SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[] Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended Commission file
MARCH 31, 2001 No. 0-13660
SEACOAST BANKING CORPORATION OF FLORIDA
(Exact name of registrant as specified in its charter)
Florida 59-2260678
- -------------------------------- -----------------------
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
815 Colorado Avenue, Stuart FL 34994
- ---------------------------------------- ---------------
(Address of principal executive offices) (Zip code)
(561) 287-4000
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(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Class A Common Stock, Par Value $.10
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [ ] NO [ ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of March 31, 2001:
Class A Common Stock, $.10 Par Value - 4,348,740 shares
Class B Common Stock, $.10 Par Value - 358,710 shares
INDEX
SEACOAST BANKING CORPORATION OF FLORIDA
Part I FINANCIAL INFORMATION PAGE #
Item 1 Financial Statements (Unaudited)
Condensed consolidated balance sheets -
March 31, 2001, December 31, 2000 and
March 31, 2000 3 - 4
Condensed consolidated statements of income -
Three months ended March 31, 2001 and 2000 5 - 6
Condensed consolidated statements of cash flows -
Three months ended March 31, 2001 and 2000 7 - 9
Notes to condensed consolidated financial
statements 10 - 11
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 22
Part II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 23
SIGNATURES 24
Part I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
March 31, December 31, March 31,
(Dollars in thousands) 2001 2000 2000
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ASSETS
Cash and due from banks $28,203 $33,505 $40,381
Federal funds sold 43,490 39,000 20,000
Securities:
Held for sale (at market) 221,960 178,722 192,501
Held for investment (market values:
$18,035 at March 31, 2001,
$26,078 at December 31, 2000
& $20,762 at March 31, 2000) 17,723 25,942 20,597
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TOTAL SECURITIES 239,683 204,664 213,098
Loans available for sale 12,207 2,030 959
Loans 821,656 844,546 809,105
Less: Allowance for loan losses (7,224) (7,218) (7,004)
------- ------- -------
NET LOANS 814,432 837,328 802,101
Bank premises and equipment, net 16,315 16,633 16,773
Other assets 15,678 18,213 16,686
---------- ---------- ----------
$1,170,008 $1,151,373 $1,109,998
========== ========== ==========
LIABILITIES
Deposits $982,290 $957,089 $949,382
Federal funds purchased and securities
sold under agreements to repurchase,
maturing within 30 days 52,431 65,020 27,414
Other borrowings 40,000 40,000 49,970
Other liabilities 6,841 5,001 4,810
--------- --------- ---------
1,081,562 1,067,110 1,031,576
CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
March 31, December 31, March 31,
(Dollars in thousands) 2001 2000 2000
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SHAREHOLDERS' EQUITY
Preferred stock 0 0 0
Class A common stock 482 482 482
Class B common stock 36 36 36
Additional paid-in capital 27,831 27,831 27,743
Retained earnings 74,423 72,562 67,458
Less: Treasury stock (14,879) (14,470) (12,089)
------ ------ ------
87,893 86,441 83,630
Other Comprehensive Income (loss) 553 (2,178) (5,208)
------ ----- -----
TOTAL SHAREHOLDERS'
EQUITY 88,446 84,263 78,422
---------- ---------- ----------
$1,170,008 $1,151,373 $1,109,998
========== ========== ==========
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Note: The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date. See notes to condensed consolidated financial
statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
Three Months Ended
March 31,
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(Dollars in thousands, except per share data) 2001 2000
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Interest and dividends on securities $3,206 $3,396
Interest and fees on loans 16,863 15,498
Interest on federal funds sold 607 159
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TOTAL INTEREST INCOME 20,676 19,053
Interest on deposits 2,349 2,167
Interest on time certificates 6,223 5,203
Interest on borrowed money 1,206 954
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TOTAL INTEREST EXPENSE 9,778 8,324
------ ------
NET INTEREST INCOME 10,898 10,729
Provision for loan losses 0 150
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NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 10,898 10,579
Noninterest income
Securities gains 145 1
Other income 3,540 3,443
------ ------
TOTAL NONINTEREST INCOME 3,685 3,444
TOTAL NONINTEREST EXPENSES 9,179 9,006
------ ------
INCOME BEFORE INCOME TAXES 5,404 5,017
Provision for income taxes 2,126 1,910
------ ------
NET INCOME $ 3,278 $ 3,107
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
Three Months Ended
March 31,
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 2001 2000
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PER SHARE COMMON STOCK:
Net income diluted $ 0.69 $ 0.64
Net income basic 0.69 0.64
CASH DIVIDENDS DECLARED:
Class A 0.28 0.26
Class B 0.254 0.236
Average shares outstanding - Diluted 4,766,314 4,870,539
Average shares outstanding - Basic 4,729,106 4,832,118
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See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
Three Months Ended
March 31,
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(Dollars in thousands) 2001 2000
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Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Interest received $ 20,683 $ 18,753
Fees and commissions received 3,214 3,436
Interest paid (9,816) (8,146)
Cash paid to suppliers and employees (8,832) (9,822)
Income taxes paid (138) 0
-------- --------
Net cash provided by operating activities 5,111 4,221
Cash flows from investing activities
Proceeds from maturity of securities held for sale 8,197 3,776
Proceeds from maturity of securities held for investment 1,610 1,839
Proceeds from sale of securities held for sale 65,927 120
Purchase of securities held for sale (100,233) (423)
Purchase of securities held for investment (5,902) (5,000)
Proceeds from sale of loans 21,652 7,119
Net new loans and principal repayments (8,572) (38,032)
Proceeds from the sale of other real estate owned 212 220
Additions to bank premises and equipment (196) (710)
Net change in other assets 590 150
------ ------
Net cash used in investing activities (16,715) (30,941)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)(Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
Three Months Ended
March 31,
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(Dollars in thousands) 2001 2000
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Cash flows from financing activities
Net increase in deposits 25,208 43,449
Net decrease in federal funds purchased and
repurchase agreements (12,589) (39,550)
Net increase in other borrowings 0 25,000
Exercise of stock options 580 86
Treasury stock acquired (1,098) (577)
Dividends paid (1,309) (1,249)
------ ------
Net cash provided by in financing activities 10,792 27,159
------ ------
Net increase (decrease) in cash and cash equivalents (812) 439
Cash and cash equivalents at beginning of period 72,505 59,942
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Cash and cash equivalents at end of period $71,693 $60,381
======= =======
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)(Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
Three Months Ended
March 31,
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(Dollars in thousands) 2001 2000
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Reconciliation of Net Income to Cash Provided by
Operating Activities
Net Income $ 3,278 $ 3,107
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 645 653
Provision for loan losses 0 150
Securities gains (145) (1)
Gain on sale of loans (388) (65)
Loss on sale and writedown of foreclosed
assets 15 23
(Gain) loss on disposition of fixed assets (1) 11
Change in interest receivable 77 (244)
Change in interest payable (38) 178
Change in prepaid expenses (15) (80)
Change in accrued taxes 2,096 2,037
Change in other liabilities (413) (1,548)
- --------------------------------------------------------------------------------
Total adjustments 1,833 1,114
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Net cash provided by operating activities $5,111 $4,221
====== ======
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Supplemental disclosure of noncash investing
activities:
Transfers from loans to other real estate owned $ 27 $ 0
Market value adjustment to securities 4,397 (304)
Transfers from securities held for investment to
securities held for sale 12,510 0
Transfers from loans to securities held for sale 10,091 0
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See notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEACOAST
BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three-month
period ended March 31, 2001, are not necessarily indicative of the results that
may be expected for the year ending December 31, 2001. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended December 31, 2000.
NOTE B - COMPREHENSIVE INCOME
Under FASB Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," the Company is required to report a measure of all
changes in equity, not only reflecting net income but certain other changes as
well. At March 31, 2001 and 2000, comprehensive income was as follows:
Three Months Ended
March 31,
(Dollars in thousands) 2001 2000
----------------------------
Net Income $3,278 $3,107
Unrealized gains (losses) on securities 2,731 (58)
------ ------
Comprehensive Income $6,009 $3,049
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NOTE C - DERIVATIVE INSTRUMENTS
Derivative financial instruments, such as interest rate swaps, options, caps,
floors, futures and forward contracts have not been components of the Company's
past risk management profile. The Company monitors its sensitivity to changes in
interest rates and may use derivative instruments to limit volatility of net
interest income. Derivative instruments had no effect on net interest income in
first quarter 2001 or the prior year.
The Company adopted Statement of Financial Accounting Standards No. 133 (SFAS
133), "Accounting for Derivative Instruments and Hedging Activities," on January
1, 2001. There was no financial impact on earnings or other comprehensive income
as a result of the adoption. However, the Company did reclassify $12.5 million
of securities as available for sale which were previously classified as held to
maturity in accordance with SFAS No. 115.
NOTE D - OTHER BORROWINGS
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%. The DLJ boorowing was called on August 31,
2000. The FHLB debt is subject to early termination in accordance with the terms
of the agreement as of November 12, 2004.
On March 9, 2000, an additional borrowing from the FHLB for $25,000,000 was
acquired, with a fixed term payable on March 9, 2002, and interest payable
monthly at 6.99%. This borrowing was restructured to a 3-year term on December
1, 2000 at 6.55%.
The FHLB debt is secured by residential mortgage loans totaling $40,000,000.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
FIRST QUARTER 2001
The following discussion and analysis is designed to provide a better
understanding of the significant factors related to the Company's results of
operations and financial condition. Such discussion and analysis should be read
in conjunction with the Company's Condensed Consolidated Financial Statements
and the notes attached thereto.
EARNINGS SUMMARY
Net income for the first quarter of 2001 totaled $3,278,000 or $0.69 per share
diluted, higher than the $2,936,000 or $0.62 per share diluted recorded in the
fourth quarter of 2000 and higher than the $3,107,000 or $0.64 per share diluted
reported in the first quarter of 2000.
Return on average assets was 1.17 percent and return on average shareholders'
equity was 15.06 percent for the first quarter of 2001, compared to fourth
quarter 2000's performance of 1.05 percent and 13.40 percent, respectively, and
the prior year's first quarter results of 1.15 percent and 14.75 percent,
respectively. The increase in return on equity reflects improved earnings and,
to a lesser extent, the impact of the Company's share repurchase program (See
"Capital Resources").
NET INTEREST INCOME
Net interest income (fully taxable equivalent) for 2001 totaled $10,959,000,
$457,000 or 4.4 percent greater than for the fourth quarter of 2000 and $154,000
or 1.4 percent higher than for the first quarter of 2000.
Net interest margin on a tax equivalent basis improved for the first quarter of
2001 compared to the fourth quarter of 2000. On a tax equivalent basis the
margin increased 17 basis points to 4.10 percent during the first quarter of
2001 from 3.93 percent in the fourth quarter of 2000. The Federal Reserve's
actions to decrease short term interest rates by 150 basis points, beginning in
late December with a 50 basis point cut and subsequent cuts of an additional 50
basis points in January 2001 and March 2001 contributed to the improvement in
margin. The cost of interest-bearing liabilities decreased 16 basis points to
4.42 percent from fourth quarter, with rates for savings deposits, certificates
of deposit, short term borrowings (entirely composed of repurchase agreements
during the first quarter of 2001), and other borrowings decreasing 37, 2, 126
and 18 basis points, respectively. The rate for savings accounts decreased less
than what might be expected as a result of the Company continuing to
successfully market two savings products called Grand Savings and Grand Savings
Plus that earn a higher rate. The average balance for these two accounts during
the first quarter of 2001 totaled $62,670,000 and $42,591,000, respectively,
compared to $58,257,000 and $40,168,000, respectively, for fourth quarter 2000.
The rate on certificates of deposit is expected to decline over the remainder of
2001 as $213,847,000 or 49.7 percent of outstanding certificates mature and
re-price. The decrease in rate for other borrowings was due to the Company
extending an existing fixed rate $25 million borrowing from the Federal Home
Loan Bank (FHLB) to a term of 3 years at 6.55 percent (versus 6.99 percent prior
to extension) in December 2000 (see Note D to the Financial Statements). The
rate on NOW accounts increased during the quarter by 29 basis points to 2.24
percent and the rate on money market balances declined 3 basis points. In large
part, this is due to the Company introducing a new product called Investor NOW
in late 2000 which is index priced to be competitive with third party money
market funds, but requires a minimum balance of $100,000. The average balance
for this account during the first quarter of 2001 was $22,611,000, compared to
$12,598,000 in the fourth quarter of 2000.
Impacting the margin as well, the yield on earning assets decreased 6 basis
points to 7.76 percent during the first quarter of 2001, compared to the fourth
quarter. Increases in the yield on loans of 10 basis points to 8.20 percent and
the yield on securities of 1 basis point to 6.30 percent were recorded during
the first quarter of 2001, while the yield on federal funds sold declined 102
basis points to 5.55 percent. Average earning assets for the first quarter of
2001 are $20,730,000 or 1.9 percent higher when compared to prior year's fourth
quarter. Average loan balances declined $1,563,000 or 0.2 percent to
$835,472,000, average investment securities decreased $13,463,000 or 6.2 percent
to $204,467,000, and average federal funds sold increased $37,756,000 to
$44,358,000. Impacting loan growth during the first quarter of 2001 were
securitizations and sales of residential mortgages totaling $24.5 million,
reflecting the Company's new mortgage banking emphasis. Activity in the
Company's securities portfolio was significant as well, with sales of securities
of $65.9 million and purchases totaling $106.1 million transacted, reflecting a
restructuring of the securities portfolio during the first quarter for better
performance in a declining interest rate environment.
For the first quarter a year ago, the net interest margin was 4.24 percent. The
yield on average earning assets was 7.50 percent and rate on interest-bearing
liabilities was 3.96 percent.
The mix of earning assets and interest bearing liabilities impacts the margin.
Loans (the highest yielding component of earning assets) as a percentage of
average earning assets totaled 77.1 percent in the first quarter of 2001,
compared to 77.2 percent a year ago. Average certificates of deposit (a higher
cost component of interest-bearing liabilities) as a percentage of
interest-bearing liabilities increased to 47.0 percent, compared to 46.4 percent
in the first quarter of 2000, reflecting consumer desire to seek higher yielding
alternative products over the last twelve months. Borrowings (including federal
funds purchased, sweep repurchase agreements with customers of the Company's
subsidiary, and other borrowings) totaled 10.3 percent of interest bearing
liabilities in the first quarter, versus 8.4 percent a year ago. While average
noninterest bearing demand deposits declined $2,914,000 or 2.0 percent to
$145,427,000, growth in lower cost interest bearing core deposits (NOW, savings
and money market deposits) of $1,167,000 or 0.3 percent to $383,121,000
favorably affected the Company's deposit mix.
PROVISION FOR LOAN LOSSES
No provisioning was recorded in the first quarter of 2001, reflecting the
Company's exceptional credit quality, declining nonperforming assets, and slower
loan growth. A provision of $150,000 was recorded in all quarters in 2000,
$600,000 for the total year in 2000. Net recoveries for the first quarter of
$6,000 compared to net charge-offs of $17,000 in 2000. Net charge-offs
(recoveries) annualized as a percent of average loans were at zero percent for
the first quarter of 2001, compared to 0.01 percent for the same quarter in 2000
and 0.03 percent for the total year in 2000. These ratios are much better than
the banking industry as a whole.
Management determines the provision for loan losses 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
(OCC), 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. (See "Allowance for Loan Losses")
NONINTEREST INCOME
Noninterest income, excluding gains and losses from securities sales, totaled
$3,540,000 for the first quarter of 2001, $97,000 or 2.8 percent higher than for
the same period last year.
Noninterest income was favorably impacted by growth in fee based businesses.
Although brokerage commissions and fees declined $494,000 or 55.3 percent year
over year to $400,000, other noninterest revenue sources on an aggregate basis
increased $591,000 or 23.2 percent. Slower economic activity began to effect
brokerage revenue late in 2000 and the trend continued in the first quarter of
2001 with consumers shifting from the purchase of investment products to more
conservative deposit products. However, the Company continued its transition
from a residential portfolio lender to a mortgage banking operation which it
began in 2000. As a result, the Company increased noninterest income related to
mortgage loan production by 153.7% to $449,000 in the first quarter of 2001 from
$177,000 a year ago for the same period. In addition, increasing usage of check
cards by the Company's core deposit customers increased interchange income to
$166,000 for the first quarter, an increase of $74,000 or 80.4 percent from
first quarter a year ago. Revenue from the sale of marine loans totaling $6.9
million by the Company's subsidiary bank's Seacoast Marine Finance division
(which began operations in February 2000) totaled $124,000 in the first quarter
of 2001, a $66,000 or 113.8 percent increase from last year in the first
quarter. Also increasing in the first quarter of 2001 year over year, service
charges on deposits grew $69,000 or 6.0 percent to $1,217,000 and trust income
increased $26,000 or 3.8 percent to $703,000. Remaining noninterest revenue
sources (principally other service charges and fees) increased $84,000 or 21.1
percent to $481,000, including a $29,000 or 52.0 percent increase in check
charges and recognition of $20,000 (versus zero a year ago) for the cash
surrender value of key man life insurance.
Lower rates for fixed rate residential 15- and 30-year loan products during late
2000 and in 2001 have resulted in higher refinance activity and mortgage banking
revenues are expected to remain strong over the remainder of 2001. Although
financial markets are in turmoil, the Company intends to continue to emphasize
investment products in 2001 and expects it will benefit from another new revenue
source beginning in the second quarter of 2001, the sale of life insurance.
Securities gains of $145,000 were recognized during the first quarter of 2001,
compared to $1,000 a year ago (see "Securities").
NONINTEREST EXPENSES
When compared to 2000, noninterest expenses for the first quarter increased by
$173,000 or 1.9 percent to $9,179,000. The Company's overhead ratio has
decreased over the past three years, from 69.6 percent in the first quarter of
1998 to 66.5 percent in 1999 to 63.2 percent a year ago. The overhead ratio was
63.5 percent in the first quarter of 2001. This is reflective of initiatives to
reduce overhead costs, particularly staffing, and streamlined operational and
procedural changes that have been implemented.
Salaries and wages increased $32,000 or 0.9 percent to $3,402,000 compared to
the prior year quarter. Commissions on revenue from brokerage activities were
$201,000 lower year over year and contributed to the nominal increase in
salaries. Employee benefits increased $60,000 or 6.9 percent to $928,000 from
the first quarter of 2000. Higher group health insurance and incentive costs are
the primary cause for the increase in benefit expenditures for 2001.
Occupancy expenses and furniture and equipment expenses, on an aggregate basis,
increased $24,000 or 1.8 percent to $1,377,000, versus first quarter results
last year. A reduction in lease payments of $29,000 (closure of a St. Lucie
County branch in July 2000 and lower common area maintenance costs) reduced
occupancy expense.
Outsourced data processing costs totaled $1,093,000 for the first quarter of
2001, an increase of $81,000 or 8.0 percent from a year ago. The Company's
utilizes a third party for its core data processing system. Outsourced data
processing costs are directly related to the number of transactions processed,
which can be expected to increase as the Company's business volumes grow and new
products such as bill pay, internet banking, etc. become more popular.
Costs associated with foreclosed and repossessed asset management and
disposition totaled only $25,000, a reflection of low nonperforming asset
balances (see "Nonperforming Assets") in the first quarter 2001. Legal and
professional costs increased $12,000 or 4.0 percent to $309,000 when compared to
March 31, 2000.
Marketing expenses, including sales promotion costs, ad agency production and
printing costs, newspaper and radio advertising, and other public relations
costs associated with the Company's efforts to market products and services,
increased by $73,000 or 16.4 percent to $518,000 when compared to a year ago. Of
this increase, $26,000 was a result of higher sales promotion costs, $34,000 for
newspaper advertising and $11,000 for direct mail campaigns.
INCOME TAXES
Income taxes as a percentage of income before taxes were 39.3 percent for the
first quarter of this year, compared to 38.1 percent in 2000. The rate reflects
a higher rate of provisioning for state income taxes, a result of lower tax
credit, lower tax-exempt interest income and the Company's effective federal tax
rate increasing due to adjusted income before taxes expected to exceed $18
million.
FINANCIAL CONDITION
CAPITAL RESOURCES
The Company's ratio of average shareholders' equity to average total assets
during the first quarter of 2001 was 7.76 percent, compared to 7.82 percent
during the first quarter of 2000. The Company manages the size of its equity
through a program of share repurchases of outstanding Class A Common stock. In
treasury stock at March 31, 2001, there were 475,676 shares totaling
$14,879,000, compared to 372,983 shares or $12,089,000 a year ago.
The risk-based capital minimum ratio for total capital to risk-weighted assets
for "well-capitalized" financial institutions is 10%. At March 31, 2001, the
Company's ratio was 12.23 percent.
LOAN PORTFOLIO
The Company's loan activity is principally with customers located within its
defined market area known as the Treasure Coast of Florida. This area is located
on the southeastern coast of Florida above Palm Beach County and extends north
to Brevard County.
Total loans (net of unearned income and excluding the allowance for loan losses)
were $821,656,000 at March 31, 2001, $12,551,000 or 1.6 percent more than at
March 31, 2000, and $22,890,000 or 2.7 percent less than at December 31, 2000.
During the first quarter of 2001, $24.5 million in fixed rate residential
mortgage loans and $6.9 million in marine loans (generated by Seacoast Marine
Finance) were securitized or sold. In comparison, during the first quarter last
year, $0.9 million in fixed rate residential mortgage loans and $6.2 million in
marine loans were sold. Over the past twelve months, $36.9 million in fixed rate
residential loans and $26.9 million in marine loans have been sold.
At March 31, 2001, the Company's mortgage loan balances secured by residential
properties amounted to $447,389,000 or 54.4 percent of total loans (versus
$456,204,000 or 56.4 percent a year ago). The next largest concentration was
loans secured by commercial real estate totaling $199,533,000 or 24.3 percent
(versus $183,952,000 or 22.7 percent a year ago). The Company was also a
creditor for consumer loans to individual customers totaling $93,723,000 (versus
$80,918,000 a year ago), most secured with collateral and including marine loans
totaling approximately $16.8 million generated by the Company's subsidiary
bank's marine lending division, Seacoast Marine Finance, headquartered in Fort
Lauderdale, Florida. Commercial loans of $36,913,000 (versus $35,919,000 last
year), home equity lines of credit of $12,565,000 (compared to $13,630,000 for
prior year), and construction loans of $31,389,000 (versus $38,239,000 a year
ago) were outstanding as well at March 31, 2001.
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 re-pricing opportunities
for assets against liabilities, when possible. At March 31, 2001, approximately
$191 million or 43 percent of the Company's residential mortgage loan balances
were adjustable, compared to $176 million or 39 percent a year ago.
Of the approximate $31 million of new residential loans originated in 2001, $3
million were adjustable and $28 million were fixed rate. Loans secured by
residential properties having fixed rates totaled approximately $257 million at
March 31, 2001, of which 15- and 30-year mortgages totaled approximately $111
million and $106 million, respectively. Remaining fixed rate balances were
comprised of home improvement loans with maturities less than 15 years.
The majority of all loans and commitments for one-to-four family residential
properties and commercial real estate are generally secured with first mortgages
on property with the amount loaned at inception to the fair value of the
property not to exceed 80 percent. A majority of residential real estate loans
are made upon terms and conditions that would make such loans eligible for
resale under Federal National Mortgage Association ("FNMA") or Federal Home Loan
Mortgage Corporation ("FHLMC") guidelines. The Company's historical charge-off
rates for residential real estate loans have been minimal, with $1,000 in net
recoveries for the first quarter of 2001 compared to $43,000 in net charge-offs
for all of 2000. The Company considers residential mortgages less susceptible to
adverse effects from a downturn in the real estate market, especially given the
area's large percentage of retired persons.
Fixed rate and adjustable rate loans secured by commercial real estate totaled
approximately $116 million and $84 million, respectively, at March 31, 2001,
compared to $116 million and $68 million, respectively, a year ago. The Company
attempts to reduce its exposure to the risk of the local real estate market by
limiting the aggregate size of its commercial real estate portfolio and by
making commercial real estate loans primarily on owner occupied properties.
At March 31, 2001, the Company had commitments to make loans (excluding unused
home equity lines of credit) of $75,511,000, compared to $73,513,000 at March
31, 2000.
ALLOWANCE FOR LOAN LOSSES
Net recoveries on residential real estate loans, commercial real estate loans,
commercial loans and credit cards of $1,000, $1,000, $11,000 and $11,000,
respectively, were recorded for the first three months of 2001. Net charge-offs
of $18,000 occurred on installment loans for the same period. In comparison, net
recoveries of $6,000 and $27,000, respectively, were recorded for residential
real estate loans and commercial real estate loans in 2000. In the first quarter
of 2000, net charge-offs for consumer loans of $104,000 were realized and net
recoveries for commercial loans and credit card loans of $26,000 and $28,000,
respectively, were recognized. As a result of the sale of the credit card
portfolio in 1998, the Company eliminated its exposure to future credit card
losses and continues to recover amounts on losses recorded prior to the sale.
Current and historical credit losses arising from real estate lending
transactions continue to compare favorably with the Company's peer group.
The ratio of the allowance for loan losses to net loans outstanding was 0.88
percent at March 31, 2001. This ratio was 0.87 percent at March 31, 2000 and
0.85 percent at December 31, 2000. The allowance for loan losses as a percentage
of nonaccrual loans and loans 90 days or more past due was 341.9 percent at
March 31, 2001, compared to 191.4 percent at the same date in 2000.
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 subsidiary 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. 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.
Concentration of credit risk, discussed under "Loan Portfolio" of this
discussion and analysis, may affect the level of the allowance. Concentrations
typically involve loans to one borrower, an affiliated group of borrowers,
borrowers engaged in or dependent upon the same industry, or a group of
borrowers whose loans are predicated on the same type of collateral. The
Company's significant concentration of credit is a collateral concentration of
loans secured by real estate. At March 31, 2001, the Company had 674 million in
loans secured by real estate, representing 78.7 percent of total loans, down
from 79 percent at March 31, 2000. In addition, the Company is subject to a
geographic concentration of credit because it operates in southeastern Florida.
Although not material enough to constitute a significant concentration of credit
risk, the Company has meaningful credit exposure to real estate developers and
investors. Levels of exposure to this industry group, together with an
assessment of current trends and expected future financial performance, are
carefully analyzed in order to determine an adequate allowance level. Problem
loan activity for this exposure needs to be evaluated over the long term to
include all economic cycles when determining an adequate allowance level.
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 metholology 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.
The unprecedented strong economic growth over the last five years has resulted
in improved credit quality measures for the Company and the entire banking
industry. At year-end 2000, the Company's allowance for loan losses equated to
8.8 times average charge-offs for the last three years. In contrast, the
allowance equated to approximately two times charge-offs in the early 1990's
when Florida experienced a real estate economic decline.
NONPERFORMING ASSETS
At March 31, 2001, the Company's ratio of nonperforming assets to loans
outstanding plus other real estate owned ("OREO") was 0.27 percent, compared to
0.46 percent one year earlier.
At March 31, 2001, there were $5,000 in accruing loans past due 90 days or more
and OREO of $146,000 was outstanding. In 2000 on the same date, there were no
accruing loans past due 90 days or more and OREO balances of $96,000 were
outstanding.
Nonaccrual loans totaled $2,108,000 at March 31, 2001, compared to a balance of
$3,659,000 at March 31, 2000. Most of the nonaccrual loans outstanding at March
31, 2001 were performing with respect to payments, with the exception of 14
loans aggregating to $1,398,000. The performing loans were placed on nonaccrual
status because the Company has determined that the collection of principal or
interest in accordance with the terms of such loans is uncertain. Of the amount
reported in nonaccrual loans at March 31, 2001, 95 percent is secured with real
estate, the remainder by other collateral. 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.
SECURITIES
Debt securities that the Company has the intent and ability to hold to maturity
are carried at amortized cost. All other securities are carried at market value
and are available for sale. At March 31, 2001, the Company had $221,070,000 or
92.6 percent of total securities available for sale and securities held to
maturity were carried at an amortized cost of $17,723,000, representing 7.4
percent of total securities.
The Company's securities portfolio has increased $14,384,000 or 6.4 percent from
March 31, 2000 and $30,621,000 or 14.7 percent from December 31, 2000. In the
first quarter of 2001, proceeds from the sale of securities totaled $65,927,000,
maturities totaled $9,807,000 and purchases aggregated $106,135,000. With the
recent Federal Reserve policy shift to decreasing interest rates, the Company
transacted sales of certain securities and realized net gains of $145,000 for
the first quarter of 2001. Included in the sales was the divestiture of the
Company's $23 million investment in mutual funds. As a result of the
restructuring, Company management believes it has better positioned the
securities portfolio to take advantage of the new rate environment.
The Company adopted Statement of Financial Accounting Standards No. 133 (SFAS
133), "Accounting for Derivative Instruments and Hedging Activities," on January
1, 2001. There was no financial impact on earnings or other comprehensive income
as a result of the adoption. However, the Company did reclassify $12,510,000 of
securities as available for sale which were previously classified as held to
maturity in accordance with SFAS No. 115.
Management controls the Company's interest rate risk by maintaining a low
average duration for the securities portfolio and with securities returning
principal monthly which can be reinvested. At March 31, 2001, the duration of
the portfolio was 3.1 years, compared to 3.2 years a year ago.
Unrealized net securities gains of $1,202,000 at March 31, 2001, compared to net
losses of $8,214,000 at March 31, 2000 and $3,372,000 at December 31, 2000. The
Federal Reserve increased rates 100 basis points in 2000 and decreased rates 150
basis points most recently, over the period December 2000 to March 2001. The
increase in rates in 2000 did not affect rates for instruments with maturities
over 2 years significantly, but recent rate declines did provide appreciation in
the market value of the Company's securities portfolio. Company management
considers the overall quality of the securities portfolio to be high. No
securities are held which are not traded in liquid markets.
DEPOSITS / BORROWINGS
Total deposits increased $32,908,000 or 3.5 percent to $982,290,000 at March 31,
2001, compared to one year earlier. Certificates of deposits increased
$32,310,000 or 8.1 percent to $429,947,000 over the past twelve months, lower
cost interest bearing deposits (NOW, savings and money markets deposits)
decreased $5,034,000 or 1.3 percent to $390,075,000, and noninterest bearing
demand deposits increased $5,632,000 or 3.6 percent to $162,268,000. Lower
interest rates, an uncertain economic environment, and recent turmoil in
financial markets have aided growth in deposits as customers seek the stability
of bank products, particularly higher yielding certificates of deposit.
Repurchase agreement balances increased $25,017,000 or 91.3 percent to
$52,431,000 at March 31, 2001. 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. Other borrowings decreased
$9,970,000,000 to $40,000,000 year over year, reflecting funding obtained
through Donaldson, Lufkin and Jenerette (DLJ) at 5.40 percent being terminated
(called) at the end of August 2000.
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).
Based on the Company's most recent ALCO modeling, 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 19.5 percent.
The Company's ALCO uses model simulation to manage and measure 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 an immediate change in interest rates (up or down) of 200 basis points.
The Company's most recent ALCO model simulation indicated net interest income
would decline 2.6 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 re-pricing when interest rates
increase or decrease within a range of 200 basis points.
Derivative financial instruments, such as interest rate swaps, options, caps,
floors, futures and forward contracts have not been components of the Company's
past risk management profile. The Company may use derivative instruments to
limit the volatility of net interest income. Derivative instruments had no
effect on net interest income in the first quarter of 2001 or the prior year.
LIQUIDITY MANAGEMENT
Contractual maturities for assets and liabilities are reviewed to adequately
maintain current and expected future liquidity requirements. Sources of
liquidity, both anticipated and unanticipated, are maintained through a
portfolio of high quality marketable assets, such as residential mortgage loans,
securities available for sale and federal funds sold. The Company has access to
federal funds lines of credit and is able to provide short term financing of its
activities by selling, under an agreement to repurchase, United States Treasury
and Government agency securities not pledged to secure public deposits or trust
funds. At March 31, 2001, the Company had available lines of credit of
$130,500,000. The Company also had $128,200,000 of United States Treasury and
Government agency securities and mortgage backed securities not pledged and
available for use under repurchase agreements. At March 31, 2000, the amount of
securities available and not pledged was $109,142,000.
Liquidity, as measured in the form of cash and cash equivalents (including
federal funds sold), totaled $71,693,000 at March 31, 2001 as compared to
$60,381,000 at March 31, 2000. Cash and cash 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 and investment activity occurring in
the Company's securities portfolio and loan portfolio. As is typical of
financial institutions, cash flows from investing activities (primarily in loans
and securities) and from financial activities (primarily through deposit
generation and short term borrowings) exceeded cash flows from operations. In
2001, the cash flow from operations of $5,111,000 was $890,000 higher than
during the same period of 2000.
IMPACT OF 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 level 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 shareholders' 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.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
Certain of the matters discussed under the caption "Management's Discussion and
Analysis" and elsewhere in this Quarterly Report may constitute forward-looking
statements for purposes of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and as such may involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Seacoast Banking Corporation of Florida
to be materially different from future results, performance or achievements
expressed or implied by such forward-looking statements. The Company's actual
results may differ materially from the results anticipated in these
forward-looking statements due to a variety of factors, including, without
limitation: the effect of future economic conditions; governmental monetary and
fiscal policies, as well as legislative and regulatory changes; the risk of
changes in interest rates on the level and composition of deposits, loan demand,
and the values of loan collateral, securities, and interest rate risks; the
effects of competition from other commercial banks, thrifts, mortgage banking
firms, consumer finance companies, credit unions, securities brokerage firms,
insurance companies, money market and other mutual funds and other financial
institutions operating locally, regionally, nationally and internationally,
together with such competitors offering banking products and services by mail,
telephone and computer and the Internet; the effect of the Year 2000 problem on
the Company, including such problems at the Company's vendors, counter-parties
and customers; and the failure of assumptions underlying the establishment of
reserves for possible loan losses. All written or oral forward-looking
statements attributable to the Company are expressly qualified in their entirety
by these Cautionary Statements.
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed for the three-month period ended
March 31, 2001.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEACOAST BANKING CORPORATION OF FLORIDA
May 14, 2001 /s/ Dennis S. Hudson, III
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DENNIS S. HUDSON, III
President & Chief Executive Officer
May 14, 2001 /s/ William R. Hahl
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WILLIAM R. HAHL
Executive Vice President &
Chief Financial Officer