Loans

12 Months Ended

Dec. 31, 2017

Receivables [Abstract]

Loans

Note E - Loans

Seacoast accounts for a loan depending on the strategy for the loan and on the credit impaired status of the loan upon acquisition. Loans are accounted for using the following categories:

· Loans and leases held for sale

· Loans and leases originated by Seacoast and held for investment

· Loans and leases purchased by Seacoast, which are considered purchased unimpaired (“PUL”), and held for investment

· Loans and leases purchased by Seacoast, which are considered purchased credit impaired (“PCI”)

Refer to Note A for further discussion on how the categories above are defined.

Loans are also categorized based on the customer and use type of the credit extended. The following outlines the categories used:

· 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 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 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 table outlines net loans balances by category as of:

 

	December 31, 2017
	Portfolio Loans		PCI Loans		PULs		Total
	(In thousands)
Construction and land development	$	215,315	$	1,121	$	126,689	$	343,125
Commercial real estate		1,170,618		9,776		459,598		1,639,992
Residential real estate		845,420		5,626		187,764		1,038,810
Commercial and financial (2)		512,430		894		92,690		606,014
Consumer		178,826		0		10,610		189,436
NET LOAN BALANCES (1)	$	2,922,609	$	17,417	$	877,351	$	3,817,377

	December 31, 2016
	Portfolio Loans		PCI Loans		PULs		Total
	(In thousands)
Construction and land development	$	137,480	$	114	$	22,522	$	160,116
Commercial real estate		1,041,915		11,257		304,420		1,357,592
Residential real estate		784,290		684		51,813		836,787
Commercial and financial (2)		308,731		941		60,917		370,589
Consumer		153,434		0		1,018		154,452
NET LOAN BALANCES (1)	$	2,425,850	$	12,996	$	440,690	$	2,879,536

(1) Net loan balances at December 31, 2017 and 2016 include deferred costs of $11.5 million and $10.6 million, respectively.

(2) Commercial and financial includes equipment lease financing of $30.3 million and $0 as of December 31, 2017 and 2016, respectively.

Loan accrual status is a primary qualitative credit factor monitored by the Company’s Credit Risk Management when determining the allowance for loan and lease losses. As a loan remains delinquent, the likelihood increases that a borrower is either unable or unwilling to repay. Loans are moved to nonaccrual status when they become 90 days past due, have been evaluated for impairment and have been deemed impaired. The following table presents the balances outstanding status by class of loans as of:

							Accruing
			Accruing		Accruing		Greater				Total
			30-59 Days		60-89 Days		Than				Financing
December 31, 2017 (in thousands)	Current		Past Due		Past Due		90 Days		Nonaccrual		Receivables
Portfolio Loans
Construction and land development	$	215,077	$	0	$	0	$	0	$	238	$	215,315
Commercial real estate		1,165,738		2,605		585		0		1,690		1,170,618
Residential real estate		836,117		812		75		0		8,416		845,420
Commercial and financial		507,501		2,776		26		0		2,127		512,430
Consumer		178,676		52		0		0		98		178,826
Total Portfolio Loans		2,903,109		6,245		686		0		12,569		2,922,609
Purchased Unimpaired Loans
Construction and land development		126,655		34		0		0		0		126,689
Commercial real estate		457,899		979		0		0		720		459,598
Residential real estate		186,549		128		87		0		1,000		187,764
Commercial and financial		92,315		54		0		0		321		92,690
Consumer		10,610		0		0		0		0		10,610
Total Purchased Unimpaired Loans		874,028		1,195		87		0		2,041		877,351
Purchased Credit Impaired Loans
Construction and land development		1,121		0		0		0		0		1,121
Commercial real estate		9,352		0		0		0		424		9,776
Residential real estate		544		642		0		0		4,440		5,626
Commercial and financial		844		0		0		0		50		894
Consumer		0		0		0		0		0		0
Total Purchased Credit Impaired Loans		11,861		642		0		0		4,914		17,417
Total Loans	$	3,788,998	$	8,082	$	773	$	0	$	19,524	$	3,817,377

							Accruing
			Accruing		Accruing		Greater				Total
			30-59 Days		60-89 Days		Than				Financing
December 31, 2016 (in thousands)	Current		Past Due		Past Due		90 Days		Nonaccrual		Receivables
Portfolio Loans
Construction and land development	$	137,042	$	0	$	0	$	0	$	438	$	137,480
Commercial real estate		1,039,882		78		171		0		1,784		1,041,915
Residential real estate		773,877		1,570		261		0		8,582		784,290
Commercial and financial		308,652		30		0		0		49		308,731
Consumer		153,176		29		59		0		170		153,434
Total Portfolio Loans		2,412,629		1,707		491		0		11,023		2,425,850
Purchased Unimpaired Loans
Construction and land development		22,490		0		0		0		32		22,522
Commercial real estate		302,318		345		485		0		1,272		304,420
Residential real estate		50,398		153		0		0		1,262		51,813
Commercial and financial		60,353		39		328		0		197		60,917
Consumer		981		37		0		0		0		1,018
Total Purchased Unimpaired Loans		436,540		574		813		0		2,763		440,690
Purchased Credit Impaired Loans
Construction and land development		114		0		0		0		0		114
Commercial real estate		6,972		0		0		0		4,285		11,257
Residential real estate		499		0		185		0		0		684
Commercial and financial		941		0		0		0		0		941
Consumer		0		0		0		0		0		0
Total Purchased Credit Impaired Loans		8,526		0		185		0		4,285		12,996
Total Loans	$	2,857,695	$	2,281	$	1,489	$	0	$	18,071	$	2,879,536

The reduction in interest income associated with loans on nonaccrual status was approximately $0.7 million, $0.7 million, and $0.6 million, for the years ended December 31, 2017, 2016, and 2015, respectively.

 

The Company’s Credit Risk Management also 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 problems 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.

· Doubtful: Loans that 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 is generally charged off.

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, 2017
			Special
	Pass		Mention		Substandard		Doubtful		Total
	(In thousands)
Construction and land development	$	328,127	$	10,414	$	4,584	$	0	$	343,125
Commercial real estate		1,586,932		29,273		23,787		0		1,639,992
Residential real estate		1,023,925		4,621		10,203		61		1,038,810
Commercial and financial		593,689		3,237		8,838		250		606,014
Consumer		189,354		0		82		0		189,436
Total Loans	$	3,722,027	$	47,545	$	47,494	$	311	$	3,817,377

	December 31, 2016
			Special
	Pass		Mention		Substandard		Doubtful		Total
	(In thousands)
Construction and land development	$	148,607	$	5,037	$	6,472	$	0	$	160,116
Commercial real estate		1,324,685		17,184		15,724		0		1,357,593
Residential real estate		811,934		1,780		23,073		0		836,787
Commercial and financial		364,241		3,949		2,399		0		370,589
Consumer		153,774		67		611		0		154,452
Total loans	$	2,803,241	$	28,017	$	48,279	$	0	$	2,879,536

Loans to directors and executive officers totaled $1.1 million and $2.1 million at December 31, 2017 and 2016, respectively. No new loans were originated to directors or officers in 2017.

At December 31, 2017 and 2016 loans pledged as collateral for borrowings totaled $211 million and $415 million, respectively.

Concentrations of Credit

The Company’s lending activity primarily occurs within the State of Florida, including Orlando, Tampa 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.

PCI 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.

The table below summarizes the changes in accretable yield on PCI loans for the years ended:

	December 31,
	2017		2016		2015
	(In thousands)
Beginning balance	$	3,807	$	2,610	$	1,192
Additions		763		2,052		702
Deletions		(11)		(15)		(357)
Accretion		(1,647)		(1,734)		(601)
Reclassifications from non-accretable difference		787		894		1,674
Ending Balance	$	3,699	$	3,807	$	2,610

See Note S for information related to loans purchased during the periods presented.

Troubled Debt Restructured Loans

The Company pursues troubled debt restructures (TDR) for loans 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.

 

The Company’s TDR concessions granted generally do not include forgiveness of principal balances. Loan modifications are not reported in the calendar years after modification if the loans were modified at an interest rate equal to yields of 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 carrying value of the loans within the consolidated balance sheet, as principal balances generally are 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. 

The following table presents accruing loans that were modified within the twelve months ending:

	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Valuation Allowance Recorded
					(In thousands)
December 31, 2017:
Construction and Land Development		1	$	52	$	46	$	6
Residential Real Estate		1		15		15		0
Total		2	$	67	$	61	$	6
December 31, 2016:
Construction and Land Development		1	$	20	$	18	$	2
Residential Real Estate		4		1,169		1,019		150
Total		5	$	1,189	$	1,037	$	152

During the years 2017, 2016 and 2015, 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 days or more delinquent under the modified terms, has been transferred to nonaccrual status or has been transferred to other real estate owned. A defaulted TDR is generally placed on nonaccrual status and a specific allowance for loan losses assigned in accordance with the Company’s policy.

Impaired Loans

Loans are considered impaired if they are 90 days or more past due, in nonaccrual status, or are TDRs. At December 31, 2017 and 2016, the Company’s recorded investment in impaired loans, excluding PCI loans, and related valuation allowance was as follows: 

	December 31, 2017
			Unpaid		Related
	Recorded		Principal		Valuation
(In thousands)	Investment		Balance		Allowance
Impaired Loans with No Related Allowance Recorded:
Construction and land development	$	223	$	510	$	0
Commercial real estate		3,475		4,873		0
Residential real estate		10,272		15,063		0
Commercial and financial		19		29		0
Consumer		105		180		0
Impaired Loans with an Allowance Recorded:
Construction and land development		251		264		23
Commercial real estate		4,780		4,780		195
Residential real estate		8,448		8,651		1,091
Commercial and financial		2,436		883		1,050
Consumer		282		286		43
Total Impaired Loans
Construction and land development		474		774		23
Commercial real estate		8,255		9,653		195
Residential real estate		18,720		23,714		1,091
Commercial and financial		2,455		912		1,050
Consumer		387		466		43
Total	$	30,291	$	35,519	$	2,402

	December 31, 2016
			Unpaid		Related
	Recorded		Principal		Valuation
(In thousands)	Investment		Balance		Allowance
Impaired Loans with No Related Allowance Recorded:
Construction and land development	$	226	$	321	$	0
Commercial real estate		3,267		4,813		0
Residential real estate		9,706		14,136		0
Commercial and financial		199		206		0
Consumer		0		0		0
Impaired Loans with an Allowance Recorded:
Construction and land development		51		51		0
Commercial real estate		6,937		6,949		395
Residential real estate		12,332		12,681		2,059
Commercial and financial		0		0		0
Consumer		0		0		0
Total Impaired Loans
Construction and land development		277		372		0
Commercial real estate		10,204		11,762		395
Residential real estate		22,038		26,817		2,059
Commercial and financial		199		206		0
Consumer		0		0		0
Total	$	32,718	$	39,157	$	2,454

Impaired loans also include TDRs where concessions have been granted to borrowers who have experienced financial difficulty. At December 31, 2017 and 2016, accruing TDRs totaled $15.6 million and $17.7 million, respectively.

Average impaired loans for the years ended December 31, 2017, 2016, and 2015 were $30.9 million, $31.2 million, and $38.5 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 in principal. For the years ended December 31, 2017, 2016 and 2015, the Company recorded $1.5 million, $1.6 million, and $0.9 million, respectively, in interest income on impaired loans.

For impaired loans whose impairment is measured based on the present value of future cash flows, a total of $0.3 million, $0.2 million and $0.2 million, respectively, for 2017, 2016, and 2015 was included in interest income and represents the change in present value attributable to the passage of time.