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
MARCH 31, 1998 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)
(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
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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 March 31, 1998:
Class A Common Stock, $.10 Par Value - 4,801,809 shares
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Class B Common Stock, $.10 Par Value - 377,273 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 -
March 31, 1998, December 31, 1997 and
March 31, 1997 3 - 4
Condensed consolidated statements of income -
Three months ended March 31, 1998 and 1997 5 - 6
Condensed consolidated statements of cash flows -
Three months ended March 31, 1998 and 1997 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 Exhibits and Reports on Form 8-K 20
SIGNATURES 21
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
March 31, December 31, March 31,
(Dollars in thousands) 1998 1997 1997
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ASSETS
Cash and due from banks $ 30,986 $ 28,336 $ 31,402
Federal funds sold 12,100 36,100 37,950
Securities:
Held for Sale (at market) 184,032 178,988 160,749
Held for Investment (market values:
$35,996 at Mar. 31, 1998,
$41,873 at Dec. 31, 1997 &
$56,331 at Mar. 31, 1997) 35,296 41,162 55,919
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TOTAL SECURITIES 219,328 220,150 216,668
Loans available for sale 5,994 15,020 0
Loans 642,071 613,930 583,427
Less: Allowance for loan losses (5,455) (5,363) (5,713)
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NET LOANS 636,616 608,567 577,714
Bank premises and equipment 18,576 18,324 17,614
Other real estate owned 458 536 934
Core deposit intangibles 1,556 1,640 1,892
Goodwill 3,507 3,582 3,807
Other assets 9,667 10,782 10,353
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$938,788 $943,037 $898,334
====================================
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Deposits $830,364 $806,098 $794,808
Federal funds purchased and securities
sold under agreements to repurchase,
maturing within 30 days 21,473 52,112 21,064
Other liabilities 3,963 3,763 4,396
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855,800 861,973 820,268
CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (Unaudited)
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Seacoast Banking Corporation of Florida and Subsidiaries
March 31, December 31, March 31,
(Dollars in thousands) 1998 1997 1997
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SHAREHOLDERS' EQUITY
Preferred stock 0 0 0
Class A common stock 480 479 475
Class B common stock 38 38 39
Additional paid-in capital 27,381 27,256 26,973
Retained earnings 55,855 55,249 53,507
Less: Treasury stock (254) (1,289) (815)
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83,500 81,733 80,179
Securities valuation allowance (512) (669) (2,113)
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TOTAL SHAREHOLDERS'EQUITY 82,988 81,064 78,066
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$938,788 $943,037 $898,334
=========================================
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Note: The balance sheet at December 31, 1997 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 Ended
March 31,
--------------------
(Dollars in thousands, except per share data) 1998 1997
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Interest and dividends on securities $ 3,319 $ 3,270
Interest and fees on loans 13,100 12,358
Interest on federal funds sold 290 535
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TOTAL INTEREST INCOME 16,709 16,163
Interest on deposits 1,761 1,774
Interest on time certificates 4,689 4,650
Interest on borrowed money 292 278
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TOTAL INTEREST EXPENSE 6,742 6,702
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NET INTEREST INCOME 9,967 9,461
Provision for loan losses 450 216
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NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 9,517 9,245
Noninterest income
Securities gains (losses) 124 (102)
Other income 2,702 2,719
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TOTAL NONINTEREST INCOME 2,826 2,617
TOTAL NONINTEREST EXPENSES 8,867 8,314
--------------------
INCOME BEFORE INCOME TAXES 3,476 3,548
Provision for income taxes 1,274 1,288
--------------------
NET INCOME $ 2,202 $ 2,260
====================
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
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Seacoast Banking Corporation of Florida and Subsidiaries
Three Months Ended
March 31,
----------------------------
(Dollars in thousands, except per share data) 1998 1997
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PER SHARE COMMON STOCK:
Net income diluted $0.42 $0.43
Net income basic 0.43 0.44
CASH DIVIDENDS DECLARED:
Class A 0.22 0.20
Class B 0.20 0.18
Average shares outstanding - diluted 5,287,246 5,231,080
Average shares outstanding - basic 5,171,356 5,106,863
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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
Three Months Ended
March 31
--------------------
(In thousands of dollars) 1998 1997
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Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Interest received $ 17,048 $ 16,458
Fees and commissions received 2,766 2,615
Interest paid (6,697) (6,796)
Cash paid to suppliers and employees (8,478) (8,859)
Income taxes paid 0 (425)
--------------------
Net cash provided by operating activities 4,639 2,993
Cash flows from investing activities
Proceeds from maturity of securities held for sale 36,944 5,566
Proceeds from maturity of securities held for investment 6,888 2,665
Proceeds from sale of securities held for sale 19,829 15,448
Purchase of securities held for sale (61,468) (12,145)
Purchase of securities held for investment (989) (5,928)
Net proceeds from sale of loans 515 21,359
Net new loans and principal repayments (20,130) (28,470)
Proceeds from the sale of other real estate owned 229 173
Additions to bank premises and equipment (767) (873)
Net change in other assets (114) (25)
--------------------
Net cash used in investing activities (19,063) (2,230)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)(Unaudited)
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Seacoast Banking Corporation of Florida and Subsidiaries
Three Months Ended
March 31
--------------------
(In thousands of dollars) 1998 1997
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Cash flows from financing activities
Net increase (decrease) in deposits 24,273 (16,685)
Net decrease in federal funds purchased and
repurchase agreements (30,639) (24,024)
Exercise of stock options 598 41
Treasury stock (acquired) issued (26) 93
Dividends paid (1,132) (844)
--------------------
Net cash used in financing activities (6,926) (41,419)
--------------------
Net decrease in cash and cash equivalents (21,350) (40,656)
Cash and cash equivalents at beginning of year 64,436 110,008
--------------------
Cash and cash equivalents at end of period $43,086 $69,352
====================
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)(Unaudited)
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Seacoast Banking Corporation of Florida and Subsidiaries
Three Months Ended
March 31
--------------------
(In thousands of dollars) 1998 1997
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Reconciliation of Net Income to Cash Provided by
Operating Activities
Net Income $2,202 $2,260
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 719 689
Provision for loan losses 450 216
Loss (gain) on sale of securities (124) 102
Loss (gain) on sale of loans 12 (122)
Loss on sale and writedown of foreclosed
assets 26 7
Loss on disposition of fixed assets 9 0
Change in interest receivable 348 265
Change in interest payable 45 (94)
Change in prepaid expenses (472) (786)
Change in accrued taxes 1,384 974
Change in other liabilities 40 (518)
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Total adjustments 2,437 733
--------------------
Net cash provided by operating activities $4,639 $2,993
====================
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Supplemental disclosure of noncash investing
activities:
Transfers from loans to other real estate owned $ 177 $ 39
Market value adjustment to securities held for sale 205 (770)
Transfers from loans to securities held for sale 19,988 0
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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 three month period ended March 31,
1998, are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998. 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, 1997.
NOTE B - COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted the Financial Accounting Standard
Board's Statement No. 130, "Reporting Comprehensive Income". This statement
requires the Company to report a measure of all changes in equity, not only
reflecting net income but all other non-owner changes in equity as well. The
following table presents non-owner related income for the three months ending
March 31, 1998:
Income
Before Net
(Dollars in thousands) Taxes Taxes Amount
- -------------------------------------------------------------------------------
Net unrealized gains (losses)
on securities arising during
1998 $ 246 $ 89 $157
Less: Reclassification of net
gains included in net income 0 0 0
-------------------------------------------------
Total 246 89 157
Income as stated on
income statement 3,476 1,274 2,202
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Comprehensive income $3,722 $1,363 $2,359
==================================================
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
FIRST QUARTER 1998
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 1998 totaled $2,202,000 or $0.42 per share
diluted, higher than the $1,673,000 or $0.32 per share diluted recorded in the
fourth quarter of 1997 and slightly lower than the $2,260,000 or $0.43 per share
diluted reported in the first quarter of 1997. Earnings were impacted in the
first quarter of 1998 by investment securities gains of $124,000 ($79,000 after
taxes), while losses of $102,000 were recorded in the first quarter a year ago.
Securities sold during the first quarter of 1997 were replaced with higher
earning assets, justifying the losses recorded. Earnings in the fourth quarter
of 1997 were lower, in part, because a special charge for a planned replacement
of the Company's mainframe hardware and software of $1,079,000 ($682,000 after
tax) was recognized.
Return on average assets was 0.96 percent and return on average shareholders'
equity was 10.73 percent for the first quarter of 1998, compared to fourth
quarter 1997's performance of 0.73 percent and 8.10 percent, respectively, and
the prior year's first quarter results of 1.02 percent and 11.48 percent,
respectively.
The Company acquired Port St. Lucie National Bank Holding Corp. (PSHC) and its
subsidiary, Port St. Lucie National Bank (PSNB), on May 30, 1997. The
transaction was accounted for as a pooling of interests and all prior year
amounts have been restated assuming the companies had been combined since
inception. PSHC shareholders received 900,000 shares of the Company for all of
their issued and outstanding common stock, warrants and options. Acquired
deposits totaled $116.0 million and loans totaled $93.7 million at acquisition
date. In addition, the Company opened three denovo branches in mid-1997 and one
branch in 1998 (in March), all in Indian River County, the Company's
northernmost market.
NET INTEREST INCOME
Earnings for the first quarter of 1998 benefited from a net interest margin that
improved slightly. On a tax equivalent basis the margin increased to 4.67
percent during the first quarter of 1998 from 4.60 percent in the fourth quarter
of 1997. The cost of interest-bearing liabilities decreased three basis points
to 3.77 percent from fourth quarter, with rates for savings and certificates of
deposit decreasing 15 and 3 basis points, respectively. Rates for NOW, money
market accounts and short term borrowings (entirely composed of repurchase
agreements) increased 25, 7 and 5 basis points, respectively. In part, the
increase in the rate for NOW accounts is directly related to the success of a
product called Money Manager, whereby banking customers have the opportunity to
link their transaction account (and earn a higher rate, 5.00 percent presently)
to their brokerage account in the Company's subsidiary, FNB Brokerage Services,
Inc.. Enhancing the margin as well, the yield on earning assets increased 6
basis points to 7.81 percent during the first quarter of 1998, compared to the
fourth quarter. An increase in the yield on loans of 4 basis points and a
changing earning assets mix (with a $15.4 million growth in average loans) more
than offset a decline of 3 basis points in the yield on federal funds sold. A
yield of 6.23 percent on securities was unchanged compared to the fourth
quarter.
For the first quarter a year ago, the net interest margin was 4.59 percent. The
yield on average earning assets was 7.81 percent (identical to this year) and
rate on interest-bearing liabilities was 3.84 percent.
Average earning assets for the first quarter of 1998 are $26,358,000 or 3.1
percent higher when compared to the prior year's first quarter. Average loan
balances grew $47,663,000 or 8.2 percent to $631,005,000, while average
investment securities declined $1,684,000 or 0.8 percent to $218,091,000 and
average federal funds sold decreased $19,621,000 or 47.9 percent to $21,371,000.
The mix of earning assets and interest bearing liabilities has had a favorable
impact on the margin. Loans (the highest yielding component of earning assets)
as a percentage of average earning assets increased to 72.5 percent in the first
quarter of 1998, compared to 69.1 percent a year ago. Average certificates of
deposit (the highest cost component of interest-bearing liabilities) as a
percentage of interest-bearing liabilities decreased slightly to 50.2 percent,
compared to 50.3 percent in the first quarter of 1997. Lower cost core deposits
which earn interest (NOW, savings and money market deposits) grew $9,397,000 or
2.9 percent to $332,495,000. Favorably affecting the mix of deposits as well was
an increase in average noninterest-bearing demand deposits of $8,369,000 or 7.9
percent to $114,487,000.
If loan demand continues at its current pace as a result of the economy
remaining firm, and local competition allows rates paid for core deposits to
remain low, the net interest margin results should remain stable during 1998.
PROVISION FOR LOAN LOSSES
A provision of $450,000 was recorded in the first quarter of this year, $234,000
higher than provisioning in the first quarter of 1997. Net charge-offs for the
first quarter increased from $160,000 last year to $358,000 in 1998. Net
charge-offs annualized as a percent of average loans totaled 0.23 percent for
the first quarter of 1998, compared to 0.11 percent for the same quarter in
1997. These ratios are much better than the banking industry as a whole which
averaged net charge-offs of approximately 0.60% for all of 1997.
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, totaled
$2,702,000 for the first quarter, little changed from $2,719,000 for the same
period last year.
The largest increase in noninterest income occurred in fees from brokerage
services, which increased $93,000 or 18.2 percent to $605,000, a result of a
favorable economic environment and a growing customer base. Trust fees declined
in the first quarter of 1998 by $72,000 to $492,000, with fewer estate accounts
being managed in 1998 compared to 1997. Service charges on deposit accounts grew
$18,000 year over year to $966,000 and other service charges and fees rose
$39,000 to $451,000. Other income declined $95,000 to $188,000, due to a
decrease in income from the sale of residential mortgages, a result of ceasing
to offer mortgage products to customers outside the Company's primary markets
and adjacent communities. The Company intends to continue to emphasize its
brokerage and trust services to both existing and new customers, as expectations
are that these financial products will remain in demand.
The relatively low rate for residential loan products during the quarter
resulted in higher activity and balances for fixed rate products. The Company,
to manage interest rate risk, securitized some of the excess production and sold
$14.8 million in the first quarter. These sales generated additional income of
$102,000, which is included in the investment securities gain of $124,000
recorded in the first quarter.
NONINTEREST EXPENSES
When compared to 1997, noninterest expenses for the first quarter increased by
$553,000 or 6.7 percent to $8,867,000. The Company's overhead ratio increased
slightly, from 67.7 percent a year ago to 69.6 percent in the first quarter of
1998. This is reflective of the additional four de novo branches which were
added (see "Earnings Summary").
Salaries and wages increased $185,000 or 5.5 percent and employee benefits grew
$111,000 or 14.7 percent from the first quarter of 1997. Additional employment
costs from the addition of the four denovo branches totaled $110,000. Higher
group health insurance costs and profit sharing accruals for 1998 accounted for
$108,000 of the increase in employee benefits.
Occupancy expenses and furniture and equipment expenses, on an aggregate basis,
increased $95,000 or 7.4 percent versus first quarter results last year. Of this
increase, lease payments for space occupied by the Company and depreciation for
premises, furniture and equipment have risen $65,000, on an aggregate basis.
Costs related to the denovo branches totaled $113,000.
The premium for Federal Deposit Insurance Corporation ("FDIC") insurance totaled
$33,000, little changed from last year and reflecting that the rate the
Company's subsidiary bank is being assessed has been and is the lowest rate,
based on FDIC guidelines.
Costs associated with foreclosed and repossessed asset management and
disposition increased $39,000 or 177.3 percent on an aggregate basis, but
totaled only $61,000, a reflection of low nonperforming asset balances (see
"Nonperforming Assets"). Legal and professional costs increased $24,000 or 13.0
percent to $209,000.
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 slightly, by $15,000 or 3.0% to $521,000.
The other expense category increased $158,000 or 8.1 percent in 1998 year over
year. The largest increases: 1) $48,000 in credit card and merchant processing
expenses, due principally to higher fees charged to the Company through an
outsourcing arrangement, 2) $32,000 in stationery, printing and supplies, due
primarily to the impact of the four denovo offices and increases in costs for
paper supplies in general, and 3) $25,000 for telephone costs, of which $20,000
is directly related to data lines and telephone activity associated with the
Company's four denovo offices.
INCOME TAXES
Income taxes as a percentage of income before taxes were 36.7 percent for the
first quarter of this year, compared to 36.3 percent in 1997. 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 the first quarter of 1998 and over the
prior twelve months have provided the Company with continued improvement in its
capital ratios. The Company's ratio of average shareholders' equity to average
total assets during the first quarter of 1998 was 8.98 percent, compared to 8.87
percent during the first quarter of 1997.
The risk-based capital minimum ratio for total capital to risk-weighted assets
is 8 percent. At March 31, 1998, the Company's ratio was 14.87 percent.
LOAN PORTFOLIO
All of the Company's loan activity is 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 $642,071,000 at March 31, 1998, $58,644,000 or 10.1 percent more than at
March 31, 1997, and $28,141,000 or 4.6 percent more than at December 31, 1997.
During the first quarter of 1998, $19.9 million in fixed rate residential
mortgage loans were securitized and placed in the available for sale securities
portfolio (see "Securities") and $0.5 million were sold for cash to the Federal
Home Loan Mortgage Corporation ("FHLMC"). Over the past twelve months, $52.8
million in such loans were securitized or sold.
At March 31, 1998, the Company's mortgage loan balances secured by residential
properties amounted to $358,571,000 or 55.8 percent of total loans. The next
largest concentration was loans secured by commercial real estate which totaled
$151,568,000 or 23.6 percent. The Company was also a creditor for consumer loans
to individual customers (primarily secured by motor vehicles) totaling
$63,807,000, commercial loans of $29,199,000, home equity lines of credit of
$12,817,000, and unsecured credit cards of $8,458,000.
The majority of 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 FHLMC guidelines.
Real estate mortgage lending (particularly residential properties) 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, 1998, approximately $177 million or 49 percent of
the Company's residential mortgage loan balances were adjustable.
Of the $177 million, $174 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
$20 million were outstanding at March 31, 1998, 2) those limited to a two
percent per annum increase and a six percent cap over the life of the loan, of
which approximately $60 million in balances existed at March 31, 1998, 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 $94 million were
outstanding at March 31, 1998.
Loans secured by residential mortgages having fixed rates totaled approximately
$180 million at March 31, 1998, of which 15- and 30-year mortgages totaled $84
million and $62 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, with $56,000 in net charge-offs for the first quarter of 1998
compared to $27,000 for all of 1997.
At March 31, 1998, the Company had commitments to make loans (excluding unused
home equity lines of credit and credit card lines) of $38,109,000, compared to
$31,074,000 at March 31, 1997. 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, currently 23.6 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 $90,000 and $130,000,
respectively, for the first three months of 1998, compared to net losses of
$132,000 and $25,000, respectively, in 1997. Current and historical credit
losses arising from real estate lending transactions continue to compare
favorably with the Company's peer group. Net losses arising from residential
real estate of $56,000 were recorded in the first quarter, versus zero a year
ago. Net charge-offs recorded for commercial real estate loans of $79,000 in the
first quarter of 1998 compared with the prior year when net recoveries of
$16,000 were reported. Net charge-offs for commercial loans of $4,000 in the
first quarter of 1998 compared to $19,000 in charge-offs in 1997.
The ratio of the allowance for loan losses to net loans outstanding was 0.85
percent at March 31, 1998. This ratio was 0.98 percent at March 31, 1997. The
allowance for loan losses as a percentage of nonaccrual loans and loans 90 days
or more past due was 228.1 percent at March 31, 1998, compared to 232.3 percent
at the same date in 1997.
NONPERFORMING ASSETS
At March 31, 1998, the Company's ratio of nonperforming assets to loans
outstanding plus other real estate owned ("OREO") was 0.38 percent, compared to
0.57 percent one year earlier.
At March 31, 1998, accruing loans past due 90 days or more of $396,000 and OREO
of $458,000 were outstanding. In 1997 on the same date, loans totaling $42,000
were past due 90 days or more and OREO balances of $934,000 were outstanding.
Nonaccrual loans totaled $1,995,000 at March 31, 1998, compared to a balance of
$2,417,000 at March 31, 1997. All of the nonaccrual loans outstanding at March
31, 1998 were performing with respect to payments, with the exception of ten
loans aggregating to $781,000. 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, 1998, 77 percent is secured with real
estate, 10 percent is guaranteed 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 March 31, 1998, the Company had $184,032,000 or
83.9 percent of total securities available for sale and securities held to
maturity were carried at an amortized cost of $35,296,000, representing 16.1
percent of total securities.
The Company's securities portfolio decreased $2,660,000 from March 31, 1997. The
securities portfolio as a percentage of earning assets was 24.9 percent at March
31, 1998, compared to 25.9 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.
During the first quarter of 1998, proceeds of $19.8 million from securities
sales and maturing funds of $43.8 million were derived. Securities sales
included the divestiture of securitized 30-year fixed rate residential loans
totaling $14.8 million, which resulted in the recognition of gains totaling
$102,000. Additions to the securities portfolio totaled $62.4 million and
consisted of: 1) $1.0 million for a municipal security for Ft. Pierce, Florida,
a Community Reinvestment Act ("CRA") investment, 2) $19.9 million in FHLMC
mortgage backed securities resulting from the securitization of 15- and 30-year
fixed rate residential mortgage loans from the Company's loan portfolio, 3)
$10.0 million in U.S. Treasury securities with a two-year term, of which $5.0
million was sold during the quarter for a $15,000 gain, 4) $15.5 million in
callable short-term U.S. Agency Notes with yields ranging from 5.85 percent to
6.30 percent (higher than federal funds sold), all called during the quarter,
and 5) $16.0 million in short-term FNMA collateralized mortgage obligations with
an average duration of 2.5 years. All 30-year residential loan securitizations
created during the quarter were sold.
Company management considers the overall quality of the securities portfolio to
be high. The securities portfolio had an unrealized net gain of $19,000 at March
31, 1998, compared to a net loss of $2,480,000 or 1.1 percent of amortized cost
at March 31, 1997. Rates have remained low and a shifting U.S. Treasury yield
curve caused a decrease in unrealized depreciation. No securities are held which
are not traded in liquid markets or that meet the Federal Financial Institution
Examination Council ("FFIEC") definition of a high risk investment.
DEPOSITS
Total deposits increased $35,556,000 or 4.5 percent to $830,364,000 at March 31,
1998, compared to one year earlier. Certificates of deposits grew at a lower
rate than other types of deposits. Certificates of deposit increased $12,397,000
or 3.4 percent to $375,186,000 over the past twelve months while lower cost
interest bearing deposits (NOW, savings and money markets deposits) increased
$15,841,000 or 4.9 percent to $337,736,000. Noninterest bearing demand deposits
increased $7,318,000 or 6.6 percent to $117,442,000.
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 re-pricing, 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 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 28.1 percent. This means that the
Company's assets re-price 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 re-pricing 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. The Company's most
recent ALCO model simulation indicated net interest income would decline 7.5
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 March 31, 1998, the Company had federal funds lines of credit
available and unused of $48,000,000 and had $126,523,000 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 $43,086,000 at March 31, 1998 as compared to
$69,352,000 at March 31, 1997. 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 1998, the cash flow from operations of $4,639,000 was $1,646,000
higher than during the same period of 1997. Cash flows from investing and
financing activities reflect the increase in loan and deposit balances
experienced.
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 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 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 locally, regionally, nationally and internationally,
together with such competitors offering banking products and services by mail,
telephone, and computer, and on the Internet; the possible effects of the Year
2000 problem on the Company, including such problems at the Company's vendors,
counterparties 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,
1998.
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, 1998 /s/ Dennis S. Hudson, III
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DENNIS S. HUDSON, III
Executive Vice President &
Chief Operating Officer
May 14, 1998 /s/ William R. Hahl
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WILLIAM R. HAHL
Senior Vice President &
Chief Financial Officer