Seacoast Banking of Florida Annual Report 2014

FY2014 Annual Report · Seacoast Banking of Florida
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

(cid:2)

□

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

For the ﬁscal year ended December 31, 2014

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

For the transition period from

to

Commission File No. 0-13660

SEACOAST BANKING CORPORATION OF FLORIDA

(Exact Name of Registrant as Speciﬁed in Its Charter)

Florida
(State or Other Jurisdiction of
Incorporation or Organization)

815 Colorado Avenue, Stuart, FL
(Address of Principal Executive Offices)

59-2260678
(I.R.S. Employer
Identiﬁcation No.)

34994
(Zip Code)

Registrant’s telephone number, including area code (772) 287-4000

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

Title of Each Class

Name of Each Exchange on Which Registered

Common Stock, Par Value $0.10

Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as deﬁned in Rule 405 of the Securities

Act. YES □ NO (cid:2)

Indicate by check mark if the registrant is not required to ﬁle reports pursuant to Section 13 or Section 15(d) of the

Act. YES □ NO (cid:2)

Indicate by check mark whether the registrant: (1) has ﬁled all reports required to be ﬁled by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to ﬁle
such reports), and (2) has been subject to such ﬁling requirements for the past 90 days. YES (cid:2) NO □

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every

Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such ﬁles). YES (cid:2) NO □
Indicate by check mark if disclosure of delinquent ﬁlers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in deﬁnitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. □

Indicate by check mark whether the registrant is a large accelerated ﬁler, an accelerated ﬁler, a non-accelerated ﬁler, or a smaller

reporting company. See the deﬁnitions of ‘‘large accelerated ﬁler,’’ ‘‘accelerated ﬁler’’ and ‘‘smaller reporting company’’ in
Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated ﬁler
Non-accelerated ﬁler

□
□ (Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as deﬁned by Rule 12b-2 of the Exchange

Accelerated ﬁler
Smaller reporting company

Act). YES □ NO (cid:2)

(cid:2)
□

The aggregate market value of Seacoast Banking Corporation of Florida common stock, par value $0.10 per share, held by
non-affiliates, computed by reference to the price at which the stock was last sold on June 30, 2014, as reported on the Nasdaq
Global Select Market, was $210,642,143.

The number of shares outstanding of Seacoast Banking Corporation of Florida common stock, par value $0.10 per share, as of

February 27, 2015, was 33,135,526.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrant’s 2015 Proxy Statement for the Annual Meeting of Shareholders to be

held May 26, 2015 (the ‘‘2015 Proxy Statement’’) are incorporated by reference into Part III, Items 10
through 14 of this report. Other than those portions of the 2015 Proxy Statement speciﬁcally incorporated by
reference herein pursuant to Items 10 through 14, no other portions of the 2015 Proxy Statement shall be
deemed so incorporated.

Part I

Part II

Item 1.

Item 1A.

Item 1B.

Item 2.

Item 3.

Item 4.

Item 5.

Item 6.

Item 7.

TABLE OF CONTENTS

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Risk Factors

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Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Legal Proceedings

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Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Market For Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . .

Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Management’s Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk . . . . . . .

Item 8.

Item 9.

Item 9A.

Item 9B.

Item 10.

Item 11.

Item 12.

Item 13.

Financial Statements and Supplementary Data

. . . . . . . . . . . . . . . .

Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Directors, Executive Officers and Corporate Governance

. . . . . . . . .

Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Security Ownership of Certain Beneﬁcial Owners and Management
and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . .

Certain Relationships and Related Transactions, and Director
Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 14.

Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . .

Item 15.

Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . .

Part III

Part IV

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SPECIAL CAUTIONARY NOTICE
REGARDING FORWARD-LOOKING STATEMENTS

Various of the statements made herein under the captions ‘‘Management’s Discussion and Analysis of
Financial Condition and Results of Operations’’, ‘‘Quantitative and Qualitative Disclosures about Market Risk’’,
‘‘Risk Factors’’ and elsewhere, are ‘‘forward-looking statements’’ within the meaning and protections of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended (the ‘‘Exchange Act’’) and are intended to be covered by the safe harbor provided by the same.

Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals,
expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and
unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause the
actual results, performance or achievements of Seacoast Banking Corporation of Florida (‘‘Seacoast’’ or the
‘‘Company’’) to be materially different from those set forth in the forward-looking statements.

All statements other than statements of historical fact are statements that could be forward-looking
statements. You can identify these forward-looking statements through our use of words such as ‘‘may,’’
‘‘will,’’ ‘‘anticipate,’’ ‘‘assume,’’ ‘‘should,’’ ‘‘indicate,’’ ‘‘would,’’ ‘‘believe,’’ ‘‘contemplate,’’ ‘‘expect,’’
‘‘estimate,’’ ‘‘continue,’’ ‘‘further,’’ ‘‘plan,’’ ‘‘point to,’’ ‘‘project,’’ ‘‘could,’’ ‘‘intend,’’ ‘‘target’’ and other
similar words and expressions of the future. These forward-looking statements may not be realized due to a
variety of factors, including, without limitation:

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the effects of current and future economic, business and market conditions in the United States
generally or in the communities we serve, including the effects of declines in property values,
unemployment rates and potential reduction of economic growth;

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

legislative and regulatory changes, including changes in banking, securities and tax laws and
regulations and their application by our regulators, including those associated with the Dodd Frank
Wall Street Reform and Consumer Protection Act (the ‘‘Dodd-Frank Act’’) and changes in the scope
and cost of Federal Deposit Insurance Corporation (‘‘FDIC’’) insurance and other coverage;

changes in accounting policies, rules and practices and applications or determinations made
thereunder, as required by the Financial Accounting Standards Board or other regulatory agencies;

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

changes in borrower credit risks and payment behaviors, including changes in the speed of loan
prepayments, loan originations and sale volumes, charge-offs, loan loss provisions or actual loan losses;

changes in the availability and cost of credit and capital in the ﬁnancial markets;

changes in the prices, values and sales volumes of residential and commercial real estate in the
United States and in the communities we serve, which could impact write-downs of assets, our
ability to liquidate non-performing assets, realized losses on the disposition of non-performing assets
and increased credit losses;

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

our concentration in commercial real estate loans;

the failure of assumptions and estimates, as well as differences in, and changes to, economic, market
and credit conditions, including changes in borrowers’ credit risks and payment behaviors from those
used in our loan portfolio stress test;

the effects of competition from a wide variety of local, regional, national and other providers of
ﬁnancial, investment and insurance services;

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the failure of assumptions and estimates underlying the establishment of reserves for possible loan
losses and other estimates;

the impact on the valuation of our investments due to market volatility or counterparty payment risk;

statutory and regulatory restrictions on our ability to pay dividends to our shareholders;

any applicable regulatory limits on Seacoast National’s ability to pay dividends to us;

increases in regulatory capital requirements for banking organizations generally, which may
adversely affect our ability to expand our business or could cause us to shrink our business;

the risks of mergers, acquisitions and divestitures, including, without limitation, the related time and
costs of implementing such transactions, integrating operations as part of these transactions and possible
failures to achieve expected gains, revenue growth and/or expense savings from such transactions;

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

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

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

the risks that our deferred tax assets could be reduced if estimates of future taxable income from our
operations and tax planning strategies are less than currently estimated, and sales of our capital stock
could trigger a reduction in the amount of net operating loss carryforwards that we may be able to
utilize for income tax purposes; and

other factors and risks described under ‘‘Risk Factors’’ herein and in any of our subsequent reports
ﬁled with the Securities and Exchange Commission (the ‘‘Commission’’ or ‘‘SEC’’) and available on
its website at www.sec.gov.

All written or oral forward-looking statements that are made by us or are attributable to us are expressly
qualiﬁed in their entirety by this cautionary notice. We assume no obligation to update, revise or correct any
forward-looking statements that are made from time to time, either as a result of future developments, new
information or otherwise, except as may be required by law.

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Item 1.

Business

General

Part I

We are a bank holding company, incorporated in Florida in 1983, and registered under the Bank Holding

Company Act of 1956, as amended (the ‘‘BHC Act’’). Our principal subsidiary is Seacoast National Bank, a
national banking association (‘‘Seacoast National’’). Seacoast National commenced its operations in 1933, and
operated as ‘‘First National Bank & Trust Company of the Treasure Coast’’ prior to 2006 when we changed its
name to Seacoast National Bank.

As a bank holding company, we are a legal entity separate and distinct from our subsidiaries, including

Seacoast National. We coordinate the ﬁnancial resources of the consolidated enterprise and maintain ﬁnancial,
operational and administrative systems that allow centralized evaluation of subsidiary operations and
coordination of selected policies and activities. Our operating revenues and net income are derived primarily
from Seacoast National through dividends and fees for services performed.

As of December 31, 2014, we had total consolidated assets of approximately $3.093 billion, total
deposits of approximately $2.417 billion, total consolidated liabilities, including deposits, of approximately
$2.781 billion and consolidated shareholders’ equity of approximately $312.7 million. Our operations are
discussed in more detail under ‘‘Item 7. Management’s Discussion and Analysis of Consolidated Financial
Condition and Results of Operations.’’

We and our subsidiaries offer a full array of deposit accounts and retail banking services, engage in
consumer and commercial lending and provide a wide variety of trust and asset management services, as well
as securities and annuity products to our customers. Seacoast National had 43 traditional banking offices in
14 counties in Florida at year-end 2014. We have 20 branches in the ‘‘Treasure Coast of Florida,’’ including
the counties of Martin, St. Lucie and Indian River on Florida’s southeastern coast. During 2013, we expanded
our footprint by strategically opening ﬁve new commercial lending offices in the larger metropolitan markets
we serve, more speciﬁcally, three in Orlando, one in Boca Raton, and one in Ft. Lauderdale, Florida. Most
recently, in October 2014, we acquired 12 branches in Central Florida through our acquisition of The
BANKshares, Inc., a Florida corporation (‘‘BANKshares’’), and its subsidiary bank, BankFIRST.

Most of our banking offices have one or more automated teller machines (‘‘ATMs’’) providing customers

with 24-hour access to their deposit accounts. We are a member of the ‘‘NYCE Payments Network,’’ an
electronic funds transfer organization represented in all ﬁfty states in the United States, which permits banking
customers access to their accounts at 2.5 million participating ATMs and retail locations throughout the United
States. During 2014, Seacoast National partnered with Publix, a major grocery chain in the state of Florida, to
offer free access at over 1,000 Publix ATMs within the state of Florida. Our debit cards are accepted wherever
VISA is accepted.

Seacoast National’s ‘‘MoneyPhone’’ system allows customers to access information on their loan or deposit

account balances, transfer funds between linked accounts, make loan payments, and verify deposits or checks that
may have cleared, all over the telephone. This service is available 24 hours a day, seven days a week.

In addition, customers may access banking information via Seacoast National’s Customer Service Center

(‘‘CSC’’) 24 hours a day, seven days a week. Our CSC staff is available to open accounts, take applications
for certain types of loans, resolve account issues, and offer information on other bank products and services to
existing and potential customers.

We also offer Internet and Mobile banking to business and retail customers. These services allow
customers to access transactional information on their deposit accounts, review loan and deposit balances,
transfer funds between linked accounts and make deposits to and loan payments from a deposit account,
all over the Internet or their Mobile device, 24 hours a day, seven days a week. Seacoast National has
signiﬁcantly expanded its technology platform and the products offered to its customers by introducing digital
deposit capture on smart phones, launching new consumer and business tablet and mobile platforms,
rebranding its website, and enhancing its automatic teller machine capabilities.

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Seacoast National also provides brokerage and annuity services. Seacoast National personnel involved
with the sale of these services are dual employees with Invest Financial Corporation, the company through
which Seacoast National presently conducts its brokerage and annuity services.

We have seven indirect, wholly-owned subsidiaries:

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FNB Insurance Services, Inc. (‘‘FNB Insurance’’), an inactive subsidiary, which was formed to
provide insurance agency services;

South Branch Building, Inc., which is a general partner in a partnership that constructed a branch
facility of Seacoast National;

TCoast Holdings, LLC, BR West, LLC, and TC Property Ventures, LLC, each of which was formed
to own and operate certain properties acquired through foreclosure. TC Stuart, LLC, similar in
operation, was dissolved in the state of Florida on April 26, 2013;

Commercial Business Finance, Inc. (‘‘CBF’’), a receivables factoring company, acquired in the
BANKshares acquisition, that provides working capital ﬁnancing for small to medium sized
businesses; and

BankFIRST Realty, Inc., acquired in the BANKshares acquisition, which owns and operates certain
properties acquired through foreclosure.

The operations of each of these direct and indirect subsidiaries represented less than 10% of our

consolidated assets and contributed less than 10% to our consolidated revenues in 2014.

We directly own all the common equity in six statutory trusts relating to our trust preferred securities:

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SBCF Capital Trust I, formed on March 31, 2005 for the purpose of issuing $20 million in trust
preferred securities;

SBCF Statutory Trust II, formed on December 16, 2005 for the purpose of issuing $20 million in
trust preferred securities;

SBCF Statutory Trust III, formed on June 29, 2007 for the purpose of issuing $12 million in trust
preferred securities;

BankFIRST (FL) Statutory Trust I, formed on December 19, 2002 for the purpose of issuing
$5.2 million in trust preferred securities;

BankFIRST (FL) Statutory Trust II, formed on March 5, 2004 for the purpose of issuing
$4.1 million in trust preferred securities; and

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

We have operated an office of Seacoast Marine Finance Division, a division of Seacoast National,
in Ft. Lauderdale, Florida since February 2000. Offices in California that have been in operation since
November 2002 were closed at the end of 2014, but Seacoast National continues to have representation in
California, Washington and Arizona. Seacoast Marine Finance Division is staffed with experienced marine
lending professionals with a marketing emphasis on marine loans of $200,000 and greater, with the majority
of loan production sold to correspondent banks on a non-recourse basis.

Our principal offices are located at 815 Colorado Avenue, Stuart, Florida 34994, and the telephone number at

that address is (772) 287-4000. We and our subsidiary Seacoast National maintain Internet websites at
www.seacoastbanking.com, www.seacoastbank.com, and www.seacoastnational.com, respectively. We are
not incorporating the information on our or Seacoast National’s website into this report, and none of these
websites nor the information appearing on these websites is included or incorporated in, or is a part of, this report.

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We make available, free of charge on our corporate website, our Annual Report on Form 10-K, quarterly

reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports ﬁled or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we
electronically ﬁle such material with or furnish it to the SEC.

Employees

As of December 31, 2014, we and our subsidiaries employed 579 full-time equivalent employees. We

consider our employee relations to be good, and we have no collective bargaining agreements with any
employees.

Expansion of Business

Over the years, we have expanded our products and services to meet the changing needs of the various
segments of our market, and we presently expect to continue this strategy. We have expanded geographically
through the addition of de novo branches. We also, from time to time, have acquired banks, bank branches
and deposits, and have opened new branches and commercial lending offices.

In 2002, we entered Palm Beach County by establishing a new branch office. On April 30, 2005, we
acquired Century National Bank, a commercial bank headquartered in Orlando, Florida. Century National
Bank operated as our wholly owned subsidiary until August 2006 when it was merged with Seacoast National.

In April 2006, we acquired Big Lake National Bank (‘‘Big Lake’’), a commercial bank headquartered in
Okeechobee, Florida, inland from our Treasure Coast markets, with nine offices in seven counties. Big Lake
was merged with Seacoast National in June 2006.

In October 2014, we acquired BankFIRST, a commercial bank headquartered in Winter Park, Florida,
with twelve offices in ﬁve counties in Central Florida. BankFIRST was merged with Seacoast National in
October 2014.

Florida law permits statewide branching, and Seacoast National has expanded, and anticipates future

expansion, by opening additional bank offices and facilities, as well as by acquisition of other ﬁnancial
institutions and branches. Since 2002, we have opened and acquired 31 new offices in 14 counties of Florida.
With technology improvements and changes, we have also rationalized our branch footprint by closing and
consolidating less productive branches. Since 2007, we have closed 16 offices in seven counties of Florida,
with ﬁve offices consolidated in December 2014, two offices consolidated in January 2013 and three additional
offices consolidated during the last six months of 2012. During 2013, we opened ﬁve new commercial lending
offices in our larger metropolitan locations in Florida, with three opened in Orlando, one in Ft. Lauderdale and
one in Boca Raton. The Seacoast Marine Finance Division operates a loan production office in Ft. Lauderdale,
Florida, and has representation in California, Washington and Arizona. For more information on our branches
and offices see ‘‘Item 2. Properties’’. As part of our overall strategic growth plan, we intend to regularly
evaluate possible mergers, acquisitions and other expansion opportunities. We believe that with the current
economic environment, there will be many opportunities for us to acquire and consolidate other ﬁnancial
institutions in the State of Florida.

Seasonality; Cycles

We believe our commercial banking operations are somewhat seasonal in nature. Investment management

fees and deposits often peak in the ﬁrst and second quarters, and often are lowest in the third quarter.
Transactional fees from merchants, and ATM and debit card use also typically peak in the ﬁrst and second
quarters. Public deposits tend to increase with tax collections in the ﬁrst and fourth quarters and decline as a
result of spending thereafter.

Deposits also tend to increase due to hurricanes as insurers disburse insurance proceeds more quickly
than hurricane-related damage is repaired. No major hurricanes occurred between 2006 and 2014; as a result,
deposit trends were more typical than during 2004 and 2005, when major hurricanes hit our coastal market
areas, leading to an increase in deposits.

Commercial and residential real estate activity, demand, prices and sales volumes are less seasonal and

vary based upon various factors, including economic conditions, interest rates and credit availability.

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Competition

We and our subsidiaries operate in the highly competitive markets of Martin, St. Lucie, Indian River,

Brevard, Palm Beach and Broward Counties, in southeastern Florida and in the Orlando metropolitan
statistical area in Orange, Seminole and Lake County, as well as Volusia County. We also operate in ﬁve
competitive counties in central Florida near Lake Okeechobee. Seacoast National not only competes with
other banks of comparable or larger size in its markets, but also competes with various other nonbank
ﬁnancial institutions, including savings and loan associations, credit unions, mortgage companies, personal and
commercial ﬁnancial companies, peer to peer lending businesses, investment brokerage and ﬁnancial advisory
ﬁrms and mutual fund companies. We compete for deposits, commercial, ﬁduciary and investment services
and various types of loans and other ﬁnancial services. Seacoast National also competes for interest-bearing
funds with a number of other ﬁnancial intermediaries and investment alternatives, including mutual funds,
brokerage and insurance ﬁrms, governmental and corporate bonds, and other securities. Continued
consolidation, and rapid technological changes, within the ﬁnancial services industry will most likely change
the nature and intensity of competition that we face, but can also create opportunities for us to demonstrate
and exploit what we believe are our competitive advantages.

Our competitors include not only ﬁnancial institutions based in the State of Florida, but also a number of

large out-of-state and foreign banks, bank holding companies and other ﬁnancial institutions that have an
established market presence in the State of Florida, or that offer products by mail, telephone or over the Internet.
Many of our competitors are engaged in local, regional, national and international operations and have greater
assets, personnel and other resources. Some of these competitors are subject to less regulation and/or more
favorable tax treatment than us. Many of these institutions have greater resources, broader geographic markets and
higher lending limits than us and may offer services that we do not offer. In addition, these institutions may be
able to better afford and make broader use of media advertising, support services, and electronic and other
technology than us. To offset these potential competitive disadvantages, we depend on our reputation as an
independent, ‘‘super’’ community bank headquartered locally, our personal service, our greater community
involvement and our ability to make credit and other business decisions quickly and locally.

Supervision and Regulation

Bank holding companies and banks are extensively regulated under federal and state law. This discussion

is qualiﬁed in its entirety by reference to the particular statutory and regulatory provisions below and is not
intended to be an exhaustive description of the statutes or regulations applicable to us and Seacoast National’s
business. As a bank holding company under federal law, we are subject to regulation, supervision and
examination by the Federal Reserve. As a national bank, our primary bank subsidiary, Seacoast National, is
subject to regulation, supervision and examination by the Office of the Comptroller of the Currency (‘‘OCC’’).
In addition, as discussed in more detail below, Seacoast National and any other of our subsidiaries that offer
consumer ﬁnancial products could be subject to regulation, supervision, and examination by the Consumer
Financial Protection Bureau (‘‘CFPB’’). Supervision, regulation, and examination of us, Seacoast National and
our respective subsidiaries by the bank regulatory agencies are intended primarily for the protection of
consumers, bank depositors and the Deposit Insurance Fund (‘‘DIF’’) of the FDIC, rather than holders of our
capital stock. The following summarizes certain of the more important statutory and regulatory provisions.
Substantial changes to the regulatory framework applicable to us and our subsidiaries were passed by the
U.S. Congress in 2010. These changes have been, and will continue to be implemented, by various regulatory
agencies. For a discussion of such changes, see ‘‘Recent Regulatory Developments’’ below. The full effect of
the changes in the applicable laws and regulations, as implemented by the regulatory agencies, cannot be fully
predicted and could have a material adverse effect on our business and results of operations.

We are required to comply with various corporate governance and ﬁnancial reporting requirements under the

Sarbanes-Oxley Act of 2002, as well as rules and regulations adopted by the SEC, the Public Company
Accounting Oversight Board, and Nasdaq. In particular, we are required to include management and independent
registered public accounting ﬁrm reports on internal controls as part of our Annual Report on Form 10-K in order
to comply with Section 404 of the Sarbanes-Oxley Act. We have evaluated our controls, including compliance
with the SEC rules on internal controls, and have and expect to continue to spend signiﬁcant amounts of time and
money on compliance with these rules. Our failure to comply with these internal control rules may materially
adversely affect our reputation, ability to obtain the necessary certiﬁcations to ﬁnancial statements, and the values

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of our securities. The assessments of our ﬁnancial reporting controls as of December 31, 2014 are included in this
report under ‘‘Section 9A. Controls and Procedures.’’

Recent Regulatory Developments

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

On July 21, 2010, President Obama signed into law the Dodd-Frank Act. The Dodd-Frank Act has and
will continue to have a broad impact on the ﬁnancial services industry, imposing signiﬁcant regulatory and
compliance changes, the imposition of increased capital, leverage and liquidity requirements, and numerous
other provisions designed to improve supervision and oversight of, and strengthen safety and soundness
within, the ﬁnancial services sector. Additionally, the Dodd-Frank Act establishes a new framework of
authority to conduct systemic risk oversight within the ﬁnancial system to be distributed among new and
existing federal regulatory agencies, including the Financial Stability Oversight Council, (the ‘‘Oversight
Council’’), the Federal Reserve, the OCC and the FDIC. Certain requirements of the Dodd-Frank Act have
been implemented, while others will be implemented by regulators in the coming years. Provisions of the
Dodd-Frank Act that have or are likely to affect our operations or the operations of Seacoast National include:

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Creation of the CFPB with centralized authority, including examination and enforcement authority,
for consumer protection in the banking industry.

New limitations on federal preemption.

New prohibitions and restrictions on the ability of a banking entity and nonbank ﬁnancial company
to engage in proprietary trading and have certain interests in, or relationships with, a hedge fund or
private equity fund (the ‘‘Volcker Rule’’).

Application of new regulatory capital requirements, including changes to leverage and risk-based
capital standards and changes to the components of permissible tiered capital.

Requirement that holding companies and their subsidiary banks be well capitalized and well
managed in order to engage in activities permitted for ﬁnancial holding companies.

Changes to the assessment base for deposit insurance premiums.

Permanently raising the FDIC’s standard maximum insurance amount to $250,000.

Restrictions on compensation, including a prohibition on incentive-based compensation arrangements
that encourage inappropriate risk taking by covered ﬁnancial institutions that are deemed to be
excessive, or that may lead to material losses.

Requirement that sponsors of asset-backed securities retain a percentage of the credit risk underlying
the securities.

Requirement that banking regulators remove references to and requirements of reliance upon credit
ratings from their regulations and replace them with appropriate alternatives for evaluating
creditworthiness.

The following items provide a further description of certain relevant provisions of the Dodd-Frank Act

and their potential impact on our operations and activities, both currently and prospectively.

Creation of New Governmental Authorities. The Dodd-Frank Act created various new governmental

authorities such as the Oversight Council and the CFPB, an independent regulatory authority housed within
the Federal Reserve. The CFPB has broad authority to regulate the offering and provision of consumer
ﬁnancial products. The CFPB has rulemaking authority for a range of consumer ﬁnancial protection laws
(such as the Truth in Lending Act, the Electronic Funds Transfer Act and the Real Estate Settlement
Procedures Act, among others) transferred from the federal prudential banking regulators to the CFPB on that
date. The Dodd-Frank Act gave the CFPB authority to supervise and examine depository institutions with
more than $10 billion in assets for compliance with these federal consumer laws. The authority to supervise
and examine depository institutions with $10 billion or less in assets for compliance with federal consumer
laws remains largely with those institutions’ primary regulators. However, the CFPB may participate in
examinations of these smaller institutions on a ‘‘sampling basis’’ and may refer potential enforcement actions

7

against such institutions to their primary regulators. The CFPB also has supervisory and examination authority
over certain nonbank institutions that offer consumer ﬁnancial products. The Dodd-Frank Act identiﬁes a
number of covered nonbank institutions, and also authorizes the CFPB to identify additional institutions that
will be subject to its jurisdiction. Accordingly, the CFPB may participate in examinations of Seacoast
National, which currently has assets of less than $10 billion, and could supervise and examine our other direct
or indirect subsidiaries that offer consumer ﬁnancial products or services. In addition, the Dodd-Frank Act
permits states to adopt consumer protection laws and regulations that are stricter than those regulations
promulgated by the CFPB, and state attorneys general are permitted to enforce consumer protection rules
adopted by the CFPB against certain institutions.

Limitation on Federal Preemption. The Dodd-Frank Act signiﬁcantly reduced the ability of national

banks to rely upon federal preemption of state consumer ﬁnancial laws. Although the OCC will have the
ability to make preemption determinations where certain conditions are met, the broad rollback of federal
preemption has the potential to create a patchwork of federal and state compliance obligations. This could, in
turn, result in signiﬁcant new regulatory requirements applicable to us, with attendant potential signiﬁcant
changes in our operations and increases in our compliance costs. It could also result in uncertainty concerning
compliance, with attendant regulatory and litigation risks.

Mortgage Loan Origination and Risk Retention. The Dodd-Frank Act contains additional regulatory
requirements that may affect our mortgage origination and servicing operations, result in increased compliance
costs and may impact revenue. For example, in addition to numerous new disclosure requirements, the
Dodd-Frank Act imposed new standards for mortgage loan originations on all lenders, including banks, in an
effort to strongly encourage lenders to verify a borrower’s ability to repay. The CFPB has issued rules that
implement this ‘‘ability-to-repay’’ requirement and provide lenders with protection from liability for ‘‘qualiﬁed
mortgages,’’ as required by the Dodd-Frank Act. Most signiﬁcantly, the new ‘‘qualiﬁed mortgage’’ standards,
which took effect on January 10, 2014, generally limit the total points and fees that we and/or a broker may
charge on conforming and jumbo loans to 3% of the total loan amount. Also, the Dodd-Frank Act, in
conjunction with the Federal Reserve’s ﬁnal rule on loan originator compensation, prohibits certain
compensation payments to loan originators and steering consumers to loans not in their interest because it
will result in greater compensation for a loan originator. In addition, the CFPB has issued additional rules
pertaining to loan originator compensation, and that established qualiﬁcation, registration and licensing
requirements for loan originators. These standards will result in a myriad of new system, pricing, and
compensation controls in order to ensure compliance and to decrease repurchase requests and foreclosure
defenses. In addition, the banking regulators that have issued ﬁnal rules that require the securitizer of
asset-backed securities to retain not less than 5 percent of the credit risk of the assets collateralizing the
asset-backed securities, unless subject to an exemption for asset-backed securities that are collateralized
exclusively by residential mortgages that qualify as ‘‘qualiﬁed residential mortgages.’’

Corporate Governance. The Dodd-Frank Act addresses many investor protection, corporate governance,
and executive compensation matters that will affect most U.S. publicly traded companies. The Dodd-Frank Act
(1) grants shareholders of U.S. publicly traded companies an advisory vote on executive compensation;
(2) enhances independence requirements for Compensation Committee members; and (3) requires companies
listed on national securities exchanges to adopt incentive-based compensation clawback policies for executive
officers. Additionally, the Dodd-Frank Act requires federal regulators to issue regulations or guidelines to
prohibit incentive-based compensation arrangements that encourage inappropriate risk taking by providing
excessive compensation or that may lead to material losses at certain ﬁnancial institutions with $1 billion or
more in assets. However, regulators have yet to issue ﬁnal rules on the topic. Further, in June 2010, the
regulators issued a comprehensive ﬁnal guidance designed to ensure that incentive compensation policies do
not undermine the safety and soundness of banking organizations by encouraging employees to take imprudent
risks. This regulation signiﬁcantly restricts the amount, form, and context in which we pay incentive
compensation to our employees.

Deposit Insurance. The Dodd-Frank Act permanently raised the standard maximum insurance amount to
$250,000. Amendments to the Federal Deposit Insurance Act (the ‘‘FDIA’’) also revise the DIF assessment base to
be the average consolidated total assets less its average tangible equity. This has shifted the burden of deposit
insurance premiums toward those depository institutions that rely on funding sources other than U.S. deposits.

8

Additionally, the Dodd-Frank Act made changes to the minimum designated reserve ratio (‘‘DRR’’) of the DIF,
increasing the minimum DRR, eliminated the requirement that the FDIC pay dividends to depository institutions
when the reserve ratio exceeds certain thresholds, and modiﬁed or eliminated certain adjustments. Additionally, the
Dodd-Frank Act repealed the prohibition on the payment of interest on demand deposits.

Capital Standards. We are required to comply with higher minimum capital requirements as of
January 1, 2015. These new rules (‘‘Revised Capital Rules’’) implement the Dodd-Frank Act including the
‘‘Collins Amendment’’ and a separate international regulatory regime known as ‘‘Basel III’’ (which is
discussed below). The Collins Amendment required that the appropriate federal banking agencies establish
minimum leverage and risk-based capital requirements on a consolidated basis for insured depository
institutions and their holding companies. As a result, we and Seacoast National are subject to the same capital
requirements, and must include the same components in regulatory capital.

Shareholder Say-On-Pay Votes. The Dodd-Frank Act requires public companies to take shareholders’

votes on proposals addressing compensation (known as say-on-pay), the frequency of a say-on-pay vote, and
the golden parachutes available to executives in connection with change-in-control transactions. Public
companies must give shareholders the opportunity to vote on the compensation at least every three years and
the opportunity to vote on frequency at least every six years, indicating whether the say-on-pay vote should be
held annually, biennially, or triennially. The ﬁrst say-on-pay vote occurred at our 2011 annual shareholders
meeting. The say-on-pay, the say-on-parachute and the say-on-frequency votes are explicitly nonbinding and
cannot override a decision of our board of directors.

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

Volcker Rule.

In December 2013, the Federal Reserve and other regulators jointly issued ﬁnal rules

implementing requirements of a new Section 13 to the Bank Holding Company Act, commonly referred to as
the ‘‘Volcker Rule.’’ The Volcker Rule generally prohibits us and our subsidiaries from (i) engaging in
proprietary trading for our own account, and (ii) acquiring or retaining an ownership interest in or sponsoring
a ‘‘covered fund,’’ all subject to certain exceptions. The Volcker Rule also speciﬁes certain limited activities in
which we and our subsidiaries may continue to engage, and may require us to implement a compliance
program. The regulators provided for a Volcker Rule conformance date of July 21, 2015. Conformance with
the provisions prohibiting certain ‘‘covered funds’’ activities has since been extended by a Federal Reserve
Board order that provided for an extension of the Volcker Rule conformance period for legacy ownership
interests and sponsorship of covered funds until July 21, 2016. The Federal Reserve Board expressed its
intention to grant the last available statutory extension for such covered funds activities until July 21, 2017, by
an order to be issued later in 2015.

Basel III

As a result of the Dodd-Frank Act’s Collins Amendment, we and Seacoast National are subject to the
same regulatory capital requirements. Prior to January 1, 2015, the risk-based capital guidelines that apply to
us are based upon the 1988 capital accord of the international Basel Committee on Banking Supervision, a
committee of central banks and bank supervisors, as implemented by the U.S. federal banking agencies on an
interagency basis. In 2008, the banking agencies collaboratively began to phase-in capital standards based on a
second capital accord (‘‘Basel II’’) for large or ‘‘core’’ international banks (generally deﬁned for U.S. purposes
as having total assets of $250 billion or more or consolidated foreign exposures of $10 billion or more). Basel

9

II emphasizes internal assessment of credit, market and operational risk, as well as supervisory assessment and
market discipline in determining minimum capital requirements.

On September 12, 2010, the Group of Governors and Heads of Supervision, the oversight body of the
Basel Committee on Banking Supervision, announced agreement to a strengthened set of capital requirements
for internationally active banking organizations in the United States and around the world (‘‘Basel III’’). In
July 2013, U.S. regulators issued the Revised Capital Rules, which implement Basel III, as well as capital
requirements set forth in the Dodd-Frank Act.

The following is a brief description of the relevant provisions of the Revised Capital Rules and their
potential impact on our capital levels. Among other things, the Revised Capital Rules (i) introduce a new
capital measure called ‘‘Common Equity Tier 1’’ (‘‘CET1’’), (ii) specify that Tier 1 Capital consist of CET1
and ‘‘Additional Tier 1 Capital’’ instruments meeting certain requirements, (iii) deﬁne CET1 narrowly by
requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and note to the
other components of capital and (iv) expand the scope of the deductions/adjustments from capital as compared
to existing regulation that apply to the Company and other banking organizations.

New Minimum Capital Requirements. The Revised Capital Rules require the following initial minimum

capital ratios as of January 1, 2015:

•

•

•

4.5% CET1 to risk-weighted assets.

6.0% Tier 1 capital to risk-weighted assets.

8.0% Total capital to risk-weighted assets.

Capital Conservation Buffer. The Revised Capital Rules also introduce a new ‘‘capital conservation
buffer,’’ composed entirely of CET1, on top of the minimum risk-weighted asset ratios, which is designed to
absorb losses during periods of economic stress. Banking organizations with a ratio of CET1 to risk-weighted
assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity
repurchases and compensation based on the amount of this difference.

When fully phased in on January 1, 2019, the Revised Capital Rules will require us and Seacoast
National to maintain (i) a minimum ratio of CET1 to risk-weighted assets of 7% (4.5% attributable to CET1
plus the 2.5% capital conservation buffer); (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at
least 8.5% (6.0% attributable to Tier 1 capital plus the 2.5% capital conservation buffer), (iii) a minimum ratio
of Total capital (that is, Tier 1 plus Tier 2) to risk-weighted assets of at least 10.5% (8.0% attributable to Total
capital plus the 2.5% capital conservation buffer) and (iv) a minimum leverage ratio of 4%, calculated as the
ratio of Tier 1 capital to average assets (as compared to a current minimum leverage ratio of 3% for banking
organizations that either have the highest supervisory rating or have implemented the appropriate federal
regulatory authority’s risk-adjusted measure for market risk).

Regulatory Deductions. The Revised Capital Rules provide for a number of deductions from and
adjustments to CET1, including the requirement that mortgage servicing rights, deferred tax assets arising
from temporary differences that could not be realized through net operating loss carrybacks and signiﬁcant
investments in non-consolidated ﬁnancial entities be deducted from CET1 to the extent that any one such
category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1. Implementation
of the deductions and other adjustments to CET1 began on January 1, 2015 and will be phased-in over a
three-year period (beginning at 40% on January 1, 2015 and an additional 20% per year thereafter until fully
phased-in at January 1, 2018).

The Revised Capital Rules also preclude counting certain hybrid securities, such as trust preferred

securities, as Tier 1 capital of bank or thrift holding companies. However, for bank or thrift holding
companies that had assets of less than $15 billion as of December 31, 2009 like us, trust preferred securities
issued prior to May 19, 2010 can be treated as Tier 1 capital to the extent that they do not exceed 25% of
Tier 1 capital after applying all capital deductions and adjustments.

10

Bank Holding Company Regulation

As a bank holding company, we are subject to supervision and regulation by the Federal Reserve under

the BHC Act. Bank holding companies generally are limited to the business of banking, managing or
controlling banks, and other activities that the Federal Reserve determines to be closely related to banking, or
managing or controlling banks as to be a proper incident thereto. We are required to ﬁle with the Federal
Reserve periodic reports and such other information as the Federal Reserve may request. Ongoing supervision
is provided through regular examinations by the Federal Reserve and other means that allow the regulators to
gauge management’s ability to identify, assess and control risk in all areas of operations in a safe and sound
manner and to ensure compliance with laws and regulations. The Federal Reserve may also examine our
non-bank subsidiaries.

Expansion and Activity Limitations. Under the BHC Act, a bank holding company is generally permitted
to engage in, or acquire direct or indirect control of more than 5 percent of the voting shares of, any company
engaged in the following activities:

•

•

•

banking or managing or controlling banks.

furnishing services to or performing services for our subsidiaries; and

any activity that the Federal Reserve determines to be so closely related to banking as to be a proper
incident to the business of banking, including:

•

•

•

•

•

•

•

•

•

•

•

•

•

•

factoring accounts receivable;

making, acquiring, brokering or servicing loans and usual related activities;

leasing personal or real property;

operating a non-bank depository institution, such as a savings association;

performing trust company functions;

providing ﬁnancial and investment advisory activities;

conducting discount securities brokerage activities;

underwriting and dealing in government obligations and money market instruments;

providing speciﬁed management consulting and counseling activities;

performing selected data processing services and support services;

acting as agent or broker in selling credit life insurance and other types of insurance in
connection with credit transactions;

performing selected insurance underwriting activities;

providing certain community development activities (such as making investments in projects
designed primarily to promote community welfare); and,

issuing and selling money orders and similar consumer-type payment instruments.

With certain exceptions, the BHC Act prohibits a bank holding company from acquiring direct or indirect
ownership or control of voting shares of any company which is not a bank or bank holding company, and from
engaging directly or indirectly in any activity other than banking or managing or controlling banks or performing
services for its authorized subsidiaries. A bank holding company, may, however, engage in or acquire an interest in
a company that engages in activities which the Federal Reserve has determined by regulation or order to be so
closely related to banking or managing or controlling banks as to be a proper incident thereto.

The Gramm-Leach-Bliley Act of 1999 (the ‘‘GLB’’) substantially revised the statutory restrictions
separating banking activities from certain other ﬁnancial activities. Under the GLB, bank holding companies
that are ‘‘well-capitalized’’ and ‘‘well-managed’’, as deﬁned in Federal Reserve Regulation Y, which have and
maintain ‘‘satisfactory’’ ratings under the Community Reinvestment Act of 1977, as amended (the ‘‘CRA’’),
and meet certain other conditions, can elect to become ‘‘ﬁnancial holding companies’’. Financial holding

11

companies and their subsidiaries are permitted to acquire or engage in activities such as insurance
underwriting, securities underwriting, travel agency activities, a broad range of insurance agency activities,
merchant banking, and other activities that the Federal Reserve determines to be ﬁnancial in nature or
complementary thereto. In addition, under the merchant banking authority added by the GLB and Federal
Reserve regulation, ﬁnancial holding companies are authorized to invest in companies that engage in activities
that are not ﬁnancial in nature, as long as the ﬁnancial holding company makes its investment with the
intention of limiting the term of its investment and does not manage the company on a day-to-day basis, and
the invested company does not cross-market with any of the ﬁnancial holding company’s controlled depository
institutions. Financial holding companies continue to be subject to supervision and regulation of the Federal
Reserve, but the GLB applies the concept of functional regulation to the activities conducted by subsidiaries.
For example, insurance activities would be subject to supervision and regulation by state insurance authorities.
While we have not become a ﬁnancial holding company, we may elect to do so in the future in order to
exercise the broader activity powers provided by the GLB. Banks may also engage in similar ‘‘ﬁnancial
activities’’ through subsidiaries. The GLB also includes consumer privacy provisions, and the federal bank
regulatory agencies have adopted extensive privacy rules implementing these statutory provisions.

The BHC Act permits acquisitions of banks by bank holding companies, such that we and any other bank

holding company, whether located in Florida or elsewhere, may acquire a bank located in any other state,
subject to certain deposit-percentage, age of bank charter requirements, and other restrictions. Federal law also
permits national and state-chartered banks to branch interstate through acquisitions of banks in other states.
Florida’s Interstate Branching Act (the ‘‘Florida Branching Act’’) permits interstate branching. Under the
Florida Branching Act, with the prior approval of the Florida Department of Banking and Finance, a
Florida bank may establish, maintain and operate one or more branches in a state other than the State of
Florida pursuant to a merger transaction in which the Florida bank is the resulting bank. In addition, the
Florida Branching Act provides that one or more Florida banks may enter into a merger transaction with one
or more out-of-state banks, and an out-of-state bank resulting from such transaction may maintain and operate
the branches of the Florida bank that participated in such merger. An out-of-state bank, however, is not
permitted to acquire a Florida bank in a merger transaction, unless the Florida bank has been in existence and
continuously operated for more than three years.

Support of Subsidiary Banks by Holding Companies. Federal Reserve policy requires a bank holding

company to act as a source of ﬁnancial and managerial strength and to preserve and protect its bank
subsidiaries in situations where additional investments in a troubled bank may not otherwise be warranted.
Notably, the Dodd-Frank Act has codiﬁed the Federal Reserve’s ‘‘source of strength’’ doctrine; this statutory
change became effective July 21, 2011. In addition, the Dodd-Frank Act’s new provisions authorize the
Federal Reserve to require a company that directly or indirectly controls a bank to submit reports that are
designed both to assess the ability of such company to comply with its ‘‘source of strength’’ obligations and to
enforce the company’s compliance with these obligations. In addition, under the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 (‘‘FIRREA’’), where a bank holding company has more than one bank
or thrift subsidiary, each of the bank holding company’s subsidiary depository institutions are responsible for
any losses to the FDIC resulting from an affiliated depository institution’s failure. Accordingly, a bank holding
company may be required to loan money to its bank subsidiaries in the form of capital notes or other
instruments that qualify as capital under bank regulatory rules. However, any loans from the bank holding
company to such subsidiary banks likely will be unsecured and subordinated to such bank’s depositors and
perhaps to other creditors of the bank.

Capital Requirements

Prior to January 1, 2015, we and Seacoast National were subject to risk-based capital guidelines issued by

the Federal Reserve and the OCC for bank holding companies and national banks, respectively. These guidelines
required a minimum ratio of capital to risk-weighted assets (including certain off-balance-sheet activities, such as
standby letters of credit) of 8%. At least half of the total capital must have consisted of common equity, retained
earnings and a limited amount of qualifying preferred stock, less goodwill and certain core deposit intangibles
(‘‘Tier 1 capital’’). The remainder may have consisted of non-qualifying preferred stock, qualifying subordinated,
perpetual, and/or mandatory convertible debt, term subordinated debt and intermediate term preferred stock and up
to 45% of pretax unrealized holding gains on available for sale equity securities with readily determinable market

12

values that are prudently valued, and a limited amount of any loan loss allowance (‘‘Tier 2 capital’’ and, together
with Tier 1 capital, ‘‘Total Capital’’). Under these rules, the Federal Reserve has stated that Tier 1 voting common
equity should be the predominant form of capital.

In addition, the Federal Reserve and the OCC established minimum leverage ratio guidelines for bank

holding companies and national banks, which provide for a minimum leverage ratio of Tier 1 capital to
adjusted average quarterly assets (‘‘leverage ratio’’) equal to 3%, plus an additional cushion of 1.0% to 2.0%,
if the institution has less than the highest regulatory rating. The guidelines also provided that institutions
experiencing internal growth or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without signiﬁcant reliance on intangible assets. All bank
holding companies and banks are expected to hold capital commensurate with the level and nature of their
risks, including the volume and severity of their problem loans, and higher capital may be required as a result
of an institution’s risk proﬁle.

As noted above in ‘‘Basel III’’, the capital requirements applicable to us and Seacoast National have

changed effective January 1, 2015 in important respects as a result of the Revised Capital Rules, which
implement provisions of the Dodd-Frank Act and Basel III. Moreover, reﬂecting the importance that regulators
place on managing capital and other risks, the banking agencies have adopted rules and guidance for stress
testing for banking organizations with more than $10 billion in total consolidated assets; the regulatory
guidance outlines four ‘‘high-level’’ principles for stress testing practices that should be a part of a banking
organization’s stress-testing framework. The guidance calls for the framework to (i) include activities and
exercises that are tailored to the activities of the organization; (ii) employ multiple conceptually sound
activities and approaches; (iii) be forward-looking and ﬂexible; and (iv) be clear, actionable, well-supported,
and used in the decision-making process.

FDICIA and Prompt Corrective Action

The Federal Deposit Insurance Corporation Improvement Act of 1991 (‘‘FDICIA’’), among other things,

requires the federal bank regulatory agencies to take ‘‘prompt corrective action’’ regarding depository
institutions that do not meet minimum capital requirements. FDICIA establishes ﬁve regulatory capital tiers:
‘‘well capitalized’’, ‘‘adequately capitalized’’, ‘‘undercapitalized’’, ‘‘signiﬁcantly undercapitalized’’, and
‘‘critically undercapitalized’’. A depository institution’s capital tier will depend upon how its capital levels
compare to various relevant capital measures and certain other factors, as established by regulation. The
FDICIA imposes progressively more restrictive restraints on operations, management and capital distributions,
depending on the category in which an institution is classiﬁed.

All of the federal bank regulatory agencies have adopted regulations establishing relevant capital
measures and relevant capital levels for federally insured depository institutions. Under the regulations
effective prior to January 1, 2015, a national bank will be (i) ‘‘well capitalized’’ if it has a total risk-based
capital ratio of 10% or greater, a Tier 1 capital ratio of 6% or greater, and a leverage ratio of at least 5%, and
is not subject to any written agreement, order, capital directive, or prompt corrective action directive by a
federal bank regulatory agency to meet and maintain a speciﬁc capital level for any capital measure;
(ii) ‘‘adequately capitalized’’ if it has a total risk-based capital ratio of 8% or greater, a Tier 1 capital ratio of
4% or greater, and a leverage ratio of 4% or greater (3% in certain circumstances) and does not meet the
deﬁnition of a ‘‘well capitalized’’ bank; (iii) ‘‘undercapitalized’’ if it has a total risk-based capital ratio of less
than 8% or a Tier 1 capital ratio of less than 4% or a leverage ratio that is less than 4% (3% in certain
circumstances); (iv) ‘‘signiﬁcantly undercapitalized’’ if it has a total risk-based capital ratio of less than 6% or
a Tier I capital ratio of less than 3%, or a leverage ratio of less than 3%; or (v) ‘‘critically undercapitalized’’ if
its tangible equity is equal to or less than 2% of average quarterly tangible assets. In order to qualify as
well-capitalized or adequately capitalized, an insured depository institution must meet all three minimum
requirements. At each successively lower capital tier, increasingly stringent corrective actions are or may be
required. The federal bank regulatory agencies have authority to require additional capital.

Notably, the Revised Capital Rule updated the prompt corrective action framework to correspond to the

rule’s new minimum capital thresholds, which took effect on January 1, 2015. Under this new framework,
(i) a well-capitalized insured depository institution is one having a total risk-based capital ratio of 10 percent
or greater, a Tier 1 risk-based capital ratio of 8 percent or greater, a CET1 capital ratio of 6.5 percent or

13

greater, a leverage capital ratio of 5 percent or greater and that is not subject to any order or written directive
to meet and maintain a speciﬁc capital level for any capital measure; (ii) an adequately-capitalized depository
institution is one having a total risk based capital ratio of 8 percent or more, a Tier 1 capital ratio of 6 percent
or more, a CET1 capital ratio of 4.5 percent or more, and a leverage ratio of 4 percent or more; (iii) an
undercapitalized depository institution is one having a total capital ratio of less than 8 percent, a Tier 1 capital
ratio of less than 6 percent, a CET1 capital ratio of less than 4.5 percent, or a leverage ratio of less than
4 percent; and (iv) a signiﬁcantly undercapitalized institution is one having a total risk-based capital ratio of
less than 6 percent, a Tier 1 capital ratio of less than 4 percent, a CET1 ratio of less than 3 percent or a
leverage capital ratio of less than 3 percent. The Revised Capital Rules retain the 2 percent threshold for
critically undercapitalized institutions, but make certain changes to the framework for calculating an
institution’s ratio of tangible equity to total assets.

As of December 31, 2014, the consolidated capital ratios of Seacoast and Seacoast National were as follows:

Tier 1 capital ratio . . . . . . . . . . . . . . .
Total risk-based capital ratio . . . . . . . .
Leverage ratio . . . . . . . . . . . . . . . . . .

Regulatory
Minimum
4.0%
8.0%

3.0 − 5.0%

Seacoast
(Consolidated)
15.39%
16.25%
10.32%

Seacoast
National
13.46%
14.32%
9.04%

FDICIA generally prohibits a depository institution from making any capital distribution (including
payment of a dividend) or paying any management fee to its holding company if the depository institution
would thereafter be undercapitalized. Undercapitalized depository institutions are subject to growth
limitations and are required to submit a capital restoration plan for approval within 90 days of becoming
undercapitalized. For a capital restoration plan to be acceptable, the depository institution’s parent holding
company must guarantee that the institution will comply with such capital restoration plan. The aggregate
liability of the parent holding company is limited to the lesser of 5% of the depository institution’s total assets
at the time it became undercapitalized and the amount necessary to bring the institution into compliance with
applicable capital standards. If a depository institution fails to submit an acceptable plan, it is treated as if it is
signiﬁcantly undercapitalized. If the controlling holding company fails to fulﬁll its obligations under FDICIA
and ﬁles (or has ﬁled against it) a petition under the federal Bankruptcy Code, the claim for such liability
would be entitled to a priority in such bankruptcy proceeding over third party creditors of the bank holding
company. In addition, an undercapitalized institution is subject to increased monitoring and asset growth
restrictions and is required to obtain prior regulatory approval for acquisitions, new lines of business, and
branching. Such an institution also is barred from soliciting, taking or rolling over brokered deposits.

Signiﬁcantly undercapitalized depository institutions may be subject to a number of requirements and

restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to
reduce total assets, and cessation of receipt of deposits from correspondent banks. Critically undercapitalized
institutions are subject to the appointment of a receiver or conservator within 90 days of becoming
signiﬁcantly undercapitalized, except under limited circumstances. Because our company and Seacoast
National exceed applicable capital requirements, the respective managements of our company and Seacoast
National do not believe that the provisions of FDICIA have had any material effect on our company and
Seacoast National or our respective operations.

FDICIA also contains a variety of other provisions that may affect the operations of our company and
Seacoast National, including reporting requirements, regulatory standards for real estate lending, ‘‘truth in
savings’’ provisions, the requirement that a depository institution give 90 days’ prior notice to customers and
regulatory authorities before closing any branch, and a prohibition on the acceptance or renewal of brokered
deposits by depository institutions that are not well capitalized, or are adequately capitalized and have not
received a waiver from the FDIC. Seacoast National was well capitalized at December 31, 2014, and brokered
deposits are not restricted.

Payment of Dividends

We are a legal entity separate and distinct from Seacoast National and our other subsidiaries. Our primary

source of cash, other than securities offerings, is dividends from Seacoast National. The prior approval of the
OCC is required if the total of all dividends declared by a national bank (such as Seacoast National) in any

14

calendar year will exceed the sum of such bank’s net proﬁts for that year and its retained net proﬁts for the
preceding two calendar years, less any required transfers to surplus. Federal law also prohibits any national
bank from paying dividends that would be greater than such bank’s undivided proﬁts after deducting statutory
bad debts in excess of such bank’s allowance for possible loan losses.

In addition, we 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 and to prohibit payment
thereof. The OCC and the Federal Reserve have indicated that paying dividends that deplete a national or
state member bank’s capital base to an inadequate level would be an unsound and unsafe banking practice.
The OCC and the Federal Reserve have each indicated that depository institutions and their holding
companies should generally pay dividends only out of current operating earnings.

Under a Federal Reserve policy adopted in 2009, the board of directors of a bank holding company must
consider different factors to ensure that its dividend level is prudent relative to maintaining a strong ﬁnancial
position, and is not based on overly optimistic earnings scenarios, such as potential events that could affect its
ability to pay, while still maintaining a strong ﬁnancial position. As a general matter, the Federal Reserve has
indicated that the board of directors of a bank holding company should consult with the Federal Reserve and
eliminate, defer or signiﬁcantly reduce the bank holding company’s dividends if:

•

•

•

its net income available to shareholders for the past four quarters, net of dividends previously paid
during that period, is not sufficient to fully fund the dividends;

its prospective rate of earnings retention is not consistent with its capital needs and overall current
and prospective ﬁnancial condition; or

it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.

Seacoast National recorded a small net loss in 2012, and net income in 2013 and 2014, but no dividends
were paid to us during any of these years. Prior approval by the OCC is required if the total of all dividends
declared by a national bank in any calendar year exceeds the bank’s proﬁts, for that year combined with
its retained net proﬁts for the preceding two calendar years. Under this restriction, based on our recent
proﬁtability, Seacoast National is eligible to distribute dividends up to $59.0 million to us, without prior
OCC approval, as of December 31, 2014. Seacoast National has not given any consideration to dividends to
the extent permitted by regulation.

With the redemption of our Series A Preferred Stock on December 31, 2013, our ability to pay dividends
is no longer limited by the terms of our Series A Preferred Stock. Prior to redemption, and subject to limited
exceptions, if we were not current in the payment of quarterly dividends on the Series A Preferred Stock, we
were not permitted to pay dividends on our common stock. Dividend payments on the Series A Preferred
Stock were current at redemption on December 31, 2013. No dividends on our common stock were declared
or paid in 2014.

Enforcement Policies and Actions; Formal Agreement with OCC

The Federal Reserve and the OCC monitor compliance with laws and regulations. Violations of laws and

regulations, or other unsafe and unsound practices, may result in these agencies imposing ﬁnes or penalties,
cease and desist orders, or taking other enforcement actions. Under certain circumstances, these agencies may
enforce these remedies directly against officers, directors, employees and other parties participating in the
affairs of a bank or bank holding company.

Bank and Bank Subsidiary Regulation

Seacoast National is a national bank subject to supervision, regulation and examination by the OCC,

which monitors all areas of operations, including reserves, loans, mortgages, the issuance of securities,
payment of dividends, establishing branches, capital adequacy, and compliance with laws. Seacoast National is
a member of the FDIC and, as such, its deposits are insured by the FDIC to the maximum extent provided by
law. See ‘‘FDIC Insurance Assessments’’.

15

Under Florida law, Seacoast National may establish and operate branches throughout the State of Florida,

subject to the maintenance of adequate capital and the receipt of OCC approval.

The OCC has adopted the Federal Financial Institutions Examination Council’s (‘‘FFIEC’’) rating system

and assigns each ﬁnancial institution a conﬁdential composite rating based on an evaluation and rating of
six essential components of an institution’s ﬁnancial condition and operations, including Capital Adequacy,
Asset Quality, Management, Earnings, Liquidity and Sensitivity to Market Risk, as well as the quality of risk
management practices.

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

Standards for Safety and Soundness

The Federal Deposit Insurance Act requires the federal bank regulatory agencies to prescribe, by
regulation or guideline, operational and managerial standards for all insured depository institutions relating
to: (1) internal controls; (2) information systems and audit systems; (3) loan documentation; (4) credit
underwriting; (5) interest rate risk exposure; and (6) asset quality.

The agencies also must prescribe standards for asset quality, earnings, and stock valuation, as well as
standards for compensation, fees and beneﬁts. The federal banking agencies have adopted regulations and
Interagency Guidelines Establishing Standards for Safety and Soundness to implement these required
standards. These guidelines set forth the safety and soundness standards used to identify and address problems
at insured depository institutions before capital becomes impaired. Under the regulations, if a regulator
determines that a bank fails to meet any standards prescribed by the guidelines, the regulator may require the
bank to submit an acceptable plan to achieve compliance, consistent with deadlines for the submission and
review of such safety and soundness compliance plans.

FDIC Insurance Assessments

Seacoast National’s deposits are insured by the FDIC’s DIF, and Seacoast National is subject to FDIC

assessments for its deposit insurance, as well as assessments by the FDIC to pay interest on Financing
Corporation (‘‘FICO’’) bonds.

Effective April 1, 2011, the FDIC began calculating assessments based on an institution’s average

consolidated total assets less its average tangible equity in accordance with changes mandated by the
Dodd-Frank Act. Changes to assessment rates were developed to approximate the same inﬂow of premiums to
the FDIC, but with a shifting of the burden of deposit insurance premiums toward those depository institutions
that rely on funding sources other than U.S. deposits. Initial base assessment rates applicable to second quarter
2011 assessments (and prospectively until the DIF reserve ratio reaches 1.15 percent) were as follows:

Risk Category

Deposit Insurance Assessment Rate

I
II
III
IV

5 to 9 basis points
14 basis points
23 basis points
35 basis points

An institution’s overall rate may be higher by as much as 10 basis points or lower by as much as 5 basis

points depending on adjustments to the base rate for unsecured debt and/or brokered deposits. Furthermore,
under the new system, different rate schedules will take effect when the DIF reserve ratio reaches certain
levels. For example, for banks in risk category II, the initial base assessment rate will be 14 basis points
when the DIF reserve ratio is below 1.15 percent, 12 basis points when the DIF reserve ratio is between
1.15 percent and 2 percent, 10 basis points when the DIF reserve ratio is between 2 percent and 2.5 percent
and 9 basis points when the DIF reserve ratio is 2.5 percent or higher.

Since inception of the new schedule, Seacoast National’s overall rate for assessment calculations had
been 14 basis points, the base rate for Risk Category II. As of September 19, 2013, with the release from its
formal agreement with the OCC, Seacoast National’s rate was reduced to 8.15 basis points, a calculated rate

16

under Risk Category I. As of September 30, 2014, Seacoast National’s rate was further reduced to 6.79 basis
points, as calculated under Risk Category I. Seacoast National anticipates it will continue to calculate its
assessment rate under Risk Category I guidelines prospectively. For Seacoast National, the new methodology
has had a favorable effect, with premiums totaling $1.6 million for 2014, $2.6 million for 2013 and
$2.7 million for 2012.

In addition, all FDIC-insured institutions are required to pay a pro rata portion of the interest due on
bonds issued by the FICO. FICO assessments are set by the FDIC quarterly and were 0.66 basis points for all
four quarters during 2012, 0.64 basis points for all four quarters during 2013, and 0.62 basis points for all
four quarters during 2014. The FICO assessment rate for the ﬁrst quarter of 2015 is 0.60 basis points. FICO
assessments of approximately $125,000, $124,000 and $136,000 were paid to the FDIC in 2012, 2013 and
2014, respectively.

Change in Control

Subject to certain exceptions, the BHC Act and the Change in Bank Control Act, together with

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

Other Regulations

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

Under the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and

Obstruct Terrorism (‘‘USA PATRIOT’’) Act of 2001, ﬁnancial institutions are subject to prohibitions against
speciﬁed ﬁnancial transactions and account relationships as well as enhanced due diligence and ‘‘know your
customer’’ standards in their dealings with foreign ﬁnancial institutions and foreign customers.

The USA PATRIOT Act requires ﬁnancial institutions to establish anti-money laundering programs with

minimum standards that include:

•

•

•

•

the development of internal policies, procedures, and controls;

the designation of a compliance officer;

an ongoing employee training program; and

an independent audit function to test the programs.

Bank regulators routinely examine institutions for compliance with these anti-money laundering
obligations and recently have been active in imposing ‘‘cease and desist’’ and other regulatory orders and
money penalty sanctions against institutions found to be in violation of these requirements. In addition, the
Financial Crimes Enforcement Network has proposed new regulations that would require ﬁnancial institutions
to obtain beneﬁcial ownership information for certain accounts, however, it has yet to establish ﬁnal
regulations on this topic.

Economic Sanctions. The Office of Foreign Assets Control (‘‘OFAC’’) is responsible for helping to

ensure that U.S. entities do not engage in transactions with certain prohibited parties, as deﬁned by various
Executive Orders and acts of Congress. OFAC publishes, and routinely updates, lists of names of persons and
organizations suspected of aiding, harboring or engaging in terrorist acts, including the Specially Designated

17

Nationals and Blocked Persons List. If we ﬁnd a name on any transaction, account or wire transfer that is on
an OFAC list, we must undertake certain speciﬁed activities, which could include blocking or freezing the
account or transaction requested, and we must notify the appropriate authorities.

Transactions with Related Parties. We are a legal entity separate and distinct from Seacoast National
and our other subsidiaries. Various legal limitations restrict our banking subsidiaries from lending or otherwise
supplying funds to us or our non-bank subsidiaries. We and our banking subsidiaries are subject to
Section 23A of the Federal Reserve Act and Federal Reserve Regulation W thereunder. Section 23A deﬁnes
‘‘covered transactions’’ to include extensions of credit, and limits a bank’s covered transactions with any
affiliate to 10% of such bank’s capital and surplus. All covered and exempt transactions between a bank and
its affiliates must be on terms and conditions consistent with safe and sound banking practices, and banks and
their subsidiaries are prohibited from purchasing low-quality assets from the bank’s affiliates. Finally,
Section 23A requires that all of a bank’s extensions of credit to its affiliates be appropriately secured by
acceptable collateral, generally United States government or agency securities.

We and our bank subsidiaries also are subject to Section 23B of the Federal Reserve Act, which generally

requires covered and other transactions among affiliates to be on terms, including credit standards, that are
substantially the same or at least as favorable to the bank or its subsidiary as those prevailing at the time for
similar transactions with unaffiliated companies.

The Dodd-Frank Act generally enhances the restrictions on transactions with affiliates under Sections 23A
and 23B of the Federal Reserve Act, including an expansion of the deﬁnition of ‘‘covered transactions’’ and an
increase in the amount of time for which collateral requirements regarding covered credit transactions must be
satisﬁed. Speciﬁcally, Section 608 of the Dodd-Frank Act broadens the deﬁnition of ‘‘covered transactions’’ to
include derivative transactions and the borrowing or lending of securities if the transaction will cause a bank to
have credit exposure to an affiliate. The revised deﬁnition also includes the acceptance of debt obligations of an
affiliate as collateral for a loan or extension of credit to a third party. Furthermore, reverse repurchase transactions
will be viewed as extensions of credit (instead of asset purchases) and thus become subject to collateral
requirements. These expanded deﬁnitions took effect on July 21, 2012. The ability of the Federal Reserve to grant
exemptions from these restrictions is also narrowed by the Dodd-Frank Act, including with respect to the
requirement for the OCC, FDIC and Federal Reserve to coordinate with one another.

Concentrations in Lending. During 2006, the federal bank regulatory agencies released guidance on
‘‘Concentrations in Commercial Real Estate Lending’’ (the ‘‘Guidance’’). The Guidance deﬁnes CRE loans
as exposures secured by raw land, 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 (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. Loans to Real Estate Investment Trusts
(‘‘REIT’’) 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.

The Guidance requires that appropriate processes be in place to identify, monitor and control risks
associated with real estate lending concentrations. This could include enhanced strategic planning, CRE
underwriting policies, risk management, internal controls, portfolio stress testing and risk exposure limits as
well as appropriately designed compensation and incentive programs. Higher allowances for loan losses and
capital levels may also be required. The Guidance is triggered when CRE loan concentrations exceed either:

•

•

Total reported loans for construction, land development, and other land of 100 percent or more of a
bank’s total risk based capital; or

Total reported loans secured by multifamily and nonfarm nonresidential properties and loans for
construction, land development, and other land of 300 percent or more of a bank’s total risk based
capital.

The Guidance also applies when a bank has a sharp increase in CRE loans or has signiﬁcant

concentrations of CRE secured by a particular property type.

18

The Guidance applies to our CRE lending activities for construction and land development loans. At

December 31, 2014, we had outstanding $53.3 million in commercial construction and residential land
development loans and $33.7 million in residential construction loans to individuals, which represents
approximately 31 percent of Seacoast National’s total risk based capital at December 31, 2014, well below the
Guidance’s threshold.

On October 30, 2009, the banking regulators issued a policy statement on ‘‘Prudent Commercial Real

Estate Loan Workouts’’ (the ‘‘Policy Statement’’), which replaced a previous policy statement issued by
regulators in 1995. The regulators issued the Policy Statement in recognition of the difficulties that ﬁnancial
institutions may face when working with commercial real estate borrowers that are experiencing reduced
operating cash ﬂows, depreciated collateral values, or prolonged sales and rental absorption periods. Among
other things, the Policy Statement identiﬁes supervisory expectations for a bank’s risk management elements
for loan workout programs, loan workout arrangements, classiﬁcation of loans, and regulatory reporting and
accounting considerations.

We have always had signiﬁcant exposures to loans secured by commercial real estate due to the nature of our
markets and the loan needs of both retail and commercial customers. We believe our long term experience in CRE
lending, underwriting policies, internal controls, and other policies currently in place, as well as our loan and
credit monitoring and administration procedures, are generally appropriate to managing our concentrations as
required under the Guidance. The federal bank regulators are looking more closely at the risks of various assets
and asset categories and risk management, and the need for additional rules regarding liquidity, as well as capital
rules that better reﬂects risk. At December 31, 2014, the total CRE exposure for Seacoast National represents
approximately 197 percent of total risk based capital, below the Guidance’s threshold.

Community Reinvestment Act. We and our banking subsidiaries are subject to the provisions of the
Community Reinvestment Act (‘‘CRA’’) and related federal bank regulatory agencies’ regulations. Under the
CRA, all banks and thrifts have a continuing and affirmative obligation, consistent with their safe and sound
operation, to help meet the credit needs for their entire communities, including low- and moderate-income
neighborhoods. The CRA requires a depository institution’s primary federal regulator, in connection with its
examination of the institution, to assess the institution’s record of assessing and meeting the credit needs of
the communities served by that institution, including low- and moderate-income neighborhoods. The bank
regulatory agency’s assessment of the institution’s record is made available to the public. Further, such
assessment is required of any institution which has applied to: (i) charter a national bank; (ii) obtain deposit
insurance coverage for a newly-chartered institution; (iii) establish a new branch office that accepts deposits;
(iv) relocate an office; (v) merge or consolidate with, or acquire the assets or assume the liabilities of, a
federally regulated ﬁnancial institution, or (vi) expand other activities, including engaging in ﬁnancial services
activities authorized by the GLB. A less than satisfactory CRA rating will slow, if not preclude, expansion of
banking activities and prevent a company from becoming or remaining a ﬁnancial holding company.

Following the enactment of the GLB, CRA agreements with private parties must be disclosed and annual

CRA reports must be made to a bank’s primary federal regulator. A bank holding company will not be
permitted to become or remain a ﬁnancial holding company and no new activities authorized under GLB may
be commenced by a holding company or by a bank ﬁnancial subsidiary if any of its bank subsidiaries received
less than a ‘‘satisfactory’’ CRA rating in its latest CRA examination. Federal CRA regulations require, among
other things, that evidence of discrimination against applicants on a prohibited basis, and illegal or abusive
lending practices be considered in the CRA evaluation.

Privacy and Data Security. The GLB imposed new requirements on ﬁnancial institutions with respect to
consumer privacy. The GLB generally prohibits disclosure of consumer information to non-affiliated third parties
unless the consumer has been given the opportunity to object and has not objected to such disclosure. Financial
institutions are further required to disclose their privacy policies to consumers annually. Financial institutions,
however, will be required to comply with state law if it is more protective of consumer privacy than the GLB.
The GLB also directed federal regulators, including the FDIC and the OCC, to prescribe standards for the security
of consumer information. Seacoast National is subject to such standards, as well as standards for notifying
customers in the event of a security breach. Under federal law, Seacoast National must disclose its privacy policy
to consumers, permit customers to opt out of having nonpublic customer information disclosed to third parties in

19

certain circumstances, and allow customers to opt out of receiving marketing solicitations based on information
about the customer received from another subsidiary. States may adopt more extensive privacy protections. The
Company is similarly required to have an information security program to safeguard the conﬁdentiality and
security of customer information and to ensure proper disposal. Customers must be notiﬁed when unauthorized
disclosure involves sensitive customer information that may be misused.

Consumer Regulation. Activities of Seacoast National are subject to a variety of statutes and regulations

designed to protect consumers. These laws and regulations include provisions that:

•

•

•

•

•

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

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

require Seacoast National to provide information to enable the public and public officials to
determine whether it is fulﬁlling its obligation to help meet the housing needs of the community it
serves;

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

govern the manner in which Seacoast National may collect consumer debts.

In addition, the Credit Card Accountability, Responsibility and Disclosure (‘‘CARD’’) Act requires

(1) 45-days advance notice to a cardholder before the interest rate on a card may be increased, subject to
certain exceptions; (2) a ban on interest rate increases in the ﬁrst year; (3) an opt-in for over-the-limit charges;
(4) caps on high fee cards; (5) greater limits on the issuance of cards to persons below the age of 21; (6) new
rules on monthly statements and payment due dates and the crediting of payments; and (7) the application of
new rates only to new charges and of payments to higher rate charges.

Rules regarding overdraft charges for debit card and automatic teller machine, or ATM, transactions
require banks to notify and obtain the consent of customers before enrolling them in an overdraft protection
plan, except with regard to overdraft protection on checks or to automatic bill payments. Federal Reserve rules
establish standards for debit card interchange fees and prohibit network exclusivity arrangements and routing
restrictions. In addition, the CFPB issued ﬁnal rules revising Regulation E, which governs electronic
transactions, to implement certain Dodd-Frank requirements relating to ‘‘remittance transfer’’ transactions.

The CFPB issued rules that are likely to impact our residential mortgage lending practices, and the
residential mortgage market generally, including rules that implement the ‘‘ability-to-repay’’ requirement and
provide protection from liability for ‘‘qualiﬁed mortgages,’’ as required by the Dodd-Frank Act, which took
effect on January 10, 2014. The CFPB has also issued a number of other mortgage-related rules, including
new rules pertaining to loan originator compensation, and that establish qualiﬁcation, registration and licensing
requirements for loan originators. These and other changes are likely to impose restrictions on future mortgage
loan originations, diminish lenders’ rights against delinquent borrowers or otherwise change the ways in which
lenders make and administer residential mortgage loans. Any or all of these proposals could have a negative
effect on the ﬁnancial performance of Seacoast National’s mortgage lending operations, by, among other
things, reducing the volume of mortgage loans that Seacoast National can originate and sell into the secondary
market and impairing Seacoast National’s ability to proceed against certain delinquent borrowers with timely
and effective collection efforts.

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

•

•

•

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

impose a duty on Seacoast National to maintain the conﬁdentiality of consumer ﬁnancial records and
prescribe procedures for complying with administrative subpoenas of ﬁnancial records;

require escheatment of unclaimed funds to the appropriate state agencies after the passage of certain
statutory time frames; and,

20

•

govern automatic deposits to and withdrawals from deposit accounts with Seacoast National and the
rights and liabilities of customers who use automated teller machines, or ATMs, and other electronic
banking services. As described above, beginning in July 2010, new rules took effect that limited
Seacoast National’s ability to charge fees for the payment of overdrafts for every day debit and
ATM card transactions.

As noted above, Seacoast National will likely face a signiﬁcant increase in its consumer compliance

regulatory burden as a result of the combination of the CFPB and the signiﬁcant roll back of federal
preemption of state laws in the area. The responsibility for oversight of many consumer protection laws and
regulations has, in large measure, transferred from the bank’s primary regulator to the CFPB. The CFPB has
indicated that, in addition to speciﬁc statutory mandates, it is working on a wide range of initiatives to
address issues in markets for consumer ﬁnancial products and services, such as revisions to privacy notice
requirements, new rules for deposit advance products and amendments to the funds availability requirements
of Regulation CC. It is anticipated that the CFPB will engage in numerous other rulemakings in the near term
that may impact our business, including by revising consumer protection regulations and associated
disclosures. The CFPB also has broad authority to prohibit unfair, deceptive and abusive acts and practices
(‘‘UDAAP’’) and to investigate and penalize ﬁnancial institutions that violate this prohibition. While the
statutory language of the Dodd-Frank Act sets forth the standards for acts and practices that violate this
prohibition, certain aspects of these standards are untested, which has created some uncertainty regarding how
the CFPB will exercise this authority.

Non-Discrimination Policies. Seacoast National is also subject to, among other things, the provisions of the

Equal Credit Opportunity Act (the ‘‘ECOA’’) and the Fair Housing Act (the ‘‘FHA’’), both of which prohibit
discrimination based on race or color, religion, national origin, sex, and familial status in any aspect of a
consumer or commercial credit or residential real estate transaction. The Department of Justice (the ‘‘DOJ’’), and
the federal bank regulatory agencies have issued an Interagency Policy Statement on Discrimination in Lending
that provides guidance to ﬁnancial institutions in determining whether discrimination exists, how the agencies will
respond to lending discrimination, and what steps lenders might take to prevent discriminatory lending practices.
The DOJ has increased its efforts to prosecute what it regards as violations of the ECOA and FHA.

Enforcement Authority. Seacoast National and its ‘‘institution-affiliated parties,’’ including management,
employees, agents, independent contractors and consultants, such as attorneys and accountants and others who
participate in the conduct of the institution’s affairs, are subject to potential civil and criminal penalties for
violations of law, regulations or written orders of a government agency. Violations can include failure to timely
ﬁle required reports, ﬁling false or misleading information or submitting inaccurate reports. Civil penalties may be
as high as $1,000,000 a day for such violations, and criminal penalties for some ﬁnancial institution crimes may
include imprisonment for 20 years. Regulators have ﬂexibility to commence enforcement actions against
institutions and institution-affiliated parties, and the FDIC has the authority to terminate deposit insurance. When
issued by a banking agency, cease-and-desist orders may, among other things, require affirmative action to correct
any harm resulting from a violation or practice, including restitution, reimbursement, indemniﬁcations or
guarantees against loss. A ﬁnancial institution may also be ordered to restrict its growth, dispose of certain assets,
rescind agreements or contracts, or take other actions determined to be appropriate by the ordering agency. The
federal banking agencies also may remove a director or officer from an insured depository institution (or bar them
from the industry) if a violation is willful or reckless.

Governmental Monetary Policies. The commercial banking business is affected not only by general
economic conditions but also by the monetary policies of the Federal Reserve. Changes in the discount rate on
member bank borrowings, control of borrowings, open market operations, the imposition of and changes in
reserve requirements against member banks, deposits and assets of foreign branches, the imposition of and
changes in reserve requirements against certain borrowings by banks and their affiliates and the placing of
limits on interest rates which member banks may pay on time and savings deposits are some of the
instruments of monetary policy available to the Federal Reserve. These monetary policies inﬂuence to a
signiﬁcant extent the overall growth of all bank loans, investments and deposits and the interest rates charged
on loans or paid on time and savings deposits. In response to the recent ﬁnancial crisis, the Federal Reserve
established several innovative programs to stabilize certain ﬁnancial institutions and to ensure the availability
of credit, which the Federal Reserve has begun to modify in light of improving economic conditions.

21

However, the nature of future monetary policies and the effect of such policies on the bank’s future business
and earnings cannot be predicted accurately.

Evolving Legislation and Regulatory Action. Proposals for new statutes and regulations are frequently

circulated at both the federal and state levels, and may include wide-ranging changes to the structures,
regulations and competitive relationships of ﬁnancial institutions. We cannot predict whether new legislation
will be enacted and, if enacted, the effect that it, or any regulations, would have on our business, ﬁnancial
condition or results of operations.

Other Regulatory Matters. We and our subsidiaries are subject to oversight by the SEC, Financial
Industry Regulatory Authority. (‘‘FINRA’’), the Public Company Accounting Oversight Board (‘‘PCAOB’’),
and Nasdaq and various state securities regulators. We and our subsidiaries have from time to time received
requests for information from regulatory authorities in various states, including state attorneys general,
securities regulators and other regulatory authorities, concerning our business practices. Such requests are
considered incidental to the normal conduct of business.

Statistical Information

Certain statistical and ﬁnancial information (as required by SEC Guide 3) is included in response to
Item 7 of this Annual Report on Form 10-K. Certain additional statistical information is also included in
response to Item 6 and Item 8 of this Annual Report on Form 10-K.

22

Item 1A. Risk Factors

In addition to the other information contained in this Form 10-K, you should carefully consider the risks
described below, as well as the risk factors and uncertainties discussed in our other public ﬁlings with the
SEC under the caption ‘‘Risk Factors’’ in evaluating us and our business and making or continuing an
investment in our stock. The risks contained in this Form 10-K are not the only risks that we face. Additional
risks that are not presently known, or that we presently deem to be immaterial, could also harm our business,
results of operations and ﬁnancial condition and an investment in our stock. The trading price of our
securities could decline due to the materialization of any of these risks, and our shareholders may lose all or
part of their investment. This Form 10-K also contains forward-looking statements that may not be realized as
a result of certain factors, including, but not limited to, the risks described herein and in our other public
ﬁlings with the SEC. Please refer to the section in this Form 10-K entitled ‘‘Special Cautionary Notice
Regarding Forward-Looking Statements’’ for additional information regarding forward-looking statements.

Risks Related to Our Business

Nonperforming assets could result in an increase in our provision for loan losses, which could adversely affect
our results of operations and ﬁnancial condition.

At December 31, 2014 and 2013, our nonperforming loans (which consist of nonaccrual loans) totaled

$21.1 million and $27.7 million, or 1.2 percent and 2.1 percent of the loan portfolio, respectively. At
December 31, 2014 and 2013, our nonperforming assets (which include foreclosed real estate) were
$28.6 million and $34.5 million, or 0.9 percent and 1.5 percent of assets, respectively. In addition, we had
approximately $6.1 million and $3.1 million in accruing loans that were 30 days or more delinquent at
December 31, 2014 and 2013, respectively. Our nonperforming assets adversely affect our net income in
various ways. We do not record interest income on nonaccrual loans or other real estate owned, thereby
adversely affecting our income, and increasing our loan administration costs. When we take collateral in
foreclosures and similar proceedings, we are required to mark the related loan to the then fair market value of
the collateral, which may result in a loss. These loans and other real estate owned also increase our risk
proﬁle and the capital our regulators believe is appropriate in light of such risks. Until economic and market
conditions improve, we may incur additional losses relating to an increase in nonperforming loans. If
economic conditions and market factors negatively and/or disproportionately affect some of our larger loans,
then we could see a sharp increase in our total net charge-offs and also be required to signiﬁcantly increase
our allowance for loan losses. Any further increase in our nonperforming assets and related increases in our
provision for losses on loans could negatively affect our business and could have a material adverse effect on
our capital, ﬁnancial condition and results of operations.

While we have reduced our problem assets signiﬁcantly through loan sales, workouts, restructurings and

otherwise, decreases in the value of these remaining assets, or the underlying collateral, or in these borrowers’
performance or ﬁnancial conditions, whether or not due to economic and market conditions beyond our
control, could adversely affect our business, results of operations and ﬁnancial condition. In addition, the
resolution of nonperforming assets requires signiﬁcant commitments of time from management and our
directors, which can be detrimental to the performance of their other responsibilities. There can be no
assurance that we will not experience further increases in nonperforming loans in the future, or that
nonperforming assets will not result in further losses in the future.

Our allowance for loan losses may prove inadequate or we may be adversely affected by credit risk exposures.

Our business depends on the creditworthiness of our customers. We periodically review our allowance for

loan losses for adequacy considering economic conditions and trends, collateral values and credit quality
indicators, including past charge-off experience and levels of past due loans and nonperforming assets. The
determination of the appropriate level of the allowance for loan losses involves a high degree of subjectivity
and judgment and requires us to make signiﬁcant estimates of current credit risks and future trends, all of
which may undergo material changes. We cannot be certain that our allowance for loan losses will be
adequate over time to cover credit losses in our portfolio because of unanticipated adverse changes in the
economy, market conditions or events adversely affecting speciﬁc customers, industries or markets, or
borrower behaviors towards repaying their loans. Generally speaking, the credit quality of our borrowers has
deteriorated as a result of the economic downturn in our markets. Although there are now signs of economic

23

recovery, if the credit quality of our customer base or their debt service behavior materially decreases further,
if the risk proﬁle of a market, industry or group of customers declines further or weaknesses in the real estate
markets and other economics persist or worsen, or if our allowance for loan losses is not adequate, our
business, ﬁnancial condition, including our liquidity and capital, and results of operations could be materially
adversely affected. In addition, bank regulatory agencies periodically review our allowance for loan losses and
may require an increase in the provision for loan losses or the recognition of further loan charge-offs, based
on judgments different than those of management. If charge-offs in future periods exceed the allowance for
loan losses, we will need additional provisions to increase the allowance for loan losses, which would result in
a decrease in net income and capital, and could have a material adverse effect on our ﬁnancial condition and
results of operations.

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

In the ordinary course of business, we rely on electronic communications and information systems to
conduct our businesses and to store sensitive data, including ﬁnancial information regarding our customers.
The integrity of information systems of ﬁnancial institutions are under signiﬁcant threat from cyber attacks by
third parties, including through coordinated attacks sponsored by foreign nations and criminal organizations to
disrupt business operations and other compromises to data and systems for political or criminal purposes. We
employ an in-depth, layered, defense approach that leverages people, processes and technology to manage and
maintain cyber security controls.

Notwithstanding the strength of our defensive measures, the threat from cyber attacks is severe, attacks

are sophisticated and attackers respond rapidly to changes in defensive measures. Cyber security risks may
also occur with our third-party service providers, and may interfere with their ability to fulﬁll their contractual
obligations to us, with attendant potential for ﬁnancial loss or liability that could adversely affect our ﬁnancial
condition or results of operations. We offer our clients the ability to bank remotely and provide other
technology based products and services, which services include the secure transmission of conﬁdential
information over the Internet and other remote channels. To the extent that our client’s systems are not secure
or are otherwise compromised, our network could be vulnerable to unauthorized access, malicious software,
phishing schemes and other security breaches. To the extent that our activities or the activities of our clients
or third-party service providers involve the storage and transmission of conﬁdential information, security
breaches and malicious software could expose us to claims, regulatory scrutiny, litigation and other possible
liabilities. While to date we have not experienced a signiﬁcant compromise, signiﬁcant data loss or material
ﬁnancial losses related to cyber security attacks, our systems and those of our clients and third-party service
providers are under constant threat and it is possible that we could experience a signiﬁcant event in the future.
We may suffer material ﬁnancial losses related to these risks in the future or we may be subject to liability for
compromises to our client or third-party service provider systems. Any such losses or liabilities could
adversely affect our ﬁnancial condition or results of operations, and could expose us to reputation risk, the
loss of client business, increased operational costs, as well as additional regulatory scrutiny, possible litigation,
and related ﬁnancial liability. These risks also include possible business interruption, including the inability to
access critical information and systems.

Our ability to realize our deferred tax assets may be further reduced in the future if our estimates of future
taxable income from our operations and tax planning strategies do not support our deferred tax amount.
Additionally, the amount of net operating loss carry-forwards and certain other tax attributes realizable for
income tax purposes may be reduced under Section 382 of the Internal Revenue Code (‘‘Section 382’’) by
sales of our capital securities.

As of December 31, 2014, we had deferred tax assets of $66.8 million, based on management’s
estimation of the likelihood of those deferred tax assets being realized. These and future deferred tax assets
may be reduced in the future if our estimates of future taxable income from our operations and tax planning
strategies do not support the amount of the deferred tax asset.

The Company recorded a small loss in 2012, and recorded income for 2013 and 2014. The Company is

in a three-year cumulative pretax gain position at December 31, 2014. A cumulative gain position is
considered positive evidence in assessing the prospective realization of a deferred tax asset from a forecast of

24

future taxable income. We also consider all positive and negative evidence including the impact of recent
operating results, reversal of existing taxable temporary differences, tax planning strategies and projected
earnings with the statutory tax loss carryover period. This process requires signiﬁcant judgment by
management about matters that are by nature uncertain. If we were to conclude that signiﬁcant portions of our
deferred tax assets were not more likely than not to be realized (due to operating results or other factors), a
requirement to establish a valuation allowance could adversely affect our ﬁnancial position and results of
operation, thereby negatively affecting our stock price.

The amount of net operating loss carry-forwards and certain other tax attributes realizable annually for

income tax purposes may be reduced by an offering and/or other sales of our capital securities, including
transactions in the open market by 5% or greater shareholders, if an ownership change is deemed to occur
under Section 382. The determination of whether an ownership change has occurred under Section 382 is
highly fact speciﬁc and can occur through one or more acquisitions of capital stock (including open market
trading) if the result of such acquisitions is that the percentage of our outstanding common stock held by
shareholders or groups of shareholders owning at least 5% of our common stock at the time of such
acquisition, as determined under Section 382, is more than 50 percentage points higher than the
lowest percentage of our outstanding common stock owned by such shareholders or groups of shareholders
within the prior three-year period. The sale of common stock in August 2009 is no longer within the prior
three-year look back period as required by Section 382 and reduced, but did not eliminate the possible
negative effects of a change in ownership. As previously disclosed on May 27, 2011, we adopted an
amendment to our Amended and Restated Articles of Incorporation, as amended (‘‘Articles of Incorporation’’)
that is intended to help preserve our net operating losses (the ‘‘Protective Amendment’’), however, such
amendment may not be effective. Based upon independent analysis, management does not believe the common
stock offering in November 2013, subsequent reverse stock split in December 2013, and common stock issued
in regards to the BANKshares acquisition in October 2014 have any negative implications for the Company
under Section 382. Deferred taxes for Section 382 events netting to $1.3 million were recorded by
BANKshares for acquisition activity prior to our merger on October 1, 2014, and were migrated and recorded
to the Company’s ﬁnancial statements.

Future acquisition and expansion activities may disrupt our business, dilute existing shareholders and
adversely affect our operating results.

We periodically evaluate potential acquisitions and expansion opportunities. To the extent we grow
through acquisition, we cannot assure you that we will be able to adequately or proﬁtably manage this growth.
Acquiring other banks, branches or businesses, as well as other geographic and product expansion activities,
involve various risks including:

•

•

•

•

•

•

•

•

•

•

•

risks of unknown or contingent liabilities;

unanticipated costs and delays;

risks that acquired new businesses do not perform consistent with our growth and proﬁtability
expectations;

risks of entering new market or product areas where we have limited experience;

risks that growth will strain out infrastructure, staff, internal controls and management, which may
require additional personnel, time and expenditures;

exposure to potential asset quality issues with acquired institutions;

difficulties, expenses and delays of integrating the operations and personnel of acquired institutions,
and start-up delays and costs of other expansion activities;

potential disruptions to our business;

possible loss of key employees and customers of acquired institutions;

potential short-term decrease in proﬁtability; and

diversion of our management’s time and attention from our existing operations and businesses.

25

Attractive acquisition opportunities may not be available to us in the future.

While we seek continued organic growth, as our earnings and capital position continue to improve, we

will consider the acquisition of other banking businesses. We expect that other banking and ﬁnancial
companies, many of which have signiﬁcantly greater resources, will compete with us to acquire ﬁnancial
services businesses. This competition could increase prices for potential acquisitions that we believe are
attractive. Also, acquisitions are subject to various regulatory approvals. If we fail to receive the appropriate
regulatory approvals, we may not be able to consummate an acquisition that we believe is in our best
interests, or we could endure regulatory delays or conditions that would prevent us from obtaining all of
the expected beneﬁts of a transaction. Among other things, our regulators consider our capital, liquidity,
proﬁtability, regulatory compliance and levels of goodwill and intangibles when considering acquisition and
expansion proposals. Any acquisition could be dilutive to our earnings and shareholders’ equity per share of
our common stock.

Deterioration in the real estate markets, including the secondary market for residential mortgage loans, can
adversely affect us.

The effects of ongoing mortgage market challenges, combined with the correction in residential real
estate market prices and reduced levels of home sales, could result in price reductions in single family home
values, adversely affecting the liquidity and value of collateral securing commercial loans for residential land
acquisition, construction and development, as well as residential mortgage loans and residential property
collateral securing loans that we hold, mortgage loan originations and gains on the sale of mortgage loans.
Declining real estate prices cause higher delinquencies and losses on certain mortgage loans, generally,
particularly second lien mortgages and home equity lines of credit. Signiﬁcant ongoing disruptions in the
secondary market for residential mortgage loans can limit the market for and liquidity of most residential
mortgage loans other than conforming Fannie Mae and Freddie Mac loans. Deteriorating trends could occur,
as various government programs to boost the residential mortgage markets and stabilize the housing markets
wind down or are discontinued. Declines in real estate values, home sales volumes and ﬁnancial stress on
borrowers as a result of job losses, interest rate resets on adjustable rate mortgage loans or other factors could
have adverse effects on borrowers that result in higher delinquencies and greater charge-offs in future periods,
which would adversely affect our ﬁnancial condition, including capital and liquidity, or results of operations.
In the event our allowance for loan losses is insufficient to cover such losses, our earnings, capital and
liquidity could be adversely affected.

Although the Florida housing market appears to be strengthening, our real estate portfolios are exposed to
weakness in the Florida housing market and the overall state of the economy.

Florida has experienced a deeper recession and more dramatic slowdown in economic activity than other

states and the decline in real estate values in Florida has been signiﬁcantly larger than the national average.
The declines in home prices and the volume of home sales in Florida, along with the reduced availability of
certain types of mortgage credit, have resulted in increases in delinquencies and losses in our portfolios of
home equity lines and loans, and commercial loans related to residential real estate acquisition, construction
and development. While home prices have stabilized, further declines in home prices coupled with continued
high or increased unemployment levels could cause additional losses which could adversely affect our
earnings and ﬁnancial condition, including our capital and liquidity.

Our concentration in commercial real estate loans could result in increased loan losses.

Commercial real estate (‘‘CRE’’) is cyclical and poses risks of loss to us due to our concentration levels
and risks of the asset, especially during a difficult economy. As of December 31, 2014 and 2013, 48.9 percent
and 42.4 percent of our loan portfolio were comprised of CRE loans, respectively. The banking regulators
continue to give CRE lending greater scrutiny, and banks with higher levels of CRE loans are expected to
implement improved underwriting, internal controls, risk management policies and portfolio stress testing, as
well as higher levels of allowances for possible losses and capital levels as a result of CRE lending growth
and exposures. During 2014, we recorded a $3.5 million recapture of provisioning for losses, compared to
additions of $3.2 million in 2013 and $10.8 million in 2012.

Seacoast National has a written CRE concentration risk management program and monitors its exposure to
CRE; however, there is no guarantee that the program will be effective in managing our concentration in CRE.

26

Liquidity risks could affect operations and jeopardize our ﬁnancial condition.

Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of
loans and other sources could have a substantial negative effect on our liquidity. Our funding sources include
federal funds purchases, securities sold under repurchase agreements, non-core deposits, and short- and
long-term debt. We are also members of the Federal Home Loan Bank of Atlanta (the ‘‘FHLB’’) and the
Federal Reserve Bank of Atlanta, where we can obtain advances collateralized with eligible assets. We
maintain a portfolio of securities that can be used as a secondary source of liquidity. There are also other
sources of liquidity available to us or Seacoast National should they be needed, including our ability to
acquire additional non-core deposits, the issuance and sale of debt securities, and the issuance and sale of
preferred or common securities in public or private transactions.

Our access to funding sources in amounts adequate to ﬁnance or capitalize our activities or on terms
which are acceptable to us could be impaired by factors that affect us speciﬁcally or the ﬁnancial services
industry or economy in general. Factors that could detrimentally impact our access to liquidity sources include
a downturn in the markets in which our loans are concentrated or adverse regulatory action against us. In
addition, our access to deposits may be affected by the liquidity and/or cash ﬂow needs of depositors.
Although we have historically been able to replace maturing deposits and FHLB advances as necessary, we
might not be able to replace such funds in the future and can lose a relatively inexpensive source of funds and
increase our funding costs if, among other things, customers move funds out of bank deposits and into
alternative investments, such as the stock market, that are perceived as providing superior expected returns.
We may be required to seek additional regulatory capital through capital raises at terms that may be very
dilutive to existing shareholders.

Our ability to borrow could also be impaired by factors that are not speciﬁc to us, such as disruptions in
the ﬁnancial markets or negative views and expectations about the prospects for the ﬁnancial services industry
in light of recent turmoil faced by banking organizations and deterioration in credit markets.

Our ability to receive dividends from our subsidiaries could affect our liquidity and ability to pay dividends.

We are a legal entity separate and distinct from Seacoast National and our other subsidiaries. Our primary

source of revenue consists of dividends from Seacoast National. These dividends are the principal source of
funds to pay dividends on our common stock, interest on our trust preferred securities and interest and
principal on our debt. Various laws and regulations limit the amount of dividends that Seacoast National
may pay us. Also, our right to participate in a distribution of assets upon a subsidiary’s liquidation or
reorganization is subject to the prior claims of the subsidiary’s creditors. Limitations on our ability to receive
dividends from our subsidiaries could have a material adverse effect on our liquidity and on our ability to pay
dividends on common stock. Additionally, if our subsidiaries’ earnings are not sufficient to make dividend
payments to us while maintaining adequate capital levels, we may not be able to make dividend payments to
our common shareholders. We do not expect to pay dividends on our common stock to shareholders in the
foreseeable future and expect to retain all earnings, if any, to support our capital adequacy and growth.

We must effectively manage our interest rate risk.

Our proﬁtability is dependent to a large extent on our net interest income, which is the difference
between the interest income paid to us on our loans and investments and the interest we pay to third parties
such as our depositors, lenders and debt holders. Changes in interest rates can impact our proﬁts and the fair
values of certain of our assets and liabilities. Prolonged periods of unusually low interest rates may have an
adverse effect on our earnings by reducing yields on loans and other earning assets. Increases in market
interest rates may reduce our customers’ desire to borrow money from us or adversely affect their ability to
repay their outstanding loans by increasing their debt service obligations through the periodic reset of
adjustable interest rate loans. If our borrowers’ ability to pay their loans is impaired by increasing interest
payment obligations, our level of nonperforming assets would increase, producing an adverse effect on
operating results. Increases in interest rates can have a material impact on the volume of mortgage
originations and reﬁnancings, adversely affecting the proﬁtability of our mortgage ﬁnance business. Interest
rate risk can also result from mismatches between the dollar amounts of re-pricing or maturing assets and
liabilities and from mismatches in the timing and rates at which our assets and liabilities re-price. We actively
monitor and manage the balances of our maturing and re-pricing assets and liabilities to reduce the adverse

27

impact of changes in interest rates, but there can be no assurance that we will be able to avoid material
adverse effects on our net interest margin in all market conditions.

Federal prohibitions on the ability of ﬁnancial institutions to pay interest on commercial demand deposit

accounts were repealed in 2011 by the Dodd-Frank Act. This change has had limited impact to date due to the
excess of commercial liquidity and the very low rate environment in recent years. There can be no assurance
that we will not be materially adversely affected in the future if economic activity increases and interest rates
rise, which may result in our interest expense increasing, and our net interest margin decreasing, if we must
offer interest on demand deposits to attract or retain customer deposits.

Our customers may pursue alternatives to bank deposits, causing us to lose a relatively inexpensive source
of funding.

We may experience a decrease in customer deposits if customers perceive alternative investments, such as

the stock market, as providing superior expected returns. When customers move money out of bank deposits
in favor of alternative investments, we may lose a relatively inexpensive source of funds, and be forced to
rely more heavily on borrowings and other sources of funding to fund our business and meet withdrawal
demands, thereby increasing our funding costs and adversely affecting our net interest margin.

Consumers may decide not to use banks to complete their ﬁnancial transactions, which could affect our
net income.

Technology and other changes now allow parties to complete ﬁnancial transactions without banks. For
example, consumers can pay bills and transfer funds directly without banks. This process could result in the
loss of fee income, as well as the loss of customer deposits and the income generated from those deposits.

The Dodd-Frank Wall Street Reform and Consumer Protection Act could increase our regulatory compliance
burden and associated costs or otherwise adversely affect our business.

On July 21, 2010, the Dodd-Frank Act was signed into law. The Dodd-Frank Act represents a signiﬁcant

overhaul of many aspects of the regulation of the ﬁnancial services industry.

The Dodd-Frank Act directs applicable regulatory authorities to promulgate regulations implementing its

provisions, and its effect on the Company and on the ﬁnancial services industry as a whole will be clariﬁed as
those regulations are issued. Certain provisions of the Act have been implemented by regulation, while others
are expected to be implemented in the coming years. The Dodd-Frank Act addresses a number of issues,
including capital requirements, compliance and risk management, debit card overdraft fees, healthcare,
incentive compensation, expanded disclosures and corporate governance. The Dodd-Frank Act established a
new, independent CFPB, which has broad rulemaking, supervisory and enforcement authority over consumer
ﬁnancial products and services, including deposit products, residential mortgages, home equity loans and
credit cards. States will be permitted to adopt stricter consumer protection laws and can enforce consumer
protection rules issued by the CFPB. The CFPB is working on a wide range of consumer protection
initiatives, including revisions to existing regulations, many of which will likely impact our business.

The Dodd-Frank Act will increase our regulatory compliance burden and may have a material adverse

effect on us, including increasing the costs associated with our regulatory examinations and compliance
measures. The changes resulting from the Dodd-Frank Act, as well as the resulting regulations promulgated by
federal agencies, may impact the proﬁtability of our business activities, require changes to certain of our
business practices, impose upon us more stringent capital, liquidity and leverage ratio requirements or
otherwise adversely affect our business. These changes may also require us to invest signiﬁcant management
attention and resources to evaluate and make necessary changes to comply with new laws and regulations. For
a more detailed description of the Dodd-Frank Act, see ‘‘Item 1. Business — Supervision and Regulation’’ of
this Form 10-K.

Higher FDIC deposit insurance premiums and assessments could adversely affect our ﬁnancial condition.

FDIC insurance premiums we pay may change and be signiﬁcantly higher in the future. Market

developments may signiﬁcantly deplete the insurance fund of the FDIC and further reduce the ratio of reserves to
insured deposits, thereby making it requisite upon the FDIC to charge higher premiums prospectively.

28

We are required to maintain capital to meet regulatory requirements, and if we fail to maintain suffıcient
capital, whether due to losses, an inability to raise additional capital or otherwise, our ﬁnancial condition,
liquidity and results of operations, as well as our compliance with regulatory requirements, would be
adversely affected.

Both we and Seacoast National must meet regulatory capital requirements and maintain sufficient

liquidity and our regulators may modify and adjust such requirements in the future. We were capable of
raising additional capital for the redemption of our Series A Preferred Stock; however, our ability to raise
additional capital, when and if needed in the future, will depend on conditions in the capital markets, general
economic conditions and a number of other factors, including investor perceptions regarding the banking
industry and the market, governmental activities, many of which are outside our control, and on our ﬁnancial
condition and performance. Accordingly, we cannot assure you that we will be able to raise additional capital
if needed or on terms acceptable to us. If we fail to meet these capital and other regulatory requirements, our
ﬁnancial condition, liquidity and results of operations would be materially and adversely affected.

Although we currently comply with all capital requirements, we will be subject to more stringent
regulatory capital ratio requirements in the future and we may need additional capital in order to meet those
requirements. Our failure to remain ‘‘well capitalized’’ for bank regulatory purposes could affect customer
conﬁdence, our ability to grow, our costs of funds and FDIC insurance costs, our ability to pay dividends on
common stock, make distributions on our trust preferred securities, our ability to make acquisitions, and our
business, results of operations and ﬁnancial condition, generally. Under FDIC rules, if Seacoast National
ceases to be a ‘‘well capitalized’’ institution for bank regulatory purposes, its ability to accept brokered
deposits and the interest rates that it pays may both be restricted.

As of April 1, 2011, the FDIC implemented its new calculation methodology for insurance assessments,
applying revised risk category ratings for calculating assessments to total assets less Tier 1 risk-based capital.
Deposits are no longer utilized as the primary base and the base assessment rates vary depending on the DIF
reserve ratio. We have not experienced any negative impact to our consolidated ﬁnancial statements as a result
of the new method as of December 14, 2014.

Changes in accounting and tax rules applicable to banks could adversely affect our ﬁnancial condition and
results of operations.

From time to time, the Financial Accounting Standards Board (the ‘‘FASB’’) and the SEC change the
ﬁnancial accounting and reporting standards that govern the preparation of our ﬁnancial statements. These
changes can be hard to predict and can materially impact how we record and report our ﬁnancial condition
and results of operations. In some cases, we could be required to apply a new or revised standard
retroactively, resulting in us restating prior period ﬁnancial statements.

Our cost of funds may increase as a result of general economic conditions, FDIC insurance assessments,
interest rates and competitive pressures.

We have traditionally obtained funds through local deposits and thus we have a base of lower cost
transaction deposits. Generally, we believe local deposits are a cheaper and more stable source of funds than
other borrowings because interest rates paid for local deposits are typically lower than interest rates charged
for borrowings from other institutional lenders and reﬂect a mix of transaction and time deposits, whereas
brokered deposits typically are higher cost time deposits. Our costs of funds and our proﬁtability and liquidity
are likely to be adversely affected if, and to the extent, we have to rely upon higher cost borrowings from
other institutional lenders or brokers to fund loan demand or liquidity needs, and changes in our deposit mix
and growth could adversely affect our proﬁtability and the ability to expand our loan portfolio.

Current and 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.

The Federal Reserve has proposed guidelines on executive compensation. Reﬂecting regulators’ focus

on compensation issues, in 2010, the FDIC proposed, but did not ﬁnalize, a rule to incorporate employee
compensation factors into the risk assessment system which would adjust risk-based deposit insurance
assessment rates if the design of certain compensation programs does not satisfy certain FDIC goals to prevent

29

executive compensation from encouraging undue risk-taking. In addition, the Dodd-Frank Act requires banking
regulators to issue regulations or guidelines to prohibit incentive-based compensation arrangements that
encourage inappropriate risk taking by providing excessive compensation or that may lead to material loss at
certain ﬁnancial institutions with $1 billion or more in assets. Regulators have proposed, but not yet ﬁnalized,
rules on the topic. Further, in June, 2010, the Federal Reserve, the OCC, the Office of Thrift Supervision, and
the FDIC jointly issued comprehensive ﬁnal guidance designed to ensure that incentive compensation policies
do not undermine the safety and soundness of banking organizations by encouraging employees to take
imprudent risks. This regulation signiﬁcantly restricts the amount, form, and context in which we pay
incentive compensation.

These provisions and any future rules issued by the Federal Reserve and the FDIC or any other regulatory

agencies could adversely affect our ability to attract and retain management capable and sufficiently motivated to
manage and operate our business through difficult economic and market conditions. If we are unable to attract and
retain qualiﬁed employees to manage and operate our business, we may not be able to successfully execute our
business strategy.

The short-term and long-term impact of the new Basel III capital standards and their implementing rules is
uncertain.

On September 12, 2010, the Group of Governors and Heads of Supervision, the oversight body of the

Basel Committee on Banking Supervision, announced an agreement to a strengthened set of capital
requirements for internationally active banking organizations in the United States and around the world,
known as Basel III. U.S. Regulators issued the Revised Capital Rules, which implement Basel III, as well as
capital requirements set forth in the Dodd-Frank Act. These rules establish increased minimum capital
requirements and create other new requirements, such as the requirement to maintain a ‘‘capital conservation
buffer’’ on top of the minimum risk-weighted asset ratios. These rules took effect on January 1, 2015 and will
be phased in over a four year period. For a more detailed description of Basel III and the Revised Capital
Rules, see ‘‘Item 1. Business — Supervision and Regulation.’’

Lending goals may not be attainable.

It may not be possible to safely, soundly and proﬁtably make sufficient loans to creditworthy persons in

the current economy to satisfy our prospective goals for commercial, residential and consumer lending
volumes. Future demand for additional lending is unclear and uncertain, and opportunities to make loans may
be more limited and/or involve risks or terms that we likely would not ﬁnd acceptable or in our shareholders’
best interest. A failure to meet our lending goals could adversely affect our results of operation and ﬁnancial
condition, liquidity and capital. Also, the proﬁtability of funding such loans using deposits may be adversely
affected by increased FDIC insurance premiums.

Federal banking agencies periodically conduct examinations of our business, including for compliance with
laws and regulations, and our failure to comply with any supervisory actions to which we are or become
subject as a result of such examinations may adversely affect us.

The Federal Reserve and the OCC periodically conduct examinations of our business and Seacoast
National’s business, including for compliance with laws and regulations, and Seacoast National also may be
subject to participation by the CFPB in its future regulatory examinations as discussed in the ‘‘Supervision
and Regulation’’ section above. If, as a result of an examination, the Federal Reserve, the OCC and/or the
CFPB were to determine that the ﬁnancial condition, capital resources, asset quality, asset concentrations,
earnings prospects, management, liquidity, sensitivity to market risk, or other aspects of any of our or
Seacoast National’s operations had become unsatisfactory, or that we or our management were in violation of
any law, regulation or guideline in effect from time to time, the regulators may take a number of different
remedial actions as they deem appropriate. These actions include the power to enjoin ‘‘unsafe or unsound’’
practices, to require affirmative actions to correct any conditions resulting from any violation or practice, to
issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our
growth, to change the composition of our concentrations in portfolio or balance sheet assets, to assess civil
monetary penalties against our officers or directors or to remove officers and directors.

30

Our future success is dependent on our ability to compete effectively in highly competitive markets.

We operate in the highly competitive markets of Martin, St. Lucie, Brevard, Indian River and Palm
Beach and Broward Counties in southeastern Florida, the Orlando, Florida metropolitan statistical area in
Orange, Seminole and Lake County, as well as in Volusia County, and more rural competitive counties in the
Lake Okeechobee, Florida region. Our future growth and success will depend on our ability to compete
effectively in these markets. We compete for loans, deposits and other ﬁnancial services in geographic markets
with other local, regional and national commercial banks, thrifts, credit unions, mortgage lenders, and
securities and insurance brokerage ﬁrms. Many of our competitors offer products and services different from
us, and have substantially greater resources, name recognition and market presence than we do, which beneﬁts
them in attracting business. Larger competitors may be able to price loans and deposits more aggressively
than we can, and have broader customer and geographic bases to draw upon.

We are dependent on key personnel and the loss of one or more of those key personnel could harm our business.

Our future success signiﬁcantly depends on the continued services and performance of our key

management personnel. We believe our management team’s depth and breadth of experience in the banking
industry is integral to executing our business plan. We also will need to continue to attract, motivate and
retain other key personnel. The loss of the services of members of our senior management team or other key
employees or the inability to attract additional qualiﬁed personnel as needed could have a material adverse
effect on our business, ﬁnancial position, results of operations and cash ﬂows.

We are subject to losses due to fraudulent and negligent acts on the part of loan applicants, mortgage
brokers, other vendors and our employees.

When we originate mortgage loans, we rely heavily upon information supplied by loan applicants and

third parties, including the information contained in the loan application, property appraisal, title information
and employment and income documentation provided by third parties. If any of this information is
misrepresented and such misrepresentation is not detected prior to loan funding, we generally bear the risk of
loss associated with the misrepresentation.

We operate in a heavily regulated environment.

We and our subsidiaries are regulated by several regulators, including the Federal Reserve, the OCC, the

SEC, the FDIC, Nasdaq, and the CFPB. Our success is affected by state and federal regulations affecting
banks and bank holding companies, the securities markets and banking, securities and insurance regulators.
Banking regulations are primarily intended to protect consumers and depositors, not shareholders. The
ﬁnancial services industry also is subject to frequent legislative and regulatory changes and proposed changes,
the effects of which cannot be predicted. These changes, if adopted, could require us to maintain more capital,
liquidity and risk controls which could adversely affect our growth, proﬁtability and ﬁnancial condition.

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

We are required to comply with various corporate governance and ﬁnancial reporting requirements under

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

Our controls and procedures may fail or be circumvented.

Management regularly reviews and updates our internal controls over ﬁnancial reporting, disclosure
controls and procedures, and corporate governance policies and procedures. Any system of controls, however
well designed and operated, is based in part on certain assumptions and can provide only reasonable, not

31

absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls
and procedures or failure to comply with regulations related to controls and procedures could have a material
adverse effect on our business, results of operations and ﬁnancial condition.

Our operations rely on external vendors.

We rely on certain external vendors to provide products and services necessary to maintain our day-to-day

operations, particularly in the areas of operations, treasury management systems, information technology and
security, exposing us to the risk that these vendors will not perform as required by our agreements. An external
vendor’s failure to perform in accordance with our agreement could be disruptive to our operations, which could
have a material adverse impact on our business, ﬁnancial condition and results of operations.

We must effectively manage our information systems risk.

We rely heavily on our communications and information systems to conduct our business. The ﬁnancial

services industry is undergoing rapid technological changes with frequent introductions of new
technology-driven products and services. Our ability to compete successfully depends in part upon our ability
to use technology to provide products and services that will satisfy customer demands. Many of the
Company’s competitors invest substantially greater resources in technological improvements than we do. We
may not be able to effectively implement new technology-driven products and services or be successful in
marketing these products and services to our customers, which may negatively affect our business, results of
operations or ﬁnancial condition.

Our communications and information systems remain vulnerable to unexpected disruptions and failures.

Any failure or interruption of these systems could impair our ability to serve our customers and to operate our
business and could damage our reputation, result in a loss of business, subject us to additional regulatory
scrutiny or enforcement or expose us to civil litigation and possible ﬁnancial liability. While we have
developed extensive recovery plans, we cannot assure that those plans will be effective to prevent adverse
effects upon us and our customers resulting from system failures. While we maintain an insurance policy
which we believe provides sufficient coverage at a manageable expense for an institution of our size and
scope with similar technological systems, we cannot assure that this policy would be sufficient to cover all
related ﬁnancial losses and damages should we experience any one or more of our or a third party’s systems
failing or experiencing a cyber-attack.

We collect and store sensitive data, including personally identiﬁable information of our customers and
employees. Computer break-ins of our systems or our customers’ systems, thefts of data and other breaches
and criminal activity may result in signiﬁcant costs to respond, liability for customer losses if we are at fault,
damage to our customer relationships, regulatory scrutiny and enforcement and loss of future business
opportunities due to reputational damage. Although we, with the help of third-party service providers, will
continue to implement security technology and establish operational procedures to protect sensitive data, there
can be no assurance that these measures will be effective. We advise and provide training to our customers
regarding protection of their systems, but there is no assurance that our advice and training will be
appropriately acted upon by our customers or effective to prevent losses. In some cases we may elect to
contribute to the cost of responding to cybercrime against our customers, even when we are not at fault, in
order to maintain valuable customer relationships.

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

Florida law and our Articles of Incorporation include anti-takeover provisions, such as provisions that

encourage persons seeking to acquire control of us to consult with our board, and which enable the board to
negotiate and give consideration on behalf of us and our shareholders and other constituencies to the merits of
any offer made. Such provisions, as well as supermajority voting and quorum requirements, a staggered board
of directors and the Protective Amendment, may make any takeover attempts and other acquisitions of
interests in us, by means of a tender offer, open market purchase, a proxy ﬁght or otherwise, that have not
been approved by our board of directors more difficult and more expensive. These provisions may discourage
possible business combinations that a majority of our shareholders may believe to be desirable and beneﬁcial.
As a result, our board of directors may decide not to pursue transactions that would otherwise be in the best
interests of holders of our common stock.

32

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

Our market areas in Florida are susceptible to hurricanes, tropical storms and related ﬂooding and wind
damage. Such weather events can disrupt operations, result in damage to properties and negatively affect the
local economies in the markets where we operate. We cannot predict whether or to what extent damage that
may be caused by future hurricanes will affect our operations or the economies in our current or future market
areas, but such weather events could result in a decline in loan originations, a decline in the value or
destruction of properties securing our loans and an increase in the delinquencies, foreclosures or loan losses.
Our business and results of operations may be adversely affected by these and other negative effects of future
hurricanes, tropical storms, related ﬂooding and wind damage and other similar weather events. As a result of
the potential for such weather events, many of our customers have incurred signiﬁcantly higher property and
casualty insurance premiums on their properties located in our markets, which may adversely affect real estate
sales and values in our markets.

The CFPB’s issued rules may have a negative impact on our loan origination process, and compliance and
collection costs, which could adversely affect our mortgage lending operations and operating results.

The CFPB issued rules that are likely to impact our residential mortgage lending practices, and the
residential mortgage market generally, including rules that implement the ‘‘ability-to-repay’’ requirement and
provide protection from liability for ‘‘qualiﬁed mortgages,’’ as required by the Dodd-Frank Act, which took
effect on January 10, 2014. The CFPB has also issued a number of other mortgage-related rules, including
new rules pertaining to loan originator compensation, and that establish qualiﬁcation, registration and licensing
requirements for loan originators. These and other changes are likely to impose restrictions on future mortgage
loan originations, diminish lenders’ rights against delinquent borrowers or otherwise change the ways in which
lenders make and administer residential mortgage loans. These rules could have a negative effect on the
ﬁnancial performance of Seacoast National’s mortgage lending operations, by, among other things, reducing
the volume of mortgage loans that Seacoast National can originate and sell into the secondary market,
increasing its compliance burden and impairing Seacoast National’s ability to proceed against certain
delinquent borrowers with timely and effective collection efforts.

Risks Related to our Common Stock

We may issue additional shares of common or preferred stock, which may dilute the interests of our
shareholders and may adversely affect the market price of our common stock.

We are currently authorized to issue up to 60 million shares of common stock, of which 33,136,592 shares
were outstanding as of December 31, 2014, and up to 4 million shares of preferred stock, of which no shares are
outstanding. Subject to certain NASDAQ requirements, our board of directors has authority, without action or vote
of the shareholders, to issue all or part of the remaining authorized but unissued shares and to establish the terms
of any series of preferred stock. These authorized but unissued shares could be issued on terms or in
circumstances that could dilute the interests of other shareholders.

Our stock price is subject to ﬂuctuations, and the value of your investment may decline.

The trading price of our common stock is subject to wide ﬂuctuations. The stock market in general, and

the market for the stocks of commercial banks and other ﬁnancial services companies in particular, has
experienced signiﬁcant price and volume ﬂuctuations that sometimes have been unrelated or disproportionate
to the operating performance of those companies. These broad market and industry factors may seriously harm
the market price of our common stock, regardless of our operating performance, and the value of your
investment may decline.

33

Item 1B. Unresolved Staff Comments

None.

Item 2.

Properties

We and Seacoast National’s main office occupies approximately 66,000 square feet of a 68,000 square
foot building in Stuart, Florida. This building, together with an adjacent 10-lane drive-through banking facility
and an additional 27,000-square foot office building, are situated on approximately eight acres of land in the
center of Stuart that is zoned for commercial use. The building and land are owned by Seacoast National,
which leases out portions of the building not utilized by us and Seacoast National to unaffiliated third parties.

Adjacent to the main office, Seacoast National leases approximately 21,400 square feet of office space from

third parties to house operational departments, consisting primarily of information systems and retail support.
Seacoast National owns its equipment, which is used for servicing bank deposits and loan accounts as well as on-
line banking services, and providing tellers and other customer service personnel with access to customers’
records. In addition, Seacoast National owns an operations center consisting of a 4,939 square foot building
situated on 1.44 acres in Okeechobee, Florida. Our PGA Blvd. branch is utilized as a disaster recovery site should
natural disasters or other events preclude use of Seacoast National’s primary operations center.

Seacoast currently operates its Seacoast Marine Finance Division in a 2,009 square foot leased facility in
Ft. Lauderdale, Florida, and has representation in California, Washington and Arizona. The 1,200 square foot
leased space in Newport Beach, California was closed at December 31, 2014.

CBF, our receivables factoring company occupies 1,511 square feet of leased space on the ﬁrst ﬂoor of

the Winter Park branch in Orlando, Florida.

Seacoast National maintained 42 branch offices, ﬁve commercial lending offices and its main office in
Florida at December 31, 2014. As of December 31, 2014, the net carrying value of these offices (excluding
the main office) was approximately $35.2 million. Seacoast National’s branch and commercial lending offices
in 2014 are generally described as follows:

Branch Office
Jensen Beach
1000 N.E. Jensen Beach Blvd.
Jensen Beach, FL 34957

East Ocean
2081 East Ocean Blvd
Stuart, FL 34996

Cove Road
5755 S.E. U.S. Highway 1
Stuart, FL 34997

Hutchinson Island
4392 N.E. Ocean Blvd.
Jensen Beach, FL 34957

Westmoreland
1108 S.E. Port St. Lucie Blvd.
Port St. Lucie, FL 34952
Wedgewood Commons
3200 U.S. Highway 1
Stuart, FL 34997

Bayshore
247 S.W. Port St. Lucie Blvd.
Port St. Lucie, FL 34984

Hobe Sound
11711 S.E. U.S. Highway 1
Hobe Sound, FL 33455

Fort Pierce
1901 South U.S. Highway 1
Fort Pierce, FL 34950

Year Opened
1977

Square Feet
1,920

Owned/Leased
Owned

1978
(relocated in 1995)

1983

1984

1985
(relocated in 2008)

1988
(relocated in 2009)

1990

1991

1991
(relocated in 2008)

2,300

3,450

4,000

4,468
(with 1,179 leased
to tenants)
5,477
(with 2,641 available
to be leased to tenants)

3,520

8,000
(with 1,225 available
to be leased to tenants)

5,477
(with 2,641 available
to be leased to tenants)

34

Owned; expected to
close in 2015

Leased

Lease expired;
closed in December 2014

Owned building located on
leased land

Owned building located on
leased land.

Leased

Owned

Owned building located on
leased land

Branch Office

Year Opened

Square Feet

Owned/Leased

Martin Downs
2601 S.W. High Meadow Ave.
Palm City, FL 34990

Tiffany
9698 U.S. Highway 1
Port St. Lucie, FL 34952

Vero Beach
1206 U.S. Highway 1
Vero Beach, FL 32960

Cardinal
2940 Cardinal Dr.
Vero Beach, FL 32963

St. Lucie West
1100 S.W. St. Lucie West Blvd.
Port St. Lucie, FL 34986

1992

1992

1993

1993
(relocated in 2008)

1994
(relocated in 1997)

Sebastian Wal-Mart
2001 U.S. Highway 1
Sebastian, FL 32958

South Vero Square
752 U.S. Highway 1
Vero Beach, FL 32962

Sebastian West
1110 Roseland Rd.
Sebastian, FL 32958

Tequesta
710 N. U.S. Highway 1
Tequesta, FL 33469

Jupiter
585 W. Indiantown Rd.
Jupiter, FL 33458

Vero 60 West
6030 20th Street
Vero Beach, FL 32966

Downtown Orlando
65 N. Orange Ave.
Orlando, FL 32801

Maitland
541 S. Orlando Ave.
Maitland, FL 32751
PGA Blvd.
3001 PGA Blvd.
Palm Beach Gardens,
FL 33410

South Parrott
1409 S. Parrott Ave.
Okeechobee, FL 34974

North Parrott
500 N. Parrott Ave.
Okeechobee, FL 34974

Arcadia
1601 E. Oak St.
Arcadia, FL 34266

1996

1997

1998

2003

2004

2005

2005

2005

2006

2006

2006

2006
(expanded in 2008)

Moore Haven
501 U.S. Highway 27
Moore Haven, FL 33471

2006
(relocated from leased
premises in 2012)

35

3,960

8,250

3,300

5,435

4,320

865

3,150

3,150

3,500

2,881

2,500

6,752

4,536

13,454

8,232

3,920

3,256

4,415

Owned

Owned

Owned

Leased

Leased

Leased; closed in
December 2014

Owned

Owned

Owned

Owned building located on
leased land

Owned

Lease expired; closed in
December 2014

Leased

Leased

Owned

Owned

Owned

Owned

Branch Office

Year Opened

Square Feet

Owned/Leased

Clewiston
300 S. Berner Rd.
Clewiston, FL 33440

LaBelle
17 N. Lee St.
LaBelle, FL 33935

Lake Placid
199 U.S. Highway 27 North
Lake Placid, FL 33852

Viera — The Avenues
6711 Lake Andrew Dr.
Viera, FL 32940

Murrell Road
5500 Murrell Rd.
Viera, FL 32940

Gatlin Boulevard
1790 S.W. Gatlin Blvd.
Port St. Lucie, FL 34953

Winter Park
1031 West Morse Blvd
Winter Park, FL 32789

Winter Garden
13207 West Colonial Dr.
Winter Garden, FL 34787

Eustis
15119 Highway 441
Eustis, FL 32726

Melbourne
300 South Harbor City Blvd.
Melbourne, FL 32901

Ormond Beach
1240 W. Granada Blvd.
Ormond Beach, FL 32174

Oviedo
2839 Clayton Crossing Way
Oviedo, FL 32765

Viera
105 Capron Trial
Viera, FL 32940

Apopka
345 East Main St.
Apopka, FL 32703

Port Orange
405 Dunlawton Ave.
Port Orange, FL 32127

2006

2006

2006

2007

2008

2008

2014
(acquired through
BankFIRST merger;
opened 1989)

2014
(acquired through
BankFIRST merger;
opened 1989)

2014
(acquired through
BankFIRST merger;
opened 1991)

2014
(acquired through
BankFIRST merger;
opened 1996)
2014
(acquired through
BankFIRST merger;
opened 1997)

2014
(acquired through
BankFIRST merger;
opened 2000)

2014
(acquired through
BankFIRST merger;
opened 2000)

2014
(acquired through
BankFIRST merger;
opened 2001)

2014
(acquired through
BankFIRST merger;
opened 2001)

5,661

2,361

2,125

5,999

9,041
(with 2,408 leased to tenants
and 1,856 available to be
leased)

5,300
(with 2,518 available
for leasing)

18,135
(with 9,069 occupied
by Seacoast, 1,511 by CBF,
and 7,555 available to be
leased)

8,081

4,699

4,558

8,810

4,482

3,426

4,984

3,120

36

Owned

Owned

Owned

Leased; closed in
December 2014

Leased; closed in
December 2014

Owned

Leased

Owned

Owned

Owned

Owned

Owned

Owned

Owned

Owned

Branch Office

Year Opened

Square Feet

Owned/Leased

Sanford
3791 West 1st St.
Sanford, FL 32771

Titusville
4250 South Washington Ave.
Titusville, FL 32780

Clermont
1000 East Highway 50
Clermont, FL 34711

Sebastian
1627 U.S. Highway 1,
Suite 107
Sebastian, FL 32958

Sewall’s Point
3727 S. East Ocean Blvd, #102
Stuart, FL 34996

Commercial lending offices
Hannibal Square
444 W. New England Avenue,
Suite 117
Winter Park, FL 32789

Rialto
7335 W. Sand Lake Road,
Suite 137
Orlando, FL 32819

Park Place
7025 County Road 46A,
Suite 1091
Heathrow, FL 32746
Victoria Park Shoppes
622 North Federal Highway
Ft. Lauderdale, FL 33304

Town Center
5250 Town Center Circle,
Suite 109
Boca Raton, FL 34486

2014
(acquired through
BankFIRST merger;
opened 2003)

2014
(acquired through
BankFIRST merger;
opened 2003)

2014
(acquired through
BankFIRST merger;
opened 2005)

2014

2014

3,191

2,050

7,354
(with 3,582 leased to
tenants)

1,190

3,522

Owned

Owned

Owned

Leased

Leased

Opened In
2013

Square Feet
2,000

Owned/Leased
Leased

2013

2013

2013

2013

1,489

1,979

1,800

1,495

Leased

Leased

Leased

Leased

For additional information regarding our properties, please refer to Notes G and K of the Notes to

Consolidated Financial Statements.

Item 3.

Legal Proceedings

We and our subsidiaries are subject, in the ordinary course, to litigation incident to the businesses in
which we are engaged. Management presently believes that none of the legal proceedings to which we are a
party are likely to have a material effect on our consolidated ﬁnancial position, operating results or cash ﬂows,
although no assurance can be given with respect to the ultimate outcome of any such claim or litigation.

Item 4.

Mine Safety Disclosures

Not applicable.

37

Part II

Item 5.

Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities

Holders of our common stock are entitled to one vote per share on all matters presented to shareholders

as provided in our Articles of Incorporation.

Our common stock is traded under the symbol ‘‘SBCF’’ on the Nasdaq Global Select Market, which is a

national securities exchange (‘‘Nasdaq’’). As of February 27, 2015 there were 33,135,526 shares of our
common stock outstanding, held by approximately 1,980 record holders.

The table below sets forth the high and low sale prices per share of our common stock on Nasdaq and

the dividends paid per share of our common stock for the indicated periods.

Sales Price per Share of
Seacoast Common Stock

High

Low

Quarterly Dividends
Declared Per Share of
Seacoast Common Stock

2013
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2014
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$11.25
11.00
12.30
12.49

$12.51
11.28
11.27
14.24

$ 7.75
8.50
10.10
10.10

$10.55
10.00
10.03
10.80

Dividends

$0.00
0.00
0.00
0.00

$0.00
0.00
0.00
0.00

Dividends from Seacoast National are our primary source of funds to pay dividends on our common
stock. Under the National Bank Act, national banks may in any calendar year, without the approval of the
OCC, pay dividends to the extent of net proﬁts for that year, plus retained net proﬁts for the preceding
two years (less any required transfers to surplus). The need to maintain adequate capital in Seacoast National
also limits dividends that may be paid to us. Beginning in the third quarter of 2008, we reduced our dividend
per share of common stock to de minimis $0.01. On May 19, 2009, the Company’s board of directors voted to
suspend quarterly dividends on common stock entirely.

Any dividends paid on our common stock would be declared and paid at the discretion of our board of

directors and would be dependent upon our liquidity, ﬁnancial condition, results of operations, capital
requirements and such other factors as our board of directors may deem relevant. We do not expect to pay
dividends on our common stock in the foreseeable future and expect to retain all earnings, if any, to support
our capital adequacy and growth.

Additional information regarding restrictions on the ability of Seacoast National to pay dividends to us is
contained in Note C of the Notes to Consolidated Financial Statements. See ‘‘Item 1. Business — Payment of
Dividends’’ of this Form 10-K for information with respect to the regulatory restrictions on dividends.

Outstanding Warrants

On May 30, 2012, Seacoast repurchased the Warrant previously issued to the U.S. Treasury under

the TARP CPP for $81,000 (net of related expenses). Seacoast had no warrants outstanding at
December 31, 2014.

Securities Authorized for Issuance Under Equity Compensation Plans

See the information included under Part III, Item 12, which is incorporated in response to this item

by reference.

38

Item 6.

Selected Financial Data

For ﬁve years selected ﬁnancial data of the Company is set forth under the caption ‘‘Financial

Highlights’’ on page 94.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations appears under

the caption ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ on
pages 48 − 80.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

For discussion of the quantitative and qualitative disclosures about market risk, see ‘‘Interest Rate

Sensitivity’’, ‘‘Securities’’, and ‘‘Market Risk’’ sections of Management’s Discussion and Analysis of Financial
Condition and Results of Operations on pages 70 − 71 and pages 78 − 79.

Item 8.

Financial Statements and Supplementary Data

The reports of Crowe Horwath LLP and KPMG LLP (KPMG), independent registered public accounting
ﬁrms, and the Consolidated Financial Statements and Notes appear on pages 95 − 144. Quarterly Consolidated
Income Statements are included on page 93 entitled ‘‘Selected Quarterly Financial Information’’.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

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

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

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

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

Management conducted an assessment of the effectiveness of our internal control over ﬁnancial reporting
as of December 31, 2014. This assessment was based on the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control — Integrated Framework 2013. Based on this
assessment, management believes that, as of December 31, 2014, our internal control over ﬁnancial reporting
was effective. As permitted, the Company has excluded the current year acquisition of The BANKshares, Inc.
(represents approximately 20 percent of total consolidated assets at December 31, 2014) from the scope of
management’s report on internal control over ﬁnancial reporting.

Our independent registered public accounting ﬁrm, Crowe Horwath LLP, has issued an attestation report

on our internal control over ﬁnancial reporting which is included herein.

39

(c) Change in Internal Control Over Financial Reporting

As reported in our 2013 Annual Report on Form 10-K as of December 31, 2013, our management

concluded that our internal control over ﬁnancial reporting was not effective as a result of a material weakness
related to ineffective review of the accounting for previously recorded charge-offs, a non-routine matter,
related to a matured troubled debt restructured loan.

During 2014, management has taken steps to remediate the material weakness, including implementing
controls to ensure that the Company’s ﬁnancial department provides for additional management review, and
consulting, as needed, with outside independent consultants and accounting experts when faced with
non-routine accounting matters. As a result of the successful implementation of the remediation activities
noted, as well as subsequent successful testing of the design and operation of the enhanced control procedure,
management has concluded that its material weakness as disclosed in the Company’s 2013 Annual Report on
Form 10-K has been remediated as of December 31, 2014.

Except as described above, there were no changes in our internal control over ﬁnancial reporting that

occurred during our last ﬁscal quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over ﬁnancial reporting.

Item 9B. Other Information.

None.

40

Part III

Item 10. Directors, Executive Officers and Corporate Governance

Information concerning our directors and executive officers is set forth under the headings ‘‘Proposal 1 —

Election of Directors,’’ ‘‘Corporate Governance,’’ ‘‘Section 16(a) Beneﬁcial Ownership Reporting
Compliance’’ and ‘‘Certain Transactions and Business Relationships’’ in the 2015 Proxy Statement,
incorporated herein by reference.

Item 11.

Executive Compensation

Information regarding the compensation paid by us to our directors and executive officers is set forth
under the headings ‘‘Executive Compensation,’’ ‘‘Compensation Discussion & Analysis,’’ ‘‘Compensation and
Governance Committee Report’’ and ‘‘2014 Director Compensation’’ in the 2015 Proxy Statement which are
incorporated herein by reference.

Item 12.

Security Ownership of Certain Beneﬁcial Owners and Management and Related Stockholder
Matters

The following table sets forth information about our common stock that may be issued under all of our

existing compensation plans as of December 31, 2014.

December 31, 2014

Equity Compensation Plan Information

Plan Category

Equity compensation plans approved

by shareholders:
2000 Plan(1) . . . . . . . . . . . . . . . . .
2008 Plan(2) . . . . . . . . . . . . . . . . .
2013 Plan(3) . . . . . . . . . . . . . . . . .
Employee Stock Purchase Plan(4) . . .
TOTAL . . . . . . . . . . . . . . . . . . . .

Number of securities
to be issued upon
exercise of outstanding
options, warrants
and rights

Weighted average
exercise price of
outstanding
options, warrants
and rights

Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
represented in column (a))

37,400
0
455,600
0
493,000

$116.43
0.00
10.70
0.00
$ 18.72

0
0
387,024
116,640
503,664

(1) Seacoast Banking Corporation of Florida 2000 Long-Term Incentive Plan. Shares reserved under this plan

are available for issuance pursuant to the exercise of stock options and stock appreciation rights granted
under the plan, as well as, vesting of performance award shares, and awards of restricted stock or
stock-based awards, previously issued.

(2) Seacoast Banking Corporation of Florida 2008 Long-Term Incentive Plan. Shares reserved under this plan

are available for issuance pursuant to the exercise of stock options and stock appreciation rights granted
under the plan, as well as, vesting of performance award shares, and awards of restricted stock or
stock-based awards, previously issued.

(3) Seacoast Banking Corporation of Florida 2013 Long-Term Incentive Plan. Shares reserved under this plan

are available for issuance pursuant to the exercise of stock options and stock appreciation rights granted
under the plan, and may be granted as awards of restricted stock, performance shares, or other
stock-based awards, prospectively.

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

Additional information regarding the ownership of our common stock is set forth under the headings

‘‘Proposal 1 — Election of Directors’’ and ‘‘Security Ownership of Management and Certain Beneﬁcial
Holders’’ in the 2015 Proxy Statement, and is incorporated herein by reference.

41

Item 13. Certain Relationships and Related Transactions, and Director Independence

Information regarding certain relationships and transactions between us and our officers, directors and

signiﬁcant shareholders is set forth under the heading ‘‘Compensation and Governance Committee Interlocks
and Insider Participation’’ and ‘‘Certain Transactions and Business Relationships’’ and ‘‘Corporate
Governance’’ in the 2015 Proxy Statement and is incorporated herein by reference.

Item 14.

Principal Accountant Fees and Services

Information concerning our principal accounting fees and services is set forth under the heading

‘‘Relationship with Independent Registered Public Accounting Firm; Audit and Non-Audit Fees’’ in the 2015
Proxy Statement, and is incorporated herein by reference.

Item 15.

Exhibits, Financial Statement Schedules

Part IV

(a)(1) The Consolidated Financial Statements, the Notes thereto and the report of the Independent

Registered Public Accounting Firm thereon listed in Item 8 are set forth commencing on page 95.

(a)(2) List of ﬁnancial statement schedules

All schedules normally required by Form 10-K are omitted, since either they are not applicable or the

required information is shown in the ﬁnancial statements or the notes thereto.

(a)(3) Listing of Exhibits

PLEASE NOTE: It is inappropriate for readers to assume the accuracy of, or rely upon any covenants,

representations or warranties that may be contained in agreements or other documents ﬁled as Exhibits to,
or incorporated by reference in, this report. Any such covenants, representations or warranties may have
been qualiﬁed or superseded by disclosures contained in separate schedules or exhibits not ﬁled with or
incorporated by reference in this report, may reﬂect the parties’ negotiated risk allocation in the particular
transaction, may be qualiﬁed by materiality standards that differ from those applicable for securities law
purposes, may not be true as of the date of this report or any other date, and may be subject to waivers by
any or all of the parties. Where exhibits and schedules to agreements ﬁled or incorporated by reference as
Exhibits hereto are not included in these Exhibits, such exhibits and schedules to agreements are not included
or incorporated by reference herein.

The following Exhibits are attached hereto or incorporated by reference herein (unless indicated
otherwise, all documents referenced below were ﬁled pursuant to the Exchange Act by Seacoast Banking
Corporation of Florida, Commission File No. 0-13660):

Exhibit 3.1.1 Amended and Restated Articles of Incorporation

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

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

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

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

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

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

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

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

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

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

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

42

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

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

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

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

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

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

Exhibit 3.2 Amended and Restated By-laws of the Company

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

Exhibit 4.1 Specimen Common Stock Certiﬁcate

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

Exhibit 4.2 Junior Subordinated Indenture

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

Exhibit 4.3 Guarantee Agreement

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

Exhibit 4.4 Amended and Restated Trust Agreement

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

Exhibit 4.5 Indenture

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

Exhibit 4.6 Guarantee Agreement

Dated as of December 16, 2005, between the Company, as Guarantor, and U.S. Bank National
Association, as Guarantee Trustee, incorporated herein by reference from Exhibit 10.2 to the Company’s
Form 8-K ﬁled December 21, 2005.

Exhibit 4.7 Amended and Restated Declaration of Trust

Dated as of December 16, 2005, among the Company, as Sponsor, Dennis S. Hudson, III and William R.
Hahl, as Administrators, and U.S. Bank National Association, as Institutional Trustee (including exhibits
containing the related forms of the SBCF Statutory Trust II Common Securities Certiﬁcate and the
Capital Securities Certiﬁcate), incorporated herein by reference from Exhibit 10.3 to the Company’s
Form 8-K ﬁled December 21, 2005.

43

Exhibit 4.8 Indenture

Dated June 29, 2007, between the Company and LaSalle Bank, as Trustee (including the form of the
Junior Subordinated Debt Security, which appears as Exhibit A to the Indenture), incorporated herein by
reference from Exhibit 10.1 to the Company’s Form 8-K ﬁled July 3, 2007.

Exhibit 4.9 Guarantee Agreement

Dated June 29, 2007, between the Company, as Guarantor, and LaSalle Bank, as Guarantee Trustee,
incorporated herein by reference from Exhibit 10.2 to the Company’s Form 8-K ﬁled July 3, 2007.

Exhibit 4.10 Amended and Restated Declaration of Trust

Dated June 29, 2007, among the Company, as Sponsor, Dennis S. Hudson, III and William R. Hahl, as
Administrators, and LaSalle Bank, as Institutional Trustee (including exhibits containing the related forms
of the SBCF Statutory Trust III Common Securities Certiﬁcate and the Capital Securities Certiﬁcate),
incorporated herein by reference from Exhibit 10.3 to the Company’s Form 8-K ﬁled July 3, 2007.

Exhibit 4.11 Registration Rights Agreement

Dated January 13, 2014, between the Company and CapGen Capital Group III, L.P., incorporated herein
by reference from Exhibit 10.1 to the Company’s Form 8-K, ﬁled January 14, 2014.

Exhibit 10.1 Amended and Restated Retirement Savings Plan*

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

Exhibit 10.2 Amended and Restated Employee Stock Purchase Plan*

Incorporated by reference to Exhibit A to the Company’s Deﬁnitive Proxy Statement on DEF14A, ﬁled
with the Commission on April 27, 2009.

Exhibit 10.3 Dividend Reinvestment and Stock Purchase Plan

Incorporated by reference to the Company’s Form S-3 ﬁled on November 12, 2014.

Exhibit 10.4 2000 Long Term Incentive Plan as Amended*

Incorporated herein by reference from the Company’s Registration Statement on Form S-8 File
No. 333-49972, ﬁled November 15, 2000, and Proxy Statement on Form DEF 14A, ﬁled on March 13, 2000.

Exhibit 10.5 Executive Deferred Compensation Plan*

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

Exhibit 10.6 Change of Control Employment Agreement*

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

Exhibit 10.7 Amended and Restated Directors Deferred Compensation Plan*

Incorporated herein by reference from Exhibit 10.9 to the Company’s Form 10-K, ﬁled on March 17, 2014.

Exhibit 10.8 2008 Long-Term Incentive Plan*

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

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

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

44

Exhibit 10.10 2013 Incentive Plan

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

Exhibit 10.11 Letter Agreement Regarding Lead Director Position*

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

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

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

Exhibit 10.13 Employment Agreement*

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

Exhibit 10.14 Agreement and Plan of Merger

Dated April 24, 2014, by and among the Company, Seacoast National Bank, The BANKshares, Inc. and
BankFIRST, incorporated herein by reference from Exhibit 2.1 to the Company’s Form 8-K, ﬁled
April 28, 2014.

Exhibit 21 Subsidiaries of Registrant

Exhibit 23.1 Consent of Independent Registered Public Accounting Firm

Exhibit 23.2 Consent of Independent Registered Public Accounting Firm

Exhibit 31.1 Certiﬁcation of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002

Exhibit 31.2 Certiﬁcation of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002

Exhibit 32.1** Certiﬁcation of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 and Section 111 the Emergency Economic Stability Act, as amended

Exhibit 32.2** Certiﬁcation of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 and Section 111 the Emergency Economic Stability Act, as amended

Exhibit 101 Interactive Data File

* Management contract or compensatory plan or arrangement.

** The certiﬁcations attached as Exhibits 32.1 and 32.2 accompany this Annual Report on Form 10-K
and are ‘‘furnished’’ to the Securities and Exchange Commission pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed ‘‘ﬁled’’ by the Company for purposes of Section 18
of the Exchange Act.

(b) Exhibits

The response to this portion of Item 15 is submitted under item (a)(3) above.

(c) Financial Statement Schedules

None.

45

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the

registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

SEACOAST BANKING CORPORATION OF
FLORIDA (Registrant)

By: /s/ Dennis S. Hudson, III
Dennis S. Hudson, III
Chairman of the Board and
Chief Executive Officer

Date: March 16, 2015

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below

by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Dennis S. Hudson, III
Dennis S. Hudson, III, Chairman of the Board,
Chief Executive Officer and Director
(principal executive officer)

/s/ William R. Hahl
William R. Hahl, Executive Vice President and
Chief Financial Officer
(principal ﬁnancial and accounting officer)

/s/ Dennis J. Arczynski
Dennis J. Arczynski, Director

/s/ Stephen E. Bohner
Stephen E. Bohner, Director

/s/ T. Michael Crook
T. Michael Crook, Director

/s/ H. Gilbert Culbreth, Jr.
H. Gilbert Culbreth, Jr, Director

/s/ Julie H. Daum
Julie H. Daum, Director

/s/ Christopher E. Fogal
Christopher E. Fogal, Director

/s/ Maryann B. Goebel
Maryann B. Goebel, Director

/s/ Roger O. Goldman
Roger O. Goldman, Director

/s/ Robert B. Goldstein
Robert B. Goldstein, Director

/s/ Dale M. Hudson
Dale M. Hudson, Director

46

Date

March 16, 2015

March 16, 2015

March 16, 2015

March 16, 2015

March 16, 2015

March 16, 2015

March 16, 2015

March 16, 2015

March 16, 2015

March 16, 2015

March 16, 2015

March 16, 2015

/s/ Dennis S. Hudson, Jr.
Dennis S. Hudson, Jr., Director

/s/ Thomas E. Rossin
Thomas E. Rossin, Director

Edwin E. Walpole, III, Director

Date

March 16, 2015

March 16, 2015

March 16, 2015

47

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 2014, 2013 and 2012. 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

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, increasing loan
production and growing core deposits.

In addition, several important accomplishments in 2014 further improved the position of the Company to

increase net income to common shareholders in 2015, and prospectively. These included:

•

•

•

•

completion of its acquisition of The BANKshares, Inc. (‘‘BANKshares’’) and its banking subsidiary
BankFIRST on October 1, 2014;

use of excess liquidity to acquire ﬂoating rate investment securities;

a consolidation of branch locations, including the closure of ﬁve offices and opening of two new
locations during the fourth quarter (see ‘‘Part I, Item 2 — Properties’’ for more detail); and

continued investments in digital technology and improved processes and reducing future overhead.

Also a number of signiﬁcant milestones and improvements in our business were completed in 2013.

They included:

•

•

•

•

•

the recapture of the $45 million valuation allowance on net deferred tax assets;

a successful raise of $75 million in common equity;

the termination of the Bank’s formal agreement with the Office of the Comptroller of the
Currency (‘‘OCC’’);

the redemption of the Company’s $50 million in outstanding Series A Preferred Stock originally
issued to the U.S. Department of Treasury under the Troubled Asset Relief Program; and

investing in new commercial lending offices and loan production personnel in larger metro markets
in Orlando, Boca Raton and Fort Lauderdale.

As a result, revenue (aggregate net interest income and noninterest income) increased signiﬁcantly for
2014, higher by $10.2 million or 11.3 percent compared to results for 2013. In addition, for the year ended
December 31, 2014, we had strong double digit loan growth from increased organic loan production and loans
acquired from BankFIRST, and the Company reduced noninterest expenses prospectively while absorbing
increases in core operating expenses related to new investments to improve revenue growth and improve
customer service.

Enhancing our footprint was the acquisition of BANKshares. On October 1, 2014, the Company

completed its acquisition of BANKshares, whereby BANKshares merged with and into the Company. Pursuant
to and simultaneous with the merger of BANKshares with and into the Company, BANKshares’s wholly
owned subsidiary bank, BankFIRST, merged with and into the Company’s subsidiary bank, Seacoast National
Bank. The Company acquired 100% of the outstanding common stock of BANKshares. The purchase price
consisted wholly of stock. Each share of BANKshares common stock was exchanged for 0.4975 shares of the
Company’s common stock. Based on the closing price of the Company’s common stock on September 30,
2014, the resulting purchase price was $76.8 million. The Company’s primary reasons for the transaction were
to further solidify its market share in the Central Florida market and expand its customer base to enhance

48

deposit fee income and leverage operating cost through economies of scale. The acquisition contributed
$516.3 million in total deposits and $365.4 million in loans to our balance sheet, and signiﬁcantly boosted our
net interest margin in the fourth quarter of 2014. The acquisition of BANKshares increases our number of
households by approximately 13%. It also provides excellent opportunities for growth in one of Florida’s
fastest growing markets.

Through our new commercial lending offices, the Company continues to focus on reaching customers in
unique ways, creating a path to achieve higher customer satisfaction. The commercial lending offices provide
our customers with talented, results-oriented staff, specializing in loans to the smaller business market
segment. From their tenure and market experience, our bankers are familiar with the multitude of challenges
the small business customer faces. Seacoast intends to build customer relationships with depth that surpass
traditional commercial lending, and open opportunities into other areas in which we provide services.

During the third and fourth quarters of 2014, average investment securities increased $234.9 million, or
$149.5 million excluding securities from the BANKshares acquisition. Funding for the increase in investment
securities (uncapped ﬂoating rate collateralized loan obligations with credit support) was derived from
liquidity, both legacy and that acquired in the merger, and increase in seasonal funding from our core
customer deposit base. This deployment contributed approximately 10 basis points to net interest margin
improvement in the fourth quarter and should continue to provide a beneﬁt prospectively.

Our customer growth strategy has also included investments in digital delivery and products we believe

have contributed to increasing core customer funding. As of December 31, 2014, approximately 59 percent of
our online customers have adopted mobile product offerings and the total number of services utilized by our
retail customers increased to an average of 4.1 per household, primarily due to an increase in debit card
activation, direct deposit and mobile banking users. Personal and business mobile banking has grown from
13,659 users at December 31, 2013 to 21,587 users at December 31, 2014, an increase of 58 percent. We are
concentrating on building a more integrated distribution system which will allow us to reduce our ﬁxed costs
as we further invest in technology designed to better serve our customers. The growth in new households, a
deepening of relationships with current households, and better retention overall is creating stronger value in
our core customer franchise.

A persistent emphasis on expense reduction resulted in the successful implementation of ﬁrst and second

quarter 2014 cost savings totaling $1.4 million and $1.9 million, respectively, annually. These savings were
the result of negotiations with our current vendors for competitive pricing, changes in organizational structure,
and the termination of the regulatory agreement and its requirements. Legacy cost reductions (primarily
branch consolidations) totaling $1.8 million annualized were implemented in the fourth quarter 2014.
One-time charges included in noninterest expense for 2014 related to these reductions totaled $4.3 million.
These legacy cost reductions are in addition to cost savings related to the acquisition of BANKshares that
totaled in excess of $5.5 million annually and will be fully implemented in the ﬁrst quarter 2015. Taken
together they are expected to further reduce quarterly noninterest expenses by an additional $1.1 million
beginning in the ﬁrst quarter of 2015.

The combination of these actions, including additional office consolidations, revenue enhancements, an
acceleration of growth initiatives and a variety of cost-saving opportunities, resulted in net income available to
common shareholders for 2014 of $5.7 million, compared to 2013’s net income of $3.1 million excluding
$44.8 million from the recapture of the deferred tax valuation allowance, and a net loss of $710,000 for 2012. Net
income available to common shareholders for 2014 totaled $5.7 million or $0.21 per average common diluted
share, compared to 2013 net income totaling $47.9 million or $2.44 per average common diluted share, and a net
loss of $4.5 million or $(0.24) per average common diluted share for 2012 (after preferred dividends and accretion
of preferred stock discount). Per share amounts reﬂect the 1 for 5 reverse stock split effective December 13, 2013,
as previously approved by shareholders of the Company at its annual meeting in 2013.

We project noncore credit related expenses, primarily losses on other real estate owned (‘‘OREO’’) and
asset disposition expense, will continue to decline as nonperforming assets decline and the economy improves,
however we expect the provision for loan losses will normalize and likely increase for 2015, with loan growth
in our portfolio the primary driver. Our successful retail and business deposit growth initiatives continue to be
emphasized and we expect further increases in households served, margins and fees for 2015.

49

We plan to continue to execute on our targeted plan to grow our customer and commercial franchise.
During the fourth quarter of 2014, we refreshed and reintroduced our brand, retooling our logo and associated
signage throughout our branch network and digital platforms. The accretive effect of the acquisition, as well
as, ongoing investments in loan production personnel and digital technology, and the effect of asset quality
improvements and expense management, bode well for prospective earnings improvements. Our successes in
2014 are expected to carry over into 2015, and are a direct result of Company management executing on our
strategic initiatives, and our improved condition supporting better growth for both consumer household and
commercial relationships prospectively. We believe growing our customer and commercial franchise is the best
way to build shareholder value, and we expect to continue supplementing this growth through strategic
acquisition opportunities from time to time.

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

management currently believe that the Company’s overall level of capital is sufficient given the current
economic environment.

Our Business

The Company is a single-bank holding company with operations on Florida’s southeast coast (ranging
from Broward County in the south to Brevard and Volusia County in the north) as well as Florida’s interior
around Lake Okeechobee and up through Orlando (including Orange, Seminole and Lake County). The
Company had 43 full service offices at December 31, 2014, compared to 34 offices at December 31, 2013. In
2014, Seacoast acquired 12 offices from BANKshares, closed and consolidated ﬁve existing offices, and
opened two new full service offices to supplant the closed offices. Two full service offices were closed and
consolidated with other locations during January 2013, and two other offices were closed and consolidated in
December 2012. During 2013, ﬁve commercial lending offices with supporting personnel were opened, two
late in the ﬁrst quarter, two during the second quarter and one in the fourth quarter of 2013.

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, brokerage, and 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.

While the past recession adversely affected our markets, we have seen much improvement in the last
two years and expect these markets to continue to improve because these areas in Florida remain attractive
markets in which to live and there are many positive indications that Florida’s economy will continue to improve.

Florida’s economic recovery is now well established, with solid job growth, declining unemployment, and

higher consumer conﬁdence fueling improvements in our markets. We believe the Florida economy will
further strengthen in 2015, as we continue to attract population inﬂows. Our housing markets, manufacturing
base, tourism and services industries are building on current momentum, and provide a diversiﬁed base for our
economy. The residential 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. We are also
hopeful the Congress and President of the United States will collaborate to avert any dampening to the
economy prospectively. Our primary competitors now are the mega-banks, and many of these large institutions
are struggling with higher capital requirements and new restrictions and regulations that are requiring difficult
choices regarding their business models. We continue to believe we have entered a period of opportunity to
achieve meaningful market share gains.

Strategic Review

As part of its ongoing consideration and evaluation of its long-term prospects and strategies, Seacoast’s board

of directors and senior management have regularly reviewed and assessed its business strategies and objectives,
including strategic opportunities and challenges, and have considered various strategic opportunities, including
mergers and acquisitions, all with the goal of enhancing long term value for its shareholders and other
stakeholders. The Company will likely continue to consider strategic acquisitions as part of the Company’s overall
future growth plans in complementary and attractive markets within the state of Florida.

50

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, Okeechobee County, which is
contiguous to these coastal counties, and Orange, Seminole and Lake County located in Central Florida. Our
core markets contain 28 of our 43 retail full service locations, including four private banking centers. Because
of the branch coverage in these markets, the Company has a signiﬁcant presence, which provides convenience
to customers and results in a larger deposit market share. The Company’s deposit mix for the fourth quarter of
2014 is favorable with 86 percent of average deposit balances comprised of NOW, savings, money market and
noninterest bearing transaction customer accounts. The acquisition of BANKshares increased the Company’s
total deposits by approximately $516.3 million, consisting of $208.4 million in noninterest demand deposits,
$220.5 million in NOW, savings and money market accounts, and $87.4 million in certiﬁcates of deposit. The
cost of deposits averaged 0.12 percent for 2014 (compared to 0.16 percent for 2013 and 0.32 percent for
2012), 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. 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 a co-source relationship.

The Company’s net interest margin increased 10 basis points to 3.25 percent during 2014 from 2013. The

improvement follows on prior year’s trend when net interest margin decreased from 3.22% in 2012 to 3.15%
in 2013. In 2014, the year over year improvement results from increases in net loans, investment securities
and improved deposit mix compared to a year ago. The merger with BANKshares was favorable,
supplementing net interest income and beneﬁting our margin. The level of nonaccrual loans, changes in the
earning assets mix, and the Federal Reserve’s policies keeping interest rates low have been primary forces
affecting net interest income and net interest margin results. In 2013, net interest income was lower as a
result of lower loan and investment security yields, partially offset by an improved deposit mix and loan
growth. Overall, loan production improved during 2014, 2013 and 2012. In 2014, the Company had
commercial/commercial real estate loan production of $258 million, compared to more limited production of
$200 million and $111 million, respectively, for 2013 and 2012. The Company closed $225 million in
residential loans during 2014, compared to the $251 million in 2013 and $250 million in 2012. Stabilizing
home values and lower interest rates sparked renewed interest by consumers in home equity loans and lines of
credit during 2014. Higher interest rates beginning in the third quarter of 2013 slowed residential loan
production and carried over into ﬁrst quarter 2014’s production. We expect improved commercial loan
production in 2015, which we anticipate will be accomplished by increasing market share through our
growing presence in the Orlando and Palm Beach markets.

The Board of Governors of the Federal Reserve System (the ‘‘Federal Reserve’’) has made a historic

effort over the past several years to rejuvenate the economy and limit the effect of the recession by keeping
interest rates between 0 and 25 basis points and expanding various liquidity programs. The Federal Reserve
has indicated that it will maintain the target range for the federal funds rate for a considerable time following
the end of its asset purchase program in October of 2014. However, if incoming information indicates faster
progress toward the Federal Reserve’s employment and inﬂation objectives than it now expects, then increases
in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely,
if progress proves slower than expected, then increases in the target range are likely to occur later than
currently anticipated. While rates have been at historic lows, it is not expected to continue indeﬁnitely.
Including the acquisition of BANKshares, our net interest margin for the fourth quarter 2014 was successfully
managed to 3.56 percent, up 39 basis points compared to third quarter 2014. Prospectively, our focus will be
on continuing to improve our deposit mix by increasing low cost deposits and adding to our loan balances to
offset compressed interest rate spreads which are expected to continue into 2015.

Loan Growth and Lending Policies

For 2014, balances in the loan portfolio increased 39.7 percent, compared with an increase of 6.4 percent

for 2013 and a decline of 1.5 percent for 2012, reﬂecting the acquisition of BANKshares and a signiﬁcant
improvement from the recessionary climate and loan sales of 2012 and prior years. Adjusting for loans

51

acquired from BANKshares, the loan portfolio grew 11.8 percent during 2014, year over year. Additional
commercial relationship managers hired during 2013 at our new commercial lending offices increased loan
growth in 2014, and with improving economic conditions will continue to do so prospectively. The Company
expects loan growth opportunities for all types of lending in 2015, including commercial lending to targeted
customer segments and 1 − 4 family agency conforming residential mortgages. We will continue to expand our
business banking teams, adding new commercial loan officers where market opportunities arise. In addition,
the acquisition of a receivables factoring subsidiary in the BANKshares merger provides another product
vehicle to better serve our customers. We believe that achieving our revenue growth objectives, together with
continued reductions in credit costs and reduced problem loan related expenses will provide us with the
potential to make further, meaningful improvements in our earnings in 2015.

In recent years, the Company increased its focus and monitoring of its exposure to residential land,
acquisition and development loans. We undertook steps to de-risk this portfolio and our activities resulted in
greater loan pay-downs, collections from guarantors, and obtaining additional collateral to support the loans.
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 $16 million or 0.9 percent at December 31, 2014.

Our construction and land development loans were $87.0 million at December 31, 2014, up $19.5 million

from $67.5 million at December 31, 2013, which was up $6.8 million from $60.7 million at December 31,
2012. The size of our average commercial construction and land development loan at December 31, 2014,
2013 and 2012 was $392,000, $416,000 and $496,000, respectively.

Deposit Growth, Mix and Costs

The Company’s focus on high quality customer service, expanded digital products and distribution, as
well as convenient branch locations supports its strategy to provide stable, low cost deposit funding growth
over the long term. Over the past several years, the Company has strengthened its retail deposit franchise
using new strategies and product offerings, while maintaining its focus on building customer relationships.
We believe that digital product offerings are central to prospective core deposit growth as access via these
distribution channels is increasingly required by our customers. During the last two years, the Company
experienced signiﬁcant growth in its average transaction deposits (noninterest bearing demand and NOW
accounts), with increases of $157.8 million or 17.2 percent in 2014, and $98.7 million or 12.0 percent in
2013, year over year. Along with new relationships, our deposit programs have improved our market share,
increased average services per household, and decreased customer attrition.

Our growth in core deposits has also helped us limit further degradation to our net interest margin
throughout the last two years. Declines in certiﬁcates of deposit (‘‘CDs’’), which are a higher cost of funds,
continued in 2014 and 2013, but growth in core deposit relationships more than offset such declines. 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 2014. In 2014, the cost of deposits was 0.12 percent, decreasing 4 basis points from
0.16 percent for the prior year, which was a 16 basis point decrease from 0.32 percent in 2012.

During 2014, total deposits increased $610 million or 33.8 percent and sweep repurchase agreements

increased $2 million or 1.5 percent, versus 2013. Deposits for 2014 include acquired balances from
BANKshares of approximately $516 million. In comparison, during 2013 total deposits increased $47 million
or 2.7 percent and sweep repurchase agreements increased $15 million or 10.6 percent when compared to
2012. Most of the increase in sweep repurchase agreements during 2013 was in public funds, principally from
higher tax collector receipts.

Critical Accounting Policies and Estimates

The Company’s consolidated ﬁnancial statements are prepared in accordance with U.S. generally accepted

accounting principles, (‘‘GAAP’’), including prevailing practices within the ﬁnancial services industry. The
preparation of consolidated ﬁnancial statements requires management to make judgments in the application of
certain of its accounting policies that involve signiﬁcant estimates and assumptions. We have established
policies and control procedures that are intended to ensure valuation methods are well controlled and applied
consistently from period to period. These estimates and assumptions, which may materially affect the reported

52

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;

fair value measurements;

•

•

acquisition accounting and purchased loans

intangible assets

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 and purchased 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 2014 we
recorded a recapture of the allowance for loan losses of $3.5 million, which compared to provisioning for
2013 of $3.2 million. Net recoveries of $0.5 million for 2014 compared to net charge-offs of $5.2 million for
2013, and were (0.03) and 0.41 percent of average total loans for each year, respectively. Delinquency trends
remain low and show continued stability (see ‘‘Nonperforming Assets’’).

Table 12 provides certain information concerning the Company’s allowance (recapture) and provisioning

for loan losses for the years indicated.

Management continuously monitors the quality of the Company’s loan portfolio and maintains an
allowance for loan losses it believes is sufficient to absorb probable losses inherent in the loan portfolio. The
allowance for loan losses declined $2,997,000 to $17,071,000 at December 31, 2014, compared to
$20,068,000 at December 31, 2013. The allowance for loan losses (‘‘ALLL’’) framework has four basic
elements. Speciﬁc allowances for loans individually evaluated for impairment. General allowances for pools
of homogeneous non purchased loans (‘‘portfolio loans’’) within the portfolio that have similar risk
characteristics, which are not individually evaluated. Speciﬁc allowances for purchased impaired loans which
are individually evaluated based on the loans expected principal and interest cash ﬂows. General allowances
for purchased unimpaired pools of homogeneous loans that have similar risk characteristics. The aggregate of
these four components results in our total allowance for loan losses.

53

The ﬁrst element of the ALLL analysis involves the estimation of allowance speciﬁc to individually
evaluated impaired portfolio 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, 2014, the speciﬁc
allowance related to impaired portfolio loans individually evaluated totaled $3.6 million, compared to
$5.4 million as of December 31, 2013.

The second element of the ALLL analysis, the general allowance for homogeneous portfolio 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 portfolio
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.

The third component consists of amounts reserved for purchased credit-impaired loans. On a quarterly
basis, the Company updates the amount of loan principal and interest cash ﬂows expected to be collected,
incorporating assumptions regarding default rates, loss severities, the amounts and timing of prepayments and
other factors that are reﬂective of current market conditions. Probable decreases in expected loan principal
cash ﬂows trigger the recognition of impairment, which is then measured as the present value of the expected
principal loss plus any related foregone interest cash ﬂows discounted at the pool’s effective interest rate.
Impairments that occur after the acquisition date are recognized through the provision for loan losses.
Probable and signiﬁcant increases in expected principal cash ﬂows would ﬁrst reverse any previously recorded
allowance for loan losses; any remaining increases are recognized prospectively as interest income. The
impacts of (i) prepayments, (ii) changes in variable interest rates, and (iii) any other changes in the timing of
expected cash ﬂows are recognized prospectively as adjustments to interest income. Disposals of loans, which
may include sales of loans, receipt of payments in full by the borrower, or foreclosure, result in removal of
the loan from the purchased credit impaired portfolio.

The ﬁnal component consists of amounts reserved for purchased unimpaired loans. Loans collectively

evaluated for impairment reported at December 31, 2014 include loans acquired from BANKshares on
October 1, 2014 that are not PCI loans. These loans are performing loans recorded at estimated fair value at
the acquisition date. The fair value adjustment for loans acquired from BANKshares at the acquisition date
was approximately $11.2 million, or approximately 3.1 percent of the outstanding aggregate loan balances.
This amount is accreted into interest income over the remaining lives of the related loans on a level yield
basis, but remains adequate at December 31, 2014, and therefore no provision for loan loss was recorded
related to these loans at December 31, 2014.

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 loans are 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 the historical migration of actual losses by

grade over 4, 8, 12, 16, 20 and 24 quarter intervals. Minimum and maximum average historical loss rates over
one to ﬁve years are referenced in setting the loss factors by grade within the graded portfolio. Management uses
historical loss factors as its starting point, and qualitative elements are considered to capture trends within each
portion of the graded portfolio. The direction and expectations of past dues, charge-offs, nonaccruals, classiﬁed

54

loans, portfolio mix, market conditions, and risk management controls are considered in setting loss factors for the
graded portfolio. The loan loss migration indicates that the minimum and maximum average loss rates and median
loss rates over the past many quarters have been declining. Also, the level of criticized and classiﬁed loans has
been declining as a result of a combination of upgrades, loan payoff and loan sales, which are reducing the risk
proﬁle of the loan portfolio. Additionally, the risk proﬁle has declined given the shift in complexion of the graded
portfolio, particularly a reduced level of commercial real estate loan concentrations.

Residential and consumer (installment, secured lines, and unsecured lines) are analyzed differently as risk

ratings, or grades, are not assigned to individual loans. Residential and consumer loan losses are tracked by
pool. Management examines the historical losses over one to ﬁve years in its determination of the appropriate
loss factor for vintages of loans currently in the portfolio rather than the vintages that produced the signiﬁcant
losses in prior years. These loss factors are then adjusted by qualitative factors determined by management to
reﬂect potential probable losses inherent in each loan pool. Qualitative factors may include various loan or
property types, loan to value, concentrations and economic and environmental factors.

Residential loans that become 90 days past due are placed on nonaccrual and a speciﬁc allowance is

made for any loan that becomes 120 days past due. Residential loans are subsequently written down if they
become 180 days past due and such write-downs are supported by a current appraisal, consistent with current
banking regulations.

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.

Management continually evaluates the allowance for loan losses methodology and seeks to reﬁne and

enhance this process as appropriate. As a result, it is likely that the methodology will continue to evolve
over time.

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 recoveries for the year ended December 31, 2014 totaled $489,000, compared to net charges-offs of

$5,224,000 for the year ended December 31, 2013 (See ‘‘Table 12 — Summary of Loan Loss Experience’’ for
detail on net charge-offs for the last ﬁve years). 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, 2014 and 2013. Although there is

55

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
continue to decline.

The allowance as a percentage of portfolio loans outstanding was 1.14 percent at December 31, 2014,

compared to 1.54 percent at December 31, 2013. 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. The reduced
level of impaired loans contributed to a lower risk of loss and the lower allowance for loan losses as of
December 31, 2014. The risk proﬁle of the loan portfolio has been reduced by implementing a program to
decrease the level of credit risk in such portfolio by strengthening credit management methodologies and
implementing a low risk ‘‘back-to-basics’’ strategic plan for loan growth. New loan production has shifted to
adjustable rate residential real estate loans, owner-occupied commercial real estate, small business loans for
professionals and businesses, and consumer lending. Strategies, processes and controls are in place to ensure
that new production is well underwritten and maintains a focus on smaller, diversiﬁed and lower-risk lending.
Aided by initiatives embodied in new loan programs and continued aggressive collection actions, the portfolio
mix has changed dramatically and has become more diversiﬁed. The improved mix is most evident by a lower
percentage of loans in income producing commercial real estate and construction and land development loans.
Prospectively, we anticipate that the allowance will likely beneﬁt from continued improvement in our credit
quality, but offset by more normal loan growth as business activity and the economy improves.

Concentrations of credit risk, discussed under the caption ‘‘Loan Portfolio’’ of this discussion and
analysis, can affect the level of the allowance and may involve loans to one borrower, an affiliated group of
borrowers, borrowers engaged in or dependent upon the same industry, or a group of borrowers whose loans
are predicated on the same type of collateral. The Company’s most signiﬁcant concentration of credit is a
portfolio of loans secured by real estate. At December 31, 2014, the Company had $1.611 billion in loans
secured by real estate, representing 88.4 percent of total loans, up from $1.181 billion but lower as a percent
of total loans (versus 90.5 percent) at December 31, 2013. In addition, the Company is subject to a geographic
concentration of credit because it only operates in central and southeastern Florida.

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 in the future, regulators could seek additional provisions to our allowance for loan losses, which
would reduce our earnings.

Nonperforming Assets

Table 14 provides certain information concerning nonperforming assets for the years indicated.

Nonperforming assets (‘‘NPAs’’) at December 31, 2014 totaled $28,602,000 and were comprised of

$18,563,000 of nonaccrual portfolio loans, $2,577,000 of nonaccrual purchased loans, $5,567,000 of
non-acquired other real estate owned (‘‘OREO’’) and $1,895,000 of acquired OREO. In comparison, NPAs at
December 31, 2013 totaled $34,532,000 (comprised of $27,672,000 in nonaccrual loans and $6,860,000 of
OREO). At December 31, 2014, approximately 99.1 percent of nonaccrual loans were secured with real estate,
the remainder principally by marine vessels. See the tables below for details about nonaccrual loans. At
December 31, 2014, nonaccrual loans have been written down by approximately $5.5 million or 21.9 percent
of the original loan balance (including speciﬁc impairment reserves).

56

As anticipated, the Company closed a number of OREO sales during 2014 and 2013 that reduced
non-acquired OREO outstanding. Compared to December 31, 2013, non-acquired OREO was $1.3 million or
18.8 percent lower at December 31, 2014. This represents the lowest level of OREO since 2008 and is
reﬂective of our improving credit quality.

During 2014, $8.5 million in loans were moved to nonperforming compared to $10.0 million for all of 2013.

Of the $8.5 million, $4.0 million was related to purchased loans in the fourth quarter. Most of the loans are
collateralized by real estate. During the second quarter of 2014, a single commercial credit of $4.3 million was
transferred from nonaccrual loans to troubled debt restructure (‘‘TDR’’). Inﬂows to nonperforming loans during
2012 included a $14.4 million performing TDR commercial real estate loan participation. This loan was written
down to $10.3 million in the third quarter of 2012 and moved to loans available for sale. Subsequently the loan
was sold for a loss of $1.2 million as reﬂected on our income statement at December 31, 2012. 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.
Based on lower classiﬁed assets and impaired loan balances as of December 31, 2014, management believes that
future inﬂows to nonperforming loans will continue to be reduced.

The table below shows the nonperforming inﬂows by quarter for 2014, 2013 and 2012:

New Nonperforming Loans (In thousands)
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2014
$1,651
810
523
5,525

2013
$2,868
2,949
2,019
2,167

2012
$20,207
17,291
14,521
6,891

*

$4,007 related to BankFIRST loans acquired in the fourth quarter 2014.

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. TDRs have
been a part of the Company’s loss mitigation activities and can include rate reductions, payment extensions
and principal deferrals. Company policy requires TDRs that are classiﬁed as nonaccrual loans after
restructuring remain on nonaccrual until performance can be veriﬁed, which usually requires six months of
performance under the restructured loan terms. We are optimistic that some of these credits will rehabilitate
and be upgraded versus migrating to nonperforming or OREO prospectively. Accruing restructured loans
totaled $25.0 million at December 31, 2014 compared to $25.1 million at December 31, 2013. The tables
below set forth details related to nonaccrual and restructured loans.

December 31, 2014 (In thousands)
Construction & land development

Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . .
Individuals . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Residential real estate mortgages . . . . . . . . . . . . . . .
Commercial real estate mortgages . . . . . . . . . . . . . .
Real estate loans . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and ﬁnancial. . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Nonaccrual Loans

Non-Current

Performing

Total

Accruing
Restructured
Loans

$
0
1,621
0
1,621

2,941
1,698
6,260
0
0
$6,260

$

26
0
316
342

11,856
2,491
14,689
0
191
$14,880

$

26
1,621
316
1,963

14,797
4,189
20,949
0
191
$21,140

$ 1,903
71
202
2,176

14,303
7,990
24,469
120
408
$24,997

57

At December 31, 2014 and 2013, total TDRs (performing and nonperforming) were comprised of the

following loans by type of modiﬁcation:

NONPERFORMING ASSETS

Total TDRs by type of modiﬁcation

(Dollars in thousands)
Rate reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturity extended with change in terms . . . . . . . . . . . . . . .
Forgiveness of principal. . . . . . . . . . . . . . . . . . . . . . . . . .
Chapter 7 bankruptcies . . . . . . . . . . . . . . . . . . . . . . . . . .
Not elsewhere classiﬁed. . . . . . . . . . . . . . . . . . . . . . . . . .

2014

2013

Number
106
71
1
54
11
243

Amount
$18,906
8,891
1,588
3,348
1,786
$34,519

Number
113
81
1
55
10
260

Amount
$19,843
10,620
1,838
2,594
5,602
$40,497

During the ﬁrst, second, third and fourth quarters of 2014, newly identiﬁed TDRs totaled $0.4 million,

$4.9 million, $0.1 million and $0.1 million, respectively, compared to $10.7 million for all of 2013. Loan
modiﬁcations are not reported in calendar years after modiﬁcation if the loans were modiﬁed at an interest rate
equal to the yields of new loan originations with comparable risk and the loans are performing based on the terms
of the restructuring agreements. No accruing loans that were restructured within the twelve months preceding
December 31, 2014 defaulted during the twelve months ended December 31, 2014, compared to $1,948,000 for
2013. A restructured loan is considered in default when it becomes 60 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, 2014, loans totaling $43,577,000 were considered impaired (comprised of total

nonaccrual, loans 90 days or more past due, and TDRs) and $3,541,000 of the allowance for loan losses was
allocated for potential losses on these loans, compared to $52,969,000 and $5,446,000, respectively, at
December 31, 2013.

In accordance with regulatory reporting requirements, loans are placed on nonaccrual following the Retail

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

Acquisition Accounting, and Purchased Loans.

The Company accounts for its acquisitions under ASC Topic 805, Business Combinations, which requires
the use of the acquisition method of accounting. All identiﬁable assets acquired, including loans, are recorded
at fair value. No allowance for loan losses related to the acquired loans is recorded on the acquisition date as
the fair value of the loans acquired incorporates assumptions regarding credit risk. All loans acquired are
recorded at fair value in accordance with the fair value methodology prescribed in ASC Topic 820. The fair
value estimates associated with the loans include estimates related to expected prepayments and the amount
and timing of expected principal, interest and other cash ﬂows.

Over the life of the purchased credit impaired loans acquired, the Company continues to estimate cash ﬂows

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

Intangible Assets

Intangible assets consist of goodwill and core deposit intangibles. Goodwill represents the excess
purchase price over the fair value of net assets acquired in business acquisitions. The core deposit intangible
represents the excess intangible value of acquired deposit customer relationships as determined by valuation
specialists. The core deposit intangibles are being amortized over 74 months on a straight-line basis. Goodwill
is not amortized but rather is evaluated for impairment on at least an annual basis. We perform an annual

58

impairment test of goodwill and core deposit intangibles as required by FASB ASC 350, Intangibles —
Goodwill and Other, in the fourth quarter.

Fair Value Measurements

All impaired loans are reviewed quarterly to determine if fair value adjustments are necessary based on
known changes in the market and/or the project assumptions. When necessary, the ‘‘As Is’’ appraised value may
be adjusted based on more recent appraisal assumptions received by the Company on other similar properties, the
tax assessed market value, comparative sales and/or an internal valuation. If an updated assessment is deemed
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 OREO and repossessed assets (‘‘REPO’’) are reviewed quarterly to determine if fair value
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 assessment 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.

At December 31, 2014, outstanding securities designated as available for sale totaled $741,375,000. The fair
value of the available for sale portfolio at December 31, 2014 was less than historical amortized cost, producing
net unrealized losses of $5,015,000 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 2014 and 2013. The fair value of each security available for sale was
obtained from independent pricing sources utilized by many ﬁnancial institutions or from dealer quotes. The fair
value of many state and municipal securities are not readily available through market sources, so fair value
estimates are based on quoted market price or prices of similar instruments. Generally, the Company obtains one
price for each security. However, actual values can only be determined in an arms-length transaction between a
willing buyer and seller that can, and often do, vary from these reported values. Furthermore, signiﬁcant changes
in recorded values due to changes in actual and perceived economic conditions can occur rapidly, producing
greater unrealized losses or gains in the available for sale portfolio.

The credit quality of the Company’s securities holdings are primarily investment grade. As of
December 31, 2014, the Company’s available for sale investment securities, except for approximately
$24.3 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 $476.4 million, or 64.3 percent of the
total available for sale portfolio. The portfolio also includes $115.4 million in private label securities, most
secured by collateral originated in 2005 or prior years with low loan to values, and current FICO scores above
700. Generally these securities have credit support exceeding 5%. The collateral underlying these mortgage
investments are primarily 30- and 15-year ﬁxed rate, 5/1 and 10/1 adjustable rate mortgage loans. Historically,
the mortgage loans serving as collateral for those investments have had minimal foreclosures and losses.
During 2013, the Company invested $32.2 million in uncapped 3-month Libor ﬂoating rate collateralized loan
obligations. Supplemental purchases of collateralized loan obligations increased the total to $125.2 million as
of December 31, 2014. Collateralized loan obligations are special purpose vehicles that purchase loans as
assets that provide a steady stream of income and possible capital appreciation. The collateral for the
securities is ﬁrst lien senior secured corporate debt. The Company has purchased senior tranches rated credit
rated A or higher and performed stress tests, which indicated that the senior subordination levels are sufficient
and no principal loss is forecast, verifying the independent rating. At October 1, 2014, BANKshares securities
of $85.4 million were acquired and added to the available for sale portfolio at their fair market value,
comprised of $67.6 million of U.S. Treasury and U.S. Government securities and $17.8 million of securities
issued by states and their political subdivisions.

59

On May 31, 2014 management identiﬁed $158.8 million of investment securities available for sale and
transferred them to held for investment. The unrealized holding losses at the date of transfer totaled $3.0 million.

For the securities that were transferred into the held for investment category from the available for sale

category, the unrealized holding losses at the date of the transfer will continue to be reported in other
comprehensive income, and will be amortized over the remaining life of the security as an adjustment of yield
in a manner consistent with the amortization of a discount. The amortization of unrealized holding losses
reported in equity will offset the effect on interest income of the amortization of the discount.

The securities transferred management believes are a core banking asset that they now intend to hold
until maturity and if interest rates were to increase before maturity the fair values would be impacted more
signiﬁcantly and therefore are not consistent with the characteristics of an available for sale investment.

Other Than Temporary Impairment of Securities

Our investments are reviewed quarterly for other than temporary impairment (‘‘OTTI’’). The following
primary factors are considered for securities identiﬁed for OTTI testing: percent decline in fair value, rating
downgrades, subordination, duration, amortized loan-to-value, and the ability of the issuers to pay all amounts
due in accordance with the contractual terms. Prices obtained from pricing services are usually not adjusted.
Based on our internal review procedures and the fair values provided by the pricing services, we believe that
the fair values provided by the pricing services are consistent with the principles of ASC 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

$8.5 million as of December 31, 2014, $3.6 million more than the balance at year-end 2013. 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, 2014 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, 2014, the Company had net deferred tax assets (‘‘DTA’’) of $66.8 million. Although

realization is not assured, management believes that realization of the carrying value of the DTA is more
likely than not, based upon expectations as to future taxable income and tax planning strategies, as deﬁned by
ASC 740 Income Taxes. In comparison, at December 31, 2013 the Company had a net DTA of $66.9 million.

As a result of the losses incurred in 2010 and 2012, the Company had a three-year cumulative pretax loss

until the end of the third quarter of 2013. At September 30, 2013, the total converted to a three-year
cumulative pretax income of $4.7 million. Lower credit costs and increased earnings before taxes for 2013
and 2014 results in management’s conclusion that recovery of the net deferred tax assets is more likely than
not from future earnings. Other important factors that support this conclusion are:

•

•

Income before tax (‘‘IBT’’) has steadily increased as a result of organic growth and the 2014
acquisition will further assist in achieving management’s forecast of future earnings which recovers
the net operating loss carry-forwards before expiration,

Credit costs have declined and overall credit risk has declined which decreases the impact on future
taxable earnings,

60

•

•

•

Forecasted growth rates for loans are at levels considered reasonable and supported by the
acquisition, increased loan officers and support staff. Additional loan officer salaries were added to
assure loan portfolio growth and support increased interest income.

New loan production credit quality and concentrations are being well managed through improved and
enhanced credit functions and therefore will not cause increased credit costs. The independent loan
review in 2014 focused on review of underwriting of new loans and no weaknesses were reported.

Current economic growth forecasts for Florida and the Company’s markets in particular are robustly
supported by population increases.

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 31, 2014 and
2013, the Company had no signiﬁcant accruals for contingent liabilities and had no known pending matters
that could potentially be signiﬁcant.

Results of Operations

Earnings Summary

Net income available to common shareholders for 2014 totaled $5,696,000, or $0.21 per average common

diluted share, compared to net income of $47,916,000, or $2.44 per average common diluted share, in 2013,
and a net loss of $4,458,000, or $(0.24) per average common diluted share, in 2012.

Net Interest Income

Net interest income (on a fully taxable equivalent basis) for 2014 totaled $75,221,000, increasing by

$9,786,000 or 15.0 percent as compared to 2013. Net interest margin on a tax equivalent basis for 2014
increased 10 basis points to 3.25 percent compared to 3.15 percent in 2013. The year over year improvement
results from increases in net loans, in investment securities and our improved deposit mix compared to a year
ago. The addition of BANKshares’ business volumes on October 1, 2014, ampliﬁed performance in the fourth
quarter of 2014, with a $7,601,000 increase in net interest income from the third quarter of 2014, and
$8,547,000 increase compared to fourth quarter 2013. We anticipate 2015’s net interest income will beneﬁt
from the full year impact of the acquisition. The following table details net interest income and margin results
(on a tax equivalent basis) for the past ﬁve quarters:

(Dollars in thousands)
Fourth quarter 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First quarter 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net Interest
Income
(tax equivalent)
16,336
16,277
16,779
17,282
24,883

Net Interest
Margin
(tax equivalent)
3.08%
3.07
3.10
3.17
3.56

61

Fully taxable equivalent net interest income is a common term and measure used in the banking industry
but is not a term used under GAAP. We believe that these presentations of tax-equivalent net interest income
and tax equivalent net interest margin aid in the comparability of net interest income arising from both taxable
and tax-exempt sources over the periods presented. We further believe these non-GAAP measures enhance
investors’ understanding of the Company’s business and performance, and facilitate an understanding of
performance trends and comparisons with the performance of other ﬁnancial institutions. The limitations
associated with these measures are the risk that persons might disagree as to the appropriateness of items
comprising these measures and that different companies might calculate these measures differently, including
as a result of using different assumed tax rates. These disclosures should not be considered as an alternative to
GAAP. The following information is provided to reconcile GAAP measures and tax equivalent net interest
income and net interest margin on a tax equivalent basis.

(Dollars in thousands)
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) .

Total
Year
2014

Fourth
Quarter
2014

Third
Quarter
2014

Second
Quarter
2014

First
Quarter
2014

Total
Year
2013

Fourth
Quarter
2013

$

314

$

150

$

35%

35%

$

54
35%

$

54
35%

$

56
35%

432
35%

$

112
35%

$75,221

$24,883

$17,282

$16,779

$16,277

$65,435

$16,336

74,907

24,733

17,228

16,725

16,221

65,206

16,277

3.25%
3.24

3.56%
3.54

3.17%
3.16

3.10%
3.09

3.07%
3.06

3.15%
3.14

3.08%
3.06

The level of nonaccrual loans, changes in the earning assets mix, and the Federal Reserve’s policies keeping

interest rates low have been primary forces affecting net interest income and net interest margin results.

The earning asset mix changed year over year impacting net interest income. For 2014, average loans

(the highest yielding component of earning assets) as a percentage of average earning assets totaled
62.8 percent, compared to 61.2 percent a year ago. Average securities as a percentage of average earning
assets increased from 31.4 percent a year ago to 31.8 percent during 2014 and interest bearing deposits and
other investments decreased to 5.4 percent in 2014 from 7.4 percent in 2013, reﬂecting the investment of
excess liquidity during the third and fourth quarters of 2014. Average total loans as a percentage of earning
assets increased, and the mix of loans was improved, with volumes related to commercial real estate
representing 48.9 percent of total loans at December 31, 2014 (compared to 42.5 percent at December 31,
2013). Lower yielding residential loan balances with individuals (including home equity loans and lines, and
personal construction loans) represented 39.6 percent of total loans at December 31, 2014 (versus 48.1 percent
at December 31, 2013) (see ‘‘Loan Portfolio’’).

The yield on earning assets for 2014 was 3.48 percent, 6 basis points higher than for 2013. The yield on

earning assets improved each quarter during 2014. The acquisition of BANKshares improved the loan mix,
and together with organic loan growth during the fourth quarter of 2014 contributed approximately 33 basis
points to the increase of 38 basis points from third quarter 2014. The deployment of liquidity during the last
three months of 2014 contributed to the yield improvement as well. The following table details the yield on
earning assets (on a tax equivalent basis) for the past ﬁve quarters:

Yield . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fourth
Quarter
2014
3.78%

Third
Quarter
2014
3.40%

Second
Quarter
2014
3.33%

First
Quarter
2014
3.31%

Fourth
Quarter
2013
3.33%

While the yield on loans decreased 10 basis points to 4.39 percent over the last twelve months, the yield
improved quite dramatically in the fourth quarter of 2014 (by 41 basis points compared to third quarter 2014’s
yield on loans) for all the reasons previously detailed, but primarily an improved loan mix. The yield on
investment securities was slightly higher, increasing 16 basis points year over year to 2.14 percent for 2014,
reﬂecting reduced prepayments of principal from reﬁnancing activities on mortgage backed securities in the
portfolio and higher add-on rates for recent purchases. The yield on interest bearing deposits and other

62

investments was higher as well at 0.81 percent for 2014, up 24 basis points versus a year ago and reﬂecting
lower balances for interest bearing deposits at the Federal Reserve earning only 25 basis points.

Average earning assets for 2014 increased $237.1 million or 11.4 percent compared to 2013’s average
balance. Average loan balances for 2014 increased $180.4 million or 14.2 percent to $1,452.8 million and
average investment securities increased $84.0 million or 12.9 percent to $737.0 million, while average interest
bearing deposits and other investments decreased $27.3 million or 17.9 percent to $125.5 million.

Commercial and commercial real estate loan production for 2014 totaled approximately $258 million,

compared to production for 2013 of $200 million. Improvements in commercial production resulted from
general economic conditions and consumer conﬁdence in the State of Florida improving, encouraging
commercial customers to expand and borrow, along with the full-year impact of our ﬁve commercial lending
offices opened during 2013. Our investment in loan production staff is focused on the hiring of commercial
lenders for the larger metropolitan markets in which the Company competes, principally in Orlando, Palm
Beach and Fort Lauderdale. The addition of BANKshares locations and personnel in the fourth quarter
provides the Company with a signiﬁcant presence in the Orlando market as well as the coastal region to the
east of Orlando. With commercial production improving during 2014 and BANKshares acquisition, period-end
total loans outstanding increased by $517.7 million or 39.7 percent since December 31, 2013. At
December 31, 2014, the Company’s total commercial and commercial real estate loan pipeline was
$60 million, compared to $30 million, $58 million and $46 million at the end of the ﬁrst, second and third
quarters of 2014, and $28 million at the end of 2013.

As of December 31, 2014 and 2013, commercial real estate (‘‘CRE’’) loans were $890.5 million and

$553.7 million, respectively, up 60.8 percent and up 8.9 percent from the respective prior years. Under
regulatory guidelines for commercial real estate concentrations, Seacoast National’s total commercial real
estate loans outstanding at December 31, 2014 (as deﬁned in guidelines) represented 197 percent of risk-based
capital, which is below the regulatory threshold.

Closed residential mortgage loan production for the ﬁrst, second, third and fourth quarters of 2014 totaled

$40 million, $61 million, $66 million and $58 million, respectively, of which $19 million, $28 million,
$35 million and $26 million was sold servicing-released. In comparison, closed residential mortgage loan
production for the ﬁrst, second, third and fourth quarters of 2013 totaled $56 million, $80 million, $62 million
and $53 million, respectively, of which $33 million, $49 million, $32 million and $26 million was sold
servicing-released. Applications for residential mortgages totaled $344 million during 2014, compared to
$378 million for 2013. The majority of our loan production has been focused on purchased home mortgages.
Existing home sales and home mortgage loan reﬁnancing activity in the Company’s markets has improved as
the number of foreclosed properties in Florida has diminished, with some improved demand for new home
construction emerging.

During 2014, proceeds from the sales of securities totaled $21.9 million (including net gains of

$469,000). In comparison, proceeds from the sale of securities totaled $67.3 million for 2013 (including net
gains of $419,000. Securities purchases in 2014 and 2013 have been conducted principally to reinvest funds
from maturities and principal repayments, as well as to reinvest excess funds (in an interest bearing deposit) at
the Federal Reserve Bank, and proceeds from sales. During 2014, maturities (principally pay-downs of
$107.8 million) totaled $108.7 million and securities portfolio purchases totaled $345.5 million. In addition,
$85.4 million in securities from BANKshares were added to the portfolio in the fourth quarter of 2014. In
comparison, 2013 maturities totaled $155.6 million (including $150.3 million in pay-downs) and securities
portfolio purchases totaled $230.1 million.

For 2014, the cost of average interest-bearing liabilities decreased 4 basis points to 0.32 percent from
2013, 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:

Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fourth
Quarter
2014
0.31%

Third
Quarter
2014
0.32%

Second
Quarter
2014
0.33%

First
Quarter
2014
0.33%

Fourth
Quarter
2013
0.35%

63

During 2014, the Company’s retail core deposit focus produced strong growth in core deposit customer
relationships when compared to prior year results. Lower rates paid on interest bearing deposits during 2014
(and last several quarters) reduced the overall cost of total deposits to 0.11 percent for the fourth quarter of
2014, 3 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 80.0 percent of total average interest bearing deposits for 2014, an improvement
compared to the average of 76.9 percent a year ago. The average rate for lower cost interest bearing deposits
for 2014 was 0.08 percent, identical to 2013’s rate. CD rates paid were lower during 2014, averaging
0.55 percent, an 11 basis point decrease compared to 2013. Average CDs (the highest cost component of
interest bearing deposits) were 20.0 percent of interest bearing deposits for 2014, compared to 23.1 percent for
2013. Prospectively, with interest rates predicted to remain low through 2015, reductions in interest bearing
deposit costs will be more challenging to produce due to more limited re-pricing opportunities.

Average deposits totaled $1,939.9 million during 2014, and were $205.6 million higher compared to
2013. This increase included the acquisition of BANKshares on October 1, 2014, with approximately $516.3
in total deposits. Average aggregate amounts for NOW, savings and money market balances increased
$120.5 million or 12.2 percent to $1,106.6 million for 2014 compared to 2013, average noninterest bearing
deposits increased $104.2 million or 23.1 percent to $556.0 million for 2014 compared to 2013, and average
CDs decreased by $19.1 million or 6.4 percent to $277.3 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. Averaging only $8.1 million during 2014, the Company continues to offer its
Certiﬁcate of Deposit Registry program (‘‘CDARs’’), a program that began in mid-2008 that allows customers
to have CDs safely insured beyond the Federal Deposit Insurance Corporation (‘‘FDIC’’) deposit insurance
limit, and 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 decreased $3.2 million to $152.0 million or 2.1 percent for 2014 as
compared to 2013. 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. At September 30, 2014, the Company utilized $80 million in term
federal funds purchased from the FHLB at 0.16 percent (maturing in 30 days) to invest in adjustable rate
securities, pending seasonal funding expected prospectively. These funds remained outstanding at
December 31, 2014, and for the year averaged $19.9 million. For 2014, average other borrowings are
comprised of subordinated debt of $56.4 million related to trust preferred securities issued by subsidiary trusts
of the Company (including subordinated debt for BANKshares added on October 1, 2014) and advances from
the FHLB of $50.0 million. With the exception of the inherited subordinated debt from BANKshares, no
changes have occurred to other borrowings since year-end 2009 (see ‘‘Note I — Borrowings’’ to the
Company’s consolidated ﬁnancial statements).

Prospectively, with the acquired loans paying down and replaced with new loans at lower yields, partially

offset by our lending initiatives producing improved results, and problem loans continuing to decline, we
expect our consolidated net interest margin for 2015 will trend lowerif interest rates remain low We are
positioned for stronger earnings performance and improved margin with a more typical yield curve, with
excess liquidity presently deployed into adjustable rate assets. Our focus on achieving increased household
growth year over year should continue to produce future organic revenue growth, as the long term value of
core household relationships are revealed, as more products are sold and fees earned, and as normalized
interest rates return as the economy improves.

Net interest income (on a fully taxable equivalent basis) for 2013 totaled $65,435,000, increasing by

$445,000 or 0.7 percent as compared to 2012. Net interest margin on a tax equivalent basis for 2013
decreased 14 basis points to 3.08 percent compared to 3.22 percent in 2012. Lower asset yields as a result of
the Federal Reserve’s actions to lower interest rates and the restructuring of the investment portfolio to lower
pricing risks in 2012 were more than offset by improving loan volumes and a recovery of interest on
nonaccrual loans of $505,000 in the third quarter of 2013.

64

The earning asset mix changed year over year impacting net interest income. For 2013, average loans

(the highest yielding component of earning assets) as a percentage of average earning assets totaled
61.2 percent, compared to 60.9 percent for 2012. Average securities as a percentage of average earning assets
increased from 29.2 percent for 2012 to 31.4 percent during 2013 and interest bearing deposits and other
investments decreased to 7.4 percent in 2013 from 9.9 percent in 2012, reﬂecting the reinvestment of
$226.8 million of proceeds from securities sales transacted during the ﬁrst and second quarters of 2012.
Average total loans as a percentage of earning assets increased nominally, and the mix of loans was generally
unchanged, with volumes related to commercial real estate representing 42.5 percent of total loans at
December 31, 2013 (compared to 41.5 percent at December 31, 2012). Lower yielding residential loan
balances with individuals (including home equity loans and lines, and personal construction loans) represented
48.1 percent of total loans at December 31, 2013 (versus 49.6 percent at December 31, 2012).

The yield on earning assets for 2013 was 3.42 percent, 22 basis points lower than for 2012, a reﬂection
of the lower interest rate environment and earning asset mix. The yield on loans decreased 27 basis points to
4.49 percent compared to 2012, with nonaccrual loans totaling $27.7 million or 2.1 percent of total loans at
December 31, 2013 (versus $41.0 million or 3.3 percent of total loans at December 31, 2012). The yield on
investment securities was lower, decreasing 41 basis points from 2012’s yield to 1.98 percent for 2013, due to
securities sold to reduce interest rate risk during the ﬁrst six months of 2012 to reduce interest rate risk and
reinvestment at lower yields and lower add-on rates as the result of Federal Reserve actions during the last
half of 2012. The yield on interest bearing deposits and other investments was slightly higher at 0.57 percent
for 2013, up 9 basis points versus the yield for 2012.

Average earning assets for 2013 increased $61.2 million or 3.0 percent compared to 2012’s average
balance. Average loan balances for 2013 increased $44.9 million or 3.7 percent to $1,272.4 million and
average investment securities increased $63.5 million or 10.8 percent to $653.0 million, while average interest
bearing deposits and other investments decreased $47.2 million or 23.6 percent to $152.8 million.

Commercial and commercial real estate loan production for 2013 totaled approximately $200 million,
compared to production for 2012 of $111 million. Improvements in commercial production resulted from a
focused program to target small business segments less impacted by the lingering effects of the recession.
Commercial production improved and period-end total loans outstanding at year-end 2013 increased by
$78.1 million or 6.4 percent from December 31, 2012.

Closed residential mortgage loan production for 2013 totaled $251 million, of which $140 million was

sold servicing-released. In comparison, closed residential mortgage loan production for 2012 totaled
$249 million, of which $119 million was sold servicing-released. Applications for residential mortgages
totaled $378 million during 2013, compared $387 million for 2012. In the fourth quarter of 2013, higher
interest rates dampened overall residential loan production for the year.

During 2013, proceeds from the sales of securities totaled $67.3 million (including gains of $419,000). In

comparison, proceeds from the sale of securities totaled $256.1 million for 2012 (including net gains of
$7,619,000), with most of the proceeds (and net gains) derived from sales during the ﬁrst and second quarters
of 2012, totaling $226.8 million (and $6,989,000), respectively. Management believed the securities sold had
minimal opportunity to further increase in value. Securities purchases in 2012 were conducted to reinvest
funds from maturities and principal repayments, but of greater signiﬁcance, to reinvest the proceeds from
sales. During 2013 securities portfolio purchases totaled $230.1 million, compared to purchases totaling
$384.6 million in 2012.

For 2013, the cost of average interest-bearing liabilities decreased 19 basis points to 0.36 percent from
2012, reﬂecting the lower interest rate environment and improved deposit mix. During 2013, the Company’s
retail core deposit focus produced strong growth in core deposit customer relationships when compared to
prior year results. 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 76.9 percent of
total average interest bearing deposits for 2013, an improvement compared to the average of 70.6 percent for
2012. The average rate for lower cost interest bearing deposits for 2013 was 0.08 percent, down by 8 basis
points from 2012’s rate. CD rates paid were also lower during 2013, averaging 0.66 percent, a 37 basis point

65

decrease compared to 2012. Average CDs (the highest cost component of interest bearing deposits) were
23.1 percent of interest bearing deposits for 2013, compared to 29.4 percent for 2012.

Average deposits totaled $1,734.3 million during 2013, and were $37.0 million higher compared to 2012,

even with a planned reduction of time deposits occurring. Average aggregate amounts for NOW, savings and
money market balances increased $62.0 million or 6.7 percent to $986.1 million for 2013 compared to 2012,
average noninterest bearing deposits increased $63.1 million or 16.2 percent to $451.8 million for 2013
compared to 2012, and average CDs decreased by $88.1 million or 22.9 percent to $296.4 million over the
same period. For 2013 and 2012, fewer customers sought to invest in CDs, choosing to leave more funds in
low rate or no cost liquid deposit products.

Average sweep repurchase agreements with customers of Seacoast National increased $13.6 million to

$155.2 million or 9.6 percent for 2013 as compared to 2012, and there was limited use of federal funds
purchased, other than to test available lines. 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 FHLB of $50.0 million.

Noninterest Income

Noninterest income (excluding securities gains or losses) for 2014 was $425,000 or 1.7 percent higher
than for 2013, increasing to $24,744,000. For 2013, noninterest income of $24,319,000 was $2,875,000 or
13.4 percent higher than for 2012. Noninterest income accounted for 24.8 percent of total revenue (net interest
income plus noninterest income, excluding securities gains), compared to 27.2 percent a year ago and
24.9 percent for 2012 (excluding the loss on sale of commercial loan).

Table 6 provides detail regarding noninterest income components for the past three years.

For 2014, revenues from the Company’s wealth management services businesses (trust and brokerage)

increased year over year, by $258,000 or 5.9 percent, and were higher in 2013 than 2012 by $992,000 or
29.6 percent. Included in the $258,000 increase from a year ago, trust revenue was higher by $275,000 or
10.1 percent and brokerage commissions and fees were lower by $17,000 or 1.0 percent. Higher agency fees
and employee beneﬁt income were the primary cause for the higher trust income versus 2013, increasing
$189,000 and $58,000, respectively, and reﬂect new pricing effective in the third quarter of 2014. The $17,000
overall decline in brokerage commissions and fees for 2014 included increases of $58,000 in aggregate
brokerage, mutual fund, and advisory fees and a decrease of $71,000 in annuity income. Of the $992,000
increase for 2013, trust revenue was higher by $432,000 or 19.0 percent and brokerage commissions and fees
were lower by $560,000 or 52.3 percent.

Service charges on deposits for 2014 were $241,000 or 3.6 percent higher year over year, and were

$466,000 or 7.5 percent higher in 2013 when compared 2012. Overdraft fees increased $106,000 or
2.4 percent year over year and represented approximately 66 percent of total service charges on deposits for
2014, lower than the average of 67 percent for 2013 and 74 percent for 2012. The regulators continue to
review the banking industry’s practices around overdraft programs and additional regulation could further
reduce fee income for the Company’s overdraft services. Remaining service charges on deposits increased
$135,000 or 6.1 percent to $2,330,000 for 2014, compared to 2013. Service charge increases for 2014 reﬂect
our growing base of core deposit relationships over the past twelve months, including the addition of
BANKshares customers in the fourth quarter, and our emphasis on providing products meeting the needs of
each customer that generates appropriate fees for the services offered.

For 2014, fees from the non-recourse sale of marine loans totaled $1,320,000, an increase of $131,000 or

11.0 percent compared to 2013, and were higher for 2013 by $78,000 or 7.0 percent compared to 2012. The
Seacoast Marine Division originated $108 million in loans during 2014, compared to $82 million and
$79 million for 2013 and 2012, respectively. Of the loans originated during 2014, $80 million were sold
(74.3 percent of production), compared to $69 million sold during 2013 (84.1 percent of production) and
$68 million for 2012 (86.1 percent of production). Approximately $28 million of 2014’s production has been
placed in our loan portfolio, compared to $13 million in 2013 and $11 million in 2012, thereby reducing
the percentage of production sold. The Seacoast Marine Division is headquartered in Ft. Lauderdale, Florida
with lending professionals in Florida, California, Washington and Arizona.

66

Greater usage of check or debit cards over the past several years by core deposit customers and an

increased cardholder base has increased our interchange income. For 2014, interchange income increased
$568,000 or 10.5 percent from 2013, and was $903,000 or 20.1 percent higher for 2013, compared to 2012’s
income. Other deposit-based electronic funds transfer (‘‘EFT’’) income increased nominally in 2014 from
2013, after increasing $6,000 or 1.8 percent in 2013 compared to 2012’s revenue. Interchange revenue is
dependent upon business volumes transacted, as well as the fees permitted by VISA(cid:4) and MasterCard(cid:4). The
Dodd-Frank Act regulation has not impacted this source of fee revenue for Seacoast National materially, but
did signiﬁcantly reduce fees collected by larger ﬁnancial institutions.

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 2014 decreased $1,116,000 or 26.7 percent from 2013, and were
$463,000 or 12.5 percent higher for 2013 than for 2012. Mortgage banking revenue as a component of overall
noninterest income was 12.4 percent for 2014, compared to 17.2 percent for 2013 and 17.3 percent for 2012.
Mortgage revenues are dependent upon favorable interest rates, as well as good overall economic conditions,
including the volume of home sales. Residential real estate sales and activity in our markets improved during
2013, with transactions increasing, prices ﬁrming and affordability improving. However, during the fourth
quarter of 2013 and into 2014, the volume of transactions was dampened by higher interest rates and home
prices. The Company was the number one originator of home purchase mortgages in Martin, St. Lucie and
Indian River counties the ﬁrst eleven months of 2014 and all of 2013, based on the data available to date.

In the fourth quarter of 2014, Bank owned life insurance (‘‘BOLI’’) investments were transferred to the

Company from the acquisition of BANKshares, and were added to policies directly acquired during the
quarter. BOLI income of $252,000 was recognized in the fourth quarter of 2014 and for the year ended
December 31, 2014. The addition of these investments will provide approximately $1.3 million in tax exempt
revenues in 2015. No BOLI investments existed for the Company previously.

Other income for 2014 increased $90,000 or 4.2 percent compared to a year ago, and for 2013 decreased
$33,000 or 1.5 percent. Included in the increase for 2014 compared to 2013 was merchant income, which was
$50,000 higher than a year ago.

Noninterest Expenses

The Company’s expense ratio was in the low to mid 60 percentile in years prior to the recession. Lower

earnings and cyclical credit costs in 2012, 2011 and 2010 resulted in this ratio increasing to 94.6 percent,
90.1 percent, and 104.6 percent, respectively. When compared to 2012, total noninterest expenses for 2013
decreased by $7,396,000 or 9.0 percent to $75,152,000, and the expense ratio was 82.9 percent. For 2014, the
expense ratio was 92.4 percent and total noninterest expenses were $18,214,000 or 24.2 percent higher versus
2013, totaling $93,366,000.

Continued investments in our digital delivery channels, combined with increased advertising and data
analytics have partially offset our cost reductions. During the fourth quarter of 2014 we invested approximately
$697,000 in marketing and other expenditures to refresh and reintroduce our brand, and as part of this brand
refresh, the Company retooled its logo and signage throughout our branch network and digital platforms.

Some of the decrease in expenses in 2013 was related to the implementation of prospective cost
reductions that occurred in 2012. During third quarter of 2012 management’s organizational structure was
streamlined and the Company announced the consolidation of four offices, resulting in severance and other
organizational costs of $832,000 and branch consolidation costs of $723,000 impacting overhead for the third
and fourth quarters of 2012. Through these decisions and other cost reduction measures that took effect over
2014 and 2013, and our tactical plans to increase loan production and the acquisition of households, we
anticipate signiﬁcant improvement in our results for 2015.

Table 7 provides detail of noninterest expense components for the years ending December 31, 2014,

2013 and 2012.

Salaries and wages were $4,126,000 or 13.3 percent higher for 2014 compared to 2013, and were

$1,071,000 or 3.6 percent higher for 2013 compared to the same period in 2012. Base salaries were higher for
2014 by $2,707,000 or 9.6 percent, with additional personnel retained as part of the fourth quarter acquisition

67

of BANKshares. Aggregate cash and stock incentives for 2014 were $2,032,000 higher, reﬂecting an improved
outlook and better than expected production. Severance, primarily related to the acquisition, resultant
organizational changes and cost reduction strategies, was $914,000 higher compared to 2013. Improved loan
production year over year for 2014 resulted in deferred loan origination costs (a contra-expense) increasing
$1,586,000 or 64.0 percent which partially offset the salary and wage increases. For 2013, base salaries were
higher when compared to 2012, by $2,201,000 or 8.4 percent, reﬂecting additional commercial relationship
managers and credit support personnel hired during 2013. Totaling only $67,000, severance payments for 2013
were $621,000 lower than 2012 when organizational changes were occurring. Higher commission and
incentive payments of $253,000 were included in the increase for salaries and wages for 2013 compared to
2012, but were more than offset by the deferral of loan origination costs that were $785,000 or 46.3 percent
higher for 2013. Executive cash incentive compensation was not paid in 2013 or 2012.

In 2014, employee beneﬁts costs increased by $1,446,000 or 19.7 percent to $8,773,000 from a year
ago, but were lower by $383,000 or 5.0 percent for 2013 when compared to 2012. For 2014, costs for our
self-funded health care plan were $737,000 higher than for 2013, due to higher claims and utilization, and the
addition of personnel from the acquisition of BANKshares. For 2013, costs for our self-funded health care
plan were $565,000 lower than for 2012, when a few large claims and higher utilization occurred. For 2014,
2013, and 2012, proﬁt sharing contributions for all associates were eliminated. During 2014, matching 401K
contributions associated with employee salary deferrals were returned to levels pre-recession, and were
$391,000 higher than in 2013, as compared to an increase of $36,000 in 401K plan costs for 2013, versus
2012. Higher payroll taxes accounted for remaining increases in employee beneﬁts for 2014 and 2013, a
reﬂection of additions to staff.

Seacoast National utilizes third parties for its core data processing systems and outsourced data

processing costs are directly related to the number of transactions processed. Outsourced data processing costs
totaled $8,781,000 for 2014, an increase of $2,409,000 or 37.8 percent from a year ago. In comparison, for
2013 outsourced data processing costs decreased $1,010,000 or 13.7 percent from 2012. Of the $2,409,000
increase during 2014, $1,581,000 was directly related to additional charges for the BANKshares merger and
conversion of systems. Without the merger related costs, outsourced data processing increased 13.0 percent
year over year, with software licensing and maintenance, and interchange processing costs all increasing
during 2014. The Company’s contract with its core data processor was renegotiated as of January 1, 2013 for
a term of 51⁄2 years, resulting in data processing costs decreasing $861,000 for 2013 under the renegotiated
terms as compared to 2012. In addition, software licensing, software maintenance, and other EFT processing
costs were $53,000, $63,000 and $151,000 lower for 2013 than in 2012. Interchange processing costs were
$118,000 higher in 2013 as compared to 2012, due entirely to rising transaction volumes. Outsourced data
processing costs can be expected to increase as the Company’s business volumes grow. We continue to further
improve and enhance our mobile and other digital products and services through our core data processor,
which will likely increase our outsourced data processing costs as customers adopt these improvements and
products. At December 31, 2014, 59 percent of our customer households use online services and 49 percent of
our online customers use our mobile banking products.

Telephone and data line expenditures, including electronic communications with customers and between

branch locations and personnel, as well as third party data processors, increased $78,000 or 6.2 percent to
$1,331,000 for 2014 when compared to 2013. Improved systems and monitoring of services utilized has
reduced our communication costs, and these costs should continue to reﬂect moderate ﬂuctuations
prospectively. Such expenses for 2013 increased $75,000 or 6.4 percent to $1,253,000 from 2012’s totals.

Total occupancy, furniture and equipment expenses for 2014 increased year over year versus 2013, by
$5,445,000 or 57.2 percent to $14,957,000. In comparison, 2013 expenses decreased year over year versus
2012, by $953,000 or 9.1 percent to $9,512,000. Branch consolidation costs totaled $4,261,000 in the fourth
quarter 2014, and comprised most of the increase for 2014. The full year impact of opening ﬁve new, smaller
commercial lending offices during 2013 in the Orlando, Ft. Lauderdale and Palm Beach markets increased our
expense by $278,000 for 2014. The addition of twelve branches acquired in the BANKshares acquisition
during the fourth quarter of 2014 will have a full year impact on 2015 as well (see Form 10K dated
December 31, 2014, ‘‘Item 2, Properties’’ for a complete description). A primary contributor to the decrease
for 2013 compared to 2012, branch consolidation costs of $232,000 and $407,000 were recorded during the

68

third and fourth quarters of 2012, respectively. Branch consolidations are likely to continue for the Company
and the banking industry in general, as customers increase their usage of digital and mobile products thereby
lessening the necessity to visit offices.

For 2014, 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 $1,635,000 or 69.9 percent compared to the same period in 2013.
Fourth quarter 2014’s expenditures included $697,000 to refresh and reintroduce our brand, including a
retooling of our logo and associated signage throughout our branch network and digital platforms. All costs
related for this logo change and additional branding were incurred in the fourth quarter of 2014. Direct mail,
sales promotions, digital/website and media were utilized more extensively during 2014, increasing a
combined $836,000 compared to prior year, and an additional $187,000 was incurred in shareholder relations,
including activities related to the merger. Our marketing expenditures reﬂect a tailored, focused campaign in
our markets targeting the customers of competing ﬁnancial institutions and promoting our brand. For 2013,
marketing expenses decreased by $756,000 or 24.4 percent to $2,339,000 when compared to 2012. For 2013,
direct mail activities, media costs for newspaper, television and radio advertising, sales promotions, and
printing costs were all lower, by $398,000, $187,000, $98,000 and $94,000, respectively, compared to 2012.

Legal and professional fees were higher in 2014, increasing by $4,413,000 from a year ago to
$6,871,000. Acquisition related legal and professional fees for BANKshares summed to $2,394,000. In
addition, other professional fees during 2014 included $182,000 for consulting fees related to our cost
reduction initiatives. For 2014, OCC regulatory examination fees declined $48,000, alleviated by the release
from our regulatory agreement in the third quarter of 2013. In comparison, legal and professional fees trended
lower in 2013, decreasing by $2,783,000 or 53.1 percent to $2,458,000 from 2012. During 2013, legal fees
were $1,515,000 lower when compared to 2012, reﬂecting a recovery of legal fees of $650,000 and $350,000
in the second and fourth quarters of 2013, respectively. These amounts were recovered from single creditors in
each case. Other professional fees, CPA fees and OCC regulatory examination fees for 2013 were lower
versus 2012 as well, declining $1,023,000, $156,000 and $89,000, respectively.

The FDIC assessment for the ﬁrst, second, third and fourth quarters of 2014 totaled $386,000, $411,000,
$387,000 and $476,000, respectively, compared to ﬁrst, second, third and fourth quarter 2013’s assessments of
$717,000, $720,000, $713,000 and $451,000, respectively. For 2012, FDIC assessments summed to
$2,805,000. FDIC assessments declined in the fourth quarter of 2013, reﬂecting our improved risk posture and
the termination of the regulatory enforcement actions. This beneﬁted every quarter in 2014, with the increase
in premium paid in the fourth quarter of 2014 reﬂecting the merger with BANKshares. On July 30, 2013,
Seacoast National also received a refund of $3.8 million for premiums prepaid at the end of 2009 (less
premiums calculated and paid since year end 2009). Although the severity of bank failures and their impact on
the FDIC’s Deposit Insurance Fund were less than predicted, Seacoast National remains exposed to higher
FDIC insurance costs.

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 $181,000, $210,000,
$295,000 and $112,000 for the ﬁrst, second, third and fourth quarters of 2014, respectively, and totaled $798,000
for the year (declining $1,231,000 when compared to 2013). In comparison, these costs totaled $857,000,
$604,000, $388,000 and $180,000 for the ﬁrst, second, third and fourth quarters of 2013, and totaled $2,029,000
for 2013 (declining $2,897,000 when compared to 2012). These costs have moderated and declined steadily over
the last three years, with OREO balances for non-acquired properties declining by 18.9 percent and 42.5 percent,
respectively, during 2014 compared to 2013 and 2013 compared to 2012. OREO totals $7.5 million at
December 31, 2014, including $1.9 million in properties from the acquisition of BANKshares. Of the $798,000
total for 2014, asset disposition costs summed to $488,000 and losses on OREO and repossessed assets totaled
$310,000. The Company expects these costs to continue to be lower prospectively.

Amortization of core deposit intangibles totaled $1,033,000 for the year ended December 31, 2014,
compared to $783,000 and $788,000 for 2013 and 2012, respectively. Fourth quarter 2014’s amortization
included $315,000 for the acquisition of core deposits from BANKshares, that for the total year 2015 is
expected to total $1,260,000.

69

Other noninterest expenses increased $516,000 or 6.1 percent to $9,988,000 for 2014 when compared to

2013, and were $444,000 or 4.5 percent higher when comparing 2013 to 2012. For 2014, other noninterest
expenses included armored car services (up $50,000), bank paid closing costs (up $528,000), dealer referral
fees (up $111,000), SBA fees (up $52,000), director fees (up $87,000), acquisition costs (of $144,000) and
BOLI and related insurance (of $101,000), partially offset by, employee placement fees (down $48,000),
appraisal/self-assessment fees (down $136,000), insurance expense (down $94,000), bank meeting costs (down
$62,000), and the lack of a one-time miscellaneous loss of $190,000 as recorded for 2013. For 2013, other
noninterest expenses included a one-time miscellaneous loss of $190,000 in the fourth quarter of 2013,
additional director fees (up $495,000, including stock compensation), increases in education-related
expenditures (up $80,000) and bank meeting costs (up $63,000), partially offset by lower check printing costs
(down $195,000), employee placement and relocation costs (down $71,000), and miscellaneous lending fees
and bank paid closing costs (down $77,000 and $41,000, respectively).

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 2014 Asset and Liability Management Committee (‘‘ALCO’’) model
simulation indicates net interest income would increase 9.1 percent if interest rates increased 200 basis points up
over the next 12 months and 4.9 percent if interest rates increased 100 basis points. This compares with the
Company’s fourth quarter 2013 model simulation, which indicated net interest income would increase 5.3 percent
if interest rates were increased 200 basis points up over the next 12 months and 3.1 percent if interest rates were
increased 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
11.7 percent at December 31, 2014. This result includes assumptions for core deposit re-pricing validated for
the Company by an independent third party consulting group.

The computations of interest rate risk do not necessarily include certain actions management may

undertake to manage this risk in response to changes in interest rates. Derivative ﬁnancial instruments, such as
interest rate swaps, options, caps, ﬂoors, futures and forward contracts may be utilized as components of the
Company’s risk management proﬁle.

Market Risk

Market risk refers to potential losses arising from changes in interest rates, and other relevant market

rates or prices.

Interest rate risk, deﬁned as the exposure of net interest income and Economic Value of Equity, or

‘‘EVE,’’ to adverse movements in interest rates, is the Company’s primary market risk, and mainly arises from
the structure of the balance sheet (non-trading activities). The Company is also exposed to market risk in its
investing activities. The Company’s Asset/Liability Committee, or ‘‘ALCO,’’ meets regularly and is
responsible for reviewing the interest rate sensitivity position of the Company and establishing policies to
monitor and limit exposure to interest rate risk. The policies established by the ALCO are reviewed and
approved by the Company’s Board of Directors. The primary goal of interest rate risk management is to
control exposure to interest rate risk, within policy limits approved by the Board. These limits reﬂect the
Company’s tolerance for interest rate risk over short-term and long-term horizons.

The Company also performs valuation analyses, which are used for evaluating levels of risk present in
the balance sheet that might not be taken into account in the net interest income simulation analyses. Whereas
net interest income simulation highlights exposures over a relatively short time horizon, valuation analysis
incorporates all cash ﬂows over the estimated remaining life of all balance sheet positions. The valuation of
the balance sheet, at a point in time, is deﬁned as the discounted present value of asset cash ﬂows minus the
discounted value of liability cash ﬂows, the net result of which is the EVE. The sensitivity of EVE to changes

70

in the level of interest rates is a measure of the longer-term re-pricing risks and options risks embedded in the
balance sheet. In contrast to the net interest income simulation, which assumes interest rates will change over
a period of time, EVE uses instantaneous changes in rates.

EVE values only the current balance sheet, and does not incorporate the growth assumptions that are

used in the net interest income simulation model. As with the net interest income simulation model,
assumptions about the timing and variability of balance sheet cash ﬂows are critical in the EVE analysis.
Particularly important are the assumptions driving prepayments and the expected changes in balances and
pricing of the indeterminate life deposit portfolios. Core deposits are a more signiﬁcant funding source for the
Company, making the lives attached to core deposits more important to the accuracy of our modeling of EVE.
The Company periodically reassesses its assumptions regarding the indeterminate lives of core deposits
utilizing an independent third party resource to assist. With lower interest rates over a prolonged period, the
average lives of core deposits have trended higher and favorably impacted our model estimates of EVE for
higher rates. Based on our fourth quarter 2014 modeling, an instantaneous 100 basis point increase in rates is
estimated to increase the EVE 11.5 percent versus the EVE in a stable rate environment, while a 200 basis
point increase in rates is estimated to increase the EVE 21.1 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 Obligations

(In thousands)
Deposit maturities . . . . . . . . . .
Short-term borrowings . . . . . . .
Borrowed funds . . . . . . . . . . .
Subordinated debt . . . . . . . . . .
Operating leases . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . .

Total
$2,416,534
233,640
50,000
64,583
26,062
$2,790,819

December 31, 2014
Over One
Year Through
Three Years
$ 66,843
0
50,000
0
6,969
$123,812

One Year
or Less
$2,318,476
233,640
0
0
3,894
$2,556,010

Over Three
Years Through
Five Years
$30,104
0
0
0
3,700
$33,804

Over
ﬁve Years
$ 1,111
0
0
64,583
11,499
$77,193

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 under its borrower-in-custody.

71

Contractual maturities for assets and liabilities are reviewed to meet current and expected future liquidity

requirements. Sources of liquidity, both anticipated and unanticipated, are maintained through a portfolio of
high quality marketable assets, such as residential mortgage loans, securities held for sale and interest-bearing
deposits. The Company is also able to provide short term ﬁnancing of its activities by selling, under an
agreement to repurchase, United States Treasury and Government agency securities not pledged to secure
public deposits or trust funds. At December 31, 2014, Seacoast National had available unsecured lines of
$45 million and lines of credit under current lendable collateral value, which are subject to change, of
$671 million. Seacoast National had $588 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 $235 million in residential and commercial real estate loans available as collateral. In comparison,
at December 31, 2013, the Company had available unsecured lines of $29 million and lines of credit of
$560 million, and had $334 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
$163 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 $100,539,000 on a consolidated basis at December 31, 2014 as compared to $191,624,000 at
December 31, 2013. The composition of cash and cash equivalents has changed from a year ago. Over the
past twelve months, cash and due from banks increased $15,850,000 to $64,411,000 and interest bearing
deposits decreased to $36,128,000 from $143,063,000. 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. During 2014, our intent was to reinvest excess liquidity into the loan and securities portfolios.

The Company does not rely on and is not 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. During the third quarter of 2013, formal regulatory agreements with the OCC
were removed thereby allowing Seacoast National to pay dividends to the Company without prior OCC approval.
At December 31, 2014, Seacoast National can distribute dividends to the Company of approximately
$59.0 million. At December 31, 2014, the Company had cash and cash equivalents at the parent of approximately
$38.3 million. In comparison, at December 31, 2013, the Company had cash and cash equivalents at the parent of
approximately $1.7 million. A $75.0 million common stock offering in the fourth quarter of 2013 resulted in
approximately $47.0 million (net of costs) in funds received during the quarter, with the remaining funds of
$25 million from CapGen Capital received on January 13, 2014 after regulatory approval of CapGen’s investment.
The $47.0 million, along with a portion of existing cash available from the parent, was utilized to redeem all of
the Series A Preferred stock at December 31, 2013 at its $50.0 million par value plus dividends of $319,000
accrued through the date of redemption. The acquisition of BANKshares supplemented cash and cash equivalents
in the parent by approximately $14 million.

Off-Balance Sheet Transactions

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

Lending commitments include unfunded loan commitments and standby and commercial letters of credit. 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.

72

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 $238 million at December 31, 2014, and
$135 million at December 31, 2013 (see ‘‘Note P-Contingent Liabilities and Commitments with Off-Balance Sheet
Risk’’ to the Company’s consolidated ﬁnancial statements).

Income Taxes

The provision for income taxes for 2014 and 2013, and beneﬁt for net loss for 2012 totaled $4.5 million,

$4.4 million and $0.1 million, respectively. The deferred tax valuation allowance was decreased or increased
by a like amount for 2012, therefore there was no change in the carrying value of deferred tax assets for 2012
(see ‘‘Critical Accounting Estimates — Deferred Tax Assets’’). At September 30, 2013, we were able to
reverse the tax valuation allowance of $44.8 million. Management believes it can realize all of its 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, 2014 totaled $312.7 million and the ratio of shareholders’ equity to period end total assets was
10.11 percent, compared with 8.75 percent at December 31, 2013, and 7.62 percent at December 31, 2012.
During fourth quarter 2014, the BANKshares acquisition was transacted for common stock of $76.8 million,
increasing total shareholders’ equity. Also, during third quarter 2013, the reversal of the deferred tax valuation
allowance increased net income and total shareholders’ equity. 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 (see ‘‘Note N — Shareholders’ Equity’’).

On November 12, 2013, the Company received $47.0 million (net of costs) in proceeds from its
$75 million common stock issuance, with the additional $25.0 million remitted from CapGen Capital on
January 13, 2014 following regulatory approval of CapGen’s investment. In addition, effective December 13,
2013, the Company transacted a 1 for 5 reverse common stock split, which resulted in 23,637,434 common
shares outstanding at December 31, 2013. The proceeds from the capital raise were used to redeem
2,000 shares of outstanding Series A Preferred Stock (at par) totaling $50 million originally issued to the
U.S. Department of Treasury under the Troubled Asset Relief Program and later sold to third party investors.
The remaining funds from the capital raise were retained for general corporate purposes. The preferred stock
carried a 5 percent dividend that was to increase to 9 percent on February 15, 2014. The preferred stock
redemption was completed on December 31, 2013, increasing net income available to common shareholders
during 2014 and beyond.

The Company’s capital position remains strong, meeting the general deﬁnition of ‘‘well capitalized’’, with

a total risk-based capital ratio of 16.25 percent at December 31, 2014, lower than December 31, 2013’s ratio
of 16.88 percent and 18.33 percent at December 31, 2012. Reinvestment of cash and cash equivalents with a
zero percent risk weight into securities and loans with higher risk weightings, and the acquisition of
BANKshares’ loans with higher risk weightings, was the primary cause for risk weighted assets increasing,
thereby lowering Tier 1 and total risk-based capital ratios at December 31, 2014. As of December 31, 2014,
the Bank’s leverage ratio was 9.04 percent, compared to 9.51 percent at December 31, 2013 and 9.72 percent
at December 31, 2012.

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

73

source of cash and liquidity, other than securities offerings and borrowings, is dividends from its bank
subsidiary. Without OCC approval presently, the Seacoast National can pay up to $59.0 million of dividends
to the Company (see ‘‘Note C — Cash, Dividend and Loan Restrictions’’).

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.

The Company has six wholly owned trust subsidiaries, SBCF Capital Trust I and SBCF Statutory Trust II

that were both formed in 2005 to issue trust preferred securities. In 2007, the Company formed an additional
wholly owned trust subsidiary, SBCF Statutory Trust III. The 2005 trusts each issued $20.0 million (totaling
$40.0 million) of trust preferred securities and the 2007 trust issued an additional $12.0 million in trust
preferred securities. In 2014, as part of the BANKshares acquisition, the Company acquired BankFIRST
Statutory Trust I, BankFIRST Statutory Trust II and The BANKshares Capital Trust I that issued in the
aggregate $14.4 million in trust preferred securities. 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 $62.5 million of trust preferred securities as
Tier 1 capital. For regulatory purposes, the trust preferred securities are added to the Company’s tangible
common shareholders’ equity to calculate Tier 1 capital. The weighted average interest rate of our outstanding
subordinated debt related to trust preferred securities was 1.87 percent during 2014, compared to 1.74 and
1.93 percent during 2013 and 2012 respectively. The Company also formed SBCF Capital Trust IV and SBCF
Capital Trust V in 2008, however both are currently inactive.

Changes in rules under new Basel III guidelines take effect on January 1, 2015, and affect risk based
capital calculations. The Company has taken a prospective look at its ratios, ﬁnding that our ratios remain
strong under these guidelines.

Financial Condition

Total assets increased $824,395,000 or 36.3 percent to $3,093,335,000 at December 31, 2014, after
increasing $95,011,000 or 4.4 percent to $2,268,940,000 in 2013. The highlight of 2014 was our acquisition of
BANKshares which closed on October 1, 2014 and expanded our presence in Central Florida, particularly in
the greater Orlando market, and increased total assets, by approximately $627 million. The Company is the
sixth largest Florida-based bank.

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,

74

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 $1,821,885,000 at
December 31, 2014, $517,678,000 or 39.7 percent more than at December 31, 2013, and were $1,304,207,000
at December 31, 2013, $78,126,000 or 6.4 percent more than at December 31, 2012. The BANKshares
acquisition on October 1, 2014 contributed $365.4 million in loans.

The Company continues to look for opportunities to invest excess liquidity, and believes the best current use

is to fund loan growth. Additional new commercial relationship managers hired over the past three years have
increased loan growth, and will continue to do so prospectively. Loan production of $424 million, $354 million
and $287 million was retained in the loan portfolio during the twelve months ended December 31, 2014, 2013 and
2012, respectively. No problem loan sales occurred in 2014 or 2013, compared to $9 million in sales in 2012. The
sales in 2012 were necessary to improve the Company’s overall risk proﬁle.

As shown in the supplemental loan table below, construction and land development loans (excluding

individuals) increased $20.0 million to $53.3 million at December 31, 2014. The primary causes for the
increase were loans collateralized by land of $13.3 million, many derived via the acquisition of BANKshares,
with approximately 70 loans comprising the $18.2 million outstanding at December 31, 2014. In comparison,
construction and land development loans (excluding individuals) increased $11.5 million to $33.3 million at
December 31, 2013.

Construction and land development loans, including loans secured by commercial real estate, were

comprised of the following types of loans at December 31, 2014 and 2013:

December 31 (In millions)
Construction and land development
Residential:

Town homes . . . . . . . . . . . . . . . . . . . . . . .
Single family residences . . . . . . . . . . . . . . .
Single family land and lots . . . . . . . . . . . . .
Multifamily. . . . . . . . . . . . . . . . . . . . . . . .

Commercial:

Office buildings . . . . . . . . . . . . . . . . . . . . .
Retail trade . . . . . . . . . . . . . . . . . . . . . . . .
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial buildings. . . . . . . . . . . . . . . . . . .
Healthcare . . . . . . . . . . . . . . . . . . . . . . . .
Churches and educational facilities . . . . . . . .
Lodging . . . . . . . . . . . . . . . . . . . . . . . . . .
Convenience stores. . . . . . . . . . . . . . . . . . .
Automobile and RV dealerships . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Funded

2014
Unfunded

Total

Funded

2013
Unfunded

Total

$ 0.3
6.8
6.1
3.0
16.2

1.6
0.7
18.2
2.7
0.0
2.9
7.1
3.2
0.3
0.4
37.1

$11.0
17.1
0.0
0.0
28.1

$11.3
23.9
6.1
3.0
44.3

$ 0.0
2.0
4.9
3.7
10.6

2.7
0.4
3.0
0.5
0.0
0.4
0.0
1.7
0.0
0.1
8.8

4.3
1.1
21.2
3.2
0.0
3.3
7.1
4.9
0.3
0.5
45.9

0.0
7.7
4.9
0.0
5.4
3.8
0.9
0.0
0.0
0.0
22.7

$ 1.5
3.0
0.0
0.0
4.5

0.0
1.3
1.4
0.0
3.8
0.2
6.3
0.0
0.0
0.0
13.0

$ 1.5
5.0
4.9
3.7
15.1

0.0
9.0
6.3
0.0
9.2
4.0
7.2
0.0
0.0
0.0
35.7

Total residential and commercial construction

and land development . . . . . . . . . . . . . . . . .

53.3

36.9

90.2

33.3

17.5

50.8

75

December 31 (In millions)

Individuals:

Funded

2014
Unfunded

Total

Funded

2013
Unfunded

Total

Lot loans . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15.5
18.2
33.7
$87.0

0.0
13.0
13.0
$49.9

15.5
31.2
46.7
$136.9

12.9
21.3
34.2
$67.5

0.0
18.0
18.0
$35.5

12.9
39.3
52.2
$103.0

Commercial real estate mortgages were higher by $316.8 million or 60.9 percent, totaling $837.2 million

at December 31, 2014. The Company’s ten largest commercial real estate funded and unfunded loan
relationships at December 31, 2014 aggregated to $95.9 million (versus $104.1 million a year ago) and for the
37 commercial real estate relationships in excess of $5 million the aggregate funded and unfunded totaled
$283.2 million (compared to 26 relationships of $198.0 million a year ago).

Commercial real estate mortgage loans, excluding construction and development loans, were comprised

of the following loan types at December 31, 2014 and 2013:

December 31 (In millions)
Office buildings. . . . . . . . . . . . . . . . . . . . . . .
Retail trade . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . .
Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . .
Churches and educational facilities. . . . . . . . . .
Recreation . . . . . . . . . . . . . . . . . . . . . . . . . .
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . .
Mobile home parks . . . . . . . . . . . . . . . . . . . .
Lodging . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restaurant . . . . . . . . . . . . . . . . . . . . . . . . . .
Agriculture. . . . . . . . . . . . . . . . . . . . . . . . . .
Convenience stores . . . . . . . . . . . . . . . . . . . .
Marina. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Funded
$235.7
205.5
157.3
50.6
26.1
3.2
17.4
1.7
16.9
3.3
2.6
21.2
18.5
77.2
$837.2

2014
Unfunded
$ 3.6
1.3
3.9
0.7
0.1
0.1
0.0
0.0
0.0
0.0
0.7
1.0
0.0
2.5
$13.9

Total
$239.3
206.8
161.2
51.3
26.2
3.3
17.4
1.7
16.9
3.3
3.3
22.2
18.5
79.7
$851.1

Funded
$118.7
130.6
81.1
45.5
25.3
2.5
16.8
1.9
17.1
3.7
7.0
20.8
21.3
28.1
$520.4

2013
Unfunded
$2.5
2.4
0.7
1.0
0.0
0.0
0.0
0.0
0.0
0.0
0.8
0.1
0.0
0.1
$7.6

Total
$121.2
133.0
81.8
46.5
25.3
2.5
16.8
1.9
17.1
3.7
7.8
20.9
21.3
28.2
$528.0

Fixed rate and adjustable rate loans secured by commercial real estate, excluding construction loans,

totaled approximately $596 million and $241 million, respectively, at December 31, 2014, compared to
$350 million and $170 million, respectively, at December 31, 2013.

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 handles all foreclosure actions together with outside legal counsel.

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.

Adjustable and ﬁxed rate residential real estate mortgages were higher at December 31, 2014, by

$49.4 million or 12.6 percent and $2.8 million or 3.0 percent, compared to a year ago. At December 31, 2014,
approximately $441 million or 64 percent of the Company’s residential mortgage balances were adjustable,

76

compared to $392 million or 66 percent at December 31, 2013. Loans secured by residential properties having
ﬁxed rates totaled approximately $94 million at December 31, 2014, of which 15- and 30-year mortgages totaled
approximately $23 million and $71 million, respectively. The remaining ﬁxed rate balances were comprised of
home improvement loans, most with maturities of 10 years or less, that increased $9.8 million or 15.8 percent
since December 31, 2013. In comparison, loans secured by residential properties having ﬁxed rates totaled
approximately $91 million at December 31, 2013, with 15- and 30-year ﬁxed rate residential mortgages totaling
approximately $22 million and $69 million, respectively. The Company also has a growing home equity line
portfolio, primarily ﬂoating rates, totaling approximately $80 million at December 31, 2014, higher than the
$48 million that was outstanding at December 31, 2013, and validating improving property values.

Reﬂecting the impact of improved economic conditions and the acquisition, commercial loans increased to

$157.4 million at December 31, 2014, doubling from $78.6 million at December 31, 2013, and includes
$54.1 million from BANKshares. 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) which increased $8.2 million or 18.3 percent year over
year and totaled $52.9 million (versus $44.7 million a year ago). In addition, real estate construction loans to
individuals secured by residential properties totaled $18.2 million (versus $21.3 million a year ago), and
residential lot loans to individuals which totaled $15.5 million (versus $12.9 million a year ago).

At December 31, 2014, the Company had commitments to make loans of $238.1 million, compared to
$135.1 million at December 31, 2013 and $118.9 million at December 31, 2012 (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
$109.6 million to $95.9 million at December 31, 2014, compared with year-end 2009.

December 31
Performing . . . . . . . . . . . . .
Performing TDR* . . . . . . . . .
Nonaccrual . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . .

2014
$ 95,893
0
0
$ 95,893

2013
$ 64,224
0
0
$ 64,224

2012
$ 77,321
10,431
0
$ 87,752

2011
$ 84,610
25,494
0
$110,104

2010
$112,469
28,286
20,913
$161,668

2009
$145,797
31,152
28,525
$205,474

Top 10 Customer Loan

Relationships . . . . . . . . . .

$114,632

$104,145

$115,506

$128,739

$151,503

$173,162

*

TDR = Troubled debt restructures

Commercial loan relationships greater than $10 million as a percent of tier 1 capital and the allowance

for loan losses totaled 29.7 percent at December 31, 2014, compared with 27.9 percent at year-end 2013,
37.5 percent at year-end 2012, 45.8 percent at year-end 2011, 66.5 percent at year-end 2010, and 85.9 percent
at the end of 2009.

77

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
Construction and land development loans to total risk based

2014

2013

2012

2011

2010

2009

capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CRE loans to total risk based capital . . . . . . . . . . . . . . . . . .

31% 30% 28% 22% 39% 81%
197% 172% 164% 174% 218% 274%

Deposits

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

focused retail and commercial deposit growth strategy that has successfully generated core deposit
relationships and increased services per household.

Total deposits increased $610,489,000 or 33.8 percent, to $2,416,534,000 at December 31, 2014

compared to one year earlier, and increased $47,084,000, or 2.7 percent, to $1,806,045,000 at December 31,
2013 when compared to December 31, 2012. The acquisition of BANKshares contributed approximately
$516.3 million in total deposits. The acquisition of BANKshares increases our number of households by
approximately 13 percent, further strengthening our customer base. Declining single service time deposits over
the past two years have been more than offset by increasing low cost or no cost deposits.

Effects of Inﬂation and Changing Prices

The condensed consolidated ﬁnancial statements and related ﬁnancial data presented herein have been

prepared in accordance with U.S. GAAP, which require the measurement of ﬁnancial position and operating
results in terms of historical dollars, without considering changes in the relative purchasing power of money,
over time, due to inﬂation.

Unlike most industrial companies, virtually all of the assets and liabilities of a ﬁnancial institution are

monetary in nature. As a result, interest rates have a more signiﬁcant impact on a ﬁnancial institution’s
performance than the general level of inﬂation. However, inﬂation affects ﬁnancial institutions by increasing
their cost of goods and services purchased, as well as the cost of salaries and beneﬁts, occupancy expense,
and similar items. Inﬂation and related increases in interest rates generally decrease the market value of
investments and loans held and may adversely affect liquidity, earnings, and shareholders’ equity. Mortgage
originations and re-ﬁnancings tend to slow as interest rates increase, and higher interest rates likely will
reduce the Company’s earnings from such activities and the income from the sale of residential mortgage
loans in the secondary market.

Securities

Information related to yields, maturities, carrying values and unrealized gains (losses) of the Company’s

securities is set forth in Tables 15 − 17.

At December 31, 2014, the Company had no trading securities, $741,375,000 in securities available for
sale (representing 78.1 percent of the total portfolio), with the remainder of $207,904,000 in securities held for
investment (representing 21.9 percent of the total portfolio). The Company’s total securities portfolio increased
$307.7 million or 48.0 percent from December 31, 2013, primarily as a result of efforts to invest excess
liquidity and short-term borrowings, and the addition of securities from the merger with BANKshares. During
2013, the securities portfolio decreased $15.3 million or 2.3 percent from December 31, 2012, primarily as a
result of improved loan growth.

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.

The effective duration of the investment portfolio at December 31, 2014 was 3.2 years, compared to
4.0 years at December 31, 2013. During the third and fourth quarters of 2014, average investment securities
increased $234.9 million, or $149.5 million excluding securities acquired from the BANKshares acquisition.
Funding for this increase in investments was derived from liquidity, both legacy and that acquired in the

78

merger, and an increase in seasonal funding from our core customer deposit base. Investments added during
the third and fourth quarters were primarily uncapped, ﬂoating rate, senior collateralized loan obligations
(CLO) securities with average yields at static LIBOR ranging from 1.40% to 3.30% and credit support ranging
from 17 to 36%. Duration increased in 2013 due to a steeper yield curve as interest rates increased
approximately 80 to 100 basis points for 5- and 10-year maturities during 2013. The Company’s investments
do not extend beyond an average duration of 4.6 years if interest rates were to increase 300 basis points in the
future. Management believes the effective average duration of the portfolio will remain in the 3.0 to 3.5 years
over 2015 if the yield curve remains unchanged.

Cash and due from banks and interest bearing deposits (aggregated) totaled $100,539,000 at

December 31, 2014, compared to $191,624,000 at December 31, 2013. The Company maintained additional
liquidity during the uncertain environment and has utilized proceeds held in cash and cash equivalents to
increase loans and investments as the economy has improved.

At December 31, 2014, available for sale securities had gross losses of $9,403,000 and gross gains of
$4,388,000, compared to gross losses of $20,003,000 and gross gains of $3,156,000 at December 31, 2013.
All of the securities with unrealized losses are reviewed for other-than-temporary impairment at least
quarterly. As a result of these reviews it was determined that the unrealized losses were not other than
temporarily impaired and the Company has the intent and ability to retain these securities until recovery over
the periods presented (see additional discussion under ‘‘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. The Company holds no interests in trust preferred securities.

Fourth Quarter Review

For fourth quarter 2014, a net loss of $(1,517,000) or ($0.05) per average common diluted share was

reported, compared to net income for the third, second and ﬁrst quarter of 2014 of $2,996,000 or $0.12 per
average common diluted share, $1,918,000 or $0.07 per average common diluted share, and $2,299,000 or
$0.09 per average common diluted share, respectively. In comparison, net income in 2013’s fourth quarter was
$588,000 or $0.03 per average common diluted share. The most signiﬁcant factor impacting the fourth quarter
2014’s net income was much higher noninterest expenses.

Noninterest expenses increased by $14.1 million versus third quarter 2014’s result, and were $15.4 million

higher when compared to the fourth quarter of 2013. Impacting the fourth quarter of 2014, our acquisition of
BANKshares (with 12 full-service offices) expanded our presence in central Florida, particularly the greater
Orlando market. Merger related charges in the fourth quarter totaled approximately $2.7 million and were
primarily related to core system conversion costs, software and other contract termination charges, and investment
banking fees. Also accrual of long term stock compensation expense related to an improved outlook and other
incentive costs related to better than expected production added incremental $1.2 million to expenses in the fourth
quarter. As expected, one-time charges were incurred in the fourth quarter of 2014 for approximately $4.3 million,
were related to announced branch closings. Severance totaled $0.5 million for the fourth quarter, versus no
payouts a year ago. In addition, during the fourth quarter 2014, we invested approximately $0.7 million in
marketing and other expenditures to refresh and reintroduce our brand, including retooling our logo and associated
signage throughout our branch network and digital platforms. All costs for this logo change and additional
branding were incurred in the fourth quarter of 2014. All of the above added a total of $9.4 to fourth quarter
noninterest expense which will not be incurred in the ﬁrst quarter of 2015.

On October 1, 2014, the BANKshares acquisition contributed $516.3 million in deposits and $365.4 million
in loans to our balance sheet, and signiﬁcantly boosted net interest margin in the fourth quarter of 2014. Our net
interest margin of 3.56 percent increased 39 basis points during the fourth quarter of 2014 from the third quarter
of 2014, and was 48 basis points higher when compared to fourth quarter 2013’s result. The deployment of
liquidity and organic balance sheet growth into investment securities contributed to the margin improvement in the
fourth quarter of 2014 (see ‘‘Securities’’). Loan demand was better during 2014 compared to 2013, and year over
year we expect loan growth will continue to build in 2015. The Company also beneﬁted from lower rates paid for
interest bearing liabilities due to the Federal Reserve’s reduction in interest rates, as well as, an improved mix of
deposits. The average cost of deposits was 1 basis point lower for the fourth quarter of 2014 compared to the third

79

quarter of 2014, and 3 basis points lower compared to the fourth quarter of 2013. During the fourth quarter,
noninterest bearing demand deposits increased to 30.0 percent of total deposits, compared with 28.9 percent for
the third quarter 2014 and 25.7 for fourth quarter 2013.

Noninterest income (excluding securities gains, net) totaled $7.1 million for the fourth quarter of 2014,
compared to $6.1 million for the third quarter of 2014, $5.9 million for the second quarter of 2014, $5.6 million
for the ﬁrst quarter of 2014, and $6.0 million for the fourth quarter of 2013. During the fourth quarter 2014,
noninterest income (excluding security gains, net) increased $1.0 million from third quarter 2014 and $1.1 million
from fourth quarter 2013. The increases include a full quarter effect of fees generated from BANKshares. Bank
owned life insurance (‘‘BOLI’’) investments were transferred to Seacoast as a result of the acquisition, and were
added to policies directly acquired by the Company during the fourth quarter of 2014. Also increasing for fourth
quarter 2014 (compared to fourth quarter a year ago) were service charges on deposits (up $0.4 million), marine
ﬁnance fees (up $0.2 million), and interchange income (up $0.2 million). 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
and the acquisition, and will result in higher noninterest income in 2015.

A provision for loan losses of $0.1 million was recorded in the fourth quarter of 2014. Overall, a
recapture of provisioning was recorded for 2014, as credit quality has improved, compared to 2013. For the
fourth quarter of 2014, net charge-offs totaled $0.6 million, lower by $0.2 million compared to the fourth
quarter of 2013. While the allowance for loan losses to portfolio loans outstanding ratio at December 31, 2014
was lower, 1.14 percent compared to 1.54 percent a year earlier, the coverage ratio (the allowance for loan
losses to nonaccrual loans) was 80.8 percent at December 31, 2014 compared to 72.5 percent at December 31,
2013, reﬂecting the improvement in credit quality.

Internal Controls

The Company’s management, including the Chief Executive Officer and Chief Financial Officer with the
assistance of outside consultants, has conducted an assessment of the effectiveness of the Company’s internal
control over ﬁnancial reporting as of December 31, 2014 based on the criteria established in Internal
Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on its assessment, management has concluded as of December 31, 2014, the
Company’s internal control over ﬁnancial reporting was effective.

The board of directors, the audit committee of the board and senior management of the Company
consider it essential to assure the Company achieves effective and comprehensive internal controls over every
aspect of ﬁnancial reporting.

Table 1 — Condensed Income Statement*

2014

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (recapture) for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest income

Securities gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of loan held for sale . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (beneﬁt) for income taxes including tax equivalent adjustment . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

*

As a Percent of Average Assets

80

2013
(Tax equivalent basis)
2.99%
0.15

2012

3.07%
0.51

3.03%
(0.14)

0.02
0.00
1.00
3.76
0.43
0.20
0.23%

0.02
0.00
1.11
3.43
0.54
(1.84)
2.38%

0.36
(0.06)
1.01
3.89
(0.02)
0.01
(0.03)%

Table 2 — Changes in Average Earning Assets

Increase/(Decrease)
2014 vs 2013

Increase/(Decrease)
2013 vs 2012

(Dollars in thousands)

Securities:

Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nontaxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds sold and other investments . . . . . . . . . . .
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 80,956
3,036
(27,266)
180,304
$237,030

12.4% $ 63,886
(371)
188.8
(47,192)
(17.8)
44,905
14.2
$ 61,228
11.4

10.9%
(18.7)
(23.6)
3.7
3.0

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

2014 vs 2013
Due to Change in:
Rate

Volume

2013 vs 2012
Due to Change in:
Rate

Total

Total
(Dollars in thousands)
Amount of increase (decrease)

Volume

EARNING ASSETS
Securities
Taxable . . . . . . . . . . . . . . . . . . . . . .
Nontaxable . . . . . . . . . . . . . . . . . . .

Federal funds sold and other

investments . . . . . . . . . . . . . . . . .
Loans, net . . . . . . . . . . . . . . . . . . . .
TOTAL EARNING ASSETS . . . . . .

INTEREST BEARING LIABILITIES
NOW . . . . . . . . . . . . . . . . . . . . . . .
Savings deposits . . . . . . . . . . . . . . . .
Money market accounts . . . . . . . . . . .
Time deposits. . . . . . . . . . . . . . . . . .

Federal funds purchased and other

short term borrowings . . . . . . . . . .
Other borrowings . . . . . . . . . . . . . . .
TOTAL INTEREST BEARING

LIABILITIES . . . . . . . . . . . . . . .
NET INTEREST INCOME . . . . . . .

$1,653
205
1,858

$

939
14
953

(190)
8,008
9,676

338
(1,383)
(92)

$2,592
219
2,811

148
6,625
9,584

44
20
27
(115)
(24)

30
68

(47)
(8)
45
(294)
(304)

(19)
46

(3)
12
72
(409)
(328)

11
114

$1,390
(23)
1,367

$(2,498)
6
(2,492)

$(1,108)
(17)
(1,125)

(247)
2,076
3,196

42
23
(3)
(744)
(682)

29
0

162
(3,342)
(5,672)

(273)
(77)
(452)
(1,278)
(2,080)

(83)
(105)

(85)
(1,266)
(2,476)

(231)
(54)
(455)
(2,022)
(2,762)

(54)
(105)

74
$9,602

(277)
185

$

(203)
$9,787

(653)
$3,849

(2,268)
$(3,404)

(2,921)
445

$

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

81

Table 4 — Changes in Average Interest Bearing Liablities

Increase/(Decrease)
2014 vs 2013

Increase/(Decrease)
2013 vs 2012

NOW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds purchased and other short term borrowings . . . . . . .
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 53,608
37,754
29,095
(19,053)
16,743
2,760
$120,907

Table 5 — Three Year Summary

(Dollars in thousands)
11.5%
20.7
8.6
(6.4)
10.8
2.7
7.8

$ 35,603
29,002
(2,591)
(88,101)
13,630
0
$(12,457)

8.3%
19.0
(0.8)
(22.9)
9.6
0.0
(0.8)

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

Average
Balance

2014

Interest

Yield/
Rate

Average
Balance

2013

Interest

Yield/
Rate

Average
Balance

Interest

Yield/
Rate

2012

(Dollars in thousands)

EARNING ASSETS

Securities

Taxable . . . . . . . . . . . . . . . $ 732,324
4,644
Nontaxable . . . . . . . . . . . . .
736,968

$15,448
323
15,771

2.11% $ 651,368
1,608
6.96
652,976
2.14

$12,856
105
12,961

1.97% $ 587,482
1,979
6.53
589,461
1.98

$13,964
122
14,086

2.38%
6.16
2.39

Federal funds sold and other

investments . . . . . . . . . . . . . .
Loans, net(2) . . . . . . . . . . . . . . .
TOTAL EARNING ASSETS . . . . .
Allowance for loan losses . . . . . . .
Cash and due from banks . . . . . . .
. . . .
Bank premises and equipment
Bank owned life

insurance . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . .
Other assets. . . . . . . . . . . . . . . .

125,550
1,452,751
2,315,269
(19,164)
51,581
37,970

6,154
2,197
6,643
84,609
$2,485,259

1,017
63,788
80,576

0.81
4.39
3.48

868
57,163
70,992

0.57
4.49
3.42

152,816
1,272,447
2,078,239
(21,133)
36,423
34,806

0
1,104
0
57,318
$2,186,757

953
58,429
73,468

0.48
4.76
3.64

200,008
1,227,542
2,017,011
(24,352)
34,215
34,502

0
1,889
0
53,810
$2,117,075

INTEREST BEARING LIABILITIES
NOW . . . . . . . . . . . . . . . . . . . $ 520,288
219,793
Savings deposits . . . . . . . . . . . . .
366,490
Money market accounts . . . . . . . .
Time deposits . . . . . . . . . . . . . .
277,349
Federal funds purchased and other

short term borrowings . . . . . . . .
Other borrowings . . . . . . . . . . . .
TOTAL INTEREST BEARING

171,965
106,370

LIABILIITIES . . . . . . . . . . . .
Demand deposits . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . .

Shareholders’ equity . . . . . . . . . .

Interest expense as % of earning

assets . . . . . . . . . . . . . . . . . .
Net interest income/yield on earning
assets . . . . . . . . . . . . . . . . . .

1,662,255
556,000
10,137
2,228,392
256,867
$2,485,259

399
113
352
1,538

297
2,656

0.08% $ 466,680
182,039
0.05
337,395
0.10
296,402
0.55

0.17
2.50

155,222
103,610

401
101
280
1,947

286
2,542

0.09% $ 431,077
153,037
0.06
339,986
0.08
384,503
0.66

0.18
2.45

141,592
103,610

5,355

0.32

1,541,348
451,776
10,329
2,003,453
183,304
$2,186,757

5,557

0.36

1,553,805
388,685
9,204
1,951,694
165,381
$2,117,075

632
155
735
3,969

340
2,647

0.15%
0.10
0.22
1.03

0.24
2.56

8,478

0.55

0.23%

0.27%

0.42%

$75,221

3.25%

$65,435

3.15%

$64,990

3.22%

(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.

82

Table 6 — Noninterest Income

2014

% Change

2012

14/13

13/12

Service charges on deposit accounts . . . . . . . .
Trust fees . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage banking fees . . . . . . . . . . . . . . . . .
Brokerage commissions and fees . . . . . . . . . .
Marine ﬁnance fees . . . . . . . . . . . . . . . . . . .
Interchange income . . . . . . . . . . . . . . . . . . .
Other deposit based EFT fees . . . . . . . . . . . .
BOLI Income . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Loss on sale of commercial loan . . . . . . . . . .
Securities gains, net . . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . .

n/m = not meaningful

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 . . . . . . . . . . . . . .
Branch closures and new branding* . . . . . . . .
Net loss on other real estate owned
and repossessed assets . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . .

*

n/m = not meaningful

Year Ended
2013
(Dollars in thousands)
$ 6,711
2,711
4,173
1,631
1,189
5,404
342
0
2,158
24,319
0
419
$24,738

$ 6,952
2,986
3,057
1,614
1,320
5,972
343
252
2,248
24,744
0
469
$25,213

$ 6,245
2,279
3,710
1,071
1,111
4,501
336
0
2,191
21,444
(1,238)
7,619
$27,825

3.6%
10.1
(26.7)
(1.0)
11.0
10.5
0.3
n/m
4.2
1.7
n/m
11.9
1.9

7.5%

19.0
12.5
52.3
7.0
20.1
1.8
n/m
(1.5)
13.4
n/m
(94.5)
(11.1)

% Change

2012

14/13

13/12

13.3%
19.7
37.8
6.2
10.5
8.6
52.9
179.5
(36.2)
31.9
(34.1)
n/m

(76.0)
5.4
24.2

3.6%
(5.0)
(13.7)
6.4
(4.4)
0.6
(24.4)
(53.1)
(7.3)
(0.6)
(49.3)
(100.0)

(62.8)
5.0
(9.0)

2014

Year Ended
2013
(Dollars in thousands)
$31,006
7,327
6,372
1,253
7,178
2,334
2,339
2,458
2,601
783
740
0

$29,935
7,710
7,382
1,178
7,507
2,319
3,095
5,241
2,805
788
1,459
639

$35,132
8,773
8,781
1,331
7,930
2,535
3,576
6,871
1,660
1,033
488
4,958

310
9,988
$93,366

1,289
9,472
$75,152

3,467
9,023
$82,548

83

Table 8 — Capital Resources

2014

December 31
2013
(Dollars in thousands)

2012

TIER 1 CAPITAL

Common stock(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warrant for purchase of common stock . . . . . . . . . . . . . . . . .
Additional paid in capital(2). . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated (deﬁcit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Qualifying trust preferred securities . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL TIER 1 CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

3,300
0
0
379,249
(65,000)
(71)
62,539
(25,309)
(4,478)
(44,565)
305,665

$

2,364
0
0
277,290
(70,695)
(11)
52,000
0
(718)
(49,797)
210,433

$

1,897
48,746
0
230,438
(118,611)
(62)
52,000
0
(1,501)
(1,068)
211,839

TIER 2 CAPITAL

Allowance for loan losses, as limited(1). . . . . . . . . . . . . . . . .
TOTAL TIER 2 CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL RISK-BASED CAPITAL . . . . . . . . . . . . . . . . . . . . . .
Risk weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17,100
17,100
$ 322,765
$1,986,291

16,877
16,877
$ 227,310
$1,346,957

15,589
15,589
$ 227,428
$1,240,593

Tier 1 risk based capital ratio . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . .

15.39%
16.25
8.00
10.32
4.00
10.11
10.34

15.62%
16.88
8.00
9.59
4.00
8.75
8.38

17.08%
18.33
8.00
10.04
4.00
7.62
7.81

Includes reserve for unfunded commitments of $29,000 at December 31, 2014, 2013, and 2012.

(1)
(2) Year end 2012 adjusted to reﬂect 1 for 5 reverse stock split effective December 13, 2013.

84

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 . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . .

2014

2013

December 31
2012
(In thousands)

2011

2010

16,155
37,194
53,349
33,687
87,036
837,147

441,238
93,865
71,838
79,956
686,897
157,396

$

10,566
22,733
33,299
34,151
67,450
520,382

$

9,902
11,907
21,809
38,927
60,736
486,828

$

11,255
11,338
22,593
26,591
49,184
508,353

$

14,025
33,773
47,798
31,508
79,306
543,603

391,885
91,108
62,043
47,710
592,746
78,636

361,005
98,976
57,955
51,395
569,331
61,903

334,140
96,952
60,253
54,901
546,246
53,105

303,320
82,559
73,382
57,733
516,994
48,825

7,817
26,236
18,844
52,897
512
$1,821,885

6,607
20,208
17,898
44,713
280
$1,304,207

7,761
18,446
20,723
46,930
353
$1,226,081

8,736
19,932
21,943
50,611
575
$1,208,074

10,874
19,806
20,922
51,602
278
$1,240,608

Table 10 — Loan Maturity Distribution

In one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 66,844

Commercial
and Financial

December 31, 2014
Construction
and Land
Development
(In thousands)
$44,031

Total

$110,875

After one year but within ﬁve years:

Interest rates are ﬂoating or adjustable . . . . . . . . . . . . . . . . .
Interest rates are ﬁxed . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,178
64,570

20,890
10,432

22,068
75,002

In ﬁve years or more:

Interest rates are ﬂoating or adjustable . . . . . . . . . . . . . . . . .
Interest rates are ﬁxed . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,095
22,709
$157,396

4,989
6,694
$87,036

7,084
29,403
$244,432

85

Table 11 — Maturity of Certiﬁcates of Deposit of $100,000 or More

2014

December 31

% of Total

2013
(Dollars in thousands)

Maturity Group:

Under 3 Months . . . . . . . . . . . . . . . . . . . . . .
3 to 6 Months . . . . . . . . . . . . . . . . . . . . . . . .
6 to 12 Months . . . . . . . . . . . . . . . . . . . . . . .
Over 12 Months . . . . . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 31,244
31,918
38,840
47,841
$149,843

20.9%
21.3
25.9
31.9
100.0%

$ 38,805
20,604
24,670
38,667
$122,746

% of Total

31.6%
16.8
20.1
31.5
100.0%

Table 12 — Summary of Loan Loss Experience

2014

2013

Beginning balance . . . . . . . . . . . . . . .
Provision (recapture) for loan losses . . .

$

20,068
(3,486)

$

22,104
3,188

Year Ended December 31
2012
(Dollars in thousands)
$

$

25,565
10,796

2011

2010

37,744
1,974

$

45,192
31,680

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 . . . . . . . . . . . .
Net loan charge offs (recoveries) . . . . .
ENDING BALANCE . . . . . . . . . . . . .
Loans outstanding at end of year*. . . . .
Ratio of allowance for loan losses to

640
398
1,126
398
193
2,755

604
2,714
3,153
60
253
6,784

612
8,539
8,381
346
410
18,288

4,739
3,663
7,482
0
562
16,446

18,135
11,162
10,797
759
775
41,628

415
1,683
902
170
74
3,244
(489)
$
17,071
$1,821,885

212
547
449
326
26
1,560
5,224
$
20,068
$1,304,207

341
2,702
738
129
121
4,031
14,257
$
22,104
$1,226,081

1,053
354
513
301
72
2,293
14,153
$
25,565
$1,208,074

483
517
861
424
215
2,500
39,128
$
37,744
$1,240,608

loans outstanding at end of year . . . .

0.94%

1.54%

1.80%

2.12%

3.04%

Ratio of allowance for loan losses to

loans outstanding (excluding
purchased loans) at end of period . . .
Daily average loans outstanding* . . . . .
Ratio of net charge offs (recoveries) to

1.14%

$1,452,751

N/A
$1,272,447

N/A
$1,227,542

N/A
$1,216,221

N/A
$1,327,111

average loans outstanding. . . . . . . . .

(0.03)%

0.41%

1.16%

1.16%

2.95%

*

Net of unearned income.

86

Table 13 — Allowance for Loan Losses

ALLOCATION BY LOAN TYPE
Construction and land development . . . . . . . . . . . .
Commercial real estate loans . . . . . . . . . . . . . . . .
Residential real estate loans . . . . . . . . . . . . . . . . .
Commercial and ﬁnancial loans . . . . . . . . . . . . . .
Consumer loans.
. . . . . . . . . . . . . . . . . . . . . . . .
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

YEAR END LOAN TYPES AS A PERCENT OF

TOTAL LOANS

2014

2013

December 31,
2012
(Dollars in thousands)

2011

2010

$

765
4,531
9,802
1,179
794
$17,071

$

808
6,160
11,659
710
731
$20,068

$ 1,134
8,849
11,090
468
563
$22,104

$ 1,883
11,477
10,966
402
837
$25,565

$ 7,214
18,563
10,102
480
1,385
$37,744

Construction and land development . . . . . . . . . . . .
Commercial real estate loans . . . . . . . . . . . . . . . .
Residential real estate loans . . . . . . . . . . . . . . . . .
Commercial and ﬁnancial loans . . . . . . . . . . . . . .
Consumer loans . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.8%
46.0
37.7
8.6
2.9
100.0%

5.2%
39.9
45.5
6.0
3.4
100.0%

5.0%

39.7
46.5
5.0
3.8
100.0%

4.1%

42.1
45.2
4.4
4.2
100.0%

6.4%

43.8
41.7
3.9
4.2
100.0%

Table 14 — Nonperforming Assets

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL NONPERFORMING ASSETS . . . . . . .
Amount of loans outstanding at end of year(2) . . . .
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 modiﬁed
terms(3) . . . . . . . . . . . . . . . . . . . . . . . . . .

2014

2013

December 31,
2012
(Dollars in thousands)

2011

2010

$

1,963
4,189
14,797
0
191
21,140

$

1,302
5,111
20,705
13
541
27,672

$

1,342
17,234
22,099
0
280
40,955

$

2,227
13,120
12,555
16
608
28,526

$

29,229
19,101
14,810
4,607
537
68,284

223
5,771
1,468
7,462
$
28,602
$1,821,885

421
5,138
1,301
6,860
$
34,532
$1,304,207

2,124
6,305
3,458
11,887
$
52,842
$1,226,081

10,879
7,517
2,550
20,946
$
49,472
$1,208,074

15,358
8,368
1,971
25,697
$
93,981
$1,240,608

1.56%
311

$

2.63%
160

$

4.27%
1

$

4.03%
0

$

7.42%
0

$

24,997

25,137

41,946

71,611

66,350

(1)

Interest income that could have been recorded during 2014, 2013, and 2012 related to nonaccrual loans
was $1,942,000, $964,000, and $1,931,000, respectively, none of which was included in interest income
or net income. All nonaccrual loans are secured.

(2) Net of unearned income.
(3)

Interest income that would have been recorded based on original contractual terms was $1,496,000, $1,618,000,
and $2,725,000, respectively, for 2014, 2013 and 2012. The amount included in interest income under the
modiﬁed terms for 2014, 2013, and 2012 was $1,276,000, $1,074,000, and $2,036,000, respectively.

87

Table 15 — Securities Available For Sale

U.S. Treasury securities and obligations of
U.S. Government Sponsored Entities
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Mortgage-backed securities of U.S. Government

Sponsored Entities
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Collateralized mortgage obligations of
U.S. Government Sponsored Entities
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Private mortgage-backed securities

2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Private collateralized mortgage obligations

2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Collateralized loan obligations

December 31

Amortized
Cost

Fair
Value

Unrealized
Gains

Unrealized
Losses

(In thousands)

$ 3,876
100

$

3,899
100

$

23
0

$

0
0

123,981
129,468

125,059
126,735

1,501
1,456

(423)
(4,189)

352,483
383,392

347,481
369,421

1,075
776

(6,077)
(14,747)

29,967
29,800

85,175
76,520

30,258
29,574

85,135
76,838

291
0

688
731

0
0

810
193

0
(226)

(728)
(413)

(2,172)
(413)

(3)
(15)

2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

127,397
32,592

125,225
32,179

Obligations of state and political subdivisions

2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23,511
6,586

24,318
6,764

Total Securities Available For Sale

2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$746,390
$658,458

$741,375
$641,611

$4,388
$3,156

$ (9,403)
$(20,003)

88

Table 16 — Securities Held For Investment(1)

Mortgage-backed securities of U.S. Government

Sponsored Entities
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Collateralized mortgage obligations of
U.S. Government Sponsored Entities
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Collateralized loan obligations

December 31

Amortized
Cost

Fair
Value

Unrealized
Gains

Unrealized
Losses

(In thousands)

$ 67,535
0

$ 68,347
0

$ 812
0

$

0
0

114,541
0

114,956
0

695
0

0
0

(280)
0

(343)
0

$(623)

$

0

2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25,828
0

25,485
0

Total Securities Held For Investment

2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$207,904

$208,788

$

0

$

0

$1,507

$

0

(1) Management changed its intent to hold certain securities available for sale during the second quarter 2014

and those securities were transferred to securities held for investment to allow more ﬂexibility in
managing interest rate risk.

89

Table 17 — Maturity Distribution of Securities Available For Sale

1 Year
Or Less

1 − 5
Years

December 31, 2014

5 − 10
Years

After
10 Years
(Dollars in thousands)

Average
Maturity
In Years

Total

AMORTIZED COST
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 mortgage-backed securities . . . . . . . . . . . .
Private collateralized mortgage obligations . . . . . . .
Collateralized loan obligations . . . . . . . . . . . . . . .
Obligations of state and political subdivisions . . . . .
Total Securities Available For Sale . . . . . . . . . . . .

FAIR VALUE
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 mortgage-backed securities . . . . . . . . . . . .
Private collateralized mortgage obligations . . . . . . .
Collateralized loan obligations . . . . . . . . . . . . . . .
Obligations of state and political subdivisions . . . . .
Total Securities Available For Sale . . . . . . . . . . . .

WEIGHTED AVERAGE YIELD (FTE)
U.S. Treasury securities and obligations of

0

0

$

100

$ 3,776

$

0

$

3,876

8.01

35,264

65,727

22,990

123,981

7.00

9,881
0
19,618
0
0
$29,499

197,736
0
37,945
0
742
$271,787

144,413
15,444
25,328
15,811
4,652
$275,151

453
14,523
2,284
111,586
18,117
$169,953

352,483
29,967
85,175
127,397
23,511
$746,390

4.41
9.91
3.78
5.63
12.84
5.33

0

0

$

100

$ 3,799

$

0

$

3,899

35,623

66,039

23,397

125,059

9,891
0
19,384
0
0
$29,275

196,285
0
37,903
0
747
$270,658

140,851
15,511
25,517
15,687
4,692
$272,096

454
14,747
2,331
109,538
18,879
$169,346

347,481
30,258
85,135
125,225
24,318
$741,375

U.S. Government Sponsored Entities . . . . . . . . .

0.00%

0.36%

8.19%

0.00%

3.24%

Mortgage-backed securities of U.S. Government

Sponsored Entities . . . . . . . . . . . . . . . . . . . .

Collateralized mortgage obligations of

U.S. Government Sponsored Entities . . . . . . . . .
Private mortgage-backed securities . . . . . . . . . . . .
Private collateralized mortgage obligations . . . . . . .
Collateralized loan obligations . . . . . . . . . . . . . . .
Obligations of state and political subdivisions . . . . .
Total Securities Available For Sale . . . . . . . . . . . .

0.00%

2.27%

2.41%

2.60%

2.41%

1.73%
0.00%
2.56%
0.00%
0.00%
2.29%

2.08%
0.00%
2.59%
0.00%
6.61%
2.20%

1.92%
1.66%
2.54%
1.92%
2.68%
2.10%

3.65%
1.28%
2.88%
2.16%
4.37%
2.26%

2.01%
1.48%
2.57%
2.13%
4.10%
2.18%

90

Table 18 — Maturity Distribution of Securities Held for Investment

1 Year
Or Less

1 − 5
Years

December 31, 2014

After
5 − 10
Years
10 Years
(Dollars in thousands)

Average
Maturity In
Years

Total

5.28

5.05
5.31
5.16

AMORTIZED COST
Mortgage-backed securities of U.S. Government

Sponsored Entities. . . . . . . . . . . . . . . . . .

$

0

$37,132

$19,094

$11,309

$ 67,535

Collateralized mortgage obligations of

U.S. Government Sponsored Entities . . . . . .
Collateralized loan obligations . . . . . . . . . . . .
Total Securities Available For Sale . . . . . . . . .

FAIR VALUE
Mortgage-backed securities of U.S. Government

2,721
0
$2,721

57,563
4,838
$99,533

41,682
20,990
$81,766

12,575
0
$23,884

114,541
25,828
$207,904

Sponsored Entities. . . . . . . . . . . . . . . . . .

$

0

$37,431

$19,415

$11,501

$ 68,347

Collateralized mortgage obligations of

U.S. Government Sponsored Entities . . . . . .
Collateralized loan obligations . . . . . . . . . . . .
Total Securities Available For Sale . . . . . . . . .

WEIGHTED AVERAGE YIELD (FTE)
Mortgage-backed securities of U.S. Government

Sponsored Entities. . . . . . . . . . . . . . . . . .

Collateralized mortgage obligations of

U.S. Government Sponsored Entities . . . . . .
Collateralized loan obligations . . . . . . . . . . . .
Total Securities Available For Sale . . . . . . . . .

2,748
0
$2,748

57,442
4,808
$99,681

42,083
20,677
$82,175

12,683
0
$24,184

114,956
25,485
$208,788

0.00%

2.36%

2.09%

1.96%

2.22%

2.51%
0.00%
2.51%

1.78%
2.98%
2.05%

2.41%
3.05%
2.50%

3.05%
0.00%
2.53%

2.16%
3.04%
2.29%

Table 19 — Interest Rate Sensitivity Analysis(1)

Federal funds sold and interest bearing

0 − 3
Months

4 − 12
Months

December 31, 2014
1 − 5
Years
(Dollars in thousands)

Over
5 Years

0 $

deposits . . . . . . . . . . . . . . . . . . . . . . . . . $

0
Securities(2) . . . . . . . . . . . . . . . . . . . . . . . .
312,205
Loans, net(3) . . . . . . . . . . . . . . . . . . . . . . . .
901,253
1,213,458
Earning assets. . . . . . . . . . . . . . . . . . . . . . .
Savings deposits(4). . . . . . . . . . . . . . . . . . . .
0
97,534
Time deposits . . . . . . . . . . . . . . . . . . . . . . .
50,000
Borrowings . . . . . . . . . . . . . . . . . . . . . . . .
Interest bearing liabilities . . . . . . . . . . . . . . .
147,534
Interest sensitivity gap . . . . . . . . . . . . . . . . . $ (876,251) $ 255,157 $1,065,924
Cumulative gap. . . . . . . . . . . . . . . . . . . . . . $ (876,251) $(621,094) $ 444,830
Cumulative gap to total earning assets (%) . . .
15.9
Earning assets to interest bearing

36,128 $
342,003
480,239
858,370
1,367,263
69,135
298,223
1,734,621

109,868
301,543
411,411
0
156,254
0
156,254

(22.2)

(31.3)

$

0
190,218
129,788
320,006
0
1,110
0
1,110
$318,896
$763,726
27.2

Total

$

36,128
954,294
1,812,823
2,803,245
1,367,263
324,033
348,223
2,039,519
$ 763,726

liabilities (%) . . . . . . . . . . . . . . . . . . . . .

49.5

263.3

822.5

n/m

(1) The repricing dates may differ from maturity dates for certain assets due to prepayment assumptions.
(2) Securities are stated at amortized cost.
(3) Excludes nonaccrual loans.
(4) This category is comprised of NOW, savings and money market deposits. If NOW and savings deposits
(totaling $917,091) were deemed repriceable in ‘‘4 − 12 months’’, the interest sensitivity gap and
cumulative gap would be $40,840 or 1.5% of total earning assets and an earning assets to interest
bearing liabilities for the 0 − 3 months category of 105.0%.

n/m = not meaningful

91

Stock Performance Graph

The line graph below compares the cumulative total stockholder return on Seacoast common stock for the

ﬁve years ended December 31, 2014 with the cumulative total return of the NASDAQ Composite Index and
the SNL Southeast Bank Index for the same period. The graph and table assume that $100 was invested on
December 31, 2009 (the last day of trading for the year ended December 31, 2009) 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

Seacoast Banking Corporation of Florida

NASDAQ Composite

SNL Southeast Bank

250

225

200

175

150

125

100

75

50

e
u
l
a
V
x
e
d
n

I

25
12/31/09

12/31/10

12/31/11

12/31/12

12/31/13

12/31/14

Index
Seacoast Banking Corporation of Florida . . .
NASDAQ Composite. . . . . . . . . . . . . . . . .
SNL Southeast Bank . . . . . . . . . . . . . . . . .

12/31/09
100.00
100.00
100.00

12/31/10
89.57
118.15
97.10

12/31/11
93.25
117.22
56.81

12/31/12
98.77
138.02
94.37

12/31/13
149.69
193.47
127.88

12/31/14
168.71
222.16
144.03

Period Ending

Source: SNL Financial LC, Charlottesville, VA
(cid:5) 2015
www.snl.com

92

 
SELECTED QUARTERLY INFORMATION

QUARTERLY CONSOLIDATED INCOME (LOSS) STATEMENTS (UNAUDITED)

2014 Quarters

2013 Quarters

Fourth

Third

Second
(Dollars in thousands, except per share data)

Fourth

First

Third

Second

First

Net interest income:

Interest income . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . .
Provision (recapture) for loan losses . . . . .
Net interest income after provision for loan

losses. . . . . . . . . . . . . . . . . . . . . . .

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 . . . . . . . .
BOLI Income. . . . . . . . . . . . . . . . . .
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 dispositions expense . . . . . . . . . .
Branch closures and new branding . . . . .
Net loss on other real estate owned and

repossessed assets. . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . .
Total noninterest expenses . . . . . . . . . .
Income (loss) before income taxes . . . . . .
Provision (beneﬁt) for income taxes. . . . . .
Net income (loss) . . . . . . . . . . . . . . . . .
Preferred stock dividends and accretion on

preferred stock discount

. . . . . . . . . . .
Net income (loss) available to shareholders .

PER COMMON SHARE DATA
Net income (loss) diluted . . . . . . . . . . . .
Net income (loss) basic . . . . . . . . . . . . .

Cash dividends declared:

$26,272
1,539
24,733
118

$18,491
1,263
17,228
(1,425)

$17,987
1,262
16,725
(1,444)

$17,512
1,291
16,221
(735)

$17,616
1,339
16,277
490

$ 18,177
1,362
16,815
1,180

$17,513
1,399
16,114
565

$17,457
1,457
16,000
953

24,615

18,653

18,169

16,956

15,787

15,635

15,549

15,047

2,208
795
716
417
445
1,603
92
252
613
108
7,249

11,676
2,461
3,506
419
2,325
732
1,163
2,555
476
446
103
4,958

9
3,243
34,011
(2,147)
(630)
(1,517)

1,753
817
825
408
281
1,452
70
0
543
344
6,493

8,064
2,049
1,769
313
1,879
628
925
1,103
387
195
139
0

1,484
703
855
410
340
1,514
83
0
507
0
5,896

7,768
2,081
1,811
306
1,888
604
675
2,272
411
196
118
0

1,507
671
661
379
254
1,403
98
0
585
17
5,575

7,624
2,182
1,695
293
1,838
571
813
941
386
196
128
0

1,778
693
728
461
215
1,394
80
0
617
0
5,966

8,077
1,568
1,586
325
1,824
597
749
489
451
196
180
0

1,741
667
1,075
383
283
1,358
77
0
503
280
6,367

7,557
1,713
1,657
318
1,824
605
456
874
713
195
159
0

1,641
675
1,256
362
419
1,388
87
0
507
114
6,449

7,902
1,823
1,631
325
1,775
571
685
299
720
197
111
0

1,551
676
1,114
425
272
1,264
98
0
531
25
5,956

7,470
2,223
1,498
285
1,755
561
449
796
717
195
290
0

156
2,282
19,889
5,257
2,261
2,996

92
2,461
20,683
3,382
1,464
1,918

53
2,063
18,783
3,748
1,449
2,299

0
2,604
18,646
3,107
1,257
1,850

229
2,203
18,503
3,499
(41,642)
45,141

493
2,512
19,044
2,954
0
2,954

567
2,153
18,959
2,044
0
2,044

0
$ (1,517)

0
$ 2,996

0
$ 1,918

0
$ 2,299

$ (0.05)
(0.05)

$

0.12
0.12

$

0.07
0.07

$

0.09
0.09

$

$

1,262
588

937
$ 44,204

937
$ 2,017

937
$ 1,107

0.03
0.03

$

2.31
2.35

$

0.11
0.11

$

0.06
0.06

Common stock . . . . . . . . . . . . . . . . .

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Market price common stock:

Low close . . . . . . . . . . . . . . . . . . . .
High close. . . . . . . . . . . . . . . . . . . .
Bid price at end of period . . . . . . . . . .

10.80
14.24
13.75

10.03
11.27
10.93

10.00
11.28
10.87

10.55
12.51
11.00

10.10
12.40
12.20

10.20
12.15
10.85

9.05
11.00
11.00

8.05
11.10
10.45

93

FINANCIAL HIGHLIGHTS

(Dollars in thousands, except per share data)
FOR THE YEAR

2014

2013

2012

2011

2010

Net interest income . . . . . . . . . . . . . . . . . $
Provision (recapture) for loan losses . . . . . .

74,907
(3,486)

$

65,206
3,188

$

64,809
10,796

$

$

66,839
1,974

66,212
31,680

Noninterest income:

Other
. . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of commercial loan . . . . . . .
. . . . . . . . . . . . . . .
Securities gains, net
Noninterest expenses . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . .
Provision (beneﬁt) 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

24,744
0
469
93,366
10,240
4,544
5,696

0.21
0.21
0.00
9.44

24,319
0
419
75,152
11,604
(40,385)
51,989

2.44
2.46
0.00
8.40

21,444
(1,238)
7,619
82,548
(710)
0
(710)

(0.24)
(0.24)
0.00
6.16

18,345
0
1,220
77,763
6,667
0
6,667

0.16
0.16
0.00
6.46

18,134
0
3,687
89,556
(33,203)
0
(33,203)

2.41
2.41
0.00
6.42

0.0%

0.0%

0.0%

0.0%

0.0%

Assets
. . . . . . . . . . . . . . . . . . . . . . .
Securities
Net loans
. . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . $3,093,335
949,279
1,804,814
2,416,534
312,651

$2,268,940
641,611
1,284,139
1,806,045
198,604

$2,173,929
656,868
1,203,977
1,758,961
165,546

$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

Performance ratios:

Return on average assets . . . . . . . . . . . .
Return on average equity . . . . . . . . . . . .
Net interest margin(2) . . . . . . . . . . . . . . . .
. . . . . . . .
Average equity to average assets

0.23%
2.57
3.25
10.34

2.38%

28.36
3.15
8.38

(0.03)%
(0.43)
3.22
7.81

0.32%
4.03
3.42
8.01

(1.60)%

(19.30)
3.37
8.27

(1) Not meaningful
(2) On a fully taxable equivalent basis

94

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Seacoast Banking Corporation of Florida
Stuart, Florida

We have audited the accompanying consolidated balance sheet of Seacoast Banking Corporation of Florida as of
December 31, 2014, and the related consolidated statements of income, comprehensive income (loss), cash ﬂows,
and shareholders’ equity for the year ended December 31, 2014. We also have audited the Company’s internal
control over ﬁnancial reporting as of December 31, 2014, based on criteria established in the 2013 Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company’s management is responsible for these ﬁnancial statements, for maintaining
effective internal control over ﬁnancial reporting, and for its assessment of the effectiveness of internal control
over ﬁnancial reporting, included in Management’s report on internal control over ﬁnancial reporting contained in
Item 9A. of the accompanying Form 10-K. Our responsibility is to express an opinion on these ﬁnancial
statements and an opinion on the Company’s internal control over ﬁnancial reporting based on our audit.

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 and whether effective
internal control over ﬁnancial reporting was maintained in all material respects. Our audit of the ﬁnancial
statements included examining, on a test basis, evidence supporting the amounts and disclosures in the
ﬁnancial statements, assessing the accounting principles used and signiﬁcant estimates made by management,
and evaluating the overall ﬁnancial statement presentation. Our audit of internal control over ﬁnancial
reporting included obtaining an understanding of internal control over ﬁnancial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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 authorized 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.

As permitted, the Company has excluded the operations of BANKshares, Inc. acquired during 2014, which is
described in Note T of the consolidated ﬁnancial statements, from the scope of management’s report on
internal control over ﬁnancial reporting. As such, it has also been excluded from the scope of our audit of
internal control over ﬁnancial reporting.

95

In our opinion, the consolidated ﬁnancial statements referred to above present fairly, in all material respects,
the ﬁnancial position of Seacoast Banking Corporation of Florida as of December 31, 2014, and the results of
its operations and its cash ﬂows for the year ended December 31, 2014 in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, the Company maintained,
in all material respects, effective internal control over ﬁnancial reporting as of December 31, 2014, based on
criteria established in the 2013 Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).

/s/ Crowe Horwath LLP
Crowe Horwath LLP

Fort Lauderdale, Florida
March 16, 2015

96

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 sheet of Seacoast Banking Corporation of Florida
and subsidiaries as of December 31, 2013, and the related consolidated statements of income, comprehensive
income (loss), cash ﬂows, and shareholders’ equity for each of the years in the two-year period ended
December 31, 2013. 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 Seacoast Banking Corporation of Florida and subsidiaries as of December 31, 2013,
and the results of their operations and their cash ﬂows for each of the years in the two-year period ended
December 31, 2013, in conformity with U.S. generally accepted accounting principles.

March 17, 2014
Miami, Florida
Certiﬁed Public Accountants

97

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

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 (recapture) for loan losses
NET INTEREST INCOME AFTER PROVISION FOR LOAN

For the Year Ended December 31
2014
2012
2013
(Dollars in thousands, except share data)

$

15,448
211
63,586
1,017
80,262

864
1,538
297
1,053
1,603
5,355
74,907
(3,486)

$

12,856
68
56,971
868
70,763

782
1,947
286
934
1,608
5,557
65,206
3,188

13,964
80
58,290
953
73,287

1,522
3,969
340
1,035
1,612
8,478
64,809
10,796

LOSSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

78,393

62,018

54,013

NONINTEREST INCOME
Loss on sale of commercial loan . . . . . . . . . . . . . . . . . . . . . . .
Securities gains, net (includes net gains (losses) of ($110), $149,
and $6,632 in other comprehensive income reclassiﬁcations for
. . . . . . . . . . . . . . . . . . .
2014, 2013, and 2012 respectively)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . .

NONINTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . .
INCOME (LOSS) BEFORE INCOME TAXES . . . . . . . . . . . . .
Income taxes (beneﬁt) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends and accretion on preferred stock

0

0

(1,238)

469
24,744
25,213

93,366
10,240
4,544
5,696

419
24,319
24,738

75,152
11,604
(40,385)
51,989

7,619
21,444
27,825

82,548
(710)
0
(710)

discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0

4,073

3,748

NET INCOME (LOSS) AVAILABLE TO COMMON

SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

5,696

$

47,916

$

(4,458)

SHARE DATA
Net income (loss) per share of common stock

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

0.21
0.21

$

2.44
2.46

(0.24)
(0.24)

Average common shares outstanding

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

27,716,895
27,538,955

19,650,005
19,449,560

18,748,757
18,748,757

See notes to consolidated ﬁnancial statements.

98

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

NET INCOME (LOSS)
Other comprehensive income (loss):
Unrealized gains (losses) on securities available for sale . . . . . . .
Unrealized gains (losses) on transfer of securities available for

sale (AFS) to held for investment (HTM) and securities HTM
to securities AFS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Reclassiﬁcation adjustment for (gains) and losses included in net

income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (beneﬁt) for income taxes . . . . . . . . . . . . . . . . . . . . .
Total other comprehensive income (loss)
. . . . . . . . . . . . . . . . .
COMPREHENSIVE INCOME (LOSS) . . . . . . . . . . . . . . . . .

2014

For the Year Ended December 31
2013
(Dollars in thousands)
$ 51,989

2012

$ (710)

$ 5,696

12,012

(22,532)

3,227

(3,137)

724

0

110
3,468
5,517
$11,213

(149)
(8,475)
(13,482)
$ 38,507

(6,632)
(1,315)
(2,090)
$(2,800)

See notes to consolidated ﬁnancial statements.

99

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

December 31,

2014

2013

(Dollars in thousands, except
share data)

ASSETS

Securities available for sale (at fair value)
Securities held for investment (fair value $208,787 in 2014)

64,411
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
36,128
Interest bearing deposits with other banks . . . . . . . . . . . . . . . . . . . . . . . . . . .
100,539
Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
741,375
. . . . . . . . . . . . . . . . . . . . . . . . . .
207,904
. . . . . . . . . . . . . .
949,279
Total securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,078
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,821,885
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(17,071)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Allowance for loan losses
1,804,814
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,086
Bank premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,462
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,309
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,454
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35,679
Banked owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
105,635
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,093,335

LIABILITIES

Demand deposits (noninterest bearing) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 725,238
652,353
NOW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
264,738
Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
450,172
Money market accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
173,247
Other time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,034
Brokered time certiﬁcates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
143,752
Time certiﬁcates of $100,000 or more . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,416,534
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
Common stock, par value $0.10 per share authorized 60,000,000 shares, issued

233,640
50,000
64,583
15,927
2,780,684

33,143,202 and outstanding 33,136,592 shares in 2014 and authorized
60,000,000 shares, issued 23,638,373 and outstanding 23,637,434 shares
in 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deﬁcit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .
Less: Treasury stock (6,610 shares in 2014 and 939 shares in 2013), at cost

3,300
379,249
(65,000)
(71)
317,478
(4,827)
312,651
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . $3,093,335

Accumulated other comprehensive income, net

. . . . . . . . . . . . . . . . . . . . . . .

$

48,561
143,063
191,624
641,611
0
641,611
13,832
1,304,207
(20,068)
1,284,139
34,505
6,860
0
718
0
95,651
$2,268,940

$ 464,006
540,288
192,491
331,184
154,743
9,776
113,557
1,806,045

151,310
50,000
53,610
9,371
2,070,336

2,364
277,290
(70,695)
(11)
208,948
(10,344)
198,604
$2,268,940

See notes to consolidated ﬁnancial statements.

100

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS

2014

For the Year Ended December 31,
2013
(Dollars in thousands)

2012

CASH FLOWS FROM OPERATING ACTIVITIES
Interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fees and commissions received . . . . . . . . . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Cash paid to suppliers and employees
Income taxes received (paid)
. . . . . . . . . . . . . . . . . . . . . . . . .
Origination of loans designated held for sale . . . . . . . . . . . . . . .
Sale of loans designated held for sale
. . . . . . . . . . . . . . . . . . .
Net change in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided (used) by operating activities . . . . . . . . . . .

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 . . . . . . . . . . .
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

$ 78,564
24,689
(4,508)
(81,268)
(239)
(188,952)
190,706
2,954
21,946

92,499
16,138
21,527
(280,137)
(65,340)
(154,772)
0
4,066

$ 73,849
24,168
(5,584)
(65,405)
(157)
(208,998)
231,187
792
49,852

155,627
0
67,330
(230,118)
0
(88,039)
379
8,843

$ 78,119
20,814
(9,003)
(71,016)
2
(188,064)
167,921
(835)
(2,062)

133,651
6,395
256,102
(384,120)
(500)
(54,633)
0
18,369

Reserve Bank Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,423

943

296

Purchase of Federal Home Loan Bank and Federal Reserve

Bank Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of bank owned life insurance . . . . . . . . . . . . . . . . . . .
Net cash from bank acquisition . . . . . . . . . . . . . . . . . . . . . . . .
Additions to bank premises and equipment . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .

Net cash (used) by investing activities

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in federal funds purchased and

repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Net change in borrowed funds
Issuance of common stock, net of related expense . . . . . . . . . . .
Repurchase of stock warrants, including related expense . . . . . . .
Stock based employee beneﬁt plans . . . . . . . . . . . . . . . . . . . . .
Redemption of preferred stock . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid on preferred shares . . . . . . . . . . . . . . . . . . . . .
Net cash provided by ﬁnancing activities
. . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year

(6,425)
(30,000)
110,996
(6,083)
(295,111)

(1,303)
0
0
(2,817)
(89,155)

(142)
0
0
(3,839)
(28,421)

93,446

47,085

40,223

63,852
0
24,637
0
142
0
0
182,080
(91,085)
191,624
$ 100,539

14,507
0
46,977
0
190
(50,000)
(2,819)
55,940
16,637
174,987
$ 191,624

551
0
0
(81)
196
0
(2,500)
38,389
7,906
167,081
$ 174,987

See notes to consolidated ﬁnancial statements.

101

SEACOAST BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Common Stock

Preferred Stock

Shares

Amount

Shares

Amount

Retained
Earnings
(Accumulated
Deﬁcit)

Treasury
Stock

Accumulated
Other
Comprehensive
Income (Loss),
Net

.

.

.

.

.

.

.

.

.

.

.

.
.

.
.

.
.

.
.

.
.

.
.
.

.
.
.

.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.
.
.
.

.
.
.
.
.
.
.

beneﬁt plans

(Dollars and shares in thousands)
BALANCE AT DECEMBER 31, 2011 .
.
.
.
.
Comprehensive loss .
.
.
Cash dividends on preferred shares
Stock based compensation expense
.
.
Common stock issued for stock based employee
.
. .
.
.
.
.
.
.
.
Purchase of stock warrant
.
.
Accretion on preferred stock discount
.
BALANCE AT DECEMBER 31, 2012 .
.
.
.
.
.
Comprehensive income .
.
.
.
.
Cash dividends on preferred shares
Stock based compensation expense
.
.
.
Common stock issued for stock based employee
.
.
.

.
.
.
Issuance of common stock, net of related
.
.
.
.
.
.
.
.
.
Redemption of preferred stock .
.
.
Accretion on preferred stock discount
.
BALANCE AT DECEMBER 31, 2013 .
.
.
.
.
Comprehensive income .
Stock based compensation expense
.
.
Common stock issued for stock based employee
.
.
.

beneﬁt plans

beneﬁt plans

expense .

.
.
.
.
.
.

.
.
.
.
.
.

.
.
.

.
.
.

.
.
.

.
.

.
.

.
.

.
.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

expense .

.
.
.
Issuance of common stock, net of related
.
.
.
Issuance of common stock, pursuant to
.
.
.
. .
.

.
.
Other .
.
.
BALANCE AT DECEMBER 31, 2014 .

acquisition .
.
.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.

.

.

.

.

.

.

.

.

.

.

. .

.

.
.
.

.

.
.
.

.
.
.

.
.
.
.
.
.

.

.

18,937
0
0
0

30
0
0
18,967
0
0
0

1,894
0
0
0

3
0
0
1,897
0
0
0

19

2

4,652
0
0
23,638
0
0

465
0
0
2,364
0
0

147

1

2,326

233

2
0
0
0

0
0
0
2
0
0
0

0

0
(2)
0
0
0
0

0

0

0
0
0

Paid-in
Capital/
Warrants

229,623
0
0
796

100
(81)
0
230,438
0
0
246

47,497
0
0
0

0
0
1,249
48,746
0
0
0

(114,152)
(710)
(2,500)
0

0
0
(1,249)
(118,611)
51,989
(2,819)
0

0

95

0

0
(50,000)
1,254
0
0
0

46,511
0
0
277,290
0
1,299

0

0

171

24,404

0
0
(1,254)
(70,695)
5,696
0

0

0

(13)
0
0
0

(49)
0
0
(62)
0
0
0

51

0
0
0
(11)
0
0

(60)

0

5,228
(2,090)
0
0

0
0
0
3,138
(13,482)
0
0

Total

170,077
(2,800)
(2,500)
796

54
(81)
0
165,546
38,507
(2,819)
246

0

148

0
0
0
(10,344)
5,517
0

0

0

46,976
(50,000)
0
198,604
11,213
1,299

112

24,637

7,026
.
.
0
. $33,137

702
0
$3,300

$

76,085
0
0
0
0 $379,249

0
(1)
$ (65,000)

0
0
$ (71)

0
0
$ (4,827)

76,787
0
$312,651

$

See notes to consolidated ﬁnancial statements.

102

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, Glades, DeSoto,
Palm Beach, Martin, St. Lucie, Brevard, Indian River, Broward, Orange, Lake, Volusia and Seminole counties,
which are located in central and southeast Florida. The bank operates full service branches within its markets,
and during 2014 acquired 12 additional branches as part of the BANKshares acquisition.

The consolidated ﬁnancial statements include the accounts of Seacoast and all its majority-owned
subsidiaries but exclude trusts created for the issuance of trust preferred securities. In consolidation, all
signiﬁcant intercompany accounts and transactions are eliminated.

The accounting and reporting policies of the Company are in accordance with accounting principles

generally accepted in the United States of America, and they conform to general practices within the
applicable industries.

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, and valuation of deferred tax valuation allowance. 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.

103

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note A
Signiﬁcant Accounting Policies − (continued)

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 or if related to other factors are
recorded as other comprehensive income.

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 nonaccrual status.
If borrowers perform pursuant to the modiﬁed loan terms for at least six months and the remaining loan
balances are considered collectible, the loans are returned to accrual status. When the Company modiﬁes the
terms of an existing loan that is not considered a troubled debt restructuring, the Company follows the
provisions of ASC 310 ‘‘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

104

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note A
Signiﬁcant Accounting Policies − (continued)

against interest income. Consumer loans that become 120 days past due are generally charged off. When
borrowers demonstrate over an extended period the ability to repay a loan in accordance with the contractual
terms of a loan classiﬁed as nonaccrual, the loan is returned to accrual status. Interest income on nonaccrual
loans is either recorded using the cash basis method of accounting or recognized after the principal has been
reduced to zero, depending on the type of loan.

Purchased loans: As a part of business acquisitions, the Company acquires loans, some of which have

shown evidence of credit deterioration since origination and others without speciﬁcally identiﬁed credit
deﬁciency factors. These acquired loans were recorded at the acquisition date fair value, and after acquisition,
any losses are recognized through the allowance for loan losses. Accordingly, the associated allowance for
credit losses related to these loans is not carried over at the acquisition date.

These loans fall into two groups: purchased credit-impaired (‘‘PCI’’) and purchased unimpaired loans

(‘‘PUL’’). The Company estimates the amount and timing of expected cash ﬂows for each PUL and the
expected cash ﬂows in excess of the amount paid is recorded as interest income over the remaining life of the
loan. The PUL’s were evaluated to determine estimated fair values as of the acquisition date. Based on
management’s estimate of fair value, each PUL was assigned a discount credit mark.

For PCI loans the Company updates the amount of loan principal and interest cash ﬂows expected to be

collected, incorporating assumptions regarding default rates, loss severities, the amounts and timing of
prepayments and other factors that are reﬂective of current market conditions on a quarterly basis. Probable
decreases in expected loan principal cash ﬂows trigger the recognition of impairment, which is then measured as
the present value of the expected principal loss plus any related foregone interest cash ﬂows discounted at the
loan’s effective interest rate. Impairments that occur after the acquisition date are recognized through the provision
for loan losses. Probable and signiﬁcant increases in expected principal cash ﬂows would ﬁrst reverse any
previously recorded allowance for loan losses; any remaining increases are recognized prospectively as interest
income. The impacts of (i) prepayments, (ii) changes in variable interest rates, and (iii) any other changes in the
timing of expected cash ﬂows are recognized prospectively as adjustments to interest income. Disposals of loans,
which may include sales of loans, receipt of payments in full by the borrower, or foreclosure, result in removal of
the loan from the purchased credit impaired portfolio. In contrast, PUL’s are evaluated using the same procedures
as used for the Company’s non-purchased loan portfolio.

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 (‘‘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.

105

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note A
Signiﬁcant Accounting Policies − (continued)

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 fair value, if elected or the lower of cost (which is
the carrying amount net of deferred fees and costs and applicable allowance for loan losses and reserve for
unfunded lending commitments) or fair market value less costs to sell. Adjustments to reﬂect unrealized gains
and losses resulting from changes in fair value and realized gains and losses upon ultimate sale of the loans
are classiﬁed as noninterest income in the Consolidated Statements of Income. At the time of the transfer to
loans held for sale, if the fair market value is less than cost, the difference is recorded as additional provision
for credit losses in the results of operations. Fair market value is determined based on quoted market prices
for the same or similar loans, outstanding investor commitments or discounted cash ﬂow analyses using
market assumptions.

Fair market value for substantially all the loans in loans held for sale 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.

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.

106

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note A
Signiﬁcant Accounting Policies − (continued)

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
expense. 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.

Intangible Assets: Mergers and acquisitions are accounted for using the acquisition method of
accounting, which requires that acquired assets and liabilities are recorded at their fair values. This often
involves estimates based on third party valuations or internal valuations based on discounted cash ﬂow
analyses or other valuation techniques, all of which are inherently subjective. The amortization of identiﬁed
intangible assets is based upon the estimated economic beneﬁts to be received, which is also subjective.

Goodwill resulting from business combinations is generally determined as the excess of the fair value of

the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair
value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible
assets acquired in a purchase business combination and determined to have an indeﬁnite useful life are not
amortized, but tested for impairment at least annually. The Company has selected October 31 as the date to
perform the annual impairment test. Intangible assets with deﬁnite useful lives are amortized over their
estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an
indeﬁnite life on the Company’s balance sheet.

The core deposit intangibles are intangible assets arising from either whole bank acquisitions or branch

acquisitions. They are initially measured at fair value and then amortized over a seven-year period on a
straight line basis. The Company periodically evaluates whether events and circumstances have occurred that
may affect the estimated useful lives or the recoverability of the remaining balance of the intangible assets.

107

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note A
Signiﬁcant Accounting Policies − (continued)

Bank owned life insurance (BOLI): The Company, through its subsidiary bank, has purchased life
insurance policies on certain key executives. Bank owned life insurance is recorded at the amount that can be
realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for
other charges or other amounts due that are probable at settlement.

Revenue Recognition: Revenue 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 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 incurred in the loan portfolio and unfunded lending
commitments as of the date of the consolidated ﬁnancial statements. The Company employs a variety of
modeling and estimation tools in developing the appropriate allowance for loan losses and reserve for
unfunded lending commitments. The allowance for loan losses and reserve for unfunded lending commitments
consists of formula-based components for both commercial and consumer loans, allowance for impaired
commercial loans and allowance related to additional factors that are believed indicative of current trends and
business cycle issues.

If necessary, a speciﬁc allowance is established for individually evaluated impaired loans. The speciﬁc

allowance established for these loans is based on a thorough analysis of the most probable source of
repayment, including the present value of the loan’s expected future cash ﬂows, the loan’s estimated market
value, or the estimated fair value of the underlying collateral depending on the most likely source of
repayment. General allowances are established for loans grouped into pools based on similar characteristics. In
this process, general allowance factors are based on an analysis of historical charge-off experience, portfolio
trends, regional and national economic conditions, and expected loss given default derived from the
Company’s internal risk rating process.

The Company monitors qualitative and quantitative trends in the loan portfolio, including changes in the

levels of past due, criticized and nonperforming loans. The distribution of the allowance for loan losses and
reserve for unfunded lending commitments between the various components does not diminish the fact that
the entire allowance for loan losses and reserve for unfunded lending commitments is available to absorb
credit losses in the loan portfolio. The principal focus is, therefore, on the adequacy of the total allowance for
loan losses and reserve for unfunded lending commitments.

In addition, various regulatory agencies, as an integral part of their examination process, periodically

review the Company’s bank subsidiary’s allowance for loan losses and reserve for unfunded lending
commitments. These agencies may require such 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.

108

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note A
Signiﬁcant Accounting Policies − (continued)

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 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
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, 2014

Accounting Standards Update No. 2014-04 — Reclassiﬁcation of Residential Real Estate Collateralized
Consumer Mortgage Loans upon Foreclosure — In January 2014, FASB issued ASU 2014-04. This amendment is
intended to reduce diversity in practice by clarifying when an in substance repossession or foreclosure occurs, and
when a creditor should be considered to have received physical possession of residential real estate property. The
Update also deﬁnes when the accounting change for the loan should take place.

The amendments in this Update are effective for ﬁscal years beginning after December 15, 2014. Early
adoption is permitted. The Company will adopt the methodologies prescribed by this ASU by the date required,
and does not anticipate that the ASU will have a material effect on its ﬁnancial position or results of operations.

In April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update

No. 2014-08 (ASU 2014-08) ‘‘Presentation of Financial Statements (Topic 205) and Property, Plant, and
Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of
an Entity.’’ ASU 2014-08 raises the threshold for a disposal to qualify as a discontinued operation and requires
new disclosures of both discontinued operations and certain other disposals that do not meet the deﬁnition
of a discontinued operation. It is effective for annual periods beginning on or after December 15, 2014.
Early adoption is permitted but only for disposals that have not been reported in ﬁnancial statements
previously issued. We do not expect the impact of the adoption of ASU 2014-08 to be material to our
consolidated ﬁnancial statements.

Accounting Standards Update No. 2014-09 — Revenue from Contracts with Customers (Topic 606). In

May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2014-09. The ASU is a converged standard between the FASB and the IASB that provides a single

109

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note B
Recently Issued Accounting Standards, Not Adopted as of December 31, 2014 − (continued)

comprehensive revenue recognition model for all contracts with customers across transactions and industries.
The primary objective of the ASU is revenue recognition that represents the transfer of promised goods or
services to customers in an amount that reﬂects the consideration to which the entity expects to be entitled in
exchange for those goods or services. The ASU is effective for interim and annual reporting periods beginning
after December 15, 2016. The Company is currently assessing the impact of adoption of ASU 2014-09.

In June 2014, the FASB issued Accounting Standards Update No. 2014-10 (ASU 2014-10)

‘‘Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including
an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation’’. ASU 2014-10 removes the
deﬁnition of a development stage entity from the Master Glossary of the ASC thereby removing the ﬁnancial
reporting distinction between development stage entities and other reporting entities. The amendment
eliminating the exception to the sufficiency-of-equity-at-risk criterion for development stage entities should be
applied retrospectively for annual reporting periods beginning after December 15, 2015, and interim periods
therein. Early application of these amendments is permitted. We do not expect the impact of the adoption of
ASU 2014-10 to be material to our consolidated ﬁnancial statements.

Accounting Standards Update No. 2014-11 — Transfers and Servicing (Topic 860): Repurchase-to-Maturity
Transactions, Repurchase Financings, and Disclosures. In June 2014, the FASB issued ASU No. 2014-11. This ASU
requires secured borrowing accounting treatment for repurchase-to-maturity transactions and provides guidance on
accounting for repurchase ﬁnancing arrangements. This ASU is effective for interim and annual reporting periods
beginning after December 15, 2014. The adoption of this ASU will result in additional disclosures, but is not expected
to impact signiﬁcantly the Company’s consolidated ﬁnancial position or results of operations.

Accounting Standards Update No. 2014-12 — Compensation — Stock Compensation (Topic 718):

Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target
Could be Achieved after the Requisite Service Period. In June 2014, the FASB issued ASU No. 2014-12. This
ASU requires that a performance target that affects vesting and that could be achieved after the requisite
service period be treated as a performance condition and should not be reﬂected in estimating the grant-date
fair value of the award. This ASU is effective for interim and annual reporting periods beginning after
December 15, 2015 with earlier adoption permitted. The adoption of this ASU is not expected to impact
signiﬁcantly the Company’s consolidated ﬁnancial position or results of operations.

FASB issued Accounting Standards Update 2014-14 — Classiﬁcation of Certain Government-Guaranteed
Mortgage Loans upon Foreclosure. This update requires creditors to reclassify loans that are within the scope
of the ASU to ‘‘other receivables’’ upon foreclosure, rather than reclassifying them to other real estate owned.
The separate other receivable recorded upon foreclosure is to be measured based on the amount of the loan
balance (principal and interest) the creditor expects to recover from the guarantor. The new guidance is
effective for public business entities for annual periods, and interim periods within those annual periods,
beginning after December 15, 2014. The impact of adoption of this ASU by the Company is not expected to
impact signiﬁcantly the Company’s consolidated ﬁnancial position or results of operations.

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 $56.6 million for 2014 and $75.4 million for 2013.

110

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note C
Cash, Dividend and Loan Restrictions − (continued)

Under Federal Reserve regulation, Seacoast National is limited as to the amount it may loan to its

affiliates, including the Company, unless such loans are collateralized by speciﬁed obligations. At
December 31, 2014, the maximum amount available for transfer from Seacoast National to the Company in
the form of loans approximated $41.8 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 can distribute dividends of approximately $59.0 million to the Company as of December 31, 2014,
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,

2014 and December 31, 2013 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 mortgage-backed securities . . . . . . . . . .
Private collateralized mortgage obligations . . . .
Collateralized loan obligations . . . . . . . . . . . . .
Obligations of state and political subdivisions . .

SECURITIES HELD FOR INVESTMENT

Mortgage-backed securities of U.S. Government
Sponsored Entities . . . . . . . . . . . . . . . . . . .

Collateralized mortgage obligations of

U.S. Government Sponsored Entities. . . . . . .
Collateralized loan obligations . . . . . . . . . . . . .

December 31, 2014

Gross
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

(In thousands)

$ 3,876

$

23

$

0

$

3,899

123,981

1,501

(423)

125,059

352,483
29,967
85,175
127,397
23,511
$746,390

1,075
291
688
0
810
$4,388

(6,077)
0
(728)
(2,172)
(3)
$(9,403)

347,481
30,258
85,135
125,225
24,318
$741,375

$ 67,535

$ 812

$

0

$ 68,347

114,541
25,828
$207,904

695
0
$1,507

(280)
(343)
$ (623)

114,956
25,485
$208,788

111

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note D
Securities − (continued)

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 mortgage-backed securities . . . . . . . . . .
Private collateralized mortgage obligations . . . .
Collateralized loan obligations . . . . . . . . . . . . .
Obligations of state and political subdivisions . .

SECURITIES HELD FOR INVESTMENT

Mortgage-backed securities of U.S. Government
Sponsored Entities . . . . . . . . . . . . . . . . . . .

Collateralized mortgage obligations of

U.S. Government Sponsored Entities. . . . . . .
Collateralized loan obligations . . . . . . . . . . . . .

December 31, 2013

Gross
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

(In thousands)

$

100

$

0

$

0

$

100

129,468

1,456

(4,189)

126,735

383,392
29,800
76,520
32,592
6,586
$658,458

$

$

0

0
0
0

776
0
731
0
193
$3,156

$

$

0

0
0
0

(14,747)
(226)
(413)
(413)
(15)
$(20,003)

$

$

0

0
0
0

369,421
29,574
76,838
32,179
6,764
$641,611

$

$

0

0
0
0

Proceeds from sales of securities during 2014 were $21,514,000 with gross gains of $456,000 and gross

losses of $0. Proceeds from sales of securities during 2013 were $67,330,000 with gross gains of $792,000
and gross losses of $373,000. Proceeds from sales of securities during 2012 were $256,102,000 with gross
gains of $7,833,000 and gross losses of $214,000.

Securities with a carrying and fair value of $107,660,000 and $107,500,000, respectively, at

December 31, 2014, were pledged as collateral for United States Treasury deposits, other public deposits and
trust deposits. Securities with a carrying and fair value of $232,677,000 and $227,620,000, respectively, were
pledged as collateral for repurchase agreements.

On May 31, 2014, management identiﬁed $158.8 million of investment securities available for sale
and transferred them to held for investment. The unrealized holding losses at the date of transfer totaled
$3.1 million. The securities that were transferred into the held for investment category from the available for
sale category, the unrealized losses at the date of transfers will continue to be reported in other comprehensive
income, and will be amortized over the remaining life of the secuiruty as an adjustment of yield consistent
with the amortization of a discount. The amortization of unrealized holding losses reported in equity will
offset the effect or interest income of the amortization of the discount.

The amortized cost and fair value of securities at December 31, 2014, 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.

112

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note D
Securities − (continued)

Held for Investment
Fair
Value

Amortized
Cost

(In thousands)

Due in less than one year. . . . . . . . . . . . . . . . . .
Due after one year through ﬁve years . . . . . . . . .
Due after ﬁve years through ten years . . . . . . . . .
Due after ten years . . . . . . . . . . . . . . . . . . . . . .

$

$

0
0
0
0
0

0
0
0
0
0

Available for Sale

Amortized
Cost

Fair
Value

$

$

(In thousands)
0
842
24,239
129,703
154,784

0
847
24,178
128,417
153,442

Mortgage-backed securities of U.S. Government

Sponsored Entities . . . . . . . . . . . . . . . . . . . . .

67,535

68,347

123,981

125,059

Collateralized mortgage obligations of

U.S. Government Sponsored Entities . . . . . . . .
Private mortgage-backed securities . . . . . . . . . . .
Collateralized loan obligations . . . . . . . . . . . . . .

114,541
0
25,828
$207,904

114,956
0
25,485
$208,788

352,483
29,967
85,175
$746,390

347,481
30,258
85,135
$741,375

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, 2014 and
December 31, 2013, respectively.

Less than 12 months
Fair
Value

Unrealized
Losses

December 31, 2014
12 months or longer
Fair
Value

Unrealized
Losses

(In thousands)

Total

Fair
Value

Unrealized
Losses

U.S. Treasury securities and

obligations of U.S. Government
Sponsored Entities . . . . . . . . . . . $

100

$

0

$

0

$

0

$

100

$

0

Mortgage-backed securities of
U.S. Government Sponsored
Entities . . . . . . . . . . . . . . . . . . .

Collateralized mortgage obligations
of U.S. Government Sponsored
Entities . . . . . . . . . . . . . . . . . . .

Private collateralized mortgage

obligations . . . . . . . . . . . . . . . . .
Collateralized loan obligations . . . . .
Obligations of state and political

36,890

(153)

21,640

(271)

58,530

(424)

100,148

(833)

170,400

(5,523)

270,548

(6,356)

61,554
100,714

(914)
(1,769)

10,091
24,511

(157)
(403)

71,645
125,225

(1,071)
(2,172)

subdivisions . . . . . . . . . . . . . . . .
Total temporarily impaired securities

1,734
$301,140

(3)
$(3,672)

0
$226,642

0
$(6,354)

1,734
$527,782

(3)
$(10,026)

113

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note D
Securities − (continued)

Less than 12 months
Fair
Value

Unrealized
Losses

December 31, 2013
12 months or longer
Fair
Value

Unrealized
Losses

(In thousands)

Total

Fair
Value

Unrealized
Losses

Mortgage-backed securities of
U.S. Government Sponsored
Entities . . . . . . . . . . . . . . . . . . . $ 33,425

$ (2,045)

$35,043

$(2,144)

$ 68,468

$ (4,189)

Collateralized mortgage obligations
of U.S. Government Sponsored
Entities . . . . . . . . . . . . . . . . . . .
Private mortgage-backed securities . .
Private collateralized mortgage

obligations . . . . . . . . . . . . . . . . .
Collateralized loan obligations . . . . .
Obligations of state and political

287,312
29,574

(12,450)
(226)

45,657
0

(2,297)
0

332,969
29,574

(14,747)
(226)

47,653
32,179

(413)
(413)

0
0

0
0

(1)

47,653
32,179

(413)
(413)

627

(15)

subdivisions . . . . . . . . . . . . . . . .

502

(14)

125

Total temporarily impaired

securities . . . . . . . . . . . . . . . . . . $430,645

$(15,561)

$80,825

$(4,442)

$511,470

$(20,003)

At December 31, 2014, approximately $1.1 million of the unrealized losses pertain to private label

securities secured by collateral originated in 2005 and prior. Their fair value is $71.6 million and is
attributable to a combination of factors, including relative changes in interest rates since the time of purchase.
The collateral underlying these mortgage investments are 30- and 15-year ﬁxed and 10/1 adjustable rate
mortgage loans with low loan to values, subordination and historically have had minimal foreclosures and
losses. Based on its assessment of these factors, management believes that the unrealized losses on these debt
security holdings are a function of changes in investment spreads and interest rate movements and not changes
in credit quality. Management expects to recover the entire amortized cost basis of these securities.

At December 31, 2014, the Company also had $6.8 million of unrealized losses on collateralized
mortgage obligations and mortgage backed securities of government sponsored entities having a fair value of
$329.1 million that were attributable to a combination of factors, including relative changes in interest rates
since the time of purchase. The contractual cash ﬂows for these securities are guaranteed by U.S. government
agencies and U.S. government-sponsored enterprises. Based on 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.

At December 31, 2014, the Company also had $2.2 million of unrealized losses on collateralized loan

obligations having a fair value of $125.2 million that were attributable to a combination of factors, including
relative changes in interest rates, spreads and interest movements since the time of purchase. Based on its
assessment of these factors, management believes that the unrealized losses on these debt security holdings are
a function of changes in investment spreads and interest movements and not changes in credit quality.
Management expects to recover the entire amortized cost basis of these securities.

As of December 31, 2014, management does not intend to sell securities that are in unrealized loss
positions and it is not more likely than not that the Company will be required to sell these securities before
recovery of the amortized cost basis. Therefore, management does not consider any investment to be other-
than-temporarily impaired at December 31, 2014.

114

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note D
Securities − (continued)

Included in other assets is $16.3 million of Federal Home Loan Bank and Federal Reserve Bank stock stated

at par value. At December 31, 2014, the Company has not identiﬁed events or changes in circumstances which
may have a signiﬁcant adverse effect on the fair value of the $16.3 million of cost method investment securities.

Note E
Loans

Information relating to loans at December 31 is summarized as follows:

2014

Portfolio
Loans

PCI
Loans

PUL’s

Total

(In thousands)

Construction and land development . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . .
Commerical and ﬁnancial. . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET LOAN BALANCES . . . . . . . . . . . . . . . . .

$

65,896
610,863
639,428
120,763
50,543
512
$1,488,005

$1,557
4,092
851
1,312
2
0
$7,814

$ 19,583
222,192
46,618
35,321
2,352
0
$326,066

Construction and land development . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . .
Commerical and ﬁnancial. . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET LOAN BALANCES . . . . . . . . . . . . . . . . .

$

67,450
520,382
592,746
78,636
44,713
280
$1,304,207

$0
0
0
0
0
0
$0

2013
(In thousands)

$0
0
0
0
0
0
$0

$
87,036
$ 837,147
$ 686,897
$ 157,396
52,897
$
512
$
$1,821,885

$
67,450
$ 520,382
$ 592,746
78,636
$
44,713
$
$
280
$1,304,207

(1) Net loan balances at December 31, 2014 and 2013 include deferred costs of $3,645,000 and $2,618,000,

respectively.

Purchased Loans PCI loans are accounted for pursuant to ASC Topic 310-30. The excess of cash ﬂows
expected to be collected over the estimated fair value is referred to as the accretable yield and is recognized in
interest income over the remaining life of the loan in situations where there is a reasonable expectation about
the timing and amount of cash ﬂows expected to be collected. The difference between the contractually
required payments and the cash ﬂows expected to be collected at acquisition, considering the impact of
prepayments, is referred to as the nonaccretable difference.

We have applied ASC Topic 310-20 accounting treatment to PULs. The unamortized credit mark
established at acquisition on the loans has been ascribed as an accretable yield that is accreted into interest
income over the estimated remaining life of the loans.

115

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note E
Loans − (continued)

The table below summarizes the total contractually required principal and interest cash payments,
management’s estimate of expected total cash payments and fair value of the loans as of the acquisition date.
Contractually required principal and interest payments have been adjusted for estimated prepayments.

October 1, 2014

Contractually required principal and interest . . . . . . . . . . . . . . .
Non-accretable difference . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash ﬂows expected to be collected . . . . . . . . . . . . . . . . . . .
Accretable yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Acquired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The components of purchased loans are as follows:

December 31, 2014

Construction and land development . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and ﬁnancial. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Carrying value of acquired loans . . . . . . . . . . . . . . . . . . . . . . .

Carrying value, net of allowance of $64 . . . . . . . . . . . . . . . . . .

PCI Loans

$17,169
(7,196)
9,973
(1,256)
$ 8,717

PUL’s
(In thousands)
$367,881
0
367,881
(11,235)
$356,646

Total

$385,050
(7,196)
377,854
(12,491)
$365,363

PCI

$1,557
4,092
851
1,312
2
0
$7,814

$7,750

PULs
(In thousands)
$ 19,583
222,192
46,618
35,321
2,352
0
$326,066

$326,066

Total

$ 21,140
226,284
47,469
36,633
2,354
0
$333,880

$333,816

We adjusted our estimates of future expected losses, cash ﬂows and renewal assumptions during the
current quarter for PCI loans. The table below summarizes the changes in total contractually required principal
and interest cash payments, management’s estimate of expected total cash payments and carrying value of PCI
loans during the three month period ending December 31, 2014. Contractually required principal and interest
payments have been adjusted for estimated prepayments.

Activity during the three month period ending
December 31, 2014

30-Sep-14 Additions

Deletions

Accretion

Reclassiﬁcations
from
nonaccretable
difference

Contractually required principal and interest . .
Non-accretable difference. . . . . . . . . . . . . .
Cash ﬂows expected to be collected . . . . . . .
Accretable yield . . . . . . . . . . . . . . . . . . .
Carrying value of acquired loans . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . .
Carrying value less allowance for loan losses .

$0
0
0
0
0
0
$0

$17,169
(7,196)
9,973
(1,256)
8,717
0
$ 8,717

(In thousands)
$ 0
0
0
96
96
0
$96

$(2,338)
1,289
(1,049)
50
(999)
0
$ (999)

$ 0
82
82
(82)
0
0
$ 0

31-Dec-14

$14,831
(5,825)
9,006
(1,192)
7,814
(64)
$ 7,750

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 $4,514,000 and $4,771,000 at December 31, 2014 and 2013,
respectively. During 2014 new loans totaling $867,000 were made and reductions totaled $1,173,000.

At December 31, 2014 and 2013 loans pledged as collateral for borrowings totaled $130 million and

$50.0 million, respectively.

116

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note E
Loans − (continued)

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 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.

117

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note E
Loans − (continued)

Consumer Loans The Company originates consumer loans including installment loans, loans for
automobiles, boats, and other personal, family and household purposes. For each loan type several factors
including debt to income, type of collateral and loan to collateral value, credit history and Company
relationship with the borrower is considered during the underwriting process.

The following tables present the contractual aging of the recorded investment in past due loans by class

of loans as of December 31, 2014 and 2013:

December 31, 2014

Portfolio Loans
Construction and land

development

. . . . . . . . . . .
Commercial real estate . . . . . .
Residential real estate . . . . . . .
Commerical and ﬁnancial . . . .
Consumer . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . .

Purchased Unimpaired Loans
Construction and land

development

. . . . . . . . . . .
Commercial real estate . . . . . .
Residential real estate . . . . . . .
Commerical and ﬁnancial . . . .
Consumer . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . .

Purchased Impaired Loans
Construction and land

development

. . . . . . . . . . .
Commercial real estate . . . . . .
Residential real estate . . . . . . .
Commerical and ﬁnancial . . . .
Consumer . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . .
Total Loans . . . . . . . . . . . . . .

Accruing
30 − 59 Days
Past Due

Accruing
60 − 89 Days
Past Due

Accruing
Greater Than
90 Days

Nonaccrual

Current

Total
Financing
Receivables

(In thousands)

$

0
0
17
0
0
0
$ 17

$

0
41
39
0
0
0
$ 80

$

0
0
116
0
0
0
$116
$213

$

534
3,457
14,381
0
191
0
$18,563

$

65,362
606,642
624,612
120,531
50,071
512
$1,467,730

$

65,896
610,863
639,428
120,763
50,543
512
$1,488,005

$

$

0
0
5
0
0
0
5

$

19,280
219,833
46,432
34,368
2,352
0
$ 322,265

$

19,583
222,192
46,618
35,321
2,352
0
$ 326,066

$ 1,428
733
411
0
0
0
$ 2,572
$21,140

$

129
2,993
236
1,312
2
0
$
4,672
$1,794,667

$

1,557
4,092
851
1,312
2
0
$
7,814
$1,821,885

$

0
764
259
232
256
0
$1,511

$ 303
2,318
142
953
0
0
$3,716

$

0
7
88
0
0
0
$
95
$5,322

$

0
0
159
0
25
0
$184

$

$

0
0
0
0
0
0
0

$

0
359
0
0
0
0
$359
$543

118

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note E
Loans − (continued)

December 31, 2013(2)

Accruing
30 − 59 Days
Past Due

Accruing
60 − 89 Days
Past Due

Accruing
Greater Than
90 Days

Nonaccrual

Current

Total
Financing
Receivables

(In thousands)

Construction and land

development

. . . . . . . . . . .
Commercial real estate . . . . . .
Residential real estate . . . . . . .
Commerical and ﬁnancial . . . .
Consumer . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . .

$

3
684
974
353
33
0
$2,047

$

0
345
909
0
27
0
$1,281

$

0
0
160
0
0
0
$160

$ 1,302
5,111
20,705
13
541
0
$27,672

$

66,145
514,242
569,998
78,270
44,112
280
$1,273,047

$

67,450
520,382
592,746
78,636
44,713
280
$1,304,207

(2) All purchased loans disclosed were acquired in 2014 and were therefore not presented as part of this

table.

Nonaccrual loans and loans past due ninety days or more were $21.1 million and $27.8 million at

December 31, 2014 and 2013, respectively. The reduction in interest income associated with loans on
nonaccrual status was approximately $1.9 million, $1.0 million, and $1.9 million, for the years ended
December 31, 2014, 2013, and 2012, 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. The principal balance of loans classiﬁed as doubtful are generally charged off. Loans that do not
currently expose the Company to sufficient risk to warrant classiﬁcation in one of the aforementioned categories,
but possess weaknesses that deserve management’s close attention are deemed to be Special Mention. Risk ratings
are updated any time the situation warrants.

Loans not meeting the criteria above are considered to be pass-rated loans and risk grades are

recalculated at least annually by the loan relationship manager. The following tables present the risk category
of loans by class of loans based on the most recent analysis performed as of December 31, 2014 and 2013:

December 31, 2014

Pass . . . . . . . . . . . . . . . . . . . . .
Special mention . . . . . . . . . . . . . .
Substandard . . . . . . . . . . . . . . . .
Doubtful
. . . . . . . . . . . . . . . . . .
Nonaccrual . . . . . . . . . . . . . . . . .
Pass-Troubled debt restructures. . . . .
Troubled debt restructures . . . . . . . .

Construction
& Land
Development

Commercial
Real Estate

Residential
Real Estate

Commercial
and
Financial

Consumer

Total

$79,397
1,815
1,685
0
1,963
1,672
504
$87,036

(In thousands)

$797,934
11,709
15,325
0
4,189
2,332
5,658
$837,147

$655,518
546
1,733
0
14,797
17
14,286
$686,897

$155,281
993
1,002
0
0
0
120
$157,396

$51,764
590
456
0
191
0
408
$53,409

$1,739,894
15,653
20,201
0
21,140
4,021
20,976
$1,821,885

119

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note E
Loans − (continued)

December 31, 2013

Pass . . . . . . . . . . . . . . . . . . . . .
Special mention . . . . . . . . . . . . . .
Substandard . . . . . . . . . . . . . . . .
Doubtful
. . . . . . . . . . . . . . . . . .
Nonaccrual . . . . . . . . . . . . . . . . .
Pass-Troubled debt restructures. . . . .
Troubled debt restructures . . . . . . . .

Construction
& Land
Development

Commercial
Real Estate

Residential
Real Estate

Commercial
and
Financial

Consumer

Total

$63,186
583
0
0
1,302
1,838
541
$67,450

(In thousands)

$485,268
6,810
15,886
0
5,111
5,584
1,723
$520,382

$554,681
824
1,670
0
20,705
30
14,836
$592,746

$77,840
382
248
0
13
0
153
$78,636

$43,267
300
453
0
541
0
432
$44,993

$1,224,242
8,899
18,257
0
27,672
7,452
17,685
$1,304,207

Note F
Impaired Loans and Allowance for Loan Losses

During the twelve months ended December 31, 2014, the total of newly identiﬁed TDRs was

$5.5 million, of which $4.3 million were accruing commercial real estate loans, $0.7 million were accruing
residential real estate mortgage loans and $0.1 million were accruing construction and land development loans.

The following table presents loans that were modiﬁed within the twelve months ending December 31, 2014:

Construction and land development . . .
Residential real estate . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . .

Pre-
Modiﬁcation
Outstanding
Recorded
Investment

$

72
687
4,300
$5,059

Post-
Modiﬁcation
Outstanding
Recorded
Investment
(In thousands)

$

71
638
3,975
$4,684

Number of
Contracts

$1
6
1
8

Speciﬁc
Reserve
Recorded

Valuation
Allowance
Recorded

$0
0
0
$0

$ 1
49
325
$375

No accruing loans that were restructured within the twelve months ending December 31, 2014 defaulted

during the twelve months ended December 31, 2014. The Company considers a loan to have defaulted when it
becomes 90 or more days delinquent under the modiﬁed terms, has been transferred to non-accrual status or
has been transferred to other real estate owned.

At December 31, 2014 and 2013, the Company’s recorded investment in impaired loans (excluding

purchased loans) and related valuation allowance was as follows:

Recorded
Investment

Impaired Loans for the Year Ended December 31, 2014
Related
Valuation
Allowance
(In thousands)

Average
Recorded
Investment

Unpaid
Principal
Balance

Interest
Income
Recognized

With no related allowance recorded:

Construction and land development . . .
Commercial real estate . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . .
Commercial and ﬁnancial . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . .

$ 1,824
3,087
11,898
120
65

$ 2,239
4,600
16,562
120
93

$0
0
0
0
0

$ 2,080
2,713
11,366
110
291

$106
20
198
8
1

120

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note F
Impaired Loans and Allowance for Loan Losses − (continued)

Recorded
Investment

Impaired Loans for the Year Ended December 31, 2014
Related
Valuation
Allowance
(In thousands)

Average
Recorded
Investment

Unpaid
Principal
Balance

Interest
Income
Recognized

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 . . . . . . . . . . . . . . . . . . . . .

886
8,359
16,804
0
534

2,710
11,446
28,702
120
599
$43,577

931
8,469
17,693
0
562

3,170
13,069
34,255
120
655
$51,269

159
529
2,741
0
112

159
529
2,741
0
112
$3,541

1,213
10,446
20,793
47
543

3,293
13,159
32,159
157
834
$49,602

81
461
445
0
25

187
481
643
8
26
$1,345

Recorded
Investment

Impaired Loans for the Year Ended December 31, 2013
Related
Valuation
Allowance
(In thousands)

Average
Recorded
Investment

Unpaid
Principal
Balance

Interest
Income
Recognized

With no related allowance recorded:

Construction and land development . . .
Commercial real estate . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . .
Commercial and ﬁnancial . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . .

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 . . . . . . . . . . . . . . . . . . . . .

$ 2,561
4,481
12,366
153
425

1,120
7,937
23,365
13
548

3,681
12,418
35,731
166
973
$52,969

$ 3,180
6,577
17,372
153
569

1,197
8,046
24,766
13
573

4,377
14,623
42,138
166
1,142
$62,446

$

0
0
0
0
0

149
638
4,528
13
118

149
638
4,528
13
118
$5,446

$ 2,446
7,382
14,512
19
162

1,347
17,264
22,899
1
571

3,793
24,646
37,411
20
733
$66,603

$ 102
28
81
9
19

36
395
566
1
23

138
423
647
10
42
$1,260

Impaired loans also include loans that have been modiﬁed in troubled debt restructurings where

concessions to borrowers who experienced ﬁnancial difficulties have been granted. At December 31, 2014 and
2013, accruing TDRs totaled $25.0 million and $25.1 million, respectively.

121

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note F
Impaired Loans and Allowance for Loan Losses − (continued)

The average recorded investment in impaired loans for the years ended December 31, 2014, 2013 and 2012
was $49,602,000, $66,603,000 and $96,439,000, respectively. The impaired loans were measured or impairment
based on the value of underlying collateral or the present value of expected future cash ﬂows discounted at the
loan’s effective interest rate. The valuation allowance is included in the allowance for loan losses.

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, 2014, 2013 and 2012, the Company recorded $1,345,000,
$1,260,000 and $3,054,000, respectively, in interest income on impaired loans.

For impaired loans whose impairment is measured based on the present value of expected future cash

ﬂows a total of $456,000, $1.1 million and $1.0 million, respectively, for 2014, 2013 and 2012 was included
in interest income and represents the change in present value attributable to the passage of time.

The nonaccrual loans and accruing loans past due 90 days or more (excluding purchased loans) were
$18,563,000 and $17,000, respectively, at December 31, 2014, $27,672,000 and $160,000, respectively at the
end of 2013, and were $40,955,000 and $1,000, respectively, at year-end 2012.

The purchased nonaccrual loans and accruing loans past due 90 days or more were $2,576,000 and

$323,000, respectively, at December 31, 2014. There were no purchased loans prior to 2014.

Activity in the allowance for loans losses (excluding PCI loans) for the three years ended December 31,

2014, 2013 and 2012 are summarized as follows:

Beginning
Balance

Provision for
Loan Losses Charge-Offs Recoveries

Net
(Charge-Offs)
Recoveries

Ending
Balance

(In thousands)

December 31, 2014
Construction and land development . .
Commercial real estate . . . . . . . . . . .
Residential real estate. . . . . . . . . . . .
Commercial and ﬁnancial . . . . . . . . .
Consumer. . . . . . . . . . . . . . . . . . . .

December 31, 2013
Construction and land development . .
Commercial real estate . . . . . . . . . . .
Residential real estate. . . . . . . . . . . .
Commercial and ﬁnancial . . . . . . . . .
Consumer. . . . . . . . . . . . . . . . . . . .

December 31, 2012
Construction and land development . .
Commercial real estate . . . . . . . . . . .
Residential real estate. . . . . . . . . . . .
Commercial and ﬁnancial . . . . . . . . .
Consumer. . . . . . . . . . . . . . . . . . . .

$

808
6,160
11,659
710
731
$20,068

$ 1,134
8,849
11,090
468
563
$22,104

$ 1,883
11,477
10,966
402
837
$25,565

$

(640)
(398)
(1,126)
(398)
(193)
$ (2,755)

$

(604)
(2,714)
(3,153)
(60)
(253)
$ (6,784)

$

(612)
(8,539)
(8,381)
(346)
(410)
$(18,288)

$ 415
1,683
902
170
74
$3,244

$ 212
547
449
326
26
$1,560

$ 341
2,702
738
129
121
$4,031

$

$

(225)
1,285
(224)
(228)
(119)
489

$

(392)
(2,167)
(2,704)
266
(227)
$ (5,224)

$

(271)
(5,837)
(7,643)
(217)
(289)
$(14,257)

$

722
4,528
9,784
1,179
794
$17,007

$

808
6,160
11,659
710
731
$20,068

$ 1,134
8,849
11,090
468
563
$22,104

$

139
(2,917)
(1,651)
697
182
$ (3,550)

$

66
(522)
3,273
(24)
395
$ 3,188

$ (478)
3,209
7,767
283
15
$10,796

122

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note F
Impaired Loans and Allowance for Loan Losses − (continued)

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 (excluding PCI loans) and related allowance at
December 31, 2014 and 2013 is shown in the following tables.

December 31, 2014

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. . . . $ 2,710
11,446
Commercial real estate . . . . . . . . . . . .
28,702
Residential real estate . . . . . . . . . . . . .
120
Commercial and ﬁnancial . . . . . . . . . .
599
Consumer . . . . . . . . . . . . . . . . . . . . .
$43,577

$ 159
529
2,741
0
112
$3,541

$

563 $

82,769 $
821,609
657,344
155,964
52,808

85,479
833,055
686,046
156,084
53,407
$1,770,494 $13,466 $1,814,071

3,999
7,043
1,179
682

December 31, 2013

Individually Evaluated
for Impairment

Collectively Evaluated
for Impairment

Carrying
Value

Associated
Allowance

Carrying
Value

Associated
Allowance

Total
Carrying
Value

(In thousands)

Construction and land development. . . . $ 3,681
12,418
Commercial real estate . . . . . . . . . . . .
35,731
Residential real estate . . . . . . . . . . . . .
166
Commercial and ﬁnancial . . . . . . . . . .
973
Consumer . . . . . . . . . . . . . . . . . . . . .
$52,969

$ 149
638
4,528
13
118
$5,446

$

659 $

63,769 $

67,450
520,382
592,746
78,636
44,993
$1,251,238 $14,622 $1,304,207

507,964
557,015
78,470
44,020

5,522
7,131
697
613

$

722
4,528
9,784
1,179
794
$17,007

Associated
Allowance

$

808
6,160
11,659
710
731
$20,068

Loans collectively evaluated for impairment reported at December 31, 2014 included loans acquired from

BANKshares on October 1, 2014 that are not PCI loans. These loans are performing loans recorded at
estimated fair value at the acquisition date. The fair value adjustment for loans acquired from BANKshares at
the acquisition date was approximately $11.2 million, or approximately 3.56% of the outstanding aggregate
loan balances. This amount, which represents the total fair value discount of each PUL, is accreted into
interest income over the remaining lives of the related loans on a level yield basis, and remains adequate
at December 31, 2014, and therefore no provision for loan loss was recorded related to these loans at
December 31, 2014. The table below summarizes PCI loans that were individually evaluated for impairment
based on expected cash ﬂows.

December 31, 2014
Construction and land development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and ﬁnancial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PCI Loans Individually
Evaluated for Impairment
Associated
Carrying
Allowance
Value
$43
$1,557
3
4,092
18
851
0
1,312
0
2
$64
$7,814

123

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note G
Bank Premises and Equipment

Bank premises and equipment are summarized as follows:

December 31, 2014
Premises (including land of $13,594) . . . . . . . . . . . . . . . . . . . .
Furniture and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31, 2013
Premises (including land of $8,978) . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note H
Goodwill and Acquired Intangible Assets

Cost

$59,471
21,924
$81,395

$49,647
22,138
$71,785

Accumulated
Depreciation &
Amortization
(In thousands)

$(20,260)
(16,049)
$(36,309)

$(20,518)
(16,762)
$(37,280)

Net
Carrying
Value

$39,211
5,875
$45,086

$29,129
5,376
$34,505

Goodwill was a result of the Company’s October 1, 2014 acquisition of The BANKshares, a whole bank

acquisition, and totaled $25,309,000 at year end December 31, 2014.

Acquired intangible assets consist of core deposit intangibles (‘‘CDI’’) and which are intangible assets

arising from the purchase of deposits separately or from the acquistion of BANKshares. The change in
balance for CDI is as follows:

Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired CDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2014

$

718
7,769
(1,033)
$ 7,454

2013
(In thousands)
$1,501
0
(783)
$ 718

2012

$2,289
0
(788)
$1,501

The gross carrying amount and accumulated amortization of the Company’s intangible asset subject to

amortization at December 31 is presented below.

Deposit base . . . . . . . . . . . . . . . . . . . . . . . . . .

2014

2013

Gross
Carrying
Amount

$17,263
$17,263

Accumulated
Amortization

Gross
Carrying
Amount

(In thousands)

$(9,809)
$(9,809)

$9,494
$9,494

Accumulated
Amortization

$(8,776)
$(8,776)

The annual amortization expense for the deposit base intangible determined using the straight line method

in each of the ﬁve years subsequent to December 31, 2014 is $1,260,000.

124

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

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. . . . . . . . . . . . . .

2014

$298,399

2013
(In thousands)
$165,770

2012

$149,316

0.19%

0.17%

0.21%

$171,965

$155,222

$141,592

0.17%

0.18%

0.24%

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, 2014, 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 $1,259,345,000 at December 31, 2014.

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 SBCF Statutory Trust 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 2.01 percent, 1.57 percent, and 1.59 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.

As part of the October 1, 2014 BANKshares acquisition the Company acquired three junior subordinated
debentures. Correspondingly, at December 31, 2014 the Company has $5,155,000 and $4,124,000 of Floating
Rate Junior Subordinated Deferrable Interest Debentures outstanding which are due December 26, 2032 and
March 17, 2034, and callable by the Company, at its option, any time after December 26, 2007 and March 17,
2009. The rates on these trust preferred securities are the 3-month LIBOR rate plus 325 basis points and the
3-month LIBOR rate plus 279 basis points, respectively. The rates, which adjust every three months, are
currently 3.50 percent and 3.03 percent, respectively, per annum. At December 31, 2014 the Company has
$5,155,000 outstanding of Junior Subordinated Debentures due February 23, 2036. The interest rate was ﬁxed
at 6.37 percent through February 2011 and thereafter, and the coupon rate ﬂoats quarterly at the three month
LIBOR rate plus 139 basis points. The junior subordinated debenture is redeemable in certain circumstances
after February 2011. The interest rate was 1.62 percent at December 31, 2014. The above three junior

125

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note I
Borrowings − (continued)

subordinated debentures in accordance with ASU 805 Business Combinations have been recorded at their
acquisition date fair values which collectively is $3.5 million lower than face value and will be amortized into
interest expense over the remaining term to maturity.

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 on its capital stock or purchase or acquire any of its capital stock. As of
December 31, 2014, 2013 and 2012, all interest payments on trust preferred securities were current.

The Company has entered into agreements to guarantee the payments of distributions on the trust
preferred securities and payments of redemption of the trust preferred securities. Under these agreements, the
Company also agrees, on a subordinated basis, to pay expenses and liabilities of the Trusts other than those
arising under the trust preferred securities. The obligations of the Company under the junior subordinated
notes, the trust agreement establishing the Trusts, the guarantees and agreements as to expenses and liabilities,
in aggregate, constitute a full and conditional guarantee by the Company of the Trusts’ obligations under the
trust preferred securities.

Note J
Employee Beneﬁts and Stock Compensation

The Company’s proﬁt sharing and 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
$1,198,000 in 2014, $807,000 in 2013, and $771,000 in 2012.

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, May 8, 2008 and May 23, 2013. The number
of shares of common stock that may be granted pursuant to the 1991 and 1996 plans shall not exceed
198,000 shares for each plan, pursuant to the 2000 plan shall not exceed 264,000 shares, pursuant to the
2008 plan shall not exceed 300,000 shares, and pursuant to the 2013 plan shall not exceed 1,300,000 shares.
The Company has granted options and stock appreciation rights (‘‘SSARs’’) on 166,000, 187,000, and
158,000 shares for the 1991, 1996, and 2000 plans, respectively, through December 31, 2014; no options or
SSARs have been granted under the 2008 plan and 462,000 shares have been granted under the 2013 plan.
Under the 2008 plan the Company issued 229,000 of restricted stock awards at $7.10 per share during 2011
and 15,000 of restricted stock awards at $8.10 per share during 2012. Under the 2013 plan, the Company
issued 195,000 of restricted stock units at $11.00 per share during 2013 and 28,000 of restricted stock units at
$10.19 per share during 2014. The restricted stock units allow the grantee to earn 0 − 160 percent of the target
award as determined by two criteria, the Company’s after-tax earnings and its classiﬁed assets ratio. Any
restricted stock units that become eligible for vesting pursuant to the performance requirements will vest by
one-third on each of the ﬁrst, second and third anniversaries of the last day of the performance period,
December 31, 2016, 2017 and 2018, respectively. If the Company does not achieve the target performance
goal for both criteria by December 31, 2015, then none of the restricted stock units will vest and they will be
forfeited. Under the plans, the options, stock awards, SSARs or restricted stock units’ 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 three to ﬁve years and a contractual life of ten years. All stock awards and restricted
stock units 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

126

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note J
Employee Beneﬁts and Stock Compensation − (continued)

program in place, approved on September 18, 2001, authorizing the repurchase of up to 165,000 shares. On
May 20, 2014 the Company authorized an additional 250,000 shares for the repurchase program; the
maximum number of shares that may yet be purchased under these programs is 237,000.

The Company granted stock options totaling 413,000 shares in 2014 and 49,000 shares in 2013 at
weighted average fair value per share of $2.26 and $3.10, respectively, but did not grant any stock options or
SSARs in 2012. 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. The more signiﬁcant assumptions used in estimating the fair value of
stock options granted in 2014 include: a weighted average risk-free interest rate of 2.7 percent; no dividends;
weighted average expected life of 5 years; and a weighted average volatility of the Company’s common stock
of 17.0 percent. The 2014 estimated fair value of stock options was not reduced by an estimate of forfeiture
experience due to the relatively small pool of stock option recipients and short vesting terms.

The following table presents a summary of stock option and SSARs activity for the years ended

December 31, 2014, 2013 and 2012:

Dec. 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . .
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dec. 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . .
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dec. 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . .
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dec. 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . .

Number of
Shares
107,000
0
0
0
(20,000)
87,000
49,000
0
(28,000)
(6,000)
102,000
413,000
0
(11,500)
(10,500)
493,000

Option or
SSAR Exercise
Price Per Share
85.40 − 136.80
0
0
0
85.40 − 133.60
85.40 − 136.80
11.00
0
85.40
111.10 − 136.80
11.00 − 133.60
10.54 − 10.97
0
112.00
11.00 − 133.60
10.54 − 133.60

Weighted
Average
Exercise
Price
107.10
0
0
0
113.30
105.60
11.00
0
85.40
113.57
65.10
10.67
0
112.00
50.55
18.72

Aggregate
Intrinsic
Value

0

0

0

0

No stock options were exercised during 2014. 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.

127

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note J
Employee Beneﬁts and Stock Compensation − (continued)

The following table summarizes information about stock options outstanding and exercisable at

December 31, 2014:

Options/SSARs Outstanding
Weighted
Average
Remaining
Contractual Life
in Years
8.62

Number of
Shares
Outstanding
493,000

Options/SSARs Exercisable (Vested)

Number of
Shares
Exercisable
101,000

Weighted
Average
Exercise Price
$49.73

Weighted
Average
Remaining
Contractual Life
in Years
6.49

Aggregate
Intrinsic Value
$188,000

At December 31, 2014, non-vested stock options after adjusting for potential forfeiture experience

outstanding at December 31, 2014, are as follows:

Number of
Non-Vested
Stock Options
392,000

Weighted
Average
Remaining
Contractual
Life In Years
9.17

Weighted
Average
Fair Value
$2.32

Remaining
Unrecognized
Compensation
Cost
$774,244

Weighted
Average
Remaining
Recognition
Period in Years
2.34

Since December 31, 2013, restricted stock awards of 131,000 shares were issued, 120,000 awards have

vested and 9,000 awards were cancelled. Non-vested restricted stock awards totaling 170,000 shares were
outstanding at December 31, 2014, 2,000 more than at December 31, 2013, and are as follows:

Number of Non-Vested
Restricted Stock Award
Shares
170,000

Remaining Unrecognized
Compensation Cost
$1,114,000

Weighted Average
Remaining Recognition
Period in Years
2.85

During 2014, restricted stock units totaling 28,000 were issued, none were vested and 14,000 were
cancelled. Non-vested restricted stock units totaling 191,000 were outstanding at December 31, 2014, and are
as follows:

Number of Non-Vested
Restricted Stock Units
191,000

Remaining Unrecognized
Compensation Cost
$1,929,000

Weighted Average
Remaining Recognition
Period in Years
4.00

In 2014, 2013 and 2012 the Company recognized $1,299,000 ($798,000 after tax), $246,000 ($151,000

after tax) and $796,000 ($489,000 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.

128

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note K
Lease Commitments

The Company is obligated under various noncancellable operating leases for 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, 2014, future minimum lease payments under leases with initial or remaining terms in
excess of one year are as follows:

2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(In thousands)
$ 3,894
3,682
3,287
1,945
1,755
11,499
$26,062

Rent expense charged to operations was $4,066,000 for 2014, $3,878,000 for 2013, and $3,881,000 for

2012. Certain leases contain provisions for renewal and change with the consumer price index.

Note L
Income Taxes

The provision (beneﬁt) for income taxes is as follows:

2014

Year Ended December 31
2013
(In thousands)

2012

Current

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 310
12

$

160
7

Deferred

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,440
782
$4,544

(30,540)
(10,012)
$(40,385)

$ 0
7

0
(7)
$ 0

The difference between the total expected tax beneﬁt (computed by applying the U.S. Federal tax rate of

35% to pretax income in 2014, 2013 and 2012) and the reported income tax provision (beneﬁt) relating to
income (loss) before before income taxes is as follows:

Tax rate applied to income (loss) before income taxes. . . . . . .
Increase (decrease) resulting from the effects of:

Nondeductible acquisition costs . . . . . . . . . . . . . . . . . . . .
Tax exempt interest on obligations of states and political

subdivisions and bank owned life insurance . . . . . . . . . .
State income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expiration of capital loss carryforward . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

129

Year Ended December 31
2013
(In thousands)
$4,061

2012

$(249)

2014

$3,583

554

(293)
(278)
92
0
92

0

0

(148)
(259)
4
0
38

(118)
(27)
28
354
53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note L
Income Taxes − (continued)

Federal tax provision before valuation allowance . . . . . . . . . .
State tax provision before valuation allowance . . . . . . . . . . . .
Total income tax provision . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . .
Income tax provision (beneﬁt) . . . . . . . . . . . . . . . . . . . . . . .

2014

Year Ended December 31
2013
(In thousands)
3,696
740
4,436
(44,821)
$(40,385)

3,750
794
4,544
0
$4,544

2012

41
76
117
(117)
0
$

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

Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other real estate owned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 382 limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal tax loss carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State tax loss carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alternative minimum tax carryforward . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized securities losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest and fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets net of valuation allowance . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposit base intangible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest and fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31

2014

2013

(In thousands)

$ 6,926
1,562
1,383
721
38,703
7,468
2,136
3,035
1,643
3,270
7,428
74,275
0
74,275
(1,334)
(2,976)
0
(3,165)
(7,475)
$66,800

$ 8,139
899
0
528
42,776
7,925
1,304
6,503
1,169
0
273
69,516
0
69,516
(1,365)
(233)
(1,060)
0
(2,658)
$66,858

At December 31, 2014, the Company’s deferred tax assets of $66.8 million consists of approximately

$52.6 million of net U.S. federal deferred tax assets and $14.2 million of net state deferred tax assets.

Management assesses the necessity of a valuation allowance recorded against deferred tax assets at each
reporting period. The determination of whether a valuation allowance for net deferred tax assets is appropriate
is subject to considerable judgment and requires an evaluation of all positive and negative evidence. Based on
an assessment of all of the evidence, including favorable trending in asset quality and certainty regarding the
amount of future taxable income that the Company forecasts, management concluded that it was more likely
than not that its net deferred tax assets will be realized based upon future taxable income. Management’s
conﬁdence in the realization of projected future taxable income is based upon analysis of the Company’s risk
proﬁle and its trending ﬁnancial performance, including credit quality. The Company believes it can
conﬁdently and reasonably predict future results of operations that result in taxable income at sufficient levels
over the future period of time that the Company has available to realize its net deferred tax asset.

130

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note L
Income Taxes − (continued)

Management expects to realize the $66.8 million in net deferred tax assets well in advance of the statutory
carryforward period. At December 31, 2014, approximately $38.7 million of deferred tax assets relate to federal
net operating losses which will expire in annual installments beginning in 2029 through 2032. Additionally,
$7.5 million of the deferred tax assets relate to state net operating losses which will expire in annual installments
beginning in 2028 through 2034. Tax credit carryforwards at December 31, 2014 include federal alternative
minimum tax credits totaling $2.1 million which have an unlimited carryforward period. Remaining deferred tax
assets are not related to net operating losses or credits and therefore, have no expiration date.

Prior to the third quarter of 2013, the Company was unable to conclude that there was sufficient evidence

to support that the deferred tax asset was more likely than not realizable and to support the reversal of its
deferred tax asset valuation allowance of $44.8 million. The deferred tax asset valuation allowance was
reversed after the achievement of operating results for the third quarter and nine months of 2013 that
demonstrated the continuation of increasing income before tax results.

A valuation allowance could be required in future periods based on the assessment of positive and negative
evidence. Management’s conclusion at December 31, 2014 that it is more likely than not that the net deferred tax
asset of $66.8 million will be realized is based upon estimates of future taxable income that are supported by
internal projections which consider historical performance, various internal estimates and assumptions, as well as
certain external data, all of which management believes to be reasonable although inherently subject to judgment.
If actual results differ signiﬁcantly from the current estimates of future taxable income, even if caused by adverse
macro-economic conditions, a valuation allowance may need to be recorded for some or all of the Company’s
deferred tax assets. Such an increase to the deferred tax asset valuation allowance could have a material adverse
effect on the Company’s ﬁnancial condition and results of operations.

The Company recognizes interest and penalties, as appropriate, as part of the provisioning for income

taxes. No interest or penalties were accrued at December 31, 2014.

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 jurisdictions in which the Company operates and the earliest tax year subject to examination:

Jurisdiction
United States of America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Tax Year
2011
2011

Income taxes related to securities transactions were $181,000, $162,000 and $2,939,000 in 2014, 2013

and 2012, respectively.

Note M
Noninterest Income and Expenses

Details of noninterest income and expense follow:

2014

Year Ended December 31
2013
(In thousands)

2012

Noninterest income

Service charges on deposit accounts . . . . . . . . . . . . . . . . . . . . . . .
Trust fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage banking fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brokerage commissions and fees . . . . . . . . . . . . . . . . . . . . . . . . .
Marine ﬁnance fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interchange income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$6,952
2,986
3,057
1,614
1,320
5,972

$6,711
2,711
4,173
1,631
1,189
5,404

$6,245
2,279
3,710
1,071
1,111
4,501

131

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note M
Noninterest Income and Expenses − (continued)

2014

Year Ended December 31
2013
(In thousands)

2012

Other deposit based EFT fees . . . . . . . . . . . . . . . . . . . . . . . . . . .
BOLI Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Loss on sale of commercial loan . . . . . . . . . . . . . . . . . . . . . . . . .
Securities gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Branch closures and new branding . . . . . . . . . . . . . . . . . . . . . . . .
Net loss on other real estate owned and repossessed assets . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

343
252
2,248
24,744
0
469
$25,213

$35,132
8,773
8,781
1,331
7,930
2,535
3,576
6,871
1,660
1,033
488
4,958
310
9,988
$93,366

342
0
2,158
24,319
0
419
$24,738

$31,006
7,327
6,372
1,253
7,178
2,334
2,339
2,458
2,601
783
740
0
1,289
9,472
$75,152

336
0
2,191
21,444
(1,238)
7,619
$27,825

$29,935
7,710
7,382
1,178
7,507
2,319
3,095
5,241
2,805
788
1,459
639
3,467
9,023
$82,548

Note N
Shareholders’ Equity

The Company has reserved 300,000 common shares for issuance in connection with an employee stock

purchase plan and 1,000,000 common shares for issuance in connection with an employee proﬁt sharing plan.
At December 31, 2014, an aggregate of 183,360 shares and 0 shares, respectively, have been issued as a result
of employee participation in these plans.

A 1 for 5 reverse stock split was effective as of December 13, 2013. Each ﬁve shares of the Company’s

common stock was automatically converted to one share of the Company’s common stock. Any fractional
post-split shares as a result of the reverse split were rounded up to the nearest whole post-split share.
Shareholders of the Company previously authorized the Board of Directors to approve a reverse stock split at
the annual meeting in May 2013. All share amounts have been restated for all years presented.

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
117,925 shares of common stock at an exercise price of $31.80 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 paid quarterly dividends at a ﬁve percent annual rate that increased 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
agreed to enter into a deposit arrangement pursuant to which the Series A Preferred Stock may be deposited and

132

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note N
Shareholders’ Equity − (continued)

depository shares may be issued. The Company 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. On March 28, 2012, the U.S. Treasury publicly offered through an auction process their investment in the
Series A Preferred Stock. The auction concluded on April 3, 2012, thereby transferring all of the U.S. Treasury’s
ownership in the Series A Preferred Stock to third party investors. The warrant to purchase shares of common
stock was acquired by the Company on May 30, 2012 for $81,000, including related expenses. On December 31,
2013, the full amount of the Series A Preferred Stock was redeemed at par for $50 million plus accrued dividends
through the date of redemption of $319,000.

A common stock offering was completed during November 2013 adding $75 million to capital, with
approximately $47 million (net of issuance costs) received during November 2013, and $25 million received
in January 2014 from a single investor that was required to obtain approval of the Federal Reserve Bank for
its investment. Of the funds received, $50 million was utilized to redeem the Series A Preferred Stock at
December 31, 2013, with the remainder available for future growth and general corporate purposes.

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 2014 and 2013.

The Company was subject to certain standards for executive compensation while its preferred shares were

owned by the U.S. Treasury that included (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. Seacoast believes it complied with all TARP standards and restrictions
during the time the Company was a participant.

Required Regulatory Capital

SEACOAST BANKING CORP

(CONSOLIDATED)
At December 31, 2014:

Amount

Ratio

Minimum for Capital
Adequacy Purpose
Ratio
Amount
(Dollars in thousands)

Minimum To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Ratio

Amount

Total Capital (to risk-weighted assets) . . . . . . . . $322,765
305,665
Tier 1 Capital (to risk-weighted assets) . . . . . . .
305,665
Tier 1 Capital (to adjusted average assets) . . . . .

16.25% $158,903
79,452
15.39
124,731
10.32

At December 31, 2013:

Total Capital (to risk-weighted assets) . . . . . . . . $227,310
210,433
Tier 1 Capital (to risk-weighted assets) . . . . . . .
210,433
Tier 1 Capital (to adjusted average assets) . . . . .

16.88% $107,757
53,878
15.62
92,234
9.59

≥8.00%
≥4.00%
≥4.00%

≥8.00%
≥4.00%
≥4.00%

N/A
N/A
N/A

N/A
N/A
N/A

N/A
N/A
N/A

N/A
N/A
N/A

SEACOAST NATIONAL BANK
(A WHOLLY OWNED BANK
SUBSIDIARY)

At December 31, 2014:

Total Capital (to risk-weighted assets) . . . . . . . . $284,555
267,455
Tier 1 Capital (to risk-weighted assets) . . . . . . .

14.32% $158,925
79,462
13.46

≥8.00% $198,656
≥4.00% 119,193

≥10.00%
≥6.00%

133

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note N
Shareholders’ Equity − (continued)

Tier 1 Capital (to adjusted average assets) . . . . .

267,455

9.04

Amount

Ratio

Minimum for Capital
Adequacy Purpose
Amount
Ratio
(Dollars in thousands)
118,409

Minimum To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Ratio

Amount

≥4.00% 148,011

≥5.00%

At December 31, 2013:

Total Capital (to risk-weighted assets) . . . . . . . . $225,102
208,253
Tier 1 Capital (to risk-weighted assets) . . . . . . .
208,253
Tier 1 Capital (to adjusted average assets) . . . . .

16.74% $107,571
53,785
15.49
87,636
9.51

≥8.00% $134,463
≥4.00%
80,678
≥4.00% 109,545

≥10.00%
≥6.00%
≥5.00%

N/A — Not Applicable

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, 2014, 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, 2014, the Company’s deposit-taking bank
subsidiary met the capital and leverage ratio requirements for well capitalized banks.

Note O
Seacoast Banking Corporation of Florida
(Parent Company Only) Financial Information

Balance Sheets

ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities purchased under agreement to resell with subsidiary bank, maturing

within 30 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31

2014

2013

(In thousands)

$

480

$

919

37,836
341,302
0
$379,618

792
250,033
493
$252,237

134

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note O
Seacoast Banking Corporation of Florida
(Parent Company Only) Financial Information − (continued)

LIABILITIES AND SHAREHOLDERS’ EQUITY
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Statements of Income (Loss)

December 31

2014

2013

(In thousands)

$ 64,584
2,383
312,651
$379,618

$ 53,610
23
198,604
$252,237

2014

Year Ended December 31
2013
(In thousands)

2012

Income

Dividends from subsidiary Bank . . . . . . . . . . . . . . . . . . . . . . . .
Interest/other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income tax beneﬁt and equity in undistributed income of
subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax beneﬁt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before equity in undistributed income of subsidiaries . .
Equity in undistributed income of subsidiaries. . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Statement of Cash Flows

0
43
43
1,053
1,000

(2,010)
(704)
(1,306)
7,002
$ 5,696

$

0
28
28
958
450

(1,380)
(2,281)
901
51,088
$51,989

$

0
29
29
1,057
575

(1,603)
0
(1,603)
893
$ (710)

2014

Year Ended December 31
2013
(In thousands)

2012

Cash ﬂows from operating activities

Interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes received (paid) . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) operating activities . . . . . . . . . .

$

43
(1,058)
24
573
(964)
(1,382)

$

5
(957)
23
1,797
(494)
374

$

7
(1,045)
22
(32)
(703)
(1,751)

Cash ﬂows from investing activities

Decrease (increase) in securities purchased under agreement to
. . . . . . . . . . . . . . . . .
Net cash provided by (used in) investment activities . . . . . . . . .

resell, maturing within 30 days, net

(37,044)
(37,044)

2,130
2,130

Cash ﬂows from ﬁnancing activities

Issuance of common stock, net of related expense . . . . . . . . .
Subordinated debt increase . . . . . . . . . . . . . . . . . . . . . . . . .

24,637
13,208

46,977
0

422
422

0
0

135

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note O
Seacoast Banking Corporation of Florida
(Parent Company Only) Financial Information − (continued)

2014

Year Ended December 31
2013
(In thousands)

2012

Repurchase of stock warrants, including related expense . . . . .
Stock based employment plans . . . . . . . . . . . . . . . . . . . . . .
Redemption of preferred stock. . . . . . . . . . . . . . . . . . . . . . .
Dividends paid on preferred shares. . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) ﬁnancing activities. . . . . . . . . . .
Net change in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0
142
0
0
37,987
(439)
919
480

$

0
190
(50,000)
(2,819)
(5,652)
(3,148)
4,067
919

$

(81)
196
0
(2,500)
(2,385)
(3,714)
7,781
$ 4,067

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:

$ 5,696

$ 51,989

$ (710)

Equity in undistributed income of subsidiaries . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) operating activities . . . . . . . . . .

(7,002)
(76)
$ (1,382)

(51,088)
(527)
374

$

(893)
(148)
$(1,751)

Note P
Contingent Liabilities and Commitments with Off-Balance Sheet Risk

The Company and its subsidiaries, because of the nature of their business, are at all times subject to
numerous legal actions, threatened or ﬁled. Management presently believes that none of the legal proceedings
to which it is a party are likely to have a materially adverse effect on the Company’s consolidated ﬁnancial
condition, or operating results or cash ﬂows.

The Company’s subsidiary bank is party to ﬁnancial instruments with off balance sheet risk in the normal

course of business to meet the ﬁnancing needs of its customers. These ﬁnancial instruments include
commitments to extend credit, standby letters of credit, and limited partner equity commitments.

The subsidiary bank’s exposure to credit loss in the event of non-performance by the other party to the

ﬁnancial instrument for commitments to extend credit and standby letters of credit is represented by the
contract or notional amount of those instruments. The subsidiary bank uses the same credit policies in making
commitments and standby letters of credit as they do for on balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any

condition established in the contract. Commitments generally have ﬁxed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The subsidiary
bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the bank upon extension of credit, is based on management’s credit evaluation of the
counterparty. Collateral held varies but may include accounts receivable, inventory, equipment, and commercial
and residential real estate. Of the $238,130,000 in commitments to extend credit outstanding at December 31,
2014, $98,646,000 is secured by 1 − 4 family residential properties for individuals with approximately
$10,052,000 at ﬁxed interest rates ranging from 3.25 to 5.125%.

136

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note P
Contingent Liabilities and Commitments with Off-Balance Sheet Risk − (continued)

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, 2014 and 2013 amounted to $2,617,000 and $3,187,000 respectively.

Unfunded limited partner equity commitments at December 31, 2014 totaled $3,715,000 that the
Company has committed to small business investment companies under the SBIC Act to be used to provide
capital to small businesses.

December 31

2014

2013

(In thousands)

Contract or Notional Amount
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$238,130

$135,056

Standby letters of credit and ﬁnancial guarantees written:

Secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unfunded limited partner equity commitment . . . . . . . . . . . . . . . . . . . . . . . .

2,685
200
3,715

2,722
8
3,746

The Company’s subsidiary bank renewed its contract for outsourced data services on December 31, 2012

for a period of ﬁve years and six months which requires a minimum payment for early termination without
cause as follows:

Year Ended
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(In thousands)
$11,821
8,444
5,066

137

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note Q
Supplemental Disclosures for Consolidated Statements of Cash Flows

Reconciliation of Net Income (Loss) to Net Cash Provided by Operating Activities for the three years ended:

2014

$ 5,696

Year Ended December 31
2013
(In thousands)
$ 51,989

$

2012

(710)

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income (loss) to net cash (used)

provided by operating activities
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net amortization of premiums and discounts on securities . . . .
Accretion of purchase accounting loan discount . . . . . . . . . . .
Other amortization and accretion . . . . . . . . . . . . . . . . . . . . .
Change in loans available for sale, net . . . . . . . . . . . . . . . . .
Provision (recpature) 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 . . . . . . . . . . .
Writedown on loan available for sale . . . . . . . . . . . . . . . . . .
Loss on branch closures and disposition of equipment. . . . . . .
Stock based employee beneﬁt expense . . . . . . . . . . . . . . . . .
Earnings on bank owned lif insurance. . . . . . . . . . . . . . . . . .
Change in interest receivable. . . . . . . . . . . . . . . . . . . . . . . .
Change in interest payable . . . . . . . . . . . . . . . . . . . . . . . . .
Change in prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . .
Change in accrued taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided (used) by operating activities . . . . . . . . . . . .

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 . . . . . . . . . . .
Matured securities recorded as a recievable . . . . . . . . . . . . . .
Securities principal receivable recorded in other assets . . . . . .
Transfer from securities held for investment to available for

3,268
2,353
(750)
494
1,754
(3,486)
0
(469)
(419)
310
0
4,493
1,299
(219)
(2,763)
847
(591)
4,294
3,175
2,660
$ 21,946

$

8,985
4,789
0
0
101

2,776
3,882
0
(172)
22,189
3,188
(40,552)
(419)
(455)
1,295
0
1
246
0
160
(27)
4,562
(102)
792
499
$ 49,852

$(21,957)
5,087
379
0
159

sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0

13,818

Transfer from securities available for sale to held for

investment

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

158,781

0

138

2,827
4,740
0
20
(20,143)
10,796
(7)
(7,619)
(816)
3,548
1,238
774
796
0
861
(524)
2,601
(190)
(835)
581
$ (2,062)

$ (3,405)
14,067
10,321
3,100
0

0

0

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

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 on a recurring and nonrecurring basis at December 31,
2014 and 2013 included:

(Dollars in thousands)
Available for sale securities(3)
. . . . . . .
Loans available for sale(4) . . . . . . . . . .
Loans(1) . . . . . . . . . . . . . . . . . . . . . .
OREO(2) . . . . . . . . . . . . . . . . . . . . . .

(Dollars in thousands)
Available for sale securities(3)
. . . . . . .
Loans available for sale(4) . . . . . . . . . .
Loans(1) . . . . . . . . . . . . . . . . . . . . . .
OREO(2) . . . . . . . . . . . . . . . . . . . . . .

Fair Value
Measurements
December 31, 2014
$741,375
12,078
10,409
7,462

Fair Value
Measurements
December 31, 2013
$641,611
13,832
17,323
6,860

Quoted Prices in
Active Markets for
Identical Assets
Level 1
$3,899
0
0
0

Quoted Prices in
Active Markets for
Identical Assets
Level 1
$100
0
0
0

Signiﬁcant Other
Observable Inputs
Level 2
$737,476
12,078
8,324
1,468

Signiﬁcant Other
Observable Inputs
Level 2
$641,511
13,832
10,325
1,301

Signiﬁcant Other
Unobservable
Inputs
Level 3
0
$
0
2,085
5,994

Signiﬁcant Other
Unobservable
Inputs
Level 3
0
$
0
6,998
5,559

(1) See Note E. Nonrecurring fair value adjustments to loans identiﬁed as impaired reﬂect full or partial

write-downs that are based on the loan’s observable market price or current appraised value of the
collateral in accordance with ASC 310.

(2) Fair value is measured on a nonrecurring basis in accordance with ASC 360.
(3) See Note D for further detail of recurring fair value basis of individual investment categories.
(4) Recurring fair value basis determined using observable market data.

The fair value of impaired loans which are not troubled debt restructurings is based on recent real estate
appraisals less estimated costs of sale. For residential real estate impaired loans, appraised values or internal
evaluation are based on the comparative sales approach. These impaired loans are considered level 2 in the
fair value hierarchy. For commercial and commercial real estate impaired loans, evaluations may use either a
single valuation approach or a combination of approaches, such as comparative sales, cost and/or income
approach. A signiﬁcant unobservable input in the income approach is the estimated capitalization rate for a
given piece of collateral. At December 31, 2014 the range of capitalization rates utilized to determine fair
value of the underlying collateral averaged approximately 8.2%. Adjustments to comparable sales may be
made by an appraiser to reﬂect local market conditions or other economic factors and may result in changes in
the fair value of an asset over time. As such, the fair value of these impaired loans is considered level 3 in the
fair value hierarchy.

Fair value of available for sale securities are determined using valuation techniques for individual

investments as described in Note A.

139

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note R
Fair Value − (continued)

When appraisals are used to determine fair value and the appraisals are based on a market approach, the

fair value of OREO is classiﬁed as level 2. When the fair value of OREO is based on appraisals which require
signiﬁcant adjustments to market-based valuation inputs or apply an income approach based on unobservable
cash ﬂows, the fair value of OREO is classiﬁed as Level 3.

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 2014, 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 $0.5 million consisting of loans that became
impaired during 2014. Transfers out consisted of charge offs of $0.2 million, and loan foreclosures migrating
to OREO and other reductions (including principal payments) totaling $5.2 million. No sales were recorded.

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 2014 transfers out totaled $2.3 million consisting of valuation
write-downs of $0.3 million and sales of $2.0 million, and transfers in consisted of foreclosed loans totaling
$2.9 million.

The carrying amount and fair value of the Company’s other signiﬁcant ﬁnancial instruments that are not

measured at fair value on a recurring basis in the balance sheet as of December 31 is as follows:

(In Thousands)
Financial Assets

Carrying Amount
December 31, 2014

Quoted Prices in
Active Markets for
Identical Assets
Level 1

Signiﬁcant Other
Observable Inputs
Level 2

Signiﬁcant Other
Unobservable
Inputs
Level 3

Securities held to maturity . . . . . . . .
Loans, net . . . . . . . . . . . . . . . . . . .

$ 207,904
1,794,405

Financial Liabilities

Deposits . . . . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . .
Subordinated debt . . . . . . . . . . . . . .

2,416,534
50,000
64,583

$0
0

0
0
0

$207,904
0

$

0
1,814,746

0
52,735
53,861

2,417,355
0
0

(In Thousands)
Financial Assets

Carrying Amount
December 31, 2013

Quoted Prices in
Active Markets for
Identical Assets
Level 1

Signiﬁcant Other
Observable Inputs
Level 2

Signiﬁcant Other
Unobservable
Inputs
Level 3

Securities held to maturity . . . . . . . .
Loans, net . . . . . . . . . . . . . . . . . . .

$
0
1,266,816

Financial Liabilities

Deposits . . . . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . .
Subordinated debt . . . . . . . . . . . . . .

1,806,045
50,000
53,610

$0
0

0
0
0

$

0
0

$
0
1,272,893

0
53,856
42,888

1,807,183
0
0

140

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note R
Fair Value − (continued)

The short maturity of Seacoast’s assets and liabilities results in having a signiﬁcant number of ﬁnancial

instruments whose fair value equals or closely approximates carrying value. Such ﬁnancial instruments are
reported in the following balance sheet captions: cash and cash equivalents, interest bearing deposits with other
banks, federal funds purchased and securities sold under agreement to repurchase, maturing within 30 days.

The following methods and assumptions were used to estimate the fair value of each class of ﬁnancial

instrument for which it is practicable to estimate that value at December 31, 2014 and 2013:

Securities: U.S. Treasury securities are reported at fair value utilizing Level 1 inputs. Other securities
are reported at fair value utilizing Level 2 inputs. The fair value measurements consider observable data that
may include dealer quotes, market spreads, cash ﬂows, the U.S. Treasury yield curve, live trading levels, trade
execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions,
among other things.

The Company reviews the prices supplied by the independent pricing service, as well as their underlying
pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices.
In general, the Company does not purchase investment portfolio securities that are esoteric or that have a
complicated structure. The Company’s entire portfolio consists of traditional investments, the majority of which
are U.S. Treasury obligations, federal agency bullet or mortgage pass-through securities, or general obligation or
revenue based municipal bonds. Pricing for such instruments is fairly generic and is easily obtained. The fair value
of the collateralized loan obligations are determined from broker quotes. From time to time, the Company will
validate, on a sample basis, prices supplied by brokers and the independent pricing service by comparison to
prices obtained from other brokers and third-party sources or derived using internal models.

Loans: Fair values are estimated for portfolios of loans with similar ﬁnancial characteristics. Loans are
segregated by type such as commercial, mortgage, etc. Each loan category is further segmented into ﬁxed and
adjustable rate interest terms and by performing and nonperforming categories. The fair value of loans, except
residential mortgages, is calculated by discounting scheduled cash ﬂows through the estimated maturity using
estimated market discount rates that reﬂect the credit and interest rate risks inherent in the loan. For
residential mortgage loans, fair value is estimated by discounting contractual cash ﬂows adjusting for
prepayment assumptions using discount rates based on secondary market sources. The estimated fair value is
not an exit price fair value under ASC 820 when this valuation technique is used.

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, estimates of the Company’s current incremental borrowing rate for similar instruments and
dealer quotes for similar debt.

141

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

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.

The number of shares utilized to compute earnings per share for the years ended December 31, 2014,

2013 and 2012, have been restated to reﬂect a 1 for 5 reverse stock split effective December 13, 2013.

In 2014, 2013, and 2012, options and warrants to purchase 293,000, 102,000, and 87,000 shares,

respectively, were antidilutive and accordingly were excluded in determining diluted earnings per share.

Year Ended December 31

Per Share
Net Income
(Loss)
Amount
Shares
(Dollars in thousands, except per share data)

2014
Basic Earnings Per Share

Income available to common shareholders. . . . . . . . . . . . . . .

$ 5,696

27,538,955

$ 0.21

Diluted Earnings Per Share

Employee restricted stock (See Note J) . . . . . . . . . . . . . . . . .
Income available to common shareholders plus assumed

177,940

conversions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 5,696

27,716,895

$ 0.21

2013
Basic Earnings Per Share

Income available to common shareholders. . . . . . . . . . . . . . .

$47,916

19,449,560

$ 2.46

Diluted Earnings Per Share

Employee restricted stock (See Note J) . . . . . . . . . . . . . . . . .
Income available to common shareholders plus assumed

200,445

conversions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$47,916

19,650,005

$ 2.44

2012
Basic and diluted Earnings Per Share

Loss available to common shareholders . . . . . . . . . . . . . . . .

$ (4,458)

18,748,757

$(0.24)

142

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note T
Business Combinations

The Company, through its subsidiary bank, purchased The BANKshares Inc. (‘‘BANKshares’’) in Winter

Park, Florida on October 1, 2014. The acquisition related costs were approximately $4,361,000 and these
expenses are reported in noninterest expenses in the consolidated statement of income. As a result of this
acquisition, the Company expects to further solidify its market share in the Florida market, expand its
customer base to enhance deposit fee income, and leverage operating costs through economies of scale.

The Company acquired 100% of the outstanding common stock of BANKshares. Each share of

BANKshares common stock was exchanged for 0.4975 shares of the Company’s common stock. Based on the
closing price of the Company’s common stock on September 30, 2014, the resulting purchase price was
$76.8 million. The table below summarizes the purchase price calculation.

Number of shares of BANKshares common stock outstanding . . . . . . . . . . . . . . . . . . . . . .
BANKshares preferred shares that convert to BANKshares common shares upon a change in
control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total BANKshares common shares including conversion of preferred shares . . . . . . . . . . . .
Per share exchange ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of shares of common stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multiplied by common stock price per share on September 30, 2014. . . . . . . . . . . . . . . . . .
Total purchase price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

September 30,
2014
12,644,763

1,476,660
14,121,423
0.4975
7,025,408
$
10.93
76,787,709

The table below presents information with respect to the fair value of acquired loans, as well as their

unpaid principal balance (‘‘Book Balance’’) at acquisition date.

(Dollars in thousands)
Loans:
Single family residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction/development/land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer and other loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased credit-impaired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Oct. 1, 2014

Book Balance

Fair Value

$ 50,768
229,859
30,994
52,458
3,647
11,087
$378,813

$ 49,184
224,837
27,578
51,479
3,568
8,717
$365,363

Pro-forma information

Pro-forma data for the years ending December 31, 2014 and 2013 listed in the table below presents

pro-forma information as if the acquisition occurred at the beginning of 2013.

(Dollars in thousands, except per share amounts)
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income available to common shareholders . . . . . . . . . . . . . . . . . . . . . . .
EPS − basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EPS − diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

143

Year ended December 31,
2014
$91,382
9,893
$ 0.30
$ 0.30

2013
$86,401
54,099
2.04
2.03

$
$

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note T
Business Combinations − (continued)

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date

of acquisition.

Date of acquisition

Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities available for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit intangible. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Liabilities:
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

October 1,
2014
(in thousands)

$110,996
365,363
85,355
12,259
2,199
7,769
25,309
17,641
$626,891

$516,297
10,930
18,478
4,398
$550,103

The acquisition was accounted for under the acquisition method of accounting in accordance with ASC

Topic 805, Business Combinations. Both the purchased assets and liabilities assumed are recorded at their
respective acquisition date fair values. Determining the fair values of assets and liabilities, especially the loan
portfolio and foreclosed real estate, is a complicated process involving signiﬁcant judgment regarding methods
and assumptions used to calculate estimated fair values.

For the loans acquired we ﬁrst, segregated all acquired loans with speciﬁcally identiﬁed credit deﬁciency

factor(s). The factors we considered to identify loans as Purchase Credit Impaired (‘‘PCI’’) loans were all
acquired loans that were non-accrual, 60 days or more past due, designated as Trouble Debt Restructured
(‘‘TDR’’), graded ‘‘special mention’’ or ‘‘substandard.’’ These loans were then evaluated to determine
estimated fair values as of the acquisition date. As required by generally accepted accounting principles, we
are accounting for these loans pursuant to ASC Topic 310-30.

Second, for those loans without speciﬁcally identiﬁed credit deﬁciency factors are referred to as

Purchased Unimpaired Loans (‘‘PULs’’) for disclosure purposes. These loans were then evaluated to determine
estimated fair values as of the acquisition date. Although no speciﬁc credit deﬁciencies were identiﬁable, we
believe there is an element of risk as to whether all contractual cash ﬂows will be eventually received. Factors
that were considered included the economic environment both nationally and locally as well as the real estate
market particularly in Florida. Based on management’s estimate of fair value, each of the PUL’s were assigned
a discount credit mark. We have applied ASC Topic 310-20 accounting treatment to PULs.

The operating results of the Company for the year ended December 31, 2014 includes the operating

results of the acquired assets and assumed liabilities since the acquisition date of October 1, 2014.

144

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