UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20202021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to __________________.
Commission File No. 0-13660
Seacoast Banking Corporation of Florida
(Exact Name of Registrant as Specified in its Charter)
| | | | | | | | | | | | | | |
| Florida | | 59-2260678 | |
| (State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) | |
| | | | | | | | | | | | | | |
815 COLORADO AVENUE, | STUART | FL | | 34994 |
(Address of Principal Executive Offices) | | (Zip Code) |
| | | | | | | | | | | |
| (772) | 287-4000 | |
(Registrant’s Telephone Number, Including Area Code) |
| | | |
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock | SBCF | Nasdaq Global Select Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No☒
Common Stock, $0.10 Par Value – 55,168,61755,436,036 shares as of SeptemberJune 30, 20202021
INDEX
SEACOAST BANKING CORPORATION OF FLORIDA
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
| | | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
(In thousands, except per share data) | (In thousands, except per share data) | | 2020 | | 2019 | | | 2020 | | 2019 | | (In thousands, except per share data) | | 2021 | | 2020 | | | 2021 | | 2020 | |
Interest and fees on loans | Interest and fees on loans | | $ | 60,487 | | | $ | 63,092 | | | | $ | 188,771 | | | $ | 187,667 | | | Interest and fees on loans | | $ | 60,348 | | | $ | 64,844 | | | | $ | 122,646 | | | $ | 128,284 | | |
| Interest and dividends on securities | Interest and dividends on securities | | 7,097 | | | 8,933 | | | | 23,609 | | | 27,279 | | | Interest and dividends on securities | | 6,706 | | | 7,694 | | | | 13,152 | | | 16,512 | | |
| Interest on interest bearing deposits and other investments | Interest on interest bearing deposits and other investments | | 556 | | | 800 | | | | 1,974 | | | 2,591 | | | Interest on interest bearing deposits and other investments | | 709 | | | 684 | | | | 1,295 | | | 1,418 | | |
| Total Interest Income | Total Interest Income | | 68,140 | | | 72,825 | | | | 214,354 | | | 217,537 | | | Total Interest Income | | 67,763 | | | 73,222 | | | | 137,093 | | | 146,214 | | |
| | Interest on deposits | Interest on deposits | | 1,299 | | | 4,334 | | | | 5,692 | | | 13,032 | | | Interest on deposits | | 980 | | | 1,203 | | | | 2,045 | | | 4,393 | | |
| Interest on time certificates | Interest on time certificates | | 2,673 | | | 6,009 | | | | 11,261 | | | 16,692 | | | Interest on time certificates | | 524 | | | 3,820 | | | | 1,711 | | | 8,588 | | |
| Interest on borrowed money | Interest on borrowed money | | 665 | | | 1,534 | | | | 3,449 | | | 5,955 | | | Interest on borrowed money | | 457 | | | 927 | | | | 925 | | | 2,784 | | |
| Total Interest Expense | Total Interest Expense | | 4,637 | | | 11,877 | | | | 20,402 | | | 35,679 | | | Total Interest Expense | | 1,961 | | | 5,950 | | | | 4,681 | | | 15,765 | | |
| | Net Interest Income | Net Interest Income | | 63,503 | | | 60,948 | | | | 193,952 | | | 181,858 | | | Net Interest Income | | 65,802 | | | 67,272 | | | | 132,412 | | | 130,449 | | |
| | Provision for credit losses | Provision for credit losses | | (845) | | | 2,251 | | | | 36,279 | | | 6,199 | | | Provision for credit losses | | (4,855) | | | 7,611 | | | | (10,570) | | | 37,124 | | |
| | Net Interest Income after Provision for Credit Losses | Net Interest Income after Provision for Credit Losses | | 64,348 | | | 58,697 | | | | 157,673 | | | 175,659 | | | Net Interest Income after Provision for Credit Losses | | 70,657 | | | 59,661 | | | | 142,982 | | | 93,325 | | |
| | Noninterest income | Noninterest income | | | | | | Noninterest income | | | | | |
Other income | Other income | | 16,942 | | | 14,790 | | | | 45,387 | | | 41,678 | | | Other income | | 15,377 | | | 13,776 | | | | 33,162 | | | 28,445 | | |
| Securities gains (losses), net | | 4 | | | (847) | | | | 1,253 | | | (1,322) | | | |
Securities (losses) gains, net | | Securities (losses) gains, net | | (55) | | | 1,230 | | | | (169) | | | 1,249 | | |
| Total Noninterest Income (Note H) | | 16,946 | | | 13,943 | | | | 46,640 | | | 40,356 | | | |
Total Noninterest Income (Note I – Noninterest Income and Expense) | | Total Noninterest Income (Note I – Noninterest Income and Expense) | | 15,322 | | | 15,006 | | | | 32,993 | | | 29,694 | | |
| | Total Noninterest Expenses (Note H) | | 51,674 | | | 38,583 | | | | 141,871 | | | 122,682 | | | |
Total Noninterest Expenses (Note I – Noninterest Income and Expense) | | Total Noninterest Expenses (Note I – Noninterest Income and Expense) | | 45,784 | | | 42,399 | | | | 91,904 | | | 90,197 | | |
| Income Before Income Taxes | Income Before Income Taxes | | 29,620 | | | 34,057 | | | | 62,442 | | | 93,333 | | | Income Before Income Taxes | | 40,195 | | | 32,268 | | | | 84,071 | | | 32,822 | | |
| Provision for income taxes | Provision for income taxes | | 6,992 | | | 8,452 | | | | 14,025 | | | 21,770 | | | Provision for income taxes | | 8,785 | | | 7,188 | | | | 18,942 | | | 7,033 | | |
| Net Income | Net Income | | $ | 22,628 | | | $ | 25,605 | | | | $ | 48,417 | | | $ | 71,563 | | | Net Income | | $ | 31,410 | | | $ | 25,080 | | | | $ | 65,129 | | | $ | 25,789 | | |
| | Share Data | Share Data | | | | | | Share Data | | | | | |
Net income per share of common stock | Net income per share of common stock | | | | | | Net income per share of common stock | | | | | |
Diluted | Diluted | | $ | 0.42 | | | $ | 0.49 | | | | $ | 0.91 | | | $ | 1.38 | | | Diluted | | $ | 0.56 | | | $ | 0.47 | | | | $ | 1.17 | | | $ | 0.49 | | |
| Basic | Basic | | 0.42 | | | 0.50 | | | | 0.91 | | | 1.39 | | | Basic | | 0.57 | | | 0.47 | | | | 1.18 | | | 0.49 | | |
| Average common shares outstanding | Average common shares outstanding | | | | | | Average common shares outstanding | | | | | |
Diluted | Diluted | | 54,301 | | | 51,935 | | | | 53,325 | | | 51,996 | | | Diluted | | 55,901 | | | 53,308 | | | | 55,827 | | | 52,807 | | |
| Basic | Basic | | 53,978 | | | 51,473 | | | | 52,926 | | | 51,426 | | | Basic | | 55,421 | | | 52,985 | | | | 55,347 | | | 52,394 | | |
|
See notes to unaudited condensed consolidated financial statements.
SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | Nine Months Ended September 30, |
(In thousands) | | 2020 | | 2019 | | | 2020 | | 2019 |
Net Income | | $ | 22,628 | | | $ | 25,605 | | | | $ | 48,417 | | | $ | 71,563 | |
Other comprehensive income: | | | | | | | | | |
Unrealized gains on securities available-for-sale | | 2,301 | | | 5,555 | | | | 19,986 | | | 29,864 | |
Reclassification of unrealized losses on securities transferred to available-for-sale upon adoption of new accounting pronouncement | | 0 | | | 0 | | | | 0 | | | (730) | |
Amortization of unrealized losses on securities transferred to held-to-maturity, net | | 55 | | | 59 | | | | 173 | | | 202 | |
Reclassification adjustment for (gains) losses included in net income | | (4) | | | 895 | | | | (1,097) | | | 1,538 | |
Provision for income taxes | | (423) | | | (1,468) | | | | (4,304) | | | (7,503) | |
Total other comprehensive income | | 1,929 | | | 5,041 | | | | 14,758 | | | 23,371 | |
Comprehensive Income | | $ | 24,557 | | | $ | 30,646 | | | | $ | 63,175 | | | $ | 94,934 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | | Six Months Ended June 30, |
(In thousands) | | | 2021 | | 2020 | | | 2021 | | 2020 |
Net Income | | | $ | 31,410 | | | $ | 25,080 | | | | $ | 65,129 | | | $ | 25,789 | |
| | | | | | | | | | |
Other comprehensive income (loss): | | | | | | | | | | |
| | | | | | | | | | |
Available-for-sale securities: | | | | | | | | | | |
Unrealized gains (losses) on available-for-sale securities, net of tax expense of $0.2 million and tax benefit of $3.0 million for the three and six months ended June 30, 2021, respectively, and tax expense of $3.6 million for each of the three and six months ended June 30, 2020 | | | $ | 296 | | | $ | 14,004 | | | | $ | (10,555) | | | $ | 14,134 | |
| | | | | | | | | | |
Amortization of unrealized gains and losses on securities transferred to held-to-maturity, net of tax expense of $5 thousand and $11 thousand for the three and six months ended June 30, 2021, respectively, and tax expense of $12 thousand and $25 thousand for the three and six months ended June 30, 2020, respectively | | | 20 | | | 47 | | | | 44 | | | 94 | |
Reclassification adjustment for losses (gains) included in net income, net of tax benefit of $19 thousand for each of the three and six months ended June 30, 2021, and tax expense of $0.3 million for each of the three and six months ended June 30, 2020 | | | 91 | | | (1,516) | | | | 91 | | | (1,399) | |
Available-for-sale securities, net of tax | | | $ | 407 | | | $ | 12,535 | | | | $ | (10,420) | | | $ | 12,829 | |
| | | | | | | | | | |
Unrealized losses on derivatives designated as cash flow hedges, net of reclassifications to income, net of tax benefit of $4 thousand and $51 thousand for the three and six months ended June 30, 2021, respectively | | | $ | (11) | | | $ | 0 | | | | (149) | | | 0 | |
| | | | | | | | | | |
Total other comprehensive income (loss) | | | $ | 396 | | | $ | 12,535 | | | | $ | (10,569) | | | $ | 12,829 | |
| | | | | | | | | | |
Comprehensive Income | | | $ | 31,806 | | | $ | 37,615 | | | | $ | 54,560 | | | $ | 38,618 | |
See notes to unaudited condensed consolidated financial statements.
SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
| | | | September 30, | | December 31, | | | June 30, | | December 31, |
(In thousands, except share data) | (In thousands, except share data) | | 2020 | | 2019 | (In thousands, except share data) | | 2021 | | 2020 |
Assets | Assets | | | | | Assets | | | | |
Cash and due from banks | Cash and due from banks | | $ | 81,692 | | | $ | 89,843 | | Cash and due from banks | | $ | 97,468 | | | $ | 86,630 | |
Interest bearing deposits with other banks | Interest bearing deposits with other banks | | 227,876 | | | 34,688 | | Interest bearing deposits with other banks | | 1,351,377 | | | 317,458 | |
Total cash and cash equivalents | Total cash and cash equivalents | | 309,568 | | | 124,531 | | Total cash and cash equivalents | | 1,448,845 | | | 404,088 | |
| Time deposits with other banks | Time deposits with other banks | | 2,247 | | | 3,742 | | Time deposits with other banks | | 750 | | | 750 | |
| Debt securities: | Debt securities: | | | Debt securities: | | |
Securities available-for-sale (at fair value) | Securities available-for-sale (at fair value) | | 1,286,858 | | | 946,855 | | Securities available-for-sale (at fair value) | | 1,322,776 | | | 1,398,157 | |
Securities held-to-maturity (fair value $216,000 at September 30, 2020 and $262,213 at December 31, 2019) | | 207,376 | | | 261,369 | | |
Securities held-to-maturity (fair value $489.3 million at June 30, 2021 and $192.2 million at December 31, 2020) | | Securities held-to-maturity (fair value $489.3 million at June 30, 2021 and $192.2 million at December 31, 2020) | | 493,467 | | | 184,484 | |
Total debt securities | Total debt securities | | 1,494,234 | | | 1,208,224 | | Total debt securities | | 1,816,243 | | | 1,582,641 | |
| Loans held for sale (at fair value) | Loans held for sale (at fair value) | | 73,046 | | | 20,029 | | Loans held for sale (at fair value) | | 42,793 | | | 68,890 | |
| Loans | Loans | | 5,858,029 | | | 5,198,404 | | Loans | | 5,437,049 | | | 5,735,349 | |
Less: Allowance for credit losses | Less: Allowance for credit losses | | (94,013) | | | (35,154) | | Less: Allowance for credit losses | | (81,127) | | | (92,733) | |
Loans, net of allowance for credit losses | Loans, net of allowance for credit losses | | 5,764,016 | | | 5,163,250 | | Loans, net of allowance for credit losses | | 5,355,922 | | | 5,642,616 | |
| Bank premises and equipment, net | Bank premises and equipment, net | | 76,393 | | | 66,615 | | Bank premises and equipment, net | | 69,392 | | | 75,117 | |
Other real estate owned | Other real estate owned | | 15,890 | | | 12,390 | | Other real estate owned | | 12,804 | | | 12,750 | |
Goodwill | Goodwill | | 221,176 | | | 205,286 | | Goodwill | | 221,176 | | | 221,176 | |
Other intangible assets, net | Other intangible assets, net | | 18,163 | | | 20,066 | | Other intangible assets, net | | 14,106 | | | 16,745 | |
Bank owned life insurance | Bank owned life insurance | | 130,887 | | | 126,181 | | Bank owned life insurance | | 158,506 | | | 131,776 | |
Net deferred tax assets | Net deferred tax assets | | 25,503 | | | 16,457 | | Net deferred tax assets | | 21,839 | | | 23,629 | |
Other assets | Other assets | | 156,717 | | | 141,740 | | Other assets | | 154,457 | | | 162,214 | |
Total Assets | Total Assets | | $ | 8,287,840 | | | $ | 7,108,511 | | Total Assets | | $ | 9,316,833 | | | $ | 8,342,392 | |
| Liabilities | Liabilities | | | Liabilities | | |
Deposits | Deposits | | $ | 6,914,843 | | | $ | 5,584,753 | | Deposits | | $ | 7,836,436 | | | $ | 6,932,561 | |
Securities sold under agreements to repurchase, maturing within 30 days | Securities sold under agreements to repurchase, maturing within 30 days | | 89,508 | | | 86,121 | | Securities sold under agreements to repurchase, maturing within 30 days | | 119,973 | | | 119,609 | |
Federal Home Loan Bank (FHLB) borrowings | | 35,000 | | | 315,000 | | |
| Subordinated debt | Subordinated debt | | 71,295 | | | 71,085 | | Subordinated debt | | 71,506 | | | 71,365 | |
Other liabilities | Other liabilities | | 78,853 | | | 65,913 | | Other liabilities | | 106,571 | | | 88,455 | |
Total Liabilities | Total Liabilities | | 7,189,499 | | | 6,122,872 | | Total Liabilities | | 8,134,486 | | | 7,211,990 | |
| Shareholders' Equity | Shareholders' Equity | | | Shareholders' Equity | | |
Common stock, par value $0.10 per share, authorized 120,000,000 shares, issued 55,499,401 and outstanding 55,168,617 at September 30, 2020, and authorized 120,000,000, issued 51,760,617 and outstanding 51,513,733 shares at December 31, 2019 | | 5,517 | | | 5,151 | | |
Common stock, par value $0.10 per share, authorized 120,000,000 shares, issued 55,830,068 and outstanding 55,436,036 at June 30, 2021, and authorized 120,000,000, issued 55,584,979 and outstanding 55,243,226 shares at December 31, 2020 | | Common stock, par value $0.10 per share, authorized 120,000,000 shares, issued 55,830,068 and outstanding 55,436,036 at June 30, 2021, and authorized 120,000,000, issued 55,584,979 and outstanding 55,243,226 shares at December 31, 2020 | | 5,544 | | | 5,524 | |
Other shareholders' equity | Other shareholders' equity | | 1,092,824 | | | 980,488 | | Other shareholders' equity | | 1,176,803 | | | 1,124,878 | |
Total Shareholders' Equity | Total Shareholders' Equity | | 1,098,341 | | | 985,639 | | Total Shareholders' Equity | | 1,182,347 | | | 1,130,402 | |
Total Liabilities and Shareholders' Equity | Total Liabilities and Shareholders' Equity | | $ | 8,287,840 | | | $ | 7,108,511 | | Total Liabilities and Shareholders' Equity | | $ | 9,316,833 | | | $ | 8,342,392 | |
See notes to unaudited condensed consolidated financial statements.
SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| | | Nine Months Ended September 30, | | Six Months Ended June 30, |
(In thousands) | (In thousands) | 2020 | | 2019 | (In thousands) | 2021 | | 2020 |
Cash Flows from Operating Activities | Cash Flows from Operating Activities | | | | Cash Flows from Operating Activities | | | |
Net income | Net income | $ | 48,417 | | | $ | 71,563 | | Net income | $ | 65,129 | | | $ | 25,789 | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation | Depreciation | 4,531 | | | 4,899 | | Depreciation | 2,792 | | | 3,031 | |
Amortization of premiums and discounts on securities, net | Amortization of premiums and discounts on securities, net | 2,890 | | | 1,876 | | Amortization of premiums and discounts on securities, net | 4,012 | | | 1,746 | |
Amortization of operating lease right-of-use assets | Amortization of operating lease right-of-use assets | 3,274 | | | 3,068 | | Amortization of operating lease right-of-use assets | 2,127 | | | 2,363 | |
Other amortization and accretion, net | Other amortization and accretion, net | (4,402) | | | (1,914) | | Other amortization and accretion, net | (7,307) | | | (366) | |
Stock based compensation | Stock based compensation | 5,471 | | | 5,773 | | Stock based compensation | 4,262 | | | 3,524 | |
Origination of loans designated for sale | Origination of loans designated for sale | (378,069) | | | (234,130) | | Origination of loans designated for sale | (283,001) | | | (203,935) | |
Sale of loans designated for sale | Sale of loans designated for sale | 335,882 | | | 227,711 | | Sale of loans designated for sale | 318,479 | | | 174,450 | |
Provision for credit losses | Provision for credit losses | 36,279 | | | 6,199 | | Provision for credit losses | (10,570) | | | 37,124 | |
Deferred income taxes | Deferred income taxes | (6,257) | | | 4,442 | | Deferred income taxes | 4,833 | | | (3,328) | |
(Gains) losses on sale of securities | (1,102) | | | 1,538 | | |
Losses (gains) on sale of securities | | Losses (gains) on sale of securities | 73 | | | (1,092) | |
Gains on sale of loans | Gains on sale of loans | (10,585) | | | (6,683) | | Gains on sale of loans | (9,411) | | | (5,303) | |
Gains on sale and write-downs of other real estate owned | Gains on sale and write-downs of other real estate owned | (278) | | | (279) | | Gains on sale and write-downs of other real estate owned | (380) | | | (485) | |
Losses on disposition of fixed assets | 790 | | | 506 | | |
Bank owned life insurance death benefits | 0 | | | (956) | | |
Losses on disposition of fixed assets and write-downs upon transfer of bank premises to other real estate owned | | Losses on disposition of fixed assets and write-downs upon transfer of bank premises to other real estate owned | 316 | | | 220 | |
| Changes in operating assets and liabilities, net of effects from acquired companies: | Changes in operating assets and liabilities, net of effects from acquired companies: | | Changes in operating assets and liabilities, net of effects from acquired companies: | |
Net increase in other assets | (27,735) | | | (1,585) | | |
Net increase (decrease) in other liabilities | 9,174 | | | (6,721) | | |
Net decrease (increase) in other assets | | Net decrease (increase) in other assets | 1,086 | | | (22,451) | |
Net (decrease) increase in other liabilities | | Net (decrease) increase in other liabilities | (10,726) | | | 19,139 | |
Net cash provided by operating activities | Net cash provided by operating activities | 18,280 | | | 75,307 | | Net cash provided by operating activities | 81,714 | | | 30,426 | |
| Cash Flows from Investing Activities | Cash Flows from Investing Activities | | Cash Flows from Investing Activities | |
Maturities and repayments of debt securities available-for-sale | Maturities and repayments of debt securities available-for-sale | 211,798 | | | 67,951 | | Maturities and repayments of debt securities available-for-sale | 288,171 | | | 134,488 | |
Maturities and repayments of debt securities held-to-maturity | Maturities and repayments of debt securities held-to-maturity | 53,409 | | | 30,382 | | Maturities and repayments of debt securities held-to-maturity | 73,697 | | | 33,969 | |
Proceeds from sale of debt securities available-for-sale | Proceeds from sale of debt securities available-for-sale | 96,733 | | | 122,906 | | Proceeds from sale of debt securities available-for-sale | 56,217 | | | 92,314 | |
Purchases of debt securities available-for-sale | Purchases of debt securities available-for-sale | (626,731) | | | (164,451) | | Purchases of debt securities available-for-sale | (468,430) | | | (239,160) | |
Purchases of debt securities held-to-maturity | | Purchases of debt securities held-to-maturity | (172,004) | | | 0 | |
Maturities of time deposits with other banks | Maturities of time deposits with other banks | 1,495 | | | 3,664 | | Maturities of time deposits with other banks | 0 | | | 1,246 | |
Net new loans and principal repayments | Net new loans and principal repayments | (204,282) | | | (48,600) | | Net new loans and principal repayments | 346,173 | | | (431,182) | |
Purchases of loans held for investment | Purchases of loans held for investment | 0 | | | (117,853) | | Purchases of loans held for investment | (38,822) | | | 0 | |
Proceeds from sale of other real estate owned | Proceeds from sale of other real estate owned | 6,174 | | | 5,153 | | Proceeds from sale of other real estate owned | 4,954 | | | 4,503 | |
Additions to other real estate owned | Additions to other real estate owned | (2,004) | | | 0 | | Additions to other real estate owned | (1,310) | | | 0 | |
Proceeds from sale of FHLB and Federal Reserve Bank Stock | Proceeds from sale of FHLB and Federal Reserve Bank Stock | 37,697 | | | 46,283 | | Proceeds from sale of FHLB and Federal Reserve Bank Stock | 2,704 | | | 33,448 | |
Purchase of FHLB and Federal Reserve Bank Stock | Purchase of FHLB and Federal Reserve Bank Stock | (26,976) | | | (36,093) | | Purchase of FHLB and Federal Reserve Bank Stock | (59) | | | (26,227) | |
| Net cash from bank acquisitions | 71,965 | | | 0 | | |
Proceeds from bank owned life insurance | 0 | | | 14,218 | | |
Net cash from bank acquisition | | Net cash from bank acquisition | 0 | | | 33,883 | |
Purchase of bank owned life insurance | | Purchase of bank owned life insurance | (25,000) | | | 0 | |
Additions to bank premises and equipment | Additions to bank premises and equipment | (1,373) | | | (2,254) | | Additions to bank premises and equipment | (701) | | | (880) | |
Net cash used in investing activities | (382,095) | | | (78,694) | | |
Net cash provided by (used in) investing activities | | Net cash provided by (used in) investing activities | 65,590 | | | (363,598) | |
See notes to unaudited condensed consolidated financial statements.
SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| | | Nine Months Ended September 30, | | Six Months Ended June 30, |
(In thousands) | (In thousands) | 2020 | | 2019 | (In thousands) | 2021 | | 2020 |
Cash Flows from Financing Activities | Cash Flows from Financing Activities | | | | Cash Flows from Financing Activities | | | |
Net increase in deposits | Net increase in deposits | $ | 826,686 | | | $ | 495,901 | | Net increase in deposits | $ | 903,875 | | | $ | 908,288 | |
Net increase (decrease) in federal funds purchased and repurchase agreements | 3,387 | | | (143,909) | | |
Net increase in repurchase agreements | | Net increase in repurchase agreements | 364 | | | 6,004 | |
Net decrease in FHLB borrowings with original maturities of three months or less | Net decrease in FHLB borrowings with original maturities of three months or less | (235,000) | | | (267,000) | | Net decrease in FHLB borrowings with original maturities of three months or less | 0 | | | (315,000) | |
Repayments of FHLB borrowings with original maturities of more than three months | (80,000) | | | (63,000) | | |
| Proceeds from FHLB borrowings with original maturities of more than three months | Proceeds from FHLB borrowings with original maturities of more than three months | 35,000 | | | 0 | | Proceeds from FHLB borrowings with original maturities of more than three months | 0 | | | 135,000 | |
| Stock based employee benefit plans | Stock based employee benefit plans | (1,221) | | | (2,296) | | Stock based employee benefit plans | 369 | | | (1,331) | |
Dividends paid | Dividends paid | 0 | | | 0 | | Dividends paid | (7,155) | | | 0 | |
Net cash provided by financing activities | Net cash provided by financing activities | 548,852 | | | 19,696 | | Net cash provided by financing activities | 897,453 | | | 732,961 | |
Net increase in cash and cash equivalents | Net increase in cash and cash equivalents | 185,037 | | | 16,309 | | Net increase in cash and cash equivalents | 1,044,757 | | | 399,789 | |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 124,531 | | | 115,951 | | Cash and cash equivalents at beginning of period | 404,088 | | | 124,531 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 309,568 | | | $ | 132,260 | | Cash and cash equivalents at end of period | $ | 1,448,845 | | | $ | 524,320 | |
| Supplemental disclosure of cash flow information: | Supplemental disclosure of cash flow information: | | Supplemental disclosure of cash flow information: | |
Cash paid during the period for interest | Cash paid during the period for interest | $ | 19,834 | | | $ | 35,255 | | Cash paid during the period for interest | $ | 6,462 | | | $ | 15,756 | |
Cash paid during the period for taxes | Cash paid during the period for taxes | 21,712 | | | 13,500 | | Cash paid during the period for taxes | 17,700 | | | 3,492 | |
Recognition of operating lease right-of-use assets | Recognition of operating lease right-of-use assets | 1,887 | | | 29,430 | | Recognition of operating lease right-of-use assets | 35 | | | 52 | |
Recognition of operating lease liabilities | Recognition of operating lease liabilities | 1,887 | | | 33,756 | | Recognition of operating lease liabilities | 35 | | | 52 | |
| Supplemental disclosure of non-cash investing activities: | Supplemental disclosure of non-cash investing activities: | | Supplemental disclosure of non-cash investing activities: | |
Transfer of debt securities from held-to-maturity to available-for-sale | $ | 0 | | | $ | 52,796 | | |
Transfer of debt securities from available-for-sale to held-to-maturity | | Transfer of debt securities from available-for-sale to held-to-maturity | $ | 210,805 | | | $ | 0 | |
Unsettled purchases of debt securities available-for-sale | | Unsettled purchases of debt securities available-for-sale | 28,750 | | | 0 | |
Transfers from loans to other real estate owned | Transfers from loans to other real estate owned | 5,552 | | | 5,665 | | Transfers from loans to other real estate owned | 0 | | | 6,186 | |
Transfers from bank premises to other real estate owned | Transfers from bank premises to other real estate owned | 1,289 | | | 0 | | Transfers from bank premises to other real estate owned | 3,318 | | | 1,289 | |
See notes to unaudited condensed consolidated financial statements.
SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
| | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Other | | | | | | | | | | | | | | | | Accumulated Other Comprehensive Income (Loss) | | | |
| | | | Common Stock | | | Paid-in | | | Retained | | | Treasury | | | Comprehensive | | | | | | | Common Stock | | | Paid-in Capital | | | Retained Earnings | | | Treasury Stock | | | | Accumulated Other Comprehensive Income (Loss) | |
(In thousands) | (In thousands) | | | Shares | | | Amount | | | Capital | | | Earnings | | | Stock | | | Income (Loss) | | | Total | (In thousands) | | | Shares | | | Amount | Paid-in Capital | | Retained Earnings | | Treasury Stock | | | | Total | Accumulated Other Comprehensive Income (Loss) |
Balance at June 30, 2020 | | | 52,991 | | | | $ | 5,299 | | | | $ | 811,321 | | | | $ | 204,726 | | | | $ | (8,037) | | | | $ | 17,294 | | | | $ | 1,030,603 | | |
Balance at March 31, 2021 | | Balance at March 31, 2021 | | | 55,294 | | | | $ | 5,529 | | | | $ | 858,688 | | | | $ | 290,420 | | | | $ | (8,693) | | | | $ | 9,405 | | | |
Comprehensive income | Comprehensive income | | | — | | | | — | | | | — | | | | 22,628 | | | | — | | | | 1,929 | | | | 24,557 | | Comprehensive income | | | — | | | | — | | | | — | | | | 31,410 | | | | — | | | | 396 | | | | 31,806 | |
Stock based compensation expense | Stock based compensation expense | | | 39 | | | | — | | | | 1,948 | | | | — | | | | — | | | | — | | | | 1,948 | | Stock based compensation expense | | | — | | | | — | | | | 2,503 | | | | — | | | | — | | | | — | | | | 2,503 | |
Common stock transactions related to stock based employee benefit plans | Common stock transactions related to stock based employee benefit plans | | | 18 | | | | 6 | | | | (6) | | | | — | | | | 96 | | | | — | | | | 96 | | Common stock transactions related to stock based employee benefit plans | | | 94 | | | | 10 | | | | (18) | | | | — | | | | (1,487) | | | | — | | | | (1,495) | |
Common stock issued for stock options | Common stock issued for stock options | | | 1 | | | | — | | | | 16 | | | | — | | | | — | | | | — | | | | 16 | | Common stock issued for stock options | | | 48 | | | | 5 | | | | 1,425 | | | | — | | | | — | | | | — | | | | 1,430 | |
Issuance of common stock, pursuant to acquisition | | | 2,120 | | | | 212 | | | | 40,909 | | | | — | | | | — | | | | — | | | | 41,121 | | |
Three months ended September 30, 2020 | | | 2,178 | | | | 218 | | | | 42,867 | | | | 22,628 | | | | 96 | | | | 1,929 | | | | 67,738 | | |
Balance at September 30, 2020 | | | 55,169 | | | | $ | 5,517 | | | | $ | 854,188 | | | | $ | 227,354 | | | | $ | (7,941) | | | | $ | 19,223 | | | | $ | 1,098,341 | | |
| Dividends on common stock ($0.13 per share) | | Dividends on common stock ($0.13 per share) | | | — | | | | — | | | | — | | | | (7,246) | | | | — | | | | — | | | | (7,246) | |
Three months ended June 30, 2021 | | Three months ended June 30, 2021 | | | 142 | | | | 15 | | | | 3,910 | | | | 24,164 | | | | (1,487) | | | | 396 | | | | 26,998 | |
Balance at June 30, 2021 | | Balance at June 30, 2021 | | | 55,436 | | | | $ | 5,544 | | | | $ | 862,598 | | | | $ | 314,584 | | | | $ | (10,180) | | | | $ | 9,801 | | | | $ | 1,182,347 | |
|
| | | | | | | | | | | | | | | Accumulated Other Comprehensive Income (Loss) | | | |
| | | | | Common Stock | | | Paid-in Capital | | | Retained Earnings | | | Treasury Stock | | | | | |
(In thousands) | | (In thousands) | | | Shares | | | Amount | | | | | | | | | Total | Accumulated Other Comprehensive Income (Loss) |
Balance at March 31, 2020 | | Balance at March 31, 2020 | | | 52,709 | | | | $ | 5,271 | | | | $ | 809,533 | | | | $ | 179,646 | | | | $ | (7,422) | | | | $ | 4,759 | | | |
Comprehensive income | | Comprehensive income | | | — | | | | — | | | | — | | | | 25,080 | | | | — | | | | 12,535 | | | |
Stock based compensation expense | | Stock based compensation expense | | | — | | | | — | | | | 1,523 | | | | — | | | | — | | | | — | | | | 1,523 | |
Common stock transactions related to stock based employee benefit plans | | Common stock transactions related to stock based employee benefit plans | | | 262 | | | | 26 | | | | (15) | | | | — | | | | (615) | | | | — | | | | (604) | |
Common stock issued for stock options | | Common stock issued for stock options | | | 20 | | | | 2 | | | | 280 | | | | — | | | | — | | | | — | | | | 282 | |
| Three months ended June 30, 2020 | | Three months ended June 30, 2020 | | | 282 | | | | 28 | | | | 1,788 | | | | 25,080 | | | | (615) | | | | 12,535 | | | | 38,816 | |
Balance at June 30, 2020 | | Balance at June 30, 2020 | | | 52,991 | | | | $ | 5,299 | | | | $ | 811,321 | | | | $ | 204,726 | | | | $ | (8,037) | | | | $ | 17,294 | | | | $ | 1,030,603 | |
| | | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | | | | | | | Other | | | | |
| | | | Common Stock | | | Paid-in | | | Retained | | | Treasury | | | Comprehensive | | | | |
(In thousands) | | | Shares | | | Amount | | | Capital | | | Earnings | | | Stock | | | Income (Loss) | | | Total | |
Balance at June 30, 2019 | | | 51,461 | | | | $ | 5,146 | | | | $ | 782,928 | | | | $ | 143,032 | | | | $ | (6,137) | | | | $ | 5,270 | | | | $ | 930,239 | | |
Comprehensive income | | | — | | | | — | | | | — | | | | 25,605 | | | | — | | | | 5,041 | | | | 30,646 | | |
| Stock based compensation expense | | | 30 | | | | — | | | | 1,745 | | | | — | | | | — | | | | — | | | | 1,745 | | |
Common stock transactions related to stock based employee benefit plans | | | (9) | | | | 2 | | | | (12) | | | | — | | | | 58 | | | | — | | | | 48 | | |
| Three months ended September 30, 2019 | | | 21 | | | | 2 | | | | 1,733 | | | | 25,605 | | | | 58 | | | | 5,041 | | | | 32,439 | | |
Balance at September 30, 2019 | | | 51,482 | | | | $ | 5,148 | | | | $ | 784,661 | | | | $ | 168,637 | | | | $ | (6,079) | | | | $ | 10,311 | | | | $ | 962,678 | | |
|
| | | | | | | | | | | | | | | Accumulated Other Comprehensive Income (Loss) | | | |
| | | | Common Stock | | | Paid-in Capital | | | Retained Earnings | | | Treasury Stock | | | | | |
(In thousands) | | (In thousands) | | | Shares | | | Amount | | | | | | | | | Total | Accumulated Other Comprehensive Income (Loss) |
Balance at December 31, 2020 | | Balance at December 31, 2020 | | | 55,243 | | | | $ | 5,524 | | | | $ | 856,092 | | | | $ | 256,701 | | | | $ | (8,285) | | | | $ | 20,370 | | | |
Comprehensive income | | Comprehensive income | | | — | | | | — | | | | — | | | | 65,129 | | | | — | | | | (10,569) | | | |
Stock based compensation expense | | Stock based compensation expense | | | — | | | | — | | | | 4,262 | | | | — | | | | — | | | | — | | | | 4,262 | |
Common stock transactions related to stock based employee benefit plans | | Common stock transactions related to stock based employee benefit plans | | | 114 | | | | 12 | | | | (18) | | | | — | | | | (1,895) | | | | — | | | | (1,901) | |
Common stock issued for stock options | | Common stock issued for stock options | | | 79 | | | | 8 | | | | 2,262 | | | | — | | | | — | | | | — | | | | 2,270 | |
| Dividends on common stock ($0.13 per share) | | Dividends on common stock ($0.13 per share) | | | — | | | | — | | | | — | | | | (7,246) | | | | — | | | | — | | | | (7,246) | |
Six months ended June 30, 2021 | | Six months ended June 30, 2021 | | | 193 | | | | 20 | | | | 6,506 | | | | 57,883 | | | | (1,895) | | | | (10,569) | | | | 51,945 | |
Balance at June 30, 2021 | | Balance at June 30, 2021 | | | 55,436 | | | | $ | 5,544 | | | | $ | 862,598 | | | | $ | 314,584 | | | | $ | (10,180) | | | | $ | 9,801 | | | | $ | 1,182,347 | |
| | | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | | | | | | | Other | | | | |
| | | | Common Stock | | | Paid-in | | | Retained | | | Treasury | | | Comprehensive | | | | |
(In thousands) | | | Shares | | | Amount | | | Capital | | | Earnings | | | Stock | | | Income (Loss) | | | Total | |
Balance at December 31, 2019 | | | 51,514 | | | | $ | 5,151 | | | | $ | 786,242 | | | | $ | 195,813 | | | | $ | (6,032) | | | | $ | 4,465 | | | | $ | 985,639 | | |
Comprehensive income | | | — | | | | — | | | | — | | | | 48,417 | | | | — | | | | 14,758 | | | | 63,175 | | |
Stock based compensation expense | | | 39 | | | | — | | | | 5,471 | | | | — | | | | — | | | | — | | | | 5,471 | | |
Common stock transactions related to stock based employee benefit plans | | | 395 | | | | 44 | | | | (53) | | | | — | | | | (1,909) | | | | — | | | | (1,918) | | |
Common stock issued for stock options | | | 58 | | | | 6 | | | | 692 | | | | — | | | | — | | | | — | | | | 698 | | |
Cumulative change in accounting principle upon adoption of new accounting pronouncement (See Note A - Basis of Presentation) | | | — | | | | — | | | | — | | | | (16,876) | | | | — | | | | — | | | | (16,876) | | |
Issuance of common stock, pursuant to acquisition | | | 3,163 | | | | 316 | | | | 61,836 | | | | — | | | | — | | | | — | | | | 62,152 | | |
Nine months ended September 30, 2020 | | | 3,655 | | | | 366 | | | | 67,946 | | | | 31,541 | | | | (1,909) | | | | 14,758 | | | | 112,702 | | |
Balance at September 30, 2020 | | | 55,169 | | | | $ | 5,517 | | | | $ | 854,188 | | | | $ | 227,354 | | | | $ | (7,941) | | | | $ | 19,223 | | | | $ | 1,098,341 | | |
| |
| | | | | | | | | | | | | | | Accumulated Other Comprehensive Income (Loss) | | | |
| | | | Common Stock | | | Paid-in Capital | | | Retained Earnings | | | Treasury Stock | | | | | |
(In thousands) | | (In thousands) | | | Shares | | | Amount | | | | | | | | | Total | Accumulated Other Comprehensive Income (Loss) |
Balance at December 31, 2019 | | Balance at December 31, 2019 | | | 51,514 | | | | $ | 5,151 | | | | $ | 786,242 | | | | $ | 195,813 | | | | $ | (6,032) | | | | $ | 4,465 | | | |
Comprehensive income | | Comprehensive income | | | — | | | | — | | | | — | | | | 25,789 | | | | — | | | | 12,829 | | | |
Stock based compensation expense | | Stock based compensation expense | | | — | | | | — | | | | 3,523 | | | | — | | | | — | | | | — | | | | 3,523 | |
Common stock transactions related to stock based employee benefit plans | | Common stock transactions related to stock based employee benefit plans | | | 377 | | | | 38 | | | | (47) | | | | — | | | | (2,005) | | | | — | | | | (2,014) | |
Common stock issued for stock options | | Common stock issued for stock options | | | 57 | | | | 6 | | | | 676 | | | | — | | | | — | | | | — | | | | 682 | |
Cumulative change in accounting principle upon adoption of new accounting pronouncement | | Cumulative change in accounting principle upon adoption of new accounting pronouncement | | | — | | | | — | | | | — | | | | (16,876) | | | | — | | | | — | | | | (16,876) | |
Issuance of common stock, pursuant to acquisition | | Issuance of common stock, pursuant to acquisition | | | 1,043 | | | | 104 | | | | 20,927 | | | | — | | | | — | | | | — | | | | 21,031 | |
Six months ended June 30, 2020 | | Six months ended June 30, 2020 | | | 1,477 | | | | 148 | | | | 25,079 | | | | 8,913 | | | | (2,005) | | | | 12,829 | | | | 44,964 | |
Balance at June 30, 2020 | | Balance at June 30, 2020 | | | 52,991 | | | | $ | 5,299 | | | | $ | 811,321 | | | | $ | 204,726 | | | | $ | (8,037) | | | | $ | 17,294 | | | | $ | 1,030,603 | |
| | | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | | | | | | | Other | | | | |
| | | | Common Stock | | | Paid-in | | | Retained | | | Treasury | | | Comprehensive | | | | |
(In thousands) | | | Shares | | | Amount | | | Capital | | | Earnings | | | Stock | | | Income (Loss) | | | Total | |
Balance at December 31, 2018 | | | 51,361 | | | | $ | 5,136 | | | | $ | 778,501 | | | | $ | 97,074 | | | | $ | (3,384) | | | | $ | (13,060) | | | | $ | 864,267 | | |
Comprehensive income | | | — | | | | — | | | | — | | | | 71,563 | | | | — | | | | 23,371 | | | | 94,934 | | |
Stock based compensation expense | | | 30 | | | | — | | | | 5,773 | | | | — | | | | — | | | | — | | | | 5,773 | | |
Common stock transactions related to stock based employee benefit plans | | | 62 | | | | 9 | | | | (38) | | | | — | | | | (2,695) | | | | — | | | | (2,724) | | |
Common stock issued for stock options | | | 29 | | | | 3 | | | | 425 | | | | — | | | | — | | | | — | | | | 428 | | |
Nine months ended September 30, 2019 | | | 121 | | | | 12 | | | | 6,160 | | | | 71,563 | | | | (2,695) | | | | 23,371 | | | | 98,411 | | |
Balance at September 30, 2019 | | | 51,482 | | | | $ | 5,148 | | | | $ | 784,661 | | | | $ | 168,637 | | | | $ | (6,079) | | | | $ | 10,311 | | | | $ | 962,678 | | |
| |
See notes to unaudited condensed consolidated financial statements.
SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note A – Basis of Presentation
Basis of Presentation: The accompanying unaudited condensed consolidated financial statements of Seacoast Banking Corporation of Florida and its subsidiaries (the "Company") have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain prior period amounts have been reclassified to conform to the current period presentation.
Operating results for the ninethree and six months ended SeptemberJune 30, 20202021 are not necessarily indicative of the results that may be expected for the year ending December 31, 20202021 or any other period. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Use of Estimates: The preparation of these condensed consolidated financial statements requires management to make judgments in the application of certain of its accounting policies that involve significant estimates and assumptions. The Company has established policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. These estimates and assumptions, which may materially affect the reported amounts of certain assets, liabilities, revenues and expenses, are based on information available as of the date of the financial statements, and changes in this information over time and the use of revised estimates and assumptions could materially affect amounts reported in subsequent financial statements. Specific areas, among others, requiring the application of management’s estimates include determination of the allowance for credit losses, acquisition accounting and purchased loans, intangible assets and impairment testing, other fair value adjustments, income taxes and realization of deferred tax assetsmeasurements and contingent liabilities.
Adoption of new accounting pronouncements:
On January 1, 2020, the Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 326 Financial Instruments - Credit Losses ("ASC Topic 326")which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss ("CECL") methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity ("HTM") debt securities. It also applies to off-balance sheet credit exposure such as loan commitments, standby letters of credit, financial guarantees and other similar instruments. In addition, ASC Topic 326 changed the accounting for impairment of available-for-sale ("AFS") debt securities.
The Company adopted ASC Topic 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for the reporting period beginning after January 1, 2020 are presented under ASC Topic 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP. The following table reflects the cumulative effect of adoption:
| | | | | | | | | | | | | | | | | |
(in thousands) | December 31, 2019 | | CECL adoption impact | | January 1, 2020 |
Loans | $ | 5,198,404 | | | $ | (706) | | | $ | 5,197,698 | |
Allowance for credit losses | 35,154 | | | 21,226 | | | 56,380 | |
Reserve for unfunded commitments | 140 | | | 1,837 | | | 1,977 | |
Deferred tax assets | 16,457 | | | (5,481) | | | 10,976 | |
Retained earnings | 195,813 | | | (16,876) | | | 178,937 | |
ASC Topic 326 introduced new definitions and criteria for categorizing purchased loans. Loans that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination are classified as purchased credit deteriorated ("PCD"). Acquired loans which do not meet the definition of PCD are classified by the Company as acquired Non-PCD. At the date of adoption, the Company reclassified all loans previously classified as purchased credit impaired ("PCI") to PCD, and increased the allowance by $0.7 million with a corresponding adjustment to these loans' amortized cost basis. The remaining noncredit discount on loans previously classified as PCI was $0.9 million, which will be accreted into interest income over the remaining life of the loans.
Under CECL, the Company estimates the allowance using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit losses provide the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, loan to value ratios, borrower credit characteristics, loan seasoning or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, occupancy rates, and other macroeconomic metrics.
For loans analyzed on a collective basis, the Company has developed an allowance model based on an analysis of the probability of default ("PD") and loss given default ("LGD") to determine an expected loss by loan segment. PDs and LGDs are developed by analyzing the average historical loss migration of loans to default. The Company excludes accrued interest on loans from its determination of allowance.
The allowance estimation process also applies an economic forecast scenario over a three year forecast period. The forecast may utilize one scenario or a composite of scenarios based on management's judgment and expectations around the current and future macroeconomic outlook. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modification unless either of the following applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring ("TDR") will be executed with an individual borrower, or the extension or renewal options are explicitly stated in the contract and are not unconditionally under the control of the Company. For portfolio segments with a weighted average life longer than three years, the Company reverts to longer-term historical loss experience, adjusted for prepayments, to estimate losses over the remaining life of the loans within each segment.
Adjustments may be made to baseline reserves based on an assessment of internal and external influences on credit quality not fully reflected in the quantitative components of the allowance model. These influences may include elements such as changes in concentration, macroeconomic conditions, recent observable asset quality trends, staff turnover, regional market conditions, employment levels and loan growth. Based on management's assessments of these factors, the Company may apply qualitative adjustments to the allowance.
Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. Loans evaluated individually are collateral dependent and primarily secured by real estate. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.
In response to the COVID-19 pandemic beginning in early 2020, rules defined in the Coronavirus Aid, Relief and Economic Security ("CARES") Act and a joint statement issued by federal regulators in consultation with FASB provide financial institutions with the option not to apply troubled debt restructure ("TDR") accounting to eligible loan modifications provided to borrowers affected by the economic impact of the COVID-19 pandemic. See Note E - Loans for information on loan modifications offered by the Company under this guidance. Outside of this guidance, a loan for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulty, is considered to be a TDR. The allowance for credit losses on a TDR is measured using the same method as all other loans held for investment, except when the value of a concession cannot be measured using a method other than the discounted cash flow method. When the value of a concession is measured using the discounted cash flow method, the allowance for credit losses is determined by discounting the expected future cash flows at the original interest rate of the loan.
The Company estimates a reserve for unfunded commitments, which is reported separately from the allowance for credit losses within other liabilities. The reserve is based upon the same quantitative and qualitative factors applied to the collectively evaluated loan portfolio.
All HTM debt securities are issued by government-sponsored entities, which are either explicitly or implicitly guaranteed by the U.S. government and have a long history of no credit losses. In addition, the credit rating on all the Company's HTM debt securities as of the date of adoption is AA+. There is no history of the government withholding or limiting support to these agencies, nor is there any indication of a change to that historical support. While the potential for default on these securities may be something greater than zero, the long history with no credit losses, the implied government guarantee of principal and interest payments and the high credit rating of the HTM portfolio provide sufficient basis for the current expectation that there is zero risk of loss if default were to occur. As a result, the Company recorded 0 allowance for HTM debt securities with fair value less than amortized cost basis at the date of adoption.
ASC Topic 326 amended the existing other-than-temporary-impairment guidance for AFS securities, requiring credit losses to be recorded as an allowance rather than through a permanent write-down. When evaluating AFS debt securities under ASC Topic 326, the Company has evaluated whether the decline in fair value is attributed to credit losses or other factors using both
quantitative and qualitative analyses, including cash flow analysis, review of credit ratings, remaining payment terms, prepayment speeds and analysis of macro-economic conditions. At the date of adoption, collateralized loan obligations had unrealized losses of $1.2 million. The collateral for these securities is first lien senior secured corporate debt, and the Company holds senior tranches rated A or higher. Based on this analysis, the Company believes that the unrealized loss position for AFS debt securities at the time of adoption was the result of both broad investment type spreads and the current rate environment. Each investment is expected to recover its price depreciation over its holding period as it moves to maturity and the Company has the intent and ability to hold these securities to maturity if necessary. As a result of this evaluation, the Company concluded that no allowance was appropriate.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). The guidance provides accounting relief to contract modifications that replace an interest rate impacted by reference rate reform (e.g. London Inter-Bank Offered Rate ("LIBOR")) with a new alternative reference rate. The guidance is applicable to investment securities, receivables, loans, debt, leases, derivatives and hedge accounting elections, and other contractual arrangements. The Company applied the guidance prospectively beginning April 1, 2020, with no material impact on its financial position, results of operations or cash flows.
Note B – Recently Issued Accounting Standards, Not Yet Adopted
None applicable this period.
Note C – 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 period.
For the three and ninesix months ended SeptemberJune 30, 2020,2021, 0 options to purchase 508,000 shares of the Company's common stock were anti-dilutive, compared to 508,000 and accordingly,489,000 shares that were excluded in the computation of diluted earnings per share compared to 492,000 shares for the three and ninesix months ended SeptemberJune 30, 2019.2020, respectively.
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(Dollars in thousands, except per share data) | (Dollars in thousands, except per share data) | 2020 | | 2019 | | 2020 | | 2019 | (Dollars in thousands, except per share data) | 2021 | | 2020 | | 2021 | | 2020 |
Basic earnings per share | Basic earnings per share | | | | | | Basic earnings per share | | | | | |
Net income | Net income | $ | 22,628 | | | $ | 25,605 | | | $ | 48,417 | | | $ | 71,563 | | Net income | $ | 31,410 | | | $ | 25,080 | | | $ | 65,129 | | | $ | 25,789 | |
Average common shares outstanding | Average common shares outstanding | 53,978 | | | 51,473 | | | 52,926 | | | 51,426 | | Average common shares outstanding | 55,421 | | | 52,985 | | | 55,347 | | | 52,394 | |
Net income per share | Net income per share | $ | 0.42 | | | $ | 0.50 | | | $ | 0.91 | | | $ | 1.39 | | Net income per share | $ | 0.57 | | | $ | 0.47 | | | $ | 1.18 | | | $ | 0.49 | |
| Diluted earnings per share | Diluted earnings per share | | Diluted earnings per share | |
Net income | Net income | $ | 22,628 | | | $ | 25,605 | | | $ | 48,417 | | | $ | 71,563 | | Net income | $ | 31,410 | | | $ | 25,080 | | | $ | 65,129 | | | $ | 25,789 | |
Average common shares outstanding | Average common shares outstanding | 53,978 | | | 51,473 | | | 52,926 | | | 51,426 | | Average common shares outstanding | 55,421 | | | 52,985 | | | 55,347 | | | 52,394 | |
Add: Dilutive effect of employee restricted stock and stock options | Add: Dilutive effect of employee restricted stock and stock options | 323 | | | 462 | | | 399 | | | 570 | | Add: Dilutive effect of employee restricted stock and stock options | 480 | | | 323 | | | 480 | | | 413 | |
Average diluted shares outstanding | Average diluted shares outstanding | 54,301 | | | 51,935 | | | 53,325 | | | 51,996 | | Average diluted shares outstanding | 55,901 | | | 53,308 | | | 55,827 | | | 52,807 | |
Net income per share | Net income per share | $ | 0.42 | | | $ | 0.49 | | | $ | 0.91 | | | $ | 1.38 | | Net income per share | $ | 0.56 | | | $ | 0.47 | | | $ | 1.17 | | | $ | 0.49 | |
Net income has not been allocated to unvested restricted stock awards that are participating securities because the amounts that would be allocated are not material to net income per share of common stock. Unvested restricted stock awards that are participating securities represent less than one percent of all of the outstanding shares of common stock for each of the periods presented. | | Net income has not been allocated to unvested restricted stock awards that are participating securities because the amounts that would be allocated are not material to net income per share of common stock. Unvested restricted stock awards that are participating securities represent less than one percent of all of the outstanding shares of common stock for each of the periods presented. |
Note D – Securities
The amortized cost, gross unrealized gains and losses and fair value of securities available-for-sale and held-to-maturity at SeptemberJune 30, 20202021 and December 31, 20192020 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 |
(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 | $ | 8,518 | | | $ | 534 | | | $ | (1) | | | $ | 9,051 | |
| | | | | | | |
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities | 916,231 | | | 23,676 | | | (646) | | | 939,261 | |
| | | | | | | |
Private mortgage-backed securities and collateralized mortgage obligations | 98,984 | | | 2,099 | | | (298) | | | 100,785 | |
| | | | | | | |
Collateralized loan obligations | 203,834 | | | 157 | | | (2,613) | | | 201,378 | |
| | | | | | | |
Obligations of state and political subdivisions | 34,312 | | | 2,168 | | | (97) | | | 36,383 | |
| | | | | | | |
Totals | $ | 1,261,879 | | | $ | 28,634 | | | $ | (3,655) | | | $ | 1,286,858 | |
| | | | | | | |
| | | | | | | |
Debt securities held-to-maturity | | | | | | | |
Mortgage-backed securities of U.S. government-sponsored entities | $ | 207,376 | | | $ | 8,642 | | | $ | (18) | | | $ | 216,000 | |
| | | | | | | |
Totals | $ | 207,376 | | | $ | 8,642 | | | $ | (18) | | | $ | 216,000 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
Proceeds from sales of securities during the three months ended September 30, 2020 were $4.4 million. During this period, the Company recorded 0minal gross gains and 0 gross losses. For the three months ended September 30, 2019, proceeds from sales of securities were $49.6 million, which resulted in gross losses of $0.9 million on available-for-sale debt securities and an increase of $0.1 million in the value of an investment in shares of a mutual fund that invests primarily in CRA-qualified debt securities are included in "Securities gains (losses), net".
Proceeds from sales of securities during the nine months ended September 30, 2020 and 2019 were $96.7 million and $122.9 million, respectively. Included in "Securities gains (losses), net" are gross gains of $2.4 million and gross losses of $1.3 million for the nine months ended September 30, 2020, and gross gains of $0.3 million and gross losses of $1.8 million for the nine months ended September 30, 2019. "Securities gains (losses), net" also includes an increase of $0.2 million for each of the nine | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
(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 | $ | 7,412 | | | $ | 439 | | | $ | (2) | | | $ | 7,849 | |
| | | | | | | |
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities | 987,402 | | | 14,224 | | | (5,906) | | | 995,720 | |
| | | | | | | |
Private mortgage-backed securities and collateralized mortgage obligations | 73,469 | | | 1,938 | | | (218) | | | 75,189 | |
| | | | | | | |
Collateralized loan obligations | 209,835 | | | 22 | | | (165) | | | 209,692 | |
| | | | | | | |
Obligations of state and political subdivisions | 32,288 | | | 2,038 | | | 0 | | | 34,326 | |
| | | | | | | |
Totals | $ | 1,310,406 | | | $ | 18,661 | | | $ | (6,291) | | | $ | 1,322,776 | |
| | | | | | | |
| | | | | | | |
Debt securities held-to-maturity | | | | | | | |
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities | $ | 493,467 | | | $ | 5,697 | | | $ | (9,875) | | | $ | 489,289 | |
| | | | | | | |
Totals | $ | 493,467 | | | $ | 5,697 | | | $ | (9,875) | | | $ | 489,289 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
(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 | $ | 8,250 | | | $ | 528 | | | $ | (1) | | | $ | 8,777 | |
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities | 1,038,437 | | | 23,457 | | | (1,240) | | | 1,060,654 | |
Private mortgage-backed securities and collateralized mortgage obligations | 89,284 | | | 2,131 | | | (210) | | | 91,205 | |
Collateralized loan obligations | 202,563 | | | 279 | | | (647) | | | 202,195 | |
Obligations of state and political subdivisions | 33,005 | | | 2,321 | | | 0 | | | 35,326 | |
Totals | $ | 1,371,539 | | | $ | 28,716 | | | $ | (2,098) | | | $ | 1,398,157 | |
| | | | | | | |
Debt securities held-to-maturity | | | | | | | |
Mortgage-backed securities of U.S. government-sponsored entities | $ | 184,484 | | | $ | 7,818 | | | $ | (123) | | | $ | 192,179 | |
| | | | | | | |
| | | | | | | |
Totals | $ | 184,484 | | | $ | 7,818 | | | $ | (123) | | | $ | 192,179 | |
Proceeds from sales of securities for the three and six months ended SeptemberJune 30, 2021 were $56.2 million, resulting in gross gains of $0.2 million and gross losses of $0.3 million. For the three months ended June 30, 2020, proceeds from sales of securities were $64.5 million, which resulted in gross gains of $2.3 million and 2019,gross losses of $1.1 million. For the six months ended June 30, 2020, proceeds from sales of securities were $92.3 million, which resulted in gross gains of $2.4 million and gross losses of $1.3 million.
Also included in “Securities gains (losses), net” is an increase of $18 thousand and a decrease of $0.1 million for the three and six months ended June 30, 2021, respectively, and increases of $0.1 million and $0.2 million for the three and six months ended June 30, 2020, respectively, in the value of a CRA-qualified mutual fund.
During the first quarter of 2021, the Company reclassified debt securities with an investmentamortized cost of $210.8 million from available-for-sale to held-to-maturity, as it has the ability and intent to hold these securities to maturity. These securities had net unrealized gains of $0.8 million at the date of transfer, which will continue to be reported in sharesaccumulated other comprehensive income, and will be amortized over the remaining life of a mutual fund that invests primarily in CRA-qualified debt securities.the securities as an adjustment of yield. The effect on interest income of the amortization of net unrealized gains is offset by the amortization of the premium on the securities transferred.
At SeptemberJune 30, 2020,2021, debt securities with a fair value of $335.9$388.1 million were pledged primarily as collateral for public deposits and secured borrowings.
The amortized cost and fair value of debt securities held-to-maturity and available-for-sale at SeptemberJune 30, 2020,2021, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because prepayments of the underlying collateral for these securities may occur, due to the right to call or repay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.
| | | | | | | | | | | | | | | | | | | | | | | |
| Held to Maturity | | Available-for-Sale |
(In thousands) | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Due in less than one year | $ | 0 | | | $ | 0 | | | $ | 2,096 | | | $ | 2,107 | |
| | | | | | | |
Due after one year through five years | 0 | | | 0 | | | 10,986 | | | 11,612 | |
| | | | | | | |
Due after five years through ten years | 0 | | | 0 | | | 10,118 | | | 10,871 | |
| | | | | | | |
Due after ten years | 0 | | | 0 | | | 19,630 | | | 20,844 | |
| | | | | | | |
| 0 | | | 0 | | | 42,830 | | | 45,434 | |
| | | | | | | |
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities | 207,376 | | | 216,000 | | | 916,231 | | | 939,261 | |
| | | | | | | |
Private mortgage-backed securities and collateralized mortgage obligations | 0 | | | 0 | | | 98,984 | | | 100,785 | |
| | | | | | | |
Collateralized loan obligations | 0 | | | 0 | | | 203,834 | | | 201,378 | |
| | | | | | | |
Totals | $ | 207,376 | | | $ | 216,000 | | | $ | 1,261,879 | | | $ | 1,286,858 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Held-to-Maturity | | Available-for-Sale |
(In thousands) | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Due in less than one year | $ | 0 | | | $ | 0 | | | $ | 400 | | | $ | 402 | |
| | | | | | | |
Due after one year through five years | 0 | | | 0 | | | 12,316 | | | 13,175 | |
| | | | | | | |
Due after five years through ten years | 0 | | | 0 | | | 8,505 | | | 8,923 | |
| | | | | | | |
Due after ten years | 0 | | | 0 | | | 18,479 | | | 19,675 | |
| | | | | | | |
| 0 | | | 0 | | | 39,700 | | | 42,175 | |
| | | | | | | |
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities | 493,467 | | | 489,289 | | | 987,402 | | | 995,720 | |
| | | | | | | |
Private mortgage-backed securities and collateralized mortgage obligations | 0 | | | 0 | | | 73,469 | | | 75,189 | |
| | | | | | | |
Collateralized loan obligations | 0 | | | 0 | | | 209,835 | | | 209,692 | |
| | | | | | | |
Totals | $ | 493,467 | | | $ | 489,289 | | | $ | 1,310,406 | | | $ | 1,322,776 | |
| | | | | | | |
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, or using observable market data. The tables below indicate at September 30, 2020, the fair value of available-for-sale debt securities with unrealized losses for which no allowance for credit losses has been recorded, and at December 31, 2019, the fair value of available-for-sale and held-to-maturity debt securities with unrealized losses for which no allowance has been recorded.
| | | September 30, 2020 | | June 30, 2021 |
| | Less Than 12 Months | | 12 Months or Longer | | Total | | Less Than 12 Months | | 12 Months or Longer | | Total |
(In thousands) | (In thousands) | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | (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 | U.S. Treasury securities and obligations of U.S. government agencies | $ | 0 | | | 0 | | | $ | 258 | | | $ | (1) | | | $ | 258 | | | $ | (1) | | U.S. Treasury securities and obligations of U.S. government agencies | $ | 0 | | | $ | 0 | | | $ | 251 | | | $ | (2) | | | $ | 251 | | | $ | (2) | |
| Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities | Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities | 248,463 | | | (628) | | | 351 | | | (18) | | | 248,814 | | | (646) | | Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities | 538,907 | | | (5,866) | | | 4,389 | | | (40) | | | 543,296 | | | (5,906) | |
| Private mortgage-backed securities and collateralized mortgage obligations | Private mortgage-backed securities and collateralized mortgage obligations | 28,276 | | | (298) | | | 0 | | | 0 | | | 28,276 | | | (298) | | Private mortgage-backed securities and collateralized mortgage obligations | 14,979 | | | (195) | | | 1,738 | | | (23) | | | 16,717 | | | (218) | |
| Collateralized loan obligations | Collateralized loan obligations | 66,037 | | | (699) | | | 110,500 | | | (1,914) | | | 176,537 | | | (2,613) | | Collateralized loan obligations | 82,191 | | | (108) | | | 9,450 | | | (57) | | | 91,641 | | | (165) | |
| Obligations of state and political subdivisions | 6,782 | | | (97) | | | 0 | | | 0 | | | 6,782 | | | (97) | | |
| | Totals | Totals | $ | 349,558 | | | $ | (1,722) | | | $ | 111,109 | | | $ | (1,933) | | | $ | 460,667 | | | $ | (3,655) | | Totals | $ | 636,077 | | | $ | (6,169) | | | $ | 15,828 | | | $ | (122) | | | $ | 651,905 | | | $ | (6,291) | |
|
| | | December 31, 2019 | | December 31, 2020 |
| | Less Than 12 Months | | 12 Months or Longer | | Total | | Less Than 12 Months | | 12 Months or Longer | | Total |
(In thousands) | (In thousands) | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | (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 | U.S. Treasury securities and obligations of U.S. government agencies | $ | 758 | | | $ | (4) | | | $ | 0 | | | $ | 0 | | | $ | 758 | | | $ | (4) | | U.S. Treasury securities and obligations of U.S. government agencies | $ | 0 | | | $ | 0 | | | $ | 256 | | | $ | (1) | | | $ | 256 | | | $ | (1) | |
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities | 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) | | Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities | 203,405 | | | (1,218) | | | 569 | | | (22) | | | 203,974 | | | (1,240) | |
Private mortgage-backed securities and collateralized mortgage obligations | Private mortgage-backed securities and collateralized mortgage obligations | 2,978 | | | (5) | | | 0 | | | 0 | | | 2,978 | | | (5) | | Private mortgage-backed securities and collateralized mortgage obligations | 23,997 | | | (210) | | | 0 | | | 0 | | | 23,997 | | | (210) | |
Collateralized loan obligations | Collateralized loan obligations | 88,680 | | | (570) | | | 110,767 | | | (583) | | | 199,447 | | | (1,153) | | Collateralized loan obligations | 104,697 | | | (102) | | | 72,513 | | | (545) | | | 177,210 | | | (647) | |
Obligations of state and political subdivisions | 515 | | | (1) | | | 0 | | | 0 | | | 515 | | | (1) | | |
| Totals | Totals | $ | 312,988 | | | $ | (2,041) | | | $ | 214,951 | | | $ | (2,506) | | | $ | 527,939 | | | $ | (4,547) | | Totals | $ | 332,099 | | | $ | (1,530) | | | $ | 73,338 | | | $ | (568) | | | $ | 405,437 | | | $ | (2,098) | |
At SeptemberJune 30, 2020,2021, the Company had $2.6 million in unrealized losses in uncapped 3-month LIBOR floating rate collateralized loan obligations ("CLOs") having a fair value of $176.5 million. CLOs are special purpose vehicles and those in which the Company has invested acquire nearly all first-lien, broadly syndicated corporate loans across a diversified band of industries while providing support to senior tranche investors. As of September 30, 2020, all positions held by the Company are in AAA and AA tranches, with average credit support of 36% and 26%, respectively. The Company evaluates the securities for potential credit losses by modeling expected loan-level defaults, recoveries, and prepayments for each CLO security. Based on the assessment of all relevant factors, the Company believes that the unrealized loss positions on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality, and expects to recover the entire amortized cost basis of these securities. Therefore, at September 30, 2020, 0 allowance for credit losses has been recorded.
At September 30, 2020, the Company had $0.6$5.9 million of unrealized losses on mortgage-backed securities and collateralized mortgage obligations issued by government-sponsored entities having a fair value of $248.8$543.3 million. These securities are either explicitly or implicitly guaranteed by the U.S. government and have a long history of no credit losses. The implied government guarantee of principal and interest payments and the high credit rating of the portfolio provide sufficient basis for the current expectation that there is no risk of loss if default were to occur. Based on the assessment of all relevant factors, the Company believes that the unrealized loss positions on these debt securities are a function of changes in investment spreads and interest
rate movements and not changes in credit quality, and expects to recover the entire amortized cost basis of these securities. Therefore, at SeptemberJune 30, 2020,2021, 0 allowance for credit losses has been recorded.
At SeptemberJune 30, 2020,2021, the Company had $0.3$0.2 million of unrealized losses on private label residential and commercial mortgage-backed securities and collateralized mortgage obligations having a fair value of $28.3$16.7 million. The collateral underlying these mortgage investments is primarily residential real estate. The securities have average credit support of 23%35%. Based on the assessment of all relevant factors, the Company believes that the unrealized loss positions on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality, and expects to recover the entire amortized cost basis of these securities. Therefore, at SeptemberJune 30, 2020,2021, 0 allowance for credit losses has been recorded.
At June 30, 2021, the Company had $0.2 million in unrealized losses in uncapped 3-month LIBOR floating rate collateralized loan obligations ("CLOs") having a fair value of $91.6 million. CLOs are special purpose vehicles and those in which the Company has invested acquire nearly all first-lien, broadly syndicated corporate loans across a diversified band of industries while providing support to senior tranche investors. As of June 30, 2021, these positions are in AAA and AA tranches, with average credit support of 34% and 23%, respectively. The Company evaluates the securities for potential credit losses by modeling expected loan-level defaults, recoveries, and prepayments for each CLO security. Based on the assessment of all relevant factors, the Company believes that the unrealized loss positions on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality, and expects to recover the entire amortized cost basis of these securities. Therefore, at June 30, 2021, 0 allowance for credit losses has been recorded.
All HTM debt securities are issued by government-sponsored entities, which are either explicitly or implicitly guaranteed by the U.S. government and have a long history of no credit losses. While the potential for default on these securities may be something greater than zero, the long history with no credit losses, the implied government guarantee of principal and interest payments and the high credit rating of the HTM portfolio provide sufficient basis for the current expectation that there is no risk of loss if default were to occur. Despite the emergence of significant market changes and increasing degrees of uncertainty in the U.S. economy in 2020, there has to date been no specific impact on the agencies or changes in the nature or quality of the guarantee they provide. As a result, as of SeptemberJune 30, 2020,2021, 0 allowance for credit losses has been recorded.
Included in other assets at SeptemberJune 30, 20202021 is $34.0$31.2 million of Federal Home Loan Bank and Federal Reserve Bank stock stated at par value. The Company has not identified events or changes in circumstances that may have a significant adverse effect on the fair value of these cost method investment securities. Also included in other assets is a $6.5$6.4 million investment in a CRA-qualified mutual fund carried at fair value. Accrued interest receivable on AFS and HTM debt securities of $2.6 million and $0.8 million at June 30, 2021, respectively, and $3.2 million and $0.5 million at September 30, 2020, respectively, and $3.8 million and $0.6$0.4 million at December 31, 2019,2020, respectively, is also included in other assets.
The Company holds 11,330 shares of Visa Class B stock, which, following resolution of Visa litigation, will be converted to Visa Class A shares. Under the current conversion ratio that became effective September 27, 2019, the Company would receive 1.6228 shares of Class A stock for each share of Class B stock for a total of 18,386 shares of Visa Class A stock. The ownership of Visa stock is related to prior ownership in Visa's network while Visa operated as a cooperative, and is recorded on the Company's financial records at a zero basis.
Note E – Loans
Loans held for investment are categorized into the following segments:
•Construction and land development: Loans are extended to both commercial and consumer customers which are collateralized by and for the purpose of funding land development and construction projects, including 1-4 family residential construction, multi-family property and non-farm residential property where the primary source of repayment is from proceeds of the sale, refinancing or permanent financing of the property.
•Commercial real estate - owner-occupied: Loans are extended to commercial customers for the purpose of acquiring real estate to be occupied by the borrower's business. These loans are collateralized by the subject property and the repayment of these loans is largely dependent on the performance of the company occupying the property.
•Commercial real estate - non owner-occupied: Loans are extended to commercial customers for the purpose of acquiring commercial property where occupancy by the borrower is not their primary intent. These loans are viewed primarily as cash flow loans, collateralized by the subject property, and the repayment of these loans is largely dependent on rental income from the successful operation of the property.
•Residential real estate: Loans are extended to consumer customers and collateralized primarily by 1-4 family residential properties and include fixed and variable rate mortgages, home equity mortgages, and home equity lines of
credit. Loans are primarily written based on conventional loan agency guidelines, including loans that exceed agency value limitations. Sources of repayment may be from the occupant of the residential property or from cash flows on rental income from the successful operation of the property.
•Commercial and financial: Loans are extended to commercial customers. The purpose of the loans can be working capital, physical asset expansion, asset acquisition or other business purposes. Loans may be collateralized by assets owned by the borrower or the borrower's business. Commercial loans are based primarily on the historical and projected cash flow of the borrower's business and secondarily on the capacity of credit enhancements, guarantees and underlying collateral provided by the borrower.
•Consumer: Loans are extended to consumer customers. The segment includes both installment loans and lines of credit which may be collateralized or non-collateralized.
•Paycheck Protection Program ("PPP"): Loans originated under a temporary program established by the CARES Act, and extended by the Economic Aid Act. Under the terms of the program, balances may be forgiven if the borrower uses the funds in a manner consistent with the program guidelines, and repayment is guaranteed by the U.S. government.
The following tables present net loan balances by segment as of:
| | | September 30, 2020 | | June 30, 2021 |
(In thousands) | (In thousands) | Portfolio Loans | | Acquired Non-PCD Loans | | PCD Loans | | Total | (In thousands) | Portfolio Loans | | Acquired Non-PCD Loans | | PCD Loans | | Total |
Construction and land development | Construction and land development | $ | 246,312 | | | $ | 30,720 | | | $ | 3,578 | | | $ | 280,610 | | Construction and land development | $ | 223,412 | | | $ | 10,408 | | | $ | 527 | | | $ | 234,347 | |
Commercial real estate - owner-occupied | Commercial real estate - owner-occupied | 817,547 | | | 267,223 | | | 40,690 | | | 1,125,460 | | Commercial real estate - owner-occupied | 889,221 | | | 203,847 | | | 34,572 | | | 1,127,640 | |
Commercial real estate - non owner-occupied | Commercial real estate - non owner-occupied | 1,014,993 | | | 348,085 | | | 31,386 | | | 1,394,464 | | Commercial real estate - non owner-occupied | 1,112,290 | | | 274,772 | | | 25,377 | | | 1,412,439 | |
Residential real estate | Residential real estate | 1,182,558 | | | 201,221 | | | 9,617 | | | 1,393,396 | | Residential real estate | 1,087,313 | | | 131,131 | | | 8,092 | | | 1,226,536 | |
Commercial and financial | Commercial and financial | 711,358 | | | 105,327 | | | 16,398 | | | 833,083 | | Commercial and financial | 811,580 | | | 75,245 | | | 13,381 | | | 900,206 | |
Consumer | Consumer | 184,608 | | | 7,306 | | | 302 | | | 192,216 | | Consumer | 166,806 | | | 4,949 | | | 14 | | | 171,769 | |
Paycheck Protection Program | Paycheck Protection Program | 584,577 | | | 54,223 | | | 0 | | | 638,800 | | Paycheck Protection Program | 350,531 | | | 13,581 | | | 0 | | | 364,112 | |
Totals | Totals | $ | 4,741,953 | | | $ | 1,014,105 | | | $ | 101,971 | | | $ | 5,858,029 | | Totals | $ | 4,641,153 | | | $ | 713,933 | | | $ | 81,963 | | | $ | 5,437,049 | |
| | | December 31, 2019 | | December 31, 2020 |
(In thousands) | (In thousands) | Portfolio Loans | | PULs | | PCI Loans | | Total | (In thousands) | Portfolio Loans | | Acquired Non-PCD Loans | | PCD Loans | | Total |
Construction and land development | Construction and land development | $ | 281,335 | | | $ | 43,618 | | | $ | 160 | | | $ | 325,113 | | Construction and land development | $ | 216,420 | | | $ | 26,250 | | | $ | 2,438 | | | $ | 245,108 | |
Commercial real estate1 | 1,834,811 | | | 533,943 | | | 10,217 | | | 2,378,971 | | |
Commercial real estate - owner occupied | | Commercial real estate - owner occupied | 854,769 | | | 247,090 | | | 39,451 | | | 1,141,310 | |
Commercial real estate - non-owner occupied | | Commercial real estate - non-owner occupied | 1,043,459 | | | 323,273 | | | 29,122 | | | 1,395,854 | |
Residential real estate | Residential real estate | 1,304,305 | | | 201,848 | | | 1,710 | | | 1,507,863 | | Residential real estate | 1,155,914 | | | 176,105 | | | 10,609 | | | 1,342,628 | |
Commercial and financial | Commercial and financial | 697,301 | | | 80,372 | | | 579 | | | 778,252 | | Commercial and financial | 743,846 | | | 94,627 | | | 16,280 | | | 854,753 | |
Consumer | Consumer | 200,166 | | | 8,039 | | | 0 | | | 208,205 | | Consumer | 181,797 | | | 6,660 | | | 278 | | | 188,735 | |
Paycheck Protection Program | | Paycheck Protection Program | 515,532 | | | 51,429 | | | 0 | | | 566,961 | |
Totals | Totals | $ | 4,317,918 | | | $ | 867,820 | | | $ | 12,666 | | | $ | 5,198,404 | | Totals | $ | 4,711,737 | | | $ | 925,434 | | | $ | 98,178 | | | $ | 5,735,349 | |
1Commercial real estate includes owner-occupied balances of $1.0 billion for December 31, 2019. | |
The amortized cost basis of loans at SeptemberJune 30, 20202021 included net deferred costs of $21.8$25.2 million on non-PPP portfolio loans and net deferred fees of $13.1$10.6 million on PPP loans. At December 31, 2019,2020, the amortized cost basis included net deferred costs of $19.9 million. In the first quarter$22.6 million on non-PPP portfolio loans and net deferred fees of 2020, the Company completed the acquisition of First Bank of the Palm Beaches, adding PCD loans of $43.0$9.5 million and Non-PCD loans of $103.8 million. In the third quarter of 2020, the Company completed the acquisition of Fourth Street Banking Company and its wholly-owned subsidiary, Freedom Bank, adding PCD loans of $49.4 million and Non-PCD loans of $254.1 million. See additional discussion in Note L - Business Combinations.on PPP loans. At SeptemberJune 30, 2020,2021, the remaining fair value adjustments on acquired loans was $34.6were $24.4 million, or 3.0%, of the outstanding acquired loan balances. At December 31, 2019, the remaining fair value adjustments for acquired loans was $34.9balances, compared to $30.2 million, or 3.8%2.9%, of the acquired loan balances.balances at December 31, 2020. These amounts are accreted into interest income over the remaining lives of the related loans on a level yield basis.
Accrued interest receivable is included within Other Assets and was $31.3$15.7 million and $14.9$25.8 million at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively. The balance at September 30, 2020 includes $15.4 million associated with loans on short-term payment deferral, against which the Company has established a valuation allowance of $0.4 million.
The following tables present the status of net loan balances as of SeptemberJune 30, 20202021 and December 31, 2019.2020. Loans on short-term payment deferral at the reporting date are reflectedreported as current.
| | | September 30, 2020 | | June 30, 2021 |
(In thousands) | (In thousands) | Current | | Accruing 30-59 Days Past Due | | Accruing 60-89 Days Past Due | | Accruing Greater Than 90 Days | | Nonaccrual | | Total | (In thousands) | Current | | Accruing 30-59 Days Past Due | | Accruing 60-89 Days Past Due | | Accruing Greater Than 90 Days | | Nonaccrual | | Total |
Portfolio Loans | Portfolio Loans | | | | | | | | | | | | Portfolio Loans | | | | | | | | | | | |
Construction and land development | Construction and land development | $ | 246,255 | | | $ | 0 | | | $ | 37 | | | $ | 0 | | | $ | 20 | | | $ | 246,312 | | Construction and land development | $ | 223,348 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 64 | | | $ | 223,412 | |
Commercial real estate - owner-occupied | Commercial real estate - owner-occupied | 813,825 | | | 850 | | | 450 | | | 0 | | | 2,422 | | | 817,547 | | Commercial real estate - owner-occupied | 887,266 | | | 0 | | | 0 | | | 0 | | | 1,955 | | | 889,221 | |
Commercial real estate - non owner-occupied | Commercial real estate - non owner-occupied | 1,012,815 | | | 0 | | | 0 | | | 0 | | | 2,178 | | | 1,014,993 | | Commercial real estate - non owner-occupied | 1,110,608 | | | 261 | | | 0 | | | 0 | | | 1,421 | | | 1,112,290 | |
Residential real estate | Residential real estate | 1,169,466 | | | 2,388 | | | 250 | | | 0 | | | 10,454 | | | 1,182,558 | | Residential real estate | 1,076,165 | | | 199 | | | 50 | | | 0 | | | 10,899 | | | 1,087,313 | |
Commercial and financial | Commercial and financial | 704,308 | | | 995 | | | 148 | | | 10 | | | 5,897 | | | 711,358 | | Commercial and financial | 804,139 | | | 2,890 | | | 0 | | | 0 | | | 4,551 | | | 811,580 | |
Consumer | Consumer | 183,944 | | | 294 | | | 9 | | | 0 | | | 361 | | | 184,608 | | Consumer | 166,426 | | | 211 | | | 35 | | | 0 | | | 134 | | | 166,806 | |
Paycheck Protection Program | Paycheck Protection Program | 584,577 | | | 0 | | | 0 | | | 0 | | | 0 | | | 584,577 | | Paycheck Protection Program | 350,531 | | | 0 | | | 0 | | | 0 | | | 0 | | | 350,531 | |
Total Portfolio Loans | Total Portfolio Loans | 4,715,190 | | | 4,527 | | | 894 | | | 10 | | | 21,332 | | | 4,741,953 | | Total Portfolio Loans | $ | 4,618,483 | | | $ | 3,561 | | | $ | 85 | | | $ | 0 | | | $ | 19,024 | | | $ | 4,641,153 | |
| Acquired Non-PCD Loans | Acquired Non-PCD Loans | | Acquired Non-PCD Loans | |
Construction and land development | Construction and land development | 30,146 | | | 0 | | | 0 | | | 0 | | | 574 | | | 30,720 | | Construction and land development | $ | 10,408 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 10,408 | |
Commercial real estate - owner-occupied | Commercial real estate - owner-occupied | 266,656 | | | 0 | | | 0 | | | 0 | | | 567 | | | 267,223 | | Commercial real estate - owner-occupied | 202,269 | | | 958 | | | 0 | | | 0 | | | 620 | | | 203,847 | |
Commercial real estate - non owner-occupied | Commercial real estate - non owner-occupied | 346,769 | | | 278 | | | 0 | | | 0 | | | 1,038 | | | 348,085 | | Commercial real estate - non owner-occupied | 272,945 | | | 0 | | | 0 | | | 0 | | | 1,827 | | | 274,772 | |
Residential real estate | Residential real estate | 193,421 | | | 1,156 | | | 1,057 | | | 0 | | | 5,587 | | | 201,221 | | Residential real estate | 128,579 | | | 0 | | | 71 | | | 0 | | | 2,481 | | | 131,131 | |
Commercial and financial | Commercial and financial | 104,263 | | | 0 | | | 221 | | | 0 | | | 843 | | | 105,327 | | Commercial and financial | 71,814 | | | 423 | | | 1,998 | | | 339 | | | 671 | | | 75,245 | |
Consumer | Consumer | 7,306 | | | 0 | | | 0 | | | 0 | | | 0 | | | 7,306 | | Consumer | 4,949 | | | 0 | | | 0 | | | 0 | | | 0 | | | 4,949 | |
Paycheck Protection Program | Paycheck Protection Program | 54,223 | | | 0 | | | 0 | | | 0 | | | 0 | | | 54,223 | | Paycheck Protection Program | 13,581 | | | 0 | | | 0 | | | 0 | | | 0 | | | 13,581 | |
Total Acquired Non-PCD Loans | Total Acquired Non-PCD Loans | 1,002,784 | | | 1,434 | | | 1,278 | | | 0 | | | 8,609 | | | 1,014,105 | | Total Acquired Non-PCD Loans | $ | 704,545 | | | $ | 1,381 | | | $ | 2,069 | | | $ | 339 | | | $ | 5,599 | | | $ | 713,933 | |
| PCD Loans | PCD Loans | | PCD Loans | |
Construction and land development | Construction and land development | 3,568 | | | 0 | | | 0 | | | 0 | | | 10 | | | 3,578 | | Construction and land development | $ | 520 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 7 | | | $ | 527 | |
Commercial real estate - owner-occupied | Commercial real estate - owner-occupied | 39,064 | | | 0 | | | 1,113 | | | 0 | | | 513 | | | 40,690 | | Commercial real estate - owner-occupied | 30,673 | | | 1,084 | | | 0 | | | 0 | | | 2,815 | | | 34,572 | |
Commercial real estate - non owner-occupied | Commercial real estate - non owner-occupied | 26,380 | | | 0 | | | 0 | | | 0 | | | 5,006 | | | 31,386 | | Commercial real estate - non owner-occupied | 21,508 | | | 0 | | | 0 | | | 0 | | | 3,869 | | | 25,377 | |
Residential real estate | Residential real estate | 8,495 | | | 0 | | | 0 | | | 0 | | | 1,122 | | | 9,617 | | Residential real estate | 6,555 | | | 71 | | | 431 | | | 0 | | | 1,035 | | | 8,092 | |
Commercial and financial | Commercial and financial | 15,774 | | | 327 | | | 0 | | | 0 | | | 297 | | | 16,398 | | Commercial and financial | 12,642 | | | 168 | | | 0 | | | 0 | | | 571 | | | 13,381 | |
Consumer | Consumer | 261 | | | 33 | | | 0 | | | 0 | | | 8 | | | 302 | | Consumer | 14 | | | 0 | | | 0 | | | 0 | | | 0 | | | 14 | |
Total PCD Loans | Total PCD Loans | 93,542 | | | 360 | | | 1,113 | | | — | | | 6,956 | | | 101,971 | | Total PCD Loans | $ | 71,912 | | | $ | 1,323 | | | $ | 431 | | | $ | 0 | | | $ | 8,297 | | | $ | 81,963 | |
| Total Loans | Total Loans | $ | 5,811,516 | | | $ | 6,321 | | | $ | 3,285 | | | $ | 10 | | | $ | 36,897 | | | $ | 5,858,029 | | Total Loans | $ | 5,394,940 | | | $ | 6,265 | | | $ | 2,585 | | | $ | 339 | | | $ | 32,920 | | | $ | 5,437,049 | |
| | | December 31, 2019 | | December 31, 2020 |
(In thousands) | (In thousands) | Current | | Accruing 30-59 Days Past Due | | Accruing 60-89 Days Past Due | | Accruing Greater Than 90 Days | | Nonaccrual | | Total | (In thousands) | Current | | Accruing 30-59 Days Past Due | | Accruing 60-89 Days Past Due | | Accruing Greater Than 90 Days | | Nonaccrual | | Total |
Portfolio Loans | Portfolio Loans | | | | | | | | | | | | Portfolio Loans | | | | | | | | | | | |
Construction and land development | Construction and land development | $ | 276,984 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 4,351 | | | $ | 281,335 | | Construction and land development | $ | 216,262 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 158 | | | $ | 216,420 | |
Commercial real estate | 1,828,629 | | | 1,606 | | | 220 | | | 0 | | | 4,356 | | | 1,834,811 | | |
Commercial real estate - owner occupied | | Commercial real estate - owner occupied | 851,222 | | | 1,076 | | | 0 | | | 0 | | | 2,471 | | | 854,769 | |
Commercial real estate - non-owner occupied | | Commercial real estate - non-owner occupied | 1,041,306 | | | 0 | | | 0 | | | 0 | | | 2,153 | | | 1,043,459 | |
Residential real estate | Residential real estate | 1,294,778 | | | 1,564 | | | 18 | | | 0 | | | 7,945 | | | 1,304,305 | | Residential real estate | 1,142,893 | | | 3,002 | | | 1,427 | | | 61 | | | 8,531 | | | 1,155,914 | |
Commercial and financial | Commercial and financial | 690,412 | | | 2,553 | | | 0 | | | 108 | | | 4,228 | | | 697,301 | | Commercial and financial | 737,362 | | | 135 | | | 1,967 | | | 0 | | | 4,382 | | | 743,846 | |
Consumer | Consumer | 199,424 | | | 317 | | | 315 | | | 0 | | | 110 | | | 200,166 | | Consumer | 180,879 | | | 203 | | | 138 | | | 2 | | | 575 | | | 181,797 | |
Paycheck Protection Program | | Paycheck Protection Program | 515,532 | | | 0 | | | 0 | | | 0 | | | 0 | | | 515,532 | |
Total Portfolio Loans | Total Portfolio Loans | 4,290,227 | | | 6,040 | | | 553 | | | 108 | | | 20,990 | | | 4,317,918 | | Total Portfolio Loans | $ | 4,685,456 | | | $ | 4,416 | | | $ | 3,532 | | | $ | 63 | | | $ | 18,270 | | | $ | 4,711,737 | |
| Purchased Unimpaired Loans | | |
Acquired Non-PCD Loans | | Acquired Non-PCD Loans | |
Construction and land development | Construction and land development | 43,044 | | | 0 | | | 0 | | | 0 | | | 574 | | | 43,618 | | Construction and land development | $ | 26,250 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 26,250 | |
Commercial real estate | 531,325 | | | 942 | | | 431 | | | 0 | | | 1,245 | | | 533,943 | | |
Commercial real estate - owner occupied | | Commercial real estate - owner occupied | 244,486 | | | 0 | | | 0 | | | 0 | | | 2,604 | | | 247,090 | |
Commercial real estate - non-owner occupied | | Commercial real estate - non-owner occupied | 322,264 | | | 0 | | | 0 | | | 0 | | | 1,009 | | | 323,273 | |
Residential real estate | Residential real estate | 201,159 | | | 277 | | | 0 | | | 0 | | | 412 | | | 201,848 | | Residential real estate | 171,507 | | | 1,605 | | | 104 | | | 0 | | | 2,889 | | | 176,105 | |
Commercial and financial | Commercial and financial | 78,705 | | | 0 | | | 0 | | | 0 | | | 1,667 | | | 80,372 | | Commercial and financial | 93,223 | | | 216 | | | 0 | | | 0 | | | 1,188 | | | 94,627 | |
Consumer | Consumer | 8,039 | | | 0 | | | 0 | | | 0 | | | 0 | | | 8,039 | | Consumer | 6,640 | | | 20 | | | 0 | | | 0 | | | 0 | | | 6,660 | |
Total PULs | 862,272 | | | 1,219 | | | 431 | | | 0 | | | 3,898 | | | 867,820 | | |
Paycheck Protection Program | | Paycheck Protection Program | 51,429 | | | 0 | | | 0 | | | 0 | | | 0 | | | 51,429 | |
Total Acquired Non-PCD Loans | | Total Acquired Non-PCD Loans | $ | 915,799 | | | $ | 1,841 | | | $ | 104 | | | $ | 0 | | | $ | 7,690 | | | $ | 925,434 | |
| Purchased Credit Impaired Loans | | |
PCD Loans | | PCD Loans | |
Construction and land development | Construction and land development | 148 | | | 0 | | | 0 | | | 0 | | | 12 | | | 160 | | Construction and land development | $ | 2,429 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 9 | | | $ | 2,438 | |
Commercial real estate | 9,298 | | | 0 | | | 0 | | | 0 | | | 919 | | | 10,217 | | |
Commercial real estate - owner occupied | | Commercial real estate - owner occupied | 36,345 | | | 0 | | | 0 | | | 0 | | | 3,106 | | | 39,451 | |
Commercial real estate - non-owner occupied | | Commercial real estate - non-owner occupied | 24,200 | | | 0 | | | 0 | | | 0 | | | 4,922 | | | 29,122 | |
Residential real estate | Residential real estate | 587 | | | 0 | | | 0 | | | 0 | | | 1,123 | | | 1,710 | | Residential real estate | 9,537 | | | 0 | | | 0 | | | 0 | | | 1,072 | | | 10,609 | |
Commercial and financial | Commercial and financial | 566 | | | 0 | | | 0 | | | 0 | | | 13 | | | 579 | | Commercial and financial | 15,121 | | | 125 | | | 0 | | | 0 | | | 1,034 | | | 16,280 | |
Consumer | Consumer | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Consumer | 271 | | | 0 | | | 0 | | | 0 | | | 7 | | | 278 | |
Total PCI Loans | 10,599 | | | 0 | | | 0 | | | 0 | | | 2,067 | | | 12,666 | | |
Total PCD Loans | | Total PCD Loans | $ | 87,903 | | | $ | 125 | | | $ | 0 | | | $ | 0 | | | $ | 10,150 | | | $ | 98,178 | |
| Total Loans | Total Loans | $ | 5,163,098 | | | $ | 7,259 | | | $ | 984 | | | $ | 108 | | | $ | 26,955 | | | $ | 5,198,404 | | Total Loans | $ | 5,689,158 | | | $ | 6,382 | | | $ | 3,636 | | | $ | 63 | | | $ | 36,110 | | | $ | 5,735,349 | |
|
All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest subsequently received on such loans is accounted for onunder the cost-recovery method. Under the cost-recovery method, whereby interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, and future payments are reasonably assured. The Company recognized $0.1 million in interest income on nonaccrual loans during each of the three months ended September 30, 2020 and 2019, respectively. The Company recognized $0.5$0.4 million and $1.2$0.3 million in interest income on nonaccrual loans during the ninethree months ended SeptemberJune 30, 2021 and 2020, respectively. The Company recognized $0.6 million and 2019,$0.4 million in interest income on nonaccrual loans during the six months ended June 30, 2021 and 2020, respectively.
The following tables present net balances of loans on nonaccrual status and the related allowance for credit losses, if any, as of:
| | | September 30, 2020 | | June 30, 2021 |
(In thousands) | (In thousands) | Nonaccrual Loans With No Related Allowance | | Nonaccrual Loans With an Allowance | | Total Nonaccrual Loans | | Allowance for Credit Losses | (In thousands) | Nonaccrual Loans With No Related Allowance | | Nonaccrual Loans With an Allowance | | Total Nonaccrual Loans | | Allowance for Credit Losses |
Construction and land development | Construction and land development | $ | 585 | | | $ | 19 | | | $ | 604 | | | $ | 9 | | Construction and land development | $ | 71 | | | $ | 0 | | | $ | 71 | | | $ | 0 | |
Commercial real estate - owner-occupied | Commercial real estate - owner-occupied | 2,669 | | | 833 | | | 3,502 | | | 672 | | Commercial real estate - owner-occupied | 4,340 | | | 1,050 | | | 5,390 | | | 467 | |
Commercial real estate - non owner-occupied | Commercial real estate - non owner-occupied | 4,821 | | | 3,401 | | | 8,222 | | | 1,829 | | Commercial real estate - non owner-occupied | 3,248 | | | 3,869 | | | 7,117 | | | 1,708 | |
Residential real estate | Residential real estate | 14,963 | | | 2,200 | | | 17,163 | | | 1,456 | | Residential real estate | 13,710 | | | 705 | | | 14,415 | | | 349 | |
Commercial and financial | Commercial and financial | 2,989 | | | 4,048 | | | 7,037 | | | 2,816 | | Commercial and financial | 3,733 | | | 2,060 | | | 5,793 | | | 1,266 | |
Consumer | Consumer | 29 | | | 340 | | | 369 | | | 55 | | Consumer | 37 | | | 97 | | | 134 | | | 97 | |
| Totals | Totals | $ | 26,056 | | | $ | 10,841 | | | $ | 36,897 | | | $ | 6,837 | | Totals | $ | 25,139 | | | $ | 7,781 | | | $ | 32,920 | | | $ | 3,887 | |
Table of Contents | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
(In thousands) | Nonaccrual Loans With No Related Allowance | | Nonaccrual Loans With an Allowance | | Total Nonaccrual Loans | | Allowance for Credit Losses |
Construction and land development | $ | 148 | | | $ | 19 | | | $ | 167 | | | $ | 8 | |
Commercial real estate - owner-occupied | 7,893 | | | 288 | | | 8,181 | | | 287 | |
Commercial real estate - non owner-occupied | 5,666 | | | 2,418 | | | 8,084 | | | 1,640 | |
Residential real estate | 9,520 | | | 2,972 | | | 12,492 | | | 1,587 | |
Commercial and financial | 3,175 | | | 3,429 | | | 6,604 | | | 2,235 | |
Consumer | 222 | | | 360 | | | 582 | | | 75 | |
Totals | $ | 26,624 | | | $ | 9,486 | | | $ | 36,110 | | | $ | 5,832 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
(In thousands) | Nonaccrual Loans With No Related Allowance | | Nonaccrual Loans With an Allowance | | Total Nonaccrual Loans | | Allowance for Credit Losses |
Construction and land development | $ | 4,913 | | | $ | 23 | | | $ | 4,936 | | | $ | 12 | |
Commercial real estate | 6,200 | | | 320 | | | 6,520 | | | 149 | |
Residential real estate | 8,700 | | | 780 | | | 9,480 | | | 564 | |
Commercial and financial | 3,449 | | | 2,460 | | | 5,909 | | | 1,622 | |
Consumer | 39 | | | 71 | | | 110 | | | 37 | |
Totals | $ | 23,301 | | | $ | 3,654 | | | $ | 26,955 | | | $ | 2,384 | |
Collateral DependentCollateral-Dependent Loans
Loans are considered collateral dependentcollateral-dependent when the repayment, based on the Company's assessment as of the reporting date, is expected to be provided substantially through the operation or sale of the underlying collateral and there are no other available and reliable sources of repayment. The following table presents collateral dependentcollateral-dependent loans as of:
| | | | | | | | | | | |
(In thousands) | September 30, 2020 | December 31, 2019 |
Construction and land development | $ | 630 | | | $ | 4,926 | |
Commercial real estate - owner-occupied | 7,379 | | | 2,571 | |
Commercial real estate - non owner-occupied | 7,626 | | | 3,152 | |
Residential real estate | 22,352 | | | 11,550 | |
Commercial and financial | 11,563 | | | 4,338 | |
Consumer | 416 | | | 141 | |
Totals | $ | 49,966 | | | $ | 26,678 | |
| | | | | | | | | | | |
(In thousands) | June 30, 2021 | December 31, 2020 |
Construction and land development | $ | 71 | | | $ | 189 | |
Commercial real estate - owner-occupied | 6,662 | | | 11,992 | |
Commercial real estate - non owner-occupied | 6,480 | | | 7,285 | |
Residential real estate | 13,907 | | | 16,652 | |
Commercial and financial | 8,565 | | | 11,198 | |
Consumer | 89 | | | 586 | |
Totals | $ | 35,774 | | | $ | 47,902 | |
Loans by Risk Rating
The Company 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 problem loans 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.
•Substandard Impaired: Loans typically placed on nonaccrual and considered to be collateral dependentcollateral-dependent or accruing TDRs.
•Doubtful: Loans that have all the weaknesses inherent in those classified Substandard with the added characteristic that the weakness present makes 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.
The following tables present the risk rating of loans by year of origination as of:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
(In thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving | Total |
Construction and Land Development | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | $ | 37,114 | | $ | 55,457 | | $ | 41,969 | | $ | 26,223 | | $ | 6,326 | | $ | 23,567 | | $ | 40,656 | | $ | 231,312 | |
Special Mention | 0 | | 0 | | 372 | | 2,517 | | 0 | | 0 | | 0 | | 2,889 | |
Substandard | 0 | | 0 | | 0 | | 0 | | 0 | | 17 | | 0 | | 17 | |
Substandard Impaired | 0 | | 0 | | 0 | | 0 | | 37 | | 92 | | 0 | | 129 | |
Doubtful | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
Total | $ | 37,114 | | $ | 55,457 | | $ | 42,341 | | $ | 28,740 | | $ | 6,363 | | $ | 23,676 | | $ | 40,656 | | $ | 234,347 | |
Commercial real estate - owner-occupied | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | $ | 87,486 | | $ | 145,245 | | $ | 184,017 | | $ | 141,827 | | $ | 130,013 | | $ | 393,389 | | $ | 12,018 | | $ | 1,093,995 | |
Special Mention | 0 | | 11,267 | | 841 | | 1,286 | | 0 | | 5,287 | | 0 | | 18,681 | |
Substandard | 0 | | 0 | | 0 | | 0 | | 3,805 | | 4,356 | | 0 | | 8,161 | |
Substandard Impaired | 0 | | 0 | | 2,883 | | 685 | | 1,445 | | 1,790 | | 0 | | 6,803 | |
Doubtful | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
Total | $ | 87,486 | | $ | 156,512 | | $ | 187,741 | | $ | 143,798 | | $ | 135,263 | | $ | 404,822 | | $ | 12,018 | | $ | 1,127,640 | |
Commercial real estate - non owner-occupied | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | $ | 121,245 | | $ | 159,336 | | $ | 292,367 | | $ | 183,456 | | $ | 100,887 | | $ | 484,963 | | $ | 8,018 | | $ | 1,350,272 | |
Special Mention | 0 | | 0 | | 953 | | 9,399 | | 16,522 | | 9,931 | | — | | 36,805 | |
Substandard | 0 | | 0 | | 0 | | 9,718 | | 0 | | 8,528 | | 0 | | 18,246 | |
Substandard Impaired | 0 | | 0 | | 2,378 | | 0 | | 0 | | 4,738 | | 0 | | 7,116 | |
Doubtful | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
Total | $ | 121,245 | | $ | 159,336 | | $ | 295,698 | | $ | 202,573 | | $ | 117,409 | | $ | 508,160 | | $ | 8,018 | | $ | 1,412,439 | |
Residential real estate | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | $ | 129,061 | | $ | 107,121 | | $ | 105,930 | | $ | 149,520 | | $ | 153,851 | | $ | 241,216 | | $ | 320,702 | | $ | 1,207,401 | |
Special Mention | 0 | | 0 | | 0 | | 30 | | 0 | | 218 | | 221 | | 469 | |
Substandard | 0 | | 0 | | 0 | | 0 | | 0 | | 214 | | 486 | | 700 | |
Substandard Impaired | 0 | | 496 | | 741 | | 77 | | 4,462 | | 9,879 | | 2,311 | | 17,966 | |
Doubtful | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
Total | $ | 129,061 | | $ | 107,617 | | $ | 106,671 | | $ | 149,627 | | $ | 158,313 | | $ | 251,527 | | $ | 323,720 | | $ | 1,226,536 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
(In thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving | Total |
Commercial and financial | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | $ | 148,832 | | $ | 201,500 | | $ | 120,225 | | $ | 87,159 | | $ | 48,385 | | $ | 70,755 | | $ | 194,503 | | $ | 871,359 | |
Special Mention | 0 | | 5,795 | | 864 | | 891 | | 270 | | 33 | | 1,130 | | 8,983 | |
Substandard | 0 | | 411 | | 0 | | 2,480 | | 1,369 | | 3,512 | | 26 | | 7,798 | |
Substandard Impaired | 0 | | 0 | | 5,478 | | 3,258 | | 1,427 | | 1,811 | | 92 | | 12,066 | |
Doubtful | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
Total | $ | 148,832 | | $ | 207,706 | | $ | 126,567 | | $ | 93,788 | | $ | 51,451 | | $ | 76,111 | | $ | 195,751 | | $ | 900,206 | |
Consumer | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | $ | 23,549 | | $ | 38,229 | | $ | 33,441 | | $ | 22,421 | | $ | 13,837 | | $ | 23,735 | | $ | 13,959 | | $ | 169,171 | |
Special Mention | 0 | | 58 | | 46 | | 15 | | 62 | | 30 | | 1,330 | | 1,541 | |
Substandard | 0 | | 0 | | 0 | | 35 | | 14 | | 0 | | 655 | | 704 | |
Substandard Impaired | 0 | | 0 | | 64 | | 26 | | 80 | | 183 | | 0 | | 353 | |
Doubtful | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
Total | $ | 23,549 | | $ | 38,287 | | $ | 33,551 | | $ | 22,497 | | $ | 13,993 | | $ | 23,948 | | $ | 15,944 | | $ | 171,769 | |
Paycheck Protection Program | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | $ | 246,107 | | $ | 118,005 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 364,112 | |
| | | | | | | | |
| | | | | | | | |
Total | $ | 246,107 | | $ | 118,005 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 364,112 | |
Consolidated | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | $ | 793,394 | | $ | 824,893 | | $ | 777,949 | | $ | 610,606 | | $ | 453,299 | | $ | 1,237,625 | | $ | 589,856 | | $ | 5,287,622 | |
Special Mention | 0 | | 17,120 | | 3,076 | | 14,138 | | 16,854 | | 15,499 | | 2,681 | | 69,368 | |
Substandard | 0 | | 411 | | 0 | | 12,233 | | 5,188 | | 16,627 | | 1,167 | | 35,626 | |
Substandard Impaired | 0 | | 496 | | 11,544 | | 4,046 | | 7,451 | | 18,493 | | 2,403 | | 44,433 | |
Doubtful | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
Total | $ | 793,394 | | $ | 842,920 | | $ | 792,569 | | $ | 641,023 | | $ | 482,792 | | $ | 1,288,244 | | $ | 596,107 | | $ | 5,437,049 | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
(In thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving | Total |
Construction and Land Development | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | $ | 62,107 | | $ | 52,384 | | $ | 46,067 | | $ | 15,873 | | $ | 7,335 | | $ | 17,873 | | $ | 35,324 | | $ | 236,963 | |
Special Mention | 206 | | 245 | | 5,918 | | 0 | | 0 | | 1,449 | | 0 | | 7,818 | |
Substandard | 0 | | 0 | | 0 | | 0 | | 0 | | 51 | | 0 | | 51 | |
Substandard Impaired | 0 | | 0 | | 0 | | 37 | | 0 | | 239 | | 0 | | 276 | |
Doubtful | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
Total | $ | 62,313 | | $ | 52,629 | | $ | 51,985 | | $ | 15,910 | | $ | 7,335 | | $ | 19,612 | | $ | 35,324 | | $ | 245,108 | |
Commercial real estate - owner-occupied | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | $ | 155,953 | | $ | 198,559 | | $ | 156,276 | | $ | 138,341 | | $ | 148,389 | | $ | 287,772 | | $ | 14,255 | | $ | 1,099,545 | |
Special Mention | 5,773 | | 1,858 | | 3,305 | | 0 | | 4,471 | | 4,050 | | 2 | | 19,459 | |
Substandard | 0 | | 0 | | 0 | | 4,709 | | 1,955 | | 5,508 | | 0 | | 12,172 | |
Substandard Impaired | 0 | | 3,151 | | 747 | | 1,362 | | 0 | | 4,874 | | 0 | | 10,134 | |
Doubtful | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
Total | $ | 161,726 | | $ | 203,568 | | $ | 160,328 | | $ | 144,412 | | $ | 154,815 | | $ | 302,204 | | $ | 14,257 | | $ | 1,141,310 | |
The following tables present the risk rating of loans by year of origination: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
(In thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving | Total |
Commercial real estate - non owner-occupied | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | $ | 159,299 | | $ | 313,287 | | $ | 201,112 | | $ | 123,357 | | $ | 175,623 | | $ | 356,943 | | $ | 8,596 | | $ | 1,338,217 | |
Special Mention | 0 | | 431 | | 9,487 | | 7,580 | | 10,240 | | 114 | | 0 | | 27,852 | |
Substandard | 0 | | 0 | | 9,709 | | 0 | | 8,311 | | 3,682 | | 0 | | 21,702 | |
Substandard Impaired | 0 | | 2,418 | | 0 | | 0 | | 125 | | 5,540 | | 0 | | 8,083 | |
Doubtful | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
Total | $ | 159,299 | | $ | 316,136 | | $ | 220,308 | | $ | 130,937 | | $ | 194,299 | | $ | 366,279 | | $ | 8,596 | | $ | 1,395,854 | |
Residential real estate | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | $ | 96,819 | | $ | 144,329 | | $ | 204,077 | | $ | 205,046 | | $ | 160,612 | | $ | 159,742 | | $ | 350,502 | | $ | 1,321,127 | |
Special Mention | 0 | | 0 | | 33 | | 720 | | 0 | | 966 | | 479 | | 2,198 | |
Substandard | 350 | | 0 | | 0 | | 896 | | 0 | | 1,452 | | 100 | | 2,798 | |
Substandard Impaired | 109 | | 726 | | 1,520 | | 1,762 | | 715 | | 9,671 | | 2,002 | | 16,505 | |
Doubtful | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
Total | $ | 97,278 | | $ | 145,055 | | $ | 205,630 | | $ | 208,424 | | $ | 161,327 | | $ | 171,831 | | $ | 353,083 | | $ | 1,342,628 | |
Commercial and financial | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | $ | 214,774 | | $ | 146,511 | | $ | 103,769 | | $ | 60,782 | | $ | 39,692 | | $ | 53,758 | | $ | 204,304 | | $ | 823,590 | |
Special Mention | 71 | | 946 | | 965 | | 5,612 | | 67 | | 635 | | 209 | | 8,505 | |
Substandard | 154 | | 41 | | 3,016 | | 1,609 | | 553 | | 3,239 | | 764 | | 9,376 | |
Substandard Impaired | 317 | | 4,595 | | 3,199 | | 2,292 | | 2,074 | | 704 | | 81 | | 13,262 | |
Doubtful1 | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 20 | | 20 | |
Total | $ | 215,316 | | $ | 152,093 | | $ | 110,949 | | $ | 70,295 | | $ | 42,386 | | $ | 58,336 | | $ | 205,378 | | $ | 854,753 | |
Consumer | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | $ | 46,476 | | $ | 43,143 | | $ | 30,433 | | $ | 18,937 | | $ | 21,880 | | $ | 9,488 | | $ | 15,089 | | $ | 185,446 | |
Special Mention | 58 | | 27 | | 14 | | 41 | | 42 | | 21 | | 1,854 | | 2,057 | |
Substandard | 0 | | 0 | | 0 | | 42 | | 4 | | 151 | | 228 | | 425 | |
Substandard Impaired | 7 | | 50 | | 193 | | 24 | | 329 | | 183 | | 21 | | 807 | |
Doubtful | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
Total | $ | 46,541 | | $ | 43,220 | | $ | 30,640 | | $ | 19,044 | | $ | 22,255 | | $ | 9,843 | | $ | 17,192 | | $ | 188,735 | |
Paycheck Protection Program | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | $ | 566,961 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 566,961 | |
| | | | | | | | |
| | | | | | | | |
Total | $ | 566,961 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 566,961 | |
Consolidated | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | $ | 1,302,389 | | $ | 898,213 | | $ | 741,734 | | $ | 562,336 | | $ | 553,531 | | $ | 885,576 | | $ | 628,070 | | $ | 5,571,849 | |
Special Mention | 6,108 | | 3,507 | | 19,722 | | 13,953 | | 14,820 | | 7,235 | | 2,544 | | 67,889 | |
Substandard | 504 | | 41 | | 12,725 | | 7,256 | | 10,823 | | 14,083 | | 1,092 | | 46,524 | |
Substandard Impaired | 433 | | 10,940 | | 5,659 | | 5,477 | | 3,243 | | 21,211 | | 2,104 | | 49,067 | |
Doubtful1 | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 20 | | 20 | |
Total | $ | 1,309,434 | | $ | 912,701 | | $ | 779,840 | | $ | 589,022 | | $ | 582,417 | | $ | 928,105 | | $ | 633,830 | | $ | 5,735,349 | |
1Loans classified as doubtful are fully reserved at December 31, 2020. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 |
(In thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving | Total |
Construction and Land Development | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | $ | 48,020 | | $ | 78,737 | | $ | 59,752 | | $ | 17,830 | | $ | 9,586 | | $ | 18,206 | | $ | 31,633 | | $ | 263,764 | |
Special Mention | 398 | | 503 | | 1,378 | | 12,311 | | 0 | | 1,478 | | 0 | | 16,068 | |
Substandard | 0 | | 0 | | 0 | | 0 | | 0 | | 55 | | 0 | | 55 | |
Substandard Impaired | 0 | | 0 | | 0 | | 0 | | 574 | | 149 | | 0 | | 723 | |
Doubtful | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
Total | 48,418 | | 79,240 | | 61,130 | | 30,141 | | 10,160 | | 19,888 | | 31,633 | | 280,610 | |
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Commercial real estate - owner-occupied | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | 93,407 | | 202,179 | | 164,622 | | 151,893 | | 156,433 | | 313,205 | | 14,792 | | 1,096,531 | |
Special Mention | 196 | | 1,596 | | 389 | | 1,010 | | 4,471 | | 3,338 | | 0 | | 11,000 | |
Substandard | 0 | | 0 | | 204 | | 4,742 | | 1,970 | | 5,531 | | 0 | | 12,447 | |
Substandard Impaired | 0 | | 337 | | 878 | | 1,056 | | 0 | | 2,890 | | 0 | | 5,161 | |
Doubtful1 | 0 | | 0 | | 0 | | 0 | | 321 | | 0 | | 0 | | 321 | |
Total | 93,603 | | 204,112 | | 166,093 | | 158,701 | | 163,195 | | 324,964 | | 14,792 | | 1,125,460 | |
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Commercial real estate - non owner-occupied | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | 98,658 | | 322,048 | | 200,813 | | 131,590 | | 186,063 | | 372,215 | | 5,317 | | 1,316,704 | |
Special Mention | 0 | | 103 | | 28,710 | | 1,674 | | 14,266 | | 114 | | 0 | | 44,867 | |
Substandard | 0 | | 0 | | 9,694 | | 0 | | 8,319 | | 5,072 | | 1,350 | | 24,435 | |
Substandard Impaired | 0 | | 2,418 | | 0 | | 0 | | 126 | | 5,914 | | 0 | | 8,458 | |
Doubtful | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
Total | 98,658 | | 324,569 | | 239,217 | | 133,264 | | 208,774 | | 383,315 | | 6,667 | | 1,394,464 | |
| | | | | | | | |
| | | | | | | | |
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Residential real estate | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | 53,171 | | 151,107 | | 233,660 | | 235,119 | | 178,988 | | 180,156 | | 334,622 | | 1,366,823 | |
Special Mention | 0 | | 0 | | 98 | | 0 | | 0 | | 562 | | 391 | | 1,051 | |
Substandard | 0 | | 0 | | 0 | | 0 | | 0 | | 1,677 | | 1,443 | | 3,120 | |
Substandard Impaired | 112 | | 681 | | 1,334 | | 4,162 | | 2,528 | | 10,790 | | 2,768 | | 22,375 | |
Doubtful1 | 0 | | 0 | | 0 | | 0 | | 0 | | 27 | | 0 | | 27 | |
Total | 53,283 | | 151,788 | | 235,092 | | 239,281 | | 181,516 | | 193,212 | | 339,224 | | 1,393,396 | |
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Commercial and financial | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | 162,696 | | 158,468 | | 111,812 | | 70,868 | | 44,846 | | 59,387 | | 194,344 | | 802,421 | |
Special Mention | 0 | | 234 | | 14 | | 5,732 | | 81 | | 1,773 | | 304 | | 8,138 | |
Substandard | 153 | | 145 | | 3,306 | | 198 | | 407 | | 2,270 | | 2,261 | | 8,740 | |
Substandard Impaired | 319 | | 4,440 | | 2,742 | | 1,667 | | 2,340 | | 1,079 | | 1,197 | | 13,784 | |
Doubtful | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
Total | 163,168 | | 163,287 | | 117,874 | | 78,465 | | 47,674 | | 64,509 | | 198,106 | | 833,083 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 |
(In thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving | Total |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Consumer | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | 36,295 | | 48,610 | | 34,541 | | 21,993 | | 24,259 | | 10,996 | | 12,381 | | 189,075 | |
Special Mention | 0 | | 70 | | 30 | | 72 | | 65 | | 7 | | 1,856 | | 2,100 | |
Substandard | 0 | | 0 | | 0 | | 27 | | 22 | | 38 | | 339 | | 426 | |
Substandard Impaired | 48 | | 51 | | 10 | | 0 | | 316 | | 190 | | 0 | | 615 | |
Doubtful | 0 | | 0 | | 0 | | — | | 0 | | 0 | | 0 | | 0 | |
Total | 36,343 | | 48,731 | | 34,581 | | 22,092 | | 24,662 | | 11,231 | | 14,576 | | 192,216 | |
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Paycheck Protection Program | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | 638,800 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 638,800 | |
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| | | | | | | | |
Total | 638,800 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 638,800 | |
Consolidated | | | | | | | | |
Risk Ratings: | | | | | | | | |
Pass | 1,131,047 | | 961,149 | | 805,200 | | 629,293 | | 600,175 | | 954,165 | | 593,089 | | 5,674,118 | |
Special Mention | 594 | | 2,506 | | 30,619 | | 20,799 | | 18,883 | | 7,272 | | 2,551 | | 83,224 | |
Substandard | 153 | | 145 | | 13,204 | | 4,967 | | 10,718 | | 14,643 | | 5,393 | | 49,223 | |
Substandard Impaired | 479 | | 7,927 | | 4,964 | | 6,885 | | 5,884 | | 21,012 | | 3,965 | | 51,116 | |
Doubtful1 | 0 | | 0 | | 0 | | 0 | | 321 | | 27 | | 0 | | 348 | |
Total | $ | 1,132,273 | | $ | 971,727 | | $ | 853,987 | | $ | 661,944 | | $ | 635,981 | | $ | 997,119 | | $ | 604,998 | | $ | 5,858,029 | |
1Loans classified as doubtful are fully reserved as of September 30, 2020. | | | | | |
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The following table presents the risk rating of loans as of:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
(In thousands) | Pass | | Special Mention | | Substandard | | Doubtful1 | | Total |
Construction and land development | $ | 317,765 | | | $ | 2,235 | | | $ | 5,113 | | | $ | 0 | | | $ | 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 | | | 0 | | | 1,507,863 | |
Commercial and financial | 755,957 | | | 11,925 | | | 9,496 | | | 874 | | | 778,252 | |
Consumer | 203,966 | | | 3,209 | | | 1,030 | | | 0 | | | 208,205 | |
Totals | $ | 5,091,691 | | | $ | 51,560 | | | $ | 53,958 | | | $ | 1,195 | | | $ | 5,198,404 | |
1Loans classified as doubtful are fully reserved as of December 31, 2019. |
|
Troubled Debt Restructured Loans
The Company’s TDR concessions granted to certain borrowers generally do not include forgiveness of principal 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 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.
Loans Modified in Connection with COVID-19 Pandemic
The CARES Act, which was signed into law on March 27, 2020, and amended by the Consolidated Appropriations Act on December 27, 2020, encourages financial institutions to practice prudent efforts to work with borrowers financially impacted by the COVID-19 pandemic by providing an option to exclude from TDR consideration certain loan modifications that might otherwise be categorized as TDRs under ASC 310-40. This option is available for modifications that are deemed to be COVID-related, where the borrower was not more than 30 days past due on
December 31, 2019, and the modification is executed between March 1, 2020 and the earlier of (i) December 31, 2020January 1, 2022 or (ii) 60 days after the end of the COVID-19 national emergency.
Federal banking regulators issued similar guidance that also allows lenders to conclude that short-term modifications for borrowers affected by the pandemic should not be considered TDRs if the borrower was current at the time of modification. Seacoast began offering short-termhas provided financially impacted borrowers with loan accommodations, primarily consisting of payment deferrals of up to six months to eligible borrowers in March 2020 and, at Septembermonths. At its peak on June 30, 2020, had $702.7 millionloans on deferral represented $1.1 billion, or 21%, of total non-PPP loans. In the second half of 2020, the large majority of these borrowers successfully resumed making contractual payments, and the level of loans onwith accommodations has decreased to $6.8 million, or 0.1%, of total non-PPP loans as of June 30, 2021. Types of outstanding accommodations at June 30, 2021 included a combination of one or more of the following: full payment deferral, nonepartial payment deferral, reduction of which have been classified as TDRs.
interest rate, extension of the original maturity date, or re-amortization of the facility.
The following table presents the balance of loans onwith active payment deferral,accommodations at the specified dates, excluding PPP loans:
| | | | | | | | | | | | | | | | |
(In thousands) | | June 30, 2021 | | December 31, 2020 | | |
Construction and land development | | $ | 0 | | | $ | 1,032 | | | |
Commercial real estate - owner-occupied | | 1,612 | | | 14,248 | | | |
Commercial real estate - non owner-occupied | | 2,257 | | | 32,549 | | | |
Residential real estate | | 1,702 | | | 12,839 | | | |
Commercial and financial | | 811 | | | 11,915 | | | |
Consumer | | 399 | | | 1,479 | | | |
| | | | | | |
Totals | | $ | 6,781 | | | $ | 74,062 | | | |
Troubled Debt Restructured Loans
The Company’s TDR concessions granted to certain borrowers generally do not include forgiveness of principal 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 calendar years after modification if the loans aswere modified at an interest rate equal to the yields of September 30, 2020:
| | | | | | | | | | | | | | | | |
(In thousands) | | Loans Outstanding | | % on Payment Deferral | | |
Construction and land development | | $ | 9,359 | | | 3% | | |
Commercial real estate - owner-occupied | | 204,710 | | | 18 | | |
Commercial real estate - non owner-occupied | | 344,573 | | | 25 | | |
Residential real estate | | 75,885 | | | 5 | | |
Commercial and financial | | 61,308 | | | 7 | | |
Consumer | | 6,815 | | | 4 | | |
| | | | | | |
Totals | | $ | 702,650 | | | 13% | | |
new loan originations with comparable risk and the loans are performing based on the terms of the restructuring agreements.The following table presents loans that were modified in a troubled debt restructuring during the three and ninesix months ended:
| | | Three Months Ended September 30, | | Three Months Ended June 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
(In thousands) | (In thousands) | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment | (In thousands) | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
Construction and land development | Construction and land development | 0 | | | $ | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | | $ | 0 | | Construction and land development | 0 | | | $ | 0 | | | $ | 0 | | | 1 | | | $ | 12 | | | $ | 12 | |
Commercial real estate - owner-occupied | Commercial real estate - owner-occupied | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Commercial real estate - owner-occupied | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Commercial real estate - non owner-occupied | Commercial real estate - non owner-occupied | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Commercial real estate - non owner-occupied | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Residential real estate | Residential real estate | 0 | | | 0 | | | 0 | | | 2 | | | 519 | | | 519 | | Residential real estate | 2 | | | 52 | | | 52 | | | 0 | | | 0 | | | 0 | |
Commercial and financial | Commercial and financial | 0 | | | 0 | | | 0 | | | 1 | | | 1,120 | | | 1,120 | | Commercial and financial | 1 | | | 142 | | | 142 | | | 0 | | | 0 | | | 0 | |
Consumer | Consumer | 1 | | | 41 | | | 41 | | | 0 | | | 0 | | | 0 | | Consumer | 0 | | | 0 | | | 0 | | | 2 | | | 47 | | | 47 | |
Totals | Totals | 1 | | | $ | 41 | | | $ | 41 | | | 3 | | | $ | 1,639 | | | $ | 1,639 | | Totals | 3 | | | $ | 194 | | | $ | 194 | | | 3 | | | $ | 59 | | | $ | 59 | |
|
| | | | Nine Months Ended September 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
(In thousands) | (In thousands) | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment | (In thousands) | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
Construction and land development | Construction and land development | 0 | | | $ | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | | $ | 0 | | Construction and land development | 0 | | | $ | 0 | | | $ | 0 | | | 1 | | | $ | 12 | | | $ | 12 | |
Commercial real estate - owner-occupied | Commercial real estate - owner-occupied | 0 | | | 0 | | | 0 | | | 2 | | | 2,166 | | | 2,166 | | Commercial real estate - owner-occupied | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Commercial real estate - non owner-occupied | Commercial real estate - non owner-occupied | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Commercial real estate - non owner-occupied | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Residential real estate | Residential real estate | 1 | | | 45 | | | 45 | | | 2 | | | 519 | | | 519 | | Residential real estate | 3 | | | 79 | | | 79 | | | 1 | | | 45 | | | 45 | |
Commercial and financial | Commercial and financial | 4 | | | 437 | | | 437 | | | 2 | | | 1,299 | | | 1,299 | | Commercial and financial | 1 | | | 142 | | | 142 | | | 4 | | | 437 | | | 437 | |
Consumer | Consumer | 3 | | | 88 | | | 88 | | | 1 | | | 19 | | | 19 | | Consumer | 0 | | | 0 | | | 0 | | | 2 | | | 47 | | | 47 | |
Totals | Totals | 8 | | | $ | 570 | | | $ | 570 | | | 7 | | | $ | 4,003 | | | $ | 4,003 | | Totals | 4 | | | $ | 221 | | | $ | 221 | | | 8 | | | $ | 541 | | | $ | 541 | |
The TDRs described above resulted in a specific allowance for credit losses of $0.2 million as of SeptemberJune 30, 2020,2021 and 0 specific allowance for credit losses$0.4 million as of SeptemberJune 30, 2019.2020. During the ninesix months ended SeptemberJune 30, 2020,2021, there were 42 defaults totaling $1.4$0.1 million onof loans that had been modified in TDRs within the preceding twelve months. During the ninesix months ended SeptemberJune 30, 2019,2020, there were 3 defaults totaling $2.1$1.4 million of loans to a single borrower that had been modified to a TDR within the preceding 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, is charged off or has been transferred to other real estate owned. For loans measured based on the present value of expected future cash flows, $19,000$6,000 and $40,000$21,000 for the three months ended SeptemberJune 30, 2020,2021, and 2019,2020, respectively, and $65,000$11,000 and $102,000$46,000 for the ninesix months ended SeptemberJune 30, 2020,2021, and 2019,2020, respectively, was included in interest income and represents the change in present value attributable to the passage of time.
Note F – Allowance for Credit Losses
Activity in the allowance for credit losses is summarized as follows:
| | | Three Months Ended September 30, 2020 | | Three Months Ended June 30, 2021 |
(In thousands) | (In thousands) | Beginning Balance | | | Initial Allowance on PCD Loans Acquired During the Period | | Provision for Credit Losses1 | | Charge- Offs | | Recoveries | | TDR Allowance Adjustments | | Ending Balance | (In thousands) | Beginning Balance | | | Provision for Credit Losses | | Charge- Offs | | Recoveries | | TDR Allowance Adjustments | | Ending Balance |
Construction and land development | Construction and land development | $ | 7,161 | | | | $ | 39 | | | $ | 475 | | | $ | 0 | | | $ | 26 | | | $ | 0 | | | $ | 7,701 | | Construction and land development | $ | 4,428 | | | | $ | (469) | | | $ | 0 | | | $ | 96 | | | $ | (2) | | | $ | 4,053 | |
Commercial real estate - owner-occupied | Commercial real estate - owner-occupied | 5,562 | | | | 954 | | | 689 | | | 0 | | | 26 | | | (12) | | | 7,219 | | Commercial real estate - owner-occupied | 9,792 | | | | (1,116) | | | 0 | | | 0 | | | 0 | | | 8,676 | |
Commercial real estate - non owner-occupied | Commercial real estate - non owner-occupied | 38,992 | | | | 2,096 | | | (7,050) | | | (25) | | | 5 | | | 0 | | | 34,018 | | Commercial real estate - non owner-occupied | 36,229 | | | | (1,423) | | | 0 | | | 1 | | | 0 | | | 34,807 | |
Residential real estate | Residential real estate | 20,453 | | | | 27 | | | (3,196) | | | (19) | | | 65 | | | (5) | | | 17,325 | | Residential real estate | 14,353 | | | | (2,407) | | | (21) | | | 621 | | | (3) | | | 12,543 | |
Commercial and financial | Commercial and financial | 15,514 | | | | 2,632 | | | 8,081 | | | (1,776) | | | 203 | | | 0 | | | 24,654 | | Commercial and financial | 18,916 | | | | 399 | | | (1,564) | | | 265 | | | 0 | | | 18,016 | |
Consumer | Consumer | 3,568 | | | | 15 | | | (244) | | | (355) | | | 114 | | | (2) | | | 3,096 | | Consumer | 2,925 | | | | 161 | | | (199) | | | 146 | | | (1) | | | 3,032 | |
Paycheck Protection Program | Paycheck Protection Program | 0 | | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Paycheck Protection Program | 0 | | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Totals | Totals | $ | 91,250 | | | | $ | 5,763 | | | $ | (1,245) | | | $ | (2,175) | | | $ | 439 | | | $ | (19) | | | $ | 94,013 | | Totals | $ | 86,643 | | | | $ | (4,855) | | | $ | (1,784) | | | $ | 1,129 | | | $ | (6) | | | $ | 81,127 | |
1In addition to a reversal of provision for credit losses on loans of $1.2 million in the third quarter of 2020, the Company also recorded a $0.4 million provision to establish a valuation allowance on accrued interest receivable. | |
| | | Three Months Ended September 30, 2019 | | Three Months Ended June 30, 2020 |
(In thousands) | (In thousands) | Beginning Balance | | Provision for Loan Losses | | Charge- Offs | | Recoveries | | TDR Allowance Adjustments | | Ending Balance | (In thousands) | Beginning Balance | | | Provision for Credit Losses | | Charge- Offs | | Recoveries | | TDR Allowance Adjustments | | Ending Balance |
Construction and land development | Construction and land development | $ | 2,243 | | | $ | (395) | | | $ | 0 | | | $ | 6 | | | $ | 0 | | | $ | 1,854 | | Construction and land development | $ | 4,646 | | | | $ | 2,478 | | | $ | 0 | | | $ | 37 | | | $ | 0 | | | $ | 7,161 | |
Commercial real estate | 11,870 | | | 1,368 | | | (232) | | | 10 | | | (19) | | | 12,997 | | |
Commercial real estate - owner occupied | | Commercial real estate - owner occupied | 5,327 | | | | 229 | | | 0 | | | 18 | | | (12) | | | 5,562 | |
Commercial real estate - non-owner occupied | | Commercial real estate - non-owner occupied | 35,643 | | | | 3,345 | | | 0 | | | 4 | | | 0 | | | 38,992 | |
Residential real estate | Residential real estate | 7,508 | | | 87 | | | (38) | | | 52 | | | (20) | | | 7,589 | | Residential real estate | 19,899 | | | | 574 | | | (113) | | | 101 | | | (8) | | | 20,453 | |
Commercial and financial | Commercial and financial | 8,912 | | | 769 | | | (1,625) | | | 295 | | | 0 | | | 8,351 | | Commercial and financial | 15,470 | | | | 1,319 | | | (1,768) | | | 493 | | | 0 | | | 15,514 | |
Consumer | Consumer | 2,972 | | | 422 | | | (697) | | | 118 | | | (1) | | | 2,814 | | Consumer | 4,426 | | | | (334) | | | (614) | | | 91 | | | (1) | | | 3,568 | |
| Paycheck Protection Program | | Paycheck Protection Program | 0 | | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Totals | Totals | $ | 33,505 | | | $ | 2,251 | | | $ | (2,592) | | | $ | 481 | | | $ | (40) | | | $ | 33,605 | | Totals | $ | 85,411 | | | | $ | 7,611 | | | $ | (2,495) | | | $ | 744 | | | $ | (21) | | | $ | 91,250 | |
|
| | | | Nine Months Ended September 30, 2020 | | Six Months Ended June 30, 2021 |
(In thousands) | (In thousands) | Beginning Balance | | Impact of Adoption of ASC 326 | | Initial Allowance on PCD Loans Acquired During the Period | | Provision for Credit Losses1 | | Charge- Offs | | Recoveries | | TDR Allowance Adjustments | | Ending Balance | (In thousands) | Beginning Balance | | | Provision for Credit Losses | | Charge- Offs | | Recoveries | | TDR Allowance Adjustments | | Ending Balance |
Construction and land development | Construction and land development | $ | 1,842 | | | $ | 1,479 | | | $ | 87 | | | $ | 4,202 | | | $ | 0 | | | $ | 92 | | | $ | (1) | | | $ | 7,701 | | Construction and land development | $ | 4,920 | | | | $ | (979) | | | $ | 0 | | | $ | 114 | | | $ | (2) | | | $ | 4,053 | |
Commercial real estate - owner-occupied | Commercial real estate - owner-occupied | 5,361 | | | 80 | | | 1,161 | | | 655 | | | (45) | | | 44 | | | (37) | | | 7,219 | | Commercial real estate - owner-occupied | 9,868 | | | | (1,192) | | | 0 | | | 0 | | | 0 | | | 8,676 | |
Commercial real estate - non owner-occupied | Commercial real estate - non owner-occupied | 7,863 | | | 9,341 | | | 2,236 | | | 14,578 | | | (37) | | | 37 | | | 0 | | | 34,018 | | Commercial real estate - non owner-occupied | 38,266 | | | | (3,461) | | | 0 | | | 2 | | | 0 | | | 34,807 | |
Residential real estate | Residential real estate | 7,667 | | | 5,787 | | | 124 | | | 3,638 | | | (150) | | | 283 | | | (24) | | | 17,325 | | Residential real estate | 17,500 | | | | (5,779) | | | (21) | | | 850 | | | (7) | | | 12,543 | |
Commercial and financial | Commercial and financial | 9,716 | | | 3,677 | | | 2,643 | | | 12,144 | | | (4,642) | | | 1,116 | | | 0 | | | 24,654 | | Commercial and financial | 18,690 | | | | 1,174 | | | (2,320) | | | 472 | | | 0 | | | 18,016 | |
Consumer | Consumer | 2,705 | | | 862 | | | 28 | | | 662 | | | (1,442) | | | 284 | | | (3) | | | 3,096 | | Consumer | 3,489 | | | | (333) | | | (384) | | | 262 | | | (2) | | | 3,032 | |
Paycheck Protection Program | Paycheck Protection Program | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Paycheck Protection Program | 0 | | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Totals | Totals | $ | 35,154 | | | $ | 21,226 | | | $ | 6,279 | | | $ | 35,879 | | | $ | (6,316) | | | $ | 1,856 | | | $ | (65) | | | $ | 94,013 | | Totals | $ | 92,733 | | | | $ | (10,570) | | | $ | (2,725) | | | $ | 1,700 | | | $ | (11) | | | $ | 81,127 | |
1In addition to a reversal of provision for credit losses on loans of $1.2 million in the third quarter of 2020, the Company also recorded a $0.4 million provision to establish a valuation allowance on accrued interest receivable. | |
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| Nine Months Ended September 30, 2019 |
(In thousands) | Beginning Balance | | Provision for Loan Losses | | Charge- Offs | | Recoveries | | TDR Allowance Adjustments | | Ending Balance |
Construction and land development | $ | 2,233 | | | $ | (391) | | | $ | 0 | | | $ | 13 | | | $ | (1) | | | $ | 1,854 | |
Commercial real estate | 11,112 | | | 1,560 | | | (248) | | | 622 | | | (49) | | | 12,997 | |
Residential real estate | 7,775 | | | (276) | | | (102) | | | 242 | | | (50) | | | 7,589 | |
Commercial and financial | 8,585 | | | 3,736 | | | (4,450) | | | 480 | | | 0 | | | 8,351 | |
Consumer | 2,718 | | | 1,570 | | | (1,915) | | | 443 | | | (2) | | | 2,814 | |
Totals | $ | 32,423 | | | $ | 6,199 | | | $ | (6,715) | | | $ | 1,800 | | | $ | (102) | | | $ | 33,605 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 |
(In thousands) | Beginning Balance | | Impact of Adoption of ASC 326 | | Initial Allowance on PCD Loans Acquired During the Period | | Provision for Credit Losses | | Charge- Offs | | Recoveries | | TDR Allowance Adjustments | | Ending Balance |
Construction and land development | $ | 1,842 | | | $ | 1,479 | | | $ | 48 | | | $ | 3,727 | | | $ | 0 | | | $ | 66 | | | $ | (1) | | | $ | 7,161 | |
Commercial real estate - owner occupied | 5,361 | | | 80 | | | 207 | | | (34) | | | (45) | | | 18 | | | (25) | | | 5,562 | |
Commercial real estate - non-owner occupied | 7,863 | | | 9,341 | | | 140 | | | 21,628 | | | (12) | | | 32 | | | 0 | | | 38,992 | |
Residential real estate | 7,667 | | | 5,787 | | | 97 | | | 6,834 | | | (131) | | | 218 | | | (19) | | | 20,453 | |
Commercial and financial | 9,716 | | | 3,677 | | | 11 | | | 4,063 | | | (2,866) | | | 913 | | | 0 | | | 15,514 | |
Consumer | 2,705 | | | 862 | | | 13 | | | 906 | | | (1,087) | | | 170 | | | (1) | | | 3,568 | |
Paycheck Protection Program | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Totals | $ | 35,154 | | | $ | 21,226 | | | $ | 516 | | | $ | 37,124 | | | $ | (4,141) | | | $ | 1,417 | | | $ | (46) | | | $ | 91,250 | |
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Management establishes the allowance using relevant available information from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts to project losses over a three-year forecast period. Forecast data is sourced primarily from Moody’s Analytics, a firm widely recognized for its research, analysis, and economic forecasts. For portfolio segments with a weighted average life longer than three years, the Company reverts to longer-term historical loss experience to estimate losses over the remaining life of the loans within each segment.
Historical credit losses provide the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, loan to value ratios, borrower credit characteristics, loan seasoning or term as well as for changes in current and forecasted environmental conditions, such as changes in unemployment rates, property values, occupancy rates, and other macroeconomic metrics.
As of SeptemberJune 30, 2020,2021, the Company utilized Moody’s most recent “U.S. Macroeconomic Outlook Baseline” scenario and considered the significant uncertainty associated with the assumptions in the Baseline scenario, including the potential resurgence of virusfor increasing COVID-19 infections, in Florida and other states,including from variants, and the resulting potential declineerosion in consumer spendingconfidence, and financial implications for businesses. The Company also considered the amount and availability of fiscalrisk that government stimulus including programs offered under the CARES Act and other potential future government programs and actions.are less effective than expected. Outcomes in any or all of these factors could differ from the Baseline scenario, and the Company incorporated qualitative considerations reflecting the risk of uncertain and possibly further deteriorating, economic conditions, and for additional dimensions of risk not captured in the quantitative model.
In the Construction and Land Development segment, the increasedecrease in reserves during the quarter was affected by both the outlook for commercial real estate valuations, and qualitative adjustmentsreflects improved economic variables relating to the uncertainty of economic conditions.residential real estate. In this segment, the primary source of repayment is typically from proceeds of the sale, refinancing, or permanent financing of the underlying property; therefore, industry and collateral type and estimated collateral values are among the relevant factors in assessing expected losses.
In the Commercial Real Estate - Owner-Occupied segment, the increasedecrease in reserves reflects bothis primarily the impactresult of higher loan balances and an improved outlook for unemployment, partially offset by lower forecasted commercial real estate valuations.economic variables relating to unemployment. Risk characteristics include but are not limited to, collateral type, loan seasoning, and lien position.
In the Commercial Real Estate - Non Owner-Occupied segment, the decrease in reserves reflects lower estimated unemploymentloan balances and an improved outlook for corporate profits over theeconomic forecast period.variables including lower unemployment. Repayment is often dependent upon rental income from the successful operation of the underlying property. Loan performance may be adversely affected by general economic conditions or conditions specific to the real estate market, including property types. Collateral type, loan seasoning, and lien position are among the risk characteristics analyzed for this segment.
The Residential Real Estate segment includes first mortgages secured by residential property, and home equity lines of credit. The decrease in reserves reflects anlower loan balances and improved outlook for unemployment, and continued strength in the Florida housing market.economic forecast variables including lower unemployment. Risk characteristics considered for this segment include, but are not limited to, collateral type, lien position, loan to value ratios, and loan seasoning.
In the Commercial and Financial segment, borrowers are primarily small to medium sized professional firms and other businesses, and loans are generally supported by projected cash flows of the business, collateralized by business assets, and/or guaranteed by the business owners. The increasedecrease in reserves reflects an increased proportionis primarily attributed to improvement in economic forecast
variables including unemployment, partially offset by business assets.higher loan balances. Industry, collateral type, estimated collateral values and loan seasoning are among the relevant factors in assessing expected losses.
Consumer loans include installment and revolving lines, loans for automobiles, boats, and other personal or family purposes. Risk characteristics considered for this segment include, but are not limited to, collateral type, loan to value ratios, loan seasoning and FICO score. A decreaseNominal changes in the reserve is attributed to lower loan balances and an improved outlook for unemployment.
during the quarter reflect changes in underlying economic variables.
Balances outstanding under the Paycheck Protection Program are guaranteed by the U.S. government and have not been assigned a reserve.
The allowance for credit losses is composed of specific allowances for loans individually evaluated and general allowances for loans grouped into loan pools based on similar characteristics, which are collectively evaluated. The Company’s loan portfolio and related allowance at SeptemberJune 30, 20202021 and December 31, 20192020 is shown in the following tables:
| | | September 30, 2020 | | June 30, 2021 |
| | Individually Evaluated | | Collectively Evaluated | | Total | | Individually Evaluated | | Collectively Evaluated | | Total |
(In thousands) | (In thousands) | Recorded Investment | | Associated Allowance | | Recorded Investment | | Associated Allowance | | Recorded Investment | | Associated Allowance | (In thousands) | Recorded Investment | | Associated Allowance | | Recorded Investment | | Associated Allowance | | Recorded Investment | | Associated Allowance |
Construction and land development | Construction and land development | $ | 723 | | | $ | 13 | | | $ | 279,887 | | | $ | 7,688 | | | $ | 280,610 | | | $ | 7,701 | | Construction and land development | $ | 129 | | | $ | 3 | | | $ | 234,218 | | | $ | 4,050 | | | $ | 234,347 | | | $ | 4,053 | |
Commercial real estate - owner-occupied | 5,590 | | | 788 | | | 1,119,870 | | | 6,431 | | | 1,125,460 | | | 7,219 | | |
Commercial real estate - owner occupied | | Commercial real estate - owner occupied | 7,209 | | | 503 | | | 1,120,431 | | | 8,173 | | | 1,127,640 | | | 8,676 | |
Commercial real estate - non owner-occupied | Commercial real estate - non owner-occupied | 12,902 | | | 1,863 | | | 1,381,562 | | | 32,155 | | | 1,394,464 | | | 34,018 | | Commercial real estate - non owner-occupied | 7,217 | | | 1,708 | | | 1,405,222 | | | 33,099 | | | 1,412,439 | | | 34,807 | |
Residential real estate | Residential real estate | 22,966 | | | 2,019 | | | 1,370,430 | | | 15,306 | | | 1,393,396 | | | 17,325 | | Residential real estate | 18,651 | | | 504 | | | 1,207,885 | | | 12,039 | | | 1,226,536 | | | 12,543 | |
Commercial and financial | Commercial and financial | 13,824 | | | 3,488 | | | 819,259 | | | 21,166 | | | 833,083 | | | 24,654 | | Commercial and financial | 12,632 | | | 2,142 | | | 887,574 | | | 15,874 | | | 900,206 | | | 18,016 | |
Consumer | Consumer | 615 | | | 116 | | | 191,601 | | | 2,980 | | | 192,216 | | | 3,096 | | Consumer | 352 | | | 122 | | | 171,417 | | | 2,910 | | | 171,769 | | | 3,032 | |
Paycheck Protection Program | Paycheck Protection Program | 0 | | | 0 | | | 638,800 | | | 0 | | | 638,800 | | | 0 | | Paycheck Protection Program | 0 | | | 0 | | | 364,112 | | | 0 | | | 364,112 | | | 0 | |
Totals | Totals | $ | 56,620 | | | $ | 8,287 | | | $ | 5,801,409 | | | $ | 85,726 | | | $ | 5,858,029 | | | $ | 94,013 | | Totals | $ | 46,190 | | | $ | 4,982 | | | $ | 5,390,859 | | | $ | 76,145 | | | $ | 5,437,049 | | | $ | 81,127 | |
| | | December 31, 2019 | | December 31, 2020 |
| | Individually Evaluated | | Collectively Evaluated | | Total | | Individually Evaluated | | Collectively Evaluated | | Total |
(In thousands) | (In thousands) | Recorded Investment | | Associated Allowance | | Recorded Investment | | Associated Allowance | | Recorded Investment | | Associated Allowance | (In thousands) | Recorded Investment | | Associated Allowance | | Recorded Investment | | Associated Allowance | | Recorded Investment | | Associated Allowance |
Construction and land development | Construction and land development | $ | 5,217 | | | $ | 14 | | | $ | 319,896 | | | $ | 1,828 | | | $ | 325,113 | | | $ | 1,842 | | Construction and land development | $ | 276 | | | $ | 13 | | | $ | 244,832 | | | $ | 4,907 | | | $ | 245,108 | | | $ | 4,920 | |
Commercial real estate | 20,484 | | | 220 | | | 2,358,487 | | | 13,004 | | | 2,378,971 | | | 13,224 | | |
Commercial real estate - owner occupied | | Commercial real estate - owner occupied | 10,243 | | | 402 | | | 1,131,067 | | | 9,466 | | | 1,141,310 | | | 9,868 | |
Commercial real estate - non owner-occupied | | Commercial real estate - non owner-occupied | 8,083 | | | 1,640 | | | 1,387,771 | | | 36,626 | | | 1,395,854 | | | 38,266 | |
Residential real estate | Residential real estate | 16,093 | | | 834 | | | 1,491,770 | | | 6,833 | | | 1,507,863 | | | 7,667 | | Residential real estate | 16,506 | | | 2,064 | | | 1,326,122 | | | 15,436 | | | 1,342,628 | | | 17,500 | |
Commercial and financial | Commercial and financial | 6,631 | | | 1,731 | | | 771,621 | | | 7,985 | | | 778,252 | | | 9,716 | | Commercial and financial | 13,281 | | | 3,498 | | | 841,472 | | | 15,192 | | | 854,753 | | | 18,690 | |
Consumer | Consumer | 337 | | | 59 | | | 207,868 | | | 2,646 | | | 208,205 | | | 2,705 | | Consumer | 807 | | | 91 | | | 187,928 | | | 3,398 | | | 188,735 | | | 3,489 | |
Paycheck Protection Program | | Paycheck Protection Program | 0 | | | 0 | | | 566,961 | | | 0 | | | 566,961 | | | 0 | |
Totals | Totals | $ | 48,762 | | | $ | 2,858 | | | $ | 5,149,642 | | | $ | 32,296 | | | $ | 5,198,404 | | | $ | 35,154 | | Totals | $ | 49,196 | | | $ | 7,708 | | | $ | 5,686,153 | | | $ | 85,025 | | | $ | 5,735,349 | | | $ | 92,733 | |
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Note G – Derivatives
Back-to-Back Swaps
The Company offers interest rate swaps when requested by customers to allow them to hedge the risk of rising interest rates on their variable rate loans. Upon entering into these swaps, the Company enters into offsetting positions with counterparties in order to minimize the interest rate risk. These back-to-back swaps qualify as freestanding financial derivatives with the fair values reported in other assets and other liabilities. The Company is party to master netting arrangements with its financial institution counterparties; however, the Company does not offset assets and liabilities under the arrangements for financial statement presentation purposes. Gains and losses on these back-to-back swaps, which offset, are recorded through noninterest income. No net gains or losses have been recognized to date on these instruments. As of June 30, 2021, the interest rate swaps had an aggregate notional value of $182.1 million, with a fair value of $9.5 million recorded in other assets and other liabilities. As of December 31, 2020, the interest rate swaps had an aggregate notional value of $182.4 million, with a fair value of $13.3 million recorded in other assets and other liabilities. The weighted average maturity was 7.2 years at June 30, 2021 and 7.5 years at December 31, 2020.
Interest Rate Floors Designated as Cash Flow Hedges
The Company has entered into interest rate floor contracts to mitigate exposure to the variability of future cash flows due to changes in interest rates on certain segments of its variable-rate loans. During 2020, the Company entered into 2 interest rate floor contracts, each with a notional amount of $150.0 million, maturing in October 2023 and November 2023. The Company considers these derivatives to be highly effective at achieving offsetting changes in cash flows attributable to changes in interest rates and has designated them as cash flow hedges. Therefore, changes in the fair value of these derivative instruments are recognized in other comprehensive income. Amortization of the premium paid on cash flow hedges is recognized in earnings over the term of the hedge in the same caption as the hedged item. For the three and six months ended June 30, 2021, the Company recognized a loss through other comprehensive income of $0.1 million and $0.3 million, respectively, and reclassified $57 thousand and $100 thousand, respectively, out of accumulated other comprehensive income and into interest income. As of June 30, 2021 and December 31, 2020, the interest rate floors had a fair value of $0.7 million and $1.0 million, respectively, recorded in other assets in the consolidated balance sheet. Over the next twelve months the Company expects to reclassify $0.3 million from accumulated other comprehensive income into interest income related to these agreements.
| | | | | | | | | | | | | | | | | |
(In thousands) | Notional Amount | | Fair Value | | Balance Sheet Category |
At June 30, 2021 | | |
Back-to-back swaps | $ | 182,058 | | | $ | 9,497 | | | Other Assets and Other Liabilities |
Interest rate floors | 300,000 | | | 705 | | | Other Assets |
| | | | | |
At December 31, 2020 | | |
Back-to-back swaps | $ | 182,379 | | | $ | 13,339 | | | Other Assets and Other Liabilities |
Interest rate floors | 300,000 | | | 1,004 | | | Other Assets |
Note GH – Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are accounted for as secured borrowings. For securities sold under agreements to repurchase, the Company is required to pledge collateral with value sufficient to fully collateralized borrowings. Company securities pledged were as follows by collateral type and maturity as of:
| (In thousands) | (In thousands) | | September 30, 2020 | | December 31, 2019 | (In thousands) | | June 30, 2021 | | December 31, 2020 |
Fair value of pledged securities - overnight and continuous: | Fair value of pledged securities - overnight and continuous: | | | | | Fair value of pledged securities - overnight and continuous: | | | | |
Mortgage-backed securities and collateralized mortgage obligations of U.S. government sponsored entities | Mortgage-backed securities and collateralized mortgage obligations of U.S. government sponsored entities | | $ | 99,887 | | | $ | 94,354 | | Mortgage-backed securities and collateralized mortgage obligations of U.S. government sponsored entities | | $ | 136,619 | | | $ | 137,268 | |
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Note HI – Noninterest Income and Expense
Details of noninterest income and expenses for the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | Nine Months Ended September 30, |
(In thousands) | | 2020 | | 2019 | | | 2020 | | 2019 |
Noninterest income | | | | | | | | | |
Service charges on deposit accounts | | $ | 2,242 | | | $ | 2,978 | | | | $ | 7,006 | | | $ | 8,569 | |
Interchange income | | 3,682 | | | 3,206 | | | | 10,115 | | | 10,012 | |
Wealth management income | | 1,972 | | | 1,632 | | | | 5,558 | | | 4,773 | |
Mortgage banking fees | | 5,283 | | | 2,127 | | | | 11,050 | | | 4,976 | |
Marine finance fees | | 242 | | | 152 | | | | 545 | | | 715 | |
SBA gains | | 252 | | | 569 | | | | 572 | | | 1,896 | |
BOLI income | | 899 | | | 928 | | | | 2,672 | | | 2,770 | |
Other income | | 2,370 | | | 3,198 | | | | 7,869 | | | 7,967 | |
| | 16,942 | | | 14,790 | | | | 45,387 | | | 41,678 | |
Securities gains (losses), net | | 4 | | | (847) | | | | 1,253 | | | (1,322) | |
Total | | $ | 16,946 | | | $ | 13,943 | | | | $ | 46,640 | | | $ | 40,356 | |
| | | | | | | | | |
Noninterest expense | | | | | | | | | |
Salaries and wages | | $ | 23,125 | | | $ | 18,640 | | | | $ | 67,049 | | | $ | 56,566 | |
Employee benefits | | 3,995 | | | 2,973 | | | | 11,629 | | | 10,374 | |
Outsourced data processing costs | | 6,128 | | | 3,711 | | | | 14,820 | | | 11,432 | |
Telephone/data lines | | 705 | | | 603 | | | | 2,210 | | | 2,307 | |
Occupancy | | 3,858 | | | 3,368 | | | | 10,596 | | | 10,916 | |
Furniture and equipment | | 1,576 | | | 1,528 | | | | 4,557 | | | 4,829 | |
Marketing | | 1,513 | | | 933 | | | | 3,788 | | | 3,276 | |
Legal and professional fees | | 3,018 | | | 1,648 | | | | 8,658 | | | 6,528 | |
FDIC assessments | | 474 | | | 56 | | | | 740 | | | 881 | |
Amortization of intangibles | | 1,497 | | | 1,456 | | | | 4,436 | | | 4,370 | |
Foreclosed property expense and net loss on sale | | 512 | | | 262 | | | | 442 | | | 48 | |
Provision for credit losses on unfunded commitments | | 756 | | | 0 | | | | 980 | | | 0 | |
Other | | 4,517 | | | 3,405 | | | | 11,966 | | | 11,155 | |
Total | | $ | 51,674 | | | $ | 38,583 | | | | $ | 141,871 | | | $ | 122,682 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | Six Months Ended June 30, |
(In thousands) | | 2021 | | 2020 | | | 2021 | | 2020 |
Noninterest income | | | | | | | | | |
Service charges on deposit accounts | | $ | 2,338 | | | $ | 1,939 | | | | $ | 4,676 | | | $ | 4,764 | |
Interchange income | | 4,145 | | | 3,187 | | | | 7,965 | | | 6,433 | |
Wealth management income | | 2,387 | | | 1,719 | | | | 4,710 | | | 3,586 | |
Mortgage banking fees | | 2,977 | | | 3,559 | | | | 7,202 | | | 5,767 | |
Marine finance fees | | 177 | | | 157 | | | | 366 | | | 303 | |
SBA gains | | 232 | | | 181 | | | | 519 | | | 320 | |
BOLI income | | 872 | | | 887 | | | | 1,731 | | | 1,773 | |
Other income | | 2,249 | | | 2,147 | | | | 5,993 | | | 5,499 | |
| | 15,377 | | | 13,776 | | | | 33,162 | | | 28,445 | |
Securities (losses) gains, net | | (55) | | | 1,230 | | | | (169) | | | 1,249 | |
Total | | $ | 15,322 | | | $ | 15,006 | | | | $ | 32,993 | | | $ | 29,694 | |
| | | | | | | | | |
Noninterest expense | | | | | | | | | |
Salaries and wages | | $ | 22,966 | | | $ | 20,226 | | | | $ | 44,359 | | | $ | 43,924 | |
Employee benefits | | 3,953 | | | 3,379 | | | | 8,933 | | | 7,634 | |
Outsourced data processing costs | | 4,676 | | | 4,059 | | | | 9,144 | | | 8,692 | |
Telephone/data lines | | 838 | | | 791 | | | | 1,623 | | | 1,505 | |
Occupancy | | 3,310 | | | 3,385 | | | | 7,099 | | | 6,738 | |
Furniture and equipment | | 1,166 | | | 1,358 | | | | 2,420 | | | 2,981 | |
Marketing | | 1,002 | | | 997 | | | | 2,170 | | | 2,275 | |
Legal and professional fees | | 2,182 | | | 2,277 | | | | 4,764 | | | 5,640 | |
FDIC assessments | | 515 | | | 266 | | | | 1,041 | | | 266 | |
Amortization of intangibles | | 1,212 | | | 1,483 | | | | 2,423 | | | 2,939 | |
Foreclosed property expense and net (gain) loss on sale | | (90) | | | 245 | | | | (155) | | | (70) | |
Provision for credit losses on unfunded commitments | | 0 | | | 178 | | | | 0 | | | 224 | |
Other | | 4,054 | | | 3,755 | | | | 8,083 | | | 7,449 | |
Total | | $ | 45,784 | | | $ | 42,399 | | | | $ | 91,904 | | | $ | 90,197 | |
Note IJ – Equity Capital
The Company is well capitalized and at SeptemberJune 30, 2020,2021, the Company and the Company’s principal banking subsidiary, Seacoast Bank, exceeded the common equity Tier 1 (CET1) capital ratio regulatory threshold of 6.5% for well-capitalized institutions under the Basel III standardized transition approach, as well as risk-based and leverage ratio requirements for well capitalized banks under the regulatory framework for prompt corrective action.
Note JK – Contingent Liabilities
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, operating results or cash flows.
Note KL – Fair Value
Under ASC Topic 820, fair value measurements for items measured at fair value on a recurring and nonrecurring basis at SeptemberJune 30, 20202021 and December 31, 20192020 included:
| (In thousands) | (In thousands) | Fair Value Measurements | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | (In thousands) | Fair Value Measurements | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
September 30, 2020 | | | | | | | | |
Available for sale debt securities1 | $ | 1,286,858 | | | $ | 101 | | | $ | 1,286,757 | | | $ | 0 | | |
At June 30, 2021 | | At June 30, 2021 | | | | | | | |
Financial Assets | | Financial Assets | |
Available-for-sale debt securities1 | | Available-for-sale debt securities1 | $ | 1,322,776 | | | $ | 199 | | | $ | 1,322,577 | | | $ | 0 | |
Derivative financial instruments2 | | Derivative financial instruments2 | 10,202 | | | 0 | | | 10,202 | | | 0 | |
Loans held for sale2 | Loans held for sale2 | 73,046 | | | 0 | | | 73,046 | | | 0 | | Loans held for sale2 | 42,793 | | | 0 | | | 42,793 | | | 0 | |
Loans3 | Loans3 | 11,235 | | | 0 | | | 1,261 | | | 9,974 | | Loans3 | 10,212 | | | 0 | | | 1,073 | | | 9,139 | |
Other real estate owned4 | Other real estate owned4 | 15,890 | | | 0 | | | 875 | | | 15,015 | | Other real estate owned4 | 12,804 | | | 0 | | | 390 | | | 12,414 | |
Equity securities5 | Equity securities5 | 6,548 | | | 6,548 | | | 0 | | | 0 | | Equity securities5 | 6,434 | | | 6,434 | | | 0 | | | 0 | |
Financial Liabilities | | Financial Liabilities | |
Derivative financial instruments2 | | Derivative financial instruments2 | $ | 9,497 | | | $ | 0 | | | $ | 9,497 | | | $ | 0 | |
| December 31, 2019 | | |
Available for sale debt securities1 | $ | 946,855 | | | $ | 100 | | | $ | 946,755 | | | $ | 0 | | |
At December 31, 2020 | | At December 31, 2020 | |
Financial Assets | | Financial Assets | |
Available-for-sale debt securities1 | | Available-for-sale debt securities1 | $ | 1,398,157 | | | $ | 101 | | | $ | 1,398,056 | | | $ | 0 | |
Derivative financial instruments2 | | Derivative financial instruments2 | 14,343 | | | 0 | | | 14,343 | | | 0 | |
Loans held for sale2 | Loans held for sale2 | 20,029 | | | 0 | | | 20,029 | | | 0 | | Loans held for sale2 | 68,890 | | | 0 | | | 68,890 | | | 0 | |
Loans3 | Loans3 | 5,123 | | | 0 | | | 1,419 | | | 3,704 | | Loans3 | 8,806 | | | 0 | | | 1,900 | | | 6,906 | |
Other real estate owned4 | Other real estate owned4 | 12,390 | | | 0 | | | 241 | | | 12,149 | | Other real estate owned4 | 12,750 | | | 0 | | | 72 | | | 12,678 | |
Equity securities5 | Equity securities5 | 6,392 | | | 6,392 | | | 0 | | | 0 | | Equity securities5 | 6,530 | | | 6,530 | | | 0 | | | 0 | |
1See Note D for further detail of fair value of individual investment categories. | |
Financial Liabilities | | Financial Liabilities | |
Derivative financial instruments2 | | Derivative financial instruments2 | $ | 13,339 | | | $ | 0 | | | $ | 13,339 | | | $ | 0 | |
1See “Note D – Securities” for further detail of fair value of individual investment categories. | | 1See “Note D – Securities” for further detail of fair value of individual investment categories. |
2Recurring fair value basis determined using observable market data. | 2Recurring fair value basis determined using observable market data. | 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. | |
3See “Note E – Loans.” Nonrecurring fair value adjustments to collateral-dependent loans reflect full or partial write-downs that are based on current appraised values of the collateral in accordance with ASC Topic 310. | | 3See “Note E – Loans.” Nonrecurring fair value adjustments to collateral-dependent loans reflect full or partial write-downs that are based on current appraised values of the collateral in accordance with ASC Topic 310. |
4Fair value is measured on a nonrecurring basis in accordance with ASC Topic 360. | 4Fair value is measured on a nonrecurring basis in accordance with ASC Topic 360. | 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. | 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. | 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. |
Available for saleAvailable-for-sale debt securities: Level 1 securities consist of U.S. Treasury securities are reported at fair value utilizing Level 1 inputs.securities. Other securities are reported at fair value utilizing Level 2 inputs. The estimated fair value of a security is determined based on market quotations when available or, if not available, by using quoted market prices for similar securities, pricing models or discounted cash flow analyses, using observable market data where available.
The Company reviews the prices supplied by independent pricing services, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. The fair value of collateralized loan obligations is determined from broker quotes. From time to time, the Company will validate, on a sample basis, prices supplied by the independent pricing service by comparison to prices obtained from other brokers and third-party sources or derived using internal models.
Derivative financial instruments: The Company offers interest rate swaps to certain loan customers to allow them to hedge the risk of rising interest rates on their variable rate loans. The Company originates a variable rate loan and enters into a variable-to-fixed interest rate swap with the customer. The Company also enters into an offsetting swap with a correspondent bank. These back-to-back agreements are intended to offset each other and allow the Company to originate a variable rate loan, while
providing a contract for fixed interest payments for the customer. The fair value of these derivatives is based on a discounted cash flow approach. Due to the observable nature of the inputs used in deriving the fair value of these derivative contracts, the valuation of interest rate swaps is classified as Level 2. Other derivatives consist of interest rate floors designated as cash flow hedges. The fair values of these instruments are based upon the estimated amount the Company would receive or pay to terminate the instruments, taking into account current interest rates and, when appropriate, the current creditworthiness of the counterparties. Interest rate floors designated as cash flow hedges are classified within Level 2.
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 that 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 the contractual terms of the loan and in accordance with the Company’s policy on loans held for investment. None of the loans were 90 days or more past due or on non accrualnonaccrual as of SeptemberJune 30, 20202021 and December 31, 2019. 2020.
The aggregate fair value and contractual balance of loans held for sale as of SeptemberJune 30, 20202021 and December 31, 20192020 is as follows:
| | | | | | | | | | | |
(In thousands) | September 30, 2020 | | December 31, 2019 |
Aggregate fair value | $ | 73,046 | | | $ | 20,029 | |
Contractual balance | 71,102 | | | 19,445 | |
Excess | 1,944 | | | 584 | |
| | | | | | | | | | | |
(In thousands) | June 30, 2021 | | December 31, 2020 |
Aggregate fair value | $ | 42,793 | | | $ | 68,890 | |
Contractual balance | 41,629 | | | 66,415 | |
Excess | 1,164 | | | 2,475 | |
Loans: Level 2 loansLoans carried at fair value consist of impairedcollateral-dependent real estate loans which are collateral dependent.loans. Fair value is based on recent real estate appraisals less estimated costs of sale. For residential real estate impaired loans, appraised values or internal evaluations are based on the comparative sales approach. Level 3 loans consist of commercial and commercial real estate impaired loans. For these loansThese 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 SeptemberJune 30, 2020, the2021 capitalization rates utilized to determine fair value of the underlying collateral averaged approximately 7.3%7.2%. Adjustments to comparable sales may be made by an appraiser to reflect local market conditions or other economic factors and may result in changes in the fair value of an asset over time. As such, the fair value of these impaired loans is considered Levellevel 3 in the fair value hierarchy. ImpairedCollateral-dependent loans measured at fair value totaled $11.2$14.3 million with a specific reserve of $8.3$4.1 million at SeptemberJune 30, 2020,2021, compared to $5.1$16.5 million with a specific reserve of $2.9$7.7 million at December 31, 2019.2020.
For loans classified as Level 3, changes included loan additions of $10.4$3.7 million offset by $1.5 million in paydowns and charge-offs of $4.2 million for the ninesix months ended SeptemberJune 30, 2020.2021.
Other real estate owned: When appraisals are used to determine fair value and the appraisals are based on a market approach, the fair value of other real estate owned (“OREO”) is classified as a Level 2 input. When the fair value of OREO is based on appraisals which require significant adjustments to market-based valuation inputs or apply an income approach based on unobservable cash flows, the fair value of OREO is classified as Level 3.
For OREO classified as Level 3 at June 30, 2021, changes during the ninesix months ended September 30, 2020, changes included additions of one multifamily construction property for $6.5$1.3 million offset by sales and writedowns of $3.9$1.6 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-endquarterly valuation process. There were no such transfers for loans and OREO classified as Level 3 during the ninesix months ended SeptemberJune 30, 20202021 and 2019.2020.
The carrying amount and fair value of the Company’s other financial instruments that were not disclosed previously in the balance sheet and for which carrying amount is not fair value as of SeptemberJune 30, 20202021 and December 31, 20192020 is as follows:
| (In thousands) | (In thousands) | | Carrying Amount | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | (In thousands) | | Carrying Amount | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
September 30, 2020 | | | | | | | | | |
June 30, 2021 | | June 30, 2021 | | | | | | | | |
Financial Assets | Financial Assets | | | | | | | | | Financial Assets | | | | | | | | |
Debt securities held-to-maturity1 | Debt securities held-to-maturity1 | | $ | 207,376 | | | $ | 0 | | | $ | 216,000 | | | $ | 0 | | Debt securities held-to-maturity1 | | $ | 493,467 | | | $ | 0 | | | $ | 489,289 | | | $ | 0 | |
Time deposits with other banks | Time deposits with other banks | | 2,247 | | | 0 | | | 0 | | | 2,274 | | Time deposits with other banks | | 750 | | | 0 | | | 759 | | | 0 | |
Loans, net | Loans, net | | 5,752,781 | | | 0 | | | 0 | | | 5,882,185 | | Loans, net | | 5,345,710 | | | 0 | | | 0 | | | 5,367,748 | |
Financial Liabilities | Financial Liabilities | | Financial Liabilities | |
Deposit liabilities | Deposit liabilities | | 6,914,843 | | | 0 | | | 0 | | | 6,920,231 | | Deposit liabilities | | 7,836,436 | | | 0 | | | 0 | | | 7,838,507 | |
Federal Home Loan Bank (FHLB) borrowings | | 35,000 | | | 0 | | | 0 | | | 34,897 | | |
| Subordinated debt | Subordinated debt | | 71,295 | | | 0 | | | 64,206 | | | 0 | | Subordinated debt | | 71,506 | | | 0 | | | 58,342 | | | 0 | |
| December 31, 2019 | | |
December 31, 2020 | | December 31, 2020 | |
Financial Assets | Financial Assets | | Financial Assets | |
Debt securities held-to-maturity1
| Debt securities held-to-maturity1
| | $ | 261,369 | | | $ | 0 | | | $ | 262,213 | | | $ | 0 | | Debt securities held-to-maturity1
| | $ | 184,484 | | | $ | 0 | | | $ | 192,179 | | | $ | 0 | |
Time deposits with other banks | Time deposits with other banks | | 3,742 | | | 0 | | | 0 | | | 3,744 | | Time deposits with other banks | | 750 | | | 0 | | | 762 | | | 0 | |
Loans, net | Loans, net | | 5,158,127 | | | 0 | | | 0 | | | 5,139,491 | | Loans, net | | 5,633,810 | | | 0 | | | 0 | | | 5,686,019 | |
Financial Liabilities | Financial Liabilities | | Financial Liabilities | |
Deposit liabilities | Deposit liabilities | | 5,584,753 | | | 0 | | | 0 | | | 5,584,621 | | Deposit liabilities | | 6,932,561 | | | 0 | | | 0 | | | 6,936,097 | |
Federal Home Loan Bank (FHLB) borrowings | | 315,000 | | | 0 | | | 0 | | | 314,995 | | |
| Subordinated debt | Subordinated debt | | 71,085 | | | 0 | | | 64,017 | | | 0 | | Subordinated debt | | 71,365 | | | 0 | | | 58,227 | | | 0 | |
1See Note D for further detail of individual investment categories. | |
1See “Note D – Securities” for further detail of individual investment categories. | | 1See “Note D – Securities” for further detail of individual investment categories. |
The short maturity of Seacoast’s assets and liabilities results in having a significant number of financial instruments whose fair value equals or closely approximates carrying value. Such financial instruments are reported in the following balance sheet captions: cash and due from banks, interest bearing deposits with other banks, FHLB borrowings and securities sold under agreements to repurchase, maturing within 30 days.
The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value at SeptemberJune 30, 20202021 and December 31, 2019:2020:
Held to maturityHeld-to-maturity debt securities: These debt securities are reported at fair value utilizing level 2 inputs. The estimated fair value of a security is determined based on market quotations when available or, if not available, by using quoted market prices for similar securities, pricing models or discounted cash flow analyses, using observable market data where available.
The Company reviews the prices supplied by independent pricing services, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. From time to time, the Company will validate, on a sample basis, prices supplied by the independent pricing service by comparison to prices obtained from other brokers and third-party sources or derived using internal models.
Loans: Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type, such as commercial or mortgage. Each loan category is further segmented into fixed and adjustable-rate interest terms as well as performing and nonperforming categories. The fair value of loans is calculated by discounting scheduled cash flows through the estimated life including prepayment considerations, using estimated market discount rates that reflect the risks inherent in the loan. The fair value approach considers market-driven variables including credit related factors and reflects an “exit price” as defined in ASC Topic 820.
Deposit liabilities: The fair value of demand deposits, savings accounts and money market deposits is the amount payable at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for funding of similar remaining maturities.
Note LM – Business Combinations
Proposed Acquisition of Legacy Bank of Florida
On March 23, 2021, the Company announced that it had entered into an agreement and plan of merger with Legacy Bank of Florida (“Legacy”). Pursuant to the terms of the merger agreement, Legacy, headquartered in Boca Raton, FL, will be merged with and into Seacoast Bank. Legacy operates 5 branches in Broward and Palm Beach counties in Florida’s largest metropolitan statistical area with $476.0 million in loans and $485.6 million in deposits as of June 30, 2021. All regulatory and shareholder approvals have been received and the acquisition is expected to close in August 2021.
Acquisition of Fourth Street Banking Company
On August 21, 2020, the Company completed its acquisition of Fourth Street Banking Company (“Fourth Street”). Simultaneously, upon completion of the merger of Fourth Street and the Company, Fourth Street's wholly owned subsidiary bank, Freedom Bank, was merged with and into Seacoast Bank. Prior to the acquisition, Freedom Bank operated 2 branches in St. Petersburg, Florida.
As a result of this acquisition, the Company expects to enhance its presence in St. Petersburg, expand its customer base and leverage operating cost through economies of scale, and positively affect the Company’s operating results.
The Company acquired 100% of the outstanding common stock of Fourth Street. Under the terms of the definitive agreement, each share of Fourth Street common stock was converted into the right to receive 0.1275 share of Seacoast common stock.
| | | | | |
(In thousands, except per share data) | August 21, 2020 |
Number of Fourth Street common shares outstanding | 11,220 | |
Shares issued upon conversion of convertible debt | 5,405 | |
Per share exchange ratio | 0.1275 | |
Number of shares of common stock issued | 2,120 | |
Multiplied by common stock price per share on August 21, 2020 | $ | 19.40 | |
Value of common stock issued | 41,121 | |
Cash paid for Fourth Street vested stock options | 596 | |
Total purchase price | $ | 41,717 | |
The acquisition of Fourth Street was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations. The Company recognized goodwill of $9.0 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 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 becomes known.
| | | | | | | | | | | | |
(In thousands) | | Initially Measured August 21, 2020 | | | | |
Assets: | | | | | | |
Cash | | $ | 38,082 | | | | | |
Investment securities | | 3,498 | | | | | |
Loans | | 303,434 | | | | | |
Bank premises and equipment | | 9,480 | | | | | |
Core deposit intangibles | | 1,310 | | | | | |
Goodwill | | 9,030 | | | | | |
Other assets | | 7,088 | | | | | |
Total assets | | $ | 371,922 | | | | | |
Liabilities: | | | | | | |
Deposits | | $ | 329,662 | | | | | |
Other liabilities | | 543 | | | | | |
Total liabilities | | $ | 330,205 | | | | | |
| | | | | | |
The table below presents information with respect to the fair value and unpaid principal balance of acquired loans at the acquisition date.
| | | | | | | | | | | |
| August 21, 2020 |
(In thousands) | Book Balance | | Fair Value |
Loans: | | | |
Construction and land development | $ | 9,197 | | | $ | 8,851 | |
Commercial real estate - owner-occupied | 77,936 | | | 75,215 | |
Commercial real estate - non owner-occupied | 76,014 | | | 71,171 | |
Residential real estate | 23,548 | | | 23,227 | |
Commercial and financial | 72,745 | | | 68,096 | |
Consumer | 2,748 | | | 2,694 | |
PPP loans | 55,005 | | | 54,180 | |
Total acquired loans | $ | 317,193 | | | $ | 303,434 | |
The table below presents the carrying amount of loans for which, at the date of acquisition, there was evidence of more than insignificant deterioration of credit quality since origination:
| | | | | | |
(In thousands) | August 21, 2020 | |
Book balance of loans at acquisition | $ | 59,455 | | |
Allowance for credit losses at acquisition | (5,763) | | |
Non-credit related discount | (4,319) | | |
Total PCD loans acquired | $ | 49,373 | | |
| | |
The Company believes the deposits assumed in 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 Bank of the Palm Beaches
On March 13, 2020, the Company completed its acquisition of First Bank of the Palm Beaches (“FBPB”). FBPB was merged with and into Seacoast Bank. FBPB operated 2 branches in the Palm Beach market.
As a result of this acquisition, the Company expects to enhance its presence in the Palm Beach market, expand its customer base and leverage operating cost through economies of scale, and positively affect the Company’s operating results.
The Company acquired 100% of the outstanding common stock of FBPB. Under the terms of the definitive agreement, each share of FBPB common stock was converted into the right to receive 0.2000 share of Seacoast common stock.
| | | | | |
(In thousands, except per share data) | March 13, 2020 |
Number of FBPB common shares outstanding | 5,213 | |
Per share exchange ratio | 0.2000 | |
Number of shares of common stock issued | 1,043 | |
Multiplied by common stock price per share on March 13, 2020 | $ | 20.17 | |
Value of common stock issued | 21,031 | |
Cash paid for FBPB vested stock options | 866 | |
Total purchase price | $ | 21,897 | |
The acquisition of FBPB was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations. The Company recognized goodwill of $6.9 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 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 becomes known.
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Initially Measured March 13, 2020 | | Measurement Period Adjustments | | As Adjusted March 13, 2020 |
Assets: | | | | | | |
Cash | | $ | 34,749 | | | $ | 0 | | | $ | 34,749 | |
Investment securities | | 447 | | | 0 | | | 447 | |
Loans | | 146,839 | | | (62) | | | 146,777 | |
Bank premises and equipment | | 6,086 | | | 0 | | | 6,086 | |
Core deposit intangibles | | 819 | | | 0 | | | 819 | |
Goodwill | | 6,799 | | | 62 | | | 6,861 | |
Other assets | | 1,285 | | | 20 | | | 1,305 | |
Total assets | | $ | 197,024 | | | $ | 20 | | | $ | 197,044 | |
Liabilities: | | | | | | |
Deposits | | $ | 173,741 | | | $ | 0 | | | $ | 173,741 | |
Other liabilities | | 1,386 | | | 20 | | | 1,406 | |
Total liabilities | | $ | 175,127 | | | $ | 20 | | | $ | 175,147 | |
The table below presents information with respect to the fair value and unpaid principal balance of acquired loans at the acquisition date.
| | | | | | | | | | | |
| March 13, 2020 |
(In thousands) | Book Balance | | Fair Value |
Loans: | | | |
Construction and land development | $ | 9,493 | | | $ | 9,012 | |
Commercial real estate - owner-occupied | 46,221 | | | 45,171 | |
Commercial real estate - non owner-occupied | 36,268 | | | 35,079 | |
Residential real estate | 47,569 | | | 47,043 | |
Commercial and financial | 9,659 | | | 9,388 | |
Consumer | 1,132 | | | 1,084 | |
Total acquired loans | $ | 150,342 | | | $ | 146,777 | |
The table below presents the carrying amount of loans for which, at the date of acquisition, there was evidence of more than insignificant deterioration of credit quality since origination:
| | | | | | |
(In thousands) | March 13, 2020 | |
Book balance of loans at acquisition | $ | 43,682 | | |
Allowance for credit losses at acquisition | (516) | | |
Non-credit related discount | (128) | | |
Total PCD loans acquired | $ | 43,038 | | |
| | |
The Company believes the deposits assumed in 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 Fourth Street Banking Company
On August 21, 2020, the Company completed its acquisition of Fourth Street Banking Company (“Fourth Street”). Simultaneously, upon completion of the merger of Fourth Street and the Company, Fourth Street's wholly owned subsidiary bank, Freedom Bank, was merged with and into Seacoast Bank. Prior to the acquisition, Freedom Bank operated two2 branches in St. Petersburg, Florida.
As a result of this acquisition, the Company expects to enhance its presence in St. Petersburg, expand its customer base and leverage operating cost through economies of scale, and positively affect the Company’s operating results.
The Company acquired 100% of the outstanding common stock of Fourth Street. Under the terms of the definitive agreement, each share of Fourth Street common stock was converted into the right to receive 0.1275 share of Seacoast common stock.
| | | | | |
(In thousands, except per share data) | August 21, 2020 |
Number of Fourth Street common shares outstanding | 11,220 | |
Shares issued upon conversion of convertible debt | 5,405 | |
Per share exchange ratio | 0.1275 | |
Number of shares of common stock issued | 2,120 | |
Multiplied by common stock price per share on August 21, 2020 | $ | 19.40 | |
Value of common stock issued | 41,121 | |
Cash paid for Fourth Street vested stock options | 596 | |
Total purchase price | $ | 41,717 | |
The acquisition of Fourth Street was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations. The Company recognized goodwill of $9.0 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 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 becomes known.
| | | | | | | | | | | | |
(In thousands) | | Initially Measured August 21, 2020 | | | | |
Assets: | | | | | | |
Cash | | $ | 38,082 | | | | | |
Investment securities | | 3,498 | | | | | |
Loans | | 303,434 | | | | | |
Bank premises and equipment | | 9,480 | | | | | |
Core deposit intangibles | | 1,310 | | | | | |
Goodwill | | 9,030 | | | | | |
Other assets | | 7,088 | | | | | |
Total assets | | $ | 371,922 | | | | | |
Liabilities: | | | | | | |
Deposits | | $ | 329,662 | | | | | |
Other liabilities | | 543 | | | | | |
Total liabilities | | $ | 330,205 | | | | | |
| | | | | | |
The table below presents information with respect to the fair value and unpaid principal balance of acquired loans at the acquisition date.
| | | | | | | | | | | |
| August 21, 2020 |
(In thousands) | Book Balance | | Fair Value |
Loans: | | | |
Construction and land development | $ | 9,197 | | | $ | 8,851 | |
Commercial real estate - owner-occupied | 77,936 | | | 75,215 | |
Commercial real estate - non owner-occupied | 76,014 | | | 71,171 | |
Residential real estate | 23,548 | | | 23,227 | |
Commercial and financial | 72,745 | | | 68,096 | |
Consumer | 2,748 | | | 2,694 | |
PPP loans | 55,005 | | | 54,180 | |
Total acquired loans | $ | 317,193 | | | $ | 303,434 | |
The table below presents the carrying amount of loans for which, at the date of acquisition, there was evidence of more than insignificant deterioration of credit quality since origination:
| | | | | | |
(In thousands) | August 21, 2020 | |
Book balance of loans at acquisition | $ | 59,455 | | |
Allowance for credit losses at acquisition | (5,763) | | |
Non-credit related discount | (4,319) | | |
Total PCD loans acquired | $ | 49,373 | | |
| | |
The Company believes the deposits assumed in 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 for the three and nine months ended September 30, 2020 presents information as if the acquisition of FBPB and Fourth Street occurred at the beginning of 2019, as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2020 | | Nine Months Ended September 30, 2020 | | |
(In thousands, except per share amounts) | 2020 | | 2019 | | 2020 | | 2019 | | |
Net interest income1 | $ | 65,825 | | | $ | 67,090 | | | $ | 205,641 | | | $ | 198,748 | | | |
Net income | 28,238 | | | 27,557 | | | 58,824 | | | 73,238 | | | |
EPS - basic | $ | 0.51 | | | $ | 0.50 | | | $ | 1.08 | | | $ | 1.34 | | | |
EPS - diluted | 0.51 | | | 0.50 | | | 1.07 | | | 1.33 | | | |
1The provision for credit losses of $1.8 million recorded under CECL at the time of the FBPB acquisition and the $4.6 million recorded under CECL at the time of the Freedom Bank acquisition have been excluded from the pro forma information above, which presents information as if the acquisition had occurred on January 1, 2019, prior to the Company's adoption of CECL. | | |
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis is to aid in understanding significant changes in the financial condition of Seacoast Banking Corporation of Florida and its subsidiaries ("Seacoast" or the “Company”) and their results of operations. Nearly all of the Company’s operations are contained in its banking subsidiary, Seacoast National Bank (“Seacoast Bank” or the “Bank”). Such discussion and analysis should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and the related notes included in this report.
The emphasis of this discussion will be on the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019 for the consolidated statements of income. For the consolidated balance sheets, the emphasis of this discussion will be the balances as of September 30, 2020 compared to December 31, 2019.
This discussion and analysis contains statements that may be considered “forward-looking statements” as defined in, and subject to the protections of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. See the following section for additional information regarding forward-looking statements.
For purposes of the following discussion, the words “Seacoast" or the "Company” refer to the combined entities of Seacoast Banking Corporation of Florida and its direct and indirect wholly owned subsidiaries.
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 the Company's beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, and intentions about future performance, and involve known and unknown risks, uncertainties and other factors, any of which may be impacted by the COVID-19 pandemic and related effects on the U.S. economy, which may be beyond the Company's control, and which may cause the actual results, performance or achievements of Seacoast or its wholly-owned banking subsidiary, Seacoast Bank, to be materially different from those set forth in the forward-looking statements.
All statements other than statements of historical fact could be forward-looking statements. You can identify these forward-looking statements through the use of words such as "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;
•adverse effects (economic and otherwise) due to the COVID-19 pandemic on the Company and its customers, counterparties, employees, and third-party service providers, and the adverse impacts to our business, financial position, results of operations, and prospects;
•government or regulatory responses to the COVID-19 pandemic;
•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, including the impact of the adoption of CECL;
•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, including the ability for borrowers under deferred payment programs to return to making full payments; 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, including data security breaches, credential stuffing, malware, “denial-of-service” attacks, “hacking” and identity theft, a failure of which could disrupt our business and result in the disclosure of and/or misuse or misappropriation of confidential or proprietary information, disruption or damage to our systems, increased costs, losses, or adverse effects to our reputation, including heightened cyber risk as a result of increased remote working by our associates;
•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, health emergencies, epidemics or pandemics, 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, including as a result of its participation in the PPP program;
•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;
•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, non-bank financial technology providers, 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 credit losses;
•the risks relating to the recently completed mergers including, without limitation: 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 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
•other factors and risks described under “Risk Factors” herein and in any of the Company's subsequent reports filed with the SEC and available on its website at www.sec.gov.
All written or oral forward-looking statements that are made or are attributable to Seacoast are expressly qualified in their entirety by this cautionary notice. The 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.
Third Quarter 2020
Acquisition of Fourth Street Banking Company
InOn August 21, 2020, Seacoastthe Company completed theits acquisition of Fourth Street Banking Company (“Fourth Street”). Simultaneously, upon completion of the merger of Fourth Street and its wholly-ownedthe Company, Fourth Street's wholly owned subsidiary bank, Freedom Bank, which added $303 million in loanswas merged with and $330 million in deposits. Theinto Seacoast Bank. Prior to the acquisition, supports Seacoast’s growing presence in the attractive St. Petersburg, Florida market. Freedom Bank operated two2 branches in St. Petersburg, which have been converted to Seacoast branches. Consolidation activities and related expenses are mostly complete.Florida.
Impact of Paycheck Protection Program Loans on Comparability Amongst Periods
Fees earned by Seacoast to originate Paycheck Protection Program ("PPP") loans, net of loan-specific costs, totaled $17.2 million, and are deferred and recognized as an adjustment to yield over time. At the end of the second quarter of 2020, Seacoast expected that the PPP forgiveness process would begin quickly, with a significant proportion of loans forgiven within nine months of origination. By the end of the third quarter of 2020, the U.S. Small Business Administration (“SBA”) had not processed any forgiveness applications, changes to various procedures and forms continued, and additional changes to the program are still being considered by Congress. As a result of this acquisition, the SBA loan forgiveness delaysCompany expects to enhance its presence in St. Petersburg, expand its customer base and increased uncertaintyleverage operating cost through economies of scale, and positively affect the Company’s operating results.
The Company acquired 100% of the timingoutstanding common stock of Fourth Street. Under the terms of the definitive agreement, each share of Fourth Street common stock was converted into the right to receive 0.1275 share of Seacoast common stock.
| | | | | |
(In thousands, except per share data) | August 21, 2020 |
Number of Fourth Street common shares outstanding | 11,220 | |
Shares issued upon conversion of convertible debt | 5,405 | |
Per share exchange ratio | 0.1275 | |
Number of shares of common stock issued | 2,120 | |
Multiplied by common stock price per share on August 21, 2020 | $ | 19.40 | |
Value of common stock issued | 41,121 | |
Cash paid for Fourth Street vested stock options | 596 | |
Total purchase price | $ | 41,717 | |
The acquisition of Fourth Street was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations. The Company recognized goodwill of $9.0 million for this acquisition that is nondeductible for tax purposes. Determining fair values of assets and liabilities, especially the loan forgiveness,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 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 becomes known.
| | | | | | | | | | | | |
(In thousands) | | Initially Measured August 21, 2020 | | | | |
Assets: | | | | | | |
Cash | | $ | 38,082 | | | | | |
Investment securities | | 3,498 | | | | | |
Loans | | 303,434 | | | | | |
Bank premises and equipment | | 9,480 | | | | | |
Core deposit intangibles | | 1,310 | | | | | |
Goodwill | | 9,030 | | | | | |
Other assets | | 7,088 | | | | | |
Total assets | | $ | 371,922 | | | | | |
Liabilities: | | | | | | |
Deposits | | $ | 329,662 | | | | | |
Other liabilities | | 543 | | | | | |
Total liabilities | | $ | 330,205 | | | | | |
| | | | | | |
The table below presents information with respect to the fair value and unpaid principal balance of acquired loans at the acquisition date.
| | | | | | | | | | | |
| August 21, 2020 |
(In thousands) | Book Balance | | Fair Value |
Loans: | | | |
Construction and land development | $ | 9,197 | | | $ | 8,851 | |
Commercial real estate - owner-occupied | 77,936 | | | 75,215 | |
Commercial real estate - non owner-occupied | 76,014 | | | 71,171 | |
Residential real estate | 23,548 | | | 23,227 | |
Commercial and financial | 72,745 | | | 68,096 | |
Consumer | 2,748 | | | 2,694 | |
PPP loans | 55,005 | | | 54,180 | |
Total acquired loans | $ | 317,193 | | | $ | 303,434 | |
The table below presents the carrying amount of loans for which, at the date of acquisition, there was evidence of more than insignificant deterioration of credit quality since origination:
| | | | | | |
(In thousands) | August 21, 2020 | |
Book balance of loans at acquisition | $ | 59,455 | | |
Allowance for credit losses at acquisition | (5,763) | | |
Non-credit related discount | (4,319) | | |
Total PCD loans acquired | $ | 49,373 | | |
| | |
The Company believes the deposits assumed in 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 Bank of the Palm Beaches
On March 13, 2020, the Company changedcompleted its acquisition of First Bank of the Palm Beaches (“FBPB”). FBPB was merged with and into Seacoast Bank. FBPB operated 2 branches in the Palm Beach market.
As a result of this acquisition, the Company expects to enhance its presence in the Palm Beach market, expand its customer base and leverage operating cost through economies of scale, and positively affect the Company’s operating results.
The Company acquired 100% of the outstanding common stock of FBPB. Under the terms of the definitive agreement, each share of FBPB common stock was converted into the right to receive 0.2000 share of Seacoast common stock.
| | | | | |
(In thousands, except per share data) | March 13, 2020 |
Number of FBPB common shares outstanding | 5,213 | |
Per share exchange ratio | 0.2000 | |
Number of shares of common stock issued | 1,043 | |
Multiplied by common stock price per share on March 13, 2020 | $ | 20.17 | |
Value of common stock issued | 21,031 | |
Cash paid for FBPB vested stock options | 866 | |
Total purchase price | $ | 21,897 | |
The acquisition of FBPB was accounted for under the acquisition method in accordance with ASC Topic 805, Business Combinations. The Company recognized goodwill of $6.9 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 adjustment reflected in the table below are the result of information obtained subsequent to the initial measurement.
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Initially Measured March 13, 2020 | | Measurement Period Adjustments | | As Adjusted March 13, 2020 |
Assets: | | | | | | |
Cash | | $ | 34,749 | | | $ | 0 | | | $ | 34,749 | |
Investment securities | | 447 | | | 0 | | | 447 | |
Loans | | 146,839 | | | (62) | | | 146,777 | |
Bank premises and equipment | | 6,086 | | | 0 | | | 6,086 | |
Core deposit intangibles | | 819 | | | 0 | | | 819 | |
Goodwill | | 6,799 | | | 62 | | | 6,861 | |
Other assets | | 1,285 | | | 20 | | | 1,305 | |
Total assets | | $ | 197,024 | | | $ | 20 | | | $ | 197,044 | |
Liabilities: | | | | | | |
Deposits | | $ | 173,741 | | | $ | 0 | | | $ | 173,741 | |
Other liabilities | | 1,386 | | | 20 | | | 1,406 | |
Total liabilities | | $ | 175,127 | | | $ | 20 | | | $ | 175,147 | |
The table below presents information with respect to the fair value and unpaid principal balance of acquired loans at the acquisition date.
| | | | | | | | | | | |
| March 13, 2020 |
(In thousands) | Book Balance | | Fair Value |
Loans: | | | |
Construction and land development | $ | 9,493 | | | $ | 9,012 | |
Commercial real estate - owner-occupied | 46,221 | | | 45,171 | |
Commercial real estate - non owner-occupied | 36,268 | | | 35,079 | |
Residential real estate | 47,569 | | | 47,043 | |
Commercial and financial | 9,659 | | | 9,388 | |
Consumer | 1,132 | | | 1,084 | |
Total acquired loans | $ | 150,342 | | | $ | 146,777 | |
The table below presents the carrying amount of loans for which, at the date of acquisition, there was evidence of more than insignificant deterioration of credit quality since origination:
| | | | | | |
(In thousands) | March 13, 2020 | |
Book balance of loans at acquisition | $ | 43,682 | | |
Allowance for credit losses at acquisition | (516) | | |
Non-credit related discount | (128) | | |
Total PCD loans acquired | $ | 43,038 | | |
| | |
The Company believes the deposits assumed in 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.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis is to aid in understanding significant changes in the financial condition of Seacoast Banking Corporation of Florida and its subsidiaries ("Seacoast" or the “Company”) and their results of operations. Nearly all of the Company’s operations are contained in its banking subsidiary, Seacoast National Bank (“Seacoast Bank” or the “Bank”). Such discussion and analysis should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and the related notes included in this report.
The emphasis of this discussion will be on the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020 for the consolidated statements of income. For the consolidated balance sheets, the emphasis of this discussion will be the balances as of June 30, 2021 compared to December 31, 2020.
This discussion and analysis contains statements that may be considered “forward-looking statements” as defined in, and subject to the protections of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. See the following section for additional information regarding forward-looking statements.
For purposes of the following discussion, the words “Seacoast" or the "Company” refer to the combined entities of Seacoast Banking Corporation of Florida and its direct and indirect wholly owned subsidiaries.
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 the Company's beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, and intentions about future performance, and involve known and unknown risks, uncertainties and other factors, any of which may be impacted by the COVID-19 pandemic and related effects on the U.S. economy, which may be beyond the 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 could be forward-looking statements. You can identify these forward-looking statements through the use of words such as "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;
•the adverse impact of COVID-19 and variants thereof (economic and otherwise) on the Company and its customers, counterparties, employees, and third-party service providers, and the adverse impacts to our business, financial position, results of operations, and prospects, including the ongoing potential to adversely affect Seacoast’s revenues and values of its assets and liabilities, lead to a tightening of credit, and increase stock price volatility;
•government or regulatory responses to the COVID-19 pandemic, including the risk of inflation and interest rate increases resulting from monetary and fiscal stimulus response, which may have unanticipated adverse effects on our customers, and our financial condition and results of operations;
•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, including the impact of the adoption of the current expected credit losses (“CECL”) methodology;
•our participation in the Paycheck Protection Program (“PPP”);
•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;
•governmental actions to stimulate the economy and provide support for small businesses have resulted in material increases to the Company’s liquidity position, adversely affecting the net interest margin. The duration of this liquidity remaining on the balance sheet is uncertain;
•changes in borrower credit risks and payment behaviors, including as a result of the financial impact of COVID-19;
•changes in retail distribution strategies, customer preferences and behavior;
•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 and in real estate collateral in the state of Florida;
•inaccuracies or other failures from the accelerated fee recognition schedule useduse of models, including 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 and integrate 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, including as a result of employees working remotely;
•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, health emergencies, epidemics or pandemics, 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, including as a result of the Company’s participation in the second quarterPPP;
•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;
•the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, non-bank financial technology providers, 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 credit losses;
•the risks relating to the Legacy Bank of Florida proposed merger including, without limitation: the timing to consummate the proposed merger; the risk that a condition to closing of the proposed merger may not be satisfied; the risk that the merger may not be completed at all; the diversion of management time on issues related to the proposed merger; unexpected transaction costs, including the costs of integrating operations; the risks that the businesses will not be integrated successfully or 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 merger 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 expectation; the risk of customer and employee loss and business disruptions, including, without limitation, as the result of difficulties in maintaining relationships with employees; increased competitive pressures on solicitations of customers by competitors; as well as difficulties and risks inherent with entering new markets; and,
•other factors and risks described under “Risk Factors” herein and in any of the Company's subsequent reports filed with the SEC and available on its website at www.sec.gov.
All written or oral forward-looking statements that are made or are attributable to Seacoast are expressly qualified in their entirety by this cautionary notice. The 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.
Business Developments
Impact of COVID-19 Pandemic
The COVID-19 pandemic and related restrictive measures taken by governments, businesses and individuals have caused unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the United States and globally, including the markets that we serve. As the restrictive measures have been eased during 2020 and began recognizing fees on a schedule alignedinto 2021, the U.S. economy has begun to recover and with the full contractual maturityavailability and distribution of multiple COVID-19 vaccines, we anticipate continued improvements in commercial and consumer activity and the U.S. economy. While the overall outlook has improved based on the availability of the loansvaccine to all adults and older children, there has been a recent rise in hospitalization and infection rates in the third quartercountry, but especially in our footprint, caused by the Delta variant, a rapidly spreading strain of 2020. This resulted in only $0.2 million in PPP fees recognized incoronavirus. Therefore, the third quarterrisk of 2020 comparedfurther resurgence and possible reimplementation of restrictions remains.
While indications of recovery exist, we recognize that our business and consumer customers are experiencing varying degrees of financial distress, which is expected to $4.0 million incontinue into the second quarterhalf of 2020. The uncertainty in2021, especially if new COVID-19 variant infections increase (or are not adequately contained) and new economic restrictions are mandated. Changing consumer behavior and the SBA's forgiveness processimpact of government support programs including the PPP have contributed to higher customer deposit balances, which may adversely affect our net interest income and net interest margin. Commercial activity has improved, but has not returned to the levels existing prior to the outbreak of the pandemic, which may result in significant variabilityour customers’ inability to meet their loan obligations to us. In addition, the economic pressures and uncertainties related to the COVID-19 pandemic have resulted in changes in consumer spending behaviors, which may negatively impact the demand for loans and other services we offer. Our borrowers include customers in industries such as hotel/lodging, restaurants and retail and commercial real estate, all of fee recognitionwhich have been significantly impacted by the COVID-19 pandemic, or remain at heightened risk of future negative economic impact, which may be caused or exacerbated by increased COVID-19 variant infections, vaccine hesitancy, or new economic restrictions in future periods. This is solelyour footprint. We recognize that these industries may take longer to recover as consumers may be hesitant to return to full social interaction or may change their spending habits on a timing issue and does not affect the $17.2 million total fee income Seacoast will recognizemore permanent basis as these loans are forgiven or mature. If the contractual term, rather than an accelerated term, had been used to recognize fees since the inceptiona result of the PPP program, PPP fee incomepandemic. We continue to monitor these customers closely.
We have taken deliberate actions to maintain our balance sheet strength to serve our clients and communities, including maintaining higher levels of liquidity and managing our assets and liabilities in eachorder to maintain a strong capital position and support business growth and acquisition opportunities; however, future economic conditions are subject to significant uncertainty. Uncertainties associated with the pandemic include the duration of the secondCOVID-19 outbreak and third quartersany related variant infections, the availability, acceptance, and effectiveness of 2020 would have been $2.1 million. The Company expectsCOVID-19 vaccines, the impact to recognize approximately $2.1 million in eachour customers, employees and vendors and the impact to the economy as a whole. We continuously seek to monitor and anticipate developments, but cannot predict all of the next six quarters if no early forgiveness occurs, although actual early forgiveness events may create variability in timing.
Third Quarter 2020 Results
For the third quartervarious adverse effects COVID-19 will have on our business, financial condition, liquidity or results of 2020, the Company reported net income of $22.6 million, or $0.42 per average diluted share, compared to $25.1 million, or $0.47, for the second quarter of 2020 and $25.6 million, or $0.49, for the third quarter of 2019. For the nine months ended September 30, 2020, net income totaled $48.4 million, or $0.91 per average diluted share, compared to $71.6 million, or $1.38 for the nine months ended September 30, 2019. Adjusted net income1 for the third quarter of 2020 totaled $27.3 million, or $0.50 per average diluted share, compared to $25.5 million, or $0.48, for the second quarter of 2020 and $27.7 million, or $0.53, for the third quarter of 2019. For the nine months ended September 30, 2020, adjusted net income1 totaled $58.3 million, or $1.09 per average diluted share, compared to $77.8 million, or $1.50, for the nine months ended September 30, 2019.
1Non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP.operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Third | | Second | | Third | | Nine Months Ended |
| | Quarter | | Quarter | | Quarter | | September 30, |
| | 2020 | | 2020 | | 2019 | | 2020 | | 2019 |
Return on average tangible assets | | 1.20 | % | | 1.37 | % | | 1.61 | % | | 0.93 | % | | 1.53 | % |
Return on average tangible shareholders' equity | | 11.35 | | | 13.47 | | | 14.73 | | | 8.71 | | | 14.63 | |
Efficiency ratio | | 61.65 | | | 50.11 | | | 48.62 | | | 57.15 | | | 52.85 | |
| | | | | | | | | | |
Adjusted return on average tangible assets1 | | 1.38 | % | | 1.33 | % | | 1.67 | % | | 1.04 | % | | 1.59 | % |
Adjusted return on average tangible shareholders' equity1 | | 13.06 | | | 13.09 | | | 15.30 | | | 9.80 | | | 15.20 | |
Adjusted efficiency ratio1 | | 54.82 | | | 49.60 | | | 48.96 | | | 52.64 | | | 52.05 | |
1Non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP. |
Results of Operations
For the three months ended September 30, 2020, the Company's results reflect the impact of $4.3 million in merger-related expenses primarily related to the acquisition of Freedom Bank, and $0.5 million in costs relating to the simultaneous consolidation of a legacy branch in St. Petersburg. Results for the three months ended September 30, 2020 were also affected by the change in the timing of recognition of PPP loan fees. The second quarter of 2020 benefited from higher loan production driven by2021, the PPP program, which resulted in higher deferralsCompany reported net income of related salary expenses. During$31.4 million, or $0.56 per average diluted share, compared to $33.7 million, or $0.60, for the ninefirst quarter of 2021 and $25.1 million, or $0.47, for the second quarter of 2020. For the six months ended SeptemberJune 30, 2020, merger related charges2021, net income totaled $9.1$65.1 million including costsor $1.17 per average diluted share, an increase of $39.3 million, or 153%, compared to acquire both First Bankthe six months ended June 30, 2020. Adjusted net income1 for the second quarter of 2021 totaled $33.3 million, or $0.59 per average diluted share, compared to $35.5 million, or $0.63, for the Palm Beaches ("FBPB") in March 2020first quarter of 2021 and Freedom Bank in August$25.5 million, or $0.48, for the second quarter of 2020. For the six months ended June 30, 2021, adjusted net income1 totaled $68.7 million, or $1.23 per average diluted share, compared to $30.9 million, or $0.59 per average diluted share for the six months ended June 30, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Second | | First | | Second | | Six Months Ended |
| | Quarter | | Quarter | | Quarter | | June 30, |
| | 2021 | | 2021 | | 2020 | | 2021 | | 2020 |
Return on average tangible assets | | 1.48 | % | | 1.70 | % | | 1.37 | % | | 1.58 | % | | 0.78 | % |
Return on average tangible shareholders' equity | | 13.88 | | | 15.62 | | | 13.47 | | | 14.73 | | | 7.27 | |
Efficiency ratio | | 54.93 | | | 53.21 | | | 50.11 | | | 54.05 | | | 54.88 | |
| | | | | | | | | | |
Adjusted return on average tangible assets1 | | 1.52 | % | | 1.75 | % | | 1.33 | % | | 1.63 | % | | 0.86 | % |
Adjusted return on average tangible shareholders' equity1 | | 14.27 | | | 16.01 | | | 13.09 | | | 15.12 | | | 8.02 | |
Adjusted efficiency ratio1 | | 53.49 | | | 51.99 | | | 49.60 | | | 52.72 | | | 51.53 | |
1Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP. |
Net Interest Income and Margin
Net interest income (on a fully taxable equivalent basis)2for the thirdsecond quarter of 20202021 totaled $63.6$65.8 million, decreasing $3.8$0.8 million, or 6%1%, compared to the first quarter of 2021, and decreasing $1.5 million, or 2%, compared to the second quarter of 2020, and increasing $2.62020. For the six months ended June 30, 2021, net interest income totaled $132.4 million, an increase of $2.0 million, or 4%2%, compared to the thirdsix months ended June 30, 2020. The decrease quarter-over-quarter reflects lower income on Paycheck Protection Program (“PPP”) loans, partially offset by lower interest expense on deposits, while the decrease from the second quarter of 2019. For2020 reflects the nine months ended September 30, 2020, netimpact of the lower interest incomerate environment. Net interest margin (on a fully tax equivalent basis)1 totaled $194.3 million, an increasewas 3.23% in the second quarter of $12.2 million, or 7%,2021, compared to the nine months ended September 30, 2019. Net interest margin was 3.40%3.51% in the thirdfirst quarter 2020, compared toof 2021 and 3.70% in the second quarter 2020 and 3.89% inof 2020. The decrease during the thirdsecond quarter of 2019. The decrease in the third quarter of 20202021 was largely the result of the decreasesignificant growth in fees recognized on PPP loans. Excluding the impact of PPP loanstransaction account deposit balances. This increase in funding occurred across our customer base at near-zero rates, as new clients were onboarded and accretion of purchase discount on acquired loans,existing clients continue to see expansion in cash balances. The resulting increase in liquidity negatively impacted net interest margin decreased fourby 23 basis points in the thirdsecond quarter of 2021. Excluding this increase in liquidity, the remaining decline in net interest margin compared to the first quarter of 2021 is attributed to lower PPP interest and fees as a result of declining balances as PPP loans are forgiven. Compared to the first quarter of 2021, securities yields declined by only two basis points to 1.63% and non-PPP loan yields declined by only one basis point to 4.36% during the second quarter of 2021. Offsetting and favorable was the decline in the cost of deposits from 13 basis points in the first quarter of 2021 to eight basis points in the second quarter of 2021. The effect on net interest margin of purchase discounts on acquired loans was an increase of 14 basis points in the second quarter of 2021 compared to an increase of 15 basis points in the first quarter of 2021 and an increase of 16 basis points in the second quarter of 2020. Contributing to the four basis point decline, the yieldThe effect of interest and fees on PPP loans declined ninewas an increase of six basis points reflecting higher paydownsin the second quarter of 2021, an increase of 11 basis points in the first quarter of 2021 and refinancings, andan increase of eight basis points in the second quarter of 2020. For the six months ended June 30, 2021, net interest margin (on a fully tax equivalent basis)1 was 3.37%, compared to 3.81% for the six months ended June 30, 2020. The yield on securities declined 56 basis points, affected byfrom 2.85% for the six months ended June 30, 2020 to 1.64% for the six months ended June 30, 2021, reflecting the impact of a lower interest rate resetsenvironment including the payoff of higher yielding securities being replaced with lower yields on new purchases. The yield on non-PPP loans declined from 4.72% for the six months ended June 30, 2020 to 4.36% for the six months ended June 30, 2021, reflecting the impact of the lower interest rate environment. Offsetting and faster prepayments, as well as additional investments of excess liquidity into securities. These declines were partially offset by lowerfavorable was the decline in the cost of deposits which decreased sevenfrom 43 basis points for the six months ended June 30, 2020 to 2410 basis points duringfor the quarter,six months ended June 30, 2021.
The effect on net interest margin of purchase discounts on acquired loans was an increase of 15 basis points for the six months ended June 30, 2021 compared to an increase of 21 basis points for the six months ended June 30, 2020. The effect of interest
1Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP.
and fees on PPP loans was an increase of eight basis points for the six months ended June 30, 2021,compared to an increase of four basis points for the six months ended June 30, 2020.
The cost of deposits declined to eight basis points in the second quarter of 2021, compared to 13 basis points in the first quarter of 2021 and 31 basis points in the second quarter of 2020 and 73 basis points in the third quarter of 2019.2020. Lower cost of deposits reflects lower market rates, and a favorable shift in product mix to include a higher proportion of noninterest bearing demand deposits to total deposits. We expectFor the six months ended June 30, 2021, the cost of deposits to further decline in the fourth quarter of 2020.
For the nine months ended September 30, 2020, net interest margin was 3.67%,ten basis points, a decrease of 2833 basis points compared to the ninesix months ended SeptemberJune 30, 2019. For the nine months ended September 30, 2020, the cost of deposits was 36 basis points, compared to 72 basis points for the nine months ended September 30, 2019. Decreases in net interest margin and the cost of deposits reflect the impact of the 150 basis point decrease in the fed funds rate in March 2020, which has since driven contractions in both the yields on interest-bearing assets and the cost of interest-bearing liabilities. In addition, PPP loan balances have yielded an average 2.60% during the nine months ended September 30, 2020, which has negatively affected the total loan yield.
2Non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP.
The following table details the trend for net interest income and margin results (on a tax equivalent basis)1, the yield on earning assets and the rate paid on interest bearing liabilities for the periods specified:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except ratios) | | Net Interest Income1 | | Net Interest Margin1 | | Yield on Earning Assets1 | | Rate on Interest Bearing Liabilities |
Third quarter 2020 | | $ | 63,621 | | | 3.40 | % | | 3.65 | % | | 0.40 | % |
Second quarter 2020 | | 67,388 | | | 3.70 | % | | 4.03 | % | | 0.51 | % |
Third quarter 2019 | | 61,027 | | | 3.89 | % | | 4.65 | % | | 1.13 | % |
| | | | | | | | |
Nine Months Ended September 30, 2020 | | 194,300 | | | 3.67 | % | | 4.05 | % | | 0.59 | % |
Nine Months Ended September 30, 2019 | | 182,107 | | | 3.95 | % | | 4.72 | % | | 1.14 | % |
1On tax equivalent basis, a non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except ratios) | | Net Interest Income1 | | Net Interest Margin1 | | Yield on Earning Assets1 | | Rate on Interest Bearing Liabilities |
Second quarter 2021 | | $ | 65,933 | | | 3.23 | % | | 3.33 | % | | 0.16 | % |
First quarter 2021 | | 66,741 | | | 3.51 | % | | 3.65 | % | | 0.23 | % |
Second quarter 2020 | | 67,388 | | | 3.70 | % | | 4.03 | % | | 0.51 | % |
| | | | | | | | |
Six months ended June 30, 2021 | | 132,674 | | | 3.37 | % | | 3.49 | % | | 0.19 | % |
Six months ended June 30, 2020 | | 130,679 | | | 3.81 | % | | 4.27 | % | | 0.70 | % |
1On tax equivalent basis, a non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP. |
Total average loans increased $132.3decreased $161.1 million, or 3%, for the second quarter of 2021 compared to the first quarter of 2021, and decreased $130.3 million, or 2%, for the third quarter of 2020 compared tofrom the second quarter of 2020, and increased $914.9 million, or 18%, from the third quarter of 2019.2020. The increasedecrease from the prior quarter includesreflects a net decrease in PPP loans as a result of loan forgiveness. The decrease from the impactprior year reflects PPP loan forgiveness and a conservative slowdown in originations of $303.4 million incommercial and consumer loans, partially offset by loans acquired from Freedom Bank in the third quarter of 2020. The increase from prior year reflects the Company's participation in the PPP program and the impact of the acquisitions of FBPB and Freedom Bank.
Average loans as a percentage of average earning assets totaled 79%68% for the thirdsecond quarter of 2020,2021, 75% for the first quarter of 2021 and 78% for the second quarter of 2020 and 79% for the third quarter2020.
Loan production isand pipelines (loans in underwriting and approval or approved and not yet closed) are detailed in the following table for the periods specified:
| | | Third | | Second | | Third | | Nine Months Ended | | Second | | First | | Second | | Six Months Ended |
| | Quarter | | Quarter | | Quarter | | September 30, | | Quarter | | Quarter | | Quarter | | June 30, |
(In thousands) | (In thousands) | | 2020 | | 2020 | | 2019 | | 2020 | | 2019 | (In thousands) | | 2021 | | 2021 | | 2020 | | 2021 | | 2020 |
Commercial pipeline at period end | Commercial pipeline at period end | | $ | 256,191 | | | $ | 117,042 | | | $ | 396,422 | | | $ | 256,191 | | | $ | 396,422 | | Commercial pipeline at period end | | $ | 322,014 | | | $ | 240,871 | | | $ | 117,042 | | | $ | 322,014 | | | $ | 117,042 | |
Commercial loan originations | Commercial loan originations | | 88,245 | | | 106,857 | | | 325,407 | | | 378,432 | | | 749,467 | | Commercial loan originations | | 193,028 | | | 204,253 | | | 106,857 | | | 397,281 | | | 290,187 | |
| Residential pipeline - saleable at period end | Residential pipeline - saleable at period end | | 149,896 | | | 94,666 | | | 35,136 | | | 149,896 | | | 35,136 | | Residential pipeline - saleable at period end | | 60,585 | | | 92,141 | | | 94,666 | | | 60,585 | | | 94,666 | |
Residential loans-sold | | 162,468 | | | 122,459 | | | 80,758 | | | 347,792 | | | 174,707 | | |
Residential loans - sold | | Residential loans - sold | | 120,099 | | | 138,337 | | | 122,459 | | | 258,436 | | | 185,324 | |
| Residential pipeline - portfolio at period end | Residential pipeline - portfolio at period end | | 33,374 | | | 13,199 | | | 43,378 | | | 33,374 | | | 43,378 | | Residential pipeline - portfolio at period end | | 54,132 | | | 72,448 | | | 13,199 | | | 54,132 | | | 13,199 | |
Residential loans-retained | | 25,404 | | | 23,539 | | | 22,365 | | | 74,719 | | | 123,765 | | |
Residential loans - retained | | Residential loans - retained | | 118,126 | | | 46,620 | | | 23,539 | | | 164,746 | | | 49,315 | |
| Consumer pipeline at period end | Consumer pipeline at period end | | 17,094 | | | 30,647 | | | 29,635 | | | 17,094 | | | 29,635 | | Consumer pipeline at period end | | 31,748 | | | 28,127 | | | 30,647 | | | 31,748 | | | 30,647 | |
Consumer originations | Consumer originations | | 62,293 | | | 57,956 | | | 59,933 | | | 171,765 | | | 156,889 | | Consumer originations | | 63,702 | | | 46,745 | | | 57,956 | | | 110,447 | | | 109,472 | |
| PPP originations | PPP originations | | 8,276 | | | 590,718 | | | — | | | 598,994 | | | — | | PPP originations | | 23,529 | | | 232,478 | | | 590,718 | | | 256,007 | | | 590,718 | |
| |
Commercial originations during the thirdsecond quarter of 20202021 were $88.2$193.0 million, a decrease of $18.6$11.2 million, or 17%5%, compared to the first quarter of 2021, and an increase of $86.2 million, or 81%, compared to the second quarter of 2020 and a decrease of $237.2 million, or 73%, compared to the third quarter of 2019. Commercial loan origination activity in the third quarter of 2020 reflects the continued adherence to underwriting guidelines in the current economic environment, lesser pipeline-building activities during the periods of government imposed shutdowns earlier in 2020, and lower demand for credit facilities from business customers.2020.
The commercial pipeline increased $139.1$81.1 million, or 119%34%, to $256.2$322.0 million at SeptemberJune 30, 20202021, compared to March 31, 2021, and increased $205.0 million, or 175%, compared to June 30, 2020. The Company has continued to maintain its disciplined credit culture, focusing only on relationshipsincreases reflect increasing demand in line with strong balance sheets that can support significant stress.Florida’s expanding economy and the addition of new commercial bankers.
The Company originates residential mortgage loans identified for sale to investors in the secondary market. The Company uses rate locks with investors at the time of application, thereby eliminating interest rate risk. Saleable loan production has continued to increase, reflecting a robust residential refinance market and strength in the Florida housing market. Residential loans
originated for sale in the secondary market were $162.5totaled $120.1 million in the thirdsecond quarter of 2020,2021, compared to $138.3 million in the first quarter of 2021 and $122.5 million in the second quarter of 2020, a decrease of 13% and $80.8 milliona decrease of 2%, respectively. Refinance activity has slowed from the peaks seen in the third quarter of 2019, an increase of 33%last several quarters, and 101%, respectively. The residential lending team has adapted quickly to heightened demand and has increased service levels to homebuyers, refinance customers, and local real estate professionals to generate substantial growth.housing inventory is low. Residential saleable pipelines were $149.9$60.6 million as of SeptemberJune 30, 2020,2021, compared to $92.1 million as of March 31, 2021 and $94.7 million as of June 30, 2020, an increase of 58%.2020.
Residential loan production retained in the portfolio for the thirdsecond quarter of 20202021 was $25.4$118.1 million compared to $46.6 million in the first quarter of 2021 and $23.5 million in the second quarter of 2020, and $22.4 million in the third quarter of 2019, an increase of 8%153% and 13%an increase of 402%, respectively. The pipeline of residential loans intended to be retained in the portfolio was $33.4$54.1 million as of SeptemberJune 30, 2020,2021, compared to $72.4 million as of March 31, 2021, and $13.2 million as of June 30, 2020, an increase2020. Residential loans retained in the second quarter of 153%.2021 includes a $38.4 million purchased pool consisting of 30-year fixed rate jumbo residential loans.
Consumer originations totaled $62.3$63.7 million during the thirdsecond quarter of 2020,2021, an increase of $4.3$17.0 million, or 7%36%, from the first quarter of 2021 and an increase of $5.7 million, or 10%, from the second quarter of 2020 and an increase of $2.4 million, or 4%, from the third quarter of 2019.2020. The consumer pipeline was $17.1 million as of September 30, 2020, compared to $30.6$31.7 million as of June 30, 2021, compared to $28.1 million as of March 31, 2021 and $30.6 million at June 30, 2020.
In March 2020, a decrease of 44%.the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law. The decrease was primarilyCARES Act includes provisions for the result of lower demand for home equity lines of credit, as customers are using first mortgage refinancing as an economically beneficial alternative.
Seacoast has assisted borrowers with more than 5,500 loans originatedPaycheck Protection Program (“PPP”) offered through the PPPU.S. Small Business Administration (“SBA”). Loans originated under this program and, when combinedhave a contractual rate of interest of 1% with PPP loans acquired from Freedom Bank, outstanding balances totaled $638.8 million at September 30, 2020. Under the terms of the SBA's program, principal and interest on PPP loansthat may be forgiven, provided that the borrower uses the funds in a manner consistent with PPP guidelines. Seacoast has assisted more than 8,000 borrowers through the program's guidelines. As of SeptemberPPP since inception, $529.7 million in PPP loan balances have been forgiven, and remaining outstanding balances total $364.1 million at June 30, 2020, the SBA had not processed any forgiveness applications. Significant uncertainty remains about when and if borrowers will seek and qualify for forgiveness, and therefore uncertainty remains about the life of these loans.2021.
Average debt securities increased $190.7$78.6 million, or 16.5%5%, forduring the thirdsecond quarter 2020of 2021 compared to the first quarter of 2021, and were $499.9 million, or 43%, higher compared to the second quarter 2020, and were $153.1 million, or 13%, higher compared to the third quarter of 2019.2020. Increases from the second quarter of 2020 reflect the impactinvestment of purchases of $387.6 million,excess liquidity, partially offset by maturities of $96.7 million. Purchases in the third quarter 2020 were primarily government-sponsored mortgage-backed securities, with an average yield of 1.31%.paydowns and maturities.
The cost of average interest-bearing liabilities contracted 11in the second quarter of 2021 to 16 basis points infrom 23 basis points for the three months ended September 30, 2020 to 40 basis pointsfirst quarter of 2021, and from 51 basis points reflectingfor the impact of higher deposit balances and decreases in underlying market rates. The Company continues to benefit from a low-cost deposit franchise. During the thirdsecond quarter of 2020, the Company acquired $330 million in deposits from Freedom Bank, including $141.3 million in noninterest bearing demand deposits. Noninterest bearing demand deposits at September 30, 2020 represented 35% of total deposits compared to 34% at June 30, 2020. The cost of average total deposits (including noninterest bearing demand deposits) in the third quarter of 2020 was 0.24% compared to 0.31% in the second quarter of 2020 and 0.73%2021 was 8 basis points compared to 13 basis points in the third quarter of 2019.
Customer relationship funding is detailed in the following table for the periods specified:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Customer Relationship Funding | | | | | | | | | | |
| | September 30, | | June 30, | | March 31, | | December 31, | | September 30, |
(In thousands, except ratios) | | 2020 | | 2020 | | 2020 | | 2019 | | 2019 |
Noninterest demand | | $ | 2,400,744 | | | $ | 2,267,435 | | | $ | 1,703,628 | | | $ | 1,590,493 | | | $ | 1,652,927 | |
Interest-bearing demand | | 1,385,445 | | | 1,368,146 | | | 1,234,193 | | | 1,181,732 | | | 1,115,455 | |
Money market | | 1,457,078 | | | 1,232,892 | | | 1,124,378 | | | 1,108,363 | | | 1,158,862 | |
Savings | | 655,072 | | | 619,251 | | | 554,836 | | | 519,152 | | | 528,214 | |
Time certificates of deposit | | 1,016,504 | | | 1,179,059 | | | 1,270,464 | | | 1,185,013 | | | 1,217,683 | |
Total deposits | | $ | 6,914,843 | | | $ | 6,666,783 | | | $ | 5,887,499 | | | $ | 5,584,753 | | | $ | 5,673,141 | |
| | | | | | | | | | |
Customer sweep accounts | | $ | 89,508 | | | $ | 92,125 | | | $ | 64,723 | | | $ | 86,121 | | | $ | 70,414 | |
| | | | | | | | | | |
Noninterest demand deposits as % of total deposits | | 35 | % | | 34 | % | | 29 | % | | 28 | % | | 29 | % |
The Company’s focus on convenience, with high-quality customer service, expanded digital offerings and distribution channels provides stable, low-cost core deposit 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. Seacoast believes that digital product offerings are central to core deposit growth and have proved to be of meaningful value to its customers in this environment. Seacoast's call center and retail associates continue to lead the market in availability and customer service standards, with the call center far out-performing large bank call center wait times and service level standards. The impacts of PPP and individual stimulus payments, as well as the acquisition of FBPB in the first quarter of 20202021 and Freedom Bank31 basis points in the thirdsecond quarter of 2020, have all contributed to higher deposit balances. The Company has also seen areflecting continued shift toward mobile engagement as customers recognize the easerepricing downward of accessinterest-bearing deposits and security features of mobile engagement. At September 30, 2020, registered mobile devices had increased 14% compared to September 30, 2019, while online users increased 13% in the same time period. Growth is coming from both consumer and business customers utilizing the convenience of mobile and online channels. deposits.
During the thirdsecond quarter of 2020,2021, average transaction deposits (noninterest and interest bearing demand) increased $248.9$459.3 million, or 7%11%, compared to the first quarter of 2021 and increased $1.1 billion, or 32%, compared to the second quarter of 2020, reflecting the inflow of new customers and increased $901.8 million, or 33%, compared to the third quarter of 2019. Along with new and acquired relationships,higher deposit programs and digital sales have improved the Company's market share and deepened relationships withbalances for existing customers.
The Company’s deposit mix remains favorable, with 84%93% of average deposit balances comprised of savings, money market, and demand deposits for the ninesix months ended SeptemberJune 30, 2020.2021. Seacoast's average cost of deposits, including noninterest bearing demand deposits, decreased to 0.36%10 basis points for the ninesix months ended SeptemberJune 30, 20202021 compared to 0.72%43 basis points for the ninesix months ended SeptemberJune 30, 2019,2020, reflecting the lower rates after the Federal Reserve actions beginning in the third quarter of 2019interest rate environment and shifts in deposit mix with a higher proportion of low cost deposits. Brokered CDs totaled $381.0$20.0 million at SeptemberJune 30, 2020,2021, with ana weighted average rate of 1.09%0.32%. CD maturities are laddered, with $147.2 million maturing in the fourth quarter of 2020.
Short-term borrowings, principally comprised of sweepSweep repurchase agreements with customers decreased $38.3increased $41.3 million, or 33%57%, to anyear-over-year. For the six months ended June 30, 2021, the average balance of $78.8was $114.2 million for the nine months ended September 30, 2020 compared to an average balance of $117.1$72.9 million for the ninesix months ended SeptemberJune 30, 2019. The decrease reflects a shift into interest-bearing deposits attributed to an expansion of deposit product offerings with similar characteristics to sweep repurchase products.2020. The average rate on customer sweep repurchase accounts was 0.41%0.13% for the ninesix months ended SeptemberJune 30, 2020,2021, compared to 1.38%0.55% for the same period during 2019.six months ended June 30, 2020. No federal funds purchased were utilized at SeptemberJune 30, 2020 or September2021 nor June 30, 2019.2020.
The Company had no FHLB borrowings averaged $180.9 million forduring the ninesix months ended SeptemberJune 30, 2020, increasing $65.6 million, or 57%,2021 compared to the same period in 2019. The average rate on FHLB borrowings for the nine months ended September 30, 2020 was 1.08% compared to 2.51% for the nine months ended September 30, 2019. FHLB borrowings outstanding were $35.0$224.9 million at September 30, 2020, with an average rate of 0.72%, maturing in 2023.1.14% for the six months ended June 30, 2020. The decrease reflects the impact of higher average deposit balances that were sufficient to fund the Company’s liquidity needs during 2021.
For the ninesix months ended SeptemberJune 30, 2020,2021, subordinated debt averaged $71.2 million, an increase of $0.3$71.4 million, compared to $71.1 million for the same period during 2019.six months ended June 30, 2020. The average rate on subordinated debt for the ninesix months ended SeptemberJune 30, 20202021 was 3.28%2.40%, compared to 4.87%3.69% for the ninesix months ended SeptemberJune 30, 2019.2020. The subordinated debt relates to trust preferred securities issued by subsidiary trusts of the Company.
The following tables detail average balances, net interest income and margin results (on a tax equivalent basis)basis, a non-GAAP measure) for the periods presented:
| Average Balances, Interest Income and Expenses, Yields and Rates1 | Average Balances, Interest Income and Expenses, Yields and Rates1 | | Average Balances, Interest Income and Expenses, Yields and Rates1 | |
| | | 2020 | | 2019 | | 2021 | | 2020 |
| | Third Quarter | | Second Quarter | | Third Quarter | | Second Quarter | | First Quarter | | Second Quarter |
| | Average | | | | Yield/ | | Average | | | | Yield/ | | Average | | | | Yield/ | | Average | | | | Yield/ | | Average | | | | Yield/ | | Average | | | | Yield/ |
(In thousands, except ratios) | (In thousands, except ratios) | Balance | | Interest | | Rate | | Balance | | Interest | | Rate | | Balance | | Interest | | Rate | (In thousands, except ratios) | Balance | | Interest | | Rate | | Balance | | Interest | | Rate | | Balance | | Interest | | Rate |
Assets | Assets | | | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | |
Earning assets: | Earning assets: | | Earning assets: | |
Securities: | Securities: | | Securities: | |
Taxable | Taxable | $ | 1,322,160 | | | $ | 6,972 | | | 2.11 | % | | $ | 1,135,698 | | | $ | 7,573 | | | 2.67 | % | | $ | 1,171,393 | | | $ | 8,802 | | | 3.01 | % | Taxable | $ | 1,629,410 | | | $ | 6,559 | | | 1.61 | % | | $ | 1,550,457 | | | $ | 6,298 | | | 1.62 | % | | $ | 1,135,698 | | | $ | 7,573 | | | 2.67 | % |
Nontaxable | Nontaxable | 23,570 | | | 157 | | | 2.67 | | | 19,347 | | | 152 | | | 3.14 | | | 21,194 | | | 164 | | | 3.09 | | Nontaxable | 25,581 | | | 186 | | | 2.90 | | | 25,932 | | | 187 | | | 2.89 | | | 19,347 | | | 152 | | | 3.14 | |
Total Securities | Total Securities | 1,345,730 | | | 7,129 | | | 2.12 | | | 1,155,045 | | | 7,725 | | | 2.68 | | | 1,192,587 | | | 8,966 | | | 3.01 | | Total Securities | 1,654,991 | | | 6,745 | | | 1.63 | | | 1,576,389 | | | 6,485 | | | 1.65 | | | 1,155,045 | | | 7,725 | | | 2.68 | |
| Federal funds sold and other investments | Federal funds sold and other investments | 239,511 | | | 556 | | | 0.92 | | | 433,626 | | | 684 | | | 0.63 | | | 84,705 | | | 800 | | | 3.75 | | Federal funds sold and other investments | 925,323 | | | 709 | | | 0.31 | | | 377,344 | | | 586 | | | 0.63 | | | 433,626 | | | 684 | | | 0.63 | |
| Loans excluding PPP loans | Loans excluding PPP loans | 5,242,776 | | | 58,854 | | | 4.47 | | | 5,304,381 | | | 59,861 | | | 4.54 | | | 4,945,953 | | | 63,138 | | | 5.06 | | Loans excluding PPP loans | 5,092,897 | | | 55,313 | | | 4.36 | | | 5,149,642 | | | 55,504 | | | 4.37 | | | 5,304,381 | | | 59,861 | | | 4.54 | |
PPP Loans | PPP Loans | 618,088 | | | 1,719 | | | 1.11 | | | 424,171 | | | 5,068 | | | 4.81 | | | — | | | — | | | — | | PPP Loans | 505,339 | | | 5,127 | | | 4.07 | | | 609,733 | | | 6,886 | | | 4.58 | | | 424,171 | | | 5,068 | | | 4.81 | |
Total Loans | Total Loans | 5,860,864 | | | 60,573 | | | 4.11 | | | 5,728,552 | | | 64,929 | | | 4.56 | | | 4,945,953 | | | 63,138 | | | 5.06 | | Total Loans | 5,598,236 | | | 60,440 | | | 4.33 | | | 5,759,375 | | | 62,390 | | | 4.39 | | | 5,728,552 | | | 64,929 | | | 4.56 | |
| Total Earning Assets | Total Earning Assets | 7,446,105 | | | 68,258 | | | 3.65 | | | 7,317,223 | | | 73,338 | | | 4.03 | | | 6,223,245 | | | 72,904 | | | 4.65 | | Total Earning Assets | 8,178,550 | | | 67,894 | | | 3.33 | | | 7,713,108 | | | 69,461 | | | 3.65 | | | 7,317,223 | | | 73,338 | | | 4.03 | |
| Allowance for loan losses | Allowance for loan losses | (92,151) | | | (84,965) | | | (33,997) | | | Allowance for loan losses | (86,042) | | | (91,735) | | | (84,965) | | |
Cash and due from banks | Cash and due from banks | 138,749 | | | 103,919 | | | 88,539 | | | Cash and due from banks | 327,171 | | | 255,685 | | | 103,919 | | |
Premises and equipment | Premises and equipment | 72,572 | | | 71,173 | | | 68,301 | | | Premises and equipment | 70,033 | | | 74,272 | | | 71,173 | | |
Intangible assets | Intangible assets | 228,801 | | | 230,871 | | | 227,389 | | | Intangible assets | 235,964 | | | 237,323 | | | 230,871 | | |
Bank owned life insurance | Bank owned life insurance | 129,156 | | | 127,386 | | | 125,249 | | | Bank owned life insurance | 133,484 | | | 132,079 | | | 127,386 | | |
Other assets | Other assets | 163,658 | | | 147,395 | | | 121,850 | | | Other assets | 166,686 | | | 164,622 | | | 147,395 | | |
Total Assets | Total Assets | $ | 8,086,890 | | | $ | 7,913,002 | | | $ | 6,820,576 | | | Total Assets | $ | 9,025,846 | | | $ | 8,485,354 | | | $ | 7,913,002 | | |
| Liabilities and Shareholders' Equity | Liabilities and Shareholders' Equity | | Liabilities and Shareholders' Equity | |
Interest-bearing liabilities: | Interest-bearing liabilities: | | Interest-bearing liabilities: | |
Interest-bearing demand | Interest-bearing demand | $ | 1,364,947 | | | $ | 330 | | | 0.10 | % | | $ | 1,298,639 | | | $ | 297 | | | 0.09 | % | | $ | 1,116,434 | | | $ | 1,053 | | | 0.37 | % | Interest-bearing demand | $ | 1,692,178 | | | $ | 235 | | | 0.06 | % | | $ | 1,600,490 | | | $ | 258 | | | 0.07 | % | | $ | 1,298,639 | | | $ | 297 | | | 0.09 | % |
Savings | Savings | 648,319 | | | 170 | | | 0.10 | | | 591,040 | | | 165 | | | 0.11 | | | 522,831 | | | 531 | | | 0.40 | | Savings | 790,734 | | | 118 | | | 0.06 | | | 722,274 | | | 137 | | | 0.08 | | | 591,040 | | | 165 | | | 0.11 | |
Money market | Money market | 1,328,931 | | | 799 | | | 0.24 | | | 1,193,969 | | | 741 | | | 0.25 | | | 1,173,042 | | | 2,750 | | | 0.93 | | Money market | 1,736,481 | | | 627 | | | 0.14 | | | 1,609,938 | | | 670 | | | 0.17 | | | 1,193,969 | | | 741 | | | 0.25 | |
Time deposits | Time deposits | 1,051,316 | | | 2,673 | | | 1.01 | | | 1,293,766 | | | 3,820 | | | 1.19 | | | 1,159,272 | | | 6,009 | | | 2.06 | | Time deposits | 533,350 | | | 524 | | | 0.39 | | | 711,320 | | | 1,187 | | | 0.68 | | | 1,293,766 | | | 3,820 | | | 1.19 | |
Short term borrowings | 90,357 | | | 40 | | | 0.18 | | | 74,717 | | | 34 | | | 0.18 | | | 75,785 | | | 300 | | | 1.57 | | |
Federal funds purchased and Federal Home Loan Bank borrowings | 93,913 | | | 181 | | | 0.77 | | | 199,698 | | | 312 | | | 0.63 | | | 68,804 | | | 414 | | | 2.39 | | |
Securities sold under agreements to repurchase | | Securities sold under agreements to repurchase | 115,512 | | | 35 | | | 0.12 | | | 112,834 | | | 41 | | | 0.15 | | | 74,717 | | | 34 | | | 0.18 | |
Federal Home Loan Bank borrowings | | Federal Home Loan Bank borrowings | — | | | — | | | — | | | — | | | — | | | — | | | 199,698 | | | 312 | | | 0.63 | |
Other borrowings | Other borrowings | 71,258 | | | 444 | | | 2.48 | | | 71,185 | | | 581 | | | 3.28 | | | 70,969 | | | 820 | | | 4.58 | | Other borrowings | 71,460 | | | 422 | | | 2.37 | | | 71,390 | | | 427 | | | 2.43 | | | 71,185 | | | 581 | | | 3.28 | |
Total Interest-Bearing Liabilities | Total Interest-Bearing Liabilities | 4,649,041 | | | 4,637 | | | 0.40 | | | 4,723,014 | | | 5,950 | | | 0.51 | | | 4,187,137 | | | 11,877 | | | 1.13 | | Total Interest-Bearing Liabilities | 4,939,715 | | | 1,961 | | | 0.16 | | | 4,828,246 | | | 2,720 | | | 0.23 | | | 4,723,014 | | | 5,950 | | | 0.51 | |
Noninterest demand | Noninterest demand | 2,279,584 | | | 2,097,038 | | | 1,626,269 | | | Noninterest demand | 2,799,643 | | | 2,432,038 | | | 2,097,038 | | |
Other liabilities | Other liabilities | 96,457 | | | 79,855 | | | 60,500 | | | Other liabilities | 116,093 | | | 88,654 | | | 79,855 | | |
Total Liabilities | Total Liabilities | 7,025,082 | | | 6,899,907 | | | 5,873,906 | | | Total Liabilities | 7,855,451 | | | 7,348,938 | | | 6,899,907 | | |
| Shareholders' equity | Shareholders' equity | 1,061,807 | | | 1,013,095 | | | 946,670 | | | Shareholders' equity | 1,170,395 | | | 1,136,416 | | | 1,013,095 | | |
| Total Liabilities & Equity | Total Liabilities & Equity | $ | 8,086,890 | | | $ | 7,913,002 | | | $ | 6,820,576 | | | Total Liabilities & Equity | $ | 9,025,846 | | | $ | 8,485,354 | | | $ | 7,913,002 | | |
| Cost of deposits | Cost of deposits | | 0.24 | % | | 0.31 | % | | 0.73 | % | Cost of deposits | | 0.08 | % | | 0.13 | % | | 0.31 | % |
Interest expense as a % of earning assets | Interest expense as a % of earning assets | | 0.25 | % | | 0.33 | % | | 0.76 | % | Interest expense as a % of earning assets | | 0.10 | % | | 0.14 | % | | 0.33 | % |
Net interest income as a % of earning assets | Net interest income as a % of earning assets | | $ | 63,621 | | | 3.40 | % | | $ | 67,388 | | | 3.70 | % | | $ | 61,027 | | | 3.89 | % | Net interest income as a % of earning assets | | $ | 65,933 | | | 3.23 | % | | $ | 66,741 | | | 3.51 | % | | $ | 67,388 | | | 3.70 | % |
| 1On a fully taxable equivalent basis, a non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP. All yields and rates have been computed on an annual basis using amortized cost. Fees on loans have been included in interest on loans. Nonaccrual loans are included in loan balances. | 1On a fully taxable equivalent basis, a non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP. All yields and rates have been computed on an annual basis using amortized cost. Fees on loans have been included in interest on loans. Nonaccrual loans are included in loan balances. | 1On a fully taxable equivalent basis, a non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP. All yields and rates have been computed on an annual basis using amortized cost. Fees on loans have been included in interest on loans. Nonaccrual loans are included in loan balances. |
|
| Average Balances, Interest Income and Expenses, Yields and Rates1 | Average Balances, Interest Income and Expenses, Yields and Rates1 | Average Balances, Interest Income and Expenses, Yields and Rates1 |
| | | | 2020 | | 2019 | | | 2021 | | 2020 |
| | | Year to Date | | Year to Date | | | Year to Date | | Year to Date |
| | | Average | | | | Yield/ | | Average | | | | Yield/ | | | Average | | | | Yield/ | | Average | | | | Yield/ |
(In thousands, except ratios) | (In thousands, except ratios) | | Balance | | Interest | | Rate | | Balance | | Interest | | Rate | (In thousands, except ratios) | | Balance | | Interest | | Rate | | Balance | | Interest | | Rate |
Assets | Assets | | | | | | | | | | | | | Assets | | | | | | | | | | | | |
Earning assets: | Earning assets: | | Earning assets: | |
Securities: | Securities: | | Securities: | |
Taxable | Taxable | | $ | 1,203,877 | | | $ | 23,241 | | | 2.57 | % | | $ | 1,175,831 | | | $ | 26,854 | | | 3.05 | % | Taxable | | $ | 1,590,152 | | | $ | 12,857 | | | 1.62 | % | | $ | 1,144,086 | | | $ | 16,269 | | | 2.84 | % |
Nontaxable | Nontaxable | | 20,895 | | | 461 | | | 2.94 | | | 23,935 | | | 533 | | | 2.97 | | Nontaxable | | 25,756 | | | 373 | | | 2.90 | | | 19,544 | | | 304 | | | 3.11 | |
Total Securities | Total Securities | | 1,224,772 | | | 23,702 | | | 2.58 | | | 1,199,766 | | | 27,387 | | | 3.04 | | Total Securities | | 1,615,908 | | | 13,230 | | | 1.64 | | | 1,163,630 | | | 16,573 | | | 2.85 | |
| Federal funds sold and other investments | Federal funds sold and other investments | | 253,635 | | | 1,974 | | | 1.04 | | | 89,084 | | | 2,591 | | | 3.89 | | Federal funds sold and other investments | | 652,847 | | | 1,295 | | | 0.40 | | | 260,775 | | | 1,418 | | | 1.09 | |
| Loans excluding PPP loans | Loans excluding PPP loans | | 5,254,089 | | | 182,239 | | | 4.63 | | | 4,875,975 | | | 187,808 | | | 5.15 | | Loans excluding PPP loans | | 5,121,114 | | | 110,817 | | | 4.36 | | | 5,259,808 | | | 123,385 | | | 4.72 | |
PPP Loans | PPP Loans | | 348,407 | | | 6,787 | | | 2.60 | | | — | | | — | | | — | | PPP Loans | | 557,247 | | | 12,013 | | | 4.35 | | | 212,085 | | | 5,068 | | | 4.81 | |
Total Loans | Total Loans | | 5,602,496 | | | 189,026 | | | 4.51 | | | 4,875,975 | | | 187,808 | | | 5.15 | | Total Loans | | 5,678,361 | | | 122,830 | | | 4.36 | | | 5,471,893 | | | 128,453 | | | 4.72 | |
| Total Earning Assets | Total Earning Assets | | 7,080,903 | | | 214,702 | | | 4.05 | | | 6,164,825 | | | 217,786 | | | 4.72 | | Total Earning Assets | | 7,947,116 | | | 137,355 | | | 3.49 | | | 6,896,298 | | | 146,444 | | | 4.27 | |
| Allowance for loan losses | Allowance for loan losses | | (78,067) | | | (33,260) | | | Allowance for loan losses | | (88,873) | | | (70,948) | | |
Cash and due from banks | Cash and due from banks | | 111,019 | | | 93,171 | | | Cash and due from banks | | 291,626 | | | 97,002 | | |
Premises and equipment | Premises and equipment | | 70,451 | | | 69,700 | | | Premises and equipment | | 72,141 | | | 69,379 | | |
Intangible assets | Intangible assets | | 228,795 | | | 228,710 | | | Intangible assets | | 236,640 | | | 228,791 | | |
Bank owned life insurance | Bank owned life insurance | | 127,683 | | | 124,535 | | | Bank owned life insurance | | 132,785 | | | 126,939 | | |
Other assets | Other assets | | 145,827 | | | 128,016 | | | Other assets | | 165,658 | | | 136,811 | | |
Total Assets | Total Assets | | $ | 7,686,611 | | | $ | 6,775,697 | | | Total Assets | | $ | 8,757,093 | | | $ | 7,484,272 | | |
| Liabilities and Shareholders' Equity | Liabilities and Shareholders' Equity | | Liabilities and Shareholders' Equity | |
Interest-bearing liabilities: | Interest-bearing liabilities: | | Interest-bearing liabilities: | |
Interest-bearing demand | Interest-bearing demand | | $ | 1,279,485 | | | $ | 1,461 | | | 0.15 | % | | $ | 1,088,605 | | | $ | 3,042 | | | 0.37 | % | Interest-bearing demand | | $ | 1,646,587 | | | $ | 493 | | | 0.06 | % | | $ | 1,236,285 | | | $ | 1,131 | | | 0.18 | % |
Savings | Savings | | 588,913 | | | 683 | | | 0.15 | | | 512,399 | | | 1,593 | | | 0.42 | | Savings | | 756,693 | | | 255 | | | 0.07 | | | 558,883 | | | 513 | | | 0.18 | |
Money market | Money market | | 1,217,627 | | | 3,548 | | | 0.39 | | | 1,170,494 | | | 8,397 | | | 0.96 | | Money market | | 1,673,559 | | | 1,297 | | | 0.16 | | | 1,161,363 | | | 2,749 | | | 0.48 | |
Time deposits | Time deposits | | 1,165,194 | | | 11,261 | | | 1.29 | | | 1,097,308 | | | 16,692 | | | 2.03 | | Time deposits | | 621,844 | | | 1,711 | | | 0.55 | | | 1,222,758 | | | 8,588 | | | 1.41 | |
Short term borrowings | | 78,755 | | | 241 | | | 0.41 | | | 117,077 | | | 1,206 | | | 1.38 | | |
Federal funds purchased and Federal Home Loan Bank borrowings | | 180,893 | | | 1,460 | | | 1.08 | | | 115,337 | | | 2,164 | | | 2.51 | | |
Securities sold under agreements to repurchase | | Securities sold under agreements to repurchase | | 114,181 | | | 76 | | | 0.13 | | | 72,891 | | | 201 | | | 0.55 | |
Federal Home Loan Bank borrowings | | Federal Home Loan Bank borrowings | | — | | | — | | | — | | | 224,860 | | | 1,279 | | | 1.14 | |
Other borrowings | Other borrowings | | 71,186 | | | 1,748 | | | 3.28 | | | 70,903 | | | 2,585 | | | 4.87 | | Other borrowings | | 71,425 | | | 849 | | | 2.40 | | | 71,149 | | | 1,304 | | | 3.69 | |
Total Interest-Bearing Liabilities | Total Interest-Bearing Liabilities | | 4,582,053 | | | 20,402 | | | 0.59 | | | 4,172,123 | | | 35,679 | | | 1.14 | | Total Interest-Bearing Liabilities | | 4,884,289 | | | 4,681 | | | 0.19 | | | 4,548,189 | | | 15,765 | | | 0.70 | |
Noninterest demand | Noninterest demand | | 2,001,630 | | | 1,628,634 | | | Noninterest demand | | 2,616,856 | | | 1,861,126 | | |
Other liabilities | Other liabilities | | 79,821 | | | 62,123 | | | Other liabilities | | 102,450 | | | 71,413 | | |
Total Liabilities | Total Liabilities | | 6,663,504 | | | 5,862,880 | | | Total Liabilities | | 7,603,595 | | | 6,480,728 | | |
| Shareholders' equity | Shareholders' equity | | 1,023,107 | | | 912,817 | | | Shareholders' equity | | 1,153,498 | | | 1,003,544 | | |
| Total Liabilities & Equity | Total Liabilities & Equity | | $ | 7,686,611 | | | $ | 6,775,697 | | | Total Liabilities & Equity | | $ | 8,757,093 | | | $ | 7,484,272 | | |
| Cost of deposits | Cost of deposits | | 0.36 | % | | 0.72 | % | Cost of deposits | | 0.10 | % | | 0.43 | % |
Interest expense as a % of earning assets | Interest expense as a % of earning assets | | 0.38 | % | | 0.77 | % | Interest expense as a % of earning assets | | 0.12 | % | | 0.46 | % |
Net interest income as a % of earning assets | Net interest income as a % of earning assets | | $ | 194,300 | | | 3.67 | % | | $ | 182,107 | | | 3.95 | % | Net interest income as a % of earning assets | | $ | 132,674 | | | 3.37 | % | | $ | 130,679 | | | 3.81 | % |
| 1On a fully taxable equivalent basis, a non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP. All yields and rates have been computed on an annual basis using amortized cost. Fees on loans have been included in interest on loans. Nonaccrual loans are included in loan balances. | 1On a fully taxable equivalent basis, a non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP. All yields and rates have been computed on an annual basis using amortized cost. Fees on loans have been included in interest on loans. Nonaccrual loans are included in loan balances. | 1On a fully taxable equivalent basis, a non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP. All yields and rates have been computed on an annual basis using amortized cost. Fees on loans have been included in interest on loans. Nonaccrual loans are included in loan balances. |
Noninterest Income
Noninterest income totaled $16.9$15.3 million for the thirdsecond quarter of 2020, an increase2021, a decrease of $1.9$2.3 million, or 13%, compared to the secondfirst quarter of 20202021 and an increase of $3.0$0.3 million, or 22%2%, from the thirdsecond quarter of 2019.2020. Noninterest income totaled $46.6$33.0 million for the ninesix months ended SeptemberJune 30, 2020,2021, an increase of 6.3$3.3 million, or 16%11%, compared to the ninesix months ended SeptemberJune 30, 2019.2020.
Noninterest income is detailed as follows:
| | | Third | | Second | | Third | | Nine Months Ended | | Second | | First | | Second | | Six Months Ended |
| | Quarter | | Quarter | | Quarter | | September 30, | | Quarter | | Quarter | | Quarter | | June 30, |
(In thousands) | (In thousands) | 2020 | | 2020 | | 2019 | | 2020 | | 2019 | (In thousands) | 2021 | | 2021 | | 2020 | | 2021 | | 2020 |
Service charges on deposit accounts | Service charges on deposit accounts | $ | 2,242 | | | $ | 1,939 | | | $ | 2,978 | | | $ | 7,006 | | | $ | 8,569 | | Service charges on deposit accounts | $ | 2,338 | | | $ | 2,338 | | | $ | 1,939 | | | $ | 4,676 | | | $ | 4,764 | |
Interchange income | Interchange income | 3,682 | | | 3,187 | | | 3,206 | | | 10,115 | | | 10,012 | | Interchange income | 4,145 | | | 3,820 | | | 3,187 | | | 7,965 | | | 6,433 | |
Wealth management income | Wealth management income | 1,972 | | | 1,719 | | | 1,632 | | | 5,558 | | | 4,773 | | Wealth management income | 2,387 | | | 2,323 | | | 1,719 | | | 4,710 | | | 3,586 | |
Mortgage banking fees | Mortgage banking fees | 5,283 | | | 3,559 | | | 2,127 | | | 11,050 | | | 4,976 | | Mortgage banking fees | 2,977 | | | 4,225 | | | 3,559 | | | 7,202 | | | 5,767 | |
Marine finance fees | Marine finance fees | 242 | | | 157 | | | 152 | | | 545 | | | 715 | | Marine finance fees | 177 | | | 189 | | | 157 | | | 366 | | | 303 | |
SBA gains | SBA gains | 252 | | | 181 | | | 569 | | | 572 | | | 1,896 | | SBA gains | 232 | | | 287 | | | 181 | | | 519 | | | 320 | |
BOLI income | BOLI income | 899 | | | 887 | | | 928 | | | 2,672 | | | 2,770 | | BOLI income | 872 | | | 859 | | | 887 | | | 1,731 | | | 1,773 | |
Other income | Other income | 2,370 | | | 2,147 | | | 3,198 | | | 7,869 | | | 7,967 | | Other income | 2,249 | | | 3,744 | | | 2,147 | | | 5,993 | | | 5,499 | |
| | 16,942 | | | 13,776 | | | 14,790 | | | 45,387 | | | 41,678 | | | 15,377 | | | 17,785 | | | 13,776 | | | 33,162 | | | 28,445 | |
Securities gains (losses), net | 4 | | | 1,230 | | | (847) | | | 1,253 | | | (1,322) | | |
Securities (losses) gains, net | | Securities (losses) gains, net | (55) | | | (114) | | | 1,230 | | | (169) | | | 1,249 | |
Total | Total | $ | 16,946 | | | $ | 15,006 | | | $ | 13,943 | | | $ | 46,640 | | | $ | 40,356 | | Total | $ | 15,322 | | | $ | 17,671 | | | $ | 15,006 | | | $ | 32,993 | | | $ | 29,694 | |
Service charges on deposits were $2.2$2.3 million in the third quarter of 2020, an increase of $0.3 million, or 16%, compared to the second quarter of 2020 and a decrease of $0.72021, $2.3 million or 25%, compared toin the thirdfirst quarter of 2019.2021 and $1.9 million in the second quarter of 2020. For the ninesix months ended SeptemberJune 30, 2020,2021, service charges on deposits totaled $7.0$4.7 million, a decrease of $1.6$0.1 million, or 18%2%, compared to the ninesix months ended SeptemberJune 30, 2019. Government actions2020. The decrease in response toservice charges for the pandemic, particularly insix-month period reflects the second quarterimpact on overdraft fees of 2020, including the PPP program and individual stimulus payments, combined with lower overall consumer spending levels, have resulted in higher average deposit balances for both business and consumer customers. Higher average account balances have resulted in lower service charges in the second and third quarters of 2020 compared to 2019.2021 period. Overdraft fees represent 44%39% of total service charges on deposits for the ninesix months ended SeptemberJune 30, 2021 and 46% for the six months ended June 30, 2020.
Interchange income totaled $3.7reached a record $4.1 million for the three months ended SeptemberJune 30, 2020,2021, an increase of $0.5$0.3 million, or 16%9%, compared to the three months ended March 31, 2021, and an increase of $1.0 million, or 30%, compared to the three months ended June 30, 2020, and2020. For the six months ended June 30, 2021, interchange income totaled $8.0 million, an increase of $0.5$1.5 million, or 15%24%, compared to the threesix months ended SeptemberJune 30, 2019. For2020. The 2021 periods reflect higher transactional volume and higher per-card spending with the nine months ended September 30, 2020, interchange income totaled $10.1 million, an increase of $0.1 million, or 1%, compared to the nine months ended September 30, 2019. The third quarterfirst half of 2020 benefited from recent growth in business banking customers and targeted marketing efforts.negatively impacted by the effect of COVID-19-related shutdowns on consumer consumption.
Wealth management income, including trust fees and brokerage commissions and fees, was a record $2.0$2.4 million in the third quarter of 2020, increasing $0.3 million, or 15%, from the second quarter of 20202021, increasing $0.1 million, or 3%, from the first quarter of 2021 and increasing $0.3$0.7 million, or 21%39%, compared to the thirdsecond quarter of 2019.2020. For the ninesix months ended SeptemberJune 30, 2020,2021, wealth management income totaled $5.6$4.7 million, an increase of $0.8$1.1 million, or 31%, compared to the six months ended June 30, 2020. Assets under management have grown significantly as the team continues to deliver strong growth through the addition of new relationships. Assets under management have increased $451 million from June 30, 2020 to exceed $1.2 billion at June 30, 2021.
Mortgage banking fees decreased by $1.2 million, or 30%, to $3.0 million in the second quarter of 2021 compared to the first quarter of 2021, and decreased $0.6 million, or 16%, compared to the ninesecond quarter of 2020, reflecting the impact of slowing refinance activity and low housing inventory levels. For the six months ended SeptemberJune 30, 2019. Increases reflect the strategic focus of growing the wealth management business. Assets under management reached $7932021, mortgage banking fees totaled $7.2 million, at September 30, 2020, an increase of 31%$1.4 million, or 25%, compared to the prior year. Assix months ended June 30, 2020.
SBA gains totaled $0.2 million, a result, the Company expects wealth management income to continue to grow in future periods.
Mortgage banking fees increased by $1.7decrease of $0.1 million, or 48%19%, compared to $5.3 million in the thirdfirst quarter of 20202021 and an increase of $0.1 million, or 28%, compared to the second quarter of 2020, and increased $3.22020. For the six months ended June 30, 2021, SBA gains totaled $0.5 million, an increase of $0.2 million, or 148%62%, compared to the thirdsix months ended June 30, 2020.
Bank owned life insurance (“BOLI”) income totaled $0.9 million for the second quarter of 2019. For2021, in line with comparative periods. BOLI income totaled $1.7 million for the ninesix months ended SeptemberJune 30, 2020, mortgage banking fees totaled $11.12021 and $1.8 million an increase of $6.1 million, or 122%, compared tofor the ninesix months ended September 30, 2019 as Seacoast continues to capitalize on the robust residential refinance market and strength in the Florida housing market. Seacoast's mortgage team has adapted quickly to the heightened demand by increasing customer service level standards with realtors, refinance customers, and new home buyers, resulting in stronger performance than competitors.
Marine finance fees were $0.2June 30, 2020. The Company purchased $25.0 million an increase of $0.1 million, or 54%, compared toBOLI late in the second quarter of 20202021 with a tax equivalent first year yield of 4.50% that will positively impact future periods.
Other income was $2.2 million in the second quarter of 2021, a decrease of $1.5 million, or 40%, quarter-over-quarter and an increase of $0.1 million, or 59%5%, year-over-year. For the six months ended June 30, 2021, other income totaled $6.0 million, an increase of $0.5 million, or 9%, compared to the prior year quarter. For the ninesix months ended SeptemberJune 30, 2020, marine finance fees totaled $0.5 million, a decrease of $0.2 million, or 24%, compared to the nine months ended September 30, 2019.
SBA income totaled $0.3 million, an increase of $0.1 million, or 39%, compared to the second quarter of 2020 and a decrease of $0.3 million, or 56%, compared to the third quarter of 2019. For the nine months ended September 30, 2020, SBA income totaled $0.6 million, a decrease of $1.3 million, or 70%, compared to the nine months ended September 30, 2019. The decrease for the nine months ended September 30, 2020 reflects lower production of saleable SBA loans outside of the PPP program.
Bank owned life insurance ("BOLI") income totaled $0.9 million for the third quarter of 2020,2020. Included in line with the second quarter of 2020 and prior year results. For the nine months ended September 30, 2020, BOLI income totaled $2.7 million, a decrease of $0.1 million, or 4%, compared to the nine months ended September 30, 2019.
Other income was $2.4 million in the third quarter of 2020, an increase of $0.2 million, or 10%, quarter-over-quarter and a decrease of $0.8 million, or 26%, year-over-year. The increase from the prior quarter reflects higher income on SBIC investments, partially offset by lower loan swap fees. The decrease from the prior year quarter reflects a $1.0 million BOLI death benefit recorded in the third quarter of 2019, offset by higher SBIC investmentother income in the thirdfirst quarter of 2020. For the nine months ended September 30, 2020, other income totaled $7.9 million, a decrease of $0.1 million, or 1%, compared to the nine months ended September 30, 2019. Higher income from SBIC investments in the nine months ended September 30, 20202021 was more than offset by the BOLI death benefit recorded in the comparable 2019 period.
Securities gains in the third quarter of 2020 were nominal compared to gains of $1.2$1.7 million in income associated with the second quarterresolution of 2020 and lossescontingencies on securities sales of $0.8 milliontwo loans acquired in the third quarter of 2019. Securities gains during the nine months ended September 30, 2020 totaled $1.3 million, compared to losses of $1.3 million2017. Similar activity is not expected in the nine months ended September 30, 2019.subsequent periods.
Noninterest Expenses
The Company has demonstrated its commitment to efficiency through disciplined, proactive management of its cost structure. Noninterest expenses in the third quarter of 2020 included acquisition-related expenses of $4.3 million and expenses related to branch consolidation of $0.5 million. The second quarter of 2020 benefited from the impact of higher loan production driven by the PPP program, resulting in higher deferrals of salary-related expenses. These factors contributed to an overall increase in noninterest expense in the third quarter of 2020 compared toFor the second quarter of 2020. Seacoast has reduced its branch count 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 its customers. Further consolidation activity is expected in 2021. At September 30, 2020, deposits per banking center were $135.6 million, up from $118.2 million at September 30, 2019. Adjusted noninterest expense3 as a percent of average tangible assets was 2.24% for the third quarter of 2020 compared to 2.11% for the second quarter of 2020 and 2.21% for the third quarter of 2019. For the nine months ended September 30, 2020, adjusted noninterest expense1 as a percent of average tangible assets was 2.26% compared to 2.37% for the nine months ended September 30, 2019.
For the third quarter of 2020,2021, the efficiency ratio, defined as noninterest expense less amortization of intangibles and gains, losses, and expenses on foreclosed properties divided by net operating revenue (net interest income on a fully taxable equivalent basis plus noninterest income excluding securities gains and losses), was 61.65%54.93% compared to 53.21% for the first quarter of 2021 and 50.11% for the second quarter of 20202020. The increase in the efficiency ratio quarter-over-quarter primarily reflects lower PPP income and 48.62% forlower mortgage banking gains from slowing refinance activity and low housing inventory levels, partially offset by lower cost of deposits and lower noninterest expense. The increase in the thirdefficiency ratio when compared to the prior year quarter reflects higher noninterest expense primarily associated with lower deferrals of 2019. The efficiency ratiosalary costs attributed to lower PPP loan production in the second quarter of 2020 benefited from the impact of higher PPP fee accretion2021, and the impact of higher loan production driventhe lower rate environment on interest income, partially offset by the PPP program, resulting in higher deferralslower cost of salary-related expenses. Additionally, the provision for unfunded lending-related commitments totaled $0.8 million in the third quarter of 2020, compared to $0.2 million in the second quarter of 2020 and none in the third quarter of 2019.deposits. For the ninesix months ended SeptemberJune 30, 2020,2021, the efficiency ratio was 57.15%54.05% compared to 52.85%54.88% for the ninesix months ended SeptemberJune 30, 2019. The increase in efficiency ratio for the nine months ended September 30, 2020 reflects the impact of an increase in merger-related expenses of $8.7 million and an increase of $1.0 million in provision for unfunded lending-related commitments, partially offset by lower branch reduction expenses of $1.4 million.2020.
The adjusted efficiency ratio1 increased fromwas 53.49% in the second quarter of 2021, compared to 51.99% in the first quarter of 2021 and 49.60% in the second quarter of 2020 to 54.82% in the third quarter of 2020. The increase isin the resultadjusted efficiency ratio quarter-over-quarter primarily reflects lower PPP income, and lower mortgage banking gains from slowing refinance activity and low housing inventory levels, partially offset by lower cost of lower net interest income fromdeposits. The increase in the change in PPP accretion andefficiency ratio when compared to the prior year quarter reflects higher expensesnoninterest expense primarily associated with lower deferrals of salary costs attributed to lower PPP salary deferralsloan production in the second quarter of 2020,2021, and the impact of the lower rate environment on interest income, partially offset by higherlower cost of deposits. At June 30, 2021, adjusted noninterest income.expense1 as a percent of average tangible assets was 1.98% for the second quarter of 2021 compared to 2.16% for the first quarter of 2021 and 2.11% for the second quarter of 2020. For the ninesix months ended SeptemberJune 30, 2020,2021 the adjusted efficiency ratio1 increasedwas 52.72% compared to 52.64% from 52.05%51.53% for the ninesix months ended SeptemberJune 30, 2019.
3Non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP.2020.
| | | Third | | Second | | Third | | Nine Months Ended | | Second | | First | | Second | | Six Months Ended |
| | Quarter | | Quarter | | Quarter | | September 30, | | Quarter | | Quarter | | Quarter | | June 30, |
(In thousands, except ratios) | (In thousands, except ratios) | 2020 | | 2020 | | 2019 | | 2020 | | 2019 | (In thousands, except ratios) | 2021 | | 2021 | | 2020 | | 2021 | | 2020 |
Noninterest expense, as reported | Noninterest expense, as reported | $ | 51,674 | | | $ | 42,399 | | | $ | 38,583 | | | $ | 141,871 | | | $ | 122,682 | | Noninterest expense, as reported | $ | 45,784 | | | $ | 46,120 | | | $ | 42,399 | | | $ | 91,904 | | | $ | 90,197 | |
| Merger related charges | (4,281) | | | (240) | | | — | | | (9,074) | | | (335) | | |
Merger-related charges | | Merger-related charges | (509) | | | (581) | | | (240) | | | (1,090) | | | (4,793) | |
Amortization of intangibles | Amortization of intangibles | (1,497) | | | (1,483) | | | (1,456) | | | (4,436) | | | (4,370) | | Amortization of intangibles | (1,212) | | | (1,211) | | | (1,483) | | | (2,423) | | | (2,939) | |
Business continuity expenses | Business continuity expenses | — | | | — | | | (95) | | | (307) | | | (95) | | Business continuity expenses | — | | | — | | | — | | | — | | | (307) | |
Branch reductions and other expense initiatives | Branch reductions and other expense initiatives | (464) | | | — | | | (121) | | | (464) | | | (1,846) | | Branch reductions and other expense initiatives | (663) | | | (449) | | | — | | | (1,112) | | | — | |
Adjusted noninterest expense1 | Adjusted noninterest expense1 | $ | 45,432 | | | $ | 40,676 | | | $ | 36,911 | | | $ | 127,590 | | | $ | 116,036 | | Adjusted noninterest expense1 | $ | 43,400 | | | $ | 43,879 | | | $ | 40,676 | | | $ | 87,279 | | | $ | 82,158 | |
| Foreclosed property expense and net (loss)/gain on sale | Foreclosed property expense and net (loss)/gain on sale | (512) | | | (245) | | | (262) | | | (442) | | | (48) | | Foreclosed property expense and net (loss)/gain on sale | 90 | | | 65 | | | (245) | | | 155 | | | 70 | |
Provision for credit losses on unfunded commitments | Provision for credit losses on unfunded commitments | (756) | | | (178) | | | — | | | (980) | | | — | | Provision for credit losses on unfunded commitments | — | | | — | | | (178) | | | — | | | (224) | |
| Net adjusted noninterest expense1 | Net adjusted noninterest expense1 | $ | 44,164 | | | $ | 40,253 | | | $ | 36,649 | | | $ | 126,168 | | | $ | 115,988 | | Net adjusted noninterest expense1 | $ | 43,490 | | | $ | 43,944 | | | $ | 40,253 | | | $ | 87,434 | | | $ | 82,004 | |
| Efficiency ratio | Efficiency ratio | 61.65 | % | | 50.11 | % | | 48.62 | % | | 57.15 | % | | 52.85 | % | Efficiency ratio | 54.93 | % | | 53.21 | % | | 50.11 | % | | 54.05 | % | | 54.88 | % |
Adjusted efficiency ratio1,2 | Adjusted efficiency ratio1,2 | 54.82 | | | 49.60 | | | 48.96 | | | 52.64 | | | 52.05 | | Adjusted efficiency ratio1,2 | 53.49 | | | 51.99 | | | 49.60 | | | 52.72 | | | 51.53 | |
Adjusted noninterest expense as a percent of average tangible assets1,2 | Adjusted noninterest expense as a percent of average tangible assets1,2 | 2.24 | | | 2.11 | | | 2.21 | | | 2.26 | | | 2.37 | | Adjusted noninterest expense as a percent of average tangible assets1,2 | 1.98 | | | 2.16 | | | 2.11 | | | 2.07 | | | 2.28 | |
1Non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP. | |
1Non-GAAP measure - see “Explanation of Certain Unaudited Non-GAAP Financial Measures” for more information and a reconciliation to GAAP. | | 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. | 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. | 2Adjusted efficiency ratio is defined as noninterest expense, including adjustments to noninterest expense divided by aggregated tax equivalent net interest income and noninterest income, including adjustments to revenue. |
Noninterest expense for the thirdsecond quarter of 20202021 totaled $51.7$45.8 million, an increasea decrease of $9.3$0.3 million, or 22%1%, compared to the secondfirst quarter of 2020,2021, and an increase of $13.1$3.4 million, or 34%8%, from the thirdsecond quarter of 2019.2020. For the ninesix months ended September 30, 2020, noninterest expense totaled $141.9 million, an increase of $19.2 million, or 16%, compared to the nine months ended September 30, 2019. Noninterest expenses are detailed as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Third | | Second | | Third | | Nine Months Ended |
| Quarter | | Quarter | | Quarter | | September 30, |
(In thousands) | 2020 | | 2020 | | 2019 | | 2020 | | 2019 |
Noninterest expense | | | | | | | | | |
Salaries and wages | $ | 23,125 | | | $ | 20,226 | | | $ | 18,640 | | | $ | 67,049 | | | $ | 56,566 | |
Employee benefits | 3,995 | | | 3,379 | | | 2,973 | | | 11,629 | | | 10,374 | |
Outsourced data processing costs | 6,128 | | | 4,059 | | | 3,711 | | | 14,820 | | | 11,432 | |
Telephone/data lines | 705 | | | 791 | | | 603 | | | 2,210 | | | 2,307 | |
Occupancy | 3,858 | | | 3,385 | | | 3,368 | | | 10,596 | | | 10,916 | |
Furniture and equipment | 1,576 | | | 1,358 | | | 1,528 | | | 4,557 | | | 4,829 | |
Marketing | 1,513 | | | 997 | | | 933 | | | 3,788 | | | 3,276 | |
Legal and professional fees | 3,018 | | | 2,277 | | | 1,648 | | | 8,658 | | | 6,528 | |
FDIC assessments | 474 | | | 266 | | | 56 | | | 740 | | | 881 | |
Amortization of intangibles | 1,497 | | | 1,483 | | | 1,456 | | | 4,436 | | | 4,370 | |
Foreclosed property expense and net loss on sale | 512 | | | 245 | | | 262 | | | 442 | | | 48 | |
Provision for credit losses on unfunded commitments | 756 | | | 178 | | | — | | | 980 | | | — | |
Other | 4,517 | | | 3,755 | | | 3,405 | | | 11,966 | | | 11,155 | |
Total | $ | 51,674 | | | $ | 42,399 | | | $ | 38,583 | | | $ | 141,871 | | | $ | 122,682 | |
| | | | | | | | | |
| | | | | | | | | |
|
June
30, 2021, noninterest expenses totaled $91.9 million, an increase of $1.7 million, or 2%, compared to the six months ended June 30, 2020. Noninterest expenses are detailed as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Second | | First | | Second | | Six Months Ended |
| Quarter | | Quarter | | Quarter | | June 30, |
(In thousands) | 2021 | | 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | | | |
Salaries and wages | $ | 22,966 | | | $ | 21,393 | | | $ | 20,226 | | | $ | 44,359 | | | $ | 43,924 | |
Employee benefits | 3,953 | | | 4,980 | | | 3,379 | | | 8,933 | | | 7,634 | |
Outsourced data processing costs | 4,676 | | | 4,468 | | | 4,059 | | | 9,144 | | | 8,692 | |
Telephone/data lines | 838 | | | 785 | | | 791 | | | 1,623 | | | 1,505 | |
Occupancy | 3,310 | | | 3,789 | | | 3,385 | | | 7,099 | | | 6,738 | |
Furniture and equipment | 1,166 | | | 1,254 | | | 1,358 | | | 2,420 | | | 2,981 | |
Marketing | 1,002 | | | 1,168 | | | 997 | | | 2,170 | | | 2,275 | |
Legal and professional fees | 2,182 | | | 2,582 | | | 2,277 | | | 4,764 | | | 5,640 | |
FDIC assessments | 515 | | | 526 | | | 266 | | | 1,041 | | | 266 | |
Amortization of intangibles | 1,212 | | | 1,211 | | | 1,483 | | | 2,423 | | | 2,939 | |
Foreclosed property expense and net (gain) loss on sale | (90) | | | (65) | | | 245 | | | (155) | | | (70) | |
Provision for credit losses on unfunded commitments | — | | | — | | | 178 | | | — | | | 224 | |
Other | 4,054 | | | 4,029 | | | 3,755 | | | 8,083 | | | 7,449 | |
Total | $ | 45,784 | | | $ | 46,120 | | | $ | 42,399 | | | $ | 91,904 | | | $ | 90,197 | |
| | | | | | | | | |
| | | | | | | | | |
|
Salaries and wages totaled $23.1$23.0 million for the thirdsecond quarter of 2020,2021, $21.4 million for the first quarter of 2021, and $20.2 million for the second quarter of 2020, and $18.6 million for the third quarter of 2019, an increase of 14% and 24%, respectively. Expenses increased $2.9 million in the third quarter of 2020, reflecting lower expenses2020. Lower PPP loan production in the second quarter of 20202021 resulted in lower deferrals of $2.9 million resulting from deferral ofrelated salary costs on higher PPP loan production. The third quarter of 2020 also included $0.6 million in costs associated with the Freedom Bank acquisition and higher residential commission expenses resulting from increased mortgage production volume, offset by lower temporary staffing costs associated with the customer support center.costs. For the ninesix months ended SeptemberJune 30, 2020,2021, salaries and wages totaled $67.0$44.4 million, an increase of $10.5$0.4 million, or 19%1%, compared to the ninesix months ended SeptemberJune 30, 2019.2020. The increase includes merger-related expenses of $3.1 million incompared to the 2020 period,prior year reflects higher residential commission expenses resultingsalaries from increased mortgage production volume, bonusesheadcount added through acquisition and incentives paid in support of PPP loan production and to branch employees, and the addition of temporary staffinvestments made to support the pandemic operating environment.organic growth.
During the thirdsecond quarter 2020,of 2021, employee benefit costs, which include costs associated with the Company's self-funded health insurance benefits, 401(k) plan, payroll taxes, and unemployment compensation, were $4.0 million, a decrease of $1.0 million, or 21%, compared to the first quarter of 2021 and an increase of $0.6 million, or 18%17%, compared to the second quarter of 2020 and an increase of $1.0 million, or 34%, compared to the third2020. The first quarter of 2019. The increase in the third quarter of 2020 reflects2021 included higher health insurance claims, likely the result of routine medical appointments having been postponed in the second quarter due to COVID-19 lockdowns.seasonal payroll taxes and 401(k) plan contributions, as well as higher healthcare-related costs. For the ninesix months ended SeptemberJune 30, 2020,2021, employee benefit costs totaled $11.6$8.9 million, an increase of $1.3 million, or 12%17%, compared to the ninesix months ended SeptemberJune 30, 2019. Increases for the nine months ended September 30, 2020 reflect2020. The increase reflects the impact of additional employeeshigher health insurance related costs and payroll taxes resulting from headcount added through the FBPBacquisition and Freedom Bank acquisitions.investments made to support organic growth.
The Company utilizes third parties for its core data processing systems. Ongoing data processing costs are directly related to the number of transactions processed and the negotiated rates associated with those transactions. The Company also incurs acquisition-related costs for data migration and contract terminations. Outsourced data processing costs totaled $6.1$4.7 million, $4.1$4.5 million and $3.7$4.1 million for the third quarter 2020, second quarter of 2021, first quarter of 2021 and second quarter of 2020, and third quarter 2019, respectively. Of the $2.1 million increase quarter-over-quarter, $1.9 million was the result of acquisition-related costs associated with data conversion. For the ninesix months ended SeptemberJune 30, 2020,2021, outsourced data processing costs totaled $14.8$9.1 million, an increase of $3.4$0.5 million, or 30%5%, compared to the ninesix months ended SeptemberJune 30, 2019. Increases in the 2020 period include $2.7 million of acquisition-related costs and higher lending-related costs to support the administration of the PPP program.2020. The Company continues to improve and enhance mobile and other digital products and services through key third parties. This may increase outsourcedOutsourced data processing costs may increase in the future as customers adopt improvements andimproved products and as business volumes grow.
Telephone and data line expenditures, including electronic communications with customers and between branch and customer support locations and personnel, as well as with third-party data processors, were $0.7remained flat at $0.8 million a decrease of $0.1 million, or 11%, during the third quarter of 2020 when compared tofor the second quarter of 2021, first quarter of 2021, and second quarter of 2020, respectively. For the six months ended June 30, 2021, telephone and data line expenditures totaled $1.6 million, an increase of $0.1 million, or 17%, when compared to the third quarter of 2019. For the nine months ended September 30, 2020, telephone and data line expenditures totaled $2.2 million, a decrease of $0.1 million, or 4%8%, compared to the ninesix months ended SeptemberJune 30, 2019.2020.
Total occupancy, furniture and equipment expenses for the third quarter of 2020 increased $0.7were $4.5 million or 15%, fromfor the second quarter of 2020, and increased $0.52021, $5.0 million or 11% compared toin the thirdfirst quarter of 2019. The increases resulted from merger-related costs,2021, and expenses incurred in connection with the consolidation of the legacy St. Petersburg branch in the third quarter of 2020. For the nine months ended September 30, 2020, occupancy, furniture and equipment totaled $15.2 million, a decrease of $0.6 million, or 4%, compared to the nine months ended September 30, 2019. The decrease in the nine-month period reflects the benefit of consolidating three banking center locations in 2019. Seacoast has reduced its branch count 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 its customers. The Company believes branches are still valuable to customers for more complex transactions, but simple tasks, such as depositing and withdrawing funds, are rapidly migrating to the digital world. Management anticipates that branch consolidations will continue for the Company and the banking industry in general.
Marketing expenses for the third quarter of 2020 totaled $1.5 million, an increase of $0.5 million, or 52%, compared to the second quarter of 2020 and an increase of $0.6 million, or 62%, compared to the third quarter of 2019. For the nine months ended September 30, 2020, marketing expenses totaled $3.8 million, an increase of $0.5 million, or 16%, compared to the nine months ended September 30, 2019. Higher expenses in the third quarter of 2020 reflect increased investment to capture the opportunity presented by dissatisfied business customers affected by unsatisfactory PPP execution by national banks.
Legal and professional fees for the third quarter of 2020 were $3.0 million, an increase of $0.7 million, or 33%, compared to the second quarter of 2020 and an increase of $1.4 million, or 83%, compared to the third quarter of 2019. The Company incurred $1.3 million in acquisition-related expenses in the third quarter of 2020, compared to $0.2$4.7 million in the second quarter of 2020. For the ninesix months ended SeptemberJune 30, 2020, legal2021, total occupancy, furniture and professional feesequipment expenses totaled $8.7$9.5 million, an increase of $2.1$0.2 million, or 33%2%, compared to the ninesix months ended SeptemberJune 30, 2019, attributed to acquisition-related expenses incurred in 2020, partially offset by higher project-related expenses incurred in the first half of 2019.2020.
TheMarketing expenses totaled $1.0 million in the second quarter of 2021, $1.2 million in the first quarter of 2021 and $1.0 million in the second quarter of 2020. For the six months ended June 30, 2021, marketing expenses totaled $2.2 million, a decrease of $0.1 million, or 5%, compared to the six months ended June 30, 2020. Targeted marketing campaigns allow the Company utilizedto engage new and existing customers while maintaining a controlled expense base.
Legal and professional fees for the remaindersecond quarter of previously issued2021 were $2.2 million, a decrease of $0.4 million, or 15%, compared to the first quarter of 2021, and a decrease of $0.1 million, or 4%, compared to the second quarter of 2020. For the six months ended June 30, 2021, legal and professional fees totaled $4.8 million, a decrease of $0.9 million, or 16%, compared to the six months ended June 30, 2020. Acquisition-related expenses were $0.5 million in the second quarter of 2021, $0.6 million in the first quarter of 2021 and $0.2 million in the second quarter of 2020. Acquisition-related expenses were $1.1 million in the six months ended June 30, 2021 and $1.4 million for the six months ended June 30, 2020.
FDIC assessments were $0.5 million for the second quarter of 2021 and $0.5 million the first quarter of 2021, while the second quarter of 2020 benefited from FDIC small bank assessment credits to offset a portion of the assessment inexpenses. These credits were fully utilized by the second quarter of 2020. Assessment expense inFor the thirdsix months ended June 30, 2021, FDIC assessments totaled $1.0 million compared to $0.3 million for the six months ended June 30, 2020.
During the second quarter of 2020 returned2021, the Company recorded gains on the sale of OREO, net of other expenses of $0.1 million compared to the standard level, and is expected to be $0.5gains of $0.1 million in the fourthfirst quarter of 2020. For the nine months ended September 30, 2020, FDIC assessment expenses totaled $0.7 million, a decrease2021 and write-downs of $0.1 million, or 16%, compared to the nine months ended September 30, 2019, reflecting the benefit of credits applied in the 2020 period.
During the third quarter of 2020, the Company incurred expenses related to the sale of foreclosed assets, net of gains on sales, of $0.5 million compared to $0.2 million in the second quarter of 2020 (see “Nonperforming Loans, Troubled Debt Restructurings, Other Real Estate Owned, and Credit Quality” for more discussion). For the six months ended June 30, 2021, the Company recorded gains on the sale of OREO, net of other expenses of $0.2 million compared to gains of $0.1 million for the six months ended June 30, 2020.
The provisionNo adjustment to the reserve for credit losses on unfunded lending commitments totaled $0.8 millionwas recorded in the thirdfirst or second quarter of 2020,2021, compared to a $0.2 million increase in reserves in the second quarter of 2020 and none in the third quarter of 2019. Since adopting the CECL standard on January 1, 2020, the Company maintains an allowance for credit losses on lending-related commitments that are not unconditionally cancellable which reflects the company's estimate of lifetime losses. During the third quarter of 2020, the increase is primarily related to loan commitments acquired from Freedom Bank.2020.
Other expense totaled $4.5$4.1 million, $3.8$4.0 million and $3.4$3.8 million for the thirdsecond quarter of 2020,2021, the first quarter of 2021 and the second quarter of 2020, and the third quarter of 2019, respectively. For the ninesix months ended SeptemberJune 30, 2020,2021, other expensesexpense totaled $12.0$8.1 million, an increase of $0.8$0.6 million, or 7%9%, compared to the ninesix months ended SeptemberJune 30, 2019. Increases in 2020 included higher mortgage loan production-related expenses associated with higher volume, and costs related to the administration of the PPP program.2020.
Income Taxes
For the thirdsecond quarter of 2020,2021, the Company recorded tax expense of $7.0$8.8 million compared to tax expense of $10.2 million in the first quarter of 2021 and $7.2 million in the second quarter of 2020 and $8.5 million in2020. For the third quarter of 2019. 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 2021. This change resulted in additional incomesix months ended June 30, 2021, tax expense totaled $18.9 million, an increase of $1.1 million in the third quarter of 2019 upon the write down of deferred tax assets affected by the change, offset by a $0.4 million benefit upon adjusting the year-to-date provision to the new statutory tax rate. For the nine months ended September 30, 2020, tax expenses totaled $14.0 million, a decrease of $7.7$11.9 million, or 36%169%, compared to the ninesix months ended SeptemberJune 30, 2019. Tax impacts2020. A tax benefit related to stock-based compensation were nominaltotaled $0.6 million in each period.the second quarter of 2021, compared to a tax benefit of $0.1 million in the first quarter of 2021 and tax expense of $0.2 million in the second quarter of 2020.
Explanation of Certain Unaudited Non-GAAP Financial Measures
This report contains financial information determined by methods other than Generally Accepted Accounting Principles (“GAAP”). The financial highlights provide reconciliations between GAAP and adjusted financial measures including net income, fully taxable equivalent net interest income, noninterest income, noninterest expense, tax adjustments, net interest margin and other financial ratios. Management uses these non-GAAP financial measures in its analysis of the Company’s performance and believes these presentations provide useful supplemental information, and a clearer understanding of the Company’s performance. The Company believes the non-GAAP measures enhance investors’ understanding of the Company’s business and performance and if not provided would be requested by the investor community. These measures are also useful in understanding performance trends and facilitate comparisons with the performance of other financial institutions. The limitations associated with operating measures are the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might define or calculate these measures differently. The Company provides reconciliations between GAAP and these non-GAAP measures. These disclosures should not be considered an alternative to GAAP.
Reconciliation of Non-GAAP Measures
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Second | | First | | Second | | Six Months Ended |
| Quarter | | Quarter | | Quarter | | June 30, |
(In thousands, except per share data) | 2021 | | 2021 | | 2020 | | 2021 | | 2020 |
Net income, as reported: | | | | | | | | | |
Net income | $ | 31,410 | | | $ | 33,719 | | | $ | 25,080 | | | $ | 65,129 | | | $ | 25,789 | |
Reconciliation of Non-GAAP Measures
| | | Third | | Second | | Third | | Nine Months Ended | | Second | | First | | Second | | Six Months Ended |
| | Quarter | | Quarter | | Quarter | | September 30, | | Quarter | | Quarter | | Quarter | | June 30, |
(In thousands, except per share data) | (In thousands, except per share data) | 2020 | | 2020 | | 2019 | | 2020 | | 2019 | (In thousands, except per share data) | 2021 | | 2021 | | 2020 | | 2021 | | 2020 |
Net income, as reported: | | | | | | | | | | |
Net income | $ | 22,628 | | | $ | 25,080 | | | $ | 25,605 | | | $ | 48,417 | | | $ | 71,563 | | |
| Diluted earnings per share | Diluted earnings per share | $ | 0.42 | | | $ | 0.47 | | | $ | 0.49 | | | $ | 0.91 | | | $ | 1.38 | | Diluted earnings per share | $ | 0.56 | | | $ | 0.60 | | | $ | 0.47 | | | $ | 1.17 | | | $ | 0.49 | |
| Noninterest Income | Noninterest Income | $ | 16,946 | | | $ | 15,006 | | | $ | 13,943 | | | $ | 46,640 | | | $ | 40,356 | | Noninterest Income | $ | 15,322 | | | $ | 17,671 | | | $ | 15,006 | | | $ | 32,993 | | | $ | 29,694 | |
Securities (gains) losses, net | Securities (gains) losses, net | (4) | | | (1,230) | | | 847 | | | (1,253) | | | 1,322 | | Securities (gains) losses, net | 55 | | | 114 | | | (1,230) | | | 169 | | | (1,249) | |
BOLI benefits on death (included in other income) | — | | | — | | | (956) | | | — | | | (956) | | |
| Total adjustments to noninterest income | Total adjustments to noninterest income | (4) | | | (1,230) | | | (109) | | | (1,253) | | | 366 | | Total adjustments to noninterest income | 55 | | | 114 | | | (1,230) | | | 169 | | | (1,249) | |
Total Adjusted Noninterest Income | Total Adjusted Noninterest Income | $ | 16,942 | | | $ | 13,776 | | | $ | 13,834 | | | $ | 45,387 | | | $ | 40,722 | | Total Adjusted Noninterest Income | $ | 15,377 | | | $ | 17,785 | | | $ | 13,776 | | | $ | 33,162 | | | $ | 28,445 | |
| Noninterest Expense | Noninterest Expense | 51,674 | | | $ | 42,399 | | | $ | 38,583 | | | $ | 141,871 | | | $ | 122,682 | | Noninterest Expense | 45,784 | | | $ | 46,120 | | | $ | 42,399 | | | $ | 91,904 | | | $ | 90,197 | |
Merger related charges | (4,281) | | | (240) | | | — | | | (9,074) | | | (335) | | |
Merger-related charges | | Merger-related charges | (509) | | | (581) | | | (240) | | | (1,090) | | | (4,793) | |
Amortization of intangibles | Amortization of intangibles | (1,497) | | | (1,483) | | | (1,456) | | | (4,436) | | | (4,370) | | Amortization of intangibles | (1,212) | | | (1,211) | | | (1,483) | | | (2,423) | | | (2,939) | |
Business continuity expenses | Business continuity expenses | — | | | — | | | (95) | | | (307) | | | (95) | | Business continuity expenses | — | | | — | | | — | | | — | | | (307) | |
Branch reductions and other expense initiatives1 | Branch reductions and other expense initiatives1 | (464) | | | — | | | (121) | | | (464) | | | (1,846) | | Branch reductions and other expense initiatives1 | (663) | | | (449) | | | — | | | (1,112) | | | — | |
Total adjustments to noninterest expense | Total adjustments to noninterest expense | (6,242) | | | (1,723.00) | | | (1,672) | | | (14,281) | | | (6,646) | | Total adjustments to noninterest expense | (2,384) | | | (2,241) | | | (1,723) | | | (4,625) | | | (8,039) | |
Total Adjusted Noninterest Expense | Total Adjusted Noninterest Expense | $ | 45,432 | | | $ | 40,676 | | | $ | 36,911 | | | $ | 127,590 | | | $ | 116,036 | | Total Adjusted Noninterest Expense | $ | 43,400 | | | $ | 43,879 | | | $ | 40,676 | | | $ | 87,279 | | | $ | 82,158 | |
| Income Taxes | Income Taxes | $ | 6,992 | | | $ | 7,188 | | | $ | 8,452 | | | $ | 14,025 | | | $ | 21,770 | | Income Taxes | $ | 8,785 | | | $ | 10,157 | | | $ | 7,188 | | | $ | 18,942 | | | $ | 7,033 | |
Tax effect of adjustments | Tax effect of adjustments | 1,530 | | | 121 | | | 572 | | | 3,195 | | | 1,956 | | Tax effect of adjustments | 598 | | | 577 | | | 121 | | | 1,175 | | | 1,665 | |
| Effect of change in corporate tax rate on deferred tax assets | — | | | — | | | (1,135) | | | — | | | (1,135) | | |
| Total adjustments to income taxes | Total adjustments to income taxes | 1,530 | | | 121 | | | (563) | | | 3,195 | | | 821 | | Total adjustments to income taxes | 598 | | | 577 | | | 121 | | | 1,175 | | | 1,665 | |
Adjusted income taxes | Adjusted income taxes | 8,522 | | | 7,309 | | | 7,889 | | | 17,220 | | | 22,591 | | Adjusted income taxes | 9,383 | | | 10,734 | | | 7,309 | | | 20,117 | | | 8,698 | |
Adjusted net income | Adjusted net income | $ | 27,336 | | | $ | 25,452 | | | $ | 27,731 | | | $ | 58,250 | | | $ | 77,754 | | Adjusted net income | $ | 33,251 | | | $ | 35,497 | | | $ | 25,452 | | | $ | 68,748 | | | $ | 30,914 | |
| Earnings per diluted share, as reported | Earnings per diluted share, as reported | $ | 0.42 | | | $ | 0.47 | | | $ | 0.49 | | | $ | 0.91 | | | $ | 1.38 | | Earnings per diluted share, as reported | $ | 0.56 | | | $ | 0.60 | | | $ | 0.47 | | | $ | 1.17 | | | $ | 0.49 | |
Adjusted diluted earnings per share | Adjusted diluted earnings per share | 0.50 | | | 0.48 | | | 0.53 | | | 1.09 | | | 1.50 | | Adjusted diluted earnings per share | 0.59 | | | 0.63 | | | 0.48 | | | 1.23 | | | 0.59 | |
Average diluted shares outstanding | Average diluted shares outstanding | 54,301 | | | 53,308 | | | 51,935 | | | 53,325 | | | 51,996 | | Average diluted shares outstanding | 55,901 | | | 55,992 | | | 53,308 | | | 55,827 | | | 52,807 | |
| Adjusted Noninterest Expense | Adjusted Noninterest Expense | $ | 45,432 | | | $ | 40,676 | | | $ | 36,911 | | | $ | 127,590 | | | $ | 116,036 | | Adjusted Noninterest Expense | $ | 43,400 | | | $ | 43,879 | | | $ | 40,676 | | | $ | 87,279 | | | $ | 82,158 | |
Foreclosed property expense and net (loss) gain on sale | Foreclosed property expense and net (loss) gain on sale | (512) | | | (245) | | | (262) | | | (442) | | | (48) | | Foreclosed property expense and net (loss) gain on sale | 90 | | | 65 | | | (245) | | | 155 | | | 70 | |
Provision for unfunded commitments | Provision for unfunded commitments | (756) | | | (178) | | | — | | | (980) | | | — | | Provision for unfunded commitments | — | | | — | | | (178) | | | — | | | (224) | |
Net Adjusted Noninterest Expense | Net Adjusted Noninterest Expense | $ | 44,164 | | | $ | 40,253 | | | $ | 36,649 | | | $ | 126,168 | | | $ | 115,988 | | Net Adjusted Noninterest Expense | $ | 43,490 | | | $ | 43,944 | | | $ | 40,253 | | | $ | 87,434 | | | $ | 82,004 | |
| Revenue | Revenue | $ | 80,449 | | | $ | 82,278 | | | $ | 74,891 | | | $ | 240,592 | | | $ | 222,214 | | Revenue | $ | 81,124 | | | $ | 84,281 | | | $ | 82,278 | | | $ | 165,405 | | | $ | 160,143 | |
Total adjustments to revenue | Total adjustments to revenue | (4) | | | (1,230) | | | (109) | | | (1,253) | | | 366 | | Total adjustments to revenue | 55 | | | 114 | | | (1,230) | | | 169 | | | (1,249) | |
Impact of FTE adjustment | Impact of FTE adjustment | 118 | | | 116 | | | 79 | | | 348 | | | 249 | | Impact of FTE adjustment | 131 | | | 131 | | | 116 | | | 262 | | | 230 | |
Adjusted revenue on a fully tax equivalent basis | Adjusted revenue on a fully tax equivalent basis | $ | 80,563 | | | $ | 81,164 | | | $ | 74,861 | | | $ | 239,687 | | | $ | 222,829 | | Adjusted revenue on a fully tax equivalent basis | $ | 81,310 | | | $ | 84,526 | | | $ | 81,164 | | | $ | 165,836 | | | $ | 159,124 | |
Adjusted Efficiency Ratio | Adjusted Efficiency Ratio | 54.82 | % | | 49.60 | % | | 48.96 | % | | 52.64 | % | | 52.05 | % | Adjusted Efficiency Ratio | 53.49 | % | | 51.99 | % | | 49.60 | % | | 52.72 | % | | 51.53 | % |
Net Adjusted Noninterest Expense as a Percent of Average Tangible Assets2 | Net Adjusted Noninterest Expense as a Percent of Average Tangible Assets2 | 2.24 | % | | 2.11 | % | | 2.21 | % | | 2.26 | % | | 2.37 | % | Net Adjusted Noninterest Expense as a Percent of Average Tangible Assets2 | 1.98 | % | | 2.16 | % | | 2.11 | % | | 2.07 | % | | 2.28 | % |
| Net Interest Income | Net Interest Income | $ | 63,503 | | | $ | 67,272 | | | $ | 60,948 | | | $ | 193,952 | | | $ | 181,858 | | Net Interest Income | $ | 65,802 | | | $ | 66,610 | | | $ | 67,272 | | | $ | 132,412 | | | $ | 130,449 | |
Impact of FTE adjustment | Impact of FTE adjustment | 118 | | | 116 | | | 79 | | | 348 | | | 249 | | Impact of FTE adjustment | 131 | | | 131 | | | 116 | | | 262 | | | 230 | |
Net interest income including FTE adjustment | Net interest income including FTE adjustment | 63,621 | | | 67,388 | | | 61,027 | | | 194,300 | | | 182,107 | | Net interest income including FTE adjustment | 65,933 | | | 66,741 | | | 67,388 | | | 132,674 | | | 130,679 | |
Noninterest income | Noninterest income | 16,946 | | | 15,006 | | | 13,943 | | | 46,640 | | | 40,356 | | Noninterest income | 15,322 | | | 17,671 | | | 15,006 | | | 32,993 | | | 29,694 | |
Noninterest expense | | Noninterest expense | 45,784 | | | 46,120 | | | 42,399 | | | 91,904 | | | 90,197 | |
Pre-Tax Pre-Provision Earnings | | Pre-Tax Pre-Provision Earnings | 35,471 | | | 38,292 | | | 39,995 | | | 73,763 | | | 70,176 | |
Adjustments to noninterest income | | Adjustments to noninterest income | 55 | | | 114 | | | (1,230) | | | 169 | | | (1,249) | |
Adjustments to noninterest expense | | Adjustments to noninterest expense | (2,294) | | | (2,176) | | | (2,146) | | | (4,470) | | | (8,193) | |
Adjusted Pre-Tax Pre-Provision Earnings | | Adjusted Pre-Tax Pre-Provision Earnings | $ | 37,820 | | | $ | 40,582 | | | $ | 40,911 | | | $ | 78,402 | | | $ | 77,120 | |
|
| | | Third | | Second | | Third | | Nine Months Ended | | Second | | First | | Second | | Six Months Ended |
| | Quarter | | Quarter | | Quarter | | September 30, | | Quarter | | Quarter | | Quarter | | June 30, |
(In thousands, except per share data) | (In thousands, except per share data) | 2020 | | 2020 | | 2019 | | 2020 | | 2019 | (In thousands, except per share data) | 2021 | | 2021 | | 2020 | | 2021 | | 2020 |
Noninterest expense | 51,674 | | | 42,399 | | | 38,583 | | | 141,871 | | | 122,682 | | |
Pre-Tax Pre-Provision Earnings | 28,893 | | | 39,995 | | | 36,387 | | | 99,069 | | | 99,781 | | |
Adjustments to noninterest income | (4) | | | (1,230) | | | (109) | | | (1,253) | | | 366 | | |
Adjustments to noninterest expense | (7,510) | | | (2,146) | | | (1,934) | | | (15,703) | | | (6,694) | | |
Adjusted Pre-Tax Pre-Provision Earnings | $ | 36,399 | | | $ | 40,911 | | | $ | 38,212 | | | $ | 113,519 | | | $ | 106,841 | | |
| Average Assets | Average Assets | $ | 8,086,890 | | | $ | 7,913,002 | | | $ | 6,820,576 | | | $ | 7,686,611 | | | $ | 6,775,697 | | Average Assets | $ | 9,025,846 | | | $ | 8,485,354 | | | $ | 7,913,002 | | | $ | 8,757,093 | | | $ | 7,484,272 | |
Less average goodwill and intangible assets | Less average goodwill and intangible assets | (228,801) | | | (230,871) | | | (227,389) | | | (228,795) | | | (228,710) | | Less average goodwill and intangible assets | (235,964) | | | (237,323) | | | (230,871) | | | (236,640) | | | (228,791) | |
Average Tangible Assets | Average Tangible Assets | $ | 7,858,089 | | | $ | 7,682,131 | | | $ | 6,593,187 | | | $ | 7,457,816 | | | $ | 6,546,987 | | Average Tangible Assets | $ | 8,789,882 | | | $ | 8,248,031 | | | $ | 7,682,131 | | | $ | 8,520,453 | | | $ | 7,255,481 | |
| Return on Average Assets (ROA) | Return on Average Assets (ROA) | 1.11 | % | | 1.27 | % | | 1.49 | % | | 0.84 | % | | 1.41 | % | Return on Average Assets (ROA) | 1.40 | % | | 1.61 | % | | 1.27 | % | | 1.50 | % | | 0.69 | % |
Impact of removing average intangible assets and related amortization | Impact of removing average intangible assets and related amortization | 0.09 | | | 0.10 | | | 0.12 | | | 0.09 | | | 0.12 | | Impact of removing average intangible assets and related amortization | 0.08 | | | 0.09 | | | 0.10 | | | 0.08 | | | 0.09 | |
Return on Average Tangible Assets (ROTA) | Return on Average Tangible Assets (ROTA) | 1.20 | | | 1.37 | | | 1.61 | | | 0.93 | | | 1.53 | | Return on Average Tangible Assets (ROTA) | 1.48 | | | 1.70 | | | 1.37 | | | 1.58 | | | 0.78 | |
Impact of other adjustments for Adjusted Net Income | Impact of other adjustments for Adjusted Net Income | 0.18 | | | (0.04) | | | 0.06 | | | 0.11 | | | 0.06 | | Impact of other adjustments for Adjusted Net Income | 0.04 | | | 0.05 | | | (0.04) | | | 0.05 | | | 0.08 | |
Adjusted Return on Average Tangible Assets | Adjusted Return on Average Tangible Assets | 1.38 | % | | 1.33 | % | | 1.67 | % | | 1.04 | % | | 1.59 | % | Adjusted Return on Average Tangible Assets | 1.52 | % | | 1.75 | % | | 1.33 | % | | 1.63 | % | | 0.86 | % |
| Average Shareholders' Equity | Average Shareholders' Equity | $ | 1,061,807 | | | $ | 1,013,095 | | | $ | 946,670 | | | $ | 1,023,107 | | | $ | 912,817 | | Average Shareholders' Equity | $ | 1,170,395 | | | $ | 1,136,416 | | | $ | 1,013,095 | | | $ | 1,153,498 | | | $ | 1,003,544 | |
Less average goodwill and intangible assets | Less average goodwill and intangible assets | (228,801) | | | (230,871) | | | (227,389) | | | (228,795) | | | (228,710) | | Less average goodwill and intangible assets | (235,964) | | | (237,323) | | | (230,871) | | | (236,640) | | | (228,791) | |
Average Tangible Equity | Average Tangible Equity | $ | 833,006 | | | $ | 782,224 | | | $ | 719,281 | | | $ | 794,312 | | | $ | 684,107 | | Average Tangible Equity | $ | 934,431 | | | $ | 899,093 | | | $ | 782,224 | | | $ | 916,858 | | | $ | 774,753 | |
| Return on Average Shareholders' Equity | Return on Average Shareholders' Equity | 8.48 | % | | 9.96 | % | | 10.73 | % | | 6.32 | % | | 10.48 | % | Return on Average Shareholders' Equity | 10.76 | % | | 12.03 | % | | 9.96 | % | | 11.39 | % | | 5.17 | % |
Impact of removing average intangible assets and related amortization | Impact of removing average intangible assets and related amortization | 2.87 | | | 3.51 | | | 4.00 | | | 2.39 | | | 4.15 | | Impact of removing average intangible assets and related amortization | 3.12 | | | 3.59 | | | 3.51 | | | 3.34 | | | 2.10 | |
Return on Average Tangible Common Equity (ROTCE) | Return on Average Tangible Common Equity (ROTCE) | 11.35 | | | 13.47 | | | 14.73 | | | 8.71 | | | 14.63 | | Return on Average Tangible Common Equity (ROTCE) | 13.88 | | | 15.62 | | | 13.47 | | | 14.73 | | | 7.27 | |
Impact of other adjustments for Adjusted Net Income | Impact of other adjustments for Adjusted Net Income | 1.71 | | | (0.38) | | | 0.57 | | | 1.09 | | | 0.57 | | Impact of other adjustments for Adjusted Net Income | 0.39 | | | 0.39 | | | (0.38) | | | 0.39 | | | 0.75 | |
Adjusted Return on Average Tangible Common Equity | Adjusted Return on Average Tangible Common Equity | 13.06 | % | | 13.09 | % | | 15.30 | % | | 9.80 | % | | 15.20 | % | Adjusted Return on Average Tangible Common Equity | 14.27 | % | | 16.01 | % | | 13.09 | % | | 15.12 | % | | 8.02 | % |
| Loan Interest Income2 | Loan Interest Income2 | $ | 60,573 | | | $ | 64,929 | | | $ | 63,138 | | | $ | 189,026 | | | $ | 187,808 | | Loan Interest Income2 | $ | 60,440 | | | $ | 62,390 | | | $ | 64,929 | | | $ | 122,830 | | | $ | 128,453 | |
Accretion on acquired loans | Accretion on acquired loans | (3,254) | | | (2,988) | | | (3,859) | | | (10,529) | | | (11,963) | | Accretion on acquired loans | (2,886) | | | (2,868) | | | (2,988) | | | (5,754) | | | (7,275) | |
Interest and fees on PPP loans | Interest and fees on PPP loans | (1,719) | | | (5,068) | | | — | | | (6,787) | | | — | | Interest and fees on PPP loans | (5,127) | | | (6,886) | | | (5,068) | | | (12,013) | | | (5,068) | |
Loan interest income excluding PPP and accretion on acquired loans2 | Loan interest income excluding PPP and accretion on acquired loans2 | $ | 55,600 | | | $ | 56,873 | | | $ | 59,279 | | | $ | 171,710 | | | $ | 175,845 | | Loan interest income excluding PPP and accretion on acquired loans2 | $ | 52,427 | | | $ | 52,636 | | | $ | 56,873 | | | $ | 105,063 | | | $ | 116,110 | |
| Yield on Loans2 | Yield on Loans2 | 4.11 | % | | 4.56 | % | | 5.06 | % | | 4.51 | % | | 5.15 | % | Yield on Loans2 | 4.33 | % | | 4.39 | % | | 4.56 | % | | 4.36 | % | | 4.72 | % |
| Impact of accretion on acquired loans | Impact of accretion on acquired loans | (0.22) | | | (0.21) | | | (0.30) | | | (0.25) | | | (0.33) | | Impact of accretion on acquired loans | (0.21) | | | (0.20) | | | (0.21) | | | (0.20) | | | (0.27) | |
Impact of PPP | 0.33 | | | (0.04) | | | — | | | 0.11 | | | — | | |
Impact of PPP loans | | Impact of PPP loans | 0.01 | | | (0.04) | | | (0.04) | | | (0.02) | | | (0.01) | |
Yield on loans excluding PPP and accretion on acquired loans2 | Yield on loans excluding PPP and accretion on acquired loans2 | 4.22 | % | | 4.31 | % | | 4.76 | % | | 4.37 | % | | 4.82 | % | Yield on loans excluding PPP and accretion on acquired loans2 | 4.13 | % | | 4.15 | % | | 4.31 | % | | 4.14 | % | | 4.44 | % |
| Net Interest Income2 | Net Interest Income2 | $ | 63,621 | | | $ | 67,388 | | | $ | 61,027 | | | $ | 194,300 | | | $ | 182,107 | | Net Interest Income2 | $ | 65,933 | | | $ | 66,741 | | | $ | 67,388 | | | $ | 132,674 | | | $ | 130,679 | |
Accretion on acquired loans | Accretion on acquired loans | (3,254) | | | (2,988) | | | (3,859) | | | (10,529) | | | (11,963) | | Accretion on acquired loans | (2,886) | | | (2,868) | | | (2,988) | | | (5,754) | | | (7,275) | |
Interest and fees on PPP | (1,719) | | | (5,068) | | | — | | | (6,787) | | | — | | |
Interest and fees on PPP loans | | Interest and fees on PPP loans | (5,127) | | | (6,886) | | | (5,068) | | | (12,013) | | | (5,068) | |
Net interest income excluding PPP and accretion on acquired loans2 | Net interest income excluding PPP and accretion on acquired loans2 | $ | 58,648 | | | $ | 59,332 | | | $ | 57,168 | | | $ | 176,984 | | | $ | 170,144 | | Net interest income excluding PPP and accretion on acquired loans2 | $ | 57,920 | | | $ | 56,987 | | | $ | 59,332 | | | $ | 114,907 | | | $ | 118,336 | |
| Net Interest Margin2 | Net Interest Margin2 | 3.40 | % | | 3.70 | % | | 3.89 | % | | 3.67 | % | | 3.95 | % | Net Interest Margin2 | 3.23 | % | | 3.51 | % | | 3.70 | % | | 3.37 | % | | 3.81 | % |
Impact of accretion on acquired loans | Impact of accretion on acquired loans | (0.17) | | | (0.16) | | | (0.25) | | | (0.20) | | | (0.26) | | Impact of accretion on acquired loans | (0.14) | | | (0.15) | | | (0.16) | | | (0.15) | | | (0.21) | |
Impact of PPP loans | | Impact of PPP loans | (0.06) | | | (0.11) | | | (0.08) | | | (0.08) | | | (0.04) | |
Net interest margin excluding PPP and accretion on acquired loans2 | | Net interest margin excluding PPP and accretion on acquired loans2 | 3.03 | % | | 3.25 | % | | 3.46 | % | | 3.14 | % | | 3.56 | % |
| Loan Interest Income2 | | Loan Interest Income2 | $ | 60,440 | | | $ | 62,390 | | | $ | 64,929 | | | $ | 122,830 | | | $ | 128,453 | |
Tax equivalent adjustment to loans | | Tax equivalent adjustment to loans | (92) | | | (92) | | | (85) | | | (184) | | | (169) | |
Loan interest income excluding tax equivalent adjustment | | Loan interest income excluding tax equivalent adjustment | $ | 60,348 | | | $ | 62,298 | | | $ | 64,844 | | | $ | 122,646 | | | $ | 128,284 | |
|
| | | Third | | Second | | Third | | Nine Months Ended | | Second | | First | | Second | | Six Months Ended |
| | Quarter | | Quarter | | Quarter | | September 30, | | Quarter | | Quarter | | Quarter | | June 30, |
(In thousands, except per share data) | (In thousands, except per share data) | 2020 | | 2020 | | 2019 | | 2020 | | 2019 | (In thousands, except per share data) | 2021 | | 2021 | | 2020 | | 2021 | | 2020 |
Impact of PPP | 0.19 | | | (0.08) | | | — | | | 0.04 | | | — | | |
Net interest margin excluding PPP and accretion on acquired loans2 | 3.42 | % | | 3.46 | % | | 3.64 | % | | 3.51 | % | | 3.69 | % | |
| Loan Interest Income2 | $ | 60,573 | | | $ | 64,929 | | | $ | 63,138 | | | $ | 189,026 | | | $ | 187,808 | | |
Tax equivalent adjustment to loans | (86) | | | (85) | | | (46) | | | (255) | | | (141) | | |
Loan interest income excluding tax equivalent adjustment | $ | 60,487 | | | $ | 64,844 | | | $ | 63,092 | | | $ | 188,771 | | | $ | 187,667 | | |
| Securities Interest Income2 | Securities Interest Income2 | $ | 7,129 | | | $ | 7,725 | | | $ | 8,966 | | | $ | 23,702 | | | $ | 27,387 | | Securities Interest Income2 | $ | 6,745 | | | $ | 6,485 | | | $ | 7,725 | | | $ | 13,230 | | | $ | 16,573 | |
Tax equivalent adjustment to securities | Tax equivalent adjustment to securities | (32) | | | (31) | | | (33) | | | (93) | | | (108) | | Tax equivalent adjustment to securities | (39) | | | (39) | | | (31) | | | (78) | | | (61) | |
Securities interest income excluding tax equivalent adjustment | Securities interest income excluding tax equivalent adjustment | $ | 7,097 | | | $ | 7,694 | | | $ | 8,933 | | | $ | 23,609 | | | $ | 27,279 | | Securities interest income excluding tax equivalent adjustment | $ | 6,706 | | | $ | 6,446 | | | $ | 7,694 | | | $ | 13,152 | | | $ | 16,512 | |
| Net Interest Income2 | Net Interest Income2 | $ | 63,621 | | | $ | 67,388 | | | $ | 61,027 | | | $ | 194,300 | | | $ | 182,107 | | Net Interest Income2 | $ | 65,933 | | | $ | 66,741 | | | $ | 67,388 | | | $ | 132,674 | | | $ | 130,679 | |
Tax equivalent adjustments to loans | Tax equivalent adjustments to loans | (86) | | | (85) | | | (46) | | | (255) | | | (141) | | Tax equivalent adjustments to loans | (92) | | | (92) | | | (85) | | | (184) | | | (169) | |
Tax equivalent adjustments to securities | Tax equivalent adjustments to securities | (32) | | | (31) | | | (33) | | | (93) | | | (108) | | Tax equivalent adjustments to securities | (39) | | | (39) | | | (31) | | | (78) | | | (61) | |
Net interest income excluding tax equivalent adjustments | Net interest income excluding tax equivalent adjustments | $ | 63,503 | | | $ | 67,272 | | | $ | 60,948 | | | $ | 193,952 | | | $ | 181,858 | | Net interest income excluding tax equivalent adjustments | $ | 65,802 | | | $ | 66,610 | | | $ | 67,272 | | | $ | 132,412 | | | $ | 130,449 | |
| 1Includes severance, contract termination costs, disposition of branch premises and fixed assets, and other costs to effect the Company's branch consolidation and other expense reduction strategies. | 1Includes severance, contract termination costs, disposition of branch premises and fixed assets, and other costs to effect the Company's branch consolidation and other expense reduction strategies. | 1Includes severance, contract termination costs, disposition of branch premises and fixed assets, and other costs to effect the Company's branch consolidation and other expense reduction strategies. |
2On a fully taxable equivalent basis. All yields and rates have been computed using amortized cost. | 2On a fully taxable equivalent basis. All yields and rates have been computed using amortized cost. | 2On a fully taxable equivalent basis. All yields and rates have been computed using amortized cost. |
Financial Condition
Total assets increased $1.2$1.0 billion at SeptemberJune 30, 2020,2021, or 17%12%, from December 31, 2019,2020, reflecting higher cash balances due to higher customer deposit balances, as well as the impactorigination of the PPP loans program, higher deposit balances, andunder the impact of the FBPB and Freedom Bank acquisitions completed in 2020.renewed program.
Securities
Information related to maturities, carrying values and fair value of the Company’s debt securities is set forth in “Note“Note D – Securities”Securities” of the Company’s condensed consolidated financial statements.
At SeptemberJune 30, 2020,2021, the Company had $1.3 billion in debt securities available-for-sale and $207.4$493.5 million in debt securities held-to-maturity. The Company's total debt securities portfolio increased $286.0$233.6 million, or 24%15%, from December 31, 2019.2020.
During the ninefirst quarter of 2021, the Company reclassified debt securities with an amortized cost of $210.8 million from available-for-sale to held-to-maturity. These securities had net unrealized gains of $0.8 million at the date of transfer, which will continue to be reported in accumulated other comprehensive income and will be amortized over the remaining life of the securities as an adjustment of yield. The effect on interest income of the amortization of net unrealized gains is offset by the amortization of the premium on the securities transferred. The Company has the intent and ability to retain these securities until maturity.
During the six months ended SeptemberJune 30, 2020,2021, there were $626.7$669.2 million of debt security purchases and $237.1$361.9 million in aggregated paydowns and maturities. For the ninesix months ended SeptemberJune 30, 2020,2021, the Company had $56.2 million in proceeds from the salesales of securities totaled $96.7 million, with net gainslosses of $1.1$0.1 million. For the ninesix months ended SeptemberJune 30, 2019,2020, there were $164.5$239.2 million debt security purchases and aggregated maturities and principal paydowns totaled $98.3$140.3 million. Proceeds from sales of securities during the ninesix months ended SeptemberJune 30, 20192020 totaled $122.9$92.3 million, with net lossesgains of $1.5$1.1 million.
Debt securities generally return principal and interest monthly. The modified duration of the investment portfolio at SeptemberAt June 30, 2020 was 3.3 years, compared to 3.5 years at December 31, 2019.
At September 30, 2020,2021, available-for-sale debt securities had gross unrealized losses of $3.7$6.3 million and gross unrealized gains of $28.6$18.7 million, compared to gross unrealized losses of $2.7$2.1 million and gross unrealized gains of $8.8$28.7 million at December 31, 2019.2020. The modified duration of the available-for-sale portfolio at June 30, 2021 was 3.2 years, compared to 3.8 years at December 31, 2020.
The credit quality of the Company’s securities holdings areis primarily investment grade. U.S. Treasuries, obligations of U.S. government agencies and obligations of U.S. government sponsored entities totaled $1.2$1.5 billion, or 77%82%, of the total portfolio.
The portfolio includes $100.8$73.5 million, with a fair value of $75.2 million, in private label residential and commercial mortgage-backed securities and collateralized mortgage obligations. Included are $74.0$48.4 million, with a fair value of $74.4$49.0 million, in private label mortgage-backed residential securities with weighted average credit support of 27%34%. The collateral underlying these mortgage investments
includes both fixed-rate and adjustable-rate mortgage loans. Non-guaranteed agency commercial securities total $25.0 million, with a fair value of $26.4$26.2 million. These securities have weighted average credit support of 11%. The collateral underlying these mortgages are primarily pooled multifamily loans.
The Company also has invested $203.8$209.8 million, with a fair value of $201.4$209.7 million, in uncapped 3-month LIBOR floating rate collateralized loan obligations ("CLOs"(“CLOs”). CLOs are special purpose vehicles, and the Company’s holdings purchase nearly all
first lien broadly syndicated corporate loans across a diversified band of industries while providing support to senior tranche investors. As of SeptemberJune 30, 2020, ,2021, the Company held 2726 total positions, all of which were in AAA/AA tranches with average credit support of 31%. The Company utilizes credit models with assumptions of loan level defaults, recoveries, and prepayments to evaluate each security for each CLO security.potential credit losses. The resultsresult of this analysis did not indicate expected credit losses.
Held-to-maturity securities consist solely of mortgage-backed securities and collateralized mortgage obligations guaranteed by government agencies.
At SeptemberJune 30, 2020,2021, the Company has determined that all debt securities in an unrealized loss position are the result of both broad investment type spreads and the current interest rate environment. Management believes that each investment will recover any price depreciationsdepreciation over its holding period as the debt securities move to maturity, and there ismanagement has the intent and ability to hold these investments to maturity if necessary. Therefore, at SeptemberJune 30, 2020,2021, no allowance for credit losses has been recorded.
Loan Portfolio
Loans, net of unearned income and excluding the allowance for credit losses, were $5.9$5.4 billion at SeptemberJune 30, 2020, $659.62021, a $298.3 million more than atdecrease from December 31, 2019, an increase of 13%. The increase reflects2020. During the additions of loans throughsix months ended June 30, 2021, the acquisition of FBPBCompany participated in the first quartermost recent round of 2020 andthe PPP, resulting in originations of Freedom Bank$256.0 million. This was offset by $457.0 million in PPP loans that were forgiven by the SBA during the six months ended June 30, 2021. Remaining decreases in loans reflect the impact of continued paydowns, as loan growth is expected to return in the third quartersecond half of 2020, and loans originated under the SBA's Paycheck Protection Program.2021.
For the ninesix months ended SeptemberJune 30, 2020,2021, the Company originated $378.4$397.3 million in commercial and commercial real estate loans, were originated compared to $749.5$290.2 million for the ninesix months ended SeptemberJune 30, 2019, a decrease2020, an increase of $371.0$107.1 million, or 50%37%. The loan pipeline for commercial and commercial real estate loans totaled $256.2$322.0 million at SeptemberJune 30, 2020. Commercial originations decreased during2021. Prior year’s production and pipeline reflect the third quarterimpact of 2020 as a resultthe onset of a continued approach on new credits given an uncertain economic outlook associated with the COVID-19 pandemic.pandemic where the Company purposefully slowed originations. The Company will continuecurrent year activity reflects the Company’s return to serve current strong relationships that meetits pre-pandemic credit policy and strict credit underwriting guidelines, with liquidity and balance sheets that can support significant stress.guidelines.
The Company closed $74.7originated $164.7 million in residential loans retained in the portfolio during the ninesix months ended SeptemberJune 30, 2020,2021, compared to $123.8$49.3 million closed during the ninesix months ended SeptemberJune 30, 2019,2020, an increase of 40%$115.4 million, or 234%. Residential loans retained in the portfolio in the second quarter of 2021 includes a $38.4 million purchased pool consisting of 30-year fixed rate jumbo residential loans. Saleable volumes were higherproduction increased for the ninesix months ended SeptemberJune 30, 2021, representing $258.4 million versus $185.3 million during the six months ended June 30, 2020, representing 82%an increase of production versus 59% of production during the nine months ended September 30, 2019. The saleable residential mortgage pipeline at September 30, 2020 totaled $149.9 million while the retained pipeline decreased to $33.4 million as of September 30, 2020. The residential lending team has adapted quickly to heightened demand and has increased service levels to homebuyers, refinance customers, and local real estate professionals. As a result, the Company has recognized substantial growth in market share.39%.
Consumer originations totaled $171.8$110.4 million for the ninesix months ended SeptemberJune 30, 2020, higher by $14.92021, an increase of $1.0 million, or 9%1%, compared to the ninesix months ended SeptemberJune 30, 2019, and the pipeline for these loans at September 30, 2020 was $17.1 million.2020.
The Company remains committed to sound risk management procedures. Lending policies contain guardrails that pertain to lending by type of collateral and purpose, along with limits regarding loan concentrations and the principal amount of loans. The Company's exposure to commercial real estate lending remains well below regulatory limits (see “Loan Concentrations”).
The following tables detail loan portfolio composition at SeptemberJune 30, 2021 and December 31, 2020 for portfolio loans, purchased credit deteriorated (“PCD”) and loans purchased which are not considered purchased credit deteriorated (“Non-PCD”) as defined in Note E-Loans; and at December 31, 2019 for portfolio loans, purchased credit impaired loans ("PCI") and purchased unimpaired loans("PUL").E-Loans.
| | | September 30, 2020 | | June 30, 2021 |
(In thousands) | (In thousands) | Portfolio Loans | | Acquired Non-PCD Loans | | PCD Loans | | Total | (In thousands) | Portfolio Loans | | Acquired Non-PCD Loans | | PCD Loans | | Total |
Construction and land development | Construction and land development | $ | 246,312 | | | $ | 30,720 | | | $ | 3,578 | | | $ | 280,610 | | Construction and land development | $ | 223,412 | | | $ | 10,408 | | | $ | 527 | | | $ | 234,347 | |
Commercial real estate - owner-occupied | Commercial real estate - owner-occupied | 817,547 | | | 267,223 | | | 40,690 | | | 1,125,460 | | Commercial real estate - owner-occupied | 889,221 | | | 203,847 | | | 34,572 | | | 1,127,640 | |
Commercial real estate - non owner-occupied | Commercial real estate - non owner-occupied | 1,014,993 | | | 348,085 | | | 31,386 | | | 1,394,464 | | Commercial real estate - non owner-occupied | 1,112,290 | | | 274,772 | | | 25,377 | | | 1,412,439 | |
Residential real estate | Residential real estate | 1,182,558 | | | 201,221 | | | 9,617 | | | 1,393,396 | | Residential real estate | 1,087,313 | | | 131,131 | | | 8,092 | | | 1,226,536 | |
Commercial and financial | Commercial and financial | 711,358 | | | 105,327 | | | 16,398 | | | 833,083 | | Commercial and financial | 811,580 | | | 75,245 | | | 13,381 | | | 900,206 | |
Consumer | Consumer | 184,608 | | | 7,306 | | | 302 | | | 192,216 | | Consumer | 166,806 | | | 4,949 | | | 14 | | | 171,769 | |
Paycheck Protection Program | Paycheck Protection Program | 584,577 | | | 54,223 | | | — | | | 638,800 | | Paycheck Protection Program | 350,531 | | | 13,581 | | | — | | | 364,112 | |
Totals | Totals | $ | 4,741,953 | | | $ | 1,014,105 | | | $ | 101,971 | | | $ | 5,858,029 | | Totals | $ | 4,641,153 | | | $ | 713,933 | | | $ | 81,963 | | | $ | 5,437,049 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
(In thousands) | Portfolio Loans | | PULs | | PCI Loans | | Total |
Construction and land development | $ | 281,335 | | | $ | 43,618 | | | $ | 160 | | | $ | 325,113 | |
Commercial real estate1 | 1,834,811 | | | 533,943 | | | 10,217 | | | 2,378,971 | |
Residential real estate | 1,304,305 | | | 201,848 | | | 1,710 | | | 1,507,863 | |
Commercial and financial | 697,301 | | | 80,372 | | | 579 | | | 778,252 | |
Consumer | 200,166 | | | 8,039 | | | — | | | 208,205 | |
Totals | $ | 4,317,918 | | | $ | 867,820 | | | $ | 12,666 | | | $ | 5,198,404 | |
1Commercial real estate includes owner-occupied balances of $1.0 billion for December 31, 2019. |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
(In thousands) | Portfolio Loans | | Acquired Non-PCD Loans | | PCD Loans | | Total |
Construction and land development | $ | 216,420 | | | $ | 26,250 | | | $ | 2,438 | | | $ | 245,108 | |
Commercial real estate - owner-occupied | 854,769 | | | 247,090 | | | 39,451 | | | 1,141,310 | |
Commercial real estate - non owner-occupied | 1,043,459 | | | 323,273 | | | 29,122 | | | 1,395,854 | |
Residential real estate | 1,155,914 | | | 176,105 | | | 10,609 | | | 1,342,628 | |
Commercial and financial | 743,846 | | | 94,627 | | | 16,280 | | | 854,753 | |
Consumer | 181,797 | | | 6,660 | | | 278 | | | 188,735 | |
Paycheck Protection Program | 515,532 | | | 51,429 | | | — | | | 566,961 | |
Totals | $ | 4,711,737 | | | $ | 925,434 | | | $ | 98,178 | | | $ | 5,735,349 | |
The amortized cost basis of loans at SeptemberJune 30, 20202021 included net deferred costs of $21.8$25.2 million on non-PPP portfolio loans and net deferred fees of $13.1$10.6 million on PPP loans. At December 31, 2019,2020, the amortized cost basis included net deferred costs of $19.9 million.$22.6 million on non-PPP portfolio loans and net deferred fees of $9.5 million on PPP loans. At SeptemberJune 30, 2020,2021, the remaining fair value adjustments on acquired loans was $34.6$24.4 million, or 3.0%, of the outstanding acquired loan balances. At December 31, 2019,2020, the remaining fair value adjustments for acquired loans was $34.9$30.2 million, or 3.8%2.9%, of the acquired loan balances. These amounts are accreted into interest income over the remaining lives of the related loans on a level yield basis.
Commercial real estate ("CRE"(“CRE”) loans, inclusive of owner-occupied commercial real estate, increased by $141.0$2.9 million, or 6%0.1%, in the ninesix months ended SeptemberJune 30, 2020,2021, totaling $2.5 billion at SeptemberJune 30, 20202021 compared to $2.4$2.5 billion at December 31, 2019.2020. Owner-occupied commercial real estate loans represent $1.1 billion, or 45%44%, of the commercial real estate portfolio.
Fixed-rate and adjustable-rate loans secured by commercial real estate, excluding construction loans, totaled approximately $2.0$2.1 billion and $492.1$421.6 million, respectively, at SeptemberJune 30, 2020,2021, compared to $2.0$2.1 billion and $418.8$453.7 million, respectively, at December 31, 2019.2020.
The CARES Act, which was signed into law on March 27, 2020, encourages financial institutionsDuring the six months ended June 30, 2021, the Company participated in the most recent round of the PPP and originated more than 2,700 loans for $256.0 million. Also during the six months ended June 30, 2021, $457.0 million in PPP loans were forgiven by the SBA.
At June 30, 2021, Seacoast had $6.8 million of loans with payment accommodations to practice prudent efforts to work with borrowers financially impacted by the COVID-19 pandemic, by providing an option for financial institutions to exclude from TDR consideration certain loan modifications that might otherwise be categorized as TDRs under ASC 310-40. This option is available for modifications that are deemed to be COVID-related, where the borrower was not more than 30 days past due on December 31, 2019, and the modification is executed between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the end of the COVID-19 national emergency. Federal banking regulators issued similar guidance that also allows lenders to conclude that short-term modifications for borrowers affected by the COVID-19 pandemic should not be considered TDRs if the borrower was current at the time of modification.
At September 30, 2020, Seacoast had $702.7 million of loans on payment deferral, none of which have been classified as TDRs. 97% of these loans are scheduledTDRs, compared to return to regular payments in the fourth quarter of$74.1 million at December 31, 2020. Interest and fees have
continued to accrue on these loans during theany payment deferral period. If economic conditions deteriorate further, these borrowers may be unable to resume scheduled payments, which may result in reversal of accrued interest, further modification of terms and additional necessary provisions for credit losses. As of September 30, 2020, the Company had $15.4 million in accrued interest associated with loans in short-term payment deferral status, against which the Company established a valuation allowance of $0.4 million for potentially uncollectable accrued interest.
The following table presents loans, excluding PPP loans, at September 30, 2020:
| | | | | | | | | | | | | | | | | |
(In thousands) | Loans with Deferrals | | Total Loans including Loans with Deferrals | | % of Loans with Deferrals |
Construction and land development | $ | 9,359 | | | $ | 280,610 | | | 3% |
Commercial real estate - owner-occupied | 204,710 | | | 1,125,460 | | | 18 |
Commercial real estate - non owner-occupied | 344,573 | | | 1,394,464 | | | 25 |
Residential real estate | 75,885 | | | 1,393,396 | | | 5 |
Commercial and financial | 61,308 | | | 833,083 | | | 7 |
Consumer | 6,815 | | | 192,216 | | | 4 |
| | | | | |
Totals | $ | 702,650 | | | $ | 5,219,229 | | | 13% |
The following table details commercial real estate and construction and land development loans outstanding by collateral type at September 30, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | Commercial Real Estate | | | Construction and Land Development | | | Total | | | % of Total Loans | | | Deferred Loans | | | | % of Category Deferred |
Office Building | $ | 727,518 | | | | $ | 12,465 | | | | $ | 739,983 | | | | 13% | | | $ | 134,654 | | | | | 18% |
Retail | 444,395 | | | | 21,093 | | | | 465,488 | | | | 8 | | | 147,214 | | | | | 32 |
Industrial & Warehouse | 366,175 | | | | 6,266 | | | | 372,441 | | | | 6 | | | 47,160 | | | | | 13 |
Other Commercial Property | 249,619 | | | | 25 | | | | 249,644 | | | | 4 | | | 43,211 | | | | | 17 |
Healthcare | 203,546 | | | | 21,321 | | | | 224,867 | | | | 4 | | | 27,797 | | | | | 12 |
Apartment Building / Condominium | 165,855 | | | | 30,164 | | | | 196,019 | | | | 3 | | | 15,315 | | | | | 8 |
Hotel / Motel | 132,571 | | | | 2,866 | | | | 135,437 | | | | 2 | | | 86,230 | | | | | 64 |
Vacant Lot | 2,661 | | | | 76,171 | | | | 78,832 | | | | 1 | | | 6,255 | | | | | 8 |
1-4 Family Residence - Individual Borrowers | — | | | | 63,083 | | | | 63,083 | | | | 1 | | | — | | | | | — |
Convenience Store | 55,523 | | | | — | | | | 55,523 | | | | 1 | | | 14,754 | | | | | 27 |
Restaurant | 46,460 | | | | 1,796 | | | | 48,256 | | | | 1 | | | 18,727 | | | | | 39 |
Church | 29,720 | | | | — | | | | 29,720 | | | | 1 | | | 4,771 | | | | | 16 |
1-4 Family Residence - Spec Home | — | | | | 26,624 | | | | 26,624 | | | | — | | | — | | | | | — |
School / Education | 21,749 | | | | 3,093 | | | | 24,842 | | | | — | | | 6,085 | | | | | 24 |
Agriculture | 20,726 | | | | — | | | | 20,726 | | | | — | | | 321 | | | | | 2 |
Manufacturing Building | 18,312 | | | | — | | | | 18,312 | | | | — | | | 59 | | | | | — |
1-4 Family Residence - Builder Lines | 22 | | | | 15,643 | | | | 15,665 | | | | — | | | — | | | | | — |
Recreational Property | 14,964 | | | | — | | | | 14,964 | | | | — | | | 5,852 | | | | | 39 |
Other Properties | 20,108 | | | | — | | | | 20,108 | | | | — | | | 237 | | | | | 1 |
Total | $ | 2,519,924 | | | | $ | 280,610 | | | | $ | 2,800,534 | | | | 48% | | | $ | 558,642 | | | | | 20% |
The largest collateral type in the CRE and construction portfolios, when aggregated, is office buildings, representing 13% of the portfolio. The average loan size in the office building category is $578 thousand, the average loan to value ("LTV") is 53%, and 57% of this category is classified as owner-occupied. This primarily includes medical, accounting, engineering, health care, veterinarians and other similar professionals. 41% of the office building category is stabilized income-producing investment properties.
The second-largest category is retail, representing 8% of total loans. The average loan size in the retail category is $1.3 million and the average LTV is 46%. Loans collateralized by hotels/motels represent $135 million with an average loan size of $3.4 million and an average LTV of 52%. Restaurant exposure is limited at $48 million in loans, and is distributed among quick serve and full-service restaurants, with an average loan size of $761 thousand and LTV of 52%.
Commercial and financial loans outstanding were $833.1 million at September 30, 2020 and $778.3 million at December 31, 2019, an increase of 7.0%. The Company's primary customers for commercial and financial loans are small to medium-sized professional firms, retail and wholesale outlets, and light industrial and manufacturing companies. Such businesses are smaller and subject to the risks of lending to small- to medium-sized businesses, including, but not limited to, the effects of a downturn in the local economy, possible business failure, and insufficient cash flows.
The following table details the commercial and financial loans outstanding by industry type at September 30, 2020:
| | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | Commercial and Financial | | % of Total Loans | | Deferred Loans | | % of Category |
Management Companies1 | $ | 186,298 | | | 3% | | $ | 5,114 | | | 3% |
Professional, Scientific, Technical & Other Services | 97,176 | | | 2 | | 3,330 | | | 3 |
Real Estate Rental & Leasing | 83,729 | | | 1 | | 6,359 | | | 8 |
Construction | 76,190 | | | 1 | | 2,556 | | | 3 |
Finance & Insurance | 61,915 | | | 1 | | 272 | | | — |
Healthcare & Social Assistance | 61,509 | | | 1 | | 9,651 | | | 16 |
Transportation & Warehousing | 45,582 | | | 1 | | 7,132 | | | 16 |
Manufacturing | 45,565 | | | 1 | | 3,121 | | | 7 |
Wholesale Trade | 36,940 | | | 1 | | 12,337 | | | 33 |
Retail Trade | 24,256 | | | — | | 2,248 | | | 9 |
Education | 20,458 | | | — | | — | | | — |
Accommodation & Food Services | 17,839 | | | — | | 3,329 | | | 19 |
Administrative Support | 13,441 | | | — | | 635 | | | 5 |
Public Administration | 13,131 | | | — | | — | | | — |
Agriculture | 11,159 | | | — | | — | | | — |
Other Industries | 37,895 | | | 1 | | 5,224 | | | 14 |
Total | $ | 833,083 | | | 14% | | $ | 61,308 | | | 7% |
1Primarily corporate aircraft and marine vessels associated with high net worth individuals. | | |
Residential real estate loans decreased $114.5$116.1 million, or 8%9%, to $1.4$1.2 billion as of SeptemberJune 30, 2020,2021, compared to December 31, 2019.2020. Substantially all residential mortgage originations have been underwritten to conventional loan agency standards, including loans having balances that exceed agency value limitations. At SeptemberJune 30, 2020,2021, approximately $486.6$343.4 million, or 35%28%, of the Company’s residential mortgage balances were adjustable 1-4 family mortgage loans, which includes hybrid adjustable-rate mortgages.mortgages, compared to $436.3 million, or 32% at December 31, 2020. Fixed-rate mortgages totaled approximately $577.0$567.4 million, or 41%46%, at SeptemberJune 30, 2020, of which 15- and 30-year mortgages totaled $41.12021, compared to $499.0 million, and $357.5 million, respectively. Remaining fixed-rate balances were comprised of home improvement loans totaling $178.3 million, most with maturities of 10 years or less.37% at December 31, 2020. Home equity lines of credit ("HELOCs"), primarily floating rates, totaled $329.8$315.7 million at SeptemberJune 30, 2020. In comparison, loans secured by residential properties having fixed rates totaled $659.42021 and $341.6 million at December 31, 2019, with 15- and 30-year fixed-rate residential mortgages totaling $43.5 million and $372.0 million, respectively, and home equity mortgages and HELOCs totaling $243.8 million and $292.1 million, respectively.2020. Borrowers in the residential real estate portfolio have an average credit score of 755.747. Specifically for HELOCs, borrowers have an average credit score of 750.763. The average LTV of our HELOC portfolio is 59%67% with 46%43% of the portfolio being in first lien position.
the portfolio being in the first lien position at December 31, 2020.The Company also provides consumer loans, which include installment loans, auto loans, marine loans, and other consumer loans, which decreased $16.0$17.0 million, or 8%9%, to total $192.2$171.8 million compared to $208.2$188.7 million at December 31, 2019.2020. Borrowers in the consumer portfolio have an average credit score of 745.733.
At SeptemberJune 30, 2020,2021, the Company had unfunded loan commitments of $1.6 billion compared to $1.0$1.5 billion at December 31, 2019.2020.
Loan Concentrations
The Company has developed prudent guardrails to manage loan types that are most impacted by stressed market conditions in order to minimize credit risk concentration to capital. Outstanding balances for commercial and CRE loan relationships greater than $10 million totaled $779.0$834.0 million and represented 13%15% of the total portfolio at SeptemberJune 30, 20202021 compared to $680.2$753.7 million, or 13%, at year-end 2019.2020.
The Company’s ten largest commercial and commercial real estate funded and unfunded loan relationships at SeptemberJune 30, 20202021 aggregated to $265.6$279.5 million, of which $193.4$223.8 million was funded compared to $268.9$254.3 million at December 31, 2019,2020, of which $179.0$188.0 million was funded. The Company had 140147 commercial and commercial real estate relationships in excess of $5 million totaling $1.4$1.5 billion, of which $1.2 billion was funded at SeptemberJune 30, 20202021 compared to 120135 relationships totaling $1.2$1.3 billion at December 31, 2019,2020, of which $1.0$1.2 billion was funded.
Concentrations in total construction and land development loans and total CRE loans are maintained well below regulatory limits. Construction and land development and CRE loan concentrations as a percentage of subsidiary bank total risk based capital declined to 30%24% and 176%164%, respectively, at SeptemberJune 30, 2020,2021, compared to 40%26% and 204%169%, respectively, at December 31, 2019.2020. Regulatory guidance suggests limits of 100% and 300%, respectively. On a consolidated basis, construction and land development and commercial real estate loans represent 28%22% and 165%150%, respectively, of total consolidated risk based capital. To determine these ratios, the Company defines CRE in accordance with the guidance on “Concentrations in Commercial Real Estate Lending” (the “Guidance”) issued by the federal bank regulatory agencies in 2006 (and reinforced in 2015), which defines CRE loans as exposures secured by land development and construction, including 1-4 family residential construction, multi-family property, and non-farm nonresidential property where the primary or a significant source of repayment is derived from rental income associated with the property (i.e., loans for which 50 percent or more of the source of repayment comes from third party, non-affiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. Loans to real estate investment trusts (“REITs”) and unsecured loans to developers that closely correlate to the inherent risks in CRE markets would also be considered CRE loans under the Guidance. Loans on owner-occupied CRE are generally excluded. In addition, the Company is subject to a geographic concentration of credit because it primarily operates in Florida.
Nonperforming Loans, Troubled Debt Restructurings, Other Real Estate Owned, and Credit Quality
Nonperforming assets (“NPAs”) at SeptemberJune 30, 20202021 totaled $52.8$45.7 million, and were comprised of $36.9$32.9 million of nonaccrual loans, $12.3$11.0 million of other real estate owned (“OREO”), and $3.6$1.8 million of branches and other properties used in bank operations taken out of service. Compared to December 31, 2019,2020, nonaccrual loans increased $9.9decreased $3.2 million, spread across several loans.primarily the result of paydowns. The increase in OREO of $6.8$0.8 million from December 31, 2019 includes the additionreflects $1.3 million of one multifamily construction property for $6.5capital expenditures, $0.1 million in sales and one residential property for $0.9$0.4 million offset by sales of $0.6 million.in write-downs. The decrease in OREO for bank branches of $3.3$0.8 million reflects the addition of three branch properties totaling $3.3 million, offset by the sale of a singlefour branch property and a $1.3 million operations building acquired and subsequently sold in 2020.properties for $4.1 million. Overall, NPAs increased $13.4decreased $3.1 million, or 34%6%, from $39.3$48.9 million recorded as of December 31, 2019.2020. At SeptemberJune 30, 2020,2021, approximately 80%82% of nonaccrual loans were secured with real estate. See the tables below for details about nonaccrual loans. At SeptemberJune 30, 2020,2021, nonaccrual loans were written down by approximately $9.7$6.7 million, or 14%10%, of the original loan balance (including specific impairment reserves)reserves on individually evaluated loans).
Nonperforming loans to total loans outstanding at SeptemberJune 30, 2020 increased2021 decreased to 0.63%0.61% from 0.52%0.63% at December 31, 2019.2020. Nonperforming assets to total assets at SeptemberJune 30, 2020 increased2021 decreased to 0.64%0.49% from 0.55%0.59% at December 31, 2019.2020.
The Company’s asset mitigation staff handles all foreclosure actions together with outside legal counsel.
The Company pursues loan restructurings in select cases where it expects to realize better values than may be expected through traditional collection activities. The Company has worked with retail mortgage customers, when possible, to achieve lower payment structures in an effort to avoid foreclosure. Troubled debt restructurings ("TDRs"(“TDRs”) have been a part of the Company’s loss mitigation activities and can include rate reductions, payment extensions and principal deferrals. Company policy requires TDRs that are classified as nonaccrual loans after restructuring remain on nonaccrual until performance can be verified, which usually requires six months of performance under the restructured loan terms. Accruing restructured loansTDRs totaled $10.2$4.0 million
at SeptemberJune 30, 20202021 compared to $11.1$4.2 million at December 31, 2019.2020. Accruing TDRs are excluded from the nonperforming asset ratios.
Beginning in March 2020, in response to the economic downturn resulting from the COVID-19 pandemic, the Company has offered short-term payment deferrals to affected borrowers. As of SeptemberJune 30, 2020,2021, pandemic-related deferrals totaled $702.7$6.8 million and are not considered TDRs. If economic conditions deteriorate further, these borrowers may be unable to resume scheduled payments, which may result in further modification of terms and the potential for classification as a TDR in future periods.
The table below sets forth details related to nonaccrual and accruing restructured loans.
| | | September 30, 2020 | | June 30, 2021 |
| | Nonaccrual Loans | | Accruing Restructured Loans | | Nonaccrual Loans | | Accruing Restructured Loans |
(In thousands) | (In thousands) | | Non-Current | | Performing | | Total | | (In thousands) | | Non-Current | | Current | | Total | |
Construction and land development | Construction and land development | | $ | 573 | | | $ | 31 | | | $ | 604 | | | $ | 118 | | Construction and land development | | $ | 64 | | | $ | 7 | | | $ | 71 | | | $ | 58 | |
Commercial real estate - owner-occupied | Commercial real estate - owner-occupied | | 1,147 | | | 2,355 | | | 3,502 | | | 109 | | Commercial real estate - owner-occupied | | — | | | 5,390 | | | 5,390 | | | 105 | |
Commercial real estate - non owner-occupied | Commercial real estate - non owner-occupied | | 2,034 | | | 6,188 | | | 8,222 | | | 4,445 | | Commercial real estate - non owner-occupied | | 3,740 | | | 3,377 | | | 7,117 | | | — | |
Residential real estate | Residential real estate | | 8,147 | | | 9,016 | | | 17,163 | | | 5,246 | | Residential real estate | | 5,958 | | | 8,457 | | | 14,415 | | | 3,525 | |
Commercial and financial | Commercial and financial | | 3,903 | | | 3,134 | | | 7,037 | | | 26 | | Commercial and financial | | 3,417 | | | 2,376 | | | 5,793 | | | 131 | |
Consumer | Consumer | | 340 | | | 29 | | | 369 | | | 246 | | Consumer | | 60 | | | 74 | | | 134 | | | 218 | |
Total | Total | | $ | 16,144 | | | $ | 20,753 | | | $ | 36,897 | | | $ | 10,190 | | Total | | $ | 13,239 | | | $ | 19,681 | | | $ | 32,920 | | | $ | 4,037 | |
|
| | | December 31, 2019 | | December 31, 2020 |
| | Nonaccrual Loans | | Accruing Restructured Loans | | Nonaccrual Loans | | Accruing Restructured Loans |
(In thousands) | (In thousands) | | Non-Current | | Performing | | Total | | (In thousands) | | Non-Current | | Current | | Total | |
Construction and land development | Construction and land development | | $ | 4,902 | | | $ | 35 | | | $ | 4,937 | | | $ | 131 | | Construction and land development | | $ | 37 | | | $ | 129 | | | $ | 166 | | | $ | 109 | |
Commercial real estate | | 3,800 | | | 2,720 | | | 6,520 | | | 4,666 | | |
Commercial real estate - owner-occupied | | Commercial real estate - owner-occupied | | 5,682 | | | 2,500 | | | 8,182 | | | 109 | |
Commercial real estate - non owner-occupied | | Commercial real estate - non owner-occupied | | 2,030 | | | 6,053 | | | 8,083 | | | — | |
Residential real estate | Residential real estate | | 2,552 | | | 6,928 | | | 9,480 | | | 6,027 | | Residential real estate | | 4,074 | | | 8,418 | | | 12,492 | | | 3,740 | |
Commercial and financial | Commercial and financial | | 4,674 | | | 1,234 | | | 5,908 | | | 27 | | Commercial and financial | | 3,777 | | | 2,827 | | | 6,604 | | | — | |
Consumer | Consumer | | 38 | | | 72 | | | 110 | | | 249 | | Consumer | | 543 | | | 40 | | | 583 | | | 224 | |
Total | Total | | $ | 15,966 | | | $ | 10,989 | | | $ | 26,955 | | | $ | 11,100 | | Total | | $ | 16,143 | | | $ | 19,967 | | | $ | 36,110 | | | $ | 4,182 | |
|
At SeptemberJune 30, 20202021 and December 31, 2019,2020, total TDRs (performing and nonperforming) were comprised of the following loans by type of modification:
| | | | September 30, 2020 | | December 31, 2019 | | | June 30, 2021 | | December 31, 2020 |
(In thousands) | (In thousands) | | Number | | Amount | | Number | | Amount | (In thousands) | | Number | | Amount | | Number | | Amount |
Maturity extended | | Maturity extended | | 52 | | | $ | 5,258 | | | 51 | | | $ | 5,438 | |
Rate reduction | Rate reduction | | 40 | | | $ | 9,239 | | | 56 | | | $ | 10,739 | | Rate reduction | | 29 | | | 3,236 | | | 37 | | | 4,275 | |
Maturity extended with change in terms | | 40 | | | 4,119 | | | 48 | | | 5,083 | | |
Chapter 7 bankruptcies | Chapter 7 bankruptcies | | 13 | | | 437 | | | 22 | | | 1,275 | | Chapter 7 bankruptcies | | 9 | | | 323 | | | 13 | | | 417 | |
Not elsewhere classified | Not elsewhere classified | | 20 | | | 2,648 | | | 11 | | | 966 | | Not elsewhere classified | | 6 | | | 175 | | | 5 | | | 160 | |
Total | Total | | 113 | | | $ | 16,443 | | | 137 | | | $ | 18,063 | | Total | | 96 | | | $ | 8,992 | | | 106 | | | $ | 10,290 | |
During the threesix months ended SeptemberJune 30, 2021, there were two defaults totaling $0.1 million of loans that had been modified in TDRs within the preceding twelve months. During the six months ended June 30, 2020, one loan wasthere were three defaults totaling $1.4 million of loans that had been modified to a TDR totaling $41,000, compared to three loans totaling $1.6 million forwithin the three months ended September 30, 2019. During the nine months ended September 30, 2020, eight loans totaling $0.6 million were modified to a TDR, compared to seven loans totaling $4.0 million for the nine months ended September 30, 2019.preceding twelve months. 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. During the nine months ended September 30, 2020, there were four defaults totaling $1.4 million that had been modified within the preceding twelve months. During the nine months ended September 30, 2019, there were three defaults on loans totaling $2.1 million to a single borrower that had been modified to a TDR within the
preceding twelve months. A restructured loan is considered in default when it becomes 90 days or more past due under the modified terms, has been transferred to nonaccrual status, has been charged off or has been transferred to OREO.
In accordance with regulatory reporting requirements, loans are placed on nonaccrual following the Retail Classification of Loan interagency guidance. 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.
Allowance for Credit Losses on Loans
On January 1, 2020, the Company adopted ASC Topic 326 - Financial Instruments - Credit Losses. The new guidance replaced the incurred loss model with an expected loss model, which is referred to as the current expected credit loss ("CECL") model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposure such as loan commitments, standby letters of credit, financial guarantees and other similar instruments.
Management estimates the allowance using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit losses provide the basis for
estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, loan to value ratios, borrower credit characteristics, loan seasoning or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, occupancy rates, and other macroeconomic metrics.
Upon adoption of the new model, the initial adjustment to the allowance for credit losses was an increase of $21.2 million, bringing the ratio of allowance to total loans from 0.68% at December 31, 2019 to 1.08% at January 1, 2020. The increase was attributed to the new requirement to estimate losses over the full remaining expected life of the loans and to the impact of the new guidance on the Company's acquired loan portfolio. The economic forecast scenario as of January 1, 2020 projected a stable macroeconomic environment over the three year forecast period. In addition to the $21.2 million impact of the initial adoption of ASC Topic 326, increases in the allowance during the first and second quarters of 2020 reflected the deterioration of the current and forecasted macroeconomic environment with the onset of the COVID-19 pandemic.
During the thirdsecond quarter of 2020,2021, the Company recorded a reversal of provision of $1.2$4.9 million resulting from the significant changereflecting improvement in the economic outlook and a slowing in loan origination activity. Additionally and offsetting, a provision of $0.4 million was recorded to reserve for the potential that a portion of accrued interest will not be collected. This reserve was recorded as an offset to the accrued interest receivable balance in Other Assets.forecast. No allowance has been assigned to PPP loans, which are guaranteed by the U.S. government. Net charge-offs for the thirdsecond quarter of 20202021 were $1.7$0.7 million, or 0.12%0.05%, of average loans and, for the four most recent quarters, averaged 0.14%0.10% of outstanding loans. Excluding PPP loans, the ratio of allowance to total loans increaseddecreased to 1.80% at September 30, 2020 from 1.76%1.60% at June 30, 2020. Uncertainty related to market conditions and the economic outlook will likely continue through the end of 2020 as the ongoing effects of the pandemic and the potential for additional government assistance programs remain unknown.
2021 from 1.71% at March 31, 2021.The following tables present the activity in the allowance for credit losses on loans by segment:
| | | Three Months Ended September 30, 2020 | | Three Months Ended June 30, 2021 |
(In thousands) | (In thousands) | Beginning Balance | | | Initial Impact on Allowance of PCD Loans Acquired During the Period | | Provision for Credit Losses1 | | Charge- Offs | | Recoveries | | TDR Allowance Adjustments | | Ending Balance | (In thousands) | Beginning Balance | | | Provision for Credit Losses | | Charge- Offs | | Recoveries | | TDR Allowance Adjustments | | Ending Balance |
Construction and land development | Construction and land development | $ | 7,161 | | | | $ | 39 | | | $ | 475 | | | $ | — | | | $ | 26 | | | $ | — | | | $ | 7,701 | | Construction and land development | $ | 4,428 | | | | $ | (469) | | | $ | — | | | $ | 96 | | | $ | (2) | | | $ | 4,053 | |
Commercial real estate - owner-occupied | Commercial real estate - owner-occupied | 5,562 | | | | 954 | | | 689 | | | — | | | 26 | | | (12) | | | 7,219 | | Commercial real estate - owner-occupied | 9,792 | | | | (1,116) | | | — | | | — | | | — | | | 8,676 | |
Commercial real estate - non owner-occupied | Commercial real estate - non owner-occupied | 38,992 | | | | 2,096 | | | (7,050) | | | (25) | | | 5 | | | — | | | 34,018 | | Commercial real estate - non owner-occupied | 36,229 | | | | (1,423) | | | — | | | 1 | | | — | | | 34,807 | |
Residential real estate | Residential real estate | 20,453 | | | | 27 | | | (3,196) | | | (19) | | | 65 | | | (5) | | | 17,325 | | Residential real estate | 14,353 | | | | (2,407) | | | (21) | | | 621 | | | (3) | | | 12,543 | |
Commercial and financial | Commercial and financial | 15,514 | | | | 2,632 | | | 8,081 | | | (1,776) | | | 203 | | | — | | | 24,654 | | Commercial and financial | 18,916 | | | | 399 | | | (1,564) | | | 265 | | | — | | | 18,016 | |
Consumer | Consumer | 3,568 | | | | 15 | | | (244) | | | (355) | | | 114 | | | (2) | | | 3,096 | | Consumer | 2,925 | | | | 161 | | | (199) | | | 146 | | | (1) | | | 3,032 | |
Paycheck Protection Program | Paycheck Protection Program | — | | | | — | | | — | | | — | | | — | | | — | | | — | | Paycheck Protection Program | — | | | | — | | | — | | | — | | | — | | | — | |
Totals | Totals | $ | 91,250 | | | | $ | 5,763 | | | $ | (1,245) | | | $ | (2,175) | | | $ | 439 | | | $ | (19) | | | $ | 94,013 | | Totals | $ | 86,643 | | | | $ | (4,855) | | | $ | (1,784) | | | $ | 1,129 | | | $ | (6) | | | $ | 81,127 | |
| 1Excludes $0.4 million provision for credit losses on accrued interest receivable | |
| | | | Nine Months Ended September 30, 2020 | | Six Months Ended June 30, 2021 |
(In thousands) | (In thousands) | Beginning Balance | | Impact of Adoption of ASC 326 | | Initial Impact on Allowance of PCD Loans Acquired During the Period | | Provision for Credit Losses1 | | Charge- Offs | | Recoveries | | TDR Allowance Adjustments | | Ending Balance | (In thousands) | Beginning Balance | | | Provision for Credit Losses | | Charge- Offs | | Recoveries | | TDR Allowance Adjustments | | Ending Balance |
Construction and land development | Construction and land development | $ | 1,842 | | | $ | 1,479 | | | $ | 87 | | | $ | 4,202 | | | $ | — | | | $ | 92 | | | $ | (1) | | | $ | 7,701 | | Construction and land development | $ | 4,920 | | | | $ | (979) | | | $ | — | | | $ | 114 | | | $ | (2) | | | $ | 4,053 | |
Commercial real estate - owner-occupied | Commercial real estate - owner-occupied | 5,361 | | | 80 | | | 1,161 | | | 655 | | | (45) | | | 44 | | | (37) | | | 7,219 | | Commercial real estate - owner-occupied | 9,868 | | | | (1,192) | | | — | | | — | | | — | | | 8,676 | |
Commercial real estate - non owner-occupied | Commercial real estate - non owner-occupied | 7,863 | | | 9,341 | | | 2,236 | | | 14,578 | | | (37) | | | 37 | | | — | | | 34,018 | | Commercial real estate - non owner-occupied | 38,266 | | | | (3,461) | | | — | | | 2 | | | — | | | 34,807 | |
Residential real estate | Residential real estate | 7,667 | | | 5,787 | | | 124 | | | 3,638 | | | (150) | | | 283 | | | (24) | | | 17,325 | | Residential real estate | 17,500 | | | | (5,779) | | | (21) | | | 850 | | | (7) | | | 12,543 | |
Commercial and financial | Commercial and financial | 9,716 | | | 3,677 | | | 2,643 | | | 12,144 | | | (4,642) | | | 1,116 | | | — | | | 24,654 | | Commercial and financial | 18,690 | | | | 1,174 | | | (2,320) | | | 472 | | | — | | | 18,016 | |
Consumer | Consumer | 2,705 | | | 862 | | | 28 | | | 662 | | | (1,442) | | | 284 | | | (3) | | | 3,096 | | Consumer | 3,489 | | | | (333) | | | (384) | | | 262 | | | (2) | | | 3,032 | |
Paycheck Protection Program | Paycheck Protection Program | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Paycheck Protection Program | — | | | | — | | | — | | | — | | | — | | | — | |
Totals | Totals | $ | 35,154 | | | $ | 21,226 | | | $ | 6,279 | | | $ | 35,879 | | | $ | (6,316) | | | $ | 1,856 | | | $ | (65) | | | $ | 94,013 | | Totals | $ | 92,733 | | | | $ | (10,570) | | | $ | (2,725) | | | $ | 1,700 | | | $ | (11) | | | $ | 81,127 | |
| 1Excludes $0.4 million provision for credit losses on accrued interest receivable | |
|
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 SeptemberJune 30, 2020,2021, the Company had $1.4$1.2 billion in loans secured by residential real estate and $2.5 billion in loans secured by commercial real estate, representing 24%23% and 43%47% of total loans outstanding, respectively. In addition, the Company is subject to a geographic concentration of credit because it primarily operates in Florida.
WithLIBOR Transition
The Company’s LIBOR transition steering committee is responsible for overseeing the emergenceexecution of the COVID-19 pandemic late inCompany’s enterprise-wide LIBOR transition program, and for evaluating and mitigating risks associated with the first quartertransition from LIBOR. The LIBOR transition program includes a comprehensive review of 2020 leadingthe financial products, agreements, contracts, and business processes that may use LIBOR as a reference rate, and the development and execution of strategy to significant market changes, high levelstransition away from LIBOR, with appropriate consideration of unemploymentthe potential financial, customer, counterpart, regulatory and increasing degrees of uncertainty inlegal impacts. The Company continues to execute its LIBOR transition program, and to monitor regulatory and legislative activity to identify any necessary actions and facilitate the U.S. economy, the impact on expected losses on loans is difficulttransition to estimate with precision, and it is possible that additional provisions for credit losses could be needed in future periods.alternative reference rates.
Cash and Cash Equivalents and Liquidity Risk Management
Liquidity risk involves the risk of being unable to fund assets with the appropriate duration and rate-based liability, as well as the risk of not being able to meet unexpected cash needs. Liquidity planning and management are necessary to ensure the ability to fund operations cost effectively and to meet current and future potential obligations such as loan commitments and unexpected deposit outflows.
Funding sources include primarily customer-based deposits, collateral-backed borrowings, brokered deposits, cash flows from operations, cash flows from the loan and investment portfolios and asset sales, primarily secondary marketing for residential real estate mortgages and marine loans. Cash flows from operations are a significant component of liquidity risk management and the Company considers both deposit maturities and the scheduled cash flows from loan and investment maturities and payments when managing risk.
Deposits are a primary source of liquidity. The stability of this funding source is affected by numerous factors, including returns available to customers on alternative investments, the quality of customer service levels, perception of safety and competitive forces. The Company routinely uses debt securities and loans as collateral for secured borrowings. In the event of severe market disruptions, the Company has access to secured borrowings through the FHLB and the Federal Reserve Bank of Atlanta under its borrower-in-custody program.
The Company does not rely on and is not dependent onupon off-balance sheet financing or significant amounts of wholesale funding. The Company strategically increased brokered deposits in the first quarter of 2020 to supplement its liquidity position, given the unknown impact of the COVID-19 pandemic on business and economic conditions. Brokered certificates of deposits ("CDs"deposit (“CDs”) at SeptemberJune 30, 20202021 were $381.0$20.0 million, an increasea decrease of $91.8$213.8 million, or 19%91%, from December 31, 2019. CD maturities are laddered, with $147.2 million maturing in the fourth quarter of 2020.
Cash and cash equivalents, including interest bearing deposits, totaled $309.6 million$1.4 billion on a consolidated basis at SeptemberJune 30, 2020,2021, compared to $124.5$404.1 million at December 31, 2019,2020, an increase of 149%259%. Higher cash and cash equivalent balances at SeptemberJune 30, 20202021 reflect favorable deposit growth, including PPP loan fundssignificant growth in transaction account deposit balances during the second quarter. This increase in funding occurred across our customer base at near-zero rates, as new clients were onboarded and government stimulus payments received by our customers and generally lower consumer spending levelsexisting clients continue to see expansion in 2020.cash balances.
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 termshort-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 SeptemberJune 30, 2020,2021, the Company had available unsecured lines of credit of $135.0 million and secured lines of credit, which are subject to change, of $1.7 billion. In addition, the Company had $1.2$1.5 billion of debt securities and $646.1$688.4 million in residential and commercial real estate loans available as collateral. In comparison, at December 31, 2019,2020, the Company had available unsecured lines of $130.0$135.0 million and secured lines of credit of $1.1$1.8 billion, and $924.2 million$1.2 billion of debt securities and $830.0$733.3 million in residential and commercial real estate loans available as collateral. In April 2020, the Federal Reserve offered term funding with a fixed rate of 35 basis points on pledged Paycheck Protection Program loans. The Company initially expected to utilize this program, however, as the Bank's deposits increased significantly due to PPP loans being funded directly into bank deposit accounts and reduced spending due to the COVID-19 pandemic combined with the Bank's relatively low cost of deposits, utilization became unnecessary.
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 thirdsecond quarter of 2020,2021, Seacoast Bank distributed $5.2$25.6 million to the Company and, at SeptemberJune 30, 2020,2021, is eligible to distribute dividends to the Company of approximately $192.8$183.7 million without prior regulatory approval. Total dividends of $11.0 million have been distributed to the Company in 2020. At SeptemberJune 30, 2020,2021, the Company had cash and cash equivalents at the parent of approximately $59.4$87.8 million compared to $53.0$70.1 million at December 31, 2019.2020.
Deposits and Borrowings
Customer relationship funding is detailed in the following table for the periods specified:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | June 30, | | December 31, | | | | | | |
(In thousands, except ratios) | | 2021 | | 2020 | | | | | | |
Noninterest demand | | $ | 2,952,160 | | | $ | 2,289,787 | | | | | | | |
Interest-bearing demand | | 1,763,884 | | | 1,566,069 | | | | | | | |
Money market | | 1,807,190 | | | 1,556,370 | | | | | | | |
Savings | | 811,516 | | | 689,179 | | | | | | | |
Time certificates of deposit | | 501,686 | | | 831,156 | | | | | | | |
Total deposits | | $ | 7,836,436 | | | $ | 6,932,561 | | | | | | | |
| | | | | | | | | | |
Customer sweep accounts | | $ | 119,973 | | | $ | 119,609 | | | | | | | |
| | | | | | | | | | |
Noninterest demand deposits as % of total deposits | | 38 | % | | 33 | % | | | | | | |
The Company’s balance sheet continues to be primarily funded by core deposits.
Total deposits increased $1.3$0.9 billion, or 24%13%, to $7.8 billion at June 30, 2021, compared to $6.9 billion at September 30, 2020, compared to $5.6 billion at December 31, 2019.2020. The acquisitionincrease is largely the result of FBPBsignificant growth in the first quarter of 2020 added $173.7 milliontransaction account deposit balances as new clients were onboarded and existing clients continue to see expansion in deposits and the acquisition of Freedom Bank in the third quarter of 2020 added $329.7 million in deposits. The remaining increase was partially attributed to PPP borrowers' loan proceeds that remain in deposit accounts at September 30, 2020, as well as higher balances resulting from decreased customer spending due to the COVID-19 pandemic.
Since December 31, 2019,2020, interest bearing deposits (interest bearing demand, savings and money market deposits) increased $688.3$571.0 million, or 25%15%, to $3.5$4.4 billion, and CDs (excluding brokered CDs) decreased $76.7$115.7 million, or 11%19%, to $635.5$481.7 million. Noninterest demand deposits were higher by $810.3$662.4 million, or 51%29%, compared to year-end 2019,2020, totaling $2.4$3.0 billion. Noninterest demand deposits represented 35%38% of total deposits at SeptemberJune 30, 20202021 and 28%33% at December 31, 2019.2020.
During the ninesix months ended SeptemberJune 30, 2020, $1.6 billion2021, $213.8 million of brokered CDs at an average rate of 1.36%1.14% matured. Brokered CDs at SeptemberJune 30, 20202021 totaled $381.0$20.0 million, compared to $472.9$233.8 million at December 31, 2019. CD maturities are laddered, with $147.2 million maturing2020, and mature in the fourth quarter of 2020.2021.
Customer repurchase agreements totaled $89.5$120.0 million at SeptemberJune 30, 2020,2021, increasing $3.4$0.4 million or 4%, from December 31, 2019.2020. Repurchase agreements are offered by Seacoast to select customers who wish to sweep excess balances on a daily basis for investment purposes. Public funds comprise a significant amount of the outstanding balance.
The Company participates in programs with third party deposit networks as part of its cash management strategy. Through these programs, the Company can offer its customers access to FDIC insurance on large balances, and the Company can retain or sell, on an overnight basis, the underlying deposits. At June 30, 2021, the Company had sold, on an overnight basis, $115.8 million in deposits, compared to $112.7 million at December 31, 2020. These deposits are not included in the Consolidated Balance Sheet.
No unsecured federal funds purchased were outstanding at SeptemberJune 30, 2020.2021.
At SeptemberJune 30, 20202021 and December 31, 2019,2020, borrowings were comprised of subordinated debt of $71.3$71.5 million and $71.1$71.4 million, respectively, related to trust preferred securities issued by trusts organized or acquired by the Company, and there were no borrowings from FHLB. For the six months ended June 30, 2020, FHLB of $35.0borrowings averaged $224.9 million and $315.0 million, respectively. Thewith a weighted average rate for FHLB funds during the nine months ended September 30, 2020 and 2019 was 1.08% and 2.51%, respectively, and compared to 2.28% for the year ended December 31, 2019. FHLB borrowings outstanding as of September 30, 2020 bear interest at 0.72% and mature in 2023. Secured FHLB borrowings are an integral tool in liquidity management for the Company.
The Company has issued subordinated debt in conjunction with its wholly owned trust subsidiaries in connection with bank acquisitions in previous years. The acquired junior subordinated debentures (in accordance with ASC Topic 805 Business Combinations) were recorded at fair value, which collectively is $4.0 million lower than face value at September 30, 2020. 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.1.14%.
The weighted average interest rate of outstanding subordinated debt related to trust preferred securities was 3.28%2.40% and 4.87%3.69% for the ninesix months ended SeptemberJune 30, 2021 and June 30, 2020, and 2019, respectively, and compared to 4.75% for the year ended December 31, 2019.respectively.
Off-Balance Sheet Transactions
In the normal course of business, the Company may engage in a variety of financial transactions that, under generally accepted accounting principles, either are not recorded on the balance sheet or are recorded on the balance sheet in amounts that differ from the full contract or notional amounts. These transactions involve varying elements of market, credit and liquidity risk.
Lending commitments include unfunded loan commitments and standby and commercial letters of credit. For loan commitments, the contractual amount of a commitment represents the maximum potential credit risk that could result if the entire commitment had been funded, the borrower had not performed according to the terms of the contract, and no collateral had been provided. A large majority of loan commitments and standby letters of credit expire without being funded, and accordingly, total contractual amounts are not representative of actual future credit exposure or liquidity requirements. Loan commitments and letters of credit expose the Company to credit risk in the event that the customer draws on the commitment and subsequently fails to perform under the terms of the lending agreement.
For commercial customers, loan commitments generally take the form of revolving credit arrangements. For retail customers, loan commitments generally are lines of credit secured by residential property. These instruments are not recorded on the balance sheet until funds are advanced under the commitment. Loan commitments were $1.6 billion at SeptemberJune 30, 20202021 and $1.0$1.5 billion at December 31, 2019.2020.
During the current economic uncertainty created by the COVID-19 pandemic, borrowers may be more dependent upon lending commitments than they have been in the past, and more likely to draw on the commitments, though no material increase in utilization has occurred through September 30, 2020. The Company has a reserve for potential credit losses on unfunded lending-related commitments of $3.0 million recorded in Other Liabilities.
Capital Resources
The Company’s equity capital at SeptemberJune 30, 20202021 increased $112.7$51.9 million, or 11%5%, from December 31, 20192020 to $1.1$1.2 billion. Changes in equity included increases from net income of $48.4$65.1 million, partially offset by the issuance of a common stock pursuant to the FBPB and Freedom Bank acquisitions of $62.2dividend totaling $7.2 million and an increasethe decrease in accumulated other comprehensive income of $14.8$10.6 million primarily attributed to the increasedecrease in market value of available-for-sale debt securities. These increases were partially offset by a $16.9 million decrease from the adoption of CECL.
The ratio of shareholders’ equity to period end total assets was 13.25%12.69% and 13.87%13.55% at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively. The ratio of tangible shareholders’ equity to tangible assets was 10.67%10.43% and 11.05%11.01% at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively. The decrease was due to growth in the balance sheet, the result of bank acquisitions, PPP loans and associated liquidity.
Activity in shareholders’ equity for the ninesix months ended SeptemberJune 30, 20202021 and 20192020 follows:
| (In thousands) | (In thousands) | 2020 | | 2019 | (In thousands) | 2021 | | 2020 |
Beginning balance at December 31, 2019 and 2018 | $ | 985,639 | | | $ | 864,267 | | |
Beginning balance at December 31, 2020 and 2019 | | Beginning balance at December 31, 2020 and 2019 | $ | 1,130,402 | | | $ | 985,639 | |
Net income | Net income | 48,417 | | | 71,563 | | Net income | 65,129 | | | 25,789 | |
Cumulative change in accounting principle upon adoption of new accounting pronouncement | Cumulative change in accounting principle upon adoption of new accounting pronouncement | (16,876) | | | — | | Cumulative change in accounting principle upon adoption of new accounting pronouncement | — | | | (16,876) | |
Issuance of stock pursuant to acquisitions | 62,152 | | | — | | |
Issuance of stock pursuant to acquisition | | Issuance of stock pursuant to acquisition | — | | | 21,031 | |
Stock compensation, net of Treasury shares acquired | Stock compensation, net of Treasury shares acquired | 4,251 | | | 3,477 | | Stock compensation, net of Treasury shares acquired | 4,631 | | | 2,191 | |
Change in other comprehensive income | 14,758 | | | 23,371 | | |
Ending balance at September 30, 2020 and 2019 | $ | 1,098,341 | | | $ | 962,678 | | |
Issuance of common share dividend | | Issuance of common share dividend | (7,246) | | | — | |
Change in accumulated other comprehensive income | | Change in accumulated other comprehensive income | (10,569) | | | 12,829 | |
Ending balance at June 30, 2021 and 2020 | | Ending balance at June 30, 2021 and 2020 | $ | 1,182,347 | | | $ | 1,030,603 | |
Capital ratios are well above regulatory requirements for well-capitalized institutions. Seacoast management's use of risk-based capital ratios in its analysis of the Company’s capital adequacy are “non-GAAP” financial measures. Seacoast management uses these measures to assess the quality of capital and believes that investors may find it useful in their analysis of the Company. The capital measures are not necessarily comparable to similar capital measures that may be presented by other companies (see “Note I“Note J – Equity Capital”Capital”).
| September 30, 2020 | Seacoast (Consolidated) | | Seacoast Bank | | Minimum to be Well- Capitalized1 | |
June 30, 2021 | | June 30, 2021 | Seacoast (Consolidated) | | Seacoast Bank | | Minimum to be Well- Capitalized1 |
Total Risk-Based Capital Ratio | Total Risk-Based Capital Ratio | 17.98% | | 16.84% | | 10.00% | Total Risk-Based Capital Ratio | 19.21% | | 17.60% | | 10.00% |
Tier 1 Capital Ratio | Tier 1 Capital Ratio | 16.88% | | 15.74% | | 8.00% | Tier 1 Capital Ratio | 18.30 | | 16.69 | | 8.00 |
Common Equity Tier 1 Ratio (CET1) | Common Equity Tier 1 Ratio (CET1) | 15.60% | | 15.74% | | 6.50% | Common Equity Tier 1 Ratio (CET1) | 17.03 | | 16.69 | | 6.50 |
Leverage Ratio | Leverage Ratio | 11.97% | | 11.16% | | 5.00% | Leverage Ratio | 11.73 | | 10.71 | | 5.00 |
1For subsidiary bank only. | 1For subsidiary bank only. | | 1For subsidiary bank only. |
The Company’s total risk-based capital ratio was 17.98%19.21% at SeptemberJune 30, 2020,2021, an increase from December 31, 2019’s2020’s ratio of 15.71%18.51%. During the first quarter of 2020, the Company adopted interagency guidance which delays the impact of CECL adoption on capital for two years followed by a three yearthree-year phase-in period. At SeptemberJune 30, 2020,2021, the Bank’s leverage ratio (Tier 1 capital to adjusted total assets) was 11.16%10.71%, well above the minimum to be well capitalized under regulatory guidelines.
The Company and Seacoast Bank are subject to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The appropriate federal bank regulatory authority may prohibit the payment of dividends where it has determined that the payment of dividends would be an unsafe or unsound practice. The Company is a legal entity separate and distinct from Seacoast Bank and its other subsidiaries, and the Company’s primary source of cash and liquidity, other than securities offerings and borrowings, is dividends from its bank subsidiary. Without Office of the Comptroller of the Currency (“OCC”) approval, Seacoast Bank can pay $192.8$183.7 million of dividends to the Company.
The OCC and the Federal Reserve have policies that encourage banks and bank holding companies to pay dividends from current earnings, and have the general authority to limit the dividends paid by national banks and bank holding companies, respectively, if such payment may be deemed to constitute an unsafe or unsound practice. If, in the particular circumstances, either of these federal regulators determined that the payment of dividends would constitute an unsafe or unsound banking
practice, either the OCC or the Federal Reserve may, among other things, issue a cease and desist order prohibiting the payment of dividends by Seacoast Bank or us, respectively. The board of directors of a bank holding company must consider different factors to ensure that its dividend level, if any, is prudent relative to the organization’s financial position and is not based on overly optimistic earnings scenarios such as any potential events that may occur before the payment date that could affect its ability to pay, while still maintaining a strong financial position. As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company, such as Seacoast, should consult with the Federal Reserve and eliminate, defer, or significantly reduce the bank holding company’s dividends if: (i) its net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) its prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective financial condition; or (iii) it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
The Company has seven wholly owned trust subsidiaries that have issued trust preferred stock. Trust preferred securities from acquisitions were recorded at fair value when acquired. All trust preferred securities are guaranteed by the Company on a junior subordinated basis. The Federal Reserve’s rules permit qualified trust preferred securities and other restricted capital elements to be included under Basel III capital guidelines, with limitations, and net of goodwill and intangibles. The Company believes that its trust preferred securities qualify under these revised regulatory capital rules and believes that it can treat all $71.3$71.5 million of trust preferred securities as Tier 1 capital. For regulatory purposes, the trust preferred securities are added to the Company’s tangible common shareholders’ equity to calculate Tier 1 capital.
Critical Accounting Policies and Estimates
The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, (“GAAP”), including prevailing practices within the financial services industry. The preparation of consolidated financial statements requires management to make judgments in the application of certain of its accounting policies that involve significant estimates and assumptions. The Company has established policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. These estimates and assumptions, which may materially affect the reported amounts of certain assets, liabilities, revenues and expenses, are based on information available as of the date of the financial statements, and changes in this information over time and the use of revised estimates and assumptions could materially affect amounts reported in subsequent financial statements. Management believes the most critical accounting estimates and assumptions that involve the most difficult, subjective and complex assessments are:
•the allowance and the provision for credit losses on loans;
•acquisition accounting and purchased loans;
•intangible assets and impairment testing;
•other fair value adjustments;
•credit losses on AFSimpairment of debt securities, and;
•contingent liabilities.
The following is a discussion of the critical accounting policies intended to facilitate a reader’s understanding of the judgments, estimates and assumptions underlying these accounting policies and the possible or likely events or uncertainties known to the Company that could have a material effect on reported financial information. For more information regarding management’s judgments relating to significant accounting policies and recent accounting pronouncements, see “Note A-Significant Accounting Policies” to the Company’s consolidated financial statements.
Allowance and Provision for Credit Losses on Loans– Critical Accounting Policies and Estimates
Financial Instruments - Credit Losses,
which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss ("CECL") methodology.
For loans, management estimates the allowance for credit losses using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit losses provide the basis for estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, loan to value ratios, borrower credit characteristics, loan seasoning or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, occupancy rates, and other macroeconomic metrics.
The allowance for credit losses is measured on a collective basis when similar risk characteristics exist. The Company has developed an allowance model based on an analysis of probability of default ("PD") and loss given default ("LGD") to determine an expected loss by loan segment. PDs and LGDs are developed by analyzing the average historical loss migration of loans to default.
The allowance estimation process also applies an economic forecast scenario over a three year forecast period. The forecast may utilize one scenario or a composite of scenarios based on management's judgment and expectations around the current and future macroeconomic outlook. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. For portfolio segments with a weighted average life longer than three years, the Company reverts to longer term historical loss experience, adjusted for prepayments, to estimate losses over the remaining life of the loans within each segment.
Adjustments may be made to baseline reserves for some of the loan pools based on an assessment of internal and external influences on credit quality not fully reflected in the quantitative components of the allowance model. These influences may include elements such as changes in concentration, macroeconomic conditions, recent observable asset quality trends, staff turnover, regional market conditions, employment levels and loan growth. Based upon management's assessments of these factors, the Company may apply qualitative adjustments to the allowance.
Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.
The contractual term of a loan excludes expected extensions, renewals, and modification unless either of the following applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and not unconditionally cancellable by the Company.
A loan for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, is considered to be a troubled debt restructuring ("TDR"). The allowance for credit losses on a TDRtroubled debt restructurings (“TDRs”) is measured using the same method as all other loans held for investment, except when the value of a concession cannot be measured using a method other than the discounted cash flow method. When the value of a concession is measured using the discounted cash flow method, the allowance for credit losses is determining by discounting the expected future cash flows at the original interest rate of the loan.
It is the Company's practice to ensure that the charge-off policy meets or exceeds regulatory minimums.requirements. Losses on unsecured consumer loans are recognized at 90 days past due, compared to the regulatory loss criteria of 120 days. In compliance with Federal Financial Institution Examination Council guidelines, secured consumer loans, including residential real estate, are typically charged-offcharged off or charged down between 120 and 180 days past due, depending on the collateral type. Commercial loans and real estate loans are typically placed on nonaccrual status when principal or interest is past due for 90 days or more, unless the loan is both secured by collateral having realizable value sufficient to discharge the debt in-full and the loan is in process of collection. Loans provided with short-term payment deferrals under the CARES Act or interagency guidance are not considered past due if in compliance with the terms of their deferral. Secured loans may be charged-downcharged down to the estimated value of the collateral with previously accrued unpaid interest reversed against interest income. Subsequent charge-offs may be required as a result of changes in the market value of collateral or other repayment prospects. Initial charge-off amounts are based on valuation estimates derived from appraisals, broker price opinions, or other market information. Generally, new appraisals are not received until the foreclosure process is completed; however, collateral values are evaluated periodically based on market information and incremental charge-offs are recorded if it is determined that collateral values have declined from their initial estimates.
Note F to the financial statements (titled “Allowance for Credit Losses”) summarizes the Company’s allocation of the allowance for credit losses on loans by loan segment and provides detail regarding charge-offs and recoveries for each loan segment and the composition of the loan portfolio at SeptemberJune 30, 20202021 and December 31, 2019.2020.
Acquisition Accounting and Purchased Loans – Critical Accounting Policies and Estimates
The Company accounts for acquisitions under ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. All loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in ASC Topic 820, Fair Value Measurement. The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of expected principal, interest and other cash flows. Loans are identified as purchased credit deteriorated
(“PCD”) when they have experienced more-than-insignificant deterioration in credit quality since origination. An allowance for
expected credit losses on PCD loans is recorded at the date of acquisition through an adjustment to the loans’ amortized cost basis. In contrast, expected credit losses on loans not considered PCD are recognized in net income at the date of acquisition.
Fair value estimates for acquired assets and assumed liabilities are based on the information available, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available.
Intangible Assets and Impairment Testing – Critical Accounting Policies and Estimates
Intangible assets consist of goodwill, core deposit intangibles and mortgage servicing rights. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The core deposit intangible represents the excess intangible value of acquired deposit customer relationships. Core deposit intangibles are amortized on a straight-line basis, and are evaluated for indications of potential impairment at least annually. Goodwill is not amortized but rather is evaluated for impairment on at least an annual basis. The Company performed an annual impairment test of goodwill, as required by ASC Topic 350, Intangibles—Goodwill and Other, in the fourth quarter of 2019. Seacoast conducted the test internally, documenting the impairment test results,2020, and concluded that no impairment occurred.existed.
As a result of recent volatility inFair value estimates for acquired assets and assumed liabilities are based on the financial marketsinformation available, and overall decline in bank stock valuations sinceare subject to change for up to one year after the onsetclosing date of the COVID-19 pandemic, management performed a qualitative assessmentacquisition as additional information relative to determine whether a triggering event had occurred that would indicate goodwill impairment. At September 30, 2020, the Company determined that no triggering event had occurred which would require a full interim goodwill impairment test. In the event of a sustained decline in share price or further deterioration in the macroeconomic outlook, continued assessments of the Company's goodwill balance will likely be required in future periods. Any impairment charge would not affect the Company’s regulatory capital ratios, tangible common equity ratio or liquidity position.closing date fair values becomes available.
Other Fair Value Measurements – Critical Accounting Policies and Estimates
“As Is” values are used to measureThe fair market value on impairedof collateral-dependent loans, OREO and repossessed assets. All impaired loans, OREO and repossessed assets is typically based on current appraisals, which are reviewed quarterly to determine if fair value adjustments are necessary based on known changes in the market and/or the project assumptions. When necessary, the “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 impairedCollateral-dependent loans are loans where 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
The Company holds 11,330 shares of Visa Class B stock, which, following resolution of Visa litigation, will be requested. Upon receiptconverted to Visa Class A shares. Under the current conversion ratio that became effective September 27, 2019, the Company would receive 1.6228 shares of the “As Is” appraisalClass A stock for each share of Class B stock for a charge-offtotal of 18,386 shares of Visa Class A stock. The ownership of Visa stock is recognized for the difference between the loan amount and its current fair market value.
The fair value of the available-for-sale portfolio at September 30, 2020 was greater than historical amortized cost, resultingrelated to prior ownership in net unrealized gains of $25.0 million that have been included in accumulated other comprehensive incomeVisa's network while Visa operated as a componentcooperative, and is recorded on the Company's financial records at a zero basis.
Impairment of shareholders’ equity (net of taxes). The Company made no change to the valuation techniques used to determine the fair values of securities during 2020 or 2019. The fair value of each security available-for-sale was obtained from independent pricing sources utilized by many financial institutions or from dealer quotes. The fair value of many state and municipal securities are not readily available through market sources, so fair value estimates are based on quoted market price or prices of similar instruments. Generally, the Company obtains one price for each security. However, actual values can only be determined in an arms-length transaction between a willing buyer and seller that can, and often do, vary from these reported values. Furthermore, significant changes in recorded values due to changes in actual and perceived economic conditions can occur rapidly, producing greater unrealized losses or gains in the available-for-sale portfolio.
Credit Losses on AFS Debt Securities – Critical Accounting Policies and Estimates
As part of the adoption of ASC Topic 326, the Company replaced the other than temporary impairment model with an approach that requiresExpected credit losses to be presentedon both held-to-maturity (“HTM”) and available-for-sale (“AFS”) securities are recognized through a valuation allowance. For HTM securities, management estimates expected credit losses over the remaining expected life and recognizes this estimate as an allowance ratherfor credit losses. An AFS security is considered impaired if the fair value is less than amortized cost basis. For AFS securities, if any portion of the decline in fair value is related to credit, the amount of allowance is determined as the portion related to credit, limited to the difference between the amortized cost basis and the fair value of the security. If the fair value of the security increases in subsequent periods, or changes in factors used within the credit loss assessment result in a change in the estimated credit loss, the Company would reflect the change by decreasing the allowance. If the Company has the intent to sell or believes it is more likely than not that it will be required to sell an impaired AFS security before recovery of the amortized cost basis, the credit loss is recorded as a direct write-down when management doesof the amortized cost basis. Declines in the fair value of AFS securities that are not intend to sell or believes they will not be required to sell before recovery.considered credit related are recognized in Accumulated Other Comprehensive Income on the Company’s Consolidated Balance Sheet.
Seacoast analyzes AFS debt securities quarterly for credit losses. The analysis is performed on an individual security basis for all securities where fair value has declined below amortized cost. Fair value is based upon pricing obtained from third party pricing services. Based on internal review procedures and the fair values provided by the pricing services, the Company believes that the fair values provided by the pricing services are consistent with the principles of ASC Topic 820, Fair Value Measurement. However, on occasion pricing provided by the pricing services may not be consistent with other observed prices in the market for similar securities. Using observable market factors, including interest rate and yield curves, volatilities,
prepayment speeds, loss severities and default rates, the Company may at times validate the observed prices using a discounted cash flow model and using the observed prices for similar securities to determine the fair value of its securities.
The Company utilizes both quantitative and qualitative assessments to determine if a security has a credit loss. Quantitative assessments are based on a discounted cash flow method. Qualitative assessments consider a range of factors including: percent decline in fair value, rating downgrades, subordination, duration, amortized loan-to-value, and the ability of the issuers to pay all amounts due in accordance with the contractual terms.
For AFS debt securities where a credit loss has been identified, the Company records this loss through an allowance for credit losses. This allowance is limited to the amount that the security's amortized cost exceeds its fair value. If the fair value of the security increases in subsequent periods or changes in factors used within the credit loss assessments result in a change in the estimated credit loss, the Company would reflect the change by decreasing the allowance for credit losses.
Contingent Liabilities – Critical Accounting Policies and Estimates
Seacoast is subject to contingent liabilities, including judicial, regulatory and arbitration proceedings, and tax and other claims arising from the conduct of the Company's business activities. These proceedings include actions brought against the Company and/or its subsidiaries with respect to transactions in which the Company and/or its subsidiaries acted as a lender, a financial adviser, a broker or acted in a related activity. Accruals are established for legal and other claims when it becomes probable that the Company will incur an expense and the amount can be reasonably estimated. Company management, together with attorneys, consultants and other professionals, assesses the probability and estimated amounts involved in a contingency. Throughout the life of a contingency, the Company or its advisers may learn of additional information that can affect the assessments about probability or about the estimates of amounts involved. Changes in these assessments can lead to changes in recorded reserves. In addition, the actual costs of resolving these claims may be substantially higher or lower than the amounts reserved for the claims. At SeptemberJune 30, 20202021 and December 31, 2019,2020, the Company had no significant accruals for contingent liabilities and had no known pending matters that could potentially be significant.
Interest Rate Sensitivity
Fluctuations in interest rates may result in changes in the fair value of the Company’s financial instruments, cash flows and net interest income. This risk is managed using simulation modeling to calculate the most likely interest rate risk utilizing estimated loan and deposit growth. The objective is to optimize the Company’s financial position, liquidity, and net interest income while limiting their volatility.
Senior management regularly reviews the overall interest rate risk position and evaluates strategies to manage the risk. The Company's Asset and Liability Management Committee ("ALCO") uses simulation analysis to monitor changes in net interest income due to changes in market interest rates. The simulation of rising, declining and flat interest rate scenarios allows management to monitor and adjust interest rate sensitivity to minimize the impact of market interest rate swings. The analysis of the impact on net interest income over a twelve monthtwelve-month period is subjected to instantaneous changes in market rates of 100 basis point increases up to 200 basis points of change on net interest income and is monitored on a quarterly basis.
The following table presents the ALCO simulation model's projected impact of a change in interest rates on the projected baseline net interest income for the 12 and 24 month periods beginning on OctoberJuly 1, 2020,2021, holding all other changes in the balance sheet static. This change in interest rates assumes parallel shifts in the yield curve and does not take into account changes in the slope of the yield curve.
| | | % Change in Projected Baseline Net | | % Change in Projected Baseline Net |
Change in Interest Rates | Change in Interest Rates | | Interest Income | Change in Interest Rates | | Interest Income |
| 1-12 months | | 13-24 months | | 1-12 months | | 13-24 months |
+2.00% | +2.00% | | 9.25% | | 15.22% | +2.00% | | 14.0% | | 18.0% |
+1.00% | +1.00% | | 4.78% | | 8.06% | +1.00% | | 6.9% | | 9.2% |
Current | Current | | 0.00% | | 0.00% | Current | | —% | | —% |
-1.00% | -1.00% | | (6.24)% | | (11.67)% | -1.00% | | (1.4%) | | (7.1%) |
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 29.2%31.6% at SeptemberJune 30, 2020.2021. This result includes assumptions for core deposit re-pricing validated for the Company by an independent third party consulting group.
The computations of interest rate risk do not necessarily include certain actions management may undertake to manage this risk in response to changes in interest rates. Derivative financial instruments, such as interest rate swaps, options, caps, floors, futures and forward contracts may be utilized as components of the Company’s risk management profile.
Effects of Inflation and Changing Prices
The condensed consolidated financial statements and related financial data presented herein have been prepared in accordance with U.S. GAAP, which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money, over time, due to inflation.
Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the general level of inflation. However, inflation affects financial institutions by increasing their cost of goods and services purchased, as well as the cost of salaries and benefits, occupancy expense, and similar items. Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings, and shareholders’ equity. Mortgage originations and re-financings tend to slow as interest rates increase, and higher interest rates likely will reduce the Company’s earnings from such activities and the income from the sale of residential mortgage loans in the secondary market.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Management’s discussion and analysis “Interest Rate Sensitivity.”
Market risk refers to potential losses arising from changes in interest rates, and other relevant market rates or prices.
Interest rate risk, defined as the exposure of net interest income and Economic Value of Equity, or “EVE,” to adverse movements in interest rates, is the Company’s primary market risk, and mainly arises from the structure of the balance sheet (non-trading activities). The Company is also exposed to market risk in its investing activities. The Company’s Asset/Liability Committee, or “ALCO,” meets regularly and is responsible for reviewing the interest rate sensitivity position of the Company and establishing policies to monitor and limit exposure to interest rate risk. The policies established by the ALCO are reviewed and approved by the Company’s Board of Directors. The primary goal of interest rate risk management is to control exposure to interest rate risk, within policy limits approved by the Board. These limits reflect the Company’s tolerance for interest rate risk over short-term and long-term horizons.
The Company also performs valuation analyses, which are used for evaluating levels of risk present in the balance sheet that might not be taken into account in the net interest income simulation analyses. Whereas net interest income simulation highlights exposures over a relatively short time horizon, valuation analysis incorporates all cash flows over the estimated remaining life of all balance sheet positions. The valuation of the balance sheet, at a point in time, is defined as the discounted present value of asset cash flows minus the discounted value of liability cash flows, the net result of which is the EVE. The sensitivity of EVE to changes in the level of interest rates is a measure of the longer-term re-pricing risks and options risks embedded in the balance sheet. In contrast to the net interest income simulation, which assumes interest rates will change over a period of time, EVE uses instantaneous changes in rates.
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 EVE modeling. 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 model estimates of EVE for higher rates.
The following table presents the projected impact of a change in interest rates on the balance sheet. This change in interest rates assumes parallel shifts in the yield curve and does not take into account changes in the slope of the yield curve.
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| | % Change in |
Change in Interest Rates | | Economic Value of |
Equity |
+2.00% | | 26.7% |
+1.00% | | 14.2% |
Current | | —% |
-1.00% | | (14.4%) |
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| | % Change in |
Change in Interest Rates | | Economic Value of |
Equity |
+2.00% | | 30.20% |
+1.00% | | 16.70% |
Current | | 0.00% |
-1.00% | | (22.90)% |
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.
Item 4. CONTROLS AND PROCEDURES
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 SeptemberJune 30, 20202021 and concluded that those disclosure controls and procedures are effective.
During the quarter ended SeptemberJune 30, 2020,2021, there have been no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.There has been no significant impact to internal controls over financial reporting as a result of the COVID-19 pandemic. The Company is continually monitoring and assessing changes in processes and activities to determine any potential impact on the design and operating effectiveness of internal controls over financial reporting.
Part II OTHER INFORMATION
Item 1. Legal Proceedings
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 position, or operating results or cash flows.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should consider the factors discussed in “Part I, Item 1A. Risk Factors” in our report on Form 10-K for the year ended December 31, 2019,2020, which could materially affect our business, financial condition and prospective results. The risks described in this report, in our Form 10-K or our other SEC filings are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. The followingThere have been no material changes with respect to the risk factors have been includeddisclosed in this Quarterlyour Annual Report on Form 10-Q in response toform 10-K for the global market disruptions that have resulted from the COVID-19 pandemic.year ended December 31, 2020.
The COVID-19 pandemic has and will continue to adversely impact our business and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.
The COVID-19 pandemic is and is likely to continue creating extensive disruptions to the global economy and to the lives of individuals throughout the world. Governments, businesses, and the public are taking unprecedented actions to contain the spread of the COVID-19 pandemic and to mitigate its effects, including quarantines, travel bans, shelter-in-place orders, closures of businesses and schools, fiscal stimulus, and legislation designed to deliver monetary aid and other relief. While the
scope, duration, and full effects of the COVID-19 pandemic are rapidly evolving and not fully known, the COVID-19 pandemic and related efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, impacted interest rates, increased economic and market uncertainty, and disrupted trade and supply chains. If these effects continue for a prolonged period or result in sustained economic stress, recession or depression, many of the risk factors identified in the “Risk Factors” section included in our Annual Report on Form 10-K for the year ended December 31, 2019 could be exacerbated and such effects could have a material adverse impact on us in a number of ways related to credit, collateral, customer demand, funding, operations, interest rate risk, and human capital, as described in more detail below.
Credit Risk. Our risks of timely loan repayment and the value of collateral supporting the loans are affected by the strength of our borrowers' businesses. Concern about the spread of the COVID-19 pandemic has caused and is likely to continue to cause business shutdowns, limitations on commercial activity and financial transactions, labor shortages, supply chain interruptions, increased unemployment and commercial property vacancies, reduced profitability and ability for property owners to make mortgage payments, and overall economic and financial market instability, all of which may cause our customers to be unable to make scheduled loan payments. If the effects of the COVID-19 pandemic result in widespread and sustained repayment shortfalls on loans in our portfolio, we could incur significant delinquencies, foreclosures and credit losses, particularly if the available collateral is insufficient to cover our exposure. The future effects of the COVID-19 pandemic on economic activity could negatively affect the collateral values associated with our existing loans, the ability to liquidate the real estate collateral securing our residential and commercial real estate loans, our ability to maintain loan origination volume and to obtain additional financing, the future demand for or profitability of our lending and services, and the financial condition and credit risk of our customers. Further, in the event of delinquencies, regulatory changes and policies designed to protect borrowers may slow or prevent us from making our business decisions or may result in a delay in our taking certain remediation actions, such as foreclosure. In addition, we have unfunded commitments to extend credit to customers. During a challenging economic environment like now, our customers are more dependent on our credit commitments and increased borrowings under these commitments could adversely impact our liquidity.
In an effort to support our communities during the COVID-19 pandemic, we participated in the Paycheck Protection Program (“PPP”) under the CARES Act whereby loans to small businesses are made, and those loans are subject to regulatory requirements that require forbearance of loan payments for a specified time, or that limit our ability to pursue all available remedies in the event of a loan default. If the borrower under the PPP loan fails to qualify for loan forgiveness, if the terms of the program change, or if the SBA determines there is a deficiency in the manner in which any PPP loans were originated, funded or serviced by the Company, we may be subject to repayment risk as well as the heightened risk of holding these loans at unfavorable interest rates as compared to loans to customers that we would have otherwise extended credit.
Beginning in the first quarter of 2020, under the guidance of the CARES Act and of banking regulators, we have offered deferrals of principal and interest payments to certain borrowers affected by the COVID-19 pandemic. Some of these borrowers may not be able to return to regular payments at the end of the deferral period, and we may arrange additional deferrals or other types of modifications with these borrowers to accommodate their economic hardship. This may 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 credit losses is insufficient to cover such losses, our earnings, capital and liquidity could be adversely affected.
Strategic Risk. Our financial condition and results of operations may be affected by a variety of external factors that may affect the price or marketability of our products and services, changes in interest rates that may increase our funding costs, reduced demand for our financial products due to economic conditions and the various response of governmental and nongovernmental authorities. In recent months, the COVID-19 pandemic has significantly increased economic and demand uncertainty and has led to severe disruptions and volatility in the global capital markets. Furthermore, many of the governmental actions in response to the COVID-19 pandemic have been directed toward curtailing household and business activity to contain the COVID-19 pandemic. These actions have been rapidly changing. For example, in many of our markets, local governments have acted to temporarily close or restrict the operations of most businesses, and these restrictions could recur if there are future increases in the spread of the virus. The future effects of the COVID-19 pandemic on economic activity could negatively affect the future banking products we provide, including a decline in loan originations.
Operational Risk. Current and future restrictions on our workforce’s access to our facilities could limit our ability to meet customer servicing expectations and have a material adverse effect on our operations. We rely on business processes and branch activity that largely depend on people and technology, including access to information technology systems as well as information, applications, payment systems and other services provided by third parties. In response to the COVID-19 pandemic, we have modified our business practices with a portion of our employees working remotely from their homes to have our operations uninterrupted as much as possible. Further, technology in employees’ homes may not be as robust as in our offices and could cause the networks, information systems, applications, and other tools available to employees to be more
limited or less reliable than in our offices. The continuation of these work-from-home measures also introduces additional operational risk, including increased cybersecurity risk. These cyber risks include greater phishing, malware, and other cybersecurity attacks, vulnerability to disruptions of our information technology infrastructure and telecommunications systems for remote operations, increased risk of unauthorized dissemination of confidential information, limited ability to restore the systems in the event of a systems failure or interruption, greater risk of a security breach resulting in destruction or misuse of valuable information, and potential impairment of our ability to perform critical functions, including wiring funds, all of which could expose us to risks of data or financial loss, litigation and liability and could seriously disrupt our operations and the operations of any impacted customers.
Moreover, we rely on many third parties in our business operations, including the appraisers of real property collateral, vendors that supply essential services such as loan servicers, providers of financial information, systems and analytical tools and providers of electronic payment and settlement systems, and local and federal government agencies, offices, and courthouses. In light of the developing measures responding to the COVID-19 pandemic, many of these entities may limit the availability and access of their services. For example, loan origination could be delayed due to the limited availability of real estate appraisers for the collateral. Loan closings could be delayed related to reductions in available staff in recording offices or the closing of courthouses in certain counties, which slows the process for title work, mortgage and UCC filings in those counties. If the third-party service providers continue to have limited capacities for a prolonged period or if additional limitations or potential disruptions in these services materialize, it may negatively affect our operations.
Interest Rate Risk. Our net interest income, lending activities, deposits and profitability are and are likely to continue to be negatively affected by volatility in interest rates caused by uncertainties stemming from the COVID-19 pandemic. In March 2020, the Federal Reserve lowered the target range for the federal funds rate to a range from 0 to 0.25 percent, citing concerns about the impact of the COVID-19 pandemic on markets and stress in the energy sector. A prolonged period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies. Higher income volatility from changes in interest rates and spreads to benchmark indices will likely cause a loss of future net interest income and a decrease in current fair market values of our assets. Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition.
Through the third quarter of 2020, we have continued to recognize interest income for loans on deferred payment status. If it is later determined that the borrower will be unable to make all payments due, the loan may be classified as nonaccrual, and interest accrued but not collected will be reversed against interest income, which would negatively affect net interest income in the period of reversal.
Because there have been no comparable recent global pandemics that resulted in similar global impact, we do not yet know the full extent and long-term impact of the COVID-19 pandemic’s effects on our business, operations, or the global economy as a whole. Any future developments will be highly uncertain and cannot be predicted, including the scope and duration of the COVID-19 pandemic, the effectiveness of our work from home arrangements, third party providers’ ability to support our operation, and any actions taken by governmental authorities and other third parties in response to the COVID-19 pandemic. The uncertain future development of this crisis could materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels.
Liquidity and Litigation Risk. Federal, state and local governments have mandated or encouraged financial services companies to make accommodations to borrowers and other customers affected by the COVID-19 pandemic. Legal and regulatory responses to concerns about the COVID-19 pandemic could result in additional regulation or restrictions affecting the conduct of our business in the future. In addition to the potential effects from negative economic conditions noted above, the Company instituted a program to help customers financially impacted by the COVID-19 pandemic. This program includes waiving certain fees and charges and offering payment deferment and other loan relief, as appropriate, for customers impacted by the COVID-19 pandemic. The Company’s liquidity could be negatively impacted if a significant number of customers apply and are approved for the deferral of payments. In addition, if these deferrals are not effective in mitigating the effect of the COVID-19 pandemic on the Company’s customers, it may adversely affect its business and results of operations more substantially over a longer period of time. In addition, a significant amount of the loan growth the Company experienced during the second quarter was a direct result of PPP loans, and such growth did not continue in the third quarter of 2020. Furthermore, since the inception of the PPP, several banks have been subject to recent litigation regarding the process and procedures that such banks used in processing applications for the PPP and claims related to agent fees. In addition, some banks have received negative media attention associated with PPP loans. The Company and the Bank are exposed to similar litigation risk and negative media attention risk, from both customers and non-customers that approached the Bank regarding PPP loans, regarding its process and procedures used in processing applications for the PPP, or litigation from agents with respect to agent fees. If any such litigation is filed against the Company or the Bank and is not resolved in a manner favorable to the Company or the Bank, it may result in significant financial liability or adversely affect the Company’s reputation. In addition, litigation can be
costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP related litigation or negative media attention could have a material adverse impact on our business, financial condition and results of operations.
The PPP has also attracted interest from federal and state enforcement authorities, oversight agencies, regulators and Congressional committees. State Attorney Generals and other federal and state agencies may assert that they are not subject to the provisions of the CARES Act and the PPP regulations entitling the Bank to rely on borrower certifications, and they may take more aggressive actions against the Bank for alleged violations of the provisions governing the Bank’s participation in the PPP. Federal and state regulators can impose or request that we consent to substantial sanctions, restrictions and requirements if they determine there are violations of laws, rules or regulations or weaknesses or failures with respect to general standards of safety and soundness, which could adversely affect our business, reputation, results of operation and financial condition.
We are subject to lending concentration risk.
Our loan portfolio contains several industry and collateral concentrations including, but not limited to, commercial and residential real estate. Due to the exposure in these concentrations, disruptions in markets, economic conditions, including those resulting from the global response to the COVID-19 pandemic, changes in laws or regulations or other events could cause a significant impact on the ability of borrowers to repay and may have a material adverse effect on our business, financial condition and results of operations.
A substantial portion of our loan portfolio is secured by real estate. In weak economies, or in areas where real estate market conditions are distressed, we may experience a higher than normal level of nonperforming real estate loans. The collateral value of the portfolio and the revenue stream from those loans could come under stress, and additional provisions for the allowance for credit losses could be necessitated. Our ability to dispose of foreclosed real estate at prices at or above the respective carrying values could also be impaired, causing additional losses.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer purchasesDuring the six month period ended June 30, 2021, the Company repurchased shares of equityits common stock as indicated in the following table:
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Period | | Total Number of Shares Purchased1 | | Average Price Paid Per Share | | Total Number of Shares Purchased as part of Public Announced Plan | | Maximum Value of Shares that May Yet be Purchased Under the Plan (in thousands) |
1/1/21 to 1/31/21 | | 4,776 | | | $ | 29.45 | | | — | | | $ | 100,000 | |
2/1/21 to 2/28/21 | | — | | | — | | | — | | | 100,000 | |
3/1/21 to 3/31/21 | | 10,127 | | | 36.90 | | | — | | | 100,000 | |
Total - 1st Quarter | | 14,903 | | | $ | 34.51 | | | — | | | $ | 100,000 | |
4/1/21 to 4/30/21 | | 44,152 | | | 36.52 | | | — | | | 100,000 | |
5/1/21 to 5/31/21 | | 45 | | | 37.07 | | | — | | | 100,000 | |
6/1/21 to 6/30/21 | | — | | | — | | | — | | | 100,000 | |
Total - 2nd Quarter | | 44,197 | | | $ | 36.52 | | | — | | | $ | 100,000 | |
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Year to Date 2021 | | 59,100 | | | $ | 36.01 | | | — | | | $ | 100,000 | |
1Shares purchased from January 1, 2021 through June 30, 2021 represent shares surrendered to the Company to satisfy tax withholding related to the exercise of stock options and the vesting of share-based awards. |
On December 17, 2020, the Company's Board of Directors authorized the Company to repurchase up to $100 million of its shares of outstanding common stock. Under the share repurchase program, which will expire on December 31, 2021, repurchases will be made, if at all, in accordance with applicable securities duringlaws and may be made from time to time in the first nine monthsopen market, by block purchase or by negotiated transactions. The amount and timing of 2020, entirely relatedrepurchases, if any, will be based on a variety of factors, including share acquisition price, regulatory limitations, market conditions and other factors. The program does not obligate the Company to equity incentive plan activity, were as follows:purchase any of its shares, and may be terminated or amended by the Board of Directors at any time prior to its expiration date. As of June 30, 2021, no shares of the Company's common stock had been repurchased under the program.
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Period | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as part of Public Announced Plan1 | | Maximum Number of Shares that May yet be Purchased Under the Plan |
1/1/20 to 1/31/20 | | 1,114 | | | $ | 25.79 | | | 343,340 | | | 71,660 | |
2/1/20 to 2/29/20 | | 1,199 | | | 23.66 | | | 344,539 | | | 70,461 | |
3/1/20 to 3/31/20 | | 1,735 | | | 17.39 | | | 346,274 | | | 68,726 | |
Total - 1st Quarter | | 4,048 | | | $ | 21.56 | | | 346,274 | | | 68,726 | |
4/1/20 to 4/30/20 | | 1,509 | | | 21.35 | | | 347,783 | | | 67,217 | |
5/1/20 to 5/31/20 | | 1,688 | | | 20.66 | | | 349,471 | | | 65,529 | |
6/1/20 to 6/30/20 | | 1,812 | | | 19.38 | | | 351,283 | | | 63,717 | |
Total - 2nd Quarter | | 5,009 | | | $ | 20.40 | | | 351,283 | | | 63,717 | |
7/1/20 to 7/31/20 | | 2,030 | | | 17.94 | | | 353,313 | | | 61,687 | |
8/1/20 to 8/31/20 | | 1,874 | | | 19.23 | | | 355,187 | | | 59,813 | |
9/1/20 to 9/30/20 | | 2,185 | | | 17.13 | | | 357,372 | | | 57,628 | |
Total - 3rd Quarter | | 6,089 | | | $ | 18.05 | | | 357,372 | | | 57,628 | |
Year to Date 2020 | | 15,146 | | | $ | 19.77 | | | 357,372 | | | 57,628 | |
1The plan to purchase equity securities totaling 165,000 was approved on September 18, 2001, with no expiration date. An additional 250,000 shares were added to the plan and approved on May 20, 2014. |
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
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| Exhibit 2.1 Agreement and Plan of Merger Dated JanuaryMarch 23, 20202021 by and among the Company, Seacoast Bank, Fourth Street Banking Company and FreedomLegacy Bank of Florida incorporated herein by reference from Exhibit 2.1 to the Company’s Form 8-K, filed January 29, 2020.March 26, 2021. | |
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| Exhibit 10.1 Employment AgreementDated April 19, 2021, by and between Juliette P. Kleffel, Seacoast National Bank and Seacoast Banking Corporation of Florida incorporated herein by reference from Exhibit 10.1 to the Company’s 8-K filed April 20, 2021. | |
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| Exhibit 31.2 | |
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| Exhibit 32.2 | |
| Exhibit 101 | The following materials from Seacoast Banking Corporation of Florida’s Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 20202021 formatted in Inline XBRL: (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Shareholders' Equity and (vi) the Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags. |
| Exhibit 104 | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 2020,2021, formatted in Inline XBRL. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| SEACOAST BANKING CORPORATION OF FLORIDA |
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NovemberAugust 5, 20202021 | /s/ Dennis S. Hudson, IIICharles M. Shaffer |
| Dennis S. Hudson, IIICharles M. Shaffer |
| ChairmanPresident and Chief Executive Officer |
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NovemberAugust 5, 20202021 | /s/ Tracey L. Dexter |
| Tracey L. Dexter |
| Executive Vice President and Chief Financial Officer |