Loans

9 Months Ended

Sep. 30, 2020

Receivables [Abstract]

Loans

Loans

Loans held for investment are categorized into the following segments:

•Construction and land development: Loans are extended to both commercial and consumer customers which are collateralized by and for the purpose of funding land development and construction projects, including 1-4 family residential construction, multi-family property and non-farm residential property where the primary source of repayment is from proceeds of the sale, refinancing or permanent financing of the property.

•Commercial real estate - owner-occupied: Loans are extended to commercial customers for the purpose of acquiring real estate to be occupied by the borrower's business. These loans are collateralized by the subject property and the repayment of these loans is largely dependent on the performance of the company occupying the property.

•Commercial real estate - non owner-occupied: Loans are extended to commercial customers for the purpose of acquiring commercial property where occupancy by the borrower is not their primary intent. These loans are viewed primarily as cash flow loans, collateralized by the subject property, and the repayment of these loans is largely dependent on rental income from the successful operation of the property.

•Residential real estate: Loans are extended to consumer customers and collateralized primarily by 1-4 family residential properties and include fixed and variable rate mortgages, home equity mortgages, and home equity lines of credit. Loans are primarily written based on conventional loan agency guidelines, including loans that exceed agency value limitations. Sources of repayment may be from the occupant of the residential property or from cash flows on rental income from the successful operation of the property.

•Commercial and financial: Loans are extended to commercial customers. The purpose of the loans can be working capital, physical asset expansion, asset acquisition or other business purposes. Loans may be collateralized by assets owned by the borrower or the borrower's business. Commercial loans are based primarily on the historical and projected cash flow of the borrower's business and secondarily on the capacity of credit enhancements, guarantees and underlying collateral provided by the borrower.

•Consumer: Loans are extended to consumer customers. The segment includes both installment loans and lines of credit which may be collateralized or non-collateralized.

•Paycheck Protection Program ("PPP"): Loans originated under a temporary program established by the CARES Act. Under the terms of the program, balances may be forgiven if the borrower uses the funds in a manner consistent with the program guidelines, and repayment is guaranteed by the U.S. government.

The following tables present net loan balances by segment as of:

	September 30, 2020
(In thousands)	Portfolio Loans		Acquired Non-PCD Loans		PCD Loans		Total
Construction and land development	$	246,312	$	30,720	$	3,578	$	280,610
Commercial real estate - owner-occupied	817,547		267,223		40,690		1,125,460
Commercial real estate - non owner-occupied	1,014,993		348,085		31,386		1,394,464
Residential real estate	1,182,558		201,221		9,617		1,393,396
Commercial and financial	711,358		105,327		16,398		833,083
Consumer	184,608		7,306		302		192,216
Paycheck Protection Program	584,577		54,223		—		638,800
Totals	$	4,741,953	$	1,014,105	$	101,971	$	5,858,029

	December 31, 2019
(In thousands)	Portfolio Loans		PULs		PCI Loans		Total
Construction and land development	$	281,335	$	43,618	$	160	$	325,113
Commercial real estate1	1,834,811		533,943		10,217		2,378,971
Residential real estate	1,304,305		201,848		1,710		1,507,863
Commercial and financial	697,301		80,372		579		778,252
Consumer	200,166		8,039		—		208,205
Totals	$	4,317,918	$	867,820	$	12,666	$	5,198,404
1Commercial real estate includes owner-occupied balances of $1.0 billion for December 31, 2019.

The amortized cost basis of loans at September 30, 2020 included net deferred costs of $21.8 million on non-PPP portfolio loans and net deferred fees of $13.1 million on PPP loans. At December 31, 2019, the amortized cost basis included net deferred costs of $19.9 million. In the first quarter of 2020, the Company completed the acquisition of First Bank of the Palm Beaches, adding PCD loans of $43.0 million and Non-PCD loans of $103.8 million. In the third quarter of 2020, the Company completed the acquisition of Fourth Street Banking Company and its wholly-owned subsidiary, Freedom Bank, adding PCD loans of $49.4 million and Non-PCD loans of $254.1 million. See additional discussion in Note L - Business Combinations. At September 30, 2020, the remaining fair value adjustments on acquired loans was $34.6 million, or 3.0% of the outstanding acquired loan balances. At December 31, 2019, the remaining fair value adjustments for acquired loans was $34.9 million, or 3.8% of the acquired loan balances. These amounts are accreted into interest income over the remaining lives of the related loans on a level yield basis.

Accrued interest receivable is included within Other Assets and was $31.3 million and $14.9 million at September 30, 2020 and December 31, 2019, respectively. The balance at September 30, 2020 includes $15.4 million associated with loans on short-term payment deferral, against which the Company has established a valuation allowance of $0.4 million.

The following tables present the status of net loan balances as of September 30, 2020 and December 31, 2019. Loans on short-term payment deferral at the reporting date are reflected as current.

	September 30, 2020
(In thousands)	Current		Accruing 30-59 Days Past Due		Accruing 60-89 Days Past Due		Accruing Greater Than 90 Days		Nonaccrual		Total
Portfolio Loans
Construction and land development	$	246,255	$	—	$	37	$	—	$	20	$	246,312
Commercial real estate - owner-occupied	813,825		850		450		—		2,422		817,547
Commercial real estate - non owner-occupied	1,012,815		—		—		—		2,178		1,014,993
Residential real estate	1,169,466		2,388		250		—		10,454		1,182,558
Commercial and financial	704,308		995		148		10		5,897		711,358
Consumer	183,944		294		9		—		361		184,608
Paycheck Protection Program	584,577		—		—		—		—		584,577
Total Portfolio Loans	4,715,190		4,527		894		10		21,332		4,741,953
Acquired Non-PCD Loans
Construction and land development	30,146		—		—		—		574		30,720
Commercial real estate - owner-occupied	266,656		—		—		—		567		267,223
Commercial real estate - non owner-occupied	346,769		278		—		—		1,038		348,085
Residential real estate	193,421		1,156		1,057		—		5,587		201,221
Commercial and financial	104,263		—		221		—		843		105,327
Consumer	7,306		—		—		—		—		7,306
Paycheck Protection Program	54,223		—		—		—		—		54,223
Total Acquired Non-PCD Loans	1,002,784		1,434		1,278		—		8,609		1,014,105
PCD Loans
Construction and land development	3,568		—		—		—		10		3,578
Commercial real estate - owner-occupied	39,064		—		1,113		—		513		40,690
Commercial real estate - non owner-occupied	26,380		—		—		—		5,006		31,386
Residential real estate	8,495		—		—		—		1,122		9,617
Commercial and financial	15,774		327		—		—		297		16,398
Consumer	261		33		—		—		8		302
Total PCD Loans	93,542		360		1,113		—		6,956		101,971
Total Loans	$	5,811,516	$	6,321	$	3,285	$	10	$	36,897	$	5,858,029

	December 31, 2019
(In thousands)	Current		Accruing 30-59 Days Past Due		Accruing 60-89 Days Past Due		Accruing Greater Than 90 Days		Nonaccrual		Total
Portfolio Loans
Construction and land development	$	276,984	$	—	$	—	$	—	$	4,351	$	281,335
Commercial real estate	1,828,629		1,606		220		—		4,356		1,834,811
Residential real estate	1,294,778		1,564		18		—		7,945		1,304,305
Commercial and financial	690,412		2,553		—		108		4,228		697,301
Consumer	199,424		317		315		—		110		200,166
Total Portfolio Loans	4,290,227		6,040		553		108		20,990		4,317,918
Purchased Unimpaired Loans
Construction and land development	43,044		—		—		—		574		43,618
Commercial real estate	531,325		942		431		—		1,245		533,943
Residential real estate	201,159		277		—		—		412		201,848
Commercial and financial	78,705		—		—		—		1,667		80,372
Consumer	8,039		—		—		—		—		8,039
Total PULs	862,272		1,219		431		—		3,898		867,820
Purchased Credit Impaired Loans
Construction and land development	148		—		—		—		12		160
Commercial real estate	9,298		—		—		—		919		10,217
Residential real estate	587		—		—		—		1,123		1,710
Commercial and financial	566		—		—		—		13		579
Consumer	—		—		—		—		—		—
Total PCI Loans	10,599		—		—		—		2,067		12,666
Total Loans	$	5,163,098	$	7,259	$	984	$	108	$	26,955	$	5,198,404

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cost-recovery method. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, and future payments are reasonably assured. The Company recognized $0.1 million in interest income on nonaccrual loans during each of the three months ended September 30, 2020 and 2019, respectively. The Company recognized $0.5 million and $1.2 million in interest income on nonaccrual loans during the nine months ended September 30, 2020 and 2019, respectively. The following tables present net balances of loans on nonaccrual status and the related allowance for credit losses, if any, as of:

	September 30, 2020
(In thousands)	Nonaccrual Loans With No Related Allowance		Nonaccrual Loans With an Allowance		Total Nonaccrual Loans		Allowance for Credit Losses
Construction and land development	$	585	$	19	$	604	$	9
Commercial real estate - owner-occupied	2,669		833		3,502		672
Commercial real estate - non owner-occupied	4,821		3,401		8,222		1,829
Residential real estate	14,963		2,200		17,163		1,456
Commercial and financial	2,989		4,048		7,037		2,816
Consumer	29		340		369		55
Totals	$	26,056	$	10,841	$	36,897	$	6,837

	December 31, 2019
(In thousands)	Nonaccrual Loans With No Related Allowance		Nonaccrual Loans With an Allowance		Total Nonaccrual Loans		Allowance for Credit Losses
Construction and land development	$	4,913	$	23	$	4,936	$	12
Commercial real estate	6,200		320		6,520		149
Residential real estate	8,700		780		9,480		564
Commercial and financial	3,449		2,460		5,909		1,622
Consumer	39		71		110		37
Totals	$	23,301	$	3,654	$	26,955	$	2,384

Collateral Dependent Loans

Loans are considered collateral dependent when the repayment, based on the Company's assessment as of the reporting date, is expected to be provided substantially through the operation or sale of the underlying collateral and there are no other available and reliable sources of repayment. The following table presents collateral dependent loans as of:

(In thousands)	September 30, 2020		December 31, 2019
Construction and land development	$	630	$	4,926
Commercial real estate - owner-occupied	7,379		2,571
Commercial real estate - non owner-occupied	7,626		3,152
Residential real estate	22,352		11,550
Commercial and financial	11,563		4,338
Consumer	416		141
Totals	$	49,966	$	26,678

Loans by Risk Rating

The Company utilizes an internal asset classification system as a means of identifying problem and potential problem loans. The following classifications are used to categorize loans under the internal classification system:

•Pass: Loans that are not problem loans or potential problem loans are considered to be pass-rated.

•Special Mention: Loans that do not currently expose the Company to sufficient risk to warrant classification in the Substandard or Doubtful categories, but possess weaknesses that deserve management's close attention are deemed to be Special Mention.

•Substandard: Loans with the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

•Substandard Impaired: Loans typically placed on nonaccrual and considered to be collateral dependent or accruing TDRs.

•Doubtful: Loans that have all the weaknesses inherent in those classified Substandard with the added characteristic that the weakness present makes collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The principal balance of loans classified as doubtful are likely to be charged off.

The following tables present the risk rating of loans by year of origination:

	September 30, 2020
(In thousands)	2020		2019		2018		2017		2016		Prior		Revolving		Total
Construction and Land Development
Risk Ratings:
Pass	$	48,020	$	78,737	$	59,752	$	17,830	$	9,586	$	18,206	$	31,633	$	263,764
Special Mention	398		503		1,378		12,311		—		1,478		—		16,068
Substandard	—		—		—		—		—		55		—		55
Substandard Impaired	—		—		—		—		574		149		—		723
Doubtful	—		—		—		—		—		—		—		—
Total	48,418		79,240		61,130		30,141		10,160		19,888		31,633		280,610
Commercial real estate - owner-occupied
Risk Ratings:
Pass	93,407		202,179		164,622		151,893		156,433		313,205		14,792		1,096,531
Special Mention	196		1,596		389		1,010		4,471		3,338		—		11,000
Substandard	—		—		204		4,742		1,970		5,531		—		12,447
Substandard Impaired	—		337		878		1,056		—		2,890		—		5,161
Doubtful1	—		—		—		—		321		—		—		321
Total	93,603		204,112		166,093		158,701		163,195		324,964		14,792		1,125,460
Commercial real estate - non owner-occupied
Risk Ratings:
Pass	98,658		322,048		200,813		131,590		186,063		372,215		5,317		1,316,704
Special Mention	—		103		28,710		1,674		14,266		114		—		44,867
Substandard	—		—		9,694		—		8,319		5,072		1,350		24,435
Substandard Impaired	—		2,418		—		—		126		5,914		—		8,458
Doubtful	—		—		—		—		—		—		—		—
Total	98,658		324,569		239,217		133,264		208,774		383,315		6,667		1,394,464
Residential real estate
Risk Ratings:
Pass	53,171		151,107		233,660		235,119		178,988		180,156		334,622		1,366,823
Special Mention	—		—		98		—		—		562		391		1,051
Substandard	—		—		—		—		—		1,677		1,443		3,120
Substandard Impaired	112		681		1,334		4,162		2,528		10,790		2,768		22,375
Doubtful1	—		—		—		—		—		27		—		27
Total	53,283		151,788		235,092		239,281		181,516		193,212		339,224		1,393,396
Commercial and financial
Risk Ratings:
Pass	162,696		158,468		111,812		70,868		44,846		59,387		194,344		802,421
Special Mention	—		234		14		5,732		81		1,773		304		8,138
Substandard	153		145		3,306		198		407		2,270		2,261		8,740
Substandard Impaired	319		4,440		2,742		1,667		2,340		1,079		1,197		13,784
Doubtful	—		—		—		—		—		—		—		—
Total	163,168		163,287		117,874		78,465		47,674		64,509		198,106		833,083

	September 30, 2020
(In thousands)	2020		2019		2018		2017		2016		Prior		Revolving		Total
Consumer
Risk Ratings:
Pass	36,295		48,610		34,541		21,993		24,259		10,996		12,381		189,075
Special Mention	—		70		30		72		65		7		1,856		2,100
Substandard	—		—		—		27		22		38		339		426
Substandard Impaired	48		51		10		—		316		190		—		615
Doubtful	—		—		—		—		—		—		—		—
Total	36,343		48,731		34,581		22,092		24,662		11,231		14,576		192,216
Paycheck Protection Program
Risk Ratings:
Pass	638,800		—		—		—		—		—		—		638,800
Total	638,800		—		—		—		—		—		—		638,800
Consolidated
Risk Ratings:
Pass	1,131,047		961,149		805,200		629,293		600,175		954,165		593,089		5,674,118
Special Mention	594		2,506		30,619		20,799		18,883		7,272		2,551		83,224
Substandard	153		145		13,204		4,967		10,718		14,643		5,393		49,223
Substandard Impaired	479		7,927		4,964		6,885		5,884		21,012		3,965		51,116
Doubtful1	—		—		—		—		321		27		—		348
Total	$	1,132,273	$	971,727	$	853,987	$	661,944	$	635,981	$	997,119	$	604,998	$	5,858,029
1Loans classified as doubtful are fully reserved as of September 30, 2020.

The following table presents the risk rating of loans as of:

	December 31, 2019
(In thousands)	Pass		Special Mention		Substandard		Doubtful1		Total
Construction and land development	$	317,765	$	2,235	$	5,113	$	—	$	325,113
Commercial real estate	2,331,725		26,827		20,098		321		2,378,971
Residential real estate	1,482,278		7,364		18,221		—		1,507,863
Commercial and financial	755,957		11,925		9,496		874		778,252
Consumer	203,966		3,209		1,030		—		208,205
Totals	$	5,091,691	$	51,560	$	53,958	$	1,195	$	5,198,404
1Loans classified as doubtful are fully reserved as of December 31, 2019.

Troubled Debt Restructured Loans

The Company’s TDR concessions granted to certain borrowers generally do not include forgiveness of principal balances, but may include interest rate reductions, an extension of the amortization period and/or converting the loan to interest only for a limited period of time. Loan modifications are not reported in calendar years after modification if the loans were modified at an interest rate equal to the yields of new loan originations with comparable risk and the loans are performing based on the terms of the restructuring agreements.

Loans Modified in Connection with COVID-19 Pandemic

The CARES Act, which was signed into law on March 27, 2020, encourages financial institutions to practice prudent efforts to work with borrowers financially impacted by the COVID-19 pandemic by providing an option to exclude from TDR consideration certain loan modifications that might otherwise be categorized as TDRs under ASC 310-40. This option is available for modifications that are deemed to be COVID-related, where the borrower was not more than 30 days past due on

December 31, 2019, and the modification is executed between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the end of the COVID-19 national emergency. Federal banking regulators issued similar guidance that also allows lenders to conclude that short-term modifications for borrowers affected by the pandemic should not be considered TDRs if the borrower was current at the time of modification. Seacoast began offering short-term payment deferrals of up to six months to eligible borrowers in March 2020 and, at September 30, 2020, had $702.7 million of loans on payment deferral, none of which have been classified as TDRs.

The following table presents loans on payment deferral, excluding PPP loans, as of September 30, 2020:

(In thousands)	Loans Outstanding		% on Payment Deferral
Construction and land development	$	9,359	3%
Commercial real estate - owner-occupied	204,710		18
Commercial real estate - non owner-occupied	344,573		25
Residential real estate	75,885		5
Commercial and financial	61,308		7
Consumer	6,815		4
Totals	$	702,650	13%

The following table presents loans that were modified in a troubled debt restructuring during the three and nine months ended:

	Three Months Ended September 30,
	2020					2019
(In thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Construction and land development	—	$	—	$	—	—	$	—	$	—
Commercial real estate - owner-occupied	—	—		—		—	—		—
Commercial real estate - non owner-occupied	—	—		—		—	—		—
Residential real estate	—	—		—		2	519		519
Commercial and financial	—	—		—		1	1,120		1,120
Consumer	1	41		41		—	—		—
Totals	1	$	41	$	41	3	$	1,639	$	1,639

	Nine Months Ended September 30,
	2020					2019
(In thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Construction and land development	—	$	—	$	—	—	$	—	$	—
Commercial real estate - owner-occupied	—	—		—		2	2,166		2,166
Commercial real estate - non owner-occupied	—	—		—		—	—		—
Residential real estate	1	45		45		2	519		519
Commercial and financial	4	437		437		2	1,299		1,299
Consumer	3	88		88		1	19		19
Totals	8	$	570	$	570	7	$	4,003	$	4,003

The TDRs described above resulted in a specific allowance for credit losses of $0.2 million as of September 30, 2020, and no specific allowance for credit losses as of September 30, 2019. During the nine months ended September 30, 2020, there were four defaults totaling $1.4 million on loans that had been modified in TDRs within the preceding twelve months. During the nine months ended September 30, 2019, there were three defaults totaling $2.1 million of loans to a single borrower that had been modified to a TDR within the preceding twelve months. The Company considers a loan to have defaulted when it becomes 90 days or more delinquent under the modified terms, has been transferred to nonaccrual status, is charged off or has been transferred to other real estate owned. For loans measured based on the present value of expected future cash flows, $19,000 and $40,000 for the three months ended September 30, 2020, and 2019, respectively, and $65,000 and $102,000 for the nine months ended September 30, 2020, and 2019, respectively, was included in interest income and represents the change in present value attributable to the passage of time.