Financial Highlights
(Dollars in thousands except per share data)
FOR THE YEAR 1999 1998 1997
Net interest income $ 43,089 $ 40,213 $ 38,077
Provision for loan losses 660 1,710 913
Noninterest income:
Securities gains 309 612 48
Other 12,148 11,775 10,896
Noninterest expenses 35,983 35,721 36,425
Income before income taxes 18,903 15,169 11,683
Provision for income taxes 7,119 5,606 4,251
Net income 11,784 9,563 7,432
Core earnings (1) 19,439 16,565 12,755
Per share data Net income:
Diluted 2.40 1.84 1.42
Basic 2.43 1.88 1.45
Cash dividends paid:Class A common 0.98 0.90 0.82
Book value 15.96 15.87 15.75
Dividends to net income 39.8% 47.4% 53.8%
AT YEAR END
Assets $1,081,032 $1,092,230 $943,037
Securities 213,654 261,183 220,150
Net loans 771,294 695,207 608,567
Deposits 905,960 905,202 806,098
Shareholders' equity 77,111 78,442 81,064
Performance ratios:
Return on average assets 1.11% 0.98% 0.83%
Return on average equity 14.64 11.64 9.17
Net interest margin (2) 4.34 4.40 4.60
Average equity to average assets 7.57 8.39 9.09
- ----------
(1) Income before taxes excluding the provision for loan losses, securities
gains and expenses associated with foreclosed and repossessed asset
management and dispositions.
(2) On a fully taxable equivalent basis.
Financial Highlights (con't)
(Dollars in thousands except per share data)
FOR THE YEAR 1996 1995
Net interest income $ 36,223 $ 31,035
Provision for loan losses 1,090 456
Noninterest income:
Securities gains 76 421
Other 10,331 8,747
Noninterest expenses 31,768 27,766
Income before income taxes 13,772 11,981
Provision for income taxes 4,933 4,208
Net income 8,839 7,773
Core earnings (1) 14,968 12,099
Per share data
Net income:
Diluted 1.71 1.51
Basic 1.73 1.52
Cash dividends paid:Class A common 0.65 0.54
Book value 15.08 14.05
Dividends to net income 30.9% 29.3%
AT YEAR END
Assets $938,501 $885,881
Securities 223,169 234,795
Net loans 570,667 493,328
Deposits 811,493 765,200
Shareholders' equity 76,995 71,155
Performance ratios:
Return on average assets 1.04% 0.98%
Return on average equity 11.63 11.12
Net interest margin (2) 4.60 4.24
Average equity to average assets 8.96 8.77
- ----------
(1) Income before taxes excluding the provision for loan losses, securities
gains and expenses associated with foreclosed and repossessed asset
management and dispositions.
(2) On a fully taxable equivalent basis.
FINANCIAL REVIEW
1999 Management's Discussion and Analysis
Net income for 1999 totaled $11,784,000 or $2.40 per share diluted, compared
with $9,563,000 or $1.84 per share diluted in 1998 and $7,432,000 or $1.42 per
share diluted in 1997. Return on average assets was 1.11 percent and return on
average shareholders' equity was 14.64 percent for 1999, compared to the prior
year's results of 0.98 percent and 11.64 percent, respectively, and 1997's
results of 0.83 percent and 9.17 percent, respectively.
Earnings in 1998 were impacted by net non-recurring gains of $330,000 ($209,000
after tax). This includes a gain of $616,000 on the sale of the Company's credit
card portfolio and a charge of $286,000 taken to cancel a contract for
processing of the Company's trust business.
Earnings in 1997 were impacted by a special charge for a planned replacement of
the Company's mainframe hardware and software of $1,079,000 ($682,000 after tax)
and merger related expenses of $1,542,000 ($975,000 after tax). The merger
related expenses were a result of the Company acquiring Port St. Lucie National
Bank Holding Corp.(PSHC) and its subsidiary, Port St. Lucie National Bank (PSNB)
on May 30, 1997. The transaction was accounted for as a pooling of interests and
all prior period amounts have been restated assuming the companies had been
combined since inception. PSHC shareholders received 900,000 shares of the
Company for all of their issued and outstanding common stock, warrants and
options. Acquired deposits totaled $116.0 million and loans totaled $93.7
million.
- --------------------------------------------------------------------------------
CONDENSED INCOME STATEMENT
AS A PERCENT OF AVERAGE ASSETS
Table 1
(Tax equivalent basis) 1999 1998 1997
- --------------------------------------------------------------------------------
Net interest income 4.09% 4.14% 4.31%
Provision for loan losses 0.06 0.17 0.10
Noninterest income
Securities gains 0.03 0.06 0.01
Other 1.14 1.20 1.22
Noninterest expenses 3.39 3.64 4.09
---- ---- ----
Income before income taxes 1.81 1.59 1.35
Provision for income taxes
including tax equivalent adjustment 0.70 0.61 0.52
---- ---- ----
NET INCOME 1.11% 0.98% 0.83%
==== ==== ====
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income (on a fully tax equivalent basis) increased $2,865,000 or
7.1 percent to $43,452,000 for 1999, compared to a year ago. For 1999, the net
interest margin decreased to 4.34 percent from 4.40 percent for 1998.
- --------------------------------------------------------------------------------
CHANGES IN AVERAGE EARNING ASSETS
Table 2
Increase/(Decrease) Increase/(Decrease)
(Dollars in thousands) 1999 vs 1998 1997 vs 1996
- --------------------------------------------------------------------------------
Securities:
Taxable $16,476 7.3% $ 25,609 12.9%
Nontaxable (1,686) (13.8) (1,383) (10.2)
Federal funds sold
and other short
term investments (8,778) (53.1) (11,545) (41.1)
Loans, net 73,593 11.0 73,533 12.3
------ ---- ------ ----
Total $79,605 8.6% $ 86,214 10.3%
======= === ======== ====
- --------------------------------------------------------------------------------
The cost of interest bearing liabilities in 1999 declined 19 basis points to
3.63 percent. While the cost for savings account balances increased 23 basis
points (a direct result of the Company successfully increasing balances with its
Grand Savings product that offers a higher interest rate for larger deposit
balances), rates paid for NOW accounts, money market accounts, and certificates
of deposits declined. The Company extended the average maturity of its time
certificate of deposit funding by offering longer terms in early 1999 and locked
in attractive rates before the Fed began increasing interest rates.
The yield on earning assets in 1999 declined 22 basis points year over year to
7.38 percent. Decreases in the yield on loans of 32 basis points, the yield on
securities of 12 basis points and the yield on federal funds sold of 48 basis
points were partially offset by a changing earning asset mix, with a $73,593,000
increase in average loans, accounting for nearly all of the $79,605,000 increase
in earning assets. The yield on loans was affected by the full year impact of
the sale of the credit card portfolio in July 1998 and the significant refinance
activity that occurred in 1998.
Average investment securities grew $14,790,000 or 6.3 percent, while average
federal funds sold decreased $8,778,000 or 53.1 percent. The growth in loans and
an increase in lower cost interest bearing liabilities mitigated the decline in
the margin. Loans (the highest yielding component of earning assets) as a
percentage of average earning assets increased to 74.1 percent in 1999, versus
72.6 percent a year ago. Average certificates of deposit (the highest cost
component of interest bearing deposits) as a percentage of interest bearing
liabilities decreased to 47.4 percent in 1999, compared to 50.8 percent in 1998.
Lower cost interest bearing core deposits (NOW, savings and money market
deposits) grew $35,081,000 or 10.2 percent to $378,434,000. Also favorably
affecting the mix of deposits was an increase in average noninterest bearing
demand deposits of $18,562,000 or 15.7 percent.
Net interest income (on a fully tax equivalent basis) for 1998 increased
$2,142,000 or 5.6 percent compared to a year earlier. In 1998, the net interest
margin decreased to 4.40 percent from 4.60 percent for 1997.
- --------------------------------------------------------------------------------
RATE/VOLUME ANALYSIS (On a Tax Equivalent Basis)
Table 3
1999 vs 1998
(Dollars in thousands) Due to Change In:
----------------------------------------
Amount of Increase/(Decrease) Volume Rate Mix Total
- --------------------------------------------------------------------------------
INTEREST INCOME
Securities:
Taxable $ 996 $ (212) $ (16) $ 768
Nontaxable (141) (3) 0 (144)
---- -- - ----
855 (215) (16) 624
Federal funds sold and
other short term investments (465) (80) 42 (503)
Loans 6,009 (2,118) (231) 3,660
----- ------ ---- -----
TOTAL INTREEST INCOME 6,399 (2,413) (205) 3,781
INTEREST EXPENSE
NOW (28) (143) 3 (168)
Savings deposits 407 210 47 664
Money market accounts 356 (400) (34) (78)
Time deposits 238 (1,093) (12) (867)
--- ------ --- ----
973 (1,426) 4 (449)
Federal funds purchased
and other short term borrowings 496 68 32 596
Other borrowings 771 (1) (1) 769
--- -- -- ---
TOTAL INTEREST EXPENSE 2,240 (1,359) 35 916
----- ------ -- ---
NET INTEREST INCOME $4,159 $(1,054) $(240) $2,865
====== ======= ===== ======
- --------------------------------------------------------------------------------
RATE/VOLUME ANALYSIS (On a Tax Equivalent Basis)
Table 3 (con't)
1998 vs 1997
(Dollars in thousands) Due to Change In:
-------------------------------------------
Amount of Increase/(Decrease) Volume Rate Mix Total
- --------------------------------------------------------------------------------
INTEREST INCOME
Securities:
Taxable $1,563 $(115) $(15) $ 1,433
Nontaxable (115) 12 (1) (104)
---- -- -- ----
1,448 (103) (16) 1,329
Federal funds sold and
other short term investments (625) (32) 13 (644)
Loans 6,203 (1,603) (198) 4,402
----- ------ ---- -----
TOTAL INTEREST INCOME 7,026 (1,738) (201) 5,087
INTEREST EXPENSE
NOW (155) 195 (24) 16
Savings deposits 311 (317) (53) (59)
Money market accounts 506 (57) (8) 441
Time deposits 1,828 (140) (13) 1,675
----- ---- --- -----
2,490 (319) (98) 2,073
Federal funds purchased
and other short term borrowings 226 (14) (4) 208
Other borrowings 664 0 0 664
--- - - ---
TOTAL INTEREST EXPENSE 3,380 (333) (102) 2,945
----- ---- ---- -----
Net Interest
Income $3,646 $(1,405) $(99) $2,142
====== ======= ==== ======
- ------------------------------------------------------------------------------
The cost of interest bearing liabilities in 1998 remained level year over year
at 3.82 percent. While the cost for NOW account balances increased 27 basis
points (a direct result of the Company successfully increasing balances with its
Money Manager product which consolidates customer NOW account and brokerage
activities and offers a higher interest rate), rates paid for savings, money
market accounts, certificates of deposits and short term borrowings (principally
sweep repurchase agreements with customers of the Company's subsidiary bank)
declined and were offsetting. In the third quarter, the Company obtained
borrowings totaling $24,970,000 with a duration of 2.7 years from the Federal
Home Loan Bank (FHLB) and Donaldson, Lufkin & Jenrette (DLJ) at a weighted
average rate of 5.75 percent. The funds were used to acquire investments with
comparable duration to the funding at a 110 basis point spread.
- --------------------------------------------------------------------------------
CHANGES IN AVERAGE
INTEREST BEARING LIABILITIES
Table 4
Increase/(Decrease) Increase/(Decrease)
(Dollars in thousands) 1999 vs 1998 1998 vs 1997
- --------------------------------------------------------------------------------
NOW $(1,407) (2.2)% $(8,992) (12.4)%
Savings deposits 20,345 22.6 12,902 16.7
Money market accounts 16,143 8.5 22,563 13.5
Time deposits 4,537 1.2 34,339 9.6
Federal funds
purchased and
other short term
borrowings 12,530 48.4 5,614 27.7
Other borrowings 13,421 116.2 11,549 N/M
------ ----- ------ ----
Total $65,569 8.5% $77,795 11.2%
======= === ======= ====
- ----------
N/M = Not meaningful
- --------------------------------------------------------------------------------
The yield on earning assets in 1998 declined 18 basis points year over year to
7.60 percent. Decreases in the yield on loans of 27 basis points, the yield on
securities of 7 basis points and the yield on federal funds sold of 12 basis
points were partially offset by a changing earning asset mix, with a $73.6
million increase in average loans. The yield on loans was affected by the sale
of the $7.1 million credit card portfolio in July 1998 which had yielded 12
percent and lower interest rates which caused many businesses and homeowners to
refinance their existing mortgages to lower rates during 1998.
Average earning assets during 1998 were $86,214,000 or 10.3 percent higher when
compared to prior year. Average loan balances grew $73,533,000 or 12.3 percent
and average investment securities grew $24,226,000 or 11.4 percent, while
average federal funds sold decreased $11,545,000 or 41.1 percent. The growth in
loans and an increase in lower cost interest bearing liabilities mitigated the
decline in the margin. Loans (the highest yielding component of earning assets)
as a percentage of average earning assets increased to 72.6 percent in 1998,
versus 71.3 percent a year ago. Average certificates of deposit (the highest
cost component of interest bearing deposits) as a percentage of interest bearing
liabilities decreased to 50.8 percent in 1998, compared to 51.5 percent in 1997.
Lower cost interest bearing core deposits (NOW, savings and money market
deposits) grew $26,473,000 or 8.4 percent to $343,353,000. Also favorably
affecting the mix of deposits was an increase in average noninterest bearing
demand deposits of $8,792,000 or 8.0 percent to $118,180,000.
- --------------------------------------------------------------------------------
THREE YEAR SUMMARY
AVERAGE BALANCES, INTEREST INCOME AND EXPENSES, YIELDS AND RATES (1)
Table 5
(Dollars in thousands) 1999
- --------------------------------------------------------------------------------
Average Yield/
Balance Interest Rate
- --------------------------------------------------------------------------------
ASSETS
Earning assets:
Securities
Taxable $240,830 $14,330 5.95%
Nontaxable 10,551 882 8.36
------ ------ ----
TOTAL SECURITIES 251,381 15,212 6.05
Federal funds sold and other
short term investments 7,745 373 4.82
Loans (2) 743,010 58,329 7.85
------- ------ ----
TOTAL EARNING ASSETS 1,002,136 73,914 7.38
Allowance for loan losses (6,713)
Cash and due from banks 35,110
Bank premises and equipment 17,213
Other assets 14,589
------
$1,062,335
==========
LIABILITIES AND
SHAREHOLDERS EQUITY
Interest-bearing liabilities:
NOW $61,840 $ 1,093 1.77%
Savings deposits 110,477 2,465 2.23
Money market accounts 206,117 4,114 2.00
Time deposits 397,513 19,736 4.96
Federal funds purchased and other
other short term borrowings 38,438 1,621 4.22
Other borrowings 24,970 1,433 5.74
------ ----- ----
TOTAL INTEREST BEARING LIABILITIES 839,355 30,462 3.63
Demand deposits 136,742
Other liabilities 5,767
-----
981,864
Shareholders'Equity 80,471
------
$1,062,335
==========
Interest expense as % of earning assets 3.04%
Net interest income/yield on earning assets $43,452 4.34%
======= ====
- ----------
(1) The tax equivalent adjustment is based on a 34% tax rate.
(2) Nonaccrual loans are included in loan balances. Fees on loans are included
in interest on loans.
- -----------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THREE YEAR SUMMARY
AVERAGE BALANCES, INTEREST INCOME AND EXPENSES, YIELDS AND RATES (1)
Table 5 (con't)
(Dollars in thousands) 1998
- --------------------------------------------------------------------------------
Average Yield/
Balance Interest Rate
- --------------------------------------------------------------------------------
ASSETS
Earning assets:
Securities
Taxable $224,354 $13,562 6.04%
Nontaxable 12,237 1,026 8.38
------ ----- ----
TOTAL SECURITIES 236,591 14,588 6.17
Federal funds sold and other
short term investments 16,523 876 5.30
Loans (2) 669,417 54,669 8.17
------- ------ ----
TOTAL EARNING ASSETS 922,531 70,133 7.60
Allowance for loan losses (5,739)
Cash and due from banks 29,244
Bank premises and equipment 18,620
Other assets 14,737
------
$979,393
========
LIABILITIES AND
SHAREHOLDERS EQUITY
Interest-bearing liabilities:
NOW $63,247 $ 1,261 1.99%
Savings deposits 90,132 1,801 2.00
Money market accounts 189,974 4,192 2.21
Time deposits 392,976 20,603 5.24
Federal funds purchased and other
other short term borrowings 25,908 1,025 3.96
Other borrowings 11,549 664 5.75
------ ----- ----
TOTAL INTEREST BEARING LIABILITIES 773,786 29,546 3.82
Demand deposits 118,180
Other liabilities 5,277
-----
897,243
Shareholders'Equity 82,150
------
$979,393
========
Interest expense as % of earning assets 3.20%
Net interest income/yield on earning assets $40,587 4.40%
======= ====
- ----------
(1) The tax equivalent adjustment is based on a 34% tax rate.
(2) Nonaccrual loans are included in loan balances. Fees on loans are included
in interest on loans.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THREE YEAR SUMMARY
AVERAGE BALANCES, INTEREST INCOME AND EXPENSES, YIELDS AND RATES (1)
Table 5 (con't)
(Dollars in thousands) 1997
- --------------------------------------------------------------------------------
Average Yield/
Balance Interest Rate
- --------------------------------------------------------------------------------
ASSETS
Earning assets:
Securities
Taxable $198,745 $12,129 6.10%
Nontaxable 13,620 1,130 8.30
------ ----- ----
TOTAL SECURITIES 212,365 13,259 6.24
Federal funds sold and other
short term investments 28,068 1,520 5.42
Loans (2) 595,884 50,267 8.44
------- ------ ----
TOTAL EARNING ASSETS 836,317 65,046 7.78
Allowance for loan losses (5,554)
Cash and due from banks 26,148
Bank premises and equipment 17,996
Other assets 16,594
------
$891,501
========
LIABILITIES AND
SHAREHOLDERS EQUITY
Interest-bearing liabilities:
NOW $72,239 $ 1,245 1.72%
Savings deposits 77,230 1,860 2.41
Money market accounts 167,411 3,751 2.24
Time deposits 358,637 18,928 5.28
Federal funds purchased and other
other short term borrowings 20,294 817 4.03
Other borrowings 0 0 0
------ ----- ----
TOTAL INTEREST BEARING LIABILITIES 695,811 26,601 3.82
Demand deposits 109,388
Other liabilities 5,244
-----
810,443
Shareholders'Equity 81,058
------
$891,501
========
Interest expense as % of earning assets 3.18%
Net interest income/yield on earning assets $38,445 4.60%
======= ====
- ----------
(1) The tax equivalent adjustment is based on a 34% tax rate.
(2) Nonaccrual loans are included in loan balances. Fees on loans are included
in interest on loans.
- --------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES
Improved credit quality in 1999 resulted in lower provisioning in spite of
average loans increasing $73.6 million. Loan losses declined to $133,000 or 0.02
percent of average total loans from $730,000 or 0.11 percent of total loans in
1998. Strong loan growth in 1998 resulted in higher provisioning, but was also
mitigated by lower net charge offs (0.11 percent in 1998 versus 0.20 percent in
1997). The provision for loan losses in 1997 was $913,000, versus $1,710,000 in
1998. The sale of the credit card portfolio in 1998 reduced the Company's
exposure to losses from consumer bankruptcies and was partly responsible for the
lower net charge offs.
Management determines the provision for loan losses which is charged to
operations by constantly analyzing and monitoring delinquencies, nonperforming
loans and the level of outstanding balances for each loan category, as well as
the amount of net charge offs, and by estimating losses inherent in its
portfolio. While the Company's policies and procedures used to estimate the
monthly provision for loan losses charged to operations are considered adequate
by management and are reviewed from time to time by the Office of the
Comptroller of the Currency, there exist factors beyond the control of the
Company, such as general economic conditions both locally and nationally, which
make management's judgment as to the adequacy of the provision necessarily
approximate and imprecise. Increased loan balances are forecast for 2000, and it
is generally believed that growth in the economy may slow. The Company's current
assessment of its credit quality would lead to comparable provisioning in 2000.
See "Nonperforming Assets" and "Allowance for Loan Losses."
NONINTEREST INCOME
Table 6 shows noninterest income for the years indicated.
Noninterest income, excluding gains from sales of securities, totaled
$12,148,000 in 1999, an increase of $373,000 or 3.2 percent from 1998. Included
in noninterest income for 1998 was a non-recurring gain of $616,000 from the
sale of the Company's $7.1 million credit card portfolio. Without this gain,
noninterest income increased $989,000 or 8.9 percent year over year.
During 1999, service charges on deposit accounts increased $517,000 or 11.9
percent, while other service charges and fees declined $202,000, primarily as a
result of the loss of fees earned on the sold credit card portfolio. Income from
brokerage services increased $224,000 or 10.6 percent and trust income increased
$345,000 or 16.1 percent. The increased service charges resulted from growth in
accounts for which fees are assessed and an increase in minimum balances
required in order to avoid monthly service charges. Trust income increased due
to higher fee schedules implemented in 1999 and increased fees from new trust
management accounts.
Noninterest income, excluding gains from sales of securities, totaled
$11,775,000 in 1998, an increase of $879,000 or 8.1 percent to the prior year.
Included in noninterest income for 1998 was a non-recurring gain of $616,000
from the sale of the Company's $7.1 million credit card portfolio. Excluding
this gain, noninterest income increased 2.4 percent year over year.
During 1998, service charges on deposit accounts increased $177,000 or 4.2
percent. Income from brokerage services increased $252,000 or 13.6 percent and
trust income declined $62,000 or 2.8 percent. Trust income was lower due to
reduced fees from estate accounts, partially offset by increased fees from new
trust management accounts.
Residential real estate lending is an important segment of the Company's lending
activities, and exposure to market interest rate volatility is managed at times
by the sale of fixed rate loans in the secondary market. Consumer interest in
fixed rate mortgages was very strong in 1998. In 1999, 1998 and 1997, additional
income of $29,000, $67,000 and $202,000, respectively, from the sale of loans
was recorded in other income. The decline from 1998 to 1999 resulted from the
lower volume of mortgages produced due to higher interest rates in the last six
months of 1999.
Proceeds from sales of securities were utilized to fund lending demand and
manage seasonal funding declines. Declining interest rates in 1998 generated
larger gains on sales of securitized fixed rate residential loans originated by
the Company's subsidiary bank.
- --------------------------------------------------------------------------------
NONINTEREST INCOME
Table 6
(Dollars in thousands)
Year Ended % Change
---------------------- ---------------
1999 1998 1997 99/98 98/97
---- ---- ---- ----- -----
Service charges
on deposit accounts $ 4,876 $ 4,359 $ 4,182 11.9% 4.2%
Trust fees 2,489 2,144 2,206 16.1 (2.8)
Other service charges
and fees 1,453 1,655 1,688 (12.2) (2.0)
Brokerage commissions
and fees 2,329 2,105 1,853 10.6 13.6
Other 1,001 1,512 967 (33.8) 56.4
----- ----- --- ----- ----
12,148 11,775 10,896 3.2 8.1
Securities gains 309 612 48 (49.5) 1,175.0
--- --- -- ----- -------
TOTAL $12,457 $12,387 $10,944 0.6% 13.2%
======= ======= ======= ===== ======
- --------------------------------------------------------------------------------
NONINTEREST EXPENSES
Table 7 shows the Company's noninterest expenses for the years indicated.
In late 1998, the Company began a project to reduce costs. The aggressive
expansion over the prior two years, increased business and a data processing
conversion made it prudent to review all of the Company's systems and processes.
Core operating expenses had increased $1,631,000 or 4.8 percent in 1998 as a
result. The improvement in efficiencies resulted in only a modest growth of
$262,000 or 0.7% in noninterest expenses in 1999. Salary expenses declined 1.2%,
but the decrease was much larger, as the Company exceeded certain profit
performance measures which necessitated the payment of salary incentives. In
addition, employee benefits were $679,000 or 21.8 percent higher, reflecting
increased profit sharing benefits. The Company expects to continue to benefit
from the lower operating overhead in future years and continue the process of
realigning its systems and procedures to further improve operating efficiencies.
Outsourced data processing expenses increased in 1999 by 28.3 percent as a
result of the full-year impact of the complete outsourcing of the Company's main
data processing systems in September 1998. Some of the decline in salaries in
1999 occurred due to the elimination of the in-house data processing department
as a result of this decision.
Legal and professional fees increased $543,000 or 52.8 percent and were related
to outside consulting services for overhead improvements.
In 1998, salaries and wages increased $843,000 or 6.4 percent and employee
benefits grew $174,000 or 5.9 percent. These increases are directly related to
the expansion in Indian River which began in 1997 with the addition of three new
offices and concluded with the opening of the Company's Sebastian West office in
Indian River County in March 1998. Of the increase in employee benefits, an
additional $108,000 was expended for higher group health insurance costs.
Occupancy expenses and furniture and equipment expenses, on an aggregate basis,
increased $337,000 or 6.4 percent in 1998. Included in this increase are costs
related to the expansion and write-offs of obsolete computer hardware totaling
$105,000. Legal and professional fees increased $111,000 or 12.1 percent
compared to 1997, primarily as a result of consulting services utilized to
assist the Company during conversion of its core data processing system in 1998.
Outsourced data processing costs increased $755,000 in 1998 versus prior year.
This increase reflect the Company's implementation and conversion of its core
data processing system to a third party in lieu of in-house mainframe processing
which the Company's bank subsidiary utilized to mid-September 1998. Of the total
increase, approximately $500,000 was directly related to implementation and
processing costs for this new processing solution in the third and fourth
quarter.
The other expense category decreased $2,827,000 or 32.0 percent in 1998 year
over year. Without the impact of non-recurring charges for 1998 and 1997, other
expenses were $492,000 or 7.9 percent lower. Costs associated with education,
employee placement and advertising, and other miscellaneous expenses were lower
in 1998 than in 1997.
- --------------------------------------------------------------------------------
NONINTEREST EXPENSES
Table 7
(Dollars in thousands)
Year Ended
-------------------------------
1999 1998 1997
---- ---- ----
Salaries and wages $13,882 $14,046 $13,203
Pension and other employee
benefits 3,798 3,119 2,945
Occupancy 3,135 3,129 2,961
Furniture and equipment 2,037 2,436 2,267
Outsourced data processing
costs 3,696 2,881 2,126
Marketing 1,653 1,964 2,151
Legal and professional fees 1,572 1,029 918
FDIC assessments 146 135 136
Foreclosed and repossessed
asset management and
dispositions 185 298 207
Amortization of intangibles 671 671 671
Other 5,208 6,013 8,840
----- ----- -----
TOTAL $35,983 $35,721 $36,425
======= ======= =======
- --------------------------------------------------------------------------------
NONINTEREST EXPENSES
Table 7 (CONT')
(Dollars in thousands)
% Change
-----------------
99/98 98/97
----- -----
Salaries and wages (1.2)% 6.4%
Pension and other employee
benefits 21.8 5.9
Occupancy 0.2 5.7
Furniture and equipment (16.4) 7.5
Outsourced data processing
costs 28.3 35.5
Marketing (15.8) (8.7)
Legal and professional fees 52.8 12.1
FDIC assessments 8.1 (0.7)
Foreclosed and repossessed
asset management and
dispositions (37.9) 44.0
Amortization of intangibles 0.0 0.0
Other (13.4) (32.0)
----- -----
TOTAL 0.7% (1.9)%
=== ====
- --------------------------------------------------------------------------------
INCOME TAXES
Income taxes as a percentage of income before taxes were 37.7 percent for 1999,
37.0 percent for 1998, and 36.4 percent for 1997. The increase in rates year to
year can be attributed to higher state income taxes, a result of lower tax
credit, lower tax exempt income, and the Company's effective federal tax rate
increasing due to adjusted income before taxes exceeding $10 million.
The Company has deferred tax assets, for which no valuation allowance is
required because the majority of the asset is deemed to be temporary and
sufficient taxable income exists to carry-back to recover the differences.
FINANCIAL CONDITION
Total assets declined approximately $11 million in 1999 after increasing
$149,200,000 or 15.8 percent to $1,092,230,000 in 1998. The significant increase
in 1998 resulted from the new branches opened in 1997 and a $25 million leverage
transaction. The Company allowed higher rate time deposits to decline as loan
growth slowed in the second half of 1999.
CAPITAL RESOURCES
Table 8 summarizes the Company's capital position and selected ratios. The
Company's ratio of shareholders' equity to period end assets was 7.13 percent at
December 31, 1999, compared with 7.18 percent one year earlier. This ratio has
declined over the last two years as a result of the Company buying back
outstanding shares of its Class A Common stock. The cost of the repurchased
shares totaled $5,076,000 for 1999, compared to $8,957,000 a year ago.
- --------------------------------------------------------------------------------
CAPITAL RESOURCES
Table 8
(Dollars in thousands)
December 31 1999 1998 1997
- ----------------------------------------------------- -------------- -----------
TIER 1 CAPITAL
Common stock $ 518 $ 518 $517
Additional paid in capital 27,785 27,439 27,256
Retained earnings 66,174 59,738 55,249
Treasury stock (11,640) (8,806) (1,289)
Valuation allowance (849) (627) (437)
Intangibles (4,021) (4,652) (5,308)
------ ------ ------
TOTAL TIER 1 CAPITAL 77,967 73,610 75,988
TIER 2 CAPITAL
Allowance for loan losses,
as limited 6,870 6,343 5,363
----- ----- -----
TOTAL TIER 2 CAPITAL 6,870 6,343 5,363
----- ----- -----
TOTAL RISK BASED CAPITAL $84,837 $ 79,953 $81,351
======= ======== =======
Risk weighted assets $693,016 $665,913 $554,988
======== ======== ========
Tier 1 risk based capital ratio 11.25% 11.05% 13.69%
Total risk based capital ratio 12.24 12.01 14.66
Regulatory minimum 8.00 8.00 8.00
Tier 1 capital to adjusted total assets 7.32 7.10 8.44
Regulatory minimum 4.00 4.00 4.00
Shareholders' equity to assets 7.13 7.18 8.60
Average shareholders' equity
to average total assets 7.57 8.39 9.09
- --------------------------------------------------------------------------------
LOAN PORTFOLIO
Table 9 shows total loans (net of unearned income) by category outstanding at
the indicated dates.
Total loans increased $76,614,000 or 10.9 percent in 1999 compared to
$87,620,000 or 14.3 percent in 1998. During 1999, the Company sold $28.0 million
in residential loans to manage interest rate risk, compared to $81.0 million in
1998 and $58.5 million in 1997.
At December 31, 1999, the Company's mortgage loan balances secured by
residential properties amounted to $431,694,000 or 55.5 percent of total loans.
The next largest concentration was loans secured by commercial real estate which
totaled $178,004,000 or 22.9 percent. Most of the commercial real estate loans
were made to local businesses and professionals and are secured by owner
occupied properties. Loans and commitments for 1-4 family residential properties
and commercial real estate are generally secured with first mortgages on
property, with the loan to fair value of the property not exceeding 80 percent
on the date the loan is made. The Company was also a creditor for consumer loans
to individual customers (primarily secured by motor vehicles) totaling
$78,013,000 and real estate construction loans totaling $42,899,000 (of which
approximately $20.8 million was secured by residential properties).
The Treasure Coast is a residential community with commercial activity centered
in retail and service businesses serving the local residents. Therefore, real
estate mortgage lending is an important segment of the Company's lending
activities. Exposure to market interest rate volatility with respect to mortgage
loans, is managed by attempting to match maturities and repricing opportunities
for assets against liabilities, when possible. At December 31, 1999,
approximately $163 million or 38 percent of the Company's mortgage loan balances
secured by residential properties were adjustable.
Of the approximate $137 million of new residential loans originated in 1999, $57
million were adjustable rate and $80 million were fixed rate. The Company sold
approximately $28 million of its 30-year and 15-year fixed rate loan
originations in 1999. Loans secured by residential properties having fixed rates
totaled approximately $268 million at December 31, 1999, of which 15- and
30-year mortgages totaled approximately $125 million and $105 million,
respectively. Remaining fixed rate balances were comprised of home improvement
loans with short maturities less than 15 years.
The Company's historical net charge offs for residential loans has been low,
totaling $104,000 for the year 1998. The Company expects that 2000's residential
loan demand may be comprised of more adjustable rate loans than fixed rate due
to increased interest rates.
Fixed rate and adjustable rate loans secured by commercial real estate total
approximately $114 million and $64 million, respectively, at December 31, 1999.
Commercial lending activities are directed principally towards businesses whose
demand for funds are within the Company's lending limits, such as small to
medium sized professional firms, retail and wholesale outlets, and light
industrial and manufacturing concerns. Such businesses typically are smaller,
often have short operating histories and do not have the sophisticated record
keeping systems of larger entities. Most of such loans are secured by real
estate used by such businesses, although certain lines are unsecured. Such loans
are subject to the risks inherent to lending to small to medium sized businesses
including the effects of a sluggish local economy, possible business failure,
and insufficient cash flows. The Company's commercial loan portfolio totaled
$33,119,000 at December 31, 1999 compared to $31,908,000 at December 31, 1998.
The Company makes a variety of consumer loans, including installment loans,
loans for automobiles, boats, home improvements, and other personal, family and
household purposes, and indirect loans through dealers, to finance automobiles.
Most consumer loans are secured.
Second mortgage loans and home equity lines are extended by the Company. No
negative amortization loans or lines are offered at the present time. Terms of
second mortgage loans include fixed rates for up to 10 years on smaller loans of
$30,000 or less. Such loans are sometimes made for larger amounts, with fixed
rates, but with balloon payments upon maturities, not exceeding five years.
At December 31, 1998, the Company's mortgage loan balances secured by
residential properties amounted to $397,733,000 or 56.7 percent of total loans.
The next largest concentration was mortgages secured by commercial real estate
which totaled $177,162,000 or 25.3 percent. Consumer loans to individual
customers (primarily secured by motor vehicles) totaled $71,506,000 in 1998 and
real estate construction loans totaled $22,877,000.
Loans secured by residential properties having fixed rates totaled approximately
$231 million at December 31, 1998, of which 15- and 30-year mortgages totaled
approximately $104 million and $93 million, respectively. Remaining fixed rate
balances were comprised of home improvement loans with short maturities less
than 15 years.
- --------------------------------------------------------------------------------
LOANS OUTSTANDING
Table 9
(Dollars in thousands)
December 31 1999 1998 1997
- --------------------------------------------------------------
Real estate mortgage $623,472 $574,895 $492,410
Real estate construction 42,899 22,877 16,363
Commercial and financial 33,119 31,908 31,239
Installment loans to
individuals 78,013 71,506 73,673
Other loans 661 364 245
--- --- ---
TOTAL $778,164 $701,550 $613,930
======== ======== ========
- --------------------------------------------------------------------------------
LOANS OUTSTANDING
Table 9 (CON'T)
(Dollars in thousands)
December 31 1996 1995
- ---------------------------------------------------
Real estate mortgage $448,680 $391,471
Real estate construction 18,458 15,492
Commercial and financial 35,459 27,280
Installment loans to
individuals 73,224 63,685
Other loans 503 294
--- ---
TOTAL $576,324 $498,222
======== ========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOAN MATURITY DISTRIBUTION
Table 10
(Dollars in thousands)
Commercial,
Financial & Real Estate
December 31, 1999 Agricultural Construction Total
- ----------------------------------------------------------------------
In one year or less $8,251 $39,524 $47,775
After one year but
within five years:
Interest rates are
floating or adjustable 2,144 1,145 3,289
Interest rates are fixed 13,760 2,230 15,990
In five years or more:
Interest rates are
floating or adjustable 2,044 0 2,044
Interest rates are fixed 6,920 0 6,920
----- - -----
Total $33,119 $42,899 $76,018
======= ======= =======
- --------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES
Table 11 provides certain information concerning the Company's allowance for
loan losses for the years indicated.
The allowance for loan losses totaled $6,870,000 at December 31, 1999, $527,000
higher than one year earlier. The allowance for loan losses as a percentage of
nonaccrual loans was 285.4 percent at December 31, 1999, compared to 262.3
percent at December 31, 1998. The model utilized to analyze the adequacy of the
allowance for loan losses takes into account such factors as credit quality,
internal controls, audit results, staff turnover, local market economics and
loan growth. The resulting lower allowance level necessitated is also reflective
of the bank's favorable and consistent delinquency trends and historical loss
performance. These performance results are attributed to conservative,
long-standing and consistently applied loan credit policies and to a
knowledgeable, experienced and stable staff. As a result of the sale of the
credit card portfolio in 1998 (see Loan Portfolio), the Company eliminated its
exposure to future credit card losses. Net charge offs totaled only $133,000
compared to $730,000 one year earlier.
- --------------------------------------------------------------------------------
SUMMARY OF LOAN LOSS EXPERIENCE
Table 11
(Dollars in thousands)
Year Ended December 31 1999 1998 1997
- --------------------------------------------------------------------
Allowance for loan losses
Beginning balance $ 6,343 $ 5,363 $ 5,657
Provision for loan losses 660 1,710 913
Allowance applicable to
loans purchased 0 0 0
Charge offs:
Commercial and financial 2 112 443
Consumer 458 901 936
Commercial real estate 46 137 137
Residential real estate 120 42 38
--- -- --
TOTAL CHARGE OFFS 626 1,192 1,554
Recoveries:
Commercial and financial 111 117 76
Consumer 230 211 197
Commercial real estate 136 109 63
Residential real estate 16 25 11
-- -- --
TOTAL RECOVERIES 493 462 347
--- --- ---
Net loan charge offs 133 730 1,207
--- --- -----
ENDING BALANCE $ 6,870 $6,343 $ 5,363
======= ====== ========
Loans outstanding at end of year* $778,164 $701,550 $613,930
Ratio of allowance for loan
losses to loans outstanding
at end of year 0.88% 0.90% 0.87%
Daily average loans outstanding* $743,110 $669,417 $595,884
Ratio of net charge offs to
average loans outstanding 0.02% 0.11% 0.20%
- ----------
* Net of unearned income.
- --------------------------------------------------------------------------------
SUMMARY OF LOAN LOSS EXPERIENCE
Table 11 (CON'T)
(Dollars in thousands)
Year Ended December 31 1996 1995
- ---------------------------------------------------------------
Allowance for loan losses
Beginning balance $ 4,893 $ 4,072
Provision for loan losses 1,090 456
Allowance applicable to loans
of purchased company 0 556
Charge offs:
Commercial and financial 80 80
Consumer 525 453
Commercial real estate 36 54
Residential real estate 84 31
-- --
TOTAL CHARGE OFFS 725 618
Recoveries:
Commercial and financial 72 67
Consumer 236 212
Commercial real estate 91 146
Residential real estate 0 2
- -
TOTAL RECOVERIES 399 427
--- ---
Net loan charge offs 326 191
--- ---
ENDING BALANCE $ 5,657 $ 4,893
======= =======
Loans outstanding at end of year* $576,324 $498,222
Ratio of allowance for loan
losses to loans outstanding at
end of year .98% .98%
Daily average loans outstanding* $538,330 $430,123
Ratio of net charge offs to
average loans outstanding 0.06% 0.04%
- ----------
* Net of unearned income.
- --------------------------------------------------------------------------------
Table 12 summarizes the Company's allocation of the allowance for loan losses to
each type of loan and information regarding the composition of the loan
portfolio at the dates indicated.
The allowance for loan losses represents management's estimate of an amount
adequate in relation to the risk of future losses inherent in the loan
portfolio. In its continuing evaluation of the allowance and its adequacy,
management considers, among other factors, the Company's loan loss experience,
the amount of past due and nonperforming loans, current and anticipated economic
conditions, and the values of certain loan collateral, and other assets. The
size of the allowance also reflects the large amount of permanent residential
loans held by the Company whose historical charge offs and delinquencies have
been superior by any comparison.
While it is the Company's policy to charge off in the current period loans in
which a loss is considered probable, there are additional risks of future losses
which cannot be quantified precisely or attributed to particular loans or
classes of loans. Because these risks include the state of the economy as well
as conditions affecting individual borrowers, management's judgment of the
allowance is necessarily approximate and imprecise. It is also subject to
regulatory examinations and determinations as to adequacy, which may take into
account such factors as the methodology used to calculate the allowance for loan
losses and the size of the allowance for loan losses in comparison to a group of
peer companies identified by the regulatory agencies.
In assessing the adequacy of the allowance, management relies predominantly on
its ongoing review of the loan portfolio, which is undertaken both to ascertain
whether there are probable losses which must be charged off and to assess the
risk characteristics of the portfolio in the aggregate. This review considers
the judgments of management, and also those of bank regulatory agencies that
review the loan portfolio as part of their regular examination process.
- --------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES
Table 12
(Dollars in thousands)
Allowance Amount
December 31 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------
Commercial and
financial loans $ 677 $ 576 $ 363 $ 665 $ 450
Real estate loans 4,913 4,464 3,347 3,681 3,571
Installment loans 1,280 1,303 1,653 1,311 872
----- ----- ----- ----- ---
Total $6,870 $6,343 $5,363 $5,657 $4,893
====== ====== ====== ====== ======
Percent of Loans in Each Category to Total Loans
December 31 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------
Commercial and
financial loans 4.3% 4.6% 5.1% 6.2% 5.5%
Real estate loans 85.6 85.3 82.9 81.1 81.7
Installment loans 10.1 10.1 12.0 12.7 12.8
---- ---- ---- ---- ----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
- --------------------------------------------------------------------------------
NONPERFORMING ASSETS
Nonaccrual loans totaling $1,118,000 at December 31, 1999 were performing, but
because the Company has determined that the collection of principal or interest
in accordance with the original terms of such loans is uncertain, it has placed
such loans on nonaccrual status. Of the amount reported in nonaccrual loans at
December 31, 1999, 85 percent is secured with real estate. Management does not
expect significant losses, for which an allowance for loan losses has not been
provided, associated with the ultimate realization of these assets.
Nonperforming assets are subject to changes in the economy, both nationally and
locally, changes in monetary and fiscal policies, and changes in conditions
affecting various borrowers from the Company's subsidiary bank. No assurance can
be given that nonperforming assets will not in fact increase or otherwise
change. A similar judgmental process is involved in the methodology used to
estimate and establish the Company's allowance for loan losses.
- --------------------------------------------------------------------------------
NONPERFORMING ASSETS
Table 13
(Dollars in thousands)
December 31 1999 1998 1997
- -----------------------------------------------------------------------------
Nonaccrual loans (1) $ 2,407 $ 2,418 $ 2,254
Renegotiated loans 0 0 0
Other real estate owned 339 288 536
--- --- ---
TOTAL NONPERFORMING ASSETS $ 2,746 $ 2,706 $ 2,790
======== ======== ========
Amount of loans outstanding
at end of year (2) $778,164 $701,550 $613,930
Ratio of total nonperforming
assets to loans outstanding
and other real estate owned
at end of period 0.35% 0.39% 0.45%
Accruing loans past due 90 days or more $ 498 $ 329 $ 478
- --------------------------------------------------------------------------------
NONPERFORMING ASSETS
Table 13 (CON'T)
(Dollars in thousands)
December 31 1996 1995
- --------------------------------------------------------------
Nonaccrual loans (1) $ 2,299 $ 5,510
Renegotiated loans 0 0
Other real estate owned 1,064 889
----- ---
TOTAL NONPERFORMING ASSETS $ 3,363 $ 6,399
======== ========
Amount of loans outstanding
at end of year (2) $576,324 $498,222
Ratio of total nonperforming
assets to loans outstanding
and other real estate owned
at end of period 0.58% 1.28%
Accruing loans past due 90
days or more $ 59 $ 134
- ----------
(1) Interest income that could have been recorded during 1999 related to
nonaccrual loans was $160 none of which was included in interest income or
net income. All nonaccrual loans are secured.
(2) Net of unearned income.
- --------------------------------------------------------------------------------
SECURITIES
Information relating to yields, maturities, carrying values, market values and
unrealized gains (losses) of the Company's securities is set forth in Table 15.
At December 31, 1999, the Company had $205,220,000 of securities held for sale
or 92.2 percent of total securities compared to $239,644,000 or 91.5 percent at
December 31, 1998. Total securities decreased $39,234,000 or 15.0 percent in
1999. These proceeds were used to fund loan growth.
The average life of the portfolio at December 31, 1999 was 2.9 years compared to
2.3 years in 1998. The average life remained basically unchanged as the increase
in interest rates caused a portion of the collateralized mortgage obligation
(CMO) portfolio's lives to extend.
At December 31, 1999, the Company had unrealized net losses of $8,980,000 or 4.0
percent of amortized cost. At December 31, 1998 unrealized net losses were
$64,000. While the Fed increased rates 75 basis points in 1999, a shifting U.S.
Treasury yield curve caused a 150 basis point change and resulted in increased
unrealized depreciation.
Company management considers the overall quality of the securities portfolio to
be high. No securities are held which are not traded in liquid markets or that
meet the Federal Financial Institution Examination Counsel (FFIEC) definition of
a high risk investment.
DEPOSITS
The Company promoted long term time deposits in 1999, and as a result, other
time certificates declined $13,889,000 or 4.5 percent and resulted in total
deposits increasing by only $758,000 to $905,960,000 at December 31, 1999. In
comparison, total deposits increased $99,104,000 in 1998. A significant portion
of the increase in deposits in 1998 resulted from growth in the Company's
northern markets, St. Lucie County and Indian River County, where the PSHC
acquisition and the opening of four new branches occurred.
Repurchase agreement balances declined $10,794,000 in 1999, compared to a growth
of $25,646,000 in 1998. Repurchase agreements are offered by the Company's
subsidiary bank to select customers who wish to sweep excess balances on a daily
basis for investment purposes.
INTEREST RATE SENSITIVITY
Interest rate exposure is managed by monitoring the relationship between earning
assets and interest bearing liabilities, focusing primarily on those that are
rate sensitive. Rate sensitive assets and liabilities are those that re-price at
market interest rates within a relatively short period, defined here as one year
or less. The difference between rate sensitive assets and rate sensitive
liabilities represents the Company's interest sensitivity gap, which may be
either positive (assets exceed liabilities) or negative (liabilities exceed
assets.)
On December 31, 1999, the Company had a negative gap position based on
contractual maturities and prepayment assumptions for the next twelve months,
with a negative cumulative interest rate sensitivity gap as a percentage of
total earning assets of 34.1 percent.
The Company's ALCO uses model simulations to estimate and manage its interest
rate sensitivity. The Company has determined that an acceptable level of
interest rate risk would be for net interest income to fluctuate no more than 6
percent, given a change in interest rates (up or down) of 200 basis points.
Based on the Company's most recent ALCO model simulations, net interest income
would decline 2.7 percent if interest rates would immediately rise 200 basis
points. It has been the Company's experience that non-maturity core deposit
balances are stable and subjected to limited repricing when interest rates
increase or decrease within a range of 200 basis points.
The Company does not presently use interest rate protection products in managing
its interest rate sensitivity.
- --------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY ANALYSIS (1)
Table 14
(Dollars in thousands) 0-3 4-12 1-5
December 31, 1999 Months Months Years
- --------------------------------------------------------------------
Federal funds sold $ 19,950 $ 0 $ 0
Securities (2) 45,482 18,590 143,446
Loans (3) 121,873 152,917 329,670
Loans Available for sale 938 0 0
--- - -
Earning assets 188,243 171,507 473,116
Savings deposits (4) 379,138 0 0
Certificates of deposit 115,672 135,348 135,265
Borrowings 66,964 9,970 0
------ ----- -
Interest bearing liabilities 561,774 145,318 135,265
------- ------- -------
Interest sensitivity gap $(373,531) $ 26,189 $ 337,851
========= ========== =========
Cumulative gap $(373,531) $(347,342) $ (9,491)
========= ========= ========
Ratio of cumulative gap to
total earning assets (%) (36.6) (34.1) (0.9)
Ratio of earning assets to
interest bearing
liabilities (%) 33.5 118.0 349.8
- --------------------------------------------------------------------
- --------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY ANALYSIS (1)
Table 14 (con't)
(Dollars in thousands) Over 5
December 31, 1999 Years Total
- -------------------------------------------------------
Federal funds sold $ 0 $ 19,950
Securities (2) 15,141 222,659
Loans (3) 171,297 775,757
Loans Available for sale 0 938
- ---
Earning assets 186,438 1,019,304
Savings deposits (4) 0 379,138
Certificates of deposit 0 386,285
Borrowings 15,000 91,934
------ ------
Interest bearing liabilities 15,000 857,357
------ -------
Interest sensitivity gap $ 171,438 $ 161,947
========= =========
Cumulative gap $ 161,947
=========
Ratio of cumulative gap to
total earning assets (%) 15.9
Ratio of earning assets to
interest bearing
liabilities (%) 1242.9
- ----------
(1) The repricing dates may differ from maturity dates for certain assets
due to prepayment assumptions.
(2) Securities are stated at amortized cost.
(3) Excludes nonaccrual loans.
(4) This category is comprised of NOW, savings, and money market
deposits. If NOW and savings deposits (totaling $194,146) were
deemed to be repriceable in "4-12 months," the interest sensitivity
gap and cumulative gap would be $179,385 indicating 17.6% of
earning assets and 51.2% of earning assets to interest bearing
liabilities for the "0-3 months" category.
- --------------------------------------------------------------------------------
LIQUIDITY MANAGEMENT
Contractual maturities for assets and liabilities are reviewed to meet current
and future liquidity requirements. Sources of liquidity, both anticipated and
unanticipated, are maintained through a portfolio of high quality marketable
assets, such as residential mortgage loans, investment securities, and federal
funds sold. The Company has access to federal funds and FHLB lines of credit and
is able to provide short term financing of its activities by selling, under
agreement to repurchase, United States Treasury securities and securities of
United States Government agencies and corporations not pledged to secure public
deposits or trust funds. At December 31, 1999, the Company had available lines
of credit of $163,000,000. At December 31, 1999, the Company had $59,695,000 of
United States Treasury and Government agency securities and mortgage backed
securities not pledged and available for use under repurchase agreements. At
December 31, 1998, the amount of securities available and unpledged was
$80,049,000.
Liquidity, as measured in the form of cash and cash equivalents, totaled
$59,942,000 at December 31, 1999, compared to $97,438,000 at December 31, 1998.
Cash and equivalents vary with seasonal deposit movements and are generally
higher in the winter than in the summer, and vary with the level of principal
repayments occurring in the Company's investment securities portfolio and loan
portfolio.
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES
YIELD, MATURITY AND MARKET VALUE
Table 15
U.S. Treasury and
(Dollars in thousands) U.S. Government Agencies
- --------------------------------------------------------------------------------
Amortized Market Weighted
Cost Value Yield
- --------------------------------------------------------------------------------
Maturity at December 31, 1999
Held for Sale
Within one year
One to five years $ 30,012 $ 28,678 5.76%
Five to ten years
Over ten years
No contractual maturity
-------- -------- -----
TOTAL VALUE $ 30,012 $ 28,678 5.76%
======== ======== ====
Held for Investment
Within one year
One to five years
Five to ten years
Over ten years
-------- -------- -----
TOTAL VALUE $0 $0 0%
======== ======== =====
Maturity at December 31, 1998
- --------------------------------------------------------------------------------
Held for Sale $38,509 $38,675 5.84%
======= ======= ====
Held for Investment $0 $0 0%
======== ======== =====
- ----------
(1) On a fully taxable equivalent basis.
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES
YIELD, MATURITY AND MARKET VALUE
Table 15 (CON'T)
Mortgage Backed Securitied
(Dollars in thousands) (Fixed)
- --------------------------------------------------------------------------------
Amortized Market Weighted
Cost Value Yield
- --------------------------------------------------------------------------------
Maturity at December 31, 1999
Held for Sale
Within one year $ 32,530 $ 31,108 5.95%
One to five years 91,187 87,121 6.04
Five to ten years 6,449 6,156 6.15
Over ten years 4,881 4,631 6.61
No contractual maturity
-------- -------- -----
TOTAL VALUE $135,047 $129,016 6.05%
======== ======== =====
Held for Investment
Within one year
One to five years $ 6,358 $ 6,339 6.91%
Five to ten years
Over ten years
-------- -------- -----
TOTAL VALUE $6,358 $6,339 6.91%
======== ======== =====
Maturity at December 31, 1998
- --------------------------------------------------------------------------------
Held for Sale $141,135 $141,546 6.09%
======== ======== ====
Held for Investment 8,324 8,534 6.66%
===== ===== ====
- ----------
(1) On a fully taxable equivalent basis.
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES
YIELD, MATURITY AND MARKET VALUE
Table 15 (CON'T)
Mortgage Backed Securitied
(Dollars in thousands) (Adjustable)
- --------------------------------------------------------------------------------
Amortized Market Weighted
Cost Value Yield
- --------------------------------------------------------------------------------
Maturity at December 31, 1999
Held for Sale
Within one year $1,960 $1,955 5.58%
One to five years 2,651 2,576 5.44
Five to ten years 1,639 1,567 6.41
Over ten years 2,025 1,888 5.99
No contractual maturity
-------- -------- -----
TOTAL VALUE $8,275 $7,986 5.80%
======== ======== =====
Held for Investment
Within one year
One to five years $1,643 $1,627 5.87%
Five to ten years 426 419 6.16
Over ten years
-------- -------- -----
TOTAL VALUE $2,069 $2,046 5.93%
======== ======== =====
Maturity at December 31, 1998
- --------------------------------------------------------------------------------
Held for Sale $28,727 $28,491 5.58%
======= ======= ====
Held for Investment $2,617 $2,600 6.13%
====== ====== ====
- ----------
(1) On a fully taxable equivalent basis.
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES
YIELD, MATURITY AND MARKET VALUE
Table 15 (CON'T)
Obligations of States and
(Dollars in thousands) Political Subdivisions (1)
- --------------------------------------------------------------------------------
Amortized Market Weighted
Cost Value Yield
- --------------------------------------------------------------------------------
Maturity at December 31, 1999
Held for Sale
Within one year
One to five years
Five to ten years
Over ten years
No contractual maturity
-------- -------- -----
TOTAL VALUE $0 $0 0%
====== ====== =====
Held for Investment
Within one year $ 2,559 $ 2,572 9.33%
One to five years 3,592 3,626 8.13
Five to ten years 1,774 1,825 8.59
Over ten years 987 956 7.58
-------- -------- -----
Total Value $ 8,912 $ 8,979 8.51%
====== ====== =====
Maturity at December 31, 1998
- --------------------------------------------------------------------------------
Held for Sale $ 300 $ 240 9.85%
==== ==== =====
Held for Investment $11,208 $11,661 8.67%
====== ====== =====
- ----------
(1) On a fully taxable equivalent basis.
- -------------------------------------------------------------------------------
INVESTMENT SECURITIES
YIELD, MATURITY AND MARKET VALUE
Table 15 (CON'T)
(Dollars in thousands) Mutual Funds
- --------------------------------------------------------------------------------
Amortized Market Weighted
Cost Value Yield
- --------------------------------------------------------------------------------
Maturity at December 31, 1999
Held for Sale
Within one year
One to five years
Five to ten years
Over ten years
No contractual maturity $24,814 $23,477 5.25%
------- ------- -----
TOTAL VALUE $24,814 $23,477 5.25%
======= ======= =====
Held for Investment
Within one year
One to five years
Five to ten years
Over ten years
------- ------- -----
TOTAL VALUE $0 $0 0%
======= ======= =====
Maturity at December 31, 1998
- --------------------------------------------------------------------------------
Held for Sale $24,814 $23,823 5.27%
======= ======= ====
Held for Investment $0 $0 0%
======= ======= ====
- ----------
(1) On a fully taxable equivalent basis.
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES
YIELD, MATURITY AND MARKET VALUE
Table 15 (CON'T)
(Dollars in thousands) Other
- --------------------------------------------------------------------------------
Amortized Market Weighted
Cost Value Yield
- --------------------------------------------------------------------------------
Maturity at December 31, 1999
Held for Sale
Within one year
One to five years
Five to ten years
Over ten years
No contractual maturity $7,072 $7,058 6.82%
------ ------ ----
TOTAL VALUE $7,072 $7,058 6.82%
====== ====== ====
Held for Investment
Within one year
One to five years $100 $100 8.13
Five to ten years
Over ten years
---- ---- ----
TOTAL VALUE $100 $100 8.13%
==== ==== ====
Maturity at December 31, 1998
- --------------------------------------------------------------------------------
Held for Sale $6,159 $6,159 6.67%
====== ====== ====
Held for Investment $100 $100 8.13%
=== === ====
- ----------
(1) On a fully taxable equivalent basis.
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES
YIELD, MATURITY AND MARKET VALUE
Table 15 (CON'T)
(Dollars in thousands) Total
- --------------------------------------------------------------------------------
Amortized Market Weighted
Cost Value Yield
- --------------------------------------------------------------------------------
Maturity at December 31, 1999
Held for Sale
Within one year $34,490 $33,063 5.93%
One to five years 123,850 118,375 5.96
Five to ten years 8,088 7,723 6.20
Over ten years 6,906 6,519 6.43
No contractual maturity 31,886 30,535 5.60
------ ------ ----
TOTAL VALUE $205,220 $196,215 5.93%
======== ======== ====
Held for Investment
Within one year $ 2,559 $ 2,572 9.33%
One to five years 11,693 11,692 7.15
Five to ten years 2,200 2,244 8.12
Over ten years 987 956 7.58
--- --- ----
TOTAL VALUE $17,439 $17,464 7.62%
====== ====== ====
Maturity at December 31, 1998
- --------------------------------------------------------------------------------
Held for Sale $239,644 $238,934 5.93%
======== ======== ====
Held for Investment $22,249 $22,895 7.62%
======= ======= ====
- ----------
(1) On a fully taxable equivalent basis.
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES
YIELD, MATURITY AND MARKET VALUE
Table 15 (CON'T)
December 31, 1999
---------------------------------------
Gross Gross Gross
Amortized Unrealized Unrealized
(Dollars in thousands) Cost Gains Losses
- --------------------------------------------------------------------------------
Held for Sale:
U.S.Treasury and U.S.
Government Agencies $30,012 $0 $(1,334)
Mortgage Backed
Securities:
Fixed 135,047 8 (6,039)
Adjustable 8,275 10 (299)
Mutual Funds 24,814 0 (1,337)
Obligations of State & Political
Subdivisions 0 0 0
Other Securities 7,072 0 (14)
----- - ---
TOTAL $205,220 $18 ($9,023)
======== == =======
Held for Investment:
Mortgage Backed Securities:
Fixed $6,358 $ 49 $ (68)
Adjustable 2,069 6 (29)
Obligations of States
and Political
Subdivisions 8,912 100 (33)
Other Securities 100 0 0
--- - -
TOTAL $17,439 $155 ($130)
======= ==== ======
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES
YIELD, MATURITY AND MARKET VALUE
Table 15 (CON'T)
Average Years to
December 31, 1999 Market Value Maturity
- ------------------------------ ------------------------------
Held for Sale:
U.S.Treasury and U.S.
Government Agencies $28,678 4.01
Mortgage Backed Securities:
Fixed 129,016 3.00
Adjustable 7,986 5.88
Mutual Funds 23,477 **
Obligations of State &
Political Subdivisions 0
Other Securities 7,058 *
----- ---
TOTAL $196,215 2.90
======== ====
Held for Investment:
Mortgage Backed Securities:
Fixed $ 6,339 3.31
Adjustable 2,046 3.31
Obligations of States
and Political
Subdivisions 8,979 3.33
Other Securities 100 *
--- -
TOTAL $17,464 3.32
======= ====
- ----------
* Other Securities excluded from calculated average for total securities.
** Contractual maturity assumed to be immediate for total average years to
maturity calculation.
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES
YIELD, MATURITY AND MARKET VALUE
Table 15 (CON'T)
Gross Gross
Amortized Unrealized Unrealized
December 31, 1998 Cost Gains Losses
- ------------------------------ ---------------------------------------------
Held for Sale:
U.S.Treasury and
U.S.Government Agencies $ 38,509 $295 $(129)
Mortgage Backed Securities:
Fixed 141,135 657 (246)
Adjustable 28,727 10 (246)
Mutual Funds 24,814 0 (991)
Obligations of states and
other Political Subdivisions 300 0 (60)
Other Securities 6,159 0 0
----- - -
TOTAL $239,644 $962 $(1,672)
======== ==== =======
Held for Investment:
Mortgage Backed Securities:
Fixed $ 8,324 $222 $ (12)
Adjustable 2,617 6 (23)
Obligations of States
and Political
Subdivisions 11,208 453 0
Other Securities 100 0 0
--- - -
TOTAL $22,249 $681 $ (35)
======= ==== ====
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES
YIELD, MATURITY AND MARKET VALUE
Table 15 (CON'T)
Average Years to
December 31, 1998 Market Value Maturity
- --------------------------------------------------------------------------------
Held for Sale:
U.S.Treasury and
U.S.Government Agencies $ 38,675 1.85
Mortgage Backed Securities:
Fixed 141,546 3.02
Adjustable 28,491 1.24
Mutual Funds 23,823 **
Obligations of States and
Political Subdivisions 240 5.65
Other Securities 6,159 *
----- -
TOTAL $238,934 2.30
======== ====
Held for Investment:
Mortgage Backed Securities:
Fixed $ 8,534 2.15
Adjustable 2,600 2.21
Obligations of States
and Political
Subdivisions 11,661 2.82
Other Securities 100 *
--- -
TOTAL $ 22,895 2.50
======== ====
- ----------
* Other Securities excluded from calculated average for total securities.
** Contractual maturity assumed to be immediate for total average years to
maturity calculation.
- --------------------------------------------------------------------------------
MATURITY OF CERTIFICATES OF DEPOSIT
OF $100,000 OR MORE
Table 16
(Dollars in thousands)
% of % of
December 31 1999 Total 1998 Total
- --------------------------------------------------------------------------------
Maturity Group:
Under 3 months $18,185 19.9% $25,529 31.4%
3 to 6 months 18,343 20.0 17,352 21.4
6 to 12 months 31,911 34.8 28,479 35.1
Over 12 months 23,163 25.3 9,813 12.1
------ ---- ----- ----
TOTAL $91,602 100.0% $81,173 100.0%
======= ===== ======= =====
- --------------------------------------------------------------------------------
EFFECTS ON INFLATION AND CHANGING PRICES
The financial statements and related financial data presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money, over time, due to inflation.
Unlike most industrial companies, virtually all of the assets and liabilities of
a financial institution are monetary in nature. As a result, interest rates have
a more significant impact on a financial institution's performance than the
general levels of inflation. However, inflation affects financial institutions'
increased cost of goods and services purchased, the cost of salaries and
benefits, occupancy expense, and similar items. Inflation and related increases
in interest rates generally decrease the market value of investments and loans
held and may adversely affect liquidity, earnings, and stockholders' equity.
Mortgage originations and refinancings tend to slow as interest rates increase,
and likely will reduce the Company's earnings from such activities and the
income from the sale of residential mortgage loans in the secondary market.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued Statements of
Financial Accounting Standards Number 133, Accounting for Derivative Instruments
and for Hedging Activities (SFAS 133). The Company is required to adopt this
statement in the future. Management does not believe the adoption of SFAS 133
will have a significant impact on the Company's financial statements or related
disclosures.
- --------------------------------------------------------------------------------
SELECTED QUARTERLY INFORMATION
Quarterly Consolidated Income Statement
1999 Quarters
(Dollars in thousands except per share data) Fourth Third
- --------------------------------------------------------------------------------
Net interest income:
Interest income $18,567 $18,489
Interest expense 7,955 7,661
----- -----
Net interest income 10,612 10,828
Provision for loan losses 150 150
--- ---
Net interest income after provision for losses 10,462 10,678
Noninterest income:
Service charges on deposit accounts 1,268 1,221
Trust fees 649 635
Other service charges and fees 345 331
Brokerage commissions and fees 575 404
Other 298 229
Securities gains (losses) (19) 9
--- -
Total noninterest income 3,116 2,829
Noninterest expenses:
Salaries and wages 3,271 3,362
Employee benefits 935 935
Occupancy 820 776
Furniture and equipment 500 495
Outsourced data processing costs 942 912
Marketing 394 397
Legal and professional fees 383 432
FDIC assessments 37 37
Foreclosed and repossessed asset
management and dispositions 18 69
Amortization of intangibles 167 168
Other 1,231 1,238
----- -----
Total noninterest expenses 8,698 8,821
----- -----
Income before income taxes 4,880 4,686
Provision for income taxes 1,839 1,746
----- -----
Net income $3,041 $2,940
====== ======
PER COMMON SHARE DATA
Net income diluted $0.62 $0.60
Net income basic $0.63 $0.61
Cash dividends declared:
Class A common stock $0.26 $0.24
Market price Class A common stock:
Low close 27 1/2 28 3/4
High close 30 3/8 32 1/2
Bid price at end of period 28 9/16 29
- --------------------------------------------------------------------------------
SELECTED QUARTERLY INFORMATION
Quarterly Consolidated Income Statement
(CON'T)
1999 Quarters
(Dollars in thousands except per share data) Second First
- --------------------------------------------------------------------------------
Net interest income:
Interest income $18,472 $18,023
Interest expense 7,473 7,373
----- -----
Net interest income 10,999 10,650
Provision for loan losses 0 360
- ---
Net interest income after provision for losses 10,999 10,290
Noninterest income:
Service charges on deposit accounts 1,189 1,198
Trust fees 608 597
Other service charges and fees 386 391
Brokerage commissions and fees 653 697
Other 230 244
Securities gains (losses) 92 227
-- ---
Total noninterest income 3,158 3,354
Noninterest expenses:
Salaries and wages 3,772 3,477
Pension and other employee benefits 954 974
Occupancy 771 768
Furniture and equipment 514 528
Outsourced data processing costs 876 966
Marketing 411 451
Legal and professional fees 380 377
FDIC assessments 36 36
Foreclosed and repossessed asset
management and dispositions 50 48
Amortization of intangibles 168 168
Other 1,307 1,432
----- -----
Total noninterest expenses 9,239 9,225
----- -----
Income before income taxes 4,918 4,419
Provision for income taxes 1,826 1,708
----- -----
Net income $3,092 $2,711
====== ======
PER COMMON SHARE DATA
Net income diluted $0.63 $0.55
Net income basic $0.64 $0.55
Cash dividends declared:
Class A common stock $0.24 $0.24
Market price Class A common stock:
Low close 26 3/8 26 1/8
High close 34 1/2 28 1/4
Bid price at end of period 30 1/2 26 3/4
- -------------------------------------------------------------------------------
SELECTED QUARTERLY INFORMATION
Quarterly Consolidated Income Statement
(CON'T)
1998 Quarters
(Dollars in thousands except per share data Fourth Third
- --------------------------------------------------------------------------------
Net interest income:
Interest income $18,204 $17,598
Interest expense 7,783 7,806
----- -----
Net interest income 10,421 9,792
Provision for loan losses 360 450
--- ---
Net interest income after provision for losses 10,061 9,342
Noninterest income:
Service charges on deposit accounts 1,154 1,162
Trust fees 568 523
Other service charges and fees 235 464
Brokerage commissions and fees 411 422
Other 240 857
Securities gains (losses) 253 115
--- ---
Total noninterest income 2,861 3,543
Noninterest expenses:
Salaries and wages 3,480 3,460
Pension and other employee benefits 653 726
Occupancy 772 794
Furniture and equipment 567 656
Outsourced data processing costs 1,008 607
Marketing 489 465
Legal and professional fees 297 276
FDIC assessments 34 34
Foreclosed and repossessed asset
management and dispositions 30 117
Amortization of intangibles 167 169
Other 1,306 1,724
----- -----
Total noninterest expenses 8,803 9,028
----- -----
Income before income taxes 4,119 3,857
Provision for income taxes 1,576 1,374
----- -----
Net income $2,543 $2,483
====== ======
PER COMMON SHARE DATA
Net income diluted $0.51 $0.48
Net income basic $0.51 $0.49
Cash dividends declared:
Class A common stock $0.24 $0.22
Market price Class A common stock:
Low close 23 29 3/4
High close 29 40
Bid price at end of period 28 29 1/2
- -------------------------------------------------------------------------------
SELECTED QUARTERLY INFORMATION
Quarterly Consolidated Income Statement
(CON'T)
1998 Quarters
(Dollars in thousands except per share data) Second First
- --------------------------------------------------------------------------------
Net interest income:
Interest income $17,248 $16,709
Interest expense 7,215 6,742
----- -----
Net interest income 10,033 9,967
Provision for loan losses 450 450
--- ---
Net interest income after provision for losses 9,583 9,517
Noninterest income:
Service charges on deposit accounts 1,077 966
Trust fees 561 492
Other service charges and fees 505 451
Brokerage commissions and fees 667 605
Other 227 188
Securities gains (losses) 120 124
--- ---
Total noninterest income 3,157 2,826
Noninterest expenses:
Salaries and wages 3,583 3,523
Pension and other employee benefits 874 866
Occupancy 782 781
Furniture and equipment 623 590
Outsourced data processing costs 590 676
Marketing 489 521
Legal and professional fees 247 209
FDIC assessments 34 33
Foreclosed and repossessed asset
management and dispositions 90 61
Amortization of intangibles 167 168
Other 1,544 1,439
----- -----
Total noninterest expenses 9,023 8,867
----- -----
Income before income taxes 3,717 3,476
Provision for income taxes 1,382 1,274
----- -----
Net income $2,335 $2,202
====== ======
PER COMMON SHARE DATA
Net income diluted $0.44 $0.42
Net income basic $0.45 $0.43
Cash dividends declared:
Class A common stock $0.22 $0.22
Market price Class A common stock:
Low close 35 3/4 34
High close 39 1/2 38 1/2
Bid price at end of period 38 1/2 36 1/2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SELECTED QUARTERLY INFORMATION
Consolidated Quarterly Average Balances, Yields and Rates (1)
1999 QUARTERS
Fourth Third
---------------------------------------------
Average Yield/ Average Yield
Balance Rate Balance /Rate
- --------------------------------------------------------------------------------
Assets
Earning Assets
Securities
Taxable $218,751 6.02% $235,767 6.00%
Nontaxable 9,766 8.36 10,537 8.39
----- ---- ------ ----
TOTAL SECURITIES 228,517 6.12 246,304 6.10
Federal funds sold and
other short term investments 3,641 5.34 130 5.25
Loans (2) 770,054 7.78 754,462 7.79
------- ---- ------- ----
TOTAL EARNING ASSETS 1,002,212 7.38 1,000,896 7.36
Allowance for loan losses (6,862) (6,733)
Cash and due from banks 42,125 30,940
Bank premises and equipment 16,794 17,048
Other assets 14,403 15,038
------ ------
$1,068,672 $1,057,189
========== ==========
LIABILITIES AND SHAREHOLDERS'
INTEREST BEARING LIABILITIES
NOW $59,254 1.87% $56,067 1.80%
Savings deposits 116,949 2.44 110,156 2.21
Money market accounts 196,517 2.04 206,049 2.01
Time deposits 385,375 5.08 397,206 4.93
Federal funds purchased and
other short term borrowings 56,419 4.54 40,094 4.55
Other borrowings 24,970 5.80 24,970 5.69
------ ---- ------ ----
TOTAL INTEREST BEARING
LIABILITIES 839,484 3.76 834,542 3.64
Demand deposits 140,336 135,891
Other liabilities 6,007 5,727
----- -----
TOTAL 985,827 976,160
Shareholders' equity 82,845 81,029
------ ------
$1,068,672 $1,057,189
========== ==========
Interest expense as % of earning assets 3.15% 3.04%
Net interest income as % of earning assets 4.23 4.33
- ----------
(1) The tax equivalent adjustment is based on a 34% tax rate. All yields/rates
are calculated on an annualized basis.
(2) Nonaccrual loans are included in loan balances. Fees on loans are included
in interest on loans.
- --------------------------------------------------------------------------------
SELECTED QUARTERLY INFORMATION
Consolidated Quarterly Average Balances, Yields and Rates (1)
(CON'T)
1999 QUARTERS
Second First
-----------------------------------------------
Average Yield/ Average Yield
Balance Rate Balance /Rate
- --------------------------------------------------------------------------------
Assets
Earning Assets
Securities
Taxable $256,076 5.88% $253,158 5.90%
Nontaxable 10,606 8.33 11,312 8.35
----- ---- ------ ----
TOTAL SECURITIES 266,682 5.98 264,470 6.01
Federal funds sold and
other short term investments 5,413 4.74 22,084 4.74
Loans (2) 737,383 7.86 709,349 7.94
------- ---- ------- ----
TOTAL EARNING ASSETS 1,009,478 7.35 995,903 7.38
Allowance for loan losses (6,775) (6,479)
Cash and due from banks 34,138 33,185
Bank premises and equipment 17,355 17,665
Other assets 15,055 13,848
------ ------
$1,069,251 $1,054,122
========== ==========
LIABILITIES AND SHAREHOLDERS'
INTEREST BEARING LIABILITIES
NOW $63,726 1.72% $68,478 1.69%
Savings deposits 108,047 2.16 106,647 2.09
Money market accounts 211,385 1.97 210,673 1.97
Time deposits 410,745 4.86 396,855 5.00
Federal funds purchased and
other short term borrowings 25,161 3.86 31,789 3.50
Other borrowings 24,970 5.73 24,970 5.73
------ ---- ------ ----
TOTAL INTEREST BEARING
LIABILITIES 844,034 3.55 839,412 3.56
Demand deposits 140,812 129,822
Other liabilities 5,455 5,876
----- -----
TOTAL 990,301 975,110
Shareholders' equity 78,950 79,012
------ ------
$1,069,251 $1,054,122
========== ==========
Interest expense as % of earning assets 2.97% 3.00%
Net interest income as % of earning assets 4.38 4.38
- ----------
(1) The tax equivalent adjustment is based on a 34% tax rate. All yields/rates
are calculated on an annualized basis.
(2) Nonaccrual loans are included in loan balances. Fees on loans are included
in interest on loans.
- --------------------------------------------------------------------------------
SELECTED QUARTERLY INFORMATION
Consolidated Quarterly Average Balances, Yields and Rates (1)
(CON'T)
1998 QUARTERS
Fourth Third
-----------------------------------------------
Average Yield/ Average Yield
Balance Rate Balance /Rate
- --------------------------------------------------------------------------------
Assets
Earning Assets
Securities
Taxable $253,904 6.04% $221,533 6.02%
Nontaxable 12,180 8.54 12,319 8.25
----- ---- ------ ----
TOTAL SECURITIES 266,084 6.15 233,852 6.14
Federal funds sold and
other short term investments 18,548 4.75 10,991 5.56
Loans (2) 696,560 7.97 689,293 8.03
------- ---- ------- ----
TOTAL EARNING ASSETS 981,192 7.40 934,136 7.52
Allowance for loan losses (6,147) (5,812)
Cash and due from banks 33,038 27,621
Bank premises and equipment 18,566 18,649
Other assets 14,264 14,878
------ ------
$1,040,913 $ 989,472
========== ==========
LIABILITIES AND SHAREHOLDERS'
INTEREST BEARING LIABILITIES
NOW $ 59,506 1.76% $ 62,023 2.33%
Savings deposits 98,772 1.99 89,772 2.07
Money market accounts 206,352 2.03 189,232 2.23
Time deposits 399,623 5.17 409,829 5.28
Federal funds purchased and
other short term borrowings 42,804 3.69 14,733 4.12
Other borrowings 24,970 5.75 20,849 5.75
------ ---- ------ ----
TOTAL INTEREST BEARING
LIABILITIES 832,027 3.71 786,438 3.94
Demand deposits 123,159 115,438
Other liabilities 6,071 5,827
----- -----
TOTAL 961,257 907,703
Shareholders' equity 79,656 81,769
------ ------
$1,040,913 $ 989,472
========== ==========
Interest expense as % of earning assets 3.14% 3.32%
Net interest income as % of earning assets 4.26 4.20
- ----------
(1) The tax equivalent adjustment is based on a 34% tax rate. All yields/rates
are calculated on an annualized basis.
(2) Nonaccrual loans are included in loan balances. Fees on loans are included
in interest on loans.
- --------------------------------------------------------------------------------
SELECTED QUARTERLY INFORMATION
Consolidated Quarterly Average Balances, Yields and Rates (1)
(CON'T)
1998 QUARTERS
Second First
-----------------------------------------------
Average Yield/ Average Yield
Balance Rate Balance /Rate
- --------------------------------------------------------------------------------
Assets
Earning Assets
Securities
Taxable $215,157 6.03% $206,331 6.11%
Nontaxable 12,682 8.39 11,760 8.37
----- ---- ------ ----
TOTAL SECURITIES 227,839 6.17 218,091 6.23
Federal funds sold and
other short term investments 15,276 5.51 21,371 5.50
Loans (2) 659,870 8.27 631,005 8.41
------- ---- ------- ----
TOTAL EARNING ASSETS 902,985 7.70 870,467 7.81
Allowance for loan losses (5,585) (5,403)
Cash and due from banks 28,178 28,102
Bank premises and equipment 18,763 18,500
Other assets 14,805 15,010
------ ------
$959,146 $926,676
======== ========
LIABILITIES AND SHAREHOLDERS'
INTEREST BEARING LIABILITIES
NOW $ 66,913 1.87% $ 64,614 1.94%
Savings deposits 83,913 1.91 87,955 1.95
Money market accounts 184,102 2.31 179,926 2.28
Time deposits 398,244 5.29 363,628 5.23
Federal funds purchased and
other short term borrowings 17,623 4.14 28,436 4.16
Other borrowings
------ ---- ------ ----
TOTAL INTEREST BEARING
LIABILITIES 750,795 3.85 724,559 3.77
Demand deposits 119,572 114,487
Other liabilities 4,762 4,429
----- -----
TOTAL 875,129 843,475
Shareholders' equity 84,017 83,201
------ ------
$959,146 $926,676
======== ========
Interest expense as % of earning assets 3.21% 3.14%
Net interest income as % of earning assets 4.49 4.67
- ----------
(1) The tax equivalent adjustment is based on a 34% tax rate. All yields/rates
are calculated on an annualized basis.
(2) Nonaccrual loans are included in loan balances. Fees on loans are included
in interest on loans.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
MANAGEMENT'S REPORT ON RESPONSIBILITIES FOR FINANCIAL REPORTING
Management is responsible for the preparation and content of the accompanying
financial statements and the other information contained in this report.
Management believes that the financial statements have been prepared in
conformity with appropriate, generally accepted accounting principles applied on
a consistent basis and present fairly Seacoast Banking Corporation of Florida's
consolidated financial condition and results of operations. Where amounts must
be based on estimates and judgments, they represent the best estimates of
management.
Management maintains and relies upon an accounting system and related internal
accounting controls to provide reasonable assurance that transactions are
properly executed and recorded and that the company's assets are safeguarded.
Emphasis is placed on proper segregation of duties and authorities, the
development and dissemination of written policies and procedures and a complete
program of internal audits and management follow-up. In recognition of
cost-benefit relationships and inherent control limitations, some features of
the control systems are designed to detect rather than prevent errors,
irregularities and departures from approved policies and practices. Management
believes the system of controls has prevented or detected on a timely basis any
occurrences that could be material to the financial statements and that timely
corrective actions have been initiated when appropriate.
The accompanying 1999 financial statements have been audited by Arthur Andersen
LLP certified public accountants. As part of their audit, Arthur Andersen LLP
evaluated the accounting systems and related internal accounting controls only
to the extent they deemed necessary to determine their auditing procedures.
Their audit would not necessarily disclose all internal accounting control
weaknesses because of the limited purpose of their evaluation. Although the
scope of Arthur Andersen LLP's audit did not encompass a complete review of and
they have not expressed an opinion on the overall system of internal accounting
control, they reported that their evaluation disclosed no conditions which they
consider to be material internal accounting control weaknesses.
The Board of Directors pursues its oversight role for accounting and internal
accounting control matters through an Audit Committee of the Board of Directors
comprised entirely of outside Directors. The Audit Committee meets periodically
with management, internal auditors and independent accountants. The independent
accountants and internal auditors have full and free access to the Audit
Committee and meet with it privately, as well as with management present, to
discuss internal control accounting and auditing matters.
/s/Dennis S. Hudson, III
- ------------------------
Dennis S. Hudson, III
President and Chief Executive Officer
/s/William R. Hahl
- ------------------
William R. Hahl
Executive Vice President and Chief Financial Officer
/s/John R. Turgeon
- ------------------
John R. Turgeon
Senior Vice President and Controller
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Seacoast Banking Corporation of Florida
Stuart, Florida
We have audited the accompanying consolidated balance sheets of Seacoast Banking
Corporation of Florida and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Seacoast Banking Corporation of
Florida and subsidiaries as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with accounting principles general
accepted in the United States.
Arthur Andersen LLP
Miami, Florida,
January 14, 2000.
CONSOLIDATED STATEMENTS OF INCOME
Seacoast Banking Corporation of Florida and Subsidiaries
(Dollars in thousands Year Ended December 31
except per share data) 1999 1998 1997
- ----------------------------------------------------------------------
Interest on securities
Taxable $14,330 $13,562 $12,129
Nontaxable 605 704 777
Interest and fees on loans 58,243 54,617 50,252
Interest on federal funds sold 373 876 1,520
--- --- -----
TOTAL INTEREST INCOME 73,551 69,759 64,678
Interest on deposits 7,672 7,254 6,856
Interest on time
certificates 19,736 20,603 18,928
Interest on borrowed money 3,054 1,689 817
----- ----- ---
TOTAL INTEREST EXPENSE 30,462 29,546 26,601
------ ------ ------
NET INTEREST INCOME 43,089 40,213 38,077
Provision for loan losses 660 1,710 913
--- ----- ---
NET INTEREST INCOME
AFTER PROVISION FOR
LOAN LOSSES 42,429 38,503 37,164
Noninterest income
Securities gains 309 612 48
Other 12,148 11,775 10,896
Noninterest expenses 35,983 35,721 36,425
------ ------ ------
INCOME BEFORE INCOME TAXES 18,903 15,169 11,683
Provision for income taxes 7,119 5,606 4,251
----- ----- -----
NET INCOME $11,784 $ 9,563 $ 7,432
======== ======= =======
- ----------------------------------------------------------------------
Net income per share common stock
Diluted $2.40 $1.84 $1.42
Basic 2.43 1.88 1.45
Average shares outstanding
Diluted 4,909,154 5,192,417 5,251,712
Basic 4,844,943 5,093,032 5,128,208
- ----------
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
Seacoast Banking Corporation of Florida and Subsidiaries
December 31
(Dollars in thousands except per share data) 1999 1998
- --------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 39,992 $ 36,848
Federal funds sold 19,950 60,590
Securities:
Securities held for sale (at market) 196,215 238,934
Securities held for investment
(market values: 1999-$17,464 &
1998-$22,895) 17,439 22,249
------ ------
TOTAL SECURITIES 213,654 261,183
Loans available for sale 938 3,991
Loans 778,164 701,550
Less: Allowance for loan losses 6,870 6,343
----- -----
NET LOANS 771,294 695,207
Bank premises and equipment 16,557 17,762
Other real estate owned 339 288
Core deposit intangibles 969 1,304
Goodwill 2,982 3,282
Other assets 14,357 11,775
------ ------
TOTAL ASSETS $1,081,032 $1,092,230
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits
Demand deposits (noninterest bearing) $ 140,537 $ 126,856
Savings deposits 379,138 388,601
Other time deposits 294,683 308,572
Time certificates of $100,000 or more 91,602 81,173
------ ------
TOTAL DEPOSITS 905,960 905,202
Federal funds purchased and
securities sold under agreement
to repurchase,maturing within 30 days 66,964 77,758
Other borrowings 24,970 24,970
Other liabilities 6,027 5,858
----- -----
1,003,921 1,013,788
Commitments and Contingencies (Notes I and N)
SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00 per
share - authorized 1,000,000
shares, none issued or outstanding 0 0
Class A common stock, par value $.10
(Liquidation preference of $2.50
per share) authorized 10,000,000 shares,
issued 4,822,538 and outstanding
4,469,819 shares in 1999 and 4,807,377
shares issued and outstanding 4,566,392
shares in 1998 482 481
Class B common stock, par value $.10 per
share authorized 810,000 shares, issued
and outstanding 360,588 shares in 1999 and
375,749 shares in 1998 36 37
Additional paid-in capital 27,785 27,439
Retained earnings 66,174 59,738
Less: Treasury Stock (352,719 shares
in 1999 and 240,985 shares in
1998), at cost (11,640) (8,806)
------- ------
82,837 78,889
Securities valuation allowance (5,726) (447)
------ ------
TOTAL SHAREHOLDERS' EQUITY 77,111 78,442
------ ------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,081,032 $1,092,230
========== ==========
- ----------
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Seacoast Banking Corporation of Florida and Subsidiaries
Year Ended December 31
(Dollas in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Interest received $ 73,526 $ 69,675 $ 64,718
Fees and commissions received 12,541 11,385 10,821
Interest paid (30,527) (29,389) (26,932)
Cash paid to suppliers and employees (33,405) (31,534) (34,366)
Income taxes paid (7,315) (5,074) (5,032)
------ ------ ------
Net cash provided by operating activities 14,820 15,063 9,209
Cash flows from investing activities
Maturities of securities held for sale 85,078 141,048 26,581
Maturities of securities held
for investment 4,770 15,991 17,602
Proceeds from sale of
securities held for sale 60,106 105,989 73,302
Purchase of securities held for sale (110,258) (302,249) (106,861)
Purchase of securities held for investment 0 (989) (5,928)
Proceeds from sale of loans 3,128 8,312 33,274
Net new loans and principal repayments (77,597) (85,652) (87,168)
Proceeds from sale of other
real estate owned 676 765 861
Additions to bank premises and equipment (804) (1,636) (3,005)
Net change in other assets 44 (943) (732)
-- ---- ----
Net cash used in investing activities (34,857) (119,364) (52,074)
Cash flows from financing activities
Net increase (decrease) in deposits 744 99,093 (5,404)
Net increase in federal funds
purchased and repurchase agreements (10,794) 25,646 7,024
Net increase in other borrowings 0 24,970 0
Exercise of stock options 1,529 748 879
Treasury stock acquired (4,243) (8,624) (1,207)
Dividends paid (4,695) (4,530) (3,999)
------ ------ ------
Net cash (used in) provided by
financing activities (17,459) 137,303 (2,707)
------- ------- ------
Net increase (decrease) in cash
and cash equivalents (37,496) 33,002 (45,572)
Cash and cash equivalents at
beginning of year 97,438 64,436 110,008
------ ------ -------
Cash and cash equivalents at end of year $59,942 $97,438 $64,436
======= ======= =======
- ----------
See Note P for supplemental disclosures. See notes to consolidated financial
statements.
CONSOLIDATED STATEMETNS OF SHAREHOLDERS' EQUITY
Seacoast Banking Corporation of Florida and Subsidiaries
Common Stock
------------------- Additional
Class A Class B Paid-in
(Dollars in thousands) Stock Stock Capital
- --------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 $465 $ 49 $26,936
Comprehensive Income:
Net Income
Unrealized gains on securities
Comprehensive Income
Cash Dividends Declared
Exchange of Class B common stock
for Class A common stock 11 (11)
Treasury stock acquired
Common stock issued from Treasury:
For employee benefit plans 6
For stock options and awards 1
Exercise of stock options and warrants 3 313
-- -- ---
BALANCE AT DECEMBER 31, 1997 479 38 27,256
Comprehensive Income:
Net Income
Unrealized gains on securities
Comprehensive Income
Cash Dividends Declared
Exchange of Class B common stock
for Class A common stock 1 (1)
Treasury stock acquired
Common stock issued from Treasury:
For employee benefit plans (2)
For stock options and awards 2
Exercise of stock options and warrant 1 183
- -- ---
BALANCE AT DECEMBER 31, 1998 481 37 27,439
Comprehensive Income:
Net Income
Unrealized losses on securities
Comprehensive Income
Cash Dividends Declared
Exchange of Class B common stock
for Class A common stock 1 (1)
Treasury stock acquired
Common stock issued from Treasury:
For employee benefit plans
For stock options and awards 346
Exercise of stock options and warrants
- -- ---
BALANCE AT DECEMBER 31, 1999 $482 $36 $27,785
==== === =======
- ----------
See notes to consolidated financial statements.
CONSOLIDATED STATEMETNS OF SHAREHOLDERS' EQUITY
Seacoast Banking Corporation of Florida and Subsidiaries (CON'T)
Retained Treasury
(Dollars in thousands) Earnings Stock
- --------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 $52,090 $ (911)
Comprehensive Income:
Net Income 7,432
Unrealized losses on securities
Comprehensive Income
Cash Dividends Declared (3,999)
Exchange of Class B common
stock for Class A common stock
Treasury stock acquired (1,420)
Common stock issued from Treasury:
For employee benefit plans 58
For stock options and awards (274) 984
Exercise of stock options and warrants
---- ----
BALANCE AT DECEMBER 31, 1997 55,249 (1,289)
Comprehensive Income:
Net Income 9,563
Unrealized losses on securities
Comprehensive Income
Cash Dividends Declared (4,530)
Exchange of Class B common
stock for Class A common stock
Treasury stock acquired (8,957)
Common stock issued from Treasury:
For employee benefit plans 130
For stock options and awards (544) 1,310
Exercise of stock options and warrants
---- ----
BALANCE AT DECEMBER 31, 1998 59,738 (8,806)
Comprehensive Income:
Net Income 11,784
Unrealized losses on securities
Comprehensive Income
Cash Dividends Declared (4,695)
Exchange of Class B common
stock for Class A common stock
Treasury stock acquired (5,076)
Common stock issued from Treasury:
For employee benefit plans 125
For stock options and awards (653) 2,117
Exercise of stock options and warrants
---- ----
BALANCE AT DECEMBER 31, 1999 $66,174 $(11,640)
======= ========
- ----------
See notes to consolidated financial statements.
CONSOLIDATED STATEMETNS OF SHAREHOLDERS' EQUITY
Seacoast Banking Corporation of Florida and Subsidiaries (CON'T)
Securities
Valuation
Equity Comprehensive
(Dollars in thousands) (Allowance) Income
- --------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 $(1,634)
Comprehensive Income:
Net Income $ 7,432
Unrealized losses on securities 965 965
---
Comprehensive Income 8,397
Cash Dividends Declared
Exchange of Class B common
stock for Class A common stock
Treasury stock acquired
Common stock issued from Treasury:
For employee benefit plans
For stock options and awards
Exercise of stock options and warrants
----
BALANCE AT DECEMBER 31, 1997 (669)
Comprehensive Income:
Net Income 9,563
Unrealized losses on securities 222 222
---
Comprehensive Income 9,785
Cash Dividends Declared
Exchange of Class B common
stock for Class A common stock
Treasury stock acquired
Common stock issued from Treasury:
For employee benefit plans
For stock options and awards
Exercise of stock options and warrants
----
BALANCE AT DECEMBER 31, 1998 (447)
Comprehensive Income:
Net Income 11,784
Unrealized losses on securities (5,279) (5,279)
------
Comprehensive Income 6,505
Cash Dividends Declared
Exchange of Class B common
stock for Class A common stock
Treasury stock acquired
Common stock issued from Treasury:
For employee benefit plans
For stock options and awards
Exercise of stock options and warrants
-----
BALANCE AT DECEMBER 31, 1999 $(5,726)
=======
- ----------
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Seacoast Banking Corporation of Florida and Subsidiaries
- --------------------------------------------------------------------------------
NOTE A
SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The accompanying consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries.
Intercompany transactions and balances have been eliminated in consolidation.
Nature of Operations: The Company is a single segment bank holding company whose
operations and locations are more fully described under Part I, "Item 1.
Business" of this annual report.
Use of Estimates: The preparation of these financial statements required the use
of certain estimates by management in determining the Company's assets,
liabilities, revenues and expenses. Actual results could differ from those
estimates.
Securities: Securities that may be sold as part of the Company's asset/liability
management or in response to, or in anticipation of changes in interest rates
and resulting prepayment risk, or for other factors are stated at market value.
Such securities are held for sale with unrealized gains of losses reflected as a
component of Shareholders' Equity net of tax. Debt securities that the Company
has the ability and intent to hold to maturity are carried at amortized cost.
Interest income on securities, including amortization of premiums and accretion
of discounts is recognized using the interest method.
The Company generally anticipates prepayments of principal in the calculation of
the effective yield for collateralized mortgage obligations and mortgage backed
securities. The adjusted cost of each specific security sold is used to compute
gains or losses on the sale of securities.
Other Real Estate Owned: Other real estate owned consists of real estate
acquired in lieu of unpaid loan balances. These assets are carried at an amount
equal to the loan balance prior to foreclosure plus costs incurred for
improvements to the property, but no more than the estimated fair value of the
property.
Bank Premises and Equipment: Bank premises and equipment are stated at cost,
less accumulated depreciation and amortization. Depreciation is computed
principally by the straight line method, over the estimated useful lives as
follows: building - 25-40 years, furniture and equipment - 3-12 years. The
Company's policy is to capitalize certain costs related to externally developed
software systems utilized for internal use.
Purchase Method of Accounting: Net assets of companies acquired in purchase
transactions are recorded at fair value at date of acquisition. Core deposit
intangibles are amortized on a straight line basis over estimated periods
benefited, not exceeding 10 years. Goodwill is amortized on a straight line
basis over 15 years.
Mortgage Servicing Rights: The Company acquires mortgage servicing rights
through the origination of mortgage loans, and the Company sells or securitizes
those loans with servicing rights retained. Under Statement of Financial
Accounting Standards No. 122, the Company allocates the total cost of the
mortgage loans to the mortgage servicing rights and the loans (without the
mortgage servicing rights) based on their relative fair values.
The Company assesses its capitalized mortgage servicing rights for impairment
based on the fair value of those rights. The portfolio is stratified by two
predominant risk characteristics: loan type and fixed versus variable interest
rate. Impairment, if any, is recognized through a valuation allowance for each
impaired stratum. Mortgage servicing rights are amortized in proportion to, and
over the period of, the estimated net future servicing income.
Revenue Recognition: Interest on loans is accrued based upon the principal
amount outstanding. The accrual of interest income is discontinued when a loan
becomes 90 days past due as to principal or interest.
When interest accruals are discontinued, interest credited to income in the
current year is reversed and interest accrued in the prior year is charged to
the allowance for loan losses.
Management may elect to continue the accrual of interest when the estimated net
realizable value of collateral is sufficient to cover the principal balance and
accrued interest.
Provision for Loan Losses: The provision for loan losses is management's
judgement of the amount necessary to increase the allowance for loan losses to a
level sufficient to cover losses in the collection of loans.
Net Income Per Share: Net income per share is based upon the weighted average
number of shares of both Class A and Class B common stock (Basic) and
equivalents (Diluted) outstanding during the respective years.
Cash Flow Information: For the purposes of the consolidated statements of cash
flows, the Company considers cash and due from banks and federal funds sold as
cash and cash equivalents.
Business Combinations: The accompanying consolidated financial statements
include the financial position and results of operations of Port St. Lucie
National Bank Holding Corporation ("PSHC"), which the Company acquired on May
30, 1997. PSHC shareholders received 848,576 shares of Class A common stock for
all their issued and outstanding stock, warrants and options. This transaction
was accounted for under the pooling-of-interests method of accounting and,
accordingly, the consolidated financial statements have been restated as if the
Company had operated as one entity since inception.
NOTE B
CASH, DIVIDEND AND LOAN RESTRICTIONS
In the normal course of business, the Company and its subsidiary bank enter into
agreements, or are subject to regulatory agreements, that result in cash, debt
and dividend restrictions. A summary of the most restrictive items follows:
The Company's subsidiary bank is required to maintain average reserve balances
with the Federal Reserve Bank. The average amount of those reserve balances for
the year ended December 31, 1999 was approximately $8,100,000.
Under Federal Reserve regulation, the Company's subsidiary bank is limited as to
the amount it may loan to its affiliates, including the Company, unless such
loans are collateralized by specified obligations. At December 31, 1999, the
maximum amount available for transfer from the subsidiary bank to the Company in
the form of loans approximated 19 percent of consolidated net assets.
The approval of the Comptroller of the Currency is required if the total of all
dividends declared by a national bank in any calendar year exceeds the bank's
profits, as defined, for that year combined with its retained net profits for
the preceding two calendar years. Under this restriction the Company's
subsidiary bank can distribute as dividends to the Company in 2000, without
prior approval of the Comptroller of the Currency, approximately $7,000,000.
NOTE C
SECURITIES
The amortized cost and market value of securities at December 31, 1999, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or repay
obligations with or without call or prepayment penalties.
Held for
Investment Held for Sale
------------------------------------------
Amortized Market Amortized Market
(Dollars in thousands) Cost Value Cost Value
- --------------------------------------------------------------------------------
Due in one year or less $ 2,559 $ 2,572 $ 0 $ 0
Due after one year
through five years 3,692 3,726 30,012 28,678
Due after five years
through ten years 1,774 1,825 0 0
Due after ten years 987 956 0 0
--- --- - -
9,012 9,079 30,012 28,678
Mortgage backed securities 8,427 8,385 143,322 137,002
No contractual maturity 0 0 31,886 30,535
- - ------ ------
$17,439 $17,464 $205,220 $196,215
======= ======= ======== ========
Proceeds from sales of securities during 1999 were $60,106,000 with gross gains
of $332,000 and gross losses of $66,000. During 1998, proceeds from sales of
securities were $105,989,000 with gross gains of $737,000 and gross losses of
$125,000. During 1997, proceeds from sales of securities were $73,302,000 with
gross gains of $392,000 and gross losses of $344,000.
Securities with a carrying value of $126,111,000 at December 31, 1999, were
pledged to secure United States Treasury deposits, other public deposits and
trust deposits. The amortized cost and market value of securities follow:
Gross Gross
Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------------
SECURITIES HELD FOR SALE - 1999:
U.S. Treasury and U.S.
Government agencies $ 30,012 $ 0 $(1,334) $ 28,678
Mortgage backed securities 143,322 18 (6,338) 137,002
Mutual funds 24,814 0 (1,337) 23,477
Other securities 7,072 0 (14) 7,058
----- - --- -----
$205,220 $ 18 $(9,023) $196,215
======== ==== ======= ========
SECURITIES HELD FOR INVESTMENT-1999:
Mortgage backed securities $ 8,427 $ 55 $ (97) $ 8,385
Obligations of states and
political subdivisions 8,912 100 (33) 8,979
Other securities 100 0 0 100
--- - - ---
$ 17,439 $155 $ (130) $ 17,464
======== ==== ====== ========
SECURITIES HELD FOR SALE-1998:
U.S. Treasury and U.S.
Government agencies $ 38,509 $295 $(129) $ 38,675
Mortgage backed securities 169,862 667 (492) 170,037
Mutual funds 24,814 0 (991) 23,823
Obligations of states and
political subdivisions 300 0 (60) 240
Other securities 6,159 0 0 6,159
----- - - -----
$239,644 $962 $(1,672) $238,934
======== ==== ======= ========
SECURITIES HELD FOR INVESTMENT-1998:
Mortgage backed securities $ 10,941 $228 $ (35) $ 11,134
Obligations of states and
political subdivisions 11,208 453 0 11,661
Other securities 100 0 0 100
--- - - ---
$ 22,249 $ 681 $ (35) $ 22,895
======== ===== ===== ========
NOTE D
LOANS
An analysis of loans at December 31, follows:
(Dollars in thousands) 1999 1998
- -----------------------------------------------------------------
Real estate construction $ 42,899 $ 22,877
Real estate mortgage 623,472 574,895
Commercial and financial 33,119 31,908
Installment loans to individuals 78,013 71,506
Other 661 364
--- ---
$778,164 $701,550
======== ========
One of the sources of the Company's business is loans to directors, officers and
other members of management. These loans are made on the same terms as all other
loans and do not involve more than normal risk of collectability. The aggregate
dollar amount of these loans was approximately $4,837,000 and $5,662,000 at
December 31, 1999 and 1998, respectively. During 1999, $321,000 of new loans
were made and repayments totaled $1,146,000.
See Management's Discussion and Analysis under "Loan Portfolio for information
about concentrations of credit risk of all financial instruments.
NOTE E
IMPAIRED LOANS AND ALLOWANCE FOR LOAN LOSSES
Certain impaired loans are measured based on the present value of expected
future cash flows discounted at the loan's original effective interest rate. As
a practical expedient, impairment may be measured based on the loan's observable
market price or the fair value of collateral if the loan is collateral
dependent. When the measure of the impaired loan is less than the recorded
investment in the loan, the impairment is recorded through a valuation
allowance.
The Company's recorded investment in impaired loans and related valuation
allowance are as follows:
1999 1998
------------ -------------
Recorded Valuation Recorded Valuation
(Dollars in thousands) Investment Allowance Investment Allowance
- --------------------------------------------------------------------------------
Impaired loans:
Valuation allowance
required $ 0 $ 0 $ 0 $ 0
No valuation
allowance required 37 0 80 0
---- - -- -
TOTAL $ 37 $ 0 $ 80 $ 0
==== === ===== ===
The valuation allowance is included in the allowance for loan losses. The
average recorded investment in impaired loans for the years ended December 31,
1999 and 1998 were $58,000 and $102,000 respectively.
Interest payments received on impaired loans are recorded as interest income
unless collection of the remaining recorded investment is doubtful at which time
payments received are recorded as reductions to principal. The Company
recognized interest income on impaired loans of $1,000 and $13,000 for the years
ended December 31, 1999 and 1998, respectively.
Transactions in the allowance for loan losses for the three years ended December
31, are summarized as follows:
(Dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Balance, beginning of year $6,343 $5,363 $5,657
Provision charged to operating expense 660 1,710 913
Charge offs (626) (1,192) (1,554)
Recoveries 493 462 347
--- --- ---
Balance, end of year $6,870 $6,343 $5,363
====== ====== ======
NOTE F
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are summarized as follows:
Accumulated
Depreciation Net
& Carrying
(Dollars in thousands) Cost Amortization Value
- --------------------------------------------------------------------------------
December 31, 1999
Premises (including land of
$2,967) $20,331 $7,576 $12,755
Furniture and equipment 14,352 10,550 3,802
------ ------ -----
$34,683 $18,126 $16,557
======= ======= =======
December 31, 1998
Premises (including land of
$2,967) $20,083 $6,862 $13,221
Furniture and equipment 14,918 10,377 4,541
------ ------ -----
$35,001 $17,239 $17,762
======= ======= =======
NOTE G
BORROWINGS
All of the Company's short-term borrowings were comprised of federal funds
purchased and securities sold under agreements to repurchase with maturities
primarily from overnight to seven days:
(Dollars in thousands) 1999 1998 1997
- ---------------------------------------------------------------
Maximum amount outstanding
at any month end $72,172 $77,758 $52,112
Average interest rate
outstanding at end of year 4.24% 3.44% 4.30%
Average amount outstanding $38,438 $25,908 $20,294
Weighted average interest rate 4.22% 3.96% 4.03%
- ---------------------------------------------------------------
On July 31, 1998, the Company acquired $24,970,000 in other borrowings,
$15,000,000 from the Federal Home Loan Bank (FHLB), principal payable on
November 12, 2009, with interest payable quarterly at 6.10%, and $9,970,000 from
Donaldson, Lufkin & Jenrette (DLJ), principal payable on July 31, 2003, with
interest payable quarterly at 5.40%. Each debt is subject to early termination
in accordance with the terms of the agreement as follows:
FHLB November 12, 2004
DLJ July 31, 2000
The FHLB debt is secured by residential mortgage loans totaling $15,000,000 and
the DLJ debt is secured with investment securities totaling $9,970,000.
The Company's subsidiary bank has unused lines of credit to purchase federal
funds from its correspondent banks of $53,000,000 at December 31, 1999.
NOTE H
EMPLOYEE BENEFITS
The Company's profit sharing plan which covers substantially all employees after
one year of service includes a matching benefit feature for employees electing
to defer the elective portion of their profit sharing compensation. In addition,
amounts of compensation contributed by employees are matched on a percentage
basis under the plan. The profit sharing contributions charged to operations
were $1,355,000 in 1999, $859,000 in 1998, and $814,000 in 1997.
The Company's stock option and stock appreciation rights plans were approved by
the Company's shareholders on April 25, 1991 and April 25, 1996. The number of
shares of Class A common stock that may be purchased pursuant to the 1991 and
1996 plans shall not exceed 300,000 shares for each plan. The Company has
granted options on 250,000 shares and 284,000 shares, respectively through
December 31, 1999. Under both plans the option exercise price equals the Class A
common stock's market price on the date of grant. All options have a four year
vesting period and a contractual life of ten years. The following table presents
a summary of stock option activity for 1997, 1998 and 1999:
Weighted Weighted
Average Average
Number Fair Option Price Exercise
of Shares Value Per Share Price
---------- --------- -------------- -----------
Options outstanding,
January 1, 1997 311,000 $8.24 - 22.92 $16.59
Exercised (72,000) 8.24 - 22.92 12.04
Granted 51,000 $8.97 25.50 25.50
Cancelled (5,000) 17.50-19.00 18.79
------------------------------------------------
Options outstanding,
December 31, 1997 285,000 11.00-25.50 19.33
Exercised (40,000) 11.75-21.75 18.10
Granted 156,000 $10.05 29.00 29.00
Canceled (23,000) 17.50-25.50 23.73
------------------------------------------------
Options outstanding,
December 31, 1998 378,000 11.00-25.50 23.14
Exercised (68,000) 11.75-21.75 16.99
------------------------------------------------
Options outstanding,
December 31, 1999 310,000 11.00-29.00 24.51
======= =========== =====
Options exercisable,
December 31, 1997 154,000 $16.91
December 31, 1998 146,000 17.13
December 31, 1999 276,000 24.53
- ----------------------------------------------------------------------
The following table summarizes information about stock options outstanding at
December 31, 1999:
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------
Weighted
Average
Number of Remaining Weighted Number of Weighted
Range of Shares Contrac- Average Shares Average
Exercise Outstand- tual Life Exercise Exercis- Exercise
Prices ing in Years Price able Price
- ------------------------------------------------------------------------
$11.75 7,000 2.17 $11.75 7,000 $11.75
17.50 25,000 5.17 17.50 25,000 17.50
17.75 19,000 3.92 17.75 19,000 17.75
19.00 41,000 3.17 19.00 41,000 19.00
21.75 33,000 6.50 21.75 22,000 21.75
25.50 35,000 7.58 25.50 12,000 25.50
29.00 150,000 8.54 29.00 150,000 29.00
--------------------------------------------------------
310,000 6.81 24.51 276,000 24.53
========================================================
The two stock option plans are accounted for under APB Opinion No. 25, and
therefore no compensation cost has been recognized. Had compensation cost for
these plans been determined consistent with FASB Statement No. 123, the
Company's net income and earnings per share would have been reduced to the
following pro forma amounts:
(Dollars in thousands except
per share data) 1999 1998 1997
- ----------------------------------------------------------
Net Income:
As Reported $11,784 $9,563 $7,432
Pro Forma 11,427 9,164 7,278
Per Share (Diluted):
As Reported 2.40 1.84 1.42
Pro Forma 2.33 1.76 1.39
- ---------------------------------------------------------
Because the Statement 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998 and 1997; risk-free interest rates of 5.65
percent for 1998, 6.90 percent for 1997 and 7.11 percent 1996; expected dividend
yield of 3.4 percent for the 1998 issue, 2.5 percent for the 1997 issue;
expected lives of 7 years; expected volatility of 38.6 percent for 1998, 30.4
percent for 1997.
NOTE I
LEASE COMMITMENTS
The Company is obligated under various noncancelable operating leases for
equipment, buildings and land. At December 31, 1998, future minimum lease
payments under leases with initial or remaining terms in excess of one year are
as follows:
(Dollars in thousands)
- -------------------------------
2000 $1,562
2001 1,580
2002 1,268
2003 1,120
2004 1,096
Thereafter 8,099
-----
$14,725
=======
- -------------------------------
Rent expense charged to operations was $1,471,000 in 1999, $1,474,000 in 1998,
and $1,382,000 in 1997. Certain leases contain provisions for renewal and change
with the consumer price index.
Certain property is leased from related parties of the Company at prevailing
rental rates. Lease payments to these individuals were $229,000 in 1999,
$227,000 in 1998 and $217,000 in 1997.
NOTE J
INCOME TAXES
The provision for income taxes including tax effects of security transaction
gains (1999 - $115,000; 1998 - $224,000; 1997 - $18,000) are as follows:
(Dollars in thousands)
Year Ended December 31 1999 1998 1997
- -----------------------------------------------------------------
Current
Federal $6,495 $5,417 $3,438
State 821 664 434
Deferred
Federal (138) (423) 337
State (59) (52) 42
--- --- --
$7,119 $5,606 $4,251
====== ====== ======
- -----------------------------------------------------------------
Temporary differences in the recognition of revenue and expense for tax and
financial reporting purposes resulted in deferred income taxes as follows:
(Dollars in thousands)
Year ended December 31 1999 1998 1997
- -----------------------------------------------------------------
Depreciation $ (144) $(68) $148
Allowance for loan losses (329) (420) 134
Interest and fee income 215 80 81
Other real estate owned 75 (57) 7
Other (14) (10) 9
--- --- -
$(197) $(475) $ 379
===== ===== =====
- -----------------------------------------------------------------
The difference between the total expected tax expense (computed by applying the
U.S. Federal tax rate of 34.4 percent to pretax income in 1999 and 34 percent to
pretax income in 1998 and 1997) and the reported income tax expense relating to
income before income taxes is as follows:
(Dollars in thousands)
Year Ended December 31 1999 1998 1997
- -----------------------------------------------------------------
Tax rate applied to income
before income taxes $6,503 $5,157 $3,972
Increase (decrease) resulting
from the effects of:
Tax-exempt interest on
obligations of states and
political subdivisions (235) (239) (237)
State income taxes (262) (208) (162)
Dividend exclusion (8) (8) (8)
Amortization of intangibles 202 200 200
Other 157 92 10
--- -- --
Federal tax provision 6,357 4,994 3,775
State tax provision 762 612 476
--- --- ---
Applicable income taxes $7,119 $5,606 $4,251
====== ====== ======
- -----------------------------------------------------------------
The net deferred tax assets (liabilities) are comprised of the following:
(Dollars in thousands)
Year Ended December 31 1999 1998
- --------------------------------------------------------------
Allowance for loan losses $2,374 $2,045
Other real estate owned 14 89
Net unrealized securities losses 3,302 258
Other 81 61
-- --
Gross deferred tax assets 5,771 2,453
Depreciation (705) (849)
Interest and fee income (798) (583)
Other (29) (23)
--- ---
Gross deferred tax liabilities (1,532) (1,455)
Deferred tax asset valuation allowance 0 0
- -
Net deferred tax assets $4,239 $ 998
====== =====
The tax effects of unrealized gains (losses) included in the calculation of
comprehensive income income as presented in the Statements of Shareholder's
Equity for the three years ended December 31, are as follows:
(Dollars in thousands)
- -----------------------
1999 $3,044
1998 $ 152
1997 $ 562
- -----------------------
NOTE K
NONINTEREST INCOME AND EXPENSES
Details of noninterest income and expenses follow:
(Dollars in thousands)
Year Ended December 31 1999 1998 1997
- -----------------------------------------------------------------------
Noninterest income
Service charges on deposit accounts $4,876 $4,359 $4,182
Trust fees 2,489 2,144 2,206
Other service charges and fees 1,453 1,655 1,688
Brokerage commissions and fees 2,329 2,105 1,853
Other 1,001 1,512 967
----- ----- ---
12,148 11,775 10,896
Securities gains 309 612 48
--- --- --
$12,457 $12,387 $10,944
======= ======= =======
Noninterest expenses
Salaries and wages $13,882 $14,046 $13,203
Pension and other employee benefits 3,798 3,119 2,945
Occupancy 3,135 3,129 2,961
Furniture and equipment 2,037 2,436 2,267
Outsourced data processing costs 3,696 2,881 2,126
Marketing 1,653 1,964 2,151
Legal and professional fees 1,572 1,029 918
FDIC assessments 146 135 136
Foreclosed and repossessed asset
management and dispositions 185 298 207
Amortization of intangibles 671 671 671
Other 5,208 6,013 8,840
----- ----- -----
$35,983 $35,721 $36,425
======= ======= =======
NOTE L
SHAREHOLDERS' EQUITY
The Company has reserved 100,000 Class A common shares for issuance in
connection with an employee stock purchase plan and 150,000 Class A common
shares for issuance in connection with an employee profit sharing plan. At
December 31, 1999, an aggregate of 35,236 shares and 52,422 shares,
respectively, have been issued as a result of employee participation in these
plans.
Holders of Class A common stock are entitled to one vote per share on all
matters presented to shareholders. Holders of Class B common stock are entitled
to 10 votes per share on all matters presented to shareholders. Class A and
Class B common stock vote together as a single class on all matters, except as
required by law or as provided otherwise in the Company's Articles of
Incorporation. Each share of Class B common stock is convertible into one share
of Class A common stock at any time prior to a vote of shareholders authorizing
a liquidation or dissolution of the Company.
The Company is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary, actions
by regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined) and
of Tier 1 capital to average assets (as defined). Management believes, as of
December 31, 1999 that the Company meets all capital adequacy requirements to
which it is subject.
As of December 31, 1999, the most recent notification from the Company's
regulator categorized the Company as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Company must maintain minimum total risk-based, Tier 1 risk-based and Tier 1
leverage ratios as set forth below. There are no conditions or events since that
notification that management believes have changed the institution's category.
Minimum for
Capital Adequacy
Purposes
------------------
(Dollars in thousands) Amount Ratio Amount Ratio
- -----------------------------------------------------------------------
1999
Total Capital (to risk-
weighted assets) $84,837 12.24% $55,441 >=8.00%
Tier 1 Capital (to
risk-weighted assets) 77,967 11.25 27,721 >=4.00%
Tier 1 Capital (to adjusted
average assets) 77,967 7.32 42,598 >=4.00%
1998
Total Capital (to risk-
weighted assets) $79,953 12.01% $53,273 >=8.00%
Tier 1 Capital (to
risk-weighted assets) 73,610 11.05 26,637 >=4.00%
Tier 1 Capital (to adjusted
average assets) 73,610 7.10 41,451 >=4.00%
Minimum To Be
Well Capitalized
Under Prompt
Corrective Action
Provisions
---------------------
(Dollars in thousands) Amount Ratio
- --------------------------------------------------
1999
Total Capital (to risk-
weighted assets) $69,302 >=10.00%
Tier 1 Capital (to
risk-weighted assets) 41,581 >=6.00%
Tier 1 Capital (to adjusted
average assets) 53,247 >=5.00%
1998
Total Capital (to risk-
weighted assets) $66,591 >=10.00%
Tier 1 Capital (to
risk-weighted assets) 39,955 >= 6.00%
Tier 1 Capital (to adjusted
average assets) 51,814 >= 5.00%
NOTE M
SEACOAST BANKING CORPORATION OF FLORIDA
(PARENT COMPANY ONLY) FINANCIAL INFORMAITON
BALANCE SHEETS
(Dollars in thousands)
December 31 1999 1998
- ------------------------------------- ------------------------------
Assets
Cash $ 10 $ 10
Securities purchased under
agreement to resell with
subsidiary bank, maturing
within 30 days 2,881 0
Securities held for sale 473 1,512
Investment in subsidiaries 74,151 78,431
Other assets 195 171
--- ---
$77,710 $80,124
======= =======
Liabilities and Shareholders'Equity
Liabilities
Advances from bank subsidiary $ 0 $ 1,542
Other liabilities 599 140
Shareholders' Equity 77,111 78,442
------ ------
$77,710 $80,124
======= =======
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31 1999 1998 1997
- ----------------------------------------------------------------------
Increase (Decrease) in Cash
Cash flows from operating activities
Interest received $ 149 $ 187 $ 243
Dividends received 11,140 7,148 4,165
Other income received 0 0 13
Income taxes received 139 565 133
Cash paid to suppliers (597) (534) (1,858)
---- ---- ------
Net cash provided by operating
activities 10,831 7,366 2,696
Cash flows from investing activities
Decrease (increase) in securities
purchased under agreement to
resell, maturing in 30 days (2,881) 3,498 1,107
Decrease (increase) in deposit
with subsidiary bank 0 0 12
Proceeds from sale of premises 0 0 512
Maturities of securities held for sale 1,000 0 0
----- - -
Net cash provided by (used in)
investing activities (1,881) 3,498 1,631
Cash flows from financing activities
Advance (to) from subsidiary (1,542) 1,542 0
Exercise of Stock Options 1,529 748 879
Treasury Stock acquired (4,242) (8,624) (1,207)
Dividends paid (4,695) (4,530) (3,999)
------ ------ ------
Net cash used in financing
activities (8,950) (10,864) (4,327)
Net change in cash 0 0 0
Cash at beginning of year 10 10 10
-- -- --
Cash at end of year $ 10 $ 10 $ 10
==== ==== =====
RECONCILIATION OF NET INCOME
TO CASH PROVIDED BY OPERATION ACTIVITIES
Net income $11,784 $ 9,563 $ 7,432
Adjustments to reconcile net
income to net cash provided by
operating activities:
Gain on sale of premises 0 0 (44)
Equity in undistributed income
of subsidiaries (977) (2,659) (4,249)
Other, net 24 462 (443)
-- --- ----
Net cash provided by operating
activities $10,831 $7,366 $ 2,696
======= ====== =======
STATEMENTS OF INCOME
(Dollars in thousands)
Year Ended December 31 1999 1998 1997
- ----------------------------------------------------------------------
Income
Dividends
Subsidiary $11,100 $7,123 $4,133
Other 32 33 32
Interest 124 182 239
Other 0 0 13
- - --
11,256 7,338 4,417
Expenses 635 573 1,799
--- --- -----
Income before income tax credit
and equity in undistributed
income of subsidiaries 10,621 6,765 2,618
Income tax credit 186 139 565
--- --- ---
Income before equity in
undistributed income of
subsidiaries 10,807 6,904 3,183
Equity in undistributed income of
subsidiaries 977 2,659 4,249
--- ----- -----
Net income $11,784 $9,563 $7,432
======= ====== ======
NOTE N
CONTINGENT LIABILITIES AND COMMITMENTS WITH OFF BALANCE SHEET RISK
The Company and its subsidiary bank, because of the nature of their business,
are at all times subject to numerous legal actions, threatened or filed.
Management, based upon advice of legal counsel, does not expect that the final
outcome of threatened or filed suits will have a materially adverse effect on
its results of operations or financial condition.
The Company's subsidiary bank is a party to financial instruments with off
balance sheet risk in the normal course of business to meet the financing needs
of its customers. These financial instruments include commitments to extend
credit and standby letters of credit.
The subsidiary bank's exposure to credit loss in the event of non-performance by
the other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contract or notional amount of
those instruments. The subsidiary bank uses the same credit policies in making
commitments and standby letters of credit as it does for on balance sheet
instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The subsidiary bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the bank upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies but
may include accounts receivable, inventory, equipment, and commercial and
residential real estate. Of the $91,154,000 outstanding at December 31, 1999,
$49,556,000 is secured by 1-4 family residential properties.
Contract or
Notional Amount
(Dollars in thousands)
December 31 1999 1998
- --------------------------------------------------------------------
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $91,154 $94,665
Standby letters of credit and
financial guarantees written:
Secured 844 864
Unsecured 498 375
- --------------------------------------------------------------------
Standby letters of credit are conditional commitments issued by the subsidiary
bank to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and similar
transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The subsidiary bank holds collateral supporting those commitments for which
collateral is deemed necessary. The extent of collateral held for the above
secured standby letters of credit at December 31, 1999 and 1998 amounted to
$7,266,000 and $5,778,000 respectively.
NOTE O
MORTGAGE SERVICING RIGHTS, NET
The following is an analysis of the mortgage servicing rights, net at December
31:
(Dollars in thousands) 1999 1998
- ----------------------------------------------------
Unamortized balance at
beginning of year $1,701 $ 798
Origination of mortgage
servicing rights 272 1,155
Amortization (444) (252)
---- ----
1,529 1,701
Less: Reserves (126) (148)
---- ----
TOTAL $1,403 $ 1,553
====== =======
- ----------------------------------------------------
(Dollars in thousands)
December 31 1999 1998
- ----------------------------------------------------
Unpaid principal balance of
serviced loans for which
mortgage servicing rights
are capitalized $140,271 $128,324
======== ========
Unpaid principal balance of
serviced loans for which
there are no servicing
rights capitalized. $ 31,334 $ 48,657
======== ========
- ----------------------------------------------------
The fair value of captitalized mortgage servicing rights was estimated using a
discounted cash flow model. Prepayment speed projections and market assumptions
regarding discount rate, servicing cost, escrow earnings credits, payment float
and advance cost interest rates were determined from guidelines provided by a
third-party mortgage servicing rights broker.
NOTE P
SUPPLEMENTAL DISCLOSURES FOR CONSOLIDATED STATEMENTS OF CASH FLOWS
Reconciliation of Net Income to Net Cash Provided by Operating Activities
(Dollars in thousands)
For the Three Years Ended December 31 1999 1998 1997
- -------------------------------------------------------------------
Net Income $11,784 $9,563 $7,432
Adjustments to reconcile net
income to net cash provided by
operating activities
Depreciation and amortization 2,925 3,020 2,707
Provision for loan losses 660 1,710 913
Provision (credit) for deferred
taxes (197) (475) 379
Gain on sale of securities (309) (612) (48)
Gain on sale of loans (29) (683) (202)
Loss on sale and write
down of foreclosed assets 77 185 95
Loss on disposition of equipment 25 105 (8)
Change in interest receivable 128 (47) 32
Change in interest payable (65) 157 (331)
Change in prepaid expenses (1) (814) 1
Change in accrued taxes (25) 1,029 (1,154)
Change in other liabilities (153) 1,925 (607)
---- ----- ----
TOTAL ADJUSTMENTS 3,036 5,500 1,777
Net cash provided by operating
activities $14,820 $15,063 $9,209
======= ======== ======
Supplemental disclosure of non
cash investing activities:
Market value adjustment to
securities $(8,297) $178 $1,197
Transfers from loans to other
real estate owned 804 702 428
- --------------------------------------------------------------------------------
NOTE Q
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value at December 31:
Cash and Cash Equivalents: The carrying amount was used as a reasonable estimate
of fair value.
Securities: The fair value of U.S. Treasury and U.S. Government agency, mutual
fund and mortgage backed securities are estimated based on bid prices published
in financial newspapers or bid quotations received from securities dealers.
The fair value of many state and municipal securities are not readily available
through market sources, so fair value estimates are based on quoted market price
or prices of similar instruments.
Loans: Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, mortgage, etc.
Each loan category is further segmented into fixed and adjustable rate interest
terms and by performing and nonperforming categories.
The fair value of loans, except residential mortgage, is calculated by
discounting scheduled cash flows through the estimated maturity using estimated
market discount rates that reflect the credit and interest rate risk inherent in
the loan. For residential mortgage loans, fair value is estimated by discounting
contractual cash flows adjusting for prepayment assumptions using discount rates
based on secondary market sources adjusted to reflect differences in servicing
and credit costs.
Deposit Liabilities: The fair value of demand deposits, savings accounts and
money market deposits is the amount payable on demand at the reporting date. The
fair value of fixed maturity certificates of deposit is estimated using the
rates currently offered for deposits of similar remaining maturities.
Commitments to Extend Credit and Standby Letters of Credit: The fair value of
commitments to extend credit is estimated using the fees currently charged to
enter into similar agreements, taking into account the present creditworthiness
of the counterparties.
1999 1998
----------------- ------------------
Carrying Fair Carrying Fair
(Dollars in thousands) Amount Value Amount Value
- -----------------------------------------------------------------------
Financial Assets
Cash and cash
equivalents $ 59,942 $ 59,942 $ 97,438 $ 97,438
Securities 213,654 213,679 261,183 261,829
Loans, net 771,294 755,220 695,207 704,406
Financial Liabilities
Deposits 905,960 902,043 905,202 907,254
Borrowings 91,934 92,808 102,728 102,650
Contingent Liabilities
Commitments to extend
credit 0 842 0 947
Standby letters of
credit 0 16 0 18
- -----------------------------------------------------------------------
NOTE R
EARNINGS PER SHARE
Basic earnings per common share were computed by dividing net income by the
weighted average number of shares of common stock outstanding during the year.
Diluted earnings per common share were determined by including assumptions of
stock option conversions.
(Dollars in thousands
excpet per share data)
Net Per-share
Year ended December 31 Income Shares Amount
- --------------------------------------------------------------------------------
1999
Basic Earnings Per Share
Income available to common
shareholders $11,784 4,844,943 $2.43
=====
Options issued to executives
(See Note H) 64,211
------
Diluted Earnings Per Share
Income available to common
shareholders plus assumed
conversions $11,784 4,909,154 $2.40
======= ========= =====
1998
Basic Earnings Per Share
Income available to common
shareholders $ 9,563 5,093,032 $1.88
=====
Options issued to executives
(See Note H) 99,385
------
Diluted Earnings Per Share
Income available to common
shareholders plus assumed
conversions $ 9,563 5,192,417 $1.84
====== ========= =====
1997
Basic Earnings Per Share
Income available to common
shareholders $ 7,432 5,128,208 $1.45
=====
Options issued executives
(See Note H) 123,504
-------
Diluted Earnings Per Share
Income available to common
shareholders plus
assumed conversions $ 7,432 5,251,712 $1.42
====== ========= =====