Seacoast Banking of Florida Annual Report 2016

FY2016 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, 2016

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 Web site, if any, every

Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such ﬁles). 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 Act).

Accelerated ﬁler (cid:2)
Smaller reporting company □

YES □ NO (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, 2016, as reported on the Nasdaq
Global Select Market, was $598,698,205. The number of shares outstanding of Seacoast Banking Corporation of Florida common
stock, par value $0.10 per share, as of February 28, 2017, was 40,734,382.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrant’s 2017 Proxy Statement for the Annual Meeting of Shareholders to be

held May 25, 2017 (the ‘‘2017 Proxy Statement’’) are incorporated by reference into Part III, Items 10
through 14 of this report. Other than those portions of the 2017 Proxy Statement speciﬁcally incorporated by
reference herein pursuant to Items 10 through 14, no other portions of the 2017 Proxy Statement shall be
deemed so incorporated.

TABLE OF CONTENTS

Part I

Part II

Part III

Part IV

Item 1.

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

Item 1A.

Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1B. Unresolved Staff Comments

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Item 2.

Item 3.

Item 4.

Item 5.

Item 6.

Item 7.

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

Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

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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.

Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . .

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

Item 9A.

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

Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 10.

Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . .

Item 11.

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

Item 12.

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

Item 13.

Certain Relationships and Related Transactions, and Director Independence . .

Item 14.

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

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Item 15.

Exhibits, Financial Statement Schedules

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

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SPECIAL CAUTIONARY NOTICE
REGARDING FORWARD-LOOKING STATEMENTS

Certain statements made or incorporated by reference herein which are not statements of historical fact,

including those under ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations’’ and elsewhere herein, are ‘‘forward-looking statements’’ within the meaning and protections of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended (the ‘‘Exchange Act’’). Forward-looking statements include statements with respect to 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;

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;

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

changes in borrower credit risks and payment behaviors;

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

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

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

our concentration in commercial real estate loans;

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

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

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

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

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

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

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

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

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

increased cybersecurity risks, including potential business disruptions or ﬁnancial losses; inability of
our risk management framework to manage risks associated with our business such as credit risk and
operational risk, including third party vendors and other service providers;

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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Part I

Item 1.

Business

General

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 Bank’’). Seacoast Bank commenced its operations in 1933, and
operated as ‘‘First National Bank & Trust Company of the Treasure Coast’’ prior to 2006 when we changed its
name to ‘‘Seacoast National Bank’’.

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

Seacoast Bank. 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 Bank through dividends and fees for services performed.

As of December 31, 2016, we had total consolidated assets of approximately $4.681 billion, total deposits

of approximately $3.523 billion, total consolidated liabilities, including deposits, of approximately
$4.246 billion and consolidated shareholders’ equity of approximately $435 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 Bank had 47 traditional banking offices in
14 counties in Florida at year-end 2016. We have 16 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. I

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, and in
July 2015, we acquired 3 branches in Palm Beach County (closing one branch in close proximity to an
existing Seacoast branch) through our acquisition of Grand Bankshares, Inc., a Florida corporation (‘‘Grand
Bankshares’’), and its subsidiary bank, Grand Bank (‘‘Grand’’). More recently, in March 2016, we acquired
10 offices in Central Florida through our acquisition of Floridian Financial Group, Inc., a Florida Corporation
(‘‘Floridian’’), and its subsidiary bank, Floridian Bank, a Florida-chartered commercial bank, and in
June 2016, we acquired 14 branches as part of an asset purchase of BMO Harris’s Orlando Operations
(‘‘BMO’’). During the second, third and fourth quarters of 2016, we closed 20 branches that were in close
proximity to existing Seacoast branches. In 20 months we transformed from virtually no presence in Orlando
to top 10 player and the largest Florida bank in that market. Upcoming in April 2017 will be our closing of
the GulfShores acquisition in Tampa, Florida, adding 3 branches and enhancing our team presence already in
this vibrant Florida market.

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

with 24-hour access to their deposit accounts. We are a member of the ‘‘NYCE Payments Network,’’ an
electronic funds transfer organization represented in all ﬁfty states in the United States, which permits banking
customers access to their accounts at 2.5 million participating ATMs and retail locations throughout the United
States. Seacoast Bank has also 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.

Seacoast Bank ‘‘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.

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In addition, customers may access banking information via Seacoast Bank’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 deposit checks 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 Bank 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. Our customers are increasingly choosing
more convenient channels to manage routine transactions. At this point, we expect we will process more
routine transactions through lower cost channels than in our branch network by July of 2017. Seacoast Bank
also provides brokerage and annuity services. Seacoast Bank personnel involved with the sale of these
services are dual employees with Invest Financial Corporation, the company through which Seacoast Bank
presently conducts its brokerage and annuity services.

Seacoast Bank has ﬁve, 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 Bank;

TCoast Holdings, LLC and TC Property Ventures, LLC, each of which was formed to own and
operate certain properties acquired through foreclosure;

Syracuse Holdings, Inc., established in Delaware in 2016, to maintain an investment portfolio of
high quality investment securities consistent with safe and sound banking practices, and to provide
earnings, liquidity, manage tax liabilities, and meet pledging requirements.

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 2016.

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;

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

Grand Bankshares Capital Trust I, formed on October 29, 2004, also for the purpose of issuing
$7.2 million in trust preferred securities.

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Seacoast Bank dissolved three, wholly-owned subsidiaries during 2016:

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BR West, LLC, formed to own and operate certain properties acquired through foreclosure, held no
remaining properties and was dissolved in the state of Florida on September 15, 2016;

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 was dissolved in the state of Florida on December 14, 2016, with its operations
incorporated into Seacoast Bank as part of our Seacoast Business Funding division; and

BankFIRST Realty, Inc., acquired in the BANKshares acquisition, which owned and operated certain
properties acquired through foreclosure, held no remaining foreclosed properties and was dissolved
in the state of Florida on December 31, 2016.

We have operated an office of Seacoast Marine Finance Division, a division of Seacoast Bank, 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 Bank continues to have representation in
California and Washington. Seacoast Marine Finance Division is staffed with experienced marine lending
professionals with a marketing emphasis on marine loans of $200,000 and greater, with a signiﬁcant portion
of loan production sold to correspondent banks on a non-recourse basis.

During May 2015, Seacoast Bank acquired a receivables factoring location in Boynton Beach, Florida, and

operates this office as Seacoast Business Funding, a division of Seacoast Bank. 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 Bank 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 Bank’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.

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, 2016, we and our subsidiaries employed 725 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 to expand organically in our
markets. We also, from time to time, have acquired banks, bank branches and deposits, and have opened new
branches and commercial lending offices.

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 Bank in
October 2014.

In July 2015, we acquired Grand, a commercial bank headquartered in West Palm Beach, Florida, with

three offices in Palm Beach County. Grand was merged into Seacoast Bank in July 2015.

In March 2016, we acquired Floridian headquartered in Central Florida, with ten offices in four counties

in Central Florida. Floridian was merged into Seacoast Bank in March 2016.

In June 2016, Seacoast Bank acquired the Orlando Banking operations of BMO Harris including their

fourteen branch locations in that market.

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More recently, on November 3, 2016, we and Seacoast Bank entered into an Agreement and Plan of
Merger that provides for the acquisition of GulfShore Bancshares, Inc. (‘‘GulfShore’’), a Florida corporation,
and GulfShore’s wholly owned subsidiary, GulfShore Bank, located in Tampa, Florida, with three offices. This
acquisition will add approximately $328 million in assets, $276 in deposits, and $262 in gross loans. This
transaction is anticipated to close on April 7, 2017.

Florida law permits statewide branching, and Seacoast Bank has expanded, and may consider 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 58 new offices in 14 counties of Florida.
With technology improvements and changes to our customers’ banking preferences, we have also rationalized
our branch footprint by closing and consolidating certain branches. Since 2007, we have closed 39 offices in
seven counties of Florida, with 20 offices consolidated during 2016, three offices consolidated during 2015,
and ﬁve offices consolidated in December 2014. The Seacoast Marine Finance Division operates a loan
production office in Ft. Lauderdale, Florida, and has representation in California and Washington. 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 may be additional 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. 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.

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 three
competitive counties in central Florida near Lake Okeechobee. Seacoast Bank 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 Bank 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.

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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 described below
and is not intended to be an exhaustive description of the statutes or regulations applicable to us and Seacoast
Bank’s business. As a bank holding company under federal law, we are subject to regulation, supervision and
examination by the Board of Governors of the Federal Reserve System (‘‘Federal Reserve’’). As a national
bank, our primary bank subsidiary, Seacoast Bank, 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
Bank 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 Bank 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. Any change in laws, regulations, or
supervisory actions, whether by the OCC, the Federal Reserve, the FDIC, the CFPB, or Congress, could have
a material adverse impact on us and Seacoast Bank.

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 of our securities. The assessments of our ﬁnancial
reporting controls as of December 31, 2016 are included in this report under ‘‘Section 9A. Controls and
Procedures.’’

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. Provisions of the Dodd-Frank Act that have affected or are likely to affect
our operations or the operations of Seacoast Bank include:

•

•

•

•

•

•

•

•

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

New limitations on federal preemption.

New prohibitions and restrictions on the ability of a banking entity to engage in proprietary trading
for its own account and have certain interests in, or relationships with, certain unregistered hedge
funds, private equity funds and commodity pools (together, ‘‘covered funds’’).

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.

Repealed the prohibition of the payment of interest on demand deposits.

7

•

•

•

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

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

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

The following items and information provided in subsequent sections provide a further description of
certain relevant provisions of the Dodd-Frank Act and their potential impact on our operations and activities,
both currently and prospectively.

Creation of 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’s authority to supervise and examine depository institutions with $10 billion or
less in assets for compliance with federal consumer laws remains largely with those institutions’ primary
regulators. However, the CFPB may participate in examinations of these smaller institutions on a ‘‘sampling
basis’’ and may refer potential enforcement actions against such institutions to their primary regulators. The
CFPB also may participate in examinations of Seacoast Bank, which currently has assets of less than
$10 billion, and could supervise and examine our other direct or indirect subsidiaries that offer consumer
ﬁnancial products or services. In addition, the Dodd-Frank Act permits states to adopt consumer protection
laws and regulations that are stricter than those regulations promulgated by the CFPB, and state attorneys
general are permitted to enforce consumer protection rules adopted by the CFPB against certain institutions.

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

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

Corporate Governance. The Dodd-Frank Act addresses many investor 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.

Incentive Compensation. The Dodd-Frank Act requires the banking agencies and the SEC to establish
joint rules or guidelines for ﬁnancial institutions with more than $1 billion in assets, such as us and Seacoast
Bank, which prohibit incentive compensation arrangements that the agencies determine encourage
inappropriate risks by the institution. The banking agencies issued proposed rules in 2011 and previously
issued guidance on sound incentive compensation policies. In 2016, the Federal Reserve and the OCC have
also proposed rules that would, depending upon the assets of the institution, directly regulate incentive
compensation arrangements and would require enhanced oversight and recordkeeping. As of December 31,
2016, these rules have not been implemented. We and Seacoast Bank have undertaken efforts to ensure that
our incentive compensation plans do not encourage inappropriate risks, consistent with three key
principles — that incentive compensation arrangements should appropriately balance risk and ﬁnancial
rewards, be compatible with effective controls and risk management, and be supported by strong corporate
governance.

Shareholder Say-On-Pay Votes. 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

8

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.

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 required us to implement a compliance program.
The regulators provided for a Volcker Rule conformance date of July 21, 2015. The Federal Reserve extended
the conformance deadline to July 21, 2016 for certain legacy ‘‘covered funds’’ activities and investments in
place before December 31, 2013, and the Federal Reserve expressed its intention to grant the last available
statutory extension for such covered funds activities until July 21, 2017. Further, the Federal Reserve Board
permits limited exemptions, upon application, for divestiture of certain ‘‘illiquid’’ covered funds, for an
additional period of up to 5 years beyond that date.

While most 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.

Basel III

We were required to comply with higher minimum capital requirements as of January 1, 2015. These

new rules (‘‘Revised Capital Rules’’) implement the Dodd-Frank Act and a separate international regulatory
regime known as ‘‘Basel III’’ (which is discussed below). Prior to January 1, 2015, we and Seacoast Bank
were subject to risk-based capital guidelines issued by the Federal Reserve and the OCC for bank holding
companies and national banks, respectively. The risk-based capital guidelines that applied to us and Seacoast
Bank through December 31, 2014, were based upon the 1988 capital accord of the international Basel
Committee on Banking Supervision, a committee of central banks and bank supervisors, as implemented by
the U.S. federal banking agencies on an interagency basis.

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 us and other banking organizations.

New Minimum Capital Requirements. The Revised Capital Rules required 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.

9

•

•

8.0% Total capital to risk-weighted assets.

4.0% Tier 1 capital to average consolidated assets as reported on consolidated ﬁnancial statements
(known as the ‘‘leverage ratio’’).

Capital Conservation Buffer. The Revised Capital Rules also 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 Bank
to maintain (i) a minimum ratio of CET1 to risk-weighted assets of 7% (4.5% attributable to CET1 plus the
2.5% capital conservation buffer); (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least
8.5% (6.0% attributable to Tier 1 capital plus the 2.5% capital conservation buffer), (iii) a minimum ratio of
Total capital (that is, Tier 1 plus Tier 2) to risk-weighted assets of at least 10.5% (8.0% attributable to Total
capital plus the 2.5% capital conservation buffer) and (iv) a minimum leverage ratio of 4%, calculated as the
ratio of Tier 1 capital to average assets (as compared to a current minimum leverage ratio of 3% for banking
organizations that either have the highest supervisory rating or have implemented the appropriate federal
regulatory authority’s risk-adjusted measure for market risk). At December 31, 2016, the requisite capital
conservation buffer Seacoast is subject to was 0.625%.

Regulatory Deductions. The Revised Capital Rules provide for a number of deductions from and
adjustments to CET1, including the requirement that mortgage servicing rights, deferred tax assets that arise
from operating loss and tax credit carryforwards, net of associated deferred tax liabilities and signiﬁcant
investments in non-consolidated ﬁnancial entities be deducted from CET1 to the extent that any one such
category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1. Implementation
of the deductions and other adjustments to CET1 began on January 1, 2015 and 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).

Under the Revised Capital Rules, the effects of certain accumulated other comprehensive items (except
gains and losses on cash ﬂow hedges where the hedged item is not recognized on a banking organization’s
balance sheet at fair value) are not excluded; however, certain banking organizations, including us and
Seacoast Bank, may make a one-time permanent election to continue to exclude these items. The Revised
Capital Rules also preclude counting certain hybrid securities, such as trust preferred securities, as Tier 1
capital of bank or thrift holding companies. However, for bank or thrift holding companies that had assets of
less than $15 billion as of December 31, 2009 like us, trust preferred securities issued prior to May 19, 2010
can be treated as Tier 1 capital to the extent that they do not exceed 25% of Tier 1 capital after applying all
capital deductions and adjustments.

Management believes, at December 31, 2016, that we and Seacoast Bank meet all capital adequacy
requirements under the Revised Capital Rules on a fully phased-in basis if such requirements were currently
effective.

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.

10

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.

Under BHC Act, bank holding companies that are, and whose depository institution subsidiaries 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
companies and their subsidiaries are permitted to acquire or engage in activities such as insurance
underwriting, securities underwriting, travel agency activities, a broad range of insurance agency activities,
merchant banking, and other activities that the Federal Reserve determines to be ﬁnancial in nature or
complementary thereto. While we have not become a ﬁnancial holding company, we may elect to do so in the
future in order to exercise these broader activity powers. Banks may also engage in similar ‘‘ﬁnancial
activities’’ through subsidiaries.

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

holding company, whether located in Florida or elsewhere, may acquire a bank located in any other state,

11

subject to certain deposit-percentage, age of bank charter requirements, and other restrictions. Federal law also
permits national and state-chartered banks to branch interstate through acquisitions of banks in other states,
subject to certain requirements.

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

company to act as a source of ﬁnancial and managerial strength and to preserve and protect its bank
subsidiaries in situations where additional investments in a troubled bank may not otherwise be warranted.
Notably, the Dodd-Frank Act has codiﬁed the Federal Reserve’s ‘‘source of strength’’ doctrine. In addition, the
Dodd-Frank Act’s new provisions authorize the Federal Reserve to require a company that directly or
indirectly controls a bank to submit reports that are designed both to assess the ability of such company to
comply with its ‘‘source of strength’’ obligations and to enforce the company’s compliance with these
obligations.

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. Notably, the Revised Capital
Rule updated the prompt corrective action framework to correspond to the rule’s new minimum capital
thresholds, which took effect on January 1, 2015. Under this new framework, (i) a well-capitalized insured
depository institution is one having a total risk-based capital ratio of 10 percent or greater, a Tier 1 risk-based
capital ratio of 8 percent or greater, a CET1 capital ratio of 6.5 percent or greater, a leverage capital ratio of
5 percent or greater and that is not subject to any order or written directive to meet and maintain a speciﬁc
capital level for any capital measure; (ii) an adequately-capitalized depository institution is one having a total
risk based capital ratio of 8 percent or more, a Tier 1 capital ratio of 6 percent or more, a CET1 capital ratio
of 4.5 percent or more, and a leverage ratio of 4 percent or more; (iii) an undercapitalized depository
institution is one having a total capital ratio of less than 8 percent, a Tier 1 capital ratio of less than 6 percent,
a CET1 capital ratio of less than 4.5 percent, or a leverage ratio of less than 4 percent; and (iv) a signiﬁcantly
undercapitalized institution is one having a total risk-based capital ratio of less than 6 percent, a Tier 1 capital
ratio of less than 4 percent, a CET1 ratio of less than 3 percent or a leverage capital ratio of less than
3 percent. The Revised Capital Rules retain the 2 percent threshold for critically undercapitalized institutions,
but make certain changes to the framework for calculating an institution’s ratio of tangible equity to total
assets.

As of December 31, 2016, the consolidated capital ratios of Seacoast and Seacoast Bank were as follows:

Common equity Tier 1 ratio (CET1)
. . . . . . . . . . . .
Tier 1 capital ratio . . . . . . . . . . . . . . . . . . . . . . . .
Total risk-based capital ratio . . . . . . . . . . . . . . . . . .
Leverage ratio . . . . . . . . . . . . . . . . . . . . . . . . . . .

Seacoast
(Consolidated)
10.79%
12.53%
13.25%
9.15%

Seacoast
Bank
12.03%
12.03%
12.75%
8.78%

Minimum to be
Well-Capitalized*

6.5%
8.0%
10.0%
5.0%

*

For subsidiary bank only

FDICIA generally prohibits a depository institution from making any capital distribution (including
payment of a dividend) or paying any management fee to its holding company if the depository institution
would thereafter be undercapitalized. 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

12

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 Bank
exceed applicable capital requirements, the respective managements of our company and Seacoast Bank do
not believe that the provisions of FDICIA have had any material effect on our company and Seacoast Bank or
our respective operations.

FDICIA also contains a variety of other provisions that may affect the operations of our company and

Seacoast Bank, including reporting requirements, regulatory standards for real estate lending, ‘‘truth in
savings’’ provisions, the requirement that a depository institution give 90 days’ prior notice to customers and
regulatory authorities before closing any branch, and a prohibition on the acceptance or renewal of brokered
deposits by depository institutions that are not well capitalized, or are adequately capitalized and have not
received a waiver from the FDIC. Seacoast Bank was well capitalized at December 31, 2016, and brokered
deposits are not restricted.

Payment of Dividends

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

source of cash, other than securities offerings, is dividends from Seacoast Bank. The prior approval of the
OCC is required if the total of all dividends declared by a national bank (such as Seacoast Bank) in any
calendar year will exceed the sum of such bank’s net proﬁts for that year and its retained net proﬁts for the
preceding two calendar years, less any required transfers to surplus. Federal law also prohibits any national
bank from paying dividends that would be greater than such bank’s undivided proﬁts after deducting statutory
bad debts in excess of such bank’s allowance for possible loan losses.

In addition, we and Seacoast Bank are subject to various general regulatory policies and requirements
relating to the payment of dividends, including requirements to maintain adequate capital above regulatory
minimums. The appropriate federal bank regulatory authority may prohibit the payment of dividends where it
has determined that the payment of dividends would be an unsafe or unsound practice and to prohibit payment
thereof. 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;

13

•

•

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 Bank recorded net income in 2014, 2015 and 2016, 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 Bank is
eligible to distribute dividends up to $61.0 million to us, without prior OCC approval, as of
December 31, 2016.

No dividends on our common stock were declared or paid in 2014, 2015 or 2016.

Enforcement Policies and Actions

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 Bank 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 Bank 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’’.

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

Standards for Safety and Soundness

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.

14

FDIC Insurance Assessments

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

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

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. The FDIC also established a new assessment rate schedule, as well as alternative rate
schedules that become effective when the DIF reserve ratio reaches certain levels. In determining the deposit
insurance assessments to be paid by insured depository institutions, the FDIC generally assigns institutions to
one of four risk categories based on supervisory ratings and capital ratios. Under the FDIC’s risk-based
assessment system, insured institutions are assigned to risk categories based on supervisory evaluations,
regulatory capital levels and certain other factors. The FDIC’s current system represents a change, required by
the Dodd-Frank Act, from its prior practice of basing the assessment on an institution’s aggregate deposits.

The Dodd-Frank Act also increased the minimum designated reserve ratio of the DIF from 1.15% to

1.35% of the estimated amount of total insured deposits, and eliminated the requirement that the FDIC pay
dividends to depository institutions when the reserve ratio exceeds certain thresholds. Under FDIC rules,
banks with at least $10 billion in assets also pay a surcharge to enable the reserve ratio to reach 1.35 percent.

Upon inception of the new schedule in 2011, Seacoast Bank’s overall rate for assessment calculations
was 14 basis points. As of September 19, 2013, with the release from its formal agreement with the OCC,
Seacoast Bank’s rate was reduced to 8.15 basis points. As of September 30, 2014 and 2015, Seacoast Bank’s
rate was further reduced to 6.79 basis points and 6.54 basis points, respectively. For Seacoast Bank, the new
methodology has had a favorable effect. Seacoast Bank’s deposit insurance premiums totaled $1.6 million for
2014, $2.2 million for 2015, and $2.4 million for 2016. The increase in 2016 resulted primarily from total
assets increasing due to the impact of the Floridian acquisition in the ﬁrst quarter of 2016 and BMO assets
acquired in the second quarter of 2016.

In addition, the FDIC collects FICO deposit assessments, which are calculated off of the assessment base
described above. FICO assessments are set quarterly, and our FICO assessment averaged 0.59 basis points for
all four quarters during 2016. Our FICO assessment rate for the ﬁrst quarter of 2017 is 0.51 basis points.

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.

15

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
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 Bank and

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

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

corresponding provisions of Federal Reserve Regulation W thereunder, which generally require covered
transactions and certain other transactions between a bank and its affiliates to be on terms, including credit
standards, that are substantially the same or at least as favorable to, the bank as those prevailing at the time
for similar transactions with unaffiliated companies.

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

16

Concentrations in Lending. During 2006, the federal bank regulatory agencies released guidance on
‘‘Concentrations in Commercial Real Estate Lending’’ (the ‘‘Guidance’’) and advised ﬁnancial institutions of
the risks posed by commercial real estate (‘‘CRE’’) lending concentrations.

The Guidance requires that appropriate processes be in place to identify, monitor and control risks
associated with real estate lending concentrations. Higher allowances for loan losses and capital levels may
also be required. The Guidance is triggered when CRE loan concentrations exceed either:

•

•

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

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

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

concentrations of CRE secured by a particular property type.

We have always had 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. At December 31, 2016, we had outstanding $86.5 million in
commercial construction and residential land development loans and $72.6 million in residential construction
loans to individuals, which represents approximately 39 percent of Seacoast Bank’s total risk based capital at
December 31, 2016, well below the Guidance’s threshold. At December 31, 2016, the total CRE exposure for
Seacoast Bank represents approximately 214 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 Gramm-Leach-Bliley Act (‘‘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 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 Bank is subject to such standards, as

17

well as standards for notifying customers in the event of a security breach. Under federal law, Seacoast Bank
must disclose its privacy policy to consumers, permit customers to opt out of having nonpublic customer
information disclosed to third parties in certain circumstances, and allow customers to opt out of receiving
marketing solicitations based on information about the customer received from another subsidiary. States may
adopt more extensive privacy protections. We are 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 Bank are subject to a variety of statutes and regulations

designed to protect consumers. These laws and regulations include, among numerous other things,
provisions that:

•

•

•

•

•

•

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

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

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

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

govern the manner in which Seacoast Bank may collect consumer debts; and

prohibit unfair, deceptive or abusive acts or practices in the provision of consumer ﬁnancial products
and services.

The CFPB adopted a rule that implements the ability-to-repay and qualiﬁed mortgage provisions of the

Dodd-Frank Act (the ‘‘ATR/QM rule’’), which took effect on January 10, 2014, and has impacted our
residential mortgage lending practices, and the residential mortgage market generally. The ATR/QM rule
requires lenders to consider, among other things, income, employment status, assets, payment amounts, and
credit history before approving a mortgage, and provides a compliance ‘‘safe harbor’’ for lenders that issue
certain ‘‘qualiﬁed mortgages.’’ The ATR/QM rule deﬁnes a ‘‘qualiﬁed mortgage’’ to have certain speciﬁed
characteristics, and generally prohibit loans with negative amortization, interest-only payments, balloon
payments, or terms exceeding 30 years from being qualiﬁed mortgages. The rule also establishes general
underwriting criteria for qualiﬁed mortgages, including that monthly payments be calculated based on the
highest payment that will apply in the ﬁrst ﬁve years of the loan and that the borrower have a total
debt-to-income ratio that is less than or equal to 43 percent. While ‘‘qualiﬁed mortgages’’ will generally be
afforded safe harbor status, a rebuttable presumption of compliance with the ability-to-repay requirements will
attach to ‘‘qualiﬁed mortgages’’ that are ‘‘higher priced mortgages’’ (which are generally subprime loans). In
addition, under rules that became effective December 24, 2015, the securitizer of asset-backed securities must
retain not less than 5 percent of the credit risk of the assets collateralizing the asset-backed securities, unless
subject to an exemption for asset-backed securities that are collateralized exclusively by residential mortgages
that qualify as ‘‘qualiﬁed residential mortgages.’’ These deﬁnitions are expected to signiﬁcantly shape the
parameters for the majority of consumer mortgage lending in the U.S.

Reﬂecting the CFPB’s focus on the residential mortgage lending market, the CFPB has also issued rules

to implement requirements of the Dodd-Frank Act pertaining to mortgage loan origination (including with
respect to loan originator compensation and loan originator qualiﬁcations) and has ﬁnalized integrated
mortgage disclosure rules that replace and combine certain requirements under the Truth in Lending Act and
the Real Estate Settlement Procedures Act. In addition, the CFPB has issued rules that require servicers to
comply with new standards and practices with regard to: error correction; information disclosure;
force-placement of insurance; information management policies and procedures; requiring information about
mortgage loss mitigation options be provided to delinquent borrowers; providing delinquent borrowers access
to servicer personnel with continuity of contact about the borrower’s mortgage loan account; and evaluating
borrowers’ applications for available loss mitigation options. These rules also address initial rate adjustment

18

notices for adjustable-rate mortgages (ARMs), periodic statements for residential mortgage loans, and prompt
crediting of mortgage payments and response to requests for payoff amounts.

It is anticipated that the CFPB will engage in numerous other rulemakings in the near term that may
impact our business, as the CFPB has indicated that, in addition to speciﬁc statutory mandates, it is working
on a wide range of initiatives to address issues in markets for consumer ﬁnancial products and services. The
CFPB has also undertaken an effort to ‘‘streamline’’ consumer regulations and has established a database to
collect, track and make public consumer complaints, including complaints against individual ﬁnancial
institutions.

The CFPB also has broad authority to prohibit unfair, deceptive and abusive acts and practices
(‘‘UDAAP’’) and to investigate and penalize ﬁnancial institutions that violate this prohibition. While the
statutory language of the Dodd-Frank Act sets forth the standards for acts and practices that violate this
prohibition, certain aspects of these standards are untested, which has created some uncertainty regarding how
the CFPB will exercise this authority. The CFPB has, however, begun to bring enforcement actions against
certain ﬁnancial institutions for UDAAP violations and issued some guidance on the topic, which provides
insight into the agency’s expectations regarding these standards. Among other things, CFPB guidance and its
UDAAP-related enforcement actions have emphasized that management of third-party service providers is
essential to effective UDAAP compliance and that the CFPB is particularly focused on marketing and sales
practices.

We cannot fully predict the effect that being regulated by a new, additional regulatory authority focused

on consumer ﬁnancial protection, or any new implementing regulations or revisions to existing regulations that
may result from the establishment of this new authority, will have on our businesses.

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

•

•

•

•

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

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

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

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

As noted above, Seacoast Bank has experienced 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.

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

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

Enforcement Authority. Seacoast Bank and its ‘‘institution-affiliated parties,’’ including management,
employees, agents, independent contractors and consultants, such as attorneys and accountants and others who
participate in the conduct of the institution’s affairs, are subject to potential civil and criminal penalties for

19

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.

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

Statistical Information

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

20

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, 2016 and 2015, our nonperforming loans (which consist of nonaccrual loans) totaled

$18.1 million and $17.4 million, or 0.6 percent and 0.8 percent of the loan portfolio, respectively. At
December 31, 2016 and 2015, our nonperforming assets (which include foreclosed real estate and bank
branches taken out of service) were $28.0 million and $24.4 million, or 0.6 percent and 0.7 percent of assets,
respectively. Other real estate owned (‘‘OREO’’) included $5.7 million for branches taken out of service at
December 31, 2016, versus no branches at December 31, 2015. In addition, we had approximately
$3.8 million and $2.6 million in accruing loans that were 30 days or more delinquent at December 31, 2016
and 2015, respectively. Our nonperforming assets adversely affect our net income in various ways. We
generally 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. 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.

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 can

21

deteriorate as a result of economic downturns in our markets. Although there are now signs of economic
recovery, if the credit quality of our customer base or their debt service behavior materially decreases, if the
risk proﬁle of a market, industry or group of customers declines or weakness in the real estate markets and
other economics were to rise, 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.

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

As of December 31, 2016, we had deferred tax assets of $60.8 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 income for 2014, 2015 and 2016. Management expects to realize the

$60.8 million in deferred tax assets well in advance of the statutory carryforward period, based on its forecast
of future taxable income. We consider positive and negative evidence, including the impact of reversals of
existing taxable temporary differences, tax planning strategies and projected earnings within the statutory tax
loss carryover period. This process requires signiﬁcant judgment by management about matters that are by
nature uncertain. If we were to conclude that signiﬁcant portions of our 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. 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, Grand acquisition in July 2015, and
Floridian acquisition in March 2016, have any negative implications for the Company under Section 382.
Deferred taxes for Section 382 events netting to $1.4 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.

Prospective change in tax statutes may occur, and these legislative changes may have an immediate or
retroactive impact on net income, shareholders’ equity and the Company’s regulatory capital ratios, if passed
by the United States Congress and signed into law by the President of the United States.

A reduction to the U.S. federal tax rates on commercial businesses is a current subject within the
U.S. political arena. If federal tax rates for commercial entities are lowered by statute, the effect of the
enactment would result in a reduction to the Company’s deferred tax assets (that currently total $60.8 million),

22

with the reduction offset by an immediate, one-time adjustment increasing provision for taxes, and lowering
net income. Over prospective periods, a lower federal tax rate would result in improved net income
performance. We have performed calculations regarding the impact of tax rate reductions. We believe the
initial impact of a reduction to the federal rate, and the resultant reduction to deferred tax assets and capital,
via higher tax provisioning at inception, would be recovered with lower tax provisioning prospectively from
the date of inception. The reduction in our deferred tax assets (‘‘DTAs’’) would negatively impact our capital
ratios (as a small portion of our DTA is includable in regulatory capital calculations) but not below
well-capitalized levels, as deﬁned by our regulators. As higher net income is recorded due to lower tax
provisioning, and increases shareholders’ equity, the detrimental impact to capital ratios would diminish and
accrete capital over time.

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.

Attractive acquisition opportunities may not be available to us in the future, and failure to effectively integrate
acquisition targets or our inability to achieve expected beneﬁts from an acquisition may adversely impact our
results.

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

23

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 is 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, 2016 and 2015, 50.2 percent
and 49.8 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 2016, we recorded a $2.4 million provision for loan losses, compared to a $2.6 million
provision for losses during 2015, and compared to a $3.5 million recapture of provisioning during 2014.

Seacoast Bank 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.
Seacoast Bank’s CRE concentrations as of December 31, 2016 were favorably below regulatory guidance.

Liquidity risks could affect operations and jeopardize our ﬁnancial condition.

Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of
loans and other sources could have a substantial negative effect on our liquidity. Our non-core funding sources
include 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 Bank 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.

24

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

Our ability to borrow could also be impaired by factors that are not speciﬁc to us, such as disruptions in
the ﬁnancial markets or negative views and expectations about the prospects for the ﬁnancial services industry
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 interest on
our trust preferred securities or reinstate dividends.

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

We must effectively manage our interest rate risk. The impact of changing interest rates on our results is
diffıcult to predict and changes in interest rates may impact our performance in ways we cannot predict.

Our proﬁtability is dependent to a large extent on our net interest income, which is the difference
between the interest income paid to us on our loans and investments and the interest we pay to third parties
such as our depositors, lenders and debt holders. Changes in interest rates can impact our proﬁts and the fair
values of certain of our assets and liabilities. Prolonged periods of unusually low interest rates may have an
incrementally adverse effect on our earnings by reducing yields on loans and other earning assets over time.
Increases in market interest rates may reduce our customers’ desire to borrow money from us or adversely
affect their ability to repay their outstanding loans by increasing their debt service obligations through the
periodic reset of adjustable interest rate loans. If our borrowers’ ability to pay their loans is impaired by
increasing interest payment obligations, our level of nonperforming assets would increase, producing an
adverse effect on operating results. Increases in interest rates can have a material impact on the volume of
mortgage originations and re-ﬁnancings, adversely affecting the proﬁtability of our mortgage ﬁnance business.
Interest rate risk can also result from mismatches between the dollar amounts of re-pricing or maturing assets
and liabilities and from mismatches in the timing and rates at which our assets and liabilities re-price. We
actively monitor and manage the balances of our maturing and re-pricing assets and liabilities to reduce the
adverse impact of changes in interest rates, but there can be no assurance that we will be able to avoid
material adverse effects on our net interest margin in all market conditions.

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.

25

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, transfer funds directly and obtain loans without banks. This process could
result in the loss of interest and fee income, as well as the loss of customer deposits and the income generated
from those deposits. The impact to our loan growth may be more signiﬁcant prospectively.

Regulatory compliance burdens and associated costs have increased and 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.

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

Both we and Seacoast Bank must meet regulatory capital requirements and maintain sufficient liquidity

and our regulators may modify and adjust such requirements in the future. Our ability to raise additional
capital, when and if needed in the future, will depend on conditions in the capital markets, general economic

26

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 Bank ceases to
be a ‘‘well capitalized’’ institution for bank regulatory purposes, its ability to accept brokered deposits and the
interest rates that it pays may both be restricted.

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 31, 2016.

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.

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
Bank’s business, including for compliance with laws and regulations, and Seacoast Bank also may be subject
to participation by the CFPB in its future regulatory examinations as discussed in the ‘‘Supervision and

27

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

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 and other potential markets. We compete for loans, deposits and other ﬁnancial services in
geographic markets with other local, regional and national commercial banks, thrifts, credit unions, mortgage
lenders, and securities and insurance brokerage ﬁrms. Many of our competitors offer products and services
different from us, and have substantially greater resources, name recognition and market presence than we do,
which beneﬁts them in attracting business. Larger competitors may be able to price loans and deposits more
aggressively than we can, and have broader customer and geographic bases to draw upon.

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

28

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

Our controls and procedures may fail or be circumvented.

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

Our operations rely on external vendors.

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

From time to time, we may decide to retain a new vendor for new or existing products and services.
Transition to these new vendors may not proceed as anticipated and could negatively impact our customers or
our ability to conduct business, which, in turn, could have an adverse effect on our business, results of
operations and ﬁnancial condition.

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

29

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.

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

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

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.

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

30

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 Bank’s mortgage lending operations, by, among other things, reducing the
volume of mortgage loans that Seacoast Bank can originate and sell into the secondary market, increasing its
compliance burden and impairing Seacoast Bank’s ability to proceed against certain delinquent borrowers with
timely and effective collection efforts.

Ownership concentrations of our common stock and actions by large shareholders may affect the market price
of our common stock.

A substantial number of shares of our common stock are owned by a small number of large institutional
investors and those shares could be sold into the public market pursuant. In the event these large shareholders
elect to sell their shares, such sales or attempted sales could result in signiﬁcant downward pressure on the
market price of our common stock and actual price declines.

A reduction in consumer conﬁdence could negatively impact our results of operations and ﬁnancial condition.

The beginning of 2017 has seen signiﬁcant market volatility driven in part by concerns relating to,
among other things, the 2016 U.S. presidential election. The continued impact of this issue could adversely
affect the U.S. or global economies, with direct or indirect impacts on the Company and our business. Results
could include drops in consumer and business conﬁdence, credit deterioration, diminished capital markets
activity, and delays in the Federal Reserve Board increases in interest rates.

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

38,021,835 shares were outstanding as of December 31, 2016, 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

31

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.

Ownership concentrations of our common stock and actions by large shareholders may affect the market price
of our common stock.

A substantial number of shares of our common stock are owned by a small number of large institutional

investors, and those shares could be sold into the public market pursuant to the registration rights of such
institutional investors. In the event of these large shareholders elect to sell their shares, such sales or
attempted sales could result in signiﬁcant downward pressure on the market price of our common stock and
actual price declines.

Item 1B. Unresolved Staff Comments

None.

Item 2.

Properties

We and Seacoast Bank’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 Bank, which leases
out portions of the building not utilized by us and Seacoast Bank to unaffiliated third parties.

Adjacent to the main office, Seacoast Bank leases approximately 21,400 square feet of office space from
third parties to house operational departments, consisting primarily of information systems and retail support.
Seacoast Bank owns its equipment, which is used for servicing bank deposits and loan accounts as well as
on-line banking services, and providing tellers and other customer service personnel with access to customers’
records. In addition, Seacoast Bank owns an operations center consisting of a 4,939 square foot building
situated on 1.44 acres in Okeechobee, Florida. Our PGA Blvd. branch is utilized as a disaster recovery site
should natural disasters or other events preclude the use of Seacoast Bank’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.

Seacoast Business Funding, a receivables factoring division of Seacoast Bank, occupies 1,511 square

feet of leased space on the ﬁrst ﬂoor of the Winter Park branch in Orlando, Florida, and Seacoast Bank
6,000 square feet of leased space in Boynton Beach, Florida.

32

Seacoast Bank owns or leases all of the real property and/or buildings in which we operate our business.
As of December 31, 2016, we and our subsidiaries had 46 branch offices, ﬁve commercial lending offices and
its main office in Florida at December 31, 2016. As of December 31, 2016, the net carrying value of these
offices (excluding the main office) was approximately $43.6 million. Seacoast Bank’s branch and commercial
lending offices in 2015 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

Westmoreland
1108 S.E. Port St. Lucie Blvd.
Port St. Lucie, FL 34952

Year Opened/Acquired
1977

Square Feet
1,920

Owned/Leased
Owned

1978
(relocated in 1995)

1983

2,300

3,450

Owned; closed in February
2015; moved to OREO
and sold

Leased

1985
(relocated in 2008)

4,468 (with 1,179
leased to tenants)

Owned building located
on leased land

Wedgewood Commons
3200 U.S. Highway 1
Stuart, FL 34997

1988
(relocated in 2009)

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

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

1990

1991

1991
(relocated in 2008)

1992

1992

1993

1993
(relocated in 2008)

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

1994
(relocated in 1997)

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

Sebastian West
1110 Roseland Rd.
Sebastian, FL 32958

1997

1998

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)

Owned building located
on leased land

Leased; closed
in May 2016

Owned

Owned building located
on leased land

3,960

8,250

3,300

5,435

4,320

3,150

3,150

Owned

Owned

Owned

Leased

Leased

Owned; closed in December
2015 and moved to
OREO to sell

Owned

33

Year Opened/Acquired
2003

Square Feet
3,500

Owned/Leased
Owned

Branch Office
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

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

2004

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)

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

2006

2006

2006

2007

2008

2008

Winter Park
1031 West Morse Blvd
Winter Park, FL 32789

2014 (acquired through
BankFIRST merger;
opened 1989)

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

2014 (acquired through
BankFIRST merger;
opened 1989)

2,881

2,500

4,536

13,454

8,232

3,920

3,256

4,415

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)

Owned building located
on leased land

Owned

Leased

Leased

Owned

Owned

Owned

Owned; closed in May 2016
and moved to OREO to sell

Owned

Owned; closed in May 2016
and moved to OREO to sell

Owned; closed in May 2016,
moved to OREO and sold

Leased; closed
in December 2014

Leased; closed
in December 2014

Owned

Leased

8,081

Owned

34

Square Feet
4,699

Owned/Leased
Owned

Owned

Owned

Owned

Owned

Owned

Owned

Owned

Owned

Owned

Leased

Leased

Owned

Owned

Branch Office
Eustis
15119 Highway 441
Eustis, FL 32726

Year Opened/Acquired
2014 (acquired through
BankFIRST merger;
opened 1991)

Melbourne
300 South Harbor City Blvd.
Melbourne, FL 32901

2014 (acquired through
BankFIRST merger;
opened 1996)

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

2014 (acquired through
BankFIRST merger;
opened 1997)

Oviedo
2839 Clayton Crossing Way
Oviedo, FL 32765

2014 (acquired through
BankFIRST merger;
opened 2000)

Viera
105 Capron Trial
Viera, FL 32940

Apopka
345 East Main St.
Apopka, FL 32703

Port Orange
405 Dunlawton Ave.
Port Orange, FL 32127

Sanford
3791 West 1st St.
Sanford, FL 32771

2014 (acquired through
BankFIRST merger;
opened 2000)

2014 (acquired through
BankFIRST merger;
opened 2001)

2014 (acquired through
BankFIRST merger;
opened 2001)

2014 (acquired through
BankFIRST merger;
opened 2003)

Titusville
4250 South Washington Ave.
Titusville, FL 32780

2014 (acquired through
BankFIRST merger;
opened 2003)

4,558

8,810

4,482

3,426

4,984

3,120

3,191

2,050

Clermont
1000 East Highway 50
Clermont, FL 34711

2014 (acquired through
BankFIRST merger;
opened 2005)

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

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

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

2014

2014

Palm Beach Lakes
2055 Palm Beach Lakes Blvd
West Palm Beach, FL 33409

2015 (acquired through
Grand Bank merger;
opened in 1999)

Lantana
2000 Lantana Road
Lake Worth, FL 33462

2015 (acquired through
Grand Bank merger;
opened in 2000)

1,190

3,522

6,496

2,777

35

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

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.

36

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 28, 2017 there were 40,734,382 shares of our
common stock outstanding, held by approximately 2,204 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

2015
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter

2016
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter

$14.46
16.09
16.26
16.95

$16.22
17.19
17.80
22.91

$12.02
13.81
14.11
14.10

$13.40
15.21
15.50
15.85

$0.00
0.00
0.00
0.00

$0.00
0.00
0.00
0.00

Dividends from Seacoast Bank 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 Bank also limits
dividends that may be paid to us. We have not paid dividends since 2009.

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

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

Additional information regarding restrictions on the ability of Seacoast Bank 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.

Securities Authorized for Issuance Under Equity Compensation Plans

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

reference.

Item 6.

Selected Financial Data

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

Highlights’’ on page 92.

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 46 − 74.

37

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, 54, and pages 71 − 72.

Item 8.

Financial Statements and Supplementary Data

The report of Crowe Horwath LLP, independent registered public accounting ﬁrms, and the Consolidated

Financial Statements and Notes appear on pages 93 − 148. Quarterly Consolidated Income Statements are
included on page 91 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, 2016. 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, 2016, our internal control over ﬁnancial reporting
was effective.

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.

(c) Change in Internal Control Over Financial Reporting

During 2015 and 2016, there were no changes in our internal control over ﬁnancial reporting that

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

Item 9B. Other Information.

None.

38

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 2017 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 ‘‘2016 Director Compensation’’ in the 2017 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, 2016.

December 31, 2016

Equity Compensation Plan Information

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

Weighted average
exercise price of
outstanding
options, warrants
and rights

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

28,537
0
750,241
0
778,778

$111.09
0.00
12.24
0.00
$ 15.86

0
0
1,160,656
97,103
1,257,759

Plan Category
Equity compensation plans approved by

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

(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 2017 Proxy Statement, and is incorporated herein by reference.

39

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 2017 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 2017
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 93.

(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.

40

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.

41

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 DEF 14A, ﬁled
with the Commission on April 27, 2009.

Exhibit 10.3 Dividend Reinvestment and Stock Purchase Plan

Incorporated by reference to the Company’s Form S-3 ﬁled on November 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 to the Company’s Form 10-K ﬁled March 14, 2016.

Exhibit 10.8 2008 Long-Term Incentive Plan*

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

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.

42

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 March 25, 2015, by and among the Company, Seacoast Bank, Grand Bankshares, Inc. and Grand
Bank & Trust of Florida, incorporated herein by reference from Exhibit 2.1 to the Company’s Form 8-K,
ﬁled March 31, 2015.

Exhibit 10.15 Branch Sale Agreement

Dated October 14, 2015, by and between Seacoast Bank and BMO Harris Bank N.A., incorporated herein
by reference from Exhibit 2.1 to the Company’s Form 8-K, ﬁled October 19, 2015.

Exhibit 10.16 Agreement and Plan of Merger

Dated November 2, 2015, by and among the Company, Seacoast Bank, Floridian Financial Group, Inc.
and Floridian Bank, incorporated herein by reference from Exhibit 2.1 to the Company’s Form 8-K, ﬁled
November 4, 2015.

Exhibit 10.17 Change of Control Employment Agreement*

Dated August 6, 2015 between Stephen Fowle and the Company, incorporated herein by reference from
Exhibit 10.1 to the Company’s Form 8-K, ﬁled August 10, 2015.

Exhibit 10.18 Executive Transition Agreement*

Dated April 30, 2015 between William R. Hahl and the Company, incorporated herein to the Company’s
Form 10-K, ﬁled March 14, 2016.

Exhibit 10.19 Observation Rights Agreement

Dated March 23, 2016, Observer Rights Agreement by and between the Company, Basswood and
Matthew Lindenbaum, incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K,
ﬁled March 24, 2016.

Exhibit 10.20 Amendment No. 1 to Observer Rights Agreement

Dated July 26, 2016, the Company entered into Amendment No. 1 to the Observer Rights Agreement
dated as of March 23, 2016, whereby the date which either Matthew Lindenbaum or the Company may
terminate the Agreement was extended, incorporated herein by reference from Exhibit 10.1 to the
Company’s From 8-K, ﬁled July 29, 2016.

Exhibit 10.21 Form of Change of Control Employment Agreement with Charles Cross, David Houdeshell
and Charles Shaffer

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

Exhibit 10.22 Agreement and Plan of Merger

43

Dated November 3, 2016, by and among the Company, Seacoast Bank, GulfShore Bancshares, Inc. and
GulfShore Bank, incorporated herein by reference from Exhibit 2.1 to the Company’s Form 8-K, ﬁled
November 9, 2016.

Exhibit 21 Subsidiaries of Registrant

Exhibit 23.1 Consent of Independent Registered Public Accounting Firm

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

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.

44

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 14, 2017

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/ Stephen A. Fowle
Stephen A. Fowle, 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/ Christopher E. Fogal
Christopher E. Fogal, Director

/s/ Maryann Goebel
Maryann Goebel, Director

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

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

/s/ Timothy S. Huval
Timothy S. Huval, Director

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

45

Date

March 14, 2017

March 14, 2017

March 14, 2017

March 14, 2017

March 14, 2017

March 14, 2017

March 14, 2017

March 14, 2017

March 14, 2017

March 14, 2017

March 14, 2017

March 14, 2017

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 2016, 2015 and 2014. Nearly all of the Company’s operations are contained in its
banking subsidiary, Seacoast Bank (‘‘Seacoast Bank’’ or the ‘‘Bank’’). This discussion and analysis is intended
to highlight and supplement information presented elsewhere in the annual report on Form 10-K, particularly
the consolidated ﬁnancial statements and related notes appearing in Item 8. 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 — Strategy and Results

Seacoast continues to execute on its plan to grow our core business organically, innovate to build our

franchise and increase efficiency, and grow through mergers and acquisitions. We believe that these
investments in growth, efficiency and digital transformation better position us to grow shareholder value today
and prospectively. Highlights of our performance in 2016 included:

•

•

•

•

•

27% year-over-year revenue growth during 2016, outpacing a 26% increase in noninterest expense
over the corresponding period. Adjusted revenues, excluding securities gains and a bargain purchase
gain in the fourth quarter 2015 grew 28%, outpacing a 14% increase in adjusted noninterest
expenses over the same period. Adjusted revenues and adjusted noninterest expense are non-GAAP
measures (see page 72, ‘‘Explanation of Certain Unaudited Non-GAAP Financial Measures’’ in
‘‘Results of Operations’’);

achievement of our $1.00 adjusted diluted earnings per share goal for 2016, a non-GAAP measure
(see page 72, ‘‘Explanation of Certain Unaudited Non-GAAP Financial Measures’’ in ‘‘Results of
Operations’’). This metric represented a 35% increase from the prior year, exiting 2016 on a strong
upward trajectory and on a path to outperform peers;

reduction in costs related to branch consolidations, a substantial portion of cost savings coming from
the integration of BMO Harris and Floridian offices during the second and third quarters of 2016;

continuation of our analytics-driven cross sell and improved sales execution combined with a
favorable Florida economy that drove record loan production; total loans increased 34% compared to
a year ago, with record production volumes;

completion and successful integration of our acquisitions of Floridian Financial Group, Inc.
(Floridian) on March 11, 2016, and the purchase of BMO Harris Bank, N.A.’s (‘‘BMO’’) Orlando
operations on June 3, 2016. These acquisitions further solidiﬁed Seacoast’s status in Orlando,
propelling Seacoast to a top-10 position in this market. In 2016, we also announced the acquisition
of GulfShore Bancshares, Inc. (‘‘GulfShore’’) in Tampa, Florida which we expect to close on
April 7, 2017.

We introduced Seacoast’s Accelerate commercial banking model in 2011, strategically opening offices in
the larger metropolitan markets we serve, including Orlando, Boca Raton and Ft. Lauderdale. The commercial
lending offices provide our customers with talented, results-oriented staff, specializing in loans to businesses
with revenues above $5 million in speciﬁc industries. From their tenure and market experience, our bankers
are familiar with the multitude of challenges the small business customer faces. Through this investment, the
Company continues to focus on reaching customers in unique ways, creating a path to achieve higher
customer engagement.

In addition, Seacoast has built a fully integrated distribution platform across all channels to provide our

customers with the ability to choose their path of convenience to satisfy their banking needs, and which
provides us an opportunity to reach our customers through a variety of sales channels. For 2016, Seacoast’s
debit card spend was up 17% year-over-year, a new high, consumer loans sold to existing customers increased
62% and 37% of check deposits were made outside the branch. Expansion of our 24/7/365 call center in early
2017, further enhances our distribution system, with over 11% of our deposit relationships and nearly 16% of
our consumer loan production originated through this channel during 2016. Taken together, we have

46

proactively positioned our business for growth. Excluding the acquisitions, loan growth reached $377 million
or 18%, compared to $218 million or 12% growth for 2015.

We believe digital delivery and products have contributed to growing our franchise. As of December 31,

2016, approximately 70% of our online customers adopted mobile product offerings and the total number of
services utilized by Seacoast’s retail customer averaged 4.4 per household, primarily due to increases in debit
card activation, direct deposit and mobile banking users. Personal and business mobile banking has grown
from 21,587 users at December 31, 2014, to 32,305 users at December 31, 2015, to 47,131 users at
December 31, 2016. 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.

Our brand reﬂects our forward-looking strategy and our intent to beneﬁt from continued investments in

analytics, digital servicing capabilities and technology, and reduce overhead. Embracing technology, especially
electronic delivery channels, has helped us improve efficiency. During 2016, we added 24 branches, but we
were also successful in closing 20 branches. This has allowed us to improve deposits per facility, with total
deposits per branch increasing to $75 million at December 31, 2016, from $66 million one year earlier. We
expect to continue consolidating our more expensive, traditional banking facilities, and related personnel costs,
as digital and call center channels expand dramatically.

The combination of the above actions improved net income available to common shareholders (on a
GAAP basis) totaling $29.2 million or $0.78 per diluted share, compared to $22.1 million or $0.66 per diluted
share for 2015, and $5.7 million or $0.21 per diluted share for 2014.

Acquisitions — Enhancing Our Success

Enhancing our footprint were the acquisitions of Floridian and BMO offices in 2016, Grand in 2015 and

BANKshares late in 2014 (see ‘‘Note S — Business Combinations’’). Our primary reasons for these
transactions were to further solidify our market share in the attractive Palm Beach and Central Florida
markets, expand our customer base and leverage operating costs through economies of scale. These
acquisitions not only increased our households, but opened markets and customer bases where our
convenience offering resonates. These acquisitions were accretive in the ﬁrst year (excluding merger charges).
In aggregate, the Floridian and BMO acquisitions contributed $651 million in total deposits and $328 million
in loans to our balance sheet, the Grand acquisition provided $188 million in total deposits and $111 million
in loans to our balance sheet, and the BANKshares acquisition added $516 million in total deposits and
$365 million in loans. Merger related charges for 2016, 2015 and 2014 summed to $8.7 million, $4.3 million
and $4.3 million, respectively, primarily impacting salaries and wages, outsourced data processing costs, and
legal and professional fees.

During the fourth quarter of 2016, we announced our acquisition of GulfShore, jumpstarting our entry
into the Tampa market. We look forward to a signiﬁcant opportunity in the fast-growing, business rich Tampa
market in the second quarter of 2017. As we approach this market we plan to use lessons learned from our
successful build in the fast-growing Orlando marketplace. We are now the largest Florida-based bank in
Orlando and a top-10 bank in this market overall. At year-end 2016, Orlando represents 37% of our franchise,
measured by deposits. Regulatory approval for the GulfShore transaction has been received and we are
waiting for shareholder approval, with the close of the GulfShore acquisition expected on April 7, 2017,
subject to customary closing conditions (see ‘‘Note S — Business Combinations’’).

The Company will likely continue to consider strategic acquisitions as part of the Company’s overall

future growth plans.

The Florida Economy

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

higher consumer conﬁdence fueling improvements in our markets. Florida’s economic indicators continue to
show strength for the state. We believe the Florida economy will further strengthen in 2017, as the state
continues to attract population inﬂows. Florida’s housing markets, manufacturing base, tourism and services
industries provide a diversiﬁed base for our economy. The residential real estate market is becoming stronger
as pricing and sales volumes continue to increase. Our primary competitors now are the mega-banks, and
many of these large institutions are struggling with higher capital requirements and new restrictions and

47

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.

The Florida economy continues to amplify our success and the state of Florida remains an attractive
market in which to live and work. There are many positive indications that Florida’s economy will continue to
improve. A December 2016 report from Wells Fargo Securities Economics Group stated, ‘‘The recently
updated state (Florida) GDP data and the Quarterly Census of Employment and Wages (‘‘QCEW’’) provide
additional insight into Florida’s recent strong economic performance. Florida’s economy grew 2.9%
year-over-year in Q2, far exceeding the nation’s 1.2% growth.’’ Their November report forecasted, ‘‘We look
for Florida’s strong run of economic growth to carry over into 2017, albeit at a slightly more modest pace.
Real GDP should grow 3.3% next year and nonfarm payrolls should add around 235,000 new jobs.
Homebuilding should continue to gain momentum, as stronger jobs and income growth boosts household
formation and encourages more job seekers to move to Florida.’’

Florida’s residential real estate market remains solid. Recent Florida REALTORS reports indicate year
over year increase in closed sales and median sales price, with time to contract continuing a shortening trend.

Our Business

The Company is a single-bank holding company with operations on Florida’s southeast coast (ranging
from Broward and Palm Beach 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). Additionally, in 2016 we began to serve the attractive Tampa market and announced the GulfShore
acquisition to fortify our presence. The Company had 47 full service offices at December 31, 2016, an
increase of four offices from December 31, 2015.

The Company operates both a full retail banking strategy in its core markets, which are some of Florida’s

wealthiest, as well as a commercial banking strategy serving small- to mid-sized businesses. The Company,
through its bank subsidiary, 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, and asset based ﬁnancing. Seacoast also provides
trust and investment management services to retirement plans, corporations and individuals.

Loan Growth and Lending Policies

For 2016, balances in the loan portfolio increased 34%, compared with an increase of 18% for 2015,

reﬂecting strong business production and the acquisitions of Floridian, BMO, Grand and BANKshares.
Adjusting for the loans acquired through acquisitions, the loan portfolio grew 18% and 12% during 2016 and
2015, respectively.

Loan production improved during 2016 and 2015 and growth continued across all business lines. For
2016, $432 million in commercial/commercial real estate loans were originated, compared to $299 million for
2015. Our loan pipeline for commercial/commercial real estate loans totaled $89 million at December 31,
2016, versus $106 million at December 31, 2015. The Company also closed $403 million in residential loans
during 2016, compared to $272 million in 2015. The residential loan pipeline at December 31, 2016 totaled
$73 million, versus $30 million a year ago. Increasing home values and lower interest rates have bolstered
consumer interest in borrowing. Consumer and small business originations improved as well, totaling
$302 million during 2016 compared to $203 million during 2015.

The Company expects more loan growth opportunities for all types of lending in 2017. We will continue

to expand our business banking teams, adding new, seasoned, commercial loan officers where market
opportunities arise, and improving service through electronic and digital means. In addition, receivables
factoring provides another vehicle to better serve customers. We believe that achieving our loan growth
objectives, together with the prudent management of credit risk will provide us with the potential to make
further, meaningful improvements to our earnings in 2017.

Our strong growth is accompanied by sound risk management procedures. Our lending policies contain

numerous guardrails that pertain to lending by type of collateral and purpose, along with limits regarding loan

48

concentrations and the dollar amount (size) of loans. With a disciplined approach, we have beneﬁted from
having loan production and loan pipelines that are diverse, de-risking our balance sheet. For example, in
recent years the Company increased its focus and monitoring of its exposure to residential land, acquisition
and development loans. Overall, the Company has reduced its exposure to commercial developers of
residential land, acquisition and development loans from its peak of $352 million or 20% of total loans in
early 2007 to $30 million or 1% at December 31, 2016. Our exposure to commercial real estate lending is
signiﬁcantly below regulatory limits (see ‘‘Loan Concentrations’’).

Deposit Growth, Mix and Costs

The Company’s focus on convenience, with high quality customer service, expanded digital offerings and

distribution channels provides stable, low cost core deposit funding for the company. Over the past
several years, the Company has strengthened its retail deposit franchise using new strategies and product
offerings, while maintaining a focus on growing customer relationships. We believe that digital product
offerings are central to core deposit growth as access via these distribution channels is required by customers.
During the last two years, we have signiﬁcantly grown our average transaction deposits (noninterest and
interest bearing demand), with signiﬁcant increases of $379.3 million or 26% in 2016 and $375.8 million or
35% in 2015. Along with new relationships, our deposit programs and digital sales have improved our market
share and increased average services per household.

Our growth in core deposits has also provided low funding costs. The Company’s deposit mix remains

favorable, with 90 percent of average deposit balances comprised of savings, money market, and demand
deposits in the fourth quarter of 2016. The Company’s average cost of deposits, including noninterest bearing
demand deposits, was 0.14% for 2016, slightly above 2015’s rate of 0.13%, as acquired deposits marginally
increased the Company’s cost of deposits.

During 2016, total deposits increased $679 million or 24% and sweep repurchase agreements grew

$32 million or 19%, versus 2015. In comparison, total deposits increased $428 million or 18% and sweep
repurchase agreements increased $18 million or 12% during 2015, versus 2014. Deposits for 2016 included
acquired balances from Floridian and BMO that aggregated to over $651 million and deposits for 2015
included acquired deposits of nearly $189 million from Grand. Most of the increase in sweep repurchase
agreements during 2016 and 2015 was in public funds, principally from higher seasonal tax collector receipts
from property owners.

Financial Condition

Total assets increased $1.15 billion or 32% to $4.68 billion at December 31, 2016, after increasing

$441.4 million or 14% to $3.53 billion in 2015. Growth highlights were our acquisitions; Floridian which
closed March 11, 2016, BMO which closed June 3, 2016, and Grand which closed July 17, 2015, expanding
our presence in Palm Beach and Central Florida (particularly in the greater Orlando market), and increasing
total assets by $417 million, $314 million, and $215 million, respectively.

Loan Portfolio

Table 7 shows total loans (net of unearned income) for commercial and residential real estate,

commercial and ﬁnancial and consumer loans outstanding for the last ﬁve years.

Total loans (net of unearned income and excluding the allowance for loan losses) were $2.88 billion at

December 31, 2016, $723.2 million or 34% more than at December 31, 2015, and were $2.16 billion at
December 31, 2015, $334.4 million or 18% more than at December 31, 2014. The Floridian and BMO
acquisitions in 2016 and Grand acquisition in 2015, contributed $276 million, $64 million and $110 million in
loans, respectively. Also, during the last six months of 2016, we purchased four separate mortgage loan pools
aggregating to $63.5 million and a marine loan pool of $16.0 million (a total of $79.5 million in loans
purchased), and sold two seasoned mortgage portfolio pools (summing to $70.6 million). The sale of mortgage
pools believed to have reached their peak in market value resulted in gains of $0.9 million. Success in
commercial lending through our legacy franchise and through our Accelerate banking model has increased
loan growth. Analytics and digital marketing have further fueled loan growth in the consumer and small

49

business channels. Loan production of $979 million and $688 million was retained in the loan portfolio during
the twelve months ended December 31, 2016 and 2015, respectively. Successful acquisition activity has
further supplemented our growth.

The following table details loan portfolio composition at December 31, 2016 and 2015 for portfolio

loans, purchase credit impaired loans (‘‘PCI’’), and purchase unimpaired loans (‘‘PUL’’) as deﬁned in
Note E-Loans.

December 31, 2016

. . . . . . . . .
Construction and land development
Commercial real estate(1)
. . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . .
Commercial and ﬁnancial . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer
. . . . . . . . . . . . . . . . . . . . . . . . .
Other loans
NET LOAN BALANCES . . . . . . . . . . . . . .

December 31, 2015

. . . . . . . . .
Construction and land development
Commercial real estate(1)
. . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . .
Commercial and ﬁnancial . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer
. . . . . . . . . . . . . . . . . . . . . . . . .
Other loans
NET LOAN BALANCES . . . . . . . . . . . . . .

Portfolio
Loans

$ 137,480
1,041,915
784,290
308,731
152,927
507
$2,425,850

Portfolio
Loans

$

97,629
776,875
678,131
188,013
82,717
507
$1,823,872

PCI Loans

$

PUL’s
(Dollars in thousands)
114
11,257
684
941
0
0
$12,996

$ 22,522
304,420
51,813
60,917
1,018
0
$440,690

PCI Loans

$

PUL’s
(Dollars in thousands)
114
9,990
922
1,083
0
0
$12,109

$ 11,044
222,513
44,732
39,421
2,639
0
$320,349

Total

$ 160,116
1,357,592
836,787
370,589
153,945
507
$2,879,536

Total

$ 108,787
1,009,378
723,785
228,517
85,356
507
$2,156,330

(1) Commercial real estate includes owner-occupied balances of $623.8 million and $453.3 million at

December 31, 2016 and 2015, respectively.

Net loan balances at December 31, 2016 and 2015 are net of deferred costs of $4.4 million and

$7.7 million, respectively.

Commercial real estate mortgages increased $348.2 million or 35% to $1.36 billion at December 31,

2016, compared to December 31, 2015, a result of improving loan production and loans acquired in the
mergers. Office building loans of $341.6 million or 25% of commercial real estate mortgages, comprise our
largest concentration with a substantial portion owner-occupied. Portfolio composition also includes lending
for retail trade, industrial, healthcare, churches and educational facilities, recreation, multifamily, mobile home
parks, lodging, restaurants, agriculture, convenience stores, marinas, and other types of real estate.

The Company’s ten largest commercial real estate funded and unfunded loan relationships at

December 31, 2016 aggregated to $153.0 million (versus $119.8 million a year ago), of which $148.5 million
was funded. The Company’s 65 commercial real estate relationships in excess of $5 million totaled
$564.3 million, of which $502.1 million was funded (compared to 47 relationships of $370.9 million a year
ago, of which $322.6 million was funded).

Fixed rate and adjustable rate loans secured by commercial real estate, excluding construction loans, was

$1.042 billion and $315 million, respectively, at December 31, 2016, compared to $743 million and
$266 million, respectively, a year ago.

Reﬂecting the impact of organic loan growth and the Floridian and BMO loan acquisitions, commercial

loans (‘‘C&I’’) outstanding at year-end 2016 increased to $370.6 million, up substantially from $228.5 million
a year ago. Commercial lending activities are directed principally towards businesses whose demand for funds
are within the Company’s lending limits, such as small- to medium-sized professional ﬁrms, retail and

50

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.

Residential mortgage loans increased $113 million or 16% to $837 million as of December 31, 2016.

Substantially all residential originations have been underwritten to conventional loan agency standards,
including loans having balances that exceed agency value limitations. During 2016, $64 million of whole loan
mortgages were acquired and added to the portfolio. At December 31, 2016, approximately $418 million or
50% of the Company’s residential mortgage balances were adjustable 1-4 family mortgage loans (including
hybrid adjustable rate mortgages). Fixed rate mortgages totaled approximately $210 million (25% of the
residential mortgage portfolio) at December 31, 2016, of which 15- and 30-year mortgages totaled $24 million
and $153 million, respectively. Remaining ﬁxed rate balances were comprised of home improvement loans
totaling $78 million, most with maturities of 10 years or less and home equity lines of credit, primarily
ﬂoating rates, totaling $164 million at December 31, 2016. In comparison, loans secured by residential
properties having ﬁxed rates totaled $110 million at December 31, 2015, with 15- and 30-year ﬁxed rate
residential mortgages totaling $25 million and $85 million, respectively, and home equity mortgages and lines
of credit totaled $69 million and $114 million, respectively.

The Company also provides consumer loans (including installment loans, loans for automobiles, boats,
and other personal, family and household purposes) which increased $68.6 million or 80% year over year and
totaled $153.9 million (versus $85.4 million a year ago). Of the $68.6 million increase, $32.4 million was in
marine loans, $4.3 million in automobile and truck loans, and $31.9 million in other consumer loans. Marine
loans at December 31, 2016 include $15.5 million in purchased loan pools acquired during the third quarter
of 2016.

At December 31, 2016, the Company had unfunded commitments to make loans of $532.1 million,
compared to $343.2 million at December 31, 2015 (see ‘‘Note P — Contingent Liabilities and Commitments
with Off-Balance Sheet Risk’’ to the Company’s consolidated ﬁnancial statements).

Loan Concentrations

The Company has developed guardrails to manage to loan types that are most impacted by stressed
market conditions in order to achieve lower levels of credit loss volatility in the future. Commercial and
commercial real estate loan relationships greater than $10 million totaled $217.3 million, and represent 8% of
the total portfolio at December 31, 2016, compared to $161.7 million or 13% at year-end 2010.

Concentrations in total construction and land development loans and total CRE loans are maintained well
below regulatory limits. Construction and land development and commercial real estate loan concentrations as
a percentage of total risk based capital, were stable at 39% and 214%, respectively, at December 31, 2016.
Regulatory guidance suggests limits of 100% and 300%, respectively.

The Company deﬁnes commercial real estate in accordance with the guidance on ‘‘Concentrations in
Commercial Real Estate Lending’’ (the ‘‘Guidance’’) issued by the federal bank regulatory agencies in 2006,
which deﬁnes commercial real estate (‘‘CRE’’) loans as exposures secured by land development and
construction, including 1-4 family residential construction, multi-family property, and non-farm nonresidential
property where the primary or a signiﬁcant source of repayment is derived from rental income associated with
the property (i.e. loans for which 50 percent or more of the source of repayment comes from third party,
non-affiliated, rental income) or the proceeds of the sale, reﬁnancing, or permanent ﬁnancing of the property.
Loans to real estate investment trusts, or ‘‘REITs’’, and unsecured loans to developers that closely correlate to
the inherent risks in CRE markets would also be considered CRE loans under the Guidance. Loans on owner
occupied CRE are generally excluded.

Nonperforming Loans, Troubled Debt Restructurings, Other Real Estate Owned, and Credit Quality

Table 12 provides certain information concerning nonperforming assets for the years indicated.

Nonperforming assets (‘‘NPAs’’) at December 31, 2016 totaled $28.0 million, and were comprised of

$11.0 million of nonaccrual portfolio loans, $7.1 million of nonaccrual purchased loans, $3.0 million of
non-acquired other real estate owned (‘‘OREO’’), $1.2 million of acquired OREO and $5.7 million of

51

branches out of service. NPAs increased from $24.4 million recorded as of December 31, 2015 (comprised of
$12.8 million of nonaccrual portfolio loans, $4.6 million of nonaccrual purchased loans, and $3.7 million of
non-acquired OREO and $3.3 million of acquired OREO). At December 31, 2016, approximately 98% of
nonaccrual loans were secured with real estate. See the tables below for details about nonaccrual loans. At
December 31, 2016, nonaccrual loans have been written down by approximately $2.8 million or 14% of the
original loan balance (including speciﬁc impairment reserves). During 2016, total OREO increased
$2.9 million or 41%, primarily related to branches taken out of service in 2016 that are actively being
marketed.

The Company’s asset mitigation staff handles all foreclosure actions together with outside legal counsel.

The Company pursues loan restructurings in selected cases where it expects to realize better values than

may be expected through traditional collection activities. The Company has worked with retail mortgage
customers, when possible, to achieve lower payment structures in an effort to avoid foreclosure. TDRs have
been a part of the Company’s loss mitigation activities and can include rate reductions, payment extensions
and principal deferrals. Company policy requires TDRs that are classiﬁed as nonaccrual loans after
restructuring remain on nonaccrual until performance can be veriﬁed, which usually requires six months
of performance under the restructured loan terms. Accruing restructured loans totaled $17.7 million at
December 31, 2016 compared to $20.0 million at December 31, 2015. Accruing TDRs are excluded from our
nonperforming asset ratios. The tables below set forth details related to nonaccrual and accruing restructured
loans.

December 31, 2016
(In thousands)
Construction & land development

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

Real estate loans

Residential real estate mortgages . . . . . . . . . . . .
. . . . . . . . . . .
Commercial real estate mortgages
. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Commercial and ﬁnancial
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non-Current

Nonaccrual Loans
Performing

Total

Accruing
Restructured
Loans

$

0
0
0
0
1,635
2,093
3,728
246
67
$4,041

$

258
0
212
470
8,209
5,248
13,927
0
103
$14,030

$

258
0
212
470
9,844
7,341
17,655
246
170
$18,071

$

262
44
243
549
10,878
5,933
17,360
0
351
$17,711

At December 31, 2016 and 2015, total TDRs (performing and nonperforming) were comprised of the

following loans by type of modiﬁcation:

2016

2015

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

Number
81
56
0
36
13
186

Amount
$14,472
6,975
0
2,308
1,739
$25,494

Number
91
56
0
44
14
205

Amount
$15,776
7,143
0
2,693
1,808
$27,420

During the twelve months ended December 31, 2016, newly identiﬁed TDRs totaled $2.0 million,

compared to $2.6 million for 2015. 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, 2016 defaulted during the twelve months
ended December 31, 2016, the same as for 2015. A restructured loan is considered in default when it becomes
90 days or more past due under the modiﬁed terms, has been transferred to nonaccrual status, or has been
transferred to OREO.

52

At December 31, 2016, loans (excluding PCI loans) totaling $32.7 million were considered impaired
(comprised of total nonaccrual, loans 90 days or more past due, and TDRs) and $2.5 million of the allowance
for loan losses was allocated for potential losses on these loans, compared to $32.7 million and $2.5 million,
respectively, at December 31, 2015.

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.

Cash and Cash Equivalents, Liquidity Risk Management and Contractual Commitments

Cash and cash equivalents (including interest bearing deposits), totaled $109.6 million on a consolidated

basis at December 31, 2016, compared to $136.1 million at December 31, 2015.

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

The table below presents maturities of our funding. In this table, all deposits with indeterminate
maturities such as interest bearing and noninterest bearing demand deposits, savings accounts and money
market accounts are presented as having a maturity of one year or less. We consider these low cost, no-cost
deposits to be our largest, most stable funding source, despite no contracted maturity.

Contractual Obligations

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

Total
$3,523,245
204,202
415,000
70,241
31,568
$4,244,256

December 31, 2016
Over One
Year Through
Three Years
$84,419
0
0
0
8,239
$92,658

One Year
or Less
$3,385,027
204,202
415,000
0
5,325
$4,009,554

Over Three
Years Through
Five Years
$52,010
0
0
0
5,575
$57,585

Over Five
Years
$ 1,789
0
0
70,241
12,429
$84,459

Funding sources primarily include customer-based core deposits, collateral-backed borrowings, cash ﬂows

from operations, cash ﬂows from our loan and investment portfolios and asset sales (primarily secondary
marketing for residential real estate mortgages and marine ﬁnancings). Cash ﬂows from operations are a
signiﬁcant component of liquidity risk management and we consider both deposit maturities and the scheduled
cash ﬂows from loan and investment maturities and payments.

Deposits are also a primary source of liquidity. The stability of this funding source is affected by

numerous factors, including returns available to customers on alternative investments, the quality of customer
service levels, perception of safety and 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.

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, 2016, Seacoast Bank had available unsecured lines of
$75 million and lines of credit under current lendable collateral value, which are subject to change, of
$578 million. Seacoast Bank had $688 million of United States Treasury and Government agency securities

53

and mortgage backed securities not pledged and available for use under repurchase agreements, and had an
additional $378 million in residential and commercial real estate loans available as collateral. In comparison,
at December 31, 2015, the Company had available unsecured lines of $40 million and lines of credit of
$886 million, and had $510 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
$277 million in residential and commercial real estate loans available as collateral.

The Company does not rely on and is not dependent on off-balance sheet ﬁnancing or signiﬁcant amounts

of wholesale funding.

The Company has traditionally relied upon dividends from Seacoast Bank and securities offerings to
provide funds to pay the Company’s expenses and to service the Company’s debt. At December 31, 2016,
Seacoast Bank can distribute dividends to the Company of approximately $61.0 million. At December 31,
2016, the Company had cash and cash equivalents at the parent of approximately $13.3 million, compared to
$43.7 million at December 31, 2015, with the decrease directly related to cash paid in the Floridian
acquisition (see ‘‘Note S — Business Combinations’’).

Securities

Information related to yields, maturities, carrying values and fair value of the Company’s securities is set

forth in Tables 13-16 and ‘‘Note D — Securities’’ of the Company’s consolidated ﬁnancial statements.

At December 31, 2016, the Company had no trading securities, $950.5 million in securities available for

sale, and $372.5 million in securities held to maturity. The Company’s total securities portfolio increased
$328.7 million or 33% from December 31, 2015. During the ﬁrst quarter of 2016, securities totaling
$66.9 million were added from Floridian. Security purchases during the ﬁrst and second quarter of 2016 of
$258.3 million were primarily to utilize anticipated cash to be received by Seacoast from BMO, with an
increase of $203.4 million in securities held to maturity during the second quarter (almost a doubling from the
ﬁrst quarter of 2016). Security purchases during the third quarter of 2016 were more limited, totaling only
$13 million, and totaled $130 million in the fourth quarter of 2016. These efforts were primary to the overall
increase in the securities portfolio during 2016. For 2015, securities totaling $46.4 million were added from
Grand during the third quarter. Funding for investments was derived from liquidity, both legacy and that
acquired in mergers, and increases in funding from our core customer deposit base and FHLB borrowings.

During 2016, proceeds from the sales of securities totaled $40.4 million (including net gains of

$0.4 million). In comparison, proceeds from the sales of securities totaled $60.5 million (including net gains
of $0.2 million) for 2015, and proceeds from the sale of securities totaled $21.9 million for 2014 (including
net gains of $0.5 million). Management believes the securities sold had minimal opportunity to further
increase in value.

Securities are generally acquired which return principal monthly. During 2016, maturities (primarily

pay-downs of $175.1 million) totaled $176.6 million. During 2015, maturities (primarily pay-downs of
$146.6 million) totaled $147.1 million and for 2014 maturities totaled $108.7 million (including
$107.8 million in pay-downs). The modiﬁed duration of the investment portfolio at December 31, 2016 was
4.1 years, compared to 3.7 years at December 31, 2015.

At December 31, 2016, available for sale securities had gross unrealized losses of $14.1 million and

gross unrealized gains of $3.8 million, compared to gross unrealized losses of $10.8 million and gross
unrealized gains of $3.0 million at December 31, 2015. 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 ‘‘Other Fair Value Measurements’’ and ‘‘Other than Temporary Impairment of Securities’’ in ‘‘Critical
Accounting Policies and Estimates’’).

Company management considers the overall quality of the securities portfolio to be high. The Company
has no exposure to securities with subprime collateral. The Company does not have an investment position in
trust preferred securities.

54

Deposits and Borrowings

The Company’s balance sheet continues to be primarily core funded.

Total deposits increased $678.9 million or 24% to $3.52 billion at December 31, 2016, compared to one
year earlier. Excluding the Floridian and BMO acquisitions, total deposits increased $27.3 million or 1% from
December 31, 2015. Deposit growth since year-end 2015 was impacted by declines in public fund balances,
which decreased by more than $36 million during 2016.

Since December 31, 2015, interest bearing deposits (interest bearing demand, savings and money markets

deposits) increased $327.1 million or 19% to $2.02 billion, noninterest bearing demand deposits increased
$293.9 million or 34% to $1.15 billion, and CDs increased $57.9 million or 20% to $351.9 million. Excluding
acquired deposits, noninterest demand deposits were $109.6 million or 13% higher from year-end 2015, and
represent 33% deposits, compared to 30% at December 31, 2015. Core deposit growth reﬂects our success in
growing households both organically and through acquisitions.

Additions to CDs and the increase in CDs in 2016 year over year have come primarily through

acquisitions during 2016. An intentional decrease in higher cost time deposits was recorded over the two years
prior to 2016’s acquisitions, and was more than offset by increases in low cost or no cost deposits.

Customer repurchase agreements totaled $204.2 million at December 31, 2016, increasing $32.2 million

or 19% from December 31, 2015. The repurchase agreements are offered by Seacoast to select customers who
wish to sweep excess balances on a daily basis for investment purposes. Public funds comprise a signiﬁcant
amount of the outstanding balance.

No unsecured federal funds purchased were outstanding at December 31, 2016 nor 2015.

At December 31, 2016 and 2015, borrowings were comprised of subordinated debt of $70.2 million and

$70.0 million, respectively, related to trust preferred securities issued by trusts organized or acquired by the
Company, and borrowings from FHLB of $415.0 million and $50.0 million, respectively. At December 31,
2016, our FHLB borrowings were all maturing within 30 days, and the rate for FHLB funds at year-end was
0.61%. In the second quarter of 2016, we paid an early redemption cost of $1.8 million related to prepayment
of the $50.0 million of FHLB advances having a weighted average cost of 3.22% and scheduled to mature in
late 2017 (see ‘‘Noninterest Expense’’). The two FHLB advances redeemed had been outstanding since 2007.

The Company has two wholly owned trust subsidiaries, SBCF Capital Trust I and SBCF Statutory Trust
II that were both formed in 2005. In 2007, the Company formed an additional wholly owned trust subsidiary,
SBCF Statutory Trust III. The 2005 trusts each issued $20.0 million (totaling $40.0 million) of trust preferred
securities and the 2007 trust issued an additional $12.0 million in trust preferred securities. As part of the
October 1, 2014 BANKshares acquisition the Company inherited three junior subordinated debentures totaling
$5.2 million, $4.1 million, and $5.2 million, respectively. Also, as part of the Grand acquisition, the Company
inherited an additional junior subordinated debenture totaling $7.2 million. The acquired junior subordinated
debentures (in accordance with ASU 805 Business Combinations) were recorded at fair value, which
collectively is $5.1 million lower than face value at December 31, 2016. This amount is being amortized into
interest expense over the acquired subordinated debts’ remaining term to maturity. All trust preferred securities
are guaranteed by the Company on a junior subordinated basis.

Under Basel III and Federal Reserve rules, qualiﬁed trust preferred securities and other restricted capital

elements can be included as Tier 1 capital, within limitations. The Company believes that its trust preferred
securities qualify under these capital rules. The weighted average interest rate of our outstanding subordinated
debt related to trust preferred securities was 2.47% for the twelve month period ended December 31, 2016,
compared to 2.43% for all of 2015.

Go to ‘‘Note I — Borrowings’’ of our consolidated ﬁnancial statements for more detailed information

pertaining to borrowings.

55

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.

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 $532 million at December 31, 2016, and $343 million at December 31, 2015 (see ‘‘Note P — Contingent
Liabilities and Commitments with Off-Balance Sheet Risk’’ to the Company’s consolidated ﬁnancial
statements).

Capital Resources

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

The Company’s equity capital at December 31, 2016 increased $81.9 million to $435.4 million since
December 31, 2015, and was $40.8 million higher at December 31, 2015, when compared to year-end 2014.
The ratio of shareholders’ equity to period end total assets was 9.30% and 10.00% at December 31, 2016 and
2015, respectively. Equity primarily increased from a combination of earnings retained by the Company, and
capital of $50.9 million and $17.2 million issued in conjunction with the acquisition of Floridian in 2016 and
Grand in 2015, respectively. The Company issued shares of common stock as consideration for each the
mergers. The BMO purchase did not include an issuance of any equity. The ratio of shareholders’ equity to
total assets declined during 2016 and 2015, as the Company successfully grew assets at a faster pace than
equity over these periods.

Activity in shareholders’ equity for the twelve months ended December 31, 2016 and 2015 follows:

(Dollars in thousands)
Beginning balance at January 1, 2015 and 2014 . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of stock pursuant to acquisition of Floridian (2016) and Grand

(2015)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation (net of Treasury shares acquired) . . . . . . . . . . . . . .
Change in other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance at December 31, 2016 and 2015 . . . . . . . . . . . . . . . . . .

2016
$353,453
29,202

2015
$312,651
22,141

50,913
3,129
(1,300)
$435,397

17,172
2,875
(1,386)
$353,453

Capital ratios are well above regulatory requirements for well-capitalized institutions. Seacoast
management’s use of risk-based capital ratios in its analysis of the Company’s capital adequacy are
‘‘non-GAAP’’ ﬁnancial measures. Seacoast’s management uses these measures to assess the quality of capital
and believes that investors may ﬁnd it useful in their analysis of the Company. The capital measures are not
necessarily comparable to similar capital measures that may be presented by other companies (see
‘‘Table 6 — Capital Resources’’ and ‘‘Note N — Shareholders’ Equity’’).

56

Common equity Tier 1 ratio (CET1) . . . . . . . . . . . . . . . . .
Tier 1 capital ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total risk-based capital ratio . . . . . . . . . . . . . . . . . . . . . .
Leverage ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

*

For subsidiary bank only

Seacoast
(Consolidated)
10.79%
12.53%
13.25%
9.15%

Seacoast
Bank
12.03%
12.03%
12.75%
8.78%

Minimum to be
Well-Capitalized*

6.5%
8.0%
10.0%
5.0%

The Company’s total risk-based capital ratio was 13.25% at December 31, 2016, below our December 31,

2015’s ratio of 16.01%. Larger pro rata cash payments and more modest amounts of common stock issued to
Floridian shareholders, as well as ongoing reinvestment of liquidity into securities and loans with higher risk
weightings and the addition of Floridian’s and BMO’s loans with higher risk weightings, were primary causes
for Tier 1 and total risk-based capital ratios decreasing during 2016. As of December 31, 2016, the Bank’s
leverage ratio (Tier 1 capital to adjusted total assets) was 8.78%, compared to 9.36% at December 31, 2015,
reﬂecting growth and the effect of push down accounting on Seacoast’s subsidiary bank’s capital.

On February 21, 2017, the Company closed on its offering of 8,912,500 shares of common stock,
consisting of 2,702,500 shares sold by the Company and 6,210,000 shares sold by one of its shareholders.
Seacoast received proceeds of $56.8 million from the issuance of the 2,702,500 shares of its common stock,
without any reduction for legal and professional fees. The Company intends to use the net proceeds from the
offering for general corporate purposes, including potential future acquisitions and to support organic growth.
Seacoast did not receive any proceeds from the sale of its shareholder’s shares (see ‘‘Note N — Shareholders’
Equity’’).

The Company and Seacoast Bank are subject to various general regulatory policies and requirements
relating to the payment of dividends, including requirements to maintain adequate capital above regulatory
minimums. The appropriate federal bank regulatory authority may prohibit the payment of dividends where it
has determined that the payment of dividends would be an unsafe or unsound practice. The Company is a
legal entity separate and distinct from Seacoast Bank and its other subsidiaries, and the Company’s primary
source of cash and liquidity, other than securities offerings and borrowings, is dividends from its bank
subsidiary. Without Office of the Comptroller of the Currency (‘‘OCC’’) approval, Seacoast Bank can pay
$61.0 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 Bank 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 seven 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

57

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. In 2015, as part of the Grand acquisition, the Company
also acquired Grand Bankshares Capital Trust I that issued $7.2 million in trust preferred securities. Trust
preferred securities from our acquisitions are recorded at fair value when acquired. All trust preferred
securities are guaranteed by the Company on a junior subordinated basis. The Federal Reserve’s rules permit
qualiﬁed trust preferred securities and other restricted capital elements to be included under Basel III capital
guidelines, with limitations, and net of goodwill and intangibles. The Company believes that its trust preferred
securities qualify under these revised regulatory capital rules and believes that it will be able to treat all
$70.2 million of trust preferred securities as Tier 1 capital. For regulatory purposes, the trust preferred
securities are added to the Company’s tangible common shareholders’ equity to calculate Tier 1 capital.

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

Results of Operations

Earnings Summary

The Company has steadily improved results over the past three years. Net income for 2016 totaled
$29.2 million or $0.78 diluted earnings per share, compared to $22.1 million or $0.66 diluted earnings per
share for 2015, and $5.7 million or $0.21 diluted earnings per share for 2014. Return on average assets
(‘‘ROA’’) increased to 0.94% during the fourth quarter of 2016, and return on average equity (‘‘ROE’’) to
9.80% for the same period.

Adjusted net income, a non-GAAP measure (see page 72, ‘‘Explanation of Certain Unaudited Non-GAAP

Financial Measures’’), totaled $37.5 million and was $12.2 million or 48% higher year-over-year for the
twelve months ended December 31, 2016. In comparison, adjusted net income increased $12.3 million or 95%
during 2015, compared to 2014. Adjusted diluted earnings per share (see page 72, ‘‘Explanation of Certain
Unaudited Non-GAAP Financial Measures’’) of $1.00 for 2016, compared to $0.74 for 2015 and $0.47 for
2014. We added 24 offices during 2016, primarily through acquisitions, and closed 20 offices, with a net add
of 4 offices and a total of 47 full-service offices at year-end 2016.

Data analytics and technology-assisted operational improvement are also helping us build efficiencies

across our organization and drive process automation.

We believe that our success in increasing net income is the result of our success in signiﬁcantly growing
our businesses and balance sheet, while attaining operating efficiency. This success also reﬂects the success we
have had in identifying and incorporating acquisitions.

Net Interest Income and Margin

Net interest income (on a fully taxable equivalent basis) for 2016 totaled $140.5 million, increasing

$30.5 million or 28% as compared to 2015’s net interest income of $110.0 million, which increased by
$34.8 million or 46% compared to 2014. The Company’s net interest margin decreased one basis point to
3.63% during 2016 from 2015, and increased 39 basis points to 3.64% during 2015 from 2014.

Loan growth, balance sheet mix and yield/cost management have been the primary forces affecting net

interest income and net interest margin results during 2016. Acquisitions also contributed to net interest
income growth. Organic loan growth (excluding acquisitions) year-over-year was $877 million, or 18%.
Floridian loans, securities and deposits added $266 million, $67 million and $337 million, respectively, and
the purchase of investment securities ahead of the BMO acquisition, which added $314 million in deposits
and $63 million in loans, were contributors to net interest income improvement year-over-year for 2016,
compared to 2015. The same full-year income growth dynamic occurred in 2015 compared to 2014, with the
addition of BANKshares in the fourth quarter 2014 and Grand in July 2015 and $224 million of organic loan
growth during the year. We expect 2017’s net interest income will continue to beneﬁt from the full year
impact of acquisitions completed in 2016.

The slight decrease in margin for 2016 year-over-year from 2015 reﬂects decreased loan yields, reﬂecting
the current low interest rate environment, partially offset by improved balance sheet mix. Margin expansion in

58

2015 beneﬁted from organic and acquisition related growth, strong loan growth and improving core yields
more than compensated for decreasing purchased loan accretion by the end of 2015.

Table 2 presents the Company’s average balance sheets, interest income and expenses, and yields and

rates, for the past three years.

The following table details the trend for net interest income and margin results (on a tax equivalent
basis), and yield on earning assets and rate on interest bearing liabilities that has changed nominally for the
past ﬁve quarters:

(Dollars in thousands)
Fourth quarter 2015 . . . . . . . . . . . . .
First quarter 2016 . . . . . . . . . . . . . .
Second quarter 2016 . . . . . . . . . . . .
Third quarter 2016 . . . . . . . . . . . . . .
Fourth quarter 2016 . . . . . . . . . . . . .

Net Interest
Income(1)
$29,216
30,349
34,801
37,735
37,628

Net Interest
Margin(1)
3.67%
3.68
3.63
3.69
3.56

Yield on
Earning Assets
3.90%
3.92
3.85
3.90
3.78

Rate on Interest
Bearing Liabilities
0.33%
0.34
0.31
0.30
0.31

(1) On tax equivalent basis, a non-GAAP measure

Total average loans increased $599.8 million or 30% during 2016 compared to 2015, and increased

$531.2 million or 36.6% during 2015 compared to 2014. Our average investment securities also increased
$238.3 million or 25% during 2016 versus 2015, and $225.2 million or 31% during 2015.

For 2016, average loans (the highest yielding component of earning assets) as a percentage of average

earning assets totaled 66.8%, compared to 65.6% a year ago and 62.8% for 2014 while interest earning
deposits and other investments decreased to 2.2%, compared to 2.5% in 2015 and 5.4% in 2014, reﬂecting the
Company’s signiﬁcant effort to reduce excess liquidity. As average total loans as a percentage of earning
assets increased, the mix of loans has improved, with volumes related to commercial real estate representing
50.2% of total loans at December 31, 2016 (compared to 49.8% at December 31, 2015 and 48.9% at
December 31, 2014). Lower yielding residential loan balances with individuals (including home equity loans
and lines, and personal construction loans) represented 31.6% of total loans at December 31, 2016 (versus
35.7% at December 31, 2015 and 39.6 percent at December 31, 2014) (see ‘‘Loan Portfolio’’).

Commercial and commercial real estate loan production for 2016 totaled $432 million, with almost

$145 million originated in the fourth quarter of 2015, compared to production for all of 2015 and 2014 of
$299 million and $258 million, respectively. Closed residential loan production totaled $403 million,
compared to production for all of 2015 and 2014 of $272 million and $225 million, respectively. During 2016,
an additional $63.5 million of residential mortgage and $19.2 million of marine loan pools were purchased,
and partially offset by $70.6 million in sales of seasoned pools of portfolio residential mortgages. The
following chart details the trend for commercial and residential loans closed and pipelines for the past
three years:

(Dollars in thousands)
Commercial/commercial real estate loan pipeline at

year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial/commercial real estate loans closed . . . . .
Residential loan pipeline at year-end . . . . . . . . . . . . .
Residential loan originations retained . . . . . . . . . . . .
Residential loan originations sold . . . . . . . . . . . . . . .

Twelve Months Ended December 31,
2015

2014

2016

$ 88,814
432,438
$ 72,604
243,831
159,554

$105,556
298,998
$ 30,340
130,479
141,352

$ 60,136
257,989
$ 21,351
117,990
107,112

The securities portfolio has grown in size but remained a relatively constant percentage of the balance

sheet. However, careful portfolio management has resulted in increased securities yields. In 2016 our
securities yielded 2.31%, up from 2.21% in 2015 and 2.14% in 2014.

For 2016, the cost of average interest-bearing liabilities decreased 2 basis points to 0.31% from 2015. For

2015, this cost increased 1 basis point to 0.33% from 2014. The cost of our funding reﬂects the low interest

59

rate environment and the Company’s successful core deposit focus that produced strong growth in core deposit
customer relationships over the past several years. Excluding higher cost certiﬁcates of deposit (CDs), core
deposits including noninterest bearing demand deposits at December 31, 2016 represent 90.0% of total
deposits. The cost of average total deposits (including noninterest bearing demand deposits) for the fourth
quarter of 2016 was 0.15%, compared to 0.12% and 0.11% for the fourth quarters of 2015 and 2014.
Prospectively, the Company’s ability to further reduce the rate paid on deposits will be challenging to produce,
due to more limited re-pricing opportunities, competition and an increasing rate environment. The following
table provides trend detail on the ending balance components of our customer relationship funding for the past
three year-ends:

Customer Relationship Funding
(Dollars in thousands)
Noninterest demand . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing demand . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Time certiﬁcates of deposit
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . .

Customer sweep accounts
. . . . . . . . . . . . . . . . . . . .
Total core customer funding(1)
. . . . . . . . . . . . . . . . .
Demand deposit mix . . . . . . . . . . . . . . . . . . . . . . . .

2016
$1,148,309
873,727
802,697
346,662
351,850
$3,523,245

$ 204,202
$3,375,597

December 31,
2015
$ 854,447
734,749
665,353
295,851
293,987
$2,844,387

$ 172,005
$2,722,405

2014
$ 725,238
652,353
450,172
264,738
324,033
$2,416,534

$ 153,640
$2,246,141

32.6%

30.0%

30.0%

(1) Total deposits and customer sweep accounts, excluding time certiﬁcates of deposit

Short-term borrowings, principally comprised of sweep repurchase agreements with customers of

Seacoast Bank, increased $19.4 million or 12% to average $187.6 million during 2016, after increasing
$16.1 million or 11% to average $168.2 million for 2015, as compared to 2014. 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. No federal
funds sold were utilized at December 31, 2016 and 2015.

FHLB borrowings, maturing in 30 days or less, totaled $415.0 million at December 31, 2016, with an

average rate of 0.61% at year-end. Advances from the FHLB of $50.0 million at a ﬁxed rate of 3.22% to
mature in late 2017 were redeemed early in April 2016 with an early redemption penalty $1.8 million
incurred. FHLB borrowings averaged $198.3 million for 2016, up from $64.7 million for 2015 and
$69.8 million for 2014 (see ‘‘Note I — Borrowings’’ to the Company’s consolidated ﬁnancial statements).

For 2016, average subordinated debt of $70.1 million related to trust preferred securities issued by
subsidiary trusts of the Company (including subordinated debt for Grand and BANKshares added on July 17,
2015 and October 1, 2014) carried an average cost of 2.94%.

We have a positive interest rate gap and our net interest margin will beneﬁt from rising interest rates.
During 2016, the Federal Reserve increased its overnight interest rate by 25 basis points. Further increases in
interest rates are currently expected for 2017 (see ‘‘Interest Rate Sensitivity’’).

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

60

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
Nontaxable interest adjustment . . . . $
Tax rate
Net interest income (TE)
Total net interest income (not TE) . .
Net interest margin (TE) . . . . . . . .
. . . . .
Net interest margin (not TE)

Total
Year
2016

Fourth
Quarter
2016

Third
Quarter
2016

Second
Quarter
2016

First
Quarter
2016

Total
Year
2015

First
Quarter
2015

925

$

203

$

287

$

308

$

127

$

481

$

35%

35%

35%

35%

35%

35%

116
35%

. . . . . . . $140,514
139,588

$37,628
37,425

$37,735
37,448

$34,801
34,493

$30,349
30,222

$109,968
109,487

$29,216
29,100

3.63%
3.61

3.56%
3.54

3.69%
3.66

3.63%
3.60

3.68%
3.67

3.64%
3.62

3.67%
3.66

TE = Tax Equivalent

Noninterest Income

Noninterest income (excluding securities gains) totaled $37.4 million for 2016, higher by $5.4 million

17%. For 2015, noninterest income (excluding securities gains and bargain purchase gain) totaled
$32.0 million for 2015, 29% higher than for 2014. For 2014, noninterest income of $24.7 million was
$0.4 million or 2% higher than for 2013. Noninterest income accounted for 21.1% of total revenue (net
interest income plus noninterest income, excluding securities gains and the bargain purchase gain), compared
to 22.6% a year ago and 24.8% for 2014 (on the same basis) as net interest income growth, helped by
expanding net interest margin, outpaced a strong increase in noninterest income. Digitally driven product
marketing and service delivery, combined with organic and acquisition-related household growth, were
primary to growth occurring in noninterest income during 2016 and 2015.

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

For 2016, most categories of service fee income showed strong year over year growth compared to 2015,

with service charges on deposit accounts increasing $1.1 million or 13% to $9.7 million, interchange income
up $1.5 million or 20% to $9.2 million, and other deposit based EFT charges up 20% to $0.5 million. These
increases reﬂect continued strength in customer acquisition and cross sell and beneﬁts from acquisition
activity. Overdraft fees represent 60% of total service charges on deposits for 2015, versus 67% for 2015.
Overdraft fees totaled $5.8 million during 2016, up nominally from 2015. Regulators continue to review
banking industry’s practices for overdraft programs and additional regulation could reduce fee income for the
Company’s overdraft services. Interchange revenue is dependent upon business volumes transacted, as well as
the fees permitted by VISA(cid:4) and MasterCard(cid:4).

Wealth management, including brokerage commissions and fees, and trust income, increased during 2016,

growing by $0.2 million or 4%. Growth was driven by revenues from the Company’s trust business and
partially offset a slight decline in brokerage fees, a result of our transition from transaction fee-based sales to
an investment management model.

Mortgage production was higher during 2016 (see ‘‘Loan Portfolio’’), with mortgage banking activity

generating fees of $5.9 million which were $1.6 million or 38% higher, compared to 2015. Originated
residential mortgage loans are processed by commissioned employees of Seacoast, with many mortgage loans
referred by the Company’s branch personnel. During 2016, two pools of seasoned portfolio mortgage were
sold, generating gains of $0.9 million.

Seacoast chose to keep in its portfolio more of its marine ﬁnancing during 2016. Marine lending business

volumes sold during 2016 were lower, negatively impacting fees from marine ﬁnancing which declined
$0.5 million or 42% from 2015 levels. In addition to our principal office in Ft. Lauderdale, Florida, we
continue to use third party independent contractors on the West coast of the United States to assist in
generating marine loans.

61

During 2016, BOLI income totaled $2.2 million, up from $1.4 million for 2015. The increase in BOLI
income reﬂects an additional $0.5 million from a death beneﬁt in the ﬁrst quarter of 2016 and purchase of
additional BOLI in the fourth quarter of 2016. This revenue is tax-exempt and is expected to increase with the
additional purchase during 2017.

Other income was $1.3 million or 50% higher, with additional fees of $0.5 million for asset ﬁnancing
activities, and a general increase in other fee categories, including wire transfer fees, cashier check, money
order and check cashing fees, miscellaneous loan related fees, with document preparation, construction
inspection, and letter of credit fees all rising, as well as other miscellaneous fees. This growth reﬂects the
impact of both organic and acquisition related additions to our base of customers overall.

For 2015, Seacoast’s noninterest income (excluding securities gains and the bargain purchase gain) was

$7.3 million or 29% higher when compared to 2014’s revenues. While service charges on deposit accounts
and interchange income grew $1.6 million or 23% and $1.7 million or 29%, reﬂecting successful household
growth, wealth management fee income and mortgage banking income were higher as well, by $1.2 million or
39% and $0.7 million or 14%, respectively. A full-year of BOLI income, a new addition in the fourth quarter
of 2014, provided $1.2 million of income. The closing of our Newport Beach, California office at
December 31, 2014 affected marine ﬁnancing fees, with these fees declining $0.2 million during 2015.

Fourth quarter 2015’s noninterest income result included a bargain purchase gain of $0.4 million from the

acquisition of Grand, that arose from unanticipated recoveries and resulting adjustments to loans and other
real estate owned realized during the fourth quarter. Seacoast also beneﬁted from a gain on a participated loan
of $0.7 million that was realized during the second quarter of 2015, with no amounts to compare to for 2014.
Accounting treatment for this gain, related to a discount accreted on a BANKshares loan that was participated
during the second quarter of 2015, required this income to be included in other operating income rather than
recognition through the margin.

Noninterest Expense

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

and 2014.

Salaries and wages totaling $54.1 million were $13.0 million or 32% higher for 2016, than for 2015,

including $3.4 million in expenses related to mergers and other non-routine items. Base salaries were
$7.3 million or 19% higher during 2016, reﬂecting the full-year impact of additional personnel retained as part
of the third quarter 2015 acquisition of Grand, ﬁrst quarter 2016’s acquisition of Floridian, and second quarter
2016’s purchase of BMO’s Orlando operations. Improved revenue generation and lending production, among
other factors resulted in commissions, cash and stock incentives (aggregated) that were $4.9 million higher for
2016, compared to a year ago. Deferred loan origination costs (a contra expense), were also lower by
$0.5 million, reﬂecting a greater number of loans produced but at a more efficient cost per loan.

Similarly, salaries and wages for 2015 were $5.9 million or 17% higher than for 2014. A signiﬁcant
portion of the increase was for base salaries that were $6.8 million or 22% greater, reﬂecting the full-year
impact of additional BANKshares personnel and retained personnel from third quarter 2015’s acquisition of
Grand. Additional personnel from our receivable funding acquisition were incremental as well. Higher
deferred loan origination costs were favorably offsetting.

During 2016, employee beneﬁts costs (group health insurance, proﬁt sharing, payroll taxes, as well as
unemployment compensation) increased $0.3 million or 4% to $9.9 million from a year ago, and compared to
a $0.8 million or 9% increase in 2015, versus 2014 expenditures. These costs reﬂect the increased staffing and
salary costs, discussed above. Our self-funded health care plan comprises the largest portion of employee
beneﬁts, totaling $4.3 million for 2016, and payroll taxes totaling $3.7 million were the second largest
category. The Company offers competitively priced health coverage to all of its associates that qualify for
beneﬁts, to use as an attraction for the best professional talent seeking to be employed by the Company, and
at a reasonable cost and competitive with other businesses in the Florida markets where we conduct business.

Seacoast Bank 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
$13.5 million for 2016, an increase of $3.4 million or 33% from a year ago, and were $1.4 million higher for

62

2015, versus 2014. Increased data processing costs included $2.1 million in one-time charges for conversion
activity related to our acquisitions. We continue to improve and enhance our mobile and other digital products
and services through our core data processor, which may increase our outsourced data processing costs as
customers adopt improvements and products and as the Company’s business volumes grow.

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

branch locations and personnel, as well as third party data processors, increased $0.3 million or 17% to
$2.1 million for 2016 when compared to 2015, and were $0.5 million or 35% higher for 2015 versus 2014’s
expenditure. Additional activity for acquired Floridian and BMO locations and locations closed during 2016,
as well as additional customers from the acquisitions, were the primary contributors to the increase.

Total occupancy, furniture and equipment expense for 2016 increased $5.7 million or 47% (on an

aggregate basis) to $17.8 million year over year, versus 2015’s expense. For 2015, these costs were
$1.7 million or 16% higher than in 2014. For 2016 and 2015, the increases were primarily driven by the
24 offices acquired from Floridian and BMO acquisitions and two offices added from Grand. Seacoast Bank
consolidated 20 offices, primarily in the Central Florida region, during the 2016 calendar year and a third
Grand office and two legacy branches were closed during 2015. Write downs totaling $2.3 million were
incurred during 2016 for closed offices. Lease payments were also higher by $1.1 million or 27%, and include
recurring payments for many of the closed offices. 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 (see Form 10K dated December 31, 2015,
‘‘Item 2, Properties’’ for a complete description).

For 2016, marketing expenses (including sales promotion costs, ad agency production and printing costs,

digital, newspaper, TV and radio advertising, and other public relations costs), decreased by $0.8 million or
18% to $3.6 million, compared to all of 2015. For 2015, these costs were $0.9 million or 24% higher, versus
2014. Primary to the decrease during 2016 was an effort to utilize digital media as a primary source for brand
awareness rather than more costly, traditional venues such as newspaper, radio and TV advertising, with the
savings utilized for more direct mail and customer incentives. Increases for 2015 were related to efforts to
solidify customer acquisition and corporate brand awareness surrounding the newer Palm Beach and Orlando
footprints, with more advertising on television and radio in 2015, increasing our expense $0.5 million
from 2014.

Legal and professional fees for 2016 were higher by $1.6 million or 20% from a year ago, and were
$1.2 million higher for 2015, versus 2014. Included were acquisition related fees that totaled $1.5 million for
2016 and $1.1 million for 2015. Regulatory examination fees increased as total assets increased, which are the
basis for examination fee calculation.

Growth in total assets (both organic and through acquisitions) increased the basis for calculating our

FDIC premiums and increased our FDIC quarterly assessments. FDIC assessments were $2.4 million,
$2.2 million and $1.7 million for 2016, 2015 and 2014, respectively. The Company’s total assets and equity
have increased during the past three years and Seacoast expects increases prospectively. FDIC rates declined
for ﬁnancial institutions under $10 billion in total assets as FDIC insurance pools achieved higher amounts
speciﬁed by Congress.

As nonperforming assets have declined so have associated costs (see ‘‘Nonperforming Loans, Troubled
Debt Restructurings, Other Real Estate Owned, and Credit Quality’’). For the last three years, asset disposition
costs and net (gains) losses on other real estate owned and repossessed assets on an aggregated basis have
been stable or declined, from $0.8 million for 2014 to $0.7 million for 2015 to zero for 2016.

Included in noninterest expenses for 2016 was an early redemption cost of $1.8 million for Federal Home

Loan Bank advances that was paid in April. Two $25 million advances with a combined ﬁxed rate of 3.22%
and maturing in November 2017 were redeemed (see ‘‘Note I — Borrowings’’).

Other expenses were higher by $1.3 million or 11% for 2016 compared to a year ago, totaling

$13.5 million. For 2015, other expenses were $2.2 million or 22% higher, compared to 2014. Larger increases
during 2016 and 2015 were driven by a full-year and partial-year impacts of acquisitions and variable costs
related to our successful lending activity.

63

Seacoast management expects its expense ratios to improve. The Company anticipates its digital servicing

capabilities and technology will support better, more efficient channel integration allowing consumers to
choose their path of convenience to satisfy their banking needs, resulting in organic growth of our products
and services as well as related revenue, in addition to increased efficiency in how we serve our customers.
Acquisition activity added to noninterest expenses during 2016, 2015, and 2014 with acquisition related costs
for Floridian and BMO in 2016, Grand in 2015 and BANKshares in 2014 of approximately $8.6 million,
$3.7 million and $4.4 million, respectively, as well as ongoing costs related to this growth. These additional
costs have been key to our tactical plans to increase loan production and acquire households, increasing value
in the Seacoast franchise.

Income Taxes

For 2016, 2015 and 2014, provision for income taxes totaled $14.9 million, and $13.5 million and

$4.5 million, respectively. For 2016, 2015 and 2014, a portion of investment banking fees, and legal and
professional fees expended and related to the acquisitions were not deductible for tax purposes. Various tax
strategies have been implemented to reduce the Company’s overall effective tax rate to 33.8% for 2016, from
37.9% in 2015 and 44.4% in 2014. Additionally, the early adoption of ASU 2016-09 during the third quarter
of 2016 provided a tax beneﬁt of $0.8 million for the year (see ‘‘Note A — Signiﬁcant Accounting Policies’’).
Management believes all of the future tax beneﬁts of the Company’s deferred tax assets can be realized and
no valuation allowance is required (see ‘‘Note L — Income Taxes’’).

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
amounts of certain assets, liabilities, revenues and expenses, are based on information available as of the date
of the ﬁnancial statements, and changes in this information over time and the use of revised estimates and
assumptions could materially affect amounts reported in subsequent ﬁnancial statements. Management, after
consultation with the Company’s Audit Committee, believes the most critical accounting estimates and
assumptions that involve the most difficult, subjective and complex assessments are:

•

•

•

•

•

•

•

the allowance and the provision for loan losses;

acquisition accounting and purchased loans;

intangible assets and impairment testing;

other fair value adjustments;

other than temporary impairment of securities;

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 — Critical Accounting Policies and Estimates

Management determines the provision for loan losses by continuously analyzing and monitoring

delinquencies, nonperforming loans levels and the outstanding balances for each loan category, as well as the
amount of net charge-offs, for estimating losses inherent in its portfolio. While the Company’s policies and

64

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 approximate and imprecise (see ‘‘Nonperforming Assets’’).

The provision for loan losses is the result of a detailed analysis estimating for probable loan losses. The

analysis includes the evaluation of impaired and purchased credit impaired loans as prescribed under FASB
Accounting Standards Codiﬁcation (‘‘ASC’’) 310, Receivables as well as an analysis of homogeneous loan
pools not individually evaluated as prescribed under ASC 450, Contingencies. For 2016, the Company
recorded provisioning for loan losses of $2.4 million, which compared to provisioning for loan losses for 2015
of $2.6 million, and a recapture of the allowance for loan losses for 2014 of $3.5 million. The Company
achieved net recoveries for 2016 of $1.9 million, compared to net charge-offs for 2015 of $0.6 million, and
net recoveries for 2014 of $0.5 million representing (0.07%), 0.03% and (0.03%) of average total loans for
each year, respectively. For 2016, provisioning for loan losses reﬂects continued strong credit metrics and net
recoveries, offset by continued loan growth both organic and through merger and acquisition activity.
Delinquency trends remain low and show continued stability (see section titled ‘‘Nonperforming Loans,
Troubled Debt Restructurings, Other Real estate Owned, and Credit Quality’’).

Management continuously monitors the quality of the Company’s loan portfolio and maintains an
allowance for loan losses it believes is sufficient to absorb probable losses inherent in the loan portfolio. The
allowance for loan losses increased $4.3 million to $23.4 million at December 31, 2016, compared to
$19.1 million at December 31, 2015. The allowance for loan and lease losses (‘‘ALLL’’) framework has four
basic elements: (1) speciﬁc allowances for loans individually evaluated for impairment; (2) general allowances
for pools of homogeneous non-purchased loans (‘‘portfolio loans’’) within the portfolio that have similar risk
characteristics, which are not individually evaluated; (3) speciﬁc allowances for purchased impaired loans
which are individually evaluated based on the loans expected principal and interest cash ﬂows; and (4) general
allowances for purchased unimpaired pools of homogeneous loans that have similar risk characteristics. The
aggregate of these four components results in our total allowance for loan losses.

The ﬁrst element of the ALLL analysis involves the estimation of an allowance speciﬁc to individually

evaluated impaired portfolio loans, including accruing and non-accruing restructured commercial and
consumer loans. In this process, a speciﬁc allowance is established for impaired loans based on an analysis of
the most probable sources of repayment, including discounted cash ﬂows, liquidation or operation of the
collateral, or the market value of the loan itself. It is the Company’s policy to charge off any portion of the
loan deemed uncollectable. Restructured consumer loans are also evaluated and included in this element of the
estimate. As of December 31, 2016, the speciﬁc allowance related to impaired portfolio loans individually
evaluated totaled $2.3 million, compared to $2.5 million as of December 31, 2015. Residential loans that
become 90 days past due are placed on nonaccrual and a speciﬁc allowance is made for any loan that
becomes 120 days past due. Residential loans are subsequently written down if they become 180 days past
due and such write-downs are supported by a current appraisal, consistent with current banking regulations.

The second element of the ALLL analysis, the general allowance for homogeneous portfolio loan pools
not individually evaluated, is determined by applying factors to pools of loans within the portfolio that have
similar risk characteristics. The general allowance is determined using a baseline factor that is developed from
an analysis of historical net charge-off experience. 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
experience. These inﬂuences may include elements such as changes in concentration, macroeconomic
conditions, and/or recent observable asset quality trends. The loan portfolio is segregated into the following
primary types: commercial, commercial real estate, residential, installment, home equity, and unsecured
signature lines. The loss factors assigned to the graded commercial loan portfolio are based on the historical
migration of actual losses by grade over 4, 8, 12, 16, and 20 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. 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 as a percentage of total loans has been declining as a result of a combination of prudent upfront

65

underwriting practices, risk grading upgrades and loan payoffs, which are reducing the risk proﬁle of the loan
portfolio. 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 segment loss rates
represent an annualized expectation of loss based on the historical average net loss divided average
outstanding balances.

Management uses historical loss factors as its starting point, and qualitative elements are considered to

capture trends within each segment of the portfolio. Internal inﬂuences such as the direction of past dues,
charge-offs, nonaccruals, classiﬁed loans, portfolio mix, market conditions, and risk management controls are
considered in determining adjustments to loss rates loss factors. Adjustments may also be made to baseline
loss rates for some of the loan pools based on an assessment of the extent to which external inﬂuences on
credit quality are not fully reﬂected in the historical loss rates. These inﬂuences may include elements such as
changes in the micro/macroeconomic conditions, and/or recent regulatory changes. In addition, internal
reviews may also drive possible adjustments. The Company’s 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 Bank’s board of directors. 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.

The third component consists of amounts reserved for purchased credit-impaired loans (PCI). On a

quarterly basis, the Company updates the amount of loan principal and interest cash ﬂows expected to be
collected, incorporating assumptions regarding default rates, loss severities, the amounts and timing of
prepayments and other factors that are reﬂective of current market conditions. Probable decreases in expected
loan cash ﬂows trigger the recognition of impairment, which is then measured as the present value of the
expected principal loss plus any related foregone interest cash ﬂows discounted at the pool’s effective interest
rate. Impairments that occur after the acquisition date are recognized through the provision for loan losses.
Probable and signiﬁcant increases in expected principal cash ﬂows would ﬁrst reverse any previously recorded
allowance for loan losses; any remaining 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 (PUL). Loans

collectively evaluated for impairment reported at December 31, 2016 include loans acquired from BMO Harris
on June 3, 2016, Floridian Bank on March 11, 2016, Grand Bank on July 17, 2015 and BANKshares on
October 1, 2014 that are not PCI loans. These loans are performing loans recorded at estimated fair value at
the acquisition date. These fair value discount amounts are accreted into income over the remaining lives of
the related loans on a level yield basis, and remained adequate at December 31, 2016.

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, employment levels and loan growth. These qualitative factors are another protective layer of
reserves that can be applied to a particular loan segment or to all loans equally.

The allowance as a percentage of portfolio loans outstanding (excluding PCI and PUL loans) was 0.96%

at December 31, 2016, compared to 1.03% at December 31, 2015. The reduced level of impaired loans
contributed to a lower risk of loss and the lower allowance for loan losses as of December 31, 2016. 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 executing a low risk 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, as well as
consumer lending. Strategies, processes and controls are in place to ensure that new production is well
underwritten and maintains a focus on smaller, diversiﬁed and lower-risk lending. The improved mix is most

66

evident by a lower percentage of loans in income producing commercial real estate and construction and land
development loans than during the prior economic recession. Prospectively, we anticipate that the allowance is
likely to 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, 2016, the Company had $2.354 billion in loans
secured by real estate, representing 81.8% of total loans, up from $1.842 billion but lower as a percent of total
loans (versus 85.4%) at December 31, 2015. In addition, the Company is subject to a geographic
concentration of credit because it only operates in central and southeastern Florida.

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

As mentioned, 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. Management
will consistently evaluate the allowance for loan losses methodology and seek to reﬁne and enhance this
process as appropriate. As a result, it is likely that the methodology will continue to evolve over time.

Table 10 provides certain information concerning the Company’s provisioning for loan losses and

allowance (recapture) for the years indicated.

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, 2016 and 2015.

Table 11 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.

Acquisition Accounting and Purchased Loans — Critical Accounting Policies and Estimates

The Company accounts for its acquisitions under ASC Topic 805, Business Combinations, which requires
the use of the acquisition method of accounting. All identiﬁable assets acquired, including loans, are recorded
at fair value. No allowance for loan losses related to the acquired loans is recorded on the acquisition date as

67

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 and Impairment Testing — Critical Accounting Policies and Estimates

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 from the BANKshares, Grand, Floridian and BMO are being
amortized over 74 months, 94 months, 69 months and 87 months, respectively, on a straight-line basis, and
are evaluated for indications of potential impairment at least annually. Goodwill is not amortized but rather is
evaluated for impairment on at least an annual basis. We performed an annual impairment test of goodwill as
required by FASB ASC 350, Intangibles — Goodwill and Other, in the fourth quarter of 2016. Seacoast
employed an independent third party with extensive experience in conducting and documenting impairment
tests of this nature, and concluded that no impairment occurred. Goodwill was not recorded for the Grand
acquisition (on July 17, 2015) that resulted in a bargain purchase gain, however a core deposit intangible was
recorded.

Fair value estimates for acquired assets and assumed liabilities are based on the information available,
and are subject to change for up to one year after the closing date of the acquisition as additional information
relative to closing date fair values becomes available.

Other Fair Value Measurements — Critical Accounting Policies and Estimates

‘‘As Is’’ values are used to measure fair market value on impaired loans, OREO and repossessed assets.

All impaired loans, OREO and repossessed assets are reviewed quarterly to determine if fair value
adjustments are necessary based on known changes in the market and/or the project assumptions. When
necessary, the ‘‘As Is’’ appraised value may be adjusted based on more recent appraisal assumptions received
by the Company on other similar properties, the tax assessed market value, comparative sales and/or an
internal valuation. Collateral dependent impaired loans are loans that are solely dependent on the liquidation
or operation of the collateral for repayment. If an updated assessment is deemed necessary and an internal
valuation cannot be made, an external ‘‘As Is’’ appraisal will be requested. Upon receipt of the ‘‘As Is’’
appraisal a charge-off is recognized for the difference between the loan amount and its current fair
market value.

At December 31, 2016, outstanding securities designated as available for sale totaled $950.5 million. The

fair value of the available for sale portfolio at December 31, 2016 was less than historical amortized cost,
producing net unrealized losses of $10.3 million that have been included in other comprehensive income (loss)
as a component of shareholders’ equity (net of taxes). The Company made no change to the valuation
techniques used to determine the fair values of securities during 2016 and 2015. 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.

68

The credit quality of the Company’s securities holdings are primarily investment grade. As of
December 31, 2016, the Company’s available for sale investment securities, except for approximately
$62.9 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 $552.4 million, or 58 percent of the
total available for sale portfolio. The portfolio also includes $99.3 million in private label securities, most
secured by residential real estate collateral originated in 2005 or prior years with low loan to values, and
current FICO scores above 700. Generally these securities have credit support exceeding 5%. The collateral
underlying these mortgage investments are primarily 30- and 15-year ﬁxed rate, 5/1 and 10/1 adjustable rate
mortgage loans. Historically, the mortgage loans serving as collateral for those investments have had minimal
foreclosures and losses. The Company also has invested $124.9 million in uncapped 3-month Libor ﬂoating
rate collateralized loan obligations. Collateralized loan obligations are special purpose vehicles that purchase
loans as assets that provide a steady stream of income and possible capital appreciation. The collateral for the
securities is ﬁrst lien senior secured corporate debt. The Company has purchased senior tranches rated credit 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. In addition, during 2015 and 2016, the Company
acquired several corporate bonds and private commercial mortgage backed securities totaling $111.0 million at
year-end. At March 11, 2016 and July 17, 2015, Floridian and Grand securities of $67.0 million and
$46.4 million, respectively, were acquired and added to the available for sale portfolio at their fair value.

During 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. At December 31, 2016, the remaining unamortized
amount of these losses was $1.8 million. The amortization of unrealized holding losses reported in equity will
offset the effect on interest income of the amortization of the discount. Management believes the securities
transferred are a core banking asset that they now intend to hold until maturity, and if interest rates were to
increase before maturity, the fair values would be impacted more signiﬁcantly and therefore are not consistent
with the characteristics of an available for sale investment.

Seacoast Bank also holds 11,330 shares of Visa Class B stock, which following resolution of Visa’s
litigation will be converted to Visa Class A shares (the conversion rate presently is 1.6483 shares of Class A
stock for each share of Class B stock) for a total of 18,675 shares of Visa Class A stock. Our ownership is
related to prior ownership in Visa’s network, while Visa operated as a cooperative. This ownership is recorded
on our ﬁnancial records at zero basis.

Other Than Temporary Impairment of Securities — Critical Accounting Policies and Estimates

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.

69

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.

Realization of Deferred Tax Assets — Critical Accounting Policies and Estimates

At December 31, 2016, the Company had net deferred tax assets (‘‘DTA’’) of $60.8 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, 2015 the Company had a net DTA of $60.3 million.

Factors that support this conclusion:

•

•

•

•

•

Income before tax (‘‘IBT’’) has steadily increased as a result of organic growth, and the 2015 Grand
and 2016 Floridian and BMO acquisitions will further assist in achieving management’s forecast of
future earnings which recovers the net operating loss carry-forwards well before expiration;

Credit costs and overall credit risk has been stable which decreases their impact on future taxable
earnings;

Growth rates for loans are at levels adequately supported by loan officers and support staff;

New loan production credit quality and concentrations are well managed; and

Current economic growth forecasts for Florida and the Company’s markets are supportive.

Contingent Liabilities — Critical Accounting Policies and Estimates

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, 2016 and
2015, the Company had no signiﬁcant accruals for contingent liabilities and had no known pending matters
that could potentially be signiﬁcant.

Interest Rate Sensitivity

Fluctuations in interest rates may result in changes in the fair value of the Company’s ﬁnancial

instruments, cash ﬂows and net interest income. This risk is managed using simulation modeling to calculate
the most likely interest rate risk utilizing estimated loan and deposit growth. The objective is to optimize the
Company’s ﬁnancial position, liquidity, and net interest income while limiting their volatility.

Senior management regularly reviews the overall interest rate risk position and evaluates strategies to
manage the risk. The Company’s fourth quarter 2016 Asset and Liability Management Committee (‘‘ALCO’’)
model simulation indicates net interest income would increase 1.7% if interest rates increased 200 basis points
over the next 12 months and 0.9% if interest rates increased 100 basis points. This compares with the
Company’s fourth quarter 2015 model simulation, which indicated net interest income would increase 10.9%
if interest rates increased 200 basis points over the next 12 months and 5.4% if interest rates increased 100
basis points. Recent regulatory guidance has placed more emphasis on rate shocks.

70

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
4.8% at December 31, 2016. 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
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 2016 modeling, an instantaneous 100 basis point increase in rates is
estimated to increase the EVE 18.6% versus the EVE in a stable rate environment, while a 200 basis point
increase in rates is estimated to increase the EVE 31.2%.

71

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.

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.

Fourth Quarter Review

Earnings highlights for the fourth quarter 2016:

•

•

•

Fourth quarter 2016 net income totaled $10.8 million, an increase of $4.7 million or 78% from the
same period of 2015, and rose $1.6 million or 18% compared with third quarter 2016 levels.
Adjusted net income (1) increased $4.8 million or 73% from fourth quarter 2015 levels and
$0.7 million or 7% above third quarter 2016. Diluted earnings per common share (‘‘EPS’) were
$0.28 and adjusted diluted EPS (1) were $0.30 in the fourth quarter of 2016, compared to diluted
EPS of $0.18 and adjusted diluted EPS (1) of $0.19 in the fourth quarter of 2015;

Fourth quarter revenues increased $10.0 million or 27% from fourth quarter 2015 levels Net interest
income improved $8.3 million or 29% compared to fourth quarter 2015, due to organic growth and
the acquisitions settled earlier in 2016;

Net interest margin decreased 11 basis points year-over-year to 3.56%;

Fourth quarter 2015 growth highlights:

•

•

Loans increased $723 million or 34% from fourth quarter a year ago. Adjusting for acquisitions,
loan growth was $383 million or 18%. Loans increased $110 million sequentially from third quarter
2016, recording a 16% annualized growth rate;

Total deposits per branch increased to $75 million as of December 31, 2016, compared to
$66 million at the end of 2015.

Explanation of Certain Unaudited Non-GAAP Financial Measures

The tables below provide reconciliation between Generally Accepted Accounting Principles (‘‘GAAP’’)
net income and adjusted net income. Management uses these non-GAAP ﬁnancial amounts in its analysis of
the Company’s performance and believes the presentation provides a clearer understanding of the Company’s
performance. The Company believes the presentation of adjusted net income enhances investor understanding
of the performance trend and facilitates comparisons with the performance of other ﬁnancial institutions.
The limitations associated with adjusted net income are the risk that persons might disagree as to the
appropriateness of items comprising the measure and that different companies might calculate the measure
differently. The Company provides reconciliations between GAAP and non-GAAP measures, and these

72

measures should not be considered an alternative to GAAP. For 2016 and 2015, by quarter and for total year,
net income and adjusted net income were as follows:

(Dollars in thousands except per share data)
Net income, as reported:

Quarters

Fourth
2016

Third
2016

Second
2016

First
2016

Total
Year

Net income . . . . . . . . . . . . . . . . . . . . . . . .

$10,771

Diluted earnings per share . . . . . . . . . . . . . .

$

0.28

$ 9,133

$

0.24

$ 5,332

$ 0.14

$ 3,966

$ 0.11

$29,202

$ 0.78

Adjusted net income:

Net income . . . . . . . . . . . . . . . . . . . . . . . .
BOLI income (beneﬁts upon death) . . . . . . . .
Securities gains . . . . . . . . . . . . . . . . . . . . .
Total adjustments to revenue . . . . . . . . . . .
Severance . . . . . . . . . . . . . . . . . . . . . . . . .
Merger related charges . . . . . . . . . . . . . . . .
Branch closure charges and costs related to

expense initiatives . . . . . . . . . . . . . . . . . .
Early redemption cost for FHLB advances . . .
. .
Total adjustments to noninterest expense
Effective tax rate on adjustments
. . . . . . . . .
Adjusted net income . . . . . . . . . . . . . . . . . .
Adjusted diluted earnings per share . . . . . . . .

$10,771
0
(7)
(7)
165
559

0
0
724
(151)
$11,337
0.30
$

$ 9,133
0
(225)
(225)
287
1,628

678
0
2,593
(913)
$10,588
0.28
$

$ 5,332
0
(47)
(47)
464
2,448

1,121
1,777
5,810
(2,322)
$ 8,773
$ 0.23

$ 3,966
(464)
(89)
(553)
306
4,038

691
0
5,035
(1,690)
$ 6,758
$ 0.19

$29,202
(464)
(368)
(832)
1,222
8,673

2,490
1,777
14,162
(5,076)
$37,456
$ 1.00

(Dollars in thousands except per share data)
Net income, as reported:

Quarters

Fourth
2015

Third
2015

Second
2015

First
2015

Total
Year

Net income . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . .

$6,036
$ 0.18

$ 4,441
$ 0.13

$5,805
$ 0.18

$5,859
$ 0.18

$22,141
0.66
$

Adjusted net income:

Net income . . . . . . . . . . . . . . . . . . . . . . . .
Securities gains . . . . . . . . . . . . . . . . . . . . .
Bargain purchase gain . . . . . . . . . . . . . . . . .
Total adjustments to revenue . . . . . . . . . . .
Severance . . . . . . . . . . . . . . . . . . . . . . . . .
Merger related charges . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous losses . . . . . . . . . . . . . . . . . .
. .
Total adjustments to noninterest expense
. . . . . . . . .
Effective tax rate on adjustments
Adjusted net income . . . . . . . . . . . . . . . . . .

$6,036
(1)
(416)
(417)
187
1,043
0
48
1,278
(328)
$6,569

Adjusted diluted earnings per share . . . . . . . .

$ 0.19

$ 4,441
(160)
0
(160)
670
2,120
121
112
3,023
(1,072)
$ 6,232

$ 0.18

$5,805
0
0
0
29
337
0
0
366
(140)
$6,031

$ 0.18

$5,859
0
0
0
12
275
0
0
287
(111)
$6,035

$ 0.18

$22,141
(161)
(416)
(577)
898
3,775
121
160
4,954
(1,651)
$24,867

$ 0.74

Net interest income (on a tax-equivalent basis, a non-GAAP measure) for the fourth quarter 2016 totaled
$37.6 million, an $8.4 million or 29% increase from the fourth quarter a year ago and $0.1 million lower than
third quarter 2016’s result. Net interest margin (on a tax-equivalent basis) declined to 3.56%, an eleven basis
point decrease from prior year, and thirteen basis points lower than third quarter 2016. Year-over-year net
interest income growth was ampliﬁed by the acquisitions of Floridian and BMO. Margin decreases reﬂect
decreased loan yields, reﬂecting the current low interest rate environment, partially offset by improved balance

73

sheet mix. Linked quarter results reﬂect accelerated levels of purchase loan accretion in the third quarter of
2016 that contributed to the higher margin during that quarter.

Noninterest income (excluding securities gains and bargain purchase gain) totaled $9.9 million for the

fourth quarter of 2016, an increase of $2.2 million or 27% from fourth quarter 2015 and compared to
$9.8 million in the third quarter 2016. Most categories of service fee income showed year-over-year growth
with service charges on deposit and interchange income each up 17%, indicating continued growth in
customers and cross sell, and beneﬁts from our acquisition activity, including the Floridian and BMO
acquisitions in the ﬁrst and second quarters of 2016. BOLI income was 54% higher, with additional purchases
of BOLI occurring during the fourth quarter. Mortgage banking revenue was particularly strong, up 69% year
over year for fourth quarter, and included gains of $0.5 million from the sale of seasoned residential
portfolio loans.

Noninterest expenses for the fourth quarter 2016 totaled $30.3 million, up 12% from prior year and 9%

lower than third quarter 2016. Of the $3.1 million increase year-over-year for fourth quarter 2016, salaries,
wages and employee beneﬁts increased $1.6 million, outsourced data processing grew $0.6 million, and
occupancy and furniture and equipment costs (aggregated) were $0.7 million higher. The acquisitions of
Floridian and BMO were the primary cause and incremental, although for 2016 the Company added only four
more branch offices, compared to year-end 2015. Fourth quarter 2016 expense also reﬂected remaining merger
related charges of $0.6 million from our acquisitions and severance of $0.2 million. The most signiﬁcant
factor impacting the fourth quarter 2015’s noninterest expense was also merger related charges, totaling
$1.0 million from the Grand acquisition and $0.2 million for severance.

A provision for loan losses of $1.0 million and $0.4 million was recorded in the fourth quarter of 2016

and 2015, respectively. Our fourth quarter 2016 provisioning reﬂects continued strong credit metrics, offset by
continued loan growth. For the fourth quarter of 2016, net charge-offs totaled $0.3 million, compared to
$0.6 million for fourth quarter 2015. The allowance for loan losses to portfolio loans outstanding ratio at
December 31, 2016 was 0.96%, compared to 1.03% a year earlier, and the coverage ratio (the allowance for
loan losses to nonaccrual loans) was 125.1% at December 31, 2016 compared to 110.0% at December 31,
2015, reﬂecting improvement in credit quality.

Internal Controls

The Company’s management, with the participation of its Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as deﬁned in
rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of December 31, 2016 and concluded that
those disclosure controls and procedures are effective. There have been no changes to the Company’s internal
control over ﬁnancial reporting that occurred since the beginning of 2016 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over ﬁnancial reporting.

While the Company believes that its existing disclosure controls and procedures have been effective to
accomplish these objectives, the Company intends to examine, reﬁne and formalize its disclosure controls and
procedures and to monitor ongoing developments in this area.

74

Table 1 — Condensed Income Statement*

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (recapture) for loan losses . . . . . . . . . . . . . . . . . . . . . . .

Noninterest income

2016

3.34%
0.06

2015
(Tax equivalent basis)
3.33%
0.08

2014

3.03%
(0.14)

Securities gains, net
Bargain purchase gains, net
Other

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes
Provision for income taxes including tax equivalent adjustment
. . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.01
0.00
0.89
3.11
1.07
0.38
0.69%

0.00
0.01
0.97
3.14
1.09
0.42
0.67%

0.02
0.00
1.00
3.76
0.43
0.20
0.23%

*

As a Percent of Average Assets

75

Table 2 — Three Year Summary

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

2016

2015

2014

Average
Balance

Interest

Yield/
Rate

Average
Balance

Interest

Yield/
Rate

Average
Balance

Interest

Yield/
Rate

(Dollars in thousands)

EARNING ASSETS
Securities

Taxable .
.
Nontaxable .

.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

Federal funds sold and other
.
.

.
investments .
Loans, net(2)
.
.
TOTAL EARNING ASSETS .
.
Allowance for loan losses .
Cash and due from banks
.
.
Bank premises and equipment,
.
.
. . .
.
Bank owned life insurance .
.
Goodwill
.
.
. . .
.
Other intangible assets, net
.
.
Other assets . . .

net

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

INTEREST BEARING

LIABILITIES

.
Interest bearing demand .
.
.
Savings deposits
.
.
Money market
Time deposits .
.
.
Federal funds purchased and

.
.
.

.
.
.

.
.
.

.
.
.

.
.

.
.
.
.

.
.

.
.
.
.
.

.
.
.
.
.

.
.
.
.

$1,174,627
25,841
1,200,468

$ 26,133
1,592
27,725

2.22% $ 946,986
15,208
6.16
962,194
2.31

$ 20,341
895
21,236

2.15% $ 732,324
4,644
5.89
736,968
2.21

$15,448
323
15,771

2.11%
6.96
2.14

1,022
94,640
116,898

1.33
4.77
3.87

1,669
119,587
148,981

2.21
4.63
3.86

75,442
2,584,389
3,860,299
(21,131)
88,919

60,470
45,009
53,792
12,819
101,645
$4,201,822

76,851
1,984,545
3,023,590
(18,725)
73,001

51,396
39,343
25,320
7,956
102,516
$3,304,397

1,017
63,788
80,576

0.81
4.39
3.48

125,550
1,452,751
2,315,269
(19,164)
51,581

37,970
6,154
6,643
2,197
84,609
$2,485,259

$ 764,917
325,371
791,998
351,646

616
161
1,816
2,074

0.08% $ 632,304
281,470
0.05
607,768
0.23
307,329
0.59

472
158
1,455
1,228

0.07% $ 520,288
219,793
0.06
366,490
0.24
277,349
0.40

399
113
352
1,538

0.08%
0.05
0.10
0.55

.

.

.

.

187,560

484

0.26

168,188

340

0.20

152,129

260

0.17

other short term
borrowings . .

.

.

.

.
.

.
Federal Home Loan Bank
.
.

.
borrowings . .
.
Other borrowings .
.
TOTAL INTEREST BEARING
.
.
.

.
LIABILITIES .
Noninterest demand .
.
Other liabilities .

.
.
.

.
.
.

.
.
.

.
.
.

.
.

.
.

.
.

.
.

.

.

.

Shareholders’ equity .

.

.

.

.

.

198,268
70,097

1,256
2,060

0.63
2.94

64,726
67,056

1,643
1,634

2.54
2.44

69,836
56,370

1,640
1,053

2.35
1.87

2,689,857
1,066,463
31,628
3,787,948
413,874
$4,201,822

8,467

0.31

2,128,841
819,801
18,388
2,967,030
337,367
$3,304,397

6,930

0.33

1,662,255
556,000
10,137
2,228,392
256,867
$2,485,259

5,355

0.32

earning assets

Interest expense as % of
.

.
Net interest income/yield on
.

earning assets

.

.

.

.

.

.

.

.

.

.

.

.

.

0.22%

0.23%

0.23%

$140,514

3.63%

$109,968

3.64%

$75,221

3.25%

(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.

76

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

2016 vs 2015
Due to Change in:
Rate

Volume

2015 vs 2014
Due to Change in:
Rate

Total

Total

Volume
(Dollars in thousands)
Amount of increase (decrease)

EARNING ASSETS
Securities
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,977
640
Nontaxable . . . . . . . . . . . . . . . . . . . . . . .
5,617
(26)
28,181
33,772

Federal funds sold and other investments . .
Loans, net
. . . . . . . . . . . . . . . . . . . . . . .
TOTAL EARNING ASSETS . . . . . . . . . .

$

815
57
872
673
(3,234)
(1,689)

$ 5,792
697
6,489
647
24,947
32,083

$ 4,570
678
5,248
(522)
24,355
29,081

$ 323
(106)
217
527
6,497
7,241

$ 4,893
572
5,465
5
30,852
36,322

INTEREST BEARING LIABILITIES
Interest bearing demand . . . . . . . . . . . . . .
Savings deposits . . . . . . . . . . . . . . . . . . .
Money market accounts . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . .

Federal funds purchased and other short

term borrowings

. . . . . . . . . . . . . . . . .
Federal Home Loan Bank borrowings . . . . .
Other borrowings
. . . . . . . . . . . . . . . . . .
TOTAL INTEREST BEARING

103
23
433
219
778

41
(20)
(72)
627
576

45
2,118
82

99
(2,505)
344

144
3
361
846
1,354

144
(387)
426

85
33
406
143
667

30
(125)
230

(12)
12
697
(453)
244

50
128
351

73
45
1,103
(310)
911

80
3
581

LIABILITIES . . . . . . . . . . . . . . . . . .

3,023
NET INTEREST INCOME . . . . . . . . . . $30,749

(1,486)
$ (203)

1,537
$30,546

802
$28,279

773
$6,468

1,575
$34,747

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

Table 4 — Noninterest Income

2016

Service charges on deposit accounts . . . . . . . . . . . $ 9,669
3,433
Trust fees
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,864
Mortgage banking fees . . . . . . . . . . . . . . . . . . . .
2,044
Brokerage commissions and fees . . . . . . . . . . . . .
673
Marine ﬁnance fees . . . . . . . . . . . . . . . . . . . . . .
9,227
Interchange income . . . . . . . . . . . . . . . . . . . . . .
477
Other deposit based EFT fees . . . . . . . . . . . . . . .
2,213
BOLI Income . . . . . . . . . . . . . . . . . . . . . . . . . .
0
Gain on participated loan . . . . . . . . . . . . . . . . . .
3,827
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
37,427
368
Securities gains, net . . . . . . . . . . . . . . . . . . . . . .
Bargain purchase gain, net
0
. . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $37,795

n/m = not meaningful

77

% Change

Year Ended
2015

16/15

2014
(Dollars in thousands)
$ 6,952
2,986
3,057
1,614
1,320
5,972
343
252
0
2,248
24,744
469
0
$25,213

12.9%
9.6
37.9
(4.1)
(41.6)
20.1
20.2
55.2
(100.0)
49.8
16.9
128.6
(100.0)
16.0

$ 8,563
3,132
4,252
2,132
1,152
7,684
397
1,426
725
2,555
32,018
161
416
$32,595

15/14

23.2%
4.9
39.1
32.1
(12.7)
28.7
15.7
465.9
n/m
13.7
29.4
(65.7)
n/m
29.3

Table 5 — 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 (gain)/loss on other real estate

2016

$ 54,096
9,903
13,516
2,108
13,122
4,720
3,633
9,596
2,365
2,486
553

0

owned and repossessed assets . . .

(509)

Year Ended
2015
(Dollars in thousands)
$ 41,075
9,564
10,150
1,797
8,744
3,434
4,428
8,022
2,212
1,424
472

2014

16/15

15/14

% Change

$35,132
8,773
8,781
1,331
7,930
2,535
3,576
6,871
1,660
1,033
488

31.7%
3.5
33.2
17.3
50.1
37.4
(18.0)
19.6
6.9
74.6
17.2

16.9%
9.0
15.6
35.0
10.3
35.5
23.8
16.8
33.3
37.9
(3.3)

0

239

4,958

0.0

(100.0)

310

(313.0)

(22.9)

Early redemption cost for Federal

Home Loan Bank advances . . . .
Other . . . . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . .

*

n/m = not meaningful

1,777
13,515
$130,881

0
12,209
$103,770

0
9,988
$93,366

n/m
10.7
26.1

0.0
22.2
11.1

78

Table 6 — Capital Resources

2016

December 31
2015
(Dollars in thousands)

2014

TIER 1 CAPITAL

Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid in capital
. . . . . . . . . . . . . . . . . . . . . .
Accumulated (deﬁcit)
. . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
COMMON EQUITY TIER 1 CAPITAL . . . . . . . . . . . . . .
Qualifying trust preferred securities . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
TOTAL TIER 1 CAPITAL . . . . . . . . . . . . . . . . . . . . . . .

$

3,802
454,001
(13,657)
(1,236)
(64,649)
(6,371)
(20,121)
351,769
70,241
(13,414)
408,596

$

3,435
399,162
(42,858)
(73)
(25,211)
(2,057)
(15,394)
317,004
69,961
(23,092)
363,873

$

3,300
379,249
(65,000)
(71)
(25,309)
(4,478)
n/a
n/a
62,539
(44,565)
305,665

TIER 2 CAPITAL

Regulatory minimum(2)

Allowance for loan losses, as limited(1)

. . . . . . . . . . . . .
TOTAL TIER 2 CAPITAL . . . . . . . . . . . . . . . . . . . . . . .
TOTAL RISK-BASED CAPITAL . . . . . . . . . . . . . . . . . . .
Risk weighted assets
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Common equity Tier 1 ratio (CET1) . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Total capital ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital to adjusted total assets . . . . . . . . . . . . . . . . .
Regulatory minimum . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
. . . . . .
. . . . . . . . .

Shareholders’ equity to assets
Average shareholders’ equity to average total assets
Tangible shareholders’ equity to tangible assets

Regulatory minimum(2)

Regulatory minimum(2)

23,462
23,462
$ 432,058
$3,259,871

19,166
19,166
$ 383,039
$2,392,668

17,100
17,100
$ 322,765
$1,986,291

10.79%
4.50
12.53
6.00
13.25
8.00
9.15
4.00
9.30
9.85
7.74

13.25%
4.50
15.21
6.00
16.01
8.00
10.70
4.00
10.00
10.21
9.13

n/a%
n/a
15.39
n/a
16.25
8.00
10.32
4.00
10.11
10.34
9.14

(1)

Includes reserve for unfunded commitments of $62,000 at December 31, 2016, $38,000 at December 31,
2015 and $29,000 at December 31, 2014.

(2) Excludes new capital conservation buffer of 0.625% the Company is subject to, which if not exceeded

may constrain dividends, equity repurchases and compensation.

n/a = not applicable

79

Table 7 — Loans Outstanding

Construction and land development

2016

2015

December 31
2014
(In thousands)

2013

2012

Residential . . . . . . . . . . . . . . . . . . . $
Commercial . . . . . . . . . . . . . . . . . .

Individuals . . . . . . . . . . . . . . . . . . .

Commercial real estate(1) . . . . . . . . . . .

Real estate mortgage

Residential real estate

Adjustable . . . . . . . . . . . . . . . . .
Fixed rate . . . . . . . . . . . . . . . . . .
Home equity mortgages . . . . . . . .
Home equity lines . . . . . . . . . . . .

Commercial and ﬁnancial

. . . . . . . . . .

Installment loans to individuals

29,693
57,856
87,549
72,567
160,116
1,357,592

$

31,650
31,977
63,627
45,160
108,787
1,009,378

$

16,155
37,194
53,349
33,687
87,036
837,147

$

10,566
22,733
33,299
34,151
67,450
520,382

$

9,902
11,907
21,809
38,927
60,736
486,828

418,276
210,365
44,484
163,662
836,787
370,589

429,826
110,391
69,339
114,229
723,785
228,517

441,238
93,865
71,838
79,956
686,897
157,396

391,885
91,108
62,043
47,710
592,746
78,636

361,005
98,976
57,955
51,395
569,331
61,903

Automobiles and trucks . . . . . . . . . .
Marine loans . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Other

19,234
78,993
55,718
153,945
507
Other loans . . . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . $2,879,536

14,965
46,534
23,857
85,356
507
$2,156,330

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

(1) Commercial real estate includes owner-occupied balances of $623.8 million, $453.3 million,

$362.3 million, $194.0 million and $188.9 million, respectively, for each of the years, beginning
with 2016.

Table 8 — Loan Maturity Distribution

In one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . .

$149,942

After one year but within ﬁve years:

Commercial and
Financial

December 31, 2016
Construction
and Land
Development
(In thousands)
$ 62,629

Total

$212,571

Interest rates are ﬂoating or adjustable . . . . . . . . . . . .
Interest rates are ﬁxed . . . . . . . . . . . . . . . . . . . . . . .

44,999
97,614

17,177
23,164

62,176
120,778

In ﬁve years or more:

Interest rates are ﬂoating or adjustable . . . . . . . . . . . .
Interest rates are ﬁxed . . . . . . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7,360
70,674
$370,589

26,463
30,683
$160,116

33,823
101,357
$530,705

80

Table 9 — Maturity of Certiﬁcates of Deposit of $100,000 or More

Maturity of Certiﬁcates of Deposit of $100,000 through $250,000

2016

Maturity Group:

Under 3 Months
. . . . . . . . . . . . . . . . . . . .
3 to 6 Months . . . . . . . . . . . . . . . . . . . . . .
6 to 12 Months . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Over 12 Months
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 20,304
15,919
31,608
55,801
$123,632

Maturity of Certiﬁcates of Deposit of more than $250,000

Maturity Group:

Under 3 Months
. . . . . . . . . . . . . . . . . . . .
3 to 6 Months . . . . . . . . . . . . . . . . . . . . . .
6 to 12 Months . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Over 12 Months
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2016

$15,832
14,325
12,294
25,450
$67,901

December 31

% of
Total

2015
(Dollars in thousands)

16.4%
12.9
25.6
45.1
100.0%

$ 26,301
18,962
27,015
29,481
$101,759

December 31

% of
Total

2015
(Dollars in thousands)

23.3%
21.1
18.1
37.5
100.0%

$11,315
6,604
4,792
15,824
$38,535

% of
Total

25.9%
18.6
26.5
29.0
100.0%

% of
Total

29.4%
17.1
12.4
41.1
100.0%

81

Table 10 — Summary of Allowance for Loan Loss Experience

Beginning balance . . . . . . . . . . . . . . . $
Provision (recapture) for loan losses . . .

2016
19,128
2,411

$

Year Ended December 31
2014
20,068
(3,486)

2015
17,071
2,644

$

$

Charge offs:

Construction and land development . .
Commercial real estate . . . . . . . . . .
Residential real estate . . . . . . . . . . .
Commercial and ﬁnancial . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Consumer
TOTAL CHARGE OFFS . . . . . . . . . . .

Recoveries:

0
301
215
615
244
1,375

1,271
482
779
726
341
3,599

640
398
1,126
398
193
2,755

2013
22,104
3,188

$

2012
25,565
10,796

604
2,714
3,153
60
253
6,784

612
8,539
8,381
346
410
18,288

Construction and land development . .
226
Commercial real estate . . . . . . . . . .
306
Residential real estate . . . . . . . . . . .
786
Commercial and ﬁnancial . . . . . . . . .
1,809
. . . . . . . . . . . . . . . . . . .
Consumer
109
TOTAL RECOVERIES . . . . . . . . . . . .
3,236
Net loan charge offs (recoveries)
. . . . .
(1,861)
23,400
ENDING BALANCE . . . . . . . . . . . . . $
Loans outstanding at end of year* . . . . $2,879,536
Ratio of allowance for loan losses to
loans outstanding at end of year
Ratio of allowance for loan losses to

. . . .

0.81%

404
700
1,260
531
117
3,012
587
19,128
$
$2,156,330

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

0.89%

0.94%

1.54%

1.80%

loans outstanding (excluding
purchased loans) at end of period(1) . .

0.96%

1.03%

1.14%

1.54%

1.80%

Daily average loans outstanding* . . . . . $2,584,389
Ratio of net charge offs (recoveries) to

$1,984,545

$1,452,751

$1,272,447

$1,227,542

average loans outstanding . . . . . . . .

(0.29)%

0.03%

(0.03)%

0.41%

1.16%

(1) A non-GAAP measure.
*

Net of unearned income.

82

Table 11 — Allowance for Loan Losses

(Dollars in thousands)
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
Construction and land development . . .
Commercial real estate loans
. . . . . . .
Residential real estate loans . . . . . . . .
Commercial and ﬁnancial loans
. . . . .
Consumer loans . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . .

2016

2015

December 31,
2014

2013

2012

$ 1,219
9,273
7,483
3,636
1,789
$23,400

$ 1,151
6,756
8,057
2,042
1,122
$19,128

$

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

5.6%

47.1
29.1
12.9
5.3
100.0%

5.0%

46.8
33.6
10.6
4.0
100.0%

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%

83

Table 12 — Nonperforming Assets

2016

2015

December 31,
2014
(Dollars in thousands)

2013

2012

Nonaccrual loans(1)(2)
Construction and land

$

development

. . . . . . . . . . . . .
Commercial real estate loans . . . .
Residential real estate loans . . . . .
Commercial and ﬁnancial loans . .
Consumer loans . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Total

470
7,341
9,844
246
170
18,071

$

Other real estate owned
Construction and land

development

. . . . . . . . . . . . .
Commercial real estate loans . . . .
Residential real estate loans . . . . .
Bank branches closed . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . .
TOTAL NONPERFORMING

1,203
3,041
0
5,705
9,949

309
6,410
10,290
130
247
17,386

2,617
3,959
463
0
7,039

$

1,963
4,189
14,797
0
191
21,140

223
5,771
1,468
0
7,462

$

1,302
5,111
20,705
13
541
27,672

421
5,138
1,301
0
6,860

$

1,342
17,234
22,099
0
280
40,955

2,124
6,305
3,458
0
11,887

ASSETS . . . . . . . . . . . . . . . .

$

28,020

$

24,425

$

28,602

$

34,532

$

52,842

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

$2,879,536

$2,156,330

$1,821,885

$1,304,207

$1,226,081

0.97%

1.13%

1.56%

2.63%

4.27%

or more

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

$

0

$

0

$

311

$

160

$

1

Loans restructured and in

compliance with modiﬁed
terms(3) . . . . . . . . . . . . . . . . .

17,711

19,970

24,997

25,137

41,946

(1)

Interest income that could have been recorded during 2016, 2015, and 2014 related to nonaccrual loans
was $728,000, $614,000, and $1,942,000, 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 $1,001,000,
$1,211,000, and $1,496,000, respectively, for 2016, 2015 and 2014. The amount included in interest
income under the modiﬁed terms for 2016, 2015, and 2014 was $792,000, $836,000, and $1,276,000,
respectively.

84

December 31

Amortized
Cost

Fair
Value

Unrealized
Gains

Unrealized
Losses

(In thousands)

$ 12,073
3,833

$ 12,328
3,911

$ 255
78

$

0
0

Table 13 — Securities Available For Sale

U.S. Treasury securities and obligations of
U.S. Government Sponsored Entities
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities of U.S. Government

Sponsored Entities
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Collateralized mortgage obligations of
U.S. Government Sponsored Entities
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commercial mortgage-backed securities of
U.S. Government Sponsored Entities
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Private mortgage-backed securities

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Private collateralized mortgage obligations

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Collateralized loan obligations

287,726
192,224

283,488
191,749

238,805
242,620

234,054
238,190

22,351
0

32,780
32,558

67,542
77,965

22,545
0

31,989
31,792

67,289
77,957

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

124,716
124,477

124,889
122,583

Obligations of state and political subdivisions

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Corporate and other debt securities

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Private commercial mortgage backed securities

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total Securities Available For Sale

63,161
39,119

74,121
44,652

37,534
41,127

62,888
39,891

73,861
44,273

37,172
40,420

585
847

314
470

222
0

0
0

563
700

838
0

622
882

257
37

111
13

(4,823)
(1,322)

(5,065)
(4,900)

(28)
0

(791)
(766)

(816)
(708)

(665)
(1,894)

(895)
(110)

(517)
(416)

(473)
(720)

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$960,809

$798,575

$950,503

$790,766

$3,767

$3,027

$(14,073)

$(10,836)

85

Table 14 — Securities Held to Maturity

Mortgage-backed securities of U.S. Government

Sponsored Entities
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Collateralized mortgage obligations of
U.S. Government Sponsored Entities
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commercial mortgage-backed securities of
U.S. Government Sponsored Entities
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Collateralized loan obligations

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Private mortgage backed securities

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total Securities Held to Maturity

December 31

Amortized
Cost

Fair
Value

Unrealized
Gains

Unrealized
Losses

(In thousands)

$159,941
64,993

$159,402
65,551

$ 704
574

$(1,243)
(16)

147,208
89,265

144,964
89,440

17,375
0

41,547
41,300

6,427
7,967

17,534
0

41,663
39,940

6,318
7,882

386
581

233
0

430
0

0
0

(2,630)
(406)

(74)
0

(314)
(1,360)

(109)
(85)

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$372,498
$203,525

$369,881
$202,813

$1,753
$1,155

$(4,370)
$(1,867)

86

Table 15 — Maturity Distribution of Securities Available For Sale

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
Commercial mortgage backed securities of
U.S. Government Sponsored Entities

. . .
Private mortgage backed securities . . . . . .
Private collateralized mortgage obligations. .
Collateralized loan obligations . . . . . . . . .
Obligations of state and political

. . .

subdivisions

. . . . . . . . . . . . . . . . . .
Corporate and other debt securities . . . . . .
Private commercial mortgage backed

securities . . . . . . . . . . . . . . . . . . . .
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
Commercial mortgage backed securities of
U.S. Government Sponsored Entities

. . .
Private mortgage backed securities . . . . . .
Private collateralized mortgage obligations. .
Collateralized loan obligations . . . . . . . . .
Obligations of state and political

. . .

subdivisions

. . . . . . . . . . . . . . . . . .
Corporate and other debt securities . . . . . .
Private commercial mortgage backed

securities . . . . . . . . . . . . . . . . . . . .
Total Securities Available For Sale . . . . . .

WEIGHTED AVERAGE YIELD (FTE)
U.S. Treasury securities and obligations of
U.S. Government Sponsored Entities

. . .

Mortgage-backed securities of

. . .

U.S. Government Sponsored Entities
Collateralized mortgage obligations of
U.S. Government Sponsored Entities
Commercial mortgage backed securities of
U.S. Government Sponsored Entities

. . .
Private mortgage backed securities . . . . . .
Private collateralized mortgage obligations. .
Collateralized loan obligations . . . . . . . . .
Obligations of state and political

. . .

subdivisions

. . . . . . . . . . . . . . . . . .
Corporate and other debt securities . . . . . .
Private commercial mortgage backed

securities . . . . . . . . . . . . . . . . . . . .
Total Securities Available For Sale . . . . . .

1 Year
Or Less

1 − 5
Years

December 31, 2016

After
5 − 10
Years
10 Years
(Dollars in thousands)

Average
Maturity
In Years

Total

$ 7,348

$

4,725

$

0

$

0

$ 12,073

0

119,379

159,693

8,654

287,726

4,481

191,096

43,030

198

238,805

0
0
34,059
0

0
8,000

5,399
0
22,977
32,879

9,695
38,528

16,095
15,547
6,788
91,837

26,697
22,947

857
17,233
3,718
0

26,769
4,646

22,351
32,780
67,542
124,716

63,161
74,121

548
$54,436

4,883
$429,561

14,149
$396,783

17,954
$80,029

37,534
$960,809

0.66

6.10

3.61

6.46
9.17
2.26
5.71

11.02
4.46

13.60
5.54

$ 7,534

$

4,794

$

0

$

0

$ 12,328

0

118,603

156,178

8,707

283,488

4,516

187,557

41,781

200

234,054

0
0
33,780
0

0
8,010

5,383
0
22,973
32,581

9,731
38,573

16,301
14,980
6,955
92,308

27,061
22,664

861
17,009
3,581
0

26,096
4,614

22,545
31,989
67,289
124,889

62,888
73,861

547
$54,387

4,844
$425,039

13,988
$392,216

17,793
$78,861

37,172
$950,503

3.94%

0.00%

1.82%

0.00%
0.00%
1.90%
0.00%

0.00%
2.05%

1.77%
2.19%

3.27%

0.00%

0.00%

2.05%

2.53%

3.17%

1.77%

2.33%

1.40%

1.99%
1.95%
4.02%
2.02%

2.40%
2.48%

2.40%
2.03%

3.87%
2.06%
3.54%
3.53%

3.32%
3.08%

2.65%
2.91%

1.92%
1.87%
1.93%
0.00%

3.80%
3.67%

2.46%
2.93%

3.68%

2.31%

1.87%

3.58%
1.97%
2.79%
3.23%

3.38%
2.69%

2.51%
2.50%

87

Table 16 — Maturity Distribution of Securities Held to Maturity

AMORTIZED COST
Mortgage-backed securities of

. . .

U.S. Government Sponsored Entities
Collateralized mortgage obligations of
U.S. Government Sponsored Entities
Commercial mortgage backed securities of
U.S. Government Sponsored Entities

. . .
Collateralized loan obligations . . . . . . . . .
Private mortgage backed securities . . . . . .
Total Securities Held to Maturity . . . . . . .

. . .

FAIR VALUE
Mortgage-backed securities of

. . .

U.S. Government Sponsored Entities
Collateralized mortgage obligations of
U.S. Government Sponsored Entities
Commercial mortgage backed securities of
U.S. Government Sponsored Entities

. . .
Collateralized loan obligations . . . . . . . . .
Private mortgage backed securities . . . . . .
Total Securities Held to Maturity . . . . . . .

. . .

WEIGHTED AVERAGE YIELD (FTE)
Mortgage-backed securities of

. . .

U.S. Government Sponsored Entities
Collateralized mortgage obligations of
U.S. Government Sponsored Entities
Commercial mortgage backed securities of
U.S. Government Sponsored Entities

. . .
Collateralized loan obligations . . . . . . . . .
Private mortgage backed securities . . . . . .
Total Securities Held to Maturity . . . . . . .

. . .

1 Year
Or Less

1 − 5
Years

December 31, 2016

After
5 − 10
Years
10 Years
(Dollars in thousands)

Average
Maturity
In Years

Total

$

$

$

$

0

0

0
0
0
0

0

0

0
0
0
0

$113,596

$ 33,833

$12,512

$159,941

126,338

20,870

0

147,208

0
0
1,460
$241,394

17,375
41,547
4,967
$118,592

0
0
0
$12,512

17,375
41,547
6,427
$372,498

5.05

3.16

7.21
6.69
6.98
4.62

$112,872

$ 34,195

$12,335

$159,402

125,021

19,943

0

144,964

0
0
1,460
$239,353

17,534
41,663
4,858
$118,193

0
0
0
$12,335

17,534
41,663
6,318
$369,881

0.00%

0.00%

0.00%
0.00%
0.00%
0.00%

2.06%

2.09%

2.70%

1.79%

2.24%

0.00%

0.00%
0.00%
1.95%
1.92%

4.24%
4.34%
1.85%
3.21%

0.00%
0.00%
0.00%
2.70%

2.12%

1.85%

4.24%
4.34%
1.88%
2.35%

88

Table 17 — Interest Rate Sensitivity Analysis(1)

Federal funds sold and interest bearing

0 − 3
Months

4 − 12
Months

December 31, 2016
1 − 5
Years
(Dollars in thousands)

Over
5 Years

$

deposits . . . . . . . . . . . . . . . . . . . . . . . . $

0
Securities(2)
110,801
. . . . . . . . . . . . . . . . . . . . . . .
Loans, net(3) . . . . . . . . . . . . . . . . . . . . . . .
337,967
448,768
Earning assets . . . . . . . . . . . . . . . . . . . . . .
Savings deposits(4) . . . . . . . . . . . . . . . . . . .
0
145,398
Time deposits . . . . . . . . . . . . . . . . . . . . . .
0
. . . . . . . . . . . . . . . . . . . . . . .
Borrowings
145,398
Interest bearing liabilities . . . . . . . . . . . . . . .
Interest sensitivity gap . . . . . . . . . . . . . . . . $(1,503,185) $
303,370
Cumulative gap . . . . . . . . . . . . . . . . . . . . . $(1,503,185) $(1,199,815)
(28.3)
. . . .
Cumulative gap to total earning assets (%)
308.6
Earning assets to interest bearing liabilities (%). .

27,124
452,500
797,954
1,277,578
2,023,086
68,234
689,443
2,780,763

(35.4)
45.9

$

0
399,154
1,238,044
1,637,198
0
136,429
0
136,429
$1,500,769
$ 300,954
7.1
1,200.0

$

0
360,546
520,903
881,449
0
1,789
0
1,789
$ 879,660
$1,180,614
27.8
n/m

Total

$

27,124
1,323,001
2,894,868
4,244,993
2,023,086
351,850
689,443
3,064,379
$1,180,614

(1) The repricing dates may differ from maturity dates for certain assets due to prepayment assumptions.
(2) Securities are stated at amortized cost.
(3)
Includes loans available for sale.
(4) This category is comprised of interest-bearing demand, savings and money market deposits. If

interest-bearing demand and savings deposits (totaling $1,220,389) were deemed repriceable in
‘‘4 − 12 months’’, the interest sensitivity gap and cumulative gap would be ($282,796) or (6.7)% of total
earning assets and an earning assets to interest bearing liabilities for the 0 − 3 months category of
81.9%.

n/m = not meaningful

89

Stock Performance Graph

The line graph below compares the cumulative total stockholder return on Seacoast common stock for the

ﬁve years ended December 31, 2016 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, 2011 (the last day of trading for the year ended December 31, 2011) 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.

Total Return Performance

Seacoast Banking Corporation of Florida

NASDAQ Composite

SNL Southeast Bank

350

300

250

200

150

e
u
l
a
V
x
e
d
n
I

100

12/31/11

12/31/12

12/31/13

12/31/14

12/31/15

12/31/16

Index
Seacoast Banking Corporation of
Florida . . . . . . . . . . . . . . . .
NASDAQ Composite . . . . . . . .
SNL Southeast Bank . . . . . . . .

12/31/11

12/31/12

12/31/13

12/31/14

12/31/15

12/31/16

Period Ending

100.00
100.00
100.00

105.92
117.45
166.11

160.53
164.57
225.10

180.92
188.84
253.52

197.11
201.98
249.57

290.26
219.89
331.30

Source: SNL Financial, an offering of S&P Global Market Intelligence
© 2017

www.snl.com

90

 
SELECTED QUARTERLY INFORMATION
QUARTERLY CONSOLIDATED INCOME (LOSS) STATEMENTS (UNAUDITED)

.
.

Net interest income:
.
Interest income .
Interest expense
.
Net interest income

.
.
.
.
.
.
Provision 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 .
.
.
.
.
Gain on participated loan .
.
.
.
Other income .
.
.
.
Securities gains, net
.
.
.
Bargain purchase gain, 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 .
.
.
Net (gain)/loss on other real estate
owned and repossessed assets .
Early redemption cost for Federal
.
Home Loan Bank advances .
.
.
.
.
.
.
.
.
.
.
.

Other
.
.
.
Total noninterest expenses .
Income before income taxes .
.
Provision for income taxes .
.
.
Net income . . .

.
.
.
.
.
.

.
.
.
.
.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

PER COMMON SHARE DATA
.
Net income diluted .
.
.
Net income basic .

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.

.
.
.
.
.
.
.
.
.
.
.

.

.
.
.
.
.
.

.
.

2016 Quarters

2015 Quarters

Fourth

Third

Second

First

Fourth

Third

Second

First

(Dollars in thousands, except per share data)

$39,691
2,266
37,425
1,000

$39,614
2,166
37,448
550

$36,579
2,086
34,493
662

$32,171
1,949
30,222
199

$30,915
1,815
29,100
369

$30,823
1,812
29,011
987

$27,361
1,695
25,666
855

$27,318
1,608
25,710
433

36,425

36,898

33,831

30,023

28,731

28,024

24,811

25,277

2,612
969
1,616
480
115
2,334
125
611
0
1,060
7
0
9,929

12,476
2,475
3,076
502
2,830
1,211
847
2,370
661
719
84

2,698
820
1,885
463
138
2,306
109
382
0
963
225
0
9,989

14,337
2,425
3,198
539
3,675
1,228
780
2,213
517
728
219

2,230
838
1,364
470
279
2,370
116
379
0
1,065
47
0
9,158

13,884
2,521
2,803
539
3,645
1,283
957
2,656
643
593
160

2,129
806
999
631
141
2,217
127
841
0
739
89
0
8,719

13,399
2,482
4,439
528
2,972
998
1,049
2,357
544
446
90

2,229
791
955
511
205
1,989
99
396
0
607
1
416
8,199

11,135
2,178
2,455
412
2,314
1,000
1,128
2,580
551
397
79

2,217
781
1,177
604
258
1,925
88
366
0
666
160
0
8,242

11,850
2,430
3,277
446
2,396
883
1,099
2,189
552
397
77

2,115
759
1,032
576
492
2,033
96
334
725
684
0
0
8,846

9,301
2,541
2,234
443
2,011
819
1,226
1,590
520
315
173

2,002
801
1,088
441
197
1,737
114
330
0
598
0
0
7,308

8,789
2,415
2,184
496
2,023
732
975
1,663
589
315
143

(161)

(96)

(201)

(51)

(157)

262

53

81

0
3,207
30,297
16,057
5,286
$10,771

0
3,672
33,435
13,452
4,319
$ 9,133

1,777
3,548
34,808
8,181
2,849
$ 5,332

0
3,088
32,341
6,401
2,435
$ 3,966

0
3,097
27,169
9,761
3,725
$ 6,036

0
3,269
29,127
7,139
2,698
$ 4,441

0
3,062
24,288
9,369
3,564
$ 5,805

0
2,781
23,186
9,399
3,540
$ 5,859

$

0.28
0.29

$

0.24
0.24

$

0.14
0.14

$

0.11
0.11

$

0.18
0.18

$

0.13
0.13

$

0.18
0.18

$ 0.18
0.18

.
.
.
.

.

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

.
.
.
.
.
.
.
.
.
.
.

.

.
.
.
.
.
.

.
.

Cash dividends declared:
.

Common stock .

.

.

.

.

.

.

.

.

.

.

.

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Market price common stock:
.
.

.
. .
Low close
High close .
.
.
Bid price at end of period .

.
.

.
.

.
.

.
.

.
.

.
.
.

.
.
.

.
.
.

.
.
.

.
.
.

.
.
.

15.85
22.91
22.06

15.50
17.80
16.09

15.21
17.19
16.24

13.40
16.22
15.79

14.10
16.95
14.98

14.11
16.26
14.68

13.81
16.09
15.80

12.02
14.46
14.27

91

FINANCIAL HIGHLIGHTS

(Dollars in thousands, except per share data)
FOR THE YEAR

2016

2015

2014

2013

2012

Net interest income . . . . . . . . . . . . . .
. . .
Provision (recapture) for loan losses

$ 139,588
2,411

$ 109,487
2,644

$

74,907
(3,486)

$

65,206
3,188

$

64,809
10,796

Noninterest income:

Other . . . . . . . . . . . . . . . . . . . . .
Loss on sale of commercial loan . . . .
. . . . . . . . . . . .
Securities gains, net
. . . . . . .
Bargain purchase 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 . . . . . . .

AT YEAR END

37,427
0
368
0
130,881
44,091
14,889
29,202

0.78
0.79
0.00
9.37

32,018
0
161
416
103,770
35,668
13,527
22,141

0.66
0.66
0.00
10.29

24,744
0
469
0
93,366
10,240
4,544
5,696

0.21
0.21
0.00
9.44

24,319
0
419
0
75,152
11,604
(40,385)
51,989

2.44
2.46
0.00
8.40

21,444
(1,238)
7,619
0
82,548
(710)
0
(710)

(0.24)
(0.24)
0.00
6.16

Assets . . . . . . . . . . . . . . . . . . . . . .
Securities . . . . . . . . . . . . . . . . . . . .
Net loans . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Deposits
FHLB borrowings
. . . . . . . . . . . . . .
Subordinated debt . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . .

$4,680,932
1,323,001
2,856,136
3,523,245
415,000
70,241
435,397

$3,534,780
994,291
2,137,202
2,844,387
50,000
69,961
353,453

$3,093,335
949,279
1,804,814
2,416,534
130,000
64,583
312,651

$2,268,940
641,611
1,284,139
1,806,045
50,000
53,610
198,604

$2,173,929
656,868
1,203,977
1,758,961
50,000
53,610
165,546

Performance ratios:

Return on average assets . . . . . . . . .
Return on average equity . . . . . . . . .
Net interest margin(1)
. . . . . . . . . . .
Average equity to average assets . . . .

0.69%
7.06
3.63
9.85

0.67%
6.56
3.64
10.21

0.23%
2.22
3.25
10.34

2.38%
28.36
3.15
8.38

(0.03)%
(0.43)
3.22
7.81

(1) On a fully taxable equivalent basis, a non-GAAP measure (see page 46 of Management’s Discussion and

Analysis).

92

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 sheets of Seacoast Banking Corporation of Florida
(the ‘‘Company’’) as of December 31, 2016 and 2015, and the related consolidated statements of income and
comprehensive income, changes in shareholders’ equity, and cash ﬂows for each of the years in the three-year
period ended December 31, 2016. We also have audited the Company’s internal control over ﬁnancial
reporting as of December 31, 2016, 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 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 audits 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 audits 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 audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our
opinions.

A company’s internal control over ﬁnancial reporting is a process designed to provide reasonable assurance
regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external purposes
in accordance with generally accepted accounting principles. A company’s internal control over ﬁnancial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reﬂect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of ﬁnancial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the ﬁnancial
statements.

Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

93

In our opinion, the consolidated ﬁnancial statements referred to above present fairly, in all material respects,
the ﬁnancial position of the Company as of December 31, 2016 and 2015, and the results of its operations and
its cash ﬂows for each of the years in the three-year period ended December 31, 2016 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,
2016, 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 15, 2017

94

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

For the Year Ended December 31
2016
2014
2015
(Dollars in thousands, except share data)

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 federal funds purchased and other short term

borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on Federal Home Loan Bank borrowings . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Interest on subordinated debt
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (recapture) for loan losses
. . . . . . . . . . . . . . . . . . .
NET INTEREST INCOME AFTER PROVISION

$

$

26,133
1,036
119,217
1,669
148,055

2,593
2,074

484
1,256
2,060
8,467
139,588
2,411

20,341
585
94,469
1,022
116,417

2,085
1,228

340
1,643
1,634
6,930
109,487
2,644

15,448
211
63,586
1,017
80,262

864
1,538

260
1,640
1,053
5,355
74,907
(3,486)

(RECAPTURE) FOR LOAN LOSSES . . . . . . . . . . . . . . . .

137,177

106,843

78,393

NONINTEREST INCOME (Note M)
Bargain purchase gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities gains, net (includes net losses of $617, $325, and
$110 in other comprehensive income reclassiﬁcations for
2016, 2015, and 2014 respectively)

. . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . .

Other

NONINTEREST EXPENSE (Note M) . . . . . . . . . . . . . . . . .
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

368
37,427
37,795

130,881
44,091
14,889
29,202

SHARE DATA
Net income per share of common stock

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.78
0.79

Average common shares outstanding

0

416

0

161
32,018
32,595

103,770
35,668
13,527
22,141

0.66
0.66

$

$

$

$

469
24,744
25,213

93,366
10,240
4,544
5,696

0.21
0.21

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

37,508,046
36,872,007

33,744,171
33,495,827

27,716,895
27,538,955

See notes to consolidated ﬁnancial statements.

95

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other comprehensive income:
Unrealized gains (losses) on securities available for sale (AFS)
. . . .
Unrealized losses on transfer of securities available for sale to held to
maturity (HTM) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amortization of unrealized losses on securities transferred to HTM,

net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassiﬁcation adjustment for gains included in net income . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . .
COMPREHENSIVE INCOME . . . . . . . . . . . . . . . . . . . . . . . . .

For the Year Ended December 31
2014
2015
$ 5,696
$22,141

2016
$29,202

(1,151)

(1,556)

12,881

0

0

(3,137)

(488)
(368)
707
(1,300)
$27,902

(539)
(161)
870
(1,386)
$20,755

(290)
(469)
(3,468)
5,517
$11,213

See notes to consolidated ﬁnancial statements.

96

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest bearing deposits with other banks . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities available for sale (at fair value) . . . . . . . . . . . . . . . . . . . . . . . .
Securities held to maturity (fair value $369,881 in 2016 and $202,813 in

Total cash and cash equivalents

Net loans

2015) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans
Less: Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank premises and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Other intangible assets, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

LIABILITIES
Noninterest demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brokered time certiﬁcates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time certiﬁcates of $100,000 or more . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total deposits

Federal funds purchased and securities sold under agreement to repurchase,

maturing within 30 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Home Loan Bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 38,090,568 and outstanding 38,021,835 shares in 2016 and
authorized 60,000,000 shares, issued 34,356,892 and outstanding
34,351,409 shares in 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Additional paid-in capital
Accumulated deﬁcit
Less: Treasury stock (68,733 shares in 2016 and 5,484 shares in 2015),

at cost

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

Accumulated other comprehensive loss, net . . . . . . . . . . . . . . . . . . . . . . .

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY . . . . . . . . . . . .

See notes to consolidated ﬁnancial statements.

97

December 31

2016

2015
(Dollars in thousands,
except share data)

$

82,520
27,124
109,644
950,503

372,498
1,323,001
15,332
2,879,536
(23,400)
2,856,136
58,684
9,949
64,649
14,572
84,580
60,818
83,567
$4,680,932

$1,148,309
873,727
346,662
802,697
159,887
7,342
184,621
3,523,245

204,202
415,000
70,241
32,847
4,245,535

$

81,216
54,851
136,067
790,766

203,525
994,291
23,998
2,156,330
(19,128)
2,137,202
54,579
7,039
25,211
8,594
43,579
60,274
43,946
$3,534,780

$ 854,447
734,749
295,851
665,353
153,318
9,403
131,266
2,844,387

172,005
50,000
69,961
44,974
3,181,327

3,802
454,001
(13,657)

(1,236)
442,910
(7,513)
435,397
$4,680,932

3,435
399,162
(42,858)

(73)
359,666
(6,213)
353,453
$3,534,780

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Year Ended December 31
2014
2015
2016
(Dollars in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,202 $ 22,141

$

5,696

Adjustments to reconcile net income to net cash provided by operating

activities:

Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of premiums and discounts on securities, net
. . . . . . . . . .
Other amortization and accretion, net . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Origination of loans designated for sale . . . . . . . . . . . . . . . . . . . . . . .
Sale of loans designated for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Losses (gains) on sale and write-downs of other real estate owned . . . . .
. . . . . . . . . . . . .
Losses and write-downs on disposition of ﬁxed assets

5,076
7,559
(2,238)
4,154
(175,842)
184,508
2,411
14,206
(368)
(668)
(509)
2,442

3,773
3,920
(7,943)
2,859
(206,199)
194,279
2,644
12,888
(161)
(702)
239
183

3,268
2,353
(256)
1,299
(188,952)
190,706
(3,486)
4,222
(469)
(419)
310
4,493

Changes in operating assets and liabilities, net of effects from acquired

companies:

Net increase in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in other liabilities . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .

Net cash provided by operating activities

(14,107)
6,181
62,007

(4,526)
(406)
22,989

(315)
3,496
21,946

CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and repayments of securities available for sale . . . . . . . . . . .
Maturities and repayments of securities held to maturity . . . . . . . . . . . .
Proceeds from sale of securities available for sale . . . . . . . . . . . . . . . .
Purchases of securities available for sale . . . . . . . . . . . . . . . . . . . . . . .
Purchases of securities held to maturity . . . . . . . . . . . . . . . . . . . . . . .
Net new loans and principal payments . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the sale of other real estate owned . . . . . . . . . . . . . . . .
Proceeds from sale of Federal Home Loan Bank and Federal Reserve

Bank Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of Federal Home Loan Bank and Federal Reserve Bank Stock . .
Purchase of bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . .
Net cash from bank acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Additions to bank premises and equipment
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . .

127,879
48,705
40,421
(297,719)
(218,654)
(390,354)
7,952

9,350
(28,857)
(40,000)
235,546
(6,054)
(511,785)

118,493
28,629
60,314
(159,616)
(24,366)
(217,346)
5,758

7,427
(7,510)
0
32,927
(9,091)
(164,381)

92,499
16,138
21,527
(280,137)
(65,340)
(154,772)
4,066

2,423
(6,425)
(30,000)
110,996
(6,083)
(295,108)

See notes to consolidated ﬁnancial statements.

98

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS − (continued)

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in federal funds purchased and repurchase

For the Year Ended December 31
2014
2015
2016
(Dollars in thousands)

27,320

240,086

93,446

agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

32,196

16,707

(16,148)

Net increase (decrease) in FHLB borrowings, maturing in

(80,000)
0
0
127
176,920
35,528
100,539
$136,067

80,000
0
24,637
142
182,077
(91,085)
191,624
$100,539

$

$

6,636
575

4,946
309

$

$

3,521
239

4,789
0

30 days or less

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Early redemption of FHLB borrowings (see Note I) . . . . . . . . . . . . . . .
Issuance of common stock, net of related expense . . . . . . . . . . . . . . . .
Stock based employee beneﬁt plans . . . . . . . . . . . . . . . . . . . . . . . . . .
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

415,000
(50,000)
0
(1,161)
423,355
(26,423)
136,067
. . . . . . . . . . . . . . . . . . . . . . $109,644

Supplemental disclosure of cash ﬂow information:

Cash paid during the period for interest . . . . . . . . . . . . . . . . . . . . . . $ 7,855
703
Cash paid during the period for income taxes . . . . . . . . . . . . . . . . . .

Supplemental disclosure of non cash investing activities:

Transfers from loans to other real estate owned . . . . . . . . . . . . . . . . $ 3,009
7,708
Transfers from bank premises to other real estate owned . . . . . . . . . .

See notes to consolidated ﬁnancial statements.

99

SEACOAST BANKING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Dollars and shares in thousands)
BALANCE AT DECEMBER 31, 2013 . 23,638
Comprehensive income . . . . . . . . . . . .
0
Stock based compensation

Common Stock
Shares Amount

Paid-in
Capital
$2,364 $277,290
0

0

Retained
Earnings
(Accumulated
Deﬁcit)
$(70,695)
5,696

Treasury
Stock
$

(11)
0

Accumulated
Other
Comprehensive
Income (Loss),
Net
$(10,344)
5,517

expense . . . . . . . . . . . . . . . . . . . .

0

Common stock issued for stock based

employee beneﬁt plans

. . . . . . . . . .

147

Issuance of common stock, net of related

0

1

1,299

171

expense . . . . . . . . . . . . . . . . . . . .

2,326

233

24,404

0

0

0

Issuance of common stock, pursuant to

7,026
acquisition . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . .
0
BALANCE AT DECEMBER 31, 2014 . 33,137
Comprehensive income . . . . . . . . . . . .
0
Stock based compensation

expense . . . . . . . . . . . . . . . . . . . .

0

Common stock issued for stock based

employee beneﬁt plans

. . . . . . . . . .

124

Issuance of common stock, pursuant to

1,090
acquisition . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . .
0
BALANCE AT DECEMBER 31, 2015 . 34,351
Comprehensive income . . . . . . . . . . . .
0
Stock based compensation

702
0
3,300
0

76,085
0
379,249
0

0
(1)
(65,000)
22,141

0

0

2,859

17

0

0

109
26
3,435
0

17,063
(26)
399,162
0

0
1
(42,858)
29,202

expense . . . . . . . . . . . . . . . . . . . .

Common stock issued for stock based

employee beneﬁt plans

. . . . . . . . . .
Common stock issued for stock options . .
Issuance of common stock, pursuant to

0

87
12

0

0
1

4,154

2
133

0

0
0

0

(60)

0

0
0
(71)
0

0

(2)

0
0
(73)
0

0

(1,163)
0

Total
$198,604
11,213

1,299

112

24,637

76,787
0
312,651
20,755

2,859

15

17,172
1
353,453
27,902

0

0

0

0
0
(4,827)
(1,386)

0

0

0
0
(6,213)
(1,300)

0

0
0

4,154

(1,161)
134

3,291
acquisition . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . .
281
BALANCE AT DECEMBER 31, 2016 . 38,022

329
37

50,584
(34)
$3,802 $454,001

0
(1)
$(13,657)

0
0
$(1,236)

0
0
$ (7,513)

50,913
2
$435,397

See notes to consolidated ﬁnancial statements.

100

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 Bank’’, together the
‘‘Company’’). The Company provides integrated ﬁnancial services including commercial and retail banking,
wealth management, and mortgage services to customers through advanced banking solutions, 47 traditional
branch offices, and ﬁve commercial banking centers operated by Seacoast Bank. Offices stretch from
Ft. Lauderdale, Boca Raton and West Palm Beach through the Daytona Beach area, into Orlando and Central
Florida, and west to Okeechobee and surrounding counties.

The consolidated ﬁnancial statements include the accounts of Seacoast and all its majority-owned
subsidiaries but exclude trusts created for the issuance of trust preferred securities. In consolidation, all
signiﬁcant intercompany accounts and transactions are eliminated.

The accounting and reporting policies of the Company are in accordance with accounting principles

generally accepted in the United States of America, and they conform to general practices within the
applicable industries. Certain reclassiﬁcations have been made to prior period amounts to conform to the
current period presentation.

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, valuation of impaired loans,
contingent liabilities, valuation of other real estate owned, and valuation of deferred taxes valuation allowance.
Actual results could differ from those estimates.

Cash and Cash Equivalents: Cash and cash equivalents include cash and due from banks and

interest-bearing bank balances. 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.

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.

101

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; recent events speciﬁc to the issuer or industry; and for debt securities, external credit ratings
and recent downgrades. Management also assesses whether it intends to sell, or it is more likely than not that
it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis.
Securities on which there is an unrealized loss that is deemed to be other-than temporary are written down to
fair value with the write-down recorded as a realized loss.

For securities which are transferred into held to maturity from available for sale the unrealized gain or

loss at the date of transfer is reported as a component of shareholders’ equity and is amortized over the
remaining life as an adjustment of yield using the interest method.

Seacoast National is a member of the Federal Home Loan Bank system. Members are required to own a

certain amount of stock based on the level of borrowings and other factors, and may invest in additional
amounts. FHLB stock is carried at cost, classiﬁed as a restricted security, and periodically evaluated for
impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Loans: Loans are recognized at the principal amount outstanding, net of unearned income, purchased

discounts 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 topic 310 when a borrower is experiencing
ﬁnancial difficulties and the Company grants concessions that would not otherwise be considered. Troubled
debt restructured 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 310.20.

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, except consumer loans, that become 90 days

past due as to principal or interest unless well-secured and in process of collection. When interest accruals are
discontinued, unpaid interest is reversed against interest income. Consumer loans that become 120 days past
due are generally charged off. When borrowers demonstrate over an extended period the ability to repay a

102

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note A Signiﬁcant Accounting Policies − (continued)

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: The Company enters into derivative contracts with customers who request such services,

and into offsetting contracts with substantially matching terms with third parties to minimize the risks
involved with these types of transactions.

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

103

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note A Signiﬁcant Accounting Policies − (continued)

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.

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, impaired loans, OREO,
and long-term debt. Additionally, fair value is used on a non-recurring basis to evaluate assets or liabilities for
impairment or for disclosure purposes. Examples of these non-recurring uses of fair value include certain
loans held for sale accounted for on a lower of cost or fair value, mortgage servicing rights, goodwill, and
long-lived assets. Fair value is deﬁned as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. Depending on the
nature of the asset or liability, the Company uses various valuation techniques and assumptions when
estimating fair value.

The Company applied the following fair value hierarchy:

Level 1 — Assets or liabilities for which the identical item is traded on an active exchange, such as
publicly-traded instruments or futures contracts.

Level 2 — Assets and liabilities valued based on observable market data for similar instruments.

Level 3 — Assets and liabilities for which signiﬁcant valuation assumptions are not readily observable in
the market; instruments valued based on the best available data, some of which is internally-developed,
and considers risk premiums that a market participant would require.

When determining the fair value measurements for assets and liabilities required or permitted to be
recorded at and/or marked to fair value, the Company considers the principal or most advantageous market in
which it would transact and considers assumptions that market participants would use when pricing the asset
or liability. When possible, the Company looks to active and observable markets to price identical assets or
liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to market
observable data for similar assets and liabilities. Nevertheless, certain assets and liabilities are not actively
traded in observable markets and the Company must use alternative valuation techniques to derive a fair value
measurement.

Other Real Estate Owned: Other real estate owned (‘‘OREO’’) consists primarily of real estate acquired

in lieu of unpaid loan balances. These assets are carried at an amount equal to the loan balance prior to
foreclosure plus costs incurred for improvements to the property, but no more than the estimated fair value of
the property less estimated selling costs. Any valuation adjustments required at the date of transfer are charged
to the allowance for loan losses. Subsequently, unrealized losses and realized gains and losses are included in
other noninterest expense. Operating results from OREO are recorded in other noninterest expense.

OREO may include bank premises no longer utilized in the course of our business (closed branches) that
are initially recorded at carrying value or fair value (whichever is lower), less costs to sell. If fair value of the
premises is less than amortized book value, a write down is recorded through noninterest expense. Costs to
operate the facility are expensed.

104

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note A Signiﬁcant Accounting Policies − (continued)

Bank Premises and Equipment: Bank premises and equipment are stated at cost, less accumulated
depreciation and amortization. Premises and equipment include certain costs associated with the acquisition of
leasehold improvements. Depreciation and amortization are recognized principally by the straight-line method,
over the estimated useful lives as follows: buildings — 25 − 40 years, leasehold improvements — 5 − 25 years,
furniture and equipment — 3 − 12 years. Leasehold improvements typically amortize over the shorter of lease
terms or estimated useful life. Premises and equipment and other long-term assets are reviewed for
impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash
ﬂows. If impaired, the assets are 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. Goodwill can be adjusted for up
to one year from the acquisition date as provisional amounts recognized at the acquisition date are updated
when new information is obtained from facts and circumstances that existed as of the acquisition that, if
known, would have affected amounts initially recognized or would have resulted in the recognition of
additional assets or liabilities. See Note S — Business Combinations for related disclosures. 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 periods ranging from six to
eight years 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.

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

105

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note A Signiﬁcant Accounting Policies − (continued)

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.

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

106

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note A Signiﬁcant Accounting Policies − (continued)

ﬁve years. For restricted stock awards, which generally vest based on continued service with the Company,
the deferred compensation is measured as the fair value of the shares on the date of grant, and the deferred
compensation is amortized as salaries and employee beneﬁts in accordance with the applicable vesting
schedule, generally straight-line over ﬁve years. Some shares vest based upon the Company achieving certain
performance goals and salary amortization expense is based on an estimate of the most likely results on a
straight line basis. Forfeitures are estimated at the date of grant based on historical rates, and updated as
necessary. See Note J, Employee Beneﬁt and Stock Compensation for related disclosures.

Note B

Recently Issued Accounting Standards, Not Adopted at December 31, 2016

The following provides a brief description of accounting standards that have been issued but are not yet

adopted that could have a material effect on the Company’s ﬁnancial statements:

In January 2017, the Financial Accounting Standards Board (‘‘FASB’’) issued Accounting Standards
Update ‘‘ASU’’ 2017-04, eliminating Step 2 from the goodwill impairment test. Under the amendments to the
guidance, an entity should perform its goodwill impairment test by comparing the fair value of a reporting
unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the
carrying amount exceeds the reporting unit’s fair value. The loss recognized, however, should not exceed the
total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax
effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the
goodwill impairment loss, if applicable. The guidance is effective for annual periods or any interim goodwill
impairment tests beginning after December 15, 2019 using a prospective transition method. Early adoption is
permitted. Adoption of this standard is being evaluated as to its effect on the Company’s operating results or
ﬁnancial condition.

In August and November 2016, The FASB issued ﬁnal guidance via ASU 2016-15 and ASU 2016-18,

which address classiﬁcation of certain cash receipts and cash payments, including changes in restricted cash,
in the statement of cash ﬂows. The guidance may change how an entity classiﬁes certain cash receipts and
cash payments on its statement of cash ﬂows, the purpose being to reduce diversity in practice. The Company
is evaluating the impact of ASU 2016-15 and 2016-18, which will generally be applied retrospectively for
ﬁscal years beginning after December 15, 2017.

In June 2016, the FASB issued ASU 2016-13 for ‘‘Measurement of Credit Losses on Financial

Instruments’’ to replace the incurred loss impairment methodology with a current expected credit loss
methodology for ﬁnancial instruments measured at amortized cost and other commitments to extend credit.
Expected credit losses reﬂect losses over the remaining contractual life of an asset, considering the effect of
voluntary prepayments and considering available information about the collectability of cash ﬂows, including
information about past events, current conditions, and supportable forecasts. The resultant allowance for credit
losses reﬂects the portion of the amortized cost basis that the entity does not expect to collect. Additional
quantitative and qualitative disclosures are required upon adoption. The Company is assessing current loan
loss estimation models and processes to determine the need for changes as part of its evaluation of the impact
of this new accounting guidance. Adoption is required January 1, 2020, with early adoption permitted
January 1, 2019.

In March 2016, under ASU 2016-04, ‘‘Liabilities — Extinguishments of Liabilities, Breakage for Certain

Prepaid Stored-Value Products’’ the FASB intends for entities to recognize liabilities for the sale of prepaid
stored value products redeemable for goods, services, or cash. This guidance aligns recognition of breakage
for these liabilities in a way consistent with how gift card breakage will be recognized. The Company is
currently evaluating the impact of adopting the new guidance on the consolidated ﬁnancial statements.
Effective date for implementation is for annual periods after December 15, 2018.

107

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note B − (continued)

In February 2016, the FASB amended existing guidance related to the recognition of lease assets and
lease liabilities on the balance sheet and disclosures on key information about leasing arrangements, under
ASU 2016-02. It will be necessary for all parties to classify leases to determine how to recognize lease-related
revenue and expense. The amendment requires lessees to put most leases on their balance sheet and record
expenses to the income statement. Changes in the guidance eliminate real estate centric provisions for
sale-leaseback transactions, including initial direct costs and lease execution costs for all entities. For lessors,
the new FASB standard modiﬁes classiﬁcation criteria and accounting for sales type and direct ﬁnancing
leases. The Company is currently evaluating the impact of adopting the new guidance on the consolidated
ﬁnancial statements. The amended accounting is applicable to periods after December 15, 2018 and interim
periods within that year.

In January 2016, the FASB issued ASU 2016-01 for ‘‘Recognition and Measurement of Financial Assets
and Liabilities.’’ The ASU addresses certain aspects of recognition, measurement, presentation, and disclosure
of ﬁnancial instruments. The update requires: a) equity investments (except those accounted for under the
equity method of accounting) to be measured at fair value and recognized in net income, b) simpliﬁes
impairment assessments of equity investments without readily determinable fair values by requiring a
qualitative assessment to identify impairment, and if impaired requires measurement of the investment at fair
value, c) eliminates the requirement to disclose the methods and signiﬁcant assumptions used to estimate the
fair value d) requires entities to use the exit price notion when measuring the fair value of ﬁnancial
instruments for disclosure purposes, e) requires an entity to present separately in other comprehensive income
the portion of the total change in fair value of a liability resulting from a change in the instrument-speciﬁc
credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value
option for ﬁnancial instruments, f) requires separate presentation of ﬁnancial assets and ﬁnancial liabilities by
measurement category and form of ﬁnancial asset (that is, securities or loans and receivables) on the balance
sheet or the accompanying notes to the ﬁnancial statements, g) clariﬁes that an entity should evaluate the need
for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with
the entity’s other deferred tax assets. The ASU is effective for ﬁscal years beginning after December 15, 2017,
and must be adopted on a modiﬁed retrospective basis, including interim periods within those ﬁscal years. The
adoption of ASU 2016-01 is being evaluated for its impact on the Company’s operating results and ﬁnancial
condition.

In May 2014, the FASB issued ASU 2014-09, ‘‘Revenue Recognition — Revenue from Contracts with

Customers.’’ The ASU is a converged standard between the FASB and the IASB that provides a single
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 control 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. Revenue associated with loans and securities is not in the
scope of the new guidance, and the Company’s evaluation and implementation effort for contracts within the
scope of the standard is ongoing. The Company plans to adopt the new guidance on January 1, 2018.

Note C Cash, Dividend and Loan Restrictions

In the normal course of business, the Company and Seacoast Bank enter into agreements, or are subject
to regulatory agreements that result in cash, debt and dividend restrictions. A summary of the most restrictive
items follows:

Seacoast Bank may be required to maintain average reserve balances with the Federal Reserve Bank;

however no reserve balances were necessary for 2016 and 2015.

Under Federal Reserve regulation, Seacoast Bank is limited as to the amount it may loan to its affiliates,
including the Company, unless such loans are collateralized by speciﬁed obligations. At December 31, 2016,

108

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note C Cash, Dividend and Loan Restrictions − (continued)

the maximum amount available for transfer from Seacoast Bank to the Company in the form of loans
approximated $52.0 million, if the Company has sufficient acceptable collateral.

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 $61.0 million to the Company as of December 31, 2016,
without prior approval of the OCC.

Note D

Securities

The amortized cost and fair value of securities available for sale and held to maturity at December 31,

2016 and December 31, 2015 are summarized as follows:

Amortized
Cost

December 31, 2016

Gross
Unrealized
Gains

Gross
Unrealized
Losses

(In thousands)

Fair
Value

SECURITIES AVAILABLE FOR SALE

U.S. Treasury securities and obligations of

U.S. Government Sponsored Entities . . . . . . . . .

$ 12,073

$ 255

$

0

$ 12,328

Mortgage-backed securities of U.S. Government

Sponsored Entities . . . . . . . . . . . . . . . . . . . . . .

287,726

Collateralized mortgage obligations of

U.S. Government Sponsored Entities . . . . . . . . .

238,805

Commercial mortgage backed securities of

U.S. Government Sponsored Entities . . . . . . . . .
Private mortgage backed securities . . . . . . . . . . . .
Private collateralized mortgage obligations . . . . . . .
Collateralized loan obligations . . . . . . . . . . . . . . .
Obligations of state and political subdivisions . . . . .
Corporate and other debt securities . . . . . . . . . . . .
Private commercial mortgage backed securities . . . .

22,351
32,780
67,542
124,716
63,161
74,121
37,534
$960,809

585

314

222
0
563
838
622
257
111
$3,767

(4,823)

283,488

(5,065)

234,054

(28)
(791)
(816)
(665)
(895)
(517)
(473)
$(14,073)

22,545
31,989
67,289
124,889
62,888
73,861
37,172
$950,503

SECURITIES HELD TO MATURITY

Mortgage-backed securities of U.S. Government

Sponsored Entities . . . . . . . . . . . . . . . . . . . . . .

$159,941

$ 704

$ (1,243)

$159,402

Collateralized mortgage obligations of

U.S. Government Sponsored Entities . . . . . . . . .

147,208

386

(2,630)

144,964

Commercial mortgage backed securities of

U.S. Government Sponsored Entities . . . . . . . . .
Collateralized loan obligations . . . . . . . . . . . . . . .
Private mortgage backed securities . . . . . . . . . . . .

17,375
41,547
6,427
$372,498

233
430
0
$1,753

(74)
(314)
(109)
$ (4,370)

17,534
41,663
6,318
$369,881

109

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note D − (continued)

Amortized
Cost

December 31, 2015

Gross
Unrealized
Gains

Gross
Unrealized
Losses

(In thousands)

Fair
Value

SECURITIES AVAILABLE FOR SALE

U.S. Treasury securities and obligations of

U.S. Government Sponsored Entities . . . . . . . . .

$

3,833

$

78

$

0

$

3,911

Mortgage-backed securities of U.S. Government

Sponsored Entities . . . . . . . . . . . . . . . . . . . . . .

192,224

847

(1,322)

191,749

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 . . . . .
Corporate and other debt securities . . . . . . . . . . . .
Private commercial mortgage backed securities . . . .

SECURITIES HELD TO MATURITY

Mortgage-backed securities of U.S. Government

242,620
32,558
77,965
124,477
39,119
44,652
41,127
$798,575

470
0
700
0
882
37
13
$3,027

(4,900)
(766)
(708)
(1,894)
(110)
(416)
(720)
$(10,836)

238,190
31,792
77,957
122,583
39,891
44,273
40,420
$790,766

Sponsored Entities . . . . . . . . . . . . . . . . . . . . . .

$ 64,993

$ 574

$

(16)

$ 65,551

Collateralized mortgage obligations of

U.S. Government Sponsored Entities . . . . . . . . .
Collateralized loan obligations . . . . . . . . . . . . . . .
Private mortgage backed securities . . . . . . . . . . . .

89,265
41,300
7,967
$203,525

581
0
0
$1,155

(406)
(1,360)
(85)
$ (1,867)

89,440
39,940
7,882
$202,813

Proceeds from sales of securities during 2016 were $40.4 million with gross gains of $454,000 and gross

losses of $86,000. Proceeds from sales of securities during 2015 were $60.3 million with gross gains of
$633,000 and gross losses of $472,000. Proceeds from sales of securities during 2014 were $21.5 million with
gross gains of $456,000 and no gross losses.

In 2014, approximately $158.8 million of investment securities available for sale were transferred into
held to maturity. The unrealized holding losses at the date of transfer totaled $3.1 million for the securities
transferred into the held to maturity category from available for sale, the unrealized holding losses at the date
of transfer will continue to be reported in other comprehensive income, and will be amortized over the
remaining life of these security 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. As of December 31, 2016, the remaining unrealized holding losses totaled
$1.8 million.

Securities at December 31, 2016 with a fair value of $193.8 million were pledged as collateral for United

States Treasury deposits, other public deposits and trust deposits. Securities with fair value of $204.2 were
pledged as collateral for repurchase agreements.

110

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note D − (continued)

The amortized cost and fair value of securities at December 31, 2016, 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. Securities not due at a single maturity date
are shown separately.

Held to Maturity
Fair
Value

Amortized
Cost

Available for Sale
Fair
Value

Amortized
Cost

Due in less than one year . . . . . . . . . . . . . . . . . . . . . . . . . $
Due after one year through ﬁve years . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Due after ﬁve years through ten years
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(In thousands)

0
0
41,547
0
41,547

$

0
0
41,663
0
41,663

$

8,848
83,308
139,611
31,415
263,182

$ 9,044
83,154
140,167
30,709
263,074

Mortgage-backed securities of U.S. Government Sponsored

Entities

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

159,941

159,402

287,726

283,488

Collateralized mortgage obligations of U.S. Government

Sponsored Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . .

147,208

144,964

238,805

234,054

Commercial mortgage backed securities of U.S. Government

Sponsored Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Private mortgage-backed securities . . . . . . . . . . . . . . . . . . .
Private collateralized mortgage obligations . . . . . . . . . . . . .
Other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Private commercial mortgage backed securities . . . . . . . . . .

17,375
0
6,427
0
0
$372,498

17,534
0
6,318
0
0
$369,881

22,351
32,780
67,542
10,889
37,534
$960,809

22,545
31,989
67,289
10,892
37,172
$950,503

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, 2016 and
December 31, 2015, respectively.

Mortgage-backed securities of

Less than 12 months

December 31, 2016
12 months or longer

Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

(In thousands)

. . . $327,759 $ (5,991) $

5,387

$

(75) $333,146 $ (6,066)

U.S. Government Sponsored Entities
Collateralized mortgage obligations of
U.S. Government Sponsored Entities
Commercial mortgage backed securities of
U.S. Government Sponsored Entities

. . .
Private mortgage backed securities . . . . . . .
Private collateralized mortgage obligations . .
Collateralized loan obligations
. . . . . . . . .
Obligations of state and political

. . .

subdivisions . . . . . . . . . . . . . . . . . . . .
. . . . . .

Corporate and other debt securities
Private commercial mortgage backed

234,175

(5,599)

58,912

(2,096)

293,087

(7,695)

7,934
0
1,460
8,152

39,321
33,008

(102)
0
0
(41)

(895)
(517)

0
36,848
38,417
51,694

0
0

0
(900)
(816)
(938)

0
0

7,934
36,848
39,877
59,846

39,321
33,008

(102)
(900)
(816)
(979)

(895)
(517)

securities . . . . . . . . . . . . . . . . . . . . . .

7,139
Total temporarily impaired securities . . . . . $664,476 $(13,451) $198,397

12,667

(306)

(167)

(473)
19,806
$(4,992) $862,873 $(18,443)

111

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note D − (continued)

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

Less than 12 months

December 31, 2015
12 months or longer

Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

(In thousands)

. . . $112,236

$(1,082) $ 14,508

$ (256) $126,744 $ (1,338)

97,512
31,792
19,939
101,601

(973)
(766)
(321)
(1,642)

147,266
0
31,533
60,922

(4,333)
0
(472)
(1,612)

244,778
31,792
51,472
162,523

(5,306)
(766)
(793)
(3,254)

subdivisions . . . . . . . . . . . . . . . . . . . .
. . . . . .

Corporate and other debt securities
Private commercial mortgage-backed

11,570
31,342

(110)
(416)

0
0

0
0

11,570
31,342

(110)
(416)

securities . . . . . . . . . . . . . . . . . . . . . .

37,838
Total temporarily impaired securities . . . . . $443,830

(720)

0
$(6,030) $254,229

0

(720)
37,838
$(6,673) $698,059 $(12,703)

The two tables above include securities held to maturity that were transferred from available for sale into

held to maturity in 2014. Those securities had unrealized losses of $3.1 million at the date of transfer, and at
December 31, 2016, the unamortized balance was $1.8 million. The fair value of those securities in an
unrealized loss position for less than 12 months at December 31, 2016 and December 31, 2015 is $22.8 and
$38.9 million respectively. The unrealized losses on those securities in an unrealized loss position for less than
12 months at December 31, 2016 and December 31, 2015 is $0.4 and $0.4 million, respectively. None of
these securities were in an unrealized loss position for more than twelve months at December 31, 2016 and
December 31, 2015, respectively.

At December 31, 2016, approximately $1.7 million of the unrealized losses pertain to private label
securities secured by seasoned residential collateral. Their fair value is $76.7 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, 2016, the Company also had $13.9 million of unrealized losses on mortgage backed
securities of government sponsored entities having a fair value of $634.2 million that were attributable to a
combination of factors, including relative changes in interest rates since the time of purchase. The contractual
cash ﬂows for these securities are guaranteed by U.S. government agencies and U.S. government-sponsored
enterprises. 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, 2016, the Company also had $1.0 million of unrealized losses on collateralized loan
obligations having a fair value of $59.9 million that were attributable to a combination of factors, including
relative changes in interest rates 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 believes the
collateralized loan obligations provide a strong credit enhancement even under severe stress scenarios.
Management expects to recover the entire amortized cost basis of these securities.

112

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note D − (continued)

At December 31, 2016, remaining securities categories has unrealized losses of $1.8 million and summed

to a fair value of $92.1 million. 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.

As of December 31, 2016 the company does not intend to sell nor is it anticipated that it would be
required to sell any of its investment securities that have losses. Therefore, management does not consider any
investment to be other-than-temporarily impaired at December 31, 2016.

Included in other assets is $35.9 million of Federal Home Loan Bank and Federal Reserve Bank stock
stated at par value. At December 31, 2016, the Company has not identiﬁed events or changes in circumstances
which may have a signiﬁcant adverse effect on the fair value of the $35.9 million of cost method investment
securities.

The company also holds 11,330 shares of Visa Class B stock, which following resolution of Visa
litigation will be converted to Visa Class A shares (the conversion rate presently is 1.6483 shares of Class A
stock for each share of Class B stock) for a total of 18,675 shares of Visa Class A stock. Our ownership is
related to prior ownership in Visa’s network, while Visa operated as a cooperative. This ownership is recorded
on our ﬁnancial records at zero basis.

Note E

Loans

Information relating to portfolio, purchase credit impaired (‘‘PCI’’), and purchase unimpaired (‘‘PUL’’)

loans at December 31 is summarized as follows:

2016

Portfolio
Loans

PCI
Loans

PUL’s

Total

(In thousands)

Construction and land development
. . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . .
Commercial and ﬁnancial
. . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET LOAN BALANCES(1)
. . . . . . . . . . . . . . .

$ 137,480
1,041,915
784,290
308,731
152,927
507
$2,425,850

$

114
11,257
684
941
0
0
$12,996

$ 22,522
304,420
51,813
60,917
1,018
0
$440,690

$ 160,116
1,357,592
836,787
370,589
153,945
507
$2,879,536

2015

Portfolio
Loans

PCI
Loans

PUL’s

Total

(In thousands)

Construction and land development
. . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . .
Commercial and ﬁnancial
. . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET LOAN BALANCES(1)
. . . . . . . . . . . . . . .

$

97,629
776,875
678,131
188,013
82,717
507
$1,823,872

$

114
9,990
922
1,083
0
0
$12,109

$ 11,044
222,513
44,732
39,421
2,639
0
$320,349

$ 108,787
1,009,378
723,785
228,517
85,356
507
$2,156,330

(1) Net loan balances at December 31, 2016 and 2015 include deferred costs of $4.4 million and

$7.7 million, respectively.

113

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note E − (continued)

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 components of purchased loans are as follows at December 31, 2016 and 2015:

. . .
Construction and land development
. . . . . . . . . . .
Commercial real estate
Residential real estate . . . . . . . . . . . .
Commercial and ﬁnancial . . . . . . . . . .
Consumer
. . . . . . . . . . . . . . . . . . . .
Carrying value of acquired loans . . . . .
Carrying value, net of allowance of $0

PCI

Total

PCI

Total

December 31, 2016
PULs
(In thousands)
$ 22,522
304,420
51,813
60,917
1,018
$440,690

$ 22,636
315,677
52,497
61,858
1,018
$453,686

$

114
11,257
684
941
0
$12,996

December 31, 2015
PULs
(In thousands)
$ 11,045
222,513
44,732
39,420
2,639
$320,349

$ 11,159
232,503
45,654
40,503
2,639
$332,458

$

114
9,990
922
1,083
0
$12,109

for 2016 and $137 for 2015 . . . . . .

$12,996

$440,690

$453,686

$12,109

$320,212

$332,321

The table below summarizes the changes in accretable yield for PCI loans during the twelve months
ended December 31, 2016, and December 31, 2015. See Note S for information related to PCI loans acquired
during the period.

Activity during the twelve month period
ending December 31, 2016

12/31/2015

Additions

Deletions

Accretion

Reclassiﬁcations
from
nonaccretable
difference

Accretable yield . . . . . . . . . . . . . . . $ 2,610
Carrying value . . . . . . . . . . . . . . . . $12,109
Allowance for loan losses . . . . . . . .
0
Carrying value less allowance for

loan losses . . . . . . . . . . . . . . . . . $12,109

(In thousands)

$2,052

$(15)

$(1,734)

$894

Activity during the twelve month period
ending December 31, 2015

12/31/2014

Additions

Deletions

Accretion

(In thousands)

Reclassiﬁcations
from
nonaccretable
difference

Accretable yield . . . . . . . . . . . . . . .

$1,192

$702

$(357)

$(601)

$1,674

Carrying value of acquired loans
. . .
Allowance for loan losses . . . . . . . .
Carrying value less allowance for

$7,814
(64)

loan losses . . . . . . . . . . . . . . . . .

$7,750

12/31/2016

$ 3,807
$12,996
0

$12,996

12/31/2015

$ 2,610

$12,109
0

$12,109

114

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note E − (continued)

Activity during the three month period
ending December 31, 2014

9/30/2014

Additions

Deletions

Accretion

Reclassiﬁcations
from
nonaccretable
difference

Accretable yield . . . . . . . . . . . . . . .

. . .
Carrying value of acquired loans
Allowance for loan losses . . . . . . . .
Carrying value less allowance for

loan losses . . . . . . . . . . . . . . . . .

$0

$0
0

$0

(In thousands)

$1,256

$(50)

$(96)

$82

12/31/2014

$1,192

$7,814
(64)

$7,750

Loans to directors and executive officers totaled $2.1 million and $4.0 million at December 31, 2016 and

2015, respectively. During 2016, new loans to directors and officer totaling $1.2 million were made, and
reductions totaled $3.1 million.

At December 31, 2016 and 2015 loans pledged as collateral for borrowings totaled $415 million and

$50 million, respectively.

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 The Company’s lending activity primarily 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 the counties surrounding Lake Okeechobee in the center of the state.
The Company’s loan portfolio consists of approximately 60% commercial and commercial real estate loans
and 40% 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.

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

115

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note E − (continued)

typically comprise working capital loans, loans for physical asset expansion, asset acquisition and other
business loans. Loans to closely held businesses will generally be guaranteed in full or for a meaningful
amount by the businesses’ major owners. Commercial loans are made based primarily on the historical and
projected cash ﬂow of the borrower and secondarily on the underlying collateral provided by the borrower.
The cash ﬂows of borrowers, however, may not behave as forecasted and collateral securing loans may
ﬂuctuate in value due to economic or individual performance factors. Minimum standards and underwriting
guidelines have been established for all commercial loan types.

Consumer Loans The Company originates consumer loans including installment loans, loans for
automobiles, boats, and other personal, family and household purposes. 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, 2016 and 2015:

December 31, 2016
Portfolio Loans
Construction and land

development

. . . . . . . . . . .
Commercial real estate . . . . . .
Residential real estate . . . . . .
Commercial and ﬁnancial . . . .
. . . . . . . . . . . . . .
Consumer
. . . . . . . . . . . . . . . . .
Other
Total Loans . . . . . . . . . . . . .

Purchased Loans
Construction and land

development

. . . . . . . . . . .
Commercial real estate . . . . . .
Residential real estate . . . . . .
Commercial and ﬁnancial . . . .
. . . . . . . . . . . . . .
Consumer
Other
. . . . . . . . . . . . . . . . .
Total Loans . . . . . . . . . . . . .

Purchased Impaired Loans
Construction and land

development

. . . . . . . . . . .
Commercial real estate . . . . . .
Residential real estate . . . . . .
Commercial and ﬁnancial . . . .
. . . . . . . . . . . . . .
Consumer
Other
. . . . . . . . . . . . . . . . .
Total Loans . . . . . . . . . . . . .

Accruing
30 − 59 Days
Past Due

Accruing
60 − 89 Days
Past Due

Accruing
Greater
Than
90 Days

Nonaccrual

Current

Total
Financing
Receivables

$0
0
0
0
0
0
$0

$0
0
0
0
0
0
$0

$0
0
0
0
0
0
$0

$

438
1,784
8,582
49
170
0
$11,023

$

32
1,272
1,262
197
0
0
$ 2,763

$

0
4,285
0
0
0
0
$ 4,285

$ 137,042
1,039,882
773,877
308,652
152,669
507
$2,412,629

$ 137,480
1,041,915
784,290
308,731
152,927
507
$2,425,850

$

22,490
302,318
50,398
60,353
981
0
$ 436,540

$

22,522
304,420
51,813
60,917
1,018
0
$ 440,690

$

$

114
6,972
499
941
0
0
8,526

$

$

114
11,257
684
941
0
0
12,996

$

0
78
1,570
30
29
0
$1,707

$

0
345
153
39
37
0
$ 574

$

$

0
0
0
0
0
0
0

$

0
171
261
0
59
0
$491

$

0
485
0
328
0
0
$813

$

0
0
185
0
0
0
$185

116

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note E − (continued)

December 31, 2015
Portfolio Loans
Construction and land

development

. . . . . . . . . . .
Commercial real estate . . . . . .
Residential real estate . . . . . .
Commercial and ﬁnancial . . . .
Consumer
. . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Other
Total Loans . . . . . . . . . . . . .

Purchased Loans
Construction and land

development

. . . . . . . . . . .
Commercial real estate . . . . . .
Residential real estate . . . . . .
Commercial and ﬁnancial . . . .
. . . . . . . . . . . . . .
Consumer
Other
. . . . . . . . . . . . . . . . .
Total Loans . . . . . . . . . . . . .

Purchased Impaired Loans
Construction and land

development

. . . . . . . . . . .
Commercial real estate . . . . . .
Residential real estate . . . . . .
Commercial and ﬁnancial . . . .
Consumer
. . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Other
Total Loans . . . . . . . . . . . . .

Accruing
30 − 59 Days
Past Due

Accruing
60 − 89 Days
Past Due

Greater
Than
90 Days

Nonaccrual

Current

Total
Financing
Receivables

$ 665
810
141
59
430
0
$2,105

$

0
179
66
39
39
0
$ 323

$

0
132
0
0
0
0
$ 132

$0
0
0
0
0
0
$0

$0
0
0
0
0
0
$0

$0
0
0
0
0
0
$0

$0
0
0
0
0
0
$0

$0
0
0
0
0
0
$0

$0
0
0
0
0
0
$0

$

269
2,301
9,941
0
247
0
$12,758

$

40
2,294
0
130
0
0
$ 2,464

$

0
1,816
348
0
0
0
$ 2,164

$

96,695
773,764
668,049
187,954
82,040
507
$1,809,009

$

97,629
776,875
678,131
188,013
82,717
507
$1,823,872

$

11,004
220,040
44,666
39,252
2,600
0
$ 317,562

$

11,044
222,513
44,732
39,421
2,639
0
$ 320,349

$

$

114
8,042
574
1,083
0
0
9,813

$

$

114
9,990
922
1,083
0
0
12,109

Nonaccrual loans and loans past due ninety days or more were $18.1 million and $17.4 million at

December 31, 2016 and 2015, respectively. The reduction in interest income associated with loans on
nonaccrual status was approximately $0.7 million, $0.6 million, and $1.9 million, for the years ended
December 31, 2016, 2015, and 2014, 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. 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

117

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note E − (continued)

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, 2016 and 2015:

December 31, 2016
Pass . . . . . . . . . . . . . . . . . . . . .
Special mention . . . . . . . . . . . . .
Substandard . . . . . . . . . . . . . . .
Doubtful . . . . . . . . . . . . . . . . . .
Nonaccrual . . . . . . . . . . . . . . . .
Pass − Troubled debt restructures. .
Troubled debt restructures . . . . . .
. . . . . . . . . . . . . . . . . . . .
Total

December 31, 2015
Pass . . . . . . . . . . . . . . . . . . . . .
Special mention . . . . . . . . . . . . .
Substandard . . . . . . . . . . . . . . .
Doubtful . . . . . . . . . . . . . . . . . .
Nonaccrual . . . . . . . . . . . . . . . .
Pass − Troubled debt restructures. .
Troubled debt restructures . . . . . .
. . . . . . . . . . . . . . . . . . . .
Total

Construction
& Land
Development
$148,563
5,037
5,497
0
470
44
505
$160,116

Construction
& Land
Development
$100,186
3,377
4,242
0
309
58
615
$108,787

Commercial
Real Estate
$1,319,696
17,184
7,438
0
7,341
4,988
945
$1,357,592

Commercial
Real Estate
$ 973,942
12,599
9,278
0
6,410
5,893
1,256
$1,009,378

Note F Impaired Loans and Allowance for Loan Losses

Residential
Real Estate
$811,576
1,780
2,709
0
9,844
358
10,520
$836,787

Residential
Real Estate
$697,907
629
3,197
0
10,290
0
11,762
$723,785

Commercial
& Financial
$364,241
3,949
2,153
0
246
0
0
$370,589

Commercial
& Financial
$226,391
1,209
769
0
130
18
0
$228,517

Consumer
Loans

Total

$153,730 $2,797,806
28,017
17,931
0
18,071
5,434
12,277
$154,452 $2,879,536

67
134
0
170
44
307

Consumer
Loans

Total

$83,786 $2,082,212
19,206
17,556
0
17,386
5,969
14,001
$85,863 $2,156,330

1,392
70
0
247
0
368

During the twelve months ended December 31, 2016, the total of newly identiﬁed TDRs was

$2.0 million, of which $1.2 million were accruing residential real estate loans.

The Company’s TDR concessions granted generally do not include forgiveness of principal balances.

Loan modiﬁcations are not reported in calendar years after modiﬁcation if the loans were modiﬁed at an
interest rate equal to yields of new loan originations with comparable risk and loans are performing based on
the terms of the restructuring agreements. When a loan is modiﬁed as a TDR, there is not a direct, material
impact on the loans within the consolidated balance sheet, as principal balances are generally not forgiven.
Most loans prior to modiﬁcation were classiﬁed as an impaired loan and the allowance for loan losses is
determined in accordance with Company policy.

118

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note F Impaired Loans and Allowance for Loan Losses − (continued)

The following table presents accruing loans that were modiﬁed within the twelve months ending

December 31, 2016 and 2015:

2016:
Construction and land development
. . .
Residential real estate . . . . . . . . . . . . .

2015:
Construction and land development
. . .
Residential real estate . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . .

Number of
Contracts

Pre-
Modiﬁcation
Outstanding
Recorded
Investment

Post-
Modiﬁcation
Outstanding
Recorded
Investment
(In thousands)

Speciﬁc
Reserve
Recorded

Valuation
Allowance
Recorded

1
4
5

2
1
3
1
7

$
20
1,169
$1,189

$ 220
27
1,881
48
$2,176

$
18
1,019
$1,037

$ 218
26
1,787
45
$2,076

$0
0
$0

$0
0
0
0
$0

$ 2
150
$152

$ 2
1
94
3
$100

During the years 2016, 2015 and 2014, there were no payment defaults on loans that had been modiﬁed

to a TDR within the previous twelve months. The Company considers a loan to have defaulted when it
becomes 90 or more days delinquent under the modiﬁed terms has been transferred to non-accrual status or
has been transferred to other real estate owned. A defaulted TDR is generally placed on nonaccrual and
speciﬁc allowance for loan losses assigned in accordance with the Company’s policy.

At December 31, 2016 and 2015, the Company’s recorded investment in impaired loans (excluding PCI

loans) and related valuation allowance was as follows:

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

Impaired Loans
for the Year Ended December 31, 2016
Average
Related
Unpaid
Recorded
Valuation
Principal
Investment
Allowance
Balance
(In thousands)

Interest
Income
Recognized

$

321
4,813
14,136
206
0

51
6,949
12,681
0
0

372
11,762
26,817
206
0
$39,157

$

0
0
0
0
0

0
395
2,059
0
0

0
395
2,059
0
0
$2,454

$

193
1,784
9,370
15
168

605
6,699
12,015
0
338

798
8,483
21,385
15
506
$31,187

$

17
215
579
9
0

2
309
455
0
0

19
524
1,034
9
0
$1,586

Recorded
Investment

$

226
3,267
9,706
199
0

51
6,937
12,332
0
0

277
10,204
22,038
199
0
$32,718

119

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note F Impaired Loans and Allowance for Loan Losses − (continued)

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

Recorded
Investment

Impaired Loans
for the Year Ended December 31, 2015
Average
Related
Unpaid
Recorded
Valuation
Principal
Allowance
Investment
Balance
(In thousands)

Interest
Income
Recognized

$

107
2,363
9,256
17
264

835
7,087
12,447
0
351

942
9,450
21,703
17
615
$32,727

$

255
3,911
13,707
17
349

870
7,087
12,803
0
351

1,125
10,998
26,510
17
700
$39,350

$

0
0
0
0
0

84
429
1,964
0
40

84
429
1,964
0
40
$2,517

$ 1,252
2,880
10,259
84
141

987
7,280
15,136
0
495

2,239
10,160
25,395
84
636
$38,514

$

6
16
168
1
3

29
302
337
0
18

35
318
505
1
21
$880

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, 2016 and
2015, accruing TDRs totaled $17.7 million and $20.0 million, respectively.

The average recorded investment in impaired loans for the years ended December 31, 2016, 2015 and
2014 was $31.2 million, $38.5 million and $49.6 million, respectively. The impaired loans were measured for
impairment based on the value of underlying collateral or the present value of expected future cash ﬂows
discounted at the loan’s effective interest rate. The valuation allowance is included in the allowance for loan
losses.

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, 2016, 2015 and 2014, the Company recorded $1,586,000,
$880,000 and $1,345,000, 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 $235,000, $318,000 and $456,000, respectively, for 2016, 2015 and 2014 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
$11,024,000 and $0, respectively, at December 31, 2016, $12,758,000 and $0, respectively at the end of 2015,
and were $18,563,000 and $17,000, respectively, at year-end 2014.

The purchased nonaccrual loans and accruing loans past due 90 days or more were $2,867,000 and $0,
respectively at December 31, 2016, $4,628,000 and $0, respectively, at December 31, 2015 and $2,577,000
and $196,000, respectively, December 31, 2014.

120

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note F Impaired Loans and Allowance for Loan Losses − (continued)

Activity in the allowance for loans losses (excluding PCI loans) for the three years ended December 31,

2016, 2015 and 2014 are summarized as follows:

December 31, 2016
Construction and land development
. .
Commercial real estate . . . . . . . . . . .
Residential real estate . . . . . . . . . . .
Commercial and ﬁnancial . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . .

December 31, 2015
Construction and land development
. .
Commercial real estate . . . . . . . . . . .
Residential real estate . . . . . . . . . . .
Commercial and ﬁnancial . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . .

December 31, 2014
. .
Construction and land development
Commercial real estate . . . . . . . . . . .
Residential real estate . . . . . . . . . . .
Commercial and ﬁnancial . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . .

Beginning
Balance

Provision
for Loan
Losses

Charge-Offs Recoveries
(In thousands)

Net
(Charge-Offs)
Recoveries

Ending
Balance

$ 1,151
6,756
8,057
2,042
1,122
$19,128

$

722
4,528
9,784
1,179
794
$17,007

$

808
6,160
11,659
710
731
$20,068

$ (158)
2,512
(1,145)
400
802
$ 2,411

$ 1,296
2,010
(2,208)
1,058
552
$ 2,708

139
$
(2,917)
(1,651)
697
182
$(3,550)

$

0
(301)
(215)
(615)
(244)
$(1,375)

$(1,271)
(482)
(779)
(726)
(341)
$(3,599)

$ (640)
(398)
(1,126)
(398)
(193)
$(2,755)

$ 226
306
786
1,809
109
$3,236

$ 404
700
1,260
531
117
$3,012

$ 415
1,683
902
170
74
$3,244

$ 226
5
571
1,194
(135)
$1,861

$ (867)
218
481
(195)
(224)
$ (587)

$ (225)
1,285
(224)
(228)
(119)
$ 489

$ 1,219
9,273
7,483
3,636
1,789
$23,400

$ 1,151
6,756
8,057
2,042
1,122
$19,128

$

722
4,528
9,784
1,179
794
$17,007

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, 2016 and 2015 is shown in the following tables.

December 31, 2016

Individually Evaluated
for Impairment

Collectively Evaluated
for Impairment

Total

Recorded
Investment

Associated
Allowance

Recorded
Investment

Associated
Allowance

Recorded
Investment

Associated
Allowance

Construction and land development . . $
Commercial real estate . . . . . . . . . .
Residential real estate . . . . . . . . . . .
Commercial and ﬁnancial
. . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . .

277
10,204
22,038
199
0
$32,718

$

0
395
2,059
0
0
$2,454

(In thousands)

$ 159,839
1,335,832
814,250
369,449
154,452
$2,833,822

$ 1,219
8,878
5,424
3,636
1,789
$20,946

$ 160,116
1,346,036
836,288
369,648
154,452
$2,866,540

$ 1,219
9,273
7,483
3,636
1,789
$23,400

121

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note F Impaired Loans and Allowance for Loan Losses − (continued)

December 31, 2015

Individually Evaluated for
Impairment

Collectively Evaluated for
Impairment

Total

Recorded
Investment

Associated
Allowance

Recorded
Investment

Associated
Allowance

Recorded
Investment

Associated
Allowance

(In thousands)

Construction and land development . . $
Commercial real estate . . . . . . . . . .
Residential real estate . . . . . . . . . . .
Commercial and ﬁnancial
. . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . .

942
9,450
21,703
17
615
$32,727

$

84
429
1,964
0
40
$2,517

$ 107,731
989,938
701,160
227,417
85,248
$2,111,494

$ 1,067
6,327
6,093
2,042
1,082
$16,611

$ 108,673
999,388
722,863
227,434
85,863
$2,144,221

$ 1,151
6,756
8,057
2,042
1,122
$19,128

Loans collectively evaluated for impairment reported at December 31, 2016 included loans acquired from
Floridian on March 11, 2016, BMO on June 3, 2016, Grand on July 17, 2015 and BANKshares on October 1,
2014 that are not PCI loans. At December 31, 2016, the remaining fair value adjustments for loans acquired
was approximately $13.7 million, or approximately 3.11% of the outstanding aggregate PUL balances. At
December 31, 2015, the remaining fair value adjustments for loans acquired was approximately $14.2 million,
or approximately 4.43% of the outstanding aggregate PUL balances.

These amounts, which represents the remaining fair value discount of each PUL, are accreted into interest

income over the remaining lives of the related loans on a level yield basis. Provisioning for loan losses of
$1.3 million and net charge-offs of $1.2 million were recorded for these loans during 2015. No provision for
loan losses 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 at December 31, 2016
and 2015.

Construction and land development
. . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . .
Commercial and ﬁnancial
. . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31, 2016
PCI Loans Individually
Evaluated for Impairment
Associated
Recorded
Allowance
Investment
$0
114
$
0
11,257
0
684
0
941
0
0
$0
$12,996

December 31, 2015
PCI Loans Individually
Evaluated for Impairment
Associated
Recorded
Allowance
Investment
$0
114
$
0
9,990
0
922
0
1,083
0
0
$0
$12,109

122

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, 2016
Premises (including land of $14,773) . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Furniture and equipment

December 31, 2015
Premises (including land of $14,839) . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Furniture and equipment

Cost

$ 71,562
30,281
$101,843

$ 66,965
26,546
$ 93,511

Accumulated
Depreciation &
Amortization
(In thousands)

$(22,969)
(20,190)
$(43,159)

$(21,298)
(17,634)
$(38,932)

Net
Carrying
Value

$48,593
10,091
$58,684

$45,667
8,912
$54,579

Note H Goodwill and Acquired Intangible Assets

Goodwill totaled $64.6 million at December 31, 2016, a result of the Company’s acquisitions of The

BANKshares on October 1, 2014 and Floridan Financial Group on March 11, 2016, each a whole bank
acquisition, and BMO Harris’s Orlando operations on June 3, 2016, and for each totaled $25.2 million,
$31.6 million and $7.8 million at year end December 31, 2016, respectively. The acquisition of Grand
Bankshares, a whole bank acquisition, on July 17, 2015, was recorded as a bargain purchase, with no
goodwill and a bargain purchase gain of $416,000 recorded to income.

Acquired intangible assets consist of core deposit intangibles (‘‘CDI’’), which are intangible assets arising

from the purchase of deposits separately or from the acquisitions of BANKshares in 2014, Grand Bankshares
in 2015, and Floridian Financial Group and BMO Harris’s Orlando operations, each in 2016. The change in
balance for CDI is as follows:

Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired CDI
Amortization expense . . . . . . . . . . . . . . . . . . . . . . .
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2016

$ 8,594
8,464
(2,486)
$14,572

Remaining Average Amoritzation Period . . . . . . . . . .

64

2015
(In thousands)
$ 7,454
2,564
(1,424)
$ 8,594

(In months)
67

2014

$

718
7,769
(1,033)
$ 7,454

71

The gross carrying amount and accumulated amortization of the Company’s intangible asset subject to

amortization at December 31 is presented below.

2016

2015

Gross
Carrying
Amount

Accumulated
Amortization

Gross
Carrying
Amount

Accumulated
Amortization

(In thousands)

Deposit base . . . . . . . . . . . . . . . . . . . . . . . . . .

$18,796

$(4,224)

$19,827

$(11,233)

The annual amortization expense for the Company’s CDI determined using the straight line method in
each of the three years subsequent to December 31, 2016 is $2,876,000, and amortization in the fourth and
ﬁfth year subsequent to December 31, 2016 is $2,771,000 and $1,567,000, respectively.

123

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note I Borrowings

A signiﬁcant portion of the Company’s short-term borrowings were comprised of unsecured federal funds

purchased and securities sold under agreements to repurchase with maturities primarily from overnight to
seven days:

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

2016

$236,099

2015
(In thousands)
$192,786

2014

$218,399

0.31%

0.28%

0.18%

$187,560

$168,188

$152,129

0.26%

0.20%

0.17%

Securities sold under agreements to repurchase are accounted for as secured borrowings. For securities
sold under agreements to repurchase, the company would be obligated to provide additional collateral in the
event of a signiﬁcant decline in fair value of collateral pledged. At December 31, 2016, 2015, and 2014,
company securities pledged were as follows by collateral type and maturity:

Fair-Value of Pledge Securities

2016

Overnight and Continuous Maturity
2015
(In thousands)

2014

Mortgage-backed securities and collateralized mortgage

obligations of U.S. Government Sponsored Entities . .

$204,202

$172,005

$153,640

Seacoast Bank had secured lines of credit of $1.0 billion at December 31, 2016, of which $415,000 was

outstanding from the Federal Home Loan Bank (‘‘FHLB’’) at the end of 2016, with their entire amount
maturing within 30 days or less. The average rate on the balance at end of year was 0.62% and averaged
0.63% for all of 2016. On April 7, 2016, Seacoast Bank incurred an early redemption cost of $1.8 million
related to prepayment of $50.0 million of FHLB advances. The $50.0 million of FHLB borrowings was
comprised of two advances of $25.0 million each acquired on September 15, 2007 and November 27, 2007,
respectively, and had ﬁxed rates of 3.64% and 2.70%, respectively, payable quarterly.

The Company issued $20.6 million in junior subordinated debentures on March 31 and December 16,
2005, an aggregate of $41.2 million. These debentures were issued in conjunction with the formation of a
Delaware and Connecticut trust subsidiary, SBCF Capital Trust I, and SBCF Statutory Trust II (‘‘Trusts I and
II’’), respectively, which each completed a private sale of $20.0 million of ﬂoating rate preferred securities.
On June 29, 2007, the Company issued an additional $12.4 million in junior subordinated debentures which
was issued in conjunction with the formation of a Delaware trust subsidiary, SBCF Statutory Trust III
(‘‘Trust III’’), which completed a private sale of $12.0 million of ﬂoating 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 2.75%, 2.31%, and 2.29%, respectively. The trust preferred securities
have original maturities of thirty years, and may be redeemed without penalty, upon approval of the Federal
Reserve or upon occurrence of certain events affecting their tax or regulatory capital treatment. Distributions
on the trust preferred securities are payable quarterly in March, June, September and December of each year.
The Trusts also issued $619,000, $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 assumed three junior subordinated
debentures. Correspondingly, at December 31, 2015 and 2014, the Company had $5.2 million and $4.1 million
of Floating Rate Junior Subordinated Deferrable Interest Debentures outstanding which are due December 26,

124

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note I Borrowings − (continued)

2032 and March 17, 2034, and callable by the Company, at its option. 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 4.25% percent and 3.78%,
respectively, per annum. At December 31, 2015 and 2014, the Company also had $5.2 million outstanding of
Junior Subordinated Debentures due February 23, 2036. Coupon rate ﬂoats quarterly at the three month
LIBOR rate plus 139 basis points. The junior subordinated debenture is redeemable in certain circumstances.
The interest rate was 2.31% at December 31, 2016. The above three junior 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.

As part of the July 17, 2015 Grand Bank acquisition the Company assumed one junior subordinated
debentures. Correspondingly, at December 31, 2016 the company has $7.2 million of Floating Rate Junior
Subordinated Deferrable Interest Debenture outstanding which is due December 30, 2034, and callable by the
Company, at its option. The interest rate is the 3-month LIBOR rate plus 198 basis points. The rate, which
adjusts every three months is currently 2.98%, per annum. The junior subordinated debentures in accordance
with ASU 805 Business Combinations have been recorded at the acquisition date fair values which is
$2.1 million lower than face value and will be amortized into interest expense over the remaining term to
maturity.

The Company has the right to defer payments of interest on the notes at any time or from time to 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, 2016, 2015 and 2014, 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
$1.7 million in 2016, $1.5 million in 2015, and $1.2 million in 2014.

The Company, through its Compensation and Governance Committee of the Board of Directors (the

‘‘Compensation Committee’’), offers equity compensation to employees and non-employee directors of
Seacoast and Seacoast Bank in the form of share-based awards. Stock options, restricted stock awards
(‘‘RSAs’’), and restricted stock units (‘‘RSUs’’) vest over time, upon the satisfaction of established
performance criteria, or both.

Option awards are granted with an exercise price at least equal to the market price of the Company’s

stock at the date of grant. Option and other share-based awards vest at such times as are determined by the
Compensation Committee at the time of grant. The options have a maximum term of ten years.

125

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note J Employee Beneﬁts and Stock Compensation − (continued)

The fair value of RSAs and RSUs are estimated based on the price of the Company’s common stock on
the date of grant. Compensation cost is measured ratably over the vesting period of the awards and reversed
for awards which are forfeited due to unfulﬁlled service or performance criteria. To the extent the Company
has treasury shares available, stock options exercised or stock grants awarded may be issued from treasury
shares or, if treasury shares are insufficient, the Company can issue new shares.

Vesting of share-based awards is immediately accelerated on death or disability. Upon the event of a
change-in-control, awards are either immediately accelerated, or can be at the discretion of the Compensation
Committee. The Compensation Committee may also accelerate vesting upon retirement (including a voluntary
termination of employment at age 55) for those employees with ﬁve or more years of service with the
Company.

Awards are currently granted under the Seacoast 2013 Incentive Plan (‘‘2013 Plan’’), which shareholders

approved on May 23, 2013 and amended on May 26, 2015 to increase the number of authorized shares for
issuance thereunder. The 2013 Plan expires on May 26, 2025. The 2013 Plan replaced the 2000 Incentive Plan
and the 2008 Incentive Plan (the ‘‘Prior Plans’’). Upon adoption of the 2013 Plan, no further awards were
granted under the Prior Plans, which remain in effect only so long as awards granted thereunder remain
outstanding. Under the terms of the 2013 Plan, approximately 1.2 million shares remain available for issuance
as of December 31, 2016.

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

(In thousands)
Share-based compensation expense . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax beneﬁt

Year Ended December 31,
2015
$2,859
(963)

2016
$ 4,154
(1,602)

2014
1,299
(501)

The total unrecognized compensation cost and the weighted-average period over which unrecognized
compensation cost is expected to be recognized related to non-vested share-based compensation arrangements
at December 31, 2016 is presented below:

(In thousands)
Restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Restricted Stock

Unrecognized
Compensation
Cost
$4,341
796
$5,137

Weighted-Average
Period Remaining
(Years)
2.2
3.2
2.4

Certain RSUs granted in 2016 allow the grantee to earn 0%-175% of the target award as determined by

two criteria, the Company’s adjusted net income and its adjusted return on tangible equity through
December 31, 2019. If the Company does not achieve the target performance goal for both criteria, then none
of these RSUs will vest and they will be forfeited, subject to a one year catch-up performance period.

Information regarding restricted stock is summarized below:

(In thousands, except share and per share data)
Shares granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average grant date fair value
. . . . . . . . . . . . .
Fair value of awards vested(1) . . . . . . . . . . . . . . . . . . . .

$
$

(1) Based on grant date fair value

126

Year Ended December 31,
2015
250,934
13.42
836

$
$

2014
27,692
$ 10.19
$ 1,455

2016
300,787
14.90
2,827

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note J Employee Beneﬁts and Stock Compensation − (continued)

A summary of the status of the Company’s non-vested restricted stock as of December 31, 2016, and

changes during the year then ended, is presented below:

(In thousands, except share and per share data)
Non-vested at January 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited/Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . .

Shares
543,177
300,787
(10,631)
(303,689)
529,644

Weighted-Average
Grant-Date
Fair Value
$11.25
14.90
14.94
9.31
$14.37

Stock Options

The Company estimated the fair value of each option grant on the date of grant using the Black-Scholes

options-pricing model with the following weighted-average assumptions:

Risk-free interest rates . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected lives (years) . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,
2015
1.65%
0%
15.5%
5.0

2016
1.63%
0%
21.9%
5.0

2014
2.70%
0%
17.0%
5.0

Information regarding stock options as of December 31, 2016, and changes during the year then ended,

are presented below:

Outstanding at January 1, 2016 . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2016 . . . . . . . .
Exercisable at December 31, 2016 . . . . . . . . .

Options
556,647
243,391
(12,400)
(8,860)
778,778
432,660

Weighted-
Average
Exercise Price
$ 18.02
14.94
10.82
133.60
$ 15.86
$ 17.73

Weighted-
Average
Remaining
Contractual
Term (Years)

Aggregate
Intrinsic Value
(000s)

6.88
6.73

$7,369
$4,412

The following table summarizes information related to stock options:

Year Ended December 31,
2015
63,650
2.21
0

$

$

2016
243,391
3.41
80

2014
413,000
2.26
0

(In thousands, except share and per share data)
Options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average grant date fair value . . . . . . . . . . . . . . . . . . . .
Intrinsic value of stock options exercised . . . . . . . . . . . . . . . . . .

$
$

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 related to stock options as of December 31, 2016:

Range of Exercise Prices
$10.54 to $10.78 . . . . . . . . . . . . . . . . . . . . . .
$10.97 to $15.99 . . . . . . . . . . . . . . . . . . . . . .
$110.80 to $111.10 . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Employee Stock Purchase Plan

Options
Outstanding
390,000
360,241
28,537
778,778

Remaining
Contractual
Life (Years)
7.2
7.0
0.3
6.9

Shares
Exercisable
312,239
91,884
28,537
432,660

Weighted
Average
Exercise Price
$ 10.66
13.88
111.09
$ 17.73

The Employee Stock Purchase Plan (‘‘ESPP’’), as amended, was approved by shareholders on April 25,
1989, and additional shares were authorized for issuance by shareholders on June 18, 2009 and May 2, 2013.
Under the ESPP, the Company is authorized to issue up to 300,000 common shares of the Company’s
common stock to eligible employees of the Company. These shares may be purchased by employees at a price
equal to 95% of the fair market value of the shares on the purchase date. Purchases under the ESPP are made
monthly. Employee contributions to the ESPP are made through payroll deductions.

ESPP shares purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average employee purchase price . . . . . . . . . . . . . . . . .

Note K Lease Commitments

Year Ended December 31,
2015
9,083
$13.99

2014
13,294
$ 10.63

2016
10,483
$ 16.02

The Company is obligated under various noncancellable operating leases for equipment, buildings, and
land. Minimum rent payments under operating leases are recognized on a straight-line basis over the term of
the lease. At December 31, 2016, future minimum lease payments under leases with initial or remaining terms
in excess of one year are as follows:

2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter

(In thousands)
$ 5,325
4,213
4,026
3,362
2,213
12,429
$31,568

Rent expense charged to operations was $5,293,000 for 2016, $4,133,000 for 2015 and $4,066,000 for

2014. Certain leases contain provisions for renewal and change with the consumer price index.

128

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note L Income Taxes

The provision for income taxes is as follows:

2016

Year Ended December 31
2015
(In thousands)

2014

Current

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

653
30

$

578
61

Deferred
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12,163
2,043
$14,889

10,818
2,070
$13,527

$ 310
12

3,440
782
$4,544

The difference between the total expected tax beneﬁt (computed by applying the U.S. Federal tax rate of

35% to pretax income in 2016, 2015 and 2014) and the reported income tax provision relating to income
before income taxes is as follows:

Year Ended December 31
2015
(In thousands)
$12,484

2014

$3,583

2016

$15,431

217

441

554

(1,215)
(726)
0
(55)
(731)
(105)
12,816
2,073
$14,889

(761)
(746)
(146)
0
127
(3)
11,396
2,131
$13,527

(293)
(278)
0
0
92
92
3,750
794
$4,544

Tax rate applied to income (loss) before income taxes . . . .

Increase (decrease) resulting from the effects of:

Nondeductible acquisition costs . . . . . . . . . . . . . . . . . .
Tax exempt interest on loans, obligations of states and

political subdivisions and bank owned life insurance . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes
Nontaxable bargain purchase gain . . . . . . . . . . . . . . . .
Tax credit investments . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Federal tax provision . . . . . . . . . . . . . . . . . . . . . . . . . .
State tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total income tax provision . . . . . . . . . . . . . . . . . . . . . . .

129

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note L Income Taxes − (continued)

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

December 31

2016

2015

(In thousands)

Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . .
Deposit base intangible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net deferred tax assets

$ 9,477
2,334
841
1,561
28,089
6,123
4,261
4,616
3,279
3,267
3,748
67,596
0
67,596
(3,953)
(2,825)
(6,778)
$60,818

$ 7,759
898
1,737
1,235
33,507
6,593
3,355
3,906
1,829
2,404
3,185
66,408
0
66,408
(3,452)
(2,682)
(6,134)
$60,274

Included in the table above is the effect of certain temporary differences for which no deferred tax
expense or beneﬁt was recognized. The effect of these items is instead recorded as Accumulated Other
Comprehensive Income in the shareholders’ equity section of the consolidated balance sheet. In 2016, such
items consisted primarily of $12.1 million of unrealized losses on certain investments in debt and equity
securities accounted for under ASC 320. In 2015, they consisted primarily of $10.1 million of unrealized
losses on certain investments in debt and equity securities.

At December 31, 2016, the Company’s deferred tax assets (‘‘DTAs’’) of $60.8 million consists of

approximately $48.0 million of net U.S. federal DTAs and $12.8 million of net state DTAs.

As a result of the acquisition of Floridian Financial Group, Inc. (Floridian), the Company recorded a net
DTA of $13.3 million. Included in this DTA are $15.6 million of federal net operating loss (NOL) carryovers
and $209,000 of alternative minimum tax credit carryovers. There are also $14.9 million of state NOL
carryovers. The federal and state NOL’s expire beginning in 2030 and 2029, respectively, while the tax credits
have an indeﬁntite life.

Management assesses the necessity of a valuation allowance recorded against DTAs at each reporting

period. The determination of whether a valuation allowance for net DTAs is appropriate is subject to
considerable judgment and requires an evaluation of all positive and negative evidence. Based on an
assessment of all of the evidence, including favorable trending in asset quality and certainty regarding the
amount of future taxable income that the Company forecasts, management concluded that it was more likely
than not that its net DTAs will be realized based upon future taxable income. Management’s conﬁdence in the
realization of projected future taxable income is based upon analysis of the Company’s risk proﬁle and its
trending ﬁnancial performance, including credit quality. The Company believes it can conﬁdently and
reasonably predict future results of operations that result in taxable income at sufficient levels over the future
period of time that the Company has available to realize its net DTA.

130

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note L Income Taxes − (continued)

Management expects to realize the $60.8 million in net DTAs well in advance of the statutory
carryforward period. At December 31, 2016, approximately $28.1 million of DTAs relate to federal net
operating losses which will expire in annual installments beginning in 2029 through 2032. Additionally,
$6.6 million of the DTAs relate to state net operating losses which will expire in annual installments
beginning in 2028 through 2034. Tax credit carryforwards at December 31, 2016 include federal alternative
minimum tax credits totaling $4.3 million which have an unlimited carryforward period. Remaining DTAs are
not related to net operating losses or credits and therefore, have no expiration date.

A valuation allowance could be required in future periods based on the assessment of positive and
negative evidence. Management’s conclusion at December 31, 2016 that it is more likely than not that the net
DTAs of $60.8 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 DTAs. The establishment of a DTA 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, 2016.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment
Accounting, Compensation — Stock Compensation (Topic 718). ASU 2016-09 changes several aspects of the
accounting for share-based payment award transactions, including: (1) accounting and cash ﬂow classiﬁcation
for excess tax beneﬁts and deﬁciencies, (2) forfeitures, and (3) tax withholding requirements and cash ﬂow
classiﬁcation. The standard is effective for public business entities in annual and interim periods in ﬁscal years
beginning after December 15, 2016. Early adoption is permitted if the entire standard is adopted. If an entity
early adopts the standard in an interim period, any adjustments should be reﬂected as of the beginning of the
ﬁscal year that includes that interim period. The Company adopted ASU 2016-09 in the third quarter of 2016
and recognized a $0.4 million tax beneﬁt in the Consolidated Statements of Operations. An additional
$0.4 million tax beneﬁt was recognized in the fourth quarter of 2016. In addition, the Company presented
excess tax beneﬁts as an operating activity in the Consolidated Statement of Cash Flows using a retrospective
transition method.

As a result of the adoption of ASU No. 2014-01, ‘‘Investments — Equity Method and Joint Ventures:
Accounting for Investments in Qualiﬁed Affordable Housing Projects,’’ the amortization of our low-income
housing credit investment has been reﬂected as income tax expense. Accordingly, $39,000 of such
amortization has been reﬂected as income tax expense for the year ended December 31, 2016. The amount of
affordable housing tax credits, amortization and tax beneﬁts recorded as income tax expense for the year
ended December 31, 2016 were $32,000, $39,000 and $67,000, respectively. The carrying value of the
investment in affordable housing credits is $10.0 million at December 31, 2016, of which $8.3 million is
unfunded.

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
through 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
2013
2013

131

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note M Noninterest Income and Expenses

Details of noninterest income and expense follow:

2016

Year Ended December 31
2015
(In thousands)

2014

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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on participated loan . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other

Securities gains, net . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Bargain purchase gain, 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 (gain)/loss on other real estate owned and

$

9,669
3,433
5,864
2,044
673
9,227
477
2,213
0
3,827
37,427
368
0
$ 37,795

$ 54,096
9,903
13,516
2,108
13,122
4,720
3,633
9,596
2,365
2,486
553
0

$

8,563
3,132
4,252
2,132
1,152
7,684
397
1,426
725
2,555
32,018
161
416
$ 32,595

$ 41,075
9,564
10,150
1,797
8,744
3,434
4,428
8,022
2,212
1,424
472
0

$ 6,952
2,986
3,057
1,614
1,320
5,972
343
252
0
2,248
24,744
469
0
$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

repossessed assets . . . . . . . . . . . . . . . . . . . . . .

(509)

239

310

Early redemption cost for Federal Home Loan Bank

advances

. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other

1,777
13,515
$130,881

0
12,209
$103,770

0
9,988
$93,366

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, 2016, an aggregate of 202,897 shares and 32,120 shares, respectively, have been issued as a
result of employee participation in these plans.

132

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note N Shareholders’ Equity − (continued)

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 2016 and 2015.

Required Regulatory Capital

Amount

Ratio

Minimum for Capital
Adequacy Purpose(1)
Amount
Ratio
(Dollars in thousands)

Minimum To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Ratio

Amount

SEACOAST BANKING CORP
(CONSOLIDATED)
At December 31, 2016:

Total Capital Ratio (to risk-weighted assets)
. .
Tier 1 Capital Ratio (to risk-weighted assets)
Common Equity Tier 1 Capital (to risk-weighted
assets) . . . . . . . . . . . . . . . . . . . . . . . . .

. . . $432,058
408,596

13.25% $260,790
195,592
12.53

351,769

10.79

146,694

Tier 1 Leverage Ratio (to adjusted average

assets) . . . . . . . . . . . . . . . . . . . . . . . . .

408,596

9.15

178,656

4.0

At December 31, 2015:

Total Capital Ratio (to risk-weighted assets)
Tier 1 Capital Ratio (to risk-weighted assets)
. .
Common Equity Tier 1 Capital (to risk-weighted
assets) . . . . . . . . . . . . . . . . . . . . . . . . .

. . . $383,039
363,873

16.01% $191,413
143,560
15.21

317,004

13.25

107,670

Tier 1 Leverage Ratio (to adjusted average

assets) . . . . . . . . . . . . . . . . . . . . . . . . .

363,873

10.70

136,009

SEACOAST BANK

(A WHOLLY OWNED BANK SUBSIDIARY)

At December 31, 2016:

≥8.00%
≥6.00%

≥4.50%

≥8.00%
≥6.00%

≥4.50%

≥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

n/a
n/a

n/a

n/a

Total Capital Ratio (to risk-weighted assets)
Tier 1 Capital Ratio (to risk-weighted assets)
. .
Common Equity Tier 1 Capital (to risk-weighted
assets) . . . . . . . . . . . . . . . . . . . . . . . . .

. . . $415,147
391,685

12.75% $260,491
195,368
12.03

≥8.00% $325,987
≥6.00% 260,790

≥10.00%
≥ 8.00%

391,685

12.03

146,526

≥4.50% 211,892

≥ 6.50%

Tier 1 Leverage Ratio (to adjusted average

assets) . . . . . . . . . . . . . . . . . . . . . . . . .

391,685

8.78

178,501

4.0

223,320

≥ 5.00%

At December 31, 2015:

Total Capital Ratio (to risk-weighted assets)
Tier 1 Capital Ratio (to risk-weighted assets)
. .
Common Equity Tier 1 Capital (to risk-weighted
assets) . . . . . . . . . . . . . . . . . . . . . . . . .

. . . $337,259
318,093

14.11% $191,240
143,430
13.31

≥8.00% $239,050
≥6.00% 191,240

≥10.00%
≥ 8.00%

318,093

13.31

107,572

≥4.50% 155,382

≥ 6.50%

Tier 1 Leverage Ratio (to adjusted average

assets) . . . . . . . . . . . . . . . . . . . . . . . . .

318,093

9.36

135,929

≥4.00% 169,911

≥ 5.00%

(1) Excludes new capital conservation buffer of 0.625% the Company is subject to, which if not exceeded

may constrain dividends, equity repurchases and compensation.
n/a — not applicable

The Company is subject to various regulatory capital requirements administered by the federal banking

agencies. Under new Basel III standards adopted January 1, 2015, deferred tax assets (DTAs) were
substantially restricted in regulatory capital calculations, the Common Equity Tier 1 Capital calculation was
created, and new minimum adequacy and well capitalized thresholds were established. Failure to meet

133

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note N Shareholders’ Equity − (continued)

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, Tier 1 capital and common equity Tier 1 capital (as deﬁned in
the regulations) to risk-weighted assets (as deﬁned) and of Tier 1 capital to average assets (as deﬁned).
Management believes, as of December 31, 2016, that the Company meets all capital adequacy requirements to
which it is subject. At December 31, 2016, the capital conservation buffer requisite the Company is subject to
was 0.625%.

On February 21, 2017, the Company closed on its offering of 8,912,500 shares of common stock,
consisting of 2,702,500 shares sold by the Company and 6,210,000 shares sold by one of its shareholders.
Seacoast received proceeds of $56.8 million that will be reduced by legal and professional fees from the
issuance of the 2,702,500 shares of its common stock. The Company intends to use the net proceeds from the
offering for general corporate purposes, including potential future acquisitions and to support organic growth.
Seacoast did not receive any proceeds from the sale of its shareholder’s shares. Herbert Lurie, who is a
member of our board of directors, is a consulting Senior Advisor to Guggenheim Securities, LLC, an
underwriter of this offering. Under his consulting agreement with Guggenheim, Mr. Lurie is entitled to receive
customary compensation, including in connection with our offering of common stock. Mr. Lurie has recused
himself and will continue to recuse himself from any board decisions regarding the offering.

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

LIABILITIES AND SHAREHOLDERS’ EQUITY

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debt
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31

2016

2015

(In thousands)

$

648

$

364

12,676
494,809
1,211
$509,344

$ 70,241
3,706
435,397
$509,344

43,323
383,516
10
$427,213

$ 69,961
3,799
353,453
$427,213

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)

Statements of Income (Loss)

2016

Year Ended December 31
2015
(In thousands)

2014

Income

Interest/other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends from subsidiary Bank . . . . . . . . . . . . . . . . . . . . .

$

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

Statements of Cash Flows

352
0
352
2,115
462

(2,225)
(801)

(1,424)
30,626
$29,202

$

115
0
115
1,671
317

(1,873)
(661)

(1,212)
23,353
$22,141

$

43
0
43
1,053
1,000

(2,010)
(704)

(1,306)
7,002
$ 5,696

2016

Year Ended December 31
2015
(In thousands)

2014

Cash ﬂows from operating activities

Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in undistributed (income) loss of subsidiaries . . . . . . .
Net (increase) decrease in other assets . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Net increase (decrease) in other liabilities
Net cash used in operating activities . . . . . . . . . . . . . . . . . . . .

$ 29,202
(30,626)
(12)
12
(1,424)

$ 22,141
(23,353)
10
(48)
(1,250)

$ 5,696
(7,002)
0
(76)
(1,382)

Cash ﬂows from investing activities

Net cash paid for bank acquisition . . . . . . . . . . . . . . . . . . .
Investment in unconsolidated subsidiary . . . . . . . . . . . . . . . .
Decrease (increase) in securities purchased under agreement to
. . . . . . . . . . . . . . . . .
Net cash provided by (used in) investment activities . . . . . . . . .

resell, maturing within 30 days, net

(28,905)
(200)

30,647
1,542

0
0

0
0

(5,487)
(5,487)

(37,044)
(37,044)

Cash ﬂows from ﬁnancing activities

Issuance of common stock, net of related expense . . . . . . . . .
Subordinated debt increase . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based employment plans . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by ﬁnancing activities . . . . . . . . . . . . . . . . .
Net change in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at end of year

0
0
166
166
284
364
648

$

0
6,494
127
6,621
(116)
480
364

$

24,637
13,208
142
37,987
(439)
919
480

$

Supplemental disclosure of cash ﬂow information:

Cash paid during the period for interest . . . . . . . . . . . . . . . .

$ 1,824

$ 1,487

$ 1,058

135

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

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 $532,082,000 in
commitments to extend credit outstanding at December 31, 2016, $273,658,000 is secured by 1-4 family
residential properties for individuals with approximately $87,292,000 at ﬁxed interest rates ranging from 2.875
to 5.250%.

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, 2016 and 2015 amounted to $46,647,000 and $5,259,000, respectively.

Unfunded limited partner equity commitments at December 31, 2016 totaled $10,148,000 that the
Company has committed to small business investment companies under the SBIC Act to be used to provide
capital to small businesses, and entities that provide low income housing tax credits.

Unfunded commitments for the Company at December 31, 2016 and 2015 are as follows:

Contract or Notional Amount

Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$532,082

$343,245

Standby letters of credit and ﬁnancial guarantees written:

Secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .

Unfunded limited partner equity commitment

10,776
554
10,148

9,593
93
2,911

December 31

2016

2015

(In thousands)

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)

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 End December 31,
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(In thousands)
$7,707
2,569

Note Q 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,
2016 and December 31, 2015 included:

(Dollars in thousands)
At December 31, 2016
Available for sale securities(1)
. . . . . . . . .
Loans held for sale(2) . . . . . . . . . . . . . . .
Loans(3) . . . . . . . . . . . . . . . . . . . . . . . .
Other real estate owned(4) . . . . . . . . . . . .

At December 31, 2015
Available for sale securities(1)
. . . . . . . . .
Loans held for sale(2) . . . . . . . . . . . . . . .
Loans(3) . . . . . . . . . . . . . . . . . . . . . . . .
Other real estate owned(4) . . . . . . . . . . . .

Fair Value
Measurements

$950,503
15,332
4,120
9,949

$790,766
23,998
7,511
7,039

Quoted Prices
in Active
Markets for
Identical
Assets
Level 1

$100
0
0
0

$225
0
0
0

Signiﬁcant
Other
Observable
Inputs
Level 2

$950,403
15,332
3,170
0

$790,541
23,998
6,052
598

Signiﬁcant Other
Unobservable
Inputs
Level 3

$

0
0
950
9,949

$

0
0
1,459
6,441

(1) See Note D for further detail of fair value of individual investment categories.
(2) Recurring fair value basis determined using observable market data.
(3) See Note F. 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.

(4) Fair value is measured on a nonrecurring basis in accordance with ASC 360.

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, 2016 the range of capitalization rates utilized to determine fair

137

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note Q Fair Value − (continued)

value of the underlying collateral averaged approximately 7.8%. Adjustments to comparable sales may be
made by an appraiser to reﬂect local market conditions or other economic factors and may result in changes in
the fair value of an asset over time. As such, the fair value of these impaired loans is considered level 3 in the
fair value hierarchy. Impaired loans measured at fair value total $4.1 million with a speciﬁc reserve of
$0.4 million at December 31, 2016, compared to $7.5 million with a speciﬁc reserve of $2.9 million at
December 31, 2015.

Fair value of available for sale securities are determined using valuation techniques for individual

investments as described in Note A.

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 the twelve months ended December 31, 2016, 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 $0.3 million consisting of loans that became

impaired for the twelve months ended December 31, 2016. Transfers out consisted of charge offs of
$0.1 million, and loan foreclosures migrating to OREO and other reductions (including principal payments)
totaling $0.7 million.

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 the twelve months ended December 31, 2016, transfers in

consisted of foreclosed loans totaling $2.5 million and migrated branches taken out of service of $7.3 million,
transfers out totaled $6.4 million and consisted entirely of sales.

138

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note Q Fair Value − (continued)

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, 2016 and December 31,
2015 is as follows:

(Dollars in thousands)
At December 31, 2016
Financial Assets

Quoted Prices in
Active Markets
for
Identical Assets
Level 1

Signiﬁcant Other
Observable
Inputs
Level 2

Signiﬁcant Other
Unobservable
Inputs
Level 3

Carrying
Amount

Securities held to maturity(1)
Loans, net

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

$ 372,498
2,852,016

Financial Liabilities

Deposits . . . . . . . . . . . . . . . . . .
. . . . . . . . . . .
Subordinated debt

3,523,245
70,241

At December 31, 2015
Financial Assets

Securities held to maturity(1)
Loans, net

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

$ 203,525
2,129,691

Financial Liabilities

Deposits . . . . . . . . . . . . . . . . . .
FHLB borrowings . . . . . . . . . . .
. . . . . . . . . . .
Subordinated debt

2,844,387
50,000
69,961

$0
0

0
0

$0
0

0
0
0

$369,881
0

$

0
2,840,993

0
54,908

3,523,322
0

$202,813
0

$

0
2,147,024

0
51,788
52,785

2,843,800
0
0

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

The short maturity of Seacoast’s assets and liabilities results in having a signiﬁcant number of ﬁnancial

instruments whose fair value equals or closely approximates carrying value. Such ﬁnancial instruments are
reported in the following balance sheet captions: cash and cash equivalents, interest bearing deposits with
other banks, federal funds purchased, FHLB borrowings 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, 2016 and December 31, 2015:

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, mortgage pass-through securities, or general
obligation or revenue based municipal bonds. Pricing for such instruments is fairly generic and is easily
obtained. The fair value of the collateralized loan obligations is determined from broker quotes. From time to

139

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note Q Fair Value − (continued)

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. These loans are intended for sale and the Company believes the fair value is the best
indicator of the resolution of these loans. Interest income is recorded based on contractual terms of the loan in
accordance with Company policy on loans held for investment. None of the loans are 90 days or more past
due or on nonaccrual at December 31, 2016 and December 31, 2015, respectively.

(Dollars in thousands)
Aggregate fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contractual balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,
2016
$15,332
14,904
428

December 31,
2015
$23,998
23,384
614

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.

140

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note R Earnings Per Share

Basic earnings per common share were computed by dividing net income available to common

shareholders by the weighted average number of shares of common stock outstanding during the year.

In 2016, 2015, and 2014, options and warrants to purchase 131,000, 456,000, and 293,000 shares,
respectively, were antidilutive and accordingly were excluded in determining diluted earnings per share.

Year Ended December 31

Net Income
(Loss)

Per Share
Amount

Shares
(Dollars in thousands,
except per share data)

2016
Basic Earnings Per Share

Income available to common shareholders . . . . . . . . . . . . . .

$29,202

36,872,007

$0.79

Diluted Earnings Per Share

Employee restricted stock and stock options (See Note J) . . . .
Income available to common shareholders plus assumed

636,039

conversions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$29,202

37,508,046

$0.78

2015
Basic Earnings Per Share

Income available to common shareholders . . . . . . . . . . . . . .

$22,141

33,495,827

$0.66

Diluted Earnings Per Share

Employee restricted stock and stock options (See Note J) . . . .
Income available to common shareholders plus assumed

248,344

conversions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$22,141

33,744,171

$0.66

2014
Basic Earnings Per Share

Income available to common shareholders . . . . . . . . . . . . . .

$ 5,696

27,538,955

$0.21

Diluted Earnings Per Share

Employee restricted stock and stock options (See Note J) . . . .
Income available to common shareholders plus assumed

177,940

conversions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 5,696

27,716,895

$0.21

Note S — Business Combinations

Acquisition of Grand Bankshares, Inc.

On July 17, 2015, the Company completed its previously announced acquisition of Grand Bankshares,
Inc. (‘‘Grand’’) as set forth in the Agreement and Plan of Merger (‘‘Agreement’’) whereby Grand merged with
and into the Company. Pursuant to and simultaneously with the merger of Grand with and into the Company,
Grand’s wholly owned subsidiary bank, Grand Bank & Trust of Florida (‘‘GB’’), merged with and into the
Company’s subsidiary bank, Seacoast Bank. The acquisition related costs were approximately $3.1 million 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 attractive Palm Beach market,
expand its customer base and leverage operating cost through economies of scale, and positively affect the
Company’s operating results to the extent the Company earns more from interest earning assets than it pays in
interest on its interest bearing liabilities.

141

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note S — Business Combinations − (continued)

The Company acquired 100% of the outstanding common stock of Grand. The purchase price consisted

of stock, and additionally the Company paid approximately $1.48 million in cash for all of Grand’s
outstanding shares of preferred B stock, representing the par value of $1,000 per share of preferred B stock.
Each share of Grand common stock and Preferred A stock was exchanged for 0.3114 shares of the Company’s
common stock, or approximately 1.09 million shares of Company stock. Based on the price of the Company’s
common stock of $15.75 per share on July 17, 2015, plus cash paid for Grand’s outstanding shares of
preferred B stock, the total purchase price was $18.7 million.

Grand preferred B shares exchanged for cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of Grand common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per share exchange ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of shares of common stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multiplied by common stock price per share on July 17, 2015 . . . . . . . . . . . . . . . . . . . . . .
Value of common stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total purchase price

July 15, 2015
$ 1,481,000
3,501,185
0.3114
1,090,269
15.75
17,171,737
$18,652,737

$

The acquisition is accounted for under the acquisition method in accordance with ASC Topic 805,
Business Combinations. The following table summarizes the fair values of the assets acquired and liabilities
assumed at the date of acquisition. As previously disclosed the fair value initially assigned to assets acquired
and liabilities assumed were preliminary and could change for up to one year after the closing date of the
acquisition as new information and circumstances relative to closing date fair values are known. Based on
recoveries of principal and interest on loans previously charged off and OREO appraisals received subsequent
to the acquisition date, the Company adjusted its initial fair value estimates at acquisition date as indicated in
the table below. Determining 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. Adjustments under ASU Topic 805 resulted in a bargain purchase gain of
$416,000 that was recorded in noninterest income in the fourth quarter of 2015.

July 17, 2015
(Initially Reported)

Measurement
Period
Adjustments
(in thousands)

July 17, 2015
(As Adjusted)

Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities
. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, net
Fixed assets
. . . . . . . . . . . . . . . . . . . . . . . . . . .
OREO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit intangibles . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets

Liabilities:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debt
. . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . .

Bargain purchase gain . . . . . . . . . . . . . . . . . . . .

$ 34,408
46,366
109,988
4,191
2,424
2,564
555
14,163
$214,659

$188,469
1,658
5,151
728
$196,006

$

0
0
1,304
0
437
0
(555)
(770)
$ 416

$

0
0
0
0
0
$
$ (416)

$ 34,408
46,366
111,292
4,191
2,861
2,564
0
13,393
$215,075

$188,469
1,658
5,151
728
$196,006

142

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note S — Business Combinations − (continued)

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 acquired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

July 17, 2015

Book Balance

Fair Value

$ 6,158
82,782
979
2,393
14,575
10,993
$117,880

$ 6,379
81,191
913
1,516
13,692
7,601
$111,292

For the loans acquired we ﬁrst segregated all acquired loans with speciﬁcally identiﬁed credit deﬁciency

factor(s). The factors we considered to identify loans as Purchase Credit Impaired (‘‘PCI’’) loans were all
acquired loans that were nonaccrual, 60 days or more past due, designated as Trouble Debt Restructured
(‘‘TDR’’), graded ‘‘special mention’’ or ‘‘substandard.’’ These loans were then evaluated to determine
estimated fair values as of the acquisition date. As required by generally accepted accounting principles, we
are accounting for these loans pursuant to ASC Topic 310-30. The table below summarizes the total
contractually required principal and interest cash payments, management’s estimate of expected total cash
payments and fair value of the loans as of March 11, 2016 for purchased credit impaired loans. Contractually
required principal and interest payments have been adjusted for estimated prepayments.

(Dollars in thousands)
Contractually required principal and interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-accretable difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash ﬂows expected to be collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretable yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total purchased credit impaired loans acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

July 17, 2015
$12,552
(4,249)
8,303
(702)
$ 7,601

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. We have applied ASC Topic 310-20 accounting treatment to the PULs.

The Company believes the deposits assumed from the acquisition have an intangible value. The Company
applied ASC Topic 805, which prescribes the accounting for goodwill and other intangible assets such as core
deposit intangibles, in a business combination. In determining the valuation amount, a third party analyzed the
deposits based on factors such as type of deposit, deposit retention, interest rates and age of deposit
relationships.

The Company recognized no goodwill for this acquisition, based on the fair values of the assets acquired

and liabilities assumed as of the acquisition date and, in some instances, based on use of third party experts
for valuations. The acquisition of Grand constituted a business combination. Accordingly, the assets acquired
and liabilities assumed are presented at their fair values. The determination of fair value requires management
to make estimates about discount rates and future expected cash ﬂows, market conditions and other future
events that are highly subjective in nature and subject to change. Fair value estimates are based on the

143

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note S — Business Combinations − (continued)

information available, and are subject to change for up to one year after the closing date of the acquisition as
additional information relative to closing date fair values becomes available.

The operating results of the Company for the twelve months ended December 31, 2015 includes the
operating results of the acquired assets and assumed liabilities since the date of acquisition of July 17, 2015.

Acquisition of Floridian Financial Group, Inc.

On March 11, 2016, the Company completed its acquisition of Floridian Financial Group, Inc.
(‘‘Floridian’’), the parent company of Floridian Bank. Simultaneously, upon completion of the merger,
Floridian’s wholly owned subsidiary bank, Floridian Bank, was merged with and into Seacoast Bank.
Floridian, headquartered in Lake Mary, Florida, operated 10 branches in Orlando and Daytona Beach, of
which several were consolidated with Seacoast locations. This acquisition added approximately $417 million
in total assets, $337 million in deposits, and $267 million in loans to Seacoast. As a result of this acquisition
the Company expects to further solidify its market share in the Central Florida market, expand its customer
base and leverage operating cost through economies of scale, and positively affect the Company’s operating
results to the extent the Company earns more from interest earning assets than it pays in interest on its interest
bearing liabilities.

The Company acquired 100% of the outstanding common stock of Floridian. Under the terms of the

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

Floridian shares exchanged for cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of Floridian common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per share exchange ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of shares of common stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multiplied by common stock price per share on March 11, 2016 . . . . . . . . . . . . . . . . . . . .
Value of common stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

March 11, 2016
$26,699,000
6,222,119
0.5289
3,291,066
$
15.47
50,912,791
$77,611,791

144

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note S — Business Combinations − (continued)

The acquisition is accounted for under the acquisition method of accounting in accordance with
ASC Topic 805, Business Combinations. The Company recognized goodwill on this acquisition which is
nondeductible for tax purposes as this acquisition is a nontaxable transaction. The goodwill was calculated
based on the fair values of the assets acquired and liabilities assumed as of the acquisition date. Loans that
were nonaccrual and all loan relationships identiﬁed as impaired as of the acquisition date were considered by
management to be credit impaired and were accounted for pursuant to ASC Topic 310-30.

Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, net
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Liabilities:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

March 11, 2016
(Initially
Reported)

Measurement
Period
Adjustments
(in thousands)

March 11, 2016
(As Adjusted)

$ 28,243
66,912
268,249
7,801
3,375
29,985
12,879
$417,444

$337,341
2,492
$339,833

$

$

$

$

0
95
(2,112)
(628)
0
1,647
998
0

0
0
0

$ 28,243
67,007
266,137
7,173
3,375
31,632
13,877
$417,444

$337,341
2,492
$339,833

The table below presents information with respect to the fair value of acquired loans, as well as their

unpaid principal balance (‘‘Book Balance’’) at acquisition date.

(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 acquired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

March 11, 2016

Book Balance

Fair Value

$ 38,304
172,531
20,546
39,070
3,385
6,186
$280,022

$ 37,367
167,105
18,108
37,804
3,110
2,643
$266,137

For the loans acquired we ﬁrst segregated all acquired loans with speciﬁcally identiﬁed credit deﬁciency

factor(s). The factors we considered to identify loans as Purchase Credit Impaired (‘‘PCI’’) loans were all
acquired loans that were nonaccrual, 60 days or more past due, designated as Trouble Debt Restructured
(‘‘TDR’’), graded ‘‘special mention’’ or ‘‘substandard.’’ These loans were then evaluated to determine
estimated fair values as of the acquisition date. As required by generally accepted accounting principles, we
are accounting for these loans pursuant to ASC Topic 310-30. The table below summarizes the total
contractually required principal and interest cash payments, management’s estimate of expected total cash
payments and fair value of the loans as of March 11, 2016 for purchased credit impaired loans. Contractually
required principal and interest payments have been adjusted for estimated prepayments.

145

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note S — Business Combinations − (continued)

(Dollars in thousands)
Contractually required principal and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-accretable difference
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash ﬂows expected to be collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretable yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total purchased credit impaired loans acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

March 11, 2016
$ 8,031
(4,820)
3,211
(568)
$ 2,643

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. We have applied ASC Topic 310-20 accounting treatment to the PULs.

The Company believes the deposits assumed from the acquisition have an intangible value. The Company
applied ASC Topic 805, which prescribes the accounting for goodwill and other intangible assets such as core
deposit intangibles, in a business combination. In determining the valuation amount, deposits will be analyzed
based on factors such as type of deposit, deposit retention, interest rates and age of deposit relationships.

The Company recognized goodwill of $32 million for this acquisition that is nondeductible for tax
purposes. The acquisition of Floridian constitutes a business combination. Accordingly, the assets acquired and
liabilities assumed are presented at their fair values. The determination of fair value requires management to
make estimates about discount rates, future expected cash ﬂows, market conditions and other future events,
and in some instances rely on use of third party experts.

The operating results of the Company for the twelve months ended December 31, 2016 include the
operating results of the acquired assets and assumed liabilities since the date of acquisition of March 11, 2016.
Pro-forma data for the twelve months ended December 31, 2016 and 2015 listed in the table below present
pro-forma information as if the acquisition occurred at the beginning of 2015.

Twelve Months Ended
December 31,

(Dollars in thousands, except per share amounts)
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income available to common shareholders . . . . . . . . . . . . . . . . . . . . . . .
EPS − basic
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EPS − diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2016
$142,354
30,466
0.81
0.80

$

2015
$122,413
27,070
0.74
0.73

$

Acquisition of BMO Harris Central Florida Offıces, Deposits and Loans

On June 3, 2016, Seacoast Bank assumed approximately $314 million in deposits related to business and

consumer banking customers at a deposit premium of 3.0% of the deposit balances, $63 million in business
loans at a loan premium of 0.5%, and fourteen branches of BMO Harris Bank N.A. (‘‘BMO’’), located in the
Orlando Metropolitan Statistical Area (‘‘MSA’’). As a result of this acquisition the Company expects to further
improve its market share in the Central Florida market, expand its customer base and leverage operating cost
through economies of scale, and positively affect the Company’s operating results to the extent the Company
earns more from interest earning assets than it pays in interest on its interest bearing liabilities.

The fair values listed are preliminary and are subject to adjustment. The acquisition is accounted for
under the acquisition method in accordance with ASC Topic 805, Business Combinations. The fair values
initially assigned to assets acquired and liabilities assumed are preliminary and could change for up to one
year after the closing date of the acquisition as new information and circumstances relative to closing date fair
values are known. Determining fair values of assets and liabilities, especially the loan portfolio and bank

146

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note S — Business Combinations − (continued)

premises and leases related to the fourteen branches acquired, is a complicated process involving signiﬁcant
judgment regarding methods and assumptions used to calculate estimated fair values.

June 3, 2016
(Initially
Reported)

Measurement
Period
Adjustments
(in thousands)

June 3, 2016
(As Adjusted)

Assets:
Cash from BMO (net of payable) . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets
Core deposit intangibles . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets

Liabilities:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$234,094
62,671
3,715
5,223
7,645
952
$314,300

$314,248
52
$314,300

$

$

$

$

0
0
0
(135)
163
(28)
0

0
0
0

$234,094
62,671
3,715
5,088
7,808
924
$314,300

$314,248
52
$314,300

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:
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased credit-impaired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total acquired loans

June 3, 2016

Book Balance

Fair Value

$31,564
32,479
0
$64,043

$31,200
31,471
0
$62,671

At June 3, 2016, no loans acquired from BMO Harris were speciﬁcally identiﬁed with a credit deﬁciency

factor(s). The factors we consider to identify loans as PCI loans are acquired loans that were nonaccrual,
60 days or more past due, designated as TDR, graded ‘‘special mention’’ or ‘‘substandard.’’ PULs were
evaluated to determine estimated fair values as of the acquisition date. Although no speciﬁc credit deﬁciencies
were identiﬁable, we believe there is an element of risk as to whether all contractual cash ﬂows will be
eventually received. Factors that were considered included the economic environment both nationally and
locally as well as the real estate market particularly in Florida. We have applied ASC Topic 310-20 accounting
treatment to the PULs.

The Company believes the deposits assumed from the acquisition have an intangible value. The Company
applied ASC Topic 805, which prescribes the accounting for goodwill and other intangible assets such as core
deposit intangibles, in a business combination. In determining the valuation amount, a third party analyzed the
deposits based on factors such as type of deposit, deposit retention, interest rates and age of deposit
relationships.

The Company recognized intangibles (including goodwill) of approximately $13 million for this

acquisition that is deductible for tax purposes over a 15-year period. The acquisition of BMO Harris’s Orlando
banking operations by Seacoast Bank constitutes a business combination. Accordingly, the assets acquired and
liabilities assumed are presented at their fair values. The determination of fair value requires management to
make estimates about discount rates, future expected cash ﬂows, market conditions and other future events

147

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note S — Business Combinations − (continued)

that are highly subjective in nature and subject to change, and in some instances rely on use of third party
experts. These fair value estimates are considered preliminary and are subject to change for up to one year
after the closing date of the acquisition as additional information becomes available. For the BMO Harris
transaction, fair values as presented for loans, ﬁxed assets, deposits, and certain other assets and liabilities are
necessarily considered preliminary.

Announced Acquisition of GulfShore Bancshares, Inc.

On November 3, 2016, the Company announced that it signed a deﬁnitive agreement to acquire

GulfShore Bancshares, Inc. (‘‘GulfShore’’), the parent company of GulfShore Bank. Upon completion of the
merger, Seacoast expects GulfShore Bank will be merged into Seacoast Bank. GulfShore, headquartered in
Tampa, Florida, currently operates three branches in Tampa and will add approximately $328 million in assets,
$276 million in deposits, and $262 million in loans to Seacoast.

Under the terms of the deﬁnitive agreement, each share of GulfShore common stock (except for

speciﬁed shares of GulfShore common stock held by GulfShore or Seacoast and any dissenting shares) will be
converted into the right to receive the combination of $1.47 in cash and 0.4807 shares of Seacoast
common stock.

The transaction is expected to close on April 7, 2017.

The acquisition will be accounted for under the acquisition method of accounting in accordance with
ASC Topic 805, Business Combinations. Some disclosures are being omitted at this time as the information is
not available and incomplete. The Company will recognize goodwill on this acquisition which is
nondeductible for tax purposes as this acquisition is a nontaxable transaction. The goodwill will be calculated
based on the fair values of the assets acquired and liabilities assumed as of the acquisition date, which at the
time of this ﬁling were incomplete and reliant upon use of third party experts for pending valuations,
including the core deposit intangible and pending appraisals on purchased unimpaired loans and purchased
credit impaired loans, bank premises and other ﬁxed assets, other real estate owned, subordinated debt, and
remaining assets and other liabilities. Loans that are nonaccrual and all loan relationships identiﬁed as
impaired as of the acquisition date will be considered by management to be credit impaired and will be
accounted for pursuant to ASC Topic 310-30.

The Company believes the deposits assumed from the acquisition will have an intangible value. The
Company will be applying ASC Topic 805, which prescribes the accounting for goodwill and other intangible
assets such as core deposit intangibles, in a business combination. In determining the valuation amount,
deposits will be analyzed based on factors such as type of deposit, deposit retention, interest rates and age of
deposit relationships.

148

The Company had the following subsidiaries as of the date of this report:

LIST OF SUBSIDIARIES

NAME

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.

Seacoast National Bank
FNB Insurance Services, Inc. (Inactive)
South Branch Building, Inc.
TCoast Holdings, LLC
TC Property Venture, LLC
SBCF Capital Trust I
SBCF Statutory Trust II
SBCF Statutory Trust III
BankFIRST (FL) Statutory Trust I
BankFIRST (FL) Statutory Trust II
The BANKshares Capital Trust I
Grand Bankshares Capital Trust I
Syracuse Holdings, Inc.

EXHIBIT 21

INCORPORATED

United States
Florida
Florida
Florida
Florida
Delaware
Connecticut
Delaware
Connecticut
Delaware
Delaware
United States
Delaware

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the registration statements on Form S-8

(Nos. 333-161014, 333-188290, 333-190507, 333-49972, 333-198682, 333-206589 and 333-152931) and
Form S-3 (Nos. 333-194712, 333-200137, and 333-206588) of Seacoast Banking Corporation of Florida (the
Company) of our report dated March 15, 2017, with respect to the consolidated balance sheets of the
Company as of December 31, 2016 and 2015, and the related consolidated statements of income,
comprehensive income, cash ﬂows, and shareholders’ equity for each of the years in the three-year period
ended December 31, 2016, and the effectiveness of internal control over ﬁnancial reporting as of
December 31, 2016, which report appears in the December 31, 2016 annual report on Form 10-K of the
Company.

/s/ Crowe Horwath LLP
Crowe Horwath LLP

Fort Lauderdale, Florida
March 15, 2017

EXHIBIT 31.1

Certiﬁcation Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, Dennis S. Hudson, III, certify that:

1.

I have reviewed this annual report on Form 10-K of Seacoast Banking Corporation of Florida;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the ﬁnancial statements, and other ﬁnancial information included in this
report, fairly present in all material respects the ﬁnancial condition, results of operations and cash
ﬂows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as deﬁned in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over ﬁnancial reporting (as deﬁned in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and

procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over ﬁnancial reporting, or caused such internal control over
ﬁnancial reporting to be designed under our supervision, 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;

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over ﬁnancial reporting
that occurred during the registrant’s most recent ﬁscal quarter (the registrant’s fourth ﬁscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over ﬁnancial reporting; and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation
of internal control over ﬁnancial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):

a. All signiﬁcant deﬁciencies and material weaknesses in the design or operation of internal

control over ﬁnancial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report ﬁnancial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a

signiﬁcant role in the registrant’s internal control over ﬁnancial reporting.

Date: March 14, 2017

/s/ Dennis S. Hudson, III
Dennis S. Hudson, III
Chairman and Chief Executive Officer

EXHIBIT 31.2

Certiﬁcation Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, Stephen A. Fowle, certify that:

1.

I have reviewed this annual report on Form 10-K of Seacoast Banking Corporation of Florida;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the ﬁnancial statements, and other ﬁnancial information included in this
report, fairly present in all material respects the ﬁnancial condition, results of operations and cash
ﬂows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as deﬁned in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over ﬁnancial reporting (as deﬁned in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and

procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over ﬁnancial reporting, or caused such internal control over
ﬁnancial reporting to be designed under our supervision, 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;

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over ﬁnancial reporting
that occurred during the registrant’s most recent ﬁscal quarter (the registrant’s fourth ﬁscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over ﬁnancial reporting; and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation
of internal control over ﬁnancial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):

a. All signiﬁcant deﬁciencies and material weaknesses in the design or operation of internal

control over ﬁnancial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report ﬁnancial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a

signiﬁcant role in the registrant’s internal control over ﬁnancial reporting.

Date: March 14, 2017

/s/ Stephen A. Fowle
Stephen A. Fowle
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

EXHIBIT 32.1

STATEMENT OF CHIEF EXECUTIVE OFFICER OF
SEACOAST BANKING CORPORATION OF FLORIDA
PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Seacoast Banking Corporation of Florida
(‘‘Company’’) for the period ended December 31, 2016 (‘‘Report’’), I, Dennis S. Hudson, III, Chairman and
Chief Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant
to §906 of The Sarbanes-Oxley Act of 2002, that:

1.

2.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the ﬁnancial
condition and results of operations of the Company.

Date: March 14, 2017

/s/ Dennis S. Hudson, III
Dennis S. Hudson, III
Chairman & Chief Executive Officer

EXHIBIT 32.2

STATEMENT OF CHIEF FINANCIAL OFFICER OF
SEACOAST BANKING CORPORATION OF FLORIDA
PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Seacoast Banking Corporation of Florida
(‘‘Company’’) for the period ended December 31, 2016 (‘‘Report’’), I, Stephen A. Fowle, Executive Vice
President and Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. §1350, as
adopted pursuant to §906 of The Sarbanes-Oxley Act of 2002, that:

1.

2.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the ﬁnancial
condition and results of operations of the Company.

Date: March 14, 2017

/s/ Stephen A. Fowle
Stephen A. Fowle
Executive Vice President and Chief Financial Officer