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SEA CO AS T B ANKING CORPORA TION OF FL ORI DA
say hello
TO A POSITIVE OUTLOOK
Seacoast Operates
IN SOME OF THE WEALTHIEST MARKETS IN FLORIDA.
Jacksonville
Tampa
Naples
Orlando
Stuart
SEACOAST NATIONAL
BANK HEADQUARTERS
Palm Beach
Miami
Brevard County
Desoto County
Glades County
Hardee County
Hendry County
Highlands County
Indian River County
Martin County
Okeechobee County
Orange County
Palm Beach County
St. Lucie County
Seminole County
AN INFLECTION POINT
AN INFLECTION POINT
____________________________________
____________________________________
There are signs that the business cycle
There are signs that the business cycle
may be at an important infl ection point.
may be at an important infl ection point.
We see opportunities to capture more
We see opportunities to capture more
market share, and we intend to pursue
market share, and we intend to pursue
our growth strategy even more vigorously
our growth strategy even more vigorously
in the coming year.
in the coming year.
SEACOAST BANKING CORPORATION OF FLORIDA | 2011 ANNUAL REPORT
Financial Highlights
(Dollars in thousands, except per share data)
2011
2010
2009
2008
2007
FOR THE YEAR
Net interest income
Provision for loan losses
Noninterest income:
Securities gains (losses)
Other
Noninterest expenses
Income (loss) before income taxes
Provision (benefi t) for income taxes
Net income (loss)
Per Share Data
Net income (loss) available
to common shareholders:
Diluted
Basic
Cash dividends declared
Book value per share common
Dividends to net income
AT YEAR END
Assets
Securities
Net loans
Deposits
Shareholders’ equity
Performance ratios:
Return on average assets
Return on average equity
Net interest margin2
Average equity to average assets
(1) Not meaningful
(2) On a fully taxable equivalent basis
$66,839
1,974
$66,212
31,680
$73,589
124,767
$77,231
88,634
$84,469
12,745
1,220
18,345
77,763
6,667
0
6,667
3,687
18,134
89,556
(33,203)
0
(33,203)
5,399
17,495
130,227
(158,511)
(11,825)
(146,686)
355
20,190
76,839
(67,697)
(22,100)
(45,597)
(5,048)
22,528
75,041
14,163
4,398
9,765
0.03
0.03
0.00
1.29
0.0
%
(0.48)
(0.48)
0.00
1.28
0.0
%
(4.74)
(4.74)
0.01
1.82
n/m1
(2.41)
(2.41)
0.34
8.98
n/m1
0.51
0.52
0.64
11.22
124.8
%
$2,137,375
668,339
1,182,509
1,718,741
170,077
$2,016,381
462,001
1,202,864
1,637,228
166,299
$2,151,315
410,735
1,352,311
1,779,434
151,935
$2,314,436
345,901
1,647,340
1,810,441
216,001
$2,419,874
300,729
1,876,487
1,987,333
214,381
%
0.32
4.03
3.42
8.01
%
(1.60)
(19.3)
3.37
8.27
%
(6.58)
(73.79)
3.55
8.92
%
(1.97)
(22.25)
3.58
8.87
%
0.42
4.46
3.92
9.41
Other noninterest income and noninterest expense includes reclass of merchant expense for 2007-2010 to conform with 2011 presentation.
Entries in blue are manual entries from the earnings press release.
FINANCIAL HIGHLIGHTS
5
Letter
TO SHAREHOLDERS
To our Fellow Shareholders and Friends,
We returned to profi tability in 2011. Our improved
results for the year followed the completion of
our focused plan to reduce aggregate credit risk
in our loan portfolio. While the economic picture
in Florida remains quite fragile, our credit risk has
been reduced to a level that should permit us to
continue to operate profi tably going forward.
Net income for the year totaled $6.7 million
compared to a loss of $33.2 million the prior year,
and net income available to common shareholders
was $2.9 million or $0.03 DEPS compared with a
loss of $ 0.48 DEPS for the prior year. While we
are pleased to report our progress and return to
profi tability – our bottom line performance is still
far from acceptable.
Last year I said we passed an important
turning point in our progress. This included the
accomplishment of our plan to reduce credit risk
to a more acceptable level, which indeed did allow
us to return to profi tability in 2011. I also said we
completed and implemented our Board-driven
strategic plan, which featured strong organic
growth, attractive profi tability and a low risk
posture intended to enhance future shareholder
value. Our execution of the plan continued
during 2011, and we met our internal targets for
performance throughout the year.
Our plan requires us to build upon our valuable
customer franchise with superior levels of service
to achieve strong organic growth. Ultimately,
sustainable shareholder value growth is a
function of consistently increasing our base of
profi table customers and expanding customer
relationships. We do this by identifying and then
meeting our customers’ needs with our distinctive
value proposition.
literally hundreds of ways in which we deliver
on this promise to our customers, and our team
members are developing more every day. We also
designed our value proposition to be increasingly
distinctive as changes impacting our future
customers currently banking with large mega
banks start to accelerate.
Let me give you a few examples of how this
is working:
• We started out the year with nearly 65,000
customer households. During the year, our
team members achieved a record-breaking
17% increase in new customer households
over 2010, and we grew much faster than the
markets in our footprint.
•
Several years ago our market share for
residential mortgage loans produced placed
us in a strong top-fi ve position. Our team
members developed and then delivered better
ways to deliver distinctive person-to-person
interactions. Today we approve our mortgage
loans in an average of three days, and we
close in an average of 11 days. Throughout
2011 we were the number one producer of
home purchase loans in our primary markets.
• We have begun to better align our talent with
our values and strategic goals. We added
nearly 1,400 commercial deposit and loan
relationships as a result of improved alignment
of our talent with opportunities in the markets
we serve. We have begun to identify key
training opportunities for our associates at
all levels to fi ne tune their abilities to deliver
“eye-popping” service and education for
our clients.
We believe our delivery of the Seacoast value
proposition – delivering distinctive person-to-
person interactions with our customers – is
working exceedingly well. We have now developed
I believe we may now be at an important
infl ection point for the business cycle here in
Florida. The deep recession and crash in real
SEACOAST BANKING CORPORATION OF FLORIDA | 2011 ANNUAL REPORT
estate values that followed the national credit
crisis of a few years ago has had time to fully
reveal weaknesses that existed in businesses
and the lives of consumers. Our competitive
environment was further transformed in 2011
with additional bank failures throughout our
markets. Our large mega-bank competitors are
being forced to rethink business models they have
operated for decades. They are changing the way
they operate, and the negative impact on their
customers is starting to accelerate.
Given our growing success in executing our
strategy, the opportunities we see to capture
more market share and signs that the business
cycle may be at an important infl ection point, we
intend to pursue our growth strategy even more
vigorously in the coming year. We began to add
new lending production team members in some
of our markets in the second half of 2011 and as
a result have begun to accelerate our growth in
new business loan and deposit households. Our
plan provides for further acceleration in 2012
as we expand our recruiting efforts into other
markets. Just about all of the costs associated with
these activities have been provided by offsetting
reductions in our core operating overhead without
sacrifi cing the quality of our operations. Below are
some highlights for the year by line of business.
BUSINESS BANKING
___________________________________________
Business Banking for small and medium sized
organizations continues to present an attractive
opportunity for Seacoast. Professionals such
as physicians, accountants and attorneys are
excellent prospects for deposit and loan products
as well as centers of infl uence that help refer new
clients to the bank. We are also actively pursuing
homeowners’ associations, non-profi ts and public
entities. As part of our relationship-based value
proposition, we offer a variety of seminars to
these organizations.
We enhanced our credit products in late 2010
and began hiring additional commercial lenders
in key growth markets throughout our footprint.
Leads are provided to retail branches as well as
lenders, and compensation programs for retail
branch managers and lenders have been
modifi ed to encourage a holistic approach
to business development.
Processes have been reviewed in all lending areas
to reduce duplication of efforts and streamline the
lending process from start to fi nish. This allows
loan offi cers to allocate more time to developing
and expanding their relationships and less time to
administrative activities.
In addition to soliciting traditional loans and
lines of credit, we are also focused on improving
our production of owner-occupied commercial
real estate loans along with related deposit and
treasury services. We developed good momentum
going into 2012 and continue to attract new
customer relationships from our competitors by
leveraging our value proposition.
PERSONAL BANKING
___________________________________________
In 2011 Seacoast continued to experience strong
growth in our retail franchise by leveraging market
disruption opportunities throughout our footprint.
Tactical execution of our retail strategy yielded
nearly 8,000 new core deposit households. In
particular, the bank realized signifi cant results
in the attraction of new business checking
relationships, which were up an astounding 27%
when compared to 2010.
The competitive landscape continued to provide
opportunities as service disruption prevailed with
many of Seacoast’s mega-bank competitors. The
service challenges faced by these competitors
yielded many new relationships for Seacoast for
those who seek a distinctive person-to-person
banking experience.
LETTER TO SHAREHOLDERS
7
We continued our focus on the bank’s core
value proposition as delivered through the “Four
Promises” made to each customer. These promises
speak to what makes us distinctive by introducing
customers to the right products and team to
support them, making banking easy, being
responsive to out of the ordinary requests, and
investing in our customers and communities we
serve. This year, Seacoast augmented the customer
experience born out of the promises by formalizing
a core panel of associates devoted to ensuring that
our customers enjoy a banking relationship that is
approached from their vantage point.
The bank’s onboarding initiatives, our process
of regularly communicating with customers to
expand relationships and improve retention,
continued to yield increased services per
household, improved market share, increased
balances per household and lower-than-industry-
benchmark attrition rates.
In the coming year, we will continue focusing
on low-cost core deposit growth, refi ning
services and processes to enhance the customer
experience, and a renewed focus on providing
relationship-oriented business solutions delivered
through our retail branch channel.
RESIDENTIAL MORTGAGE LENDING
___________________________________________
New foreclosures in the Treasure Coast peaked
during 2010, and we expect a slow but steady
decline over the next few years. Ongoing
foreclosures and short sales will continue to restrain
home prices and compete with new construction.
With primary home prices stabilizing at levels
generally consistent with our market’s long term
income levels, we expect a modest increase in
home values to begin to emerge later in 2012
as the local economy improves.
SEACOAST BANKING CORPORATION OF FLORIDA | 2011 ANNUAL REPORT
Second home sales have also shown signs
of improvement and appear to be driven
partly by investors seeking a long-term cash
investment alternative.
Seacoast never engaged in subprime lending,
payment option adjustable rate mortgages and
other exotic mortgage types that dominate
foreclosure activity today and plague so many
fi nancial institutions across the country. Our
disciplined approach of not following the herd
temporarily cost us market share, but the strategy
proved to be correct in the longer term. As a
result, our residential portfolio has performed
quite well. At year end our mortgage delinquencies
were 2.21%, well below the national average of
8.47% and the Florida average of 17.60%.
Over the past several years our Mortgage
Lending Division has been enhanced with
additional lending staff, improved technology
and streamlined processes. During 2010,
we rounded out our suite of residential products
by adding FHA-insured and VA-guaranteed
products. During the same year we gained
signifi cant market share and became the #1
residential home purchase mortgage lender in
the Treasure Coast. We maintained this position
in 2011. Seacoast National Bank remains one of
the few fi nancial institutions with local decision
making and management.
Residential mortgage volume remained strong in
2011 with $191 million in closed loans compared
to $153 million in 2010. Loan quality remains
high, and production is expected to continue to
increase during 2012.
SEACOAST WEALTH MANAGEMENT
___________________________________________
Trust and Investment Services provides professional
asset management for our clients. Our targeted
focus is on clients with investable assets of
$500,000 to $3 million.
This makes us a niche player as other wealth
management competitors focus on much larger
relationships, leaving a void for those who are
building their wealth and seeking to preserve
it. 2011 represented a transitional year for the
division with a renewed focus on this important
business line.
In March, Seacoast successfully transitioned
its brokerage operations to INVEST Financial
Corporation to capitalize on technical, marketing,
sales and operational effi ciencies.
Additionally, the Wealth Management Division
implemented initiatives that are aligned with
our successful retail strategy. These included
enhanced marketing, branding, reporting, and
sales and service tactics. This increased our
wealth opportunities throughout the footprint
and allowed us to focus on expanding key
relationships. Seacoast Wealth Management is
well positioned to capitalize on the underserved
segments in its markets by delivering these
solutions through our service-rich environment.
LOOKING FORWARD
___________________________________________
Our primary focus for 2012-13 is to produce
improvements in the overall growth of our balance
sheet by expanding our market share for both
loans and deposits. This follows results for 2011,
which produced some of the best growth we have
seen in some time. We will accelerate our progress
by continuing to execute our strategic plan with
hundreds of unique tactics that prove Seacoast’s
Value Proposition – creating distinctive person-to-
person interactions with our customers.
Our strong customer franchise grew stronger in
2011 as we gained market share and increased
our growth in new households and total revenues.
Our team members intend to work hard in 2012
to further improve our growth as we also improve
our bottom line performance.
We also added a new team member to our board
of directors in early 2012. Roger O. Goldman
joined the Seacoast Board on February 21, 2012.
Since 2005, Mr. Goldman has been a director
of American Express Bank FSB, a wholly owned
subsidiary of American Express Company, where
he is chairman of their Audit and Risk Committee.
Mr. Goldman is also the managing partner of
Berkshire Opportunity Fund, which he founded in
2008 to provide fi nancing and mentoring for small
businesses in the Northeast. His extensive banking
experience includes management positions at
Citicorp, service as president and Chief Executive
Offi cer (CEO) of a community bank in California,
and Executive Vice President (EVP) in charge
of the community banking group of NatWest
Bancorp (with $31 billion in assets) where he
was responsible for consumer and small business
banking. As our newest board team member we
welcome Roger and look forward to his advice and
counsel. His background, experience and passion
for service make him uniquely qualifi ed to help us
accelerate our performance.
We look forward to 2012 and beyond as we leave
behind a very diffi cult period. The monumental
effort to navigate the last few years would not
have been possible if not for the dedicated effort
of each of our associates. I am proud to be part of
this team and thank all of them for their support
and dedication to the bank and to our customers.
Sincerely,
Dennis S. Hudson, III
Chairman and Chief Executive Offi cer
LETTER TO SHAREHOLDERS
9
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FINANCIAL SECTION
CONTENTS
Management’s Discussion & Analysis of Financial Condition and results of Operations . . . . . . . . . . . . . . . .
Financial Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audited Consolidated Financial Statements
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
48
63
65
13
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The purpose of this discussion and analysis is to aid in understanding significant changes in the financial
condition of Seacoast Banking Corporation of Florida and its subsidiaries (the “Company”) and their results of
operations during 2011, 2010 and 2009. Nearly all of the Company’s operations are contained in its banking
subsidiary, Seacoast National Bank (“Seacoast National” or the “Bank”). This discussion and analysis is
intended to highlight and supplement information presented elsewhere in the annual report on Form 10-K,
particularly the consolidated financial statements and related notes appearing in Item 8. For purposes of the
following discussion, the words the “Company,” “we,” “us,” and “our” refer to the combined entities of
Seacoast Banking Corporation of Florida and its direct and indirect wholly owned subsidiaries.
Overview
Recent years have been difficult for the U.S. economy and for the financial services industry. The
Company’s earnings have been negatively impacted by higher credit costs, primarily the result of loan portfolio
pressure stemming from ongoing deterioration in real estate values, as well as increasing unemployment and
other factors. Located in Florida, our markets have experienced property value declines, which began in late 2007
and continued through 2011. While the Company did not have material exposure to many of the issues that
originally plagued the industry (e.g., sub-prime loans, structured investment vehicles and collateralized debt
obligations), the Company’s exposure to construction and land development and the residential housing sector
pressured its loan portfolio, resulting in increased credit costs and foreclosed asset expenses. As the economic
downturn continued, consumer confidence and weak economic conditions began to impact areas of the economy
outside of the housing sector and restrained new loan demand from credit worthy borrowers. Throughout this
difficult operating environment, the Company has been proactively positioning its business for growth by
aggressively focusing on improving credit quality, de-risking the overall loan portfolio, disposing of problem
assets, and focusing on growing core deposits.
During the year ended December 31, 2011, we made good progress pursuing our strategic plan, even though
there were significant headwinds from the operating and interest rate environment. We began to see positive
results in our effort to return to profitability. Specifically, revenue grew and net interest income increased, as a
result of increased loan production and deposit growth. Noninterest income also increased, as a result of growth
in key activities such as mortgage banking gains, and fees earned from increased households and business deposit
relationships and from wealth management services. These successes were a direct result of implementing the
strategic plan adopted by our board of directors two years ago and refined further in 2011. In 2011, improved
tactical execution and our improved condition supported better growth for both consumer household and
commercial relationships.
Over the last two years, the company has improved the risk profile of its balance sheet by increasing capital,
maintaining appropriate reserves, and reducing the concentrations of higher risk commercial real estate loans.
The same disciplined approach we used to bring down credit risk on our balance sheet in order to restore earnings
is now supporting the execution of our growth plan. We believe our targeted plan to grow our customer franchise
is the best way to build shareholder value going forward.
As a result of these efforts, the Company reported net income of $358,000, $1,113,000, $2,648,000 and
$2,548,000 for the first, second, third and fourth quarters of 2011, resulting in an aggregate net income of
$6,667,000 for 2011, and its first profits since the first quarter of 2008. Net income available to common
shareholders (after preferred dividends and accretion of preferred stock discount) for 2011 totaled $2.9 million or
$0.03 per average common diluted share, a significant improvement when compared to a net loss available to
common shareholders of $37.0 million or $0.48 per average share diluted for 2010. The improved performance
for 2011 reflects lower credit costs (including lower provisioning for loan losses and releases from our allowance
for loan losses), and our determination in tackling risk exposures over the past couple of years while planning for
growth prospectively.
14
The Company’s capital is expected to continue to increase with earnings. The board and management
continue to review the Company’s potential capital management options and currently believe that the
Company’s overall level of capital is sufficient given the current economic environment. As earnings continue to
increase and asset quality improves, we believe that more financing options will emerge for the Company when
dividends can be prudently paid to the Company by the Bank. However, the Company has no immediate plans to
repay the Treasury’s Troubled Asset Relief Program (“TARP”) Capital Purchase Program (“CPP”) investment of
$50 million outstanding at December 31, 2011. At this time, we view this capital as an important component of
our capital structure.
Dissolution of the Bank’s Subsidiary, FNB Brokerage Services, Inc. (“FNB Brokerage”)
In early 2011, we established a contractual relationship with Invest Financial Corporation (“Invest
Financial”), whereby brokerage activities for our customers would no longer be conducted through a separate
Bank subsidiary. As of March 18, 2011, our brokers became dual employees of the Bank and Invest Financial.
The benefit has been lower operating costs for the Bank without disrupting our wealth management business
because our customers continue to be serviced by bankers they are familiar with. As a result, the transition has
truly been transparent to our clients. On December 31, 2011, FNB Brokerage (the Bank’s full service brokerage
subsidiary) was dissolved.
Our Business
The Company is a single-bank holding company with operations on Florida’s southeast coast (ranging from
Palm Beach County in the south to Brevard County in the north) as well as Florida’s interior around Lake
Okeechobee and up through Orlando. The Company has 39 full service offices. The Company, through Seacoast
National, provides a broad range of community banking services to commercial, small business and retail
customers, offering a variety of transaction and savings deposit products, treasury management services,
investment brokerage services, secured and unsecured loan products, including revolving credit facilities, letters
of credit and similar financial guarantees. Seacoast National also provides trust and investment management
services to retirement plans, corporations and individuals.
The coastal markets in which the Company operates have had population growth rates of over 20 percent
and while the recession has adversely affected these markets, we expect these markets will prove resilient
because these areas are attractive markets in which to live. Prospectively, the Company may consider strategic
acquisitions as part of the Company’s overall future growth plans in complementary and attractive markets
within the State of Florida.
Strategic Review
The Company operates both a full retail banking strategy in its core markets, which are some of Florida’s
wealthiest, as well as a complete commercial banking strategy. The Company’s core markets are comprised of
Martin, St. Lucie and Indian River counties located on Florida’s southeast coast and Okeechobee County which
is contiguous to these coastal counties. Our core markets contain 25 of our 39 retail locations, including four
private banking centers. Because of the branch coverage in these markets, the Company has a significant
presence providing convenience to customers, and resulting in a larger deposit market share. The Company’s
deposit mix is favorable with 69 percent of average deposit balances comprised of NOW, savings, money market
and noninterest bearing transaction customer accounts. The cost of deposits averaged 0.65 percent for 2011
(compared to 0.90 percent for 2010 and 1.39 percent for 2009), which the Company believes ranks among the
lowest when compared to other banks operating in the Company’s market. The Company has improved its
acquisition, retention and mix of deposits and has benefited from lower rates paid for interest bearing liabilities
due to the Federal Reserve’s reduction in interest rates. This has resulted in lower funding costs and improved
profitability. As part of the Company’s complete retail product and service offerings, customers are provided
wealth management services through our trust wealth management division and brokerage services through our
relationship with Invest Financial.
15
The Company’s net interest margin increased 5 basis points to 3.42 percent during 2011 from 2010, after
declining from 3.55 percent in 2009 to 3.37 percent for 2010. During 2011, a further decline in loans of 2.6
percent, and lower loan and investment security yields were largely offset by improved loan quality, a larger
investment securities portfolio and reduced deposit costs. Loans as a percentage of average earning assets
declined and securities increased during 2011 year over year, contributing to the yield on average earning assets
for 2011 declining 16 basis points from 2010. However, both commercial and residential loan production
improved as 2011 progressed. In 2011, the Company had commercial/commercial real estate loan production of
$63 million, compared to more limited production of $10 million and $14 million, respectively, for 2010 and
2009. Lower loan production for 2010 and 2009 was reflective of the unprecedented housing and commercial
real estate market decline and recessionary environment generally, as well as the Company’s efforts to reduce its
concentration in commercial real estate and construction and land development loans, which began in 2007. In
addition, the Company closed $191 million in residential loans during 2011, an improvement over 2010’s result
of $152 million, as well as 2009’s result of $145 million. Stabilizing home values and lower interest rates have
improved the Company’s residential loan production in each of the past three years. Improved loan production is
expected to continue, and will be accomplished by increasing market share as growth returns and Florida’s
economy improves.
Seacoast National entered into a formal agreement with the Office of the Comptroller of the Currency (the
“OCC”) on December 16, 2008 to improve its asset quality. Under the formal agreement, Seacoast National’s
board of directors appointed a compliance committee to monitor and coordinate Seacoast National’s performance
under the formal agreement. The formal agreement provides for the development and implementation of written
programs to reduce Seacoast National’s credit risk, monitor and reduce the level of criticized assets, and manage
commercial real estate loan (“CRE”) concentrations in light of current adverse CRE market conditions. The
Company believes it has complied with this formal agreement.
While loan production improved in 2011, the Company continued to see decreases in commercial real estate
construction and land development loans. As of December 31, 2011 and 2010, our commercial real estate, or
“CRE”, loans were $530.9 million and $591.4 million, respectively, down 10.2 percent and 16.6 percent from the
respective prior years in accordance with management’s plans to reduce concentrations. Under regulatory
guidelines for commercial real estate concentrations, Seacoast National’s total commercial real estate loans
outstanding at December 31, 2011 (as defined in the guideline) represented 174 percent of risk-based capital,
which is below the regulatory threshold for extra scrutiny. Our construction and land development loans were
$49.2 million at December 31, 2011, down $30.1 million from $79.3 million at December 31, 2010, which was
down $83.6 million from $162.9 million at December 31, 2009. The size of our average commercial construction
and land development loans has also decreased over the three year period from $939,000 in 2009 to $735,000 in
2010 to $418,000 in 2011.
The Board of Governors of the Federal Reserve System (the “Federal Reserve”) has made a historic effort
over the past four years to rejuvenate the economy and limit the effect of the recession by lowering interest rates
to 0 to 25 basis points and expanding various liquidity programs. Recently, the Federal Reserve reaffirmed its
forecast for a moderate economic recovery through 2013. As a result of the slow economic recovery, the Federal
Reserve has reaffirmed that it will maintain key interest rates at record lows for an extended period of time
through 2014. These low rates impact our net interest margin. For fourth quarter 2011, our net interest margin
was successfully managed to 3.42 percent, identical to last year’s fourth quarter margin. Prospectively, our focus
will be on continuing to improve our deposit mix and adding to our loan balances to offset compressed interest
rate spreads expected over the next year.
Our local economy in Florida appears to be in the early stages of a recovery. The real estate market is
becoming stronger as pricing continues to firm and sales volumes continue to increase. Many seasonal businesses
are now reporting improving trends, and while unemployment is high it is starting to improve. We have now
been in this economic cycle long enough to fully reveal its real impacts. The recession and banking crisis
significantly impacted community banks in Florida and our primary competition now are the mega-banks, and
there are fewer of them to compete with today. Many of these large institutions are struggling with higher capital
16
requirements and new restrictions and regulations that are requiring difficult choices regarding the business
models that they have operated under for years. All of this has negatively impacted the customers of our mega-
bank competitors. We believe we may be entering a period of opportunity to achieve meaningful market share
gains from our mega-bank competition.
Loan Growth and Lending Policies
In recent years, as the economic environment in Florida weakened, the Company increased its focus and
monitoring of its exposure to residential land, acquisition and development loans. These activities resulted in
greater loan pay-downs, guarantor performance, and the obtaining of additional collateral. The Company also
utilized loan sales to better control the level of these assets and other commercial real estate loans, with $28
million in loan sales during 2011 and 2010, and $89 million in loan sales during 2009. Overall, the Company
reduced its exposure to residential land, acquisition and development loans from its peak of $352 million or 20.2
percent of total loans in early 2007 to $11 million or 0.9 percent at December 31, 2011.
For 2011, 2010 and 2009, balances in the loan portfolio declined 2.6 percent, 11.2 percent and 16.7 percent,
respectively, reflecting the recessionary climate, significantly lower loan demand and loan sales. During 2011,
negative loan growth slowed in the first and second quarter and loans increased 1.6 percent in the third quarter
and remained level in the fourth quarter, as increased production occurred in residential and commercial lending
compared to prior quarters. We expect the loan growth trend will build momentum into 2012, particularly if the
local economy continues to show signs of improvement. The Company expects loan growth opportunities for all
types of lending to improve as the economy recovers, including commercial lending to targeted customer
segments, and 1-4 family agency conforming residential mortgages. During the past year, we began to expand
our business banking teams and are looking for new team members for our production teams in Orlando and
Palm Beach. Achieving revenue producing growth objectives for 2012, together with continued reductions in
credit costs and reduced problem loan credit expenses, provides us with a potential to make meaningful
improvements in our bottom line results as 2012 unfolds.
Deposit Growth, Mix and Costs
The Company’s focus on high quality customer service and convenient branch locations supports its
strategy to provide stable, low cost deposit funding growth over the long term. Over the past four years, the
Company has strengthened its retail deposit franchise using new strategies and product offerings, while
maintaining its focus on building customer relationships. In 2011, Seacoast National added 7,897 new core
deposit households, up 1,408 or 21.6 percent from the prior year. Retail household growth for 2011 improved as
a result of the Company’s retail deposit program and enhanced efforts to attract new commercial deposit
accounts. Our household growth also helped us maintain a stable net interest margin throughout the year.
Interest rates decreased dramatically during 2008 and 2009 as the economic climate worsened and the
Federal Reserve implemented interest rate reduction strategies. As a result, the Company has proactively worked
to improve its deposit funding mix. During 2011 and 2010, average low cost NOW, savings and money market
deposits and no cost demand deposits increased 3.0 percent and 4.9 percent on an aggregate basis, respectively,
year over year. Also, certificates of deposit (CDs) declined $67.0 million and $137.4 million during 2011 and
2010, respectively, in part due to a decline of $2.5 million and $31.6 million in higher cost brokered CDs over
each period compared. The Company believes that its overall deposit mix remains favorable and its average cost
of deposits, including noninterest bearing demand deposits, remains low. The average cost of deposits for the
Company continued to trend lower in 2011. In 2011, the cost of deposits was 0.65 percent, decreasing 25 basis
points from 0.90 percent for the prior year and 74 basis points from 1.39 percent in 2009. During 2011 and 2010,
noninterest bearing demand deposits increased 13.4 percent and 7.8 percent, respectively.
During 2011, total deposits increased $82 million, or 5.0 percent and sweep repurchase agreements
increased $38 million, or 38.7 percent, versus 2010. In comparison, total deposits declined $142 million or 8.0
percent and sweep repurchase agreements decreased $7 million or 7.1 percent during 2010, compared to 2009.
17
Declines in brokered CDs and single service deposit customers were the primary cause of the overall decline in
deposits during 2010 and most of the decline in sweep repurchase agreements during 2010 was in public funds,
principally from lower tax collector receipts. While declines in CDs continued in 2011, growth in core deposit
relationships more than offset such decline. As reported throughout 2011 and 2010, the Company has been
executing a retail strategy and has experienced strong growth in core deposit relationships when compared to
prior results. In the fourth quarter of 2011, new household deposit relationships were particularly strong, with
new personal checking retail relationships opened during the quarter rising 20.2 percent from the same quarter a
year ago and 27.3 percent from the third quarter of 2011. Likewise, new commercial business checking deposit
relationships increased by 11.8 percent compared with the same quarter one year ago. New personal checking
relationships have also increased as a result of our programs, with improved market share, increased average
services per household and decreased customer attrition.
Critical Accounting Policies and Estimates
The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted
accounting principles, (“GAAP”), including prevailing practices within the financial services industry. The
preparation of consolidated financial statements requires management to make judgments in the application of
certain of its accounting policies that involve significant estimates and assumptions. These estimates and
assumptions, which may materially affect the reported amounts of certain assets, liabilities, revenues and
expenses, are based on information available as of the date of the financial statements, and changes in this
information over time and the use of revised estimates and assumptions could materially affect amounts reported
in subsequent financial statements. Management, after consultation with the Company’s Audit Committee,
believes the most critical accounting estimates and assumptions that involve the most difficult, subjective and
complex assessments are:
•
•
•
•
the allowance and the provision for loan losses;
the fair value and other than temporary impairment of securities;
realization of deferred tax assets; and
contingent liabilities.
The following is a discussion of the critical accounting policies intended to facilitate a reader’s
understanding of the judgments, estimates and assumptions underlying these accounting policies and the possible
or likely events or uncertainties known to us that could have a material effect on our reported financial
information. For more information regarding management’s judgments relating to significant accounting policies
and recent accounting pronouncements (see “Note A-Significant Accounting Policies” to the Company’s
consolidated financial statements).
Allowance and Provision for Loan Losses
Management determines the provision for loan losses charged to operations by continually analyzing and
monitoring delinquencies, nonperforming loans and the level of outstanding balances for each loan category, as
well as the amount of net charge-offs, and by estimating losses inherent in its portfolio. While the Company’s
policies and procedures used to estimate the provision for loan losses charged to operations are considered
adequate by management, factors beyond the control of the Company, such as general economic conditions, both
locally and nationally, make management’s judgment as to the adequacy of the provision and allowance for loan
losses necessarily approximate and imprecise (see “Nonperforming Assets”).
The provision for loan losses is the result of a detailed analysis estimating an appropriate and adequate
allowance for loan losses. The analysis includes the evaluation of impaired loans as prescribed under FASB
Accounting Standards Codification (“ASC”) 310, Receivables as well as, an analysis of homogeneous loan pools
not individually evaluated as prescribed under ASC 450, Contingencies. For 2011 we recorded a lower provision
for loan losses of $2.0 million, which represented a substantial improvement over provisioning in 2010 of $31.7
million. The net charge-offs for 2011 totaled $14.2 million or 1.16 percent of average total loans for the year,
significantly lower than net charge-offs for 2010 which totaled $39.1 million or 2.95 percent of average total
loans. Delinquency trends show continued stability (see “Nonperforming Assets”).
18
Table 12 provides certain information concerning the Company’s allowance and provisioning for loan losses
for the years indicated.
Net charge-offs during 2010 were higher due to higher losses in the commercial construction and land
development portfolio secured by residential land. The higher charge-offs reflected declining real estate values
and the Company reducing its commercial real estate (“CRE”) loan concentrations by selling $27.6 million of
loans which accounted for $11.1 million of total net charge-offs during 2010. Sales of loans in 2011 had a more
limited impact on net charge-offs. The Company’s residential construction and land development loans have
been reduced to $11.3 million or 0.9 percent of total loans at December 31, 2011 (see “Loan Portfolio”). Total
commercial real estate (“CRE”) loans declined 10.2 percent from $591.4 million at December 31, 2010 to $530.9
million at December 31, 2011.
The Company has reduced its exposure to large residential construction and land development loans, as
evidenced by no outstanding balance for loans in this portfolio with balances of $4 million or more at
December 31, 2010 and 2011. At December 31, 2011, of the remaining $11.3 million in residential construction
and land development loans with balances of less than $4 million, $1.1 million or 10 percent are classified as
nonperforming. The Company believes the reduced concentration reduces overall risk in its loan portfolio.
The Company’s other loan portfolios related to residential real estate are amortizing 1-4 family mortgage
loans. The Company has never offered sub-prime, Alt A, Option ARM or any negative amortizing residential
loans, programs or products, although it has originated and holds residential mortgage loans from borrowers with
original or current FICO credit scores that are currently less than “prime” FICO credit scores. Substantially all
residential originations have been underwritten to conventional loan agency standards, including loans having
balances that exceed agency value limitations.
The Company selectively adds residential mortgage loans to its portfolio, primarily loans with adjustable
rates. Home equity loans (amortizing loans for home improvements with maturities of 10 to 15 years) totaled
$60.3 million and home equity lines totaled $54.9 million at December 31, 2011, compared to $73.4 million and
$57.7 million at December 31, 2010. Each borrower’s credit was documented as part of the Company’s
underwriting of home equity lines. The Company does not promote home equity lines greater than 80 percent of
value or use credit scoring solely as the underwriting criteria. Therefore, this portfolio of loans, primarily to
customers with other relationships to Seacoast National, has performed better than portfolios of our peers. Net
charge-offs for the twelve months ended 2011 totaled $683,000 for home equity lines, compared to $1,694,000
for 2010, and home equity lines past due 90 days or more and nonaccrual lines (aggregated) were $449,000 at
December 31, 2011 and $1,738,000 at December 31, 2010.
Since year-end 2010, nonaccrual loans declined by $39.8 million to $28.5 million at December 31, 2011
(see “Nonperforming Assets”). Loans have declined $32.5 million or 2.6 percent since year-end 2010 (see “Loan
Portfolio”).
Congress and bank regulators have encouraged recipients of Troubled Asset Relief Program (“TARP”)
capital to use such capital to make more loans. In that respect, the Company has successfully increased its
residential mortgage production in 2011 and 2010. A total of 1,310 applications were taken during 2011 with an
aggregate value of $312 million with $191 million in loans closed, and 1,168 applications were taken in 2010
with an aggregate value of $244 million with $152 million in loans closed. Existing home sales and home
mortgage loan refinancing activity in the Company’s markets have increased, however demand for new home
construction is expected to remain soft.
19
Management continuously monitors the quality of the loan portfolio and maintains an allowance for loan
losses it believes sufficient to absorb probable losses inherent in the loan portfolio. The allowance for loan losses
declined to a total of $25,565,000 or 2.12 percent of total loans at December 31, 2011. This amount represents
$12,179,000 less than at December 31, 2010. The allowance for loan losses totaled $37,744,000 or 3.04 percent
of total loans at December 31, 2010, $7,448,000 less than at December 31, 2009. The allowance for loan losses
framework has two basic elements: specific allowances for loans individually evaluated for impairment, and a
formula-based component for pools of homogeneous loans within the portfolio that have similar risk
characteristics, which are not individually evaluated.
The first element of the ALLL analysis involves the estimation of allowance specific to individually
evaluated impaired loans, including accruing and nonaccruing restructured commercial and consumer loans. In
this process, a specific allowance is established for impaired loans based on an analysis of the most probable
sources of repayment, including discounted cash flows, liquidation of collateral, or the market value of the loan
itself. It is the Company’s policy to charge off any portion of the loan deemed a loss. Restructured consumer
loans are also evaluated in this element of the estimate. As of December 31, 2011, the specific allowance related
to impaired loans individually evaluated totaled $7.0 million, compared to $14.4 million as of December 31,
2010.
The second element of the ALLL, the general allowance for homogeneous loan pools not individually
evaluated, is determined by applying allowance factors to pools of loans within the portfolio that have similar
risk characteristics. The general allowance factors are determined using a baseline factor that is developed from
an analysis of historical net charge-off experience and qualitative factors designed and intended to measure
expected losses. These baseline factors are developed and applied to the various loan pools. Adjustments may be
made to baseline reserves for some of the loan pools based on an assessment of internal and external influences
on credit quality not fully reflected in the historical loss. These influences may include elements such as changes
in concentration risk, macroeconomic conditions, and/or recent observable asset quality trends.
In addition, our analyses of the adequacy of the allowance for loan losses also takes into account qualitative
factors such as credit quality, loan concentrations, internal controls, audit results, staff turnover, local market
conditions and loan growth.
The Company’s independent Credit Administration Department assigns all loss factors to the individual
internal risk ratings based on an estimate of the risk using a variety of tools and information. Its estimate includes
consideration of the level of unemployment which is incorporated into the overall allowance. In addition, the
portfolio is segregated into a graded loan portfolio, residential, installment, home equity, and unsecured signature
lines, and loss factors are calculated for each portfolio. The loss factors assigned to the graded loan portfolio are
based on historical migration of actual losses by grade and a range of losses over various periods. Loss factors for
the other portfolios are based on historical losses over the prior 12 months and prospective factors that consider
loan type, delinquencies, loan to value, purpose of the loan, and type of collateral.
Our charge-off policy meets or exceeds regulatory minimums. Losses on unsecured consumer loans are
recognized at 90 days past due compared to the regulatory loss criteria of 120 days. Secured consumer loans,
including residential real estate, are typically charged-off or charged down between 120 and 180 days past due,
depending on the collateral type, in compliance with Federal Financial Institution Examination Council
guidelines. Commercial loans and real estate loans are typically placed on nonaccrual status when principal or
interest is past due for 90 days or more, unless the loan is both secured by collateral having realizable value
sufficient to discharge the debt in-full and the loan is in the legal process of collection. Secured loans may be
charged-down to the estimated value of the collateral with previously accrued unpaid interest reversed.
Subsequent charge-offs may be required as a result of changes in the market value of collateral or other
repayment prospects. Initial charge-off amounts are based on valuation estimates derived from appraisals, broker
price opinions, or other market information. Generally, new appraisals are not received until the foreclosure
process is completed; however, collateral values are evaluated periodically based on market information and
incremental charge-offs are recorded if it is determined that collateral values have declined from their initial
estimates.
20
Management continually evaluates the allowance for loan losses methodology seeking to refine and enhance
this process as appropriate, and it is likely that the methodology will continue to evolve over time.
In general, collateral values for residential real estate have declined since 2006, with values being more
stable over the last 24 months to 36 months. Loans originated from 2005 through 2007 have seen property values
decline approximately 50 percent from their original appraised values, more than the decline on loans originated
in other years. Declining residential collateral value has affected our actual loan losses over the last three years,
but values appear to be stabilizing. Residential loans that become 90 days past due are placed on nonaccrual. A
specific allowance is made for any loan that becomes 120 days past due. Residential loans are subsequently
written down if they become 180 days past due and such write-downs are supported by a current appraisal,
consistent with current banking regulations.
Our Loan Review unit is independent, and performs loan reviews and evaluates a representative sample of
credit extensions after the fact for appropriate individual internal risk ratings. Loan Review has the authority to
change internal risk ratings and is responsible for assessing the adequacy of credit underwriting. This unit reports
directly to the Directors’ Loan Committee of Seacoast National’s board of directors.
Table 13 summarizes the Company’s allocation of the allowance for loan losses to real estate loans,
commercial and financial loans, and installment loans to individuals, and information regarding the composition
of the loan portfolio at the dates indicated.
Net charge-offs for the year ended December 31, 2011 totaled $14,153,000, compared to net charges-offs of
$39,128,000 and $108,963,000 for the years ended December 31, 2010 and 2009, respectively (See “Table
12 –Summary of Loan Loss Experience” for detail on net charge-offs for the last five years). Some of the
increase in charge-offs during 2010 was related to loan sales to reduce risk in the loan portfolio. Note F to the
financial statements (titled “Impaired Loans and Allowance for Loan Losses) summarizes the Company’s
allocation of the allowance for loan losses to construction and land development loans, commercial and
residential estate loans, commercial and financial loans, and consumer loans, and provides more specific detail
regarding charge-offs and recoveries for each loan component and the composition of the loan portfolio at
December 31, 2011. Although there is no assurance that we will not have elevated charge-offs in the future, we
believe that we have significantly reduced the risks in our loan portfolio and that with stabilizing market
conditions, future charge-offs should decline.
The allowance as a percentage of loans outstanding was 2.12 percent at December 31, 2011, compared to
3.04 percent at December 31, 2010. The allowance for loan losses represents management’s estimate of an
amount adequate in relation to the risk of losses inherent in the loan portfolio. Prospectively, we anticipate that
the allowance will continue to decline as a percentage of loans outstanding as we continue to see improvement in
our credit quality, with some offset to this perspective for more normal loan growth as business activity and the
economy improve.
Concentrations of credit risk, discussed under the caption “Loan Portfolio” of this discussion and analysis,
can affect the level of the allowance and may involve loans to one borrower, an affiliated group of borrowers,
borrowers engaged in or dependent upon the same industry, or a group of borrowers whose loans are predicated
on the same type of collateral. The Company’s most significant concentration of credit is a portfolio of loans
secured by real estate. At December 31, 2011, the Company had $1.104 billion in loans secured by real estate,
representing 91.4 percent of total loans, down slightly from $1.140 billion, representing 91.9 percent at
December 31, 2010. In addition, the Company is subject to a geographic concentration of credit because it only
operates in central and southeastern Florida. The Company’s exposure to construction and land development
credits is secured by project assets and personal guarantees and totaled $49.2 million at December 31, 2011 down
from $79.3 million at December 31, 2010. The Company considers exposure to this industry group, together with
an assessment of current trends and expected future financial performance in our evaluation of the adequacy of
the allowance for loan losses. The significant decline in this concentration is one factor which supports the lower
overall allowance for loan losses at December 31, 2011 compared to December 31, 2010.
21
While it is the Company’s policy to charge off in the current period loans in which a loss is considered
probable, there are additional risks of future losses that cannot be quantified precisely or attributed to particular
loans or classes of loans. Because these risks include the state of the economy, borrower payment behaviors and
local market conditions as well as conditions affecting individual borrowers, management’s judgment of the
allowance is necessarily approximate and imprecise. The allowance is also subject to regulatory examinations
and determinations as to adequacy, which may take into account such factors as the methodology used to
calculate the allowance for loan losses and the size of the allowance for loan losses in comparison to a group of
peer companies identified by the regulatory agencies.
In assessing the adequacy of the allowance, management relies predominantly on its ongoing review of the
loan portfolio, which is undertaken both to ascertain whether there are probable losses that must be charged off
and to assess the risk characteristics of the portfolio in aggregate. This review considers the judgments of
management, and also those of bank regulatory agencies that review the loan portfolio as part of their regular
examination process. Our bank regulators have generally agreed with our credit assessment however the
regulators could seek additional provisions to our allowance for loan losses, which will reduce our earnings.
Nonperforming Assets
Table 14 provides certain information concerning nonperforming assets for the years indicated.
Nonperforming assets (“NPAs”) at December 31, 2011 totaled $49,472,000 and are comprised of
$28,526,000 of nonaccrual loans and $20,946,000 of other real estate owned (“OREO”), compared to
$93,981,000 at December 31, 2010 (comprised of $68,284,000 in nonaccrual loans and $25,697,000 of OREO).
At December 31, 2011, approximately 97.8 percent of nonaccrual loans were secured with real estate, the
remainder principally by marine vessels (see the second table below for details about nonaccrual loans). At
December 31, 2011, nonaccrual loans have been written down by approximately $12.2 million or 33.0 percent of
the original loan balance (including specific impairment reserves). NPAs are subject to changes in the economy,
both nationally and locally, changes in monetary and fiscal policies, changes in borrowers’ payment behaviors
and changes in conditions affecting various borrowers from Seacoast National.
OREO has increased as problem loans migrated to foreclosure. Prospectively, the Company anticipates that
write-downs and/or charge-offs related to OREO sales should be limited.
New nonperforming loans have declined during 2011, compared to 2010 and 2009. The table below shows
nonperforming loan inflows by quarter for 2011, 2010 and 2009.
New Nonperforming Loans
[(In thousands)]
2011
2010
2009
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,349
19,874
4,137
4,349
$11,895
22,560
8,151
9,990
$37,170
46,303
75,295
36,196
No loan sales occurred during 2011.The Company liquidated through foreclosure $28 million of
nonperforming loans and $4 million of OREO properties during the second quarter of 2011 (including its largest
land credit, reducing NPAs by $21 million for this single asset). For 2010, sales totaled $28 million at an average
price of nearly 56 percent of the outstanding ledger balance. Because we have significantly reduced our
non-performing loans over the last several years, we do not expect loan sales to play a significant role in
connection with liquidation efforts.
The Company pursues loan restructurings in selected cases where it expects to realize better values than
may be expected through traditional collection activities. The Company has worked with retail mortgage
customers, when possible, to achieve lower payment structures in an effort to avoid foreclosure. Troubled debt
22
restructurings (“TDRs”) are part of the Company’s loss mitigation activities and can include rate reductions,
payment extensions and principal deferrals. Company policy requires TDRs be classified as nonaccrual loans
until (under certain circumstances) performance can be verified, which usually requires six months of
performance under the restructured loan terms. We are optimistic that some of these credits will rehabilitate and
be upgraded in the coming year versus migrating to nonperforming or OREO prospectively. Accruing
restructured loans totaled $71.6 million at December 31, 2011 compared to $66.4 million at December 31, 2010.
The tables below set forth details related to nonaccrual and restructured loans.
December 31, 2011
Construction & land development
Nonaccrual Loans
Non-
Current
Per-
forming
Total
Accruing
Restructured
Loans
(In thousands)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential
Commercial
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Individuals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,095
37
502
$
33
3
557
$ 1,128
40
1,059
Residential real estate mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and financial
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,634
7,594
8,492
17,720
16
119
593
4,961
4,628
10,182
—
489
2,227
12,555
13,120
27,902
16
608
$ 2,411
—
755
3,166
22,713
45,180
71,059
101
451
$17,855
$10,671
$28,526
$71,611
At December 31, 2011 and 2010, total TDRs (performing and nonperforming) were comprised of the
following loans by type of modification:
Rate reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturity extended with change in terms . . . . . . . . . . . . . . . . . . . . . . . . . .
Forgiveness of principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment structure changed to allow for interest only payments . . . . . . . .
Not elsewhere classified . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
Number
Amount
Number
Amount
(Dollars in thousands)
$23,763
43,697
2,339
1,845
12,751
83
120
2
2
12
$25,476
51,782
2,529
1,253
6,806
$84,395
219
$87,846
96
109
2
4
17
228
During 2011, newly identified TDRs totaled $31.2 million. 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. Accruing
loans that were restructured within the twelve months ended December 31, 2011 and defaulted during the twelve
months ended December 31, 2011 summed to $265,000. A restructured loan is considered in default when it
becomes 90 days or more past due under the modified terms, has been transferred to nonaccrual status, or has
been transferred to other real estate owned.
At December 31, 2011, loans totaling $100,137,000 were considered impaired (comprised of total
nonaccrual and TDRs) and $6,979,000 of the allowance for loan losses was allocated for potential losses on these
loans, compared to $134,634,000 and $14,362,000, respectively, at December 31, 2010.
All impaired loans are reviewed quarterly to determine if valuation adjustments are necessary based on
known changes in the market and/or the project assumptions. When necessary, the “As Is” appraised value may
be adjusted based on more recent appraisal assumptions received by the Company on other similar properties, the
tax assessed market value, comparative sales and/or an internal valuation. If an updated assessment is deemed
23
necessary and an internal valuation cannot be made, an external “As Is” appraisal will be obtained. If the “As Is”
appraisal does not appropriately reflect the current fair market value, in the Company’s opinion, a specific
reserve is established and/or the loan is written down to the current fair market value.
Collateral dependent, impaired loans are loans that are solely dependent on the liquidation of the collateral
for repayment. All other real estate owned (“OREO”) and repossessed assets (“REPO”) are reviewed quarterly to
determine if valuation adjustments are necessary based on known changes in the market and/or project
assumptions. When necessary, the “As Is” appraisal is adjusted based on more recent appraisal assumptions
received by the Company on other similar properties, the tax assessed market value, comparative sales and/or an
internal valuation is performed. If an updated assessment is deemed necessary, and an internal valuation cannot
be made, an external appraisal will be requested. Upon receipt of the “As Is” appraisal a charge-off is recognized
for the difference between the loan amount and its current fair market value.
“As Is” values are used to measure fair market value on impaired loans, OREO and REPOs.
Any loan that is partially charged-off remains in nonperforming status until it is paid off regardless of
current valuation of the loan.
In accordance with regulatory reporting requirements, loans are placed on non-accrual following the Retail
Classification of Loan interagency guidance. Typically loans 90 days or more past due are reviewed for
impairment, and if deemed impaired, are placed on non-accrual. Once impaired, the current fair market value of
the collateral is assessed and a specific reserve and/or charge-off taken. Quarterly thereafter, the loan carrying
value is analyzed and any changes are appropriately made as described above.
Upon receipt of an appraisal, an appraisal review is performed and a specific reserve or charge-off is
processed, if warranted.
Fair Value and Other than Temporary Impairment of Securities
At December 31, 2011, outstanding securities designated as available for sale totaled $648,362,000. The fair
value of the available for sale portfolio at December 31, 2011 was more than historical amortized cost, producing
net unrealized gains of $8,515,000 that have been included in other comprehensive income (loss) as a component
of shareholders’ equity (net of taxes). The Company made no change to the valuation techniques used to
determine the fair values of securities during 2011 and 2010. The fair value of each security available for sale
was obtained from independent pricing sources utilized by many financial institutions. Generally, the Company
obtains one price for each security. However, actual values can only be determined in an arms-length transaction
between a willing buyer and seller that can, and often do, vary from these reported values. Furthermore,
significant changes in recorded values due to changes in actual and perceived economic conditions can occur
rapidly, producing greater unrealized losses or gains in the available for sale portfolio.
The credit quality of the Company’s securities holdings are primarily investment grade. Any securities rated
below investment grade are tested for other than temporary impairment, or “OTTI”. As of December 31, 2011,
the Company’s investment securities, except for approximately $7.8 million of securities issued by states and
their political subdivisions, generally are traded in liquid markets. U.S. Treasury and U.S. Government agency
obligations totaled $575.2 million, or 89 percent of the total available for sale portfolio. The remainder of the
portfolio primarily consists of private label securities secured by collateral originated in 2005 or prior with low
loan to values, and current FICO scores above 700. Generally these securities have credit support exceeding 5%.
The collateral underlying these mortgage investments are primarily 30- and 15-year fixed rate and 5/1 and 10/1
adjustable rate mortgage loans. Historically, the mortgage loans serving as collateral for those investments have
had minimal foreclosures and losses.
24
Our investments are reviewed quarterly for other than temporary impairment, by considering the following
primary factors: percent decline in fair value, rating downgrades, subordination, duration, amortized
loan-to-value, and the ability of the issuers to pay all amounts due in accordance with the contractual terms.
Prices obtained from pricing services are usually not adjusted. Based on our internal review procedures and the
fair values provided by the pricing services, we believe that the fair values provided by the pricing services are
consistent with the principles of ASC 820, Fair Value Measurement. However, on occasion pricing provided by
the pricing services may not be consistent with other observed prices in the market for similar securities. Using
observable market factors, including interest rate and yield curves, volatilities, prepayment speeds, loss severities
and default rates, the Company may at times validate the observed prices using a discounted cash flow model and
using the observed prices for similar securities to determine the fair value of its securities.
Changes in the fair values, as a result of deteriorating economic conditions and credit spread changes,
should only be temporary. Further, management believes that the Company’s other sources of liquidity, as well
as the cash flow from principal and interest payments from its securities portfolio, reduces the risk that losses
would be realized as a result of a need to sell securities to obtain liquidity.
The Company also held stock in the Federal Home Loan Bank of Atlanta (“FHLB”) totaling $5.6 million as
of December 31, 2011, $0.8 million lower than at year-end 2010. The Company accounts for its FHLB stock
based on the industry guidance in ASC 942, Financial Services—Depository and Lending, which requires the
investment to be carried at cost and evaluated for impairment based on the ultimate recoverability of the par
value. We evaluated our holdings in FHLB stock at December 31, 2011 and believe our holdings in the stock are
ultimately recoverable at par. We do not have operational or liquidity needs that would require redemption of the
FHLB stock in the foreseeable future and, therefore, have determined that the stock is not other-than-temporarily
impaired.
Realization of Deferred Tax Assets
At December 31, 2011, the Company had net deferred tax assets (“DTA”) of $16.8 million. Although
realization is not assured, management believes that realization of the DTA is more likely than not, based upon
expectations as to future taxable income and tax planning strategies, as defined by [ASC] 740 Income Taxes. In
comparison, at December 31, 2010 the Company had net DTAs of $18.9 million.
As a result of the losses incurred in 2008, 2009, and 2010 the Company was and is in a three-year
cumulative pretax loss position. The Company has recorded deferred tax valuation allowances for its DTAs,
primarily net operating loss (“NOL”) carryforwards totaling approximately $45 million at December 31, 2011.
Should the economy show improvement and the Company’s credit losses continue to moderate prospectively as
the Company continues to generate taxable income, increased reliance on management’s forecast of future
taxable earnings could result in realization of additional future tax benefits from the net operating loss
carryforwards. We believe our future taxable income will ultimately allow for the recovery of the NOL, and the
realization of its DTA.
Contingent Liabilities
The Company is subject to contingent liabilities, including judicial, regulatory and arbitration proceedings,
and tax and other claims arising from the conduct of our business activities. These proceedings include actions
brought against the Company and/or our subsidiaries with respect to transactions in which the Company and/or
our subsidiaries acted as a lender, a financial advisor, a broker or acted in a related activity. Accruals are
established for legal and other claims when it becomes probable that the Company will incur an expense and the
amount can be reasonably estimated. Company management, together with attorneys, consultants and other
professionals, assesses the probability and estimated amounts involved in a contingency. Throughout the life of a
contingency, the Company or our advisors may learn of additional information that can affect our assessments
about probability or about the estimates of amounts involved. Changes in these assessments can lead to changes
in recorded reserves. In addition, the actual costs of resolving these claims may be substantially higher or lower
than the amounts reserved for the claims. At December 30, 2011 and 2010, the Company had no significant
accruals for contingent liabilities and had no known pending matters that could potentially be significant.
25
Results of Operations
Earnings Summary
Net income available to common shareholders for 2011 totaled $2,919,000 or $0.03 per average common
diluted share, compared to 2010’s net loss of $36,951,000 or $0.48 per average common diluted share and 2009’s
net loss of $150,434,000 or $4.74 per average common diluted share. The improved performance for 2011
reflects lower credit costs, primarily through lower provisioning for loan losses.
Net Interest Income
Net interest income (on a fully taxable equivalent basis) for 2011 totaled $67,059,000, increasing by
$574,000 or 0.9 percent as compared to 2010. The following table details net interest income and margin results
(on a tax equivalent basis) for the past five quarters:
Net Interest
Income
(tax equivalent)
Net Interest
Margin
(tax equivalent)
(Dollars in thousands)
Fourth quarter 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First quarter 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$16,379
16,518
16,596
16,925
17,020
3.42
3.48
3.36
3.44
3.42
Fully taxable equivalent net interest income is a common term and measure used in the banking industry but
is not a term used under generally accepted accounting principles (“GAAP”). We believe that these presentations
of tax-equivalent net interest income and tax equivalent net interest margin aid in the comparability of net
interest income arising from both taxable and tax-exempt sources over the periods presented. We further believe
these non-GAAP measures enhance investors’ understanding of the Company’s business and performance, and
facilitate an understanding of performance trends and comparisons with the performance of other financial
institutions. The limitations associated with these measures are the risk that persons might disagree as to the
appropriateness of items comprising these measures and that different companies might calculate these measures
differently, including as a result of using different assumed tax rates. These disclosures should not be considered
an alternative to GAAP. The following information is provided to reconcile GAAP measures and tax equivalent
net interest income and net interest margin on a tax equivalent basis.
Total
Year 2011
Fourth
Quarter
2011
Third
Quarter
2011
Second
Quarter
2011
First
Quarter
2011
Total
Year
2010
Fourth
Quarter
2010
Non-taxable interest income . . . . . . . .
Tax Rate . . . . . . . . . . . . . . . . . . . . . . .
Net interest income (TE) . . . . . . . . . . .
Total net interest income (not TE)
. . .
Net interest margin (TE) . . . . . . . . . . .
Net interest margin (not TE) . . . . . . . .
$
$
424
35%
$
87
35%
(Dollars in thousands)
109
35%
109
35%
$
$
$
119
35%
$
533
35%
112
35%
$67,059
66,839
$17,020
16,974
$16,925
16,868
$16,596
16,541
$16,518
16,456
$66,485
66,212
$16,379
16,321
3.42%
3.41
3.42%
3.41
3.44%
3.43
3.36%
3.35
3.48%
3.47
3.37%
3.35
3.42%
3.41
Our net interest income and net interest margin (on a tax equivalent basis) have stabilized despite the
challenging lending environment and the reduction of interest due to nonaccrual loans. Net interest margin on a
tax equivalent basis for 2011 increased 5 basis points to 3.42 percent for 2011 compared to [3.37 percent in]
2010. The level of nonaccrual loans and changes in the earning assets mix have been the primary forces
adversely affecting net interest income and net interest margin results for each of the last three years (see “Table
14 - Nonperforming Assets”).
The earning asset mix changed year over year impacting net interest income. For 2011, average loans (the
highest yielding component of earning assets) as a percentage of average earning assets totaled 62.1 percent,
compared to 67.2 percent a year ago. Average securities as a percentage of average earning assets increased from
26
21.2 percent a year ago to 29.6 percent during 2011 and interest bearing deposits and other investments decreased
to 8.3 percent in 2011 from 11.6 percent in 2010. In addition to decreasing average total loans as a percentage of
earning assets, the mix of loans changed, with volumes related to commercial real estate representing 43.9
percent of total loans at December 31, 2011 (compared to 47.7 percent at December 31, 2010). This decrease
reflects our reduced exposure to commercial construction and land development loans on residential and
commercial properties, which declined by $2.8 million and $22.4 million, respectively, from December 31, 2010
to December 31, 2011. Lower yielding residential loan balances with individuals (including home equity loans
and lines, and personal construction loans) represented 47.4 percent of total loans at December 31, 2011 (versus
44.2 percent at December 31, 2010) (see “Loan Portfolio”).
The yield on earning assets for 2011 was 4.14 percent, 16 basis points lower than for 2010, a reflection of
the lower interest rate environment and earning asset mix. The following table details the yield on earning assets
(on a tax equivalent basis) for the past five quarters:
Yield . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.04%
4.13%
4.12%
4.26%
4.24%
4th
Quarter
2011
3rd
Quarter
2011
2nd
Quarter
2011
1st
Quarter
2011
4th
Quarter
2010
The yield on loans decreased 11 basis points to 5.14 percent over the last twelve months with nonaccrual
loans totaling $28.5 million or 2.4 percent of total loans at December 31, 2011 (versus $68.3 million or 5.5
percent of total loans at December 31, 2010) and has more recently aided in improving the yield on our loan
portfolio. The yield on investment securities was lower, decreasing 35 basis points year over year to 3.06 percent
for 2011, due primarily to purchases of securities at lower yields available in current markets, which diluted the
overall portfolio yield year over year. The dilution in yield on investment securities was less severe in the fourth
quarter than over the past two quarters, with a decline of 22 basis points for fourth quarter 2011’s yield year over
year, compared to a decline of 31 basis points for the third quarter 2011 year over year a decline of 35 basis
points for second quarter 2011 year over year, and a decline of 56 basis points for the first quarter of 2011 year
over year. Interest bearing deposits and other investments yielded 0.49 percent for 2011, compared to a yield of
0.43 percent for 2010. Although we are seeing heightened competition among lenders in the Company’s markets
for quality borrowers, particularly in the form of pricing pressure from the larger banks, we remain focused on
offsetting pricing pressures with deposit product offerings and other fee opportunities from the entire
relationship.
Average earning assets for 2011 decreased $16.2 million or 0.8 percent compared to 2010’s average
balance. Average loan balances for 2011 decreased $110.9 million or 8.4 percent to $1,216.2 million, while
average investment securities increased $161.2 million or 38.6 percent to $578.8 million and average interest
bearing deposits and other investments decreased $66.5 million or 28.9 percent to $163.4 million.
Commercial and commercial real estate loan production for 2011 totaled approximately $63 million,
compared to production for 2010 of $10 million. Improvements in commercial production resulted from a
focused program to target small business segments less impacted by the lingering effects of the recession. While
commercial production increased, period-end total loans outstanding have declined by $32.5 million or 2.6
percent since December 31, 2010. In comparison, the decline in loans was more severe a year ago, decreasing by
$156.9 million or 11.2 percent at December 31, 2010 year over year. Economic conditions in the markets the
Company serves have continued to be challenging, but possibly to a lesser degree if conditions continue to
improve in 2012. Our strategy has been to focus on hiring commercial lenders for the larger metropolitan markets
in which the Company competes, principally Orlando and Palm Beach. At December 31, 2011 the Company’s
total commercial and commercial real estate loan pipeline was $36 million, versus $28 million at December 31,
2010.
A total of 17, 20, 14 and 16 applications were received seeking restructured residential mortgages during the
first, second, third and fourth quarters of 2011, respectively, compared to 37, 28, 15 and 21 applications in the
first, second, third and fourth quarters of 2010, respectively. The Company continues to lend, and we have
27
expanded our residential mortgage loan originations and will seek to expand loans to small businesses in 2012.
However, as consumers and businesses seek to reduce their borrowings, and the economy remains weak,
opportunities to lend prudently to creditworthy borrowers are expected to remain a challenge.
Closed residential mortgage loan production for the first, second, third and fourth quarters of 2011 totaled
$32 million, $50 million, $53 million and $56 million, respectively, of which $13 million, $18 million, $17
million and $21 million was sold servicing-released. In comparison, closed residential mortgage loan production
for the first, second, third and fourth quarters of 2010 totaled $33 million, $33 million, $38 million and $49
million, respectively, of which $17 million, $26 million, $29 million and $28 million was sold servicing-released,
respectively. Applications for residential mortgages totaled $80 million, $67 million, $95 million and $70
million, respectively, during the first, second, third and fourth quarters of 2011, compared to $55 million, $55
million, $76 million and $58 million during the same periods in 2010, resulting in a total of $312 million in
applications for 2011 versus $244 million for 2010. Existing home sales and home mortgage loan refinancing
activity in the Company’s markets have increased, but demand for new home construction is expected to remain
soft during 2012. While the slowdown in foreclosure activity by some of the Company’s larger competitors has
had a favorable impact on housing inventory in the Company’s markets, resulting in improved sales activity,
property valuations continue to remain under pressure. Rents for housing have been running 15-20 percent
greater than the cost to own, depending on the Florida market you look at, which may portend better stability and
pricing and continued growth, hopefully enough that any additional foreclosure activity in our markets can be
absorbed. Our expectation is that it will likely take a couple more years for the residential market in Florida to
completely stabilize.
Sales of securities were more limited in 2011, with proceeds in sales during the third and fourth quarters of
2011 summing to $31.4 million and $19.1 million, respectively, with net gains of $137,000 and $1,083,000
realized. In comparison, during the first, second and third quarters of 2010, proceeds from the sale of mortgage
backed securities totaling $59.2 million, $27.9 million and $20.5 million, respectively, resulted in securities gains
of $2,100,000, $1,377,000 and $210,000, respectively. Securities purchases in 2011 and 2010 have been
conducted principally to reinvest funds from maturities and loan principal repayments, as well as to reinvest
excess funds (an interest bearing deposit) at the Federal Reserve Bank and proceeds from sales. During 2011,
maturities (principally pay-downs of $120.7 million) totaled $125.5 million and securities portfolio purchases
totaled $380.8 million. In comparison, 2010 maturities totaled $141.9 million (including $136.0 million in
pay-downs) and securities portfolio purchases totaled $298.2 million. Management believed the securities sold
had minimal opportunity to further increase in value.
For 2011, the cost of average interest-bearing liabilities decreased 24 basis points to 0.89 percent from 2010,
reflecting the lower interest rate environment and improved deposit mix. The following table details the cost of
average interest bearing liabilities for the past five quarters:
4th
Quarter
2011
3rd
Quarter
2011
2nd
Quarter
2011
1st
Quarter
2011
4th
Quarter
2010
Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.77%
0.87%
0.95%
0.98%
1.01%
During 2011, the Company’s retail core deposit focus continued to produce strong growth in core deposit
customer relationships when compared to prior year results. The improved deposit mix and lower rates paid on
interest bearing deposits during 2011 (and last several quarters) reduced the overall cost of total deposits to 0.56
percent for the fourth quarter of 2011, 20 basis points lower than the same quarter a year ago. A significant
component favorably affecting the Company’s net interest margin, the average balances of lower cost interest
bearing deposits (NOW, savings and money market) totaled 62.1 percent of total average interest bearing
deposits for 2011, an improvement compared to the average of 59.7 percent a year ago. The average rate for
lower cost interest bearing deposits for 2011 was 0.28 percent, down by 18 basis points from 2010’s rate.
Certificate of deposit (“CD”) rates paid were also lower during 2011, averaging 1.68 percent, a 29 basis point
decrease compared to 2010. Average CDs (the highest cost component of interest bearing deposits) were 37.9
percent of interest bearing deposits for 2011, compared to 40.3 percent for 2010.
28
Average deposits totaled $1,677.6 million during 2011, and were $28.8 million lower compared to 2010,
due primarily to a planned reduction of brokered deposits and single service time deposit customers. Average
aggregate amounts for NOW, savings and money market balances decreased $11.1 million or 1.3 percent to
$841.8 million for 2011 compared to 2010, noninterest bearing deposits increased $45.3 million or 16.3 percent
to $323.0 million for 2011 compared to 2010, and average CDs decreased by $63.0 million or 10.9 percent to
$512.8 million over the same period. With the low interest rate environment and lower CD rate offerings
available, customers have been more complacent and are leaving more funds in lower cost average balances in
savings and other liquid deposit products that pay no interest or a lower interest rate. Average deposits in the
Certificate of Deposit Registry program (“CDARs”), a program that began in mid-2008 and allows customers to
have CDs safely insured beyond the Federal Deposit Insurance Corporation (“FDIC”) deposit insurance limit,
have declined $2.2 million from a year ago to $5.5 million for 2011. The CDARs product continues to be a
favored offering for homeowners’ associations concerned with FDIC insurance coverage.
Average short-term borrowings have been principally comprised of sweep repurchase agreements with
customers of Seacoast National, which increased $19.4 million to $106.5 million or 22.3 percent in 2011 as
compared to 2010. With balances typically peaking during the fourth and first quarters each year, public fund
clients with larger balances have the most significant influence on average sweep repurchase agreement balances
outstanding during the year. During 2011, 2010 and 2009, we did not utilize any federal funds purchased. Other
borrowings are comprised of subordinated debt of $53.6 million related to trust preferred securities issued by
trusts organized by the Company, and advances from the Federal Home Loan Bank (“FHLB”) of $50.0 million.
No changes have occurred to other borrowings since year-end 2009 (see “Note I – Borrowings” to the
Company’s consolidated financial statements).
Company management believes its market expansion, branding efforts and retail deposit growth strategies
have produced new relationships and core deposits, which have assisted in maintaining a stable net interest
margin. Reductions in nonperforming assets also are expected to be accretive to the Company’s future net
interest margin.
Net interest income (on a fully taxable equivalent basis) for 2010 totaled $66,485,000, decreasing from
2009’s result by $7,362,000 or approximately 10.0 percent. Net interest margin on a tax equivalent basis declined
18 basis points to 3.37 percent in 2010, as compared to 2009. Nonaccrual loans and earning asset mix changes
were the primary forces that adversely affected net interest income and net interest margin when comparing 2010
to 2009.
The earning asset mix changed in 2010 from 2009. For 2010, average loans (the highest yielding component
of earning assets) as a percentage of average earning assets totaled 67.2 percent, compared to 76.3 percent in
2009. Average securities as a percentage of average earning assets increased from 17.4 percent in 2009 to 21.2
percent during 2010 and interest bearing deposits and other investments increased to 11.6 percent in 2010 from
6.3 percent in 2009. In addition to decreasing average total loans as a percentage of earning assets, the mix of
loans changed, with commercial and commercial real estate volumes representing 51.6 percent of total loans at
December 31, 2010 (compared to 55.1 percent at December 31, 2009). This reflected our reduced exposure to
commercial construction and land development loans on residential and commercial properties, which declined
by $33.6 million and $43.7 million, respectively, from December 31, 2009 to December 31, 2010. Lower
yielding residential loan balances with individuals (including home equity loans and lines, and personal
construction loans) represented 44.2 percent of total loans at December 31, 2010 (versus 40.3 percent at year-end
2009).
The yield on earning assets for 2010 was 4.30 percent, 62 basis points lower than for 2009, a reflection of
the lower interest rate environment and earning asset mix. The yield on loans decreased 10 basis points to 5.25
percent during 2010, with nonaccrual loans totaling $68.3 million or 5.5 percent of total loans at December 31,
2010 (versus $97.9 million or 7.0 percent of total loans at December 31, 2009). The yield on investment
securities was also lower, decreasing 122 basis points year over year to 3.41 percent for 2010, due primarily to
purchases of securities at lower yields available in current markets, which diluted the overall portfolio yield year
29
over year. Interest bearing deposits and other investments yielded 0.43 percent for 2010, below 2009’s yield of
0.51 percent. The Company had approximately $100 million of excess cash liquidity at year-end 2010 to invest in
securities or loans.
Average earning assets for 2010 decreased $106.9 million or 5.1 percent compared to 2009’s average
balance. Average loan balances decreased $260.2 million or 16.4 percent to $1,327.1 million, while average
investment securities were $54.2 million or 14.9 percent higher totaling $417.6 million and average interest
bearing deposits and other investments increased $99.1 million or 75.7 percent to $229.9 million. The decline in
average earning assets was consistent with reduced funding as a result of a planned reduction of brokered
deposits (only $7.1 million remained outstanding at December 31, 2010), the maturity of a $15.0 million advance
from the FHLB in November 2009, and lower sweep repurchase arrangements (declining $30.1 million from
2009, principally in public funds as a result of lower tax receipts).
Applications for residential mortgages totaled $244 million during 2010, compared to $268 million for
2009. Existing home sales and home mortgage loan refinancing activity in the Company’s markets increased
during 2010, but demand for new home construction remained soft.
For 2010, the cost of average interest-bearing liabilities decreased 52 basis points to 1.13 percent from 2009,
reflecting the lower interest rate environment and improved deposit mix. During 2010, the Company’s retail core
deposit focus continued to produce strong growth in core deposit customer relationships when compared to prior
year results, and resulted in increased balances which offset most of the planned certificate of deposit runoff during
2010. The improved deposit mix and lower rates paid on interest bearing deposits during 2010 reduced the overall
cost of interest bearing deposits to 1.07 percent. A significant component favorably affecting the Company’s net
interest margin, the average balances of lower cost interest bearing deposits (NOW, savings and money market)
totaled 59.7 percent of total average interest bearing deposits for 2010, an improvement compared to the average of
53.3 percent for 2009. The average rate for lower cost interest bearing deposits for 2010 was 0.46 percent, down by
29 basis points from 2009’s rate. CD rates paid were also lower in 2010, averaging 1.97 percent, a 70 basis point
decrease compared to 2009. Average CDs (the highest cost component of interest bearing deposits) were 40.3
percent of interest bearing deposits for 2010, compared to 46.7 percent for 2009.
Average deposits totaled $1,706.4 million during 2010, and were $72.6 million lower compared to 2009,
due primarily to a planned reduction of brokered deposits and single service time deposit customers. Total
average sweep repurchase agreements for 2010 were $30.1 million lower versus 2009, a result of public fund
customers maintaining larger balances in repurchase agreements during 2009. Average aggregate amounts for
NOW, savings and money market balances increased $51.4 million or 6.4 percent to $852.8 million for 2010
compared to 2009, noninterest bearing deposits increased $1.3 million or 0.5 percent to $277.8 million for 2010
compared to 2009, and average CDs decreased by $125.3 million or 17.9 percent to $575.8 million over the same
period. As in 2011, with the low interest rate environment and lower CD rate offerings available, customers left
more funds in lower cost savings and other liquid deposit products that pay no interest or a lower interest rate
than in 2010. Average deposits in the CDARs program declined $8.0 million from 2009, and totaled $7.7 million
for 2010. The higher balance during 2009 reflected the deposit retention efforts that occurred during the financial
market disruption and emphasis on safety at that time.
Average short-term borrowings comprised principally of sweep repurchase agreements with customers of
Seacoast National, decreased $30.1 million to $87.1 million for 2010, or 25.7 percent from 2009. Public fund
clients with larger balances had the most significant influence on the average balance outstanding during 2010.
Noninterest Income
Noninterest income, excluding gains or losses from securities, totaled $18,345,000 for 2011, $211,000 or
1.2 percent higher than for 2010. For 2010, noninterest income of $18,134,000 was $639,000 or 3.7 percent
higher than for 2009. Noninterest income accounted for 21.5 percent of total revenue (net interest income plus
noninterest income, excluding securities gains or losses) in 2011, compared to 21.5 percent a year ago and 19.2
percent in 2009.
30
Table 6 provides detail regarding noninterest income components for the past three years.
For 2011, revenues from the Company’s wealth management services businesses (trust and brokerage)
increased year over year, by $82,000 or 2.6 percent, and were lower in 2010 than for 2009 by $363,000 or 10.3
percent. The $82,000 increase in revenues for 2011 resulted from trust revenue increasing by $134,000 or 6.8
percent and brokerage commissions and fees decreasing by $52,000 or 4.4 percent. Economic uncertainty is the
primary issue affecting clients of the Company’s wealth management services. It is expected that fees from
wealth management will continue to improve as the economy and stock market improve. Higher inter vivos and
estate trust fees were the primary cause for the higher trust income versus 2010, as these fees increased $47,000
and $83,000, respectively. The $52,000 overall decline in brokerage commissions and fees for 2011 included a
decrease of $90,000 in aggregate brokerage and mutual fund commissions, partially offset by an increase of
$51,000 in annuity income. Of the $363,000 decrease for 2010, trust revenue was lower by $121,000 or 5.8
percent and brokerage commissions and fees were lower by $242,000 or 17.1 percent.
Service charges on deposits for 2011 were $337,000 or 5.7 percent higher year over year versus 2010’s result,
and were $566,000 or 8.7 percent lower in 2010 year over year versus 2009. Overdraft income was the primary
cause for the decline in overall service charges in 2010 compared to 2009, declining $444,000. For 2011, overdraft
fees increased $273,000 and represented approximately 76 percent of total service charges on deposits, identical to
the percentage averaged for both 2010 and 2009. We are pleased with this result considering that all financial
institutions adopted procedures beginning on July 1, 2010, which were expected to have a negative impact on
overdraft fee income. Remaining service charges on deposits increased $64,000 or 4.5 percent to $1,491,000 for
2011, compared to 2010. Service charge increases during 2011 reflect the growth in core deposit households.
For 2011, fees from the non-recourse sale of marine loans originated by our Seacoast Marine Division of
Seacoast National decreased $125,000 or 9.4 percent compared to 2010, but were $181,000 or 15.7 percent
higher in 2010 compared to 2009. The Seacoast Marine Division originated $23 million, $21 million, $18 million
and $21 million in loans during the first, second, third and fourth quarters of 2011, respectively, (a total of $83
million for 2011), compared to $25 million, $17 million, $17 million and $20 million in loans during the first,
second, third and fourth quarters of 2010, respectively, (a total of $79 million for 2010). Of the loans originated
during the first, second, third and fourth quarters of 2011, $18 million, $19 million, $10 million, and $21 million
were sold (81.9 percent of production for 2011), compared to $20 million, $17 million, $17 million and $20
million sold during 2010 (or 93.7 percent of production for 2010). For 2009, production totaled $70 million, of
which 97.1 percent was sold. Approximately $5 million, $2 million and $8 million of 2011’s first, second and
third quarter’s marine loan production, respectively, was placed in our loan portfolio, thereby reducing the
percentage of production sold during 2011. Production levels have been significantly lower since the end of 2008
and are reflective of the general economic downturn. Lower attendance at boat shows by consumers,
manufacturers, and marine retailers over the past several years has resulted in lower marine sales and loan
volumes. The Seacoast Marine Division is headquartered in Ft. Lauderdale, Florida with lending professionals in
Florida, California, Washington and Oregon.
Greater usage of check or debit cards over recent years by core deposit customers and an increased
cardholder base has increased our interchange income. For 2011, interchange income increased $645,000 or 20.4
percent from 2010, and was $550,000 or 21.0 percent higher for 2010, compared to 2009’s income. Other
deposit-based electronic funds transfer (“EFT”) income decreased nominally, by $3,000 or 0.9 percent in 2011
compared to 2010, after decreasing $10,000 or 3.0 percent in 2010 compared to 2009’s revenue. Interchange
revenue is dependent upon business volumes transacted, as well as the fees permitted by VISA® and
MasterCard®. At present, the Dodd-Frank Act regulation is not expected to impact this source of fee revenue for
Seacoast National materially, but is expected to significantly reduce fees collected by larger financial institutions
that may in turn affect Seacoast National unfavorably as markets adjust to this legislative change.
The Company originates residential mortgage loans in its markets, with loans processed by commissioned
employees of Seacoast National. Many of these mortgage loans are referred by the Company’s branch personnel.
Mortgage banking fees in 2011 increased $21,000 or 1.0 percent from 2010, and were $373,000 or 21.4 percent
higher for 2010 than for 2009. A seasonal slowing on home purchase transactions in early 2011 improved during
31
the second, third and fourth quarters of 2011, with more customer activity related to mortgage lending as a result
of mortgage interest rates declining further. Mortgage banking revenue as a component of overall noninterest
income was 11.7 percent for 2011, compared to 11.7 percent for 2010 and 10.0 percent for 2009. Mortgage
revenues are dependent upon favorable interest rates, as well as good overall economic conditions, including the
volume of new and used home sales. We are beginning to see some signs of stability for residential real estate
sales and activity in our markets, with transactions increasing, prices firming and affordability improving. The
Company had more mortgage loan origination opportunities in markets it serves during 2010 and 2011 and this is
expected to continue during 2012. The Company also offers FHA loans, a product not offered prior to second
quarter 2009. The Company increased production in 2010 and 2011 by increasing its market share and the
Company was the number one originator of home purchase mortgages in Martin, St. Lucie and Indian River
counties. The Company has only had to repurchase five sold mortgage loans ever and believes that its processes
and controls make it unlikely that it will have any material exposure in the future.
Other income for 2011 decreased $746,000 or 35.2 percent compared to a year ago, and for 2010 increased
$515,000 or 36.7 percent compared to 2009’s result. Fourth quarter 2010 included a $600,000 gain on the sale of
our merchant portfolio. As a result of the merchant portfolio sale, Seacoast National receives fee income for new
accounts opened prospectively and has more competitive offerings for current and new customers. Included in
the decline for 2011, were losses from an investment in a partnership supporting Community Reinvestment Act
activities, in which Seacoast National owns approximately a 1 percent interest, which were $74,000 higher than a
year ago. Partially offsetting the merchant income sale for 2010, operating income from check charges and letter
of credit fees declined from 2009 by $51,000 and $11,000, respectively, and most other line items in other
income were slightly lower, including wire transfer fees, income from sales of cashier’s checks and money
orders, and miscellaneous other fees.
Noninterest Expenses
The Company's overhead ratio, has typically been in the low 60 percent range in years prior to 2008.
However, lower earnings in 2011, 2010, and 2009 resulted in this ratio increasing to 90.1 percent, 104.6 percent
and 86.7 percent, respectively. When compared to 2010, total noninterest expenses for 2011 decreased by
$11,793,000 or 13.2 percent to $77,763,000, and when comparing 2010 to 2009, total noninterest expenses
decreased $40,671,000 or 31.2 percent to $89,556,000. Noninterest expenses for 2009 included a write-down of
goodwill of $49,813,000. Without the impact of this write-down of goodwill, noninterest expenses for 2010 were
$9,142,000 or 11.4 percent higher than 2009. The primary cause for the decrease in 2011 over 2010 was lower
legal and professional fees, and decreased net losses on OREO and repossessed assets and asset disposition costs
(aggregated), down by $1,840,000 and $9,777,000, respectively, versus a year ago. The primary cause for the
increase in 2010 over 2009 (when excluding the goodwill write-down) was higher net losses on OREO and
repossessed assets and asset disposition costs (aggregated) of $9,482,000. Noninterest expenses for 2009 also
included a special assessment imposed by the FDIC in the second quarter totaling $976,000, and deposit
insurance premiums that were $1,948,000 higher due to the FDIC’s deposit insurance premium rates more than
doubling. The FDIC’s assessment methodology was reformulated beginning in the second quarter of 2011, which
benefited the Company, with a reduction of $945,000 in FDIC costs compared to 2010.
Noninterest expenses for 2011 have been in line with our expectations. Table 7 provides detail of
noninterest expense components for the years ending December 31, 2011, 2010 and 2009.
Salaries, wages and benefits were $1,038,000 or 3.2 percent higher for 2011 compared to 2010, and were
$677,000 or 2.1 percent lower for 2010 compared to the same period in 2009. For 2011, 2010, and 2009, bonus
compensation for most positions was eliminated as well as profit sharing contributions for all associates and
reductions in matching contributions associated with salary savings plans. Excluding one-time severance
payments of $469,000 and $338,000 for the years 2011 and 2010, respectively, the increase in salaries, wages
and benefits was 2.8 percent for 2011, compared to 2010. Executive cash incentive compensation was not paid in
2011, 2010 or 2009.
32
Salaries and wages for 2011 increased $880,000 or 3.3 percent to $27,288,000 when compared to the prior
year, and for 2010 decreased $285,000 or 1.1 percent to $26,408,000 compared to 2009. Commission and
incentive payments on revenues generated from wealth management and lending production were higher for
2011, up by $901,000 or 51.1 percent compared to 2010. Base salaries for 2011 were $249,000 or 1.0 percent
higher year over year compared to 2010, with 420 full time equivalent employees (“FTE’s”) employed at
December 31, 2011. Severance, overtime and temporary services (in aggregate) during 2011 were $118,000
higher than in 2010, and stock awards issued to all employees of Seacoast National in August 2011 were the
primary contributor to a $94,000 increase in stock compensation. For 2010, severance was $243,000 lower than
for 2009.
As a recipient of funding from the U.S. Treasury’s TARP CPP, the Company is subject to various
limitations on senior executive officers’ compensation pursuant the U.S. Treasury’s standards for executive
compensation and corporate governance for the period during which the U.S. Treasury holds our equity securities
issued pursuant to the TARP CPP, including our Series A Preferred Stock and common stock which may be
issued pursuant to the Warrant we issued to the U.S. Treasury. These standards generally apply to the Company’s
chief executive officer, chief financial officer and the three next most highly compensated senior executive
officers (see “The TARP CPP and the ARRA impose, and other proposed rules may impose additional, executive
compensation and corporate governance requirements that may adversely affect us and our business, including
our ability to recruit and retain qualified employees” under “Item 1A. Risk Factors” in the Company’s Form
10-K filed with the SEC for the year ended December 31, 2011).
In 2011, employee benefits costs increased by $158,000 or 2.8 percent to $5,875,000 from a year ago, and
were lower by $392,000 or 6.4 percent for 2010 when compared to 2009. The Company recognized a nominal
change in claims experience during 2011 for its self-funded health care plan compared to 2010, with a decrease
of $14,000 in expenditures. Also reduced, 401K costs were $12,000 lower for 2011 versus a year ago. More than
offsetting these reductions, payroll taxes and unemployment compensation costs were $79,000 and $105,000
higher, respectively, year over year for 2011. During 2011 and 2010, the state of Florida increased
unemployment compensation rates to replenish funding pools for disbursements. For 2010, the Company
recognized lower claims experience for its self-funded health care plan compared to 2009, with a decrease of
$397,000 in expenditures. In addition, 401K costs were $43,000 lower for 2010 versus 2009 and payroll taxes
decreased by $28,000, reflecting lower FTEs for 2010. Partially offsetting these reductions, in 2010
unemployment compensation costs were $76,000 higher year over year versus 2009. The Company has met with
its self-funded plan provider and discussed possible impacts of U.S. Health Care Reform and determined that no
immediate or material financial statement impacts are apparent.
Outsourced data processing costs totaled $6,583,000 for 2011, an increase of $602,000 or 10.1 percent from
a year ago. In comparison, for 2010 outsourced data processing costs increased of $358,000 or 6.4 percent from
2009’s result. Seacoast National utilizes third parties for its core data processing systems. Outsourced data
processing costs are directly related to the number of transactions processed. Core data processing, software
licensing, interchange processing, and other electronic funds transfer related costs were $377,000, $134,000,
$70,000 and $55,000 higher, respectively for 2011, versus 2010. Partially offsetting this increase, software
maintenance contracts were $33,000 lower for 2011. For 2010, core data processing and interchange processing
costs were $285,000 and $48,000 higher, respectively, than in 2009. Outsourced data processing costs can be
expected to increase as the Company’s business volumes grow and new products such as bill pay, internet
banking, etc. become more popular.
Telephone and data line expenditures, including electronic communications with customers and between
branch locations and personnel, as well as third party data processors, decreased by $326,000 or 21.7 percent to
$1,179,000 for 2011 when compared to 2010, and for 2010 were $330,000 or 18.0 percent lower than for 2009.
Improved systems and monitoring of services utilized as well as reducing the number telephone lines has reduced
our communication costs, and these costs should continue to be lower prospectively.
33
Total occupancy, furniture and equipment expenses for 2011 increased nominally year over year by $40,000
or 0.4 percent to $9,918,000, versus 2010. For 2010, these costs were $1,031,000 or 9.5 percent lower compared
to 2009. Included in 2011 were maintenance, repair and upkeep costs that increased $45,000 from a year ago,
lease payments for bank premises that were higher by $56,000, rental income (a contra-expense item) that was
$94,000 less for 2011 (due to higher vacancies), equipment purchases of $75,000 that were incremental year over
year and not amortizable as fixed assets, and write-offs of obsolete furniture and equipment of $89,000. Partially
offsetting the increase, depreciation and real estate and tangible personal property taxes (aggregated) on bank
owned property were lower for 2011, declining $268,000 and $67,000, respectively, from 2010. Our costs in
2010 generally decreased, primarily due to branch consolidations and closures. Included in the $1,031,000
decrease during 2010 were lease payments for bank premises decreasing $292,000, and lower depreciation,
utility costs (power, lights and water) and real estate taxes, declining $386,000, $181,000 and $174,000,
respectively. Office relocation costs were lower as well, by $28,000 during 2010 compared to 2009.
For 2011, marketing expenses, including sales promotion costs, ad agency production and printing costs,
newspaper and radio advertising, and other public relations costs associated with the Company’s efforts to
market products and services, increased nominally by $7,000 or 0.2 percent to $2,917,000 when compared to
2010. For 2010, marketing expenses increased by $843,000 or 40.8 percent to $2,910,000 when compared to
2009. Marketing expenses for 2011 and 2010 reflect a focused campaign in our markets targeting the customers
of competing financial institutions and promoting our brand. Agency fees, media costs (newspaper, television
and radio advertising), sales promotions, donations (and sponsorships), public relations costs, and business meals
and entertainment were ramped up the most during 2011, increasing $212,000, $36,000, $42,000, 185,000,
$36,000 and $98,000, respectively, year over year. Partially offsetting the increases, agency production costs and
direct mail activities declined during 2011 versus a year ago, by $332,000 and $252,000, respectively. In
comparison, agency production costs (primarily related to newly created television ads) as well as media costs
(newspaper, television and radio advertising), direct mail activities, and sales promotions were higher during
2010 versus 2009, by $255,000, $111,000, $217,000 and $157,000, respectively. Also increasing during 2010
were business meals and entertainment expenditures and public relations costs (up $66,000 and $51,000,
respectively), partially offset by printing related costs for brochures and other marketing materials (declining
$35,000 on an aggregate basis) versus 2009.
Legal and professional fees were significantly lower year over year for 2011, decreasing by $1,840,000 or
23.1 percent to $6,137,000 compared to a year ago, versus 2010 when they were $993,000 or 14.2 percent higher
compared to 2009. However, regulatory examination fees and CPA fees on an aggregate basis were $73,000
higher for 2011 than a year ago with new FHA audit requisites as the primary cause. More than offsetting these
increases, legal fees were $383,000 lower for 2011 year over year, primarily for costs related to problem assets,
principally OREO. Also, professional fees were $1,530,000 lower for 2011, reflecting lower costs for strategic
planning and risk management assistance compared with 2010. For 2010, legal fees were $493,000 lower
compared to 2009, but regulatory examination and CPA fees were $63,000 higher and professional fees were
$1,422,000 higher. Professional fees were higher during 2010 due to increased regulatory compliance. The
Company uses the consulting services of a former bank regulator who also serves as a director of Seacoast
National to assist it with its compliance with the bank’s formal agreement with the OCC and regulatory
examinations. For 2011, 2010 and 2009, Seacoast National paid $274,000, $524,000 and $410,000, respectively,
for these services. Due to the reduced level of consulting assistance to address the formal agreement, we
concluded these services in late 2011.
The FDIC assessment for the first, second, third and fourth quarters of 2011 totaled $959,000, $688,000,
$687,000 and $679,000, respectively, compared to first, second, third and fourth quarter 2010’s assessments of
$1,006,000, $1,039,000, $966,000 and $947,000, respectively. For 2009, FDIC assessments summed to
$4,952,000 (including a special assessment of $976,000 charged by the FDIC in the second quarter of 2009). The
FDIC mandated the prepayment of assessments for three years plus fourth quarter 2009’s assessment on
December 30, 2009. The amount of the prepayment totaled $14.8 million. As of April 1, 2011, the FDIC’s
calculation of assessments changed, utilizing total assets less Tier 1 risk-based capital as a base for calculation,
versus average total deposits. Applicable premium rates have been adjusted for the change in the base, with
34
specific adjusting risk factors deemed important by the FDIC utilized in the determination of applicable premium
rates. Assessments under the FDIC’s new methodology are lower compared to a year ago. Still, the Company
remains exposed to higher FDIC insurance costs, with assessment rates possibly increasing depending on the
severity of bank failures and their impact on the FDIC’s Deposit Insurance Fund.
Net losses on other real estate owned (OREO) and repossessed assets, and asset disposition expenses
associated with the management of OREO and repossessed assets (aggregated), totaled $1,535,000, $1,583,000,
$1,385,000 and $1,529,000 for the first, second, third and fourth quarters of 2011, which was relatively stable
quarter to quarter during 2011 and totaled $6,032,000 for the year. These costs appeared to moderate in 2011. In
comparison, 2010’s expenditures were more volatile quarter to quarter, totaling $4,073,000, $415,000,
$1,436,000 and $9,885,000 for the first, second, third and fourth quarters of 2010, respectively, summing to
$15,809,000 for 2010 as a result of more nonperforming loans moving to foreclosure and sale. These costs
summed to $6,327,000 during 2009. Of the $6,032,000 total for 2011, assets disposition costs summed to
$2,281,000 and losses on OREO and repossessed assets totaled $3,751,000. The Company expects no material
change in these costs in 2012.
Other noninterest expenses decreased $592,000 or 6.3 percent to $8,821,000 for 2011 compared to a year
ago, and were $498,000 or 5.6 percent higher when comparing 2010 to 2009. One-time cash settlements for a
branch lease of $150,000 and to a client of Seacoast National’s brokerage subsidiary (for $350,000) recorded
during 2010, combined with the reversal of $184,000 during the second quarter of 2011 for a favorable outcome
on the brokerage settlement, accounted for $684,000 of the decrease for 2011 from 2010. The accruals for these
items in 2010 accounted for most of the increase of $498,000 year over year compared to 2009.
Interest Rate Sensitivity
Fluctuations in interest rates may result in changes in the fair value of the Company’s financial instruments,
cash flows and net interest income. This risk is managed using simulation modeling to calculate the most likely
interest rate risk utilizing estimated loan and deposit growth. The objective is to optimize the Company’s
financial position, liquidity, and net interest income while limiting their volatility.
Senior management regularly reviews the overall interest rate risk position and evaluates strategies to
manage the risk. The Company’s fourth quarter 2011 Asset and Liability Management Committee (“ALCO”)
model simulation indicates net interest income would increase 7.2 percent if interest rates are shocked 200 basis
points up over the next 12 months and 3.8 percent if interest rates are shocked up 100 basis points. Recent
regulatory guidance has placed more emphasis on rate shocks.
The Company had a positive gap position based on contractual and prepayment assumptions for the next 12
months, with a positive cumulative interest rate sensitivity gap as a percentage of total earning assets of 5.6
percent at December 31, 2011. This result includes assumptions for core deposit re-pricing recently validated for
the Company by an independent third party consulting group.
The computations of interest rate risk do not necessarily include certain actions management may undertake
to manage this risk in response to changes in interest rates. Derivative financial instruments, such as interest rate
swaps, options, caps, floors, futures and forward contracts may be utilized as components of the Company’s risk
management profile.
Market Risk
Market risk refers to potential losses arising from changes in interest rates, and other relevant market rates
or prices.
Interest rate risk, defined as the exposure of net interest income and Economic Value of Equity, or “EVE,”
to adverse movements in interest rates, is the Company’s primary market risk, and mainly arises from the
structure of the balance sheet (non-trading activities). The Company is also exposed to market risk in its
35
investing activities. The Company’s Asset/Liability Committee, or “ALCO,” meets regularly and is responsible
for reviewing the interest rate sensitivity position of the Company and establishing policies to monitor and limit
exposure to interest rate risk. The policies established by the ALCO are reviewed and approved by the
Company’s board of directors. The primary goal of interest rate risk management is to control exposure to
interest rate risk, within policy limits approved by the Board. These limits reflect the Company’s tolerance for
interest rate risk over short-term and long-term horizons.
The Company also performs valuation analyses, which are used for evaluating levels of risk present in the
balance sheet that might not be taken into account in the net interest income simulation analyses. Whereas the net
interest income simulation highlights exposures over a relatively short time horizon, valuation analysis incorporates
all cash flows over the estimated remaining life of all balance sheet positions. The valuation of the balance sheet, at
a point in time, is defined as the discounted present value of asset cash flows minus the discounted value of liability
cash flows, the net result of which is the EVE. The sensitivity of EVE to changes in the level of interest rates is a
measure of the longer-term re-pricing risks and options risks embedded in the balance sheet. In contrast to the net
interest income simulation, which assumes interest rates will change over a period of time, EVE uses instantaneous
changes in rates. EVE values only the current balance sheet, and does not incorporate the growth assumptions that
are used in the net interest income simulation model. As with the net interest income simulation model, assumptions
about the timing and variability of balance sheet cash flows are critical in the EVE analysis. Particularly important
are the assumptions driving prepayments and the expected changes in balances and pricing of the indeterminate life
deposit portfolios. Based on our fourth quarter 2011 modeling, an instantaneous 100 basis point increase in rates is
estimated to decrease the EVE 2.9 percent versus the EVE in a stable rate environment, while a 200 basis point
increase in rates is estimated to decrease the EVE 7.3 percent.
While an instantaneous and severe shift in interest rates is used in this analysis to provide an estimate of
exposure under an extremely adverse scenario, a gradual shift in interest rates would have a much more modest
impact. Since EVE measures the discounted present value of cash flows over the estimated lives of instruments,
the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter time
horizon, i.e., the next fiscal year. Further, EVE does not take into account factors such as future balance sheet
growth, changes in product mix, change in yield curve relationships, and changing product spreads that could
mitigate the adverse impact of changes in interest rates.
Liquidity Risk Management and Contractual Commitments
Liquidity risk involves the risk of being unable to fund assets with the appropriate duration and rate-based
liability, as well as the risk of not being able to meet unexpected cash needs. Liquidity planning and management
are necessary to ensure the ability to fund operations cost effectively and to meet current and future potential
obligations such as loan commitments and unexpected deposit outflows.
In the table that follows, all deposits with indeterminate maturities such as demand deposits, NOW
accounts, savings accounts and money market accounts are presented as having a maturity of one year or less.
Contractual Commitments
December 31, 2011
Total
One year
or less
Over one
year through
three years
Over three
years
through
five years
Deposit maturities . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . .
Borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debt
. . . . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,718,741
136,252
50,000
53,610
28,147
$1,641,336
136,252
—
—
3,427
(In thousands)
$52,910
—
—
—
5,585
$24,455
—
—
—
4,558
Over five
years
$
40
—
50,000
53,610
14,577
$1,986,750
$1,781,015
$58,495
$29,013
$118,227
36
Funding sources primarily include customer-based core deposits, collateral-backed borrowings, cash flows
from operations, and asset securitizations and sales.
Cash flows from operations are a significant component of liquidity risk management and we consider both
deposit maturities and the scheduled cash flows from loan and investment maturities and payments. Deposits are
also a primary source of liquidity. The stability of this funding source is affected by numerous factors, including
returns available to customers on alternative investments, the quality of customer service levels, safety and
competitive forces. We routinely use securities and loans as collateral for secured borrowings. In the event of
severe market disruptions, we have access to secured borrowings through the FHLB and the Federal Reserve
Bank of Atlanta.
Contractual maturities for assets and liabilities are reviewed to meet current and expected future liquidity
requirements. Sources of liquidity, both anticipated and unanticipated, are maintained through a portfolio of high
quality marketable assets, such as residential mortgage loans, securities held for sale and interest bearing
deposits. The Company also has access to borrowed funds such as an FHLB line of credit and the Federal
Reserve Bank of Atlanta borrower-in-custody program. The Company is also able to provide short term
financing of its activities by selling, under an agreement to repurchase, United States Treasury and Government
agency securities not pledged to secure public deposits or trust funds. At December 31, 2011, Seacoast National
had available lines of credit under current lendable collateral value, which are subject to change, of $441 million
and unsecured federal fund lines of credit of $40 million. Seacoast National had $378 million of United States
Treasury and Government agency securities and mortgage backed securities not pledged and available for use
under repurchase agreements, and had an additional $189 million in residential and commercial real estate loans
available as collateral. In comparison, at December 31, 2010, the Company had available lines of credit of $340
million, and had $120 million of Treasury and Government agency securities and mortgage backed securities not
pledged and available for use under repurchase agreements, as well as an additional $212 million in residential
and commercial real estate loans available as collateral.
Liquidity, as measured in the form of cash and cash equivalents (including interest bearing deposits), totaled
$167,081,000 on a consolidated basis at December 31, 2011 as compared to $211,405,000 at December 31, 2010,
as a result of increases in the investment portfolio. The composition of cash and cash equivalents has changed
from a year ago. Over the past twelve months, cash and due from banks increased $5,778,000 to $41,136,000 and
interest bearing deposits decreased to $125,945,000 from $176,047,000 as a result of increased reserve
requirements for deposits. The interest bearing deposits are maintained in Seacoast National’s account at the
Federal Reserve Bank of Atlanta. Cash and cash equivalents vary with seasonal deposit movements and are
generally higher in the winter than in the summer, and vary with the level of principal repayments and
investment activity occurring in Seacoast National’s securities and loan portfolios.
The Company does not rely or is dependent on off-balance sheet financing or wholesale funding.
The Company is a legal entity separate and distinct from Seacoast National and its other subsidiaries.
Various legal limitations, including Section 23A and 23B of the Federal Reserve Act and Federal Reserve
Regulation W, restrict Seacoast National from lending or otherwise supplying funds to the Company or its
non-bank subsidiaries. The Company has traditionally relied upon dividends from Seacoast National and
securities offerings to provide funds to pay the Company’s expenses, to service the Company’s debt and to pay
dividends upon Company common stock and preferred stock. In 2008 and 2007, Seacoast National paid
dividends to the Company that exceeded its earnings in those years. Seacoast National cannot currently pay
dividends to the Company without prior OCC approval. At December 31, 2011, the Company had cash and cash
equivalents at the parent of approximately $11.1 million. In comparison, at December 31, 2010, the Company
had cash and cash equivalents at the parent of approximately $21.6 million. During the third quarter of 2011, the
Company remitted all deferred and current dividends due upon its Series A preferred stock issued through the
TARP CPP as well as distributions on its subordinated debt related to trust preferred securities issued through
affiliated trusts. All of the TARP CPP funds received in December 2008 have been contributed as additional
capital to Seacoast National. Additional losses could prolong Seacoast National’s inability to pay dividends to its
parent without regulatory approval (see “Capital Resources”).
37
Off-Balance Sheet Transactions
In the normal course of business, we engage in a variety of financial transactions that, under generally
accepted accounting principles, either are not recorded on the balance sheet or are recorded on the balance sheet
in amounts that differ from the full contract or notional amounts. These transactions involve varying elements of
market, credit and liquidity risk.
Lending commitments include unfunded loan commitments and standby and commercial letters of credit. A
large majority of loan commitments and standby letters of credit expire without being funded, and accordingly,
total contractual amounts are not representative of our actual future credit exposure or liquidity requirements.
Loan commitments and letters of credit expose the Company to credit risk in the event that the customer draws
on the commitment and subsequently fails to perform under the terms of the lending agreement.
Loan commitments to customers are made in the normal course of our commercial and retail lending
businesses. For commercial customers, loan commitments generally take the form of revolving credit
arrangements. For retail customers, loan commitments generally are lines of credit secured by residential
property. These instruments are not recorded on the balance sheet until funds are advanced under the
commitment. For loan commitments, the contractual amount of a commitment represents the maximum potential
credit risk that could result if the entire commitment had been funded, the borrower had not performed according
to the terms of the contract, and no collateral had been provided. Loan commitments were $106 million at
December 31, 2011, and $90 million at December 31, 2010 (see “Note P-Contingent Liabilities and
Commitments with Off-Balance Sheet Risk” to the Company’s consolidated financial statements).
Income Taxes
The provision for the income taxes (benefits) for 2011 totaled $2.9 million and the benefit for the net loss
for 2010 totaled $12.6 million. The deferred tax valuation allowance was decreased or increased by a like
amount, and therefore there was no change in the carrying value of deferred tax assets (see “Critical Accounting
Estimates – Deferred Tax Assets”). We anticipate that we will be able to place increased reliance on our forecast
of future taxable earnings, which would result in realization of future tax benefits (see “Note L – Income Taxes”
to the Company’s consolidated financial statements).
Capital Resources
Table 8 summarizes the Company’s capital position and selected ratios. The Company’s equity capital at
December 31, 2011 totaled $170.1 million and the ratio of shareholders’ equity to period end total assets was
7.96 percent, compared with 8.25 percent at December 31, 2010, and 7.06 percent at December 31, 2009.
Seacoast’s management uses certain “non-GAAP” financial measures in its analysis of the Company’s capital
adequacy. Seacoast’s management uses this measure to assess the quality of capital and believes that investors
may find it useful in their analysis of the Company. This capital measure is not necessarily comparable to similar
capital measures that may be presented by other companies.
The Company’s capital position remains strong, meeting the general definition of “well capitalized”, with a
total risk-based capital ratio of 18.77 percent at December 31, 2011, higher than December 31, 2010’s ratio of
17.84 percent and higher than 15.16 percent at December 31, 2009. The Bank agreed with its primary regulator,
the OCC, to maintain a Tier 1 capital (to adjusted average assets) (“leverage ratio”) ratio of at least 7.50 percent
and a total risk-based capital ratio of at least 12.00 percent as of March 31, 2009. Subsequently, as of January 31,
2010, following our capital raise, the Bank agreed to maintain a leverage ratio minimum of 8.50 percent. As of
December 31, 2011, the Bank’s leverage ratio was 9.79 percent, compared to 9.29 percent at December 31, 2010
and 8.43 percent at December 31, 2009. The agreement with the OCC as to minimum capital ratios does not
change the Bank’s status as “well-capitalized” for bank regulatory purposes, to which the Bank is currently in
compliance.
38
The Company and Seacoast National are subject to various general regulatory policies and requirements
relating to the payment of dividends, including requirements to maintain adequate capital above regulatory
minimums. The appropriate federal bank regulatory authority may prohibit the payment of dividends where it has
determined that the payment of dividends would be an unsafe or unsound practice. The Company is a legal entity
separate and distinct from Seacoast National and its other subsidiaries, and the Company’s primary source of
cash and liquidity, other than securities offerings and borrowings, is dividends from its bank subsidiary. Prior
OCC approval presently is required for any payments of dividends from Seacoast National to the Company.
The OCC and the Federal Reserve have policies that encourage banks and bank holding companies to pay
dividends from current earnings, and have the general authority to limit the dividends paid by national banks and
bank holding companies, respectively, if such payment may be deemed to constitute an unsafe or unsound
practice. If, in the particular circumstances, either of these federal regulators determined that the payment of
dividends would constitute an unsafe or unsound banking practice, either the OCC or the Federal Reserve may,
among other things, issue a cease and desist order prohibiting the payment of dividends by Seacoast National or
us, respectively. Under a recently adopted Federal Reserve policy, the board of directors of a bank holding
company must consider different factors to ensure that its dividend level is prudent relative to the organization’s
financial position and is not based on overly optimistic earnings scenarios such as any potential events that may
occur before the payment date that could affect its ability to pay, while still maintaining a strong financial
position. As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding
company, such as Seacoast, should consult with the Federal Reserve and eliminate, defer, or significantly reduce
the bank holding company’s dividends if: (i) its net income available to shareholders for the past four quarters,
net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) its
prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective
financial condition; or (iii) it will not meet, or is in danger of not meeting, its minimum regulatory capital
adequacy ratios.
As a result of our participation in the TARP CPP program, additional restrictions have been imposed on our
ability to declare or increase dividends on shares of our common stock. Specifically, we are unable to declare
dividend payments on our common, junior preferred or pari passu preferred shares if we are in arrears on the
dividends on the Series A Preferred Stock. Further, prior to December 19, 2011, without the Treasury’s approval,
we were not permitted to increase dividends on our common stock above $0.01 per share unless all of the Series
A Preferred Stock had been redeemed or transferred by the Treasury. In addition, we cannot repurchase shares of
common stock or use proceeds from the Series A Preferred Stock to repurchase trust preferred securities. Further,
our common, junior preferred or pari passu preferred shares may not be repurchased if we have not declared and
paid all Series A Preferred Stock dividends.
Beginning in the third quarter of 2008, we reduced the dividend on our common stock to $0.01 per share
and, as of May 19, 2009, we suspended the payment of dividends. On May 19, 2009, our board of directors
decided to suspend regular quarterly cash dividends on our outstanding common stock and Series A Preferred
Stock based on discussions with the Federal Reserve and a review of recently adopted Federal Reserve policies
related to dividends and other distributions. The Company also suspended the payment of dividends on its trust
preferred securities.
On August 15, 2011, the Federal Reserve approved payment of deferred dividends on the Series A Preferred
Stock and deferred interest payments on our trust preferred securities. As a result, we remitted a payment for the
Series A Preferred Stock of $6,614,000 and interest payments on the trust preferred securities aggregating to
$2,675,000 during the third quarter of 2011, bringing the Company’s payment obligations on these securities
current. The Company has paid all subsequent dividends and interest payments on these securities. The Company
is required to continue to consult with the Federal Reserve and will seek approval each quarter before making
these payments.
Our $50 million in Series A Preferred Stock issued to Treasury is an important component of our capital
structure. On March 14, 2012, Treasury announced its intention to sell its investment in our Company to third
39
parties and we may be given an opportunity to be one of the bidders for some or all of the preferred stock. At this
time, we do not know if Treasury’s sale will occur, or what terms and conditions will apply should such a sale
occur. Likewise, we do not know whether we will want to participate or be permitted to participate in any such
process and whether our participation will require the issuance of additional securities or borrowings to complete
the repurchase and support our capital structure. We continue to believe that the achievement of our earnings and
asset quality objectives are a priority and may precede any decision by us to repurchase the Series A Preferred
Stock, regardless of whether Treasury or other third parties own the securities. We regularly consider various
scenarios for repurchase of the Series A Preferred Stock, based on our outlook for earnings and asset quality. Our
outlook currently suggests repurchase of the Series A Preferred Stock in smaller installments out of future
earnings is possible. An important consideration will be the recovery of our deferred tax valuation allowance
which could significantly improve our tangible common equity. Another important consideration will be the
future capacity and ability of Seacoast National to pay dividends to the Company.
Securities Offerings
A stock offering was completed during April of 2010 adding $50 million of Series B Mandatorily
Convertible Noncumulative Nonvoting Preferred Stock (“Series B Preferred Stock”) as permanent capital,
resulting in approximately $47.1 million in additional Tier 1 risk-based equity, net of issuance costs. The shares
of Series B Preferred Stock were mandatorily converted into common shares five days subsequent to shareholder
approval, which was granted at the Company’s annual meeting on June 22, 2010. Upon the conversion of the
Series B Preferred Stock, approximately 34,465,000 shares of the Company’s common stock were issued
pursuant to the Investment Agreement, dated as of April 8, 2010 between the Company and the investors, a copy
of which was filed with the SEC on July 14, 2010 as Exhibit 10.1 to the Company’s Form 8-K/A.
Financial Condition
Total assets increased $120,994,000 or 6.0 percent to $2,137,375,000 at December 31, 2011, after
decreasing $134,934,000 or 6.3 percent to $2,016,381,000 in 2010.
Loan Portfolio
Table 9 shows total loans (net of unearned income) for commercial and residential real estate, commercial
and financial and consumer loans outstanding.
The Company defines commercial real estate in accordance with the guidance on “Concentrations in
Commercial Real Estate Lending” (the “Guidance”) issued by the federal bank regulatory agencies in 2006,
which defines commercial real estate (“CRE”) loans as exposures secured by land development and construction,
including 1-4 family residential construction, multi-family property, and non-farm nonresidential property where
the primary or a significant source of repayment is derived from rental income associated with the property (i.e.
loans for which 50 percent or more of the source of repayment comes from third party, non-affiliated, rental
income) or the proceeds of the sale, refinancing, or permanent financing of the property. Loans to real estate
investment trusts, or “REITs”, and unsecured loans to developers that closely correlate to the inherent risks in
CRE markets would also be considered CRE loans under the Guidance. Loans on owner occupied CRE are
generally excluded.
Total loans (net of unearned income and excluding the allowance for loan losses) were $1,208,074,000 at
December 31, 2011, $32,534,000 or 2.6 percent less than at December 31, 2010, and were $1,240,608,000 at
December 31, 2010, $156,895,000 or 11.2 percent lower than at December 31, 2009.
Overall loan growth was negative when comparing outstanding balances at December 31,
2011, December 31, 2010 and December 31, 2009, as a result of the economic recession, including lower
demand for commercial loans, and the Company’s successful divestiture of specific problem loans (including
40
residential construction and land development loans) through loan sales. Total problem loans sold in 2011, 2010
and 2009 totaled $28 million, $28 million, and $89 million, respectively, with the Company significantly
reducing its exposure to construction and land development loans and improving its overall risk profile.
As shown in the supplemental loan table below, construction and land development loans declined $30.1
million or 38.0 percent to $49.2 million from December 31, 2010. The primary cause for the decrease in
construction and land development loans was a reduction in commercial construction and land development
loans for residential and commercial properties of $2.7 million or 19.3 percent and $22.5 million or 66.6 percent,
respectively. Total outstanding balances for each of these portfolios were reduced to $11.3 million, respectively,
at December 31, 2011. Construction and land development loans to individuals for personal residences included
in total construction and land development loans were lower as well, declining $4.9 million or 15.6 percent to
$26.6 million at December 31, 2011.
Construction and land development loans, including loans secured by commercial real estate, were
comprised of the following types of loans at December 31, 2011 and 2010:
December 31
Construction and land development*
Residential:
2011
2010
Funded Unfunded
Total
Funded Unfunded
Total
(In millions)
$ —
Condominiums . . . . . . . . . . . . . . . . . . . . . . . . .
Town homes . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Single Family Residences . . . . . . . . . . . . . . . . . —
6.2
Single Family Land & Lots . . . . . . . . . . . . . . .
5.1
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.3
$ —
—
—
—
—
—
$ — $ 0.9
—
—
6.2
5.1
—
—
7.0
6.1
11.3
14.0
$—
—
—
—
—
—
Commercial:
Office buildings . . . . . . . . . . . . . . . . . . . . . . . .
0.2
Retail trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.3
Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
. . . . . . . . . . . . . . . . . .
Churches & educational
Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.1
Lodging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Convenience Stores . . . . . . . . . . . . . . . . . . . . . .
1.7
Marina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Individuals:
Lot loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.3
22.6
17.9
8.7
26.6
0.2
—
—
—
—
0.3
—
0.3
—
—
0.8
0.8
—
17.6
17.6
0.4 —
—
—
33.6
9.3
—
—
—
—
0.4 —
—
—
0.2
2.0
—
—
—
—
12.1
23.4
17.9
26.3
44.2
33.8
47.8
24.4
7.1
31.5
—
—
0.1
—
—
—
—
0.4
—
—
0.5
0.5
—
7.9
7.9
$ 0.9
—
—
7.0
6.1
14.0
—
—
33.7
—
—
—
—
0.6
—
—
34.3
48.3
24.4
15.0
39.4
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$49.2
$18.4
$67.6
$79.3
$ 8.4
$87.7
* Reassessment of collateral assigned to a particular loan over time may result in amounts being reassigned to a
more appropriate loan type representing the loan’s intended purpose, and for comparison purposes prior
period amounts have been restated to reflect the change.
41
Commercial real estate mortgages were lower by $35.2 million or 6.5 percent to $508.4 million at
December 31, 2011. The Company’s ten largest commercial real estate funded and unfunded loan relationships at
December 31, 2011 aggregated to $128.7 million (versus $151.5 million a year ago) and for the top 25
commercial real estate relationships in excess of $5 million the aggregate funded and unfunded totaled $234.2
million (compared to 30 relationships to $292.5 million a year ago).
Commercial real estate mortgage loans, excluding construction and development loans, were comprised of
the following loan types at December 31, 2011 and 2010:
December 31
2011
2010
Funded Unfunded
Total
Funded Unfunded
Total
Office buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Churches and educational facilities . . . . . . . . . . . . . . .
Recreation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mobile home parks . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lodging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restaurant
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convenience Stores . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
$119.6
140.6
70.7
38.8
27.4
3.2
9.4
2.2
19.6
4.7
8.8
15.1
21.3
27.0
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$508.4
$ 0.9
—
—
0.9
—
0.1
—
—
—
—
0.8
—
—
0.2
$ 2.9
(In millions)
$120.5
140.6
70.7
39.7
27.4
3.3
9.4
2.2
19.6
4.7
9.6
15.1
21.3
27.2
$122.0
151.5
78.0
30.0
28.8
2.9
22.4
2.5
21.9
4.5
10.6
18.6
21.9
28.0
$511.3
$543.6
$ 0.9
—
0.1
0.5
—
—
—
—
—
—
0.4
—
—
0.2
$ 2.1
$122.9
151.5
78.1
30.5
28.8
2.9
22.4
2.5
21.9
4.5
11.0
18.6
21.9
28.2
$545.7
Fixed rate and adjustable rate loans secured by commercial real estate, excluding construction loans, totaled
approximately $317 million and $191 million, respectively, at December 31, 2011, compared to $329 million and
$215 million, respectively, a year ago.
Residential mortgage lending is an important segment of the Company’s lending activities. The Company
has never offered sub-prime, Alt A, Option ARM or any negative amortizing residential loans, programs or
products, although we have originated and hold residential mortgage loans from borrowers with original or
current FICO credit scores that are less than “prime.” Substantially all residential originations have been
underwritten to conventional loan agency standards, including loans having balances that exceed agency value
limitations. The Company selectively adds residential mortgage loans to its portfolio, primarily loans with
adjustable rates. The Company’s asset mitigation staff handle all foreclosure actions together with outside legal
counsel and have never had foreclosure documentation or processes questioned by any party involved in the
transaction.
Exposure to market interest rate volatility with respect to long-term fixed rate mortgage loans held for
investment is managed by attempting to match maturities and re-pricing opportunities and through loan sales of
most fixed rate product. For 2011, closed residential mortgage loan production totaled $191 million. Production
improved during each quarter in 2011 as did sales of mortgages servicing released, with production and sales by
quarter as follows: fourth quarter 2011 production totaled $56 million, of which $21 million was sold servicing-
released, third quarter 2011 production totaled $53 million, of which $17 million was sold servicing-released,
second quarter 2011 production totaled $50 million, of which $18 million was sold servicing-released, and first
quarter 2011 production totaled $32 million, with $13 million sold servicing-released.
42
Adjustable and fixed rate residential real estate mortgages were higher at December 31, 2011, by $30.8
million or 10.2 percent and $14.4 million or 17.4 percent, respectively, compared to a year ago. At December 31,
2011, approximately $334 million or 61 percent of the Company’s residential mortgage balances were adjustable,
compared to $303 million or 59 percent at December 31, 2010. Loans secured by residential properties having
fixed rates totaled approximately $97 million at December 31, 2011, of which 15- and 30-year mortgages totaled
approximately $27 million and $70 million, respectively. The remaining fixed rate balances were comprised of
home improvement loans, most with maturities of 10 years or less, that declined $13.1 million or 17.9 percent
since December 31, 2010. In comparison, loans secured by residential properties having fixed rates totaled
approximately $83 million at December 31, 2010, with 15- and 30-year fixed rate residential mortgages totaling
approximately $26 million and $57 million, respectively. The Company also has a small home equity line
portfolio totaling approximately $55 million at December 31, 2011, slightly lower than the $58 million that was
outstanding at December 31, 2010.
Reflecting the impact on lending of the economic downturn, commercial loans increased $4.3 million or 8.8
percent year over year and totaled $53.1 million at December 31, 2011, compared to $48.8 million a year ago.
Commercial lending activities are directed principally towards businesses whose demand for funds are within the
Company’s lending limits, such as small- to medium-sized professional firms, retail and wholesale outlets, and
light industrial and manufacturing concerns. Such businesses are smaller and subject to the risks of lending to
small to medium sized businesses, including, but not limited to, the effects of a downturn in the local economy,
possible business failure, and insufficient cash flows.
The Company also provides consumer loans (including installment loans, loans for automobiles, boats, and
other personal, family and household purposes, and indirect loans through dealers to finance automobiles) which
decreased $1.0 million or 1.9 percent year over year and totaled $50.6 million (versus $51.6 million a year ago).
In addition, real estate construction loans to individuals secured by residential properties totaled $8.7 million
(versus $7.1 million a year ago), and residential lot loans to individuals which totaled $17.9 million (versus $24.4
million a year ago).
At December 31, 2011, the Company had commitments to make loans of $106.2 million, compared to $90.4
million at December 31, 2010 and $97.3 million at December 31, 2009 (see “Note P - Contingent Liabilities and
Commitments with Off-Balance Sheet Risk” to the Company’s consolidated financial statements).
Loan Concentrations
Over the past five years, the Company has been pursuing an aggressive program to reduce exposure to loan
types that have been most impacted by stressed market conditions in order to achieve lower levels of credit loss
volatility. The program included aggressive collection efforts, loan sales and early stage loss mitigation strategies
focused on the Company’s largest loans. Successful execution of this program has significantly reduced our
exposure to larger balance loan relationships (including multiple loans to a single borrower or borrower group).
Commercial loan relationships greater than $10 million were reduced by $487.5 million to $110.1 million at
December 31, 2011 compared with year-end 2007, when the program started.
Commercial Relationships Greater than $10 Million (dollars in thousands)
December 31,
2011
2010
2009
2008
2007
Performing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performing TDR* . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonaccrual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 84,610
25,494
—
$112,469
28,286
20,913
$145,797
31,152
28,525
$374,241
—
14,873
$592,408
—
5,152
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$110,104
$161,668
$205,474
$389,114
$597,560
Top 10 Customer Loan Relationships . . . . . . . . . . . . .
$128,739
$151,503
$173,162
$228,800
$266,702
* TDR = Troubled debt restructures
43
Commercial loan relationships greater than $10 million as a percent of tier 1 capital and the allowance for
loan losses was reduced to 45.8 percent at December 31, 2011, compared with 66.5 percent at year-end 2010,
85.9 percent at year-end 2009, 162.1 percent at the end of 2008 and 258.1 percent at the end of 2007.
Concentrations in total construction and development loans and total commercial real estate (CRE) loans
have also been substantially reduced. As shown in the table below, under regulatory guidance for construction
and land development and commercial real estate loan concentrations as a percentage of total risk based capital,
Seacoast National’s loan portfolio in these categories (as defined in the guidance) have improved.
December 31,
2011
2010
2009
2008
2007
Construction & Land Development Loans to Total Risk Based Capital
. . . . . . . .
CRE Loans to Total Risk Based Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22% 39% 81% 206% 265%
174% 218% 274% 389% 390%
Below is the geographic location of the Company’s construction and land development loans (excluding
loans to individuals) as a percentage of total construction and land development loans. The significant percentage
increase in several of the counties at December 31, 2011 was caused by the decline in total construction and land
development loans, which declined from $47.8 million at December 31, 2010 to $22.6 million at December 30,
2011 as a result of one large commercial land loan in Palm Beach county being collected.
Florida County
St. Lucie . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brevard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Martin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Okeechobee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Palm Beach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indian River . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Broward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Orange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lake . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hendry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Columbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charlotte . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Collier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Highlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miami-Dade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volusia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pinellas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of Total Construction
and Land Development
Loans
2011
2010
2009
24.8
15.5
15.2
11.6
9.1
8.7
6.6
2.6
2.3
2.1
1.0
0.4
0.0
0.0
0.0
0.0
0.0
0.0
0.1
12.0
7.5
9.6
5.4
50.1
4.9
0.0
1.9
1.1
1.4
0.5
0.2
1.9
3.5
0.0
0.0
0.0
0.0
0.0
16.6
9.7
6.0
2.3
23.5
13.6
3.6
2.8
0.4
1.1
1.1
0.0
0.7
1.9
0.2
6.9
9.0
0.4
0.2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.0
100.0
100.0
Deposits and Borrowings
The Company’s balance sheet continues to be primarily core funded. The Company utilizes a focused retail
deposit growth strategy that has successfully generated core deposit relationships and increased services per
household since its implementation in the first quarter of 2008. During the first, second, third and fourth quarters
of 2011, Seacoast National added 2,146, 1,825, 2,093 and 1,833 in new core deposit households, respectively, up
by 470 new deposit households or 28.0 percent, 179 new deposit households or 10.8 percent, 275 new deposit
households or 15.1 percent and 484 new deposit households or 35.9 compared to the same quarters in 2010. New
44
core household growth increased by 21.6 percent over 2011 with new personal checking relationships up 20.2
percent and new commercial business checking relationships increasing 27.3 percent compared to 2010.
Total deposits increased $81,513,000, or 5.0 percent, to $1,718,741,000 at December 31, 2011 compared to
one year earlier. Declining brokered deposits and single service time deposits were more than offset by
increasing low cost or no cost deposits. Since December 31, 2010, interest bearing deposits (NOW, savings and
money markets deposits) increased $109,736,000 or 13.5 percent to $922,361,000, noninterest bearing demand
deposits increased $38,735,000 or 13.4 percent to $328,356,000, and CDs decreased $66,958,000 or 12.5 percent
to $468,024,000. During 2010, total deposits decreased $142,206,000, or 8.0 percent, to $1,637,228,000 at
December 31, 2010 compared to December 31, 2009. The decrease was primarily related to declining brokered
deposits and single service time deposits.
Securities sold under repurchase agreements increased over the past twelve months by $38,039,000 or 38.7
percent to $136,252,000 at December 31, 2011. Repurchase agreements are offered by Seacoast National to
select customers who wish to sweep excess balances on a daily basis for investment purposes. Public funds
comprise a significant amount of the outstanding balance, with safety a major concern for these customers. At
December 31, 2011, the number of sweep repurchase accounts was 168, compared to 165 a year ago.
At December 31, 2011, other borrowings were comprised of subordinated debt of $53.6 million related to
trust preferred securities issued by trusts organized by the Company, and advances from the Federal Home Loan
Bank (“FHLB”) of $50.0 million. The FHLB advances mature in 2017. For 2011 and 2010, the weighted average
cost of our FHLB advances was 3.22 percent, unchanged.
The Company has two wholly owned trust subsidiaries, SBCF Capital Trust I and SBCF Statutory Trust II
that were both formed in 2005. In 2007, the Company formed an additional wholly owned trust subsidiary, SBCF
Statutory Trust III. The 2005 trusts each issued $20.0 million (totaling $40.0 million) of trust preferred securities
and the 2007 trust issued an additional $12.0 million in trust preferred securities. All trust preferred securities are
guaranteed by the Company on a junior subordinated basis. The Federal Reserve’s rules permit qualified trust
preferred securities and other restricted capital elements to be included as Tier 1 capital up to 25 percent of core
capital, net of goodwill and intangibles. The Company believes that its trust preferred securities qualify under
these revised regulatory capital rules and expects that it will be able to treat all $52.0 million of trust preferred
securities as Tier 1 capital. For regulatory purposes, the trust preferred securities are added to the Company’s
tangible common shareholders’ equity to calculate Tier 1 capital. The weighted average interest rate of our
outstanding subordinated debt related to trust preferred securities was 1.71 percent during 2011, compared to
1.91 percent during 2010. The Company also formed SBCF Capital Trust IV and SBCF Capital Trust V in 2008,
however, both are currently inactive.
Effects of Inflation and Changing Prices
The consolidated financial statements and related financial data presented herein have been prepared in
accordance with U.S. GAAP, which require the measurement of financial position and operating results in terms
of historical dollars, without considering changes in the relative purchasing power of money, over time, due to
inflation.
Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s
performance than the general level of inflation. However, inflation affects financial institutions by increasing
their cost of goods and services purchased, as well as the cost of salaries and benefits, occupancy expense, and
similar items. Inflation and related increases in interest rates generally decrease the market value of investments
and loans held and may adversely affect liquidity, earnings, and shareholders’ equity. Mortgage originations and
re-financings tend to slow as interest rates increase, and higher interest rates likely will reduce the Company’s
earnings from such activities and the income from the sale of residential mortgage loans in the secondary market.
45
Securities
Information related to yields, maturities, carrying values and unrealized gains (losses) of the Company’s
securities is set forth in Tables 15-18.
At December 31, 2011, the Company had $648,362,000 in securities available for sale (representing 97.0
percent of total securities), and securities held for investment of $19,977,000 (3.0 percent of total securities). The
Company's securities portfolio increased $206.3 million or 44.7 percent from December 31, 2010 and $51.3
million or 12.5 percent from December 31, 2009. The portfolio has increased as a result of deposit growth and
weak loan demand.
As part of the Company’s interest rate risk management process, an average duration for the securities
portfolio is targeted. In addition, securities are acquired which return principal monthly that can be reinvested.
Agency and private label mortgage backed securities and collateralized mortgage obligations comprise
$657,786,000 of total securities, approximately 98 percent of the portfolio. Remaining securities are largely
comprised of U.S. Treasury, and tax-exempt bonds issued by states, counties and municipalities.
The effective duration of the investment portfolio at December 31, 2011 was 2.3 years, compared to 2.9
years at December 31, 2010 and management believes it will maintain an effective duration between 2.0 to 3.0
over 2012.
Cash and due from banks and interest bearing deposits (aggregated) totaled $167,081,000 at December 31,
2011, compared to $211,405,000 at December 31, 2010, which reflects the investment of funds in the securities
portfolio during 2011. The Company has maintained additional liquidity during the uncertain environment and
may use additional funds to increase loans and investments as the economy continues to improve.
At December 31, 2011, available for sale securities had gross losses of $3,840,000 and gross gains of
$12,355,000, compared to gross losses of $3,748,000 and gross gains of $6,734,000 at December 31, 2010. All of
the securities with unrealized losses are reviewed for other-than-temporary impairment at least quarterly. As a
result of these reviews during the first, second, third and fourth quarters of 2011 and 2010, it was determined that
the unrealized losses were not other than temporarily impaired and the Company has the intent and ability to
retain these securities until recovery over the periods presented (see additional discussion under “Critical
Accounting Estimates-Fair Value and Other than Temporary Impairment of Securities Classified as Available for
Sale”).
Company management considers the overall quality of the securities portfolio to be high. The Company has
no exposure to securities with subprime collateral and had no Fannie Mae or Freddie Mac preferred stock when
these entities were placed in conservatorship. The Company holds no interests in trust preferred securities.
Fourth Quarter Review
Net income available to common shareholders for the fourth quarter of 2011 totaled $1,611,000 or $0.02 per
average common diluted share, compared to the third and second quarter 2011’s net income of $1,711,000 or
$0.02 per average common diluted share and $176,000 or $0.00 per average common diluted share, respectively,
and first quarter 2011’s net loss available to common shareholders of $579,000 or $0.01 per average common
diluted share. The net income available to common shareholders in 2011 reflects a significant improvement when
compared to a loss in 2010 for the fourth quarter of $11,142,000 or $0.12 per average common diluted share. The
improved performance for 2011 primarily reflects lower credit costs through lower provisioning for loan losses
and releases from our ALL reserve.
Our net interest margin of 3.42 percent declined slightly, decreasing 2 basis points during the fourth quarter
of 2011 from the third quarter of 2011, and was identical to the fourth quarter 2010’s result. The Company has
continued to benefit from lower rates paid for interest bearing liabilities due to the Federal Reserve’s reduction in
46
interest rates, as well as, an improved mix of deposits and reduction of nonaccrual loans, but a changing earning
assets mix has been partially offsetting. The average cost of interest bearing liabilities was 10 basis points lower
for the fourth quarter 2011 compared to the third quarter of 2011, 8 basis points lower for the third quarter 2011,
compared to the second quarter of 2011, 3 basis points lower for the second quarter of 2011, compared to the first
quarter of 2011, and 3 basis points lower for the first quarter of 2011, compared to the fourth quarter of 2010,
resulting in a total reduction of 24 basis points over the last twelve months. The yield on earning assets declined
by 9 basis points during the fourth quarter of 2011, compared to the third quarter of 2011, and was 20 basis
points lower than for the fourth quarter of 2010. Loan demand was better in the third and fourth quarter of 2011
(compared to the first half of 2011) with improved loan production. However, we expect loan demand to
continue to be challenging in 2012, which may impede further improvement to the yield on earning assets.
Noninterest income (excluding securities gains and losses) totaled $4.9 million for the fourth quarter of
2011, compared to $4.7 million for the third quarter of 2011, $4.5 million for the second quarter of 2011, $4.2
million for the first quarter of 2011, and $5.3 million for the fourth quarter of 2010. Included in fourth quarter
2010’s result was a $600,000 gain on the sale of Seacoast National’s merchant income portfolio that is reflected
in other income. Signs of improved stability in home prices and greater transaction volumes resulted in fee
income from residential real estate production increasing by $100,000 over fourth quarter 2010’s result. Service
charges on deposit accounts were $9,000 higher when compared to fourth quarter 2010 and interchange income
increased $139,000 over the same period. Service charges and fees derived from customer relationships increased
as a result of more accounts and households as a result of our retail deposit growth strategy. Revenue from
wealth management services was $47,000 lower when compared to fourth quarter 2010, and marine finance fees
were $22,000 lower over the same period. Consumer activity and spending has been more robust despite weak
economic conditions and directly affects many of the Company’s fee-based business activities.
Noninterest expenses increased by $0.9 million versus third quarter 2011’s result, but were $7.8 million
lower when compared to the fourth quarter of 2010. Overhead related to FDIC insurance assessments, legal and
professional costs and most significantly, (on an aggregate basis) asset dispositions expense and losses on other
real estate owned and repossessed assets were lower compared to fourth quarter 2010, by $268,000, $484,000
and $8,356,000, respectively. The reduction in FDIC insurance assessments reflects the FDIC’s change in
methodology for calculating assessments on April 1, 2011 that has benefited the Company since its inception.
Legal and professional fees and asset disposition and losses on OREO reflect the decrease in problem assets in
2011, versus 2010. Increases from the fourth quarter of 2010 were primarily a result of salary and wages (up
$762,000, including $310,000 related to severance that will provide a quarterly reduction to wages of $125,000
prospectively), employee benefits (up $294,000, including higher group health costs of $223,000 for the fourth
quarter of 2011), and marketing costs [supporting our growth strategies] (higher by $183,000 year over year for
the fourth quarter of 2011).
A provision for loan losses of $0.4 million was recorded in the fourth quarter of 2011, compared to no
provisioning for the third quarter of 2011, $0.6 million and $0.9 million for the first and second quarters of 2011,
respectively, and $4.0 million for the fourth quarter of 2010. Provisions for loans losses were much higher during
2010 as a result of higher net charge-offs and the Company maintaining its allowance for loan losses to loans
outstanding ratio at 3.04 percent at December 31, 2010. The allowance for loan losses to loans outstanding ratio
at December 31, 2011 was 2.12 percent, reflecting improvement in credit quality.
47
Table 1 — Condensed Income Statement*
2011
2010
2009
(Tax equivalent basis)
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.25% 3.20% 3.31%
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.10
1.52
5.60
Noninterest income
Securities gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.06
0.89
Noninterest expense
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
3.77
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.18
0.87
—
4.31
0.24
0.79
2.24
3.61
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes including tax equivalent adjustment . . . . . . . . . . .
0.33
0.01
(1.58)
0.02
(7.11)
(0.53)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.32% (1.60)% (6.58)%
* As a Percent of Average Assets
Table 2 — Changes in Average Earning Assets
Increase/(Decrease)
2011 vs 2010
Increase/(Decrease)
2010 vs 2009
(Dollars in thousands)
Securities:
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nontaxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 163,271
(2,071)
39.6% $ 55,749
(1,530)
(38.2)
15.6%
(22.0)
Federal funds sold and other investments . . . . . . . . . . . . . . . . . . . . . . . . .
(66,479)
(28.9)
99,070
75.7
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(110,890)
(8.4)
(260,162)
(16.4)
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (16,169)
(0.8) $(106,873)
(5.1)
48
Table 3 — Rate/Volume Analysis (on a Tax Equivalent Basis)
2011 vs 2010
Due to Change in:
2010 vs 2009
Due to Change in:
Volume
Rate
Total
Volume
Rate
Total
(Dollars in thousands)
Amount of increase (decrease)
EARNING ASSETS
Securities
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,232
$(1,613)
$ 3,619
$ 2,218
$(4,694)
$ (2,476)
Nontaxable . . . . . . . . . . . . . . . . . . . . . . . .
(132)
1
(131)
(99)
(16)
(115)
5,100
(1,612)
3,488
2,119
(4,710)
(2,591)
Federal funds sold and other
investments . . . . . . . . . . . . . . . . . . . . . .
(305)
123
(182)
460
(142)
318
Loans, net
. . . . . . . . . . . . . . . . . . . . . . . . .
(5,757)
(1,351)
(7,108)
(13,788)
(1,588)
(15,376)
TOTAL EARNING ASSETS . . . . . . . . .
(962)
(2,840)
(3,802)
(11,209)
(6,440)
(17,649)
INTEREST BEARING LIABILITIES
NOW(2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings deposits . . . . . . . . . . . . . . . . . . . .
(21)
26
Money market accounts(2) . . . . . . . . . . . .
(120)
(455)
(79)
(932)
Time deposits . . . . . . . . . . . . . . . . . . . . . .
(1,150)
(1,580)
(476)
(53)
(1,052)
(2,730)
(3)
13
437
(2,911)
(829)
(204)
(1,493)
(4,493)
(832)
(191)
(1,056)
(7,404)
Federal funds purchased and other short
term borrowings . . . . . . . . . . . . . . . . . .
Other borrowings . . . . . . . . . . . . . . . . . . . .
TOTAL INTEREST BEARING
(1,265)
(3,046)
(4,311)
(2,464)
(7,019)
(9,483)
52
0
(13)
(104)
39
(104)
(96)
(368)
(98)
(242)
(194)
(610)
LIABILITIES . . . . . . . . . . . . . . . . . . .
(1,213)
(3,163)
(4,376)
(2,928)
(7,359)
(10,287)
NET INTEREST INCOME . . . . . . . . . .
$
251
$
323
$
574
$ (8,281)
$
919
$ (7,362)
(1) Changes attributable to rate/volume are allocated to rate and volume on an equal basis.
(2) Certain reclassifications have been made to prior years' presentation to conform to the current year
presentation.
Table 4 — Changes in Average Interest Bearing Liablities
Increase/(Decrease)
2011 vs 2010
Increase/(Decrease)
2010 vs 2009
(Dollars in thousands)
NOW(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (7,306)
(1.8)% $
(625)
(0.2)%
Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,180
17.1
4,882
4.8
Money market accounts(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(21,942)
(6.5)
47,151
16.1
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(63,002)
(10.9)
(125,327)
(17.9)
Federal funds purchased and other short term borrowings . . . . . . . . . . . .
19,389
22.3
(30,065)
(25.7)
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(13,110)
(11.2)
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(54,681)
(3.4)
$(117,094)
(6.7)
49
Table 5 — Three Year Summary
Average Balances, Interest Income and Expenses, Yields and Rates (1)
2011
2010
2009
Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
(Dollars in thousands)
EARNING ASSETS
Securities . . . . . . . . . . . . .
Taxable . . . . . . . . . . . . .
Nontaxable . . . . . . . . . .
Federal funds sold and
other investments . . . . .
Loans, net(2) . . . . . . . . . . .
TOTAL EARNING
$ 575,414
3,352
$17,500
214
3.04% $ 412,143
5,423
6.38
$13,881
345
3.37% $ 356,394
6,953
6.36
$ 16,357
460
4.59%
6.62
578,766
17,714
3.06
417,566
14,226
3.41
363,347
16,817
4.63
163,419
1,216,221
797
62,501
0.49
5.14
229,898
1,327,111
979
69,609
0.43
5.25
130,828
1,587,273
661
84,985
0.51
5.35
ASSETS . . . . . . . . . . . .
1,958,406
81,012
4.14
1,974,575
84,814
4.30
2,081,448
102,463
4.92
Allowance for loan
losses . . . . . . . . . . . . . .
(32,228)
Cash and due from
banks . . . . . . . . . . . . . . .
30,502
Bank premises and
equipment . . . . . . . . . . .
Other assets . . . . . . . . . . .
35,146
71,858
$2,063,684
(41,650)
29,966
37,948
79,731
(36,951)
32,336
42,997
108,588
$2,080,570
$2,228,418
INTEREST BEARING
LIABILITIES
NOW(3) . . . . . . . . . . . . . .
Savings deposits . . . . . . . .
Money market
accounts(3) . . . . . . . . . .
Time deposits . . . . . . . . . .
Federal funds purchased
and other short term
borrowings . . . . . . . . . .
Other borrowings . . . . . . .
TOTAL INTEREST
BEARING
LIABILIITIES . . . . .
Demand deposits . . . . . . .
Other liabilities . . . . . . . . .
Shareholders’ equity . . . . .
Interest expense as % of
earning assets . . . . . . . .
Net interest income/yield
on earning assets . . . . . .
$ 399,044
124,798
941
137
0.24% $ 406,350
106,618
0.11
1,417
190
0.35% $ 406,975
101,736
0.18
2,249
381
0.55%
0.37
317,922
512,766
1,293
8,615
0.41
1.68
339,864
575,768
2,345
11,345
0.69
1.97
292,713
701,095
3,401
18,749
1.16
2.67
106,495
103,610
276
2,691
0.26
2.60
87,106
103,610
237
2,795
0.27
2.70
117,171
116,720
431
3,405
0.37
2.92
1,564,635
323,044
10,709
1,898,388
165,296
$2,063,684
13,953
0.89
1,619,316
277,754
11,478
1,908,548
172,022
$2,080,570
18,329
1.13
1,736,410
276,412
16,798
2,029,620
198,798
$2,228,418
28,616
1.65
0.71%
0.93%
1.37%
$67,059
3.42%
$66,485
3.37%
$ 73,847
3.55%
(1) The tax equivalent adjustment is based on a 35% tax rate.
(2) Nonperforming loans are included in average loan balances. Fees on loans are included in interest on loans.
(3) Certain reclassifications have been made to prior years' presentation to conform to the current year
presentation.
50
Table 6 — Noninterest Income
Service charges on deposit accounts . . . . . . . . . . . . . . . . . . . . . . . .
Trust fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage banking fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brokerage commissions and fees . . . . . . . . . . . . . . . . . . . . . . . . . .
Marine finance fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interchange income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other deposit based EFT fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
% Change
2011
2010
2009
11/10
10/09
(Dollars in thousands)
$ 5,925
1,977
2,119
1,174
1,334
3,163
321
2,121
$ 6,262
2,111
2,140
1,122
1,209
3,808
318
1,375
$ 6,491
2,098
1,746
1,416
1,153
2,613
331
1,647
5.7% (8.7)%
6.8
1.0
(4.4)
(9.4)
20.4
(0.9)
(35.2)
(5.8)
21.4
(17.1)
15.7
21.0
(3.0)
28.8
Securities gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,345
1,220
18,134
3,687
17,495
5,399
1.2
(66.9)
3.7
(31.7)
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19,565
$21,821
$22,894
(10.3)
(4.7)
Table 7 — NonInterest Expense
Salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outsourced data processing costs . . . . . . . . . . . . . . . . . . . . . . . .
Telephone / data lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal and professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FDIC assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset dispositions expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss on other real estate owned and repossessed
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
% Change
2011
2010
2009
11/10
10/09
(Dollars in thousands)
$26,408
5,717
5,981
1,505
7,480
2,398
2,910
7,977
3,958
985
2,268
$ 26,693
6,109
5,623
1,835
8,260
2,649
2,067
6,984
4,952
1,259
1,172
$27,288
5,875
6,583
1,179
7,627
2,291
2,917
6,137
3,013
847
2,281
3.3% (1.1)%
2.8
10.1
(21.7)
2.0
(4.5)
0.2
(23.1)
(23.9)
(14.0)
0.6
(6.4)
6.4
(18.0)
(9.4)
(9.5)
40.8
14.2
(20.1)
(21.8)
93.5
3,751
—
7,974
13,541
—
8,428
5,155
49,813
7,656
(72.3)
162.7
n/m (100.0)
10.1
(5.4)
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$77,763
$89,556
$130,227
(13.2)
(31.2)
n/m = not meaningful
51
Table 8 — Capital Resources
2011
December 31
2010
(Dollars in thousands)
TIER 1 CAPITAL
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warrant for purchase of common stock . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid in capital
Accumulated (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Qualifying trust preferred securities . . . . . . . . . . . . . . . . . . . . .
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
9,469
47,497
3,123
218,925
(114,152)
(13)
52,000
(2,289)
284
$
9,349
46,248
3,123
218,399
(112,652)
(1)
52,000
(3,137)
(7,965)
TOTAL TIER 1 CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
214,844
205,364
TIER 2 CAPITAL
Qualifying trust preferred securities . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses, as limited (1) . . . . . . . . . . . . . . . . .
TOTAL TIER 2 CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
15,459
15,459
—
15,766
15,766
$
2009
5,887
44,999
3,123
174,973
(78,200)
(855)
49,950
(4,121)
(1,712)
194,044
2,050
17,981
20,031
TOTAL RISK-BASED CAPITAL . . . . . . . . . . . . . . . . . . . . . . . .
$ 230,303
$ 221,130
$ 214,075
Risk weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,226,547
$1,239,245
$1,411,202
Tier 1 risk based capital ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17.51%
16.57%
Total risk based capital ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regulatory minimum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital to adjusted total assets . . . . . . . . . . . . . . . . . . . . . .
Regulatory minimum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders' equity to assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average shareholders' equity to average total assets . . . . . . . . . .
18.77
8.00
10.31
4.00
7.96
8.01
17.84
8.00
10.25
4.00
8.25
8.27
13.75%
15.16
8.00
8.88
4.00
7.06
8.92
(1)
Includes reserve for unfunded commitments of $44,000 at December 31, 2011 and 2010, respectively, and
$65,000 at December 31, 2009.
52
Table 9 — Loans Outstanding
Construction and land development
Residential . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . .
$
Individuals . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . .
Real estate mortgage
Residential real estate . . . . . . . . . . . . . . . .
Adjustable . . . . . . . . . . . . . . . . . . . . . . .
Fixed rate . . . . . . . . . . . . . . . . . . . . . . . .
Home equity mortgages . . . . . . . . . . . .
Home equity lines . . . . . . . . . . . . . . . . .
Commercial and financial . . . . . . . . . . . . . . .
Installment loans to individuals
Automobiles and trucks . . . . . . . . . . . . . . .
Marine loans . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other loans . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31
2011
2010
2009
2008
2007
(In thousands)
11,255
11,338
22,593
26,591
49,184
508,353
$
14,025
33,773
47,798
31,508
79,306
543,603
334,140
96,952
60,253
54,901
546,246
53,105
8,736
19,932
21,943
50,611
575
303,320
82,559
73,382
57,733
516,994
48,825
10,874
19,806
20,922
51,602
278
$
47,599
77,469
$ 129,899
209,297
$ 295,082
242,448
125,068
37,800
162,868
584,217
289,378
88,645
86,771
60,066
524,860
61,058
15,322
26,423
22,279
64,024
476
339,196
56,047
395,243
557,705
328,992
95,456
84,810
58,502
567,760
82,765
20,798
25,992
26,118
72,908
347
537,530
72,037
609,567
517,332
319,470
87,506
91,418
59,088
557,482
126,695
24,940
33,185
28,237
86,362
951
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,208,074
$1,240,608
$1,397,503
$1,676,728
$1,898,389
Table 10 — Loan Maturity Distribution
December 31, 2011
Commercial and
Financial
Construction and
Land Development
Total
In one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
After one year but within five years:
Interest rates are floating or adjustable . . . . . . . . . . . . . . . . . . . .
Interest rates are fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In five years or more:
Interest rates are floating or adjustable . . . . . . . . . . . . . . . . . . . .
Interest rates are fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,715
2,382
19,427
30
24,551
(In thousands)
$17,164
$ 23,879
12,351
11,052
4,754
3,863
14,733
30,479
4,784
28,414
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$53,105
$49,184
$102,289
53
Table 11 — Maturity of Certificates of Deposit of $100,000 or More
2011
December 31
% of
Total
2010
(Dollars in thousands)
% of
Total
Maturity Group:
Under 3 Months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3 to 6 Months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6 to 12 Months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over 12 Months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 67,120
65,463
57,090
32,942
30.2% $ 43,335
42,256
29.4
81,580
25.6
84,730
14.8
17.2%
16.8
32.4
33.6
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$222,615
100.0% $251,901
100.0%
Table 12 — Summary of Loan Loss Experience
2011
2010
2009
2008
2007
Year Ended December 31
Beginning balance . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . .
Charge offs:
Construction and land development
. . . . .
Commercial real estate . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . .
Commercial and financial . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Consumer
TOTAL CHARGE OFFS . . . . . . . . . . . . . . .
Recoveries:
Construction and land development
. . . . .
Commercial real estate . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . .
Commercial and financial . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Consumer
TOTAL RECOVERIES . . . . . . . . . . . . . . . .
$
37,744
1,974
$
4,739
3,663
7,482
—
562
16,446
1,053
354
513
301
72
2,293
Net loan charge offs (recoveries)
. . . . . . . . .
14,153
(Dollars in thousands)
$
$
29,388
124,767
45,192
31,680
21,902
88,634
$
14,915
12,745
18,135
11,162
10,797
759
775
41,628
483
517
861
424
215
2,500
39,128
38,906
31,080
36,282
3,337
1,221
110,826
578
293
529
197
266
1,863
72,191
3,384
5,051
2,251
502
83,379
1,858
—
55
222
96
2,231
3,788
—
575
1,071
516
5,950
—
—
—
57
135
192
108,963
81,148
5,758
ENDING BALANCE . . . . . . . . . . . . . . . . . .
$
25,565
$
37,744
$
45,192
$
29,388
$
21,902
Loans outstanding at end of year* . . . . . . . . .
Ratio of allowance for loan losses to loans
outstanding at end of year . . . . . . . . . . . . .
Daily average loans outstanding* . . . . . . . . .
Ratio of net charge offs (recoveries) to
$1,208,074
$1,240,608
$1,397,503
$1,676,728
$1,898,389
2.12%
3.04%
3.23%
1.75%
1.15%
$1,216,221
$1,327,111
$1,587,273
$1,821,679
$1,828,537
average loans outstanding . . . . . . . . . . . . .
1.16%
2.95%
6.86%
4.45%
0.31%
*
Net of unearned income.
54
Table 13 — Allowance for Loan Losses
(Dollars in thousands)
ALLOCATION BY LOAN TYPE
December 31,
2011
2010
Construction and land development . . . . . . . . . . . . . . . . . . . .
$ 1,883
$ 7,214
Commercial real estate loans . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and financial loans . . . . . . . . . . . . . . . . . . . . . . .
Consumer loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,477
10,966
402
837
18,563
10,102
480
1,385
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$25,565
$37,744
December 31
2009
2008
2007
ALLOCATION BY LOAN TYPE(1)
Commercial real estate loans . . . . . . . . . . . . . . . . . . . . . . . . .
$30,955
$17,569
$11,884
Residential real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and financial loans . . . . . . . . . . . . . . . . . . . . . . .
Consumer loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,667
1,099
3,471
6,437
2,782
2,600
6,058
3,070
890
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$45,192
$29,388
$21,902
YEAR END LOAN TYPES AS A PERCENT OF
TOTAL LOANS
Construction and land development . . . . . . . . . . . . . . . . . . . .
4.1%
6.4%
11.7%
23.6%
32.1%
Commercial real estate loans . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and financial loans . . . . . . . . . . . . . . . . . . . . . . .
Consumer loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42.1
45.2
4.4
4.2
43.8
41.7
3.9
4.2
41.7
37.6
4.4
4.6
33.3
33.8
5.0
4.3
27.2
29.4
6.7
4.6
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.0% 100.0% 100.0% 100.0% 100.0%
(1) The Company does not have the ability to restate allocation by loan type to the new format for years prior to
2010.
55
Table 14 — Nonperforming Assets
Financing Receivables on Nonaccrual Status
2011
2010
2009
2008
2007
December 31,
Nonaccrual loans(1)(2)
Construction and land development
. . . . . . .
Commercial real estate loans . . . . . . . . . . . .
Residential real estate loans . . . . . . . . . . . . .
Commercial and financial loans . . . . . . . . . .
Consumer loans . . . . . . . . . . . . . . . . . . . . . . .
$
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other real estate owned
Construction and land development
. . . . . . .
Commercial real estate loans . . . . . . . . . . . .
Residential real estate loans . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,227
13,120
12,555
16
608
28,526
10,879
7,517
2,550
20,946
(Dollars in thousands)
$
$
29,229
19,101
14,810
4,607
537
68,284
15,358
8,368
1,971
25,697
59,809
23,865
12,790
535
877
97,876
19,086
3,461
2,838
25,385
$
72,328
4,387
10,163
—
92
86,970
1,313
—
3,722
5,035
52,952
11,333
3,531
18
—
67,834
579
—
156
735
TOTAL NONPERFORMING ASSETS
$
49,472
$
93,981
$ 123,261
$
92,005
$
68,569
Amount of loans outstanding at end of
year(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,208,074
$1,240,608
$1,397,503
$1,676,728
$1,898,389
Ratio of total nonperforming assets to loans
outstanding and other real estate owned at
end of period . . . . . . . . . . . . . . . . . . . . . . .
Accruing loans past due 90 days or more . . .
Loans restructured and in compliance with
4.03%
— $
7.42%
— $
8.66%
156
$
5.47%
1,838
$
3.61%
25
$
modified terms(3) . . . . . . . . . . . . . . . . . . .
71,611
66,350
57,433
12,616
11
(1)
Interest income that could have been recorded during 2011, 2010 and 2009 related to nonaccrual loans was
$1,178,000, $5,087,000, and $6,602,000, respectively, none of which was included in interest income or net
income. All nonaccrual loans are secured.
(2) Net of unearned income.
(3)
Interest income that would have been recorded based on original contractual terms was $4,734,000,
$4,187,000, and $3,856,000, respectively, for 2011, 2010 and 2009. The amount included in interest income
under the modified terms for 2011, 2010 and 2009 was $3,194,000, $2,439,000, and $2,958,000,
respectively.
56
Table 15 — Securities Available For Sale
U.S. Treasury securities and obligations of U.S. Government
Sponsored Entities
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities of U.S. Government Sponsored
Entities
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Collateralized mortgage obligations of U.S. Government
Sponsored Entities
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Private collateralized mortgage obligations
December 31
Amortized
Cost
Fair Value
Unrealized
Gains
Unrealized
Losses
(In thousands)
$
1,699
4,192
$
1,724
4,212
$
25
20
$ —
—
135,665
120,439
138,447
120,634
2,819
1,218
(37)
(1,023)
428,139
212,715
436,934
215,459
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73,247
90,428
70,090
90,384
Obligations of state and political subdivisions
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Securities Available For Sale
1,097
1,638
—
2,742
1,167
1,709
—
2,742
9,111
4,101
330
1,325
70
71
—
—
(316)
(1,357)
(3,487)
(1,369)
—
—
—
—
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$639,847
$648,362
$12,355
$(3,840)
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$432,154
$435,140
$ 6,735
$(3,749)
Table 16 — Securities Held For Investment
Collateralized mortgage obligations of U.S. Government Sponsored
Entities
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Private collateralized mortgage obligations
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of states and political subdivisions
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Securities
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Securities Held For Investment
December 31
Amortized
Cost
Fair
Value
Unrealized
Gains
Unrealized
Losses
(In thousands)
$10,475
15,423
$10,339
15,508
$ —
85
$(136)
—
1,840
3,540
6,662
7,398
1,000
500
1,880
3,619
7,232
7,223
1,036
503
40
79
570
69
36
3
—
—
—
(244)
—
—
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19,977
$20,487
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$26,861
$26,853
$646
$236
$(136)
$(244)
57
Table 17 — Maturity Distribution of Securities Held For Investment
December 31, 2011
1 Year
Or Less
1-5
Years
5-10
Years
After 10
Years
No Contractual
Maturity
Total
(Dollars in thousands)
Average
Maturity
In Years
$— $ — $10,475 $ —
$ — $10,475
5.81
AMORTIZED COST
Collateralized mortgage obligations of U.S.
Government Sponsored Entities . . . . . . .
Private collateralized mortgage
obligations . . . . . . . . . . . . . . . . . . . . . . . . — 1,840
—
—
Obligations of state and political
subdivisions . . . . . . . . . . . . . . . . . . . . . . . —
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
127
—
1,503
5,032
—
—
1,000
1,840
4.90
6,662
1,000
12.69
*
Total Securities Held For Investment . . . . .
$— $1,967 $11,978 $5,032
$1,000
$19,977
8.14
FAIR VALUE
Collateralized mortgage obligations of U.S.
Government Sponsored Entities . . . . . . .
Private collateralized mortgage
$— $ — $10,339 $ —
$ — $10,339
obligations . . . . . . . . . . . . . . . . . . . . . . . . — 1,880
—
—
Obligations of state and political
subdivisions . . . . . . . . . . . . . . . . . . . . . . . —
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
127
—
1,632
5,473
—
—
1,036
1,880
7,232
1,036
—
—
—
—
Total Securities Held For Investment . . . . .
$— $2,007 $11,971 $5,473
$1,036
$20,487
WEIGHTED AVERAGE YIELD (FTE)
Collateralized mortgage obligations of U.S.
Government Sponsored Entities . . . . . . . —
—
2.20% —
Private collateralized mortgage
obligations . . . . . . . . . . . . . . . . . . . . . . . . —
5.15%
—
—
Obligations of state and political
subdivisions . . . . . . . . . . . . . . . . . . . . . . . —
6.73% 6.04% 4.97%
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
—
—
—
Total Securities Held For Investment . . . . . —
5.25% 2.68% 4.97%
—
—
—
2.93%
2.93%
2.20%
5.15%
5.25%
2.93%
3.53%
*
Other Securities excluded from calculated average for total securities.
58
Table 18 — Maturity Distribution of Securities Available For Sale
December 31, 2011
1 Year
Or Less
1-5 Years
5-10 Years
After 10
Years
No
Contractual
Maturity
Average
Maturity
In Years
Total
(Dollars in thousands)
AMORTIZED COST
U.S. Treasury securities and
obligations of U.S. Government
Sponsored Entities . . . . . . . . . . . . . $ — $ 1,699 $
— $ — $ — $
1,699
1.37
— 68,583
44,671
22,411
—
135,665
6.20
Mortgage-backed securities of U.S.
Government Sponsored Entities . . .
Collateralized mortgage obligations of
U.S. Government Sponsored
Entities . . . . . . . . . . . . . . . . . . . . . .
Private collateralized mortgage
5,762
317,299
105,078
obligations . . . . . . . . . . . . . . . . . . . .
— 56,405
16,842
Obligations of state and political
subdivisions . . . . . . . . . . . . . . . . . . .
—
—
1,097
—
—
—
—
—
—
428,139
4.39
73,247
3.90
1,097
6.77
4.71
Total Securities Available For Sale . . $5,762 $443,986 $167,688 $22,411
$ — $639,847
FAIR VALUE
U.S. Treasury securities and
obligations of U.S. Government
Sponsored Entities . . . . . . . . . . . . . $ — $ 1,724 $
— $ — $ — $
1,724
— 70,141
45,440
22,866
—
138,447
Mortgage-backed securities of U.S.
Government Sponsored Entities . . .
Collateralized mortgage obligations of
U.S. Government Sponsored
Entities . . . . . . . . . . . . . . . . . . . . . .
Private collateralized mortgage
5,889
324,733
106,312
obligations . . . . . . . . . . . . . . . . . . . .
— 54,431
15,659
Obligations of state and political
subdivisions . . . . . . . . . . . . . . . . . . .
—
—
1,167
—
—
—
—
—
—
436,934
70,090
1,167
Total Securities Available For Sale . . $5,889 $451,029 $168,578 $22,866
$ — $648,362
WEIGHTED AVERAGE YIELD
(FTE)
U.S. Treasury securities and
obligations of U.S. Government
Sponsored Entities . . . . . . . . . . . . .
Mortgage-backed securities of U.S.
Government Sponsored Entities . . .
Collateralized mortgage obligations of
U.S. Government Sponsored
Entities . . . . . . . . . . . . . . . . . . . . . .
Private collateralized mortgage
—
—
1.28%
—
—
2.73%
2.21% 2.31%
5.47%
2.80%
2.84%
—
—
—
—
—
—
1.28%
2.49%
2.85%
4.36%
6.65%
2.95%
obligations . . . . . . . . . . . . . . . . . . . .
0.00%
4.36%
4.35%
Obligations of state and political
subdivisions . . . . . . . . . . . . . . . . . . .
Total Securities Available For Sale . .
—
5.47%
—
2.99%
—
6.65%
2.85% 2.31% 0.00%
—
59
Table 19 — Interest Rate Sensitivity Analysis (1)
December 31, 2011
0-3
Months
4-12
Months
1-5
Years
Over
5 Years
Total
(Dollars in thousands)
Federal funds sold and interest bearing
deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, net (3)
$ 125,945
198,349
218,441
Earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings deposits (4) . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
542,735
922,361
125,541
189,862
$
— $
— $
121,546
256,662
378,208
—
262,800
—
244,559
558,283
802,842
—
79,643
—
— $ 125,945
659,824
1,186,343
95,370
152,957
248,327
—
40
50,000
1,972,112
922,361
468,024
239,862
Interest bearing liablities . . . . . . . . . . . . . . . . . . . .
1,237,764
262,800
79,643
50,040
1,630,247
Interest sensitivity gap . . . . . . . . . . . . . . . . . . . . .
$ (695,029) $ 115,408
$723,199
$198,287
$ 341,865
Cumulative gap . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (695,029) $(579,621) $143,578
$341,865
Cumulative gap to total earning
assets (%)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(35.2)
(29.4)
7.3
17.3
Earning assets to interest bearing
liabilities (%) . . . . . . . . . . . . . . . . . . . . . . . . . . .
43.8
143.9
1,008.1
496.3
(1) The repricing dates may differ from maturity dates for certain assets due to prepayment assumptions.
(2) Securities are stated at amortized cost.
(3) Excludes nonaccrual loans.
(4) This category is comprised of NOW, savings and money market deposits. If NOW and savings deposits
(totaling $603,209) were deemed repriceable in "4-12 months", the interest sensitivity gap and cumulative
gap would be ($91,820) or (4.7)% of total earning assets and an earning assets to interest bearing liabilities
for the 0-3 months category of 85.5%
60
Stock Performance Graph
The line graph below compares the cumulative total stockholder return on Seacoast common stock for the
five years ended December 31, 2011 with the cumulative total return of the NASDAQ Composite Index and the
SNL Southeast Bank Index for the same period. The graph and table assume that $100 was invested on
December 29, 2006 (the last day of trading for the year ended December 31, 2006) in each of Seacoast common
stock, the NASDAQ Composite Index and the SNL Southeast Bank Index. The cumulative total return represents
the change in stock price and the amount of dividends received over the period, assuming all dividends were
reinvested.
Comparison of Five-Year Cumulative Return for Seacoast Common Stock, the NASDAQ Composite Index
and the SNL Southeast Bank Index
Total Return Performance
e
u
l
a
V
x
e
d
n
I
125
100
75
50
25
0
2006
2007
2008
2009
2010
2011
Seacoast Banking Corporation of Florida
NASDAQ Composite
SNL Southeast Bank
Index
12/31/06
12/31/07
12/31/08
12/31/09
12/31/10
12/31/11
Seacoast Banking Corporation of Florida . . . . . . .
100.00
42.98
NASDAQ Composite . . . . . . . . . . . . . . . . . . . . . .
100.00
110.66
SNL Southeast Bank . . . . . . . . . . . . . . . . . . . . . . .
100.00
75.33
28.64
66.42
30.50
7.09
96.54
30.62
6.35
6.61
114.06
113.16
29.73
17.39
Period Ending
61
SELECTED QUARTERLY INFORMATION
QUARTERLY CONSOLIDATED INCOME (LOSS) STATEMENTS (UNAUDITED)
2011 Quarters
2010 Quarters
Fourth
Third
Second
First
Fourth
Third
Second
First
(Dollars in thousands, except per share data)
Net interest income:
Interest income . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . .
$20,058
3,084
$ 20,278
3,410
$20,287
3,746
$20,169
3,713
$ 20,243
3,922
$20,838
4,377
$ 21,048
4,831
$22,412
5,199
Net interest income . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . .
16,974
432
16,868
—
16,541
902
16,456
640
16,321
3,975
16,461
8,866
16,217
16,771
17,213
2,068
Net interest income after provision for loan
losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,542
16,868
15,639
15,816
12,346
7,595
(554)
15,145
Noninterest income:
Service charges on deposit accounts . . . . . . . . .
Trust fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage banking fees . . . . . . . . . . . . . . . . . . .
Brokerage commissions and fees . . . . . . . . . . .
Marine finance fees . . . . . . . . . . . . . . . . . . . . . .
Interchange income . . . . . . . . . . . . . . . . . . . . . .
Other deposit based EFT fees . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities gains, net . . . . . . . . . . . . . . . . . . . . . .
Total noninterest income . . . . . . . . . . . . . . . . . .
Noninterest expenses:
Salaries and wages . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . .
Outsourced data processing costs . . . . . . . . . . .
Telephone/data lines . . . . . . . . . . . . . . . . . . . . .
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment . . . . . . . . . . . . . . . . . .
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal and professional fees . . . . . . . . . . . . . . . .
FDIC assessments . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles . . . . . . . . . . . . . . . .
Asset disposition expense . . . . . . . . . . . . . . . . .
Net loss on other real estate owned and
repossessed assets . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,599
530
680
258
333
953
78
452
1,083
5,966
7,301
1,447
1,677
285
1,795
525
947
1,299
679
212
275
1,254
2,264
1,675
541
556
321
229
969
71
344
137
4,843
6,902
1,391
1,685
286
1,967
555
551
1,496
687
211
479
906
1,947
1,546
517
509
223
349
995
79
329
—
4,547
6,534
1,437
1,699
319
1,919
618
667
1,585
688
212
441
1,142
1,812
1,442
523
395
320
298
891
90
250
—
4,209
6,551
1,600
1,522
289
1,946
593
752
1,757
959
212
1,086
449
1,951
1,590
510
580
325
355
814
75
938
—
5,187
6,539
1,153
1,496
321
1,699
609
764
1,783
947
212
1,122
8,763
2,330
1,511
500
654
306
330
810
71
350
210
4,742
6,631
1,367
1,503
383
1,928
595
577
2,491
966
212
587
849
1,886
1,452
491
464
257
310
822
82
374
1,377
5,629
6,776
1,419
1,503
402
1,911
585
913
1,602
1,039
246
310
105
2,060
1,372
476
421
286
339
717
93
459
2,100
6,263
6,462
1,778
1,479
399
1,942
609
656
2,101
1,006
315
249
3,824
2,152
Total noninterest expenses . . . . . . . . . . . . . . . .
19,960
19,063
19,073
19,667
27,738
19,975
18,871
22,972
Income (loss) before income taxes . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . .
Net income (loss)
Preferred stock dividends and accretion on
. . . . . . . . . . . . . . . . . . . . . . . . .
preferred stock discount
. . . . . . . . . . . . . . . . . .
2,548
—
2,548
2,648
—
2,648
1,113
—
1,113
937
937
937
358
—
358
937
(10,205)
—
(7,638)
—
(13,796)
—
(1,564)
—
(10,205)
(7,638)
(13,796)
(1,564)
937
937
937
937
Net income (loss) available to shareholders . . . . .
$ 1,611
$ 1,711
$
176
$ (579) $(11,142) $ (8,575) $(14,733) $ (2,501)
PER COMMON SHARE DATA
Net income (loss) diluted . . . . . . . . . . . . . . . . . . .
Net income (loss) basic . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared:
$
0.02
0.02
$
0.02
0.02
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Market price common stock:
Low close . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High close . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bid price at end of period . . . . . . . . . . . . . . . . .
1.28
1.69
1.52
1.27
1.74
1.47
62
$ — $ (0.01) $
—
—
1.49
1.87
1.50
(0.01)
—
1.43
1.86
1.58
(0.12) $ (0.09) $
(0.12)
(0.09)
(0.25) $ (0.04)
(0.04)
(0.25)
—
—
—
—
1.12
1.46
1.46
1.12
1.48
1.22
1.28
2.50
1.33
1.37
2.04
1.69
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Seacoast Banking Corporation of Florida:
We have audited Seacoast Banking Corporation of Florida and subsidiaries’ (the Company) internal control over
financial reporting as of December 31, 2011, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
report. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Seacoast Banking Corporation of Florida maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2011, based on criteria established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of the Company as of December 31, 2011 and 2010, and the
related consolidated statements of income (loss), shareholders’ equity, and cash flows for each of the years in the
three-year period ended December 31, 2011, and our report dated March 14, 2012 expressed an unqualified
opinion on those consolidated financial statements.
Miami, Florida
March 14, 2012
Certified Public Accountants
63
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Seacoast Banking Corporation of Florida:
We have audited the accompanying consolidated balance sheets of Seacoast Banking Corporation of Florida
and subsidiaries (the Company) as of December 31, 2011 and 2010, and the related consolidated statements of
income (loss), shareholders’ equity, and cash flows for each of the years in the three-year period ended
December 31, 2011. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of the Company as of December 31, 2011 and 2010, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31, 2011, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company’s internal control over financial reporting as of December 31, 2011, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated March 14, 2012 expressed an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Miami, Florida
March 14, 2012
Certified Public Accountants
64
SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
INTEREST INCOME
Interest on securities
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nontaxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and fees on loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on federal funds sold and interest bearing deposits . . . . . . . . . . .
$
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INTEREST EXPENSE
Interest on savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on time certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on short term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INTEREST INCOME (LOSS) AFTER PROVISION FOR LOAN
LOSSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NONINTEREST INCOME
Securities gains, net
Other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NONINTEREST EXPENSE
Other noninterest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INCOME (LOSS) BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . .
Benefit for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INCOME (LOSS)
Preferred stock dividends and accretion on preferred stock discount
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .
NET INCOME (LOSS) AVAILABLE TO COMMON
For the Year Ended December 31
2011
2010
2009
(Dollars in thousands, except share data)
$
17,500
140
62,355
797
80,792
2,371
8,615
276
1,084
1,607
13,953
66,839
1,974
$
13,881
227
69,454
979
84,541
3,952
11,345
237
1,188
1,607
18,329
66,212
31,680
16,357
305
84,882
661
102,205
6,031
18,749
431
1,354
2,051
28,616
73,589
124,767
64,865
34,532
(51,178)
1,220
18,345
19,565
77,763
—
77,763
6,667
0
6,667
3,748
3,687
18,134
21,821
89,556
—
89,556
(33,203)
0
(33,203)
3,748
5,399
17,495
22,894
80,414
49,813
130,227
(158,511)
(11,825)
(146,686)
3,748
SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,919
$
(36,951) $ (150,434)
SHARE DATA
Net income (loss) per share of common stock
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.03
0.03
(0.48) $
(0.48)
(4.74)
(4.74)
Average common shares outstanding
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
93,801,073
93,511,983
76,561,692
76,561,692
31,733,260
31,733,260
See notes to consolidated financial statements.
65
SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
2011
2010
(Dollars in thousands,
except share data)
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest bearing deposits with other banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
41,136
125,945
$
35,358
176,047
Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities available for sale (at fair value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Securities held for investment (fair values: $20,487 in 2011 and $26,853 in 2010)
167,081
648,362
19,977
211,405
435,140
26,861
Total securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, net of deferred costs of $1,632 in 2011 and $973 in 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
668,339
6,795
1,208,074
(25,565)
462,001
12,519
1,240,608
(37,744)
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,182,509
34,227
20,946
2,289
55,189
1,202,864
36,045
25,697
3,137
62,713
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,137,375
$2,016,381
LIABILITIES
Demand deposits (noninterest bearing) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brokered time certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time certificates of $100,000 or more . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds purchased and securities sold under agreement to repurchase, maturing within 30 days . . . . . . . . . .
Borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and Contingencies (Notes K and P)
SHAREHOLDERS’ EQUITY
Series A preferred stock, par value $0.10 per share - authorized 4,000,000 shares, issued and outstanding 2,000
shares of Series A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warrant for purchase of 589,625 shares of common stock at $6.36 per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, par value $.10 per share authorized 300,000,000 shares, issued 94,693,002 and outstanding
94,686,801 shares in 2011 and authorized 300,000,000 shares, issued 93,487,652 and outstanding 93,487,581
shares in 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Treasury stock (6,201 shares in 2011 and 71 shares in 2010), at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 328,356
469,631
133,578
319,152
244,886
4,558
218,580
1,718,741
136,252
50,000
53,610
8,695
$ 289,621
401,005
113,082
298,538
281,681
7,093
246,208
1,637,228
98,213
50,000
53,610
11,031
1,967,298
1,850,082
47,497
3,123
46,248
3,123
9,469
218,925
(114,152)
(13)
9,349
218,399
(112,652)
(1)
164,849
5,228
164,466
1,833
TOTAL SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
170,077
166,299
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,137,375
$2,016,381
See notes to consolidated financial statement.
66
SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31
2011
2010
2009
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fees and commissions received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid to suppliers and employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes (paid) received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Origination of loans designated held for sale . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of loans designated held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 81,904
18,453
(16,211)
(66,705)
(9)
(137,295)
143,019
585
$ 85,584
19,588
(17,385)
(70,329)
21,262
(173,692)
179,585
(1,954)
$ 102,138
19,181
(28,507)
(86,868)
3,423
(165,561)
158,628
548
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . .
23,741
42,659
2,982
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities of securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturities of securities held for investment . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of securities available for sale . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of securities held for investment . . . . . . . . . . . . . . . . . . .
Purchases of securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of securities held for investment . . . . . . . . . . . . . . . . . . . . . . . . . .
Net new loans and principal payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the sale of other real estate owned . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of Federal Home Loan Bank and Federal Reserve Bank
Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of Federal Home Loan Bank and Federal Reserve Bank Stock . . .
Additions to bank premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
115,287
7,733
52,689
—
(379,262)
(1,526)
(15,248)
1,450
38,075
134,088
6,601
102,369
5,452
(275,839)
(21,838)
78,357
16,401
9,169
94,202
10,800
92,686
—
(255,681)
—
91,395
40,484
5,582
1,363
(360)
(1,070)
2,477
(700)
(552)
181
(2,270)
(814)
Net cash (used) provided by investing activities . . . . . . . . . . . . . . . . . . . .
(180,869)
55,985
76,565
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in federal funds purchased and repurchase
agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock, net of related expense . . . . . . . . . . . . . . . . . . . .
Stock based employee benefit plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend reinvestment plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid on preferred shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
81,517
(142,206)
(30,994)
38,039
—
—
123
—
(6,875)
—
(7,460)
—
47,127
180
20
—
—
(51,823)
(15,000)
82,553
174
31
(389)
(191)
Net cash provided (used) by financing activities . . . . . . . . . . . . . . . . . . . .
112,804
(102,339)
(15,639)
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . .
(44,324)
211,405
(3,695)
215,100
63,908
151,192
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 167,081
$ 211,405
$ 215,100
See notes to consolidated financial statements.
67
SEACOAST BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
Common Stock
Preferred Stock
Paid-in
Retained
Earnings
(Accumulated
Treasury
Accumulated
Other
Comprehensive
(Dollars and shares
in thousands)
Shares Amount
Shares Amount
Capital/
Warrants
Deficit)
Stock
Income (Loss), Net
Total
BALANCE AT DECEMBER 31,
2008 . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . .
Comprehensive loss:
Net unrealized gain on
securities . . . . . . . . . . . . . . . . .
Net reclassification
adjustment
. . . . . . . . . . . . . . .
Comprehensive loss . . . . . . . . . . . .
Cash dividends at $0.01 per
common share . . . . . . . . . . . . . .
Cash dividends on preferred
shares . . . . . . . . . . . . . . . . . . . . .
Stock based compensation
expense . . . . . . . . . . . . . . . . . . . .
Common stock issued for stock
based employee benefit plans . .
Dividend reinvestment plan . . . . . .
Issuance of common stock . . . . . . .
Clawback of one-half of
warrants . . . . . . . . . . . . . . . . . . .
Accretion on preferred stock
discount
. . . . . . . . . . . . . . . . . . .
Comprehensive loss:
BALANCE AT DECEMBER 31,
2009 . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . .
Net unrealized gain on
securities . . . . . . . . . . . . . . . . .
Net reclassification
adjustment
. . . . . . . . . . . . . . .
Comprehensive loss . . . . . . . . . .
Stock based compensation
expense . . . . . . . . . . . . . . . . . . . .
Common stock issued for stock
based employee benefit plans . .
Dividend reinvestment plan . . . . . .
Issuance of common stock . . . . . . .
Accretion on preferred stock
discount
. . . . . . . . . . . . . . . . . . .
BALANCE AT DECEMBER 31,
2010 . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income: . . . . . . . . .
Net income . . . . . . . . . . . . . . . . .
Net unrealized gain on
securities . . . . . . . . . . . . . . . . .
Net reclassification
adjustment
. . . . . . . . . . . . . . .
Comprehensive income . . . . . . .
Cash dividends on preferred
shares . . . . . . . . . . . . . . . . . . . . .
Stock based compensation
expense . . . . . . . . . . . . . . . . . . . .
Common stock issued for stock
19,172
$1,928
—
—
—
—
—
—
—
10
10
39,675
—
—
—
—
—
—
—
—
—
—
—
3,959
—
—
58,867
5,887
—
—
—
—
—
—
—
—
—
—
145
10
34,465
9
—
3,453
—
—
93,487
9,349
—
—
—
—
—
—
—
—
—
—
—
—
120
—
based employee benefit plans . .
1,200
Accretion on preferred stock
discount
. . . . . . . . . . . . . . . . . . .
—
BALANCE AT DECEMBER 31,
2011 . . . . . . . . . . . . . . . . . . . . . .
94,687
$9,469
2
—
—
—
—
—
—
—
—
—
—
—
—
2
—
—
—
—
—
—
—
—
—
2
—
—
—
—
—
—
—
—
2
$43,787
$ 99,788
$ 70,278
$(1,839)
$ 2,059
$ 216,001
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
401
(505)
(182)
81,717
(3,123)
(146,686)
—
—
—
(191)
(389)
—
—
—
—
—
1,212
—
(1,212)
—
—
—
—
—
—
—
771
213
—
—
—
44,999
178,096
(78,200)
(855)
—
—
—
—
—
—
—
—
—
—
—
—
351
(445)
(154)
43,674
(33,203)
—
—
—
—
—
—
—
1,249
—
(1,249)
—
—
—
—
—
681
173
—
—
46,248
221,522
(112,652)
(1)
—
—
—
—
—
—
—
1,249
—
—
—
—
—
273
253
—
6,667
—
—
—
(6,875)
—
(43)
(1,249)
—
—
—
—
—
—
(12)
—
—
1,399
(1,450)
—
—
—
—
—
—
—
—
—
2,008
—
1,572
(1,747)
—
—
—
—
—
—
1,833
—
3,612
(217)
—
—
—
—
—
(146,686)
1,399
(1,450)
(146,737)
(191)
(389)
401
266
31
85,676
(3,123)
—
151,935
(33,203)
1,572
(1,747)
(33,378)
351
244
20
47,127
—
166,299
6,667
3,612
(217)
10,062
(6,875)
273
318
—
$47,497
$222,048
$(114,152)
$
(13)
$ 5,228
$ 170,077
See notes to consolidated financial statements.
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Seacoast Banking Corporation of Florida and Subsidiaries
Note A Significant Accounting Policies
General: Seacoast Banking Corporation of Florida (“Company”) is a single segment bank holding company
with one operating subsidiary bank, Seacoast National Bank (“Seacoast National”, together the “Company”).
Seacoast National’s service area includes Okeechobee, Highlands, Hendry, Hardee, Glades, DeSoto, Palm Beach,
Martin, St. Lucie, Brevard, Indian River, Broward, Orange and Seminole counties, which are located in central
and southeast Florida. The bank operates full service branches within its markets.
The consolidated financial statements include the accounts of Seacoast and all its majority-owned
subsidiaries but exclude five trusts created for the issuance of trust preferred securities. In consolidation, all
significant intercompany accounts and transactions are eliminated.
The accounting and reporting policies of the Company are in accordance with accounting principles
generally accepted in the United States of America, and they conform to general practices within the applicable
industries.
Cash and Cash Equivalents: Cash and cash equivalents include cash and due from banks, interest-bearing
bank balances and federal funds sold and securities purchased under resale agreements. Cash and cash
equivalents have original maturities of three months or less, and accordingly, the carrying amount of these
instruments is deemed to be a reasonable estimate of fair value.
Securities Purchased and Sold Agreements: Securities purchased under resale agreements and securities
sold under repurchase agreements are generally accounted for as collateralized financing transactions and are
recorded at the amount at which the securities were acquired or sold plus accrued interest. It is the Company’s
policy to take possession of securities purchased under resale agreements, which are primarily U.S. Government
and Government agency securities. The fair value of securities purchased and sold is monitored and collateral is
obtained from or returned to the counterparty when appropriate.
Use of Estimates: The preparation of these financial statements requires the use of certain estimates by
management in determining the Company's assets, liabilities, revenues and expenses, and contingent liabilities.
Specific areas, among others, requiring the application of management’s estimates include determination of the
allowance for loan losses, the valuation of investment securities available for sale, fair value of impaired loans,
contingent liabilities, other real estate owned, valuation of deferred tax valuation alllowance and goodwill.
Actual results could differ from those estimates.
Securities: Securities are classified at date of purchase as trading, available for sale or held to maturity.
Securities that may be sold as part of the Company's asset/liability management or in response to, or in
anticipation of changes in interest rates and resulting prepayment risk, or for other factors are stated at fair value
with unrealized gains or losses reflected as a component of shareholders' equity net of tax or included in
noninterest income as appropriate. The estimated fair value of a security is determined based on market
quotations when available or, if not available, by using quoted market prices for similar securities, pricing
models or discounted cash flow analyses, using observable market data where available. Debt securities that the
Company has the ability and intent to hold to maturity are carried at amortized cost.
Realized gains and losses, including other than temporary impairments, are included in noninterest income
as investment securities gains (losses). Interest and dividends on securities, including amortization of premiums
and accretion of discounts, is recognized in interest income on an accrual basis using the interest method. The
Company anticipates prepayments of principal in the calculation of the effective yield for collateralized mortgage
obligations and mortgage backed securities by obtaining estimates of prepayments from independent third
parties. The adjusted cost of each specific security sold is used to compute realized gains or losses on the sale of
securities on a trade date basis.
69
On a quarterly basis, the Company makes an assessment to determine whether there have been any events or
economic circumstances to indicate that a security is impaired on an other-than-temporary basis. Management
considers many factors including the length of time the security has had a fair value less than the cost basis; our intent
and ability to hold the security for a period of time sufficient for a recovery in value; recent events specific to the issuer
or industry; and for debt securities, external credit ratings and recent downgrades. Securities on which there is an
unrealized loss that is deemed to be other-than temporary are written down to fair value with the write-down recorded
as a realized loss.
For securities which are transferred into held to maturity from available for sale the unrealized gain or loss
at the date of transfer is reported as a component of shareholders’ equity and is amortized over the remaining life
as an adjustment of yield using the interest method.
Seacoast National is a member of the Federal Home Loan Bank system. Members are required to own a
certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts.
FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based
on ultimate recovery of par value. Both cash and stock dividends are reported as income.
Loans: Loans are recognized at the principal amount outstanding, net of unearned income and amounts
charged off. Unearned income includes discounts, premiums and deferred loan origination fees reduced by loan
origination costs. Unearned income on loans is amortized to interest income over the life of the related loan using
the effective interest rate method. Interest income is recognized on an accrual basis.
Fees received for providing loan commitments and letters of credit that may result in loans are typically
deferred and amortized to interest income over the life of the related loan, beginning with the initial borrowing.
Fees on commitments and letters of credit are amortized to noninterest income as banking fees and commissions
on a straight-line basis over the commitment period when funding is not expected.
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or
payoff are considered held for investment.
The Company accounts for loans in accordance with ASC topics 310 and 470, when due to a deterioration in
a borrower’s financial position, the Company grants concessions that would not otherwise be considered.
Troubled debt restructured (TDR) loans are tested for impairment and placed in non-accrual status. If borrowers
perform pursuant to the modified loan terms for at least six months and the remaining loan balances are
considered collectible, the loans are returned to accrual status. When the Company modifies the terms of an
existing loan that is not considered a troubled debt restructuring, the Company follows the provisions of ASC
310 “Creditor’s Accounting for a Modification or Exchange of Debt Instruments.”
A loan is considered to be impaired when based on current information, it is probable the Company will not
receive all amounts due in accordance with the contractual terms of a loan agreement. The fair value is measured
based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the
loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. A loan is also
considered impaired if its terms are modified in a troubled debt restructuring. When the ultimate collectibility of
the principal balance of an impaired loan is in doubt, all cash receipts are applied to principal. Once the recorded
principal balance has been reduced to zero, future cash receipts are applied to interest income, to the extent any
interest has been forgone, and then they are recorded as recoveries of any amounts previously charged off.
The accrual of interest is generally discontinued on loans and leases, except consumer loans, that become 90 days
past due as to principal or interest unless collection of both principal and interest is assured by way of collateralization,
guarantees or other security. Generally, loans past due 90 days or more are placed on nonaccrual status regardless of
security. When interest accruals are discontinued, unpaid interest is reversed against interest income. Consumer loans
that become 120 days past due are generally charged off. When borrowers demonstrate over an extended period the
ability to repay a loan in accordance with the contractual terms of a loan classified as nonaccrual, the loan is returned to
accrual status. Interest income on nonaccrual loans is either recorded using the cash basis method of accounting or
recognized after the principal has been reduced to zero, depending on the type of loan.
Derivatives Used for Risk Management: The Company may designate a derivative as either a hedge of the
fair value of a recognized fixed rate asset or liability or an unrecognized firm commitment (“fair value” hedge), a
hedge of a forecasted transaction or of the variability of future cash flows of a floating rate asset or liability
70
(“cash flow” hedge). All derivatives are recorded as other assets or other liabilities on the balance sheet at their
respective fair values with unrealized gains and losses recorded either in other comprehensive income or in the
results of operations, depending on the purpose for which the derivative is held. Derivatives that do not meet the
criteria for designation as a hedge at inception, or fail to meet the criteria thereafter, are carried at fair value with
unrealized gains and losses recorded in the results of operations.
To the extent of the effectiveness of a cash flow hedge, changes in the fair value of a derivative that is
designated and qualifies as a cash flow hedge are recorded in other comprehensive income. The net periodic
interest settlement on derivatives is treated as an adjustment to the interest income or interest expense of the
hedged assets or liabilities.
At inception of a hedge transaction, the Company formally documents the hedge relationship and the risk
management objective and strategy for undertaking the hedge. This process includes identification of the hedging
instrument, hedged item, risk being hedged and the methodology for measuring ineffectiveness. In addition, the
Company assesses both at the inception of the hedge and on an ongoing quarterly basis, whether the derivative
used in the hedging transaction has been highly effective in offsetting changes in fair value or cash flows of the
hedged item, and whether the derivative as a hedging instrument is no longer appropriate.
The Company discontinues hedge accounting prospectively when either it is determined that the derivative
is no longer highly effective in offsetting changes in the fair value or cash flows of a hedged item; the derivative
expires or is sold, terminated or exercised; the derivative is de-designated because it is unlikely that a forecasted
transaction will occur; or management determines that designation of the derivative as a hedging instrument is no
longer appropriate.
When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in
fair value and the existing basis adjustment is amortized or accreted as an adjustment to yield over the remaining
life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted
transaction are still expected to occur, unrealized gains and losses that are accumulated in other comprehensive
income are included in the results of operations in the same period when the results of operations are also
affected by the hedged cash flow. They are recognized in the results of operations immediately if the cash flow
hedge was discontinued because a forecasted transaction is not expected to occur.
Certain commitments to sell loans are derivatives. These commitments are recorded as a freestanding
derivative and classified as an other asset or liability.
Loans Held for Sale: Loans are classified as held for sale based on management’s intent to sell the loans,
either as part of a core business strategy or related to a risk mitigation strategy. Loans held for sale and any
related unfunded lending commitments are recorded at the lower of cost (which is the carrying amount net of
deferred fees and costs and applicable allowance for loan losses and reserve for unfunded lending commitments)
or fair market value less costs to sell. At the time of the transfer to loans held for sale, if the fair market value is
less than cost, the difference is recorded as additional provision for credit losses in the results of operations. Fair
market value is determined based on quoted market prices for the same or similar loans, outstanding investor
commitments or discounted cash flow analyses using market assumptions.
At December 31, 2011 fair market value for substantially all the loans in loans held for sale were obtained
by reference to prices for the same or similar loans from recent transactions. For a relationship that includes an
unfunded lending commitment, the cost basis is the outstanding balance of the loan net of the allowance for loan
losses and net of any reserve for unfunded lending commitments. This cost basis is compared to the fair market
value of the entire relationship including the unfunded lending commitment.
Individual loans or pools of loans are transferred from the loan portfolio to loans held for sale when the
intent to hold the loans has changed and there is a plan to sell the loans within a reasonable period of time. Loans
held for sale are reviewed quarterly. Subsequent declines or recoveries of previous declines in the fair market
value of loans held for sale are recorded in other fee income in the results of operations. Fair market value
changes occur due to changes in interest rates, the borrower’s credit, the secondary loan market and the market
for a borrower’s debt. If an unfunded lending commitment expires before a sale occurs, the reserve associated
with the unfunded lending commitment is recognized as a credit to other fee income in the results of operations.
71
Fair Value Measurements: The Company measures or monitors many of its assets and liabilities on a fair
value basis. Certain assets and liabilities are measured on a recurring basis. Examples of these include derivative
instruments, available for sale and trading securities, loans held for sale and long-term debt. Additionally, fair
value is used on a non-recurring basis to evaluate assets or liabilities for impairment or for disclosure purposes.
Examples of these non-recurring uses of fair value include certain loans held for sale accounted for on a lower of
cost or fair value, mortgage servicing rights, goodwill, and long-lived assets. Fair value is defined as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various
valuation techniques and assumptions when estimating fair value.
The Company applied the following fair value hierarchy:
Level 1 — Assets or liabilities for which the identical item is traded on an active exchange, such as
publicly-traded instruments or futures contracts.
Level 2 — Assets and liabilities valued based on observable market data for similar instruments.
Level 3 — Assets and liabilities for which significant valuation assumptions are not readily observable in
the market; instruments valued based on the best available data, some of which is internally-developed, and
considers risk premiums that a market participant would require.
When determining the fair value measurements for assets and liabilities required or permitted to be recorded
at and/or marked to fair value, the Company considers the principal or most advantageous market in which it
would transact and considers assumptions that market participants would use when pricing the asset or liability.
When possible, the Company looks to active and observable markets to price identical assets or liabilities. When
identical assets and liabilities are not traded in active markets, the Company looks to market observable data for
similar assets and liabilities. Nevertheless, certain assets and liabilities are not actively traded in observable
markets and the Company must use alternative valuation techniques to derive a fair value measurement.
Other Real Estate Owned: Other real estate owned (“OREO”) consists of real estate acquired in lieu of
unpaid loan balances. These assets are carried at an amount equal to the loan balance prior to foreclosure plus
costs incurred for improvements to the property, but no more than the estimated fair value of the property less
estimated selling costs. Any valuation adjustments required at the date of transfer are charged to the allowance
for loan losses. Subsequently, unrealized losses and realized gains and losses are included in other noninterest
income. Operating results from OREO are recorded in other noninterest expense.
Bank Premises and Equipment: Bank premises and equipment are stated at cost, less accumulated
depreciation and amortization. Premises and equipment include certain costs associated with the acquisition of
leasehold improvements. Depreciation and amortization are recognized principally by the straight-line method,
over the estimated useful lives as follows: buildings — 25-40 years, leasehold improvements — 5-25 years,
furniture and equipment — 3-12 years. Premises and equipment and other long-term assets are reviewed for
impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash
flows. If impaired, the assets are recorded at fair value.
Other Intangible Assets:
Intangible assets with indefinite lives are not subject to amortization. Rather they
are subject to impairment tests at least annually, or more often if events or circumstances indicate there may be
impairment. Intangible assets with finite lives continue to be amortized over the period the Company expects to
benefit from such assets and are periodically reviewed to determine whether there have been any events or
circumstances to indicate the recorded amount is not recoverable from projected undiscounted net operating cash
flows. A loss is recognized to reduce the carrying amount to fair value, where appropriate.
Revenue Recognition: Revenue is recognized when the earnings process is complete and collectibility is
assured. Brokerage fees and commissions are recognized on a trade date basis. Asset management fees, measured
by assets at a particular date, are accrued as earned. Commission expenses are recorded when the related revenue
is recognized.
Allowance for Loan Losses and Reserve for Unfunded Lending Commitments: The Company has
developed policies and procedures for assessing the adequacy of the allowance for loan losses and reserve for
unfunded lending commitments that reflect the evaluation of credit risk after careful consideration of all available
information. Where appropriate this assessment includes monitoring qualitative and quantitative trends including
72
changes in levels of past due, criticized and nonperforming loans. In developing this assessment, the Company
must necessarily rely on estimates and exercise judgment regarding matters where the ultimate outcome is
unknown such as economic factors, developments affecting companies in specific industries and issues with
respect to single borrowers. Depending on changes in circumstances, future assessments of credit risk may yield
materially different results, which may result in an increase or a decrease in the allowance for loan losses.
The allowance for loan losses and reserve for unfunded lending commitments is maintained at a level the
Company believes is adequate to absorb probable losses inherent in the loan portfolio and unfunded lending
commitments as of the date of the consolidated financial statements. The Company employs a variety of
modeling and estimation tools in developing the appropriate allowance for loan losses and reserve for unfunded
lending commitments. The allowance for loan losses and reserve for unfunded lending commitments consists of
formula-based components for both commercial and consumer loans, allowance for impaired commercial loans
and allowance related to additional factors that are believed indicative of current trends and business cycle issues.
If necessary, a specific allowance is established for individually evaluated impaired loans. The specific
allowance established for these loans is based on a thorough analysis of the most probable source of repayment,
including the present value of the loan’s expected future cash flows, the loan’s estimated market value, or the
estimated fair value of the underlying collateral depending on the most likely source of repayment. General
allowances are established for loans grouped into pools based on similar characteristics. In this process, general
allowance factors are based on an analysis of historical charge-off experience, portfolio trends, regional and
national economic conditions, and expected loss given default derived from the Company’s internal risk rating
process.
The Company monitors qualitative and quantitative trends in the loan portfolio, including changes in the
levels of past due, criticized and nonperforming loans. The distribution of the allowance for loan losses and
reserve for unfunded lending commitments between the various components does not diminish the fact that the
entire allowance for loan losses and reserve for unfunded lending commitments is available to absorb credit
losses in the loan portfolio. The principal focus is, therefore, on the adequacy of the total allowance for loan
losses and reserve for unfunded lending commitments.
In addition, various regulatory agencies, as an integral part of their examination process, periodically review
the Company’s bank subsidiary’s allowance for loan losses and reserve for unfunded lending commitments.
These agencies may require such subsidiaries to recognize changes to the allowance for loan losses and reserve
for unfunded lending commitments based on their judgments about information available to them at the time of
their examination.
Income Taxes: The Company uses the asset and liability method of accounting for income taxes. Deferred
tax assets and liabilities are determined based on temporary differences between the carrying amounts of assets
and liabilities in the consolidated financial statements and their related tax bases and are measured using the
enacted tax rates and laws that are in effect. A valuation allowance is recognized for a deferred tax asset if, based
on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset
will not be realized. The effect on deferred tax assets and liabilities of a change in rates is recognized as income
or expense in the period in which the change occurs. See Note L, Income Taxes for related disclosures.
Earnings per Share: Basic earnings per share are computed by dividing net income available to common
shareholders by the weighted-average number of common shares outstanding during each period. Diluted
earnings per share are based on the weighted-average number of common shares outstanding during each period,
plus common share equivalents calculated for stock options and performance restricted stock outstanding using
the treasury stock method.
Stock-Based Compensation: The three stock option plans are accounted for under ASC Topic 718 and the
fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model
with market assumptions. This amount is amortized on a straight-line basis over the vesting period, generally five
years. (See Note J)
For restricted stock awards, which generally vest based on continued service with the Company, the
deferred compensation is measured as the fair value of the shares on the date of grant, and the deferred
73
compensation is amortized as salaries and employee benefits in accordance with the applicable vesting schedule,
generally straight-line over five years. Some shares vest based upon the Company achieving certain performance
goals and salary amortization expense is based on an estimate of the most likely results on a straight line basis.
Note B Recently Issued Accounting Standards, Not Adopted as of December 31, 2011
ASU No. 2011-05 — Amendments to Topic 220, Comprehensive Income. Under the amendments in this
ASU, an entity has the option to present the total of comprehensive income, the components of net income, and
the components of other comprehensive income either in a single continuous statement of comprehensive income
or in two separate but consecutive statements. In both choices, an entity is required to present each component of
net income along with total net income, each component of other comprehensive income along with a total for
other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to
present the components of other comprehensive income as part of the statement of changes in stockholders’
equity. The amendments in this ASU do not change the items that must be reported in other comprehensive
income or when an item of other comprehensive income must be reclassified to net income. The amendments in
this ASU should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and
interim periods within those years, beginning after December 15, 2011. Early adoption is permitted, because
compliance with the amendments is already permitted. The amendments do not require any transition disclosures.
The Company is evaluating its timing of adoption of ASU 2011-05, but will adopt the ASU retrospectively by the
due date.
ASU 2011-08, “Intangibles — Goodwill and Other (Topic 350) — Testing Goodwill for Impairment.”
ASU 2011-08 amends Topic 350, “Intangibles – Goodwill and Other,” to give entities the option to first assess
qualitative factors to determine whether the existence of events or circumstances leads to a determination that it
is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the
totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a
reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary.
However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment
test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of
the reporting unit. ASU 2011-08 is effective for annual and interim impairment tests beginning after
December 15, 2011, and is not expected to have a significant impact on the Company’s financial statements.
ASU 2011-03, “Transfers and Servicing (Topic 860): Reconsideration of Effective Control for
Repurchase Agreements.” A repurchase agreement is a transaction in which a company sells financial
instruments to a buyer, typically in exchange for cash, and simultaneously enters into an agreement to repurchase
the same or substantially the same financial instruments from the buyer at a stated price plus accrued interest at a
future date. The determination of whether the transaction is accounted for as a sale or a collateralized financing is
determined by assessing whether the seller retains effective control of the financial instrument. The ASU changes
the assessment of effective control by removing the criterion that requires the seller to have the ability to
repurchase or redeem financial assets with substantially the same terms, even in the event of default by the buyer
and the collateral maintenance implementation guidance related to that criterion. The Company will apply the
new guidance to repurchase agreements entered into or amended after January 1, 2012. The adoption of the ASU
did not have a significant impact on the Company’s financial position, results of operations, or EPS.
ASU 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.” The
ASU requires additional disclosures about financial instruments and derivative instruments that are offset or
subject to an enforceable master netting arrangement or similar agreement. The ASU is effective for the interim
reporting period ending March 31, 2013 with retrospective disclosure for all comparative periods presented. The
Company is evaluating the impact of the ASU; however, it is not expected to materially impact the Company's
financial position, results of operations, or EPS.
ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The primary purpose of the ASU is
to conform the language in the fair value measurements guidance in U.S. GAAP and IFRS. The ASU also
clarifies how to apply existing fair value measurement and disclosure requirements. Further, the ASU requires
additional disclosures about transfers between level 1 and 2 of the fair value hierarchy, quantitative information
for level 3 inputs, and the level of the fair value measurement hierarchy for items that are not measured at fair
value in the statement of financial position but for which the fair value is required to be disclosed. The ASU is
effective for the interim reporting period ending March 31, 2012. The Company has adopted the standard as of
January 1, 2012. The adoption did not have a significant impact on the Company’s financial position, results of
operations, or EPS.
74
Note C Cash, Dividend and Loan Restrictions
In the normal course of business, the Company and Seacoast National enter into agreements, or are subject
to regulatory agreements that result in cash, debt and dividend restrictions. A summary of the most restrictive
items follows:
Seacoast National is required to maintain average reserve balances with the Federal Reserve Bank. The
average amount of those reserve balances was $18.3 million for 2011 and a nominal amount for 2010.
Under Federal Reserve regulation, Seacoast National is limited as to the amount it may loan to their
affiliates, including the Company, unless such loans are collateralized by specified obligations. At December 31,
2011, the maximum amount available for transfer from Seacoast National to the Company in the form of loans
approximated $33.9 million.
The approval of the Office of the Comptroller of the Currency (“OCC”) is required if the total of all
dividends declared by a national bank in any calendar year exceeds the bank's profits, as defined, for that year
combined with its retained net profits for the preceding two calendar years. Under this restriction Seacoast
National cannot distribute any dividends to the Company as of December 31, 2011, without prior approval of the
OCC.
Note D Securities
The amortized cost and fair value of secuities available for sale and held for investment at December 31,
2011 and December 31, 2010 are summarized as follows:
SECURITIES AVAILABLE FOR SALE
U.S. Treasury securities and obligations of U.S. Government Sponsored
Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities of U.S. Government Sponsored Entities . . . . . .
Collateralized mortgage obligations of U.S. Government Sponsored
Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Private collateralized mortgage obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of state and political subdivisions . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2011
Gross
Amortized
Cost
Gross
Gross
Unrealized Unrealized
Gains
Losses
Fair
Value
(In thousands)
$
1,699
135,665
$
25
2,819
$ — $
(37)
1,724
138,447
428,139
73,247
1,097
9,111
330
70
(316)
(3,487)
—
436,934
70,090
1,167
$639,847
$12,355
$(3,840)
$648,362
SECURITIES HELD FOR INVESTMENT
Collateralized mortgage obligations of U.S. Government Sponsored
Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Private collateralized mortgage obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of state and political subdivisions . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 10,475
1,840
6,662
1,000
$ — $ (136)
—
—
—
40
570
36
$ 10,339
1,880
7,232
1,036
$ 19,977
$
646
$ (136)
$ 20,487
75
SECURITIES AVAILABLE FOR SALE
U.S. Treasury securities and obligations of U.S. Government Sponsored
Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities of U.S. Government Sponsored Entities . . . . . .
Collateralized mortgage obligations of U.S. Government Sponsored
Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Private collateralized mortgage obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of state and political subdivisions . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2010
Gross
Amortized
Cost
Gross
Gross
Unrealized Unrealized
Gains
Losses
Fair
Value
(In thousands)
$
4,192
120,439
$
20
1,218
$ — $
(1,023)
4,212
$120,634
212,715
90,428
1,638
2,742
4,101
1,325
71
—
(1,357)
(1,369)
$215,459
$ 90,384
1,709
2,742
— $
— $
$432,154
$6,735
$(3,749)
$435,140
SECURITIES HELD FOR INVESTMENT
Collateralized mortgage obligations of U.S. Government Sponsored
Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Private collateralized mortgage obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of state and political subdivisions . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 15,423
3,540
7,398
500
$
85
79
69
3
$ — $ 15,508
3,619
7,223
503
— $
$
— $
(244)
$ 26,861
$ 236
$ (244)
$ 26,853
Proceeds from sales of securities during 2011 were $52,689,000 with gross gains of $1,239,000 and gross
losses of $19,000. Proceeds from sales of securities during 2010 were $107,821,000 with gross gains of
$3,687,000. Proceeds from the sale of securities during 2009 were $92,686,000 with gross gains of $5,399,000.
Securities with a carrying value of $109,790,000 and a fair value of $109,793,000 at December 31, 2011,
were pledged as collateral for United States Treasury deposits, other public deposits and trust deposits. Securities
with a carrying and fair value of $171,951,000 were pledged as collateral for repurchase agreements.
The amortized cost and fair value of securities at December 31, 2011, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because borrowers may have the right to call
or repay obligations with or without call or prepayment penalties.
Due in less than one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after one year through five years . . . . . . . . . . . . . . . . . . . . . . . .
Due after five years through ten years . . . . . . . . . . . . . . . . . . . . . . . .
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities of U.S. Government Sponsored
Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Collateralized mortgage obligations of U.S. Government Sponsored
Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Private collateralized mortgage obligations . . . . . . . . . . . . . . . . . . .
No contractual maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76
Held for Investment
Available for Sale
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
(In thousands)
$ — $ — $
— $
127
1,503
5,032
6,662
127
1,632
5,473
7,232
1,699
1,097
—
2,796
—
1,724
1,167
—
2,891
—
— 135,665
138,447
10,475
1,840
1,000
10,339
1,880
1,036
428,139
73,247
—
436,934
70,090
—
$19,977
$20,487
$639,847
$648,362
The estimated fair value of a security is determined based on market quotations when available or, if not
available, by using quoted market prices for similar securities, pricing models or discounted cash flows analyses,
using observable market data where available. The tables below indicate the amount of securities with unrealized
losses and period of time for which these losses were outstanding at December 31, 2011 and December 31, 2010,
respectively.
December 31, 2011
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(In thousands)
Mortgage-backed securities of U.S. Government
Sponsored Entities . . . . . . . . . . . . . . . . . . . . . . . .
$ 18,800
$
(37)
$ — $ — $ 18,800
$
(37)
Collateralized mortgage obligations of U.S.
Government Sponsored Entities . . . . . . . . . . . . . .
Private collateralized mortgage obligations . . . . . . .
59,913
32,615
(452)
(2,001)
—
27,282
—
(1,486)
59,913
59,897
(452)
(3,487)
Total temporarily impaired securities . . . . . . . . . . .
$111,328
$(2,490)
$27,282
$(1,486)
$138,610
$(3,976)
December 31, 2010
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(In thousands)
Mortgage-backed securities of U.S. Government
Sponsored Entities . . . . . . . . . . . . . . . . . . . . . . . .
$ 61,176
$(1,023)
$ —
$ —
$ 61,176
$(1,023)
Collateralized mortgage obligations of U.S.
Government Sponsored Entities . . . . . . . . . . . . . .
Private collateralized mortgage obligations . . . . . . .
Obligations of state and political subdivisions . . . . .
42,469
42,289
4,273
(1,357)
(631)
(244)
—
14,214
—
—
(738)
—
42,469
56,503
4,273
(1,357)
(1,369)
(244)
Total temporarily impaired securities . . . . . . . . . . .
$150,207
$(3,255)
$14,214
$(738)
$164,421
$(3,993)
The Company owned individual investment securities of $138.6 million with aggregate gross unrealized
losses at December 31, 2011. Based on a review of each of the securities in the investment securities portfolio at
December 31, 2011, the Company concluded that it expected to recover the amortized cost basis of its
investment.
Approximately $3.5 million of the unrealized losses pertain to super senior private label securities secured
by collateral originated in 2005 and prior with a fair value of $59.9 million and were attributable to a
combination of factors, including relative changes in interest rates since the time of purchase and decreased
liquidity for investment securities in general. The collateral underlying these mortgage investments are 30- and
15-year fixed and 10/1 adjustable rate mortgage loans with low loan to values, subordination and historically
have had minimal foreclosures and losses. Based on its assessment of these factors, management believes that the
unrealized losses on these debt security holdings are a function of changes in investment spreads and interest rate
movements and not changes in credit quality.
At December 31, 2011, the Company also had $489,000 of unrealized losses on mortgage backed securities
of government sponsored entities having a fair value of $78.7 million that were attributable to a combination of
factors, including relative changes in interest rates since the time of purchase and decreased liquidity for
investment securities in general. The contractual cash flows for these securities are guaranteed by U.S.
government agencies and U.S. government-sponsored enterprises. Based on its assessment of these factors ,
management believes that the unrealized losses on these debt security holdings are a function of changes in
investment spreads and interest movements and not changes in credit quality. Management expects to recover the
entire amortized cost basis of these securities.
77
As of December 31, 2011, the Company does not intend to sell nor is it anticipated that it would be required
to sell any of its investment securities that have losses. Therefore, management does not consider any investment
to be other-than-temporarily impaired at December 31, 2011.
Included in other assets is $11.9 million of Federal Home Loan Bank and Federal Reserve Bank stock stated
at par value. At December 31, 2011, the Company has not identified events or changes in circumstances which
may have a significant adverse effect on the fair value of the $11.9 million of cost method investment securities.
Note E Loans
Information relating to loans at December 31 is summarized as follows:
2011
2010
(In thousands)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction and land development
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commerical and financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
49,184
508,353
546,246
53,105
50,611
575
$
79,306
543,603
516,994
48,825
51,602
278
NET LOAN BALANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,208,074
$1,240,608
(1) Net loan balances at December 31, 2011 and 2010 are net of deferred costs of $1,632,000 and $973,000,
respectively.
One of the sources of the Company's business is loans to directors and executive officers. The aggregate
dollar amount of these loans was approximately $5,736,000 and $5,332,000 at December 31, 2011 and 2010,
respectively. During 2011 new loans totaling $2,421,000 were made and reductions totaled $2,017,000.
At December 31, 2011 and 2010, loans pledged as collateral for borrowings totaled $55.0 million for each
year, respectively. At December 31, 2011 no loans were pledged as collateral for letters of credit with the Federal
Home Loan Bank (“FHLB”), versus $47.3 million in loans at December 31, 2010.
Loans are made to individuals as well as commercial and tax exempt entities. Specific loan terms vary as to
interest rate, repayment, and collateral requirements based on the type of loan requested and the credit worthiness
of the prospective borrower.
Concentrations of Credit All of the Company’s lending activity occurs within the State of Florida,
including Orlando in Central Florida and Southeast coastal counties from Brevard County in the North to Palm
Beach County in the south, as well as all of the counties surrounding Lake Okeechobee in the center of the state.
The Company’s loan portfolio consists of approximately one half commercial and commercial real estate loans
and one half consumer and residential real estate loans.
The Company’s extension of credit is governed by the Credit Risk Policy which was established to control
the quality of the Company’s loans. These policies and procedures are reviewed and approved by the Board of
Directors on a regular basis.
Construction and Land Development Loans The Company defines construction and land development
loans as exposures secured by land development and construction (including 1-4 family residential construction),
multi-family property, and non-farm nonresidential property where the primary or significant source of
repayment is from rental income associated with that property (that is, loans for which 50 percent or more of the
source of repayment comes from third party, non-affiliated rental income) or the proceeds of the sale,
refinancing, or permanent financing of the property.
Commercial Real Estate Loans The Company’s goal is to create and maintain a high quality portfolio of
commercial real estate loans with customers who meet the quality and relationship profitability objectives of the
company. Commercial real estate loans are subject to underwriting standards and processes similar to
commercial and industrial loans. These loans are viewed primarily as cash flow loans and the repayment of these
78
loans is largely dependent on the successful operation of the property. Loan performance may be adversely
affected by factors impacting the general economy or conditions specific to the real estate market such as
geographic location and/or property type.
Residential Real Estate Loans The Company selectively adds residential mortgage loans to its portfolio,
primarily loans with adjustable rates, home equity mortgages and home equity lines. Substantially all residential
originations have been underwritten to conventional loan agency standards, including loans having balances that
exceed agency value limitations. The Company has never offered sub-prime, Alt A, Option ARM or any negative
amortizing residential loans, programs or products, although we have originated and hold residential mortgage
loans from borrowers with original or current FICO credit scores that are less than “prime.”
Commercial and Financial Loans Commercial credit is extended primarily to small to medium sized
professional firms, retail and wholesale operators and light industrial and manufacturing concerns. Such credits
typically comprise working capital loans, loans for physical asset expansion, asset acquisition and other business
loans. Loans to closely held businesses will generally be guaranteed in full or for a meaningful amount by the
businesses major owners. Commercial loans are made based primarily on the historical and projected cash flow
of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of
borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to
economic or individual performance factors. Minimum standards and underwriting guidelines have been
established for all commercial loan types.
Consumer Loans The Company originates consumer loans including installment loans, loans for
automobiles, boats, and other personal, family and household purposes, and indirect loans through dealers to
finance automobiles. For each loan type several factors including debt to income, type of collateral and loan to
collateral value, credit history and Company relationship with the borrower is considered during the underwriting
process.
The following tables present the contractual aging of the recorded investment in past due loans by class of
loans as of December 31, 2011 and 2010:
December 31, 2011
Accruing
30-59 Days
Past Due
Accruing
60-89 Days
Past Due
Accruing
Greater
Than
90 Days
Nonaccrual
Current
Total
Financing
Receivables
Construction and land development . . .
Commercial real estate . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . .
Commerical and financial . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
6
836
2,979
80
246
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,147
$215
—
607
—
74
—
$896
(In thousands)
$—
—
—
—
—
—
$—
$ 2,227
13,120
12,555
16
608
—
$
46,736
494,397
530,105
53,009
49,683
575
$
49,184
508,353
546,246
53,105
50,611
575
$28,526
$1,174,505
$1,208,074
December 31, 2010
Accruing
30-59 Days
Past Due
Accruing
60-89 Days
Past Due
Accruing
Greater
Than
90 Days
Nonaccrual
Current
Total
Financing
Receivables
Construction and land development . . .
Commercial real estate . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . .
Commerical and financial . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 147
76
3,493
70
410
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,196
$ 20
—
598
1
176
—
$795
79
(In thousands)
$—
—
—
—
—
—
$—
$29,229
19,101
14,810
4,607
537
—
$
49,910
524,426
498,093
44,147
50,479
278
$
79,306
543,603
516,994
48,825
51,602
278
$68,284
$1,167,333
$1,240,608
Nonaccrual loans and loans past due ninety days or more were $28.5 million and $68.3 million at
December 31, 2011 and 2010, respectively. The reduction in interest income associated with loans on nonaccrual
status was approximately $1.2 million, $5.1 million, and $6.6 million, for the years ended December 31, 2011,
2010, and 2009, respectively.
The Company utilizes an internal asset classification system as a means of reporting problem and potential
problem loans. Under the Company’s risk rating system, the Company classifies problem and potential problem
loans as “Special Mention,” “Substandard,” and “Doubtful” and these loans are monitored on an ongoing
basis. Substandard loans include those characterized by the distinct possibility that the Company will sustain
some loss if the deficiencies are not corrected. Loans classified as substandard may require a specific allowance,
but generally does not exceed 30% of the principal balance. Loans classified as Doubtful, have all the
weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present
make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly
questionable and improbable. Loans classified as doubtful generally have specific allowances in excess of 30%
of the principal balance. Loans that do not currently expose the Company to sufficient risk to warrant
classification in one of the aforementioned categories, but possess weaknesses that deserve management’s close
attention are deemed to be Special Mention. Risk ratings are updated any time the situation warrants.
Loans not meeting the criteria above are considered to be pass-rated loans and risk grades are recalculated at
least annually by the loan relationship manager. The following tables present the risk category of loans by class
of loans based on the most recent analysis performed and the contractual aging as of December 31, 2011 and
2010:
December 31, 2011
Construction
& Land
Development
Commercial Residential
Real Estate
Real Estate
Commercial
and
Financial
Consumer
Loans
Total
Pass . . . . . . . . . . . . . . . . . . . . . . . . .
Special mention . . . . . . . . . . . . . . . .
Substandard . . . . . . . . . . . . . . . . . . .
Doubtful . . . . . . . . . . . . . . . . . . . . . .
Nonaccrual . . . . . . . . . . . . . . . . . . . .
Troubled debt restructures . . . . . . . .
$42,899
802
90
—
2,227
3,166
(In thousands)
$387,161
57,334
5,558
—
13,120
45,180
$505,316
5,529
133
—
12,555
22,713
$51,375
1,445
168
—
16
101
$49,299
523
305
—
608
451
$1,036,050
65,633
6,254
—
28,526
71,611
$49,184
$508,353
$546,246
$53,105
$51,186
$1,208,074
December 31, 2010
Construction
& Land
Development
Commercial Residential
Real Estate
Real Estate
Commercial
and
Financial
Consumer
Loans
Total
Pass . . . . . . . . . . . . . . . . . . . . . . . . .
Special mention . . . . . . . . . . . . . . . .
Substandard . . . . . . . . . . . . . . . . . . .
Doubtful . . . . . . . . . . . . . . . . . . . . . .
Nonaccrual . . . . . . . . . . . . . . . . . . . .
Troubled debt restructures . . . . . . . .
$41,650
265
4,140
—
29,229
4,022
(In thousands)
$390,792
70,810
23,214
—
19,101
39,686
$473,525
1,441
5,410
—
14,810
21,808
$41,966
1,866
283
—
4,607
103
$49,643
693
276
—
537
731
$ 997,576
75,075
33,323
—
68,284
66,350
$79,306
$543,603
$516,994
$48,825
$51,880
$1,240,608
Note F Impaired Loans and Allowance for Loan Losses
During the third quarter of 2011, the Company adopted Accounting Standards Update (ASU) 2011-02, A
Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring (“TDR”) (Topic 310),
which modified guidance for identifying restructurings of receivables that constitute a TDR. As a result of
adopting the provisions of ASU 2011-02, the Company reassessed all loan modifications that occurred after
December 31, 2010 for identification as TDRs. The Company did not identify any loans that were previously
80
measured under general allowance for credit losses methodology as TDRs. The Company adopted the provisions
of the ASU that require impaired loan accounting and reporting for newly identified TDRs as of July 1, 2011.
During 2011, the total of newly identified TDRs was $31.2 million, of which $0.3 million were accruing
construction and land development loans, $6.4 million were accruing residential real estate mortgages, $20.7
million were accruing commercial real estate loans, and $0.2 million were accruing consumer loans. Loans
modified, but where full collection under the modified terms is doubtful, are classified as nonaccrual loans from
the date of modification and are therefore excluded from the tables below.
The Company's TDR concessions granted generally do not include forgiveness of principal balances. 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.
When a loan is modified as a TDR, there is not a direct, material impact on the loans within the
Consolidated Balance Sheet, as principal balances are generally not forgiven. All loans prior to modification
were classified as an impaired loan and the allowance for loan losses is determined in accordance with its policy
as disclosed in Note A. The following table presents loans that were modified within the twelve months ending
December 31, 2011:
Pre-
Post-
Modification Modification
Outstanding Outstanding
Recorded
Investment
Recorded
Investment
Number
of
Contracts
Valuation
Specific
Reserve
Allowance
Recorded Recorded
Construction and land development
. . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and financial . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer
6
29
12
1
4
52
$
(Dollars in Thousands)
335
$
6,221
19,027
8
156
340
6,408
20,694
9
187
$27,638
$25,747
$—
—
—
—
—
$—
$
6
188
1,667
—
30
$1,891
Accruing loans that were restructured within the twelve months ending December 31, 2011 and defaulted
during the twelve months ended December 31, 2011 are presented in the table below. The Company considers a
loan to have defaulted when it becomes 90 days or more delinquent under the modified terms, has been
transferred to nonaccrual status, or has been transferred to other real estate owned. A defaulted TDR is generally
placed on nonaccrual and specific allowance for loan loss is assigned in accordance with the Company's policy as
disclosed in note A.
Construction and land development
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Contracts
Recorded
Investment
(Dollars in Thousands)
1
1
—
1
—
3
$ 37
220
—
8
—
$265
81
At December 31, 2011 and 2010, the Company's recorded investment in impaired loans and related
valuation allowance was as follows:
Impaired Loans
for the Year Ended December 31, 2011
Recorded
Investment
Unpaid
Principal
Balance
Related
Valuation
Allowance
Average
Recorded
Investment Recognized
Interest
Income
(In thousands)
With no related allowance recorded:
Construction and land development . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and financial
. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer
$ 1,616
19,101
9,128
16
481
$ 2,431
22,219
13,442
16
523
$ — $ 2,527
21,221
8,752
774
417
—
—
—
—
$
14
425
155
2
2
With an allowance recorded:
Construction and land development . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Commercial and financial
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer
Total:
Construction and land development . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and financial
. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer
3,777
39,199
26,140
101
578
5,393
58,300
35,268
117
1,059
4,131
39,824
26,940
101
584
6,562
62,043
40,382
117
1,107
375
3,385
3,099
8
112
375
3,385
3,099
8
112
13,699
44,369
26,869
154
746
16,226
65,590
35,621
928
1,163
153
1,843
913
3
31
167
2,268
1,068
5
33
$100,137
$110,211
$6,979
$119,528
$3,541
Impaired Loans
for the Year Ended December 31, 2010
Recorded
Investment
Unpaid
Principal
Balance
Related
Valuation
Allowance
Average
Recorded
Investment Recognized
Interest
Income
(In thousands)
With no related allowance recorded:
Construction and land development . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and financial
. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer
$ 3,826
22,365
9,731
4,607
5
$ 9,243
27,962
14,561
4,721
5
$ —
—
—
—
—
With an allowance recorded:
Construction and land development . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and financial
. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer
Total:
Construction and land development . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and financial
. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer
29,425
36,421
26,887
104
1,263
33,251
58,786
36,618
4,711
1,268
32,232
42,173
27,188
104
1,271
41,475
70,135
41,749
4,825
1,276
5,076
5,404
3,640
9
233
5,076
5,404
3,640
9
233
$ 51,583
61,448
31,174
3,016
1,837
$
29
382
54
—
1
211
1,198
741
—
55
240
1,580
795
—
56
$134,634
$159,460
$14,362
$149,058
$2,671
82
Impaired loans also include loans that have been modified in troubled debt restructurings (“TDRs”) where
concessions to borrowers who experienced financial difficulties have been granted. At December 31, 2011 and
2010, accruing TDRs totaled $71.6 million and $66.4 million, respectively.
In March 2012, the Company concluded that the lead bank in a $14.6 million participation classified as a
TDR may not renew their borrower’s loan, and instead proceed with foreclosure when the loan matures in
November 2012. These facts could alter the loan’s status as an accruing TDR in the first quarter 2012, at which
point management expects that an additional valuation allowance of approximately $2.1 million would be
recorded.
The valuation allowance is included in the allowance for loan losses. The average recorded investment in
impaired loans for the years ended December 31, 2011, 2010 and 2009 was $119,528,000, $149,058,000 and
$137,295,000, respectively. The impaired loans were measured for impairment based primarily on the value of
underlying collateral.
Interest payments received on impaired loans are recorded as interest income unless collection of the
remaining recorded investment is doubtful at which time payments received are recorded as reductions to
principal. For the years ended December 31, 2011, 2010 and 2009, the Company recorded $3,541,000,
$2,671,000 and $708,000, respectively, in interest income on impaired loans.
The nonaccrual loans and accruing loans past due 90 days or more were $28,526,000 and $0, respectively, at
December 31, 2011, $68,284,000 and $0. respectively at the end of 2010, and were $97,876,000 and $156,000,
respectively, at year-end 2009.
Transactions in the allowance for loans losses for the three years ended December 31, 2011, 2010 and 2009
are summarized as follows:
December 31 , 2011
Beginning
Balance
Provision
for Loan
Losses
Charge-
Offs
Recoveries
Net
Charge-
Offs
Ending
Balance
Construction and land development . . . . . .
Commercial real estate . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . .
Commercial and financial
. . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,214
18,563
10,102
480
1,385
$ (1,645) $
(3,777)
7,833
(379)
(58)
(In thousands)
(4,739)
(3,663)
(7,482)
—
(562)
$1,053
354
513
301
72
$
(3,686) $ 1,883
11,477
(3,309)
10,966
(6,969)
402
301
837
(490)
$37,744
$
1,974
$ (16,446)
$2,293
$ (14,153) $25,565
December 31, 2010 . . . . . . . . . . . . . . . . . .
$45,192
$ 31,680
$ (41,628)
$2,500
$ (39,128) $37,744
December 31, 2009 . . . . . . . . . . . . . . . . . .
$29,388
$124,767
$(110,826)
$1,863
$(108,963) $45,192
As discussed in Note A, “Significant Accounting Policies,” the allowance for loan losses is composed of
specific allowances for certain impaired loans and general allowances grouped into loan pools based on similar
characteristics. The Company's loan portfolio and related allowance at December 31, 2011 and 2010 is shown in
the following tables.
December 31, 2011
Individually Evaluated
for Impairment
Collectively Evaluated for
Impairment
Total
Carrying
Value
Associated
Allowance
Carrying
Value
Associated
Allowance
Carrying
Value
Associated
Allowance
(In thousands)
Construction and land development . . .
Commercial real estate . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . .
Commercial and financial . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . .
$
5,393
58,300
35,268
117
1,059
$ 375
3,385
3,099
8
112
$
43,791
450,053
510,978
52,988
50,127
$ 1,508
8,092
7,867
394
725
$
49,184
508,353
546,246
53,105
51,186
$ 1,883
11,477
10,966
402
837
$100,137
$6,979
$1,107,937
$18,586
$1,208,074
$25,565
83
December 31, 2010
Individually Evaluated
for Impairment
Collectively Evaluated for
Impairment
Total
Carrying
Value
Associated
Allowance
Carrying
Value
Associated
Allowance
Carrying
Value
Associated
Allowance
Construction and land development . . .
Commercial real estate . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . .
Commercial and financial . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . .
$ 33,251
58,786
36,618
4,711
1,268
$ 5,076
5,404
3,640
9
233
(In thousands)
$
46,055
484,817
480,376
44,114
50,612
$ 2,138
13,159
6,462
471
1,152
$
79,306
543,603
516,994
48,825
51,880
$ 7,214
18,563
10,102
480
1,385
$134,634
$14,362
$1,105,974
$23,382
$1,240,608
$37,744
Note G Bank Premises and Equipment
Bank premises and equipment are summarized as follows:
December 31, 2011
Premises (including land of $8,883)
Furniture and equipment
. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2010
Premises (including land of $8,883)
Furniture and equipment
. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated
Depreciation &
Amortization
(In thousands)
$(18,710)
(17,054)
$(35,764)
$(17,528)
(16,029)
$(33,557)
Net
Carrying
Value
$29,981
4,246
$34,227
$30,994
5,051
$36,045
Cost
$48,691
21,300
$69,991
$48,522
21,080
$69,602
In accordance with the provisions of ASC Topic 360-10, the impairment or disposal of long-lived assets
held for sale with a carrying amount of $2.4 million were written down to their fair value of $1.4 million based
on appraised values less selling costs resulting in losses of $228,000 and $753,000, respectively, for 2010 and
2009 which was included in the consolidated statement of operations as “net loss on other estate owned and
repossessed assets”. These assets were sold in 2011.
Note H Other Intangible Assets
The gross carrying amount and accumulated amortization of the Company's intangible asset subject to
amortization at December 31, 2011 and 2010, is presented below.
Deposit base intangible . . . . . . . . . . . . . . . . . . . . .
December 31, 2011
December 31, 2010
Gross
Carrying
Amount
$9,494
$9,494
Accumulated
Amortization
Gross
Carrying
Amount
(In thousands)
$(7,205)
$(7,205)
$9,494
$9,494
Accumulated
Amortization
$(6,357)
$(6,357)
84
Intangible amortization expense related to the deposit base intangible for each of the years in the three-year
period ended December 31, 2011, is presented below.
Year Ended December 31
2011
2010
2009
(In thousands)
Intangible Amortization
Identified intangible assets
Deposit base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$847
$985
$1,259
The estimated annual amortization expense for the deposit base intangible determined using the straight line
method in each of the five years subsequent to December 31, 2011, is as follows (in thousands): 2012, $788;
2013, $783; 2014, $718; and zero thereafter.
Note I Borrowings
All of the Company's short-term borrowings were comprised of federal funds purchased and securities sold
under agreements to repurchase with maturities primarily from overnight to seven days:
Maximum amount outstanding at any month end . . . . . . . . . . . .
Weighted average interest rate at end of year . . . . . . . . . . . . . . .
Average amount outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average interest rate during the year . . . . . . . . . . . . . .
2011
2010
2009
$154,440
(In thousands)
$125,920
$158,815
0.22 %
0.25 %
0.26 %
$106,495
$ 87,106
$117,171
0.26 %
0.27 %
0.37 %
During 2007, the Company obtained advances from the Federal Home Loan Bank (FHLB) of $25,000,000
each on September 25, 2007 and November 27, 2007. The advances mature on September 15, 2017 and
November 27, 2017, respectively, and have fixed rates of 3.64 percent and 2.70 percent at December 31, 2011,
respectively, payable quarterly; the FHLB has a perpetual three-month option to convert the interest rate on
either advance to an adjustable rate and the Company has the option to prepay the advance should the FHLB
convert the interest rate.
Seacoast National has unused secured lines of credit of $819,174,000 at December 31, 2011.
The Company issued $20,619,000 in junior subordinated debentures on March 31 and December 16, 2005,
an aggregate of $41,238,000. These debentures were issued in conjunction with the formation of a Delaware and
Connecticut trust subsidiary, SBCF Capital Trust I, and II ("Trusts I and II") which each completed a private sale
of $20.0 million of floating rate preferred securities. On June 29, 2007, the Company issued an additional
$12,372,000 in junior subordinated debentures which was issued in conjunction with the formation of a Delaware
trust subsidiary, SBCF Statutory Trust III ("Trust III"), which completed a private sale of $12.0 million of
floating rate trust preferred securities. The rates on the trust preferred securities are the 3-month LIBOR rate plus
175 basis points, the 3-month LIBOR rate plus 133 basis points, and the 3-month LIBOR rate plus 135 basis
points, respectively. The rates, which adjust every three months, are currently 2.33 percent, 1.88 percent, and
1.90 percent, respectively, per annum. The trust preferred securities have original maturities of thirty years, and
may be redeemed without penalty on or after June 10, 2010, March 15, 2011, and September 15, 2012,
respectively, upon approval of the Federal Reserve or upon occurrence of certain events affecting their tax or
regulatory capital treatment. Distributions on the trust preferred securities are payable quarterly in March, June,
September and December of each year. The Trusts also issued $619,000, $619,000 and $372,000, respectively, of
common equity securities to the Company. The proceeds of the offering of trust preferred securities and common
equity securities were used by Trusts I and II to purchase the $41.2 million junior subordinated deferrable interest
notes issued by the Company, and by Trust III to purchase the $12.4 million junior subordinated deferrable
interest notes issued by the Company, all of which have terms substantially similar to the trust preferred
securities.
The Company has the right to defer payments of interest on the notes at any time or from time to time for a
period of up to twenty consecutive quarterly interest payment periods. Under the terms of the notes, in the event
that under certain circumstances there is an event of default under the notes or the Company has elected to defer
interest on the notes, the Company may not, with certain exceptions, declare or pay any dividends or distributions
85
on its capital stock or purchase or acquire any of its capital stock. The Company executed its right to defer
interest payments on the notes beginning May 19, 2009 and as a result no common or preferred stock dividends
could be paid. At December 31, 2010, the accumulated deferred interest payments on trust preferred securities
was $2.0 million. During the third quarter of 2011, the Company remitted accumulated deferred interest
payments of $2,426,000. As of December 31, 2011, all interest payments on trust preferred securities are current.
The Company has entered into agreements to guarantee the payments of distributions on the trust preferred
securities and payments of redemption of the trust preferred securities. Under these agreements, the Company
also agrees, on a subordinated basis, to pay expenses and liabilities of the Trusts other than those arising under
the trust preferred securities. The obligations of the Company under the junior subordinated notes, the trust
agreement establishing the Trusts, the guarantees and agreements as to expenses and liabilities, in aggregate,
constitute a full and conditional guarantee by the Company of the Trusts' obligations under the trust preferred
securities.
Despite the fact that the accounts of the Trusts are not included in the Company's consolidated financial
statements, $52.0 million in trust preferred securities issued by the Trusts are included in the Tier 1 capital of the
Company at December 31, 2011, as allowed by Federal Reserve guidelines.
Through April 13, 2011 and all of 2010, the Company's banking subsidiary utilized $43.0 million in letters
of credit issued by the FHLB to satisfy a portion of its pledging requirement to transact business as a qualified
public depository within the state of Florida. The letters of credit had a term of one year with an annual fee
equivalent of eight basis points, or approximately $34,000. The letters of credit were terminated on April 13,
2011.
Note J Employee Benefits and Stock Compensation
The Company’s profit sharing and retirement plan covers substantially all employees after one year of
service and includes a matching benefit feature for employees electing to defer the elective portion of their profit
sharing compensation. In addition, amounts of compensation contributed by employees are matched on a
percentage basis under the plan. The profit sharing and retirement contributions charged to operations were
$361,000 in 2011, $373,000 in 2010, and $417,000 in 2009.
The Company’s stock option and stock appreciation rights plans were approved by the Company’s
shareholders on April 25, 1991, April 25, 1996, April 20, 2000 and May 8, 2008. The number of shares of
common stock that may be granted pursuant to the 1991 and 1996 plans shall not exceed 990,000 shares for each
plan, pursuant to the 2000 plan shall not exceed 1,320,000 shares, and pursuant to the 2008 plan, shall not exceed
1,500,000 shares. The Company has granted options and stock appreciation rights (“SSARs”) on 826,000,
933,000, 791,000 shares for the 1991, 1996 and 2000 plans, respectively, through December 31, 2011; no options
or SSARs have been issued under the 2008 plan. Under the 2000 plan the Company issued 17,000 shares of
restricted stock awards at $1.90 per share during 2010. Under the 2008 plan the Company issued 1,143,400 of
restricted stock awards at $1.42 per share during 2011. Under the plans, the options, stock awards or SSARs
exercise price equals the common stock’s market price on the date of the grant. All options or SSARs issued after
December 31, 2002 have a vesting period of five years and a contractual life of ten years. All stock awards have a
contractual life of three or five years. To the extent the Company has treasury shares available, stock options
exercised or stock grants awarded may be issued from treasury shares or, if treasury shares are insufficient, the
Company can issue new shares. The Company has a single share repurchase program in place, approved on
September 18, 2001, authorizing the repurchase of up to 825,000 shares; the maximum number of shares that
may yet be purchased under this program is 150,000. Under TARP and Federal Reserve policy, the Company’s
stock repurchases are limited.
The Company did not grant any stock options or SSARS in 2011, 2010 or 2009. Stock option fair value is
measured on the date of grant using the Black-Scholes option pricing model with market assumptions. Option
pricing models require the use of highly subjective assumptions, including expected price volatility, which when
changed can materially affect fair value estimates. Accordingly, the model does not necessarily provide a reliable
single measure of the fair value of the Company’s stock options or SSARs.
86
The following table presents a summary of stock option and SSARs activity for the years ended
December 31, 2011, 2010 and 2009:
Dec. 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dec. 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dec. 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
611,000
0
0
0
(53,000)
558,000
0
0
0
(11,000)
547,000
0
0
0
(12,000)
Option or
SSAR Price
Per Share
$ 7.46 — 27.36
0
0
0
8.22 — 26.72
7.46 — 27.36
0
0
0
7.46 — 26.72
17.08 — 27.36
0
0
0
17.08 — 26.72
Dec. 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
535,000
17.08 — 27.36
Weighted
Average
Exercise
Price
$21.06
0
0
0
19.60
21.21
0
0
0
11.88
21.39
0
0
0
20.14
21.42
Aggregate
Intrinsic
Value
$0
0
0
0
No stock options were exercised during 2011. No windfall tax benefits were realized from the exercise of
stock options and no cash was utilized to settle equity instruments granted under stock option awards.
The following table summarizes information about stock options outstanding and exercisable at
December 31, 2011:
Options / SSARs Outstanding
Options / SSARs Exercisable (Vested)
Number of
Shares
Outstanding
535,000
Weighted Average
Remaining
Contractual Life
in Years
3.89
Number of
Shares
Exercisable
475,000
Weighted
Average
Exercise
Price
21.32
Weighted Average
Remaining
Contractual Life
in Years
3.72
Aggregate
Intrinsic
Value
$0
Adjusting for potential forfeiture experience, non-vested stock options and SSARs for 53,000 shares were
outstanding at December 31, 2011 and are as follows:
Number of
Non-Vested
Stock Options
and SSARs
53,000
Weighted
Average
Remaining
Contractual Life
In Years
5.25
Weighted
Average
Fair Value
4.21
Remaining
Unrecognized
Compensation
Cost
$61,000
Weighted
Average
Remaining
Recognition
Period
in Years
0.25
Since December 31, 2010, restricted stock awards of 1,143,000 shares were issued, 10,000 awards have
vested and 85,000 awards were cancelled. Of the 1,143,000 shares issued in 2011, 352,000 shares were
dependent of the Company achieving a minimum return on equity during a five year period. Non-vested
restricted stock awards totaling 1,086,000 shares were outstanding at December 31, 2011, 1,048,000 greater than
at December 31, 2010, and are as follows:
Number of
Non-Vested
Restricted Stock
Award Shares
1,086,000
Remaining
Unrecognized
Compensation Cost
$1,526,000
87
Weighted Average
Remaining Recognition
Period in Years
3.93
In 2011, 2010 and 2009 the Company recognized $588,000 ($361,000 after tax), $493,000 ($303,000 after
tax) and $580,000 ($357,000 after tax), respectively of non-cash compensation expense.
No cash was utilized to settle equity instruments granted under restricted stock awards. No compensation
cost has been capitalized and no significant modifications have occurred with regard to the contractual terms for
stock options, SSARs or restricted stock awards.
Note K Lease Commitments
The Company is obligated under various noncancellable operating leases for equipment, buildings, and land.
Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease.
At December 31, 2011, future minimum lease payments under leases with initial or remaining terms in excess of
one year are as follows:
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
(In thousands)
$ 3,427
2,904
2,681
2,333
2,225
14,577
$28,147
Rent expense charged to operations was $4,010,000 for 2011, $3,951,000 for 2010 and $4,257,000 for 2009.
Certain leases contain provisions for renewal and change with the consumer price index.
Certain property was leased for $312,000 in 2009 from a former Bank director of the Company who retired.
Note L Income Taxes
The benefit for income taxes is as follows:
Year Ended December 31
2011
2010
2009
(In thousands)
Current
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $ 29
24
10
$
812
(4)
Deferred
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(10)
(29)
(24)
(10,488)
(2,145)
$ — $ — $(11,825)
88
The difference between the total expected tax benefit (computed by applying the U.S. Federal tax rate of
35% to pretax income in 2011, 2010 and 2009) and the reported income tax benefit relating to loss before income
taxes is as follows:
Tax rate applied to income (loss) before income taxes . . . . . . . . . .
Increase (decrease) resulting from the effects of:
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax exempt interest on obligations of states and political
subdivisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal tax benefit before valuation allowance . . . . . . . . . . . . . . . .
State tax benefit before valuation allowance . . . . . . . . . . . . . . . . . .
Total income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31
2011
$ 2,333
2010
(In thousands)
$(11,622)
2009
$(55,479)
—
—
17,435
(143)
(173)
132
281
2,430
494
2,924
(2,924)
(177)
506
150
174
(10,969)
(1,666)
(12,635)
12,635
(168)
1,868
179
1,108
(35,057)
(6,419)
(41,476)
29,651
Income tax benefit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $
— $(11,825)
The net deferred tax assets (liabilities) are comprised of the following:
December 31
2011
2010
(In thousands)
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 10,372
$ 15,304
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,009
4,690
Capital losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
384
417
386
351
Federal tax loss carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42,235
39,973
State tax loss carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alternative minimum tax carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,010
1,304
1,202
306
7,961
1,304
1,034
437
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
68,239
71,440
Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(44,938)
(47,862)
Deferred tax assets net of valuation allowance . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposit base intangible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized securities gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest and fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,301
(1,694)
(843)
(3,287)
(661)
23,578
(1,909)
(1,172)
(1,152)
(394)
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6,485)
(4,627)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 16,816
$ 18,951
89
Although realization is not assured, the Company believes that the realization of the recognized net deferred
tax asset of $16.8 million is more likely than not based on expectations as to future taxable income and available
tax planning strategies, as defined in ASC 740, that could be implemented if necessary to prevent a carryforward
from expiring. The Company's net deferred tax asset (DTA) of $16.8 million consists of approximately $48.0
million of net U.S. federal DTAs, $13.7 million of net state DTAs, a $34.1 million federal DTA valuation
allowance, and a $10.8 million state DTA valuation allowance.
As a result of the losses incurred in 2008, the Company reached a three-year cumulative pretax loss position
at December 31, 2008. Losses in 2009 and 2010 added to this cumulative loss position that is considered
significant negative evidence in assessing the realizability of a DTA. Earnings for 2011 provides initial positive
evidence that may be used prospectively to offset the negative evidence in addition to forecasts of sufficient
taxable income in the carryforward period, exclusive of tax planning strategies and sufficient tax planning
strategies that could produce income sufficient to fully realize the DTAs. In general, the Company would need to
generate approximately $137 million of taxable income during the respective carryforward periods to fully
realize its federal DTAs, and $249 million to realize state DTAs. The Company believes only a portion of the
federal and state DTAs can be realized from tax planning strategies and a forecast of taxable earnings; therefore,
a valuation allowance of $34.1 million and $10.8 million was recorded, respectively, for federal and state DTAs.
The amount of the DTA considered realizable, however, could be reduced if estimates of future taxable income
during the carryforward period are lower than forecasted due to further deterioration in market conditions.
The federal and state net operating loss carryforwards expire in annual installments beginning in 2029 and
run through 2031.
The Company recognizes interest and penalties related, as appropriate, as part of the provisioning for
income taxes. No interest or penalties were accrued at December 31, 2011.
The Company has no unrecognized income tax benefits or provisions due to uncertain income tax positions.
The Internal Revenue Service (IRS) examined the federal income tax returns for the years 2006, 2007, 2008 and
2009. The IRS did not propose any adjustments related to this examination. The following are the major tax juris-
dictions in which the Company operates and the earliest tax year subject to examination:
Jurisdiction
Tax Year
United States of America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010
2008
Income taxes related to securities transactions were $471,000, $1,422,000 and $2,083,000 in 2011, 2010 and
2009, respectively.
90
Note M Noninterest Income and Expenses
Details of noninterest income and expense follow:
Noninterest income
Service charges on deposit accounts . . . . . . . . . . . . . . . . . . . . . .
Trust fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage banking fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brokerage commissions and fees . . . . . . . . . . . . . . . . . . . . . . . . .
Marine finance fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interchange income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other deposit based EFT fees . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities gains, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31
2011
2010
2009
(In thousands)
$ 6,262
2,111
2,140
1,122
1,209
3,808
318
1,375
18,345
1,220
$ 5,925
1,977
2,119
1,174
1,334
3,163
321
2,121
18,134
3,687
$
6,491
2,098
1,746
1,416
1,153
2,613
331
1,647
17,495
5,399
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19,565
$21,821
$ 22,894
Noninterest expense
Salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outsourced data processing costs . . . . . . . . . . . . . . . . . . . . . . . . .
Telephone / data lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal and professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FDIC assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset dispositions expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss on other real estate owned and repossessed assets . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$27,288
5,875
6,583
1,179
7,627
2,291
2,917
6,137
3,013
847
2,281
3,751
0
7,974
$26,408
5,717
5,981
1,505
7,480
2,398
2,910
7,977
3,958
985
2,268
13,541
0
8,428
$ 26,693
6,109
5,623
1,835
8,260
2,649
2,067
6,984
4,952
1,259
1,172
5,155
49,813
7,656
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$77,763
$89,556
$130,227
91
Note N Shareholders’ Equity
The Company has reserved 730,000 common shares for issuance in connection with an employee stock
purchase plan and 742,500 common shares for issuance in connection with an employee profit sharing plan. At
December 31, 2011 an aggregate of 626,899 shares and 172,949 shares, respectively, have been issued as a result
of employee participation in these plans.
In December 2008, in connection with the Troubled Asset Relief Program (TARP) Capital Purchase
Program, established as part of the Emergency Economic Stabilization Act of 2008, the Company issued to the
U.S. Treasury Department (U.S. Treasury) 2,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock,
Series A (“Series A Preferred Stock”) with a par value of $0.10 per share and a 10-year warrant to purchase
approximately 589,625 shares of common stock at an exercise price of $6.36 per share. The proceeds received
were allocated to the preferred stock and additional paid-in-capital based on their relative fair values. The Series
A Preferred Stock initially pays quarterly dividends at a five percent annual rate that increases to nine percent
after five years on a liquidation preference of $25,000 per share. Upon the request of the U.S. Treasury, at any
time, the Company has agreed to enter into a deposit arrangement pursuant to which the Series A Preferred Stock
may be deposited and depository shares may be issued. The Corporation has registered the Series A Preferred
Stock, the warrant, the shares of common stock underlying the warrant and the depository shares, if any, for
resale under the Securities Act of 1933.
The fair value of the warrants were calculated using the following assumptions:
Risk free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life of options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.17%
10years
0.63%
28%
5.30
$
Beginning in the third quarter of 2008, we reduced our dividend per share of our common stock to $0.01
and, as of May 19, 2009, we suspended the payment of dividends, as described below. On May 19, 2009, our
board of directors decided to suspend regular quarterly cash dividends on our outstanding common stock and
Series A Preferred Stock pursuant to a request from the Federal Reserve as a result of recently adopted Federal
Reserve policies related to dividends and other distributions. On August 15, 2011, the Federal Reserve approved
payment of deferred dividends on the Series A Preferred Stock. As a result, we remitted a payment of
$6,614,000. As of December 31, 2011, dividend payments for Series A Preferred Stock are current.
A stock offering was completed during April of 2010 adding $50 million of Series B Mandatorily
Convertible Nonvoting Preferred Stock (“Series B Preferred Stock”) as permanent capital, resulting in
approximately $47.1 million in additional Tier 1 risk-based equity, net of issuance costs. The shares of Series B
Preferred Stock were mandatorily convertible into common shares five days subsequent to shareholder approval,
which was granted at the Company’s annual meeting on June 22, 2010. Upon the conversion of the Series B
Preferred Stock, approximately 34,465,000 shares of the Company’s common stock were issued pursuant to the
Investment Agreement, dated as of April 8, 2010 between the Company and the investors.
Holders of common stock are entitled to one vote per share on all matters presented to shareholders as
provided in the Company’s Articles of Incorporation. The Company implemented a dividend reinvestment plan
during 2007, issuing no shares from treasury stock during 2011 and approximately 10,000 shares from treasury
stock during 2010.
A company that participates in the TARP must adopt certain standards for executive compensation,
including (a) prohibiting “golden parachute” payments as defined in the Emergency Economic Stabilization Act
of 2008 (EESA) to senior executive officers; (b) requiring recovery of any compensation paid to senior executive
officers based on criteria that is later proven to be materially inaccurate; (c) prohibiting incentive compensation
that encourages unnecessary and excessive risks that threaten the value of the financial institution, and
(d) accepting restrictions on the payment of dividends and the repurchase of common stock. As of December 31,
2011, Seacoast believes it is in compliance with all TARP standards and restrictions.
92
Required Regulatory Capital
Minimum for
Capital Adequacy
Purpose
Minimum To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
SEACOAST BANKING CORP
(CONSOLIDATED)
At December 31, 2011:
Total Capital (to risk-weighted assets) . . . . . . . .
Tier 1 Capital (to risk-weighted assets) . . . . . . .
Tier 1 Capital (to adjusted average assets) . . . . .
$230,303
214,844
214,844
18.77% $98,124 ≥8.00%
49,062 ≥4.00%
17.51
83,338 ≥4.00%
10.31
$221,130
205,364
205,364
17.84% $99,140 ≥8.00%
49,570 ≥4.00%
16.57
80,092 ≥4.00%
10.25
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
At December 31, 2010:
Total Capital (to risk-weighted assets) . . . . . . . .
Tier 1 Capital (to risk-weighted assets) . . . . . . .
Tier 1 Capital (to adjusted average assets) . . . . .
SEACOAST NATIONAL BANK (A WHOLLY
OWNED BANK SUBSIDIARY)
At December 31, 2011:
Total Capital (to risk-weighted assets) . . . . . . . .
Tier 1 Capital (to risk-weighted assets) . . . . . . .
Tier 1 Capital (to adjusted average assets) . . . . .
$219,177
203,739
203,739
At December 31, 2010:
Total Capital (to risk-weighted assets) . . . . . . . .
Tier 1 Capital (to risk-weighted assets) . . . . . . .
Tier 1 Capital (to adjusted average assets) . . . . .
$201,699
185,953
185,953
N/A — Not Applicable
17.89% $97,992 ≥8.00% $122,490 ≥10.00%
73,494 ≥ 6.00%
48,996 ≥4.00%
16.63
83,275 ≥4.00% 104,094 ≥ 5.00%
9.79
16.29% $99,008 ≥8.00% $123,761 ≥10.00%
74,256 ≥ 6.00%
49,504 ≥4.00%
15.02
80,024 ≥4.00% 100,030 ≥ 5.00%
9.29
The Company is subject to various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s
financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s
assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The
Company's capital amounts and classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain
minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as
defined) and of Tier 1 capital to average assets (as defined). Management believes, as of December 31, 2011, that
the Company meets all capital adequacy requirements to which it is subject.
The Company is well capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Company must maintain minimum total risk-based, Tier 1 risk-based and Tier
1 leverage ratios as set forth above. At December 31, 2011, the Company’s deposit-taking bank subsidiary met
the capital and leverage ratio requirements for well capitalized banks.
The Office of the Comptroller of the Currency (“OCC”) and Seacoast National agreed by letter agreement
that Seacoast National shall maintain specific minimum captial ratios, including a total risk-based capital ratio of
12.00 percent and a Tier 1 leverage ratio of 8.50 percent. The agreement with the OCC as to minimum capital
ratios does not change the Bank's status as “well-capitalized” for bank regulatory purposes.
93
Note O
Seacoast Banking Corporation of Florida
(Parent Company Only) Financial Information
Balance Sheets
December 31
2011
2010
(In thousands)
ASSETS
Cash
Securities purchased under agreement to resell with subsidary bank, maturing within
$
7,781
$ 17,944
30 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,344
212,583
14
3,629
200,498
10
$223,722
$222,081
LIABILITIES AND SHAREHOLDERS’ EQUITY
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 53,610
35
170,077
$ 53,610
2,172
166,299
Statements of Income (Loss)
$223,722
$222,081
Year Ended December 31
2011
2010
2009
(In thousands)
Income
Dividends from subsidiary Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest/other
$ — $
79
— $
12
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income tax benefit and equity in undistributed income (loss) of
subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit
Loss before equity in undistributed income (loss) of subsidiaries . . . . . . . . . . . .
Equity in undistributed income (loss) of subsidiaries . . . . . . . . . . . . . . . . . . . . .
79
1,152
405
(1,478)
—
(1,478)
8,145
—
12
12
1,365
521
12
1,187
879
(2,054)
—
(1,874)
656
(2,054)
(31,149)
(1,218)
(145,468)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,667
$(33,203) $(146,686)
94
Statement of Cash Flows
Cash flows from operating activities
Interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities
Decrease (increase) in securities purchased under agreement to resell,
Year Ended December 31
2011
2010
2009
(In thousands)
$
$
9
(3,288)
70
(67)
(420)
(3,696)
$
12
—
—
63
(893)
(818)
12
(440)
—
687
(551)
(292)
maturing within 30 days, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
285
1,601
— (38,000)
(4,062)
(108,000)
Net cash provided by (used in) investment activities . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities
285
(36,399)
(112,062)
Issuance of common stock, net of related expense . . . . . . . . . . . . . . . . . . . .
Stock based employment plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend reinvestment plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid on Series A preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— 47,127
180
123
20
—
—
(6,875)
—
—
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . .
Net change in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6,752)
(10,163)
17,944
47,327
10,110
7,834
82,553
174
31
(389)
(191)
82,178
(30,176)
38,010
Cash at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,781
$ 17,944 $
7,834
RECONCILIATION OF INCOME (LOSS) TO CASH USED IN
OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
$ 6,667
$(33,203) $(146,686)
Equity in undistributed (income) loss of subsidiaries . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net
(8,145)
(2,218)
31,149
1,236
145,468
926
Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (3,696) $
(818) $
(292)
Note P Contingent Liabilities and Commitments with Off-Balance Sheet Risk
The Company and its subsidiaries, because of the nature of their business, are at all times subject to
numerous legal actions, threatened or filed. Management presently believes that none of the legal proceedings to
which it is a party are likely to have a materially adverse effect on the Company’s consolidated financial
condition, or operating results or cash flows.
The Company’s subsidiary bank is party to financial instruments with off balance sheet risk in the normal
course of business to meet the financing needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit.
95
The subsidiary bank’s exposure to credit loss in the event of non-performance by the other party to the
financial instrument for commitments to extend credit and standby letters of credit is represented by the contract
or notional amount of those instruments. The subsidiary bank uses the same credit policies in making
commitments and standby letters of credit as they do for on balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The subsidiary
bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the bank upon extension of credit, is based on management's credit evaluation of the
counterparty. Collateral held varies but may include accounts receivable, inventory, equipment, and commercial
and residential real estate. Of the $106,209,000 in commitments to extend credit outstanding at December 31,
2011, $81,256,000 is secured by 1-4 family residential properties for individuals with approximately $18,798,000
at fixed interest rates ranging from 3.125 to 5.875%.
Standby letters of credit are conditional commitments issued by the subsidiary bank to guarantee the
performance of a customer to a third party. These instruments have fixed termination dates and most end without
being drawn; therefore, they do not represent a significant liquidity risk. Those guarantees are primarily issued to
support public and private borrowing arrangements, including commercial paper, bond financing, and similar
transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. The subsidiary bank holds collateral supporting these commitments for
which collateral is deemed necessary. The extent of collateral held for secured standby letters of credit at
December 31, 2011 and 2010 amounted to $10,603,000 and $10,891,000 respectively.
Contract or Notional Amount
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$106,209
$90,437
Standby letters of credit and financial guarantees written:
Secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,513
9
2,686
59
December 31
2011
2010
(In thousands)
96
Note Q Supplemental Disclosures for Consolidated Statements of Cash Flows
Reconciliation of Net Loss to Net Cash Provided by Operating Activities for the three years ended:
Year Ended December 31
2011
2010
2009
(In thousands)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,667
$(33,203) $(146,686)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities
Impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of premiums and discounts on securities . . . . . . . . . . . . . . . . .
Other amortization and accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in loans available for sale, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale or write down of foreclosed assets . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on disposition of equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based employee benefit expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in accrued taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
2,830
2,555
(35)
5,724
1,974
(10)
(1,220)
(143)
3,812
58
587
(561)
(2,258)
2,748
(145)
585
573
—
3,097
623
282
5,893
31,680
(53)
(3,687)
(113)
13,520
(31)
493
1,123
944
3,822
21,424
(1,954)
(1,201)
49,813
3,483
(1,353)
1,175
(6,933)
124,767
(13,087)
(5,399)
(73)
3,486
841
580
1,370
109
(13,315)
4,858
548
(1,202)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$23,741
$ 42,659
$
2,982
Supplemental disclosure of non cash investing activities
Fair value adjustment to securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers from loans to other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers from loans to loans available for sale . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers from other assets to other real estate owned . . . . . . . . . . . . . . . . . . . .
Transfer from bank premises and equipment to other real estate owned . . . . . .
Purchase of securities under trade date accounting . . . . . . . . . . . . . . . . . . . . . . .
Transfer of loans to other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer of other real estate owned to other assets . . . . . . . . . . . . . . . . . . . . . . .
Matured securities recorded as a receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,530
35,500
—
—
—
—
—
—
3,630
$
(279) $
22,114
—
1,676
377
508
1,747
1,642
—
(70)
29,256
9,314
—
—
—
—
—
—
97
Note R Fair Value
Fair Value Instruments Measured at Fair Value
In certain circumstances, fair value enables the Company to more accurately align its financial performance
with the market value of actively traded or hedged assets and liabilities. Fair values enable a company to mitigate
the non-economic earnings volatility caused from financial assets and financial liabilities being carried at
different bases of accounting, as well as to more accurately portray the active and dynamic management of a
company’s balance sheet. ASC 820 provides additional guidance for estimating fair value when the volume and
level of activity for an asset or liability has significantly decreased. In addition, it includes guidance on
identifying circumstances that indicate a transaction is not orderly. Under ASC 820, fair value measurements for
items measured at fair value at December 31, 2011 and 2010 included:
(Dollars in thousands)
Fair Value
Measurements
December 31, 2011
Quoted Prices in
Active Markets for
Identical Assets*
Significant Other
Observable
Inputs**
Significant Other
Unobservable
Inputs***
Available for sale securities . . . . . . . . . . .
Loans available for sale . . . . . . . . . . . . . .
Loans (2)
. . . . . . . . . . . . . . . . . . . . . . . . .
OREO (1) . . . . . . . . . . . . . . . . . . . . . . . . .
$648,362
6,795
18,895
20,946
$1,724
—
—
—
$646,638
6,795
9,423
2,509
$ —
—
9,472
18,437
(Dollars in thousands)
Fair Value
Measurements
December 30, 2010
Quoted Prices in
Active Markets for
Identical Assets*
Significant Other
Observable
Inputs**
Significant Other
Unobservable
Inputs***
Available for sale securities . . . . . . . . . . .
Loans available for sale . . . . . . . . . . . . . .
Loans(2) . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
OREO(1)
$435,140
12,519
49,317
25,697
$4,212
—
—
—
$430,928
12,519
13,862
1,971
$ —
—
35,455
23,726
* Level 1 inputs
** Level 2 inputs
*** Level 3 inputs
(1) Fair value is measured on a nonrecurring basis in accordance with the provisions of ASC 360.
(2) See Note F. Nonrecurring fair value adjustments to loans identified as impaired reflect full or partial write-
downs that are based on the loans observable market price or current appraised value of the collateral in
accordance with ASC 310.
When appraisals are used to determine fair value and the appraisals are based on a market approach, the
related loan’s fair value is classified as level 2 input. The fair value of loans and OREO are based on appraisals
which significant adjustments to market-based valuation inputs or apply an income approach based on
unobservable cash flows, is classified as Level 3 inputs.
Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or
circumstances that caused the transfer, which generally coincides with the Company’s monthly and/or quarter
valuation process.
During 2011 there were no transfers between level 1 and level 2 assets carried at fair value.
For loans classified as level 3 the transfers in totaled $3.6 million consisting of loans that became impaired
during 2011. Transfers out consisted of charge offs of $4.7 million, and foreclosures migrating to OREO and
other reductions (including principal payments) totaling $25.0 million. No sales were recorded.
98
Charge-offs recognized upon loan foreclosures are generally offset by general or specific allocations of the
allowance for loan losses and generally do not, and did not during the reported periods, significantly impact the
Company’s provision for loan losses.
For OREO classified as level 3 during 2011 transfers out totaled $35.7 million consisting of valuation write-
downs of $2.8 million and sales of $32.9 million and transfers in consisted of foreclosed loans totaling $30.4
million.
The carrying value amounts and fair values of the Company’s financial instruments at December 31 were as
follows:
Financial Assets
At December 31
2011
2010
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
(In thousands)
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . .
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, net
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 167,081
668,339
1,182,509
6,795
$ 167,081
668,849
1,211,809
6,795
$ 211,405
462,001
1,202,864
12,519
$ 211,405
461,993
1,224,452
12,519
Financial Liabilities
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,718,741
186,252
53,610
1,722,709
191,702
32,166
1,637,228
148,213
53,610
1,644,930
152,091
17,200
The following methods and assumptions were used to estimate the fair value of each class of financial
instrument for which it is practicable to estimate that value at December 31, 2011 and 2010:
Cash and cash equivalents: The carrying amount was used as a reasonable estimate of fair value.
Securities: U.S. Treasury securities are reported at fair value utilizing Level 1 inputs. Other securities
classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the
Company obtains fair value measurements from an independent pricing service. The fair value measurements
consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield
curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the
bond’s terms and conditions, among other things.
The Company reviews the prices supplied by the independent pricing service, as well as their underlying
pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices.
In general, the Company does not purchase investment portfolio securities that are esoteric or that have a
complicated structure. The Company’s entire portfolio consists of traditional investments, nearly all of which are
U.S. Treasury obligations, federal agency bullet or mortgage pass-through securities, or general obligation or
revenue based municipal bonds. Pricing for such instruments is fairly generic and is easily obtained. 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 third-party sources or derived using internal models.
Loans: Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are
segregated by type such as commercial, mortgage, etc. Each loan category is further segmented into fixed and
adjustable rate interest terms and by performing and nonperforming categories. The fair value of loans, except
residential mortgages, is calculated by discounting scheduled cash flows through the estimated maturity using
estimated market discount rates that reflect the credit and interest rate risks inherent in the loan. For residential
99
mortgage loans, fair value is estimated by discounting contractual cash flows adjusting for prepayment
assumptions using discount rates based on secondary market sources. The estimated fair value is not an exit price
fair value under ASC 820 when this valuation technique is used.
Loans held for sale: Fair values are based upon estimated values to be received from independent third
party purchasers.
Deposit Liabilities: The fair value of demand deposits, savings accounts and money market deposits is the
amount payable at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using
the rates currently offered for funding of similar remaining maturities.
Borrowings: The fair value of floating rate borrowings is the amount payable on demand at the reporting
date. The fair value of fixed rate borrowings is estimated using the rates currently offered for borrowings of
similar remaining maturities.
Subordinated debt: The fair value of the floating rate subordinated debt is estimated using discounted cash
flow analysis and the Company’s current incremental borrowing rate for similar instruments.
Note S Earnings Per Share
Basic earnings per common share were computed by dividing net income (loss) available to common
shareholders by the weighted average number of shares of common stock outstanding during the year.
In 2011, 2010, and 2009, options and warrants to purchase 1,125,000, 1,136,000, and 1,147,000, shares ,
respectively, were antidilutive and accordingly were excluded in determining diluted earnings per share.
Year Ended December 31
Net Income
(Loss)
Shares
Per Share
Amount
(Dollars in thousands,
except per share data)
2011
Basic Earnings Per Share
Income available to common shareholders . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,919
93,511,983
$ 0.03
Diluted Earnings Per Share
Employee restricted stock (See Note J) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
289,090
Income available to common shareholders plus assumed conversions . . .
$
2,919
93,801,073
$ 0.03
2010
Basic and Diluted Earnings Per Share
(Loss) available to common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . .
($ 36,951) 76,561,692
($0.48)
2009
Basic and Diluted Earnings Per Share
(Loss) available to common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . .
($150,434) 31,733,260
($4.74)
100
Note T Accumulated Other Comprehensive Income, Net
Comprehensive income is defined as the change in equity from all transactions other than those with
stockholders, and it includes net income and other comprehensive income. Accumulated balances related to each
component of other comprehensive income, net, is presented below.
ACCUMULATED OTHER COMPREHENSIVE INCOME, NET
Accumulated other comprehensive income, net, December 31, 2009 . . . . . . . . . .
Net unrealized gain on securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment for realized gains and losses on securities . . . . . . . .
Accumulated other comprehensive income, net, December 31, 2010 . . . . . . . . . .
Net unrealized gain on securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment for realized gains and losses on securities . . . . . . . .
Pre-tax
Amount
Income Tax
(Expense)
Benefit
(In thousands)
After-tax
Amount
$ 3,270
2,560
(2,845)
2,985
5,884
(354)
$(1,262)
(988)
1,098
(1,152)
(2,272)
137
$ 2,008
1,572
(1,747)
1,833
3,612
(217)
Accumulated other comprehensive income, net, December 31, 2011 . . . . . . .
$ 8,515
$(3,287)
$ 5,228
101
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Seacoast
OFFICERS AND DIRECTORS
SEACOAST BANKING
CORPORATION OF FLORIDA OFFICERS
SEACOAST NATIONAL BANK
EXECUTIVE MANAGEMENT GROUP
David D. Houdeshell
Executive Vice President
and Chief Credit Offi cer
Charles A. Olsson
Senior Vice President
and Chief Talent Offi cer
Sharon Mehl
Corporate Secretary
Dennis S. Hudson, III
Chairman and Chief
Executive Offi cer
Jean Strickland
Senior Executive Vice
President and Chief
Operating Offi cer
William R. Hahl
Executive Vice President
and Chief Financial Offi cer
H. Russell Holland, III
Executive Vice President
and Chief Lending Offi cer
SEACOAST BANKING CORPORATION
OF FLORIDA BOARD OF DIRECTORS
Dennis S. Hudson, III
Seacoast National Bank
Jean Strickland
Seacoast National Bank
Serves on bank board only
Dennis J. Arczynski
Dennis Arczynski
& Company, LLC
Serves on bank board only
Christopher E. Fogal
Proctor, Crook, Crowder
& Fogal - Certifi ed
Public Accountants
Roger O. Goldman
Berkshire Opportunity
Fund, LLC
Robert B. Goldstein
CapGen Capital Advisors, LLC
Stephen E. Bohner
Premier Realty Group
Dale M. Hudson
Retired, Seacoast National Bank
John H. Crane
Retired, C&W Fish
Dennis S. Hudson, Jr.
Retired, Seacoast National Bank
T. Michael Crook
Proctor, Crook, Crowder
& Fogal – Certifi ed
Public Accountants
H. Gilbert Culbreth, Jr.
Gilbert Chevrolet
Thomas E. Rossin
Attorney – St. John, Rossin,
Burr & Lemme, PLLC.
Edwin E. Walpole, III
Walpole, Inc.
Dennis S. Hudson, III
Chairman and Chief
Executive Offi cer
Jean Strickland
President and Chief
Operating Offi cer
William R. Hahl
Executive Vice President
and Chief Financial Offi cer
H. Russell Holland, III
Executive Vice President
and Chief Lending Offi cer
David Houdeshell
Executive Vice President
and Chief Credit Offi cer
W. D. (“Chic”) Acosta
Executive Vice President,
Mortgage Banking Division
Thomas L. Hall
Executive Vice President,
Retail Banking and
Wealth Management
Kathleen M. Cavicchioli, CTP
Executive Vice President,
Retail Operations
Fred Roxas
Executive Vice President,
Commercial Lending Division
Thomas H. Wilkinson
President, Treasure Coast
Mark A. Smith
President, Big Lake Region
and Palm Beach County
Michael D. Jackson
President, Central Florida
Denise Ehrich
Senior Vice President
and Chief Marketing Offi cer
Maria Frias
Senior Vice President
and Chief Auditor
Teresa Idzior
Senior Vice President,
Credit Compliance Manager
and CRA Offi cer
Charles A. Olsson
Senior Vice President
and Chief Talent Offi cer
Kevin Picart
Senior Vice President
and Senior Specialty
Finance Manager
Lang B. Ryder
Senior Vice President,
Seacoast Marine Finance
John R. Turgeon
Senior Vice President
and Director of Finance
Mark Lashley
Senior Vice President
and Consumer Loan
Credit Manager
Ian Schweid
Senior Vice President
and Treasury Management
LOB Executive
Charles Shaffer
Vice President and Controller
SEACOAST BANKING CORPORATION OF FLORIDA | 2011 ANNUAL REPORT
COMMUNITY BOARD DIRECTORS
BIG LAKE
John B. Boy, Jr.
Accountant – Boy, Miller,
Kisker & Perry P.A.
Richard E. Chartier
ICS Computers, Inc.
Mary Beth Cooper
Retired, Ag Sales
Greg Karlson, P.A.
ERA Advantage Realty
Robert Lee
Raulerson Hospital
Valerie Lewis
McAplin, Cavalcanti
& Lewis, CPAs
John Court
Department of Agriculture
Elizabeth Maxwell
Maxwell & Maxwell, P.A.
Curtis S. Fry
Retired, Hardware Sales
Brandon Tucker
Tucker Realty Group
CENTRAL FLORIDA
D. Paul Dietrich II
Swann, Hadley, Stump,
Dietrich & Spears, PA
Barry Kalmanson
The Kalmanson
Organization, Inc.
Toni B. Springer
Toni B. Springer, CPA, PA
Ramón Ojeda
Hispanic Chamber
of Commerce
For Metro Orlando
Roger B. Kennedy, Jr.
Roger B. Kennedy, Inc.
Darwin J. Yovaish, Jr.
Pace Electric, Inc.
PALM BEACH COUNTY
Barbara L. Allan
SRA Research Group
Mark Klaine
Business Real Estate, Inc.
Stephen W. Bradford, DMD, PA
Orthodontics by Bradford
Rubye Mate
Prudential Florida Realty
INDIAN RIVER COUNTY
Joseph Bevack
Elliott Merrill
Community Management
Ross Cotherman
Harris, Cotherman, Jones,
Price & Associates
Bill Curtis
Retired, Seacoast National Bank
William Dyer
Dyer Auto
Sheila Griffi n
Orthopedic Center
of Vero Beach
Dr. Mike (Myron) Harvey
Human Capital Consulting
MARTIN COUNTY
Jill Brotherton
South Florida Title
Maureen Cotter
Maureen Cotter & Associates
Robert Crowder
Martin County Sheriff’s Offi ce
Mike Ferrer
Private Investor
Marc R. Gaylord
Marc R. Gaylord, P.A.
Sue Kinane
Kinane Corporation
Scott Lambeth
Golden River Fruit Company
Merry Parent
Parent Construction, Inc.
Robert Friendman, AIA
Retired, University Architect
& VP FAU Member, Jupiter
Town Council
Ali A. Qizilbash
Cemco Construction Company
Donaldson Hearing
Cotleur & Hearing
Andrew Russo
Illustrated Properties
Wayne Sanders, CPA
Proctor, Crook, Crowder
& Fogal – Certifi ed
Public Accountants
ST. LUCIE COUNTY
James Beckley
Rivergold Inc.
Sam Beller
Retired, Seacoast National Bank
James V. Gaines
Pineapple Enterprises Inc.
Dennis Green
Barbershop
Sharon Kelly-Brown
Sharon J. Kelly Realty
Randy Jones
Timesavers Food
Stores Company
Erik Melville
Raymond James
Duke Nelson
Retired, Ft. Pierce
City Commissioner
Jay A. Nelson, Ph.D.
VGTI Florida Inc.
Joel C. Zwemer
Dean Mead Minton
Jane Schwiering
Norris and Company
Real Estate
Susan Schuyler Smith
Spectrum Interior Design
Michael J. Swan
Rossway, Moore, Taylor
& Swan
John O’Brien
Gulfstream Aluminum
& Shutter Corp.
Tobin “Toby” Overdorf
Crossroads Environmental
Kevin Powers
Indiantown Realty Corporation
Yvonne Sue Stutzke
Nightingale Private Care Inc.
Thomas E. Weber, Jr.
Retired, Stuart News
SEACOAST BANKING CORPORATION OF FLORIDA | 2011 ANNUAL REPORT
Investor Information
FORM 10-K
___________________________________________
STOCK LISTING
___________________________________________
The Seacoast Banking Corporation of Florida’s
Annual Report to the Securities and Exchange
Commission on Form 10-K is available at the
headquarters upon request and at www.sbcf.com
under Financials/Regulatory fi lings.
The Common Stock of Seacoast Banking
Corporation of Florida is traded on The NASDAQ
Global Select MarketSM under the symbol SBCF.
The abbreviation in most newspaper stock listings
is “SeacBK” or “Seacst BKFL.”
Requests may be directed to:
William R. Hahl
P.O. Box 9012
Stuart, FL 34995-9012
772-221-2825
TRANSFER AGENT
___________________________________________
Continental Stock Transfer and Trust Co.
17 Battery Place, 8th Floor
New York, NY 10004
800-509-5586
INDEPENDENT AUDITORS
___________________________________________
KPMG LLP
INTERNET
___________________________________________
www.sbcf.com
E-mail: information@SeacoastBanking.net
INFORMATION
___________________________________________
For further information on Seacoast Banking
Corporation of Florida, contact: Dennis S. Hudson,
III, CEO, at 772-288-6085 or William R. Hahl, CFO,
at 772-221-2825 or email Sharon Mehl,
Sharon.Mehl@SeacoastNational.com
INVESTOR INFORMATION
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US 1 and Colorado Avenue | Stuart, Florida 34994
SeacoastBanking.net | SeacoastNational.com