SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended Commission file
JUNE 30, 1996 No. 0-13660
SEACOAST BANKING CORPORATION OF FLORIDA
(Exact name of registrant as specified in its charter)
Florida 59-2260678
- ------------------------------- ----------------------
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
815 Colorado Avenue, Stuart FL 34994
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(Address of principal executive offices) (Zip code)
(561) 287-4000
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(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Class A Common Stock, Par Value $.10
------------------------------------
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the registrant's classes
of common stock as of June 30, 1996:
Class A Common Stock, $.10 Par Value - 3,750,979 shares
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Class B Common Stock, $.10 Par Value - 497,983 shares
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INDEX
SEACOAST BANKING CORPORATION OF FLORIDA
Part I FINANCIAL INFORMATION PAGE #
Item 1 Financial Statements (Unaudited)
Condensed consolidated balance sheets -
June 30, 1996, December 31, 1995 and
June 30, 1995 3 - 4
Condensed consolidated statements of income -
Three months ended June 30, 1996 and 1995; and
Six months ended June 30, 1996 and 1995 5 - 6
Condensed consolidated statements of cash flows -
Six months ended June 30, 1996 and 1995 7 - 9
Notes to condensed consolidated financial
statements 10
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 19
Part II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 20
Item 6 Reports on Form 8-K 20
SIGNATURES 21
Exhibit Article 9 - Financial Data Schedule 22 - 23
Part I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
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Seacoast Banking Corporation of Florida and Subsidiaries
<TABLE>
<CAPTION>
June 30, December 31, June 30,
(Dollars in thousands) 1996 1995 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks 18601 56618 30417
Federal funds sold 0 58400 26665
Securities:
At market 168918 159480 104680
At amortized cost (market values:
$47,528 at June 30, 1996,
$55,525 at Dec. 31, 1995 &
$134,501 at June 30, 1995) 47383 54158 131487
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TOTAL SECURITIES 216301 213638 236167
Loans, net of unearned income 431277 414964 364147
Less: Allowance for loan losses (4253) (4066) (3947)
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NET LOANS 427024 410898 360200
Bank premises and equipment 15634 16104 17357
Other real estate owned 696 889 111
Core deposits and other intangibles 2729 2475 1259
Goodwill 4028 4409 5787
Other assets 14482 7917 9316
----------------------------------
699495 771348 687279
==================================
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Deposits 609066 660967 621884
Federal funds purchased and securities
sold under agreements to repurchase,
maturing within 30 days 24247 43907 2750
Other liabilities 3397 4274 3507
----------------------------------
636710 709148 628141
SHAREHOLDERS' EQUITY
Preferred stock 0 0 0
Class A common stock 379 377 373
Class B common stock 50 52 55
Additional paid-in capital 18368 18612 18535
Retained earnings 48353 45540 43068
Treasury stock (1131) (1676) (546)
----------------------------------
66019 62905 61485
Securities valuation equity (allowance) (3234) (705) (2347)
----------------------------------
TOTAL SHAREHOLDERS' EQUITY 62785 62200 59138
----------------------------------
699495 771348 687279
==================================
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<FN>
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date. See notes to condensed consolidated
financial statements.
</FN>
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
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Seacoast Banking Corporation of Florida and Subsidiaries
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------------------
(Dollars in thousands, except per share data) 1996 1995 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest and dividends on investment securities 3372 3923 6717 7880
Interest and fees on loans 9158 7534 18350 13966
Interest on federal funds sold 112 746 781 1399
TOTAL INTEREST INCOME 12642 12203 25848 23245
Interest on deposits 1209 1429 2527 2804
Interest on time certificates 3590 3904 7441 6871
Interest on borrowed money 163 69 444 261
TOTAL INTEREST EXPENSE 4962 5402 10412 9936
NET INTEREST INCOME 7680 6801 15436 13309
Provision for loan losses 150 0 300 0
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 7530 6801 15136 13309
Noninterest income
Securities gains (losses) 20 46 44 (7)
Other income 2224 1880 4379 3479
TOTAL NONINTEREST INCOME 2244 1926 4423 3472
TOTAL NONINTEREST EXPENSES 6588 6107 13222 11972
INCOME BEFORE INCOME TAXES 3186 2620 6337 4809
Provision for income taxes 1128 906 2268 1632
NET INCOME 2058 1714 4069 3177
PER SHARE COMMON STOCK:
NET INCOME 0.48 0.40 0.95 0.74
CASH DIVIDENDS
DECLARED:
Class A 0.150 0.130 0.300 0.260
Class B 0.135 0.118 0.270 0.236
Average shares outstanding 4299993 4308402 4293245 4309079
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</TABLE>
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
- ------------------------------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
<TABLE>
<CAPTION>
(In thousands of dollars)
Six Months Ended June 30 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
Increase(Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Interest received 25711 24018
Fees and commissions received 4379 3479
Interest paid (10604) (9743)
Cash paid to suppliers and employees (12734) (11926)
Income taxes paid (2441) (1222)
---------------------
Net cash provided by operating activities 4311 4606
Cash flows from investing activities
Maturities of securities held for sale 32715 14354
Maturities of securities held for investment 6888 10916
Proceeds from sale of securities held for sale 17733 56333
Purchase of securities held for sale (37574) (38680)
Purchase of securities held for investment 0 (4889)
Net new loans and principal repayments (43490) (25262)
Proceeds from the sale of other real estate owned 919 219
Deletions (additions) to bank premises and equipment (343) (80)
Purchase of American Bank Capital Corporation, net
of cash acquired 0 (4659)
Net change in other assets (5059) 239
---------------------
Net cash provided by (used in) investing activities (28211) 8491
Cash flows from financing activities
Net decrease in deposits (51901) (39)
Net decrease in federal funds purchased and
securities sold under agreements to repurchase (19660) (41889)
Issuance of common stock -- Employee Stock Purchase
and Profit Sharing Plans 0 37
Exercise of stock options 233 (58)
Treasury stock issued (acquired) 68 (546)
Dividends paid (1257) (1100)
---------------------
Net cash used in financing activities (72517) (43595)
---------------------
Net decrease in cash and cash equivalents (96417) (30498)
Cash and cash equivalents at beginning of year 115018 87580
---------------------
Cash and cash equivalents at end of period 18601 57082
=====================
Reconciliation of Net Income to Cash Provided by
Operating Activities
Net Income 4069 3177
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 1177 1222
Provision for loan losses 300 0
Loss on sale of securities (44) 7
Loss (gain) on sale and writedown of foreclosed
assets (17) (52)
Loss on disposition of fixed assets 4 33
Change in interest receivable (175) 523
Change in interest payable (192) 193
Change in prepaid expenses (101) (724)
Change in accrued taxes 35 604
Change in other liabilities (745) (377)
---------------------
Total adjustments 242 1429
---------------------
Net cash provided by operating activities 4311 4606
=====================
Supplemental disclosure of noncash investing
activities:
Transfers from loans to other real estate owned 709 67
Transfers from loans to securities held for sale 26463 0
Market value adjustment to securities (4146) 2837
Transfer from securities held for sale to held
for investment 0 10049
- ------------------------------------------------------------------------------
</TABLE>
See notes to condensed consolidated financial statement.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEACOAST
BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the six month
period ended June 30, 1996, are not necessarily indicative of the results that
may be expected for the year ended December 31, 1996. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Company's annual report on Form 10-K for the year ended December 31,
1995.
NOTE B - ACQUISITION
On April 14, 1995, the Company acquired American Bank Capital Corporation of
Florida and its subsidiary, American Bank of Martin County. The transaction
was treated as a purchase with the Company paying $9.3 million. At June 30,
1996, goodwill and core deposit intangible related to this transaction totalled
$4.0 million and $1.8 million, respectively.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
SECOND QUARTER 1996
The following discussion and analysis is designed to provide a better
understanding of the significant factors related to the company's results of
operations and financial condition. Such discussion and analysis should be
read in conjunction with the company's Condensed Consolidated Financial
Statements and the notes attached thereto.
EARNINGS SUMMARY
Net income for the second quarter of 1996 totalled $2,058,000 or $0.48 per
share, compared with $1,714,000 or $0.40 per share in the second quarter of
1995 and $2,011,000 or $0.47 per share in the first quarter of 1996.
The company's subsidiary, First National Bank and Trust Company of the Treasure
Coast, now has seventeen branches with the addition of one branch resulting
from the acquisition. Earnings were favorably impacted by loan growth,
improved trust and brokerage fees and commissions, and a favorable interest
rate environment.
Return on average assets was 1.16 percent and return on average shareholders'
equity was 12.61 percent for the second quarter of 1996, compared to second
quarter 1995's performance of 0.99 percent and 12.58 percent, respectively, and
1996's first quarter results of 1.09 percent and 12.56 percent, respectively.
NET INTEREST INCOME
Earnings in the second quarter of 1996 were affected by a net interest margin
(on a tax equivalent basis) that increased from 4.56 percent in the first
quarter of 1996 to 4.67 percent in the second quarter of this year. Excess
liquidity in the banking industry permitted a decrease in deposit rates, with
average weighted rates for all deposit categories declining in the second
quarter of 1996 compared to first quarter: NOW, savings, money market and
certificate of deposit rates decreased 11, 9, 14, and 24 basis points,
respectively. The average rate paid on total interest-bearing liabilities
declined 17 basis points to 3.55 percent in the second quarter from 3.72
percent in the first quarter. This follows a similar decline of 21 basis
points in the rate paid on total interest-bearing liabilities in the first
quarter of this year from fourth quarter. Partially offsetting the improvement
in cost of funds was a decline of 8 basis points to 7.65 percent for the yield
on average total earning assets, as compared to first quarter. While the yield
on loans declined 30 basis points to 8.47 percent during the second quarter,
average loans outstanding as a percentage of earning assets increased to 65.0
percent compared to 60.9 percent in the first quarter, favorably affecting the
company's margin performance. This occurred even though $26.5 million in fixed
rate residential mortgages were securitized during the quarter and transferred
to the company's available for sale securities portfolio. The first quarter
margin was favorably impacted by $197,000 in interest recovered on a past due
loan.
For the second quarter a year ago, the net interest margin recorded was 4.29
percent. A yield on average earnings assets of 7.65 percent and rate on
interest-bearing liabilities of 3.89 percent was recorded.
Average earning assets for the second quarter of 1996 increased $24,540,000 or
3.8 percent to $668,905,000, compared to prior year's second quarter. Enhanced
loan demand provided an $85,610,000 or 24.5 percent increase in average loans
to $434,988,000. Average investment securities declined $19,970,000 or 8.1
percent to $225,528,000 and average federal funds sold declined $41,100,000 or
83.0 percent to $8,389,000. Loan demand is anticipated to remain strong
through the remainder of 1996.
Favorably affecting the mix of deposits in the second quarter as compared to
last year, average noninterest-bearing demand deposits increased $9,188,000 or
12.4 percent to $83,407,000 and other lower cost core deposit products (NOW,
savings and money market deposits) increased on an aggregate basis by
$4,372,000 to $271,707,000. While average certificates of deposit (the highest
cost component of interest-bearing liabilities) have declined as a percentage
of interest-bearing liabilities to 49.1 percent, compared to 50.9 percent in
the second quarter of 1995, increased volume in this category could occur
should interest rates continue to increase as predicted. Higher rates have
historically resulted in consumer attitudes changing, making transfers of funds
presently held in core deposit products and alternative investment vehicles
(i.e., stocks, bonds and mutual funds) to certificates of deposit more
attractive. Even so, if loan demand continues at its current pace as a result
of the economy remaining firm, and local competition allows rates paid for core
deposits to remain low, the net interest margin should continue at a level
commensurate with first and second quarter's results over the remainder of
1996.
PROVISION FOR LOAN LOSSES
A provision of $150,000 was recorded in the second quarter of this year,
compared to no provisioning in the second quarter of 1995 and $150,000 in
provisioning in the first quarter of this year. Net charge-offs for the second
quarter totalled $94,000, compared to net recoveries of $54,000 for the second
quarter last year and net charge-offs of $19,000 in the first quarter of 1996.
Net charge-offs annualized as a percent of average loans totalled 0.05 percent
for the first half of 1996, compared to net charge-offs of 0.03 percent for all
of 1995.
Management determines the provision for loan losses which is charged to
operations by constantly analyzing and monitoring delinquencies, nonperforming
loans and the level of outstanding balances for each loan category, as well as
the amount of net charge offs, and by estimating losses inherent in its
portfolio. While the company's policies and procedures used to estimate the
monthly provision for loan losses charged to operations are considered adequate
by management and are reviewed from time to time by the Office of the
Comptroller of the Currency (OCC), there exist factors beyond the control of
the company, such as general economic conditions both locally and nationally,
which make management's judgment as to the adequacy of the provision
necessarily approximate and imprecise.
NONINTEREST INCOME
Noninterest income, excluding gains and losses from securities sales, increased
$344,000 or 18.3 percent to $2,224,000 in the second quarter compared to one
year earlier.
The largest increase in noninterest income occurred in brokerage commissions
and fees which increased $157,000 or 38.1 percent compared to prior year. In
addition, trust income grew $58,000 or 12.7 percent. Results during the last
three quarters of 1995 and in the first two quarters of 1996 indicate an
improving trend and renewed interest by consumers in the financial markets.
Additional sales staff in trust and the repricing of trust services in mid-1995
favorably impacted results. The company intends to continue to emphasize its
brokerage and trust services to both existing and prospective customers.
Other significant increases occurred in service charges on deposits which grew
$45,000 or 7.1 percent and in other service charges and fees which increased
$46,000 or 17.8 percent, a result of internal growth and certain services being
repriced.
Noninterest income, excluding gains and losses from securities sales, for the
first half of 1996 increased $900,000 or 25.9 percent, with increases in
brokerage commissions and fees and trust income of $369,000 or 51.9 percent and
$175,000 or 20.1 percent, respectively. Service charges on deposits rose
$209,000 or 18.5 percent and other service charges and fees grew $70,000 or
13.3 percent, due to internal growth and the repricing of certain services as
indicated above for the quarter.
NONINTEREST EXPENSES
When compared to 1995, noninterest expenses for the second quarter increased by
$481,000 or 7.9 percent to $6,588,000 and for the first half increased
$1,250,000 or 10.4 percent to $13,222,000.
Salaries and wages increased $134,000 or 5.5 percent, compared to the second
quarter of 1995, and increased $420,000 or 8.8 percent for the first half of
1996. Employee benefits rose $107,000 or 21.5 percent and $324,000 or 34.1
percent for the second quarter and first half, respectively, compared to l995's
results. Additional employment costs in lending, trust and brokerage have been
incurred over the last twelve months. However, revenue growth has exceeded the
increase in salaries and in employee benefits, and resulted in the company's
overhead ratio declining to 66.2 percent in the first half of 1996 compared to
70.5 percent a year ago.
Occupancy expenses and furniture and equipment expenses, on an aggregate basis,
declined $5,000 versus second quarter results last year and were $58,000 lower
for the first six months of 1996 versus prior year. The premium for Federal
Deposit Insurance Corporation (FDIC) insurance was $168,000 lower in the first
quarter and $167,000 lower in the second quarter of 1996, reflecting action by
the FDIC to lower premium rates, effective in the second half of 1995 and first
half of 1996.
Costs associated with foreclosed and repossessed asset management decreased
$63,000 when compared to the second quarter of 1995 and increased by $1,000
when compared to the first half of 1995. Legal and professional fees recorded
for the second quarter of 1996 were $101,000 greater and for the first six
months of 1996 were $135,000 higher. These results reflect the level of
activity with respect to problem asset management.
Amortization of intangible assets increased $79,000 for the quarter and
$223,000 for the first six months, compared to a year ago. The increase is a
result of the acquisition in April 1995, for which the company recorded
amortizable assets for goodwill and core deposit intangible.
An increase in other expense of $258,000 or 20.8 percent was recorded in the
second quarter compared to last year for the same period. For the six month
period ended June 30, 1996, other expenses were $503,000 or 19.8 percent higher
compared to prior year. The increase in other expense was primarily caused by
electronic data processing expenses and increased business volumes.
INCOME TAXES
Income taxes as a percentage of income before taxes were 35.8 percent for the
first half of this year, compared to 33.9 percent in 1995. The increase in
rate reflects a higher rate of provisioning for state income taxes, a result of
lower state intangible taxes paid to the State of Florida that can be taken as
a credit. In addition, amortization of goodwill related to the acquisition
disallowed for tax purposes and lower levels of tax-exempt interest income have
contributed to a higher effective tax rate.
FINANCIAL CONDITION
CAPITAL RESOURCES
Earnings retained by the company during the first half of 1996 and over the
prior twelve months have provided the company with continued increases in its
capital ratios. The company's ratio of average shareholders' equity to average
total assets during the second quarter of 1996 was 9.18 percent, compared to
8.82 percent in the second quarter of 1995.
Regulatory agencies have implemented a risk-based capital framework with a
minimum ratio of total capital to risk-weighted assets of 8 percent. At June
30, 1996, the company's ratio of total capital to risk-weighted assets under
these risk-based rules was 15.44 percent and its ratio of Tier 1 capital to
total adjusted assets was 8.25 percent. In comparison, these ratios were 15.83
percent and 7.66 percent, respectively, at June 30, 1995. Capital, as it is
defined for these ratios, excludes certain intangible assets, including
goodwill. At June 30, 1996, intangible assets excluded from capital totalled
$5,963,000.
LOAN PORTFOLIO
All of the company's loan activity is with customers located within its defined
market area known as the Treasure Coast of Florida. This area is located on
the southeastern coast of Florida above Palm Beach County and extends north to
Brevard County.
Total loans (net of unearned income and excluding the allowance for loan
losses) were $431,277,000 at June 30, 1996, $67,130,000 or 18.4 percent more
than at June 30, 1995, and $16,313,000 or 3.9 percent more than at December 31,
1995. Approximately $26.5 million of fixed rate residential mortgages were
securitized during the second quarter of 1996 and transferred to the company's
available for sale securities portfolio.
At June 30, 1996, the company's mortgage loan balances secured by residential
properties amounted to $229,995,000 or 53.3 percent of total loans. The next
largest concentration was loans secured by commercial real estate which
totalled $111,193,000 or 25.8 percent. The company was also a creditor for
consumer loans to individual customers (primarily secured by motor vehicles)
totalling $43,447,000, commercial loans of $15,198,000, home equity lines of
credit of $10,097,000, and unsecured credit cards of $7,491,000.
All loans and commitments for one-to-four family residential properties and
commercial real estate are generally secured with first mortgages on property
with the amount loaned at inception to the fair value of the property not to
exceed 80 percent. Nearly all residential real estate loans are made upon
terms and conditions that would make such loans eligible for resale under
Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage
Corporation (FHLMC) guidelines.
Real estate mortgage lending (particularly residential properties) is expected
to remain an important segment of the company's lending activities. 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 June 30, 1996, approximately $143 million or 62
percent of the company's mortgage loan balances secured by residential
properties were adjustable, of which $138 million were adjustable rate 15- or
30-year mortgage loans (ARMs) that reprice based upon the one year constant
maturity United States Treasury Index plus a margin. These 15- and 30-year
ARMs generally consist of two types: 1) those repricing annually by up to one
percent with a four percent cap over the life of the loan, of which balances of
approximately $34 million were outstanding at June 30, 1996, and 2) those
limited to a two percent per annum increase and a four or six percent cap over
the life of the loan, of which approximately $104 million in balances existed
at June 30, 1996.
The company's historical charge off rates for residential real estate loans
have been minimal, with charge offs of $14,000 for the first six months of 1996
and $31,000 for all of 1995.
At June 30, 1996, the company had commitments to make loans (excluding unused
home equity lines of credit and credit card lines) of $23,400,000, compared to
$21,083,000 at June 30, 1995.
The company attempts to reduce its exposure to the risk of the local real
estate market by limiting the aggregate size of its commercial real estate
portfolio, currently 25.8 percent of total loans, and by making commercial real
estate loans primarily on owner occupied properties. The remainder of the real
estate loan portfolio is residential mortgages to individuals, and home equity
loans, which the company considers less susceptible to adverse effects from a
downturn in the real estate market, especially given the area's large
percentage of retired persons.
ALLOWANCE FOR LOAN LOSSES
Net losses on credit cards and residential real estate totalled $86,000 and
$14,000, respectively, for the first six months of 1996, compared to net losses
of $88,000 and $29,000, respectively, in 1995. Current and historical credit
losses arising from real estate lending transactions continue to compare
favorably with the company's peer group. Net recoveries recorded for
commercial real estate loans and commercial loans of $6,000 and $24,000,
respectively, in the first half of 1996 compared with the prior year when
$99,000 in commercial real estate loan recoveries and $18,000 in commercial
loan recoveries were reported. Net charge-offs for installment loans of
$42,000 in the first half of 1996 compared to $26,000 in recoveries in 1995.
The ratio of the allowance for loan losses to net loans outstanding was 0.99
percent at June 30, 1996. This ratio was 1.08 percent at June 30, 1995. The
allowance for loan losses as a percentage of nonaccrual loans and loans 90 days
or more past due was 103.4 percent at June 30, 1996, compared to 77.2 percent
at the same date in 1995.
NONPERFORMING ASSETS
At June 30, 1996, the company's ratio of nonperforming assets to loans
outstanding plus other real estate owned was 1.08 percent, compared to 1.25
percent one year earlier and 1.44 percent at December 31, 1995.
At June 30, 1996, accruing loans past due 90 days or more of $150,000 and OREO
of $696,000 were outstanding. In 1995 on the same date, $659,000 in loans were
past due 90 days or more and $111,000 in OREO balances were outstanding. At
December 31, 1995, $134,000 and $889,000 in past due loans and OREO were
outstanding, respectively.
Nonaccrual loans totalled $3,963,000 at June 30, 1996, compared to a balance of
$4,457,000 at June 30, 1995. All of the nonaccrual loans outstanding at June
30, 1996 were performing (current with respect to payments), with the exception
of seven loans aggregating to $1,056,000. The performing loans were placed on
nonaccrual status because the company has determined that the collection of
principal or interest in accordance with the terms of such loans is uncertain.
Of the amount reported in nonaccrual loans at June 30, 1996, 95.4 percent is
secured with real estate, the remainder by the Small Business Administration
(SBA). Management does not expect significant losses for which an allowance
for loan losses has not been provided associated with the ultimate realization
of these assets.
SECURITIES
Debt securities that the company has the intent and ability to hold to maturity
are carried at amortized cost. All other securities are carried at market
value and are available for sale. At June 30, 1996, the company had
$168,918,000 or 78.1 percent of total securities available for sale and
securities held to maturity were carried at an amortized cost of $47,383,000,
representing 21.9 percent of total securities.
The company's securities portfolio decreased $19,866,000 from June 30, 1995.
The securities portfolio as a percentage of earning assets was 33.4 percent at
June 30, 1996, compared to 37.7 percent one year ago. This decline is directly
related to growth in the loan portfolio and changes to the portfolio mix which
have been transacted.
During the first half of 1996, proceeds of $17.7 million from securities sales
and maturing funds of $39.6 million were derived. Sales in the first quarter
totalled only $4.0 million. Sales in the second quarter were transacted to
fund loan growth and offset the impact of seasonal declines in deposits which
normally occur in the summer. Securities purchases of $37.6 million were
transacted in the first half. Of this total, $9.0 million in fixed rate
collateralized mortgage obligations (CMOs) with an average duration of 2.0
years and $20.0 million in U.S. Treasury securities with 2-, 3- and 5-year
maturity terms (weighted average term of 3.7 years) were acquired in the first
quarter of 1996. A single purchase, a fixed rate CMO totalling $8.6 million
with a duration of 0.6 years, was transacted in the second quarter. In
addition, $26.5 million in 15- and 30-year fixed rate residential loans were
securitized in the second quarter of 1996 and transferred from the company's
loan portfolio to the available for sale securities portfolio.
Company management considers the overall quality of the securities portfolio to
be high. The securities portfolio had an unrealized net loss of $4,314,000 or
2.0 percent of amortized cost at June 30, 1996, compared to a net gain of
$1,056,000 or 0.5 percent of amortized cost at December 31, 1995, and a net
gain of $2,032,000 or 0.9 percent of amortized cost at June 30, 1995. No
securities are held which are not traded in liquid markets or that meet Federal
Financial Institution Examination Council (FFIEC) definition of a high risk
investment.
DEPOSITS
Total deposits decreased $12,818,000 or 2.1 percent to $609,066,000 at June 30,
1996, compared to one year earlier. Higher cost certificates of deposit
decreased $15,284,000 or 5.3 percent to $272,506,000 over the past twelve
months. Lower cost interest bearing deposits (NOW, savings and money markets
deposits) declined to a lesser degree, by $3,004,000 or 1.2 percent to
$257,962,000. Impacting deposit mix favorably, noninterest bearing demand
deposits increased $5,470,000 or 7.5 percent to $78,598,000.
Approximately $62 million in deposits were obtained as a result of the
acquisition in April 1995. The commercial bank deposits acquired were
primarily core deposits with interest rates paid and characteristics very
similar to the company's existing customer accounts.
INTEREST RATE SENSITIVITY
Interest rate movements and deregulation of interest rates have made managing
the company's interest rate sensitivity increasingly important. The company's
Asset/Liability Management Committee (ALCO) is responsible for managing the
company's exposure to changes in market interest rates. The committee attempts
to maintain stable net interest margins by generally matching the volume of
assets and liabilities maturing, or subject to repricing, and by adjusting
rates to market conditions and changing interest rates.
Interest rate exposure is managed by monitoring the relationship between
earning assets and interest bearing liabilities, focusing primarily on those
that are rate sensitive. Rate sensitive assets and liabilities are those that
reprice at market interest rates within a relatively short period, defined here
as one year or less. The difference between rate sensitive assets and rate
sensitive liabilities represents the company's interest sensitivity gap, which
may be either positive (assets exceed liabilities) or negative (liabilities
exceed assets).
On June 30, 1996, the company had a negative gap position based on contractual
maturities and prepayment assumptions for the next twelve months, with a
negative cumulative interest rate sensitivity gap as a percentage of total
earning assets of 32.1 percent. This means that the company's assets reprice
more slowly than its deposits. In a declining interest rate environment, the
cost of the company's deposits and other liabilities may be expected to fall
faster than the interest received on its earning assets, thus increasing the
net interest spread. If interest rates generally increase, the negative gap
means that the interest received on earning assets may be expected to increase
more slowly than the interest paid on the company's liabilities, therefore
decreasing the net interest spread.
It has been the company's experience that deposit balances for NOW and savings
accounts are stable and subjected to limited repricing when interest rates
increase or decrease within a range of 200 basis points. Therefore, the
company's ALCO uses model simulation to manage and measure its interest rate
sensitivity.
The company has determined that an acceptable level of interest rate risk would
be for net interest income to fluctuate no more than 30 percent given an
immediate change in interest rates (up or down) of 200 basis points. At June
30, 1996, net interest income would decline 8.9 percent if interest rates would
immediately rise 200 basis points.
LIQUIDITY MANAGEMENT
Contractual maturities for assets and liabilities are reviewed to adequately
maintain current and expected future liquidity requirements. Sources of
liquidity, both anticipated and unanticipated, are maintained through a
portfolio of high quality marketable assets, such as residential mortgage
loans, securities available for sale and federal funds sold. The company has
access to federal funds lines of credit and is able to provide short term
financing of its activities by selling, under an agreement to repurchase,
United States Treasury and Government agency securities not pledged to secure
public deposits or trust funds. At June 30, 1996, the company had federal
funds lines of credit available of $42,500,000 and had $127,918,000 of United
States Treasury and Government agency securities and mortgage backed securities
not pledged and available for use under repurchase agreements.
Liquidity, as measured in the form of cash and cash equivalents (including
federal funds sold), totalled $18,601,000 at June 30, 1996 as compared to
$57,082,000 at June 30,1995. Cash and cash equivalents vary with seasonal
deposit movements and are generally higher in the winter than in the summer,
and vary with the level of principal repayments and investment activity
occurring in the company's securities portfolio and loan portfolio.
As is typical of financial institutions, cash flows from investing activities
(primarily in loans and securities) and from financial activities (primarily
through deposit generation and short term borrowings) exceeded cash flows from
operations. In 1996, the cash flow from operations of $4,311,000 was $295,000
lower than during the same period of 1995. Cash flows from investing and
financing activities reflect the change in loan and deposit balances
experienced.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements presented herein have been prepared in accordance with
generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars,
without considering changes in the relative purchasing power of money, over
time, due to inflation.
Unlike most industrial companies, virtually all of the assets and liabilities
of a financial institution are monetary in nature. As a result, interest rates
have a more significant impact on a financial institution's performance than
the general levels of inflation. However, inflation affects financial
institutions' increased cost for goods and services purchased, the cost of
salaries and benefits, occupancy expense, and similar items. Inflation and
related increases in interest rates generally decrease the market value of
investments and loans held and may adversely affect liquidity, earnings, and
shareholders' equity. Mortgage originations and refinancings tend to slow as
interest rates increase, and likely will reduce the company's earnings from
such activities and the income from the sale of residential mortgage loans in
the secondary market.
Part II OTHER INFORMATION
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The 1996 Annual Meeting of Shareholders was held April 25, 1996.
(b) All directors reported to the Commission in the 1996 proxy
statement were re-elected in entirety.
(c) The following matters were voted upon at the meeting:
(i) The election of eight directors to serve until the 1997
Annual Meeting of Shareholders and until their successors
have been elected and qualified. The number of votes cast
for and against their re-election were 7,711,441 (99.8%)
and zero, respectively.
(ii) The approval and adoption of a 1996 Long-Term Incentive
Plan whereby 300,000 shares of Class A Common Stock will
be reserved for issuance in connection with options and
awards. The number of votes cast for and against the
plan's adoption were 6,256,182 (90.3%) and 547,420,
respectively.
(iii) The ratification of the appointment of Arthur Andersen LLP
as independent auditors for the fiscal year ending
December 31, 1996. The number of votes cast for and
against their ratification were 7,690,194 (99.6%) and
7,901, respectively.
Item 6 REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the three
month period ended June 30, 1996.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEACOAST BANKING CORPORATION OF FLORIDA
August 13, 1996 /s/ Dale M. Hudson
- --------------- ------------------------
DALE M. HUDSON
President & Chief Executive Officer
August 13, 1996 /s/ William R. Hahl
- --------------- ------------------------
WILLIAM R. HAHL
Senior Vice President &
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
At June 30, 1996, and for the six month period ended June 30, 1996:
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 18601
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 168918
<INVESTMENTS-CARRYING> 47383
<INVESTMENTS-MARKET> 47528
<LOANS> 431277
<ALLOWANCE> 4253
<TOTAL-ASSETS> 699495
<DEPOSITS> 609066
<SHORT-TERM> 24247
<LIABILITIES-OTHER> 3397
<LONG-TERM> 0
0
0
<COMMON> 429
<OTHER-SE> 62356
<TOTAL-LIABILITIES-AND-EQUITY> 699495
<INTEREST-LOAN> 18350
<INTEREST-INVEST> 6717
<INTEREST-OTHER> 781
<INTEREST-TOTAL> 25848
<INTEREST-DEPOSIT> 9968
<INTEREST-EXPENSE> 10412
<INTEREST-INCOME-NET> 15436
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 44
<EXPENSE-OTHER> 13222
<INCOME-PRETAX> 6337
<INCOME-PRE-EXTRAORDINARY> 4069
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4069
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
<YIELD-ACTUAL> 7.65
<LOANS-NON> 3963
<LOANS-PAST> 150
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4066
<CHARGE-OFFS> 305
<RECOVERIES> 192
<ALLOWANCE-CLOSE> 4253
<ALLOWANCE-DOMESTIC> 4253
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
