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SBCF Seacoast Banking Corp. Of Florida

Filed: 6 Aug 20, 4:27pm
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 June 30, 2020
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,STUARTFL 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 classTrading Symbol(s)Name of each exchange on which registered
Common StockSBCFNasdaq 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 filerAccelerated filer
Non-accelerated filerSmaller 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 – 52,990,655 shares as of June 30, 2020



INDEX
 SEACOAST BANKING CORPORATION OF FLORIDA

2

Part I. FINANCIAL INFORMATION
Item 1. Financial Statements

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
(In thousands, except per share data)2020201920202019
Interest and fees on loans$64,844  $62,288  $128,284  $124,575  
Interest and dividends on securities7,694  9,076  16,512  18,346  
Interest on interest bearing deposits and other investments684  873  1,418  1,791  
Total Interest Income73,222  72,237  146,214  144,712  
Interest on deposits1,203  4,825  4,393  8,698  
Interest on time certificates3,820  5,724  8,588  10,683  
Interest on borrowed money927  1,552  2,784  4,421  
Total Interest Expense5,950  12,101  15,765  23,802  
Net Interest Income67,272  60,136  130,449  120,910  
Provision for credit losses7,611  2,551  37,124  3,948  
Net Interest Income after Provision for Credit Losses59,661  57,585  93,325  116,962  
Noninterest income
Other income13,776  14,043  28,445  26,888  
Securities gains (losses), net1,230  (466) 1,249  (475) 
Total Noninterest Income (Note H)15,006  13,577  29,694  26,413  
Total Noninterest Expenses (Note H)42,399  41,000  90,197  84,099  
Income Before Income Taxes32,268  30,162  32,822  59,276  
Provision for income taxes7,188  6,909  7,033  13,318  
Net Income$25,080  $23,253  $25,789  $45,958  
Share Data
Net income per share of common stock
Diluted$0.47  $0.45  $0.49  $0.88  
Basic0.47  0.45  0.49  0.89  
Average common shares outstanding
Diluted53,308  51,952  52,807  51,998  
Basic52,985  51,446  52,394  51,403  
See notes to unaudited condensed consolidated financial statements.
 


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SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
(In thousands)2020201920202019
Net Income$25,080  $23,253  $25,789  $45,958  
Other comprehensive income:
Unrealized gains on securities available-for-sale17,581  11,633  17,684  24,309  
Reclassification of unrealized losses on securities transferred to available-for-sale upon adoption of new accounting pronouncement—  —  —  (730) 
Amortization of unrealized losses on securities transferred to held-to-maturity, net59  72  119  143  
Reclassification adjustment for (gains) losses included in net income(1,188) 556  (1,092) 643  
Provision for income taxes(3,917) (2,774) (3,882) (6,035) 
Total other comprehensive income12,535  9,487  12,829  18,330  
Comprehensive Income$37,615  $32,740  $38,618  $64,288  
See notes to unaudited condensed consolidated financial statements.

 


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SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30,December 31,
(In thousands, except share data)20202019
Assets  
Cash and due from banks$84,178  $89,843  
Interest bearing deposits with other banks440,142  34,688  
Total cash and cash equivalents524,320  124,531  
Time deposits with other banks2,496  3,742  
Debt securities:
Securities available-for-sale (at fair value)976,025  946,855  
Securities held-to-maturity (fair value $235,946 at June 30, 2020 and $262,213 at December 31, 2019)227,092  261,369  
Total debt securities1,203,117  1,208,224  
Loans held for sale (at fair value)54,943  20,029  
Loans5,772,052  5,198,404  
Less: Allowance for credit losses(91,250) (35,154) 
Loans, net of allowance for credit losses5,680,802  5,163,250  
Bank premises and equipment, net69,041  66,615  
Other real estate owned15,847  12,390  
Goodwill212,146  205,286  
Other intangible assets, net17,950  20,066  
Bank owned life insurance127,954  126,181  
Net deferred tax assets21,404  16,457  
Other assets153,993  141,740  
Total Assets$8,084,013  $7,108,511  
Liabilities
Deposits$6,666,783  $5,584,753  
Securities sold under agreements to repurchase, maturing within 30 days92,125  86,121  
Federal Home Loan Bank (FHLB) borrowings135,000  315,000  
Subordinated debt71,225  71,085  
Other liabilities88,277  65,913  
Total Liabilities7,053,410  6,122,872  
Shareholders' Equity
Common stock, par value $0.10 per share, authorized 120,000,000 shares, issued 53,326,794 and outstanding 52,990,655 at June 30, 2020, and authorized 120,000,000, issued 51,760,617 and outstanding 51,513,733 shares at December 31, 20195,299  5,151  
Other shareholders' equity1,025,304  980,488  
Total Shareholders' Equity1,030,603  985,639  
Total Liabilities and Shareholders' Equity$8,084,013  $7,108,511  
 See notes to unaudited condensed consolidated financial statements.

5

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Six Months Ended June 30,
(In thousands)20202019
Cash Flows from Operating Activities  
Net income$25,789  $45,958  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation3,031  3,308  
Amortization of premiums and discounts on securities, net1,746  1,223  
Amortization of operating lease right-of-use assets2,363  2,041  
Other amortization and accretion, net(366) (1,632) 
Stock based compensation3,524  4,027  
Origination of loans designated for sale(203,935) (139,219) 
Sale of loans designated for sale174,450  138,961  
Provision for credit losses37,124  3,948  
Deferred income taxes(3,328) 3,736  
(Gains) losses on sale of securities(1,092) 643  
Gains on sale of loans(5,303) (3,980) 
Gains on sale and write-downs of other real estate owned(485) (408) 
Losses on disposition of fixed assets220  464  
Changes in operating assets and liabilities, net of effects from acquired companies:
Net increase in other assets(22,451) (21) 
Net increase (decrease) in other liabilities19,139  (9,623) 
Net cash provided by operating activities30,426  49,426  
Cash Flows from Investing Activities
Maturities and repayments of debt securities available-for-sale134,488  41,564  
Maturities and repayments of debt securities held-to-maturity33,969  16,935  
Proceeds from sale of debt securities available-for-sale92,314  73,297  
Purchases of debt securities available-for-sale(239,160) (87,433) 
Maturities of time deposits with other banks1,246  3,263  
Net new loans and principal repayments(431,182) (12,017) 
Purchases of loans held for investment—  (50,562) 
Proceeds from sale of other real estate owned4,503  2,722  
Proceeds from sale of FHLB and Federal Reserve Bank Stock33,448  29,070  
Purchase of FHLB and Federal Reserve Bank Stock(26,227) (22,648) 
Net cash from bank acquisition33,883  —  
Proceeds from bank owned life insurance—  12,378  
Additions to bank premises and equipment(880) (1,485) 
Net cash (used in) provided by investing activities(363,598) 5,084  
 See notes to unaudited condensed consolidated financial statements.

 
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SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30,
(In thousands)20202019
Cash Flows from Financing Activities  
Net increase in deposits$908,288  $363,969  
Net increase (decrease) in federal funds purchased and repurchase agreements6,004  (132,308) 
Net decrease in FHLB borrowings with original maturities of three months or less(315,000) (177,000) 
Repayments of FHLB borrowings with original maturities of more than three months—  (63,000) 
Proceeds from FHLB borrowings with original maturities of more than three months135,000  —  
Stock based employee benefit plans(1,331) (2,343) 
Dividends paid—  —  
Net cash provided by (used in) financing activities732,961  (10,682) 
Net increase in cash and cash equivalents399,789  43,828  
Cash and cash equivalents at beginning of period124,531  115,951  
Cash and cash equivalents at end of period$524,320  $159,779  
Supplemental disclosure of cash flow information:
Cash paid during the period for interest$15,756  $23,200  
Cash paid during the period for taxes3,492  6,000  
New operating lease right-of-use assets52  29,077  
New operating lease liabilities52  33,403  
Supplemental disclosure of non cash investing activities:
Transfer of debt securities from held-to-maturity to available-for-sale$—  $52,796  
Transfers from loans to other real estate owned6,186  555  
Transfers from bank premises to other real estate owned1,289  —  
See notes to unaudited condensed consolidated financial statements.
 
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SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Accumulated
Other
 Common StockPaid-inRetainedTreasuryComprehensive 
(In thousands)SharesAmountCapitalEarningsStockIncome (Loss)Total
Balance at March 31, 202052,709  $5,271  $809,533  $179,646  $(7,422) $4,759  $991,787  
Comprehensive income—  —  —  25,080  —  12,535  37,615  
Stock based compensation expense—  —  1,523  —  —  —  1,523  
Common stock transactions related to stock based employee benefit plans262  26  (15) —  (615) —  (604) 
Common stock issued for stock options20   280  —  —  —  282  
Three months ended June 30, 2020282  28  1,788  25,080  (615) 12,535  38,816  
Balance at June 30, 202052,991  $5,299  $811,321  $204,726  $(8,037) $17,294  $1,030,603  
Accumulated
Other
 Common StockPaid-inRetainedTreasuryComprehensive 
(In thousands)SharesAmountCapitalEarningsStockIncome (Loss)Total
Balance at March 31, 201951,414  $5,141  $780,680  $119,779  $(4,959) $(4,217) $896,424  
Comprehensive income—  —  —  23,253  —  9,487  32,740  
Stock based compensation expense—  —  1,899  —  —  —  1,899  
Common stock transactions related to stock based employee benefit plans22   (12) —  (1,178) —  (1,188) 
Common stock issued for stock options25   361  —  —  —  364  
Three months ended June 30, 201947   2,248  23,253  (1,178) 9,487  33,815  
Balance at June 30, 201951,461  $5,146  $782,928  $143,032  $(6,137) $5,270  $930,239  
Accumulated
Other
 Common StockPaid-inRetainedTreasuryComprehensive 
(In thousands)SharesAmountCapitalEarningsStockIncome (Loss)Total
Balance at December 31, 201951,514  $5,151  $786,242  $195,813  $(6,032) $4,465  $985,639  
Comprehensive income—  —  —  25,789  —  12,829  38,618  
Stock based compensation expense—  —  3,523  —  —  —  3,523  
Common stock transactions related to stock based employee benefit plans377  38  (47) —  (2,005) —  (2,014) 
Common stock issued for stock options57   676  —  —  —  682  
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 acquisition1,043  104  20,927  —  —  —  21,031  
Six months ended June 30, 20201,477  148  25,079  8,913  (2,005) 12,829  44,964  
Balance at June 30, 202052,991  $5,299  $811,321  $204,726  $(8,037) $17,294  $1,030,603  
Accumulated
Other
 Common StockPaid-inRetainedTreasuryComprehensive 
(In thousands)SharesAmountCapitalEarningsStockIncome (Loss)Total
Balance at December 31, 201851,361  $5,136  $778,501  $97,074  $(3,384) $(13,060) $864,267  
Comprehensive income—  —  —  45,958  —  18,330  64,288  
Stock based compensation expense—  —  4,028  —  —  —  4,028  
Common stock transactions related to stock based employee benefit plans71   (26) —  (2,753) —  (2,772) 
Common stock issued for stock options29   425  —  —  —  428  
Six months ended June 30, 2019100  10  4,427  45,958  (2,753) 18,330  65,972  
Balance at June 30, 201951,461  $5,146  $782,928  $143,032  $(6,137) $5,270  $930,239  
 See notes to unaudited condensed consolidated financial statements.
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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 six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 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.
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 assets 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, 2019CECL adoption impactJanuary 1, 2020
Loans$5,198,404  $(706) $5,197,698  
Allowance for credit losses35,154  21,226  56,380  
Reserve for unfunded commitments140  1,837  1,977  
Deferred tax assets16,457  (5,481) 10,976  
Retained earnings195,813  (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.
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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 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
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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 the financial position, results of operations or cash flows.

Note B – Recently Issued Accounting Standards, Not Yet Adopted
None 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 six months ended June 30, 2020, options to purchase 508,000 and 489,000 shares, respectively, were anti-dilutive and, accordingly, were excluded in the computation of diluted earnings per share, compared to 494,000 shares for the three and six months ended June 30, 2019.
Three Months Ended June 30,Six Months Ended June 30,
(Dollars in thousands, except per share data)2020201920202019
Basic earnings per share  
Net income$25,080  $23,253  $25,789  $45,958  
Average common shares outstanding52,985  51,446  52,394  51,403  
Net income per share$0.47  $0.45  $0.49  $0.89  
Diluted earnings per share
Net income$25,080  $23,253  $25,789  $45,958  
Average common shares outstanding52,985  51,446  52,394  51,403  
Add: Dilutive effect of employee restricted stock and stock options323  506  413  595  
Average diluted shares outstanding53,308  51,952  52,807  51,998  
Net income per share$0.47  $0.45  $0.49  $0.88  

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Note D – Securities
The amortized cost, gross unrealized gains and losses and fair value of securities available-for-sale and held-to-maturity at June 30, 2020 and December 31, 2019 are summarized as follows:
 June 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$8,981  $418  $(1) $9,398  
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities636,528  24,747  (90) 661,185  
Private mortgage-backed securities and collateralized mortgage obligations75,756  1,645  (550) 76,851  
Collateralized loan obligations204,258   (5,444) 198,817  
Obligations of state and political subdivisions27,819  1,958  (3) 29,774  
Totals$953,342  $28,771  $(6,088) $976,025  
Debt securities held-to-maturity
Mortgage-backed securities of U.S. government-sponsored entities$227,092  $8,860  $(6) $235,946  
Totals$227,092  $8,860  $(6) $235,946  
 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 entities604,934  5,784  (1,511) 609,207  
Private mortgage-backed securities and collateralized mortgage obligations56,005  1,561  (5) 57,561  
Collateralized loan obligations239,364   (1,153) 238,218  
Obligations of state and political subdivisions30,548  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 entities261,369  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 June 30, 2020 and 2019 were $64.5 million and $38.2 million, respectively. Included in "Securities gains (losses), net" are gross gains of $2.3 million and gross losses of $1.1 million for the three months ended June 30, 2020. For the three months ended June 30, 2019, gross losses of $0.6 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 six months ended June 30, 2020 and 2019 were $92.3 million and $73.3 million, respectively. Included in "Securities gains (losses), net" are gross gains of $2.4 million and gross losses of $1.3 million for the six months ended June 30, 2020. Also included are gross gains of $0.2 million and gross losses of $0.9 million for the six months ended June 30, 2019. "Securities gains (losses), net" also includes an increase of $0.2 million for each of the six months ended June 30, 2020 and 2019, in the value of an investment in shares of a mutual fund that invests primarily in CRA-qualified
12

debt securities. The second quarter of 2020 included repositioning of investments in collateralized loan obligations ("CLO") securities, replacing "A" rated securities with "AAA" rated securities.
At June 30, 2020, debt securities with a fair value of $330.3 million were pledged primarily as collateral for public deposits and secured borrowings.
The amortized cost and fair value of debt securities held-to-maturity and available-for-sale at June 30, 2020, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because prepayments of the underlying collateral for these securities may occur, due to the right to call or repay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.
 Held to MaturityAvailable-for-Sale
(In thousands)Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Due in less than one year$—  $—  $2,100  $2,125  
Due after one year through five years—  —  8,655  9,063  
Due after five years through ten years—  —  8,577  9,200  
Due after ten years—  —  17,468  18,784  
 —  —  36,800  39,172  
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities227,092  235,946  636,528  661,185  
Private mortgage-backed securities and collateralized mortgage obligations—  —  75,756  76,851  
Collateralized loan obligations—  —  204,258  198,817  
Totals$227,092  $235,946  $953,342  $976,025  
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 June 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.
 June 30, 2020
 Less Than 12 Months12 Months or LongerTotal
(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$269  (1) $—  $—  $269  $(1) 
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities65,273  (74) 357  (16) 65,630  (90) 
Private mortgage-backed securities and collateralized mortgage obligations24,532  (550) —  —  24,532  (550) 
Collateralized loan obligations84,299  (1,638) 108,609  (3,806) 192,908  (5,444) 
Obligations of state and political subdivisions512  (3) —  —  512  (3) 
Totals$174,885  $(2,266) $108,966  $(3,822) $283,851  $(6,088) 
13

 December 31, 2019
 Less Than 12 Months12 Months or LongerTotal
(In thousands)Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
U.S. Treasury securities and obligations of U.S. government agencies$758  $(4) $—  $—  $758  $(4) 
Mortgage-backed securities and collateralized mortgage obligations of U.S. government-sponsored entities220,057  (1,461) 104,184  (1,923) 324,241  (3,384) 
Private mortgage-backed securities and collateralized mortgage obligations2,978  (5) —  —  2,978  (5) 
Collateralized loan obligations88,680  (570) 110,767  (583) 199,447  (1,153) 
Obligations of state and political subdivisions515  (1) —  —  515  (1) 
Totals$312,988  $(2,041) $214,951  $(2,506) $527,939  $(4,547) 
At June 30, 2020, the Company had $5.4 million in unrealized losses in uncapped 3-month LIBOR floating rate collateralized loan obligations ("CLOs") having a fair value of $192.9 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, 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 June 30, 2020, 0 allowance for credit losses has been recorded.
At June 30, 2020, the Company had $0.6 million of unrealized losses on private label residential and commercial mortgage-backed securities and collateralized mortgage obligations having a fair value of $24.5 million. The collateral underlying these mortgage investments is primarily residential real estate. The securities have average credit support of 22%. 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, 2020, 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 June 30, 2020, 0 allowance for credit losses has been recorded.
Included in other assets at June 30, 2020 is $37.2 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 million investment in a CRA-qualified mutual fund carried at fair value. Accrued interest receivable on AFS and HTM debt securities of $3.1 million and $0.5 million at June 30, 2020, respectively, and $3.8 million and $0.6 million at December 31, 2019, 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.
14

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. 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:
 June 30, 2020
(In thousands)Portfolio LoansAcquired Non-PCD LoansPCD LoansTotal
Construction and land development$270,715  $25,691  $2,429  $298,835  
Commercial real estate - owner-occupied832,943  216,598  27,109  1,076,650  
Commercial real estate - non owner-occupied1,074,063  306,880  11,844  1,392,787  
Residential real estate1,249,368  210,247  8,556  1,468,171  
Commercial and financial692,933  63,272  1,027  757,232  
Consumer195,863  5,700  364  201,927  
Paycheck Protection Program576,450  —  —  576,450  
Totals$4,892,335  $828,388  $51,329  $5,772,052  
15

 December 31, 2019
(In thousands)Portfolio LoansPULsPCI LoansTotal
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 estate1,304,305  201,848  1,710  1,507,863  
Commercial and financial697,301  80,372  579  778,252  
Consumer200,166  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.
The amortized cost basis of loans at June 30, 2020 included net deferred costs of $21.5 million on non-PPP portfolio loans and net deferred fees of $13.0 million on PPP loans. At December 31, 2019, the amortized cost basis included net deferred costs of $19.9 million. In the first quarter of 2020, the Company completed the acquisition of First Bank of the Palm Beaches, adding PCD loans of $43.0 million and Non-PCD loans of $103.8 million. See additional discussion in Note L - Business Combinations. At June 30, 2020, the remaining fair value adjustments on acquired loans was $28.9 million, or 3.3% of the outstanding acquired loan balances, which consisted of $1.0 million on PCD loans and $27.9 million on acquired Non-PCD loans. At December 31, 2019, the remaining fair value adjustments for acquired loans was $34.9 million, or 3.8% 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. Accrued interest receivable is included within Other Assets and was $25.3 million and $14.9 million at June 30, 2020 and December 31, 2019, respectively.

16

The following tables present the status of net loan balances as of June 30, 2020 and December 31, 2019. Loans on short-term payment deferral at the reporting date are reflected as current.
 June 30, 2020
(In thousands)CurrentAccruing
30-59 Days
Past Due
Accruing
60-89 Days
Past Due
Accruing
Greater
Than
90 Days
NonaccrualTotal
Portfolio Loans      
Construction and land development$270,070  $—  $623  $—  $22  $270,715  
Commercial real estate - owner-occupied829,903  —  —  615  2,425  832,943  
Commercial real estate - non owner-occupied1,069,979  1,988  —  —  2,096  1,074,063  
Residential real estate1,230,480  3,729  4,833  —  10,326  1,249,368  
Commercial and financial683,667  2,034  39  216  6,977  692,933  
Consumer195,246  169  46  —  402  195,863  
Paycheck Protection Program576,450  —  —  —  —  576,450  
Total Portfolio Loans4,855,795  7,920  5,541  831  22,248  4,892,335  
Acquired Non-PCD Loans
Construction and land development25,117  —  —  —  574  25,691  
Commercial real estate - owner-occupied213,731  1,526  —  —  1,341  216,598  
Commercial real estate - non owner-occupied306,612  —  —  268  —  306,880  
Residential real estate208,963  —  —  —  1,284  210,247  
Commercial and financial60,941  —  —  —  2,331  63,272  
Consumer5,677  23  —  —  —  5,700  
 Total Acquired Non-PCD Loans821,041  1,549  —  268  5,530  828,388  
PCD Loans
Construction and land development2,419  —  —  —  10  2,429  
Commercial real estate - owner-occupied27,109  —  —  —  —  27,109  
Commercial real estate - non owner-occupied10,808  —  —  —  1,036  11,844  
Residential real estate7,379  —  —  —  1,177  8,556  
Commercial and financial977  —  —  —  50  1,027  
Consumer277  87  —  —  —  364  
Total PCD Loans48,969  87  —  —  2,273  51,329  
Total Loans$5,725,805  $9,556  $5,541  $1,099  $30,051  $5,772,052  
 
17

 December 31, 2019
(In thousands)CurrentAccruing
30-59 Days
Past Due
Accruing
60-89 Days
Past Due
Accruing
Greater
Than
90 Days
NonaccrualTotal
Portfolio Loans      
Construction and land development$276,984  $—  $—  $—  $4,351  $281,335  
Commercial real estate1,828,629  1,606  220  —  4,356  1,834,811  
Residential real estate1,294,778  1,564  18  —  7,945  1,304,305  
Commercial and financial690,412  2,553  —  108  4,228  697,301  
Consumer199,424  317  315  —  110  200,166  
 Total Portfolio Loans4,290,227  6,040  553  108  20,990  4,317,918  
Purchased Unimpaired Loans
Construction and land development43,044  —  —  —  574  43,618  
Commercial real estate531,325  942  431  —  1,245  533,943  
Residential real estate201,159  277  —  —  412  201,848  
Commercial and financial78,705  —  —  —  1,667  80,372  
Consumer8,039  —  —  —  —  8,039  
 Total PULs862,272  1,219  431  —  3,898  867,820  
Purchased Credit Impaired Loans
Construction and land development148  —  —  —  12  160  
Commercial real estate9,298  —  —  —  919  10,217  
Residential real estate587  —  —  —  1,123  1,710  
Commercial and financial566  —  —  —  13  579  
Consumer—  —  —  —  —  —  
 Total PCI Loans10,599  —  —  —  2,067  12,666  
Total Loans$5,163,098  $7,259  $984  $108  $26,955  $5,198,404  
All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cost-recovery method. Under the cost-recovery method, 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 $0.3 million in interest income on nonaccrual loans during each of the three months ended June 30, 2020 and 2019. The following tables present net balances of loans on nonaccrual status and the related allowance for credit losses, if any, as of:
June 30, 2020
(In thousands)Nonaccrual Loans With No Related AllowanceNonaccrual Loans With an AllowanceTotal Nonaccrual LoansAllowance for Credit Losses
Construction and land development$585  $21  $606  $11  
Commercial real estate - owner-occupied3,445  321  3,766  160  
Commercial real estate - non owner-occupied2,096  1,036  3,132  204  
Residential real estate11,871  916  12,787  793  
Commercial and financial4,808  4,550  9,358  3,409  
Consumer32  370  402  86  
Totals$22,837  $7,214  $30,051  $4,663  
18

December 31, 2019
(In thousands)Nonaccrual Loans With No Related AllowanceNonaccrual Loans With an AllowanceTotal Nonaccrual LoansAllowance for Credit Losses
Construction and land development$4,913  $23  $4,936  $12  
Commercial real estate6,200  320  6,520  149  
Residential real estate8,700  780  9,480  564  
Commercial and financial3,449  2,460  5,909  1,622  
Consumer39  71  110  37  
Totals$23,301  $3,654  $26,955  $2,384  
Collateral Dependent Loans

Loans are considered collateral 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 dependent loans as of:
(In thousands)June 30, 2020December 31, 2019
Construction and land development$634  $4,926  
Commercial real estate - owner-occupied6,173  2,571  
Commercial real estate - non owner-occupied3,574  3,152  
Residential real estate14,117  11,550  
Commercial and financial5,526  4,338  
Consumer410  141  
Totals$30,434  $26,678  

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 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.
19

The following tables present the risk rating of loans by year of origination:
June 30, 2020
(In thousands)20202019201820172016PriorRevolvingTotal
Construction and Land Development
Risk Ratings:
Pass$29,412  $95,549  $70,528  $35,134  $10,478  $18,260  $33,439  $292,800  
Special Mention198  503  1,378  38  —  2,147  —  4,264  
Substandard—  —  —  —  —  58  988  1,046  
Substandard Impaired—  —  —  —  574  151  —  725  
Doubtful—  —  —  —  —  —  —  —  
Total29,610  96,052  71,906  35,172  11,052  20,616  34,427  298,835  
Commercial real estate - owner-occupied
Risk Ratings:
Pass74,304  185,717  157,946  139,936  158,728  317,778  15,952  1,050,361  
Special Mention199  1,616  —  1,016  4,471  4,088  —  11,390  
Substandard—  —  570  3,782  1,066  5,100  —  10,518  
Substandard Impaired—  —  —  426  —  3,634  —  4,060  
Doubtful1
—  —  —  —  321  —  —  321  
Total74,503  187,333  158,516  145,160  164,586  330,600  15,952  1,076,650  
Commercial real estate - non owner-occupied
Risk Ratings:
Pass80,710  321,844  230,276  130,437  196,698  390,280  6,150  1,356,395  
Special Mention—  105  —  1,376  7,876  1,117  —  10,474  
Substandard—  —  5,705  —  8,326  6,367  1,350  21,748  
Substandard Impaired—  —  —  —  126  4,044  —  4,170  
Doubtful—  —  —  —  —  —  —  —  
Total80,710  321,949  235,981  131,813  213,026  401,808  7,500  1,392,787  
Residential real estate
Risk Ratings:
Pass32,562  160,057  261,757  273,829  196,662  202,708  312,596  1,440,171  
Special Mention—  190  277  721  3,387  621  68  5,264  
Substandard—  —  1,334  —  —  1,607  1,580  4,521  
Substandard Impaired84  693  —  3,613  —  10,495  3,330  18,215  
Doubtful—  —  —  —  —  —  —  —  
Total32,646  160,940  263,368  278,163  200,049  215,431  317,574  1,468,171  
Commercial and financial
Risk Ratings:
Pass100,094  152,509  115,004  88,448  44,728  52,576  185,175  738,534  
Special Mention—  287  14  530  95  2,255  1,181  4,362  
Substandard—  148  337  259  425  1,698  2,099  4,966  
Substandard Impaired—  644  1,847  2,403  1,819  940  1,669  9,322  
Doubtful1
—  —  —  39  —  —   48  
Total100,094  153,588  117,202  91,679  47,067  57,469  190,133  757,232  
20

June 30, 2020
(In thousands)20202019201820172016PriorRevolvingTotal
Consumer
Risk Ratings:
Pass29,140  55,596  38,416  25,291  26,191  12,986  11,225  198,845  
Special Mention—  23  29  105  —  87  1,751  1,995  
Substandard—  —  —  19   39  340  406  
Substandard Impaired41  52  48  —  316  224  —  681  
Doubtful—  —  —  —  —  —  —  —  
Total29,181  55,671  38,493  25,415  26,515  13,336  13,316  201,927  
Paycheck Protection Program
Risk Ratings:
Pass576,450  —  —  —  —  —  —  576,450  
Total576,450  —  —  —  —  —  —  576,450  
Consolidated
Risk Ratings:
Pass922,672  971,272  873,927  693,075  633,485  994,588  564,537  5,653,556  
Special Mention397  2,724  1,698  3,786  15,829  10,315  3,000  37,749  
Substandard—  148  7,946  4,060  9,825  14,869  6,357  43,205  
Substandard Impaired125  1,389  1,895  6,442  2,835  19,488  4,999  37,173  
Doubtful1
—  —  —  39  321  —   369  
Total$923,194  $975,533  $885,466  $707,402  $662,295  $1,039,260  $578,902  $5,772,052  
1Loans classified as doubtful are fully reserved as of June 30, 2020.
The following table presents the risk rating of loans as of:
 December 31, 2019
(In thousands)PassSpecial
Mention
Substandard
Doubtful1
Total
Construction and land development$317,765  $2,235  $5,113  $—  $325,113  
Commercial real estate2,331,725  26,827  20,098  321  2,378,971  
Residential real estate1,482,278  7,364  18,221  —  1,507,863  
Commercial and financial755,957  11,925  9,496  874  778,252  
Consumer203,966  3,209  1,030  —  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, encourages financial institutions to practice prudent efforts to work with borrowers 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
21

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 pandemic should not be considered TDRs if the borrower was current at the time of modification. Seacoast began offering short-term payment deferrals of up to six months to eligible borrowers in March 2020 and, at June 30, 2020, had $1.1 billion of loans on payment deferral, none of which have been classified as TDRs.

The following table presents loans on payment deferral, excluding PPP loans, as of June 30, 2020:
(In thousands)Loans Outstanding% on Payment Deferral
Construction and land development$14,488  5%
Commercial real estate - owner-occupied320,406  30%
Commercial real estate - non owner-occupied445,311  32%
Residential real estate148,035  10%
Commercial and financial130,877  17%
Consumer17,926  9%
Totals$1,077,043  21%
The following table presents loans that were modified in a troubled debt restructuring during the three and six months ended:
Three Months Ended June 30,
20202019
(In thousands)Number of ContractsPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded InvestmentNumber of ContractsPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded Investment
Construction and land development $12  $12  —  $—  $—  
Commercial real estate - owner-occupied—  —  —   351  351  
Commercial real estate - non owner-occupied—  —  —  —  —  —  
Residential real estate—  —  —  —  —  —  
Commercial and financial—  —  —  —  —  —  
Consumer 47  47   19  19  
Totals $59  $59   $370  $370  
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Six Months Ended June 30,
20202019
(In thousands)Number of ContractsPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded InvestmentNumber of ContractsPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded Investment
Construction and land development $12  $12  —  $—  $—  
Commercial real estate - owner-occupied—  —  —   2,166  2,166  
Commercial real estate - non owner-occupied—  —  —  —  —  —  
Residential real estate 45  45  —  —  —  
Commercial and financial 437  437   180  180  
Consumer 47  47   19  19  
 Totals $541  $541   $2,365  $2,365  

The TDRs described above resulted in a specific allowance for credit losses of $0.4 million as of June 30, 2020, and 0 specific allowance for credit losses as of June 30, 2019. During the six months ended June 30, 2020, there were 3 defaults totaling $1.4 million of loans that had been modified in TDRs within the preceding twelve months. During the six months ended June 30, 2019, there were no payment defaults on loans 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, or has been transferred to other real estate owned. For loans measured based on the present value of expected future cash flows, $21,000 and $27,000 for the three months ended June 30, 2020, and 2019, respectively, and $46,000 and $62,000 for the six months ended June 30, 2020, and 2019, respectively, was included in interest income and represents the change in present value attributable to the passage of time.

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Note F – Allowance for Credit Losses
Activity in the allowance for credit losses is summarized as follows:
 Three Months Ended June 30, 2020
(In thousands)Beginning
Balance
Provision
for Credit
Losses
Charge-
Offs
RecoveriesTDR
Allowance
Adjustments
Ending
Balance
Construction and land development$4,646  $2,478  $—  $37  $—  $7,161  
Commercial real estate - owner-occupied5,327  229  —  18  (12) 5,562  
Commercial real estate - non owner-occupied35,643  3,345  —   —  38,992  
Residential real estate19,899  574  (113) 101  (8) 20,453  
Commercial and financial15,470  1,319  (1,768) 493  —  15,514  
Consumer4,426  (334) (614) 91  (1) 3,568  
Paycheck Protection Program—  —  —  —  —  —  
Totals$85,411  $7,611  $(2,495) $744  $(21) $91,250  

 Three Months Ended June 30, 2019
(In thousands)Beginning
Balance
Provision
for Loan
Losses
Charge-
Offs
RecoveriesTDR
Allowance
Adjustments
Ending
Balance
Construction and land development$2,320  $(79) $(1) $ $—  $2,243  
Commercial real estate11,753  (433) —  565  (15) 11,870  
Residential real estate7,445  51  (28) 51  (11) 7,508  
Commercial and financial8,573  2,114  (1,881) 106  —  8,912  
Consumer2,731  898  (734) 78  (1) 2,972  
Totals$32,822  $2,551  $(2,644) $803  $(27) $33,505  

Six Months Ended June 30, 2020
(In thousands)Beginning
Balance
Impact of Adoption of ASC 326Initial Allowance on PCD Loans Acquired During the PeriodProvision
for Credit
Losses
Charge-
Offs
RecoveriesTDR
Allowance
Adjustments
Ending
Balance
Construction and land development$1,842  $1,479  $48  $3,727  $—  $66  $(1) $7,161  
Commercial real estate - owner-occupied5,361  80  207  (34) (45) 18  (25) 5,562  
Commercial real estate - non owner-occupied7,863  9,341  140  21,628  (12) 32  —  38,992  
Residential real estate7,667  5,787  97  6,834  (131) 218  (19) 20,453  
Commercial and financial9,716  3,677  11  4,063  (2,866) 913  —  15,514  
Consumer2,705  862  13  906  (1,087) 170  (1) 3,568  
Paycheck Protection Program—  —  —  —  —  —  —  —  
Totals$35,154  $21,226  $516  $37,124  $(4,141) $1,417  $(46) $91,250  

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Six Months Ended June 30, 2019
(In thousands)Beginning BalanceProvision for Loan LossesCharge- OffsRecoveriesTDR Allowance AdjustmentsEnding Balance
Construction and land development$2,233  $ $—  $ $(1) $2,243  
Commercial real estate11,112  192  (16) 612  (30) 11,870  
Residential real estate7,775  (363) (65) 190  (29) 7,508  
Commercial and financial8,585  2,967  (2,825) 185  —  8,912  
Consumer2,718  1,148  (1,217) 325  (2) 2,972  
Totals$32,423  $3,948  $(4,123) $1,319  $(62) $33,505  

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 June 30, 2020, 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 resurgence of virus infections in Florida and other states beginning late in the second quarter, and the resulting potential for renewed stay-at-home orders and other limitations on businesses. The Company also considered the amount and availability of fiscal stimulus, including programs offered under the CARES Act and other potential future government programs and actions. 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 increase in loss estimate during the quarter was affected by both the increase in Baseline scenario forecast from the prior period and qualitative adjustments relating to the uncertainty of economic conditions. 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, risk characteristics include but are not limited to, collateral type, loan seasoning, and lien position. The introduction of government-sponsored programs, including the CARES Act, and the Company's expectation that borrowers in this segment will benefit from these programs, offset the otherwise detrimental effect of the negative economic outlook.
In the Commercial Real Estate - Non Owner-Occupied segment, 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. Modeled results as of June 30, 2020 reflected higher estimated probabilities of default and loss given default, in addition to qualitative adjustments for the uncertainty of macroeconomic factors.

The Residential Real Estate segment includes first mortgages secured by residential property, and home equity lines of credit. Risk characteristics considered for this segment include, but are not limited to, collateral type, lien position loan to value ratios, and loan seasoning. The impact of the forecast on home equity lines of credit increased the estimated expected losses in this segment, while closed-end single-family mortgages were less impacted due to anticipated government stimulus efforts and high borrower FICO scores.

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
25

guaranteed by the business owners. Industry, collateral type, estimated collateral values and loan seasoning are among the relevant factors in assessing expected losses. The impact on the reserve of lower outstanding balances at June 30, 2020 compared to March 31, 2020 was more than offset by increases due to the negative economic outlook, in addition to qualitative factors added to consider significant economic uncertainty.

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 decrease in the reserve resulted from the expected beneficial impact of individual government stimulus programs, partially offset by an increase in the forecast for expected unemployment rates.

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 June 30, 2020 and December 31, 2019 is shown in the following tables:
 
 June 30, 2020
 Individually EvaluatedCollectively EvaluatedTotal
(In thousands)Recorded
Investment
Associated
Allowance
Recorded
Investment
Associated
Allowance
Recorded
Investment
Associated
Allowance
Construction and land development$726  $20  $298,109  $7,141  $298,835  $7,161  
Commercial real estate - owner-occupied4,491  160  1,072,159  5,402  1,076,650  5,562  
Commercial real estate - non owner-occupied7,883  254  1,384,904  38,738  1,392,787  38,992  
Residential real estate18,216  1,071  1,449,955  19,382  1,468,171  20,453  
Commercial and financial9,822  3,628  747,410  11,886  757,232  15,514  
Consumer681  107  201,246  3,461  201,927  3,568  
Paycheck Protection Program—  —  576,450  —  576,450  —  
Totals$41,819  $5,240  $5,730,233  $86,010  $5,772,052  $91,250  

 December 31, 2019
 Individually EvaluatedCollectively Evaluated
 Total
(In thousands)Recorded
Investment
Associated
Allowance
Recorded
Investment
Associated
Allowance
Recorded
Investment
Associated
Allowance
Construction and land development$5,217  $14  $319,896  $1,828  $325,113  $1,842  
Commercial real estate20,484  220  2,358,487  13,004  2,378,971  13,224  
Residential real estate16,093  834  1,491,770  6,833  1,507,863  7,667  
Commercial and financial6,631  1,731  771,621  7,985  778,252  9,716  
Consumer337  59  207,868  2,646  208,205  2,705  
Totals$48,762  $2,858  $5,149,642  $32,296  $5,198,404  $35,154  


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Note G – 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)June 30, 2020December 31, 2019
Fair value of pledged securities - overnight and continuous:
Mortgage-backed securities and collateralized mortgage obligations of U.S. government sponsored entities$97,344  $94,354  

Note H – Noninterest Income and Expense
 
Details of noninterest income and expenses for the three and six months ended June 30, 2020 and 2019 are as follows:
 
 Three Months Ended June 30,Six Months Ended June 30,
(In thousands)2020201920202019
Noninterest income  
Service charges on deposit accounts$1,939  $2,894  $4,764  $5,591  
Interchange income3,187  3,405  6,433  6,806  
Wealth management income1,719  1,688  3,586  3,141  
Mortgage banking fees3,559  1,734  5,767  2,849  
Marine finance fees157  201  303  563  
SBA gains181  691  320  1,327  
BOLI income887  927  1,773  1,842  
Other income2,147  2,503  5,499  4,769  
 13,776  14,043  28,445  26,888  
 Securities gains (losses), net1,230  (466) 1,249  (475) 
 Total$15,006  $13,577  $29,694  $26,413  
Noninterest expense
Salaries and wages$20,226  $19,420  $43,924  $37,926  
Employee benefits3,379  3,195  7,634  7,401  
Outsourced data processing costs4,059  3,876  8,692  7,721  
Telephone/data lines791  893  1,505  1,704  
Occupancy3,385  3,741  6,738  7,548  
Furniture and equipment1,358  1,544  2,981  3,301  
Marketing997  1,211  2,275  2,343  
Legal and professional fees2,277  2,033  5,640  4,880  
FDIC assessments266  337  266  825  
Amortization of intangibles1,483  1,456  2,939  2,914  
Foreclosed property expense and net loss (gain) on sale245  (174) (70) (214) 
Other3,933  3,468  7,673  7,750  
 Total$42,399  $41,000  $90,197  $84,099  


27

Note I – Equity Capital
The Company is well capitalized and at June 30, 2020, 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 J – 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 K – Fair Value
Under ASC Topic 820, fair value measurements for items measured at fair value on a recurring and nonrecurring basis at June 30, 2020 and December 31, 2019 included:
(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)
June 30, 2020    
Available for sale debt securities1
$976,025  $102  $975,923  $—  
Loans held for sale2
54,943  —  54,943  —  
Loans3
7,974  —  1,448  6,526  
Other real estate owned4
15,847  —  2,368  13,479  
Equity securities5
6,548  6,548  —  —  
December 31, 2019
Available for sale debt securities1
$946,855  $100  $946,755  $—  
Loans held for sale2
20,029  —  20,029  —  
Loans3
5,123  —  1,419  3,704  
Other real estate owned4
12,390  —  241  12,149  
Equity securities5
6,392  6,392  —  —  
1See Note D for further detail of fair value of individual investment categories.
2Recurring fair value basis determined using observable market data.
3See Note E. Nonrecurring fair value adjustments to loans identified as impaired reflect full or partial write-downs that are based on the loan’s observable market price or current appraised value of the collateral in accordance with ASC Topic 310.
4Fair value is measured on a nonrecurring basis in accordance with ASC Topic 360.
5An investment in shares of a mutual fund that invests primarily in CRA-qualified debt securities, reported at fair value in Other Assets. Recurring fair value basis is determined using market quotations.
Available for sale debt securities: U.S. Treasury securities are reported at fair value utilizing Level 1 inputs. Other securities are reported at fair value utilizing Level 2 inputs. The estimated fair value of a security is determined based on market quotations when available or, if not available, by using quoted market prices for similar securities, pricing models or discounted cash flow analyses, using observable market data where available.
The Company reviews the prices supplied by independent pricing services, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. The fair value of collateralized loan obligations is determined from broker quotes. From time to time, the Company will validate, on a sample basis, prices supplied by the independent pricing service by comparison to prices obtained from other brokers and third-party sources or derived using internal models.
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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. 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 accrual as of June 30, 2020 and December 31, 2019. The aggregate fair value and contractual balance of loans held for sale as of June 30, 2020 and December 31, 2019 is as follows:
(In thousands)June 30, 2020December 31, 2019
Aggregate fair value$54,943  $20,029  
Contractual balance53,556  19,445  
Excess1,387  584  
Loans: Level 2 loans consist of impaired real estate loans which are collateral dependent. Fair value is based on recent real estate appraisals less estimated costs of sale. For residential real estate impaired loans, appraised values or internal evaluations are based on the comparative sales approach. Level 3 loans consist of commercial and commercial real estate impaired loans. For these loans evaluations may use either a single valuation approach or a combination of approaches, such as comparative sales, cost and/or income approach. A significant unobservable input in the income approach is the estimated capitalization rate for a given piece of collateral. At June 30, 2020, the capitalization rates utilized to determine fair value of the underlying collateral averaged approximately 7.4%. Adjustments to comparable sales may be made by an appraiser to reflect local market conditions or other economic factors and may result in changes in the fair value of an asset over time. As such, the fair value of these impaired loans is considered level 3 in the fair value hierarchy. Impaired loans measured at fair value total $8.0 million with a specific reserve of $5.2 million at June 30, 2020, compared to $5.1 million with a specific reserve of $2.9 million at December 31, 2019.
For loans classified as level 3, changes included loan additions of $5.0 million offset by paydowns and charge-offs of $2.2 million for the six months ended June 30, 2020.
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 during the six months ended June 30, 2020, changes included additions of foreclosed loans of $5.1 million offset by sales of $3.8 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-end valuation process. There were no such transfers for loans and OREO classified as level 3 during the six months ended June 30, 2020 and 2019.
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 June 30, 2020 and December 31, 2019 is as follows:
29

(In thousands)Carrying AmountQuoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
June 30, 2020    
Financial Assets    
Debt securities held-to-maturity1
$227,092  $—  $235,946  $—  
Time deposits with other banks2,496  —  —  2,530  
Loans, net5,672,828  —  —  5,770,882  
Financial Liabilities
Deposit liabilities6,666,783  —  —  6,673,509  
Federal Home Loan Bank (FHLB) borrowings135,000  —  —  134,782  
Subordinated debt71,225  —  64,143  —  
December 31, 2019
Financial Assets
Debt securities held-to-maturity1

$261,369  $—  $262,213  $—  
Time deposits with other banks3,742  —  —  3,744  
Loans, net5,158,127  —  —  5,139,491  
Financial Liabilities
Deposit liabilities5,584,753  —  —  5,584,621  
Federal Home Loan Bank (FHLB) borrowings315,000  —  —  314,995  
Subordinated debt71,085  —  64,017  —  
1See Note D 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, 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 June 30, 2020 and December 31, 2019:
Held 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.
30

Note L – Business Combinations
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 shares of Seacoast common stock.
(In thousands, except per share data)March 13, 2020
Number of FBPB common shares outstanding5,213  
Per share exchange ratio0.2000  
Number of shares of common stock issued1,043  
Multiplied by common stock price per share on March 13, 2020$20.17  
Value of common stock issued21,031  
Cash paid for FBPB vested stock options866  
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 AdjustmentsAs Adjusted March 13, 2020
Assets: 
Cash$34,749  $—  $34,749  
Investment securities447  —  447  
Loans146,839  (62) 146,777  
Bank premises and equipment6,086  —  6,086  
Core deposit intangibles819  —  819  
Goodwill6,799  62  6,861  
Other assets1,285  20  1,305  
 Total assets$197,024  $20  $197,044  
Liabilities:
Deposits$173,741  $—  $173,741  
Other liabilities1,386  20  1,406  
Total liabilities$175,127  $20  $175,147  
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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 BalanceFair Value
Loans:  
Construction and land development$9,493  $9,012  
Commercial real estate - owner-occupied46,221  45,171  
Commercial real estate - non owner-occupied36,268  35,079  
Residential real estate47,569  47,043  
Commercial and financial9,659  9,388  
Consumer1,132  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.
Pro-Forma Information
Pro-forma data for the three and six months ended June 30, 2020 presents information as if the acquisition of FBPB occurred at the beginning of 2019, as follows:
Three Months Ended June 30, 2020Six Months Ended June 30, 2020
(In thousands, except per share amounts)2020201920202019
Net interest income1
$67,272  $61,879  $131,887  $124,417  
Net income25,080  23,966  27,526  45,378  
EPS - basic$0.47  $0.46  $0.52  $0.87  
EPS - diluted0.47  0.45  0.52  0.86  
1The provision for credit losses of $1.8 million recorded under CECL at the time of acquisition has 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.
Proposed Acquisition of Fourth Street Banking Company
On January 23, 2020, the Company announced that it had entered into an agreement and plan of merger with Fourth Street Banking Company ("Fourth Street") and its wholly-owned subsidiary, Freedom Bank. Pursuant to the terms of the merger agreement, Fourth Street, headquartered in St. Petersburg, FL, will be merged with and into Seacoast and Freedom Bank will be merged with and into Seacoast Bank. Freedom Bank operates two branches in the Tampa-St. Petersburg metropolitan statistical area with $359 million in deposits and $312 million in loans as of June 30, 2020. This acquisition is anticipated to close in August 2020, subject to the approval of Fourth Street shareholders and the satisfaction of other customary conditions.
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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 (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, 2020 compared to the three and six months ended June 30, 2019 for the consolidated statements of income. For the consolidated balance sheets, the emphasis of this discussion will be the balances as of June 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 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, intentions and 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;
adverse effects 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;
33

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;
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 proposed Fourth Street Banking Company 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 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 that such integration may be more difficult, time-consuming or costly than expected; the potential failure to fully or timely realize expected revenues and revenue synergies, including as the result of revenues following the 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 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;
34

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.

Second Quarter 2020
Pandemic Response
During the first half of 2020, the global economy began experiencing a downturn resulting from the COVID-19 pandemic. Seacoast reacted quickly at the onset to make adjustments to operations intended to protect the health and welfare of our associates and customers. The Company's range of digital banking products combined with continued access to branches through drive-thrus and lobby appointments has allowed the Company to meet customer needs. A robust and well tested business continuity program has allowed the Company to maintain productivity levels with a majority of associates working remotely.
In March 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law. The CARES Act includes provisions for the Paycheck Protection Program (“PPP”) offered through the U.S. Small Business Administration (“SBA”). Loans originated under this program include principal and interest which may be forgiven provided the borrower uses the funds in a manner consistent with PPP guidelines. Through June 30, 2020, the Company has originated over 5,000 loans under this program, with outstanding balances of $576.5 million at June 30, 2020, an average loan size of $116,000 and a median loan size of $43,000. PPP loans have a contractual rate of interest of 1% and principal and interest may be forgiven provided the borrower uses the funds in a manner consistent with the program's guidelines. The SBA outlined a fee structure based on loan size, whereby institutions were paid 5% for loans of not more than $350,000, 3% for loans of more than $350,000 and less than $2 million, and 1% for loans of at least $2 million. Seacoast originated $301 million of loans in the 5% fee category, $214 million of loans in the 3% fee category, and $62 million of loans in the 1% fee category. These fees, net of loan-specific costs, total $17 million for the Company's originations through June 30, 2020, and are deferred and recognized as an adjustment to yield over the expected life of the loans. Seacoast recognized net fees of $4 million and contractual interest of $1.1 million on PPP loans in the second quarter of 2020, resulting in a yield of 4.81%. There is significant uncertainty about how borrowers will seek and qualify for forgiveness, and therefore uncertainty about the expected life of these loans and the timing of recognition of the remaining $13 million in fees.
The CARES Act also encourages financial institutions to practice prudent efforts to work with borrowers 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 pandemic should not be considered TDRs if the borrower was current at the time of modification. Seacoast began offering short-term payment deferrals of up to six months to eligible borrowers in March 2020 and, at June 30, 2020, had $1.1 billion of loans on payment deferral, none of which have been classified as TDRs. 39% of these loans are scheduled to return to regular payments in the third quarter of 2020 and 61% in the fourth quarter of 2020. During the payment deferral period, Seacoast continues to recognize interest income.

35

Results of Operations 
Second Quarter 2020 Results
For the second quarter of 2020, the Company reported net income of $25.1 million, or $0.47 per average common diluted share, compared to $0.7 million, or $0.01, for the first quarter of 2020 and $23.3 million, or $0.45, for the second quarter of 2019. For the six months ended June 30, 2020, net income totaled $25.8 million, or $0.49 per average common diluted share, a decrease of $20.2 million, or 44%, compared to the six months ended June 30, 2019. Adjusted net income1 for the second quarter of 2020 totaled $25.5 million, or $0.48 per average common diluted share, compared to $5.5 million, or $0.10, for the first quarter of 2020 and $25.8 million, or $0.50, for the second quarter of 2019. For the six months ended June 30, 2020, adjusted net income1 totaled $30.9 million, or $0.59 per average common diluted share, a decrease of $19.1 million, or 38%, compared to the six months ended June 30, 2019.
SecondFirstSecondSix Months Ended
QuarterQuarterQuarterJune 30,
20202020201920202019
Return on average tangible assets1.37 %0.11 %1.50 %0.78 %1.49 %
Return on average tangible shareholders' equity13.47  0.95  14.30  7.27  14.57  
Efficiency ratio50.11  59.85  53.48  54.88  55.01  
Adjusted return on average tangible assets1
1.33 %0.32 %1.59 %0.86 %1.55 %
Adjusted return on average tangible shareholders' equity1
13.09  2.86  15.17  8.02  15.14  
Adjusted efficiency ratio1
49.81  53.61  51.44  51.68  53.62  
1Non-GAAP measure - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP.
For the six months ended June 30, 2020, the Company's return on average tangible assets and return on average tangible shareholders' equity reflect the impact of $4.8 million in merger related expenses from the acquisition of First Bank of the Palm Beaches ("FBPB") completed in the first quarter of 2020 and the upcoming acquisition of Fourth Street Banking Company, expected to be completed in the third quarter of 2020. The provision for credit losses on loans of $37.1 million in the six months ended June 30, 2020 is primarily attributed to the recent downturn in economic conditions and the uncertainty of the forecasted future economic environment. This uncertainty will likely continue through the second half of 2020, and results will continue to be impacted by the COVID-19 pandemic and its effect on the Company's markets and its customers.
Net Interest Income and Margin
Net interest income (on a fully taxable equivalent basis)1 for the second quarter of 2020 totaled $67.4 million, increasing $4.1 million, or 6%, compared to the first quarter of 2020, and increasing $7.2 million, or 12%, compared to the second quarter of 2019. For the six months ended June 30, 2020, net interest income (on a fully tax equivalent basis)1 totaled $130.7 million, an increase of $9.6 million, or 8%, compared to the six months ended June 30, 2019. Net interest margin was 3.70% in the second quarter 2020, compared to 3.93% in the first quarter 2020 and 3.94% in the second quarter of 2019. Compared to the first quarter of 2020, increased liquidity levels through higher cash and cash equivalent balances that position Seacoast conservatively for market uncertainty resulted in 17 basis points of margin compression. For the six months ended June 30, 2020, net interest margin was 3.81%, a decrease of 17 basis points, or 4%, compared to the six months ended June 30, 2019. For the second quarter of 2020, the yield on both loans and securities contracted 34 basis points compared to the first quarter of 2020, reflecting the full impact of the decrease in the fed funds rate by 150 basis points in March 2020 and the impact of declining levels of commercial prepayments on the accretion of purchase discounts on acquired loans. The effect on net interest margin from accretion of purchase discounts on acquired loans was 16 basis points in the second quarter of 2020 compared to 27 basis points in the first quarter of 2020 and 27 basis points in the second quarter of 2019. The effect on net interest margin of interest and fees earned on PPP loans was 8 basis points in the second quarter of 2020. The cost of deposits declined to 31 basis points during the quarter, compared to 57 basis points in the first quarter of 2020 and 76 basis points in the second quarter of 2019. For the six months ended June 30, 2020, the cost of deposits was 43 basis points, a decrease of 29 basis points compared to the six months ended June 30, 2019. Decreases in the cost of deposits reflect the impact of higher deposit balances and lower rates paid on deposits.
1Non-GAAP measure. - see "Explanation of Certain Unaudited Non-GAAP Financial Measures" for more information and a reconciliation to GAAP.
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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
Second quarter 2020$67,388  3.70 %4.03 %0.51 %
First quarter 202063,291  3.93 %4.54 %0.90 %
Second quarter 201960,219  3.94 %4.73 %1.18 %
Six Months Ended June 30, 2020130,679  3.81 %4.27 %0.70 %
Six Months Ended June 30, 2019121,080  3.98 %4.76 %1.15 %
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 $513.3 million, or 10%, for the second quarter of 2020 compared to the first quarter of 2020, and increased $886.8 million, or 18%, from the second quarter of 2019. The increase reflects the impact of $146.8 million in loans acquired from FBPB in the first quarter of 2020 and the $576.5 million in loans originated under the PPP program during the second quarter of 2020.
Average loans as a percentage of average earning assets totaled 78% for the second quarter of 2020, 81% for the first quarter of 2020 and 79% for the second quarter of 2019. Loan production was affected in the second quarter of 2020 by the suspension of business activity across many industries in response to the COVID-19 pandemic. The Company intentionally slowed loan origination activity, reflecting a commitment to strict and careful underwriting given the unknown impact of the COVID-19 pandemic on the economy. Residential saleable refinancing activity remained strong attributed to the current low rate environment and strong Florida housing market.
Loan production is detailed in the following table for the periods specified:
SecondFirstSecondSix Months Ended
QuarterQuarterQuarterJune 30,
(In thousands)20202020201920202019
Commercial pipeline at period end$117,042  $171,125  $300,207  $117,042  $300,207  
Commercial loan originations106,857  183,330  238,057  290,187  424,060  
Residential pipeline - saleable at period end94,666  75,226  46,723  94,666  46,723  
Residential loans-sold122,459  62,865  61,391  185,324  93,949  
Residential pipeline - portfolio at period end13,199  11,779  3,756  13,199  3,756  
Residential loans-retained23,539  25,776  51,755  49,315  101,400  
Consumer pipeline at period end30,647  29,123  26,911  30,647  26,911  
Consumer originations57,956  51,516  55,380  109,472  96,956  
PPP originations590,718  —  —  590,718  —  
Commercial originations during the second quarter of 2020 were $106.9 million, a decrease of $76.5 million, or 42%, compared to the first quarter of 2020 and a decrease of $131.2 million, or 55%, compared to the second quarter of 2019.
The commercial pipeline was down 32% to $117.0 million at the end of the quarter, reflecting a continued conservative approach on new credits given the uncertain economic outlook associated with the COVID-19 pandemic. The Company will continue to serve current strong relationships that meet strict credit underwriting guidelines, with liquidity and strong balance sheets that can support significant stress.
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Residential salaeable loan originations were $122.5 million in the second quarter of 2020, compared to $62.9 million in the first quarter of 2020 and $61.4 million in the second quarter of 2019. Originations through the first half of 2020 reflect the vibrant residential refinance market and the strength in the Florida housing market.
Closed residential retained loan production for the second quarter of 2020 was $23.5 million compared to $25.8 million in the first quarter of 2020 and $51.8 million in the second quarter of 2019.
Consumer originations totaled $58.0 million during the second quarter of 2020, an increase of $6.4 million, or 13%, from the first quarter of 2020 and an increase of $2.6 million, or 5%, from the second quarter of 2019.
Through June 30, 2020, Seacoast funded over 5,000 loans to companies through the PPP program totaling over $591 million with an average loan size of $116,000 and a median loan size of $43,000. Fees earned by Seacoast, net of loan-specific costs total $17 million and are deferred and recognized as an adjustment to yield over the expected life of the loans. Seacoast recognized net fees of $4 million and contractual interest of $1.1 million, resulting in a yield of 4.81%. There is significant uncertainty about how borrowers will seek and qualify for forgiveness, and therefore uncertainty about the expected life of these loans and the timing of recognition of the remaining $13 million in net fees.
Average debt securities decreased $17.2 million, or 1.5%, for the second quarter 2020 compared to the first quarter 2020, and were $39.0 million, or 3%, lower from the second quarter of 2019. Decreases from the first quarter of 2020 reflect the impact of sales of $64.5 million as well as maturities of $76.8 million, partially offset by purchases of $164.9 million made late in the second quarter of 2020. Activity in the second quarter 2020 included the repositioning of investments in collateralized lending obligations ("CLO") securities, replacing "A" rated securities with "AAA" rated securities.
The cost of average interest-bearing liabilities contracted 39 basis points in the second quarter of June 30, 2020 to 51 basis points from 90 basis points, reflecting the impact of higher deposit balances and decreases in underlying market rates. The low overall cost of funding reflects the Company’s core deposit focus that has produced strong growth in customer relationships over the past several years. New business customer acquisition increased by nearly 50% in the second quarter, when compared to the first quarter of 2020, introducing over 3,000 new business customers to Seacoast. Noninterest bearing demand deposits at June 30, 2020 represent 34% of total deposits compared to 29% at March 31, 2020. The cost of average total deposits (including noninterest bearing demand deposits) in the second quarter of June 30, 2020 was 0.31% compared to 0.57% in the first quarter of 2020 and 0.76% in the second quarter of 2019.
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Customer relationship funding is detailed in the following table for the periods specified:
Customer Relationship Funding
 June 30,March 31,December 31,September 30,June 30,
(In thousands, except ratios)20202020201920192019
Noninterest demand$2,267,435  $1,703,628  $1,590,493  $1,652,927  $1,669,804  
Interest-bearing demand1,368,146  1,234,193  1,181,732  1,115,455  1,124,519  
Money market1,232,892  1,124,378  1,108,363  1,158,862  1,172,971  
Savings619,251  554,836  519,152  528,214  519,732  
Time certificates of deposit1,179,059  1,270,464  1,185,013  1,217,683  1,054,183  
Total deposits$6,666,783  $5,887,499  $5,584,753  $5,673,141  $5,541,209  
Customer sweep accounts$92,125  $64,723  $86,121  $70,414  $82,015  
Noninterest demand deposits as % of total deposits34 %29 %28 %29 %30 %
The Company’s focus on convenience, with high quality customer service, expanded digital offerings and distribution channels provides stable, low cost core deposit funding. 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. Lower overall consumer spending levels driven by pandemic-related stay-at-home orders and the impact of government support programs enacted in the second quarter of 2020, including PPP and individual stimulus payments, led to higher customer balances, as did the acquisition of FBPB in the first quarter of 2020. Customers have also increased usage of digital products, with the proportion of transactions in non-branch delivery channels up 14% over this time last year. During the second quarter of 2020, average transaction deposits (noninterest and interest bearing demand) increased $596.5 million, or 21%, compared to the first quarter of 2020 and increased $630.0 million, or 23%, compared to the second quarter of 2019. Along with new and acquired relationships, deposit programs and digital sales have improved the Company's market share and deepened relationships with existing customers.
Growth in core deposits has also provided low funding costs. The Company’s deposit mix remains favorable, with 80% of average deposit balances comprised of savings, money market, and demand deposits for the six months ended June 30, 2020. Seacoast's average cost of deposits, including noninterest bearing demand deposits, decreased to 0.43% for the six months ended June 30, 2020 compared to 0.72% for the six months ended June 30, 2019, reflecting the lower rates after the Federal Reserve actions beginning in the third quarter of 2019 and shifts in deposit mix with a higher proportion of low cost deposits. Brokered CDs totaled $572.5 million at June 30, 2020, with an average rate of 1.05%. CD maturities are laddered, with $339 million maturing in 2020.
Short-term borrowings, principally comprised of sweep repurchase agreements with customers, decreased $65.2 million, or 47%, to an average balance of $74.7 million for the six months ended June 30, 2020 compared to the six months ended June 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. The average rate on customer sweep repurchase accounts was 0.55% for the six months ended June 30, 2020, compared to 1.32% for the same period during 2019. The remaining balances in this product offering will continue to be valuable to customers, although at lower amounts. No federal funds purchased were utilized at June 30, 2020 or 2019.
FHLB borrowings averaged $224.9 million for the six months ended June 30, 2020, increasing $85.9 million, or 62%, compared to the same period in 2019. The average rate on FHLB borrowings for the six months ended June 30, 2020 was 1.14% compared to 2.54% for the six months ended June 30, 2019. FHLB borrowings outstanding at June 30, 2020 have a weighted rate of 0.67% with $80 million maturing in 2020.
For the six months ended June 30, 2020, subordinated debt averaged $71.1 million, an increase of $0.3 million compared to the same period during 2019. The average rate on subordinated debt for the six months ended June 30, 2020 was 3.69%, compared to 5.03% for the six months ended June 30, 2019. The subordinated debt relates to trust preferred securities issued by subsidiary trusts of the Company.
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The following tables detail average balances, net interest income and margin results (on a tax equivalent basis) for the periods presented:
Average Balances, Interest Income and Expenses, Yields and Rates1
 20202019
 Second QuarterFirst QuarterSecond Quarter
 Average Yield/Average Yield/Average Yield/
(In thousands, except ratios)BalanceInterestRateBalanceInterestRateBalanceInterestRate
Assets
Earning assets:
Securities:
Taxable$1,135,698  $7,573  2.67 %$1,152,473  $8,696  3.02 %$1,169,891  $8,933  3.05 %
Nontaxable19,347  152  3.14  19,740  152  3.09  24,110  179  2.96  
Total Securities1,155,045  7,725  2.68  1,172,213  8,848  3.02  1,194,001  9,112  3.05  
Federal funds sold and other investments433,626  684  0.63  87,924  734  3.36  91,481  873  3.83  
Loans excluding PPP loans5,304,381  59,861  4.54  5,215,234  63,524  4.90  4,841,751  62,335  5.16  
PPP Loans424,171  5,068  4.81  —  —  —  —  —  —  
Total Loans5,728,552  64,929  4.56  5,215,234  63,524  4.90  4,841,751  62,335  5.16  
Total Earning Assets7,317,223  73,338  4.03  6,475,371  73,106  4.54  6,127,233  72,320  4.73  
Allowance for loan losses(84,965) (56,931) (32,806) 
Cash and due from banks103,919  90,084  91,160  
Premises and equipment71,173  67,585  69,890  
Intangible assets230,871  226,712  228,706  
Bank owned life insurance127,386  126,492  124,631  
Other assets147,395  126,230  126,180  
Total Assets$7,913,002  $7,055,543  $6,734,994  
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand$1,298,639  $297  0.09 %$1,173,930  $834  0.29 %$1,118,703  $1,150  0.41 %
Savings591,040  165  0.11  526,727  348  0.27  513,773  586  0.46  
Money market1,193,969  741  0.25  1,128,757  2,008  0.72  1,179,345  3,089  1.05  
Time deposits1,293,766  3,820  1.19  1,151,750  4,768  1.67  1,089,020  5,724  2.11  
Short term borrowings74,717  34  0.18  71,065  167  0.95  91,614  355  1.55  
Federal funds purchased and Federal Home Loan Bank borrowings199,698  312  0.63  250,022  968  1.56  51,571  329  2.56  
Other borrowings71,185  581  3.28  71,114  722  4.08  70,903  868  4.91  
Total Interest-Bearing Liabilities4,723,014  5,950  0.51  4,373,365  9,815  0.90  4,114,929  12,101  1.18  
Noninterest demand2,097,038  1,625,215  1,646,934  
Other liabilities79,855  62,970  61,652  
Total Liabilities6,899,907  6,061,550  5,823,515  
Shareholders' equity1,013,095  993,993  911,479  
Total Liabilities & Equity$7,913,002  $7,055,543  $6,734,994  
Cost of deposits0.31 %0.57 %0.76 %
Interest expense as a % of earning assets0.33 %0.61 %0.79 %
Net interest income as a % of earning assets$67,388  3.70 %$63,291  3.93 %$60,219  3.94 %
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.
40

Average Balances, Interest Income and Expenses, Yields and Rates1
 20202019
 Year to DateYear to Date
 Average Yield/Average Yield/
(In thousands, except ratios)BalanceInterestRateBalanceInterestRate
Assets
Earning assets:
Securities:
Taxable$1,144,086  $16,269  2.84 %$1,178,087  $18,052  3.06 %
Nontaxable19,544  304  3.11  25,329  369  2.91  
Total Securities1,163,630  16,573  2.85  1,203,416  18,421  3.06  
Federal funds sold and other investments260,775  1,418  1.09  91,310  1,791  3.96  
Loans excluding PPP loans5,259,808  123,385  4.72  4,840,406  124,670  5.19  
PPP Loans212,085  5,068  4.81  —  —  —  
Total Loans5,471,893  128,453  4.72  4,840,406  124,670  5.19  
Total Earning Assets6,896,298  146,444  4.27  6,135,132  144,882  4.76  
Allowance for loan losses(70,948) (32,885) 
Cash and due from banks97,002  95,526  
Premises and equipment69,379  70,411  
Intangible assets228,791  229,382  
Bank owned life insurance126,939  124,172  
Other assets136,811  131,148  
Total Assets$7,484,272  $6,752,886  
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand$1,236,285  $1,131  0.18 %$1,074,460  $1,989  0.37 %
Savings558,883  513  0.18  507,097  1,062  0.42  
Money market1,161,363  2,749  0.48  1,169,198  5,647  0.97  
Time deposits1,222,758  8,588  1.41  1,065,812  10,683  2.02  
Short term borrowings72,891  201  0.55  138,065  905  1.32  
Federal funds purchased and Federal Home Loan Bank borrowings224,860  1,279  1.14  138,989  1,750  2.54  
Other borrowings71,149  1,304  3.69  70,870  1,766  5.03  
Total Interest-Bearing Liabilities4,548,189  15,765  0.70  4,164,491  23,802  1.15  
Noninterest demand1,861,126  1,629,836  
Other liabilities71,413  62,949  
Total Liabilities6,480,728  5,857,276  
Shareholders' equity1,003,544  895,610  
Total Liabilities & Equity$7,484,272  $6,752,886  
Cost of deposits0.43 %0.72 %
Interest expense as a % of earning assets0.46 %0.78 %
Net interest income as a % of earning assets$130,679  3.81 %$121,080  3.98 %
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.
41

Noninterest Income
Noninterest income totaled $15.0 million for the second quarter of 2020, an increase of $0.3 million, or 2%, compared to the first quarter of 2020 and an increase of $1.4 million, or 11%, from the second quarter of 2019. Noninterest income totaled $29.7 million for the six months ended June 30, 2020, an increase of 3.3 million, or 12%, compared to the six months ended June 30, 2019. Noninterest income accounted for 17% of total revenue (excluding securities gains and losses), a decrease of 2% compared to both the first quarter of 2020 and the second quarter of 2019. For the six months ended June 30, 2020, noninterest income accounted for 18% of total revenue (excluding securities gains and losses), consistent with the six months ended June 30, 2019.
Noninterest income is detailed as follows:
SecondFirstSecondSix Months Ended
QuarterQuarterQuarterJune 30,
(In thousands)20202020201920202019
Service charges on deposit accounts$1,939  $2,825  $2,894  $4,764  $5,591  
Interchange income3,187  3,246  3,405  6,433  6,806  
Wealth management income1,719  1,867  1,688  3,586  3,141  
Mortgage banking fees3,559  2,208  1,734  5,767  2,849  
Marine finance fees157  146  201  303  563  
SBA gains181  139  691  320  1,327  
BOLI income887  886  927  1,773  1,842  
Other income2,147  3,352  2,503  5,499  4,769  
 13,776  14,669  14,043  28,445  26,888  
Securities gains (losses), net1,230  19  (466) 1,249  (475) 
Total$15,006  $14,688  $13,577  $29,694  $26,413  
Service charges on deposits were $1.9 million in the second quarter of 2020, a decrease of $0.9 million, or 31%, compared to the first quarter of 2020 and a decrease of $1.0 million, or 33%, compared to the second quarter of 2019. For the six months ended June 30, 2020, service charges on deposits totaled $4.8 million, a decrease of $0.8 million, or 15%, compared to the six months ended June 30, 2019. Higher customer deposit balances in the second quarter of 2020 reflect lower overall consumer spending levels driven by pandemic-related stay-at-home orders, and the impact of government support programs including PPP and individual stimulus payments. Lower NSF and overdraft fees were the result of higher customer deposit balances in the second quarter of 2020. Overdraft fees represent 46% of total service charges on deposits in the second quarter of 2020.
Interchange income totaled $3.2 million for the three months ended June 30, 2020, a decrease of $0.1 million, or 2%, compared to the three months ended March 31, 2020, and a decrease of $0.2 million, or 6%, compared to the three months ended June 30, 2019. For the six months ended June 30, 2020, interchange income totaled $6.4 million, a decrease of $0.4 million, or 5%, compared to the six months ended June 30, 2019. The first half of 2020 was impacted by the COVID-19 pandemic and its effect on consumer consumption, primarily in the second quarter of 2020. Ongoing recessionary conditions could continue to negatively impact interchange income in future periods.
Wealth management income, including trust fees and brokerage commissions and fees, was $1.7 million in the second quarter of 2020, decreasing $0.1 million, or 8%, from the first quarter of 2020 and flat compared to the second quarter of 2019. For the six months ended June 30, 2020, wealth management income totaled $3.6 million, an increase of $0.4 million, or 14%, compared to the six months ended June 30, 2019. The Company continues to focus on growing wealth management and saw a record increase of $125 million in new assets under management during the second quarter of 2020, which the Company expects to benefit revenue in future periods. Assets under management were $707.6 million as of June 30, 2020 compared to $653.0 million as of December 31, 2019.
Mortgage banking fees increased by $1.4 million, or 61%, to $3.6 million in the second quarter of 2020 compared to the first quarter of 2020, and increased $1.8 million, or 105%, compared to the second quarter of 2019. For the six months ended June 30, 2020, mortgage banking fees totaled $5.8 million, an increase of $2.9 million, or 102%, compared to the six months ended June 30, 2019. These increases reflect the continued strong demand in the residential refinance market and strength in the Florida housing market.
42

Marine finance fees were $0.2 million, flat compared to the first quarter of 2020 and to the prior year. For the six months ended June 30, 2020, marine finance fees totaled $0.3 million, a decrease of $0.3 million, or 46%, compared to the six months ended June 30, 2019.
SBA income totaled $0.2 million, slightly higher compared to the first quarter of 2020 and a decrease of $0.5 million, or 74%, compared to the second quarter of 2019. For the six months ended June 30, 2020, SBA income totaled $0.3 million, a decrease of $1.0 million, or 76%, compared to the six months ended June 30, 2019. The decrease in the six month period reflects lower production of saleable SBA loans outside of the PPP program.
Bank owned life insurance ("BOLI") income totaled $0.9 million for the second quarter of 2020, in line with the first quarter of 2020 and prior year results. For the six months ended June 30, 2020, BOLI income totaled $1.8 million, a decrease of $0.1 million, or 4%, compared to the six months ended June 30, 2019.
Other income was $2.1 million in the second quarter of 2020, a decrease of $1.2 million, or 36%, quarter-over-quarter and a decrease of $0.4 million, or 14%, year-over-year. The Company recognized no income from SBIC investments in the second quarter of 2020 compared to $0.9 million in the first quarter of 2020 and $0.3 million in the second quarter of 2019. Additionally, other service charges and fees decreased $0.4 million quarter-over-quarter, the result of fees waived to assist customers in the COVID-19 pandemic. For the six months ended June 30, 2020, other income totaled $5.5 million, an increase of $0.7 million, or 15%, compared to the six months ended June 30, 2019. Increases reflect the impact of $0.9 million in SBIC investments in 2020 compared to $0.5 million in 2019 and loan swap fees totaling $1.3 million for the six months ended June 30, 2020 compared to $0.3 million for the six months ended June 30, 2019, partially offset by lower other fee income in the current period.
Securities gains in the second quarter of 2020 totaled $1.2 million compared to a nominal amount in the first quarter of 2020 and losses of $0.5 million for the second quarter of 2019. Activity in the second quarter of 2020 includes $1.2 million net gains on sales of available-for-sale debt securities compared to net losses of $0.6 million in the second quarter of 2019. Sales activity in the current quarter included the repositioning of investments in collateralized lending obligations ("CLO") securities, replacing "A" rated securities with "AAA" rated securities. Gains also included increases of $0.1 million in both the first quarter of 2020 and second quarter of 2019 in the value of a CRA-qualified mutual fund investment.
Noninterest Expenses
The Company has improved its efficiency ratio over time through continued focus on expense discipline as well as more efficient channel integration, allowing consumers and businesses to choose their path of convenience to satisfy their banking needs. Noninterest expenses in the second quarter of 2020 decreased overall compared to the first quarter of 2020 which was impacted by typical seasonal trends as well as expenses related to the acquisition of FBPB completed in March 2020. Adjusted noninterest expense1 as a percent of average tangible assets was 2.13% for the second quarter of 2020 compared to 2.44% for the first quarter of 2020 and 2.34% for the second quarter of 2019. For the six months ended June 30, 2020, adjusted noninterest expense1 as a percent of average tangible assets was 2.26% compared to 2.43% for the six months ended June 30, 2019. Seacoast has reduced its branch footprint by 20% since 2017 through successful bank acquisitions and the repositioning of the banking center network in strategic growth markets to meet the evolving needs of its customers. At June 30, 2020, deposits per banking center were $133 million, up from $113 million at June 30, 2019.
For the second quarter of 2020, 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 50.11% compared to 59.85% for the first quarter of 2020 and 53.48% for the second quarter of 2019. For the six months ended June 30, 2020, the efficiency ratio was 54.88% compared to 55.01% for the six months ended June 30, 2019. Adjusted noninterest expense1 was $40.7 million for the second quarter of 2020, compared to $41.5 million for the first quarter of 2020 and $38.0 million for the second quarter of 2019. For the six months ended June 30, 2020, adjusted noninterest expense1 was $82.2 million, an increase of $3.0 million, or 4%, compared to the six months ended June 30, 2019. The adjusted efficiency ratio1 year-over-year improved, declining from 51.44% for the second quarter 2019 to 49.81% for the second quarter of 2020. For the six months ended June 30, 2020, the adjusted efficiency ratio1 declined to 51.68% from 53.62% for the six months ended June 30, 2019.
43

SecondFirstSecondSix Months Ended
QuarterQuarterQuarterJune 30,
(In thousands, except ratios)20202020201920202019
Noninterest expense, as reported$42,399  $47,798  $41,000  $90,197  $84,099  
Merger related charges(240) (4,553) —  (4,793) (335) 
Amortization of intangibles(1,483) (1,456) (1,456) (2,939) (2,914) 
Business continuity expenses—  (307) —  (307) —  
Branch reductions and other expense initiatives—  —  (1,517) —  (1,725) 
Adjusted noninterest expense1
$40,676  $41,482  $38,027  $82,158  $79,125  
Foreclosed property expense and net (loss)/gain on sale(245) 315  174  70  214  
Net adjusted noninterest expense1
$40,431  $41,797  $38,201  $82,228  $79,339  
Efficiency ratio50.11 %59.85 %53.48 %54.88 %55.01 %
Adjusted efficiency ratio1,2
49.81  53.61  51.44  51.68  53.62  
Adjusted noninterest expense as a percent of average tangible assets1,2
2.13