SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended Commission file
SEPTEMBER 30, 1997 No. 0-13660
SEACOAST BANKING CORPORATION OF FLORIDA
(Exact name of registrant as specified in its charter)
Florida 59-2260678
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(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)
(407) 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
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(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 [X] NO [ ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of September 30, 1997:
Class A Common Stock, $.10 Par Value - 4,757,131 shares
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Class B Common Stock, $.10 Par Value - 381,338 shares
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INDEX
SEACOAST BANKING CORPORATION OF FLORIDA
Part I FINANCIAL INFORMATION PAGE #
Item 1 Financial Statements (Unaudited)
Condensed consolidated balance sheets -
September 30, 1997, December 31, 1996 and
September 30, 1996 3 - 4
Condensed consolidated statements of income -
Three months ended September 30, 1997 and 1996;
and nine months ended September 30, 1997 and 1996 5 - 6
Condensed consolidated statements of cash flows -
Nine months ended September 30, 1997 and 1996 7 - 9
Notes to condensed consolidated financial
statements 10
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 19
Part II OTHER INFORMATION
Item 6 Reports on Form 8-K 20
SIGNATURES 21
Exhibit Article 9 - Financial Data Schedule 22 - 23
Part I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
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Seacoast Banking Corporation of Florida and Subsidiaries
Sept. 30, Dec. 31, Sept. 30,
(Dollars in thousands) 1997 1996 1996
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ASSETS
Cash and due from banks 27354 29358 24042
Federal funds sold 0 80650 5200
Securities:
At market 150360 170530 159519
At amortized cost (market values:
$46,608 at Sept. 30, 1997,
$53,549 at Dec. 31, 1996 &
$55,340 at Sept. 30, 1996) 45744 52639 54463
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TOTAL SECURITIES 196104 223169 213982
Loans, net of unearned income 608539 576324 558014
Less: Allowance for loan losses (5306) (5657) (5154)
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NET LOANS 603233 570667 552860
Bank premises and equipment 17674 17213 17221
Other real estate owned 796 1064 682
Core deposit intangibles 1724 1975 2059
Goodwill 3657 3882 3956
Other assets 12200 10523 10679
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862742 938501 830681
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LIABILITIES & SHAREHOLDERS'
EQUITY
LIABILITIES
Deposits 767264 811493 736813
Federal funds purchased and securities
sold under agreements to repurchase,
maturing within 30 days 11726 45088 13001
Other liabilities 3658 4925 6350
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782648 861506 756164
CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (Unaudited)
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Seacoast Banking Corporation of Florida and Subsidiaries
Sept. 30, Dec. 31, Sept. 30,
(Dollars in thousands) 1997 1996 1996
- --------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock 0 0 0
Class A common stock 479 465 465
Class B common stock 38 49 49
Additional paid-in capital 27114 26936 26725
Retained earnings 54975 52090 51083
Treasury stock (1637) (911) (1038)
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80969 78629 77284
Securities valuation equity (allowance) (875) (1634) (2767)
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TOTAL SHAREHOLDERS'
EQUITY 80094 76995 74517
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862742 938501 830681
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================================================================================
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date. See notes to condensed consolidated financial
statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
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Seacoast Banking Corporation of Florida and Subsidiaries
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
--------------- ---------------
(Dollars in thousands, except per share data) 1997 1996 1997 1996
- --------------------------------------------------------------------------------
Interest and dividends on investment
securities 3124 3303 9854 10559
Interest and fees on loans 12448 11648 37266 33797
Interest on federal funds sold 234 121 1086 969
--- --- ---- ---
TOTAL INTEREST INCOME 15806 15072 48206 45325
Interest on deposits 1653 1609 5200 4738
Interest on time certificates 4722 4385 14167 13217
Interest on borrowed money 119 100 513 558
--- --- --- ---
TOTAL INTEREST EXPENSE 6494 6094 19880 18513
---- ---- ----- -----
NET INTEREST INCOME 9312 8978 28326 26812
Provision for loan losses 225 59 613 456
--- -- --- ---
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 9087 8919 27713 26356
Noninterest income
Securities gains 51 8 14 53
Other income 2681 2404 8206 7575
---- ---- ---- ----
TOTAL NONINTEREST INCOME 2732 2412 8220 7628
TOTAL NONINTEREST EXPENSES 8575 8237 26884 23456
---- ---- ----- -----
INCOME BEFORE INCOME TAXES 3244 3094 9049 10528
Provision for income taxes 1182 1124 3290 3769
---- ---- ---- ----
NET INCOME 2062 1970 5759 6759
==== ==== ==== ====
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
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Seacoast Banking Corporation of Florida and Subsidiaries
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
--------------- ---------------
(Dollars in thousands, except per share data) 1997 1996 1997 1996
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PER SHARE COMMON STOCK:
NET INCOME 0.39 0.38 1.10 1.31
CASH DIVIDENDS
DECLARED:
Class A 0.20 0.15 0.60 0.45
Class B 0.18 0.135 0.54 0.405
Average shares outstanding 5264225 5179695 5240783 5172224
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See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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Seacoast Banking Corporation of Florida and Subsidiaries
(In thousands of dollars)
Nine Months Ended September 30 1997 1996
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Increase(Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Interest received 48561 45449
Fees and commissions received 8140 7191
Interest paid (20210) (18790)
Cash paid to suppliers and employees (26512) (20391)
Income taxes paid (3753) (4055)
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Net cash provided by operating activities 6226 9404
Cash flows from investing activities
Maturities of securities held for sale 21014 44092
Maturities of securities held for investment 12849 8184
Proceeds from sale of securities held for sale 64035 37929
Purchase of securities held for sale (63614) (37820)
Purchase of securities held for investment (5928) (5011)
Proceeds from sale of loans 30889 65710
Net new loans and principal repayments (64188) (155702)
Proceeds from the sale of other real estate owned 610 1003
Net additions to bank premises and equipment (1813) (1328)
Net change in other assets (1713) 296
----- ---
Net cash used in investing activities (7859) (42647)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)(Unaudited)
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Seacoast Banking Corporation of Florida and Subsidiaries
(In thousands of dollars)
Nine Months Ended September 30 1997 1996
- --------------------------------------------------------------------------------
Cash flows from financing activities
Net decrease in deposits (44237) (28380)
Net decrease in federal funds purchased and
securities sold under agreements to
repurchase (33362) (30906)
Exercise of stock options 727 307
Treasury stock issued (acquired) (1274) 84
Dividends paid (2875) (1889)
----- -----
Net cash used in financing activities (81021) (60784)
------ ------
Net decrease in cash and cash equivalents (82654) (94027)
Cash and cash equivalents at beginning of year 110008 123269
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Cash and cash equivalents at end of period 27354 29242
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)(Unaudited)
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Seacoast Banking Corporation of Florida and Subsidiaries
(In thousands of dollars)
Nine Months Ended September 30 1997 1996
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Reconciliation of Net Income to Cash Provided by
Operating Activities
Net Income 5759 6759
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 2031 1984
Provision for loan losses 613 456
Gain on sale of securities (14) (53)
Gain on sale of loans (157) (382)
Loss on sale and writedown of foreclosed
assets 81 59
(Gain) loss on disposition of fixed assets (69) 7
Change in interest receivable 340 22
Change in interest payable (330) (276)
Change in prepaid expenses (1022) 86
Change in accrued taxes (154) 32
Change in other liabilities (852) 710
---- ---
Total adjustments 467 2645
--- ----
Net cash provided by operating activities 6226 9404
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Supplemental disclosure of noncash investing activities:
Transfers from loans to other real estate owned 423 855
Transfers from loans to securities held for sale 21015 29702
Market value adjustment to securities 1059 (3247)
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See notes to condensed consolidated financial statement.
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 generally accepted accounting principles 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 nine month period ended September 30,
1997, are not necessarily indicative of the results that may be expected for the
year ended December 31, 1997. 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, 1996.
NOTE B - ACQUISITION
On May 30, 1997, the Company acquired Port St. Lucie National Bank Holding
Corporation and its subsidiaries, Port St. Lucie National Bank and Spirit
Mortgage. The transaction was treated as a pooling of interests and the prior
year financial results have been restated accordingly.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
THIRD QUARTER 1997
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
The Company acquired Port St. Lucie National Bank Holding Corporation on May 30,
1997, and its subsidiaries, Port St. Lucie National Bank and Spirit Mortgage.
The transaction was accounted for as a pooling of interests and, as such, prior
period financial results have been restated. Additional deposits of
approximately $116.0 million and loans of $93.7 million were recorded at May 30,
1997, and over 10,000 new banking customers were acquired. The acquisition
increased the Company's subsidiary bank market share in Port St. Lucie to over
30 percent, creating the largest bank in the city of Port St. Lucie and rivaling
the 36 percent share in the Company's dominant Stuart/Martin County market.
During the second quarter of 1997, the Company took a charge of $1,467,000
($928,000 after taxes or $0.17 per share) related to the termination of certain
contracts, a consolidation of facilities and other one-time expenses related to
the merger. For the nine month period ended September 30, 1997, an aggregate
charge of $1,542,000 ($975,000 after taxes or $0.18 per share) was recorded for
merger related expenditures.
Net income for the third quarter of 1997 totalled $2,062,000 or $0.39 per
share, compared with $1,970,000 or $0.38 per share in the third quarter of 1996.
Return on average assets was 0.94 percent and return on average shareholders'
equity was 10.02 percent for the third quarter of 1997, compared to 0.95 percent
and 10.18 percent, respectively, for the third quarter of 1996.
NET INTEREST INCOME
Total average earning assets increased $38 million since September 30, 1996 with
the yield declining by four basis points to 7.73 percent. Net loans increased
$45 million during the last twelve months, while the yield declined by 12 basis
points to 8.34 percent. The yield decline was primarily due to a change in the
mix of the loan portfolio as lower yielding residential real estate loans grew
faster than higher yielding commercial loans. Also, in general, interest rates
have been slightly lower for loan products in the company's markets as a result
of intense competition for high quality loans.
Offsetting the growth in the loan portfolio was a decline in the investment
portfolio and federal funds sold of $6 million since September 30, 1996. The
combined yield in these assets improved seven basis points to 6.18 percent.
The cost of interest bearing liabilities increased only four basis points in the
last twelve months to 3.81 percent while outstandings grew by $32 million. The
increase is a result of deposit growth from new branches, offset by some natural
deposit declines that occur immediately after an acquisition as customers adjust
their combined relationships. Noninterest bearing deposits increased $8 million
since the third quarter of 1996.
As a result of the above volume and rate changes, the company's net interest
margin declined eight basis point to 4.57 percent from one year earlier. This
margin compared to 4.62 percent for the second quarter and 4.59 percent in the
first quarter of 1997.
PROVISION FOR LOAN LOSSES
A provision of $225,000 was recorded in the third quarter of this year, compared
to $59,000 in 1996. Net charge-offs for the third quarter totaled $370,000,
compared to net charge offs of $55,000 for the third quarter last year and net
charge-offs of $160,000 and $434,000 for the first and second quarters of 1997,
respectively. Net charge-offs annualized as a percent of average loans totaled
0.22 percent for the first nine months of 1997, compared to net charge-offs of
0.05 percent for the same period in 1996. Although the net charge-offs ratio is
higher than one year earlier, the level is still among the lowest in the
industry. The higher level of net charge-offs in the second and third quarters
of 1997 is directly attributable to the acquired loan portfolio. The acquired
loan charge-offs were identified and reserved for prior to the acquisition.
Management determines the provision for loan losses which is charged to
operations by constantly analyzing and monitoring delinquencies, nonperforming
loans and the level of outstanding balances for each loan category, as well as
the amount of net charge offs, and by estimating losses inherent in its
portfolio. While the Company's policies and procedures used to estimate the
monthly provision for loan losses charged to operations are considered adequate
by management and are reviewed from time to time by the Office of the
Comptroller of the Currency (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.
NONINTEREST INCOME
Noninterest income, excluding gains and losses from securities sales, increased
$277,000 or 11.5 percent to $2,681,000 in the third quarter compared to one year
earlier.
The largest increase in noninterest income occurred in service charges on
deposits which increased $317,000 or 36.9 percent compared to prior year. The
increase can be largely attributed to the repricing of certain services, in
particular overdraft fees which were increased
37.5 percent (from $20 to $27.50), and additional business volumes in five new
branch locations established over the last twelve months, four in Indian River
County (South Vero Square, Vero Walmart, and Oak Point opening in May, June and
July of 1997, Sebastian in the third quarter of 1996), and one in St. Lucie
County (Nettles Island which opened in January of this year).
Trust income grew $56,000 or 11.1 percent, and brokerage commissions and fees
remained relatively unchanged from the previous year. The flat growth in
brokerage commissions and fees can be attributed to replacing two experienced
brokers. The Company expects future growth in brokerage and trust services as
these financial products will likely remain in demand.
Noninterest income, excluding gains and losses from securities sales, for the
first nine months of 1997 increased 8.3 percent, with increases in service
charges on deposits and trust income. As indicated above for the quarter, the
increase in service charges on deposits is related to internal growth and the
repricing of certain services.
NONINTEREST EXPENSES
When compared to 1996, noninterest expenses for the third quarter increased by
$338,000 or 4.1 percent to $8,575,000 and for the nine months increased
$3,428,000 or 14.6 percent to $26,884,000. Expenses totaling $1,542,000 were
incurred related to the termination of certain contracts, a consolidation of
facilities and other one-time expenses related to the May 30, 1997 acquisition.
Without the effect of these expenses, noninterest expenses increased 8.0 percent
year-to-date when compared to prior year.
Salaries and wages increased 5.4 percent, compared to the same quarter of 1996,
but increased 10.2 percent year-to-date. The Company has expanded its telephone
banking center and added five new branches over the past twelve months. These
efforts have provided the Company with a tremendous opportunity for future
growth in loans, deposits and other products to better leverage the Company's
capital position and improve earnings in the future. Likewise, occupancy
expenses and furniture and equipment expenses, on an aggregate basis, increased
for the same reasons employment costs grew.
When compared to last year, marketing expenses increased 34.1 percent for the
third quarter of 1997 and 24.7 percent for the nine months ending September 30,
1997, primarily as a result of increases in sales promotion, ad agency
production, printing and media costs, and public relations costs associated with
the expanded branch distribution mentioned above. The other expense category
increased 21.2 percent or $382,000 in the third quarter. The increase in other
expense was caused by incremental costs associated with new branch facilities
and by related technology implemented to enhance communications between existing
branches and the Company's main office headquarters. In addition, the Company
incurred costs associated with development of teller and sales platform software
being contracted by an unrelated third party. Development, which was originally
scheduled to be completed by August 31, 1997, was delayed as a result of the
acquisition.
At September 30, 1997, the Company has capitalized approximately $510,000 of the
development fees and costs. A total of $450,000 in costs associated with the
development have been expensed in the third quarter as a result of
inefficiencies caused by the acquisiton and other technology matters. The teller
software is completed and will be installed in the Company's twenty-three
branches in the fourth quarter. The Company and its vendor estimate that an
additional $250,000 will be incurred to complete the sales platform software in
the fourth quarter of 1997. The Company plans to delay the implementation of the
sales software until after the first quarter in 1998 in order to avoid the
branches' busiest time of the year. The Company believes delaying the
implementation will enhance the installation, but will not eliminate the risk
that additional costs may be incurred before the software is operational in
1998. When complete the sales software cost will total $410,000. The Company
bears all the risk and costs associated with the successful completion of the
software.
INCOME TAXES
Income taxes as a percentage of income before taxes were 36.4 percent
year-to-date, compared to 35.8 percent in 1996. The increase in rate reflects a
higher rate of provisioning for state income taxes, a result of lower state
intangible taxes paid to the State of Florida that can be taken as a credit. In
addition, lower levels of tax-exempt interest income have contributed to a
higher effective tax rate.
FINANCIAL CONDITION
CAPITAL RESOURCES
Earnings retained by the Company during 1997 and over the prior twelve months
have increased the Company's capital ratio to 9.28 percent from 8.97 percent.
The risk-based capital minimum ratio of total capital to risk-weighted assets is
8 percent. At September 30, 1997, the Company's ratio of total capital to
risk-weighted assets was 15.22 percent and its ratio of Tier 1 capital to total
adjusted assets was 8.70 percent.
LOAN PORTFOLIO
The Company's loan activity is generally confined to customers located within
the 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 $608,539,000 at September 30, 1997, $50,525,000 or 9.1 percent more than at
September 30, 1996, and $32,215,000 or 5.6 percent more than at December 31,
1996. During the first nine months of 1997, $51.7 million of fixed rate
residential mortgages were securitized or sold.
At September 30, 1997, the company's mortgage loan balances secured by
residential properties amounted to $332,386,000 or 54.6 percent of total loans.
The next largest concentration was loans secured by commercial real estate which
totaled $141,553,000 or 23.3 percent.
The Company was also a creditor for consumer loans to individual customers
(primarily secured by motor vehicles) totaling $65,403,000, commercial loans of
$31,776,000, construction loans of $15,578,000 (of which approximately $10.5
million is residential construction), home equity lines of credit of
$12,958,000, and unsecured credit cards of $8,591,000.
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. Nearly all 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.
Real estate mortgage lending (particularly residential properties) is expected
to remain an important segment of the Company's lending activities. At September
30, 1997, approximately $188 million or 57 percent of the Company's residential
mortgage loan balances were adjustable. Of the $188 million, $185 million were
adjustable rate 15- or 30-year mortgage loans ("ARMs") that reprice based upon
the one year constant maturity United States Treasury Index plus a margin. These
15- and 30-year ARMs generally consist of three types: 1) those repricing
annually by up to one percent with a four percent cap over the life of the loan,
of which balances of approximately $27 million were outstanding at September 30,
1997, 2) those limited to a two percent per annum increase and a six percent cap
over the life of the loan, of which approximately $71 million in balances
existed at September 30, 1997, and 3) those that have a fixed rate for a period
of three, five or seven years, at the end of which they are limited to a two
percent per annum increase and a four percent cap over the life of the loan, of
which approximately $87 million were outstanding at September 30, 1997. Loans
secured by residential mortgages having fixed rates totaled approximately $144
million at September 30, 1997, of which 15- and 30-year mortgages totaled $70
million and $42 million, respectively. Remaining fixed rate balances were
comprised of home improvement loans with maturities less than 15 years.
The Company's historical charge off rates for residential real estate loans have
been minimal.
At September 30, 1997, the Company had commitments to make loans (excluding
unused home equity lines of credit and credit card lines) of $29,658,000,
compared to $32,629,000 at September 30, 1996.
The Company attempts to manage its real estate exposure risk by limiting the
aggregate size of its commercial real estate portfolio, currently 23.3 percent
of total loans, and by making commercial real estate loans primarily on owner
occupied properties. The remainder of the real estate loan portfolio is
residential mortgages to individuals, and home equity loans, which the Company
considers less susceptible to adverse effects from a downturn in the real estate
market, especially given the area's large percentage of retired persons.
ALLOWANCE FOR LOAN LOSSES
Net losses on credit cards and installment loans totaled $361,000 and $186,000,
respectively, for the first nine months of 1997, compared to net losses of
$164,000 and $61,000, respectively, in 1996. Current and historical credit
losses arising from real estate lending transactions continue to compare
favorably with the Company's peer group. Net losses of $35,000 for residential
real estate were recorded in 1997, versus $20,000 a year ago. Net charge-offs
recorded for commercial real estate loans of $27,000 in the first nine months of
1997 compared with the prior year when net recoveries of $24,000 were received.
Net charge-offs for commercial loans of $355,000 in the first nine months of
1997 compared to $25,000 in recoveries in 1996.
The ratio of the allowance for loan losses to net loans outstanding was 0.87
percent at September 30, 1997. This ratio was 0.92 percent at September 30,
1996. The allowance for loan losses as a percentage of nonaccrual loans and
loans 90 days or more past due was 207 percent at September 30, 1997, compared
to 168 percent at the same date in 1996.
NONPERFORMING ASSETS
At September 30, 1997, the Company's ratio of nonperforming assets to loans
outstanding plus other real estate owned was 0.53 percent, compared to 0.66
percent one year earlier.
At September 30, 1997, accruing loans past due 90 days or more of $112,000 and
OREO of $796,000 were outstanding. In 1996 on the same date, $73,000 in loans
were past due 90 days or more and $682,000 in OREO balances were outstanding.
Nonaccrual loans totaled $2,450,000 at September 30, 1997, compared to a balance
of $2,986,000 at September 30, 1996. All of the nonaccrual loans outstanding at
September 30, 1997 were performing (current with respect to payments), with the
exception of nine loans aggregating to $582,000. 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 September 30, 1997,
approximately 81 percent is secured with real estate, 13 percent by the Small
Business Administration (SBA), 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 September 30, 1997, the Company had $150,360,000
or 76.7 percent of total securities available for sale and securities held to
maturity were carried at an amortized cost of $45,744,000, representing 23.3
percent of total securities.
The Company's securities portfolio decreased $17,878,000 from September 30,
1996. The securities portfolio as a percentage of earning assets was 24.4
percent at September 30, 1997,
compared to 27.5 percent one year ago. This decline is directly related to
growth in the loan portfolio and changes to the portfolio mix which have been
transacted or pending.
Year-to-date 1997, proceeds of $64.0 million from securities sales and maturing
funds of $33.9 million were derived. Sales in 1997 were transacted to fund loan
growth, offset the impact of seasonal declines in deposits which normally occur
in the summer, and to reduce the Company's sensitivity to possible interest rate
increases. Securities purchases of $69.5 million were transacted in 1997. Of
this total, $21.0 million was 15- and 30-year fixed rate residential loans
securitized and transferred from the Company's loan portfolio to the available
for sale securities portfolio.
Company management considers the overall quality of the securities portfolio to
be high. The securities portfolio had an unrealized net loss of $158,000 or 0.1
percent of amortized cost at September 30, 1997, compared to a net loss of
$2,942,000 or 1.4 percent of amortized cost at September 30, 1996. While rates
have remained low, a shifting U.S. Treasury curve caused a reduction in
unrealized depreciation. No securities are held which are not traded in liquid
markets or that meet Federal Financial Institution Examination Council ("FFIEC")
definition of a high risk investment.
DEPOSITS
Total deposits increased $30,451,000 or 4.1 percent to $767,264,000 at September
30, 1997, compared to one year earlier. Certificates of deposit increased
$12,662,000 or 3.7 percent to $354,515,000 over the past twelve months. Lower
cost interest bearing deposits (NOW, savings and money markets deposits)
increased to a lesser degree, by $4,257,000 or 1.4 percent to $298,714,000.
Impacting deposit mix favorably, noninterest bearing demand deposits increased
$13,532,000 or 13.5 percent to $114,035,000.
With the possibility that interest rates may increase further as a result of
Federal Reserve action, heightened interest by consumers to invest in
certificates of deposit as an alternative investment vehicle may occur.
INTEREST RATE SENSITIVITY
Interest rate movements and deregulation of interest rates have made managing
the Company's interest rate sensitivity increasingly important. The Company's
Asset/Liability Management Committee (ALCO) is responsible for managing the
Company's exposure to changes in market interest rates. The committee attempts
to maintain stable net interest margins by generally matching the volume of
assets and liabilities maturing, or subject to repricing, and by adjusting rates
to market conditions and changing interest rates.
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 reprice at
market interest rates within a relatively short period, defined here as one year
or less.
The difference between rate sensitive assets and rate sensitive liabilities
represents the Company's interest sensitivity gap, which may be either positive
(assets exceed liabilities) or negative (liabilities exceed assets).
On September 30, 1997, 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 24.5 percent. This means that the Company's assets
reprice more slowly than its deposits. In a declining interest rate environment,
the cost of the Company's deposits and other liabilities may be expected to fall
faster than the interest received on its earning assets, thus increasing the net
interest spread. If interest rates generally increase, the negative gap means
that the interest received on earning assets may be expected to increase more
slowly than the interest paid on the Company's liabilities, therefore decreasing
the net interest spread.
It has been the Company's experience that deposit balances for NOW and savings
accounts are stable and subjected to limited repricing when interest rates
increase or decrease within a range of 200 basis points. 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 30 percent given an immediate
change in interest rates (up or down) of 200 basis points. Based on the
Company's most recent ALCO model simulations, net interest income would decline
5.8 percent if interest rates would immediately rise 200 basis points.
The Company does not presently use interest rate protection products in managing
its interest rate sensitivity.
LIQUIDITY MANAGEMENT
The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all financial commitments and to capitalize on
opportunities for business expansion. 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 September 30, 1997, the
Company had federal funds lines of credit available of $45,500,000 and had
$105,594,000 of United States Treasury and Government agency securities and
mortgage backed securities not pledged and available for use under repurchase
agreements.
Liquidity, as measured in the form of cash and cash equivalents (including
federal funds sold), totaled $27,354,000 at September 30, 1997 as compared to
$29,242,000 at September 30, 1996. 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 1997, the cash flow from operations of $6,266,000 was $3,178,000
lower than during the same period of 1996. Cash flows from investing and
financing activities reflect the change in loan and deposit balances
experienced.
YEAR 2000 COMPLIANCE
The Company may decide to replace certain existing software as a result of year
2000 compliance. Depending on the alternative chosen, the Company may be
required to write-off certain capitalized software. The amounts of any such
write-off is not currently determinable.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements presented herein have been prepared in accordance with
generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money, over time, due to
inflation.
Unlike most industrial companies, virtually all of the assets and liabilities of
a financial institution are monetary in nature. As a result, interest rates have
a more significant impact on a financial institution's performance than the
general levels of inflation. However, inflation affects financial institutions'
increased cost for 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.
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 September 30, 1997.
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
November 14, 1997 /s/ Dennis S. Hudson, III
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DENNIS S. HUDSON, III
Executive Vice President &
Chief Operating Officer
November 14, 1997 /s/ William R. Hahl
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WILLIAM R. HAHL
Senior Vice President &
Chief Financial Officer