such, the Company is subject to regulation,comprehensive supervision and examinationregulation by the Federal Reserve. Reserve and to its regulatory reporting requirements. Federal law subjects financial holding companies, such as Seacoast, 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, Seacoast is permitted to engage directly or indirectly in a broader range of activities than those permitted for a bank our primaryholding 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, if so determined by the Federal Reserve, complementary to financial activities. The Company 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 the Company to maintain its status 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, 2019, 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 Seacoast, 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 the Company to assess its ability to serve as discusseda source of strength and to enforce compliance with the source of strength requirements and require the Company to provide financial assistance to Seacoast Bank in more detail below,the event of financial distress.
Acquisitions: The BHC Act permits acquisitions of banks by bank holding companies, such that Seacoast Bank 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 Seacoast, Bank and our respective subsidiaries bythe OCC before acquiring control of any national bank, such as Seacoast Bank. Upon receipt of such notice, the bank regulatory agencies are intended primarily formay approve or disapprove the protectionacquisition. The Change in Bank Control Act creates a rebuttable presumption of consumers,control if a member or group acquires a certain percentage or more of a bank depositors and the Deposit Insurance Fund (“DIF”) of the FDIC, rather than holders of our capitalholding company’s or bank’s voting stock. Any change in laws, regulations,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 the CFPB,Company's outstanding common stock. The overall effect of such laws is to make it more difficult to acquire


8



a bank holding company and a bank by tender offer or Congress, could have a material adverse impact on ussimilar means than it might be to acquire control of another type of corporation. Consequently, shareholders of the Company may be less likely to benefit from the rapid increases in stock prices that may result from tender offers or similar efforts to acquire control of other companies. Investors should be aware of these requirements when acquiring shares of the Company's stock.
Governance and Financial Reporting Obligations:Seacoast Bank.

7

We areis 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.the NASDAQ stock exchange. In particular, we arethe Company is required to include management and independent registered public accounting firm reports on internal controls as part of ourits Annual Report on Form 10-K in order to comply with Section 404 of the Sarbanes-Oxley Act. We haveThe Company has evaluated ourits controls, including compliance with the SEC rules on internal controls, and havehas and expectexpects to continue to spend significant amounts of time and money on compliance with these rules. Our failureFailure to comply with these internal control rules may materially adversely affect ourthe Company's reputation, its ability to obtain the necessary certifications to financial statements, and the valuesvalue of ourthe Company's securities. The assessments of ourthe Company's financial reporting controls as of December 31, 20172019 are included in this report under “ Item“Item 9A. Controls and Procedures.”

Regulatory Developments

Tax Reform

On December 22, 2017, the President of the United States signed the Tax Cuts and Jobs Act (the “Tax Reform Act”) into law. The Tax Reform Act represents the most significant tax reform implemented in the United States in decades and will have a significant and continuing impact on the financial services industry. Provisions in the Tax Reform Act that have impacted or are likely to impact the Company include:

·The reduction of the highest marginal tax rate for corporations from 35% to 21%. As addressed in more detail under “Item 1A. Risk Factors”, the rate change results in a reduction in the value of the Company’s deferred tax assets and could result in improved net income performance over prospective periods through lower income tax expense.

·Repeal of the corporate alternative minimum tax.

·The use of net operating losses arising in tax years beginning after December 31, 2017 will be limited to 80% of taxable income. Net operating losses may be carried forward indefinitely but not carried back.

·The expansion of the bonus depreciation rules permit 100% expensing of qualified property placed in service after September 27, 2017 and before January 1, 2023.

·The deduction for net business interest expense for tax years beginning after December 31, 2017 is limited to 30% of adjusted taxable income.

Corporate Governance:The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

On July 21, 2010, the President of the United States 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, 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.

·Limitations on federal preemption.

8

·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 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 Governmental Authorities.  The Dodd-Frank Act created various 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 protections,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 claw-back policies for executive officers.

9

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 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, 2017,2019, these rules have not been implemented. WeThe Company and Seacoast Bank have undertaken efforts to ensure that ourtheir 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-payCompany has annually included in the proxy statement a separate advisory vote occurred at our 2011 annual shareholders meeting.on the compensation paid to executives. 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 ourthe Company's board of directors.

Volcker Rule.In December 2013,

Other Regulatory Matters: The Company and its subsidiaries are subject to oversight by the SEC, the Financial Industry Regulatory Authority, (“FINRA”), the PCAOB, the NASDAQ stock exchange and various state securities regulators. The Company and its 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 business practices. Such requests are considered incidental to the normal conduct of business.
Capital Requirements
The Company and Seacoast Bank are required under federal law to maintain certain minimum capital levels based on ratios of capital to total assets and capital to risk-weighted assets. The required capital ratios are minimums, and the Federal Reserve and other regulators jointly issued final rules implementing requirementsOCC may determine that a banking organization, based on its size, complexity or risk profile, must maintain a higher level of capital in order to operate in a new Section 13 tosafe and sound manner. Risks such as concentration of credit risks and the Bank Holding Company Act, commonly referred torisk arising from non-traditional activities, as well as the “Volcker Rule.” The Volcker Rule generally prohibits us and our subsidiaries from (i) engaginginstitution’s exposure to a decline in proprietary trading for our own account, and (ii) acquiring or retaining an ownership interest in or sponsoring a “covered fund,” all subjectthe economic value of its capital due to certain exceptions. The Volcker Rule also specifies certain limited activities in which we and our subsidiaries may continue to engage, and required us to implement a compliance program. The regulators provided for a Volcker Rule conformance date of July 21, 2015. The Federal Reserve extended the conformance deadline twice (first to July 21, 2016, and again to July 21, 2017) for certain legacy “covered funds” activities and investments in place before December 31, 2013. Further, the Federal Reserve Board permits limited exemptions, upon application, for divestiture of certain “illiquid” covered funds, for an additional period of up to 5 years beyond that date.

Given the extent of the changes brought about by the Dodd-Frank Act and the significant discretion afforded to federal regulators to implement those changes, we cannot fully predict the extent of the impact such requirements will have on our operations. The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business. These changes may also require us to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements. Failure to comply with the new requirements may negatively impact our results of operations and financial condition. While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on us, these changes couldinterest rates, and an institution’s ability to manage those risks are important factors that are to be materially adverse to our investors.

Basel III

As of January 1, 2015, we were required to comply with higher minimum capital requirements. 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 issuedtaken into account 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.

10

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 ourthe Company's and Seacoast Bank's 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,


9



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.

Minimum Capital Requirements. The Revised Capital Rules required the following initiala minimum capital ratios asstandard, is the ratio of Tier 1 capital to quarterly average assets net of goodwill, certain other intangible assets, and certain required deduction items. The required minimum leverage ratio for all banks and bank holding companies is 4%.

In addition, effective January 1, 2015:

·4.5% CET1 to risk-weighted assets.
·6.0% Tier 1 capital to risk-weighted assets.
·8.0% Total capital to risk-weighted assets.
·4.0% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (known as the “leverage ratio”).

Capital Conservation Buffer.  The Revised Capital Rules also introduce2019, the capital rules require a “capitalcapital conservation buffer” composed entirely of CET1, on top2.5% above each of the minimum risk-weighted asset ratios,risk-based 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, 2017, Seacoast was subject to the requisite capital conservation buffer of 1.25%.

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 were 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 as of 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, 2017, 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.  

11

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

12

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 interest in a company that engages in activities which the Federal Reserve has determined by regulation or ordermake discretionary bonus payments to executive management without restriction.

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 the operations or managingfinancial condition of the Company or controlling banks asSeacoast Bank. 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 definedmeet 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 protect its bank subsidiaries in situations where additional investments in a troubled bank may not otherwise be warranted. Notably, the Dodd-Frank Act has codified the Federal Reserve’s “source of strength” doctrine. 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. As of December 31, 2017, the Federal Reserve and other federal banking regulators had not issued rules implementing this requirement.

FDICIA and Prompt Corrective Action

restrictions on 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.

13

As of December 31, 2017, 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)  12.04%  12.41%  6.5%
Tier 1 capital ratio  13.61%  12.41%  8.0%
Total risk-based capital ratio  14.24%  13.04%  10.0%
Leverage ratio  10.68%  9.72%  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 institutions are subjectinstitutions.

To be well-capitalized, Seacoast Bank must maintain at least the following capital ratios:
10.0% Total capital to growth limitationsrisk-weighted assets
8.0% Tier 1 capital to risk-weighted asset
6.5% CET1 to risk-weighted assets; and are required
5.0% leverage ratio.
The Federal Reserve has not yet revised the well-capitalized standard for bank holding companies to submitreflect the higher capital requirements imposed under the current capital rules. For purposes of the Federal Reserve’s Regulation Y, including determining whether a capital restoration plan for approval within 90 days of becoming undercapitalized. For a capital restoration planbank holding company meets the requirements to be acceptable, the depository institution’s parenta financial holding company, bank holding companies, such as the Company, must guaranteemaintain 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, 2019 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.
In 2019, 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, 2019. Based on current estimates, we believe that the institutionCompany and Seacoast Bank will complycontinue to exceed all applicable well-capitalized regulatory capital requirements and the capital conservation buffer in 2020. As of December 31, 2019 the consolidated capital ratios of Seacoast and Seacoast Bank were as follows:


10



 
Seacoast
(Consolidated)
 
Seacoast
Bank
 
Minimum to be
Well-Capitalized1
Total Risk-Based Capital Ratio15.71% 14.68% 10.00%
Tier 1 Capital Ratio15.06% 14.04% 8.00%
Common Equity Tier 1 Capital Ratio (CET1)13.77% 14.04% 6.50%
Leverage Ratio12.20% 11.38% 5.00%
1For subsidiary bank only
     
On October 29, 2019, the federal banking agencies jointly issued a final rule to simplify the regulatory capital requirements for eligible banks and holding companies with such capital restoration plan. The aggregate liabilityless than $10 billion in consolidated assets that opt into the Community Bank Leverage Ratio (“CBLR”) framework, as required by Section 201 of the parent holding company is limited toEconomic Growth, Relief and Consumer Protection Act (the “Regulatory Relief Act”). A qualifying community banking organization that exceeds the lesser of 5% ofCBLR threshold would be exempt from the depository institution’s total assets atagencies’ current capital framework, including the time it became undercapitalizedrisk-based capital requirements and capital conservation buffer described above, and would be deemed well-capitalized under the amount necessary to bring the institution into compliance with applicable capital standards. Ifagencies’ prompt corrective action regulations. The Regulatory Relief Act defines a “qualifying community banking organization” as a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized. If the controllingor depository institution holding company failswith total consolidated assets of less than $10 billion. Under the final rule, if a qualifying community banking organization elects to fulfilluse the CBLR framework, it will be considered “well-capitalized” so long as its obligations under FDICIA and files (or has filed against it) a petition underCBLR is greater than 9%. The CBLR framework will first be available for banking organizations, such as 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 companyCompany and Seacoast Bank, exceed applicable capital requirements,to use in their March 31, 2020 regulatory reports. The Company has evaluated the respective managementsimpact of our companythis rule and Seacoast Bank dodoes not believe thatplan to use 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, 2017, and brokered deposits are not restricted.

CBLR framework.

Payment of Dividends

We are

The Company is a legal entity separate and distinct from Seacoast Bank and ourits other subsidiaries. OurThe Company's 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.

14

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.
The Company has traditionally relied upon dividends from Seacoast Bank recorded net incomeand securities offerings to provide funds to pay the Company’s expenses and to service the Company’s debt. During the year ended December 31, 2019, Seacoast Bank distributed $18.1 million to the Company. No distributions from Seacoast Bank to the Company were declared in 2017, 2016 and 2015, but no dividends were paid to us during any of these years.2018 or 2017. 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 Seacoast Bank is eligible to distribute dividends up to $87.7$187.3 million to the Holding Company, without prior OCC approval, as of December 31, 2017.

2019. 

No dividends on ourthe Company's common stock were declared or paid in 2017, 2016 or 2015.

Enforcement Policies2019, 2018, and Actions

2017.



11



Regulation of the Bank
As a national bank, Seacoast Bank is subject to comprehensive supervision and regulation by the OCC and is subject to its regulatory reporting requirements. The deposits of Seacoast Bank are insured by the FDIC up to the applicable limits, 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 of the Company's other 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 the Company's 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 law.
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 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 were exempt from these reserve requirements, aggregate balances between $16.3 million and $124.2 million were subject to a member3% reserve requirement, and aggregate balances above $124.2 million were subject to a reserve requirement of $3.2 million 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 the FDIC, subject to certain limits. In the third quarter of 2018, the FDIC announced the achievement of their target deposit insurance reserve ratio, resulting in Seacoast Bank's ability to apply previously awarded credits to its deposit insurance assessment beginning in the third quarter of 2019. Seacoast Bank has remaining credits of $0.7 million, which will be applied to future assessments if the FDIC’s reserve ratio remains above the target threshold. In addition, Seacoast Bank was subject to quarterly assessments by the FDIC to pay interest on Financing Corporation (“FICO”) bonds. The remaining FICO bonds matured in September 2019 and the final FICO assessment was made in March 2019.

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 a 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 institution’s financial conditioninsured depository institution, the claims of depositors of the institution, including the claims of the FDIC as subrogee of insured depositors, and operations,certain claims for administrative expenses of the FDIC as a receiver, will have priority over other general unsecured claims against the institution, including Capital Adequacy, Asset Quality, Management, Earnings, Liquidity and Sensitivity to Market Risk, as well asthose of the quality of risk management practices.

15

parent bank holding company.

FNB Insurance, a Seacoast Bank subsidiary, is authorized by the State of Florida to market insurance products as an agent. FNB Insurance is a separate and distinct entity from Seacoast Bank and is subject to supervision and regulation by state insurance authorities. It is a financial subsidiary, but is inactive.

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



12



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.

The FDIC calculates 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. 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.

As of September 30, 2017, 2016 and 2015, Seacoast Bank’s rate was 4.38 basis points, 5.06 basis points, and 6.54 basis points, respectively. Seacoast Bank’s deposit insurance premiums totaled $2.3 million for 2017, $2.4 million for 2016, and $2.2 million for 2015.

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 0.52 basis points for all four quarters during 2017. Our FICO assessment rate for the first quarter of 2018 is 0.46 basis points.

16

Change in Control

Subject to certain exceptions, the BHC Act and the Change in Bank Control Act, together with regulations promulgated thereunder, require Federal Reserve approval prior to any person or company acquiring “control” of a bank or bank holding company. Control is conclusively presumed to exist if an individual or company acquires 25 percent or more of any class of voting securities, and rebuttably presumed to exist if a person acquires 10 percent or more, but less than 25 percent, of any class of voting securities and either the company has registered securities under Section 12 of the Exchange Act or no other person owns a greater percentage of that class of voting securities immediately after the transaction. In certain cases, a company may also be presumed to have control under the BHC Act if it acquires 5 percent or more of any class of voting securities.

Other Regulations

Anti-Money Laundering. The International Money Laundering Abatement and Anti-Terrorism Funding Act of 2001 specifies “know your customer” requirements that obligate financial institutions to take actions to verify the identity of the account holders in connection with opening an account at any U.S. financial institution. Banking regulators will consider compliance with the Act’s money laundering provisions in acting upon acquisition and merger proposals. Sanctions for violations of the Act can be imposed in an amount equal to twice the sum involved in the violating transaction, up to $1 million.

Laundering: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”“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”),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 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 obligationsofficer;

an ongoing employee training program; and recently have been active in imposing “cease and desist” and other regulatory orders and money penalty sanctions against institutions found
an independent audit function to be in violation of these requirements. test the programs.
In addition, FinCEN issued a final rule, which was published in the Federal Registerrules that became effective on May 11, 2016,2018, that requires,require, subject to certain exclusions and exemptions, covered financial institutions to identify and verify the identity of beneficial owners of legal entity customers, beginning on May 11, 2018.

customers.

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.
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 findthe Company finds a name on any transaction, account or wire transfer that is on an OFAC list, weit must undertake certain specified activities, which could include blocking or freezing the account or transaction requested, and weit 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.

17

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. DuringLending: In 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 Seacoast Bank has exposures to loans secured by commercial real estate due to the nature of ourits markets and the loan needs of both our retail and commercial customers. We believe ourSeacoast Bank believes that its long term experience in CRE lending, underwriting policies, internal controls, and other policies currently in place, as well as ourits loan and credit monitoring and administration procedures, are generally appropriate to managing our concentrations as required under the Guidance. At December 31, 2017, we2019, Seacoast Bank had outstanding $188.8$181.3 million in commercial construction and residential land development loans and $154.4$143.8 million in residential construction loans to individuals, which represents approximately 61 percent40% of Seacoast Bank’s total risk based capital at December 31, 2017,2019, well below the Guidance’s threshold. At December 31, 2017,2019, the total CRE exposure for Seacoast Bank represents approximately 209 percent204% of total risk based capital, also below the Guidance’s threshold.

18

On a consolidated basis, construction and land development and commercial real estate loans represent 38% and 191%, respectively, of total consolidated risk based capital.



13



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”GLBA”), 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 GLBGLBA 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.

Seacoast Bank has a rating of “Outstanding” in its most recent CRA evaluation.

Privacy and Data Security.Security:  The GLBGLBA 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 customers annually. Financial institutions, however, will be required to comply with state law if it is more protective of consumer privacy than the GLB.GLBA. The GLBGLBA 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 areis 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.

19

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 newcertain 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),


14



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 an 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.

20

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 million 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 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.

21

Merger-Related Risks

The market price of Seacoast common stock after the mergers may be affected by factors different from those currently affecting First Bank, Fourth Street or Seacoast.
The businesses of Seacoast, First Bank and Fourth Street differ in some respects and, accordingly, the results of operations of the combined companies and the market price of Seacoast’s shares of common stock after the mergers may be affected by factors different from those currently affecting the independent results of operations of each of Seacoast, First Bank and Fourth Street.
Because the sale price of Seacoast common stock will fluctuate, shareholders cannot be sure of the value of the per share stock consideration that they will receive in the mergers until the closing.
Under the terms of the merger agreement with First Bank, each share of First Bank common stock outstanding immediately prior to the effective time of the merger (excluding shares of First Bank common stock owned by First Bank, Seacoast or Seacoast Bank or the dissenting shares) will be converted into the right to receive 0.2000 shares of Seacoast common stock (plus cash in lieu of fractional shares), which is subject to adjustment based on the value of First Bank’s consolidated tangible shareholder’s equity and First Bank’s general allowance for loan and lease losses. Under the terms of the merger agreement with Fourth Street, each share of Fourth Street common stock outstanding immediately prior to the effective time of the merger (excluding shares of Fourth Street common stock owned by Fourth Street, Seacoast or Seacoast Bank or the dissenting shares) will be converted into the right to receive 0.1275 shares of Seacoast common stock (plus cash in lieu of fractional shares).
The value of the shares of Seacoast common stock to be issued to First Bank and Fourth Street shareholders in the mergers will fluctuate between now and the closing date of the mergers due to a variety of factors, including general market and economic conditions, changes in the parties’ respective businesses, operations and prospects and regulatory considerations, among other things. Many of these factors are beyond the control of Seacoast, First Bank and Fourth Street. We make no assurances as to whether or when the mergers will be completed. First Bank and Fourth Street shareholders should obtain current sale prices for shares of Seacoast common stock before voting their shares of common stock at the special meetings.
The mergers will not be completed unless important conditions are satisfied or waived, including approval by First Bank and Fourth Street shareholders.
Specified conditions set forth in the merger agreements must be satisfied or waived to complete the mergers. If the conditions are not satisfied or waived, to the extent permitted by law or stock exchange rules, the mergers will not occur or will be delayed and each of Seacoast, First Bank and/or Fourth Street may lose some or all of the intended benefits of the mergers. The following


15



conditions, in addition to other closing conditions, must be satisfied or waived, if permissible, before Seacoast, First Bank and Fourth Street are obligated to complete the merger:
The merger agreements and the transactions contemplated thereby must have been approved by the affirmative vote of a majority of the outstanding shares of First Bank and Fourth Street common stock;
All regulatory consents required to consummate the transactions contemplated by the merger agreements must have been obtained and all waiting periods required by law must have expired and such consents must not be subject to any condition or consequence that would have a material adverse effect on Seacoast or any of its subsidiaries, including First Bank and Fourth Street, after the effective time of the merger;
No order issued by any governmental authority preventing the consummation of the mergers shall be in effect and no law or order shall have been enacted, entered, promulgated or enforced by any governmental authority that prohibits, restrains or makes illegal the consummation of the mergers;
The registration statements registering shares of Seacoast common stock to be issued in the mergers must have been declared effective, no stop order may have been issued by the SEC and no action, suit, proceeding or investigation by the SEC to suspend the effectiveness of the registration statements shall have been initiated and continuing;
The holders of no more than 5% of First Bank and Fourth Street common stock shall have taken the actions to qualify their common stock as dissenting shares;
Since the date of the merger agreements, no fact, circumstance or event shall have occurred that has had or is reasonably likely to have a material adverse effect on either party; and
Certain First Bank and Fourth Street employees shall have entered into claims letters and/or restrictive covenant agreements.​
Seacoast, First Bank and Fourth Street will be subject to business uncertainties and contractual restrictions while the mergers are pending.
Uncertainty about the effect of the mergers on employees, customers, suppliers and vendors may have an adverse effect on the business, financial condition and results of operations of First Bank, Fourth Street and Seacoast. These uncertainties may impair Seacoast’s, First Bank’s or Fourth Street’s ability to attract, retain and motivate key personnel, depositors and borrowers pending the consummation of the mergers, as such personnel, depositors and borrowers may experience uncertainty about their future roles following the consummation of the mergers. Additionally, these uncertainties could cause customers (including depositors and borrowers), suppliers, vendors and others who deal with Seacoast, First Bank or Fourth Street to seek to change existing business relationships with Seacoast, First Bank or Fourth Street or fail to extend an existing relationship. In addition, competitors may target each party’s existing customers by highlighting potential uncertainties and integration difficulties that may result from the mergers.
Seacoast, First Bank and Fourth Street have a small number of key personnel. The pursuit of the mergers and the preparation for the integrations may place a burden on each company’s management and internal resources. Any significant diversion of management attention away from ongoing business concerns and any difficulties encountered in the transition and integration process could have a material adverse effect on each company’s business, financial condition and results of operations.
In addition, the merger agreements restrict First Bank and Fourth Street from taking certain actions without Seacoast’s consent while the merger is pending. These restrictions may, among other matters, prevent First Bank and Fourth Street from pursuing otherwise attractive business opportunities, selling assets, incurring indebtedness, engaging in significant capital expenditures in excess of certain limits set forth in the merger agreement, entering into other transactions or making other changes to First Bank’s or Fourth Street’s business prior to consummation of the mergers or termination of the merger agreements. These restrictions could have a material adverse effect on First Bank’s and Fourth Street’s business, financial condition and results of operations.
Seacoast may fail to realize the cost savings estimated for the mergers.
Although Seacoast estimates that it will realize cost savings from the mergers when fully phased in, it is possible that the estimates of the potential cost savings could turn out to be incorrect. For example, the combined purchasing power may not be as strong as expected, and therefore the cost savings could be reduced. In addition, unanticipated growth in Seacoast’s business may require Seacoast to continue to operate or maintain some facilities or support functions that are currently expected to be combined or reduced. The cost savings estimates also depend on Seacoast’s ability to combine the businesses of Seacoast, First Bank and Fourth Street in a manner that permits those costs savings to be realized. If the estimates turn out to be incorrect or Seacoast is not able to combine the companies successfully, the anticipated cost savings may not be fully realized or realized at all, or may take longer to realize than expected.


16



The combined companies expect to incur substantial expenses related to the mergers.
The combined companies expect to incur substantial expenses in connection with completing the mergers and combining the business, operations, networks, systems, technologies, policies and procedures of the companies. Although Seacoast, First Bank and Fourth Street have assumed that a certain level of transaction and combination expenses would be incurred, there are a number of factors beyond their control that could affect the total amount or the timing of their combination expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. Due to these factors, the transactions and combination expenses associated with the mergers could, particularly in the near term, exceed the savings that the combined companies expect to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings related to the combinations of the businesses following the completion of the mergers. In addition, prior to completion of the merger, each of First Bank, Fourth Street and Seacoast will incur or have incurred substantial expenses in connection with the negotiation and completion of the transactions contemplated by the merger agreements. If the mergers are not completed, Seacoast, First Bank and Fourth Street would have to recognize these expenses without realizing the anticipated benefits of the mergers.
Failure of the mergers to be completed, the termination of the merger agreements or a significant delay in the consummation of the mergers could negatively impact Seacoast, First Bank and Fourth Street.
If the mergers are not consummated, the ongoing business, financial condition and results of operations of each party may be materially adversely affected and the market price of each party’s common stock may decline significantly, particularly to the extent that the current market price reflects a market assumption that the mergers will be consummated. If the consummation of the mergers are delayed, the business, financial condition and results of operations of each company may be materially adversely affected. If the merger agreements are terminated and a party’s board of directors seeks another merger or business combination, such party’s shareholders cannot be certain that such party will be able to find a party willing to engage in a transaction on more attractive terms than the mergers.
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 U.S.United States, as well as global political actions or events, including natural disasters, health emergencies or pandemics, could adversely affect the U.S. or global economies, with direct or indirect impacts on the Company and our business. Results could include drops inreduced consumer and business confidence, credit deterioration, diminished capital markets activity, and delays inactions by the Federal Reserve Board increases inimpacting interest rates.

rates or other U.S. monetary policy.

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.  The impact
Non-bank financial technology providers invest substantial resources in developing and designing new technology, particularly digital and mobile technology, and are beginning to our loan growth may beoffer more significant prospectively.

traditional banking products either directly or through bank partnerships. 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.



17



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 Ratonin markets throughout the State of Florida, each with unique characteristics 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.opportunities. 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.

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.

22

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

A correction in residential real estate market prices andor 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 to boost the residential mortgage markets and stabilize the housing markets wind down or are discontinued. Declinesincluding 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 factorsfactors. These 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 or 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”) contained several provisions that affect the tax consequences of home ownership and related borrowing. We cannot predict the long-term impact, if any, of the Tax Reform Act 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, 2017 and 2016, 47.9 percent and 50.2 percent2019, 46% of our loan portfolio werewas comprised of CRE loans, respectively.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.



18



Seacoast Bank has a written CRE concentration risk management program and monitors its exposure to CRE; however, there iscan be no guaranteeassurance 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, 2017 and 2016,2019, our nonperforming loans (which consist of nonaccrual loans) totaled $19.5 million and $18.1$27.0 million, or 0.5 percent and 0.6 percent0.5% of the loan portfolio respectively. At December 31, 2017 and 2016, our nonperforming assets (which include foreclosed real estate and bank branches taken out of service) were $27.2 million and $28.0$39.3 million, or 0.4 percent and 0.6 percent0.6%, of assets, respectively. Other real estate owned (“OREO”)which included $3.8$6.8 million for branches taken out of service at December 31, 2017, versus $5.7 million at December 31, 2016.service. In addition, we had approximately $8.9 million and $3.8$8.4 million in accruing loans that were 30 days or more delinquent at December 31, 2017 and 2016, respectively.2019. Our nonperforming assets adversely affect our net income in various ways. We generally do not record interest income on nonaccrual loans or OREO, thereby adversely affecting our income, and increasing our loan administration costs. When the only source of repayment expected is the underlying collateral, we are required to mark the related loan to the then fair market value of the collateral, if less than the recorded amount of our investment, which may result in a loss. These loans and OREO 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 our provision 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.

23

Decreases in the value of these 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 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 the Florida 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 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, services and services.methods of delivery. Our ability to compete successfully depends in part upon our ability to use technology to provide products and services that will satisfy customer demands. We have and will continue to make technology investments to achieve process improvements and increase efficiency. Many of the Company’s competitors invest substantially greater resources in technological improvements than we do. We may not be able to effectively select, develop or 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.

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


19



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.

24

We collect and store sensitive data, including personally identifiable information of our customers and employees.employees as well as sensitive information related to our operations. Our collection of such Company and customer data is subject to extensive regulation and oversight. 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, lines of defense approach that leverages people, processes and technology to manage and maintain cyber security and other information 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.measures , and there is no assurance that our response to any cyber-attack or system interruption, breach or failure will be fully 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 domestic and foreign 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 may be alleged to have infringed upon intellectual property rights owned by others, or may be unable to protect our intellectual property.
Competitors or other third parties may allege that we, or consultants or other third parties retained or indemnified by us, infringe on their intellectual property rights. We also may face allegations that our employees have misappropriated intellectual property of their former employers or other third parties. Given the complex, rapidly changing and competitive technological and business environment in which we operate, and the potential risks and uncertainties of intellectual property-related litigation, an assertion of an infringement claim against us may cause us to spend significant amounts to defend the claim (even if we ultimately prevail); to pay significant money damages; to lose significant revenues; to be prohibited from using the relevant systems, processes, technologies or other intellectual property; to cease offering certain products or services or to incur significant license, royalty or technology development expenses. Moreover, it has become common in recent years for individuals and groups to purchase intellectual property assets for the sole purpose of making claims of infringement and attempting to extract settlements from


20



companies like ours. Even in instances where we believe that claims and allegations of intellectual property infringement against us are without merit, defending against such claims is time consuming and expensive and could result in the diversion of time and attention of our management and employees. In addition, although in some cases a third party may have agreed to indemnify us for such costs, such indemnifying party may refuse, or be unable, to uphold its contractual obligations.
Moreover, we rely on a variety of measures to protect our intellectual property and proprietary information, including copyrights, trademarks and controls on access and distribution. These measures may not prevent misappropriation or infringement of our intellectual property or proprietary information and a resulting loss of competitive advantage, and in any event, we may be required to litigate to protect our intellectual property and proprietary information from misappropriation or infringement by others, which is expensive, could cause a diversion of resources and may not be successful. Third parties may challenge, invalidate or circumvent our intellectual property, or our intellectual property may not be sufficient to provide us with competitive advantages. In addition, the usage of branding that could be confused with ours could create negative perceptions and risks to our brand and reputation. Our competitors or other third parties may independently design around or develop technology similar to ours or otherwise duplicate our services or products such that we could not assert our intellectual property rights against them. In addition, our contractual arrangements may not effectively prevent disclosure of our intellectual property or confidential and proprietary information or provide an adequate remedy in the event of an unauthorized disclosure.
Changes in U.S. trade policies and other factors beyond Seacoast's control, including the imposition of tariffs and retaliatory tariffs, may adversely impact its business, financial condition and results of operations.
In recent years, there has been discussion and dialogue regarding potential changes to U.S. trade policies, legislation, treaties and tariffs, including trade policies and tariffs affecting other countries, including China, the European Union, Canada and Mexico and retaliatory tariffs by such countries. Tariffs and retaliatory tariffs have been imposed, and additional tariffs and retaliation tariffs have been proposed. Such tariffs, retaliatory tariffs or other trade restrictions on products and materials that Seacoast's customers import or export, including among others, agricultural products, could cause the prices of its customers' products to increase, which could reduce demand for such products, or reduce its customer margins, and adversely impact their revenues, financial results and ability to service debt. This, in turn, could adversely affect Seacoast's financial condition and results of operations.
In addition, to the extent changes in the political environment have a negative impact on Seacoast or on the markets in which Seacoast operates its business, results of operations and financial condition could be materially and adversely impacted in the future. It remains unclear what the U.S. Administration or foreign governments will or will not do with respect to tariffs already imposed, additional tariffs that may be imposed, or international trade agreements and policies. On November 30, 2018, the United States, Canada and Mexico signed a new trade deal, the U.S.-Mexico-Canada Agreement, to replace the North American Free Trade Agreement, which the President of the United States signed into law on January 29, 2020. The full impact of this agreement on Seacoast, its customers and on the economic conditions in its geographic markets is currently unknown. A trade war or other governmental action related to tariffs or international trade agreements or policies has the potential to negatively impact Seacoast's and/or its customers' costs, demand for its customers' products, and/or the U.S. economy or certain sectors thereof and, thus, adversely impact Seacoast's business, financial condition and results of operations.
We operate in a heavily regulated environment. Regulatory compliance burdens and associated costs have increased and adverselycan 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 Small Business Administration, the SEC the FDIC, NASDAQ, and the CFPB.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.

The Dodd-Frank Act directs applicable regulatory authorities to promulgate regulations implementing its provisions, and its effect on the Company and on the financial services industry as a whole will be clarified as those regulations are issued. Certain provisions of the Act have been implemented by regulation, while others are expected to be implemented in the coming years. The Dodd-Frank Act addresses a number of issues, including capital requirements, compliance and risk management, debit card overdraft fees, healthcare, incentive compensation, expanded disclosures and corporate governance.  The Dodd-Frank Act established the CFPB, which has broad independent rulemaking, supervisory and enforcement authority over consumer financial products and services, including deposit products, residential mortgages, home equity loans and credit cards. 

25

The Dodd-Frank Act has increased our regulatory compliance burden in recent years, and may continue to do so as the CFPB and other agencies amend existing regulations or adopt new ones as required by the Act. Any such changes in law can impact the profitability of our business activities, require changes to our operating policespolicies and polices,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 actAct 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.



21



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.

On January 1, 2020, we will implement FASB’s Accounting Standards Codification (“ASC”) Topic 326, Financial Instruments - Credit Losses. This guidance replaces the existing “incurred loss” methodology for financial assets measured at amortized cost, and introduces requirements to estimate current expected credit losses (“CECL”). 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 recognize the full amount of expected credit losses for the lifetime of the financial assets, based on historical experience, current conditions and reasonable and supportable forecasts. This change will require earlier recognition of credit losses that are deemed expected but not yet probable, and we expect will result in higher reserves for credit losses and higher volatility in the quarterly provision for credit losses in future periods.
The CECL model also impacts the accounting for future bank acquisition activity by requiring the recognition of expected credit losses on acquired loans at the date of acquisition, in addition to the purchase discount, if any. With the exception of purchased loans with credit deterioration ("PCD"), this day-one recognition of the allowance for credit losses is recorded with an offset to net income. For PCD loans, the initial estimate of expected credit losses will be recognized as an adjustment to the amortized cost basis of the loan at acquisition (i.e., a balance sheet gross-up).
Tax Cuts and Jobs Act of 2017law changes may have an immediate or retroactive 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. ratios.

Under the Tax Reform Act, the highest marginal federal tax rate for corporations has beenwas lowered from 35% to 21%, resulting in a reduction to the Company’s deferred tax assets (“DTA’s”DTAs”). This remeasurement resulted in an immediate, and a one-time adjustment increasing the provision for income taxes and lowering netupon enactments in 2017. Additionally, in September 2019, the State of Florida announced a reduction in the corporate income tax rate from 5.5% to 4.458% for the fourth quarteryears 2019, 2020 and 2021, resulting in a DTA write down of 2017 by $8.6$1.1 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 state income tax rates and the resultant reduction to DTA’sDTAs 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 DTA’sDTAs negatively impactsimpacted 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.

26

While lower income tax rates should result in improved net income performance over prospective periods, the extent of the benefit will be influenced by the competitive environment and other factors.

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.

As of December 31, 2017,2019, we had net DTAs of $25.4$16.5 million, based on management’s estimation of the likelihood of those DTAs being realized. These and future DTA’sDTAs may be reduced in the future if our estimates of future taxable income from our operations and tax planning strategies do not support the amounts recorded.

The Company recorded income for 2017, 2016 and 2015.

Management expects to realize the $25.4$16.5 million in net DTAs well in advance of the statutory carryforward period, based on its forecast of future taxable income. 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. This process requires significant judgment by management about matters that are by nature uncertain. If we were to conclude that significant portions of our DTAs 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 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


22



shareholders, if an ownership change is deemed to occur under Section 382. The determination of whether an ownership change has occurred under Section 382 is highly fact-specific and can occur through one or more acquisitions of capital stock (including open market trading) if the result of such acquisitions is that the percentage of our outstanding common stock held by shareholders or groups of shareholders owning at least 5% of our common stock at the time of such acquisition, as determined under Section 382, is more than 50 percentage points higher than the lowest percentage of our outstanding common stock owned by such shareholders or groups of shareholders within the prior three-year period. Management does not believe any stock offerings, issuances, or reverse stock split have had any negative implications for the Company under Section 382. Deferred taxes for Section 382 events netting to $0.9 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, over which the Company has no control and which the Company may not be able to our merger on October 1, 2014, and were migrated and recordedadequately anticipate.
In recent years, in response to the Company’srecession in 2008 and the following 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, and reduced rates three times in 2019. Further rate changes reportedly are dependent on the Federal Reserve’s assessment of economic data as it becomes available. The Company cannot predict the nature or timing of future changes in monetary, economic, or other policies or the effect that they may have on the Company's business activities, financial statements.

condition and results of operations.

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;

27

risks of unknown or contingent liabilities;

·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.

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;
inaccurate estimates of value assigned to acquired assets; and
diversion of our management’s time and attention from our existing operations and businesses.
Attractive acquisition opportunities may not be available to us in the future.
While we seek continued organic growth, we anticipate continuing to evaluate merger and acquisition opportunities presented to us in our core markets and beyond. The number of financial institutions headquartered in Florida, the Southeastern United States, and across the country continues to decline through merger and other 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 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 will not be able to consummate an acquisition that we believe is in our best 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.


23



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 extent that we grow through acquisitions, we cannot ensurethere can be no assurance that we will be able to adequately or profitably manage this growth. Acquiring other banks, branches or other assets, as well as other 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 otherwise 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 the value of an acquired business had decreased, that conclusion may result in an impairment charge to goodwill or other tangible or intangible assets, which would adversely affect our results of operations. While we believe we have the executive management resources and internal systems in place to successfully manage our future 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 timely or fully replace liquidity previously provided by deposits which may be transferred as part of a divestiture, which could adversely affect our financial condition and results of operations.

28

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 successfully 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


24



increased costs, decreases in the amount of expected revenues and diversion 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 business and/or new products and services, we undergo a process to assess the risks of the initiative, and invest significant time and resources to build internal controls, policies and 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 compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a 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 other controls and have a significant impact on our existing system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business and/or new products or services could have a material adverse effect on our business and, in turn, our financial condition and results of 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 customer deposits, 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.

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’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 currently do not expect to pay dividends on our common stock to shareholders 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


25



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.

29

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.

deposits.

Interest rates on our outstanding financial instruments might be subject to change based on regulatory developments, which could adversely affect our revenue, expenses, and the value of those financial instruments.
LIBOR and certain other “benchmarks” are the subject of recent national, international, and other regulatory guidance and proposals for reform. These reforms may cause such benchmarks to perform 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 stop persuading or compelling banks to submit 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 floating rate obligations, loans, deposits, derivatives, and other financial instruments tied to LIBOR rates, as well as the revenue and expenses associated with those financial instruments, may be adversely affected. Any uncertainty regarding the continued use and reliability of LIBOR as a benchmark interest rate could adversely affect the value of our floating rate obligations, loans, deposits, derivatives, and other financial instruments 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 event LIBOR is unavailable, not all of our loans contain these “fallback” provisions and existing “fallback” provisions may not adequately address the actual 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 LIBOR could result in customer uncertainty and disputes around how variable rates should be calculated. All of this could result in damage to our reputation, loss of customers and additional costs to us, all of which could be material.
Great Britain’s exit from the European Union (“Brexit”) could adversely affect financial markets generally.
The uncertainty regarding Brexit could adversely affect financial markets generally. While Seacoast has no direct loans to or deposits from foreign entities, the uncertain impact of Brexit on British and European businesses, financial markets, and related businesses in the United States could also adversely affect financial markets generally. The commercial soundness of many financial institutions may be closely interrelated as a result of relationships between the institutions. As a result, concerns about, or a default or threatened default by, one institution could lead to significant market-wide liquidity and credit problems, losses or defaults by other institutions. Seacoast’s business could be adversely affected directly by the default of another institution or if the financial services industry experiences significant market-wide liquidity and credit problems.
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.



26



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 resume 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.

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.

30

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 future regulatory examinations by the CFPB 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.

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.

Employee misconduct could expose us to significant legal liability and reputational harm.
We are vulnerable to reputational harm because we operate in an industry in which integrity and the confidence of our customers are of critical importance. Our employees could engage in fraudulent, illegal, wrongful or suspicious activities, and/or activities resulting in consumer harm that adversely affects our customers and/or our business. The precautions we take to detect and prevent such misconduct may not always be effective, such misconduct may result in regulatory sanctions and/or penalties, serious harm to our reputation, financial condition, customer relationships or the ability to attract new customers. In addition, improper use or disclosure of confidential information by our employees, even if inadvertent, could result in serious harm to our reputation, financial condition and current and future business relationships. The precautions we take to detect and prevent such misconduct may not always be effective.
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


27



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 are subject to internal control reporting requirements that increase compliance costs and failure to comply with such requirements could adversely affect our reputation and the value of our securities.

We are required to comply with various corporate governance and financial reporting requirements under the Sarbanes-Oxley Act of 2002, as well as rules and regulations adopted by the SEC, the Public Company Accounting Oversight Board and NASDAQ. In particular, we are required to include management and independent registered public accounting firm reports on internal controls as part of our Annual Report on Form 10-K pursuant to Section 404 of the Sarbanes-Oxley Act. The SEC also has proposed a number of new rules or regulations requiring additional disclosure, such as lower-level employee compensation. We expect to continue to spend significant amounts of time and money on compliance with these rules. Our failure to track and comply with the various rules may materially adversely affect our reputation, ability to obtain the necessary certifications to financial statements, and the value of our securities.

Our controls and procedures may fail or be circumvented.   

Management regularly reviews and updates our internal controls over financial reporting, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.

Our operations rely on external vendors.   

We rely on certain external vendors to provide products and services necessary to maintain our day-to-day operations, particularly in the areas of operations, treasury management systems, information technology and security, exposing us to the risk that these vendors will not perform as required by our agreements. An external vendor’s failure to perform in accordance with our agreement could be disruptive to our operations, which could have a material adverse impact on our business, financial condition and results of operations. Our regulators also impose requirements on us with respect to monitoring and implementing adequate controls and procedures in connection with our third party vendors.

31

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.

To mitigate this risk, the Company has an established process to oversee vendor relationships.

The anti-takeover provisions in our Articles of Incorporation and under Florida law may make it more difficult for takeover attempts that have not been approved by our board of directors.

Florida law and our Articles of Incorporation include anti-takeover provisions, such as provisions that encourage persons seeking to acquire control of us to consult with our board of directors, and which enable the board of directors 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, may make any takeover attempts and other acquisitions of interests in us, by means of a tender offer, open market purchase, a proxy fight or otherwise, that have not been approved by our board of directors more difficult and more expensive. These provisions may discourage possible business combinations that a majority of our shareholders may believe to be desirable and beneficial. As a result, our board of directors may decide not to pursue transactions that would otherwise be in the best interests of holders of our common stock.

Hurricanes or other adverse weather events could negatively affect our local economies or disrupt our operations, which would have an adverse effect on our business and results of operations.

Our market areas in Florida are susceptible to hurricanes, tropical storms and related flooding and wind damage. Such weather events can disrupt operations, result in damage to properties and negatively affect the local economies in the markets where we operate. We cannot predict whether or to what extent damage that may be caused by future hurricanes will affect our operations or the economies in our current or future market areas, but such weather events could result in a decline in loan originations, a decline in the value or destruction of properties securing our loans and an increase in 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


28



in our markets, which may adversely affect real estate sales and values in our markets.

Climate change may be increasing the nature, severity, and frequency of adverse weather conditions, making the impact from these types of natural disasters on us or customers worse.

Societal responses to climate change could adversely affect our business and performance, including indirectly through impacts on our customers.
Concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts around the world to mitigate those impacts. Consumers and businesses also may change their behavior on their own as a result of these concerns. Seacoast and its customers will need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns. We and our customers may face cost increases, asset value reductions, operating process changes, and the like. The impact on our customers will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities. Among the impacts to Seacoast could be a drop in demand for our products and services, particularly in certain sectors. In addition, we could face reductions in creditworthiness on the part of some customers or in the value of assets securing loans. Our efforts to take these risks into account in making lending and other decisions, including by increasing our business with climate-friendly companies, may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior.
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 46.951.5 million shares were outstanding as of December 31, 2017,2019, 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 during certain periods, 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.

32

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 reports 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.

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 debt 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 not insured deposits and may lose value.

Shares of our common stock are not savings accounts, deposits or other obligations of any depository institution and 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.



29



Item 1B.Unresolved Staff Comments

None.

Item 2.Properties

Seacoast’s main office occupies all of

Seacoast maintains its corporate headquarters in a 68,000 square foot, three story building at 815 Colorado Avenue in Stuart, Florida. ThisThe 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 buildings and land are owned by Seacoast Bank, which leases out portions of the 27,000-square foot 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. Seacoast Bank contracts with a third party in Nashville, Tennessee to provide network backup services for disaster recovery should natural disasters or other events preclude the use of Seacoast Bank’s primary operations center.

33

Bank. 

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 and Texas.

Seacoast Business Funding, a receivables factoring division of Seacoast Bank, occupies 6,000 square feet of leased space in Boynton Beach, Florida.

Seacoast Bank owns or leases all of the real property and/or buildings in which we operate our business.its business operates. At December 31, 2017, we2019, Seacoast Bank and ourits subsidiaries had 5048 branch offices, fivenine commercial lending offices, and its main office in Florida. At December 31, 2017, the net carrying value of these offices (excluding the main office) was approximately $49.6 million.

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

The Company and ourits subsidiaries are subject, in the ordinary course, to litigation incidental to the businesses in which wethey are engaged. Management presently believes that none of the legal proceedings to which wethey are a party are likely to have a material effect on ourthe Company's 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 ourthe Company's common stock are entitled to one vote per share on all matters presented to shareholders as provided in our Articles of Incorporation.

34

OurThe Company's common stock is traded under the symbol “SBCF” on the NasdaqNASDAQ Global Select Market, which is a national securities exchange (“NASDAQ”). As of January 31, 20182020, there were 46,917,52851,523,499 shares of our common stock outstanding, held by approximately 1,8182,152 record holders.

The table below sets forth the high and low sale prices per share of our common stock on NASDAQ for the indicated periods. We have not paid dividends to our shareholders since 2009.

  Sales Price per Share of 
  Seacoast Common Stock 
  High  Low 
2016        
First Quarter $16.22  $13.40 
Second Quarter  17.19   15.21 
Third Quarter  17.80   15.50 
Fourth Quarter  22.91   15.85 
2017        
First Quarter $25.13  $20.59 
Second Quarter  25.88   21.65 
Third Quarter  24.87   20.58 
Fourth Quarter  27.13   22.42 

Dividends from Seacoast Bank are ourthe Company's primary source of funds to pay dividends on ourits 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. 

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.

Company.  

Additional information regarding restrictions on the ability of Seacoast Bank to pay dividends to usthe Company 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

Five years of selected financial data of the Company is set forth under the caption “Financial Highlights” on page 104.

Five years of selected financial data of the Company is set forth commencing on page 75.



30



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 45-84.

35

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

For discussion of the quantitative and qualitative disclosures about market risk, see “Interest Rate Sensitivity,” “Securities,” and “Market Risk” sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 82, 62-63, and pages 82-83.

Item 8.Financial Statements and Supplementary Data

The report of Crowe Horwath LLP, independent registered public accounting firm and the Consolidated Financial Statements and Notes appear on pages 105-168. Quarterly Consolidated Income Statements are included on page 103 entitled “Selected Quarterly Financial Information”.

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.Controls and Procedures

(a)Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, as defined in SEC Rule 13a-15 under the Exchange Act, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

In connection with the preparation of this Annual Report on Form 10-K, as of the end of the period covered by this report, an evaluation was performed, with the participation of the CEO and CFO, of the effectiveness of our disclosure controls and procedures, as required by Rule 13a-15 of the Exchange Act. Based upon that evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

(b)Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes.

Management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2017. 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, 2017, our internal control over financial reporting was effective.

Our independent registered public accounting firm, Crowe Horwath LLP, has issued an audit report on our internal control over financial reporting which is included herein.

(c)Change in Internal Control Over Financial Reporting

During 2016 and 2017, 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.

36


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 2018 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 “2017 Director Compensation” in the 2018 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, 2017.

Equity Compensation Plan Information

          
        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 outstanding  outstanding  (excluding securities 
  options, warrants  options, warrants  represented 
Plan Category and rights  and rights  in column (a)) 
Equity compensation plans approved by shareholders:            
2000 Plan (1)  0  $0.00   0 
2008 Plan (2)  0   0.00   0 
2013 Plan (3)  951,349   17.29   598,913 
Employee Stock Purchase Plan (4)  0   0.00   84,659 
TOTAL  951,349  $17.29   683,572 

(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.

37

(3)Seacoast Banking Corporation of Florida 2013 Long-Term Incentive Plan. Shares reserved under this plan are available for issuance pursuant to the exercise of stock options and stock appreciation rights granted under the plan, and may be granted as awards of restricted stock, performance shares, or other stock-based awards, prospectively.

(4)Seacoast Banking Corporation of Florida Employee Stock Purchase Plan, as amended.

Additional information regarding the ownership of our common stock is set forth under the headings “Proposal 1 - Election of Directors” and “Security Ownership of Management and Certain Beneficial Holders” in the 2018 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 2018 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 2018 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 105.

(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):

38

Exhibit 3.1.1 Amended and Restated Articles of Incorporation

Incorporated herein by reference from Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q, filed May 10, 2006.

Exhibit 3.1.2 Articles of Amendment to the Amended and Restated Articles of Incorporation

Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed December 23, 2008.

Exhibit 3.1.3 Articles of Amendment to the Amended and Restated Articles of Incorporation

Incorporated herein by reference from Exhibit 3.4 to the Company’s Form S-1, filed June 22, 2009.

Exhibit 3.1.4 Articles of Amendment to the Amended and Restated Articles of Incorporation

Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed July 20, 2009.

Exhibit 3.1.5 Articles of Amendment to the Amended and Restated Articles of Incorporation

Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed December 3, 2009.

Exhibit 3.1.6 Articles of Amendment to the Amended and Restated Articles of Incorporation

Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K/A, filed July 14, 2010.

Exhibit 3.1.7 Articles of Amendment to the Amended and Restated Articles of Incorporation

Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed June 25, 2010.

Exhibit 3.1.8 Articles of Amendment to the Amended and Restated Articles of Incorporation

Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed June 1, 2011.

Exhibit 3.1.9 Articles of Amendment to the Amended and Restated Articles of Incorporation

Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed December 13, 2013.

Exhibit 3.2 Amended and Restated By-laws of the Company

Incorporated herein by reference from Exhibit 3.2 to the Company’s Form 8-K, filed December 21, 2007.

Exhibit 4.1 Specimen Common Stock Certificate

Incorporated herein by reference from Exhibit 4.1 to the Company’s Form 10-K, filed on March 17, 2014.

Exhibit 4.2 Junior Subordinated Indenture

Dated as of March 31, 2005, between the Company and Wilmington Trust Company, as Trustee (including the form of the Floating Rate Junior Subordinated Note, which appears in Section 2.1 thereof), incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K filed April 5, 2005.

Exhibit 4.3 Guarantee Agreement

Dated as of March 31, 2005 between the Company, as Guarantor, and Wilmington Trust Company, as Guarantee Trustee, incorporated herein by reference from Exhibit 10.2 to the Company’s Form 8-K filed April 5, 2005.

Exhibit 4.4 Amended and Restated Trust Agreement

Dated as of March 31, 2005, among the Company, as Depositor, Wilmington Trust Company, as Property Trustee, Wilmington Trust Company, as Delaware Trustee and the Administrative Trustees named therein, as Administrative Trustees (including exhibits containing the related forms of the SBCF Capital Trust I Common Securities Certificate and the Preferred Securities Certificate), incorporated herein by reference from Exhibit 10.3 to the Company’s Form 8-K filed April 5, 2005.

Exhibit 4.5 Indenture

Dated as of December 16, 2005, between the Company and U.S. Bank National Association, as Trustee (including the form of the Junior Subordinated Debt Security, which appears as Exhibit A to the Indenture), incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K filed December 21, 2005.

39

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 10.1 Amended and Restated Retirement Savings Plan*

Incorporated herein by reference from Exhibit 10.1 to the Company’s Annual Report on Form 10-K, filed March 15, 2011.

Exhibit 10.2 Amended and Restated Employee Stock Purchase Plan*

Incorporated by reference to Exhibit A to the Company’s Definitive Proxy Statement on 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 filed on November 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*

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

Exhibit 10.6 Change of Control Employment Agreement*

Dated December 24, 2003 between William R. Hahl and the Company, incorporated herein by reference from Exhibit 10.17 to the Company’s Form 8-K, filed December 29, 2003.

Exhibit 10.7 Amended and Restated Directors Deferred Compensation Plan*

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

Exhibit 10.8 2008 Long-Term Incentive Plan*

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

40

Exhibit 10.9 Form of 409A Amendment to Employment Agreement with William R. Hahl*

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

Exhibit 10.10 2013 Incentive Plan

Incorporated herein by reference from Appendix A to the Company’s Proxy Statement on Form DEF 14A, filed April 9, 2013.

Exhibit 10.11 Letter Agreement Regarding Lead Director Position*

Dated March 1, 2014 between Roger O. Goldman and the Company, incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K, filed March 6, 2014.

Exhibit 10.12 Form of Change of Control Employment Agreement with Daniel Chappell, Charles Cross, David Houdeshell, Jeffery D. Lee and Charles Shaffer*

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

Exhibit 10.13 Employment Agreement*

Dated December 18, 2014 between Dennis S. Hudson, III and the Company, incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K, filed December 19, 2014.

Exhibit 10.14 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 10.15 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 10.16 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 10.17 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 10.18 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 10.19 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 10.20 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 10.21 Amendment to Employment Agreement with Dennis S. Hudson, III

Incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K, filed 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

41

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.

Item 16.Form 10-K Summary

Not applicable.

42

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: February 28, 2018

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, IIIFebruary 28, 2018
Dennis S. Hudson, III, Chairman of the Board,
Chief Executive Officer and Director
(principal executive officer)
/s/ Charles M. ShafferFebruary 28, 2018
Charles M. Shaffer, Executive Vice President and
Chief Financial Officer
(principal financial and accounting officer)
/s/ Dennis J. ArczynskiFebruary 28, 2018
Dennis J. Arczynski, Director
/s/ Stephen E. BohnerFebruary 28, 2018
Stephen E. Bohner, Director
/s/ H. Gilbert Culbreth, Jr.February 28, 2018
H. Gilbert Culbreth, Jr, Director
/s/ Christopher E. FogalFebruary 28, 2018
Christopher E. Fogal, Director
/s/ Maryann GoebelFebruary 28, 2018
Maryann Goebel, Director

43

/s/ Herbert LurieFebruary 28, 2018
Herbert Lurie, Director
/s/ Alvarro MonserratFebruary 28, 2018
Alvaro Monserrat, Director

44

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 the financial condition, significant changes in the financial condition and the results of operations of Seacoast Banking Corporation of Florida and its subsidiaries (the("Seacoast" or the “Company”) and their results of operations during 2017, 2016 and 2015.. 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. The focus of this discussion is on the Company’s financial statements and other statistical data for the years ended December 31, 2019 and 2018. Additional information about the Company’s financial condition and results of operations in 2017 and changes in the Company’s financial condition and results of operations from 2017 to 2018 may be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. For purposes of the following discussion, the words the “Company,"Seacoast," 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 Banking Corporation of Florida (“Seacoast” or the “Company”), a bankfinancial 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 $5.8$7.1 billion in assets and $4.6$5.6 billion in deposits as of December 31, 2017.2019. The Company provides integrated financial services including commercial and retail banking, wealth management, and mortgage services to customers through advanced banking solutions, 5148 traditional branches of its locally-branded wholly-owned subsidiary bank, Seacoast National Bank (“Seacoast Bank”), a national banking association, (“Seacoast Bank”) and fivenine commercial banking centers.

Seacoast operates primarily in Florida, with concentrations in the state's fastest growing markets, each with unique characteristics and opportunities. The Company’sCompany's offices stretch from Ft.the southeast, including Fort Lauderdale, Boca Raton and West Palm Beach north throughalong the east coast to the Daytona Beach area, into Orlando and Central Florida and the adjacent Tampa market, as well asand west to Okeechobee and surrounding counties.

Seacoast is executing a balanced growth strategy, combining both organic growth with strategic acquisitions in growing urban markets.

The Company delivers integrated banking services, combining traditional retail locations with online and mobile technology and a 365 day a year 24/7 callconvenient 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 provides usproviding the Company an opportunity to reach our customers through a variety of sales channels. For 2017, the number of deposit accounts opened through our website and 24/7 customer support center grew by 12% year over year. The customer support center also originated $32.7 million in consumer and small business loans. Non-teller transactions surpassed teller transactions during 2017, with 41% of checks now deposited outside the branch network, compared to 37% 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 ourCompany believes its digital delivery and products are contributing to growing ourthe franchise. AsAdoption of December 31, 2017, the total number of services utilized by Seacoast’s retail customers averaged 4.3 per household, primarily due to increases in debit card activation, direct deposit and mobile banking users. Personalpersonal and business mobile banking has grown from 32,305 users at December 31, 2015, to 47,131 users at December 31, 2016, to 62,516 users at December 31, 2017. There were 83,881 online users at year-end 2017, increasing almost 25% from December 31, 2016.

45

The Company enhanced its footprint with the acquisitions of GulfShore, NorthStar and PBCB in 2017, Floridian and BMO offices in 2016, and Grand in 2015 (see “Note S – Business Combinations”). During 2017, our acquisitions of GulfShore and NorthStar allowed the expansion of the Seacoast franchise into the Tampa market. We look forward to significant opportunities59% in the fast-growing, business rich Tampa market. Our approach to the Tampa market uses lessons learned from our successful buildpast two years and online banking users have grown 31%.

Seacoast is executing a balanced growth strategy, combining both organic growth with strategic acquisitions in the fast-growingFlorida's most attractive growing markets. In Orlando, marketplace during 2016. We areSeacoast is now the largest Florida-based bank in Orlando and a top-10 bank in thatthe Orlando market overall. At year-end 2017, OrlandoIn other key markets, including Palm Beach County, Fort Lauderdale, and Tampa, represent 29%the Company has enhanced its footprint with eight acquisitions since 2014, generating continued expansion and 9% of our franchise, respectively, measured by deposits. The PBCB, Floridian, BMO and Grand transactions solidified ourstrengthening market share, inincreasing the attractive Palm Beach and Central Florida markets, expanded our customer base and leveragedlowering operating costs through economies of scale. AllIn the fourth quarter of these2019, the Company announced the upcoming acquisition of First Bank of the Palm Beaches ("First Bank"), building upon two previous acquisitions in Palm Beach, one of Florida's top counties by population and household income. Additionally, in the first quarter of 2020, the Company announced the upcoming acquisition of Fourth Street Banking Company, the holding company for Freedom Bank in St. Petersburg, Florida, again expanding upon the benefits of two previous acquisitions in the market. The Tampa MSA is, by population, among the top 20 in the nation. These acquisitions are expected to be completed in the first half of 2020 and are expected to provide earnings per share accretion of more than 5% to 2021 and thereafter.
The Company's acquisition strategy has not only increased ourcustomer households and been immediately accretive to earnings, but also has opened markets and customer bases where ourSeacoast's convenience offering resonates and were immediately accretive to earnings. In aggregate, the GulfShore, NorthStar and PBCB acquisitions added $736 millionresonates. The table below summarizes acquisition activity in total deposits and $660 million in loans to our balance sheet. 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. Total merger related charges for 2017, 2016 and 2015 were $12.9 million, $9.0 million and $4.7 million, respectively, primarily consisting of salaries and wages, outsourced data processing costs, and legal and professional fees.

The Company will likely continue to consider strategic acquisitions as part of the Company’s overall future growth plans. The Florida economy continues to amplify our success and the state of Florida remains an attractive market in which to live and work. There are many positive indications that Florida’s economy will continue to expand.

During 2017, we also successfully renegotiated our agreement with a key technology and digital services provider. The agreement expands digital banking capabilities, improves service level agreements, and increases our ability to scale. We have also on-boarded key talent in the areas of data analysis, digital marketing, business-to-business marketing and compliance. During the first quarter of 2018, a Chief Technology Officer has been added to our executive team. These changes and additions support and position Seacoast for prospective growth. In 2018, we plan to invest a portion of the additional financial resources provided by the tax savings associated with Tax Cuts and Jobs Act of 2017 to accelerate the achievement of our operating model, and improving the digital customer experience.

recent years:




31



(In thousands) Date of Acquisition Acquired Loans Acquired Deposits
Freedom Bank1 (acquisition pending)
 Second Quarter 2020 $248,948
 $276,401
First Bank of the Palm Beaches2 (acquisition pending)
 First Quarter 2020 150,228
 171,681
First Green Bank3
 October 19, 2018 631,497
 624,289
Palm Beach Community Bank November 3, 2017 270,318
 268,633
NorthStar Bank4
 October 20, 2017 136,832
 182,443
GulfShore Bank5
 April 7, 2017 250,876
 285,350
BMO Harris6
 June 3, 2016 62,671
 314,248
Floridian Bank7
 March 11, 2016 266,137
 337,341
Grand Bank & Trust of Florida8
 July 17, 2015 111,292
 188,469
BankFirst9
 October 1, 2014 365,363
 516,297
1Wholly-owned subsidiary of Fourth Street Banking Company. Loan and deposit balances as of September 30, 2019
2Loan and deposit balances as of September 30, 2019
3Wholly-owned subsidiary of First Green Bancorp, Inc.
4Wholly-owned subsidiary of NorthStar Banking Corporation, Inc.
5Wholly-owned subsidiary of GulfShore BancShares, Inc.
6Orlando banking operations of BMO Harris Bank, N.A.
7Wholly-owned subsidiary of Floridian Financial Group, Inc.
8Wholly-owned subsidiary of Grand Bankshares, Inc.
9Wholly-owned subsidiary of BANKshares, Inc.

2019 Highlights of our performance in 2017 included:

·
A 24%
15% year-over-year growth in revenue on a GAAP basis enhanced by a 1% decrease in noninterest expense on the same basis. 14% year-over-year adjusted revenue1 growth during 2017, outpacing2019 combined with a 13%3% increase in adjusted noninterest expense1 over the corresponding period. Adjusted revenues and adjusted noninterest expense are non-GAAP measures (see page 59-61, “Explanation of Certain Unaudited Non-GAAP Financial Measures” in “Results of Operations”);

46

·
Diluted earnings per share of $1.90 for 2019, compared to $1.38 diluted earnings per share for 2018 on a GAAP basis. Achievement of our $1.28the $2.01 adjusted diluted earnings per share1 goal for 2017, a non-GAAP measure (see pages 59-61, “Explanation of Certain Unaudited Non-GAAP Financial Measures”in “Results of Operations”). This metric represented a 23% increase from the prior year, exiting 2017 on a strong upward trajectory and on a path to outperform peers;2019.

·Continued execution on the Company’s strategic acquisition strategy through the completion and successful integration of the acquisitions of GulfShore on April 7, 2017, NorthStar on October 20, 2017, and PBCB on November 3, 2017, together with organic and acquisition-related revenue growth momentum and cost reductions, all expected to drive earnings improvement in 2018. These acquisitions further solidified Seacoast’s status in Tampa, and added to its presence in Palm Beach County;

·Reduction in costs related to branch consolidations, with ten branches added from acquisitions during 2017 offset by the successful consolidation of six branches, compared to 2016 when 24 branches were added and we closed 20 branches. Deposits per facility improved, with total deposits per branch increasing to $90 million at December 31, 2017, from $75 million one year earlier and $66 million at year-end 2015. We expect to continue consolidating our more expensive, traditional banking facilities, and related personnel costs, as digital and call center channels expand;

·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 33% compared to a year ago; excluding acquisitions, total loans were 10% higher year over year;

·Other notable highlights for 2017 include a $15.2 million gain during the fourth quarter on the sale of shares of Visa Class B stock that were acquired in early 2017, and an additional income tax expense of $8.6 million in the fourth quarter to write down the Company’s net deferred tax assets as a result of the Tax Cuts and Jobs Act of 2017. The write down is an estimate and subject to additional procedures that could result in further adjustments in prospective periods.

Consistent growth in tangible book value per share, ending the period at $14.76, up 20% over the prior year.
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 8% compared to a year ago; excluding acquired loans, total loans were 3% higher year-over-year.
The Company continued execution of its balanced growth strategy through 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 further growth throughout 2019.
Consolidated three banking center locations in 2019, achieving the Vision 2020 objective of reducing the footprint by 20% to meet evolving customer needs. In 2018, the addition of seven branches from acquisition was offset by the consolidation of seven branches. Deposits per branch improved, with total deposits per banking center exceeding $116.3 million at December 31, 2019, up from $101.5 million one year earlier.
Continued discipline around expenses, primarily achieved through focus on reducing overhead and streamlining business and cost savings processes. These reductions have allowed the Company to reallocate overhead to hiring additional bankers in Tampa and South Florida and technology investments in 2019, which will continue to support growth and operating leverage into 2020.


1Non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP.
32



Results of Operations

Earnings Summary

The Company has steadily improved results over the past three years.

Net income for 2017in 2019 totaled $42.9$98.7 million, or $0.99$1.90 diluted earnings per share, compared to $29.2$67.3 million, or $0.78$1.38 diluted earnings per share, for 2016, and $22.1 million or $0.66 diluted earnings per share for 2015.in 2018. Return on average assets (“ROA”) increased to 0.91% during the fourth quarter of 2017,1.45% and return on average equity (“ROE”) increased to 7.87% for the same period.

10.63% in 2019 compared to 1.11% and 9.08% in 2018.

Adjusted net income1 in 2019 totaled $55.3$104.6 million, and was $16.3an increase of $25.5 million, or 42% higher year-over-year for the twelve months ended December 31, 2017. In comparison, adjusted net income1 increased $12.8 million or 49% during 2016,32%, compared to 2015.$79.1 million in 2018. Adjusted diluted earnings per share1increased to $1.28 for 2017,$2.01 in 2019 compared to $1.04 for 2016$1.62 in 2018.
  Quarter    
  First Second Third Fourth Total
  2019 2019 2019 2019 2019 2018
Return on average tangible assets 1.48% 1.50% 1.61% 1.66% 1.56% 1.20%
Return on average tangible shareholders' equity 14.86
 14.30
 14.73
 14.95
 14.72
 12.54
Efficiency ratio 56.55
 53.48
 48.62
 48.36
 51.71
 59.98
             
Adjusted return on average tangible assets1
 1.50% 1.59% 1.67% 1.57% 1.58% 1.35%
Adjusted return on average tangible shareholders' equity1
 15.11
 15.17
 15.30
 14.19
 14.93
 14.06
Adjusted efficiency ratio1
 55.81
 51.44
 48.96
 47.52
 50.90
 56.13
1Non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP.
For the year ended December 31, 2019, adjusted return on average tangible assets1 and $0.78 for 2015.

adjusted return on average tangible shareholders' equity1 See page 59, Explanation improved when compared to the same period in the prior year. This improvement is the result of Certain Unaudited Non-GAAP Financial Measures.

47

higher adjusted net income1 in 2019, partially offset by higher tangible assets and higher tangible shareholders' equity. The improvement in the efficiency ratios reflects the Company's disciplined expense control and focus on increasing net revenue (interest and noninterest income combined).

Net Interest Income and Margin

Net interest income (on a fully taxable equivalent basis) for 2017the year ended December 31, 2019 totaled $177.0$244.0 million, increasing $36.5$32.0 million, or 26% as15%, compared to 2016’sthe year ended December 31, 2018. In 2019 and 2018, net interest margin was 3.92% and 3.85%, respectively.
In 2019, net interest income of $140.5 million, which increased by $30.5 million or 28% compared to 2015. The Company’son a fully taxable equivalent basis and the net interest margin continued to benefit from a positive remixing of interest earning assets as well as actions taken to actively manage cost of deposits, including offering shorter maturities and aligning rates lower along with reductions in the federal funds rate in the second half of 2019. Net interest margin increased 107 basis points during the year. Loans and security yields increased by 21 and 7 basis points, respectively, while cost of deposits increased by 26 basis points.The impact on net interest margin from accretion of purchase discount on acquired loans was 31 basis points in 2019 compared to 3.73% during 2017 from 2016, and decreased one28 basis point to 3.63% during 2016 from 2015.

Loan growth, balance sheet mix and yield/cost management have been the primary forces affecting points in 2018. Additionally, 2019net interest income and net interest margin results. Acquisitions have further accelerated these trends. Organic loan growth (excluding acquisitions) year-over-year was $278 million, or 10%. GulfShore loans and deposits added $251 million and $285 million, respectively, NorthStar loans and deposits added $137 million and $182 million, respectively, and PBCB loans and deposits added $272 million and $269 million, respectively, and were contributors to net interest income improvement year-over-year 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 million in loans, $67 million in securities and $337 million in deposits, and the purchase of investment securities ahead of the BMO acquisition, which added $314 million in deposits and $63 million in loans. We expect 2018’s net interest income will continuecontinued to benefit from the full year impact of acquisitionsthe First Green acquisition completed in 2017.

The increase in margin in 2017 compared to 2016 reflects significantly improved yields on investment securities, and federal funds sold and other investments, up 35 basis points and 118 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. The slight decrease in margin for 2016 year over year from 2015 reflected decreased loan yields, due to the lower interest rate environment, but was partially offset by an improved balance sheet mix.

fourth quarter of 2018.

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)1, and yield on earning assets and rate on interest bearing liabilities that has changed nominallyliabilities.  

1Non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for the past five quarters. The second quarter of 2017 benefited from accretion of $1.5 million associated with early payoffs on securitiesmore information and acquired loans, which added 13 basis pointsa reconciliation to the margin for that period.

  Net Interest  Net Interest  Yield on  Rate on Interest 
(Dollars in thousands) Income(1)  Margin(1)  Earning Assets(1)  Bearing Liabilities 
Fourth quarter 2016  37,628   3.56%  3.78%  0.31%
First quarter 2017  38,377   3.63   3.88   0.35 
Second quarter 2017  44,320   3.84   4.12   0.41 
Third quarter 2017  45,903   3.74   4.10   0.51 
Fourth quarter 2017  48,402   3.71   4.11   0.56 

(1) On tax equivalent basis, a non-GAAP measure. See "Non-GAAP Measures regarding Net Interest Income and Margin."

48

GAAP.

33

Looking forward and inclusive of the NorthStar and PBCB acquisitions, we expect the net interest margin to be in the mid-3.70s and to increase to the high 3.70’s by the second quarter of 2018, assuming no change in long-term rates.




(In thousands, except percentages) 
Net Interest
Income1
 
Net Interest
Margin1
 
Yield on
Earning Assets1
 
Rate on Interest
Bearing Liabilities
Fourth quarter 2018 $60,100
 4.00% 4.67% 0.97%
First quarter 2019 60,861
 4.02
 4.79
 1.13
Second quarter 2019 60,219
 3.94
 4.73
 1.18
Third quarter 2019 61,027
 3.89
 4.65
 1.13
Fourth quarter 2019 61,846
 3.84
 4.49
 0.98
1On a fully taxable equivalent basis - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP.
Total average loans increased $739.0$821.5 million, or 29%20%, during 2017,2019 compared to 2016,2018 and increased $599.8 million or 30% during 2016 compared to 2015. Our average investment securities also increased $144.9balances decreased $130.5 million, or 12%10%, during 2017 versus 2016, and $238.3 million or 25% during 2016.

For 2017,2019 compared to 2018

In 2019, average loans (the highest yielding component of earning assets) as a percentage of average earning assets totaled 70.1%79%, compared to 66.8%75% for 2018. Loan production remains strong, supported by expansion of the banking teams in Tampa and Fort Lauderdale as well as increased customer loan demand due to lower long-term interest rates. Late in 2018, Seacoast launched a year agolarge-scale initiative to implement a fully digital loan origination platform across all business banking units. Full conversion from the legacy system is now complete. The Company recognized $350,000 in annualized expense reductions as a result of this platform implementation. This investment should lead to further gains in operational efficiency and 65.6% for 2015 while interest earning depositsbanker productivity in 2020 and other investments decreased to 1.5%, compared to 2.2% in 2016 and 2.5% in 2015, reflecting the Company’s continuing efforts to reduce excess liquidity. beyond.
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 47.9%49% of total loans at December 31, 2017 (compared2019 compared to 50.2%49% at December 31, 2016 and 49.8% at December 31, 2015).2018. Residential loan balances with individuals (including home equity loans and lines, and personal construction loans) represented 31.2%32% of total loans at December 31, 2017 (versus 31.6%2019 compared to 31% at December 31, 2016 and 35.7% at December 31, 2015)2018. (see “Loan Portfolio”).

Loan production is detailed in the following table for the periods specified:
  For the Year Ended December 31,
(In thousands) 2019 2018
Commercial/commercial real estate loan pipeline at year-end $255,993
 $164,064
Commercial/commercial real estate loans closed 795,238
 552,878
     
Residential pipeline-saleable $18,995
 $13,555
Residential loan sold 236,528
 189,235
     
Residential pipeline-portfolio $19,107
 $30,100
Residential loans-retained 287,025
 305,953
     
Consumer and small business pipeline $45,106
 $53,453
Consumer and small business originations 473,119
 443,406
Commercial and commercial real estate loan production for 2017in 2019 totaled $483$795.2 million, compared to production for allin 2018 of 2016 and 2015$552.9 million. During 2019, the Company acquired $72.4 million in fixed-rate commercial real estate loans from the wholesale market.
Closed residential loan production totaled $523.6 million in 2019 compared to $495.2 million in 2018. 2019 includes the purchase of $432residential loans from the wholesale market totaling $134.7 million and $299$19.5 million respectively. in 2018.
Consumer and small business originations reached $354$473.1 million during 2017,2019 compared to $302$443.4 million during 20162018.
Loan production remains strong, supported by customer analytics and $203 million during 2015. Closed residential loan production totaled $488 million compared to production for all of 2016 and 2015 of $403 million and $272 million, respectively. During 2017, an additional $43 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 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. The following chart details the trend for commercial and residential loans closed and pipelines for the past three years:

  For the Year Ended December 31, 
(In thousands) 2017  2016  2015 
          
Commercial/commercial real estate loan pipeline at year-end $118,930  $88,814  $105,556 
Commercial/commercial real estate loans closed  482,705   432,438   298,998 
             
Residential loan pipeline at year-end $48,836  $72,604  $30,340 
Residential loan originations retained  312,656   243,831   130,479 
Residential loan originations sold*  261,458   230,136   141,352 
             
Consumer and small business pipeline $38,790  $45,936  $20,364 
Consumer and small business originations  354,383   302,317   202,562 

* Includes sales of previously retained seasoned production of $86.3 million for 2017 and $70.6 million for 2016.

49

Pipelines (loans in underwriting and approval or approved and not yet closed) reflect the lingering effectsexpansion of the fall hurricanes. At December 31, 2017, pipelines were $119 millionbanking teams, particularly in commercial, $49 million in residential mortgages,the Tampa, Orlando and $39 million in consumer and small business. Commercial pipelines increased $30South Florida MSAs.

Average securities portfolio balances have decreased $130.5 million, or 34%10%, over 2016, mortgage pipelines were $24 million or 33% lower, compared to 2016, and consumer and small business pipelines decreased from 2016 by $7 million, or 16%since 2018.

The addition of the GulfShore team into our lending business 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 provide an additional opportunity to further grow our balance sheet prospectively.

The average securities portfolio grew in size but was a smaller percentage Securities comprised 19% of average earning assets 28.4% for 2017in 2019 compared to 31.1%24% for 2016. However, careful portfolio management has resulted2018. Yields on securities increased from 2.93% in increased securities yields. For 2017 our securities yielded 2.66%, up from 2.31%2018 to 3.00% in 2016 and 2.21% in 2015.

For 2017,2019.

In 2019, the cost of average interest-bearing liabilities increased 1531 basis points to 0.46%1.10% from 2016. For 2016, this cost decreased 2 basis points to 0.31% from 2015.2018, reflecting increases in underlying market rates. The low overall cost of our funding reflects the low interest rate environment and the Company’s successful core deposit focus that produced


34



strong growth in core deposit customer relationships over the past several years. Excluding higher cost certificates of deposit (CDs), core deposits including noninterestNoninterest bearing demand deposits at December 31, 20172019 represent 30.5%28% of total deposits.deposits, compared to 30% at December 31, 2018. The cost of average total deposits (including noninterest bearing demand deposits) for the fourth quarter of 2017in 2019 was 0.29%0.69%, compared to 0.15% and 0.12% for the fourth quarters of 2016 and 2015.

0.43% in 2018.

The following table provides trend detail on the ending balance components of our customer relationship funding as of:

Customer Relationship Funding December 31, 
(Dollars in thousands) 2017  2016  2015 
          
Noninterest demand $1,400,227  $1,148,309  $854,447 
Interest-bearing demand  1,050,755   873,727   734,749 
Money market  931,458   802,697   665,353 
Savings  434,346   346,662   295,851 
Time certificates of deposit  775,934   351,850   293,987 
Total deposits $4,592,720  $3,523,245  $2,844,387 
             
Customer sweep accounts $216,094  $204,202  $172,005 
             
Total core customer funding(1) $4,032,880  $3,375,597  $2,722,405 
             
Noninterest demand deposit mix  30.5%  32.6%  30.0%
             
(1) Total deposits and customer sweep accounts, excluding time certificates of deposit

50

  December 31,
(In thousands, except percentages) 2019 2018
Noninterest demand $1,590,493
 $1,569,602
Interest-bearing demand 1,181,732
 1,014,032
Money market 1,108,363
 1,173,950
Savings 519,152
 493,807
Time certificates of deposit 1,185,013
 925,849
Total deposits $5,584,753
 $5,177,240
     
Customer sweep accounts $86,121
 $214,323
     
Noninterest demand deposit mix 28% 30%
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.funding. 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 believeSeacoast believes that digital product offerings are central to core deposit growth as access via these distribution channels is required by customers. During 2017 and 2016, we have significantly grown our2019, average transaction deposits (noninterest and interest bearing demand), with significant increases of $370.8 increased $285.6 million, or 20% in 2017 and $379.3 million or 26% in 2016.12%, compared to 2018. Along with new relationships, our deposit programs and digital sales have improved ourthe Company's market share and increased average services per household.

Our growthdeepened relationships with existing customers.

Growth in core deposits has also provided low funding costs. The Company’s deposit mix remains favorable, with 83 percent80% of average deposit balances comprised of savings, money market, and demand deposits in the fourth quarter of 2017.2019. The Company’s average cost of deposits, including noninterest bearing demand deposits, was 0.21% for 2017, slightly above 2016’sincreased to 0.69% in 2019 compared to 0.43% in 2018 despite decreases in the Fed funds rate beginning in the third quarter of 0.14%, as acquired deposits marginally increased the Company’s cost of deposits.

2019.

Short-term borrowings, (principallyprincipally comprised of sweep repurchase agreements with customers, of Seacoast Bank) decreased $15.9$94.7 million, or 8%47%, to an average $171.7 million during 2017, after increasing $19.4 million or 12% to average $187.6of $106.1 million for 2016, asthe full year 2019 compared to 2015. Withan average of $200.8 million for the full year 2018. The decrease reflects a shift in customer 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.into interest bearing deposits. The average rate on customer repurchase accounts was 0.46% for 2017.1.35% in 2019 compared to 0.90% in 2018. No federal funds soldpurchased were utilized at December 31, 2017 and 2016.

2019 or 2018.

FHLB borrowings maturing in 30 days or less (alongtotaled $315.0 million at December 31, 2019, with $7.0 milliona weighted average rate of FHLB borrowings acquired from PBCB maturing in 2018 and 2019), totaled $211.01.72% at year-end compared to $380.0 million at December 31, 2017,2018 with ana weighted average rate of 1.39%2.45% at year-end, compared to $415.0 million a year ago with an average rate of 0.61%. 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.year-end. FHLB borrowings averaged $377.4$131.9 million for 2017, upthe full year 2019, down from $198.3$225.0 million for 2016 and $64.7 million for 2015the full year 2018 (see “Note I – Borrowings” to the Company’s consolidated financial statements).

For 2017,2019, average subordinated debt of $70.4$70.9 million related to trust preferred securities issued by subsidiary trusts of the Company (including subordinated debt for Grand and BANKshares assumed on July 17, 2015 and October 1, 2014, respectively) carried an average cost of 3.47%.

We have a positive interest rate gap and our net interest margin will benefit4.75%, up from rising interest rates. During 2017 and 2016, the Federal Reserve increased its overnight interest rate by 75 basis points and 25 basis points, respectively. Further increases4.48% in2018, reflecting higher market interest rates are currently expected for 2018as the subordinated debt cost is based on LIBOR plus a spread (see “Interest Rate Sensitivity”"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.

51

  Total  Fourth  Third  Second  First  Total  Fourth 
  Year  Quarter  Quarter  Quarter  Quarter  Year  Quarter 
(Dollars in thousands) 2017  2017  2017  2017  2017  2016  2016 
Nontaxable interest adjustment $706  $176  $154  $164  $212  $925  $203 
Tax rate  35%  35%  35%  35%  35%  35%  35%
Net interest income (TE) $177,002  $48,402  $45,903  $44,320  $38,377  $140,514  $37,628 
Total net interest income (not TE)  176,296   48,226   45,749   44,156   38,165   139,588   37,425 
Net interest margin (TE)  3.73%  3.71%  3.74%  3.84%  3.63%  3.63%  3.56%
Net interest margin (not TE)  3.72   3.70   3.73   3.83   3.61   3.61   3.54 

TE = Tax Equivalent, a non-GAAP measure.

Noninterest Income

Noninterest income (excluding securities gains and gain on sale of Class B Visa stock)losses) totaled $43.2$55.5 million for 2017,in 2019, an increase of $5.8$4.9 million, or 16%10%, 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. For 2016, noninterest income (excluding securities gains) totaled $37.4 million, $5.4 million or 17% higher than for 2015. For 2015, noninterest income (excluding securities gains and bargain purchase gain) of $32.0 million was 29% higher than for 2014.2018. Noninterest income accounted for 19.1%19% of total revenue in 2019 (net interest income plus noninterest income, excluding securities gains and the gain on sale of Class B Visa stock),losses) compared to 21.1%19% in 2016 and 22.6% for 2015 (on the same basis) as net interest income growth, helped by expanding net interest margin, outpaced a strong increase in noninterest income. Analytics driven product marketing and service delivery, combined with organic and acquisition-related household growth, were primary factors contributing to the growth in noninterest income during 2017, 2016 and 2015.

2018.

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

For 2017, most categories of service fee income showed strong

Service charges on deposits for the year over year growthended December 31, 2019 compared to 2016, with service charges on deposit accounts increasing $0.4the year ended December 31, 2018 increased $0.3 million, or 4%3%, to $10.0 million, interchange income up $1.4 million or 15% to $10.6 million, while other deposit based EFT charges were generally flat year over year. These increases reflect$11.5 million.This increase reflects continued strength in customer acquisition and cross sell and benefits from acquisition activity. Overdraft fees in each year represent 57%55% of total service charges on deposits for 2017, versus 60% for 2016. Overdraft fees totaled $5.7 million during 2017, decreasing $0.1 million from 2016, in part due to third quarter 2017’s post-hurricane Irma accommodations for customers including waivers of fees where circumstance were appropriate. 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®.

52

deposits.



35



Wealth management revenues, including brokerage commissions and fees and trust income, decreasedincreased during 2017, declining2019 by $0.4 million, or 8%. Growth7%, to $6.4 million. Year-over-year growth in trust revenues of $0.3 million, or 8% was entirely offset by a decline6%, to $4.4 million, and increases in the Company’s brokerage fees of $0.7$0.2 million, aor 10%, to $1.9 million, were the result of our shifting to fee-based accountscontinued growth in assets under management, a growing sales and an investment management model. We expect wealth management revenues to grow over time.

Mortgage production was higher during 2017 (see “Loan Portfolio”)support team, industry leading products including digital tools and direct referrals from the Company's team of bankers.

Saleable loan originations increased by $47.3 million, or 25%, withand mortgage banking activityfees increased by $1.8 million, or 39%, to $6.5 million for the year ended December 31, 2019 as compared to the prior year. These increases reflect a greater focus on generating saleable volume as well as the impact of lower long-term rates.
Marine finance fees were $1.1 million in 2019, a decrease of $0.3 million, or 25%, compared to fees of $6.4$1.4 million which were $0.6 million or 10% higher, compared to 2016. Originated residential mortgage loans are processedin 2018. In 2019, marine financing income was impacted by commissioned employees of Seacoast, with many mortgage loans referred by the Company’s branch personnel. Fee income opportunities were more limited during 2017, a result of shifting consumer demand to construction products and low inventory levels of homes for sale. During 2017, two pools of seasoned portfolio mortgages were sold, generating gains of $1.3 million. During 2016, two pools of seasoned portfolio mortgages were sold, generating gains of $0.9 million.

Seacoast chose to sellshift in mix towards retaining a larger portion of its marine financing originations during 2017. Marine lending business volumes sold were higher in 2017,the loan portfolio.

Interchange revenue totaled $13.4 million in 2019, an increase of 9% from $12.3 million in 2018, reflecting stronger demandthe impact of a larger customer base, cross sell and prior bank acquisitions.
Bank owned life insurance ("BOLI") income totaled $3.7 million for marine vessels and favorably impacting fees from marine financing, which grew $0.22019, a decrease of $0.6 million, or 35% from 2016 levels. In addition14%, compared to our principal office in Ft. Lauderdale, Florida, we continue to use third party independent contractors in Texasthe prior year. The decrease reflects the impact of First Green BOLI contract surrenders completed at the end of 2018.
Gains on sale of Small Business Administration ("SBA") loans totaled $2.5 million for 2019 and on the West coast of the United States to assist in generating marine loans.

During 2017, BOLI2018.

Other income totaled $3.4 million, up fromincreased $2.2 million, or 26%, year-over-year for 2016. An additional purchase of $30 million of BOLI in the third quarter of 2017. At December 31, 2017, the BOLI asset totaled $124.0 million.

Other income was $2.5 million or 64% higher for 20172019 compared to 2018. 2019 results reflect a year ago, with additional fees of $0.8$1.0 million BOLI death benefit and $0.9 million for swap related income. 2018 includes $0.5 million for swap related income with loan customers, $0.5customers.

Securities gains in 2019 totaled $1.2 million, for secondary market activitiesresulting from the sale of $202.7 million of debt securities with an average yield of 2.37% and an increase in the Small Business Administration (“SBA”),value of the CRA qualified mutual fund investment of $0.2 million for distributionsin 2019. Securities losses in 2018 totaled $0.6 million, resulting from the sale of $64.4 million of debt securities with an average yield of 2.42% and a decrease in the value of the CRA investments, $0.2 million for check cashing fees,qualified mutual fund investment of $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 lending. A general increase in other fee categories also occurred year over year,million.
Noninterest Expense
The Company has improved the result of pricing increases implemented across the franchiseefficiency ratio through continued focus on a number of services offered.

53

For 2016, Seacoast’s noninterest income (excluding securities gains) was $5.4 million or 17% higher compared to 2015. While service charges on deposit accounts, interchange income and other EFT charges grew $1.1 million or 13%, $1.5 million or 20% and $0.1 million or 20%, respectively, reflecting successful household growth, wealth management fee income and mortgage banking income were higherexpense discipline as well by $0.2 million or 4% and $1.6 million or 38%, respectively. For 2016, BOLI income increased $0.8 million from 2015, and included an additional death benefit of $0.5 million and the benefit of a purchase of new BOLI in the fourth quarter of 2016. Marine lending business volumes sold were lower in 2016, negatively impacting fees from marine financing which declined $0.5 million or 42% from 2015 levels.

Noninterest income in the fourth quarter of 2015 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. 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.

Noninterest Expense

Table 5 provides detail of noninterest expense components for the years ending December 31, 2017, 2016 and 2015.

Seacoast management expects its efficiency ratios to improve in 2018. The Company expects its digital servicing capabilities and technology to support better,as more efficient channel integration, allowing consumers and businesses to choose their path of convenience to satisfy their banking needs,needs. This expansion launched a number of new enhancements, resulting in organiceven greater digital access for customers, and providing improvements in productivity for the Company's customers in their daily lives. Expense reduction initiatives inclusive of a reduction in force in the second quarter of 2019 and three banking center consolidations executed in the first nine months of 2019 resulted in approximately $10 million in pretax expense reductions. Seacoast has reduced its footprint by 20% since 2017 through successful bank acquisitions and the repositioning of the banking center network in strategic growth markets to meet the evolving needs of our products and services as well as related revenue,its customers. At December 31, 2019, deposits per banking center were $116.3 million, up from $101.5 million at December 31, 2018.

In 2018, the Company consolidated seven branches, including four in addition to increased efficiency in how we serve our customers.conjunction with the acquisition of First Green. Acquisition activity added to noninterest expenses with acquisition related costs for GulfShore, NorthStar and PBCBFirst Green in 2017, Floridian and BMO in 2016, and Grand in 20152018 of approximately $12.9 million, $9.0 million and $4.7 million, respectively, as well as ongoing costs related to this growth. The Company anticipates making investments totaling approximately $4.5 million in 2018 to improve our processes and tools for commercial banking, invest in talent and tools for our enterprise risk management and technology functions, and further upgrade our analytics and digital marketing capabilities. These investments will help to scale our organization appropriately, and we believe will set$9.7 million.
In 2019, the stage for sustainable earnings growth in 2019 and beyond.

For 2017, ourCompany's 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 the gain on saleand losses) was 51.7% compared to 60.0% for 2018. Noninterest expenses for 2019 totaled $160.7 million, a decrease of Visa stock and bargain purchase gain) was 66.7%$1.5 million, or 1%, compared to 72.1% for 2016 and 71.6% for 2015. 2018. Adjusted noninterest expense1 (a non-GAAP measure, see tablewas $152.0 million for 2019, compared to $147.7 million for 2018. The Company expects its efficiency ratios to increase slightly above 50% in the first half of 2020, then decrease below for a reconciliation to50% when exiting 2020.



36



  For the Year Ended December 31,
(In thousands) 2019 2018
Noninterest expense, as reported $160,739
 $162,273
     
Merger related charges (969) (9,681)
Amortization of intangibles (5,826) (4,300)
Business continuity expenses - hurricane events (95) 
Branch reductions and other expense initiatives (1,846) (587)
Total adjustments (8,736) (14,568)
Adjusted noninterest expense1
 $152,003
 $147,705
     
Efficiency ratio 51.71% 59.98%
Adjusted efficiency ratio1,2
 50.90
 56.13
1Non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP.
2Adjusted efficiency ratio is defined as noninterest expense, including adjustments to noninterest expense divided by aggregated tax equivalent net interest income and noninterest income, including adjustments to revenue.
Table 5 provides detail of noninterest expense the most comparable GAAP number) was $129.0 million for 2017, compared to $114.2 million for 2016 and $97.4 million for 2015. Noninterest expense includes the addition during the second and fourth quarters of 2017 of additional personnel and expenses associated with our acquisitions. Outsourced data processing costs reflect the value of our renegotiated contract with our core processing vendor. The adjusted efficiency ratio1 for 2017 steadily improved over the course of the year, from 64.7%components for the first quarter, to 61.2% for the second quarter, to 57.7% for the third quarter,years ending December 31, 2019, 2018 and to 52.5% for the fourth quarter of 2017.

54

2017.

  For the Year Ended December 31, 
(In thousands) 2017  2016  2015 
Noninterest expense, as reported $149,916  $130,881  $103,770 
             
Merger related charges  12,922   9,028   4,673 
Amortization of intangibles  3,360   2,486   1,424 
Branch reductions and other expense initiatives  4,321   3,357   0 
Business continuity expenses for Hurricane Irma  352   0   0 
Early redemption cost for FHLB advances  0   1,777   0 
Other  0   0   281 
Total adjustments  20,955   16,648   6,378 
             
Adjusted noninterest expense1 $128,961  $114,233  $97,392 
             
Adjusted efficiency ratio1,2  58.7%  64.6%  68.6%
             
1 See page 59, Explanation of Certain Unaudited Non-GAAP Financial Measures.
2 Adjusted efficiency ratio is defined as noninterest expense, including adjustments to noninterest expense (see pages 60-61) divided by aggregated tax equivalent net interest income (see pages 51-52) and noninterest income, including adjustments to revenue (see pages 60-61).

Salaries and wages totaling $65.7$73.8 million were $11.6$2.7 million, or 21%4%, higher for 2017, than for 2016, including $8.5 million in expenses related to mergers and other non-routine items. Base salaries were $6.9 million or 15% higher during 2017, reflecting the full-year impact of additional personnel retained as part 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. Improved revenue generation and lending production, among other factors, resulted in commissions, cash and stock incentives (aggregated) that were $3.5 million higher for 2017,full year 2019 compared to 2016. Temporary services and severance costs increased $1.1 million and $1.8 million, respectively,the full year 2018. Higher base salaries, attributed to merit increases, were the primary cause of the increase in 2017. Deferred loan origination costs (a contra expense), increased $1.7 million, reflecting a greater number of loans produced during 2017.

Similarly, salaries and wages, for 2016 were $13.0increasing $6.5 million, or 32% higher than for 2015. A significant portion of the increase was for base salaries11%, compared to 2018. Continued focus on expense control as well as restructured compensation plans resulted in incentives that were $7.3$2.9 million, or 19% greater, reflecting13%, lower year-over-year. Severance costs also increased by $0.5 million, or 67%, year-over-year, of which $1.1 million related to a reduction in workforce during the full-year impact of additional Grand personnel and retained personnel from first quarter 2016’s acquisition of Floridian and second quarter 2016’s purchase of BMO’s Orlando operations. Commissions, cash and stock incentives (aggregated) were $4.9 million higher for 2016 compared to 2015, and2019. In 2019, deferred loan origination costs, were lowera contra expense, decreased by $0.5$0.7 million reflecting a greater number of loans produced but at a more efficient cost per loan.

compared to 2018.

During 2017,2019, employee benefitsbenefit costs (groupwhich include, group health insurance, defined contribution plan, payroll taxes, as well asand unemployment compensation)compensation, increased $1.8$0.8 million, or 19% to $11.7 million from 2016, and6%, compared to a $0.3 million or 4%2018, the result of an increase in 2016, versus 2015 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 $5.3 million for 2017, and payroll taxes totaling $4.4of $0.6 million wereand an increase in defined contribution plan expenditures of $0.2 million, partially offset by a decrease in group health insurance of $0.1 million. Increases in payroll taxes and defined contribution plan expenditures are correlated to the second largest category.increase in salaries and wages. The Company offers competitively pricedhas continued to actively manage group health insurance expenses to maintain a low cost structure while continuing to provide quality coverage to all of its associates that qualify for benefits, to attract the best professional talent to theemployees.
The Company at a reasonable cost and competitive with other businesses in the Florida markets where we conduct business.

55

Seacoast Bank utilizes third parties for its core data processing systems and outsourcedsystems. The data processing costs are directly related toassociated with these third parties fluctuate based on the number of transactions processed.processed and the negotiated rates associated with those transactions. Outsourced data processing costs totaled $14.1$15.1 million for 2017, an increase of $0.6and $16.4 million in 2019 and 2018, respectively. The $1.3 million, or 4% from 2016, and were $3.4 million higher for 2016 versus 2015. Data processing costs include one-time charges for conversion activity related to our acquisitions. We continue8%, decrease in 2019 reflects the impact of lower negotiated rates with some of the Company's key third party providers. The Company continues to improve and enhance our mobile and other digital products and services through our core data processor, whichkey third parties. This may increase our outsourced data processing costs as customers adopt improvements and products and as the Company’s business volumes grow.

2018 expenditures also include one-time charges for conversion activity related to our acquisition of First Green.

Telephone and data line expenditures,expenses, including electronic communications with customers, and between branch locations and personnel, as well asand with third party data processors, increased $0.2$0.5 million, or 9%19%, to $2.3$3.0 million for 2017 whenduring 2019 compared to 2016,2018. The increase reflects the continued shift towards serving the customer through the Customer Support Center and were $0.3 million or 17% higher in 2016 compared to 2015. Additional activity for acquired GulfShore, NorthStar and PBCB locations in 2017, and Floridian and BMO locations in 2016, and locations closed during 2017 and 2016, as well as additional customers from the acquisitions, were the primary contributors to the increases in telephone and data line expenses for each year.

digital channels.

Total occupancy, furniture and equipment expense for 2017 increased $1.5expenses in 2019 totaled $20.5 million, an increase of $0.4 million, or 8% (on an aggregate basis)2%, compared to $19.42018. The increase is primarily related to higher leasing expenses of $0.8 million and higher technology hardware maintenance expenses of $0.3 million, partially offset by lower asset write-offs of $0.7 million. The increase in lease expenses reflects the full year overimpact of branches acquired from First Green in the third quarter of 2018, while the decrease in asset write-offs reflects lower branch closure activity compared to the prior year. For 2016, these costs were $5.7 million or 47% higher than in 2015. For 2017 and 2016, the increases were primarily drivenThe Company continues to strategically manage its branch footprint to balance customer needs for access to physical branches complemented by the 10 offices acquired from GulfShore, NorthStarability to provide services through phone based and PBCB and the 24 offices acquired from the Floridian and BMO acquisitions. Seacoast Bank consolidated 6 offices and 20 offices, respectively, during the 2017 and 2016 calendar years. Lease payments were higher by $0.5 million or 9% and $1.1 million or 27% for 2017 and 2016, respectively, and include recurring payments for many of the closed offices. Depreciation was also $0.5 million or 11% greater for 2017 than 2016. Write downs totaling $2.3 million were incurred 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 will be invested into technology and talent to deliver products and services in more convenient ways.channels. 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 2017,as the customer service dynamic continues to evolve.

In 2019 and 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 $1.2totaled $4.2 million or 32%and $5.1 million, respectively. The Company continues to $4.8 million, compared to 2016. For 2016, these costs were $0.8 million or 18% lower, versus 2015. Incrementalcarefully


37



manage the use of outdoor media,marketing campaigns to target potential high value customers in a cost effective manner through a mix of digital media andcommunications, direct mail, to connectevent sponsorships and solidify customer acquisition and corporate brand awareness within the new Tampa footprint contributed to the increase in 2017. 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.

donations.

Legal and professional fees for 2017 were higher by $1.42019 and 2018 totaled $8.6 million or 15% from 2016, and were $1.6$10.0 million, higher for 2016 versus 2015. Included wererespectively. 2019 expenses include significant projects in the first quarter of 2019 in risk management and lending operations while 2018 reflects acquisition related fees that totaled $1.9 million for 2017 and $1.5 million for 2016. Regulatory examination fees increased as total assets increased (the basis for examination fee calculation).

56

expenditures of $2.1 million.

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. 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 $2.3$0.9 million $2.4in 2019 compared to $2.2 million in 2018. During the third quarter of 2019, the FDIC announced the achievement of the target deposit insurance reserve ratio, resulting in the Company's ability to apply previously awarded credits to its deposit insurance assessment. The Company utilized $0.9 million in credits to offset FDIC assessments during the third and fourth quarter of 2019. The Company has remaining credits of $0.7 million, which will be applied to future assessments if the FDIC’s reserve ratio remains above the target threshold.

For the year ended December 31, 2019, foreclosed property expense and net loss on sale was $0.1 million compared to $0.5 million in 2018. Higher expenses in 2018 are the result of losses on the sale of OREO properties.
Other expense totaled $15.2 million and $2.2$17.2 million for 2017, 2016in 2019 and 2015,2018, 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 or declined, from $0.7 million for 2015 to zero for 2016 to a gain The decrease of ($0.3) million for 2017.

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 $2.0 million, or 15%12%, for 2017 compared to 2016, totaling $13.5 million. For 2016, other expenses were $1.3 million or 11% higher, compared to 2015. Contributing to the $2.0 million increase for 2017 were the following: miscellaneous lossesyear ended December 31, 2019 reflects a continued focus on efficiency 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). Larger increases during 2016 were driven by a full-year and partial-year impacts of acquisitions and variable costs related to our successful lending activity.

streamlining operations.

Income Taxes

The Tax Cuts

For 2019 and Jobs Act of 2017, enacted by the U.S. Congress and signed by the President of the United States near the end of December 2017, had a significant impact on our deferred tax position and provision for taxes at year-end 2017. For 2017, 2016 and 2015,2018, provision for income taxes totaled $36.3$29.9 million, and $14.9$20.3 million, and $13.5 million, respectively.
The new legislation resulted in additional provisioning of $8.6 million during the fourth quarter of 2017. This estimate is subject to additional procedures which could result in further adjustments in future periods.

While various tax strategies have been implemented to reduce the Company’sCompany's overall effective tax rate increased to 23.2% in 2019 from 23.1% in 2018. In September 2019, the additional provisioningState of Florida announced a reduction in the corporate income tax rate from 5.5% to 4.458% for taxes related to this enactmentthe years 2019, 2020 and 2021. This change resulted in a rate of 45.9% for 2017, an increase from 33.8% in 2016 and 37.9% in 2015. Without the additional provision from the legislation, the effective rate for 2017 was 35.1%. For 2017, 2016 and 2015, a portion of investment banking fees, and legal and professional fees expended and related to the acquisitions were not deductible forincome tax purposes. Additionally, the adoption of ASU 2016-09 provided a tax benefitexpense of $1.1 million for 2017 and $0.8 million for 2016 afterupon the standard’s adoptionwrite down in the third quarter of that year (see “Note A- Significant Accounting Policies”).

Management believes all2019 of the future tax benefits of the Company’s deferred tax assets can be realizedaffected by the change, offset by a $0.4 million benefit upon adjusting the year-to-date provision to the new statutory tax rate. Taxes for 2018 also included taxes and no valuation allowance is required (see “Note L – Income Taxes”).

57

Fourth Quarter Review

Earnings highlights forpenalties of $0.5 million on the redemption of First Green BOLI policies in the fourth quarter 2017:

·Fourth quarter 2017 net income totaled $13.0 million, an increase of $2.3 million or 21% from the same period of 2016, and declined $1.2 million or 8% compared with third quarter 2017 levels. Adjusted net income(1) increased $5.5 million or 46% from fourth quarter 2016 levels and $2.1 million or 14% from third quarter 2017. Diluted earnings per common share (“EPS”) were $0.28 and adjusted diluted EPS(1) were $0.37 in the fourth quarter of 2017, compared to diluted EPS of $0.28 and adjusted diluted EPS(1) of $0.31 in the fourth quarter of 2016;
·Fourth quarter revenues increased $27.5 million or 58% from fourth quarter 2016 levels. Net interest income improved $10.8 million or 29% compared to fourth quarter 2016, due to organic growth and the acquisitions settled during 2017;
·A $15.2 million gain on the sale of shares of Class B Visa stock was recorded in the quarter.

(1) See page 59, Explanationof 2018.

Discrete tax benefits related to share-based compensation were $0.8 million and $1.1 million in 2019 and 2018, respectively.
Fourth Quarter Review
Net income totaled $27.2 million, an increase of $1.6 million, or 6%, from the third quarter of 2019, and an increase of $11.2 million, or 70%, compared with the fourth quarter of 2018. Adjusted net income totaled $26.8 million, a decrease of $0.9 million, or 3%, from the third quarter of 2019, and an increase of $2.9 million, or 12%, compared with the fourth quarter of 2018. Diluted earnings per common share (“EPS”) were $0.52 and adjusted diluted EPS were $0.52 in the fourth quarter of 2019, compared to diluted EPS of $0.49 and adjusted diluted EPS of $0.53 in the third quarter of 2019 and to diluted EPS of $0.31 and adjusted diluted EPS of $0.47 in the fourth quarter of 2018. Adjusted net income and adjusted diluted EPS are non-GAAP measures, see "Explanation of Certain Unaudited Non-GAAP Financial Measures.

Measures" for more information and a reconciliation to GAAP.

Revenues increased $3.2 million, or 4%, from the third quarter of 2019 and increased $5.4 million, or 7%, from the fourth quarter of 2018 levels. Net interest income improved $0.8 million, or 1%, compared to third quarter of 2019 and improved $1.8 million, or 3%, compared to the fourth quarter of 2018. Improvements are due to organic growth and impact of the acquisition completed during the fourth quarter 2018.
Net interest income (on a tax-equivalent basis, a non-GAAP measure) for the fourth quarter 20172019 totaled $48.4$61.8 million, a $10.8an increase of $0.8 million, or 29%1%, from the third quarter of 2019, and an increase of $1.7 million, or 3%, from the fourth quarter 2016 and $2.5 million higher than third quarter 2017.2018. Net interest margin (on a tax-equivalent basis) increased to 3.71%,basis, a 15 basis point increase from 2016, and 3non-GAAP measure) decreased 5 basis points lower thanto 3.84% from the third quarter 2017. Year-over-year net interest income growthof 2019 and decreased 16 basis points from the fourth quarter 2018. The Federal Reserve reduced the overnight rate three times by 25 basis points during the third and fourth quarters of 2019 and the 10-year treasury rate fell by approximately 25 basis points, resulting in lower new earning asset yields and further declines in variable rate earning asset portfolios. This was amplifiedpartially offset by the acquisitionsCompany's success in lowering the cost of GulfShore, NorthStar and PBCB. The margin increase year over year reflects increased loan and securities yields, reflectingfunding, the rising interest rate environment, and improved balance sheet mix. Linked quarter results reflect higher ratesresult of focus on deposits and lower non-cash related loan accretion associated with prior acquisitions.

maintaining deposit pricing discipline.

Noninterest income, (excludingexcluding securities gains and gain on sale of Class B Visa stock)losses, totaled $11.4$13.8 million for the fourth quarter of 2017,2019, a decrease of $1.0 million, or 6%, from the third quarter of 2019 and an increase of $1.5$0.7 million, or 15%5%, from the fourth quarter 2016of 2018. Mortgage banking fees and compared to $11.5 million in the third quarter 2017. Interchange income and BOLIinterchange income increased the most year-over-year, each increasing $0.5$0.7 million respectively, as well as otherand $0.2 million, respectively. Service charges on deposits and interchange income that was higher by $0.7 million. Interchange income reflectsreflect continued growth and benefits from ourorganic growth as well as acquisition activity, including the GulfShore, NorthStar and PBCB acquisitionsFirst Green acquisition in the second and fourth quarters of 2017. BOLI income was 80% higher, with additional purchases of BOLI during 2017 and the BOLI asset totaling $124.0 million at year-end. The increase in other income year over year for the fourth quarter includedof 2018. Other income benefited from interest rate swaps with customers of $0.3 millionan increased BOLI payout, increased swap related income, increased SBIC investment income, and SBA gains on sold guarantees of $0.3 million.

58

higher other miscellaneous related fees.



38



Noninterest expenses for the fourth quarter 20172019 totaled $39.2$38.1 million, up 29%a decrease of $0.5 million, or 1% from 2016the prior quarter and 14% higher than thirda decrease of $11.4 million, or 23%, from the fourth quarter 2017.of 2018. Of the $8.9$11.4 million increasedecrease year-over-year, for fourth quarter 2017, salaries, wages anddecreased $4.9 million, employee benefits increased $3.8decreased $0.3 million, outsourced data processing grew $1.1decreased $2.2 million, and occupancy and furniture and equipment costs (aggregated) were $1.0 million higher. The acquisitions of GulfShore, NorthStar and PBCBlower by $1.4 million. Expenditure reductions were the primary causeresult of our continued focus on efficiency and incremental, although for 2017 the Company added only four more branch offices, compared to year-end 2016. Fourth quarter 2017 expense also reflected merger related charges of $6.8 million from our acquisitions, including related severance. The most significant factor impacting the fourth quarter 2016’s noninterest expense was also merger related charges, totaling $0.6 million from acquisitions, and including related severance.

streamlining operations.

A provision for loan losses of $2.3 million and $1.0$4.8 million was recorded in the fourth quarter of 2017 and 2016, respectively. Third quarter 2017’s provision for loan losses totaled $0.7 million. 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 2017, net charge-offs totaled $1.3 million,2019 compared to $0.2$2.3 million for fourthin the previous quarter 2016.and a year ago. The allowance for loan losses to portfolio loans outstanding ratio at December 31, 20172019 was 0.90%0.68%, compared to 0.96%0.67% a year earlier, and the coverage ratio (the allowance for loan losses to nonaccrual loans) was 150.3%130% at December 31, 20172019 compared to 125.10%123% at December 31, 2016,2018, reflecting improvement in credit quality.

Update on Vision 2020

Our

The Company's Vision 2020 objectives were introduced at ourits investor day in early 2017. These targets are reiterated below. Management remains confident in the Company's ability to achieve these objectives. The enactmentCompany expects its adjusted efficiency ratio1 to move modestly above 50% in the first half of 2020 due to the Tax Cuts and Jobs Actseasonality of 2017 is expectedcertain expenditures, before moving back to have a significant positive impact on our Florida markets, and creates an opportunity for us to accelerate the achievement of our Vision 2020 objectives. As the impact of this new legislation on our operating markets materializes, we will provide further updates on our progress and updated objectives.

below 50% exiting 2020.
  Vision 2020 Targets
 Full Year 20191
Return on Tangible Assets 1.30%+1.58%
Return on Tangible Common Equity 16%+14.93%
Efficiency Ratio Below 50%50.90%
1See "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP.


Explanation of Certain Unaudited Non-GAAP Financial Measures

This report contains financial information determined by methods other than Generally Accepted Accounting Principles (“GAAP”),. The financial highlights provide reconciliations between GAAP and adjusted financial measures including adjusted net income, tax, taxfully taxable equivalent net interest income, and margin, and adjustednoninterest income, noninterest expense, and efficiency ratios. The most directly comparable GAAP measures are net income, net interest income,tax adjustments, net interest margin noninterest expense, and efficiencyother financial ratios. Management uses these non-GAAP financial measures in its analysis of the Company’s performance and believes these presentations provide useful supplemental information, and a clearer understanding of the Company’s performance. The Company believes the non-GAAP measures enhance investors’ understanding of the Company’s business and performance and if not provided would be requested by the investor community. These measures are also useful in understanding performance trends and facilitate comparisons with the performance of other financial institutions. The limitations associated with operating measures are the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might define or calculate these measures differently. The Company provides reconciliations between GAAP and these non-GAAP measures. These disclosures should not be considered an alternative to GAAP.

59

The following tables below provide reconciliation between GAAP net income and adjusted net income. Effective in the first quarter of 2017, adjusted net income and adjusted noninterest expense exclude the effect of amortization of acquisition-related intangibles. Prior periods have been revised to conform to the current period presentation.

  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 Class B Shares $(15,153)  0   0   0  $(15,153)
Securities gains  (112)  47   (21)  0   (86)
Total adjustments to revenue  (15,265)  47   (21)  0   (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  0   352   0   0   352 
Branch reductions and other expense initiatives  0   (127)  1,876   2,572   4,321 
Total adjustments to noninterest expense  7,780   1,555   7,796   3,824   20,955 
                     
Effective tax rate on adjustments  3,147   (673)  (2,786)  (1,480)  (1,792)
Effect of change in corporate tax rate  8,552   0   0   0   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 

60

financial measures.

  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 
                     
BOLI income (benefits upon death)  0   0   0   (464)  (464)
Securities gains  (7)  (225)  (47)  (89)  (368)
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 closure charges and costs related to expense initiatives  163   894   1,587   713   3,357 
Early redemption cost for FHLB advances  0   0   1,777   0   1,777 
Total adjustments to noninterest expense  1,443   3,321   6,403   5,481   16,648 
                     
Effective tax rate on 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 

  Quarters    
  Fourth  Third  Second  First  Total 
(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 revenue  (417)  (160)  0   0   (577)
                     
Merger related charges  1,230   2,790   366   287   4,673 
Amortization of intangibles  397   397   315   315   1,424 
Other  48   233   0   0   281 
Total adjustments to noninterest expense  1,675   3,420   681   602   6,378 
                     
Effective tax rate on adjustments  (328)  (1,072)  (140)  (111)  (1,651)
Adjusted net income $6,966  $6,629  $6,346  $6,350  $26,291 
Adjusted diluted earnings per share $0.20  $0.19  $0.19  $0.19  $0.78 

61

  Quarters  
  Fourth Third Second First Total
(In thousands except per share data) 2019 2019 2019 2019 Year
Net income, as reported:  
  
  
  
  
Net income $27,176
 $25,605
 $23,253
 $22,705
 $98,739
           
Diluted earnings per share $0.52
 $0.49
 $0.45
 $0.44
 $1.90
           
Adjusted net income:  
  
  
  
  
Net income $27,176
 $25,605
 $23,253
 $22,705
 $98,739
Securities losses, net (2,539) 847
 466
 9
 (1,217)
BOLI benefits on death (included in other income) 
 (956) 
 
 (956)
Total adjustments to revenue (2,539) (109)
466
 9
 (2,173)
          

Merger related charges (634) 
 
 (335) (969)
Amortization of intangibles (1,456) (1,456) (1,456) (1,458) (5,826)



39



  Quarters  
  Fourth Third Second First Total
(In thousands except per share data) 2019 2019 2019 2019 Year
Business continuity expenses - hurricane events 
 (95) 
 
 (95)
Branch reductions and other expense initiatives1
 
 (121) (1,517) (208) (1,846)
Total adjustments to noninterest expense (2,090) (1,672) (2,973) (2,001) (8,736)
           
Tax effect of adjustments (110) 572
 874
 510
 1,846
Effect of change in corporate tax rate on deferred tax assets 
 (1,135) 
 
 (1,135)
Adjusted net income $26,837
 $27,731
 $25,818
 $24,205
 $104,591
           
Adjusted diluted earnings per share $0.52
 $0.53
 $0.50
 $0.47
 $2.01
           
Average Assets $6,996,214
 $6,820,576
 $6,734,994
 $6,770,978
 $6,831,280
Less average goodwill and intangible assets (226,060) (227,389) (228,706) (230,066) (228,042)
Average Tangible Assets $6,770,154
 $6,593,187
 $6,506,288
 $6,540,912
 $6,603,238
           
Return on Average Assets (ROA) 1.54 % 1.49% 1.38% 1.36% 1.45%
Impact of removing average intangible assets and related amortization 0.12
 0.12
 0.12
 0.12
 0.11
Return on Average Tangible Assets (ROTA) 1.66
 1.61
 1.50
 1.48
 1.56
Impact of other adjustments for Adjusted Net Income (0.09) 0.06
 0.09
 0.02
 0.02
Adjusted Return on Average Tangible Assets 1.57
 1.67
 1.59
 1.50
 1.58
           
Average Shareholders' Equity $976,200
 $946,670
 $911,479
 $879,564
 $928,793
Less average goodwill and intangible assets (226,060) (227,389) (228,706) (230,066) (228,042)
Average Tangible Equity $750,140
 $719,281
 $682,773
 $649,498
 $700,751
           
Return on Average Shareholders' Equity 11.04 % 10.73% 10.23% 10.47% 10.63%
Impact of removing average intangible assets and related amortization 3.91
 4.00
 4.07
 4.39
 4.09
Return on Average Tangible Common Equity (ROTCE) 14.95
 14.73
 14.30
 14.86
 14.72
Impact of other adjustments for Adjusted Net Income (0.76) 0.57
 0.87
 0.25
 0.21
Adjusted Return on Average Tangible Common Equity 14.19
 15.30
 15.17
 15.11
 14.93
           
Loan interest income excluding accretion on acquired loans2
 $59,515
 $59,279
 $58,169
 $58,397
 $235,359
Accretion on acquired loans 3,407
 3,859
 4,166
 3,938
 15,371
Loan Interest Income2
 $62,922
 $63,138
 $62,335
 $62,335
 $250,730
           


40



  Quarters  
  Fourth Third Second First Total
(In thousands except per share data) 2019 2019 2019 2019 Year
Yield on loans excluding accretion on acquired loans2
 4.63 % 4.76% 4.82% 4.89% 4.77%
Impact of accretion on acquired loans 0.26
 0.30
 0.34
 0.33
 0.31
Yield on Loans2
 4.89
 5.06
 5.16
 5.22
 5.08
           
Net interest income excluding accretion on acquired loans2
 $58,439
 $57,168
 $56,053
 $56,923
 $228,582
Accretion on acquired loans 3,407
 3,859
 4,166
 3,938
 15,371
Net Interest Income2
 $61,846
 $61,027
 $60,219
 $60,861
 $243,953
           
Net interest margin excluding accretion on acquired loans2
 3.63 % 3.64% 3.67% 3.76% 3.67%
Impact of accretion on acquired loans 0.21
 0.25
 0.27
 0.26
 0.25
Net Interest Margin2
 3.84
 3.89
 3.94
 4.02
 3.92
           
Loan interest income excluding tax equivalent adjustment $62,867
 $63,091
 $62,287
 $62,287
 $250,532
Tax equivalent adjustment to loans 55
 47
 48
 48
 198
Loan Interest Income2
 $62,922
 $63,138
 $62,335
 $62,335
 $250,730
           
Security interest income excluding tax equivalent adjustment $8,630
 $8,933
 $9,076
 $9,270
 $35,909
Tax equivalent adjustment to securities 32
 33
 36
 39
 140
Securities Interest Income2
 $8,662
 $8,966
 $9,112
 $9,309
 $36,049
           
Net interest income excluding tax equivalent adjustments $61,759
 $60,947
 $60,135
 $60,774
 $243,615
Tax equivalent adjustment to loans 55
 47
 48
 48
 198
Tax equivalent adjustment to securities 32
 33
 36
 39
 140
Net Interest Income2
 $61,846
 $61,027
 $60,219
 $60,861
 $243,953
1Includes severance, contract termination costs, disposition of branch premises and fixed assets, and other costs to effect our branch consolidation and other expense reduction strategies.
2On a fully taxable equivalent basis. All yields and rates have been computed using amortized cost.


41



  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
Securities losses, net 425
 48
 48
 102
 623
BOLI benefits on death (included in other income) (280) 
 
 
 (280)
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 initiatives1
 (587) 
 
 
 (587)
Total adjustments to noninterest expense (9,924) (1,486) (1,699) (1,459) (14,568)
           
Tax effect of adjustments 2,138
 230
 443
 290
 3,101
Effect of change in corporate tax rate on deferred tax assets 
 
 
 (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
           
Average Assets $6,589,870
 $5,903,327
 $5,878,035
 $5,851,688
 $6,057,335
Less average goodwill and intangible assets (213,713) (165,534) (166,393) (167,136) (178,287)
Average Tangible Assets $6,376,157
 $5,737,793
 $5,711,642
 $5,684,552
 $5,879,048
           
Return on Average Assets (ROA) 0.96% 1.10% 1.16% 1.25% 1.11%
Impact of removing average intangible assets and related amortization 0.09
 0.08
 0.08
 0.09
 0.09
Return on Average Tangible Assets (ROTA) 1.05
 1.18
 1.24
 1.34
 1.20
Impact of other adjustments for Adjusted Net Income 0.44
 0.04
 0.04
 0.04
 0.15
Adjusted Return on Average Tangible Assets 1.49
 1.22
 1.28
 1.38
 1.35
           
Average Shareholders' Equity 827,759
 728,290
 709,674
 695,240
 740,571
Less average goodwill and intangible assets (213,713) (165,534) (166,393) (167,136) (178,287)
Average Tangible Equity 614,046
 562,756
 543,281
 528,104
 562,284
           
Return on Average Shareholders' Equity 7.65% 8.89% 9.59% 10.52% 9.08%
Impact of removing average intangible assets and related amortization 3.29
 3.15
 3.49
 3.89
 3.46
Return on Average Tangible Common Equity (ROTCE) 10.94
 12.04
 13.08
 14.41
 12.54
Impact of other adjustments for Adjusted Net Income 4.50
 0.39
 0.41
 0.41
 1.52
Adjusted Return on Average Tangible Common Equity 15.44
 12.43
 13.49
 14.82
 14.06
           
Loan interest income excluding accretion on acquired loans2
 $55,470
 $46,349
 $44,341
 $42,705
 $188,865
Accretion on acquired loans 4,089
 2,453
 2,208
 2,579
 11,329
Loan Interest Income2
 $59,559
 $48,802
 $46,549
 $45,284
 $200,194
           
Yield on loans excluding accretion on acquired loans2
 4.77% 4.59% 4.50% 4.47% 4.59%
Impact of accretion on acquired loans 0.35
 0.24
 0.23
 0.27
 0.28
Yield on Loans2
 5.12
 4.83
 4.73
 4.74
 4.87


42



  Quarters  
  Fourth Third Second First Total
(In thousands except per share data) 2018 2018 2018 2018 Year
Net interest income excluding accretion on acquired loans2
 $56,011
 $49,256
 $48,086
 $47,274
 $200,627
Accretion on acquired loans 4,089
 2,453
 2,208
 2,579
 11,329
Net Interest Income2
 $60,100
 $51,709
 $50,294
 $49,853
 $211,956
           
Net interest margin excluding accretion on acquired loans2
 3.73% 3.64% 3.60% 3.60% 3.65%
Impact of accretion on acquired loans 0.27
 0.18
 0.17
 0.20
 0.20
Net Interest Margin2
 4.00
 3.82
 3.77
 3.80
 3.85
           
Loan interest income excluding tax equivalent adjustment $59,495
 $48,713
 $46,519
 $45,257
 $199,984
Tax equivalent adjustment to loans 64
 89
 30
 27
 210
Loan Interest Income2
 $59,559
 $48,802
 $46,549
 $45,284
 $200,194
           
Security interest income excluding tax equivalent adjustment $9,728
 $9,807
 $9,604
 $9,604
 $38,743
Tax equivalent adjustment to securities 52
 58
 58
 64
 232
Securities Interest Income2
 $9,780
 $9,865
 $9,662
 $9,668
 $38,975
           
Net interest income excluding tax equivalent adjustments $59,984
 $51,562
 $50,206
 $49,762
 $211,514
Tax equivalent adjustment to loans 64
 89
 30
 27
 210
Tax equivalent adjustment to securities 52
 58
 58
 64
 232
Net Interest Income2
 $60,100
 $51,709
 $50,294
 $49,853
 $211,956
1Includes severance, contract termination costs, disposition of branch premises and fixed assets, and other costs to effect our branch consolidation and other expense reduction strategies.
2On a fully taxable equivalent basis. All yields and rates have been computed using amortized cost.


43



Financial Condition

Total assets increased $1.13$0.4 billion or 24%5% year-over-year to $5.81$7.1 billion at December 31, 2017,2019, and $1.15$0.9 billion or 32%16% year-over-year to $4.68$6.7 billion in 2016.2018. Growth highlights were our acquisitions: GulfShore which closed April 7, 2017, NorthStar which closed October 20, 2017, PBCB which closed November 3, 2017, Floridian which closed March 11, 2016,benefited from new relationships derived through the Company's unique combination of customer analytics, marketing automation and BMO which closed June 3, 2016, expanding our presenceexperienced bankers in Tampa, Palm Beach and Central Florida (particularly in the greater Tampa and Orlando markets), and increasing total assets by $358 million, $216 million, $357 million, $417 million, $314 million, respectively.

growing markets.

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, 2017,2019, the Company had no trading securities, $955.8$946.9 million in securities available for sale,available-for-sale, and $416.9$261.4 million in securities held to maturity.held-to-maturity. The Company's total debt securities portfolio increased $49.7decreased $15.6 million or 4%1% from December 31, 2016. 2018. In January 2019, the Company adopted ASU 2017-12 and elected to transfer securities with an aggregate amortized cost basis of $53.5 million and fair value of $52.8 million from held-to maturity designation to available-for sale.
During the first quarteryear ended December 31, 2019, there were $309.5 million of 2016, securities totaling $66.9 million were added from Floridian. Securitydebt security purchases during the first and second quarter of 2016 of $258.3 million were primarily to utilize anticipated cash to be received by Seacoast from the acquisition of BMO branches, with an increase of $203.4$144.2 million in securities held to maturity duringpaydowns and maturities over the second quarter. Security purchases duringsame period. For the third quarter of 2016 were more limited, totaling only $13 million, and totaled $130 million in the fourth quarter of 2016, $43 million in the first quarter of 2017, $213 million in the second quarter of 2017, $35 million in the third quarter of 2017, and $220 million during the fourth quarter of 2017. Securities acquired from GulfShore in the second quarter of 2017 were nominal, and securities acquired from NorthStar and PBCB aggregated to $78.2 million. These actions were primary factors for the overall increase in the securities portfolio during 2016 and 2017. Funding for investments was derived from liquidity, both legacy and acquired in mergers, and increases in funding from our core customer deposit base and FHLB borrowings.

During 2017, proceeds from the sales of securities totaled $235.6 million (including net gains of $0.1 million). In comparison, proceeds from the sales of securities totaled $40.4 million (including net gains of $0.4 million) for 2016, andyear ended December 31, 2019, proceeds from the sale of securities totaled $60.3$202.7 million, for 2015 (includingwith net gains of $0.2 million). Management believes$1.0 million. A downward shift in the yield curve contributed to an increase of $17.5 million in market value of the available-for-sale securities sold had minimal opportunity to further increasesince December 31, 2018.

During the year ended December 31, 2018, there were $104.7 million of debt security purchases and $199.6 million in value.

Securities arepaydowns and maturities over the same period. For the year ended December 31, 2018, proceeds from the sale of securities totaled $64.4 million, with net losses of $0.5 million.

Debt securities generally acquired which return principal monthly. During 2017, maturities (primarily pay-downs of $294.1 million) totaled $298.9 million. During 2016, maturities (primarily pay-downs of $175.1 million) totaled $176.6 million and for 2015 maturities totaled $147.1 million (including $146.6 million in pay-downs).interest monthly. The modified duration of the investment portfolio at December 31, 20172019 was 4.43.5 years compared to 4.14.8 years at December 31, 2016.

62

2018.

At December 31, 2017, available for sale2019, available-for-sale securities had gross unrealized losses of $8.6$2.7 million and gross unrealized gains of $4.2$8.8 million, compared to gross unrealized losses of $14.1$18.3 million and gross unrealized gains of $3.8$1.3 million at December 31, 2016.2018. All of the securities with unrealized losses are reviewed for other-than-temporaryother than temporary impairment at least quarterly. As a result of these reviews it was determined that the securities were not other than temporarily impaired and the Company has the intent and ability to retain these securities (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, 2017,2019, the Company’s investment securities, except for approximately $45.9$31.8 million of securities issued by states and their political subdivisions, generally are traded in liquid markets. U.S. Treasury and U.S. Government agencygovernment agencies and obligations of U.S. government sponsored entities totaled $944.5$880.7 million, or 71%73%, of the total portfolio. The portfolio also includes $71.1$57.6 million in private label securities, most secured by residential real estate collateral originated in 2005 or prior years with low loan to values, and current FICO scores above 700. Generally these securities have credit support exceeding 5%. The collateral underlying these mortgage investments are primarily 30- and 15-year fixed rate, 5/1 and 10/1 adjustable rate mortgage loans. Historically, the mortgage loans serving as collateral for those investments have had minimal foreclosures and losses. The Company also has invested $304.8$238.2 million in uncapped 3-month LiborLIBOR 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 broadly syndicated corporate loans while providing support to senior secured corporate debt.tranche investors. As of December 31, 2019, the Company held 83% in AAA/AA tranches and 17% in A-rated tranches with average credit support of 31% and 19%, respectively. The Company has purchased senior tranches rated credit A or higherperforms routine stress testing on these securities to assess both structure and performed stress tests, which indicated thatcollateral.
On January 1, 2018, the senior subordination levels are sufficientCompany adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2016-1, "Financial Instruments - Overall (Subtopic 825-10): Recognition and no principalMeasurement of Financial Assets and Financial Liabilities." Upon adoption, the Company reclassified $0.1 million of accumulated unrealized loss is forecast, verifying the independent rating.

pertaining to an equity investment previously classified as available-for-sale from accumulated other comprehensive income to retained earnings.

Loans

Total loans (net

Loans, net of unearned income and excluding the allowance for loan losses)losses, were $3.82$5.2 billion at December 31, 2017, $937.8 million2019, $0.4 billion, or 33%8%, more than at December 31, 2016, and were $2.88 billion at December 31, 2016, $732.2 million or 34% more than at December 31, 2015. Successful acquisition activity has further supplemented loan growth. The GulfShore, NorthStar and PBCB acquisitions in 2017 and Floridian and BMO acquisitions in 2016, contributed $251 million, $137 million, $272 million, $266 million and $63 million in loans, respectively. Also, during 2017, we purchased a mortgage loan pool of $43.0 million and sold two seasoned mortgage loan pools totaling $86.4 million. 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 $1.3 million during 2017 and $0.9 million for 2016. Loan pools acquired had a weighted average yield of 3.4% at acquisition, with the total acquired of $122.5 million adjustable rate, and contain borrowers with an average FICO score above 740. An $11.0 million Small Business Administration (“SBA”) loan pool acquired in 2017 has weighted average yield of 3.0% at acquisition and is zero risk weighted for capital calculations.2018. Success in commercial lending through our Accelerate Commercial banking modelcontinued investment in business bankers has increased loan growthgrowth. For the year ended December 31, 2019, $795.2 million in commercial and commercial real estate loans were originated as well.compared to $552.9 million for the year ended December 31, 2018, an increase $242.4 million, or 44%. Loan pipeline for commercial and commercial real estate loans totaled $256.0 million at December 31, 2019. Analytics and digital marketing have further fueled loan growth in the consumer and small business channels. LoanConsumer and small business originations


44



totaled $473.1 million for the year ended 2019, an increase of $29.7 million, or 7%, compared to the year ended 2018, and the pipeline for these loans at December 31, 2019 was $45.1 million.
The Company closed $523.6 million of residential loans during 2019 compared to $495.2 million closed during 2018. Sold volumes were higher in 2019, representing 45% of production versus 38% of $1.150 billion and $979 million was retained in the loan portfolioproduction during the twelve monthsyear ended December 31, 20172018. The saleable residential mortgage pipeline at December 31, 2019 totaled $19.0 million while the retained pipeline was $19.1 million.
Growth in loans reflects the Company's success in attracting top-tier business bankers, as well as investments in commercial and 2016, respectively.

63

mortgage banking origination platforms. In 2020, the Company will continue to opportunistically add talent in key growing markets.

Seacoast saw continuedThe Company opportunistically purchases loans in the wholesale market to supplement its organic loan growth across all business lines for 2017 and 2016. For 2017, $483production. During the second quarter of 2019, the Company purchased $29.7 million in fixed-rate residential loans and $20.3 million in fixed-rate commercial andreal estate loans. The residential loans averaged $0.7 million in size with an average yield of 4.14% while the commercial real estate loans were originated compared to $432averaged $1.6 million for 2016. Our loan pipeline for commercial andin size with an average yield of 4.09%. During the third quarter of 2019, the Company purchased $52.1 million in fixed-rate commercial real estate loans, totaled $119which averaged $1.6 million at December 31, 2017, versus $89 million at December 31, 2016. Thein size with an average yield of 3.75%. During the fourth quarter of 2019, the Company also closed $488purchased $99.0 million in residential loans, during 2017, compared to $403which averaged $0.2 million in 2016. The residential loan pipeline at December 31, 2017 totaled $49 million, versus $73 million at December 31, 2016. Pipelines reflectsize with an average yield of 3.82%.

In 2018, the lingering effectsuccessful acquisition of the fall hurricanes. Increasing home values and lower interest rates have bolstered consumer borrowing. Consumer and small business originations improved as well, totaling $354 million during 2017 compared to $302 million during 2016.

The Company expects moreFirst Green further supplemented loan growth, opportunities for all types of lending in 2018. We will continuecontributing $631.5 million 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 2018.

Our strongtotal loans.

Continued growth is accompanied by sounddefined risk management procedures. Our lendingLending policies contain numerous guardrails that pertain to lending by type of collateral and purpose, along with limits regarding loan concentrations and the dollarprincipal amount (size) of loans. 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% of total loans in early 2007 to $189 million or 5% at December 31, 2017. OurThe Company's exposure to commercial real estate lending is significantlyremains 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.

The following table details loan portfolio composition at December 31, 20172019 and 20162018 for portfolio loans, purchasepurchased credit impaired loans (“PCI”), and purchasepurchased unimpaired loans (“PUL”) as defined in Note E-Loans.

64

December 31, 2017 Portfolio Loans  PCI Loans  PUL's  Total 
  (In thousands) 
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(2)  512,430   894   92,690   606,014 
Consumer  178,826   0   10,610   189,436 
NET LOAN BALANCES $2,922,609  $17,417  $877,351  $3,817,377 

December 31, 2016 Portfolio Loans  PCI Loans  PUL's  Total 
  (In thousands) 
Construction and land development $137,480  $114  $22,522  $160,116 
Commercial real estate(1)  1,041,915   11,257   304,420   1,357,592 
Residential real estate  784,290   684   51,813   836,787 
Commercial and financial(2)  308,731   941   60,917   370,589 
Consumer  153,434   0   1,018   154,452 
NET LOAN BALANCES $2,425,850  $12,996  $440,690  $2,879,536 

(1)Commercial real estate includes owner-occupied balances of $791.4 million and $623.8 million at December 31, 2017 and 2016, respectively.
(2)Commercial and financial includes lease financings of $30.3 million and $0 at December 31, 2017 and 2016, respectively.

Net loan balances at December 31, 2017 and 2016 are net of deferred costs of $11.2 million and $10.6 million, respectively.

  December 31, 2019
(In thousands) Portfolio Loans PCI Loans PULs Total
Construction and land development $281,335
 $160
 $43,618
 $325,113
Commercial real estate1
 1,834,811
 10,217
 533,943
 2,378,971
Residential real estate 1,304,305
 1,710
 201,848
 1,507,863
Commercial and financial 697,301
 579
 80,372
 778,252
Consumer 200,166
 
 8,039
 208,205
Net Loan Balances2
 $4,317,918
 $12,666
 $867,820
 $5,198,404
  December 31, 2018
(In thousands) Portfolio Loans PCI Loans PULs Total
Construction and land development $301,473
 $151
 $141,944
 $443,568
Commercial real estate1
 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 Balances2
 $3,588,251
 $14,434
 $1,222,529
 $4,825,214
1Commercial real estate includes owner-occupied balances of $1.0 billion and $970.2 million at December 31, 2019 and 2018, respectively.
2Net loan balances at December 31, 2019 and 2018 include deferred costs of $19.9 million and $16.9 million, respectively.
Commercial real estate mortgages increased $282.4loans, inclusive of owner-occupied commercial real estate, were higher by $246.9 million or 21% to $1.6412% totaling $2.4 billion at December 31, 2017,2019, compared to December 31, 2016, a result2018. Owner-occupied loans represent $1.0 billion or 44% of improving loan production and loans acquired in the mergers.commercial real estate portfolio. Office building loans of $507.4$673.1 million, or 31%28%, of commercial real estate mortgages, comprise our largest concentration with a substantial portion owner-occupied. Portfolio composition also includes lending for retail trade, industrial, healthcare, churches and educational facilities, recreation, multifamily, mobile home parks, lodging, restaurants, agriculture, convenience stores, marinas, and other types of real estate.



45



The Company’s ten largest commercial and commercial real estate funded and unfunded loan relationships at December 31, 20172019 aggregated to $169.7$268.9 million, (versus $153.0of which $179.0 million was funded, compared to $218.6 million a year ago),ago, of which $145.0$162.5 million was funded. The Company’s 89120 commercial and commercial real estate relationships in excess of $5 million totaled $803.5 million,$1.2 billion, of which $684.2 million$1.0 billion was funded, (comparedcompared to 65128 relationships of $564.3 million a year ago,$1.3 billion at December 31, 2018, of which $502.1 million$1.0 billion was funded).

Fixed ratefunded.

Fixed-rate and adjustable rateadjustable-rate loans secured by commercial real estate, excluding construction loans, was $1.230totaled approximately $2.0 billion and $410$418.8 million, respectively, at December 31, 2017,2019, compared to $1.042$1.6 billion and $315$533.4 million, respectively, aat December 31, 2018.
Commercial and financial loans outstanding increased $55.9 million, or 8%, year-over year ago.

65

Reflecting the impactto $778.3 million as of organic loan growthDecember 31, 2019. The Company's primary customers for commercial and the GulfShore, NorthStar and PBCB loan acquisitions, commercialfinancial loans (“C&I”) outstanding at year-end 2017 increased to $606.0 million, up substantially from $370.6 million a year ago. 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.companies. Such businesses are smaller and subject to the risks of lending risks,to small- to medium-sized businesses, including, but not limited to, the effects of a downturn in the local economy, possible business failure, and insufficient cash flows.

Residential mortgage loans increased $202.0$183.5 million or 24%14% year-over-year to $1.039$1.5 billion as of December 31, 2017.2019. Substantially all residential originations have been underwritten to conventional loan agency standards, including loans having balances that exceed agency value limitations. During 2017 and 2016, $43 million and $64 million of whole loan mortgages were acquired and added to the portfolio, respectively. At December 31, 2017,2019, approximately $487$556.5 million, or 47%37%, of the Company’s residential mortgage balances were adjustable 1-4 family mortgage loans (including hybrid adjustable rate mortgages). Fixed rate mortgages totaled approximately $247$590.0 million, (24%or 39%, of the residential mortgage portfolio)portfolio at December 31, 2017,2019, of which 15- and 30-year mortgages totaled $22$43.5 million and $173$372.0 million, respectively. Remaining fixed rate balances were comprised of home improvement loans totaling $123$243.8 million, most with maturities of 10 years or less and homeless. Home equity lines of credit, primarily floating rates, totaling $233totaled $292.1 million at December 31, 2017.2019. In comparison, loans secured by residential properties having fixed ratesfixed-rates totaled $210$370.2 million at December 31, 2016,2018, with 15- and 30-year fixed ratefixed-rate residential mortgages totaling $24$32.1 million and $153$276.5 million, respectively, and home equity mortgages and lines of credit totaled $78$135.8 million and $164$261.9 million, respectively.

The Company also provides consumer loans, (includingwhich includes installment loans, auto loans, for automobiles, boats, and other personal, family and household purposes) which increased $34.8 million or 23% year over year and totaled $188.7 million (versus $153.9 million a year ago). Of the $34.8 million increase, nominal changes occurred in marine loans or in automobile and truck loans, but other consumer loans, which increased $35.1 million. Marine loans$5.3 million, or 3%, year-over-year to total $208.2 million at December 31, 20172019 compared to $202.9 million at December 31, 2018. Of the $5.3 million increase, automobile loans and 2016 included $10.8marine loans increased $2.5 million and $15.5$7.4 million, respectively, in purchased loan pools acquired during the third quarterwhile other consumer loans decreased $4.6 million. In comparison, consumer loans increased $13.0 million, or 7%, year-over-year for 2018 compared to year-end 2017, with increases of 2016.

$1.5 million, $4.8 million and $6.8 million automobile loans, other consumer loans and marine loans, respectively.

At December 31, 2017,2019, the Company had unfunded commitments to make loans of $807.7 million,$1.0 billion, compared to $532.1$982.7 million at December 31, 20162018 (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 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 $388.0$680.2 million, representing 10%13% of the total portfolio at December 31, 2017,2019 compared to $161.7$502.1 million, or 13%10%, at year-end 2010.

66

December 31, 2018.

Concentrations in total construction and land development loans and total commercial real estate (“CRE”)CRE loans are maintained well below regulatory limits. Construction and land development and CRE loan concentrations as a percentage of total risk based capital, were stable at 61%40% and 209%204%, respectively, at December 31, 2017.2019, compared to 63% and 227% as of December 31, 2018. Regulatory guidance suggests limits of 100% and 300%, respectively.

The On a consolidated basis, construction and land development and commercial real estate loans represent 38% and 191%, respectively, of total consolidated risk based capital. To determine these ratios, the Company defines CRE in accordance with the guidance on “Concentrations in Commercial Real Estate Lending” (the “Guidance”) issued by the federal bank regulatory agencies in 2006 (and reinforced in 2015), which defines CRE loans as exposures secured by land development and construction, including 1-4 family residential construction, multi-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.



46



Nonperforming assets (“NPAs”) at December 31, 20172019 totaled $27.2$39.3 million, flat compared to 2018, and were comprised of $12.5$21.0 million of nonaccrual portfolio loans, $7.0$6.0 million of nonaccrual purchased loans, $2.2$5.2 million of non-acquired other real estate owned (“OREO”), $1.6$0.4 million of acquired OREO and $3.8$6.8 million of branches taken out of service. NPAs decreased from $28.0 million recorded as ofCompared to December 31, 2016 (comprised of $11.0 million of nonaccrual portfolio loans, $7.1 million of2018, nonaccrual purchased loans decreased $4.7 million and $3.0acquired OREO declined $2.6 million, primarily the result of sales of OREO properties. The increase in non-acquired OREO $1.2of $4.8 million from December 31, 2018 included additions of acquired OREO, and $5.7 million offset by sales of $0.9 million. The decrease in OREO for bank branches out of service). At December 31, 2017, approximately 87%$2.6 million consists primarily of property sales. Approximately 78% of nonaccrual loans were secured with real estate. See the tables below for details about nonaccrual loans. Atestate at December 31, 2017, nonaccrual2019. Nonaccrual loans have been written down by approximately $3.7$5.6 million, or 16%17%, of the original loan balance (including specific impairment reserves). During 2017, total OREO decreased $2.3 million or 23%, primarily related to branches taken out of service and sold in 2017.

See the tables below for details about nonaccrual loans.

Nonperforming loans to total loans outstanding at December 31, 20172019 decreased to 0.51%0.52% from 0.63%0.55% at December 31, 2016.

2018. Nonperforming assets to total assets at December 31, 2019 also decreased to 0.55% from 0.58% at December 31, 2018.

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. Troubled debt restructurings (“TDRs”) have been a part of the Company’s loss mitigation activities and can include rate reductions, payment extensions and principal deferrals. Company policy requires Troubled debt restructurings (“TDRs”)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 $15.6$11.1 million at December 31, 20172019 compared to $17.7$13.3 million at December 31, 2016.2018. Accruing TDRs are excluded from our nonperforming asset ratios. The tables below set forth details related to nonaccrual and accruing restructured loans.

67

           Accruing 
December 31, 2017 Nonaccrual Loans  Restructured 
(In thousands) Non-Current  Current  Total  Loans 
Construction & land development                
Residential $0  $0  $0  $0 
Commercial  0   72   72   30 
Individuals  0   166   166   207 
   0   238   238   237 
Residential real estate mortgages  6,255   7,601   13,856   9,195 
Commercial real estate mortgages  1,903   931   2,834   5,838 
Real estate loans  8,158   8,770   16,928   15,270 
Commercial and financial  807   1,691   2,498   0 
Consumer  0   98   98   289 
Total loans $8,965  $10,559  $19,524  $15,559 

  December 31, 2019
  Nonaccrual Loans 
Accruing
Restructured
(In thousands) Non-Current Current Total Loans
Construction & land development  
  
  
  
Residential $
 $
 $
 $
Commercial 4,902
 
 4,902
 
Individuals 
 35
 35
 131
  4,902
 35
 4,937
 131
         
Residential real estate mortgages 2,552
 6,927
 9,479
 6,027
Commercial real estate mortgages 3,802
 2,718
 6,520
 4,666
Real estate loans 11,256
 9,680
 20,936
 10,824
         
Commercial and financial 4,674
 1,235
 5,909
 26
Consumer 38
 72
 110
 250
Total loans $15,968
 $10,987
 $26,955
 $11,100


47



  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, 20172019 and 2016,2018, total TDRs (performing and nonperforming) were comprised of the following loans by type of modification:

  December 31, 2017  December 31,2016 
(Dollars in thousands) Number  Amount  Number  Amount 
Rate reduction  71  $12,843   81  $14,472 
Maturity extended with change in terms  51   5,803   56   6,975 
Chapter 7 bankruptcies  28   1,812   36   2,308 
Not elsewhere classified  11   1,190   13   1,739 
Total loans  161  $21,648   186  $25,494 

  December 31, 2019 December 31, 2018
(Dollars in thousands) Number Amount Number Amount
Rate reduction 52
 $12,048
 56
 $10,739
Maturity extended with change in terms 41
 3,755
 48
 5,083
Chapter 7 bankruptcies 18
 1,920
 22
 1,275
Not elsewhere classified 9
 646
 11
 966
Total loans 120
 $18,369
 137
 $18,063
During the twelve monthsyear ended December 31, 2017, newly identified TDRs totaled $0.12019, nine loans totaling $4.7 million were modified to a TDR, compared to $2.0four loans totaling $0.2 million for 2016.the year ended December 31, 2018. 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 thatThere were restructuredfour defaults totaling $3.2 million within the twelve months preceding December 31, 2017 defaulted during2019 and no defaults within the twelve months endedpreceding December 31, 2017, the same as for 2016.2018. 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, 2017,2019, loans, (excludingexcluding PCI loans)loans, totaling $30.3$36.1 million were considered impaired (comprised of total nonaccrual, loans 90 days or more past due, and TDRs) and $2.4$2.9 million of the allowance for loan losses was allocated for probable losses on these loans, compared to $32.7$36.7 million and $2.5$2.7 million, respectively, at December 31, 2016.

68

2018.

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. Once impaired, the current fair market value of the collateral is assessed and a specific reserve and/or charge-off is taken, if necessary. 

In accordance with regulatory reporting requirements, loans are placed on nonaccrual following the Retail Classification of Loan interagency guidance. TypicallyThe accrual of interest is generally discontinued on loans, except consumer loans, that become 90 days past due as to principal or moreinterest unless collection of both principal and interest is assured by way of collateralization, guarantees or other security. Consumer loans that become 120 days past due are 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, thegenerally charged off. The loan carrying value is analyzed and any changes are appropriately made as described above.

above quarterly.




48



Cash and Cash Equivalents, Liquidity Risk Management and Contractual Commitments
Liquidity risk involves the risk of being unable to fund assets with the appropriate duration and rate-based liability, as well as the risk of not being able to meet unexpected cash needs. Liquidity planning and management are necessary to ensure the ability to fund operations cost effectively and to meet current and future potential obligations such as loan commitments and unexpected deposit outflows.
Funding sources include primarily customer-based deposits, collateral-backed borrowings, brokered deposits, 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 loans. Cash flows from operations are a significant component of liquidity risk management and the Company considers both deposit maturities and the scheduled cash flows from loan and investment maturities and payments when managing risk.
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, 2019 totaled $472.9 million, compared to $220.6 million at year-end 2018. All of the brokered CDs at December 31, 2019 have maturities of 12 months or less and will mature in 2020.
Deposits

are a primary source of liquidity. The stability of this funding source is affected by numerous factors, including returns available to customers on alternative investments, the quality of customer service levels, perception of safety and competitive forces. The Company routinely uses debt securities and loans as collateral for secured borrowings. In the event of severe market disruptions, the Company has access to secured borrowings through the FHLB and the Federal Reserve Bank of Atlanta under its borrower-in-custody program.

Cash and cash equivalents, including interest bearing deposits, totaled $124.5 million on a consolidated basis at December 31, 2019, compared to $116.0 million at December 31, 2018. Higher cash and cash equivalent balances at December 31, 2019 reflect favorable deposit growth, as well as proceeds from the sales of available-for-sale debt securities.
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 available-for-sale and interest-bearing deposits. The Company is also able to provide short term financing of its activities by selling, under an agreement to repurchase, United States Treasury and government agency debt securities not pledged to secure public deposits or trust funds. At December 31, 2019, the Company had available unsecured lines of $130.0 million and lines of credit under current lendable collateral value, which are subject to change, of $1.1 billion. In addition, the Company had $924.2 million of debt securities and $830.0 million in residential and commercial real estate loans available as collateral. In comparison, at December 31, 2018, the Company had available unsecured lines of $130.0 million and lines of credit of $781.7 million, and $665.7 million of debt securities and $869.8 million in residential and commercial real estate loans available as collateral.
The Company has traditionally relied upon dividends from Seacoast Bank and securities offerings to provide funds to pay the Company’s expenses and to service the Company’s debt. During the first, second, third and fourth quarters of 2019, Seacoast Bank distributed $3.3 million, $4.7 million, $4.8 million and $5.2 million, respectively, to the Company and, at December 31, 2019, is eligible to distribute dividends to the Company of approximately $187.3 million without prior approval. No distributions from Seacoast Bank to the Company occurred in 2018. At December 31, 2019, the Company had cash and cash equivalents at the parent of approximately $53.0 million compared to $40.3 million at December 31, 2018.
The following table presents contractual obligations. All deposits presented in the table 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. The Company considers these low cost deposits to be our largest, most stable funding source, despite no contracted maturity.


49



  December 31, 2019
    One Year 
Over One
Year Through
 
Over Three
Years Through
 Over Five
(In thousands) Total or Less Three Years Five Years Years
Deposit maturities $5,584,753
 $5,508,476
 $65,328
 $9,713
 $1,236
Short-term borrowings 86,121
 86,121
 
 
 
FHLB borrowings 315,000
 315,000
 
 
 
Subordinated debt 71,085
 
 
 
 71,085
Operating leases1
 36,984
 5,626
 9,401
 7,459
 14,498
Total $6,093,943
 $5,915,223
 $74,729
 $17,172
 $86,819
1Of the $37.0 million, approximately $4.9 million is related to offices taken out of service (closed).
Deposits and Borrowings
The Company’s balance sheet continues to be primarily funded withby core deposits.

Total deposits increased $1.07 billion$407.5 million, or 30%8%, to $4.59$5.6 billion at December 31, 2017,2019 compared to one year earlier. Excluding the GulfShore, NorthStar and PBCB acquisitions, total deposits increased $123.0 million or 4% from December 31, 2016. In comparison, total deposits increased $678.9 million or 24% to $3.52 billion at December 31, 2016, compared to one year earlier. Excluding the Floridian and BMO acquisitions, total deposits increased $27.3 million or 1% from December 31, 2015. Deposit growth during 2016 was impacted by declines in public fund balances, which decreased by more than $36 million from year-end 2015.

2018.

Since December 31, 2016,2018, interest bearing deposits, (interestwhich includes interest bearing demand, savings and money markets deposits)deposits, increased $393.5$127.5 million, or 19%5%, to $2.42$2.8 billion at December 31, 2019, noninterest bearing demand deposits increased $251.9$20.9 million, or 22%1%, to $1.40$1.6 billion, and CDs increased $424.1$259.2 million or 121%28% to $775.9 million. Excluding acquired deposits, noninterest$1.2 billion. Noninterest demand deposits were $82.4 million or 7% higher from year-end 2016, and represent 30%represented 28% of deposits compared to 33% at December 31, 2016.2019 and 30% at December 31, 2018. Core deposit growth reflects our success in growing relationships both organically and through acquisitions.

Additions in brokered CDs and through acquisitions have been the primary contributors to the increase in CDs during 2017 and 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 $216.1$86.1 million at December 31, 2017, increasing $11.92019, decreasing $128.2 million, or 6%60%, from December 31, 2016. The repurchase2018. Repurchase agreements are offered by Seacoast to select customers who wish to sweep excess balances on a daily basis for investment purposes. The decrease reflects a shift in customer balances to interest bearing deposits in 2019. Public funds comprise a significant amount of the outstanding balance.

No unsecured federal funds purchased were outstanding at December 31, 2017,2019 or 2016.  

Borrowings

2018.

At December 31, 20172019 and 2016,2018, borrowings were comprised of subordinated debt of $70.5$71.1 million and $70.2$70.8 million, respectively, related to trust preferred securities issued by trusts organized or acquired by the Company and borrowings from the FHLB of $211.0$315.0 million and $415.0$380.0 million, respectively. At December 31, 2017, our FHLB borrowings were substantially all maturing within 30 days, with the exception of $7.0 million acquired from PBCB that mature in 2018 and 2019, and the rate for FHLB funds at year-end was 1.39%. In the second quarter of 2016, we paid an early redemption cost of $1.8 million related to prepayment of $50.0 million of FHLB advances having a weighted average cost of 3.22% and scheduled to mature in late 2017 (see “Noninterest Expense”). The two FHLB advances redeemed in 2016 had been outstanding since 2007. Secured FHLB borrowings are an integral tool in liquidity management for the Company.

69

The Company issued subordinated debt in conjunction with its wholly owned trust subsidiaries SBCF Capital Trust I and SBCF Statutory Trust II that were formed in 2005. In 2007, the Company issued additional subordinated debt for its wholly owned trust subsidiary, SBCF Statutory Trust III. The 2005 subordinated debt for each trust totaled $20.6 million (aggregating to $41.2 million) and the 2007 subordinated debt totaled $12.4 million. As part of the October 1, 2014 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.connection with bank acquisitions in previous years. The acquired junior subordinated debentures (in accordance with ASUASC Topic 805 Business Combinations)Combinations) were recorded at fair value, which collectively is $4.8$4.2 million lower than face value at December 31, 2017.2019. This amount is being amortized into interest expense over the acquired subordinated debts’ remaining term to maturity. All trust preferred securities are guaranteed by the Company on a junior subordinated basis.

Under Basel III and Federal Reserve rules, qualified trust preferred securities and other restricted capital elements can be included as Tier 1 capital, within limitations. The Company believes that its trust preferred securities qualify under these capital rules. The weighted average interest rate of our outstanding subordinated debt related to trust preferred securities was 3.47%4.75% for the twelve month period ended December 31, 2017,2019, compared to 2.94% for all of 2016.

4.48% in 2018.

Go to “Note I – Borrowings” of ourto the Company's consolidated financial statements for more detailed information pertaining to borrowings.

Off-Balance Sheet Transactions

In the normal course of business, wethe Company may engage in a variety of financial transactions that, under generally accepted accounting principles, either are not recorded on the balance sheet or are recorded on the balance sheet in amounts that differ from the full contract or notional amounts. These transactions involve varying elements of market, credit and liquidity risk.

Lending commitments include unfunded loan commitments and standby and commercial letters of credit. For loan commitments, the contractual amount of a commitment represents the maximum potential credit risk that could result if the entire commitment


50



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.

For commercial customers, loan commitments generally take the form of revolving credit arrangements. For retail customers, loan commitments are generally lines of credit secured by residential property. These instruments are not recorded on the balance sheet until funds are advanced under the commitment. Loan commitments were $808$1.0 billion at December 31, 2019, and $982.7 million at December 31, 2017, and $532 million at December 31, 20162018 (see “Note P-Contingent Liabilities and Commitments with Off-Balance Sheet Risk” to the Company’s consolidated financial statements).

70

Cash and Cash Equivalents, Liquidity Risk Management and Contractual Commitments

Cash and cash equivalents (including interest bearing deposits) totaled $109.5 million on a consolidated basis at December 31, 2017, compared to $109.6 million at December 31, 2016.

Liquidity risk involves the risk of being unable to fund assets with the appropriate duration and rate-based liability, as well as the risk of not being able to meet unexpected cash needs. Liquidity planning and management are necessary to ensure the ability to fund operations cost effectively and to meet current and future potential obligations such as loan commitments and unexpected deposit outflows.

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 as of:   
  December 31, 2017 
        Over One  Over Three    
     One Year  Year Through  Years Through  Over Five 
(In thousands) Total  or Less  Three Years  Five Years  Years 
Deposit maturities $4,592,720  $4,444,226  $109,061  $38,405  $1,028 
Short-term borrowings  216,094   216,094   0   0   0 
FHLB borrowings  211,000   208,000   3,000   0   0 
Subordinated debt  70,521   0   0   0   70,521 
Operating leases  40,725   6,303   11,259   7,278   15,885 
TOTAL $5,131,060  $4,874,623  $123,320  $45,683  $87,434 

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 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 program.

71

Contractual maturities for assets and liabilities are reviewed to meet current and expected future liquidity requirements. Sources of liquidity, both anticipated and unanticipated, are maintained through a portfolio of high quality marketable assets, such as residential mortgage loans, securities held for sale and interest-bearing deposits. The Company is also able to provide short term financing of its activities by selling, under an agreement to repurchase, United States Treasury and Government agency securities not pledged to secure public deposits or trust funds. At December 31, 2017, Seacoast Bank had available unsecured lines of $95 million and lines of credit under current lendable collateral value, which are subject to change, of $1.006 billion. Seacoast Bank had $455 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 $593 million in residential and commercial real estate loans available as collateral. In comparison, at December 31, 2016, the Company had available unsecured lines of $75 million and lines of credit of $578 million, and had $688 million of Treasury and Government agency securities and mortgage backed securities not pledged and available for use under repurchase agreements, as well as an additional $378 million in residential and commercial real estate loans available as collateral.

The Company does not rely on and is not dependent on off-balance sheet financing or significant amounts of wholesale funding. During the first, second and third quarters of 2017, the Company acquired an additional $273.7 million of brokered certificates of deposit (“CDs”) at an overall average rate of 1.31%. Most have maturities of 12 months or less and will mature in 2018, with the exception of $64 million that matured in the fourth quarter of 2017. Brokered CDs at December 31, 2017 total $210.0 million.

The Company has traditionally relied upon dividends from Seacoast Bank and securities offerings to provide funds to pay the Company’s expenses and to service the Company’s debt. At December 31, 2017, Seacoast Bank can distribute dividends to the Company of approximately $87.7 million. At December 31, 2017, the Company had cash and cash equivalents at the parent of approximately $34.4 million (exclusive of $21.3 million to settle in early 2018 for the sale of Visa Class B stock), compared to $13.3 million at December 31, 2016, with the increase directly related to the Company’s capital raise in February 2017 (see “Note M – Shareholders’ Equity”), net of cash paid in the GulfShore, NorthStar and PBCB acquisitions (see “Note S – Business Combinations”).

Capital Resources and Management

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

Activity in shareholders’ equity:

  For the Year Ended December 31, 
(In thousands) 2017  2016 
Beginning balance at January 1, 2017 and 2016 $435,397  $353,453 
Net income  42,865   29,202 
Issuance of stock via common stock offering on February 21, 2017  55,641   0 
Issuance of stock pursuant to acquisition of GulfShores Bancshares, Inc.,        
NorthStar Banking Corporation, Palm Beach Community Bank (2017) and Floridian Bank (2016)  146,547   50,913 
Stock compensation (net of Treasury shares acquired)  5,211   3,129 
Change in other comprehensive income  4,003   (1,300)
Ending balance at December 31, 2017 and 2016 $689,664  $435,397 

72

The Company’sCompany's equity capital at December 31, 20172019 increased $254.3$121.4 million, to $689.7 million sinceor 14%, from December 31, 2016, and was $81.9 million higher at December 31, 2016, when compared2018, to year-end 2015.

On February 21, 2017, the Company closed on an offering of 8,912,500 shares of common stock, consisting of 2,702,500 shares sold by the Company and 6,210,000 shares sold by one of its shareholders. Seacoast received proceeds (net of 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 of $62.9 million, $27.4 million, $56.3 million, and $50.9 million in conjunction with the acquisition of GulfShore, NorthStar, PBCB in 2017 and Floridian in 2016, 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.

$985.6 million.

The ratio of shareholders’ equity to period end total assets was 11.87%13.87% and 9.30%12.81% at December 31, 20172019 and 2016,2018, respectively. The ratio of tangible shareholders’ equity to tangible assets was 9.27%11.05% and 7.74%9.72% at December 31, 20172019 and 2016,2018, respectively. Equity has also increased as a result of earnings retained by the Company. During 2016,Company, and as a result of increases in accumulated other comprehensive income ("AOCI") during the ratioyear ended December 31, 2019, primarily reflecting the impact of lower interest rates on available-for-sale securities.
Activity in shareholders’ equity to assets declined, asfor the Company successfully grew assets at a faster pace than equity over the period.

year ended December 31, 2019 and 2018 follows: 

  For the Year Ended December 31,
(In thousands) 2019 2018
Beginning balance at January 1, 2019 and 2018 $864,267
 $689,664
Net income 98,739
 67,275
Issuance of stock pursuant to acquisition of First Green Bancorp, Inc. 
 107,486
Stock compensation (net of Treasury shares acquired) 5,004
 8,801
Change in accumulated other comprehensive income (AOCI) 17,525
 (8,959)
Other 104
 
Ending balance at December 31, 2019 and 2018 $985,639
 $864,267
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)  12.04%  12.41%  6.5%
Tier 1 capital ratio  13.61%  12.41%  8.0%
Total risk-based capital ratio  14.24%  13.04%  10.0%
Leverage ratio  10.68%  9.72%  5.0%
             
* For subsidiary bank only            

  
Seacoast
(Consolidated)
 
Seacoast
Bank
 
Minimum to be
Well-Capitalized1
Total Risk-Based Capital Ratio 15.71% 14.68% 10.00%
Tier 1 Capital Ratio 15.06% 14.04% 8.00%
Common Equity Tier 1 Ratio (CET1) 13.77% 14.04% 6.50%
Leverage Ratio 12.20% 11.38% 5.00%
1For subsidiary bank only
      
The Company’s total risk-based capital ratio was 14.24%15.71% at December 31, 2017,2019, an increase from December 31, 2016’s2018’s ratio of 13.25%14.43%. Higher earnings have been a primary contributor, as well as the capital raise in February 2017.contributor. As of December 31, 2017,2019, the Bank’s leverage ratio (Tier 1 capital to adjusted total assets) was 9.72%11.38%, compared to 8.78%10.49% at December 31, 2016, reflecting earnings and the effect of push down accounting on Seacoast’s subsidiary bank’s capital.

73

2018.



51



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 $87.7up to $187.3 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,the Company, 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, were formed in 2005 to issue trust preferred securities. In 2007, the Company formed an additional wholly owned trust subsidiary, SBCF Statutory Trust III. The 2005 trusts eachthat 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 partall 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 securitieswhich 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 $70.5$71.1 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.

74

Critical Accounting Policies and Estimates

The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, (“GAAP”), including prevailing practices within the financial services industry. The preparation of consolidated financial statements requires management to make judgments in the application of certain of its accounting policies that involve significant estimates and assumptions. We haveThe Company has established policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. These estimates and assumptions, which may materially affect the reported amounts of certain assets, liabilities, revenues and expenses, are based on information available as of the date of the financial statements, and changes in this information over time and the use of revised estimates and assumptions could materially affect amounts reported in subsequent financial statements. Management, 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 securities;debt securities, and;
income taxes and 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 usthe Company 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, (seesee “Note A-Significant Accounting Policies” to the Company’s consolidated financial statements).

statements.



52



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 inherentincurred 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”).

75

The provision for loan losses is the result of a detailed analysis estimating for probable incurred loan losses. The analysis includes the evaluation of impaired and purchased credit impaired loans as prescribed under FASB Accounting Standards Codification (“ASC”) Topic 310,Receivables as well as an analysis of homogeneous loan pools not individually evaluated as prescribed under ASC Topic 450,Contingencies. For 2017, the Company recorded provision for loan losses of $5.6 million, which compared toThe provision for loan losses for 2016 of $2.42019 was $11.0 million and a recapture of the allowance for loan losses for 2015 of $2.6 million.compared to $11.7 million in 2018. The Company incurred net charge-offs for 2017in 2019 of $1.6$8.1 million compared to net recoveries for 2016charge-offs of $2.1$6.2 million in 2018. For the years ended December 31, 2019 and2018, net charge-offs for 2015 of $0.4 million representing 0.05%represented 0.16% and 0.15%, (0.08%) and 0.02%respectively, of average total loans for each year, respectively. For 2017,loans. In 2018, provision for loan losses reflects continued strong credit metrics, decreasesincluded $3.1 million for a single impaired commercial real estate loan, originated in 2007, and moved to nonaccrual status in the residential loan portfolio with lower modeled loss rates given near-zero historical lossessecond quarter of 2018 and lower balances (after the $57.9 million sale in the third quarter and $28.5 million salesubsequently charged off in the fourth quarter)quarter of 2018. Excluding the impact of this loan, the provision in 2019 was higher than 2018, and decreases reflecting reduced concentration risk in the commercial and commercial real estate portfolios.effect of portfolio growth. Delinquency trends remain low andat year-end 2019, with nonperforming loans increasing $0.1 million from year-end 2018, but totaling 0.52% of loans at December 31, 2019, compared to 0.55% at year-end 2018. Delinquency trends show continued stability (see section titled “Nonperforming Loans, Troubled Debt Restructurings, Other Real Estate 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 incurred in the loan portfolio. The allowance for loan and lease losses increased $3.7$2.7 million, or 8%, to $27.1$35.2 million at December 31, 2017,2019, compared to $23.4$32.4 million at December 31, 2016.2018. 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-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 ALLL.

The first component of the ALLL analysis involves the estimation of an allowance specific to individually evaluated impaired portfolio loans, including accruing and non-accruing restructured commercial and consumer loans. In this process, a specific allowance is established for impaired loans based on an analysis of the most probable sources of repayment, including discounted cash flows, liquidation or operation of the collateral, or the market value of the loan itself. It is the Company’s policy to charge off any portion of the loan deemed uncollectable.uncollectible. Restructured consumer loans are also evaluated and included in this element of the estimate. As of December 31, 2017,2019, the specific allowance related to impaired portfolio loans individually evaluated totaled $2.4$2.9 million, compared to $2.5$2.7 million as ofat December 31, 2016.2018. Residential loans that become 90 days past due are placed on nonaccrual and a specific allowance is made for any loan that becomes 120 days past due. Residential loans are subsequently written down if they become 180 days past due and such write-downs are supported by a current appraisal, consistent with current banking regulations.

The second component of the ALLL analysis, the general allowance for homogeneous portfolio loan pools not individually evaluated, is determined by applying factors to pools of loans within the portfolio that have similar risk characteristics. The general allowance is determined 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.

76

The Company's analysis of the adequacy of the ALLL 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.

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



53



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, 20172019 include loans acquired from GulfShore Bank on April 7, 2017, NorthStar on October 20, 2017, PBCB on November 3, 2017, 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.

Our analysis of the adequacy of the allowance for loan losses also takes into account qualitative factors such as credit quality, loan concentrations, internal controls, audit results, staff turnover, local market conditions, employment levels and loan growth.

During the first quarter of 2017, management enhanced its processes for evaluating the adequacy of the general reserve components of the allowance for loan losses due to the increasing size and complexity of the commercial loan portfolio. Using a software tool, the enhanced process applies a migration model to portfolio segments that allows us to observe performance over time, and the ability to separately analyze sub-segments based on vintage, risk rating, and origination tactics. Previously, an analysis was based on an average loss rate for various lookback periods.

These enhancements provide a more reliable estimate of probable losses in the portfolio, improve the efficiency of the process for preparing the analysis, and provide the foundation for moving to a current expected credit loss approach. This change in accounting estimate was implemented on January 1, 2017 and had no material impact on the ALLL.

The allowance as a percentage of portfolio loans outstanding (excluding PCI and PUL loans) was 0.90%0.80% at December 31, 2017,2019, compared to 0.96%0.89% at December 31, 2016. The reduced level of impaired loans contributed to a lower risk of loss and the lower ALLL as of December 31, 2017.2018. The risk profile of the loan portfolio reflects adherence to credit management methodologies to execute a low risk strategic plan for loan growth. New loan production is focused on adjustable rate residential real estate loans, owner-occupied commercial real estate, small business loans for professionals and businesses, as well as consumer lending. Strategies, processes and controls are in place to ensure that new production is well underwritten and maintains a focus on smaller, diversified and lower-risk lending.

77

Concentrations of credit risk, discussed under the caption “Loan Portfolio” of this discussion and analysis, can affect the level of the allowance and may involve loans to one borrower, an affiliated group of borrowers, borrowers engaged in or dependent upon the same industry, or a group of borrowers whose loans are predicated on the same type of collateral. At December 31, 2017,2019, the Company had $1.193$1.5 billion in loans secured by residential real estate and $1.829$2.4 billion in loans secured by commercial real estate representing 31.3%29% and 47.9%46% of total loans outstanding, respectively. In addition, the Company is subject to a geographic concentration of credit because it only operates in central and southeastern Florida.

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

While it is the Company’s policy to charge off loans 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 ALLL and the size of the ALLL in comparison to a group of peer companies identified by the regulatory agencies. Management will consistently evaluate the ALLL methodology and seek to refine and enhance this process as appropriate. As a result, it is likely that the methodology will continue to evolve over time.

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

Note F - Allowance for loan losses to the financial statements (titled "Allowance for Loan Losses") summarizes the Company’s allocation of the ALLL 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, 20172019 and 2016.

78

2018.

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. NoUnder current GAAP, 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.



54



Over the life of the purchased credit impairedacquired loans acquired,designated as PCI, 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 itsthe 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.intangibles and mortgage servicing rights. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The core deposit intangible represents the excess intangible value of acquired deposit customer relationships as determined by valuation specialists. Core deposit intangibles are amortized on a straight-line basis, and are evaluated for indications of potential impairment at least annually. Goodwill is not amortized but rather is evaluated for impairment on at least an annual basis. We performed an annual impairment test of goodwill as required by FASB ASC Topic 350,Intangibles—Goodwill and Other,in the fourth quarter of 2017.2019. Seacoast conducted the test internally, documenting the impairment 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; 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.

79

The fair value of the available for saleavailable-for-sale portfolio at December 31, 20172019 was lessgreater than historical amortized cost, producing net unrealized lossesgains of $4.4$6.1 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 20172019 and 2016.2018. The fair value of each security available for saleavailable-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 saleavailable-for-sale portfolio.

During 2014, management identified $158.8 million of investment securities available for saleavailable-for-sale and transferred them to held for investment.held-to-maturity. 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 investmentheld-to-maturity category from the available for saleavailable-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, 2017 and 2016,2019, the remaining unamortized amount of these losses was $1.2 million and $1.8 million, respectively.$0.3 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 saleavailable-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 September 27, 2019, the Company expects to receive 1.6228 shares of Class A stock for each share of Class B stock)stock, for a total of 18,67518,386 shares of Visa Class A stock. OurThe Company's ownership is related to prior ownership in Visa’s network while Visa operated as a cooperative. This ownership is recorded on ourthe Company's financial records at a zero basis.

Also, included in other assets is a $6.4 million investment in a CRA related mutual fund carried at fair value.



55



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

Seacoast reviews investments 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.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.

80

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 itsthe 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 Taxes – 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, 2017, the Company had net deferred tax assets (“DTA”) of $25.4 million, after adjustment for recent legislation enacted by the U.S. Congress and signed into law by the President of the U.S. prior to year-end. 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 740Income Taxes. In comparison, at December 31, 2016 the Company had a net DTA of $60.8 million.

Factors that support this conclusion:

·Income before tax (“IBT”) has steadily increased as a result of organic growth, and the 2015 Grand, 2016 Floridian and BMO, and 2017 GulfShore, NorthStar and PBCB 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;
·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.

81

Contingent Liabilities – Critical Accounting Policies and Estimates

The Company

Seacoast is subject to contingent liabilities, including judicial, regulatory and arbitration proceedings, and tax and other claims arising from the conduct of ourthe Company's business activities. These proceedings include actions brought against the Company and/or ourits subsidiaries with respect to transactions in which the Company and/or ourits 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 advisorsits advisers may learn of additional information that can affect ourthe 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, 20172019 and 2016,2018, the Company had no significant accruals for contingent liabilities and had no known pending matters that could potentially be significant.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

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 2017Company's Asset and Liability Management Committee (“ALCO”("ALCO") modeluses simulation indicatesanalysis to monitor changes in net interest income would increase 7.5% ifdue to changes in market interest rates increased 200 basis points in a parallel fashion overrates. The simulation of rising, declining and flat interest rate scenarios allows management to monitor and adjust interest rate sensitivity to minimize the next 12 months and 3.9% ifimpact of market interest rates increased 100 basis points in a parallel fashion, and improve 11.6% and 6.1%, respectively,rate swings. The analysis of the impact on a 13 to 24 month basis. This compares with the Company’s fourth quarter 2016 model simulation, which indicated net interest income would increase 1.7% ifover a twelve month period is subjected to instantaneous changes in market rates of 100 basis point and 200 basis point increases and a 100 basis point decrease on net interest income and is monitored on a quarterly basis. These simulations do not include the impact of accretion from purchased credit impaired loans or unimpaired loans.
The following table presents the ALCO simulation model's projected impact of a change in interest rates increased 200 basis points overon the nextprojected baseline net interest income for the 12 monthsand 24 month periods beginning on January 1, 2020, holding all other changes in a parallel fashion and 0.9% ifthe balance sheet static. This change in interest rates increased 100 basis pointsassumes parallel shifts in a parallel fashion.

the yield curve and does not take into account changes in the slope of the yield curve.



56



  % Change in Projected Baseline Net Interest Income 
  2019 2018 
Changes in Interest Rates 1-12 months 13-24 months 1-12 months 13-24 months 
+2.00% 3.6% 6.7% 8.4% 13.3% 
+1.00% 1.6% 2.8% 4.4% 7.0% 
Current 0.0% 0.0% 0.0% 0.0% 
-1.00% (1.5)% (5.4)% (5.3)% (9.2)% 
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 21.4% at16.4% as of December 31, 2017.2019. 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.

82

Interest rate risk, defined as the exposure of net interest income and Economic Value of Equity or “EVE,”(“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 Boardboard of Directors.directors. The primary goal of interest rate risk management is to control exposure to interest rate risk, within policy limits approved by the Board.board of directors. 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
The following table presents the projected impact of a change in interest rates on our fourth quarter 2017 modeling, an instantaneous 100 basis pointthe balance sheet. This change in interest rates assumes parallel increaseshifts in rates is estimated to increase the EVE 12.2% versusyield curve and does not take into account changes in the EVE in a stable rate environment, while a 200 basis point parallel increase in rates is estimated to increaseslope of the EVE 21.8%.

yield curve.

  % Change in Economic Value of Equity 
Changes in Interest Rates 2019 2018 
+2.00% 13.2% 15.7% 
+1.00% 7.1% 9.4% 
Current 0.0% 0.0% 
-1.00% (16.4)% (13.7)% 


57



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.

83

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.

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, 2017 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 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

84

Table 1 - Condensed Income Statement*

  For the Year Ended December 31, 
  2017  2016  2015 
  (Tax equivalent basis) 
Net interest income  3.40%  3.34%  3.33%
Provision for loan losses  0.11   0.06   0.08 
Noninterest income            
Securities gains, net  0.00   0.01   0.00 
Gain on sale of VISA stock  0.29   0.00   0.00 
Bargain purchase gains, net  0.00   0.00   0.01 
Other  0.83   0.89   0.97 
Noninterest expense  2.88   3.11   3.14 
Income before income taxes  1.53   1.07   1.09 
Provision for income taxes including tax equivalent adjustment  0.71   0.38   0.42 
Net income  0.82%  0.69%  0.67%

Statement1

* As a Percent of Average Assets

85

  For the Year Ended December 31,
(In thousands) 2019 2018 2017
Net interest income 3.57% 3.50% 3.40%
Provision for loan losses 0.16 0.19 0.11
Noninterest income      
Securities gains (losses), net 0.02 (0.01) 
Gain on sale of Visa stock   0.29
Other 0.81 0.83 0.83
Noninterest expense 2.35 2.68 2.88
Income before income taxes 1.89 1.45 1.53
Provision for income taxes including tax equivalent adjustment 0.44 0.34 0.71
Net income 1.45% 1.11% 0.82%
1On a fully taxable equivalent basis. Balances presented as a percentage of average assets.



58



Table 2 – Three Year Summary

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

  For the Year Ended December 31, 
  2017  2016  2015 
  Average     Yield/  Average     Yield/  Average     Yield/ 
  Balance  Interest  Rate  Balance  Interest  Rate  Balance  Interest  Rate 
  (Dollars in thousands) 
EARNING ASSETS                                    
Securities                                    
Taxable $1,316,972  $34,442   2.62% $1,174,627  $26,133   2.22% $946,986  $20,341   2.15%
Nontaxable  28,369   1,401   4.94   25,841   1,592   6.16   15,208   895   5.89 
   1,345,341   35,843   2.66   1,200,468   27,725   2.31   962,194   21,236   2.21 
Federal funds sold and otherinvestments  71,352   2,416   3.39   75,442   1,669   2.21   76,851   1,022   1.33 
Loans, net(2)  3,323,403   154,043   4.64   2,584,389   119,587   4.63   1,984,545   94,640   4.77 
TOTAL EARNING ASSETS  4,740,096   192,302   4.06   3,860,299   148,981   3.86   3,023,590   116,898   3.87 
                                     
Allowance for loan losses  (25,485)          (21,131)          (18,725)        
Cash and due from banks  106,710           88,919           73,001         
Bank premises and equipment, net  59,842           60,470           51,396         
Bank owned life insurance  97,939           45,009           39,343         
Goodwill  99,660           53,792           25,320         
Other intangible assets, net  15,851           12,819           7,956         
Other assets  112,004           101,645           102,516         
  $5,206,617          $4,201,822          $3,304,397         
                                     
INTEREST BEARING LIABILITIES                                    
                                     
Interest bearing demand $922,353   1,065   0.12% $764,917   616   0.08% $632,304   472   0.07%
Savings deposits  385,515   241   0.06   325,371   161   0.05   281,470   158   0.06 
Money market  868,427   2,348   0.27   791,998   1,816   0.23   607,768   1,455   0.24 
Time deposits  523,646   4,678   0.89   351,646   2,074   0.59   307,329   1,228   0.40 
Federal funds purchased andother short term borrowings  171,686   782   0.46   187,560   484   0.26   168,188   340   0.20 
Federal Home Loan Bank borrowings  377,396   3,743   0.99   198,268   1,256   0.63   64,726   1,643   2.54 
Other borrowings  70,377   2,443   3.47   70,097   2,060   2.94   67,056   1,634   2.44 
TOTAL INTEREST BEARING LIABILITIES  3,319,400   15,300   0.46   2,689,857   8,467   0.31   2,128,841   6,930   0.33 
Noninterest demand  1,279,825           1,066,463           819,801         
Other liabilities  36,993           31,628           18,388         
   4,636,218           3,787,948           2,967,030         
Shareholders' equity  570,399           413,874           337,367         
  $5,206,617          $4,201,822          $3,304,397         
Interest expense as % ofearning assets          0.32%          0.22%          0.23%
Net interest income/yield on earning assets     $177,002   3.73%     $140,514   3.63%     $109,968   3.64%

(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.

86

  For the Year Ended December 31,
  2019 2018 2017
(In thousands, except percentages) 
Average
Balance
 Interest 
Yield/
Rate
 
Average
Balance
 Interest 
Yield/
Rate
 
Average
Balance
 Interest 
Yield/
Rate
Assets                  
Earning Assets:  
  
  
  
  
  
  
  
  
Securities  
  
  
  
  
  
  
  
  
Taxable $1,176,842
 $35,354
 3.00% $1,299,089
 $37,860
 2.91% $1,316,972
 $34,442
 2.62%
Nontaxable 23,122
 695
 3.01
 31,331
 1,115
 3.56
 28,369
 1,401
 4.94
Total Securities 1,199,964
 36,049
 3.00
 1,330,420
 38,975
 2.93
 1,345,341
 35,843
 2.66
                   
Federal funds sold and other investments 88,045
 3,379
 3.84
 61,048
 2,670
 4.37
 71,352
 2,416
 3.39
Loans, net 4,933,518
 250,730
 5.08
 4,112,009
 200,194
 4.87
 3,323,403
 154,043
 4.64
Total Earning Assets 6,221,527
 290,158
 4.66
 5,503,477
 241,839
 4.39
 4,740,096
 192,302
 4.06
                   
Allowance for loan losses (33,465)  
  
 (29,972)     (25,485)  
  
Cash and due from banks 94,643
  
  
 114,936
     106,710
  
  
Bank premises and equipment, net 69,142
  
  
 67,332
     59,842
  
  
Bank owned life insurance 124,803
  
  
 124,452
     97,939
  
  
Intangible assets 228,042
  
  
 178,287
     115,511
  
  
Other assets 126,588
  
  
 98,823
     112,004
  
  
 Total Assets $6,831,280
  
  
 $6,057,335
     $5,206,617
  
  
                   
Liabilities and Shareholders' Equity                  
Interest-Bearing Liabilities:                  
Interest-bearing demand $1,114,334
 4,025
 0.36% $978,030
 1,883
 0.19% $922,353
 1,065
 0.12%
Savings deposits 516,526
 2,015
 0.39
 457,542
 811
 0.18
 385,515
 241
 0.06
Money market 1,164,938
 10,581
 0.91
 1,049,900
 6,069
 0.58
 868,427
 2,348
 0.27
Time deposits 1,092,516
 21,776
 1.99
 811,741
 11,684
 1.44
 523,646
 4,678
 0.89
Short term borrowings 106,142
 1,431
 1.35
 200,839
 1,804
 0.90
 171,686
 781
 0.45
Federal funds purchased and Federal Home Loan Bank borrowings 131,921
 3,010
 2.28
 224,982
 4,468
 1.99
 377,396
 3,744
 0.99
Other borrowings 70,939
 3,367
 4.75
 70,658
 3,164
 4.48
 70,377
 2,443
 3.47
Total Interest-Bearing Liabilities 4,197,316
 46,205
 1.10
 3,793,692
 29,883
 0.79
 3,319,400
 15,300
 0.46
                   
Noninterest demand 1,641,766
  
  
 1,492,451
     1,279,825
  
  
Other liabilities 63,405
  
  
 30,621
     36,993
  
  
Total Liabilities 5,902,487
  
  
 5,316,764
     4,636,218
  
  
                   
Shareholders' equity 928,793
  
  
 740,571
     570,399
  
  
Total Liabilities & Shareholders' Equity $6,831,280
  
  
 $6,057,335
     $5,206,617
  
  
                   
Cost of deposits     0.69%     0.43%     0.21%
Interest expense as % of earning assets  
  
 0.74%  
  
 0.54%     0.32%
Net interest income/yield on earning assets  
 $243,953
 3.92%  
 $211,956
 3.85%   $177,002
 3.73%
1On 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.




59



Table 3 - Rate/Volume Analysis (on a Tax Equivalent Basis)(1)1

  2017 vs 2016  2016 vs 2015 
  Due to Change in:  Due to Change in: 
  Volume  Rate  Total  Volume  Rate  Total 
  (In thousands) 
  Amount of increase (decrease) 
EARNING ASSETS                        
Securities                        
Taxable $3,445  $4,864  $8,309  $4,977  $815  $5,792 
Nontaxable  140   (331)  (191)  640   57   697 
   3,585   4,533   8,118   5,617   872   6,489 
Federal funds sold and other investments  (115)  862   747   (26)  673   647 
Loans, net  34,225   231   34,456   28,181   (3,234)  24,947 
TOTAL EARNING ASSETS  37,695   5,626   43,321   33,772   (1,689)  32,083 
                         
INTEREST BEARING LIABILITIES                        
Interest bearing demand  154   295   449   103   41   144 
Savings deposits  34   46   80   23   (20)  3 
Money market accounts  192   340   532   433   (72)  361 
Time deposits  1,276   1,328   2,604   219   627   846 
   1,656   2,009   3,665   778   576   1,354 
Federal funds purchased and other short term borrowings  (57)  355   298   45   99   144 
Federal Home Loan Bank borrowings  1,456   1,031   2,487   2,118   (2,505)  (387)
Other borrowings  9   374   383   82   344   426 
TOTAL INTEREST BEARING LIABILITIES  3,064   3,769   6,833   3,023   (1,486)  1,537 
NET INTEREST INCOME $34,631  $1,857  $36,488  $30,749  $(203) $30,546 

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

87

  
2019 vs 2018
Due to Change in:
 2018 vs 2017
Due to Change in:
(In thousands) Volume Rate Total Volume Rate Total
  Amount of increase (decrease)
Earning Assets:  
  
  
  
  
  
Securities  
  
  
  
  
  
Taxable $(3,618) $1,112
 $(2,506) $(494) $3,912
 $3,418
Nontaxable (269) (151) (420) 126
 (412) (286)
Total Securities (3,887)
961

(2,926)
(368)
3,500

3,132
             
Federal funds sold and other investments 1,108
 (399) 709
 (400) 654
 254
Loans, net 40,873
 9,663
 50,536
 37,473
 8,678
 46,151
Total Earning Assets 38,094

10,225

48,319

36,705

12,832

49,537
             
Interest-Bearing Liabilities:      
  
  
  
Interest-bearing demand 377
 1,765
 2,142
 86
 732
 818
Savings deposits 167
 1,037
 1,204
 86
 484
 570
Money market accounts 855
 3,657
 4,512
 770
 2,951
 3,721
Time deposits 4,819
 5,273
 10,092
 3,360
 3,646
 7,006
Total Deposits 6,218
 11,732
 17,950
 4,302
 7,813
 12,115
             
Short term borrowings (1,064) 691
 (373) 197
 825
 1,022
Federal funds purchased and Federal Home Loan Bank borrowings (1,986) 528
 (1,458) (2,269) 2,994
 725
Other borrowings 13
 190
 203
 11
 710
 721
Total Interest Bearing Liabilities 3,181

13,141

16,322

2,241

12,342

14,583
Net Interest Income $34,913
 $(2,916) $31,997
 $34,464
 $490
 $34,954
1On 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.
 Changes attributable to rate/volume (mix) are allocated to rate and volume on an equal basis.




60



Table 4 – Noninterest Income

  For the Year Ended December 31,  % Change 
  2017  2016  2015  17/16  16/15 
  (In thousands)       
Service charges on deposit accounts $10,049  $9,669  $8,563   3.9%  12.9%
Trust fees  3,705   3,433   3,132   7.9   9.6 
Mortgage banking fees  6,449   5,864   4,252   10.0   37.9 
Brokerage commissions and fees  1,352   2,044   2,132   (33.9)  (4.1)
Marine finance fees  910   673   1,152   35.2   (41.6)
Interchange income  10,583   9,227   7,684   14.7   20.1 
Other deposit based EFT fees  465   477   397   (2.5)  20.2 
BOLI income  3,426   2,213   1,426   54.8   55.2 
Gain on participated loan  0   0   725    n/m   (100.0)
Other  6,291   3,827   2,555   64.4   49.8 
   43,230   37,427   32,018   15.5   16.9 
Securities gains, net  86   368   161   (76.6)  128.6 
Gain on sale of VISA stock  15,153   0   0    n/m   0.0 
Bargain purchase gain, net  0   0   416    n/m   (100.0)
TOTAL $58,469  $37,795  $32,595   54.7   16.0 

n/m = not meaningful

88

  For the Year Ended December 31, % Change
(In thousands, except percentages) 2019 2018 2017 19/18 18/17
Service charges on deposit accounts $11,529
 $11,198
 $10,049
 3 % 11 %
Trust fees 4,443
 4,183
 3,705
 6
 13
Mortgage banking fees 6,490
 4,682
 6,449
 39
 (27)
Brokerage commissions and fees 1,909
 1,732
 1,352
 10
 28
Marine finance fees 1,054
 1,398
 910
 (25) 54
Interchange income 13,399
 12,335
 10,583
 9
 17
BOLI income 3,674
 4,291
 3,426
 (14) 25
SBA gains 2,472
 2,474
 579
 
 327
Other 10,545
 8,352
 6,177
 26
 35
  55,515

50,645

43,230
 10
 17
Gain on sale of Visa stock 
 
 15,153
 n/m
 (100)
Securities gains (losses), net 1,217
 (623) 86
 (295) (824)
Total Noninterest Income $56,732

$50,022

$58,469
 13 % (14)%
 n/m = not meaningful


Table 5 - Noninterest Expense

  For the Year Ended December 31,  % Change 
  2017  2016  2015  17/16  16/15 
  (In thousands)       
Salaries and wages $65,692  $54,096  $41,075   21.4%  31.7%
Employee benefits  11,732   9,903   9,564   18.5   3.5 
Outsourced data processing costs  14,116   13,516   10,150   4.4   33.2 
Telephone / data lines  2,291   2,108   1,797   8.7   17.3 
Occupancy  13,290   13,122   8,744   1.3   50.1 
Furniture and equipment  6,067   4,720   3,434   28.5   37.4 
Marketing  4,784   3,633   4,428   31.7   (18.0)
Legal and professional fees  11,022   9,596   8,022   14.9   19.6 
FDIC assessments  2,326   2,365   2,212   (1.6)  6.9 
Amortization of intangibles  3,361   2,486   1,424   35.2   74.6 
Asset dispositions expense  411   553   472   (25.7)  17.2 
Net (gain) loss on other real estate owned and repossessed assets  (711)  (509)  239   39.7   (313.0)
Early redemption cost for Federal Home Loan Bank advances  0   1,777   0   (100.0)  n/m 
Other  15,535   13,515   12,209   14.9   10.7 
TOTAL $149,916  $130,881  $103,770   14.5   26.1 

* n/m = not meaningful

89

  For the Year Ended December 31, % Change
(In thousands, except percentages) 2019 2018 2017 19/18 18/17
Salaries and wages $73,829
 $71,111
 $65,692
 4 % 8 %
Employee benefits 13,697
 12,945
 11,732
 6
 10
Outsourced data processing costs 15,077
 16,374
 14,116
 (8) 16
Telephone / data lines 2,958
 2,481
 2,291
 19
 8
Occupancy 14,284
 13,394
 13,290
 7
 1
Furniture and equipment 6,245
 6,744
 6,067
 (7) 11
Marketing 4,161
 5,085
 4,784
 (18) 6
Legal and professional fees 8,553
 9,961
 11,022
 (14) (10)
FDIC assessments 881
 2,195
 2,326
 (60) (6)
Amortization of intangibles 5,826
 4,300
 3,361
 35
 28
Foreclosed property expense and net loss (gain) on sale 51
 461
 (300) (89) (254)
Other 15,177
 17,222
 15,535
 (12) 11
Total Noninterest Expense $160,739
 $162,273
 $149,916
 (1)% 8 %




61



Table 6 - Capital Resources

  December 31, 
  2017  2016  2015 
  (In thousands) 
TIER 1 CAPITAL            
Common stock $4,693  $3,802  $3,435 
Additional paid in capital  661,632   454,001   399,162 
Retained earnings (Accumulated deficit)  29,914   (13,657)  (42,858)
Treasury stock  (2,359)  (1,236)  (73)
Goodwill  (147,578)  (64,649)  (25,211)
Intangibles  (15,150)  (6,371)  (2,057)
Other  (7,320)  (20,121)  (15,394)
COMMON EQUITY TIER 1 CAPITAL  523,832   351,769   317,004 
Qualifying trust preferred securities  70,521   70,241   69,961 
Other  (1,791)  (13,414)  (23,092)
TOTAL TIER 1 CAPITAL  592,562   408,596   363,873 
TIER 2 CAPITAL            
Allowance for loan losses, as limited  27,184   23,462   19,166 
TOTAL TIER 2 CAPITAL  27,184   23,462   19,166 
TOTAL RISK-BASED CAPITAL $619,746  $432,058  $383,039 
Risk weighted assets $4,352,390  $3,259,871  $2,392,668 
             
Common equity Tier 1 ratio (CET1)  12.04%  10.79%  13.25%
Regulatory minimum(2)  4.50   4.50   4.50 
Tier 1 capital ratio  13.61   12.53   15.21 
Regulatory minimum(2)  6.00   6.00   6.00 
Total capital ratio  14.24   13.25   16.01 
Regulatory minimum(2)  8.00   8.00   8.00 
Tier 1 capital to adjusted total assets  10.68   9.15   10.70 
Regulatory minimum  4.00   4.00   4.00 
Shareholders' equity to assets  11.87   9.30   10.00 
Average shareholders' equity to average total assets  10.96   9.85   10.21 
Tangible shareholders' equity to tangible assets  9.27   7.74   9.13 

  December 31,
(In thousands, except percentages) 2019 2018 2017
Tier 1 Capital  
  
  
Common stock $5,151
 $5,136
 $4,693
Additional paid in capital 786,138
 778,501
 661,632
Retained earnings 195,813
 97,074
 29,914
Treasury stock (6,032) (3,384) (2,359)
Goodwill (205,286) (204,753) (147,578)
Intangibles (18,305) (24,808) (15,150)
Other (2,924) (6,426) (7,320)
Common Equity Tier 1 Capital 754,555
 641,340
 523,832
       
Qualifying trust preferred securities 71,085
 70,804
 70,521
Other 
 
 (1,791)
Total Tier 1 Capital 825,640
 712,144
 592,562
       
Tier 2 Capital  
  
  
Allowance for loan losses, as limited 35,294
 32,543
 27,184
Total Tier 2 Capital 35,294
 32,543
 27,184
Total Risk-Based Capital $860,934
 $744,687
 $619,746
Risk weighted assets $5,481,325
 $5,159,431
 $4,352,390
       
Common equity Tier 1 ratio (CET1) 13.77% 12.43% 12.04%
Regulatory minimum1
 4.50
 4.50
 4.50
Tier 1 capital ratio 15.06
 13.80
 13.61
Regulatory minimum1
 6.00
 6.00
 6.00
Total capital ratio 15.71
 14.43
 14.24
Regulatory minimum1
 8.00
 8.00
 8.00
Tier 1 capital to adjusted total assets 12.20
 11.16
 10.68
Regulatory minimum 4.00
 4.00
 4.00
       
Shareholders' equity to assets 13.87
 12.81
 11.87
Average shareholders' equity to average total assets 13.60
 12.23
 10.96
Tangible shareholders' equity to tangible assets 11.05
 9.72
 9.27
1Excludes the Basel III capital conservation buffer of 2.5% for 2019, 1.875% for 2018, and 1.25% for 2017, which if not exceeded may constrain dividends, equity repurchases and compensation.




62

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

n/a = not applicable


90



Table 7 - Loans Outstanding

  December 31, 
  2017  2016  2015  2014  2013 
  (In thousands) 
Construction and land development                    
Residential $97,725  $29,693  $31,650  $16,155  $10,566 
Commercial  91,043   57,856   31,977   37,194   22,733 
   188,768   87,549   63,627   53,349   33,299 
Individuals  154,357   72,567   45,160   33,687   34,151 
   343,125   160,116   108,787   87,036   67,450 
                     
Commercial real estate(1)  1,639,992   1,357,592   1,009,378   837,147   520,382 
                     
Residential real estate                    
Adjustable  487,231   418,276   429,826   441,238   391,885 
Fixed rate  246,884   210,365   110,391   93,865   91,108 
Home equity mortgages  71,367   44,484   69,339   71,838   62,043 
Home equity lines  233,328   163,662   114,229   79,956   47,710 
   1,038,810   836,787   723,785   686,897   592,746 
                     
Commercial and financial  606,014   370,589   228,517   157,396   78,636 
                     
Installment loans to individuals                    
Automobiles and trucks  19,006   19,234   14,965   7,817   6,607 
Marine loans  78,855   78,993   46,534   26,236   20,208 
Other  90,851   55,718   23,857   18,844   17,898 
   188,712   153,945   85,356   52,897   44,713 
                     
Other loans  724   507   507   512   280 
                     
TOTAL $3,817,377  $2,879,536  $2,156,330  $1,821,885  $1,304,207 

  December 31,
(In thousands) 2019 2018 2017 2016 2015
Construction and land development  
  
  
  
  
Residential $94,641
 $123,326
 $97,725
 $29,693
 $31,650
Commercial 86,658
 128,175
 91,043
 57,856
 31,977
  181,299
 251,501
 188,768
 87,549
 63,627
Individuals 143,814
 192,067
 154,357
 72,567
 45,160
  325,113
 443,568
 343,125
 160,116
 108,787
           
Commercial real estate          
Owner-occupied 1,034,963
 970,181
 791,400
 623,800
 453,300
Non owner-occupied 1,344,008
 1,161,885
 848,592
 733,792
 556,078
  2,378,971
 2,132,066
 1,639,992
 1,357,592
 1,009,378
           
Residential real estate          
Adjustable 556,453
 618,123
 487,231
 418,276
 429,826
Fixed rate 589,960
 370,224
 246,884
 210,365
 110,391
Home equity mortgages 69,394
 74,127
 71,367
 44,484
 69,339
Home equity lines 292,056
 261,903
 233,328
 163,662
 114,229
  1,507,863
 1,324,377
 1,038,810
 836,787
 723,785
           
Commercial and financial 778,252
 722,322
 606,014
 370,589
 228,517
           
Installment loans to individuals          
Automobiles and trucks 22,939
 20,482
 19,006
 19,234
 14,965
Marine loans 91,025
 83,606
 78,855
 78,993
 46,534
Other 93,274
 97,606
 90,851
 55,718
 23,857
  207,238
 201,694
 188,712
 153,945
 85,356
           
Other loans 967
 1,187
 724
 507
 507
           
Total Loans $5,198,404
 $4,825,214
 $3,817,377
 $2,879,536
 $2,156,330
 

(1)Commercial real estate includes owner-occupied balances of $791.4 million, $623.8 million, $453.3 million, $362.3 million, and $194.0 million, respectively, for each of the years, beginning with 2017.

91






63



Table 8 - Loan Maturity Distribution

  December 31, 2017 
  Commercial and
Financial
  Construction and
Land Development
  Total 
     (In thousands)    
In one year or less $261,032  $156,771  $417,803 
After one year but within five years:            
Interest rates are floating or adjustable  61,707   44,055   105,762 
Interest rates are fixed  198,569   22,350   220,919 
In five years or more:            
Interest rates are floating or adjustable  9,386   45,672   55,058 
Interest rates are fixed  75,320   74,277   149,597 
TOTAL $606,014  $343,125  $949,139 

92

 December 31, 2019
(In thousands)
Commercial and
Financial
 
Construction
and Land
Development
 Total
In one year or less$366,771
 $150,886
 $517,657
      
After one year but within five years:    

Interest rates are floating or adjustable71,001
 59,159
 130,160
Interest rates are fixed198,826
 16,783
 215,609
      
In five years or more:     
Interest rates are floating or adjustable20,051
 48,910
 68,961
Interest rates are fixed121,603
 49,375
 170,978
Total$778,252
 $325,113
 $1,103,365


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 
  2017  Total  2016  Total 
  (In thousands) 
Maturity Group:                
Under 3 Months $22,266   10.5% $20,304   16.4%
3 to 6 Months  36,380   17.1   15,919   12.9 
6 to 12 Months  89,486   42.2   31,608   25.6 
Over 12 Months  63,954   30.2   55,801   45.1 
TOTAL $212,086   100.0% $123,632   100.0%

Maturity of Certificates of Deposit of more than $250,000   
 December 31, 
     % of     % of 
  2017  Total  2016  Total 
  (In thousands) 
Maturity Group:                
Under 3 Months $17,774   12.3% $15,832   23.3%
3 to 6 Months  20,100   13.9   14,325   21.1 
6 to 12 Months  59,344   41.2   12,294   18.1 
Over 12 Months  47,054   32.6   25,450   37.5 
TOTAL $144,272   100.0% $67,901   100.0%

93

Maturity of Certificates of Deposit of $100,000 through $250,000
 
  December 31, % of December 31, % of
(In thousands, except percentages) 2019 Total 2018 Total
Maturity Group:  
  
  
  
Under 3 Months $110,724
 41% $46,410
 18%
3 to 6 Months 78,190
 29
 33,291
 13
6 to 12 Months 53,702
 20
 83,280
 32
Over 12 Months 25,832
 10
 95,798
 37
Total Time Deposits $268,448
 100% $258,779
 100%
Maturity of Certificates of Deposit of more than $250,000
 
  December 31, % of December 31, % of
(In thousands, except percentages) 2019 Total 2018 Total
Maturity Group:  
  
  
  
Under 3 Months $95,351
 46% $30,542
 16%
3 to 6 Months 58,930
 28
 23,077
 12
6 to 12 Months 34,925
 17
 68,600
 36
Over 12 Months 18,113
 9
 69,722
 36
Total Time Deposits $207,319
 100% $191,941
 100%


64



Table 10 - Summary of Allowance for Loan Loss Experience

  For the Year Ended December 31, 
  2017  2016  2015  2014  2013 
   (In thousands, except percentages) 
Beginning balance $23,400  $19,128  $17,071  $20,068  $22,104 
                     
Provision (recapture) for loan losses  5,648   2,411   2,644   (3,486)  3,188 
                     
Charge offs:                    
Construction and land development  0   0   1,271   640   604 
Commercial real estate  407   256   263   285   2,186 
Residential real estate  569   205   779   1,126   3,153 
Commercial and financial  1,869   439   726   398   60 
Consumer  1,257   244   341   193   253 
TOTAL CHARGE OFFS  4,102   1,144   3,380   2,642   6,256 
Recoveries:                    
Construction and land development  896   226   404   415   212 
Commercial real estate  747   306   700   1,683   547 
Residential real estate  336   786   1,260   902   449 
Commercial and financial  226   1,809   531   170   326 
Consumer  290   109   117   74   26 
TOTAL RECOVERIES  2,495   3,236   3,012   3,244   1,560 
Net loan charge offs (recoveries)  1,607   (2,092)  368   (602)  4,696 
TDR valuation adjustments:                    
Construction and land development  2   8   (43)  12   (122)
Commercial real estate  64   132   69   (25)  580 
Residential real estate  244   86   151   118   63 
Commercial and financial  0   0   6   0   0 
Consumer  9   5   36   8   7 
Total TDR VALUATION ADJUSTMENTS  319   231   219   113   528 
ENDING BALANCE $27,122  $23,400  $19,128  $17,071  $20,068 
                     
Loans outstanding at end of year* $3,814,377  $2,879,536  $2,156,330  $1,821,885  $1,304,207 
Ratio of allowance for loan losses to loans outstanding at end of year  0.71%  0.81%  0.89%  0.94%  1.54%
Ratio of allowance for loan losses to loans outstanding (excluding purchased loans) at end of period(1)  0.90%  0.96%  1.03%  1.14%  1.54%
Daily average loans outstanding* $3,323,403  $2,584,389  $1,984,545  $1,452,751  $1,272,447 
Ratio of net charge offs (recoveries) to average loans outstanding  0.05%  (0.08)%  0.02%  (0.04)%  0.37%

(1)A non-GAAP measure.

* Net of unearned income.

94

  For the Year Ended December 31,
(In thousands, except percentages) 2019 2018 2017 2016 2015
Beginning balance $32,423
 $27,122
 $23,400
 $19,128
 $17,071
           
Provision for loan losses 10,999
 11,730
 5,648
 2,411
 2,644
           
Charge offs:  
  
  
  
  
Construction and land development 
 
 
 
 1,271
Commercial real estate 248
 3,139
 407
 256
 263
Residential real estate 152
 80
 569
 205
 779
Commercial and financial 7,550
 3,396
 1,869
 439
 726
Consumer 2,609
 1,411
 1,257
 244
 341
Total Charge Offs 10,559
 8,026
 4,102
 1,144
 3,380
           
Recoveries:  
  
  
  
  
Construction and land development 31
 27
 896
 226
 404
Commercial real estate 744
 292
 747
 306
 700
Residential real estate 338
 816
 336
 786
 1,260
Commercial and financial 712
 325
 226
 1,809
 531
Consumer 595
 329
 290
 109
 117
Total Recoveries 2,420
 1,789
 2,495
 3,236
 3,012
           
Net loan charge offs (recoveries) 8,139
 6,237
 1,607
 (2,092) 368
           
TDR valuation adjustments:  
  
  
  
  
Construction and land development 1
 
 2
 8
 (43)
Commercial real estate 61
 62
 64
 132
 69
Residential real estate 63
 121
 244
 86
 151
Commercial and financial 
 
 
 
 6
Consumer 4
 9
 9
 5
 36
Total TDR Valuation Adjustments 129
 192
 319
 231
 219
Total Allowance for Loan Losses 35,154
 $32,423
 $27,122
 $23,400
 $19,128
           
Loans outstanding at end of year1
 $5,198,404
 $4,825,214
 $3,814,377
 $2,879,536
 $2,156,330
Ratio of allowance for loan losses to loans outstanding at end of year 0.68% 0.67% 0.71% 0.81% 0.89%
Daily average loans outstanding1
 $4,933,518
 $4,112,009
 $3,323,403
 $2,584,389
 $1,984,545
Ratio of net charge offs (recoveries) to average loans outstanding 0.16% 0.15% 0.05% (0.08)% 0.02%
1Net of unearned income.




65



Table 11 - Allowance for Loan Losses

  December 31, 
 2017  2016  2015  2014  2013 
  (In thousands) 
ALLOCATION BY LOAN TYPE                    
Construction and land development $1,642  $1,219  $1,151  $765  $808 
Commercial real estate loans  9,285   9,273   6,756   4,531   6,160 
Residential real estate loans  7,131   7,483   8,057   9,802   11,659 
Commercial and financial loans  7,297   3,636   2,042   1,179   710 
Consumer loans  1,767   1,789   1,122   794   731 
TOTAL $27,122  $23,400  $19,128  $17,071  $20,068 
                     
YEAR END LOAN TYPES AS A PERCENT OF TOTAL LOANS                    
Construction and land development  9.0%  5.6%  5.0%  4.8%  5.2%
Commercial real estate loans  43.0   47.1   46.8   46.0   39.9 
Residential real estate loans  27.2   29.1   33.6   37.7   45.5 
Commercial and financial loans  15.9   12.9   10.6   8.6   6.0 
Consumer loans  4.9   5.3   4.0   2.9   3.4 
TOTAL  100.0%  100.0%  100.0%  100.0%  100.0%

95

  December 31,
(In thousands, except percentages) 2019 2018 2017 2016 2015
Allocation by Loan Type  
  
  
  
  
Construction and land development $1,842
 $2,233
 $1,642
 $1,219
 $1,151
Commercial real estate loans 13,224
 11,112
 9,285
 9,273
 6,756
Residential real estate loans 7,667
 7,775
 7,131
 7,483
 8,057
Commercial and financial loans 9,716
 8,585
 7,297
 3,636
 2,042
Consumer loans 2,705
 2,718
 1,767
 1,789
 1,122
Total Allowance for Loan Losses $35,154
 $32,423
 $27,122
 $23,400
 $19,128
           
Year End Loan Types as a Percent of Total Loans  
  
  
  
  
Construction and land development 6% 9% 9% 6% 5%
Commercial real estate loans 46
 44
 43
 47
 47
Residential real estate loans 29
 28
 27
 29
 33
Commercial and financial loans 15
 15
 16
 13
 11
Consumer loans 4
 4
 5
 5
 4
Total 100% 100% 100% 100% 100%


66



Table 12 - Nonperforming Assets

  December 31, 
  2017  2016  2015  2014  2013 
 (In thousands) 
Nonaccrual loans(1) (2)   
Construction and land development $238  $470  $309  $1,963  $1,302 
Commercial real estate loans  2,833   7,341   6,410   4,189   5,111 
Residential real estate loans  13,856   9,844   10,290   14,797   20,705 
Commercial and financial loans  2,499   246   130   0   13 
Consumer loans  98   170   247   191   541 
Total  19,524   18,071   17,386   21,140   27,672 
Other real estate owned                    
Construction and land development  1,268   1,203   2,617   223   421 
Commercial real estate loans  2,550   3,041   3,959   5,771   5,138 
Residential real estate loans  60   0   463   1,468   1,301 
Bank branches closed  3,762   5,705   0   0   0 
Total  7,640   9,949   7,039   7,462   6,860 
TOTAL NONPERFORMING ASSETS $27,164  $28,020  $24,425  $28,602  $34,532 
                     
Amount of loans outstanding at end of year(2) $3,817,377  $2,879,536  $2,156,330  $1,821,885  $1,304,207 
Ratio of total nonperforming assets to loans outstanding and other real estate owned at end of period  0.71%  0.97%  1.13%  1.56%  2.63%
Accruing loans past due 90 days or more $0  $0  $0  $311  $160 
Loans restructured and in compliance with modified terms(3)  15,559   17,711   19,970   24,997   25,137 

(1)Interest income that could have been recorded during 2017, 2016, and 2015 related to nonaccrual loans was $319,000, $728,000, and $614,000, 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 $682,000, $1,001,000, and $1,211,000, respectively, for 2017, 2016 and 2015. The amount included in interest income under the modified terms for 2017, 2016, and 2015 was $723,000, $792,000, and $836,000, respectively.

96

  December 31,
(In thousands, except percentages) 2019 2018 2017 2016 2015
Nonaccrual loans1,2
  
Construction and land development $4,937
 $44
 $238
 $470
 $309
Commercial real estate loans 6,520
 9,220
 2,833
 7,341
 6,410
Residential real estate loans 9,479
 13,708
 13,856
 9,844
 10,290
Commercial and financial loans 5,909
 3,321
 2,499
 246
 130
Consumer loans 110
 183
 98
 170
 247
Total Nonaccrual Loans 26,955
 26,476
 19,524
 18,071
 17,386
           
Other real estate owned  
  
  
  
  
Construction and land development 197
 1,543
 1,268
 1,203
 2,617
Commercial real estate loans 5,111
 1,566
 2,550
 3,041
 3,959
Residential real estate loans 241
 297
 60
 
 463
Bank branches closed 6,842
 9,396
 3,762
 5,705
 
Total Other Real Estate Owned 12,391
 12,802
 7,640
 9,949
 7,039
           
Total Nonperforming Assets $39,346
 $39,278
 $27,164
 $28,020
 $24,425
           
Amount of loans outstanding at end of year2
 $5,198,404
 $4,825,214
 $3,817,377
 $2,879,536
 $2,156,330
Ratio of total nonperforming assets to loans outstanding and other real estate owned at end of period 0.76% 0.81% 0.71% 0.97% 1.13%
Accruing loans past due 90 days or more $108
 $526
 $
 $
 $
Loans restructured and in compliance with modified terms3
 11,100
 13,346
 15,559
 17,711
 19,970
1Interest income that could have been recorded during 2019, 2018, and 2017 related to nonaccrual loans was $0.4 million, $1.0 million, and $0.7 million, respectively, none of which was included in interest income or net income.
2Net of unearned income.
3Interest income that would have been recorded based on original contractual terms was $0.4 million, $0.5 million, and $0.7 million, respectively, for 2019, 2018 and 2017. The amount included in interest income under the modified terms for 2019, 2018 and 2017 was $0.6 million, $0.7 million, and $0.7 million, respectively.



67



Table 13 - Debt Securities Available For Sale

  December 31, 
  Gross     Gross  Gross 
  Amortized  Fair  Unrealized  Unrealized 
  Cost  Value  Gains  Losses 
  (In thousands) 
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities                
2017 $9,475  $9,744  $274  $(5)
2016  12,073   12,328   255   0 
                 
Mortgage-backed securities of U.S. Government Sponsored Entities                
2017  318,771   316,356   891   (3,306)
2016  287,726   283,488   585   (4,823)
                 
Collateralized mortgage obligations of U.S. Government Sponsored Entities                
2017  235,466   231,044   272   (4,694)
2016  238,805   234,054   314   (5,065)
                 
Commercial mortgage-backed securities of U.S. Government Sponsored Entities                
2017  16,210   16,341   165   (34)
2016  22,351   22,545   222   (28)
                 
Private mortgage-backed securities                
2017  18,056   18,440   384   0 
2016  32,780   31,989   0   (791)
                 
Private collateralized mortgage obligations                
2017  47,045   47,365   605   (285)
2016  67,542   67,289   563   (816)
                 
Collateralized loan obligations                
2017  263,579   264,309   798   (68)
2016  124,716   124,889   838   (665)
                 
Obligations of state and political subdivisions                
2017  45,118   45,861   813   (70)
2016  63,161   62,888   622   (895)
                 
Corporate and other debt securities                
2017  6,500   6,344   0   (156)
2016  74,121   73,861   257   (517)
                 
Private commercial mortgage backed securities                
2017  0   0   0   0 
2016  37,534   37,172   111   (473)
                 
Total Securities Available For Sale                
2017 $960,220  $955,804  $4,202  $(8,618)
2016 $960,809  $950,503  $3,767  $(14,073)

97

Available-For-Sale

  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 agencies  
  
  
  
2019 $9,914
 $10,114
 $204
 $(4)
2018 7,200
 7,300
 106
 (6)
2017 9,475
 9,744
 274
 (5)
         
Mortgage-backed securities and collateralized mortgage obligations of U.S. government sponsored entities  
  
  
  
2019 604,934
 609,207
 5,784
 (1,511)
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  
  
  
  
2019 56,005
 57,561
 1,561
 (5)
2018 55,569
 55,728
 560
 (401)
2017 75,152
 76,021
 1,154
 (285)
         
Collateralized loan obligations  
  
  
  
2019 239,364
 238,218
 7
 (1,153)
2018 212,807
 209,366
 1
 (3,442)
2017 263,579
 264,309
 798
 (68)
         
Obligations of state and political subdivisions  
  
  
  
2019 30,548
 31,755
 1,208
 (1)
2018 39,543
 39,431
 339
 (451)
2017 45,118
 45,861
 813
 (70)
         
Total Debt Securities Available-For-Sale  
  
  
  
2019 $940,765
 $946,855
 $8,764
 $(2,674)
2018 882,872
 865,831
 1,306
 (18,347)
2017 953,720
 949,460
 4,202
 (8,462)


68



Table 14 - Debt Securities Held to Maturity

  December 31, 
  Gross     Gross  Gross 
  Amortized  Fair  Unrealized  Unrealized 
  Cost  Value  Gains  Losses 
  (In thousands) 
             
Mortgage-backed securities of U.S. Government Sponsored Entities                
2017 $172,261  $171,616  $747  $(1,392)
2016  159,941   159,402   704   (1,243)
                 
Collateralized mortgage obligations of U.S. Government Sponsored Entities                
2017  181,279   178,569   56   (2,768)
2016  147,208   144,964   386   (2,630)
                 
Commercial mortgage-backed securities of U.S. Government Sponsored Entities                
2017  17,463   18,168   705   0 
2016  17,375   17,534   233   (74)
                 
Collateralized loan obligations                
2017  40,523   40,826   303   0 
2016  41,547   41,663   430   (314)
                 
Private mortgage backed securities                
2017  5,337   5,293   9   (53)
2016  6,427   6,318   0   (109)
                 
Total Securities Held to Maturity                
2017 $416,863  $414,472  $1,820  $(4,213)
2016 $372,498  $369,881  $1,753  $(4,370)

98

Held-to-Maturity

  December 31,
(In thousands) 
Gross
Amortized
Cost
 
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
Mortgage-backed securities of U.S. government sponsored entities  
  
  
  
2019 $261,369
 $262,213
 $2,717
 $(1,873)
2018 304,423
 297,099
 
 (7,324)
2017 353,541
 350,184
 802
 (4,159)
         
Private mortgage-backed securities and collateralized mortgage obligations  
  
  
  
2019 
 
 
 
2018 21,526
 21,673
 277
 (130)
2017 22,799
 23,460
 714
 (53)
         
Collateralized loan obligations  
  
  
  
2019 
 
 
 
2018 32,000
 31,123
 
 (877)
2017 40,523
 40,826
 303
 
         
Total Debt Securities Held-to-Maturity  
  
  
  
2019 $261,369
 $262,213
 $2,717
 $(1,873)
2018 357,949
 349,895
 277
 (8,331)
2017 416,863
 414,470
 1,819
 (4,212)


69



Table 15 - Maturity Distribution of Debt Securities Available For Sale

  December 31, 2017 
                 Average 
  1 Year  1-5  5-10  After 10     Maturity 
  Or Less  Years  Years  Years  Total  In Years 
  (In thousands) 
AMORTIZED COST                        
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities $5,139  $4,336  $0  $0  $9,475   0.69 
Mortgage-backed securities of U.S. Government Sponsored Entities  0   105,926   172,134   40,711   318,771   7.43 
Collateralized mortgage obligations of U.S. Government Sponsored Entities  560   127,645   91,339   15,922   235,466   5.40 
Commercial mortgage backed securities of U.S. Government Sponsored Entities  1,250   4,090   10,870   0   16,210   6.48 
Private mortgage backed securities  0   0   2,460   15,596   18,056   10.55 
Private collateralized mortgage obligations  26,223   12,335   5,408   3,079   47,045   2.88 
Collateralized loan obligations  0   27,441   236,138   0   263,579   6.90 
Obligations of state and political subdivisions  1,109   10,671   20,168   13,170   45,118   9.02 
Corporate and other debt securities  6,500   0   0   0   6,500   0.00 
Total Securities Available For Sale $40,781  $292,444  $538,517  $88,478  $960,220   6.51 
                         
FAIR VALUE                        
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities $5,359  $4,385  $0  $0  $9,744     
Mortgage-backed securities of U.S. Government Sponsored Entities  0   105,181   170,617   40,558   316,356     
Collateralized mortgage obligations of U.S. Government Sponsored Entities  560   125,034   89,578   15,872   231,044     
Commercial mortgage backed securities of U.S. Government Sponsored Entities  1,247   4,059   11,035   0   16,341     
Private mortgage backed securities  0   0   2,538   15,902   18,440     
Private collateralized mortgage obligations  26,373   12,399   5,572   3,021   47,365     
Collateralized loan obligations  0   27,491   236,818   0   264,309     
Obligations of state and political subdivisions  1,114   10,740   20,631   13,376   45,861     
Corporate and other debt securities  6,344   0   0   0   6,344     
Total Securities Available For Sale $40,997  $289,289  $536,789  $88,729  $955,804     
                         
WEIGHTED AVERAGE YIELD (FTE)                        
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities  3.39%  2.74%  0.00%  0.00%  3.09%    
Mortgage-backed securities of U.S. Government Sponsored Entities  0.00%  2.26%  2.69%  2.99%  2.59%    
Collateralized mortgage obligations of U.S. Government Sponsored Entities  1.90%  2.20%  2.51%  2.81%  2.35%    
Commercial mortgage backed securities of U.S. Government Sponsored Entities  1.88%  2.03%  3.92%  0.00%  3.62%    
Private mortgage backed securities  0.00%  0.00%  3.10%  2.84%  2.88%    
Private collateralized mortgage obligations  2.11%  3.67%  2.86%  2.23%  2.64%    
Collateralized loan obligations  0.00%  2.58%  2.99%  0.00%  2.95%    
Obligations of state and political subdivisions  2.26%  2.58%  3.27%  3.47%  3.14%    
Corporate and other debt securities  2.14%  0.00%  0.00%  0.00%  2.14%    
Total Securities Available For Sale  2.27%  2.30%  2.82%  2.98%  2.68%    

99

Available-For-Sale

  December 31, 2019
(In thousands) 
1 Year
Or Less
 
1-5
Years
 
5-10
Years
 
After 10
Years
 Total
Amortized Cost  
  
  
  
  
U.S. Treasury securities and obligations of U.S. government agencies $100
 $2,332
 $1,317
 $6,165
 $9,914
Mortgage-backed securities and collateralized mortgage obligations of U.S. government sponsored entities 
 27,378
 159,194
 418,362
 604,934
Private mortgage-backed securities and collateralized mortgage obligations 
 4,943
 
 51,062
 56,005
Collateralized loan obligations 
 
 69,338
 170,026
 239,364
Obligations of state and political subdivisions 3,372
 6,250
 9,171
 11,755
 30,548
Total Debt Securities Available-For-Sale $3,472
 $40,903
 $239,020
 $657,370
 $940,765
           
Fair Value  
  
  
  
  
U.S. Treasury securities and obligations of U.S. government agencies $100
 $2,353
 $1,343
 $6,318
 $10,114
Mortgage-backed securities and collateralized mortgage obligations of U.S. government sponsored entities 
 27,908
 160,681
 420,618
 609,207
Private mortgage-backed securities and collateralized mortgage obligations 
 5,098
 
 52,463
 57,561
Collateralized loan obligations 
 
 68,911
 169,307
 238,218
Obligations of state and political subdivisions 3,423
 6,345
 9,637
 12,350
 31,755
Total Debt Securities Available-For-Sale $3,523
 $41,704
 $240,572
 $661,056
 $946,855
           
Weighted Average Yield1
  
  
  
  
  
U.S. Treasury securities and obligations of U.S. government agencies 2.26% 2.78% 3.81% 3.49% 3.35%
Mortgage-backed securities and collateralized mortgage obligations of U.S. government sponsored entities 
 2.79
 2.57
 2.75
 2.71
Private mortgage-backed securities and collateralized mortgage obligations 
 4.07
 
 3.71
 3.74
Collateralized loan obligations 
 
 3.71
 3.57
 3.61
Obligations of state and political subdivisions 4.17
 2.54
 3.82
 2.60
 3.13
Total Debt Securities Available-For-Sale 4.12% 2.91% 2.95% 3.04% 3.02%
1All yields and rates have been computed using amortized costs.




70



Table 16 - Maturity Distribution of Debt Securities Held to Maturity

  December 31, 2017 
                 Average 
  1 Year  1-5  5-10  After 10     Maturity 
  Or Less  Years  Years  Years  Total  In Years 
  (In thousands) 
AMORTIZED COST                        
Mortgage-backed securities of U.S. Government Sponsored Entities $0  $59,622  $72,403  $40,236  $172,261   6.91 
Collateralized mortgage obligations of U.S. Government Sponsored Entities  0   90,717   90,562   0   181,279   5.31 
Commercial mortgage backed securities of U.S. Government Sponsored Entities  0   0   17,463   0   17,463   7.21 
Collateralized loan obligations  0   3,600   36,923   0   40,523   7.81 
Private collateralized mortgage obligations  0   0   5,337   0   5,337   6.22 
Total Securities Held for Investment $0  $153,939  $222,688  $40,236  $416,863   6.31 
                         
FAIR VALUE                        
Mortgage-backed securities of U.S. Government Sponsored Entities $0  $60,060  $71,583  $39,973  $171,616     
Collateralized mortgage obligations of U.S. Government Sponsored Entities  0   89,431   89,136   0   178,567     
Commercial mortgage backed securities of U.S. Government Sponsored Entities  0   0   18,168   0   18,168     
Collateralized loan obligations  0   3,607   37,219   0   40,826     
Private collateralized mortgage obligations  0   0   5,293   0   5,293     
Total Securities Held for Investment $0  $153,098  $221,399  $39,973  $414,470     
                         
WEIGHTED AVERAGE YIELD (FTE)                        
Mortgage-backed securities of U.S. Government Sponsored Entities  0.00%  2.31%  2.60%  2.89%  2.57%    
Collateralized mortgage obligations of U.S. Government Sponsored Entities  0.00%  2.34%  2.54%  0.00%  2.44%    
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%  3.37%  3.89%  0.00%  3.85%    
Private collateralized mortgage obligations  0.00%  0.00%  2.18%  0.00%  2.18%    
Total Securities Held for Investment  0.00%  2.35%  2.91%  2.89%  2.70%    

100

Held-to-Maturity

  December 31, 2019
(In thousands) 
1 Year
Or Less
 
1-5
Years
 
5-10
Years
 
After 10
Years
 Total
Amortized Cost  
  
  
  
  
Mortgage-backed securities of U.S. government sponsored entities $
 $55,483
 $31,332
 $174,554
 $261,369
Total Debt Securities Held for Investment $
 $55,483
 $31,332
 $174,554
 $261,369
           
Fair Value  
  
  
  
  
Mortgage-backed securities of U.S. government sponsored entities $
 $56,125
 $32,722
 $173,366
 $262,213
Total Debt Securities Held for Investment $
 $56,125
 $32,722
 $173,366
 $262,213
           
Weighted Average Yield1
  
  
  
  
  
Mortgage-backed securities of U.S. government sponsored entities % 2.36% 3.12% 2.41% 2.49%
Total Debt Securities Held for Investment % 2.36% 3.12% 2.41% 2.49%
1All yields and rates have been computed using amortized costs.


Table 17 - Interest Rate Sensitivity Analysis(1)1

  December 31, 2017 
  0-3  4-12  1-5  Over    
  Months  Months  Years  5 Years  Total 
  (In thousands) 
Federal funds sold and interest bearing deposits $12,553  $0  $0  $0  $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   0   0   0   2,416,559 
Time deposits  154,351   473,088   147,466   1,028   775,933 
Borrowings  497,615   0   0   0   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

101

  December 31, 2019
(In thousands) 
0-3
Months
 
4-12
Months
 
1-5
Years
 
Over
5 Years
 Total
Federal funds sold and interest bearing deposits $38,430
 $
 $
 $
 $38,430
Securities2
 300,019
 95,035
 431,135
 382,035
 1,208,224
Loans, net3
 1,757,776
 622,369
 2,068,986
 769,302
 5,218,433
Other assets4
 25,853
 25,689
 
 
 51,542
Earning assets 2,122,078
 743,093
 2,500,121
 1,151,337
 6,516,629
Savings deposits 27,786
 83,358
 943,473
 1,754,630
 2,809,247
Time deposits 766,008
 342,728
 75,041
 1,236
 1,185,013
Borrowings 535,096
 
 
 
 535,096
Interest bearing liabilities 1,328,890
 426,086
 1,018,514
 1,755,866
 4,529,356
Interest sensitivity gap $793,188
 $317,007
 $1,481,607

$(604,529)
$1,987,273
Cumulative gap $793,188
 $1,110,195
 $2,591,802
 $1,987,273
  
Cumulative gap to total earning assets 12% 17% 40% 31%  
Earning assets to interest bearing liabilities 160
 174
 245
 66
  
1The repricing dates may differ from contractual maturity dates for certain assets due to prepayment assumptions.
2Securities are stated at carrying value.
3Includes loans available-for-sale.
4"0-3 Months" includes FHLB stock for which interest resets quarterly and a mutual fund that invests in CRA qualified debt securities which reprices daily and "4-12 Months" includes Federal Reserve Bank stock for which interest resets semiannually.


71



Stock Performance Graph

The line graph below compares the cumulative total stockholder return on Seacoast common stock for the five years ended December 31, 2017 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, 20122014 (the last day of trading for the year ended December 31, 2012)2014) 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 12/31/12  12/31/13  12/31/14  12/31/15  12/31/16  12/31/17 
Seacoast Banking Corporation of Florida  100.00   151.55   170.81   186.09   274.04   313.17 
NASDAQ Composite Index  100.00   140.12   160.78   171.97   187.22   242.71 
SNL Southeast Bank Index  100.00   135.52   152.63   150.24   199.45   246.72 

Source: S&P Global Market Intelligence

© 2017

102


chart-2769834fa88a5314a1f.jpg

    Period Ending  
Index 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019
Seacoast Banking Corporation of Florida 100.00
 108.95
 160.44
 183.35
 189.24
 222.33
NASDAQ Composite Index 100.00
 106.96
 116.45
 150.96
 146.67
 200.49
SNL Southeast Bank Index 100.00
 98.44
 130.68
 161.65
 133.56
 188.08
Source: S&P Global Market Intelligence © 2020




72



SELECTED QUARTERLY INFORMATION

QUARTERLY CONSOLIDATED INCOME (LOSS) STATEMENTS (UNAUDITED)

  2017 Quarters  2016 Quarters 
  Fourth  Third  Second  First  Fourth  Third  Second  First 
  (In thousands, except per share data) 
Net interest income:                                
Interest income $53,344  $50,079  $47,398  $40,775  $39,691  $39,614  $36,579  $32,171 
Interest expense  5,118   4,330   3,242   2,610   2,266   2,166   2,086   1,949 
Net interest income  48,226   45,749   44,156   38,165   37,425   37,448   34,493   30,222 
Provision for loan losses  2,263   680   1,401   1,304   1,000   550   662   199 
Net interest income after provision for loan losses  45,963   45,069   42,755   36,861   36,425   36,898   33,831   30,023 
Noninterest income:                                
Service charges on deposit accounts  2,566   2,626   2,435   2,422   2,612   2,698   2,230   2,129 
Trust fees  941   967   917   880   969   820   838   806 
Mortgage banking fees  1,487   2,138   1,272   1,552   1,616   1,885   1,364   999 
Brokerage commissions and fees  273   351   351   377   480   463   470   631 
Marine finance fees  313   137   326   134   115   138   279   141 
Interchange income  2,836   2,582   2,671   2,494   2,334   2,306   2,370   2,217 
Other deposit based EFT fees  111   100   114   140   125   109   116   127 
BOLI income  1,100   836   757   733   611   382   379   841 
Other income  1,750   1,744   1,624   1,173   1,060   963   1,065   739 
Gain on sale of VISA stock  15,153   0   0   0   0   0   0   0 
Securities gains (losses), net  112   (47)  21   0   7   225   47   89 
Total noninterest income  26,642   11,434   10,488   9,905   9,929   9,989   9,158   8,719 
Noninterest expenses:                                
Salaries and wages  16,321   15,627   18,375   15,369   12,476   14,337   13,884   13,399 
Employee benefits  2,812   2,917   2,935   3,068   2,475   2,425   2,521   2,482 
Outsourced data processing costs  4,160   3,231   3,456   3,269   3,076   3,198   2,803   4,439 
Telephone / data lines  538   573   648   532   502   539   539   528 
Occupancy  3,265   2,447   4,421   3,157   2,830   3,675   3,645   2,972 
Furniture and equipment  1,806   1,191   1,679   1,391   1,211   1,228   1,283   998 
Marketing  1,490   1,298   1,074   922   847   780   957   1,049 
Legal and professional fees  3,054   2,560   3,276   2,132   2,370   2,213   2,656   2,357 
FDIC assessments  558   548   650   570   661   517   643   544 
Amortization of intangibles  964   839   839   719   719   728   593   446 
Asset dispositions expense  105   117   136   53   84   219   160   90 
Net (gain)/loss on other real estate owned and repossessed assets  (112)  (414)  161   (346)  (161)  (96)  (201)  (51)
Early redemption cost for Federal Home Loan Bank advances  0   0   0   0   0   0   1,777   0 
Other  4,223  ��3,427   3,975   3,910   3,207   3,672   3,548   3,088 
Total noninterest expenses  39,184   34,361   41,625   34,746   30,297   33,435   34,808   32,341 
Income before income taxes  33,421   22,142   11,618   12,020   16,057   13,452   8,181   6,401 
Provision for income taxes  20,374   7,926   3,942   4,094   5,286   4,319   2,849   2,435 
Net income $13,047  $14,216  $7,676  $7,926  $10,771  $9,133  $5,332  $3,966 
                                 
PER COMMON SHARE DATA                                
Net income diluted $0.28  $0.32  $0.18  $0.20  $0.28  $0.24  $0.14  $0.11 
Net income basic  0.29   0.33   0.18   0.20   0.29   0.24   0.14   0.11 
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  22.42   20.58   21.65   20.59   15.85   15.50   15.21   13.40 
High close  27.13   24.87   25.88   25.13   22.91   17.80   17.19   16.22 
Bid price at end of period  25.21   23.89   24.10   23.98   22.06   16.09   16.24   15.79 

103

  2019 Quarters 2018 Quarters
(In thousands, except per share data) Fourth Third Second First Fourth Third Second First
Net interest income:  
  
  
  
  
  
  
  
Interest income $72,286
 $72,825
 $72,237
 $72,475
 $70,058
 $59,154
 $56,709
 $55,477
Interest expense 10,526
 11,877
 12,101
 11,701
 10,074
 7,592
 6,502
 5,715
Net interest income 61,760
 60,948
 60,136
 60,774
 59,984
 51,562
 50,207
 49,762
Provision for loan losses 4,800
 2,251
 2,551
 1,397
 2,342
 5,774
 2,529
 1,085
Net interest income after provision for loan losses 56,960
 58,697
 57,585
 59,377
 57,642
 45,788
 47,678
 48,677
Noninterest income:                
Service charges on deposit accounts 2,960
 2,978
 2,894
 2,697
 3,019
 2,833
 2,674
 2,672
Trust fees 1,096
 1,183
 1,147
 1,017
 1,040
 1,083
 1,039
 1,021
Mortgage banking fees 1,514
 2,127
 1,734
 1,115
 809
 1,135
 1,336
 1,402
Brokerage commissions and fees 483
 449
 541
 436
 468
 444
 461
 359
Marine finance fees 338
 153
 201
 362
 185
 194
 446
 573
Interchange income 3,387
 3,206
 3,405
 3,401
 3,198
 3,119
 3,076
 2,942
BOLI income 904
 928
 927
 915
 1,091
 1,078
 1,066
 1,056
SBA gains 576
 569
 691
 636
 519
 473
 748
 734
Other income 2,579
 3,197
 2,503
 2,266
 2,810
 1,980
 1,923
 1,639
Securities gains (losses), net 2,539
 (847) (466) (9) (425) (48) (48) (102)
Total noninterest income 16,376
 13,943
 13,577
 12,836
 12,714
 12,291
 12,721
 12,296
Noninterest expenses:                
Salaries and wages 17,263
 18,640
 19,420
 18,506
 22,172
 17,129
 16,429
 15,381
Employee benefits 3,323
 2,973
 3,195
 4,206
 3,625
 3,205
 3,034
 3,081
Outsourced data processing costs 3,645
 3,711
 3,876
 3,845
 5,809
 3,493
 3,393
 3,679
Telephone / data lines 651
 603
 893
 811
 602
 624
 643
 612
Occupancy 3,368
 3,368
 3,741
 3,807
 3,747
 3,214
 3,316
 3,117
Furniture and equipment 1,416
 1,528
 1,544
 1,757
 2,452
 1,367
 1,468
 1,457
Marketing 885
 933
 1,211
 1,132
 1,350
 1,139
 1,344
 1,252
Legal and professional fees 2,025
 1,648
 2,033
 2,847
 3,668
 2,019
 2,301
 1,973
FDIC assessments 
 56
 337
 488
 571
 431
 595
 598
Amortization of intangibles 1,456
 1,456
 1,456
 1,458
 1,303
 1,004
 1,004
 989
Net (gain)/loss on other real estate owned and repossessed assets 3
 262
 (174) (40) 
 (136) 405
 192
Other 4,022
 3,405
 3,468
 4,282
 4,165
 3,910
 4,314
 4,833
Total noninterest expenses 38,057
 38,583
 41,000
 43,099
 49,464
 37,399
 38,246
 37,164
Income before income taxes 35,279
 34,057
 30,162
 29,114
 20,892
 20,680
 22,153
 23,809
Income taxes 8,103
 8,452
 6,909
 6,409
 4,930
 4,358
 5,189
 5,782
Net income $27,176
 $25,605
 $23,253
 $22,705
 $15,962
 $16,322
 $16,964
 $18,027
                 


73



  2019 Quarters 2018 Quarters
(In thousands, except per share data) Fourth Third Second First Fourth Third Second First
Per Common Share Data                
Net income diluted $0.52
 $0.49
 $0.45
 $0.44
 $0.31
 $0.34
 $0.35
 $0.38
Net income basic 0.53
 0.50
 0.45
 0.44
 0.32
 0.35
 0.36
 0.38
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 24.21
 22.54
 23.19
 25.49
 21.74
 28.30
 25.61
 23.96
High close 31.02
 27.36
 28.54
 29.57
 29.86
 34.95
 33.51
 28.44
Bid price at end of period 30.57
 25.31
 25.44
 26.35
 26.02
 29.20
 31.58
 26.47




74



FINANCIAL HIGHLIGHTS

  For the Year Ended and at December 31, 
(In thousands, except per share data) 2017  2016  2015  2014  2013 
                     
Net interest income $176,296  $139,588  $109,487  $74,907  $65,206 
                     
Provision (recapture) for loan losses  5,648   2,411   2,644   (3,486)  3,188 
                     
Noninterest income:                    
                     
Other  43,230   37,427   32,018   24,744   24,319 
                     
Securities gains, net  86   368   161   469   419 
                     
Gain on sale of VISA stock  15,153   0   0   0   0 
                     
Bargain purchase gains, net  0   0   416   0   0 
                     
Noninterest expenses  149,916   130,881   103,770   93,366   75,152 
                     
Income before income taxes  79,201   44,091   35,668   10,240   11,604 
                     
Provision (benefit) for income taxes  36,336   14,889   13,527   4,544   (40,385)
                     
Net income $42,865  $29,202  $22,141  $5,696  $51,989 
                     
Per Share Data                    
                     
Net income available to common shareholders:                    
                     
Diluted  0.99   0.78   0.66   0.21   2.44 
                     
Basic  1.01   0.79   0.66   0.21   2.46 
                     
Cash dividends declared  0.00   0.00   0.00   0.00   0.00 
                     
Book value per share common  14.70   11.45   10.29   9.44   8.40 
                     
Assets $5,810,129  $4,680,932  $3,534,780  $3,093,335  $2,268,940 
                     
Securities  1,372,667   1,323,001   994,291   949,279   641,611 
                     
Net loans  3,790,255   2,856,136   2,137,202   1,804,814   1,284,139 
                     
Deposits  4,592,720   3,523,245   2,844,387   2,416,534   1,806,045 
                     
FHLB borrowings  211,000   415,000   50,000   130,000   50,000 
                     
Subordinated debt  70,521   70,241   69,961   64,583   53,610 
                     
Shareholders' equity  689,664   435,397   353,453   312,651   198,604 
                     
Performance ratios:                    
                     
Return on average assets  0.82%  0.69%  0.67%  0.23%  2.38%
                     
Return on average equity  7.51   7.06   6.56   2.22   28.36 
                     
Net interest margin  (1)  3.73   3.63   3.64   3.25   3.15 
                     
Average equity to average assets  10.96   9.85   10.21   10.34   8.38 

(1) On a fully taxable equivalent basis, a non-GAAP measure (see page 52 of Management's Discussion and Analysis).

  For the Year Ended and at December 31,
(In thousands, except per share data) 2019 2018 2017 2016 2015
Net interest income $243,618
 $211,515
 $176,296
 $139,588
 $109,487
           
Provision for loan losses 10,999
 11,730
 5,648
 2,411
 2,644
           
Noninterest income:          
           
Other 55,515
 50,645
 43,230
 37,427
 32,018
           
Securities (losses) gains, net 1,217
 (623) 86
 368
 161
           
Gain on sale of VISA stock 
 
 15,153
 
 
           
Bargain purchase gains, net 
 
 
 
 416
           
Noninterest expenses 160,739
 162,273
 149,916
 130,881
 103,770
           
Income before income taxes 128,612
 87,534
 79,201
 44,091
 35,668
           
Income taxes 29,873
 20,259
 36,336
 14,889
 13,527
           
Net income $98,739
 $67,275
 $42,865
 $29,202
 $22,141
           
Per Share Data  
  
  
  
  
           
Net income available to common shareholders:  
  
  
  
  
           
Diluted $1.90
 $1.38
 $0.99
 $0.78
 $0.66
           
Basic 1.92
 1.40
 1.01
 0.79
 0.66
           
Cash dividends declared 0.00
 0.00
 0.00
 0.00
 0.00
           
Book value per share common 19.13
 16.83
 14.70
 11.45
 10.29
           
Tangible book value per share 14.76
 12.33
 11.15
 9.37
 9.31
           
Assets $7,108,511
 $6,747,659
 $5,810,129
 $4,680,932
 $3,534,780
           
Securities 1,208,224
 1,223,780
 1,372,667
 1,323,001
 994,291
           
Net loans 5,163,250
 4,792,791
 3,790,255
 2,856,136
 2,137,202
           
Deposits 5,584,753
 5,177,240
 4,592,720
 3,523,245
 2,844,387
           
FHLB borrowings 315,000
 380,000
 211,000
 415,000
 50,000
           
Subordinated debt 71,085
 70,804
 70,521
 70,241
 69,961
           
Shareholders' equity 985,639
 864,267
 689,664
 435,397
 353,453
           


75



  For the Year Ended and at December 31,
(In thousands, except per share data) 2019 2018 2017 2016 2015
Performance ratios:  
  
  
  
  
           
Return on average assets 1.45% 1.11% 0.82% 0.69% 0.67%
           
Return on average equity 10.63
 9.08
 7.51
 7.06
 6.56
           
Net interest margin1
 3.92
 3.85
 3.73
 3.63
 3.64
           
Average equity to average assets 13.60
 12.23
 10.96
 9.85
 10.21
           
Return on tangible assets 1.56
 1.20
 0.88
 0.75
 0.71
           
Return on tangible common equity 14.72
 12.54
 9.90
 8.87
 7.59
1On a fully taxable equivalent basis, a non-GAAP measure.



76



Item 8.Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and the Board of Directors 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") as of December 31, 20172019 and 2016,2018, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017,2019, 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, 2017,2019, based on criteria established in Internal Control – Integrated Framework: (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, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 20172019 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, 2017,2019, 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 the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’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 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 regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial 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’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.



77



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.

Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Loan Losses – General Allowances - Qualitative Loss Factors
As described in Notes A and F to the financial statements, the Company’s allowance for loan losses is a valuation allowance that reflects the Company’s estimation of probable incurred credit losses in its loan portfolio. The allowance for loan losses was $35.2 million at December 31, 2019, which consists of two main components: valuation allowances for loans individually evaluated for impairment (“specific allowances”), representing $2.9 million, and valuation allowances for loans collectively evaluated for impairment (“general allowances”), representing $32.3 million. General allowances are established for loans grouped into pools based on similar risk characteristics. In this process, general allowances 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 determination of the appropriate level of allowances for loan losses for loans collectively evaluated for impairment involves significant judgment and requires the Company to make significant estimates of current credit risks. Changes in these estimates could have a material effect on the Company’s financial statements.
The Company’s loss factors for portfolio trends, regional and national economic conditions, and expected loss given default derived from the Company’s internal risk rating process are based on specific quantitative and qualitative trends. These qualitative loss factors consider credit quality, loan concentrations, internal controls, audit results, staff turnover, local market conditions, employment levels, and loan growth, as well as the effects of other external factors. The outstanding principal balance of each loan pool is multiplied by the applicable loss factor to estimate the level of probable incurred credit losses based upon supporting quantitative and qualitative criteria. Thus, the evaluation of these estimates results in loss factors which contribute significantly to the general allowance component of the allowance for loan losses. Management’s allocation relies on a qualitative assessment of risks to determine the quantitative impact the loss factors have on the allowance. Management’s identification and analysis of these loss factors requires significant judgment. We identified auditing the impact of the individual and aggregate qualitative loss factors on the general allowance component of the allowance for loan losses as a critical audit matter as it involved especially subjective auditor judgment.
The primary procedures we performed to address this critical audit matter included:
Testing the design and operating effectiveness of controls over the evaluation of these estimates used in the loss factors, including controls addressing:
The review of the completeness and accuracy of data inputs used as the basis for the adjustments relating to loss factors.
The review of the accuracy of the general allowance model calculations.
The review of the qualitative and quantitative conclusions related to the loss factors and the resulting allocation to the allowance.
Substantively testing management’s process, including evaluating their judgments and assumptions, for developing the loss factors which included:
Evaluation of the completeness and accuracy of data inputs used as a basis for the adjustments relating to loss factors.
Evaluation of the reasonableness of management’s judgments related to the qualitative and quantitative assessment of the data used in the determination of loss factors and the resulting allocation to the allowance. Among other procedures, our evaluation considered, the weight of confirming and disconfirming evidence from internal and external sources, loan portfolio performance and third-party data, and whether such assumptions were applied consistently period over period.
Analytically evaluating the loss factor allocation year over year and testing allocations for reasonableness.


78



/s/ Crowe Horwath LLP

Crowe Horwath LLP


We have served as the Company's auditor since 2014.

Atlanta, Georgia


Fort Lauderdale, Florida
February 28, 2018

27, 2020





79



SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

  For the Year Ended December 31 
  2017  2016  2015 
  (In thousands, except share data) 
          
INTEREST INCOME            
Interest on securities            
Taxable $34,442  $26,133  $20,341 
Nontaxable  913   1,036   585 
Interest and fees on loans  153,825   119,217   94,469 
Interest on federal funds sold and other investments  2,416   1,669   1,022 
Total interest income  191,596   148,055   116,417 
INTEREST EXPENSE            
Interest on savings deposits  3,654   2,593   2,085 
Interest on time certificates  4,678   2,074   1,228 
Interest on federal funds purchased and other short term borrowings  781   484   340 
Interest on Federal Home Loan Bank borrowings  3,744   1,256   1,643 
Interest on subordinated debt  2,443   2,060   1,634 
Total interest expense  15,300   8,467   6,930 
NET INTEREST INCOME  176,296   139,588   109,487 
Provision for loan losses  5,648   2,411   2,644 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES  170,648   137,177   106,843 
NONINTEREST INCOME (Note M)            
Bargain purchase gain  0   0   416 
Gain on sale of VISA stock  15,153   0   0 
Securities gains, net (includes net gains of $1,950, and net losses of ($617) and ($325) in other comprehensive income reclassifications for 2017, 2016, and 2015 respectively)  86   368   161 
Other  43,230   37,427   32,018 
Total noninterest income  58,469   37,795   32,595 
NONINTEREST EXPENSE (Note M)  149,916   130,881   103,770 
INCOME BEFORE INCOME TAXES  79,201   44,091   35,668 
Income taxes  36,336   14,889   13,527 
NET INCOME $42,865  $29,202  $22,141 
             
SHARE DATA            
Net income per share of common stock            
Diluted $0.99  $0.78  $0.66 
Basic  1.01   0.79   0.66 
             
Average common shares outstanding            
Diluted  43,350,314   37,508,046   33,744,171 
Basic  42,613,086   36,872,007   33,495,827 

  For the Year Ended December 31,
(In thousands, except per share data) 2019 2018 2017
Interest Income  
  
  
Interest on securities  
  
  
Taxable $35,354
 $37,860
 $34,442
Nontaxable 555
 884
 913
Interest and fees on loans 250,535
 199,984
 153,825
Interest on federal funds sold and other investments 3,379
 2,670
 2,416
Total Interest Income 289,823
 241,398
 191,596
       
Interest Expense      
Interest on savings deposits 16,621
 8,763
 3,654
Interest on time certificates 21,776
 11,684
 4,678
Interest on federal funds purchased and other short term borrowings 1,431
 1,804
 781
Interest on Federal Home Loan Bank borrowings 3,010
 4,468
 3,744
Interest on subordinated debt 3,367
 3,164
 2,443
Total Interest Expense 46,205
 29,883
 15,300
Net Interest Income 243,618
 211,515
 176,296
       
Provision for loan losses 10,999
 11,730
 5,648
Net Interest Income After Provision for Loan Losses 232,619
 199,785
 170,648
       
Noninterest Income (Note M)      
Gain on sale of Visa stock 
 
 15,153
Securities gains (losses), net (includes net gains of $6.2 million for 2019, net losses of $96 thousand for 2018 and net gains of $2.0 million for 2017 in other comprehensive income reclassifications) 1,217
 (623) 86
Other 55,515
 50,645
 43,230
Total Noninterest Income 56,732
 50,022
 58,469
       
Noninterest Expense (Note M) 160,739
 162,273
 149,916
       
Income Before Income Taxes 128,612
 87,534
 79,201
Income taxes 29,873
 20,259
 36,336
Net Income $98,739
 $67,275
 $42,865
       
Share Data      
Net income per share of common stock      
Diluted $1.90
 $1.38
 $0.99
Basic 1.92
 1.40
 1.01
Average common shares outstanding      
Diluted 52,029
 48,748
 43,350
Basic 51,449
 47,969
 42,613
See notes to consolidated financial statements.




80



SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

  For the Year Ended December 31 
  2017  2016  2015 
  (In thousands) 
          
NET INCOME $42,865  $29,202  $22,141 
Other comprehensive income (loss):            
Unrealized gains (losses) on securities available for sale  5,976   (2,129)  (2,634)
Amortization of unrealized losses on securities transferred to held to maturity, net  596   488  539
Reclassification adjustment for gains included in net income  (86)  (368)  (161)
(Provision) benefit for income taxes  (2,483)  709   870 
Total other comprehensive income (loss)  4,003   (1,300)  (1,386)
COMPREHENSIVE INCOME $46,868  $27,902  $20,755 

  For the Year Ended December 31,
(In thousands) 2019 2018 2017
Net Income $98,739
 $67,275
 $42,865
Other comprehensive income (loss):      
Unrealized gains (losses) on securities available-for-sale 24,892
 (13,266) 5,976
Reclassification of unrealized losses on securities transferred to available-for-sale upon adoption of new accounting pronouncement (730) 
 
Amortization of unrealized losses on securities transferred to held-to-maturity, net 262
 550
 596
Reclassification adjustment for (gains) losses included in net income (1,031) 485
 (86)
(Provision) benefit for income taxes (5,868) 3,272
 (2,483)
Total Other Comprehensive Income (Loss) 17,525
 (8,959) 4,003
Comprehensive Income $116,264
 $58,316
 $46,868

See notes to consolidated financial statements.



81



SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

  December 31, 
  2017  2016 
  (In thousands, except
share data)
 
       
ASSETS        
         
Cash and due from banks $104,039  $82,520 
Interest bearing deposits with other banks  5,465   27,124 
Total cash and cash equivalents  109,504   109,644 
Time deposits with other banks  12,553   0 
Securities available for sale (at fair value)  955,804   950,503 
Securities held to maturity (fair value $414,470 in 2017 and $369,881 in 2016 )  416,863   372,498 
Total securities  1,372,667   1,323,001 
Loans held for sale  24,306   15,332 
Loans  3,817,377   2,879,536 
Less:  Allowance for loan losses  (27,122)  (23,400)
Net loans  3,790,255   2,856,136 
Bank premises and equipment, net  66,883   58,684 
Other real estate owned  7,640   9,949 
Goodwill  147,578   64,649 
Other intangible assets, net  19,099   14,572 
Bank owned life insurance  123,981   84,580 
Net deferred tax assets  25,417   60,818 
Other assets  110,246   83,567 
TOTAL ASSETS $5,810,129  $4,680,932 
         
LIABILITIES        
         
Noninterest demand $1,400,227  $1,148,309 
Interest-bearing demand  1,050,755   873,727 
Savings  434,346   346,662 
Money market  931,458   802,697 
Other time deposits  414,277   276,607 
Brokered time certificates  217,385   7,342 
Time certificates of more than $250,000  144,272   67,901 
Total deposits  4,592,720   3,523,245 
         
Securities sold under agreements to repurchase, maturing within 30 days  216,094   204,202 
Federal Home Loan Bank borrowings  211,000   415,000 
Subordinated debt  70,521   70,241 
Other liabilities  30,130   32,847 
   5,120,465   4,245,535 
         
Commitments and Contingencies (Notes K and P)        
         
SHAREHOLDERS' EQUITY        
         
Common stock, par value $0.10 per share authorized 60,000,000 shares, issued 47,032,259 and outstanding 46,917,735 shares in 2017 and authorized 60,000,000 shares, issued 38,090,568 and outstanding 38,021,835 shares in 2016  4,693   3,802 
Additional paid-in capital  661,632   454,001 
Retained earnings (accumulated deficit)  29,914   (13,657)
Less: Treasury stock (114,524 shares in 2017 and 68,733 shares in 2016), at cost  (2,359)  (1,236)
   693,880   442,910 
Accumulated other comprehensive loss, net  (4,216)  (7,513)
   689,664   435,397 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,810,129  $4,680,932 

 December 31,
(In thousands, except share data)2019 2018
Assets 
  
Cash and due from banks$89,843
 $92,242
Interest bearing deposits with other banks34,688
 23,709
Total Cash and Cash Equivalents124,531
 115,951
    
Time deposits with other banks3,742
 8,243
    
Debt securities:   
Securities available-for-sale (at fair value)946,855
 865,831
Securities held-to-maturity (fair value $262,213 in 2019 and $349,895 in 2018)261,369
 357,949
Total Debt Securities1,208,224
 1,223,780
    
Loans held for sale20,029
 11,873
    
Loans5,198,404
 4,825,214
 Less: Allowance for loan losses(35,154) (32,423)
Loans, Net of Allowance for Loan Losses5,163,250
 4,792,791
    
Bank premises and equipment, net66,615
 71,024
Other real estate owned12,390
 12,802
Goodwill205,286
 204,753
Other intangible assets, net20,066
 25,977
Bank owned life insurance126,181
 123,394
Net deferred tax assets16,457
 28,954
Other assets141,740
 128,117
Total Assets$7,108,511
 $6,747,659
    
Liabilities 
  
Deposits   
Noninterest demand$1,590,493
 $1,569,602
Interest-bearing demand1,181,732
 1,014,032
Savings519,152
 493,807
Money market1,108,363
 1,173,950
Other time deposits504,837
 513,312
Brokered time certificates472,857
 220,594
Time certificates of more than $250,000207,319
 191,943
Total Deposits5,584,753
 5,177,240
    
Securities sold under agreements to repurchase, maturing within 30 days86,121
 214,323
Federal Home Loan Bank borrowings315,000
 380,000
Subordinated debt71,085
 70,804
Other liabilities65,913
 41,025
Total Liabilities6,122,872
 5,883,392
    
Commitments and Contingencies (Notes K and P)


 




82



 December 31,
(In thousands, except share data)2019 2018
    
Shareholders' Equity 
  
Common stock, par value $0.10 per share authorized 120,000,000 shares, issued 51,760,617 and outstanding 51,513,733 shares in 2019 and authorized 120,000,000 shares, issued 51,514,734 and outstanding 51,361,079 shares in 20185,151
 5,136
Additional paid-in capital786,242
 778,501
Retained earnings195,813
 97,074
Less: Treasury stock (246,884 shares in 2019 and 153,655 shares in 2018), at cost(6,032) (3,384)
 981,174
 877,327
Accumulated other comprehensive income (loss), net4,465
 (13,060)
Total Shareholders' Equity985,639
 864,267
Total Liabilities & Shareholders' Equity$7,108,511
 $6,747,659

See notes to consolidated financial statements.



83



SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

  For the Year Ended December 31, 
  2017  2016  2015 
  (Dollars in thousands) 
CASH FLOWS FROM OPERATING ACTIVITIES            
Net Income $42,865  $29,202  $22,141 
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation  5,614   5,076   3,773 
Amortization of premiums and discounts on securities, net  3,977   7,559   3,920 
Other amortization and accretion, net  (697)  (2,238)  (1,601)
Stock based compensation  5,267   4,154   2,859 
Origination of loans designated for sale  (213,027)  (175,842)  (206,199)
Sale of loans designated for sale  211,091   190,843   199,425 
Provision for loan losses  5,648   2,411   2,644 
Deferred income taxes  35,827   14,206   12,888 
Gains on sale of securities  (86)  (368)  (161)
Gain on sale of VISA Class B stock  (15,153)  0   0 
Gains on sale of loans  (7,038)  (6,335)  (5,146)
Losses (gains) on sale and write-downs of other real estate owned  (711)  (509)  239 
Losses on disposition of fixed assets  2,270   2,442   183 
Changes in operating assets and liabilities, net of effects from acquired companies:            
Net increase in other assets  (5,506)  (11,573)  (4,828)
Net increase (decrease) in other liabilities  (21,432)  2,979   (628)
   Net cash provided by operating activities  48,909   62,007   29,509 
             
CASH FLOWS FROM INVESTING ACTIVITIES            
Maturities and repayments of securities available for sale  211,173   127,879   118,493 
Maturities and repayments of securities held for investment  86,460   48,705   28,629 
Proceeds from sale of securities available for sale  235,613   40,421   60,314 
Purchases of securities available for sale  (371,926)  (297,719)  (159,616)
Purchases of securities held for investment  (131,439)  (218,654)  (24,366)
Maturities of time deposits with other banks  4,720   0   0 
Net new loans and principal repayments  (328,868)  (396,862)  (224,391)
Proceeds from the sale of portfolio loans  106,815   71,433   525 
Purchases of loans held for investment  (55,352)  (64,925)  0 
Proceeds from the sale of other real estate owned  6,069   7,952   5,758 
Proceeds from sale of Federal Home Loan Bank (FHLB) and Federal Reserve Bank Stock  48,295   9,350   7,427 
Purchase of FHLB and Federal Reserve Bank Stock  (42,680)  (28,857)  (7,510)
Purchase of VISA Class B stock  (6,180)  0   0 
Redemption of bank owned life insurance  3,609   0   0 
Purchase of bank owned life insurance  (30,000)  (40,000)  0 
Net cash from bank acquisitions  23,825   235,546   32,927 
Additions to bank premises and equipment  (5,710)  (6,054)  (9,091)
   Net cash used in investing activities  (245,576)  (511,785)  (170,901)
             
CASH FLOWS FROM FINANCING ACTIVITIES            
Net increase in deposits  333,049   27,320   240,086 
Net increase in federal funds purchased and repurchase agreements  11,892   32,196   16,707 
Net increase (decrease) in FHLB borrowings  (204,000)  415,000   (80,000)
Early redemption of FHLB borrowings  0   (50,000)  0 
Stock based employee benefit plans  (55)  (1,161)  127 
Issuance of common stock, net of related expense  55,641   0   0 
Dividends paid  0   0   0 
   Net cash provided by financing activities  196,527   423,355   176,920 
   Net increase (decrease) in cash and cash equivalents  (140)  (26,423)  35,528 
Cash and cash equivalents at beginning of year  109,644   136,067   100,539 
Cash and cash equivalents at end of year $109,504  $109,644  $136,067 
             
Supplemental disclosure of cash flow information:            
   Cash paid during the period for interest $15,125  $7,855  $6,636 
   Cash paid during the period for income taxes  400   703   575 
             
Supplemental disclosure of non cash investing activities:            
   Transfer from loans to other real estate owned $1,774  $3,009  $4,946 
   Transfer from bank premises to other real estate owned  1,212   7,708   309 



  For the Year Ended December 31,
(In thousands) 2019 2018 2017
Cash Flows From Operating Activities  
  
  
Net Income $98,739
 $67,275
 $42,865
       
Adjustments to reconcile net income to net cash provided by operating activities: 

 

 

Depreciation 6,421
 6,353
 5,614
Amortization of premiums and discounts on securities, net 2,548
 3,196
 3,977
Amortization of operating lease right-of-use assets 4,117
 
 
Other amortization and accretion, net (2,005) (1,158) (697)
Stock based compensation 7,243
 7,823
 5,267
Origination of loans designated for sale (329,177) (303,928) (213,027)
Sale of loans designated for sale 333,591
 326,328
 211,091
Provision for loan losses 10,999
 11,730
 5,648
Deferred income taxes 6,791
 459
 35,827
(Gains) losses on sale of securities (1,031) 485
 (86)
Gain on sale of VISA Class B stock 
 
 (15,153)
Gains on sale of loans (9,794) (8,961) (7,038)
Gains on sale and write-downs of other real estate owned (432) (107) (711)
Losses on disposition of fixed assets 511
 1,235
 2,270
Bank owned life insurance death benefits (956) (280) 
Changes in operating assets and liabilities, net of effects from acquired companies:  
  
  
Net (increase) decrease in other assets (5,614) 10,331
 (5,506)
Net (decrease) increase in other liabilities (4,206) 8,827
 (21,432)
Net Cash Provided by Operating Activities 117,745
 129,608
 48,909
       
Cash Flows From Investing Activities 

 

 

Maturities and repayments of debt securities available-for-sale 101,674
 141,223
 211,173
Maturities and repayments of debt securities held-to-maturity 42,495
 58,315
 86,460
Proceeds from sale of debt securities available-for-sale 202,724
 64,366
 235,613
Purchases of debt securities available-for-sale (309,461) (104,650) (371,926)
Purchases of debt securities held-to-maturity 
 
 (131,439)
Maturities of time deposits with other banks 4,501
 4,310
 4,720
Net new loans and principal repayments (109,614) (365,816) (328,868)
Proceeds from the sale of portfolio loans 
 
 106,815
Purchases of loans held for investment (270,791) (19,541) (55,352)
Proceeds from the sale of other real estate owned 6,509
 10,072
 6,069
Proceeds from sale of FHLB and Federal Reserve Bank Stock 74,120
 44,731
 48,295
Purchase of FHLB and Federal Reserve Bank Stock (75,193) (51,505) (42,680)
Purchase of Visa Class B stock 
 
 (6,180)
Proceeds from sale of Visa Class B stock 
 21,333
 
Redemption of bank owned life insurance 14,218
 4,232
 3,609
Purchase of bank owned life insurance 
 
 (30,000)


84



  For the Year Ended December 31,
(In thousands) 2019 2018 2017
Net cash from bank acquisitions 
 22,349
 23,825
Additions to bank premises and equipment (2,523) (4,019) (5,710)
Net Cash Used in Investing Activities (321,341) (174,600) (245,576)
       
Cash Flows From Financing Activities 

 

 

Net increase (decrease) in deposits 407,513
 (39,769) 333,049
Net (decrease) increase in federal funds purchased and repurchase agreements (128,202) (1,771) 11,892
Net (decrease) increase in FHLB borrowings with original maturities of three months or less (67,000) 32,000
 (204,000)
Repayments of FHLB borrowings with original maturities of more than three months (63,000) 
 
Proceeds from FHLB borrowings with original maturities of more than three months 65,000
 60,000
 
Stock based employee benefit plans (2,135) 979
 (55)
Issuance of common stock, net of related expense 
 
 55,641
Dividends paid 
 
 
Net Cash Provided by Financing Activities 212,176
 51,439
 196,527
Net increase (decrease) in cash and cash equivalents 8,580
 6,447
 (140)
Cash and cash equivalents at beginning of year 115,951
 109,504
 109,644
Cash and Cash Equivalents at End of Year $124,531
 $115,951
 $109,504
       
Supplemental disclosure of cash flow information:  
  
  
Cash paid during the period for interest $46,130
 $28,301
 $15,125
Cash paid during the period for taxes 16,000
 13,200
 400
New operating lease right-of-use assets 30,301
 
 
New operating lease liabilities 34,627
 
 
       
Supplemental disclosure of non cash investing activities: 

 

 

Transfer of debt securities from held-to-maturity to available-for-sale $52,796
 $
 $
Transfer from loans to other real estate owned 5,665
 5,549
 1,774
Transfer from bank premises to other real estate owned 
 9,168
 1,212
Transfer from loans held for investment to loans held for sale 801
 
 5,664

See notes to consolidated financial statements.




85



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, 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 
Comprehensive income  0   0   0   42,865   0   4,003   46,868 
Reclassification of disproportionate tax effects upon adoption of new accounting pronouncement  0   0   0   706   0   (706)  0 
Stock based compensation expense  0   0   5,267   0   0   0   5,267 
Common stock issued for stock based employee benefit plans  61   0   (15)  0   (1,123)  0   (1,138)
Common stock issued for stock options  91   16   1,066   0   0   0   1,082 
Issuance of common stock, net of related expenses  2,703   270   55,371   0   0   0   55,641 
Issuance of common stock, pursuant to acquisition  6,041   605   145,942   0  0   0   146,547 
BALANCE AT DECEMBER 31, 2017  46,918  $4,693  $661,632  $29,914  $(2,359) $(4,216) $689,664 

        
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, 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 disproportionate tax effects 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
Comprehensive income 
 
 
 98,739
 
 17,525
 116,264
Stock based compensation expense 30
 
 7,244
 
 
 
 7,244
Common stock issued for stock based employee benefit plans 94
 12
 (32) 
 (2,648) 
 (2,668)
Common stock issued for stock options 29
 3
 425
 
 
 
 428
Other 
 
 104
 
 
 
 104
Balance at December 31, 2019 51,514
 $5,151
 $786,242
 $195,813
 $(6,032) $4,465
 $985,639

See notes to consolidated financial statements.




86



NOTES TOCONSOLIDATEDFINANCIALSTATEMENTS


Seacoast Banking Corporation of Florida and Subsidiaries

Note A -Significant Accounting Policies

General: Seacoast Banking Corporation of Florida (“Seacoast” or the “Company”) is a single segment bankfinancial holding company with one1 operating subsidiary bank, Seacoast National Bank (“Seacoast Bank”). The Company provides integrated financial services including commercial and retail banking, wealth management, and mortgage services to customers through advanced banking solutions, 5148 traditional branch offices and five9 commercial banking centers operated by Seacoast Bank. Seacoast operates primarily in Florida, with concentrations in the state's fastest growing markets, each with unique characteristics and opportunities. Offices stretch from Ft.the southeast, including Fort Lauderdale, Boca Raton and West Palm Beach north throughalong the east coast to 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. The reclassifications had no impact to net income or retained earnings.

Use of Estimates: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 haveThe Company has established policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. These estimates and assumptions, which may materially affect the reported amounts of certain assets, liabilities, revenues and expenses, are based on information available as of the date of the financial statements, and changes in this information over time and the use of revised estimates and assumptions could materially affect amounts reported in subsequent financial statements. Specific areas, among others, requiring the application of management’s estimates include determination of the allowance for loan losses, acquisition accounting and purchased loans, intangible assets and impairment testing, other fair value adjustments, other than temporary impairment of securities, income taxes and realization of deferred 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 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.

value

Time deposits with other banks: Time deposits with other banks consist of certificates of deposit with a maturityoriginal maturities 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. Governmentgovernment and Governmentgovernment 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 available for saleavailable-for-sale or held to maturity. Securitiesheld-to-maturity. Debt 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


87



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-temporaryother 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.

In 2014, Seacoast transferred

On January 1, 2019, the Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2017-12 “Derivatives and Hedging" (Topic 815): Targeted Improvements to Accounting for Hedging Activities. Upon adoption, certain debt securities into heldwere reclassified from held-to-maturity to maturity which had previously been classified as available for sale.available-for-sale. The unrealized loss atfollowing table summarizes the date of transfer was reported as a component of shareholders’ equity and is amortized over the remaining life as an adjustment of yield using the interest method.

impact:

  January 1, 2019
(In thousands) Amortized Cost Net Unrealized Gain (Loss) Reflected in OCI Fair Value
Private mortgage-backed securities and collateralized mortgage obligations $21,526
 $147
 $21,673
Collateralized loan obligations 32,000
 (877) 31,123
Totals $53,526
 $(730) $52,796

Seacoast Bank 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, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Loans: Seacoast 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 held for sale
·Loans originated by Seacoast and held for investment
·Loans purchased by Seacoast, which are considered purchased unimpaired (“PUL), and held for investment
·Loans purchased by Seacoast, which are considered purchased credit impaired (“PCI”)

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 thevalues are based upon estimated values to be received from independent third party purchasers. These loans in loans heldare intended for sale was obtained by reference to prices forand the same or similar loans from recent transactions.Company believes the fair value is the best indicator of the resolution of these loans. 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 and amounts charged off. Unearned income includes discounts, premiums and deferred loan origination fees


88



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.

As a part of business acquisitions, the Company acquires loans which are recorded at fair value on the acquisition 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 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 determines fair value by estimating the amount and timing of expected future cash flows and assigning a discount or premium to each loan. The difference between the expected cash flows and 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 Company estimates fair value by 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, PULs 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.

Loan Commitments and lettersLetters of credit:Credit:Loan commitments and letters of credit are an off-balance sheet item and represent commitments to make 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 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.



89



Fair Value Measurements:The Company measures or monitors many of its assets and liabilities on a fair value basis. Certain assets are measured on a recurring basis, including available for saleavailable-for-sale securities and loans held for sale. These assets are carried at fair value on the Company’s balance sheets. Additionally, fair value is measured on a non-recurring basis to evaluate assets or liabilities for impairment or for disclosure purposes. Examples include impaired loans, 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 applies 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 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 ourthe Company's business (closed branches) that are initially recorded at the lower of carrying value or fair value, 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 written down to fair value with a corresponding impact to noninterest expense.

expense

Leases: On January 1, 2019, the Company adopted FASB ASU 2016-02, “Leases”, and all the related amendments (collectively, Accounting Standards Codification “ASC” Topic 842) through a cumulative-effect adjustment.
The new guidance requires a lessee to recognize at the transition date right-of-use assets ("ROUA") and lease liabilities for all operating leases. Upon adoption, the Company recognized ROUAs of $29 million and lease liabilities of $33 million. Operating lease liabilities are measured based on the present value of lease payments over the lease term. At the transition date, ROUA was determined by adjusting lease liabilities for the carrying balances of deferred rent under ASC Topic 840 Leases, cease-use liabilities under ASC Topic 420 Exit or Disposal Cost Obligations, and assets and liabilities recognized under ASC Topic 805 Business Combinations for acquired operating leases, which aggregated to $4 million.
Arrangements are analyzed at inception to determine the existence of a lease. ROUAs represent the right to use the underlying asset and lease liabilities represent the obligation to make lease payments for the lease term. Operating lease ROUAs and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the appropriate term and information available at commencement date in determining the present value of lease payments. The lease term may include options to extend


90



the lease when it is reasonably certain that the option will be exercised. ROUAs and operating lease liabilities are reported in Other Assets and Other Liabilities, respectively, in the Consolidated Balance Sheet. Lease expense for lease payments is recognized on a straight-line basis over the lease term and is classified as Occupancy or Furniture and Equipment expense based on the subject asset.
The Company elected certain practical expedients offered by the FASB for all classes of leased assets. As a result, the Company has not reassessed whether existing contracts are or contain leases, nor has the Company reassessed the classification of existing leases. The Company elected not to separate lease and non-lease components and instead accounts for them as a single lease component. The Company also elected to exclude short-term leases from the recognition of ROUAs and lease liabilities. Therefore, if the lease term is equal to or less than twelve months (including the renewal options that we are reasonably certain to exercise) and we are not reasonably certain to exercise any available purchase options in the lease, we do not apply the new lease accounting guidance for those leases. The Company did not elect the hindsight practical expedient, which allows entities to use hindsight when determining lease term and impairment of ROUAs.  
Intangible assets.The Company’s intangible assets consist of goodwill, and core deposit intangibles (CDIs). and mortgage servicing rights. Goodwill results from business combinations and represents the difference between the purchase price and the fair value of net assets acquired. Goodwill may be adjusted for up to one year from the acquisition date in the event new information is obtained which, if known at the date of acquisitions would have impacted the fair value of the acquired assets and liabilities. Goodwill is considered to have an indefinite useful life and is not amortized, but rather tested for impairment annually in the fourth quarter, or more often if circumstances arise that may indicate risk of impairment. If impaired, Goodwillgoodwill is written down with a corresponding impact to noninterest expense.

The Company recognizes 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 evaluates CDIs for impairment annually, in the fourth quarter, or more often if circumstances arise that may indicate risk of impairment. If impaired, the 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. BOLI is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Revenue Recognition:Revenue recognized reflects the consideration to which the Company expects 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.
Relevant activity 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.


91



Allowance for Loan Losses and Reserve for Unfunded Lending Commitments: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when the Company believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the 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 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 subsidiary 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.

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 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. This amount is subject to additional procedures that may result in adjustments in 2018.

In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-02, which permits companies to reclassify the disproportionate tax effects in accumulated other comprehensive income (“AOCI”), 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 AOCI 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 - Compensation - Stock Compensation 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 updatedThe Company accounts for forfeitures as necessary.

they occur.



92



Note B - Recently Issued Accounting Standards, Not Adopted at December 31, 2017

2019

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:

ASU 2014-09,Revenue from Contracts with Customers (Topic 606)
DescriptionIn May 2014, the FASB amended existing guidance related to revenue from contracts with customers. This amendment supersedes and replaces nearly all existing revenue recognition guidance, including industry specific guidance, establishes a new control based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue. In addition, this amendment specifies the accounting for some costs to obtain or fulfill a contract with a customer.
Date of AdoptionThis amendment is effective for public business entities for reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted only as of annual reporting periods after December 15, 2016, including interim reporting periods within that period.
Effect on the Consolidated Financial StatementsThe Company has applied the modified retrospective approach in adopting this guidance effective January 1, 2018. Noninterest income items in the scope of the new guidance include service charges on deposits, trust fees, brokerage commissions and fees and interchange income. Adoption had no material impact on the Company’s consolidated financial statements.
ASU 2016-01,Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
DescriptionIn January 2016, the FASB amended existing guidance that requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in the fair value recognized in net income. It requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. It requires separate presentation of financial assets and liabilities by measurement category and form of financial asset (i.e. securities or loans and receivables). It eliminates the requirement for public business entities to disclose methods and significant assumptions used to estimate fair value that is required to be disclosed for financial instruments measured at amortized cost.   
Date of AdoptionThis amendment is effective for public business entities for reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The new guidance permits early adoption of the own credit provision.
Effect on the Consolidated Financial Statements

Adoption of the guidance on January 1, 2018 had no material impact on the Company’s consolidated financial statements.

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 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 is in the process of evaluating the impact of this pronouncement and expects to adopt it effective January 1, 2019.
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 maturityheld-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 isThe Company will adopt this accounting standard 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.January 1, 2020.
Effect on the Consolidated Financial Statements
The Company has formed a transition oversight committee which is currently inexpects that the process of evaluating both potential CECL models and the technology needs to support the models. The Company expects a one-time cumulativeinitial adjustment to the allowance for loan losses beginningwill be an increase of approximately $19 - $23 million, bringing the ratio of allowance to total loans from 0.68% to between 1.06% and 1.12%. The increase is primarily attributed to the impact of the new guidance on the Company’s acquired loan portfolio, and to the new requirement to estimate losses over the full remaining expected life of the loans.
For loans previously classified as purchased unimpaired (“PUL”), the standard requires that a reserve for expected credit losses be recorded through a cumulative effect adjustment in the first period of adoption. However, the sizeretained earnings, regardless of the impact hasof a purchase discount on the amortized cost basis. Existing purchase discounts and premiums on these loans are not yet been determined. affected by adoption of the standard, and these amounts will continue to accrete into interest income over the remaining lives of the loans on a level-yield basis.
Existing purchased credit impaired (“PCI”) loans will be classified as purchased credit deteriorated (“PCD”) loans, and a reserve for expected credit losses will be established with a corresponding adjustment to the loans’ amortized cost basis. The remaining non-credit discounts on these loans will accrete into interest income on a level-yield basis over the remaining lives of the loans.
The estimation process applies an economic forecast scenario which, as of January 1, 2020, projects a stable macroeconomic environment over the Company’s three year forecast period. For portfolio segments with a weighted average life longer than three years, the Company reverts to longer term historical loss experience, adjusted for prepayments, to estimate losses over the remaining life of the loans within each segment.
The Company will adopt effective January 1, 2020.
ASU 2016-15,Statementestimates the impact on the tier one capital ratio upon adoption is a decrease of Cash Flows (Topic 320): Classificationapproximately 32 basis points. Federal banking regulatory agencies have provided banks with the ability to mitigate the impact on capital at adoption by allowing the impact to be phased in over a four year period; however, the Company expects to forgo the phased in approach and recognize the impact to capital at the time of Certain Cash Receiptsadoption.
The Company does not expect adoption of the standard to have a material impact to its held-to-maturity debt security portfolio, which is comprised of securities guaranteed either explicitly or implicitly by government-sponsored entities. While available-for-sale debt (“AFS”) securities are not subject to the CECL allowance requirement, the new guidance requires the Company to record an allowance for AFS debt securities in an unrealized loss position if a portion of the unrealized loss is credit related. The Company does not expect adoption of the standard to have a material impact to AFS securities upon adoption.
The disclosed estimates are subject to further refinement upon finalization of the Company’s review of the calculations, assumptions, methodologies and Cash Payments
Description

In August 2016, the FASB issued this ASUjudgments. Internal controls over financial reporting relating to address the diversity in how certain cash receiptsthese new processes have been designed and cash paymentsimplemented and are presented and classifiedbeing evaluated. The Company is in the statementfinal stages of cash flows, including debt prepayment or debt extinguishment costs, contingent consideration payments made soon after a business combination, proceeds fromcompleting the settlementsformal governance and approval process. The ongoing impact to the Company’s results of insurance claims,operations in future periods will be influenced by the loan portfolio composition and proceeds from the settlements of BOLI policies.

Date of AdoptionThis amendment is effective for public business entities forby macroeconomic conditions and forecasts at each reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted.
Effect on the Consolidated Financial Statementsdate. Adoption of the guidance on January 1, 2018 had no material impact onstandard is expected to result in higher volatility in the quarterly provision for credit losses when compared to the Company’s consolidated financial statements.historical results under the incurred loss model.


93



ASU 2016-18,Statement of Cash Flows (Topic 230): Restricted Cash
DescriptionIn November 2016, the FASB amended existing guidance to require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows.
Date of AdoptionThis amendment is effective for public business entities for reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted.
Effect on the Consolidated Financial Statements

Adoption of the guidance on January 1, 2018 had no material impact on the Company’s consolidated financial statements.

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 2017-01,Business Combinations(Topic 805): Clarifying the Definition of a Business
Description

In January 2017, the FASB amended existing guidance to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The amendments provide a screen to determine when a set of assets and activities (collectively referred to as a “set”) is not a business. The screen requires that when substantially all of the fair value of the group assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business.

If the screen is not met, the amendments (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements.

Date of adoptionThe amendments are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods with those periods.
Effect on the Consolidated Financial Statements

Adoption of the guidance on January 1, 2018 had no material impact on the Company’s consolidated financial statements.

119 


ASU 2017-08,Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased callable Debt Securities
DescriptionIn March 2017, the FASB issued guidance which requires entities to amortize premiums on certain purchased callable debt securities to their earliest call date. The accounting for purchased callable debt securities held at a discount did not change. Amortizing the premium to the earliest call date generally aligns interest income recognition with the economics of instruments. This guidance requires a modified retrospective approach under which a cumulative adjustment will be made to retained earnings as of the beginning of the period in which it is adopted.
Date of adoptionThe amendments are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods with those periods.
Effect on the Consolidated Financial Statements

Adoption of the guidance on January 1, 2018 had no material impact on the Company’s consolidated financial statements.

ASU 2017-09,Compensation-Stock Compensation (Topic 718):Scope of Modification Accounting
DescriptionIn May 2017, the FASB provided clarification that changes to the terms of share-based awards, such as value, vesting condition or classification of the awards, should be accounting for as modifications. All disclosures about modifications that are currently required would need to be made, along with disclosure of any change (or no change) in compensation expense.
Date of adoptionThe amendments are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods with those periods.
Effect on the Consolidated Financial StatementsAdoption of the guidance on January 1, 2018 had no material impact on the Company’s consolidated financial statements.

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.

120 


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; theBank. The reserve requirement at December 31, 2019 was $38.7 million. There was 0 reserve requirement at December 31, 2018. The average amount of thosethe reserve balancesrequirement in 2019 was $0.5$7.9 million for 2017 and no reserve balances were necessary for 2016.

compared to $0.9 million in 2018.

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, 2017,2019, the maximum amount available for transfer from Seacoast Bank to the Company in the form of loans approximated $69.9$83.1 million, if the Company has sufficient acceptable collateral. There were no0 loans made to affiliates during the periods ending December 31, 2017, 20162019 and 2015.

The approval of the Office of the Comptroller of the Currency (“OCC”) is required if the total of all dividends declared by a national bank in any calendar year exceeds the bank's profits, as defined, for that year combined with its retained net profits for the preceding two calendar years. Under this restriction Seacoast Bank can distribute dividends of approximately $87.7 million to the Company as of December 31, 2017, without prior approval of the OCC.

121 

2018.



94



Note D - Securities

The amortized cost, gross unrealized gains and losses and fair value of securities available for saleavailable-for-sale and held to maturityheld-to-maturity at December 31, 20172019 and December 31, 20162018 are summarized as follows:

  December 31, 2017 
     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 $9,475  $274  $(5) $9,744 
Mortgage-backed securities of U.S. Government Sponsored Entities  318,771   891   (3,306)  316,356 
Collateralized mortgage obligations of U.S. Government Sponsored Entities  235,466   272   (4,694)  231,044 
Commercial mortgage backed securities of U.S. Government Sponsored Entities  16,210   165   (34)  16,341 
Private mortgage backed securities  18,056   384   0   18,440 
Private collateralized mortgage obligations  47,045   605   (285)  47,365 
Collateralized loan obligations  263,579   798   (68)  264,309 
Obligations of state and political subdivisions  45,118   813   (70)  45,861 
Corporate and other debt securities  6,500   0   (156)  6,344 
  $960,220  $4,202  $(8,618) $955,804 
                 
SECURITIES HELD TO MATURITY                
Mortgage-backed securities of U.S. Government Sponsored Entities $172,261  $746  $(1,392) $171,615 
Collateralized mortgage obligations of U.S. Government Sponsored Entities  181,280   56   (2,767)  178,569 
Commercial mortgage backed securities of U.S. Government Sponsored Entities  17,462   705   0  18,167 
Collateralized loan obligations  40,523   303   0  40,826 
Private mortgage backed securities  5,337   9   (53)  5,293 
  $416,863  $1,819  $(4,212) $414,470 

  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, 2019
(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 agencies $9,914
 $204
 $(4) $10,114
Mortgage-backed securities and collateralized mortgage obligations of U.S. government sponsored entities 604,934
 5,784
 (1,511) 609,207
Private mortgage-backed securities and collateralized mortgage obligations 56,005
 1,561
 (5) 57,561
Collateralized loan obligations 239,364
 7
 (1,153) 238,218
Obligations of state and political subdivisions 30,548
 1,208
 (1) 31,755
Totals $940,765
 $8,764
 $(2,674) $946,855
         
Debt Securities Held-to-Maturity  
  
  
  
Mortgage-backed securities of U.S. government sponsored entities $261,369
 $2,717
 $(1,873) $262,213
Totals $261,369
 $2,717
 $(1,873) $262,213
  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 agencies $7,200
 $106
 $(6) $7,300
Mortgage-backed securities and collateralized mortgage obligations of U.S. 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
Totals $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
Totals $357,949
 $277
 $(8,331) $349,895

Proceeds from sales of debt securities during 2019 were $202.7 million, with gross gains of $2.9 million and gross losses of $1.8 million. Proceeds from sales of debt securities during 2018 were $64.4 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 atof $1.6 million and gross losses atof $1.5 million. Proceeds from salesIncluded in "Securities gains (losses) net" is an increase of securities during 2016 were $40.1 million with gross gains of $0.5$0.2 million and gross lossesa decrease of $0.1 million. Proceeds from salesmillion, respectively, in the value of an investment in shares of a mutual fund that invests in CRA-qualified debt securities during 2015 were $60.3 million with gross gains of $0.7 millionin 2019 and gross losses of $0.5 million.

Securities at2018.



95



At December 31, 20172019, debt securities with a fair value of $169.0$133.4 million were pledged as collateral for United States Treasury deposits, other public deposits and trust deposits. SecuritiesDebt securities with a fair value of $216.1$94.4 million were pledged as collateral for repurchase agreements.

The amortized cost and fair value of securities at December 31, 2017,2019, 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.

122 

Securities not due at a single maturity date are shown separately.

  Held-to-Maturity Available-for-Sale
(In thousands) 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Due in less than one year $
 $
 $3,472
 $3,523
Due after one year through five years 
 
 8,582
 8,698
Due after five years through ten years 
 
 10,488
 10,979
Due after ten years 
 
 17,920
 18,669
  
 
 40,462
 41,869
Mortgage-backed securities of U.S. government sponsored entities 261,369
 262,213
 604,934
 609,207
Private mortgage-backed securities and collateralized mortgage obligations 
 
 56,005
 57,561
Collateralized loan obligations 
 
 239,364
 238,218
Totals $261,369
 $262,213
 $940,765
 $946,855

  Held to Maturity  Available for Sale 
  Amortized  Fair  Amortized  Fair 
  Cost  Value  Cost  Value 
  (In thousands) 
Due in less than one year $0  $0  $6,248  $6,473 
Due after one year through five years  3,600   3,607   42,448   42,616 
Due after five years through ten years  36,923   37,219   256,306   257,449 
Due after ten years  0   0   13,170   13,376 
   40,523   40,826   318,172   319,914 
Mortgage-backed securities of U.S. Government Sponsored Entities  172,261   171,616   318,771   316,356 
Collateralized mortgage obligations of U.S. Government Sponsored Entities  181,279   178,567   235,466   231,044 
Commercial mortgage backed securities of U.S. Government Sponsored Entities  17,463   18,168   16,210   16,341 
Private mortgage-backed securities  0   0   18,056   18,440 
Private collateralized mortgage obligations  5,337   5,293   47,045   47,365 
Corporate and other debt securities  0   0   6,500   6,344 
  $416,863  $414,470  $960,220  $955,804 


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, 20172019 and December 31, 2016,2018, respectively.

  December 31, 2017 
  Less than 12 months  12 months or longer  Total 
  Fair  Unrealized  Fair  Unrealized  Fair  Unrealized 
  Value  Losses  Value  Losses  Value  Losses 
  (In thousands) 
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities $1,107  $(5) $0  $0  $1,107  $(5)
Mortgage-backed securities of U.S. Government Sponsored Entities  123,195   (515)  213,590   (4,183)  336,785   (4,698)
Collateralized mortgage obligations of U.S. Government Sponsored Entities  176,452   (1,507)  199,086   (5,955)  375,538   (7,462)
Commercial mortgage backed securities of U.S. Government Sponsored Entities  5,076   (25)  1,049   (9)  6,125   (34)
Private mortgage backed securities  0   0   0   0   0   0 
Private collateralized mortgage obligations  0   0   20,744   (338)  20,744   (338)
Collateralized loan obligations  14,933   (68)  0   0   14,933   (68)
Obligations of state and political subdivisions  5,414   (14)  5,864   (56)  11,278   (70)
Corporate and other debt securities  6,500   (156)  0   0   6,500   (156)
Total temporarily impaired securities $332,677  $(2,290) $440,333  $(10,541) $773,010  $(12,831)

  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)

The two tables above include securities held to maturity that were transferred from available for sale into held to maturity. In 2014, approximately $158.8 million of available for sale securities were transferred into held to maturity. The unrealized losses at the date of transfer were $3.1 million. These unrealized losses remained in other accumulated comprehensive income and are amortized over the remaining life of the securities as an adjustment to yield consistent with the amortization of a discount. The amortization of unrealized losses reported in equity offsets the effect of discount amortization reported in interest income. As of December 31, 2017 the remaining unamortized amount was $1.2 million. The fair value of those securities in an unrealized loss position for less than 12 months at December 31, 2017 and December 31, 2016 is $22.9 million and $22.8 million respectively. The unrealized losses on those securities in an unrealized loss position for less than 12 months at December 31, 2017 and December 31, 2016 is $0.2 million and $0.4 million, respectively. The fair value of those securities in an unrealized loss position for 12 months or more at December 31, 2017 and December 31, 2016 is $15.3 million and none, respectively. The unrealized losses on those securities in an unrealized loss position for 12 months or more at December 31, 2017 and December 31, 2016 is $0.4 million and none, respectively.

  December 31, 2019
  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 agencies $758
 $(4) $
 $
 $758
 $(4)
Mortgage-backed securities and collateralized mortgage obligations of U.S. government sponsored entities 220,057
 (1,461) 104,184
 (1,923) 324,241
 (3,384)
Private mortgage-backed securities and collateralized mortgage obligations 2,978
 (5) 
 
 2,978
 (5)
Collateralized loan obligations 88,680
 (570) 110,767
 (583) 199,447
 (1,153)
Obligations of state and political subdivisions 515
 (1) 
 
 515
 (1)
Total temporarily impaired securities $312,988
 $(2,041) $214,951
 $(2,506) $527,939
 $(4,547)


96



  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 agencies $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)

At December 31, 2017,2019, the Company had $12.2$3.4 million of unrealized losses on mortgage backed securities and collateralized mortgage obligations of government sponsored entities having a fair value of $718.4$324.2 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.government sponsored entities. Based on the 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, 2017, approximately $0.3 million of the unrealized losses pertain to private label securities secured by seasoned residential collateral with a fair value of $20.8 million. Management attributes the loss 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, and improving subordination. Based on its assessment of these factors and bi-annual stress testing, 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.

As of

At December 31, 20172019, the Company had unrealized losses of $1.2 million on collateralized loan obligations with a fair value of $199.4 million. The collateral for these securities is first lien senior secured corporate debt. The Company holds senior tranches rated credit A or higher. Management expects to recover the entire amortized cost basis of these securities.
At December 31, 2019, the Company does not intend to sell debt securities that are in an unrealized loss position and it is not more than likely than not that the Company will be required to sell these securities before recovery of the amortized cost basis. Therefore, management does not consider any investment to be other-than-temporarilyother than temporarily impaired at December 31, 2017.

2019.

Included in other assets at December 31, 2019 is $32.5$44.3 million of Federal Home Loan Bank and Federal Reserve Bank stock stated at par value. At December 31, 2017, theThe Company has not identified events or changes in circumstances which may have a significant adverse effect on the fair value of these cost method investment securities.

Also included in other assets is a $6.4 million investment in a mutual fund carried at fair value.

The Company acquired 200,000 shares of Visa Class B stock in March 2017 at a cost of $6.2 million. The shares were sold in December 2017 at a gain of $15.2 million. Proceeds from the sale were not received until January 2018.

The Company also 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 September 27, 2019, the Company would receive 1.6228 shares of Class A stock for each share of Class B stock)stock for a total of 18,67518,386 shares of Visa Class A stock. OurThe ownership of Visa stock is related to prior ownership in Visa's network, while Visa operated as a cooperative. This ownership is recorded on ourthe Company's financial records at zero basis.

123 


Note E - Loans

Seacoast

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 Seacoast and held for investment
·Loans and leases purchased by Seacoast, which are considered purchased unimpaired (“PUL”), and held for investment
·Loans and leases purchased by Seacoast, which are considered purchased credit impaired (“PCI”)

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.



97



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 LoansLoans: The Company defines construction and land development loans as exposures secured by land development and construction (including 1-4 family residential construction), multi-family property, and non-farm nonresidential property where the primary or significant source of repayment is from rental income associated with that property (that is, loans for which 50 percent or more of the source of repayment comes from third party, non-affiliated rental income) or the proceeds of the sale, refinancing, or permanent financing of the property.

·
Commercial Real Estate LoansLoans: 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 LoansLoans: 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 LoansLoans: 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 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.

124 

·
Consumer LoansLoans: 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 isare considered during the underwriting process.

The following table outlines net loans balances by category as of:

  December 31, 2017 
  Portfolio Loans  PCI Loans  PULs  Total 
  (In thousands) 
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(2)  512,430   894   92,690   606,014 
Consumer  178,826   0   10,610   189,436 
NET LOAN BALANCES(1) $2,922,609  $17,417  $877,351  $3,817,377 

  December 31, 2016 
  Portfolio Loans  PCI Loans  PULs  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(2)  308,731   941   60,917   370,589 
Consumer  153,434   0   1,018   154,452 
NET LOAN BALANCES(1) $2,425,850  $12,996  $440,690  $2,879,536 

(1)Net loan balances at December 31, 2017 and 2016 include deferred costs of $11.5 million and $10.6 million, respectively.
(2)Commercial and financial includes equipment lease financing of $30.3 million and $0 as of December 31, 2017 and 2016, respectively.

125 

  December 31, 2019
(In thousands) Portfolio Loans PCI Loans PULs Total
Loans        
Construction and land development $281,335
 $160
 $43,618
 $325,113
Commercial real estate 1,834,811
 10,217
 533,943
 2,378,971
Residential real estate 1,304,305
 1,710
 201,848
 1,507,863
Commercial and financial 697,301
 579
 80,372
 778,252
Consumer 200,166
 
 8,039
 208,205
    Total Loans1
 $4,317,918
 $12,666
 $867,820
 $5,198,404
  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 Loans1
 $3,588,251
 $14,434
 $1,222,529
 $4,825,214
1Loan balances at December 31, 2019 and 2018 include deferred costs of $19.9 million and $16.9 million, respectively.



98



Loan accrual status is a 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 of:

           Accruing       
     Accruing  Accruing  Greater     Total 
     30-59 Days  60-89 Days  Than     Financing 
December 31, 2017 (in thousands) Current  Past Due  Past Due  90 Days  Nonaccrual  Receivables 
Portfolio Loans                        
Construction and land development $215,077  $0  $0  $0  $238  $215,315 
Commercial real estate  1,165,738   2,605   585   0   1,690   1,170,618 
Residential real estate  836,117   812   75   0   8,416   845,420 
Commercial and financial  507,501   2,776   26   0   2,127   512,430 
Consumer  178,676   52   0   0   98   178,826 
Total Portfolio Loans 2,903,109  6,245  686  0 12,569  2,922,609 
                         
Purchased Unimpaired Loans                        
Construction and land development 126,655  34  0  0  0  126,689 
Commercial real estate  457,899   979   0   0   720   459,598 
Residential real estate  186,549   128   87   0   1,000   187,764 
Commercial and financial  92,315   54   0   0   321   92,690 
Consumer  10,610   0   0   0   0   10,610 
Total Purchased Unimpaired Loans 874,028  1,195  87  0  2,041  877,351 
                         
Purchased Credit Impaired Loans                        
Construction and land development 1,121  0  0  0  0  1,121 
Commercial real estate  9,352   0   0   0   424   9,776 
Residential real estate  544   642   0   0   4,440   5,626 
Commercial and financial  844   0   0   0   50   894 
Consumer  0   0   0   0   0   0 
Total Purchased Credit Impaired Loans 11,861  642  0  0  4,914  17,417 
                         
Total Loans $3,788,998  $8,082  $773  $0  $19,524  $3,817,377 

126 

           Accruing       
     Accruing  Accruing  Greater     Total 
     30-59 Days  60-89 Days  Than     Financing 
December 31, 2016 (in thousands) Current  Past Due  Past Due  90 Days  Nonaccrual  Receivables 
Portfolio Loans                        
Construction and land development $137,042  $0  $0  $0  $438  $137,480 
Commercial real estate  1,039,882   78   171   0   1,784   1,041,915 
Residential real estate  773,877   1,570   261   0   8,582   784,290 
Commercial and financial  308,652   30   0   0   49   308,731 
Consumer  153,176   29   59   0   170   153,434 
Total Portfolio Loans 2,412,629  1,707  491 0  11,023  2,425,850 
                         
Purchased Unimpaired Loans                        
Construction and land development 22,490  0  0  0  32  22,522 
Commercial real estate  302,318   345   485   0   1,272   304,420 
Residential real estate  50,398   153   0   0   1,262   51,813 
Commercial and financial  60,353   39   328   0   197   60,917 
Consumer  981   37   0   0   0   1,018 
Total Purchased Unimpaired Loans 436,540 574  813  0  2,763  440,690 
                         
Purchased Credit Impaired Loans                        
Construction and land development 114  0  0  0  0  114 
Commercial real estate  6,972   0   0   0   4,285   11,257 
Residential real estate  499   0   185   0   0   684 
Commercial and financial  941   0   0   0   0   941 
Consumer  0   0   0   0   0   0 
Total Purchased Credit Impaired Loans 8,526  0  185  0  4,285  12,996 
                         
Total Loans $2,857,695  $2,281  $1,489  $0  $18,071  $2,879,536 

  December 31, 2019
    
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 $276,984
 $
 $
 $
 $4,351
 $281,335
Commercial real estate 1,828,629
 1,606
 220
 
 4,356
 1,834,811
Residential real estate 1,294,778
 1,564
 18
 
 7,945
 1,304,305
Commercial and financial 690,412
 2,553
 
 108
 4,228
 697,301
Consumer 199,424
 317
 315
 
 110
 200,166
Total Portfolio Loans 4,290,227
 6,040
 553
 108
 20,990
 4,317,918
             
PULs            
Construction and land development 43,044
 
 
 
 574
 43,618
Commercial real estate 531,325
 942
 431
 
 1,245
 533,943
Residential real estate 201,159
 277
 
 
 412
 201,848
Commercial and financial 78,705
 
 
 
 1,667
 80,372
Consumer 8,039
 
 
 
 
 8,039
Total PULs 862,272
 1,219
 431
 
 3,898

867,820
             
PCI Loans            
Construction and land development 148
 
 
 
 12
 160
Commercial real estate 9,298
 
 
 
 919
 10,217
Residential real estate 587
 
 
 
 1,123
 1,710
Commercial and financial 566
 
 
 
 13
 579
Consumer 
 
 
 
 
 
Total PCI Loans 10,599
 





2,067

12,666
            

Total Loans $5,163,098

$7,259

$984

$108

$26,955

$5,198,404


99



  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

The reduction in interest income associated with loans on nonaccrual status was approximately $0.7$0.4 million, $0.7$1.0 million, and $0.6$0.7 million, for the years ended December 31, 2019, 2018, and 2017, 2016, and 2015, 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 is generally charged off.

127 

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 gradesratings on commercial lending facilities are recalculatedre-evaluated during the annual review process at least annually bya minimum, based on the loan relationship manager.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, 2017 
     Special          
  Pass  Mention  Substandard  Doubtful  Total 
  (In thousands) 
Construction and land development $328,127  $10,414  $4,584  $0  $343,125 
Commercial real estate  1,586,932   29,273   23,787   0   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   0   82   0   189,436 
Total Loans $3,722,027  $47,545  $47,494  $311  $3,817,377 

  December 31, 2016 
  Pass  Special
Mention
  Substandard  Doubtful  Total 
  (In thousands) 
Construction and land development $148,607  $5,037  $6,472  $0  $160,116 
Commercial real estate  1,324,685   17,184   15,724   0   1,357,593 
Residential real estate  811,934   1,780   23,073   0   836,787 
Commercial and financial  364,241   3,949   2,399   0   370,589 
Consumer  153,774   67   611   0   154,452 
Total loans $2,803,241  $28,017  $48,279  $0  $2,879,536 



100



  December 31, 2019
(In thousands) Pass 
Special
Mention
 Substandard Doubtful Total
Net Loans          
Construction and land development $317,765
 $2,235
 $5,113
 $
 $325,113
Commercial real estate 2,331,725
 26,827
 20,098
 321
 2,378,971
Residential real estate 1,482,278
 7,364
 18,221
 
 1,507,863
Commercial and financial 755,957
 11,925
 9,496
 874
 778,252
Consumer 203,966
 3,209
 1,030
 
 208,205
Total Net Loans $5,091,691
 $51,560
 $53,958
 $1,195
 $5,198,404
  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

Loans to directors and executive officers totaled $1.1$1.7 million and $2.1$0.9 million at December 31, 20172019 and 2016,2018, respectively. NoNaN new loans were originated to directors or officers in 2017.

At December 31, 2017 and 2016 loans pledged as collateral for borrowings totaled $211 million and $415 million, respectively.

128 

2019.

Concentrations of Credit

The Company’sCompany's lending activity occurs primarily occurs within the State ofin Florida, including Orlando, Tampa and Southeast coastal counties from Brevard Countywith concentrations in the north tostate's fastest growing markets including the Fort Lauderdale, Boca Raton, Palm Beach, County in the south, as well as the counties surrounding Lake Okeechobee in the center of the state.

Daytona, Orlando and Tampa markets.

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.

The table below summarizes the changes in accretable yield on PCI loans for the years ended:

 December 31, 
  2017  2016  2015 
  (In thousands) 
Beginning balance $3,807  $2,610  $1,192 
Additions  763   2,052   702 
Deletions  (11)  (15)  (357)
Accretion  (1,647)  (1,734)  (601)
Reclassifications from non-accretable difference  787   894   1,674 
Ending Balance $3,699  $3,807  $2,610 

  December 31,
(In thousands) 2019 2018 2017
Beginning balance $2,924
 $3,699
 $3,807
Additions 
 
 763
Deletions 
 (43) (11)
Accretion (1,778) (1,291) (1,647)
Reclassifications from non-accretable difference 703
 559
 787
Ending Balance $1,849
 $2,924
 $3,699

See Note S for information related to loans purchased in transactions accounted for as business combinations during the periods presented.



101



Troubled Debt Restructured Loans

The Company pursues troubled debt restructures (TDR) for loans in selected cases where it expects to realize better values than may be expected through traditional collection activities. The Company has worked with retail mortgage customers, when possible, to achieve lower payment structures in an effort to avoid foreclosure. TDRs have been a part of the Company’s loss mitigation activities and can include rate reductions, payment extensions and principal deferrals. Company policy requires TDRs that are classified as nonaccrual loans after restructuring remain on nonaccrual until performance can be verified, which usually requires six months of performance under the restructured loan terms.

129 

The Company’s TDRTroubled Debt Restructuring (“TDR”) concessions granted to certain borrowers generally do not include forgiveness of principal balances.balances, but may include interest rate reductions, an extension of the amortization period and/or converting the loan to interest only for a limited period of time. Loan modifications are not reported in the 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 restructuringrestructured 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 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

During the twelvemonths ended December 31, 2019, there were 9 loans thattotaling $4.7 million modified in a TDR. There were 4 defaults totaling $3.2 million of loans modified in TDRs within the twelve months ending:

  Number of
Contracts
  Pre-
Modification
Outstanding
Recorded
Investment
  Post-Modification
Outstanding
Recorded
Investment
  Valuation
Allowance
Recorded
 
        (In thousands)    
December 31, 2017:                
Construction and Land Development  1  $52  $46  $6 
Residential Real Estate  1   15   15   0 
Total  2  $67  $61  $6 
                 
December 31, 2016:                
Construction and Land Development  1  $20  $18  $2 
Residential Real Estate  4   1,169   1,019   150 
Total  5  $1,189  $1,037  $152 

preceding December 31, 2019. During the years 2017, 2016 and 2015,twelvemonths ended December 31, 2018, there were no4 loans totaling $0.2 million modified in a TDR and there were 0 payment defaults on loans that had been modified to a TDR within the previous twelve months. During the twelvemonths ended December 31, 2017, there was 1 loan totaling $0.1 million modified in a TDR and there were 0 payment defaults on loans that had been modified to a TDR within the previous twelve months. The Company considers a loan to have defaulted when it becomes 90 days or more delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to other real estate owned. A defaulted TDR is generally placed on nonaccrual status and a specific allowance for loan lossesloss is assigned in accordance with the Company’s policy.

Impaired Loans

Loans are considered impaired if they are 90 days or more past due, in nonaccrual status, or are TDRs. At As of December 31, 20172019 and 2016,2018, the Company’s recorded investment in impaired loans, excluding PCI loans, and related valuation allowance was as follows:

130 

  December 31, 2017 
     Unpaid  Related 
  Recorded  Principal  Valuation 
(In thousands) Investment  Balance  Allowance 
Impaired Loans with No Related Allowance Recorded:            
Construction and land development $223  $510  $0 
Commercial real estate  3,475   4,873   0 
Residential real estate  10,272   15,063   0 
Commercial and financial  19   29   0 
Consumer  105   180   0 
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 $30,291  $35,519  $2,402 

  December 31, 2016 
     Unpaid  Related 
  Recorded  Principal  Valuation 
(In thousands) Investment  Balance  Allowance 
Impaired Loans with No Related Allowance Recorded:            
Construction and land development $226  $321  $0 
Commercial real estate  3,267   4,813   0 
Residential real estate  9,706   14,136   0 
Commercial and financial  199   206   0 
Consumer  0   0   0 
Impaired Loans with an Allowance Recorded:            
Construction and land development  51   51   0 
Commercial real estate  6,937   6,949   395 
Residential real estate  12,332   12,681   2,059 
Commercial and financial  0   0   0 
Consumer  0   0   0 
Total Impaired Loans            
Construction and land development  277   372   0 
Commercial real estate  10,204   11,762   395 
Residential real estate  22,038   26,817   2,059 
Commercial and financial  199   206   0 
Consumer  0   0   0 
Total $32,718  $39,157  $2,454 

  December 31, 2019
  Recorded 
Unpaid
Principal
 
Related
Valuation
(In thousands) Investment Balance Allowance
Impaired Loans with No Related Allowance Recorded:  
  
  
Construction and land development $4,995
 $5,186
 $
Commercial real estate 6,070
 7,590
 
Residential real estate 9,470
 14,182
 
Commercial and financial 3,485
 4,475
 
Consumer 111
 125
 
       
Impaired Loans with an Allowance Recorded:  
  
  
Construction and land development 62
 78
 14
Commercial real estate 4,196
 4,196
 220
Residential real estate 4,914
 4,914
 834
Commercial and financial 2,567
 3,115
 1,731
Consumer 226
 239
 59
       
Total Impaired Loans      
Construction and land development 5,057
 5,264
 14
Commercial real estate 10,266
 11,786
 220
Residential real estate 14,384
 19,096
 834
Commercial and financial 6,052
 7,590
 1,731
Consumer 337
 364
 59
Total Impaired Loans $36,096
 $44,100
 $2,858


102



  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

Impaired loans also include TDRs where concessions have been granted to borrowers who have experienced financial difficulty. At December 31, 20172019 and 2016,2018, accruing TDRs totaled $15.6$11.1 million and $17.7$13.3 million, respectively.

Average impaired loans for the years ended December 31, 2019, 2018, and 2017 2016, and 2015 were $30.9$35.6 million, $31.2$35.3 million, and $38.5$30.9 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’s effective interest rate. The valuation allowance is included in the allowance for loan losses.

131 

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 in principal. For the years ended December 31, 2017, 20162019, 2018 and 2015,2017, the Company recorded $1.5$2.0 million, $1.6$2.0 million, and $0.9$1.5 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 $0.3$0.1 million, $0.2 million and $0.2$0.3 million, respectively, for 2017, 2016,2019, 2018, and 20152017 was included in interest income and represents the change in present value attributable to the passage of time.

132 



103



Note F - Allowance for Loan Losses

Activity in the allowance for loans losses for the three years ended December 31, 2017, 20162019, 2018 and 20152017 is summarized as follows:

  Beginning
Balance
  Provision
for Loan
Losses
  Charge-
Offs
  Recoveries  TDR
Allowance
Adjustments
  Ending
Balance
 
  (In thousands) 
December 31 , 2017                        
Construction and land development $1,219  $(471) $0  $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   0   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) $0  $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   0   3,636 
Consumer  1,122   807   (244)  109   (5)  1,789 
Total $19,128  $2,411  $(1,144) $3,236  $(231) $23,400 
December 31 , 2015                        
Construction and land development $722  $1,296  $(1,271) $404  $43  $1,151 
Commercial real estate  4,528   2,010   (263)  700   (69)  6,756 
Residential real estate  9,784   (2,208)  (779)  1,260   (150)  8,057 
Commercial and financial  1,179   1,058   (726)  531   (6)  2,042 
Consumer  794   552   (341)  117   (36)  1,122 
Total $17,007  $2,708  $(3,380) $3,012  $(218) $19,128 

133 

(In thousands) 
Beginning
Balance
 
Provision
for Loan
Losses
 
Charge-
Offs
 Recoveries 
TDR
Allowance
Adjustments
 
Ending
Balance
December 31, 2019  
  
  
  
  
  
Construction and land development $2,233
 $(421) $
 $31
 $(1) $1,842
Commercial real estate 11,112
 1,677
 (248) 744
 (61) 13,224
Residential real estate 7,775
 (231) (152) 338
 (63) 7,667
Commercial and financial 8,585
 7,969
 (7,550) 712
 
 9,716
Consumer 2,718
 2,005
 (2,609) 595
 (4) 2,705
Total $32,423

$10,999

$(10,559)
$2,420

$(129)
$35,154
             
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


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, 20172019 and 20162018 is shown in the following tables.

  Individually Evaluated for
Impairment
  Collectively Evaluated for
Impairment
  Total 
 Recorded
Investment
  Associated
Allowance
  Recorded
Investment
  Associated
Allowance
  Recorded
Investment
  Associated
Allowance
 
  (In thousands) 
December 31, 2017                  
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 

  Individually Evaluated for  Collectively Evaluated for       
  Impairment  Impairment  Total
 Recorded
Investment
  Associated
Allowance
  Recorded
Investment
  Associated
Allowance
  Recorded
Investment
  Associated
Allowance
 
  (In thousands) 
December 31, 2016                  
Construction and land development $277  $0  $159,839  $1,219  $160,116  $1,219 
Commercial real estate  10,204   395   1,324,276   8,878   1,334,480   9,273 
Residential real estate  22,038   2,059   813,751   5,424   835,789   7,483 
Commercial and financial  199   0   368,508   3,636   368,707   3,636 
Consumer  0   0   154,452   1,789   154,452   1,789 
Total $32,718  $2,454  $2,820,826  $20,946  $2,853,544  $23,400 

  December 31, 2019
  
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 $5,057
 $14
 $319,896
 $1,828
 $324,953
 $1,842
Commercial real estate 10,267
 220
 2,358,487
 13,004
 2,368,754
 13,224
Residential real estate 14,383
 834
 1,491,770
 6,833
 1,506,153
 7,667
Commercial and financial 6,052
 1,731
 771,621
 7,985
 777,673
 9,716
Consumer 337
 59
 207,868
 2,646
 208,205
 2,705
Total $36,096
 $2,858
 $5,149,642
 $32,296
 $5,185,738
 $35,154


104



  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

Loans collectively evaluated for impairment reported at December 31, 20172019 included acquired loans that are not PCI loans. At December 31, 2017,2019, the remaining fair value adjustments for loans acquired was $17.5$33.3 million, or 2.00%3.84% of the outstanding aggregate PUL balances. At December 31, 2016,2018, the remaining fair value adjustments for loans acquired was $13.7$47.0 million, or 3.11%3.86% of the outstanding aggregate PUL balances.

These amounts, which represent 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. RecaptureProvisions for loan losses of $0.4$0.7 million and net recoveriescharge-offs of $1.0$0.7 million were recorded for these loans during 2017. No provision for loan losses was recorded related to these loans during 2016. Provisioning for loan losses2019. Recapture of $1.3$0.2 million and net charge-offsrecoveries of $1.2$0.1 million were recorded for these loans during 2015.

2018 and 2017, respectively.

The table below summarizes PCI loans that were individually evaluated for impairment based on expected cash flows at December 31, 20172019 and 2016.

  December 31, 2017  December 31, 2016 
  PCI Loans Individually
Evaluated for Impairment
  PCI Loans Individually
Evaluated for Impairment
 
  Recorded
Investment
  Associated
Allowance
  Recorded
Investment
  Associated
Allowance
 
  (In thousands) 
Construction and land development $1,121  $0  $114  $0 
Commercial real estate  9,776   0   11,257   0 
Residential real estate  5,626   0   684   0 
Commercial and financial  894   0   941   0 
Consumer  0   0   0   0 
Total $17,417  $0  $12,996  $0 

134 

2018.

  December 31, 2019 December 31, 2018
  
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 $160
 $
 $151
 $
Commercial real estate 10,217
 
 10,828
 
Residential real estate 1,710
 
 2,718
 
Commercial and financial 579
 
 737
 
Consumer 
 
 
 
Total $12,666
 $
 $14,434
 $




105



Note G - Bank Premises and Equipment

Bank premises and equipment as of:

     Accumulated  Net 
     Depreciation &  Carrying 
  Cost  Amortization  Value 
     (In thousands)    
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 
             
December 31, 2016            
Premises (including land of $14,773) $71,562  $(22,969) $48,593 
Furniture and equipment  30,281   (20,190)  10,091 
Total $101,843  $(43,159) $58,684 

135 

(In thousands) Cost 
Accumulated
Depreciation &
Amortization
 
Net
Carrying
Value
December 31, 2019  
  
  
Premises (including land of $18,546) $83,020
 $(26,180) $56,840
Furniture and equipment 37,364
 (27,589) 9,775
Total $120,384
 $(53,769) $66,615
       
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



Note H - Goodwill and Acquired Intangible Assets

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

  For the Year Ended December 31, 
  2017  2016  2015 
  (In thousands) 
Beginning of year $64,649  $25,211  $25,309 
 Changes from business combinations  82,929   39,438   0 
 Other  0   0   (98)
Total Goodwill $147,578  $64,649  $25,211 

In accordance with ASC 350-20-35, the

  For the Year Ended December 31,
(In thousands) 2019 2018 2017
Beginning of year $204,753
 $147,578
 $64,649
Changes from business combinations 533
 57,175
 82,929
Total $205,286
 $204,753
 $147,578

The Company performs an analysis offor 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, 20172019 and 2016.

2018.

Acquired intangible assets consist of core deposit intangibles ("CDI"), which are intangible assets arising from the purchase of deposits separately or from bank acquisitions. The change in balance for CDI is as follows:

  For the Year Ended December 31, 
  2017  2016  2015 
  (In thousands) 
Beginning of year $14,572  $8,594  $7,454 
Acquired CDI  7,726   8,464   2,564 
Amortization expense  (3,361)  (2,486)  (1,424)
End of year $18,937  $14,572  $8,594 
             
        (In months)     
Remaining Average Amortization Period for CDI  63   64   67 

  For the Year Ended December 31,
(In thousands) 2019 2018 2017
Beginning of year $24,807
 $18,937
 $14,572
Acquired CDI, including measurement period adjustments (676) 10,170
 7,726
Amortization expense (5,826) (4,300) (3,361)
End of year $18,305
 $24,807
 $18,937
       
(In months)  
    
Remaining average amortization period for CDI 47
 58
 63

The gross carrying amount and accumulated amortization of the Company's CDI subject to amortization as of:

  December 31, 2017  December 31, 2016 
  Gross     Gross    
  Carrying  Accumulated  Carrying  Accumulated 
  Amount  Amortization  Amount  Amortization 
  (In thousands) 
Deposit base $26,522  $(7,585) $18,796  $(4,224)

  December 31, 2019 December 31, 2018
(In thousands) 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Deposit base $36,015
 $(17,710) $36,691
 $(11,884)



106



The annual amortization expense for the Company's CDI determined using the straight line method for each of the five years subsequent to December 31, 20172019 is $4$5.7 million, $4$4.5 million, $3.9$4.0 million, $2.7$3.3 million and $2.2$0.6 million, respectively.

Mortgage servicing rights ("MSRs") retained from the sale of Small Business Administration ("SBA") guarantees totaled $0.2$1.8 million and $1.1 million at December 31, 2017.

136 

2019 and 2018, 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:

  For the Year Ended December 31, 
  2017  2016  2015 
  (In thousands) 
Maximum amount outstanding at any month end $216,094  $236,099  $192,786 
Weighted average interest rate at end of year  0.71%  0.31%  0.28%
Average amount outstanding $171,686  $187,560  $168,188 
Weighted average interest rate during the year  0.46%  0.26%  0.20%

maturities:

  For the Year Ended December 31,
(In thousands) 2019 2018 2017
Maximum amount outstanding at any month end $193,388
 $341,213
 $216,094
Weighted average interest rate at end of year 1.17% 1.14% 0.71%
Average amount outstanding $106,142
 $200,839
 $171,686
Weighted average interest rate during the year 1.35% 0.90% 0.46%
Securities sold under agreements to repurchase are accounted for as secured borrowings. For securities sold under agreements to repurchase, the Company would be obligated to provide additional collateral in the event of a significant decline in fair value of collateral pledged. Company securities pledged were as follows by collateral type and maturity as of:

  December 31, 
  2017  2016  2015 
  (In thousands) 
Fair-Value of Pledge Securities – overnight and continuous            
             
Mortgage-backed securities and collateralized mortgage obligations of U.S. Government Sponsored Entities $216,094  $204,202  $172,005 

  December 31,
(In thousands) 2019 2018 2017
Fair value of pledged securities - overnight and continuous:  
  
  
Mortgage-backed securities and collateralized mortgage obligations of U.S. government sponsored entities $94,354
 $246,829
 $248,654

At December 31, 2019, Seacoast Bank had secured lines of credit of $1.3$2.1 billion, at December 31, 2017, of which $211$315 million was outstanding from the Federal Home Loan Bank ("FHLB") at. During 2019, the end of 2017, with $207 million maturing within 30 days or less,average interest rate on short-term borrowings was 2.28% and the remainder maturing by April 2019. The weighted average interest rate on the balancebalances outstanding at end of year 2017 was 1.39% and during the year averaged 0.99% for all of 2017. The Company acquired FHLB advances of $2.0 million and $14.0 million, respectively, from NorthStar and Palm Beach Community Bank on October 20, 2017 and November 3, 2017. Of the $16.0 million acquired, as of December 31, 2017, $7.0 million remained outstanding with a weighted average interest rate of 1.12%2019 was 1.72%.

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 million each borrowed 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 infollowing table summarizes the Company's 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 was issued in conjunction with the formation of a Delaware trust subsidiary, SBCF Statutory Trust III ("Trust III"), which completed a private sale of $12.0 million of floating raterelated trust preferred securities. The ratesand common equity securities as of December 31, 2019:



107



(In thousands)                
Description Issuance Date 
Acquisition Date1
 Maturity Date Junior Subordinated Debt Trust Preferred Securities Common Equity Securities Contractual Interest Rate Interest Rate at December 31, 2019
SBCF Capital Trust I 3/31/2005 n/a 3/31/2035 $20,619
 $20,000
 $619
 3 month LIBOR +175bps 3.69%
SBCF Statutory Trust II 12/16/2005 n/a 12/16/2035 20,619
 20,000
 619
 3 month LIBOR +133bps 3.22%
SBCF Statutory Trust III 6/29/2007 n/a 6/15/2037 12,372
 12,000
 372
 3 month LIBOR +135bps 3.24%
BANKshares, Inc. Statutory Trust I 12/19/2002 10/1/2014 12/26/2032 5,155
 5,000
 155
 3 month LIBOR +325bps 5.20%
BANKshares, Inc. Statutory Trust II 3/17/2004 10/1/2014 3/17/2034 4,124
 4,000
 124
 3 month LIBOR +279bps 4.69%
BANKshares, Inc. Capital Trust I 12/15/2005 10/1/2014 12/15/2035 5,155
 5,000
 155
 3 month LIBOR +139bps 3.30%
Grand Bank Capital Trust I 10/29/2004 7/17/2015 10/29/2034 7,217
 7,000
 217
 3 month LIBOR +198bps 3.94%
        $75,261
 $73,000
 $2,261
    
1Acquired junior subordinated debentures were recorded at their acquisition date fair values, which collectively was $5.6 million lower than face value; this amount is being amortized into interest expense over the remaining term to maturity.

Interest on the trust preferred securities areis calculated on the basis of 3-month LIBOR rate plus 175 basis points, the 3-month LIBOR rate plus 133 basis points,spread and the 3-month LIBOR rate plus 135 basis points, respectively. The rates as of December 31, 2017 are 3.09%, 2.92%, and 2.94%, respectively.is re-set quarterly. 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 million, $619 million and $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 TrustsSBCF Capital Trust I and SBCF Statutory Trust II to purchase the $41.2 million junior subordinated deferrable interest notes issued by the Company, and by SBCF Statutory 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.

137 

As part of the October 1, 2014 BANKshares acquisition the Company acquired three junior subordinated debentures. Correspondingly, at December 31, 2015, the Company had $5.2 million and $4.1 million of Floating Rate Junior Subordinated Deferrable Interest Debentures outstanding which are due December 26, 2032 and March 17, 2034, and callable by the Company, at its option, any time after December 26, 2007 and March 17, 2009. The rates on these trust preferred securities are the 3-month LIBOR rate plus 325 basis points and the 3-month LIBOR rate plus 279 basis points, respectively. The rates as of December 31, 2017 are 4.58% and 4.39%, respectively, per annum. At December 31, 2015, the Company also had $5.2 million outstanding of Junior Subordinated Debentures due February 23, 2036. The coupon rate floats quarterly at the three month LIBOR rate plus 139 basis points. The junior subordinated debenture is redeemable in certain circumstances. The interest rate was 2.84% at December 31, 2017. The above three junior subordinated debentures in accordance with ASU 805Business Combinationshave been recorded at their acquisition date fair values which collectively is $3.5 million lower than face value and will be amortized into interest expense over the remaining term to maturity.

As part of the July 17, 2015 Grand Bank acquisition the Company acquired one junior subordinated debenture. Correspondingly, at December 31, 2016 the Company has $7.2 million of Floating Rate Junior Subordinated Deferrable Interest Debenture outstanding which is due December 30, 2034. The interest rate is the 3-month LIBOR rate plus 198 basis points. The rate, which adjusts every three months is currently 3.67%, per annum. The junior subordinated debentures in accordance with ASU 805Business Combinationshave been recorded at the acquisition date fair values which is $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 time inat 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, 2017, 20162019, 2018 and 2015,2017, 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.

138 


Note J - Employee Benefits and Stock Compensation

The Company’s defined contribution plan covers substantially all employees after one year of service and includes a matching benefit for employees who can elect to defer a portion of their compensation. In addition, amounts of compensation contributed by employees are matched on a percentage basis under the plan. The defined contributionCompany's contributions to this plan contributions charged to operations were $2.4 million in 2019, $2.1 million in 2018, and $1.9 million in 2017, $1.7 million in 2016, and $1.5 million in 2015.

2017.

The Company, through its Compensation and Governance Committee of the Boardboard of Directorsdirectors (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, including stock options, restricted stock awards (“RSAs”), or restricted stock units (“RSUs”). The awards may vest over time, have certain performance based criteria, or both.



108



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. The 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, 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. If treasury shares are insufficient, the Company can issue new shares.

Vesting of share-based awards is immediately accelerated on death or disability of the recipient. The Compensation Committee may, at 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, 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 has been twice amended on August 26, 2015 to increase the number of authorized shares for issuance thereunder to 3,000,000.4,250,000. The 2013 Plan expires on May 26, 2025. Approximately 591,0001,057,000 shares remain available for issuance as of December 31, 2017.

2019.

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

 For the Year Ended December 31, 
(In thousands) 2017  2016  2015 
Share-based compensation expense $5,267  $4,154   2,859 
Income tax benefit  (1,966)  (1,602)  (963)

139 

  For the Year Ended December 31,
(In thousands) 2019 2018 2017
Share-based compensation expense $7,244
 $7,823
 5,267
Income tax benefit (1,723) (1,911) (1,966)


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, 20172019 is presented below:

(In thousands) Unrecognized
Compensation
Cost
  Weighted-
Average
Period
Remaining
(Years)
 
Restricted stock awards $2,383   1.7 
Restricted stock units  3,403   1.7 
Stock options  1,374   2.4 
Total $7,160   1.8 

(In thousands) 
Unrecognized
Compensation
Cost
 Weighted-Average Period Remaining (Years)
Restricted stock awards $3,577
 1.6
Restricted stock units 3,921
 1.7
Stock options 697
 0.9
Total $8,195
 1.6

Restricted Stock Awards

RSAs wereare granted in 2017 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, 2019, and changes during the year then ended, is presented below:
  
Restricted
Award
Shares
 Weighted-Average Grant-Date Fair Value
Non-vested at January 1, 2019 295,130
 $24.09
Granted 157,861
 26.86
Forfeited/Canceled (63,666) 25.83
Vested (175,374) 23.54
Non-vested at December 31, 2019 213,951
 26.07



109



Information regarding restricted stock awards during each of the following years is presented below:
  Year Ended December 31,
  2019 2018 2017
Shares granted 157,861
 242,613
 114,331
Weighted-average grant date fair value $26.86
 $26.48
 $24.08
Fair value of awards vested1
 $4,128
 $2,515
 $1,407
1Based on grant date fair value, in thousands

Restricted Stock Units
RSUs granted in 2019 allow the grantee to earn 0%-225% while RSUs granted in 2018 and 2017 allow the grantee to earn 0%-200% of the target award all 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%-200% of the target award as determined by both the Company's adjusted net income and its adjusted return on tangible equity. The 2016 awards measure performance through December 31, 2019.
A summary of the status of the Company’s non-vested RSUs as of December 31, 2017,2019, and changes during the year then ended, is presented below:

(In thousands, except share and per share data) Restricted
Award
Shares
  Weighted-
Average
Grant-
Date Fair
Value
 
Non-vested at January 1, 2017  206,952  $14.72 
Granted  114,331   24.08 
Forfeited/Cancelled  (8,733)  20.76 
Vested  (99,574)  14.13 
Non-vested at December 31, 2017  212,976   19.77 

  
Restricted
Award
Shares
 Weighted-Average Grant-Date Fair Value
Non-vested at January 1, 2019 503,111
 $19.69
Granted 75,002
 30.02
Forfeited/Canceled (8,242) 20.29
Vested (187,941) 15.24
Non-vested at December 31, 2019 381,930
 23.89

Information regarding restricted stock awardsunits during each of the following years:

(In thousands, except share and per share data) Year Ended December 31, 
  2017  2016  2015 
Shares granted  114,331   164,599   123,806 
Weighted-average grant date fair value $24.08  $16.03  $15.03 
Fair value of awards vested(1) $1,407  $1,981  $836 
             
(1)Based on grant date fair value

Restricted Stock Units

Certain RSUs granted in 2017 allow the grantee to earn 0%-200% of the target award based on either the Company’s adjusted earnings per share growth or its adjusted return on average tangible equity. In 2016, RSUs allowed the grantee to earn 0%-175% of the target award as determined by two criteria, the Company’s adjusted net income and its adjusted return on tangible equity. Both measure performance through December 31, 2019. If the Company does not achieve the target performance goal for either or both of the criteria being tracked, then the RSUs will not vest and will be forfeited.

140 

  For the Year Ended December 31,
  2019 2018 2017
Shares granted 75,002
 173,193
 164,268
Weighted-average grant date fair value $30.02
 $24.02
 $23.94
Fair value of awards vested1
 $2,864
 $1,095
 $937
1Based on grant date fair value

A summary of the status of the Company’s non-vested RSUs as of December 31, 2017, and changes during the year then ended, is presented below:

(In thousands, except share and per share data) Restricted
Award
Shares
  Weighted-
Average
Grant-
Date Fair
Value
 
Non-vested at January 1, 2017  322,692  $12.61 
Granted  164,268   21.61 
Forfeited/Cancelled  (22,113)  13.79 
Vested  (88,880)  10.54 
Non-vested at December 31, 2017  375,967   16.96 

Information regarding restricted stock units during the following years:

(In thousands, except share and per share data) For the Year Ended December 31, 
  2017  2016  2015 
Shares granted  164,268   136,188   127,128 
Weighted-average grant date fair value $23.94  $13.53  $12.63 
Fair value of awards vested(1) $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, 
  2017  2016  2015 
Risk-free interest rates  1.85%  1.63%  1.65%
Expected dividend yield  0%  0%  0%
Expected volatility  25.4%  21.9%  15.5%
Expected lives (years)  5.0   5.0   5.0 

141 

  For the Year Ended December 31,
  2019 2018 2017
Risk-free interest rates 2.53% 2.56% 1.85%
Expected dividend yield % % %
Expected volatility 34.5% 26.6% 25.4%
Expected lives (years) 5.0
 5.0
 5.0

A summary of the Company’s stock options as of December 31, 2017,2019, 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, 2017  778,778  $15.86         
Granted  297,576   28.21         
Exercised  (91,468)  11.77         
Forfeited  (33,537)  96.17         
Outstanding at December 31, 2017  951,349   17.29   6.86  $8,493 
Exercisable at December 31, 2017  517,100  12.09   5.85   6,787 



110



  Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (Years) 
Aggregate
Intrinsic
Value
(000s)
Outstanding at January 1, 2019 933,495
 $22.00
    
Granted 3,438
 28.42
    
Exercised (28,824) 14.86
    
Forfeited (4,330) 29.17
    
Outstanding at December 31, 2019 903,779
 22.22
 6.14 $7,669
Exercisable at December 31, 2019 633,561
 19.82
 5.65 6,848

Information related to stock options during each of the following years:

(In thousands, except share and per share data) For the Year Ended December 31, 
  2017  2016  2015 
Options granted  297,576   243,391   63,650 
Weighted-average grant date fair value $4.66  $3.41  $2.21 
Intrinsic value of stock options exercised  1,143   80   - 

  For the Year Ended December 31,
  2019 2018 2017
Options granted 3,438
 219,118
 297,576
Weighted-average grant date fair value $28.42
 $5.65
 $4.66
Intrinsic value of stock options exercised 277
 3,045
 1,143

The following table summarizes information related to stock options as of December 31, 2017:

Range of Exercise Prices Options
Outstanding
  Remaining
Contractual
Life (Years)
  Shares
Exercisable
  Weighted
Average
Exercise
Price
 
$10.54 to $10.78  330,000   5.8   330,000  $10.67 
$10.97 to $15.99  323,773   5.8   163,538   13.42 
$22.65 to $28.69  297,576   9.2   23,562   22.65 
Total  951,349   6.9   517,100  $12.09 

2019: 

Range of Exercise Prices 
Options
Outstanding
 
Remaining
Contractual
Life (Years)
 
Options
Exercisable
 
Weighted
Average
Exercise
Price
$10.54 to $14.82 368,611
 4.2 334,016
 $12.42
$15.99 to $28.69 326,909
 7.1 229,824
 27.16
$31.15 to $31.15 208,259
 8.2 69,721
 31.15
Total 903,779
 6.1 633,561
 $19.82

Employee Stock Purchase Plan

The

Under 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.

  2017  2016  2015 
ESPP shares purchased  12,434   10,483   9,083 
Weighted-average employee purchase price $22.67  $16.02  $13.99 

142 

  2019 2018 2017
ESPP shares purchased 16,320
 15,225
 12,434
Weighted-average employee purchase price $25.39
 $26.85
 $22.67



Note K - Lease Commitments

The Company is obligated underthe lessee in various noncancellable operating leases for equipment,land, 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, 2017, future minimum lease payments under leases with initial or remaining terms in excess of one year are as follows:

  (In thousands) 
2018 $6,303 
2019  5,935 
2020  5,324 
2021  4,003 
2022  3,275 
Thereafter  15,885 
  $40,725 

Rent expense charged to operations was $5.8 million for 2017, $5.3 million for 2016 and $4.1 million for 2015.equipment. Certain leases contain provisions for renewal and change withvariable lease payments that are linked to the consumer price index.

143 

Lease cost for the year ended December 31, 2019 consists of:



111



(In thousands) For the Year Ended December 31, 2019
Operating lease cost $5,570
Variable lease cost 1,211
Short-term lease cost 715
Sublease income (618)
       Total lease cost $6,878

The following table provides supplemental information related to leases as of and for the year ended December 31, 2019:
(In thousands, except for weighted average data) December 31, 2019
Operating lease right-of-use assets $26,165
Operating lease liabilities 30,098
Cash paid for amounts included in the measurement of operating lease liabilities 5,936
Right-of-use assets obtained in exchange for new operating lease obligations 1,224
Weighted average remaining lease term for operating leases 8.5 years
Weighted average discount rate for operating leases 4.70%

The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If, at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company includes the extended term in the calculation of the lease liability. Maturities of lease liabilities as of December 31, 2019 are as follows:
For the Year Ended December 31, 2019 (In thousands)
2020 $5,626
2021 4,965
2022 4,436
2023 3,725
2024 3,734
Thereafter 14,498
     Total undiscounted cash flows 36,984
Less: Net present value adjustment (6,886)
Total $30,098


Note L - Income Taxes

The provision for income taxes is as follows:

  For the Year Ended December 31 
  2017  2016  2015 
     (In thousands)    
Current            
Federal $667  $653  $578 
State  2   30   61 
             
Deferred            
Federal  32,791   12,163   10,818 
State  2,876   2,043   2,070 
  $36,336  $14,889  $13,527 

  For the Year Ended December 31,
(In thousands) 2019 2018 2017
Current  
  
  
Federal $20,954
 $9,078
 $667
State 1,932
 
 2
       
Deferred 

 

 

Federal 2,808
 7,018
 32,791
State 4,179
 4,163
 2,876
  $29,873
 $20,259
 $36,336



112



The difference between the total expected tax benefitexpense (computed by applying the U.S. Federal tax rate of 35%21% to pretax income in 2017, 20162019 and 2015)2018 and 35% in 2017) and the reported income tax provision relating to income before income taxes is as follows:

  For the Year Ended December 31 
  2017  2016  2015 
     (In thousands)    
Tax rate applied to income before income taxes $27,720  $15,431  $12,484 
Increase (decrease) resulting from the effects of:            
Tax law change  8,552   0   0 
Nondeductible acquisition costs  657   217   441 
Tax exempt interest on loans, obligations of states and political subdivisions and bank owned life insurance  (1,445)  (1,215)  (761)
State income taxes  (1,007)  (726)  (746)
Nontaxable bargain purchase gain  0   0   (146)
Tax credit investments  (165)  (55)  0 
Stock compensation  (1,027)  (731)  127 
Other  173   (105)  (3)
Federal tax provision  33,458   12,816   11,396 
State tax provision  2,878   2,073   2,131 
Total income tax provision $36,336  $14,889  $13,527 

  For the Year Ended December 31,
(In thousands) 2019 2018 2017
Tax rate applied to income before income taxes $27,008
 $18,381
 $27,720
Increase (decrease) resulting from the effects of:      
Tax law change 
 
 8,552
Nondeductible acquisition costs 125
 207
 657
Tax exempt interest on loans, obligations of states and political subdivisions and bank owned life insurance (1,282) (667) (1,445)
State income taxes (1,283) (874) (1,007)
Tax credit investments (72) (33) (165)
Stock compensation (698) (918) (1,027)
Other (36) 
 173
Federal tax provision 23,762
 16,096
 33,458
State tax provision 6,111
 4,163
 2,878
Total income tax provision $29,873
 $20,259
 $36,336

The net deferred tax assets (liabilities) are comprised of the following as of:

  December 31, 
  2017  2016 
  (In thousands) 
Allowance for loan losses $7,187  $9,477 
Premises and equipment  1,390   2,334 
Other real estate owned  207   841 
Accrued stock compensation  1,569   1,561 
Federal tax loss carryforward  4,755   28,089 
State tax loss carryforward  5,578   6,123 
Alternative minimum tax credit carryforward  2,209   4,261 
Net unrealized securities losses  1,429   4,616 
Deferred compensation  2,125   3,279 
Accrued interest and fee income  2,411   3,267 
Other  2,248   3,748 
Gross deferred tax assets  31,108   67,596 
Less: Valuation allowance  0   0 
Deferred tax assets net of valuation allowance  31,108   67,596 
         
Core deposit base intangible  (3,964)  (3,953)
Other  (1,727)  (2,825)
Gross deferred tax liabilities  (5,691)  (6,778)
Net deferred tax assets $25,417  $60,818 

  December 31,
(In thousands) 2019 2018
Allowance for loan losses $8,949
 $8,592
Premises and equipment 
 1,670
Other real estate owned 8
 207
Accrued stock compensation 2,406
 2,547
Federal tax loss carryforward 3,601
 4,699
State tax loss carryforward 1,110
 2,912
Alternative minimum tax credit carryforward 530
 
Lease liabilities 7,381
 
Net unrealized securities losses 
 4,658
Deferred compensation 2,458
 2,287
Accrued interest and fee income 3,106
 7,674
Other 378
 1,627
Gross deferred tax assets 29,927
 36,873
Less: Valuation allowance 
 
Deferred tax assets net of valuation allowance 29,927
 36,873
     
Core deposit base intangible (4,005) (5,706)
Net unrealized securities gains (1,210) 
Premises and equipment (114) 
Right of use assets (6,416) 
Other (1,725) (2,213)
Gross deferred tax liabilities (13,470) (7,919)
Net deferred tax assets $16,457
 $28,954

Included in the table above is the effect of certain temporary differences associated with the Company's investments in debt securities accounted for under ASC Topic 320, for which no deferred tax expense or benefit was recognized. The effect of theseThese items is insteadare recorded as Accumulated Other Comprehensive Income in the shareholders' equity section of the consolidated balance sheet. In 2017 and 2016 such items consisted primarily2019, unrealized gains of $5.6$5.7 million and $12.1 million, respectivelyresulted in a deferred tax liability of $1.2 million. In 2018, unrealized losses on certain investmentsof $17.7 million resulted in debt and equity securities accounted for under ASC 320.

a deferred tax asset of $4.7 million.



113



At December 31, 2017,2019, the Company's net deferred tax assets ("DTAs") of $25.4$16.5 million consists of approximately $15.4$12.9 million of net U.S. federal DTAs and $10.0$3.5 million of net state DTAs.

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's confidence in the realization of projected future taxable income is based upon analysis of the Company's risk profile and its trending financial performance, including credit quality. The Company believes it can confidently and reasonably predict future results of operations that result in taxable income at sufficient levels over the future period of time that the Company has available to realize its net DTA.

Management expects to realize the $25.4 million in net DTAs well in advance of the statutory carryforward period. At December 31, 2017, approximately $4.8 million of DTAs relate to federal net operating losses which will expire in annual installments beginning in 2029 through 2032. Additionally, $5.6 million of the DTAs relate to state net operating losses which will expire in annual installments beginning in 2029 through 2034. Tax credit carryforwards at December 31, 2017 represent federal alternative minimum tax credits totaling $2.2 million. 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's conclusion at December 31, 20172019 that it is more likely than not that the net DTAs of $25.4$16.5 million will be realized is based upon estimates of future taxable income that are supported by internal projections which consider historical performance, various internal estimates and assumptions, as well as certain external data, all of which management believes to be reasonable although inherently subject to judgment. If actual results differ significantly from the current estimates of future taxable income, even if caused by adverse macro-economic conditions, a valuation allowance may need to be recorded for some or all of the Company's DTAs. The establishment of a DTA valuation allowance could have a material adverse effect on the Company's financial condition and results of operations.

144 

Management expects to realize the $16.5 million in net DTAs well in advance of the statutory carryforward period. At December 31, 2019, approximately $3.6 million of DTAs relate to federal net operating losses which will expire in annual installments beginning in 2029 through 2032. Additionally, $1.1 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. NoNaN interest or penalties were accrued at December 31, 2017.

2019.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, accordance with ASC Topic 718, Compensation – Stock Compensation, (Topic 718). ASU 2016-09 changes 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 2016-09 in the third quarter of 2016 and recognized a $0.8 million tax benefit in the Consolidated Statements of Operations over the third and fourth quarters of 2016. During 2017, the Company recognized $0.8 million, $1.1 million and $1.1 million in 2019, 2018 and 2017, respectively, of tax benefit under this standard. In addition, the Company presented excessdiscrete tax benefits as an operating activity in the Consolidated Statement of Cash Flows using a retrospective transition method.

As a result of the adoption of ASU No. 2014-01, “related to share-based compensation.

In accordance with ASC Topic 323, Investments-Equity Method and Joint Ventures: Accounting for Investments in Qualified Affordable Housing Projects,” theVentures, amortization of ourthe Company's low-income housing credit investment has been reflected as income tax expense. Accordingly, $713,000of $0.9 million, $1.0 million and $39,000 of such amortization$0.7 million has been reflected as income tax expense for the years ended December 31, 2019, 2018 and 2017, respectively. The amount of affordable housing tax credits, amortization and 2016,tax benefits recorded as income tax expense for the year ended December 31, 2019 were $0.8 million, $0.9 million, and $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, 2018 were $0.8 million, $1.0 million and $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 $622,000, $713,000$0.6 million, $0.7 million and $256,000, 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,$0.3 million, respectively. The carrying value of the investment in affordable housing credits is $9.3$7.4 million and $10.0$8.3 million at December 31, 20172019 and 2016,2018, respectively, of which $5.2$0.5 million and $8.3$3.2 million, respectively, is unfunded, respectively.

unfunded.

The Company has no0 unrecognized income tax benefits or provisions due to uncertain income tax positions. 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:

Jurisdiction        
JurisdictionTax Year
United States of America20142016
Florida20142016

On December 22, 2017 H.R. 1, also known as


Enactment of the Tax CutCuts and Jobs Act (Act), was enacted. As a result,of 2017 ( the "Tax Reform Act") required 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 2017 in the amount of $8.6 million. Prior to enactmentUpon the filing of this new 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 estimated by the Company as of December 22, 2017 based on an initial analysis of the Act and may be adjusted in future periods following completion of the Company’s 2017 federal 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 September 2019, the State of Florida announced a reduction in the corporate income tax rate from 5.5% to 4.458% for the years 2019, 2020 and evaluation2021. This change resulted in additional income tax expense of $1.1 million upon the effects, if any,write down in the third


114



quarter of implementation guidance or regulations that may be issued2019 of deferred tax assets affected by the Internal Revenue Service onchange, offset by a $0.4 million benefit upon adjusting the Company’s initial analysis ofyear-to-date provision to the Act. 

During the period, the Company early adopted ASU 2018-02 as discussed in Note A - Significant Accounting Policies to adjust for the historical impact of the corporatenew statutory 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:

  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)

145 

rate.


Note M - Noninterest Income and Expenses

Details of noninterest income and expense isare as follows:

  For the Year Ended December 31, 
  2017  2016  2015 
  (In thousands) 
Noninterest income            
Service charges on deposit accounts $10,049  $9,669  $8,563 
Trust fees  3,705   3,433   3,132 
Mortgage banking fees  6,449   5,864   4,252 
Brokerage commissions and fees  1,352   2,044   2,132 
Marine finance fees  910   673   1,152 
Interchange income  10,583   9,227   7,684 
Other deposit based EFT fees  465   477   397 
BOLI Income  3,426   2,213   1,426 
Gain on participated loan  0   0   725 
Other  6,291   3,827   2,555 
   43,230   37,427   32,018 
Securities gains, net  86   368   161 
Gain on sale of VISA stock  15,153   0   0 
Bargain purchase gain, net  0   0   416 
TOTAL $58,469  $37,795  $32,595 
             
Noninterest expense            
Salaries and wages $65,692  $54,096  $41,075 
Employee benefits  11,732   9,903   9,564 
Outsourced data processing costs  14,116   13,516   10,150 
Telephone / data lines  2,291   2,108   1,797 
Occupancy  13,290   13,122   8,744 
Furniture and equipment  6,067   4,720   3,434 
Marketing  4,784   3,633   4,428 
Legal and professional fees  11,022   9,596   8,022 
FDIC assessments  2,326   2,365   2,212 
Amortization of intangibles  3,361   2,486   1,424 
Asset dispositions expense  411   553   472 
Net (gain)/loss on other real estate owned and repossessed assets  (711)  (509)  239 
Early redemption cost for Federal Home Loan Bank advances  0   1,777   0 
Other  15,535   13,515   12,209 
TOTAL $149,916  $130,881  $103,770 

146 

  For the Year Ended December 31,
(In thousands) 2019 2018 2017
Noninterest Income  
  
  
Service charges on deposit accounts $11,529
 $11,198
 $10,049
Trust fees 4,443
 4,183
 3,705
Mortgage banking fees 6,490
 4,682
 6,449
Brokerage commissions and fees 1,909
 1,732
 1,352
Marine finance fees 1,054
 1,398
 910
Interchange income 13,399
 12,335
 10,583
BOLI income 3,674
 4,291
 3,426
SBA gains 2,472
 2,474
 579
Other 10,545
 8,352
 6,177
  55,515
 50,645
 43,230
Gain on sale of Visa stock 
 
 15,153
Securities gains (losses), net 1,217
 (623) 86
Total Noninterest Income $56,732
 $50,022
 $58,469
       
Noninterest Expenses      
Salaries and wages 73,829
 71,111
 65,692
Employee benefits 13,697
 12,945
 11,732
Outsourced data processing costs 15,077
 16,374
 14,116
Telephone and data lines 2,958
 2,481
 2,291
Occupancy 14,284
 13,394
 13,290
Furniture and equipment 6,245
 6,744
 6,067
Marketing 4,161
 5,085
 4,784
Legal and professional fees 8,553
 9,961
 11,022
FDIC assessments 881
 2,195
 2,326
Amortization of intangibles 5,826
 4,300
 3,361
    Foreclosed property expense and net loss (gain) on sale 51
 461
 (300)
Other 15,177
 17,222
 15,535
Total Noninterest Expenses $160,739
 $162,273
 $149,916




115



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, 2017, an aggregate of 175,997 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 2017 and 2016.

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, 2017:                        
Total Capital Ratio (to risk-weighted assets) $619,746   14.24% $348,191   ≥ 8.00%  n/a   n/a 
Tier 1 Capital Ratio (to risk-weighted assets)  592,562   13.61   261,143   ≥ 6.00%  n/a   n/a 
Common Equity Tier 1 Capital (to risk-weighted assets)  523,832   12.04   195,858   ≥ 4.50%  n/a   n/a 
Tier 1 Leverage Ratio (to adjusted average assets)  592,562   10.68   221,863   ≥ 4.00%  n/a   n/a 
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   ≥ 4.00%  n/a   n/a 
                         
SEACOAST NATIONAL BANK                        
(A WHOLLY OWNED BANK SUBSIDIARY)                        
At December 31, 2017:                        
Total Capital Ratio (to risk-weighted assets) $565,149   13.04% $346,780   ≥ 8.00% $433,475   ≥ 10.00
Tier 1 Capital Ratio (to risk-weighted assets)  537,965   12.41   260,085   ≥ 6.00%  346,780   ≥ 8.00
Common Equity Tier 1 Capital (to risk-weighted assets)  537,965   12.41   195,022   ≥ 4.50%  281,759   ≥ 6.50
Tier 1 Leverage Ratio (to adjusted average assets)  537,965   9.72   221,432   ≥ 4.00%  276,791   ≥ 5.00
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   ≥ 4.00%  223,320   ≥ 5.00

(1)Excludes capital conservation buffer of 1.250% 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 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. At year-end 2017 and 2016, the most recent regulatory notifications categorize the Company as well capitalized under the regulatory frame work for prompt corrective action.

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
At December 31, 2017, that2019 and 2018, the Company and Seacoast Bank, meets allits wholly-owned banking subsidiary, were both considered "well capitalized" based on the applicable U.S. regulatory capital adequacyratio requirements to which it is subject. At December 31, 2017,as reflected in the capital conservation buffer requisite thetable below:
      Minimum to meet "Well Capitalized" Requirements
Minimum for Capital Adequacy
Purpose1
 
(Dollars in thousands) Amount Ratio Amount  RatioAmount  Ratio 
Seacoast Banking Corporation of Florida  
  
      
   
 
(Consolidated)  
  
      
   
 
               
At December 31, 2019:  
  
      
   
 
Total Risk-Based Capital Ratio (to risk-weighted assets) $860,934
 15.71% n/a
  n/a
$438,506
 8.00% 
Tier 1 Capital Ratio (to risk-weighted assets) 825,640
 15.06
 n/a
  n/a
328,880
 6.00
 
Common Equity Tier 1 Capital Ratio (to risk-weighted assets) 754,555
 13.77
 n/a
  n/a
246,660
 4.50
 
Leverage Ratio (to adjusted average assets) 825,640
 12.20
 n/a
  n/a
270,788
 4.00
 
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
 
               
Seacoast National Bank              
(A Wholly Owned Bank Subsidiary)              
At December 31, 2019:              
Total Risk-Based Capital Ratio (to risk-weighted assets) $804,058
 14.68% $547,440
 10.00%$437,952
 8.00% 
Tier 1 Capital Ratio (to risk-weighted assets) 768,764
 14.04
 437,952
 8.00
328,464
 6.00
 
Common Equity Tier 1 Capital Ratio (to risk-weighted assets) 768,764
 14.04
 355,836
 6.50
246,348
 4.50
 
Leverage Ratio (to adjusted average assets) 768,764
 11.38
 337,787
 5.00
270,230
 4.00
 
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
 
1Excludes the Basel III capital conservation buffer of 2.5% for 2019 and 1.875% for 2018, which if not exceeded may constrain dividends, equity repurchases and compensation.
n/a - not applicable

The Company is subject to was 1.250%.

On February 21, 2017, the Company closed on its offering of 8.9 millionhas 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 consistingare entitled to one vote per share on all matters presented to shareholders as provided in the Company’s Articles of 2.7 million shares sold by the Company and 6.2 million shares sold by one of its shareholders.Incorporation. The Company received proceeds of $56.7 million less legal and professional fees of $1.1 millionimplemented a dividend reinvestment plan during 2007, issuing 0 shares from the issuance of the 2.7 million shares of its common stock. The Company is using the net proceeds from the offering for general corporate purposes, including the acquisitions of GulfShore Bank, NorthStar Bank and Palm Beach Communities Bank in 2017 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 Advisor to Guggenheim Securities, LLC, an underwriter oftreasury stock under this offering. Under his consulting agreement with Guggenheim, Mr. Lurie was entitled to receive customary compensation, including in connection with our offering of common stock. Mr. Lurie recused himself from boarddecisions regarding this offering.

147 

plan during 2019 or 2018.



116



Note O - Seacoast Banking Corporation of Florida

(Parent (Parent Company Only) Financial Information

Balance Sheets

  December 31, 
  2017  2016 
  (In thousands) 
ASSETS        
Cash $1,154  $648 
Securities purchased under agreement to resell  with subsidiary bank, maturing within 30 days  33,151   12,676 
Investment in subsidiaries  711,973   494,809 
Other assets  21,337   1,211 
  $767,615  $509,344 
         
LIABILITIES AND SHAREHOLDERS' EQUITY        
Subordinated debt $70,521  $70,241 
Other liabilities  7,430   3,706 
Shareholders' equity  689,664   435,397 
  $767,615  $509,344 

148 

  December 31,
(In thousands) 2019 2018
Assets  
  
Cash $70
 $197
Securities purchased under agreement to resell with subsidiary bank, maturing within 30 days 52,979
 40,130
Investment in subsidiaries 1,005,756
 897,683
Other assets 1,515
 777
  $1,060,320
 $938,787
     
Liabilities and Shareholders' Equity    
Subordinated debt $71,085
 $70,804
Other liabilities 3,700
 3,716
Shareholders' equity 985,535
 864,267
  $1,060,320
 $938,787


Statements of Income (Loss)

  Year Ended December 31 
  2017  2016  2015 
  (In thousands) 
          
Income            
Interest/other $2,104  $352  $115 
Dividends from subsidiary Bank  0   0   0 
Gain on sale of VISA stock  15,153   0   0 
   17,257   352   115 
             
Interest expense  2,499   2,115   1,671 
Other expenses  649   462   317 
Income (loss) before income taxes and equity in undistributed income of subsidiaries  14,109   (2,225)  (1,873)
Income tax provision (benefit) benefit  4,938   (801)  (661)
             
Income (loss) before equity in undistributed income of subsidiaries  9,171   (1,424)  (1,212)
Equity in undistributed income of subsidiaries  33,694   30,626   23,353 
Net income $42,865  $29,202  $22,141 

149 

  Year Ended December 31,
(In thousands) 2019 2018 2017
Income  
  
  
Interest/other $679
 $484
 $2,104
Dividends from subsidiary Bank 
 
 
Gain on sale of Visa Class B stock 
 
 15,153
  679
 484
 17,257
       
Interest expense 3,368
 3,165
 2,499
Other expenses 651
 879
 649
(Loss) income before income taxes and equity in undistributed income of subsidiaries (3,340) (3,560) 14,109
Income tax (benefit) provision (702) (747) 4,938
       
(Loss) Income before equity in undistributed income of subsidiaries (2,638) (2,813) 9,171
Equity in undistributed income of subsidiaries 101,377
 70,088
 33,694
Net income $98,739
 $67,275
 $42,865



117



Statements of Cash Flows

  Year Ended December 31 
  2017  2016  2015 
  (In thousands) 
Cash flows from operating activities            
Adjustments to reconcile net income to net cash provided
by operating activities:
            
Net Income $42,865  $29,202  $22,141 
Equity in undistributed income of subsidiaries  (33,694)  (30,626)  (23,353)
Gain on sale of VISA stock  (15,153)  0   0 
Net (increase) decrease in other assets  1,415   (12)  10 
Net increase (decrease) in other liabilities  4,005   12   (48)
Net cash used in operating activities  (562)  (1,424)  (1,250)
             
Cash flows from investing activities            
Net cash paid for bank acquisition  (27,862)   (28,905)  0 
Investment in unconsolidated subsidiary  0   (200)  0 
Investment in VISA stock  (6,180)  0   0 
Decrease (increase) in securities purchased under agreement to resell, maturing within 30 days, net  (20,475)  30,647   (5,487)
Net cash provided by (used in) investment activities  (54,517)  1,542   (5,487)
             
Cash flows from financing activities            
Issuance of common stock, net of related expense  55,641   0   0 
Subordinated debt increase  0   0   6,494 
Stock based employment plans  (56)  166   127 
Net cash provided by financing activities  55,585   166   6,621 
             
Net change in cash  506   284   (116)
Cash at beginning of year  648   364   480 
Cash at end of year $1,154  $648  $364 
             
Supplemental disclosure of cash flow information:            
Cash paid during the period for interest $2,205  $1,824  $1,487 

150 

  Year Ended December 31,
(In thousands) 2019 2018 2017
Cash flows from operating activities  
  
  
Adjustments to reconcile net income to net cash provided
by operating activities:
  
  
  
Net Income $98,739
 $67,275
 $42,865
Equity in undistributed income of subsidiaries (101,377) (70,088) (33,694)
Gain on sale of Visa Class B stock 
 
 (15,153)
Net (increase) decrease in other assets (738) (10,045) 1,415
Net increase (decrease) in other liabilities 265
 (3,431) 4,005
Net cash provided by (used in) operating activities (3,111) (16,289) (562)
       
Cash flows from investing activities      
Net cash paid for bank acquisition 
 (6,558) (27,862)
Investment in unconsolidated subsidiary (10) 
 
Purchase of Visa Class B stock 
 
 (6,180)
Proceeds from sale of Visa Class B stock 
 21,333
 
Dividends from bank subsidiary 18,082
 
 
(Increase) decrease in securities purchased under agreement to resell, maturing within 30 days, net (12,849) (421) (20,475)
Net cash provided by (used in) investment activities 5,223
 14,354
 (54,517)
       
Cash flows from financing activities      
Issuance of common stock, net of related expense 
 
 55,641
Stock based employment benefit plans (2,239) 978
 (56)
Net cash provided by financing activities (2,239) 978
 55,585
       
Net change in cash (127) (957) 506
Cash at beginning of year 197
 1,154
 648
Cash at end of year $70
 $197
 $1,154
       
Supplemental disclosure of cash flow information:      
Cash paid during the period for interest $3,186
 $2,936
 $2,205



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.



118



Unfunded commitments for the Company as of: 
  December 31,
(In thousands) 2019 2018
Contract or Notional Amount  
  
Financial instruments whose contract amounts represent credit risk:  
  
Commitments to extend credit $1,018,020
 $982,739
     
Standby letters of credit and financial guarantees written:    
Secured 13,073
 17,736
Unsecured 663
 847
     
Unfunded limited partner equity commitment 6,011
 7,252

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 $807.7 million$1.0 billion in commitments to extend credit outstanding at December 31, 2017, $368.72019, $399.7 million is secured by 1-4 family residential properties for individuals with approximately $86.5$39.4 million at fixed interest rates ranging from 3.003.24% to 5.50%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 collateralCollateral held for secured standby letters of credit at December 31, 20172019 and 2016 amounted to $26.42018 totaled $13.2 million and $46.6$19.1 million, respectively.

Unfunded limited partner equity commitments at December 31, 20172019 totaled $10.9$6.0 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.

151 

Unfunded commitments for the Company as of:

  December 31, 
  2017  2016 
  (In thousands) 
Contract or Notional Amount        
Financial instruments whose contract amounts represent credit risk:        
Commitments to extend credit $807,651  $532,082 
         
Standby letters of credit and financial guarantees written:        
Secured  12,913   10,776 
Unsecured  681   554 
         
Unfunded limited partner equity commitment  10,914   10,148 

152 



119



Note Q - Fair Value

Under ASC Topic 820, fair value measurements for items measured at fair value on a recurring and nonrecurring basis at December 31, 20172019 and December 31, 20162018 included:

     Quoted Prices in  Significant Other  Significant Other 
     Active Markets for  Observable  Unobservable 
  Fair Value  Identical Assets  Inputs  Inputs 
(In thousands) Measurements  Level 1  Level 2  Level 3 
At December 31, 2017                
Available for sale securities(1) $955,804  $6,600  $949,204  $0 
Loans held for sale(2)  24,306   0   24,306   0 
Loans(3)  4,192   0   3,454   738 
Other real estate owned(4)  7,640   0   60   7,580 
                 
At December 31, 2016                
Available for sale securities(1) $950,503  $100  $950,403  $0 
Loans held for sale(2)  15,332   0   15,332   0 
Loans(3)  4,120   0   3,170   950 
Other real estate owned(4)  9,949   0   0   9,949 

(1)See Note D for further detail of fair value of individual investment categories.
(2)Recurring fair value basis determined using observable market data.
(3)See Note E. Nonrecurring fair value adjustments to loans identified as impaired reflect full or partial write- downs that are based on
  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, 2019  
  
  
  
Available-for-sale debt securities1
 $946,855
 $100
 $946,755
 $
Loans held for sale2
 20,029
 
 20,029
 
Loans3
 5,123
 
 1,419
 3,704
Other real estate owned4
 12,390
 
 241
 12,149
Equity securities5
 6,392
 6,392
 
 
         
At December 31, 2018        
Available-for-sale debt securities1
 $865,831
 $100
 $865,731
 $
Loans held for sale2
 11,873
 
 11,873
 
Loans3
 8,590
 
 2,290
 6,300
Other real estate owned4
 12,802
 
 297
 12,505
Equity securities5
 6,205
 6,205
 
 
1See Note D for further detail of fair value of individual investment categories.
2Recurring fair value basis determined using observable market data.
3See Note E. Nonrecurring fair value adjustments to loans identified as impaired reflect full or partial write- downs that are based on the loan’s observable market price or current appraised value of the collateral in accordance with ASC Topic 310.
4Fair value is measured on a nonrecurring basis in accordance with ASC Topic 360.
5An investment in shares of a mutual fund that invests primarily in CRA-qualified debt securities, reported at fair value in Other Assets. Recurring fair value basis is determined using market 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 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 is the best indicator of the resolution of these loans. 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. 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, 2019 and 2018. The aggregate fair value and contractual balance of loans held for sale as of December 31, 2019 and 2018 is as follows:

  December 31,
(In thousands) 2019 2018
Aggregate fair value $20,029
 $11,873
Contractual balance 19,445
 11,562
Excess 584
 311

Loans: Level 2 loans consist of impaired real estate loans which are not troubled debt restructuringscollateral 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. These impairedLevel 3 loans are considered level 2 in the fair value hierarchy. Forconsist 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, 20172019 the range of capitalization rates utilized to determine fair value of the underlying collateral averaged approximately 7.8%7.4%. 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 $4.2$5.1 million with a specific reserve of $2.4$2.9 million at December 31, 2017,2019, compared to $4.1$8.6 million with a specific reserve of $0.4$2.7 million at December 31, 2016.

153 

2018.


Fair value


120



For loans classified as level 3, the changes included loans migrating to OREO of available for sale securities are determined using valuation techniques for individual investments as described in Note A.

$4.7 million and paydowns and chargeoffs of $1.9 million, offset by additions of $4.0 million during the twelve months ended December 31, 2019.

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 OREOother 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, 2019, changes included addition of foreclosed loans of $5.5 million, offset by reductions primarily consisting of sales of $5.5 million and writedowns of $0.4 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.

For loans classified as level 3 additions totaled $0.4 million consisting of loans that became impaired There were no such transfers during the twelve months ended December 31, 2017. Reductions were $0.6 million, primarily principal payments totaling $0.5 million.

Charge-offs recognized upon loan foreclosures are generally offset by general or specific allocations of the allowance for loan losses2019 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, 2017, foreclosed loans added $1.7 million and migrated branches taken out of service added $1.2 million. Reductions summed to $5.3 million and consisted almost entirely of sales of $5.0 million.

2018.

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, 20172019 and December 31, 20162018 is as follows:

     Quoted Prices in  Significant Other  Significant Other 
     Active Markets for  Observable  Unobservable 
  Carrying  Identical Assets  Inputs  Inputs 
(In thousands) Amount  Level 1  Level 2  Level 3 
At December 31, 2017                
Financial Assets                
Securities held to maturity(1) $416,863  $0  $414,472  $0 
Time deposits with other banks  12,553   0   0   12,493 
Loans, net  3,786,063   0   0   3,760,754 
Financial Liabilities                
Deposits  4,592,720   0   0   4,588,515 
Subordinated debt  70,521   0   61,530   0 
                 
At December 31, 2016                
Financial Assets                
Securities held to maturity(1) $372,498  $0  $369,881  $0 
Loans, net  2,852,016   0   0   2,840,993 
Financial Liabilities                
Deposits  3,523,245   0   0   3,523,322 
Subordinated debt  70,241   0   54,908   0 

(1)See Note D for further detail of recurring fair value basis of individual investment categories.

154 

  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, 2019  
  
  
  
Financial Assets  
  
  
  
Debt securities held-to-maturity1
 $261,369
 $
 $262,213
 $
Time deposits with other banks 3,742
 
 
 3,744
Loans, net 5,158,127
 
 
 5,139,491
Financial Liabilities        
Deposits 5,584,753
 
 
 5,584,621
Federal Home Loan Bank (FHLB) borrowings 315,000
 
 
 314,995
Subordinated debt 71,085
 
 64,017
 
         
At December 31, 2018        
Financial Assets        
Debt securities held-to-maturity1
 $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
 
 1See 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,due from banks, interest bearing deposits with other banks, federal funds purchased, FHLB borrowings and securities sold under agreement to repurchase, maturing within 30 days.

repurchase.

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, 20172019 and December 31, 2016:

Securities2018:

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 measurements considerof a security is determined based on market quotations when available or,


121



if not available, by using quoted market prices for similar securities, pricing models or discounted cash flow analyses, using observable market 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.

where available.

The Company reviews the prices supplied by the independent pricing service,services, 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.

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 maturitylife including prepayment considerations, using estimated market discount rates that reflect the credit and interest rate risks inherent in the loan. For residential mortgage loans,The 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 notapproach considers market-driven variables including credit related factors and reflects an exit price fair value under"exit price" as defined in ASC 820 when this valuation technique is used.

Loans held for sale: Fair values are based upon estimated values to be received from independent third party purchasers. 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, 
(In thousands) 2017  2016 
Aggregate fair value $24,306  $15,332 
Contractual balance  23,627   14,904 
Excess  679   428 

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.

155 


Note R - Earnings Per Share

Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding during the year.

In 2019, 2018, and 2017, 2016, and 2015, options and warrants to purchase 274,000, 131,000,491,000, 483,000, and 456,000274,000 shares, respectively, were antidilutive and accordingly were excluded in determining diluted earnings per share.

  For the Year Ended December 31 
(In thousands, except per share data) 2017  2016  2015 
Basic earnings per share            
Net Income $42,865  $29,202  $22,141 
Total weighted average common stock outstanding  42,613   36,872   33,496 
Net income per share $1.01  $0.79  $0.66 
             
Diluted earnings per share            
Net Income $42,865  $29,202  $22,141 
             
Total weighted average common stock outstanding $42,613  $36,872  $33,496 
Add: Dilutive effect of employee restricted stock and stock options (See Note J)  737   636   248 
Total weighted average diluted stock outstanding  43,350   37,508   33,744 
Net income per share $0.99  $0.78  $0.66 

156 

  For the Year Ended December 31
(In thousands, except per share data) 2019 2018 2017
Basic earnings per share  
  
  
Net Income $98,739
 $67,275
 $42,865
Total weighted average common stock outstanding 51,449
 47,969
 42,613
Net income per share $1.92
 $1.40
 $1.01
       
Diluted earnings per share      
Net Income $98,739
 $67,275
 $42,865
       
Total weighted average common stock outstanding 51,449
 47,969
 42,613
Add: Dilutive effect of employee restricted stock and stock options (See Note J) 580
 779
 737
Total weighted average diluted stock outstanding 52,029
 48,748
 43,350
Net income per share $1.90
 $1.38
 $0.99



Note S - Business Combinations

Acquisition of Floridian Financial Group, Inc.

On March 11, 2016, Seacoast completed its acquisition of Floridian Financial Group, Inc. (“Floridian”). Simultaneously, upon completion of the merger, Floridian’s wholly owned subsidiary bank, Floridian Bank, was merged with and into Seacoast Bank. Floridian, headquartered in Lake Mary, Florida, operated 10 branches in Orlando and Daytona Beach, of which several were consolidated with Seacoast locations. This acquisition added $417 million in total assets, $266 million in loans and $337 million in deposits.

Seacoast expects to benefit from this acquisition through solidifying its market share in the Central Florida market, expanding its customer base and leveraging operating costs through economies of scale, and positively affect the Company’s operating results.

The Company acquired 100% of the outstanding common stock of Floridian. Under the terms of the definitive agreement, Floridian shareholders received, at their election, (i) the combination of $4.29 in cash and 0.5291 shares of Seacoast common stock, (ii) $12.25 in cash, or (iii) 0.8140 shares of Seacoast common stock, subject to a customary proration mechanism so that the aggregate consideration mix equals 35% cash and 65% Seacoast shares (based on Seacoast’s closing price of $15.47 per share on March 11, 2016).

(In thousands, except per share data) March 11, 2016 
Floridian shares exchanged for cash $26,699 
     
Number of Floridian common shares outstanding  6,222 
Per share exchange ratio  0.5289 
Number of shares of common stock issued  3,291 
Multiplied by common stock price per share on March 11, 2016 $15.47 
Value of common stock issued  50,913 
     
Total purchase price $77,612 

The acquisition was accounted for under the acquisition method in accordance with ASC Topic 805,Business Combinations. The Company recognized goodwill of $32 million on this acquisition which is nondeductible for tax. The goodwill was calculated based on the fair values of the assets acquired and liabilities assumed. The fair values initially assigned to assets acquired and liabilities assumed were preliminary. The adjustments reflected in the table below are the result of new information obtained subsequent to the initial measurement.

157 

     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 
(In thousands) Book Balance  Fair Value 
Loans:        
Single family residential real estate $38,304  $37,367 
Commercial real estate  172,531   167,105 
Construction/development/land  20,546   18,108 
Commercial loans  39,070   37,804 
Consumer and other loans  3,385   3,110 
Purchased credit-impaired  6,186   2,643 
Total acquired loans $280,022  $266,137 

For the loans acquired we first segregated all acquired loans with specifically identified credit deficiency factor(s). The factors we considered to identify loans as Purchase Credit Impaired (“PCI”) loans were all acquired loans that were nonaccrual, 60 days or more past due, designated as Trouble Debt Restructured (“TDR”), graded “special mention” or “substandard.” These loans were then evaluated to determine estimated fair values as of the acquisition date. 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 PCI loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.

 March 11, 2016 
(In thousands)   
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 

158 

Loans without specifically identified credit deficiency factors are referred to as Purchased Unimpaired Loans (“PULs”) for disclosure purposes. These loans were then evaluated to determine estimated fair values as of the acquisition date. Although no specific credit deficiencies were identifiable, we believe there is an element of risk as to whether all contractual cash flows will be eventually received. Factors that were considered included the economic environment both nationally and locally as well as the real estate market particularly in Florida.

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

On June 3, 2016, Seacoast completed its acquisition of the Orlando banking operations of BMO Harris Bank N.A. (BMO), which included fourteen branches. The acquisition added $314 million in total assets, $63 million in loans and $314 million in deposits. The business and consumer banking deposits were acquired at a deposit premium of 3.0% and business loans at a loan premium of 0.5%.

Seacoast expects to benefit from this acquisition through solidifying its market share in the Central Florida market, expanding its customer base and leveraging operating costs through economies of scale, and positively affecting the Company’s operating results.

The acquisition was accounted for under the acquisition method in accordance with ASC Topic 805,Business Combinations. The Company recognized $13 million goodwill on this acquisition that is deductible for tax purposes over a 15-year period. The goodwill was calculated based on the fair values of the assets acquired and liabilities assumed. The fair values initially assigned to assets acquired and liabilities assumed were preliminary. The adjustments reflected in the table below are the result of new information obtained subsequent to the initial measurement.

     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 

159 

The table below presents information with respect to the fair value of acquired loans, as well as their Book Balance at acquisition date.

  June 3, 2016 
(In thousands) Book Balance  Fair Value 
Loans:        
Commercial real estate $31,564  $31,200 
Commercial loans  32,479   31,471 
Purchased credit-impaired  0   0 
Total acquired loans $64,043  $62,671 

At June 3, 2016, no loans acquired from BMO Harris were specifically identified with a credit deficiency factor(s). The factors we consider to identify loans as PCI loans are acquired loans that were nonaccrual, 60 days or more past due, designated as TDR, graded “special mention” or “substandard.” PULs were evaluated to determine estimated fair values as of the acquisition date. Although no specific credit deficiencies were identifiable, we believe there is an element of risk as to whether all contractual cash flows will be eventually received. Factors that were considered included the economic environment both nationally and locally as well as the real estate market particularly in Florida.

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 GulfShore Bancshares, Inc.

On April 7, 2017, the Company completed its acquisition of GulfShore Bancshares, Inc. ("GulfShore"), the parent company of GulfShore Bank. Simultaneously, upon completion of the merger, GulfShore’s wholly owned subsidiary bank, GulfShore Bank, was merged with and into Seacoast Bank. GulfShore, headquartered in Tampa, Florida, operated 3 branches in Tampa and St. Petersburg. This acquisition added $358$357.6 million in total assets, $251$250.9 million in loans and $285$285.4 million in deposits to Seacoast.



122



As a result of this acquisition the Company expects to enhanceenhanced its presence in the Tampa, 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 GulfShore. Under the terms of the definitive agreement, GulfShore shareholders received, for each share of GulfShore common stock, the combination of $1.47 in cash and 0.4807 shares of Seacoast common stock (based on Seacoast’s closing price of $23.94 per share on April 7, 2017).

160 

(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

(In thousands, except per share data) April 7, 2017 
Shares exchanged for cash $8,034 
     
Number of GulfShore Bancshares, Inc. common shares outstanding  5,464 
Per share exchange ratio  0.4807 
Number of shares of common stock issued  2,627 
Multiplied by common stock price per share on April 7, 2017 $23.94 
Value of common stock issued  62,883 
     
Total purchase price $70,917 


The acquisition was accounted for under the acquisition method in accordance with ASC Topic 805,Business Combinations. The Company recognized goodwill of $37.1 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 deferred taxes, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values.

     Measurement    
  April 7, 2017  Period  April 7, 2017 
Date of acquisition (Initially Reported)  Adjustments  (As Adjusted) 
  (in thousands) 
Assets:            
Cash $38,267  $0 $38,267 
Time deposits with other banks  17,273   0   17,273 
Investment securities  21   0  21 
Loans, net  250,876   0  250,876 
Fixed assets  1,307   0   1,307 
Other real estate owned  13   0   13 
Core deposit intangibles  3,927   0   3,927 
Goodwill  37,098   0   37,098 
Other assets  8,867   0   8,867 
  $357,649  $0  $357,649 
             
Liabilities:            
Deposits $285,350  $0  $285,350 
Other liabilities  1,382   0   1,382 
  $286,732  $0  $286,732 

161 

(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




123



The table below presents information with respect to the fair value of acquired loans, as well as their unpaid principal balance (“Book Balance”) at acquisition date.

  April 7, 2017 
(In thousands) Book Balance  Fair Value 
Loans:        
Single family residential real estate $101,281  $99,598 
Commercial real estate  106,729   103,905 
Construction/development/land  13,175   11,653 
Commercial loans  32,137   32,247 
Consumer and other loans  3,554   3,473 
Purchased credit-impaired  0   0 
Total acquired loans $256,876  $250,876 

  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 were specifically identified with credit deficiency factor(s), pursuant to ASC Topic 310-30. 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.”

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 NorthStar Banking Corporation

On October 20, 2017, the Company completed its acquisition of NorthStar Banking Corporation (“NSBC”NorthStar”). Simultaneously, upon completion of the merger NSBC’sof NorthStar with and into the Company, NorthStar’s wholly owned subsidiary bank, NorthStar Bank, was merged with and into Seacoast Bank. NorthStar, headquartered in Tampa, Florida, operated three3 branches in Tampa, of which all have been retained as Seacoast locations. This acquisition added $216$216.3 million in total assets, $137$136.8 million in loans and $182$182.4 million in deposits to Seacoast.

As a result of this acquisition the Company expects to enhanceenhanced its presence in the Tampa, 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 NSBC.NorthStar. Under the terms of the definitive agreement, NSBCNorthStar shareholders received, for each share of NSBCNorthStar common stock, the combination of $2.40 in cash and 0.5605 shares of Seacoast common stock (based on Seacoast’s closing price of $24.92 per share on October 20, 2017).

162 

(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

(In thousands, except per share data) October 20, 2017 
Shares exchanged for cash $4,701 
     
Number of NorthStar Banking Corporation Common shares outstanding  1,958 
Per share exchange ratio  0.5605 
Number of shares of common stock issued  1,098 
Multiplied by common stock price per share on October 20, 2017 $24.92 
Value of common stock issued  27,353 
Cash paid for NorthStar Banking Corporation vested stock options  801 
     
Total purchase price $32,855 




124



The acquisition was accounted for under the acquisition method in accordance with ASC Topic 805,Business Combinations. The Company recognized goodwill of $12.4$12.3 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 deferred taxes, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values.

Date of acquisition October 20, 2017 
  (in thousands) 
Assets:    
Cash $5,485 
Investment securities  56,123 
Loans, net  136,832 
Fixed assets  2,637 
Core deposit intangibles  1,275 
Goodwill  12,404 
Other assets  1,522 
Total assets $216,278 
     
Liabilities:    
Deposits $182,443 
Other liabilities  980 
Total liabilities $183,423 

163 

The adjustments reflected in the table below are the result of information obtained subsequent to the 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


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.

  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 

  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 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 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 20, 2017 for purchased credit impairedcredit-impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.

 October 20, 2017 
(In thousands)   
Contractually required principal and interest $5,596 
Non-accretable difference  (689)
Cash flows expected to be collected  4,907 
Accretable yield  (614)
Total purchased credit-impaired loan acquired $4,293 



125



(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 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 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$357.0 million in total assets, $272$270.3 million in loans and $269$268.6 million in deposits to Seacoast. PBCB, headquartered in West Palm Beach, Florida, operated four4 branches in West Palm Beach, two of which were consolidated with Seacoast locations in February 2018.

164 

Beach.

As a result of this acquisition the Company expects to enhanceenhanced its presence in the Palm Beach, 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 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 outstanding  2,507 
Per share exchange ratio  0.9240 
Number of shares of common stock issued  2,316 
Multiplied by common stock price per share on November 3, 2017 $24.31 
Value of common stock issued  56,312 
Total purchase price $72,006 

(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 $33.4$34.5 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 deferred taxes, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values.

165 

The adjustments reflected in the table below are the result of information obtained subsequent to the initial measurement.


Date of acquisition November 3, 2017 
  (In thousands) 
Assets:    
Cash $9,301 
Investment securities  22,098 
Loans, net  272,090 
Fixed assets  7,641 
Core deposit intangibles  2,523 
Goodwill  33,428 
Other assets  9,909 
Total assets $356,990 
     
Liabilities:    
Deposits $268,633 
Other liabilities  16,351 
Total liabilities $284,984 


126



(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 well as their unpaid principal balance ("Book BalanceBalance") 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   132,654 
Construction/development/land  69,686   67,425 
Commercial loans  36,076   37,083 
Consumer and other loans  179   172 
Purchased Credit Impaired  4,768   3,766 
Total acquired loans $275,567  $272,090 

  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 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 November 3, 2017 for purchased credit impairedcredit-impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.

166 

(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

(In thousands) November 3, 2017 
    
Contractually required principal and interest $4,768 
Non-accretable difference  (1,002)
Cash flows expected to be collected  3,766 
Accretable yield  0 
Total purchased credit-impaired loan 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


127



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 First Green Bancorp, Inc.
On October 19, 2018, the Company completed its acquisition of First Green Bancorp, Inc ("First Green"). Simultaneously, upon completion of the merger of First Green and 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 7 branches in the Orlando, Daytona, and Fort Lauderdale markets.
As a result of this acquisition, the Company enhanced its presence in the Orlando, Daytona and Fort Lauderdale, Florida markets, expanded its customer base and leverage 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 First Green. Under the terms of the definitive agreement, each share of First Green common stock was converted into the right to 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 of First Green was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations. The Company recognized goodwill of $56.7 million for this acquisition that is nondeductible for tax purposes. Determining fair values of assets and liabilities, especially 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 initial measurement.
(In thousands) Initially Measured October 19, 2018 Measurement Period Adjustments As Adjusted October 19, 2018
Assets:  
    
Cash $29,434
 $
 $29,434
Investment securities 32,145
 
 32,145
Loans, net 631,497
 
 631,497
Fixed assets 16,828
 
 16,828
Other real estate owned 410
 
 410
Core deposit intangibles 10,170
 (676) 9,494
Goodwill 56,198
 533
 56,731
Other assets 40,669
 178
 40,847
Total assets $817,351
 $35
 $817,386
       
Liabilities:      
Deposits $624,289
 $
 $624,289
Other liabilities 79,018
 35
 79,053
   Total liabilities $703,307
 $35
 $703,342



128



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. 
  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 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 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. 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.

Pro-Forma Information

Pro-forma data as of 2016 and 2017 present information as if the acquisitions of Gulfshore, NSBC and PBCB occurred at the beginning of 2016:

  Twelve Months Ended December 31, 
(In thousands, except per share data) 2017  2016 
       
Net interest income $196,259  $170,363 
Net income available to common shareholders  51,274   41,594 
EPS - basic $1.11  $0.97 
EPS - diluted $1.09  $0.96 

Acquisition Costs
Acquisition costs included in the Company’s income statement for the years ended December 31, 2019, 2018 and 2017 are $1.0 million, $9.7 million, and $12.9 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:


129



 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

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
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the 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 the Company's Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating 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 the Company's disclosure controls and procedures, as required by Rule 13a-15 of the Exchange Act. Based upon that evaluation, the CEO and CFO concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report. 
(b)Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Our internal control system was designed to provide reasonable assurance to management and the 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, 2019. This assessment was based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework 2013. Based on this assessment, management believes that, as of December 31, 2019, the Company's internal control over financial reporting was effective.
The Company's independent registered public accounting firm, Crowe LLP, has issued an audit report on our internal control over financial reporting which is included herein.
(c)Change in Internal Control Over Financial Reporting
During the three months ended December 31, 2019, there were no changes in the internal control over financial reporting that occurred or that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.
Item 9B.Other Information.
None.


130



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 2020 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 “2019 Director Compensation” in the 2020 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 the Company's common stock that may be issued under all of its existing compensation plans as of December 31, 2019
Equity Compensation Plan Information
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 Plan1
 903,779
 $22.00
 1,056,520
Employee Stock Purchase Plan2
 
 
 53,114
TOTAL 903,779
 $22.00
 1,109,634
1Seacoast 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.
2Seacoast Banking Corporation of Florida Employee Stock Purchase Plan, as amended.
Additional information regarding the ownership of the Company's common stock is set forth under the headings “Proposal 1 - Election of Directors” and “Director, Executive Officers and Certain Beneficial Stock Ownership” in the 2020 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 the Company and its officers, directors and significant shareholders is set forth under the heading “Certain Transactions and Business Relationships” and “Corporate Governance” in the 2020 Proxy Statement and is incorporated herein by reference.


131



Item 14.Principal Accountant Fees and Services
Information concerning the Company's 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 2020 Proxy Statement, and is incorporated herein by reference.
Part IV
Item 15.Exhibits, Financial Statement Schedules
(a)(1)  
The Consolidated Financial Statements and the report of the Independent Registered Public Accounting Firm thereon listed in Item 8 are set forth commencing on page 77.
(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):
Dated November 3, 2016, are $12.9 millionby and $9.0 million, respectively.

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.

167 

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.
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.
Dated June 11, 2018 by and among the Company, Seacoast 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.

Dated November 19, 2019 by and among the Company, Seacoast Bank and First Bank of the Palm Beaches incorporated herein by reference from Exhibit 2.1 to the Company’s Form 8-K, filed November 22, 2019.

Dated January 23, 2020 by and among the Company, Seacoast Bank, Fourth Street Banking Company and Freedom Bank incorporated herein by reference from Exhibit 2.1 to the Company’s Form 8-K, filed January 29, 2020.



132



Incorporated herein by reference from Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q, filed May 10, 2006.
Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed December 23, 2008.
Incorporated herein by reference from Exhibit 3.4 to the Company’s Form S-1, filed June 22, 2009.
Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed July 20, 2009.
Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed December 3, 2009.
Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K/A, filed July 14, 2010.
Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed June 25, 2010.
Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed June 1, 2011.
Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed December 13, 2013.
Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed May 30, 2018.

Incorporated herein by reference from Exhibit 3.2 to the Company’s Form 8-K, filed December 21, 2007.
Incorporated herein by reference from Exhibit 4.1 to the Company’s Form 10-K, filed on February 27, 2020.

Incorporated herein by reference from Exhibit 4.1 to the Company’s Form 10-K, filed on March 17, 2014.
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.
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.
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.
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.


133




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.
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.
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.
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.
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.

Incorporated herein by reference from Exhibit 10.1 to the Company’s Annual Report on Form 10-K, filed March 15, 2011.
Incorporated by reference to Exhibit A to the Company’s Definitive Proxy Statement on DEF 14A, filed with the Commission on April 27, 2009.
Incorporated by reference to the Company’s Form S-3 File No. 333-221822, filed on November 30, 2017.
Incorporated herein by reference from Exhibit 10.12 to the Company’s Annual Report on Form 10-K, filed March 30, 2001.
Incorporated herein by reference from Exhibit 10.7 to the Company's Annual Report on Form 10-K, filed March 14, 2016.
Incorporated herein by reference from Appendix A to the Company’s Proxy Statement on Form DEF 14A, filed April 9, 2013.
Incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K, filed November 3, 2014.
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.
Incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K, filed June 27, 2017.



134



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


Exhibit 101 The following materials from Seacoast Banking Corporation of Florida’s Quarterly Report on Form 10-K for the year ended December 31, 2019 formatted in Inline XBRL: (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Shareholders' Equity and (vi) the Notes to the Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
Exhibit 104 The cover page from the Company's Annual Report on Form 10-K for the year ended December 31, 2019, formatted in Inline XBRL.
*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.
Item 16.Form 10-K Summary
Not applicable.


135



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: February 27, 2020
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, IIIFebruary 27, 2020
Dennis S. Hudson, III, Chairman of the Board,
Chief Executive Officer and Director
(principal executive officer)
/s/ Charles M. ShafferFebruary 27, 2020
Charles M. Shaffer, Executive Vice President and
Chief Operating Officer and Chief Financial Officer
(principal financial and accounting officer)
/s/ Dennis J. ArczynskiFebruary 27, 2020
Dennis J. Arczynski, Director
/s/ Jacqueline L. BradleyFebruary 27, 2020
Jacqueline L. Bradley, Director
/s/ H. Gilbert Culbreth, Jr.February 27, 2020
H. Gilbert Culbreth, Jr, Director
/s/ Julie H. DaumFebruary 27, 2020
Julie H. Daum, Director
/s/ Christopher E. FogalFebruary 27, 2020
Christopher E. Fogal, Director
/s/ Maryann B. GoebelFebruary 27, 2020
Maryann B. Goebel, Director
/s/ Robert J. LipsteinFebruary 27, 2020
Robert J. Lipstein, Director


136



/s/ Herbert A. LurieFebruary 27, 2020
Herbert A. Lurie, Director
/s/ Alvaro J. MonserratFebruary 27, 2020
Alvaro J. Monserrat, Director
/s/ Thomas E. RossinFebruary 27, 2020
Thomas E. Rossin, Director




137