SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[O] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended Commission file
SEPTEMBER 30, 1999 No. 0-13660
SEACOAST BANKING CORPORATION OF FLORIDA
(Exact name of registrant as specified in its charter)
Florida 59-2260678
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
815 Colorado Avenue, Stuart FL 34994
(Address of principal executive offices) (Zip code)
(561) 287-4000
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Class A Common Stock, Par Value $.10
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of September 30, 1999:
Class A Common Stock, $.10 Par Value - 4,468,674 shares
Class B Common Stock, $.10 Par Value - 360,738 shares
<PAGE>
INDEX
SEACOAST BANKING CORPORATION OF FLORIDA
Part I FINANCIAL INFORMATION PAGE #
Item 1 Financial Statements (Unaudited)
Condensed consolidated balance sheets -
September 30, 1999, December 31, 1998 and
September 30, 1998 3 - 4
Condensed consolidated statements of income -
Three months and nine months ended September 30,
1999 and 1998 5
Condensed consolidated statements of cash flows -
Nine months ended September 30, 1999 and 1998 6 - 7
Notes to condensed consolidated financial
statements 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 20
Part II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 21
SIGNATURES 22
Article 9 - Financial Data Schedule 23 - 24
<PAGE>
Part I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
- -----------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
Sept. 30, December 31, Sept. 30,
(Dollars in thousands) 1999 1998 1998
- --------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 39,954 $ 36,848 $ 31,113
Federal funds sold 0 60,590 0
Securities:
Held for Sale (at market) 210,421 238,934 217,829
Held for Investment (market
values:
$19,208 at Sept. 30, 1999,
$22,895 at Dec. 31, 1998
$24,159 at Sept. 30, 1998) 19,097 22,249 23,547
--------------------------------------
TOTAL SECURITIES 229,518 261,183 241,376
Loans available for sale 1,207 3,991 20,996
Loans 762,517 701,550 683,381
Less: Allowance for loan losses (6,821) (6,343) (5,943)
--------------------------------------
NET LOANS 755,696 695,207 677,438
Bank premises and equipment 16,852 17,762 18,536
Other real estate owned 392 288 280
Core deposit intangibles 1,053 1,304 1,388
Goodwill 3,057 3,282 3,357
Other assets 13,002 11,775 10,704
--------------------------------------
$1,060,731 $1,092,230 $1,005,188
======================================
LIABILITIES & SHAREHOLDERS' EQUITY LIABILITIES
Deposits $ 883,406 $ 905,202 $ 869,528
Federal funds purchased and
securities sold under
agreements to repurchase,
maturing within 30 days 69,309 77,758 25,483
Other borrowings 24,970 24,970 24,970
Other liabilities 5,713 5,858 5,758
--------------------------------------
983,398 1,013,788 925,739
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (Unaudited)
- -----------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
Sept. 30, December 31, Sept. 30,
(Dollars in thousands) 1999 1998 1998
- ------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock 0 0 0
Class A common stock 482 481 480
Class B common stock 36 37 38
Additional paid-in capital 27,370 27,439 27,440
Retained earnings 65,038 59,738 58,357
Less: Treasury stock (11,740) (8,806) (7,165)
--------------------------------------
81,186 78,889 79,150
Securities valuation allowance (3,853) (447) 299
--------------------------------------
TOTAL SHAREHOLDERS'
EQUITY 77,333 78,442 79,449
--------------------------------------
$1,060,731 $1,092,230 $1,005,188
======================================
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Note: The balance sheet at December 31, 1998 has been derived from the
audited financial statements at that date. See notes to condensed consolidated
financial statements.
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
- -----------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
Three Months Ended
September 30,
--------------------------
(Dollars in thousands, except per share data 1999 1998
- -----------------------------------------------------------------------
Interest and dividends on securities $ 3,690 $ 3,509
Interest and fees on loans 14,797 13,935
Interest on federal funds sold 2 154
--------------------------
TOTAL INTEREST INCOME 18,489 17,598
Interest on deposits 1,912 1,897
Interest on time certificates 4,931 5,454
Interest on borrowed money 818 455
--------------------------
TOTAL INTEREST EXPENSE 7,661 7,806
--------------------------
NET INTEREST INCOME 10,828 9,792
Provision for loan losses 150 450
--------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 10,678 9,342
Noninterest income
Securities gains 9 115
Other income 2,820 3,428
--------------------------
TOTAL NONINTEREST INCOME 2,829 3,543
TOTAL NONINTEREST EXPENSES 8,821 9,028
--------------------------
INCOME BEFORE INCOME TAXES 4,686 3,857
Provision for income taxes 1,746 1,374
--------------------------
NET INCOME $ 2,940 $ 2,483
==========================
- -----------------------------------------------------------------------
PER SHARE COMMON STOCK:
Net income basic $ 0.61 $ 0.49
Net income diluted 0.60 0.48
CASH DIVIDENDS DECLARED:
Class A 0.24 0.22
Class B 0.218 0.20
AVERAGE SHARES OUTSTANDING
Net income basic 4,833,610 5,070,565
Net income diluted 4,904,582 5,173,886
- -----------------------------------------------------------------------
<PAGE>
Nine Months Ended
September 30,
-------------------------
(Dollars in thousands, except per share data 1999 1998
- -----------------------------------------------------------------------
Interest and dividends on securities $ 11,503 $ 10,256
Interest and fees on loans 43,157 40,645
Interest on federal funds sold 324 654
------------------------
TOTAL INTEREST INCOME 54,984 51,555
Interest on deposits 5,663 5,438
Interest on time certificates 14,800 15,396
Interest on borrowed money 2,044 929
------------------------
TOTAL INTEREST EXPENSE 22,507 21,763
------------------------
NET INTEREST INCOME 32,477 29,792
Provision for loan losses 510 1,350
------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 31,967 28,442
Noninterest income
Securities gains 328 359
Other income 9,013 9,167
------------------------
TOTAL NONINTEREST INCOME 9,341 9,526
TOTAL NONINTEREST EXPENSES 27,285 26,918
------------------------
INCOME BEFORE INCOME TAXES 14,023 11,050
Provision for income taxes 5,280 4,030
------------------------
NET INCOME $ 8,743 $ 7,020
========================
- -----------------------------------------------------------------------
PER SHARE COMMON STOCK:
Net income basic $ 1.80 $ 1.37
Net income diluted 1.78 1.34
CASH DIVIDENDS DECLARED:
Class A 0.72 0.66
Class B 0.654 0.60
AVERAGE SHARES OUTSTANDING
Net income basic 4,844,662 5,139,662
Net income diluted 4,914,598 5,249,690
- -----------------------------------------------------------------------
See notes to condensed consolidated financial statements.
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
- ----------------------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
Nine Months Ended
September 30,
----------------------
(Dollars in thousands) 1999 1998
- -----------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Interest received $ 54,848 $ 51,505
Fees and commissions received 9,330 8,726
Interest paid (22,508) (21,641)
Cash paid to suppliers and employees (25,477) (23,121)
Income taxes paid (5,359) (3,227)
---------------------
Net cash provided by operating activities 10,834 12,242
Cash flows from investing activities
Proceeds from maturity of securities
held for sale 76,522 93,481
Proceeds from maturity of securities
held for investment 3,118 14,664
Proceeds from sale of securities
held for sale 57,309 79,925
Purchase of securities held for sale (110,198) (206,507)
Purchase of securities held for investment 0 (989)
Proceeds from sale of loans 611 8,280
Net new loans and principal repayments (59,408) (84,375)
Proceeds from the sale of other real estate 390 631
Additions to bank premises
and equipment (596) (1,860)
Net change in other assets 629 (978)
----------------------
Net cash used in investing activities (31,623) (97,728)
Cash flows from financing activities
Net increase (decrease) in deposits (21,800) 63,425
Net decrease in federal funds purchased and
repurchase agreements (8,449) (26,629)
Net increase in other borrowings 0 24,970
Exercise of stock options 1,157 747
Treasury stock acquired (4,161) (6,996)
Dividends paid (3,442) (3,354)
----------------------
Net cash provided by (used in) financing
activities (36,695) 52,163
----------------------
Net decrease in cash and cash equivalents (57,484) (33,323)
Cash and cash equivalents at beginning of year 97,438 64,436
----------------------
Cash and cash equivalents at end of period $ 39,954 $ 31,113
======================
- ------------------------------------------------------------------------
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(continued)
- --------------------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
Nine Months Ended
September 30,
-----------------------
(Dollars in thousands) 1999 1998
- ----------------------------------------------------------------------
Reconciliation of Net Income to Cash Provided by
Operating Activities
Net Income $ 8,743 $ 7,020
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 2,211 2,337
Provision for loan losses 510 1,350
Gains on sale of securities (328) (359)
Gains on sale of loans 0 (651)
Losses on sale and writedown of foreclosed
assets 88 146
Losses on disposition of fixed assets 20 81
Change in interest receivable (41) (106)
Change in interest payable (1) 122
Change in prepaid expenses (150) (389)
Change in accrued taxes 164 1,135
Change in other liabilities (382) 1,556
-----------------------
Total adjustments 2,091 5,222
-----------------------
Net cash provided by operating activities $10,834 $12,242
=======================
- -----------------------------------------------------------------------
Supplemental disclosure of noncash investing activities:
Transfers from loans to other real estate
owned $ 582 $ 548
Transfers from loans to securities
available for sale 24,936 47,057
Market value adjustment to securities (5,335) 1,409
- -----------------------------------------------------------------------
See notes to condensed consolidated financial statement.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended September 30,
1999, are not necessarily indicative of the results that may be expected for the
year ended December 31, 1999. 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, 1998.
NOTE B - NEW ACCOUNTING PRONOUNCEMENT
In June 1999, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 137, Accounting for Derivative Instruments
and for Hedging Activities ("SFAS 137")---an amendment of FASB Statement No. 133
("SFAS 133"), which delayed the implementation date for SFAS 133 for one year to
fiscal years beginning after June 15, 2000. Management does not believe the
adoption of SFAS 133 will have a significant impact on the Company's financial
statements or related disclosures.
NOTE C - COMPREHENSIVE INCOME
Under FASB Statement of Financial Accounting Standard's No. 130, Reporting
Comprehensive Income, the Company is required to report a measure of all changes
in equity, not only reflecting net income but certain other changes as well. At
September 30, 1999 and 1998, comprehensive income was as follows:
Three Months Ended
September 30,
(Dollars in thousands) 1999 1998
--------------------------
Net income $ 2,940 $ 2,483
Unrealized gains (losses)- securities (501) 990
--------------------------
Comprehensive income $ 2,439 $ 3,473
==========================
Nine Months Ended
September 30,
1999 1998
----------------------------
Net income $ 8,743 $ 7,020
Unrealized gains (losses)-securities (3,406) 968
----------------------------
Comprehensive income $ 5,337 $ 7,988
============================
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIRD QUARTER 1999
The following discussion and analysis is designed to provide a better
understanding of the significant factors related to the Company's results of
operations and financial condition. Such discussion and analysis should be read
in conjunction with the Company's Condensed Consolidated Financial Statements
and the notes attached thereto.
EARNINGS SUMMARY
Net income for the third quarter of 1999 totaled $2,940,000 or $0.60 per share
diluted, slightly lower than the $3,092,000 or $0.63 per share diluted recorded
in the second quarter of 1999 but higher than the $2,483,000 or $0.48 per share
diluted reported in the third quarter of 1998.
Third quarter 1998's results included a one-time gain of $616,000 ($389,000
after tax) from the sale of the Company's $7.1 million credit card portfolio and
a charge of $286,000 ($180,000 after tax) related to a cancellation of a
contract for processing of the Company's trust business.
Earnings in 1999 have improved. In large part, the better performance is due to
initiatives taken over the past two years to increase the Company's penetration
in existing and new markets, as well as efforts to better align cost structures
for higher performance and to improve noninterest revenue. These efforts
effected the favorable earnings improvement reported for the first, second and
third quarters of 1999 and should result in better performance for the fourth
quarter of 1999.
Return on average assets was 1.10 percent and return on average shareholders'
equity was 14.40 percent for the third quarter of 1999, compared to second
quarter 1999's performance of 1.14 percent and 15.40 percent, respectively, and
the prior year's third quarter results of 0.91 percent and 11.03 percent,
respectively.
<PAGE>
NET INTEREST INCOME
Net interest income (fully taxable equivalent) increased $1,025,000 or 10.4
percent to $10,918,000 for the third quarter of 1999 compared to a year ago. For
the nine month period ending September 30, 1999, net interest income (on a tax
equivalent basis) grew $2,697,000 or 9.0 percent year over year to $32,756,000.
For the third quarter, the net interest margin was 4.33 percent compared to 4.20
percent a year ago. The yield on average earning assets was 7.36 percent
compared to 7.52 percent in 1998 and the rate on interest bearing liabilities
was 3.64 percent compared to 3.94 percent for 1998.
Average earning assets for the third quarter of 1999 are $66,760,000 or 7.1
percent higher when compared to the prior year's third quarter. Average loan
balances grew $65,169,000 or 9.5 percent to $754,462,000, while average
investment securities increased $12,452,000 or 5.3 percent to $246,304,000 and
average federal funds sold decreased $10,861,000 or 98.8 percent to $130,000.
The mix of earning assets and interest bearing liabilities also has impact on
the margin:
Third Quarter
1999 1998
Average Earning Asset Mix:
Loans 75.4% 73.8%
Securities 24.6 25.0
Federal Funds Sold 0.0 1.2
Average Interest Bearing Liabilities Mix:
NOW, Savings, Money Market Deposits 44.6% 43.4%
Certificates of Deposit 47.6 52.1
Federal Funds Purchase and
Repurchase Agreements 4.8 1.9
Other Borrowings 3.0 2.6
Loans (the highest yielding component of earning assets) as a percentage of
average earning assets increased 1.6 percent compared to a year ago, while
average securities decreased 0.4 percent as a percentage and federal funds sold
(the lowest yielding component) declined 1.2 percent. As a percentage of average
interest bearing liabilities, average certificates of deposit (the highest cost
component of interest-bearing liabilities) decreased by 4.5 percent while lower
cost core deposits which earn interest (NOW, savings and money market deposits)
increased by 1.2 percent. Average certificate of deposit for the third quarter
declined $12,623,000 or 3.1 percent year over year to $397,206,000. Average NOW,
savings and money market deposits grew $31,245,000 or 9.2 percent to
$372,272,000 year over year. Federal funds purchased and securities sold under
agreements to repurchase (with customers) increased $25,361,000 from a year ago
to $40,094,000, while other borrowings, comprised of funds borrowed from the
Federal Home Loan Bank and Donaldson, Lufkin & Jenrette (having a duration of
less than three years and rate of 5.69 percent), totaled $24,970,000, compared
to $20,849,000 a year ago.
<PAGE>
Favorably affecting the mix of deposits as well was an increase in average
noninterest bearing demand deposits of $20,453,000 or 17.7 percent to
$135,891,000.
On a tax equivalent basis the margin was 5 basis points lower at 4.33 percent
during the third quarter of 1999 compared to the second quarter of 1999. The
cost of interest-bearing liabilities increased 19 basis points to 3.64 percent
from the second quarter of 1999, with rates for NOW, savings and money market
accounts increasing 8, 5 and 4 basis points, respectively, and the rate for
certificates of deposit increasing 7 basis points to 4.93%. Rates for short term
borrowings (composed of federal funds purchased and repurchase agreements)
increased 69 basis points to 4.55 percent, a result of higher amounts of federal
funds purchased (at a rate of 5.40 percent) utilized during the quarter to
offset normal seasonal deposit outflows. The yield on earning assets increased
one basis point to 7.36 percent when compared to the second quarter of 1999. A
decrease in the yield on loans of 7 basis points to 7.79 percent was somewhat
offset by the yield on securities increasing 12 basis points to 6.10 percent and
by a changing earning assets mix (with a $17.1 million growth in average loans
during the third quarter of 1999).
PROVISION FOR LOAN LOSSES
A provision of $150,000 was recorded in the third quarter of this year, compared
to no provisioning in the second quarter of 1999 and $360,000 for the first
quarter of 1999. A provision of $450,000 was recorded in the second quarter of
1998. Credit quality has improved over the past twelve months. Net charge-offs
for the first nine months decreased from $771,000 last year to $32,000 in 1999.
Net recoveries of $13,000 in the third quarter of this year included a recovery
of $30,000 for a single commercial loan previously charged-off. Net charge-offs
annualized as a percent of average loans totaled 0.01 percent for the first nine
months of 1999, compared to 0.15 percent for the same period in 1998. These
ratios are much better than the banking industry as a whole. While increased
loan balances are forecast, the sale of the Company's credit card portfolio in
1998 reduced the Company's exposure to losses arising from consumer bankruptcies
and is resulting in lower net charge-offs and lower provisioning in 1999.
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. At September 30, 1999, 78 percent of the Company's loan portfolio was
secured with residential or commercial real estate. Historically, these
portfolios have a lower exposure to delinquencies and net charge-offs. 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.
<PAGE>
NONINTEREST INCOME
Noninterest income, excluding gains and losses from securities sales, totaled
$2,820,000 for the third quarter, a decrease of $608,000 or 17.7 percent from
the same period last year. Noninterest income, excluding gains and losses from
securities sales, totaled $9,013,000 for the nine month period ending September
30, 1999, a decrease of $154,000 or 1.7 percent from the same period last year.
Included in noninterest income for the third quarter and first nine months of
1998 was a non-recurring gain of $616,000 for the sale of the Company's $7.1
million credit card portfolio.
The largest increase in noninterest income occurred in trust income, increasing
$112,000 or 21.4 percent from last year to $635,000 for the third quarter of
1999. Partially offsetting, fees from brokerage services decreased slightly from
$422,000 to $404,000. The Company intends to continue to promote its trust and
brokerage services to both existing and new customers, as expectations are these
financial products will remain in demand. Also increasing, service charges on
deposits were $59,000 or 5.1 percent higher year over year and totaled
$1,221,000 for the third quarter, a result of a growing customer base, better
collection of fees charged, and price increases put in effect during the first
quarter of 1999. Other service charges and fees decreased $133,000 to $331,000,
primarily due to credit card related fees no longer being collected since the
sale of the Company's credit card portfolio in the third quarter of 1998. Other
income (excluding the $616,000 non-recurring gain in 1998) decreased slightly,
by $12,000 to $229,000.
As in the quarterly comparison, the most significant increases for the first
nine months of 1999 were in trust income and fees from service charges on
deposits, $264,000 and $403,000, respectively. Similarly, other service charges
and fees were $312,000 lower, due to the impact of the sale of the credit card
portfolio. Brokerage commissions, which were lower for the third quarter of 1999
compared to 1998, were higher year over year for the first nine months by
$60,000.
Relatively low rates for residential loan products results in higher activity
and balances for fixed rate products. The Company, to manage interest rate risk,
securitizes some of its excess residential mortgage production. During the first
nine months of 1999 the Company securitized $24.9 million of its residential
mortgage loan production, compared to $47.1 million in 1998. In 1999, sales of
securitized mortgages generated additional investment securities gains of
$193,000. In comparison, sales in 1998 generated investment securities gains of
$296,000.
NONINTEREST EXPENSES
When compared to 1998, noninterest expenses for the third quarter decreased by
$207,000 or 2.3 percent to $8,821,000. The Company's overhead ratio decreased to
64.2 percent this quarter, compared to 67.8 percent a year ago, 65.3 percent in
the second quarter of 1999 and 66.5 percent in the first quarter of 1999. This
is reflective of initiatives to reduce overhead costs, particularly staffing,
and a one-time charge of $286,000 to cancel a contract for trust data processing
in the third quarter of 1998.
Salaries and wages decreased $98,000 or 2.8 percent to $3,362,000. Incentive
compensation totaling $315,000 was earned due to the achievement of operating
performance thresholds in the third quarter. Without this additional salary
cost, salary and wages would have declined $413,000 or 11.8 percent compared to
1998. The incentive program related to this compensation ended on September 30,
1999. Employee benefits grew $209,000 or 28.8 percent to $935,000, compared to
the third quarter of 1998. All of the increase in benefit costs is related to
higher group health insurance costs and profit sharing accruals for 1999.
<PAGE>
Occupancy expenses and furniture and equipment expenses, on an aggregate basis,
decreased $179,000 or 12.3 percent to $1,271,000, versus third quarter results
last year. A decline in computer hardware maintenance, equipment depreciation,
costs for leasing equipment and disposal of data processing equipment abandoned
in 1998 was the result of the Company outsourcing its core data processing to a
third party in mid-September 1998 (see "The Year 2000 Issue").
Outside data processing costs totaled $912,000 for the third quarter of 1999, an
increase of $305,000 from a year ago. This increase reflects the company's
implementation and conversion of its core data processing system to a third
party in lieu of in-house mainframe processing which the Company's subsidiary
utilized to mid-September 1998. Year 2000 compliance was a significant factor
affecting the decision to convert to a third party service for data processing.
Partially offsetting the increase in cost for core data processing was a decline
for credit card processing of $41,000 year over year, a result of the Company
selling its $7.1 million credit card portfolio in July 1998.
Costs associated with foreclosed and repossessed asset management and
disposition decreased $48,000 or 41.0 percent, and totaled only $69,000, a
reflection of low nonperforming asset balances (see "Nonperforming Assets").
Legal and professional costs increased $156,000 or 56.5 percent to $432,000.
Most of this increase was related to hiring an outside consulting service to
partner with the Company in assessing a number of internal processes for
overhead improvement and revenue enhancement.
Marketing expenses, including sales promotion costs, ad agency production and
printing costs, newspaper and radio advertising, and other public relations
costs associated with the Company's efforts to market products and services,
decreased by $68,000 or 14.6% to $397,000.
The other expense category decreased $486,000 or 28.2 percent to $1,238,000 in
the third quarter of 1999 year over year. The largest item contributing to this
decline was the one-time charge in 1998 totaling $286,000 to cancel a contract
for processing of the Company's trust business. Other decreases occurred in
stationery, printing and supplies (due primarily to automated alternatives
reducing paper utilization), education and training, and employee placement,
relocation and advertising costs.
Noninterest expenses for the nine month period ending September 30, 1999 were
$367,000 or 1.4 percent higher and totaled $27,285,000. The increases or
decreases, when compared to the first nine months of 1998, are a result of the
same factors as explained for the quarterly results above.
INCOME TAXES
Income taxes as a percentage of income before taxes were 37.7 percent for the
first nine months of this year, compared to 36.5 percent in 1998. The increase
in rate reflects a higher rate of provisioning for state income taxes, a result
of lower state intangible tax credits, lower tax-exempt interest income and the
Company's effective federal tax rate increasing due to adjusted income before
taxes exceeding $10 million.
FINANCIAL CONDITION
CAPITAL RESOURCES
The Company's ratio of average shareholders' equity to average total assets
during the first nine months of 1999 was 7.51 percent, compared to 8.66 percent
during the first nine months of 1998. In large part this ratio has declined as a
result of the Company buying back outstanding shares of its Class A Common
Stock. The cost of repurchased shares totaled $11,740,000 at September 30, 1999,
compared to $7,165,000 a year ago.
The risk-based capital minimum ratio for total capital to risk-weighted assets
for "well-capitalized" financial institutions is 10 percent. At September 30,
1999, the Company's ratio was 12.20 percent.
<PAGE>
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 $762,517,000 at September 30, 1999, $79,136,000 or 11.6 percent more than
at September 30, 1998, and $60,967,000 or 8.7 percent more than at December 31,
1998. During the first nine months of 1999, $24.9 million in fixed rate
residential mortgage loans were securitized and placed in the available for sale
securities portfolio. Over the past twelve months, $59.0 million in such loans
were securitized or sold.
At September 30, 1999, the Company's mortgage loan balances secured by
residential properties amounted to $417,527,000 or 54.8 percent of total loans
(versus 54.9 percent a year ago). The next largest concentration was loans
secured by commercial real estate which totaled $181,316,000 or 23.8 percent.
The Company was also a creditor for consumer loans to individual customers
(primarily secured by motor vehicles) totaling $76,249,000, commercial loans of
$32,622,000, home equity lines of credit of $13,277,000, and construction loans
of $41,299,000.
The majority of 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. A majority of residential real estate loans
are made upon terms and conditions that would make such loans eligible for
resale under Federal National Mortgage Association ("FNMA") or Federal Home Loan
Mortgage Corporation ("FHLMC") guidelines.
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 re-pricing opportunities
for assets against liabilities, when possible. At September 30, 1999,
approximately $154 million or 37 percent of the Company's residential mortgage
loan balances were adjustable.
Of the $154 million, $147 million were adjustable rate 15- or 30-year mortgage
loans ("ARMs") that reprice based upon the one year constant maturity United
States Treasury Index plus a margin. These 15- and 30-year ARMs generally
consist of 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
$10 million were outstanding at September 30, 1999, 2) those limited to a two
percent per annum increase and a six percent cap over the life of the loan, of
which approximately $34 million in balances existed at September 30, 1999, and
3) those that have a fixed rate for a period of three, five or seven years, at
the end of which they are limited to a two percent per annum increase and a four
percent cap over the life of the loan, of which approximately $103 million were
outstanding at September 30, 1999.
Loans secured by residential mortgages having fixed rates totaled approximately
$264 million at September 30, 1999, of which 15- and 30-year mortgages totaled
$126 million and $100 million, respectively. Remaining fixed rate balances were
comprised of home improvement loans with maturities less than 15 years.
<PAGE>
The Company's historical charge-off rates for residential real estate loans have
been minimal, with $50,000 in net charge-offs for the first nine months of 1999
compared to $17,000 for all of 1998.
Fixed rate and adjustable rate loans secured by commercial real estate totaled
approximately $118 million and $63 million, respectively, at September 30, 1999.
The Company attempts to reduce its exposure to the risk of the local real estate
market by limiting the aggregate size of its commercial real estate portfolio,
currently 23.8 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.
At September 30, 1999, the Company had commitments to make loans (excluding
unused home equity lines of credit) of $72,813,000, compared to $71,665,000 at
September 30, 1998.
ALLOWANCE FOR LOAN LOSSES
Net losses on installment loans totaled $176,000 for the first nine months of
1999, compared to net losses of $471,000 in 1998. Net recoveries recorded for
commercial real estate loans and credit cards of $64,000 and $62,000,
respectively, in the first nine months of 1999 compared with the prior year when
net charge-offs of $74,000 and $190,000, respectively, were reported. As a
result of the sale of the credit card portfolio, net losses have declined. Net
recoveries for commercial loans of $68,000 in the first nine months of 1999
compared to $5,000 in net charge-offs in 1998.
Current and historical credit losses arising from real estate lending
transactions continue to compare favorably with the Company's peer group. Net
losses arising from residential real estate of $50,000 were recorded in the
first nine months, versus $31,000 a year ago.
The ratio of the allowance for loan losses to net loans outstanding was 0.89
percent at September 30, 1999. This ratio was 0.87 percent at September 30,
1998. The allowance for loan losses as a percentage of nonaccrual loans and
loans 90 days or more past due was 289.4 percent at September 30, 1999, compared
to 228.4 percent at the same date in 1998. The decline in aggregate net
charge-offs in 1999 has resulted in a lower provision for loan losses and an
improved coverage ratio of allowance for loan losses to nonperforming loans.
NONPERFORMING ASSETS
At September 30, 1999, the Company's ratio of nonperforming assets to loans
outstanding plus other real estate owned ("OREO") was 0.35 percent, compared to
0.36 percent one year earlier.
At September 30, 1999, accruing loans past due 90 days or more of $112,000 and
OREO of $392,000 were outstanding. In 1998 on the same date, loans totaling
$427,000 were past due 90 days or more and OREO balances of $280,000 were
outstanding.
Nonaccrual loans totaled $2,245,000 at September 30, 1999, compared to a balance
of $2,175,000 at September 30, 1998. All of the nonaccrual loans outstanding at
September 30, 1999 were performing with respect to payments, with the exception
of eighteen loans aggregating to $1,279,000. 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 September 30, 1999, 85 percent is
secured with real estate, 2 percent is guaranteed by the Small Business
Administration ("SBA"), the remainder by other collateral. Management does not
expect significant losses for which an allowance for loan losses has not been
provided associated with the ultimate realization of these assets.
<PAGE>
SECURITIES
Debt securities that the Company has the intent and ability to hold to maturity
are carried at amortized cost. All other securities are carried at market value
and are available for sale. At September 30, 1999, the Company had $210,421,000
or 91.7 percent of total securities available for sale and securities held to
maturity were carried at an amortized cost of $19,097,000, representing 8.3
percent of total securities.
The Company's securities portfolio decreased $11,858,000 or 4.9 percent from
September 30, 1998. The securities portfolio as a percentage of earning assets
was 23.1 percent at September 30, 1999, compared to 25.5 percent one year ago.
At September 30, 1999, the duration of the portfolio was 3.2 years. Over the
next twelve months, $5 million in securities will mature and $46 million of
periodic principal payments from mortgage backed securities are expected to be
received. Management believes a portion of these funds will be used to fund
increases in its consumer and commercial loan portfolio.
Company management considers the overall quality of the securities portfolio to
be high. The securities portfolio had gross unrealized losses of $5,935,000 at
September 30, 1999, compared to gains of $1,134,000 at September 30, 1998. No
securities are held which are not traded in liquid markets or that meet the
Federal Financial Institution Examination Council ("FFIEC") definition of a high
risk investment.
DEPOSITS
Total deposits increased $13,878,000 or 1.6 percent to $883,406,000 at September
30, 1999, compared to one year earlier. Certificates of deposit declined while
all other types of deposits grew. Certificates of deposit decreased $20,692,000
or 5.0 percent to $390,775,000 over the past twelve months while lower cost
interest bearing deposits (NOW, savings and money markets deposits) increased
$16,708,000 or 4.9 percent to $360,300,000. Noninterest bearing demand deposits
increased $17,862,000 or 15.6 percent to $132,331,000.
<PAGE>
INTEREST RATE SENSITIVITY
Interest rate movements and deregulation of interest rates have made managing
the Company's interest rate sensitivity increasingly important. The Company's
Asset/Liability Management Committee ("ALCO") is responsible for managing the
Company's exposure to changes in market interest rates. The committee attempts
to maintain stable net interest margins by generally matching the volume of
assets and liabilities maturing, or subject to re-pricing, and by adjusting
rates to market conditions and changing interest rates.
Interest rate exposure is managed by monitoring the relationship between earning
assets and interest bearing liabilities, focusing primarily on those that are
rate sensitive. Rate sensitive assets and liabilities are those that re-price at
market interest rates within a relatively short period, defined here as one year
or less. The difference between rate sensitive assets and rate sensitive
liabilities represents the Company's interest sensitivity gap, which may be
either positive (assets exceed liabilities) or negative (liabilities exceed
assets).
Based on the Company's most recent ALCO modeling, the Company had a negative gap
position based on contractual maturities and prepayment assumptions for the next
twelve months, with a negative cumulative interest rate sensitivity gap as a
percentage of total earning assets of 33.4 percent. This means that the
Company's assets re-price more slowly than its deposits. In a declining interest
rate environment, the cost of the Company's deposits and other liabilities may
be expected to fall faster than the interest received on its earning assets,
thus increasing the net interest spread. If interest rates generally increase,
the negative gap means that the interest received on earning assets may be
expected to increase more slowly than the interest paid on the Company's
liabilities, therefore decreasing the net interest spread.
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 15 percent
given an immediate change in interest rates (up or down) of 200 basis points.
The Company's most recent ALCO model simulation indicated net interest income
would decline 5.9 percent if interest rates would immediately rise 200 basis
points. It has been the Company's experience that non-maturity core deposit
balances are stable and subjected to limited re-pricing when interest rates
increase or decrease within a range of 200 basis points.
The Company does not presently use interest rate protection products in the
management of interest rate risk.
LIQUIDITY MANAGEMENT
The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all financial commitments and to capitalize on
opportunities for business expansion.
Contractual maturities for assets and liabilities are reviewed to adequately
maintain current and expected future liquidity requirements. Sources of
liquidity, both anticipated and unanticipated, are maintained through a
portfolio of high quality marketable assets, such as residential mortgage loans,
securities available for sale and federal funds sold. The Company has access to
federal funds lines of credit and is able to provide short term financing of its
activities by selling, under an agreement to repurchase, United States Treasury
and Government agency securities not pledged to secure public deposits or trust
funds. At September 30, 1999, the Company had federal funds lines of credit
available and unused of $53,000,000 and had $40,636,000 of United States
Treasury and Government agency securities and mortgage backed securities not
pledged and available for use under repurchase agreements. In addition, at
September 30, 1999 access to borrowings up to $125,000,000 from the Federal Home
Loan Bank ( FHLB") was available utilizing the residential mortgage loan
portfolio as collateral. Of this amount, $15,000,000 has been drawn upon and was
outstanding at September 30, 1999.
<PAGE>
Liquidity, as measured in the form of cash and cash equivalents (including
federal funds sold), totaled $39,954,000 at September 30, 1999 as compared to
$31,113,000 at September 30, 1998. 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 1999, the cash flow from operations of $10,834,000 was $1,408,000
lower than during the same period of 1998. Cash flows from investing and
financing activities reflect the increase in loan and deposit balances
experienced.
THE YEAR 2000 ISSUE
The Company has been evaluating its information technology (IT) systems, and
currently does not believe that it has an exposure to the Year 2000 issue that
will have a material adverse impact or cost. The Company's evaluation and
assessment has included the identification of all significant IT systems
utilized by the Company in its businesses. These systems have been reviewed, and
where appropriate, vendors and other third parties contacted for information
regarding the status of their plans and progress towards addressing the Year
2000 problem. To date, based upon the information obtained, management has
concluded that all significant vendors and other counter-parties, who could have
a material adverse effect on the Company if the Year 2000 issue was not properly
addressed, have completed modifications to their systems. The Company's
significant in-house technology systems have already been determined by testing
to be Year 2000 ready and all other systems have been scheduled for testing.
The Company converted to a new outsourced core processing system with M&I Data
Services ("M&I"), a division of Marshal & Isley Corporation, in the third
quarter of 1998. The costs related to this conversion were expensed as incurred
and, as expected, did not have a material adverse impact on the results of
operation. M&I has been executing an extensive plan for Year 2000 compliance in
accordance with regulatory requirements and has informed its customers that its
systems have been fully remediated and are expected to be Year 2000 ready.
Testing of the new third party core processing system for Year 2000 compliance
by a select user group was successfully performed during early 1999. The Company
intends to continue to monitor M&I's program for compliance over the remainder
of this year.
The Company has communicated with loan and deposit customers in 1998 and 1999.
To date, management is unaware of any single customer or group of customers that
will have, or are likely to have, a significant adverse impact should they not
be able to address the Year 2000 problem. However, no assurance can be given
that such consequences to the Company will not be material.
Management expects its plans for dealing with the Year 2000 issue will result in
timely adequate modification of its IT systems. The ultimate potential impact of
the Year 2000 issue will depend not only on the corrective measures the Company
undertakes, but also on the way in which the Year 2000 issue is addressed by
governmental agencies, businesses, and other entities who provide data to, or
receive data from, the Company and its third party processor, or whose financial
condition or operating ability is important to the Company and its third party
core processing vendor as borrowers, vendors, customers or investment
opportunities. Over the remainder of this year, the Company intends to monitor
the plans and progress of significant known third parties to address the Year
2000 issue and to evaluate, and where appropriate disclose, the identified
impacts.
<PAGE>
The Company has developed a contingency plan for continued operations in the
event temporary disruptions are experienced affecting critical systems. Testing
of the plan and further refinements are expected to be completed before
year-end. Management also intends to monitor progress of significant vendors and
others for circumstances that would change or affect this contingency plan.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related financial data presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money, over time, due to inflation.
Unlike most industrial companies, virtually all of the assets and liabilities of
a financial institution are monetary in nature. As a result, interest rates have
a more significant impact on a financial institution's performance than the
general level of inflation. However, inflation affects financial institutions'
increased cost of goods and services purchased, the cost of salaries and
benefits, occupancy expense, and similar items. Inflation and related increases
in interest rates generally decrease the market value of investments and loans
held and may adversely affect liquidity, earnings, and shareholders' equity.
Mortgage originations and refinancings tend to slow as interest rates increase,
and likely will reduce the Company's earnings from such activities and the
income from the sale of residential mortgage loans in the secondary market.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
Certain of the matters discussed under the caption "Management's Discussion and
Analysis" and elsewhere in this Quarterly Report may constitute forward-looking
statements for purposes of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and as such may involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Seacoast Banking Corporation of Florida
to be materially different from future results, performance or achievements
expressed or implied by such forward-looking statements. The Company's actual
results may differ materially from the results anticipated in these
forward-looking statements due to a variety of factors, including, without
limitation: the effect of future economic conditions; governmental monetary and
fiscal policies, as well as legislative and regulatory changes; the risk 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 locally, regionally, nationally and internationally,
together with such competitors offering banking products and services by mail,
telephone and computer and the Internet; the possible effects of the Year 2000
problem on the Company, including such problems at the Company's vendors,
counter-parties and customers; and the failure of assumptions underlying the
establishment of reserves for possible loan losses. All written or oral
forward-looking statements attributable to the Company are expressly qualified
in their entirety by these Cautionary Statements.
<PAGE>
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed for the three month period ended
September 30, 1999.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEACOAST BANKING CORPORATION OF FLORIDA
November 12, 1999 /s/ Dennis S. Hudson, III
DENNIS S. HUDSON, III
President &
Chief Executive Officer
November 12, 1999 /s/ William R. Hahl
WILLIAM R. HAHL
Executive Vice President &
Chief Financial Officer
<PAGE>
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<PERIOD-START> Jan-01-1999
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