e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended December 31,
2010
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File
No. 0-13660
SEACOAST BANKING CORPORATION OF
FLORIDA
(Exact Name of Registrant as
Specified in Its Charter)
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Florida
(State or Other Jurisdiction
of
Incorporation or Organization)
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59-2260678
(I.R.S. Employer
Identification No.)
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815 Colorado Avenue, Stuart, FL
(Address of Principal
Executive Offices)
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34994
(Zip Code)
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Registrants
telephone number, including area code
(772) 287-4000
Securities
registered pursuant to Section 12 (b) of the Act:
None.
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Title of Each Class
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Name of Each Exchange on Which Registered
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Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, Par Value $0.10
(Title of Class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. YES o NO þ
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 o NO þ
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 þ NO o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). YES o NO o
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 registrants
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. o
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):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o
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Indicate by check mark whether the registrant is a shell company
(as defined by
Rule 12b-2
of the Exchange
Act). YES o NO þ
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, 2010, as reported on the
Nasdaq Global Select Market, was $96,164,715.
The number of shares outstanding of Seacoast Banking Corporation
of Florida common stock, par value $0.10 per share, as of
March 11, 2011, was 93,504,788.
DOCUMENTS
INCORPORATED BY REFERENCE
1. Certain portions of the registrants 2011 Proxy
Statement for the Annual Meeting of Shareholders to be held
May 26, 2011 (the 2011 Proxy Statement) are
incorporated by reference into Part III, Items 10
through 14 of this report. Other than those portions of the 2011
Proxy Statement specifically incorporated by reference herein
pursuant to Items 10 through 14, no other portions of the
2011 Proxy Statement shall be deemed so incorporated.
2. Certain portions of the registrants 2010 Annual
Report to Shareholders for the fiscal year ended
December 31, 2010 (the 2010 Annual Report) are
incorporated by reference into Part II, Items 6
through 8 of this report. Other than those portions of the 2010
Annual Report specifically incorporated by reference herein
pursuant to Items 6 through 8, no other portions of the
2010 Annual Report shall be deemed so incorporated.
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TABLE OF
CONTENTS
Certain statistical data required by the Securities and Exchange
Commission are included on pages
15-50 of
Exhibit 13.
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SPECIAL
CAUTIONARY NOTICE
REGARDING FORWARD-LOOKING STATEMENTS
Various of the statements made herein under the captions
Managements Discussion and Analysis of Financial
Condition and Results of Operations, Quantitative
and Qualitative Disclosures about Market Risk, Risk
Factors and elsewhere, are forward-looking
statements within the meaning and protections of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act) and are intended to be
covered by the safe harbor provided by the same.
Forward-looking statements include statements with respect to
our beliefs, plans, objectives, goals, expectations,
anticipations, assumptions, estimates, intentions and future
performance, and involve known and unknown risks, uncertainties
and other factors, which may be beyond our control, and which
may cause the actual results, performance or achievements of
Seacoast 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 future economic, business and market conditions
and changes, domestic and foreign, including seasonality;
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changes in governmental monetary and fiscal policies, including
interest rate policies of the Federal Reserve Board (the
FRB);
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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;
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changes in accounting policies, rules and practices and
applications or determinations made thereunder;
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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;
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changes in borrower credit risks and payment behaviors;
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changes in the availability and cost of credit and capital in
the financial markets;
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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;
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our ability to comply with any requirements imposed on us or on
Seacoast National Bank (Seacoast National) by
regulators and the potential negative consequences that may
result;
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our concentration in commercial real estate loans;
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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;
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the effects of competition from a wide variety of local,
regional, national and other providers of financial, investment
and insurance services;
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the failure of assumptions and estimates underlying the
establishment of reserves for possible loan losses and other
estimates;
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the impact on the valuation of our investments due to market
volatility or counterparty payment risk;
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statutory and regulatory restrictions on our ability to pay
dividends to our shareholders, including those imposed by our
participation in the U.S. Department of the Treasury (the
Treasury) Capital Purchase Program (CPP);
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any applicable regulatory limits on Seacoast Nationals
ability to pay dividends to us;
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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;
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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;
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changes in technology or products that may be more difficult,
costly, or less effective than anticipated;
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the effects of war or other conflicts, acts of terrorism or
other catastrophic events that may affect general economic
conditions;
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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
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other factors and risks described under Risk Factors
herein and in any of our subsequent reports that we make with
the Securities and Exchange Commission (the
Commission or SEC) under the Exchange
Act.
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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 have no obligation and do
not undertake to update, revise or correct any of the
forward-looking statements after the date of this report, or
after the respective dates on which such statements otherwise
are made, except as required by law.
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Part I
General
We are a bank holding company, incorporated in Florida in [date
of incorporation], and registered under the Bank Holding Company
Act of 1956, as amended (the BHC Act). Our principal
subsidiary is Seacoast National Bank (Seacoast
National). Seacoast National commenced its operations in
1933, and operated prior to 2006 as First National
Bank & Trust Company of the Treasure Coast.
As a bank holding company, we are a legal entity separate and
distinct from our subsidiaries, including Seacoast National. We
coordinate the financial resources of the consolidated
enterprise and maintain financial, operational and
administrative systems that allow centralized evaluation of
subsidiary operations and coordination of selected policies and
activities. Our operating revenues and net income are derived
primarily from Seacoast National through dividends and fees for
services performed.
As of December 31, 2010, we had total consolidated assets
of approximately $2,016.4 million, total deposits of
approximately $1,637.2 million, total consolidated
liabilities, including deposits, of approximately
$1,850.1 million and consolidated shareholders equity
of approximately $166.3 million. Our operations are
discussed in more detail under Item 7.
Managements Discussion and Analysis of Consolidated
Financial Condition and Results of Operations incorporated
by reference from our 2010 Annual Report.
We and our subsidiaries offer a full array of deposit accounts
and retail banking services, engage in consumer and commercial
lending and provide a wide variety of trust and asset management
services, as well as securities and annuity products to our
customers. Seacoast National had 39 banking offices in 13
counties in Florida at year-end 2010. We have 23 branches in the
Treasure Coast, including the counties of Martin,
St. Lucie and Indian River on Floridas southeastern coast.
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
Star System, the largest electronic funds transfer
organization in the United States, which permits banking
customers access to their accounts at 2.3 million
participating ATMs and retail locations throughout the United
States.
Seacoast Nationals 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.
This service is available 24 hours a day, seven days a week.
In addition, customers may access information via Seacoast
Nationals Customer Service Center (CSC). From
7 A.M. to 7 P.M., EST Monday through Friday, and on
Saturdays from 9 A.M. to 4 P.M., 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 banking. Our Internet service allows
customers to access transactional information on their deposit
accounts, review loan and deposit balances, transfer funds
between linked accounts and make loan payments from a deposit
account, 24 hours a day, seven days a week.
We have seven indirect, wholly-owned subsidiaries:
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FNB Brokerage Services, Inc. (FNB Brokerage), which
provides brokerage and annuity services;
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FNB Insurance Services, Inc. (FNB Insurance), an
inactive subsidiary, which was formed to provide insurance
agency services;
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South Branch Building, Inc., which is a general partner in a
partnership that constructed a branch facility of Seacoast
National; and
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TCoast Holdings, LLC, BR West, LLC, TC Stuart, LLC and TC
Property Ventures, LLC, each of which was formed to own and
operate certain properties acquired through foreclosure.
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We directly own all the common equity in five 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;
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SBCF Statutory Trust II, formed on December 16, 2005,
also for the purpose of issuing $20 million in trust
preferred securities;
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SBCF Statutory Trust III, formed on June 29, 2007, for
the purpose of issuing $12 million in trust preferred
securities; and
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SBCF Statutory Trusts IV and V, formed on May 16,
2008, for the purpose of issuing additional preferred securities
in the future. These trusts have been inactive since their
formation.
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The operations of each of these direct and indirect subsidiaries
represented less than 10% of our consolidated assets and
contributed less than 10% of our consolidated assets and
revenues.
We have operated an office of Seacoast Marine Finance Division,
a division of Seacoast National, in Ft. Lauderdale, Florida
since February 2000. Seacoast Marine is staffed with experienced
marine lending professionals with a marketing emphasis on marine
loans of $200,000 and greater, with the majority of loan
production sold to correspondent banks on a non-recourse basis.
In November 2002, the Seacoast Marine Finance Division added
offices and personnel in California to serve the western markets.
Our principal offices are located at 815 Colorado Avenue,
Stuart, Florida 34994, and the telephone number at that address
is
(772) 287-4000.
We and our subsidiary Seacoast National maintain Internet
websites at www.seacoastbanking.com and
www.seacoastnational.com, respectively. We are not
incorporating the information on our or Seacoast Nationals
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, 2010, we and our subsidiaries employed
398 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
We have expanded our products and services to meet the changing
needs of the various segments of our market, and we presently
expect to continue this strategy. We have expanded
geographically primarily through the addition of de novo
branches. We also from time to time have acquired banks, bank
branches and deposits, and have opened new branches and loan
production offices.
In 2002, we entered Palm Beach County by establishing a new
branch office. On April 30, 2005, we acquired Century
National Bank, a commercial bank headquartered in Orlando,
Florida. Century National Bank operated as our wholly owned
subsidiary until August 2006 when it was merged with Seacoast
National.
In April 2006, we acquired Big Lake National Bank (Big
Lake), a commercial bank headquartered in Okeechobee,
Florida, inland from our Treasure Coast markets, with nine
offices in seven counties. Big Lake was merged with Seacoast
National in June 2006.
Florida law permits statewide branching, and Seacoast National
has expanded, and anticipates future expansion, by opening
additional bank offices and facilities, as well as by
acquisition of other financial institutions and branches. Since
2002, we have opened and acquired 17 new offices in 14 counties
of Florida. The Seacoast Marine Finance Division operates loan
production offices, or LPOs, in Ft. Lauderdale,
Florida,
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and Newport Beach and Alameda, California. For more information
on our branches and offices see Item 2.
Properties.
We regularly evaluate possible mergers, acquisitions and other
expansion opportunities.
Seasonality;
Cycles
We believe our commercial banking operations are somewhat
seasonal in nature. Investment management fees and deposits
often peak in the first and second quarters, and often are
lowest in the third quarter. Transactional fees from merchants,
and ATM and debit card use also typically peak in the first and
second quarters. Public deposits tend to increase with tax
collections in the first and fourth quarters and decline as a
result of spending thereafter.
Deposits tend to increase due to hurricanes as insurers disburse
insurance proceeds more quickly than hurricane-related damage is
repaired. No major hurricanes occurred between 2006 and 2010; as
a result, deposits were more typical than during 2004 and 2005,
when major hurricanes hit our coastal market areas, leading to
an increase in deposits.
Commercial and residential real estate activity, demand, prices
and sales volumes 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. We also operate in six
competitive counties in central Florida near Lake Okeechobee.
Seacoast National not only competes with other banks of
comparable or larger size in its markets, but also competes with
various other nonbank financial institutions, including savings
and loan associations, credit unions, mortgage companies,
personal and commercial financial companies, investment
brokerage and financial advisory firms and mutual fund
companies. We compete for deposits, commercial, fiduciary and
investment services and various types of loans and other
financial services. Seacoast National also competes for
interest-bearing funds with a number of other financial
intermediaries and investment alternatives, including mutual
funds, brokerage and insurance firms, governmental and corporate
bonds, and other securities. Continued consolidation 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 competitive
advantages.
Our competitors include not only financial institutions based in
the State of Florida, but also a number of large
out-of-state
and foreign banks, bank holding companies and other financial
institutions that have an established market presence in the
State of Florida, or that offer products by mail, telephone or
over the Internet. Many of our competitors are engaged in local,
regional, national and international operations and have greater
assets, personnel and other resources. Some of these competitors
are subject to less regulation
and/or more
favorable tax treatment than us. Many of these institutions have
greater resources, broader geographic markets and higher lending
limits than us and may offer services that we do not offer. In
addition, these institutions may be able to better afford and
make broader use of media advertising, support services, and
electronic and other technology than us. To offset these
potential competitive disadvantages, we depend on our reputation
as an independent, super community bank
headquartered locally, our personal service, our greater
community involvement and our ability to make credit and other
business decisions quickly and locally.
Supervision
and Regulation
Bank holding companies and banks are extensively regulated under
federal and state law. This discussion is qualified in its
entirety by reference to the particular statutory and regulatory
provisions referred to below and is not intended to be an
exhaustive description of the statutes or regulations applicable
to us and Seacoast Nationals business. Supervision,
regulation, and examination of us, Seacoast National and our
respective subsidiaries by the bank regulatory agencies are
intended primarily for the protection of bank depositors and
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the Deposit Insurance Fund (DIF) of the FDIC rather
than holders of our capital stock. The following summarizes
certain of the more important statutory and regulatory
provisions. Substantial changes to the regulatory framework
applicable to us and our subsidiaries were recently passed by
the U.S. Congress, and the majority of the recent
legislative changes will be implemented over time by various
regulatory agencies. For a discussion of such changes, see
Recent Regulatory Developments below. The full
effect of the changes in the applicable laws and regulations, as
implemented by the regulatory agencies, cannot be fully
predicted and could have a material adverse effect on our
business and results of operations.
We are required to comply with various corporate governance and
financial reporting requirements under the Sarbanes-Oxley Act of
2002, as well as rules and regulations adopted by the SEC, the
Public Company Accounting Oversight Board, Nasdaq, and, more
recently, the Treasury, since we are a participant in the
Treasurys Troubled Assets Relief Program
(TARP) CPP. 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, 2010 are included elsewhere in this report
with no material weaknesses reported.
Recent
Regulatory Developments
The Dodd-Frank Wall Street Reform and Consumer Protection Act
of 2010
On July 21, 2010, President Obama signed into law the
Dodd-Frank Act. The Dodd-Frank Act will have a broad impact on
the financial services industry, imposing significant regulatory
and compliance changes, the imposition of increased capital,
leverage and liquidity requirements, and numerous other
provisions designed to improve supervision and oversight of, and
strengthen safety and soundness within, the financial services
sector. Additionally, the Dodd-Frank Act establishes a new
framework of authority to conduct systemic risk oversight within
the financial system to be distributed among new and existing
federal regulatory agencies, including the Financial Stability
Oversight Council, (the Oversight Council), the FRB,
the Office of the Comptroller of the Currency (the
OCC) and the FDIC.
The following items provide a brief description of the relevant
provisions of the Dodd-Frank Act and their potential impact on
our operations and activities, both currently and prospectively.
Creation of New Governmental Agencies. The
Dodd-Frank Act creates various new governmental agencies such as
the Oversight Council and the Bureau of Consumer Financial
Protection (the CFPB), an independent agency housed
within the FRB. The CFPB will have a broad mandate to issue
regulations, examine compliance and take enforcement action
under the federal financial consumer laws. 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 reduces the ability of national
banks to rely upon federal preemption of state consumer
financial laws. Although the OCC will have the ability to make
preemption determinations where certain conditions are met, the
broad rollback of federal preemption has the potential to create
a patchwork of federal and state compliance obligations. This
could, in turn, result in significant new regulatory
requirements applicable to us, with attendant potential
significant changes in our operations and increases in our
compliance costs. It could also result in uncertainty concerning
compliance, with attendant regulatory and litigation risks.
Mortgage Loan Origination and Risk
Retention. The Dodd-Frank Act contains additional
regulatory requirements that may affect our mortgage origination
and servicing operations, result in increased compliance costs
and may impact revenue. For example, in addition to numerous new
disclosure requirements, the Dodd-Frank Act imposes new
standards for mortgage loan originations on all lenders,
including banks, in an effort
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to strongly encourage lenders to verify a borrowers
ability to repay. Most significantly, the new standards limit
the total points and fees that we
and/or a
broker may charge on conforming and jumbo loans to 3% of the
total loan amount. Also, the Dodd-Frank Act, in conjunction with
the FRBs final rule on loan originator compensation issued
August 16, 2010 and effective April 1, 2011, prohibits
certain compensation payments to loan originators and steering
consumers to loans not in their interest because it will result
in greater compensation for a loan originator. These standards
will result in a myriad of new system, pricing and compensation
controls in order to ensure compliance and to decrease
repurchase requests and foreclosure defenses. In addition, the
Dodd-Frank Act generally requires lenders or securitizers to
retain an economic interest in the credit risk relating to loans
the lender sells and other asset-backed securities that the
securitizer issues if the loans have not complied with the
ability to repay standards. The risk retention requirement
generally will be 5%, but could be increased or decreased by
regulation.
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.
Deposit Insurance. The Dodd-Frank Act makes
permanent the $250,000 deposit insurance limit for insured
deposits. Amendments to the Federal Deposit Insurance Act (the
FDIA) also revise the assessment base against which
an insured depository institutions deposit insurance
premiums paid to the DIF will be calculated. Under the
amendments, the assessment base will no longer be the
institutions deposit base, but rather its average
consolidated total assets less its average tangible equity. This
may shift the burden of deposit insurance premiums toward those
depository institutions that rely on funding sources other than
U.S. deposits. Additionally, the Dodd-Frank Act makes
changes to the minimum designated reserve ratio of the DIF,
increasing the minimum from 1.15% to 1.35% of the estimated
amount of total insured deposits, and eliminating the
requirement that the FDIC pay dividends to depository
institutions when the reserve ratio exceeds certain thresholds.
Several of these provisions could increase our FDIC deposit
insurance premiums. The Dodd-Frank Act also provides that,
effective one year after the date of enactment, depository
institutions may pay interest on demand deposits.
Capital Standards. Regulatory capital
standards are expected to change as a result of the Dodd-Frank
Act, and in particular as a result of the Collins Amendment. The
Collins Amendment requires that the appropriate federal banking
agencies establish minimum leverage and risk-based capital
requirements on a consolidated basis for insured depository
institutions and their holding companies. As a result, we and
Seacoast National will be subject to the same capital
requirements, and must include the same components in regulatory
capital. One impact of the Collins Amendment is to prohibit bank
and bank holding companies from including in their Tier 1
regulatory capital certain hybrid debt and equity securities
issued on or after May 19, 2010. Among the hybrid debt and
equity securities included in this prohibition are trust
preferred securities, which we have used in the past as a tool
for raising additional Tier 1 capital and otherwise
improving our regulatory capital ratios.
Shareholder
Say-On-Pay
Votes. The Dodd-Frank Act requires public
companies to take shareholders votes on proposals
addressing compensation (known as
say-on-pay),
the frequency of a
say-on-pay
vote, and the golden parachutes available to executives in
connection with
change-in-control
transactions. Public companies must give shareholders the
opportunity to vote on the compensation at least every three
years and the opportunity to vote on frequency at least every
six years, indicating whether the
say-on-pay
vote should be held annually, biennially, or triennially. The
first
say-on-pay
and
say-on-frequency
votes must occur at our 2011 shareholders annual meeting.
Both the
say-on-pay
and the
say-on-parachute
votes are explicitly nonbinding and cannot override a decision
of our board of directors. It is currently unclear whether the
say-on-frequency
vote is binding.
Many of the requirements called for in the Dodd-Frank Act will
be implemented over time and most will be subject to
implementing regulations over the course of several years. Given
the uncertainty associated with
10
the manner in which the provisions of the Dodd-Frank Act will be
implemented by the various regulatory agencies and through
regulations, the full extent of the impact such requirements
will have on our operations is unclear. 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.
FDIC
Insurance Assessment
On November 12, 2009, the FDIC adopted a final rule that
requires nearly all FDIC-insured depositor-institutions prepay
the DIF assessments for the fourth quarter of 2009 and for the
next three years. In addition, the FDIC voted to adopt a uniform
three-basis point increase in assessment rates effective on
January 1, 2011, which increase would be reflected in our
prepaid assessments. As discussed above, the Dodd-Frank Act
requires the FDIC to substantially revise its regulations for
determining the amount of an institutions deposit
insurance premiums.
Basel
III
As a result of the Dodd-Frank Acts Collins Amendment, we
and Seacoast National will formally be subject to the same
regulatory capital requirements. The current risk-based capital
guidelines that apply to us are based upon the 1988 capital
accord of the international Basel Committee on Banking
Supervision, a committee of central banks and bank supervisors,
as implemented by the U.S. federal banking agencies on an
interagency basis. In 2008, the banking agencies collaboratively
began to phase-in capital standards based on a second capital
accord (Basel II) for large or core
international banks (generally defined for U.S. purposes as
having total assets of $250 billion or more or consolidated
foreign exposures of $10 billion or more). Basel II
emphasizes internal assessment of credit, market and operational
risk, as well as supervisory assessment and market discipline in
determining minimum capital requirements.
On September 12, 2010, the Group of Governors and Heads of
Supervision, the oversight body of the Basel Committee on
Banking Supervision, announced agreement to a strengthened set
of capital requirements for internationally active banking
organizations in the United States and around the world
(Basel III). The agreement is supported by the
U.S. federal banking agencies and the final text of the
Basel III rules was released by the Basel Committee on
Banking Supervision on December 16, 2010. While the timing
and scope of any U.S. implementation of Basel III
remains uncertain, the following items provide a brief
description of the relevant provisions of Basel III and
their potential impact on our capital levels if applied to us.
New Minimum Capital Requirements. Subject to
implementation by the U.S. federal banking agencies,
Basel III would be expected to have the following effects
on the minimum capital levels of banking institutions to which
it applies when fully phased in on January 1, 2019:
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Minimum Common Equity. The minimum requirement
for common equity, the highest form of loss absorbing capital,
will be raised from the current 2.0% level, before the
application of regulatory adjustments, to 4.5% after the
application of stricter adjustments. This requirement will be
phased in by January 1, 2015. As noted below, total common
equity required will rise to 7.0% by January 1, 2019 (4.5%
attributable to the minimum required common equity plus 2.5%
attributable to the capital conservation buffer).
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Minimum Tier 1 Capital. The minimum
Tier 1 capital requirement, which includes common equity
and other qualifying financial instruments based on stricter
criteria, will increase from 4.0% to 6.0% also by
January 1, 2015. Total Tier 1 capital will rise to
8.5% by January 1, 2019 (6.0% attributable to the minimum
required Tier 1 capital ratio plus 2.5% attributable to the
capital conservation buffer, as discussed below).
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Minimum Total Capital. The minimum Total
Capital (Tier 1 and Tier 2 capital) requirement will
increase to 8.0% (10.5% by January 1, 2019, including the
capital conservation buffer).
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Capital Conservation Buffer. An initial
capital conservation buffer of 0.625% above the regulatory
minimum common equity requirement will begin in January 2016 and
will gradually be increased to 2.5% by January 1, 2019. The
buffer will be added to common equity, after the application of
deductions. The purpose of the conservation buffer is to ensure
that banks maintain a buffer of capital that can be used to
absorb losses during periods of financial and economic stress.
It is expected that, while banks would be allowed to draw on the
buffer during such periods of stress, the closer their
regulatory capital ratios approach the minimum requirement, the
greater the constraints that would be applied to earnings
distributions.
Countercyclical Buffer. Basel III expects
regulators to require, as appropriate to national circumstances,
a countercyclical buffer within a range of 0% to
2.5% of common equity or other fully loss absorbing capital. The
purpose of the countercyclical buffer is to achieve the broader
goal of protecting the banking sector from periods of excess
aggregate credit growth. For any given country, it is expected
that this buffer would only be applied when there is excess
credit growth that is resulting in a perceived system-wide build
up of risk. The countercyclical buffer, when in effect, would be
introduced as an extension of the conservation buffer range.
Regulatory Deductions from Common Equity. The
regulatory adjustments (i.e., deductions and prudential
filters), including minority interests in financial
institutions, and deferred tax assets from timing differences,
would be deducted in increasing percentages beginning
January 1, 2014, and would be fully deducted from common
equity by January 1, 2018. Certain instruments that no
longer qualify as Tier 1 capital, such as trust preferred
securities, also would be subject to phase-out over a
10-year
period beginning January 1, 2013.
Non-Risk Based Leverage Ratios. These capital
requirements are supplemented by a non-risk-based leverage ratio
that will serve as a backstop to the risk-based measures
described above. In July 2010, the Governors and Heads of
Supervision agreed to test a minimum Tier 1 leverage ratio
of 3.0% during the parallel run period. Based on the results of
the parallel run period, any final adjustments would be carried
out in the first half of 2017 with a view to adopting the 3.0%
leverage ratio on January 1, 2018, based on appropriate
review and calibration.
Adoption. Basel III was endorsed at the
meeting of the G-20 nations in November 2010 and the final text
of the Basel III rules was subsequently agreed to by the
Basel Committee on Banking Supervision on December 16,
2010. The agreement calls for national jurisdictions to
implement the new requirements beginning January 1, 2013.
At that time, the U.S. federal banking agencies, including
the OCC, will be expected to have implemented appropriate
changes to incorporate the Basel III concepts into
U.S. capital adequacy standards. While the Basel III
changes as implemented in the United States will likely result
in generally higher regulatory capital standards, it is
difficult at this time to predict how any new standards will
ultimately be applied to Seacoast National and us.
Bank
Holding Company Regulation
As a bank holding company, we are subject to supervision and
regulation by the Board of Governors of the Federal Reserve
System (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 and 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 managements ability to
identify, assess and control risk in all areas of operations in
a safe and sound manner and to ensure compliance with laws and
regulations. The Federal Reserve may also examine our non-bank
subsidiaries.
Expansion and Activity Limitations. The BHC
Act requires prior Federal Reserve approval for, among other
things, the acquisition by a bank holding company of direct or
indirect ownership or control of more than 5% of the voting
shares or substantially all the assets of any bank, or for a
merger or consolidation of a
12
bank holding company with another bank holding company. 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 holding
company, may, however, engage in or acquire an interest in a
company that engages in activities which the Federal Reserve has
determined by regulation or order to be so closely related to
banking or managing or controlling banks as to be a proper
incident thereto.
The Gramm-Leach-Bliley Act of 1999 (the GLB)
substantially revised the statutory restrictions separating
banking activities from certain other financial activities.
Under the GLB, bank holding companies that are
well-capitalized and well-managed, as
defined in Federal Reserve Regulation Y, which have and
maintain satisfactory Community Reinvestment Act of
1977, as amended (the CRA) ratings, 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.
In addition, under the merchant banking authority added by the
GLB and Federal Reserve regulation, financial holding companies
are authorized to invest in companies that engage in activities
that are not financial in nature, as long as the financial
holding company makes its investment with the intention of
limiting the term of its investment and does not manage the
company on a
day-to-day
basis, and the invested company does not cross-market with any
of the financial holding companys controlled depository
institutions. Financial holding companies continue to be subject
to supervision and regulation of the Federal Reserve, but the
GLB applies the concept of functional regulation to the
activities conducted by subsidiaries. For example, insurance
activities would be subject to supervision and regulation by
state insurance authorities. While we have not become a
financial holding company, we may elect to do so in the future
in order to exercise the broader activity powers provided by the
GLB. Banks may also engage in similar financial
activities through subsidiaries. The GLB also includes
consumer privacy provisions, and the federal bank regulatory
agencies have adopted extensive privacy rules implementing these
statutory provisions.
The BHC Act permits acquisitions of banks by bank holding
companies, such that we and any other bank holding company,
whether located in Florida or elsewhere, may acquire a bank
located in any other state, subject to certain
deposit-percentage, age of bank charter requirements, and other
restrictions. Federal law also permits national and
state-chartered banks to branch interstate through acquisitions
of banks in other states. Floridas Interstate Branching
Act (the Florida Branching Act) permits interstate
branching. Under the Florida Branching Act, with the prior
approval of the Florida Department of Banking and Finance, a
Florida bank may establish, maintain and operate one or more
branches in a state other than the State of Florida pursuant to
a merger transaction in which the Florida bank is the resulting
bank. In addition, the Florida Branching Act provides that one
or more Florida banks may enter into a merger transaction with
one or more
out-of-state
banks, and an
out-of-state
bank resulting from such transaction may maintain and operate
the branches of the Florida bank that participated in such
merger. An
out-of-state
bank, however, is not permitted to acquire a Florida bank in a
merger transaction, unless the Florida bank has been in
existence and continuously operated for more than three years.
Support of Subsidiary Banks by Holding
Companies. Federal Reserve policy requires a bank
holding company to act as a source of financial and managerial
strength and to preserve and protect its bank subsidiaries in
situations where additional investments in a troubled bank may
not otherwise be warranted. In addition, under the Financial
Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA), where a bank holding company has more than
one bank or thrift subsidiary, each of the bank holding
companys subsidiary depository institutions are
responsible for any losses to the FDIC resulting from an
affiliated depository institutions failure. Accordingly, a
bank holding company may be required to loan money to its bank
subsidiaries in the form of capital notes or other instruments
that qualify as capital under bank regulatory rules. However,
any loans from the holding company to such subsidiary banks
likely will be unsecured and subordinated to such banks
depositors and perhaps to other creditors of the bank.
13
Capital
Requirements
The Federal Reserve and the OCC have risk-based capital
guidelines for bank holding companies and national banks,
respectively. These guidelines require a minimum ratio of
capital to risk-weighted assets (including certain
off-balance-sheet activities, such as standby letters of credit)
of 8%. At least half of the total capital must consist of common
equity, retained earnings and a limited amount of qualifying
preferred stock, less goodwill and certain core deposit
intangibles (Tier 1 capital). The remainder may
consist of non-qualifying preferred stock, qualifying
subordinated, perpetual,
and/or
mandatory convertible debt, term subordinated debt and
intermediate term preferred stock and up to 45% of pretax
unrealized holding gains on available for sale equity securities
with readily determinable market values that are prudently
valued, and a limited amount of any loan loss allowance
(Tier 2 capital and, together with Tier 1
capital, Total Capital). The Federal Reserve has
stated that Tier 1 voting common equity should be the
predominant form of capital.
In addition, the Federal Reserve and the OCC have established
minimum leverage ratio guidelines for bank holding companies and
national banks, which provide for a minimum leverage ratio of
Tier 1 capital to adjusted average quarterly assets
(leverage ratio) equal to 3%, plus an additional
cushion of 1.0% to 2.0%, if the institution has less than the
highest regulatory rating. The guidelines also provide that
institutions experiencing internal growth or making acquisitions
will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without
significant reliance on intangible assets. All bank holding
companies and banks are expected to hold capital commensurate
with the level and nature of their risks, including the volume
and severity of their problem loans, and higher capital may be
required as a result of an institutions risk profile.
Lastly, the Federal Reserves guidelines indicate that the
Federal Reserve will continue to consider a tangible
Tier 1 leverage ratio (deducting all intangibles) in
evaluating proposals for expansion or new activities.
Letter
Agreement with the OCC
The OCC and Seacoast National agreed by letter agreement that
Seacoast National shall maintain specific minimum capital ratios
by March 31, 2009 and subsequent periods, including a total
risk based capital ratio of 12.00 percent and a Tier 1
leverage ratio of 7.50 percent. The agreed upon minimum
capital ratios with the OCC were revised under the letter
agreement to 12.00 percent for the total risk based capital
ratio and 8.50 percent for the Tier l leverage ratio at
January 31, 2010 and for subsequent periods. The federal
bank regulatory agencies have begun seeking higher capital
levels than the minimums due to market conditions and the OCC
had indicated that Seacoast National, in light of risks in its
loan portfolio and local economic conditions, especially in the
real estate markets, should hold capital commensurate with such
risks.
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 institutions 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.
The relevant minimum capital measures are the total risk-based
capital ratio, Tier 1 capital ratio, and the leverage
ratio. Under the regulations, a national bank will be
(i) well capitalized if it has a total
risk-based capital ratio of 10% or greater, a Tier 1
capital ratio of 6% or greater, and a leverage ratio of at least
5%, and is not subject to any written agreement, order, capital
directive, or prompt corrective action directive by a federal
bank regulatory agency to meet and maintain a specific capital
level for any capital measure, (ii) adequately
capitalized if it has a total risk-based capital ratio of
8% or greater, a Tier 1 capital ratio of 4% or greater, and
a leverage ratio of 4% or
14
greater (3% in certain circumstances),
(iii) undercapitalized if it has a total
risk-based capital ratio of less than 8%, a Tier 1 capital
ratio of less than 4% (3% in certain circumstances),
(iv) significantly undercapitalized if it has a
total risk-based capital ratio of less than 6% or a Tier I
capital ratio of less than 3%, or a leverage ratio of less than
3%, or (v) critically undercapitalized if its
tangible equity is equal to or less than 2% of average quarterly
tangible assets. In order to qualify as well-capitalized or
adequately capitalized, an insured depository institution must
meet all three minimum requirements. At each successively lower
capital tier, increasingly stringent corrective actions are or
may be required. The federal bank regulatory agencies have
authority to require additional capital.
As of December 31, 2010, the consolidated capital ratios of
the Seacoast and Seacoast National were as follows:
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Regulatory
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Seacoast
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Seacoast
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Minimum
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(Consolidated)
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National
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Tier 1 capital ratio
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4.0
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%
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16.56
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%
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15.03
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%
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Total risk-based capital ratio
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8.0
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%
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17.84
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%
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16.30
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%
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Leverage ratio
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3.0-5.0
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%
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10.25
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%
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9.29
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%
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As discussed above, we have agreed with the OCC to maintain a
Tier 1 leverage capital ratio of at least 8.50 percent
and a total risk-based capital ratio of at least
12.00 percent.
As previously noted, the regulatory capital framework will
change in important respects as a result of the Dodd-Frank Act
and Basel III. It is widely anticipated that the capital
requirements for most insured depository institutions will
increase, although the nature and amounts of the increase have
not yet been specified.
FDICIA directs that each federal bank regulatory agency
prescribe standards for depository institutions and depository
institution holding companies relating to internal controls,
information systems, internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth
compensation, a maximum ratio of classified assets to capital,
minimum earnings sufficient to absorb losses, a minimum ratio of
market value to book value for publicly traded shares, and such
other standards as the federal bank regulatory agencies deem
appropriate.
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 institutions parent holding
company must guarantee that the institution will comply with
such capital restoration plan. The aggregate liability of the
parent holding company is limited to the lesser of 5% of the
depository institutions 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 regulator approval for acquisitions,
new lines of business, and branching. Such an institution also
is barred from soliciting, taking or rolling over brokered
deposits.
Significantly undercapitalized depository institutions may be
subject to a number of requirements and restrictions, including
orders to sell sufficient voting stock to become adequately
capitalized, requirements to reduce total assets, and cessation
of receipt of deposits from correspondent banks. Critically
undercapitalized institutions are subject to the appointment of
a receiver or conservator within 90 days of becoming
significantly undercapitalized, except under limited
circumstances. Because our company and Seacoast National exceed
applicable capital requirements, the respective managements of
our company and Seacoast
15
National do not believe that the provisions of FDICIA have had
any material effect on our company and Seacoast National or our
respective operations.
FDICIA also contains a variety of other provisions that may
affect the operations of our company and Seacoast National,
including reporting requirements, regulatory standards for real
estate lending, truth in savings provisions, the
requirement that a depository institution give
90 days prior notice to customers and regulatory
authorities before closing any branch, and a prohibition on the
acceptance or renewal of brokered deposits by depository
institutions that are not well capitalized, or are adequately
capitalized and have not received a waiver from the FDIC.
Seacoast National was well capitalized at December 31,
2010, and brokered deposits are not restricted.
Payment
of Dividends
We are a legal entity separate and distinct from Seacoast
National and other subsidiaries. Our primary source of cash,
other than securities offerings, is dividends from Seacoast
National. The prior approval of the OCC is required if the total
of all dividends declared by a national bank (such as Seacoast
National) in any calendar year will exceed the sum of such
banks 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
banks undivided profits after deducting statutory bad
debts in excess of such banks allowance for possible loan
losses.
In addition, our Company and Seacoast National are subject to
various general regulatory policies and requirements relating to
the payment of dividends, including requirements to maintain
adequate capital above regulatory minimums. The appropriate
federal bank regulatory authority may prohibit the payment of
dividends where it has determined that the payment of dividends
would be an unsafe or unsound practice and to prohibit payment
thereof. The OCC and the Federal Reserve have indicated that
paying dividends that deplete a national or state member
banks 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
companys dividends if:
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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;
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its prospective rate of earnings retention is not consistent
with its capital needs and overall current and prospective
financial condition; or
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it will not meet, or is in danger of not meeting, its minimum
regulatory capital adequacy ratios.
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In 2009 and 2010, Seacoast National recorded a net loss and did
not pay any dividends. In 2008, Seacoast National recorded a net
loss and paid $6.8 million in dividends to us.
Prior approval by the OCC is required if the total of all
dividends declared by a national bank in any calendar year
exceeds the banks profits, as defined, for
that year combined with its retained net profits for the
preceding two calendar years. Under this restriction, Seacoast
National cannot distribute any dividends to us, without prior
OCC approval, as of December 31, 2010.
In addition to these regulatory requirements and restrictions,
our ability to pay dividends is also limited by our
participation in the Treasurys CPP, as described below.
Prior to December 19, 2011, unless we have redeemed the
preferred stock issued to the Treasury in the CPP or the
Treasury has transferred the preferred stock to a third party,
we cannot increase our quarterly dividend above $0.01 per share
of common stock. Furthermore, if we are not current in the
payment of quarterly dividends on the Series A Preferred
Stock, we
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cannot pay dividends on our common stock. Due to recent
operating losses, we are currently restricted by the Federal
Reserve from paying dividends on the Series A Preferred
Stock. As a result, we have deferred the payment of seven
dividends to the Treasury and are unable to pay dividends on our
common stock.
Enforcement
Policies and Actions; Formal Agreement with OCC
The Federal Reserve and the OCC monitor compliance with laws and
regulations. Violations of laws and regulations, or other unsafe
and unsound practices, may result in these agencies imposing
fines or penalties, cease and desist orders, or taking other
enforcement actions. Under certain circumstances, these agencies
may enforce these remedies directly against officers, directors,
employees and other parties participating in the affairs of a
bank or bank holding company.
Seacoast National entered into a formal agreement with the OCC
on December 16, 2008 to improve Seacoast Nationals
asset quality. Under the formal agreement, Seacoast
Nationals board of directors appointed a compliance
committee to monitor and coordinate Seacoast Nationals
performance under the formal agreement. The formal agreement
provided for the development and implementation of written
programs to reduce Seacoast Nationals credit risk, monitor
and reduce the level of criticized assets, and manage commercial
real estate (CRE) loan concentrations in light of
current adverse CRE market conditions. Seacoast National
believes it has complied with all of the terms of this agreement.
Bank and
Bank Subsidiary Regulation
Seacoast National is a national bank subject to supervision,
regulation and examination by the OCC, which monitors all areas
of operations, including reserves, loans, mortgages, the
issuance of securities, payment of dividends, establishing
branches, capital adequacy, and compliance with laws. Seacoast
National is a member of the FDIC and, as such, its deposits are
insured by the FDIC to the maximum extent provided by law. See
FDIC Insurance Assessments.
Under Florida law, Seacoast National may establish and operate
branches throughout the State of Florida, subject to the
maintenance of adequate capital and the receipt of OCC approval.
The OCC has adopted the Federal Financial Institutions
Examination Councils (FFIEC) rating system and
assigns each financial institution a confidential composite
rating based on an evaluation and rating of six essential
components of an institutions 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. For most
institutions, the FFIEC has indicated that market risk primarily
reflects exposures to changes in interest rates. When regulators
evaluate this component, consideration is expected to be given
to: managements ability to identify, measure, monitor, and
control market risk; the institutions size; the nature and
complexity of its activities and its risk profile, and the
adequacy of its capital and earnings in relation to its level of
market risk exposure. Market risk is rated based upon, but not
limited to, an assessment of the sensitivity of the financial
institutions earnings or the economic value of its capital
to adverse changes in interest rates, foreign exchange rates,
commodity prices, or equity prices; managements ability to
identify, measure, monitor, and control exposure to market risk;
and the nature and complexity of interest rate risk exposure
arising from nontrading positions.
FNB Brokerage, a Seacoast National subsidiary, is registered as
a securities broker-dealer under the Exchange Act and is
regulated by the Securities and Exchange Commission (the
Commission or SEC). It also is subject to
examination and supervision of its operations, personnel and
accounts by the Financial Industry Regulatory Authority, Inc.
(FINRA). FNB Brokerage is a separate and distinct
entity from Seacoast National, and must maintain adequate
capital under the SECs net capital rule. The net capital
rule limits FNB Brokerages ability to reduce capital by
payment of dividends or other distributions to Seacoast
National. FNB Brokerage is also authorized by the State of
Florida to act as a securities dealer and an investment advisor.
FNB Insurance, a Seacoast National subsidiary, is authorized by
the State of Florida to market insurance products as an agent.
FNB Insurance is a separate and distinct entity from Seacoast
National and is subject to supervision and regulation by state
insurance authorities. It is a financial subsidiary, but is
inactive.
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The Internal Revenue Code of 1986 (the Code), as
amended, provides requirements that must be met with respect to
Seacoast Nationals indirect subsidiary, FNB RE Services,
Inc., which has elected to be taxed as a real estate
investment trust under the Code. FNB RE Services, Inc. was
dissolved at the end of May 2009.
FDIC
Insurance Assessments
Seacoast Nationals deposits are insured by the FDICs
DIF, and Seacoast National is subject to FDIC assessments for
its deposit insurance, as well as assessments by the FDIC to pay
interest on Financing Corporation (FICO) bonds.
Effective January 1, 2009, the FDIC increased it deposit
insurance assessment rates uniformly by 7 basis points
annually for the first quarter 2009 assessment period only.
Annual rates applicable to the first quarter 2009 assessments,
which were collected at the end of June, were as follows:
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Deposit Insurance
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Risk Category
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Assessment Rate
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I
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12 to 14 basis points
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II
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17 basis points
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III
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35 basis points
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IV
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50 basis points
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The FDIC issued another final rule effective April 1, 2009,
to change the way that the FDICs assessment system
differentiates for risk, make corresponding changes to
assessment rates beginning with the second quarter of 2009, as
well as other changes to the deposit insurance assessment rules.
In addition, a one-time special assessment was imposed for the
second quarter of 2009 only, based on the total assets of
Seacoast National, and resulting in an additional $976,000 of
premium paid. The FDICs new rules include a decrease for
long-term unsecured debt, including senior and subordinated debt
and, for small institutions with assets under $10 billion,
a portion of Tier 1 capital; (2) an increase for
secured liabilities above a threshold amount; and (3) an
increase for brokered deposits above a threshold amount. The new
assessment rules increase assessments for banks that use
brokered deposits above a threshold level to fund rapid
asset growth. As a result, we have been required to pay
significantly increased premiums or additional special
assessments.
In 2009, we paid $5.0 million in FDIC insurance premiums,
including $976,000 for a special industry-wide FDIC deposit
insurance assessment of five basis points of an
institutions assets minus Tier 1 capital as of
June 30, 2009. In addition, to restore the FDICs
Deposit Insurance Fund, all FDIC-insured institutions were
required to prepay their deposit premiums for the next
3 years on December 30, 2009. The FDIC ruling also
provided for maintaining the assessment rates at their current
levels through the end of 2010, with a uniform increase of $0.03
per $100 of covered deposits effective January 1, 2011. On
December 30, 2009, we prepaid $14.8 million of FDIC
insurance premiums for the calendar quarters ending
December 31, 2009 through December 31, 2012. In 2010,
we recorded $3.8 million to expense in FDIC insurance
premiums.
Under the FDICs Temporary Liquidity Guarantee Program (the
TLG), the entire amount in any eligible noninterest
bearing transaction accounts was guaranteed by the FDIC to the
extent such balances were not covered by FDIC insurance. The TLG
also provides FDIC guarantees to newly issued senior unsecured
debt of banks and holding companies. The TLG debt guarantee
program expired on December 31, 2009. We and Seacoast
National did not issue any guaranteed debt under TLG. Seacoast
National did not opt out from the extension of the transaction
account guarantee program that expired December 31, 2010,
and provisions under the recent Dodd-Frank legislation will
provide coverage for all noninterest bearing transaction account
balances at all financial institutions through December 31,
2012. Banks participating in the extended noninterest bearing
transaction account guarantee program pay the FDIC an increased
fee of 15 to 25 basis points depending on an
institutions risk category for deposit insurance purposes.
FICO assessments are set by the FDIC quarterly and ranged from
1.14 basis points in the first quarter of 2008 to
1.10 basis points in the last quarter of 2008,
1.14 basis points in the first quarter of 2009 to
1.02 basis points in the last quarter of 2009, and
1.06 basis points in the first quarter of 2010 to
1.04 basis points in the
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last quarter of 2010. The FICO assessment rate for the first
quarter of 2011 is 1.02 basis points. FICO assessments of
approximately $224,000, $192,000 and $184,000 were paid to the
FDIC in 2008, 2009 and 2010, respectively.
Participation
in Treasurys Capital Purchase Program
On October 3, 2008, the Emergency Economic Stabilization
Act of 2008 (EESA) became law. Under the TARP
authorized by EESA, the Treasury established the CPP providing
for the purchase of senior preferred shares of qualifying
FDIC-insured depository institutions and their holding
companies. On December 19, 2008, pursuant to a letter
agreement (the Purchase Agreement), we sold
2,000 shares of Series A Preferred Stock (the
Series A Preferred Stock) and warrants (the
Warrant) to acquire 1,179,245 shares of common
stock to the Treasury pursuant to the CPP for an aggregate
consideration of $50 million. Pursuant to the Purchase
Agreement, the successful public capital raise conducted by the
Company during 2009 reduced the number of shares under the
Warrant by 50 percent to 589,625 shares of common
stock. As a result of our participation in the CPP, we have
agreed to certain limitations on our dividends, distributions
and executive compensation.
Specifically, we are unable to declare dividend payments on our
common, junior preferred or pari passu preferred shares
if we are in arrears on the dividends on the Series A
Preferred Stock. Further, without the Treasury approval, we are
not permitted to increase dividends on our common stock above
$0.01 per share without the Treasurys approval until
December 19, 2011 unless all of the Series A Preferred
Stock has been redeemed or transferred by the Treasury. In
addition, we cannot repurchase shares of common stock or use
proceeds from the Series A Preferred Stock to repurchase
trust preferred securities. Consent of the Treasury generally is
required for us to make any stock repurchase until
December 19, 2011 unless all of the Series A Preferred
Stock has been redeemed or transferred by the Treasury to a
third party. Further, our common, junior preferred or pari
passu preferred shares may not be repurchased if we are in
arrears on the Series A Preferred Stock dividends. In the
event that we fail to pay dividends on the Series A
Preferred Stock for an aggregate of at least six quarterly
dividend periods (whether or not consecutive) the Treasury will
have the right to appoint two directors to our board of
directors until all accrued but unpaid dividends have been paid;
otherwise, except as required by law, holders of the
Series A Preferred Stock have limited voting rights. We
currently have failed to pay dividends on the Series A
Preferred Stock for seven consecutive quarterly dividend periods.
In addition, we have adopted the Treasurys standards for
executive compensation and corporate governance for the period
during which the Treasury holds the equity issued pursuant to
the Purchase Agreement, including the common stock which may be
issued pursuant to the warrant. These standards generally apply
to our chief executive officer, chief financial officer and the
three next most highly compensated senior executive officers.
The standards include:
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ensuring that incentive compensation for senior executives does
not encourage unnecessary and excessive risks that threaten the
value of the financial institution;
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required clawback of any bonus or incentive compensation paid to
a senior executive based on statements of earnings, gains or
other criteria that are later proven to be materially inaccurate;
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prohibition on making golden parachute payments to senior
executives; and
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an agreement not to deduct for tax purposes executive
compensation in excess of $500,000 for each senior executive.
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On February 17, 2009 President Obama signed into law The
American Recovery and Reinvestment Act of 2009 (the
ARRA), commonly known as the economic stimulus or
economic recovery package. The ARRA retroactively imposes
certain new executive compensation and corporate expenditure
limits and corporate governance standards on all current and
future TARP recipients, including us, that are in addition to
those previously announced by the Treasury, until the
institution has repaid the Treasury. The Treasury released an
interim final rule on TARP standards for compensation and
corporate governance on June 10, 2009, which implemented
and further expanded the limitations and restrictions imposed on
executive compensation and corporate governance by the TARP CPP
and ARRA. The new Treasury interim final rules
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also prohibit any tax
gross-up
payments to senior executive officers and the next 20 highest
paid executives; require say on pay vote in annual
shareholders meeting; and impose restrictions on bonus
payments with the exceptions for long-term restricted stock.
In addition, we are also required to include certificates from
our management in our annual report on
Form 10-K
regarding the compliance with all regulations summarized above
as a result of our participation in TARP CPP.
Repayment of the outstanding Series A Preferred Stock and
the Warrant is now permitted under the ARRA without penalty and
without the need to raise new capital, subject to the
Treasurys consultation with the recipients
appropriate regulatory agency, the prior approval of the Federal
Reserve and the maintenance of appropriate levels of capital by
the issuers and their subsidiaries. .
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 Acts money
laundering provisions in acting upon acquisition and merger
proposals, and sanctions for violations of the Act can be
imposed in an amount equal to twice the sum involved in the
violating transaction, up to $1 million.
Under the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism
(USA PATRIOT) Act of 2001, financial institutions
are subject to prohibitions against specified financial
transactions and account relationships as well as enhanced due
diligence and know your customer standards in their
dealings with foreign financial institutions and foreign
customers.
The USA PATRIOT Act requires financial institutions to establish
anti-money laundering programs. The USA PATRIOT Act sets forth
minimum standards for these programs, including:
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the development of internal policies, procedures, and controls;
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the designation of a compliance officer;
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an ongoing employee training program; and
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an independent audit function to test the programs.
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Transactions with Related Parties. We are a
legal entity separate and distinct from Seacoast National and
our other subsidiaries. Various legal limitations restrict our
banking subsidiaries from lending or otherwise supplying funds
to us or our non-bank subsidiaries. We and our banking
subsidiaries are subject to Section 23A of the Federal
Reserve Act and Federal Reserve Regulation W thereunder.
Section 23A defines covered transactions to
include extensions of credit, and limits a banks covered
transactions with any affiliate to 10% of such banks
capital and surplus. All covered and exempt transactions between
a bank and its affiliates must be on terms and conditions
consistent with safe and sound banking practices, and banks and
their subsidiaries are prohibited from purchasing low-quality
assets from the banks affiliates. Finally,
Section 23A requires that all of a banks extensions
of credit to its affiliates be appropriately secured by
acceptable collateral, generally United States government or
agency securities.
We and our bank subsidiaries also are subject to
Section 23B of the Federal Reserve Act, which generally
requires covered and other transactions among affiliates to be
on terms, including credit standards, that are substantially the
same or at least as favorable to the bank or its subsidiary as
those prevailing at the time for similar transactions with
unaffiliated companies.
The Dodd-Frank Act generally enhances the restrictions on
transactions with affiliates under Sections 23A and 23B of
the Federal Reserve Act, including an expansion of the
definition of covered transactions and an increase
in the amount of time for which collateral requirements
regarding covered credit transactions must be satisfied. The
ability of the Federal Reserve Board to grant exemptions from
these
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restrictions is also narrowed by the Dodd-Frank Act, including
with respect to the requirement for the OCC, FDIC and Federal
Reserve Board to coordinate with one another.
Concentrations in Lending. During 2006, the
federal bank regulatory agencies released guidance on
Concentrations in Commercial Real Estate Lending
(the Guidance). The Guidance defines commercial real
estate (CRE) loans as exposures secured by raw land,
land development and construction (including 1-4 family
residential construction), multi-family property, and non-farm
nonresidential property where the primary or a significant
source of repayment is derived from rental income associated
with the property (that is, loans for which 50 percent or
more of the source of repayment comes from third party,
non-affiliated, rental income) or the proceeds of the sale,
refinancing, or permanent financing of the property. Loans to
Real Estate Investment Trusts (REIT) and unsecured
loans to developers that closely correlate to the inherent risks
in CRE markets would also be considered CRE loans under the
Guidance. Loans on owner occupied CRE are generally excluded.
The Guidance requires that appropriate processes be in place to
identify, monitor and control risks associated with real estate
lending concentrations. This could include enhanced strategic
planning, CRE underwriting policies, risk management, internal
controls, portfolio stress testing and risk exposure limits as
well as appropriately designed compensation and incentive
programs. Higher allowances for loan losses and capital levels
may also be required. The Guidance is triggered when CRE loan
concentrations exceed either:
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Total reported loans for construction, land development, and
other land of 100 percent or more of a banks total
capital; or
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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
banks total capital.
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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.
The Guidance applies to our CRE lending activities due to the
concentration in construction and land development loans. At
December 31, 2010, we had outstanding $47.8 million in
commercial construction and residential land development loans
and $31.5 in residential construction loans to individuals,
which represents approximately 39 percent of Seacoast
Nationals total risk based capital at December 31,
2010, well below the Guidances threshold.
We have always had significant exposures to loans secured by
commercial real estate due to the nature of our markets and the
loan needs of both retail and commercial customers. We believe
our long term experience in CRE lending, underwriting policies,
internal controls, and other policies currently in place, as
well as our loan and credit monitoring and administration
procedures, are generally appropriate to managing our
concentrations as required under the Guidance. The federal bank
regulators are looking more closely at the risks of various
assets and asset categories and risk management, and the need
for additional rules regarding liquidity, as well as capital
rules that better reflects risk. We have agreed with the OCC to
manage our CRE risks. At December 31, 2010, total CRE
exposure for Seacoast National had been significantly reduced to
218 percent of total risk based capital, below the
Guidances threshold. See Item 1.
Business Enforcement Policies and Actions.
Community Reinvestment Act. We and our banking
subsidiaries are subject to the provisions of the 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 institutions primary federal
regulator, in connection with its examination of the
institution, to assess the institutions record of
assessing and meeting the credit needs of the communities served
by that institution, including low- and moderate-income
neighborhoods. The bank regulatory agencys assessment of
the institutions 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
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(vi) expand other activities, including engaging in
financial services activities authorized by the GLB. A less than
satisfactory CRA rating will slow, if not preclude, expansion of
banking activities and prevent a company from becoming or
remaining a financial holding company.
Following the enactment of the GLB, CRA agreements with private
parties must be disclosed and annual CRA reports must be made to
a banks 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 Act imposed
new requirements on financial institutions with respect to
consumer privacy. The GLB Act 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 Act. The GLB Act also directed federal
regulators, including the FDIC and the OCC, to prescribe
standards for the security of consumer information. Seacoast
National is subject to such standards, as well as standards for
notifying customers in the event of a security breach. Under
federal law, Seacoast National must disclose its privacy policy
to consumers, permit customers to opt out of having nonpublic
customer information disclosed to third parties in certain
circumstances, and allow customers to opt out of receiving
marketing solicitations based on information about the customer
received from another subsidiary. States may adopt more
extensive privacy protections. The Company is similarly required
to have an information security program to safeguard the
confidentiality and security of customer information and to
ensure proper disposal. Customers must be notified when
unauthorized disclosure involves sensitive customer information
that may be misused.
Consumer Regulation. Activities of Seacoast
National are subject to a variety of statutes and regulations
designed to protect consumers. These laws and regulations
include provisions that:
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limit the interest and other charges collected or contracted for
by Seacoast National, including new rules respecting the terms
of credit cards and of debit card overdrafts;
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govern Seacoast Nationals disclosures of credit terms to
consumer borrowers;
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require Seacoast National to provide information to enable the
public and public officials to determine whether it is
fulfilling its obligation to help meet the housing needs of the
community it serves;
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prohibit Seacoast National from discriminating on the basis of
race, creed or other prohibited factors when it makes decisions
to extend credit; and
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govern the manner in which Seacoast National may collect
consumer debts.
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New rules on credit card interest rates, fees, and other terms
took effect on February 22, 2010, as directed by the Credit
Card Accountability, Responsibility and Disclosure
(CARD) Act. Among the new requirements are
(1) 45-days
advance notice to a cardholder before the interest rate on a
card may be increased, subject to certain exceptions; (2) a
ban on interest rate increases in the first year; (3) an
opt-in for
over-the-limit
charges; (4) caps on high fee cards; (5) greater
limits on the issuance of cards to persons below the age of 21;
(6) new rules on monthly statements and payment due dates
and the crediting of payments; and (7) the application of
new rates only to new charges and of payments to higher rate
charges.
New rules regarding overdraft charges for debit card and
automatic teller machine, or ATM, transactions took effect on
July 1, 2010. These rules eliminated automatic overdraft
protection arrangements now in common use and required banks to
notify and obtain the consent of customers before enrolling them
in an overdraft protection plan. For existing debit card and ATM
card holders, the current automatic programs expired on
August 15, 2010. The notice and consent process is a
requirement for all new cards issued on or after July 1,
2010. The new rules do not apply to overdraft protection on
checks or to automatic bill payments.
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As a result of the turmoil in the residential real estate and
mortgage lending markets, there are several concepts currently
under discussion at both the federal and state government levels
that could, if adopted, alter the terms of existing mortgage
loans, 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. If made final, any or all of these
proposals could have a negative effect on the financial
performance of Seacoast Nationals mortgage lending
operations, by, among other things, reducing the volume of
mortgage loans that Seacoast National can originate and sell
into the secondary market and impairing Seacoast Nationals
ability to proceed against certain delinquent borrowers with
timely and effective collection efforts.
The deposit operations of Seacoast National are also subject to
laws and regulations that:
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require Seacoast National to adequately disclose the interest
rates and other terms of consumer deposit accounts;
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impose a duty on Seacoast National to maintain the
confidentiality of consumer financial records and prescribe
procedures for complying with administrative subpoenas of
financial records;
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require escheatment of unclaimed funds to the appropriate state
agencies after the passage of certain statutory time
frames; and
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govern automatic deposits to and withdrawals from deposit
accounts with Seacoast National and the rights and liabilities
of customers who use automated teller machines, or ATMs, and
other electronic banking services. As described above, beginning
in July 2010, new rules took effect that limited Seacoast
Nationals ability to charge fees for the payment of
overdrafts for every day debit and ATM card transactions.
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As noted above, Seacoasts National will likely face a
significant increase in its consumer compliance regulatory
burden as a result of the combination of the newly-established
CFPB and the significant roll back of federal preemption of
state laws in the area.
Non-Discrimination Policies. Seacoast National
is also subject to, among other things, the provisions of the
Equal Credit Opportunity Act (the ECOA) and the Fair
Housing Act (the FHA), both of which prohibit
discrimination based on race or color, religion, national
origin, sex, and familial status in any aspect of a consumer or
commercial credit or residential real estate transaction. The
Department of Justice (the DOJ), and the federal
bank regulatory agencies have issued an Interagency Policy
Statement on Discrimination in Lending that provides guidance to
financial institutions in determining whether discrimination
exists, how the agencies will respond to lending discrimination,
and what steps lenders might take to prevent discriminatory
lending practices. The DOJ has increased its efforts to
prosecute what it regards as violations of the ECOA and FHA.
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.
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
23
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
Difficult
market conditions have adversely affected and may continue to
affect our industry.
We are exposed to downturns in the U.S. economy, and
particularly the local markets in which we operate in Florida.
Declines in the housing markets over the past three years,
including falling home prices and sales volumes, and increasing
foreclosures, have negatively affected the credit performance of
mortgage loans and resulted in significant write-downs of asset
values by financial institutions, including government-sponsored
entities and major commercial and investment banks, as well as
Seacoast National. These write-downs have caused many financial
institutions to seek additional capital, to merge with larger
and stronger institutions and, in some cases, to fail. Many
lenders and institutional investors have reduced or ceased
providing funding to borrowers, including other financial
institutions. This market turmoil and the tightening of credit
have led to increased levels of commercial and consumer
delinquencies, lack of consumer confidence, increased market
volatility and reductions in business activity generally. The
resulting economic pressure on consumers and lack of confidence
in the financial markets has adversely affected our business,
financial condition and results of operations. We do not expect
that the difficult conditions in the financial markets are
likely to improve in the near future. A worsening of these
conditions would likely exacerbate the adverse effects of these
difficult market conditions on us and other financial
institutions. In particular:
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We expect to face increased regulation of our industry,
including as a result of recent regulatory reform initiatives by
the U.S. government. Compliance with such regulations may
increase our costs and limit our ability to pursue business
opportunities.
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Market developments, government programs and the winding down of
various government programs may continue to adversely affect
consumer confidence levels and may cause adverse changes in
borrower behaviors and payment rates, resulting in further
increases in delinquencies and default rates, which could affect
our loan charge-offs and our provisions for credit losses.
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Our ability to assess the creditworthiness of our customers or
to estimate the values of our assets and collateral for loans
will be reduced if the models and approaches we use become less
predictive of future behaviors, valuations, assumptions or
estimates. We estimate losses inherent in our credit exposure,
the adequacy of our allowance for loan losses and the values of
certain assets by using estimates based on difficult,
subjective, and complex judgments, including estimates as to the
effects of economic conditions and how these economic conditions
might affect the ability of our borrowers to repay their loans
or the value of assets.
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Our ability to borrow from other financial institutions on
favorable terms or at all, or to raise capital, could be
adversely affected by further disruptions in the capital markets
or other events, including, among other things, deterioration in
investor expectations and changes in the FDICs resolution
authority or practices.
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Failures of other depository institutions in our markets and
increasing consolidation of financial services companies as a
result of current market conditions could increase our deposits
and assets, necessitating additional capital, and may have
unexpected adverse effects upon our ability to compete
effectively.
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We are
not paying dividends on our preferred stock or common stock and
are deferring distribution on our trust preferred securities,
and we are restricted in otherwise paying cash dividends on our
common stock. The failure to resume paying dividends on our
preferred stock and trust preferred securities may adversely
affect us.
We suspended dividend payments on our preferred and common stock
and distributions on our trust preferred securities on
May 19, 2009, pursuant to the request of the Federal
Reserve, because of the Federal Reserves policy that bank
holding companies should not pay dividends or make distributions
on trust
24
preferred securities using funds from the TARP CPP. There is no
assurance that we will receive approval to resume paying cash
dividends. Even if we are allowed to resume paying dividends by
the Federal Reserve, future payment of cash dividends on our
common stock, if any, will be subject to the prior payment of
all unpaid dividends and deferred distributions on our
Series A Preferred Stock and trust preferred securities.
Further, we need prior Treasury approval to increase our
quarterly cash dividends above $0.01 per common share through
the earliest of December 19, 2011, the date we redeem all
shares of Series A Preferred Stock or the Treasury has
transferred all shares of Series A Preferred Stock to third
parties. All dividends are declared and paid at the discretion
of our board of directors and are dependent upon our liquidity,
financial condition, results of operations, capital requirements
and such other factors as our board of directors may deem
relevant
Further, dividend payments on our Series A Preferred Stock
and distributions on our trust preferred securities are
cumulative and therefore unpaid dividends and distributions will
accrue and compound on each subsequent dividend payment date. In
the event of any liquidation, dissolution or winding up of the
affairs of our Company, holders of the Series A Preferred
Stock shall be entitled to receive for each share of
Series A Preferred Stock the liquidation amount plus the
amount of any accrued and unpaid dividends. We cannot pay
dividends on our outstanding shares of Series A Preferred
Stock or our common stock until we have paid in full all
deferred distributions on our trust preferred securities, which
will require prior approval of the Federal Reserve.
The
Treasury currently has the right to appoint two directors to the
Companys board of directors.
Because we have missed more than six quarterly dividend
payments, the Treasury has the right to appoint two directors to
our board of directors until all accrued but unpaid dividends
have been paid. In the event that the Treasury elects to
exercise this right, we could face negative publicity and the
decision making authority of current members of our board of
directors could be significantly impacted.
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, 2010 and 2009, our nonperforming loans
(which consist of non-accrual loans) totaled $68.3 million
and $97.9 million, or 5.5 percent and 7.0 percent
of the loan portfolio, respectively. At December 31, 2010
and 2009, our nonperforming assets (which include foreclosed
real estate) were $94.0 million and $123.3 million, or
4.7 percent and 5.7 percent of assets, respectively.
In addition, we had approximately $5.0 million and
$8.8 million in accruing loans that were 30 days or
more delinquent at December 31, 2010 and 2009,
respectively. Our nonperforming assets adversely affect our net
income in various ways. Until economic and market conditions
improve, we may incur additional losses relating to an increase
in nonperforming loans. We do not record interest income on
nonaccrual loans or other real estate owned, thereby adversely
affecting our income, and increasing our loan administration
costs. When we take collateral in foreclosures and similar
proceedings, we are required to mark the related loan to the
then fair market value of the collateral, which may result in a
loss. These loans and other real estate owned also increase our
risk profile and the capital our regulators believe is
appropriate in light of such risks. 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.
Seacoast National has adopted and implemented a written program
to ensure Bank adherence to a written program designed to
eliminate the basis of criticism of criticized assets as
required by the OCC pursuant to the formal agreement that
Seacoast National entered into with the OCC. While we have
reduced our problem assets significantly through loan sales,
workouts, restructurings and otherwise, decreases in the value
of these remaining assets, or the underlying collateral, or in
these borrowers performance or financial conditions,
whether or not due to economic and market conditions beyond our
control, could adversely affect our business, results of
operations and financial condition. In addition, the resolution
of nonperforming assets requires significant commitments of time
from management and our directors, which can be detrimental to
the
25
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.
Liquidity
risks could affect operations and jeopardize our financial
condition.
Liquidity is essential to our business. An inability to raise
funds through deposits, borrowings, the sale of loans and other
sources could have a substantial negative effect on our
liquidity. Our funding sources include federal funds purchases,
securities sold under repurchase agreements, non-core deposits,
and short- and long-term debt. We are also members of the
Federal Home Loan Bank of Atlanta (the FHLB) and the
Federal Reserve Bank of Atlanta, where we can obtain advances
collateralized with eligible assets. We maintain a portfolio of
securities that can be used as a secondary source of liquidity.
There are other sources of liquidity available to us or Seacoast
National should they be needed, including our ability to acquire
additional non-core deposits, the issuance and sale of debt
securities, and the issuance and sale of preferred or common
securities in public or private transactions.
Our access to funding sources in amounts adequate to finance or
capitalize our activities or on terms which are acceptable to us
could be impaired by factors that affect us specifically or the
financial services industry or economy in general. Factors that
could detrimentally impact our access to liquidity sources
include a downturn in the markets in which our loans are
concentrated or adverse regulatory action against us. In
addition, our access to deposits may be affected by the
liquidity
and/or cash
flow needs of depositors. Although we have historically been
able to replace maturing deposits and FHLB advances as
necessary, we might not be able to replace such funds in the
future and can lose a relatively inexpensive source of funds and
increase our funding costs if, among other things, customers
move funds out of bank deposits and into alternative
investments, such as the stock market, that are perceived as
providing superior expected returns. We may be required to seek
additional regulatory capital through capital raising at terms
that may be very dilutive to existing stockholders. In addition,
our liquidity, on a parent only basis, is adversely affected by
our current inability to receive dividends from Seacoast
National without prior regulatory approval.
Our ability to borrow could also be impaired by factors that are
not specific to us, such as further disruption 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 the continued deterioration
in credit markets.
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. The credit quality of our
borrowers has deteriorated as a result of the economic downturn
in our markets. If the credit quality of our customer base or
their debt service behavior materially decreases further, if the
risk profile of a market, industry or group of customers
declines further or weaknesses in the real estate markets and
other economics persist or worsen, or if our allowance for loan
losses is not adequate, our business, financial condition,
including our liquidity and capital, and results of operations
could be materially adversely affected. In addition, bank
regulatory agencies periodically review our allowance for loan
losses and may require an increase in the provision for loan
losses or the recognition of further loan charge-offs, based on
judgments different than those of management. If charge-offs in
future periods exceed the allowance for loan losses, we will
need additional provisions to increase the allowance for
26
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.
All of
our loan portfolios have been affected by the sustained economic
weakness of our markets and the effects of higher unemployment
rates. Our commercial and residential real estate and real
estate-related portfolios have been especially affected by
adverse market conditions, including reduced real estate prices
and sales levels.
Our commercial and residential real estate and real
estate-related loans, especially construction and development
loans, have been affected adversely by the on-going correction
in real estate prices, reduced levels of sales during the
recessions, and the economic weakness of our Florida markets and
the effects of higher unemployment rates. We may have to
increase our allowance for loan losses through additional
provisions for loan losses because of continued adverse changes
in the economy, market conditions, and events that adversely
affect our customers or markets. Our business, financial
condition, liquidity, capital (especially tangible common
equity), and results of operations could be materially adversely
affected by additional provisions for loan losses.
Current
and further deterioration in the real estate markets, including
the secondary market for residential mortgage loans, have
adversely affected us and may continue to 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 further price
reductions in single family home values, further 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 sale of mortgage loans.
Declining real estate prices have caused 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 have limited the market for and
liquidity of most residential mortgage loans other than
conforming Fannie Mae and Freddie Mac loans. These trends could
continue, notwithstanding various government programs to boost
the residential mortgage markets and stabilize the housing
markets. 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 further 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.
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 higher
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. Further declines in home prices coupled with the
continued economic recession in our markets and continued high
or increased unemployment levels could cause additional losses
which could adversely affect our earnings and financial
condition, including our capital and liquidity.
The
Dodd-Frank Wall Street Reform and Consumer Protection Act could
increase our regulatory compliance burden and associated costs
or otherwise adversely affect our business.
On July 21, 2010, the Dodd-Frank Act was signed into law.
The Dodd-Frank Act represents a significant overhaul of many
aspects of the regulation of the financial services industry.
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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. 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 Act establishes a new,
independent CFPB, which will have 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 Dodd-Frank Act will likely 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.
Our
concentration in commercial real estate loans could result in
further increased loan losses.
Commercial real estate (CRE) is cyclical and poses
risks of loss to us due to our concentration levels and similar
risks of the asset. As of December 31, 2010 and 2009,
respectively, 47.7 percent and 50.7 percent of
our loan portfolio was comprised of CRE loans. 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 2010, we added
$31.7 million to our provisions for loan losses compared to
$124.8 million in 2009, and $88.6 million in 2008, in
part reflecting collateral evaluations in response to recent
changes in the market values of land collateralizing acquisition
and development loans.
Pursuant to the formal agreement that Seacoast National entered
into with the OCC, Seacoast National adopted and implemented a
written commercial real estate concentration risk management
program. However, there is no guarantee that the program will
effectively reduce our concentration in commercial real estate.
Higher
FDIC deposit insurance premiums and assessments could adversely
affect our financial condition.
FDIC insurance premiums increased substantially in 2009 and we
expect to pay significantly higher FDIC premiums in the future.
Market developments have significantly depleted the insurance
fund of the FDIC and reduced the ratio of reserves to insured
deposits. The FDIC adopted a revised risk-based deposit
insurance assessment schedule on February 27, 2009, which
raised deposit insurance premiums. On May 22, 2009, the
FDIC implemented a five basis point special assessment of each
insured depository institutions assets minus Tier 1
capital as of June 30, 2009, but no more than 10 basis
points times the institutions assessment base for the
second quarter of 2009, collected on September 30, 2009.
The FDIC also required all FDIC-insured institutions to prepay
their estimated quarterly risk-based assessments for the fourth
quarter of 2009 and for all of 2010, 2011 and 2012, which was
paid on December 30, 2009.
We also participate in the FDICs TLG for
noninterest-bearing transaction deposit accounts. Banks that
participate in the TLGs noninterest-bearing transaction
account guarantee paid the FDIC an annual assessment of
10 basis points on the amounts in such accounts above the
amounts covered by FDIC deposit insurance. TLGs
noninterest-bearing transaction deposit account guarantee
program was scheduled to expire on December 31, 2009, but
was extended to December 31, 2010. Management decided to
participate in the extended program. Institutions that
participate in the program are required to pay an annualized fee
of 15 to 25 basis points in accordance with their risk
category rating assigned by the FDIC. To the extent that these
TLG assessments are insufficient to cover any loss or expenses
arising from the TLG program, the FDIC is
28
authorized to impose an emergency special assessment on all
FDIC-insured depository institutions. The FDIC has authority to
impose charges for the TLG program upon depository institution
holding companies, as well. The increased premiums and TLG
assessments charged by the FDIC increased our noninterest
expense in 2010 and 2009.
Under the Dodd-Frank legislation recently passed, unlimited
deposit insurance coverage on noninterest bearing transaction
accounts to all FDIC insured institutions was approved through
December 31, 2012. Unlike the TLG program, which will
expire at December 31, 2010, the Dodd-Frank provisions
apply at all FDIC insured institutions and will cover only
traditional checking accounts that do not pay interest. Under
this legislation our noninterest expense is expected to continue
to increase prospectively.
Current
levels of market volatility are unprecedented.
The capital and credit markets have been experiencing volatility
and disruption for more than three years. In some cases, the
markets have produced downward pressure on stock prices and
credit availability for certain issuers without regard to those
issuers underlying financial condition or performance. If
current levels of market disruption and volatility continue or
worsen, we may experience adverse effects, which may be
material, on our ability to maintain or access capital and on
our business, financial condition and results of operations.
We
could encounter difficulties as a result of our
growth.
Our loans, deposits, fee businesses and employees have increased
as a result of our organic growth and acquisitions. Our failure
to successfully manage and support this growth with sufficient
human resources, training and operational, financial and
technology resources in challenging markets and economic
conditions could have a material adverse effect on our operating
results and financial condition.
We are
required to maintain capital to meet regulatory requirements,
and if we fail to maintain sufficient capital, whether due to
losses, an inability to raise additional capital or otherwise,
our financial condition, liquidity and results of operations, as
well as our compliance with regulatory requirements, would be
adversely affected.
Both we and Seacoast National must meet regulatory capital
requirements and maintain sufficient liquidity and our
regulators may modify and adjust such requirements in the
future. Seacoast National agreed to an informal letter agreement
with the OCC to maintain a Tier 1 leverage capital ratio of
8.50 percent and a total risk-based capital ratio of
12.00 percent, which are higher than the regulatory minimum
capital ratios. We also face significant regulatory and other
governmental risk as a financial institution and a participant
in the TARP CPP.
Our ability to raise additional capital, when and if needed,
will depend on conditions in the capital markets, general
economic conditions and a number of other factors, including
investor perceptions regarding the banking industry and the
market, governmental activities, many of which are outside our
control, and on our financial condition and performance.
Accordingly, we cannot assure you that we will be able to raise
additional capital if needed or on terms acceptable to us. If we
fail to meet these capital and other regulatory requirements,
our financial condition, liquidity and results of operations
would be materially and adversely affected.
Although we currently comply with all capital requirements, we
may 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 and preferred stock, make distributions on our trust
preferred securities, our ability to make acquisitions, and our
business, results of operation and financial conditions,
generally. Under FDIC rules, if Seacoast National ceases to be a
well capitalized institution for bank regulatory
purposes, its ability to accept brokered deposits may be
restricted and the interest rates that it pays may be restricted.
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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, and 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 by sales of our capital
securities.
As of December 31, 2010, we had deferred tax assets of
$18.9 million after we recorded $47.9 million of
valuation allowance based on managements estimation of the
likelihood of those deferred tax assets being realized. These
and future 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 the amount
of the deferred tax asset.
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 of the Internal
Revenue Code. 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. Our
sales of common stock in April 2010 increased the risk of a
possible future change in control under Section 382.
Our
cost of funds may increase as a result of general economic
conditions, FDIC insurance assessments, interest rates and
competitive pressures.
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
principally through local deposits and 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.
Our
profitability and liquidity may be affected by changes in
interest rates and economic conditions.
Our profitability depends upon net interest income, which is the
difference between interest earned on assets, and interest
expense on interest-bearing liabilities, such as deposits and
borrowings. Net interest income will be adversely affected if
market interest rates change such that the interest we pay on
deposits and borrowings and our FDIC deposit insurance
assessments increase faster than the interest earned on loans
and investments. Interest rates, and consequently our results of
operations, are affected by general economic conditions
(domestic and foreign) and fiscal and monetary policies may
materially affect the level and direction of interest rates.
From June 2004 to mid-2006, the Federal Reserve raised the
federal funds rate from 1.0 percent to 5.25 percent.
Since then, beginning in September 2007, the Federal Reserve
decreased the federal funds rates by 100 basis points to
4.25 percent over the remainder of 2007, and has since
reduced the target federal funds rate by an additional
400 basis points to a range between zero and 25 basis
points beginning in December 2008. Decreases in interest rates
generally increase the market values of fixed-rate,
interest-bearing investments and loans held, and increase the
values of loan sales and mortgage loan activities. However, the
production of mortgages and other loans and the value of
collateral securing our loans, are dependent on demand within
the markets we serve, as well as interest rates. The levels of
sales, as well as the values of real estate in our markets, have
declined. Declining rates reflect efforts by the Federal Reserve
to
30
stimulate the economy, but may not be effective, and thus may
negatively affect our results of operations and financial
condition, liquidity and earnings.
On February 18, 2010, the Federal Reserve raised the
discount rate from 0.5 percent to 0.75%. Increases in
interest rates generally decrease the market values of
fixed-rate, interest-bearing investments and loans held and the
production of mortgage and other loans and the value of
collateral securing our loans, and therefore may adversely
affect our liquidity and earnings.
The
TARP CPP and the ARRA impose, and other proposed rules may
impose additional, executive compensation and corporate
governance requirements that may adversely affect us and our
business, including our ability to recruit and retain qualified
employees.
The purchase agreement we entered into in connection with our
participation in the TARP CPP required us to adopt the
Treasurys standards for executive compensation and
corporate governance while the Treasury holds the equity issued
pursuant to the TARP CPP, including the common stock which may
be issued pursuant to the warrant to purchase
589,623 shares of common stock (or the Warrant)
which we refer to as the TARP Assistance Period. These standards
generally apply to our chief executive officer, chief financial
officer and the three next most highly compensated senior
executive officers. The standards include:
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ensuring that incentive compensation for senior executives does
not encourage unnecessary and excessive risks that threaten the
value of the financial institution;
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required clawback of any bonus or incentive compensation paid to
a senior executive based on statements of earnings, gains or
other criteria that are later proven to be materially inaccurate;
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prohibition on making golden parachute payments to senior
executives; and
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agreement not to deduct for tax purposes executive compensation
in excess of $500,000 for each senior executive.
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In particular, the change to the deductibility limit on
executive compensation may increase the overall cost of our
compensation programs in future periods.
The ARRA imposed further limitations on compensation during the
TARP Assistance Period including:
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a prohibition on making any golden parachute payment to a senior
executive officer or any of our next five most highly
compensated employees;
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a prohibition on any compensation plan that would encourage
manipulation of the reported earnings to enhance the
compensation of any of its employees; and
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a prohibition of the five highest paid executives from receiving
or accruing any bonus, retention award or incentive
compensation, or bonus except for long-term restricted stock
with a value not greater than one-third of the total amount of
annual compensation of the employee receiving the stock.
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The Treasury released an interim final rule on TARP standards
for compensation and corporate governance on June 10, 2009,
which implemented and further expanded the limitations and
restrictions imposed on executive compensation and corporate
governance by the TARP CPP and ARRA. The new Treasury interim
final rules also prohibit any tax
gross-up
payments to senior executive officers and the next 20 highest
paid executives; require a say on pay vote in annual
shareholders meetings; and restrict stock or units that
may vest or become transferable granted to executives.
The Federal Reserve has proposed guidelines on executive
compensation. The FDIC also has proposed a rule to incorporate
employee compensation factors into the risk assessment system
which would adjust risk-based deposit insurance assessment rates
if the design of certain compensation programs does not satisfy
certain FDIC goals to prevent executive compensation from
encouraging undue risk-taking.
These provisions and any future rules issued by the Treasury,
the Federal Reserve and the FDIC or any other regulatory
agencies could adversely affect our ability to attract and
retain management capable and motivated sufficiently to manage
and operate our business through difficult economic and market
conditions. If
31
we are unable to attract and retain qualified employees to
manage and operate our business, we may not be able to
successfully execute our business strategy.
The
short-term and long-term impact of the new Basel III
capital standards and the forthcoming new capital rules for
non-Basel U.S. banks is uncertain.
On September 12, 2010, the Group of Governors and Heads of
Supervision, the oversight body of the Basel Committee on
Banking Supervision, announced an agreement to a strengthened
set of capital requirements for internationally active banking
organizations in the United States and around the world, known
as Basel III. When implemented by U.S. banking authorities,
which have expressed support for the new capital standards. For
a more detailed description of Basel III, see Item 1.
Business Supervision and Regulation.
Changes
in accounting and tax rules applicable to banks could adversely
affect our financial conditions 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.
TARP
lending goals may not be attainable.
Congress and the bank regulators have encouraged recipients of
TARP capital to use such capital to make loans and it may not be
possible to safely, soundly and profitably make sufficient loans
to creditworthy persons in the current economy to satisfy such
goals. Congressional demands for additional lending by
recipients of TARP capital, and regulatory demands for
demonstrating and reporting such lending, are increasing. On
November 12, 2008, the bank regulatory agencies issued a
statement encouraging banks to, among other things, lend
prudently and responsibly to creditworthy borrowers and to
work with borrowers to preserve homeownership and avoid
preventable foreclosures. We continue to lend and have
expanded our mortgage loan originations, and to report our
lending to the Treasury. The future demands for additional
lending are unclear and uncertain, and we could be forced to
make loans that involve risks or terms that we would not
otherwise find acceptable or in our shareholders best
interest. Such loans could adversely affect our results of
operation and financial condition, and may be in conflict with
bank regulations and requirements as to liquidity and capital.
The profitability of funding such loans using deposits may be
adversely affected by increased FDIC insurance premiums.
Changes
of TARP program and future rules applicable to banks generally
or to TARP recipients could adversely affect our operations,
financial condition, and results of operations.
The rules and policies applicable to recipients of capital under
the TARP CPP continue to evolve and their scope, timing and
effect cannot be predicted. Any redemption of the securities
sold to the Treasury to avoid these restrictions would require
prior Federal Reserve and Treasury approval. Based on recently
issued Federal Reserve guidelines, institutions seeking to
redeem TARP CPP preferred stock must demonstrate an ability to
access the long-term debt markets without reliance on the
FDICs TLG, successfully demonstrate access to public
equity markets and meet a number of additional requirements and
considerations before we can redeem any securities sold to the
Treasury. Therefore, it is uncertain if we will be able to
redeem such securities even if we have sufficient financial
resources to do so.
In addition, the government is contemplating potential new
programs under TARP, including programs to promote small
business lending, among other initiatives. It is uncertain
whether we will qualify for those new programs and whether those
new programs may impose additional restrictions on our operation
and affect our financial condition in the future.
32
Our
continued participation in the TARP Capital Purchase Program may
adversely affect our ability to retain customers, attract
investors, compete for new business opportunities and retain
high performing employees.
Several financial institutions which participated in the TARP
CPP received approval from the Treasury to exit the program
during the second half of 2009 and in 2010. These institutions
have, or are in the process of, repurchasing the preferred stock
and repurchasing or auctioning the warrant issued to the
Treasury as part of the TARP CPP. We have not yet requested
approval to repurchase the preferred stock and warrant from the
Treasury. In order to repurchase one or both securities, in
whole or in part, we must establish that we have satisfied all
of the conditions to repurchase, and there can be no assurance
that we will be able to repurchase these securities from the
Treasury.
Our customers, employees, counterparties in our current and
future business relationships, and the media may draw negative
implications regarding the strength of Seacoast as a financial
institution based on our continued participation in the TARP CPP
following the exit of one or more of our competitors or other
financial institutions. Any such negative perceptions may impair
our ability to effectively compete with other financial
institutions for business. In addition, because we have not yet
repurchased the Treasurys TARP CPP investment, we remain
subject to the restrictions on incentive compensation contained
in the ARRA. Financial institutions which have repurchased the
Treasurys CPP investment are relieved of the restrictions
imposed by the ARRA and its implementing regulations. Due to
these restrictions, we may not be able to successfully compete
with financial institutions that have repurchased the
Treasurys investment to retain and attract high performing
employees. If this were to occur, our business, financial
condition and results of operations may be adversely affected,
perhaps materially.
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 Counties in
southeastern Florida, the Orlando, Florida metropolitan
statistical area, as well as in more rural competitive counties
in the Lake Okeechobee, Florida region. Our future growth and
success will depend on our ability to compete effectively in
these markets. We compete for loans, deposits and other
financial services in geographic markets with other local,
regional and national commercial banks, thrifts, credit unions,
mortgage lenders, and securities and insurance brokerage firms.
Many of our competitors offer products and services different
from us, and have substantially greater resources, name
recognition and market presence than we do, which benefits them
in attracting business. Larger competitors may be able to price
loans and deposits more aggressively than we can, and have
broader customer and geographic bases to draw upon.
We are
dependent on key personnel and the loss of one or more of those
key personnel could harm our business.
Our future success significantly depends on the continued
services and performance of our key management personnel. We
believe our management teams 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.
33
The
soundness of other financial institutions could adversely affect
us.
Our ability to engage in routine funding and other transactions
could be adversely affected by the actions and commercial
soundness of other financial institutions. Financial services
institutions are interrelated as a result of trading, clearing,
counterparty or other relationships. As a result, defaults by,
or even rumors or questions about, one or more financial
services institutions, or the financial services industry
generally, have led to market-wide liquidity problems, losses of
depositor, creditor and counterparty confidence and could lead
to losses or defaults by us or by other institutions. We could
experience increases in deposits and assets as a result of other
banks difficulties or failure, which would increase the
capital we need to support such growth.
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 and
FINRA, and since December 2008, the Treasury. Our success is
affected by state and federal regulations affecting banks and
bank holding companies, and the securities markets and
securities and insurance regulators. Banking regulations are
primarily intended to protect 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. Federal bank regulatory
agencies and the Treasury, as well as the Congress and the
President, are evaluating and have proposed numerous significant
changes in the regulation of banks, other financial services
providers and the financial markets. 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.
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 Nationals
business, including for compliance with laws and regulations.
If, as a result of an examination, the Federal Reserve
and/or the
OCC 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 Nationals
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.
We are
subject to internal control reporting requirements that increase
compliance costs and failure to comply with such requirements
could adversely affect our reputation and the value of our
securities.
We are required to comply with various corporate governance and
financial reporting requirements under the Sarbanes-Oxley Act of
2002, as well as rules and regulations adopted by the SEC, the
Public Company Accounting Oversight Board and Nasdaq. In
particular, we are required to include management and
independent registered public accounting firm reports on
internal controls as part of our annual report on
Form 10-K
pursuant to Section 404 of the Sarbanes-Oxley Act. We are
also subject to a number of disclosure and reporting
requirements as a result of our participation in TARP CPP. 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.
34
Technological
changes affect our business, and we may have fewer resources
than many competitors to invest in technological
improvements.
The financial services industry is undergoing rapid
technological changes with frequent introductions of new
technology-driven products and services. In addition to serving
clients better, the effective use of technology may increase
efficiency and may enable financial institutions to reduce
costs. Our future success will depend, in part, upon our ability
to use technology to provide products and services that provide
convenience to customers and to create additional efficiencies
in operations. We may need to make significant additional
capital investments in technology in the future, and we may not
be able to effectively implement new technology-driven products
and services. Many competitors have substantially greater
resources to invest in technological improvements.
The
anti-takeover provisions in our Articles of Incorporation and
under Florida law may make it more difficult 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 and a
staggered board of directors, 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 would negatively affect our
local economies or disrupt our operations, which would have an
adverse effect on our business or results of
operations.
Our market areas in Florida are susceptible to hurricanes and
tropical storms and related flooding and wind damage. Such
weather events can disrupt operations, result in damage to
properties and negatively affect the local economies in the
markets where we operate. We cannot predict whether or to what
extent damage that may be caused by future hurricanes will
affect our operations or the economies in our current or future
market areas, but such weather events could result in a decline
in loan originations, a decline in the value or destruction of
properties securing our loans and an increase in the
delinquencies, foreclosures or loan losses. Our business or
results of operations may be adversely affected by these and
other negative effects of future hurricanes or tropical storms,
including flooding and wind damage. 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.
We may
engage in FDIC-assisted transactions, which could present
additional risks to our business.
We may have opportunities to acquire the assets and liabilities
of failed banks in FDIC-assisted transactions, which present
general acquisition risks, as well as risks specific to these
transactions. Although FDIC-assisted transactions typically
provide for FDIC assistance to an acquiror to mitigate certain
risks, which may include loss-sharing, where the FDIC absorbs
most losses on covered assets and provides some indemnity, we
would be subject to many of the same risks we would face in
acquiring another bank in a negotiated transaction, without FDIC
assistance, including risks associated with pricing such
transactions, the risks of loss of deposits and maintaining
customer relationships and the failure to realize the
anticipated acquisition benefits in the amounts and within the
timeframes we expect. In addition, because these acquisitions
provide for limited diligence and negotiation of terms, these
transactions may require additional resources and time,
servicing acquired problem loans and costs related to
integration of personnel and operating systems, the
establishment of processes to service acquired assets, and
require us to raise additional capital, which may be dilutive to
our existing shareholders. If we are unable to manage these
risks, FDIC-
35
assisted acquisitions could have a material adverse effect on
our business, financial condition and results of operations.
Attractive
acquisition opportunities may not be available to us in the
future.
While we seek continued organic growth, as our earnings and
capital position improve, we may consider the acquisition of
other 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 will not be
able to consummate an acquisition that we believe is in our best
interests. 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.
Risks
Related to our Common Stock
We may
issue additional shares of common or preferred stock securities,
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 130 million
shares of common stock, of which 93,487,581 shares were
outstanding as of December 31, 2010, and up to
4 million shares of preferred stock, of which
2,000 shares are outstanding. During the second quarter of
2010, the Company issued Series B convertible preferred
stock raising $47.1 million in capital, with additional
common stock of 34,465,348 shares issued at conversion five
days after approval by shareholders at the annual
shareholders meeting on June 22, 2010. 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.
The
Series A Preferred Stock diminishes the net income
available to our common shareholders and earnings per common
share, and the Warrant we issued to Treasury may be dilutive to
holders of our common stock.
The dividends accrued and the accretion on discount on the
Series A Preferred Stock reduce the net income available to
common shareholders and our earnings per common share. The
Series A Preferred Stock is cumulative, which means that
any dividends not declared or paid will accumulate and will be
payable when we resume paying dividends. Shares of Series A
Preferred Stock will also receive preferential treatment in the
event of liquidation, dissolution or winding up of Seacoast.
Additionally, the ownership interest of the existing holders of
our common stock will be diluted to the extent the Warrant is
exercised. The shares of common stock underlying the Warrant
represent approximately 0.6 percent of the shares of our
common stock outstanding as of December 31, 2010 (including
the shares issuable upon exercise of the Warrant in our total
outstanding shares). Although Treasury has agreed not to vote
any of the shares of common stock it receives upon exercise of
the Warrant, a transferee of any portion of the Warrant or of
any shares of common stock acquired upon exercise of the Warrant
is not bound by this restriction.
Holders
of the Series A Preferred Stock have certain voting rights
that may adversely affect our common shareholders, and the
holders of shares of our Series A Preferred Stock may have
different interests from, and vote their shares in a manner
deemed adverse to, our common shareholders.
In the event that we fail to pay dividends on the Series A
Preferred Stock for an aggregate of at least six quarterly
dividend periods (whether or not consecutive) the Treasury will
have the right to appoint two directors to our board of
directors until all accrued but unpaid dividends have been paid;
otherwise, except as required by law, holders of the
Series A Preferred Stock have limited voting rights. We
currently have failed to pay dividends on the Series A
Preferred Stock for seven consecutive quarterly dividend
periods. So long as
36
shares of the Series A Preferred Stock are outstanding, in
addition to any other vote or consent of shareholders required
by law or our amended and restated charter, the vote or consent
of holders owning at least
662/3 percent
of the shares of Series A Preferred Stock outstanding is
required for:
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any authorization or issuance of shares ranking senior to the
Series A Preferred Stock;
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any amendment to the rights of the Series A Preferred Stock
so as to adversely affect the rights, preferences, privileges or
voting power of the Series A Preferred Stock; or
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consummation of any merger, share exchange or similar
transaction unless the shares of Series A Preferred Stock
remain outstanding, or if we are not the surviving entity in
such transaction, are converted into or exchanged for preference
securities of the surviving entity and the shares of
Series A Preferred Stock remaining outstanding or such
preference securities have such rights, preferences, privileges
and voting power as are not materially less favorable to the
holders than the rights, preferences, privileges and voting
power of the shares of Series A Preferred Stock. Holders of
Series A Preferred Stock could block the foregoing
transitions, even where considered desirable by, or in the best
interests of, holders of our common stock.
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The holders of Series A Preferred Stock, including the
Treasury, may have different interests from the holders of our
common stock, and could vote to disapprove transactions that are
favored by, or are in the best interests of, our common
shareholders.
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Item 1B.
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Unresolved
Staff Comments
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None.
We and Seacoast Nationals main office occupies
approximately 66,000 square feet of a 68,000 square
foot building in Stuart, Florida. This building, together with
an adjacent
10-lane
drive-through banking facility and an additional 27,000-square
foot office building, are situated on approximately eight acres
of land in the center of Stuart that is zoned for commercial
use. The building and land are owned by Seacoast National, which
leases out portions of the building not utilized by our company
and Seacoast National to unaffiliated third parties.
Adjacent to the main office, Seacoast National leases
approximately 21,400 square feet of office space to house
operational departments, consisting primarily of information
systems and retail support. Seacoast National owns its
equipment, which is used for servicing bank deposits and loan
accounts as well as on-line banking services, and providing
tellers and other customer service personnel with access to
customers records. In addition, Seacoast National acquired
Big Lakes operations center as a result of the acquisition
of Big Lake on April 1, 2006. The operations center is
situated on 1.44 acres in a 4,939 square foot building
in Okeechobee, Florida, all owned by Seacoast National; during
2010, 1.81 acres of vacant land adjacent to Big Lakes
operations center was sold. Our PGA Blvd. branch is utilized as
a disaster recovery site should natural disasters or other
events preclude use of Seacoast Nationals primary
operations center.
In February 2000, Seacoast National opened a lending office in
Ft. Lauderdale, Florida for its Seacoast Marine Finance
Division. In November 2002, additional office space was acquired
for the Seacoast Marine Finance Division in Alameda, California
(430 square feet of leased space), and Newport Beach,
California (1,200 square feet of leased space). Since
January 2005, the Ft. Lauderdale, Florida office has been
in a 2,009 square feet leased facility. The furniture and
equipment at these locations is owned by Seacoast National.
As of December 31, 2010, the net carrying value of branch
offices of Seacoast National (excluding the main office) was
approximately $27.6 million. Seacoast Nationals
branch offices are described as follows:
Jensen Beach, opened in 1977, is a free-standing
facility located in the commercial district of a residential
community contiguous to Stuart. The 1,920 square foot bank
building and land are owned by
37
Seacoast National. Improvements include three drive-in teller
lanes and one
drive-up
ATM, as well as a parking lot and landscaping.
East Ocean Boulevard, was originally opened in
1978 and relocated in 1995. This office is located on the main
thoroughfare between downtown Stuart and Hutchinson
Islands beachfront residential developments. This branch
is housed in a four-story office condominium. The
2,300 square foot branch area on the first floor operates
as a full service branch including five drive-in lanes and a
drive-up
ATM. The remaining 2,300 square feet on the ground floor
was sold in June 1996, the third floor was sold in December
1995, and the second floor was sold in December 1998.
Cove Road, opened in late 1983, is conveniently
located close to housing developments in the residential areas
south of Stuart known as Port Salerno and Hobe Sound. South
Branch Building, Inc., a subsidiary of Seacoast National, is a
general partner in a partnership that entered into a long-term
land lease for approximately four acres of property on which it
constructed a 7,500 square foot building. Seacoast National
leases the building and utilizes 3,450 square feet of the
available space. Remaining space is sublet by Seacoast National
to other business tenants. Seacoast National has improved the
premises with three drive-in lanes, bank equipment, and
furniture and fixtures, all of which are owned by Seacoast
National. A
drive-up ATM
was added in early 1997.
Hutchinson Island, opened on December 31,
1984, is in a shopping center located on a coastal barrier
island, close to numerous oceanfront condominium developments.
In 1993, the branch was expanded from 2,800 square feet to
4,000 square feet and is under a long-term lease to
Seacoast National. Seacoast National has improved the premises
with bank equipment, a
walk-up ATM
and three drive-in lanes, all owned by Seacoast National.
Rivergate, opened October 28, 1985,
originally occupied 1,700 square feet of leased space in
the Rivergate Shopping Center, Port St. Lucie, Florida. Seacoast
National moved the branch to larger facilities in the shopping
center in April 1999. Furniture and bank equipment located in
the prior facilities were moved to the new facility, which
occupied approximately 3,400 square feet, with three
drive-in lanes and a
drive-up
ATM. This office closed in the second quarter of 2008,
simultaneous with the opening of Seacoast Nationals new
Westmoreland branch office (across the street from Rivergate).
The Westmoreland office is situated in a stand alone building
owned by Seacoast National with 4,468 square feet of space
(2,821 square feet to be occupied by the branch, the
remainder to be leased to tenants) on leased land, with three
drive-in lanes, a
drive-up
ATM, and furniture and equipment, all owned by Seacoast
National. Located on the corner of a heavily traversed
thoroughfare, the new location is more prominent than the
existing store front location in the shopping plaza.
Wedgewood Commons, opened in April 1988, is
located on an out-parcel under long term ground lease in the
Wedgewood Commons Shopping Center, south of Stuart on
U.S. Highway 1. The property consists of a
2,800 square foot building that houses four drive-in lanes,
a walk-up
ATM and various bank equipment, all owned by Seacoast National.
This office closed simultaneously in January 2009, with its
relocation to a new stand alone building on a leased out parcel
in the same shopping center, but with a greater presence on the
corner of U.S. 1 and offering better ingress and egress.
The new building owned by Seacoast National contains
5,477 square feet of space (2,836 square feet to be
occupied by the branch, the remainder to be leased to tenants),
with four drive-in lanes, a
drive-up
ATM, and furniture and equipment, all of which are owned by
Seacoast National.
Bayshore, opened in September 1990, occupies
3,520 square feet of a 50,000 square foot shopping
center located in Port St. Lucie. Seacoast National has leased
the premises under a long-term lease agreement and has made
improvements to the premises, including the addition of three
drive-in lanes and a
walk-up ATM,
all of which are owned by Seacoast National.
Hobe Sound, acquired in December 1991 from the
Resolution Trust Corporation, is a two-story facility
containing 8,000 square feet and is centrally located in
Hobe Sound. Of 2,800 square feet on the second floor,
1,225 square feet is utilized by local community
organizations. Improvements include two
38
drive-in teller lanes, a
drive-up
ATM, and equipment and furniture, all of which are owned by
Seacoast National.
Fort Pierce, acquired in December 1991, is a
2,895 square foot facility owned by Seacoast National in
the heart of Fort Pierce that has three drive-in lanes and
a drive-up
ATM. Equipment and furniture at this location are all owned by
Seacoast National. In August 2007, Seacoast National sold this
building, realizing a gain of $280,000. Under the terms of the
sales agreement, Seacoast National obtained an accommodation
whereby it could continue to occupy the location until
construction of its new Ft. Pierce location was completed.
The new location on U.S. 1 is situated on leased land with
5,477 square feet of space (2,836 square feet to be
occupied by the branch, the remainder to be leased to tenants),
with three drive-in lanes, a
drive-up
ATM, and furniture and equipment, all of which are owned by
Seacoast National. The new location opened in October 2008.
Martin Downs, acquired in February 1992, is a
3,960 square foot bank building owned by Seacoast National
located at a high traffic intersection in Palm City, an emerging
commercial and residential community west of Stuart.
Improvements include three drive-in teller lanes, a
drive-up
ATM, equipment and furniture.
Tiffany, acquired in May 1992 and owned by
Seacoast National, is a two-story facility containing
8,250 square feet and is located on a corner of
U.S. Highway 1 in Port St. Lucie offering excellent
exposure in one of the fastest growing residential areas in the
region. Seacoast National uses the second story space to house
brokerage and loan origination personnel, a training facility
and conference area. Three drive-in teller lanes, a
walk-up ATM,
equipment and furniture are utilized and owned by Seacoast
National.
Vero Beach, acquired in February 1993 and owned by
Seacoast National, is a 3,300 square foot bank building
located in Vero Beach on U.S. Highway 1 at the intersection
with 12th Street. Seacoast National holds a long-term ground
lease on the property. Improvements include three drive-in
teller lanes, a
walk-up ATM,
equipment and furniture, all of which are owned by Seacoast
National.
Beachland, opened in February 1993, consists of
4,150 square feet of leased space located in a three-story
commercial building on Beachland Boulevard, the main beachfront
thoroughfare in Vero Beach, Florida. This facility has 2
drive-in teller lanes, a
drive-up
ATM, and furniture and equipment, all owned by Seacoast
National. In November 2008, Seacoast National closed this
location and relocated branch personnel, as well as furniture
and equipment, to a separate leased facility in close proximity
on Cardinal Drive.
Sandhill Cove, opened in September 1993, in a
leased facility in an upscale life-care retirement community.
The 135 square foot office was located within community
facilities on a
36-acre
development in Palm City, Florida containing approximately 168
private residences. Seacoast National closed this office in
November 2010.
St. Lucie West, opened in November 1994 in a
different location, was moved to the Renar Centre, located at
1100 SW St. Lucie West Blvd., Port St. Lucie, Florida, in June
1997, where Seacoast National leases 4,320 square feet on
the first floor. The facility includes three drive-in teller
lanes, a
drive-up
ATM, and furniture and equipment.
Mariner Square, acquired in April 1995, was a
3,600 square foot leased space located on the ground floor
of a three-story office building located on U.S. Highway 1
between Hobe Sound and Port Salerno. Approximately
700 square feet of the space was sublet to a third party.
The space occupied by Seacoast National had been improved to be
a full service branch with two drive-in lanes, one serving as a
drive-up ATM
lane as well as a drive-in teller lane, all owned by Seacoast
National. Seacoast National closed this location in March 2008.
Sebastian, opened in May 1996, is located within a
174,000 square foot Wal-Mart Superstore on
U.S. Highway 1 in northern Indian River County. The leased
space occupied by Seacoast National totals 865 square feet.
The facility has a
walk-up ATM,
owned by Seacoast National.
39
South Vero Square, opened in May 1997 in a
3,150 square foot building owned by Seacoast National on
South U.S. Highway 1 in Vero Beach. The facility includes
three drive-in teller lanes, a
drive-up
ATM, and furniture and equipment, all owned by Seacoast National.
Oak Point, opened in June 1997, occupies
5,619 square feet of leased space on the first floor of a
19,700 square foot three-story building in Indian River
County. The office is in close proximity to Indian River
Memorial Hospital and the peripheral medical community adjacent
to the hospital. The facility includes three drive-in teller
lanes, a
walk-up ATM,
and furniture and equipment, all owned by Seacoast National.
Seacoast National sublets 2,030 square feet of space on the
first floor to a third party.
Route 60 Vero, opened in July
1997. Similar to the Sebastian office, this facility
is housed in a Wal-Mart Superstore in western Vero Beach in
Indian River County. The branch occupies 750 square feet of
leased space and includes a
walk-up ATM.
Sebastian West, opened in March 1998 in a
3,150 square foot building owned by Seacoast National. It
is located at the intersection of Fellsmere Road and Roseland
Road in Sebastian. The facility includes three drive-in teller
lanes, a
drive-up
ATM, and furniture and equipment, all owned by Seacoast National.
Jensen West, opened in July 2000, is located on an
out parcel under a long-term ground lease on U.S. Highway 1
in northern Martin County. The facility consists of a
3,930 square foot building, with four
drive-up
lanes, a
drive-up ATM
and furniture and equipment, all of which are owned by Seacoast
National and are located on the leased property. This office
replaced Seacoast Nationals U.S. Highway 1 and Port
St. Lucie Boulevard office, one-half mile north of this
location, which originally opened in June 1997.
Ft. Pierce Wal-Mart, opened in June 2001, was
another Wal-Mart Superstore location. The branch occupied
540 square feet of leased space and included a
walk-up ATM,
a night depository, and furniture and equipment, all owned by
Seacoast National. This location was closed at the end of
February 2008.
Port St. Lucie Wal-Mart, opened in October
2002, occupied 695 square feet of leased space in a
Wal-Mart Superstore on U.S. Highway 1 in southern Port St.
Lucie. The branch included a
walk-up ATM,
a night depository, and furniture and equipment, all owned by
Seacoast National. This location was closed at the end of
December 2007.
Jupiter, located on U.S. Highway 1 in
Jupiter, Florida, this office opened as a loan production office
in August 2002 and converted to a full-service branch during
2003. Commercial and residential lending personnel as well as
certain executive offices were maintained at this location until
May 2006 when our PGA Blvd. location opened. In May 2006 this
office was closed. Seacoast Nationals obligation for
3,718 square feet of leased space under lease expired at
the end of July 2007. No ATM or night depository existed for
this location.
Tequesta, opened in January 2003, is a
3,500 square foot building acquired and owned by Seacoast
National located on U.S. Highway 1 on property subject to a
long term ground lease. The Tequesta location has two
drive-up
lanes, a
drive-up
ATM, a night depository, and furniture and equipment, all owned
by Seacoast National.
Jupiter Indiantown, opened in December 2004, is a
free standing office located on Indiantown Road, a prime
thoroughfare in Jupiter, Florida. Seacoast National owns the
building and leases the land. The building is 2,881 square
feet and includes three
drive-up
lanes, a
drive-up
ATM, a night depository, and furniture and equipment, all owned
by Seacoast National.
Juno Beach was acquired during
2004. Seacoast Nationals Jupiter
Bluffs branch was relocated to this facility at the end of
December 2004, following renovation of the building. The
building is 2,891 square feet, located on U.S. Highway
1 in Juno Beach, and includes three
drive-up
lanes, a
drive-up
ATM, a night depository, and furniture and equipment, all owned
by Seacoast National. We closed this location at the end of
March 2008.
40
60 West was acquired in January 2005 from
another financial institution. Seacoast National owns the land
and the 2,500 square foot building at this location on
Route 60 in Vero Beach. The office has three
drive-up
lanes, a
drive-up
ATM, a night depository, and furniture and equipment, all owned
by Seacoast National.
Northlake, is a 2,881 square foot location
built on land owned by Seacoast National and opened in February
2005. Located on a bustling east / west thoroughfare
in northern Palm Beach County, the facility includes 3
drive-up
lanes, a
drive-up
ATM, a night depository, and furniture and equipment, all owned
by Seacoast National. This location was closed in June 2009.
Downtown Orlando, acquired in April 2005, is a
6,752 square foot leased facility occupying the ground
floor of a six floor 62,100 square foot commercial office
building on Orange Avenue in the heart of downtown Orlando. The
location includes a
walk-up ATM,
a night depository, and furniture and equipment, all owned by
Seacoast National.
Maitland/Winter Park, acquired in April 2005,
occupies 4,536 square feet of leased space on the first
floor of a three-story 32,975 square foot office building
on Orlando Avenue. The location includes 3
drive-up
lanes, a
drive-up
ATM, a night depository, and furniture and equipment, all owned
by Seacoast National.
Longwood, acquired in April 2005, occupies
4,596 square feet of leased space on the first floor of a
three-story 35,849 square foot office building on North
State Road 434. The location includes 3
drive-up
lanes, a
drive-up
ATM, a night depository, and furniture and equipment, all owned
by Seacoast National.
PGA Blvd., a signature Palm Beach County
headquarters office opened in May 2006 in Palm Beach Gardens in
northern Palm Beach County. Located across the street from the
Gardens Mall on PGA Blvd., this leased office is in a high-rise
office building. Seacoast National occupies a total of
13,454 square feet: 5,600 square feet on the first
floor and 7,854 square feet on the second floor. The office
has three
drive-up
lanes, a
drive-up ATM
and night depository.
Offices acquired from Big Lake include branches in eight
locations in central Florida. Some locations are leased, others
owned. The eight locations are as follows:
South Parrott, acquired in April 2006, located in
Okeechobee County, this office is comprised of an
8,232 square foot two-story building on approximately
3 acres of land, all owned by Seacoast National. The office
was constructed in 1986 and has eight
drive-up
lanes, a
drive-up
ATM, a night depository, and furniture and equipment, all owned
by Seacoast National.
North Parrott, acquired in April 2006, located in
Okeechobee County, is a 3,920 square foot one-story
building built in 2004 on 2 acres of land. The office and
land are owned by Seacoast National. The office has 4
drive-up
lanes, a
drive-up
ATM, a night depository, and furniture and equipment, all owned
by Seacoast National.
Arcadia, acquired in April 2006, located in DeSoto
County, originally was a 1,681 square foot one-story branch
on approximately 1.5 acres, all owned by Seacoast National.
Built in 1984, the office has 3
drive-up
lanes, a
walk-up ATM,
a night depository, and furniture and equipment, all owned by
Seacoast National. An expansion of this office adding
1,575 square feet was completed in April 2008.
Moore Haven, acquired in April 2006, located in
Glades County, is a 640 square foot office. The office is
under a lease, the initial term of which expired in 2003 and now
is renewed annually in November. The office is a storefront
location, with a
walk-up ATM,
and furniture and equipment, all owned by Seacoast National.
Wauchula, acquired in April 2006, located in
Hardee County, is a 4,278 square foot office. It is leased
under a
10-year
lease that expired in 2008, but with a renewal option that
extends the lease for an additional five years to 2013. The
office has 2
drive-up
lanes, a
walk-up ATM,
a night depository, and furniture and equipment, all owned by
Seacoast National.
41
Clewiston, acquired in April 2006, located in
Hendry County, consists of a 5,661 square foot building
that is 32 years old on 2 plus acres. The land and building
are owned. It has 4
drive-up
lanes, a
drive-up
ATM, a night depository, and furniture and equipment, all owned
by Seacoast National.
LaBelle, acquired in April 2006, located in Hendry
County, is a one-story building consisting of 2,361 square
feet on approximately one acre of land. The land and building
are owned by Seacoast National. The building is 21 years
old. The office has three
drive-up
lanes, a
drive-up
ATM, a night depository, and furniture and equipment, all owned
by Seacoast National.
Lake Placid, acquired in April 2006, located in
Highlands County, is a 2,125 square foot building. The
building and land (approximately one-half acre) are owned by
Seacoast National. It has a
drive-up
window, a
walk-up ATM,
a night depository, and furniture and equipment, all owned by
Seacoast National.
Additional offices opened since the acquisition of Big Lake
include the following:
Viera-The Avenues, which opened in February 2007,
is Seacoast Nationals first branch location in Brevard
County, located in the Viera area. The branch is
5,999 square feet in size, with 3
drive-up
lanes, a
drive-up
ATM, night depository, and furniture and equipment, all owned by
Seacoast National. This location is under a ground lease.
Middle River was opened in October 2007 in Ft.
Lauderdale, Florida on U.S. 1. The location occupies
2,350 square feet of leased space on the first floor of a
brand new one-story building. The location has a night
depository, and furniture and equipment, all owned by Seacoast
National. The location replaced 1,089 square feet of
space acquired on a short term lease in early 2007 in Boca
Raton, Florida, temporarily housing a new loan production
office. All personnel were relocated to the Middle River site.
This location was closed in early December 2009.
Murrell Road, located in Brevard County, is
Seacoast Nationals second office in this market. The
branch is a two-story office owned by Seacoast National with
9,041 square feet, of which 4,307 square feet on the
first floor houses banking and loan offices and
4,264 square feet on the second floor is available to lease
(of which 2,408 square feet is leased to an outside party).
The branch has 3
drive-up
lanes, a
drive-up
ATM, a night depository, and furniture and equipment, all owned
by Seacoast National. This location is under a ground lease and
opened in April 2008.
Gatlin Boulevard, located in St. Lucie
County, opened in March 2008 on an out parcel directly in front
of a Sams Club and adjacent to a Wal-Mart. The office is
two stories, with 2,782 square feet on the first floor
occupied by Seacoast National and 2,518 square feet on the
second floor available for leasing to outside parties. Seacoast
National owns the land and building. The branch has 4
drive-up
lanes, a
drive-up
ATM, a night depository, and furniture and equipment, all owned
by Seacoast National.
For additional information regarding our properties, please
refer to Notes G and K of the Notes to Consolidated
Financial Statements in Our 2010 Annual Report, certain portions
of which are incorporated herein by reference pursuant to
Part II, Item 8 of this report.
No new or planned offices are projected to open over the
remainder of 2011.
|
|
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.
42
Part II
|
|
Item 5.
|
Market
For Registrants 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
Amended and Restated 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 March 11, 2011 there
were 93,504,788 shares of our common stock outstanding,
held by approximately 1,332 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale Price Per Share of
|
|
Quarterly Dividends
|
|
|
Seacoast Common Stock
|
|
Declared Per Share of
|
|
|
High
|
|
Low
|
|
Seacoast Common Stock
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
6.870
|
|
|
$
|
2.170
|
|
|
$
|
0.01
|
|
Second Quarter
|
|
|
4.350
|
|
|
|
2.150
|
|
|
|
0.00
|
|
Third Quarter
|
|
|
2.840
|
|
|
|
1.910
|
|
|
|
0.00
|
|
Fourth Quarter
|
|
|
2.620
|
|
|
|
1.180
|
|
|
|
0.00
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
2.040
|
|
|
$
|
1.370
|
|
|
$
|
0.00
|
|
Second Quarter
|
|
|
2.500
|
|
|
|
1.280
|
|
|
|
0.00
|
|
Third Quarter
|
|
|
1.480
|
|
|
|
1.120
|
|
|
|
0.00
|
|
Fourth Quarter
|
|
|
1.460
|
|
|
|
1.120
|
|
|
|
0.00
|
|
Dividends
Dividends from Seacoast National are our primary source of funds
to pay dividends on our common stock. Under the National Bank
Act, national banks may in any calendar year, without the
approval of the OCC, pay dividends to the extent of net profits
for that year, plus retained net profits for the preceding two
years (less any required transfers to surplus). The need to
maintain adequate capital in Seacoast National also limits
dividends that may be paid to us. Beginning in the third quarter
of 2008, we reduced our dividend per share of common stock to
de minimis $0.01. On May 19, 2009, the
Companys board of directors voted to suspend quarterly
dividends on common stock.
In addition, our ability to pay dividends is limited by our
participation in the TARP CPP. Prior to December 19, 2011,
unless we have redeemed the preferred stock issued to the
Treasury in the CPP or the Treasury has transferred the
preferred stock to a third party, we cannot increase its
quarterly dividend above $0.01 per share of common stock.
Furthermore, if we are not current in the payment of quarterly
dividends on the Series A Preferred Stock, we cannot pay
dividends on our common stock. Due to recent operating losses,
we are currently restricted by the Federal Reserve from paying
dividends on the Series A Preferred Stock. As a result, we
have deferred the payment of seven dividends to the Treasury and
are unable to pay dividends on our common stock.
Additional information regarding restrictions on the ability of
Seacoast National to pay dividends to us is contained in
Note C of the Notes to Consolidated Financial
Statements in our 2010 Annual Report, portions of which
are incorporated by reference herein, including in Part II,
Item 8 of this report. See Item 1. Business-
Payments of Dividends for information with respect to the
regulatory restrictions on dividends. We do not expect to pay
dividends in the foreseeable future and expect to retain all
earnings, if any, to support our capital adequacy and growth.
43
Outstanding
Warrants
Pursuant to the Purchase Agreement between us and the Treasury
on December 19, 2008, we sold the Warrant to acquire
1,179,245 shares of our common stock to the
U.S. Treasury and the exercise price of the Warrant is
$6.36. As a result of the Companys public offering in the
third quarter of 2009, the number of shares under the Warrant
was reduced by 50 percent to 589,625 shares. The
Warrant will expire on December 19, 2018.
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.
Performance
Graph
The following line-graph compares the cumulative, total return
on the Companys Common Stock from December 31, 2005
to December 31, 2010, with that of the NASDAQ Composite
Index and the SNL Southeast Bank Index. Cumulative total return
represents the change in stock price and the amount of dividends
received over the indicated period, assuming the reinvestment of
dividends.
Total
Return Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ending
|
Index
|
|
12/31/05
|
|
12/31/06
|
|
12/31/07
|
|
12/31/08
|
|
12/31/09
|
|
12/31/10
|
|
Seacoast Banking Corporation of Florida
|
|
|
100.00
|
|
|
|
110.54
|
|
|
|
47.51
|
|
|
|
31.66
|
|
|
|
7.84
|
|
|
|
7.02
|
|
NASDAQ Composite
|
|
|
100.00
|
|
|
|
110.39
|
|
|
|
122.15
|
|
|
|
73.32
|
|
|
|
106.57
|
|
|
|
125.91
|
|
SNL Southeast Bank
|
|
|
100.00
|
|
|
|
117.26
|
|
|
|
88.33
|
|
|
|
35.76
|
|
|
|
35.90
|
|
|
|
34.86
|
|
Source: SNL Financial LC,
Charlottesville,VA
©
2011
www.snl.com
Recent
Sales of Unregistered Securities
On December 17, 2009, Seacoast sold 6,000,000 shares
of its common stock to CapGen Capital Group III LP
(CapGen), a Delaware limited partnership, pursuant
to the definitive Stock Purchase Agreement dated as of
October 23, 2009 between the Company and CapGen, a copy of
which was filed with the SEC on October 29, 2009 as
Exhibit 10.1 of the Companys Current Report on
Form 8-K.
Fox-Pitt Kelton Cochran Caronia Waller (USA) LLC, and its
successor, Macquarie Capital (USA) Inc. acted as placement
agent. The
44
Company received total gross proceeds of $13.5 million from
the sale, and paid $540,000 of fees paid to the placement agent,
in addition to the reimbursement of reasonable expenses in
connection with the placement. The private placement was made
pursuant to exemptions from registration under the Securities
Act of 1933, as amended and Regulation D thereunder.
A stock offering was completed during April of 2010 adding
$50 million of Series B Mandatorily Convertible
Noncumulative Nonvoting Preferred Stock (Series B
Preferred Stock) as permanent capital, resulting in
approximately $47.1 million in additional Tier 1
risk-based equity, net of issuance costs. The shares of
Series B Preferred Stock were mandatorily convertible into
common shares five days subsequent to shareholder approval,
which was granted at the Companys annual meeting on
June 22, 2010 (see Part II., Item 4, Submission
of Matters to a Vote of Security Holders contained in our report
on
form 10-Q
dated August 9, 2010). Upon the conversion of the
Series B Preferred Stock, approximately
34,482,759 shares of our common stock were issued pursuant
to the Investment Agreement, dated as of April 8, 2010
between the Company and the investors, a copy of which was filed
with the SEC on July 14, 2010 as Exhibit 10.1 to the
Companys
Form 8-K/A.
|
|
Item 6.
|
Selected
Financial Data
|
Selected financial data of the Company is set forth under the
caption Financial Highlights in the 2010 Annual
Report and is incorporated herein by reference.
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Managements Discussion and Analysis of Financial Condition
and Results of Operations is set forth under the caption
Financial Review 2010 Managements
Discussion and Analysis in the 2010 Annual Report and is
incorporated herein by reference.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
The narrative under the heading of Market Risk in
the 2010 Annual Report is incorporated herein by reference.
Table 19, Interest Rate Sensitivity Analysis, the
narrative under the heading of Securities, and the
narrative under the heading of Interest Rate
Sensitivity in the 2010 Annual Report are incorporated
herein by reference. The information regarding securities owned
by us set forth in Table 15, Securities Held for
Sale and Table 16, Securities Held for
Investment, in the 2010 Annual Report is incorporated
herein by reference.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
The report of KPMG LLP, an independent registered public
accounting firm, and the Consolidated Financial Statements are
included in the 2010 Annual Report and are incorporated herein
by reference. Selected Quarterly Information
Consolidated Quarterly Average Balances, Yields &
Rates and Quarterly Consolidated Income
Statements are included in the 2010 Annual Report and are
incorporated herein by reference.
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
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 SECs
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 the
disclosure controls and procedures, as defined in SEC
Rule 13a-15
45
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.
Internal Control over Financial
Reporting. Management is responsible for
establishing and maintaining adequate internal control over
financial reporting. 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, 2010. This assessment was based on the
criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission in Internal Control
Integrated Framework. Based on this assessment, management
believes that, as of December 31, 2010, our internal
control over financial reporting was effective.
Our independent registered public accounting firm, KPMG LLP, has
issued an attestation report on our internal control over
financial reporting which is included in Exhibit 23.1 to
this report.
Change in Internal Control Over Financial
Reporting There were no changes in our internal
control over financial reporting that occurred during our last
fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
|
|
Item 9B.
|
Other
Information.
|
None.
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 and Corporate Governance
in the 2011 Proxy Statement, as well as under the heading
Section 16(a) Beneficial Ownership Reporting
Compliance in the 2011 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, Salary and Benefits
Committee Report and Director Compensation in
the 2011 Proxy Statement which are incorporated herein by
reference.
46
|
|
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, 2010.
Equity
Compensation Plan Information
December 31,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
Number of
|
|
|
|
|
|
Remaining Available
|
|
|
|
Securities to be
|
|
|
Weighted Average
|
|
|
for Future Issuance
|
|
|
|
Issued Upon
|
|
|
Exercise Price of
|
|
|
Under Equity
|
|
|
|
Exercise of
|
|
|
Outstanding
|
|
|
Compensation Plans
|
|
|
|
Outstanding
|
|
|
Options,
|
|
|
(Excluding
|
|
|
|
Options, Warrants
|
|
|
Warrants and
|
|
|
Securities
|
|
Plan category
|
|
and Rights
|
|
|
Rights
|
|
|
Reflected in Column (a))
|
|
|
Equity compensation plans approved by shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
1996 Plan(1)
|
|
|
|
|
|
$
|
|
|
|
|
|
|
2000 Plan(2)
|
|
|
546,796
|
|
|
|
21.39
|
|
|
|
510,155
|
|
2008 Plan(3)
|
|
|
|
|
|
|
|
|
|
|
1,500,000
|
|
Employee Stock Purchase Plan(4)
|
|
|
|
|
|
|
|
|
|
|
228,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
546,796
|
|
|
$
|
21.39
|
|
|
|
2,238,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Seacoast Banking Corporation of Florida 1996 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, including unrestricted stock. |
|
(2) |
|
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 and may be granted as awards of
performance shares, and awards of restricted stock or
stock-based awards. |
|
(3) |
|
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, and may be granted as awards of
restricted stock, performance shares, or other stock-based
awards. |
|
(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 Principal Shareholders in the 2011 Proxy
Statement, and is incorporated herein by reference.
|
|
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 Salary and
Benefits Committee Interlocks and Insider Participation
and Certain Transactions and Business Relationships
and Corporate Governance in the 2011 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 Independent
Auditors in the 2011 Proxy Statement, and is incorporated
herein by reference.
47
Part IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
(a)(1) List of all financial statements
The following consolidated financial statements and reports of
independent registered public accounting firm of Seacoast,
included in the 2010 Annual Report, are incorporated by
reference into Part II, Item 8 of this Annual Report
on
Form 10-K.
|
Reports of Independent Registered Public Accounting Firm
|
Consolidated Balance Sheets as of December 31, 2010 and 2009
|
Consolidated Statements of Income for the years ended
December 31, 2010, 2009 and 2008
|
Consolidated Statements of Shareholders Equity for the
years ended December 31, 2010, 2009 and 2008
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2010, 2009 and 2008
|
Notes to Consolidated Financial Statements
|
(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 Companys Quarterly Report of 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 Companys
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 Companys
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 Companys
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 Companys
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 Companys
Form 8-K/A,
filed July 14, 2010.
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 Companys
Form 8-K,
filed June 25, 2010.
48
Exhibit 3.2 Amended and Restated By-laws of the
Corporation
Incorporated herein by reference from Exhibit 3.2 to
the Companys
Form 8-K,
filed December 21, 2007.
Exhibit 4.1 Specimen Common Stock Certificate
Incorporated herein by reference from the Companys
Annual Report on
Form 10-K,
dated March 28, 2003.
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 Companys
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 Companys
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 Companys
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 Companys
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 Companys
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
Companys
Form 8-K
filed December 21, 2005.
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 Companys
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 Companys
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 Companys
Form 8-K
filed July 3, 2007.
Exhibit 4.11 Trust Agreement of SBCF Capital
Trust IV
Dated May 16, 2008, among the Company, as Depositor and
Wilmington Trust Company, a Delaware
49
banking corporation, as Trustee (including exhibits containing
the related forms of Junior Subordinated Indenture, Subordinated
Indenture, Senior Indenture, Guarantee Agreement and the Amended
and Restated Trust Agreement of SBCF Capital
Trust IV), incorporated herein by reference from
Exhibit 4.13 to the Companys
Form S-3
filed May 23, 2008.
Exhibit 4.12 Trust Agreement of SBCF Capital
Trust V
Dated May 16, 2008, among the Company, as Depositor and
Wilmington Trust Company, a Delaware banking corporation,
as Trustee (including exhibits containing the related forms of
Junior Subordinated Indenture, Subordinated Indenture, Senior
Indenture, Guarantee Agreement and the Amended and Restated
Trust Agreement of SBCF Capital Trust V), incorporated
herein by reference from Exhibit 4.14 to the Companys
Form S-3
filed May 23, 2008.
Exhibit 4.13 Specimen Preferred Stock Certificate
Incorporated herein by reference from Exhibit 4.1 to
the Companys
Form 8-K,
filed December 23, 2008.
Exhibit 4.14 Warrant for Purchase of Shares of Common
Stock
Incorporated herein by reference from Exhibit 4.2 to
the Companys
Form 8-K,
filed December 23, 2008.
Exhibit 4.15 Stock Purchase Agreement
Dated October 23, 2009, between the Company and CapGen
Capital Group III, L.P., incorporated herein by reference from
Exhibit 10.1 to the Companys
Form 8-K,
filed October 29, 2009.
Exhibit 4.16 Registration Rights Agreement
Dated October 23, 2009, between the Company and CapGen
Capital Group III, L.P., incorporated herein by reference from
Exhibit 10.2 to the Companys
Form 8-K,
filed October 29, 2009.
Exhibit 4.17 Registration Rights Agreement
Dated as of April 8, 2010, among the Company and the
investors named on the signature pages thereto, incorporated
herein by reference from Exhibit 10.2 to the Companys
Form 8-K/A,
filed July 14, 2010.
Exhibit 10.1 Amended and Restated Retirement Savings
Plan*
Exhibit 10.2 Amended and Restated Employee Stock
Purchase Plan*
Incorporated by reference from Exhibit A to the
Companys Definitive Proxy Statement on Schedule 14A,
filed with the Commission on April 27, 2009.
Exhibit 10.5 Executive Employment Agreement*
Dated January 18, 1994 between Dennis S. Hudson, III
and the Bank, incorporated herein by reference from the
Companys Annual Report on
Form 10-K,
dated March 28, 1995.
Exhibit 10.6 Executive Employment Agreement*
Dated January 2, 2007 between Harry R. Holland, III
and the Bank, incorporated herein by reference from
Exhibit 10.1 to the Companys
Form 8-K,
filed January 3, 2007.
Exhibit 10.7 2000 Long Term Incentive Plan as
Amended*
Incorporated herein by reference from the Companys
Registration Statement on
Form S-8
File
No. 333-49972,
filed November 15, 2000.
Exhibit 10.8 Executive Deferred Compensation
Plan*
Incorporated herein by reference from Exhibit 10.12 to the
Companys Annual Report on Form
10-K, filed
March 30, 2001.
Exhibit 10.9 Line of Credit Agreement
Incorporated herein by reference from Exhibit 10.13 to
the Companys Annual Report on Form
10-K, filed
March 28, 2003.
Exhibit 10.10 Change of Control Employment
Agreement*
Dated December 24, 2003 between Dennis S. Hudson, III
and the Company, incorporated herein by reference from
Exhibit 10.14 to the Companys
Form 8-K,
filed December 29, 2003.
50
Exhibit 10.11 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 Companys
Form 8-K,
filed December 29, 2003.
Exhibit 10.12 Change of Control Employment
Agreement*
Dated December 24, 2003 between Jean Strickland and the
Company, incorporated herein by reference from
Exhibit 10.18 to the Companys
Form 8-K,
filed January 9, 2004.
Exhibit 10.13 Change of Control Employment
Agreement*
Dated July 18, 2006 between Richard A. Yanke and the
Company, incorporated herein by reference from
Exhibit 10.19 to the Companys Annual Report on
Form 10-K,
filed March 15, 2007.
Exhibit 10.14 Directors Deferred Compensation
Plan*
Dated June 15, 2004, but effective July 1, 2004,
incorporated herein by reference from Exhibit 10.23 to the
Companys Annual Report on
Form 10-K,
filed on March 17, 2005.
Exhibit 10.15 Executive Employment Agreement*
Dated March 26, 2008 between O. Jean Strickland and the
Bank and Company, incorporated herein by reference from
Exhibit 10.1 to the Companys
Form 8-K,
filed March 26, 2008.
Exhibit 10. 16 2008 Long-Term Incentive Plan*
Incorporated herein by reference from Exhibit A to the
Companys Proxy Statement on Form DEF 14A, filed
March 18, 2008.
Exhibit 10.17 Letter Agreement
Dated December 19, 2008, between the Company and the
United States Department of the Treasury incorporated herein by
reference from Exhibit 10.1 to the Companys
Form 8-K,
filed December 23, 2008.
Exhibit 10.18 Formal Agreement
Dated December 16, 2008, between the Company and the
Office of the Comptroller of the Currency incorporated herein by
reference from Exhibit 10.4 to the Companys
Form 8-K,
filed December 23, 2008
Exhibit 10.19 Waiver of Senior Executive
Officers*
Dated December 19, 2008, issued to the United Stated
Department of the Treasury incorporated herein by reference from
Exhibit 10.2 to the Companys
Form 8-K,
filed December 23, 2008.
Exhibit 10.20 Consent of Senior Executive
Officers*
Dated December 19, 2008, issued to the United States
Department of the Treasury incorporated herein by reference from
Exhibit 10.3 to the Companys
Form 8-K,
filed December 23, 2008.
Exhibit 10.21 Form of 409A Amendment to Employment
Agreements with Dennis S. Hudson, III, William R. Hahl, A.
Douglas Gilbert, O. Jean Strickland and H. Russell
Holland, III*
Incorporated herein by reference from Exhibit 10.1 to the
Companys
Form 8-K,
filed January 5, 2009.
Exhibit 10.22 Investment Agreement
Dated as of April 8, 2010, among Seacoast Banking
Corporation of Florida and the investors named on the signature
pages thereto, incorporated herein by reference from
Exhibit 10.1 to the Companys
Form 8-K/A
filed July 14, 2010.
Exhibit 13 2010 Annual Report. The
following portions of the 2010 Annual Report are incorporated
herein by reference:
Financial Highlights
Financial Review Managements Discussion and
Analysis
Selected Quarterly Information Quarterly
Consolidated Income Statements
Selected Quarterly Information Consolidated
Quarterly Average Balances, Yields & Rates
51
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Financial Statements Reports of Independent
Certified Public Accountants
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 99.1 31 C.F.R. § 30.15
Certification of Chief Executive Officer
Exhibit 99.2 31 C.F.R. § 30.15
Certification of Chief Financial Officer
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* |
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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 above.
(c) Financial Statement Schedules
None.
52
SIGNATURES
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.
SEACOAST BANKING CORPORATION OF FLORIDA
(Registrant)
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By:
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/s/ Dennis
S. Hudson, III
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Dennis S. Hudson, III
Chairman of the Board and Chief Executive Officer
Date: March 14, 2011
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
being a director of Seacoast Banking Corporation of Florida, a
Florida corporation (the Company), constitutes and
appoints each of Dennis S. Hudson, III, O. Jean Strickland
and William R. Hahl, as agent, with full power of substitution,
for his and in his name, place and stead, in any and all
capacities, to sign any and all amendments, including
post-effective amendments, to this annual report on
Form 10-K,
and to file the same, therewith, with the Securities and
Exchange Commission, and to make any and all state securities
law filings, granting unto said attorney-in-fact and agent, full
power and authority to do and perform each and every act and
thing requisite or necessary to be done in about the premises,
as fully to all intents and purposes as he might or could do in
person, hereby ratifying the confirming all that said
attorney-in-fact and agent, or any substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
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.
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Date
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/s/ Dennis
S. Hudson, III
Dennis
S. Hudson, III,
Chairman of the Board, Chief Executive Officer and Director
(principal executive officer)
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March 14, 2011
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/s/ Dale
M. Hudson
Dale
M. Hudson,
Vice-Chairman of the Board and Director
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March 14, 2011
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/s/ William
R. Hahl
William
R. Hahl,
Executive Vice President and Chief Financial Officer
(principal financial and accounting officer)
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March 14, 2011
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/s/ Stephen
E. Bohner
Stephen
E. Bohner,
Director
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March 14, 2011
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53
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Date
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/s/ John
H. Crane
John
H. Crane, Director
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March 14, 2011
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/s/ T.
Michael Crook
T.
Michael Crook, Director
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March 14, 2011
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/s/ H.
Gilbert Culbreth, Jr.
H.
Gilbert Culbreth, Jr, Director
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March 14, 2011
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/s/ Robert
B. Goldstein
Robert
B. Goldstein, Director
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March 14, 2011
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/s/ Christopher
E. Fogal
Christopher
E. Fogal, Director
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March 14, 2011
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/s/ Dennis
S. Hudson, Jr.
Dennis
S. Hudson, Jr., Director
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March 14, 2011
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/s/ Thomas
E. Rossin
Thomas
E. Rossin, Director
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March 14, 2011
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/s/ Edwin
E. Walpole, III
Edwin
E. Walpole, III, Director
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March 14, 2011
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54