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, 2002 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
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(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, 2002:
Class A Common Stock, $.10 Par Value - 4,322,458 shares
Class B Common Stock, $.10 Par Value - 349,500 shares
INDEX
SEACOAST BANKING CORPORATION OF FLORIDA
Part I FINANCIAL INFORMATION PAGE #
Item 1 Financial Statements (Unaudited)
Condensed consolidated balance sheets -
March 31, 2002, December 31, 2001 and
March 31, 2001 3 - 4
Condensed consolidated statements of income -
Three months ended March 31, 2002 and 2001 5 - 6
Condensed consolidated statements of cash flows -
Three months ended March 31, 2002 and 2001 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 - 23
Part II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 24
SIGNATURES 25
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) 2002 2001 2001
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ASSETS
Cash and due from banks $46,992 $47,104 $28,203
Federal funds sold 53,417 45,010 43,490
Securities:
Held for sale (at market) 339,377 280,822 221,960
Held for investment (market values:
$24,764 at March 31, 2002,
$26,230 at December 31, 2001
& $18,035 at March 31, 2001) 24,186 25,530 17,723
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TOTAL SECURITIES 363,563 306,352 239,683
Loans available for sale 10,095 19,135 12,207
Loans 754,535 785,027 821,656
Less: Allowance for loan losses (6,910) (7,034) (7,224)
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NET LOANS 747,625 777,993 814,432
Bank premises and equipment, net 15,101 15,357 16,315
Other assets 15,388 15,013 15,678
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$1,252,181 $1,225,964 $1,170,008
========================================
LIABILITIES
Deposits $1,040,170 $1,015,154 $982,290
Federal funds purchased and
securities sold under agreements
to repurchase, maturing within
30 days 70,754 71,704 52,431
Other borrowings 40,000 40,000 40,000
Other liabilities 6,655 5,587 6,841
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1,157,579 1,132,445 1,081,562
CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
March 31, December 31, March 31,
(Dollars in thousands) 2002 2001 2001
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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 27,924 27,924 27,831
Retained earnings 82,815 80,886 74,423
Less: Treasury stock (16,440) (17,239) (14,879)
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94,817 92,089 87,893
Other Comprehensive Income (loss) (215) 1,430 553
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TOTAL SHAREHOLDERS'
EQUITY 94,602 93,519 88,446
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$1,252,181 $1,225,964 $1,170,008
===============================================
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Note: The balance sheet at December 31, 2001 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) 2002 2001
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Interest and dividends on securities $3,308 $3,206
Interest and fees on loans 14,768 16,863
Interest on federal funds sold 285 607
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TOTAL INTEREST INCOME 18,361 20,676
Interest on deposits 1,346 2,349
Interest on time certificates 4,388 6,223
Interest on borrowed money 850 1,206
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TOTAL INTEREST EXPENSE 6,584 9,778
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NET INTEREST INCOME 11,777 10,898
Provision for loan losses 0 0
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NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 11,777 10,898
Noninterest income
Securities gains 66 145
Other income 3,983 3,540
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TOTAL NONINTEREST INCOME 4,049 3,685
TOTAL NONINTEREST EXPENSES 9,768 9,179
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INCOME BEFORE INCOME TAXES 6,058 5,404
Provision for income taxes 2,372 2,126
---------------------
NET INCOME $3,686 $3,278
=====================
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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) 2002 2001
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PER SHARE COMMON STOCK:
Net income diluted
$ 0.77 $ 0.69
Net income basic
0.79 0.69
CASH DIVIDENDS DECLARED:
Class A 0.30 0.28
Class B 0.27 0.254
Average shares outstanding - Diluted 4,768,307 4,766,314
Average shares outstanding - Basic 4,669,097 4,729,106
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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) 2002 2001
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Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Interest received $ 19,142 $ 20,683
Fees and commissions received 4,073 3,602
Interest paid (6,801) (9,816)
Cash paid to suppliers and employees (10,025) (8,832)
Income taxes paid (2) (138)
-------------------------
Net cash provided by operating activities 6,387 5,499
Cash flows from investing activities
Proceeds from maturity of securities held for
sale 67,463 8,197
Proceeds from maturity of securities held for
investment 1,334 1,610
Proceeds from sale of securities held for sale 21,571 65,927
Purchase of securities held for sale (151,155) (100,233)
Purchase of securities held for investment 0 (5,902)
Net new loans and principal repayments 39,334 12,692
Proceeds from the sale of other real estate owned 0 212
Additions to bank premises and equipment (214) (196)
Net change in other assets 457 590
--------------------------
Net cash used in investing activities (21,210) (17,103)
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) 2002 2001
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Cash flows from financing activities
Net increase in deposits 25,026 25,208
Net decrease in federal funds purchased and
repurchase agreements (950) (12,589)
Exercise of stock options 413 580
Treasury stock issued (acquired) 19 (1,098)
Dividends paid (1,390) (1,309)
--------------------------
Net cash provided by in financing activities 23,118 10,792
--------------------------
Net increase (decrease) in cash and cash equivalents 8,295 (812)
Cash and cash equivalents at beginning of period 92,114 72,505
--------------------------
Cash and cash equivalents at end of period $100,409 $ 71,693
==========================
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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) 2002 2001
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Reconciliation of Net Income to Cash Provided by
Operating Activities
Net Income $ 3,686 $ 3,278
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 1,587 645
Securities gains (66) (145)
Loss on sale and write down of foreclosed
assets 1 15
Gain on disposition of fixed assets (5) (1)
Change in interest receivable (178) 77
Change in interest payable (217) (38)
Change in prepaid expenses 11 (15)
Change in accrued taxes 2,454 2,096
Change in other liabilities (886) (413)
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Total adjustments 2,701 2,221
-------------------------
Net cash provided by operating activities $ 6,387 $ 5,499
=========================
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Supplemental disclosure of noncash investing activities:
Transfers from loans to other real estate owned $ 74 $ 27
Market value adjustment to securities (2,683) 4,397
Transfers from securities held for investment to
securities held for sale 0 12,510
Transfers from loans to securities held for sale 6,075 10,091
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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, 2002, are not necessarily indicative of the results that
may be expected for the year ending December 31, 2002. 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, 2001.
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, 2002 and 2001, comprehensive income was as follows:
Three Months Ended
March 31,
(Dollars in thousands) 2002 2001
--------------------------------
Net Income $3,686 $3,278
Unrealized gains (losses) on securities (1,645) 2,731
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Comprehensive Income $2,041 $6,009
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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 2002 or the prior year.
With the adoption of Statement of Financial Accounting Standards No. 133 (SFAS
133), "Accounting for Derivative Instruments and Hedging Activities," on January
1, 2001, the Company reclassified during the first quarter of 2001 $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 - ACCOUNTING STANDARDS
With the adoption of Statements of Financial Accounting Standards (SFAS) No.
142, "Goodwill and Other Intangible Assets," on January 1, 2002, goodwill is no
longer amortized, but tested for impairment and the amount of loss recognized
(if any). The effect of the adoption of SFAS 142 did not have any effect on the
Company's financial position. The curtailment of amortization of goodwill
increased net income by $46,000 or $0.01 diluted earnings per share for the
period three months ended March 31, 2002.
In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," which
addresses the accounting for a segment of a business accounted for as a
discontinued operation. SFAS 144 supercedes SFAS 121 issued in March 1995. The
enhanced disclosures are effective for fiscal years beginning after December 15,
2001. The adoption of SFAS 144 on January 1, 2002 on the Company was not
material.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
FIRST QUARTER 2002
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 2002 totaled $3,686,000 or $0.77 per share
diluted, slightly lower than the $3,767,000 or $0.79 per share diluted recorded
in the fourth quarter of 2001 and higher than the $3,278,000 or $0.69 per share
diluted reported in the first quarter of 2001.
Return on average assets was 1.18 percent and return on average shareholders'
equity was 15.45 percent for the first quarter of 2002, compared to fourth
quarter 2001's performance of 1.25 percent and 16.16 percent, respectively, and
the prior year's first quarter results of 1.17 percent and 15.06 percent,
respectively.
NET INTEREST INCOME
Net interest income (on a fully taxable equivalent basis) for 2002 totaled
$11,816,000, $31,000 or 0.3 percent less than for the fourth quarter of 2001 and
$857,000 or 7.8 percent higher than for the first quarter of 2001.
Net interest margin on a tax equivalent basis declined 9 basis points to 4.05
percent for the first quarter of 2002 from 4.14 percent for the fourth quarter
of 2001. Since December 2000, the Federal Reserve has been aggressive in
reducing short-term interest rates. A 50 basis point reduction in December 2000
and subsequent reductions totaling 400 basis points in 2001 were imposed (125
basis points occurring in the fourth quarter). The cost of interest-bearing
liabilities in the first quarter of 2002 decreased 45 basis points to 2.77
percent from fourth quarter, with rates for NOW, savings, money market accounts,
certificates of deposit (CDs), and short term borrowings (entirely composed of
sweep repurchase agreements) decreasing 28, 25, 25, 50 and 21 basis points,
respectively. The average balance for NOW, savings and money market balances
(aggregated) increased $31,277,000 or 7.4 percent from fourth quarter and
noninterest bearing deposits increased $6,097,000 or 3.8 percent, while
certificates of deposit declined $14,389,000 or 3.5 percent. Growth in
low-cost/no cost funding sources reflects the Company's longstanding strategy of
building core customer relationships and tailoring its products and services to
satisfy customer needs. The uncertain economic environment contributed as well
to additional growth in core deposits as customers selected stable liquid bank
products. With slowing loan demand consistent with economic conditions, the
decline in CDs was the result of pricing consistent with funding needs. Low cost
sweep repurchase agreements with customers also increased, by $15,881,000 or
26.6 percent from fourth quarter 2001. The average balance for sweep repurchase
agreements typically peaks in the first quarter each year.
Lower interest rates continued to generate higher prepayments of loans and
investments. These funds and the funds from deposit increases had to be invested
in earning assets at lower rates. The yield on earning assets for the first
quarter of 2002 declined 47 basis points to 6.79 percent from fourth quarter
2001. A portion of their decline is attributed to higher amortization of
investment securities purchased premiums which totaled $960,000 in the first
quarter 2002 as a result of increased prepayment of principal. Decreases in the
yield on loans of 21 basis points to 7.64 percent, the yield on securities of 92
basis points to 4.79 percent, and the yield on federal funds sold of 149 basis
points to 2.04 percent were recorded during the first quarter of 2002. Average
earning assets for the first quarter of 2002 increased $34,066,000 or 3.0
percent when compared to prior year's fourth quarter. Average loan balances
declined $37,974,000 or 4.6 percent to $781,662,000, average investment
securities increased $23,563,000 or 8.0 percent to $317,862,000, and average
federal funds sold increased $48,477,000 to $69,478,000. In addition to
prepayment activity, loan growth during the first quarter of 2002 was impacted
by a $6.1 million securitization of 30 year 1-4 family residential mortgages.
The decline in loans was principally in residential real estate credits,
reflecting the low interest rate environment that provided customers the
opportunity to refinance. Consistent with its strategy to generate more fee
income, and reduce intended rate risks, these loans were sold servicing
released. Activity in the Company's securities portfolio was significant as
well, with maturities and sales of securities of $68.8 million and $21.6
million, respectively, and purchases totaling $151.2 million transacted.
Securities activity reflects an effort to invest funds for better performance as
well as the likely potential for an increasing interest rate environment in the
future.
For the first quarter of 2001, the net interest margin was 4.10 percent. The
yield on average earning assets was 7.76 percent and rate on interest-bearing
liabilities was 4.42 percent.
Year over year the mix of earning assets and interest bearing liabilities has
changed. Loans (the highest yielding component of earning assets) as a
percentage of average earning assets totaled 66.9 percent in the first quarter
of 2002 compared to 77.1 percent a year ago, while securities increased from
18.8 percent to 27.2 percent and federal funds sold increased from 4.1 percent
to 5.9 percent. While total loans did not increase as a percentage of earning
assets, the Company successfully changed the mix of loans, with commercial and
consumer volumes increasing as a percentage of total loans and lower yielding
residential loan balances declining. Average CDs (a higher cost component of
interest-bearing liabilities) as a percentage of interest-bearing liabilities
decreased to 40.8 percent, compared to 47.0 percent in the first quarter of
2001, reflecting diminished funding requirements. Approximately $117 million in
CDs matured during the first quarter of 2002. Roughly $107 million in CDs will
mature in the second quarter of 2002, providing further opportunity for these
volumes to re-price to lower rates (assuming the Federal Reserve maintains
short-term interest rates at existing levels). Lower cost interest bearing
deposits (NOW, savings and money market balances) increased to 47.2 percent of
interest bearing liabilities, versus 42.7 percent a year ago, favorably
affecting deposit mix. Borrowings (including federal funds purchased, sweep
repurchase agreements with customers of the Company's subsidiary, and other
borrowings) increased to 12.0 percent of interest bearing liabilities in the
first quarter from 10.3 percent a year ago, reflecting an increase in balances
maintained by customers utilizing sweep arrangements.
PROVISION FOR LOAN LOSSES
No provisioning was recorded in the first quarter of 2002 nor in any quarter in
2001, reflecting the Company's exceptional credit quality, low nonperforming
assets, and slower loan growth. Net charge-offs totaled $124,000 for the first
quarter of 2002 compared to net recoveries of $6,000 in 2001. Net charge-offs
(recoveries) annualized as a percent of average loans were at 0.06 percent for
the first quarter of 2002, compared to zero percent for the same quarter in 2001
and 0.02 percent for the total year in 2001. These ratios are much better than
the banking industry as a whole.
The Company's loan portfolio mix has been changing. The Company intends to
continue to vary its loan portfolio mix by emphasizing higher yield commercial
and consumer credits while reducing its exposure to 1-4 family lower yield
residential loans. These changes may result in increased loan loss provisions
should the increased exposure result in greater inherent losses in the loan
portfolio.
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 "Nonperforming Assets" and "Allowance for Loan Losses")
NONINTEREST INCOME
Noninterest income, excluding gains and losses from securities sales, totaled
$3,983,000 for the first quarter of 2002, $443,000 or 12.5 percent higher than
for the same period last year. Noninterest income was favorably impacted by
growth in fee-based businesses. Noninterest income accounted for 25.3 percent of
net revenue in the first quarter, compared to 24.5 percent a year ago.
Market turmoil began in late 2000 and carried through into 2001 affecting
brokerage activities, with consumers shifting from the purchase of investment
products to more conservative deposit products. In the first quarter of 2002,
activity rebounded somewhat and brokerage commissions and fees increased
$143,000 or 35.8 percent to $543,000. Trust income was lower, however, declining
$106,000 or 15.1 percent to $597,000. The Company expects to expand its customer
relationships through sales of investment management and brokerage products,
including insurance.
The Company is among the leaders in the production of residential mortgage loans
in its market. In order to improve profitability and better manage interest rate
risks, the Company produces loans for third party permanent investors. In 2002,
mortgage banking fees totaled $776,000, an increase of $327,000 or 72.8 percent
more than a year ago for the first quarter. The Company expects to derive fee
income growth in 2002 by increasing its market penetration and from expanded
sources of fees collected from this business.
Greater usage of check cards during the first quarter 2002 by core deposit
customers and an increased cardholder base increased interchange income to
$223,000, an increase of $57,000 or 34.3 percent from the prior year. Other
deposit based electronic funds transfer income increased $31,000 or 44.3 percent
to $101,000. Service charges on deposits were level year over year at
$1,217,000. Greater analysis fees collected from commercial customers, a result
of reduced earnings credits in the current interest rate environment, were
offset by lower overdraft fees.
The Company's marine financing division (Seacoast Marine Finance) produced $13.8
million in luxury yacht loans, up $5.3 million year over year. A total of $11.7
million of production was sold and generated $167,000 in fees, an increase of
$33,000 or 24.6 percent over the prior year's first quarter. Seacoast Marine
Finance is headquartered in Ft. Lauderdale, Florida with lending professionals
in Florida, Texas and California. The emphasis is on marine loans of $200,000
and greater.
Proceeds from the sale of securities totaled $66,000 in 2002, compared to
$145,000 in 2001. Sales in the first quarter of 2002 were transacted to realize
appreciation on securities that management believed had reached their maximum
potential total return. Sales of investments in early 2001 were transacted to
restructure the portfolio for the new declining interest rate environment.
NONINTEREST EXPENSES
When compared to 2001, noninterest expenses for the first quarter increased by
$589,000 or 6.4 percent to $9,768,000. The Company's overhead ratio has
decreased over the last several years. The 62.6 percent efficiency ratio for the
first quarter of 2002 was a slight improvement from 63.3 percent a year ago.
While salaries, wages and benefits increased $478,000 or 11.0 percent, all other
overhead expenses increased by $111,000 or 2.3 percent year over year.
More specifically, salaries and wages increased $358,000 or 10.5 percent to
$3,760,000 compared to the prior year quarter. Commissions on revenue from
brokerage activities and mortgage banking were $43,000 and $30,000 higher year
over year, respectively. Base salaries increased $274,000 or 9.0 percent. The
increase in base salaries included $27,000 for the addition of the Ft. Pierce
WalMart branch in mid-2001, $30,000 for additional support staff in mortgage
banking, and $41,000 for sales personnel in Trust. Employee benefits increased
$120,000 or 12.9 percent to $1,048,000 from the first quarter of 2001. Higher
group health insurance and incentive costs were the primary cause for the
increase in benefit expenditures for 2002.
Occupancy expenses and furniture and equipment expenses, on an aggregate basis,
decreased $13,000 to $1,364,000, versus first quarter results last year.
Depreciation for furniture and equipment was $40,000 lower and was the primary
cause.
Outsourced data processing costs totaled $1,246,000 for the first quarter of
2002, an increase of $153,000 or 14.0 percent from a year ago. The Company
utilizes third parties for its core data processing system and merchant services
processing. Costs associated with each increased $62,000 and $65,000,
respectively. 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 $16,000, a reflection of low nonperforming asset
balances (see "Nonperforming Assets") in the first quarter 2002. Legal and
professional costs increased $16,000 or 5.2 percent to $325,000 when compared to
March 31, 2001.
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,
decreased by $5,000 to $513,000 when compared to a year ago.
Amortization of goodwill and other intangibles declined $75,000 or 54.3 percent
to $63,000 year over year, entirely due to a change in accounting. Under
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other
Intangible Assets," goodwill is no longer amortized as of January 1, 2002.
INCOME TAXES
Income taxes as a percentage of income before taxes were 39.2 percent for the
first quarter of this year, compared to 39.3 percent in 2001.
FINANCIAL CONDITION
CAPITAL RESOURCES
The Company's ratio of average shareholders' equity to average total assets
during the first quarter of 2002 was 7.67 percent, compared to 7.76 percent
during the first quarter of 2001. The Company manages the size of its equity
through a program of share repurchases of its outstanding Class A Common stock.
In treasury stock at March 31, 2002, there were 511,168 shares totaling
$16,440,000, compared to 475,676 shares or $14,879,000 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, 2002, the
Company's ratio was 12.86 percent.
LOAN PORTFOLIO
Total loans (net of unearned income and excluding the allowance for loan losses)
were $754,535,000 at March 31, 2002, $67,121,000 or 8.2 percent less than at
March 31, 2001, and $30,492,000 or 3.9 percent less than at December 31, 2001.
As part of its ongoing balance sheet and interest rate risk management, the
Company securitized $6.1 million of its residential loans and sold the
investment security in the first quarter of 2002. This transaction and the
continuation of the Company's mortgage banking model of selling current loan
production resulted in a decline in the Company's residential loan portfolio.
During the first quarter of 2002, $37.0 million in fixed rate residential
mortgage loans were sold, compared to $14.4 million during the first quarter a
year ago. The Company also sold $11.7 million in marine loans (generated by
Seacoast Marine Finance), compared to $6.9 million in the first quarter of 2001.
Over the past twelve months, $119.8 million in fixed rate residential loans and
$52.1 million in marine loans have been sold. The loan sales are without
recourse.
At March 31, 2002, the Company's mortgage loan balances secured by residential
properties amounted to $330,730,000 or 43.8 percent of total loans (versus
$447,389,000 or 54.4 percent a year ago). The next largest concentration was
loans secured by commercial real estate. The Company's commercial real estate
lending strategy stresses quality loan growth from local businesses,
professionals, experienced developers and investors, with high net worths that
serve as secondary sources for repayment. At March 31, 2002, the Company had
funded commercial real estate loans totaling $251,267,000. This amount and
unfunded commitments for commercial real estate were comprised of the following
types of loans:
(In millions) Funded Unfunded Total
- --------------------------------------------------------------------------------
Office buildings $ 38.6 $ -- $ 38.6
Retail trade 34.4 0.3 34.7
Land development 34.8 27.0 61.8
Industrial 27.3 1.7 29.0
Healthcare 21.9 11.9 33.8
Churches and educational facilities 14.1 -- 14.1
Recreation 10.3 -- 10.3
Multifamily 8.2 11.2 19.4
Mobile home parks 5.5 -- 5.5
Land 5.1 6.0 11.1
Lodging 3.0 -- 3.0
Restaurant 3.1 -- 3.1
Miscellaneous 45.0 2.6 47.6
------ ----- ------
Total $251.3 $60.7 $312.0
The Company was also a creditor for consumer loans to individual customers
(including installment loans, loans for automobiles, boats, and other personal,
family and household purposes) totaling $99,946,000 (versus $93,723,000 a year
ago). Also increasing, commercial and industrial loans totaled $38,779,000 at
March 31, 2002, compared to $36,913,000 a year ago. 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. Residential lot loans (for private and investor
purposes) totaled $13,524,000, residential construction loans totaled $8,251,000
and home equity lines outstanding totaled $11,569,000 at March 31, 2002.
The Treasure Coast is a residential community with commercial activity centered
in retail and service businesses serving the local residents and seasonal
visitors. 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, 2002, approximately $123 million or 37 percent of the Company's residential
mortgage loan balances were adjustable, compared to $191 million or 43 percent a
year ago.
Of the approximate $47 million of new residential loans originated in 2002, $8
million were adjustable and $39 million were fixed rate. Loans secured by
residential properties having fixed rates totaled approximately $208 million at
March 31, 2002, of which 15- and 30-year mortgages totaled approximately $91
million and $74 million, respectively. Remaining fixed rate balances were
comprised of home improvement loans, most with maturities of 10 years or less.
The Company's historical charge-off rates for residential real estate loans have
been minimal, with $11,000 in net recoveries for the first quarter of 2002
compared to $12,000 in net recoveries for all of 2001. 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,
excluding construction loans, totaled approximately $105 million and $93
million, respectively, at March 31, 2002, compared to $116 million and $84
million, respectively, a year ago.
At March 31, 2002, the Company had commitments to make loans (excluding unused
home equity lines of credit) of $100,732,000, compared to $75,511,000 at March
31, 2001.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses totaled $6,910,000 at March 31, 2002, $314,000
lower than one year earlier and $124,000 lower than at December 31, 2001. During
the first quarter of 2002, net charge-offs of $123,000 on commercial loans and
$21,000 on consumer loans were partially offset by recoveries on residential
real estate loans, commercial real estate loans, and credit cards of $11,000,
$2,000, and $7,000, respectively. A year ago, net recoveries of $6,000 were
recorded during the first quarter.
The ratio of the allowance for loan losses to net loans outstanding was 0.92
percent at March 31, 2002. This ratio was 0.88 percent at March 31, 2001 and
0.90 percent at December 31, 2001. The allowance for loan losses as a percentage
of nonaccrual loans and loans 90 days or more past due was 447.0 percent at
March 31, 2002, compared to 341.9 percent at the same date in 2001.
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
allowance 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
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. 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, 2002, the Company had $615 million in
loans secured by real estate, representing 81.6 percent of total loans, down
from 84.1 percent at March 31, 2001. 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
that 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.
At December 31, 2001, the Company's allowance for loan losses equated to 12.2
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. 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 that must be charged off and to assess the risk characteristics of the
portfolio in 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.
NONPERFORMING ASSETS
At March 31, 2002, the Company's ratio of nonperforming assets to loans
outstanding plus other real estate owned ("OREO") was 0.22 percent, compared to
0.27 percent one year earlier.
At March 31, 2002, there were $69,000 in accruing loans past due 90 days or more
and OREO of $192,000 was outstanding. In 2001 on the same date, there were
$5,000 in accruing loans past due 90 days or more and OREO balances of $146,000
were outstanding.
Nonaccrual loans totaled $1,478,000 at March 31, 2002, compared to a balance of
$2,108,000 at March 31, 2001. Nonaccrual loans outstanding at March 31, 2002
that were performing with respect to payments totaled $383,000. 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,
2002, 96 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.
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.
SECURITIES
At March 31, 2002, the Company had $339,719,000 or 93.4 percent of total
securities available for sale and securities held to maturity were carried at an
amortized cost of $24,186,000, representing 6.6 percent of total securities. The
Company's securities portfolio increased $125,112,000 or 52.4 percent from March
31, 2001 and $59,894,000 or 19.7 percent from December 31, 2001. Maturities and
sales of securities of $68.8 million and $21.6 million, respectively, and
purchases totaling $151.2 million were transacted during the first quarter of
2002. Securities activity reflects an effort to invest funds for better
performance as well as for the likely potential of an increasing interest rate
environment in the future. Sales in the first quarter of 2002 were transacted to
realize appreciation on securities that management believed had reached their
maximum potential total return.
Management controls the Company's interest rate risk by maintaining a low
average duration for the securities portfolio and with securities returning
principal monthly that can be reinvested. At March 31, 2002, the duration of the
portfolio was 1.7 years.
Unrealized net securities gains of $236,000 at March 31, 2002, compared to net
gains of $1,202,000 at March 31, 2001 and $3,041,000 at December 31, 2001. The
Federal Reserve did not alter interest rates during the first quarter of 2002
and indications are that further declines in interest rates are not likely to
occur. A shifting yield curve affected the market value of the securities
portfolio during the quarter.
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 $57,880,000 or 5.9 percent to $1,040,170,000 at March
31, 2002, compared to one year earlier. Certificates of deposits decreased
$42,665,000 or 9.9 percent to $387,282,000 over the past twelve months, lower
cost interest bearing deposits (NOW, savings and money markets deposits)
increased $84,032,000 or 21.5 percent to $474,107,000, and noninterest bearing
demand deposits increased $16,513,000 or 10.2 percent to $178,781,000. 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. The Company's success in marketing desirable products in this
environment, such as its Investor NOW and Money Manager product offerings,
enhanced growth in lower cost interest bearing deposits.
Repurchase agreement balances increased $18,323,000 or 34.9 percent to
$70,754,000 at March 31, 2002. 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. While the number of sweep repurchase
accounts remained unchanged from a year ago, the incremental dollar amount
invested by customers under sweep repurchase agreements increased.
At March 31, 2002, other borrowings were the same year over year at $40,000,000,
entirely comprised of funding from the Federal Home Loan Bank (FHLB).
INTEREST RATE SENSITIVITY
Fluctuations in rates may result in changes in the fair market value of the
Company's financial instruments, cash flows and net interest income. This risk
is managed using simulation modeling to measure interest rate risk and evaluate
strategies. The objective is to optimize the Company's financial position,
liquidity, and net interest income while limiting their volatility.
Senior management regularly reviews the overall interest rate risk position and
implements strategies to manage the risk. 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 increase 0.1 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.
On March 31, 2002, the Company had a negative gap position based on contractual
and prepayment assumptions for the next twelve months, with a negative
cumulative interest rate sensitivity gap as a percentage of total earning assets
of 14.3 percent.
The computations of interest rate risk do not necessarily include certain
actions management may undertake to manage this risk in response to changes in
interest rates. Derivative financial instruments, such as interest rate swaps,
options, caps, floors, futures and forward contracts can and may be utilized as
components of the Company's risk management profile. The Company does not
presently use interest rate protection products in managing its interest rate
sensitivity.
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, 2002, the Company had available lines of credit of
$140,500,000. The Company also had $244,486,000 of United States Treasury and
Government agency securities and mortgage backed securities not pledged and
available for use under repurchase agreements. At March 31, 2001, the amount of
securities available and not pledged was $128,200,000.
Liquidity, as measured in the form of cash and cash equivalents (including
federal funds sold), totaled $100,409,000 at March 31, 2002 as compared to
$71,693,000 at March 31, 2001. 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.
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
This discussion and analysis contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934.
Forward-looking statements, including statements with respect to our beliefs,
plans, objectives, goals, expectations, anticipations, estimates and intentions,
involve known and unknown risks, uncertainties and other factors, which may be
beyond our control, and which may cause the actual results, performance or
achievements of Seacoast Banking Corporation of Florida ("Seacoast" or the
"Company") to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements. You should
not expect us to update any forward-looking statements.
You can identify these forward-looking statements through our use of words such
as "may", "will", "anticipate", "assume", "should", "indicate", "would",
"believe", "contemplate", "expect", "estimate", "continue", "point to",
"project", "may", "intend", or other similar words and expressions of the
future. These forward-looking statements may not be realized due to a variety of
factors, including, without limitation: the effects of future economic
conditions; governmental monetary and fiscal policies, as well as legislative
and regulatory changes; the risks of changes in interest rates on the level and
composition of deposits, loan demand, and the values of loan collateral,
securities, and interest sensitive assets and liabilities; 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 in the Company's market area and elsewhere,
including institutions operating regionally, nationally, and internationally,
together with such competitors offering bank products and services by mail,
telephone, computer and the Internet; the failure of assumptions underlying the
establishment of reserves for possible loan losses, and the risks of mergers and
acquisitions, including, without limitation, the related costs, including
integrating operations as part of these transactions, and the failure to achieve
the expected gains, revenue growth and/or expense savings from such
transactions.
All written or oral forward-looking statements attributable to the Company are
expressly qualified in their entirety by this Cautionary Notice including,
without limitation, those risks and uncertainties, described in the Company's
annual report on Form 10-K for the year ended December 31, 2001 under "Special
Cautionary Notice Regarding Forward Looking Statements", and otherwise in the
Company's Securities and Exchange Commission (SEC) reports and filings. Such
reports are available upon request from Seacoast, or from the SEC, including the
SEC's website at http://www.sec.gov.
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,
2002.
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, 2002 /s/ Dennis S. Hudson, III
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DENNIS S. HUDSON, III
President &
Chief Executive Officer
May 14, 2002 /s/ William R. Hahl
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WILLIAM R. HAHL
Executive Vice President &
Chief Financial Officer