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, 1996 No. 0-13660
SEACOAST BANKING CORPORATION OF FLORIDA
(Exact name of registrant as specified in its charter)
Florida 59-2260678
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
815 Colorado Avenue, Stuart FL 34994
(Address of principal executive offices) (Zip code)
(407) 287-4000
(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 [X] NO [ ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of March 31, 1996:
Class A Common Stock, $.10 Par Value - 3,731,621 shares
Class B Common Stock, $.10 Par Value - 508,623 shares
1
INDEX
SEACOAST BANKING CORPORATION OF FLORIDA
Part I FINANCIAL INFORMATION PAGE #
Item 1 Financial Statements (Unaudited)
Condensed consolidated balance sheets - March 31, 1996,
December 31, 1995 and March 31, 1995 3 - 4
Condensed consolidated statements of income -
Three months ended March 31, 1996 and 1995 5 - 6
Condensed consolidated statements of cash flows -
Three months ended March 31, 1996 and 1995 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
2
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) 1996 1995 1995
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks 21924 56618 25019
Federal funds sold 19100 58400 55750
Securities:
At market 169266 159480 107810
At amortized cost (market values:
$50,946 at Mar. 31, 1996,
$55,525 at Dec. 31, 1995 &
$134,961 at Mar. 31, 1995) 50137 54158 135749
--------------------------------------------
TOTAL SECURITIES 219403 213638 243559
Loans, net of unearned income 431695 414964 303932
Less: Allowance for loan losses (4197) (4066) (3337)
--------------------------------------------
NET LOANS 427498 410898 300595
Bank premises and equipment 15911 16104 15159
Other real estate owned 688 889 0
Core deposit and other intangibles 2383 2475 518
Goodwill 3919 4409 0
Other assets 7496 7917 9910
--------------------------------------------
718322 771348 650510
============================================
LIABILITIES & SHAREHOLDERS' EQUITY LIABILITIES
Deposits 641024 660967 581530
Federal funds purchased and securities
sold under agreements to repurchase,
maturing within 30 days 10926 43907 8584
Other liabilities 3376 4274 2767
--------------------------------------------
655326 709148 592881
3
CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (Unaudited)
- -------------------------------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
March 31, December 31, March 31,
(Dollars in thousands) 1996 1995 1995
- -------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock 0 0 0
Class A common stock 378 377 373
Class B common stock 51 52 56
Additional paid-in capital 18399 18612 18520
Retained earnings 46924 45540 41960
Treasury stock (1212) (1676) 0
-----------------------------------------------
64540 62905 60909
Securities valuation equity (allowance) (1544) (705) (3280)
-----------------------------------------------
TOTAL SHAREHOLDERS'
EQUITY 62996 62200 57629
-----------------------------------------------
718322 771348 650510
===============================================
- -------------------------------------------------------------------------------------------------------------------
<FN>
Note: The balance sheet at December 31, 1995 has been derived from the audited financial statements at that
date. See notes to condensed consolidated financial statements.
</FN>
4
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
- -------------------------------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
Three Months Ended
March 31,
------------------
(Dollars in thousands, except per share data) 1996 1995
- ---------------------------------------------------------------------------------------------------
Interest and dividends on investment securities 3345 3957
Interest and fees on loans 9192 6432
Interest on federal funds sold 669 653
----------------
TOTAL INTEREST INCOME 13206 11042
Interest on deposits 1318 1375
Interest on time certificates 3851 2967
Interest on borrowed money 281 192
----------------
TOTAL INTEREST EXPENSE 5450 4534
----------------
NET INTEREST INCOME 7756 6508
Provision for loan losses 150 0
----------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 7606 6508
Noninterest income
Securities gains (losses) 24 (53)
Other income 2155 1599
----------------
TOTAL NONINTEREST INCOME 2179 1546
TOTAL NONINTEREST EXPENSES 6634 5865
----------------
INCOME BEFORE INCOME TAXES 3151 2189
Provision for income taxes 1140 726
----------------
NET INCOME 2011 1463
================
- ---------------------------------------------------------------------------------------------------
5
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
- --------------------------------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
Three Months Ended
March 31,
------------------
(Dollars in thousands, except per share data) 1996 1995
- -----------------------------------------------------------------------------------
PER SHARE COMMON STOCK:
NET INCOME 0.47 0.34
CASH DIVIDENDS DECLARED:
Class A 0.150 0.130
Class B 0.135 0.118
Average shares outstanding 4286498 4309763
- -----------------------------------------------------------------------------------
See notes to condensed consolidated financial statements.
6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
- ------------------------------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries (In thousands of dollars)
Three Months Ended March 31 1996 1995
- ------------------------------------------------------------------------------------------------------
Increase(Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Interest received 13135 11395
Fees and commissions received 2156 1599
Interest paid (5585) (4340)
Cash paid to suppliers and employees (7285) (6451)
Income taxes paid (93) 0
---------------------
Net cash provided by operating activities 2328 2203
Cash flows from investing activities
Proceeds from maturity of securities classified at
market 13857 11619
Proceeds from maturity of securities classified at
amortized cost 4078 1721
Proceeds from sale of securities classified at market 3979 19526
Purchase of securities classified at market (29013) (16231)
Net new loans and principal repayments (16857) (11178)
Proceeds from the sale of other real estate owned 311 219
Sale (purchase) of premises and equipment (216) 125
Net change in intangible assets 417 (59)
Net change in other assets 418 (78)
---------------------
Net cash provided by (used in) investing activities (23026) 5664
7
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)(Unaudited)
- -------------------------------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries (In thousands of dollars)
Three Months Ended March 31 1996 1995
- ----------------------------------------------------------------------------------------------
Cash flows from financing activities
Net increase in deposits (19938) 21905
Net decrease in federal funds purchased and
securities sold under agreements to
repurchase (32981) (36055)
Sale of common stock -- Employee Stock Purchase Plan
and Employee Profit -- Sharing Plan 0 22
Exercise of stock options 198 0
Treasury stock (acquired) issued 53 0
Dividends paid (628) (550)
---------------------
Net cash used in financing activities (53296) (14678)
---------------------
Net decrease in cash and cash equivalents (73994) (6811)
Cash and cash equivalents at beginning of year 115018 87580
---------------------
Cash and cash equivalents at end of period 41024 80769
=====================
- -------------------------------------------------------------------------------
8
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)(Unaudited)
- -------------------------------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries (In thousands of dollars)
Three Months Ended March 31 1996 1995
- -----------------------------------------------------------------------------------------------------------
Reconciliation of Net Income to Cash Provided by
Operating Activities
Net Income 2011 1463
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 571 605
Provision for loan losses 150 0
Loss on sale of securities (24) 53
Loss (gain) on sale and writedown of foreclosed
assets 25 (54)
Loss on disposition of fixed assets 5 28
Change in interest receivable (73) 208
Change in interest payable (135) 194
Change in prepaid expenses (166) (730)
Change in accrued taxes 1147 913
Change in other liabilities (1183) (477)
- -------------------------------------------------------------------------------------------------------
Total adjustments 317 740
--------------------
Net cash provided by operating activities 2328 2203
====================
- -------------------------------------------------------------------------------------------------------
Supplemental disclosure of noncash investing activities:
Transfers from loans to other real estate owned 135 0
Market value adjustment to securities (1392) 1560
Transfer from securities held for sale to held
for investment 0 10049
- -------------------------------------------------------------------------------------------------------
See notes to condensed consolidated financial statement.
9
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,
1996, are not necessarily indicative of the results that may be expected for the
year ended December 31, 1996. 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, 1995.
NOTE B - CONTINGENT LIABILITIES
Various claims and lawsuits are pending against the Company and its
subsidiaries. Although the amount of any ultimate liability with respect to such
matters cannot be determined, in the opinion of management, after consultation
with legal counsel, those claims and other lawsuits, when resolved, will not
have a material adverse effect on the consolidated financial condition of the
Company and it's subsidiaries.
NOTE C - ACQUISITION
On April 14, 1995, the Company acquired American Bank Capital Corporation of
Florida and its subsidiary, American Bank of Martin County. The transaction was
treated as a purchase with the Company paying $9.3 million. At March 31, 1996,
goodwill and core deposit intangible related to this transaction totalled $3.9
million and $1.9 million, respectively.
NOTE D - SECURITIZATION
At the end of May 1996, the Company anticipates completion of a securitization
of $26.7 million in residential fixed rate mortgage loans, $12.5 million and
$14.2 million in 15- and 30-year mortgages, respectively. The newly created
securities will be classified as available for sale in the Company's securities
portfolio.
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
FIRST QUARTER 1996
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
Earnings (since April 14, 1995) have been impacted by the acquisition of $62
million in deposits and $46 million in loans of American Bank Capital
Corporation of Florida (American) and its subsidiary, American Bank of Martin
County. The company's subsidiary, First National Bank and Trust Company of the
Treasure Coast, now has seventeen branches with the addition of one branch
resulting from the acquisition. Earnings were also favorably impacted by loan
growth and improved trust and brokerage fees and commissions.
Net income for the first quarter of 1996 totalled $2,011,000 or $0.47 per share,
compared with $1,463,000 or $0.34 per share in the first quarter of 1995 and
$1,893,000 or $0.44 per share in the fourth quarter of 1995.
Return on average assets was 1.09 percent and return on average shareholders'
equity was 12.56 percent for the first quarter of 1996, compared to first
quarter 1995's performance of 0.92 percent and 9.82 percent, respectively, and
the prior year's fourth quarter results of 1.06 percent and 12.00 percent,
respectively.
NET INTEREST INCOME
Earnings in the first three months of 1996 benefited from an improved net
interest margin. On a tax equivalent basis the margin increased to 4.56 percent
from 4.29 percent for the fourth quarter of 1995. Excess liquidity in the
banking industry permitted a decrease in deposit rates, with average weighted
rates for all deposit categories declining in the first quarter of 1996 compared
to fourth quarter: NOW, savings, money market and certificate of deposit rates
decreased 13, 8, 24 and 17 basis points, respectively. The average rate paid on
total interest-bearing liabilities decreased 20 basis points to 3.72 percent in
the current quarter from 3.92 percent in the fourth quarter. Enhancing the
margin since fourth quarter of 1995 was an increase in the yield on loans of 21
basis points, resulting from improved loan demand and the periodic repricing of
adjustable rate mortgages. Overall, the yield on average earning assets
increased 8 basis points to 7.73 percent.
11
For the first quarter a year ago, the net interest margin recorded was 4.49
percent. A yield on average earning assets of 7.57 percent and rate on
interest-bearing liabilities of 3.58 percent was recorded.
Average earning assets for the first quarter of 1996 increased $95,173,000 or
15.9 percent to $691,982,000, compared to prior year's first quarter. The
acquisition of American and enhanced loan demand provided a $123,943,000 or 41.7
percent increase in average loans to $421,476,000. Average investment securities
declined $34,267,000 or 13.5 percent, while average federal funds sold grew
$5,497,000 to $50,047,000. The level of federal funds sold is expected to
decline as anticipated loan growth is funded and deposits decline as they
normally do in the summer season.
The mix of earning assets 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 60.9 percent in the first quarter of 1996, compared to 49.9
percent a year ago. Average certificates of deposit (the highest cost component
of interest-bearing liabilities) as a percentage of interest-bearing liabilities
increased slightly to 48.1 percent, compared to 46.9 percent in the first
quarter of 1995. Favorably affecting the mix of deposits was an increase in
average noninterest-bearing demand deposits of $17,753,000 or 26.9 percent to
$83,672,000.
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 should continue at a level commensurate with
first quarter results over the remainder of 1996.
PROVISION FOR LOAN LOSSES
A provision of $150,000 was recorded in the first quarter of this year, compared
to no provisioning in the first quarter of 1995 and $125,000 in provisioning in
the fourth quarter of 1995. Net charge-offs for the first quarter declined
slightly from $36,000 last year to $19,000 in 1996. Net charge-offs annualized
as a percent of average loans totalled 0.02 percent for the first quarter of
1996, compared to 0.05 percent in 1995 for the same period.
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.
12
NONINTEREST INCOME
Noninterest income, excluding gains and losses from securities sales, increased
$556,000 or 34.8 percent to $2,155,000 compared to one year earlier.
The largest increase in noninterest income occurred in brokerage commissions and
fees which increased $212,000 or 70.9 percent compared to prior year. In
addition, trust income grew $117,000 or 28.2 percent. Results during the last
three quarters of 1995 and in the first quarter of 1996 indicate an improving
trend and renewed interest by consumers in the financial markets. Additional
sales staff in trust and the repricing of trust services in mid-1995 favorably
impacted results. The company intends to continue to emphasize its brokerage and
trust services to both existing and new customers, as expectations are that
financial markets will remain robust in 1996.
Another significant increase occurred in service charges on deposits which rose
$164,000 or 32.9 percent to $663,000, a result of internal growth, the
acquisition of American and certain services being repriced.
NONINTEREST EXPENSES
When compared to 1995, noninterest expenses for the first quarter increased by
$769,000 or 13.1 percent to $6,634,000, including the impact of the acquisition.
Salaries and wages increased $286,000 or 12.3 percent from the first quarter of
1995, and employee benefits grew $217,000 or 48.0 percent. Additional employment
costs in lending, trust and brokerage have been incurred over the last twelve
months. However, revenue growth has exceeded the increase in salaries and
employee benefits, and resulted in the company's overhead ratio declining to
66.3 percent in the first quarter of 1996 compared to 71.5 percent a year ago.
Occupancy expenses and furniture and equipment expenses, on an aggregate basis,
decreased $53,000 or 5.0 percent versus first quarter results last year, even
though a branch was added as a result of the acquisition. The premium for
Federal Deposit Insurance Corporation ("FDIC") insurance was $168,000 lower,
reflecting action by the FDIC to lower premium rates, effective in the second
half of 1995 and first quarter of 1996.
Legal and professional fees increased $34,000 to $181,000 and costs associated
with foreclosed and repossessed asset management totalled only $33,000. These
results (on an annualized basis) are consistent with recorded results for all of
1995 and the level of activity with respect to problem asset management.
Amortization of intangible assets increased $144,000 or 685.7 percent as a
result of the acquisition of American, for which the company recorded
amortizable assets for goodwill and core deposit intangible. The other expense
category increased $245,000 or 18.8 percent in 1996 year over year. The increase
was primarily caused by higher electronic data processing expenses and increased
business volumes.
13
INCOME TAXES
Income taxes as a percentage of income before taxes were 36.2 percent for the
first quarter of this year, compared to 33.2 percent in 1995. 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, amortization of goodwill related to the acquisition
disallowed for tax purposes and 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 1996 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 1996 was 8.69 percent, compared to 9.40
percent during the first quarter of 1995 (prior to the acquisition of $69
million in assets from American).
Regulatory agencies have implemented a risk-based capital framework with a
minimum ratio of total capital to risk-weighted assets of 8 percent. At March
31, 1996, the company's ratio of total capital to risk-weighted assets under
these risk-based rules was 15.30 percent and its ratio of Tier 1 capital to
total adjusted assets was 7.71 percent. In comparison, these ratios were 19.48
percent and 9.13 percent, respectively, at March 31, 1995.
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 $431,695,000 at March 31, 1996, $127,763,000 or 42.0 percent more than at
March 31, 1995, and $16,731,000 or 4.0 percent more than at December 31, 1995.
Approximately $46 million of the increase year over year is directly related to
the purchase of American.
At March 31, 1996, the company's mortgage loan balances secured by residential
properties amounted to $236,713,000 or 54.8 percent of total loans. The next
largest concentration was loans secured by commercial real estate which totalled
$105,691,000 or 24.5 percent. The company was also a creditor for consumer loans
to individual customers (primarily secured by motor vehicles) totalling
$44,097,000, commercial loans of $16,280,000, home equity lines of credit of
$10,231,000, and unsecured credit cards of $7,501,000.
14
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. Exposure to
market interest rate volatility with respect to mortgage loans is managed by
attempting to match maturities and repricing opportunities for assets against
liabilities, when possible. At March 31, 1996, approximately $139 million or 59
percent of the company's mortgage loan balances secured by residential
properties were adjustable, of which $134 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 two 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 $37 million were outstanding at March 31, 1996, and 2) those
limited to a two percent per annum increase and a four or six percent cap over
the life of the loan, of which approximately $97 million in balances existed at
March 31, 1996.
The company's historical charge-off rates for residential real estate loans have
been minimal, with charge-offs of $9,000 for the first quarter of 1996 compared
to $31,000 for all of 1995.
At March 31, 1996, the company had commitments to make loans (excluding unused
home equity lines of credit and credit card lines) of $19,007,000, compared to
$16,497,000 at March 31, 1995.
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 24.5 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 residential real estate totalled $50,000 and
$9,000, respectively, for the first three months of 1996, compared to net losses
of $61,000 and $26,000, respectively, in 1995. Current and historical credit
losses arising from real estate lending transactions continue to compare
favorably with the company's peer group. Net recoveries recorded for commercial
real estate loans and installment loans of $28,000 and $3,000, respectively, in
the first quarter of 1996 compared with the prior year when net recoveries of
$28,000 and $20,000, respectively, were reported. Net recoveries for commercial
loans of $9,000 in the first quarter of 1996 compared to $3,000 in recoveries in
1995.
15
The ratio of the allowance for loan losses to net loans outstanding was 0.97
percent at March 31, 1996. This ratio was 1.10 percent at March 31, 1995. The
allowance for loan losses as a percentage of nonaccrual loans and loans 90 days
or more past due was 90.9 percent at March 31, 1996, compared to 95.2 percent at
the same date in 1995.
NONPERFORMING ASSETS
At March 31, 1996, the company's ratio of nonperforming assets to loans
outstanding plus other real estate owned ("OREO") was 1.20 percent, compared to
1.15 percent one year earlier and 1.44 percent at December 31, 1995.
At March 31, 1996, accruing loans past due 90 days or more of $135,000 and OREO
of $688,000 were outstanding. In 1995 on the same date, no loans were past due
90 days or more and no OREO balances were outstanding. At December 31, 1995,
$134,000 and $889,000 in past due loans and OREO were outstanding, respectively.
Nonaccrual loans totalled $4,481,000 at March 31, 1996, compared to a balance of
$3,506,000 at March 31, 1995 and $5,105,000 at December 31, 1995. All of the
nonaccrual loans outstanding at March 31, 1996 were performing (current with
respect to payments), with the exception of seven loans aggregating to
$1,305,000. 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, 1996, 95.7 percent is secured with real estate,
the remainder is ninety percent guaranteed by the Small Business Administration
("SBA"). 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, 1996, the company had $169,266,000 or
77.1 percent of total securities available for sale and securities held to
maturity were carried at an amortized cost of $50,137,000, representing 22.9
percent of total securities.
16
The company's securities portfolio decreased $24,156,000 from March 31, 1995.
The securities portfolio as a percentage of earning assets was 32.7 percent at
March 31, 1996, compared to 40.4 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 1996, proceeds of $4.0 million from securities sales
and maturing funds of $17.9 million were derived. Securities purchases of $29.0
million were transacted: $9.0 million in fixed rate collateralized mortgage
obligations with an average duration of 2.0 years and $20.0 million in U.S.
Treasury securities with 2-, 3- and 5-year maturity terms (weighted average term
of 3.7 years) were acquired.
Company management considers the overall quality of the securities portfolio to
be high. The securities portfolio had an unrealized net loss of $896,000 or 0.4
percent of amortized cost at March 31, 1996, compared to a net gain of
$1,056,000 or 0.5 percent of amortized cost at December 31, 1995, and a net loss
of $3,003,000 or 1.2 percent of amortized cost at March 31, 1995. 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.
The company does not have any assets which would be defined as a derivative
security.
DEPOSITS
Total deposits increased $59,494,000 or 10.2 percent to $641,024,000 at March
31, 1996, compared to one year earlier. Certificates of deposit increased
$15,322,000 or 5.8 percent to $279,104,000 over the past twelve months and lower
cost interest bearing deposits (NOW, savings and money markets deposits)
increased $28,237,000 or 11.4 percent to $276,350,000. Noninterest bearing
demand deposits increased $15,935,000 or 22.9 percent to $85,570,000.
Approximately $62 million in deposits were obtained as a result of the purchase
of American. The commercial bank deposits acquired were primarily core deposits
with interest rates paid and characteristics very similar to the company's
existing customer accounts.
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).
17
On March 31, 1996, 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 27.5 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. Therefore, 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. At March
31, 1996, net interest income would decline 6.6 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
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, 1996, the company had federal funds lines of credit
available and unused of $37,500,000 and had $118,225,000 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), totalled $41,024,000 at March 31, 1996 as compared to
$80,769,000 at March 31, 1995. 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.
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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 1996, the cash flow from operations of $2,328,000 was $125,000
higher than during the same period of 1995. 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 presented herein have been prepared in accordance with
generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money, over time, due to
inflation.
Unlike most industrial companies, virtually all of the assets and liabilities of
a financial institution are monetary in nature. As a result, interest rates have
a more significant impact on a financial institution's performance than the
general levels of inflation. However, inflation affects financial institutions'
increased cost of goods and services purchased, the cost of salaries and
benefits, occupancy expense, and similar items. Inflation and related increases
in interest rates generally decrease the market value of investments and loans
held and may adversely affect liquidity, earnings, and 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.
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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, 1996.
20
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, 1996 /s/ Dennis S. Hudson, II
DENNIS S. HUDSON, III
Executive Vice President &
Chief Operating Officer
May 14, 1996 /s/ William R. Hahl
WILLIAM R. HAHL
Senior Vice President &
Chief Financial Officer
21