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, 1996 No. 0-13660
SEACOAST BANKING CORPORATION OF FLORIDA
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(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, 1996:
Class A Common Stock, $.10 Par Value - 3,760,224 shares
Class B Common Stock, $.10 Par Value - 493,000 shares
INDEX
SEACOAST BANKING CORPORATION OF FLORIDA
Part I FINANCIAL INFORMATION PAGE #
Item 1 Financial Statements (Unaudited)
Condensed consolidated balance sheets -
September 30, 1996, December 31, 1995
and September 30, 1995 3 - 4
Condensed consolidated statements of
income - Three months ended
September 30, 1996 and 1995; and Nine
months ended September 30, 1996 and 1995 5 - 6
Condensed consolidated statements of
cash flows - Nine months ended
September 30, 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 - 20
Part II OTHER INFORMATION
Item 6 Reports on Form 8-K 21
SIGNATURES 22
Exhibit Article 9 - Financial Data Schedule 23
Part I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
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Seacoast Banking Corporation of Florida and Subsidiaries
Sep. 30, Dec. 31, Sep. 30,
(Dollars in thousands) 1996 1995 1995
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ASSETS
Cash and due from banks 21280 56618 31053
Federal funds sold 0 58400 12750
Securities:
At market 146087 159480 103729
At amortized cost (market values:
$51,357 at Sep. 30, 1996,
$55,525 at Dec. 31, 1995 &
$121,612 at Sep. 30, 1995) 51125 54158 119046
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TOTAL SECURITIES 197212 213638 222775
Loans, net of unearned income 454707 414964 387788
Less: Allowance for loan losses (4218) (4066) (3973)
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NET LOANS 450489 410898 383815
Bank premises and equipment 16108 16104 16954
Other real estate owned 682 889 521
Core deposits and other intangibles 2618 2475 3391
Goodwill 3956 4409 3512
Other assets 8557 7917 11991
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700902 771348 686762
==============================
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Deposits 619107 660967 621120
Federal funds purchased and
securities sold under
agreements to repurchase,
maturing within 30 days 13001 43907 1893
Other liabilities 4349 4274 3374
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636457 709148 626387
CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (Unaudited)
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Seacoast Banking Corporation of Florida and Subsidiaries
Sep. 30, Dec. 31, Sep.30,
(Dollars in thousands) 1996 1995 1995
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SHAREHOLDERS' EQUITY
Preferred stock 0 0 0
Class A common stock 380 377 374
Class B common stock 49 52 55
Additional paid-in capital 18333 18612 18613
Retained earnings 49307 45540 44272
Treasury stock (1038) (1676) (546)
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67031 62905 62768
Securities valuation equity (allowance) (2586) (705) (2393)
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TOTAL SHAREHOLDERS' EQUITY 64445 62200 60375
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700902 771348 686762
==============================
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<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>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
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Seacoast Banking Corporation of Florida and Subsidiaries
Three Months Nine Months
Ended Ended
Sept. 30, Sept. 30,
------------------------------------
(Dollars in thousands, except per share data) 1996 1995 1996 1995
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Interest and dividends on investment securities 3049 3818 9766 11698
Interest and fees on loans 9474 8129 27824 22095
Interest on federal funds sold 67 337 848 1736
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TOTAL INTEREST INCOME 12590 12284 38438 35529
Interest on deposits 1231 1357 3758 4161
Interest on time certificates 3613 4150 11054 11021
Interest on borrowed money 100 30 544 291
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TOTAL INTEREST EXPENSE 4944 5537 15356 15473
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NET INTEREST INCOME 7646 6747 23082 20056
Provision for loan losses 0 125 300 125
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 7646 6622 22782 19931
Noninterest income
Securities gains (losses) 8 269 52 262
Other income 2066 1963 6445 5442
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TOTAL NONINTEREST INCOME 2074 2232 6497 5704
TOTAL NONINTEREST EXPENSES 7218 6137 20440 18109
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INCOME BEFORE INCOME TAXES 2502 2717 8839 7526
Provision for income taxes 916 961 3184 2593
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NET INCOME 1586 1756 5655 4933
====================================
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
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Seacoast Banking Corporation of Florida and Subsidiaries
Three Months Nine Months
Ended Ended
Sept. 30, Sept. 30,
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(Dollars in thousands, except per share data) 1996 1995 1996 1995
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PER SHARE COMMON STOCK:
NET INCOME 0.37 0.40 1.32 1.14
CASH DIVIDENDS DECLARED:
Class A 0.150 0.130 0.450 0.390
Class B 0.135 0.118 0.405 0.354
Average shares outstanding 4304083 4314048 4296884 4311347
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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 1996 1995
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Increase (Decrease) in Cash and Cash
Equivalents
Cash flows from operating activities
Interest received 38652 36238
Fees and commissions received 6443 5441
Interest paid (15609) (15194)
Cash paid to suppliers and employees (18093) (17034)
Income taxes paid (3588) (2184)
----------------------
Net cash provided by operating activities 7805 7267
Cash flows from investing activities
Maturities of securities held for sale 41653 18205
Maturities of securities held for investment 8184 23400
Proceeds from sale of securities held for
sale 35928 94730
Purchase of securities held for sale (37738) (79913)
Purchase of securities held for investment (5011) (4889)
Net new loans and principal repayments (70276) (49540)
Proceeds from the sale of other real estate
owned 1003 224
Deletions (additions) to bank premises and
equipment (1221) (150)
Purchase of American Bank Capital
Corporation, net of cash acquired 0 (4659)
Net change in other assets 223 (2761)
----------------------
Net cash provided by (used in) investing
activities (27255) (5353)
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 1996 1995
-------------------------
Cash flows from financing activities
Net decrease in deposits (41853) (805)
Net decrease in federal funds purchased and
securities sold under agreements to
repurchase (30906) (42746)
Issuance of common stock -- Employee Stock
Purchase and Profit Sharing Plans 0 115
Exercise of stock options 274 (58)
Treasury stock issued (acquired) 84 (546)
Dividends paid (1887) (1651)
----------------------
Net cash used in financing activities (74288) (45691)
----------------------
Net decrease in cash and cash equivalents (93738) (43777)
Cash and cash equivalents at beginning of year 115018 87580
----------------------
Cash and cash equivalents at end of period 21280 43803
======================
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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 1996 1995
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Reconciliation of Net Income to Cash Provided
by Operating Activities
Net Income 5655 4933
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1807 1924
Provision for loan losses 300 125
Gain on sale of securities (52) (262)
Loss (gain) on sale and writedown of
foreclosed assets 59 (42)
Loss on disposition of fixed assets 7 38
Change in interest receivable 112 370
Change in interest payable (252) 278
Change in prepaid expenses 107 (138)
Change in accrued taxes (86) 702
Change in other liabilities 148 (661)
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Total adjustments 2150 2334
---------------------
Net cash provided by operating activities 7805 7267
=====================
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Supplemental disclosure of noncash investing
activities:
Transfers from loans to other real estate
owned 855 492
Transfers from loans to securities held for
sale 29702 0
Transfer from securities to other assets 0 3272
Market value adjustment to securities (3217) 2625
Transfer from securities held for sale to
held for investment 0 10049
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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, 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 - 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 September
30, 1996, goodwill and core deposit intangible related to this transaction
totalled $4.0 million and $1.7 million, respectively.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
THIRD 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
Net income for the third quarter of 1996 totalled $1,586,000 or $0.37 per
share, compared with $1,756,000 or $0.40 per share in the third quarter of 1995
and $2,058,000 or $0.48 per share in the second quarter of 1996. Third quarter
earnings were reduced by a one-time charge (totalling $500,000 or $316,000
after taxes) for a special assessment to recapitalize the Savings Association
Insurance Fund (SAIF). This charge resulted in a $0.07 reduction in earnings
per share. Earnings were favorably impacted by loan growth, improved brokerage
fees and commissions, and a favorable interest rate environment.
Return on average assets was 0.90 percent and return on average shareholders'
equity was 9.41 percent for the third quarter of 1996, compared to third
quarter 1995's performance of 1.01 percent and 11.14 percent, respectively, and
1996's second quarter results of 1.16 percent and 12.61 percent, respectively.
Without the one-time charge realized in the third quarter, the company's
return on average assets was 1.08 percent and the return on average equity was
12.61%.
NET INTEREST INCOME
Earnings for the third quarter of 1996 were affected by an increased net
interest margin (on a tax equivalent basis). The net interest margin was 4.56
percent in the first quarter of 1996, 4.67 percent in the second quarter and
4.70 percent in the third quarter of this year. Average weighted rates for all
deposit categories (except certificates of deposit) increased slightly in the
third quarter of 1996 compared to the second quarter: NOW, savings, and money
market rates increased 14, 4, and 11 basis points, respectively. The rate paid
on certificates of deposit declined 9 basis points. The resulting rate paid on
average total interest-bearing liabilities increased 5 basis points to 3.60
percent in the third quarter from 3.55 percent in the second quarter.
Offsetting the increase in cost of funds in the third quarter of 1996 was an
increase of 6 basis points to 7.71 percent for the yield on average total
earning assets, as compared to second quarter. While the yield on loans
declined 1 basis point to 8.46 percent during the third quarter, average loans
outstanding as a percentage of earning assets increased to 68.2 percent,
compared to 65.0 percent in the second quarter and 60.9 percent in the first
quarter, favorably affecting the company's margin. Loans in the third and
second quarter were reduced by $3.2 million and $26.5 million, respectively, in
fixed rate residential mortgages which were securitized and transferred to the
company's available for sale securities portfolio.
For the third quarter a year ago, the net interest margin was 4.23 percent, the
yield on average earnings assets was 7.66 percent and the rate paid on
interest-bearing liabilities was 3.96 percent.
Average earning assets for the third quarter of 1996 increased $13,044,000 or
2.0 percent to $653,889,000, compared to prior year's third quarter. Enhanced
loan demand provided a $69,671,000 or 18.5 percent increase in average loans to
$445,700,000. Average investment securities declined $38,686,000 or 16.0
percent to $203,166,000 and average federal funds sold declined $17,941,000 or
78.1 percent to $5,023,000. Loan demand is anticipated to remain strong
through the remainder of 1996.
Favorably affecting the mix of deposits in the third quarter as compared to
last year, average noninterest-bearing demand deposits increased $8,310,000 or
11.5 percent to $80,447,000. Other lower cost core deposit products (NOW,
savings and money market deposits) decreased on an aggregate basis, but by a
lower amount, by $3,282,000 to $257,773,000. While average certificates of
deposit (the highest cost component of interest-bearing liabilities) have
declined as a percentage of interest-bearing liabilities to 51.2 percent,
compared to 52.5 percent in the third quarter of 1995. Higher interest rates
have historically resulted in consumer attitudes changing, making certificates
of deposit more attractive. If loan demand continues at its current pace, and
local competition allows rates paid for core deposits to remain low, the net
interest margin should continue at a level commensurate with the first nine
month's results over the remainder of 1996.
PROVISION FOR LOAN LOSSES
No provision was recorded in the third quarter of this year, compared to
$125,000 in the second quarter of 1995 and provisioning of $300,000 in the
first half of this year. Nonperforming assets declined $1,481,000 during the
third quarter to $3,178,000, and are $2,753,000 lower than at September 30,
1995. Net charge-offs remain low and for the third quarter totalled $35,000,
compared to $94,000 in the second quarter and $19,000 in the first quarter of
1996. Net charge-offs annualized as a percent of average loans totalled 0.05
percent for the first nine months of 1996, compared to net charge-offs of 0.03
percent for all of 1995.
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
$103,000 or 5.2 percent to $2,066,000 in the third quarter compared to one year
earlier.
The largest increase in noninterest income occurred in brokerage commissions
and fees which increased $63,000 or 17.1 percent compared to prior year. Trust
income, which increased $155,000 or 11.1 percent for the nine month period
ended September 30, 1996, declined slightly for the third quarter compared to
last year, by $20,000 or 3.8 percent. The prior year trust income was
favorably impacted by a change in the terms of payment of fees. Results during
the last three quarters of 1995 and in the first three quarters 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 the third quarter of 1995 favorably impacted results in the first half of
1996. The company intends to continue to emphasize its brokerage and trust
services to both existing and prospective customers.
Also increasing, service charges on deposits grew $53,000 or 8.1 percent in the
third quarter, a result of internal growth and certain services being repriced.
Noninterest income, excluding gains and losses from securities sales, for the
first nine months of 1996 increased $1,003,000 or 18.4 percent, with increased
brokerage commissions and fees and service charges on deposits of $432,000 or
40.0 percent and $262,000 or 14.7 percent, respectively. Other service charges
and fees grew $58,000 or 7.1 percent and other income increased $96,000 or 26.4
percent. Most of the increase in service charges can be attributed to internal
growth, the repricing of certain services and incremental income derived from
the acquisition in April 1995.
NONINTEREST EXPENSES
When compared to 1995, noninterest expenses for the third quarter increased by
$1,081,000 or 17.6 percent to $7,218,000 and for the first nine months
increased $2,331,000 or 12.9 percent to $20,440,000. Included in the increase
for the third quarter and the nine month period was the one-time charge of
$500,000 to recapitalize the SAIF. This one-time charge ($0.657 per $100 of
deposits) applied to deposits of a failed local thrift acquired by the company
in 1991 from the Resolution Trust Corporation.
Salaries and wages increased $253,000 or 10.3 percent, compared to the third
quarter of 1995, and increased $673,000 or 9.3 percent for the first nine
months of 1996. Employee benefits rose $94,000 or 19.1 percent and $418,000 or
29.0 percent for the third quarter and first nine months, respectively,
compared to l995's results. 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 in employee benefits, and
resulted in the company's overhead ratio (excluding the one-time SAIF charge)
declining to 66.9 percent for the first nine of 1996 compared to 70.3 percent a
year ago.
Occupancy expenses and furniture and equipment expenses, on an aggregate basis,
declined $66,000 versus third quarter results last year and were $124,000 lower
for the first nine months of 1996 versus prior year. The premium for Federal
Deposit Insurance Corporation (FDIC) insurance was $168,000 lower in the first
quarter and $167,000 lower in the second quarter of 1996, but was $378,000
higher in the third quarter, reflecting action by the FDIC to lower premium
rates in 1996 and also reflecting the third quarter one-time SAIF charge of
$500,000.
Costs associated with foreclosed and repossessed asset management increased
$77,000 to $91,000 when compared to the third quarter of 1995 and increased by
$74,000 to $92,000 when compared to the first nine months of 1995. Of the
$92,000 expended, $59,000 was directly related to losses on sales of foreclosed
properties. Legal and professional fees recorded for the third quarter of 1996
were $56,000 lower and for the first nine months of 1996 were $79,000 higher.
These results reflect the level of activity with respect to problem asset
management.
Amortization of intangible assets increased $19,000 for the quarter and
$242,000 for the first nine months, compared to a year ago. The increase is a
result of the acquisition in April 1995, for which the company recorded
amortizable assets for goodwill and core deposit intangible.
An increase in other expense of $350,000 or 29.2 percent was recorded in the
third quarter compared to last year for the same period. For the nine month
period ended September 30, 1996, other expenses were $853,000 or 22.8 percent
higher compared to prior year. The increase in other expense was primarily
caused by higher electronic data processing and education expenses and
increased business volumes.
INCOME TAXES
Income taxes as a percentage of income before taxes were 36.0 percent for the
first nine months of this year, compared to 34.5 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 nine of 1996 and over the
prior twelve months have provided the company with continued increases in its
capital ratios. The company's ratio of average shareholders' equity to average
total assets during the third quarter of 1996 was 9.61 percent, compared to
9.02 percent in the third quarter of 1995.
Regulatory agencies have implemented a risk-based capital framework with a
minimum ratio of total capital to risk-weighted assets of 8 percent. At
September 30, 1996, the company's ratio of total capital to risk-weighted
assets under these risk-based rules was 15.67 percent and its ratio of Tier 1
capital to total adjusted assets was 8.73 percent. In comparison, these ratios
were 16.29 percent and 7.92 percent, respectively, at September 30, 1995.
Capital, as it is defined for these ratios, excludes certain intangible assets,
including goodwill. At September 30, 1996, intangible assets excluded from
capital totalled $5,861,000.
LOAN PORTFOLIO
Nearly 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 $454,707,000 at September 30, 1996, $66,919,000 or 17.3 percent
more than at September 30, 1995, and $39,743,000 or 9.6 percent more than at
December 31, 1995. Approximately $29.7 million of fixed rate residential
mortgages were securitized during 1996 and transferred to the company's
available for sale securities portfolio.
At September 30, 1996, the company's mortgage loan balances secured by
residential properties amounted to $241,991,000 or 53.2 percent of total loans.
The next largest concentration was loans secured by commercial real estate
which totalled $112,522,000 or 24.7 percent. The company was also a creditor
for consumer loans to individual customers (primarily secured by motor
vehicles) totalling $47,388,000, commercial loans of $21,262,000, home equity
lines of credit of $10,009,000, construction loans of $13,527,000, and
unsecured credit cards of $7,859,000.
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 September 30, 1996, approximately $149 million
or 62 percent of the company's mortgage loan balances secured by residential
properties were adjustable, of which $147 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 $34 million were outstanding at September 30, 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 $113 million in balances existed
at September 30, 1996.
The company's historical charge off rates for residential real estate loans
have been minimal, with charge offs of $20,000 for the first nine months of
1996 and $31,000 for all of 1995.
At September 30, 1996, the company had commitments to make loans (excluding
unused home equity lines of credit and credit card lines) of $22,691,000,
compared to $18,947,000 at September 30, 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 24.7 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 $149,000 and
$20,000, respectively, for the first nine months and third quarter of 1996,
compared to net losses of $137,000 and $28,000, 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
for the first nine months of 1996 for commercial real estate loans and
commercial loans were $24,000 and $37,000, respectively, compared to prior year
recoveries of $74,000 in commercial real estate loans and $4,000 in commercial
loan net charge-offs. Net charge-offs for installment loans of $40,000 in the
first nine months of 1996 compared to $22,000 in recoveries in 1995.
The ratio of the allowance for loan losses to net loans outstanding was 0.93
percent at September 30, 1996. This ratio was 1.02 percent at September 30,
1995. The allowance for loan losses as a percentage of nonaccrual loans and
loans 90 days or more past due was 164.8 percent at September 30, 1996,
compared to 72.8 percent at the same date in 1995.
NONPERFORMING ASSETS
At September 30, 1996, the company's ratio of nonperforming assets to loans
outstanding plus other real estate owned was 0.70 percent, compared to 1.53
percent one year earlier and 1.44 percent at December 31, 1995.
At September 30, 1996, accruing loans past due 90 days or more of $64,000 and
OREO of $682,000 were outstanding. In 1995 on the same date, $50,000 in loans
were past due 90 days or more and $521,000 in 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 $2,496,000 at September 30, 1996, compared to a
balance of $5,410,000 at September 30, 1995 and $5,105,000 at December 31,
1995. Of the nonaccrual loans outstanding at September 30, 1996, $1,476,000
were performing (current with respect to payments). These 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 as nonaccrual loans at September 30,
1996, 91.5 percent is secured with real estate, the remainder by a Small
Business Administration (SBA) guarantee. 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, 1996, the company had
$146,087,000 or 74.1 percent of total securities available for sale and
securities held to maturity were carried at an amortized cost of $51,125,000,
representing 25.9 percent of total securities.
The company's securities portfolio decreased $25,563,000 from September 30,
1995. The securities portfolio as a percentage of earning assets was 30.3
percent at September 30, 1996, compared to 35.7 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.
During the first nine months of 1996, proceeds of $35.9 million from securities
sales and maturing funds of $49.8 million were derived. Sales in the first
quarter totalled only $4.0 million. Sales in the second quarter and third
quarter were transacted to fund loan growth and offset the impact of seasonal
declines in deposits which normally occur in the summer. Securities purchases
of $42.6 million were transacted in the first nine months. Of this total, $9.0
million in fixed rate collateralized mortgage obligations (CMOs) 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 in the first quarter of 1996. A single purchase, a fixed rate CMO
totalling $8.6 million with a duration of 0.6 years, was transacted in the
second quarter. In the third quarter, a fixed rate CMO totalling $5.0 million
with a duration of 3.0 years was acquired. In addition, $26.5 million in 15-
and 30-year fixed rate residential loans were securitized in the second quarter
of 1996 and $3.2 million in 30-year fixed rate residential loans were
securitized in the third quarter. These securitized loans were transferred
from the company's loan portfolio to the available for sale securities
portfolio. Of the total proceeds derived from securities sales, $10,543,000
was from the sale of securitized loans transferred to the securities portfolio
this year.
Company management considers the overall quality of the securities portfolio to
be high. The securities portfolio had an unrealized net loss of $3,297,000 or
1.6 percent of amortized cost at September 30, 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 $1,146,000 or 0.5 percent of amortized cost at September 30, 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.
DEPOSITS
Total deposits decreased $2,013,000 or 0.3 percent to $619,107,000 at September
30, 1996, compared to one year earlier. Higher cost certificates of deposit
decreased $7,592,000 or 2.6 percent to $284,879,000 over the past twelve
months. Lower cost interest bearing deposits (NOW, savings and money markets
deposits) declined to a lesser degree, by $3,677,000 or 1.4 percent to
$251,339,000. Impacting deposit mix favorably, noninterest bearing demand
deposits increased $9,256,000 or 12.6 percent to $82,889,000.
Approximately $62 million in deposits were obtained as a result of the
acquisition in April 1995. 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).
On September 30, 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 31.8 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
September 30, 1996, net interest income would decline 9.7 percent if
interest rates would immediately rise 200 basis points.
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 September 30, 1996, the company had federal
funds lines of credit available of $45,500,000 and had $108,733,000 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 $21,280,000 at September 30, 1996 as compared to
$43,803,000 at September 30, 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.
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 $7,805,000 was $538,000
greater than during the same period of 1995. Cash flows from investing and
financing activities reflect the change 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 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
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Item 6 REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the three
month period ended September 30, 1996.
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 13, 1996 /s/ Dennis S. Hudson, III
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Dennis S. Hudson, III
Executive Vice-President &
Chief Operating Officer
November 13, 1996 /s/ William R. Hahl
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WILLIAM R. HAHL
Senior Vice President &
Chief Financial Officer