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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] Annual Report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended Commission File
DECEMBER 31, 1996 NO. 0-13660
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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 incorporation or organization) (IRS employer identification number)
815 Colorado Avenue, Stuart, Florida 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
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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 by a check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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State the aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 28, 1997:
Class A Common Stock, $.10 par value - $89,381,915 based upon the closing
sale price on February 28, 1997, using beneficial ownership stock rules adopted
pursuant to Section 13 of the Securities Exchange Act of 1934, to exclude
voting stock owned by directors and certain executive officers, some of whom
may not be held to be affiliates upon judicial determination.
Class B Common Stock, $.10 par value - $2,744,183 based upon the closing sale
price on February 28, 1997, of the Class A Common Stock, $.10 par value, into
which each share of Class B Common Stock, $.10 par value, is immediately
convertible on a one-for-one basis, using beneficial ownership stock rules
adopted pursuant to Section 13 of the Securities Exchange Act of 1934, to
exclude voting stock owned by directors and certain executive officers, some of
whom may not be held to be affiliates upon judicial determination.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock as of February 28 1996:
Class A Common Stock, $.10 Par Value - 3,872,694 shares
Class B Common Stock, $.10 Par Value - 384,638 shares
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Documents Incorporated by Reference:
1. Portions of the registrant's 1997 Proxy Statement for the Annual
Meeting of Shareholders ("1997 Proxy Statement") which is part of the
Joint Proxy Statement/Prospectus contained in the registrant's
Registration Statement on Form S-4, are incorporated by reference into
Part III.
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FORM 10-K INDEX
PAGE
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PART I
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Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security-Holders
PART II
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Item 5. Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder
Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
PART III
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Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) List of All Financial Statements
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995, and 1994
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
(a)(2) List of Financial Statement Schedules
(a)(3) List of Exhibits
(b) Reports on Form 8-K
(c) Exhibits
(d) Financial Statement Schedules
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SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
Certain of the matters discussed under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Annual 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 (the "Company") 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 the Internet; 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 I
ITEM 1. BUSINESS
General
Seacoast Banking Corporation of Florida ("Seacoast") is a bank holding
company registered under the Bank Holding Company Act of 1956, as amended ("BHC
Act"). Seacoast was incorporated under the laws of the State of Florida on
January 24, 1983, by the management of its principal subsidiary, First National
Bank and Trust Company of the Treasure Coast ("Bank") for the purpose of
forming a holding company for the Bank. On December 30, 1983, Seacoast
acquired all of the outstanding shares of the common stock of the Bank in
exchange for 810,000 shares of its $.10 par value Class A common stock ("Class
A Common Stock") and 810,000 shares of its $.10 par value Class B common stock
("Class B Common Stock").
The Bank commenced operations in 1933 under the name "Citizens Bank of
Stuart" pursuant to a charter originally granted by the State of Florida in
1926. The Bank converted to a national banking association on August 29, 1958.
Through the Bank and its broker-dealer subsidiary, Seacoast offers a
full array of deposit accounts and retail banking services, engages in consumer
and commercial lending and provides a wide variety of trust and asset
management services, as well as securities and annuity products. Seacoast's
primary service area is the "Treasure Coast", which, as defined by Seacoast,
consists of the counties of Martin, St. Lucie and Indian River on Florida's
southeastern coast. The Bank operates banking offices in the following cities:
five in Stuart, two in Palm City, one in Jensen Beach, two on Hutchinson
Island, one in Hobe Sound, two in Vero Beach, one in Sebastian, four in Port
St. Lucie, and one in Ft. Pierce.
Most of the banking offices have one or more Automatic Teller Machines
(ATMs) which provide customers with 24-hour access to their deposit accounts.
Seacoast is a member of two state-wide funds transfer systems known as the
"HONOR System" and the "Presto System", which permit banking customers access
to their accounts at over 21,800 locations in eighteen states in the Southeast.
The HONOR System also permits the Bank's customers access to their accounts via
other systems outside the State of Florida.
Customers can also use the Bank's "MoneyPhone" system to access
information on their loan and deposit account balances, and to transfer funds
between linked accounts, make loan payments, as well as to verify deposits or
checks that may have cleared. This service is accessible by phone 24-hours a
day, seven days a week.
In addition, customers may access information via the Bank's Telephone
Banking Center ("TBC"). From 7 A.M. to 7 P.M., servicing personnel in the TBC
are available to open accounts, take applications for certain types of loans,
resolve account problems and offer information on other bank products and
services to existing and potential customers. The Company recently began
offering PC banking for personal computers.
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Seacoast has three indirect subsidiaries. FNB Brokerage Services,
Inc. ("FNB Brokerage") provides brokerage services. South Branch Building,
Inc. is a general partner in a partnership which constructed a branch facility.
Big O RV Resort, Inc. was formed to own and operate certain properties acquired
through foreclosure, however it is currently inactive. The operations of these
subsidiaries contribute less than 10% of the consolidated assets and revenues
of Seacoast.
As a bank holding company, Seacoast is a legal entity separate and
distinct from its subsidiaries. Seacoast coordinates the financial resources
of the consolidated enterprise and maintains financial, operational and
administrative systems that allow centralized evaluation of subsidiary
operations and coordination of selected policies and activities. Seacoast's
operating revenues and net income are derived primarily from its subsidiaries
through dividends, fees for services performed and interest on advances and
loans.
As of December 31, 1996, Seacoast and its subsidiaries employed 335
full-time equivalent employees.
Expansion of Business
Seacoast has expanded its products and services to meet the changing
needs of the various segments of its market and it expects to continue this
strategy. Prior to 1991, Seacoast had expanded geographically by adding
branches, including the acquisition of a thrift branch in St. Lucie County.
Seacoast from time to time considers acquisitions of other depository
institutions or corporations engaged in bank-related activities. On September
20, 1991, the Bank acquired from the Resolution Trust Corporation ("RTC") 10
branches and approximately $110 million of deposits of a failed thrift,
American Pioneer Federal Savings Bank ("American Pioneer"), for a deposit
premium of $752,000 (of which $313,000 remains outstanding as an intangible
asset at December 31, 1996). Following the acquisition, the Bank temporarily
rented all the branch facilities from the RTC at commercially reasonable rates
to preserve existing customer relationships and to facilitate their transfer to
the Bank. On October 18, 1991, the Bank ceased renting the branch office
facilities it did not intend to acquire to avoid duplication of existing
facilities. After negotiation, definitive agreements with the RTC were
executed for the purchase of five branch facilities. See "Item 2. Properties".
On April 14, 1995, the Bank acquired approximately $46 million in
loans and $62 million in deposits by purchasing American Bank Capital
Corporation of Florida ("American Bank") and its subsidiary, American Bank of
Martin County. The transaction was treated as a purchase with the Bank paying
$9.3 million in cash. At December 31, 1996, intangible assets resulting from
this acquisition include goodwill of $3,882,000 and core deposit premium of
$1,662,000. Following the acquisition, the Bank closed its existing East Ocean
office location to move to a more attractive location acquired from American
Bank, and continued operation of an office location owned by American Bank in
southern Martin County. See "Item 2. Properties".
As of February 19, 1997, Seacoast entered into an Agreement and Plan
of Merger (the "PSHC Agreement") with Port St. Lucie National Bank Holding
Corp. ("PSHC"), pursuant to which PSHC will merge with and into Seacoast (the
"PSHC Merger"). It is anticipated that immediately after the "PSHC Merger,
PSHC's subsidiary bank, Port St. Lucie National Bank, will merge (the with and
into the Bank. Under the terms of the PSHC Agreement, 900,000 shares of
Seacoast Class A Common Stock will be issued for all the outstanding shares of
PSHC common stock, warrants and options to purchase common stock of PSHC. The
value of the transaction is approximately $26 million based on Seacoast's
closing Class A share price of $28.75 on February 18, 1997. The PSHC Merger is
subject to regulatory approvals and approvals by PSHC's shareholders and
Seacoast's shareholders. It is intended that the transaction qualify for the
pooling-of-interests method of accounting for business combinations. Seacoast
and the Bank will be the entities resulting the PSHC Merger and Bank Merger.
There are no assurances that the transaction will be consummated. As of
December 31, 1996, PSHC had total consolidated assets of approximately $130
million, total consolidated deposits of approximately $119 million and total
consolidated shareholders' equity of approximately $10 million.
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Florida law permits statewide branching. Seacoast anticipates future
expansion within its market area by opening additional offices and facilities.
New banking facilities were opened in November 1994 in St. Lucie West, a new
community west of Port St. Lucie, and in May 1996 in a WalMart superstore in
Sebastian in northern Indian River County. Most recently, in January 1997,
Seacoast opened a branch in Nettles Island, a predominately modular home
community on Hutchinson Island in southern St. Lucie County. Plans are underway
for the addition of three branch offices in Indian River County in 1997. See
"Item 2. Properties".
Competition
Seacoast and its subsidiaries operate in the highly competitive markets
of Martin, St. Lucie and Indian River Counties in southeastern Florida. The
Bank not only competes with other banks in its markets, but it also competes
with various other types of financial institutions for deposits, certain
commercial, fiduciary and investment services and various types of loans and
certain other financial services. The Bank also competes for interest-bearing
funds with a number of other financial intermediaries and investment
alternatives, including mutual funds, brokerage and insurance firms, investment
advisors, governmental and corporate bonds, and other securities.
Seacoast and its subsidiaries compete not only with financial institutions
based in the State of Florida, but also with a number of large out-of-state and
foreign banks, bank holding companies and other financial institutions which
have an established market presence in the State of Florida, or which offer
products by mail, telephone or over the Internet. Many of Seacoast's
competitors are engaged in local, regional, national and international
operations and have greater assets, personnel and other resources than Seacoast.
Some of such competitors are subject to less regulation and/or more favorable
tax treatment than Seacoast.
Supervision and Regulation
Bank holding companies and banks are extensively regulated under
federal and state law. This discussion is qualified in its entirety by
reference to the particular statutory and regulatory provisions referred to
below and is not intended to be an exhaustive description of the status or
regulations applicable to the Company's and the Bank's business. Supervision,
regulation, and examination of the Company and the Bank and their respective
Subsidiaries by the bank regulatory agencies are intended primarily for the
protection of depositors rather than holders of Company capital stock. Any
change in applicable law or regulation may have a material effect on the
Company's business.
Bank Holding Company Regulation
The Company, as a bank holding company, is subject to supervision and
regulation by the Board of Governors of the Federal Reserve System ("Federal
Reserve") under the BHC Act. The Company is required to file with the Federal
Reserve periodic reports and such other information as the Federal Reserve may
request. The Federal Reserve examines the Company, and may examine the
Company's Subsidiaries.
The BHC Act requires prior Federal Reserve approval for, among other
things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than 5% of the voting shares or substantially all
the assets of any bank, or for a merger or consolidation of a bank holding
company with another bank holding company. With certain exceptions, the BHC
Act prohibits a bank holding company from acquiring direct or indirect
ownership or control of voting shares of any company which is not a bank or
bank holding company and from engaging directly or indirectly in any activity
other than banking or managing or controlling banks or performing services for
its authorized subsidiaries. A bank holding company, may, however, engage in
or acquire an interest in a company that engages in activities which the
Federal Reserve has determined by regulation or order to be so closely related
to banking or managing or controlling banks to be a proper incident thereto.
The Company is a legal entity separate and distinct from the Bank and
its other subsidiaries. Various legal limitations restrict the Bank from
lending or otherwise supplying funds to the Company or its non-bank
subsidiaries. The Company and the Bank are subject to Section 23A of the
Federal Reserve Act. Section 23A defines "covered transactions", which include
extensions of credit, and limits a bank's covered transactions with any
affiliate to 10% of such bank's capital and surplus. All covered and exempt
transactions between a bank and
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its affiliates must be on terms and conditions consistent with safe and sound
banking practices, and banks and their subsidiaries are prohibited from
purchasing low-quality assets from the bank's affiliates. Finally, Section 23A
requires that all of a bank's extensions of credit to an affiliate be
appropriately secured by acceptable collateral, generally United States
government or agency securities. The Company and the Bank also are subject to
Section 23B of the Federal Reserve Act, which generally limits covered and
other transactions among affiliates to terms and under circumstances, including
credit standards, that are substantially the same or at least as favorable to
the bank or its subsidiary as prevailing at the time for transactions with
unaffiliated companies.
The BHC Act, as amended by the interstate banking provisions of the
Reigle-Neal Interstate Banking and Branch Efficiency Act of 1994 ("Interstate
Banking Act"), which became effective on September 29, 1995, repealed the prior
statutory restrictions on interstate acquisitions of banks by bank holding
companies, such that Seacoast and any other bank holding company located in
Florida may now acquire a bank located in any other state, and any bank holding
company located outside Florida may lawfully acquire any bank based in another
state, regardless of state law to the contrary, in either case subject to
certain deposit-percentage, aging requirements, and other restrictions. The
Interstate Banking Act also generally provides that, after June 1, 1997,
national and state-chartered banks may branch interstate through acquisitions of
banks in other states. By adopting legislation prior to that date, a state has
the ability to either "opt in" and accelerate the date after which interstate
branching is permissible or "opt out" and prohibit interstate branching
altogether. Florida has responded to the enactment of the Interstate Banking
Act by enacting the Florida Interstate Branching Act (the "Florida Branching
Act"), which is effective June 1, 1997 and permits interstate branching through
merger transactions under the interstate Banking Act. Under the Florida
Branching Act, with the prior approval of the Florida Department of Banking and
Finance, a Florida bank may establish, maintain and operate one or more branches
in a state other than the State of Florida pursuant to a merger transaction in
which the Florida bank is the resulting bank. In addition, the Florida
Branching Act provides that one or more Florida banks may enter into a merger
transaction with one or more out-of-state banks, and an out-of-state bank
resulting from such transaction may maintain and operate the branches of the
Florida bank that participated in such merger. An out-of-state bank, however,
is not permitted to acquire a Florida bank in a merger transaction unless the
Florida bank has been in existence and continuously operated for more than
three years.
Federal Reserve policy requires a bank holding company to act as a
source of financial strength and to take measures to preserve and protect bank
subsidiaries in situations where additional investments in a troubled bank may
not otherwise be warranted. In addition, under the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), where a bank holding
company has more than one bank or thrift subsidiary, each of the bank holding
company's subsidiary depository institutions are responsible for any losses to
the Federal Deposit Insurance Corporation ("FDIC") as a result of an affiliated
depository institution's failure. As a result, a bank holding company may be
required to loan money to its subsidiaries in the form of capital notes or
other instruments which qualify as capital under regulatory rules. However,
any loans from the holding company to such subsidiary banks likely will be
unsecured and subordinated to such bank's depositors and perhaps to other
creditors of the bank.
On February 20, 1997, the Federal Reserve adopted, effective April 21,
1997, amendments to its Regulation Y implementing certain provisions of The
Economic Growth and Regulatory Paperwork Reduction Act of 1996 ("EGRPRA"),
which was signed into law on September 30,1996. Among other things, these
amendments to Federal Reserve Regulation Y reduce the notice and application
requirements applicable to bank and nonbank acquisitions and de novo expansion
by well-capitalized and well-managed bank holding companies; expand the list
of nonbanking activities permitted under Regulation Y; reduce certain
limitations on previously permitted activities; and amend Federal Reserve
anti-tying restrictions to allow banks greater flexibility to package products
and services with their affiliates.
Bank and Bank Subsidiary Regulation Generally
The Bank is subject to supervision, regulation, and examination by the
Office of the Comptroller of the Currency (the "OCC") which monitors all areas
of the operations of the Bank, including reserves, loans, mortgages, issuances
of securities, payment of dividends, establishment of branches, and capital.
The Bank is a member of the FDIC and, as such, its deposits are insured by the
FDIC to the maximum extent provided by law. See "FDIC Insurance Assessments".
Under Florida law, the Bank currently may establish and operate
branches throughout the State of Florida, subject to the maintenance of
adequate capital for each branch and the receipt of OCC approval.
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The OCC recently has adopted a series of revisions to its regulations,
including expanding the powers exercisable by operations subsidiaries. These
changes also modernize and streamline corporate governance, investment and
fiduciary powers.
In December 1996, the OCC adopted the Federal Financial Institutions
Examination Council's ("FFIEC") updated statement of policy entitled "Uniform
Financial Institutions Rating System" ("UFIRS") effective January 1, 1997.
UFIRS is an internal rating system used by the federal and state regulators for
assessing the soundness of financial institutions on a uniform basis and for
identifying those institutions requiring special supervisory attention. Under
the previous UFIRS, each financial institution was assigned a confidential
composite rating based on an evaluation and rating of five essential components
of an institution's financial condition and operations including Capital
adequacy: Asset quality, Management, Earnings, and Liquidity. The major
changes include an increased emphasis on the quality of risk management
practices and the addition of a sixth component for Sensitivity to market risk.
For most institutions, the FFIEC has indicated that market risk primarily
reflects exposures to changes in interest rates. When regulators evaluate this
component, consideration is expected to be given to: management's ability to
identify, measure, monitor, and control market risk; the institution's size;
the nature and complexity of its activities and its risk profile; and the
adequacy of its capital and earnings in relation to its level of market risk
exposure. Market risk is rated based upon, but not limited to, an assessment
of the sensitivity of the financial institution's earnings or the economic
value of its capital to adverse changes in interest rates, foreign exchanges
rates, commodity prices, or equity prices; management's ability to identify,
measure, monitor, and control exposure to market risk; and the nature and
complexity of interest rate risk exposure arising from nontrading positions.
FNB Brokerage, a Bank subsidiary, is registered as a securities
broker-dealer under the Exchange Act and is regulated by the Securities and
Exchange Commission ("SEC"). As a member of the National Association of
Securities Dealers, Inc. ("NASD"), it also is subject to examination and
supervision of its operations and accounts by the NASD.
Community Reinvestment Act
The Company and the Bank are subject to the provisions of the
Community Reinvestment Act of 1977, as amended (the "CRA")and the federal
banking agencies' regulations thereunder. Under the CRA, all banks and thrifts
have a continuing and affirmative obligation, consistent with its safe and
sound operation to help meet the credit needs for their entire communities,
including low- and moderate-income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions, nor does
it limit an institution's discretion to develop the types of products and
services that it believes are best suited to its particular community,
consistent with the CRA. The CRA requires a depository institution's primary
federal regulator, in connection with its examination of the institution, to
assess the institution's record of assessing and meeting the credit needs of
the community served by that institution, including low- and moderate-income
neighborhoods. The regulatory agency's assessment of the institution's record
is made available to the public. Further, such assessment is required of any
institution which has applied to: (i) charter a national bank; (ii) obtain
deposit insurance coverage for a newly-chartered institution; (iii) establish a
new branch office that accepts deposits, (iv) relocate an office; or (v) merge
or consolidate with, or acquire the assets or assume the liabilities of, a
federally regulated financial institution. In the case of a bank holding
company applying for approval to acquire a bank or other bank holding company,
the Federal Reserve will assess the records of each subsidiary depository
institution of the applicant bank holding company, and such records may be the
basis for denying the application.
Under new CRA regulations, effective January 1, 1996, the
process-based CRA assessment factors have been replaced with a new evaluation
system that rates institutions based on their actual performance in meeting
community credit needs. The evaluation system used to judge an institution's
CRA performance consists of three tests: a lending test; an investment test;
and a service test. Each of these tests will be applied by the institution's
primary federal regulator taking into account such factors as: (i) demographic
data about the community; (ii) the institution's capacity and constraints;
(iii) the institution's product offerings and business strategy; and (iv) data
on the prior performance of the institution and similarly-situated lenders.
The new lending test--the most important of the three tests for all
institutions other than wholesale and limited purpose (e.g., credit card)
banks--will evaluate an institution's lending activities as measured by its
home mortgage loans, small business and farm loans, community development
loans, and, at the option of the institution, its consumer loans.
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Each of these lending categories will be weighed to reflect its
relative importance to the institution's overall business and, in the case of
community development loans, the characteristics and needs of the institution's
service area and the opportunities available for this type of lending.
Assessment criteria for the lending test will include: (i) geographic
distribution of the institution's lending; (ii) distribution of the
institution's home mortgage and consumer loans among different economic
segments of the community; (iii) the number and amount of small business and
small farm loans made by the institution; (iv) the number and amount of
community development loans outstanding; and (v) the institution's use of
innovative or flexible lending practices to meet the needs of low-to-moderate
income individuals and neighborhoods. At the election of an institution, or if
particular circumstances so warrant, the banking agencies will take into
account in making their assessments lending by the institution's affiliates as
well as community development loans made by the lending consortia and other
lenders in which the institution has invested. As part of the new regulation,
all financial institutions will be required to report data on their small
business and small farm loans as well as their home mortgage loans, which are
currently required to be reported under the Home Mortgage Disclosure Act.
The investment test focuses on the institution's qualified investments
within its service area that (i) benefit low-to-moderate income individuals and
small businesses or farms; (ii) address affordable housing needs; or (iii)
involve donations of branch offices to minority or women's depository
institutions. Assessment of an institution's performance under the investment
test is based upon the dollar amount of the institution's qualified
investments, its use of innovative or complex techniques to support community
development initiatives, and its responsiveness to credit and community
development needs.
The service test evaluates an institution's systems for delivering
retail banking services, taking into account such factors as: (i) the
geographic distribution of the institution's branch offices and ATMs; (ii) the
institution's record of opening and closing branch offices and ATMs; and (iii)
the availability of alternative product delivery systems such as home banking
and loan production offices in low-to-moderate income areas. The federal
regulators also will consider an institution's community development service as
part of the service test. A separate community development test will be
applied to wholesale or limited purpose financial institutions.
Institutions having total assets of less than $250 million will be
evaluated under more streamlined criteria. Seacoast and the Bank are
ineligible for these streamlined criteria. In addition, a financial
institution will have the option of having its CRA performance evaluated based
on a strategic plan of up to five years in length that it had developed in
cooperation with local community groups. In order to be rated under a
strategic plan, the institution will be required to obtain the prior approval
of its federal regulator.
The interagency CRA regulations provide that an institution evaluated
under a given test will receive one of five ratings for that test:
outstanding, high satisfactory, low satisfactory, needs to improve, or
substantial non-compliance. An institution will receive a certain number of
points for its rating on each test, and the points are combined to produce an
overall composite rating of either outstanding, satisfactory, needs to improve,
or substantial non-compliance. Under the agencies' rating guidelines, an
institution that receives an "outstanding" rating on the lending test will
receive an overall rating of at least "satisfactory", and no institution can
receive an overall rating of "satisfactory" unless it receives a rating of at
least "low satisfactory" on its lending test. In addition, evidence of
discriminatory or other illegal credit practices would adversely affect an
institution's overall rating. Under the new regulations, an institution's CRA
rating would continue to be taken into account by its primary federal regulator
in considering various types of applications. As a result of the Bank's most
recent CRA examination in August, 1995, the Bank received a "satisfactory" CRA
rating.
The Bank is also subject to, among other things, the provisions of the
Equal Credit Opportunity Act (the "ECOA") and the Fair Housing Act (the "FHA"),
both of which prohibit discrimination based on race or color, religion,
national origin, sex, and familial status in any aspect of a consumer or
commercial credit or residential real estate transaction. Based on recently
heightened concerns that some prospective home buyers and other borrowers may
be experiencing discriminatory treatment in their efforts to obtain loans, the
Department of Housing and Urban Development, the Department of Justice (the
"DOJ"), and all of the federal banking agencies in April 1994 issued an
Interagency Policy Statement on Discrimination in Lending in order to provide
guidance to financial institutions as to what the agencies consider in
determining whether discrimination exists, how the
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agencies will respond to lending discrimination, and what steps lenders might
take to prevent discriminatory lending practices. The DOJ has also recently
increased its efforts to prosecute what it regards as violations of the ECOA
and FHA.
Payment of Dividends
The Company is a legal entity separate and distinct from its banking
and other subsidiaries. The prior approval of the OCC is required if the total
of all dividends declared by a national bank (such as the Bank) in any calendar
year will exceed the sum of such bank's net profits for the year and its
retained net profits for the preceding two calendar years, less any required
transfers to surplus. Federal law also prohibits any national bank from paying
dividends that would be greater than such bank's undivided profits after
deducting statutory bad debt in excess of such bank's allowance for loan
losses.
In addition, the Company and the Bank are subject to various general
regulatory policies and requirements relating to the payment of dividends,
including requirements to maintain adequate capital above regulatory minimums.
The appropriate federal regulatory authority is authorized to determine under
certain circumstances relating to the financial condition of a national or
state member bank or a bank holding company that the payment of dividends would
be an unsafe or unsound practice and to prohibit payment thereof. The OCC and
the Federal Reserve have indicated that paying dividends that deplete a
national or state member bank's capital base to an inadequate level would be an
unsound and unsafe banking practice. The OCC and the Federal Reserve have each
indicated that financial depository institutions should generally pay dividends
only out of current operating earnings.
Capital
The Federal Reserve and the OCC have adopted final risk-based capital
guidelines for bank holding companies and national and state member banks. As
fully phased-in at the end of 1992, the guideline for a minimum ratio of
capital to risk-weighted assets (including certain off-balance-sheet
activities, such as standby letters of credit) is 8%. At least half of the
total capital must consist of common equity, retained earnings and a limited
amount of qualifying preferred stock, less goodwill and certain core deposit
intangibles ("Tier 1 capital"). The remainder may consist of subordinated
debt, non qualifying preferred stock and a limited amount of any loan loss
allowance ("Tier 2 capital" and, together with Tier 1 capital, "Total
Capital").
In addition, the federal bank regulatory agencies have established
minimum leverage ratio guidelines for bank holding companies, national banks,
and state member banks, which provide for a minimum leverage ratio of Tier 1
capital to adjusted average quarterly assets ("leverage ratio") equal to 3%,
plus an additional cushion of 100 to 200 basis points (i.e., 1%-2%) if the
institution has less than the highest regulatory rating. The guidelines also
provide that institutions experiencing internal growth or making acquisitions
will be expected to maintain strong capital positions substantially above the
minimum supervisory levels without significant reliance on intangible assets.
Furthermore the Federal Reserve's guidelines indicate that the Federal Reserve
will continue to consider a "tangible Tier 1 leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activity. The Federal
Reserve and OCC have not advised the Company or the Bank of any specific minimum
leverage ratio or tangible Tier 1 leverage ratio applicable to them.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), among other things, requires the federal banking agencies to take
"prompt corrective action" regarding depository institutions that do not meet
minimum capital requirements. FDICIA establishes five capital tiers: "well
capitalized", "adequately capitalized", "undercapitalized", "significantly
undercapitalized", and "critically undercapitalized". A depository
institution's capital tier will depend upon how its capital levels compare to
various relevant capital measures and certain other factors, as established by
regulation.
All of the federal banking agencies have adopted regulations
establishing relevant capital measures and relevant capital levels. The
relevant capital measures are the Total Capital ratio, Tier 1 capital ratio,
and the leverage ratio. Under the regulations, a national or state member bank
will be (i) well capitalized if it has a Total Capital ratio of 10% or greater,
a Tier 1 capital ratio of 6% or greater, and a leverage ratio of 5% or greater
and is not subject to any order or written directive by a federal bank
regulatory agency to meet and maintain a specific capital level for any capital
measure, (ii) adequately capitalized if it has a Total
12
Capital ratio of 8% or greater, a Tier 1 capital ratio of 4% or greater, and a
leverage ratio of 4% or greater (3% in certain circumstances), (iii)
undercapitalized if it has a Total Capital ratio of less than 8%, a Tier 1
capital ratio of less than 4% (3% in certain circumstances), or (iv) critically
undercapitalized if its tangible equity is equal to or less than 2% of average
quarterly tangible assets.
As of December 31, 1996, the consolidated capital ratios of the
Company and the Bank were as follows:
Regulatory
Minimum Company Bank
------- ------- ----
Tier 1 capital ratio 4.0% 14.0% 12.5%
Total Capital ratio 8.0% 15.0% 13.5%
Leverage ratio 3.0-5.0% 8.3% 7.4%
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
growth limitations and are required to submit a capital restoration plan for
approval. For a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution comply
with such capital restoration plan. The aggregate liability of the parent
holding company is limited to the lesser of 5% of the depository institution's
total assets at the time it became undercapitalized and the amount necessary to
bring the institution into compliance with applicable capital standards. If a
depository institution fails to submit an acceptable plan, it is treated as if
it is significantly undercapitalized. If the controlling holding company fails
to fulfill its obligations under FDICIA and files (or has filed against it) a
petition under the federal Bankruptcy Code, the claim would be entitled to a
priority in such bankruptcy proceeding over third party creditors of the bank
holding company.
Significantly undercapitalized depository institutions may be subject
to a number of requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to
reduce total assets, and cessation of receipt of deposits from correspondent
banks. Critically undercapitalized institutions are subject to the appointment
of a receiver or conservator.
Because the Company and the Bank exceed applicable regulatory capital
requirements, the respective managements of the Company and the Bank do not
believe that the provisions of FDICIA have any material impact on the Company
and the Bank or their respective operations.
Bank regulators continue to indicate their desire to base capital
requirements upon the riskiness of the activities conducted and have long
discussed proposals to add an interest rate-risk component to risk-based
capital requirements.
FDICIA
FDICIA directs that each federal banking regulatory agency prescribe
standards for depository institutions and depository institution holding
companies relating to internal controls, information systems, internal audit
system, loan documentation, credit underwriting, interest rate exposure, asset
growth compensation, a maximum ratio of classified assets to capital, minimum
earnings sufficient to absorb losses, a minimum ratio of market value to book
value for publicly traded shares, and such other standards as the agency deems
appropriate.
FDICIA also contains a variety of other provisions that may affect the
operations of the Company and the Bank, including new reporting requirements,
regulatory standards for estate lending, "truth in savings" provisions, the
requirement that a depository institution give 90 days prior notice to
customers and regulatory authorities
13
before closing any branch, and a prohibition on the acceptance or renewal of
brokered deposits by depository institutions that are not well capitalized or
are adequately capitalized and have not received a waiver from the FDIC. Under
regulations relating to brokered deposits, the Bank is well capitalized and not
restricted.
Enforcement Policies and Actions
FIRREA and subsequent federal legislation significantly increased the
enforcement authorities of the FDIC and other federal depository institution
regulators, and authorizes the imposition of civil money penalties up to $1
million per day. Persons who are affiliated with depository institutions can
be removed from any office held in such institution and banned for life from
participating in the affairs of any such institution. The banking regulators
have not hesitated to use the new enforcement authorities provided under
FIRREA.
Depositor Preference
The Omnibus Budget Reconciliation Act of 1993 provides that deposits
and certain claims for administrative expenses and employee compensation
against an insured depository institution would be afforded a priority over
other general unsecured claims against such an institution in the "liquidation
or other resolution" of such an institution by any receiver.
Fiscal and Monetary Policy
Banking is a business which depends on interest rate differentials.
In general, the difference between the interest paid by a bank on its deposits
and its other borrowings, and the interest received by a bank on its loans and
securities holdings, constitutes the major portion of a bank's earnings. Thus,
the earnings and growth of Seacoast and the Bank are subject to the influence
of economic conditions generally, both domestic and foreign, and also to the
monetary and fiscal policies of the United States and its agencies,
particularly the Federal Reserve. The Federal Reserve regulates the supply of
money through various means, including open market dealings in United States
government securities, the discount rate at which banks may borrow from the
Federal Reserve, and the reserve requirements on deposits. The nature and
timing of any changes in such policies and their effect on Seacoast and its
subsidiaries cannot be predicted.
FDIC Insurance Assessments
The Bank is subject to FDIC deposit insurance assessments. The Bank's
deposits are primarily insured by the FDIC's Bank Insurance Fund ("BIF"). The
Bank is also a member of the Savings Association Insurance Fund ("SAIF") to the
extent that the Bank owns savings deposits acquired in 1991 from the RTC in the
American Pioneer transaction. In 1996, the FDIC adopted a new risk-based
premium schedule which decreased the assessment rates for BIF depository
institutions. Under this schedule, which took effect for assessment periods
after January 1, 1996, the annual premiums ranged from zero to $.27 for every
$100 of deposits. Prior to January 1, 1996, the annual premiums ranged from
$.04 to $.31 for every $100 of deposit. Each financial institution is assigned
to one of three capital groups - well capitalized, adequately capitalized or
undercapitalized - and further assigned to one of three subgroups within a
capital group, on the basis of supervisory evaluations by the institution's
primary federal regulator and other information relevant to the institution's
financial condition and the risk posed to the applicable insurance fund. The
actual assessment rate applicable to a particular institution will, therefore,
depend in part upon the risk assessment classification so assigned to the
institution by the FDIC. SAIF insured deposits were assessed premiums for the
SAIF which have remained unchanged at $.23 to $.31 per $100 of deposits, based
upon the institution's assigned risk category and supervisory evaluation. In
the third quarter of 1996 a special one-time SAIF assessment of $0.657 per $100
of deposits was levied, resulting in a $500,000 charge to the Bank. Effective
October 1, 1996 for all Oakar and Sasser institutions, and January 1, 1997 for
all other institutions, the SAIF assessment was changed to four to 31 basis
points per annum. During the years ended December 31, 1995, and 1996, the Bank
paid $728,000 and $632,000, respectively, in BIF and SAIF deposit premiums.
The FDIC's Board of Directors has retained the 1996 BIF assessment
schedule of zero to 27 basis points per annum for the first semiannual period of
1997. In addition, the FDIC Board eliminated
14
the $2,000 minimum annual assessment and authorized the refund of the
fourth-quarter minimum assessment of $500 paid by certain BIF-insured
institutions on September 30, 1996 by crediting such amount against each BIF
member's first semiannual assessment in 1997. EGRPRA recapitalized the FDIC's
SAIF Fund to bring it into parity with BIF. As part of this recapitalization,
The Deposit Insurance Funds Act of 1996 (the "Funds Act") authorized FICO to
levy assessments on BIF-assessable deposits at a rate equal to one-fifth of the
FICO assessment rate that is applied to deposits assessable by SAIF. The actual
annual assessment rates for FICO for 1997 have been set at 1.30 basis points for
BIF-assessable deposits and 6.48 basis points for SAIF deposits.
Community Development Act
The Community Development Act has several titles. Title I provides
for the establishment of community development financial institutions to
provide equity investments, loans and development services to financially
underserved communities. A portion of this Title also contains various
provisions regarding reverse mortgages, consumer protections for qualifying
mortgages and hearings for home equity lending, among other things. Title II
provides for small business loan securitization and securitizations of other
loans, including authorizing a study on the impact of additional securities
based on pooled obligations. Small business capital enhancement is also
provided. Title III of the Act provides for paperwork reduction and regulatory
improvement, including certain examination and call report issues, as well as
changes in certain consumer compliance requirements, certain audit requirements
and real estate appraisals, and simplification and expediting processing of
bank holding company applications, merger applications and securities filings,
among other things. It also provides for commercial mortgage-related
securities to be added to the definition of a "mortgage-related security" in
the Exchange Act. This will permit commercial mortgages to be pooled and
securitized, and permit investment in such instruments without limitation by
insured depository institutions. It also pre-empts state legal investment and
blue sky laws related to qualifying commercial mortgage securities. Title IV
deals with money laundering and currency transaction reports, and Title V
reforms the national flood insurance laws and requirements. The nature,
timing, and effect upon the Company of any changes resulting from the Community
Development Act cannot be predicted.
Legislative and Regulatory Changes
Various changes have been proposed with respect to restructuring and
changing the regulation of the financial services industry. FIRREA required a
study of the deposit insurance system. On February 5, 1991, the Department of
the Treasury released "Modernizing the Financial System; Recommendations for
Safer, More Competitive Banks". Among other matters, this study analyzed and
made recommendations regarding reduced bank competitiveness and financial
strength, overextension of deposit insurance, the fragmented regulatory system
and the under-capitalized deposit insurance fund. It proposed restoring
competitiveness by allowing banking organizations to participate in a full
range of financial services outside of insured commercial banks. Deposit
insurance coverage would be narrowed to promote market discipline.
EGRPRA streamlined the non-banking activities application process for
well-capitalized and well-managed bank holding companies. Under EGRPRA,
qualified bank holding companies may commence a regulatory approved non-banking
activity without prior notice to the Federal Reserve, and instead, written
notice is required within 10 days after commencing the activity. Under EGRPRA,
the prior notice period is reduced to 12 days in the event of any non-banking
acquisition or share purchase or de novo non-banking activity previously
approved by order of the Federal Reserve, but not yet implemented by
regulations, assuming the size of the acquisition or proposed activity does not
exceed 10% of risk-weighted assets of the acquiring bank holding company and the
consideration does not exceed 15% of Tier 1 capital.
Other legislative and regulatory proposals regarding changes in
banking, and the regulation of banks, thrifts and other financial institutions
and bank and bank holding company powers are being considered by the executive
branch of the Federal government, Congress and various state governments,
including Florida. Among other items under consideration are the possible
combination of BIF and SAIF, changes in or repeal of the Glass-Steagall Act
which separates commercial banking from investment banking, and changes in the
BHC Act to
15
broaden the powers of "financial services" companies to own and control
depository institutions and engage in activities not closely related to
banking. Certain of these proposals, if adopted, could significantly change
the regulation of banks and the financial services industry. It cannot be
predicted whether any of these proposals will be adopted, and, if adopted, how
these proposals will affect the Company and the Bank. In a case presented to
the United States Supreme Court in 1996, the court found that the powers of
banking affiliates to conduct insurance business in the State of Florida was
permissible.
Statistical Information
Certain statistical information (as required by Guide 3) is included
in response to Item 7 of this Annual Report on Form 10-K. Certain statistical
information is included in response to Item 6 and Item 8 of this Annual Report
on Form 10-K.
ITEM 2. PROPERTIES
Seacoast and the Bank's main office occupy approximately 62,000 square
feet of a 68,000 square foot building in Stuart, Florida. The building,
together with an adjacent 10-lane drive-in banking facility and an additional
27,000 square foot office building, are situated on approximately eight acres
of land in the center of Stuart zoned for commercial use. The building and
land are owned by the Bank, which leases out portions of the building not
utilized by Seacoast and the Bank to unaffiliated parties.
Adjacent to the main office, the Bank leases approximately 21,400
square feet of office space to house operational departments, primarily
information systems and retail support. The Bank owns its data processing
equipment which is used for servicing bank deposits and loan accounts as well
as on-line banking services, providing tellers and other customer service
personnel with access to customers' records.
As of December 31, 1996, the net carrying value of branch offices
(excluding the main office) was approximately $7.7 million. Seacoast's branch
offices are described as follows:
Jensen Beach, opened in 1977, is a free-standing facility located in
the commercial district of a residential community contiguous to Stuart. The
1,920 square foot bank building and land are owned by the Bank. Improvements
include three drive-in teller lanes and one drive-up ATM as well as a parking
lot and landscaping.
East Ocean Boulevard, opened at it's original location in 1978 in a
2,400 square foot building leased to the Bank. It is still located on the main
thoroughfare between downtown Stuart and Hutchinson Island's beach-front
residential developments. The acquisition of American Bank provided an
opportunity for the Bank to move to a new location in April 1995. The first
three floors of a four story office condominium were acquired in the
acquisition. The 2,300 square foot branch area on the first floor has been
remodeled and operates as a full service branch including five drive-in lanes
and a drive-up ATM. The remaining 2,300 square feet on the ground floor was
sold in June 1996 and the third floor was sold in December 1995. All of the
second floor has been leased to tenants.
Cove Road, opened in late 1983, is conveniently located to housing
developments in the residential areas south of Stuart known as Port Salerno and
Hobe Sound. The Bank's subsidiary is a general partner in a partnership which
entered into a long term land lease for approximately four acres of property on
which it constructed a 7,500 square foot building. The Bank leases the
building and utilizes 3,450 square feet of the available space. The balance is
sublet by the Bank to other business tenants. The Bank has improved its
premises with three drive-in lanes, bank equipment, and furniture and fixtures,
all of which are owned by the Bank. A drive-up ATM will be added by March 31,
1997.
Hutchinson Island, opened on December 31, 1984, is in a shopping
center located on a coastal barrier island, close to numerous oceanfront
condominium developments. In 1993, the branch was expanded from 2,800
16
square foot to 4,000 square feet and is under long term lease to the Bank. The
Bank has improved the premises with bank equipment, a walk-up ATM and three
drive-in lanes, all owned by the Bank.
Rivergate, opened October 28, 1985, in 1,700 square feet of leased
space in the Rivergate Shopping Center, Port St. Lucie, Florida. The Bank also
leased approximately 800 square feet of office space nearby, which served as
administrative offices. Both of these offices were under short term leases
which expired in 1988. The Bank moved to larger facilities in the Rivergate
Shopping Center in April of 1988 under a long term lease agreement. Furniture
and bank equipment located in the prior facility were moved to the new facility
which has approximately 3,400 square feet, with three drive-in lanes and a
drive-up ATM.
Northport was acquired on June 28, 1986 from Citizens Federal Savings
& Loan Association of Miami. This property consists of a storefront under long
term lease in the St. Lucie Plaza Shopping Center, Port St. Lucie, of
approximately 4,000 square feet. This office was closed March 31, 1994 and the
property is utilized for storage.
Wedgewood Commons, opened in April 1988, is located on an out parcel
under long term lease in the Wedgewood Commons Shopping Center, south of Stuart
on U.S. Highway 1. A 2,800 square foot building, four drive-in lanes, a walk-
up ATM and bank equipment, all of which is owned by the Bank are located on the
leased property.
Bayshore, opened on September 27, 1990, occupies 3,520 square feet of
a 50,000 square foot shopping center located in Port St. Lucie. The Bank has
leased the premises under a long term lease agreement and has made improvements
to the premises, including three drive-in lanes and a walk-up ATM, all of which
are owned by the Bank.
Hobe Sound, acquired from the Resolution Trust Corporation on December
23, 1991, is a two story facility containing 8,000 square feet and is centrally
located in Hobe Sound. Improvements include two drive-in teller lanes, a
drive-up ATM, and equipment and furniture, all of which are owned by the Bank.
Fort Pierce, acquired from the Resolution Trust Corporation on
December 23, 1991, is a 2,895 square foot facility located in the heart of Fort
Pierce and has three drive-in lanes and a drive-up ATM. Equipment and furniture
are all owned by the Bank.
Martin Downs , purchased from the Resolution Trust Corporation in
February 1992, is a 3,960 square foot bank building located at a high traffic
intersection in Palm City, an emerging commercial and residential community west
of Stuart. Improvements include three drive-in teller lanes, a drive-up ATM,
equipment and furniture.
Tiffany, purchased from the Resolution Trust Corporation in May 1992,
is a two story facility which contains 8,250 square feet and is located on a
corner of U.S. Highway One in Port St. Lucie offering excellent exposure in one
of the fastest growing residential areas in the region. The second story which
contains 4,250 square feet is leased to tenants. Three drive-in teller lanes,
a walk-up ATM, equipment and furniture are utilized and owned by the Bank.
Vero Beach, purchased from the Resolution Trust Corporation in
February 1993, is a 3,300 square foot bank building located in Vero beach on
U.S. Highway One and represents the Bank's initial presence in this Indian
River County market. A leasehold interest in a long-term land lease was
acquired. Improvements include three drive-in teller lanes, a walk-up ATM,
equipment and furniture, all of which are owned by the Bank.
Beachland was opened in February 1993, in 4,150 square feet of leased
space located in a three-story commercial building on Beachland Boulevard, the
main beachfront thoroughfare, in Vero Beach, Florida. An additional 1,050
square feet was leased during 1996. This facility has 2 drive-in teller lanes,
a drive-up ATM, furniture and equipment, all owned by the Bank.
17
Sandhill Cove, opened in September 1993, is in an upscale life-care
retirement community. The 135 square foot office is located within the
facility which is located on 36 acres in Palm City, Florida. This community
will contain approximately 168 private residences.
St. Lucie West, opened in November 1994, is in a 3,600 square foot
building located at 1320 S.W. St. Lucie Blvd, Port St. Lucie. This facility
has three drive-in teller lanes and a drive-up ATM, all owned by the Bank.
Mariner Square, acquired from American Bank in April 1995, is a
3,600 square foot leased space located on the ground floor of a three story
office building located on U.S.Highway 1 between Hobe Sound and Port Salerno.
Approximately 700 square feet of the space is sublet to a tenant. The space
occupied by the Bank has been improved to be a full service branch with two
drive-in lanes, one serving as a drive-up ATM lane as well as a drive-in teller
lane, all owned by the Bank.
Sebastian opened in May 1996 as an in-store branch within a
174,000 square foot WalMart Superstore located on U.S. 1 in northern Indian
River County. The leased space occupied by the Bank totals 865 square feet.
The facility has a walk-up ATM, owned by the Bank.
For additional information, refer to Notes F and I of the Notes to
Consolidated Financial Statements in the 1996 Annual Report of Seacoast
incorporated herein by reference pursuant to Item 8 of this document.
In 1997, four new branches, one in St. Lucie County and three in
Indian River County, will open:
Nettles Island was opened in January 1997 in southern St. Lucie County
on Hutchinson Island. It occupies 350 square feet of leased space in a
predominantly modular home community. Furniture and equipment are owned. No
ATM or drive-in lanes are offered.
South Vero Square is expected to open in April 1997 in a 3,150 square
foot building owned by the Bank on South U.S. 1 in Vero Beach. The facility
will include three drive-in teller lanes, a drive-up ATM, and furniture and
equipment, all owned by the Bank.
Oak Point is anticipated to open in June 1997. It will occupy 9,000
square feet of leased space on the first and second floor of a 19,700 square
foot 3-story building, presently under construction in Indian River County.
The office will be in close proximity to Indian River Memorial Hospital and the
peripheral medical community adjacent to the hospital. The facility includes
three drive-in teller lanes, a walk-up ATM, and furniture and equipment, all
owned by the Bank.
Route 60 Vero is scheduled to open in June 1997 as well. Similar to
the Sebastian office, this facility will be housed in a WalMart Superstore in
western Vero Beach in Indian River County. The branch will occupy 750 square
feet of leased space and will include a walk-up ATM.
18
ITEM 3. LEGAL PROCEEDINGS
The Company and its Subsidiaries, because of the nature of their
business, are subject to various threatened and pending legal actions in the
normal course of their business. 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 lawsuits, when resolved,
should not have a material adverse effect on the consolidated results of
operation or financial condition of Seacoast and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
19
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Class A Common Stock is traded in the over the counter market and
quoted on the Nasdaq National Market System. There is no established public
trading market for the Class B Common Stock of Seacoast. As of March 1, 1997,
there were approximately ______ record holders of the Class A Common Stock and
______ record holders of the Class B Common Stock.
Seacoast Class A Stock is traded in the over-the-counter market and is
quoted on the Nasdaq National Market ("Nasdaq National Market") under the symbol
"SBCFA". The following table sets forth the high and low sale prices per share
of Seacoast Class A Stock on the Nasdaq National Market and the dividends paid
per share of Seacoast Class A Stock for the indicated periods.
Annual Dividends Declared
Sale Price Per Share of Per Share of
Seacoast Class A Stock Seacoast Class A Stock
----------------------- ----------------------
High Low
---- ---
1995
----
First Quarter . . . . . . . . . . . . . . . 19.25 16.25 $0.13
Second Quarter . . . . . . . . . . . . . . 19.50 17.75 0.13
Third Quarter . . . . . . . . . . . . . . . 22.50 18.00 0.13
Fourth Quarter . . . . . . . . . . . . . . 25.25 21.625 0.15
1996
----
First Quarter . . . . . . . . . . . . . . . 22.75 20.25 0.15
Second Quarter . . . . . . . . . . . . . . 22.75 21.00 0.15
Third Quarter . . . . . . . . . . . . . . . 24.00 21.75 0.15
Fourth Quarter . . . . . . . . . . . . . . 26.50 23.25 0.20
Seacoast's Articles of Incorporation prohibit the declaration or
payment of cash dividends on Class B Common Stock unless cash dividends are
declared or paid on Class A Common Stock in an amount equal to at least 110% of
any cash dividend on Class B Common Stock. Dividends on Class A Common Stock
payable in shares of Class A Common Stock shall be paid to holders of Class A
Common and Class B Common Stock at the same time and on the same basis.
In 1994, cash dividends of $.49 per share of Class A Common Stock and
$.445 per share of Class B Common Stock were paid. In 1995, cash dividends of
$.54 per share of Class A Common Stock and $.489 per share of Class B Common
Stock were paid. In 1996, cash dividends of $.65 per share of Class A Common
Stock and $.585 per share of Class B Common Stock were paid.
Dividends from the Bank are Seacoast's primary source of funds to pay
dividends on Seacoast capital stock. Under the National Bank Act, the Bank may
in any calendar year, without the approval of the OCC, pay dividends to the
extent of net profits for that year, plus retained net profits for the
preceding two years (less any required transfers to surplus). The need to
maintain adequate capital in the Bank also limits dividends that may be paid to
Seacoast. Information regarding a restriction on the ability of the Bank to
pay dividends to Seacoast is contained in Note B of the "Notes to Consolidated
Financial Statements" contained in Item 8 hereof. See also "Supervision and
Regulation" contained in Item 1 of this document.
The OCC and Federal Reserve have the general authority to limit the
dividends paid by insured banks and bank holding companies, respectively, if
such payment may be deemed to constitute an unsafe or unsound practice.
20
If, in the particular circumstances, the OCC determines that the payment of
dividends would constitute an unsafe or unsound banking practice, the OCC may,
among other things, issue a cease and desist order prohibiting the payment of
dividends. This rule is not expected to adversely affect the Bank's ability to
pay dividends to Seacoast. See "Supervision and Regulation" contained in Item
1 of this document.
Each share of Class B Common Stock is convertible by its holder into
one share of Class A Common Stock at any time prior to a vote of shareholders
authorizing a liquidation of Seacoast.
21
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
1996 1995 1994
- ----------------------------------------------------------------------------
FOR THE YEAR
Net interest income $ 31,102 $ 27,090 $ 25,200
Provision for loan losses 450 250 145
Noninterest income:
Securities gains 72 480 752
Other 8,714 7,517 6,475
Noninterest expenses 27,517 24,246 23,005
Income before income taxes 11,921 10,591 9,277
Provision for income taxes 4,312 3,765 3,091
Income before cumulative effect
of a change in accounting
principle 7,609 6,826 6,186
Cumulative effect on prior years
of a change in accounting for
income taxes 0 0 0
Net income 7,609 6,826 6,186
Core earnings (1) 12,464 10,425 8,690
Per share data:
Income before cumulative
effect of a change in
accounting principle 1.77 1.58 1.44
Cumulative effect on prior
years of a change in
accounting for income taxes 0.00 0.00 0.00
Net income 1.77 1.58 1.44
Cash dividends paid:
Class A common 0.65 0.54 0.49
Book value 15.68 14.75 12.98
Dividends to net income 35.9% 33.4% 33.5%
AT YEAR END
Assets $808,408 $771,348 $662,711
Securities 208,800 213,638 258,661
Net loans 467,311 410,898 289,417
Deposits 692,757 660,967 559,629
Shareholders' equity (2) 66,769 62,200 55,584
Performance ratios:
Return on average assets 1.05% 1.00% 1.02%
Return on average equity 11.48 11.05 10.69
Net interest margin (3) 4.63 4.32 4.57
Average equity to average assets 9.14 9.01 9.51
- --------------------------------------------------------------------------------
22
SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
1993 1992
- -----------------------------------------------------------------
FOR THE YEAR
Net interest income $ 26,059 $ 27,477
Provision for loan losses 150 1,103
Noninterest income:
Securities gains 1,204 1,759
Other 7,588 7,693
Noninterest expenses 24,345 26,655
Income before income taxes 10,356 9,171
Provision for income taxes 3,488 3,022
Income before cumulative effect of a change
in accounting principle 6,868 6,149
Cumulative effect on prior years of a change
in accounting for income taxes 264 0
Net income 7,132 6,149
Core earnings (1) 10,421 10,234
Per share data:
Income before cumulative
effect of a change in
accounting principle 1.60 1.45
Cumulative effect on prior
years of a change in
accounting for income taxes 0.06 0.00
Net income 1.66 1.45
Cash dividends paid:
Class A common 0.45 0.41
Book value 14.13 11.71
Dividends to net income 26.5% 27.9%
AT YEAR END
Assets $639,404 $613,558
Securities 283,732 292,935
Net loans 255,995 247,754
Deposits 533,486 551,368
Shareholders' equity (2) 60,257 49,707
Performance ratios:
Return on average assets 1.19% 1.02%
Return on average equity 13.47 12.92
Net interest margin (3) 4.80 5.07
Average equity to average assets 8.81 7.89
- -----------------------------------------------------------------
(1) Income before taxes excluding the provision for loan losses, securities
gains and expenses associated with foreclosed and repossessed asset
management and dispositions.
(2) Includes $(1,482,000) in 1996, $(705,000) in 1995, $(4,391,000) in 1994
and $4,667,000 in 1993 related to adoption of Financial Accounting
Standard Board No. 115 "Accounting for Certain Investments in Debt and
Equity Securities".
(3) On a fully taxable equivalent basis.
23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
1996 Management's Discussion and Analysis
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 Consolidated Financial Statements of the Company
and the notes thereto in Item 8 hereof, and the Selected Financial Data
provided in Item 6 hereof.
Net income for 1996 totalled $7,609,000 or $1.77 per share, compared with
$6,826,000 or $1.58 per share in 1995 and $6,186,000 or $1.44 per share in
1994. Return on average assets was 1.05 percent and return on average
shareholders' equity was 11.48 percent for 1996, compared to the prior year's
results of 1.00 percent and 11.05 percent, respectively, and 1994's results of
1.02 percent and 10.69 percent, respectively.
Earnings in 1996 were reduced by a one-time special assessment of $500,000
($316,000 after taxes) to replenish the Savings Association Insurance Fund
(SAIF) and a noncash nonrecurring charge of $600,000 ($379,000 after taxes)
related to the termination and settlement of the Company's pension plan.
The Company acquired $62 million in deposits and $46 million in loans from
American Bank Capital Corporation of Florida (American) and its subsidiary,
American Bank of Martin County, on April 14, 1995. The transaction was
accounted for as a purchase.
TABLE 1
CONDENSED INCOME STATEMENT
AS A PERCENT OF AVERAGE ASSETS
(Tax equivalent basis)
1996 1995 1994
------------------
Net interest income 4.33% 4.00% 4.21%
Provision for loan losses 0.06 0.04 0.02
Noninterest income
Securities gains 0.01 0.07 0.12
Other 1.20 1.10 1.06
Noninterest expenses 3.79 3.53 3.78
------------------
Income before income taxes 1.69 1.60 1.59
Provision for income taxes
including tax equivalent
adjustment 0.64 0.60 0.57
------------------
NET INCOME 1.05% 1.00% 1.02%
==================
24
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income (fully taxable equivalent) for 1996 rose $3,986,000 or 14.5
percent, due to increased business volumes and an improved net interest margin,
which increased from 4.32 percent a year ago to 4.63 percent. In 1996, rates
paid for all types of interest bearing deposits decreased, resulting in
declines of: 22 basis points to 1.36 percent for NOW accounts, 16 basis points
to 1.77 percent for savings deposits, 73 basis points to 2.12 percent for money
market deposits and 21 basis points to 5.27 percent for time deposits. In
addition, the interest rates paid for short term borrowings, primarily sweep
repurchase agreements with customers of the Company's subsidiary bank,
decreased 45 basis points to 4.14 percent. The resulting rate paid for all
interest bearing liabilities in 1996 was 3.64 percent, 21 basis points lower
than in 1995.
TABLE 2
CHANGES IN AVERAGE EARNING ASSETS
(DOLLARS IN THOUSANDS)
Increase/(Decrease) Increase/(Decrease)
---------------------- --------------------
1996 vs 1995 1995 vs 1994
- ------------------------------------------------------------------------------
Securities:
Taxable $(25,973) (11.4)% $(35,028) (13.4)%
Nontaxable (1,436) (10.6) (435) (3.1)
Federal funds sold and other
short term investments (15,063) (38.4) 25,119 177.8
Loans, net 85,428 24.0 85,713 31.7
-------------------------------------------
TOTAL $ 42,956 6.8% $ 75,369 13.5%
===========================================
During 1996, average total deposits increased $24,873,000 or 4.1 percent.
Average time deposits increased $5,863,000 or 2.1 percent, while on an
aggregate basis, average balances for NOW, savings and money market accounts,
which are lower cost interest bearing deposits, increased $5,782,000 or 2.2
percent. Most significant of all, the deposit mix was favorably affected by an
increase in average noninterest bearing demand deposits of $13,228,000 or 18.3
percent.
The yield on earning assets improved 6 basis points during 1996 to 7.69
percent. A more favorable mix of higher yield loans versus investments offset
individual yield declines for investment securities, federal funds sold and the
loan portfolio of 24 basis points, 59 basis points and 10 basis points,
respectively. Average earning assets for 1996 increased $42,956,000 or 6.8
percent, compared to the prior year. Although $29.7 million in fixed rate
residential mortgage loans were securitized in 1996, average total loans grew
$85,428,000 or 24.0 percent. Partially funding the growth in loans were
declines in average investment securities of $27,409,000 or 11.4 percent and
average federal funds sold of $15,063,000 or 38.4 percent.
25
TABLE 3
RATE/VOLUME ANALYSIS (ON A TAX EQUIVALENT BASIS)
Amount of Increase (Decrease) (Dollars in thousands)
1996 vs 1995
------------
Due to Change In:
Volume Rate Mix Total
- --------------------------------------------------------------
INTEREST INCOME
Securities:
Taxable $(1,641) $ (600) $ 68 $(2,173)
Nontaxable (120) 26 (3) (97)
-----------------------------------
(1,761) (574) 65 (2,270)
Federal funds sold and
other short term
investments (893) (230) 88 (1,035)
Loans 7,373 (341) (82) 6,950
-----------------------------------
TOTAL INTEREST INCOME 4,719 (1,145) 71 3,645
INTEREST EXPENSE
NOW (including Super
NOW) (818) (233) 111 (940)
Savings deposits (125) (106) 11 (220)
Money market accounts 1,825 (649) (463) 713
Time deposits 321 (588) (12) (279)
-----------------------------------
1,203 (1,576) (353) (726)
Federal funds purchased
and other short term
borrowings 467 (36) (46) 385
-----------------------------------
TOTAL INTEREST EXPENSE 1,670 (1,612) (399) (341)
-----------------------------------
NET INTEREST INCOME $ 3,049 $ 467 $ 470 $ 3,986
===================================
TABLE 3 (CONT'D)
RATE/VOLUME ANALYSIS (ON A TAX EQUIVALENT BASIS)
AMOUNT OF INCREASE (DECREASE) (DOLLARS IN THOUSANDS)
1995 vs 1994
--------------------------------
Due to Change In:
Volume Rate Mix Total
- --------------------------------------------------------
INTEREST INCOME
Securities:
Taxable $(2,116) $ 733 $ (98) $(1,481)
Nontaxable (37) (22) 1 (58)
--------------------------------
(2,153) 711 (97) (1,539)
Federal funds sold and
other short term
investments 1,118 209 371 1,698
Loans 6,915 1,522 483 8,920
--------------------------------
TOTAL INTEREST INCOME 5,880 2,442 757 9,079
INTEREST EXPENSE
NOW (including Super
NOW) (166) (52) 5 (213)
Savings deposits (245) (31) 5 (271)
Money market accounts 205 260 26 491
Time deposits 3,178 2,830 1,115 7,123
--------------------------------
2,972 3,007 1,151 7,130
Federal funds purchased
and other short term
borrowings (5) 96 (1) 90
--------------------------------
TOTAL INTEREST EXPENSE 2,967 3,103 1,150 7,220
--------------------------------
NET INTEREST INCOME $2,913 $ (661) $ (393) $ 1,859
================================
26
TABLE 4
CHANGES IN AVERAGE
INTEREST BEARING LIABILITIES
(Dollars in thousands)
Increase/(Decrease) Increase/(Decrease)
---------------------- --------------------
1996 vs 1995 1995 vs 1994
- ---------------------------------------------------------------
NOW (including
Super NOW) $(51,858) (47.5)% $(10,223) (8.6)%
Savings deposits (6,457) (10.2) (12,431) (16.4)
Money market
accounts 64,097 71.3 8,114 9.9
Time deposits 5,863 2.1 78,325 39.4
Federal funds 10,162 130.0 (133) (1.7)
purchased and
other short term
borrowings
-------------------------------------------
TOTAL $ 21,807 4.0% $ 63,652 13.2%
===========================================
Since July 1995, the Federal Reserve Bank has lowered short term interest rates
75 basis points, with an identical decline occurring in the prime rate to
8.25%. This resulted in excellent loan demand in the Treasure Coast market.
Expectations are for loan demand to remain strong during 1997, with loans
exceeding anticipated deposit growth on a percentage basis.
Net interest income (fully taxable equivalent) for 1995 increased
$1,859,000 or 7.3 percent, with increased business volumes more than offsetting
the effect of a decline in the net interest margin from 4.57 percent a year ago
to 4.32 percent. While competing institutions in our market lowered deposit
rates for savings and NOW deposits during 1995, rates paid for other types of
deposits increased and resulted in a 32 basis points rise to 2.85 percent for
money market deposits and a 142 basis points rise to 5.48 percent for time
deposits. In addition, the rate paid for short term borrowings increased 121
basis points to 4.59 percent. The resulting rate paid for all interest bearing
liabilities in 1995 was 3.85 percent, 99 basis points higher than in 1994.
In part, a renewed interest by consumers in certificates of deposit offered at
higher rates during the second half of 1994 and during 1995 effected an
increase in the Company's cost of interest bearing liabilities. Average time
deposits increased $78,325,000 or 39.4 percent, while average balances for NOW,
savings and money market accounts declined $14,540,000 or 5.2 percent on an
aggregate basis. Favorably affecting deposit mix was an increase in average
noninterest bearing demand deposits of $9,084,000 or 14.4 percent.
The yield on earning assets increased 59 basis points during 1995 to 7.63
percent. Yield increases in 1995 for securities, federal funds sold and the
loan portfolio of 27 basis points, 148 basis points and 56 basis points,
respectively, were recorded and an improved mix of earning assets contributed
to the higher yield on earning assets. The acquisition of American and loan
demand, which picked up pace during 1995, provided an $85,713,000 or 31.7
increase in average loans. While $68 million in residential mortgage loans
were originated in 1995, no sales of residential mortgage loans were
transacted. Average securities declined $35,463,000 or 12.9 percent in 1995,
while average federal funds sold grew $25,119,000 or 177.8 percent. In part,
the increase in federal funds sold was related to securities sales of
$115,107,000 and maturities of $62,586,000 occuring during 1995, offset by
purchases of securities of $114,244,000. These short term assets matured or
were sold and utilized in 1996 to fund loan growth.
For the years ended December 31, 1996 and 1995, Table 3 discloses the increases
and decreases in net interest income attributable to changes in the volume and
rates of individual earning assets and interest bearing liabilities. The
balances of nonaccruing loans are included in average loans outstanding.
27
TABLE 5
THREE-YEAR SUMMARY
BALANCES, INTEREST INCOME AND EXPENSES, YIELDS AND RATES (1)
(Dollars in thousands) 1996
- --------------------------------------------------------------
Yield/
Average Balance Interest Rate
- --------------------------------------------------------------
Assets
Earning assets:
Securities
Taxable $200,881 $12,164 6.06%
Nontaxable 12,118 1,038 8.57
--------------------------
Total Securities 212,999 13,202 6.20
Federal funds
sold and other
short term
investments 24,183 1,292 5.34
Loans (2) 441,313 37,666 8.53
--------------------------
TOTAL EARNING ASSETS 678,495 52,160 7.69
Allowance for loan losses (4,245)
Cash and due from
banks 20,362
Bank premises and
equipment 16,052
Other assets 14,774
--------------------------
$725,438
==========================
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing
liabilities:
NOW (Including
Super NOW) $ 57,257 $ 781 1.36%
Savings deposits 57,028 1,008 1.77
Money market 153,933 3,271 2.12
accounts
Time deposits 283,124 14,916 5.27
Federal funds 17,978 744 4.14
purchased and
other short
term borrowings
--------------------------
TOTAL INTEREST BEARING 569,320 20,720 3.64
LIABILITIES
Demand deposits 85,538
Other liabilities 4,304
--------------------------
659,162
Shareholders' 66,276
Equity
--------------------------
$725,438
==========================
Interest expense 3.06%
as % of earning
assets
Net interest $31,440 4.63%
income/yield on
earning assets
==========================
28
TABLE 5 (CONT'D)
THREE-YEAR SUMMARY
BALANCES, INTEREST INCOME AND EXPENSES, YIELDS AND RATES (1)
(Dollars in thousands) 1995
- ---------------------------------------------------------------------
Average Yield/
Balance Interest Rate
- ---------------------------------------------------------------------
ASSETS
Earning assets:
Securities
Taxable $226,854 $14,337 6.32%
Non Taxable 13,554 1,135 8.37
--------------------------
TOTAL SECURITIES 240,408 15,472 6.44
Federal funds sold and other
short term investments 39,246 2,327 5.93
Loans (2) 355,885 30,716 8.63
--------------------------
TOTAL EARNING ASSETS 635,539 48,515 7.63
Allowance for loan losses (3,845)
Cash and due from banks 24,152
Bank premises and equipment 16,769
Other assets 13,228
--------------------------
$685,843
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing
liabilities:
NOW (Including Super NOW) $109,115 $ 1,721 1.58%
Savings deposits 63,485 1,228 1.93
Money market accounts 89,836 2,558 2.85
Time deposits 277,261 15,195 5.48
Federal funds purchased and other
short term borrowings 7,816 359 4.59
--------------------------
TOTAL INTEREST BEARING LIABILITIES 547,513 21,061 3.85
Demand deposits 72,310
Other liabilities 4,258
--------------------------
624,081
Shareholders' Equity 61,762
--------------------------
$685,843
==========================
Interest expense as % of
earning assets 3.31%
Net interest income/yield on
earning assets $27,454 4.32%
==========================
29
TABLE 5 (CONT'D)
THREE-YEAR SUMMARY
BALANCES, INTEREST INCOME AND EXPENSES, YIELDS AND RATES (1)
(Dollars in thousands) 1994
- ---------------------------------------------------------------
Average Yield/
Balance Interest Rate
- ---------------------------------------------------------------
ASSETS
Earning assets:
Securities
Taxable $261,882 $15,818 6.04%
Nontaxable 13,989 1,193 8.53
--------------------------
TOTAL SECURITIES 275,871 17,011 6.17
Federal funds sold and other
short term investments 14,127 629 4.45
Loans (2) 270,172 21,796 8.07
--------------------------
TOTAL EARNING ASSETS 560,170 39,436 7.04
Allowance for loan losses (3,545)
Cash and due from banks 23,737
Bank premises and equipment 16,182
Other assets 11,951
--------------------------
$608,495
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing
liabilities:
NOW (Including Super NOW) $119,338 $ 1,934 1.62%
Savings deposits 75,916 1,499 1.97
Money market accounts 81,722 2,067 2.53
Time deposits 198,936 8,072 4.06
Federal funds purchased and
other short term borrowings 7,949 269 3.38
--------------------------
TOTAL INTEREST BEARING
LIABILITIES 483,861 13,841 2.86
Demand deposits 63,226
Other liabilities 3,518
--------------------------
550,605
Shareholders' Equity 57,890
--------------------------
$608,495
==========================
Interest expense as % of
earning assets 2.47%
Net interest income/yield on
earning assets $25,595 4.57%
==========================
(1) The tax equivalent adjustment is based on a 34% tax rate.
(2) Nonaccrual loans are included in loan balances. Fees on loans are
included in interest on loans.
30
PROVISION FOR LOAN LOSSES
The improved loan demand and growth in total loans outstanding in 1996 resulted
in relatively higher provisioning, but was mitigated by a continued favorable
net charge off ratio (0.05 percent in 1996 and 0.03 percent in 1995, versus
0.20 percent for the Company's peer group), and resulted in a provision for
loan losses in 1996 of $450,000. The provision for loan losses in 1995 was
$250,000, and in 1994 was $145,000. See "Nonperforming Assets" and "Allowance
for Loan Losses."
The Company's internal loan monitoring systems provide detailed monthly
analysis of delinquencies, nonperforming assets, and potential problem loans,
which are reviewed regularly by both senior management and the Board of
Directors.
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, 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. Due to a forecast of increased loan demand and
balances outstanding, management believes higher provisions for loan losses
will result in 1997, compared to 1996 and 1995.
NONINTEREST INCOME
Table 6 shows noninterest income for the years indicated.
Noninterest income, excluding gains from sales of securities, increased
$1,197,000 or 15.9 percent in 1996 compared to the prior year. The largest
increase in noninterest income occurred in brokerage commissions and fees which
increased $491,000 or 31.6 percent. Lower interest rates in 1996 caused
renewed interest in financial products compared to 1995. Trust income
increased, by $161,000 or 8.4 percent. Additional sales staff in trust and the
repricing of trust services in 1995 accounted for the improved results. 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.
Also increasing, service charges on deposits grew $358,000 or 14.6 percent, a
result of internal growth, certain services being repriced, and a full year
impact of the acquisition.
31
TABLE 6
NONINTEREST INCOME
(Dollars in thousands)
Year Ended % Change
-------------------------------------------
1996 1995 1994 96/95 95/94
- ---------------------------------------------------------------
Service charges on
deposit accounts $2,812 $2,454 $2,033 14.6% 20.7%
Trust fees 2,069 1,908 1,722 8.4 10.8
Other service
charges and fees 1,193 1,098 1,028 8.7 6.8
Brokerage
commissions and
fees 2,046 1,555 1,190 31.6 30.7
Other 594 502 502 18.3 0.0
-------------------------------------------
8,714 7,517 6,475 15.9 16.1
Securities gains 72 480 752 (85.0) (36.2)
-------------------------------------------
TOTAL $8,786 $7,997 $7,227 9.9% 10.7%
===========================================
Noninterest income, excluding gains from sales of securities, increased
$1,042,000 or 16.1 percent in 1995 compared to prior year. The largest
increase occurred in service charges on deposits which increased $421,000 or
20.7 percent. Service charges on deposits grew during the year as a result of
the acquisition and certain services being repriced. The next two largest
increases during 1995 were in brokerage commissions and fees and trust fees
which increased $365,000 or 30.7 percent and $186,000 or 10.8 percent,
respectively, year over year. An uncertain rate of economic growth and
inflation contributed to financial market turmoil during 1994 and resulted in
reduced brokerage activity.
Residential real estate lending is an important segment of the Company's
lending activities, and exposure to market interest rate volatility is managed
at times by the sale of fixed rate loans in the secondary market. Consumer
interest in fixed rate mortgages returned in the second half of 1995 and in
1996 due to lower interest rates, while higher rates in 1994 had consumers
switching to lower initial rate periodic adjustable rate mortgages.
While no sales were recorded in 1996 and 1995, during 1994, a gain of $45,000
on the sale of $24.7 million in fixed rate residential mortgages was recorded
in other income. During 1996 and 1995, the proceeds from sales of securities
and funds received from maturing securities have been utilized to fund seasonal
deposit declines and lending activities. As a result of sales of securities in
1996, a $72,000 net gain was recognized. During 1995, as interest rates
declined and the market value of the securities portfolio increased, sales of
securities generated a net gain of $480,000. During 1994, securities sales
were executed to reduce the Company's exposure to predicted increasing interest
rates in the future. As a result, a net gain of $752,000 was recognized in
1994.
32
NONINTEREST EXPENSES
Table 7 shows the Company's noninterest expenses for the years indicated.
TABLE 7
NONINTEREST EXPENSES
(Dollars in thousands)
Year Ended
-------------------------
1996 1995 1994
-------------------------
Salaries and wages $10,738 $ 9,650 $ 8,682
Pension and other employee 2,531 1,951 1,815
benefits
Occupancy 2,304 2,331 2,230
Furniture and equipment 1,781 1,900 2,027
Marketing 1,632 1,367 1,262
Legal and professional fees 844 742 888
FDIC assessments 632 728 1,191
Foreclosed and repossessed
asset management and 165 64 20
dispositions
Amortization of intangibles 661 418 88
Other 6,229 5,095 4,802
-------------------------
TOTAL $27,517 $24,246 23,005
=========================
33
TABLE 7 (CONT'D)
NONINTEREST EXPENSES
(Dollars in thousands)
% Change
-------------
96/95 95/94
-------------
Salaries and wages 11.3% 11.1%
Pension and other employee
benefits 29.7 7.5
Occupancy (1.2) 4.5
Furniture and equipment (6.3) (6.3)
Marketing 19.4 8.3
Legal and professional fees 13.7 (16.4)
FDIC assessments (13.2) (38.9)
Foreclosed and repossessed
asset management and
dispositions 157.8 220.0
Amortization of intangibles 58.1 375.0
Other 22.3 6.1
-------------
TOTAL 13.5% 5.4%
===== =====
When compared to 1995, noninterest expenses increased $3,271,000 or 13.5
percent in 1996. Included in the increase was a one-time charge of $500,000 in
Federal Deposit Insurance Corporation (FDIC) assessments (incurred in the third
quarter) to recapitalize the Savings Association Insurance Fund (SAIF). The
one-time charge related to the deposits of a failed local thrift acquired by
the Company in 1991 from the Resolution Trust Corporation (RTC).
In 1996, salaries and wages increased $1,088,000 or 11.3 percent and employee
benefits rose $580,000 or 29.7 percent. Commercial loan officers were added in
1996 and increased the costs in lending by $297,000. Higher revenue in
brokerage resulted in increased commissions paid of $270,000 over the last
twelve months. The full-year impact of a new branch acquired from American in
April 1995 and the addition of a new branch in August 1996, increased salaries
and wages $209,000. A one-time $600,000 charge to terminate the Company's
defined benefit plan increased employee benefit costs. However, revenue growth
exceeded the increase in salaries and wages and employee benefits, and resulted
in the Company's overhead ratio (excluding the one-time SAIF charge of
$500,000) declining to 67.3 percent from 69.3 percent a year ago.
Occupancy and furniture and equipment expenses, on an aggregate basis, declined
$146,000 or 3.5 percent, principally due to lower depreciation costs associated
with furniture and equipment. Marketing expenses increased $265,000 or 19.4
percent, primarily as a result of increases in sales promotion and ad agency
production and print costs associated with heightened efforts to market
products and services within the Company's market.
Legal and professional fees increased $102,000 or 13.7 percent. Usage of audit
services to independently review internal controls and legal services to assist
with regulatory filings and to defend actions brought against the Company were
greater in 1996, compared to prior year. Costs associated with foreclosed and
repossessed asset management increased $101,000, but totaled
34
only $165,000. These results reflect the level of activity with respect to
problem asset management.
The premium for FDIC and SAIF insurance was $96,000 or 13.2 percent lower in
1996, and would have been lower if not for the one-time charge of $500,000.
The FDIC insurance rate assessed on deposits was reduced in mid-1995 for
commercial banks to a range of 0.04 percent to 0.10 percent, depending on the
capital adequacy examination ratings imposed by governing regulatory
authorities on individual financial institutions, while the rate charged to
savings and loans ranged from 0.23 percent to 0.29 percent. This action by the
FDIC effected a reduction in expense in 1995 of $463,000 or 38.9 percent. For
1997, the rate for commercial banks has been reduced to 0.013 percent and for
savings and loans to 0.065 percent. The rate the Company's subsidiary bank is
being assessed has been and is the lowest rate indicated, based on the
guidelines.
Amortization of intangible assets increased $243,000 or 58.1 percent as a
result of a full-year impact for the acquisition of American, for which the
Company recorded amortizable intangible assets of goodwill and core deposits.
The other expense category increased $1,134,000 or 22.3 percent in 1996 with
higher costs incurred for education and training of $178,000, telephone and
communications systems of $110,000, data processing of $201,000, and
stationery, printing and supplies of $93,000. Other expenses in this category
increased as well, reflecting higher activity and business volumes.
When compared to 1994, noninterest expenses increased $1,241,000 or 5.4 percent
in 1995. The largest component of this increase was salaries and wages which
increased $968,000 or 11.1 percent. A new branch opened in November 1994 in
Port St. Lucie, Florida and a new branch acquired from American on April 14,
1995 increased salaries and wages $158,000. In addition, wages for lending
personnel grew $126,000 when compared to prior year, effected by increased loan
demand. Also, salaries related to trust and brokerage activities increased
$229,000 and $147,000, respectively. Employee benefits increased $136,000 or
7.5 percent, due to a $97,000 increase in group health insurance benefits,
higher payroll taxes and increased costs associated with the Company's 401K
salary deferral and profit sharing plans.
Occupancy expenses and furniture and equipment expenses, on an aggregate basis,
declined $26,000 in 1995. Marketing expenses increased $105,000 or 8.3
percent, primarily as a result of increases in sales promotion and public
relations costs.
Legal and professional fees decreased $146,000 or 16.4 percent and costs
associated with foreclosed and repossessed asset management totaled only
$64,000. Amortization of intangible assets increased $330,000 or 375.0 percent
as a result of the acquisition of American and the other expense category
increased $293,000 or 6.1 percent in 1995. The increase in the other expense
category was primarily caused by higher postage and special delivery
expenditures and telephone costs, up $154,000 and $101,000, respectively.
INCOME TAXES
Income taxes for the year 1996 were $4,312,000, 14.5 percent above the
$3,765,000 for 1995, which was 21.8 percent above the $3,091,000 for 1994.
Income taxes as a percentage of income before taxes were 36.2 percent for 1996,
compared to 35.5 percent in 1995 and 33.0 percent in 1994. Most of the
increase in rate in 1996 is due to a
35
full year impact of amortization of goodwill and core deposit intangibles
associated with the acquisition of American which are not deductible expenses
for tax purposes. In addition to the impact of the acquisition, the increase
in rate in 1995 as compared to 1994 reflects higher provisioning for state
income taxes, a result of lower intangible taxes paid that can be taken as a
credit.
The Company has $1,234,000 of deferred tax assets, for which no valuation
allowance is required because $880,000 of this balance is related to unrealized
securities losses which, as a result of SFAS No. 115, are deemed to be
temporary, as well as, sufficient taxable income to carryback to recover these
differences.
FINANCIAL CONDITION
The Company increased its assets 4.8 percent between December 31, 1995 and
December 31, 1996. In comparison, the Company increased its assets 16.4
percent between December 31, 1994 and December 31, 1995.
CAPITAL RESOURCES
The Company's ratio of shareholders' equity to period end assets was 8.26
percent at December 31, 1996, compared with 8.06 percent one year earlier.
This ratio is impacted by SFAS No. 115, "Accounting for Certain Debt and Equity
Securities," by which a securities valuation allowance of $1,482,000 was
recognized at December 31, 1996, compared to a securities valuation allowance
of $705,000 at December 31, 1995.
Excluding the effect of this standard, the Company's ratio of shareholders'
equity to period end assets was 8.44 percent and 8.16 percent, respectively, at
year end 1996 and 1995. Book value per common share outstanding totalled
$15.68 at December 31, 1996, compared to $14.75 at December 31, 1995. Without
the effect of SFAS No. 115, book value was $16.03 at December 31, 1996,
compared to $14.92 at December 31, 1995, an increase of 7.4 percent.
36
Table 8 summarizes the Company's capital position and selected ratios.
TABLE 8
CAPITAL RESOURCES
(Dollars in thousands)
December 31 1996 1995 1994
- ---------------------------------------------------------------
TIER 1 CAPITAL
Common stock $ 429 $ 429 $ 428
Additional paid in capital 18,314 18,612 18,498
Retained earnings 50,419 45,540 41,049
Treasury Stock (911) (1,676) 0
Valuation allowance (801) (645) (1,257)
Intangibles (5,713) (6,488) 0
------------------------------
Total Tier 1 capital 61,737 55,772 58,718
TIER 2 CAPITAL
Allowance for loan losses, 4,286 4,066 3,373
as limited
------------------------------
Total Tier 2 capital 4,286 4,066 3,373
------------------------------
Total risk based capital $ 66,023 $ 59,838 $ 62,091
==============================
Risk weighted assets $440,039 $402,736 $313,728
==============================
Tier 1 risk based capital 14.03% 13.85% 18.72%
ratio
Regulatory minimum 8.00 8.00 8.00
Total risk based capital ratio 15.00 14.86 19.79
Tier 1 capital to adjusted 8.32 7.93 9.42
total assets (1)
Regulatory minimum 4.00 4.00 4.00
Shareholders' equity to assets 8.26 8.06 8.39
Average shareholders' equity 9.14 9.01 9.51
to average total assets
(1) Intangible assets have been deducted from tier 1 capital and adjusted total
assets for this calculation.
Tangible book value per common share, reflecting a deduction from shareholders'
equity for intangible assets of $6,388,000 and $6,884,000 at December 31, 1996
and 1995, respectively, was 14.18 percent at December 31, 1996, compared to
13.12 percent at December 31, 1995, an increase of 8.1 percent.
The Company is considered well capitalized, based on all measures of regulatory
capital.
LOAN PORTFOLIO
Table 9 shows total loans (net of unearned income) by category outstanding at
the indicated dates.
The Company makes substantially all its loans to customers located within the
three counties of the Treasure Coast. It has no foreign loans or highly
leveraged transaction (HLT) loans.
37
TABLE 9
LOANS OUTSTANDING
(Dollars in thousands)
December 31 1996 1995 1994
- ------------------------------------------------------
Real estate mortgage $378,227 $335,031 $229,713
Real estate construction 11,880 10,540 8,728
Commercial and financial 22,857 17,205 11,296
Installment loans to 58,187 51,959 42,912
individuals
Other loans 446 229 141
----------------------------
TOTAL $471,597 $414,964 $292,790
============================
TABLE 9 (CONT'D)
LOANS OUTSTANDING
(Dollars in thousands)
December 31 1993 1992
- --------------------------------------------
Real estate mortgage $205,002 $197,696
Real estate construction 2,710 3,680
Commercial and financial 9,692 8,626
Installment loans to 42,158 41,430
individuals
Other loans 55 413
------------------
TOTAL $259,617 $251,845
==================
Total loans (net of unearned income and excluding the allowance for loan
losses) were $471,597,000 at December 31, 1996, $56,633,000 or 13.6 percent
more than at December 31, 1995. The increase in the Company's loan balances
also reflects the impact of the securitization of $29.7 million in fixed rate
residential mortgage loans during 1996. No sales of fixed rate residential
loans were transacted in 1995.
At December 31, 1996, the Company's mortgage loan balances secured by
residential properties amounted to $255,295,000 or 54.1 percent of total loans.
The next largest concentration was loans secured by commercial real estate
which totalled $112,833,000 or 23.9 percent. Most of the commercial real
estate loans were made to local businesses and professionals and are secured by
owner occupied properties. Loans and commitments for 1-4 family residential
properties and commercial real estate are generally secured with first
mortgages on property, with the loan to fair value of the property not
exceeding 80 percent on the date the loan is made. The Company was also a
creditor for consumer loans to individual customers (primarily secured by motor
vehicles) totalling $49,771,000 and unsecured credit cards of $8,416,000.
Total loans (net of unearned income and excluding the allowance for loan
losses) were $414,964,000 at December 31, 1995, $122,174,000 or 41.7 percent
greater than at December 31, 1994. Approximately $46 million in loans were
acquired as a result of the acquisition of American during 1995. At December
31, 1995, the Company's portfolio of mortgage loan balances secured by
residential properties amounted to $223,813,000 or 53.9 percent of total loans
and loans secured by commercial real estate totalled $100,879,000 or 24.3
percent of total loans. Consumer loans to individual customers and credit card
loans totalled $44,249,000 and $7,710,000, respectively.
The Treasure Coast is a residential community with commercial activity centered
in retail and service businesses serving the local residents. Therefore, real
estate mortgage lending is an important segment of the Company's lending
activities. Exposure to market interest rate volatility with respect to
mortgage loans, is managed by attempting to match maturities and repricing
opportunities for assets against liabilities, when possible. At December 31,
1996, approximately $156 million or 61 percent of the Company's mortgage loan
balances secured by residential properties were adjustable, compared to $141
million or 63 percent at December 31, 1995.
38
TABLE 10
LOAN MATURITY DISTRIBUTION
(Dollars in thousands)
Commercial,
Financial & Real Estate
December 31, 1996 Agricultural Construction Total
- -----------------------------------------------------------
In one year or less $ 4,697 $ 7,570 $12,267
After one year but
within five years:
Interest rates are 1,716 3,623 5,339
floating or
adjustable
Interest rates are 12,400 0 12,400
fixed
In five years or more:
Interest rates are 3,564 183 3,747
floating or
adjustable
Interest rates are 480 504 984
fixed
------------------------------
TOTAL $22,857 $11,880 $34,737
==============================
Of the $156 million, $152 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 $33 million were outstanding at December 31, 1996, 2) those
limited to a two percent per annum increase and a six percent cap over the life
of the loan, of which approximately $63 million in balances existed at year end
1996, and 3) those that have 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 $56
million were outstanding at December 31, 1996.
Of the $91 million of new residential loans originated in 1996, $49 million
were adjustable rate and $41 million were fixed rate. In comparison, $68
million in new residential loans were originated in 1995, of which $39 million
were adjustable rate and $29 million were fixed. The Company generally sells
all of the 30-year fixed rate loan originations while retaining a portion of
15-year fixed rate residential loans. During 1996 the Company sold $30.7
million in fixed rate residential loans. Loans secured by residential
properties having fixed rates totalled approximately $99 million at December
31, 1996, of which 15- and 30-year mortgages totalled approximately $53 million
and $26 million, respectively. Remaining fixed rate balances were comprised of
home improvement loans with short maturities less than 15 years. In
comparison, fixed rate residential loans totalled $83 million at December 31,
1995, of which 15- and 30-year mortgages totalled approximately $45 million and
$23 million, respectively.
39
The Company's historical charge off rates for residential loans has been very
low, with only $84,000 in charge offs for the year 1996. The Company expects
that the 1997 residential loan demand will be comprised of mostly fixed rate
mortgages as a low interest rate environment is anticipated by economists, at
least to mid-1997.
Fixed rate and adjustable rate loans secured by commercial real estate total
approximately $37 million and $76 million, respectively, at December 31, 1996.
Of the $76 million, $41 million of commercial real estate loans adjust annually
based on the one-year constant maturity United States Treasury Index plus a
margin. Remaining adjustable rate commercial real estate loans are comprised
of 3- and 5-year balloon mortgages tied to United States Treasury Indices plus
a margin or loans tied to prime rate which adjust accordingly. The term for
fixed rate lending involving commercial real estate is generally seven to ten
years.
Commercial lending activities are directed principally towards businesses whose
demand for funds are within the Company's lending limits, such as small to
medium sized professional firms, retail and wholesale outlets, and light
industrial and manufacturing concerns. Such businesses typically are smaller,
often have short operating histories and do not have the sophisticated record
keeping systems of larger entities. Most of such loans are secured by real
estate used by such businesses, although certain lines are unsecured. Such
loans are subject to the risks inherent to lending to small to medium sized
businesses including the effects of a sluggish local economy, possible business
failure, and insufficient cash flows. The Company's commercial loan portfolio
totalled $22,857,000 at December 31, 1996 compared to $17,205,000 at December
31, 1995.
The Company makes a variety of consumer loans, including installment loans,
loans for automobiles, boats, home improvements, and other personal, family and
household purposes, and indirect loans through dealers, to finance automobiles.
Most consumer loans are secured. The Company's indirect automobile lending
risks have been reduced through screening and monitoring of a smaller number of
dealers with whom the Company does business. Management believes its present
practices have substantially reduced such risk. Its delinquencies and losses
in this area were much better than that experienced by the banking industry.
Second mortgage loans and home equity lines are extended by the Company. No
negative amortization loans or lines are offered at the present time. Terms of
second mortgage loans include fixed rates for up to 10 years on smaller loans
of $30,000 or less. Such loans are sometimes made for larger amounts, with
fixed rates, but with balloon payments upon maturities, not exceeding five
years. In 1992, the Company began offering variable rate second mortgage loans
with terms of up to 10 years. Loan to value ratios for these loans do not
exceed 80 percent of appraised value. Home equity lines are offered on a
variable rate basis only and the maximum loan to value ratio for such loans is
75 percent of the appraised value when the loan is extended. Home equity line
accounts may be requested to submit annual updated financial information and
are subject to an annual review by the bank to limit the Company's exposure to
possible decreases in the borrower's income or in the collateral value of the
residence.
Commercial real estate loans are subject to many of the same risks as other
commercial loans. To reduce the risks from loans dependent upon cash flows
from the sale or rental of commercial real estate, the Company primarily makes
such loans on owner occupied properties. Real estate construction loans during
1992 and through 1996 have averaged approximately $7,508,000 and totalled
$11,880,000 at December 31, 1996. The Company generally requires a binding
take-out commitment confirmed to the Company before it will make a real estate
construction or development loan, unless the Company has determined to make the
permanent loan. This reduces the risk that the Company will inadvertently
become the permanent lender.
The Company had commitments to make loans (excluding unused home equity lines
of credit and credit card lines) of $24,724,000 at December 31, 1996, compared
to $17,687,000 at the end of 1995.
ALLOWANCE FOR LOAN LOSSES
Table 11 provides certain information concerning the Company's allowance for
loan losses for the years indicated.
40
TABLE 11
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in thousands)
Year Ended December 31 1996 1995 1994
- -----------------------------------------------------------
Allowance for loan losses
Beginning balance $ 4,066 $ 3,373 $ 3,622
Provision for loan losses 450 250 145
Allowance applicable to 0 556 0
loans of purchased
company
Charge offs:
Commercial and 15 53 89
financial
Consumer 447 395 442
Commercial real estate 36 54 288
Residential real 84 31 0
estate
------------------------------
TOTAL CHARGE OFFS 582 533 819
Recoveries:
Commercial and 58 67 166
financial
Consumer 203 205 206
Commercial real estate 91 146 39
Residential real 0 2 14
estate
------------------------------
TOTAL RECOVERIES 352 420 425
------------------------------
Net loan charge offs 230 113 394
------------------------------
ENDING BALANCE $ 4,286 $ 4,066 $ 3,373
==============================
Loans outstanding at end $471,597 $414,964 $292,790
of year*
Ratio of allowance for 0.91% .98% 1.15%
loan losses to loans
outstanding at end of year
Daily average loans $441,313 $355,885 $270,172
outstanding*
Ratio of net charge offs to 0.05% 0.03% 0.15%
average loans outstanding
41
TABLE 11 (CONT'D)
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in thousands)
Year Ended December 31 1993 1992
- ------------------------------------------------------
Allowance for loan losses
Beginning balance $ 4,091 $ 3,846
Provision for loan losses 150 1,103
Allowance applicable to loans 0 0
of purchased company
Charge offs:
Commercial and financial 52 109
Consumer 501 788
Commercial real estate 378 413
Residential real estate 25 96
-------------------
TOTAL CHARGE OFFS 956 1,406
Recoveries:
Commercial and financial 64 151
Consumer 253 288
Commercial real estate 14 103
Residential real estate 6 6
-------------------
TOTAL RECOVERIES 337 548
-------------------
Net loan charge offs 619 858
-------------------
ENDING BALANCE $ 3,622 $ 4,091
===================
Loans outstanding at end of year* $259,617 $251,845
Ratio of allowance for loan
losses to loans outstanding at 1.40% 1.62%
end of year
Daily average loans outstanding* $255,289 $262,924
Ratio of net charge offs to
average loans outstanding 0.24% 0.33%
* Net of unearned income.
The allowance for loan losses was $4,286,000 at December 31, 1996, $220,000
higher than one year earlier. The ratio of the allowance for loan losses to
total loans outstanding (net of unearned income) was 0.91 percent at December
31, 1996. The ratio was 0.98 percent at December 31, 1995. The allowance for
loan losses as a percentage of nonaccrual loans was 279.2 percent at December
31, 1996, compared to 79.6 percent at December 31, 1995. Nonaccrual loans at
December 31, 1996, were $1,535,000 or 0.33 percent compared to $5,105,000 or
1.23 percent of outstanding loans at December 31, 1995. The model utilized to
analyze the adequacy of the allowance for loan and lease losses takes into
account such factors as credit quality, internal controls, audit results, staff
turnover, local market economics and loan growth. The resulting lower allowance
level is also reflective of the bank's favorable and consistent delinquency
trends and historical loss performance. These performance results are
attributed to conservative, long-standing and consistently applied loan credit
policies and to a knowledgeable, experienced and stable staff.
During 1996, the Company experienced net charge offs of $230,000, compared to
$113,000 one year earlier. Net charge offs as a percentage of average loans
outstanding were 0.05 percent for 1996, slightly higher than in 1995 when the
percentage was 0.03 percent, the lowest percentage the Company had experienced
since its inception in 1983. A peer group of banks of similar size experienced
a net charge off ratio of 0.20 percent through September 30, 1996. Net
consumer loan losses, primarily related to indirect automobile lending, were
$244,000 in 1996, versus $190,000 in 1995. Real estate net charge-offs of
$29,000 in 1996 compared to net recoveries of $63,000 in 1995. Net commercial
and financial loan recoveries were $43,000 in 1996 compared to $14,000 in 1995.
42
Table 12 summarizes the Company's allocation of the allowance for loan losses
and information regarding the composition of the loan portfolio at the dates
indicated.
TABLE 12
ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
ALLOWANCE AMOUNT
December 31 1996 1995 1994
- --------------------------------------------------------------------------------
Commercial and financial $ 322 $ 275 $ 233
loans
Real estate loans 2,972 3,108 2,486
Installment loans 992 683 654
----------------------
TOTAL $4,286 $4,066 $3,373
======================
================================================================================
TABLE 12 (CONT'D)
ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
ALLOWANCE AMOUNT
December 31 1993 1992
- --------------------------------------------------------------------------------
Commercial and financial $ 295 $ 287
loans
Real estate loans 2,812 2,908
Installment loans 515 896
----------------
TOTAL $3,622 $4,091
================
================================================================================
TABLE 12 (CONT'D)
ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
PERCENT OF LOANS IN EACH
CATEGORY TO TOTAL LOANS
December 31 1996 1995 1994
- -------------------------------------------------------------------------------
Commercial and financial 5.0% 4.2% 3.9%
loans
Real estate loans 82.7 83.3 81.4
Installment loans 12.3 12.5 14.7
-------------------------
TOTAL 100.0% 100.0% 100.0%
=========================
===============================================================================
TABLE 12 (CONT'D)
ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
PERCENT OF LOANS IN EACH
CATEGORY TO TOTAL LOANS
December 31 1993 1992
- -------------------------------------------------------------------------------
Commercial and financial
loans 3.8% 3.6%
Real estate loans 80.0 79.9
Installment loans 16.2 16.5
-------------------
TOTAL 100.0% 100.0%
===================
43
The allowance for loan losses represents management's estimate of an amount
adequate in relation to the risk of future losses inherent in the loan
portfolio. In its continuing evaluation of the allowance and its adequacy,
management considers, among other factors, the Company's loan loss experience,
the amount of past due and nonperforming loans, current and anticipated
economic conditions, and the values of certain loan collateral, and other
assets. The size of the allowance also reflects the large amount of permanent
residential loans held by the Company whose historical charge offs and
delinquencies have been superior by any comparison.
While it is the Company's policy to charge off in the current period loans in
which a loss is considered probable, there are additional risks of future
losses which cannot be quantified precisely or attributed to particular loans
or classes of loans. Because these risks include the state of economy as well
as conditions affecting individual borrowers, management's judgment of the
allowance is necessarily approximate and imprecise. It is also subject to
regulatory examinations and determinations as to adequacy, which may take into
account such factors as the methodology used to calculate the allowance for
loan losses and the size of the allowance for loan losses in comparison to a
group of peer companies identified by the regulatory agencies.
In assessing the adequacy of the allowance, management relies predominantly on
its ongoing review of the loan portfolio, which is undertaken both to ascertain
whether there are probable losses which must be charged off and to assess the
risk characteristics of the portfolio in the aggregate. This review considers
the judgments of management, and also those of bank regulatory agencies that
review the loan portfolio as part of their regular examination process. An
examination by the Office of the Comptroller of the Currency during the year
revealed no major differences in judgments or methodology related to the
allowance for loan losses.
On December 31, 1995, the allowance for loan losses was $4,066,000, $693,000
higher than one year earlier. Of this increase, $556,000 was allowance
applicable to loans of American, acquired in April of 1995. The ratio of the
allowance for loan losses to net loans outstanding was 0.98 percent at December
31, 1995, compared to 1.15 percent at December 31, 1994.
For 1995, the Company had net charge offs of $113,000 compared to $394,000 for
the same period in 1994. Real estate loan net recoveries were $64,000 for 1995
compared to net charge offs of $235,000 for the comparable period in 1994.
Consumer loan losses were $190,000 for 1995, compared to $236,000 for 1994.
Commercial and financial loan recoveries were $14,000 for 1995 versus $77,000
for 1994. Since 1991, the Company's policy has been to transfer foreclosed
loans to other real estate owned and to record such other assets at the lower
of (i) the loans carrying value or (ii) 90 percent of the real estate
collateral's current appraised value.
44
NONPERFORMING ASSETS
At December 31, 1996, the Company's ratio of nonperforming assets to loans
outstanding plus other real estate owned was 0.54 percent, compared to 1.44
percent at December 31, 1995. Nonperforming assets (other real estate owned
and nonaccrual loans) at December 31, 1996, were $2,546,000, a decrease of
$3,448,000 compared to December 31, 1995. Other real estate owned increased
$122,000 while nonaccrual loans decreased $3,570,000 over the past twelve
months. Nonaccrual loans totalled $5,105,000 at December 31, 1995, compared to
a balance of $2,235,000 at year end 1994.
Nonaccrual loans totalling $953,000 at December 31, 1996 were performing, but
because the Company has determined that the collection of principal or interest
in accordance with the original terms of such loans is uncertain, it has placed
such loans on nonaccrual status. Of the amount reported in nonaccrual loans at
December 31, 1996, 86.8 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.
Nonperforming assets are subject to changes in the economy, both nationally and
locally, changes in monetary and fiscal policies, and changes in conditions
affecting various borrowers from the Company's subsidiary bank. No assurance
can be given that nonperforming assets will not in fact increase or otherwise
change. A similar judgmental process is involved in the methodology used to
estimate and establish the Company's allowance for loan losses.
- --------------------------------------------------------------------------------
TABLE 13
NONPERFORMING ASSETS
(Dollars in thousands)
December 31 1996 1995 1994
- ------------------------------------------------------------
Nonaccrual loans (1) $ 1,535 $ 5,105 $ 2,235
Renegotiated loans 0 0 0
Other real estate owned 1,011 889 165
------------------------------
TOTAL NONPERFORMING $ 2,546 $ 5,994 $ 2,400
ASSETS
==============================
Amount of loans outstanding $471,597 $414,964 $292,790
at end of year (2)
Ratio of total nonperforming 0.54% 1.44% 0.82%
assets to loans outstanding
and other real estate owned
at end of period
Accruing loans past due $ 59 $ 134 $ 0
90 days or more
TABLE 13 (CONT'D)
NONPERFORMING ASSETS
(Dollars in thousands)
December 31 1993 1992
- -----------------------------------------------
Nonaccrual loans (1) $ 3,107 $ 4,359
Renegotiated loans 0 0
Other real estate owned 4,116 5,898
-------- --------
TOTAL NONPERFORMING $ 7,223 $ 10,257
ASSETS
======== ========
Amount of loans outstanding $259,617 $251,845
at end of year (2)
Ratio of total nonperforming 2.74% 3.98%
assets to loans outstanding
and other real estate owned
at end of period
Accruing loans past due 90 $ 15 $ 9
days or more
(1) Interest income that could have been recorded during 1996 related to
nonaccrual loans was $60,000, none of which was included in interest
income or net income. All nonaccrual loans are secured.
(2) Net of unearned income.
45
Nonperforming assets (other real estate owned and nonaccrual loans) at December
31, 1995, were $5,994,000, an increase of $3,594,000 from December 31, 1994.
At December 31, 1995, the Company's ratio of nonperforming assets to loans
outstanding plus other real estate owned was 1.44 percent, compared to 0.82
percent at December 31, 1994. The majority of the increase in the ratio in
1995 can be attributed to nonperforming loans of American. The ratio at
December 31, 1995 would have been 0.89 percent without the acquired problem
loans. The increase in nonperforming assets from December 31, 1994 to December
31, 1995 included increases in other real estate owned of $724,000 and
nonaccrual loans of $2,870,000.
SECURITIES
Information relating to yields, maturities, carrying values, market values and
unrealized gains (losses) of the Company's securities is set forth in Table 14.
At December 31, 1996, the Company had $159,133,000 of securities held for sale
or 76.2 percent of total securities compared to $159,480,000 or 74.6 percent at
December 31, 1995 and $131,288,000 or 51.5 percent at December 31, 1994. The
increase in the held for sale portfolio at December 31, 1995 is directly
related to regulatory authorities permitting a 45-day window (November 15, 1995
to December 31, 1995) for financial institutions to reclassify securities from
held to maturity to available for sale without the reclassification creating a
"tainting" of the portfolio which would require reclassification of all held to
maturity securities to held for sale. The 45-day window to reclassify
securities was made available as a result of financial institutions not having
guidance with respect to the inclusion or exclusion of unrealized gains or
losses in capital ratio calculations at December 31, 1993, when SFAS No. 115
was adopted. The Company reclassified approximately $69 million from held to
maturity to held for sale on December 1, 1995.
Total securities declined $4,838,000 or 2.3 percent in 1996, compared to prior
year, and decreased $45,023,000 or 17.4 percent in 1995, compared to 1994.
These declines are directly related to growth in the loan portfolio and changes
in the portfolio mix.
Since 1994, management has lowered the total portfolio's interest rate risk by
reducing the average life of the portfolio from 3.8 years at December 31, 1994
to 3.1 years at December 31, 1995 to 2.1 years at December 31, 1996. The
percentage of adjustable and floating rate securities in the securities
portfolio is 21.9 percent, compared to 25.3 percent last year and 29.6 percent
in 1994. Likewise, the held for sale portfolio decreased to an average life of
2.2 years from 3.7 years in 1995 and 5.9 years in 1994.
A total of $2,871,000 in securities will mature along with approximately $32
million of periodic principal payments from mortgage back securities in 1997.
Management believes most of these funds will be used to fund increases in its
consumer and commercial loan portfolio.
At December 31, 1996, the Company had unrealized net losses of $951,000 or 0.5
percent of amortized cost. At December 31, 1995, unrealized net gains of
$1,056,000 or 0.5 percent were available. While rates have remained low in
1996, a shifting U.S. Treasury yield curve caused an increase in unrealized
depreciation of $2,107,000. Conversely, lower interest rates caused an
increase in unrealized appreciation of $9,777,000 at December 31, 1995,
compared to 1994.
Company management considers the overall quality of the securities portfolio to
be high. No securities are held which are not traded in liquid markets or that
meet the FFIEC definition of a high risk investment.
46
TABLE 14
INVESTMENT SECURITIES YIELD, MATURITY AND MARKET VALUE
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------
U.S. TREASURY AND U.S.
GOVERNMENT AGENCIES
- -----------------------------------------------------------
AMORTIZED MARKET WEIGHTED
COST VALUE YIELD
- -----------------------------------------------------------
MATURITY AT DECEMBER 31, 1996
HELD FOR SALE
WITHIN ONE YEAR
ONE TO FIVE YEARS $44,749 $44,417 5.64%
FIVE TO TEN YEARS 5,027 5,188 6.93
OVER TEN YEARS
NO CONTRACTUAL MATURITY
-------------------------
TOTAL VALUE $49,776 $49,605 5.77%
=========================
Held for Investment
Within one year $ 996 998 5.17%
One to five years 9,738 9,882 5.31
Five to ten years
Over ten years 4,862 4,983 7.32
-------------------------
TOTAL VALUE $15,596 15,863 5.93%
=========================
Maturity at December 31, 1995
Held for Sale $34,512 $35,120 5.97%
=========================
Held for Investment $17,329 $17,998 6.04%
=========================
47
TABLE 14 (CONT'D)
INVESTMENT SECURITIES YIELD, MATURITY AND MARKET VALUE
(Dollars in thousands)
- -------------------------------------------------------------
Mortgage Backed Securities
(Fixed)
- -------------------------------------------------------------
Amortized Market Weighted
Cost Value Yield
- -------------------------------------------------------------
Maturity at December 31, 1996
Held for Sale
Within one year $26,581 $26,568 5.67%
One to five years 32,307 31,853 6.00
Five to ten years 5,154 5,138 6.89
Over ten years 4,928 4,788 6.73
No contractual maturity
----------------------------
TOTAL VALUE $68,970 $68,347 5.99%
============================
Held for Investment
Within one year $ 667 $ 685 5.40%
One to five years 18,496 18,642 6.91
Five to ten years
Over ten years
----------------------------
TOTAL VALUE $19,163 $19,327 6.86%
============================
Maturity at December 31, 1995
Held for Sale $77,270 $77,216 6.13%
============================
Held for Investment $19,335 $19,469 6.60%
============================
- -------------------------------------------------------------
Mortgage Backed Securities
(Adjustable)
- -------------------------------------------------------------
Amortized Market Weighted
Cost Value Yield
- -------------------------------------------------------------
Maturity at December 31, 1996
Held for Sale
Within one year $ 438 $ 438 6.09%
One to five years 4,090 4,088 6.44
Five to ten years
Over ten years
No contractual maturity
----------------------------
TOTAL VALUE $ 4,528 $ 4,526 6.40%
============================
Held for Investment
Within one year
One to five years $ 3,901 $ 3,902 6.42%
Five to ten years
Over ten years
----------------------------
TOTAL VALUE $ 3,901 $ 3,902 6.42%
============================
Maturity at December 31, 1995
Held for Sale $10,638 $10,789 6.84%
============================
Held for Investment $ 4,502 $ 4,525 6.51%
============================
TABLE 14 (CONT'D)
INVESTMENT SECURITIES YIELD, MATURITY AND MARKET VALUE
(Dollars in thousands)
- -------------------------------------------------------------
Obligations of States and
Political Subdivisions (1)
- -------------------------------------------------------------
Amortized Market Weighted
Cost Value Yield
- -------------------------------------------------------------
Maturity at December 31, 1996
Held for Sale
Within one year
One to five years
Five to ten years
Over ten years
No contractual maturity
------------------------
TOTAL VALUE $ 0 $ 0 $ 0
========================
Held for Investment
Within one year $ 1,875 $ 1,887 7.82%
One to five years 6,301 6,594 9.36
Five to ten years 2,276 2,399 8.46
Over ten years 455 483 8.71
------------------------
TOTAL VALUE $10,907 $11,363 8.88%
========================
Maturity at December 31, 1995
Held for Sale $ 0 $ 0 0.00%
========================
Held for Investment $12,892 $13,433 8.68%
========================
(1) On a fully taxable equivalent basis.
48
TABLE 14 (CONT'D)
INVESTMENT SECURITIES YIELD, MATURITY AND MARKET VALUE
(Dollars in thousands)
- ------------------------------------------------------------
Mutual Funds
- ------------------------------------------------------------
Amortized Market Weighted
Cost Value Yield
- ------------------------------------------------------------
Maturity at December 31, 1996
Held for Sale
Within one year
One to five years
Five to ten years
Over ten years
No contractual maturity $35,377 $34,333 6.05%
--------------------------
TOTAL VALUE $35,377 $34,333 6.05%
==========================
Held for Investment
Within one year
One to five years
Five to ten years
Over ten years
--------------------------
TOTAL VALUE $ 0 $ 0
==========================
Maturity at December 31, 1995
Held for Sale $35,577 $34,547 6.12%
==========================
Held for Investment $ 0 $ 0
==========================
Table 14 (cont'd)
INVESTMENT SECURITIES YIELD, MATURITY AND MARKET VALUE (Dollars in thousands)
- ------------------------------------------------------------
Other (1)
- ------------------------------------------------------------
Amortized Market Weighted
Cost Value Yield
- ------------------------------------------------------------
Maturity at December 31, 1996
Held for Sale
Within one year
One to five years
Five to ten years
Over ten years
No contractual maturity $2,321 $2,322 5.70%
-------------------------
TOTAL VALUE $2,321 $2,322 5.70%
=========================
Held for Investment
Within one year
One to five years $ 100 $ 100 8.13%
Five to ten years
Over ten years
-------------------------
TOTAL VALUE $ 100 $ 100 8.13%
=========================
Maturity at December 31, 1995
Held for Sale $1,794 $1,808 5.30%
=========================
Held for Investment $ 100 $ 100 7.50%
=========================
49
TABLE 14 (CONT'D)
INVESTMENT SECURITIES YIELD, MATURITY AND MARKET VALUE
(Dollars in thousands)
TOTAL
- ------------------------------------------------------------
Amortized Market Weighted
Cost Value Yield
- ------------------------------------------------------------
Maturity at December 31, 1996
Held for Sale
Within one year $ 27,019 $ 27,006 5.68%
One to five years 81,146 80,358 5.82
Five to ten years 10,181 10,326 6.91
Over ten years 4,928 4,788 6.73
No contractual maturity 37,698 36,655 6.03
---------------------------
TOTAL VALUE $160,972 $159,133 5.94%
===========================
Held for Investment
Within one year $ 3,538 $ 3,570 6.62%
One to five years 38,536 39,120 6.86
Five to ten years 2,276 2,399 8.46
Over ten years 5,317 5,466 7.43
---------------------------
TOTAL VALUE $ 49,667 $ 50,555 6.98%
===========================
Maturity at December 31, 1995
Held for Sale $159,791 $159,480 6.13%
===========================
Held for Investment $ 54,158 $ 55,525 6.91%
===========================
(1) On a fully taxable equivalent basis.
TABLE 14 (CONT'D)
(DOLLARS IN THOUSANDS)
Gross Gross
Amortized Unrealized Unrealized
December 31, 1996 Cost Gains Losses
- ----------------------------------------------------------------
Held for Sale:
U.S.Treasury and $ 49,776 $290 $ (461)
U.S.Government Agencies
Mortgage Backed Securities:
Fixed 68,970 90 (713)
Adjustable 4,528 36 (38)
Mutual Funds 35,377 (1,044)
Other securities 2,321 1
-------------------------------
Total Value $160,972 $417 $(2,256)
===============================
Held for Investment:
U.S. Treasury and $ 15,596 $267 $
U.S. Government Agencies
Mortgage Backed Securities:
Fixed 19,163 250 (86)
Adjustable 3,901 15 (14)
Obligations of States and 10,907 459 (3)
Political Subdivisions
Other Securities 100
-------------------------------
Total Value $ 49,667 $991 $ (103)
===============================
50
TABLE 14 (CONT'D)
(DOLLARS IN THOUSANDS)
Average Years to
Market Value Maturity
December 31, 1996
- --------------------------------------------------------------------------------
Held for Sale:
U.S.Treasury and $ 49,605 2.83
U.S.Government Agencies
Mortgage Backed Securities:
Fixed 68,347 2.63
Adjustable 4,526 2.46
Mutual Funds 34,333
Other securities 2.322 *
--------------------------
Total Value $159,133 2.10
==========================
Held for Investment:
U.S. Treasury and $ 15,863 1.15
U.S. Government Agencies
Mortgage Backed Securities:
Fixed 19,327 2.44
Adjustable 3,902 3.64
Obligations of States 11,363 2.90
and Political Subdivisions
Other Securities 100 *
--------------------------
Total Value $ 50,555 2.23
==========================
TABLE 14 (CONT'D)
(DOLLARS IN THOUSANDS)
Gross Gross
Amortized Unrealized Unrealized
December 31, 1995 Cost Gains Losses
- ----------------------------------------------------------------
Held for Sale:
U.S.Treasury and $ 34,512 $ 645 $ (37)
U.S.Government Agencies
Mortgage Backed Securities:
Fixed 77,270 387 (441)
Adjustable 10,638 164 (13)
Mutual Funds 35,577 (1,030)
Other securities 1,794 14
-------------------------------
Total Value $159,791 $1,210 $(1,521)
===============================
Held for Investment:
U.S. Treasury and $ 17,329 $ 669 $
U.S. Government Agencies
Mortgage Backed Securities:
Fixed 19,335 236 (102)
Adjustable 4,502 23
Obligations of States 12,892 544 (3)
and Political Subdivisions
Other Securities 100
-------------------------------
Total Value $ 54,158 $1,472 $ (105)
===============================
51
TABLE 14 (CONT'D)
(DOLLARS IN THOUSANDS)
Average Years to
Market Value Maturity
December 31, 1995
- --------------------------------------------------------------------------------
Held for Sale:
U.S.Treasury and $ 35,120 3.58
U.S.Government Agencies
Mortgage Backed Securities:
Fixed 77,216 3.27
Adjustable 10,789 7.40
Mutual Funds 34,547
Other securities 1,808 *
--------------------------
TOTAL $159,480 2.91
==========================
Held for Investment:
U.S. Treasury and $ 17,998 2.11
U.S. Government Agencies
Mortgage Backed Securities:
Fixed 19,469 3.75
Adjustable 4,525 7.52
Obligations of States 13,433 4.35
and Political Subdivisions
Other Securities 100 *
--------------------------
TOTAL $ 55,525 3.67
==========================
DEPOSITS
Total deposits increased $31,790,000 or 4.8 percent to $692,757,000 at December
31, 1996, compared to one year earlier. The increase was due to growth in
noninterest bearing demand deposits of $22,188,000 or 23.1 percent, an increase
in certificates of deposit of $100,000 or more of $5,564,000 or 13.5 percent,
and a rise in certificates of deposit under $100,000 of $1,471,000 or 0.6
percent. Savings deposits (including NOW and money market deposit accounts)
increased $2,567,000 or 0.9 percent.
Total deposits increased $101,338,000 or 18.1 percent to $660,967,000 at
December 31, 1995, compared to one year earlier. Approximately $62 million of
the increase was attributable to the American acquisition. The commercial bank
deposits acquired are primarily core deposits with interest rates paid and
characteristics very similar to the Company's existing customer accounts.
Certificates of deposit under $100,000 increased $57,556,000 or 30.1 percent
and certificates of deposit of $100,000 or more increased $14,966,000 or 56.8
percent at December 31, 1995 compared to December 31, 1994, while lower cost
savings deposits (including NOW and money market deposits) increased $9,641,000
or 3.6 percent. Noninterest bearing demand deposits grew $19,175,000 or 24.9
percent in 1995. The increase in certificates of deposits in 1995 was directly
related to higher interest rates offered on certificates, reflecting the
general rise in interest rates during 1994, and resulting renewed interest by
customers in investing in certificates of deposit.
52
In part, the increase in demand deposits was related to a $17,930,000 and
$5,268,000 increase in public deposits at December 31, 1996 and December 31,
1995, respectively, primarily related to tax receipts collected by the local
tax collector. Average noninterest bearing demand deposits comprised 13.4
percent of average deposits for the year ended December 31, 1996, 1.6 percent
higher than the 11.8 percent recorded for the same period one year earlier.
The Company remains the largest commercial bank in its primary market.
TABLE 15
MATURITY OF CERTIFICATES OF DEPOSIT
OF $100,000 OR MORE
(Dollars in thousands)
% OF % of
December 31 1996 TOTAL 1995 Total
- -------------------------------------------------
Maturity Group:
Under 3 months $15,715 33.4% $15,249 36.9%
3 to 6 months 10,064 21.4 11,867 28.7
6 to 12 months 11,905 25.7 8,309 20.1
Over 12 months 9,209 19.5 5,904 14.3
-------------------------------
TOTAL $46,893 100.0% $41,329 100.0%
===============================
- --------------------------------------------------------------------------------
SHORT TERM BORROWINGS
At December 31, 1996, $45,088,000 in securities sold under agreements to
repurchase were outstanding, an increase of $1,181,000 compared to year end
1995. At year end 1996 and 1995, approximately $40 million in funds were
maintained by the local tax collector and approximately $3 million in funds
were maintained by the local school board.
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. This 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 December 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 22.5 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 earnings
53
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.
TABLE 16
INTEREST RATE SENSITIVITY ANALYSIS (1)
(Dollars in thousands)
0-3 4-12 1-5
December 31, 1996 Months Months Years
- ------------------------------------------------------
Federal funds sold $ 76,250 $ 0 $ 0
Securities (2) 52,900 18,658 108,670
Loans (3) 114,292 115,529 108,692
--------------------------------
Earning assets 243,442 134,187 217,362
Savings deposits (4) 277,184 0 0
Certificates of 91,270 134,436 71,425
deposit
Federal funds 45,088 0 0
purchased and other
short term
borrowings
--------------------------------
Interest bearing 413,542 134,436 71,425
liabilities
--------------------------------
Interest sensitivity $(170,100) $ (249) $145,937
gap
================================
Cumulative gap $(170,100) $(170,349) $(24,412)
================================
Cumulative gap to
earning assets (%) (22.5) (22.5) (3.2)
Earning assets to
interest bearing
liabilities (%) 58.9 99.8 304.3
- ------------------------------------------------------
TABLE 16 (CONT'D)
INTEREST RATE SENSITIVITY ANALYSIS (1)
(Dollars in thousands)
Over 5
December 31, 1996 Years Total
- ----------------------------------------
Federal funds sold $ 0 $ 76,250
Securities (2) 30,411 210,639
Loans (3) 131,549 470,062
------------------
Earning assets 161,960 756,951
Savings deposits (4) 0 277,184
Certificates of 1 297,132
deposit
Federal funds 0 45,088
purchased and other
short term
borrowings
------------------
Interest bearing
liabilities 1 619,404
------------------
Interest sensitivity
gap $161,959 $137,547
==================
Cumulative gap $137,547
==================
Cumulative gap to
earning assets (%) 18.2
Earning assets to N/M
interest bearing
liabilities (%)
- ----------------------------------------
(1) The repricing dates may differ from maturity dates for certain assets due
to prepayment assumptions.
(2) Securities are stated at amortized cost.
(3) Excludes nonaccrual loans.
(4) This category is comprised of NOW, savings, and money market deposits. If
NOW and savings deposits (totalling $126,705,000) were deemed to be
repriceable in "4-12 months", the interest sensitivity gap and cumulative
gap would be $43,395,000 indicating 5.7% of total earning assets and 84.9%
of earning assets to interest bearing liabilities for the "0-3 months"
category.
N/M Not meaningful.
It has been the Company's experience that deposit balances for NOW and savings
accounts are stable and subjected to limited repricing when interest rates
increase or decrease within a range of 200 basis points. The Company's ALCO
uses model simulations to estimate and manage 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
December 31, 1996, net interest income would decline 6.3 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.
54
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. Liquidity management addresses the
Company's ability to meet deposit withdrawals either on demand or at
contractual maturity and to make new loans and investments as opportunities
arise.
Contractual maturities for assets and liabilities are reviewed to meet current
and 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, investment securities, 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
agreement to repurchase, United States Treasury securities and securities of
United States Government agencies and corporations not pledged to secure
public deposits or trust funds. At December 31, 1996, the Company had
available federal funds lines of credit of $45,500,000. At December 31, 1996,
the Company had $87,445,000 of United States Treasury and Government agency
securities and mortgage backed securities not pledged and available for use
under repurchase agreements. At December 31, 1995, the amount of securities
available and unpledged was $93,352,000.
Liquidity, as measured in the form of cash and cash equivalents, totalled
$100,590,000 at December 31, 1996, compared to $115,018,000 at December 31,
1995. Cash and 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 occurring in the Company's investment securities portfolio
and loan portfolio.
As is typical of financial institutions, cash flows from investing (primarily
in loans and securities) and from financing (primarily through deposit
generation and short term borrowings) are greatly in excess of cash flows from
operations. In 1996, the cash flow from operations of $10,073,000 was 8.8
percent lower than during the same period of 1995. Cash flows from investing
and financing activities reflect the increase in loan and deposit balances
experienced in 1996. In 1995, the cash flow from operations of $11,050,000 was
33.0 percent higher than in 1994.
EFFECTS ON 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 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
stockholders' 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.
FASB 107 DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has calculated and reported the fair value of its financial
instruments in accordance with the Statement of Financial Accounting Standards
(SFAS) No. 107. While market value information has been reported for its
investment securities portfolio in prior years based on quoted market prices,
this statement also requires the estimating of fair values for financial
instruments with no quoted market prices. For most instruments with no quoted
market values, there are a variety of judgements which must be applied with a
wide variation in reported results. Management has followed the requirements
of the statement and used an acceptable method to estimate fair value for these
instruments. However, various other values could result if different
assumptions were used. Therefore, management believes it is not relevant and
potentially misleading to compare the amount of appreciation or depreciation of
financial instruments with no quoted values to any other financial institution.
Also, although the statement does not prohibit estimating and reporting the
fair value of deposits, management has elected not to estimate a value for its
core deposit portfolio because of reliability and comparability issues.
55
Selected Quarterly Information
- --------------------------------------------------------------------------------
Consolidated Quarterly Average Balances, Yields and Rates (1)
1996 QUARTERS
- --------------------------------------------------------------------------------
FOURTH Third
- --------------------------------------------------------------------------------
AVERAGE YIELD/ Average Yield/
BALANCE RATE Balance Rate
- --------------------------------------------------------------------------------
ASSETS
Earning Assets
Securities
Taxable $191,394 6.10% $191,491 5.97%
Nontaxable 11,665 8.64 11,675 8.63
------------------------------------
TOTAL SECURITIES 203,059 6.25 203,166 6.13
Federal funds sold and
other short term investments 33,382 5.29 5,023 5.31
Loans (2) 462,803 8.46 445,700 8.46
------------------------------------
TOTAL EARNING ASSETS 699,244 7.66 653,889 7.71
Allowance for loan losses (4,290) (4,305)
Cash and due from banks 21,657 17,483
Bank premises and equipment 16,121 15,968
Other assets 15,283 14,514
------------------------------------
$748,015 $697,549
====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities
NOW (including Super NOW) $ 60,660 1.46% $ 51,774 1.39%
Savings deposits 54,646 1.79 55,023 1.76
Money market accounts 151,263 2.19 150,976 2.13
Time deposits 293,860 5.23 279,396 5.14
Federal funds purchased and
other short term borrowings 20,048 3.97 8,756 4.54
------------------------------------
TOTAL INTEREST BEARING LIABILITIES 580,477 3.68 545,925 3.60
Demand deposits 94,581 80,447
Other liabilities 4,945 4,151
------------------------------------
TOTAL 680,003 630,523
Shareholders' equity 68,012 67,026
------------------------------------
$748,015 $697,549
====================================
Interest expense as % of earning assets 3.05% 3.01%
Net interest income as % of earning assets 4.61% 4.70%
56
SELECTED QUARTERLY INFORMATION (cont'd)
- --------------------------------------------------------------------------------
Consolidated Quarterly Average Balances, Yields and Rates (1)
1996 QUARTERS
- --------------------------------------------------------------------------------
Second First
- --------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Rate Balance Rate
- --------------------------------------------------------------------------------
ASSETS
Earning Assets
Securities
Taxable $213,636 6.02% $207,211 6.12%
Nontaxable 11,892 8.54 13,248 8.45
-----------------------------------
TOTAL SECURITIES 225,528 6.16 220,459 6.26
Federal funds sold and
other short term investments 8,389 5.37 50,047 5.38
Loans (2) 434,988 8.47 421,476 8.77
-----------------------------------
TOTAL EARNING ASSETS 668,905 7.65 691,982 7.73
Allowance for loan losses (4,218) (4,167)
Cash and due from banks 19,993 22,334
Bank premises and equipment 15,983 16,137
Other assets 14,481 14,817
-----------------------------------
$715,144 $741,103
===================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities
NOW (including Super NOW) $ 58,444 1.25% $ 58,172 1.36%
Savings deposits 57,915 1.72 60,576 1.81
Money market accounts 155,348 2.02 158,205 2.16
Time deposits 275,880 5.23 283,283 5.47
Federal funds purchased and
other short term borrowings 14,566 4.50 28,617 3.95
-----------------------------------
TOTAL INTEREST BEARING LIABILITIES 562,153 3.55 588,853 3.72
Demand deposits 83,407 83,672
Other liabilities 3,942 4,180
-----------------------------------
TOTAL 649,502 676,705
Shareholders' equity 65,642 64,398
-----------------------------------
$715,144 $741,103
===================================
Interest expense as % of earning assets 2.98% 3.17%
Net interest income as % of earning assets 4.67% 4.56%
57
SELECTED QUARTERLY INFORMATION (cont'd)
- --------------------------------------------------------------------------------
Consolidated Quarterly Average Balances, Yields and Rates (1)
1995 QUARTERS
- --------------------------------------------------------------------------------
Fourth Third
- --------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Rate Balance Rate
- --------------------------------------------------------------------------------
ASSETS
Earning Assets
Securities
Taxable $206,519 6.20% $228,446 6.30%
Nontaxable 13,403 8.42 13,406 8.38
-----------------------------------
TOTAL SECURITIES 219,922 6.33 241,852 6.41
Federal funds sold and
other short term investments 40,207 5.83 22,964 5.82
Loans (2) 399,262 8.56 376,029 8.58
-----------------------------------
TOTAL EARNING ASSETS 659,391 7.65 640,845 7.66
Allowance for loan losses (4,032) (3,975)
Cash and due from banks 22,417 24,255
Bank premises and equipment 16,771 17,216
Other assets 14,876 14,782
-----------------------------------
$709,423 $693,123
===================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities
NOW (including Super NOW) $ 77,393 1.49% $119,729 1.49%
Savings deposits 61,585 1.89 62,711 1.93
Money market accounts 126,229 2.40 78,615 3.04
Time deposits 293,508 5.64 291,049 5.66
Federal funds purchased and other
short term borrowings 6,419 4.20 2,710 4.39
-----------------------------------
TOTAL INTEREST BEARING LIABILITIES 565,134 3.92 554,814 3.96
Demand deposits 76,848 72,137
Other liabilities 4,871 3,644
-----------------------------------
TOTAL 646,853 630,595
Shareholders' equity 62,570 62,528
-----------------------------------
$709,423 $693,123
===================================
Interest expense as % of earning assets 3.36% 3.43%
Net interest income as % of earning
assets 4.29% 4.23%
58
SELECTED QUARTERLY INFORMATION (CONT'D)
- --------------------------------------------------------------------------------
Consolidated Quarterly Average Balances, Yields and Rates (1)
1995 QUARTERS
- --------------------------------------------------------------------------------
Second First
- --------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Rate Balance Rate
- --------------------------------------------------------------------------------
ASSETS
Earning Assets
Securities
Taxable $231,882 6.44% $240,928 6.33%
Nontaxable 13,616 8.43 13,798 8.26
-----------------------------------
TOTAL SECURITIES 245,498 6.55 254,726 6.44
Federal funds sold and
other short term investments 49,489 6.05 44,550 5.94
Loans (2) 349,378 8.65 297,533 8.77
-----------------------------------
TOTAL EARNING ASSETS 644,365 7.65 596,809 7.57
Allowance for loan losses (3,933) (3,432)
Cash and due from banks 25,022 24,942
Bank premises and equipment 17,366 15,707
Other assets 14,379 8,791
-----------------------------------
$697,199 $642,817
===================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities
NOW (including Super NOW) $122,990 1.61% $116,662 1.70%
Savings deposits 64,655 1.96 65,036 1.96
Money market accounts 79,690 3.12 74,363 3.12
Time deposits 283,124 5.53 240,630 5.00
Federal funds purchased and other
short term borrowings 5,972 4.63 16,328 4.77
-----------------------------------
TOTAL INTEREST BEARING LIABILITIES 556,431 3.89 513,019 3.58
Demand deposits 74,219 65,919
Other liabilities 5,055 3,453
-----------------------------------
TOTAL 635,705 582,391
Shareholders' equity 61,494 60,426
-----------------------------------
$697,199 $642,817
===================================
Interest expense as % of earning assets 3.36% 3.08%
Net interest income as % of earning assets 4.29% 4.49%
- -------------------------------------------------------------------------------
(1) The tax equivalent adjustment is based on a 34% tax rate. All yields/rates
are calculated on an annualized basis.
(2) Nonaccrual loans are included in loan balances. Fees on loans are included
in interest on loans.
59
SELECTED QUARTERLY INFORMATION
- --------------------------------------------------------------------------------
Quarterly Consolidated Income Statement
1996 QUARTERS
- --------------------------------------------------------------------------------
(Dollars in thousands except per share data) FOURTH THIRD
- --------------------------------------------------------------------------------
Net interest income:
Interest income $13,384 $12,590
Interest expense 5,364 4,944
-----------------
Net interest income 8,020 7,646
Provision for loan losses 150 0
-----------------
Net interest income after provision for 7,870 7,646
losses
Noninterest income:
Service charges on deposit accounts 763 708
Trust fees 519 505
Other service charges and fees 318 279
Brokerage commissions and fees 534 432
Other 135 142
Securities gains (losses) 20 8
-----------------
Total noninterest income 2,289 2,074
Noninterest expenses:
Salaries and wages 2,845 2,708
Pension and other employee benefits 671 587
Occupancy 547 582
Furniture and equipment 443 451
Marketing 516 360
Legal and professional fees 215 172
FDIC assessments (37) 554
Foreclosed and repossessed asset
management and dispositions 73 91
Amortization of intangibles 166 165
Other 1,638 1,548
-----------------
Total noninterest expenses 7,077 7,218
-----------------
Income before income taxes 3,082 2,502
Provision for income taxes 1,128 916
-----------------
Net income $ 1,954 $ 1,586
=================
PER COMMON SHARE DATA
Net income $ 0.45 $ 0.37
=================
Cash dividends declared:
Class A common stock $ 0.20 $ 0.15
Market price Class A common stock:
Low close 23 1/4 21 3/4
High close 26 1/2 24
Bid price at end of period 26 23 1/2
60
SELECTED QUARTERLY INFORMATION (cont'd)
- --------------------------------------------------------------------------------
Quarterly Consolidated Income Statement
- --------------------------------------------------------------------------------
1996 QUARTERS
(Dollars in thousands except per share data) SECOND FIRST
- --------------------------------------------------------------------------------
Net interest income:
Interest income $12,642 $13,206
Interest expense 4,962 5,450
-----------------
Net interest income 7,680 7,756
Provision for loan losses 150 150
-----------------
Net interest income after provision for 7,530 7,606
losses
Noninterest income:
Service charges on deposit accounts 678 663
Trust fees 513 532
Other service charges and fees 305 291
Brokerage commissions and fees 569 511
Other 159 158
Securities gains (losses) 20 24
-----------------
Total noninterest income 2,244 2,179
Noninterest expenses:
Salaries and wages 2,576 2,609
Pension and other employee benefits 604 669
Occupancy 598 577
Furniture and equipment 458 429
Marketing 388 368
Legal and professional fees 276 181
FDIC assessments 58 57
Foreclosed and repossessed asset
management and dispositions (32) 33
Amortization of intangibles 165 165
Other 1,497 1,546
-----------------
Total noninterest expenses 6,588 6,634
-----------------
Income before income taxes 3,186 3,151
Provision for income taxes 1,128 1,140
-----------------
Net income $ 2,058 $ 2,011
=================
PER COMMON SHARE DATA
Net income $ 0.48 $ 0.47
=================
Cash dividends declared:
Class A common stock $ 0.15 $ 0.15
Market price Class A common stock:
Low close 21 20 1/4
High close 22 3/4 22 3/4
Bid price at end of period 22 22 1/4
61
SELECTED QUARTERLY INFORMATION (cont'd)
- --------------------------------------------------------------------------------
Quarterly Consolidated Income Statement
1995 QUARTERS
(Dollars in thousands except per share data) FOURTH THIRD
- --------------------------------------------------------------------------------
Net interest income:
Interest income $12,622 $12,284
Interest expense 5,588 5,537
----------------
Net interest income 7,034 6,747
Provision for loan losses 125 125
----------------
Net interest income after provision for 6,909 6,622
losses
Noninterest income:
Service charges on deposit accounts 667 655
Trust fees 513 525
Other service charges and fees 281 291
Brokerage commissions and fees 475 369
Other 139 123
Securities gains (losses) 218 269
----------------
Total noninterest income 2,293 2,232
Noninterest expenses:
Salaries and wages 2,430 2,455
Pension and other employee benefits 509 493
Occupancy 576 604
Furniture and equipment 436 495
Marketing 324 328
Legal and professional fees 192 228
FDIC assessments 102 176
Foreclosed and repossessed asset
management and dispositions 46 14
Amortization of intangibles 165 146
Other 1,357 1,198
----------------
Total noninterest expenses 6,137 6,137
----------------
Income before income taxes 3,065 2,717
Provision for income taxes 1,172 961
----------------
Net income $ 1,893 $ 1,756
================
PER COMMON SHARE DATA
Net income $ 0.44 $ 0.40
================
Cash dividends declared:
Class A common stock $ 0.15 $ 0.13
Market price Class A common stock:
Low close 21 5/8 18
High close 25 1/4 22 1/2
Bid price at end of period 21 3/4 22
62
SELECTED QUARTERLY INFORMATION (cont'd)
- --------------------------------------------------------------------------------
Quarterly Consolidated Income Statement
1995 QUARTERS
- ---------------------------------------------------------------
(Dollars in thousands except per share data) SECOND FIRST
- ---------------------------------------------------------------
Net interest income:
Interest income $12,203 $11,042
Interest expense 5,402 4,534
----------------
Net interest income 6,801 6,508
Provision for loan losses 0 0
----------------
Net interest income after provision 6,801 6,508
for losses
Noninterest income:
Service charges on deposit accounts 633 499
Trust fees 455 415
Other service charges and fees 259 267
Brokerage commissions and fees 412 299
Other 121 119
Securities gains (losses) 46 (53)
----------------
Total noninterest income 1,926 1,546
Noninterest expenses:
Salaries and wages 2,442 2,323
Pension and other employee benefits 497 452
Occupancy 576 575
Furniture and equipment 485 484
Marketing 351 364
Legal and professional fees 175 147
FDIC assessments 225 225
Foreclosed and repossessed asset
management and dispositions 31 (27)
Amortization of intangibles 86 21
Other 1,239 1,301
----------------
Total noninterest expenses 6,107 5,865
----------------
Income before income taxes 2,620 2,189
Provision for income taxes 906 726
----------------
Net income $ 1,714 $ 1,463
================
PER COMMON SHARE DATA
Net income $ 0.40 $ 0.34
================
Cash dividends declared:
Class A common stock $ 0.13 $ 0.13
Market price Class A common stock:
Low close 17 3/4 16 1/4
High close 19 1/2 19 1/4
Bid price at end of period 18 1/2 18 5/16
63
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Management's Report on Responsibilities for Financial Reporting
Management is responsible for the preparation and content of the accompanying
financial statements and the other information contained in this report.
Management believes that the financial statements have been prepared in
conformity with appropriate, generally accepted accounting principles applied
on a consistent basis and present fairly Seacoast Banking Corporation of
Florida's consolidated financial condition and results of operations. Where
amounts must be based on estimates and judgments, they represent the best
estimates of management.
Management maintains and relies upon an accounting system and related internal
accounting controls to provide reasonable assurance that transactions are
properly executed and recorded and that the company's assets are safeguarded.
Emphasis is placed on proper segregation of duties and authorities, the
development and dissemination of written policies and procedures and a complete
program of internal audits and management follow-up. In recognition of
cost-benefit relationships and inherent control limitations, some features of
the control systems are designed to detect rather than prevent errors,
irregularities and departures from approved policies and practices. Management
believes the system of controls has prevented or detected on a timely basis any
occurrences that could be material to the financial statements and that timely
corrective actions have been initiated when appropriate.
The accompanying 1996 financial statements have been audited by Arthur Andersen
LLP certified public accountants. As part of their audit, Arthur Andersen LLP
evaluated the accounting systems and related internal accounting controls only
to the extent they deemed necessary to determine their auditing procedures.
Their audit would not necessarily disclose all internal accounting control
weaknesses because of the limited purpose of their evaluation. Although the
scope of Arthur Andersen LLP's audit did not encompass a complete review of and
they have not expressed an opinion on the overall system of internal accounting
control, they reported that their evaluation disclosed no conditions which they
consider to be material internal accounting control weaknesses.
The Board of Directors pursues its oversight role for accounting and internal
accounting control matters through an Audit Committee of the Board of Directors
comprised entirely of outside Directors. The Audit Committee meets
periodically with management, internal auditors and independent accountants.
The independent accountants and internal auditors have full and free access to
the Audit Committee and meet with it privately, as well as with management
present, to discuss internal control accounting and auditing matters.
DALE M. HUDSON,
PRESIDENT and
CHIEF EXECUTIVE OFFICER
WILLIAM R. HAHL
SENIOR VICE PRESIDENT and
CHIEF FINANCIAL OFFICER
JOHN R. TURGEON
CONTROLLER
64
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
Seacoast Banking Corporation of Florida
Stuart, Florida
We have audited the accompanying consolidated balance sheets of Seacoast
Banking Corporation of Florida and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Seacoast Banking Corporation
of Florida and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Miami, Florida,
January 16, 1997.
65
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
Seacoast Banking Corporation of Florida and Subsidiaries
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
---------------------------------------------
Year Ended December 31 1996 1995 1994
- --------------------------------------------------------------------------------
Interest on securities
Taxable $ 12,164 $ 14,337 $ 15,818
Nontaxable 711 780 812
Interest and fees on loans 37,655 30,707 21,782
Interest on federal funds 1,292 2,327 629
sold
----------------------------------------------------
TOTAL INTEREST INCOME 51,822 48,151 39,041
Interest on deposits 5,060 5,507 5,500
Interest on time 14,916 15,195 8,072
certificates
Interest on borrowed money 744 359 269
----------------------------------------------------
TOTAL INTEREST EXPENSE 20,720 21,061 13,841
----------------------------------------------------
NET INTEREST INCOME 31,102 27,090 25,200
Provision for loan losses 450 250 145
----------------------------------------------------
NET INTEREST INCOME
AFTER PROVISION FOR 30,652 26,840 25,055
LOAN LOSSES
----------------------------------------------------
Noninterest income
Securities gains 72 480 752
Other 8,714 7,517 6,475
Noninterest expenses 27,517 24,246 23,005
----------------------------------------------------
INCOME BEFORE INCOME 11,921 10,591 9,277
TAXES
Provision for income taxes 4,312 3,765 3,091
----------------------------------------------------
NET INCOME $ 7,609 $ 6,826 $ 6,186
====================================================
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Per share common stock
NET INCOME $ 1.77 $ 1.58 $ 1.44
====================================================
Average shares outstanding 4,304,962 4,309,590 4,305,592
- --------------------------------------------------------------------------------
See notes to consolidated financial statements.
66
CONSOLIDATED BALANCE SHEETS
Seacoast Banking Corporation of Florida and Subsidiaries
(IN THOUSANDS OF DOLLARS)
---------------------------
December 31 1996 1995
- ------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 24,340 $ 56,618
Federal funds sold 76,250 58,400
Securities:
Securities held for sale (at market) 159,133 159,480
Securities held for investment (market
values:
1996 - $50,555 and 1995 - $55,525) 49,667 54,158
---------------------------
TOTAL SECURITIES 208,800 213,638
Loans 471,597 414,964
Less: Allowance for loan losses 4,286 4,066
------------ ------------
NET LOANS 467,311 410,898
Bank premises and equipment 16,110 16,104
Other real estate owned 1,011 889
Core deposit 1,975 2,310
Goodwill 3,882 4,409
Other assets 8,729 8,082
---------------------------
TOTAL ASSETS $808,408 $771,348
===========================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits
Demand deposits (noninterest bearing) $118,441 $ 96,253
Savings deposits 277,184 274,617
Other time deposits 250,239 248,768
Time certificates of $100,000 or more 46,893 41,329
---------------------------
TOTAL DEPOSITS 692,757 660,967
Federal funds purchased and securities sold
under agreement to repurchase, maturing
within 30 days 45,088 43,907
Other liabilities 3,794 4,274
---------------------------
$741,639 709,148
Commitments and Contingent Liabilities
(Notes I and P)
SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00 per share
- - authorized 1,000,000 shares, none issued
or outstanding 0 0
Class A common stock, par value $.10 per
share (liquidation preference of $2.50 per
share)authorized 10,000,000 shares, issued
3,795,501 and outstanding 3,765,301
shares in 1996, and 3,770,819 issued and
outstanding 3,700,013 shares in 1995 380 377
Class B common stock, par value $.10 per
share authorized 810,000 shares, issued
and outstanding 492,529 shares in 1996 and
517,211 shares in 1995 49 52
Additional paid-in capital 18,612 18,612
Retained earnings 50,121 45,540
Less: Treasury Stock (30,200 shares in 1996 (911) (1,676)
and 70,806 shares in 1995), at cost
---------------------------
68,251 62,905
Securities valuation allowance (1,482) (705)
---------------------------
TOTAL SHAREHOLDERS' EQUITY 66,769 62,200
---------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $808,408 $771,348
===========================
- ------------------------------------------------------------------------
See notes to consolidated financial statements
67
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
(In thousands of dollars)
----------------------------
Year Ended December 31 1996 1995 1994
- -------------------------------------------------------------------
Increase (Decrease) in Cash and
Cash Equivalents
Cash flows from operating
activities
Interest received $ 51,683 $ 49,180 $ 39,869
Fees and commissions received 8,714 7,515 6,431
Interest paid (20,945) (20,815) (13,723)
Cash paid to suppliers and (24,758) (21,598) (21,037)
employees
Income taxes paid (4,621) (3,232) (3,108)
-------------------------------
Net cash provided by operating 10,073 11,050 8,432
activities
Cash flows from investing
activities
Maturities of securities held 44,257 36,827 20,200
for sale
Maturities of investment 9,669 25,759 12,797
securities held for investment
Proceeds from sale of 49,892 115,107 72,521
securities held for sale
Proceeds from sale of
investment securities held for 0 0 0
investment
Purchase of securities held for (65,605) (109,132) (83,358)
sale
Purchase of securities held for (5,011) (5,112) (11,292)
investment
Proceeds from sale of loans 0 0 24,699
Net new loans and principal (87,609) (77,011) (44,643)
repayments
Proceeds from the sale of other 1,081 239 4,143
real estate owned
Deletions (additions) to bank (1,640) 43 (1,030)
premises and equipment
Purchase of American Bank 0 (4,659) 0
Capital Corporation of
Florida, net of cash
Net change in other assets (251) (87) (299)
-------------------------------
Net cash used in investing (55,217) (18,026) (6,262)
activities
Cash flows from financing
activities
Net increase (decrease) in 31,798 39,042 26,146
deposits
Net increase (decrease) in 1,181 (732) 4,106
federal funds purchased and
repurchase agreements
Issuance of common stock -
Employee Stock Purchase 0 115 181
and Profit Sharing Plans
Exercise of stock options 336 (58) 88
Treasury stock acquired 131 (1,676) 0
Dividends paid (2,730) (2,277) (2,070)
-------------------------------
Net cash provided by financing 30,716 34,414 28,451
activities
-------------------------------
Net increase (decrease) in cash (14,428) 27,438 30,621
and cash equivalents
Cash and cash equivalents at 115,018 87,580 56,959
beginning of year
-------------------------------
Cash and cash equivalents at end $100,590 $ 115,018 $ 87,580
of year ================================
- -------------------------------------------------------------------
68
Consolidated Statements of Shareholders' Equity
- --------------------------------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
Common Stock
------------------------------------
Class A Class B
------------------------------------
(In thousands of dollars)
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Balance at December 31,
1993 3,692,414 $369 571,325 $57
Exchange of Class B
common stock for
Class A common stock 7,971 1 (7,971) (1)
Issuance of Class A
common stock for
Employee Stock
Purchase and Profit
Sharing Plan 10,339 1
Exercise of stock
options 8,000 1
Net income
Cash dividends declared
Net change in
securities valuation
equity (allowance)
------------------------------------
Balance at December 31,
1994 3,718,724 372 563,354 56
Exchange of Class B
common stock for Class
A common stock 46,143 4 (46,143) (4)
Issuance of Class A
common stock for
Employee Stock
Purchase and Profit
Sharing Plan 5,952 1
Treasury stock acquired (71,500)
Treasury stock issued 694
for Employee Stock
Purchase and Profit
Sharing Plan
Exercise of stock
options
Net income
Cash dividends declared
Net change in
securities valuation
equity (allowance)
------------------------------------
Balance at December 31,
1995 3,700,013 377 517,211 52
Exchange of Class B
common stock for
Class A common stock 24,682 3 (24,682) (3)
Treasury stock acquired (736)
Treasury stock issued
for Employee 2,842
Stock Purchase and Profit Sharing Plan
Treasury stock issued
for exercise of stock
options 28,500
Treasury stock issued for stock awards 10,000
Net income
Cash dividends declared
Net change in
securities
valuation equity (allowance)
------------------------------------
Balance at December 31,
1996 3,765,301 $380 492,529 $49
================================================================================
See notes to consolidated financial statements.
69
Consolidated Statements of Shareholders' Equity (cont'd)
- --------------------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
Additional
Paid-in Retained Restricted/
(In thousands of dollars) Capital Earnings Treasury Stock
- --------------------------------------------------------------------
Balance at December 31, 1993 $18,231 $36,933 $ 0
Exchange of Class B
common stock for Class
A common stock
Issuance of Class A
common stock for
Employee Stock
Purchase and Profit
Sharing Plan 180
Exercise of stock
options 87
Net income 6,186
Cash dividends declared (2,070)
Net change in
securities valuation
equity (allowance)
----------------------------------
Balance at December 31,
1994 18,498 41,049 0
Exchange of Class B
common stock for
Class A common stock
Issuance of Class A
common stock for
Employee Stock
Purchase and Profit
Sharing Plan 114
Treasury stock acquired (1,692)
Treasury stock issued
for Employee Stock
Purchase and Profit
Sharing Plan 16
Exercise of stock
options (58)
Net income 6,826
Cash dividends declared (2,277)
Net change in
securities valuation
equity (allowance)
----------------------------------
Balance at December 31,
1995 18,612 45,540 (1,676)
Exchange of Class B
common stock for
Class A common stock
Treasury stock acquired (16)
Treasury stock issued
for Employee Stock
Purchase and Profit
Sharing Plan (1) 62
Treasury stock issued
for exercise of stock
options (10) (298) 644
Treasury stock issued
for stock awards 11 75
Net income 7,609
Cash dividends declared (2,730)
Net change in
securities
valuation equity (allowance)
----------------------------------
Balance at December 31,
1996 $18,314 $50,419 $ (911)
===================================================================
See notes to consolidated financial statements.
70
Consolidated Statements of Shareholders' Equity (cont'd)
- --------------------------------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
Securities
Valuation Equity
(In thousands of dollars) (Allowance) Total
- --------------------------------------------------------------------------------
Balance at December 31, $ 4,667 $60,257
1993
Exchange of Class B
common stock for
Class A common stock
Issuance of Class A
common stock for
Employee Stock
Purchase and Profit
Sharing Plan 181
Exercise of stock
options 88
Net income 6,186
Cash dividends declared (2,070)
Net change in
securities
valuation equity (allowance) (9,058) (9,058)
-----------------
Balance at December 31, (4,391) 55,584
1994
Exchange of Class B
common stock for Class
A common stock
Issuance of Class A
common stock for
Employee Stock
Purchase and
Profit Sharing Plan 115
Treasury stock acquired (1,692)
Treasury stock issued
for Employee Stock Purchase and Profit Sharing Plan 16
Exercise of stock
options (58)
Net income 6,826
Cash dividends declared (2,277)
Net change in
securities valuation
equity (allowance) 3,686 3,686
-----------------
Balance at December 31, (705) 62,200
1995
Exchange of Class B
common stock for Class
A common stock
Treasury stock acquired (16)
Treasury stock issued
for Employee Stock Purchase and Profit Sharing Plan 61
Treasury stock issued
for exercise of stock
options 336
Treasury stock issued
for stock awards 86
Net income 7,609
Cash dividends declared (2,730)
Net change in
securities (777) (777)
valuation equity (allowance) -----------------
Balance at December 31,
1996 $(1,482) $66,769
===============================================================================
See notes to consolidated financial statements.
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries. Intercompany transactions and balances have been eliminated in
consolidation.
NATURE OF OPERATIONS: The Company is one bank holding company whose operations
and locations are more fully described under the heading "Corporate Profile"
and "Markets Served" on the inside of the front cover and on page 1 of this
annual report.
USE OF ESTIMATES: The preparation of these financial statements required the
use of certain estimates by management in determining the Company's assets,
liabilities, revenues and expenses. Actual results could differ from those
estimates.
SECURITIES: Securities that may be sold as part of the Company's
asset/liability management or in response to, or in anticipation of changes in
interest rates and resulting prepayment risk, or for other factors are stated
at market value. Such securities are held for sale with unrealized gains of
losses reflected as a component of Shareholders' Equity net of tax. Debt
securities that the Company has the ability and intent to hold to maturity are
carried at amortized cost. Interest income on securities, including
amortization of premiums and accretion of discounts is recognized using the
interest method.
The Company generally anticipates prepayments of principal in the calculation
of the effective yield for collateralized mortgage obligations and mortgage
backed securities. The adjusted cost of each specific security sold is used to
compute gains or losses on the sale of securities.
OTHER REAL ESTATE OWNED: Other real estate owned consists of real estate
acquired in lieu of unpaid loan balances. These assets are carried at an
amount equal to the loan balance prior to foreclosure plus costs incurred for
improvements to the property, but no more than the estimated fair value of the
property.
BANK PREMISES AND EQUIPMENT: Bank premises and equipment are stated at cost,
less accumulated depreciation and amortization. Depreciation is computed
principally by the straight line method, over the estimated useful lives as
follows: building - 25-40 years, furniture and equipment - 4-12 years.
PURCHASE METHOD OF ACCOUNTING: Net assets of companies acquired in purchase
transactions are recorded at fair value at date of acquisition. Core deposit
intangibles are amortized on a straight line basis over estimated periods
benefited, not exceeding 10 years. Goodwill is amortized on a straight line
basis over 15 years.
MORTGAGE SERVICING RIGHTS: The Company adopted Statement of Financial
Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights an
Amendment of SFAS No. 65," as of January 1, 1996. The Company acquires
mortgage servicing rights through the origination of mortgage loans, and the
Company sells or securitizes those loans with servicing rights retained. Under
Statement of Financial Accounting Standards No. 122, the Company allocates the
total cost of the mortgage loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair values.
The Company assesses its capitalized mortgage servicing rights for impairment
based on the fair value of those rights. The portfolio is stratified by two
predominant risk characteristics: loan type and fixed versus variable interest
rate. Impairment, if any, is recognized through a valuation allowance for each
impaired stratum. Mortgage servicing rights are amortized in proportion to,
and over the period of, the estimated net future servicing income.
72
For years prior to 1996, the Company had not purchased the rights to service
loans and consequently, had not recognized mortgage servicing rights as an
asset. The effect of adoption of this Statement in 1996 was not significant.
REVENUE RECOGNITION: Interest on loans is accrued based upon the principal
amount outstanding. The accrual of interest income is discontinued when a loan
becomes 90 days past due as to principal or interest.
When interest accruals are discontinued, interest credited to income in the
current year is reversed and interest accrued in the prior year is charged to
the allowance for loan losses.
Management may elect to continue the accrual of interest when the estimated net
realizable value of collateral is sufficient to cover the principal balance and
accrued interest.
PROVISION FOR LOAN LOSSES: The provision for loan losses is management's
judgement of the amount necessary to increase the allowance for loan losses to
a level sufficient to cover losses in the collection of loans.
NET INCOME PER SHARE: Net income per share is based upon the weighted average
number of shares of both Class A and Class B common stock and equivalents
outstanding during the respective years.
CASH FLOW INFORMATION: For the purposes of the consolidated statements of cash
flows, the Company considers cash and due from banks and federal funds sold as
cash and cash equivalents.
NOTE B - CASH, DIVIDEND AND LOAN RESTRICTIONS
In the normal course of business, the Company and its subsidiary bank enter
into agreements, or are subject to regulatory agreements, that result in cash,
debt and dividend restrictions. A summary of the most restrictive items
follows:
The Company's subsidiary bank is required to maintain average reserve balances
with the Federal Reserve Bank. The average amount of those reserve balances
for the year ended December 31, 1996 was approximately $2,000,000.
Under Federal Reserve regulation, the Company's subsidiary bank is limited as
to the amount it may loan to its affiliates, including the Company, unless such
loans are collateralized by specified obligations. At December 31, 1996, the
maximum amount available for transfer from the subsidiary bank to the Company
in the form of loans approximated 18 percent of consolidated net assets.
The approval of the Comptroller of the Currency is required if the total of all
dividends declared by a national bank in any calendar year exceeds the bank's
profits, as defined, for that year combined with its retained net profits for
the preceding two calendar years. Under this restriction the Company's
subsidiary bank can distribute as dividends to the Company in 1997, without
prior approval of the Comptroller of the Currency, approximately $ 8,300,000.
NOTE C - SECURITIES
The amortized cost and market value of securities at December 31, 1996, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or repay
obligations with or without call or prepayment penalties.
73
Held for Investment Held for Sale
-----------------------------------------
Amortized Market Amortized Market
(In thousands of dollars) Cost Value Cost Value
- ----------------------------------------------------------------------
Due in one year or less $ 2,871 $ 2,885 $ 0 $ 0
Due after one year 16,139 16,576 44,749 44,417
through five years
Due after five years 2,276 2,399 5,027 5,188
through ten years
Due after ten years 5,317 5,466 0 0
-------------------------------------------
26,603 27,326 49,776 49,605
Mortgage backed 23,064 23,229 73,498 72,873
securities
No contractual maturity 0 0 37,698 36,655
-------------------------------------------
$49,667 $50,555 $160,972 $159,133
======================================================================
Proceeds from sales of securities during 1996 were $49,892,000 with gross gains
of $150,000 and gross losses of $78,000. During 1995, proceeds from sales of
securities were $115,107,000 with gross gains of $778,000 and gross losses of
$298,000. During 1994, proceeds from sales of securities were $72,521,000 with
gross gains of $1,178,000 and gross losses of $426,000.
Securities with a carrying value of $82,930,000 at December 31, 1996, were
pledged to secure United States Treasury deposits, other public deposits and
trust deposits.
The amortized cost and market value of securities follow:
Gross Gross
Amortized Unrealized Unrealized Market
(In thousands of dollars) Cost Gains Losses Value
- ----------------------------------------------------------------------------
DECEMBER 31, 1996:
Securities Held for Sale:
U.S. Treasury and U.S.
Government agencies $ 49,776 $ 290 $ (461) $ 49,605
Mortgage backed securities 73,498 126 (751) 72,873
Mutual funds 35,377 0 (1,044) 34,333
Other securities 2,321 1 0 2,322
------------------------------------------
$160,972 $ 417 $(2,256) $159,133
==========================================
Securities Held for Investment:
U.S. Treasury and U.S.
Government agencies $ 15,596 $ 267 $ 0 $ 15,863
Mortgage backed securities 23,064 265 (100) 23,229
Tax exempt 10,907 459 (3) 11,363
Other securities 100 0 0 100
------------------------------------------
$ 49,667 $ 991 $ (103) $ 50,555
==========================================
DECEMBER 31, 1995:
Securities Held for Sale:
U.S. Treasury and U.S.
Government agencies $ 34,512 $ 645 $ (37) $ 35,120
Mortgage backed securities 87,908 551 (454) 88,005
Mutual funds 35,577 0 (1,030) 34,547
Other securities 1,794 14 0 1,808
------------------------------------------
$159,791 $1,210 $(1,521) $159,480
==========================================
Securities Held for Investment:
U.S. Treasury & U.S.
Government agencies $ 17,329 $ 669 $ 0 $ 17,998
Mortgage backed securities 23,837 259 (102) 23,994
Tax exempt 12,892 544 (3) 13,433
Other securities 100 0 0 100
------------------------------------------
$ 54,158 $1,472 $ (105) $ 55,525
==========================================
74
NOTE D - LOANS
An analysis of loans follows:
December 31
(In thousands of dollars) 1996 1995
- ---------------------------------------------
Real estate $ 11,880 $ 10,540
construction
Real estate mortgage 378,227 335,031
Commercial and 22,857 17,205
financial
Installment loans to 58,187 51,959
individuals
Other 446 229
------------------
$471,597 $414,964
==================
One of the sources of the Company's business is loans to directors, officers
and other members of management. These loans are made on the same terms as all
other loans and do not involve more than normal risk of collectibility. The
aggregate dollar amount of these loans was approximately $3,777,000 and
$3,786,000 at December 31, 1996 and 1995, respectively. During 1996,
$3,035,000 of new loans were made and repayments totalled $3,044,000.
See Page 26 of Management's Discussion and Analysis for information about
concentrations of credit risk of all financial instruments.
Note E - Impaired Loans and Allowance for Loan Losses
The Company adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan," and Statement of Financial
Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan
- - Income Recognition and Disclosures," as of January 1, 1995. These statements
require that certain impaired loans be measured based on the present value of
expected future cash flows discounted at the loan's original effective interest
rate. As a practical expedient, impairment may be measured based on the loan's
observable market price or the fair value of collateral if the loan is
collateral dependent. When the measure of the impaired loan is less than the
recorded investment in the loan, the impairment is recorded through a valuation
allowance.
The Company had previously measured the allowance for loan losses using methods
similar to those described in Statement of Financial Accounting Standard No.
114. As a result of adopting these statements, no additional allowance for
loan losses was required as of January 1, 1995.
The Company's recorded investment in impaired loans and related valuation
allowance are as follows:
December 31 1996 1995
RECORDED VALUATION Recorded Valuation
(In thousands of dollars) INVESTMENT ALLOWANCE Investment Allowance
- -----------------------------------------------------------------------
Impaired loans:
Valuation allowance $ 0 $0 $ 585 $14
required
No valuation allowance 161 0 681 0
required
--------------------------------------
$161 $0 $1,266 $14
======================================
The valuation allowance is included in the allowance for loan losses. The
average recorded investment in impaired loans for the years ended December 31,
1996 and 1995 were $832,000 and $204,000, respectively.
75
Interest payments received on impaired loans are recorded as interest income
unless collection of the remaining recorded investment is doubtful at which time
payments received are recorded as reductions to principal. The Company
recognized interest income on impaired loans of $22,000 and $37,000 for the year
ended December 31, 1995 and 1996.
Transactions in the allowance for loan losses are summarized as follows:
Year Ended December 31
(In thousands of dollars) 1996 1995 1994
- ----------------------------------------------------------------------------
Balance, beginning of year $4,066 $3,373 $3,622
Provision charged to operating expense 450 250 145
Allowance applicable to loans of purchased company 0 556 0
Charge offs (582) (533) (819)
Recoveries 352 420 425
------------------------
Balance, end of year $4,286 $4,066 $3,373
========================
NOTE F - BANK PREMISES AND EQUIPMENT
Bank premises and equipment are summarized as follows:
Accumulated
(In thousands of dollars) Depreciation & Net Carrying
Amortization Value
Cost
- ---------------------------------------------------------------
DECEMBER 31, 1996
Premises (including land of $18,025 $ 5,363 $12,662
$2,900)
Furniture and equipment 12,295 8,847 3,448
----------------------------------
$30,320 $14,210 $16,110
==================================
DECEMBER 31, 1995
Premises (including land of $17,428 $ 4,727 $12,701
$2,769)
Furniture and equipment 11,733 8,330 3,403
----------------------------------
$29,161 $13,057 $16,104
==================================
NOTE G - SHORT TERM BORROWINGS
All of the Company's borrowings were comprised of federal funds purchased and
securities sold under agreements to repurchase with maturities primarily from
overnight to seven days:
(In thousands of dollars) 1996 1995 1994
- -------------------------------------------------------
Maximum amount outstanding
at any month end $45,088 $43,907 $44,639
Average interest rate
outstanding at end of 3.92% 3.91% 4.56%
year
Average amount outstanding $17,978 $ 7,816 $ 7,949
Weighted average interest 4.14% 4.59% 3.38%
rate
- -------------------------------------------------------
The Company's subsidiary bank has unused lines of credit to purchase federal
funds from its correspondent banks of $45,500,000 at December 31, 1996.
76
NOTE H - EMPLOYEE BENEFITS
The Company's profit sharing plan which covers substantially all employees
after one year of service includes a matching benefit feature for employees
electing to defer the elective portion of their profit sharing compensation.
In addition, amounts of compensation contributed by employees are matched on a
percentage basis under the plan. The profit sharing contributions charged to
operations were $801,000 in 1996, $572,000 in 1995 and $539,000 in 1994.
The Company's stock option and stock appreciation rights plans were approved by
the Company's shareholders on April 25, 1991 and April 25, 1996. The number of
shares of Class A common stock that may be purchased pursuant to the 1991 and
1996 plans shall not exceed 300,000 shares for each plan. The Company has
granted options on 286,000 shares and 47,000 shares, respectively through
December 31, 1996. Under both plans the option exercise price equals the Class
A common stock's market price on the date of grant. All options have a four
year vesting period and a contractual life of ten years.
The following table presents a summary of stock option activity for 1995 and
1996:
- ----------------------------------------------------------------------------------------
Number Weighted Average Option Price Weighted Average
of Shares Fair Value Per Share Exercise Price
--------------------------------------------------------------------
Options
outstanding,
January 1, 1995 205,500 $11.00-19.00 $15.93
Exercised (8,000) 11.00 11.00
Granted 60,000 $4.74 17.50 17.50
Cancelled (8,000) 19.75 19.75
--------------------------------------------------------------------
Options
outstanding,
December 31, 1995 249,500 11.00 - 19.75 16.34
Exercised (28,500) 11.00 - 19.00 11.78
Granted 47,000 $5.64 21.75 21.75
Cancelled (8,000) 17.50 17.50
--------------------------------------------------------------------
Options
outstanding,
December 31, 1996 260,000 11.00 - 21.75 17.78
--------------------------------------------------------------------
Options
exercisable,
December 31, 1995 96,000 14.38
December 31, 1996 122,000 16.11
========================================================================================
The following table summarizes information about stock options outstanding at
December 31, 1996:
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted
Average
Number of Remaining Weighted Number of Weighted
Range of Shares Contractual Average Shares Average
Exercise Outstanding Life in Years Exercise Price Exercisable Exercise Price
Prices
- ----------------------------------------------------------------------------------------------------------------------------------
$11.00 10,000 4.42 $11.00 10,000 $11.00
11.75 33,500 5.17 11.75 33,500 11.75
17.50 52,000 8.17 17.50
17.75 35,000 6.92 17.75 23,333 17.75
19.00 82,500 6.17 19.00 55,000 19.00
21.75 47,000 9.50 21.75
- ----------------------------------------------------------------------------------------------------------------------------------
260,000 7.07 17.78 121,833 16.11
==================================================================================================================================
77
The two stock option plans are accounted for under APB Opinion No. 25, and
therefore no compensation cost has been recognized. Had compensation cost for
these plans been determined consistent with SFAS 123, the Company's net income
and earnings per share would have been reduced to the following pro forma
amounts:
In Thousands 1996 1995
- -----------------------------------------
Net Income: As Reported $7,609 $6,826
Pro Forma 7,526 6,786
Primary EPS: As Reported 1.77 1.58
Pro Forma 1.75 1.57
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995; risk-free interest rates of 7.11
percent for 1996 and 7.59 percent for 1995; expected dividend yield of 3.3
percent; expected lives of 7 years; expected volatility of 20.8 percent.
The Company's defined benefit plan was terminated in 1996 and resulted in a
one-time charge of $607,000. The Company has received regulatory approval for
the termination and has no further obligation to the plan or its participants.
NOTE I - LEASE COMMITMENTS
The Company is obligated under various noncancelable operating leases for
equipment, buildings and land. At December 31, 1996, future minimum lease
payments under leases with initial or remaining terms in excess of one year are
as follows:
(In thousands of dollars)
- --------------------
1997 $ 1,141
1998 1,019
1999 918
2000 732
2001 729
Thereafter 6,942
-------
$11,481
=======
Rent expense charged to operations was $1,066,000 in 1996, $995,000 in 1995,
and $1,033,000 in 1994. Certain leases contain provisions for renewal and
change with the consumer price index.
Certain property is leased from related parties of the Company at prevailing
rental rates. Lease payments to these individuals were $206,000 in 1996,
$185,000 in 1995, and $259,000 in 1994.
78
NOTE J - INCOME TAXES
The provision for income taxes including tax effects of security transaction
gains (1996 - $27,000; 1995 - $175,000; 1994 - $267,000) are as follows:
Year Ended December 31
(In thousands of dollars) 1996 1995 1994
- --------------------------------------------------
Current
Federal $4,204 $3,311 $2,313
State 524 403 150
Deferred
Federal (372) 46 554
State (44) 5 74
-----------------------
$4,312 $3,765 $3,091
=======================
- --------------------------------------------------------------------------------
Temporary differences in the recognition of revenue and expense for tax and
financial reporting purposes resulted in deferred income taxes as follows:
(In thousands of dollars) 1996 1995 1994
- -------------------------------------------------
Depreciation $(143) $(135) $(260)
Allowance for loan losses (93) 2 152
Interest and fee income 51 63 (126)
Other real estate owned (24) (4) 736
Tax accounting change 0 26 113
Pension (229) 53 46
Other 22 46 (33)
---------------------
$(416) $ 51 $ 628
=====================
79
The difference between the total expected tax expense (computed by applying the
U.S. Federal tax rate of 34 percent to pretax income) and the reported income
tax expense relating to income before income taxes is as follows:
Year Ended December 31
(In thousands of dollars) 1996 1995 1994
- ------------------------------------------------------
34% of income before $4,077 $3,601 $3,154
income taxes
Increase (decrease)
resulting from the effects
of:
Tax-exempt interest on
obligations of states and
political subdivisions (216) (234) (253)
State income taxes (164) (139) (76)
Dividend exclusion (8) (7) (8)
Amortization of 198 108 0
intangibles
Other (55) 28 50
------------------------
Federal tax provision 3,832 3,357 2,867
State tax provision 480 408 224
------------------------
Applicable income taxes $4,312 $3,765 $3,091
========================
The net deferred tax assets are comprised of the following:
December 31 (In thousands of dollars) 1996 1995
- --------------------------------------------------------
Allowance for loan losses $ 1,303 $ 1,210
Other real estate owned 39 15
Net unrealized securities losses 880 402
Other 139 0
-----------------
Gross deferred tax assets 2,361 1,627
Depreciation (744) (887)
Interest and fee income (383) (332)
Other 0 (68)
-----------------
Gross deferred tax liabilities (1,127) (1,287)
Deferred tax asset valuation 0 0
allowance
-----------------
Net deferred tax assets $ 1,234 $ 340
=================
80
NOTE K - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value:
CASH AND CASH EQUIVALENTS
The carrying amount was used as a reasonable estimate of fair value.
SECURITIES
The fair value of U.S. Treasury and U.S. Government agency, mutual fund and
mortgage backed securities are estimated based on bid prices published in
financial newspapers or bid quotations received from securities dealers.
The fair value of many state and municipal securities are not readily available
through market sources, so fair value estimates are based on quoted market
price or prices of similar instruments.
LOANS
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, mortgage,
credit card, etc. Each loan category is further segmented into fixed and
adjustable rate interest terms and by performing and nonperforming categories.
The fair value of loans, except residential mortgage and credit card loans, is
calculated by discounting scheduled cash flows through the estimated maturity
using estimated market discount rates that reflect the credit and interest rate
risk inherent in the loan. For residential mortgage loans, fair value is
estimated by discounting contractual cash flows adjusting for prepayment
assumptions using discount rates based on secondary market sources adjusted to
reflect differences in servicing and credit costs. For credit card loans, cash
flows and maturities are based on contractual terms. The fair value estimate
for credit card loans is based on the carrying value of existing loans at
December 31, 1996 and 1995. This estimate does not include the value that
relates to estimated cash flows from new loans generated from existing
cardholders over the remaining life of the portfolio.
DEPOSIT LIABILITIES
The fair value of demand deposits, savings accounts and money market deposits
is the amount payable on demand at the reporting date. The fair value of fixed
maturity certificates of deposit is estimated using the rates currently offered
for deposits of similar remaining maturities.
81
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
present creditworthiness of the counterparties.
1996 1995
-------------------------------------------------
December 31 Carrying Fair Value Carrying Fair Value
(In thousands of dollars) Amount Amount
- ----------------------------------------------------------------------------
Financial Assets
Cash and cash $100,590 $100,590 $115,018 $115,018
equivalents
Securities 208,800 209,688 213,638 215,005
Loans, net 467,311 467,865 410,898 415,647
Financial Liabilities
Deposits 692,757 693,523 660,967 662,141
Borrowings 45,088 45,088 43,907 43,907
Contingent Liabilities
Commitments to extend 0 425 0 335
credit
Standby letters of 0 6 0 11
credit
- -----------------------------------------------------------------------------
NOTE L - NONINTEREST INCOME AND EXPENSES
Details of noninterest income and expenses follow:
Year Ended December 31 1996 1995 1994
(In thousands of dollars)
- ----------------------------------------------------------------
Noninterest income
Service charges on deposit accounts $ 2,812 $ 2,454 $ 2,033
Trust fees 2,069 1,908 1,722
Other service charges and fees 1,193 1,098 1,028
Brokerage commissions and fees 2,046 1,555 1,190
Other 594 502 502
-------------------------
8,714 7,517 6,475
Securities gains 72 480 752
-------------------------
$ 8,786 $ 7,997 $ 7,227
=========================
Noninterest expenses
Salaries and wages $10,738 $ 9,650 $ 8,682
Pension and other employee benefits 2,531 1,951 1,815
Occupancy 2,304 2,331 2,230
Furniture and equipment 1,781 1,900 2,027
Marketing 1,632 1,367 1,262
Legal and professional fees 844 742 888
FDIC assessments 632 728 1,191
Foreclosed and repossessed asset
management and dispositions 165 64 20
Amortization of intangibles 661 418 88
Other 6,229 5,095 4,802
-------------------------
$27,517 $24,246 $23,005
======= ======= =======
82
NOTE M - SHAREHOLDERS' EQUITY
The Company has reserved 100,000 Class A common shares for issuance in
connection with an employee stock purchase plan and 150,000 Class A common
shares for issuance in connection with an employee profit sharing plan. At
December 31, 1996, an aggregate of 35,236 shares and 52,422 shares,
respectively, have been issued as a result of employee participation in these
plans.
Holders of Class A common stock are entitled to one vote per share on all
matters presented to shareholders. Holders of Class B common stock are
entitled to 10 votes per share on all matters presented to shareholders. Class
A and Class B common stock vote together as a single class on all matters,
except as required by law or as provided otherwise in the Company's Articles of
Incorporation. Each share of Class B common stock is convertible into one
share of Class A common stock at any time prior to a vote of shareholders
authorizing a liquidation or dissolution of the Company.
The Company is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional dicretionary, actions
by regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Company's captial amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantiative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined)
and of Tier 1 capital to average assets (as defined). Management believes, as
of December 31, 1996 that the Company meets all capital adequacy requirements
to which it is subject.
As of December 31, 1996, the most recent notification from the Company's
regulator categorized the Company as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Company must maintain minimum total risk-based, Tier 1 risk-based and Tier
1 leverage ratios as set forth below. There are no conditions or events since
that notification that management believes have changed the institution's
category.
83
MINIMUM FOR CAPITAL
ADEQUACY PURPOSES
----------------------
(IN THOUSANDS OF DOLLARS) AMOUNT RATIO AMOUNT RATIO
- --------------------------------------------------------------------------------
AT DECEMBER 31, 1996:
Total Capital (to risk- $66,023 15.00% $35,203 > 8.00%
weighted assets) -
Tier 1 Capital (to 61,737 14.03 17,602 > 4.00%
risk-weighted assets) -
Tier 1 Capital (to 61,737 8.32 29,692 > 4.00%
average assets) -
AT DECEMBER 31, 1995:
Total Capital (to risk- $59,838 14.86% $32,219 > 8.00%
weighted assets) -
Tier 1 Capital (to 55,772 13.85 16,109 > 4.00%
risk-weighted assets) -
Tier 1 Capital (to 55,772 7.93 28,117 > 4.00%
average assets) -
- --------------------------------------------------------------------------------
MINIMUM TO BE WELL
CAPITALIZED UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS
----------------------
(IN THOUSANDS OF DOLLARS) AMOUNT RATIO
AT DECEMBER 31, 1996:
Total Capital (to risk- $44,004 > 10.00%
weighted assets) -
Tier 1 Capital (to 26,402 > 6.00%
risk-weighted assets) -
Tier 1 Capital (to 37,115 > 5.00%
average assets) -
AT DECEMBER 31, 1995:
Total Capital (to risk- $40,274 > 10.00%
weighted assets) -
Tier 1 Capital (to 24,164 > 6.00%
risk-weighted assets) -
Tier 1 Capital (to 35,147 > 5.00%
average assets) -
The above ratios are comparable for the Company's wholly owned banking
subsidiary.
84
NOTE N - 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. The
following represents the unaudited proforma impact as of and for the year ended
December 31, 1994, assuming the acquisition occurred January 1, 1994:
(IN THOUSANDS OF DOLLARS, EXCEPT PER
SHARE AMOUNTS)
FOR THE YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
Net interest income $27,328
Noninterest income 7,771
Noninterest expense 24,330
Net income 6,910
Earnings per share 1.60
NOTE O - SEACOAST BANKING CORPORATION OF FLORIDA
(PARENT COMPANY ONLY) FINANCIAL INFORMATION
BALANCE SHEETS
December 31
(In thousands of dollars) 1996 1995
- ------------------------------------------------------
ASSETS
Cash $ 10 $ 10
Securities purchased under 4,605 3,772
agreement to resell with
subsidiary bank, maturing
within 30 days
Securities held for sale 1,547 1,596
Investment in subsidiaries 60,613 56,875
Other assets 79 32
----------------
$66,854 $62,285
================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Other liabilities $ 85 $ 85
Shareholders' Equity 66,769 62,200
----------------
$66,854 $62,285
================
85
STATEMENTS OF INCOME
Year Ended December 31
(In thousands of dollars) 1996 1995 1994
- ---------------------------------------------------------
INCOME
Dividends
Subsidiary $3,219 $2,668 $2,378
Other 33 30 33
Interest 248 292 235
----------------------
3,500 2,990 2,646
EXPENSES 446 408 553
----------------------
Income before income tax credit
and equity in undistributed
income of subsidiaries 3,054 2,582 2,093
Income tax credit 69 38 109
----------------------
Income before equity in
undistributed income of
subsidiaries 3,123 2,620 2,202
Equity in undistributed income of
subsidiaries 4,486 4,206 3,984
----------------------
NET INCOME $7,609 $6,826 $6,186
======================
STATEMENTS OF CASH FLOWS
Year Ended December 31
(In thousands of dollars) 1996 1995 1994
- -----------------------------------------------------------------
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 253 $ 292 $ 235
Dividends received 3,251 2,701 2,414
Income taxes received 38 109 67
Cash paid to suppliers (446) (419) (563)
---------------------------
Net cash provided by operating
activities 3,096 2,683 2,153
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease (increase) in securities
purchased under agreement to
resell, maturing in 30 days (833) 1,213 (352)
---------------------------
Net cash provided by (used in)
investing activity (833) 1,213 (352)
CASH FLOWS FROM FINANCING
Issuance of common stock -
Employee Stock Purchase and
Profit Sharing Plan 0 115 181
Exercise of Stock Options 336 (58) 88
Treasury Stock (Purchase) 131 (1,676) 0
Dividends paid (2,730) (2,277) (2,070)
---------------------------
Net cash used in financing (2,263) (3,896) (1,801)
---------------------------
Net change in cash 0 0 0
Cash at beginning of year 10 10 10
---------------------------
Cash at end of year $ 10 $ 10 $ 10
===========================
86
RECONCILIATION OF NET INCOME TO
CASH PROVIDED BY OPERATING
ACTIVITIES
Net income $ 7,609 $ 6,826 $ 6,186
Adjustments to reconcile net
income to net cash provided by
operating activities:
Amortization 5 4 4
Equity in undistributed income (4,486) (4,206) (3,984)
of subsidiaries
Change in other assets (32) 70 (41)
Change in other liabilities 0 (11) (12)
---------------------------
Net cash provided by operating
activities $ 3,096 $ 2,683 $ 2,153
===========================
NOTE P - CONTINGENT LIABILITIES AND COMMITMENTS WITH OFF BALANCE SHEET RISK
The Company and its subsidiary bank, because of the nature of their business,
are at all times subject to numerous legal actions, threatened or filed.
Management, based upon advice of legal counsel, does not expect that the final
outcome of threatened or filed suits will have a materially adverse effect on
its results of operations or financial condition.
The Company's subsidiary bank is a party to financial instruments with off
balance sheet risk in the normal course of business to meet the financing needs
of its customers. These financial instruments include commitments to extend
credit and standby letters of credit.
The subsidiary bank's exposure to credit loss in the event of non-performance
by the other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contract or notional amount
of those instruments. The subsidiary bank uses the same credit policies in
making commitments and standby letters of credit as it does for on balance
sheet instruments.
Contract or
Notional Amount
December 31 (In thousands of dollars)
1996 1995
- -----------------------------------------------------------
Financial instruments whose
contract amounts represent credit
risk:
Commitments to extend credit $42,470 $33,502
Standby letters of credit and
financial guarantees written:
Secured 416 898
Unsecured 136 168
- -----------------------------------------------------------
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The subsidiary bank evaluates
each customer's creditworthiness on a case-by-case basis.
87
The amount of collateral obtained, if deemed necessary by the bank upon
extension of credit, is based on management's credit evaluation of the
counterparty. Collateral held varies but may include accounts receivable,
inventory, equipment, and commercial and residential real estate. Of the
$42,470,000 outstanding at December 31, 1996, $25,900,000 is secured by 1-4
family residential properties.
Standby letters of credit are conditional commitments issued by the subsidiary
bank to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and similar
transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. The subsidiary bank holds collateral supporting those commitments
for which collateral is deemed necessary. The extent of collateral held for
the above secured standby letters of credit at December 31, 1996 and 1995
amounted to $872,000 and $1,228,000, respectively.
NOTE Q - SUPPLEMENTAL DISCLOSURES FOR CONSOLIDATED STATEMENT OF CASH FLOWS
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
(In thousands of dollars)
-----------------------------
Year Ended December 31 1996 1995 1994
- ------------------------------------------------------------------
Net Income $ 7,609 $ 6,826 $ 6,186
Adjustments to reconcile net
income to net cash provided by
operating activities
Depreciation and amortization 2,426 2,594 2,717
Provision for loan losses 450 250 145
Provision (credit) for deferred (416) 51 628
taxes
Gain on sale of securities (72) (480) (752)
Gain on sale of loans 0 0 (45)
(Gain) loss on sale and write 107 (18) (192)
down of foreclosed assets
Loss on disposition of 18 53 96
equipment
Change in interest receivable (288) 615 21
Change in interest payable (225) 247 118
Change in prepaid expenses 473 0 112
Change in accrued taxes 111 497 (686)
Change in other liabilities (120) 415 84
-----------------------------
Total adjustments 2,464 4,224 2,246
-----------------------------
Net cash provided by operating $10,073 $11,050 $ 8,432
activities
==============================
Supplemental disclosure of non
cash investing activities:
Market value adjustment to
securities $(1,528) $ 3,509 $(11,132)
Transfer from securities held
for sale to securities held for
investment 0 16,147 64,885
Transfer from securities held
for investment to securities
held for sale 0 68,764 0
Transfers from loans to other
real estate owned 1,310 945 0
==================================================================
NOTE R - REASSESSMENT OF SECURITIES' CLASSIFICATIONS
The Company used the opportunity provided by an implementation guide on SFAS No.
115 to reclassify approximately $69 million from held for investment to the held
for sale portfolio in 1995.
In connection with this reclassification, gross unrealized gains of $785,000
and gross unrealized losses of $413,000 were recorded in held for sale
securities and in shareholders' equity (net of tax) in 1995.
88
INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants -- Arthur Andersen LLP
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders' Equity
Notes to Consolidated Financial Statements
89
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
90
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors and executive officers of
Seacoast is set forth under the headings "Election of Directors - General," and
"- Executive Officers" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the 1997 Proxy Statement and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information set forth under the headings "Election of Directors -
Compensation of Executive Officers", "- Salary and Benefits Committee Report",
"- Summary Compensation Table", "- Grants of Options/SARs in 1996", Aggregated
Options/SAR Exercises in 1996 and 1996 Year-End Option/SAR Values", "- Profit
Sharing Plan", "- Employment and Severance Agreements", "Salary and Benefits
Committee Interlocks and Insider Participation"; "- Information About the
Board of Directors and its Committees", and in the 1997 Proxy Statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information set forth under the headings, "Election of Directors -
General," "- Management Stock Ownership," and "Principal Shareholders" in the
1997 Proxy Statement, relating to the number of shares of Class A Common Stock
and Class B Common Stock beneficially owned by the directors of Seacoast, all
such directors and officers as a group and certain beneficial owners is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information set forth under the heading "Election of Directors -
Certain Transactions and Business Relationships" in the 1997 Proxy Statement is
incorporated herein by reference.
Salary and Benefits Committee Interlocks and Insider Participation" and
91
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a) 1 List of all financial statements
The following consolidated financial statements and report of
independent certified public accountants of Seacoast are
included in Item 8 of this Annual Report on Form 10-K.
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of December 31, 1996
and 1995
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994 Consolidated
Statements of Shareholders' Equity for the years
ended December 31, 1996, 1995 and
1994
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994 Notes to
Consolidated Financial Statements
a) 2 List of Financial Statement Schedules
Schedules to the consolidated financial statements required by
Article 9 of Regulation S-X are not required under the related
instructions or are inapplicable, and therefore have been
omitted.
a) 3 Listing of Exhibits
The following Exhibits are filed as part of this report in
Item 14(c):
Exhibit 2 Agreement and Plan of Merger
Dated February 19, 1997, by and between the Registrant and Port St.
Lucie National Bank Holding Corp.
Exhibit 3.1 Articles of Incorporation, as amended
Incorporated herein by reference from registrant's Annual Report on
Form 10-K, File No. 0-13660, dated March 31, 1989
Exhibit 3.2 By-laws of the Corporation, as amended
Incorporated herein by reference from Exhibit 3.2 of Registrant's
Annual Report on Form 10-K, File No. 0-13660, dated March 17, 1992
Exhibit 4.1 Specimen Class A Common Stock Certificate
Incorporated herein by reference from Exhibit 4.1 of the Registrant's
Registration Statement on Form S-1, File No. 2-88829
Exhibit 4.2 Specimen Class B Common Stock Certificate
Incorporated herein by reference from Exhibit 4.2 of registrant's
Registration Statement on Form S-1, File No. 2-88829
Exhibit 10.1 Profit Sharing Plan
Incorporated herein by reference from registrant's Registration
Statement on Form S-8, File No. 33-22846, dated July 18, 1988
92
Exhibit 10.2 Employee Stock Purchase Plan
Incorporated herein by reference from registrant's Registration
Statement on Form S-8 File No. 33-25267, dated November 18, 1988
Exhibit 10.3 Amendment #1 to the Employee Stock Purchase Plan
Incorporated herein by reference from registrant's Annual Reports on
Form 10-K, dated March 29, 1991
Exhibit 10.4 Executive Employment Agreement
Dated March 22, 1991 between A. Douglas Gilbert and the Bank,
incorporated herein by reference from registrant's Annual Reports on
Form 10-K, dated March 29, 1991
Exhibit 10.5 Executive Employment Agreement
Dated January 18, 1994 between Dennis S. Hudson, III and the Bank,
incorporated herein by reference from registrant's Annual Reports on
Form 10-K, dated March 28, 1995.
Exhibit 10.6 Executive Employment Agreement
Dated July 31, 1995 between C.William Curtis, Jr. and the Bank,
incorporated herein by reference from registrant's Annual Reports on
Form 10-K, dated March 28, 1996.
Exhibit 21 Subsidiaries of Registrant
Incorporated herein by reference from Exhibit 22 of Registrant's
Annual Report on Form 10-K, File No. 0-13660, dated March 17, 1992
Exhibit 23 Consent of Arthur Andersen LLP
Exhibit 27 Financial Data Schedule (for SEC use only)
b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of 1996.
c) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report.
d) Financial Statement Schedules
None
93
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
Stuart, State of Florida.
SEACOAST BANKING CORPORATION OF FLORIDA
(Registrant)
By: /s/ Dale M. Hudson
-------------------------------------
Dale M. Hudson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date
----
/s/ Dennis S. Hudson, Jr. March 24, 1997
- ------------------------------------------------------------------
Dennis S. Hudson, Jr., Chairman of the Board and Director
/s/ Dale M. Hudson March 24, 1997
- ------------------------------------------------------------------
Dale M. Hudson, President, Chief Executive Officer and Director
/s/ Dennis S. Hudson, III March 24, 1997
- ------------------------------------------------------------------
Dennis S. Hudson, III Executive Vice President, Chief Operating
Officer and Director
/s/ William R. Hahl March 24, 1997
- ------------------------------------------------------------------
William R. Hahl, Senior Vice President and Chief Financial Officer
- ------------------------------------------------------------------
Jeffrey C. Bruner, Director
/s/ John H. Crane March 24, 1997
- ------------------------------------------------------------------
John H. Crane, Director
/s/ Evans Crary, Jr. March 24, 1997
- ------------------------------------------------------------------
Evans Crary, Jr., Director
/s/ John R. Santarsiero, Jr. March 24, 1997
- ------------------------------------------------------------------
John R. Santarsiero, Jr., Director
/s/ Thomas H. Thurlow, Jr. March 24, 1997
- ------------------------------------------------------------------
Thomas H. Thurlow, Jr., Director
94
EXHIBIT INDEX
Exhibit 2 Agreement and Plan of Merger
Dated February 19, 1997, by and between the Registrant and Port St.
Lucie National Bank Holding Corp.
Exhibit 3.1 Articles of Incorporation, as amended
Incorporated herein by reference from registrant's Annual Report on
Form 10-K, File No. 0-13660, dated March 31, 1989
Exhibit 3.2 By-laws of the Corporation, as amended
Incorporated herein by reference from Exhibit 3.2 of Registrant's
Annual Report on Form 10-K, File No. 0-13660, dated March 17, 1992
Exhibit 4.1 Specimen Class A Common Stock Certificate
Incorporated herein by reference from Exhibit 4.1 of the Registrant's
Registration Statement on Form S-1, File No. 2-88829
Exhibit 4.2 Specimen Class B Common Stock Certificate
Incorporated herein by reference from Exhibit 4.2 of registrant's
Registration Statement on Form S-1, File No. 2-88829
Exhibit 10.1 Profit Sharing Plan
Incorporated herein by reference from registrant's Registration
Statement on Form S-8, File No. 33-22846, dated July 18, 1988
Exhibit 10.2 Employee Stock Purchase Plan
Incorporated herein by reference from registrant's Registration
Statement on Form S-8 File No. 33-25267, dated November 18, 1988
Exhibit 10.3 Amendment #1 to the Employee Stock Purchase Plan
Incorporated herein by reference from registrant's Annual Reports on
Form 10-K, dated March 29, 1991
Exhibit 10.4 Executive Employment Agreement
Dated March 22, 1991 between A. Douglas Gilbert and the Bank,
incorporated herein by reference from registrant's Annual Reports on
Form 10-K, dated March 29, 1991
Exhibit 10.5 Executive Employment Agreement
Dated January 18, 1994 between Dennis S. Hudson, III and the Bank,
incorporated herein by reference from registrant's Annual Reports on
Form 10-K, dated March 28, 1995.
Exhibit 10.6 Executive Employment Agreement
Dated July 31, 1995 between C.William Curtis, Jr. and the Bank,
incorporated herein by reference from registrant's Annual Reports on
Form 10-K, dated March 28, 1996.
Exhibit 21 Subsidiaries of Registrant
Incorporated herein by reference from Exhibit 22 of Registrant's
Annual Report on Form 10-K, File No. 0-13660, dated March 17, 1992
Exhibit 23 Consent of Arthur Andersen LLP
Exhibit 27 Financial Data Schedule (for SEC use only)